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 June 30, 1995March 31, 1996
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 August 9, 1995:May 2, 1996:
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
June 30,March 31,
1996 1995 1994
Operating Revenues (See Note 2) $154,757 $154,026$190,996 $167,148
Operating Expenses:
Fuel, principally coal,
used in generation (See Note 2) 40,679 43,37254,025 45,706
Electric power purchased 17,631 16,35617,504 15,777
Other operating expenses 30,127 27,64529,688 30,598
Maintenance 19,493 18,89314,202 14,856
Depreciation 18,785 16,15120,018 18,701
Federal and state income taxes 5,634 7,93316,336 10,634
Other taxes 4,125 3,6424,235 4,314
Total Operating Expenses 136,474 133,992156,008 140,586
Net Operating Income 18,283 20,03434,988 26,562
Other Income and Deductions:
Interest and dividend income 803 766613 633
Other income and deductions - net 1,376 1,8752,100 1,480
Total Other Income and Deductions 2,179 2,6412,713 2,113
Income Before Interest Charges 20,462 22,67537,701 28,675
Interest Charges 9,901 8,20210,198 9,747
Net Income 10,561 14,47327,503 18,928
Preferred Stock Dividend Requirements 564 564
Net Income Applicable to Common Stock $ 9,99726,939 $ 13,90918,364
The accompanying Notes to Financial Statements are an integral
part of these statements.
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KENTUCKY UTILITIES COMPANY
STATEMENTS OF INCOMECASH FLOWS
(Unaudited)
(in thousands of dollars)
For the SixThree
Months Ended
June 30,March 31,
1996 1995
1994Cash Flows from Operating Revenues (See Note 2) $321,905 $320,554Activities:
Net Income $ 27,503 $ 18,928
Items not requiring (providing) cash currently:
Depreciation 20,018 18,701
Deferred income taxes
and investment tax credit (352) (630)
Changes in current assets and liabilities:
Change in fuel inventory 4,127 (254)
Change in accounts receivable 1,508 5,623
Change in accounts payable (2,455) (18,239)
Change in accrued taxes 15,300 10,725
Change in accrued utility revenues 2,704 2,493
Other--net 9,665 8,570
Net Cash Provided by Operating Expenses:
Fuel, principally coal, usedActivities 78,018 45,917
Cash Flows from Investing Activities:
Construction expenditures - utility (21,105) (28,035)
Other 201 10
Cash Used by Investing Activities (20,904) (28,025)
Cash Flows from Financing Activities:
Short-term borrowings - net (40,200) (7,100)
Issuance of long-term debt 35,710 (146)
Funds deposited with trustee - net 1,500 8,600
Retirement of long-term debt, incl. premiums (36,192) (21)
Payment of dividends (16,826) (16,353)
Net Cash Used by Financing Activities (56,008) (15,020)
Net Increase 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 37,486 32,338Cash and Cash Equivalents 1,106 2,872
Cash and Cash Equivalents Beginning of Period 5,697 3,111
Cash and Cash Equivalents End of Period $ 6,803 $ 5,983
Supplemental Disclosures
Cash paid for:
Interest on short- and long-term debt $ 6,294 $ 6,475
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$ 2,753 $ - 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.
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KENTUCKY UTILITIES COMPANY
STATEMENTS OF CASH FLOWSBALANCE SHEETS
(Unaudited)
(in thousands of dollars)
For the Six Months
Ended June 30,As of As of
March 31, Dec. 31,
1996 1995
1994ASSETS
Utility Plant:
Plant in service, at cost $2,401,414 $2,394,018
Less: Accumulated depreciation 1,015,733 997,366
1,385,681 1,396,652
Construction work in progress 72,775 61,410
1,458,456 1,458,062
Current Assets:
Cash Flows from Operating Activities:
Net Incomeand cash equivalents 6,803 5,697
Escrow funds - coal contract litigation 6,599 6,599
Construction funds held by trustee 2,270 3,743
Accounts receivable 47,963 49,471
Accrued utility revenues 25,196 27,900
Fuel, principally coal, at average cost 25,311 29,438
Materials and supplies, at average cost 23,547 23,064
Other 8,471 8,121
146,160 154,033
Investments, Deferred Charges and Other Assets:
Unamortized loss on reacquired debt 11,640 11,304
Other 37,615 36,589
49,255 47,893
Total Assets $1,653,871 $1,659,988
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 29,489587,214 $ 39,817
Items not requiring (providing) cash currently:
Depreciation 37,486 32,338576,537
Preferred stock 40,000 40,000
Long-term debt 546,373 545,980
1,173,587 1,162,517
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings 15,400 55,600
Accounts payable 35,545 38,000
Accrued interest 10,695 7,556
Accrued taxes 20,501 5,201
Customers' deposits 7,245 6,876
Accrued payroll and vacations 11,177 8,706
Liab. to ratepayers - coal contract litigation 6,599 6,599
Other 8,697 6,752
115,880 135,311
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes and233,158 231,717
Accumulated deferred investment tax credit (1,097) (3,342)
Changes in current assetscredits 33,177 34,180
Regulatory tax liability 56,806 57,726
Other 41,263 38,537
364,404 362,160
Total Capitalization 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 $ 25,378Liabilities $1,653,871 $1,659,988
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
June 30, Dec. 31,
1995 1994
ASSETS
Utility Plant:
Plant in service, at cost $2,286,014 $2,238,926
Less: Accumulated depreciation 970,974 933,394
1,315,040 1,305,532
Construction work in progress 112,268 104,385
1,427,308 1,409,917
Current Assets:
Cash and cash equivalents 4,092 3,111
Escrow funds - coal contract litigation 6,594 6,911
Construction funds held by trustee 10,108 18,553
Accounts receivable 38,755 41,712
Accrued utility revenues 24,855 24,227
Fuel, principally coal, at average cost 37,851 35,652
Materials and supplies, at average cost 22,123 20,081
Other 13,818 10,616
158,196 160,863
Investments, Deferred Charges and Other Assets:
Unamortized loss on reacquired debt 11,814 12,324
Other 35,006 34,996
46,820 47,320
Total Assets $1,632,324 $1,618,100
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 561,984 $ 565,201
Preferred stock 40,000 40,000
Long-term debt 545,984 496,012
1,147,968 1,101,213
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings 45,000 76,300
Accounts payable 38,442 49,517
Accrued interest 7,499 7,328
Accrued taxes 14,159 9,422
Customers' deposits 6,535 6,423
Accrued payroll and vacations 9,194 8,207
Liab. to ratepayers - coal contract litigation 6,595 6,909
Other 6,317 6,275
133,762 170,402
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 216,893 214,892
Accumulated deferred investment tax credits 36,227 38,275
Regulatory tax liability 59,482 60,788
Other 37,992 32,530
350,594 346,485
Total Capitalization and Liabilities $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
Utilities Company (KU) Annual Report on Form 10-K for the year
ended December 31, 1994 (1994 10K).1995.
In the opinion of management, the information furnished
herein reflects all adjustments, all of which are normal and
recurring, 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.misleading. 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,ENVIRONMENTAL COST RECOVERY
Since August 1994, KU has been refunding fuel
cost savings related to the resolution of a coal contract
dispute. Refunds tocollecting an environmental
surcharge from its Kentucky retail customers commenced in July
1994. Refunds were madeunder a Kentucky
statute which authorizes electric utilities (including KU) to
Virginia retail customers during the
period Augustimplement, beginning January 1, 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.
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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.
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 toof 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--5-
KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
reviewenergy from coal, including the Federal Clean Air Act as amended.
KU's environmental surcharge was approved by the Kentucky Public
Service Commission (PSC) in July 1994 and hearing process was completedimplemented 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.August 1994.
The constitutionality of the surcharge statute 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 joined by representatives of customerconsumer groups. In
July 1995, the Circuit Court entered a judgment upholding the
constitutionality of the statute, but vacating that part of the
PSC's July 1994 order which the judgment describes as allowing KU
to recover, under the surcharge, environmental expenditures
incurred before January 1, 1993, and ordering the case remanded
to the PSC for determination in accordance with the Circuit Court
judgment.
The Attorney General and other consumer representatives
appealed to the Kentucky Court of Appeals that part of the
Circuit Court judgment upholding the constitutionality of the
surcharge but vacatingstatute. The PSC and KU appealed that part of the
judgment denying recovery of environmental expenditures incurred
before January 1, 1993. On August 22, 1995, the PSC order allowingordered all
surcharge revenues collected by KU from that date subject to
recoverrefund pending final determination of all appeals. In March 1996
in the semi-annual reconciliation review, the PSC ordered all
surcharge revenues collected during the six-month period then
under review (February 1, 1995 through July 31, 1995) subject to
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KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
refund pending final determination of all appeals. The total
surcharge collections from February 1, 1995 through March 31,
1996 were approximately $22 million.
KU believes the constitutionality of the surcharge statute
will be upheld, but it cannot predict the outcome of that part of
the Circuit Court judgment disallowing recovery of environmental
expenditures incurred before January 1, 1993. If the Circuit
Court judgment is ultimately upheld as entered, KU estimates that
the amount it would be required to refund (which is based solely
on 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 refund1993) for surcharge collections through
JuneMarch 31, 1996, from the implementation of the surcharge would be
approximately $7 million, and from February 1, 1995 would be
approximately $4$5 million. At this time, KU cannot predicthas not recorded any
reserve for refund.
3. FINANCING
In January 1996, KU issued $36 million of Series S First
Mortgage Bonds which will mature January 15, 2006 and bear
interest at 5.99%. The proceeds were used to redeem
$35.5 million of Series K First Mortgage Bonds. A redemption
premium of approximately $.7 million was recorded on the outcomebalance
sheet and will be amortized over the period to the scheduled
maturity of this proceeding.
-8-the new bonds.
-7-
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY & RESOURCES
At March 31, 1996, KU's short-term borrowings were
$15.4 million compared to $55.6 million at December 31, 1995.
The short-term borrowings have been used primarily to finance
ongoing construction expenditures decreased approximately
$35 million during the six-month period ending June 30, 1995
compared to the same period of 1994.and general corporate
requirements. The decrease is attributabledue primarily to planned
reductions in construction expenditures for
combustion turbine peaking units and for compliance withadditional cash
provided by operations during the 1990
Clean Air Act Amendments.first quarter of 1996.
Refer to Note 3 of the Notes to Financial Statements for a
discussion of KU's recent financing activities.
RESULTS OF OPERATIONS
Quarter ended June 30, 1995,March 31, 1996, compared
to the Quarter ended June 30, 1994March 31, 1995
Net Incomeincome applicable to common stock for the three-month
period ended June 30, 1995March 31, 1996 was $10$26.9 million compared to
$13.9$18.4 million for the corresponding period of 1994.1995. The decreaseincrease
primarily reflects milderthe positive effects of colder weather and
a decline in off-systemincreased opportunity sales during the secondfirst quarter of 19951996
compared to 1994 as well as1995. The positive effects of these factors were
somewhat offset by increases in interest, depreciationfuel and other operating expensespurchased power expense
as further discussed below.
-9--8-
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Increase (Decrease)
From Prior Year
Three Months
Ended June 30, 1995March 31, 1996
kWh Revenues
(%) (000's)
Residential (2)13 $ 6398,186
Commercial 1 1,3765 2,018
Industrial 5 2,20910 3,134
Mine Power & Public Authorities (1) 5803 907
Total Retail Sales 1 4,8049 14,245
Wholesale 5 773
Opportunity 405 7,920
Total Other Electric Utilities (25) (5,007)89 8,693
Miscellaneous Revenues & Other - 569910
Total Before Refund (5) 366
Provision for Refund -
Litigation Settlement - 365
Total (5)19 $ 73123,848
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$23.8 million (14%). The
increase reflects 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% decrease19% increase 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.)sales. The
decreaseincrease in kilowatt-hour sales is primarily attributable to
a declineincreases in residential, industrial and off-system sales, partially offset by anopportunity sales. The
increase in industrial sales.opportunity sales (525,495 megawatt-hours versus
104,148 megawatt-hours) is primarily due to Non-Firm energy sales
agreements with two neighboring utilities for the year 1996. The
increase in industrial sales reflects continued economic growth
in the manufacturing sector of KU's service area. About 35%area evidenced primarily
by a 6% increase in the number of industrial customers over 1995.
The increase in residential sales was primarily due to colder weather
in the industrial salesfirst quarter of 1996 compared to 1995. KU set an all-time
peak demand for electricity on February 5, 1996 of 3,391 megawatts.
Fuel expense increased $8.3 million (18%). The increase was
primarily due to greater sales to Toyota Motor Manufacturing
-10-a 20% increase in the tons of coal consumed,
-9-
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
U.S.A., Inc. (TMM), KU's largest customer.which was primarily caused by a 19% increase in generation. The
decreaseincrease in off-
system sales is attributable to a decreaseconsumption resulted from the previously mentioned
increase 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.kilowatt-hour sales. 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
-13-
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%(11%) due to an increase in demand
costsenergy charges
($2.22.0 million) partially offset slightly by a decrease in kilowatt-
hour purchasesdemand charges
($1.0.3 million). The decreaseincrease in energy costs reflects a 10%
increase in kilowatt-hour purchases is due to the previously mentioned decline in kilowatt-
hour sales.
Other operating expensespurchases.
Federal and state income taxes increased $6.4$5.7 million (12%(54%).
The increase was primarily 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
-15-
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.
-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
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 (referRefer to Management's Discussion and Analysis in the 19941995
Annual Report on Form 10-K under the heading "Utility Issues -
Competition" for a discussion of the TS TariffFederal Energy Regulatory
Commission's (FERC) proposed rules addressing open access trans-
mission service 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 provisionscollection of the NOPR and reaffirmed its requestcharges for the market-based PS Tariff. On May 31, 1995,recovery of
stranded costs. In late April 1996, the FERC issued an
order which approvedtwo final rules
and a Notice of Proposed Rulemaking (NOPR). FERC Order No. 888
addresses both open access and stranded cost issues. FERC Order
No. 889 requires utilities to establish electronic systems to share
information about available transmission capacity. It also establishes
standards of conduct. The NOPR proposes to establish a new system for
utilities to use in reserving capacity on their own and other's
transmission lines. KU is currently evaluating the revised TS Tariff, subject to refund,
and approved the PS Tariff subject to KU making a compliance
filing which addressed certain aspectsimpacts of the
TS and PS Tariffs.
On June 30, 1995, KU made the compliance filing with the FERCfinal rules 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 42 of the Notes to Financial Statements,
Environmental Cost Recovery, for an updatea discussion of the
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 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 0surcharge.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits areexhibit is filed as part of this report:
Exhibit
Number Description
4 Supplemental Indenture dated June 1, 1995 between
Kentucky Utilities Company and Bank of America
Illinois and Robert J. Donahue, as Trustees,
providing for First Mortgage Bonds Series R of
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.
-19-(1) KU filed a Form 8-K dated January 18, 1996 to report
certain financial information included in the
Prospectus dated January 18, 1996 for its Series S
First Mortgage Bonds.
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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 August 9, 1995May 2, 1996 /s/ Michael R. Whitley
Michael R. Whitley
Chairman of the Board and Chief Executive OfficerPresident
Date August 9, 1995May 2, 1996 /s/ Michael D. Robinson
Michael D. Robinson
Controller
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