1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-3701
THE WASHINGTON WATER POWER COMPANY
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(Exact name of registrant as specified in its charter)
Washington 91-0462470
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1411 East Mission Avenue, Spokane, Washington 99202-2600
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 509-489-0500
-----------------------
None
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(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
At August 1, 1995, 55,299,130 shares of Registrant's Common Stock, no par value
(the only class of common stock), were outstanding.
2
THE WASHINGTON WATER POWER COMPANY
Index
Page No.
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Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Income - Three Months Ended
June 30, 1995 and 1994. . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income - Six Months Ended
June 30, 1995 and 1994. . . . . . . . . . . . . . . . . . . . 4
Consolidated Balance Sheets - June 30, 1995
and December 31, 1994 . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Capitalization - June 30, 1995
and December 31, 1994 . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1995 and 1994. . . . . . . . . . . . . . . . . . . . 7
Schedule of Information by Business Segments - Three Months Ended
June 30, 1995 and 1994. . . . . . . . . . . . . . . . . . . . 8
Schedule of Information by Business Segments - Six Months Ended
June 30, 1995 and 1994. . . . . . . . . . . . . . . . . . . . 9
Notes to Consolidated Financial Statements. . . . . . . . . . . . . 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . 15
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 21
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 21
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 22
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2
3
CONSOLIDATED STATEMENTS OF INCOME
The Washington Water Power Company
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For the Three Months Ended June 30
Thousands of Dollars
1995 1994
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OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $158,973 $147,173
-------- --------
OPERATING EXPENSES:
Operations and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,452 71,398
Administrative and general . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,915 16,685
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . 15,647 14,937
Taxes other than income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 11,856 10,138
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Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,870 113,158
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INCOME FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,103 34,015
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OTHER INCOME (EXPENSE):
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,721) (13,113)
Interest capitalized and AFUCE . . . . . . . . . . . . . . . . . . . . . . . . . 218 1,418
Net gain on subsidiary transactions. . . . . . . . . . . . . . . . . . . . . . . 34 1,332
Other income (deductions)-net. . . . . . . . . . . . . . . . . . . . . . . . . . (932) 2,389
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Total other income (expense)-net . . . . . . . . . . . . . . . . . . . . . . . (15,401) (7,974)
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INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,702 26,041
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,539 10,345
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NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,163 15,696
DEDUCT-Preferred stock dividend requirements . . . . . . . . . . . . . . . . . . . 2,298 2,149
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INCOME AVAILABLE FOR COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . $ 12,865 $ 13,547
======== ========
Average common shares outstanding (thousands). . . . . . . . . . . . . . . . . . . 54,986 53,316
EARNINGS PER SHARE OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . $ 0.23 $ 0.25
Dividends paid per common share. . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.31 $ 0.31
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
4
CONSOLIDATED STATEMENTS OF INCOME
The Washington Water Power Company
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For the Six Months Ended June 30
Thousands of Dollars
1995 1994
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OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $356,901 $338,070
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OPERATING EXPENSES:
Operations and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,246 169,208
Administrative and general . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,032 30,379
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . 31,065 29,494
Taxes other than income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 25,981 23,285
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Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 258,324 252,366
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INCOME FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,577 85,704
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OTHER INCOME (EXPENSE):
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,451) (25,435)
Interest capitalized and AFUCE . . . . . . . . . . . . . . . . . . . . . . . . . 442 2,807
Net gain on subsidiary transactions. . . . . . . . . . . . . . . . . . . . . . . 1,952 1,332
Other income (deductions)-net. . . . . . . . . . . . . . . . . . . . . . . . . . (1,632) 3,978
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Total other income (expense)-net . . . . . . . . . . . . . . . . . . . . . . . (28,689) (17,318)
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INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,888 68,386
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,270 25,999
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NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,618 42,387
DEDUCT-Preferred stock dividend requirements . . . . . . . . . . . . . . . . . . . 4,596 4,219
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INCOME AVAILABLE FOR COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . $ 39,022 $ 38,168
======== ========
Average common shares outstanding (thousands). . . . . . . . . . . . . . . . . . . 54,785 53,114
EARNINGS PER SHARE OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . $ 0.71 $ 0.72
Dividends paid per common share. . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.62 $ 0.62
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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5
CONSOLIDATED BALANCE SHEETS
The Washington Water Power Company
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Thousands of Dollars
June 30, December 31,
1995 1994
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ASSETS:
PROPERTY:
Utility plant in service-net . . . . . . . . . . . . . . . . . . . . . . . . $1,832,666 $1,802,280
Construction work in progress. . . . . . . . . . . . . . . . . . . . . . . . 28,251 27,316
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Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,860,917 1,829,596
Less: Accumulated depreciation and amortization . . . . . . . . . . . . . . 522,965 500,551
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Net utility plant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,337,952 1,329,045
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OTHER PROPERTY AND INVESTMENTS:
Investment in exchange power-net . . . . . . . . . . . . . . . . . . . . . . 85,512 88,615
Other-net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,773 114,145
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Total other property and investments . . . . . . . . . . . . . . . . . . . 215,285 202,760
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CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . 3,984 5,178
Temporary cash investments . . . . . . . . . . . . . . . . . . . . . . . . . 24,578 27,928
Accounts and notes receivable-net. . . . . . . . . . . . . . . . . . . . . . 67,713 74,524
Materials and supplies, fuel stock and natural gas stored (average cost) . . 30,577 21,384
Prepayments and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,399 7,552
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Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,251 136,566
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DEFERRED CHARGES:
Regulatory assets for deferred income tax. . . . . . . . . . . . . . . . . . 172,009 174,349
Conservation programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,686 66,511
Other-net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,515 85,022
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Total deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . 321,210 325,882
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TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,007,698 $1,994,253
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CAPITALIZATION AND LIABILITIES:
CAPITALIZATION (See Consolidated Statements of Capitalization) . . . . . . . . $1,541,012 $1,533,640
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CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,558 46,217
Taxes accrued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,780 17,977
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,790 10,954
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,964 57,369
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Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 128,092 132,517
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DEFERRED CREDITS:
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 317,486 312,525
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,836 14,399
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Total deferred credits . . . . . . . . . . . . . . . . . . . . . . . . . . 337,322 326,924
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MINORITY INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,272 1,172
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COMMITMENTS AND CONTINGENCIES (Notes 2 and 4)
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,007,698 $1,994,253
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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CONSOLIDATED STATEMENTS OF CAPITALIZATION
The Washington Water Power Company
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Thousands of Dollars
June 30, December 31,
1995 1994
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COMMON EQUITY:
Common stock, no par value: 200,000,000 shares authorized:
shares outstanding: 1995-55,237,359; 1994-54,420,696 . . . . . . . . . . . . $ 582,940 $ 570,603
Note receivable from employee stock ownership plan . . . . . . . . . . . . . (11,991) (12,267)
Capital stock expense and other paid in capital. . . . . . . . . . . . . . . (10,058) (10,031)
Unrealized investment gain-net . . . . . . . . . . . . . . . . . . . . . . . 23,726 14,341
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,033 114,848
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Total common equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 704,650 677,494
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PREFERRED STOCK-CUMULATIVE: (Note 1)
10,000,000 shares authorized:
Not subject to mandatory redemption:
Flexible Auction Series J; 500 shares outstanding ($100,000 stated value). . 50,000 50,000
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Total not subject to mandatory redemption. . . . . . . . . . . . . . . . . 50,000 50,000
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Subject to mandatory redemption:
$8.625, Series I; 500,000 shares outstanding ($100 stated value). . . . . 50,000 50,000
$6.95, Series K; 350,000 shares outstanding ($100 stated value) . . . . . 35,000 35,000
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Total subject to mandatory redemption. . . . . . . . . . . . . . . . . . 85,000 85,000
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LONG-TERM DEBT: (Note 1)
First Mortgage Bonds:
4 5/8% due March 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . - 10,000
7 1/8% due December 1, 2013. . . . . . . . . . . . . . . . . . . . . . . . . 66,700 66,700
7 2/5% due December 1, 2016. . . . . . . . . . . . . . . . . . . . . . . . . 17,000 17,000
Secured Medium-Term Notes:
Series A - 4.72% to 8.06% due 1996 through 2023. . . . . . . . . . . . . . 250,000 250,000
Series B - 6.61% to 8.25% due 1997 through 2010. . . . . . . . . . . . . . 121,000 63,000
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Total first mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . 454,700 406,700
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Pollution Control Bonds:
6% Series due 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,100 4,100
Unsecured Medium-Term Notes:
Series A - 7.94% to 9.58% due 1995 through 2007. . . . . . . . . . . . . . 92,500 92,500
Series B - 5.50% to 8.55% due 1996 through 2023. . . . . . . . . . . . . . 135,000 150,000
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Total unsecured medium-term notes. . . . . . . . . . . . . . . . . . . . 227,500 242,500
Notes payable (due within one year) to be refinanced . . . . . . . . . . . . 6,500 58,000
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,562 9,846
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Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 701,362 721,146
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TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,541,012 $1,533,640
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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7
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
The Washington Water Power Company
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For the Six Months Ended June 30
Thousands of Dollars
1995 1994
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OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,618 $ 42,387
NON-CASH REVENUES AND EXPENSES
INCLUDED IN NET INCOME:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . 37,038 34,501
Provision for deferred income taxes. . . . . . . . . . . . . . . . . . . . (20) 4,714
Allowance for equity funds used during construction. . . . . . . . . . . . (427) (951)
Power and natural gas cost deferrals and amortization. . . . . . . . . . . 11,567 1,055
Deferred revenues and other-net. . . . . . . . . . . . . . . . . . . . . . 469 (1,271)
(Increase) decrease in working capital components:
Receivables and prepaid expenses-net . . . . . . . . . . . . . . . . . . 6,381 18,483
Materials & supplies, fuel stock and natural gas stored. . . . . . . . . (9,145) (3,523)
Payables and other accrued liabilities . . . . . . . . . . . . . . . . . (8,761) (7,975)
Other-net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,680) 5,411
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NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . . . 71,040 92,831
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INVESTING ACTIVITIES:
Construction expenditures (excluding AFUDC-equity funds) . . . . . . . . . . (34,486) (53,624)
Other capital requirements . . . . . . . . . . . . . . . . . . . . . . . . . 608 (14,840)
(Increase) decrease in other noncurrent balance sheet items-net . . . . . . 6,843 (16,969)
Assets acquired and investments in subsidiaries (Note 3) . . . . . . . . . . (899) (9,671)
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NET CASH USED IN INVESTING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . (27,934) (95,104)
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FINANCING ACTIVITIES:
Increase (decrease) in commercial paper, notes payable
and bank borrowings-net. . . . . . . . . . . . . . . . . . . . . . . . . . (51,500) (25,501)
Maturity of unsecured medium-term notes. . . . . . . . . . . . . . . . . . . (15,000) -
Sale of secured medium-term notes. . . . . . . . . . . . . . . . . . . . . . 58,000 26,000
Maturity of first mortgage bonds . . . . . . . . . . . . . . . . . . . . . . (10,000) -
Sale of common stock-net . . . . . . . . . . . . . . . . . . . . . . . . . . 6,682 8,444
Miscellaneous-net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 9,901
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NET FINANCING ACTIVITIES BEFORE CASH DIVIDENDS . . . . . . . . . . . . . . . . (11,678) 18,844
Less cash dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . (32,622) (31,248)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . (44,300) (12,404)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . (1,194) (14,677)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . 5,178 33,718
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CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . $ 3,984 $ 19,041
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,632 $ 22,643
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,058 $ 18,379
Non-cash financing and investing activities. . . . . . . . . . . . . . . . . $ 5,931 $ 5,706
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
7
8
SCHEDULE OF INFORMATION BY BUSINESS SEGMENTS
The Washington Water Power Company
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For the Three Months Ended June 30
Thousands of Dollars
1995 1994
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OPERATING REVENUES:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,069 $ 101,120
Natural gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,304 26,290
Non-utility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,600 19,763
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Total operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 158,973 $ 147,173
========== ==========
OPERATIONS AND MAINTENANCE EXPENSES:
Electric:
Power purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,538 $ 16,354
Fuel for generation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,035 7,115
Other electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,113 15,333
Natural gas:
Natural gas purchased for resale . . . . . . . . . . . . . . . . . . . . . 21,948 15,402
Other natural gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,816 3,774
Non-utility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,002 13,420
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Total operations and maintenance expenses. . . . . . . . . . . . . . . . . $ 74,452 $ 71,398
========== ==========
ADMINISTRATIVE AND GENERAL EXPENSES:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,471 $ 9,524
Natural gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,266 2,688
Non-utility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,178 4,473
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Total administrative and general expenses. . . . . . . . . . . . . . . . . $ 16,915 $ 16,685
========== ==========
DEPRECIATION AND AMORTIZATION EXPENSES:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,347 $ 12,108
Natural gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,414 2,090
Non-utility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 886 739
---------- ----------
Total depreciation and amortization expenses . . . . . . . . . . . . . . . $ 15,647 $ 14,937
========== ==========
INCOME FROM OPERATIONS:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,218 $ 32,442
Natural gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,623 679
Non-utility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,262 894
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Total income from operations . . . . . . . . . . . . . . . . . . . . . . . $ 40,103 $ 34,015
========== ==========
INCOME AVAILABLE FOR COMMON STOCK:
Utility operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,411 $ 11,557
Non-utility operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,454 1,990
---------- ----------
Total income available for common stock. . . . . . . . . . . . . . . . . $ 12,865 $ 13,547
========== ==========
ASSETS: (1994 amounts at December 31)
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,456,084 $1,441,643
Natural gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243,525 247,060
Common plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,622 25,849
Other utility assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,588 106,118
Non-utility assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194,879 173,583
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,007,698 $1,994,253
========== ==========
CAPITAL EXPENDITURES (excluding AFUDC):
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,046 $ 16,955
Natural gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,260 8,511
Common plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,314 5,083
Non-utility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 458 1,708
---------- ----------
Total capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . $ 17,078 $ 32,257
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
8
9
SCHEDULE OF INFORMATION BY BUSINESS SEGMENTS
The Washington Water Power Company
- --------------------------------------------------------------------------------
For the Six Months Ended June 30
Thousands of Dollars
1995 1994
---------- ----------
OPERATING REVENUES:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 228,890 $ 226,046
Natural gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,440 79,779
Non-utility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,571 32,245
---------- ----------
Total operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 356,901 $ 338,070
========== ==========
OPERATIONS AND MAINTENANCE EXPENSES:
Electric:
Power purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,491 $ 46,257
Fuel for generation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,759 18,521
Other electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,915 30,446
Natural gas:
Natural gas purchased for resale . . . . . . . . . . . . . . . . . . . . . 56,766 46,097
Other natural gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,562 6,779
Non-utility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,753 21,108
---------- ----------
Total operations and maintenance expenses. . . . . . . . . . . . . . . . . $ 168,246 $ 169,208
========== ==========
ADMINISTRATIVE AND GENERAL EXPENSES:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,140 $ 18,103
Natural gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,533 5,584
Non-utility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,359 6,692
---------- ----------
Total administrative and general expenses. . . . . . . . . . . . . . . . . $ 33,032 $ 30,379
========== ==========
DEPRECIATION AND AMORTIZATION EXPENSES:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,466 $ 24,083
Natural gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,859 4,025
Non-utility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,740 1,386
---------- ----------
Total depreciation and amortization expenses . . . . . . . . . . . . . . . $ 31,065 $ 29,494
========== ==========
INCOME FROM OPERATIONS:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 79,365 $ 70,546
Natural gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,249 12,641
Non-utility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,963 2,517
---------- ----------
Total income from operations . . . . . . . . . . . . . . . . . . . . . . $ 98,577 $ 85,704
========== ==========
INCOME AVAILABLE FOR COMMON STOCK:
Utility operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,097 $ 34,559
Non-utility operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,925 3,609
---------- ----------
Total income available for common stock. . . . . . . . . . . . . . . . . . $ 39,022 $ 38,168
========== ==========
ASSETS: (1994 amounts at December 31)
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,456,084 $1,441,643
Natural gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243,525 247,060
Common plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,622 25,849
Other utility assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,588 106,118
Non-utility assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194,879 173,583
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,007,698 $1,994,253
========== ==========
CAPITAL EXPENDITURES (excluding AFUDC):
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,794 $ 37,132
Natural gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,005 13,580
Common plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,501 9,082
Non-utility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 781 5,967
---------- ----------
Total capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . $ 33,081 $ 65,761
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
9
10
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements of The Washington Water Power Company
(Company) for the interim periods ended June 30, 1995 and 1994 are unaudited
but, in the opinion of management, reflect all adjustments, consisting only of
normal recurring accruals, necessary for a fair statement of the results of
operations for those interim periods. The results of operations for the
interim periods are not necessarily indicative of the results to be expected
for the full year. These financial statements do not contain the detail or
footnote disclosure concerning accounting policies and other matters which
would be included in full fiscal year financial statements; therefore, they
should be read in conjunction with the Company's audited financial statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
NOTE 1. FINANCINGS
Reference is made to the information relating to financings and borrowings as
discussed under the caption "Liquidity and Capital Resources" in Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
NOTE 2. COMMITMENTS AND CONTINGENCIES
SUPPLY SYSTEM PROJECT 3
In 1985, the Company and the Bonneville Power Administration (BPA) reached a
settlement surrounding litigation related to the suspension of construction of
Washington Public Power Supply System (Supply System) Project 3. Project 3 is
a partially constructed 1,240 MW nuclear generating plant in which the Company
has a 5% interest. Under the settlement agreement, the Company receives power
deliveries from BPA from 1987 to 2017 in proportion to the Company's investment
in Project 3.
The only material claim against the Company arising out of the Company's
involvement in Project 3, which has been pending since October 1982 in the
United States District Court for the Western District of Washington (District
Court), is the claim of Chemical Bank, as bond fund trustee for Supply System
Projects 4 and 5, against all owners of Projects 1, 2 and 3 for unjust
enrichment in the allocation of certain costs of common services and facilities
among the Supply System's five nuclear projects. Projects 4 and 5 were being
constructed adjacent to Projects 1 and 3, respectively, under a plan to share
certain costs. Chemical Bank was seeking a reallocation of $495 million in
costs (plus interest since commencement of construction in 1976) originally
allocated to Projects 4 and 5.
On July 6, 1995, the Company paid Chemical Bank $500,000 in settlement of all
remaining claims involving the Company in connection with the "cost sharing"
litigation. The payment was consistent with a settlement agreement executed by
all parties to the litigation except PacifiCorp, as PacifiCorp had unrelated
claims pending against the Supply System. The settlement has been submitted to
the Court, and an order approving it and dismissing all related litigation
against the Company is anticipated forthwith.
NEZ PERCE TRIBE
On December 6, 1991, the Nez Perce Tribe filed an action against the Company in
U. S. District Court for the District of Idaho alleging, among other things,
that two dams formerly operated by the Company, the Lewiston Dam on the
Clearwater River and the Grangeville Dam on the South Fork of the Clearwater
River, provided inadequate passage to migrating anadromous fish in violation of
rights under treaties between the Tribe and the United States made in 1855 and
1863. The Lewiston and Grangeville Dams, which had been owned and operated by
other utilities under hydroelectric licenses from the Federal Power Commission
(the "FPC", predecessor of the Federal Energy Regulatory Commission, the
"FERC") prior to acquisition by the Company, were acquired by the Company in
1937 with the approval of the FPC, but were dismantled and removed in 1973 and
1963, respectively. The Tribe initially indicated through expert opinion
disclosures that they were seeking actual and punitive damages of $208 million.
However, supplemental disclosures reflect allegations of actual loss under
different assumptions of between $425 million and $650 million.
10
11
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
Discovery had been stayed pending a decision by the Court on a case involving
some similar issues brought by the Tribe against Idaho Power Company. The
Court has since decided these issues and has dismissed all claims against Idaho
Power. The Idaho Power case has now been appealed by the Nez Perce Tribe to
the Ninth Circuit Court of Appeals. On November 21, 1994, the Company filed
its Motion and Brief in Support of Summary Judgment of Dismissal. The Nez
Perce Tribe has filed a reply brief, and has requested oral argument. A
hearing on the Company's Motion for Summary Judgment was heard by the Court on
July 27, 1995. The matter has not yet been set for trial. The Company is
presently unable to assess the likelihood of an adverse outcome in this
litigation, or estimate an amount or range of potential loss in the event of an
adverse outcome.
OIL SPILL
The Company recently completed an updated investigation of an oil spill from an
underground storage tank that occurred several years ago in downtown Spokane at
the site of the Company's steam heat plant. The Company purchased the plant in
1916 and operated it as a non-regulated plant until it was deactivated in 1986
in a business decision unrelated to the spill. After the Bunker C fuel oil
spill, initial studies suggested that the oil was being adequately contained by
both geological features and man-made structures. The Washington State
Department of Ecology (DOE) concurred with these findings. However, more
recent tests showed that the oil has migrated approximately one city block
beyond the steam plant property. On December 6, 1993, the Company asked the
DOE to enter into negotiations for a Consent Decree which provided for
additional remedial investigation and a feasibility study. The Consent Decree,
entered on November 8, 1994, provided for 22 additional soil borings to be made
around the site, which have been completed. It is anticipated that a remedial
action plan will be approved by the fall of 1995 and that the remediation
efforts will be conducted in 1996. As of June 30, 1995, a reserve of $3.1
million is reflected on the Company's financial statements.
FIRESTORM
On October 16, 1991, gale-force winds struck a five-county area in eastern
Washington and a seven-county area in northern Idaho. These winds were
responsible for causing 92 separate wildland fires, resulting in two deaths and
the loss of 114 homes and other structures, some of which were located in the
Company's service territory. Four separate class action lawsuits were filed
against the Company by private individuals in the Superior Court of Spokane
County on October 13, 1993. These suits concern fires identified as Midway,
Golden Cirrus, Nine Mile and Chattaroy. All of these suits were certified as
class actions on September 16, 1994, and bifurcated for trial of liability and
damage issues by order of the same date. The Company's Motion for
Reconsideration was denied on October 21, 1994, and a Motion for Discretionary
Review of the Court's decision on certification of class actions was timely
filed with the Washington Court of Appeals (Division III) on November 14, 1994.
The Company was also served with two suits in Spokane County Superior Court
filed on April 20, 1994 and on September 15, 1994, both of which sought
individual damages from separate fires within the Chattaroy Fire complex. Five
additional and separate suits were brought by Grange Insurance Company, and
were filed in Spokane County Superior Court on October 10, 1994, for
approximately $2.2 million paid to Grange insureds for the same fire areas.
Two additional class action suits were also filed - one in Lincoln County
Superior Court, filed on October 14, 1994, for a fire known as "Nine Mile West"
(previously included in the Spokane County Nine Mile suit certified as a class
action), and the second in Spokane County Superior Court, filed on October 14,
1994, for the Ponderosa Fire area (which had not been the subject of previous
suit). The Lincoln County suit has been transferred to Spokane County and both
suits have now also been certified as class actions.
Complainants in all cases allege various theories of tortious conduct,
including negligence, creation of a public nuisance, strict liability and
trespass; in most cases, complainants allege that fires were caused by electric
distribution lines downed by the wind. The lawsuits seek recovery for property
damage, emotional and mental distress, lost income and punitive damages, but do
not specify the amount of damages being sought. Discovery is ongoing and the
Company is presently unable to assess the likelihood of an adverse outcome or
estimate an amount or range of potential loss in the event of an adverse
outcome. Trials are scheduled to commence on various dates between February 3,
1997 and November 2, 1998. The Company was previously presented with a claim
from the Washington State Department of Natural Resources (DNR) for fire
suppression costs associated with five of these fires in eastern Washington.
The total of the DNR claim was $1.0 million. On July 22, 1993, the Company
entered into a settlement with the DNR whereby the Company agreed to pay
$200,000 to DNR in full settlement of any and all DNR claims; however, there
was no admission of liability on the part of the Company.
11
12
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
WILLIAMS LAKE LAWSUIT
On February 2, 1995, a lawsuit was commenced in Spokane County Superior Court
against the Company and its subsidiary, Pentzer, by Tondu Energy Systems, Inc.
and T.E.S. Williams Lake Partnership alleging contract violations, conspiracy,
misrepresentation and breach of fiduciary duties in regard to the 1993 sale of
Pentzer Energy Services, Inc. to B.C. Gas, Inc. The suit claims damages in
excess of $10 million, plus exemplary damages, prejudgment interest, costs and
attorneys' fees. Also named as defendants are B.C. Gas, Inc., Inland Pacific
Energy (Williams Lake) Corp. and the former Pentzer Energy Services, Inc.
subsidiaries which were involved in the sale. The claims involve an alleged
first right to purchase interests in the Williams Lake, British Columbia
wood-fired generating station. By Order of Summary Judgment entered June 16,
1995, all claims against the Company were dismissed with prejudice. Actions
against the remaining defendants, including Pentzer, were dismissed without
prejudice on grounds of an inconvenient forum. The Company cannot predict
whether or not an action will be commenced against the remaining defendants in
another court.
DOLLAR ROAD
Soil contamination was discovered on a Company-owned site located east of
Spokane on Dollar Road in 1993. The property was originally acquired under
lease in 1956 and was subleased to other entities until 1992. The property was
purchased by the Company in 1993 and DOE was notified of the contamination. The
site has a land area of 4.4 acres of which one-half is involved. The Company
recorded the $1.0 million estimated cost of the site remediation in the second
quarter of 1995. Clean-up is expected to be completed by December 1995.
OTHER CONTINGENCIES
The Company has long-term contracts related to the purchase of fuel for thermal
generation, natural gas and hydroelectric power. Terms of the natural gas
purchase contracts range from one month to five years and the majority provide
for minimum purchases at the then effective market rate. The Company also has
various agreements for the purchase, sale or exchange of power with other
utilities, cogenerators, small power producers and government agencies.
NOTE 3. ACQUISITIONS AND DISPOSITIONS
In February 1995, Pentzer Corporation (Pentzer), the Company's wholly-owned
private investment firm, acquired The Decker Company, Inc., a company that
designs and packages point-of-purchase displays and other marketing materials
for national manufacturers of consumer products.
NOTE 4. PROPOSED MERGER
In June 1994, the Company, Sierra Pacific Resources (SPR), Sierra Pacific Power
Company, a subsidiary of SPR (SPPC), and Resources West Energy Corporation, a
newly formed subsidiary of the Company (Resources West) entered into an
Agreement and Plan of Reorganization and Merger, dated as of June 27, 1994, as
amended October 4, 1994 which provides for the merger of the Company, SPR and
SPPC with and into Resources West. The merger is designed to qualify as a
pooling-of-interests for accounting and financial reporting purposes. Under
this method of accounting, the recorded assets and liabilities of the Company,
SPR and SPPC will be carried forward to the consolidated financial statements
of Resources West at their recorded amounts; income of Resources West will
include income of the Company, SPR and SPPC for the entire fiscal year in which
the merger occurs; and the reported income of the separate corporations for
prior periods will be combined and restated as income of Resources West.
The cost savings from the merger are estimated to approximate $450 million, net
of merger transaction and transition costs, over a 10 year period following the
consummation of the merger. As of June 30, 1995, $10.7 million in merger
transaction and transition costs have been incurred and are included on the
Company's balance sheet as Other Deferred Charges. The Company will determine
the treatment of these costs based on regulatory rulings, generally accepted
accounting principles and tax regulations. It is anticipated that for
accounting purposes these merger transaction and transition costs will be
expensed by Resources West after the merger is completed.
12
13
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
The following pro forma condensed financial information combines the historical
consolidated balance sheets and statements of income of the Company and SPR
after giving effect to the merger. The unaudited pro forma condensed
consolidated balance sheet at June 30, 1995 gives effect to the merger as if it
had occurred at June 30, 1995. The unaudited pro forma condensed consolidated
statements of income for the quarter and six-months ended June 30, 1995 give
effect to the merger as if it had occurred at January 1, 1995. These
statements are prepared on the basis of accounting for the merger as a
pooling-of-interests and are based on the assumptions set forth in the
paragraph below. The pro forma condensed financial information has been
prepared from, and should be read in conjunction with the Company's historical
consolidated financial statements and related notes thereto of which this note
is a part and SPR's historical consolidated financial statements and related
notes thereto included in reports filed by SPR pursuant to the Securities
Exchange Act of 1934, as amended. The information contained herein with
respect to SPR and its subsidiaries has been supplied by SPR. The information
is not necessarily indicative of the financial position or operating results
that would have occurred had the merger been consummated on the date, or at the
beginning of the periods, for which the merger is being given effect, nor is it
necessarily indicative of future operating results or financial position.
Intercompany transactions (including purchased and exchanged power
transactions) between the Company and SPR during the period presented were not
material and, accordingly, no pro forma adjustments were made to eliminate such
transactions. For comparative purposes, certain historical amounts have been
reclassified to conform to the pro forma condensed financial statement format.
The $450 million net cost savings estimated to be achieved by the merger are
not reflected in the pro forma financial statements. Pro forma per share data
and common shares outstanding for Resources West give effect to the conversion
of each share of WWP Common Stock into one share of Resources West Common Stock
and the conversion of each share of SPR Common Stock into 1.44 shares of
Resources West Common Stock.
Unaudited Pro Forma Condensed Consolidated Balance Sheet at June 30, 1995 (in
thousands of dollars):
WWP SPR PRO FORMA
---------- ---------- ----------
Assets
Utility plant in service-net . . . . . . . . . . . . . . . $1,832,666 $1,787,229 $3,619,895
Construction work in progress. . . . . . . . . . . . . . . 28,251 97,449 125,700
---------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . 1,860,917 1,884,678 3,745,595
Accumulated depreciation and amortization. . . . . . . . . 522,965 529,324 1,052,289
---------- ---------- ----------
Net utility plant. . . . . . . . . . . . . . . . . . . . 1,337,952 1,355,354 2,693,306
Other property and investments . . . . . . . . . . . . . . 215,285 27,733 243,018
Current assets . . . . . . . . . . . . . . . . . . . . . . 133,251 117,180 250,431
Deferred charges . . . . . . . . . . . . . . . . . . . . . 321,210 161,559 482,769
---------- ---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . $2,007,698 $1,661,826 $3,669,524
========== ========== ==========
Capitalization and Liabilities
Common stock and additional paid-in capital. . . . . . . . $ 582,940 $ 458,324 $1,041,264
Other shareholders equity. . . . . . . . . . . . . . . . . 121,710 67,555 189,265
Preferred stock. . . . . . . . . . . . . . . . . . . . . . 135,000 86,715 221,715
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 701,362 570,298 1,271,660
---------- ---------- ----------
Total capitalization . . . . . . . . . . . . . . . . . . 1,541,012 1,182,892 2,723,904
Current liabilities. . . . . . . . . . . . . . . . . . . . 128,092 146,180 274,272
Deferred income taxes. . . . . . . . . . . . . . . . . . . 317,486 155,859 473,345
Other deferred credits . . . . . . . . . . . . . . . . . . 19,836 176,895 196,731
Minority interest. . . . . . . . . . . . . . . . . . . . . 1,272 - 1,272
---------- ---------- ----------
Total capitalization and liabilities . . . . . . . . . . $2,007,698 $1,661,826 $3,669,524
========== ========== ==========
Common shares outstanding (thousands). . . . . . . . . . . 55,237 29,785 98,127
13
14
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
Unaudited Pro Forma Condensed Consolidated Statements of Income for the three
months ended June 30, 1995 (in thousands of dollars, except per share amounts):
WWP SPR PRO FORMA
-------- -------- ---------
Operating revenues . . . . . . . . . . . . . . . . . . . . $158,973 $142,233 $301,206
Operating expenses . . . . . . . . . . . . . . . . . . . . 118,870 119,913 238,783
Income from operations . . . . . . . . . . . . . . . . . . 40,103 22,320 62,423
Net income . . . . . . . . . . . . . . . . . . . . . . . . 15,163 12,774 27,937
Income available for common stock. . . . . . . . . . . . . 12,865 10,896 23,761
Average common shares outstanding. . . . . . . . . . . . . 54,986 29,666 97,705
Earnings per share . . . . . . . . . . . . . . . . . . . . $0.23 $0.37 $0.24
Unaudited Pro Forma Condensed Consolidated Statements of Income for the six
months ended June 30, 1995 (in thousands of dollars, except per share amounts):
WWP SPR PRO FORMA
-------- -------- ---------
Operating revenues . . . . . . . . . . . . . . . . . . . . $356,901 $302,378 $659,279
Operating expenses . . . . . . . . . . . . . . . . . . . . 258,324 252,807 511,131
Income from operations . . . . . . . . . . . . . . . . . . 98,577 49,571 148,148
Net income . . . . . . . . . . . . . . . . . . . . . . . . 43,618 29,946 73,564
Income available for common stock. . . . . . . . . . . . . 39,022 26,144 65,166
Average common shares outstanding. . . . . . . . . . . . . 54,785 29,563 97,356
Earnings per share . . . . . . . . . . . . . . . . . . . . $0.71 $0.88 $0.67
14
15
THE WASHINGTON WATER POWER COMPANY
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is primarily engaged as a utility in the generation, purchase,
transmission, distribution and sale of electric energy and the purchase,
transportation, distribution and sale of natural gas. Natural gas operations
are affected to a significant degree by weather conditions and customer growth.
The Company's electric operations are highly dependent upon hydroelectric
generation for its power supply. As a result, the electric operations of the
Company are significantly affected by weather and streamflow conditions, and to
a lesser degree, by customer growth. Revenues from the sale of surplus energy
to other utilities and the cost of power purchases vary from year to year
depending on streamflow conditions and the wholesale power market. The
wholesale power market in the Northwest region is affected by several factors,
including the availability of water for hydroelectric generation, the
availability of base load plants in the region and the demand for power in the
Southwest region. Other factors affecting the wholesale power market include
new entrants in the wholesale market, such as power brokers and marketers, and
competition from low cost generation being developed by independent power
producers. Usage by retail customers varies from year to year primarily as a
result of weather conditions, the economy in the Company's service area,
customer growth, conservation, appliance efficiency and other technology.
The Company intends to continue to emphasize the efficient use of energy by its
customers, increase efforts to grow its customer base, especially natural gas,
and continue to manage its operating costs, increase revenues and improve
margins. The Company also intends to pursue resource opportunities through
system upgrades, purchases, demand side management and other options that will
result in obtaining electric power and natural gas supplies at the lowest
possible cost.
RESULTS OF OPERATIONS
OVERALL OPERATIONS
Overall earnings per share for the second quarter of 1995 decreased to $0.23
from $0.25 in 1994. Total earnings per share for the first six months of 1995
decreased to $0.71 from $0.72 for the same period in 1994. Net income increased
slightly for the six-month period in 1995 as compared to 1994, but the increase
in the average number of shares outstanding resulted in a small decrease in
per-share earnings. Both the quarterly and year-to-date decreases in earnings
per share were primarily the result of non-operating items. Other income
decreased in both periods, primarily due to the accrual for the remediation
work at Dollar Road (see Note 2 to the Financial Statements for additional
information) and amortization of the Sandpoint acquisition adjustment from the
Company's acquisition of PacifiCorp's electric properties in northern Idaho in
late December 1994. Lower levels of AFUDC, due to lower levels of
construction, increased interest expense, primarily due to higher levels of
outstanding debt, a shift from short-term debt to long-term debt and higher
interest rates and a decrease in other income also contributed to the decline
in earnings per share in both the three and six months periods in 1995.
Utility income available for common stock contributed $0.19 to earnings per
share for the second quarter of 1995 compared to $0.21 in the second quarter of
1994. Non-utility income available for common stock contributed $0.04 to
earnings per share for the second quarter of both 1995 and 1994. For the first
half of 1995, utility income available for common stock contributed $0.62 to
earnings per share compared to $0.65 during 1994. Non-utility income available
for common stock contributed $0.09 to earnings per share for the first six
months of 1995 compared with $0.07 in 1994. The decline in utility earnings is
primarily due to non-operating activities, such as the decline in other income,
lower levels of AFUDC and increased interest expense discussed above. The
increase in non-utility operating results is primarily due to the impact of a
transactional gain of $1.3 million, net of tax, from the sale of Itron, Inc.
stock in 1995.
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ELECTRIC OPERATIONS
Operating income summary
(Dollars in thousands)
Three months ended Six months ended
June 30 Change June 30 Change
------------------ -------------- ------------------ -------------
1995 1994 Amount % 1994 1994 Amount %
-------- -------- ------- --- -------- -------- ------- ---
Operating Revenues . . . . . . . . . . . . . . . $103,069 $101,120 $ 1,949 2 $228,890 $226,046 $ 2,844 1
Operating Expenses:
Purchased power. . . . . . . . . . . . . . . . 15,538 16,354 (816) (5) 38,491 46,257 (7,766) (17)
Fuel for generation. . . . . . . . . . . . . . 3,035 7,115 (4,080) (57) 10,759 18,521 (7,762) (42)
Other operating and maintenance. . . . . . . . 18,113 15,333 2,780 18 35,915 30,446 5,469 18
Administrative and general . . . . . . . . . . 10,471 9,524 947 10 20,140 18,103 2,037 11
Depreciation and amortization. . . . . . . . . 12,347 12,108 239 2 24,466 24,083 383 2
Taxes other than income. . . . . . . . . . . . 9,347 8,244 1,103 13 19,754 18,090 1,664 9
-------- -------- ------- -------- -------- -------
Total operating expenses . . . . . . . . . . 68,851 68,678 173 - 149,525 155,500 (5,975) (4)
-------- -------- ------- -------- -------- -------
Income from operations . . . . . . . . . . . . . 34,218 32,442 1,776 5 79,365 70,546 8,819 13
Electric operating income taxes. . . . . . . . 8,858 9,197 (339) (4) 21,755 20,441 1,314 6
-------- -------- ------- -------- -------- -------
Net operating income (1) . . . . . . . . . . . . $ 25,360 $ 23,245 $ 2,115 9 $ 57,610 $ 50,105 $ 7,505 15
======== ======== ======= ======== ======== =======
(1) Does not include interest expense or other income.
- --------------------------------------------------------------------------------
Total electric revenues increased $1.9 million in the second quarter of 1995
over 1994. Residential and commercial revenues rose by a combined $4.8 million
due to increased kWh sales. Residential customers increased by over 14,000, or
6%, and commercial customers grew by over 3,000 customers, also a 6% increase,
in the second quarter of 1995 as compared to second quarter 1994.
Approximately 10,000 customers were added through the acquisition of
PacifiCorp's electric properties in northern Idaho in late December 1994.
Wholesale revenues decreased by $3.3 million, or 14%, as a result of improved
streamflow conditions and increased availability of hydroelectric generation in
the region which led to reduced demand for secondary energy and lower market
prices. Wholesale kWh sales decreased by 11% and average prices declined by 4%
in the second quarter of 1995 as compared to 1994.
Year-to-date, total electric revenues increased $2.8 million in 1995 as
compared to 1994. Customer growth, primarily due to the acquisition of
properties in northern Idaho, as mentioned above, was the primary reason for
the increase in electric revenues during the first six months of 1995.
Wholesale revenues decreased by $7.5 million, or 16%, during the first half of
1995 as a result of improved streamflows and increased availability of
hydroelectric generation in the region, which led to reduced demand for
secondary energy and lower market prices.
ELECTRIC REVENUES AND KWH SALES BY SERVICE CLASS
Class Increase (Decrease) from prior year
------------------------- -----------------------------------
Three months ended June 30, 1995 Six months ended June 30, 1995
---------------------------------- -----------------------------------
REVENUE KWH SALES REVENUE KWH SALES
------- --------- ------- ---------
(Dollars and kWhs in millions)
Residential. . . . . . . . $2.5 9% 33.1 5% $6.1 8% 84.9 6%
Commercial . . . . . . . . 2.3 8 22.8 4 4.9 8 53.8 4
Industrial . . . . . . . . 0.6 4 14.3 3 1.9 7 44.8 5
Wholesale. . . . . . . . . (3.3) (14) (82.9) (11) (7.5) (16) (284.7) (18)
- --------------------------------------------------------------------------------
Fuel expense decreased by $4.1 million, or 57%, in the second quarter of 1995
compared to 1994 as increased hydroelectric generation resulted in the economic
dispatch of some of the thermal plants. Improved streamflow conditions and
increased hydroelectric generation caused purchased power costs to decline by
$0.8 million in the second quarter of 1995 over 1994. Other operating and
maintenance expenses increased $2.8 million, or 18%, during the second quarter
of 1995 primarily due to lease payments and operating expenses related to the
Rathdrum
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THE WASHINGTON WATER POWER COMPANY
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combustion turbine, which went into service during the first quarter of 1995,
and amortization of the Demand Side Management programs. Administrative and
general expenses increased by $0.9 million in the second quarter of 1995 due
primarily to lease payments for computer software systems and labor-related
costs. Other taxes, primarily excise and business and occupation taxes, were
up $1.1 million from the second quarter of 1994, primarily due to increased
revenues in the second quarter of 1995.
Improved streamflow conditions and increased hydroelectric generation caused
year-to-date 1995 purchased power costs to decline by $7.8 million. Fuel
expense decreased by $7.8 million in the first six months of 1995 compared to
1994 as increased hydroelectric generation resulted in the economic dispatch of
thermal plants. Other operating and maintenance expenses increased $5.5 million
year-to-date primarily due to lease payments and operating expenses related to
the Rathdrum combustion turbine and amortization of the Demand Side Management
programs. Administrative and general expenses increased by $2.0 million in the
first half of 1995 due primarily to lease payments for computer software
systems and labor-related costs.
NATURAL GAS OPERATIONS
Operating income summary
(Dollars in thousands)
Three months ended Six months ended
June 30 Change June 30 Change
------------------ ------------ ----------------- -------------
1995 1994 Amount % 1994 1994 Amount %
-------- ------- ------ --- ------- ------- ------- ---
Operating Revenues . . . . . . . . . . . . . . . $35,304 $26,290 $9,014 34 $94,440 $79,779 $14,661 18
Operating Expenses:
Natural gas purchased. . . . . . . . . . . . . 21,948 15,402 6,546 43 56,766 46,097 10,669 23
Other operating and maintenance. . . . . . . . 3,816 3,774 42 1 7,562 6,779 783 12
Administrative and general . . . . . . . . . . 3,266 2,688 578 22 6,533 5,584 949 17
Depreciation and amortization. . . . . . . . . 2,414 2,090 324 16 4,859 4,025 834 21
Taxes other than income. . . . . . . . . . . . 2,237 1,657 580 35 5,471 4,653 818 18
------- ------- ------ ------- ------- -------
Total operating expenses . . . . . . . . . . 33,681 25,611 8,070 32 81,191 67,138 14,053 21
------- ------- ------ ------- ------- -------
Income from operations . . . . . . . . . . . . . 1,623 679 944 - 13,249 12,641 608 5
Natural gas oper. income taxes . . . . . . . . . 40 (253) 293 - 3,745 3,718 27 1
------- ------- ------ ------- ------- -------
Net operating income (1) . . . . . . . . . . . . $ 1,583 $ 932 $ 651 70 $ 9,504 $ 8,923 $ 581 7
======= ======= ====== ======= ======= =======
Actual Heating Degree Days (2) . . . . . . . . . 1,010 891 119 13 3,597 3,506 91 3
Historical Heating Degree Days (3) . . . . . . . 1,056 1,056 3,934 3,934
Actual Degree Days as a Percent
of Historical Degree Days. . . . . . . . . . . 96% 84% 91% 89%
(1) Does not include interest expense or other income.
(2) Heating degree days information is for Spokane area.
(3) Historical degree days represent the 30-year average.
- --------------------------------------------------------------------------------
Total natural gas revenues increased in all revenue classes in second quarter
1995 from the second quarter of 1994. WPNG (Oregon and California) revenues
increased by $1.9 million, or 22%, in the second quarter of 1995 as compared to
the same period in 1994. Natural gas revenues from WWP (Washington and Idaho)
operations increased by $7.1 million, or 40% in the second quarter of 1995. In
both service areas, the revenue increase was primarily due to customer growth
from conversions from electric service to natural gas, population growth and
new construction. The average number of customers increased in both areas in
the residential and commercial classes in the second quarter of 1995 as
compared to 1994. WPNG and WWP residential customers increased by
approximately 4,000, or 6%, and 9,400, or 8%, respectively. WPNG and WWP
commercial customers rose by 3% and 7%, respectively, in the second quarter of
1995 as compared to 1994.
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THE WASHINGTON WATER POWER COMPANY
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Total natural gas revenues increased $14.7 million during the first six months
of 1995 over the same period in 1994. WPNG revenues increased by $2.2 million,
or 8%, while revenues from WWP operations increased by $12.5 million, or 24%,
during the first half of 1995 compared to 1994. The revenue increase was
primarily due to customer growth and higher average prices than last year.
WPNG and WWP residential and commercial customers grew by approximately the
same percentages described above during the first six months of 1995 compared
to the same period in 1994. The total number of transportation customers grew
by 23% in the first half of 1995.
NATURAL GAS REVENUES AND THERM SALES BY SERVICE CLASS
Class Increase (Decrease) from prior year
-------------------------- -----------------------------------
Three months ended June 30, 1995 Six months ended June 30, 1995
---------------------------------- -----------------------------------
REVENUE KWH SALES REVENUE KWH SALES
------- --------- ------- ---------
(Dollars and kWhs in millions)
Residential. . . . . . . . $3.5 29% 5.6 25% $ 7.1 17% 9.9 12%
Commercial . . . . . . . . 2.0 25 3.4 18 3.5 13 4.8 8
Industrial - firm. . . . . 0.4 34 0.9 28 0.4 17 0.8 11
Industrial - interruptible 0.1 5 0.1 5 (0.3) (18) (0.8) (16)
Sales for resale . . . . . 2.9 - 31.8 - 3.0 - 33.6 -
Transportation . . . . . . 0.1 4 5.8 12 0.5 9 10.7 11
- --------------------------------------------------------------------------------
Natural gas purchased expense increased $6.5 million, or 43%, in the second
quarter of 1995 as compared to second quarter 1994. The increased cost was
primarily the result of a 48% increase in therm sales to new customers.
Administrative and general expenses increased by 22% in 1995 over the second
quarter of 1994, primarily due to lease payments for computer software systems
and labor-related costs. Depreciation and amortization expense also increased
by 16% during the second quarter of 1995 as a result of increased natural gas
plant-in-service. Other taxes, primarily excise and business and occupation
taxes, were up $0.6 million from the second quarter of 1994, primarily due to
increased revenues in the second quarter of 1995.
Total natural gas operating expenses increased by $14.1 million, or 21%, in the
first half of 1995. Purchased gas costs increased $10.7 million in the first
six months of 1995 due primarily to a 24% increase in therm sales as a result
of customer growth. Other operating and maintenance expenses increased $0.8
million in the first half of 1995 over 1994 primarily due to amortization of
the Demand Side Management programs. Administrative and general expenses
increased by 17% in 1995 over 1994, primarily due to lease payments for
computer software systems and labor-related costs. Depreciation and
amortization expense increased by $0.8 million during the first six months of
1995 as a result of increased natural gas plant-in-service. Other taxes,
primarily excise and business and occupation taxes, were also up $0.8 million
from the first half of 1994, primarily due to increased year-to-date revenues.
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THE WASHINGTON WATER POWER COMPANY
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NON-UTILITY OPERATIONS
Operating income summary
(Dollars in thousands)
Three months ended Six months ended
June 30 Change June 30 Change
------------------ ------------- ----------------- -------------
1995 1994 Amount % 1994 1994 Amount %
------- ------- ------ --- ------- ------- ------- ---
Operating revenues . . . . . . . . . . . . . . . $20,600 $19,763 $ 837 4 $33,571 $32,245 $ 1,326 4
Operating expenses . . . . . . . . . . . . . . . 16,338 18,869 (2,531) (13) 27,608 29,728 (2,120) (7)
------- ------- ------- ------- ------- -------
Operating income . . . . . . . . . . . . . . . . 4,262 894 3,368 - 5,963 2,517 3,446 -
Other income (expense) . . . . . . . . . . . . . (204) 2,458 (2,662) - 1,493 2,939 (1,446) (49)
------- ------- ------- ------- ------- -------
Income before income taxes . . . . . . . . . . . 4,058 3,352 706 21 7,456 5,456 2,000 37
Income tax provision . . . . . . . . . . . . . . 1,604 1,362 242 18 2,531 1,847 684 37
------- ------- ------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . $ 2,454 $ 1,990 $ 464 23 $ 4,925 $ 3,609 $ 1,316 36
======= ======= ======= ======= ======= =======
Non-utility operations include the results of Pentzer and one other active
subsidiary. Pentzer's business strategy is to acquire controlling interest in
a broad range of middle-market companies, to help these companies grow through
internal development and strategic acquisitions, and to sell the portfolio
investments to the public or to strategic buyers. Pentzer's objective is to
produce current returns from its portfolio investments that are higher than
that of the utility operations and to supplement these current returns by
generating transactional gains through the sale of portfolio investments when
appropriate. From time to time, a significant portion of Pentzer's earnings
contributions may be the result of transactional gains. Accordingly, although
the income stream is expected to be positive, it may be uneven from year to
year.
Pentzer's earnings for the second quarter of 1995 exceeded 1994 by $0.4
million. Non-transactional earnings from its portfolio investments exceeded
1994 by $0.8 million due to stronger earnings from existing investments as well
as new earnings from two companies acquired in the past 12 months.
Transactional gains in 1995 were less than 1994 by $0.4 million.
Pentzer's earnings for the first six months of 1995 exceeded 1994 by $1.3
million. Transactional gains, primarily from the sale of Itron stock,
increased by $0.8 million. Non-transactional earnings from its portfolio
investments grew by $0.5 million in 1995 as compared to the same period in
1994.
In February 1995, Pentzer acquired The Decker Company, Inc., a company that
designs and packages point-of-purchase displays and other marketing materials
for national manufacturers of consumer products.
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THE WASHINGTON WATER POWER COMPANY
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LIQUIDITY AND CAPITAL RESOURCES
UTILITY
The Company funds capital expenditures with a combination of internally-
generated cash and external financing. The level of cash generated internally
and the amount that is available for capital expenditures fluctuates annually.
Cash provided by operating activities remains the Company's primary source of
funds for operating needs, dividends and construction expenditures.
Operating Activities Cash available from operating activities in the first six
months of 1995 decreased by over $21 million from the same period in 1994
primarily due to an increase in various working capital components, such as
increased materials and supplies, fuel stock and natural gas stored and
prepayments on power contracts, partially offset by the positive effect of
purchased gas deferrals. See the Consolidated Statements of Cash Flows for
additional details.
Investing Activities Cash used in investing activities decreased by more than
$67 million in the first half of 1995, when compared to the same period in
1994, primarily due to a 50% decrease in construction and demand side
management program expenditures. See the Consolidated Statements of Cash Flows
for additional information.
Financing Activities Cash used in financing activities increased by almost $32
million in the six months ended June 30, 1995 when compared to the same period
in 1994. Since January 1, 1995, $58 million of Secured Medium Term Notes,
Series B (Series B Notes) have been issued with an average interest rate of
7.31% and an average maturity of 7.3 years. The proceeds were primarily used
to fund the maturity of $15 million of Unsecured Medium-Term Notes and $10
million of 4 5/8% First Mortgage Bonds and to repay $51.5 million of short-term
debt. As of August 10, 1995, $129 million of Series B Notes remained to be
issued.
Capital expenditures are financed on an interim basis with short-term debt.
The Company has $160 million in committed lines of credit. In addition, the
Company may borrow up to $60 million through other borrowing arrangements with
banks. As of June 30, 1995, $6.5 million was outstanding under the other
borrowing arrangements with banks.
The Company's total common equity increased by $28 million during the first
half of 1995 to $705 million. The increase was primarily due to the issuance
of 816,000 shares of common stock through both the Dividend Reinvestment Plan
and the Investment and Employee Stock Ownership Plan for proceeds of
approximately $12 million and a $9.4 million increase in unrealized investment
gains from Pentzer's investment in Itron. No shares were issued under the
Company's Periodic Offering Program. The utility capital structure at June 30,
1995, was 49% debt, 10% preferred stock and 41% common equity as compared to
50% debt, 10% preferred stock and 40% common equity at year-end 1994.
During the 1995-1997 period, utility capital expenditures are expected to be
$228 million, and $132 million will be required for long-term debt maturities
and preferred stock sinking fund requirements. During this three-year period,
the Company estimates that internally-generated funds will provide
approximately 90% of the funds needed for its capital expenditure program.
External financing will be required to fund maturing long-term debt, preferred
stock sinking fund requirements and the remaining portion of capital
expenditures. These projections relate to the Company on a stand-alone basis
and do not reflect any adjustment for the effects of the proposed merger of the
Company, SPR and SPPC with and into Resources West. See Regulatory Proceedings
below for additional merger information.
NON-UTILITY
The non-utility operations have $39 million in borrowing arrangements ($27
million outstanding as of June 30, 1995) to fund corporate requirements on an
interim basis. At June 30, 1995, the non-utility operations had $31 million in
cash and marketable securities with $11 million in long-term debt outstanding.
The 1995-1997 non-utility capital expenditures are expected to be $5 million,
and $7 million in debt maturities will also occur. During the next three
years, internally-generated cash and other debt obligations are expected to
provide the majority of the funds for the non-utility capital expenditure
requirements.
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THE WASHINGTON WATER POWER COMPANY
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1995 Annual Meeting of Shareholders of the Company was held on May 11,
1995. The re-election of directors with expiring terms was the only matter
voted on at the meeting. There were 54,810,894 shares of Common Stock issued
and outstanding as of March 16, 1995, the proxy record date, with 46,620,910
shares represented at said meeting. The details of the voting are shown below:
Against
For or Withheld
---------- -----------
Re-election of Directors
David A. Clack 45,138,599 1,482,311
Duane B. Hagadone 44,960,945 1,659,965
Larry A. Stanley 45,125,951 1,494,959
ITEM 5. OTHER INFORMATION.
REGULATORY PROCEEDINGS.
Merger On June 28, 1994, the Company announced that it had entered into a
proposed merger agreement with SPR, SPPC and Resources West. Applications
seeking approval of the merger were filed with the FERC and with the state
utility commissions in the states of California, Idaho, Montana, Nevada, Oregon
and Washington. The Montana Public Service Commission issued an order in
October 1994 declining to exercise jurisdiction. The Company has negotiated
stipulations with the commission staffs and certain other parties in each of
the other five states. The major points of each stipulation and the current
status are as follows:
Washington: Electric and gas base rate freeze through December 31,
2000
Purchased gas benefits flowed through annual PGA
(Purchased Gas Adjustment)
Accelerated amortization of Washington electric DSM to
provide full amortization by December 31, 2003
Final order is still pending with respect to the
proposed stipulation
Idaho: Electric and gas base rate freeze through December 31,
2000
Purchased gas benefits flowed through annual PGA
Earnings capped at 12.5% ROE, with earnings above 12.5%
shared 50/50 with customers through PGA/PCA (Power
Cost Adjustment)
Final order is still pending with respect to the
proposed stipulation
Oregon: No rate freeze
Purchased gas benefits flowed through annual PGA, plus
a sharing of non-purchased gas benefits to partially
offset the expenses associated with additional
capacity on Pacific Gas Transmission to Medford
Final order was issued on June 23, 1995
California: Electric and gas base rate freeze through December 31,
1999
All electric and gas tracking mechanisms suspended
during the rate freeze. Balances in the electric and
gas tracking accounts will be set to zero at January
1, 1996 or upon merger. Exempt from annual electric
and gas cost of capital proceedings
Electric rate reduction of $3.1 million in 1996 related
to the suspension of the electric tracking mechanism
and elimination of the balances in the tracking
accounts
Final order is still pending with respect to the
proposed stipulation
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THE WASHINGTON WATER POWER COMPANY
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Nevada: Electric and gas base rate freeze through December 31,
1999. Water rates frozen through December 31, 1996
Gas tracker suspended through January 1, 1997. Electric
power/fuel cost tracker suspended through December 31,
1999
One-time refunds related to a prior rate stipulation of
$9 million electric and $4 million gas. Earnings for
1997-1999 capped at 12.0% ROE, with earnings above
12.0% shared 50/50 with customers
Final order is still pending with respect to the
proposed stipulation
The FERC has not yet established a procedural schedule for this proposed
merger. However, the Company continues to anticipate receiving final orders
from all jurisdictions and closing the merger transaction by the end of 1995.
See Note 4 to Financial Statements for additional information.
FERC NOPR On March 29, 1995, the FERC issued a Notice of Proposed Rulemaking
(NOPR) relating to transmission services and a supplemental NOPR on Recovery of
Stranded Costs. If adopted, the NOPR on open access transmission would require
public utilities operating under the Federal Power Act to provide third-party
access to their transmission systems at comparable rates. The supplemental
NOPR on stranded costs provides a basis for recovery by regulated public
utilities of legitimate and verifiable stranded costs associated with existing
wholesale requirements customers and retail customers who become unbundled
wholesale transmission customers of the utility. FERC will consider allowing
recovery of stranded investment costs associated with retail wheeling only if a
state regulatory commission lacks the authority to consider that issue. The
Company is currently evaluating the NOPR to determine its potential impact on
the Company, its customers and on its proposed merger with SPR and SPPC. The
Company filed comments with the FERC regarding the NOPR. It is anticipated
that the final rules could take effect in early 1996. The Company cannot
predict the outcome of this matter.
ADDITIONAL FINANCIAL DATA.
The following table reflects the ratio of earnings to fixed charges and the
ratio of earnings to fixed charges and preferred dividend requirements:
12 Months Ended
-------------------------
June 30, December 31,
1995 1994
-------- ------------
Ratio of Earnings to Fixed Charges 3.06 (x) 3.24 (x)
Ratio of Earnings to Fixed Charges and
Preferred Dividend Requirements 2.48 (x) 2.59 (x)
The Company has long-term purchased power arrangements with various Public
Utility Districts, with interest on these contracts included in purchased power
expenses. These amounts do not have a material impact on fixed charges ratios.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
4(a) Bylaws of The Washington Water Power Company, as
amended May 11, 1995.
12 Computation of ratio of earnings to fixed charges and
preferred dividend requirements.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
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THE WASHINGTON WATER POWER COMPANY
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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.
THE WASHINGTON WATER POWER COMPANY
(Registrant)
Date: August 11, 1995 /s/ J. E. Eliassen
----------------------------
J. E. Eliassen
Vice President - Finance and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
23