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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 September 30, 2000
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 November 14, 2000, 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 September 30, 2000
Index
Page No.
PART I - FINANCIAL INFORMATION:
Statement of Operations - Three and nine months ended
September 30, 2000 and 1999 3
Balance Sheet - September 30, 2000
and December 31, 1999 4
Statement of Cash Flows - Nine months ended
September 30, 2000 and 1999 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 Operations
(Thousands of Dollars)
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES $ 17,257 $ 18,072 $ 51,771 $ 53,739
OPERATING EXPENSES:
Operation and maintenance expense 1,423 1,207 3,747 4,122
Depreciation 4,242 4,245 12,728 12,735
Taxes other than income taxes 1,145 1,137 3,359 3,398
Federal income taxes 1,415 2,662 5,383 7,622
Total Operating Expenses 8,225 9,251 25,217 27,877
Operating Income 9,032 8,821 26,554 25,862
OTHER INCOME, NET 282 - 285 2
Income Before Interest Charges 9,314 8,821 26,839 25,864
INTEREST CHARGES:
Interest on long-term debt 2,416 2,421 7,263 7,339
Other interest 984 884 2,791 2,654
Total Interest Charges 3,400 3,305 10,054 9,993
NET INCOME $ 5,914 $ 5,516 $ 16,785 $ 15,871
</TABLE>
See accompanying notes to financial statements.
*Certain amounts have been reclassified for comparative purposes.
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ALLEGHENY GENERATING COMPANY
Balance Sheet
(Thousands of Dollars)
<TABLE>
<CAPTION>
Unaudited Audited
September 30, December 31,
ASSETS: 2000 1999*
Property, Plant, and Equipment:
<S> <C> <C> <C> <C>
Utility plant $ 828,341 $ 828,221
Construction work in progress 701 673
829,042 828,894
Accumulated depreciation (239,903) (227,177)
589,139 601,717
Current Assets:
Cash 38 16
Accounts receivable from parents - 2
Materials and supplies - at average cost 2,133 2,118
Prepaid taxes - 4,318
Income tax refund receivable - 600
Prepaid other 1,943 20
Other 69 187
4,183 7,261
Deferred Charges:
Regulatory assets 6,452 4,568
Unamortized loss on reacquired debt 6,718 7,168
Other 156 169
13,326 11,905
Total Assets $ 606,648 $ 620,883
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 147,274 154,490
147,275 154,491
Long-term debt 149,017 148,931
296,292 303,422
Current Liabilities:
Notes payable to affiliate 54,300 52,150
Accounts payable - 376
Accounts payable to parents 4,814 4,360
Accounts payable to affiliates 54 3,863
Taxes accrued:
Federal income tax accrued - 1,000
Other 592 30
Interest accrued 807 3,229
Other 821 455
61,388 65,463
Deferred Credits:
Unamortized investment credit 44,206 45,199
Deferred income taxes 180,424 182,461
Regulatory liabilities 24,338 24,338
248,968 251,998
Total Capitalization and Liabilities $ 606,648 $ 620,883
</TABLE>
See accompanying notes to financial statements.
*Certain amounts have been reclassified for comparative purposes.
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ALLEGHENY GENERATING COMPANY
Statement of Cash Flows
(Thousands of Dollars)
<TABLE>
<CAPTION>
Unaudited
Nine Months Ended
September 30
2000 1999*
CASH FLOWS FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net income $ 16,785 $ 15,871
Depreciation 12,728 12,735
Deferred investment credit and income taxes, net (4,913) 4,110
Changes in certain current assets and
liabilities:
Accounts receivable from parents 2 -
Materials and supplies (15) 35
Prepaid taxes 4,318 (31)
Accounts payable (376) 918
Accounts payable to parents and affiliates (3,355) 4,072
Taxes accrued (438) 542
Interest accrued (2,422) (2,422)
Other, net (294) 585
22,020 36,415
CASH FLOWS FROM INVESTING:
Construction expenditures (148) (69)
CASH FLOWS FROM FINANCING:
Notes payable to affiliate 2,150 (12,350)
Cash dividends paid on common stock (24,000) (24,000)
(21,850) (36,350)
NET CHANGE IN CASH 22 (4)
Cash at January 1 16 30
Cash at September 30 $ 38 $ 26
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest 11,929 11,802
Income taxes 9,471 3,721
</TABLE>
See accompanying notes to financial statements.
*Certain amounts have been reclassified for comparative purposes.
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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 (Monongahela Power)- 27% and Allegheny Energy
Supply Company, LLC (Allegheny Energy Supply) - 73% (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, 1999, should be
read with the accompanying financial statements and the
following notes. With the exception of the December 31, 1999
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
September 30, 2000, the results of operations for the three
and nine months ended September 30, 2000 and 1999, and cash
flows for the nine months ended September 30, 2000 and 1999.
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.On August 1, 2000, The Potomac Edison Company (Potomac
Edison)transferred its 28% ownership interest in the Company to
Allegheny Energy Supply at net book value. The state utility
commissions in Maryland, Virginia, and West Virginia approved the
transfer as part of deregulation proceedings in those states.
The Federal Energy Regulatory Commission (FERC) and the
Securities and Exchange Commission (SEC) also approved the
transfer.
4.The Company systematically reduces capitalization each year
as its asset depreciates, resulting in the payment of dividends in
excess of current earnings. The 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:
Nine Months Ended
September 30
2000 1999
(Thousands oF Dollars)
Retained earnings $16,784 $15,870
Other paid-in capital 7,216 8,130
Total $24,000 $24,000
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5.Regulatory liabilities, net of regulatory assets, in
thousands of dollars of $17,886 at September 30,
2000 and $19,770 at December 31, 1999 relate to income taxes.
6.A SEC announcement at the March 16, 2000, Emerging Issues
Task Force (EITF) meeting requires companies to disclose their
accounting policy for repair and maintenance activities. For the
Company, maintenance expenses represent costs incurred to
maintain the power stations, the transmission and distribution
(T&D) system, and general plant and reflect routine maintenance
of equipment and right-of-way, as well as planned major repairs
and unplanned expenditures, primarily from forced outages at the
power stations and periodic storm damage on the T&D system.
Maintenance costs are expensed in the year incurred. Power
station major maintenance costs are expensed within the year
based on estimated annual costs and estimated generation. T&D
right-of-way vegetation control costs are expensed within the
year based on estimated annual costs and estimated sales. Power
station major maintenance accruals and T&D right-of-way
vegetation control accruals are not intended to accrue for future
years' costs.
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ALLEGHENY GENERATING COMPANY
Management's Discussion and Analysis of Financial Condition
And Results of Operations
COMPARISON OF THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30,
2000 WITH THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999
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,
1999, 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. 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 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;
and other circumstances that could affect anticipated revenues
and costs such as unscheduled maintenance or repair requirements
and compliance with laws and regulations.
Transfer of Ownership
On July 31, 2000, Allegheny Energy, Inc. (Allegheny Energy)
received approval from the Securities and Exchange Commission
(SEC) regarding the transfer of the generation assets of The
Potomac Edison Company (Potomac Edison) to Allegheny Energy
Supply Company, LLC (Allegheny Energy Supply). State utility
commissions in Maryland, Virginia, and West Virginia approved the
transfer of these assets as part of deregulation proceedings in
those states. The Federal Energy Regulatory Commission (FERC)
also approved the transfer.
On August 1, 2000, Allegheny Energy transferred
approximately 2,100 megawatts (MW) of its subsidiary Potomac
Edison's Maryland, Virginia, and West Virginia jurisdictional
generating assets to Allegheny Energy Supply at net book value,
including Potomac Edison's 28% ownership share in the common
stock of the Company.
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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.
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 third quarter and nine months ended September 30, 2000
decreased primarily due to a reduction in net investment and
lower operating expenses.
The decreases in operating expenses in the first nine months
of 2000 resulted from decreased operation and maintenance
expenses for the first six months of 2000 and year-to-date
decreases in federal income taxes primarily due to decreases in
operating income before taxes and the Company's share of tax
savings in consolidation.
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, 1999 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 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 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
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amounts necessary to maintain a common 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.
Financings
The Company and its affiliates use an Allegheny Energy
internal money pool as a facility to accommodate intercompany
short-term borrowing needs, to the extent that certain companies
have funds available. The Company had $54.3 million in money
pool borrowings outstanding at September 30, 2000, recorded as
notes payable to affiliate.
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ALLEGHENY GENERATING COMPANY
Part II - Other Information to Form 10-Q
for Quarter Ended September 30, 2000
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 September 30, 2000.
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)
November 14, 2000
