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, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-3701
THE WASHINGTON WATER POWER COMPANY
(Exact name of registrant as specified in its charter)
Washington 91-0462470
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1411 East Mission Avenue, Spokane, Washington 99202-2600
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 509-489-0500
None
(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, 1996, 55,960,360 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.
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Income - Three Months Ended
June 30, 1996 and 1995............................................ 3
Consolidated Statements of Income - Six Months Ended
June 30, 1996 and 1995............................................ 4
Consolidated Balance Sheets - June 30, 1996
and December 31, 1995............................................. 5
Consolidated Statements of Capitalization - June 30, 1996
and December 31, 1995............................................. 6
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1996 and 1995............................................ 7
Schedule of Information by Business Segments - Three Months Ended
June 30, 1996 and 1995............................................ 8
Schedule of Information by Business Segments - Six Months Ended
June 30, 1996 and 1995............................................ 9
Notes to Consolidated Financial Statements ........................... 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........................ 14
Part II. Other Information:
Item 5. Other Information............................................ 19
Item 6. Exhibits and Reports on Form 8-K ............................ 20
Signature............................................................................... 21
3
CONSOLIDATED STATEMENTS OF INCOME
The Washington Water Power Company
- --------------------------------------------------------------------------------
For the Three Months Ended June 30
Thousands of Dollars
1996 1995
------ ------
OPERATING REVENUES .......................... $ 195,900 $ 158,973
--------- ---------
OPERATING EXPENSES:
Operations and maintenance ............... 101,774 74,452
Administrative and general ............... 18,747 16,915
Depreciation and amortization ............ 18,000 15,647
Taxes other than income taxes ............ 13,023 11,856
Merger-related expenses .................. 14,013 --
--------- ---------
Total operating expenses ............... 165,557 118,870
--------- ---------
INCOME FROM OPERATIONS ...................... 30,343 40,103
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense ......................... (15,261) (14,721)
Net gain on subsidiary transactions ...... -- 34
Other income (deductions)-net ............ 433 (714)
--------- ---------
Total other income (expense)-net ....... (14,828) (15,401)
--------- ---------
INCOME BEFORE INCOME TAXES .................. 15,515 24,702
INCOME TAXES ................................ 6,547 9,539
--------- ---------
NET INCOME .................................. 8,968 15,163
DEDUCT-Preferred stock dividend requirements 2,141 2,298
--------- ---------
INCOME AVAILABLE FOR COMMON STOCK ........... $ 6,827 $ 12,865
========= =========
Average common shares outstanding (thousands) 55,960 54,986
EARNINGS PER SHARE OF COMMON STOCK .......... $ 0.12 $ 0.23
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
- --------------------------------------------------------------------------------
For the Six Months Ended June 30
Thousands of Dollars
1996 1995
------ -----
OPERATING REVENUES .......................... $ 443,903 $ 356,901
--------- ---------
OPERATING EXPENSES:
Operations and maintenance ............... 231,634 168,246
Administrative and general ............... 37,977 33,032
Depreciation and amortization ............ 35,275 31,065
Taxes other than income taxes ............ 26,715 25,981
Merger-related expenses .................. 15,513 --
--------- ---------
Total operating expenses ............. 347,114 258,324
--------- ---------
INCOME FROM OPERATIONS ...................... 96,789 98,577
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense ......................... (30,566) (29,451)
Net gain on subsidiary transactions ...... 17,064 1,952
Other income (deductions)-net ............ 121 (1,190)
--------- ---------
Total other income (expense)-net ....... (13,381) (28,689)
--------- ---------
INCOME BEFORE INCOME TAXES .................. 83,408 69,888
INCOME TAXES ................................ 32,531 26,270
--------- ---------
NET INCOME .................................. 50,877 43,618
DEDUCT-Preferred stock dividend requirements 4,407 4,596
--------- ---------
INCOME AVAILABLE FOR COMMON STOCK ........... $ 46,470 $ 39,022
========= =========
Average common shares outstanding (thousands) 55,959 54,785
EARNINGS PER SHARE OF COMMON STOCK .......... $ 0.83 $ 0.71
Dividends paid per common share ............. $ 0.62 $ 0.62
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
5
CONSOLIDATED BALANCE SHEETS
The Washington Water Power Company
- -------------------------------------------------------------------------------
Thousands of Dollars
June 30, December 31,
1996 1995
---------- ------------
ASSETS:
PROPERTY:
Utility plant in service-net ............................ $1,909,762 $1,880,620
Construction work in progress ........................... 28,780 23,046
---------- ----------
Total ................................................. 1,938,542 1,903,666
Less: Accumulated depreciation and amortization ........ 570,040 546,248
---------- ----------
Net utility plant ..................................... 1,368,502 1,357,418
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Investment in exchange power-net ........................ 78,878 82,252
Non-utility properties and investments .................. 164,268 135,612
Other-net ............................................... 20,901 9,593
---------- ----------
Total other property and investments .................. 264,047 227,457
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents ............................... 3,185 5,164
Temporary cash investments .............................. 18,411 27,395
Accounts and notes receivable-net ....................... 94,108 102,389
Materials and supplies, fuel stock and natural gas stored 37,977 38,004
Prepayments and other ................................... 15,470 11,020
---------- ----------
Total current assets .................................. 169,151 183,972
---------- ----------
DEFERRED CHARGES:
Regulatory assets for deferred income tax ............... 167,093 169,432
Conservation programs ................................... 60,098 62,793
Prepaid power purchases ................................. 37,713 32,605
Unamortized debt expense ................................ 24,100 25,684
Other-net ............................................... 23,984 39,541
---------- ----------
Total deferred charges ................................ 312,988 330,055
---------- ----------
TOTAL ............................................... $2,114,688 $2,098,902
========== ==========
CAPITALIZATION AND LIABILITIES:
CAPITALIZATION (See Consolidated Statements of
Capitalization)........................................... $1,578,396 $1,590,412
---------- ----------
CURRENT LIABILITIES:
Accounts payable ........................................ 45,476 64,841
Taxes and interest accrued .............................. 48,607 39,415
Other ................................................... 92,133 64,703
---------- ----------
Total current liabilities ............................. 186,216 168,959
---------- ----------
DEFERRED CREDITS:
Deferred income taxes ................................... 307,635 307,529
Other ................................................... 42,441 32,002
---------- ----------
Total deferred credits ................................ 350,076 339,531
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 4)
TOTAL ............................................... $2,114,688 $2,098,902
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
5
6
CONSOLIDATED STATEMENTS OF CAPITALIZATION
The Washington Water Power Company
- -------------------------------------------------------------------------------
Thousands of Dollars
June 30, December 31,
1996 1995
----------- -----------
COMMON EQUITY:
Common stock, no par value: 200,000,000 shares authorized:
shares outstanding: 1996-55,960,360; 1995-55,947,967 ....................... $ 594,853 $ 594,636
Note receivable from employee stock ownership plan ........................... (11,363) (11,690)
Capital stock expense and other paid in capital .............................. (10,089) (10,072)
Unrealized investment gain-net ............................................... 15,380 19,220
Retained earnings ............................................................ 136,859 125,031
----------- -----------
Total common equity ...................................................... 725,640 717,125
----------- -----------
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
----------- -----------
Total not subject to mandatory redemption ................................ 50,000 50,000
----------- -----------
Subject to mandatory redemption:
$8.625, Series I; 300,000 and 500,000 shares outstanding ($100 stated value) 30,000 50,000
$6.95, Series K; 350,000 shares outstanding ($100 stated value) ........... 35,000 35,000
----------- -----------
Total subject to mandatory redemption .................................... 65,000 85,000
----------- -----------
LONG-TERM DEBT: (Note 1)
First Mortgage Bonds:
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 - 6.50% to 8.25% due 1997 through 2010 .......................... 141,000 141,000
----------- -----------
Total first mortgage bonds ............................................... 474,700 474,700
----------- -----------
Pollution Control Bonds:
6% Series due 2023 ......................................................... 4,100 4,100
Unsecured Medium-Term Notes:
Series A - 7.94% to 9.58% due 1997 through 2007 ............................ 72,500 72,500
Series B - 6.75% to 8.55% due 1999 through 2023 ............................ 120,000 135,000
----------- -----------
Total unsecured medium-term notes ........................................ 192,500 207,500
----------- -----------
Notes payable (due within one year) to be refinanced ......................... 31,000 29,500
Other ........................................................................ 35,456 22,487
----------- -----------
Total long-term debt ..................................................... 737,756 738,287
----------- -----------
TOTAL CAPITALIZATION ............................................................ $ 1,578,396 $ 1,590,412
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
6
7
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
The Washington Water Power Company
- --------------------------------------------------------------------------------
For the Six Months Ended June 30
Thousands of Dollars
1996 1995
------- ------
OPERATING ACTIVITIES:
Net income ............................................................... $ 50,877 $ 43,618
NON-CASH REVENUES AND EXPENSES
INCLUDED IN NET INCOME:
Depreciation and amortization .......................................... 35,275 31,065
Provision for deferred income taxes .................................... 2,256 (20)
Allowance for equity funds used during construction .................... (355) (427)
Power and natural gas cost deferrals and amortization .................. 6,539 11,567
Deferred revenues and other-net ........................................ 6,140 6,442
(Increase) decrease in working capital components:
Receivables and prepaid expenses-net ................................ 8,599 6,381
Materials & supplies, fuel stock and natural gas stored ............. 1,494 (9,145)
Payables and other accrued liabilities .............................. (9,454) (8,761)
Other-net ........................................................... 5,245 (9,680)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................... 106,616 71,040
--------- --------
INVESTING ACTIVITIES:
Construction expenditures (excluding AFUDC-equity funds) ................. (36,826) (34,486)
Other capital requirements ............................................... (349) 608
(Increase) decrease in other noncurrent balance sheet items-net .......... 8,024 6,843
Assets acquired and investments in subsidiaries (Note 3) ................. (27,488) (899)
--------- --------
NET CASH USED IN INVESTING ACTIVITIES ....................................... (56,639) (27,934)
--------- --------
FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings ............................. 1,500 (51,500)
Proceeds from issuance of long-term debt ................................. -- 58,000
Redemption and maturity of long-term debt ................................ (15,000) (25,000)
Redemption of preferred stock ............................................ (20,000) --
Sale of common stock-net ................................................. (6,201) 6,682
Other-net ................................................................ 19,976 140
--------- --------
NET FINANCING ACTIVITIES BEFORE CASH DIVIDENDS .............................. (19,725) (11,678)
Less cash dividends paid .............................................. (32,231) (32,622)
--------- --------
NET CASH USED IN FINANCING ACTIVITIES ....................................... (51,956) (44,300)
--------- --------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS ........................ (1,979) (1,194)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............................ 5,164 5,178
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................. $ 3,185 $ 3,984
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period:
Interest ............................................................... $ 28,088 $ 24,632
Income taxes ........................................................... $ 26,039 $ 18,058
Non-cash financing and investing activities .............................. $ 36,150 $ 5,931
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
7
8
SCHEDULE OF INFORMATION BY BUSINESS SEGMENTS
The Washington Water Power Company
- -------------------------------------------------------------------------------
For the Three Months Ended June 30
Thousands of Dollars
1996 1995
------- ------
OPERATING REVENUES:
Electric ..................................... $ 132,032 $ 103,069
Natural gas .................................. 28,366 35,304
Non-utility .................................. 35,502 20,600
----------- ----------
Total operating revenues ................... $ 195,900 $ 158,973
=========== ==========
OPERATIONS AND MAINTENANCE EXPENSES:
Electric:
Power purchased ............................ $ 27,586 $ 15,538
Fuel for generation ........................ 6,394 3,035
Other electric ............................. 21,602 18,113
Natural gas:
Natural gas purchased for resale ........... 15,313 21,948
Other natural gas .......................... 4,242 3,816
Non-utility .................................. 26,637 12,002
----------- ----------
Total operations and maintenance expenses .. $ 101,774 $ 74,452
=========== ==========
ADMINISTRATIVE AND GENERAL EXPENSES:
Electric ..................................... $ 11,694 $ 10,471
Natural gas .................................. 3,803 3,266
Non-utility .................................. 3,250 3,178
Merger-related expenses ...................... 14,013 --
----------- ----------
Total administrative and general expenses .. $ 32,760 $ 16,915
=========== ==========
DEPRECIATION AND AMORTIZATION EXPENSES:
Electric ..................................... $ 12,806 $ 12,347
Natural gas .................................. 2,624 2,414
Non-utility .................................. 2,570 886
----------- ----------
Total depreciation and amortization expenses $ 18,000 $ 15,647
=========== ==========
INCOME FROM OPERATIONS:
Electric ..................................... $ 30,499 $ 34,218
Natural gas .................................. (3,071) 1,623
Non-utility .................................. 2,915 4,262
----------- ----------
Total income from operations ............... $ 30,343 $ 40,103
=========== ==========
INCOME AVAILABLE FOR COMMON STOCK:
Utility operations ........................... $ 5,743 $ 10,411
Non-utility operations ....................... 1,084 2,454
----------- ----------
Total income available for common stock .... $ 6,827 $ 12,865
=========== ==========
ASSETS: (1995 amounts at December 31)
Electric ..................................... $ 1,462,816 $1,440,560
Natural gas .................................. 261,248 274,408
Common plant ................................. 28,499 28,104
Other utility assets ......................... 94,357 129,319
Non-utility assets ........................... 267,768 226,511
----------- ----------
Total assets ............................... $ 2,114,688 $2,098,902
=========== ==========
CAPITAL EXPENDITURES (excluding AFUDC/AFUCE):
Electric ..................................... $ 10,747 $ 10,046
Natural gas .................................. 6,225 5,260
Common plant ................................. 3,081 1,314
Non-utility .................................. 782 458
----------- ----------
Total capital expenditures ................. $ 20,835 $ 17,078
=========== ==========
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
1996 1995
------- ------
OPERATING REVENUES:
Electric ..................................... $ 287,848 $ 228,890
Natural gas .................................. 90,579 94,440
Non-utility .................................. 65,476 33,571
---------- ----------
Total operating revenues ................... $ 443,903 $ 356,901
========== ==========
OPERATIONS AND MAINTENANCE EXPENSES:
Electric:
Power purchased ............................ $ 66,097 $ 38,491
Fuel for generation ........................ 13,708 10,759
Other electric ............................. 44,398 35,915
Natural gas:
Natural gas purchased for resale ........... 50,069 56,766
Other natural gas .......................... 8,683 7,562
Non-utility .................................. 48,679 18,753
---------- ----------
Total operations and maintenance expenses .. $ 231,634 $ 168,246
========== ==========
ADMINISTRATIVE AND GENERAL EXPENSES:
Electric ..................................... $ 23,578 $ 20,140
Natural gas .................................. 7,819 6,533
Non-utility .................................. 6,580 6,359
Merger-related expenses ...................... 15,513 --
---------- ----------
Total administrative and general expenses .. $ 53,490 $ 33,032
========== ==========
DEPRECIATION AND AMORTIZATION EXPENSES:
Electric ..................................... $ 25,564 $ 24,466
Natural gas .................................. 5,286 4,859
Non-utility .................................. 4,425 1,740
---------- ----------
Total depreciation and amortization expenses $ 35,275 $ 31,065
========== ==========
INCOME FROM OPERATIONS:
Electric ..................................... $ 81,421 $ 79,365
Natural gas .................................. 10,030 13,249
Non-utility .................................. 5,338 5,963
---------- ----------
Total income from operations ............... $ 96,789 $ 98,577
========== ==========
INCOME AVAILABLE FOR COMMON STOCK:
Utility operations ........................... $ 33,660 $ 34,097
Non-utility operations ....................... 12,810 4,925
---------- ----------
Total income available for common stock .... $ 46,470 $ 39,022
========== ==========
ASSETS: (1995 amounts at December 31)
Electric ..................................... $1,462,816 $1,440,560
Natural gas .................................. 261,248 274,408
Common plant ................................. 28,499 28,104
Other utility assets ......................... 94,357 129,319
Non-utility assets ........................... 267,768 226,511
---------- ----------
Total assets ............................... $2,114,688 $2,098,902
========== ==========
CAPITAL EXPENDITURES (excluding AFUDC/AFUCE):
Electric ..................................... $ 19,405 $ 19,794
Natural gas .................................. 11,405 10,005
Common plant ................................. 4,611 2,501
Non-utility .................................. 1,149 781
---------- ----------
Total capital expenditures ................. $ 36,570 $ 33,081
========== ==========
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, 1996 and 1995 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, 1995.
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
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 (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.
On November 21, 1994, the Company filed a Motion for Summary Judgment of
Dismissal. The Nez Perce Tribe filed a reply brief and requested oral argument.
A hearing on the Company's Motion for Summary Judgment was held by the Court on
July 27, 1995. On September 22, 1995, the federal magistrate issued a written
opinion recommending to the District Court that the Company's Motion for Summary
Judgment be granted and the Tribe's claims dismissed. On March 28, 1996, a U.S.
District judge entered a summary judgment in favor of the Company dismissing the
complaint. The Tribe filed a notice of appeal to the Ninth Circuit Court of
Appeals on April 24, 1996. A briefing schedule requiring the Tribe to file its
opening brief on August 7, 1996, and the Company's reply within 30 days, has
been vacated by Order dated August 7, 1996, to accommodate a mediation
conference on September 27, 1996. 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 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
was discovered in 1982, 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 in 1993 showed that the oil had 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
10
11
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
additional soil borings to be made around the site, which have been completed.
The Company completed a remedial investigation/feasibility study (RI/FS) report,
which was submitted to the DOE in November 1994. The DOE issued a responsiveness
summary in April 1996 which presented the DOE and public comments on the RI/FS.
The DOE is now drafting the clean-up action plan, which should be available for
public review and comments in August. It is anticipated that the clean-up action
plan will be approved by the fall of 1996. The oil spill clean-up will begin
once approval is received and will extend into 1997. As of June 30, 1996, an
accrual of $3.1 million is reflected on the Company's financial statements,
which represents the Company's best estimate of its liability.
On August 17, 1995, a lawsuit was filed against the Company in Superior Court of
the State of Washington for Spokane County by Davenport Sun International Hotels
and Properties, Inc., the owner of a hotel property in downtown Spokane,
Washington. The Complaint alleged that the oil released from the Company's
Central Steamplant trespassed on property owned by the plaintiff. In addition,
the plaintiff claimed that the Steamplant caused a diminution of value of
plaintiff's land. Generally, the Complaint was based on a claim of negligence,
trespass and nuisance. After mediation, the matter was resolved by settlement
and compromise, subject to certain conditions. If the settlement agreement fails
or is terminated, 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.
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. Five separate class action lawsuits have been filed
against the Company by private individuals in the Superior Court for Spokane
County. These suits concern fires identified as Midway, Golden Cirrus, Nine
Mile, Ponderosa 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, and
for alleged wrongful death of two persons. 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.
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
and/or transmission lines downed by wind-downed trees. 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. Ongoing
discovery is limited due to a stay of the proceedings pending review by the
Washington Supreme Court of a trial court decision ordering the disqualification
of plaintiff's counsel. By Order dated May 16, 1996, the Washington Supreme
Court remanded the issue for hearing on appropriate sanctions other than
disqualification. The matter remains before the Supreme Court on a Motion for
Reconsideration and actions in the trial court and pending matters in the Court
of Appeals remain stayed. The Company has received a settlement demand for
settlement of class action litigation which is within the Company's insurance
coverage limits. 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. 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.
11
12
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
WILLIAMS LAKE LAWSUIT
On December 21, 1995, a lawsuit was commenced in Vancouver, British Columbia
against the Company's subsidiary, Pentzer Corporation (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 assets of Pentzer Energy Services, Inc. to B.C. Gas, Inc. and a
U.S. subsidiary of B.C. Gas. The claims involve an alleged first right to
purchase interests in the Williams Lake, British Columbia wood-fired generating
station. The suit seeks 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.,
Pentzer Energy Services, Inc. and WP Energy Company. This action originally had
been filed in February 1995 in Spokane Superior Court against each of the same
defendants and Washington Water Power. By order dated June 6, 1995, all claims
against Washington Water Power were dismissed with prejudice by that court and
the claims against the remaining defendants were dismissed without prejudice on
the grounds that the lawsuit should have been brought in British Columbia. 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.
OTHER CONTINGENCIES
The Company routinely assesses, based on in-depth studies, expert analyses and
legal reviews, its contingencies, obligations and commitments for remediation of
contaminated sites, including assessments of ranges and probabilities of
recoveries from other responsible parties who have and have not agreed to a
settlement and recoveries from insurance carriers. The Company's policy is to
immediately accrue and charge to current expense identified exposures related to
environmental remediation sites based on estimates of investigation, cleanup and
monitoring costs to be incurred.
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 electric energy with
other utilities, cogenerators, small power producers and government agencies.
NOTE 3. ACQUISITIONS AND DISPOSITIONS
On March 1, 1996, Pentzer Development Corporation, a subsidiary of Pentzer, sold
the Spokane Industrial Park. The sale resulted in a gain of approximately $10.8
million, net of taxes and other adjustments.
In May 1996, Pentzer acquired F. O. Phoenix, a New Jersey-based company that
provides point-of-purchase and in-store merchandising services.
NOTE 4. MERGER TERMINATION
On June 28, 1996, the Board of Directors of the Company terminated the Agreement
and Plan of Reorganization and Merger, dated as of June 27, 1994 by and among
the Company, Sierra Pacific Resources (SPR), Sierra Pacific Power Company, a
subsidiary of SPR (SPPC), and Altus Corporation, a wholly owned subsidiary of
the Company (Altus, formerly named Resources West Energy Corporation), which
would have provided for the merger of the Company, SPR and SPPC with and into
Altus.
The Board of Directors noted the significant disparity in views among the FERC,
as reflected in the position of its Staff, and the state regulatory commissions
having primary jurisdiction over the companies. The FERC was concerned with
transmission policy and pricing at the national level. Each state commission, on
the other hand, was concerned with the interests of retail customers in its
particular jurisdiction. The Board concluded that there was little chance of
obtaining approval of the proposed merger from each of the regulatory
commissions having jurisdiction, on terms consistent with the regulatory
principles adopted by the companies and satisfactory to each other commission.
12
13
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
In addition, the Board concluded that even if the proposed merger were
consummated, Altus would be subject to significant continuing risk of
inconsistent regulation, with the stockholders of Altus bearing the financial
consequences of such inconsistency.
Among other matters, the Board also considered the significant decrease in the
amount of estimated net savings to be achievable as a result of the proposed
merger, which decrease was previously reported in the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996, and the increase in risks
posed as a result of recent and on-going structural, economic and regulatory
changes in the electric utility industry.
Under the terms of the Merger Agreement, the Company was entitled to terminate
the Merger Agreement since the merger of the companies was not consummated on or
before June 27, 1996 and because certain conditions precedent, including receipt
of all regulatory approvals, had not been satisfied. On June 28, 1996, the
Company commenced a proceeding in the Superior Court of Spokane County,
Washington seeking a declaratory judgment that the Merger Agreement was properly
terminated. On July 26, 1996, the Company entered into a memorandum of
understanding with SPR and SPPC, wherein the parties agreed that the Company's
declaratory judgment proceeding in Superior Court would be dismissed without
prejudice, and that should a dispute arise between the parties concerning the
termination of the Merger Agreement, such an action, if commenced, would be
heard in the United States District Court for the Eastern District of
Washington. The Company is not aware of the existence of any such dispute and is
unable to assess the likelihood of future litigation.
The Company had approximately $15.5 million in merger-related transaction and
transition costs that were expensed in 1996. No increase in rates will occur as
a result of these costs being expensed.
13
14
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
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 new wholesale contracts and 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.
RESULTS OF OPERATIONS
OVERALL OPERATIONS
Overall earnings per share for the second quarter of 1996 decreased to $0.12
from $0.23 in 1995. The decrease in earnings was primarily the result of the
expensing of $14.0 million in merger transaction and transition costs that
occurred as a result of the termination of the Agreement and Plan of
Reorganization and Merger which would have provided for the merger of the
Company, Sierra Pacific Resources (SPR) and Sierra Pacific Power Company, a
subsidiary of SPR (SPPC), with and into Altus Corporation, a wholly owned
subsidiary of the Company (Altus, formerly named Resources West Energy
Corporation). These merger-related costs amounted to $0.16 per share on an
after-tax basis and were allocated to both electric and natural gas operations
as administrative and general expenses. (See Note 4 to the Financial Statements
for additional information about the merger termination.)
Overall earnings per share for the first six months of 1996 increased to $0.83
from $0.71 in 1995 despite the merger-related costs. The increase in earnings
was primarily the result of a $10.8 million transactional gain, net of tax and
other adjustments, from the sale of property held for sale by one of Pentzer
Corporation's (Pentzer) subsidiaries. The increase in earnings was also due to
improved utility results, as a result of increased sales, due primarily to the
growing wholesale electric business and to increased retail sales to both
natural gas and electric customers, particularly during the first quarter of
1996 due to temperatures which were 10% colder than normal.
Utility income available for common stock contributed $0.10 to earnings per
share for the second quarter of 1996 compared to $0.19 in the second quarter of
1995. Non-utility income available for common stock contributed $0.02 to
earnings per share for the second quarter of 1996 compared to $0.04 in the same
period in 1995. Utility income available for common stock contributed $0.60 to
earnings per share for the first six months of 1996 compared to $0.62 in the
first half of 1995. Non-utility income available for common stock contributed
$0.23 to earnings per share for the first six months of 1996 compared to $0.09
in the same period in 1995.
UTILITY OPERATIONS
OPERATING REVENUES
Electric operating revenues increased $29.0 million in the second quarter of
1996 over 1995. Wholesale revenues totaled $46.2 million in the second quarter
of 1996, an increase of $26.2 million over 1995, as a result of new firm
wholesale contracts and increased spot market sales, partly the result of
improved streamflow conditions which led to the increased availability of
hydroelectric generation in the region. Hydroelectric generation was 128% of
normal, due to streamflows which were 125% of normal during the second quarter
of 1996. Wholesale kWh sales were more than three times greater in the second
quarter of 1996 as compared to 1995, which offset the decline of 37% in average
prices in the second quarter of 1996. Residential revenues rose by $0.7 million
in the second quarter of 1996 due partially to weather that was 11% colder than
normal during the second quarter of 1996,
14
15
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
compared to 4% warmer than normal in the second quarter of 1995 and customer
growth. Commercial and industrial revenues increased by a combined $1.0 million
in the second quarter of 1996 compared to the same period in 1995 due to
customer growth and increased industrial usage.
Electric operating revenues increased $59.0 million in the first six months of
1996 over 1995. Wholesale revenues totaled $90.2 million in the first six months
of 1996, an increase of $49.8 million from the first half of 1995, as a result
of new firm wholesale contracts and increased spot market sales, partly due to
improved streamflow conditions which led to the increased availability of
hydroelectric generation in the region. Hydroelectric generation was 140% of
normal, due to streamflows which were 145% of normal during the first six months
of 1996. Wholesale kWh sales during the first half of 1996 were nearly triple
the amount during the same period in 1995, which more than offset the decline of
36% in average prices during 1996. Residential and commercial revenues rose by a
combined $8.0 million in the first six months of 1996 due to colder than normal
weather, primarily during the first quarter of 1996, which resulted in increased
customer usage, and a 2.7% growth in residential and commercial customers.
Total natural gas revenues decreased by $6.9 million in the second quarter of
1996 compared to the same period in 1995, primarily due to a $3.5 million
decrease in non-retail sales and decreases in natural gas prices. Natural gas
trackers effective in Washington, Idaho and Oregon during December 1995
authorized rate decreases of 13.58%, 16.68% and 5.82%, respectively, which led
to the decline in revenues in the second quarter of 1996 as compared to 1995.
The decrease in revenues from non-retail sales was offset by like decreases in
purchased gas expense. The number of total natural gas customers increased
approximately 5% in the second quarter of 1996 as compared to 1995.
Total natural gas revenues decreased by $3.9 million in the first six months of
1996 compared to the same period in 1995, primarily due to a $1.8 million
decrease in non-retail sales and the price decreases mentioned above. These
decreases were partially offset by increased usage from residential and
commercial customers, primarily during the first quarter of 1996 due to colder
than normal weather.
OPERATING EXPENSES
Total operating expenses increased by $31.8 million for electric operations and
decreased by $4.3 million for natural gas operations during the second quarter
of 1996 compared to 1995. For the first six months of 1996, total operating
expenses increased by $58.8 million for electric operations and decreased by
$2.3 million for natural gas operations from 1995.
Commitments under new firm wholesale contracts and increased spot market sales
required the Company to purchase energy from other sources and resulted in a
$12.0 million increase in electric purchased power costs during the second
quarter of 1996. New firm wholesale contracts and increased spot market sales,
combined with increased electric retail sales as a result of colder than normal
temperatures during the first quarter of 1996, caused a $27.6 million increase
in electric purchased power costs during the first six months of 1996 as
compared to 1995.
Fuel costs increased $3.4 million in the second quarter of 1996 compared to 1995
as a result of higher generation at thermal plants during 1996. The increase
in generation from 1995 to 1996 was primarily the result of increased wholesale
sales in 1996. In addition, the thermal plants were not utilized for extended
periods of time in the second quarter of 1995 due to economic dispatch of the
plants as a result of increased hydroelectric generation. Fuel costs for the
first six months of 1996 were $2.9 million higher in 1996 compared to 1995.
Purchased gas costs decreased by $6.6 million during the second quarter of 1996
and $6.7 million year-to-date primarily as a result of the decrease in
non-retail and industrial sales during both periods and lower natural gas
prices. The year-to-date decrease in purchased gas costs was offset by increased
purchased gas costs during the first quarter of 1996 due to increased
residential and commercial sales due to colder than normal weather during that
period.
Other operating and maintenance exenses increased by $3.5 million, or 19%, for
electric operations and $0.4 million, or 11%, for natural gas operations during
the second quarter of 1996. The increased electric expenses were the result of a
$2.0 million increase in the Idaho Power Cost Adjustment (PCA) and a $0.5
million increase in transmission expenses due to the increased energy the
Company purchased from other sources, offset by decreased maintenance expenses
at the thermal plants. Other operating and maintenance expenses increased by
$8.5 million, or 24%, for electric operations and $1.1 million, or 15%, for
natural gas operations during the first six months of 1996. The increased
electric expenses were the result of a $3.9 million increase in the Idaho PCA, a
$0.6 million increase in lease payments associated with the Rathdrum combustion
turbine, as lease payments did
15
16
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
not begin until February of 1995, and a $0.4 million increase in transmission
expenses due to the increased energy the Company purchased from other sources.
These increases were partially offset by decreased thermal plant expenses,
primarily during the first quarter of 1996 as thermal units were not utilized
much due to the availability of hydroelectric power. Both electric and natural
gas operations were affected by increased expenses related to amortization of
the Demand Side Management programs and increases in uncollectible accounts and
other expenses related to customer services.
Merger-related transaction and transition costs totaled $14.0 million and $15.5
million, respectively, for the second quarter and six months of 1996. These
costs were allocated to both electric and natural gas operations.
Administrative and general expenses increased by $1.8 million in the second
quarter of 1996, primarily due to increases in labor-related costs and
development of a financial data system. Administrative and general expenses
increased by $4.7 million in the first six months of 1996 primarily due to a
$1.6 million write-off of regulatory deferrals of pension expenses, increases in
labor-related costs and development of a financial data system.
Taxes other than income increased by $1.3 million, or 14%, for electric
operations during the second quarter of 1996 primarily due to increased accruals
for property taxes, based on higher assessed values of property, and increased
generation taxes in Idaho and Montana due to improved streamflows and higher
hydroelectric generation.
Income taxes decreased by $0.9 million and $2.1 million for electric and natural
gas operations, respectively, in the second quarter of 1996 compared to 1995, as
a result of expensing the merger-related costs. Income taxes on electric
operations increased by $1.9 million in the first six months of 1996 compared to
1995, as a result of increased electric operating income year-to-date. Income
taxes on natural gas operations decreased by $1.7 million in the first half of
1996 compared to 1995, as a result of decreased natural gas operating income
year-to-date.
NON-UTILITY OPERATIONS
Non-utility operations include the results of Pentzer and six other subsidiaries
directly owned by the Company (WWP direct subsidiaries). Pentzer's business
strategy is to acquire controlling interests 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 either to the
public or to strategic buyers when it becomes most advantageous in meeting
Pentzer's return on invested capital objectives. Pentzer's goal is to produce
financial returns for the Company's shareholders that, over the long-term,
should be higher than that of the utility operations. 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.
Non-utility operating revenues and expenses increased by $14.9 million and $16.2
million, respectively, in the second quarter of 1996 over the previous year,
primarily as a result of Pentzer's acquisitions. Non-utility operating revenues
and expenses increased by $31.9 million and $32.5 million, respectively, in the
first six months of 1996 over the previous year, also as a result of Pentzer's
acquisitions.
Pentzer's earnings for the second quarter of 1996 were lower than 1995 by $0.9
million primarily due to reduced earnings from Pentzer Development Corporation
as a result of the sale of Spokane Industrial Park earlier in the year. WWP
direct subsidiaries recorded net operating losses of $0.4 million during the
second quarter of 1996 due to start-up costs from several of the subsidiaries.
Four of these six subsidiaries were not operating during 1995. Total income
available for common stock from non-utility operations decreased by 56% to $1.1
million during the second quarter of 1996.
Pentzer's earnings for the first six months of 1996 were greater than 1995 by
$8.4 million primarily due to the impact of a transactional gain of $10.8
million, net of tax and other adjustments, from the sale of Spokane Industrial
Park in the first quarter of 1996. Transactional gains in the first quarter of
1995 were $1.3 million, net of tax, from the sale of a portion of Itron stock
owned by Pentzer. WWP direct subsidiaries recorded net operating losses of $0.5
million during the first six months of 1996 due to start-up costs from several
of the subsidiaries. Total income available for common stock from non-utility
operations increased to $12.8 million during the first six months of 1996
compared to $4.9 million in the same period in 1995.
16
17
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
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 1996 increased by over $35.6 million from the same period in 1995
primarily due to decreases in various working capital components, such as
receivables, materials and supplies, fuel stock and natural gas stored and
prepayments on power contracts, partially offset by a decrease in payables, and
a decrease in power and natural gas cost deferrals. See the Consolidated
Statements of Cash Flows for additional details.
Investing Activities Cash used in investing activities increased by more than
$28.7 million in the first six months of 1996, when compared to the same period
in 1995, primarily due to the establishment of trusts for pension benefits and
reclamation costs and the net effect on cash flows of transactions related to
the sale of property by Pentzer. A portion of the purchase price resulted in the
receipt of a note receivable. Investing activities also increased as a result of
the purchase of a new Pentzer subsidiary and the Company's purchase of common
stock in new WWP direct subsidiaries. See the Consolidated Statements of Cash
Flows for additional information.
Financing Activities Cash used in financing activities increased by
approximately $7.7 million in the first six months of 1996 when compared to the
same period in 1995. Bank borrowings increased by $1.5 million in the first half
of 1996. During the second quarter of 1996, $15 million of Unsecured Medium-Term
Notes matured and $20 million of Preferred Stock Series I was redeemed,
primarily funded by increased cash generated by operating activities during the
first quarter of 1996. The only securities issued in the first six months of
1996 were approximately 12,000 shares of common stock for $0.2 million in
proceeds from the Company's Dividend Reinvestment Plan. The Company is now
purchasing shares in the open market to fulfill the requirements of the Dividend
Reinvestment and employee benefit plans.
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, 1996, $31.0 million was outstanding under the other borrowing
arrangements with banks.
During the 1996-1998 period, utility capital expenditures are expected to be
$237 million, and $90 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 95%
of the funds needed for its capital expenditure program. Minimal amounts of
external financing will be required to fund maturing long-term debt, preferred
stock sinking fund requirements and the remaining portion of capital
expenditures. These estimates of capital expenditures are subject to continuing
review and adjustment. Actual capital expenditures may vary from these estimates
due to factors such as changes in business conditions, construction schedules
and environmental requirements.
NON-UTILITY
The non-utility operations have $44 million in borrowing arrangements ($34.7
million outstanding as of June 30, 1996) to fund corporate requirements on an
interim basis. At June 30, 1996, the non-utility operations had $23.7 million in
cash and marketable securities with $46.2 million in long-term debt outstanding.
The 1996-1998 non-utility capital expenditures are expected to be $6 million,
and $21 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.
These estimates of capital expenditures are subject to continuing review and
adjustment. Actual capital expenditures may vary from these
17
18
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
estimates due to factors such as changes in business conditions, acquisitions or
sales of businesses and other transactions.
TOTAL COMPANY
The Company's total common equity increased by $8.5 million during the first six
months of 1996 to $725.6 million. The increase was primarily due to a $11.8
million increase in retained earnings, partially offset by a $3.8 million
decrease in unrealized investment gains from Pentzer's investment in Itron and
other marketable securities. The Company's consolidated capital structure at
June 30, 1996, was 47% debt, 7% preferred stock and 46% common equity as
compared to 46% debt, 9% preferred stock and 45% common equity at year-end 1995.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1996 Annual Meeting of Shareholders of the Company was held on May 13, 1996.
Two matters were voted upon at the meeting: (1) the re-election of directors
with expiring terms and (2) the approval of the Non-Employee Director Stock
Plan. There were 55,960,360 shares of Common Stock issued and outstanding as of
March 21, 1996, the proxy record date, with 47,902,930 shares represented at
said meeting. The details of the voting are shown below:
Against
For or Withheld
---------- -----------
(1) Re-election of Directors
Eugene W. Meyer 46,660,981 1,241,949
Paul A. Redmond 46,619,375 1,283,555
(2) Approval of the Non-Employee
Director Stock Plan 41,206,756 6,696,174
ITEM 5. OTHER INFORMATION.
REGULATORY PROCEEDINGS.
Direct Access Tariff On May 6, 1996, the Company filed with the Washington
Utilities and Transportation Commission (WUTC) and the Idaho Public Utilities
Commission (IPUC) an experimental Direct Access and Delivery Service (DADS)
tariff that would allow eligible customers to choose their supplier to serve a
portion of their electric load. Eligible customers would include 30 of the
Company's largest customers in the two states. These customers' total load
represents about 112 average megawatts (aMw), or 15 percent of the Company's
total electric retail load. Under the proposed DADS tariff, up to one-third of
this load, or 37 aMw, could be purchased from an alternative energy supplier.
The balance of their electric load would continue to be served by the Company
and the Company would provide distribution and transmission service at a charge
for all energy delivered. This trial tariff would be effective from September 1,
1996 through August 31, 1998. The proposed tariff would not affect the rates for
other customer classes during or after the experimental period. The Company
intends to absorb any margin losses associated with loads served on the DADS
tariff, but it is not expected to have a material impact on the financial
condition or results of operations of the Company. The WUTC approved the
tariff in June, effective September 1, 1996; the IPUC has not yet approved the
tariff pending further review.
PCA Tariff In late May, the Company filed for tariff revisions with the IPUC
to reflect the expiration of a Power Cost Adjustment (PCA) surcharge and the
implementation of a proposed PCA rebate. The surcharge went into effect on
September 1, 1995 and is set to expire on August 31, 1996. The rate rebate was
approved by the IPUC, effective September 1, 1996 through August 31, 1997. The
combined effect of the surcharge expiration and rebate implementation will
provide Idaho residential customers an overall electric rate decrease of 4.77%.
18
19
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
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,
1996 1995
-------- ------------
Ratio of Earnings to Fixed Charges 3.38 (x) 3.22 (x)
Ratio of Earnings to Fixed Charges and
Preferred Dividend Requirements 2.76 (x) 2.61 (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 13, 1996.
12 Computation of ratio of earnings to fixed charges and
preferred dividend requirements.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
Dated June 28, 1996, regarding the termination of the Merger
Agreement between the Company, Sierra Pacific Resources, Sierra Pacific Power
Company and Altus Corporation.
19
20
- --------------------------------------------------------------------------------
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
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 14, 1996
------------------------------
J. E. Eliassen
Vice President - Finance and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
20