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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 2001
Commission File Number 0-14688
ALLEGHENY GENERATING COMPANY
(Exact name of registrant as specified in its charter)
Virginia | 13-3079675 |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
10435 Downsville Pike, Hagerstown, Maryland 21740-1766
Telephone Number - 301-790-3400
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 and (2) has been subject to such filing requirements for the past 90 days.
At May 15, 2001, 1,000 shares of the Common Stock ($1.00 par value) of the registrant were outstanding.
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ALLEGHENY GENERATING COMPANY
Form 10-Q for Quarter Ended March 31, 2001
Index
| | Page No. |
PART I - FINANCIAL INFORMATION: | |
| |
Statement of Operations - Three months ended March 31, 2001 and 2000 | 3 |
| |
Statement of Cash Flows - Three months ended March 31, 2001 and 2000 | 4 |
| |
Balance Sheet - March 31, 2001 and December 31, 2000 | 5 |
| |
Notes to Financial Statements | 6-7 |
| |
Management's Discussion and Analysis of Financial Condition and Results of Operations | 8-10 |
| |
PART II - OTHER INFORMATION | 11 |
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Allegheny Generating Company
STATEMENT OF OPERATIONS
(Thousands of Dollars)
| Unaudited |
| Three Months Ended |
| March 31, |
| | |
| 2001 | 2000 |
Affiliated Operating Revenues | $17,772 | $17,155 |
Operating Expenses: | | |
Operation and maintenance expense | 1,625 | 1,366 |
Depreciation | 4,242 | 4,244 |
Taxes other than income taxes | 892 | 1,133 |
Federal and state income taxes | 2,216 | 1,829 |
Total Operating Expenses | 8,975 | 8,572 |
Operating Income | 8,797 | 8,583 |
Other income, net | 2 | |
Income Before Interest Charges | 8,799 | 8,583 |
Interest Charges: | | |
Interest on long-term debt | 2,407 | 2,427 |
Other interest | 882 | 878 |
Total Interest Charges | 3,289 | 3,305 |
| | |
Net Income | $ 5,510 | $ 5,278 |
See accompanying notes to financial statements.
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Allegheny Generating Company
STATEMENT OF CASH FLOWS
(Thousands of Dollars) | Unaudited |
| | Three Months Ended |
| | March 31, |
| | | |
| | 2001 | 2000* |
Cash Flows from (used in) Operations: | | |
Net income | $ 5,510 | $ 5,278 |
Depreciation | 4,242 | 4,244 |
Deferred investment credit and income taxes, net | (1,511) | (1,778) |
Changes in certain current assets and | | |
liabilities: | | |
Materials and supplies | (18) | (27) |
Prepaid taxes | | 4,318 |
Accounts payable | (392) | |
Accounts receivable from parents and | | |
affiliates, net | (7,876) | (2,785) |
Taxes accrued | 1,502 | 789 |
Interest accrued | (2,437) | (2,417) |
Other, net | 414 | 352 |
| | (566) | 7,974 |
Cash Flows used in Investing: | | |
Construction expenditures | (800) | (29) |
| | |
Cash Flows from (used in) Financing: | | |
Notes payable to parent | 12,450 | |
Notes payable to affiliate | (41,000) | 50 |
Notes payable | 37,900 | |
Cash dividends paid on common stock | (8,000) | (8,000) |
| | 1,350 | (7,950) |
| | |
Net Change in Cash and Temporary Cash | | |
Investments | (16) | (5) |
Cash and temporary cash investments at January 1 | 50 | 16 |
Cash and temporary cash investments at March 31 | $ 34 | $ 11 |
| | |
Supplemental Cash Flow Information | | |
Cash paid during the year for: | | |
Interest | $ 5,544 | $ 5,539 |
Income taxes | $ 3,111 | $ (3) |
| | |
See accompanying notes to financial statements. | | |
*Certain amounts have been reclassified for comparative purposes. |
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Allegheny Generating Company | Unaudited |
BALANCE SHEET | March 31, | December 31 |
(Thousands of Dollars) | 2001 | 2000* |
ASSETS | | |
Property, Plant, and Equipment: | | |
Unregulated generation | $ 828,937 | $ 828,342 |
Construction work in progress | 1,735 | 1,530 |
| 830,672 | 829,872 |
Accumulated depreciation | (248,380) | (244,138) |
| 582,292 | 585,734 |
Current Assets: | | |
Cash and temporary cash investments | 34 | 50 |
Accounts receivable from parents/affiliates, net | 6,665 | |
Materials and supplies--at average cost | 2,172 | 2,154 |
Other | 161 | 253 |
| 9,032 | 2,457 |
Deferred Charges: | | |
Regulatory assets | 7,132 | 7,132 |
Unamortized loss on reacquired debt | 6,418 | 6,568 |
Other | 149 | 154 |
| 13,699 | 13,854 |
Total | $ 605,023 | $ 602,045 |
CAPITALIZATION AND LIABILITIES | | |
Capitalization: | | |
Common stock - $1.00 par value per share, authorized | | |
5,000 shares, outstanding 1,000 shares | $ 1 | $ 1 |
Other paid-in capital | 141,879 | 144,370 |
| 141,880 | 144,371 |
Long-term debt | 149,074 | 149,045 |
| 290,954 | 293,416 |
Current Liabilities: | | |
Notes payable to affiliate | | 41,000 |
Notes payable to parent | 24,700 | 12,250 |
Notes payable | 37,900 | |
Accounts payable | | 392 |
Accounts payable to parents/affiliates, net | | 1,211 |
Federal and state income taxes accrued | 4,354 | 3,736 |
Other taxes accrued | 935 | 51 |
Interest accrued | 777 | 3,214 |
Other | 1,145 | 1,006 |
| 69,811 | 62,860 |
Deferred Credits: | | |
Unamortized investment credit | 43,545 | 43,876 |
Deferred income taxes | 177,087 | 178,267 |
Regulatory liabilities | 23,626 | 23,626 |
| 244,258 | 245,769 |
Total | $ 605,023 | $ 602,045 |
See accompanying notes to financial statements. | | |
*Certain amounts have been reclassified for comparative purposes. | | |
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ALLEGHENY GENERATING COMPANY
Notes to Financial Statements
1.Allegheny Generating Company (the Company) was incorporated in Virginia in 1981. Its common stock is owned by Monongahela Power Company (Monongahela Power) - 27% and Allegheny Energy Supply Company, LLC (Allegheny Energy Supply) - 73%. Both Monongahela Power and Allegheny Energy Supply are wholly-owned subsidiaries of Allegheny Energy, Inc. and are part of the Allegheny Energy integrated electric utility system. The Notes to Financial Statements for Allegheny Generating Company's Annual Report on Form 10-K for the year ended December 31, 2000, should be read with the accompanying financial statements and the following notes. The accompanying financial statements appearing on pages 3 through 5 and these notes to financial statements are unaudited. In our opinion, such financial statements together with these notes contain all adjustments (which consist only of normal recurring adjustments) necessary to present fairly our financial position as of March 31, 2001, the results of operations for the three months ended March 31, 2001, and 2000, and cash flows for the three months ended March 31, 2001, and 2000.
2. For purposes of the statement of cash flows, temporary cash investments with original maturities of three months or less, generally in the form of commercial paper, certificates of deposits, and repurchase agreements, are considered to be the equivalent of cash.
3.The Company has various operating transactions with its affiliates. It is the Company's policy that the affiliated receivable and payable balances outstanding from these transactions are presented net on the balance sheet and statement of cash flows. At March 31, 2001, net receivable from parents and affiliates was $8.3 million. At March 31, 2000, net payable to parents and affiliates was $1.2 million.
4. The Company systematically reduces capitalization each year as the
assets depreciate. This results in the payment of dividends in excess of current earnings. The Securities and Exchange Commission (SEC) approved the Company's request to pay common dividends out of capital. Common dividends were paid from retained earnings, reducing the account balance to zero, and from other paid-in capital as follows:
| | Three Months Ended |
| | March 31, |
| 2001 | 2000 |
| | (Thousands of Dollars) |
| | | |
Retained earnings | $ 6,525 | $ 5,278 |
Other paid-in capital | 1,475 | 2,722 |
Total | $ 8,000 | $ 8,000 |
Allegheny Generating Company
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5. Regulatory liabilities, net of regulatory assets of $16.5 million at March 31, 2001, and December 31, 2000, relate to income taxes.
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ALLEGHENY GENERATING COMPANY
Management's Discussion and Analysis of Financial Condition
And Results of Operations
COMPARISON OF FIRST QUARTER 2001 WITH FIRST QUARTER 2000
The Notes to Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report on Form 10-K for Allegheny Generating Company (the Company) for the year ended December 31, 2000, should be read with the following Management's Discussion and Analysis information.
Factors That May Affect Future Results
Certain statements within constitute forward-looking statements with respect to the Company. Such forward-looking statements include statements with respect to, results of operations, capital expenditures, regulatory matters, liquidity and capital resources, resolution and impact of litigation, and accounting matters. All such forward-looking information is necessarily only estimated. There can be no assurance that the Company's actual results will not materially differ from expectations. Actual results have varied materially and unpredictably from past expectations.
Factors that could cause the Company's actual results to differ materially include, among others, the following: general and economic and business conditions; industry capacity; changes in technology; changes in political, social and economic conditions; changes in the price of power and fuel for electric generation; regulatory matters; litigation involving the Company; regulatory conditions applicable to the Company; the loss of any significant customers; and changes in business strategy or development plans.
Review of Operations
As described underLiquidity and Capital Requirements, revenues are determined under a cost of service formula rate schedule. Revenues are expected to decrease each year due to a normal continuing reduction in the Company's net investment in the Bath County station and its connecting transmission facilities upon which the return on investment is determined.
The net investment (primarily net plant less deferred income taxes) decreases to the extent that provisions for depreciation and deferred income taxes exceed net plant additions. Annual revenues are expected to decrease due to a normal continuing reduction in the Company's net investment. As the return on the investment has been determined, the increase in revenues for the first quarter ended March 31, 2001, is due to timing differences between revenue billings and receipts.
Allegheny Generating Company
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The increase in operating expenses in the first three months of 2001 resulted from increases in operation and maintenance expenses and federal and state income taxes, slightly offset by a decrease in taxes other than income taxes.
Liquidity and Capital Requirements
The Company's discussion on Liquidity and Capital Requirements and Review of Operations in its Annual Report on Form 10-K for the year ended December 31, 2000, should be read with the following information.
Pursuant to an agreement, the Parents buy all of the Company's capacity in the station which is priced under a "cost-of-service formula" wholesale rate schedule approved by the Federal Energy Regulatory Commission (FERC). Under this arrangement, the Company recovers, in revenues, all of its operation and maintenance expenses, depreciation, taxes, and a return on its investment. On December 29, 1998, the FERC issued an Order accepting a proposed amendment to the Parent's Power Supply Agreement with the Company effective January 1, 1999. The amendment sets the generation demand for each Parent proportional to its ownership in the Company. Previously, demand for each Parent fluctuated based on customer usage.
The Company's rates are set by a formula filed with and accepted by the FERC. The only component that changes is the return on equity (ROE). Pursuant to a settlement agreement filed with and approved by the FERC, the Company's ROE is set at 11% and will continue at that rate unless any affected party seeks a change.
As previously reported, the Company has received authority from the Securities and Exchange Commission (SEC) to pay common dividends from time to time through December 31, 2001, out of capital to the extent permitted under applicable corporation law and any applicable financing agreements which restrict distributions to shareholders. Due to the nature of being a single asset company with declining capital needs, the Company systematically reduces capitalization each year as its asset depreciates. This has resulted in the payment of dividends in excess of current earnings out of other paid-in capital and the reduction of retained earnings to zero. The Company's goal is to retire debt and pay dividends in amounts necessary to maintain a common equity position of about 45% including short-term debt. The payment of dividends out of capital surplus will not be detrimental to the financial integrity or working capital of either the Company or its Parents, nor will it adversely affect the protections due debt security holders.
Allegheny Generating Company
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Financings
The Company and its affiliates use an Allegheny Energy, Inc. internal money pool as a facility to accommodate intercompany short-term borrowing needs, to the extent that certain companies have funds available. The Company had $24.7 million in money pool borrowings outstanding at the end of the quarter included in notes payable to the Parent, with an average interest rate of 5.9%. The availability of funds invested in the internal money pool were not sufficient to meet the borrowing requirements, therefore the Company obtained a bank loan with an average interest rate of 5.5%. The balance of the bank loan was $37.9 million at March 31, 2001. Total short-term borrowings at March 31, 2001, were $62.6 million. The Company had $53.3 million in money pool borrowings outstanding at December 31, 2001.
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ALLEGHENY GENERATING COMPANY
Part II - Other Information to Form 10-Q
for Quarter Ended March 31, 2001
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
1. (a) Date and kind of meeting:
The annual meeting of shareholders was held at Hagerstown, Maryland, on February 27, 2001. No proxies were solicited.
(b) Election of Directors:
The holders of all 1,000 shares of common stock voted to elect the following Directors of the Company to hold office until the next annual meeting of the shareholders and until their successors are duly chosen and qualified:
Richard J. Gagliardi
Thomas K. Henderson
Michael P. Morrell
Alan J. Noia
Victoria V. Schaff
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) No reports on Form 8-K were filed on behalf of the Company
for the quarter ended March 31, 2001.
(b) Exhibit 12 - Computation of ratio of earnings to fixed charges.
Signature
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.
ALLEGHENY GENERATING COMPANY |
| |
/S/ T. J. KLOC |
| |
T. J. Kloc, Vice President |
and Controller |
(Chief Accounting Officer) |
May 15, 2001
