<PAGE>
Page 1 of 11
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 June 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 August 11, 2000, 1,000 shares of the Common Stock ($1.00
par value) of the registrant were outstanding.
<PAGE>
- 2 -
ALLEGHENY GENERATING COMPANY
Form 10-Q for Quarter Ended June 30, 2000
Index
Page
No.
PART I--FINANCIAL INFORMATION:
Statement of Income - Three and six months ended
June 30, 2000 and 1999 3
Balance Sheet - June 30, 2000
and December 31, 1999 4
Statement of Cash Flows - Six months ended
June 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
<PAGE>
- 3 -
ALLEGHENY GENERATING COMPANY
Statement of Income
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ELECTRIC OPERATING REVENUES $ 17,359 $ 17,810 $ 34,514 $ 35,667
OPERATING EXPENSES:
Operation and maintenance expense 958 1,304 2,324 2,915
Depreciation 4,242 4,245 8,486 8,490
Taxes other than income taxes 1,081 1,129 2,214 2,261
Federal income taxes 2,139 2,546 3,968 4,960
Total Operating Expenses 8,420 9,224 16,992 18,626
Operating Income 8,939 8,586 17,522 17,041
OTHER INCOME, NET 3 1 3 2
Income Before Interest Charges 8,942 8,587 17,525 17,043
INTEREST CHARGES:
Interest on long-term debt 2,420 2,421 4,847 4,918
Other interest 929 864 1,807 1,770
Total Interest Charges 3,349 3,285 6,654 6,688
NET INCOME $ 5,593 $ 5,302 $ 10,871 $ 10,355
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- 4 -
ALLEGHENY GENERATING COMPANY
Balance Sheet
(Thousands of Dollars)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS: 2000 1999
Property, Plant, and Equipment:
<S> <C> <C> <C> <C>
Utility plant $ 828,330 $ 828,221
Construction work in progress 726 673
829,056 828,894
Accumulated depreciation (235,662) (227,177)
593,394 601,717
Current Assets:
Cash 15 16
Accounts receivable from parents 2,165 2
Materials and supplies - at average cost 2,069 2,118
Prepaid taxes 4,249 4,318
Income tax refund receivable 600 600
Other 211 207
9,309 7,261
Deferred Charges:
Regulatory assets 6,452 4,568
Unamortized loss on reacquired debt 6,868 7,168
Other 161 169
13,481 11,905
Total Assets $ 616,184 $ 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 149,361 154,490
149,362 154,491
Long-term debt 148,988 148,931
298,350 303,422
Current Liabilities:
Notes payable to affiliate 52,250 52,150
Accounts payable - 376
Accounts payable to parents 7,234 4,360
Accounts payable to affiliates 3,898 3,863
Taxes accrued - 1,030
Interest accrued 3,234 3,229
Other 683 455
67,299 65,463
Deferred Credits:
Unamortized investment credit 44,537 45,199
Deferred income taxes 181,661 182,461
Regulatory liabilities 24,337 24,338
250,535 251,998
Total Capitalization and Liabilities $ 616,184 $ 620,883
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- 5 -
ALLEGHENY GENERATING COMPANY
Statement of Cash Flows
(Thousands of Dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30
2000 1999
CASH FLOWS FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net income $ 10,871 $ 10,355
Depreciation 8,486 8,490
Deferred investment credit and income taxes, net (3,346) 2,740
Changes in certain current assets and
liabilities:
Accounts receivable from parents (2,163) -
Materials and supplies 49 67
Accounts payable 2,533 1,083
Taxes accrued (1,030) 95
Other, net 661 347
16,061 23,177
CASH FLOWS FROM INVESTING:
Construction expenditures (162) (53)
CASH FLOWS FROM FINANCING:
Notes payable to affiliate 100 (7,100)
Cash dividends paid on common stock (16,000) (16,000)
(15,900) (23,100)
NET CHANGE IN CASH (1) 24
Cash at January 1 16 30
Cash at June 30 $ 15 $ 54
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $6,284 $6,258
Income taxes 8,488 2,615
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- 6 -
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 (Potomac
Edison) - 28%, and Allegheny Energy Supply Company, LLC
(Allegheny Energy Supply) - 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, 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 June 30, 2000, the
results of operations for the three and six months ended June
30, 2000 and 1999, and cash flows for the six months ended
June 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. 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:
Six Months Ended
June 30
2000 1999
(Thousands of Dollars)
Retained earnings $10,870 $10,355
Other paid-in capital 5,130 5,645
Total $16,000 $16,000
4. Regulatory liabilities, net of regulatory assets, in
thousands of dollars of $17,885 at June 30, 2000 and $19,770 at
December 31, 1999 relate to income taxes.
<PAGE>
- 7 -
Subsequent Event
On August 1, 2000, Potomac Edison transferred its 28%
ownership interest in the Company to Allegheny Energy Supply at
net book value as allowed by deregulation proceedings in
Maryland, Virginia, and West Virginia.
<PAGE>
- 8 -
ALLEGHENY GENERATING COMPANY
Management's Discussion and Analysis of Financial Condition
And Results of Operations
COMPARISON OF SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 2000
WITH SECOND QUARTER AND SIX MONTHS ENDED JUNE 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
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 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.
<PAGE>
- 9 -
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 second quarter and six months ended June 30, 2000
decreased primarily due to a reduction in net investment and
lower operating expenses.
The decreases in operating expenses in the second quarter
and first six months of 2000 resulted from decreased operation
and maintenance expenses and 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 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 equity position of about 45%, including short-term debt.
The payment of dividends out of capital surplus will not be
detrimental to
<PAGE>
- 10 -
the financial integrity or working capital of either the Company
or its Parents, nor will it adversely affect the protections due
debt security holders.
<PAGE>
- 11 -
ALLEGHENY GENERATING COMPANY
Part II - Other Information to Form 10-Q
for Quarter Ended June 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 June 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)
August 14, 2000
