<PAGE>
Form U-13-60
Mutual and Subsidiary Service Companies*
Revised February 7, 1980
ANNUAL REPORT
FOR THE PERIOD
Beginning January 1, 1997 and Ending December 31,
1997
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 Energy, 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
SCHEDULE OR PAGE
DESCRIPTION OF SCHEDULES AND ACCOUNTS ACCT. 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 Expense 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 Expense Account 930.1 29
Miscellaneous General Expense 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
PAGE
DESCRIPTION OF REPORTS OR STATEMENTS NO.
ORGANIZATION 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, 1997
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) 0 0
107 Construction work in progress 0 0
(Schedule II)
121 Non Utility Property (Schedule II) 169,192,160 172,348,936
Total Property 169,192,160 172,348,936
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) 5,585,657 15,293
Net Property 163,606,503 172,333,643
Investments
123 Investments in associate companies
(Schedule IV) 4,992,433 2,790,505
124 Other investments (Schedule IV) 0 0
Total Investments 4,992,433 2,790,505
Current and Accrued Assets
131 Cash 12,297,437 5,698,238
134 Special deposits 0 131,000
135 Working funds 2,000 (1,047,322)
136 Temporary cash investments
(Schedule IV) 0 0
141 Notes receivable 0 0
142 Customer accounts receivable 16,165,512 2,082,672
143 Accounts receivable 1,060,715 7,402,531
144 Accumulated provision for
uncollectible accounts (6,080) 0
146 Accounts receivable from associate
companies (Schedule V) 139,657 5,302,414
151 Fuel stock 2,166,526 2,795,292
152 Fuel stock expenses undistributed
(Schedule VI) 0 0
154 Material and supplies 2,361,347 2,394,709
163 Stores expense undistributed
(Schedule VII) 0 0
165 Prepayments 2,337,137 2,201,685
174 Miscellaneous current and accrued
assets (Schedule VIII) 1,000,000 0
Total Current and Accrued Assets 37,524,251 26,961,219
Deferred Debits
181 Unamortized debt expense 0 0
183 Preliminary Survey & Investigation
Charges 0 28
184 Clearing accounts 0 0
186 Miscellaneous deferred debits 5,455,411 6,230,120
(Schedule IX)
188 Research, development, or demonstration
expenditures (Schedule X) 0 0
190 Accumulated deferred income taxes 0 0
Total Deferred Debits 5,455,411 6,230,148
Total Assets and Other Debits 211,578,598 208,315,515
</TABLE>
<PAGE>
5
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
SCHEDULE I - COMPARATIVE BALANCE SHEET, CONTINUED
<TABLE>
<CAPTION>
Account Liabilities and Proprietary Capital Current Prior
<S> <C> <C> <C>
Proprietary Capital
201 Common stock issued (Schedule XI) 1,000 1,000
211 Miscellaneous paid-in capital (Schedule XI) 43,869,066 31,283,676
215 Appropriated retained earnings (Schedule XI) 0 0
216 Unappropriated retained earnings
(Schedule XI) (17,796,876) (3,880,626)
Total Proprietary Capital 26,073,190 27,404,050
Long-term Debt
223 Advances from associate
companies (Schedule XII) 0 12,500
224 Other long-term debt (Schedule XII) 160,000,000 160,000,000
225 Unamortized premium on long-term debt 0 0
226 Unamortized discount on long-term
debt (debit) 0 0
Total Long-term Debt 160,000,000 160,012,500
Current and Accrued Liabilities
231 Notes payable 0 0
232 Accounts payable 12,563,821 12,550,727
233 Notes payable to associate
companies (Schedule XIII) 0 0
234 Accounts payable to associate
companies (Schedule XIII) 4,010,613 2,822,334
236 Taxes accrued 3,248,297 1,129,583
237 Interest accrued 1,838,133 1,838,133
238 Dividends declared 0 0
241 Tax collections payable 34,281 0
242 Miscellaneous current and accrued
liabilities (Schedule XIII) 456,176 1,024,826
Total Current and Accrued Liabilities 22,151,321 19,365,603
Deferred Credits
253 Other deferred credits 258,837 594,238
255 Accumulated deferred investment tax credits 0 0
282 Accumulated deferred income taxes 3,095,250 939,124
Total Deferred Debits 3,354,087 1,533,362
Total Liabilities and Proprietary Capital 211,578,598 208,315,515
</TABLE>
<PAGE>
6
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
SCHEDULE II - PROPERTY
<TABLE>
<CAPTION>
Balance at Retiremts Other Balance at
Beginning or Changes Close
Account Description of Year Additions Sales (1) of Year
<S> <C> <C> <C> <C> <C>
301 Organization 0
303 Miscellaneous
intangible plant 0
304 Land and land
rights 517,732 (517,732) 0
305 Structures and
improvements 14,940,662 (14,940,662) 0
306 Leasehold
improvements 181,367 (10,457) 170,910
307 Equipment (2) 150,236,319 95,599 18,018,798 168,350,716
308 Office furniture
and equipment 155,637 229,869 385,506
309 Automobiles, other
vehicles and
related garage
equipment 17,232 39,076 56,308
310 Aircraft and
airport equipment 0
311 Other property (3) 228,720 228,720
Subtotal 166,048,949 582,806 0 2,560,404 169,192,160
107 Construction work
in progress 6,299,987 (6,299,987) 0
Total 172,348,936 582,806 0 (3,739,583) 169,192,160
</TABLE>
(1) Provide an explanation of those changes considered material:
In October 1996, the Company purchased a 50% interest in Unit
No. 1 of the Fort Martin Power Station. The allocation of net assets
related to the purchase was completed in 1997, and resulted in
adjustments to plant, property and equipment. The reclassification
included the transfer of all property related to the power station into
a single non utility property account (account 121).
<PAGE>
7
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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>
121 Non Utility Property 95,599 168,350,716
Additional subaccount detail not available.
Total 95,599 168,350,716
(3) Describe other property: Balance
at Close
Other property consists of: Additions of Year
121 Telecommunications Projects (ACC) 228,120 228,120
121 Miscellaneous 600 600
228,720 228,720
</TABLE>
(4) Describe construction work in progress:
Not applicable.
<PAGE>
8
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
SCHEDULE III - ACCUMULATED PROVISION FOR
DEPRECIATION AND AMORTIZATION OF PROPERTY
<TABLE>
<CAPTION>
Balance at Additions Other Balance at
Beginning to Changes Close
Account Description of Year Acct 403 / 404 Retirements (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 2,923 41,814 44,737
307 Equipment 3,506 5,498,588 5,502,094
308 Office furniture
and equipment 3,981 21,306 25,287
309 Automobiles, other
vehicles and
related garage
equipment 4,883 8,656 13,539
310 Aircraft and
airport equipment
311 Other property
Total 15,293 5,570,364 0 0 5,585,657
</TABLE>
(1) Provide an explanation of those changes considered material:
Not applicable.
<PAGE>
9
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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
Account 123- Investment in Associate Companies
<S> <C> <C>
EnviroTech Investment Fund I, L.P., net 913,714 1,237,117
A 9.9% interest in a limited partnership to acquire
securities of companies with a primary emphasis on
investments in energy.
Latin American Energy and Electricity Fund I, L.P. 1,634,182 3,528,262
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, L.L.C. 209,314 209,314
A 50% joint venture with EUA Cogenex Corporation
formed to engage in demand-side management business
activities.
FondElec General Partner, L.P.
A 4.975% interest in a limited partnership organized for
the purpose of acting as the general partner of the Latin
American Energy and Electricity Fund I, L.P. 33,295 17,740
Account 124- Other Investments
Not applicable.
Account 136- Temporary Cash Investments
Not applicable.
Total 2,790,505 4,992,433
</TABLE>
<PAGE>
10
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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, L.L.C. 35,591 0
APS Inc. - Funds given to APS, Inc. to invest 0 0
on behalf of AYP Capital 5,264,823 0
General Invoices between AYP Subsidiaries 2,000 0
General Invoices between AE, Inc subsidiaries 0 104,049
AYP Capital Unbilled 0 35,608
Total 5,302,414 139,657
</TABLE>
Analysis of Convenience or Accommodation Payments
Not applicable.
<PAGE>
11
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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 2,166,526 2,166,526
Total 0 2,166,526 2,166,526
</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, 1997
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.
Description Labor Expenses Total
Account 163- Stores Expense Undistributed
Not applicable.
Total 0 0 0
<PAGE>
13
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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.
Balance at Balance at
Beginning Close
Description of Year of Year
Account 174- Miscellaneous Current and Accrued Assets
WVA Unexpensed Property Taxes 0 1,000,000
Total 0 1,000,000
<PAGE>
14
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
SCHEDULE IX - MISCELLANEOUS DEFERRED DEBITS
Instructions: Provide detail of items in this account. Items less
than $10,000 may be grouped, showing the number of items in
each group.
Balance at Balance at
Beginning Close
Description of Year of Year
Account 186- Miscellaneous Deferred Debits
Expenses associated with the purchase
of Fort Martin Unit #1 3,216 0
Expenses associated with the operation 10,778 2,298
of Fort Martin Unit #1
Power Marketing Suite 0 109,025
Medium - Term Notes Deferred Issuance Costs 0 68,233
Deferred Call Options 0 98,400
Deferred Power Station Special Maint. Exp. 6,212,728 5,177,273
Other Miscellaneous Deferred Debits 3,398 182
Total 6,230,120 5,455,411
<PAGE>
15
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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.
Description Amount
Account 188- Research, Development, or Demonstration
Expenditures
Not applicable.
Total 0
<PAGE>
16
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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* 43,869,066
215 Appropriated Retained Earnings 0
Total 43,869,066
</TABLE>
* AYP Capital is funded in the form of capital contributions from
the holding company, Allegheny Energy, 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.
<TABLE>
<CAPTION>
Balance at Net Balance at
Beginning Income Dividends Close
Account Description of Year (Loss) Paid of Year
<S> <C> <C> <C> <C> <C>
216 Unappropriated Retained
Earnings (Deficit) (3,880,626) (13,916,250) 0 (17,796,876)
Total (3,880,626) (13,916,250) 0 (17,796,876)
</TABLE>
Net Losses are a result of non-utility operations.
17
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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>
223 Advances from associate
companies:
None
224 Other long-term debt:
5-year debt provided by a
syndicate of banks 2001 6.78 % * 160,000,000 160,000,000 160,000,000
Total 160,000,000 160,000,000 0 0 160,000,000
</TABLE>
* See 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, 1997
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>
Account 233- Notes Payable to Associate
Companies
Not applicable.
Total 0 0
Account 234- Accounts Payable to Associate Companies
Allegheny Power Service Corporation 2,809,775 3,315,298
West Penn Power Company 2,223 455,678
Monongahela Power Company 8,336 95,673
AYP Affiliates 2,000 0
Allegheny Energy, Inc. 0 15,330
Potomac Edison 0 128,634
Total 2,822,334 4,010,613
Account 242- Miscellaneous Current and Accrued Liabilities
Major Maintenance Accruals 542,474 0
Pension Accrual 298,396 280,750
Payrolls Accrued (Account 232) 183,956 0
Misc. Accrued Liabilities 0 80,949
Misc. Curr. and Accrued Liabilities 0 94,477
Total 1,024,826 456,176
</TABLE>
<PAGE>
19
ANNUAL REPORT OF AYP CAPITAL, INC.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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 by reference.
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is a wholly-owned subsidiary of Allegheny Energy,
Inc. Allegheny Energy, Inc. 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).
In 1996, AYP Capital, Inc. (the Company) formed two wholly-
owned subsidiaries, AYP Energy, Inc. (AYP Energy), an exempt
wholesale generator and power marketer in the wholesale
electricity market, and Allegheny Communications Connect, Inc.
(ACC), an exempt telecommunications company. In 1997, a new
wholly-owned subsidiary, Allegheny Energy Solutions, Inc. was
formed to market electric energy to retail customers in
deregulated markets and other energy-related services.
The Company has investments in two limited partnerships,
EnviroTech Investment Fund I,L.P., which invests in emerging
electrotechnologies that promote the efficient use of
electricity and improve the environment; and the Latin
American Energy and Electricity Fund I,L.P., which invests in
and develops electric opportunities in Latin America and the
Caribbean.
Significant accounting policies of the Company are summarized
below.
Consolidation
AYP Capital, Inc. owns all of the outstanding common stock of
its subsidiaries, AYP Energy, ACC, and Allegheny Energy
Solutions. The consolidated financial statements shown herein
include all the accounts of the Company and its subsidiary
companies after elimination of intercompany transactions.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates that affect the reported amounts of assets,
liabilities, revenues, expenses, and disclosures of
contingencies during the reporting period, which in the normal
course of business are subsequently adjusted to actual
results.
<PAGE>
Revenues
Revenues for the Company are recorded in the same period in
which the related electric services are provided to customers.
Revenues from other non-regulated activities are recorded in
the period earned.
Property, Plant, and Equipment
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. The allocation of net assets related to AYP
Energy's October 1996 Fort Martin Unit No. 1 purchase was
completed in 1997, and resulted in adjustments of $4.6 million
to property, plant, and equipment offset by 1997 construction
expenditures of $.6 million, for a net decrease in plant,
property, and equipment of $4.0 million. A reclassification
was made in the 1997 period to move $6.2 million related to a
major outage from property, plant, and equipment to deferred
charges to be amortized over six years. Prior period amounts
were reclassified for comparative purposes. Property, plant,
and equipment related to the Fort Martin Unit No. 1 is being
depreciated over 25 years.
Accounting for Investments
Investments in two limited partnerships 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.
Income Taxes
The Company joins with its Parent and affiliates in filing a
consolidated federal income tax return. The consolidated tax
liability is allocated among the participants generally in
proportion to the taxable income of each participant, except
that no subsidiary pays tax in excess of its separate return
tax liability.
Financial accounting income before income taxes differs from
taxable income principally because certain income and
deductions for tax purposes are recorded in the financial
income statement in another period. Differences between
income tax expense computed on the basis of financial
accounting income and taxes payable based on taxable income
are deferred. Deferred tax assets and liabilities represent
the tax effect of temporary differences between the financial
statement and tax basis of assets and liabilities computed
utilizing the most current tax rates.
Allocated Charges
The Company has no employees. As a result of AYP Energy being
a 50% owner of Fort Martin Power Station Unit No. 1, it incurs
expenses which include its proportionate share of all fuel,
operation and maintenance costs, and salaries, wages, and
employee benefits. The Company also incurs expenses which
<PAGE>
include its proportionate share of salaries, wages, and
employee benefits related to services provided by Allegheny
Energy Company, Inc. and its subsidiaries for the Company's
other subsidiaries. Employee benefits include the expenses of
a noncontributory defined benefit pension plan and partially
contributory medical and life insurance plans.
NOTE B: PROPOSED MERGER
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 had
agreed to a merger 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 Duquesne Light Company. The companies stated in
their announcement that the merger is expected to produce
synergy savings of about $1 billion.
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 (DOJ/FTC) under
the Hart, Scott, Rodino Antitrust Improvements Act (HSR).
Additionally, Allegheny Power requested that the Maryland
Public Service Commission (PSC) approve the issuance of
additional Allegheny Power stock to accomplish the
transaction. The companies have established a schedule to
obtain all regulatory approvals by June 30, 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. Allegheny Power and DQE each held separate
shareholder meetings on August 7, 1997, at which the
combination of the two companies was approved by the
shareholders of both companies. At Allegheny Power's meeting,
the shareholders also approved the change in Allegheny Power's
name to Allegheny Energy, Inc.
On August 1, 1997, Allegheny Power and DQE jointly filed
requests for merger approval with the PUC and the 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. Subsequently, Allegheny Power
filed for approval from the SEC under the Public Utility
Holding Company Act of 1935 and both companies filed with the
DOJ/FTC under the HSR.
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 before the end
<PAGE>
of May 1998. The PSC instituted a proceeding involving The
Potomac Edison Company, the Company's Maryland public utility
affiliate, to examine the effect of the merger on Maryland
customers. On March 25, 1998, the PSC issued an order
approving the filed settlement agreement between Allegheny
Energy, Inc. and all other parties in the proceeding, thus
allowing Allegheny Energy, Inc. to issue Allegheny Power
stock.
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.
NOTE C: CAPITALIZATION
Long-Term Debt
Maturities for long-term debt for the next five years are $160
million in the year 2001. In October 1996, AYP Energy
borrowed $160 million for five years from a syndicate of eight
banks priced at a floating rate based on the 90-day London
Interbank Offering Rate (LIBOR) plus a spread. AYP Energy
also entered into a floating-to-fixed interest rate swap to
hedge against fluctuations in interest rates. The swap plus
the spread on the underlying financing fixed the interest rate
to the Company at 6.78%. In January 1998, the swap was
refinanced in exchange for the counterparty's right to
exercise an option to extend the swap until 2006. The new
swap plus the spread on the underlying financing lowered the
interest rate to AYP Energy to 6.18%.
At December 31, 1997, the unrealized loss from the interest
swap agreement was $3.24 million. 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 Energy.
NOTE D: COMMITMENTS AND CONTINGENCIES
Investments
The Company has committed to invest up to an additional $5.2
million in the two limited partnerships, EnviroTech Investment
Fund I, L.P., and the Latin American Energy and Electricity
Fund I, L.P..
Construction Program
The Company has entered into commitments for its construction
programs, for which expenditures are estimated to be $32.6
million for 1998 and $8.5 million for 1999. 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 (CAAA) and the extent to
which environmental initiatives currently being considered
become mandated and their resultant impact on AYP Energy's 50%
<PAGE>
ownership of Fort Martin Unit No. 1.
Risk Management
AYP Energy uses derivative instruments to manage the risk
exposure associated with contracts it writes for the purchase
and/or sale of electricity for receipt or delivery at future
dates. Such instruments are used in accordance with a risk
management policy adopted by the Board of Directors and
monitored by an Exposure Management Committee of senior
management. The policy requires continuous monitoring,
reporting, and stress testing of all open positions for
conformity to policies which limit value at risk and market
risk associated with the credit standing of trading
counterparties. Such credit standings must be investment
grade or better, or be guaranteed by a parent company with
such a credit standing for all over-the-counter instruments.
At December 31, 1997, the trading books of AYP Energy
consisted primarily of physical contracts with fixed pricing.
Most contracts were fixed-priced, forward purchase and/or sale
contracts which required settlement by physical delivery of
electricity. During 1997, AYP Energy Company also entered
into option contracts which, if exercised, were settled with
physical delivery of electricity.
These transactions result in market risk which occurs when the
market price of a particular obligation or entitlement varies
from the contract price. As AYP Energy continues to develop
its power marketing and trading business, its exposure to
volatility in the price of electricity and other energy
commodities may increase within approved policy limits.
Environmental Matters and Litigation
System companies are subject to various laws, regulations, and
uncertainties as to environmental matters. Compliance may
require them to incur substantial additional costs to modify
or replace existing and proposed equipment and facilities, and
may affect adversely the cost of future operations. The more
significant additional environmental initiatives currently
being considered (in terms of their potential adverse
financial effect on the companies) are:
- NOx reductions of 75% from a 1990 baseline by mid-year
2003, depending upon modeling studies required by the Ozone
Transport Commission established under Title I of the CAAA. A
55% reduction is currently mandated.
- NOx reductions of 85% from a 1990 baseline by mid-year
2003 under a State Implementation Plan (SIP) call proposed by
the Environmental Protection Agency (EPA) in November 1997, as
well as by petitions filed with the EPA in August 1997 by
eight northeastern states proposing an 85% reduction.
- CO2 reductions of 7% below 1990 levels agreed to by the
Clinton Administration in a protocol for greenhouse gas
reductions at a conference in Kyoto, Japan, in December 1997.
The protocol requires approval of the United States Senate to
become effective.
<PAGE>
The NOx reduction proposals beyond 55% are being vigorously
opposed by the companies and other coal-burning utilities and
by other affected constituencies in coal producing states. In
January 1998, the Chambers of Commerce in Virginia and West
Virginia announced that they had joined in the first court
challenge, accusing the EPA of failing to assess the impact of
the 75% and 85% reduction proposals on small businesses. The
EPA contends that the Small Business Regulatory Enforcement
Fairness Act of 1996 does not apply. The United States Senate
has indicated that it will not approve the Kyoto protocol
because of its failure to include CO2 reduction requirements
on developing nations. The Company cannot predict the outcome
of these issues.
<PAGE>
20
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
SCHEDULE XV - COMPARATIVE STATEMENT OF INCOME
Give income statement of the Company for the current and prior years
ending December 31.
<TABLE>
<CAPTION>
Account Description Current Prior
<S> <C> <C> <C>
Income
440-447 Sales 82,082,986 2,067,560
450-456 Other operating revenues 77,693 0
457 Services rendered to associate companies 0 0
458 Services rendered to nonassociate
companies 3,635,126 237,619
417-421 Miscellaneous income or loss 1,458,987 (10,367)
Total Income 87,254,792 2,294,812
Expense
Power Costs:
501 Fuel 24,183,161 727,499
555 Purchased Power 43,663,227 1,334,584
500-514 Other 6,119,460 1,126,610
556-598 Transmission & Distribution 3,755,822 258,320
903 Cashiering 159,601 682
904 Uncollectibles 6,080 0
908-910 Other Customer Service (373) 0
912 Selling Activities Expense 1,076,889 118,039
913 Sales Advertising 1,884,553 0
920 Salaries and wages 2,024,321 0
921 Office supplies and expenses 1,915,388 97,854
922 Administrative expense transferred - credit 0 0
923 Outside services employed 3,118,664 1,264,230
924 Property insurance 139,258 17,793
925 Injuries and damages 74,137 27,848
926 Employee pensions and benefits 469,503 183,515
928 Regulatory commission expense 0 0
930.1 General advertising expense 1,672 0
930.2 Miscellaneous general expenses (71,192) 15,745
931 Rents 346,098 12
935 Maintenance of structures and equipment 8,572 0
403 - 404 Depreciation and amortization expense 5,570,364 13,857
408 Taxes other than income taxes 4,907,184 767,624
409 Income taxes (11,650,715) (3,128,285)
410 Provision for deferred income taxes 2,446,484 939,124
411 Provision for deferred income taxes - credit 0 0
411.5 Investment tax credit 0 0
426.1 Donations 0 0
426 Other deductions 98 177
427 Interest on long-term debt 11,019,433 1,838,133
430 Interest on debt to associate companies 0 0
431 Other interest expense 3,352 41
Total Expense 101,171,041 5,603,401
Net Income or (Loss) (13,916,249) (3,308,589)
</TABLE>
<PAGE>
21
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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, 1997
ANALYSIS OF BILLING NONASSOCIATE COMPANIES
ACCOUNT 458
<TABLE>
<CAPTION>
Direct Indirect Comp. Excess Total
Cost Cost for Use Total or Amount
Name of Nonassociate Company Charged Charged of Capital Cost Deficiency Billed
(458.1) (458.2) (458.3) (458.4)
AYP Capital believes that this page is not applicable to nonutility
companies who are using the U-13-60 Form designed for and used by
Service Companies. Nonutility companies perform numerous billings
to nonassociate companies, and requiring them to provide a list of
all of their customers and billings would be unduly burdensome. In
addition, the Company considers its customer data to be proprietary
information.
<S> <C> <C> <C> <C> <C> <C>
Total 0 0 0 0 0 0
</TABLE>
Instructions: Provide a brief description of the services rendered to
each nonassociate company.
<PAGE>
23
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
SCHEDULE XVI - ANALYSIS OF CHARGES FOR SERVICE
ASSOCIATE AND NONASSOCIATE COMPANIES
<TABLE>
<CAPTION>
Associate Co. Charges Nonassociate Co. Charges Total 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, 1997
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, 1997
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, 1997
DEPARTMENTAL ANALYSIS OF SALARIES
ACCOUNT 920
<TABLE>
<CAPTION>
Departmental Salary Expense
Name of Department Included in Amounts Billed to Personnel
Indicate each department or Total Parent Other Non- at Close
service function. Amount Company Associates Associates of Year
Not applicable.
<S> <C> <C> <C> <C> <C>
Total 0 0 0 0 0
</TABLE>
<PAGE>
27
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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 405,256
Generation, Transmission & Distribution Services:
Price Waterhouse LLP Pittsburgh, PA NA 25,750
Mentzell Electric Apollo, PA NA 26,669
Wesco Distribution, Inc Chicago, IL NA 29,139
General Electric Company Pittsburgh, PA NA 30,932
Howard Industries, Inc Memphis, TN NA 31,085
Davis H. Elliot Co., Inc Roanoke, VA NA 32,013
Everhart & Hoover Hustontown, PA NA 32,671
Dynamark Security Centers, Inc Hagerstown, MD NA 33,187
Pirelli Cable Corp Atlanta, GA NA 37,694
Hey Electric Co, Inc Butler, PA NA 38,727
Sunbelt Transformers Temple, TX NA 39,280
Siemens Power Trans & Distrib LLC Pittsburgh, PA NA 43,748
Critical Path, Inc Union Bridge, MD NA 51,925
Keller & Heckman LLP Washington,DC NA 55,904
National Power X Berlin, PA NA 55,978
Pittsburgh Trane Pittsburgh, PA NA 62,435
Fuld & Co, Inc Cambridge, MA NA 64,883
Hinkley Lighting Cincinnati, OH NA 66,183
Lambert Construction Co New Brighton, PA NA 69,347
Ellsworth Electric Co, Inc Hagerstown, MD NA 71,010
S&C Electric Co Chicago, IL NA 125,422
Transervice Air Corporation Nitro, WV NA 130,950
ABB Power T&D Co, Inc Chicago, IL NA 168,065
Beckwith Machinery Co Pittsburgh, PA NA 544,518
Other 845,893
Grand Total 3,118,664
</TABLE>
*A = associate, NA = nonassociate
<PAGE>
28
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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.
Description Amount
Life Insurance 31,809
Medical Insurance & Fees 132,679
Postretirement benefits other than pensions 181,542
Corporate Pension Plan 40,417
Savings Plan Expense 39,109
Miscellaneous (14) 43,947
Total 469,503
<PAGE>
29
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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.
Description Name of Payee Amount
Other Customer Information Various 1,672
Total 1,672
<PAGE>
30
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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.
Description Amount
Outside directors' fees and expenses 3,222
Service Company Misc. General Expenses (119,435)
Financial Expenses 43,078
Miscellaneous 1,943
Total (71,192)
<PAGE>
31
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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.
Type of Property Amount
EDP Equip. 37,393
Office Space 294,564
Office Furniture\Equip. 14,036
Other Rent 105
Total 346,098
<PAGE>
32
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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 4,052,065
Property Tax 562,062
Capital Stock / Franchise Tax 87,499
State License Tax 4,950
State Gross Premium Tax 847
State Sales Tax (5,102)
Other State Tax 5,753
State Unemployment 3,717
Subtotal 4,711,791
U.S. Government taxes:
FICA 193,668
Federal Unemployment 1,725
Subtotal 195,393
Total 4,907,184
</TABLE>
<PAGE>
33
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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.
Name of recipient Purpose of Donation Amount
Not applicable.
Total 0
<PAGE>
34
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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.
Description Name of Payee Amount
Not Applicable
Total 0
<PAGE>
35
Annual Report of AYP Capital, Inc.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
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, 1997
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, 1997
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, 1997
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, 1997
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)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR2
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<NET-PROPERTY> 163,606,503
<TOTAL-INVESTMENTS> 4,992,433
<TOTAL-CURRENT-ASSETS> 37,524,251
<TOTAL-DEFERRED-DEBITS> 5,455,411
<OTHER-ASSETS-AND-DEBITS> 0
<TOTAL-ASSETS-AND-DEBITS> 211,578,598
<TOTAL-PROPRIETARY-CAPITAL> 26,073,190
<TOTAL-LONG-TERM-DEBT> 160,000,000
<NOTES-PAYABLE> 0
<NOTES-PAYABLE-ASSOCIATE-COMP> 0
<OTHER-CURR-AND-ACCRUED-LIAB> 22,151,321
<TOTAL-DEFERRED-CREDITS> 258,837
<DEFERRED-INCOME-TAX> 3,095,250
<TOT-LIABIL-AND-PROPRIET-CAP> 211,578,598
<SERVICES-ASSOCIATE-COMPANIES> 0
<SERVICES-NON-ASSOCIATE-COMP> 85,795,805<F1>
<MISC-INCOME-OR-LOSS> 1,458,987
<TOTAL-INCOME> 87,254,792
<SALARIES-AND-WAGES> 2,024,321
<EMPLOYEE-PENSION-AND-BENEFIT> 469,503
<OTHER-EXPENSES> 98,677,217
<TOTAL-EXPENSES> 101,171,041
<NET-INCOME> (13,916,249)
<TOTAL-EXPENSES-DIRECT-COST> 0
<TOTAL-EXPENSES-INDIRECT-COST> 0
<TOT-EXP-DIRECT-AND-INDIRECT> 0
<PERSONNEL-END-OF-YEAR> 0
<FN>
<F1>*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.
</FN>
</TABLE>
