<PAGE>
Form U-13-60
Mutual and Subsidiary Service Companies*
Revised February 7, 1980
ANNUAL REPORT
FOR THE PERIOD
Beginning January 1, 1996 and Ending December 31,
1996
TO THE
U.S. SECURITIES AND EXCHANGE
COMMISSION
OF
AYP Capital, Inc.
A Nonutility Subsidiary*
Date of Incorporation: August 18, 1994.
If not incorporated, Date of Organization: not
applicable.
State or Sovereign Power under which Incorporated
or Organized: Delaware.
Location of Principal Executive Offices of
Reporting Company:
10435 Downsville Pike, Hagerstown, MD.
Name, title, and address of officer to whom
correspondence concerning this report should be
addressed:
Thomas J. Kloc, Controller
AYP Capital, Inc.
10435 Downsville Pike
Hagerstown, MD 21740-1766.
Name of Principal Holding Company Whose
Subsidiaries are served* by Reporting Company:
Allegheny Power System, Inc.
SEC 1926 (6-82)
*Note that this report is being used for a
nonutility subsidiary of such Holding Company.
<PAGE>
1
INSTRUCTIONS FOR USE OF FORM U-13-60
1. Time of filing. Rule 94 provides that on
or before the first day of May in each calendar
year, each mutual service company and each
subsidiary service company as to which the
Commission shall have made a favorable finding
pursuant to Rule 88, and every service company
whose application for approval or declaration
pursuant to Rule 88 is pending shall file with the
Commission an annual report on Form U-13-60 and in
accordance with the instructions for that form.
2. Number of copies. Each annual report
shall be filed in duplicate. The company should
prepare and retain at least one extra copy for
itself in case correspondence with reference to
the report becomes necessary.
3. Period covered by report. The first
report filed by any company shall cover the period
from the date the Uniform System of Accounts was
required to be made effective as to that company
under Rules 82 and 93, to the end of that calendar
year. Subsequent reports should cover a calendar
year.
4. Report format. Reports shall be
submitted on the forms prepared by the Commission.
If the space provided on any sheet of such form is
inadequate, additional sheets may be inserted of
the same size as a sheet of the form or folded to
such size.
5. Money amounts displayed. All money
amounts required to be shown in financial
statements may be expressed in whole dollars, in
thousands of dollars, or in hundred thousands of
dollars, as appropriate, and subject to provisions
of Regulation S-X '210.3-01(b).
6. Deficits displayed. Deficits and other
like entries shall be indicated by the use of
either brackets or a parenthesis with
corresponding reference in footnotes (Regulation
S-X, '210.3-01(c)).
7. Major amendments or corrections. Any
company desiring to amend or correct a major
omission or error in a report after is has been
filed with the Commission shall submit an amended
report including only those pages, schedules, and
entries that are to be amended or corrected. A
cover letter shall be submitted requesting the
Commission to incorporate the amended report
changes and shall be signed by a duly authorized
officer of the Company.
8. Definitions. Definitions contained in
Instruction 01-8 to the Uniform System of Accounts
for Mutual Service Companies and Subsidiary
Service Companies, Public Utility Holding Company
Act of 1935, as amended February 2, 1979, shall be
applicable to words or terms used specifically
within this Form U-13-60.
9. Organization Chart. The service company
shall submit with each annual report a copy of its
current organization chart.
10. Methods of Allocation. The service
company shall submit with each annual report a
listing of the currently effective methods of
allocation being used by the service company and
on file with the Securities and Exchange
Commission pursuant to the Public Utility Holding
Company Act of 1935.
11. Annual statement of compensation for use
of capital billed. The service company shall
submit with each annual report a copy of the
annual statement supplied to each associate
company in support of the amount of compensation
for use of capital billed during the calendar
year.
<PAGE>
2
LISTING OF SCHEDULES AND ANALYSIS OF ACCOUNTS
Description of Schedule or Page
Schedules and Accounts: Account No.: No.:
COMPARATIVE BALANCE SHEET Schedule I 4-5
Property Schedule II 6-7
Accumulated Provision for Depreciation
and Amortization of Property Schedule III 8
Investments Schedule IV 9
Accounts Receivable from Associate
Companies Schedule V 10
Fuel Stock Expenses Undistributed Schedule VI 11
Stores Expenses Undistributed Schedule VII 12
Miscellaneous Current and Accrued Assets Schedule VIII 13
Miscellaneous Deferred Debits Schedule IX 14
Research, Development, or Demonstration
Expenditures Schedule X 15
Proprietary Capital Schedule XI 16
Long-term Debt Schedule XII 17
Current and Accrued Liabilities Schedule XIII 18
Notes to Financial Statements Schedule XIV 19
COMPARATIVE INCOME STATEMENT Schedule XV 20
Analysis of Billing, Associate Companies Account 457 21
Analysis of Billing, Nonassociate
Companies Account 458 22
Analysis of Charges for Service,
Associate and Nonassociate Companies Schedule XVI 23
Schedule of Expense by Department or
Service Function Schedule XVII 24-25
Departmental Analysis of Salaries Account 920 26
Outside Services Employed Account 923 27
Employee Pensions and Benefits Account 926 28
General Advertising Expenses Account 930.1 29
Miscellaneous General Expenses Account 930.2 30
Rents Account 931 31
Taxes Other Than Income Taxes Account 408 32
Donations Account 426.1 33
Other Deductions Account 426.5 34
Notes to Statement of Income Schedule XVIII 35
<PAGE>
3
LISTING OF INSTRUCTIONAL FILING REQUIREMENTS
Description of Page
Reports or Statements: No.:
Organizational Chart 36
Methods of Allocation 37
Annual Statement of Compensation for Use of
Capital Billed 38
<PAGE>
4
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE I - COMPARATIVE BALANCE SHEET
Give balance sheet of the Company as of December 31 of the current
and prior year.
<TABLE>
<CAPTION>
Account Assets and Other Debits Current Prior
<S> <C> <C> <C>
Property
101 Utility property (Schedule II) 171,692,729 0
107 Construction work in progress 6,299,987 0
(Schedule II)
121 Non Utility Property (Schedule II) 568,948 17,232
Total Property 178,561,664 17,232
108 Less Accumulated provision for
depreciation and amortization of
utility property (Schedule III) 0 0
122 Less Accumulated provision for
depreciation and amortization of
non-utility property (Schedule III) 15,293 1,436
Net Property 178,546,371 15,796
Investments
123 Investments in associate companies
(Schedule IV) 2,790,505 1,075,979
124 Other investments (Schedule IV) 0 0
Total Investments 2,790,505 1,075,979
Current and Accrued Assets
131 Cash 5,698,238 16,764
134 Special deposits 131,000 0
135 Working funds (1,047,322) 0
136 Temporary cash investments
(Schedule IV) 0 0
141 Notes receivable 0 0
142 Customer accounts receivable 2,082,672
143 Accounts receivable 7,402,531 9,720
144 Accumulated provision for
uncollectible accounts 0 0
146 Accounts receivable from associate
companies (Schedule V) 5,302,414 52,240
151 Fuel stock 2,795,292 0
152 Fuel stock expenses undistributed
(Schedule VI) 0 0
154 Material and supplies 2,394,709 0
163 Stores expense undistributed
(Schedule VII) 0 0
165 Prepayments 2,201,685 0
174 Miscellaneous current and accrued
assets (Schedule VIII) 0 0
Total Current and Accrued Assets 26,961,219 78,724
Deferred Debits
181 Unamortized debt expense 0 0
183 Preliminary Survey & Investigation
Charges 28 0
184 Clearing accounts 0 0
186 Miscellaneous deferred debits 17,392 275,573
(Schedule IX)
188 Research, development, or demonstration
expenditures (Schedule X) 0 0
190 Accumulated deferred income taxes 0 0
Total Deferred Debits 17,420 275,573
Total Assets and Other Debits 208,315,515 1,446,072
</TABLE>
<PAGE>
5
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE I - COMPARATIVE BALANCE SHEET, CONTINUED
<TABLE>
<CAPTION>
Account Liabilities and Proprietary Capital Current Prior
<S> <C> <C> <C> <C>
Proprietary Capital
201 Common stock issued (Schedule XI) 1,000 1,000
211 Miscellaneous paid-in capital (Schedule XI) 31,283,676 1,837,303
215 Appropriated retained earnings (Schedule XI) 0 0
216 Unappropriated retained earnings
(Schedule XI) (3,880,626) (572,037)
Total Proprietary Capital 27,404,050 1,266,266
Long-term Debt
223 Advances from associate
companies (Schedule XII) 12,500 0
224 Other long-term debt (Schedule XII) 160,000,000 0
225 Unamortized premium on long-term debt 0 0
226 Unamortized discount on long-term
debt (debit) 0 0
Total Long-term Debt 160,012,500 0
Current and Accrued Liabilities
231 Notes payable 0
232 Accounts payable 12,550,727 204
233 Notes payable to associate
companies (Schedule XIII) 0 0
234 Accounts payable to associate
companies (Schedule XIII) 2,822,334 179,082
236 Taxes accrued 1,129,583 0
237 Interest accrued 1,838,133 0
238 Dividends declared 0 0
241 Tax collections payable 0 520
242 Miscellaneous current and accrued
liabilities (Schedule XIII) 1,024,826 0
Total Current and Accrued Liabilities 19,365,603 179,806
Deferred Credits
253 Other deferred credits 594,238 0
255 Accumulated deferred investment tax credits 0 0
282 Accumulated deferred income taxes 939,124 0
Total Deferred Debits 1,533,362 0
Total Liabilities and Proprietary Capital 208,315,515 1,446,072
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
6
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE II - PROPERTY
Balance at Retiremts Other Balance at
Beginning or Changes Close
Account Decription of Year Additions Sales (1) of Year
<S> (c) <C> <C>
301 Organization 0
303 Miscellaneous
intangible plant 0
304 Land and land
rights 517,732 517,732
305 Structures and
improvements 15,095,816 15,095,816
306 Leasehold
improvements 181,367 181,367
307 Equipment (2) 156,293,893 156,293,893
308 Office furniture
and equipment 155,637 155,637
309 Automobiles, other
vehicles and
related garage
equipment 17,232 17,232
310 Aircraft and
airport equipment 0
311 Other property (3) 0
Subtotal 17,232 172,244,445 0 0 172,261,677
107 Construction work
in progress (4) 6,299,987 6,299,987
Total 17,232 178,544,432 0 0 178,561,664
</TABLE>
(1) Provide an explanation of those changes considered material:
Additions include property associated with the purchase of 50% interest
in Fort Martin Unit #1; see Schedule XIV: Notes to Financial Statements
on page 19.
<PAGE>
7
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE II - CONTINUED
(2) Subaccounts are required for each class of equipment owned. The
company shall provide a listing by subaccount of equipment additions
during the year and the balance at the close of the year:
<TABLE>
<CAPTION>
Balance
at Close
Subaccount Subaccount Description Additions of Year
<S> <C> <C> <C>
312 Boiler Plant Equipment 97,794,140 97,794,140
314 Turbogenerator Units 42,769,260 42,769,260
315 Accessory Electrical Equipment 8,342,505 8,342,505
316 Miscellaneous Power Plant Equipment 3,073,993 3,073,993
353.1 Station Equipment 4,099,284 4,099,284
121 Non Utiltity Equipment 214,711 214,711
Total 156,293,893 156,293,893
</TABLE>
(3) Describe other property:
Not applicable.
(4) Describe construction work in progress:
<TABLE>
<CAPTION>
Balance
at Close
Construction work in progress consists of: Additions of Year
<S> <C> <C> <C>
310 Land and Land Rights 69,626 69,626
311 Structures & Improvements 15,735 15,735
312 Boiler Plant Equipment 6,197,504 6,197,504
314 Turbogenerator Units 34,530 34,530
315 Accessory Electrical Equipment 1,508 1,508
316 Miscellaneous Power Plant Equipment (18,916) (18,916)
Total 6,299,987 6,299,987
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
8
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE III - ACCUMULATED PROVISION FOR
DEPRECIATION AND AMORTIZATION OF PROPERTY
Balance at Additions Other Balance
Beginning to Changes Close
Account Decription of Year Acct 403 /Retiremts (1) of Year
<S> <C> <C> <C> <C> <C> <C>
301 Organization
303 Miscellaneous
intangible plant
304 Land and land
rights
305 Structures and
improvements
306 Leasehold
improvements 0 2,923 2,923
307 Equipment 0 3,506 3,506
308 Office furniture
and equipment 0 3,981 3,981
309 Automobiles, other
vehicles and
related garage
equipment 1,436 3,447 4,883
310 Aircraft and
airport equipment
311 Other property
Total 1,436 13,857 0 0 15,293
(1) Provide an explanation of those changes considered material:
Not applicable.
</TABLE>
<PAGE>
9
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE IV - INVESTMENTS
Instructions: Complete the following schedule concerning investments.
Under Account 124 "Other Investments", state each investment separately,
with description, including the name of issuing company, number of shares or
principal amount, etc. Under Account 136, "Temporary Cash Investments",
list each investment separately.
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Close
Description of Year of Year
<S> <C> <C>
Account 123- Investment in Associate Companies
EnviroTech Investment Fund I, LP, net 304,002 913,714
A 9.9% interest in a limited partnership to acquire
securities of companies with a primary emphasis on
investments in energy.
Latin America Energy and Electricity Fund I, LP 700,174 1,634,182
A 9.9% interest in a limited partnership to invest in
entities involved in new or existing electric power
projects in Latin America and the Caribbean.
APS Cogenex, LLC 71,803 209,314
A 50% joint venture with EUA Cogenex Corporation
formed to engage in demand-side management business
activities.
FondElec General Partner, LP
A 4.975% interest in a limited partnership organized for
the purpose of acting as the general partner of the Latin
America Energy and Electricity Fund I, LP 0 33,295
Account 124- Other Investments
Not applicable.
Account 136- Temporary Cash Investments
Not applicable.
Total 1,075,979 2,790,505
</TABLE>
<PAGE>
10
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE V - ACCOUNTS RECEIVABLE FROM ASSOCIATE COMPANIES
Instructions: Complete the following schedule listing accounts receivable
from each associate company. Where the company has provided
accommodation or convenience payments for associate companies, a separate
listing of total payments for each associate company by subaccount should be
provided.
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Close
Description of Year of Year
Account 146- Accounts Receivable from Associate Companies
<S> <C> <C>
APS Cogenex, LLC 45,984 35,591
Latin America Energy and Electricity Fund I, LP 6,256 0
APS Inc. - Funds given to APS, Inc. to invest
on behalf of AYP Capital 0 5,264,823
General Invoices between AYP Subsidiaries 0 2,000
Total 52,240 5,302,414
Analysis of Convenience or Accommodation Payments
Not applicable.
</TABLE>
<PAGE>
11
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE VI - FUEL STOCK EXPENSES UNDISTRIBUTED
Instructions: Report the amount of labor and expenses incurred with
respect to fuel stock expenses during the year and indicate amount
attributable to each associate company. Under the section headed
"Summary" listed below give an overall report of the fuel functions
performed by the company.
<TABLE>
<CAPTION>
Description Labor Expenses Total
<S> <C> <C> <C>
Account 152- Fuel Stock Expenses
Undistributed
Not applicable.
Account 151- Fuel Stock 2,795,292 2,795,292
Total 0 2,795,292 2,795,292
</TABLE>
Summary:
Fuel Stock in Account 151 is purchased for and consumed by
AYP Capital's share of the Ft. Martin Unit. See Schedule XIV:
Notes to the Financial Statements on page 19.
<PAGE>
12
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE VII - STORES EXPENSE UNDISTRIBUTED
Instructions: Report the amount of labor and expenses associated with
respect to stores expense during the year and indicate amount attributable to
each associate company.
<TABLE>
<CAPTION>
Description Labor Expenses Total
<S> <C> <C> <C> <C>
Account 163 - Stores Expense
Undistributed
Not applicable.
Total 0 0 0
</TABLE>
<PAGE>
13
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE VIII - MISCELLANEOUS CURRENT AND ACCRUED ASSETS
Instructions: Provide detail of items in this account. Items
less than $10,000 may be grouped, showing the number of items
in each group.
<TABLE>
<CAPTION>
Balance at Balance
Beginning Close
Description of Year of Year
<S> <C> <C>
Account 174- Miscellaneous Current
and Accrued Assets
Not applicable.
Total 0 0
</TABLE>
<PAGE>
14
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE IX - MISCELLANEOUS DEFERRED DEBITS
Instructions: Provide detail of items in this account. Items
less than $10,000 may be grouped by class showing the number of items
in each class.
<TABLE>
<CAPTION>
Balance at Balance
Beginning Close
Description of Year of Year
Account 186- Miscellaneous Deferred Debits
<S> <C> <C>
Expenses associated with the purchase
of Fort Martin Unit #1 275,573 3,216
Expenses associated with the operation 10,778
of Fort Martin Unit #1
Other Miscellaneous Deferred Debits 3,398
Total 275,573 17,392
</TABLE>
<PAGE>
15
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE X - RESEARCH, DEVELOPMENT, OR DEMONSTRATION EXPENDITURES
Instructions: Provide a description of each material research,
development or demonstration project which incurred costs by
the company during the year.
<TABLE>
<CAPTION>
Description Amount
Account 188- Research, Development, or Demonstration
Expenditures
<S> <C>
Not applicable.
Total 0
</TABLE>
<PAGE>
16
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE XI - PROPRIETARY CAPITAL
<TABLE>
<CAPTION>
Number of Par / Stated Outstanding Shares
Shares Value At Close of Period
Account Class of Stock Authorized Per Share Number Amount
<S> <C> <C> <C> <C> <C>
201 Common Stock Issued 1,000 $10 100 $1,000
Instructions: Classify amounts in each account with brief explanation,
disclosing the general nature of transactions which give rise to the
reported amounts.
Account Description Amount
211 Miscellaneous Paid-in Capital* 31,283,677
215 Appropriated Retained Earnings 0
Total 31,283,677
* AYP Capital is funded in the form of capital contributions from
the holding company, Allegheny Power Systems, Inc.
Instructions: Give particulars concerning net income or (loss) during the
year, distinguishing between compensation for the use of capital owed or net
loss remaining from nonassociates per the General Instructions of
the Uniform System of Accounts. For dividends paid during the year in cash or
otherwise, provide rate percentage, amount of dividend, date declared and date
paid.
Balance at Net Balance at
Beginning Income Dividends Close
Account Description of Year (Loss) Paid of Year
216 Unappropriated Retained
Earnings (572,037) (2,867,486) 0 (3,439,523)
Total 0 (2,867,486) 0 (3,439,523)
</TABLE>
Net Losses are a result of non-utility operations.
<PAGE>
17
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE XII - LONG-TERM DEBT
Instructions: Advances from associate companies should be reported separately
for advances on notes, and advances on open account. Names of associate
companies from which advances were received shall be shown under the class and
series of obligation column. For Account 224, "Other Long-Term Debt",
provide the the name of the creditor company or organization, terms of the
obligation, date of maturity, interest rate, and the amount authorized and
outstanding.
<TABLE>
<CAPTION>
Terms, Date Balance at Balance at
Class, & of Interest Amount Beginning (1) Close
Name of Creditor Series Maturity Rate Authorized of Year Additions Deduction of Year
<S> <C> <C> <C> <C> <C> <C> <C> <C>
223 Advances from associate
companies:
Working funds for the
operation of Fort
Martin Unit No. 1 12,500 12,500
224 Other long-term debt:
5-year debt provided by a
syndicate of banks 2001 6.78 % * 160,000,000 0 160,000,000 160,000,000
Total 160,000,000 0 160,012,500 0 160,012,500
</TABLE>
* See Note C on Schedule XIV: Notes to Financial Statements on page 19.
(1) Give an explanation of deductions.:
Not applicable.
<PAGE>
18
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE XIII - CURRENT AND ACCRUED LIABILITIES
Instructions: Provide balance of notes and accounts payable to each
associate company. Give description and amount of miscellaneous
current and accrued liabilities. Items less then $10,000 may be
grouped, showing the number of items in each group.
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Close
Description of Year of Year
<S> <C> <C> <C>
Account 233- Notes Payable to Associate Companies
Not applicable.
Total 0 0
Account 234- Accounts Payable to Associate Companies
Allegheny Power Service Corporation 179,082 2,809,775
West Penn Power Company 0 2,223
Monongahela Power Company 0 8,336
AYP Affiliates 0 2,000
Total 179,082 2,822,334
Account 242- Miscellaneous Current and Accrued Liabilities
Major Maintenance Accruals 0 542,474
Pension Accrual 0 298,396
Payrolls Accrued (Account 232) 0 183,956
Total 0 1,024,826
</TABLE>
<PAGE>
19
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE XIV
NOTES TO FINANCIAL STATEMENTS
Instructions: The space below is provided for important notes regarding the
financial statements or any account thereof. Furnish particulars as to any
significant contingent assets or liabilities existing at the end of the year.
Notes relating to financial statements shown elsewhere in this report may be
indicated here by reference.
A. All of AYP Capital, Inc.'s common stock is owned by Allegheny Power Systems,
Inc. Allegheny Power is an electric utility holding company that derives
substantially all of its income from the electric utility operations of its
regulated subsidiaries (Monongahela Power Company, The Potomac Edison
Company, and West Penn Power Company.)
B. In 1996, AYP Capital, Inc. (the Company) formed a wholly owned subsidiary,
AYP Energy, Inc. (AYP Energy) to operate as an exempt wholesale generator
and power marketer in the wholesale electricity market. In October 1996, AYP
Energy purchased Duquesne Light Company's 50% interest (276 MW) in Unit
No. 1 of the Fort Martin Power Station for about $170 million. The
remainder of the station is owned by affiliated companies. AYP Energy is
marketing the output from its share of the station to wholesale customers, as
well as engaging in other power marketing activities. AYP Energy incurs
depreciation expense and other operating expenses related to Fort Martin.
C. AYP Energy financed its acquisition of the 50% interest of Fort Martin Power
Station Unit No. 1 with a combination of $25 million of equity contribution
from the Company's parent company, Allegheny Power Systems, Inc., and $160
million of medium-term notes under an arrangement provided by a syndicate of
eight banks. The debt is priced at a floating rate based on the 90-day
London Interbank Offering Rate plus a spread. AYP Energy then entered into
a $160 million forward swap to hedge against fluctuations in interest rates
during the five-year period,. The swap converted the floating rate to an
annual fixed rate of 6.78% for the five-year period. Interest rate
differentials to be paid or received are recorded as adjustments to interest
expense. Throughout the five-year period, the floating rate may be above or
below the fixed rate, but is only relevant in the event of termination prior
to maturity. AYP Energy's obligation under the Credit Agreement is supported
by Allegheny Power.
D. AYP Energy has entered into commitments for its construction programs, for
which expenditures are estimated to be $1.4 million for 1997 and $4.1 million
for 1998. Construction expenditure levels in 2000 and beyond will depend
upon the strategy eventually selected for complying with Phase II of the
Clean Air Act Amendments of 1990 and its resultant impact on the AYP Energy's
50% ownership of Fort Martin Unit No. 1.
E. In 1996, AYP Energy was formed as a subsidiary of AYP Capital to operate as
a power marketer in the wholesale electricity market. In October 1996, AYP
Energy finalized the purchase of a 50% interest (276 MW) in a power station
unit, selling the output as an exempt wholesale generator in the wholesale
market. Power marketing is essentially participation in a commodity market
which creates certain exposures. AYP Energy 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 AYP Energy is exposed include underlying price volatility,
credit risk, and variations in future cash flows, among others. AYP Energy
is in the process of implementing risk management policies and procedures
consistent with industry practices and Company goals.
<PAGE>
F. The Company formed a second wholly owned subsidiary, Allegheny Communications
Connect, Inc. (ACC) in 1996. ACC is an exempt telecommunications company
under the Public Utility Holding Company Act of 1935 (PUHCA). ACC's purpose
is to develop unregulated opportunities in the deregulated telecommunications
market.
G. AYP Capital, Inc., owns all of the outstanding common stock of its
subsidiaries, AYP Energy and ACC. The consolidated financial statements
shown herein include all the accounts of the Company and its subsidiary
companies after elimination of intercompany transactions.
H. The Company has committed to invest up to an additional $7 million in two
limited partnerships, Envirotech Investment Fund I, L.P., and the Latin
American Energy and Electricity Fund I, L.P., formed to invest in and develop
electric opportunities in Latin America.
I. Investments in the two limited partnerships, and the joint venture are
accounted for under the equity method. That is, the initial investment is
recorded at cost, then the carrying amount is adjusted to recognize the
Company's share of post-acquisition earnings or losses of the investee.
J. Property, Plant, and Equipment are stated at cost. Provisions for
depreciation are determined on a straight-line method based on estimated
service lives of depreciable properties. The cost of maintenance and of
certain replacements of property, plant, and equipment is charged to
operating expenses.
<PAGE>
20
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE XV - COMPARATIVE STATEMENT OF INCOME
Give income statement of the Company for the current and prior years ending
ending December 31.
<TABLE>
<CAPTION>
Account Description Current Prior
Income
<S> <C> <C> <C>
447 Sales 2,067,560 0
457 Services rendered to associate companies 0 0
458 Services rendered to nonassociate 0 0
companies 237,619 25,006
417-421 Miscellaneous income or loss (10,367) (10,235)
Total Income 2,294,812 14,771
Expense
Power Costs:
501 Fuel 727,499 0
555 Purchased Power 1,334,584 0
500-514 Other 1,126,610 0
556-598 Transmission & Distribution 258,320 0
903 Cashiering 682 0
912 Selling Activities Expense 118,039 0
920 Salaries and wages 0 0
921 Office supplies and expenses 97,854 0
922 Administrative expense transferred - credit 0 0
923 Outside services employed 1,264,230 561,903
924 Property insurance 17,793 0
925 Injuries and damages 27,848 4,675
926 Employee pensions and benefits 183,515 0
928 Regulatory commission expense 0 0
930 .1 General advertising expense 0 0
930 .2 Miscellaneous general expenses 15,745 18,133
931 Rents 12 22
935 Maintenance of structures and equipment 0 0
403 - 404 Depreciation and amortization expense 13,857 1,436
408 Taxes other than income taxes 767,624 554
409 Income taxes (3,128,285) 0
410 Provision for deferred income taxes 939,124 0
411 Provision for deferred income taxes - credit 0 0
411 .5 Investment tax credit 0 0
426 .1 Donations 0 0
426 Other deductions 177 82
427 Interest on long-term debt 1,838,133 0
430 Interest on debt to associate companies 0 0
431 Other interest expense 41 3
Total Expense 5,603,401 586,808
Net Income or (Loss) (3,308,589) (572,037)
</TABLE>
<PAGE>
21
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
ANALYSIS OF BILLING
ASSOCIATE COMPANIES - ACCOUNT 457
<TABLE>
<CAPTION>
Direct Indirect Comp. Total
Costs Costs for Use Amount
Name of Associate Company Charged Charged of Capital Billed
<S> <C> <C> <C> <C>
Not applicable.
Total 0 0 0 0
</TABLE>
<PAGE>
22
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
ANALYSIS OF BILLING NONASSOCIATE COMPANIES
ACCOUNT 458
<TABLE>
<CAPTION>
Direct Indirect Comp. Excess Total
Cost Cost for Use Total or Amount
Name of Nonassociate CompanyCharged Charged of Capital Cost Deficiency Billed
(458.1) (458.2) (458.3) (458.4)
<S> <C> <C> <C> <C> <C> <C>
Alcan Rolled Products 6,000
Alliant Tech 18,813
Broughton Foods, Inc. 17,000
Cabot Corp. 4,000
Carbide Graphite 84,500
Cerro Metal 7,580
Cytec Industries 5,000
Front Royal 77
GE Plastics 9,000
Green Bay Packing 2,400
Greer Industries 5,000
Mack Trucks 17,706
Penn State 500
Rex-Hide Industries 750
Samuel Moore Assoc. 4,000
Schott Scientific Glass 1,500
Sonoco Products 43,240
St. Mary's Carbon Co. 800
St. Vincent College 741
Tom Stapleton 6,512
Windfall Products 2,500
Total 0 0 0 0 0 237,619
</TABLE>
Instructions: Provide a brief description of the services rendered to each
nonassociate company.
All listed companies are customers of AYP Capital's Transmission &
Distribution Services business line.
<PAGE>
23
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE XVI - ANALYSIS OF CHARGES FOR SERVICE
ASSOCIATE AND NONASSOCIATE COMPANIES
<TABLE>
<CAPTION>
Associate Co. Charges Nonassociate Co. ChargesTotal Charges for Service
Direct Indirect Direct Indirect Direct Indirect
Description of Items Cost Cost Total Cost Cost Total Cost Cost Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
920 Salaries and wages
921 Office supplies and expense
922 Admin expense transferred - cr
923 Outside services employed This type of breakdown is
924 Property insurance not available for
925 Injuries and damages competitive job billings.
926 Employee pensions and benefits
928 Regulatory commission expense
930 .1General advertising expenses
930 .2Miscellaneous general expenses
931 Rents
935 Maint of structures and equip
403 Depreciation and amortiz exp
408 Taxes other than income taxes
409 Income taxes
410 Prov for def income taxes
411 Prov for def income taxes - cr
411 .5Investment tax credit
426 .1Donations
426 Other deductions
427 Interest on long-term debt
431 Other interest expense
Total expenses 0 0 0 0 0 0 0 0 0
Comp for use of equity capital
430 Int on debt to assoc companies
Total cost of service 0 0 0 0 0 0 0 0 0
</TABLE>
Instructions: Total cost of service will equal for assocate and
nonassociate companies the total amount billed under their separate
analysis of billing schedules.
<PAGE>
24
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE XVII - EXPENSE DISTRIBUTION BY
DEPARTMENT OR SERVICE FUNCTION
<TABLE>
<CAPTION>
Department or Service Function
Total Over-
Description of Items Amnt head
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
920 Salaries and wages
921 Office supplies and expense
922 Admin expense transferred - credit
923 Outside services employed This type of breakdown is
924 Property insurance not applicable.
925 Injuries and damages
926 Employee pensions and benefits
928 Regulatory commission expense
930 .1General advertising expenses
930 .2Miscellaneous general expenses
931 Rents
935 Maint of structures and equipment
403 Depreciation and amortization expense
408 Taxes other than income taxes
409 Income taxes
410 Prov for def income taxes
411 Prov for def income taxes - credit
411 .5Investment tax credit
426 .1Donations
426 Other deductions
427 Interest on long-term debt
430 Interest on debt to associate companies
431 Other interest expense
Total expenses 0 0 0 0 0 0 0 0 0
</TABLE>
Instructions: Indicate each department or service function. (See
Instruction 01-3, General Structure of Accounting
System: Uniform System of Accounts.)
<PAGE>
25
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE XVII - EXPENSE DISTRIBUTION BY
DEPARTMENT OR SERVICE FUNCTION, CONTINUED
<TABLE>
<CAPTION>
Department or Service Function
Account
Number
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
920
921
922
923 This type of breakdown is
924 not applicable.
925
926
928
930 .1
930 .2
931
932
403
408
409
410
411
411 .5
426 .1
426 .5
427
430
431
0 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
26
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
DEPARTMENTAL ANALYSIS OF SALARIES
ACCOUNT 920
<TABLE>
<CAPTION>
Departmental Salary Expense
Name of Department Included in Amounts Billed to Personnel
Indicate each department Total Parent Other Non- at Close
service function. Amount Company Associates Associates of Year
<S> <C> <C> <C> <C> <C>
Not applicable.
Total 0 0 0 0 0
</TABLE>
<PAGE>
27
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
OUTSIDE SERVICES EMPLOYED
ACCOUNT 923
Instructions: Provide a breakdown by subaccount of outside services
employed. If the aggregate amounts paid to any one payee and included
within one subaccount is less than $25,000, only the aggregate number and
amount of all such payments included within the subaccount need be shown.
Provide a subtotal for each type of service.
<TABLE>
<CAPTION>
From Whom Purchased Address Relationship* Amount
<S> <C> <C> <C>
Administrative and Engineering:
Allegheny Power Service Corp. Greensburg, PA A 1,195,888
Transmission & Distribution Services:
ABB Power T & D Inc. Pittsburgh, PA NA 38,000
Sargent Electric Co. Pittsburgh, PA NA 12,980
Rumsey Electric Co. Latrobe, PA NA 6,203
S&C Electric Company Centralia, MO NA 5,374
Other
Various (9 payees) NA 5,785
</TABLE>
* "A" - Associate
"NA" - Nonassociate
Total 1,264,230
<PAGE>
28
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
EMPLOYEE PENSIONS AND BENEFITS
ACCOUNT 926
Instructions: Provide a listing of each pension plan and benefit program
provided by the company. Such listing should be limited to $25,000.
<TABLE>
<CAPTION>
Description Amount
<S> <C>
Restructuring Charges (Benefit plans curtailment
liabilities and special termination benefits) 129,000
Medical Insurance & Fees 26,464
Postretirement benefits other than pensions 13,625
Corporate Pension Plan 6,908
Savings Plan Expense 3,125
Miscellaneous (5) 4,393
</TABLE>
Total 183,515
<PAGE>
29
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
GENERAL ADVERTISING EXPENSES
ACCOUNT 930.1
Instructions: Provide a listing of the amount included in
Account 930.1, "General Advertising Expenses", classifying
the items according to the nature of the advertising and as
defined in the account definition. If a particular class
includes an amount in excess of $3,000 applicable to a single
payee, show separately the name of the payee and the
aggregate amount applicable thereto.
<TABLE>
<CAPTION>
Description Name of Payee Amount
<S> <C>
Not applicable.
Total 0
</TABLE>
<PAGE>
30
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
MISCELLANEOUS GENERAL EXPENSE
ACCOUNT 930.2
Instructions: Provide a listing of the amount included in Account 930.2,
"Miscellaneous General Expenses", classifying such expenses according to
their nature. Payments and expenses permitted by Sections 321(b)(2) of the
Federal Election Campaign Act, as amended by Public Law 94-283 in 1976
(2 U.S.C. Section 441(b)(2)) shall be separately classified.
<TABLE>
<CAPTION>
Description Amount
<S> <C>
Outside directors' fees and expenses 901
SEC Filing Fees 2,000
Legal Services concerning Form U1 4,288
Financial Expenses 7,998
Miscellaneous 558
Total 15,745
</TABLE>
<PAGE>
31
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
RENTS
ACCOUNT 931
Instructions: Provide a listing of the amount included in Account 931,
"Rents", classifying such expenses by major groupings of property, as defined
in the account definition of the Uniform System of Accounts.
<TABLE>
<CAPTION>
Type of Property Amount
<S> <C>
Miscellaneous 12
Total 12
</TABLE>
<PAGE>
32
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
TAXES OTHER THAN INCOME TAXES
ACCOUNT 408
Instructions: Provide an analysis of Account 408, "Taxes Other Than Income
Taxes". Separate the analysis into two groups: (1) other than U.S.
Government taxes, and (2) U.S. Government taxes. Specify each of the
various kinds of taxes and show the amounts thereof. Provide a subtotal for
each class of tax.
<TABLE>
<CAPTION>
Kind of Tax Amount
Other than U.S. Government taxes:
<S> <C>
Business & Occupation Tax 652,710
Property Tax 82,402
Capital Stock / Franchise Tax 1,657
State License Tax 270
Personal Property Tax 100
State Gross Premium Tax 26
State Sales Tax 20
Other State Tax 15
State Unemployment (41)
Subtotal 737,159
U.S. Government taxes:
FICA 30,481
Federal Unemployment (16)
Subtotal 30,465
Total 767,624
</TABLE>
<PAGE>
33
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
DONATIONS
ACCOUNT 426.1
Instructions: Provide a listing of the amount included in Account 426.1,
"Donations", classifying such expenses by its purpose. The aggregate
number and amount of all items of less than $3,000 may be shown in lieu of
details.
<TABLE>
<CAPTION>
Name of recipient Purpose of Donation Amount
<S> <C>
Not applicable.
Total 0
</TABLE>
<PAGE>
34
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
OTHER DEDUCTIONS
ACCOUNT 426.5
Instructions: Provide a listing of the amount included in Account 426.5,
"Other Deductions", classifying such expenses according to their nature.
<TABLE>
<CAPTION>
Description Name of Payee Amount
<S> <C>
Not Applicable
Total 0
</TABLE>
<PAGE>
35
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SCHEDULE XVIII
NOTES TO STATEMENT OF INCOME
Instructions: The space below is provided for important notes regarding the
statement of income or any account thereof. Furnish particulars as to any
significant increase in services rendered or expenses incurred during the year.
Notes relating to financial statements shown elsewhere in this report may be
indicated here by reference.
Refer to Schedule XIV on page 19.
<PAGE>
36
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
ORGANIZATIONAL CHART
AYP Capital, Inc. has no employees - Allegheny Power Service
Corporation provides administrative and engineering services.
<PAGE>
37
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
METHODS OF ALLOCATION
AYP Capital, Inc. expenses are not allocated to associate companies.
<PAGE>
38
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
ANNUAL STATEMENT OF COMPENSATION FOR USE OF CAPITAL BILLED
AYP Capital, Inc. does not bill associate companies for use of holding
company capital.
<PAGE>
39
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
SIGNATURE CLAUSE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935 and the rules and regulations of the Securities and Exchange Commission
issued thereunder, the undersigned company has duly caused this report to be
signed on its behalf by the undersigned officer thereunto duly authorized.
AYP Capital, Inc.
(Name of Reporting Company)
By: /s/ Thomas J. Kloc
(Signature of Signing Officer)
Thomas J. Kloc, Controller
(Printed Name and Title of Signing Officer)
April 30, 1997
(Date)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR2
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<NET-SERVICE-COMPANY-PROPERTY> 178,546,371
<TOTAL-INVESTMENTS> 2,790,505
<TOTAL-CURRENT-ASSETS> 26,961,219
<TOTAL-DEFERRED-DEBITS> 17,420
<OTHER-ASSETS-AND-DEBITS> 0
<TOTAL-ASSETS-AND-DEBITS> 208,315,515
<TOTAL-PROPRIETARY-CAPITAL> 27,404,050
<TOTAL-LONG-TERM-DEBT> 160,012,500
<NOTES-PAYABLE> 0
<NOTES-PAYABLE-ASSOCIATE-COMP> 0
<OTHER-CURR-AND-ACCRUED-LIAB> 19,365,603
<TOTAL-DEFERRED-CREDITS> 594,238
<DEFERRED-INCOME-TAX> 939,124
<TOT-LIABIL-AND-PROPRIET-CAP> 208,315,515
<SERVICES-ASSOCIATE-COMPANIES> 0
<SERVICES-NON-ASSOCIATE-COMP> 2,305,179*
<MISC-INCOME-OR-LOSS> (10,367)
<TOTAL-INCOME> 2,294,812
<SALARIES-AND-WAGES> 0
<EMPLOYEE-PENSION-AND-BENEFIT> 183,515
<OTHER-EXPENSES> 5,419,886
<TOTAL-EXPENSES> 5,603,401
<NET-INCOME> (3,308,589)
<TOTAL-EXPENSES-DIRECT-COST> 0
<TOTAL-EXPENSES-INDIRECT-COST> 0
<TOT-EXP-DIRECT-AND-INDIRECT> 0
<PERSONNEL-END-OF-YEAR> 0
* Sales are associated with AYP Energy, Inc., a wholly-
owned subsidiary of AYP Capital that operates as an
exempt wholesale generator and power marketer in the
wholesale electricity market.
</TABLE>
