Page 1 of 13
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 June 30, 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 August 12, 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 June 30, 1994
_________________________________________
Index
_____
Page
No.
____
PART I - FINANCIAL INFORMATION:
______________________________
Statement of income -
Three and six months ended June 30, 1994 and 1993 3
Balance sheet -
June 30, 1994 and December 31, 1993 4
Statement of cash flows -
Six months ended June 30, 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
___________________________
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MONONGAHELA POWER COMPANY
Statement of Income
_________________________
Three Months Ended Six Months Ended
June 30 June 30
__________________ _________________
1994 1993 1994 1993
____ ____ ____ ____
(Thousands of Dollars)
ELECTRIC OPERATING REVENUES:
Residential $ 41,768 $ 39,484 $ 98,154 $ 89,955
Commercial 26,881 24,878 56,432 52,009
Industrial 48,849 45,153 99,420 92,813
Nonaffiliated utilities 17,836 22,613 45,018 46,069
Other, including affiliates 22,606 13,113 46,825 29,937
________ ________ ________ ________
Total Operating Revenues 157,940 145,241 345,849 310,783
________ ________ ________ ________
OPERATING EXPENSES:
Operation:
Fuel 36,075 33,247 78,886 73,654
Purchased power and exchanges, net 38,655 35,072 83,914 69,812
Deferred power costs, net 845 (1,575) 4,448 (1,445)
Other 17,627 16,738 34,982 33,306
Maintenance 16,447 16,737 34,356 33,405
Depreciation 14,708 14,125 29,467 28,147
Taxes other than income taxes 9,944 7,651 20,785 16,403
Federal and state income taxes 6,784 6,072 17,862 16,038
________ ________ ________ ________
Total Operating Expenses 141,085 128,067 304,700 269,320
________ ________ ________ ________
Operating Income 16,855 17,174 41,149 41,463
________ ________ ________ ________
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 514 1,145 1,083 1,881
Other income, net 1,786 2,048 3,617 3,935
________ ________ ________ ________
Total Other Income and Deductions 2,300 3,193 4,700 5,816
________ ________ ________ ________
Income Before Interest Charges 19,155 20,367 45,849 47,279
________ ________ ________ ________
INTEREST CHARGES:
Interest on long-term debt 8,739 9,189 17,477 18,078
Other interest 683 450 1,481 765
Allowance for borrowed funds used during
construction (489) (843) (911) (1,387)
________ ________ ________ ________
Total Interest Charges 8,933 8,796 18,047 17,456
________ ________ ________ ________
NET INCOME $ 10,222 $ 11,571 $ 27,802 $ 29,823
________ ________ ________ ________
________ ________ ________ ________
See accompanying notes to financial statements.
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MONONGAHELA POWER COMPANY
Balance Sheet
_________________________
June 30 December 31
1994 1993
_______ ___________
ASSETS: (Thousands of Dollars)
Property, Plant, and Equipment:
At original cost, including $152,717,000 and
$144,621,000 under construction $1,721,755 $1,684,322
Accumulated depreciation (685,616) (664,947)
__________ __________
1,036,139 1,019,375
__________ __________
Investments:
Allegheny Generating Company - common stock at equity 60,647 61,698
Other 555 595
__________ __________
61,202 62,293
__________ __________
Current Assets:
Cash 170 135
Accounts receivable:
Electric service, net of $1,190,000 and $1,084,000
uncollectible allowance 45,113 48,995
Affiliated and Other 16,158 14,596
Materials and supplies - at average cost:
Operating and construction 23,313 22,393
Fuel 23,147 19,904
Property taxes 10,222 15,443
Deferred power costs 6,376 10,823
Other 3,784 8,117
__________ __________
128,283 140,406
__________ __________
Deferred Charges:
Regulatory assets 165,630 162,842
Unamortized loss on reacquired debt 11,864 12,229
Other 16,944 10,308
__________ __________
194,438 185,379
__________ __________
Total Assets $1,420,062 $1,407,453
__________ __________
__________ __________
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common stock $ 294,550 $ 294,550
Other paid-in capital 2,629 2,994
Retained earnings 183,326 185,486
__________ __________
480,505 483,030
Preferred stock - not subject to mandatory redemption 114,000 64,000
Long-term debt 461,242 460,129
__________ __________
1,055,747 1,007,159
__________ __________
Current Liabilities:
Short-term debt 33,700 63,100
Accounts payable 25,769 31,752
Accounts payable to affiliates 7,342 8,184
Taxes accrued:
Federal and state income 433 -
Other 13,668 21,261
Interest accrued 10,566 10,641
Other 23,773 18,994
__________ __________
115,251 153,932
__________ __________
Deferred Credits and Other Liabilities:
Unamortized investment credit 25,809 26,883
Deferred income taxes 194,093 192,466
Regulatory liabilities 18,717 19,179
Other 10,445 7,834
__________ __________
249,064 246,362
__________ __________
Total Capitalization and Liabilities $1,420,062 $1,407,453
__________ __________
__________ __________
See the accompanying notes to financial statements.
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MONONGAHELA POWER COMPANY
Statement of Cash Flows
_________________________
Six Months Ended
June 30
_______________________
1994 1993
____ ____
(Thousands of Dollars)
CASH FLOWS FROM OPERATIONS:
Net income $ 27,802 $ 29,823
Depreciation 29,467 28,147
Deferred investment credit and income taxes, net (2,000) 3,016
Deferred power costs, net 4,448 (1,445)
Unconsolidated subsidiaries' dividends in excess of earnings 1,091 1,333
Allowance for other than borrowed funds used during construction (1,083) (1,881)
Changes in certain current assets and liabilities:
Accounts receivable, net 2,320 5,212
Materials and supplies (4,163) (170)
Other current assets 9,553 6,041
Accounts payable (6,825) (14,143)
Taxes accrued (7,160) (11,243)
Interest accrued (75) 194
Other current liabilities 6,607 6,572
Other, net (4,474) (1,381)
________ ________
55,508 50,075
________ ________
CASH FLOWS FROM INVESTING:
Construction expenditures (47,800) (61,406)
Allowance for other than borrowed funds used
during construction 1,083 1,881
________ ________
(46,717) (59,525)
________ ________
CASH FLOWS FROM FINANCING:
Sale of preferred stock 49,635 -
Issuance of long-term debt 971 73,399
Retirement of long-term debt - (68,471)
Short-term debt, net (29,400) 31,530
Dividends on capital stock:
Preferred stock (3,099) (2,229)
Common stock (26,863) (24,742)
________ ________
(8,756) 9,487
________ ________
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 35 37
Cash and Temporary Cash Investments at January 1 135 115
________ ________
Cash and Temporary Cash Investments at June 30 $ 170 $ 152
________ ________
________ ________
Supplemental cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 17,540 $ 17,151
Income taxes 16,563 15,423
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 June 30, 1994,
the results of operations for the three and six months ended June 30, 1994
and 1993, and cash flows for the six months ended June 30, 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. On May 11, 1994, the Company issued $50 million of $100 par value
cumulative preferred stock with a dividend of $7.73. Proceeds from the sale
were used to repay outstanding short-term debt and for other corporate
purposes.
4. 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 Six Months Ended
June 30 June 30
__________________ ________________
1994 1993 1994 1993
____ ____ ____ ____
(Thousands of Dollars)
Electric operating revenues $21,869 $23,730 $44,300 $47,153
_______ _______ ______________
_______ _______ ______________
Operation & maintenance
expense 1,444 1,963 3,277 3,641
Depreciation 4,236 4,226 8,472 8,452
Taxes other than income taxes 1,528 1,302 2,868 2,599
Federal income taxes 3,408 3,494 6,921 6,898
Interest charges 4,487 5,357 8,913 10,959
Other income, net (5) (90) (7) (93)
_______ _______ ______________
Net income $ 6,771 $ 7,478 $13,856 $14,697
_______ _______ ______________
_______ _______ ______________
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The Company's share of the equity in earnings above was $1.8 million and
$2.0 million for the three months ended June 30, 1994 and 1993, respectively,
and $3.7 million and $4.0 million for the six months ended June 30, 1994
and 1993, respectively. These amounts were included in other income, net,
on the Statement of Income.
5. Common stock dividends per share declared and paid during the periods for
which income statements are included are as follows:
1994 1993
__________________________ _______________________
1st 2nd 1st 2nd
Quarter Quarter Quarter Quarter
_______ _______ _______ _______
Number of Shares 5,891,000 5,891,000 5,891,000 5,891,000
Amount per Share $2.29 $2.27 $2.11 $2.09
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 SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1994
WITH SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1993
NET INCOME
Net income for the second quarter and first six months of 1994 was
$10.2 million and $27.8 million, respectively, compared with $11.6 million and
$29.8 million for the corresponding 1993 periods. The decreases in net income
for the second quarter and first six months of 1994 reflect increased taxes,
depreciation, and other expenses, offset in part by greater kilowatthour (kWh)
sales to retail customers.
SALES AND REVENUES
Retail kWh sales to residential, commercial, and industrial customers
increased 1%, 3%, and 4% for the second quarter and 5%, 3%, and 3%
for the first six months, respectively. The increase in kWh sales to
residential and commercial customers was primarily due to variances in
weather-related sales. Record cold temperatures in mid-January 1994
contributing to first quarter 1994 residential and commercial kWh sales
increases of 8% and 4%, respectively, were followed by milder temperatures and
lower kWh sales in April and May 1994. These milder temperatures were
followed by higher-than-normal temperatures and increased kWh sales in June
1994 reflecting a 45% increase in cooling degree days over June 1993 and
a 51% increase above normal. The increases in kWh sales to industrial
customers resulted primarily from increased sales to coal mining and chemical
customers. Industrial sales were adversely affected in the second quarter
of 1994 by fires at two large industrial customers, both of which are
expected to be substantially returned to normal service by the fourth quarter of
1994. The increase in revenues from retail customers resulted from
the following:
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Increase from Prior Periods
___________________________
Quarter Six Months
_______ __________
(Millions of Dollars)
Increased kWh sales $1.3 $ 4.3
Fuel and energy cost adjustment clauses (1) 5.2 11.6
Rate increases (2) 1.3 2.8
Other .2 .5
____ _____
$8.0 $19.2
____ _____
____ _____
(1) Changes in revenues from fuel and energy cost adjustment clauses have
little 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.
KWh sales to and revenues from nonaffiliated utilities are comprised of the
following items:
Three Months Ended Six Months Ended
June 30 June 30
__________________ ________________
1994 1993 1994 1993
____ ____ ____ ____
____ ____ ____ ____
KWh sales (in billions):
From Company generation .1 .2 .2 .3
From purchased power .4 .6 1.2 1.4
_____ _____ _____ _____
.5 .8 1.4 1.7
_____ _____ ______ _____
_____ _____ ______ _____
Revenues (in millions):
From Company generation $ 2.4 $ 3.3 $ 5.4 $ 7.7
From sales of purchased power 15.4 19.3 39.6 38.4
_____ _____ _____ _____
$17.8 $22.6 $45.0 $46.1
_____ _____ _____ _____
_____ _____ _____ _____
Sales from Company generation decreased because of growth of kWh sales to
retail customers and generating unit outages, both of which reduce the amount
available for sale, and continuing price competition. Sales from purchased
power varies depending on the availability of eastern utilities'generating
equipment, demand for energy, and competition.
The increase in other revenues resulted primarily from an increase in
sales of capacity, energy, and spinning reserve to affiliated companies
because of additional capacity and energy available from a new qualified
facility under the Public Utility Regulatory Policies Act of 1978 (PURPA)
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.
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OPERATING EXPENSES
Fuel expenses for the second quarter and the first six months of 1994
increased 9% and 7%, respectively, due primarily to an increase in kWh
generated. 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 other utilities and purchases from PURPA projects, and is
comprised of the following items:
Three Months Ended Six Months Ended
June 30 June 30
__________________ ________________
1994 1993 1994 1993
____ ____ ____ ____
(Millions of Dollars)
Nonaffiliated transactions:
Purchased power:
For resale to other utilities $13.6 $16.4 $35.0 $33.8
From PURPA generation 17.8 12.0 32.3 22.8
Other 2.3 .9 5.4 1.5
Power exchanges, net (.6) (.5) .2 (.4)
Affiliated transactions:
AGC capacity charges 5.3 5.9 10.6 11.7
Energy and spinning reserve charges .3 .4 .4 .4
_____ _____ _____ _____
$38.7 $35.1 $83.9 $69.8
_____ _____ _____ _____
_____ _____ _____ _____
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. 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 increases in other operation expenses resulted primarily from
previously reported asbestos suits and a superfund site cleanup, and an
SEC-directed larger allocation of the Parent's corporate expenses for
shareholder-related activities.
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 nearly $7
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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.
The increase in depreciation expense for the second quarter and first six
months of 1994 resulted primarily from additions to electric plant. As part of
the ratemaking process, the Company was required to file a "depreciation"
rate case in 1994 in order to establish an appropriate ongoing level of
depreciation. The last such case was adjudicated in 1985. The result of
the current case will be a reduction in depreciation rates in November 1994,
concurrent with new revenues from the January 18, 1994 general rate case
described above and a further reduction in January 1996. These reductions of
about $7 million and $4 million, respectively, will result in depreciation
rates for the Company which are comparable to those of other electric
utilities, particularly those providing service in West Virginia.
Because of the increased levels of capital expenditures as a result of
the CAAA and the replacement of aging equipment at the Company's power
stations, depreciation expense is expected to increase over the next few
years, offset by the reductions described.
Taxes other than income taxes increased $2.3 million and $4.4 million for
the second quarter and first six months of 1994, respectively, due primarily
to increases in gross receipts taxes resulting from higher revenues from
retail customers. The net increases of $.7 million and $1.8 million in
federal and state income taxes for the second quarter and first six-month
periods, respectively, resulted from an increase in income before taxes, an
increase in the federal income tax rate pursuant to the Revenue Reconciliation
Act of 1993 enacted in August 1993, and certain flow-thru income tax
deductions recorded in 1993.
The combined decreases of $1.0 million and $1.3 million in allowance for
funds used during construction (AFUDC) for the second quarter and first
six-month periods, respectively, reflect increases in the current recovery
of carrying charges on CAAA expenditures in lieu of recording AFUDC.
Interest on long-term debt decreased $.5 million for the second quarter
and $.6 million for the first six months due primarily to interest
savings from debt refinancings in 1993. Fluctuations in other interest
expense as well as other income, net, reflect changes in the levels of
short-term debt and temporary investments maintained by the companies.
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.
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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 at the Federal
Energy Regulatory Commission for wholesale customers, includes recovery of
the remaining carrying charges on investment, depreciation, and 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. New revenues in Ohio will
not take effect until late 1995, however, the Public Utilities Commission of
Ohio has issued an accounting order allowing the Company to defer a return
on the CAAA investment and related depreciation and operating costs.
On August 10, 1994, the Company issued $8.825 million of 6-3/4%, 30-year
solid waste disposal revenue notes, the proceeds of which will be used on the
Harrison Power Station scrubber project.
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 2,252
pending asbestos cases involving multiple plaintiffs, including 196 new cases
filed in the second quarter of 1994. 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 other defendants. The Company
believes that the remaining cases involving them are without merit and that
provisions for liabilities are such that these suits will not have a material
effect on their financial position.
The Company previously reported that the Environmental Protection Agency
(EPA) had identified it and its affiliates and approximately 875 others as
potentially responsible parties in a Superfund site subject to cleanup. A
Remedial Investigation/Feasibility Study prepared by the EPA indicates
remedial alternatives which range as high as $113 million, to be shared by
all responsible parties. The EPA has not yet selected which remedial
alternative it will use. The Company believes it has defenses to allegations
of liability and intends to vigorously defend this matter. Although it is
not possible at this time to determine what costs, if any, the Company may
incur, it has recorded provisions for liabilities based on the range of
remediation cost estimates and its relative participation, along with its
affiliates and the approximately 875 others. The Company believes that final
resolution of this matter will not have a material effect on its financial
position.
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MONONGAHELA POWER COMPANY
Part II-Other Information to Form 10-Q
for Quarter Ended June 30, 1994
______________________________________
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
_______ ________________________________
(b) No reports on Form 8-K were filed on behalf of the Company since the
previously reported filing on May 12, 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
August 12, 1994 RICHARD E. MYERS
__________________________
Richard E. Myers,
Comptroller
(Chief Accounting Officer)