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, 1995
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 11, 1995, 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.
- 2 -
MONONGAHELA POWER COMPANY
Form 10-Q for Quarter Ended June 30, 1995
_________________________________________
Index
_____
Page
No.
____
PART I - FINANCIAL INFORMATION:
______________________________
Statement of income -
Three and six months ended June 30, 1995 and 1994 3
Balance sheet -
June 30, 1995 and December 31, 1994 4
Statement of cash flows -
Six months ended June 30, 1995 and 1994 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
___________________________
- 3 -
MONONGAHELA POWER COMPANY
Statement of Income
_________________________
Three Months Ended Six Months Ended
June 30 June 30
____________________ ___________________
1995 1994 1995 1994
____ ____ ____ ____
(Thousands of Dollars)
ELECTRIC OPERATING REVENUES:
Residential $ 44,787 $ 41,768 $101,605 $ 98,154
Commercial 29,084 26,881 60,820 56,432
Industrial 53,445 48,849 107,931 99,420
Nonaffiliated utilities 20,614 17,836 43,791 45,018
Other, including affiliates 19,797 22,606 41,282 46,825
________ ________ ________ ________
Total Operating Revenues 167,727 157,940 355,429 345,849
________ ________ ________ ________
OPERATING EXPENSES:
Operation:
Fuel 29,717 36,075 64,952 78,886
Purchased power and exchanges, net 45,423 38,655 90,572 83,914
Deferred power costs, net 3,753 845 10,265 4,448
Other 19,458 17,627 38,240 34,982
Maintenance 17,729 16,447 36,559 34,356
Depreciation 14,950 14,708 29,438 29,467
Taxes other than income taxes 8,605 9,944 18,422 20,785
Federal and state income taxes 8,044 6,784 20,257 17,862
________ ________ ________ ________
Total Operating Expenses 147,679 141,085 308,705 304,700
________ ________ ________ ________
Operating Income 20,048 16,855 46,724 41,149
________ ________ ________ ________
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 123 514 162 1,083
Other income, net 2,714 1,786 4,893 3,617
________ ________ ________ ________
Total Other Income and Deductions 2,837 2,300 5,055 4,700
________ ________ ________ ________
Income Before Interest Charges 22,885 19,155 51,779 45,849
________ ________ ________ ________
INTEREST CHARGES:
Interest on long-term debt 9,608 8,739 18,496 17,477
Other interest 621 683 1,371 1,481
Allowance for borrowed funds used during
construction (230) (489) (444) (911)
________ ________ ________ ________
Total Interest Charges 9,999 8,933 19,423 18,047
________ ________ ________ ________
Income Before Cumulative Effect of
Accounting Change 12,886 10,222 32,356 27,802
Cumulative Effect of Accounting
Change, Net - - - 7,945
________ ________ ________ ________
NET INCOME $ 12,886 $ 10,222 $ 32,356 $ 35,747
________ ________ ________ ________
________ ________ ________ ________
See accompanying notes to financial statements.
- 4 -
MONONGAHELA POWER COMPANY
Balance Sheet
_________________________
June 30 December 31
1995 1994
_______ ___________
ASSETS: (Thousands of Dollars)
Property, Plant, and Equipment:
At original cost, including $36,450,000 and
$35,856,000 under construction $1,794,775 $1,763,533
Accumulated depreciation (725,105) (701,271)
__________ __________
1,069,670 1,062,262
__________ __________
Investments:
Allegheny Generating Company - common stock at equity 58,993 60,137
Other 464 509
__________ __________
59,457 60,646
__________ __________
Current Assets:
Cash 120 132
Accounts receivable:
Electric service, net of $1,621,000 and $1,912,000
uncollectible allowance 58,484 62,631
Affiliated and other 9,839 9,483
Notes receivable from affiliates 4,100 -
Materials and supplies - at average cost:
Operating and construction 24,780 24,563
Fuel 23,738 23,678
Prepaid tax 10,375 17,599
Other 8,886 7,180
__________ __________
140,322 145,266
__________ __________
Deferred Charges:
Regulatory assets 187,956 186,109
Unamortized loss on reacquired debt 16,403 11,500
Other 10,507 10,700
__________ __________
214,866 208,309
__________ __________
Total Assets $1,484,315 $1,476,483
__________ __________
__________ __________
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common stock $ 294,550 $ 294,550
Other paid-in capital 2,517 2,517
Retained earnings 202,556 198,626
__________ __________
499,623 495,693
Preferred stock - not subject to mandatory redemption 74,000 114,000
Long-term debt 489,823 470,131
__________ __________
1,063,446 1,079,824
__________ __________
Current Liabilities:
Short-term debt - 39,470
Long-term debt and preferred stock due
due within one year 58,500 -
Accounts payable 20,479 31,871
Accounts payable to affiliates 5,816 6,021
Taxes accrued:
Federal and state income 9,729 118
Other 12,666 20,193
Deferred power costs 7,247 -
Interest accrued 9,261 10,927
Other 19,730 16,455
__________ __________
143,428 125,055
__________ __________
Deferred Credits and Other Liabilities:
Unamortized investment credit 23,662 24,734
Deferred income taxes 222,913 216,264
Regulatory liabilities 19,830 19,974
Other 11,036 10,632
__________ __________
277,441 271,604
__________ __________
Total Capitalization and Liabilities $1,484,315 $1,476,483
__________ __________
__________ __________
See the accompanying notes to financial statements.
- 5 -
MONONGAHELA POWER COMPANY
Statement of Cash Flows
_________________________
Six Months Ended
June 30
____________________
1995 1994
____ ____
(Thousands of Dollars)
CASH FLOWS FROM OPERATIONS:
Net income $ 32,356 $ 35,746
Depreciation 29,438 29,466
Deferred investment credit and income taxes, net 1,545 (2,000)
Deferred power costs, net 10,265 4,446
Unconsolidated subsidiaries' dividends in excess of earnings 1,189 1,091
Allowance for other than borrowed funds used during construction (162) (1,084)
Cumulative effect of accounting change before income taxes - (13,279)
Changes in certain current assets and liabilities:
Accounts receivable, net, excluding cumulative effect of
accounting change 3,791 2,319
Materials and supplies (277) (4,163)
Accounts payable (11,597) (6,825)
Taxes accrued 2,084 (1,825)
Interest accrued (1,666) (75)
Other current liabilities 3,275 6,607
Other, net 6,958 5,083
________ ________
77,199 55,507
________ ________
CASH FLOWS FROM INVESTING:
Construction expenditures (38,111) (47,800)
Allowance for other than borrowed funds used
during construction 162 1,084
________ ________
(37,949) (46,716)
________ ________
CASH FLOWS FROM FINANCING:
Sale of preferred stock - 49,635
Issuance of long-term debt 132,137 971
Retirement of long-term debt (99,403) -
Short-term debt, net (39,470) (29,400)
Notes receivable from affiliates (4,100) -
Dividends on capital stock:
Preferred stock (4,037) (3,099)
Common stock (24,389) (26,863)
________ ________
(39,262) (8,756)
________ ________
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS $ (12) $ 35
Cash and Temporary Cash Investments at January 1 132 135
________ ________
Cash and Temporary Cash Investments at June 30 $ 120 $ 170
________ ________
________ ________
Supplemental cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 20,801 $ 17,540
Income taxes 9,199 16,563
See accompanying notes to financial statements.
- 6 -
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, 1994, should be read with the
accompanying financial statements and the following notes.
With the exception of the December 31, 1994 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,
1995, the results of operations for the three and six months
ended June 30, 1995 and 1994, and cash flows for the six
months ended June 30, 1995 and 1994.
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. Earnings for the 1994 periods have been restated to reflect
retroactively the cumulative effect of an accounting change
adopted as of January 1994 to record unbilled revenues.
4. In June 1995, the Company issued $25 million of 6.15%, 20-year
pollution control revenue notes, to refund $25 million of
7.75% Series B pollution control revenue notes due 2009.
These notes will be refunded in July 1995 but have been
extinguished as of the June 30, 1995, balance sheet because
funds have been placed in an irrevocable trust to satisfy the
obligation.
The Company issued $70 million of 7.625%, 30-year first
mortgage bonds in May 1995 to refund $70 million of 8.875%
series due 2019. The Company also issued $40 million of 8%
Junior Subordinated Deferrable Interest Debentures in June
1995 to replace the following issues of preferred stock:
$5 million of $7.36 Series E, $5 million of $8.80 Series G,
$5 million of $7.92 Series H, $10 million of $7.92 Series I,
and $15 million of $8.60 Series J.
- 7 -
5. 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, a nonaffiliated utility. Following is a summary of
income statement information for AGC:
Three Months Ended Six Months Ended
June 30 June 30
_____________________ __________________
1995 1994 1995 1994
____ ____ ____ ____
(Thousands of Dollars)
Electric operating revenues $22,061 $21,869 $44,157 $44,300
_______ _______ _______ _______
Operation & maintenance
expense 1,571 1,444 3,367 3,277
Depreciation 4,224 4,236 8,448 8,472
Taxes other than income taxes 1,248 1,528 2,547 2,868
Federal income taxes 3,502 3,408 6,725 6,921
Interest charges 4,432 4,487 9,417 8,913
Other income, net (9) (5) (9) (7)
_______ _______ _______ _______
Net income $ 7,093 $ 6,771 $13,662 $13,856
_______ _______ _______ _______
_______ _______ _______ _______
The Company's share of the equity in earnings above was
$1.9 million and $1.8 million for the three months ended
June 30, 1995 and 1994, respectively, and $3.7 million for
both the six months ended June 30, 1995 and 1994,
respectively, and was included in other income, net, on the
Statement of Income.
6. Common stock dividends per share declared and paid during the
periods for which income statements are included are as
follows:
1995 1994
_____________________________ _________________________
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 $2.07 $2.07 $2.29 $2.27
Earnings per share are not reported inasmuch as the common
stock of the Company is 100% owned by its parent, Allegheny
Power System, Inc.
- 8 -
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, 1995
WITH SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1994
NET INCOME
Net income for the second quarter of 1995 was
$12.9 million compared with $10.2 million for the corresponding 1994
period. For the first six months of 1995, net income was $32.4 million
compared with $27.8 million for the corresponding 1994 period, before the
cumulative effect of an accounting change to record unbilled revenues.
The increase in net income for the second quarter and
in income before cumulative effect of an accounting change for the first
six months of 1995 reflects increased retail revenues resulting primarily
from previously reported rate increases and also in the second quarter
from greater kilowatthour (kWh) sales to retail customers. The increased
retail revenues in the 1995 periods more than offset increases in interest
and other expenses.
SALES AND REVENUES
Retail kWh sales to commercial and industrial customers
in the second quarter increased 4% and 5%, respectively and to residential
customers remained about the same. In the first six months, retail kWh
sales to commercial and industrial customers increased 3% and 4%,
respectively, and to residential customers decreased 4%. Milder weather
in the first six months of 1995 as compared to some of the coldest
temperatures ever recorded in much of the Company's service territory
during the first quarter of 1994 resulted in reduced residential kWh
sales. The increase in kWh sales to industrial customers in the second
quarter and first six months of 1995 resulted primarily from increased
sales to primary metal customers. Industrial sales were adversely
affected in the second quarter of 1994 by fires at two large industrial
customers. The increase in revenues from retail customers resulted from
the following:
Change from Prior Periods
_______________________________
Quarter Six Months
_______ __________
(Millions of Dollars)
Change in kWh sales $1.3 $ (.1)
Fuel and energy cost adjustment clauses(1) 1.0 .6
Rate increases(2) 7.2 15.5
Other .3 .4
____ _____
$9.8 $16.4
____ _____
____ _____
- 9 -
(1) Changes in revenues from fuel and energy cost
adjustment clauses have little effect on net income.
(2) Reflects a base rate increase in West Virginia of
$23.5 million on an annual basis effective
November 16, 1994. This is in addition to
$6.9 million of Clean Air Act Amendments of 1990
(CAAA) recovery granted effective July 1, 1994, in
West Virginia. These rate increases included
recovery of carrying charges on investment,
depreciation, and operating costs required to comply
with Phase I of the CAAA in West Virginia, and other
increasing levels of expense. See page 11 for
further information on the West Virginia rate case.
KWh sales to and revenues from nonaffiliated utilities are
comprised of the following items:
Three Months Ended Six Months Ended
June 30 June 30
_____________________ ___________________
1995 1994 1995 1994
____ ____ ____ ____
KWh sales (in billions):
From Company generation - .1 .1 .2
From purchased power .7 .4 1.4 1.2
_____ _____ ______ ______
.7 .5 1.5 1.4
_____ _____ ______ ______
_____ _____ ______ ______
Revenues (in millions):
From Company generation $ .6 $ 2.4 $ 1.7 $ 5.4
From sales of purchased power 20.0 15.4 42.1 39.6
_____ _____ ______ ______
$20.6 $17.8 $43.8 $45.0
_____ _____ ______ ______
_____ _____ ______ ______
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 because of decreased
demand and continuing price competition. Sales of purchased power vary
depending on the availability of eastern utilities' generating equipment,
demand for energy, and competition.
The decrease in other revenues resulted primarily from
a decrease in sales of energy and spinning reserve to affiliated
companies. 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.
- 10 -
OPERATING EXPENSES
Fuel expenses for both the second quarter and the first
six months of 1995 decreased 18%. The decrease in fuel expenses was a
result of an 8% decrease in average coal prices and a decrease in kWhs
generated of 10% in both periods. The reduced average coal prices are
primarily the result of renegotiations of long-term fuel contracts which
reduced fuel prices effective January 1995. 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
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:
Three Months Ended Six Months Ended
June 30 June 30
_____________________ __________________
1995 1994 1995 1994
____ ____ ____ ____
(Millions of Dollars)
Nonaffiliated transactions:
Purchased power:
For resale to other utilities $17.7 $13.6 $37.5 $35.0
From PURPA generation 19.3 17.8 36.1 32.3
Other 3.8 2.3 6.1 5.4
Power exchanges, net (.5) (.6) .3 .2
Affiliated transactions:
AGC capacity charges 5.1 5.3 10.3 10.6
Energy and spinning reserve charges - .3 .3 .4
_____ _____ _____ _____
$45.4 $38.7 $90.6 $83.9
_____ _____ _____ _____
_____ _____ _____ _____
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 primary
reason for the increases in purchases for resale to other utilities is
described under SALES AND REVENUES above.
- 11 -
The increases in other operation expense for the second
quarter and six-month periods resulted primarily from increased power
station operating costs, including expenses related to the Harrison
scrubbers which became available for service in November 1994, an increase
in research and development expense due to the timing of payments, and
increases in salaries and wages and employee benefits for the first six
months these increases were offset in part by environmental liabilities
recorded in the first quarter of 1994.
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. The Company is also
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 and
the amount of work found necessary when equipment is dismantled.
Taxes other than income taxes decreased $1.3 million
and $2.4 million in the second quarter and first six months of 1995,
respectively, due primarily to a decrease in West Virginia Business and
Occupation taxes (B&O taxes) resulting primarily from an increase in the
industrial expansion credit. As a result of an amendment in the B&O tax
law effective June 1, 1995, which changed the basis for this tax from
generation to generating capacity, this tax is expected to decrease
effective February 1, 1996, because of a rate reduction for scrubbed
capacity.
The net increases of $1.3 million and $2.4 million in
federal and state income taxes for the second quarter and first six-month
periods, respectively, resulted primarily from increases in income before
income taxes.
The combined decreases of $.7 million and $1.4 million
in allowance for funds used during construction (AFUDC) for the second
quarter and first six-month periods, respectively, reflect decreases in
capital expenditures upon substantial completion of Phase I of the Clean
Air Act Amendments.
The increase in other income, net for the second
quarter and first six-month periods was due primarily to proceeds from the
sale of timber and to interest income on a tax refund and on funds
available as a result of the timing of the debt and preferred stock
refinancings in the second quarter of 1995.
Interest on long-term debt increased $.9 million for
the quarter and $1.0 million for the first six months due primarily to the
timing of the refinancing of $70 million of first mortgage bonds and
$25 million of pollution control revenue notes, interest related to the
issuance of $40 million of Junior Subordinated Deferrable Interest
Debentures, and new security issues in 1994. Fluctuations in other
interest expense reflect changes in the level of short-term debt
maintained by the Company.
- 12 -
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, 1994 should be read with the
following information.
In March 1995, in response to requests for
reconsideration of the rate order to the Company in mid-November 1994, the
Public Service Commission of West Virginia (PSC) ordered a considerable
number of changes from the November order, including reallocations of the
rate increases among customer classes and that certain Harrison
scrubber-related expenses be reviewed as part of the annual Expanded Net
Energy Cost (ENEC) review procedure in June 1995. The PSC later agreed
with its staff to delay implementation of the March 1995 order until
completion of the ENEC review. Following the March 1995 order, the
Company petitioned the West Virginia Supreme Court of Appeals to review
the PSC's order as to various issues, including the low allowed return on
equity of 10.85%.
Effective July 1, 1995, following the ENEC review, the
PSC reduced the Company's annual base rates by $1.1 million related to
scrubber expenses and stated that those items would be again reviewed in
the 1996 ENEC review. On July 10, 1995, the Company filed a petition for
reconsideration related to the scrubber expenses.
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 3,156 pending asbestos cases involving multiple plaintiffs,
including 815 new cases filed in 1995 to date. 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. Also as 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
and insurance recoveries are such that final resolution of these matters
will not have a material effect on its financial position.
In March 1995, the Federal Energy Regulatory Commission
(FERC) published a Notice of Proposed Rulemaking (NOPR) that would mandate
sweeping changes to promote increased competition in the wholesale
electric industry. The proposals would require that utilities file
nondiscriminatory open access transmission tariffs and other comparable
transmission services to eligible third parties. It also would allow
utilities the opportunity to recover stranded costs. The Company has
submitted comments to the FERC.
On May 11, 1995, at the annual meeting of stockholders,
the System announced that it was proceeding with a functional
reorganization. As a result of the reorganization and consolidation
efforts currently underway, staff reductions with possible future layoffs
appear to be inevitable.
- 13 -
MONONGAHELA POWER COMPANY
Part II-Other Information to Form 10-Q
for Quarter Ended June 30, 1995
_______________________________________
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
_______ ________________________________
(a) Exhibits
27 Financial Data Schedule.
(b) On May 23, 1995, the Company filed a report on Form 8-K
including an exhibit consisting of a supplemental
indenture dated as of May 1, 1995.
On June 21, 1995, the Company filed a report on
Form 8-K including an exhibit consisting of an
indenture dated as of May 15, 1995.
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 11, 1995 RICHARD E. MYERS
_________________________
Richard E. Myers,
Controller
(Chief Accounting Officer)