SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(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, 1994
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 0-4117-1
IES UTILITIES INC.
(Exact name of registrant as specified in its charter)
Iowa 42-0331370
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
IE Tower, Cedar Rapids, Iowa 52401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (319) 398-4411
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.
Class Outstanding at April 30, 1994
Common Stock, $2.50 par value 13,370,788 shares
IES UTILITIES INC.
INDEX
Page No.
Part I. Financial Information.
Item 1. Financial Statements.
Balance Sheets -
March 31, 1994 and December 31, 1993 3 - 4
Statements of Income -
Three and Twelve Months Ended
March 31, 1994 and 1993 5
Statements of Cash Flows -
Three and Twelve Months Ended
March 31, 1994 and 1993 6
Notes to Financial Statements 7 - 15
Item 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition. 16 - 25
Part II. Other Information. 26 - 28
Signatures. 29
PART 1. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
BALANCE SHEETS
March 31,
1994 December 31,
ASSETS (Unaudited) 1993
(in thousands)
Utility plant, at original cost:
Plant in service -
Electric $ 1,718,712 $ 1,707,278
Gas 149,187 147,956
Other 75,456 75,845
1,943,355 1,931,079
Less - Accumulated depreciation 832,316 813,312
1,111,039 1,117,767
Leased nuclear fuel, net of
amortization 47,450 51,681
Construction work in progress 47,068 41,937
1,205,557 1,211,385
Current assets:
Cash and temporary cash investments 12,740 18,313
Accounts receivable -
Customer, less reserve 20,814 22,679
Other 8,543 10,330
Income tax refunds receivable 8,805 8,767
Production fuel, at average cost 11,281 14,338
Materials and supplies, at average
cost 27,718 26,861
Regulatory assets 8,623 6,421
Prepayments and other 20,247 31,502
118,771 139,211
Other assets:
Regulatory assets 168,729 149,978
Nuclear decommissioning trust funds 29,946 28,059
Other investments 3,606 2,821
Deferred charges and other 16,952 15,524
219,233 196,382
$ 1,543,561 $ 1,546,978
BALANCE SHEETS (CONTINUED)
March 31,
1994 December
CAPITALIZATION AND LIABILITIES (Unaudited) 31, 1993
(in thousands)
Capitalization:
Common stock - par value $2.50 per share -
authorized 24,000,000 shares; 13,370,788
shares outstanding $ 33,427 $ 33,427
Paid-in surplus 279,042 279,042
Retained earnings ($18,209,000 restricted
as to payment of cash dividends) 196,577 188,862
Total common equity 509,046 501,331
Cumulative preferred stock - par value $50
per share - authorized 466,406 shares;
366,406 shares outstanding 18,320 18,320
Long-term debt 430,397 480,074
957,763 999,725
Current liabilities:
Short-term borrowings - 24,000
Capital lease obligations 13,831 15,345
Sinking funds and maturities 50,224 224
Accounts payable 40,336 47,179
Dividends payable 229 5,229
Accrued interest 11,118 9,438
Accrued taxes 42,345 39,763
Accumulated refueling outage provision 5,797 2,660
Adjustment clause balances 9,873 5,149
Provision for rate refund liability 9,085 8,670
Other 26,065 27,038
208,903 184,695
Long-term liabilities:
Capital lease obligations 33,619 36,336
Liability under National Energy Policy Act
of 1992 12,065 11,984
Environmental liabilities 18,932 9,130
Other 29,033 25,197
93,649 82,647
Deferred credits:
Accumulated deferred income taxes 241,461 237,464
Accumulated deferred investment tax credits 41,785 42,447
283,246 279,911
Commitments and contingencies (Note 6)
$ 1,543,561 $ 1,546,978
The accompanying Notes to Financial Statements are an integral part of
these statements.
STATEMENTS OF INCOME (UNAUDITED)
For the Three For the Twelve
Months Ended Months Ended
March 31 March 31
1994 1993 1994 1993
(in thousands)
Operating revenues:
Electric $ 123,918 $ 126,627 $ 547,812 $ 474,220
Gas 65,134 64,335 155,117 154,957
Steam 2,961 2,823 9,049 8,377
192,013 193,785 711,978 637,554
Operating expenses:
Fuel for
production 22,344 24,541 85,506 78,396
Purchased power 13,602 22,108 84,944 74,967
Gas purchased for
resale 49,116 48,229 110,010 112,023
Other operating
expenses 30,982 27,781 126,409 118,163
Maintenance 10,895 10,378 46,735 40,233
Depreciation and
amortization 19,160 17,522 71,045 65,613
Property taxes 10,177 8,900 37,703 32,504
Federal and state
income taxes:
Current 10,130 8,781 29,710 31,493
Deferred 1,097 771 16,236 (3,497)
Amortization of
investment tax credits (662) (696) (4,827) (2,781)
Miscellaneous taxes 1,489 1,352 5,023 5,104
168,330 169,667 608,494 552,218
Operating income 23,683 24,118 103,484 85,336
Other income and
deductions:
Allowance for
equity funds
used during
construction 540 114 1,250 1,726
Miscellaneous, net 914 558 2,604 2,630
1,454 672 3,854 4,356
Interest:
Long-term debt 9,490 9,109 35,307 36,384
Other 1,040 1,549 4,734 4,471
Allowance for
debt funds
used during
construction (337) (291) (1,194) (1,353)
10,193 10,367 38,847 39,502
Net income 14,944 14,423 68,491 50,190
Preferred and
preference
dividend requirements 229 229 914 1,456
Net income available
for common stock $ 14,715 $ 14,194 $ 67,577 $ 48,734
The accompanying Notes to Financial Statements are an integral part of
these statements.
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three For the Twelve
Months Ended Months Ended
March 31 March 31
1994 1993 1994 1993
Cash flows from operating activities:
Net income $ 14,944 $ 14,423 $ 68,491 $ 50,190
Adjustments to reconcile net income to net cash flows
from operating activities -
Depreciation and amortization 19,160 17,522 71,045 65,613
Principal payments under capital lease obligations 4,427 3,418 12,439 12,976
Deferred taxes and investment tax credits 246 (34) 10,813 (6,174)
Amortization of deferred charges 269 197 1,020 1,040
Refueling outage provision 3,137 2,995 (4,747) 4,721
Allowance for equity funds used during construction (540) (114) (1,250) (1,726)
(Gain) loss on disposition of assets, net - (16) (639) (16)
Other - 26 - 307
Other changes in assets and liabilities -
Accounts receivable 3,652 (8,897) 4,234 (8,818)
Sale of utility accounts receivable - (7,210) 17,700 500
Production fuel 3,057 6,742 1,040 4,142
Accounts payable (5,299) (788) (2,869) (9,003)
Accrued taxes 2,544 (1,189) (6,748) 11,575
Provision for rate refunds 415 1,770 (1,536) 7,324
Adjustment clause balances 4,724 11,495 (405) 1,050
Gas in storage 10,090 11,980 (4,199) (69)
Deferred energy efficiency costs (3,399) (1,201) (11,961) (7,707)
Other (1,912) (1,128) 1,481 (9,468)
Net cash flows from operating activities 55,515 49,991 153,909 116,457
Cash flows from financing activities:
Dividends declared on common stock (7,000) (10,000) (28,300) (21,490)
Dividends declared on preferred and preference stock (229) (229) (914) (1,456)
Dividends payable (5,000) - - 229
Equity infusion from parent company - 50,000 - 50,000
Proceeds from issuance of long-term debt - - 119,400 33,400
Sinking fund requirements and reductions in
long-term debt and preferred and preference stock - - (79,624) (38,673)
Net change in short-term borrowings (24,000) (66,600) (25,960) 25,960
Principal payments under capital lease obligations (3,720) (3,567) (11,429) (11,725)
Other - (1) (1) (559)
Net cash flows from financing activities (39,949) (30,397) (26,828) 35,686
Cash flows from investing activities:
Construction and acquisition expenditures (18,992) (16,876) (115,328) (165,974)
Nuclear decommissioning trust funds (1,383) (1,383) (5,532) (5,532)
Proceeds from disposition of assets - 36 801 36
Other (764) (1,488) 4,092 1,680
Net cash flows from investing activities (21,139) (19,711) (115,967) (169,790)
Net increase (decrease) in cash and temporary cash
investments (5,573) (117) 11,114 (17,647)
Cash and temporary cash investments at beginning of period 18,313 1,743 1,626 19,273
Cash and temporary cash investments at end of period $ 12,740 $ 1,626 $ 12,740 $ 1,626
Supplemental cash flow information:
Cash paid during the period for -
Interest $ 8,899 $ 9,961 $ 38,685 $ 41,247
Income taxes $ (39) $ 3,782 $ 4,690 $ 26,401
Noncash investing and financing activities -
Capital lease obligations incurred $ 196 $ 10,495 $ 4,308 $ 11,510
The accompanying Notes to Financial Statements are an integral part of
these statements.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1994
(1) GENERAL:
The interim Financial Statements have been prepared by IES Utilities
Inc. (the Company), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. The Company is a wholly-owned
subsidiary of IES Industries Inc. (Industries) and was formed as a result of
the merger of Industries' former wholly-owned utility subsidiaries Iowa
Electric Light and Power Company (IE) and Iowa Southern Utilities Company
(IS), effective December 31, 1993. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. In
the opinion of the Company, the Financial Statements include all adjustments,
which are normal and recurring in nature, necessary for the fair presentation
of the results of operations and financial position. Certain prior period
amounts have been reclassified on a basis consistent with the 1994
presentation.
It is suggested that these Financial Statements be read in conjunction
with the Financial Statements and the notes thereto included in the Company's
Form 10-K for the year ended December 31, 1993. The accounting and financial
policies relative to the following items have been described in those notes
and have been omitted herein because they have not changed materially through
the date of this report:
General
Summary of significant accounting policies (other than discussed in
Note 2)
Acquisition of Iowa service territory of Union Electric Company
Leases
Income taxes
Benefit plans (other than discussed in Note 2(a))
Preferred and preference stock
Debt (other than discussed in Note 5)
Estimated fair value of financial instruments (other than discussed in
Note 2(b))
Commitments
Jointly-owned electric utility plant
Segments of business
(2) NEW ACCOUNTING STANDARDS:
(a) Accounting for Postemployment Benefits -
On January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) 112, "Employers' Accounting for
Postemployment Benefits" and its adoption did not have a material effect on
the Company's financial position or results of operations. This statement
requires that benefits offered to former or inactive employees after
termination of employment, but before retirement, be accrued over the service
lives of the employees if all of the following conditions are met: 1) the
obligation relates to services already performed, 2) the employees' rights
vest, 3) the payments are probable, and 4) the amounts are reasonably
determinable. Otherwise, such obligations are to be recognized at the time
they become probable and reasonably determinable. Prior to 1994, the Company
had generally accounted for these obligations as they were paid.
(b) Accounting for Certain Investments in Debt and Equity Securities -
On January 1, 1994, the Company adopted SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities." This standard, which
applies to the Company's nuclear decommissioning trust funds at
March 31, 1994, requires that unrealized gains and losses on such investments
be included in the reported balance of such investments. At March 31, 1994,
the balance of the "Nuclear decommissioning trust funds" included in the
Balance Sheets included $0.2 million of unrealized gains on the investments
held in the trust funds. The reserve for decommissioning costs, included in
"Accumulated depreciation" in the Balance Sheets was increased by a
corresponding amount, and there was no effect on net income from adopting this
standard.
(3) RATE MATTERS:
In October 1991, IE applied to the Iowa Utilities Board (IUB) for an
increase in retail electric rates of $18.9 million annually, or 6.0%. The IUB
approved an interim rate increase of $15.6 million, annually, which became
effective in December 1991, subject to refund.
In December 1992, the IUB issued its "Order On Rehearing," which
affirmed its original decision approving an annual electric rate increase of
$7.9 million. IE appealed one issue in the IUB's Order to the Iowa District
Court (Court) and, in December 1993, the Court issued its decision upholding
the IUB's Order. The Company did not appeal the Court's decision to the Iowa
Supreme Court.
As a result of the Court's decision, a refund, including interest, of
$9.1 million is required at March 31, 1994. The refund will be completed in
the second quarter of 1994. There will be no effect on electric revenues and
net income when the refund is made because the Company has been reserving for
the effect of the refund.
(4) UTILITY ACCOUNTS RECEIVABLE:
The Company has entered into two agreements, one with limited recourse,
to sell undivided fractional interests of an aggregate of $65 million in its
pool of utility accounts receivable. At March 31, 1994, $53.2 million was
sold under the agreements. The agreements were scheduled to expire in June
and December 1994. In April 1994, the Company consolidated the agreements
into one agreement. The new agreement provides the Company the ability to
sell, with limited recourse, a maximum of $65 million in its pool of utility
accounts receivable and expires in 1999.
(5) SHORT-TERM DEBT:
At March 31, 1994, the Company had bank lines of credit aggregating
$67.7 million, of which $7.7 million was being used to support pollution
control obligations. Commitment fees are paid to maintain these lines and
there are no conditions which restrict the unused lines of credit. In
addition to the above, the Company has an uncommitted credit facility with a
financial institution whereby it can borrow up to $50 million. Rates are set
at the time of borrowing and no fees are paid to maintain this facility. At
March 31, 1994, there were no outstanding borrowings under this facility. The
Company also has a letter of credit in the amount of $3.4 million supporting
its variable rate pollution control obligations.
(6) CONTINGENCIES:
(a) Nuclear Insurance Programs -
The Price-Anderson Amendments Act of 1988 (1988 Act) provides the
Company with the benefit of $9.3 billion of public liability coverage
consisting of $200 million of insurance and $9.1 billion of potential
retroactive assessments from the owners of nuclear power plants. Based upon
its ownership of the Duane Arnold Energy Center (DAEC), under the 1988 Act the
Company could be assessed a maximum of $79 million per nuclear incident, with
a maximum of $10 million per year (of which the Company's 70% ownership
portion would be $55 million and $7 million, respectively) if losses relating
to the incidents exceeded $200 million. These limits are subject to
adjustments for inflation in future years.
Pursuant to provisions in various nuclear insurance policies, the
Company could be assessed retroactive premiums in connection with a future
accident at a nuclear facility owned by a utility participating in the
particular insurance plan. With respect to excess property damage and
replacement power coverages, the Company could be assessed annually a maximum
of $8.5 million and $1 million, respectively, if the insurer's losses relating
to accidents exceeded its reserves. While assessments may also be made for
losses in certain prior years, the Company is not aware of any losses in such
years that it believes are likely to result in an assessment.
(b) Environmental Liabilities -
At March 31, 1994, the Company's Balance Sheet reflects approximately
$24 million (including $5.2 million as current) of liabilities for
investigation and remediation of environmental issues. The recorded amount
represents the Company's estimate of the minimum aggregate amount that will be
incurred for investigation and remediation of the environmental issues, which
amount is substantially related to clean-up costs associated with certain of
the Company's former manufactured gas plant (FMGP) sites. In April 1994, the
Company received updated investigation reports on a number of sites, which
resulted in the increase in the recorded liability at March 31, 1994. The
physical investigations at some sites indicated a greater volume of
contaminated material needing treatment, and a greater volume of substances
requiring higher cost incineration, than was anticipated in prior estimates.
Prior estimates were based on investigations conducted at what were expected
to be representative sites. It is possible that future cost estimates will be
greater than the current estimates as further investigations are conducted and
as additional facts become known. The Company has not initiated the
investigation on two of the 27 sites of which it has been identified as a
Potentially Responsible Party (PRP), but intends to do so, and is continuing
work on sites requiring remediation.
The Company has been named as a PRP for the FMGP sites by either the
Iowa Department of Natural Resources (IDNR) or the Environmental Protection
Agency (EPA). The Company is working pursuant to the requirements of the IDNR
and EPA to investigate, mitigate, prevent and remediate, where necessary,
damage to property, including damage to natural resources, at and around the
27 sites in order to protect public health and the environment. Such
investigations are expected to be completed by 1999 and site-specific
remediations are anticipated to be completed within three years after the
completion of the investigations of each site. The Company may be required to
monitor these sites for a number of years upon completion of remediation.
Such monitoring costs are not included in the estimates above.
The Company is investigating the possibility of obtaining monies through
insurance coverage and third party cost sharing for FMGP investigation and
clean-up costs. The amount of shared costs, if any, can not be reasonably
determined and, accordingly, no potential sharing has been recorded at
March 31, 1994. Regulatory assets of approximately $24 million have been
recorded in the Balance Sheets, which reflect the future recovery that is
being provided through rates. Considering the recorded reserves for
environmental liabilities and the past rate treatment allowed by the IUB,
management believes that the clean-up costs incurred for these FMGP sites will
not have a material adverse effect on its financial position or results of
operations.
(c) Clean Air Act -
The Clean Air Act Amendments Act of 1990 (Act) requires emission
reductions of sulfur dioxide and nitrogen oxides to achieve reductions of
atmospheric chemicals believed to cause acid rain. The provisions of the Act
will be implemented in two phases with Phase I affecting two of the Company's
units beginning in 1995 and Phase II affecting all units beginning in the year
2000.
The Company expects to meet the requirements of the Act by switching to
lower sulfur fuels and through capital expenditures primarily related to fuel
burning equipment and boiler modifications. The Company estimates capital
expenditures at approximately $28 million, including $4 million in 1994, in
order to meet these requirements of the Act.
(d) National Energy Policy Act of 1992 -
The National Energy Policy Act of 1992 requires owners of nuclear power
plants to pay a special assessment into a "Uranium Enrichment Decontamination
and Decommissioning Fund." The assessment is based upon prior nuclear fuel
purchases and, for the DAEC, averages $1.4 million annually through 2007, of
which the Company's 70% share is $1.0 million. The Company is recovering the
costs associated with this assessment through its electric fuel adjustment
clauses over the period the costs are assessed. The Company's 70% share of
the future assessment, $13.7 million payable through 2007, has been recorded
as a liability in the Balance Sheets, including $1.6 million included in
"Current liabilities - Other," with a related regulatory asset for the
unrecovered amount.
(e) Federal Energy Regulatory Commission (FERC) Order No. 636 -
The FERC issued Order No. 636 (Order 636) in 1992. Order 636, as
modified on rehearing, (1) requires the Company's pipeline suppliers to
unbundle their services so that gas supplies are obtained separately from
transportation service, and transportation and storage services are operated
and billed as separate and distinct services, (2) requires the pipeline
suppliers to offer "no notice" transportation service under which firm
transporters (such as the Company) can receive delivery of gas up to their
contractual capacity level on any day without prior scheduling, (3) allows
pipelines to abandon long-term (one year or more) transportation service
provided to a customer under an expiring contract whenever the customer fails
to match the highest rate and longest term (up to 20 years) offered to the
pipeline by other customers for the particular capacity, and (4) provides for
a mechanism under which pipelines can recover prudently incurred transition
costs associated with the restructuring process. The Company may benefit from
enhanced access to competitively priced gas supply and more flexible
transportation services as a result of Order 636. However, the Company will
be required to pay certain transition costs incurred and billed by its
pipeline suppliers as Order 636 is implemented.
The Company's three pipeline suppliers have filed tariffs with the FERC
implementing Order 636 and the pipelines have also made filings with the FERC
to begin collecting their respective transition costs. The Company began
paying the transition costs in November 1993, and has recorded a liability of
$5.5 million for such transition costs that have been incurred by the
pipelines to date, including $1.8 million expected to be billed through March
1995. While the magnitude of the total transition costs to be charged to the
Company cannot yet be determined, the Company believes any transition costs
the FERC would allow the pipelines to collect would be recovered from its
customers, based upon past regulatory treatment of similar costs by the IUB.
Accordingly, regulatory assets, in amounts corresponding to the liabilities,
have been recorded to reflect the anticipated recovery.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion analyzes significant changes in the components
of net income and financial condition from the prior periods for IES Utilities
Inc. (the Company).
RESULTS OF OPERATIONS
The Company's net income available for common stock as compared to the
same periods last year increased $0.5 million and $18.8 million during the
three and twelve month periods ended March 31, 1994, respectively. The
Company's operating income decreased $0.4 million for the three month period
and increased $18.1 million during the twelve month period. Reasons for the
changes in the results of operations are explained in the following
discussion.
ELECTRIC REVENUES
Electric revenues decreased $2.7 million during the three month period,
and increased $73.6 million during the twelve month period. Electric Kwh
sales (excluding off-system sales) increased 5% and 19% for the same periods,
respectively. Weather normalized sales increased 4% and 18% during the three
and twelve month periods, respectively.
The twelve month Kwh sales increase is affected by the acquisition of
the Iowa service territory of Union Electric Company (UE), on December 31,
1992. (Excluding the effects of sales to the UE customers, Kwh sales
increased 9% during this period). Industrial sales continue to provide
significant sales growth. Sales to industrial customers increased 9% during
the three month period and 31% (largely related to the acquisition of the UE
territory) during the twelve month period.
The Company's electric tariffs include energy adjustment clauses (EAC)
that are designed to currently recover the costs of fuel and the energy
portion of purchased power billings to customers. The revenue decrease during
the three month period is because of lower recovery of fuel costs through the
EAC and lower off-system sales to other utilities, partially offset by
increased Kwh sales as discussed above. Revenues increased during the twelve
month period primarily because of the increased Kwh sales discussed above, as
well as higher fuel cost recoveries through the EAC. These increases were
partially offset by lower average unit prices resulting from a preponderance
of the Company's Kwh sales increases coming from lower margin industrial
customers, while Kwh sales increases to higher margin customer classes are
much lower than the average sales increase. Increased off-system sales to
other utilities contributed to the revenue increase to a lesser extent for the
twelve month period.
GAS REVENUES
Gas revenues increased $0.8 million and $0.2 million for the three and
twelve month periods ended March 31, 1994, respectively. The Company's
tariffs include purchased gas adjustment clauses (PGA) that are designed to
currently recover the cost of gas sold. Gas revenues increased for the three
month period because of increased gas costs recovered through the PGA,
partially offset by the effect of a sales decrease (including transported
volumes) of 3%. Gas revenues increased for the twelve month period because of
the effect of gas rate increases that became effective in September 1992,
substantially offset by lower gas costs recovered through the PGA and the
effect of a 3% sales decrease.
OPERATING EXPENSES
Fuel for production decreased $2.2 million during the three month period
primarily due to larger under collections of fuel costs through the EAC in
1994 as such under collections are recorded as reductions to fuel for
production expenses. This decrease was partially offset by increased Kwh
generation during the period. Fuel for production increased $7.1 million
during the twelve month period primarily because of increased Kwh generation
at the Company's fossil-fueled generating stations, partially offset by lower
generation at the Company's nuclear generating plant, the Duane Arnold Energy
Center (DAEC).
Purchased power decreased $8.5 million during the three month period
primarily because of a $5.2 million decrease in capacity charges relating to
the expiration, in April 1993, of the purchase power agreement with the City
of Muscatine. Lower energy purchases, primarily because of lower off-system
sales to other utilities, also contributed to the reduction in purchased power
costs during this period. Purchased power increased $10 million during the
twelve month period; energy purchases increased $15.3 million and capacity
charges decreased $5.3 million. The increased energy purchases are because of
increased Kwh sales. Decreased capacity charges relate to the expiration of
the Muscatine purchase power agreement, partially offset by higher capacity
costs relating to contracts associated with the acquisition of the UE
territory.
Gas purchased for resale increased $0.9 million for the three month
period and decreased $2.0 million for the twelve month period. The decrease
for the twelve month period is attributable to the lower dekatherm sales,
partially offset by higher prices.
Other operating expenses increased $3.2 million and $8.2 million for the
three and twelve month periods, respectively. The increase for both periods
is primarily attributable to increased labor and benefit costs and higher
information systems costs.
Maintenance expenditures increased $0.5 million and $6.5 million during
the three and twelve month periods, respectively, primarily because of
increased maintenance activities at the Company's fossil-fueled generating
stations and the DAEC.
Depreciation and amortization increased during both periods primarily
because of increases in utility plant in service. Depreciation and
amortization expenses for both years include a provision for decommissioning
the DAEC ($5.5 million annually), which is collected through rates.
Property taxes increased $1.3 million and $5.2 million during the three
and twelve month periods, respectively. These increases are primarily because
of increased property taxes associated with increases in assessed property
values, and, for the twelve month period, the acquisition of the UE service
territory.
The increase in total Federal and state income taxes for both periods is
because of an increase in pretax income and, for the twelve month period, an
increase of 1% in the statutory Federal income tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily attributable to its
construction programs and debt maturities and sinking fund requirements. Cash
and temporary cash investments increased $11.1 million for the twelve month
period. Cash flows from operating activities for the twelve months ended
March 31, 1994 were approximately $154 million and were primarily used for
construction and acquisition expenditures and the payment of dividends.
It is anticipated that the Company's future capital requirements will be
met by both cash flows from operations and external financing. The level of
cash flows from operations is partially dependent upon economic conditions,
legislative activities, environmental matters and timely rate relief. See
Note 3 and Note 6 of the Notes to Financial Statements for a discussion of the
Company's rate cases and contingencies. Access to the long-term and
short-term capital and credit markets is necessary for obtaining funds
externally.
The Company's liquidity and capital resources will be affected by
environmental and legislative issues, including the ultimate disposition of
remediation issues surrounding the former manufactured gas plant (FMGP) issue,
the Clean Air Act as amended, the National Energy Policy Act of 1992, and
Federal Energy Regulatory Commission (FERC) Order 636, as discussed in Note 6
of the Notes to Financial Statements. Consistent with rate making principles,
management believes that the costs incurred for the above matters will not
have a material adverse effect on the financial position or results of
operations of the Company.
The Iowa Utilities Board (IUB) has adopted rules which mandate the
Company to spend 2% of electric and 1.5% of gas gross retail operating
revenues for energy efficiency programs. Energy efficiency costs in excess of
the amount in the most recent electric and gas rate cases are being recorded
as regulatory assets. At March 31, 1994, the Company had $21.9 million of
such costs recorded as regulatory assets. Under this mandate, the Company
will make its initial filing for recovery of these costs in the third quarter
of 1994, but will not likely begin recovering the costs until 1995.
CONSTRUCTION AND ACQUISITION PROGRAM
The Company's construction and acquisition program anticipates
expenditures of $150 million for 1994, of which approximately 44% represents
expenditures for electric transmission and distribution facilities, 18%
represents fossil-fueled generation expenditures and 10% represents nuclear
generation expenditures. The Company had construction and acquisition
expenditures of approximately $19 million for the three months ended
March 31, 1994. Substantial commitments have been made in connection with the
remaining anticipated expenditures.
The Company's levels of construction and acquisition expenditures are
projected to be $149 million in 1995, $144 million in 1996, $149 million in
1997, and $160 million in 1998. It is estimated that approximately 80% of
construction expenditures will be provided by cash from operating activities
(after payment of dividends) for the five year period 1994-1998.
Capital expenditure, investment and financing plans are subject to
continual review and change. The capital expenditure and investment programs
may be revised significantly as a result of many considerations including
changes in economic conditions, variations in actual sales and load growth
compared to forecasts, requirements of environmental, nuclear and other
regulatory authorities, acquisition opportunities, the availability of
alternate energy and purchased power sources, the ability to obtain adequate
and timely rate relief, escalations in construction costs and conservation and
energy efficiency programs.
LONG-TERM FINANCING
Other than periodic sinking fund requirements which the Company intends
to meet by pledging additional property, approximately $124 million of
long-term debt has scheduled maturities prior to December 31, 1998. The
Company intends to refinance the majority of the debt maturities with
long-term debt.
The Indentures pursuant to which the Company issues First Mortgage Bonds
constitute direct first mortgage liens upon substantially all tangible public
utility property and contain covenants that restrict the amount of additional
bonds that may be issued. At March 31, 1994, such restrictions would have
allowed the Company to issue $266 million of additional First Mortgage Bonds.
The Company has received authority from the FERC to issue $250 million of
First Mortgage Bonds and is currently authorized by the SEC to issue
$50 million of long-term debt under an existing registration statement.
The Company's Articles of Incorporation authorize and limit the
aggregate amount of additional shares of Cumulative Preferred Stock and
Cumulative Preference Stock which may be issued. At March 31, 1994, the
Company could have issued 700,000 shares of Cumulative Preference Stock and
100,000 additional shares of Cumulative Preferred Stock.
The Company's capitalization ratios at March 31, 1994 and March 31, 1993
were as follows:
Long-term debt 48%
Preferred stock 2
Common equity 50
100%
The 1994 ratios include $50 million of long-term debt that is due
in less than one year because it is the Company's intention to
refinance the debt with long-term issues.
SHORT-TERM FINANCING
For interim financing, the Company is authorized by the FERC to issue,
through 1994, up to $125 million of short-term notes. This availability of
short-term financing provides flexibility in the issuance of long-term
securities. At March 31, 1994, the Company had no outstanding short-term
borrowings.
The Company had agreements with separate financial institutions to sell
undivided fractional interests aggregating $65 million in its pool of utility
accounts receivable. At March 31, 1994, $53.2 million had been sold under the
agreements. In April 1994, the Company consolidated the agreements into one
agreement. The new agreement provides the Company the ability to sell, with
limited recourse, a maximum of $65 million in its pool of utility accounts
receivable and expires in 1999.
At March 31, 1994, the Company had bank lines of credit aggregating
$67.7 million, of which $7.7 million was being used to support pollution
control obligations. Commitment fees are paid to maintain these lines and
there are no conditions which restrict the unused lines of credit. In
addition to the above, the Company has an uncommitted credit facility with a
financial institution whereby it can borrow up to $50 million. The Company
also has a letter of credit in the amount of $3.4 million supporting its
variable rate pollution control obligations.
ENVIRONMENTAL MATTERS
At March 31, 1994, the Company's Balance Sheet reflects approximately
$24 million of liabilities for investigation and remediation of environmental
issues. The recorded amount represents the Company's estimate of the minimum
aggregate amount that will be incurred for investigation and remediation of
the environmental issues, which amount is substantially related to clean-up
costs associated with certain of the Company's former manufactured gas plant
(FMGP) sites. In April 1994, the Company received updated investigation
reports on a number of sites, which resulted in the increase in the recorded
liability at March 31, 1994. The physical investigations at some sites
indicated a greater volume of contaminated material needing treatment, and a
greater volume of substances requiring higher cost incineration, than was
anticipated in prior estimates. Prior estimates were based on investigations
conducted at what were expected to be representative sites. It is possible
that future cost estimates will be greater than the current estimates as
further investigations are conducted and as additional facts become known.
The Company has not initiated the investigation on two of the 27 sites of
which it has been identified as a Potentially Responsible Party (PRP), but
intends to do so, and is continuing work on sites requiring remediation.
Considering the recorded reserves for environmental liabilities and the
past rate treatment allowed by the IUB, management believes that the clean-up
costs incurred for these FMGP sites will not have a material adverse effect on
its financial position or results of operations.
Refer to Note 6 of the Notes to Financial Statements for information
relating to potential environmental liabilities associated with certain FMGP
sites.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to Notes 3 and 6 of the Notes to Financial Statements
for a discussion of rate matters and environmental matters, respectively.
Item 2. Changes in the Rights of the Company's Security Holders.
None.
Item 3. Default Upon Senior Securities.
None.
Item 4. Results of Votes of Security Holders.
None.
Item 5. Other Information.
The Company has calculated the ratio of earnings to fixed charges pursuant to
Item 503 of Regulation S-K of the Securities and Exchange Commission as
follows:
For the twelve months ended:
March 31, 1994 3.46
December 31, 1993 3.41
December 31, 1992 2.49
December 31, 1991 2.64
December 31, 1990 2.65
December 31, 1989 2.82
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
10(a) Receivables Purchase and Sale Agreement dated as of
June 30, 1989, as Amended and Restated as of April 15, 1994,
among IES Utilities Inc. (as Seller) and CIESCO L.P. (as the
Investor) and Citicorp North America, Inc. (as Agent).
12 Ratio of Earnings to Fixed Charges.
(b) Reports on Form 8-K -
Items Financial
Reported Statements Date of Report File No.
2,5,7 None January 7, 1994 0-4117-1 (1)
2,7 None January 7, 1994 0-849 (1)
7 (2) March 2, 1994 0-4117-1 (2)
(1) Form 8-K filed by IES Utilities Inc. subsequent to the
merger of Iowa Electric Light and Power Company and
Iowa Southern Utilities Company, effective
December 31, 1993.
(2) Form 8-K/A filed by IES Utilities Inc. amending Form
8-K filed on January 7, 1994, File No. 0-4117-1,
providing the audited financial statements of the
Company for the year ended December 31, 1993.
SIGNATURES
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.
IES UTILITIES INC.
(Registrant)
Date May 12, 1994 By /s/ Dr. Robert J. Latham
(Signature)
Dr. Robert J. Latham
Senior Vice President, Finance
and Corporate Affairs, & Treasurer
By /s/ Richard A. Gabbianelli
(Signature)
Richard A. Gabbianelli
Controller & Chief
Accounting Officer