SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994March 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3464
Kentucky Utilities Company
(Exact name of registrant as specified in its charter)
Kentucky and Virginia 61-0247570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Quality Street, Lexington, Kentucky 40507
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 606-255-2100
Not Applicable
Former name, former address and former fiscal year, if changed since
last report
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No .
Number of shares of Common Stock outstanding at November 9, 1994:May 8, 1995:
37,817,878 shares (owned by the parent-KU Energy Corporation).
-1-
PART I. FINANCIAL INFORMATION
KENTUCKY UTILITIES COMPANY
STATEMENTS OF INCOME
(Unaudited)
(in thousands of dollars)
For the Three
Months Ended
September 30,March 31,
1995 1994 1993
Operating Revenues (See Note 3) $156,512 $160,6152) $167,148 $166,528
Operating Expenses:
Fuel, principally coal,
used in generation (See Note 3) 33,972 44,8602) 45,706 43,859
Electric power purchased 15,603 10,68915,777 15,883
Other operating expenses 27,939 27,12030,598 26,687
Maintenance 15,209 12,75514,856 14,538
Depreciation 16,308 15,19118,701 16,187
Federal and state income taxes 14,208 15,94310,634 14,731
Other taxes 3,536 3,4174,314 4,063
Total Operating Expenses 126,775 129,975140,586 135,948
Net Operating Income 29,737 30,64026,562 30,580
Other Income and Deductions:
Interest and dividend income 771 827633 1,736
Other income and deductions - net 1,719 1,3121,480 1,173
Total Other Income and Deductions 2,490 2,1392,113 2,909
Income Before Interest Charges 32,227 32,77928,675 33,489
Interest Charges 8,585 7,9899,747 8,145
Net Income 23,642 24,79018,928 25,344
Preferred Stock Dividend Requirements 564 629692
Net Income Applicable to Common Stock $ 23,07818,364 $ 24,16124,652
The accompanying Notes to Financial Statements are an integral
part of these statements.
-2-
KENTUCKY UTILITIES COMPANY
STATEMENTS OF INCOMECASH FLOWS
(Unaudited)
(in thousands of dollars)
For the NineThree
Months Ended
September 30,March 31,
1995 1994
1993Cash Flows from Operating Revenues (See Note 3) $477,066 $454,760Activities:
Net Income $ 18,928 $ 25,344
Items not requiring (providing) cash currently:
Depreciation 18,701 16,187
Deferred income taxes and investment tax credit (630) (1,819)
Changes in current assets and liabilities:
Change in fuel inventory (254) 4,644
Change in accounts receivable 5,623 1,418
Change in accounts payable (18,239) (10,332)
Change in accrued taxes 10,725 17,858
Change in accrued utility revenues 2,493 4,788
Other--net 8,424 1,154
Net Cash Provided by Operating Expenses:
Fuel, principally coal,
usedActivities 45,771 59,242
Cash Flows from Investing Activities:
Construction expenditures - utility (28,035) (40,496)
Other 10 163
Cash Used by Investing Activities (28,025) (40,333)
Cash Flows from Financing Activities:
Short-term borrowings - net (7,100) 3,500
Funds deposited with trustee - net 8,600 9,000
Retirement of long-term debt (21) (21)
Retirement of preferred stock, including premium - (20,302)
Payment of dividends (16,353) (16,258)
Net Cash Used by Financing Activities (14,874) (24,081)
Net Increase (Decrease) in generation (See Note 3) 121,203 132,385
Electric power purchased 47,842 26,128
Other operating expenses 82,271 77,688
Maintenance 48,640 39,216
Depreciation 48,646 45,606Cash and
Cash Equivalents 2,872 (5,172)
Cash and Cash Equivalents Beginning of Period 3,111 8,832
Cash and Cash Equivalents End of Period $ 5,983 $ 3,660
Supplemental Disclosures
Cash paid for:
Interest on short and long-term debt $ 6,475 $ 4,779
Federal and state income taxes 36,872 39,091
Other taxes 11,241 10,642
Total Operating Expenses 396,715 370,756
Net Operating Income 80,351 84,004
Other Income and Deductions:
Interest and dividend income 3,273 2,359
Other income and deductions$ - net 4,767 4,513
Total Other Income and Deductions 8,040 6,872
Income Before Interest Charges 88,391 90,876
Interest Charges 24,932 25,116
Net Income 63,459 65,760
Preferred Stock Dividend Requirements 1,820 1,888
Net Income Applicable to Common Stock $ 61,639 $ 63,872-
The accompanying Notes to Financial Statements are an integral
part of these statements.
-3-
KENTUCKY UTILITIES COMPANY
STATEMENTS OF CASH FLOWSBALANCE SHEETS
(Unaudited)
(in thousands of dollars)
For the Nine Months
Ended September 30,As of As of
March 31, Dec. 31,
1995 1994
1993ASSETS
Utility Plant:
Plant in service, at cost $2,274,572 $2,238,926
Less: Accumulated depreciation 953,153 933,394
1,321,419 1,305,532
Construction work in progress 98,617 104,385
1,420,036 1,409,917
Current Assets:
Cash Flows from Operating Activities:
Net Incomeand cash equivalents 5,983 3,111
Escrow funds - coal contract litigation 6,508 6,911
Construction funds held by trustee 9,979 18,553
Accounts receivable 36,089 41,712
Accrued utility revenues 21,734 24,227
Fuel, principally coal, at average cost 35,906 35,652
Materials and supplies, at average cost 21,670 20,081
Other 11,002 10,616
148,871 160,863
Investments, Deferred Charges and Other Assets:
Unamortized loss on reacquired debt 12,069 12,324
Other 34,933 34,996
47,002 47,320
Total Assets $1,615,909 $1,618,100
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 63,459567,776 $ 65,761
Items not requiring (providing) cash currently:
Depreciation 48,646 45,606565,201
Preferred stock 40,000 40,000
Long-term debt 495,987 496,012
1,103,763 1,101,213
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings 69,200 76,300
Accounts payable 31,278 49,517
Accrued interest 9,938 7,328
Accrued taxes 20,147 9,422
Customers' deposits 6,421 6,423
Accrued payroll and vacations 10,718 8,207
Liab. to ratepayers - coal contract litigation 6,508 6,909
Other 7,956 6,275
162,187 170,402
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes and215,826 214,892
Accumulated deferred investment tax credit (4,768) 1,939
Change in fuel inventory (2,968) 3,853
Change in accounts receivable (1,651) (10,192)
Change in accounts payable 623 4,722
Change in accrued taxes 3,648 5,869
Change in accrued utility revenues 4,964 3,037
Change incredits 37,251 38,275
Regulatory tax liability to ratepayers (28,704) 34,889
Change in escrow funds 29,582 (38,001)
Other--net 3,665 10,067
Net Cash Provided by Operating Activities 116,496 127,550
Cash Flows from Investing Activities:
Construction expenditures - utility (130,035) (104,932)
Nonutility property (237) (4,955)60,119 60,788
Other 337 124
Cash Used by Investing Activities (129,935) (109,763)
Cash Flows from Financing Activities:
Short-term borrowings - net 59,100 -
Issuance of long-term debt - 123,500
Funds deposited with trustee - net 18,393 -
Retirement of long-term debt, including premiums (21) (180,677)
Retirement of preferred stock, including premium (20,302) -
Payment of dividends (48,114) (47,270)
Net Cash Provided (Used) by Financing Activities 9,056 (104,447)
Net Decrease in Cash36,763 32,530
349,959 346,485
Total Capitalization and Cash Equivalents (4,383) (86,660)
Cash and Cash Equivalents Beginning of Period 8,832 94,299
Cash and Cash Equivalents End of Period $ 4,449 $ 7,639
Supplemental Disclosures
Cash paid for:
Interest on long-term debt $ 20,063 $ 24,767
Federal and state income taxes $ 38,414 $ 33,148Liabilities $1,615,909 $1,618,100
The accompanying Notes to Financial Statements are an integral
part of these statements.
-4-
KENTUCKY UTILITIES COMPANY
BALANCE SHEETS
(Unaudited)
(in thousands of dollars)
As of As of
Sept. 30, Dec. 31,
1994 1993
ASSETS
Utility Plant:
Plant in service, at cost $2,079,701 $2,004,688
Less: Accumulated depreciation 925,102 879,960
1,154,599 1,124,728
Construction work in progress 209,325 158,829
1,363,924 1,283,557
Current Assets:
Cash and cash equivalents 4,449 8,832
Escrow funds - coal contract litigation 8,170 37,752
Construction funds held by trustee 2 18,268
Accounts receivable 43,108 41,457
Accrued utility revenues 20,611 25,575
Fuel, principally coal, at average cost 34,041 31,073
Materials and supplies, at average cost 18,649 17,261
Other 7,584 7,804
136,614 188,022
Investments, Deferred Charges and Other Assets:
Accumulated deferred income taxes 42,162 35,778
Unamortized loss on reacquired debt 12,578 13,295
Other 36,387 38,400
91,127 87,473
Total Assets $1,591,665 $1,559,052
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 567,123 $ 552,106
Preferred stock 40,000 40,000
Long-term debt 442,015 442,045
1,049,138 1,034,151
Current Liabilities:
Preferred stock and long-term debt
due within one year 21 20,021
Short-term borrowings 59,100 -
Accounts payable 44,629 44,006
Accrued interest 9,993 7,302
Accrued taxes 8,308 4,660
Customers' deposits 6,284 10,803
Accrued payroll and vacations 10,075 7,709
Liab. to ratepayers - coal contract litigation 8,163 36,867
Other 7,148 6,434
153,721 137,802
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 254,593 248,103
Accumulated deferred investment tax credits 39,302 42,385
Regulatory liabilities 65,946 69,689
Other 28,965 26,922
388,806 387,099
Total Capitalization and Liabilities $1,591,665 $1,559,052
The accompanying Notes to Financial Statements are an integral
part of these statements.
-5-
KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. PRESENTATION OF CONDENSED INFORMATION
Pursuant to the rules and regulations of the Securities and
Exchange Commission, certain information has been condensed and
certain footnote disclosures have been omitted, which are normal-
ly included in financial statements prepared in accordance with
generally accepted accounting principles.
These financial statements should be read in conjunction
with the financial statements and notes thereto in the Kentucky
Utili-tiesUtilities Company (Kentucky Utilities)(KU) Annual Report on Form 10-
K10-K for the year
ended December 31, 1993.1994.
In the opinion of management, the information furnished
herein reflects all adjustments which are necessary to present
fairly the results of the periods shown and the disclosures which
have been made are adequate to make the information not mislead-
ing. Results of interim periods are not necessarily indicative
of results for any twelve-month period due to the seasonal nature
of Kentucky Utilities'KU's business.
2. PREFERRED STOCK
Kentucky Utilities issued $20 million of 6.53% preferred
stock in December 1993. On February 1, 1994, Kentucky Utilities
used the proceeds from this issue, together with other available
funds, to redeem its 7.84% Preferred Stock at a total cost of
$20.3 million (including a redemption premium of $.3 million).
Kentucky Utilities announced its intention to redeem this
preferred stock on December 22, 1993.
-6-
KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. OPERATING REVENUES AND FUEL COSTS
Pursuant to regulatory orders, Kentucky UtilitiesKU has been refunding fuel
cost savings related to the resolution of a coal contract
dispute. Refunds to Kentucky retail customers commenced in July
1994. Refunds were made to Virginia retail customers during the
period August 1993 through June 1994. Refunds were made to
wholesale customers under the jurisdiction of the Federal Energy
Regulatory Commission in lump sum payments in September 1993.
Operating revenues and fuel expense for the respective
periods were reduced by the following amounts resulting from the
above- mentioned refunds:
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1994 1993 1994 1993
(in thousands of dollars)
Reductions in:
Operating
Revenues $17,540 $4,312 $18,442 $4,312
Fuel, principally
coal, used in
generation $18,614 $5,098 $21,980 $5,098
The difference between the reduction in Operating Revenues
and the reduction in Fuel Expense is attributed to incurred
litigation costs, fuel costs savings related to off-system sales
and costs incurred to administer the refund plan. These amounts
were allowed to be retained by Kentucky Utilities pursuant to
-7--5-
KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Operating revenues and fuel expense for the three-month
period ended March 31, 1994 were reduced by $.5 million and $2.9
million, respectively, resulting from the above-mentioned refund.
The refunding had no impact on operating revenues or fuel expense
for the three-month period ended March 31, 1995. The difference
between the reduction in operating revenues and the reduction in
fuel expense is attributed to incurred litigation costs and fuel
costs savings related to off-system sales. These amounts were
allowed to be retained by KU pursuant to regulatory orders.
-6-
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY & RESOURCES
Kentucky Utilities'KU's construction expenditures increaseddecreased approximately
$26$12 million forduring the nine-monththree-month period ended
September 30, 1994ending March 31, 1995,
compared to the same period of 1993.1994. The increasedecrease is primarily
attributable to planned reductions in expenditures for combustion
turbine peaking units and for compliance with the 1990 Clean Air
Act Amendments.
Kentucky UtilitiesKU plans to issue $54up to an additional $50 million of tax-exemptlong-
term debt during the 4th quarter of 19941995, principally to fund certain solid waste
disposal facilities' expenditures.refinance short-term
indebtedness.
RESULTS OF OPERATIONS
Quarter ended September 30, 1994,March 31, 1995, compared
to the Quarter ended September 30, 1993March 31, 1994
Net income applicable to common stock for the three-month
period ending March 31, 1995 was $18.4 million as compared to
$24.7 million for the corresponding period of 1994. Net income
applicable to common stock for the first quarter of 1994 included
a one-time recovery of about $1.9 million from the resolution of
a coal contract dispute. For additional information concerning
the refunds resulting from resolution of the dispute and the
impact on 1994 operating results, refer to Note 2 of the Notes to
Financial Statements, "Operating Revenues and Fuel Costs".
-7-
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Increase (Decrease)
From Prior Year
Three Months
Ended Sept. 30, 1994March 31, 1995
kWh Revenues
(%) (000's)
Residential (9)(6) $ (3,017)(1,255)
Commercial (1) 4891,060
Industrial 9 3,1145 2,299
Mine Power & Public Authorities 6 1,718(2) 666
Total Retail Sales - 2,304(2) 2,770
Other Electric Utilities 59 7,403(21) (2,477)
Miscellaneous Revenues & Other - (582)(210)
Total Before Refund 9 9,125(5) 83
Provision for Refund -
Litigation Settlement - (13,228)537
Total 9(5) $ (4,103)620
Operating revenues, before the impact of the refunds to
customers, increased about $.1 million. A 5% decrease in
kilowatt-hour sales was offset by $3.8 million recovered under
the environmental surcharge discussed below (see page 10). The
decrease in kilowatt-hour sales is attributable to a decline in
residential and off-system sales, partially offset by an increase
in industrial sales. The increase in industrial sales reflects
continued economic growth in the manufacturing sector of KU's
service area. About 30% of the industrial sales increase was due
to greater sales to Toyota Motor Manufacturing U.S.A., Inc., KU's
largest customer. The decrease in off-system sales is
attributable to a decrease in demand for power at neighboring
utilities. The decline in residential sales reflects milder
weather during the first quarter of 1995 compared to 1994.
Fuel expense, excluding the effect of the refunds to customers,
decreased $1.1 million (2%). This decrease reflects a 6% decrease
-8-
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating revenues were impacted by refunds to customers of
fuel cost savings associated with the resolution of a coal
contract dispute. Refer to Note 3 of the Notes to Financial
Statements for further discussion. Operating revenues, before
the impact of the refunds to customers, increased $9.1 million
(6%) primarily as a result of a 9% increase in kilowatt-hour
sales. The increase in kilowatt-hour sales is primarily
attributable to increases in industrial and off-system sales
partially offset by a decrease in residential sales. The
increase in industrial sales reflects the continued improvement
of the manufacturing segment of the service area. About 40% of
the increase in industrial sales is due to greater sales to
Toyota Motor Manufacturing U.S.A., Inc. (TMM), Kentucky
Utilities' largest customer. TMM completed an $800 million
assembly plant expansion in March 1994. The increase in off-
system sales is attributable to an increase in demand for power
at neighboring utilities. The decrease in residential sales
resulted from the mild weather experienced during the third
quarter of 1994.
Fuel expense was also impacted by the previously mentioned
refunds to customers. Refer to Note 3 of the Notes to Financial
Statements for further discussion. Fuel expense, excluding the
effect of the refunds to customers, increased $2.6 million (5%).
This increase reflects a 4% increase in tons of coal consumed, andpartially offset by a 1%3% increase in
the average price per ton of coal consumed. Purchased power
expense increased by $4.9decreased $.1 million (46%(1%) due to an increase in demand
costs ($1.3 million) offset by a decrease in kilowatt-hour
purchases ($1.4 million). The decrease in kilowatt-hour
purchases is due to the previously mentioned decline in kilowatt-
hour sales.
Other operating expenses increased $3.9 million (15%) due to
increased generating plant operations expenses (primarily
attributable to costs associated with environmental compliance),
advertising and marketing program expenses and timing of
administrative and general expenditures.
Maintenance expense increased $.3 million (2%) due to an
increase in production maintenance resulting from the timing of
scheduled maintenance at KU's generating stations. This increase
was substantially offset by a decrease in distribution
maintenance in 1995. Extensive ice storm damage in the first
quarter of 1994 increased distribution maintenance in that
period.
Depreciation expense increased $2.5 million (16%) resulting
from the Ghent Unit 1 scrubber and two combustion turbine peaking
units being placed into service late in 1994 and early 1995.
Interest charges increased $1.6 million (20%) reflecting the
issuance of additional short-term debt (commercial paper) during
1995 as well as the issuance of $54 million of long-term debt in
-9-
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
higher demand costs ($3.6 million) andthe fourth quarter of 1994. The average amount of short-term
debt outstanding during the first quarter of 1995 was
substantially greater kilowatt-hour
purchases ($1.3 million). The increasethan in demand costs is
primarily due to the permanent increase in capacity entitlement,
effectivefirst quarter of 1994.
ENVIRONMENTAL COST RECOVERY
In July 1994, the PSC approved KU's January 1994 application
to implement an environmental surcharge. The surcharge,
authorized by a Kentucky statute enacted in 1992, is designed to
recover certain operating and capital costs related to compliance
with federal, state or local environmental requirements
associated with the production of energy from Electric Energy, Inc. (EEI).coal, including the
1990 Clean Air Act Amendments. KU's environmental surcharge was
implemented in August 1994. KU estimates that it has resulted in
an average increase of about 4% in a customer's monthly bill,
leaving KU's rates very competitive. The increased kilowatt-hour purchases were primarily from EEI. A
contract between Kentucky Utilities and EEI allows Kentucky
Utilities to purchase, on an economic basis, 20%constitutionality of
the available
capacity fromsurcharge is being challenged in the Franklin County
(Kentucky) Circuit Court. Management believes that the surcharge
statute is constitutional and the PSC approval of July 1994 will
be upheld.
UTILITY ISSUES - COMPETITION
In March 1995, the Federal Energy Regulatory Commission
(FERC) issued a 1,000-megawatt generating station ownedNotice of Proposed Rulemaking (NOPR) by EEI.
Maintenance expenses increased $2.5 million (19%), primarily
duewhich the
FERC will require public utilities that own or control facilities
used for the transmission of electric energy in interstate
commerce to the timing of scheduled maintenance at Kentucky Utilities'
generating stations.
Nine Months ended September 30, 1994, compared
to the Nine Months ended September 30, 1993
Increase (Decrease)
From Prior Year
Nine Months
Ended Sept. 30, 1994
kWh Revenues
(%) (000's)
Residential 2 $ 4,790
Commercial 3 3,698
Industrial 8 6,591
Mine Power & Public Authorities 5 3,170
Total Retail Sales 4 18,249
Other Electric Utilities 52 17,890
Miscellaneous Revenues & Other - 297
Total Before Refund 11 36,436
Provision for Refund -
Litigation Settlement - (14,130)
Total 11 $ 22,306offer "open access" transmission service on a
-10-
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating revenues were impactednondiscriminatory basis. The FERC also proposes to allow, in
certain circumstances, the collection of charges for the recovery
of stranded costs when customers change power suppliers. KU
filed a Transmission Services (TS) Tariff and Power Services (PS)
Tariff on September 30, 1994 (Refer to Management's Discussion
and Analysis in the 1994 Annual Report on Form 10-K under the
heading "Utility Issues - Competition" for a discussion of the TS
Tariff and PS Tariff filed by refunds to customers of
fuel cost savings associatedKU). KU revised the TS Tariff in a
filing made on March 31, 1995 with the resolutionFERC. KU will comply with
any requirements mandated by the FERC's final rules. Although KU
does not expect either of these new tariffs to have a coal
contract dispute. Refer to Note 3material
impact on its 1995 revenues or income, they are indicative of the
Notes to Financial
Statements for further discussion. Operating revenues, before
the impact of the refunds to customers, increased $36.4 million
(8%) primarily as a result of an 11% increaseincreasingly competitive environment in kilowatt-hour
sales. The increase in kilowatt-hour sales is primarily
attributable to increases in residential, commercial, industrialwhich KU and off-system sales. The increase in industrial sales reflects
the continued improvement of the manufacturing segment of the
service area. About 40% of the increase in industrial sales is
attributable to greater sales to TMM due its to recent plant
expansion. The increase in off-system sales is attributable to
an increase in demand for power due to maintenance programs at
neighboringother
utilities and to warm weather during the second
quarter of 1994.
Fuel expense was also impacted by the previously mentioned
refunds to customers. Refer to Note 3 of the Notes to Financial
Statements for further discussion. Fuel expense, excluding the
effect of the refunds to customers, increased $5.7 million (4%).
This increase reflects a 3% increase in the average price per ton
of coal consumed and a 1% increase in the tons of coal consumed.
Purchased power expense increased $21.7 million (83%) due to
higher demand costs ($10 million) and to greater kilowatt-hour
purchases ($11.7 million). The increase in demand costs isoperate.
-11-
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
primarily due to the permanent increase in capacity entitlement,
effective January 1994, from EEI. The increased kilowatt-hour
purchases were primarily from EEI.
Maintenance expenses increased $9.4 million (24%). The
increase is the result of distribution utility line maintenance
costs incurred as a result of extensive ice storm damage during
the first quarter of 1994, as well as the timing of scheduled
maintenance at Kentucky Utilities' generating stations.
-12-
PART II. OTHER INFORMATION
KENTUCKY UTILITIES COMPANY
ITEM 1. LEGAL PROCEEDINGS
ENVIRONMENTAL COST RECOVERY
By order of July 19, 1994, the Kentucky Public Service
Commission (PSC) approved Kentucky Utilities'KU's plan for environmental surcharge
adjustments to customer billings beginning in August 1994. The
surcharge, authorized by a Kentucky statute enacted in 1992, is
designed to recover certain ongoing operating and capital costs,
not already included in existing rates, related to compliance
with federal, state or local environmental requirements
associated with the production of energy from coal, including the
1990 Clean Air Act Amendments. Surcharge billings are subject to
periodic PSC review to confirm the level of environmental
expenditures and to reconcile previous surcharge billings with
actual costs.
Two requests for rehearing were filed by interveners before
the PSC. The PSC denied those requests for rehearings.
On September 9, 1994, the Attorney General of the Commonwealth
of Kentucky (Attorney General) filed an action in the Franklin
County (KY) Circuit Court challenging the constitutionality of
the Kentucky surcharge statute and seeking to vacate the PSC
order of July 19, 1994 on the ground, among others, that the
environmental surcharge approved by the PSC will deprive Kentucky
Utilities'KU's
customers of their property without due process of law. The
Attorney General has been joined by interveners asserting similar
claims on behalf of ratepayer groups. In December 1994, the
Circuit Court denied a motion by the Attorney General and two
interveners seeking to have surcharge collections deposited with
-12-
the court pending the outcome of the litigation. Management
believes that based on its review of the
circumstances, the surcharge statute is constitutional and it is
-13-
probable that
the PSC order of July 19, 1994 approving the surcharge will be
upheld. In the remote occurrence that the statute is declared
unconstitutional, amounts collected pursuant to the PSC order may
be subject to refund.
By motion filed November 8, 1994, the Attorney General and two
interveners are seekingFUEL MATTERS
A former coal supplier of KU has initiated arbitration
proceedings to recover approximately $536,000 in on-going
reclamation costs claimed to have surcharge collections depositedbeen incurred during mining
operations at the supplier's mine used to supply KU under a
contract that expired in 1988. In addition, the supplier has
submitted invoices for approximately $1,324,000 representing what
it claims are final reclamation costs incurred during 1994. The
supplier has stated that invoices for final reclamation costs
will be submitted every six months over the five years estimated
by the supplier for completion of final reclamation, which began
in 1994. The supplier has not sought arbitration or otherwise
initiated proceedings with respect to the court pendingclaims for final
reclamation nor has it produced any original cost data in support
of its claims for final reclamation. Management intends to
contest vigorously the outcomeclaims for on-going and final reclamation.
Although the total amount of the litigation. Kentucky
Utilitiesclaims is unknown at this time,
KU believes that this matter will not have a material adverse
effect on KU's financial position or its results of operation. KU
will seek to recover any amounts ultimately paid through the motion is without merit and should be
denied.Fuel
Adjustment Clause.
-13-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed as part of this report:
Exhibit
Number Description
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule (required for electronic
filing only in accordance with Item 601(c)(1) of
Regulation S-K.)
(b) Reports on Form 8-K.
None.
-14-
KENTUCKY UTILITIES COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
KENTUCKY UTILITIES COMPANY
(Registrant)
Date November 9, 1994May 8, 1995 /s/ John T. Newton
John T. Newton
Chairman of the Board and
Chief Executive Officer
Date November 9, 1994May 8, 1995 /s/ Michael D. Robinson
Michael D. Robinson
Controller
-15-