SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1994
DUKE POWER COMPANY
422 SOUTH CHURCH STREET
CHARLOTTE, NORTH CAROLINA 28242-0001
704-594-0887
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1994 COMMISSION FILE NUMBER 1-4928
DUKE POWER COMPANY
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0205520
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
422 SOUTH CHURCH STREET,
CHARLOTTE, N.C. 28242-0001
(Address of principal executive offices)
(Zip Code)
704-594-0887
Registrant's telephone number, including area code
NO CHANGE
(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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Number of shares of Common Stock, without par value, outstanding at March 31,
1994..........................................................204,859,339 shares
DUKE POWER COMPANY
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Consolidated Statements of Income for the Three Months Ended March 31, 1994 and 1993................................ 2
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1994 and 1993............................ 3
Consolidated Balance Sheets -- March 31, 1994 and December 31, 1993................................................. 4-5
Consolidated Statements of Capitalization -- March 31, 1994 and December 31, 1993................................... 6
Notes to Consolidated Financial Statements.......................................................................... 7-10
Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 11-12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders......................................................... 12
Item 6. Exhibits and Reports on Form 8-K............................................................................ 12
SIGNATURES............................................................................................................ 13
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DUKE POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH
31
1994 1993
ELECTRIC REVENUES (Notes 1 and 2)................................................................. $1,055,194 $1,007,783
ELECTRIC EXPENSES
Operation
Fuel used in electric generation (Note 2).................................................... 169,046 168,171
Net interchange and purchased power (Note 6)................................................. 137,159 124,816
Wages, benefits and materials................................................................ 164,959 163,377
Maintenance of plant facilities................................................................. 96,644 91,345
Depreciation and amortization................................................................... 113,848 127,827
General taxes................................................................................... 60,751 57,597
Income taxes.................................................................................... 105,841 86,128
Total electric expenses.................................................................... 848,248 819,261
Electric operating income............................................................... 206,946 188,522
OTHER INCOME
Allowance for equity funds used during construction............................................. 6,254 3,644
Other, net...................................................................................... 26,891 18,193
Income taxes-other, net......................................................................... (11,036) (5,569)
Income taxes-credit............................................................................. 4,444 4,243
Total other income......................................................................... 26,553 20,511
Income before interest deductions....................................................... 233,499 209,033
INTEREST DEDUCTIONS
Interest on long-term debt...................................................................... 61,014 66,887
Other interest.................................................................................. 2,067 3,018
Allowance for borrowed funds used during construction (credit).................................. (3,199) (2,556)
Total interest deductions.................................................................. 59,882 67,349
NET INCOME........................................................................................ 173,617 141,684
Dividends on preferred and preference stocks.................................................... 12,322 13,386
EARNINGS FOR COMMON STOCK......................................................................... $ 161,295 $ 128,298
COMMON STOCK DATA
Average shares outstanding (thousands).......................................................... 204,859 204,859
Earnings per share.............................................................................. $ 0.79 $ 0.63
Dividends per share............................................................................. $ 0.47 $ 0.45
See notes to consolidated financial statements.
2
DUKE POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................................................ $ 173,617 $ 141,684
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash items
Depreciation and amortization................................................................ 154,014 172,183
Deferred income taxes and investment tax credit, net of amortization......................... 7,611 (21,328)
Allowance for equity funds used during construction.......................................... (6,254) (3,644)
Purchased capacity levelization (Note 6)..................................................... (11,671) 30,855
Other, net (Note 8).......................................................................... (25,736) 9,747
(Increase) Decrease in
Accounts receivable....................................................................... 49,041 (52,372)
Inventory................................................................................. (3,622) 15,855
Prepayments............................................................................... (2,956) (2,789)
Increase (Decrease) in
Accounts payable.......................................................................... (75,778) (128,461)
Taxes accrued............................................................................. 47,452 76,906
Interest accrued and other liabilities.................................................... (29,579) 14,351
Total adjustments............................................................................ 102,522 111,303
Net cash provided by operating activities................................................. 276,139 252,987
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures......................................................................... (157,048) (121,347)
Funding for decommissioning....................................................................... (13,131) (13,131)
Investment in nuclear fuel........................................................................ (17,757) (9,387)
Investments in joint ventures (Note 8)............................................................ 966 (1,127)
Net change in investment securities (Note 1)...................................................... 4,525 (173,673)
Net cash provided by (used in) investing activities....................................... (182,445) (318,665)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of
First and refunding mortgage bonds............................................................. -- 484,454
Preferred Stock................................................................................ -- 47,945
Short-term notes payable, net (Note 3)......................................................... 22,000 (126,000)
Payments for the redemption of
First and refunding mortgage bonds............................................................. -- (184,310)
Preferred stock................................................................................ (1,500) (50,694)
Dividends paid................................................................................. (109,038) (104,324)
Other (Note 8)................................................................................. (6) 2,752
Net cash provided by (used in) financing activities.......................................... (88,544) 69,823
Net increase (decrease) in cash................................................................... 5,150 4,145
Cash at beginning of period....................................................................... 15,576 9,293
Cash at end of period............................................................................. $ 20,726 $ 13,438
See notes to consolidated financial statements.
3
DUKE POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
MARCH 31 DECEMBER 31
1994 1993
ASSETS
Electric Plant -- at original cost
Electric plant in service.................................................................... $12,684,283 $12,573,012
Less accumulated depreciation and amortization............................................... 4,488,116 4,431,460
Electric plant in service, net............................................................ 8,196,167 8,141,552
Nuclear fuel................................................................................. 688,793 705,994
Less accumulated amortization................................................................ 397,053 405,910
Nuclear fuel, net......................................................................... 291,740 300,084
Construction work in progress (including nuclear fuel in process: 1994 -- $107,886;
1993 -- $113,904)......................................................................... 479,412 482,473
Total electric plant, net................................................................. 8,967,319 8,924,109
Other Property and Investments
Other property -- at cost (less accumulated depreciation: 1994 -- $92,226;
1993 -- $90,191).......................................................................... 322,768 311,241
Investments in joint ventures................................................................ 100,646 101,612
Other investments, at cost or less........................................................... 90,041 90,301
Nuclear decommissioning trust funds.......................................................... 132,615 118,456
Pre-funded pension cost...................................................................... 50,000 50,000
Total other property and investments...................................................... 696,070 671,610
Current Assets
Cash (Note 3)................................................................................ 20,726 15,576
Short-term investments....................................................................... 116,386 120,651
Receivables (less allowance for losses: 1994 -- $6,855; 1993 -- $6,392) (Note 1)............. 482,551 531,592
Inventory -- at average cost
Coal...................................................................................... 68,110 69,155
Other..................................................................................... 204,401 199,733
Prepayments.................................................................................. 15,018 12,062
Total current assets...................................................................... 907,192 948,769
Deferred Debits
Purchased capacity costs (Notes 6 and 7)..................................................... 779,770 768,099
Debt expense, primarily refinancing costs, being amortized over terms of related debt........ 195,027 197,963
Regulatory asset related to income taxes..................................................... 485,669 486,440
Regulatory asset related to DOE assessment fee (Note 2)...................................... 116,731 116,731
Other........................................................................................ 76,011 79,386
Total deferred debits..................................................................... 1,653,208 1,648,619
Total assets................................................................................... $12,223,789 $12,193,107
See notes to consolidated financial statements.
4
DUKE POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
MARCH 31 DECEMBER 31
1994 1993
CAPITALIZATION AND LIABILITIES
Capitalization
(See Consolidated Statements of Capitalization)
Common stock equity.......................................................................... $ 4,402,653 $ 4,337,734
Preferred and preference stocks without sinking fund requirements (Note 4)................... 500,000 500,000
Preferred stocks with sinking fund requirements (Note 5)..................................... 279,500 281,000
Long-term debt............................................................................... 3,246,455 3,285,397
Total capitalization...................................................................... $ 8,428,608 $ 8,404,131
Current Liabilities
Accounts payable............................................................................. 258,941 337,391
Taxes accrued................................................................................ 130,276 82,824
Interest accrued............................................................................. 60,324 68,868
Other (Note 7)............................................................................... 189,739 211,207
Total..................................................................................... 639,280 700,290
Notes payable (Note 3)....................................................................... 40,000 18,000
Current maturities of long-term debt and preferred stocks.................................... 131,902 91,898
Total current liabilities................................................................. 811,182 810,188
Accumulated Deferred Income Taxes.............................................................. 2,217,353 2,207,708
Deferred Credits and Other Liabilities
Investment tax credit........................................................................ 279,693 282,505
Department of Energy assessment fee (Note 2)................................................. 116,731 116,731
Nuclear decommissioning costs externally funded.............................................. 132,615 118,456
Other........................................................................................ 237,607 253,388
Total deferred credits and other liabilities.............................................. 766,646 771,080
Total capitalization and liabilities...................................................... $12,223,789 $12,193,107
See notes to consolidated financial statements.
5
DUKE POWER COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(UNAUDITED)
(DOLLARS IN THOUSANDS)
MARCH 31 DECEMBER 31
1994 1993
Common Stock Equity
Common stock, no par, 300,000,000 shares authorized; 204,859,339 shares outstanding for 1994 and
1993......................................................................................... $1,926,909 $1,926,909
Retained earnings............................................................................... 2,475,744 2,410,825
Total common stock equity.................................................................... 4,402,653 4,337,734
Preferred And Preference Stocks Without Sinking Fund Requirements (Note 4)........................ 500,000 500,000
Preferred Stock With Sinking Fund Requirements (Note 5)........................................... 279,500 281,000
Long-Term Debt
Parent company long-term debt................................................................... 3,159,729 3,199,032
Subsidiary long-term debt....................................................................... 86,726 86,365
Total consolidated long-term debt............................................................ 3,246,455 3,285,397
Total capitalization....................................................................... $8,428,608 $8,404,131
See notes to consolidated financial statements.
6
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Revenues are recorded as service is rendered to customers. "Receivables"
on the Consolidated Balance Sheets include $153,633,000 and $175,726,000 as of
March 31, 1994 and December 31, 1993, respectively, for service that has been
rendered but not yet billed to customers.
In accordance with generally accepted accounting principles, the financial
statements include the accounts of Duke Power Company and its subsidiaries.
Intercompany accounts and transactions have been eliminated.
For purposes of the Consolidated Statements of Cash Flows, the Company's
investments in highly liquid debt instruments with an original maturity of three
months or less are included in cash flows from investing activities and thus are
not considered cash equivalents. Total income taxes paid for the quarter ended
March 31 were $52,725,000 and $51,927,000 for 1994 and 1993, respectively.
The Company implemented Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting for Income Taxes," effective January 1, 1993.
2. The North Carolina Utilities Commission (NCUC) and The Public Service
Commission of South Carolina (PSCSC) must approve rates for retail sales within
their respective states. The Federal Energy Regulatory Commission (FERC) must
approve the Company's rates for sales to wholesale customers. Sales to the other
joint owners of the Catawba Nuclear Station, which represent a substantial
majority of the Company's wholesale revenues, are set through contractual
agreements (See Note 6).
The North Carolina Supreme Court on April 22, 1992, remanded for the second
time the Company's 1986 rate order to the NCUC. In this ruling the Court held
that the record from the 1986 proceedings failed to support the rate of return
of 13.2 percent on common equity authorized by the NCUC after the initial
decision of the Court remanding the 1986 rate order. The NCUC issued a final
order dated October 26, 1992, authorizing a 12.8 percent return on common
equity for the period October 31, 1986 through November 11, 1991, that resulted
in a refund to North Carolina retail customers in 1992 of approximately $95
million, including interest.
During 1991, the Company filed in both the North Carolina and the South
Carolina retail jurisdictions its only requests for general rate increases since
1986. The rate increase requested by the Company in North Carolina was 9.22
percent; a 4.15 percent increase was granted resulting in $100.1 million in
additional annual revenues. In South Carolina, a rate increase of 7.29 percent
was requested; a 3.0 percent increase was granted resulting in $30.2 million in
additional annual revenues. These increases were requested primarily to recover
costs associated with the Bad Creek Hydroelectric Station.
In 1991, the Company filed a request with the FERC seeking a 7.47 percent
rate increase for its wholesale customers, who represent approximately 2 percent
of the Company's total revenues. A negotiated settlement between the Company and
the wholesale customers was approved by the FERC on March 31, 1992. The approved
agreement, effective April 1, 1992, provided for a 3.3 percent rate increase,
resulting in $2.1 million in additional annual revenues.
The Company has a bulk power sales agreement with Carolina Power & Light
Company (CP&L) to provide CP&L 400 megawatts of capacity as well as associated
energy when needed for a six-year period which began July 1, 1993. Electric
rates in all regulatory jurisdictions were reduced by adjustment riders to
reflect capacity revenues received from this CP&L bulk power sales agreement.
Fuel costs are reviewed semiannually in the wholesale and South Carolina
retail jurisdictions, with provisions for changing such costs in base rates. In
the North Carolina retail jurisdiction, a review of fuel costs in rates is
required annually and during general rate case proceedings.
All jurisdictions allow the Company to adjust rates for past over- or
under-recovery of fuel costs. Therefore, the Company reflects in revenues the
difference between actual fuel costs incurred and fuel costs recovered through
rates. The North Carolina legislature ratified a bill in July 1987 assuring the
legality of such adjustments in rates. In 1991, the statute was extended through
June 30, 1997.
7
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A provision in the Energy Policy Act of 1992 established a fund for the
decontamination and decommissioning of the Department of Energy's (DOE) uranium
enrichment plants. Licensees are subject to an annual assessment for 15 years
based on their pro rata share of past enrichment services. The annual assessment
is recorded as fuel expense. The Company paid $8,338,000 in September 1993
related to its ownership interest in nuclear plants. The Company has reflected
the remaining liability and regulatory asset of $116,731,000 in the Consolidated
Balance Sheets.
3. To support short-term debt obligations, the Company had credit
facilities of $324,980,000 as of March 31, 1994 and December 31, 1993, with 29
commercial banks. Included in these facilities is a three-year, $300,000,000
revolving credit agreement with the balance in separate, annually-renewable
lines of credit. These facilities are on a fee or compensating-balance basis. No
short-term debt resulting from these credit facilities was outstanding as of
March 31, 1994 and December 31, 1993.
As of March 31, 1994 and December 31, 1993, the Company had $40,000,000 in
pollution control revenue bonds backed by an unused, two-year revolving credit
facility of $40,000,000 and $130,000,000 in commercial paper backed by an
unused, three-year $130,000,000 revolving credit facility. These facilities are
on a fee basis. Both the $40,000,000 in pollution control bonds and the
$130,000,000 in commercial paper are included in long-term debt.
Cash balances maintained at the banks on deposit were $18,199,000 as of
March 31, 1994, and $12,988,000 as of December 31, 1993. Cash balances and fees
compensate banks for their services, even though the Company has no formal
compensating-balance arrangements. To compensate certain banks for credit
facilities, the Company maintained balances of $49,000 as of March 31, 1994 and
December 31, 1993. The Company retains the right of withdrawal with respect to
the funds used for compensating-balance arrangements.
A summary of short-term borrowing is as follows (dollars in thousands):
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1994 DECEMBER 31, 1993
Amount outstanding at end of period -- average rate of 3.69% and 3.27% for 1994 and
1993, respectively................................................................. $ 40,000 $ 18,000
Maximum amount outstanding during the period......................................... $156,000 $ 178,000
Average amount outstanding during the period......................................... $ 18,979 $ 35,187
Weighted average interest rate for the period -- computed on a daily basis........... 3.12% 3.17%
4. At March 31, 1994, and December 31, 1993, 12,500,000 shares of preferred
stock, ($100 par value), 10,000,000 shares of preferred stock A ($25 par value)
and 1,500,000 shares of preference stock ($100 par value) were authorized with
or without sinking fund requirements. Preferred and preference stocks without
sinking fund requirements at March 31, 1994 and December 31, 1993 were as
follows:
YEAR SHARES MARCH 31 DECEMBER 31
RATE/SERIES ISSUED OUTSTANDING 1994 1993
(DOLLARS IN THOUSANDS)
4.50% C....................................................................... 1964 350,000 $ 35,000 $ 35,000
5.72% D....................................................................... 1966 350,000 35,000 35,000
6.72% E....................................................................... 1968 350,000 35,000 35,000
7.85% S....................................................................... 1992 600,000 60,000 60,000
7.00% W....................................................................... 1993 500,000 50,000 50,000
7.04% Y....................................................................... 1993 600,000 60,000 60,000
7.72% (Preferred Stock A)..................................................... 1992 1,600,000 40,000 40,000
6.375% (Preferred Stock A).................................................... 1993 2,400,000 60,000 60,000
Adjustable Rate A............................................................. 1986 500,000 50,000 50,000
Auction Series A.............................................................. 1990 750,000 75,000 75,000
Total....................................................................... $500,000 $ 500,000
8
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5. At March 31, 1994 and December 31, 1993, 12,500,000 shares of preferred
stock, ($100 par value), 10,000,000 shares of preferred stock A ($25 par value)
and 1,500,000 shares of preference stock ($100 par value) were authorized with
or without sinking fund requirements. Preferred stocks with sinking fund
requirements at March 31, 1994 and December 31, 1993 were as follows:
YEAR SHARES MARCH 31 DECEMBER 31
RATE/SERIES ISSUED OUTSTANDING 1994 1993
(DOLLARS IN THOUSANDS)
5.95% B (Preferred Stock A)................................................... 1992 800,000 $ 20,000 $ 20,000
6.10% C (Preferred Stock A)................................................... 1992 800,000 20,000 20,000
6.20% D (Preferred Stock A)................................................... 1992 800,000 20,000 20,000
7.12% Q....................................................................... 1987 470,000 47,000 --
7.12% Q....................................................................... 1987 485,000 -- 48,500
7.50% R....................................................................... 1992 850,000 85,000 85,000
6.20% T....................................................................... 1992 130,000 13,000 13,000
6.30% U....................................................................... 1992 130,000 13,000 13,000
6.40% V....................................................................... 1992 130,000 13,000 13,000
6.75% X....................................................................... 1993 500,000 50,000 50,000
Less: Current sinking fund requirements 7.12% Q............................... (1,500) (1,500)
Total......................................................................... $279,500 $ 281,000
6. The Company has sold interests in both units of the Catawba Nuclear
Station to the North Carolina Municipal Power Agency Number 1 (NCMPA), the North
Carolina Electric Membership Corporation (NCEMC), the Piedmont Municipal Power
Agency (PMPA), and the Saluda River Electric Cooperative, Inc. (Saluda River),
collectively referred to as the Other Catawba Joint Owners. The Company retains
a 12.5 percent ownership interest in the Catawba Nuclear Station. In connection
with the joint ownership, the Company has entered into contractual agreements
with the Other Catawba Joint Owners to purchase declining percentages of the
generating capacity and energy from the plant. These agreements were effective
beginning with the commercial operation of each unit. Unit 1 and Unit 2 began
commercial operation in June 1985 and in August 1986, respectively. Such
agreements were established for 15 years for NCMPA and PMPA and 10 years for
NCEMC and Saluda River.
Effective in its November 1991 rate order, the North Carolina Utilities
Commission (NCUC) reaffirmed the Company's recovery, on a levelized basis, of
the capital costs and fixed operating and maintenance costs of capacity
purchased from the Other Catawba Joint Owners. The new NCUC rate order changed
the levelized basis to a 15-year period ending 2001 for all of the Other Catawba
Joint Owners compared to the previous 15-year levelization period for NCMPA and
PMPA and 10-year levelization period for NCEMC and Saluda River. The Public
Service Commission of South Carolina (PSCSC), in its November 1991 rate order,
reaffirmed the Company's recovery on a levelized basis of the capital costs of
capacity purchased from the Other Catawba Joint Owners. The new PSCSC rate order
retained the levelized basis of a 7 1/2-year period for PMPA and NCMPA; for
NCEMC and Saluda River the new levelized basis reflects the projected purchased
capacity payments for the twelve-month period ended October 1992. The Federal
Energy Regulatory Commission granted the Company recovery on a levelized basis
of the capital costs and fixed operating and maintenance costs of capacity
purchased from the Other Catawba Joint Owners over their contractual purchased
power buyback periods. As currently provided in rates in all jurisdictions, the
Company recovers the costs of purchased energy and a portion of purchased
capacity. The portion of costs not currently recovered through rates is being
accumulated, and the Company is recording a carrying charge on the accumulated
balance. The Company recovers the accumulated balance including the carrying
charge when the capacity payments drop below the levelized revenues. In the
North Carolina and wholesale jurisdictions, purchased capacity payments continue
to exceed levelized revenues. In the South Carolina jurisdiction, cumulative
levelized revenues have exceeded purchased capacity payments. Jurisdictional
levelizations are intended to recover total costs, including allowed returns,
and are subject to adjustments, including final true-ups.
9
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
For the three months ended March 31, 1994 and 1993, the Company recorded
purchased capacity and energy costs from the Other Catawba Joint Owners of
$120,405,000 and $67,362,000, respectively. These amounts, adjusted for the cost
of capacity purchased not reflected in current rates, are included in "Net
interchange and purchased power" in the Consolidated Statements of Income. As of
March 31, 1994 and December 31, 1993, $779,770,000 and $768,099,000 pre-tax,
respectively, associated with the costs of capacity purchased, but not reflected
in current rates had been accumulated in the Consolidated Balance Sheets as
"Purchased capacity costs." Accumulated deferred income taxes associated with
"Purchased capacity costs" were $259,399,000 and $254,789,000 as of March 31,
1994 and December 31, 1993, respectively.
7. The Other Joint Owners of the Catawba Nuclear Station and the Company
are involved in various proceedings related to the Catawba joint ownership
contractual agreements. The basic contention in each proceeding is that certain
calculations affecting bills under these agreements should be performed
differently. These items are covered by the agreements between the Company and
the Other Catawba Joint Owners which have been previously approved by the
Company's retail regulatory commissions (See Note 6). The Company and two of the
four joint owners have entered into a settlement agreement which resolves all
issues in contention in such proceedings between the Company and these owners.
The Company recorded a liability as an increase to Other current liabilities on
its Consolidated Balance Sheets of approximately $105 million in 1993 to reflect
this settlement. As the Company expects the costs associated with this
settlement will be recovered as part of the purchased capacity levelization, the
Company has included approximately $105 million as an increase to Purchased
capacity costs on its Consolidated Balance Sheets. Therefore, the Company
believes the ultimate resolution of these matters should not have a material
adverse effect on the results of operations or financial position of the
Company.
The Company and the two remaining Catawba Joint Owners, who are not parties
to the above settlement, reached an agreement in principle in April 1994 which,
if finally effectuated and approved by the regulators, will resolve all disputes
among these parties in the presently outstanding proceedings, and would include
an obligation of the Company of approximately $110 million. Arbitration
hearings were held in 1992 involving substantially all the disputed amounts,
and a decision interpreting the language of the agreements on certain of these
matters was issued on October 1, 1993. Absent a final settlement agreement,
further proceedings will be required to determine the amounts associated with
this decision as it relates to these owners, some of which may involve refunds.
However, the Company expects the costs associated with this decision or
settlement will be included in and recovered as part of the purchased capacity
levelization consistent with prior orders of the retail regulatory commissions.
Therefore, the Company believes the ultimate resolution of these matters should
not have a material adverse effect on the results of operations or financial
position of the Company.
The Company is also involved in legal, tax and regulatory proceedings
before various courts, regulatory commissions and governmental agencies
regarding matters arising in the ordinary course of business, some of which
involve substantial amounts. Management is of the opinion that the final
disposition of these proceedings will not have a material adverse effect on the
results of operations or the financial position of the Company.
8. In the Consolidated Statements of Cash Flows certain prior year
information has been reclassified to conform with current classifications.
9. These are quarterly financial statements and the amounts reported in the
Consolidated Statements of Income for the periods herein are not necessarily
indicative of amounts expected for the respective years. These amounts may be
affected by factors such as the temperature variations between seasons of the
year, timing of scheduled and unscheduled maintenance of certain electric
generating units, and the Company's policy of accruing estimates for certain
other expenses ratably over twelve months until final amounts are determined.
10. In the opinion of the Company, the accompanying financial statements
contain all adjustments necessary to present fairly the financial position of
Duke Power Company as of the respective dates shown and the results of its
operations for the respective periods then ended.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
During the period January 1, 1994 through March 31, 1994, additions to
utility property (including nuclear fuel) of $179.5 million and retirements of
$88.4 million resulted in a net increase in gross plant of $91.1 million.
The Company began construction of the Lincoln Combustion Turbine Station
(Lincoln station) in March 1993. The Lincoln station will help the Company meet
capacity needs during times of peak demand for electricity. Current plans call
for 10 units to begin commercial operation in 1995, with the remaining 6 to come
on line the following year. The estimated total cost of the project is
approximately $500 million.
The Company normally experiences seasonal peak loads in the summer and
winter which are relatively in balance. On July 29, 1993, the Company
experienced its summer peak load of 15,720 MW during unusually hot weather. A
new all-time peak load of 16,070 MW occurred on January 19, 1994 during
extremely cold weather. The Company's peak load includes the load of the Other
Catawba Joint Owners.
Fixed charges coverage for the twelve months ended March 31, 1994, using
the SEC method, was 4.97 times. Internal cash generation for the twelve months
ended March 31, 1994 was 50 percent. Essentially all of the Company's capital
needs, exclusive of refinancing activities, were met by cash generated from
normal operations.
The Company is involved in legal, tax and regulatory proceedings before
various courts, regulatory commissions and governmental agencies regarding
matters arising in the ordinary course of business, some of which involve
substantial amounts. Management is of the opinion that the final disposition of
these proceedings will not have a material adverse effect on the results of
operations or the financial position of the Company.
The Other Joint Owners of the Catawba Nuclear Station and the Company are
involved in various proceedings related to the Catawba joint ownership
contractual agreements. The basic contention in each proceeding is that certain
calculations affecting bills under these agreements should be performed
differently. These items are covered by the agreements between the Company and
the Other Catawba Joint Owners which have been previously approved by the
Company's retail regulatory commissions (See Note 6 to Consolidated Financial
Statements). The Company and two of the four joint owners have entered into a
settlement agreement which resolves all issues in contention in such
proceedings between the Company and these owners. The Company recorded a
liability as an increase to Other current liabilities on its Consolidated
Balance Sheets of approximately $105 million in 1993 to reflect this
settlement. As the Company expects the costs associated with this settlement
will be recovered as part of the purchased capacity levelization, the Company
has included approximately $105 million as an increase to Purchased capacity
costs on its Consolidated Balance Sheets. Therefore, the Company believes the
ultimate resolution of these matters should not have a material adverse effect
on the results of operations or financial position of the Company.
The Company and the two remaining Catawba Joint Owners, who are not parties
to the above settlement, reached an agreement in principle in April 1994 which,
if finally effectuated and approved by the regulators, will resolve all disputes
among these parties in the presently outstanding proceedings, and would include
an obligation of the Company of approximately $110 million. Arbitration
hearings were held in 1992 involving substantially all the disputed amounts,
and a decision interpreting the language of the agreements on certain of these
matters was issued on October 1, 1993. Absent a final settlement agreement,
further proceedings will be required to determine the amounts associated with
this decision as it relates to these owners, some of which may involve refunds.
However, the Company expects the costs associated with this decision or
settlement will be included in and recovered as part of the purchased capacity
levelization consistent with prior orders of the retail regulatory commissions.
Therefore, the Company believes the ultimate resolution of these matters should
not have a material adverse effect on the results of operations or financial
position of the Company.
On March 17, 1994 the Company, together with the Other Catawba Joint
Owners, settled the lawsuit initiated by the Company on March 22, 1990 against
Westinghouse Electric Corporation seeking damages for supplying to the McGuire
and Catawba Nuclear Stations steam generators that were alleged to be defective
in design, workmanship and materials and that would require replacement well
short of their stated design life. While the terms of the settlement may not be
disclosed pursuant to court order, the Company believes the litigation was
settled on terms that provided satisfactory consideration to the Company. Such
settlement will not have a material effect on the Company's results of
operations or financial position.
11
RESULTS OF OPERATIONS
Earnings per share for the first quarter 1994 were 79 cents per share
compared to 63 cents per share for the same period in 1993. This 25.4% increase
was principally due to higher kilowatt-hour sales.
Total electric kilowatt-hour sales for first quarter 1994 increased by 5.7%
over first quarter 1993. This increase was primarily due to a 7.6% increase in
residential sales resulting largely from the extreme cold weather during the
month of January, 1994. General service sales were up 6.4% due to the weather
and strong economic activity in the Company's service territory. Total
industrial sales for the quarter were up 5%, with textile sales up 3.3%, also
reflecting the economic strength of the service territory.
Fuel expense and Net interchange and purchased power expense for the first
quarter 1994 increased $13 million compared to first quarter 1993. Growth in
sales, in part met by higher levels of fossil generation as a percentage of
total generation, contributed to the increase. These changes were partially
offset by a reduction in the price of fuel.
Operating and maintenance expenses increased $6.9 million for the first
quarter 1994 over the same period in 1993. This 2.7% increase was primarily due
to higher fossil and nuclear maintenance expenses resulting from increased
turbine and boiler work at fossil stations, timing differences in refueling
schedules between the two periods, and higher outage costs associated with steam
generator tube leaks at the McGuire Nuclear Station. This increase was partially
offset by a reduction in storm damage costs as compared to first quarter 1993
and a one-time charge associated with the Limited Period Separation Opportunity
program, recognized in the first quarter of 1993.
Depreciation and amortization expenses decreased for the first quarter 1994
compared to first quarter 1993. This decrease was primarily due to the lower
amortization of property losses in first quarter 1994, which was partially
offset by an increase in investment in distribution property.
Interest expense on long-term debt decreased $5.9 million for the first
quarter 1994 compared to first quarter 1993. This 8.8% decrease was a result of
the Company's refinancing activities in 1993.
Allowance For Funds Used During Construction (AFUDC) increased $3.3 million
for the first quarter 1994 compared to first quarter 1993. This increase is
attributed to construction of the Lincoln Combustion Turbine Station and the
replacement of the steam generators at the McGuire Nuclear Station.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters voted upon by the security holders of the Company for
the quarter ended March 31, 1994.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
None.
(B) Reports on Form 8-K
The Company filed a report on Form 8-K on February 18, 1994, containing
the Company's audited consolidated financial statements, Management's
Discussion and Analysis of Financial Condition and Results of
Operations and certain other information for the fiscal year ended
December 31, 1993, for the purpose of providing updated financial
information about the Company in connection with the subsequent filing
of a registration statement on Form S-3 with the Securities and
Exchange Commission.
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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.
DUKE POWER COMPANY
Date: May 12, 1994
R. J. OSBORNE
SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
Date: May 12, 1994
DAVID L. HAUSER
CONTROLLER
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