-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RKRD2DJoA8/7XwLQ7ufQNe/TnRjvPPbDLAGPLjaBiULa/OaGhCEuF3aajPEJzeqc nO+wIsNuPGtAqf+LKFkSlw== /in/edgar/work/20000814/0000105839-00-000012/0000105839-00-000012.txt : 20000921 0000105839-00-000012.hdr.sgml : 20000921 ACCESSION NUMBER: 0000105839-00-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEST PENN POWER CO CENTRAL INDEX KEY: 0000105839 STANDARD INDUSTRIAL CLASSIFICATION: [4911 ] IRS NUMBER: 135480882 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00255 FILM NUMBER: 699549 BUSINESS ADDRESS: STREET 1: 800 CABIN HILL DR STREET 2: C/O ALLEGHENY POWER SERVICE CORP CITY: GREENSBURG STATE: PA ZIP: 15601 BUSINESS PHONE: 7248373000 10-Q 1 0001.txt Page 1 of 21 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended June 30, 2000 Commission File Number 1-255-2 WEST PENN POWER COMPANY (Exact name of registrant as specified in its charter) Pennsylvania 13-5480882 (State of Incorporation) (I.R.S. Employer Identification No.) 800 Cabin Hill Drive, Greensburg, Pennsylvania 15601 Telephone Number - 724-837-3000 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 and (2) has been subject to such filing requirements for the past 90 days. At August 14, 2000, 24,361,586 shares of the Common Stock (no par value) of the registrant were outstanding, all of which are held by Allegheny Energy, Inc., the Company's parent. - 2 - WEST PENN POWER COMPANY AND SUBSIDIARIES Form 10-Q for Quarter Ended June 30, 2000 Index Page No. PART I--FINANCIAL INFORMATION: Consolidated Statement of Income - Three and six months ended June 30, 2000 and 1999 3 Consolidated Balance Sheet - June 30, 2000 and December 31, 1999 4 Consolidated Statement of Cash Flows - Six months ended June 30, 2000 and 1999 5 Notes to Consolidated Financial Statements 6-9 Management's Discussion and Analysis of Financial Condition and Results of Operations 10-20 PART II--OTHER INFORMATION 21 - 3 - WEST PENN POWER COMPANY AND SUBSIDIARIES Consolidated Statement of Income (Thousands of Dollars)
Three Months Ended Six Months Ended June 30 June 30 2000 1999 2000 1999 OPERATING REVENUES: Regulated operations $ 250,563 $ 229,507 $508,107 $481,515 Unregulated generation - 97,762 - 163,484 Total Operating Revenues 250,563 327,269 508,107 644,999 OPERATING EXPENSES: Operation: Fuel - 54,880 176 115,893 Purchased power and exchanges, net 127,477 83,704 267,404 130,532 Other 28,999 42,423 59,235 87,301 Maintenance 8,711 23,905 17,855 48,618 Depreciation and amortization 14,942 31,215 30,533 62,903 Taxes other than income taxes 8,404 23,099 21,025 43,872 Federal and state income taxes 17,653 20,954 31,455 50,117 Total Operating Expenses 206,186 280,180 427,683 539,236 Operating Income 44,377 47,089 80,424 105,763 OTHER INCOME AND DEDUCTIONS: Allowance for other than borrowed funds used during construction 58 22 114 85 Other income, net 6,272 2,476 6,638 4,637 Total Other Income and Deductions 6,330 2,498 6,752 4,722 Income Before Interest Charges 50,707 49,587 87,176 110,485 INTEREST CHARGES: Interest on long-term debt 16,569 15,455 32,480 30,563 Other interest 743 1,271 1,446 2,227 Allowance for borrowed funds used during construction and interest capitalized (194) (788) (392) (1,453) Total Interest Charges 17,118 15,938 33,534 31,337 CONSOLIDATED NET INCOME $ 33,589 $ 33,649 $ 53,642 $ 79,148
See accompanying notes to consolidated financial statements. Certain amounts have been reclassified for comparative purposes. - 4 - WEST PENN POWER COMPANY AND SUBSIDIARIES Consolidated Balance Sheet (Thousands of Dollars)
June 30, December 31, ASSETS: 2000 1999 Property, Plant, and Equipment: Utility plant $ 1,575,066 $ 1,537,962 Nonutility plant 14,071 14,072 Construction work in progress 33,393 45,450 1,622,530 1,597,484 Accumulated depreciation (525,786) (506,416) 1,096,744 1,091,068 Investments and Other Assets 516 525 Current Assets: Cash and temporary cash investments 7,067 19,288 Accounts receivable: Electric service 137,058 132,691 Affiliated and other 14,730 16,299 Allowance for uncollectible accounts (17,118) (16,077) Notes receivable from affiliates 56,550 80,800 Materials and supplies - at average cost: Operating and construction 17,825 16,200 Deferred income taxes - 15,571 Prepaid taxes 19,240 1,628 Regulatory assets 22,934 23,957 Other 1,878 1,531 260,164 291,888 Deferred Charges: Regulatory assets 456,245 467,982 Unamortized loss on reacquired debt 3,395 3,621 Other 7,586 9,681 467,226 481,284 Total Assets $ 1,824,650 $ 1,864,765 CAPITALIZATION AND LIABILITIES: Capitalization: Common stock $ 65,842 $ 70,021 Other paid-in capital 6,330 - Retained earnings 63,279 9,637 135,451 79,658 Long-term debt and QUIDS 936,090 966,026 1,071,541 1,045,684 Current Liabilities: Long-term debt due within one year 60,083 49,734 Accounts payable 37,450 55,267 Accounts payable to affiliates 66,043 97,847 Taxes accrued: Federal and state income 9,221 5,276 Other 1,200 10,674 Interest accrued 5,043 10,017 Deferred income taxes 12,651 - Adverse power purchase commitments 25,246 24,895 Other 3,530 5,925 220,467 259,635 Deferred Credits and Other Liabilities: Unamortized investment credit 21,373 21,847 Deferred income taxes 197,062 211,369 Regulatory liabilities 14,797 15,126 Adverse power purchase commitments 290,757 303,935 Other 8,653 7,169 532,642 559,446 Total Capitalization and Liabilities $ 1,824,650 $ 1,864,765
See accompanying notes to consolidated financial statements. Certain amounts have been reclassified for comparative purposes - 5 - WEST PENN POWER COMPANY Consolidated Statement of Cash Flows (Thousands of Dollars)
Six Months Ended June 30 2000 1999 CASH FLOWS FROM OPERATIONS: Consolidated net income $ 53,642 $ 79,148 Depreciation and amortization 30,533 62,903 Amortization of adverse purchase power contract (6,275) (15,016) Deferred investment credit and income taxes, net 4,881 16,303 Unconsolidated subsidiaries' dividends in excess of earnings 10 2,590 Allowance for other than borrowed funds used during construction (114) (85) Changes in certain assets and liabilities: Accounts receivable, net (1,757) (59,383) Materials and supplies (1,625) (8,099) Prepaid taxes (17,612) (9,118) Accounts payable (49,621) 48,932 Restructuring settlement rate refund - (12,825) Other, net (919) 5,039 11,143 110,389 CASH FLOWS FROM INVESTING: Regulated operations construction expenditures (less allowance for other than borrowed funds used during construction) (30,858) (38,372) Unregulated generation construction expenditures - (7,403) (30,858) (45,775) CASH FLOWS FROM FINANCING: Issuance of long-term debt - 97,830 Retirement of long-term debt (19,655) (51,714) Funds on deposit with trustees and restricted funds 2,899 (11,844) Short-term debt, net - (55,766) Notes payable to affiliates - 20,100 Notes receivable from affiliates 24,250 - Dividends on capital stock: Preferred stock - (1,596) Common stock - (57,006) 7,494 (59,996) NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (12,221) 4,618 Cash and temporary cash investments at January 1 19,288 4,523 Cash and temporary cash investments at June 30 $ 7,067 $ 9,141 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for: Interest (net of amount capitalized) $28,761 $30,997 Income taxes 26,986 17,098
See accompanying notes to consolidated financial statements. Certain amounts have been reclassified for comparative purposes. - 6 - WEST PENN POWER COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. West Penn Power Company (the Company) is a wholly-owned subsidiary of Allegheny Energy, Inc. The Company's Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 1999 should be read with the accompanying consolidated financial statements and the following notes. With the exception of the December 31, 1999 consolidated balance sheet in the aforementioned Annual Report on Form 10-K, the accompanying consolidated financial statements appearing on pages 3 through 5 and these notes to consolidated financial statements are unaudited. In the opinion of the Company, such consolidated financial statements together with these notes contain all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the Company's financial position as of June 30, 2000, the results of operations for the three and six months ended June 30, 2000 and 1999, and cash flows for the six months ended June 30, 2000 and 1999. 2. For purposes of the Consolidated Balance Sheet and Consolidated Statement of Cash Flows, temporary cash investments with original maturities of three months or less, generally in the form of commercial paper, certificates of deposit, and repurchase agreements, are considered to be the equivalent of cash. 3. The Company owned 45% of the common stock of Allegheny Generating Company (AGC) through November 17, 1999. On November 18, 1999, the Company transferred its 45% ownership in AGC to Allegheny Energy Supply, LLC (Allegheny Energy Supply) at book value as allowed by the final settlement in the Pennsylvania restructuring case. Affiliates of the Company (Monongahela Power Company and The Potomac Edison Company) own the remainder. AGC was reported by the Company in its financial statements using the equity method of accounting. AGC owns an undivided 40% interest, 840 megawatts (MW), in the 2,100-MW pumped- storage hydroelectric station in Bath County, Virginia, operated by the 60% owner, Virginia Electric and Power Company, a nonaffiliated utility. Following is a summary of income statement information for AGC for the three and six months ended June 30, 1999: Three Months Ended Six Months Ended June 30, 1999 June 30, 1999 (Thousands of Dollars) Electric operating revenues $17,810 $35,667 Operation and maintenance expense 1,304 2,915 Depreciation 4,245 8,490 Taxes other than income taxes 1,129 2,261 Federal income taxes 2,546 4,960 Interest charges 3,285 6,688 Other income, net (1) (2) Net income $ 5,302 $10,355 - 7 - Because of the transfer of the Company's ownership interest in AGC to Allegheny Energy Supply, the Company had no share of the earnings of AGC in the second quarter and six months ended June 30, 2000. The Company's share of the equity in earnings was $2.4 million and $4.7 million for the three months and six months ended June 30, 1999, respectively, and is included in other income, net, on the Company's Consolidated Statement of Income. 4. The Consolidated Balance Sheet includes the amounts listed below for generation assets not subject to the Financial Accounting Standards Board's (FASB) Statement of Financial Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." June December 2000 1999 (Millions of Dollars) Property, plant and equipment at original cost $ 9.1 $ 9.1 Amounts under construction included above - - Accumulated depreciation (1.1) (1.1) 5. On November 18, 1999, the Company transferred its generating capacity to Allegheny Energy Supply at book value as allowed by the final settlement in the Company's Pennsylvania restructuring case. The net assets transferred in 1999 to Allegheny Energy Supply are shown below: (Millions of Dollars) Property, plant, and equipment, net of accumulated depreciation $920.3 Investment in Allegheny Generating Company 71.5 Other assets 120.7 Liabilities 421.1 The Company paid a liquidating dividend to Allegheny Energy, Inc. for its ownership interest in Allegheny Energy Supply. The Company no longer has any ownership interest in generating assets or contractual rights to generating capacity other than those arising under the Public Utility Regulatory Policies Act of 1978. The effect of this liquidating dividend was to reduce the Company's common equity by $691.4 million. An adjustment of $4.2 million to the initial amount transferred in 1999 was recorded in the first quarter of 2000 based on a determination of the final book value of the generation related assets and liabilities and reduced the Company's common stock from $70.0 million at December 31, 1999 to $65.8 million at June 30, 2000. 6. The Company's principal operating segments are regulated operations and unregulated generation. Prior to the second quarter of 2000, the Company reported operating segments consisting of utility and nonutility operations. The Company's regulated operations segment operates electric transmission and distributions systems. Unregulated generation during 1999 consisted primarily of costs and revenues associated with the two- thirds of generating capacity deregulated effective January 1, 1999 under the Customer Choice Act in Pennsylvania. - 8 - Business segment information is summarized below. Significant transactions between reportable segments are eliminated to reconcile the segment information to consolidated amounts. The identifiable assets information does not reflect the elimination of intercompany balances or transactions, which are eliminated in the Company's consolidated financial statements. Three Months Ended Six Months Ended June 30 June 30 2000 1999 2000 1999 (Thousands of Dollars) Operating Revenues: Regulated operations $250,563 $241,569 $508,107 $495,353 Unregulated generation 177,029 312,926 Eliminations (91,329) (163,280) Depreciation and amortization: Regulated operations 14,942 18,566 30,533 36,902 Unregulated generation 12,649 26,001 Federal and State Income Taxes: Regulated operations 17,653 15,862 31,455 33,674 Unregulated generation 5,092 16,443 Operating Income: Regulated operations 44,377 37,302 80,424 74,484 Unregulated generation 9,787 31,279 Interest Charges: Regulated operations 17,118 9,830 33,534 19,443 Unregulated generation 6,108 11,894 Consolidated Net Income: Regulated operations 33,589 30,004 53,642 59,791 Unregulated generation 3,645 19,357 Capital Expenditures: Regulated operations 16,325 23,044 30,972 38,457 Unregulated generation 6,148 7,403 June 30 December 31 2000 1999 Identifiable Assets: Regulated operations $1,824,650 $1,864,746 Unregulated generation 19 7. All of the employees of Allegheny Energy are employed by Allegheny Energy Service Corporation (AESC), which performs services at cost for the Company and its affiliates in accordance with the Public Utility Holding Company Act of 1935. Through AESC, the Company is responsible for its proportionate share of services provided by AESC. The total billings by AESC (including capital) to the Company for the second quarter of 2000 and 1999 were $34.3 million and $53.1 million, respectively. The total billings by AESC (including capital) to the Company for each of the six months ended June 30, 2000 and 1999 were $67.1 million and $100.4 million, respectively. 8. The 1998 Pennsylvania Public Utility Commission (Pennsylvania PUC) order for restructuring authorized recognition of an additional Competitive Transition Charge (CTC) regulatory asset (Additional CTC - 9 - Regulatory Asset) to reduce the adverse effects, if any, that competition will have on the Company during the years 1999 to 2002. No Additional CTC Regulatory Asset was recorded by the Company as of June 30, 2000. 9. A Securities and Exchange Commission announcement at the March 16, 2000 Emerging Issues Task Force (EITC) meeting requires companies to disclose their accounting policy for repair and maintenance costs incurred in connection with planned major maintenance activities. For the Company, maintenance expenses represent costs incurred to maintain the transmission and distribution (T&D) system and general plant and reflect routine maintenance of equipment and right-of-way, as well as planned major repairs and unplanned expenditures, primarily from periodic storm damage on the T&D system. Maintenance costs are expensed in the year incurred. T&D right-of-way vegetation control costs are expensed within the year based on estimated annual costs and estimated sales. T&D right-of-way vegetation control accruals are not intended to accrue for future years' costs. 10. The pollution control notes related to the energy supply assets transferred to Allegheny Energy Supply are included as debt in the Company's financial statements because the Company is a co- obligor for the debt. The Company accrues interest expense on the pollution control notes but Allegheny Energy Supply is responsible for the payment of pollution control notes interest and principal. Allegheny Energy Supply's payment of interest is reflected in the Company's financial statements as a reduction in interest accrued and an increase in other paid-in capital. - 10 - WEST PENN POWER COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition And Results of Operations COMPARISON OF SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 2000 WITH SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1999 The Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations in West Penn Power Company's (the Company) Annual Report on Form 10-K for the year ended December 31, 1999 should be read with the following Management's Discussion and Analysis information. Factors That May Affect Future Results Management's discussion and analysis of financial condition and results of operations contains forecast information items that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These include statements with respect to deregulation activities in Pennsylvania and results of operations. All such forward-looking information is necessarily only estimated. There can be no assurance that actual results will not materially differ from expectations. Actual results have varied materially and unpredictably from past expectations. Factors that could cause actual results to differ materially include, among other matters, electric utility restructuring, including ongoing state and federal activities; developments in the legislative, regulatory, and competitive environments in which the Company operates, including regulatory proceedings affecting rates charged by the Company; environmental, legislative, and regulatory changes; future economic conditions; the Company's ability to compete in unregulated energy markets; and other circumstances that could affect anticipated revenues and costs such as significant volatility in the market price of wholesale power, unscheduled maintenance or repair requirements, weather, and compliance with laws and regulations. Unregulated Generating Affiliate During 1999, Allegheny Energy, Inc. (Allegheny Energy) obtained the necessary regulatory approvals to form an unregulated generating subsidiary, Allegheny Energy Supply Company, LLC (Allegheny Energy Supply). On November 18, 1999, the Company transferred its generating capacity, which totaled 3,778 megawatts (MW), to Allegheny Energy Supply at book value as allowed by the final settlement in the Company's Pennsylvania restructuring case. The Company continued to be responsible for providing generation to meet the regulated electric load of its retail customers who did not have the right to choose their generation supplier until January 2, 2000. On January 2, 2000, the final one-third of the Company's regulated customers were permitted to choose an alternate generation supplier. - 11 - Toxics Release Inventory (TRI) On Earth Day 1997, President Clinton announced the expansion of Right-to-Know TRI reporting to include electric utilities, limited to facilities that combust coal and/or oil for the purpose of generating power for distribution in commerce. The purpose of TRI is to provide site-specific information on chemical releases to the air, land, and water. Packets of information about the Company's Parent, Allegheny Energy, Inc., releases were provided to the media in the Parent company's area and posted on the Parent Company's web site. The Parent Company filed its 1999 TRI report with the Environmental Protection Agency prior to the July 1, 2000 deadline date, reporting 27.5 million pounds of total releases for calendar year 1999. Review of Operations EARNINGS SUMMARY Consolidated net income for the second quarter and the first six months of 2000 was $33.6 and $53.6 million, respectively, compared with $33.6 and $79.1 million, respectively, for the corresponding 1999 periods. Consolidated net income for each of the 2000 periods was affected by the settlement agreement in Pennsylvania which permitted the Company to transfer its 3,778 megawatts (MW) of generating capacity at book value to Allegheny Energy Supply, an unregulated wholly owned subsidiary of Allegheny Energy, the Company's Parent. As a result of the transfer, the Company no longer has generation available for sale. The Company's energy delivery or wires business will continue to be an important part of the Company's business. Current earnings are supported by the beneficial effects of transition cost recovery as authorized in the Company's Pennsylvania restructuring settlement. Consolidated net income for the second quarter of 2000 remained about the same as the second quarter of 1999. Favorable income items related to lower Pennsylvania capital stock taxes, a litigation settlement, and a reduction in provision for uninsured claims in the second quarter of 2000 helped to offset a reduction in consolidated net income as a result of the transfer of generating assets. Consolidated net income for the first six months of 2000 decreased due to the transfer of generating assets to Allegheny Energy Supply as discussed above. - 12 - SALES AND REVENUES Total operating revenues for the second quarter and first six months of 2000 and 1999 were as follows: Three Months Ended Six Months Ended June 30 June 30 2000 1999 2000 1999 (Millions of Dollars) Operating revenues: Regulated operations: Regulated $235.3 $224.8 $477.1 $464.6 Choice 9.6 9.1 20.4 15.9 Bulk power - 2.4 .2 3.5 Transmission and other energy services 5.7 5.3 10.4 11.4 Total regulated operations 250.6 241.6 508.1 495.4 Unregulated generation revenues - 177.0 - 312.9 Elimination between regulated operations and unregulated generation - (91.3) - (163.3) Total operating revenues $250.6 $327.3 $508.1 $645.0 Regulated revenues include revenues from all the Company's customers eligible to choose an alternate energy supplier but electing not to do so. Regulated operations choice revenues represent transmission and distribution revenues from the Company's franchised customers (customers in the Company's distribution territory) who chose another supplier to provide their energy needs. Pennsylvania deregulation gave the Company's regulated customers the ability to choose another energy supplier. In 2000 all of the Company's regulated customers had the ability to choose, and in the first six months of 1999, two-thirds of the Company's customers had the ability to choose. At June 30, 2000, less than 2% of the Company's customers have chosen alternate energy suppliers. As a result of the transfer of the Company's generation to Allegheny Energy Supply, an unregulated affiliate, revenues from regulated operations bulk power sales and unregulated generation sales have decreased due to the Company no longer having generation available for sale. The 1999 eliminations between regulated operations and unregulated generation revenues are necessary to remove the effect of affiliated revenues. OPERATING EXPENSES Fuel expenses for the second quarter and first six months of 2000 and 1999 were as follows: Fuel Expenses Three Months Ended Six Months Ended June 30 June 30 2000 1999 2000 1999 (Millions of Dollars) Regulated operations $ - $16.8 $.2 $36.3 Unregulated generation - 38.1 - 79.6 Total fuel expenses $ - $54.9 $.2 $115.9 - 13 - Total fuel expenses for the second quarter and six months ended June 30, 2000 decreased due to the transfer of the Company's generating capacity to Allegheny Energy Supply. Purchased power and exchanges, net, represents power purchases from and exchanges with other companies, including affiliated companies, and purchases from qualified facilities under the Public Utility Regulatory Policies Act of 1978 (PURPA), and prior to November 18, 1999 capacity charges paid to Allegheny Generating Company (AGC). Purchased Power and Exchanges, Net Three Months Ended Six Months Ended June 30 June 30 2000 1999 2000 1999 (Millions of Dollars) Regulated operations: Purchased power: From PURPA generation* $ 11.0 $ 9.4 $ 21.0 $18.9 Other 114.7 2.3 242.4 17.0 Power exchanges, net - (1.4) 1.5 1.1 AGC capacity charges - 3.2 - 6.4 Energy and spinning reserve charges 1.8 .9 2.5 2.1 Total regulated operations purchased power 127.5 14.4 267.4 45.5 Unregulated generation purchased power - 79.8 - 98.5 Elimination - (10.5) - (13.5) Purchased power and exchanges, net $127.5 $83.7 $267.4 $130.5 *PURPA cost (cents per kWh) 4.9 4.4 4.7 4.4 The increases in other utility operations purchased power in the second quarter and six months ended June 30, 2000 were due primarily to the Company's purchase of power from Allegheny Energy Supply in order to provide energy to its customers eligible to choose an alternate supplier, but electing not to do so. The generation previously available to serve those customers has been freed up by the Customer Choice Act in Pennsylvania and has been transferred by the Company to Allegheny Energy Supply. AGC capacity charges and unregulated generation purchased power decreased due to the transfer of the Company's generation, including its ownership interest in AGC, to Allegheny Energy Supply on November 18, 1999. The 1999 eliminations between regulated operations purchased power and unregulated generation purchased power is necessary to remove the effect of affiliated purchased power expenses. Other operation expenses for the second quarter and six months ended June 30, 2000 and 1999 were as follows: - 14 - Other Operation Expenses Three MonthsEnded Six Months Ended June 30 June 30 2000 1999 2000 1999 (Millions of Dollars) Regulated operations $29.0 $29.3 $59.2 $63.2 Unregulated generation - 15.1 - 28.7 Elimination - (2.0) - (4.6) Total other operation expenses $29.0 $42.4 $59.2 $87.3 The decreases in total other operation expenses for the second quarter and six months ended June 30, 2000, were primarily due to the transfer of the Company's generation to Allegheny Energy Supply. The 1999 eliminations between regulated operations and unregulated generation operation expenses are necessary to remove the effect of affiliated transmission purchases. Maintenance expenses for the second quarter and six months ended June 30, 2000 and 1999 were as follows: Maintenance Expenses Three Months Ended Six Months Ended June 30 June 30 2000 1999 2000 1999 (Millions of Dollars) Regulated operations $8.7 $14.2 $17.9 $29.4 Unregulated generation - 9.7 - 19.2 Total maintenance expenses $8.7 $23.9 $17.9 $48.6 The decreases in total maintenance expenses of $15.2 million and $30.7 million for the second quarter and six months ended June 30, 2000, respectively, were primarily due to the transfer of the Company's generation to Allegheny Energy Supply. In 1999, maintenance expenses represented costs incurred to maintain the power stations, the transmission and distribution (T&D) system, and general plant, and reflected routine maintenance of equipment and rights-of-way, as well as planned major repairs and unplanned expenditures, primarily from forced outages at the power stations and periodic storm damage on the T&D system. Current and future maintenance expenses will be to support the Company's delivery or wires business. - 15 - Depreciation and amortization expenses for the second quarter and the first six months of 2000 and 1999 were as follows: Depreciation and Amortization Expenses Three Months Ended Six Months Ended June 30 June 30 2000 1999 2000 1999 (Millions of Dollars) Regulated operations $14.9 $18.6 $30.5 $36.9 Unregulated generation - 12.6 - 26.0 Total depreciation and amortization expenses $14.9 $31.2 $30.5 $62.9 Total depreciation and amortization expenses in the second quarter and first six months of 2000 decreased $16.3 million and $32.4 million, respectively, primarily due to the transfer of generation assets to Allegheny Energy Supply. Taxes other than income taxes for the second quarter and first six months of 2000 and 1999 were as follows: Taxes Other Than Income Taxes Three Months Ended Six Months Ended June 30 June 30 2000 1999 2000 1999 (Millions of Dollars) Regulated operations $8.4 $16.2 $21.0 $30.6 Unregulated generation - 6.9 - 13.3 Total taxes other than income taxes $8.4 $23.1 $21.0 $43.9 Total taxes other than income taxes decreased $14.7 million and $22.9 million in the second quarter and the first six months of 2000, respectively, due primarily to the transfer of West Virginia Business and Occupation taxes, certain property taxes, and capital stock and franchise taxes to Allegheny Energy Supply. The second quarter and the first six months of 2000 decreases in federal and state income taxes of $3.3 million and $18.7 million, respectively, were due to reduced taxable income. Other income, net in the second quarter and the first six months of 2000 increased $3.8 million and $2.0 million, respectively. The second quarter increase was primarily due to increased interest income and a litigation settlement. The increase in other income for the six months ended June 2000 increase was due to increased interest income and a litigation settlement, offset in part by a loss on disposition of property. - 16 - Interest on long-term debt and other interest for the second quarter and first six months of 2000 and 1999 were as follows: Interest Expense Three Months Ended Six Months Ended June 30 June 30 2000 1999 2000 1999 (Millions of Dollars) Interest on long-term debt: Regulated operations $16.6 $10.0 $32.5 $19.6 Unregulated generation - 5.5 - 11.0 Total interest on long-term debt 16.6 15.5 32.5 30.6 Other interest: Regulated operations .7 .4 1.4 .8 Unregulated generation - .8 - 1.4 Total other interest expense .7 1.2 1.4 2.2 Total $17.3 $16.7 $33.9 $32.8 In November 1999, the service obligation for $231 million of pollution control debt was assumed by Allegheny Energy Supply in conjunction with the transfer of the Company's generating assets to Allegheny Energy Supply. However, the pollution control debt also remains an obligation of the Company. Allegheny Energy Supply will indemnify the Company for any debt service the Company may incur. The Company receives credit for the pollution control debt, including accrued interest expense, through equity accounting. Other interest expense reflects changes in the levels of short-term debt maintained by the Company throughout the year, as well as the associated interest rates. Allowance for borrowed funds used during construction and interest capitalized decreased $.6 million and $1.1 million in the second quarter and first six months of 2000, respectively, due primarily to the transfer of generation and generation related construction activity to Allegheny Energy Supply. Financial Condition and Requirements The Company's discussion of Financial Condition, Requirements, and Resources and Significant Continuing Issues in its Annual Report on Form 10-K for the year ended December 31, 1999 should be read with the following information. In the normal course of business, the Company is subject to various contingencies and uncertainties relating to its operations and construction programs, including legal actions and regulations and uncertainties related to environmental matters. Financings In the first six months of 2000, the Company redeemed $19.7 million of class A-1 6.32% transition bonds. Impact of Change in Short-term Interest Rate A one percent change in the short-term borrowing interest rate would have no effect on the Company's interest expense. The Company has no projected short-term borrowings for the six months ended December 31, 2000. - 17 - Electric Energy Competition The electricity supply segment of the electric industry in the United States is becoming increasingly competitive. The national Energy Policy Act of 1992 deregulated the wholesale exchange of power within the electric industry by permitting the Federal Energy Regulatory Commission to compel electric utilities to allow third parties to sell electricity to wholesale customers over their transmission systems. Since 1992, the wholesale electricity market has become more competitive as companies are engaging in nationwide power trading. In addition, the majority of states have taken active steps toward allowing retail customers the right to choose their electricity supplier. The Company continues to be an advocate of federal legislation to create competition in the retail electricity markets to avoid regional dislocations and ensure level playing fields. In the absence of federal legislation, state-by-state implementation of deregulation of electric generation is under way. Allegheny Energy is at the forefront of state-implemented retail competition, having successfully negotiated settlement agreements in all of the states the Operating Subsidiaries (The Company, Monongahela Power, and Potomac Edison) serve. Pennsylvania and Maryland have retail choice programs in place, while Virginia, Ohio, and West Virginia are in the process of developing rules to implement choice over the next two years. Activities at the Federal Level Allegheny Energy continues to seek enactment of federal legislation to bring choice to all retail electric customers, deregulate the generation and sale of electricity on a national level, and create a more liquid, free market for electric power. Fully meeting challenges in the emerging competitive environment will be difficult for Allegheny Energy unless certain outmoded and anti- competitive laws, specifically the Public Utility Holding Company Act of 1935 (PUHCA) and Section 210 (Mandatory Purchase Provisions) of PURPA, are repealed or significantly revised. Allegheny Energy continues to advocate the repeal of PUHCA and Section 210 of PURPA on the grounds that they are obsolete and anti-competitive and that PURPA results in utility customers paying above-market prices for power. H.R. 2944, which was sponsored by U.S. Representative Joe Barton, was favorably reported out of the House Commerce Subcommittee on Energy and Power. While the bill does not mandate a date certain for customer choice, several key provisions favored by the Company are included in the legislation, including an amendment that allows existing state restructuring plans and agreements to remain in effect. Other provisions address important Allegheny Energy priorities by repealing PUHCA and the mandatory purchase provisions of PURPA. Although there was considerable activity and discussion on this bill and several other bills in the House and Senate, that activity fell short of moving consensus legislation forward prior to the August recess. While it is too early to tell whether initial momentum on the issue will result in legislation this year, the upcoming presidential elections in November pose a significant hurdle. - 18 - Pennsylvania Activities As of January 2, 2000, all electricity customers in Pennsylvania had the right to choose their electric suppliers. The number of customers who have switched suppliers and the amount of electrical load transferred in Pennsylvania far exceed that of any other state s o far. The Company has retained about 98% of its Pennsylvania customers as of June 30, 2000. More than 100 electric generation suppliers have been licensed to sell to retail customers in Pennsylvania. The status of electric energy competition in Ohio, West Virginia, Virginia, and Maryland in which affiliates of the Company serve are as follows: Ohio Activities On June 22, 1999, the Ohio General Assembly passed legislation to restructure its electric utility industry. Governor Taft added his signature soon thereafter, and all of the state's customers will be able to choose their electricity supplier starting January 1, 2001, beginning a five-year transition to market rates. Total electric rates will be frozen over that period, and residential customers are guaranteed a 5% cut in the generation portion of their rate. The determination of stranded cost recovery will be handled by the Ohio PUC. On January 3, 2000, The Company's affiliate, Monongahela Power, filed a transition plan with the Ohio PUC, including its claim for recovery of stranded costs of $21.3 million. The Company's affiliate, Monongahela Power, reached a stipulated agreement with major parties on a transition plan to bring electric choice to its 28,000 Ohio customers. The stipulation was filed with the Public Utilities Commission of Ohio (Ohio PUC) on June 22, 2000. The following are the highlights of the agreement: * Monongahela Power will be permitted to transfer approximately 325 megawatts (MW) of Ohio jurisdictional generating assets to a non- regulated affiliate at book value on January 1, 2001. * Residential customers will receive a five-percent reduction in the generation portion of their electric bills during a five-year market development period beginning on January 1, 2001. The rates will be frozen for five years. * Monongahela Power's, existing, low generation rates will be frozen for a maximum of three years for large industrial and commercial customers. * Monongahela Power will collect a regulatory asset transition charge through the respective market development periods. * Monongahela Power's, unregulated affiliate Allegheny Energy Supply, will be permitted to offer competitive generation service throughout Ohio. * All additional taxes resulting from competitive legislation will be deferred for up to two years. * Monongahela Power will participate with the Ohio PUC and Ohio Consumer's Counsel in a statewide consumer education campaign supplemented by a local education effort. - 19 - Monongahela Power anticipates the Ohio PUC's approval during the third quarter of 2000. West Virginia Activities In March 1998, legislation was passed by the West Virginia Legislature that directed the Public Service Commission of West Virginia (W. Va. PSC) to meet with all interested parties to develop a restructuring plan which would meet the dictates and goals of the legislation. In January 2000, the W.Va. PSC submitted a restructuring plan to the legislature for approval that would open full retail competition on January 1, 2001. Generation would be deregulated and electricity rates initially would be reduced for large commercial and industrial customers and then frozen for all customers for four years, with power supply rates gradually transitioning to market rates over the next six years. Other highlights of the plan include the ability to transfer generation assets, the transfer of control of transmission to a regional transmission organization by 2003, a utility-funded rate stabilization deferral mechanism to offset residential and small commercial rates in later years, a wires charge for customers who shop, and a systems benefit charge to assist low income customers and displaced employees in utility and related industries. The plan was endorsed by virtually all of the interested parties, including The Company's affiliates, Monongahela Power and Potomac Edison. On March 11, 2000, the West Virginia Legislature approved the Commission's plan, but assigned the tax issues surrounding the plan to the 2000 Legislative Interim Committees to recommend the necessary tax changes involved and come back to the Legislature in 2001 for approval of those changes and authority to implement the plan. The start date of competition is contingent upon the necessary tax changes being made and approved by the legislature. It is expected that implementation of the deregulation plan will occur in mid-2001 if the Legislature approves the necessary tax law changes. The W. Va. PSC is currently in the process of developing the rules under which competition will occur. Associated rulemaking proceedings are scheduled for the remainder of this year. The W. Va. PSC approved the Company's affiliates, Potomac Edison and Monongahela Power, request to transfer generating assets to Allegheny Energy Supply by July 1, 2000 and the start of competition, respectively. In accordance with the restructuring agreement the Company's affiliates implemented a commercial and industrial rate reduction program on July 1, 2000. The W. Va. PSC is expected to rule on the July 12, 2000 unbundled tariffs filing before year end. Virginia Activities On March 25, 1999, Governor Gilmore signed the Virginia Electric Utility Restructuring Act (Restructuring Act) passed by the Virginia General Assembly. All utilities must submit a restructuring plan by January 1, 2001, to be effective on January 1, 2002. Customer choice will be phased in beginning on January 1, 2002, with full customer choice by January 1, 2004. The Restructuring Act was amended during the 2000 General Assembly legislative session. In addition to a number of clarifying and technical changes, the amendments direct the Virginia State Corporation Commission (Virginia SSC) to prepare for legislative approval a plan for competitive metering and billing and authorize the Commission to implement a consumer education program on electric choice funded through the Commission's regulatory tax. Legislation was also adopted in 2000 governing the ability of rural electric cooperatives to engage in competitive businesses, including certain restrictions on the competitive sale of electricity by cooperatives - 20 - and their affiliates. On May 25, 2000, the Company's affiliate, Potomac Edison filed Phase I of its functional separation plan with the Virginia SCC, requesting approval to transfer ownership, at book value, of its generation facilities with the exception of the Virginia hydro stations and the Riverton power plant property to Allegheny Energy Supply as of July 1, 2000. On July 11, 2000, the Virginia SCC issued an order approving Potomac Edison's separation plan permitting the transfers of the Company's generating assets and the following provisions of the Phase I application. * Agreement to reduce Virginia jurisdictional base rate revenues by $1 million, effective July 1, 2000. * Agreement not to file an application for a base rate increase prior to January 1, 2001. * Agreement to operate and maintain its distribution system in Virginia at or above historic levels of service quality and reliability. * Agreement during default service period to contract for generation services to be provided to customers at the same costs that it would incur to serve customers from the units it now owns. * A proposal to terminate the fuel factor mechanism and instead recover fuel costs through base rates. Various rulemaking proceedings to implement customer choice are ongoing before the Virginia SCC. Maryland Activities On June 7, 2000, the Maryland Public Service Commission (PSC) approved the transfer of the generating assets of The Company's affiliate, Potomac Edison, to its unregulated affiliate, Allegheny Energy Supply. The transfer of 2,100 MW was made on August 1, 2000. State utility commissions in Maryland, West Virginia, and Virginia approved the transfer of these assets as part of deregulation proceedings in those states. The Federal Energy Regulatory Commission and the Securities and Exchange Commission also approved the transfer. Maryland customers of The Company's affiliate, Potomac Edison, had the right to choose an alternative electric provider on July 1, 2000, although the Commission has not yet finalized all of the rules that will govern customer choice in the state. To date, no customers have switched in Potomac Edison's service territory. On July 1, 2000, the Commission issued a restrictive order on affiliated transactions and codes of conduct, which the Company plans to file an appeal in court. The Commission is developing rules on emissions disclosure and is also examining whether and how to require renewable portfolio standards for retail suppliers in the state. - 21- WEST PENN POWER COMPANY AND SUBSIDIARIES Part II - Other Information to Form 10-Q for Quarter Ended June 30, 2000 . ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: (27) Financial Data Schedule (b) No reports on Form 8-K were filed on behalf of the Company for the quarter ended June 30, 2000. Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WEST PENN POWER COMPANY /s/ T. J. KLOC T. J. Kloc, Controller (Chief Accounting Officer) August 14, 2000 EX-27 2 0002.txt
5 West Penn Power Company Consolidated 1,000 U.S. DOLLARS 3-MOS DEC-31-1999 APR-01-2000 JUN-30-2000 1 4,878 2,189 151,788 17,118 17,825 260,164 1,622,530 525,786 1,824,650 220,467 936,090 0 0 65,842 69,609 1,824,650 250,563 250,563 165,187 188,533 0 0 17,118 51,242 17,653 33,589 0 0 0 33,589 0.00 0.00 All common stock is owned by parent, no EPS required.
-----END PRIVACY-ENHANCED MESSAGE-----