UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[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
-------------------------------------------------
[ ] 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 1-11505
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MIDAMERICAN ENERGY COMPANY
_______________________________________________________________________________
(Exact name of registrant as specified in its charter)
IOWA 42-1425214
----------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
666 Grand Ave., P.O. Box 9244, Des Moines, Iowa 50306-9244
----------------------------------------------- -------------------
(Address of principal executive offices) (Zip-Code)
Registrant's telephone number, including area code 515-242-4300
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X* No
----- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, without par value 100,751,877
-------------------------------- ------------------------------------
(class) (outstanding at July 1, 1995)
* MidAmerican Energy Company ("MidAmerican") is the successor by merger of
Midwest Resources Inc. ("Midwest Resources"), Midwest Power Systems Inc.
("Midwest Power") and Iowa-Illinois Gas and Electric Company ("Iowa-
Illinois") with and into MidAmerican. The effective date of the merger was
July 1, 1995, and prior to such effective date, MidAmerican had no assets
or operations. Prior to such effective date, each of Iowa-Illinois, Midwest
Resources and Midwest Power was subject to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
and accordingly filed in a timely manner all reports required to be filed
pursuant to Sections 13 or 15(d) of the Exchange Act during the preceding
12 months.
MIDAMERICAN ENERGY COMPANY
INDEX
Page Number
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PART I. FINANCIAL INFORMATION:
Consolidated Statements of Income for the Three
and Six Months Ended June 30, 1995 and 1994 3
Consolidated Balance Sheets as of June 30, 1995
and 1994 and December 31, 1994 4
Consolidated Statements of Cash Flows for the Three
and Six Months Ended June 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 19
-2-
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
------------------------ -----------------------
1995 1994 1995 1994
--------- --------- ---------- ----------
OPERATING REVENUES
Electric $ 263,132 $ 250,731 $ 509,363 $ 496,614
Gas 75,475 75,995 247,827 302,483
--------- --------- --------- ---------
Total 338,607 326,726 757,190 799,097
--------- --------- --------- ---------
OPERATING EXPENSES
Cost of fuel, energy and capacity 58,018 49,947 112,068 106,255
Cost of gas sold 42,360 46,307 150,931 208,383
Other operations 94,685 90,183 184,755 174,818
Maintenance 21,904 25,018 43,196 48,409
Depreciation and amortization 39,290 38,507 78,209 76,738
Income taxes 12,317 13,107 34,714 37,326
Property and other taxes 25,253 22,506 52,236 45,733
--------- --------- --------- ---------
Total 293,827 285,575 656,109 697,662
--------- --------- --------- ---------
OPERATING INCOME 44,780 41,151 101,081 101,435
--------- --------- --------- ---------
OTHER INCOME
Subsidiaries
Revenues 32,812 40,654 75,427 96,853
Other income 14,489 8,672 21,569 21,446
Expenses, including interest and
provision for income taxes (42,507) (46,641) (91,157) (110,489)
--------- --------- --------- ---------
Net income 4,794 2,685 5,839 7,810
Miscellaneous 354 (299) 67 286
--------- --------- --------- ---------
Total 5,148 2,386 5,906 8,096
--------- --------- --------- ---------
INCOME BEFORE UTILITY INTEREST CHARGES 49,928 43,537 106,987 109,531
--------- --------- --------- ---------
UTILITY INTEREST CHARGES
Interest on long-term debt 20,705 18,226 40,111 36,361
Other interest charges 3,909 1,495 5,213 2,604
Allowance for borrowed funds (1,360) (931) (2,588) (1,649)
--------- --------- --------- ---------
Total 23,254 18,790 42,736 37,316
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 26,674 24,747 64,251 72,215
--------- --------- --------- ---------
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS (net of income taxes) 516 (603) 516 (1,362)
--------- --------- --------- ---------
NET INCOME 27,190 24,144 64,767 70,853
PREFERRED AND PREFERENCE DIVIDENDS 2,282 2,573 4,563 5,146
--------- --------- --------- ---------
EARNINGS ON COMMON STOCK $ 24,908 $ 21,571 $ 60,204 $ 65,707
--------- --------- --------- ---------
--------- --------- --------- ---------
AVERAGE COMMON SHARES OUTSTANDING 100,377 98,219 100,101 98,031
--------- --------- --------- ---------
--------- --------- --------- ---------
EARNINGS PER COMMON SHARE
Continuing operations $ 0.24 $ 0.23 $ 0.59 $ 0.68
Discontinued operations 0.01 (0.01) 0.01 (0.01)
--------- --------- --------- ---------
Earnings per average common share $ 0.25 $ 0.22 $ 0.60 $ 0.67
--------- --------- --------- ---------
--------- --------- --------- ---------
DIVIDENDS DECLARED PER SHARE $ 0.29 $ 0.29 $ 0.58 $ 0.58
--------- --------- --------- ---------
--------- --------- --------- ---------
The accompanying notes are an integral part of these statements.
-3-
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
AS OF
-------------------------------------------
JUNE 30 DECEMBER 31
--------------------------- -------------
1995 1994 1994
----------- ----------- -------------
(Unaudited)
ASSETS
Utility Plant
Electric $ 3,842,667 $ 3,726,419 $ 3,765,004
Gas 680,463 641,487 663,792
----------- ----------- -----------
Gross plant 4,523,130 4,367,906 4,428,796
Less accumulated depreciation and amortization 1,955,601 1,850,693 1,885,870
----------- ----------- -----------
Utility plant, net 2,567,529 2,517,213 2,542,926
Construction work in progress 75,650 84,185 101,252
----------- ----------- -----------
Total 2,643,179 2,601,398 2,644,178
----------- ----------- -----------
POWER PURCHASE CONTRACT 222,163 244,749 221,998
----------- ----------- -----------
INVESTMENT IN DISCONTINUED OPERATIONS - 21,974 15,249
----------- ----------- -----------
CURRENT ASSETS
Cash and cash equivalents 35,705 26,667 33,778
Receivables, less reserves of $2,404, $4,193
and $2,099, respectively 153,477 164,219 204,554
Inventories 95,181 84,112 92,248
Other 24,270 24,264 27,383
----------- ----------- -----------
Total 308,633 299,262 357,963
----------- ----------- -----------
INVESTMENTS 790,408 788,382 752,428
----------- ----------- -----------
OTHER ASSETS 409,176 374,774 423,958
----------- ----------- -----------
TOTAL ASSETS $ 4,373,559 $ 4,330,539 $ 4,415,774
----------- ----------- -----------
----------- ----------- -----------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity $ 1,223,826 $ 1,199,594 $ 1,204,112
Nonredeemable preferred shares 89,955 109,810 89,955
Redeemable preference shares 50,000 50,000 50,000
Long-term debt (excluding current portion) 1,398,539 1,373,845 1,398,255
----------- ----------- -----------
Total 2,762,320 2,733,249 2,742,322
----------- ----------- -----------
CURRENT LIABILITIES
Notes payable 102,300 116,672 124,500
Current portion oflong-term debt and
power purchased contract 84,608 78,563 84,952
Accounts payable 78,213 81,559 110,175
Taxes accrued 98,274 122,880 91,653
Interest accrued 30,925 30,865 30,659
Other 51,638 47,801 54,473
----------- ----------- -----------
Total 445,958 478,340 496,412
----------- ----------- -----------
OTHER LIABILITIES
Power purchase contract 125,729 140,655 125,729
Deferred income taxes 725,305 673,477 725,665
Investment tax credit 98,272 104,114 100,871
Other 215,975 200,704 224,775
----------- ----------- -----------
Total 1,165,281 1,118,950 1,177,040
----------- ----------- -----------
TOTAL CAPITALIZATION AND LIABILITIES $ 4,373,559 $ 4,330,539 $ 4,415,774
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are an integral part of these statements.
-4-
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
--------------------- -----------------------
1995 1994 1995 1994
--------- --------- ---------- ----------
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 27,190 $ 24,144 $ 64,767 $ 70,853
Adjustments to reconcile net income to net cash provided:
Depreciation, depletion and amortization 45,647 44,578 91,064 88,659
Amortization of Cooper Nuclear Station capital
improvement advances 2,493 2,755 4,987 5,510
Amortization of Quad-Cities Nuclear Power Station fuel 1,552 1,438 3,654 3,651
Net increase in deferred income taxes and investment
tax credit 9,610 3,541 615 1,038
Non-cash change in deferred assets 3,670 1,735 7,590 3,474
Loss (earnings) from equity method investments 33 (856) 318 (3,409)
Capitalized cost of real estate sold 170 1,126 635 1,935
Loss (income) from discontinued operations (516) 603 (516) 1,362
Gain on sale of assets and long-term investments (8,892) (1,736) (9,712) (2,264)
Cash flows resulting from changes in working capital,
net of effects from discontinued operations (23,035) (15,075) 23,347 38,366
Other (3,949) (69) 5,418 11,683
--------- --------- --------- ---------
Net cash provided 53,973 62,184 192,167 220,858
--------- --------- --------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures (39,177) (49,391) (79,789) (81,480)
Cooper Nuclear Station capital improvement advances (2,932) (1,767) (5,729) (3,519)
Deferred energy efficiency expenditures (5,473) (6,006) (10,862) (11,098)
Quad-Cities Nuclear Power Station fuel expenditures (15) (3,090) (15) (6,292)
Quad-Cities Nuclear Power Station decommissioning trust fund (2,159) (2,286) (4,360) (4,472)
Nonregulated capital expenditures (23,214) (20,965) (35,783) (37,195)
Purchase of assets and long-term investments (41,707) (23,108) (55,344) (64,980)
Proceeds from sale of assets and long-term investments 22,468 22,571 60,671 58,766
Other investing activities, net 1,274 932 11,036 3,921
--------- --------- --------- ---------
Net cash used (90,935) (83,110) (120,175) (146,349)
--------- --------- --------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (31,544) (31,208) (62,943) (62,368)
Long-term debt proceeds, net of issuance cost 9,500 6,500 49,054 34,958
Retirement of long-term debt, net of reacquisition cost (445) (675) (49,063) (1,020)
Issuance of common shares 7,454 8,686 15,087 12,662
Net increase (decrease) in notes payable 32,700 41,720 (22,200) (56,363)
--------- --------- --------- ---------
Net cash provided (used) 17,665 25,023 (70,065) (72,131)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (19,297) 4,097 1,927 2,378
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 55,002 22,570 33,778 24,289
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 35,705 $ 26,667 $ 35,705 $ 26,667
--------- --------- --------- ---------
--------- --------- --------- ---------
ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 22,741 $ 14,359 $ 55,911 $ 50,971
--------- --------- --------- ---------
--------- --------- --------- ---------
Income taxes paid (benefits received) $ 32,805 $ 20,473 $ 36,760 $ 20,449
--------- --------- --------- ---------
--------- --------- --------- ---------
The accompanying notes are an integral part of these statements.
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A) GENERAL:
The consolidated financial statements included herein have been prepared by
MidAmerican Energy Company (Company or MidAmerican), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations. In the
opinion of the Company, all adjustments have been made to present fairly the
financial position, the results of operations and the changes in cash flows
for the periods presented. Although the Company believes that the
disclosures are adequate to make the information presented not misleading, it
is suggested that these financial statements be read in conjunction with the
supplemental financial statements and the notes thereto included in the
Company's Form 8-K dated July 1, 1995.
On July 1, 1995, Iowa-Illinois Gas and Electric Company (Iowa-Illinois or
IWG) and Midwest Resources Inc. (Resources or MWR) and Midwest Power Systems
Inc. (MPS) merged with and into the Company. The merger was accounted for as
a pooling of interests. MidAmerican is structured as a utility company with
two wholly-owned non-regulated subsidiaries: InterCoast Energy Company
(InterCoast) and Midwest Capital Group, Inc. (MCG)
MidAmerican issued its own stock to the shareholders of MWR and IWG. MWR's
common shareholders received one share of MidAmerican common stock for each
MWR share held and IWG's common shareholders received 1.47 shares of
MidAmerican common stock for each IWG share held. Effective with the merger,
each share of MPS preferred stock and each share of IWG preference stock was
each converted into one share of MidAmerican preferred stock.
Utility operating revenues, income from continuing operations and net
income for the three and six months ended June 30, 1995, and 1994, were as
follows (millions):
Iowa-Illinois Resources MidAmerican
------------- --------- -----------
1995 1994 1995 1994 1995 1994
-------- -------- -------- -------- --------- --------
Three months ended
Utility operating revenues $ 117.9 $ 114.4 $ 220.7* $ 212.3* $ 338.6 $ 326.7
Income from continuing
operations 13.6 14.2 13.1 10.5 26.7 24.7
Net income 13.6 14.2 13.6 9.9 27.2 24.1
Six months ended
Utility operating revenues $ 270.2 $ 299.3 $ 487.0* $ 499.8* $ 757.2 $ 799.1
Income from continuing
operations 27.1 31.3 37.2 40.9 64.3 72.2
Net income 27.1 31.3 37.7 39.6 64.8 70.9
<FN>
* Resources operating revenues have been reclassified to reflect only utility
revenues as operating revenues consistent with MidAmerican's presentation.
-6-
B) ENVIRONMENTAL MATTERS:
The United States Environmental Protection Agency (EPA) and the Iowa
Department of Natural Resources (IDNR) have determined that contaminated
wastes remaining at certain decommissioned manufactured gas plant (MGP)
facilities may pose a threat to the public health or the environment if such
contaminants are in sufficient quantities and at such concentrations as to
warrant remedial action.
The Company is investigating 26 properties which were, at one time, sites
of gas manufacturing plants in which it may be a potentially responsible
party (PRP). The purpose of these investigations is to determine whether
waste materials are present, whether such materials constitute an
environmental or health risk, and whether the Company has any responsibility
for remedial action. One site is located in Illinois, one site is located in
South Dakota and the remaining sites are located in Iowa. With regard to the
Illinois property, the Company has signed a working agreement with the
Illinois Environmental Protection Agency to perform further investigation to
determine whether waste materials are present and, if so, whether such
materials constitute an environmental or health risk. With regard to the
South Dakota site, no agreement or consent order has been negotiated to
perform any site investigations or remediation. With regard to the Iowa
sites, the Company and other PRPs have entered into a Consent Decree with the
EPA for remediation at one site, and the Company has entered into an
Administrative Order to conduct a Remedial Investigation/Feasibility Study at
a second site. The Company and IDNR have entered into Consent Orders to
investigate and conduct response action at four additional sites. In
addition, preliminary site investigations have been completed at seven sites
and are in progress at five sites at which technical assistance for the sites
has been requested from the IDNR. The outcome of the investigations and
environmental agency directives and guidance will be important factors with
respect to any removal or remedial action.
The Company is continuing to evaluate several sites to determine the
future liability, if any, for conducting site investigations or other site
activity.
The Company's present estimate of probable remediation costs for the sites
discussed above is $23.2 million. This estimate has been recorded as a
liability and a regulatory asset for future recovery through the regulatory
process. The Illinois Commerce Commission has approved the use of a rider
which permits recovery of the costs of litigation, investigation and
remediation relating to former MGP sites. The Company's rates in Iowa
provide for an annual recovery of MGP costs. The Company is pursuing
recovery of the remediation costs from other PRPs and its insurance carriers.
The estimate of probable remediation costs is established on a site
specific basis. The costs are accumulated in a three-step process. First, a
determination is made as to whether the Company has potential legal liability
for the site and information exists to indicate that contaminated wastes
remain at the site. If it does, the costs of performing a preliminary
investigation are accrued. Once the investigation is completed and it is
determined remedial action is required, the best estimate of remediation
costs is accrued. If necessary, the estimate is revised when a consent order
is issued.
-7-
The estimated recorded liabilities for these properties are based upon
preliminary data. The estimate could change materially based on facts and
circumstances derived from site investigations, changes in required remedial
action and changes in technology relating to remedial alternatives. In
addition, insurance recoveries for some or all of the costs may be possible,
but the liabilities recorded have not been reduced by any estimate of such
recoveries.
Although the timing of incurred costs, recoveries and the inclusion of
provision for such costs in rates may affect the results of operations in
individual periods, management believes that the outcome of these issues will
not have a material adverse effect on the Company's financial position or
results of operations.
C) DISCONTINUED OPERATIONS:
All construction activities of the Company's construction subsidiaries
were reflected as discontinued operations by the Company at September 30,
1994. A subsidiary that constructs generating facilities and essentially all
of the assets of a subsidiary that constructs electrical distribution and
transmission systems have been sold as of June 30, 1995.
The Company still has in effect certain support agreements for the
discontinued construction subsidiaries. MCG has guaranteed performance on an
estimated $95 million joint venture turnkey engineering, procurement and
construction contract for a cogeneration project, and the Company has
provided a support agreement for MCG related to this project. Should the
project not meet certain performance factors, the liquidated damages
provisions of the contract could result in cash payments not exceeding 30% of
the total contract price. MCG has been indemnified for any losses or claims
related to active projects except for a portion of liquidated damages which
may arise associated with certain matters relating to the joint venture
discussed above. MCG has indemnified the purchasers of the construction
subsidiaries for specified losses or claims related to completed projects or
which occurred prior to the date of the sale to a maximum of $5 million on a
combined basis. Management believes that the likelihood of a material
adverse impact to the Company under the liquidated damage provisions of the
construction contracts or material cash payments by the Company under the
support agreements is remote.
Net assets of the construction subsidiaries are separately presented on
the Consolidated Balance Sheets as Investment in Discontinued Operations.
Proceeds received from the disposition of the construction investments
through June 30, 1995, were $4.1 million. Revenues from discontinued
activities, as well as the results of operations and the estimated income
(loss) on the disposal of discontinued operations for the three and six
months ended June 30 are as follows (in thousands):
Three Months Six Months
Ended June 30 Ended June 30
------------------- -------------------
1995 1994 1995 1994
--------- -------- -------- --------
OPERATING REVENUES $ - $ 12,509 $ 6,269 $ 28,231
------ -------- ------- --------
------ -------- ------- --------
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS
Income (loss) from discontinued
operations before income
taxes $ 880 $ (890) $ 880 $ (2,052)
Income tax benefit (expense) (364) 287 (364) 690
------ -------- ------- --------
Total $ 516 $ (603) $ 516 $ (1,362)
------ -------- ------- --------
------ -------- ------- --------
-8-
D) SUBSIDIARY EXPENSE:
Expenses of the subsidiaries include interest expense and income taxes for
the three and six months ended June 30 as follows:
Three Months Six Months
Ended June 30 Ended June 30
------------------- -------------------
1995 1994 1995 1994
--------- -------- -------- --------
Interest Expense $ 8,077 $ 7,756 $ 15,868 $ 15,313
Income Tax Expense (Benefit) $ 771 $ (851) $ (1,358) $ (665)
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
MidAmerican Energy Company (the Company or MidAmerican) is a newly
created, regulated public utility company, incorporated in the State of Iowa.
On July 1, 1995, Iowa-Illinois Gas and Electric Company (IWG), Midwest
Resources Inc. (MWR) and its utility subsidiary, Midwest Power Systems Inc.
(MPS), merged with and into the Company (the Merger). Pursuant to the
Merger, each outstanding share of preferred and preference stock of the
predecessor companies was converted into one share of MidAmerican preferred
stock, no par value. Each outstanding share of common stock of MWR and IWG
was converted into one and 1.47 shares, respectively, of MidAmerican common
stock, no par value.
Management anticipates the Merger will permit the Company to derive
benefits from more efficient and economic utilization of the combined
facilities and resources of its predecessors. Savings are estimated to be in
excess of $500 million over the next 10 years. The Company is in the
process of reorganizing and expects to reduce its work force by approximately
15% from the July 1994 work force levels of its predecessors. This will
result in the reduction of approximately 650 full-time positions. As a
result of attrition and a hiring freeze in place since the announcement of
the Merger, the work force has been reduced by over 200 positions to date.
An incentive retirement program option effective October 1, 1995, has been
accepted by an additional 220 employees. As of June 30, 1995, the Company's
1995 earnings have been reduced approximately four cents per average share
for costs related to work force reduction. It is expected that the remaining
merger-related restructuring costs will be recorded in 1995.
The Company's utility operations (the Utility) consists of two principal
business units: an electric business unit headquartered in Davenport, Iowa,
and a natural gas business unit headquartered in Sioux City, Iowa. The
Company's corporate headquarters, which includes various staff functions, is
in Des Moines, Iowa. InterCoast Energy Company (InterCoast) and Midwest
Capital Group, Inc. (Midwest Capital) are the nonregulated subsidiaries of
the Company. InterCoast conducts various nonregulated activities of the
Company, while Midwest Capital functions as a regional business development
company in the utility service territory.
The merger is being accounted for as a pooling-of-interests, and the
Consolidated Financial Statements included in this Form 10-Q are presented as
if the Merger was consummated as of the beginning of the earliest period
presented. Portions of the following discussion provide information related
to material changes in the Company's financial condition and results of
operations between the periods presented, based on the combined historical
information of the predecessor companies. It is not necessarily indicative
of what would have occurred had the Merger actually been consummated at the
beginning of the earliest period.
Utility retail customers of the Company will continue to be served under
the separate tariffs of MPS and IWG until such time as a merged tariff is
approved by regulators.
-10-
RESULTS OF OPERATIONS
The following table provides a summary of the earnings contribution of
the Company's operations for the three and six months ended periods.
Analysis of Net Income
----------------------
Three Months Six Months
Ended June 30 Ended June 30
------------------ ------------------
1995 1994 1995 1994
-------- -------- ------- --------
Earnings in Millions of Dollars
Utility operations $ 19.6 $ 19.5 $ 53.9 $ 59.3
Nonregulated operations 4.8 2.7 5.8 7.8
Income (loss) from
discontinued operations 0.5 (0.6) 0.5 (1.4)
------ ------ ------ ------
Consolidated earnings $ 24.9 $ 21.6 $ 60.2 $ 65.7
------ ------ ------ ------
------ ------ ------ ------
Earnings Per Common Share
Utility operations $ 0.19 $ 0.20 $ 0.54 $ 0.60
Nonregulated operations 0.05 0.03 0.05 0.08
Income (loss) from
discontinued operations 0.01 (0.01) 0.01 (0.01)
------ ------ ------ ------
Consolidated Earnings $ 0.25 $ 0.22 $ 0.60 $ 0.67
------ ------ ------ ------
------ ------ ------ ------
Earnings for the 1995 second quarter and year-to-date periods were reduced
four cents per average share due to expenses recorded for incentive
retirement and other work force reduction programs. For the second quarter
of 1995 compared to the second quarter of 1994, improved electric and gas
gross margins offset the impact of the work force reduction costs. For the
comparative year-to-date periods, the 1994 period includes approximately two
cents per average share related to the capitalization of previously expensed
energy efficiency costs.
OPERATING REVENUES
ELECTRIC:
Electric operating revenues increased $12.4 million for the second
quarter of 1995 compared to the second quarter of 1994 and $12.7 million for
the six months ended June 30, 1995, compared to the corresponding period in
1994 due to an increase in sales for resale and an increase in certain retail
rates. The availability of Cooper Nuclear Station (Cooper, a nuclear
facility from which the Company purchases 50% of the energy output) in 1995
increased the amount of energy available for sales for resale. Coal delivery
uncertainties in 1994 also limited the Company's sales for resale activity in
the 1994 period. A decrease in retail sales in the 1995 periods, in part due
to milder weather than in the 1994 periods, partially offset the increases to
revenues.
In October 1994 and January 1995, the Company implemented rate increases
for Iowa energy efficiency cost recovery filings which allow an increase in
electric revenues of $31.7 million over a four-year period. In connection
with an Iowa electric rate filing, the Company
-11-
began collecting in January 1995 interim rates, subject to refund,
representing an increase of $13.6 million in annual electric revenues. On
July 10, 1995, the Iowa Utilities Board (IUB) approved a final rate increase
in the proceeding, representing an increase of $20.3 million in annual
electric revenues. The final rates will be effective in August. Also
beginning in January 1995, rate riders included in Illinois customer billings
for certain costs related to former manufactured gas plant sites and costs of
nuclear decommissioning each decreased $0.5 million annually. The decrease
in revenues from rate riders for manufactured gas plant site costs and
nuclear decommissioning does not affect net income due to corresponding
decreases in cost accruals. A majority of the increase in revenues due to
energy efficiency filings also does not affect net income due to an increase
in operating expenses as a result of the amortization of related deferred
costs.
Interim rates for the electric rate filing mentioned above include a
component for the recovery of other postretirement employee benefit (OPEB)
costs on an accrual basis, which is significantly greater than the
pay-as-you-go basis previously used. At the time interim rates were
implemented, the Company began amortizing the deferred portion of these costs
and expensing the current accruals. As a result, net income was minimally
affected by the increase in revenues from this component.
GAS:
Gas operating revenues were relatively unchanged for the second quarter of
1995 compared to the second quarter of 1994. An increase in sales and in
rates had a positive impact on gas revenues while a decrease in the amount of
purchased gas costs recovered through purchased gas adjustment clauses (PGAs)
reduced revenues. Cooler temperatures during the 1995 second quarter
contributed to the increase in sales. A lower cost of gas per unit was the
cause of the decrease in revenues collected through the PGAs. Variations in
revenues due to PGAs reflect corresponding changes in the cost of gas per
unit sold and, thus, do not affect gross margin or net income.
Gas operating revenues decreased $54.7 million for the six months ended
June 30, 1995, compared to the first six months of 1994. Gas operating
revenues in the first quarter of 1995 decreased significantly compared to the
first quarter of 1994. A reduction in revenues collected through the PGAs,
due to a lower cost of gas per unit, was the primary cause of the decrease in
revenues. As mentioned above, fluctuations in revenues from PGAs do not
affect gross margin or net income due to the corresponding changes in the
cost of gas. Gas operating revenues were further reduced by a decrease in
sales due to warmer temperatures in the Company's service territory during
the first quarter of 1995.
In January 1995, the Company implemented a rate increase resulting from an
Iowa energy efficiency cost recovery filing which allows an increase in gas
revenues of $6.7 million over a four-year period. In October 1994, the
Company began collecting interim rates for an Iowa gas rate filing
representing an increase of $8.2 million in annual gas revenues. An Order On
Rehearing was issued by the IUB on June 30, 1995, which allows the Company a
final rate increase of $10.6 million in annual gas revenues. The final
rates were effective August 1, 1995. A portion of the increase in rates
relates to the recovery of OPEB costs on an accrual basis, as discussed
above. Increases in revenues due to OPEB and energy efficiency costs have a
minimal impact on net income due to corresponding increases in operating
expenses.
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OPERATING EXPENSES
Changes in the cost of electric fuel, energy and capacity (collectively,
Energy Costs) reflect fluctuations in generation levels and mix, fuel cost
and energy and capacity purchases. Energy Costs for the second quarter and
first six months of 1995 increased compared to the comparable periods in 1994
due primarily to the increase in sales for resale. The increase in total
Energy Costs as a result of greater sales of electricity was partially offset
by a decrease in the average Energy Cost per unit. Part of the decrease in
the average Energy Cost per unit was due to the availability of Cooper in
1995.
Cost of gas sold for the 1995 second quarter and six months ended periods
decreased compared to the corresponding 1994 periods due primarily to a
decrease in the average cost of gas per unit sold. For the six months ended
June 30, 1995, the reduction in gas sales also contributed to the decrease.
Other operations and maintenance expenses increased for the second quarter
and first six months of 1995 compared to the 1994 periods. During the
second quarter of 1995, the Company recorded approximately $6 million of
expense related to an incentive retirement program. As discussed above, the
1995 periods include the amortization of deferred energy efficiency and OPEB
costs, as well as OPEB expenses recorded on an accrual basis. In addition,
expenses for the 1994 period were reduced by $3 million due to capitalizing
previously expensed energy efficiency costs to comply with the IUB regulation
of these costs. These increases were partially offset by a reduction in
nuclear operating and maintenance costs. The timing of power plant
maintenance also reduced maintenance expenses for the 1995 periods.
Property and other taxes increased in the 1995 periods compared to the
corresponding 1994 periods due mostly to changes in property assessment
values.
OTHER INCOME
Revenues and expenses for the Company's subsidiaries decreased for the
three and six months ended June 30, 1995, compared to the corresponding
periods in 1994 due to a decrease in the volume and margins on nonregulated
sales of natural gas. Lower gas prices realized on natural gas production
also contributed to the decrease.
The primary cause of the increase in other income of the subsidiaries in
the second quarter of 1995 compared to the second quarter of 1994 was a gain
on the sale of a partnership interest in Tenaska Marketing Ventures, a gas
marketing organization. Also contributing to the increase was a gain on the
sale of MWR Telecom, a telecommunications venture. These two gains
contributed $5.0 million to earnings.
Other income of subsidiaries in the first six months of 1995 decreased
compared to the first six months of 1994. The decrease was due primarily to
gains on the disposition of special-purpose funds in 1994 which were not
duplicated in 1995 and a $1.6 million aftertax gain on the sale of an
investment in a leveraged lease in the first quarter 1994. The decrease from
these items was partially offset by the second quarter gains discussed above.
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UTILITY INTEREST CHARGES
Increased interest on long-term debt in the 1995 periods compared to the
1994 periods was due primarily to the issuance of $60 million of 7.875%
Series of mortgage bonds in November 1994. The increase in other interest
expense for the quarter and six months ended June 30, 1995, compared to the
corresponding 1994 periods, was due primarily to an interest payment to the
Internal Revenue Service associated with amounts under appeal. An increase
in short-term interest rates also contributed to the increase.
DISCONTINUED OPERATIONS
In October 1994, the Company announced its intent to divest its
construction subsidiaries. The sale of certain assets of one of the
subsidiaries was completed in December 1994, and the sale of the other
construction subsidiary was completed in March 1995. Settlement of a
construction receivable in the second quarter of 1995 resulted in the $0.5
million income in the 1995 periods.
PREFERRED AND PREFERENCE DIVIDENDS
The decrease in the preferred and preference dividend requirement in the
second quarter and the first six months of 1995 compared to the corresponding
periods in 1994 was due to the redemption of three series of outstanding
preferred shares in December 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has available to it a variety of sources of liquidity and
capital resources, both internal and external. These resources provide funds
required for current operations, debt retirement, dividends, construction
expenditures and other capital requirements.
For the first six months of 1995, the Company had net cash provided from
operating activities of $192 million and net cash used of $120 million and
$70 million in investing and financing activities, respectively.
INVESTING ACTIVITIES
Utility construction expenditures, including allowance for funds used
during construction (AFUDC), were $80 million for the first six months of
1995. Of the total utility construction expenditures, $54 million were for
electric operations and $26 million were for gas operations. During the
same period, the Company also made capital expenditures totalling $10
million for Cooper capital improvements, Quad-Cities Nuclear Power Station
(Quad-Cities Station) nuclear fuel purchases and the Quad-Cities Station
nuclear decommissioning trust fund. In addition, the Company deferred $11
million of energy efficiency expenditures, of which $7 million was for
electric operations and $4 million was for gas operations.
Based on preliminary reviews, the Company's management anticipates actual
utility capital expenditures for 1995 through 1999 will be less than the
combined forecasts of IWG and MPS. The combined forecast for utility capital
expenditures, including AFUDC but excluding deferred energy efficiency
expenditures, is $213 million for 1995 and $997 million for 1995 through
1999.
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In addition, during the 1995 through 1999 period, the Company expects to
contribute $43 million to an external trust for Quad-Cities Station nuclear
decommissioning.
The Company expects in excess of 90% of utility capital expenditures for
1995 through 1999 will be met with cash generated from utility operations,
net of dividends.
Capital expenditures for nonregulated subsidiaries during 1995 are
estimated to be approximately $69 million, almost all of which relates to
InterCoast.
The cost of InterCoast investments in marketable securities and proceeds
from the sales and maturities of those investments totaled $55 million and
$27 million, respectively, for the six months ended June 30, 1995.
FINANCING ACTIVITIES
As of July 31, 1995, the Utility had bank lines of credit of $250 million
to provide short-term financing for utility operations. The commercial paper
borrowings are backed by the lines of credit. The Utility currently has
authority from the Federal Energy Regulatory Commission (FERC) to issue
short-term debt in the form of commercial paper and bank notes amounting to
$400 million. The Utility also has lines of credit and revolving credit
facilities which are dedicated to provide liquidity for outstanding pollution
control revenue bonds that are periodically remarketed.
The Utility has $237 million of long-term debt maturities and cash
sinking fund requirements for 1995 through 1999, of which $236 million is
after 1996.
The Utility does not currently anticipate issuing additional long-term
debt in 1995 or 1996. As of December 31, 1994, the Utility had the
capability to issue approximately $1 billion of bonds under the current
indentures of MPS and IWG, should the need arise.
During the first six months of 1995, MWR and IWG issued original issue
shares of common stock through certain of their employee stock purchase and
dividend reinvestment plans. On a MidAmerican share basis, 1,065,240 shares
of common stock were issued. The Company has a registration statement on
file with the Securities and Exchange Commission, and has authority from the
FERC and the Illinois Commerce Commission, to issue up to 6,000,000 shares of
MidAmerican common stock through its Shareholder Options Plan.
Subsequent to the consummation of the Merger, the Company made a $55
million equity contribution to InterCoast to continue the financial
separation of utility and nonregulated operations. The equity contribution
was used to extinguish all of Midwest Capital's Senior Notes and its variable
interest rate Notes Payable. The remaining support agreement between the
Utility and Midwest Capital is expected to expire in October 1997 and relates
to a performance guarantee by Midwest Capital of a $95 million joint venture
turnkey engineering, procurement and construction contract for a cogeneration
project. Should the project not meet certain performance factors, the
liquidated damages provisions of the contract could result in cash payments
by the Company not exceeding 30% of the total contract price.
Excluding the debt extinguished as part of the Merger, Midwest Capital's
maturities for long-term debt outstanding at June 30, 1995, are $27 million
for 1995 through 1999, $26 million of which matures in 1996. InterCoast's
aggregate amounts of maturities and cash sinking fund
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requirements for long-term debt outstanding at June 30, 1995, are $64 million
for 1995 and $171 million for the years 1996 through 1999. Amounts due in
1995 are expected to be refinanced with debt instruments and operating cash
flow.
InterCoast has a $110 million unsecured revolving credit facility
agreement, which matures in May 1999. Borrowings under this agreement may be
at a fixed rate, floating rate or competitive bid rate basis. All such
borrowings are without recourse to the Utility. Borrowings at June 30, 1995,
were $36.5 million at a weighted average interest cost of 6.7%.
OPERATING ACTIVITIES
The Utility is subject to the oversight of several utility regulatory
agencies. The operating environment and the recoverability of costs from
utility customers are significantly influenced by the regulation of those
agencies. In the past several years, the utility industry has become
increasingly competitive. The Company believes that, based on factors such
as generating costs and supply arrangements, it is in a good position to
successfully operate in the competitive environment and to take advantage of
the opportunities competition offers. The merger-related cost reductions, a
new transmission tariff, and new marketing strategies, including the use of
nonregulated energy subsidiaries, are all part of the Company's efforts to
continue to enhance its competitive position. Regulatory assets, which
represent prior costs deferred for future recovery, may have increased risk
of recovery. However, until the Company has operated in the new environment
for some time, the nature and extent of its impact on the Company's
operations and profitability cannot be determined.
In 1992, the FERC issued Order No. 636, directing a restructuring by
interstate pipeline companies for their natural gas sales and transportation
services. The Company's Consolidated Balance Sheet as of June 30, 1995,
includes a $50 million noncurrent liability and regulatory asset recorded
for transition costs incurred by interstate natural gas pipelines for their
compliance with Order 636. These costs will be paid to the pipeline
companies over the next several years. The Company may incur other future
billings for transition costs, the amount of which cannot be specified at
this time due to the status of certain supply contracts. However, the
Company does not expect these billings to have a material impact on the cost
of gas. The Company is currently recovering costs related to Order 636 from
its customers.
Electric and gas utilities in Iowa are required to spend 2% and 1.5%,
respectively, of their annual Iowa jurisdictional revenues on energy
efficiency activities. As of June 30, 1995, the Company had approximately
$43 million of energy efficiency costs deferred on its Consolidated Balance
Sheet for which recovery will be sought in future energy efficiency filings.
Approximately $7 million of these costs were incurred for the same programs
that are under appeal in one of the energy efficiency proceedings discussed
below.
In October 1994 and in January 1995, the Company began collecting over a
four-year prospective period $19.7 million and $18.7 million, respectively,
related to prior energy efficiency cost recovery filings. The total $38.4
million being collected includes recovery of deferred program costs,
associated returns and rewards. Of the total amount, $11.7 million is being
collected subject to refund with interest in connection with a pending
appeal. A majority of the increase in revenues is offset by the amortization
of $27.5 million of related deferred costs over the four-year collection
period. In another cost recovery filing, the IUB issued an order on August
7, 1995, approving the collection over a four-year prospective period of
$18.6 million,
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approximately $14 million of which relates to the recovery of deferred
energy efficiency costs. Collection related to this filing began August 8,
1995.
Under a long-term power purchase contract with Nebraska Public Power
District (NPPD), the Company purchases one-half of the output of Cooper.
NPPD took Cooper out of service on May 25, 1994. Pending satisfaction of the
concerns of the Nuclear Regulatory Commission (NRC), Cooper remained out of
service until February 1995. Cooper returned to service in February
following NRC approval to restart. In May 1995, the Company filed a lawsuit
seeking unspecified damages from NPPD related to the 1994-95 Cooper outage.
In June 1995, the NRC removed Cooper from its list of adversely trending
plants. Also in June 1995, the NRC removed the Quad-Cities Station from its
list of adversely trending plants. The Quad-Cities Station had been on the
NRC list of adversely trending plants since January 1994.
The United States Environmental Protection Agency (EPA) and the Iowa
Department of Natural Resources (IDNR) have determined that contaminated
wastes remaining at certain decommissioned manufactured gas plant (MGP)
facilities may pose a threat to the public health or the environment if such
contaminants are in sufficient quantities and at such concentrations as to
warrant remedial action.
The Company is investigating 26 properties which were, at one time, sites
of gas manufacturing plants in which it may be a potentially responsible
party (PRP). The purpose of these investigations is to determine whether
waste materials are present, whether such materials constitute an
environmental or health risk, and whether the Company has any responsibility
for remedial action. One site is located in Illinois, one site is located in
South Dakota and the remaining sites are located in Iowa. With regard to the
Illinois property, the Company has signed a working agreement with the
Illinois Environmental Protection Agency to perform further investigation to
determine whether waste materials are present and, if so, whether such
materials constitute an environmental or health risk. With regard to the
South Dakota site, no agreement or consent order has been negotiated to
perform any site investigations or remediation. With regard to the Iowa
sites, the Company and other PRPs have entered into a Consent Decree with the
EPA for remediation at one site, and the Company has entered into an
Administrative Order to conduct a Remedial Investigation/Feasibility Study at
a second site. The Company and IDNR have entered into Consent Orders to
investigate and conduct response action at four additional sites. In
addition, preliminary site investigations have been completed at seven sites
and are in progress at five sites at which technical assistance for the sites
has been requested from the IDNR. The outcome of the investigations and
environmental agency directives and guidance will be important factors with
respect to any removal or remedial action.
The Company is continuing to evaluate several sites to determine the
future liability, if any, for conducting site investigations or other site
activity.
The Company's present estimate of probable remediation costs for the sites
discussed above is $23.2 million. This estimate has been recorded as a
liability and a regulatory asset for future recovery through the regulatory
process. The Illinois Commerce Commission has approved the use of a rider
which permits recovery of the costs of litigation, investigation and
remediation relating to former MGP sites. The Company's rates in Iowa
provide for an annual recovery of
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MGP costs. The Company is pursuing recovery of the remediation costs from
other PRPs and its insurance carriers.
The estimate of probable remediation costs is established on a site
specific basis. The costs are accumulated in a three-step process. First, a
determination is made as to whether the Company has potential legal liability
for the site and information exists to indicate that contaminated wastes
remain at the site. If it does, the costs of performing a preliminary
investigation are accrued. Once the investigation is completed and it is
determined remedial action is required, the best estimate of remediation
costs is accrued. If necessary, the estimate is revised when a consent order
is issued.
The estimated recorded liabilities for these properties are based upon
preliminary data. The estimate could change materially based on facts and
circumstances derived from site investigations, changes in required remedial
action and changes in technology relating to remedial alternatives. In
addition, insurance recoveries for some or all of the costs may be possible,
but the liabilities recorded have not been reduced by any estimate of such
recoveries.
Although the timing of incurred costs, recoveries and the inclusion of
provision for such costs in rates may affect the results of operations in
individual periods, management believes that the outcome of these issues will
not have a material adverse effect on the Company's financial position or
results of operations.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries have no material legal proceedings except
for the following:
ENVIRONMENTAL MATTERS
For information relating to the Company's Environmental Matters, reference
is made to Part I, Note (B) of Notes to Consolidated Financial Statements.
RATE MATTERS
For information relating to the Company's general rate and energy
efficiency cost recovery filings, reference is made to Part I, Management's
Discussion and Analysis.
COOPER LITIGATION
On May 26, 1995, the Company filed a lawsuit naming Nebraska Public Power
District (NPPD) as defendant. The action is filed in the U.S. District Court
for the Southern District of Iowa and is identified as No. 4-95-CV-70356. The
legal proceeding is based upon a long-term power purchase agreement between
the Company and NPPD, pursuant to which the Company purchases one-half the
output of NPPD's Cooper Nuclear Station (Cooper) and pays one-half the cost
of operating Cooper. NPPD, in turn, is obligated to operate the plant in an
efficient and economical manner and in compliance with the terms of its
operating license issued to it by the Nuclear Regulatory Commission (NRC).
In 1993 and 1994, as a response to NPPD actions, the NRC issued numerous
notices of violations to NPPD; as a result of these violations and other
safety issues identified by the NRC and NPPD, Cooper experienced unplanned
outages and outages were unduly extended. NPPD's failure to meet its
obligations with respect to the operation of Cooper deprived the Company of
the benefits it was entitled to under the power sales contract, causing the
Company to lose profits and incur increased costs of operation, which damages
the Company seeks to collect from NPPD. Similar litigation has been filed
against NPPD by the Lincoln Electric System (LES), a municipal utility
serving the City of Lincoln, Nebraska, and purchasing one-eighth of the
output of Cooper pursuant to a similar power purchase contract. The LES
legal proceeding is pending in Nebraska state court.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBITS FILED HEREWITH
Exhibit 27 - Financial Data Schedule
EXHIBITS INCORPORATED BY REFERENCE
Exhibit 3.1 - Restated Articles of Incorporation of the Company, as
amended (filed as Exhibit 3 to the Company's
Registration Statement on Form 8-B, File No. 1-11505).
Exhibit 3.2 - Restated Bylaws of the Company (filed as Exhibit 4 to
the Company's Registration Statement on Form 8-B, File
No. 1-11505).
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MidAmerican Energy Company
---------------------------------
(Registrant)
Date August 14, 1995 L. E. Cooper
-------------------- ---------------------------------
L. E. Cooper
Group Vice President
Finance and Accounting
(Chief Financial Officer)
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