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 SeptemberJune 30, 19941995
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 NovemberAugust 9, 1994:1995:
37,817,878 shares (owned by the parent-KU Energy Corporation).
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PART I. FINANCIAL INFORMATION
KENTUCKY UTILITIES COMPANY
STATEMENTS OF INCOME
(Unaudited)
(in thousands of dollars)
For the Three
Months Ended
SeptemberJune 30,
1995 1994 1993
Operating Revenues (See Note 3) $156,512 $160,6152) $154,757 $154,026
Operating Expenses:
Fuel, principally coal, used in
generation (See Note 3) 33,972 44,8602) 40,679 43,372
Electric power purchased 15,603 10,68917,631 16,356
Other operating expenses 27,939 27,12030,127 27,645
Maintenance 15,209 12,75519,493 18,893
Depreciation 16,308 15,19118,785 16,151
Federal and state income taxes 14,208 15,9435,634 7,933
Other taxes 3,536 3,4174,125 3,642
Total Operating Expenses 126,775 129,975136,474 133,992
Net Operating Income 29,737 30,64018,283 20,034
Other Income and Deductions:
Interest and dividend income 771 827803 766
Other income and deductions - net 1,719 1,3121,376 1,875
Total Other Income and Deductions 2,490 2,1392,179 2,641
Income Before Interest Charges 32,227 32,77920,462 22,675
Interest Charges 8,585 7,9899,901 8,202
Net Income 23,642 24,79010,561 14,473
Preferred Stock Dividend Requirements 564 629564
Net Income Applicable to Common Stock $ 23,0789,997 $ 24,16113,909
The accompanying Notes to Financial Statements are an integral
part of these statements.
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KENTUCKY UTILITIES COMPANY
STATEMENTS OF INCOME
(Unaudited)
(in thousands of dollars)
For the NineSix
Months Ended
SeptemberJune 30,
1995 1994 1993
Operating Revenues (See Note 3) $477,066 $454,7602) $321,905 $320,554
Operating Expenses:
Fuel, principally coal, used in
generation (See Note 3) 121,203 132,3852) 86,385 87,231
Electric power purchased 47,842 26,12833,408 32,239
Other operating expenses 82,271 77,68860,725 54,332
Maintenance 48,640 39,21634,349 33,431
Depreciation 48,646 45,60637,486 32,338
Federal and state income taxes 36,872 39,09116,268 22,664
Other taxes 11,241 10,6428,439 7,705
Total Operating Expenses 396,715 370,756277,060 269,940
Net Operating Income 80,351 84,00444,845 50,614
Other Income and Deductions:
Interest and dividend income 3,273 2,3591,436 2,502
Other income and deductions - net 4,767 4,5132,856 3,048
Total Other Income and Deductions 8,040 6,8724,292 5,550
Income Before Interest Charges 88,391 90,87649,137 56,164
Interest Charges 24,932 25,11619,648 16,347
Net Income 63,459 65,76029,489 39,817
Preferred Stock Dividend Requirements 1,820 1,8881,128 1,256
Net Income Applicable to Common Stock $ 61,63928,361 $ 63,87238,561
The accompanying Notes to Financial Statements are an integral
part of these statements.
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KENTUCKY UTILITIES COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
For the NineSix Months
Ended SeptemberJune 30,
1995 1994 1993
Cash Flows from Operating Activities:
Net Income $ 63,45929,489 $ 65,76139,817
Items not requiring (providing) cash currently:
Depreciation 48,646 45,60637,486 32,338
Deferred income taxes and investment tax credit (4,768) 1,939(1,097) (3,342)
Changes in current assets and liabilities:
Change in fuel inventory (2,968) 3,853(2,199) 179
Change in accounts receivable (1,651) (10,192)2,957 2,059
Change in accounts payable 623 4,722(11,075) (3,195)
Change in accrued taxes 3,648 5,8694,737 2,998
Change in accrued utility revenues 4,964 3,037
Change in liability to ratepayers (28,704) 34,889
Change in escrow funds 29,582 (38,001)(628) 1,865
Other--net 3,665 10,0671,201 (2,393)
Net Cash Provided by Operating Activities 116,496 127,55060,871 70,326
Cash Flows from Investing Activities:
Construction expenditures - utility (130,035) (104,932)
Nonutility property (237) (4,955)(54,480) (89,468)
Other 337 12417 170
Cash Used by Investing Activities (129,935) (109,763)(54,463) (89,298)
Cash Flows from Financing Activities:
Short-term borrowings - net 59,100 -(31,300) 47,900
Issuance of long-term debt 50,000 - 123,500
Funds deposited with trustee - net 8,600 18,393 -
Retirement of long-term debt including premiums (21) (180,677)(21)
Retirement of preferred stock, including premium - (20,302) -
Payment of dividends (48,114) (47,270)(32,706) (32,139)
Net Cash Provided (Used) by Financing Activities 9,056 (104,447)(5,427) 13,831
Net DecreaseIncrease (Decrease) in Cash and Cash Equivalents (4,383) (86,660)981 (5,141)
Cash and Cash Equivalents Beginning of Period 3,111 8,832 94,299
Cash and Cash Equivalents End of Period $ 4,4494,092 $ 7,6393,691
Supplemental Disclosures
Cash paid for:
Interest on short and long-term debt $ 20,06318,622 $ 24,76715,378
Federal and state income taxes $ 38,41412,826 $ 33,14825,378
The accompanying Notes to Financial Statements are an integral
part of these statements.
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KENTUCKY UTILITIES COMPANY
BALANCE SHEETS
(Unaudited)
(in thousands of dollars)
As of As of
Sept.June 30, Dec. 31,
1995 1994 1993
ASSETS
Utility Plant:
Plant in service, at cost $2,079,701 $2,004,688$2,286,014 $2,238,926
Less: Accumulated depreciation 925,102 879,960
1,154,599 1,124,728970,974 933,394
1,315,040 1,305,532
Construction work in progress 209,325 158,829
1,363,924 1,283,557112,268 104,385
1,427,308 1,409,917
Current Assets:
Cash and cash equivalents 4,449 8,8324,092 3,111
Escrow funds - coal contract litigation 8,170 37,7526,594 6,911
Construction funds held by trustee 2 18,26810,108 18,553
Accounts receivable 43,108 41,45738,755 41,712
Accrued utility revenues 20,611 25,57524,855 24,227
Fuel, principally coal, at average cost 34,041 31,07337,851 35,652
Materials and supplies, at average cost 18,649 17,26122,123 20,081
Other 7,584 7,804
136,614 188,02213,818 10,616
158,196 160,863
Investments, Deferred Charges and Other Assets:
Accumulated deferred income taxes 42,162 35,778
Unamortized loss on reacquired debt 12,578 13,29511,814 12,324
Other 36,387 38,400
91,127 87,47335,006 34,996
46,820 47,320
Total Assets $1,591,665 $1,559,052$1,632,324 $1,618,100
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 567,123561,984 $ 552,106565,201
Preferred stock 40,000 40,000
Long-term debt 442,015 442,045
1,049,138 1,034,151545,984 496,012
1,147,968 1,101,213
Current Liabilities:
Preferred stock and long-termLong-term debt due within one year 21 20,02121
Short-term borrowings 59,100 -45,000 76,300
Accounts payable 44,629 44,00638,442 49,517
Accrued interest 9,993 7,3027,499 7,328
Accrued taxes 8,308 4,66014,159 9,422
Customers' deposits 6,284 10,8036,535 6,423
Accrued payroll and vacations 10,075 7,7099,194 8,207
Liab. to ratepayers - coal contract litigation 8,163 36,8676,595 6,909
Other 7,148 6,434
153,721 137,8026,317 6,275
133,762 170,402
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 254,593 248,103216,893 214,892
Accumulated deferred investment tax credits 39,302 42,38536,227 38,275
Regulatory liabilities 65,946 69,689tax liability 59,482 60,788
Other 28,965 26,922
388,806 387,09937,992 32,530
350,594 346,485
Total Capitalization and Liabilities $1,591,665 $1,559,052$1,632,324 $1,618,100
The accompanying Notes to Financial Statements are an integral
part of these statements.
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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 (1994 10K).
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.
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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--6-
KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Operating revenues for the three-month and six-month periods
ended June 30, 1994 were reduced by $.4 million and $.9 million,
respectively, resulting from the above-mentioned refund. The
refund also resulted in a reduction of fuel expense for the
three-month and six-month periods ended June 30, 1994 of
$.4 million and $3.4 million, respectively. 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.
LIQUIDITY & RESOURCES
Kentucky Utilities'3. FINANCING
In June 1995, KU issued $50 million of Series R First
Mortgage Bonds which will mature June 1, 2025 and bear interest
at 7.55%. The proceeds were used primarily to refinance short-
term indebtedness incurred to finance ongoing construction
expenditures increased
approximately $26 million for the nine-month period ended
September 30, 1994 compared to the same period of 1993. The
increase is primarily attributable to expenditures for compliance
with the 1990 Clean Air Act Amendments.
Kentucky Utilities plans to issue $54 million of tax-exempt
debt during the 4th quarter of 1994 to fund certain solid waste
disposal facilities' expenditures.
RESULTS OF OPERATIONS
Quarter ended September 30, 1994, compared
to the Quarter ended September 30, 1993
Increase (Decrease)
From Prior Year
Three Months
Ended Sept. 30, 1994
kWh Revenues
(%) (000's)
Residential (9) $ (3,017)
Commercial (1) 489
Industrial 9 3,114
Mine Power & Public Authorities 6 1,718
Total Retail Sales - 2,304
Other Electric Utilities 59 7,403
Miscellaneous Revenues & Other - (582)
Total Before Refund 9 9,125
Provision for Refund -
Litigation Settlement - (13,228)
Total 9 $ (4,103)
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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 and
a 1% increase in the average price per ton of coal consumed.
Purchased power expense increased by $4.9 million (46%) due to
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
higher demand costs ($3.6 million) and greater kilowatt-hour
purchases ($1.3 million). The increase in demand costs is
primarily due to the permanent increase in capacity entitlement,
effective January 1994, from Electric Energy, Inc. (EEI). 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% of the available
capacity from a 1,000-megawatt generating station owned by EEI.
Maintenance expenses increased $2.5 million (19%), primarily
due 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 $ 22,306
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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 $36.4 million
(8%) primarily as a result of an 11% increase in kilowatt-hour
sales. The increase in kilowatt-hour sales is primarily
attributable to increases in residential, commercial, industrial
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
neighboring 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 is
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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.
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PART II. OTHER INFORMATION
KENTUCKY UTILITIES COMPANY
ITEM 1. LEGAL PROCEEDINGS
By order ofgeneral corporate requirements.
4. ENVIRONMENTAL COST RECOVERY
In July 19, 1994, the Kentucky Public Service Commission (PSC)
approved Kentucky Utilities' plan forKU's January 1994 application to implement an
environmental surcharge adjustments to customer billings
beginning in August 1994.surcharge. 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 PSCKU's environmental surcharge was implemented in August 1994 and
is described in Item 1 of the 1994 10K. The initial six-month
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KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
review to confirm
the leveland hearing process was completed in June of environmental expenditures1995, and to reconcile previous
surcharge billings with actual costs.
Two requests for rehearing were filed by interveners beforeKU
is awaiting an order from the PSC. The typical customer's
monthly bill during the six-month review period increased by
about 2% as a result of the surcharge.
The constitutionality of the surcharge was challenged in the
Franklin County (Kentucky) Circuit Court (Circuit Court) in an
action brought against KU and the PSC denied those requests for rehearings.
On September 9, 1994,by the Attorney General of
the CommonwealthKentucky and representatives of Kentucky (Attorney General) filed an action incustomer groups. In July 1995,
the Franklin
County (KY) Circuit Court challengingentered judgment upholding the
constitutionality of the Kentuckysurcharge but vacating that part of the
PSC order allowing KU to recover costs associated with
environmental expenditures incurred before January 1, 1993, the
effective date of the surcharge statute, and seekingremanding to vacatethe PSC
for determination in accordance with the judgment. On August 7,
1995, KU filed a motion requesting the Circuit Court to amend its
judgment and sustain the PSC order of July 19, 1994 onin its entirety. If the
ground, among others, thatjudgment is ultimately upheld as entered, KU estimates the environmental surcharge approved by the PSC will deprive Kentucky
Utilities' customers of their property without due process of
law. Management believes that, based on its review of the
circumstances, the surcharge statute is constitutional andamount
it is
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probable that the PSC order of July 19, 1994 approving the
surcharge willwould be upheld. In the remote occurrence that the
statute is declared unconstitutional, amounts collected pursuantrequired to the PSC order may be subject to refund.
By motion filed November 8, 1994, the Attorney General and two
interveners are seeking to haverefund for surcharge collections deposited
with the court pendingthrough
June 1995 would be approximately $4 million. At this time, KU
cannot predict the outcome of this proceeding.
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY & RESOURCES
KU's construction expenditures decreased approximately
$35 million during the litigation.six-month period ending June 30, 1995
compared to the same period of 1994. The decrease is
attributable primarily to planned reductions in expenditures for
combustion turbine peaking units and for compliance with the 1990
Clean Air Act Amendments.
Refer to Note 3 of the Notes to Financial Statements for a
discussion of KU's financing activities.
RESULTS OF OPERATIONS
Quarter ended June 30, 1995, compared
to the Quarter ended June 30, 1994
Net Income applicable to common stock for the three-month
period ended June 30, 1995 was $10 million compared to
$13.9 million for the corresponding period of 1994. The decrease
reflects milder weather and a decline in off-system sales during
the second quarter of 1995 compared to 1994 as well as increases
in interest, depreciation and other operating expenses as further
discussed below.
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Increase (Decrease)
From Prior Year
Three Months
Ended June 30, 1995
kWh Revenues
(%) (000's)
Residential (2) $ 639
Commercial 1 1,376
Industrial 5 2,209
Mine Power & Public Authorities (1) 580
Total Retail Sales 1 4,804
Other Electric Utilities (25) (5,007)
Miscellaneous Revenues & Other - 569
Total Before Refund (5) 366
Provision for Refund -
Litigation Settlement - 365
Total (5) $ 731
Operating revenues, before the impact of the refunds to
customers during 1994, increased $.4 million. (Refer to Note 2 of
the Notes to Financial Statements, "Operating Revenues and Fuel
Costs", for a discussion of the refunds to customers resulting
from the resolution of a coal contract dispute and the impact on
1994 operating results). A 5% decrease in kilowatt-hour sales was
offset by $4.3 million recovered under the environmental
surcharge. (Refer to Note 4 of the Notes to Financial
Statements, Environmental Cost Recovery, for an update of
environmental surcharge legal proceedings.) 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 35% of the industrial sales increase was due
to greater sales to Toyota Motor Manufacturing
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
U.S.A., Inc. (TMM), 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 second quarter of 1995 compared to
1994. However, KU set an all-time peak demand for electricity on
July 14, 1995 of 3,250 megawatts.
Fuel expense, excluding the effect of the refunds to
customers, decreased $3.1 million (7%). This decrease reflects a
3% decrease in tons of coal consumed as well as a 4% decrease in
the average price per ton of coal consumed. Purchased power
expense increased $1.3 million (8%) due to increases in demand
($1 million) and energy costs ($.3 million). A 6% decline in
kilowatt-hour purchases, resulting from the previously mentioned
decline in kilowatt-hour sales, was offset by less favorable
pricing.
Other operating expenses increased by $2.5 million (9%) 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.
Depreciation expense increased $2.6 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 $1.7 million (21%) reflecting the
issuance of $54 million of long-term debt in the fourth quarter
of 1994 and an increase in the average amount of short-term debt
outstanding compared to the corresponding quarter of 1994.
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Federal and state operating income taxes decreased
$2.3 million (29%), primarily due to lower pre-tax income.
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months ended June 30, 1995, compared
to the Six Months ended June 30, 1994
Net income applicable to common stock for the six-month
period ended June 30, 1995 was $28.4 million as compared to
$38.6 million for the corresponding period of 1994. The decrease
reflects milder weather and a decline in off-system sales during
the six-month period ending June 30, 1995 as compared to the same
period in 1994 as well as increases in interest, depreciation and
other operating expenses as further discussed below. 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."
Increase (Decrease)
From Prior Year
Six Months
Ended June 30, 1995
kWh Revenues
(%) (000's)
Residential (4) $ (616)
Commercial - 2,436
Industrial 5 4,508
Mine Power & Public Authorities (2) 1,246
Total Retail Sales (1) 7,574
Other Electric Utilities (23) (7,484)
Miscellaneous Revenues & Other - 359
Total Before Refund (5) 449
Provision for Refund -
Litigation Settlement - 902
Total (5) $ 1,351
Operating revenues, before the impact of the refunds to
customers, increased $.4 million. A 5% decrease in kilowatt-hour
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
sales was offset by $8.1 million recovered under the
environmental surcharge. (Refer to Note 4 of the Notes to
Financial Statements, Environmental Cost Recovery, for an update
of environmental surcharge legal proceedings.) 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 33% of the industrial sales increase is due
to greater sales to TMM. 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 six-month period ended June 30, 1995 as
compared to the same period of 1994.
Fuel expense, excluding the effect of the refunds to
customers, decreased $4.2 million (5%). This decrease primarily
reflects a 4% decrease in tons of coal consumed. Purchased power
expense increased $1.2 million (4%) due to an increase in demand
costs ($2.2 million) partially offset by a decrease in kilowatt-
hour purchases ($1.0 million). The decrease in kilowatt-hour
purchases is due to the previously mentioned decline in kilowatt-
hour sales.
Other operating expenses increased $6.4 million (12%) 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.
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Maintenance expense increased $.9 million (3%) 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 $5.1 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 $3.3 million (20%) reflecting the
issuance of $54 million of long-term debt in the fourth quarter
of 1994 and an increase in the average amount of short-term debt
outstanding.
Federal and state operating income taxes decreased
$6.4 million (28%), primarily due to lower pre-tax income.
CAPACITY REQUIREMENTS
In May 1995, a 110-megawatt (MW) combustion turbine
generating unit, which was placed in commercial operation during
the first quarter of 1995, was taken out of service due to a
turbine blade problem. In addition to this unit, KU has decided
not to operate another similar combustion turbine unit placed in
commercial operation in 1994 and has temporarily discontinued
testing of a third similar unit scheduled for commercial
operation later in 1995 until the turbine blade problem can be
identified and corrected. KU is currently analyzing the
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
situation in cooperation with the vendor of the three 110 MW
generating units. Although KU cannot predict the outcome of this
matter, KU does not believe this will have a significant impact
on its results of operations or its ability to meet customer
requirements.
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UTILITY ISSUES - COMPETITION
In March 1995, the Federal Energy Regulatory Commission
(FERC) issued a Notice of Proposed Rulemaking (NOPR) by which the
FERC will require public utilities that own or control facilities
used for the transmission of electric energy in interstate
commerce to offer "open access" transmission service on a
nondiscriminatory 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. The
FERC expects to issue final rules by February 1996.
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 KU). The FERC accepted
the TS Tariff, subject to refund, effective December 1, 1994, but
did not approve the PS Tariff. KU revised the TS Tariff in a
filing made on March 31, 1995 with the FERC in order to meet
certain provisions of the NOPR and reaffirmed its request for the
market-based PS Tariff. On May 31, 1995, the FERC issued an
order which approved the revised TS Tariff, subject to refund,
and approved the PS Tariff subject to KU making a compliance
filing which addressed certain aspects of the TS and PS Tariffs.
On June 30, 1995, KU made the compliance filing with the FERC and
the PS Tariff became effective on that date.
Although KU does not expect either of these new tariffs to
have a material impact on its 1995 revenues or income, they are
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
indicative of the increasingly competitive environment in which
KU and other utilities operate.
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PART II. OTHER INFORMATION
KENTUCKY UTILITIES COMPANY
ITEM 1. LEGAL PROCEEDINGS
ENVIRONMENTAL COST RECOVERY
See Note 4 of the Notes to Financial Statements, Environmental
Cost Recovery, for an update of environmental surcharge legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the April 25, 1995 Annual Meeting of Shareholders, the
following proposal was acted upon and approved.
(1) To elect three Directors to the Board of Directors of
Kentucky Utilities believes that the motion is without merit and should be
denied.Company.
Votes
Votes for Withheld
William B. Bechanan 37,817,878 0
Harry M. Hoe 37,817,878 0
Michael R. Whitley 37,817,878 0
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 Computation4 Supplemental Indenture dated June 1, 1995 between
Kentucky Utilities Company and Bank of RatioAmerica
Illinois and Robert J. Donahue, as Trustees,
providing for First Mortgage Bonds Series R of
Earnings to Fixed Charges.Kentucky Utilities Company.
27 Financial Data Schedule (required for electronic
filing only in accordance with Item 601(c)(1) of
Regulation S-K.)S-K).
(b) Reports on Form 8-K.
None.
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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 NovemberAugust 9, 19941995 /s/ John T. Newton
John T. NewtonMichael R. Whitley
Michael R. Whitley
Chairman of the Board and
Chief Executive Officer
Date NovemberAugust 9, 19941995 /s/ Michael D. Robinson
Michael D. Robinson
Controller
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