ML17158A265

Allegheny Electric Cooperative,Inc Annual Rept 1993

ML17158A265
Person / Time
Site:	Susquehanna
Issue date:	12/31/1993
From:	Titon J, Doreen Turner ALLEGHENY ELECTRIC COOPERATIVE, INC.
To:
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ML17158A264	List: ML17158A265 ML18017A270 PLA-4131, Forwards PP&L Annual Rept 1993 & Allegheny Electric Cooperative,Inc Annual Rept 1993
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bout Allegheny Electric Cooperative, Inc.

Allegheny Electric Cooperative, Inc. is the wholesale power supplier for the 14 rural electric cooperatives in Pennsylvania and New Jersey.

Through them, itserves more than 600,000 rural consumers.

Allegheny is owned and controlled by the 14 cooperatives and its activities are governed by a 14-member board ofdirectors one director elected from each ofits member cooperatives. That control ensures Allegheny's actions willbest serve the consumer-members who depend on the cooperatives for electricity.

Allegheny's member cooperatives own and maintain about 12.5 percent ofthe electric distribution lines in Pennsylvania, covering nearly one-third ofthe state's land area in 41 counties. These lines represent one ofthe largest non-governmentinvestmentsin rural infrastructure in the state and are an essential component ofbusiness and industry.

Allegheny Electric Cooperative, Inc. continues to meet the goal upon which it was founded in 1945 to provide rural electric cooperative consumer-members with an adequate and reliable supply ofelectricity at the lowest possible cost.

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Message From The President tr'hairman The year 1993 marked another important milestone for Allegheny Electric Cooperative, Inc.its sixth consecutive year ofrate stability.

This rate stability success did not just happen. The Allegheny Board ofDirectors and staff have worked hard over the last six years, carefully weighing alternatives and making tough decisions, to produce this achievement During the nine-year period from 1978 through 1987, Allegheny's net-billed power cost to the 14 member cooperatives climbed an average of 11.3 percent per year. Thanks to a strategy aimed specifically at holding the line on rates, power costs for the six-year period of 1988 through 1993 increased on average just 1.1 percent

/esse C. Tiltan ill, president (left) and Dave E. Turner, chairman annually.

During 1993, we have made significant strides to ensure that this rate stability willcontinue into 1994. As approved by the board, Allegheny's projected net-billed power cost to its member cooperatives during 1994 willbe reduced by 2.2 mills per kilowatt-hour (kWh), to 59.03 mills per kWhabout the rate charged in 1988. Compared to the 1993 net-billed power cost figure of61.24 mills per kWh, this represents a 3.6 percent reduction in the net-billed average power cost.

ALLEGHENY ELECTRICCOOPERATIVE, INC.

There are several reasons for the 1994 rate decrease:

The new Allegheny/Penelec Wheeling and Supplemental Power Agreement eliminates purchases ofhigh-cost supplemental power from General Public Utilities (GPU) subsidiaries Metropolitan Edison Company and Jersey Central Power &

Light, and replaces them with less expensive power from GPU subsidiary Pennsylvania Electric Company.

Successful negotiations to sell all excess energy through October 1994 to Baltimore Gas fk Electric Company.

The year left Allegheny better positioned than ever to deal with future challenges. And the decade ahead looks bright. A revised Power Requirements Study forecasts that Allegheny's total energy requirements willgrow at an annual rate of2.35 percent through the year 2012. Our 10 percent share ofthe Susquehanna Steam Electric Station, a two-unit nuclear power plant located near Berwick, Pa., willgrow in value as Mid-Atlanticpower markets tighten. And we see our demand-side management efforts continuing to provide benefits well into the next century.

Once again, real progress was made toward the organization's long-term goal providing rural electric cooperative consumer-members with adequate and reliable supplies ofreasonably-priced electricity.

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ix Years of Rate Stability Stability and change. Atfirstglance, these two concepts seem to be at odds. But with aggressive management and focused foresight, Allegheny Electric Cooperative, Inc. has used change as a powerfiiltool to ensure six consecutive years ofrate stability.

In 1993, Allegheny delivered wholesale electricity to its 14 member rural electric distribution cooperatives at a net-billed rate of61.24 millsper kilowatt-hour, a 2 percent decrease froin 1992 actual rates. The decrease was the fourth in the last fiveyears.

Allegheny is proud ofits rate stability efforts. Over the past six years, the Allegheny EC Board ofDirectors has carefully weighed complex alternatives to produce these accomplish-ments forits member cooperatives. In 1993, the board approved a number ofvaried financial and power supply initiatives.

For example, aggressive inarketing ofsurplus energy saved Allegheny member cooperatives $4.2 millionduring the year. Allegheny's repricing of$123 millionin high-interest Rural Electrification Administration-guaranteed Federal Financing Bank loans in late fiscal 1992 provided a net savings of$1.42 millionin 1993 and willprovide an additional $19 million over the term ofthe loans. Success in Kent Springman, Allegheny staff accountant, examines spreadsheets as part ofAllegheny's team effort to control rates for its member rural electric cooperatives.

One result: Allegheny's repricing of S 123 millionin high. interest Rural Electrification Administration-guaranteed Federal Financing Bank loans in late fiscal 1992 provided a net savings of 51.42 millionin 1993 and willprovide on additional $ 19 million over the term of the loans. Efforts by Kent and other staff members make those and other savings possible.

ALLEGHENY ELECTRICCOOPERATIVE, INC.

opposing proposed private power company wholesale rate increases forpurchased power also aided the rate-control efforts.

Allegheny held the line on rates even though the budgeted tax and governtnent fee burden on generating facilities of all utilitiesin Pennsylvania were increased substantially.

An expected hike in the Pennsylvania Public UtilityRealty Tax boosted Allegheny's tax load by $826,134 annually.

Under new federal legislation, owners ofnuclear power plants were assessed fees to help the U.S. government clean-up nuclear weapons facilities. Allegheny's share amounted to $325,000 in 1993.

Without these new levies included in Allegheny's rates, the net-billed average power cost or what member cooperatives could have paid in 1993 would have decreased 2.9 percent instead ofthe actual 2 percent when contpared to 1992 rates.

The period ofstability has seen net-billed average power costs to the member cooperatives increase by 1.1 percent annually since 1987 (see chart).

In contrast, during the period from 1978 through 1987, Allegheny's net-billed 12%

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Level Compound Annual Increase Allegheny wholesale Rate To Members LLLLH 1978 1979 1980 1981 1982 1983 1984 198$

1986 1987 1988 1989 1990 1991 1992 1993 I

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power cost climbed 11.3 percent per year. Power costs over the past six years conibined are less than halfas much as just one ofthe previous nine years.

This achievement represents both the culmination ofpast initiatives and the continuation ofpolicies designed to maintain the stable cost ofpower for Pennsylvania's and New Jersey's rural residents welliiito the fiiture.

Long before conservation and demand-side management became an important part ofmost utilities'lanning efforts, Allegheny, along with its member systems, developed the Coordinated Load Management System.

Allegheny's load management system uses computer technology and sensors in the substations ofits rural distribution systems to monitor electricity usage and climate conditions. The collected data is received and analyzed by computers located at Allegheny's Harrisburg ojJices and at the local cooperatives. Allegheny and the co-ops use the data to determine consumer-member consumption and how much itmust be reduced during peak hours.

/im Line, one ofAllegheny's load management operators, monitors load and demand conditions in Allegheny's Coordinated Load Management Control Center.

Allegheny's load management system uses computer technology and sensors in the substotions of participating rural electric cooperative member systems to monitor electricity usage and climate conditions. To date, the system has reduced the purchased To date, the system has reduced the purchased power cost of povv<<cos<<f the 1o participating the 10 participating cooperatives by more than $11 million.

The system has been further refined by agreements between Allegheny and sotne ofthe private power companies that allow "real time" monitoring ofthe private companies'ystem loads, providing a more accurate picture ofelectric cooperatives by more than $ 11 million.

ALLEGHENY ELECTRIC COOPE RATI VE, INC.

consrtmption patterns throughout the cooperatives'ervice areas.

Allegheny's load control center, which entered service in November 1989, also permits Allegheny to monitor its two principal generating sources the Raystow n Hydroelectric Project, located near Huntingdon, Pa., and the Susquehanna Steam Electric Station (SSES), located near Berwick, Pa. These facilities are part ofthe co-op's long-tenn strategy to diversify its power supply sources and pursue a balanced energy program, emphasizing environmentally-benign generation, such as hydropower, and sources not contributing to acid rain, such as nuclear.

Back in 1966, Allegheny anticipatedfuture needs and started building a framework ofvaried power sources. As a preference customer, it began purchasing hydropower generated at the publicly-owned Niagara Power Project from the Power Authorityofthe State ofNew York (PASNY). As a result ofsuccessfi(1 engineering and litigation efforts to protect its rights to this allocation, this extremely low-cost hydropower has saved Allegheny more than $227 millioncompared to the cost ofpower itwould have needed to buyfrom private power companies.

In 1977, Allegheny continued developing reliable energy sources when itcontracted for 10 percent ownership in SSES, a 2,100 megawatt, two-unit nuclear power plant. In 1993, the facilitysupplied 59 percent ofAllegheny's energy needs.

g jJ.g Mary Ann Hosko, center, is flanked by Dick Osborne, left, and Steve Shirey as the trio discusses additions to Allegheny's transmission system.

Mary Ann, Allegheny principal engineer, construction and hydro operations; Dick, manager of operations; and Steve, system planning engineer, make sure Allegheny's existing and new loads are reliably served at the least possible cost. That's no small feat considering the rough terrain and remote areas they encounter when building transmission projects.

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Allegheny fiirthered its commitment to low-cost generation with the Raystown Hydroelectric Project, WilliamF.

Matson Generating Station which began commercial operation in 1988. Named for the firstpresident of Allegheny, Matson Station is the cooperative's firstwholly developed and operated generating plant. On average, it supplies 4.5 percent ofthe energy delivered by Allegheny to its member cooperatives.

This power supply mix means that nearly 75 percent ofthe energy delivered by Allegheny comes from technologies that don't pollute the air. This is very critical, because tough regulations from the 1990 federal Clean AirAct will translate into higher electric rates for customers served by private power companies that get almost all oftheir electric power from plants that burn fossilfuels. But Allegheny's member rural electric cooperatives won't experience rate shock from having to pay for cleaner air since Allegheny prudently invested in generating resources which do not contribute to air pollution.

The years ofsuccessful rate control were also accomplished amid several factors whichifnot dealt withcould have driven costs much higher.

The challenge Allegheny faced in 1987 and infollowing years was how to control rates amid financial burdens such as construction riskfrom commitments to our load management and Raystown Hydroelectric projects, as well Barbara Lund and Steve Ciles review power-use profiles ofAllegheny's 14 member distribution cooperatives.

Among other duties, Steve, principal engineer, power supply, and Barbara, Allegheny planning engineer, areinstru-mentol in Allegheny's efforts to obtoin sufficient, low-cost power and ensure that the cooperatives willbenefit from Allegheny's participation in the wholesale power market. Aggressive marketing of surplus energy saved Allegheny member cooperatives $4.2 migion in 1993. Long-term contracts for extremely low.cost hydropower has saved the co-op more than $227 millionsince itbecame a pref-erence customer ofthe Power Authorityof the State ofNew Yorkin 1966.

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as SSES capacity entering the rate base. Also, litigation over low-cost power allocations from PASNYincluded the possibility that Allegheny might lose additional capacity from that very valuable source ofpower.

In 1987, Allegheny had only two-thirds ofits SSES capacity 140 out of210 megawatts in its rate base. The rest ofthe capacity was added in increments each year through 1992.

In addition, the Raystown Hydroelectric Project was under construction and Alleghenyfaced the uncertainties of potential construction cost overruns and operating risks once the project caine on line.

Also during these years Allegheny has had to absorb some big increases in the cost ofpurchased power, as much as 42 percent in the case ofone supplier. Allegheny's share of federal and state taxes has increased 34 percent since 1987; the co-op has also absorbed the rate impact of$11 million in transmission facilities constructed for member co-ops.

It took change to make this stability possible. Changes in procedures, changes in technologies, changes infinancial arrangements and changes in power supply agreenients.

Allthese add up to six years ofrate stability, a track record borne offoresight and dedication to Allegheny's original mission providing rural electric cooperative consumer-members with adequate and reliable supplies ofelectricity at the lowest possible cost.

The Allegheny Board of Directors tracks developments in all areas legal, financial, political and engineer/ng that Impact on the cost ofproviding electricity to those who depend on the co-ops for power. The board carefully weighs complex alternatives and then acts quickly to direct the staff to take appropriate actions that produce cost savings and other benefits for the member cooperatives.

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llegherty Board of Directors

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Dave Turner Choirman Waryen EC, Alston Teeter Vlcc Chairman lowell Frledllne Secretary Somerset REC Roy Eckenrod Treasurer Southwest Central REC

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John Rltchey New Enterprise REC Harold Hines Northwestern REC John Anstadt Sullivan County REC y

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David Cowan Adams EC Rolph F)scher Bedford REC George Francisco Centrol EC John B. Drake Claverack REC n

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L Anson Broslu+s United EC Harold Rltchey Voile REC L

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llegheny Electric Cooperative Management Team Allegheny's management team:

From left, Frank M. Betley, vice president; William E. Mowatt, senior vice president; Jesse C. Tilton ill, president; Anthony C. Adonizio, vice president 8 general counsel; and Laurence V. Bladen, director, finance 6r administrative services. Not pictured is Rob A. Seide, director of communications.

ALLEGHENY ELECTRICCOOPERATIVE, INC.

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nmmary of Operations Allegheny Member Systems Adams Bedford Central Claverack New Enterprise Northwestern Summary Of Operations ~

Operating Revenue

$32,208,850

$ 10,535,703

$ 19,665,581

$ 16,665,716

$3,385,953

$ 18,246,811 Operating Expenses Purchased Power Operations &Maintcnancc Depreciation Taxes Interest Cost ofElectric Service Operating Margins Non-Operating Margins tk Capital Credits Net Margins Assets Total UtilityPlant Less Accumulated Depreciation Net UtilityPlant Other Property &Invcstmcnts Current &Accrued Assets Deferred Debits Total Assets I.fabiiitles Margins &Equities Long-Term Debt Current &Accrued Liabilities Other Credits &Reserves Total Liabilities Other Statistics Miles ofLine Consumers Served Consumers pcr Mile kWh Sold pcr Consumer mWh Sales Annual Revenue per Consumer Plant Investment per Consumer Revenue per MileofLinc

$20,540,272

$5,661,972

$ 1,661,623

$270,570

$ 1>842,906

$29,977,343

$2,231,507

$ 186,087

$2>417,594

$56,713>225

$ 12,789,937

$43,923>288

$7,671,765

$4,671>584

$123,633

$56,390,270

$21,674,030

$32,353,130

$2,351,766

$ 11,344

$56,390,270 2>512 23>332 9.3 13,567 316,534

$ 1>380

$ 1>883

$ 12,822

$7,636,774

$2,096,571

$398)714

$83,471

$307>927

$ 10,523,457

$ 12,246

$53,168

$65,414

$ 15>593,288

$4,584>205

$ 11,009,083

$2,256,498

$2,027>958

$93,093

$ 15)386>632

$7,104,936

$7,020,325

$942,483

$318>888

$ 15,386,632 l>160 7>970 6.9 14>411 114,859

$ 1,322

$ 1>381

$9,081

$ 11,956,067

$4,633,806

$ 1,081,898

$ 163,142

$ 1,034,460

$ 18,869,373

$796,208

$324,954

$ 1>121>162

$40,166,461

$ 10,339>064

$29,827>397

$5>419>818

$5,380,572

$64,663

$40,692,450

$ 16,213,446

$21,879,379

$2,336,825

$262,800

$40,692,450 2>967 22,124 7.5 8,243 182>364

$889

$ 1,348

$6,628

$9,871>036

$3,977>162

$ 1,222,606

$246,468

$956,360

$ 16>273,632

$392,084

$66,983

$459>067

$38,536,005

$9,645,811

$28,890,194

$4)112,215

$2,328,931

$ 132,912

$35,464,252

$ 12>594,042

$21,375,707

$ 1>411>187

$83>316

$35,464,252 2)458 15>742 6.4 9,374 147>562

$ 1>059

$ 1>835

$6,780

$2,514,206

$915,699

$50,535

$ 113,090

$0

$3,593,530

($207,577)

$24,630

($ 182>947)

$3,306,595

$2,202,670

$ 1,103,925

$697>711

$500,204

$0

$2)301)840

$2>115,621

$0

$ 186,219

$0

$2,301>840 379 2>783 7.3 13>216 36,781

$ 1>217

$397

$8>934

$ 11,411,980

$3,903,656

$ 1>003,378

$244,761

$889,992

$ 17,453,767

$793,044

$ 167,400

$960,444

$36,664,220

$ 10,283)240

$26,380,980

$5,862>620

$2,692,460

$829,550

$35>765,610

$ 14,865,120

$ 18,843>740

$2>011,750

$45,000

$35,765,610 2,383 16,574 7.0 10,905 180,740

$ 1,101

$ 1,592

$7>658 ALL EGHENYELECTR I C COOP ERAT I VE I NC.

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Somerset Southwest Central Sullivan Sussex Tri-County United Valley Warren TOTAL

$ 14,835,936

$23>530,025

$4,291)956

$ 12>791>313

$ 14,667>855

$ 14>887>033

$ 19>019,476

$5>059>870

$209,792,077

$ 10,475,717

$ 1,923,496

$612,936

$ 145,006

$680,618

$ 13,837,773

$998>163

$ 128,271

$ 1>126,434

$ 16,938,601

$3,993,068

$961>113

$ 176,971

$ 1)017,238

$23,086,991

$443)034

$ 124,278

$567>312

$2,662>962

$814,589

$282,848

$41,154

$235,909

$4,037>463

$254,493

$35,704

$290,197

$6>855,095

$2,744)518

$794,178

$ 1>430,873

$725>680

$ 12,550,344

$240,969

$ 104)914

$345,883

$8,037>406

$3,639,405

$938,779

$ 183,681

$982>816

$ 13,782,087

$885,768

$97)111

$982,879

$8,405,971

$4)087>922

$957,687

$ 142,631

$ 1>308)549

$ 14,902,760

($ 15,727)

$ 172>418

$ 156,691

$ 12,019,723

$3,256,870

$ 1,071)654

$ 161,027

$692)797

$ 17,202)071 S I>817)405

$ 195,211

$2>012)616

$2>964,880

$ 1)216,707

$326>304

$62,303

$ 122,185

$4>692,380

$367,490

$59>133

$426,623

$ 132,290,690

$42,865,440

$ 11>364,253

$3,465,148

$ 10,797,438

$200 782 969

$9,009,108

$ 1>740,263

$ 10,749,371

$23>849, 171

$5>662,961

$ 18) 186,210

$4,532>177

$3>443,715

$51>011

$26,213,113

$37,092,161

$6,409,645

$30,682,516

$6,216,499

$ 1,988,012

$71,243

$38,958,270

$ 10,126,748

$3)342>465

$ 6>784>283 5l>199,365

$933>084

$27,467

$8)944>199

$25>576,030

$6,467,859

$ 19>108)171

$2,703,826

$3,624,841

$329>860

$25,766,698

$37,024,785

$9,048>276

$27,976,509

$3,696,059

$ 1,949,071

($48)945)

$33,572,694

$37,775,910

$ 10,147>993

$27)627>917

$5)048,657

$2,357,166

$ 159>676

$35,193,416

$38,796,852

$ 11>032)656

$27,764,196

~

$4)670,218

$4,827>948

$22,933

$37,285,295

$ 11,976,114

$3,951,973

$8,024,141

$ 1>701>295

$ 1>237>415

$480,021 S I I>442,871

$413,197>565

$ 105,908,754

$307,2881811

$55,788,723

$37)962>962

$2>337>115

$403>377>611

$ 11>807>965

$ 13,259,140

$988,232

$ 157,776

$26,213,113

$ 18,528,159

$ 18,582,429

$ 1,780,885

$66>797

$38)958,270

$3)341>175

$5)265,483

$337,473

$68

$8,944,199

$8>688,039

$ 14,830,846

$21203>452

$44)361

$25>766)698

$ 13,065>306

$ 18,049,022

$2)431)984

$26,382

$33)572)694

$ 11>186,796

$22,381,611

$ 1,131)588

$493)421

$35,193,416

$20,143,073

$ 14,657>871

$2,118,182

$366,168

$37,285,295

$8>004,346

$3,002,966

$ 189,105

$246,454

$ 11>442,871

$ 169,332)055

$2111501)651

$20>421,131

$2>122>775

$403,377,'611 1>857 11>295 6.1 14,094 159>189

$ 1,313

$ 1)610

$7,989 2,435 19>908 8.2 12>444 247>738

$ 1>182

$ 1>541

$9)663 810 5,078 6.3 7>768 39,446

$845

$ 1,336

$5,297 618 IO>105 16.4 10,702 108>145

$ 1,266

$ 1)891

$20>708 2,935 16,282 5.5 6,986 113)752

$901

$ 1>718

$4,998 2)630 17,048 6.5 6,965 118,739

$873

$ 1)621

$5,661 2,442 18,187 74 9,946 180,895

$ 1,046

$ 1,527

$7)788 1,020 8>466 83 5>138 43,495

$598

$948

$4>962 26,605 194>894 7.3 10>212 1>990,239

$ 1,076

$ 1,577

$7,885 19.9 3ANNUALREPORT

llegheny Electric Cooperative, Inc. Five-Year Financial Statefnent ASSETS UtilityPlant In Service Construction Work in Progress TOTAL PlANT Accumulated Provision for depreciation Bc amortization NET PLANT Non.Utilitypropertynet Capital CreditsNRUCFC Investments in associated organizations Other Investments Cashgeneral funds Cashconstruction fund Temporary invcstmcnts Special funds Notes receivable Accounts receivable Materials gr SuppliesOther Prepayments Other current gr accrued assets Unamortized Debt 8< Extraordinary Loss Deferred debits TOTALASSETS LIABILITIES hiemberships Patronage Capital Donated Capital Long-term debtREA Long.term debt-Other Notes payable Accounts payablc Cost ofservice adjustment Accrued taxes Accrued Interest Other current gc accrued liabilities Deferred credits Opemting Reserves TOTALLIABILITIES MEMBERS REVENUES Adams Bedford Central Claverack New Enterprise Northwestern Somerset Southwest Central Sullivan Sussex Tri-County United Valley Warren TOTALMEMBER REVENUES 1993

$663,745429 7,691,431 671,436,660 184.785>043 486,651,617 4,741,483 123,863 3,877,412 5,945,338 1,803,376 48,827 35,300,281 1>853>754 2,899,199 IO/48,722 4,841,574 5,022 W9 758682 9,186,633 4,969,726

$578,272,956

$2,800 25,799,724 50,730 7,145,468 489,765,602 0

20,729,001 0

3/63,474 2,961>499 I,142376 18460,995 8851,387

$578,272,956

$21 ~197+87 7,823,978 12,440,545 10,190,633 2,594,162 11,777,718 10,746,691 17,500,924 2,733,274 7,085,973 8,205315 8>681,407 12,420,172 3,071,610

$ 136,470,189 1992

$648,947,342 14,214,117 663,161,459 167>818,423 495,343,036 4,910,988 141430 3,878,851 5,197,077 (99,816) 48,695 23,226/22 1,874>311 3367,637 10350,153 4,947,032 5450,031 2466,810 9,663,537 3,706,835

$574,072,929

$2,800 I4,390,760 50,730 7,395,044 508,080,384 0

6,183,734 4490466 3,815,257 3,052,458 1,720,611 17>926,267 7,164>618

$574,072,929

$ 19,370,045 5,533,837 11,978,858 9,611,069 2,429,877 11,186,991 9,793,753 17,142,057 2,619,317 6,778,523 7,906,011 8,279,836 11,694,928 3,159,358

$ 127,484,460

$640,405,919 11,495,760 651,901,679 154,581,169 497>320,510 5,010,441 125,292 3,879,055 4,628,698 640,291 1,889 36.895437 I 889 548 3,695,755 13>766,227 4,694,020 1,133,323 1,047,743 0

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2,643,004

$577g71,333

$2,800 12,012.827 50,730 7,413,005 508,537,785 0

16,830,638 2,541,259 1>815,246 308277 507,177 18,130,598 6,019,991

$577871,333

$ 18,201,477 5,180,138 11>410,378 8,901,042 2,301,401 10,484,591 9,106,826 16,166.475 2,390,'777 6434,524 7,450,527 7>948,551 11,123,000 3,180,783

$ 120,380,490 1990

$633,120317 5,903,441 639,023,658 137,581837 501,442,121 4,970,628 296,167 3,879,261 4,012>303 (887) 12,103 47,019>705 1,901,112 4,148,632 11~9,690 0

1,113,921 574,342 0

499300

$581,418,298

$2AOO 9,921,071 50,730 5,623,571 516,407,133 0

18,923476 6,416,815 545,874 3~2,011 683@32 15,187,468 4,153,917

$581,418,298

$ 16,920,011 4,948,332 11,170,252 8,739,960 2,214,818 10,323,184 8,737>337 14,825,514 2,345,952 6,312,906 7>199562 7,664,418 10,650,759 3,084,646

$ 115,137,651 1989

$616,987,394 9/40,232 626,227,626 88,725,714 537401,912 5,055,971 322,609 3,879,452 (457,634) 1,483 35,078,414 1,903,823 13,734,646 0

1,052,028 342,028 0

1350,929

$599,765,661

$2,800 38,941>810 50,730 4,010,892 522,511,395 0

4287>707 4,893,235 551,844 3/48,615 664,308 16,461,128 4,041,197

$599,765,661

$ 16,459,644 4,934,084 II,I23,586 8,678,763 2,183J82 10,375,739 8,772,896 14.548,709 2,344,198 6,333,850 7>194,547 7,814,898 I0455,639 3,114,060

$ 114,434,195 A L L E

G PI E N Y

E L E CTRI C

COOP ERATI V E, INC.

ELECTRIC ENERGY SALES Members Non.htembers Total Receipts 1993

$ 136,470,189 8,164,962 144,635,151 1992

$ 127,484,460 5,935,149 1331419,609 1991

$ 120,380,490 24,966,421 145,346,911 1990

$ 115,137,651 14,109,954 129>2471605 1989

$ 114,434,195 16,057,630 I30rt91,825 Cost ofPower IVheeling 31,553,808 11,459,410 34,447,974 10,168,786 43,054451 8,880,653 32,085,914 9,249,841 33,358,887 8,345,773 RAYSTOWNC Operation &hfaintenance Interest Transmission Taxes OTHER PROJECTS:

Operation &hlaintenance Transmission Depreciation Taxes 2,322,749 0

185,863 25,045 438,051 216343 716482 27,751 2~1,109 0

128,693 23>918 290,689 62,549 588,886 18,912 2320,600 0

206,809 23,293 300,322 15,401 509,847 3,352 2,560,147 0

183,550 19,385 123,663 24,052 466,190 0

2346361 0

200/2I 16,884 SSES:

Generation Operation &hlaintenance-Fuel Depreciation Taxes Transmission htaintenancc Depreciation Interest Interest charged to ConstructionCredit General &administrative Total operation expense 23,190,448 7,996,407 12,058,366 3,893,145 264,984 791,559 35,853,299 (932,253) 5,913,316 135,974,873 19,697,503 7>263,452 10,931,235 4,282,906 272,597 804,90S 39,608,659 (1,143,974) 5,716,858 135,395,660 20,958,143 8,452>974 9,967,034 4343,498 293,213 804,907 42319,156 (1,041,514) 5,559,603 146,871,542 18,024,408 9,512,667 9,034,865 3,437,242 216,007 804,907 43,018385 (909,146) 5,315,694 133,167,671 18,518,905 9,413,177 9,376,144 3,429,845 317,266 804,768 42,724,066 (1,233,918) 5,153>748 132,772,327 Depreciation Taxes Other deductions Toto/ Expenses 239,342 172360 101,787 136,488,362 186,884 169,063 (410,374) 135,341,233 159,063 I4IJ82 (662493) 146,509J94 131,397 136,143 30,417,247 163,852,458 134,988 109,750 (701,433) 132,315,632 Operating margins Interest income Otherprofit/(loss) net Other capital credits 8,146,789 1,803,324 1,458,851 0

(1,921,624) 2,845,352 1,397,724 55,068 (1,162,683) 3,691,751 10,081 0

(34,604,853) 4,636,182 1,462,261 29,912 (1,823,807) 4,328>040 28,940 21,184 NET MARGINS

$ 11>408,964

$2,376,520

$2,539,149

($28,476,498)

$2,554,357 1

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llegheny 1993 Financial Revietv Allegheny earned record high margins of$ 11.4 millionin 1993. This was primarilythe result ofhigher than anticipated bulk power and member sales. Lower than expected interest costs, caused by continued low interest rates and savings achieved from the repricing of$ 123 millionof Federal Financing Bank (FFB) debt in August 1992, also contributed to these record earnings.

In 1993, Allegheny exceeded its Times Interest Earned Ratio (TIER) goal of 1.06 by achieving a TIER of 1.31. In prior years, margins earned in excess ofthe TIER goal would flowback to member cooperatives the followingyear through Allegheny's Annual Operating Adjustment (AOA).In 1993, the federal Rural Electrification Administration (REA) directed Allegheny to rescind thc AOA.This REA action prohibited excess 1993 margins from being returned to members.

FINA N C IN (

Interest expense continues to be Allegheny's single biggest expense item. In 1993, it accounted for nearly 26 percent oftotal expenses.

To control interest expense, a number ofdifferent tools have been utlized to obtain the lowest possible financing cost. These include the use oftax-exempt Pollution Control Bonds (PCB), REA insured and guaranteed loans, leveraged and safe harbor leasing and thc repricing oflong-term FFB loans. Through these efforts Allegheny's weighted cost ofinterest (excluding leveraged lease debt) decreased from 7.68 percent as ofOctober 31, 1992 to 6.93 percent to as ofOctober 31, 1993.

POLLUTION CONTROL BONDS (PCB)r Portions ofthe Susquehanna Steam Electric Station (SSES) pollution control facilities are financed by tax-exempt variable rate PCBs issued through the Lchigh County Industrial Development Authorityand backed by irrevocable letters ofcredit from Rabobank Nederland. The average yield on these bonds for 1993 was 2.59 percent.

REA INSURED AND GUARANTEED LOANS: A blend ofREA insured and guaranteed loans con-tinues to make up thc majority ofAllegheny's debt. These loans arc used to finance transmission and load management projects and certain SSES capital additions.

ALLEGHENY ELECTRIC COOPERATIVE, INC.

LEVERAGED LEASE: The leveraged leasing ofthe Raystown Hydroelectric Project assists in low-ering the carrying cost ofthe project. Under the lease agreement, Allegheny controls the placement of$20.5 millionoflease debt. During 1993, this debt was placed at various maturities dates ranging from 30 days to four years.

CFC: In addition to loans of$4.4 millionfor load management and transmission facilities, the National Rural Utilities Cooperative Finance Corporation (CFC) provides the financing for Allegheny's Locust Court Building headquarters.

TAXABILITY:Allegheny has a private-letter ruling from the Internal Revenue Service providing for the cooperative to remain taxable until an application is made to become a tax-exempt organiza-tion again. Allegheny expects to have tax losses to carry fonvard to offset regular tax liabilityfor the foreseeable future. Allegheny continues to be subject to the Alternative MinimumTax (AMT)pro-visions ofthe Internal Revenue Code. Allegheny believes that the tax liabilities arising from the AMTwillremain negligible.

REGULATION:Unlike for-profit,investor-owned private power companies, Allegheny and its member cooperatives are consumer-owned and non-profit. They are self-regulated by their consumer-members acting through a democratically-elected board ofdirectors and thus are not under the juris-diction ofthe Pennsylvania Public UtilityCommission or the New Jersey Board ofRegulatory Commissioners. However, REA does review the cooperative's ratemaking and operating practices.

Allegheny's board ofdirectors is democratically elected. One director is selected from each of Allegheny's member cooperatives. The board governs all policies, including the establishment of rates. Board review ofthe ratemaking process and approval ofeach rate change assures the member cooperatives that the price they pay for electricity is fair and reasonable.

ALL-REQUIREMENTSCONTRACT: Each ofthe 14 cooperatives served by Allegheny has entered into a Wholesale Power and Power Cost Pooling Contract, commonly referred to as an All-Requirements Contract. As a condition for approval ofloans to Allegheny, REA required Allegheny's members to execute these contracts. Allgeneration and transmission cooperatives bor-rowing money from REA are required to have substantially similar contracts signed by their mem-ber distribution cooperatives.

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By signing this contract, Allegheny's member distribution cooperatives agree to purchase all their power supply needs from Allegheny. They also agree to adjust their retail rates to meet all costs and TIER requirements.

In January 1977, each ofAllegheny's member cooperatives executed an amendment to the orig-inal 1965 contract to cover Allegheny's purchase of 10 percent ofthe Susquehanna Steam Electric Station. The amendment extended the contract to December 31, 2025.

TERRITORIAL INTECRITY:The Unincorporated Area Certified Territory Law of 1990, originally signed into law in July 1975 and codified in 1990, assigns exclusive territories for all of Pennsylvania's rural electric cooperatives and private power companies. The law states that each electric supplier has the exclusive right and duty to provide service within its own territory.

This law helps avoid costly duplication ofelectric lines and facilities, waste ofmaterials and nat-ural resources, plus improves electric system efficiency by allowing electric utilities to make long-term contracts for power and plan for necessary capital investments. It also allows cooperatives to retain large loads such as businesses, factories and retail centers that move into co-op territory.

These additional loads help the cooperatives, which primarily serve sparsely-populated areas, to moderate rates by spreading their costs over greater sales.

ALLEGHENY ELECTRIC COOPERATI VE, INC.

llegheny Electric Cooperative, Inc.

CONTENTS Report of Independent Accountants

... 22 Financial Statements:

Balance Sheets as of October 31,:1993 and 1992

... 23 Statements of Operations for the years ended October 37, 7993 and 1992....... 24 Statements of Equities for the years ended October 31, 1993 and -1992...,........ 25 1

J Statements of Cash Flows for the years ended. October 31, 1993 and 1992...,..26 Notes to Financial Statements.

27-36 1

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Coopers 8 Lybrand certitied public accountants REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Allegheny Electric Cooperative, Inc.

We have audited the accompanying balance sheets of Allegheny Electric Cooperative,

.Inc. (Allegheny) as of October 31, 1993 and 1992 and the related statements'f operations, equities, and cash fiows for'the years then ended.

These financial statements are the responsibility of Allegheny's management.

Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards and the Government Auditing Standards, issued by the Comptroller General of the United States.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above, present fairly, in all.

material respects, the financial position of Allegheny Electric Cooperative, Inc. as of October 31, 1993 and 1992, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting. principles.

/

One South Market Square Harrisburg, Pennsylvania January 25, 1994 ALLEGHENY ELECTRIC COOPERATIVE, INC.

'1

~

BALANCESHEETS as of October 31, 1993 and 1992

. (in thousands)

ASSETS Electric utilityplant:

In service Construction work in process Nuclear fuel in process Less accumulated depreciation and amortization Other assets and investments:

Non-utilityproperty, at cost (net ofaccumulated depreciation of$2,049 in 1993 and $ 1,847 in 1992)

Investments in associated organizations Notes receivable from members, less current portion Other investments Other noncurrent assets Current assets:

Cash and cash equivalents Accounts receivable, including accounts receivable from members of$9,480 in 1993 and $9,729 in 1992 Inventories Other current assets Deferred charges 1993

$651,983 7,691

~62 671,436 JB92Lt 4,741 4,035 2,899 7s737

~99 35,530 9,769 4,842

~925 9ZZ

~lt

$574,784 1992

$644,429 14,214

~511 663,154 MZIllk 3K2K 4,916 4,069 3,368 6,994 23,391 9,920 4,947

~232 2Z

~Z9

$570,172 Equities 6r Liabilities Equities:

Memberships Donated capital Patronage capital Other margins and cquitics Long-term debt, less current portion Current liabilities:

Current portion oflong-term debt Accounts payable and accrued expenses Accounts payable to members 3

51 37,952

~!Lt2

&268ll 12,237 12,887

~M92 3

51 37,952

~5J2Z 11,348 10,686

~822

~92 Other liabilities and deferred credits:

Accrued nuclear decommissioning Accrued decontamination and decommissioning ofnuclear fuel Deferred income,tax benefits from safe harbor lease Other deferred credits 8,551 4,150 9,969

$574,784 7,165 10,711

~215

~21

$570,172

> The ateompa>>ying notes are an integral part ofthe finannal statements.

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STATEMENTS OF OPERATIONS for the years ended October 31, 1993 and 1992 (in thousands) 1993 1992 i

Operating revenue, including sales to members of

$ 136,470 in 1993 and $ 127,495 in 1992 Operating expenses:

Purchased power Transmission - operation Transmission - maintenance Production - operation Production - maintenance Fuel Depreciation Taxes Administrative and general 31,554 11,940 160 20,882 4,657 7,996 13)806

. 3,956

~MQ 34,448 10,531 98 15,674 6,258 7,263 12,511 4,336

~leak eperating margin before interest and other deductions J

Interest and other deductions (income):

Interest"expense, net ofallowance for funds used during construction of$932 in 1993 and

$ 1,144 in 1992 Other deductions (income), net 34,921 38,465

~m}

Operating income (deficit)

Non-operating margins:

Net nonoperating"rental loss Interest income Other (133) 1,803 (21) 2,840 Net margin

$ 11,407 2,376 Thc accompanying notes arc an integral part ofthe financial sta tcmcnts.

A L L'E G H

E N Y E L E C T R I C' 0 O.P E

R A T I V E--,

I N C.

4

/h-1 STATEMENTS OF EQUITIES for the years ended October 31, 1993 and 1992 (in thou'sands) r

'(

Balance at October 31, 1991 I

r

-Net margin Donated Memberships Capital

$3

$51 Patronage Capital

(

$37,952

'Other Margins; and Eqttitles Total

$(25,937)

$ 12,069 Balance at October 31, 1992 51 37,952 (23,561) 14,445 Net margin Balance at October 31, 1993

= -

.-$3 r

I k

55Z

$51

$37,952

$~12,154 2,

'25,852 r

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5 The accompanying notes are an integral r'art ofthe financial stateinents.

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'" STATEMENTS OF CASH FLOWS I

for the years ended October 31, 1993-and 1992 (in thousands) gb l)%,

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1993 1992 Cash flows from operating activities:

Net margin Adjustments to reconcile net margin to net cash provided by operating activities:

Depreciation and fuel amortization Amortization ofdeferred charges and deferred credits Gain on sale ofother investments Increase (decrease) in cash due to changes in operating assets and liabilities:

Accounts receivable Inventories Other current and non-current assets Deferred charges Accounts payable and accrued expenses Accounts payable to members Other liabilities and deferred credits

$ 11,407 20,181 (93)

(395) 151 105 (470)

(8) 2,201 (4,190) 2,376 19,053 (3,585)

(200) 3,454 (253)

(855)

(33)

(864) 1,734

~ill Net cash provided by operating activities.-

Cash flows from investing activities:

Additions to electric utilityplant and non-utility property (Purchase) redemption ofinvestments in associated organizations Payments received on notes receivable from members Purchase ofother investments Proceeds from sale ofother investments (11,321) 34 376 (12,263)

(16,991)

(i) 362 (8,604)

~l 292 Net cash used in investing activities Cash flows from financing activities:

Proceeds from long-term debt Payments on long-term debt Payment ofdebt repurchase premium 4,417 (11,244) 4,531 (15,919)

Net cash used in financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning ofyear Cash and cash equivalents at end ofyear 12,139

~KL

$ 35,530 (13,726)

$ 23,391 The accompanying notes are an integral part ofthe financial statements.

LLEGHENY ELECTRIC COOPERATIVE, INC.

NOTES TO FINANCIALSTATEMENTS 1.

Summary ofSignificant Accounting Policies:

Allegheny Electric Cooperative, Inc. (Allegheny) is a rural electric cooperative utilityestablished under the laws ofthe Commonwealth ofPennsylvania.

Financing assistance is provided by the U.S. Department ofAgriculture, Rural Electrification Administration (REA) and, therefore, Allegheny is subject to certain rules and regulations promulgated for rural electric borrowers by REA. Allegheny is a generation and transmission cooperative, providing power supply to four-teen owner/members who are rural electric distribution cooperative utilities providing electric power to consumers in certain areas ofPennsylvania and New Jersey.

Allegheny maintains its accounting records in accordance with the Federal Energy Regulatory Commission's chart ofaccounts as modified and adopted by REA.

Electric UtilityPlant and Depreciation:

Electric utilityplant is stated at cost, which includes an allowance for funds used during con-struction. Depreciation for nuclear utilityplant and production assets is provided on the modi-fied sinking fund method under the amended phase-in plan adopted to conform to Financial Accounting Standards Board Statement No. 92, "Regulated Enterprises -Accounting for Phase-in Plans" (Statement No. 92). The straight-line method is used for all other assets, except nuclear fuel. The cost ofunits ofproperty retired or replaced is removed from utilityplant accounts and charged to accumulated depreciation.

Nuclear Fuel:

Nuclear fuel is charged to fuel expense based on the quantity ofheat produced for electric gener-ation. Under the Nuclear Waste Policy Act of 1982, the U.S. Department ofEnergy (DOE) is responsible for the permanent storage and disposal ofspent nuclear fuel removed from nuclear reactors. Allegheny currently pays to Pennsylvania Power &Light Company (PptkL), co-owner ofSusquehanna Steam Electric Station (SSES), its portion ofDOE fees for such future disposal services.

Cost of Decommissioning Nuclear Plant:

Allegheny's portion ofthe estimated cost ofdecommissioning SSES is approximately $37.8 mil-lion and is beingsccrued over the estimated useful lifeofthe plant. Decommissioning costs are included in rates to the extent required to meet the funding schedule approved by the Nuclear Regulatory Commission (NRC). During the year ended October 31, 1993, Allegheny collected from members and charged to income $2.8 millionofpreviously deferred nuclear decommis-sioning costs.

As required by the NRC, Allegheny established a Decommissioning Trust Fund (Trust Fund B) which is restricted for use to ultimately decommission SSES. In a'ccordance with the NRC funding schedule, $ 1.2 millionand $0.9 millionwas funded to Trust Fund B for the years ended October 31, 1993 and 1992, respectively. Allegheny's Board ofDirectors has restricted as of October 31, 1993 and 1992, $3.0 millionand $3.4 million, respectively, ofTrust Fund A for future payments to Trust Fund B. Trust Fund A and B are included in other investments.

Accrued nuclear decommissioning as ofOctober 31, 1993 and 1992 was $8.6 millionand

$7.2 million, respectively.

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Summary ofSignificant Accounting Policies, continued:

-I Allowance for Funds, Used During Constrii ction:

Allowance for funds used during construction represents the cost'of directly related borrowed

~

~

funds used for construction ofor additions to an electric utilityplant. The allowance is capital-ized as a component ofthe cost ofelectric utilityplant while under construction.

r3 Investments in Associated Organizations:

Investments in associated organizations are carried at cost.

Preliminary Surveys:

Costs ofpreliminary surveys for potential development projects are recorded as deferred charges. Ifconstruction ofa project results from such surveys,'the deferred charges are tran's-

'erred to the cost ofthe facilities. Ifa preliminary survey is abandoned, the costs, incurred are charged to operations.

33

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.'..,Cash Equivalents:

For purposes ofth'e;statements ofcash flows, Allegheny considers all highlyliquid investments--

with an original maturity ofthree months or less when purchased to be cash equivalents. Cash equivalents are carried at cost, plus accrued interest.

t r

-3J Inventories:

Allegheny accounts for certain power plant spare parts using a deferred inventory method.

Under this method, purchases ofspare parts'under inventory control are included in an'invento-

, ry account and then charged to the appropriate capital'or expense accounts when the paits are 3

.3

, used or consumed.

- J!

Inventories are carried at the lower ofcost or market value, cost being determined on the average cost method.

)!-

Other Investments: '-

Other investments include mo'ney market funds, U.S. government'obligations, corporate obliga-tions, common stocks (marketable equity securities), and other governmental securities. Money market funds are stated at cost. The U.S. and other government and corporate obligations are stated at amortized cost. Marketable equity securities are carried'at'he lower oftheir aggregate cost or market value. Changes in n'et unrealized losses on non-current marketable equity securi-ties are recorded directly in a separate equities'ccount and are not included in the determina-tion ofnet margin. Realized gains and losses are determined on a specific identification basis..

'r Patronage Capital and Other Margins'and Equities:

Allegheny had established an unallocated equity account, Other Margins and Equities, as a result ofa charge against income in connection with the adoption ofStatement No. 92. This charge against income was recorded as a deficiency in an unallocated equity account since the amount is not allocable.to Allegheny's members. Allnet margins recognized by'Allegheny are required by REA to be used,to reduce this deficiency.

3

', ~Rates:

The Board ofDirectors ofAllegheny has fullauthority to establish electric rates subject to approval by REA.

L-Revenues:

Revenues from the sale ofelectricity're recorded based on billings to members and on contracts J-and scheduled power usages, as appropriate.

ALLEGHENY ELECT 3

r 3

R.-I G COOP ERA'TIVE, INC.

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, Income Taxes:,

Net operating losses for,financial"and tax reporting purposes differ4as a result oftiming differ-ences relating primarilyto depreciation.

Investment tax credits, other than those sold through thesafe'harbor lease arrangement, areaccounted for under the flow-through method whereby

<4 credits are recognized as a reduction ofincome tax expense in the year in which the credit. is uti-lized for tax purposes.

The Financial Accounting Standards Board issued Statement ofFinancial Accounting Standards No. 109,",.Accounting for Income Taxes" (Statement No. 109), which requires a change, effective for the fiscal year beginning November 1, 1993, from the current method of accounting for income taxes pursuant to Accounting'Principles Board Opinion No. 11, to the

. liabilitymethod. Management expects that the adoption ofStatement No. 109 willnot have a material impact on Allegheny's net margin or financial position.

F-1 I

Depreciation/,

Amortization,.

Lives/Rates 1993 1992 (In thousands)

Margin Stabilization Plan and Annual Operating Adjustment Plan:

During 1992, Allegheny established an annual operating adjustment plan,'which has been approved by REA, to replace the margin stabilization plan which was terminated as ofOc'tobcr 31, 1991. Un'der theyrovisions ofthe plan, Allegheny developed a budgeted margin based on a targeted Times Interest Earned Ratio (TIER) of 1.06. Ifthe actual margin realized werc in excess ofthe TIER, Allegheny would record the difference as a reduction ofthe current year's operating revenue and as a liabilityto its members.

'nder the annual operatmg adjustment plan, Allegheny was not permitted to record the dif-ference by which actual margins realized are less than the TIER as an addition to the current

, 'ear's operating revenue and as a receivable from members. The liabilityto membe'rs, ifany ',

'ecorded at the end ofthe year was incorporated into Allegheny's rate structure for'the following year through a cost-of-service billingadjustment made by Alleglienyto its members.

For the year ended October 31,'. 1992, operating revenues were reduced by $4.3 million,due to actual margins exceeding the TIER. This amount was included in accounts payable to mem-bers as ofOctober 31, 1992 and was refunded during the year ended October 31, 1993. In accor-dance with REA requirements this plan was rescinded cffcctive for Allegheny's fiscal year ended October 31, 1993.

W 4

't 2.Electric UtilityPlant In Service:

Electric utilityplant in service consists ofthe followingas ofOctober 31, 1993 and 1992:

4 1

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Nuclear UtilityPlant:

Production Transmission General plant Nuclear fuel Non-Nuclear UtilityPlant 39 years 2.75%

3,% - 12.59o Heat production 3% - 33%

$519,723 39,393 854 M9 Zll 644,681

~>ZL2

$516,345 35,444

'59 UH82Q 637,318 Mal

-Total" 1

4

$ 654 983

$644,429 4 -.

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Susquehanna Steam Electric Station (SSES):

Allegheny owns a 10% undivided interest in SSES.

PP&L owns the remaining 90%. Both partici-pants provide their own financing. Allegheny's portion ofSSES'ross assets, which included

. electric utilityplant in service, construction and nuclear fuel in progress, totalled $653 million

'nd

$645 millionas ofOctober 31, 1993 and 1992, respectively. Allegheny's share ofanticipate'd

'osts for ongoing construction and nuclear fuel for SSES is estimated to be approximately $63 millionover the next five years. Amegheny receives a portion ofthe total SSES output equal to its percentage ownership. The balance sheets and statements ofoperations reflect Allegheny's respective share ofassets, liabilities and operations associated with SSES.

4.

Investments in Associated Organizations:

Investments in associated organizations, at cost, consists ofthe followingas ofOctober 31, 1993 and 1992:

m National Rural Utilities Cooperative Finance Corporation (CFC) Subordinated Term Certificates, bearing interest from 0%

to 5%, maturing January 1, 2014 through October 1, 2080

$3,859

$3,860 1993 7992 (In thousands)

National Rural Utilities Cooperative Finance Corporation Capital Term Certificates 124 142 National Bank for Cooperatives:

Stock certificates 34 48 Other

$4,035

$4,069 Allegheny is required to maintain these investments pursuant to certain loan and guarantee agreements.

5.

Notes Receivable From Members:

Notes receivable from members arise from the lease ofload management equipment to the member cooperatives.

Such notes bear interest at a variable rate (4.811% and 5.189% as of October 31, 1993 and 1992, respectively) and mature at various dates through September 30, 2000.

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6.

Other Inv'estments:

Other investments consist ofthe followingas ofOctober 31, 1993 and 1992:

1993 1992 Cost Market Cost Market (in thousands)

Decommissioning Trust Fund A:

Money market funds U.S. Government securities Corporate bonds Common stocks Other government securities 93 93

$ 103

$ 103 943 967 1,161 1,187 463 481 1,088 1,104 1,269 1,437 1>055 1,153 198 210 2,966 3,188 '3407 3,547 NRC mandated Decommissioning Trust Fu'nd 8:

Money market funds

'U.S. Government securities Corporate bonds Other government securities 69 69 39 39 2,317 2,342 1>403 1,427

',135 132 315 313 I

, ~2933

'~2962

~1757 '1779 Debt Service Reserve Fund:

U.S. Government securities 1,791 1,791 1,796 1,796 Accrued interest receivable 47 47 34 34

$7,737

$7,988

$6,994

$7,156 The gross unrealized gains and losses in the value ofcommon stocks were $200 and $32, respectively, as ofOctober 31, 1993 and $ 172 and $74, respectively, as ofOctober 31, 1992.

Deferred Charges:

Deferred charges consists ofthe followingas ofOctober 31, 1993 and 1992:

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1993 1992 (in thousands)

Unamortized FFB debt repurchase premium Accrued decontamination and decommissioning ofnuclear fuel Nuclear decommissioning costs Low level radiation waste facilitycosts-Safe harbor lease closing'costs"'reliminary surveys

, 4,105 599 230 2,838 502

'242

$ 9,187

$ 9,664

$ 14,156

$ 13,370 1

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8.

Long-Term Debt:

Long-term debt consists principally ofadvances under mortgage notes payable for electric utihty

- plant to REA and to the United States ofAmerica acting through the Federal Financing Bank (FFB) and guaranteed by REA. Substantially all ofthe assets ofAllegheny are pledged as collateral.

Long-term debt consists ofthe followingas ofOctober 31, 1993 and 1992:

Advances under mortgage notes payable to FFB at interest rates varying from 3.263% to 10.734%

in 1993 and 4.879% to 10.734% in 1992, due in varying amounts through 2021 1993 1992 (in thousands)

$470,222

$476,462 Pollution Control Revenue Bonds, payable semi-

<'nnually, including interest through 2014.

Variable rates ranged from 1.75% to 4.25%

in 1993 and 1.750/0 to 6.50% in 1992 Mortgage loan payable to CFC, payable in various quarterly installments, including interest through January 2015. Variable rates ranged from 4.25% to 5.00% in 1993 and 5.00% to 6.625%'n 1992 26,200 1,903 26,600 1,939 Notes payable to CFC, payable in various quarterly installments, including interest through October 2019. Variable rates ranged from 4.25% to 5.00% in 1993 and 5.00% to 6.625% in 1992 3,048 3>075 5% mortgage notes payable to REA due in varying amounts through 2019 Less current portion 508,648 515,475

$496,411

$504,127 Allegheny has the option on advances under long-term mortgage notes payable to FFB to elect (subject to REA approval) a short-term interest rate with an interim maturity date oftwo years after the date ofthe advance. At the date ofthe advance or on the maturity ofan interim advance, Allegheny may also designate that it desires a long-term interest rate with a long-term maturity up to a maximum of34 years from the end ofthe calendar year in which the note was issued.

As ofOctober 31, 1993 and 1992, Allegheny had elected short-term interest rates with interim maturities on advances under these mortgage notes payable to FFB of$60.7 millionand

$82.6 million,respectively. The remaining advances under mortgage notes payable to FFB have previously been converted to long-term interest rates and maturities. As ofOctober 31, 1993, Allegheny had $60.7 millionofadvances which are scheduled'to mature and have interest rates reset within one year. Allegheny intends to roll these advances over for additional two-year peri-ods or to extend them to long-term maturities, in accordance with the mortgage agreement.

, Effective August 31, 1992, Allegheny executed a three-'party agreement modifying promisso-'y note with FFB and REA resulting in a one-time reduction ofthe interest rates on certain ALLEGHENY ELECTRICCOOPERATIVE, ING,.

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advances made to Allegheny by FFB under the original mortgage notes. Total outstanding advances modified under the agreement amounted to $ 122.0 million. Under terms ofthe agree-ment, Allegheny was required to pay a repurchase premium, as calculated by REA, of$9.7 mil-lion. This premium was recorded as a deferred charge and willbe amortized over the remaining term ofthe advances modified by the agreement.

Long-term Pollution Control Revenue Bonds (Bonds) were issued by an industrial develop-ment authority on Allegheny's behalf. The Bonds are subject to purchase on demand ofthe holder and remarkcting on a "best efforts" basis until the Bonds are converted to a fixed interest rate at Allegheny's option. Ifa fixed interest rate is established for the Bonds, the Bonds will cease to be subject to purchase by the remarketing agent or the trustee. The Bonds are collateral-ized by irrevocable letters ofcredit from Rabobank Nederland which are backed by a five-year credit facilityin the event the bondholders tender the Bonds prior to the conversion to a fixed interest rate and the Bonds cannot be rcmarketed.

The stated amount ofthe lcttcrs ofcredit are equal to the amount ofoutstanding'Bonds plus an amount equal to sixty-fivedays'nterest accrued on the Bonds at 12%. The indenture agreement contains various redemption provisions with redemption prices ranging from 100% to 103%. Included in other investmcnts, at both

-- October 31, 1993 and 1992, are $ 1.8 millionofinvestments which relate to a debt service reserve fund required under the bond indenture.

Future maturities ofall long-term debt for the next five years are as follows (in thousands):-

1994

$12,237 1995 12,760 1996 13,302 1997 13,985 1998 14,713 The above inaturity schedule reflects management's intent to convert advances under mort-gage notes payable to FFB with interim maturity dates to long-term debt.

.As ofOctober 31, 1993, Allegheny had unadvanced portions ofcertain existing REA, FFB and CFC long-term commitments of$36.3 million.

Allegheny is required by mortgage covenants to maintain certain levels ofinterest'coverage and annual debt service coverage.'llegheny was in compliance with such requirements as of October 31, 1993 and 1992.

Certain ofAllegheny's long-term debt is at variable interest rates and is therefore subject to various market and interest rate fluctuations.

'During 1993 and 1992,'Allegheny incurred interest costs of$35.9 millionand $39.6 million, respectively, ofwhich $0.9 millionand $ 1.1 million, respectively, was capitalized as part ofthe construction ofthe electric utilityplant. Interest, paid, net ofamounts capitalized, was $35.1 mil-lion and $39.0 million,respectively.

9.

Deferred Credits; Deferred credits consists ofthe followingas ofOctober 31, 1993 and 1992:

SSES inventory adjustment 1992 cash settlement (See Note 12)

Raystown lease gain Deferred compensation arrangement with PREA

$1,490 1,167 1,674 1993 1992 (in thousands)

$2,980 2 333 1,741

$4,442

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10. Income Taxes:

As ofOctober 31, 1993, Allegheny had available non-member net operating loss carryforwards ofapproximately $207.0 millionfor tax reporting purposes expiring through 2007 and invest-ment tax credit carryforwards ofapproximately $22.1 millionexpiring through 2003. Allegheny also had operating loss carryforwards attributable to member activities ofapproximately $ 111.0 millionfor tax reporting purposes which may be carried forward indefinitely.

11. 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, 1993 and 1992 were approximately $4.4 millionand $4.0 mil-lion, respectively.

12. Commitments and Contingencies:

Insurance:

Allegheny and PP8tL are members ofcertain insurance programs which provide coverage for property damage to members'uclear generating plants. Allegheny's portion ofthe facilities at

,SSES is insured against property damage losses up to $21.5 millionunder these programs.

Allegheny is also a member ofan insurance program which provides coverage for the cost of replacement power during prolonged outages ofnuclear units caused by certain specified condi-tions. Under the property and replacement power insurance programs, Allegheny could be assessed retrospective premiums in the event the insurers'osses exceed their reserves.

The max-imum amount Allegheny could be assessed under these programs during the current policyyear is $0.9 million.

Allegheny's public liabilityfor claims resulting from a nuclear incident is currently limited to $780.7 millionunder provisions ofthe Price-Anderson Amendments Act of 1988 (Act), which extended the Price-Anderson Act to August 1, 2002. AHegheny is protected against this potential liabilityby a combination ofcommercial insurance and an industry retrospective assessment program.

In the event ofa nuclear incident at any ofthe facilities owned by others and covered by the Act, Allegheny could be assessed up to $ 12.6 millionper incident, but not more than $2.0 mil-lion in a calendar year.

Safe Harbor Leases:

Allegheny previously sold certain investment and energy tax credits and depreciation deductions pursuant to a safe harbor lease. The proceeds from the sale, including interest earned thereon, have been deferred and are being recognized on the statements ofoperations over the 30-year.

term lease. The net proceeds and related intei'est were required by REA to be used to retire out-standing FFB debt.

Under the term ofthe safe harbor lease, Allegheny is contingently liable in varying amounts in the event the lessor's tax benefits are disallowed and in the event ofcertain other occurrences.

The maximum amount for,which Allegheny was contingently liable as ofOctober 31, 1993 was, approximately $ 17.0 million. Payment ofthis contingent liabilityhas been guaranteed by CFC.

'itigation:

In the normal course ofbusiness, there are various claims and suits pending against Allegheny.

In the opinion ofAllegheny's management, the amount ofsuch losses that might result from these claims and suits, ifany, would not affect materially the financial statements.

ALLEGHENY ELECTRIC COOPER'Al'IVE, INC.

Settlements:

In May 1992, Allegheny received a settlemcnt of$3.5 millionin cash. Allegheny recorded the

$3.5 millioncash settlement as a deferred credit to be recognized as income over three years. In addition, Allegheny willreceive $4.5 millionthrough non-cash discounts on purchases ofcapital equipment, ofwhich, $ 1.7 millionwas utilized as ofOctober 31, 1993.

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13. Sale/Leaseback Arrangement:

Allegheny previously completed a sale and leaseback ofits hydroelectric generation facilityat the Raystown Dam (the Facility). The Facility was sold to a trustee bank representing Ford Motor Credit Company (Ford) for $32.0 millionin cash. Under terms ofthe arrangement, Allegheny is leasing the Facility from Ford's trustee for an initialterm of30 years. Payments under the lease are due in semi-annual installments which commenced January 10, 1989. Atthe cnd ofthe 30-year term, Allegheny willhave the option to purchase the Facility for an amount equal to the

'acility's fair market value or for a certain amount fixed by the transaction documents (deter-mined by 1988 appraisal ofthe then foreseeable residual value at the end ofthe lease term),

whichever is less.

Allegheny also has the option to renew the lease for a five-year fixed rate renewal and three fair market renewal periods, each ofwhich may not be for a term ofless than two years.

Payments during the fixed rate renewal period are 30% ofthe average semi-annual installments during the initiallease term. Allegheny willretain co-licensee status for the Facility throughout the term ofthe lease. The gain of$ 1.9 millionrelated to the sale is being recognized over the lease term in the same proportion that the annual rental payments relate to total rental pay-ments.

The payments by Allegheny under this lease were determined in part on the assumption that Ford willbe entitled to certain income tax benefits as a result ofthe sale and leaseback ofthe Facility. In the event that Ford were to lose all or any portion ofsuch tax benefits, Allegheny would be required to indemnify Ford for the amount ofthe additional federal income tax payable by Ford as a result ofany such loss.

The leaseback ofthe Facility is accounted for as an operating lease by Allegheny. As of October 31, 1993, future minimum lease payments under this lease, which can vary based on the interest paid on the'debt used by Ford to finance the transaction, are estimated as follows (in thousands):

1994

$ 2,361 1995 2,361 1996 2 237 1997 2)078 1998 2,361 Thereafter ALEE Total minimum lease payments

$59,774 The future minimum lease payments shown above are for the initiallease term and the five-year renewal period. These payments are based on an assumed interest rate of8.8% and may fluctuate based on differences between the future interest rate and the assumed interest rate.

Rental expense for this lease totalled $ 1.8 millionfor each ofthe years ended October 31, 1993 and 1992, respectively.

14. Concentrations of Credit Risk:

Allegheny is comprised ofmember rural electric cooperatives, whose operations are located in Pennsylvania and New Jersey. The member cooperatives'rimary service areas are small com-munities located throughout much ofrural Pennsylvania and New Jersey.

Allegheny's investments are invested in a variety offinancial instruments.

The related values as presented in the financial statements are subject to various market fluctuations which include changes in the equity markets, interest rate environment and the general economic conditions.

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15. Government Regulations:

The Energy Policy Act of 1992 established, among other things, a fund to'pay for the decontami-nation and decommissioning ofthree nuclear enrichment facilities operated by DOE. Aportion ofthe fund is to be collected from electric utilities that have purchased enrichment services from DOE and willbe in the form ofannual special assessments for a period not to exceed more than 15 years. The special assessments willbe based on a formula that takes into account the, amount ofenrichment services purchased by the utilities in past periods.

Allegheny recorded its share ofthe liabilityin December 1992 in connection with PP&L's recognition ofthe liabilityin accounts ofSSES. Allegheny's share ofthe liabilityis $4.4 million which willbe paid over a period of 15 years. Allegheny recorded its share ofthe liabilityas a deferred charge which willbe amortized to expense over 15 years consistent with the ratemaking treatment.

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76. Fair Value of Financial Instruments:

The followingmethods and assumptions were used to estimate the fair value ofeach class of financial instruments:

Cash and Cash Equivalents:

The carrying amount reported approximates fair value because ofthe short maturity ofthese financial instruments.

Other Investments-and Investments in:Associated Organizations:

The'fair value ofother investments are estimated based on quoted market prices. Fair values of investments in associated organizations approximates their carrying amount.

Notes Receivable from Members:

The carrying amount ofAllegheny's notes receivables from members, which primarilyrelate to sales-type leases, approximates fair value because the notes bear a variable-rate ofinterest which is reset on a frequent basis.

Long-Term Debt:

The carrying amount ofAllegheny'svariable-rate long-term debt approximates fair value. The fair value ofAllegheny's fixed:rate long-term debt is estimated using discounted cash flows based on current rates offered to Allegheny for similar debt ofthe same remaining maturities.

The estimated fair values ofAllegheny's financial instruments at October 31, 1993, arc as follows:

Cash and cash equivalents Other investments Investment in associated organizations Notes receivable from members Long-term debt 7 737 4,035 3,354, (508,648) 7,988 4,035 3,354 (520,789)

Carrying Fair Value Value (in thousands) 35,530 35,530 ALLEGHENY ELECTRICCOOPERATIVE, INC..