EX-99.1 3 exhibit99-1.htm UNAUDITED FINANCIAL STATEMENTS exhibit99-1.htm
Exhibit 99.1

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On December 31, 2013, based on a PUCO order which approved corporate separation of generation assets, OPCo transferred its generation assets and liabilities at net book value to AGR, a subsidiary of AEP.  The following unaudited pro forma consolidated income statements and balance sheet are based on the historical financial statements of OPCo as previously filed.  The resulting pro forma financial statements reflect OPCo’s transfer of generation assets and liabilities and OPCo’s remaining transmission and distribution operations.  The unaudited pro forma financial statements are presented for comparative purposes only and are not intended to be indicative of the balance sheet or statements of income which would have been realized had the transfer of OPCo generation assets and liabilities been consummated as of the date or during the periods for which the unaudited pro forma financial statements are presented or for any future period or date.

 
1
 

OHIO POWER COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended September 30, 2013
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pro Forma
 
 
 
 
 
 
Historical
 
Corporate Separation
 
Pro Forma
 
 
 
OPCo
 
Adjustments
 
OPCo
REVENUES
 
 
 
 
 
 
 
Electric Generation, Transmission and Distribution
 
$
 2,710,990 
 
$
 (373,900)
(a)
$
 2,337,090 
Sales to AEP Affiliates
 
 
 873,850 
 
 
 (805,362)
(b)
 
 68,488 
Other Revenues - Affiliated
 
 
 18,138 
 
 
 (18,138)
(c)
 
 - 
Other Revenues - Nonaffiliated
 
 
 12,982 
 
 
 (10,136)
(c)
 
 2,846 
TOTAL REVENUES
 
 
 3,615,960 
 
 
 (1,207,536)
 
 
 2,408,424 
 
 
 
 
 
 
 
 
 
 
EXPENSES
 
 
 
 
 
 
 
 
 
Fuel and Other Consumables Used for Electric Generation
 
 
 1,158,389 
 
 
 (1,158,389)
(d)
 
 - 
Purchased Electricity for Resale
 
 
 114,911 
 
 
 64,376 
(e)
 
 179,287 
Purchased Electricity from AEP Affiliates
 
 
 257,540 
 
 
 706,940 
(e)
 
 964,480 
Other Operation
 
 
 481,417 
 
 
 (142,757)
(f)
 
 338,660 
Maintenance
 
 
 218,962 
 
 
 (127,489)
(f)
 
 91,473 
Asset Impairments and Other Related Charges
 
 
 154,304 
 
 
 (154,304)
(f)
 
 - 
Depreciation and Amortization
 
 
 289,472 
 
 
 (148,459)
(f)
 
 141,013 
Amortization of Generation Deferrals
 
 
 - 
 
 
 85,191 
(g)
 
 85,191 
Taxes Other Than Income Taxes
 
 
 310,285 
 
 
 (50,627)
(f)
 
 259,658 
TOTAL EXPENSES
 
 
 2,985,280 
 
 
 (925,518)
 
 
 2,059,762 
 
 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
 
 630,680 
 
 
 (282,018)
 
 
 348,662 
 
 
 
 
 
 
 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
 
 
Interest Income
 
 
 3,165 
 
 
 (1,841)
(h)
 
 1,324 
Carrying Costs Income
 
 
 9,833 
 
 
 - 
 
 
 9,833 
Allowance for Equity Funds Used During Construction
 
 
 2,853 
 
 
 - 
 
 
 2,853 
Interest Expense
 
 
 (142,487)
 
 
 43,007 
(i)
 
 (99,480)
 
 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAX EXPENSE
 
 
 504,044 
 
 
 (240,852)
 
 
 263,192 
 
 
 
 
 
 
 
 
 
 
Income Tax Expense
 
 
 174,313 
 
 
 (82,360)
(j)
 
 91,953 
 
 
 
 
 
 
 
 
 
 
NET INCOME
 
$
 329,731 
 
$
 (158,492)
 
$
 171,239 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.

 
2
 


OHIO POWER COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 2012
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pro Forma
 
 
 
 
 
Historical
 
Corporate Separation
 
Pro Forma
 
 
 
OPCo
 
Adjustments
 
OPCo
REVENUES
 
 
 
 
 
 
 
Electric Generation, Transmission and Distribution
 
$
 4,022,116 
 
$
 (601,714)
(a)
$
 3,420,402 
Sales to AEP Affiliates
 
 
 847,294 
 
 
 (795,083)
(b)
 
 52,211 
Other Revenues - Affiliated
 
 
 39,401 
 
 
 (39,401)
(c)
 
 - 
Other Revenues - Nonaffiliated
 
 
 19,385 
 
 
 (14,905)
(c)
 
 4,480 
TOTAL REVENUES
 
 
 4,928,196 
 
 
 (1,451,103)
 
 
 3,477,093 
 
 
 
 
 
 
 
 
 
 
EXPENSES
 
 
 
 
 
 
 
 
 
Fuel and Other Consumables Used for Electric Generation
 
 
 1,471,316 
 
 
 (1,471,316)
(d)
 
 - 
Purchased Electricity for Resale
 
 
 205,845 
 
 
 (44,856)
(e)
 
 160,989 
Purchased Electricity from AEP Affiliates
 
 
 380,706 
 
 
 1,362,005 
(e)
 
 1,742,711 
Other Operation
 
 
 669,981 
 
 
 (270,452)
(f)
 
 399,529 
Maintenance
 
 
 319,324 
 
 
 (188,272)
(f)
 
 131,052 
Asset Impairments and Other Related Charges
 
 
 287,031 
 
 
 (287,031)
(f)
 
 - 
Depreciation and Amortization
 
 
 511,070 
 
 
 (347,514)
(f)
 
 163,556 
Amortization of Generation Deferrals
 
 
 - 
 
 
 47,552 
(g)
 
 47,552 
Taxes Other Than Income Taxes
 
 
 405,976 
 
 
 (71,082)
(f)
 
 334,894 
TOTAL EXPENSES
 
 
 4,251,249 
 
 
 (1,270,966)
 
 
 2,980,283 
 
 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
 
 676,947 
 
 
 (180,137)
 
 
 496,810 
 
 
 
 
 
 
 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
 
 
Interest Income
 
 
 3,536 
 
 
 (195)
(h)
 
 3,341 
Carrying Costs Income
 
 
 16,942 
 
 
 - 
 
 
 16,942 
Allowance for Equity Funds Used During Construction
 
 
 3,492 
 
 
 - 
 
 
 3,492 
Interest Expense
 
 
 (213,100)
 
 
 83,844 
(i)
 
 (129,256)
 
 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAX EXPENSE
 
 
 487,817 
 
 
 (96,488)
 
 
 391,329 
 
 
 
 
 
 
 
 
 
 
Income Tax Expense
 
 
 144,283 
 
 
 (8,922)
(j)
 
 135,361 
 
 
 
 
 
 
 
 
 
 
NET INCOME
 
$
 343,534 
 
$
 (87,566)
 
$
 255,968 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.

 
3
 


OHIO POWER COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
September 30, 2013
(in thousands)
 
 
 
 
 
 
 
Pro Forma
 
 
 
 
 
 
 
Historical
 
Corporate Separation
 
Pro Forma
 
 
 
 
OPCo
 
Adjustments
 
OPCo
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
 
$
 4,341 
 
$
 - 
 
$
 4,341 
Advances to Affiliates
 
 
 10,126 
 
 
 361,697 
(a)
 
 371,823 
Accounts Receivable:
 
 
 
 
 
 
 
 
 
 
Customers
 
 
 83,382 
 
 
 (32,249)
(b)
 
 51,133 
 
Affiliated Companies
 
 
 147,471 
 
 
 (90,704)
(b)
 
 56,767 
 
Accrued Unbilled Revenues
 
 
 38,753 
 
 
 - 
 
 
 38,753 
 
Miscellaneous
 
 
 6,683 
 
 
 (1,820)
(b)
 
 4,863 
 
Allowance for Uncollectible Accounts
 
 
 (26,966)
 
 
 7 
(b)
 
 (26,959)
 
 
Total Accounts Receivable
 
 
 249,323 
 
 
 (124,766)
(b)
 
 124,557 
Fuel
 
 
 251,888 
 
 
 (251,888)
(c)
 
 - 
Materials and Supplies
 
 
 173,397 
 
 
 (120,969)
(c)
 
 52,428 
Risk Management Assets
 
 
 34,178 
 
 
 (32,596)
(d)
 
 1,582 
Accrued Tax Benefits
 
 
 947 
 
 
 - 
 
 
 947 
Prepayments and Other Current Assets
 
 
 50,199 
 
 
 11,401 
(e)
 
 61,600 
TOTAL CURRENT ASSETS
 
 
 774,399 
 
 
 (157,121)
 
 
 617,278 
 
 
 
 
 
 
 
 
 
 
PROPERTY, PLANT AND EQUIPMENT
 
 
 
 
 
 
 
 
 
Electric:
 
 
 
 
 
 
 
 
 
 
Generation
 
 
 8,392,967 
 
 
 (8,392,967)
(f)
 
 - 
 
Transmission
 
 
 2,034,958 
 
 
 (51,532)
(f)
 
 1,983,426 
 
Distribution
 
 
 3,815,303 
 
 
 - 
 
 
 3,815,303 
Other Property, Plant and Equipment
 
 
 566,007 
 
 
 (184,423)
(f)
 
 381,584 
Construction Work in Progress
 
 
 440,199 
 
 
 (226,243)
(f)
 
 213,956 
Total Property, Plant and Equipment
 
 
 15,249,434 
 
 
 (8,855,165)
 
 
 6,394,269 
Accumulated Depreciation and Amortization
 
 
 5,220,979 
 
 
 (3,232,826)
(g)
 
 1,988,153 
TOTAL PROPERTY, PLANT AND EQUIPMENT – NET
 
 
 10,028,455 
 
 
 (5,622,339)
 
 
 4,406,116 
 
 
 
 
 
 
 
 
 
 
OTHER NONCURRENT ASSETS
 
 
 
 
 
 
 
 
 
Regulatory Assets
 
 
 1,455,176 
 
 
 - 
 
 
 1,455,176 
Securitized Transition Assets
 
 
 136,566 
 
 
 - 
 
 
 136,566 
Long-term Risk Management Assets
 
 
 28,594 
 
 
 (28,594)
(d)
 
 - 
Deferred Charges and Other Noncurrent Assets
 
 
 133,024 
 
 
 (53,295)
(h)
 
 79,729 
TOTAL OTHER NONCURRENT ASSETS
 
 
 1,753,360 
 
 
 (81,889)
 
 
 1,671,471 
 
 
 
 
 
 
 
 
 
 
TOTAL ASSETS
 
$
 12,556,214 
 
$
 (5,861,349)
 
$
 6,694,865 
 
 
 
 
 
 
 
 
 
 
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.

 
4
 


OHIO POWER COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND COMMON SHAREHOLDER'S EQUITY
September 30, 2013
 
 
 
 
 
Pro Forma
 
 
 
 
Historical
 
Corporate Separation
 
Pro Forma
 
 
OPCo
 
Adjustments
 
OPCo
 
 
 
 
 
(in thousands)
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Advances from Affiliates
 
$
 1,063 
 
$
 (1,063)
(i)
$
 - 
Accounts Payable:
 
 
 
 
 
 
 
 
 
 
General
 
 
 249,663 
 
 
 (138,615)
(j)
 
 111,048 
 
Affiliated Companies
 
 
 99,322 
 
 
 101,164 
(k)
 
 200,486 
Long-term Debt Due Within One Year – Nonaffiliated
 
 
 553,516 
 
 
 (293,580)
(l)
 
 259,936 
Risk Management Liabilities
 
 
 16,431 
 
 
 (16,409)
(d)
 
 22 
Accrued Taxes
 
 
 261,496 
 
 
 (13,304)
(m)
 
 248,192 
Accrued Interest
 
 
 54,603 
 
 
 (6,566)
(n)
 
 48,037 
Other Current Liabilities
 
 
 201,018 
 
 
 (48,277)
(o)
 
 152,741 
TOTAL CURRENT LIABILITIES
 
 
 1,437,112 
 
 
 (416,650)
 
 
 1,020,462 
 
 
 
 
 
 
 
 
 
 
NONCURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Long-term Debt – Nonaffiliated
 
 
 2,945,058 
 
 
 (768,245)
(l)
 
 2,176,813 
Long-term Debt – Affiliated
 
 
 200,000 
 
 
 (200,000)
(l)
 
 - 
Long-term Risk Management Liabilities
 
 
 16,577 
 
 
 (16,577)
(d)
 
 - 
Deferred Income Taxes
 
 
 2,489,349 
 
 
 (1,194,139)
(m)
 
 1,295,210 
Regulatory Liabilities and Deferred Investment Tax Credits
 
 
 444,216 
 
 
 (10,148)
(p)
 
 434,068 
Deferred Credits and Other Noncurrent Liabilities
 
 
 436,743 
 
 
 (323,249)
(q)
 
 113,494 
TOTAL NONCURRENT LIABILITIES
 
 
 6,531,943 
 
 
 (2,512,358)
 
 
 4,019,585 
 
 
 
 
 
 
 
 
 
 
TOTAL LIABILITIES
 
 
 7,969,055 
 
 
 (2,929,008)
 
 
 5,040,047 
 
 
 
 
 
 
 
 
 
 
COMMON SHAREHOLDER'S EQUITY
 
 
 
 
 
 
 
 
 
Common Stock – No Par Value:
 
 
 
 
 
 
 
 
 
 
Authorized – 40,000,000 Shares
 
 
 
 
 
 
 
 
 
 
Outstanding  – 27,952,473 Shares
 
 
 321,201 
 
 
 - 
 
 
 321,201 
Paid-in Capital
 
 
 1,744,099 
 
 
 (1,070,744)
(r)
 
 673,355 
Retained Earnings
 
 
 2,658,562 
 
 
 (2,005,608)
(r)
 
 652,954 
Accumulated Other Comprehensive Income (Loss)
 
 
 (136,703)
 
 
 144,011 
(s)
 
 7,308 
TOTAL COMMON SHAREHOLDER’S EQUITY
 
 
 4,587,159 
 
 
 (2,932,341)
 
 
 1,654,818 
 
 
 
 
 
 
 
 
 
 
TOTAL LIABILITIES AND COMMON
 
 
 
 
 
 
 
 
 
 
SHAREHOLDER'S EQUITY
 
$
 12,556,214 
 
$
 (5,861,349)
 
$
 6,694,865 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.

 
5
 

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

1.  BASIS OF PRESENTATION

In October 2012, the PUCO issued an order which approved the corporate separation of OPCo’s generation assets, including the transfer of OPCo’s generation assets and associated liabilities at net book value to AGR.  On December 31, 2013, OPCo transferred all of its generation assets and associated liabilities to AGR.  In accordance with the FERC and PUCO orders, OPCo remains responsible to provide power to OPCo customers who have not switched electric providers.  Effective January 1, 2014, OPCo will purchase power from both AGR and nonaffiliated entities, subject to auction requirements, to meet the energy and capacity needs of customers.  OPCo will sell the power and capacity to these remaining retail customers at PUCO-approved rates through May 31, 2015.

Also on December 31, 2013, subsequent to the transfer of OPCo’s generation assets to AGR, AGR transferred at net book value its two-thirds ownership (867 MW) in Amos Plant, Unit 3 to APCo and transferred at net book value a one-half interest (780 MW) in the Mitchell Plant to KPCo.  The transfer of these generation assets and associated liabilities was approved by the Virginia State Corporation Commission and the Public Service Commission of West Virginia with respect to the Amos Plant and the Kentucky Public Service Commission with respect to the Mitchell Plant.

In connection with corporate separation of OPCo’s generation assets, OPCo sold the majority of its assets related to its wholly-owned subsidiary, Conesville Coal Preparation Company (CCPC) in April 2013.  Also in preparation for corporate separation, OPCo transferred its ownership of Cook Coal Terminal (CCT) to AEGCo in August 2013.  The results of operations for CCPC and CCT were eliminated from OPCo’s pro forma income statements.

OPCo’s unaudited financial statements reflect the pro forma impact of the transfers of generation assets and related liabilities described above.   The unaudited pro forma balance sheet as of September 30, 2013 depicts the impact of the asset transfers as if the transactions had occurred on September 30, 2013. The unaudited pro forma statements of income for the nine months ended September 30, 2013 and the year ended December 31, 2012 depict the pro forma impact of the asset transfers as if the transactions had occurred on January 1, 2012. The pro forma financial statements have been prepared for comparative purposes only and do not purport to be indicative of future results of operations or financial condition.  In OPCo’s pro forma income statements and balance sheet, the “Pro Forma OPCo” column represents OPCo’s remaining transmission and distribution operations following corporate separation.

2.  
PRO FORMA ADJUSTMENTS

The following adjustments for the unaudited pro forma income statements and balance sheet reflect the impact of OPCo’s distribution of its generation net assets on previously filed income statements for the year ended December 31, 2012 and nine months ended September 30, 2013 and balance sheet as of September 30, 2013.

Pro Forma Financial Statement Adjustments

The following income statement adjustments generally relate to OPCo’s distribution of generation assets to AGR:

(a)  
Primarily reflects the elimination of off-system revenues related to the sale of electric generation and capacity.
(b)  
Reflects the elimination of capacity and energy settlement revenues under the Interconnection Agreement.
(c)  
Primarily reflects the elimination of revenues related to both OPCo’s Cook Coal Terminal division and OPCo’s Conesville Coal Preparation Company.
(d)  
Reflects the elimination of fuel expenses related to the generation of power.
(e)  
Reflects purchased power from generation assets that was previously eliminated in OPCo’s consolidated financial statements.
(f)  
Reflects the elimination of expenses related to transferred generation plants.
(g)  
Reflects the amortization of deferred fuel and capacity costs under the non-bypassable Phase-in Recovery Rider and the non-bypassable Retail Stability Rider, respectively.
(h)  
Reflects the elimination of nonaffiliated interest and dividend income.
(i)  
Reflects the elimination of interest expense related to the assignment of generation-related long-term debt.
(j)  
Reflects the elimination of income tax expense that is attributable to generation-related pretax book income.

 
6
 


The following balance sheet adjustments generally relate to OPCo’s distribution of generation assets to AGR:

(a)  
Primarily reflects the addition of net advances to affiliates related to OPCo’s remaining transmission and distribution legal entity.  OPCo nets its advances to/from affiliates by legal entity.  The elimination of advances from affiliates related to its generation operations resulted in net advances to affiliates for OPCo’s transmission and distribution operations.
(b)  
Reflects the distribution of net generation receivables, including the gross-up of certain previously-eliminated affiliated receivables.
(c)  
Reflects the distribution of generation inventories.
(d)  
Reflects the distribution of generation-related risk management assets/liabilities related to cash flow hedges.
(e)  
Primarily reflects the distribution of net deferred income tax assets.
(f)  
Reflects the distribution of property supporting generation operations.
(g)  
Reflects the removal of accumulated depreciation related to generation operations.
(h)  
Primarily reflects the distribution of generation-related benefit assets, deferred taxes and allowances.
(i)  
Reflects the elimination of advances from affiliates related to OPCo’s generation operations and the subsequent adjustment of OPCo’s remaining net advances to affiliates related to transmission and distribution operations.  OPCo nets its advances to/from affiliates by legal entity.  The elimination of advances from affiliates related to its generation operations resulted in net advances to affiliates for OPCo’s transmission and distribution operations.
(j)  
Reflects the distribution of nonaffiliated payables.
(k)  
Primarily reflects an increase in affiliated payables for power purchased from AGR plus the gross-up of certain previously-eliminated affiliated payables.
(l)  
Reflects the assignment of generation-related long-term debt.
(m)  
Reflects the distribution of generation-related net tax liabilities.
(n)  
Reflects the elimination of accrued interest as a result of the assignment of generation-related long-term debt.
(o)  
Primarily reflects the distribution of generation-related payroll and benefits and lease obligations.
(p)  
Primarily reflects the transfer of generation-related deferred investment tax credits.
(q)  
Primarily reflects the distribution of generation-related asset retirement obligations, net benefit obligations and capital lease obligations.
(r)  
Reflects the distribution of net generation assets.
(s)  
Reflects the distribution of net benefit plan accumulated other comprehensive loss related to generation operations.

All regulatory assets and regulatory liabilities related to OPCo’s generation activities remain on OPCo’s balance sheet.  These regulatory assets and liabilities will be recovered/paid primarily through OPCo non-bypassable riders.
 
Included in the above pro forma adjustments, OPCo:

·  
Reduced Long-term Debt – Nonaffiliated by $600 million due to the assignment of an existing term credit facility to AEP subsidiaries in the fourth quarter of 2013.
·  
Reduced Long-term Debt – Nonaffiliated by $211 million and $86 million related to OPCo Pollution Control Bonds.
·  
Reduced Long-term Debt – Affiliated by $200 million which was subsequently retired in the fourth quarter of 2013.
·  
Reduced Long-term Debt – Nonaffiliated by $115 million due to the subsequent assignment of certain OPCo Pollution Control Bonds to AGR in the fourth quarter of 2013.
·  
Reduced Long-term Debt – Nonaffiliated by $50 million related to OPCo Pollution Control Bonds which were subsequently retired in the fourth quarter of 2013.

In December 2013, OPCo drew an additional $400 million on the existing $1 billion term credit facility and subsequently assigned $1 billion to AGR.  AGR then assigned $300 million and $200 million related to this facility to APCo and KPCo, respectively.

On December 31, 2013, rather than transferring $211 million and $86 million related to OPCo Pollution Control Bonds to AGR and APCo, respectively, OPCo received $211 million and $86 million of affiliated notes receivable from AGR and APCo, respectively, related to existing Pollution Control Bonds.

On December 31, 2013, $395 million and $65 million of OPCo’s reacquired Pollution Control Bonds, previously held in trust, were distributed to AGR and KPCo, respectively.

 
 
7
 


Income Taxes

OPCo joins in the filing of a consolidated federal income tax return with its affiliates in the AEP System.  The allocation of the AEP System’s current consolidated federal income tax to the AEP System companies allocates the benefit of current tax losses to the AEP System companies giving rise to such losses in determining their current tax expense.  The tax benefit of the Parent is allocated to its subsidiaries with taxable income.  With the exception of the loss of the Parent, the method of allocation reflects a separate return result for each company in the consolidated group.  The majority of the income tax receivables and payables related to OPCo’s generation activities prior to December 31, 2013 will remain on OPCo’s balance sheet.  These receivables and payables are the responsibility of OPCo.

 

 
8