UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
1-10944 KU Energy Corporation 61-1141273
(A Kentucky Corporation)
One Quality Street
Lexington, Kentucky 40507-1428
(606) 255-2100
1-3464 Kentucky Utilities Company 61-0247570
(A Kentucky and Virginia Corporation)
One Quality Street
Lexington, Kentucky 40507-1428
(606) 255-2100
Indicate by check mark whether the Registrants (1) have 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 (or for such
shorter period that such Registrants were required to file such
reports) and (2) have been subject to such filing requirements for the
past 90 days.
Yes X No .
Indicate the number of shares outstanding of each of the issuers'
classes of common stock, as of the latest practicable date:
KU Energy Corporation: Common stock, no par value, 37,817,878
shares outstanding at October 29, 1996
Kentucky Utilities Company: Common stock, no par value, 37,817,878
shares outstanding and held by KU Energy
Corporation at October 29, 1996
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KU ENERGY CORPORATION
AND
KENTUCKY UTILITIES COMPANY
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996
CONTENTS
PART I. FINANCIAL INFORMATION Page No.
Item 1: Financial Statements
KU ENERGY CORPORATION
Consolidated Statements of Income 3-4
Consolidated Statements of Cash Flows 5
Consolidated Balance Sheets 6
KENTUCKY UTILITIES COMPANY
Statements of Income 7-8
Statements of Cash Flows 9
Balance Sheets 10
CONDENSED NOTES TO FINANCIAL STATEMENTS OF KU ENERGY
CORPORATION AND KENTUCKY UTILITIES COMPANY 11-15
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
KU ENERGY CORPORATION AND KENTUCKY
UTILITIES COMPANY 16-22
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 23
Item 6: Exhibits and Reports on Form 8-K 23
Signatures 24
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PART I. FINANCIAL INFORMATION
KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except for per share amounts)
For the Three
Months Ended
September 30,
1996 1995
Operating Revenues $178,269 $194,367
Operating Expenses:
Fuel, principally coal,
used in generation 48,781 54,102
Electric power purchased 15,847 22,341
Other operating expenses 32,094 31,625
Maintenance 14,414 16,029
Depreciation 20,235 18,831
Federal and state income taxes 13,374 14,874
Other taxes 3,704 4,029
Total Operating Expenses 148,449 161,831
Net Operating Income 29,820 32,536
Other Income and Deductions:
Interest and dividend income 638 1,028
Other income and deductions - net 2,426 1,762
Total Other Income and Deductions 3,064 2,790
Income Before Interest and Other Charges 32,884 35,326
Interest and Other Charges 10,391 10,747
Net Income $ 22,493 $ 24,579
Average Common Shares Outstanding 37,818 37,818
Earnings Per Common Share $ .60 $ .65
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except for per share amounts)
For the Nine
Months Ended
September 30,
1996 1995
Operating Revenues $536,769 $516,256
Operating Expenses:
Fuel, principally coal,
used in generation 147,885 140,487
Electric power purchased 50,940 55,749
Other operating expenses 92,818 93,492
Maintenance 46,224 50,382
Depreciation 60,454 56,411
Federal and state income taxes 38,710 30,743
Other taxes 11,965 12,552
Total Operating Expenses 448,996 439,816
Net Operating Income 87,773 76,440
Other Income and Deductions:
Interest and dividend income 2,189 3,132
Other income and deductions - net 6,421 5,761
Total Other Income and Deductions 8,610 8,893
Income Before Interest and Other Charges 96,383 85,333
Interest and Other Charges 31,498 31,525
Net Income $ 64,885 $ 53,808
Average Common Shares Outstanding 37,818 37,818
Earnings Per Common Share $ 1.72 $ 1.42
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
For the
Nine Months
Ended September 30,
1996 1995
Cash Flows from Operating Activities:
Net Income $ 64,885 $ 53,808
Items not requiring (providing) cash currently:
Depreciation 60,454 56,411
Deferred income taxes and investment tax credit 1,356 1,080
Changes in current assets and liabilities:
Change in fuel inventory (5,527) 7,359
Change in accounts receivable 2,438 (10,810)
Change in accounts payable (8,340) (16,969)
Change in accrued taxes 3,948 5,643
Change in accrued utility revenues 8,642 5,831
Change in liability to ratepayers (6,599) (179)
Change in escrow funds 6,599 181
Other--net 16,190 8,512
Net Cash Provided by Operating Activities 144,046 110,867
Cash Flows from Investing Activities:
Construction expenditures - utility (72,928) (81,106)
Proceeds from leveraged lease investments 436 -
Investment in independent power projects (1,048) -
Proceeds from independent power projects 1,109 (2,983)
Other 211 897
Net Cash Used by Investing Activities (72,220) (83,192)
Cash Flows from Financing Activities:
Short-term borrowings - net (25,700) (45,300)
Issuance of long-term debt 35,682 49,325
Funds deposited with trustee - net 3,779 15,100
Retirement of long-term debt, incl. premiums (36,192) (21)
Payment of common stock dividends (48,785) (47,651)
Net Cash Used by Financing Activities (71,216) (28,547)
Net Increase (Decrease) in Cash and Cash Equivalents 610 (872)
Cash and Cash Equivalents Beginning of Period 29,492 28,927
Cash and Cash Equivalents End of Period $ 30,102 $ 28,055
Supplemental Disclosures
Cash paid for:
Interest on short- and long-term debt $ 24,643 $ 24,556
Federal and state income taxes $ 37,175 $ 23,854
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands of dollars)
As of As of
Sept. 30, Dec. 31,
ASSETS 1996 1995
Utility Plant:
Plant in service, at cost $ 2,455,906 $2,394,018
Less: Accumulated depreciation 1,052,951 997,366
1,402,955 1,396,652
Construction work in progress 65,933 61,410
1,468,888 1,458,062
Current Assets:
Cash and cash equivalents 30,102 29,492
Escrow funds - coal contract litigation - 6,599
Construction funds held by trustee - 3,743
Accounts receivable 47,091 49,529
Accrued utility revenues 19,258 27,900
Fuel, principally coal, at average cost 34,965 29,438
Materials and supplies, at average cost 22,297 23,064
Other 7,521 8,121
161,234 177,886
Investments, Deferred Charges and Other Assets:
Investment in leveraged leases 23,751 21,509
Unamortized loss on reacquired debt 11,108 11,304
Other 45,851 46,213
80,710 79,026
Total Assets $ 1,710,832 $1,714,974
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 644,711 $ 628,611
Preferred stock of Subsidiary 40,000 40,000
Long-term debt of Subsidiary 546,373 545,980
1,231,084 1,214,591
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings 29,900 55,600
Accounts payable 29,595 37,935
Accrued interest 11,035 7,556
Accrued taxes 8,908 4,960
Customers' deposits 8,283 6,876
Accrued payroll and vacations 11,438 8,759
Liab. to ratepayers - coal contract litigation - 6,599
Other 9,218 6,992
108,398 135,298
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 240,366 233,707
Accumulated deferred investment tax credits 31,170 34,180
Regulatory tax liability 55,046 57,726
Other 44,768 39,472
371,350 365,085
Total Capitalization and Liabilities $ 1,710,832 $1,714,974
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
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KENTUCKY UTILITIES COMPANY
STATEMENTS OF INCOME
(Unaudited)
(in thousands of dollars)
For the Three
Months Ended
September 30,
1996 1995
Operating Revenues $178,275 $194,373
Operating Expenses:
Fuel, principally coal,
used in generation 48,781 54,102
Electric power purchased 15,847 22,341
Other operating expenses 31,348 30,817
Maintenance 14,412 16,027
Depreciation 20,189 18,785
Federal and state income taxes 13,585 15,331
Other taxes 3,656 3,897
Total Operating Expenses 147,818 161,300
Net Operating Income 30,457 33,073
Other Income and Deductions:
Interest and dividend income 370 722
Other income and deductions - net 1,709 1,296
Total Other Income and Deductions 2,079 2,018
Income Before Interest Charges 32,536 35,091
Interest Charges 9,812 10,176
Net Income 22,724 24,915
Preferred Stock Dividend Requirements 564 564
Net Income Applicable to Common Stock $ 22,160 $ 24,351
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
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KENTUCKY UTILITIES COMPANY
STATEMENTS OF INCOME
(Unaudited)
(in thousands of dollars)
For the Nine
Months Ended
September 30,
1996 1995
Operating Revenues $536,787 $516,278
Operating Expenses:
Fuel, principally coal,
used in generation 147,885 140,487
Electric power purchased 50,940 55,749
Other operating expenses 91,250 91,542
Maintenance 46,218 50,376
Depreciation 60,314 56,271
Federal and state income taxes 39,136 31,599
Other taxes 11,736 12,336
Total Operating Expenses 447,479 438,360
Net Operating Income 89,308 77,918
Other Income and Deductions:
Interest and dividend income 1,384 2,158
Other income and deductions - net 5,515 4,152
Total Other Income and Deductions 6,899 6,310
Income Before Interest Charges 96,207 84,228
Interest Charges 29,790 29,824
Net Income 66,417 54,404
Preferred Stock Dividend Requirements 1,692 1,692
Net Income Applicable to Common Stock $ 64,725 $ 52,712
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
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KENTUCKY UTILITIES COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
For the Nine
Months Ended
September 30,
1996 1995
Cash Flows from Operating Activities:
Net Income $ 66,417 $ 54,404
Items not requiring (providing) cash currently:
Depreciation 60,314 56,271
Deferred income taxes
and investment tax credit (214) 21
Changes in current assets and liabilities:
Change in fuel inventory (5,527) 7,359
Change in accounts receivable 2,230 (10,639)
Change in accounts payable (8,363) (17,518)
Change in accrued taxes 4,027 5,722
Change in accrued utility revenues 8,642 5,831
Change in liability to ratepayers (6,599) (179)
Change in escrow funds 6,599 181
Other--net 17,540 11,134
Net Cash Provided by Operating Activities 145,066 112,587
Cash Flows from Investing Activities:
Construction expenditures - utility (72,928) (81,106)
Other 211 (172)
Cash Used by Investing Activities (72,717) (81,278)
Cash Flows from Financing Activities:
Short-term borrowings - net (25,700) (45,300)
Issuance of long-term debt 35,682 49,325
Funds deposited with trustee - net 3,779 15,100
Retirement of long-term debt, incl. premiums (36,192) (21)
Payment of dividends (50,477) (49,059)
Net Cash Used by Financing Activities (72,908) (29,955)
Net Increase (Decrease) in Cash and
Cash Equivalents (559) 1,354
Cash and Cash Equivalents Beginning of Period 5,697 3,111
Cash and Cash Equivalents End of Period $ 5,138 $ 4,465
Supplemental Disclosures
Cash paid for:
Interest on short- and long-term debt $ 24,643 $ 24,556
Federal and state income taxes $ 38,010 $ 24,160
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
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KENTUCKY UTILITIES COMPANY
BALANCE SHEETS
(Unaudited)
(in thousands of dollars)
As of As of
Sept. 30, Dec. 31,
1996 1995
ASSETS
Utility Plant:
Plant in service, at cost $2,455,906 $2,394,018
Less: Accumulated depreciation 1,052,951 997,366
1,402,955 1,396,652
Construction work in progress 65,933 61,410
1,468,888 1,458,062
Current Assets:
Cash and cash equivalents 5,138 5,697
Escrow funds - coal contract litigation - 6,599
Construction funds held by trustee - 3,743
Accounts receivable 47,241 49,471
Accrued utility revenues 19,258 27,900
Fuel, principally coal, at average cost 34,965 29,438
Materials and supplies, at average cost 22,297 23,064
Other 7,521 8,121
136,420 154,033
Investments, Deferred Charges and Other Assets:
Unamortized loss on reacquired debt 11,108 11,304
Other 37,261 36,589
48,369 47,893
Total Assets $1,653,677 $1,659,988
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 592,476 $ 576,537
Preferred stock 40,000 40,000
Long-term debt 546,373 545,980
1,178,849 1,162,517
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings 29,900 55,600
Accounts payable 29,637 38,000
Accrued interest 11,035 7,556
Accrued taxes 9,228 5,201
Customers' deposits 8,283 6,876
Accrued payroll and vacations 11,380 8,706
Liab. to ratepayers - coal contract litigation - 6,599
Other 8,847 6,752
108,331 135,311
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 236,805 231,717
Accumulated deferred investment tax credits 31,170 34,180
Regulatory tax liability 55,046 57,726
Other 43,476 38,537
366,497 362,160
Total Capitalization and Liabilities $1,653,677 $1,659,988
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. PRESENTATION OF CONDENSED INFORMATION
The unaudited interim financial statements presented herein
include the consolidated statements of KU Energy Corporation and
Subsidiaries (KU Energy or the Company) as well as separate financial
statements for Kentucky Utilities Company (KU). KU Energy Corporation
is a holding company organized under the laws of Kentucky with two
first-tier subsidiaries: KU Capital Corporation (KU Capital), a non-
utility subsidiary, and KU, an electric utility. KU Energy
Corporation owns 100 percent of the common equity of KU Capital and
KU. KU is KU Energy Corporation's principal subsidiary.
The unaudited statements have been prepared by the Company and
KU, respectively, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the Company and KU believe the disclosures are adequate to make the
information presented not misleading. The Company's consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto incorporated by reference in the Annual
Report on Form 10-K of KU Energy for the year ended December 31, 1995;
and the KU financial statements should be read in conjunction with the
financial statements and notes thereto included in the Annual Report
on Form 10-K of KU for the year ended December 31, 1995.
In the opinion of the Company and KU, the respective information
furnished herein reflects all adjustments, all of which are normal and
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
recurring, which are necessary to present fairly the results of the
periods shown and the disclosures which have been made are adequate to
make the information not misleading. Results of interim periods are
not necessarily indicative of results for any twelve-month period due
to the seasonal nature of KU's business. Certain prior year amounts
have been reclassified on a basis consistent with the September 30,
1996, presentation.
2. ENVIRONMENTAL COST RECOVERY
Since August 1994, KU has been collecting an environmental
surcharge from its Kentucky retail customers under a Kentucky statute
which authorizes electric utilities (including KU) to implement,
beginning January 1, 1993, an environmental surcharge. The surcharge
is designed to recover certain operating and capital costs of
compliance with federal, state or local environmental requirements
associated with the production of energy from coal, including the
Federal Clean Air Act as amended. KU's environmental surcharge was
approved by the Kentucky Public Service Commission (PSC) in July 1994
and was implemented in August 1994. The total surcharge collections
from August 1, 1994 through September 30, 1996 were approximately
$36 million.
The constitutionality of the surcharge statute was challenged in
the Franklin County (Kentucky) Circuit Court in an action brought
against KU and the PSC by the Attorney General of Kentucky and joined
by representatives of consumer groups. In July 1995, the Circuit
Court entered a judgment upholding the constitutionality of the
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<PAGE>
KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
statute, but vacating that part of the PSC's July 1994 order which the
judgment describes as allowing KU to recover, under the surcharge,
environmental expenditures incurred before January 1, 1993, and
ordering the case remanded to the PSC for a determination in
accordance with the Circuit Court judgment.
The Attorney General and other consumer representatives appealed
to the Kentucky Court of Appeals that part of the Circuit Court
judgment upholding the constitutionality of the surcharge statute.
The PSC and KU appealed that part of the judgment denying recovery of
environmental expenditures incurred before January 1, 1993. The PSC
has ordered all surcharge revenues collected by KU from February 1,
1995 subject to refund pending final determination of all appeals.
The total surcharge collections from February 1, 1995 through
September 30, 1996 were approximately $32 million.
KU believes the constitutionality of the surcharge statute will
be upheld, but it cannot predict the outcome of that part of the
Circuit Court judgment disallowing recovery of environmental
expenditures incurred before January 1, 1993. If the Circuit Court
judgment is ultimately upheld as entered, KU estimates that the amount
it would be required to refund (which is based solely on costs
associated with environmental expenditures incurred before January 1,
1993) for surcharge collections through September 30, 1996, from the
implementation of the surcharge would be approximately $10 million,
and from February 1, 1995 would be approximately $8 million. At this
time, KU has not recorded any reserve for refund.
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. FINANCING
In January 1996, KU issued $36 million of Series S First Mortgage
Bonds which bear interest at 5.99% and will mature January 15, 2006.
The proceeds were used to redeem $35.5 million of Series K First
Mortgage Bonds. A redemption premium of approximately $.7 million was
recorded on the balance sheet and will be amortized over the life of
the new bonds.
4. OPERATING REVENUES AND FUEL COSTS
Pursuant to regulatory orders, KU had been refunding fuel cost
savings related to the resolution of a coal contract dispute. Refunds
were made to Virginia retail customers during the period August 1993
through June 1994. Refunds were made to wholesale customers under the
jurisdiction of the FERC in lump sum payments in September 1993.
Refunds to Kentucky retail customers commenced in July 1994. A
portion remained to be refunded to Kentucky customers who had not
filed required claims for refunds. Kentucky passed legislation in
March 1996 which provided for the distribution by the State of certain
unclaimed utility refunds to pay qualifying workers' compensation
claims through the Kentucky Workers' Compensation Funding Commission
(Funding Commission). KU requested permission from the PSC to
transfer the remaining unclaimed refunds to the State for this
purpose. The PSC issued an order in June 1996 approving this request
and releasing KU from any obligation imposed by the PSC to hold,
maintain and distribute the funds. KU transferred the funds
(approximately $6.8 million) in June 1996. By virtue of the
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
legislation, KU's payment of the unclaimed refunds to the State caused
KU to be released from any future liability relating to such refunds.
The legislation also preserved the rights of ratepayers entitled to
claim a refund who have not yet done so and authorized the Funding
Commission to honor future refund claims using any funds available.
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and
results of operations are for the Company unless otherwise stated.
Material changes in the consolidated financial condition and operating
results of KU Energy are based primarily upon the operations of KU.
LIQUIDITY & RESOURCES
At September 30, 1996, KU's short-term borrowings were
$29.9 million compared to $55.6 million at December 31, 1995. The
short-term borrowings have been used primarily to finance ongoing
construction expenditures and general corporate requirements. The
decrease between September 30, 1996 and December 31, 1995 is due
primarily to planned reductions in construction expenditures in 1996
and additional cash provided by operations during 1996.
Refer to Note 3 of the Condensed Notes to Financial Statements
for a discussion of KU's recent financing activities.
RESULTS OF OPERATIONS
Quarter ended September 30, 1996, compared
to the Quarter ended September 30, 1995
The Company's earnings per common share for the three-month
period ended September 30, 1996 were $.60 compared to $.65 for the
corresponding period of 1995. The decrease is due to lower retail and
commercial sales, primarily as a result of milder weather in August
1996 when compared to August 1995 and lower opportunity sales during
August 1996 when compared to August 1995. The negative effects of
these factors were somewhat offset by an increase in sales to
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
industrial customers and decreases in fuel and purchased power
expenses.
The changes in operating revenues and kilowatt-hour sales
described below are for the Company. The only difference between
changes in operating revenues for the Company and operating revenues
for KU are intercompany revenues that are eliminated in the
consolidated financial statements. These intercompany amounts are
immaterial.
Increase (Decrease)
From Prior Year
Three Months
Ended Sept. 30, 1996
kWh Revenues
(%) (000's)
Residential (11) $ (7,216)
Commercial (5) (2,476)
Industrial 4 963
Mine Power 1 (306)
Public Authorities (2) (266)
Total Retail Sales (4) (9,301)
Wholesale (2) (1,153)
Opportunity (32) (5,011)
Total Other Electric Utilities (18) (6,164)
Miscellaneous Revenues & Other - (633)
Total (7) $(16,098)
Operating revenues decreased $16.1 million (8%). The decrease
reflects a 7% decrease in kilowatt-hour sales. The decrease in
kilowatt-hour sales is primarily attributable to decreases in
residential, commercial and opportunity sales partially offset by a
slight increase in industrial sales. The decreases in residential and
commercial sales were primarily due to milder weather in August 1996
compared to August 1995. The decrease in opportunity sales (382,707
megawatt-hours versus 560,873 megawatt-hours) was primarily due to
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
decreased demand for power from neighboring utilities. The increase
in industrial sales reflects continued economic growth in the
manufacturing sector of KU's service area evidenced primarily by an 8%
increase in the number of industrial customers over 1995.
Fuel expense decreased $5.3 million (10%). The decrease was
primarily due to a 5% decrease in the tons of coal consumed and to a
5% reduction in the price per ton of coal consumed. The decline in
consumption was primarily caused by a decline in generation due to the
previously mentioned decrease in kilowatt-hour sales.
Purchased power expense decreased $6.5 million (29%) due to
decreased demand costs ($.9 million) and energy costs ($5.6 million).
The decrease in energy costs resulted primarily from a 21% decrease
in kilowatt-hour purchases due to the previously mentioned decline in
kilowatt-hour sales and to more favorable pricing.
Maintenance expense decreased $1.6 million (10%). The decrease
was primarily due to the timing of expenditures for maintenance
activities.
Federal and state income taxes decreased $1.5 million (10%).
The decrease was primarily attributable to a decline in pretax net
income.
Nine Months ended September 30, 1996, compared
to the Nine Months ended September 30, 1995
The Company's earnings per common share for the nine-month
period ended September 30, 1996 were $1.72 compared to $1.42 for the
corresponding period of 1995. The increase primarily reflects the
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
success of KU's aggressive marketing efforts in the residential sector
and increased industrial and opportunity sales over 1995.
Increase (Decrease)
From Prior Year
Nine Months
Ended Sept. 30, 1996
kWh Revenues
(%) (000's)
Residential 4 $5,633
Commercial 1 510
Industrial 7 6,369
Mine Power (3) (1,218)
Public Authorities 5 2,112
Total Retail Sales 4 13,406
Wholesale 3 528
Opportunity 39 5,076
Total Other Electric Utilities 18 5,604
Miscellaneous Revenues & Other - 1,503
Total 6 $20,513
Operating revenues increased $20.5 million (4%). The increase
reflects a 6% increase in kilowatt-hour sales. The increase in
kilowatt-hour sales is primarily attributable to increases in
residential, industrial and opportunity sales. The increase in
residential sales was primarily due to the positive impacts of
aggressive marketing efforts in the residential sector. The increase
in industrial sales was mostly due to an 8% increase in the number of
industrial customers. The increase in opportunity sales (1,282,996
megawatt-hours versus 922,982 megawatt-hours) was due to agreements
with neighboring utilities for non-firm energy sales during 1996.
Fuel expense increased $7.4 million (5%). The increase was due
to a 9% increase in the tons of coal consumed offset by a 4% decrease
in price per ton of coal consumed. The increase in consumption was
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KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
primarily due to an increase in generation due to the previously
mentioned increase in kilowatt-hour sales.
Purchased power expense decreased $4.8 million (9%) due to
decreased demand costs ($.7 million) and energy costs ($4.1 million).
The decreased energy costs were primarily due to a 7% decline in
kilowatt-hour purchases and more favorable pricing.
Maintenance expense decreased $4.2 million (8%). The decrease
was primarily due to the timing of expenditures for maintenance
activities.
Federal and state income taxes increased $8.0 million (26%).
The increase was primarily attributable to an increase in pretax
income.
UTILITY ISSUES - COMPETITION
Federal Energy Regulatory Commission (FERC) Matters:
Refer to Management's Discussion and Analysis in the 1995
KU Energy Annual Report on Form 10-K under the heading "Utility Issues
-Competition" for a discussion of the FERC proposed rules addressing
open access transmission service and the collection of charges for the
recovery of stranded costs. In late April 1996, the FERC issued two
final rules and a new Notice of Proposed Rulemaking (NOPR). FERC
Order No. 888 (Order 888) addressed both open access transmission
service and stranded cost issues. FERC Order No. 889 (Order 889)
requires utilities to establish an electronic Open Access Same-Time
Information System (OASIS) to share information about available
transmission capacity, and also requires the establishment by each
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<PAGE>
KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
utility of standards of conduct for its transmission system operation.
The NOPR, the Capacity Reservation Open Access Tariffs (RM96-11-000),
proposes to establish a new system for utilities to use in reserving
capacity on their own and other's transmission lines.
On July 9, 1996, KU filed a new open access transmission tariff
with the FERC designed to comply with provisions of Order 888. This
tariff has been accepted by the FERC, superseding KU's existing
Transmission Services Tariff, which had been in effect since December
1994. The provisions of the tariff filed July 9, 1996, are similar to
the terms and conditions of service contained in KU's previously
existing tariff.
KU is in the process of developing an OASIS and finalizing its
standards of conduct pursuant to Order 889. KU expects to meet the
FERC's deadline (January 3, 1997) for implementation of these
requirements.
KU is also in the process of evaluating the FERC's NOPR. The
NOPR would replace certain aspects of KU's transmission tariff now in
effect with a capacity reservation tariff (CRT) by December 31, 1997.
The FERC has received comments from interested parties regarding the
potential tariff change and is currently evaluating those comments.
KU cannot predict when a final rule will be issued.
Position on Competition:
Competition, especially customer choice, is critical to the
Company and will determine its ability to leverage its position as a
low-cost producer of highly reliable service in the future.
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<PAGE>
KU ENERGY CORPORATION AND SUBSIDIARIES
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Competition was introduced to the electric utility industry
with the passage of the Energy Policy Act of 1992. The national
legislation instituted competition in the wholesale market.
Discussions are currently being held throughout the country and in
Congress to formulate the most effective method to move competition to
the retail market. Many divergent opinions concerning the complex
issues surrounding retail competition are being discussed throughout
the electric utility industry. Some states are conducting pilot
projects to allow retail customers to choose their electric supplier.
Kentucky and Virginia have not initiated pilot projects of this
nature.
With electric rates that are among the lowest in the nation, KU
Energy believes it is well-positioned for an increasingly competitive
environment.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 2 of the Condensed Notes to Financial Statements,
Environmental Cost Recovery, for a discussion of KU's
environmental surcharge.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed as part of this report:
Exhibit Number Description
27 Financial Data Schedule for KU Energy
(required for electronic filing only
in accordance with Item 601 (c)(1) of
Regulation S-K.)
27 Financial Data Schedule for KU
(required for electronic filing only
in accordance with Item 601(c)(1) of
Regulation S-K.)
(b) Reports on Form 8-K.
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, KU Energy Corporation and Kentucky Utilities Company have
each duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KU ENERGY CORPORATION and
KENTUCKY UTILITIES COMPANY
(Registrants)
Date October 29, 1996 /s/ Michael R. Whitley
Michael R. Whitley
Chairman and President
Date October 29, 1996 /s/ Michael D. Robinson
Michael D. Robinson
Controller
-24-
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<ARTICLE> UT
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THS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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