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 March 31,June 30, 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 May 8,August 9, 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
March 31,June 30,
1995 1994
Operating Revenues (See Note 2) $167,148 $166,528$154,757 $154,026
Operating Expenses:
Fuel, principally coal, used in
generation (See Note 2) 45,706 43,85940,679 43,372
Electric power purchased 15,777 15,88317,631 16,356
Other operating expenses 30,598 26,68730,127 27,645
Maintenance 14,856 14,53819,493 18,893
Depreciation 18,701 16,18718,785 16,151
Federal and state income taxes 10,634 14,7315,634 7,933
Other taxes 4,314 4,0634,125 3,642
Total Operating Expenses 140,586 135,948136,474 133,992
Net Operating Income 26,562 30,58018,283 20,034
Other Income and Deductions:
Interest and dividend income 633 1,736803 766
Other income and deductions - net 1,480 1,1731,376 1,875
Total Other Income and Deductions 2,113 2,9092,179 2,641
Income Before Interest Charges 28,675 33,48920,462 22,675
Interest Charges 9,747 8,1459,901 8,202
Net Income 18,928 25,34410,561 14,473
Preferred Stock Dividend Requirements 564 692564
Net Income Applicable to Common Stock $ 18,3649,997 $ 24,65213,909
The accompanying Notes to Financial Statements are an integral
part of these statements.
-2-
KENTUCKY UTILITIES COMPANY
STATEMENTS OF CASH FLOWSINCOME
(Unaudited)
(in thousands of dollars)
For the ThreeSix
Months Ended
March 31,June 30,
1995 1994
Cash Flows from Operating Activities:
Net Income $ 18,928 $ 25,344
Items not requiring (providing) cash currently:Revenues (See Note 2) $321,905 $320,554
Operating Expenses:
Fuel, principally coal, used in
generation (See Note 2) 86,385 87,231
Electric power purchased 33,408 32,239
Other operating expenses 60,725 54,332
Maintenance 34,349 33,431
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 Activities 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 Cash 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 $ 4,77937,486 32,338
Federal and state income taxes 16,268 22,664
Other taxes 8,439 7,705
Total Operating Expenses 277,060 269,940
Net Operating Income 44,845 50,614
Other Income and Deductions:
Interest and dividend income 1,436 2,502
Other income and deductions - net 2,856 3,048
Total Other Income and Deductions 4,292 5,550
Income Before Interest Charges 49,137 56,164
Interest Charges 19,648 16,347
Net Income 29,489 39,817
Preferred Stock Dividend Requirements 1,128 1,256
Net Income Applicable to Common Stock $ -28,361 $ -38,561
The accompanying Notes to Financial Statements are an integral
part of these statements.
-3-
KENTUCKY UTILITIES COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
For the Six Months
Ended June 30,
1995 1994
Cash Flows from Operating Activities:
Net Income $ 29,489 $ 39,817
Items not requiring (providing) cash currently:
Depreciation 37,486 32,338
Deferred income taxes and investment tax credit (1,097) (3,342)
Changes in current assets and liabilities:
Change in fuel inventory (2,199) 179
Change in accounts receivable 2,957 2,059
Change in accounts payable (11,075) (3,195)
Change in accrued taxes 4,737 2,998
Change in accrued utility revenues (628) 1,865
Other--net 1,201 (2,393)
Net Cash Provided by Operating Activities 60,871 70,326
Cash Flows from Investing Activities:
Construction expenditures - utility (54,480) (89,468)
Other 17 170
Cash Used by Investing Activities (54,463) (89,298)
Cash Flows from Financing Activities:
Short-term borrowings - net (31,300) 47,900
Issuance of long-term debt 50,000 -
Funds deposited with trustee - net 8,600 18,393
Retirement of long-term debt (21) (21)
Retirement of preferred stock, including premium - (20,302)
Payment of dividends (32,706) (32,139)
Net Cash Provided (Used) by Financing Activities (5,427) 13,831
Net Increase (Decrease) in Cash and Cash Equivalents 981 (5,141)
Cash and Cash Equivalents Beginning of Period 3,111 8,832
Cash and Cash Equivalents End of Period $ 4,092 $ 3,691
Supplemental Disclosures
Cash paid for:
Interest on short and long-term debt $ 18,622 $ 15,378
Federal and state income taxes $ 12,826 $ 25,378
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
March 31,June 30, Dec. 31,
1995 1994
ASSETS
Utility Plant:
Plant in service, at cost $2,274,572$2,286,014 $2,238,926
Less: Accumulated depreciation 953,153970,974 933,394
1,321,4191,315,040 1,305,532
Construction work in progress 98,617112,268 104,385
1,420,0361,427,308 1,409,917
Current Assets:
Cash and cash equivalents 5,9834,092 3,111
Escrow funds - coal contract litigation 6,5086,594 6,911
Construction funds held by trustee 9,97910,108 18,553
Accounts receivable 36,08938,755 41,712
Accrued utility revenues 21,73424,855 24,227
Fuel, principally coal, at average cost 35,90637,851 35,652
Materials and supplies, at average cost 21,67022,123 20,081
Other 11,00213,818 10,616
148,871158,196 160,863
Investments, Deferred Charges and Other Assets:
Unamortized loss on reacquired debt 12,06911,814 12,324
Other 34,93335,006 34,996
47,00246,820 47,320
Total Assets $1,615,909$1,632,324 $1,618,100
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 567,776561,984 $ 565,201
Preferred stock 40,000 40,000
Long-term debt 495,987545,984 496,012
1,103,7631,147,968 1,101,213
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings 69,20045,000 76,300
Accounts payable 31,27838,442 49,517
Accrued interest 9,9387,499 7,328
Accrued taxes 20,14714,159 9,422
Customers' deposits 6,4216,535 6,423
Accrued payroll and vacations 10,7189,194 8,207
Liab. to ratepayers - coal contract litigation 6,5086,595 6,909
Other 7,9566,317 6,275
162,187133,762 170,402
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 215,826216,893 214,892
Accumulated deferred investment tax credits 37,25136,227 38,275
Regulatory tax liability 60,11959,482 60,788
Other 36,76337,992 32,530
349,959350,594 346,485
Total Capitalization and Liabilities $1,615,909$1,632,324 $1,618,100
The accompanying Notes to Financial Statements are an integral
part of these statements.
-4--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
Utilities Company (KU) Annual Report on Form 10-K for the year
ended December 31, 1994.1994 (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 KU's business.
2. OPERATING REVENUES AND FUEL COSTS
Pursuant to regulatory orders, KU 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.
-5--6-
KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Operating revenues and fuel expense for the three-month periodand six-month periods
ended March 31,June 30, 1994 were reduced by $.5$.4 million and $2.9$.9 million,
respectively, resulting from the above-mentioned refund. The
refunding had no impact on operating revenues orrefund also resulted in a reduction of fuel expense for the
three-month periodand six-month periods ended March 31, 1995.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.
-6-3. 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 and general corporate requirements.
4. ENVIRONMENTAL COST RECOVERY
In July 1994, the Kentucky Public Service Commission (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 coal, including the 1990 Clean Air Act Amendments.
KU's environmental surcharge was implemented in August 1994 and
is described in Item 1 of the 1994 10K. The initial six-month
-7-
KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
review and hearing process was completed in June of 1995, and KU
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 by the Attorney General of
Kentucky and representatives of customer groups. In July 1995,
the Circuit Court entered judgment upholding the
constitutionality of the surcharge 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 remanding to the 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 in its entirety. If the
judgment is ultimately upheld as entered, KU estimates the amount
it would be required to refund for surcharge collections through
June 1995 would be approximately $4 million. At this time, KU
cannot predict the outcome of this proceeding.
-8-
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY & RESOURCES
KU's construction expenditures decreased approximately
$12$35 million during the three-monthsix-month period ending March 31,June 30, 1995
compared to the same period of 1994. The decrease is
attributable primarily
attributable to planned reductions in expenditures for
combustion turbine peaking units and for compliance with the 1990
Clean Air Act Amendments.
KU plansRefer to issue upNote 3 of the Notes to an additional $50 millionFinancial Statements for a
discussion of long-
term debt during 1995, principally to refinance short-term
indebtedness.KU's financing activities.
RESULTS OF OPERATIONS
Quarter ended March 31,June 30, 1995, compared
to the Quarter ended March 31,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.
-9-
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
-10-
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.
-11-
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.
-12-
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 three-monthsix-month
period ending March 31,ended June 30, 1995 was $18.4$28.4 million as compared to
$24.7$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".
-7-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
-13-
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Increase (Decrease)
From Prior Year
Three Months
Ended March 31, 1995
kWh Revenues
(%) (000's)
Residential (6) $ (1,255)
Commercial (1) 1,060
Industrial 5 2,299
Mine Power & Public Authorities (2) 666
Total Retail Sales (2) 2,770
Other Electric Utilities (21) (2,477)
Miscellaneous Revenues & Other - (210)
Total Before Refund (5) 83
Provision for Refund -
Litigation Settlement - 537
Total (5) $ 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$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 discussed below (see page 10).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 30%33% of the industrial sales increase wasis due
to greater sales to Toyota Motor Manufacturing U.S.A., Inc., KU's
largest customer.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 first quarter ofsix-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 $1.1$4.2 million (2%(5%). This decrease primarily
reflects a 6%4% decrease -8-
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
in tons of coal consumed, partially offset by a 3% increase in
the average price per ton of coal consumed. Purchased power
expense decreased $.1increased $1.2 million (1%(4%) due to an increase in demand
costs ($1.32.2 million) partially offset by a decrease in kilowatt-hourkilowatt-
hour purchases ($1.41.0 million). The decrease in kilowatt-hour
purchases is due to the previously mentioned decline in kilowatt-
hour sales.
Other operating expenses increased $3.9$6.4 million (15%(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.
-14-
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Maintenance expense increased $.3$.9 million (2%(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 $2.5$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 $1.6$3.3 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-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
-15-
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the fourth quarter of 1994. The average amount of short-term
debt outstanding during the first quarter of 1995 was
substantially greater thansituation in the first 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
associatedcooperation with the production of energy from 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 constitutionalityvendor of the surcharge is being challenged inthree 110 MW
generating units. Although KU cannot predict the Franklin County
(Kentucky) Circuit Court. Management believes that the surcharge
statute is constitutional and the PSC approvaloutcome of July 1994this
matter, KU does not believe this will be upheld.have a significant impact
on its results of operations or its ability to meet customer
requirements.
-16-
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
-10-
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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(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.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 will complymaking a compliance
filing which addressed certain aspects of the TS and PS Tariffs.
On June 30, 1995, KU made the compliance filing with any requirements mandated by the FERC's final rules.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
-17-
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.
-11--18-
PART II. OTHER INFORMATION
KENTUCKY UTILITIES COMPANY
ITEM 1. LEGAL PROCEEDINGS
ENVIRONMENTAL COST RECOVERY
By orderSee Note 4 of July 19, 1994, the Kentucky Public Service
Commission (PSC) approved KU's planNotes to Financial Statements, Environmental
Cost Recovery, for an update of environmental surcharge adjustmentslegal
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 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 productionBoard 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.
On September 9, 1994, the Attorney General of the CommonwealthDirectors 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 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
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the court pending the outcome of the litigation. Management
believes that the surcharge statute is constitutional and 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.
FUEL MATTERS
A former coal supplier of KU has initiated arbitration
proceedings to recover approximately $536,000 in on-going
reclamation costs claimed to have been 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 invoicesUtilities Company.
Votes
Votes 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 claims 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 claims for on-going and final reclamation.
Although the total amount of the claims 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 Fuel
Adjustment Clause.
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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 May 8,August 9, 1995 /s/ John T. Newton
John T. NewtonMichael R. Whitley
Michael R. Whitley
Chairman of the Board and
Chief Executive Officer
Date May 8,August 9, 1995 /s/ Michael D. Robinson
Michael D. Robinson
Controller
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