<PAGE>
Page 1 of 14
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, 1997
Commission File Number 1-3376-2
THE POTOMAC EDISON COMPANY
(Exact name of registrant as specified in its charter)
Maryland and Virginia 13-5323955
(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 13, 1997, 22,385,000 shares of the Common
Stock (no par value) of the registrant were outstanding, all of
which are held by Allegheny Energy, Inc., the Company's parent.
<PAGE>
- 2 -
THE POTOMAC EDISON COMPANY
Form 10-Q for Quarter Ended September 30, 1997
Index
Page
No.
PART I--FINANCIAL INFORMATION:
Statement of income - Three and nine months ended
September 30, 1997 and 1996 3
Balance sheet - September 30, 1997
and December 31, 1996 4
Statement of cash flows - Nine months ended
September 30, 1997 and 1996 5
Notes to financial statements 6-8
Management's discussion and analysis of financial
condition and results of operations 9-13
PART II--OTHER INFORMATION 14
<PAGE>
- 3 -
THE POTOMAC EDISON COMPANY
Statement of Income
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
(Thousands of Dollars)
ELECTRIC OPERATING REVENUES:
<S> <C> <C> <C> <C>
Residential $ 69,337 $ 68,053 $ 227,156 $ 244,339
Commercial 38,963 36,575 110,826 109,234
Industrial 50,006 48,880 146,777 144,910
Wholesale and other, including affiliates 9,733 8,212 29,207 26,590
Bulk power transactions, net 7,425 5,607 18,593 19,173
Total Operating Revenues 175,464 167,327 532,559 544,246
OPERATING EXPENSES:
Operation:
Fuel 35,737 33,756 104,606 104,514
Purchased power and exchanges, net 32,845 32,608 102,489 103,695
Deferred power costs, net 571 (1,416) (419) 5,268
Other 21,176 23,378 62,675 66,098
Maintenance 14,523 15,541 45,427 43,777
Restructuring charges - 2,326 - 18,586
Depreciation 18,375 17,748 55,126 53,159
Taxes other than income taxes 11,281 11,633 36,211 34,953
Federal and state income taxes 10,568 6,726 32,100 27,270
Total Operating Expenses 145,076 142,300 438,215 457,320
Operating Income 30,388 25,027 94,344 86,926
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 643 422 1,367 933
Other income, net 6,423 3,084 12,204 8,791
Total Other Income and Deductions 7,066 3,506 13,571 9,724
Income Before Interest Charges 37,454 28,533 107,915 96,650
INTEREST CHARGES:
Interest on long-term debt 11,919 11,904 35,746 36,069
Other interest 458 506 1,661 1,682
Allowance for borrowed funds used during
construction (219) (258) (887) (716)
Total Interest Charges 12,158 12,152 36,520 37,035
NET INCOME $ 25,296 $ 16,381 $ 71,395 $ 59,615
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- 4 -
THE POTOMAC EDISON COMPANY
Balance Sheet
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
ASSETS: (Thousands of Dollars)
Property, Plant, and Equipment:
<S> <C> <C>
At original cost, including $55,115,000
and $60,082,000 under construction $ 2,166,804 $ 2,124,956
Accumulated depreciation (847,462) (791,257)
1,319,342 1,333,699
Investments:
Allegheny Generating Company - common stock at equity 55,774 56,827
Other 556 642
56,330 57,469
Current Assets:
Cash 137 1,444
Accounts receivable:
Electric service, net of $505,000 and $1,580,000
uncollectible allowance 81,939 95,215
Affiliated and other 8,180 2,968
Notes receivable from affiliates 39,200 -
Materials and supplies - at average cost:
Operating and construction 23,518 23,775
Fuel 18,632 15,019
Prepaid taxes 16,276 17,648
Other 5,325 7,764
193,207 163,833
Deferred Charges:
Regulatory assets 88,008 94,919
Unamortized loss on reacquired debt 17,323 18,010
Other 12,577 9,956
117,908 122,885
Total Assets $ 1,686,787 $ 1,677,886
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common stock $ 447,700 $ 447,700
Other paid-in capital 2,690 2,690
Retained earnings 251,947 227,726
702,337 678,116
Preferred stock 16,378 16,378
Long-term debt and QUIDS 627,916 628,431
1,346,631 1,322,925
Current Liabilities:
Short-term debt - 7,497
Long-term debt due within one year 800 800
Accounts payable 24,993 33,152
Accounts payable to affiliates 23,243 17,896
Taxes accrued:
Federal and state income 623 123
Other 17,148 11,542
Interest accrued 13,762 9,412
Customer deposits 4,527 6,121
Restructuring liability 1,325 14,970
Other 7,546 7,603
93,967 109,116
Deferred Credits and Other Liabilities:
Unamortized investment credit 22,008 23,622
Deferred income taxes 183,796 183,727
Regulatory liabilities 12,836 13,907
Other 27,549 24,589
246,189 245,845
Total Capitalization and Liabilities $ 1,686,787 $ 1,677,886
</TABLE>
See accompanying notes to financial statements
<PAGE>
- 5 -
THE POTOMAC EDISON COMPANY
Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1997 1996
(Thousands of Dollars)
CASH FLOWS FROM OPERATIONS:
<S> <C> <C>
Net income $ 71,395 $ 59,615
Depreciation 55,126 53,159
Deferred investment credit and income taxes, net 6,782 (2,963)
Deferred power costs, net (419) 5,268
Unconsolidated subsidiaries' dividends in excess of earnings 1,107 1,193
Allowance for other than borrowed funds used
during construction (1,367) (933)
Restructuring liability (13,645) 12,845
Changes in certain current assets and
liabilities:
Accounts receivable, net 8,064 5,181
Materials and supplies (3,356) 6,305
Accounts payable (2,812) (3,625)
Taxes accrued 6,106 7,927
Interest accrued 4,350 3,998
Other, net 5,664 5,972
136,995 153,942
CASH FLOWS FROM INVESTING:
Construction expenditures (less allowance for
equity funds used during construction) (43,631) (51,363)
CASH FLOWS FROM FINANCING:
Retirement of long-term debt (800) (18,700)
Short-term debt, net (7,497) (21,637)
Notes receivable from affiliates (39,200) (11,850)
Dividends on capital stock:
Preferred stock (613) (613)
Common stock (46,561) (49,140)
(94,671) (101,940)
NET CHANGE IN CASH (1,307) 639
Cash at January 1 1,444 2,953
Cash at September 30 $ 137 $ 3,592
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $31,657 $31,734
Income taxes 23,005 27,800
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- 6 -
THE POTOMAC EDISON COMPANY
Notes to Financial Statements
1. The Company's Notes to Financial Statements in the Allegheny
Power System companies' combined Annual Report on Form 10-K
for the year ended December 31, 1996, should be read with the
accompanying financial statements and the following notes.
With the exception of the December 31, 1996, 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, 1997, the results of operations for the
three and nine months ended September 30, 1997 and 1996, and
cash flows for the nine months ended September 30, 1997 and
1996.
2. The Statement of Income reflects the results of past
operations and is not intended as any representation as to
future results. For purposes of the Balance Sheet and
Statement of Cash Flows, temporary cash investments with
original maturities of three months or less, generally in the
form of commercial paper, certificates of deposit, and
repurchase agreements, are considered to be the equivalent of
cash.
3. The Company owns 28% of the common stock of Allegheny
Generating Company (AGC), and affiliates of the Company own
the remainder. AGC owns an undivided 40% interest, 840 MW,
in the 2,100-MW pumped-storage hydroelectric station in Bath
County, Virginia, operated by the 60% owner, Virginia
Electric and Power Company, a nonaffiliated utility.
Following is a summary of income statement information for
AGC:
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
(Thousands of Dollars)
Electric operating revenues $19,664 $20,825 $60,288 $62,757
Operation & maintenance expense 856 1,299 3,612 3,633
Depreciation 4,284 4,290 12,852 12,870
Taxes other than income taxes 1,185 1,174 3,581 3,582
Federal income taxes 3,109 3,296 9,374 10,002
Interest charges 3,888 4,081 11,765 12,490
Other income, net (9,054) (1) (9,055) (4)
Net income $15,396 $ 6,686 $28,159 $20,184
The Company's share of the equity in earnings above was $4.3
million and $1.9 million for the three months ended September
30, 1997 and 1996, respectively, and $7.9 million and $5.7
million for the nine months ended September 30, 1997 and
1996, respectively, and was included in other income, net,
<PAGE>
- 7 -
on the Statement of Income. The increases in other income, net,
and the resulting increases in net income for the 1997 periods
was due to an interest refund on a tax-related contract settlement.
4. On April 7, 1997, Allegheny Power System, Inc. (Allegheny
Power) and DQE, Inc. (DQE), parent company of Duquesne Light
Company in Pittsburgh, Pennsylvania, announced that they have
agreed to merge in a tax-free, stock-for-stock transaction.
The combined company will be called Allegheny Energy, Inc.
(Allegheny Energy). It is expected that Allegheny Energy
will continue to be operated as an integrated electric
utility holding company and that the regulated electric
utility companies will continue to exist as separate legal
entities, including the Company and Duquesne Light Company.
The merger is conditioned, among other things, upon the
approval of each company's shareholders, the Pennsylvania
Public Utility Commission (PUC), the Securities and Exchange
Commission (SEC), the Federal Energy Regulatory Commission
(FERC), the Nuclear Regulatory Commission (NRC), and the
Department of Justice/Federal Trade Commission under the
Hart, Scott, Rudino legislation. Additionally, Allegheny
Power has requested the Maryland Public Service Commission
(PSC) to indicate its approval of the issuance of additional
Allegheny Power stock to accomplish the transaction. The
companies have established a schedule to obtain all
regulatory approvals by June 1, 1998. On May 2, 1997,
Allegheny Power filed a registration statement with the SEC
on Form S-4 containing a joint proxy statement/prospectus
with DQE concerning the merger and the transactions
contemplated thereby. In late June, the S-4 became effective
allowing Allegheny Power and DQE to pursue shareholder
approval for the proposed merger that would create Allegheny
Energy. Allegheny Power and DQE each held a separate
shareholder meeting on August 7, 1997, at which the
combination of the two companies was decisively approved by
the shareholders of both companies. At Allegheny Power's
meeting, the shareholders also decisively approved the change
in Allegheny Power's name to Allegheny Energy, Inc.
(Allegheny Energy).
On August 1, 1997, Allegheny Power and DQE jointly filed
requests for merger approval with the PUC and FERC, DQE filed
the necessary approval requests with the NRC, and Allegheny
Power filed its request with the PSC for approval to issue
Allegheny Power stock. The PUC has established a schedule of
proceedings which is expected to result in an approval order
by the end of May 1998. The FERC has not scheduled hearings.
Absent such hearings, Allegheny Energy expects a FERC order
on or before the end of May 1998. The PSC instituted a
proceeding against the Company to examine the effect of the
merger on Maryland customers for which a final determination
is expected by May 1, 1998.
On September 16, 1997, Allegheny Power officially changed its
name to Allegheny Energy, Inc. by filing the appropriate
papers in Maryland. Allegheny Energy began trading on the
New York Stock Exchange under its new symbol, AYE, on October
1, 1997.
<PAGE>
- 8 -
On September 29, 1997, the City of Pittsburgh filed an
antitrust and conspiracy lawsuit in Federal District Court
for the Western District of Pennsylvania against Allegheny
Power, the Company's Pennsylvania affiliate, West Penn Power
Company (West Penn), DQE, and Duquesne Light Company. The
verified complaint alleges eight counts, two of which are
claimed violations of the federal antitrust statutes and six
are state law claims. The relief sought includes a request
that the proposed merger between Allegheny Power and DQE be
stopped, and a request for unspecified monetary damages
relating to alleged collusion by the two companies in their
actions dealing with proposals to provide electric service to
the city's redevelopment zones. On October 27, 1997,
Allegheny Power, West Penn, DQE, and Duquesne Light Company
filed motions to dismiss the complaint. While Allegheny
Energy cannot predict the outcome of this action, it believes
the suit is without merit.
5. On August 1, 1997, in combination with Allegheny Power's
merger approval filing, the Company's Pennsylvania affiliate,
West Penn, filed with the PUC a comprehensive stand-alone
restructuring plan to implement full customer choice of
electric generation suppliers as required by the Customer
Choice Act. The filing included an unbundling of West Penn's
electric service rates into their generation, transmission
and distribution components, a plan for eventual replacement
of the existing Power Supply Agreement (PSA) under which the
Company and its existing two utility affiliates share
capacity, energy, capacity reserves and transmission
resources with a more efficient structure, and a plan for
recovery of stranded costs through a Competitive Transition
Charge (CTC).
6. Restructuring charges in the first nine months of 1996 ($11.7
million, net of tax) include expenses associated with a
reorganization, which is essentially complete.
7. For the most part, regulatory assets and liabilities are not
included in rate base. Income tax regulatory
assets/(liabilities), net of $58 million at September 30,
1997, are primarily related to investments in electric
facilities and, under a continuing regulated environment,
would be recovered over a period of from 20 to 40 years. The
remaining recovery period for items other than income taxes,
is from three to seven years. See page 13 for information
concerning activity in the states of Maryland, Virginia, and
West Virginia concerning activity related to electric utility
restructuring and competition.
8. The Company has spent considerable time and effort over the
past several years on the issue of the year 2000 software
compliance, and the effort is continuing. Certain software
has already been made year 2000 compliant by upgrades and
replacement, and analysis is continuing on others, in
accordance with a schedule planned to permit the Company to
process information in the year 2000 and beyond without
significant problems. Expenditures for the software
modifications and upgrades are not expected to have a
material impact on the Company's results of operations or
financial position.
<PAGE>
- 9 -
THE POTOMAC EDISON COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
COMPARISON OF THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997
WITH THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
Review of Operations
NET INCOME
Net income for the third quarter and first nine months
of 1997 and 1996, and the after-tax restructuring charges
included in the 1996 periods are shown below.
Net Income
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
(Millions of Dollars)
Net Income as Reported $25.3 $16.4 $71.4 $59.6
Restructuring Charges - 1.4 - 11.7
Net Income Adjusted $25.3 $17.8 $71.4 $71.3
The increase in third quarter net income, before
restructuring charges, was primarily due to a 2% increase in
kilowatt-hour (kWh) sales to retail customers, a reduction of
expenses achieved through restructuring efforts and other cost
controls, and an interest refund on a tax-related contract
settlement by the Company's 28% owned subsidiary, Allegheny
Generating Company (AGC), recorded in other income as increased
equity in earnings of AGC. See Note 3 to Financial Statements
for additional information.
The year-to-date net income, before restructuring
charges, remains about the same as the previous period. The year-
to-date period reflects increased kWh sales to commercial and
industrial customers of 2% and 1%, respectively, a reduction of
expenses achieved through restructuring efforts and other cost
controls, and increased equity in earnings from AGC, offset in
part by decreased residential kWh sales. Residential kWh sales
decreased 6% due to mild first quarter winter weather (heating
degree days 12% below normal and 22% below the first quarter of
1996).
SALES AND REVENUES
Retail kWh sales in the third quarter to residential,
commercial, and industrial customers increased 3%, 6%, and .4%,
respectively, for a net increase of 2%. In the first nine
months, kWh sales to residential customers decreased 6%, and to
commercial and industrial customers increased 2% and 1%,
respectively, for a net decrease of 1%. Increased kWh sales to
residential customers in the third quarter was primarily due to
<PAGE>
- 10 -
growth in the number of customers. As discussed above,
residential kWh sales, which are more weather sensitive than the
commercial and industrial classes, decreased in the first nine
months due to the mild weather. Commercial kWh sales increased
in the third quarter and first nine months of 1997 due to growth
in the number of customers, and in the quarter also due to
increased usage. Industrial kWh sales increased for the third
quarter and first nine months of 1997 due primarily to increased
sales to the paper, printing, rubber, and plastics products
customer groups.
The change in revenues from sales to residential,
commercial, and industrial customers resulted from the following:
Change from Prior Periods
Quarter Nine Months
(Millions of Dollars)
Fuel and energy cost adjustment clauses* $ .9 $ (8.0)
Increased (decreased) kWh sales 3.4 (7.8)
Other .5 2.1
Change in retail revenues $4.8 $(13.7)
*Changes in revenues from fuel and energy cost adjustment
clauses have little effect on net income. Changes in the
costs of fuel, purchased power, and certain other costs, and
changes in revenues from sales to other utilities, including
transmission services, have had little effect on net income
because such changes have been passed on to customers by
adjustment of customer bills through fuel and energy cost
adjustment clauses.
The increase in wholesale and other revenues for the
third quarter and first nine months of 1997 was due primarily to
the sale of transmission services to affiliated companies, offset
in part by second and third quarter decreased sales to a
wholesale customer related to the shutdown of a paper recycling
plant. All of the Company's wholesale customers have signed
contracts to remain as customers for periods ranging from about
one year to four years.
Revenues from bulk power transactions consist of the
following items:
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
(Millions of Dollars)
Revenues:
From transmission services $3.2 $4.0 $10.3 $13.3
From sales of Company generation 4.2 1.6 8.3 5.9
Total $7.4 $5.6 $18.6 $19.2
<PAGE>
- 11 -
Revenues from transmission services decreased primarily
due to reduced demand, primarily because of mild weather. The
increases in sales of Company generation resulted primarily from
increased sales to brokers and power marketers. About 95% of the
aggregate benefits from bulk power transactions are passed on to
retail customers through the fuel and energy adjustment clause
and had little effect on net income.
OPERATING EXPENSES
Fuel expenses for the third quarter increased 6% due to
an increase in kWh generated due to increased bulk power sales
from Company generation to brokers and marketers and increased
sales to affiliates. Fuel expenses for the first nine months of
1997 remained about the same. Fuel expenses are primarily
subject to deferred power cost accounting procedures with the
result that changes in fuel expenses have little effect on net
income.
"Purchased power and exchanges, net" represents power
purchases from and exchanges with nonaffiliated companies,
capacity charges paid to Allegheny Generating Company (AGC), an
affiliate partially owned by the Company, and other transactions
with affiliates made pursuant to a power supply agreement,
whereby each company uses the most economical generation
available in the Allegheny Energy System at any given time, and
consists of the following items:
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
(Millions of Dollars)
Nonaffiliated transactions:
Purchased power $ 3.3 $ 2.4 $ 8.4 $ 10.2
Power exchanges, net (.9) .1 - 1.8
Affiliated transactions:
AGC capacity charges 5.7 6.7 19.0 20.2
Other affiliated capacity
charges 12.4 11.9 38.0 35.6
Energy and spinning reserve
charges 12.4 11.5 37.1 35.9
Purchased power and
exchanges, net $32.9 $32.6 $102.5 $103.7
Nonaffiliated purchased power decreased in the nine
months ended September 30, 1997 because of decreased demand due
to decreased sales to retail customers. The cost of power
purchased from nonaffiliates for use by the Company, AGC capacity
charges in West Virginia, and affiliated energy and spinning
reserve charges are mostly recovered from customers currently
through the regular fuel and energy cost recovery procedures with
the result that changes in such costs have little effect on net
income.
A Public Utility Regulatory Policies Act of 1978 (PURPA)
power station project in the Company's Maryland jurisdiction is
scheduled to commence generation in 1999. This project will
significantly increase the costs of power purchases.
<PAGE>
- 12 -
The decrease in other operation expense for the three
and nine months ended September 1997 resulted primarily from
decreases in salaries and wages achieved through restructuring
efforts.
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 rights-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.
Variations in maintenance expense result primarily from unplanned
events and planned major projects, which vary in timing and
magnitude depending upon the length of time equipment has been in
service without a major overhaul and the amount of work found
necessary when the equipment is dismantled. Maintenance expenses
for the third quarter decreased $1.0 million due primarily to
reduced expenses achieved through restructuring efforts and other
cost controls. Maintenance expenses for the first nine months
increased $1.7 million reflecting an offset to expense reduction
efforts due to maintenance requirements determined to be
necessary during planned outages at the Harrison Power Station.
Restructuring charges in the third quarter and the first
nine months of 1996 include expenses associated with a
reorganization, which is essentially complete.
Depreciation expense increases resulted from additions
to electric plant. Future depreciation expense increases are
expected to be less than historical increases because of reduced
levels of planned capital expenditures.
Taxes other than income taxes increased $1.3 million for
the nine months ended September 1997 due to increased property
taxes and capital stock and franchise taxes related to an
increase in the assessment of property in Maryland.
The net increases in federal and state income taxes in
the third quarter and in the nine months ended September 1997
resulted primarily from increases in income before taxes. The
nine months ended increase in income before taxes was primarily
related to restructuring charges recorded in 1996.
The increases in other income, net, of $3.3 million and
$3.4 million for the third quarter and first nine months of 1997,
respectively, were primarily due to an interest refund on a tax-
related contract settlement received by the Company's subsidiary,
Allegheny Generating Company.
Financial Condition and Requirements
The Company's discussion on Financial Condition and
Requirements and Competition in Core Business in the Allegheny
Power System companies' combined Annual Report on Form 10-K for
the year ended December 31, 1996, should be read with the
following information.
In the normal course of business, the Company is subject
to various contingencies and uncertainties relating to its
operations and construction programs, including cost recovery in
the regulatory process, laws, regulations and uncertainties
<PAGE>
- 13 -
related to environmental matters, legal actions, restructuring
of the electric utility industry, and, as described in Note 4
to the Financial Statements, merger activities.
The Company expects to use exchange-traded and over-the-
counter futures, options, and swap contracts both to hedge its
exposure to changes in electric power prices and for trading
purposes. The risks to which the Company is exposed include
underlying price volatility, credit risk, and variations in cash
flows, among others. The Company has implemented risk management
policies and procedures consistent with industry practices and
Company goals.
The Company is working actively within its states to
advance customer choice. However, the Company believes that
federal legislation is necessary to ensure that electric
restructuring is implemented consistently across state and
regional boundaries so that all electric customers have an equal
opportunity to benefit from competition and customer choice by a
date certain. Federal legislation is also needed to remove
barriers to competition, including the Public Utility Holding
Company Act of 1935 (PUHCA) and the Public Utility Regulatory
Policies Act of 1978 (PURPA).
This fall, in Maryland, a task force will examine issues
involved in retail electric competition and will include its
findings in a report to the General Assembly in mid-December.
The task force is looking at how the electric utility industry in
Maryland can be restructured to reduce energy costs and better
meet the needs of consumers. The Company holds a seat on the
advisory group which is assisting the task force in its
deliberations. Also, the Maryland Public Service Commission
(PSC) recently held hearings on the restructuring issue. In
addition, the PSC has issued a report recommending that all
electric consumers in the state have the opportunity to choose
their electric supplier, with service beginning April 2, 2001.
The West Virginia Public Service Commission also created
a task force to study electric utility restructuring and
competition. On October 15, the group issued a final report
addressing various issues of competition and customer choice.
The task force, which includes the Company as a member, will
continue to further discuss issues relevant to electric utility
competition.
In early November, the staff of the State Corporation
Commission of Virginia is expected to file recommendations on
competition and electric utility restructuring. Five working
groups, which included representatives from the Company, have
been working with the staff to develop recommendations. In
addition, the Virginia General Assembly has established a Joint
Subcommittee to examine electric utility restructuring.
<PAGE>
- 14 -
THE POTOMAC EDISON COMPANY
Part II - Other Information to Form 10-Q
for Quarter Ended September 30, 1997
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, 1997.
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.
THE POTOMAC EDISON COMPANY
/s/ THOMAS J. KLOC
Thomas J. Kloc
Controller
(Chief Accounting Officer)
November 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 137
<SECURITIES> 0
<RECEIVABLES> 90,624
<ALLOWANCES> 505
<INVENTORY> 42,150
<CURRENT-ASSETS> 193,207
<PP&E> 2,166,804
<DEPRECIATION> 847,462
<TOTAL-ASSETS> 1,686,787
<CURRENT-LIABILITIES> 93,967
<BONDS> 627,916
0
16,378
<COMMON> 447,700
<OTHER-SE> 254,637
<TOTAL-LIABILITY-AND-EQUITY> 1,686,787
<SALES> 532,559
<TOTAL-REVENUES> 532,559
<CGS> 314,778
<TOTAL-COSTS> 406,115
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,520
<INCOME-PRETAX> 103,495
<INCOME-TAX> 32,100
<INCOME-CONTINUING> 71,395
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,395
<EPS-PRIMARY> 0.00<F1>
<EPS-DILUTED> 0.00<F1>
<FN>
<F1>All common stock is owned by parent, no EPS required.
</FN>
</TABLE>
