ML17156A652
| ML17156A652 | |
| Person / Time | |
|---|---|
| Site: | Susquehanna  |
| Issue date: | 12/31/1987 |
| From: | ALLEGHENY ELECTRIC COOPERATIVE, INC. |
| To: | |
| Shared Package | |
| ML17156A653 | List: |
| References | |
| NUDOCS 8806300020 | |
| Download: ML17156A652 (36) | |
Text
Contents ABOUT THE COVER: Linemen Pom the Shippensburg District Once of Adams Electric Cooperative work on the rural electric lines in Pont of an Cumberland County farm on a blustery winter day. Crews like thisPom the 14 member distribution cooperatives pur-chasing wholesale powerPom Allegheny
'help keep the electricity flowing throughout Pennsylvania and New 3306300020 880624 PDR ADOCK 05000387 I
President's and Chairman's message.......2 Highlights......
....4 Board of Directors....................6 Power supply........................7
~ Susquehanna Steam Electric Station......7
~ PASNY.
............7 Project review
~.
~
11
~ Raystown Hydroelectric Project......,;<;...
11
~ Montgomery Hydroelectric Project...;;...
11
~ Allegheny River Locks and Dams No. 8',
and No. 9 Hydroelectric Projects.....'... ll
~ Load management......
12
~ Marketing 12
~ Transmission 12 Legislative and regulatory affairs........ 15
~ Federal legislation
......15
~ State legislation
..........15
~ Rural economic and community development
...........16 Financial review
........17
~ Operating margins.............
17
~ Financing.........
17
~ Construction
~..
..17
~ Taxability.....................
18 Operations..........................
18
~ Revenue......................
18
~ Non-member revenue........
18
~ Member revenue.......18
~ Wholesale rate negotiation......... ~...19
~ Rates 19
~ Energy sales 20 Financial statements.........
~
F 1
~ Five.year financial statement........
',, F 2
~ Five-year statement of revenue and expenses F
3
~ Balance sheets...
F 4
~ Statements of operations and patronag'e capital....
~.
F 6
~ Statements of changes in financial position.
7
~ Notes to financial statements.........
F 8
~ Auditor's letter.
.. F-13
~ Summary of operations Allegheny member systems
......... F-14
President 's message
': Chairman's message Jesse C. Tilton III President James L. Henderson Chairman of the Board 0
~$ ennsylvania and New Jersey R l are large, multifaceted states.
jT%
Their diversity provides a level of stability and resilience not seen in other parts of the nation.
Allegheny Electric Cooperative shares this diversity. It is seen in the types of members our distribution cooperatives serve and in the sources we use to provide light and power throughout rural Penn.
sylvania and New Jersey. Because of our diversity in power supply and the loads we serve,'e have greater stability than those power suppliers primarily dependent on one type of generation and a
few large in-dustrial loads.
Pictured throughout this year' annual report are examples of the members served by our distribution cooperatives.
Farms and rural residences continue to predomi-nate.
Distribution cooperative managers report to us that business enterprises ofall types, both big and small, are locating in our service areas at an increasing pace.
Sussex County in New Jersey and Adams County in sou thcentral Pennsylvania are becoming bed-room communities, benefiting from nearby larger metropolitan areas.
The new members of Sussex REC and Adams EC bring with them new expectations of what a power sup.
plier should be. Their expectations have caused us to examine our operations and, where justified and needed, to change.
Despite the fact that the number of people who claim farming to be their primary source of income is decreasing nationwide, farming continues to be important as a way of life in the rolling hills of Hunt-ingdon, Bedford, Crawford, Brad-ford and many other counties served by rural electric coopera-tives. Valley, New Enterprise, Bed.
ford, Northwestern and Claverack rural electric cooperatives, like other rural electric cooperatives served by Allegheny, continue to of-fer special services and assistance to dairy farmers and others who make a living from the land.
Because of its strategic location in the northeast United
- States, Pennsylvania has become a recrea-tional magnet for the residents of neighboring states as well as the Commonwealth's natives. Many of Allegheny's distribution coopera-tives are increasingly relying on tourism and recreation as growing sources of revenue. Somerset REC, for example, serves a large and growing winter recreation complex, while Warren EC, Tri.County REC and Sullivan County REC serve large numbers of hunting camps and summer residents.
Mining continues to be an impor-tant source of revenue for Southwest Central RECC, United EC and Central EC, while all of Allegheny's distribution coopera-tives work to increase and expand the industrial and commercial base of their service areas. To this end, several rural electric cooperatives have launched community and economic development programs.
Turning to power
- supply, Allegheny's sources of power are as diverse as the loads that eventually consume that power. Although pur-chases from the Power Authorityof the State of New York(PASNY) and several private power companies are still important, Allegheny con-tinues to move forward with a balanced energy supply develop-ment program begun during the 1970 s.
The Susquehanna Steam Electric Station, at Berwick, Pa., a nuclear power plant in which Allegheny has a
10-percent ownership
- interest, continues to establish records for performance and safety. At a time
when most newspaper stories re.
garding nuclear power are bleak, Susquehanna's operating perfor-mance in contrast is very bright.
During 1987, work continued on schedule on Allegheny's first whol ~
ly owned generating facility, the Raystown Hydroelectric Project at Huntingdon, Pa. When operational in 1988, this 21-megawatt facility will provide dependable, low.cost power enough electricity to serve 8,500 average rural residences.
As work continued on the Raystown project, Allegheny decided to divest itself of its development rights for a
hydroelectric site on the Allegheny River, but continues to explore hydro development.
As mentioned previously, Allegheny continues to depend on wholesale power purchases to round out its energy supply. These purchases, made from six utilities that, to differing degrees, generate electricity at hydro, nuclear and coal-fired facilities, provide Allegheny with further diversity of supply.
During 1987, we launched new ef-forts to explore all possible future power supply arrangements.
The goal of these efforts is to provide further diversity and, as a result, to provide rate stability for our members.
Because of its sources of power and the wide variety of the customers who consume that power, Allegheny Electric Cooperative and its member distribution systems are well posi.
tioned to meet the energy challenges of the 1990s and beyond. Diversity, strength, stability: key elements of Allegheny's future.
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~r ELECTRIC DR4G LINES used in coal mining are large users ofelectricity. Penn-sylvania's extensive coal beds cover most ofthe western part ofthe state, stietch over to the north central section, and include many distribution co-ops 'ervice territories.
Highlights
) areful planning and diligent j work showed results in 1987 as power supply projects and legislative activities moved forward.
Some highlights of the year included:
~ Jesse C. Tilton III officially assumed his duties as president of Allegheny Electric Cooperative, Inc., and its sister service organiza-tion, the Pennsylvania Rural Electric Association, on December 1, 1986.
The former general manager of the Indiana Municipal Power Agency has a master's degree in electrical engineering from Auburn Gnlversity and a strong background in both cooperative and municipal power supply.
~ Susquehanna Steam Electric Station Onit 2 broke a worldwide record for boiling water reactor con.
tinuous operation and both units generated higher-than-average amounts of electricity. The suc-cessful refueling of Unit 1,
ac.
complished for the first time without a lost-time injury, took four days less than budgeted.
~ Construction of Allegheny's firstwholly owned generating plant, the Raystown Hydroelectric Project, William F. Matson Generating Sta-tion, continued on time and under budget.
~
Member cooperatives par-ticipating in the Coordinated Load Management System reported
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gross savings of over $ 160,000 leveraged lease of the Raystown
~ Allegheny and other interested Hydroelectric Project, which, ifcon.
parties were able to negotiate a
- summated, could save Allegheny 42.percent reduction of an energy several million dollars in project rate hike planned by the Power financing costs.
Authority of the State of New York
~ In the face of serious attacks on (PASNY), a supplier of inexpensive the rural electric program by the ex.
hydropower for Allegheny.
ecutive branch'of the Onited States
~ By deciding not to develop government, the lobbying efforts of Allegheny River Locks 6 Dams No.
PREA on behalf of Allegheny have 8 6 9 for hydroelectric production, been essential. These efforts have the board ofdirectors elected not to garnered the support of both Penn-CATTLE CLUSTER around a feed include the cost of-the hydroelectric sylvania United States senators and trough on a farm served by rural elec-project, for which the cooperative most of the Pennsylvania G.S.
tric cooperative electricity. Most ofthe had development rights, into its rate House members for approval of 22,000 square miles served by structure. This will save about
$6 prepayment of generation and Allegheny's member distribution million per year in power costs for transmission (GGT) cooperatives'ooperatives are sparsely populated, Allegheny's member cooperatives.
Federal Financing Bank(FFB) notes averagingonlyseven consumer-members
~ Arrangements continued for a without prepayment penalty.
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Board of Directors Officers and members of the Allegheny Board ofDirectors, seated from left, are: John
- Drake, Dave Turner, James Henderson and John Looser. Standing from left are: Alston
- Teeter, Donald
- Songer, Donald
- Streams, Harold
- Hines, Winston Donaldson, Guy Spoerlein, John Rit.
chey, Harold Ritchey, Thomas Grif-fith and John Anstadt.
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OFFICERS:
James Henderson, Chairman Sussex Rural Electric Cooperatiue Guy Spoerleln Somerset Rural Electric Cooperatiue, Inc.
John Drake, Vice chairman Clauerack Rural Eleclric Cooperatlue, Inc.
Donald Streams Southwest Central Rural Electric Cooperative Corporation John Looser, Secretary Adams Electric Cooperatfoe, Inc.
Alston Teeter Tri.County Rural Etectric Cooperatiue, inc.
Dave Turner, Treasurer Sullioan County Rural Eleclric Cooperalioe, Inc.
BOARD MEMBERS:
John Anstadt Sulliuan County Rural Electric Cooperative, Inc.
Thomas Griffith Bedford Rural Electn'c Cooperalfoe, Inc.
Winston Donaldson Central Electric Cooperative, Inc.
John Rltchey lYeiu Enterprise Rural Eleclric Cooperaliue, Inc.
Harold Hines lYorthiuestem Rurat Electric Cooperalfue Association, Inc.
Donald Songer United Electric Cooperaliue, Inc.
Harold Rltchey Valley Rural Electric Cooperative, Inc.
STAFF MEMBERS:
Jesse C. Tllton III, President Paul N. Tetherow, Assistant General Manager Wayne A. Weber, Dir. of Poiuer Supply and Engineering William E. Mowatt, General Counsel and Assistant Secretary C. Donald Blackburn, Manager of Oflice Services Joe Dudlck, Direclor of Public Affairs
Powers,upply O~ Ilegheny built power supply
~ strength in 1987 through a diverse range of resources.
To supply the power needs of its member cooperatives in
- 1987, Allegheny has a 10-percent owner-ship interest in the Susquehanna Steam Electric Station nuclear plant, and purchases the balance from five private power companies and the Power Authority of the State of New York.
Susquehanna Steam Electric Station Allegheny owns 10 percent ofthis 2,100 megawatt nuclear generating plant in Luzerne
- County, Penn-
- sylvania, which continued to operate at a high level ofsafety and efficiency throughout the year.
Pennsylvania Power 6 Light Co., a private power
- company, is the operator and principal owner ofthe plant.
The Systematic Assessment of Licensee Performance (SALP) issued in late 1986 by the Nuclear Regulatory Commission (NRC) gave
" the plant the highest ratings possi.
ble in nine out of 10 categories. This ranked it among the best rated nuclear stations in the country.
The third refueling and inspection outage for Unit 1
began on September 12, 1987. During the 73-day
- outage, over 3,300 in.
dividual tests and maintenance tasks were performed in the reactor.
New fuel was added by replacing one-fourth of its 764 fuel bundles.
Both Susquehanna units continued to operate extremely well during 1987.
Even with the scheduled refueling outage in the fall, Unit 1
achieved a cumulative capacity factor of 73.87 percent during Allegheny's fiscal year. By the end of fiscal 1987, Unit 2 had been operating con.
tinuously for 189 days, breaking a
world record for longest continuous operation by a boiling water reactor unit in its second fuel cycle. The previous record was 171 days without a shutdown. Through the end of Oc.
~ tober
- 1987, Gnit 2
achieved a
cumulative capacity factor of 83.9
'ercent for Allegheny's fiscal year.
Both capacity factors are much bet-ter than the lifetime average of 60 percent for units throughout the in-dustry.
In 1987,'7.6 percent of Allegheny's total energy supply came from Susquehanna.
PASNY Electricity produced at the Niagara Power Project of the Power Authority of the State of New York (PASNY) is among the least expen-sive power in the Gnited States.
Since Allegheny began purchasing it in 1966, PASNY power has saved the cooperative over $ 188.8 million when compared to the cost of powei which would have been purchased from Allegheny's,supplemental power suppliers. PASNY savings for Allegheny amounted to $5.8 million in 1987.
Increased competition for this low.cost electricity led to a substan-tial decrease in Allegheny's alloca-tion of Niagara power in July 1985 from 107 megawatts to 35 mega.
watts.
Allegheny continued to work in 1987 to increase'its allocation of PASNY power. Allegheny and other out.of-state PASNY power recip-ients have intervened in a case filed at the Federal Energy Regulatory Commission against PASNY by the Municipal Electric UtilitiesAssocia-tion of New York (MEGA) in June 1986. MEGA, Allegheny and the other intervenors contend that municipal distribution authorities Total System Requirements
. ~SSSS47N
-PPS4,.4%i JCPlkL 24%
~Mel-fd 4.6%
West Penn 94%
PASNY 42.0%
ALLEGHENYCREATEDpower supply strength with a variety ofresources, in-cluding nuclear power from the Sus-quehanna Steam Electric Station (above) and purchased powerfrom other utilities'oal firedgenerating plants (right). Con-struction continued on the Raystown Hydroelectric Project (top right), which willprovide power in the future.
recently created within New York state, Vermont and Rhode Island are not "public bodies" as defined by the Niagara Development Act.
Therefore, it was argued, they do not qualify for Niagara preference power because they have no real distribution facilties or utility responsibilties.
Allegheny par-ticipated in the February 1987 hear-ings and at the end of fiscal 1987 was awaiting an initial decision by the administrative law judge.
A FERC ruling that these entities do not qualify as public bodies would make possible an increase of about eight megawatts in Allegheny's Niagara hydropower allocation.
During
- 1987, Allegheny, as bargaining agent for Pennsylvania, continued to receive interim alloca-tions of Niagara and St. Lawrence Project power. As of October 31, 1987, the total interim allocation of Niagara power amounted to 40.3 megawatts. Of this total, Allegheny retained 35.1 megawatts and the re-maining 5.2 megawatts was shared among seven municipal systems.
Also at the end of fiscal 1987, the total interim allocation of St.
Lawrence power was 4.5 megawatts, of which Allegheny's portion was 214 kilowatts. The remaining 4,286 kilowatts was distributed among the municipal systems and four private power companies.
A new draft contract was issued by PASNY in late October 1987 for review by participating states.
On December 16, 1986, Allegheny was notified that PASNY planned to implement an energy rate increase from 1.71 mills/kilowatt-hour to 2.2 mills/kilowatt hour, effective May 1987. Over the next four years, the energy charge would be gradually in.
creased to 4.93 mills/kilowatt in 1991. However, after gathering corn.
ments from Allegheny and other par-
- ties, PASNY announced it would reduce the rate increase by 42 per.
cent.
Based on the reduced
- rate, Pennsylvania's increase will now amount to about
$ 1.8 million over the five.year period, compared to about
$3.4 under the'originally an.
nounced rate increase.
Allegheny purchased almost 12 percent of its total energy supply from this inexpensive source in 1987.
l3 4
INEXPENSIVE HYDROEI.ECTRIC POVVER purchased from the Power Authority of the State of New York' Niagara Project continued toplay an im-portant part in Alleglteny's total energy supply.
BRIAN COBB, Peezerman for PkN Packing, Inc., moves another packed carton of tenderloins into the freezer room prior ro shipping. 1his Bradford County meat processing plant, located near Wyalusing, Pa.,
processes over l,000 veal calves and 100 beef cattle dur-ing an average week. Farmers within a Pfiy to seventy mile radius ofthe plant supply the veal.
Project review N
9'~ o ensure control over a LLJ reliable, reasonably. priced supply of electricity in the future, Allegheny continued to explore and develop generating projects of its own. Progress also continued in other projects designed to manage electric use patterns and secure an adequate future delivery system.
Raystown Hydroelectric Project, William F. Matson Generating Station Following the August 1986 ground breaking at the United States Army Corps of Engineers'aystown Lake Dam in Huntingdon County, Pennsylvania, construction of.Allegheny's first wholly owned generating plant progressed smoothly throughout 1987, on time and under budget.
Aggressive negotiations with supplying ven-dors, favorable interest rates and sound management combined to
. keep the project well below the original REA loan budget projection of nearly $41.5 million.
Stone 6 Webster Power Projects Corporation, an internationally known engineering firm, is the pro.
ject's design and construction manager. Green Construction Com-pany of Irving, Texas, the original builder of the dam, is the general contractor.
Upon commercial operation ex-pected in early summer 1988, the 21-megawatt, run-of.river hydro-electric plant willgenerate about 4 percent of the energy supplied by Allegheny enough to supply about 8,500 average rural homes.
When it begins commercial opera-tion, this project is expected to pro-duce power at a cost competitive with wholesale power purchased from Allegheny's suppliers.
Montgomery Hydroelectric Project In June 1987 Allegheny suc-cessfully defended its application against a competing application with the Federal Energy Regulatory Commission (FERC) for a construc-tion and operating license to develop the Corps of Engineers'ontgomery Locks and Dam for hydroelectric generation. This ap-plication for the site, located west of Pittsburgh on the Ohio River in Beaver County, Pennsylvania, is still being contested. A separate FERC Environmental Impact Study on the Ohio River Basin has further ex-tended the already lengthy con.
struction and operating license is.
suance process.
While Allegheny has made no final commitment to build this pro-ject, a feasibility study indicates ris-ing wholesale power costs could make later development ofthe pro-ject in the mid-1990s desirable.
Approximately 4 percent of Allegheny's projected energy needs would be supplied by the proposed 20-megawatt hydroelectric plant at the Montgomery Locks and Dam.
- Allegheny River Locks and Dams No. 8 S No. 9 Hydroelectric Projects After careful, detailed study of the projects'echnical, environmen.
tal and economic aspects by the Allegheny staff and private con-
- sultants, the Allegheny board of directors decided not to develop the proposed Allegheny River sites.
The board voted in July 1987 to transfer Allegheny's development rights for the project on the Allegheny River north of Pittsburgh to Sithe Energies U.S.A. Under the agreement with Sithe, Allegheny can regain ownership of the project after 40 years.
Also, Allegheny
could receive power from the pro-ject at some point prior to the 40th year of the operation of the project, depending on Sithe's arrangements with other utilltle5to which itwould sell electricity from the project.
Payments to Allegheny by Sithe are scheduled in phases when certain conditions are met and could total
$2.5 million.
While the board decided that developing hydropower at Allegheny River Locks and Dams No. 8 and No.
9 does not represent Allegheny's best power supply qption at this time, it remains committed to fullyutilizing the nation's water power resources.
Load Management Managing electric use patterns represents one ofthe quickest, most direct ways to improve the use and cost effectiveness of both planned and existing resources.
By shifting electricity use for home water heaters from periods of peak de-mand to periods of lesser demand, the Coordinated Load Management System improves system efficiency, reduces the costly monthly demand charges Allegheny must pay and willreduce the need for new genera-tion capacity.
Load control by Allegheny and its member cooperatives began late in 1986, using the new load manage.
ment equipment to reduce peak de-mand at individual substations. By the end of the 1987 fiscal year, 6,941 load control receivers, which switch the heating element in water heaters offfor several minutes dur-ing peak
- demand, had been in-stalled in the homes of volunteer consumer-members in the 10 par-ticipating distribution cooperatives.
This figure includes 675 load con-trol receivers already operating in Central Electric Cooperative's ongo-ing pilot project.
For optimum operation of the system, the pro-gram goal is to install load control receivers on about 50 percent ofthe electric water heaters belonging to participating cooperatives'onsumer-members.
Even using the interim control equipment during fiscal 1987's in-stallation
- phase, participating cooperatives reported a gross sav-ings of over $ 160,000 through the 1987 fiscal year.
Projections in.
dicate a potential for a yearly gross savings of over $ 1.4 million when the program is operating at op.
timum level.
Marketing In 1987, Allegheny continued to
/
~
+ 4SSi SMALLAIRPORTS, such as Clarion County Airport served by Central Elec-tric Cooperative, depend on electricity to help provide rural residents with time-saving transportation in sparsely populated areas.
support the distribution coopera.
tives'rograms to promote space heating technologies that maximize the benefits of the Coordinated Load Management System. Increas.
ing kilowatt-hour sales and shaping consumer. members'sage patterns allow Allegheny to spread fixed costs over more kilowatt-hours and minimize more costly peak demand energy charges.
Adopted in August 1987 as a sup-plement to the initial Marketing Handbook, Allegheny's Marketing Assistance Program isbased on a market survey of the distribution cooperatives'ervice territories.
Each co.op targets its own program to the individual needs and preferences of its members.
Allegheny provides assistance in promotion,
- research, rate design and computer modeling services when requested by interested co.
ops.
By the end ofthe 1987 fiscal year, Claverack Rural Electric Coopera-tive and Bedford Rural Electric Cooperative had developed market-ing plans with Allegheny's participa-tion involving rate incentives for consumer. members using electric thermal storage and dual fuel heating;.with several others pro.
gressing on their own marketing plans. Two cooperatives continued operating their ongoing programs:
Adams Electric Cooperative with electric thermal storage and North-western Rural Electric Cooperative Association with electric ground-water heat pumps.
Transmission To ensure an adequate,
- reliable,
'ost.
effective delivery system for its cooperatives, Allegheny embarked on two transmission system con.
struction projects in fiscal year 1987.
In October, Allegheny signed an engineering service contract with Black and Veatch, an engineering firm based in Kansas City, Kansas, for the planning, design and con-struction of the Fairfield.MillCreek 69 kilovolt Transmission Project.
The project, involving the construc-tion of5.5 miles of transmission line and a distribution substation, willbe located in Sullivan County Rural Electric Cooperative's territory.
Right.of-way acquisition was begun during fiscal year, 1987 and con-struction was scheduled for spring 1988. Project service is planned by the end of the 1988 calendar year.
Still in the early planning stage at the end of the fiscal year, a similar transmission project willbe located in Somerset Rural Electric Coopera.
tive's territory and will involve building a
line to a
newly.
constructed substation.
Planning for the future Allegheny remains committed to strategic planning for future energy and capacity requirements.
Using detailed projections and careful staff analysis, Allegheny continued to look closely at current resource requirements and load growth ex-pectations to project its capacity and energy requirements for the years ahead.
As the cooperative moves closer to becoming a full service genera-tion and transmission utility, im-proved transmission access and marketing play an important part in Allegheny's strategy.
Allegheny continues to stay abreast of developing technologies for the cost. effective use of high.
sulfur coal from the eastern United States.
The cooperative will evaluate these technologiesas well as others, for possible integration into the existing resource mix.
RESIDENCES, illustrated above by this Crawford County home in Northwestern Rural Electric Cooperative Associarion's territory, consume about 82 percent of Allegheny's total energy sales to the member distribution cooperatives.
The consumer building the house on the right in Susquehanna County opted to have electric thermal storage (ETS) space heating units installed.
The units store electric heat during ojfpeak, or low usage periods, for use during peak periods. Steve Herrington, load manage-ment technician for Claverack Rural Electric Cooperative, installs a load management switch on the new house.
One ofthe two outside meters willrecord the ETS usage, for which the consumer-member willpay a discounted rate.
Legislatiue and regulatory affairs I
~ he legislative arena was ex-LL tremely active in1987 forrural electric cooperatives across the na-tion. Allegheny's legislative in-terests continued to be represented by its sister organization, the Penn.
sylvania Rural Electric Association (PREA), and strongly assisted by member distribution systems.
Federal Legislation Two principal federal issues con.
sumed most of the PREA legislative staff's time during the past year. The first was the federal budget approval of the financing programs of the Rural Electrification Administration (REA). The second was the effort to win approval of prepayment of generation and transmission (GGT)
~
cooperatives'ederal Financing Bank (FFB) notes without prepay-ment penalty. The FFB is a federal agency that was established within the U.S. Department of the Treasury to coordinate the borrowing of federal agencies and of entities with federal loan guarantees.
Despite Administration efforts to weaken or eliminate REA's financ-ing programs, Congress continued to support these programs. REA's insured loan program provides up to 70 percent of distribution co.
operatives'orrowed capital re.
quirements with 5.percent loans made from the Rural Electrification and Telephone Revolving
- Fund, REA's guaranteed loan program benefits GGT cooperatives by pro-viding a
100-percent federal guarantee of co op's borrowing and permits the funding of these federal guarantees through the FFB.
Although generation and trans-mission cooperatives are currently permitted to prepay their FFB
- notes, the prepayment penalties associated with these transactions have generally made them eco.
nomically infeasible. In recent years on, three separate occasions, Con-gress has passed legislation to allow GGT cooperatives to prepay their FFB notes without penalty as long as the notes are refinanced with private capital. However, the Ad-ministration found ways of blocking widespread prepayment and re-financing.
For Allegheny, un.
restricted prepayment and refinanc.
ing could mean interest cost savings of up to $20 millionat the favorable interest rates seen in 1987.
Although neither of these issues were resolved by the end of Allegheny's fiscal year, Congress enacted legislation that not only continued the existing REA financ-ing programs, but also provided loan limits that willmeet the capital needs of rural electric GGT and dis.
tribution cooperatives for the next federal fiscal year. In addition, the federal budget legislation willallow for a little over $2 billion of FFB notes to be refinanced by the GGT cooperatives with the 100.percent federal guarantee for the capital that will be raised in the private markets.
State Legislation The Pennsylvania General (p"ilk;l I
lt SPARTY WOOD PRODUCTS, which processes harChvood in this lumber mill near Spartansburg, is the largest com-mercial consumer-member on North-western Rural Electric Cooperative Association 's lines.
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~16 PHOTO COURTESY OF LARRY SHOSER, SOMERSET REC Assembly enacted legislation to protect distribution cooperatives from being sold by a small group of members. The new legislation pro.
vides that any successful sellout ef-fort must be approved by two.thirds of all of a cooperative's members.
In addition, the legislation also pro-vides a
way for other electric cooperatives to assume ownership of distribution cooperatives that are threatened with a sellout.
JOSIE ISGAN helps to pack the 6,000 dozen eggs produced daily at Brendle Farms to ship to local supermarkets.
1he two chicken liouses on this egg farm in Somerset Rural Electric Cooperative's service territory hold 85,000 birds.
Rural Economic and Community Development To i'mprove the economic condi-tions in all of the areas served by Allegheny's members, which vary widely, and especially those that have not enjoyed the general economic recovery, Allegheny con.
tinued to support distribution cooperatives'conomic and com-munity development activities.
While not operating economic development departments of their
- own, both Allegheny and the distribution co-ops support statewide and local economic development agencies.
PREA is a member of the Pennsylvania Rural Development Committee which coordinates many federal rural development activities. In addition to these efforts, PREA is working with the Northeast-Midwest Con.
gressional Institute and Penn-sylvania's congressional delegation on some innovative economic development strategies.
On the state level, Allegheny and PREA worked with the Common-wealth's newly.elected
- governor, Robert P. Casey, who has made economic development a key goal of his administration.
PREA staff members and officials of distribu.
tion cooperatives have been named to regional economic development committees established by the governor.
Financial review a~ rudent financial management IKEY continues to be a high priority for Allegheny. Continued investlga.
tion and pursuit of new financing options, internal audit procedures and expense monitoring are some of the factors contributing to the cooperative's strong financial posi-tion and equity level over the years and in 1987.
This financial review provides a brief discussion of the cooperative's financial condition and results of operations. Additional information is set forth in the financial state.
ments, schedules and notes listed at the end of this report.
Operating Margins The level of margins needed by generation and transmission cooperatives like Allegheny is often determined based on a Times In-terest Earned Ratio, or TIER. As in the
- past, Allegheny successfully met its TIER goal of 1.1 through cost-of-service billing adjustments.
Allegheny's Debt Service Coverage (DSC) ratio for 1987 was 1.14. Both the TIER and DSC ratios meet the requirements stated in the Rural
.,Electrifi'cation Administration (REA) mortgage.
The margins and equities not distributed to member systems by Allegheny totaled
$34,226,685 for 1987, compared to $29,642,775 in 1986. Atthe end of fiscal year 1987, Allegheny had cash and temporary investments of $23,063,526, corn.
pared to $5,570,927 at the end of 1986. Also at the end of the fiscal year, Allegheny had 19.3 million outstanding in commercial paper.
Financing REA makes loans and loan guarantees available to Allegheny.
Most of the cooperative's projects have been funded by the Federal Financing Bank (FFB).
REA-guaranteed debt in the amount of $8.2 million was drawn from the FFB during 1987, corn.
pared to $5.0 million during 1986.
The funds drawn in 1987 were used for post-commercial additions to Susquehanna Steam Electric Sta.
tion (SEES), the Coordinated Load Management System and the Rays-town H)droelectric Project. In fiscal 1987 Allegheny received approvals from REA to draw down in excess of $20 million for SSES capital im-provements from previously authorized loan commitments.
During 1987 Allegheny con.
tinued financing some of its poilu.
tion control faciltiies at SSES with tax.exempt bonds. Issued through the Lehigh County industrial Development Authorityand backed by letters ofcredit, these bonds bear interest at weekly and monthly floating rates.
Gse of this type of financing has enabled Allegheny to obtain very at-tractive interest rates consistent with its goal of obtaining the lowest possible financing cost. The average monthly rate paid on these bonds through 1987 was 5.78 percent.
Bank lines of credit totalling $52 million are available to Allegheny.
During 1987, Allegheny did not find it necessary to draw on these funds.
Construction During 1987, Allegheny spent
$ 17.1 million on its present major construction project, the Raystown Hydroelectric Project, William F.
Matson Generating Station in Hunt-ingdon County, Pennsylvania.
Pro.
ject construction, set for completion in spring 1988, is currently being funded by Allegheny's commercial paper program. Commercial paper provides a much lower up-front financing rate than traditional fi-nancing and frees Allegheny from paying penalties for early repay-ment of borrowed funds.
t50-i 00-Ets tttt lorrg.term Short4erm dorrdt Commerolol REA Roper Irrtvred Financing Sourc'es 0 Milltorte
18 Total Revenues and Expenses R~ns Exaensee 8 Mllnane 180-E983 E984 E985 E988 1987 1987 Revenue Uses Admll&trofNe 5
/Generai 3A%
-Megln 3&o
~nng 5.0%
Purchased Powat 3lLESS 9
~dL A'5 WASNY35%
JCPdL SNo Melted dtA
~Wed Penn ASS During 1987, Allegheny began arrangements for a sale/lease-back financing agreement for the Raystown Hydroelectric Project in order to take advantage of the cur-rent tax laws.
If the planned Raystown Hydroelectric Project leveraged lease is finalized during
- 1988, Allegheny will remain operator ofthe plant and the assets will be owned by a trust. If the leveraged lease is not finalized, the cooperative can use traditional financing for this project, since REA has already approved a guaranteed loan.
Taxability Allegheny has a private letter rul ing from the Internal Revenue Ser-vice'providing for Allegheny to re-main taxable until an application is made again to become a
tax-exempt organization. Allegheny ex-pects to have tax losses to carry for-ward to offset estimated tax liability for the foreseeable future.
OPERATIONS Revenue Allegheny's total operating revenue for 1987 was $ 135.4 million.
Of this total, $ 103.4 million, or 76.4 percent was member revenue gene-rated from Allegheny's wholesale rate to its member cooperatives. The remaining $32.0 millionor 23.6 per-cent was classified as non.member revenue.
When compared to 1986, total operating revenue actually de-creased by $4.2 millionor 3.0 per-cent. This decrease was the net result of a member revenue in-crease of $6.2 millionor 6.4 percent coupled with a
non-member revenue decrease of $ 10.4 million or 24.5 percent.
Non-member revenue Non.member revenue resulted from Allegheny's "buyback" agree-ment with Pennsylvania Power G Light (PPGL) and from the sales of PASTY power and energy to seven municipal electric utilities and four private power companies.
Prior to commercial operation of the Susquehanna Steam Electric Station in 1983, Allegheny's total operating revenue came solely from funds generated by Allegheny's wholesale rate to its members.
Gnder the terms of an agreement with PPGL, Susquehanna's principal owner, each year PPGL "buys back" a portion ofthe Susquehanna power to which Allegheny is entitled. Tak-ing the power available from Sus-quehanna in increments allowed Allegheny to largely avoid the rate shock that so many other utilities have faced with the coming on-line of a new generating facilty. The agreement ends in
- 1991, when Allegheny will receive 210 mega-watts, its full 10.percent share of Susquehanna power.
Allegheny's second source of non.member revenue is derived from its relationship with PASTY.
As the bargaining agent for Penn.
sylvania in all dealings with PASNY, Allegheny has purchased PASTY power and wheeling service since 1985 for seven municipal electric utilties and four private power com-panies receiving part of Penn.
sylvania's PASTY allocation as well as itself.
Member revenue Allegheny's total wholesale power revenues from its 14 member cooperatives during 1987 was
$ 103.4 million. This represents an increase of $6.2 millionor 6.4 per-cent over 1986. Average annual purchased power cost to the
members was 55.75 mills/kilowatt-hour as compared to 54.31 mills/kilowatt-hour for 1986 an increase of 1.44 mills or 2.63 percent.
The power cost increase was primarily due to the addition of 20 megawatts of Susquehanna Steam Electric Station capacity to Allegheny's rate base (10 megawatts in February and 10 megawatts in June),
as planned under the Allegheny/PPGL buyback agree.
ment.
Wholesale rate increases granted by the Federal Energy Regulatory Commission to Allegheny's supplemental power sup.
pliers also contributed to the power cost increase to the members.
Although member power cost in.
creased during 1987, Allegheny was able to reduce its wholesale rate to the members in January and July by a total of $951,888, and to re.
fund $ 188,738 to the member co-operatives.
The rate settlements which made these actions possible are discussed next.
Wholesale rate negotiation Allegheny constantly strives to ensure that the wholesale rates which it pays to its six wholesale power suppliers which are ultimately passed along to the member cooperatives are as low as possible. Negotiating requested wholesale rate increases has saved Allegheny and its members more than
$ 25 million since the early
- 1970s, During
- 1987, Allegheny con-tinued to negotiate on behalf of its members in a number of cases.
Metropolitan Edison Company, one ofAllegheny's wholesale power sup-pliers, and Niagara Mohawk Power Company, one of its New York state wheeling agents, filed proposed rate increases with the Federal Energy Regulatory Commission.
In these cases, Allegheny responded with a Protest and Petition to Intervene. In addition, Allegheny entered into separate negotiations with West Penn Power Company and Penn-sylvania Electric Company prior to a rate case filing at the Federal Energy Regulatory Commmission.
Finally, as described earlier in the Power Supply section, the Power Authority of the State of New York (PASNY) notified Allegheny of its plans to implement a rate increase applicable only to energy sold from both the Niagara and St. Lawrence hydroelectric generating projects.
Fortunately, through settlement negotiations, which stressed the Tax
. Reform Act of 1986, Allegheny was successful in reducing its total pur-chased power cost and wheeling ex-penses by $ 1,794,177. Of this total,
$951,888 applied during fiscal 1987, with the remaining $842,289 applicable during fiscal 1988.
Rates Unlike private power companies, Allegheny and its member coopera-tives operate on a non-profit basis.
This helps keep cooperative electric rates lower than they might be otherwise, since it eliminates one factor leading to rate increases. But cooperatives serve fewer consumers per mile of line than private corn.
panies do, which drives up costs, and consequently, electric rates.
Another significant difference between rural electric cooperatives in Pennsylvania and New Jersey is in the rate. making process.
As consumer-owned
- entities, the cooperatives are self-regulated and are therefore neither under the jurisdiction of the Pennsylvania Public UtilityCommission nor the New Jersey Board of Public Utilities.
The Rural Electrification Ad-ministration does review coopera-operation tt Motntenonce tMtt 0'Foxet 25%
'Depteclotlon tL6'li Fuel t2W Susquehanna Expenses htetett SN ~
19
~20 Energy Glare 77 77
~
d1 83 65 117 Peak Demand Mepawoth 77 77 b1 lQ 65 67 THE CLARION RIVER LODGE nestled in Cook's
- Forest, Jegerson County, serves a growing tourist trade in the region. This lodge is one of 4,000 seasotral and recreational users in United Electric Cooperative's service territory.
tation of Allegheny's Coordinated Load Management System.
Even though system peak demand was down, Allegheny's average summer load during the months of June, July and August actually increased from 286 megawatts in 1986 to 300 megawatts in 1987. This increase of 14 megawatts or 4.9 percent re-sulted directly from the very hot summer.
The increase in total system energy sales resulted from the corn.
bination of normal (as forecasted) residential load growth coupled with greater-than. expected sales due to the hot weather.
ln fact, summer sales increased by 22 million kilowatt-hours or 5.5 percent over that of last year. This summer sales increase comprised one-third of the total fiscal year sales increase.
tive rate. making and operating practices, however.
Allegheny's Board of Directors is democratically elected with one director from each of the rural elec-tric cooperatives supplied power by Allegheny. The board governs all cooperative
- policies, including those which establish rates charged to Allegheny's member distribution cooperatives.
Board review of the rate. making process and approval of each rate change assures Allegheny's member cooperatives that the price they pay for electrici ~
ty is reasonable.
Energy sales For fiscal 1987, Allegheny's total system energy sales were 1,855 million kilowatt-hours, while peak demand reached 400 megawatts.
When compared to 1986, energy sales increased by 66 million Toward the future kilowatt-hours or 3.7 percent and Allegheny Electric Cooperative, peak demandactuallydecreasedby inc. will reach a milestone in 1988 11 megawatts or 2.7 percent. Accor-with the commercial operation of the dingly, average monthly system Raystown Hydroelectric
- Project, load factorincreasedfrom61.8per-William F. Matson Generating Sta.
cent in 1986 to 63.5 percent for tion its first sole ownership of 1987.
generation for itself and its members.
The reduction in peak demand A leveraged lease transaction, con-was a direct result of the milder-templated for 1988, could lower the than. average winter
- weather, annual cost ofthis power supply pro-coupled with the partial implemen-ject for years to come.
JPC
~
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I III-)':"~'-'<
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7
F-2 Assets General plant Construction work in progress Total plant Accumulated provision for depreciation & amortization Nat plant Nonutility property - net Capital credits
~ NRUCFC Investments in associated organizations Cash
~ general funds Cash
- construction/working fun'ds Temporary investments Special funds Accounts receivable Prepayments Other current & accrued assets Deferred debits Total assets Liabilities Memberships Patronage capital Donated capital Long term debt REA Long term debt
~ other Notes payable Accounts payable Cost of Service Adjustment Accrued taxes Accrued interest Other current & accrued liabilities Oeferred credits Total liabilities 1987 602,287,851 26,112,471 628,400,322 55,661,532 572,738,790 5,201,705 330,510 3,810,055 543,99D 1,000 22,518,536 2,173,210 11,915,466 988,752 109,812 1,396,25D 621,728,076 2,800 34,174,253 49,632 502,382,263 30,563,478 19,300,000 8,923,598 2,469,273 513,800 3,693,592
'5',971 19,569,416, 621,728,076 1986 578,747,706 23,266,827 602,014,533 38,650,654 563,363,879 5,668,218 323,392 3,8'I0,055
~91,688 1,000 5,661,615 2,782,591 10,585,397 203.773 22,067 2,397,511 594,727,810 2,800 29,590,343 49,632 499,991,617 30,804,736 2,046,000 7,267,872 564,363 3,965,431 133,179 20,311,837 594,727,810 1985 567,781,429 9,985,560 577,766,989 25,838,452 551,928,537 5,798,843 284,563 4,680,148 508,482 1,000 16,558,634 1,775,000 10,367,758 406,935 165,581 3,737,271 596,212,752 2,800 24,434,352 48,772 509,911,665 20,839,474 8,874,000 4,863,266 1,636,459 767,060 4,610,594 216,735 20,007,575 596,212,752 1984 310,561,384 236,548,274 547,109,658 12,600,030 534,509,628 5,925,468 113,688 8,075,814 2,027,284 1,186 25,660,405 8,478,716 257,702 286,629 4,992,444 590,328,964 2,800 19,906,242 48,772 474,737,316 20,863,230 41,849,823 6,869,240 921,298 302,053 4,632,794
~1,940 20,197,336 590,328,964 1983 295,327,581 196,465,179 491,792,760 5,074,209 486,718,551 6,224,421 292,629 4,162,745 3,558,550 4,066 20,433,000 8,337,033 336,631 337,238 4,647,271 535,052,135 2,800 16,919,124 29,665 457,661,000 2,266,856 19,079,141 9,160,034 3,991,717 836,440 4,516,060 257,627 20,331,671 535,052,135 Member revenues Adams Bedford Central Claverack New Enterprise Northwestern Somerset Southwest Central Sullivan Sussex Tri County United Valley Warren Total member revenues 1987 13,940,070 4,525,951
'I0,339,0DB 7,971,779 1,994,346 9,721,237 7,683,396 13,512,528 2,105,638 5,530,934 6,525,977 7,422,506 9,177,231 2,974,793 103,425,395 1986 13,044,641 4,262,468 9,560,522 7,557,597 1,860,382 9,325,703 7,319,154 12,538,752 1,994,687 5,082,148 6,195,384 7,'I37,799 8,549,328 2,741,810 97,170,375 1985 11,401,278 3,848,858 9,050,392 6,808,419 1,666,860 8,588,967 6,799,538 11,330,541 1,800,012 4,468,340 5,658,532 6,251,519 7,694,582 2,533,829 87,901,667 1984 10,250,931 3,587,411 8,248,665 6,118,753 1,516,303 7,888,073 7,826,163 10,357,797 1,639,492 4,059,783 5,122,733 5,566,196 6,957,505 2,273,870 81,413,675 1983 8,231,803 2,885,799 6,814,686 4,980,866 1,213,020 6,419,787 5,940,144 8,271,456 1,330,679 3,236,524 4,229,167 4,554,711 5,563,273 1,823,688 65,495,603
Financial statements
Electric energy sales:
Members ffon members I
Total receipts Cost of power
, Wheeling SSES:
Generation Operation & Maintenance, Fuel Depreciation Taxes Transmission Maintenance Depreciation Interest Interest Charged to Construction
~ Credit
',, General & administrative Total operation expense Depreciation Taxes Other deductions Total expenses Operating margins Interest income Other
~ profit/(loss) net Other capital credits Net margins 1987 103,425,395 31,974,501 135,399,896 41,231,647 6,668,817 14,987,966 10,320,233 7,576,680 3,390,699 194,345 800,450 45,839,094
~2,407,405 4,421,341 133,023,867 113,532 97,266
~633,214 132,601,451 2,798,445 1,522,193 245,604 17,668 4,583,910 1986.
97,170,375 42,411,238 139,581,613 43,542,873 5,786,049 16,257,078 7,874,925 6,284,511 3,140,926 200,626 780,191 51,389,042
~3,380,029 4,251,885 136,128,077 92,264 95,054
-412,172 135,903,223 3,678,390 1,498,530
~76,186 55,254 5,155,988 1985 87,901,667 43,344,269 131,245,936 43,280,211 6,277,037 14,405,434 8,279,668 4,825,542 3,349,637 172,666 768,673 55,430,177
~ 10,149,075 2,938,397 129,578,367 79,708 51,742
~546,374 129,163,443 2,082,493 2,030,556
~62,573 477,634 4,528,110 1984 81,413,675 28,319,258 109,732,933 51,964,149 6,414,121 8,669,723 4,209,158 2,428,770 1/813,050 164,934 745,912 55,603,868
~25,732,692 3,470,767 109,751,760 72,384 60,736 21,001 109,905,881
~ 172,948 2,661,552 350,127 148,387 2,987,118 1983 65,495,603 12,337,289 77,832,892 50,383,453 5,450,157 2,690,833 2,647,300 938,493 839,253 62,000 312,702 51,321,801
~38,942,483 1,976,415 77,679,924 49,442 46,716 423,606 78,199,688
~366,796 1,'400,179 165,547 39,002 1,237,932
Balance sheets F-4 October 31, 1987 1986 (In thousands)
Assets Electric utility plant-Note C In service Note B Construction work in process Nuclear fuel in process Less accumulated depreciation and amortization
$584,815
$ 558,098 26,112 23,267 17,473 20,650 628,400
'02,015 55,662 38,651 572,738 563,364 Other assets and investments Non-utility property, at cost (net of accumulated depreciation of $ 1,047 in 1987 and
$ 928 in 1986)
Investments in associated organizations Note D Construction advances Other non-current assets 5,202 4,392 574 3,968 14,136 5,668 5,009 327 4,304 15,308 Current assets Cash and short-term investments of $22,539 in 1987 and
$ 5,675 in 1986 Accounts receivable from members Other accounts receivable Other 22,510 8,453 3,463 428 5,257 8,022 2,564 213 34,854 1 6,056
$621,728 '594,728
Equities and liabilities October 31, 1987 1986 (In thousands)
Equities Memberships Donated capital Patronage capital 3
3 50 50 34,174 29,590 34,227 29,643 Long-term debt, less current portion-Note F 517,156 494,452 Current liabilities Notes payable Note E Current portion of long-term debt-Note F
Accounts payable and accrued expenses Accounts payable to members 28,400 6,690 13,187 2,499 50,776 30,646 7,744 11,722 209 50,321 Deferred credits Deferred income tax benefits from Safe Harbor lease-Note G
Other 14,408 5,161 15,087 5,225 19,569 20,312
$621,728
$ 594,728 See notes to financial statements.
Statements cI operatiorts and patronage capital Year Ended October 31, 1987 1986 (In thousands)
Operating revenue, including sales to members of $ 103,425 in 1987 and
$97,170 in 1986
$ 135,400
$ 139,582 Operating expenses:
Purchased power Transmission Production Fuel Depreciation Taxes Administrative and general Operating margin before interest and other deductions 41,232 6,863 14,975 10,320 8,491 3,397 4,525 89,803 45,597 43,543 5,987 16,245 7,875 7,156 3,148 4,353 88,307 51,275 Interest and other deductions:
Interest expense Allowance for funds used during construction Other deductions (credits), net 45,839 (2,407)
(6) 43,426 51,560 (3,380)
(43) 48,137 Operating margin 2.171 3,138 Non-operating margins:
Net non-operating rental income (expense)
Interest income Margin before income taxes 246 1,488 1,734
',905 (76) 1,365 1,289 4,427 Deferred income tax benefits from Safe Harbor lease Net margin 679 4,584 729 5,156 Patronage capital at beginning of year 29,590 24,434 See notes to financial statements.
Patronage capital at end of year
$ 34,174
$ 29,590
Bflatfterrtefjtta oI clttatritgas &t I'iirtstrttcilatfSsosiiff'<ort Year Ended October 31,
- 1987, 1986 (In thousands)
Source of working capital Net margin Charges (credits) to margin not affecting working capital:
Depreciation Fuel amortization Deferred income tax benefits from Safe Harbor lease 8,626 8,784 (679) 7,291 6,775 (729)
S 4,584 S 5,156
'dditions to long-term debt Decrease in construction advances Other sources Application of working capital Additions to electric utility plant Reduction of long-term debt Increase in construction advances Other applications Total from operations 21,315 27,494 953 49,762 26,318 4,790 247 64 31,419 18,493 4,990 521 2,270 26,274 25,371 15,686 71 41,128 Increase (decrease) in working capital
$ 18,343
$ (14,854)
Changes in components of working capital Increase (decrease) in current assets:
Cash and short-term investments Accounts receivable from members Other accounts rec'eivable Other
$ 17,253 S(10,985) 431 814 899 (596) 215 (337) 18,798 (11,104)
Increase (decrease) in current liabilities:
Notes payable Current portion of long-term debt Accounts payable and accrued expenses Accounts payable to members (2,246)
(1,054) 1,465 2,290 455 3,172 741 1,316 (1,479) 3,750 Increase (decrease)
In working capital
$ 18,343
$ (14,854)
See notes to financial statements.
)Votes ta financial statements F-8 Note A Summary of significant accounting policies Allegheny Electric Cooperative, Inc. (Allegheny) is a rural electric cooperative utility established under the laws of the Commonwealth of Pennsylvania.
Financing assistance is provided by the U.S. Department of Agriculture, Rural Electrification Administration (REA) and, therefore, Allegheny is subject to certain rules and regula-tions promulgated for rural electric borrowers by REA. Allegheny )s a generation and transmission cooperative, providing power supply to fourteen owner/members who are rural electric distribution cooperative utilities providing electric power to consumers in certain areas of Pennsylvania and New Jersey.
Allegheny maintains its accounting records in accordance with the Federal Energy Regulatory Commission's chart of accounts as modified and adopted by REA.
Electric utilityplant and depreciation: The electric utilityplant is stated at cost, which includes an allowance for funds used during construction. Depreciation is provided on the modified sinking fund method for nuclear utilityplant production assets and the straight-line method for all other assets, except nuclear fuel. The cost of units of property retired or replaced is removed from utility plant accounts and charged to accumulated depreciation.
Nuclear fuel: Nuclear fuel usage is charged to fuel expense based on the quantity of heat produced for electric generation. Under the Nuclear Waste Policy Act of 1982, the U.S. Department of Energy (DOE) is responsible for the permanent storage and disposal of spent nuclear fuel removed from nuclear reactors. Allegheny currently pays to Pennsylvania Power 5 Light Company (PP&L), co-owner of Susquehanna Steam Electric Station (SSES), its portion of DOE fees for such future disposal services.
Cost of decommissioning nuclear plant: Allegheny's portion of the estimated decom-missioning costs of SSES is charged to operating expenses over the estimated useful life of the plant.
Allowance for funds used during construction: Allowance for funds used during con-struction represents the cost of directly related borrowed funds used for construc-tion of electric utilityplant. The allowance is capitalized as a component of the cost of electric utility plant while under construction.
Investments in associated organizations: Investments in associated organizations are carried at cost.
Preliminary Surveys: Costs of preliminary surveys for potential development projects are recorded as deferred charges in other noncurrent assets.
Ifconstruction of a pro-ject results from such surveys, the deferred charges are transferred to the cost of the facilities. If a preliminary survey is abandoned, the costs incurred are written off.
Short-Term Investments: Short-term investments are carried at cost, plus accrued interest, which approximates market value.
Income Taxes: Investment tax credits, other than those sold through the Safe Har-bor lease arrangement, are accounted for under the flow-through method whereby credits are recognized as a reduction of income tax expense in the year in which the credit is utilized for tax purposes.
The Tax Reform Act of 1986 (the Act), enacted on October 22, 1986, repealed the Investment Tax Credit as of January 1, 1986. Provisions exist within the Act which allow for investment tax credits on certain property referred to as "transition property" placed in'service after December 31, 1985. During the years ended Oc-tober 31, 1987 and 1986, Allegheny placed in service transition property eligible for investment tax credits.
Variations in the customary relationship between pretax accounting income and income tax expense are the result of patronage dividends. Net operating losses for financial and tax reporting purposes differ as a result of timing differences relating primarily to depreciation.
Accounting for Phase-In Plans: In August 1987, the Financial Accounting Standards Board issued Statement No. 92, "Regulated Enterprises - Accounting for Phase-in Plans",{Statement). The Statement specifies the accounting for existing and future phase-in plans and is effective for fiscal years beginning after December 15, 1987.
The Statement, ifultimately determined to be applicable to Allegheny, would require Allegheny to recognize an immediate charge against income for the difference bet-ween the modified sinking method of depreciation currently used for nuclear utility plant production assets and the straight-line method of depreciation. The difference between these two methods is approximately
$21.9 million at October 31, 1987 and is estimated to be approximately $ 25.8 million at October 31, 1988, the effec-tive date of the Statement for Allegheny. Management is currently evaluating the potential alternatives available to minimize the charge against income which may be required as a result of this Statement, including modifying the existing phase-in plan or obtaining REA approval to avoid having to apply the Statement.
Note 8 Electric utility plant in service Electric:utility plant in service consists of the following:
F-9 Depreciation/
amortization, lives/rates October 31, 1987 1986
{In thousands)
Nuclear utility plant:
Production Transmission General plant Nuclear fuel Non-nuclear utility plant Total 39 years 2.75%
3% 12 5%
Heat production 3%-33%
$502,283 30,174 827 50,368 1,163
$584,815
$482,021 29,713 829 44,466 1,069
$ 558,098 Note C Susquehanna Steam Electric Station Allegheny owns a 10% undivided interest in SSES. PP&L owns the remaining 90%.
Both participants provide their own financing. Allegheny's portion of costs associated with the station totalled $605 million and $596 million at October 31, 1987 and 1986, respectively. Allegheny's share of anticipated costs for ongoing construction and nuclear fuel for SSES are estimated to be approximately $ 39.2 million over the next four years. Allegheny receives a portion of the total station output equal to its percentage ownership. The statement of operations reflects Allegheny's share of fuel and other operating costs associated with the station.
Note D Investments in associated organizations Investments in associated organizations consist primarily of National Rural Utilities Cooperative Finance Corporation
{CFC) patronage capital, "Capital Term Cer-tificates," and "Subordinate Term Certificates," and Baltimore Bank for Coopera-tives {BBC) "C" stock. Certificates bear interest at 3 percent and begin maturing in 2025.
Allegheny is required to maintain these investments pursuant to certain loan and guarantee agreements.
Note E Notes payable Allegheny has short-term lines of credit available with banks and CFC of $ 52 million of which $2.0 millionwas outstanding at October 31, 1986. There were no amounts outstanding at October 31, 1987. Interest rates are generally at prime plus 1%.
Notes payable of $28A million and $ 28.6 million were outstanding at October 31, 1987 and 1986, respectively, relating to Pollution Control Revenue Bonds issued by an Industrial Development Authority on Allegheny's behalf. The bonds are sub-ject to purchase on demand of the holder and remarketing on a "best efforts" basis.
Sinking fund redemption is scheduled in varying amounts through 2014, and interest is due monthly at variable rates (3.4% to 6.8% for 1987 and 4.0% to 8.3% for 1986).
The bonds are convertible to a fixed interest rate and fixed term at Allegheny's op-tion. $ 1.8 millionof investments included in other noncurrent assets at both October 31, 1987 and 1986 relate to a debt service reserve fund required under the bond indenture.
Restrictions are imposed under short-term credit arrangements including, among other things, maintenance of ratio requirements under existing long-term debt ar-rangements and limitation of total short-term indebtedness outstanding to an amount not to exceed the remaining unadvanced portion of certain existing REA long-term loan commitments ($ 60 million at October 31, 1987).
Note F Long-term debt Long-term debt consists principally of mortgage notes payable for the electric utility plant to REA and to the United States of America acting through the Federal Financ-ing Bank (FFB) and guaranteed by REA, a mortgage loan payable to CFC relating to non-utility property, and commercial paper issued by Allegheny for temporary con-struction financing. Substantially all the assets of Allegheny are pledged as collateral
~
Long-term debt consists of the following:
October 31, 1987 1986 (In thousands)
Mortgage notes payable to FFB at interest rates varying from 6.473%
to 13.820%, due in varying amounts through 2021 Mortgage loan payable to CFC, payable in various quarterly installments, including interest through January 2015.
The interest rate was converted during 1987 from a fixed rate of 9.25% to a variable rate. Variable rates ranged from 7.38% to 9.00% for 1987 5% mortgage notes payable to REA due in varying amounts through 2015 Commercial paper with interest at 8.275%
Other Less current portion
$499,877 2,085 2,505 19,300 79 523,846 6,690
$517,156
$499,575 2,106 417 98 502,196 7,744
$494,452 Allegheny has signed a letter of intent to enter into a lease financing arrangement with an outside party (see Note J) and intends to use a portion of the proceeds re-ceived under the arrangement to retire its outstanding commercial paper in April 1988.
Ifthe arrangement is not consummated, Allegheny intends to retire the outstanding commercial paper in April 1988 through proceeds from long-term borrowings available under an existing financing agreement with REA which provides for advances up to $41.5 million. Accordingly, the
$ 19.3 million of commercial paper has been classified as Iong-term debt at October 31, 1987.
Allegheny has the option on FFB promissory note advances to elect (subject to REA approval) interim maturity dates of not less than two years nor more than seven years after the date of the advance. At the date of the advance or on the maturity of an interim advance, Allegheny may also designate that it desires a long-term maturity of 34 years after the end of the calendar year in which the advance was made. AtOctober 31, 1987, Allegheny had $34 millionof advances maturing within one year which it intends to refinance for 34 years.
Aggregate maturities of long-term debt for the four years subsequent to October 31, 1988 are as follows (in thousands):
1989 7,165 1990 9,120 1991 10,473 1992 12,849 The above maturity schedule reflects management's intent to convert FFB advances with interim maturity dates to long-term debt. Allegheny has used an interest rate it estimates to be an appropriate long-term rate, based on the October 31, 1987 interest rate, to compute the annual principal requirements.
Allegheny is required by mortgage covenants to maintain certain levels of interest coverage and annual debt service coverage. Allegheny was in compliance with such requirements at October 31, 1987.
Note G Income taxes At October 31, 1987, Allegheny had available net operating uss carryforwards of $2.9 million for financial reporting purposes and $ 256.1 million for tax reporting
- purposes, and investment tax credit carryforwards of approximately
$33.5 million for both financial and tax reporting purposes, expiring through 2002. Under the Tax Reform Act of 1986, the amount of investment tax credit allowable as a result of a carryforward must be reduced by 35'k.
(n 1983, Allegheny sold certain investment and energy tax credits and deprecia-tion deductions pursuant to a Safe Harbor lease. The proceeds from the sale, including interest earned thereon, have been deferred and are being recognized over the term of the lease (30 years). The net proceeds and related interest were required by REA to be used to retire outstanding FFB debt.
Under the terms of the Safe Harbor lease, Allegheny is contingently liable in vary-ing amounts in the event the lessor's tax benefits are disallowed and in the event of certain other occurrences.
The maximum amount for which Allegheny was con-tingently liable approximated
$ 21 millionat October 31, 1987. Payment of this con-tingent liability has been guaranteed by CFC.
Note H Related party transactions Allegheny has an arrangement with an associated organization, Pennsylvania Rural Electric Association (PREA), under which PREA provides Allegheny with certain management, general, and administrative services on a cost reimbursement basis.
Total costs for the services provided for the years ended October 31, 1987 and 1986, were
$ 1.8 million and
$ 2.1 million, respectively.
Note I Commitments and contingencies Allegheny and PP&L are members of certain insurance programs which provide coverage for property damage to members'uclear generating plants. Allegheny's portion of the facilities at SSES is insured against property damage losses up to
$ 139.5 million under these programs. Allegheny is also a member of an insurance program which provides coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions. Under the property and replacement power insurance programs, Allegheny could be assessed retrospec-tive premiums in the event the insurers'osses exceed their reserves. The maximum amount Allegheny could be assessed under these programs during the current policy year is $ 1.5 million.
Allegheny,'s public liabilityfor claims resulting from a nuclear incident is currently limited to $72 million under provisions of the Price-Anderson Act (Act). Allegheny is protected against this potential liabilityby a combination of commercial insurance and an industry retrospective assessment program.
In the event of a nuclear incident at any of the facilities owned by others and covered by the Act, Allegheny could be assessed up to $ 1 million per incident, but not more than $ 2 millionin a calendar year in the event more than one incident is experienced.
Congress is in the process of amending the Act. The proposed amendments generally include provisions which would increase the public liabilitylimitof utilities in the event of a nuclear incident. Management is unable to predict what action Congress might ultimately take regarding the Act and what 'effect such action might have on Allegheny's potential liability.
Allegheny is currently constructing a hydroelectric generation facilityat Raystown Dam (the Facility) with operations expected to begin in 1988. In addition, Allegheny is also purchasing equipment for a project to reduce peak power demand (Load Management Project). Temporary construction financing for the Facility is being made through short-term commercial paper issued by Allegheny (see Notes F and J). Finan-cing for the Load Management Project has been arranged with REA ($7.3 million) and CFC ($3.2 million). At October 31, 1987, total project costs of the Facility and Load Management Project were estimated at $33 millionand $ 11 Amillion, respec-tively. Costs incurred through October 31, 1987 were $20.8 millionfor the Facility and
$4.7 million for the Load Management Project.
On July 31, 1987, Allegheny entered into an agreement with Sithe Energies USA, Inc. (Sithe) to transfer its interests in the development of the Allegheny River Locks and Dame Number 8 and 9 Hydroelectric Project to Sithe. Interests to be transferred included Allegheny's license granted by the Federal Energy Regulatory Commission (FERC) to construct the hydroelectric project. The agreement calls for three payments to be made by Sithe. The first payment, in the amount of $ 250,000, was received and recorded by Allegheny in November 1987 in exchange for deliverance of evidence of release of any liens or claims against the FERC license. The second and third payments are contingent upon certain events as follows. These payments will be recorded when the amounts become payable under the terms of the agreement.
$ 1.4 million payable upon the execution by Sithe of a power purchase agree-ment for sale of all or part of the energy and capacity produced by the project.
$ 800 thousand payable upon consummation of construction financing or 12 months subsequent to the date of execution of the aforementioned power pur-chase agreement.
In addition, FERC requires that construction must begin by March 1989. Title to the project reverts back to Allegheny after 40 years of operation or on August 24, 2030, whichever is earlier.
Note J Lease financing arrangement On September 23, 1987, Allegheny signed a letter of intent to enter into a lease financing arrangement with Ford Motor Credit Company (Ford) for the Facility (see Note I). Under terms of the arrangement, Allegheny willsell the Facility to Ford for an amount equal to its fair market value, not to exceed
$30 million plus or minus ten percent. The Facility willthen be. leased back to Allegheny for an initial term of 30 years. The arrangement is expected to qualify for treatment as an operating lease.
Atthe end of the 30-year term, Allegheny willhave the option to purchase the Facility for an amount equal to the Facility's fair market value. Allegheny also has the option to renew the lease as provided in the arrangement. Allegheny willretain co.licensee status for the Facility throughout the term of the arrangement.
In accordance with the letter of intent, Allegheny made a commitment deposit to Ford on November 11, 1987 in the amount of $ 150,000. The deposit will be ap-plied t'o Allegheny's first r'ental payment. The arrangement is expected to be con-summated in April 1988.
[g'IErnst 8cWhinney 300 Locust Court 212 Locust Street Harrisburg, Pennsylvania 17101 717/232-7575 Board of Directors Allegheny Electric Cooperative, Inc.
Harrisburg, Pennsylvania We have examined the balance sheets of Allegheny Electric Cooperative, Inc. as of October 31, 1987 and 1986, and the related statements of operations and patronage capital and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, in-cluded such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the financial statements referred to above present fairlythe financial posi-tion of Allegheny Electric Cooperative, Inc. at October 31, 1987 and 1986, and the results of its operations and changes in its financial position for the years then ended, in con-formity with generally accepted accounting principles applied on a consistent basis.
Harrisburg, Pennsylvania January 22, 1988
P, ofoperations A/legheny member systems
~F-14 Summary of operations Adams EC, Inc.
A. Daniel Murray Manager Bedford REC, Inc.
Wayne Miner Manager Central EC, Inc.
larry S.
Adares Manager Clavsrack REC, Inc.
tee A, Oavanpsrt Manager Kew Enterprise REC, lnc.
Rick L Eicbelberger Manager Korthweatern RECA, Inc.
Harry C.
Grubs Manager Operating revenue Operating expenses
$22,150,227
$7,164,953
$ 16,633,266
$ 13,362,818
$2,640,755
$ 15,170,419 Purchased power Operations & maintenance Oepreciation Taxes Interest Cost of electric service Operating margins Non operating margins & capital credits Net margins Assets Total utility plant Less accumulated depreciation Net utility plant Other property & investments Current & accrued assets Deferred debits Total assets Liabilities Margins & equities Long term debt Current & accrued liabilities Other credits & reserves Total liabilities Other Statistics Miles of line Consumers served Consumers per mile Kwh sold per consumer Mwh sales Annual revenue per consumer Plant investment per consumer Revenue per mile of line
$ 14,337,815
$4,105,404
$ 1,206,568
$ 177,330
$ 1,281,567
$21,108,684
$ 1,041,544
$805,178
$ 1,846,721
$38,085,838
$8,234,269
$29,851,569
$ 5,775,701
$4,938,566
$306,369
$40,872,205
$ 15,202,661
$ 23,911,909
$ 1,745,635
$ 12,000
$40,872,205 2,327 19,701 8.5 11,931 235,047.6
$ 1,124
$ 1,515
$9,519
$4,655,224
$ 1,316,656
$307,479
$58,768
$299,246
$ 6,637,373
$527.580
$299,378
$826,958
$ 11,544,423
$3,715,658
$7,828,765
$ 1,845,966
$ 1,773,629
$39,304
$ 1 1,487,664
$5,319,939
$5,393,528
$ 533,042
$241,155
$ 11,487,664 1,103 7,303 6.6 10,088 73,671.6
$981
$ 1,072
$6,496
$ 10,530,946
$3,711,774
$726,470
$ 130,452
$944,332
$ 16,043,974
$589,292
$678,446
$ 1,267,738
$27,507,573
$7,395,747
$20,111,826
$4,266,971
$5,015,400
$ 114,076
$29,508,273
$ 12,183,648
$ 15,660,924
$ 1,436,250
$227,451
$29,508,273 2,880 21,123 7.3 8,073 170,522.2 787
$952
$ 5,775
$8,190,131
$2,866,532
$756,221
$ 168,775
$ 686,188
$ 12,667,847
$694,971
$534,925
$ 1,229,896
$25,343,603
$ 6,540,979
$ 18,802,624
$3,299,239
$2,553,843
$8,228 24,663,934'9,052,616
$ 14,245,258
$ 1.186,111
$ 179,949
$24,663,934 2,282 13,766 6.0 9,224 126,976.8
$971
$ 1,366
$5,856
$2,058,667
$703,862
$ 102,000
$ 19,388
$ 0
$2,883,918
($243,163)
~
$39,007
($ 204,156)
$3,036,012
$ 1,314,148
$ 1,721,864
$671,978
$284,034
$ 0
$2,677,876
$2,515,063
$0
$ 162,813
$ 0
$2,677,876 280 2,707 9.7 11.382 30,811.6
$976
$636 "
$9,431
$ 10,213,704
$2,823,926
$713,691
$ 191,969
$694,029
$ 14,637,319
$533,100
$790,671
$ 1,323,771
$26,762,467
$7,006,746
$ 19,755,721
$4,728,826
$2,695,284
$31,419
$27,211,250
$ 12,798,588
$ 12,911,948
$ 1,375,353
$ 125,361
$27,211,250 2,299 15,684 6.8 10,373 162,688.8
$967
$ 1,260
$ 6,599
Somerset
'outhwest Central Sullivan County REC, Inc.
RECC REC, Inc.
Sussex AEC, Inc.
Tri County AEC, Inc.
United EC, Inc.
Valley REC, Inc.
Warren EC, Inc.
Harold E.
Nichotsen Msnapor Aichsrd S.
Draege Manager Edward A.
Dedch Manager Bonjamin A Pills Manager Robert D.
Toomba Manager Donald A Widdor Manager D.W.
Smith Manager H. Richard Slsgl ~
Manager Total
$ 11,346,607
$ 17,871,044
$3,374,876
$ 10,993,708
$ 11,170,298
$ 12,556,285
$ 14,210,350
$4,605,536 S163,251,143
$7,925,795
$ 1,698,047
$485,450
$ 107,565
$634,604
$ 10,851,461
$495,146
$ 603,944
$ 1,099,090
$ 18,922,023
$3,969,833
$ 14,952,190
$3,422,231
$2,956,723
$ 11,098
$21,342,242
$8,608,020
$ 11,835,673
$ 785,512
$ 113,037
,$21,342,242
$ 13,897,140
$2,725,486
$ 749,830
$ 126,194
$909,351
$ 18,408,001
{$536,957)
$ 775,468
$238,511
$28,032,925
$4,381,814
$23,651,111
$4,918,452
$ 1,822,903
$49,392
$30,441,858
$ 13,211,810
$ 15,700,405
$ 1,465,901
$63,742
$30,441,858
$2,207,589
$695,273
$ 183,882
$33,673
$ 175,197
$3,295,614
$79,262
$ 147,365
$226,627
$6,747,945
$2,220,142
$4,527,803
$ 1,021,604
$ 684,237
$38,040
$ 6,271,684
$2,403,635
$3,590,858
$273,533
$3,659,
$6,271,684
$5,711,737
$ 1,774,630
$587,048
$ 1,233,628
$ 675,233
$9,982,276
$ 1,011,432
$464,701
$ 1,476,133
$ 17,648,120
$3,238,929
$ 14,409,191
$2,351,016
$2,325,029
$44,845
$ 19,130,081
$5,557,950
$ 11,196,371
$2,261,452
$ 114,308
$ 19,130,081
$ 6,684,824
$2,449,742
$ 695,151
$ 122,155
$858,353
$ 10,810,225
$360,073
$ 742,032
$ 1,102,105
$26,993,088
$6,863,341
$20,129,747
$3,290,283
$ 1,872,920
$9,380
$25,302,330
$8,929,741
$ 15,255,208
$ 1,003,426
$ 113,955
$25,302,330
$7,636,436
$2,706,452
$770,239
$76,874
$934,951
$ 12,124,952
$431,333
$ 549,314
$980,647
$28,990,705
$7.415,972
$21,574,733
$3,402,724
$2,921,222
$ 100,929
$27,999,608
$8,713,573
$ 18,274,125
$ 1,010,449
$ 1,461,
$27,999,608
$9,461,673
$2,301,307
$ 773,846
$ 115,703
$481,479
$ 13,134,008
$ 1,076,342
$ 615,991
$ 1,692,333
$28,036,201
$7,508,775
$20,527,426
$3,770,021
$2,568,784
$35,199
$26,901,431
$ 15,579,111
$9,803,342
$ 1,202,299
$316,679
$26,901,431
$3,040,024
$921,692
$255,125
$42,652
$ 160,276
$4,419,770
$ 185,767
$231,589
$417,356
$9,516,205
$3,264,474
$ 6,251,730
$ 1,347,950
$ 775,830
$0
$8,375,510
$5,075,099
$3,154,848
$ 131,413
$ 14,150
$8,375,510
$ 106,551,705
$ 30,800,784
$8,313,000
$2,605,126
$8,734,806
$ 157,005,421
$ 6,245,722
$7,278,009
$ 13,523,231
$297,167,127
$73,070,827
$224,096,300
$44,112,963
$33,188,405
$788,279
$302,185,947
$ 125,151,455
$ 160,934,397
$ 14,573,188
$ 1,526,907
$302,185,946 1,801 10,351
'.7 12,014
'24,352.2
$ 1,096
$ 1,445
$6,300 2,385 18,672 7.8 11,761 219,602.5
$957
$ 1,267
$ 7,493 760 4,622 6.1 7,392 34,167.7
$730
$980
$4,441 576 9,147 15.9 10,290 94,125.9'1,202
$ 1,575
$ 19,103 2,750 14,844 5.4 6,727 99,858.6
$753
$ 1,356
$4,062 2,576 15,468 6.0 7,502 116,041.6
$812
$ 1,395
$4,874 2,237 16,047 7.2 9,404 150,912.4
$886
$ 1,279
$ 6,352 1,003 8,693 8.7 5,373 46,707A
$530
$719
$4,593 25,258 178,128 7.1 9,462 1,685,486.8
$ 916
$ 1,258
$ 6,463