Page 1 of 14
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, 1994
Commission File Number 1-5164
MONONGAHELA POWER COMPANY
(Exact name of registrant as specified in its charter)
Ohio 13-5229392
(State of Incorporation) (I.R.S. Employer Identification No.)
1310 Fairmont Avenue, Fairmont, West Virginia 26554
Telephone number 304-366-3000
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 13, 1994, 5,891,000 shares of the common stock ($50 par value)
of the registrant were outstanding, all of which is held by Allegheny
Power System, Inc., the Company's parent.
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MONONGAHELA POWER COMPANY
Form 10-Q for Quarter Ended March 31, 1994
__________________________________________
Index
_____
Page
No.
____
PART I - FINANCIAL INFORMATION:
______________________________
Statement of income -
Three months ended March 31, 1994 and 1993 3
Balance sheet -
March 31, 1994 and December 31, 1993 4
Statement of cash flows -
Three months ended March 31, 1994 and 1993 5
Notes to financial statements 6-7
Management's discussion and analysis of financial condition
and results of operations 8-12
PART II - OTHER INFORMATION 13-14
___________________________
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MONONGAHELA POWER COMPANY
Statement of Income
_________________________
Three Months Ended
March 31
____________________________
1994 1993
____ ____
(Thousands of Dollars)
ELECTRIC OPERATING REVENUES:
Residential $ 56,386 $ 50,471
Commercial 29,551 27,131
Industrial 50,571 47,660
Nonaffiliated utilities 27,182 23,456
Other, including affiliates 24,219 16,824
________ ________
Total Operating Revenues 187,909 165,542
________ ________
OPERATING EXPENSES:
Operation:
Fuel 42,811 40,407
Purchased power and exchanges, net 45,259 34,740
Deferred power costs, net 3,603 130
Other 17,355 16,568
Maintenance 17,909 16,668
Depreciation 14,759 14,022
Taxes other than income taxes 10,841 8,752
Federal and state income taxes 11,078 9,966
________ ________
Total Operating Expenses 163,615 141,253
________ ________
Operating Income 24,294 24,289
________ ________
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 569 736
Other income, net 1,831 1,887
________ ________
Total Other Income and Deductions 2,400 2,623
________ ________
Income Before Interest Charges 26,694 26,912
________ ________
INTEREST CHARGES:
Interest on long-term debt 8,738 8,889
Other interest 798 315
Allowance for borrowed funds used during
construction (422) (544)
________ ________
Total Interest Charges 9,114 8,660
________ ________
NET INCOME $ 17,580 $ 18,252
________ ________
________ ________
See accompanying notes to financial statements.
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MONONGAHELA POWER COMPANY
Balance Sheet
_________________________
March 31 December 31
1994 1993
____________ ___________
ASSETS: (Thousands of Dollars)
Property, Plant, and Equipment:
At original cost, including $141,911,000 and
$144,621,000 under construction $1,699,464 $1,684,322
Accumulated depreciation (675,442) (664,947)
__________ __________
1,024,022 1,019,375
__________ __________
Investments:
Allegheny Generating Company - common stock at equity 61,215 61,698
Other 576 595
__________ __________
61,791 62,293
__________ __________
Current Assets:
Cash 123 135
Accounts receivable:
Electric service, net of $1,240,000 and $1,084,000
uncollectible allowance 53,998 48,995
Affiliated and Other 14,246 14,596
Materials and supplies - at average cost:
Operating and construction 23,233 22,393
Fuel 19,674 19,904
Property taxes 12,833 15,443
Deferred power costs 7,220 10,823
Other 3,398 8,117
__________ __________
134,725 140,406
__________ __________
Deferred Charges:
Regulatory assets 164,492 162,842
Unamortized loss on reacquired debt 12,047 12,229
Other 16,284 10,308
__________ __________
192,823 185,379
__________ __________
Total Assets $1,413,361 $1,407,453
__________ __________
__________ __________
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common stock $ 294,550 $ 294,550
Other paid-in capital 2,994 2,994
Retained earnings 188,462 185,486
__________ __________
486,006 483,030
Preferred stock - not subject to mandatory redemption 64,000 64,000
Long-term debt 461,170 460,129
__________ __________
1,011,176 1,007,159
__________ __________
Current Liabilities:
Short-term debt 61,272 63,100
Accounts payable 24,298 31,752
Accounts payable to affiliates 8,165 8,184
Taxes accrued:
Federal and state income 12,609 -
Other 14,992 21,261
Interest accrued 10,497 10,641
Other 22,409 18,994
__________ __________
154,242 153,932
__________ __________
Deferred Credits and Other Liabilities:
Unamortized investment credit 26,346 26,883
Deferred income taxes 192,733 192,466
Regulatory liabilities 19,080 19,179
Other 9,784 7,834
__________ __________
247,943 246,362
__________ __________
Total Capitalization and Liabilities $1,413,361 $1,407,453
__________ __________
__________ __________
See the accompanying notes to financial statements.
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MONONGAHELA POWER COMPANY
Statement of Cash Flows
_________________________
Three Months Ended
March 31
_______________________
1994 1993
____ ____
(Thousands of Dollars)
CASH FLOWS FROM OPERATIONS:
Net income $ 17,580 $ 18,252
Depreciation 14,759 14,022
Deferred investment credit and income taxes, net (2,088) 994
Deferred power costs, net 3,603 130
Unconsolidated subsidiaries' dividends in excess of earnings 502 702
Allowance for other than borrowed funds used during construction (569) (736)
Changes in certain current assets and liabilities:
Accounts receivable, net (4,653) (2,835)
Materials and supplies (610) (2,314)
Accounts payable (7,473) (8,499)
Taxes accrued 6,340 1,337
Interest accrued (144) (5)
Other, net 7,571 9,569
________ ________
34,818 30,617
________ ________
CASH FLOWS FROM INVESTING:
Construction expenditures (19,937) (25,981)
Allowance for other than borrowed funds used
during construction 569 736
________ ________
(19,368) (25,245)
________ ________
CASH FLOWS FROM FINANCING:
Issuance of long-term debt 971 612
Short-term debt, net (1,828) 7,570
Dividends on capital stock:
Preferred stock (1,115) (1,115)
Common stock (13,490) (12,430)
________ ________
(15,462) (5,363)
________ ________
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS $ (12) $ 9
Cash and Temporary Cash Investments at January 1 135 115
________ ________
Cash and Temporary Cash Investments at March 31 $ 123 $ 124
________ ________
________ ________
Supplemental cash flow information:
Cash paid during the quarter for:
Interest (net of amount capitalized) $ 8,967 $ 8,464
Income taxes - 30
See accompanying notes to financial statements.
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MONONGAHELA POWER COMPANY
Notes to Financial Statements
_____________________________
1. The Company's Notes to Financial Statements in the Allegheny Power System
companies' combined Annual Report on Form 10-K for the year ended December
31, 1993, should be read with the accompanying financial statements and
the following notes. With the exception of the December 31, 1993
balance sheet in the aforementioned annual report on Form 10-K, the
accompanying financial statements appearing on pages 3 through 5 and
these notes to financial statements are unaudited. In the opinion of
the Company, such financial statements together with these notes
thereto contain all adjustments (which consist only of normal recurring
adjustments) necessary to present fairly the Company's financial
position as of March 31, 1994, and the results of operations
and cash flows for the three months ended March 31, 1994 and 1993.
2. The Statement of Income reflects the results of past operations and is
not intended as any representation as to future results. For
purposes of the Balance Sheet and Statement of Cash Flows, temporary cash
investments with original maturities of three months or less, generally
in the form of commercial paper, certificates of deposit, and
repurchase agreements, are considered to be the equivalent of cash.
3. The Company owns 27% of the common stock of Allegheny Generating Company
(AGC), and affiliates of the Company own the remainder. AGC owns an
undivided 40% interest, 840 MW, in the 2,100-MW
pumped-storage hydroelectric station in Bath County, Virginia operated
by the 60% owner, Virginia Power Company, an unaffiliated utility.
Following is a summary of income statement information for AGC:
Three Months Ended
March 31
__________________
1994 1993
____ ____
(Thousands of Dollars)
Electric operating revenues $22,431 $23,423
_______ _______
Operation and maintenance expense 1,833 1,678
Depreciation 4,236 4,226
Taxes other than income taxes 1,340 1,297
Federal income taxes 3,513 3,404
Interest charges 4,426 5,602
Other income, net (2) (3)
_______ _______
Net income $ 7,085 $ 7,219
_______ _______
_______ _______
The Company's share of the equity in earnings above was $1.9 million for
each of the three months ended March 31, 1994 and 1993, and was included
in other income, net, on the Statement of Income.
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4. Common stock dividends per share declared and paid during the periods for
which income statements are included are as follows:
Three Months Ended
March 31
__________________
1994 1993
____ ____
Number of Shares 5,891,000 5,891,000
Amount per Share $2.29 $2.11
Earnings per share are not reported inasmuch as the common stock of the
Company is 100% owned by its parent, Allegheny Power System, Inc.
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MONONGAHELA POWER COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
___________________________________________________________
COMPARISON OF FIRST QUARTER OF 1994 WITH FIRST QUARTER OF 1993
NET INCOME
Net income for the first quarter of 1994 was $17.6 million compared with
$18.3 for the corresponding 1993 period. The decrease in net income for
the first quarter of 1994 reflects increased taxes, maintenance, and other
expenses, offset in part by greater kilowatthour (kWh) sales to retail
customers. Retail sales in the first quarter of 1994 were favorably
affected by record setting cold temperatures in January 1994.
SALES AND REVENUES
Retail kWh sales to residential, commercial, and industrial customers
increased 8%, 4%, and 2%, respectively. The increase in kWh sales to
residential and commercial customers was primarily due to an increase in
weather-related sales. In mid-January 1994, the coldest temperatures ever
recorded in much of the Company's service territory resulted in heating
degree days which were 44% over the prior January and 15% above normal.
The increase in kWh sales to industrial customers was primarily due to higher
sales to primary metals, chemical, and coal mining customers. The 9%
increase in revenues from retail customers resulted from the following:
Increase from Prior Period
__________________________
(Millions of Dollars)
Increased kWh sales $ 3.0
Fuel and energy cost adjustment clauses (1) 6.4
Rate increases (2) 1.5
Other .3
_____
$11.2
_____
_____
(1) Changes in revenues from fuel and energy cost adjustment clauses have
no effect on net income.
(2) Reflects a surcharge in West Virginia for recovery of carrying
charges on expenditures to comply with the Clean Air Act
Amendments of 1990 (CAAA), designed to produce $3.1 million on an
annual basis effective July 1, 1992, which was increased to $8.7
million on an annual basis effective on July 1, 1993.
- 9 -
KWh sales to and revenues from nonaffiliated utilities are comprised of the
following items:
Three Months Ended
March 31
__________________
1994 1993
____ ____
KWh sales (in billions):
From Company generation .1 .2
From purchased power .8 .7
_____ _____
.9 .9
_____ _____
_____ _____
Revenues (in millions):
From Company generation $ 3.0 $ 4.4
From sales of purchased power 24.2 19.1
_____ _____
$27.2 $23.5
_____ _____
_____ _____
Sales from Company generation decreased because of growth of kWh sales
to retail customers and generating unit outages, both of which reduces
the amount available for sale, and continuing price competition. Increased
sales from purchased power were due to increased demand resulting primarily
from reduced availability of eastern utilities' generation equipment.
The increase in other revenues resulted primarily from an increase in
sales of capacity, energy, and spinning reserve to other affiliated companies
because of additional capacity and energy available from a new PURPA project
commencing in July 1993. About 90% of the aggregate benefits from sales to
affiliated and nonaffiliated utilities is passed on to retail customers and
has little effect on net income.
OPERATING EXPENSES
Fuel expenses increased 6% due to a 3% increase in kWh generated, a
2% increase in average coal prices, and a 1% increase in heat rate. Fuel
expenses are primarily subject to deferred power cost accounting procedures
with the result that changes in fuel expenses have little effect on net income.
"Purchased power and exchanges, net" represents power purchases from
and exchanges with nonaffiliated utilities, purchases from qualified
facilities under the Public Utility Regulatory Policies Act of
1978 (PURPA), capacity charges paid to Allegheny Generating Company
(AGC), and other transactions with affiliates made pursuant to a power supply
agreement whereby each company uses the most economical generation available
in the Allegheny Power System at any given time, and is comprised of the
following items:
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Three Months Ended
March 31
________________________
1994 1993
____ ____
(Millions of Dollars)
Nonaffiliated transactions:
Purchased power:
For resale to other utilities $21.4 $17.4
From PURPA generation 14.5 10.8
Other 3.2 .6
Power exchanges, net .8 -
Affiliated transactions:
AGC capacity charges 5.3 5.8
Energy and spinning reserve charges .1 .1
_____ _____
$45.3 $34.7
_____ _____
_____ _____
The amount of power purchased from nonaffiliated utilities for use by
the Company and for resale to nonaffiliated utilities depends upon the
availability of the Company's generating equipment, transmission capacity, and
fuel, and its cost of generation and the cost of operations of nonaffiliated
utilities from which such purchases are made. The cost of power purchased
for use by the Company, including power from PURPA generation and affiliated
companies, is mostly recovered from customers currently through the regular
fuel and energy cost recovery procedures followed by the Company's regulatory
commissions and is primarily subject to deferred power cost procedures with the
result that changes in such costs have little effect on net income. As
described under SALES AND REVENUES above, the increase in sales to retail
customers combined with generating unit outages resulted in increased
purchases from nonaffiliated utilities. The increase in purchases from
PURPA generation reflects additional generation from a new
PURPA project commencing in July 1993. The primary reason for the fluctuation
in purchases for resale to nonaffiliated utilities is also
described under SALES AND REVENUES above.
The increase in other operation expense resulted primarily from provisions
for claims related to previously reported asbestos suits and a superfund site
cleanup.
Maintenance expenses represent costs incurred to maintain the power
stations, the transmission and distribution (T&D) system, and general
plant, and reflect routine maintenance of equipment and rights-of-way
as well as planned major repairs and unplanned expenditures, primarily
from forced outages at the power stations and periodic storm damage
on the T&D system. In early January 1994, the Company experienced the worst
storm in its history with approximately $7 million of damage to its
facilities. These expenses were deferred pending rate recovery which has been
requested in a rate case filing made on January 18, 1994. The Company
is experiencing, and expects to continue to experience, increased expenditures
due to the aging of its power stations. Variations in maintenance expense
result primarily from unplanned events and planned major projects, which vary in
timing and magnitude depending upon the length of time equipment has
been in service without a major overhaul, the amount of work found
necessary when equipment is dismantled, and outage requirements
to comply with the CAAA.
- 11 -
The increase in depreciation expense resulted from additions to
electric plant. Because of the increased levels of capital expenditures
expected as a result of the CAAA and the replacement of aging equipment at
the Company's power stations, depreciation expense is expected
to increase significantly over the next few years.
Taxes other than income taxes increased $2.1 million primarily due to
increased West Virginia Business and Occupation taxes due to increased
generation within that state ($1.3 million) and increased gross receipts
taxes resulting from higher revenues from retail customers ($.3 million).
The net increase of $1.1 million in federal and state income taxes
resulted primarily from an increase in income before taxes and an
increase in the federal income tax rate pursuant to the Revenue
Reconciliation Act of 1993 enacted in August 1993.
Fluctuations in other interest expense as well as other income, net,
reflect changes in the levels of temporary investments and
short-term debt maintained by the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's discussion on Liquidity and Capital Resources in the
Allegheny Power System companies' combined Annual Report on Form 10-K for
the year ended December 31, 1993, should be read with the following
information.
On January 18, 1994, the Company filed an application with the Public
Service Commission of West Virginia for a base rate increase designed
to produce $61.3 million in additional annual revenues. This increase, along
with additional rate increase requests to be filed in Ohio and with the Federal
Energy Regulatory Commission for wholesale customers, includes recovery of
the remaining carrying charges on investment, depreciation, and all operating
costs required to comply with Phase I of the CAAA, and other increasing
levels of expenses. It is expected that the Company will begin to
receive additional revenues from these rate cases on or about the time
it begins to incur additional depreciation and operating costs for the
scrubbers to be placed in service on or before January 1, 1995.
On May 11, 1994, the Company issued 500,000 shares of $7.73 preferred
stock with a par value of $100 per share.
In the normal course of business, the Company is subject to various
contingencies and uncertainties relating to its operations and construction
programs, including cost recovery in the regulatory process, laws, regulations
and uncertainties related to environmental matters, and legal actions.
As previously reported, the Company is currently named as a defendant
along with multiple other affiliated and nonaffiliated defendants in
2,056 pending asbestos cases involving multiple plaintiffs. While the
cumulative number of claims appears to be significant, previous cases have
been settled for an amount substantially less than the anticipated cost of
defense and it is believed that more than half of the cases relate solely to
nonaffiliated defendants. The Company believes that the remaining cases
involving the Company and its affiliates are without merit and that provisions
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for liabilities are such that these suits will not have a material effect on
its financial position.
As also previously reported, the Company and its affiliates and
approximately 875 others have been identified by the Environmental
Protection Agency as potentially responsible parties in a superfund site
subject to cleanup. The Company believes that provisions for liabilities
are such that costs incurred in connection with remediation efforts
will not have a material effect on its financial position.
- 13 -
MONONGAHELA POWER COMPANY
Part II-Other Information to Form 10-Q
for Quarter Ended March 31, 1994
______________________________________
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
_______ __________________________________________________
1. (a) Date and Kind of Meeting:
The annual meeting of shareholders was held at
Fairmont, West Virginia, on April 18,
1994. No proxies were solicited.
(b) Election of Directors:
The holder of all 5,891,000 shares of common
stock voted to elect the following Directors
of the Company to hold office until the next annual
meeting of shareholders and until
their successors are duly chosen and qualified:
Eleanor Baum Frank A. Metz, Jr.
William L. Bennett Clarence F. Michalis*
Klaus Bergman Steven H. Rice
Stanley I. Garnett, II Gunnar E. Sarsten
Benjamin H. Hayes Peter L. Shea
Phillip E. Lint Peter J. Skrgic
Edward H. Malone
*Resigned effective May 1, 1994.
2. (a) Date and Kind of Meeting:
The Board of Directors at a meeting held on April 28,
1994, adopted by resolution a form
of charter amendment and delegated to certain
officers the authority to sell up to $85
million of the Company's Cumulative Preferred Stock
within the parameters previously adopted
by the Board and to insert therein the series
and terms of the Preferred Stock to
be sold and to file the same with the appropriate
State officials to make the amendment
effective. On May 4, 1994, the officers under their
delegated authority sold the pre-ferred stock
and inserted the series and terms thereof in the
Charter Amendment form previously adopted by the Board
and filed the Charter Amendment with the Ohio Secretary
of State's Office on May 5, 1994. The new Charter
Amendment provides for the issuance by
the Company and the terms of $50 million of the
Company's Cumulative Preferred Stock, Series L.
(c) Other Matters Voted Upon:
(1) The holder of all of the outstanding common stock of
the Company consented in writing on April 28, 1994
to an amendment of the Company's Code of Regulations
effective May 1, 1994, which
A. decreases the number of directors from thirteen to
twelve.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) (3)(ii) Code of Regulations of Monongahela Power Company,
as amended May 1, 1994.
(b) On May 12, 1994, the Company filed a report on Form
8-K, including an exhibit consisting of a charter
amendment effective May 5, 1994.
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.
MONONGAHELA POWER COMPANY
May 13, 1994 RICHARD E. MYERS
__________________________
Richard E. Myers,
Comptroller
(Chief Accounting Officer)