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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1999
Commission File Number 0-14688
ALLEGHENY GENERATING COMPANY
(Exact name of registrant as specified in its charter)
Virginia 13-3079675
(State of Incorporation) (I.R.S. Employer Identification No.)
10435 Downsville Pike, Hagerstown, Maryland 21740-1766
Telephone Number - 301-790-3400
The registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
At May 14, 1999, 1,000 shares of the Common Stock ($1.00 par
value) of the registrant were outstanding.
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ALLEGHENY GENERATING COMPANY
Form 10-Q for Quarter Ended March 31, 1999
Index
Page
No.
PART I--FINANCIAL INFORMATION:
Statement of Income - Three months ended
March 31, 1999 and 1998 3
Balance Sheet - March 31, 1999
and December 31, 1998 4
Statement of Cash Flows - Three months ended
March 31, 1999 and 1998 5
Notes to Financial Statements 6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II--OTHER INFORMATION 11
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ALLEGHENY GENERATING COMPANY
Statement of Income
(Thousands of Dollars)
Three Months Ended
March 31
1999 1998
ELECTRIC OPERATING REVENUES $ 17,857 $ 18,604
OPERATING EXPENSES:
Operation and maintenance expense 1,611 953
Depreciation 4,245 4,226
Taxes other than income taxes 1,132 1,160
Federal income taxes 2,414 2,865
Total Operating Expenses 9,402 9,204
Operating Income 8,455 9,400
OTHER INCOME, NET 1 50
Income Before Interest Charges 8,456 9,450
INTEREST CHARGES:
Interest on long-term debt 2,497 3,187
Other interest 906 326
Total Interest Charges 3,403 3,513
NET INCOME $ 5,053 $ 5,937
See accompanying notes to financial statements.
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ALLEGHENY GENERATING COMPANY
Balance Sheet
(Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS: 1999 1998
Property, Plant, and Equipment:
<S> <C> <C> <C> <C>
At original cost, including $641
and $595 under construction $ 828,845 $ 828,806
Accumulated depreciation (214,442) (210,198)
614,403 618,608
Current Assets:
Cash 33 30
Materials and supplies - at average cost 2,088 2,093
Prepaid taxes 2,472 3,569
Other 76 165
4,669 5,857
Deferred Charges:
Regulatory assets 7,056 7,056
Unamortized loss on reacquired debt 7,618 7,768
Other 174 169
14,848 14,993
Total Assets $ 633,920 $ 639,458
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common stock - $1.00 par value per share,
authorized 5,000 shares, outstanding
1,000 shares $ 1 $ 1
Other paid-in capital 162,327 165,275
162,328 165,276
Long-term debt 148,853 148,829
311,181 314,105
Current Liabilities:
Notes payable to parents 63,800 66,750
Accounts payable to parents 5,972 5,795
Taxes accrued:
Other 1,150 75
Interest accrued 807 3,229
Other 135 -
71,864 75,849
Deferred Credits:
Unamortized investment credit 46,691 47,020
Deferred income taxes 178,866 177,166
Regulatory liabilities 25,318 25,318
250,875 249,504
Total Capitalization and Liabilities $ 633,920 $ 639,458
</TABLE>
See accompanying notes to financial statements.
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ALLEGHENY GENERATING COMPANY
Statement of Cash Flows
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1999 1998
CASH FLOWS FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net income $ 5,053 $ 5,937
Depreciation 4,245 4,226
Deferred investment credit and income taxes, net 1,370 1,401
Changes in certain current assets and
liabilities:
Materials and supplies 5 (201)
Accounts payable 177 (803)
Taxes accrued 1,075 1,019
Interest accrued (2,422) (3,578)
Other, net 656 2,256
10,159 10,257
CASH FLOWS FROM INVESTING:
Construction expenditures 794 (34)
CASH FLOWS FROM FINANCING:
Retirement of long-term debt - (50,000)
Notes payable to parents (2,950) 42,450
Cash dividends on common stock (8,000) (8,000)
(10,950) (15,550)
NET CHANGE IN CASH 3 (5,327)
Cash at January 1 30 5,359
Cash at March 31 $ 33 $ 32
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 5,572 $ 6,877
Income taxes 49 -
</TABLE>
See accompanying notes to financial statements.
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ALLEGHENY GENERATING COMPANY
Notes to Financial Statements
1. Allegheny Generating Company (the Company) was incorporated
in Virginia in 1981. Its common stock is owned by
Monongahela Power Company - 27%, The Potomac Edison Company -
28%, and West Penn Power Company - 45% (the Parents). The
Parents are wholly-owned subsidiaries of Allegheny Energy,
Inc. (Allegheny Energy) and are part of the Allegheny Energy
integrated electric utility system. The Company's Notes to
Financial Statements in its Annual Report on Form 10-K for
the year ended December 31, 1998, should be read with the
accompanying financial statements and the following notes.
With the exception of the December 31, 1998 balance sheet in
the aforementioned annual report on Form 10-K, the
accompanying financial statements appearing on pages 3
through 5 and these notes to financial statements are
unaudited. In the opinion of the Company, such financial
statements together with these notes contain all adjustments
(which consist only of normal recurring adjustments)
necessary to present fairly the Company's financial position
as of March 31, 1999, and the results of operations and cash
flows for the three months ended March 31, 1999 and 1998.
2. For purposes of the Statement of Cash Flows, temporary cash
investments with original maturities of three months or less,
generally in the form of repurchase agreements, are
considered to be the equivalent of cash.
3. The Company systematically reduces capitalization each year
as its asset depreciates, resulting in the payment of
dividends in excess of current earnings. The Securities and
Exchange Commission (SEC) has approved the Company's request
to pay common dividends out of capital. Common dividends
were paid from retained earnings, reducing the account
balance to zero, and from other paid-in capital as follows:
Three Months Ended
March 31
1999 1998
(Thousands of Dollars)
Retained earnings $5,053 $5,937
Other paid-in capital 2,947 2,063
Total $8,000 $8,000
The payment of dividends out of capital surplus will not be
detrimental to the financial integrity or working capital of
either the Company or its Parents, nor will it adversely
affect the protections due debt security holders.
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4. On March 11, 1999, the United States Court of Appeals for
the Third Circuit vacated the United States District Court for
the Western District of Pennsylvania's denial of Allegheny
Energy's motion for preliminary injunction, enjoining DQE, Inc.
(DQE), parent company of Duquesne Light Company in Pittsburgh,
Pa., from taking actions prohibited by the Merger Agreement. The
Circuit Court stated that if DQE breached the Merger Agreement,
Allegheny Energy would be entitled to specific performance of the
Merger Agreement. The Circuit Court also stated that Allegheny
Energy would be irreparably harmed if DQE took actions that would
prevent Allegheny Energy from receiving the specific performance
remedy. The Circuit Court remanded the case to the District
Court for further proceedings consistent with its opinion.
In the District Court, discovery is ongoing, and Allegheny
Energy cannot predict the outcome of this litigation.
However, Allegheny Energy believes that DQE's basis for
seeking to terminate the merger is without merit.
Accordingly, Allegheny Energy continues to seek the remaining
regulatory approvals from the Department of Justice and the
SEC. It is not likely either agency will act on the requests
unless Allegheny Energy obtains judicial relief requiring DQE
to move forward.
5. Regulatory liabilities, net of regulatory assets, in
thousands of dollars of $18,262 at March 31, 1999 and
December 31, 1998 relate to income taxes.
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ALLEGHENY GENERATING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
COMPARISON OF FIRST QUARTER OF 1999 WITH FIRST QUARTER OF 1998
The Notes to Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of
Operations in the Annual Report on Form 10-K for Allegheny
Generating Company (the Company) for the year ended December 31,
1998, should be read with the following Management's Discussion
and Analysis information.
Factors That May Affect Future Results
This management's discussion and analysis of financial
condition and results of operations contains forecast information
items that are "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. These include
statements with respect to the proposed merger of Allegheny
Energy, Inc. (Allegheny Energy), parent of Monongahela Power
Company, The Potomac Edison Company, and West Penn Power Company
(the Parents), and related litigation against DQE, Inc. (DQE),
parent company of Duquesne Light Company in Pittsburgh, Pa. All
such forward-looking information is necessarily only estimated.
There can be no assurance that actual results will not materially
differ from expectations. Actual results have varied materially
and unpredictably from past expectations.
Factors that could cause actual results to differ
materially include, among other matters, electric utility
restructuring, including the ongoing state and federal
activities; developments in the legislative, regulatory, and
competitive environments in which the Company operates, including
regulatory proceedings affecting rates charged by the Company;
environmental, legislative, and regulatory changes; future
economic conditions; developments relating to the proposed merger
with DQE; and other circumstances that could affect anticipated
revenues and costs such as unscheduled maintenance or repair
requirements and compliance with laws and regulations.
Significant Events in the First Quarter of 1999
See page 10 and also Note 4 to the financial statements
for information about the proposed merger of Allegheny Energy
with DQE, and proposed litigation.
Review of Operations
As described under Liquidity and Capital Requirements,
revenues are determined under a cost of service formula rate
schedule. Revenues are expected to decrease each year due to a
normal continuing reduction in the Company's net investment in
the Bath County station and its connecting transmission
facilities upon which the return on investment is determined.
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The net investment (primarily net plant less deferred income
taxes) decreases to the extent that provisions for depreciation
and deferred income taxes exceed net plant additions. Revenues
for the first quarter of 1999 decreased primarily due to a
reduction in net investment partially offset by increased
operating expenses.
The increase in operating expenses in the first quarter
of 1999 resulted from increased operation and maintenance expense
partially offset by a decrease in federal income taxes due to a
decrease in operating income before taxes, exclusive of other
income which is reported net of taxes.
The decrease in interest on long-term debt in the first
quarter of 1999 was primarily the result of a decrease in the
average amount of long-term debt outstanding.
The increase in other interest expense in the first
quarter of 1999 was due to an increased level of short-term debt
maintained by the Company upon retirement of medium-term debt.
Liquidity and Capital Requirements
The Company's discussion on Liquidity and Capital
Requirements and Review of Operations in its Annual Report on
Form 10-K for the year ended December 31, 1998 should be read
with the following information.
Pursuant to an agreement, the Parents buy all of the
Company's capacity in the station priced under a "cost-of-service
formula" wholesale rate schedule approved by the Federal Energy
Regulatory Commission (FERC). Under this arrangement, the
Company recovers in revenues all of its operation and maintenance
expenses, depreciation, taxes, and a return on its investment.
On December 29, 1998, the FERC issued an Order accepting a
proposed amendment to the Parent's Power Supply Agreement for the
Company effective January 1, 1999. This amendment sets the
generation demand for each Parent proportional to its ownership
in the Company. Previously, demand for each Parent fluctuated
due to customer usage.
The Company's rates are set by a formula filed with and
previously accepted by the FERC. The only component which
changes is the return on equity (ROE). Pursuant to a settlement
agreement filed with and approved by the FERC, the Company's ROE
is set at 11% and will continue at that rate unless any affected
party seeks a change.
As previously reported, the Company has received
authority from the Securities and Exchange Commission (SEC) to
pay common dividends from time to time through December 31, 2001,
out of capital to the extent permitted under applicable
corporation law and any applicable financing agreements which
restrict distributions to shareholders. Due to the nature of
being a single asset company with declining capital needs, the
Company systematically reduces capitalization each year as its
asset depreciates. This has resulted in the payment of dividends
in excess of current earnings out of other paid-in capital and
the reduction of retained earnings to zero. The Company's goal
is to retire debt and pay dividends in amounts necessary to
maintain a common
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equity position of about 45%, including short-term debt. The
payment of dividends out of capital surplus will not be
detrimental to the financial integrity or working capital of
either the Company or its Parents, nor will it adversely affect
the protections due debt security holders.
Continuing Issues
- - Merger with DQE
See Note 4 to the financial statements for information
about the proposed merger of Allegheny Energy, Inc., parent of
the Company's parents, with DQE, Inc. (DQE), parent company of
Duquesne Light Company in Pittsburgh, Pa., and proposed
litigation.
- - Year 2000 Readiness Disclosure
As described in the second paragraph under Liquidity and
Capital Requirements above, the Company's results of operations
are related to recovery of fixed capital costs under contract
with its Parents and, therefore, are not affected by the
operation, or non-operation, of the Bath County station and
related transmission facilities. Based on the Company's
structure and nature of operations, the consequences of Year 2000
issues will not have any effect on the Company's business,
results of operations, or financial condition.
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ALLEGHENY GENERATING COMPANY
Part II - Other Information to Form 10-Q
for Quarter Ended March 31, 1999
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
1. (a) Date and Kind of Meeting:
The annual meeting of shareholders was held at
Hagerstown, Maryland, on February 23, 1999. No proxies
were solicited.
(b) Election of Directors:
The holders of all 1,000 shares of common stock voted to
elect the following Directors of the Company to hold
office until the next annual meeting of shareholders and
until their successors are duly chosen and qualified:
Thomas K. Henderson Thomas J. Kloc
Michael P. Morrell Alan J. Noia
Peter J. Skrgic
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) (27) Financial Data Schedule
(b) No reports on Form 8-K were filed on behalf of the
Company for the quarter ended March 31, 1999.
Signature
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
ALLEGHENY GENERATING COMPANY
/s/ T. J. KLOC
T. J. Kloc, Vice President
and Controller
(Chief Accounting Officer)
May 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 33
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,088
<CURRENT-ASSETS> 4,669
<PP&E> 828,845
<DEPRECIATION> (214,442)
<TOTAL-ASSETS> 633,920
<CURRENT-LIABILITIES> 71,864
<BONDS> 148,853
0
0
<COMMON> 1
<OTHER-SE> 162,327
<TOTAL-LIABILITY-AND-EQUITY> 633,920
<SALES> 17,857
<TOTAL-REVENUES> 17,857
<CGS> 1,611
<TOTAL-COSTS> 6,988
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,403
<INCOME-PRETAX> 7,467
<INCOME-TAX> 2,414
<INCOME-CONTINUING> 5,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,053
<EPS-PRIMARY> 0.00<F1>
<EPS-DILUTED> 0.00<F1>
<FN>
<F1>*All common stock is owned by parent, no EPS required.
</FN>
</TABLE>
