-----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, My91v5cCvLTD7/SgP/vaus1OamRAB0hFJRw/pWpEr4MMqnURBIOUdwhq70ErYfXM PbJMiwy4KfWhGwyIbXhAng== 0000060549-95-000022.txt : 19951119 0000060549-95-000022.hdr.sgml : 19951119 ACCESSION NUMBER: 0000060549-95-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOUISVILLE GAS & ELECTRIC CO /KY/ CENTRAL INDEX KEY: 0000060549 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 610264150 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02893 FILM NUMBER: 95589711 BUSINESS ADDRESS: STREET 1: 220 W MAIN ST STREET 2: P O BOX 32010 CITY: LOUISVILLE STATE: KY ZIP: 40232 BUSINESS PHONE: 5026272000 MAIL ADDRESS: STREET 1: 220 WEST MAIN ST CITY: LUUISVILLE STATE: KY ZIP: 40232 10-Q 1 LG&E'S SEPT 1995 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (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, 1995 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 2 - 26720 LOUISVILLE GAS AND ELECTRIC COMPANY (Exact name of registrant as specified in its charter) Kentucky 61 - 0264150 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 220 West Main Street 40232 P.O. Box 32010 (Zip Code) Louisville, KY (Address of principal executive offices) (502) 627-2000 (Registrant's telephone number) 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. 21,294,223 shares, without par value, as of October 31, 1995, all of which were held by LG&E Energy Corp. 2 Part I. Financial Information - Item 1. Financial Statements Louisville Gas and Electric Company Statements of Income (Thousands of $) The following statements of income include all normal recurring adjustments and accruals which are, in the opinion of the Company, necessary to present a fair statement of the results for the periods shown. Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 OPERATING REVENUES: Electric (Note 3). . . . . . . . .$178,785 $169,617 $444,667 $436,206 Gas. . . . . . . . . . . . . . . . 17,566 20,500 119,021 146,631 Total operating revenues. . . . . 196,351 190,117 563,688 582,837 OPERATING EXPENSES: Fuel for electric generation . . . 36,399 39,838 104,051 109,641 Power purchased. . . . . . . . . . 13,963 1,621 15,806 8,923 Gas supply expenses. . . . . . . . 8,791 12,374 70,752 98,220 Other operation expenses (Note 4) 29,616 33,369 100,672 103,250 Maintenance. . . . . . . . . . . . 12,459 10,441 37,145 37,276 Non-recurring charges (Note 5). . . . . . . . . . . . . - - - 38,613 Depreciation and amortization. . . 21,440 20,633 64,320 61,899 Federal and state income taxes . . . . . . . . . . . . . . 21,953 22,025 48,195 29,624 Property and other taxes . . . . . 3,956 3,903 12,549 13,003 Total operating expenses. . . . . 148,577 144,204 453,490 500,449 NET OPERATING INCOME. . . . . . . . 47,774 45,913 110,198 82,388 Other income and (deductions) . . . 191 280 2,402 1,269 Contribution to charitable foundation - net (Note 5). . . . . - - - 8,946 Interest charges. . . . . . . . . . 9,619 10,755 31,330 31,963 Income before cumulative effect of change in accounting principle . . 38,346 35,438 81,270 42,748 Cumulative effect of change in accounting principle, net of income taxes of $2,280 (Note 6). . - - - (3,369) NET INCOME. . . . . . . . . . . . . 38,346 35,438 81,270 39,379 Preferred Stock Dividends . . . . . 1,566 1,503 4,810 4,261 NET INCOME AVAILABLE FOR COMMON STOCK . . . . . . . . . . .$ 36,780 $ 33,935 $ 76,460 $ 35,118 3 Louisville Gas and Electric Company Balance Sheets (Thousands of $) ASSETS Sept. 30, Dec. 31, 1995 1994 UTILITY PLANT: At original cost . . . . . . . . . . . . . . . . . .$2,585,633 $2,537,895 Less: reserve for depreciation. . . . . . . . . . . 937,093 881,861 Net utility plant . . . . . . . . . . . . . . . . . 1,648,540 1,656,034 OTHER PROPERTY AND INVESTMENTS - less reserve . . . . . . . . . . . . . . . . . . . . 761 543 CURRENT ASSETS: Cash and temporary cash investments. . . . . . . . . 67,220 39,138 Marketable securities. . . . . . . . . . . . . . . . 41,994 50,138 Accounts receivable - less reserve . . . . . . . . . 91,318 86,058 Materials and supplies - at average cost: Fuel (predominantly coal) . . . . . . . . . . . . . 12,892 13,869 Gas stored underground. . . . . . . . . . . . . . . 31,992 31,354 Other . . . . . . . . . . . . . . . . . . . . . . . 35,317 37,299 Prepayments. . . . . . . . . . . . . . . . . . . . . 1,000 253 Total current assets. . . . . . . . . . . . . . . . 281,733 258,109 DEFERRED DEBITS AND OTHER ASSETS: Unamortized debt expense . . . . . . . . . . . . . . 7,770 7,776 Regulatory assets. . . . . . . . . . . . . . . . . . 30,868 31,726 Other. . . . . . . . . . . . . . . . . . . . . . . . 10,097 12,402 Total deferred debits and other assets. . . . . . . 48,735 51,904 Total assets. . . . . . . . . . . . . . . . . . .$1,979,769 $1,966,590 4 Louisville Gas and Electric Company Balance Sheets (cont.) (Thousands of $) CAPITAL AND LIABILITIES Sept. 30, Dec. 31, 1995 1994 CAPITALIZATION: Common stock, without par value - Authorized 75,000,000 shares; outstanding 21,294,223 shares . . . . . . . . . . .$ 425,170 $ 425,170 Common stock expense . . . . . . . . . . . . . . . . (836) (836) Unrealized loss on marketable securities, net of income taxes of $250 and $1,434. . . . . . . . . . . . . . (357) (1,751) Retained earnings. . . . . . . . . . . . . . . . . . 199,855 193,895 Total common equity . . . . . . . . . . . . . . . . 623,832 616,478 Cumulative preferred stock . . . . . . . . . . . . . 116,716 116,716 Long-term debt . . . . . . . . . . . . . . . . . . . 646,850 662,862 Total capitalization. . . . . . . . . . . . . . . . 1,387,398 1,396,056 CURRENT LIABILITIES: Long-term debt due within one year. . . . . . . . . . . . . . . . . . . . . . 16,000 - Accounts payable . . . . . . . . . . . . . . . . . . 58,318 70,770 Dividends declared . . . . . . . . . . . . . . . . . 20,066 19,567 Accrued taxes. . . . . . . . . . . . . . . . . . . . 23,335 8,247 Accrued interest . . . . . . . . . . . . . . . . . . 10,920 13,394 Other. . . . . . . . . . . . . . . . . . . . . . . . 12,307 10,277 Total current liabilities . . . . . . . . . . . . . 140,946 122,255 DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes (Note 7). . . . . . . . . . . . . . . . . . . 232,415 275,814 Investment tax credit, in process of amortization . . . . . . . . . . . . . . 85,188 88,779 Accumulated provision for pensions and related benefits. . . . . . . . . . . . . . . . 39,722 49,104 Customers' advances for construction . . . . . . . . 9,254 8,621 Regulatory liability (Note 7). . . . . . . . . . . . 60,755 8,914 Other. . . . . . . . . . . . . . . . . . . . . . . . 24,091 17,047 Total deferred credits and other liabilities. . . . 451,425 448,279 Total capital and liabilities . . . . . . . . . .$1,979,769 $1,966,590 5 Louisville Gas and Electric Company Statements of Cash Flows (Thousands of $) Nine Months Ended September 30, 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . $ 81,270 $ 39,379 Items not requiring cash currently: Depreciation and amortization . . . . . . . . . . . 64,320 61,899 Deferred income taxes - net . . . . . . . . . . . . 8,840 (10,175) Investment tax credit - net . . . . . . . . . . . . (3,591) (3,568) Cumulative effect of change in accounting principle . . . . . . . . . . . . . - 3,369 Non-recurring charges . . . . . . . . . . . . . . . - 38,613 Other . . . . . . . . . . . . . . . . . . . . . . . 2,919 5,675 (Increases) decreases in net current assets: Accounts receivable . . . . . . . . . . . . . . . . (5,260) 22,641 Materials and supplies. . . . . . . . . . . . . . . 2,321 469 Accounts payable. . . . . . . . . . . . . . . . . . (12,452) (28,884) Accrued taxes . . . . . . . . . . . . . . . . . . . 15,088 6,113 Accrued interest. . . . . . . . . . . . . . . . . . (2,474) (1,146) Prepayments and other . . . . . . . . . . . . . . . 1,283 (214) Other. . . . . . . . . . . . . . . . . . . . . . . . (450) 2,119 Net cash provided by operating activities . . . . . 151,814 136,290 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of securities. . . . . . . . . . . . . . . (104,542) (169,205) Proceeds from sales of securities. . . . . . . . . . 114,105 138,848 Construction expenditures. . . . . . . . . . . . . . (57,373) (57,446) Net cash used for investing activities. . . . . . . . . . . . . . . (47,810) (87,803) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of pollution control bonds. . . . . . . . . 39,943 - Retirement of pollution control bonds. . . . . . . . (41,055) - Payment of dividends . . . . . . . . . . . . . . . . (74,810) (39,136) Net cash used for financing activities. . . . . . .$ (75,922) $ (39,136) 6 Louisville Gas and Electric Company Statements of Cash Flows (cont.) (Thousands of $) Nine Months Ended September 30, 1995 1994 NET INCREASE IN CASH AND TEMPORARY CASH INVESTMENTS . . . . . . . . . . . . .$ 28,082 $ 9,351 CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . 39,138 44,105 CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD. . . . . . . . . . . . . . . . . . . .$ 67,220 $ 53,456 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes. . . . . . . . . . . . . . . . . . .$ 27,911 $ 34,709 Interest on borrowed money. . . . . . . . . . . . 32,558 32,038 For the purposes of this statement, all temporary cash investments purchased with a maturity of three months or less are considered cash equivalents. 7 Louisville Gas and Electric Company Statements of Retained Earnings (Thousands of $) Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 Balance at beginning of period. . . $181,575 $178,586 $193,895 $194,903 Net income. . . . . . . . . . . . . 38,346 35,438 81,270 39,379 Subtotal. . . . . . . . . . . . . 219,921 214,024 275,165 234,282 Cash dividends declared on stock - 5% cumulative preferred . . . . . 269 269 807 807 7.45% cumulative preferred. . . . 400 400 1,199 1,199 Auction rate cumulative pref. . . 530 467 1,703 1,154 $5.875 cumulative preferred . . . 367 367 1,101 1,101 Common. . . . . . . . . . . . . . 18,500 18,000 70,500 35,500 Total dividends declared. . . . . 20,066 19,503 75,310 39,761 Balance at end of period. . . . . . $199,855 $194,521 $199,855 $194,521 8 Louisville Gas and Electric Company Notes to Financial Statements (Unaudited) 1. The financial statements included herein have been prepared by Louisville Gas and Electric Company (the "Company" or "LG&E"), without audit, 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 believes that the disclosures are adequate to make the information presented not misleading. Certain amounts in the statements of cash flows for the nine months ended September 30, 1994, have been reclassified to be consistent with the presentation for the nine months period ended September 30, 1995, with no impact on previously reported net income. Also, certain amounts in the balance sheet as of December 31, 1994, have been reclassified to be consistent with the balance sheet presentation as of September 30, 1995. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year 1994. 2. On July 19, 1995, the Public Service Commission of Kentucky (Commission) issued an order that requires the Company to refund $23.9 million to its electric customers, plus interest (through June 1995 interest totaled $9.9 million) for a total as of the date of the order of $33.8 million, arising from the Commission's disallowance of 25% of the Trimble County power plant. The Commission's order required the Company to submit a proposed refund methodology for approval within 30 days from the date of the order. The Commission later extended the date of filing refund plans to November 8, 1995. On November 8, 1995, the Commission granted a joint motion to extend the date for filing refund plans to January 3, 1996. On August 4, 1995, the Kentucky Attorney General (KAG) filed a complaint in the Franklin (Kentucky) Circuit Court (Court) for review of the Commission's orders of July 8, 1994, April 25, 1995, and July 19, 1995. The KAG asked that the Court vacate those orders and remand the proceeding back to the Commission with instructions that the Commission consider, in determining a refund, the revenues paid by the Company's customers as a result of the inclusion of Trimble County related construction work in progress in the Company's rate base prior to May 20, 1988. On September 12, 1995, the Court dismissed without prejudice KAG's complaint. On August 8, 1995, the Company filed a request for rehearing of the July 19 order of the Commission, and on August 28, 1995, the Commission issued an order in which it granted rehearing only on the issue of whether compound or simple interest should be applied to the amount the Commission has ordered the Company to refund. The total of $33.8 million contained in the Commission's July 19, 1995 order was calculated using compound interest. The Company believes that the use of simple interest would reduce the amount the Commission ordered be refunded through June 1995 by approximately $1.6 million. The Commission has requested that the parties to the case submit argument on this issue during the second phase of the case dealing with refund plans. 9 The Company intends to appeal the Commission's July 19 order to seek to overturn the decision. If the Company is unsuccessful in overturning the decision and a refund of previously collected revenues in the amount of $33.8 million is required to be paid, the after-tax charge to net income would amount to approximately $20.2 million. However, the outcome of this matter is uncertain, and the Company is unable to predict the exact amount of refunds, if any, that ultimately may be due. 3. The Company filed an application with the Public Service Commission of Kentucky on October 7, 1994, in which it requested approval of an environmental cost recovery surcharge to recover certain costs required to comply with the Federal Clean Air Act, as amended, and those federal, state, and local environmental requirements which apply to coal combustion wastes and by-products from facilities utilized for the production of energy from coal. On April 6, 1995, the Commission approved, with modifications, an environmental cost recovery surcharge estimated to increase electric revenues by approximately $3.8 million in 1995 and $7.2 million in 1996. The surcharge became effective on May 1, 1995. The Company, the Kentucky Attorney General and the Kentucky Industrial Utility Customers (KIUC) filed applications for rehearing on certain issues in the April 6 order. Among other things, the KAG and KIUC requested a reduction of the amounts recoverable by the Company. The Commission denied all motions for rehearing, and appeals have subsequently been filed in Franklin Circuit Court, which are pending. The Company is unable to predict the outcome of these proceedings. 4. In the second quarter of 1995, the Company received cash proceeds of $8 million in connection with settlement of a commercial dispute. The effect on earnings was deferred pending completion of a study to determine the proper amount of income to be recognized. The study was completed during the third quarter. Accordingly, the Company recognized $6 million as a reduction to other operations expenses. The remaining $2 million is recorded as a reserve for future payments in connection with the dispute. 5. As part of a study of LG&E Energy Corp.'s business strategy and realignment during 1994, the Company re-evaluated its regulatory strategy which previously had been to seek full recovery of certain costs deferred in accordance with prior precedents established by the Commission. As a result of this re-evaluation, in the first quarter of 1994, the Company wrote off certain expenses that had previously been deferred amounting to approximately $38.6 million before taxes. While the Company continues to believe that it could have reasonably expected to recover these costs in future rate proceedings before the Commission, the Company decided to deduct these expenses currently and not seek recovery for such expenses in future rates due to increasing competitive pressures and the existing and anticipated future economic conditions. The items written off include costs incurred in connection with early retirements and workforce reductions that occurred in 1992 and 1993 which consist primarily of separation payments, enhanced early retirement benefits, and health care benefits; costs associated with property damage claims pertaining to particulate emissions from its Mill Creek electric generating plant which primarily consist of spotting on automobile finish and aluminum siding; and certain costs previously deferred resulting from adoption in January 1993 of Statement of Financial Accounting Standards No. 106, Employers' Accounting for Post-Retirement Benefits Other Than Pensions. 10 In the first quarter of 1994, the Board of Directors of the Company approved the formation of a tax-exempt charitable foundation (Foundation) which will make charitable contributions to qualified persons and entities. In 1994, the Company recorded a pre-tax charge against income and made an irrevocable payment of $15 million to fund the Foundation. On June 6, 1994, the Internal Revenue Service issued a letter stating that it had determined the Foundation was exempt from Federal income tax under the Internal Revenue Code. 6. The Company adopted Statement of Financial Accounting Standards No. 112, Employers' Accounting for Post-Employment Benefits (SFAS 112) on January 1, 1994, as required. SFAS 112 requires the accrual of the expected cost of benefits to former or inactive employees after employment but before retirement. The cumulative effect of the accounting change was recorded in the first quarter of 1994 and decreased net income by $3.4 million. 7. The Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, effective January 1, 1993. Regulatory assets and liabilities were established to recognize the future revenue requirement impact from the deferred income taxes which were not immediately recognized in operating results because of ratemaking treatment. The change in Accumulated Deferred Income Taxes and Regulatory Liability on the accompanying balance sheets reflects the accrual for the nine months ended September 30, 1995 and certain reclassifications between Accumulated Deferred Income Taxes and Regulatory Liability applicable to prior periods. 8. Reference is made to Part II herein - Item 1, Legal Proceedings. 11 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. Results of Operations Because of seasonal fluctuations in temperature and other factors the results of one interim period are not necessarily indicative of results to be expected for the year. Quarter Ended September 30, 1995, Compared with Quarter Ended September 30, 1994 Net income increased $2.9 million (8%) for the quarter ended September 30, 1995, over the quarter ended September 30, 1994, primarily due to an increase in retail electric sales resulting from the hot summer weather and continued cost containment efforts. Another positive factor affecting net income was the recognition of a $6 million credit to expense as the result of the settlement of a commercial dispute as discussed in Note 4 of Notes to Financial Statements. These factors were partially offset by an increase in electric power purchases required because of unplanned power plant outages. A comparison of operating revenues for the quarter ended September 30, 1995, with the quarter ended September 30, 1994, reflects increases and decreases which have been segregated by the following principal causes: Increase or (Decrease) (Thousands of $) Electric Gas Cause Revenues Revenues Sales to ultimate consumers: Fuel and gas supply adjustments. . . . . . . $(3,008) $(2,146) Demand side management/revenue decoupling. . . . . . . . . . . . . . . . (5,651) 529 Environmental cost recovery. . . . . . . . . 1,513 - Variation in sales volume, etc.. . . . . . . 18,258 (1,452) Total . . . . . . . . . . . . . . . . . . 11,112 (3,069) Sales for resale. . . . . . . . . . . . . . . (2,697) - Gas transportation - net. . . . . . . . . . . - 89 Other . . . . . . . . . . . . . . . . . . . . 753 46 Total . . . . . . . . . . . . . . . . . . $ 9,168 $(2,934) 12 Fuel for electric generation and gas supply expenses comprise a large segment of the Company's total operating expenses. The Company's electric and gas rates contain a fuel adjustment clause and a gas supply clause, respectively, whereby increases or decreases in the cost of fuel and gas supply may be reflected in the Company's rates, subject to the approval of the Public Service Commission of Kentucky. Fuel for electric generation decreased $3.4 million (9%) for the quarter because of a decrease in the cost of coal burned ($1.6 million) and decreased generation ($1.8 million). Gas supply expenses decreased $3.6 million (29%) due to a decrease in net gas supply cost ($3.2 million) and a 5% decrease in the volume of gas delivered to the distribution system. The Company implemented a Commission approved demand side management (DSM) program in January 1994. The agreement contains a rate mechanism that allows the Company concurrent recovery of DSM costs; provides the Company an incentive for implementing DSM programs; and allows the Company to recover revenues due to lost sales associated with the DSM programs. On May 1, 1995, the Company implemented a Commission approved environmental cost recovery surcharge to recover certain costs required to comply with the Federal Clean Air Act and other governmental pollution control requirements. See Note 3 of Notes to Financial Statements. Power purchased increased $12.3 million due to increased purchases required because of unplanned outages at the electric generating plants during the warmer than normal third quarter. Other operation expenses decreased $3.8 million (11%) as a result of recognizing a credit to expense of $6 million in settlement proceeds received related to a commercial dispute. See Note 4 of Notes to Financial Statements. The credit was partially offset by an increase in various administrative expenses. Maintenance expenses increased $2 million (19%) primarily related to repairs due to unplanned outages at the electric generating plants. Depreciation and amortization increased because of additional depreciable plant in service. Variations in income tax expense are largely attributable to changes in pre-tax income. Interest charges decreased due to a reduction in accrued interest resulting from a favorable ruling on certain income tax matters. 13 Nine Months Ended September 30, 1995, Compared with Nine Months Ended September 30, 1994 Net income for the nine months ended September 30, 1995 increased $41.9 million over the same period of 1994. This increase was due to the write off, in the first quarter of 1994, of non-recurring items, the formation of a charitable foundation, and the adoption of SFAS No. 112 as discussed in Note 6 of Notes to Financial Statements. Without consideration of the charges against income in 1994 as discussed above, net income for the nine months ended September 30, 1995, increased $5.8 million (8%). This increase is due primarily to higher retail electric commercial and industrial sales during the nine month period of 1995 and positive cost containment efforts. Another positive factor affecting net income was the recognition of a $6 million credit to expense as the result of the settlement of a commercial dispute as discussed in Note 4 of Notes to Financial Statements. These factors were partially offset by increased purchased power expenses due mainly to unplanned power plant outages this summer. A comparison of operating revenues for the nine months ended September 30, 1995, with the nine months ended September 30, 1994, reflects increases and decreases which have been segregated by the following principal causes: Increase or (Decrease) (Thousands of $) Electric Gas Cause Revenues Revenues Sales to ultimate consumers: Fuel and gas supply adjustments. . . . . . . $(9,257) $(11,779) Demand side management/revenue decoupling. . . . . . . . . . . . . . . . (2,582) 3,132 Environmental cost recovery. . . . . . . . . 2,070 - Variation in sales volume, etc.. . . . . . . 20,902 (21,408) Total . . . . . . . . . . . . . . . . . . 11,133 (30,055) Sales for resale. . . . . . . . . . . . . . . (3,576) - Gas transportation - net. . . . . . . . . . . - 2,694 Other . . . . . . . . . . . . . . . . . . . . 904 (249) Total . . . . . . . . . . . . . . . . . . $ 8,461 $(27,610) Fuel for electric generation decreased $5.6 million (5%) for the nine months because of a lower cost of coal burned ($7.4 million), partially offset by increased generation ($1.8 million). Gas supply expenses decreased $27.5 million (28%) because of a decrease in gas delivered to the distribution system ($16.8 million) and the lower cost of net gas supply ($10.7 million). Power purchased increased $6.9 million primarily because of increased purchases required due to unplanned outages at the electric power plants during the warmer than normal third quarter. 14 Other operation expenses decreased $2.6 million (2%) primarily due to crediting $6 million to expense representing the settlement proceeds received related to a commercial dispute. See Note 4 of Notes to Financial Statements. The credit was partially offset by an increase in various administrative expenses. Non-recurring charges recognized in 1994 include the write off of previously deferred costs in connection with early retirements and work force reductions that occurred in 1992 and 1993, costs in connection with property damage claims pertaining to particulate emissions from the Mill Creek electric generating plant, and certain costs previously deferred resulting from adoption of Statement of Financial Accounting Standards No. 106, Employers' Accounting for Post-Retirement Benefits Other Than Pensions. See Note 5 of Notes to Financial Statements. Depreciation and amortization increased because of an increase in depreciable plant in service. Variations in income tax expense are largely attributable to changes in pre-tax income. Property and other taxes decreased mainly due to payroll taxes associated with severance payments in connection with work force reductions recorded in the first quarter of 1994. See Note 5 of Notes to Financial Statements. Other income and deductions increased $1.1 million primarily because of an increase in dividend and interest income from investments. The contribution to charitable foundation represents the expense (net of taxes) associated with the formation of a tax-exempt charitable foundation recorded in the first quarter of 1994. See Note 5 of Notes to Financial Statements. Interest charges decreased primarily due to a reduction in accrued interest resulting from a favorable ruling on certain income tax matters, partially offset by a higher composite interest rate on outstanding debt. A component of interest expense was the cost associated with $30 million of interest rate swaps that the Company entered into as a standard hedging device in connection with the issuance of Pollution Control Bonds Series S due September 1, 2017, in 1992. The swaps are designed to reduce the Company's exposure to interest rate risk. During the nine months ended September 30, 1995, the Company received interest at a composite rate of 3.83% and paid interest at a composite rate of 4.55% pursuant to the swaps. Cumulative Effect of Change in Accounting for Post-Employment Benefits reflects an accounting change required by the adoption of Statement of Financial Accounting Standards No. 112, Employers' Accounting for Post-Employment Benefits. See Note 6 of Notes to Financial Statements. Liquidity and Capital Resources The Company's capital structure and cash flow remained strong throughout the reported periods. This is evidenced primarily by the Company's ability to meet its capital needs through internal generation. 15 The Company's need for capital funds is primarily related to the construction of plant and equipment necessary to meet electric and gas customers' needs and the protection of the environment. Construction expenditures for the nine months ended September 30, 1995 of $57 million were financed with internally generated funds. The Company's combined cash, temporary cash investments, and marketable securities balance increased $20 million during the nine months ended September 30, 1995. The increase reflects the Company's cash flow from operations less construction expenditures and dividend payments. Variations in accounts receivable and accounts payable are not generally significant indicators of the Company's liquidity, as such variations are primarily attributable to seasonal fluctuations in weather, which has a direct effect on sales of electricity and natural gas. In April 1995, the Company issued $40 million of Jefferson County, Kentucky, Pollution Control Revenue Bonds, 5.90% Series, due April 15, 2023. The proceeds of the bonds were used to redeem the outstanding 9.25% Series of Pollution Control Bonds due July 1, 2015. In December 1995, the Company plans to redeem the outstanding shares of its 7.45% Cumulative Preferred Stock with a par value of $25 per share at a redemption price of $25.75 per share. The Company will fund the $22 million redemption with cash generated internally. At September 30, 1995, the Company had unused lines of credit of $145 million with banks for which it pays commitment fees. The lines are scheduled to expire at various periods throughout 1995 and 1996. The Company intends to renegotiate such lines when they expire. The Company's capitalization ratios at September 30, 1995, and December 31, 1994 were: Sept. 30, Dec. 31, 1995 1994 Long-term debt (including current portion) . . . . . . . . 47.2% 47.5% Preferred stock . . . . . . . . . . . . . . . 8.3 8.4 Common equity . . . . . . . . . . . . . . . . 44.5 44.1 Total. . . . . . . . . . . . . . . . . . . . 100.0% 100.0% For a description of significant contingencies that may affect the Company, reference is made to Part II herein - Item 1, Legal Proceedings. 16 Part II. Other Information Item 1. Legal Proceedings. For a description of the significant legal proceedings involving the Company, reference is made to: (i) the information under the following items and captions of the Company's Annual Report on Form 10-K for the year ended December 31, 1994: Item 1, Business; Item 3, Legal Proceedings; Item 7, Management's Discussion and Analysis of Results of Operations and Financial Condition; and Notes 2, 10, and 11 of the Notes to Financial Statements under Item 8, (ii) the Company's current report on Form 8-K dated April 13, 1995, (iii) the information under Part II, Item 1, Legal Proceedings, of the Company's Form 10-Q for the quarter ended March 31, 1995, (iv) the Company's current report on Form 8-K dated July 21, 1995, and (v) the information under Part II, Item 1, Legal Proceedings, of the Company's Form 10-Q for the quarter ended June 30, 1995. Except as noted below, there have been no material changes in these proceedings as reported in the Company's 1994 Form 10-K, Form 8-K dated April 13, 1995, Form 10-Q for the quarter ended March 31, 1995, Form 8-K dated July 21, 1995, and the Form 10-Q for the quarter ended June 30, 1995. Trimble County. Reference is made to Note 11 of the Notes to Financial Statements under Item 8 of the Company's 1994 Form 10-K, to Part II, Item 1, Legal Proceedings, of the Company's Form 10-Q for the quarter ended March 31, 1995, to the Company's current report on Form 8-K, dated July 21, 1995, to the Company's Form 10-Q for the quarter ended June 30, 1995, and to Note 2 of Notes to Financial Statements under Part I, Item 1 of this filing, regarding proceedings before the Kentucky Public Service Commission (Commission) to determine the proper ratemaking treatment to exclude 25% of the Trimble County electric generating facility from customer rates for the period May 1988 through December 1990. On July 19, 1995, the Commission issued an order that requires the Company to refund $23.9 million to its electric customers, plus interest (through June 1995 interest totaled $9.9 million), for a total as of the date of the order of $33.8 million, arising from the Commission's disallowance of 25% of the Trimble County power plant. The Commission's order required the Company to submit a proposed refund methodology for approval within 30 days from the date of the order. The Commission later extended the date of filing refund plans to November 8, 1995. On November 8, 1995, the Commission granted a joint motion to extend the date for filing refund plans to January 3, 1996. On August 4, 1995, the Kentucky Attorney General (KAG) filed a complaint in the Franklin (Kentucky) Circuit Court (Court) for review of the Commission's orders of July 8, 1994, April 25, 1995, and July 19, 1995. The KAG asked that the Court vacate those orders and remand the proceeding back to the Commission with instructions that the Commission consider, in determining a refund, the revenues paid by the Company's customers as a result of the inclusion of Trimble County related construction work in progress in the Company's rate base prior to May 20, 1988. On September 12, 1995, the Court dismissed without prejudice KAG's complaint. 17 On August 8, 1995, the Company filed a request for rehearing of the July 19 order of the Commission, and on August 28, 1995, the Commission issued an order in which it granted rehearing only on the issue of whether compound or simple interest should be applied to the amount the Commission has ordered the Company to refund. The total of $33.8 million contained in the Commission's July 19, 1995 order was calculated using compound interest. The Company believes that the use of simple interest would reduce the amount the Commission ordered be refunded through June 1995 by approximately $1.6 million. The Commission has requested that the parties to the case submit argument on this issue during the second phase of the case dealing with refund plans. The outcome of this matter is uncertain, and the Company is unable to predict the exact amount of refunds, if any, that ultimately may be due. Environmental. As reported in Note 10 of Notes to Financial Statements under Item 8 of the Company's 1994 Form 10-K, and in Part II, Item 1, Legal Proceedings, of the Company's Form 10-Q for the quarter ended June 30, 1995, 34 persons filed a complaint in Jefferson Circuit Court against the Company seeking certification of a class consisting of all persons within 2.5 miles of the Mill Creek plant who have allegedly suffered personal injury or property damage as a result of emissions from the plant. In June 1994, the court denied the plaintiffs' motion for certification of the class and thus limited the scope of the litigation to the claims of the individual plaintiffs. In August 1995, the court granted the plaintiff's motion for leave to file an amended complaint to bring a total of 537 individual plaintiffs into the pending litigation. The plaintiffs continue to seek compensation for alleged personal injury and property damage, injunctive relief, a fund to finance future medical monitoring of area residents and other relief. The plaintiffs seek certification of a class consisting of all persons within 3.5 miles of the plant who have allegedly suffered property damage. The Company intends to vigorously defend itself in the pending litigation. As reported in Note 10 of the Notes to Financial Statements under Item 8 of the Company's 1994 Form 10-K, in 1987, the United States Environmental Protection Agency (USEPA) identified the Company as one of the numerous potentially responsible parties (PRPs) allegedly liable under the Comprehensive Environmental Response, Compensation, and Liability Act as amended for the Smith's Farm site in Bullitt County, Kentucky. Previously reported estimated cleanup costs of approximately $70 million have recently been revised to approximately $60 million. The Company and several other parties have shared certain cleanup costs until a voluntary allocation of liability can be reached among the parties. It is not possible at this time to predict the outcome or precise impact of the matter. However, management believes that this matter should not have a material adverse impact on the financial position or results of operation of the Company, as other financially viable PRPs appear to have primary responsibility for any environmental liability at the site. 18 As reported in Note 10, of the Notes to Financial Statements under Item 8 of the Company's 1994 Form 10-K, in March 1994, the Air Pollution Control District of Jefferson County, Kentucky (APCD) adopted a regulation requiring a 15% reduction from 1990 volatile organic compound (VOC) emissions from industrial sources. There are currently no demonstrated technologies for control of VOC emissions from coal-fired boilers. Consequently, compliance with the regulation could require limits on generation at the Mill Creek and Cane Run plants, unless the APCD adopts a provision for compliance through utilization of banked emission allowances. The Company is currently participating in negotiations between the APCD and industry groups in an effort to obtain an exemption from the VOC reduction requirements. Item 6(a). Exhibits. Exhibit No. 27. Financial Data Schedule Item 6(b). Reports on Form 8-K. On July 21, 1995, a report on Form 8-K was filed announcing that on July 19, the Public Service Commission of Kentucky ordered the Company to issue its electric customers a refund of $33.8 million, arising from the disallowance of 25% of the Company's Trimble County plant. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LOUISVILLE GAS AND ELECTRIC COMPANY Registrant Date: November 13, 1995 M. L. Fowler M. L. Fowler Vice President and Controller (On behalf of the registrant in his capacity as Principal Accounting Officer) EX-27 2
UT 1,000 9-MOS DEC-31-1995 SEP-30-1995 PER-BOOK 1,648,540 761 281,733 38,638 10,097 1,979,769 424,334 (357) 199,855 623,832 0 116,716 646,850 0 0 0 16,000 0 0 0 576,371 1,979,769 563,688 48,195 405,295 453,490 110,198 2,402 112,600 31,330 81,270 4,810 76,460 70,500 31,084 151,814 0 0 Represents Unrealized Loss on Marketable Securities.
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