FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] 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 1-3491
PENNSYLVANIA POWER COMPANY
(Exact name of Registrant as specified in its charter)
Pennsylvania 25-0718810
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 E. Washington St., P.O. Box 891, New Castle, PA 16103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 412-652-5531
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
---- ----
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:
6,290,000 shares of common stock, $30 par value, outstanding
at May 4, 1995
PENNSYLVANIA POWER COMPANY
TABLE OF CONTENTS
Pages
Part I. Financial Information
Statements of Income 1
Balance Sheets 2-3
Statements of Cash Flows 4
Notes to Financial Statements 5-6
Report of Independent Public Accountants 7
Management's Discussion and Analysis of Results
of Operations and Financial Condition 8
Part II. Other Information
PART I. FINANCIAL INFORMATION
- ------------------------------
PENNSYLVANIA POWER COMPANY
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
-------------------
1995 1994
-------- --------
(In thousands)
OPERATING REVENUES $ 73,916 $ 78,358
-------- --------
OPERATING EXPENSES AND TAXES:
Fuel and purchased power 14,208 17,184
Nuclear operating costs 7,885 9,019
Other operating costs 13,875 13,414
-------- --------
Total operation and maintenance expenses 35,968 39,617
Provision for depreciation 8,397 7,599
Deferral of net regulatory assets - (984)
General taxes 6,060 6,344
Income taxes 6,650 7,596
-------- --------
Total operating expenses and taxes 57,075 60,172
-------- --------
OPERATING INCOME 16,841 18,186
OTHER INCOME 756 414
-------- --------
TOTAL INCOME 17,597 18,600
-------- --------
NET INTEREST:
Interest expense 8,411 8,576
Allowance for borrowed funds used during construction (220) (133)
-------- --------
Net interest 8,191 8,443
-------- --------
NET INCOME 9,406 10,157
PREFERRED STOCK DIVIDEND REQUIREMENTS 1,160 1,356
-------- --------
EARNINGS ON COMMON STOCK $ 8,246 $ 8,801
======== ========
<FN>
The accompanying Notes to Financial Statements are
an integral part of these statements.
-1-
PENNSYLVANIA POWER COMPANY
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1995 1994
--------- ------------
(In thousands)
ASSETS
UTILITY PLANT:
In service, at original cost $1,212,111 $1,215,831
Less--Accumulated provision for depreciation 405,299 410,508
---------- ----------
806,812 805,323
---------- ----------
Construction work in progress-
Electric plant 16,053 11,226
Nuclear fuel 4,533 12,389
---------- ----------
20,586 23,615
---------- ----------
827,398 828,938
---------- ----------
OTHER PROPERTY AND INVESTMENTS 9,092 8,777
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 14,526 17,200
Note receivable from parent company - 25,000
Receivables-
Customers (less accumulated provisions of $594,000 and $515,000,
respectively, for uncollectible accounts) 31,385 32,745
Parent company 23,279 20,777
Other 17,632 12,823
Materials and supplies, at average cost-
Fuel 5,117 5,384
Other 11,234 11,655
Prepayments 8,241 2,048
---------- ----------
111,414 127,632
---------- ----------
DEFERRED CHARGES:
Regulatory assets 219,957 219,726
Other 7,700 8,125
---------- ----------
227,657 227,851
---------- ----------
$1,175,561 $1,193,198
========== ==========
-2-
PENNSYLVANIA POWER COMPANY
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1995 1994
--------- ------------
(In thousands)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stockholder's equity-
Common stock, $30 par value, authorized 6,500,000 shares
- 6,290,000 shares outstanding $ 188,700 $ 188,700
Other paid-in capital (600) (600)
Retained earnings 73,772 70,873
---------- ----------
Total common stockholder's equity 261,872 258,973
Preferred stock-
Not subject to mandatory redemption 50,905 50,905
Subject to mandatory redemption 15,000 15,000
Long-term debt-
Associated companies 13,708 15,155
Other 379,405 409,302
---------- ----------
720,890 749,335
---------- ----------
CURRENT LIABILITIES:
Currently payable long-term debt-
Associated companies 9,583 9,318
Other 28,356 15,126
Accounts payable-
Associated companies 7,752 9,440
Other 28,483 25,276
Accrued taxes 15,121 15,421
Accrued interest 6,834 10,108
Other 19,020 21,473
---------- ----------
115,149 106,162
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 279,723 277,542
Accumulated deferred investment tax credits 31,875 32,209
Other 27,924 27,950
---------- ----------
339,522 337,701
---------- ----------
COMMITMENTS, GUARANTEES AND
CONTINGENCIES (Note 2) ---------- ----------
$1,175,561 $1,193,198
========== ==========
<FN>
The accompanying Notes to Financial Statements are
an integral part of these balance sheets.
-3-
PENNSYLVANIA POWER COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-------------------
1995 1994
-------- -------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,406 $10,157
Adjustments to reconcile net income to net cash from
operating activities-
Provision for depreciation 8,397 7,599
Nuclear fuel and lease amortization 1,750 3,174
Deferred income taxes, net 3,068 2,482
Investment tax credits, net (334) (337)
Allowance for equity funds used during construction (117) (97)
Deferred fuel costs, net (1,018) (277)
Other (387) (372)
------- -------
Internal cash before dividends 20,765 22,329
Receivables (5,951) 13,899
Materials and supplies 688 (78)
Accounts payable 1,778 (7,299)
Other (11,894) (1,709)
------- -------
Net cash provided from operating activities 5,386 27,142
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions and repayments-
Preferred stock - 362
Long-term debt 18,005 3,163
Dividend payments-
Common stock 5,346 5,346
Preferred stock 1,161 1,354
------- -------
Net cash used for financing activities 24,512 10,225
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 6,321 12,758
Loan payment from parent (25,000) -
Other 2,227 937
------- -------
Net cash used for (provided from) investing activities (16,452) 13,695
------- -------
Net increase (decrease) in cash and cash equivalents (2,674) 3,222
Cash and cash equivalents at beginning of period 17,200 12,819
------- -------
Cash and cash equivalents at end of period $14,526 $16,041
======= =======
<FN>
The accompanying Notes to Financial Statements are an
integral part of these statements.
-4-
PENNSYLVANIA POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1 - FINANCIAL STATEMENTS:
The condensed financial statements reflect all normal
recurring adjustments that, in the opinion of management, are
necessary to fairly present results of operations for the interim
periods. These statements should be read in conjunction with the
financial statements and notes included in Pennsylvania Power
Company's (Company) 1994 Annual Report to Stockholders. The results
of operations are not intended to be indicative of results of
operations for any future period.
2 - COMMITMENTS, GUARANTEES AND CONTINGENCIES:
Construction Program --
The Company, a wholly owned subsidiary of Ohio Edison
Company (Edison), currently forecasts expenditures of approximately
$138,000,000 for property additions and improvements from 1995-
1999, of which approximately $28,000,000 is applicable to 1995. The
Company's investment in nuclear fuel is expected to be
approximately $29,000,000 during the 1995-1999 period, of which
approximately $4,000,000 is applicable to 1995.
Guarantees --
The Company, together with the other Central Area Power
Coordination Group companies, has severally guaranteed certain debt
and lease obligations in connection with a coal supply contract for
the Bruce Mansfield Plant. As of March 31, 1995, the Company's
share of the guarantee was $9,437,000. The price under the coal
supply contract, which includes certain minimum payments, has been
determined to be sufficient to satisfy the debt and lease
obligations.
Environmental Matters --
Various federal, state and local authorities regulate the
Company with regard to air and water quality and other
environmental matters. The Company has estimated additional capital
expenditures for environmental compliance of approximately
$12,000,000 for the period 1995 through 1999, which is included in
the construction forecast under "Construction Program."
The Clean Air Act Amendments of 1990 required significant
reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx) from
the Company's coal-fired generating units by 1995 and additional
emission reductions by 2000. SO2 reductions for the years 1995
through 1999 are being achieved by burning lower-sulfur fuel,
generating more electricity from lower-emitting plants, and/or
purchasing emission allowances. Equipment already installed
provides NOx reductions sufficient to meet the 1995 requirements.
Plans for complying with reductions required for the year 2000 and
thereafter have not been finalized. The Environmental Protection
Agency is conducting additional studies which could indicate the
need for additional NOx reductions from the Company's Pennsylvania
facilities by the year 2003. The cost of such reductions, if
required, may be substantial. The Company continues to evaluate its
compliance plan and other compliance options.
-5-
PENNSYLVANIA POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited) (Cont'd)
The Pennsylvania Department of Environmental Resources
has issued regulations dealing with the storage, treatment,
transportation and disposal of residual waste such as coal ash and
scrubber sludge. These regulations impose additional requirements
relating to permitting, ground water monitoring, leachate
collection systems, closure, liability insurance and operating
matters. The Company is considering various compliance options but
is presently unable to determine the ultimate increase in capital
and operating costs at existing sites.
Legislative, administrative and judicial actions will
continue to change the way that the Company must operate in order
to comply with environmental laws and regulations. With respect to
any such changes and to the environmental matters described above,
the Company expects that any resulting additional capital costs
which may be required, as well as any required increase in
operating costs, would ultimately be recovered from its customers.
-6-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pennsylvania Power Company:
We have reviewed the accompanying balance sheet of
Pennsylvania Power Company (a Pennsylvania corporation and a wholly
owned subsidiary of Ohio Edison Company) as of March 31, 1995, and
the related statements of income and cash flows for the three-month
periods ended March 31, 1995 and 1994. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data and
making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the balance sheet and statement of
capitalization of Pennsylvania Power Company as of December 31,
1994, and the related statements of income, retained earnings,
capital stock and other paid-in capital, cash flows and taxes for
the year then ended (not presented separately herein). In our
opinion, the information set forth in the accompanying balance
sheet as of December 31, 1994 is fairly stated in all material
respects in relation to the balance sheet from which it has been
derived.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
May 4, 1995
-7-
PENNSYLVANIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
During the first quarter of 1995, retail kilowatt-hour
sales decreased 0.1%. Due to unseasonably mild weather conditions
in the first quarter of 1995, residential and commercial kilowatt-
hour sales fell 7.8% and 1.8%, respectively, compared to last year.
A 9.8% increase in sales to industrial customers reflects increased
demand by manufacturers in the primary metals industry. Total
kilowatt-hour sales were down 13.2% in the first quarter of 1995
due to a 47.8% decrease in sales to other utilities. Generating
capacity constraints and market conditions limited the Company's
wholesale sales opportunities during 1995.
Because of lower kilowatt-hour sales, the Company spent
less on fuel and purchased power during the first quarter of 1995,
compared to last year. Nuclear expenses were lower in 1995 than
they were last year because of corrective maintenance work that was
performed during the scheduled refueling outage at the Perry Plant
in 1994.
Increased depreciation charges in 1995 reflect an
increase in the accrual for nuclear decommissioning costs. The
change in the deferral of net regulatory assets is due to the
Company ceasing recognition, for financial reporting purposes, of
the deferral of postretirement benefit costs authorized by the
Pennsylvania Public Utilities Commission, due to uncertainty of
ultimate recovery.
Capital Resources and Liquidity
The Company has continuing cash requirements for planned
capital expenditures and debt maturities. During the last three
quarters of 1995, capital requirements for property additions and
capital leases are expected to be about $26,000,000, including
$4,000,000 for nuclear fuel. The Company has additional cash
requirements of approximately $700,000 to meet maturities of long-
term debt during the remainder of 1995. These requirements are
expected to be satisfied with internal cash. In addition,
$14,250,000 of variable rate pollution control put bonds are
subject to repricing during the remainder of the year.
At March 31, 1995, the Company had approximately
$15,000,000 of cash and temporary investments and no short-term
indebtedness. The Company had $5,000,000 of unused short-term bank
lines of credit as of March 31, 1995, and $32,000,000 of bank
facilities which may be borrowed for up to several days at the
banks' discretion.
During the first quarter of 1995, the Company purchased
$16,500,000 of its 8.5% first mortgage bonds in the open market.
Subsequent to March 31, 1995, the Company purchased an additional
$13,250,000 of first mortgage bonds with a weighted average
interest rate of 8.04%.
-8-
PART II. OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of stockholders was held on
March 22, 1995. The 6,290,000 shares of common stock
of the Company outstanding and entitled to vote were
represented by proxy.
(b) At this meeting the following persons were elected to
the Company's Board of Directors:
H. Peter Burg Joseph J. Nowak
Robert H. Carlson Jack E. Reed
J. R. Edgerly Richard L. Werner
Willard R. Holland
(c) As holder of all of the outstanding common stock of
the Company, Edison voted its shares without
distinction for the persons elected.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number
-------
15 Letter from independent public accountants.
Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of
Regulation S-K, the Company has not filed as an
exhibit to this Form 10-Q any instrument with respect
to long-term debt if the total amount of securities
authorized thereunder does not exceed 10% of the
total assets of the Company, but hereby agrees to
furnish to the Commission on request any such
documents.
(b) Reports on Form 8-K
None
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.
May 4, 1995
PENNSYLVANIA POWER COMPANY
--------------------------
Registrant
/s/ Robert P. Wushinske
----------------------------
Robert P. Wushinske
Vice President and Treasurer
Chief Accounting Officer