-----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, Ne6yPbPCr3UTABWplS/8Pdum80NE4Kjnn116/z8yCbaduNqwmU0JxkJA6vY7Ou7i YtKsXDKxaA0XWL+b0fMHVg== 0000004904-94-000101.txt : 19941116 0000004904-94-000101.hdr.sgml : 19941116 ACCESSION NUMBER: 0000004904-94-000101 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OHIO POWER CO CENTRAL INDEX KEY: 0000073986 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 314271000 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06543 FILM NUMBER: 94559243 BUSINESS ADDRESS: STREET 1: 301 CLEVELAND AVE S W CITY: COLUMBUS STATE: OH ZIP: 44702 BUSINESS PHONE: 6142231000 10-Q 1 THE CONSOLIDATED 10-Q FOR AMERICAN ELECTRIC POWER CO., INC. AND SUBSIDIARIES IS REQUESTED TO BE INCLUDED AS PART OF THIS FILING. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 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, 1994 [ ] 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; I. R. S. Employer File Number Address; and Telephone Number Identification No. 1-3525 AMERICAN ELECTRIC POWER COMPANY, INC. 13-4922640 (A New York Corporation) 1 Riverside Plaza, Columbus, Ohio 43215 Telephone (614) 223-1000 0-18135 AEP GENERATING COMPANY (An Ohio Corporation) 31-1033833 1 Riverside Plaza, Columbus, Ohio 43215 Telephone (614) 223-1000 1-3457 APPALACHIAN POWER COMPANY (A Virginia Corporation) 54-0124790 40 Franklin Road, Roanoke, Virginia 24011 Telephone (703) 985-2300 1-2680 COLUMBUS SOUTHERN POWER COMPANY (An Ohio Corporation) 31-4154203 215 North Front Street, Columbus, Ohio 43215 Telephone (614) 464-7700 1-3570 INDIANA MICHIGAN POWER COMPANY (An Indiana Corporation) 35-0410455 One Summit Square P.O. Box 60, Fort Wayne, Indiana 46801 Telephone (219) 425-2111 1-6858 KENTUCKY POWER COMPANY (A Kentucky Corporation) 61-0247775 1701 Central Avenue, Ashland, Kentucky 41101 Telephone (606) 327-1111 1-6543 OHIO POWER COMPANY (An Ohio Corporation) 31-4271000 301 Cleveland Avenue S.W., Canton, Ohio 44702 Telephone (216) 456-8173 AEP Generating Company, Columbus Southern Power Company and Kentucky Power Company meet the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) to Form 10-Q. Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file and (2) have been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of American Electric Power Company, Inc. Common Stock, par value $6.50, at October 31, 1994 was 184,885,000. AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES FORM 10-Q For The Quarter Ended September 30, 1994 INDEX Part I. FINANCIAL INFORMATION American Electric Power Company, Inc. and Subsidiary Companies: Consolidated Statements of Income . . . . . . . . . . . Consolidated Balance Sheets . . . . . . . . . . . . . . Consolidated Statements of Cash Flows . . . . . . . . . Consolidated Statements of Retained Earnings. . . . . . Notes to Consolidated Financial Statements. . . . . . . Management's Discussion and Analysis of Results of Operations and Financial Condition. . . . . . . . . . AEP Generating Company: Statements of Income and Statements of Retained Earnings . . . . . . . . . . . . . . . . . . . . . . Balance Sheets . . . . . . . . . . . . . . . . . . . . Statements of Cash Flows . . . . . . . . . . . . . . . Notes to Financial Statements. . . . . . . . . . . . . Management's Narrative Analysis of Results of Operations . . . . . . . . . . . . . . . . . . . . Appalachian Power Company and Subsidiaries: Consolidated Statements of Income and Consolidated Statements of Retained Earnings . . . . Consolidated Balance Sheets. . . . . . . . . . . . . . Consolidated Statements of Cash Flows. . . . . . . . . Notes to Consolidated Financial Statements . . . . . . Management's Discussion and Analysis of Results of Operations and Financial Condition.. . . . . . . . . Columbus Southern Power Company and Subsidiaries: Consolidated Statements of Income. . . . . . . . . . . Consolidated Balance Sheets. . . . . . . . . . . . . . Consolidated Statements of Cash Flows. . . . . . . . . Consolidated Statements of Retained Earnings . . . . . Notes to Consolidated Financial Statements . . . . . . Management's Narrative Analysis of Results of Operations . . . . . . . . . . . . . . . . . . . . . Indiana Michigan Power Company and Subsidiaries: Consolidated Statements of Income and Consolidated Statements of Retained Earnings . . . . Consolidated Balance Sheets. . . . . . . . . . . . . . Consolidated Statements of Cash Flows. . . . . . . . . Notes to Consolidated Financial Statements . . . . . . Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . Kentucky Power Company: Statements of Income and Statements of Retained Earnings . . . . . . . . . . . . . . . . . . . . . . Balance Sheets . . . . . . . . . . . . . . . . . . . . Statements of Cash Flows . . . . . . . . . . . . . . . Notes to Financial Statements. . . . . . . . . . . . . Management's Narrative Analysis of Results of Operations . . . . . . . . . . . . . . . . . . . . . Ohio Power Company and Subsidiaries: Consolidated Statements of Income and Consolidated Statements of Retained Earnings . . . . Consolidated Balance Sheets. . . . . . . . . . . . . . Consolidated Statements of Cash Flows. . . . . . . . . Notes to Consolidated Financial Statements . . . . . . Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES FORM 10-Q For The Quarter Ended September 30, 1994 INDEX Part II. OTHER INFORMATION Item 1 . . . . . . . . . . . . . . . . . . . . Item 6 . . . . . . . . . . . . . . . . . . . . SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . This combined Form 10-Q is separately filed by American Electric Power Company, Inc., AEP Generating Company, Appalachian Power Company, Columbus Southern Power Company, Indiana Michigan Power Company, Kentucky Power Company and Ohio Power Company. Information contain herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per-share amounts) (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 OPERATING REVENUES . . . . . . . . . . . $1,385,278 $1,406,311 $4,222,026 $3,938,159 OPERATING EXPENSES: Fuel and Purchased Power . . . . . . . 427,125 458,224 1,359,517 1,236,927 Other Operation. . . . . . . . . . . . 241,660 251,378 732,391 719,686 Maintenance. . . . . . . . . . . . . . 133,690 137,895 409,217 401,391 Depreciation and Amortization. . . . . 145,516 133,990 426,958 396,723 Taxes Other Than Federal Income Taxes. 122,588 116,581 372,771 351,885 Federal Income Taxes . . . . . . . . . 67,753 66,087 197,350 153,230 TOTAL OPERATING EXPENSES . . . 1,138,332 1,164,155 3,498,204 3,259,842 OPERATING INCOME . . . . . . . . . . . . 246,946 242,156 723,822 678,317 NONOPERATING INCOME: Deferred Zimmer Plant Carrying Charges (net of tax) . . . . . . . . 1,063 4,584 4,621 20,527 Other. . . . . . . . . . . . . . . . . 2,926 5,351 325 16,473 TOTAL NONOPERATING INCOME . . . 3,989 9,935 4,946 37,000 LOSS FROM ZIMMER PLANT DISALLOWANCE: Disallowed Cost. . . . . . . . . . . . - 159,067 - 159,067 Related Income Taxes . . . . . . . . . - (14,534) - (14,534) NET ZIMMER LOSS. . . . . . . . - 144,533 - 144,533 INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS. . . . . . . . . . 250,935 107,558 728,768 570,784 INTEREST CHARGES . . . . . . . . . . . . 96,914 102,983 291,521 317,072 PREFERRED STOCK DIVIDEND REQUIREMENTS OF SUBSIDIARIES. . . . . . . . . . . . 14,195 14,714 40,673 44,574 NET INCOME (LOSS). . . . . . . . . . . . $ 139,826 $ (10,139) $ 396,574 $ 209,138 AVERAGE NUMBER OF SHARES OUTSTANDING . . 184,621 184,535 184,564 184,535 EARNINGS (LOSS) PER SHARE. . . . . . . . $0.76 $(0.06) $2.15 $1.13 CASH DIVIDENDS PAID PER SHARE. . . . . . $0.60 $0.60 $1.80 $1.80 See Notes to Consolidated Financial Statements. /TABLE AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1994 1993 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $ 9,035,432 $ 9,079,130 Transmission . . . . . . . . . . . . . . . . . . . . 3,225,168 3,169,347 Distribution . . . . . . . . . . . . . . . . . . . . 3,875,367 3,743,047 General (including mining assets and nuclear fuel) . 1,507,261 1,406,159 Construction Work in Progress. . . . . . . . . . . . 355,058 314,489 Total Electric Utility Plant . . . . . . . . 17,998,286 17,712,172 Accumulated Depreciation and Amortization. . . . . . 6,757,134 6,612,131 NET ELECTRIC UTILITY PLANT . . . . . . . . . 11,241,152 11,100,041 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 748,709 724,373 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 46,438 42,561 Accounts Receivable (net). . . . . . . . . . . . . . 424,497 463,765 Fuel . . . . . . . . . . . . . . . . . . . . . . . . 287,319 314,441 Materials and Supplies . . . . . . . . . . . . . . . 209,960 207,373 Accrued Utility Revenues . . . . . . . . . . . . . . 134,314 169,905 Prepayments and Other. . . . . . . . . . . . . . . . 96,879 98,958 TOTAL CURRENT ASSETS . . . . . . . . . . . . 1,199,407 1,297,003 REGULATORY ASSETS: Amounts Due From Customers For Future Federal Income Taxes. . . . . . . . . . . . 1,360,637 1,363,802 Other. . . . . . . . . . . . . . . . . . . . . . . . 852,200 856,182 TOTAL REGULATORY ASSETS. . . . . . . . . . . 2,212,837 2,219,984 TOTAL. . . . . . . . . . . . . . . . . . . $15,402,105 $15,341,401 See Notes to Consolidated Financial Statements.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1994 1993 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock-Par Value $6.50: 1994 1993 Shares Authorized . . . .300,000,000 300,000,000 Shares Issued . . . . . .193,884,992 193,534,992 (8,999,992 shares were held in treasury) . . . . . $ 1,260,252 $ 1,257,977 Paid-in Capital. . . . . . . . . . . . . . . . . . . 1,632,239 1,625,068 Retained Earnings. . . . . . . . . . . . . . . . . . 1,333,193 1,269,283 Total Common Shareowners' Equity . . . . . . 4,225,684 4,152,328 Cumulative Preferred Stocks of Subsidiaries: Not Subject to Mandatory Redemption. . . . . . . . 233,240 268,240 Subject to Mandatory Redemption. . . . . . . . . . 590,450 500,450 Long-term Debt . . . . . . . . . . . . . . . . . . . 4,722,132 4,964,060 TOTAL CAPITALIZATION . . . . . . . . . . . . 9,771,506 9,885,078 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 633,940 509,317 CURRENT LIABILITIES: Long-term Debt Due Within One Year . . . . . . . . . 210,587 31,141 Short-term Debt. . . . . . . . . . . . . . . . . . . 214,179 278,976 Accounts Payable . . . . . . . . . . . . . . . . . . 184,716 259,145 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 270,674 409,198 Interest Accrued . . . . . . . . . . . . . . . . . . 124,771 91,161 Obligations Under Capital Leases . . . . . . . . . . 87,772 62,215 Other. . . . . . . . . . . . . . . . . . . . . . . . 421,834 338,988 TOTAL CURRENT LIABILITIES. . . . . . . . . . 1,514,533 1,470,824 DEFERRED FEDERAL INCOME TAXES. . . . . . . . . . . . . 2,451,585 2,468,015 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 465,032 487,501 DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT PLANT UNIT 2. . . . . . . . . . . . . . . . 418,943 430,091 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 146,566 90,575 CONTINGENCIES (Note 5) TOTAL. . . . . . . . . . . . . . . . . . . $15,402,105 $15,341,401 See Notes to Consolidated Financial Statements.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1994 1993 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 396,574 $ 209,138 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . . . . . 419,219 419,271 Deferred Federal Income Taxes. . . . . . . . . . . . . . (13,265) (60,526) Deferred Investment Tax Credits. . . . . . . . . . . . . (22,332) (20,070) Loss from Zimmer Plant Disallowance. . . . . . . . . . . - 159,067 Amortization of Deferred Property Taxes. . . . . . . . . 98,377 99,311 Changes in Certain Current Assets and Liabilities: Special Deposits - Restricted Funds. . . . . . . . . . . - 16,316 Accounts Receivable (net). . . . . . . . . . . . . . . . 39,268 (9,030) Fuel, Materials and Supplies . . . . . . . . . . . . . . 24,535 119,706 Accrued Utility Revenues . . . . . . . . . . . . . . . . 35,591 78,420 Accounts Payable . . . . . . . . . . . . . . . . . . . . (74,429) (37,912) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (138,524) (53,602) Other (net). . . . . . . . . . . . . . . . . . . . . . . . 55,240 72,705 Net Cash Flows From Operating Activities . . . . . . 820,254 992,794 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (443,172) (408,320) Proceeds from Sale of Property and Other . . . . . . . . . 38,853 2,002 Net Cash Flows Used For Investing Activities . . . . (404,319) (406,318) FINANCING ACTIVITIES: Issuance of Common Stock . . . . . . . . . . . . . . . . . 10,732 - Issuance of Cumulative Preferred Stock . . . . . . . . . . 88,787 59,095 Issuance of Long-term Debt . . . . . . . . . . . . . . . . 361,639 871,372 Retirement of Cumulative Preferred Stock . . . . . . . . . (35,800) (63,952) Retirement of Long-term Debt . . . . . . . . . . . . . . . (440,451) (1,096,037) Change in Short-term Debt (net). . . . . . . . . . . . . . (64,797) (50,266) Dividends Paid on Common Stock . . . . . . . . . . . . . . (332,168) (332,168) Net Cash Flows Used For Financing Activities . . . . (412,058) (611,956) Net Increase (Decrease) in Cash and Cash Equivalents . . . . 3,877 (25,480) Cash and Cash Equivalents at Beginning of Period . . . . . . 42,561 128,896 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 46,438 $ 103,416 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $249,101,000 and $296,077,000 and for income taxes was $242,975,000 and $165,176,000 in 1994 and 1993, respectively. Noncash acquisitions under capital leases were $155,857,000 and $38,204,000 in 1994 and 1993, respectively. See Notes to Consolidated Financial Statements. /TABLE AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . $1,304,036 $1,356,530 $1,269,283 $1,358,800 NET INCOME (LOSS). . . . . . . . . . . . 139,826 (10,139) 396,574 209,138 DEDUCTIONS: Cash Dividends Declared. . . . . . . . 110,723 110,723 332,168 332,168 Other. . . . . . . . . . . . . . . . . (54) 55 496 157 BALANCE AT END OF PERIOD . . . . . . . . $1,333,193 $1,235,613 $1,333,193 $1,235,613 See Notes to Consolidated Financial Statements.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1994 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial state- ments should be read in conjunction with the 1993 Annual Report as incorporated in and filed with the Form 10-K. Certain prior-period amounts have been reclassified to conform to current-period presentation. 2. RATE MATTERS Appalachian Power Company (APCo) filed a request with the Virginia State Corporation Commission (VA SCC), for a net decrease of $12.3 million in rates charged to its Virginia retail customers to be effective November 15, 1994. The net decrease consisted of a $28 million decrease in the fuel factor component of its rates offset, in part, by an increase of $15.7 million in base rates. The increase in base rates would, in part, recover the costs of extensive repairs to facilities damaged by last winter's severe storms. APCo has deferred $23.7 million of Virginia retail incremental storm damage expenses related to two major ice storms in February and March 1994. APCo proposes in this rate proceeding to amortize the $23.7 million deferred storm damage expenses over a three-year period, consistent with the amortization of $4.1 million of major storm damage expenses approved by the VA SCC in the previous 1992 rate case. Failure to recover the storm damage deferral in cost of service would require an immediate write-off of $15.4 million after tax. On July 6, 1994 Ohio Power Company (OPCo) filed an application to increase base retail rates with the Public Utilities Commission of Ohio (PUCO) seeking up to $152.5 million or a 13.8% increase in annual revenues. More than half of the increase reflects recovery of costs associated with the Gavin Plant's flue gas desulfurization system and other costs associated with meeting environmental restrictions imposed by the Clean Air Act Amendments of 1990 (CAAA). The remainder of the request seeks to recover increased costs of service since the last base rate increase in 1986; an increase in depreciation rates which includes recovery on a remaining life basis of the cost of plant and equipment and the cost of removal of plant and equipment; and deferred costs associated with pressurized fluidized bed combustion (PFBC) research and development as well as energy conservation demand-side management (DSM) programs. Failure to recover these deferred PFBC and DSM costs in cost of service would require an immediate write-off of $15.6 million after tax. 3. FINANCING AND RELATED ACTIVITIES In August 1994 subsidiaries issued a $21 million series of 7.70% First Mortgage Bonds due in 2004 and entered into a $5 million term loan agreement with a 7.69% interest rate due in 1999. 4. VALUATION OF SECURITIES On January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, (SFAS 115) which requires fair value accounting for investments in equity securities with readily determinable market values and investments in debt securities except those that the reporting enterprise has the positive intent and ability to hold to maturity. Debt securities not classified as held- to-maturity, shall be classified as trading or available- for-sale. Investments held in trust for decommissioning nuclear facilities and for disposal of spent nuclear fuel were classified as available-for-sale under SFAS 115. SFAS 115 requires that unrealized gains and losses on investments classified as available-for-sale should be reported as a separate component of shareholder's equity. However, due to the rate-making process, SFAS 115 adjustments for unrealized gains and losses to the carrying value of investments held in the trusts will result in corresponding adjustments to the nuclear decommissioning liability and the regulatory asset for future recovery of spent nuclear fuel disposal costs. The cumulative effect of adopting SFAS 115 on January 1, 1994 resulted in an increase in the decommissioning and spent nuclear fuel trust fund assets of $20.4 million comprised of an unrealized holding gain of $21.4 million and an unrealized holding loss of $1 million, with no effect on net income and/or shareholder's equity due to a corre- sponding net increase to the decommissioning liability and a reduction to regulatory assets. As required by SFAS 115, prior year amounts were not restated. The trust investments reported in other property and investments had a fair value of $321 million at January 1, 1994 and consist primarily of long-term tax-exempt municipal bonds. At January 1, 1994, the maturities of investments in debt securities range from 1994 to 2024. 5. CONTINGENCIES Kammer Plant On August 4, 1994, the United States Environmental Protection Agency (Federal EPA) issued a Notice of Violation (NOV) to OPCo alleging that the Kammer Plant has been operating in violation of applicable federally enforceable air pollution control requirements since January 1, 1989. The Clean Air Act provides that Federal EPA may, after the expiration of 30 days following the issuance of the NOV, commence a civil action for injunctive relief and/or civil penalties of up to $25,000 per day for each day of violation. On October 24, 1994, following several months of negotiations, OPCo executed a Consent Decree which resolves that portion of the August 4, 1994 NOV relating to compliance. The Decree has been transmitted to the U.S. Department of Justice and Federal EPA for their execution and lodging with the U.S. District Court for the Northern District of West Virginia. That portion of the NOV relating to penalties will be addressed independently. At this time management is unable to estimate the amount of any civil penalties that may be imposed by the Federal EPA. It is not anticipated that the ultimate resolution of this matter will have a material adverse impact on financial condition. Other The Company continues to be involved in certain other matters discussed in the 1993 Annual Report. AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THIRD QUARTER 1994 vs. THIRD QUARTER 1993 AND YEAR-TO-DATE 1994 vs. YEAR-TO-DATE 1993 RESULTS OF OPERATIONS Net income increased by $150 million for the third quarter and by $187 million for the year-to-date period due mainly to a 1993 disallowance of a portion of the investment in the Zimmer Plant. In November 1993 the Ohio Supreme Court rejected the Company's argument that it should be allowed to include in rate base $165 million of certain costs incurred when the Zimmer Plant was converted from a nuclear project to a coal-fired facility. As a result of the ruling, the adverse impact of the disallowance on results of operations was recorded in the third quarter of 1993 which reduced net income by $144.5 million after tax. Third quarter net income, exclusive of the disallowance, increased by $5 million or 4% as a result of reduced interest charges due to a refinancing program and the recordation in 1993 of reorganization costs and a retroactive increase in the statutory federal income tax rate. Year-to-date net income, excluding the disallowance, increased $43 million or 12% due to the favorable impact of increased energy sales reflecting severe winter weather and unseasonably hot weather in June 1994 and continued improvement in industrial sales; rate increases in several jurisdictions; and decreased interest expense due to the refinancing of debt at lower interest rates. Income statement lines which changed significantly were: Increase (Decrease) Third Quarter Year-To-Date (in millions) % (in millions) % Operating Revenues . . . . . $(21.0) (1) $283.9 7 Fuel and Purchased Power Expense. . . . . . . (31.1) (7) 122.6 10 Other Operation Expense. . . (9.7) (4) 12.7 2 Depreciation and Amortization Expense . . . 11.5 9 30.2 8 Taxes Other Than Federal Income Taxes . . . 6.0 5 20.9 6 Federal Income Taxes . . . . 1.7 3 44.1 29 Deferred Zimmer Plant Carrying Charges (net of tax) . . . . . . . (3.5) (77) (15.9) (77) Other Nonoperating Income. . (2.4) (45) (16.1) (98) Interest Charges . . . . . . (6.1) (6) (25.6) (8) The slight decline in third quarter operating revenues was mainly due to decreased energy demand as a result of mild summer weather. Wholesale energy sales decreased 24% reflecting the weather-related decline in energy sales to other utilities. Retail revenues were essentially unchanged due to the retail rate increases in several jurisdictions and a 4% improvement in industrial energy sales which offset a 7% decrease in energy demands of weather sensitive residential customers. Operating revenues for the year-to-date period rose as the severe winter weather and unseasonably hot June weather increased the energy requirements of retail customers and other utilities by 3% and 1%, respectively. Retail revenues also rose due to the effect of retail rate increases and the continued growth in industrial customers and their energy usage. Higher than normal energy demands caused an increase in the average revenue per kilowatthour sold to other utilities as a result of the unseason- able winter weather and forced outages at their generating units. Fuel and purchased power expense decreased in the quarter reflecting the reduced energy requirements which caused a decline in generation and energy purchases from other utilities for immediate pass-through sales to other utilities. Year-to-date fuel and purchased power expense increased primarily due to the weather-related increase in energy demand which increased energy purchases from other utilities for pass-through sales and increased generation. Also adding to the year-to-date increase in fuel costs was increased utilization of coal-fired generation due to a reduction of low-cost nuclear generation resulting from scheduled refueling and maintenance outages at both nuclear units. Other operation expense decreased in the third quarter mainly due to severance costs recognized in 1993 in connection with the reorganization of the Company's Ohio operations. The increase in depreciation and amortization expense was primarily due to the court ordered discontinuance of Zimmer phase-in plan deferrals effective in February 1994 and the subsequent amortization of such costs, commensurate with rate recovery. Taxes other than federal income tax expense increased in both periods primarily due to increased West Virginia business and occupation tax on generation reflecting an increase in generation at West Virginia power plants. State income taxes also increased in the third quarter due to higher taxable income. The rise in federal income tax expense attributable to operations for the third quarter was primarily due to an increase in pre-tax operating income and changes in certain book/tax differences accounted for on a flow-through basis offset in part by a retroactive 1% federal income tax rate increase enacted in August 1993 and recorded in the third quarter of 1993. The increase in pre-tax operating income caused the increase in federal income tax expense for the year-to-date period. Deferred Zimmer Plant carrying charges declined from the prior year since the carrying charges in 1994 were accrued on the unamortized phase-in plan deferral balance while the 1993 carrying charges were accrued on the larger Zimmer investment not yet phased into rates. The decrease in other nonoperating income in the year-to- date period was mainly due to a subsidiary, AEP Investments, Inc., recording a provision for loss of $8.2 million after tax in June 1994 on a demand side management investment. Also contributing to the decrease was the effect of interest income recorded in March 1993 on tax refunds received from the Internal Revenue Service in connection with the settlement of audits of prior years' tax returns. Refinancing programs of several major subsidiaries during 1993 and the early part of 1994 reduced the average interest rate on outstanding long-term debt as well as reduced levels of long- term debt resulted in the decline in interest expense in both periods. FINANCIAL CONDITION Total plant and property additions including capital leases for the first nine months were $602 million. During the first nine months subsidiaries issued $361 million principal amount of long-term debt at interest rates ranging from 3.725% (variable) to 7.70% and three series of cumulative preferred stock: $35 million at 6.30%, $30 million at 6.85% and $25 million at 7%. Subsidiaries retired $432 million principal amount of long-term debt with interest rates ranging from 5-1/8% to 9-7/8%; redeemed $35 million of $100 par value 7.76% cumulative preferred stock; and decreased short-term debt by $65 million since the beginning of the year. RATE ACTIVITY Appalachian Power Company (APCo) filed a request with the Virginia State Corporation Commission for a net decrease of $12.3 million in rates charged to its Virginia retail customers to be effective November 15, 1994. The net decrease consists of a $28 million reduction in the fuel factor component of rates offset, in part, by an increase of $15.7 million in base rates. The requested increase in base rates includes, among other things, recovery of the costs of extensive repairs to facilities damaged by last winter's severe storms and increased Power Pool capacity charges. APCo proposes in this rate proceeding to amortize the $23.7 million deferred storm damage expenses over a three-year period, in accordance with a prior precedent. Failure to recover such deferred expenses in cost of service would result in the immediate write-off of $15.4 million after tax. On July 6, 1994, Ohio Power Company (OPCo) filed with the PUCO for an annual revenue increase of up to $152.5 million. More than half of the requested retail base rate increase is to recover costs associated with the Gavin Plant's flue gas desulfurization system (scrubbers) and other costs resulting from complying with the Clean Air Act Amendments of 1990. The remainder of the increase is to recover the additional cost of providing service to customers since the last base rate increase in 1986; increased depreciation rates for investment in plant and equipment based on a remaining life method and recovery of removal costs; and deferred costs associated with pressurized fluidized bed combustion (PFBC) research and development as well as energy conservation demand-side management (DSM) programs. Failure to recover these deferred PFBC and DSM costs in cost of service would result in the immediate write-off of $15.6 million after tax. NOTICE OF VIOLATION - KAMMER PLANT On August 4, 1994, the United States Environmental Protection Agency (Federal EPA) issued a Notice of Violation (NOV) to OPCo alleging that the Kammer Plant has been operating in violation of applicable federally enforceable air pollution control requirements since January 1, 1989. By law the Federal EPA may seek penalties of up to $25,000 per day for each day of violation. On October 24, 1994, following several months of negotiations, OPCo executed a Consent Decree which resolves that portion of the August 4, 1994 NOV relating to compliance. The Decree has been transmitted to the U.S. Government for its execution and filing with the U.S. District Court for the Northern District of West Virginia. That portion of the NOV relating to penalties will be addressed independently. At this time management is unable to estimate the amount of any civil penalties that may be imposed by the Federal EPA. It is not anticipated that the ultimate resolution of this matter will have a material adverse impact on financial condition. AEP GENERATING COMPANY STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (in thousands) OPERATING REVENUES . . . . . . . . . . . $60,828 $63,733 $180,259 $176,635 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . 26,281 28,596 78,020 71,326 Rent - Rockport Plant Unit 2 . . . . . 17,401 16,574 50,553 49,762 Other Operation. . . . . . . . . . . . 2,618 3,008 7,901 8,506 Maintenance. . . . . . . . . . . . . . 2,788 3,336 8,363 10,009 Depreciation . . . . . . . . . . . . . 5,396 5,393 16,212 16,231 Taxes Other Than Federal Income Taxes. 1,234 1,192 3,726 4,163 Federal Income Taxes . . . . . . . . . 1,200 1,300 3,675 3,749 TOTAL OPERATING EXPENSES . . . 56,918 59,399 168,450 163,746 OPERATING INCOME . . . . . . . . . . . . 3,910 4,334 11,809 12,889 NONOPERATING INCOME. . . . . . . . . . . 820 1,002 2,505 3,522 INCOME BEFORE INTEREST CHARGES . . . . . 4,730 5,336 14,314 16,411 INTEREST CHARGES . . . . . . . . . . . . 2,439 2,801 7,256 8,225 NET INCOME . . . . . . . . . . . . . . . $ 2,291 $ 2,535 $ 7,058 $ 8,186 STATEMENTS OF RETAINED EARNINGS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . $1,185 $14,430 $1,339 $23,173 NET INCOME . . . . . . . . . . . . . . . 2,291 2,535 7,058 8,186 CASH DIVIDENDS DECLARED. . . . . . . . . 2,260 7,197 7,181 21,591 BALANCE AT END OF PERIOD . . . . . . . . $1,216 $ 9,768 $1,216 $ 9,768 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Financial Statements. /TABLE AEP GENERATING COMPANY BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1994 1993 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production. . . . . . . . . . . . . . . . . . . . . . . . $626,012 $627,502 General . . . . . . . . . . . . . . . . . . . . . . . . . 2,700 1,757 Construction Work in Progress . . . . . . . . . . . . . . 2,216 1,773 Total Electric Utility Plant. . . . . . . . . . . 630,928 631,032 Accumulated Depreciation. . . . . . . . . . . . . . . . . 194,136 181,587 NET ELECTRIC UTILITY PLANT. . . . . . . . . . . . 436,792 449,445 CURRENT ASSETS: Cash and Cash Equivalents . . . . . . . . . . . . . . . . 552 3 Accounts Receivable . . . . . . . . . . . . . . . . . . . 20,284 18,729 Fuel. . . . . . . . . . . . . . . . . . . . . . . . . . . 16,854 12,867 Materials and Supplies. . . . . . . . . . . . . . . . . . 4,171 4,121 Prepayments . . . . . . . . . . . . . . . . . . . . . . . 540 731 TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . 42,401 36,451 DEFERRED FEDERAL INCOME TAX ASSETS. . . . . . . . . . . . . 5,716 10,975 REGULATORY ASSETS . . . . . . . . . . . . . . . . . . . . . 30,508 30,536 TOTAL . . . . . . . . . . . . . . . . . . . . . $515,417 $527,407 See Notes to Financial Statements.
AEP GENERATING COMPANY BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1994 1993 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - Par Value $1,000: Authorized and Outstanding - 1,000 Shares . . . . . . . $ 1,000 $ 1,000 Paid-in Capital . . . . . . . . . . . . . . . . . . . . . 47,735 54,435 Retained Earnings . . . . . . . . . . . . . . . . . . . . 1,216 1,339 Total Common Shareowner's Equity. . . . . . . . . 49,951 56,774 Long-term Debt. . . . . . . . . . . . . . . . . . . . . . 53,302 108,188 TOTAL CAPITALIZATION. . . . . . . . . . . . . . . 103,253 164,962 OTHER NONCURRENT LIABILITIES. . . . . . . . . . . . . . . . 2,119 1,736 CURRENT LIABILITIES: Long-term Debt Due Within One Year. . . . . . . . . . . . 55,000 - Short-term Debt - Notes Payable . . . . . . . . . . . . . - 15,250 Accounts Payable. . . . . . . . . . . . . . . . . . . . . 5,779 8,809 Taxes Accrued . . . . . . . . . . . . . . . . . . . . . . 6,189 3,697 Interest Accrued. . . . . . . . . . . . . . . . . . . . . 745 2,963 Rent Accrued - Rockport Plant Unit 2. . . . . . . . . . . 24,878 5,588 Other . . . . . . . . . . . . . . . . . . . . . . . . . . 2,120 1,063 TOTAL CURRENT LIABILITIES . . . . . . . . . . . . 94,711 37,370 DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT PLANT UNIT 2 . . . . . . . . . . . . . . . . . . 212,978 218,646 DEFERRED INVESTMENT TAX CREDITS . . . . . . . . . . . . . . 81,363 83,901 DEFERRED AMOUNTS DUE TO CUSTOMERS FOR FEDERAL INCOME TAXES. . . . . . . . . . . . . . . . . . . 19,632 20,792 DEFERRED CREDITS. . . . . . . . . . . . . . . . . . . . . . 1,361 - CONTINGENCIES (Note 2) TOTAL . . . . . . . . . . . . . . . . . . . . . $515,417 $527,407 See Notes to Financial Statements.
AEP GENERATING COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1994 1993 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 7,058 $ 8,186 Adjustments for Noncash Items: Depreciation . . . . . . . . . . . . . . . . . . . . . . 16,212 16,231 Deferred Federal Income Taxes. . . . . . . . . . . . . . 4,099 3,428 Deferred Investment Tax Credits. . . . . . . . . . . . . (2,538) (2,542) Amortization of Deferred Gain on Sale and Leaseback - Rockport Plant Unit 2. . . . . . . . . (5,668) (5,668) Changes in Certain Current Assets and Liabilities: Accounts Receivable. . . . . . . . . . . . . . . . . . . (1,555) 844 Fuel, Materials and Supplies . . . . . . . . . . . . . . (4,037) 10,158 Accounts Payable . . . . . . . . . . . . . . . . . . . . (3,030) (38) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . 2,492 12,820 Interest Accrued . . . . . . . . . . . . . . . . . . . . (2,218) (2,243) Rent Accrued - Rockport Plant Unit 2 . . . . . . . . . . 19,290 18,464 Other (net). . . . . . . . . . . . . . . . . . . . . . . . 2,513 428 Net Cash Flows From Operating Activities . . . . . . 32,618 60,068 INVESTING ACTIVITIES - Construction Expenditures . . . . . . (2,938) (1,554) FINANCING ACTIVITIES: Capital Contributions Returned to Parent Company . . . . . (6,700) - Change in Short-term Debt (net). . . . . . . . . . . . . . (15,250) - Dividends Paid . . . . . . . . . . . . . . . . . . . . . . (7,181) (21,591) Net Cash Flows Used For Financing Activities . . . . (29,131) (21,591) Net Increase in Cash and Cash Equivalents. . . . . . . . . . 549 36,923 Cash and Cash Equivalents at Beginning of Period . . . . . . 3 27,974 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 552 $ 64,897 Supplemental Disclosure: Cash paid (received) for interest net of capitalized amounts was $9,227,000 and $10,201,000 and for income taxes was $(1,026,000) and $(9,527,000) in 1994 and 1993, respectively. See Notes to Financial Statements.
AEP GENERATING COMPANY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1994 (UNAUDITED) 1. GENERAL The accompanying unaudited financial statements should be read in conjunction with the 1993 Annual Report as incorporated in and filed with the Form 10-K. 2. CONTINGENCIES The Company continues to be involved in certain matters discussed in its 1993 Annual Report. AEP GENERATING COMPANY MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS THIRD QUARTER 1994 vs. THIRD QUARTER 1993 AND YEAR-TO-DATE 1994 vs. YEAR-TO-DATE 1993 Operating revenues are derived from the sale of Rockport Plant energy and capacity to two affiliated companies and one unaffiliated utility pursuant to Federal Energy Regulatory Commission (FERC) approved long-term unit power agreements. The unit power agreements provide for recovery of costs including a FERC approved rate of return on common equity and other capital net of temporary cash investments. Net income declined $0.2 million or 10% in the third quarter and $1.1 million or 14% in the year-to-date period resulting from a reduction in common equity on which a return was earned and lower interest income, offset in part by an increase in the return on other capital due to significantly lower temporary cash investments during 1994. The reduction in common equity resulted primarily from the payment of dividends in excess of net income in 1993 as well as capital returned to the parent company subsequent to September 30, 1993. Income statement items which changed significantly were as follows: Increase (Decrease) Third Quarter Year-To-Date (in millions) % (in millions) % Operating Revenues. . . . . $(2.9) (5) $ 3.6 2 Fuel Expense. . . . . . . . (2.3) (8) 6.7 9 Rent Expense-Rockport Plant Unit 2. . . . . . . 0.8 5 0.8 2 Other Operation Expense . . (0.4) (13) (0.6) (7) Maintenance Expense . . . . (0.5) (16) (1.6) (16) Taxes Other Than Federal Income Taxes. . . . . . . - - (0.4) (10) Nonoperating Income . . . . (0.2) (18) (1.0) (29) Interest Charges. . . . . . (0.4) (13) (1.0) (12) Operating revenues decreased in the third quarter primarily due to the recovery of lower fuel expense and increased in the year-to-date period reflecting the recovery of increased fuel expense partially offset by lower maintenance expense, other operation expense and taxes other than federal income taxes. The decline in fuel expense in the third quarter was due to a 3% reduction in generation and a favorable inventory adjustment of $0.9 million. In the year-to-date period the increase in fuel expense resulted from an increase in generation of more than 4% primarily due to increased availability of Rockport Plant Unit 2 which had been out of service for routine maintenance in April and May of 1993 and the effect of a coal transportation cost refund received in the first quarter of 1993. Rent expense for Rockport Plant Unit 2 increased in both periods due to a third quarter 1994 accrual for Indiana Gross income tax applicable to the lease. The decrease in other operation expense for the quarter resulted from a substantial reduction of a FERC annual operating assessment. The year-to- date decrease in other operation expense resulted from a reduction in accruals for postretirement benefits other than pensions which are billed to the Company by Indiana Michigan Power Company, an affiliate, the operator of Rockport Plant as well as the lower FERC annual operating assessment. In 1994 maintenance expense decreased due to the effect of boiler inspections and repairs at both Rockport Plant units in 1993. Taxes other than federal income taxes decreased in the year-to- date period as a result of an additional accrual for Indiana property taxes recorded in 1993 and a reduction in the 1994 accrual for Indiana supplemental net income taxes reflecting reduced taxable income. Nonoperating income decreased in both comparable periods due to a significant reduction in interest income reflecting reduced temporary cash investments in 1994 compared with 1993. The reduction in temporary cash investments reflects the repayment of debt and return of capital to the parent company. The reduction in year-to-date nonoperating income was also caused by interest income recorded in March 1993 on prior years' income tax refunds from the Internal Revenue Service. The redemption of a $55 million installment purchase contract in December 1993 accounted for the decline in interest charges offset, in part, by an increase in interest on short-term debt borrowings. APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (in thousands) OPERATING REVENUES . . . . . . . . . . . $371,842 $393,671 $1,179,799 $1,127,324 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . 92,453 96,927 299,147 265,538 Purchased Power. . . . . . . . . . . . 78,716 87,666 250,320 250,960 Other Operation. . . . . . . . . . . . 46,770 47,991 141,237 141,069 Maintenance. . . . . . . . . . . . . . 30,311 30,821 101,307 88,614 Depreciation and Amortization. . . . . 32,195 30,939 95,377 92,029 Taxes Other Than Federal Income Taxes. 28,559 27,813 90,964 79,469 Federal Income Taxes . . . . . . . . . 11,992 14,863 41,997 40,374 TOTAL OPERATING EXPENSES . . . 320,996 337,020 1,020,349 958,053 OPERATING INCOME . . . . . . . . . . . . 50,846 56,651 159,450 169,271 NONOPERATING INCOME (LOSS) . . . . . . . (697) 506 (4,240) (1,931) INCOME BEFORE INTEREST CHARGES . . . . . 50,149 57,157 155,210 167,340 INTEREST CHARGES . . . . . . . . . . . . 24,418 25,216 72,939 75,417 NET INCOME . . . . . . . . . . . . . . . 25,731 31,941 82,271 91,923 PREFERRED STOCK DIVIDEND REQUIREMENTS. . 4,277 4,217 11,557 12,672 EARNINGS APPLICABLE TO COMMON STOCK. . . $ 21,454 $ 27,724 $ 70,714 $ 79,251 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . $222,835 $227,989 $227,816 $229,920 NET INCOME . . . . . . . . . . . . . . . 25,731 31,941 82,271 91,923 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . . 27,035 32,534 81,105 85,992 Cumulative Preferred Stock . . . . . 3,921 4,100 11,002 12,322 Capital Stock Expense. . . . . . . . . 185 116 555 349 BALANCE AT END OF PERIOD . . . . . . . . $217,425 $223,180 $217,425 $223,180 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Consolidated Financial Statements. /TABLE APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1994 1993 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $1,814,042 $1,781,005 Transmission . . . . . . . . . . . . . . . . . . . . 1,000,800 987,147 Distribution . . . . . . . . . . . . . . . . . . . . 1,289,348 1,225,436 General. . . . . . . . . . . . . . . . . . . . . . . 157,734 140,942 Construction Work in Progress. . . . . . . . . . . . 70,821 59,170 Total Electric Utility Plant . . . . . . . . 4,332,745 4,193,700 Accumulated Depreciation and Amortization. . . . . . 1,612,439 1,550,855 NET ELECTRIC UTILITY PLANT . . . . . . . . . 2,720,306 2,642,845 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 49,202 51,551 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 4,390 4,626 Accounts Receivable. . . . . . . . . . . . . . . . . 117,319 132,206 Allowance for Uncollectible Accounts . . . . . . . . (932) (1,344) Fuel . . . . . . . . . . . . . . . . . . . . . . . . 70,335 46,881 Materials and Supplies . . . . . . . . . . . . . . . 46,318 43,351 Accrued Utility Revenues . . . . . . . . . . . . . . 41,369 58,294 Prepayments. . . . . . . . . . . . . . . . . . . . . 11,107 7,430 TOTAL CURRENT ASSETS . . . . . . . . . . . . 289,906 291,444 REGULATORY ASSETS: Amounts Due From Customers For Future Federal Income Taxes . . . . . . . . . . . . . . . 316,276 320,160 Other. . . . . . . . . . . . . . . . . . . . . . . . 136,312 122,367 TOTAL REGULATORY ASSETS. . . . . . . . . . . 452,588 442,527 TOTAL. . . . . . . . . . . . . . . . . . . $3,512,002 $3,428,367 See Notes to Consolidated Financial Statements.
APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1994 1993 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - No Par Value: Authorized - 30,000,000 Shares Outstanding - 13,499,500 Shares. . . . . . . . . . $ 260,458 $ 260,458 Paid-in Capital. . . . . . . . . . . . . . . . . . . 494,408 494,834 Retained Earnings. . . . . . . . . . . . . . . . . . 217,425 227,816 Total Common Shareowner's Equity . . . . . . 972,291 983,108 Cumulative Preferred Stock: Not Subject to Mandatory Redemption. . . . . . . . 55,000 55,000 Subject to Mandatory Redemption. . . . . . . . . . 190,450 160,450 Long-term Debt . . . . . . . . . . . . . . . . . . . 1,179,036 1,215,124 TOTAL CAPITALIZATION . . . . . . . . . . . . 2,396,777 2,413,682 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 63,191 55,865 CURRENT LIABILITIES: Short-term Debt. . . . . . . . . . . . . . . . . . . 111,050 39,500 Accounts Payable . . . . . . . . . . . . . . . . . . 85,026 68,158 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 29,661 52,128 Customer Deposits. . . . . . . . . . . . . . . . . . 14,203 13,670 Interest Accrued . . . . . . . . . . . . . . . . . . 32,742 18,212 Other. . . . . . . . . . . . . . . . . . . . . . . . 69,448 71,259 TOTAL CURRENT LIABILITIES. . . . . . . . . . 342,130 262,927 DEFERRED FEDERAL INCOME TAXES. . . . . . . . . . . . . 588,473 578,948 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 79,590 82,987 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 41,841 33,958 CONTINGENCIES (Note 4) TOTAL. . . . . . . . . . . . . . . . . . . $3,512,002 $3,428,367 See Notes to Consolidated Financial Statements. /TABLE APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1994 1993 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 82,271 $ 91,923 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . . . . . 97,283 93,934 Deferred Federal Income Taxes. . . . . . . . . . . . . . 13,374 (4,934) Deferred Investment Tax Credits. . . . . . . . . . . . . (3,672) (3,695) Deferred Power Supply Costs (net). . . . . . . . . . . . 9,981 18,104 Provision for Rate Refunds . . . . . . . . . . . . . . . (9,975) 10,185 Storm Damage Expense Deferrals (net) . . . . . . . . . . (22,617) (3,690) Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . 14,475 (247) Fuel, Materials and Supplies . . . . . . . . . . . . . . (26,421) 20,036 Accrued Utility Revenues . . . . . . . . . . . . . . . . 16,925 12,408 Accounts Payable . . . . . . . . . . . . . . . . . . . . 16,868 (4,210) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (22,467) (6,546) Interest Accrued . . . . . . . . . . . . . . . . . . . . 14,530 11,213 Other (net). . . . . . . . . . . . . . . . . . . . . . . . 472 13,946 Net Cash Flows From Operating Activities . . . . . . 181,027 248,427 INVESTING ACTIVITIES - Construction Expenditures . . . . . . (153,237) (130,434) FINANCING ACTIVITIES: Issuance of Cumulative Preferred Stock . . . . . . . . . . 29,574 - Issuance of Long-term Debt . . . . . . . . . . . . . . . . 20,817 138,737 Change in Short-term Debt (net). . . . . . . . . . . . . . 71,550 (32,850) Retirement of Long-term Debt . . . . . . . . . . . . . . . (58,221) (126,663) Dividends Paid on Common Stock . . . . . . . . . . . . . . (81,105) (85,992) Dividends Paid on Cumulative Preferred Stock . . . . . . . (10,641) (12,344) Net Cash Flows Used For Financing Activities . . . . (28,026) (119,112) Net Decrease in Cash and Cash Equivalents. . . . . . . . . . (236) (1,119) Cash and Cash Equivalents at Beginning of Period . . . . . . 4,626 9,501 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 4,390 $ 8,382 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $56,652,000 and $62,713,000 and for income taxes was $37,400,000 and $44,093,000 in 1994 and 1993, respectively. Noncash acquisitions under capital leases were $18,740,000 and $8,473,000 in 1994 and 1993, respectively. See Notes to Consolidated Financial Statements. /TABLE APPALACHIAN POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1994 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial state- ments should be read in conjunction with the 1993 Annual Report as incorporated in and filed with the Form 10-K. 2. RATE MATTERS The Company filed a request with the Virginia State Corporation Commission (VA SCC) for a net decrease of $12.3 million in rates charged to its Virginia retail customers to be effective November 15, 1994. The net decrease consists of a $28 million decrease in the fuel factor component of rates offset, in part, by an increase of $15.7 million in base rates. The increase in base rates would, in part, recover the costs of extensive repairs to facilities damaged by last winter's severe storms. The Company has deferred $23.7 million of Virginia retail incremental storm damage expenses related to two major ice storms in February and March 1994. The Company proposes in this rate proceeding to amortize the $23.7 million deferred storm damage expenses over a three-year period, consistent with the amortization of $4.1 million of major storm damage expenses approved by the VA SCC in the previous 1992 rate case. Failure to recover such deferrals in cost of service would result in an immediate write-off of $15.4 million after tax. 3. FINANCING ACTIVITY In August 1994, the Company issued $21 million of 7.70% Series First Mortgage Bonds due in 2004. The proceeds were used to repay short-term debt and for other corporate purposes. 4. CONTINGENCIES The Company continues to be involved in certain matters discussed in its 1993 Annual Report. APPALACHIAN POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THIRD QUARTER 1994 vs. THIRD QUARTER 1993 RESULTS OF OPERATIONS Net income decreased $6.2 million or 19% primarily due to a decrease in energy sales as cooler weather reduced the demand of residential and wholesale customers and increased capacity costs from the AEP System Power Pool (Power Pool) resulting from an increase in the relative peak demand allocation ratio established in January 1994. Income statement lines which changed significantly were: Decrease (in millions) % Operating Revenues. . . . . . . . . . . . . . . $(21.8) (6) Fuel Expense. . . . . . . . . . . . . . . . . . (4.5) (5) Purchased Power Expense . . . . . . . . . . . . (9.0) (10) Federal Income Taxes. . . . . . . . . . . . . . (2.9) (19) Operating revenues for retail and wholesale customers decreased due to the weather-related decrease in demand for energy. Residential energy sales decreased 7% and sales to commercial customers declined 1%. Wholesale sales decreased 26% as the Company's share of sales to unaffiliated utilities by the Power Pool was lower due to the milder summer weather in 1994. Fuel expense decreased primarily due to a lower average cost of fuel consumed. Purchased power expense decreased due to a reduction in energy purchased from the Power Pool, reflecting decreased internal demand, partially offset by an increase in Power Pool capacity charges. The Power Pool allocates capacity costs to its members based on their relative peak demands in the prior twelve months. As a result of a new all-time internal peak demand experienced in January 1994, the Company is being charged with a greater portion of the Power Pool's capacity charges which are recorded as purchased power expense. Until the Company is able to recover from its ratepayers the increase in capacity charges, currently estimated to be $27 million higher than in 1993, results of operations will be adversely affected. The Company is seeking recovery, as described below, of the additional Power Pool capacity charges above those currently in rates in the Virginia jurisdiction. The three-year rate change moratorium in West Virginia ending October 31, 1996 is preventing the Company from currently seeking recovery of increased Power Pool capacity charges in the West Virginia jurisdiction. Federal income tax expense decreased primarily due to a decrease in pre-tax operating income. YEAR-TO-DATE 1994 vs. YEAR-TO-DATE 1993 RESULTS OF OPERATIONS Although severe winter weather and unseasonably warm spring weather caused energy sales to increase and retail rates were increased in the Virginia jurisdiction, year-to-date net income decreased $9.7 million or 11% primarily due to excessive winter storm damage, the increased capacity costs, explained above, and an increase in West Virginia business and occupation taxes on generation. Income statement lines which changed significantly were: Increase (in millions) % Operating Revenues. . . . . . . . . . . . . . . $52.5 5 Fuel. . . . . . . . . . . . . . . . . . . . . . 33.6 13 Maintenance . . . . . . . . . . . . . . . . . . 12.7 14 Taxes Other Than Federal Income Taxes . . . . . 11.5 14 The increase in operating revenues was primarily due to increased energy demand by retail and wholesale customers as a result of severe winter weather in the first quarter of 1994 and unseasonably hot weather in June 1994 and the effects of the Virginia retail rate increase. Residential energy sales increased 2% while sales to both commercial and industrial customers increased 3% for the period. Wholesale revenues increased $24 million or 11% primarily due to an increase in the Company's share of increased Power Pool sales to unaffiliated utilities, an increase in energy provided to the Power Pool as a result of the unseasonable weather and forced outages at unaffiliated generating units. Fuel expense increased primarily due to an increase in coal- fired generation partially offset by a reduction in the average cost of fuel consumed. The increase in generation resulted from the increased demand for retail and wholesale energy and fewer maintenance outages compared with the same period last year. A January 1994 snow storm, primarily in the West Virginia service territory, two major ice storms in February and March 1994, mainly in the Virginia service territory, and several other smaller storms significantly increased year-to-date maintenance expense. Storm damage expenditures from these storms in 1994 were $42.9 million of which $23.7 million of Virginia jurisdictional incremental expenses were deferred for future recovery as a regulatory asset in accordance with a precedent established in a previous rate proceeding. Should the Company be unable to recover such deferrals in its current Virginia rate case, results of operations would be adversely impacted. Taxes other than federal income taxes increased primarily due to the generation based West Virginia business and occupation tax reflecting the increased generation at West Virginia plants. FINANCIAL CONDITION Total plant and property additions including capital leases for the first nine months of 1994 were $173 million, a 24% increase. In March 1994, the Company redeemed the remaining $56.7 million outstanding balance of 8-3/4% Series First Mortgage Bonds due in 2017. In June 1994, $30 million of $100 stated value 6.85% Cumulative Preferred Stock was issued. In August and October two series of first mortgage bonds were issued: $21 million of 7.70% bonds and $50 million of 7.85% bonds. Outstanding short-term debt increased $71.6 million from year-end levels. RATE MATTERS The Company filed a request with the Virginia State Corporation Commission for a net decrease of $12.3 million in rates charged to its Virginia retail customers to be effective November 15, 1994. The net decrease consists of a $28 million reduction in the fuel factor component of rates offset, in part, by an increase of $15.7 million in base rates. The requested increase in base rates includes, among other things, recovery of the costs of extensive repairs to facilities damaged by last winter's severe storms and increased Power Pool capacity charges. The Company proposes in this rate proceeding to amortize the $23.7 million deferred storm damage expenses over a three-year period, in accordance with a prior precedent. Failure to recover such deferrals in cost of service would result in the immediate write-off of $15.4 million after tax. COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (in thousands) OPERATING REVENUES . . . . . . . . . . . $280,470 $ 276,438 $793,053 $716,133 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . 52,430 53,258 154,084 136,036 Purchased Power. . . . . . . . . . . . 35,028 46,097 109,673 124,382 Other Operation. . . . . . . . . . . . 40,106 45,853 126,968 126,609 Maintenance. . . . . . . . . . . . . . 17,512 17,616 50,120 51,411 Depreciation . . . . . . . . . . . . . 20,870 21,575 62,188 64,406 Amortization (Deferral) of Zimmer Plant Phase-in Costs . . . . . . . . 8,960 (1,492) 19,811 (7,409) Taxes Other Than Federal Income Taxes. 24,261 25,172 75,705 75,439 Federal Income Taxes . . . . . . . . . 19,706 17,564 44,916 31,368 TOTAL OPERATING EXPENSES . . . 218,873 225,643 643,465 602,242 OPERATING INCOME . . . . . . . . . . . . 61,597 50,795 149,588 113,891 NONOPERATING INCOME: Deferred Zimmer Plant Carrying Charges (net of tax) . . . . . . . . 1,063 4,584 4,621 20,527 Other. . . . . . . . . . . . . . . . . 339 1,302 1,337 3,792 TOTAL NONOPERATING INCOME. . . 1,402 5,886 5,958 24,319 LOSS FROM ZIMMER PLANT DISALLOWANCE: Disallowed Cost. . . . . . . . . . . . - 159,067 - 159,067 Related Income Taxes . . . . . . . . . - (14,534) - (14,534) NET ZIMMER LOSS. . . . . . . . - 144,533 - 144,533 INCOME (LOSS) BEFORE INTEREST CHARGES. . 62,999 (87,852) 155,546 (6,323) INTEREST CHARGES . . . . . . . . . . . . 20,471 22,405 63,124 67,054 NET INCOME (LOSS). . . . . . . . . . . . 42,528 (110,257) 92,422 (73,377) PREFERRED STOCK DIVIDEND REQUIREMENTS. . 3,203 2,766 8,880 8,297 EARNINGS (LOSS) APPLICABLE TO COMMON STOCK. . . . . . . . . . . . $ 39,325 $(113,023) $ 83,542 $(81,674) The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Consolidated Financial Statements.
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1994 1993 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $1,456,980 $1,443,506 Transmission . . . . . . . . . . . . . . . . . . . . 306,239 295,539 Distribution . . . . . . . . . . . . . . . . . . . . 786,984 755,342 General. . . . . . . . . . . . . . . . . . . . . . . 102,701 97,874 Construction Work in Progress. . . . . . . . . . . . 46,057 52,794 Total Electric Utility Plant . . . . . . . . 2,698,961 2,645,055 Accumulated Depreciation . . . . . . . . . . . . . . 866,756 811,817 NET ELECTRIC UTILITY PLANT . . . . . . . . . 1,832,205 1,833,238 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 33,034 34,558 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 18,119 6,633 Accounts Receivable. . . . . . . . . . . . . . . . . 62,347 52,088 Allowance for Uncollectible Accounts . . . . . . . . (1,800) (991) Fuel . . . . . . . . . . . . . . . . . . . . . . . . 26,534 32,257 Materials and Supplies . . . . . . . . . . . . . . . 25,816 25,772 Accrued Utility Revenues . . . . . . . . . . . . . . 24,090 28,889 Prepayments. . . . . . . . . . . . . . . . . . . . . 24,478 28,372 Other. . . . . . . . . . . . . . . . . . . . . . . . 616 1,863 TOTAL CURRENT ASSETS . . . . . . . . . . . . 180,200 174,883 REGULATORY ASSETS: Amounts Due From Customers For Future Federal Income Taxes . . . . . . . . . . . . . . . 287,057 290,644 Other. . . . . . . . . . . . . . . . . . . . . . . . 208,969 249,348 TOTAL REGULATORY ASSETS. . . . . . . . . . . 496,026 539,992 TOTAL. . . . . . . . . . . . . . . . . . . $2,541,465 $2,582,671 See Notes to Consolidated Financial Statements.
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1994 1993 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - No Par Value: Authorized - 24,000,000 Shares Outstanding - 16,410,426 Shares. . . . . . . . . . $ 41,026 $ 41,026 Paid-in Capital. . . . . . . . . . . . . . . . . . . 565,642 566,046 Retained Earnings. . . . . . . . . . . . . . . . . . 49,988 18,288 Total Common Shareowner's Equity . . . . . . 656,656 625,360 Cumulative Preferred Stock - Subject to Mandatory Redemption . . . . . . . . . . . . . . . 150,000 125,000 Long-term Debt . . . . . . . . . . . . . . . . . . . 947,494 997,013 TOTAL CAPITALIZATION . . . . . . . . . . . . 1,754,150 1,747,373 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 21,999 17,189 CURRENT LIABILITIES: Long-term Debt Due Within One Year . . . . . . . . . 50,000 20,700 Short-term Debt. . . . . . . . . . . . . . . . . . . - 25,225 Accounts Payable . . . . . . . . . . . . . . . . . . 37,463 50,547 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 60,657 114,233 Interest Accrued . . . . . . . . . . . . . . . . . . 30,411 23,245 Other. . . . . . . . . . . . . . . . . . . . . . . . 35,239 22,189 TOTAL CURRENT LIABILITIES. . . . . . . . . . 213,770 256,139 DEFERRED FEDERAL INCOME TAXES. . . . . . . . . . . . . 473,094 474,290 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 65,762 68,533 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 12,690 19,147 CONTINGENCIES (Note 2) TOTAL. . . . . . . . . . . . . . . . . . . $2,541,465 $2,582,671 See Notes to Consolidated Financial Statements.
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1994 1993 (in thousands) OPERATING ACTIVITIES: Net Income (Loss). . . . . . . . . . . . . . . . . . . . . $ 92,422 $ (73,377) Adjustments for Noncash Items: Depreciation . . . . . . . . . . . . . . . . . . . . . . 61,900 67,009 Deferred Federal Income Taxes. . . . . . . . . . . . . . 2,391 2,606 Deferred Investment Tax Credits. . . . . . . . . . . . . (2,765) (4,032) Deferred Fuel Cost (net) . . . . . . . . . . . . . . . . (1,760) 7,532 Deferred Zimmer Plant Operating Expenses and Carrying Charges . . . . . . . . . . . . . . . . . . . 13,176 (37,888) Loss from Zimmer Plant Disallowance. . . . . . . . . . . - 159,067 Amortization of Deferred Property Taxes. . . . . . . . . 41,884 41,731 Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . (9,450) (20,988) Fuel, Materials and Supplies . . . . . . . . . . . . . . 5,679 1,037 Accrued Utility Revenues . . . . . . . . . . . . . . . . 4,799 595 Prepayments. . . . . . . . . . . . . . . . . . . . . . . 3,894 1,969 Accounts Payable . . . . . . . . . . . . . . . . . . . . (13,084) (518) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (53,576) (52,114) Other (net). . . . . . . . . . . . . . . . . . . . . . . . 5,982 (637) Net Cash Flows From Operating Activities . . . . . . 151,492 91,992 INVESTING ACTIVITIES - Construction Expenditures . . . . . . (51,661) (62,968) FINANCING ACTIVITIES: Issuance of Cumulative Preferred Stock . . . . . . . . . . 24,596 - Issuance of Long-term Debt . . . . . . . . . . . . . . . . 198,298 177,885 Change in Short-term Debt (net). . . . . . . . . . . . . . (25,225) (42,019) Retirement of Long-term Debt . . . . . . . . . . . . . . . (225,834) (129,542) Dividends Paid on Common Stock . . . . . . . . . . . . . . (51,591) (25,436) Dividends Paid on Cumulative Preferred Stock . . . . . . . (8,589) (8,297) Net Cash Flows Used For Financing Activities . . . . (88,345) (27,409) Net Increase in Cash and Cash Equivalents. . . . . . . . . . 11,486 1,615 Cash and Cash Equivalents at Beginning of Period . . . . . . 6,633 8,322 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 18,119 $ 9,937 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $52,895,000 and $64,591,000 and for income taxes was $46,663,000 and $26,654,000 in 1994 and 1993, respectively. Noncash acquisitions under capital leases were $8,736,000 and $4,827,000 in 1994 and 1993, respectively. See Notes to Consolidated Financial Statements. /TABLE COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . $27,895 $ 133,405 $18,288 $127,562 NET INCOME (LOSS). . . . . . . . . . . . 42,528 (110,257) 92,422 (73,377) DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . . 17,197 - 51,591 25,436 Cumulative Preferred Stock . . . . . 3,203 2,766 9,026 8,297 Capital Stock Expense. . . . . . . . . 35 35 105 105 BALANCE AT END OF PERIOD . . . . . . . . $49,988 $ 20,347 $49,988 $ 20,347 See Notes to Consolidated Financial Statements. /TABLE COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1994 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial statements should be read in conjunction with the 1993 Annual Report as incorporated in and filed with the Form 10- K. Certain prior-period amounts have been reclassified to conform to current-period presentation. 2. CONTINGENCIES The Company continues to be involved in certain matters discussed in its 1993 Annual Report. COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS THIRD QUARTER 1994 vs. THIRD QUARTER 1993 AND YEAR-TO-DATE 1994 vs. YEAR-TO-DATE 1993 Net income increased by $153 million for the third quarter and by $166 million for the year-to-date period comparisons due to a 1993 disallowance of a portion of the Company's investment in the Zimmer Plant. In November 1993 the Ohio Supreme Court rejected the Company's argument that it should be allowed to include in rate base $165 million of certain costs incurred when the Zimmer Plant was converted from a nuclear project to a coal- fired facility. As a result of the ruling, the Company reflected the adverse impact of the disallowance on results of operations in the third quarter of 1993 reducing net income by $144.5 million after tax. Exclusive of the Zimmer Plant disallowance, net income increased by $8 million or 24% in the third quarter 1994 due to reorganization costs recorded in 1993, a reduction in 1994 other operation expenses and a reduction of interest charges due to refinancing debt at lower rates. Year-to-date 1994 net income, excluding the Zimmer Plant disallowance, increased $21 million or 30% due to the favorable impact of increased energy sales reflecting unseasonable weather in 1994 and a reduction of interest charges due to refinancing debt at lower rates. Retail revenues increased $8 million or 3% for the third quarter and $60 million or 9% for the year-to-date period due to a rate increase and for the year-to-date period due to severe winter and spring weather partly offset by milder temperatures during the summer. The Public Utilities Commission of Ohio (PUCO) granted a 7.11% increase in rates effective February 1, 1994 as a result of the November 1993 Ohio Supreme Court ruling that the PUCO did not have authority under state law to order a rate phase-in for the Zimmer Plant. The increase includes a 3.72% base rate increase, which represents the acceleration of the final step of the court rejected rate phase-in plan, and a 3.39% surcharge, which provides for recovery of $96.9 million of previous deferrals under the phase-in plan and a return thereon, to be collected over a period that is not expected to exceed four and one-half years. The rate increase has no effect on net income since it is offset by the amortization of prior year phase-in plan deferrals and the cessation of current year deferrals which would have occurred had the phase-in plan continued in effect. Wholesale revenues decreased $5 million or 21% for the quarter as the Company's share of decreased sales to unaffiliated utilities by the AEP System Power Pool (Power Pool) was lower due to the milder weather in the current period. Wholesale revenues increased $15 million or 28% for the year-to-date period primarily due to the Company's share of increased Power Pool sales to unaffiliated utilities and an increase in the energy requirements of the Power Pool as a result of the severe winter weather in the first quarter of 1994, unseasonably warm weather during the late spring and early summer and forced outages at unaffiliated generating units. Other income statement lines which changed significantly were as follows: Increase (Decrease) Third Quarter Year-to-Date (in millions) % (in millions) % Fuel Expense. . . . . . . . $ (0.8) (2) $ 18.0 13 Purchased Power Expense . . (11.1) (24) (14.7) (12) Other Operation Expense . . (5.7) (13) 0.4 - Amortization (Deferral) of Zimmer Plant Phase-in Costs . . . . . . . . . . 10.5 N.M. 27.2 N.M. Federal Income Taxes. . . . 2.1 12 13.5 43 Deferred Zimmer Plant Carrying Charges (net of tax). . . . . . . (3.5) (77) (15.9) (77) N.M. = Not Meaningful The year-to-date increase in fuel expense was due to an increase in net generation reflecting the availability in 1994 of three units that had been out of service for scheduled main- tenance in the second quarter of 1993. Amortization of previously over collected fuel costs through the operation of a fuel clause adjustment mechanism partly offset the effects of the increased generation. Under the fuel clause adjustment mechanism the Company defers fuel cost to the extent it varies from the authorized electric fuel component rate. Such cost variance deferrals are amortized to fuel expense commensurate with their recovery in fuel rates. Purchased power expense decreased for both periods due to a reduction in demand caused by the cooler late summer weather. The decrease in the year-to-date period also resulted from the increase in net generation. Other operation expense decreased in the third quarter reflecting the reduction in an accrual for uninsured losses based on prior years experience and the provision for reorganization costs recorded in 1993. The amortization of Zimmer Plant phase-in costs increased sharply due to the court ordered discontinuance of Zimmer phase- in plan deferrals in February 1994 and the subsequent amortization of the deferred costs, commensurate with their recovery. Federal income tax expense attributable to operations increased substantially primarily due to the increase in pre-tax operating income offset in part by changes in certain book/tax differences accounted for on a flow-through basis in both periods and a retroactive 1% federal income tax rate increase enacted in August 1993 and recorded in the third quarter of 1993 retroactive to January 1, 1993. Deferred Zimmer Plant carrying charges declined from the prior year since the carrying charges in 1994 were accrued on the unamortized phase-in plan deferral balance while the 1993 carrying charges were accrued on the larger Zimmer investment not yet phased into rates. INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (in thousands) OPERATING REVENUES . . . . . . . . . . . $317,061 $320,409 $965,086 $901,477 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . 51,591 61,106 151,534 172,118 Purchased Power. . . . . . . . . . . . 29,956 32,270 110,186 79,740 Other Operation. . . . . . . . . . . . 72,728 65,415 216,608 193,279 Maintenance. . . . . . . . . . . . . . 36,479 40,146 109,486 118,181 Depreciation and Amortization. . . . . 33,911 34,757 102,051 103,561 Amortization of Rockport Plant Unit 1 Phase-in Plan Deferrals. . . . . . . 3,911 3,911 11,733 11,733 Taxes Other Than Federal Income Taxes. 19,433 17,591 55,595 54,308 Federal Income Taxes . . . . . . . . . 13,643 12,315 39,037 21,668 TOTAL OPERATING EXPENSES . . . 261,652 267,511 796,230 754,588 OPERATING INCOME . . . . . . . . . . . . 55,409 52,898 168,856 146,889 NONOPERATING INCOME (LOSS) . . . . . . . 328 538 5,077 (1,809) INCOME BEFORE INTEREST CHARGES . . . . . 55,737 53,436 173,933 145,080 INTEREST CHARGES . . . . . . . . . . . . 18,009 19,778 53,963 61,503 NET INCOME . . . . . . . . . . . . . . . 37,728 33,658 119,970 83,577 PREFERRED STOCK DIVIDEND REQUIREMENTS. . 2,890 3,470 8,760 10,746 EARNINGS APPLICABLE TO COMMON STOCK. . . $ 34,838 $ 30,188 $111,210 $ 72,831 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . $200,611 $161,460 $177,638 $171,309 NET INCOME . . . . . . . . . . . . . . . 37,728 33,658 119,970 83,577 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . . 26,652 31,934 79,956 84,406 Cumulative Preferred Stock . . . . . 2,890 3,470 8,760 10,746 Capital Stock Expense. . . . . . . . . 48 15 143 35 BALANCE AT END OF PERIOD . . . . . . . . $208,749 $159,699 $208,749 $159,699 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1994 1993 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $2,464,621 $2,602,527 Transmission . . . . . . . . . . . . . . . . . . . . 845,552 839,198 Distribution . . . . . . . . . . . . . . . . . . . . 629,796 608,752 General (including nuclear fuel) . . . . . . . . . . 195,646 152,470 Construction Work in Progress. . . . . . . . . . . . 111,202 88,010 Total Electric Utility Plant . . . . . . . . 4,246,817 4,290,957 Accumulated Depreciation and Amortization. . . . . . 1,644,289 1,714,829 NET ELECTRIC UTILITY PLANT . . . . . . . . . 2,602,528 2,576,128 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 477,470 432,459 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 5,491 3,752 Accounts Receivable (net). . . . . . . . . . . . . . 116,435 121,336 Fuel . . . . . . . . . . . . . . . . . . . . . . . . 31,123 34,476 Materials and Supplies . . . . . . . . . . . . . . . 59,723 57,800 Accrued Utility Revenues . . . . . . . . . . . . . . 37,707 34,642 Prepayments. . . . . . . . . . . . . . . . . . . . . 8,404 12,043 TOTAL CURRENT ASSETS . . . . . . . . . . . . 258,883 264,049 REGULATORY ASSETS: Amounts Due From Customers For Future Federal Income Taxes . . . . . . . . . . . . . . . 298,850 286,948 Other. . . . . . . . . . . . . . . . . . . . . . . . 237,034 205,874 TOTAL REGULATORY ASSETS. . . . . . . . . . . 535,884 492,822 TOTAL. . . . . . . . . . . . . . . . . . . $3,874,765 $3,765,458 See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1994 1993 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - No Par Value: Authorized - 2,500,000 Shares Outstanding - 1,400,000 Shares . . . . . . . . . . $ 56,584 $ 56,584 Paid-in Capital. . . . . . . . . . . . . . . . . . . 734,477 734,933 Retained Earnings. . . . . . . . . . . . . . . . . . 208,749 177,638 Total Common Shareowner's Equity . . . . . . 999,810 969,155 Cumulative Preferred Stock: Not Subject to Mandatory Redemption. . . . . . . . 52,000 87,000 Subject to Mandatory Redemption. . . . . . . . . . 135,000 100,000 Long-term Debt . . . . . . . . . . . . . . . . . . . 967,840 1,073,154 TOTAL CAPITALIZATION . . . . . . . . . . . . 2,154,650 2,229,309 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 376,666 288,197 CURRENT LIABILITIES: Long-term Debt Due Within One Year . . . . . . . . . 100,000 - Short-term Debt. . . . . . . . . . . . . . . . . . . 11,700 50,075 Accounts Payable . . . . . . . . . . . . . . . . . . 49,196 57,918 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 59,546 54,473 Interest Accrued . . . . . . . . . . . . . . . . . . 21,767 18,894 Rent Accrued - Rockport Plant Unit 2 . . . . . . . . 24,878 5,588 Obligations Under Capital Leases . . . . . . . . . . 34,983 20,585 Other. . . . . . . . . . . . . . . . . . . . . . . . 80,273 73,779 TOTAL CURRENT LIABILITIES. . . . . . . . . . 382,343 281,312 DEFERRED FEDERAL INCOME TAXES. . . . . . . . . . . . . 558,420 553,920 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 175,474 186,032 DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT PLANT UNIT 2. . . . . . . . . . . . . . . . 205,965 211,446 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 21,247 15,242 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . . . . . $3,874,765 $3,765,458 See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1994 1993 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 119,970 $ 83,577 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . . . . . 110,331 111,063 Amortization of Rockport Plant Unit 1 Phase-in Plan Deferrals. . . . . . . . . . . . . . . . 11,733 11,733 Amortization (Deferral) of Incremental Nuclear Refueling Outage Expenses (net). . . . . . . . . . . . (10,881) 26,620 Deferred Federal Income Taxes. . . . . . . . . . . . . . (7,402) (38,979) Deferred Investment Tax Credits. . . . . . . . . . . . . (10,208) (6,239) Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . 4,901 7,140 Fuel, Materials and Supplies . . . . . . . . . . . . . . 1,430 17,278 Accrued Utility Revenues . . . . . . . . . . . . . . . . (3,065) 51,091 Accounts Payable . . . . . . . . . . . . . . . . . . . . (8,722) (9,971) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . 5,073 44,651 Rent Accrued - Rockport Plant Unit 2 . . . . . . . . . . 19,290 18,464 Other (net). . . . . . . . . . . . . . . . . . . . . . . . (7,527) 414 Net Cash Flows From Operating Activities . . . . . . 224,923 316,842 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (83,904) (76,922) Proceeds from Sales of Property and Other. . . . . . . . . 1,207 - Net Cash Flows Used For Investing Activities . . . . (82,697) (76,922) FINANCING ACTIVITIES: Issuance of Cumulative Preferred Stock . . . . . . . . . . 34,618 29,541 Issuance of Long-term Debt . . . . . . . . . . . . . . . . 89,221 174,095 Retirement of Cumulative Preferred Stock . . . . . . . . . (35,798) (40,896) Retirement of Long-term Debt . . . . . . . . . . . . . . . (101,833) (300,911) Change in Short-term Debt (net). . . . . . . . . . . . . . (38,375) (7,525) Dividends Paid on Common Stock . . . . . . . . . . . . . . (79,956) (84,406) Dividends Paid on Cumulative Preferred Stock . . . . . . . (8,364) (11,130) Net Cash Flows Used For Financing Activities . . . . (140,487) (241,232) Net Increase (Decrease) in Cash and Cash Equivalents . . . . 1,739 (1,312) Cash and Cash Equivalents at Beginning of Period . . . . . . 3,752 7,459 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 5,491 $ 6,147 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $49,498,000 and $61,905,000 and for income taxes was $66,249,000 and $41,003,000 in 1994 and 1993, respectively. Noncash acquisitions under capital leases were $70,933,000 and $8,055,000 in 1994 and 1993, respectively. See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1994 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial state- ments should be read in conjunction with the 1993 Annual Report as incorporated in and filed with the Form 10-K. 2. VALUATION OF SECURITIES On January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, (SFAS 115) which requires fair value accounting for investments in equity securities with readily determinable market values and investments in debt securities except those that the reporting enterprise has the positive intent and ability to hold to maturity. Debt securities not classified as held- to-maturity, shall be classified as trading or available- for-sale. Investments held in trust for decommissioning nuclear facilities and for disposal of spent nuclear fuel were classified as available-for-sale under SFAS 115. SFAS 115 requires that unrealized gains and losses on investments classified as available-for-sale should be reported as a separate component of shareholder's equity. However, due to the rate-making process, SFAS 115 adjustments for unrealized gains and losses to the carrying value of investments held in the trusts will result in corresponding adjustments to the nuclear decommissioning liability and the regulatory asset for future recovery of spent nuclear fuel disposal costs. The cumulative effect of adopting SFAS 115 on January 1, 1994 resulted in an increase in the decommissioning and spent nuclear fuel trust fund assets of $20.4 million comprised of an unrealized holding gain of $21.4 million and an unrealized holding loss of $1 million, with no effect on net income and/or shareholder's equity due to a corresponding net increase to the decommissioning liability and a reduction to regulatory assets. As required by SFAS 115, prior year amounts were not restated. The trust investments reported in other property and investments had a fair value of $321 million at January 1, 1994 and consist primarily of long-term tax-exempt municipal bonds. At January 1, 1994, the maturities of investments in debt securities range from 1994 to 2024. 3. CONTINGENCIES The Company continues to be involved in certain matters discussed in its 1993 Annual Report. INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THIRD QUARTER 1994 vs. THIRD QUARTER 1993 AND YEAR-TO-DATE 1994 vs. YEAR-TO-DATE 1993 RESULTS OF OPERATIONS Net income increased $4.1 million or 12% for the quarter and $36.4 million or 43.5% for the year-to-date period primarily due to a retail rate increase, growth in demand from industrial customers and reduced interest expense from a refinancing program. The year-to-date increase also reflects unseasonable weather in the first and second quarters of 1994 and certain nonoperating federal income tax adjustments. Income statement line items which changed significantly were: Increase (Decrease) Third Quarter Year-to-Date (in millions) % (in millions) % Operating Revenues. . . . $(3.3) (1) $ 63.6 7 Fuel Expense. . . . . . . (9.5) (16) (20.6) (12) Purchased Power Expense . (2.3) (7) 30.4 38 Other Operation Expense . 7.3 11 23.3 12 Maintenance Expense . . . (3.7) (9) (8.7) (7) Federal Income Taxes. . . 1.3 11 17.4 80 Nonoperating Income (Loss). . . . . . . . . (0.2) (39) 6.9 N.M. Interest Charges. . . . . (1.8) (9) (7.5) (12) N.M. = Not Meaningful Operating revenues declined in the third quarter due to a 20% decline in energy sales to wholesale customers attributable to a refueling outage at the Company's nuclear plant, which reduced the amount of energy supplied to affiliated members of the AEP System Power Pool (Power Pool), and a decline in the Company's share of Power Pool sales to unaffiliated utilities as total Power Pool sales declined due to mild summer temperatures in 1994. Although wholesale revenues decreased, retail revenues increased during the third quarter due to a rate increase in the Indiana retail jurisdiction effective in November 1993 as well as increased commercial and industrial customer demand and an increase in the number of industrial customers. For the year-to-date period operating revenues increased significantly mainly due to the rate increase in the Indiana retail jurisdiction and increased energy requirements of retail customers partly offset by reduced wholesale sales. Retail energy sales increased due to colder winter weather, warmer weather in May and June and growth in the number of industrial customers and their usage. Wholesale sales declined as a result of scheduled refueling and maintenance outages of both units of the Company's nuclear plant in 1994 which reduced the amount of energy supplied to the Power Pool, partially offset by increased sales to directly-supplied unaffiliated wholesale customers. The reduction in fuel expense reflects a lower average cost of fuel consumed during the quarter and a decrease in generation in both periods, due to the scheduled refueling and maintenance outages at the nuclear units and a general boiler inspection and repair outage at one coal-fired unit. Purchased power expense declined in the third quarter reflecting reduced purchases from the Power Pool due to the mild summer weather in 1994. The increase in year-to-date purchased power expense resulted from increased purchases for pass-through sales to unaffiliated utilities in the first half of the year due to the severe winter and the unseasonably hot spring weather; lower internal generation due to the refueling and maintenance outages; and increased purchases from AEP Generating Company, an affiliated supplier, which had one unit out of service for maintenance in the second quarter of 1993. The accrual of additional nuclear decommissioning expense in accordance with commission approvals, an increased accrual for other postretirement benefits commensurate with rate recovery and an increase in administrative and general expenses caused the increase in other operation expense in both periods. The year- to-date increase also includes a provision for the disposal of inventory and for employee severance benefits resulting from the closing of the Breed Plant. Maintenance expense decreased in both periods as a result of a reduction in overall planned levels of maintenance. Incremental nuclear refueling maintenance performed during the nuclear plant refueling outage is deferred and amortized over a period of approximately eighteen months from the beginning of the current refueling outage until the start of the next outage in accordance with rate-making commission approval. Federal income taxes attributable to operations increased in both periods primarily due to increased pre-tax operating income. The increase in nonoperating income for the year-to-date period reflects the favorable federal income tax effects of the Breed Plant closing and the unfavorable effects of adopting Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, in January 1993 for nonutility assets and liabilities. Interest charges declined due to debt repayments during 1993 and a refinancing program which lowered interest rates. Subsequent to September 1993 the Company retired $30 million of long-term debt, and refinanced at lower rates $160 million of long-term debt. FINANCIAL CONDITION Total plant and property additions including capital leases for the first nine months of 1994 were $156 million. During the same period short-term debt outstanding decreased $38 million from year-end levels. During February 1994 the Company redeemed $35 million of 7.76% Cumulative Preferred Stock and issued $35 million of 6.30% Cumulative Preferred Stock. In March the Company retired $100 million of 8-3/4% First Mortgage Bonds and issued two $25 million series of First Mortgage Bonds at 6.55% due in 2004 and 7.50% due in 2024. In June the Company issued $40 million of 7.63% First Mortgage Bonds due in 2001. BREED PLANT RETIREMENT In the first quarter of 1994 the 325-megawatt Breed Plant, with an original cost of $153 million, was retired without materially affecting results of operations or financial condition. In accordance with the Federal Energy Regulatory Commission Uniform System of Accounts the investment in the Breed Plant was charged to the accumulated reserve for depreciation. The Breed Plant, which began commercial operation in 1960, had been operated on a restricted basis since 1992 when plans to close the plant were announced. NEW ACCOUNTING STANDARD On January 1, 1994, the Company implemented SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, which required that the Company adopt fair value accounting for nuclear decommissioning and spent nuclear fuel disposal trust fund investments. SFAS 115 requires that unrealized gains and losses on investments classified as available-for-sale should be included as a separate component of shareholder's equity. However, due to the rate-making process, adjustments to the fair value of the investments held in the trusts resulted in corresponding adjustments to the nuclear decommissioning liability and the regulatory asset for future recovery of spent nuclear fuel disposal costs. The cumulative effect of adopting SFAS 115 resulted in recognizing an unrealized holding gain of $21.4 million and an unrealized holding loss of $1 million with no effect on net income due to a corresponding net increase in the nuclear decommissioning liability and a reduction in regulatory assets. KENTUCKY POWER COMPANY STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (in thousands) OPERATING REVENUES . . . . . . . . . . . . $75,346 $76,443 $238,459 $216,778 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . . 16,151 16,742 54,571 39,791 Purchased Power. . . . . . . . . . . . . 23,346 26,202 70,355 75,267 Other Operation. . . . . . . . . . . . . 9,622 9,712 28,463 28,844 Maintenance. . . . . . . . . . . . . . . 7,204 7,614 24,712 21,518 Depreciation and Amortization. . . . . . 5,778 5,570 17,231 16,622 Taxes Other Than Federal Income Taxes. . 2,004 1,486 6,272 5,584 Federal Income Taxes . . . . . . . . . . 609 115 3,236 624 TOTAL OPERATING EXPENSES. . . . . 64,714 67,441 204,840 188,250 OPERATING INCOME . . . . . . . . . . . . . 10,632 9,002 33,619 28,528 NONOPERATING LOSS. . . . . . . . . . . . . (49) (2) (174) (118) INCOME BEFORE INTEREST CHARGES . . . . . . 10,583 9,000 33,445 28,410 INTEREST CHARGES . . . . . . . . . . . . . 5,192 5,214 15,466 15,539 NET INCOME . . . . . . . . . . . . . . . . $ 5,391 $ 3,786 $ 17,979 $ 12,871 STATEMENTS OF RETAINED EARNINGS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . . $87,186 $88,085 $85,296 $89,957 NET INCOME . . . . . . . . . . . . . . . . 5,391 3,786 17,979 12,871 CASH DIVIDENDS DECLARED. . . . . . . . . . 5,349 6,680 16,047 17,637 BALANCE AT END OF PERIOD . . . . . . . . . $87,228 $85,191 $87,228 $85,191 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Financial Statements. /TABLE KENTUCKY POWER COMPANY BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1994 1993 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $213,424 $211,617 Transmission . . . . . . . . . . . . . . . . . . . . 252,234 249,966 Distribution . . . . . . . . . . . . . . . . . . . . 285,228 281,834 General. . . . . . . . . . . . . . . . . . . . . . . 56,422 54,637 Construction Work in Progress. . . . . . . . . . . . 31,142 9,374 Total Electric Utility Plant . . . . . . . . 838,450 807,428 Accumulated Depreciation and Amortization. . . . . . 261,634 248,673 NET ELECTRIC UTILITY PLANT . . . . . . . . . 576,816 558,755 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 6,229 6,763 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 1,080 858 Accounts Receivable. . . . . . . . . . . . . . . . . 18,961 24,346 Allowance for Uncollectible Accounts . . . . . . . . (306) (208) Fuel . . . . . . . . . . . . . . . . . . . . . . . . 8,100 8,405 Materials and Supplies . . . . . . . . . . . . . . . 9,546 8,804 Accrued Utility Revenues . . . . . . . . . . . . . . 3,875 10,476 Prepayments. . . . . . . . . . . . . . . . . . . . . 2,030 1,367 TOTAL CURRENT ASSETS . . . . . . . . . . . . 43,286 54,048 REGULATORY ASSETS: Amounts Due From Customers For Future Federal Income Taxes . . . . . . . . . . . . . . . 42,884 37,910 Other. . . . . . . . . . . . . . . . . . . . . . . . 10,544 12,903 TOTAL REGULATORY ASSETS. . . . . . . . . . . 53,428 50,813 TOTAL. . . . . . . . . . . . . . . . . . . $679,759 $670,379 See Notes to Financial Statements.
KENTUCKY POWER COMPANY BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1994 1993 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - $50 Par Value: Authorized - 2,000,000 Shares Outstanding - 1,009,000 Shares . . . . . . . . . . $ 50,450 $ 50,450 Paid-in Capital. . . . . . . . . . . . . . . . . . . 68,750 58,750 Retained Earnings. . . . . . . . . . . . . . . . . . 87,228 85,296 Total Common Shareowner's Equity . . . . . . 206,428 194,496 Long-term Debt . . . . . . . . . . . . . . . . . . . 253,561 253,495 TOTAL CAPITALIZATION . . . . . . . . . . . . 459,989 447,991 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 11,624 7,678 CURRENT LIABILITIES: Short-term Debt. . . . . . . . . . . . . . . . . . . 32,725 38,150 Accounts Payable . . . . . . . . . . . . . . . . . . 14,100 18,456 Customer Deposits. . . . . . . . . . . . . . . . . . 4,398 4,621 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 6,124 6,767 Interest Accrued . . . . . . . . . . . . . . . . . . 5,404 5,905 Other. . . . . . . . . . . . . . . . . . . . . . . . 11,201 8,186 TOTAL CURRENT LIABILITIES. . . . . . . . . . 73,952 82,085 DEFERRED FEDERAL INCOME TAXES. . . . . . . . . . . . . 112,860 108,966 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 15,717 16,454 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 5,617 7,205 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . . . . . $679,759 $670,379 See Notes to Financial Statements.
KENTUCKY POWER COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1994 1993 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 17,979 $ 12,871 Adjustments for Noncash Items: Depreciation . . . . . . . . . . . . . . . . . . . . . . 17,255 16,684 Deferred Federal Income Taxes. . . . . . . . . . . . . . (1,080) (1,150) Deferred Investment Tax Credits. . . . . . . . . . . . . (952) (962) Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . 5,483 (1,000) Fuel, Materials and Supplies . . . . . . . . . . . . . . (437) (1,080) Accrued Utility Revenues . . . . . . . . . . . . . . . . 6,601 3,963 Accounts Payable . . . . . . . . . . . . . . . . . . . . (4,356) (795) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (643) (3,653) Other (net). . . . . . . . . . . . . . . . . . . . . . . . 4,639 (782) Net Cash Flows From Operating Activities . . . . . . 44,489 24,096 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (33,786) (27,467) Proceeds from Sales of Property. . . . . . . . . . . . . . 991 1,294 Net Cash Flows Used For Investing Activities . . . . (32,795) (26,173) FINANCING ACTIVITIES: Capital Contributions from Parent Company. . . . . . . . . 10,000 - Issuance of Long-term Debt . . . . . . . . . . . . . . . . - 84,115 Change in Short-term Debt (net). . . . . . . . . . . . . . (5,425) 21,300 Retirement of Long-term Debt . . . . . . . . . . . . . . . - (85,885) Dividends Paid . . . . . . . . . . . . . . . . . . . . . . (16,047) (17,637) Net Cash Flows From (Used For) Financing Activities. (11,472) 1,893 Net Increase (Decrease) in Cash and Cash Equivalents . . . . 222 (184) Cash and Cash Equivalents at Beginning of Period . . . . . . 858 1,070 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 1,080 $ 886 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $15,801,000 and $14,279,000 and for income taxes was $5,672,000 and $6,252,000 in 1994 and 1993, respectively. Noncash acquisitions under capital leases were $3,093,000 and $1,681,000 in 1994 and 1993, respectively. See Notes to Financial Statements.
KENTUCKY POWER COMPANY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1994 (UNAUDITED) 1. GENERAL The accompanying unaudited financial statements should be read in conjunction with the 1993 Annual Report as incorporated in and filed with the Form 10-K. 2. CAPITAL CONTRIBUTION The Company received from its parent a cash capital contribution of $10 million in September 1994 which was credited to paid-in capital. 3. CONTINGENCIES The Company continues to be involved in certain matters discussed in its 1993 Annual Report. KENTUCKY POWER COMPANY MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS THIRD QUARTER 1994 vs. THIRD QUARTER 1993 AND YEAR-TO-DATE 1994 vs. YEAR-TO-DATE 1993 Net income increased 42% or $1.6 million for the third quarter and 40% or $5.1 million for the year-to-date period. The increase for the quarter primarily reflects lower AEP System Power Pool (Power Pool) capacity charges, due to a reduction in the relative peak demand allocation ratio, and reduced overhead line maintenance activity. Increased energy sales due to unseasonable weather in the first six months of the year which was partially offset by storm damage expenses accounted for the favorable change in year-to-date net income. Income statement items that changed significantly were: Increase (Decrease) Third Quarter Year-To-Date (in millions) % (in millions) % Operating Revenues . . . . . . $(1.1) (1) $21.7 10 Fuel Expense . . . . . . . . . (0.6) (4) 14.8 37 Purchased Power Expense. . . . (2.9) (11) (4.9) (7) Maintenance Expense. . . . . . (0.4) (5) 3.2 15 Taxes Other Than Federal Federal Income Taxes . . . . 0.5 35 0.7 12 Federal Income Taxes . . . . . 0.5 430 2.6 419 Operating revenues decreased slightly in the third quarter as cooler summer weather reduced residential sales and lower average fuel costs were passed on to customers. Operating revenues increased significantly in the year-to-date period due to increased energy sales to the Power Pool as a result of increased availability of the Big Sandy Plant Unit 2 in 1994 and an increase in sales to retail and unaffiliated wholesale customers reflecting the unseasonable weather and forced outages at unaffiliated generating units. Big Sandy Unit 2 was out of service the entire second quarter of 1993 for scheduled maintenance and boiler repair. Its availability in 1994 enabled the Company to make energy sales to the Power Pool. Retail energy sales increased 3% for the year-to-date period. Sales to weather sensitive residential and commercial customers increased because of the severe winter weather in 1994 and unseasonably warm weather in June 1994. The weather-related demand for energy and forced outages at unaffiliated generating units caused the increase in sales to unaffiliated wholesale customers. The substantial increase in fuel expense in the year-to-date period reflects increased generation, as a result of the increased availability of Big Sandy Unit 2 and the weather related increase in energy demand. The decrease in purchased power expense in both periods was mainly due to decreased energy purchases from the Power Pool reflecting the increase in generation and a reduction in the Company's share of Power Pool capacity charges. In the year-to-date period increased power purchases from unaffiliated utilities for pass-through sales to other unaffiliated utilities partly offset the effect of decreased purchases from the Power Pool. Capacity costs are allocated to Power Pool members based on their relative peak demands. A decrease in the Company's prior twelve month peak demand relative to the total peak demand of all Power Pool members caused the decreased capacity charges from the Power Pool. Reduced overhead line maintenance resulted in decreased maintenance expense for the quarter while storm damage to distribution lines caused by severe winter storms in January and February 1994 increased year-to-date maintenance expense. The increase in taxes other than federal income taxes was due to higher taxable income and in the year-to-date period the effect of a favorable accrual adjustment for state income taxes recorded in 1993. The increase in federal income taxes for the quarter was primarily due to increased pre-tax operating income offset in part by changes in certain book/tax differences accounted for on a flow-through basis and a retroactive 1% federal income tax rate increase enacted in August 1993 and recorded in the third quarter of 1993. The substantial increase in federal income taxes in the year-to-date period was primarily due to an increase in pre-tax operating income. OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (in thousands) OPERATING REVENUES . . . . . . . . . . . $429,496 $457,532 $1,333,889 $1,298,613 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . 167,530 181,051 528,119 502,085 Purchased Power. . . . . . . . . . . . 12,503 19,898 50,661 47,880 Other Operation. . . . . . . . . . . . 50,295 60,369 153,001 165,027 Maintenance. . . . . . . . . . . . . . 37,829 36,775 110,909 107,352 Depreciation and Amortization. . . . . 33,331 32,222 98,913 96,229 Taxes Other Than Federal Income Taxes. 44,804 41,085 133,695 126,278 Federal Income Taxes . . . . . . . . . 21,014 21,032 65,786 56,798 TOTAL OPERATING EXPENSES . . . 367,306 392,432 1,141,084 1,101,649 OPERATING INCOME . . . . . . . . . . . . 62,190 65,100 192,805 196,964 NONOPERATING INCOME. . . . . . . . . . . 2,624 2,153 4,820 13,061 INCOME BEFORE INTEREST CHARGES . . . . . 64,814 67,253 197,625 210,025 INTEREST CHARGES . . . . . . . . . . . . 22,416 23,610 67,016 77,596 NET INCOME . . . . . . . . . . . . . . . 42,398 43,643 130,609 132,429 PREFERRED STOCK DIVIDEND REQUIREMENTS. . 3,826 4,261 11,476 12,859 EARNINGS APPLICABLE TO COMMON STOCK. . . $ 38,572 $ 39,382 $ 119,133 $ 119,570 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . $485,759 $458,487 $474,500 $445,955 NET INCOME . . . . . . . . . . . . . . . 42,398 43,643 130,609 132,429 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . . 34,617 41,090 103,851 108,735 Cumulative Preferred Stock . . . . . 3,826 4,262 11,476 12,865 Capital Stock Expense. . . . . . . . . 33 6 101 12 BALANCE AT END OF PERIOD . . . . . . . . $489,681 $456,772 $489,681 $456,772 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Consolidated Financial Statements. /TABLE OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1994 1993 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $2,460,355 $2,412,973 Transmission . . . . . . . . . . . . . . . . . . . . 788,842 767,548 Distribution . . . . . . . . . . . . . . . . . . . . 775,799 766,639 General (including mining assets). . . . . . . . . . 785,110 754,347 Construction Work in Progress. . . . . . . . . . . . 89,947 100,820 Total Electric Utility Plant . . . . . . . . 4,900,053 4,802,327 Accumulated Depreciation and Amortization. . . . . . 2,063,471 1,992,082 NET ELECTRIC UTILITY PLANT . . . . . . . . . 2,836,582 2,810,245 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 119,071 138,224 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 10,894 20,803 Accounts Receivable (net). . . . . . . . . . . . . . 164,081 179,175 Fuel . . . . . . . . . . . . . . . . . . . . . . . . 134,373 179,554 Materials and Supplies . . . . . . . . . . . . . . . 63,553 66,791 Accrued Utility Revenues . . . . . . . . . . . . . . 23,552 32,234 Prepayments. . . . . . . . . . . . . . . . . . . . . 43,881 43,907 TOTAL CURRENT ASSETS . . . . . . . . . . . . 440,334 522,464 REGULATORY ASSETS: Amounts Due From Customers For Future Federal Income Taxes . . . . . . . . . . . . . . . 421,313 433,822 Other. . . . . . . . . . . . . . . . . . . . . . . . 200,442 211,550 TOTAL REGULATORY ASSETS. . . . . . . . . . . 621,755 645,372 TOTAL. . . . . . . . . . . . . . . . . . . $4,017,742 $4,116,305 See Notes to Consolidated Financial Statements.
OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1994 1993 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - No Par Value: Authorized - 40,000,000 Shares Outstanding - 27,952,473 Shares. . . . . . . . . . $ 321,201 $ 321,201 Paid-in Capital. . . . . . . . . . . . . . . . . . . 463,100 463,100 Retained Earnings. . . . . . . . . . . . . . . . . . 489,681 474,500 Total Common Shareowner's Equity . . . . . . 1,273,982 1,258,801 Cumulative Preferred Stock: Not Subject to Mandatory Redemption. . . . . . . . 126,240 126,240 Subject to Mandatory Redemption. . . . . . . . . . 115,000 115,000 Long-term Debt . . . . . . . . . . . . . . . . . . . 1,187,898 1,189,086 TOTAL CAPITALIZATION . . . . . . . . . . . . 2,703,120 2,689,127 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 118,294 104,172 CURRENT LIABILITIES: Long-term Debt Due Within One Year . . . . . . . . . 570 5,397 Short-term Debt. . . . . . . . . . . . . . . . . . . 2,104 40,250 Accounts Payable . . . . . . . . . . . . . . . . . . 87,291 140,089 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 102,140 168,095 Interest Accrued . . . . . . . . . . . . . . . . . . 30,706 20,862 Obligations Under Capital Leases . . . . . . . . . . 25,216 21,916 Other. . . . . . . . . . . . . . . . . . . . . . . . 131,643 107,592 TOTAL CURRENT LIABILITIES. . . . . . . . . . 379,670 504,201 DEFERRED FEDERAL INCOME TAXES. . . . . . . . . . . . . 693,421 725,283 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 43,686 45,795 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 79,551 47,727 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . . . . . $4,017,742 $4,116,305 See Notes to Consolidated Financial Statements.
OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1994 1993 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 130,609 $ 132,429 Adjustments for Noncash Items: Depreciation, Depletion and Amortization . . . . . . . . 109,780 107,917 Deferred Federal Income Taxes. . . . . . . . . . . . . . (19,438) (23,393) Deferred Investment Tax Credits. . . . . . . . . . . . . (2,606) (2,994) Deferred Fuel Costs (net). . . . . . . . . . . . . . . . (4,351) 4,965 Amortization of Deferred Property Taxes. . . . . . . . . 50,808 48,386 Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . 15,094 5,868 Fuel, Materials and Supplies . . . . . . . . . . . . . . 48,419 72,248 Accrued Utility Revenues . . . . . . . . . . . . . . . . 8,682 8,326 Accounts Payable . . . . . . . . . . . . . . . . . . . . (52,798) (1,034) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (65,955) (49,858) Interest Accrued . . . . . . . . . . . . . . . . . . . . 9,844 3,236 Other (net). . . . . . . . . . . . . . . . . . . . . . . . (4,293) (17,362) Net Cash Flows From Operating Activities . . . . . . 223,795 288,734 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (110,660) (103,416) Proceeds from Sale of Property and Other . . . . . . . . . 36,693 3,647 Net Cash Flows Used For Investing Activities . . . . (73,967) (99,769) FINANCING ACTIVITIES: Issuance of Cumulative Preferred Stock . . . . . . . . . . - 29,554 Issuance of Long-term Debt . . . . . . . . . . . . . . . . 48,302 296,539 Change in Short-term Debt (net). . . . . . . . . . . . . . (38,146) 20,889 Retirement of Cumulative Preferred Stock . . . . . . . . . - (22,233) Retirement of Long-term Debt . . . . . . . . . . . . . . . (54,566) (453,859) Dividends Paid on Common Stock . . . . . . . . . . . . . . (103,851) (108,735) Dividends Paid on Cumulative Preferred Stock . . . . . . . (11,476) (12,865) Net Cash Flows Used For Financing Activities . . . . (159,737) (250,710) Net Decrease in Cash and Cash Equivalents. . . . . . . . . . (9,909) (61,745) Cash and Cash Equivalents at Beginning of Period . . . . . . 20,803 71,056 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 10,894 $ 9,311 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $55,187,000 and $72,965,000 and for income taxes was $85,171,000 and $65,068,000 in 1994 and 1993, respectively. Noncash acquisitions under capital leases were $31,837,000 and $11,845,000 in 1994 and 1993, respectively. See Notes to Consolidated Financial Statements.
OHIO POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1994 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial state- ments should be read in conjunction with the 1993 Annual Report as incorporated in and filed with the Form 10-K. 2. RATE MATTERS Rate Request On July 6, 1994 an application to increase base retail rates was filed with the Public Utilities Commission of Ohio (PUCO) seeking up to $152.5 million or a 13.8% increase in annual revenues. More than half of the increase reflects recovery of costs associated with the Gavin Plant's flue gas desulfurization system and other costs associated with meeting environmental restrictions imposed by the Clean Air Act Amendments of 1990 (CAAA). The remainder of the request seeks to recover increased costs of service since the last base rate increase in 1986; an increase in depreciation rates which includes recovery on a remaining life basis of the cost of plant and equipment and the cost of removal of plant and equipment; and deferred costs associated with pressurized fluidized bed combustion (PFBC) research and development as well as energy conservation demand-side management (DSM) programs. Failure to recover these deferred PFBC and DSM costs in cost of service would require an immediate write-off of $15.6 million after tax. 3. CONTINGENCIES Meigs Mine Litigation In April 1994 the U.S. Court of Appeals for the Sixth Circuit reversed the judgement of the U.S. District Court for the Southern District of Ohio which had granted a preliminary injunction to Southern Ohio Coal Company (SOCCo), a mining subsidiary, preventing the United States Environmental Protection Agency (Federal EPA) and the Federal Office of Surface Mining, Reclamation and Enforce- ment (OSM) from interfering with the removal of water from SOCCo's Meigs 31 mine. On October 11, 1994, the U.S. Supreme Court declined to review the U.S. Court of Appeals decision. SOCCo is currently negotiating a resolution of federal claims. As a result of the West Virginia Division of Environ- mental Protection proposing to fine SOCCo for alleged violations from the release of mine water into the Ohio River, SOCCo filed an action on June 1, 1994 in the U.S. District Court for the Southern District of West Virginia seeking a determination that the state of West Virginia has no jurisdiction to impose penalties with respect to the Meigs mine water discharges. On July 27, 1994 West Virginia filed an answer to SOCCo's complaint disputing SOCCo's entitlement to a declaratory judgement and asserting a counterclaim seeking an award of $2.55 million in civil penalties, reimbursement of monitoring costs and compen- sation for unspecified natural resources damage. The resolution of these legal actions is not expected to have a material adverse impact on results of operations or financial condition. Kammer Plant On August 4, 1994, the Federal EPA issued a Notice of Violation (NOV) to the Company alleging that the Kammer Plant has been operating in violation of applicable federally enforceable air pollution control requirements since January 1, 1989. The Clean Air Act provides that Federal EPA may, after the expiration of 30 days following the issuance of the NOV, commence a civil action for injunctive relief and/or civil penalties of up to $25,000 per day for each day of violation. On October 24, 1994, following several months of negotiations, the Company executed a Consent Decree which resolves that portion of the August 4, 1994 NOV relating to compliance. The Decree has been transmitted to the U.S. Department of Justice and Federal EPA for their execution and lodging with the U.S. District Court for the Northern District of West Virginia. That portion of the NOV relating to penalties will be addressed independently. At this time management is unable to estimate the amount of any civil penalties that may be imposed by the Federal EPA. It is not anticipated that the ultimate resolution of this matter will have a material adverse impact on financial condition. Superfund Site The Company was named as a third party defendant in a cost recovery action involving a superfund site. There are approximately two dozen parties involved in the litigation, about half of which have active industrial operations located at the site. The Company and other parties are alleged to have sent equipment containing PCBs to the site. PCBs have been identified as one of the chemicals at the site warranting remediation. The cost to date of site investigation and negotiations with Federal EPA is approximately $24 million. A report issued by an independent arbitrator in October 1994 allocated the investigation and negotiation costs to the parties. The share allocated to the Company is not significant. Site remediation is presently estimated to be an additional $40 million, although Federal EPA's 1986 Record of Decision initially proposed a remedy which would cost in excess of $60 million. The Company's ultimate share of the total cost of the remediation cannot be estimated until an allocation formula for this phase is established. If the Company's share of the remediation cost is significant, results of operations would be adversely affected unless the costs can be recovered through insurance proceeds and/or the ratemaking process. It is not anticipated that the ultimate resolution of this matter will have a material adverse impact on financial condition. Other The Company continues to be involved in certain other matters discussed in the 1993 Annual Report. OHIO POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THIRD QUARTER 1994 vs. THIRD QUARTER 1993 AND YEAR-TO-DATE 1994 vs. YEAR-TO-DATE 1993 RESULTS OF OPERATIONS Net income decreased $1.2 million or 3% in the quarter mainly from reduced demand for energy due to mild summer weather. In the year-to-date period, net income declined $1.8 million or 1% as the favorable effect of severe winter weather in 1994 was offset by a fuel cost disallowance recorded in 1994 related to the Big Muskie Dragline as a result of a Public Utilities Commission of Ohio order, the lack of full recovery of the cost of idling another dragline under major industrial contracts which do not provide for the direct recovery of such costs and a reduction in nonoperating income. Income statement lines which changed significantly were: Increase (Decrease) Third Quarter Year-To-Date (in millions) % (in millions) % Operating Revenues. . . . . . $(28.0) (6) $ 35.3 3 Fuel Expense. . . . . . . . . (13.5) (7) 26.0 5 Purchased Power Expense . . . (7.4) (37) 2.8 6 Other Operation Expense . . . (10.1) (17) (12.0) (7) Taxes Other Than Federal Income Taxes. . . . . . . . 3.7 9 7.4 6 Federal Income Taxes. . . . . - - 9.0 16 Nonoperating Income . . . . . 0.5 22 (8.2) (63) Interest Charges. . . . . . . (1.2) (5) (10.6) (14) Operating revenues declined in the third quarter primarily due to decreased energy demand as a result of mild summer weather and reduced fuel clause recoveries from retail customers. Energy sales to weather sensitive residential and commercial customers decreased 4% and 1%, respectively. Wholesale energy sales decreased 36% reflecting the weather related decline in energy requirements of affiliated members of the AEP System Power Pool (Power Pool) and in the Company's share of sales to unaffiliated utilities by the Power Pool. Operating revenues for the year-to-date period rose as the severe winter weather increased the energy requirements of retail customers and unaffiliated utilities. Energy sales to both residential and commercial customers increased 3% in the first nine months of 1994. Sales and the average revenue per kilowatthour sold to unaffiliated utilities, including the Company's share of sales to unaffiliated utilities made by the Power Pool, increased as a result of the unseasonable winter weather and forced outages at unaffiliated generating units. Fuel expense and purchased power expense decreased in the quarter reflecting the reduced energy requirements which caused a decline in generation and energy purchases. Fuel expense was also reduced in the quarter due to the operation of the fuel clause adjustment mechanism whereby current expense in excess of recoverable fuel cost was deferred and previous over-recoveries were amortized. Year-to-date fuel expenses increased primarily due to the fuel cost disallowance, the abandonment of the dragline and a higher average cost of fuel consumed. Purchased power expense increased in the year-to-date period due to increased energy purchases from unaffiliated utilities for pass- through sales to other unaffiliated utilities reflecting the impact of the severe winter weather on demand for wholesale energy in the first quarter of 1994 and outages at unaffiliated generating units. Other operation expense decreased in both periods primarily due to a reduction in the amortization of pressurized fluidized bed combustion demonstration plant cost, which is described in Note 2 in the 1993 Annual Report. Also reducing other operation expense was the effect of a provision for reorganization costs recorded in the third quarter of 1993. The increase in taxes other than federal income tax expense was due to increased West Virginia business and occupation taxes on generation reflecting an increase in generation at West Virginia power plants and an increase in Ohio real and personal property taxes due to an increase in property valuation and tax rates. Year-to-date federal income tax expense increased primarily due to an increase in pre-tax operating book income and changes in certain book/tax differences accounted for on a flow-through basis. The comparative decrease in nonoperating income for the year-to-date period was primarily due to the effects of interest income recorded in 1993 on a court ordered reversal of a prior refund in the Company's Federal Energy Regulatory Commission jurisdiction and on tax refunds received from the Internal Revenue Service in connection with the settlement of audits of prior years' tax returns; and a loss which was recorded in the second quarter of 1994 for the termination of a capital lease on surplus mining equipment. Also reducing year-to-date comparative nonoperating income was the favorable effects of adopting SFAS 109 recorded in January 1993. Interest charges decreased in both periods primarily as a result of the refinancing of debt at lower interest rates. FINANCIAL CONDITION Total plant and property additions including capital leases for the first nine months of 1994 were $144 million. In January 1994 a coal mining subsidiary, Southern Ohio Coal Company (SOCCo), entered into three loan agreements due January 2001 totaling $30 million with 6.20% fixed interest rates and one $15 million variable interest rate term loan agreement due in January 1999 with a rate of 3.725% through July 1994 and 5.6625% through January 1995. The proceeds of the loan were used in January 1994 to pay at maturity two fixed interest rate term loans of $20 million at 8% and $25 million at 8.01%. Also during January 1994 another mining subsidiary, Windsor Coal Company, retired at maturity a $5 million term loan with an interest rate of 8%. RATE ACTIVITY On July 6, 1994, the Company filed with the PUCO for an annual revenue increase of up to $152.5 million. More than half of the requested retail base rate increase is to recover costs associated with the Gavin Plant's flue gas desulfurization system (scrubbers) and other costs resulting from complying with the Clean Air Act Amendments of 1990. The remainder of the increase is to recover the additional cost of providing service to customers since the last base rate increase in 1986; increased depreciation rates for investment in plant and equipment based on a remaining life method and recovery of removal costs; and deferred costs associated with pressurized fluidized bed combustion (PFBC) research and development as well as energy conservation demand-side management (DSM) programs. Failure to recover these deferred PFBC and DSM costs in cost of service would result in the immediate write-off of $15.6 million after tax. NOTICE OF VIOLATION - KAMMER PLANT On August 4, 1994, the United States Environmental Protection Agency (Federal EPA) issued a Notice of Violation (NOV) to the Company alleging that the Kammer Plant has been operating in violation of applicable federally enforceable air pollution control requirements since January 1, 1989. By law the Federal EPA may seek penalties of up to $25,000 per day for each day of violation. On October 24, 1994, following several months of negotiations, the Company executed a Consent Decree which resolves that portion of the August 4, 1994 NOV relating to compliance. The Decree has been transmitted to the government for its execution and filing with the U.S. District Court for the Northern District of West Virginia. That portion of the NOV relating to penalties will be addressed independently. At this time management is unable to estimate the amount of any civil penalties that may be imposed by the Federal EPA. It is not anticipated that the ultimate resolution of this matter will have a material adverse impact on financial condition. MEIGS MINE LITIGATION On October 11, 1994, the U.S. Supreme Court declined to review the U.S. Court of Appeals for the Sixth Circuit's decision that the Federal District Court did not have jurisdiction to prohibit Federal EPA and the Federal Office of Surface Mining, Reclamation and Enforcement (OSM) from interfering with the emergency removal of water from Meigs 31 Mine. On July 15, 1994, SOCCo filed a petition seeking review by the U.S. Supreme Court of an Order of the U.S. Court of Appeals which held that the injunction granted to SOCCo by the U.S. District Court for the Southern District of Ohio was not supported by law. SOCCo is currently negotiating a resolution of federal claims. On June 1, 1994, SOCCo filed an action in the U.S. District Court for the Southern District of West Virginia seeking a determination that the state of West Virginia has no jurisdiction to impose penalties upon SOCCo as a result of the Meigs mine water discharges. On July 27, 1994 West Virginia filed an answer to SOCCo's complaint disputing SOCCo's entitlement to a declaratory judgement and asserting a counterclaim seeking an award of $2.55 million in civil penalties, reimbursement of monitoring costs and compensation for unspecified natural resources damage. The resolution of the Meigs mine litigation is not expected to have a material adverse impact on results of operations or financial condition. SUPERFUND SITE The Company was named as a third party defendant in a cost recovery action involving a superfund site. There are approximately two dozen parties involved in the litigation, about half of which have active industrial operations located at the site. The Company and other parties are alleged to have sent equipment containing PCBs to the site. PCBs have been identified as one of the chemicals at the site warranting remediation. The cost to date of site investigation and negotiations with Federal EPA is approximately $24 million. A report issued by an independent arbitrator in October 1994 allocated investigation costs to the parties. The share of site investigation and negotiation costs allocated to the Company is not significant. Site remediation is presently estimated to be an additional $40 million, although Federal EPA's 1986 Record of Decision initially proposed a remedy which would cost in excess of $60 million. The Company's ultimate share of the total cost of the remediation cannot be estimated until an allocation formula for this phase is established. If the Company's share of the remedial cost is significant, results of operations would be adversely affected unless the costs can be recovered through insurance proceeds and/or the ratemaking process. It is not anticipated that the ultimate resolution of this matter will have a material adverse impact on financial condition. PART II. OTHER INFORMATION Item 1. Legal Proceedings. American Electric Power Company, Inc. ("AEP") and Appalachian Power Company ("APCo") On September 30, 1994, the U.S. Environmental Protection Agency served APCo and Global Power Company, an independent contractor retained by APCo, with a complaint alleging violations of the Clean Air Act. The complaint is based on alleged violations of the National Emission Standard for Asbestos related to an asbestos abatement project at APCo's Kanawha River Plant. The complaint seeks a civil administrative penalty of $167,500. On October 27, 1994, APCo and Global jointly filed an answer to this complaint and requested both a formal hearing and informal settlement conference. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: AEP, AEP Generating Company ("AEGCo"), APCo, Columbus Southern Power Company ("CSPCo"), Indiana Michigan Power Company ("I&M"), Kentucky Power Company ("KEPCo") and Ohio Power Company ("OPCo") Exhibit 27 - Financial Data Schedule. (b) Reports on Form 8-K: AEP, AEGCo, APCo, CSPCo, I&M, KEPCo and OPCo No reports on Form 8-K were filed during the quarter ended September 30, 1994. In the opinion of the companies, the financial statements contained herein reflect all adjustments (consisting of only normal recurring accruals) which are necessary to a fair presentation of the results of operations for the interim periods, except for the adjustments resulting from the adoption of SFAS 115 on American Electric Power Company, Inc. and Indiana Michigan Power Company. 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. The signatures for each undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. AMERICAN ELECTRIC POWER COMPANY, INC. G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Treasurer AEP GENERATING COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Treasurer APPALACHIAN POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Treasurer COLUMBUS SOUTHERN POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Treasurer INDIANA MICHIGAN POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Treasurer KENTUCKY POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Treasurer OHIO POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Treasurer Date: November 10, 1994 II-2 [/TEXT] [/DOCUMENT] EX-27 2 ARTICLE UT FIN. DATA SCH. FOR THE 3RD QTR 10Q
UT 0000073986 OHIO POWER COMPANY 1,000 US DOLLARS 1.000 9-MOS DEC-31-1993 SEP-30-1994 PER-BOOK 2,836,582 119,071 440,334 621,755 0 4,017,742 321,201 463,100 489,681 1,273,982 115,000 126,240 1,187,898 2,104 0 0 570 0 81,165 25,216 1,205,567 4,017,742 1,333,889 67,630 1,073,454 1,141,084 192,805 4,820 197,625 67,016 130,609 11,476 119,133 103,851 47,897 223,795 0 0 All common stock owned by parent company; no EPS required.
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