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.
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ML17158A264	List: ML17158A263 ML17158A265 ML18017A270
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NUDOCS 9405110342
Download: ML17158A265 (36)

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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, it serves 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 of the electric distribution lines in Pennsylvania, covering nearly one-third of the state's land area in 41 counties. These lines represent one of the 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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1 9 9 3 A N N U A L R E P 0 R T

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

This rate stability success did not just happen. The Allegheny Board of Directors 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 /esse C. Tiltan ill, president (left) and Dave E. Turner, chairman period of 1988 through 1993 increased on average just 1.1 percent annually.

During 1993, we have made significant strides to ensure that this rate stability will continue into 1994. As approved by the board, Allegheny's projected net-billed power cost to its member cooperatives during 1994 will be reduced by 2.2 mills per kilowatt-hour (kWh), to 59.03 mills per kWh about the rate charged in 1988. Compared to the 1993 net-billed power cost figure of 61.24 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 of high-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 will grow at an annual rate of 2.35 percent through the year 2012. Our 10 percent share of the Susquehanna Steam Electric Station, a two-unit nuclear power plant located near Berwick, Pa., will grow in value as Mid-Atlantic power 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 of reasonably-priced electricity.

1 9 9 3 A N N U A L R H P 0 R T

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

In 1993, Allegheny delivered wholesale electricity to its 14 Kent Springman, Allegheny staff member rural electric distribution cooperatives at a net-accountant, examines spreadsheets billed rate of61.24 mills per kilowatt-hour, a 2 percent as part of Allegheny's team effort decrease froin 1992 actual rates. The decrease was the to control rates for its member fourth in the last five years. rural electric cooperatives. One result: Allegheny's repricing of Allegheny is proud ofits rate stability efforts. Over the past S 123 million in high. interest Rural six years, the Allegheny EC Board ofDirectors has carefully Electrification Administration-weighed complex alternatives to produce these accomplish-guaranteed Federal Financing Bank ments for its member cooperatives. In 1993, the board loans in late fiscal 1992 provided a approved a number of varied financial and power supply net savings of 51.42 million in initiatives.

1993 and will provide on For example, aggressive inarketing ofsurplus energy saved additional $ 19 million over the Allegheny member cooperatives $ 4.2 million during the term of the loans. Efforts by Kent year. Allegheny's repricing of$ 123 million in high-interest and other staff members make Rural Electrification Administration-guaranteed Federal those and other savings possible.

Financing Bank loans in late fiscal 1992 provided a net savings of$ 1.42 million in 1993 and willprovide an additional $ 19 million over the term of the loans. Success in ALLEGHENY ELECTRICCOOPERATIVE, INC.

opposing proposed private power company wholesale rate increases for purchased 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 utilities in 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 of nuclear 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 of the actual 2 percent when contpared to 1992 rates.

The period ofstability has seen net-billed average power costs to the member Level Compound Annual Increase Allegheny wholesale Rate To Members cooperatives increase 12%

by 1.1 percent 10%

annually since 1987 (see chart).

In contrast, during the period from 1978 through 1987, Allegheny's net-billed 0%

LLLLH 1978 1979 1980 1981 1982 1983 1984 198$ 1986 1987 1988 1989 1990 1991 1992 1993 I 9 9 3 A N N U A L R E P 0 R T

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

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

Long before conservation and demand-side management became an important part of most utilities'lanning /im Line, one of Allegheny's load efforts, Allegheny, along with its member systems, management operators, monitors developed the Coordinated Load Management System. load and demand conditions in Allegheny's Coordinated Load Allegheny's load management system uses computer Management Control Center.

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

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. cooperatives by more than $ 11 million.

The system has been further refined by agreements between Allegheny and sotne of the private power companies that allow "real time" monitoring of the private companies'ystem loads, providing a more accurate picture of electric 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 .g Hydroelectric Project, located near Huntingdon, Pa., and g jJ the Susquehanna Steam Electric Station (SSES), located near Berwick, Pa. These facilities are part of the co-op's long-tenn strategy to diversify its power supply sources and Mary Ann Hosko, center, is flanked pursue a balanced energy program, emphasizing by Dick Osborne, left, and Steve environmentally-benign generation, such as hydropower, Shirey as the trio discusses and sources not contributing to acid rain, such as nuclear.

additions to Allegheny's Back in 1966, Allegheny anticipatedfuture needs and transmission system. Mary Ann, started building a framework ofvaried power sources. As a Allegheny principal engineer, preference customer, it began purchasing hydropower construction and hydro operations; generated at the publicly-owned Niagara Power Project Dick, manager of operations; and from the Power Authority of the State ofNew York Steve, system planning engineer, (PASNY). As a result ofsuccessfi(1 engineering and make sure Allegheny's existing and litigation efforts to protect its rights to this allocation, this new loads are reliably served at the extremely low-cost hydropower has saved Allegheny more least possible cost. That's no small than $227 million compared to the cost ofpower it would feat considering the rough terrain have needed to buy from private power companies. and remote areas they encounter when building transmission In 1977, Allegheny continued developing reliable energy projects.

sources when it contracted 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.

t 9 9 3 A N N U A L R E P 0 R T

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

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

This power supply mix means that nearly 75 percent of the energy delivered by Allegheny comes from technologies that Barbara Lund and Steve Ciles review don't pollute the air. This is very critical, because tough power-use profiles of Allegheny's 14 regulations from the 1990 federal Clean AirAct will member distribution cooperatives.

translate into higher electric rates for customers served by Among other duties, Steve, principal private power companies that get almost all of their electric engineer, power supply, and Barbara, power from plants that burn fossil fuels. But Allegheny's Allegheny planning engineer, areinstru-member rural electric cooperatives won't experience rate mentol in Allegheny's efforts to obtoin shock from having to pay for cleaner air since Allegheny sufficient, low-cost power and ensure that prudently invested in generating resources which do not the cooperatives willbenefit from contribute to air pollution. Allegheny's participation in the wholesale power market. Aggressive marketing of The years ofsuccessful rate control were also accomplished amid several factors which ifnot dealt with could surplus energy saved Allegheny member cooperatives $ 4.2 migion in 1993. Long-have driven costs much higher.

term contracts for extremely low.cost The challenge Allegheny faced in 1987 and in following hydropower has saved the co-op more years was how to control rates amid financial burdens such than $ 227 million since it became a pref-as construction risk from commitments to our load erence customer of the Power Authority of management and Raystown Hydroelectric projects, as well the State of New Yorkin 1966.

A L L E G H E N Y E L E C T R I C C 0 0 P E R A T I V E I N C.

as SSES capacity entering the rate base. Also, litigation over low-cost power allocations from PASNY included 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. The Allegheny Board of Directors tracks developments in all areas In addition, the Raystown Hydroelectric Project was under legal, financial, political and construction and Allegheny faced the uncertainties of that Impact on the engineer/ng potential construction cost overruns and operating risks cost of providing electricity to once the project caine on line.

those who depend on the co-ops for power. The board carefully Also during these years Allegheny has had to absorb some weighs complex alternatives and big increases in the cost ofpurchased power, as much as 42 then acts quickly to direct the staff percent in the case of one supplier. Allegheny's share of to take appropriate actions that federal and state taxes has increased 34 percent since 1987; produce cost savings and other the co-op has also absorbed the rate impact of$ 11 million benefits for the member in transmission facilities constructed for member co-ops.

cooperatives.

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

All these add up to six years of rate 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.

I 9 9 3 A N N U A L R E P 0 R T

llegherty Board of Directors

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

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

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L Anson Broslu+s Harold Rltchey L

United EC Voile REC 1 9 9 3 A N N U A L R E P 0 R T

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.

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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 $ 20,540,272 $ 7,636,774 $ 11,956,067 $ 9,871>036 $2,514,206 $ 11,411,980 Operations & Maintcnancc $ 5,661,972 $ 2,096,571 $4,633,806 $ 3,977>162 $ 915,699 $ 3,903,656 Depreciation $ 1,661,623 $ 398)714 $ 1,081,898 $ 1,222,606 $ 50,535 $ 1>003,378 Taxes $ 270,570 $ 83,471 $ 163,142 $ 246,468 $ 113,090 $ 244,761 Interest $ 1>842,906 $ 307>927 $ 1,034,460 $ 956,360 $0 $ 889,992 Cost of Electric Service $ 29,977,343 $ 10,523,457 $ 18,869,373 $ 16>273,632 $ 3,593,530 $ 17,453,767 Operating Margins $ 2,231,507 $ 12,246 $ 796,208 $ 392,084 ($207,577) $ 793,044 Non-Operating Margins tk Capital Credits $ 186,087 $ 53,168 $ 324,954 $ 66,983 $ 24,630 $ 167,400 Net Margins $ 2>417,594 $ 65,414 $ 1>121>162 $ 459>067 ($ 182>947) $ 960,444 Assets Total UtilityPlant $ 56,713>225 $ 15>593,288 $ 40,166,461 $ 38,536,005 $ 3,306,595 $ 36,664,220 Less Accumulated Depreciation $ 12,789,937 $ 4,584>205 $ 10,339>064 $ 9,645,811 $2,202,670 $ 10,283)240 Net UtilityPlant $ 43,923>288 $ 11,009,083 $ 29,827>397 $ 28,890,194 $ 1,103,925 $26,380,980 Other Property & Invcstmcnts $ 7,671,765 $ 2,256,498 $ 5>419>818 $ 4)112,215 $ 697>711 $ 5,862>620 Current & Accrued Assets $ 4,671>584 $ 2,027>958 $ 5,380,572 $ 2,328,931 $ 500,204 $ 2,692,460 Deferred Debits $ 123,633 $ 93,093 $ 64,663 $ 132,912 $0 $ 829,550 Total Assets $ 56,390,270 $ 15)386>632 $ 40,692,450 $ 35,464,252 $ 2)301)840 $ 35>765,610 I.fabiiitles Margins & Equities $ 21,674,030 $ 7,104,936 $ 16,213,446 $ 12>594,042 $ 2>115,621 $ 14,865,120 Long-Term Debt $ 32,353,130 $7,020,325 $ 21,879,379 $ 21,375,707 $0 $ 18,843>740 Current & Accrued Liabilities $2,351,766 $ 942,483 $ 2,336,825 $ 1>411>187 $ 186,219 $ 2>011,750 Other Credits & Reserves $ 11,344 $ 318>888 $ 262,800 $ 83>316 $0 $ 45,000 Total Liabilities $ 56,390,270 $ 15,386,632 $40,692,450 $ 35,464,252 $ 2,301>840 $35,765,610 Other Statistics Miles of Line 2>512 l>160 2>967 2)458 379 2,383 Consumers Served 23>332 7>970 22,124 15>742 2>783 16,574 Consumers pcr Mile 9.3 6.9 7.5 6.4 7.3 7.0 kWh Sold pcr Consumer 13,567 14>411 8,243 9,374 13>216 10,905 mWh Sales 316,534 114,859 182>364 147>562 36,781 180,740 Annual Revenue per Consumer $ 1>380 $ 1,322 $ 889 $ 1>059 $ 1>217 $ 1,101 Plant Investment per Consumer $ 1>883 $ 1>381 $ 1,348 $ 1>835 $ 397 $ 1,592 Revenue per Mile of Linc $ 12,822 $ 9,081 $ 6,628 $ 6,780 $ 8>934 $ 7>658 ALL EGHENYELECTR I C COOP ERAT I VE I NC.

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

$ 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 $ 16,938,601 $ 2,662>962 $ 6>855,095 $ 8,037>406 $ 8,405,971 $ 12,019,723 $ 2>964,880 $ 132,290,690

$ 1,923,496 $ 3,993,068 $ 814,589 $ 2,744)518 $ 3,639,405 $ 4)087>922 $ 3,256,870 $ 1)216,707 $ 42,865,440

$ 612,936 $ 961>113 $ 282,848 $ 794,178 $938,779 $ 957,687 $ 1,071)654 $ 326>304 $ 11>364,253

$ 145,006 $ 176,971 $ 41,154 $ 1>430,873 $ 183,681 $ 142,631 $ 161,027 $ 62,303 $3,465,148

$ 680,618 $ 1)017,238 $ 235,909 $ 725>680 $ 982>816 $ 1>308)549 $ 692)797 $ 122,185 $ 10,797,438

$ 13,837,773 $ 23,086,991 $ 4,037>463 $ 12,550,344 $ 13,782,087 $ 14,902,760 $ 17,202)071 $ 4>692,380 $200 782 969

$ 998>163 $ 443)034 $ 254,493 $240,969 $ 885,768 ($ 15,727) S I >817)405 $ 367,490 $9,009,108

$ 128,271 $ 124,278 $ 35,704 $ 104)914 $ 97)111 $ 172>418 $ 195,211 $ 59>133 $ 1>740,263

$ 1>126,434 $ 567>312 $290,197 $ 345,883 $ 982,879 $ 156,691 $ 2>012)616 $ 426,623 $ 10,749,371

$ 23>849, 171 $ 37,092,161 $ 10,126,748 $ 25>576,030 $ 37,024,785 $ 37,775,910 $ 38,796,852 $ 11,976,114 $ 413,197>565

$ 5>662,961 $ 6,409,645 $ 3)342>465 $ 6,467,859 $ 9,048>276 $ 10,147>993 $ 11>032)656 $ 3,951,973 $ 105,908,754

$ 18) 186,210 $30,682,516 $ 6>784>283 $ 19>108)171 $27,976,509 $ 27)627>917 $ 27,764,196 ~

$ 8,024,141 $ 307,2881811

$ 4,532>177 $ 6,216,499 5l>199,365 $2,703,826 $ 3,696,059 $ 5)048,657 $ 4)670,218 $ 1>701>295 $ 55,788,723

$ 3>443,715 $ 1,988,012 $ 933>084 $ 3,624,841 $ 1,949,071 $2,357,166 $ 4,827>948 $ 1>237>415 $ 37)962>962

$ 51>011 $ 71,243 $ 27,467 $ 329>860 ($ 48)945) $ 159>676 $ 22,933 $ 480,021 $ 2>337>115

$ 26,213,113 $38,958,270 $ 8)944>199 $ 25,766,698 $ 33,572,694 $ 35,193,416 $ 37,285,295 S I I >442,871 $ 403>377>611

$ 11>807>965 $ 18,528,159 $ 3) 341>175 $ 8>688,039 $ 13,065>306 $ 11>186,796 $ 20,143,073 $ 8>004,346 $ 169,332)055

$ 13,259,140 $ 18,582,429 $ 5)265,483 $ 14,830,846 $ 18,049,022 $ 22,381,611 $ 14,657>871 $3,002,966 $ 2111501)651

$ 988,232 $ 1,780,885 $ 337,473 $ 21203>452 $ 2)431)984 $ 1,131)588 $ 2,118,182 $ 189,105 $ 20>421,131

$ 157,776 $ 66>797 $ 68 $ 44)361 $ 26,382 $ 493)421 $ 366,168 $ 246,454 $ 2>122>775

$ 26,213,113 $ 38)958,270 $ 8,944,199 $ 25>766)698 $ 33)572)694 $35,193,416 $37,285,295 $ 11>442,871 $ 403,377,'611 1>857 2,435 810 618 2,935 2)630 2,442 1,020 26,605 11>295 19>908 5,078 IO>105 16,282 17,048 18,187 8>466 194>894 6.1 8.2 6.3 16.4 5.5 6.5 74 83 7.3 14,094 12>444 7>768 10,702 6,986 6,965 9,946 5>138 10>212 159>189 247>738 39,446 108>145 113)752 118,739 180,895 43,495 1>990,239

$ 1,313 $ 1>182 $ 845 $ 1,266 $901 $ 873 $ 1,046 $ 598 $ 1,076

$ 1)610 $ 1>541 $ 1,336 $ 1)891 $ 1>718 $ 1)621 $ 1,527 $ 948 $ 1,577

$ 7,989 $ 9)663 $ 5,297 $ 20>708 $ 4,998 $ 5,661 $ 7)788 $ 4>962 $ 7,885 19.9 3ANNUALREPORT

llegheny Electric Cooperative, Inc. Five-Year Financial Statefnent 1993 1992 1990 1989 ASSETS UtilityPlant In Service $ 663,745429 $ 648,947,342 $640,405,919 $ 633,120317 $ 616,987,394 Construction Work in Progress 7,691,431 14,214,117 11,495,760 5,903,441 9/40,232 TOTAL PlANT 671,436,660 663,161,459 651,901,679 639,023,658 626,227,626 Accumulated Provision for depreciation Bc amortization 184.785>043 167>818,423 154,581,169 137,581837 88,725,714 NET PLANT 486,651,617 495,343,036 497>320,510 501,442,121 537401,912 Non.Utilityproperty net 4,741,483 4,910,988 5,010,441 4,970,628 5,055,971 Capital Credits NRUCFC 123,863 141430 125,292 296,167 322,609 Investments in associated organizations 3,877,412 3,878,851 3,879,055 3,879,261 3,879,452 Other Investments 5,945,338 5,197,077 4,628,698 4,012>303 Cash general funds 1,803,376 (99,816) 640,291 (887) (457,634)

Cash construction fund 48,827 48,695 1,889 12,103 1,483 Temporary invcstmcnts 35,300,281 23,226/22 36.895437 47,019>705 35,078,414 Special funds 1>853>754 1,874>311 I 889 548 1,901,112 1,903,823 Notes receivable 2,899,199 3367,637 3,695,755 4,148,632 Accounts receivable IO/48,722 10350,153 13>766,227 11~9,690 13,734,646 Materials gr Supplies Other 4,841,574 4,947,032 4,694,020 0 0 Prepayments 5,022 W9 5450,031 1,133,323 1,113,921 1,052,028 Other current gr accrued assets 758682 2466,810 1,047,743 574,342 342,028 Unamortized Debt 8< Extraordinary Loss 9,186,633 9,663,537 0 0 0 Deferred debits 4,969,726 3,706,835 ~ 2,643,004 499300 1350,929 TOTAL ASSETS $578,272,956 $574,072,929 $ 577g71,333 $ 581,418,298 $ 599,765,661 LIABILITIES hiemberships $2,800 $ 2,800 $2,800 $ 2AOO $ 2,800 Patronage Capital 25,799,724 I4,390,760 12,012.827 9,921,071 38,941>810 Donated Capital 50,730 50,730 50,730 50,730 50,730 Long-term debt REA 7,145,468 7,395,044 7,413,005 5,623,571 4,010,892 Long. term debt-Other 489,765,602 508,080,384 508,537,785 516,407,133 522,511,395 Notes payable 0 0 0 0 0 Accounts payablc 20,729,001 6,183,734 16,830,638 18,923476 4287>707 Cost of service adjustment 0 4490466 2,541,259 6,416,815 4,893,235 Accrued taxes 3/63,474 3,815,257 1>815,246 545,874 551,844 Accrued Interest 2,961>499 3,052,458 308277 3~2,011 3/48,615 Other current gc accrued liabilities I,142376 1,720,611 507,177 683@32 664,308 Deferred credits 18460,995 17>926,267 18,130,598 15,187,468 16,461,128 Opemting Reserves 8851,387 7,164>618 6,019,991 4,153,917 4,041,197 TOTAL LIABILITIES $ 578,272,956 $574,072,929 $ 577871,333 $581,418,298 $ 599,765,661 MEMBERS REVENUES Adams $ 21 ~ 197+87 $ 19,370,045 $ 18,201,477 $ 16,920,011 $ 16,459,644 Bedford 7,823,978 5,533,837 5,180,138 4,948,332 4,934,084 Central 12,440,545 11,978,858 11>410,378 11,170,252 I I,I23,586 Claverack 10,190,633 9,611,069 8,901,042 8,739,960 8,678,763 New Enterprise 2,594,162 2,429,877 2,301,401 2,214,818 2,183J82 Northwestern 11,777,718 11,186,991 10,484,591 10,323,184 10,375,739 Somerset 10,746,691 9,793,753 9,106,826 8,737>337 8,772,896 Southwest Central 17,500,924 17,142,057 16,166.475 14,825,514 14.548,709 Sullivan 2,733,274 2,619,317 2,390,'777 2,345,952 2,344,198 Sussex 7,085,973 6,778,523 6434,524 6,312,906 6,333,850 Tri-County 8,205315 7,906,011 7,450,527 7>199562 7>194,547 United 8>681,407 8,279,836 7>948,551 7,664,418 7,814,898 Valley 12,420,172 11,694,928 11,123,000 10,650,759 I0455,639 Warren 3,071,610 3,159,358 3,180,783 3,084,646 3,114,060 TOTAL MEMBER REVENUES $ 136,470,189 $ 127,484,460 $ 120,380,490 $ 115,137,651 $ 114,434,195 A L L E G PI E N Y E L E CTRI C COOP ERATI V E, INC.

1993 1992 1991 1990 1989 ELECTRIC ENERGY SALES Members $ 136,470,189 $ 127,484,460 $ 120,380,490 $ 115,137,651 $ 114,434,195 Non.htembers 8,164,962 5,935,149 24,966,421 14,109,954 16,057,630 Total Receipts 144,635,151 1331419,609 145,346,911 129>2471605 I30rt91,825 Cost of Power 31,553,808 34,447,974 43,054451 32,085,914 33,358,887 IVheeling 11,459,410 10,168,786 8,880,653 9,249,841 8,345,773 RAYSTOWNC Operation & hfaintenance 2,322,749 2~1,109 2320,600 2,560,147 2346361 Interest 0 0 0 0 0 Transmission 185,863 128,693 206,809 183,550 200/2I Taxes 25,045 23>918 23,293 19,385 16,884 OTHER PROJECTS:

Operation & hlaintenance 438,051 290,689 300,322 123,663 Transmission 216343 62,549 15,401 24,052 Depreciation 716482 588,886 509,847 466,190 Taxes 27,751 18,912 3,352 0 SSES:

Generation Operation & hlaintenance- 23,190,448 19,697,503 20,958,143 18,024,408 18,518,905 Fuel 7,996,407 7>263,452 8,452>974 9,512,667 9,413,177 Depreciation 12,058,366 10,931,235 9,967,034 9,034,865 9,376,144 Taxes 3,893,145 4,282,906 4343,498 3,437,242 3,429,845 Transmission htaintenancc 264,984 272,597 293,213 216,007 317,266 Depreciation 791,559 804,90S 804,907 804,907 804,768 Interest 35,853,299 39,608,659 42319,156 43,018385 42,724,066 Interest charged to Construction Credit (932,253) (1,143,974) (1,041,514) (909,146) (1,233,918)

General & administrative 5,913,316 5,716,858 5,559,603 5,315,694 5,153>748 Total operation expense 135,974,873 135,395,660 146,871,542 133,167,671 132,772,327 Depreciation 239,342 186,884 159,063 131,397 134,988 Taxes 172360 169,063 I4IJ82 136,143 109,750 Other deductions 101,787 (410,374) (662493) 30,417,247 (701,433)

Toto/ Expenses 136,488,362 135,341,233 146,509J94 163,852,458 132,315,632 Operating margins 8,146,789 (1,921,624) (1,162,683) (34,604,853) (1,823,807)

Interest income 1,803,324 2,845,352 3,691,751 4,636,182 4,328>040 Other profit/(loss) net 1,458,851 1,397,724 10,081 1,462,261 28,940 Other capital credits 0 55,068 0 29,912 21,184 NET MARGINS $ 11>408,964 $2,376,520 $ 2,539,149 ($ 28,476,498) $ 2,554,357 1 9 9 3 A N N U A L R H P 0 R T

llegheny 1993 Financial Revietv Allegheny earned record high margins of $ 11.4 million in 1993. This was primarily the result of higher 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 million of 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 of the TIER goal would flow back to member cooperatives the following year 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 of total expenses.

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

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

REA INSURED AND GUARANTEED LOANS: A blend of REA insured and guaranteed loans con-tinues to make up thc majority of Allegheny'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 of the Raystown Hydroelectric Project assists in low-ering the carrying cost of the project. Under the lease agreement, Allegheny controls the placement of $ 20.5 million of lease 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 million for 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 Minimum Tax (AMT) pro-visions of the Internal Revenue Code. Allegheny believes that the tax liabilities arising from the AMTwill remain 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 of directors and thus are not under the juris-diction of the Pennsylvania Public UtilityCommission or the New Jersey Board of Regulatory Commissioners. However, REA does review the cooperative's ratemaking and operating practices.

Allegheny's board of directors 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 of the ratemaking process and approval of each rate change assures the member cooperatives that the price they pay for electricity is fair and reasonable.

ALL-REQUIREMENTS CONTRACT: Each of the 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 of loans 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.

1 9 9 3 A N N U A L R E P 0 R T

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 of Allegheny's member cooperatives executed an amendment to the orig-inal 1965 contract to cover Allegheny's purchase of 10 percent of the 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 of electric lines and facilities, waste of materials 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 9 9 3 A N N U A L R H P 0 R T

certitied public accountants Coopers 8 Lybrand 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

~

BALANCE SHEETS as of October 31, 1993 and 1992

. (in thousands)

ASSETS 1993 1992 Electric utilityplant:

In service $ 651,983 $ 644,429 Construction work in process 7,691 14,214 Nuclear fuel in process ~62 ~511 671,436 663,154 Less accumulated depreciation and amortization JB92Lt MZ Illk 3K2K Other assets and investments:

Non-utilityproperty, at cost (net of accumulated depreciation of $ 2,049 in 1993 and $ 1,847 in 1992) 4,741 4,916 Investments in associated organizations 4,035 4,069 Notes receivable from members, less current portion 2,899 3,368 Other investments 7s737 6,994 Other noncurrent assets

~99 Current assets:

Cash and cash equivalents 35,530 23,391 Accounts receivable, including accounts receivable from members of $ 9,480 in 1993 and $ 9,729 in 1992 9,769 9,920 Inventories 4,842 4,947 Other current assets ~925 ~232 Deferred charges ~lt 9ZZ

$ 574,784

~Z9 2Z

$ 570,172 Equities 6r Liabilities Equities:

Memberships 3 3 Donated capital 51 51 Patronage capital 37,952 37,952 Other margins and cquitics

~!Lt2 Long-term debt, less current portion &268ll ~5 J2Z Current liabilities:

Current portion of long-term debt 12,237 11,348 Accounts payable and accrued expenses 12,887 10,686 Accounts payable to members ~822

~M92 ~92 Other liabilities and deferred credits:

Accrued nuclear decommissioning 8,551 7,165 Accrued decontamination and decommissioning of nuclear fuel 4,150 Deferred income,tax benefits from safe harbor lease 9,969 10,711 Other deferred credits ~215

~21

$ 574,784 $ 570,172

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

I 9 9 3 A N N U A L R E P 0 R T

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 31,554 34,448 Transmission - operation 11,940 10,531 Transmission - maintenance 160 98 Production - operation 20,882 15,674 Production - maintenance 4,657 6,258 Fuel 7,996 7,263 Depreciation 13)806 12,511 Taxes . 3,956 4,336 Administrative and general ~MQ ~leak eperating margin before interest and other deductions J

Interest and other deductions (income):

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

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

Operating income (deficit)

Non-operating margins:

Net nonoperating"rental loss (133) (21)

Interest income 1,803 2,840 Other 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.

1 STATEMENTS OF EQUITIES r

for the years ended October 31, 1993 and 1992 '(

(in thou'sands) 4 /h-

'Other Margins; Donated Patronage and Memberships Capital Capital Eqttitles Total

(

Balance at October 31, 1991 $3 , $ 51 $ 37,952 $ (25,937) $ 12,069 I r

-Net margin Balance at October 31, 1992 51 ",, 37,952 (23,561) 14,445 Net margin 55Z 2, Balance at October 31, 1993 = - .-$ 3 $ 51 $ 37,952 $~12,154 '25,852 r I

I r

I $ J k

I 1 r'4 r 4

I 4.

1*

5 The accompanying notes are an integral ofthe financial stateinents.

r'art I 9 9 3 A N N U A L R H P 0 R T

'" STATEMENTS OF CASH FLOWS I

'I r

i,l I

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

(in thousands) I" J

1993 1992 Cash flows from operating activities:

Net margin $ 11,407 $ 2,376 Adjustments to reconcile net margin to net cash provided by operating activities:

Depreciation and fuel amortization 20,181 19,053 Amortization of deferred charges and deferred credits (93) (3,585)

Gain on sale of other investments (395) (200)

Increase (decrease) in cash due to changes in operating assets and liabilities:

Accounts receivable 151 3,454 Inventories 105 (253)

Other current and non-current assets (470) (855)

Deferred charges (8) (33)

Accounts payable and accrued expenses 2,201 (864)

Accounts payable to members Other liabilities and deferred credits (4,190)

~ill 1,734 Net cash provided by operating activities.-

Cash flows from investing activities:

Additions to electric utilityplant and non-utility property (11,321) (16,991)

(Purchase) redemption of investments in associated organizations 34 (i)

Payments received on notes receivable from members 376 362 Purchase of other investments (12,263) (8,604)

Proceeds from sale of other investments ~l 292 Net cash used in investing activities Cash flows from financing activities:

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

Payment of debt repurchase premium Net cash used in financing activities Increase (decrease) in cash and cash equivalents 12,139 (13,726)

Cash and cash equivalents at beginning of year ~KL Cash and cash equivalents at end of year $ 35,530 $ 23,391 The accompanying notes are an integral part of the financial statements.

LLEGHENY ELECTRIC COOPERATIVE, INC.

NOTES TO FINANCIALSTATEMENTS

1. Summary of Significant Accounting Policies:

Allegheny Electric Cooperative, Inc. (Allegheny) is a rural electric cooperative utilityestablished 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 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 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 Utility Plant 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 of units of property 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 of heat produced for electric gener-ation. 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 & Light Company (PptkL), 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 cost of decommissioning SSES is approximately $ 37.8 mil-lion and is beingsccrued over the estimated useful life of the 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 million of previously 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 million and $ 0.9 million was funded to Trust Fund B for the years ended October 31, 1993 and 1992, respectively. Allegheny's Board of Directors has restricted as of October 31, 1993 and 1992, $ 3.0 million and $ 3.4 million, respectively, of Trust Fund A for future payments to Trust Fund B. Trust Fund A and B are included in other investments.

Accrued nuclear decommissioning as of October 31, 1993 and 1992 was $ 8.6 million and

$ 7.2 million, respectively.

I 1 9 9 3 A N N U'A L R E P 0 R T I

r '3 3

3r J '

r! ~ h t

3 r '!

Summary of Significant 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 of or additions to an electric utilityplant. The allowance is capital-ized as a component of the cost of electric utilityplant while under construction.

r3 Investments in Associated Organizations:

Investments in associated organizations are carried at cost.

Preliminary Surveys: -3J Costs of preliminary surveys for potential development projects are recorded as deferred charges. Ifconstruction of a project results from such surveys,'the deferred charges are tran's-

'erred to the cost of the facilities. Ifa preliminary survey is abandoned, the costs, incurred are charged to operations. 'I 33

.'..,Cash Equivalents:

For purposes of th'e;statements of cash flows, Allegheny considers all highly liquid investments--

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

Inventories:

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

Under this method, purchases of spare 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 of cost 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 of their 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 of net 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 of a charge against income in connection with the adoption of Statement 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. All net margins recognized by'Allegheny are required by REA to be used,to reduce this deficiency.

', ~Rates:

3 The Board of Directors of Allegheny has full authority to establish electric rates subject to approval by REA.

L-Revenues:

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

ALLEGHENY ELECT 3

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

3 r

4

~ 4

~,4 9

44 Income Taxes:, -","

Net operating losses for,financial"and tax reporting purposes differ4as a result of timing differ-ences relating primarily to 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 of income tax expense in the year in which the credit. is uti-lized for tax purposes.

The Financial Accounting Standards Board issued Statement of Financial 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 of Statement No. 109 will not have a material impact on Allegheny's net margin or financial position.

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 of Oc'tobcr 31, 1991. Un'der theyrovisions of the 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 of the TIER, Allegheny would record the difference as a reduction of the 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 of the year was incorporated into Allegheny's rate structure for'the following year through a cost-of-service billing adjustment made by Alleglieny to 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 of October 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.

4 4

W

't 1 2.Electric Utility Plant In Service: .) ).)

Electric utilityplant in service consists of the following as of October 31, 1993 and 1992:

F l

F-1 I

Depreciation/,

Amortization,.

Lives/Rates 1993 1992 (In thousands)

Nuclear UtilityPlant:

Production 39 years $ 519,723 $ 516,345 Transmission 2.75% 39,393 35,444 General plant 3,% - 12.59o

'59 854 Nuclear fuel Heat production M9 Zll UH82Q 644,681 637,318 Non-Nuclear UtilityPlant 3% - 33% ~>ZL2 Mal

- Total" 1

$ 654 983 $ 644,429 4

4 r-1 9 9 3 A N N,UF A L R B P 0-~R T 4 -.

1 I

1

3. 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 of SSES'ross assets, which included

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

$ 645 million as of October 31, 1993 and 1992, respectively. Allegheny's share of anticipate'd

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

4. Investments in Associated Organizations:

Investments in associated organizations, at cost, consists of the following as of October 31, 1993 and 1992:

1993 7992 m

(In thousands)

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 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 of load 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.

1 r ~ h ALLEGHENY-ELECTRIC,COOPERATIVE, INC.

6. Other Inv'estments:

Other investments consist of the following as of October 31, 1993 and 1992:

1993 1992 Cost Market Cost Market (in thousands)

Decommissioning Trust Fund A:

Money market funds $ 93 $ 93 $ 103 $ 103 U.S. Government securities 943 967 1,161 1,187 Corporate bonds 463 481 1,088 1,104 Common stocks 1,269 1,437 1>055 1,153 Other government securities 198 210 2,966 3,188 '3407 3,547 NRC mandated Decommissioning Trust Fu'nd 8:

Money market funds 69 69 39 39

'U.S. Government securities 2,317 2,342 1>403 1,427 Corporate bonds ',135 132 315 313 Other government securities 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 of common stocks were $ 200 and $ 32, respectively, as of October 31, 1993 and $ 172 and $ 74, respectively, as of October 31, 1992.

'; Deferred Charges:

Deferred charges consists of the following as of October I

31, 1993 and 1992:

I 1993 1992 (in thousands)

Unamortized FFB debt repurchase premium $ 9,187 $ 9,664 Accrued decontamination and decommissioning of nuclear fuel , 4,105 Nuclear decommissioning costs 2,838 Low level radiation waste facility costs- 599 502 Safe harbor lease 230 '242 closing'costs"'reliminary surveys

$ 14,156 $ 13,370 1 9 9 3 A N N U A L R E P 0 R T

8. Long-Term Debt:

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

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

Long-term debt consists of the following as of October 31, 1993 and 1992:

1993 1992 (in thousands)

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 $ 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 26,200 26,600 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 1,903 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 508,648 515,475 Less current portion

$ 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 of two 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 interest rate with a long-term maturity up to a maximum of 34 years from the end of the calendar year in which the note was issued. As of October 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 million and

$ 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 of October 31, 1993, Allegheny had $ 60.7 million of advances 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 of the interest rates on certain ALLEGHENY ELECTRICCOOPERATIVE, ING,.

~ J1

~

I

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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 of the 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 of the 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 of the 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 of credit from Rabobank Nederland which are backed by a five-year credit facility in 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 of the lcttcrs of credit are equal to the amount of outstanding'Bonds plus an amount equal to sixty-five days'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 million of investments which relate to a debt service reserve fund required under the bond indenture.

Future maturities of all 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 of October 31, 1993, Allegheny had unadvanced portions of certain existing REA, FFB and CFC long-term commitments of $ 36.3 million.

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

Certain of Allegheny'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 million and $ 39.6 million, respectively, of which $ 0.9 million and $ 1.1 million, respectively, was capitalized as part of the construction of the electric utilityplant. Interest, paid, net of amounts capitalized, was $ 35.1 mil-lion and $ 39.0 million, respectively.

9. Deferred Credits; Deferred credits consists of the following as of October 31, 1993 and 1992:

1993 1992 (in thousands)

SSES inventory adjustment $ 1,490 $ 2,980 1992 cash settlement (See Note 12) 1,167 2 333 Raystown lease gain 1,674 1,741 Deferred compensation arrangement with PREA

$ 4,442 ~$ 7 215 1

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10. Income Taxes:

As of October 31, 1993, Allegheny had available non-member net operating loss carryforwards of approximately $ 207.0 million for tax reporting purposes expiring through 2007 and invest-ment tax credit carryforwards of approximately $ 22.1 million expiring through 2003. Allegheny also had operating loss carryforwards attributable to member activities of approximately $ 111.0 million for 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 million and $ 4.0 mil-lion, respectively.

12. Commitments and Contingencies:

Insurance:

Allegheny and PP8tL 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 $ 21.5 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 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 policy year is $ 0.9 million.

Allegheny's public liabilityfor claims resulting from a nuclear incident is currently limited to $ 780.7 million under provisions of the 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 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 $ 12.6 million per 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 of operations 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 of the safe harbor lease, Allegheny is contingently liable in varying 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 contingently liable as of October 31, 1993 was, approximately $ 17.0 million. Payment of this contingent liabilityhas been guaranteed by CFC.

'itigation:

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

In the opinion of Allegheny's management, the amount of such 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 million in cash. Allegheny recorded the

$ 3.5 million cash settlement as a deferred credit to be recognized as income over three years. In addition, Allegheny willreceive $ 4.5 million through non-cash discounts on purchases of capital equipment, of which, $ 1.7 million was utilized as of October 31, 1993.

(

13. Sale/Leaseback Arrangement:

Allegheny previously completed a sale and leaseback of its hydroelectric generation facility at the Raystown Dam (the Facility). The Facility was sold to a trustee bank representing Ford Motor Credit Company (Ford) for $ 32.0 million in cash. Under terms of the arrangement, Allegheny is leasing the Facility from Ford's trustee for an initial term of 30 years. Payments under the lease are due in semi-annual installments which commenced January 10, 1989. At the cnd of the 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 of the then foreseeable residual value at the end of the 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 of which may not be for a term of less than two years.

Payments during the fixed rate renewal period are 30% of the average semi-annual installments during the initial lease term. Allegheny will retain co-licensee status for the Facility throughout the term of the lease. The gain of $ 1.9 million related 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 will be entitled to certain income tax benefits as a result of the sale and leaseback of the Facility. In the event that Ford were to lose all or any portion of such tax benefits, Allegheny would be required to indemnify Ford for the amount of the additional federal income tax payable by Ford as a result of any such loss.

The leaseback of the 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 initial lease term and the five-year renewal period. These payments are based on an assumed interest rate of 8.8% and may fluctuate based on differences between the future interest rate and the assumed interest rate.

Rental expense for this lease totalled $ 1.8 million for each of the years ended October 31, 1993 and 1992, respectively.

14. Concentrations of Credit Risk:

Allegheny is comprised of member 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 of rural Pennsylvania and New Jersey.

Allegheny's investments are invested in a variety of financial 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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0 c't gf

15. Government Regulations:

The Energy Policy Act of 1992 established, among other things, a fund to'pay for the decontami-nation and decommissioning of three nuclear enrichment facilities operated by DOE. A portion of the fund is to be collected from electric utilities that have purchased enrichment services from DOE and willbe in the form of annual 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 of enrichment services purchased by the utilities in past periods.

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

f

76. Fair Value of Financial Instruments:

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and Cash Equivalents:

The carrying amount reported approximates fair value because of the short maturity of these financial instruments.

Other Investments-and Investments in:Associated Organizations:

The'fair value of other 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 of Allegheny's notes receivables from members, which primarily relate to sales-type leases, approximates fair value because the notes bear a variable-rate of interest which is reset on a frequent basis.

Long-Term Debt:

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

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

Carrying Fair Value Value (in thousands)

Cash and cash equivalents $ 35,530 $ 35,530 Other investments 7 737 7,988 Investment in associated organizations 4,035 4,035 Notes receivable from members 3,354, 3,354 Long-term debt (508,648) (520,789)

ALLEGHENY ELECTRICCOOPERATIVE, INC..