-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, BveAk3vrDudrv3BKbEB5QS14UhVzo41U9pNG1rSLy/trMd1BMa+uIL55GinNOi6Y FqXVgL1BLtxQPB/CxtUgmg== 0000052485-94-000014.txt : 19941111 0000052485-94-000014.hdr.sgml : 19941111 ACCESSION NUMBER: 0000052485-94-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941110 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IES UTILITIES INC CENTRAL INDEX KEY: 0000052485 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 420331370 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04117 FILM NUMBER: 94558714 BUSINESS ADDRESS: STREET 1: 200 FIRST STREET SE CITY: CEDAR RAPIDS STATE: IA ZIP: 52401 BUSINESS PHONE: 3193984411 FORMER COMPANY: FORMER CONFORMED NAME: IOWA ELECTRIC LIGHT & POWER CO DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IOWA RAILWAY & LIGHT CORP DATE OF NAME CHANGE: 19670629 10-Q 1 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 (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-4117-1 IES UTILITIES INC. (Exact name of registrant as specified in its charter) Iowa 42-0331370 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) IE Tower, Cedar Rapids, Iowa 52401 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (319) 398-4411 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. Class Outstanding at October 31, 1994 Common Stock, $2.50 par value 13,370,788 shares IES UTILITIES INC. INDEX Page No. Part I. Financial Information. Item 1. Financial Statements. Balance Sheets - September 30, 1994 and December 31, 1993 3 - 4 Statements of Income - Three, Nine and Twelve Months Ended September 30, 1994 and 1993 5 Statements of Cash Flows - Three, Nine and Twelve Months Ended September 30, 1994 and 1993 6 Notes to Financial Statements 7 - 18 Item 2. Management's Discussion and Analysis of the Results of Operations and Financial Condition. 19 - 30 Part II. Other Information. 31 - 33 Signatures. 34 PART 1. - FINANCIAL INFORMATION ITEM 1. - FINANCIAL STATEMENTS BALANCE SHEETS September 30, 1994 December 31, ASSETS (Unaudited) 1993 (in thousands) Utility plant, at original cost: Plant in service - Electric $ 1,750,922 $ 1,707,278 Gas 155,861 147,956 Other 79,277 75,845 1,986,060 1,931,079 Less - Accumulated depreciation 869,029 813,312 1,117,031 1,117,767 Leased nuclear fuel, net of amortization 50,349 51,681 Construction work in progress 65,115 41,937 1,232,495 1,211,385 Current assets: Cash and temporary cash investments 200 18,313 Accounts receivable - Customer, less reserve 11,473 22,679 Other 6,591 10,330 Income tax refunds receivable 7,458 8,767 Production fuel, at average cost 12,848 14,338 Materials and supplies, at average cost 26,654 26,861 Adjustment clause balances 499 0 Regulatory assets 14,984 13,319 Prepayments and other 26,094 31,502 106,801 146,109 Other assets: Regulatory assets 177,020 143,080 Nuclear decommissioning trust funds 32,681 28,059 Other investments 3,793 2,821 Deferred charges and other 18,413 15,524 231,907 189,484 $ 1,571,203 $ 1,546,978 September 30, 1994 December 31, CAPITALIZATION AND LIABILITIES (Unaudited) 1993 (in thousands) Capitalization: Common stock - par value $2.50 per share - authorized 24,000,000 shares; 13,370,788 shares outstanding $ 33,427 $ 33,427 Paid-in surplus 279,042 279,042 Retained earnings ($18,209,000 restricted as to payment of cash dividends) 201,107 188,862 Total common equity 513,576 501,331 Cumulative preferred stock - par value $50 per share - authorized 466,406 shares; 366,406 shares outstanding 18,320 18,320 Long-term debt 430,277 480,074 962,173 999,725 Current liabilities: Notes payable to associated companies 2,608 0 Short-term borrowings 0 24,000 Capital lease obligations 14,241 15,345 Maturities and sinking funds 50,224 224 Accounts payable 40,348 47,179 Dividends payable 229 5,229 Accrued interest 11,090 9,438 Accrued taxes 60,491 39,763 Accumulated refueling outage provision 12,049 2,660 Adjustment clause balances 0 5,149 Provision for rate refund liability 0 8,670 Other 22,413 22,369 213,693 180,026 Long-term liabilities: Capital lease obligations 36,108 36,336 Liability under National Energy Policy Act of 1992 11,967 11,984 Environmental liabilities 18,434 9,130 Other 38,181 29,866 104,690 87,316 Deferred credits: Accumulated deferred income taxes 250,185 237,464 Accumulated deferred investment tax credits 40,462 42,447 290,647 279,911 Commitments and contingencies (Note 7 ) $ 1,571,203 $ 1,546,978 The accompanying Notes to Financial Statements are an integral part of these statements. STATEMENTS OF INCOME (UNAUDITED)
For the Three For the Nine For the Twelve Months Ended Months Ended Months Ended September 30 September 30 September 30 1994 1993 1994 1993 1994 1993 (in thousands) Operating revenues: Electric $ 165,621 $ 170,224 $ 412,610 $ 419,157 $ 543,974 $ 527,057 Gas 12,209 15,427 100,506 104,568 150,256 160,146 Steam 1,647 1,741 6,393 6,370 8,932 8,815 179,477 187,392 519,509 530,095 703,162 696,018 Operating expenses: Fuel for production 29,419 20,107 68,067 63,375 92,394 79,763 Purchased power 17,305 32,410 48,132 71,690 69,892 89,948 Gas purchased for resale 5,388 8,766 69,386 73,550 104,958 115,247 Other operating expenses 34,563 28,696 96,515 88,367 131,358 118,617 Maintenance 11,577 13,289 35,772 35,683 46,307 46,458 Depreciation and amortization 18,960 17,882 57,280 53,200 73,487 69,128 Property taxes 9,261 10,300 29,449 28,099 37,776 35,489 Federal and state income taxes: Current 18,030 14,948 33,278 29,972 31,667 39,229 Deferred 286 4,150 3,968 5,818 14,061 2,058 Amortization of investment tax credits -662 -696 -1,984 -2,087 -4,758 -2,779 Miscellaneous taxes 1,227 1,445 4,104 4,137 4,852 5,140 145,354 151,297 443,967 451,804 601,994 598,298 Operating income 34,123 36,095 75,542 78,291 101,168 97,720 Other income and deductions: Allowance for equity funds used during construction 647 64 1,800 305 2,320 669 Miscellaneous, net 779 -643 2,442 1,313 3,376 2,092 1,426 -579 4,242 1,618 5,696 2,761 Interest: Long-term debt 9,471 7,881 28,448 25,419 37,955 34,522 Other 785 1,438 2,568 4,039 3,774 5,054 Allowance for debt funds used during construction -440 -17 -1,164 -676 -1,638 -929 9,816 9,302 29,852 28,782 40,091 38,647 Net income 25,733 26,214 49,932 51,127 66,773 61,834 Preferred dividend requirements 229 229 686 686 914 914 Net income available for common stock $ 25,504 $ 25,985 $ 49,246 $ 50,441 $ 65,859 $ 60,920 The accompanying Notes to Financial Statements are an integral part of these statements.
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three For the Nine For the Twelve Months Ended Months Ended Months Ended September 30 September 30 September 30 1994 1993 1994 1993 1994 1993 (in thousands) Cash flows from operating activities: Net income $ 25,733 $ 26,214 $ 49,932 $ 51,127 $ 66,773 $ 61,834 Adjustments to reconcile net income to net cash flows from operating activities - Depreciation and amortization 18,960 17,882 57,280 53,200 73,487 69,128 Principal payments under capital lease obligations 4,079 877 12,584 7,709 16,304 10,147 Deferred taxes and investment tax credits -511 2,925 1,471 2,713 9,290 -1,299 Amortization of deferred charges 277 265 821 678 1,092 884 Refueling outage provision 3,338 -8,182 9,389 -3,548 8,048 -534 Allowance for equity funds used during construction -647 -64 -1,800 -305 -2,320 -669 Other 1,115 295 1,666 302 1,913 777 Other changes in assets and liabilities - Accounts receivable 2,431 -8,754 15,145 -4,107 10,934 -20,057 Sale of utility accounts receivable 0 -3,300 -200 10,490 -200 18,200 Production fuel, materials and supplies -1,323 1,253 1,559 8,012 -545 11,793 Accounts payable 3,644 18,302 -4,942 8,089 -10,714 18,021 Accrued taxes 21,574 514 22,037 -3,835 14,521 -863 Provision for rate refunds 0 1,278 -8,670 -1,168 -7,852 -4,798 Adjustment clause balances -3,575 -6,741 -5,648 1,009 -291 610 Gas in storage -5,994 -9,111 2,963 -253 907 -2,767 Deferred energy efficiency costs -4,340 -2,135 -11,511 -6,036 -15,221 -8,032 Accrued interest 1,625 64 1,652 -1,371 3,213 -2,507 Other 2,664 3,832 4,044 5,359 2,412 1,037 Net cash flows from operating activities 69,050 35,414 147,772 128,065 171,751 150,905 Cash flows from financing activities: Dividends declared on common stock -15,000 -3,800 -37,000 -19,500 -48,800 -23,528 Dividends declared on preferred stock -229 -229 -686 -686 -914 -914 Dividends payable 0 0 -5,000 0 0 229 Equity infusion from parent company 0 0 0 50,000 0 50,000 Proceeds from issuance of long-term debt 0 0 0 0 119,400 0 Reductions in long-term debt 0 0 -224 -60,224 -19,624 -60,224 Net change in short-term borrowings -14,658 5,140 -21,392 -9,172 -81,192 65,791 Principal payments under capital lease obligations -4,078 -3,415 -12,225 -10,400 -13,102 -13,816 Net cash flows from financing activities -33,965 -2,304 -76,527 -49,982 -44,232 17,538 Cash flows from investing activities: Construction and acquisition expenditures -33,369 -32,814 -81,704 -74,982 -119,933 -165,000 Nuclear decommissioning trust funds -1,383 -1,383 -4,149 -4,149 -5,532 -5,532 Other -824 1,458 -3,505 1,314 -4,276 1,897 Net cash flows from investing activities -35,576 -32,739 -89,358 -77,817 -129,741 -168,635 Net increase (decrease) in cash and temporary cash investments -491 371 -18,113 266 -2,222 -192 Cash and temporary cash investments at beginning of period 691 1,638 18,313 1,743 2,422 2,201 Cash and temporary cash investments at end of period $ 200 $ 2,009 $ 200 $ 2,009 $ 200 $ 2,009 Supplemental cash flow information: Cash paid during the period for - Interest $ 8,578 $ 9,187 $ 30,526 $ 30,739 $ 39,079 $ 41,757 Income taxes $ 5,442 $ 7,921 $ 22,049 $ 29,261 $ 32,917 $ 43,495 Noncash investing and financing activities - Capital lease obligations incurred $ 10,828 $ 1,001 $ 11,252 $ 14,398 $ 11,460 $ 13,572 The accompanying Notes to Financial Statements are an integral part of these statements.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) September 30, 1994 (1) GENERAL: The interim Financial Statements have been prepared by IES Utilities Inc. (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The Company is a wholly-owned subsidiary of IES Industries Inc. (Industries) and was formed as a result of the merger of Industries' former wholly-owned utility subsidiaries, Iowa Electric Light and Power Company (IE) and Iowa Southern Utilities Company (IS), effective December 31, 1993. Certain information and footnote 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, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of the Company, the Financial Statements include all adjustments, which are normal and recurring in nature, necessary for the fair presentation of the results of operations and financial position. Certain prior period amounts have been reclassified on a basis consistent with the 1994 presentation. It is suggested that these Financial Statements be read in conjunction with the Financial Statements and the notes thereto included in the Company's Form 10-K for the year ended December 31, 1993. The accounting and financial policies relative to the following items have been described in those notes and have been omitted herein because they have not changed materially through the date of this report: General Summary of significant accounting policies (other than discussed in Note 2) Acquisition of Iowa service territory of Union Electric Company Leases (other than discussed in Note 6) Income taxes Benefit plans (other than discussed in Note 2(a)) Preferred and preference stock Debt (other than discussed in Note 5) Estimated fair value of financial instruments (other than discussed in Note 2(b)) Commitments Jointly-owned electric utility plant Segments of business (2) NEW ACCOUNTING STANDARDS: (a) Accounting for Postemployment Benefits - On January 1, 1994, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) 112, "Employers' Accounting for Postemployment Benefits," and its adoption did not have a material effect on the Company's financial position or results of operations. This statement requires that benefits offered to former or inactive employees after termination of employment, but before retirement, be accrued over the service lives of the employees if all of the following conditions are met: 1) the obligation relates to services already performed; 2) the employees' rights vest; 3) the payments are probable; and 4) the amounts are reasonably determinable. Otherwise, such obligations are to be recognized at the time they become probable and reasonably determinable. Prior to 1994, the Company had generally accounted for these obligations as they were paid. (b) Accounting for Certain Investments in Debt and Equity Securities - On January 1, 1994, the Company adopted SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities." This standard, which applies to the Company's nuclear decommissioning trust funds at September 30, 1994, requires that unrealized gains and losses on such investments be included in the reported balance of such investments. At September 30, 1994, the balance of the "Nuclear decommissioning trust funds" as shown in the Balance Sheets included $0.6 million of unrealized losses on the investments held in the trust funds. The reserve for decommissioning costs, included in "Accumulated depreciation" in the Balance Sheets was adjusted by a corresponding amount, and there was no effect on net income from adopting this standard. (3) RATE MATTERS: (a) 1991 Electric Rate Case - In October 1991, IE applied to the Iowa Utilities Board (IUB) for an increase in retail electric rates of $18.9 million annually, or 6.0%. The IUB approved an interim rate increase of $15.6 million, annually, which became effective in December 1991, subject to refund. In December 1992, the IUB issued its "Order On Rehearing," which affirmed its original decision approving an annual electric rate increase of $7.9 million. IE appealed one issue in the IUB's Order to the Iowa District Court (Court) and, in December 1993, the Court issued its decision upholding the IUB's Order. As a result of the Court's decision, the Company completed a refund of $9.2 million, including interest, in the second quarter of 1994. There was no effect on electric revenues or net income when the refund was made because the Company had been reserving for the effect of the refund. (b) 1994 Electric Rate Case - On July 8, 1994, the Company applied to the IUB for an increase in retail electric rates of approximately $21 million annually, or 4.3%. The Company's proposal includes approximately $19 million in annual revenue requirement related to increased recovery levels of depreciation expense, nuclear decommissioning expense and post-employment benefit costs. To the extent these proposals are approved by the IUB, corresponding increases in expense would be recorded and there would be no effect on net income. Any increase approved by the IUB is not expected to be effective before May 1995. No interim increase was requested. Included in the requested increase is a proposal to increase the annual recovery of anticipated costs to decommission the Duane Arnold Energy Center (DAEC), the Company's nuclear generating plant, to approximately $12 million annually, from the current level of $5.5 million. Decommissioning expense is included in "Depreciation and amortization" in the Statements of Income and the cumulative amount is included in "Accumulated depreciation" in the Balance Sheets to the extent recovered through rates. The proposal is based on the following assumptions: 1) cost to decommission the DAEC of $252.7 million in 1993 dollars, based on the Nuclear Regulatory Commission (NRC) minimum formula (which exceeds the amount in the current site-specific study); 2) inflation of 5.56% annually to the year 2014, when decommissioning is expected to begin; 3) the prompt dismantling and removal method of decommissioning; 4) monthly funding of all future collections into external trust funds and funded on a tax-qualified basis to the extent possible; 5) an average after-tax return of 5.88% for all external investments; and 6) a collection method that levelizes the recovery through rates, in real terms, through 2014. Current levels of rate recovery: 1) do not recognize estimated future inflation for the entire period prior to commencement of the decommissioning process; 2) assume that decommissioning begins in 2010; and 3) provide recovery on a straight-line basis without considering the effects of inflation. Earnings on the external trust funds are recorded as interest income and a corresponding interest expense payable to the funds is recorded. The earnings accumulate in the external trust fund balances and in accumulated depreciation. On October 21, 1994, the Office of Consumer Advocate (OCA) filed a petition in connection with this proceeding to reduce the rates for retail electric service by approximately $40 million or 8.2%. The primary differences between the amount of the increase requested by the Company and the decrease proposed by the OCA are: 1) a 12.9% return on common equity requested by the Company compared to 10.05% proposed by the OCA; 2) OCA's rejection of the Company's proposal to increase collections for decommissioning the DAEC; 3) OCA's rejection of the Company's proposal to increase depreciation rates; 4) OCA's rejection of the Company's request to recover an acquisition adjustment associated with its acquisition of the Iowa service territory of Union Electric Company; and 5) an adjustment to test year sales levels proposed by the OCA. If a rate reduction is ultimately ordered by the IUB, the reduction would be effective from October 21, 1994, and revenues collected beyond that date would be subject to refund to the extent of the reduction approved by the IUB, if any. As of September 30, 1994, no revenues were collected subject to refund. Other parties also filed on October 21, 1994, as intervenors in the proceeding. The parties, which primarily represent individual or groups of customers, generally object to the price increase. Certain intervenors made specific comments on various aspects of the Company's proposal, and those that quantified their positions have generally argued for a price decrease, but none as large as that proposed by the OCA. The Company will file its rebuttal testimony to the intervenors' positions in December 1994, and a hearing is scheduled for February 1995. (c) 1994 Energy Efficiency Cost Recovery Filing - The IUB has adopted rules which mandate the Company to spend 2% of electric and 1.5% of gas gross retail operating revenues for energy efficiency programs. On August 15, 1994, the Company applied to the IUB for recovery of approximately $23 million and $13 million for the electric and gas programs, respectively, related to costs incurred through 1993 for such programs. The $36 million total for the electric and gas programs is comprised of $21 million of direct expenditures (recorded as a "Regulatory asset" in the Balance Sheets) and carrying costs, $7 million for a return on the expenditures and $8 million for a reward based on a sharing of the benefits of such programs. On October 31, 1994, the OCA and another intervenor in the proceeding filed their direct testimony. The principal difference between the Company and the OCA is approximately $7 million in the reward calculation. Rebuttal testimony by all parties will be filed during the fourth quarter of 1994, and a hearing is scheduled for January 1995. Any increase approved by the IUB is not expected to be effective before March 1995, and recovery is likely to be over a four-year period with a return allowed on the unrecovered portion over the recovery period. (4) UTILITY ACCOUNTS RECEIVABLE: The Company has entered into an agreement, which expires in 1999, with a financial institution to sell, with limited recourse, an undivided fractional interest of up to $65 million in its pool of utility accounts receivable. At September 30, 1994, $53 million was sold under the agreement. (5) SHORT-TERM DEBT: At September 30, 1994, the Company had bank lines of credit aggregating $67.7 million, of which $7.7 million was being used to support pollution control obligations. Commitment fees are paid to maintain these lines and there are no conditions that restrict the unused lines of credit. In addition to the above, the Company has an uncommitted credit facility with a financial institution whereby it can borrow up to $40 million, of which none was outstanding at September 30, 1994. Rates are set at the time of borrowing and no fees are paid to maintain this facility. The Company also has a letter of credit in the amount of $3.4 million supporting its variable rate pollution control obligations. (6) OFFICE LEASE GUARANTY: The Company entered into a lease agreement, effective July 1, 1994, as lessee for its corporate general office in Cedar Rapids, Iowa. The lessor is a trust (IES Utilities Trust, not affiliated with the Company) formed by various financial institutions. The term of the lease is five years, with two one-year extensions available at the Company's option. The Company had previously been leasing the building from a different lessor. Pursuant to its Guaranty associated with the lease, if the Company defaults on its obligations under the lease, it will be required to pay all debt service payments related to the debt incurred by the lessor for purchase of the building, all amounts payable with respect to the equity contributions (including a return on the contributions) made to the trust by the financial institutions, and other payments associated with the lease transaction. The aggregate amount of the potential payments with respect to the Guaranty is approximately $20 million. (7) CONTINGENCIES: (a) Nuclear Insurance Programs - The Price-Anderson Amendments Act of 1988 (1988 Act) provides the Company with the benefit of $9.0 billion of public liability coverage consisting of $200 million of insurance and $8.8 billion of potential retroactive assessments from the owners of nuclear power plants. Based upon its ownership of the DAEC, under the 1988 Act, the Company could be assessed a maximum of $79.3 million per nuclear incident, with a maximum of $10 million per year (of which the Company's 70% ownership portion would be approximately $55 million and $7 million, respectively) if losses relating to the incidents exceeded $200 million. These limits are subject to adjustments for inflation in future years. The Company is a member of Nuclear Electric Insurance Limited (NEIL), which provides insurance coverage for the cost of certain property losses at nuclear generating stations and for the cost of replacement power during certain outages. Companies insured through NEIL are subject to retroactive premium adjustments if losses exceed accumulated reserve funds. NEIL's accumulated reserve funds are currently sufficient to more than cover its exposure in the event of a single incident under the property damage or replacement power coverages. However, the Company could be assessed annually a maximum of $8.5 million for certain property losses and $0.7 million for replacement power if NEIL's losses relating to accidents exceeded its accumulated reserve funds. The Company is not aware of any losses that it believes are likely to result in an assessment. (b) Environmental Liabilities - At September 30, 1994, the Company's Balance Sheets reflect $22.7 million (including $4.3 million as current) of liabilities for investigation and remediation of environmental issues. The recorded amount represents the Company's estimate of the minimum aggregate amount that will be incurred for investigation and remediation of the environmental contamination, which amount is substantially related to clean-up costs associated with certain former manufactured gas plant (FMGP) sites. In April 1994, the Company received updated investigation reports on a number of sites, which, at some sites, indicated a greater volume of contaminated soil surface and ground water needing treatment, and a greater volume of substances requiring higher cost incineration, than was anticipated in prior estimates. Prior estimates were based on investigations conducted at what were expected to be representative sites. It is possible that future cost estimates will be greater than the current estimates as further investigations are conducted and as additional facts become known. The Company has not initiated the investigation on two of its 27 sites for which it has been identified as a Potentially Responsible Party (PRP), but intends to do so, and is continuing work on sites requiring remediation. The Company has been named as a PRP for its FMGP sites by either the Iowa Department of Natural Resources (IDNR) or the United States Environmental Protection Agency (EPA). The Company is working pursuant to the requirements of the IDNR and EPA to investigate, mitigate, prevent and remediate, where necessary, damage to property, including damage to natural resources, at and around its 27 sites in order to protect public health and the environment. Such investigations are expected to be completed by 1999 and site-specific remediations, based on recommendations from the IDNR and EPA, are anticipated to be completed within three years after the completion of the investigations of each site. The Company may be required to monitor these sites for a number of years upon completion of remediation. Such monitoring costs are not included in the estimates above. The Company has begun pursuing coverage for investigation, mitigation, prevention, remediation and monitoring costs from its insurance carriers and is investigating the potential for third party cost sharing for FMGP investigation and clean-up costs. The amount of shared costs, if any, can not be reasonably determined and, accordingly, no potential sharing has been recorded at September 30, 1994. Regulatory assets of $22.5 million have been recorded in the Balance Sheets, which reflect the future recovery that is being provided through rates. Considering the recorded reserves for environmental liabilities and the past rate treatment allowed by the IUB, management believes that the clean-up costs incurred by the Company for these FMGP sites will not have a material adverse effect on its financial position or results of operations. (c) Clean Air Act - The Clean Air Act Amendments Act of 1990 (Act) requires emission reductions of sulfur dioxide and nitrogen oxides to achieve reductions of atmospheric chemicals believed to cause acid rain. The provisions of the Act will be implemented in two phases with Phase I affecting two of the Company's units beginning in 1995 and Phase II affecting all units beginning in the year 2000. The Company expects to meet the requirements of the Act by switching to lower sulfur fuels and through capital expenditures primarily related to fuel burning equipment and boiler modifications. The Company estimates capital expenditures at approximately $28 million, including $5 million in 1994, in order to meet these requirements of the Act. (d) National Energy Policy Act of 1992 - The National Energy Policy Act of 1992 requires owners of nuclear power plants to pay a special assessment into a "Uranium Enrichment Decontamination and Decommissioning Fund." The assessment is based upon prior nuclear fuel purchases and, for the DAEC, averages $1.4 million annually through 2007, of which the Company's 70% share is $1.0 million. The Company is recovering the costs associated with this assessment through its electric fuel adjustment clauses over the period the costs are assessed. The Company's 70% share of the future assessment, $12.7 million payable through 2007, has been recorded as a liability in the Balance Sheets, including $0.8 million included in "Current liabilities - Other," with a related regulatory asset for the unrecovered amount. (e) Federal Energy Regulatory Commission (FERC) Order No. 636 - The FERC issued Order No. 636 (Order 636) in 1992. Order 636, as modified on rehearing: 1) requires the Company's pipeline suppliers to unbundle their services so that gas supplies are obtained separately from transportation service, and transportation and storage services are operated and billed as separate and distinct services; 2) requires the pipeline suppliers to offer "no notice" transportation service under which firm transporters (such as the Company) can receive delivery of gas up to their contractual capacity level on any day without prior scheduling; 3) allows pipelines to abandon long-term (one year or more) transportation service provided to a customer under an expiring contract whenever the customer fails to match the highest rate and longest term (up to 20 years) offered to the pipeline by other customers for the particular capacity; and 4) provides for a mechanism under which pipelines can recover prudently incurred transition costs associated with the restructuring process. The Company has enhanced access to competitively priced gas supply and more flexible transportation services as a result of Order 636. However, the Company will be required to pay certain transition costs incurred and billed by its pipeline suppliers as Order 636 is implemented. The Company's three pipeline suppliers have filed tariffs with the FERC implementing Order 636 and the pipelines have also made filings with the FERC to begin collecting their respective transition costs. The Company began paying the transition costs in November 1993, and, at September 30, 1994, has recorded a liability of $6.6 million for those transition costs that have been incurred by the pipelines to date, including $2.5 million expected to be billed through September 1995. The Company is currently recovering the transition costs from its customers through its Purchased Gas Adjustment Clause as such costs are billed by the pipelines. While the magnitude of the total transition costs to ultimately be charged to the Company cannot yet be determined, the Company believes any transition costs, which the FERC would allow the pipelines to collect from the Company, would be recovered from its customers, based upon regulatory treatment of these costs currently and similar past costs by the IUB. Accordingly, regulatory assets, in amounts corresponding to the liabilities, have been recorded to reflect the anticipated recovery. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion analyzes significant changes in the components of net income and financial condition from the prior periods for IES Utilities Inc. (the Company). RESULTS OF OPERATIONS The Company's net income available for common stock as compared to the same periods last year decreased $0.5 million and $1.2 million for the three and nine month periods, respectively, and increased $4.9 million for the twelve month period ended September 30, 1994. The Company's operating income decreased $2.0 million and $2.7 million for the three and nine month periods, respectively, and increased $3.4 million during the twelve month period. Reasons for the changes in the results of operations are explained in the following discussion. ELECTRIC REVENUES Electric revenues and Kwh sales (before off-system sales) increased or (decreased) for the periods ended September 30, 1994, compared with prior periods, as follows: Revenues Kwh Sales (millions) Three months $ (4.6) 8.0% Nine months $ (6.5) 5.3% Twelve months $ 16.9 9.0% After adjusting for the effects of weather, sales increased 8.7%, 4.6% and 8.5% for the three, nine and twelve month periods, respectively. The underlying growth in the Company's service territory is reflected in increases in commercial and industrial sales for all periods. The increase for the twelve month period also reflects the acquisition of the Iowa service territory from Union Electric Company (UE) on December 31, 1992, for the full 1994 period, but for only three quarters of the 1993 period. Excluding the effects of the sales to the former UE customers, sales for the twelve month period increased 4.7%. The Company's electric tariffs include energy adjustment clauses (EAC) that are designed to currently recover the costs of fuel and the energy portion of purchased power billings to customers. The revenue decreases for the three and nine month periods were primarily the result of lower average revenue per Kwh sold, in part because of the sales mix among customer classes, and lower off-system sales to other utilities, partially offset by the overall increase in Kwh sales. Lower fuel costs collected through the EAC also contributed to the revenue decrease for the nine month period. The revenue increase for the twelve month period was primarily because of the increase in Kwh sales, partly related to the acquisition of the UE territory, and increased recoveries of fuel costs through the EAC. The effect of the sales increase was partially offset by lower off-system sales and lower average revenue per Kwh sold. GAS REVENUES Gas revenues decreased $3.2 million, $4.1 million and $9.9 million for the three, nine and twelve month periods, respectively. The Company's gas tariffs include purchased gas adjustment clauses (PGA) that are designed to currently recover the cost of gas sold. Sales, including transported volumes, were flat for the three month period and decreased 0.5% and 2.0% for the nine and twelve month periods, respectively. The reduction in gas revenues for all periods was attributable to lower gas costs recovered through the PGA and, for the nine and twelve month periods, lower dekatherm sales. After adjusting for the effects of weather, sales increased 1.5% and 1.0% for the three and nine month periods, respectively, and were flat for the twelve month period. OPERATING EXPENSES Fuel for production increased $9.3 million, $4.7 million and $12.6 million during the three, nine and twelve month periods, respectively, primarily because of increased generation at the Company's nuclear and fossil-fueled generating stations. The Company's nuclear generating station, the Duane Arnold Energy Center (DAEC), was down for a refueling outage in the third quarter of 1993, which was the primary reason for increased nuclear generation in 1994. The underlying reason for the generation increases in total was the increased Kwh sales discussed earlier. Purchased power decreased $15.1 million, $23.6 million and $20.1 million during the three, nine and twelve month periods, respectively. The decreases were primarily because of lower energy purchases resulting from the increased generation, as explained above, and lower capacity costs for the nine and twelve month periods. The decreased capacity charges were attributable to the expiration, in April 1993, of the Muscatine purchase power agreement, net of higher capacity costs associated with other contracts, in part related to the acquisition of the UE territory. Gas purchased for resale decreased $3.4 million, $4.2 million and $10.3 million for the three, nine and twelve month periods, respectively. The decrease for all periods is largely related to a reduction in gas purchases caused by a decrease in sales to ultimate consumers. Transported volumes increased during all periods but the Company does not incur a purchased gas cost for such volumes. Other operating expenses increased $5.9 million, $8.1 million and $12.7 million for the three, nine and twelve month periods, respectively. The increases for all periods are primarily attributable to increased costs at the DAEC, higher information systems costs and increased clean-up costs for former manufactured gas plant sites. Increased labor and benefit costs also contributed to the increase for the nine and twelve month periods. Maintenance expenditures decreased $1.7 million for the three month period primarily because of less maintenance activities at the Company's fossil generating stations. Depreciation and amortization increased during all periods primarily because of increases in utility plant in service. Depreciation and amortization expenses for both years include a provision for decommissioning the DAEC ($5.5 million annually), which is collected through rates. The staff of the Securities and Exchange Commission (SEC) has questioned certain of the current accounting practices regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in the financial statements of electric utilities. In response to these questions, the Financial Accounting Standards Board has agreed to review the accounting for removal costs, including decommissioning. If such current electric utility industry accounting practices are changed, annual provisions for decommissioning could increase, the estimated cost for decommissioning could be recorded as a liability rather than as accumulated depreciation, and the liability for the entire expected cost to decommission the DAEC may be required to be recorded currently. If such changes are required, the Company believes that there would not be an adverse effect on its financial position or results of operations based on current rate making practices. (See Note 3(b) of the Notes to Financial Statements for a discussion of the Company's proposal for collection of decommissioning costs included in its current rate filing). Property taxes decreased $1.0 million for the three month period primarily because of an adjustment recorded to property tax accruals. Property taxes increased $1.4 million and $2.3 million during the nine and twelve month periods, respectively, primarily because of increased property taxes associated with increases in assessed property values of utility property. INTEREST Interest expense on long-term and other debt increased $0.9 million, $1.6 million and $2.2 million during the three, nine and twelve month periods, primarily because of increases in the average amount of debt outstanding. The average interest rate for all periods remained fairly constant. LIQUIDITY AND CAPITAL RESOURCES The Company's capital requirements are primarily attributable to its construction programs, debt maturities and sinking fund requirements. Cash flows from operating activities for the twelve months ended September 30, 1994, were approximately $172 million. These funds were primarily used for construction expenditures and dividends on common stock. It is anticipated that the Company's future capital requirements will be met by both cash flows from operations and external financing. The level of cash flows from operations is partially dependent upon economic conditions, legislative activities, environmental matters and timely rate relief. See Note 3 and Note 7 of the Notes to Financial Statements for a discussion of rate cases and contingencies, respectively. Access to the long-term and short-term capital and credit markets is necessary for obtaining funds externally. The Company's debt ratings currently are as follows: Moody's Standard & Poors Long-term debt A1 A Short-term debt P1 A1 The Company's liquidity and capital resources will be affected by environmental and legislative issues, including the ultimate disposition of remediation issues surrounding the former manufactured gas plant (FMGP) issue, the Clean Air Act as amended, the National Energy Policy Act of 1992, and Federal Energy Regulatory Commission (FERC) Order 636, as discussed in Note 7 of the Notes to Financial Statements. Consistent with rate making principles, management believes that the costs incurred for the above matters will not have a material adverse effect on the financial position or results of operations of the Company. The Iowa Utilities Board (IUB) has adopted rules which mandate the Company to spend 2% of electric and 1.5% of gas gross retail operating revenues for energy efficiency programs. Energy efficiency costs in excess of the amount in the most recent electric and gas rate cases are being recorded as regulatory assets. At September 30, 1994, the Company had $30 million of such costs recorded as regulatory assets. Under this mandate, the Company made its initial filing for recovery of certain of these costs in August 1994, but does not expect to begin recovering the costs until 1995. See Note 3(c) of the Notes to Financial Statements for a further discussion of the filing. CONSTRUCTION AND ACQUISITION PROGRAM The Company's construction program anticipates expenditures of $150 million for 1994, of which approximately 44% represents expenditures for electric transmission and distribution facilities, 18% represents fossil-fueled generation expenditures and 10% represents nuclear generation expenditures. The Company had construction expenditures of approximately $82 million for the nine months ended September 30, 1994. Substantial commitments have been made in connection with the expenditures anticipated before the end of 1994. The Company's levels of construction expenditures are projected to be $149 million in 1995, $144 million in 1996, $149 million in 1997, and $160 million in 1998. It is estimated that approximately 80% of construction expenditures will be provided by cash from operating activities (after payment of dividends) for the five year period 1994-1998. Capital expenditure, investment and financing plans are subject to continual review and change. The capital expenditure and investment programs may be revised significantly as a result of many considerations including changes in economic conditions, variations in actual sales and load growth compared to forecasts, requirements of environmental, nuclear and other regulatory authorities, acquisition opportunities, the availability of alternate energy and purchased power sources, the ability to obtain adequate and timely rate relief, escalations in construction costs and conservation and energy efficiency programs. LONG-TERM FINANCING Other than periodic sinking fund requirements, which the Company intends to meet by pledging additional property, approximately $124 million of long-term debt has scheduled maturities prior to December 31, 1998. The Company intends to refinance the majority of the debt maturities with long-term debt. The Indentures pursuant to which the Company issues First Mortgage Bonds constitute direct first mortgage liens upon substantially all tangible public utility property and contain covenants that restrict the amount of additional bonds that may be issued. At September 30, 1994, such restrictions would have allowed the Company to issue $290 million of additional First Mortgage Bonds. The Company has received authority from the FERC to issue $250 million of First Mortgage Bonds and is currently authorized by the SEC to issue $50 million of long-term debt under an existing registration statement. The Company's Articles of Incorporation authorize and limit the aggregate amount of additional shares of Cumulative Preferred Stock and Cumulative Preference Stock which may be issued. At September 30, 1994, the Company could have issued 700,000 shares of Cumulative Preference Stock, $100 par value, and 100,000 additional shares of Cumulative Preferred Stock, $50 par value. The Company's capitalization ratios at September 30, were as follows: 1994 1993 Long-term debt 47% 43% Preferred stock 2 2 Common equity 51 55 100% 100% The 1994 ratios include $50 million of long-term debt that is due in less than one year because it is the Company's intention to refinance the debt with long-term issues. The 1993 common equity ratio was temporarily high because the Company had not yet issued long-term debt to replace other long-term debt that had been recently redeemed. SHORT-TERM FINANCING For interim financing, the Company is authorized by the FERC to issue, through 1994, up to $125 million of short-term notes. In the fourth quarter of 1994, the Company filed with the FERC to increase its authorized level of short-term borrowings to $200 million through 1996. Approval from the FERC is expected before December 31, 1994. This availability of short-term financing provides flexibility in the issuance of long-term securities. At September 30, 1994, the Company had $2.6 million of notes payable to associated companies outstanding. The Company has an agreement, which expires in 1999, with a financial institution to sell, with limited recourse, an undivided fractional interest of $65 million in its pool of utility accounts receivable. At September 30, 1994, $53 million was sold under the agreement. At September 30, 1994, the Company had bank lines of credit aggregating $67.7 million, of which $7.7 million was being used to support pollution control obligations. Commitment fees are paid to maintain these lines and there are no conditions that restrict the unused lines of credit. In addition to the above, the Company has an uncommitted credit facility with a financial institution whereby it can borrow up to $40 million, of which none was outstanding at September 30, 1994. Rates are set at the time of borrowing and no fees are paid to maintain this facility. The Company also has a letter of credit in the amount of $3.4 million supporting its variable rate pollution control obligations. ENVIRONMENTAL MATTERS At September 30, 1994, the Company's Balance Sheets reflect $22.7 million of liabilities for investigation and remediation of environmental issues. The recorded amount represents the Company's estimate of the minimum aggregate amount that will be incurred for investigation and remediation of the environmental contamination, which amount is substantially related to clean-up costs associated with certain former manufactured gas plant (FMGP) sites. In April 1994, the Company received updated investigation reports on a number of sites, which, at some sites, indicated a greater volume of contaminated soil surface and ground water needing treatment, and a greater volume of substances requiring higher cost incineration, than was anticipated in prior estimates. Prior estimates were based on investigations conducted at what were expected to be representative sites. It is possible that future cost estimates will be greater than the current estimates as further investigations are conducted and as additional facts become known. The Company has not initiated the investigation on two of its 27 sites for which it has been identified as a Potentially Responsible Party (PRP), but intends to do so, and is continuing work on sites requiring remediation. The Company has begun pursuing coverage for investigation, mitigation, prevention, remediation and monitoring costs from its insurance carriers and is investigating the potential for third party cost sharing for FMGP investigation and clean-up costs. The amount of shared costs, if any, can not be reasonably determined and, accordingly, no potential sharing has been recorded at September 30, 1994. Considering the recorded reserves for environmental liabilities and the past rate treatment allowed by the IUB, management believes that the clean-up costs incurred by the Company for these FMGP sites will not have a material adverse effect on its financial position or results of operations. Refer to Note 7 of the Notes to Financial Statements for information relating to potential environmental liabilities associated with certain FMGP sites. The Low-Level Radioactive Waste Policy Amendments Act of 1985 (Act), which mandated that each state must take responsibility for the storage of low-level radioactive waste produced within its borders, will have an impact on disposal practices for low-level radioactive waste over the next several years. The State of Iowa has joined the Midwest Interstate Low-Level Radioactive Waste Compact Commission (Midwest Compact Commission), which is planning a storage facility to be located in Ohio to store waste generated by the six states in the Midwest Compact Commission. At September 30, 1994, the Company has prepaid costs of approximately $1 million (included in "Current assets - - Prepayments and other" in the Balance Sheets) to the Midwest Compact Commission for the building of such a facility. Due to the legal and political uncertainties, the Company cannot estimate the future payments, if any, that will be made to the Midwest Compact Commission. The Company and the other members of the Midwest Compact Commission shipped their low-level wastes to waste management facilities in Barnwell, South Carolina, Hanford, Washington and/or Beatty, Nevada, through June 30, 1994. Currently, the Company is storing its low-level radioactive waste generated at the DAEC on-site until new disposal arrangements are finalized among the Midwest Compact Commission members. On-site storage capability currently exists for low-level radioactive waste expected to be generated under normal operating conditions through the DAEC's license life. In February 1993, the Nuclear Regulatory Commission (NRC) proposed a rule that would not permit on-site storage of low-level radioactive waste after January 1, 1996, unless the generator of such waste can document that it has exhausted other reasonable waste management options. The Company is currently investigating its options for the disposal of its low-level radioactive waste. PART II. - OTHER INFORMATION Item 1. Legal Proceedings. Reference is made to Notes 3 and 7 of the Notes to Financial Statements for a discussion of rate matters and environmental matters, respectively. Item 2. Changes in the Rights of the Company's Security Holders. None. Item 3. Default Upon Senior Securities. None. Item 4. Results of Votes of Security Holders. None. Item 5. Other Information. (a) The Company has calculated the ratio of earnings to fixed charges pursuant to Item 503 of Regulation S-K of the Securities and Exchange Commission as follows: For the twelve months ended: September 30, 1994 3.28 December 31, 1993 3.41 December 31, 1992 2.49 December 31, 1991 2.64 December 31, 1990 2.65 December 31, 1989 2.82 (b) Mr. Stephen W. Southwick was named Vice President, General Counsel & Secretary effective November 2, 1994. Mr. Southwick had previously been Vice President & General Counsel. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - 3(a) Bylaws of Registrant, as amended May 17, 1994 (Filed as Exhibit 3(a) to Company's Form 10-Q for the quarter ended June 30, 1994). 10(a) Receivables Purchase and Sale Agreement dated as of June 30, 1989, as Amended and Restated as of April 15, 1994, among IES Utilities Inc. (as Seller) and CIESCO L.P. (as the Investor) and Citicorp North America, Inc. (as Agent). (Filed as Exhibit 10(a) to the Company's Form 10-Q for the quarter ended March 31, 1994). 10(b) Guaranty (IES Utilities Trust No. 1994-A) from IES Utilities Inc., dated as of June 29, 1994. (Filed as Exhibit 10(b) to the Company's Form 10-Q for the quarter ended June 30, 1994). *12 Ratio of Earnings to Fixed Charges. *27 Financial Data Schedule. * Exhibits designated by an asterisk are filed herewith. (b) Reports on Form 8-K - None. 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. IES UTILITIES INC. (Registrant) Date November 10, 1994 By /s/ Dr. Robert J. Latham (Signature) Dr. Robert J. Latham Senior Vice President, Finance and Corporate Affairs, & Treasurer By /s/ Richard A. Gabbianelli (Signature) Richard A. Gabbianelli Controller & Chief Accounting Officer EX-12 2 EXHIBIT 12 IES UTILITIES INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Twelve Months Year Ended December 31, Ended 1989 1990 1991 1992 1993 September 30, 1994 (in thousands, except ratio of earnings to fixed charges) Net income $ 53,454 $45,969 $47,563 $45,291 $67,970 $ 66,773 Federal and state income taxes 22,574 22,364 23,494 20,760 37,963 37,877 Net income before income taxes 76,028 68,333 71,057 66,051 105,933 104,650 Interest on long-term debt 29,044 28,853 31,171 35,689 34,926 37,955 Other interest 3,130 4,704 5,595 3,939 5,243 3,774 Estimated interest component of rents 9,494 7,936 6,594 4,567 3,729 4,080 Fixed charges as defined 41,668 41,493 43,360 44,195 43,898 45,809 Earnings as defined $ 117,696$109,826$114,417$110,246$149,831 $ 150,459 Ratio of earnings to fixed charges (unaudited) 2.82 2.65 2.64 2.49 3.41 3.28 For the purposes of computation of these ratios (a) earnings have been calculated by adding fixed charges and Federal and state inco taxes to net income; (b) fixed charges consist of interest (including amortization of debt expense, premium and discount) on long-te other debt and the estimated interest component of rents.
EX-27 3
OPUR1 The schedule contains summary financial information extracted from the Balance Sheet at September 30,1994 and the Statement of Income and the Statement of Cash Flows for the nine months ended September 30, 1994 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1994 SEP-30-1994 PER-BOOK 1,232,495 0 106,801 18,413 213,494 1,571,203 33,427 279,042 201,107 513,576 0 18,320 430,277 2,608 0 0 50,224 0 36,108 14,241 505,849 1,571,203 519,509 35,262 408,705 443,967 75,542 4,242 79,784 29,852 49,932 686 49,246 37,000 37,080 147,772 0 0
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