-----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, McL4r69qFopAK7VnhJN4MxaVnkmPaw+UxwwW8CTs9ZbYn0ToHL87HCtBzrtJjw8n ng38iQagxrl9zZSYESTj5A== 0000055387-96-000026.txt : 19961031 0000055387-96-000026.hdr.sgml : 19961031 ACCESSION NUMBER: 0000055387-96-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961030 SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENTUCKY UTILITIES CO CENTRAL INDEX KEY: 0000055387 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 610247570 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03464 FILM NUMBER: 96650379 BUSINESS ADDRESS: STREET 1: ONE QUALITY ST CITY: LEXINGTON STATE: KY ZIP: 40507 BUSINESS PHONE: 6062552100 10-Q 1 3RD QTR 1996 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission Registrant; State of Incorporation; IRS Employer File Number Address; and Telephone Number Identification No. 1-10944 KU Energy Corporation 61-1141273 (A Kentucky Corporation) One Quality Street Lexington, Kentucky 40507-1428 (606) 255-2100 1-3464 Kentucky Utilities Company 61-0247570 (A Kentucky and Virginia Corporation) One Quality Street Lexington, Kentucky 40507-1428 (606) 255-2100 Indicate by check mark whether the Registrants (1) have 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 such Registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. Yes X No . Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of the latest practicable date: KU Energy Corporation: Common stock, no par value, 37,817,878 shares outstanding at October 29, 1996 Kentucky Utilities Company: Common stock, no par value, 37,817,878 shares outstanding and held by KU Energy Corporation at October 29, 1996 -1- KU ENERGY CORPORATION AND KENTUCKY UTILITIES COMPANY FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 CONTENTS PART I. FINANCIAL INFORMATION Page No. Item 1: Financial Statements KU ENERGY CORPORATION Consolidated Statements of Income 3-4 Consolidated Statements of Cash Flows 5 Consolidated Balance Sheets 6 KENTUCKY UTILITIES COMPANY Statements of Income 7-8 Statements of Cash Flows 9 Balance Sheets 10 CONDENSED NOTES TO FINANCIAL STATEMENTS OF KU ENERGY CORPORATION AND KENTUCKY UTILITIES COMPANY 11-15 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations KU ENERGY CORPORATION AND KENTUCKY UTILITIES COMPANY 16-22 PART II. OTHER INFORMATION Item 1: Legal Proceedings 23 Item 6: Exhibits and Reports on Form 8-K 23 Signatures 24 -2- PART I. FINANCIAL INFORMATION KU ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands except for per share amounts) For the Three Months Ended September 30, 1996 1995 Operating Revenues $178,269 $194,367 Operating Expenses: Fuel, principally coal, used in generation 48,781 54,102 Electric power purchased 15,847 22,341 Other operating expenses 32,094 31,625 Maintenance 14,414 16,029 Depreciation 20,235 18,831 Federal and state income taxes 13,374 14,874 Other taxes 3,704 4,029 Total Operating Expenses 148,449 161,831 Net Operating Income 29,820 32,536 Other Income and Deductions: Interest and dividend income 638 1,028 Other income and deductions - net 2,426 1,762 Total Other Income and Deductions 3,064 2,790 Income Before Interest and Other Charges 32,884 35,326 Interest and Other Charges 10,391 10,747 Net Income $ 22,493 $ 24,579 Average Common Shares Outstanding 37,818 37,818 Earnings Per Common Share $ .60 $ .65 The accompanying Condensed Notes to Financial Statements are an integral part of these statements. -3- KU ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands except for per share amounts) For the Nine Months Ended September 30, 1996 1995 Operating Revenues $536,769 $516,256 Operating Expenses: Fuel, principally coal, used in generation 147,885 140,487 Electric power purchased 50,940 55,749 Other operating expenses 92,818 93,492 Maintenance 46,224 50,382 Depreciation 60,454 56,411 Federal and state income taxes 38,710 30,743 Other taxes 11,965 12,552 Total Operating Expenses 448,996 439,816 Net Operating Income 87,773 76,440 Other Income and Deductions: Interest and dividend income 2,189 3,132 Other income and deductions - net 6,421 5,761 Total Other Income and Deductions 8,610 8,893 Income Before Interest and Other Charges 96,383 85,333 Interest and Other Charges 31,498 31,525 Net Income $ 64,885 $ 53,808 Average Common Shares Outstanding 37,818 37,818 Earnings Per Common Share $ 1.72 $ 1.42 The accompanying Condensed Notes to Financial Statements are an integral part of these statements. -4- KU ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands of dollars) For the Nine Months Ended September 30, 1996 1995 Cash Flows from Operating Activities: Net Income $ 64,885 $ 53,808 Items not requiring (providing) cash currently: Depreciation 60,454 56,411 Deferred income taxes and investment tax credit 1,356 1,080 Changes in current assets and liabilities: Change in fuel inventory (5,527) 7,359 Change in accounts receivable 2,438 (10,810) Change in accounts payable (8,340) (16,969) Change in accrued taxes 3,948 5,643 Change in accrued utility revenues 8,642 5,831 Change in liability to ratepayers (6,599) (179) Change in escrow funds 6,599 181 Other--net 16,190 8,512 Net Cash Provided by Operating Activities 144,046 110,867 Cash Flows from Investing Activities: Construction expenditures - utility (72,928) (81,106) Proceeds from leveraged lease investments 436 - Investment in independent power projects (1,048) - Proceeds from independent power projects 1,109 (2,983) Other 211 897 Net Cash Used by Investing Activities (72,220) (83,192) Cash Flows from Financing Activities: Short-term borrowings - net (25,700) (45,300) Issuance of long-term debt 35,682 49,325 Funds deposited with trustee - net 3,779 15,100 Retirement of long-term debt, incl. premiums (36,192) (21) Payment of common stock dividends (48,785) (47,651) Net Cash Used by Financing Activities (71,216) (28,547) Net Increase (Decrease) in Cash and Cash Equivalents 610 (872) Cash and Cash Equivalents Beginning of Period 29,492 28,927 Cash and Cash Equivalents End of Period $ 30,102 $ 28,055 Supplemental Disclosures Cash paid for: Interest on short- and long-term debt $ 24,643 $ 24,556 Federal and state income taxes $ 37,175 $ 23,854 The accompanying Condensed Notes to Financial Statements are an integral part of these statements. -5- KU ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands of dollars) As of As of Sept. 30, Dec. 31, ASSETS 1996 1995 Utility Plant: Plant in service, at cost $ 2,455,906 $2,394,018 Less: Accumulated depreciation 1,052,951 997,366 1,402,955 1,396,652 Construction work in progress 65,933 61,410 1,468,888 1,458,062 Current Assets: Cash and cash equivalents 30,102 29,492 Escrow funds - coal contract litigation - 6,599 Construction funds held by trustee - 3,743 Accounts receivable 47,091 49,529 Accrued utility revenues 19,258 27,900 Fuel, principally coal, at average cost 34,965 29,438 Materials and supplies, at average cost 22,297 23,064 Other 7,521 8,121 161,234 177,886 Investments, Deferred Charges and Other Assets: Investment in leveraged leases 23,751 21,509 Unamortized loss on reacquired debt 11,108 11,304 Other 45,851 46,213 80,710 79,026 Total Assets $ 1,710,832 $1,714,974 CAPITALIZATION AND LIABILITIES Capitalization: Common stock equity $ 644,711 $ 628,611 Preferred stock of Subsidiary 40,000 40,000 Long-term debt of Subsidiary 546,373 545,980 1,231,084 1,214,591 Current Liabilities: Long-term debt due within one year 21 21 Short-term borrowings 29,900 55,600 Accounts payable 29,595 37,935 Accrued interest 11,035 7,556 Accrued taxes 8,908 4,960 Customers' deposits 8,283 6,876 Accrued payroll and vacations 11,438 8,759 Liab. to ratepayers - coal contract litigation - 6,599 Other 9,218 6,992 108,398 135,298 Deferred Credits and Other Liabilities: Accumulated deferred income taxes 240,366 233,707 Accumulated deferred investment tax credits 31,170 34,180 Regulatory tax liability 55,046 57,726 Other 44,768 39,472 371,350 365,085 Total Capitalization and Liabilities $ 1,710,832 $1,714,974 The accompanying Condensed Notes to Financial Statements are an integral part of these statements. -6- KENTUCKY UTILITIES COMPANY STATEMENTS OF INCOME (Unaudited) (in thousands of dollars) For the Three Months Ended September 30, 1996 1995 Operating Revenues $178,275 $194,373 Operating Expenses: Fuel, principally coal, used in generation 48,781 54,102 Electric power purchased 15,847 22,341 Other operating expenses 31,348 30,817 Maintenance 14,412 16,027 Depreciation 20,189 18,785 Federal and state income taxes 13,585 15,331 Other taxes 3,656 3,897 Total Operating Expenses 147,818 161,300 Net Operating Income 30,457 33,073 Other Income and Deductions: Interest and dividend income 370 722 Other income and deductions - net 1,709 1,296 Total Other Income and Deductions 2,079 2,018 Income Before Interest Charges 32,536 35,091 Interest Charges 9,812 10,176 Net Income 22,724 24,915 Preferred Stock Dividend Requirements 564 564 Net Income Applicable to Common Stock $ 22,160 $ 24,351 The accompanying Condensed Notes to Financial Statements are an integral part of these statements. -7- KENTUCKY UTILITIES COMPANY STATEMENTS OF INCOME (Unaudited) (in thousands of dollars) For the Nine Months Ended September 30, 1996 1995 Operating Revenues $536,787 $516,278 Operating Expenses: Fuel, principally coal, used in generation 147,885 140,487 Electric power purchased 50,940 55,749 Other operating expenses 91,250 91,542 Maintenance 46,218 50,376 Depreciation 60,314 56,271 Federal and state income taxes 39,136 31,599 Other taxes 11,736 12,336 Total Operating Expenses 447,479 438,360 Net Operating Income 89,308 77,918 Other Income and Deductions: Interest and dividend income 1,384 2,158 Other income and deductions - net 5,515 4,152 Total Other Income and Deductions 6,899 6,310 Income Before Interest Charges 96,207 84,228 Interest Charges 29,790 29,824 Net Income 66,417 54,404 Preferred Stock Dividend Requirements 1,692 1,692 Net Income Applicable to Common Stock $ 64,725 $ 52,712 The accompanying Condensed Notes to Financial Statements are an integral part of these statements. -8- KENTUCKY UTILITIES COMPANY STATEMENTS OF CASH FLOWS (Unaudited) (in thousands of dollars) For the Nine Months Ended September 30, 1996 1995 Cash Flows from Operating Activities: Net Income $ 66,417 $ 54,404 Items not requiring (providing) cash currently: Depreciation 60,314 56,271 Deferred income taxes and investment tax credit (214) 21 Changes in current assets and liabilities: Change in fuel inventory (5,527) 7,359 Change in accounts receivable 2,230 (10,639) Change in accounts payable (8,363) (17,518) Change in accrued taxes 4,027 5,722 Change in accrued utility revenues 8,642 5,831 Change in liability to ratepayers (6,599) (179) Change in escrow funds 6,599 181 Other--net 17,540 11,134 Net Cash Provided by Operating Activities 145,066 112,587 Cash Flows from Investing Activities: Construction expenditures - utility (72,928) (81,106) Other 211 (172) Cash Used by Investing Activities (72,717) (81,278) Cash Flows from Financing Activities: Short-term borrowings - net (25,700) (45,300) Issuance of long-term debt 35,682 49,325 Funds deposited with trustee - net 3,779 15,100 Retirement of long-term debt, incl. premiums (36,192) (21) Payment of dividends (50,477) (49,059) Net Cash Used by Financing Activities (72,908) (29,955) Net Increase (Decrease) in Cash and Cash Equivalents (559) 1,354 Cash and Cash Equivalents Beginning of Period 5,697 3,111 Cash and Cash Equivalents End of Period $ 5,138 $ 4,465 Supplemental Disclosures Cash paid for: Interest on short- and long-term debt $ 24,643 $ 24,556 Federal and state income taxes $ 38,010 $ 24,160 The accompanying Condensed Notes to Financial Statements are an integral part of these statements. -9- KENTUCKY UTILITIES COMPANY BALANCE SHEETS (Unaudited) (in thousands of dollars) As of As of Sept. 30, Dec. 31, 1996 1995 ASSETS Utility Plant: Plant in service, at cost $2,455,906 $2,394,018 Less: Accumulated depreciation 1,052,951 997,366 1,402,955 1,396,652 Construction work in progress 65,933 61,410 1,468,888 1,458,062 Current Assets: Cash and cash equivalents 5,138 5,697 Escrow funds - coal contract litigation - 6,599 Construction funds held by trustee - 3,743 Accounts receivable 47,241 49,471 Accrued utility revenues 19,258 27,900 Fuel, principally coal, at average cost 34,965 29,438 Materials and supplies, at average cost 22,297 23,064 Other 7,521 8,121 136,420 154,033 Investments, Deferred Charges and Other Assets: Unamortized loss on reacquired debt 11,108 11,304 Other 37,261 36,589 48,369 47,893 Total Assets $1,653,677 $1,659,988 CAPITALIZATION AND LIABILITIES Capitalization: Common stock equity $ 592,476 $ 576,537 Preferred stock 40,000 40,000 Long-term debt 546,373 545,980 1,178,849 1,162,517 Current Liabilities: Long-term debt due within one year 21 21 Short-term borrowings 29,900 55,600 Accounts payable 29,637 38,000 Accrued interest 11,035 7,556 Accrued taxes 9,228 5,201 Customers' deposits 8,283 6,876 Accrued payroll and vacations 11,380 8,706 Liab. to ratepayers - coal contract litigation - 6,599 Other 8,847 6,752 108,331 135,311 Deferred Credits and Other Liabilities: Accumulated deferred income taxes 236,805 231,717 Accumulated deferred investment tax credits 31,170 34,180 Regulatory tax liability 55,046 57,726 Other 43,476 38,537 366,497 362,160 Total Capitalization and Liabilities $1,653,677 $1,659,988 The accompanying Condensed Notes to Financial Statements are an integral part of these statements. -10- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. PRESENTATION OF CONDENSED INFORMATION The unaudited interim financial statements presented herein include the consolidated statements of KU Energy Corporation and Subsidiaries (KU Energy or the Company) as well as separate financial statements for Kentucky Utilities Company (KU). KU Energy Corporation is a holding company organized under the laws of Kentucky with two first-tier subsidiaries: KU Capital Corporation (KU Capital), a non- utility subsidiary, and KU, an electric utility. KU Energy Corporation owns 100 percent of the common equity of KU Capital and KU. KU is KU Energy Corporation's principal subsidiary. The unaudited statements have been prepared by the Company and KU, respectively, pursuant to the rules and regulations of the Securities and Exchange Commission. 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 and KU believe the disclosures are adequate to make the information presented not misleading. The Company's consolidated financial statements should be read in conjunction with the financial statements and notes thereto incorporated by reference in the Annual Report on Form 10-K of KU Energy for the year ended December 31, 1995; and the KU financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K of KU for the year ended December 31, 1995. In the opinion of the Company and KU, the respective information furnished herein reflects all adjustments, all of which are normal and -11- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited) recurring, which are necessary to present fairly the results of the periods shown and the disclosures which have been made are adequate to make the information not misleading. Results of interim periods are not necessarily indicative of results for any twelve-month period due to the seasonal nature of KU's business. Certain prior year amounts have been reclassified on a basis consistent with the September 30, 1996, presentation. 2. ENVIRONMENTAL COST RECOVERY Since August 1994, KU has been collecting an environmental surcharge from its Kentucky retail customers under a Kentucky statute which authorizes electric utilities (including KU) to implement, beginning January 1, 1993, an environmental surcharge. The surcharge is designed to recover certain operating and capital costs of compliance with federal, state or local environmental requirements associated with the production of energy from coal, including the Federal Clean Air Act as amended. KU's environmental surcharge was approved by the Kentucky Public Service Commission (PSC) in July 1994 and was implemented in August 1994. The total surcharge collections from August 1, 1994 through September 30, 1996 were approximately $36 million. The constitutionality of the surcharge statute was challenged in the Franklin County (Kentucky) Circuit Court in an action brought against KU and the PSC by the Attorney General of Kentucky and joined by representatives of consumer groups. In July 1995, the Circuit Court entered a judgment upholding the constitutionality of the -12- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited) statute, but vacating that part of the PSC's July 1994 order which the judgment describes as allowing KU to recover, under the surcharge, environmental expenditures incurred before January 1, 1993, and ordering the case remanded to the PSC for a determination in accordance with the Circuit Court judgment. The Attorney General and other consumer representatives appealed to the Kentucky Court of Appeals that part of the Circuit Court judgment upholding the constitutionality of the surcharge statute. The PSC and KU appealed that part of the judgment denying recovery of environmental expenditures incurred before January 1, 1993. The PSC has ordered all surcharge revenues collected by KU from February 1, 1995 subject to refund pending final determination of all appeals. The total surcharge collections from February 1, 1995 through September 30, 1996 were approximately $32 million. KU believes the constitutionality of the surcharge statute will be upheld, but it cannot predict the outcome of that part of the Circuit Court judgment disallowing recovery of environmental expenditures incurred before January 1, 1993. If the Circuit Court judgment is ultimately upheld as entered, KU estimates that the amount it would be required to refund (which is based solely on costs associated with environmental expenditures incurred before January 1, 1993) for surcharge collections through September 30, 1996, from the implementation of the surcharge would be approximately $10 million, and from February 1, 1995 would be approximately $8 million. At this time, KU has not recorded any reserve for refund. -13- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited) 3. FINANCING In January 1996, KU issued $36 million of Series S First Mortgage Bonds which bear interest at 5.99% and will mature January 15, 2006. The proceeds were used to redeem $35.5 million of Series K First Mortgage Bonds. A redemption premium of approximately $.7 million was recorded on the balance sheet and will be amortized over the life of the new bonds. 4. OPERATING REVENUES AND FUEL COSTS Pursuant to regulatory orders, KU had been refunding fuel cost savings related to the resolution of a coal contract dispute. Refunds were made to Virginia retail customers during the period August 1993 through June 1994. Refunds were made to wholesale customers under the jurisdiction of the FERC in lump sum payments in September 1993. Refunds to Kentucky retail customers commenced in July 1994. A portion remained to be refunded to Kentucky customers who had not filed required claims for refunds. Kentucky passed legislation in March 1996 which provided for the distribution by the State of certain unclaimed utility refunds to pay qualifying workers' compensation claims through the Kentucky Workers' Compensation Funding Commission (Funding Commission). KU requested permission from the PSC to transfer the remaining unclaimed refunds to the State for this purpose. The PSC issued an order in June 1996 approving this request and releasing KU from any obligation imposed by the PSC to hold, maintain and distribute the funds. KU transferred the funds (approximately $6.8 million) in June 1996. By virtue of the -14- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited) legislation, KU's payment of the unclaimed refunds to the State caused KU to be released from any future liability relating to such refunds. The legislation also preserved the rights of ratepayers entitled to claim a refund who have not yet done so and authorized the Funding Commission to honor future refund claims using any funds available. -15- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations are for the Company unless otherwise stated. Material changes in the consolidated financial condition and operating results of KU Energy are based primarily upon the operations of KU. LIQUIDITY & RESOURCES At September 30, 1996, KU's short-term borrowings were $29.9 million compared to $55.6 million at December 31, 1995. The short-term borrowings have been used primarily to finance ongoing construction expenditures and general corporate requirements. The decrease between September 30, 1996 and December 31, 1995 is due primarily to planned reductions in construction expenditures in 1996 and additional cash provided by operations during 1996. Refer to Note 3 of the Condensed Notes to Financial Statements for a discussion of KU's recent financing activities. RESULTS OF OPERATIONS Quarter ended September 30, 1996, compared to the Quarter ended September 30, 1995 The Company's earnings per common share for the three-month period ended September 30, 1996 were $.60 compared to $.65 for the corresponding period of 1995. The decrease is due to lower retail and commercial sales, primarily as a result of milder weather in August 1996 when compared to August 1995 and lower opportunity sales during August 1996 when compared to August 1995. The negative effects of these factors were somewhat offset by an increase in sales to -16- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS industrial customers and decreases in fuel and purchased power expenses. The changes in operating revenues and kilowatt-hour sales described below are for the Company. The only difference between changes in operating revenues for the Company and operating revenues for KU are intercompany revenues that are eliminated in the consolidated financial statements. These intercompany amounts are immaterial. Increase (Decrease) From Prior Year Three Months Ended Sept. 30, 1996 kWh Revenues (%) (000's) Residential (11) $ (7,216) Commercial (5) (2,476) Industrial 4 963 Mine Power 1 (306) Public Authorities (2) (266) Total Retail Sales (4) (9,301) Wholesale (2) (1,153) Opportunity (32) (5,011) Total Other Electric Utilities (18) (6,164) Miscellaneous Revenues & Other - (633) Total (7) $(16,098) Operating revenues decreased $16.1 million (8%). The decrease reflects a 7% decrease in kilowatt-hour sales. The decrease in kilowatt-hour sales is primarily attributable to decreases in residential, commercial and opportunity sales partially offset by a slight increase in industrial sales. The decreases in residential and commercial sales were primarily due to milder weather in August 1996 compared to August 1995. The decrease in opportunity sales (382,707 megawatt-hours versus 560,873 megawatt-hours) was primarily due to -17- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS decreased demand for power from neighboring utilities. The increase in industrial sales reflects continued economic growth in the manufacturing sector of KU's service area evidenced primarily by an 8% increase in the number of industrial customers over 1995. Fuel expense decreased $5.3 million (10%). The decrease was primarily due to a 5% decrease in the tons of coal consumed and to a 5% reduction in the price per ton of coal consumed. The decline in consumption was primarily caused by a decline in generation due to the previously mentioned decrease in kilowatt-hour sales. Purchased power expense decreased $6.5 million (29%) due to decreased demand costs ($.9 million) and energy costs ($5.6 million). The decrease in energy costs resulted primarily from a 21% decrease in kilowatt-hour purchases due to the previously mentioned decline in kilowatt-hour sales and to more favorable pricing. Maintenance expense decreased $1.6 million (10%). The decrease was primarily due to the timing of expenditures for maintenance activities. Federal and state income taxes decreased $1.5 million (10%). The decrease was primarily attributable to a decline in pretax net income. Nine Months ended September 30, 1996, compared to the Nine Months ended September 30, 1995 The Company's earnings per common share for the nine-month period ended September 30, 1996 were $1.72 compared to $1.42 for the corresponding period of 1995. The increase primarily reflects the -18- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS success of KU's aggressive marketing efforts in the residential sector and increased industrial and opportunity sales over 1995. Increase (Decrease) From Prior Year Nine Months Ended Sept. 30, 1996 kWh Revenues (%) (000's) Residential 4 $5,633 Commercial 1 510 Industrial 7 6,369 Mine Power (3) (1,218) Public Authorities 5 2,112 Total Retail Sales 4 13,406 Wholesale 3 528 Opportunity 39 5,076 Total Other Electric Utilities 18 5,604 Miscellaneous Revenues & Other - 1,503 Total 6 $20,513 Operating revenues increased $20.5 million (4%). The increase reflects a 6% increase in kilowatt-hour sales. The increase in kilowatt-hour sales is primarily attributable to increases in residential, industrial and opportunity sales. The increase in residential sales was primarily due to the positive impacts of aggressive marketing efforts in the residential sector. The increase in industrial sales was mostly due to an 8% increase in the number of industrial customers. The increase in opportunity sales (1,282,996 megawatt-hours versus 922,982 megawatt-hours) was due to agreements with neighboring utilities for non-firm energy sales during 1996. Fuel expense increased $7.4 million (5%). The increase was due to a 9% increase in the tons of coal consumed offset by a 4% decrease in price per ton of coal consumed. The increase in consumption was -19- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS primarily due to an increase in generation due to the previously mentioned increase in kilowatt-hour sales. Purchased power expense decreased $4.8 million (9%) due to decreased demand costs ($.7 million) and energy costs ($4.1 million). The decreased energy costs were primarily due to a 7% decline in kilowatt-hour purchases and more favorable pricing. Maintenance expense decreased $4.2 million (8%). The decrease was primarily due to the timing of expenditures for maintenance activities. Federal and state income taxes increased $8.0 million (26%). The increase was primarily attributable to an increase in pretax income. UTILITY ISSUES - COMPETITION Federal Energy Regulatory Commission (FERC) Matters: Refer to Management's Discussion and Analysis in the 1995 KU Energy Annual Report on Form 10-K under the heading "Utility Issues -Competition" for a discussion of the FERC proposed rules addressing open access transmission service and the collection of charges for the recovery of stranded costs. In late April 1996, the FERC issued two final rules and a new Notice of Proposed Rulemaking (NOPR). FERC Order No. 888 (Order 888) addressed both open access transmission service and stranded cost issues. FERC Order No. 889 (Order 889) requires utilities to establish an electronic Open Access Same-Time Information System (OASIS) to share information about available transmission capacity, and also requires the establishment by each -20- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS utility of standards of conduct for its transmission system operation. The NOPR, the Capacity Reservation Open Access Tariffs (RM96-11-000), proposes to establish a new system for utilities to use in reserving capacity on their own and other's transmission lines. On July 9, 1996, KU filed a new open access transmission tariff with the FERC designed to comply with provisions of Order 888. This tariff has been accepted by the FERC, superseding KU's existing Transmission Services Tariff, which had been in effect since December 1994. The provisions of the tariff filed July 9, 1996, are similar to the terms and conditions of service contained in KU's previously existing tariff. KU is in the process of developing an OASIS and finalizing its standards of conduct pursuant to Order 889. KU expects to meet the FERC's deadline (January 3, 1997) for implementation of these requirements. KU is also in the process of evaluating the FERC's NOPR. The NOPR would replace certain aspects of KU's transmission tariff now in effect with a capacity reservation tariff (CRT) by December 31, 1997. The FERC has received comments from interested parties regarding the potential tariff change and is currently evaluating those comments. KU cannot predict when a final rule will be issued. Position on Competition: Competition, especially customer choice, is critical to the Company and will determine its ability to leverage its position as a low-cost producer of highly reliable service in the future. -21- KU ENERGY CORPORATION AND SUBSIDIARIES KENTUCKY UTILITIES COMPANY MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Competition was introduced to the electric utility industry with the passage of the Energy Policy Act of 1992. The national legislation instituted competition in the wholesale market. Discussions are currently being held throughout the country and in Congress to formulate the most effective method to move competition to the retail market. Many divergent opinions concerning the complex issues surrounding retail competition are being discussed throughout the electric utility industry. Some states are conducting pilot projects to allow retail customers to choose their electric supplier. Kentucky and Virginia have not initiated pilot projects of this nature. With electric rates that are among the lowest in the nation, KU Energy believes it is well-positioned for an increasingly competitive environment. -22- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Note 2 of the Condensed Notes to Financial Statements, Environmental Cost Recovery, for a discussion of KU's environmental surcharge. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following exhibits are filed as part of this report: Exhibit Number Description 27 Financial Data Schedule for KU Energy (required for electronic filing only in accordance with Item 601 (c)(1) of Regulation S-K.) 27 Financial Data Schedule for KU (required for electronic filing only in accordance with Item 601(c)(1) of Regulation S-K.) (b) Reports on Form 8-K. None. -23- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, KU Energy Corporation and Kentucky Utilities Company have each duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KU ENERGY CORPORATION and KENTUCKY UTILITIES COMPANY (Registrants) Date October 29, 1996 /s/ Michael R. Whitley Michael R. Whitley Chairman and President Date October 29, 1996 /s/ Michael D. Robinson Michael D. Robinson Controller -24- EX-27 2 ARTICLE UT FDS FOR 3RD QTR 1996 FORM 10-Q - KU
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND THE STATEMENTS OF INCOME AND CASH FLOWS FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q QUARTERLY REPORT. 1,000 9-MOS DEC-31-1996 SEP-30-1996 PER-BOOK 1,468,888 11,805 136,420 36,564 0 1,653,677 308,140 (594) 284,930 592,476 0 40,000 546,373 29,900 0 0 21 0 0 0 444,907 1,653,677 536,787 39,136 408,343 447,479 89,308 6,899 96,207 29,790 66,417 0 66,417 48,785 28,247 145,066 0 0 ALL OUTSTANDING COMMON STOCK OF KENTUCKY UTILITIES COMPANY IS HELD BY ITS PARENT COMPANY, KU ENERGY CORPORATION. THEREFORE, EARNINGS PER SHARE IS NOT APPLICABLE.
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