ML20069G599
| ML20069G599 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley |
| Issue date: | 12/31/1993 |
| From: | PENNSYLVANIA POWER CO. |
| To: | |
| Shared Package | |
| ML20069G506 | List: |
| References | |
| NUDOCS 9406100087 | |
| Download: ML20069G599 (22) | |
Text
"- A u, A N N U A L R E P O R T 19 9 3 O %ErnegyMakers PENN POWER f
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CONTENTS COMPANY PROFILE Selected Financial Data 1 Pennsylvania Power Company provides electric Management's Discussion service to more than 139,000 customers in western and Analysis 2 Pennsylvania. The Company furnishes electric i Operating Statistics . 5 service in '139 communities, as well as rural areas, Statements of Income 6 and also sells electric energy at wholesale to five Balance Sheets 7 rnunicipalities. Its sen' ice area has an estimated Statements of Capitalization 8 population of 360,000. The Company, with Statements of Retained Earnings 9 headquarters in New Castle, Pennsylvania, is a Statements of Capital Stock and wholly owned subsidiary of Ohio Edison Other Paid-In Capital . 9 Company.
Statements of Cash Flows 10 Statements of Taxes 11 I Notes to Financial Statements 12 Report of Independent Public Accountants 19 Directors and Officers 20
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SELECTED FINANCIAL DATA Pennsylvania Power Company 1993 1992 1991 1990 1989 (Dollars in thousands)
Operating Revenues , ,
$ 292,084 5 315.458 $ 321,845 $ 318.056 $ 313.757 Operating Income $ 62,777 $ 66.525 $ 81.102 $ 65.992 $ 73.588 Net income . . $ 21,317 $ 30.956 5 40.197 $ 25.519 $ 34.660 Earnings on Common Stock . $ 15,454 $ 24.457 $ 32.475 $ 15.537 $ 23.987 Return on Average Common Equity . 5.9% 9.2 % 12.2 % 5.7 % 8.6%
Cash Dividends on Common Stock $ 21,386 $ 27.676 $ 27.676 $ 27.676 $ 27.676 Total Assets . .
$1,180,983 $ 986.158 $1.022.099 $1.091.090 $1.065.574 CAPITALIZATION:
Common Stockholder's Equity $ 254,782 $ 261,518 $ 266,058 $ 262,059 $ 274,158 Preferred Stock-Not Subject to Mandatory Redemption . 50,905 41,905 41,905 41,905 41,905 Subject to Mandatory Redemption 20,500 30,362 34,282 38,722 59,662 Long Term Debt . 440.555 398.630 408.443 431.146 411.473 Total Capitalization $ 766,742 $ 732.415 $ 750.6R8 5 773.832 5 787.198 CAPITALIZATION RATIOS:
Common Stockholder's Equity 33.2 % 35.7% 35.4 % 33.9 % 34.8 %
Preferred Stock-Not Subject to Mandatory Redemption . 6.6 5.7 5.6 5.4 5.3 Subject to Mandatory Redemption 2.7 4.2 4.6 5.0 7,6 Long-Term Debt . 57.5 54.4 54.4 55.7 El Total Capitalization 100.0 % 100 0% 100.0% 100 0 % 100.0 %
1
MANAGEMENT'S DISCUSSION AND i ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS l Net income decreased approximately and has abandoned it as a possible electric
$9,639,000 during 1993 compared to 1992. The generating plant. The unit was approximately decrease was a result of nonrecurring charges 50% complete when construction was suspended in which reflect a $17,029,000 after-tax write-off in 1985. Based on section 520 of the Pennsylvania the fourth quarter due to the termination of Perry Public Utility Code, the Company expects to !
Unit 2 and expected resolution of fuel cost recover its investment in Perry 2 from its l recovery issues. The effect on 1993 net income customers. However, due to the anticipated delay l from these items was partially offset by a in commencement of recovery and taking into
$5,653,000 credit from the cumulative effect of a account the expected rate treatment, the Company change in accounting to accrue metered but recognized an impairment to its Perry Unit 2 unbilled revenue (see Note 2). investment of $24,458'000. As a result, net The shutdown of Sharon Steel in November income for the year ended December 31,1993, 1992 significantly reduced the Company's retail was reduced by $14,165,000.
sales, which dropped 10.2% in 1993 compared to The Company has taken steps to conserve 1992. Industrial sales were down 27.6% during cash and improve earnings opportunities in light of the year as a result of the shutdown. Excluding the adverse effects resulting from the shutdown of the effect of Sharon Steel, industrial and retail Sharon Steel. The Company closed two old coal-sales increased 0.2% and 3.5%, respectively, fired generating units in 1993 which is expected to during 1993. Residential and commercial sales reduce annual operating costs by approximately were up 5.2% and 6.2%, respectively, over 1992 $3.200,000. This action will also eliminate the '
levels as a result of more extreme weather need to make additional capital expenditures of conditions in 1993. A 28.1% drop in sales to approximately $10,000,000 over the next five other utilities had an adverse effect on total years. In February 1993, the Company's Board of kilowatt-hour sales, which were down 15.6% in Directors reduced the quarterly common stock 1993 compared to 1992. The reduction in sales to dividend to $.85 per share from the previous level other utilities resulted from lower sales to Ohio of $1.10 per share. This action reduced the Edison (Edison) coupled with decreased demand Company's annual cash outlay for dividends by for bulk power in the spot market. Sales to approximately $6,300,000.
Edison decreased 40.3% and sales to non- The 1993 decrease in fuel and purchased associated utilities fell 17.5%. Total kilowatt-hour power costs was due to reduced requirements sales were up 3.8% in 1992 compared with 1991, associated with the drop in sales. The decrease primarily due to a 25.6% increase in sales to other was partially offset by a nonre' curring charge of utilities, approximately $4,950,000 for the expected The following summarizes the sources of resolution of fuel cost recovery issues (see changes in operating revenues during 1993 and Note 1).
1992 as compared to the previous year: The increase in nuclear operating costs over last year was mainly due to increased expenses tw2
'"l,, resulting from forced and scheduled outages.
Contributing to the increase were expenses Change in Sharon sicci revenue 5(20.5) 5 (6.7) associated with performance results at Perry Unit 1 Change in retail kilowatt-hour sales 9.4 1.9 during the year. As a result of mechanical Cha g y rage retail electric price ( ) 5 other o s) o 5) half the year. The operating company is set nemase 5(23 4i 5 <6 4' undertaking significant corrective actions, including additional maintenance work to be performed during the refueling outage currently in As discussed in Note 3, the Company will not Process and for the refueling outage scheduled for participate in further construction of Perry Unit 2 1995. Work done during the outages is expected 2
l to enhance systems and improve Perry's Company's electric rates through the traditional performance. The 1992 reduction in nuclear rate making process.
operating costs resulted from additional costs, in 1991, of approximately $7,000,000 related to the CAPITAL RESOURCES AND LIQUIDITY refueling of Beaver Valley Unit 1.
The decrease in other operating costs during Despite the decrease in sales, the Company 1993 was due primarily to last year's $13,900,000 improved its cash position compared to the end of increase in the provision for uncollectible 1992. All cash requirements for 1993 were met accounts. That decrease was partially offset by a with internally generated funds, with cash and cash
$3,400,000 charge in 1993 for a voluntary early equivalents increasing by nearly $9,200,000 during retirement program offered to production the year. All Onancing activities during the year department employees and additional costs of were for refunding purposes, as discussed above.
$4,500,000 resulting from the January 1.,1993, At December 31,1993, the Company had adoption of Statement of Financial Accounting approximately $13,000,000 of cash and temporary Standards (SFAS) No.106, " Employers' investments and no short-term indebtedness. At Accounting for Postretirement Benefits Other Than the end of the year, the Company had available Pensions." The Company is deferring incremental $35,000,000 of bank lines of credit and costs resulting from the hdoption of SFAS No. $52,000,000 of bank facilities which may be 106, which are reflected in the change in borrowed on a short-term basis at the banks' amortization of net regulatory assets compared discretion.
with the 1992 amounts. Capital requirements in 1993 for the Lower depreciation expense in 1993 reflects Company's construction programs, capital leases depreciation rates that were reduced in 1993 as a and nuclear fuel were approximately $36,000,000.
result of an updated depreciation study filed with The 1994-1998 construction program and capital the Pennsylvania Public Utility Commission lease requirements are currently estimated to be (PPUC). The depreciation study takes into approximately $140,000,000 (excluding nuclear consideration extended useful lives of certain fuel), of which approximately $27,000,000 applies generation and distribution facilities, to 1994. The Company has additional cash Interest on long-term debt decreased in 1993 requirements of approximately $58,000,000 for the and 1992 compared to 1992 and 1991, 1994-1998 period to meet maturities of, and respectively, as a result of long-term debt sinking fund requirements for, long-term debt refinancings at lower rates. During 1993, the (excluding nuclear fuel) and preferred stock; of Company issued approximately $153,000,000 that amount approximately $2,000,000 applies to principal amount of new debt at a weighted 1994.
average cost of 6.56% and redeemed Investments for additional nuclear fuel during approximately $130,000,000 principal amount of the 1994-1998 period are estimated to be debt with a weighted average cost of 8.84%. The approximately $38,000,000, of which Company also paid off all short-term debt that was approximately $9,000,000 applies to 1994.
outstanding at the beginning of the year. The During the same periods, the Company's nuclear 1993 increase in other interest expense compared fuel investments are expected to be reduced by to last year is due primarily to costs associated approximately $44,000,000 and $10,000,000, with the debt refinancings. The 1992 reduction in respectively, as the nuclear fuel is consumed.
other interest expense, compared with 1991, Sales by the Company of first mortgage reflects reduced short term borrowing in 1992 and bonds and of preferred stock require that the absence of a 1991 provision for interest applicable earnings coverage tests be met. With associated with outage-related refunds and respect to the issuance of first mortgage bonds, estimated interest payable in connection with other requirements also apply and are more federal income tax adjustments for prior years. restrictive than the earnings test at the present The electric utility industry is subject to the time. The Company is currently able to issue same inflationary pressures as those experienced $96,000,000 principal amount of first mortgage by other industries. To the extent that the bonds, with up to $15,000,000 of such amount Company incurs additional costs or receives issuable against property additions; the remainder benefits resulting from the effects of inflation, could be issued against previously retired bonds.
those effects are generally reflected in the The Company could issue approximately
$50,000,000 of additional preferred stock before 3
the end of the first quarter of 1994. For the as they arise. Plans for complying with the year remainder of 1994, however, the earnings 2000 reductions are less certain at this time.
coverage test contained in the Company's charter precludes the issuance of additional preferred stock OUTLOOK due to the inclusion of the charge for the Perry Unit 2 impairment in the earnings test. Additional The changing environment in the utility preferred stock capability is expected to be industry is posing competitive challenges for the restored in January 1995. Company. Many of these challenges are a result In January 1994, the Central Area Power of the Energy Policy Act of 1992. Others result Coordination Group (CAPCO) companies reached from attempts by large users of electricity to a settlement in connection with a 1991 lawsuit choose their supplier. In order to meet the against General Electric Company regarding the competitive challenges that may lie ahead, the Perry Plant. The settlement provides for cash Company is aggressively pursuing opportunities to payments to the CAPCO companies and discounts reduce costs, increase revenues, and improve on future purchases from General Electric. This operating efficiencies, which, if successful will settlement will not materially affect the Company's improve its competitive position. The Company results of operations in future years, and Edison are currently in the process of a The CAPCO companies filed suit against comprehensive review of their business operations Westinghouse Electric Corporation in 1991 as part of a performance initiative, to further alleging that six steam generators supplied by identify opportunities for improvement. Operating Westinghouse for the Beaver Valley Plant are results should improve as a result of these defective and that replacement could be required activities.
earlier than their 40-year design life. The operating company has no current plans to replace the steam generators and is evaluating the feasibility of applying new technologies to repair the generators. If the generators would need to be replaced the capital costs to the CAPCO companies could range from $100,000,000 to
$150,000,000 for Beaver Valley Unit i based upon the costs other utilities have experienced.
The Company has a 17.5% ownership interest in Beaver Valley Unit 1.
The Clean Air Act Amendments of 1990 require significant reductions of sulfur dioxide and oxides of nitrogen from the Company's coal-fired I generating units by 1995 and additional emission 1 reductions by 2000. Compliance options include, I but are not limited to, installing additional pollution control equipment. burning less polluting ;
fuel, purchasing emission allowances from others, :
operating existing facilities in a manner which j
minimizes pollution and retiring facilities, in a '
system compliance plan for the Company and l Edison submitted to the PPUC and to the '
Environmental Protection Agency, the Company !
stated that reductions for the years 1995 through 1999 are likely to be achieved by burning lower sulfur fuel, generating more electricity at their lower emitting plants and/or purchasing emission allowances. The Company continues to evaluate its compliance plan and other compliance options 4
OPERATING STATISTICS Pennnivania Power Comitany 1993 1992 1991 1990 1989 REVENUE FROM ELECTRIC SALES (Thousands):
Residential $107,593 $104,133 $103.009 $ 99,979 $101,794 Commercial . , 65,332 62,554 61,172 58,646 57,004 Industrial 61,760 82,145 87.908 88,407 90,523 Other. 8.751 8.633 8.645 8.269 8.640 Subtotal 243.436 257,465 260,734 255,301 257,961 Parent Company 8,759 15,311 14.576 16.591 11,719 Other Utilities 24,935 26.073 26.369 26.718 27.545 Total $277,130 $298.849 $301.679 $298.610 $297.225 REVENUE FRONI ELECTRIC SALES:
Residential 38.8 % 34.9 % 34.1 % 33.5 % 34.2 %
Commercial . 23.6 20.9 20.3 19.6 19.2 Industrial 22.3 27.5 29.1 29.6 30.5 Other . 3.1 2.9 2.9 2.8 2.9 Subtotal 87,8 86.2 86.4 85.5 86.8 Parent Company 3.2 5.1 4.8 5.6 3.9 Other Utilities 9.0 8.7 88 8.9 9.3 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
KILOWAIT-IlOUR SALES (Millions):
Residential 1,105 1,050 1,061 1,019 1,024 Commercial . 831 782 772 732 698 Industrial 1,212 1,674 1,823 1.795 1,809 Other . 139 138 138 135 137 Subtotal 3,287 3.644 3,794 3,681 3,668 Parent Company 469 786 556 743 388 Other Utilities 748 906 790 847 949 Total 4,504 5.336 5.140 5.271 5.005 CUSTOMERS SERVED AT DECEMBER 31:
Residential 123,316 121,879 120,537 119,530 118,285 Conunercial . 15,593 15.348 15,127 14,948 14,718 Industrial 221 235 243 257 264 Other. 97 100 100 117 115 Total 139,227 137.562 136.007 134.852 133.382 Average Annual Residential Kilowatt-11ours Used 9,017 8,672 8.839 8,585 8,717 Retail Price per Kilowatt llour (Cents) 7.49 7.66 7.89 7.09 6.33 Kilowatt-ilours Generated (Millions) 4,190 4,659 4,135 4,525 4,040 Peak Load (Megawatts) 690 734 739 700 683
. Cost of Fuel per Million BTU $ 1.28 $ 1.26 5 1.32 $ 1.27 $ 1.26 Generating Capability:
Coal 74.6 % 74.6 % 74.6 % 74.6 % 74.6 %
Oil 2.8 2.8 2.8 2.8 2.8 Nuclear . 22.6 22.6 22.6 22.6 22 6 Total 100.0 % 100 0 % 100.0 % 100 0 % 100.0 %
SOURCES OF ELECTRIC GENERATION:
Coal 76.8 % 68.3 % 72.9 % 68.4 % 76.6 %
Nuclear 23.2 31.7 27.1 31.6 23.4 Total 100.0 % 100 0 % 100 0 % 100.0 % 100.0 %
NUMBER OF EMPLOYEES AT DECEMBER 31 g @ g g g 5
u_ _ __ _ _ _ ___. _ _ _
Pennsylvania Power Company STATEMENTS OF INCOME For the Years Ended December 31, 1993 1992 1991 (In thousands)
$292.084 $315.458 $321.845 OPERATING REVENUES OPERATING EXPENSES AND TAXES:
67,312 80.303 82,647 Fuel and purchased power 30,162 24,588 32,799 Nuclear operating costs 61.125 67.578 52.054 Other operating costs 158,599 172,469 167,500 Total operation and maintenance expenses 29,260 30,856 29,166 Provision for depreciation ,
Amort ication (deferral) of net regulatory assets (4,339) 2,377 (2,377) l 22,591 22,162 22,698 l General taxes 23.196 21.069 23.756 l Income taxes 229,307 248.933 240.743 Total operating expenses and taxes 62.777 66.525 81.102 OPERATING INCOME OTilER INCOME AND EXPENSE:
Perry Unit 2 termination (Note 3) (24,458) - -
Income tax benefit from Perry Unit 2 termination . 10,293 - -
1.542 781 2.461 Other
_112.623) 781 2.461 Total other income (expense) .
50.154 67.3 % 83.563 TOTAL INCOME NET INTEREST:
33,208 35,707 37,867 Interest on long-term debt 401 457 1,013 Interest on nuclear fuel obligations Allowance for borrowed funds used during construction (772) (678) (1,329) 1,653 864 5.815 Other interest expense .
34.490 36.350 43.366 Net interest .
INCOME BEFORE CUMULATIVE EFFECT OF A CllANGE IN 15,664 30,956 40,197 ACCOUNTING Cumulative effect to January 1,1993, of a change in accounting for unhilled revenues (net of income taxes of 5,653 - -
4,108,000)(Note 2) 21,317 30,956 40,197 NET INCOME 5,863 6.499 7.722 PREFERRED STOCK DIVIDEND REQUIREMENTS .
EARNINGS ON COMMON STOCK $ 15.454 $ 24.457 $ 32.475 ne accompanying Notes to Financial Statements are an integral part of these statements.
l 6
IIAI,ANCE SilEETS Pennnivenic Power Company At December 31, 1993 _ 1992 (In thousands)
ASSETS UTILITY Pl. ANT:
In service, at original cost . . $1,209,961 $1,138,408 Less- Accumulated provision for depreciation 394.530 3652)J 815.431 773.157 Construction work in progress-Electric plant (Note 3) 10,996 60,239 Nuclear fuel 8,604 15.805 l 19,600 76A44 835,031 849.201 l
OTilER PROPERTY AND INVESThlEh"r3 , 15.064 15.258 CURRENT ASSETS:
Cash and cash equivalents , 12,819 3,663 Accounts receivable-Customers (less accumulated provisions of $559,000 and $429,000, respectively, for uncollectible accounts)(Note 2) 28,122 19,514 Parent company .
19,737 15,170 Other 17,427 14,418 Matenals and supplies, at average cost-Fuel . . . 4,350 8,547 Odier 12,088 12,557 Prepaymems 4,868 2.528 99.411 76.397 DEFERRED CIIARGES:
Regulatory assets . 222,301 38,984 Other , , , 9,176 6.318 231,477 45302
$1,180,983 $ 986.158 CAPITALIZATION AND LIABILITIES CAPITALIZATION (See Statements of Capitalization):
Common stockholder's equity $ 254,782 $ 261,518 Preferred stock-Not subject to mandatory redemption , , 50,905 41,905 Subject to mandatory tedemption , , , 20,500 30,362 Long term debt-Associated companies 16,401 21,567 Other . ,. . , .
424,154 377.063 766,742 732.415 CURRENT LIABILITIES:
Currently payable preferred stock and long-term debt-Associated companies . , 10,216 10,633 Other . . , , . 1,788 30,246 Notes payable to banks (Note 7) - 15,000 Accounts payable-Associated companies .. 7,755 8,329 Other . . . . 32,680 25,480 Accmed taxes . . . 6,658 9,548 Accrued interest , , , 9,924 8.971 Other . , , 14.308 16.195 83.329 124.402 DEFER. RED CREDITS:
Accumulated deferred income taxes , , 273,319 74,336 Accumulated deferred investment tax credits , . 33,560 34,921 Other . , 24.033 20.084 330,912 129.341 COhlhllThlENTS, GUARANTEES AND CONTINGENCIES (Notes 5 & 8)
$1.180,9R3 $ 986.158 The accompanying Notes to Financial Statements are an integral part of these balance sheets.
7
(ATEME_NTS -
OF CAPITAI.IZATION Pennw!vania Power Compa_n,y At pcTeiidier 31, (DolIIrs in thousands, etcept per share amounts) 1993 1992 COMMON STOCKilOLPER'S EQUITYt Common stock, $30 par value, 6,500,000 shares authorized,6,290,fX)0 shares outstanding $188,700 $188,700 Other paid in capital (310) 4i Rets ned earnings (Note 6a) t 66.392 72.777 Total common stockholder's equity ,,..,, ........ 254.782 261.518
..,.. Number of Shares Optional Outsta ndin Redemption Price
~
^EE"E PREITRRED STOCK (Note 6b):
Cumulative, $100 par value-Authorued 1,2tx),(XX) shares Not Subject to Mandatory Redempuan:
4.24 % , 40,000 40,000 $ 103.13 $ 4,125 4,000 4,000 4.25 % , 41,049 41,049 105.00 4,310 4,105 4,105 4.64 % 60,000 60,000 102.98 6,179 6,000 6,000 7.64 % 60.000 60,0(X) 101,42 6,085 6,000 6,0(X) 7.75 % 250,000 -
100 00 25,000 25,0(X) -
8.00 % $8,000 58,(XX) 102.07 5,920 5,800 5,800 8.48 % -
80gX) - - - 8,000 9.16 % -
80.txt) - - -
8.000 Total not subject to mandatory redemption . 509.N9 419.N9 M9 50.905 41.405 i I
Subject to Mandatory Redempoon (Note 6c):
7.625 % . 150.000 150,000 $ 107.63 $ 16,144 15,000 15,000 8 24 % - 45,000 - - - 4,500 11.00 % 3,616 11,616 102.75 372 362 1,162 11.50 % - 60,(XX) - - - 6,0lX) I 13.00 % 60,000 70,000 107.15 6,429 6,(XX) 7,0tX) l Redemption within one year . (862) (3.300)
Total subject to mandatory redemption 211616 g6 M LM5 20.500 30.362 LONG-TERAI DEllT (Note 6d):
First mortgage bonds-4.375% due 1993 - 9,(X)0 9 000% due 1996 , , 50,000 50,000 8.000% duc 1999 . . , . - 12,000 9.740% due 1999 2019. . 20,000 20,(X)0 7.875% due 2001 - 12,000 8.000% dur. 2001 - 10,000 7.625% due 2002 - 12,000 7.500% duc 2003 , 40,000 40,0(X) 6.375% due 2004 , 50,000 -
6.625% duc 2004 , 20,000 -
8.750% due 2006 . , .
- 15,000 8.500% due 2022 . , , , , 50,000 50,000 7.625% duc 2023 . , , , 40.000 -
Total first mortgage bonds . . 270.000 230.(XX)
Secured notes and obhgatmn-7,900% due 1993-2001. -
950 5.750% due 1993 2003, .
- 2,850 7.300% due 1993 2003, ,
238 11.080% due 1995 - 20,000 12.450% due 1995 , , - 20,000 4.750% due 1998 . 850 -
6.750% due 1998 2007, - 10,600 6.080% due 2000 , , 23,000 -
5.400% due 2013 1,000 -
8.980% due 2013 ,
- 4,200 9.000% due 2013 . , , ,
- 1,0fx) 12.000% due 2014 12,700 12,700 8.I25% due 2015 , 14,250 14,250 5.400% due 2017 10,600 -
7,150% duc 2017 17,925 17,925 5.900% due 2018 16,800 16,800 8.100% due 2018 10,300 10,300 8.100% due 2020 , , , 5,200 5,200 7.150% duc 2021 , ,
14,482 14,482 6.450% due 2027 , , , 14,500 14,500 5.450% due 2028 , 6,950 -
5.950% due 2029 ... , , , , 238 -
Total secured notes and obhgation , 148.795 165.995 Other obligations-Nuclear fuel 25,893 31,158 Capital leases (Note 5) , 8.690 9.862 Total other obhgations , , 34.583 41.020 Net unamortired discount on debt , , (1.681) (806) 12mg term debt due withm one year , , (11.142) (37.579)
Total long-term debt , 440.555 398.630 TOTAL CAPITALIZATION , . $766.742 $7.12.415 The accompanying Notes to Financial Statements are an integral part of these statements.
g
. -_m__. - . . _ . _ _ _ _ _ _ _ _ _ , _ _ _ _ _ _ . _ _ . _ _ _ _ _ ,
STATD1ENTS OF RETAINED EARNINGS Pennsylvania Power Company For the Years Ended December 31, 1993 1992 1991 (In thousands)
Balance at beginning of year , $ 72,777 $ 77,317 $ 73,170 Net income , 21,317 30.956 40.197 94.094 108.273 113.367 Cash dividends on common stock 21,386 27,676 27,676 Cash dividends on preferred stock . 5,639 6,448 7,698 Premium on redemption of preferred stock 677 1,372 676 27,702 35.496 36.050 Balance at end of year (Note 6a) . $ 66,392 $ 72.777 $ 77.317 STATDIENTS OF CAPITAL STOCK AND OTIIER PAID-IN CAPITAL Preferred Stock Not Subject to Subject to Common Stock Standatory Redemption Afandatory Redemption Other Number Par Paid-in Ninnber Par Number Par of Shares Value Capital of Shares Value of Shares Value (Dollars in thousands)
Balance, January 1,1991 6,290.000 $188,700 $ 189 419,049 $41,905 573,416 $ 57,342 Redemptions-8.24 % Senes (5,000) (500) 11.00 % Series (8,000) (800) j 11.50 % Series (148) (165,000) (16,500) )
13.00 % Series (10,000) (1,000) 15.00 % Series (6.400) (640)
Balance, December 31,1991 6,290,000 188,700 41 419,049 41,905 379,016 37,902 Sale of 7.625% Preferred Stock 150,000 15,000 Redempnons-8.24 % Series (5,000) (500) 10.50 % Series (100,000) (10,000) i 11.00 % Series (8,000) (800) 11.50 % Series (15,000) (1,500) 13.00 % Series (10,000) (1,000) 15.00 % Series (54.400) (5.440)
Balance, December 31,1992 6,290,000 188,700 41 419,049 41,905 336,616 33,662 Sale of 7.75% Preferred Stock ,
(345) 250,000 25,000 Redemptions-8.24 % Series (45,000) (4,500) 8.48 % Series (6) (80,000) (8,000) 9.16 % Series (80,000) (8,000) 11.00 % Series (8,000) (800) 11,50 % Series (60,000) (6,000) 13.00 % Series (10.000) (1.000)
Balance, December 31,1993 6.290 000 $188.700 g) 509.049 "Og 213.616 $ 21.362 The accompanying Notes to Financial Statements are an integral pan of these statements.
9
STATEMFNi3 OF CASil FI,0WS Penns31vania Power Company "
For tlw Years Ended December 31, 1993 1992 1991 (In thousands)
CASil ROWS FRONI OPERATING ACTIVITIES:
Net income 5 21,317 $ 30,956 $ 40,197 Adjustments to reconcile net income to net cash from operating actmties:
Provision for depreciauon 29,260 30.856 29,166 Nuclear fuel and lease anmrtiranon . 8,812 13,866 11J)61 Deferred income taxes, net , 10,261 (446) (8.575)
Investment tax credits, net (1,361) (959) 2,784 Deferred revenue . - 19,517 37,757 Allowance for equity funds used during construction (237) (l14i -
Deferred fuel costs, net 199 2,745 (930)
Cumulative effect of an accountmg change for unbilled revenues . (5,653) - -
Perry Unit 2 termmatson 24,458 - -
Tas surcharge amoruzauon (deferral) net -
2.377 (2.377)
Internal cash before dividends . 87,056 98,798 109,083 Receivables (5,974) 19,077 (11,983)
Matenals and supphes , 4,666 (3,870) 2,048 qunts payable . 4,196 (8,886) 7,449 (6,178) (11.560) 4.539 Act cash provided from operstmg activines 83.766 93.559 111.136 CASil FLOWS FRONI FINANCING ACTIVITIES:
New Financing-Preferred stock 24,654 15,000 -
Long-tenn debt 149,867 102,914 31,696 Notes payable, net - 7,000 -
Redempuons and Repayments-Preferred stock 28,970 20,612 20,223 Long -term debt 145,809 137,343 74,% 8 Notes payable, net 15,000 - 29,0(X)
Dividend Payments-Conunon stock 21,386 27,676 27,676 Preferred stock 5.639 6.448 7.698 Net cash used for financing activines 42,283 67.165 127.869 CASil ROWS FRO 51 INVESTING ACTIVITIES:
Property additions , 31,328 26,465 24,2 %
Loan payment from parent - - (37,000)
Other 999 344 707 Net cash used for (provided from) invesun2 activities 32,327 26.809 (11.997)
Net increase (decrease)in cash and cash equivalents . 9,156 (415) (4,736)
Cash and cash equivalents at beginning of year . . 3,663 4.078 8.814 Cash and cash equivalents at end of year , Q228J _5 3.663 M8 SUPPLEMENTAL, CASil FLOWS INFORNIATION:
Cash paid dunng the year-Interest (net of amounts capitahzed) $ 32,391 $ 37,111 $ 39,852 Income tases 10,403 31,312 23,649 The accompanying Notes to Financial Statements are an integral part of these statements.
l 10
STATEMENTS OF TAXES Pennsylvania Power Company For the Years Eruled December 31, 1993 1992 1991 (in thousands)
GENERAL TAXES:
State gross receipts $10,754 $10,623 $11,422 Real and personal property 6,712 6,762 6,702 State capital stock 2,000 2,252 2,457 Social secunty and unemployment . 2,643 2,067 1,822 Other , 482 43 295 Total general taxes ,122_J91 32 y2.6_93 9 PROVISION FOR INCONfE TAXES:
Currently payable-Federal $3,292 $14,933 $20,454 State 716 7.551 10.142 4,008 22.484 30.596 Deferred, net-Federal 10,035 254 (3,259)
State 4,291 (700) (5.316) 14,326 (446) (8.575)
Investment tax credits, net of amornzation . (1,361) (959) 2.784 Total provision for mcome taxes 33 30 M5 INCONIE STATE 5fENT CLASSIFICATION OF PROVISION FOR INCONIE TAXES:
Opecting expenses $23,196 $21,069 $23,756 Other t 'come , (10,331) 10 1,049 CumulWye effect of a change in accounting . 4,108 - -
Total provision for income taxes M1 M9 $24.R05 RECONCILIATION OF FEDERAL INCO%fE TAX EXPENSE AT STATUTORY RATE TO TOTAL PROVISION FOR INCO%1E TAXES:
Book income before provision for income taxes _$,JR E g5 My Federal income tax expense at statutory rate . $13,402 517,692 522,101 Increases (reductions)in taxes resulting from:
State income taxes, net of federal income tax benefit 3,255 4,522 3,185 Amortization of investment tax credits (1,361) (2,279) (1,831)
Excess of book over tax deprecianon, net - 2,863 2,067 Amortization of tax regulatory assets 2,376 - -
Other, net . (699) (1.719) (717)
Total provision for income taxes M3 $2 @ g SOURCES OF DEFERRED INCONIE TAXES:
Excess of tax over book depreciation, net $ 1,370 $ 6,736 Difference between tax and book revenue, net (6,835) (15,363)
Deferred fuel costs (1,042) (1,380)
Deferred loss on reacquired debt, net . 1,605 359 Amortization of deferred interest on leased nuclear fuel . (1,144) (1,123)
Alternative minimum tax credits unlized . 5,843 2,908 Pension costs . .
1,329 1,120 Recoverable tax surcharge costs (978) 978 Other, net . (594) f2.810)
Net deferred income taxes , $ (446) $ (R.575)
ACCUhfULATED DEERRED INCONIE TAXES AT DECE51BER 31,1993:
Property basis differences $163,828 Allowance for equiry funds used durir3 construction 40,958 Deferred nuclear expense 8,914 Customer receivables for future incorce taxes 56,781 Unamortized investment tax credits , , (14,124)
Alternative mmimum tax credits (9,646)
Other . 26 6_08 Net deferred income tax liabihty M32
%e accompanying Notes to Financial Statements are an integral part of these statements.
11
NOTES TO FINANCIAL STATENIENTS ,
I. SU5151ARY OF SIGNIFICANT liability for the estimated refund of $4,282,000, ACCOUNTING POLICIES: including $1,828,000 of interest, reducing net income by $2,519,000 during the fourth quarter of The Company, a wholly owned subsidiary of 1991. The Company expects to begin making these Ohio Edison Company (Edison), follows the refunds in 1994 or 1995.
accounting policies and practices prescribed by the On March 17, 1993, the Office of Consumer Pennsylvania Public Utility Commission (PPUC) Advocate (OCA) filed a complaint against the and the Federal Energy Regulatory Commission Company with the PPUC regarding the Company's (FERC). current ECR. The complaint objects to the elimination of certain contractual arrangements for REVENUES-The Company's retail the sale of generating capacity to Edison. In the customers are metered on a cycle basis. Revenue past, sales under these arrangements were included was recognized for electric service based on in the ECR calculation, and the OCA alleges the meters read through the end of the year for years elimination of the arrangements increases the prior to 1993. Beginning in 1993, revenue is [
Company's recoverable energy costs. The recognized to include unbilled sales through the Company recognized an after-tax charge of end of the year (see Note 2). Accounts receivable approximately $2,864,000 in the fourth quarter of from customers include approximately $8,378,000 1993 relating to the expected resolution of this relating to metered but unbilled revenues through issue.
December 31,1993. Reference is made to Note 4 with respect to the Company's policy of UTILITY PLANT AND DEPRECIATION-recognizing revenues in connection with a rate Utility plant reDects the original cost of phase-in plan completed in 1992. construction, including payroll and related costs Receivables from customers include sales to such as taxes, pensions and other fringe benefits, residential, commercial and industrial customers administrative and general costs and allowance for located in the Company's service area and sales to funds used during construction (AFUDC).
wholesale customers. There was no material The Company provides for depreciation on a concentration of receivables at December 31,1993 straight-line basis at various rates over the or 1992, with respect to any particular segment of estimated lives of property included in plant in the Company's customers. service. The annual composite rate for electric On November 30,1992, Sharon Steel plant was 2.7% in 1993 and 3.0% in 1992 and Corporation, the Company's then largest customer, 1991. The reduced rate in 1993 resulted from the filed a petition under Chapter 11 of the Federal Company's annual depreciation study filed with Bankruptcy Code. Revenues from Sharon Steel the PPUC which took into consideration extended amounted to approximately $24,518,000 and useful lives of certain generation and distribution
$29,354,000 in 1992 and 1991, respectively. facilities. This revision reduced the 1993 provision for depreciation by approximately FUEL COSTS-The Company recovers fuel $2,700,000.
and net purchased power costs not otherwise The Company recognizes approximately recovered through base rates from its customers $300,000 annually (as depreciation expense) for through an annual "levelized" energy cost rate future decommissioning costs applicable to its (ECR). The ECR, which includes adjustment for ownership interest in two nuclear generating units.
any over or under collection from customers, is The Company's share of the future obligation to recalculated each year. Accordingly, the Company decommission these units in current dollars is defers the difference between actual energy costs estimated to be approximately $69,000,000. The and the amounts currently recovered from its Company has recovered approximately $2,400,000 customers, from customers through December 31,1993; such In December 1991, the Company was ordered amounts are reflected in the reserve for by the PPUC to refund replacement power costs depreciation on the Balance Sheet. If the actual recovered from customers through the ECR during costs of decommissioning the units exceed the an extended outage at Feaver Valley Unit 1 in accumulated amounts recovered from customers, 1979. As a result, the Company recorded a the Company expects that difference to be n
12
recoverable from its customers. The Company has future disposal of spent nuclear fuel based upon approximately $3,500,000 invested in external the formula used to compute payments to the decommissioning trust funds as of Decerqber 31, DOE.
1993. Earnings on these funds are recorded as an addition to the trust investment with a ALLOWANCE FOR FUNDS USED corresponding increase to the depreciation reserve. DURING CONSTRUCTION-AFUDC The Company has also recognized an represents financing costs capitalized to estimated liability of $3,192,000 related to construction work in progress (CWIP) during the decontamination and decommissioning of nuclear construction period. The borrowed funds portion enrichment facilities operated by the United States reflects capitalized interest payments, and the Department of Energy (DOE), as required by the equity funds portion represents the noncash Energy Policy Act of 1992. The Company capitalization of imputed equity costs. AFUDC recovers these costs through its ECR. varies according to changes in the level of CWIP and in the sources and costs of capital. The COMMON OWNERSillP OF AFUDC rates (excluding nuclear fuel interest)
GENERATING FACILITIES-The were 5.3%,6.4% and 6.8% in 1993,1992 and Company and other Central Area Power 1991, respectively. Capitalization rates for interest Coordination Group (CAPCO) companies own, as on nuclear fuel were 3.4%,4.3% and 6.7% in tenants in common, various power generating 1993,1992 and 1991, respectively.
facilities. Each of the companies is obligated to pay a share of the costs associated with any jointly INCOME TAXES-Details of the total owned facility in the same proportion as its provision for income taxes are shown on the ownership interest. The Company's portion of Statements of Taxes. The deferred income taxes in operating expenses associated with jointly owned 1992 and 1991 resulted from timing differences in facilities is included in the corresponding operating the recognition of revenues and expenses for tax expenses on the Statements of income. The and accounting purposes, amounts reflected on the iblance Sheet under All investment tax credits which were utility plant at December 31,1993, include the deferred when utilized are being amortized cser following: the estimated life of the related property. The Utility Accumulated Construc- Company's Company has $9,646,000 of alternative minimum cenerating Sn tor Oor"k in sbp" tax credits available to offset future federal income Units service peoredation rruress interest taxes payable; such credits may be carried forward On thousands) indefinitely.
5- The Company adopted Statement of Financial
- w. n. samma n 5 56.600 s 17.200 20 80 %
Bruce Mansfield Accounting Standards (SFAS) No.109,
- 1, #2 and #3 89,000 37,200 1000 5.76 % " Accounting for Income Taxes," on January 1, neaver Valley #1 222.900 H2,100 1,700 17.50 %
Perry #i n6.4m 46en i .sm 5 24 %
1993, 4 % w9hs&%E MMm& Y Total 5704 910 51H1100 $4,200 used to account for deferred income taxes. Under this standard, deferred income tax liabilities related to tax and accounting basis differences must be NUCLEAR FUEL-OES Fuel, Incorporated recognized at the statutory income tax rates in (OES Fuel), a wholly owned subsidiary of Edison
- effect when the liabilities are expected to be paid, is the sole lessor for the Company's nuclear fuel The components of accumulated deferred income requirements. taxes as of December 31,1993, are disclosed on Minimum lease payments during the next f.ive the Statements of Taxes.
years are estimated to be as follows: The Company is included in Edison's 1994 59.845po consolidated federal income tax return. The 1995 8. miso consolidated tax liability is allocated on a separate 1998
[22
- 1. u 4 mn0 company basis, with any tax losses or credits paid to the Company when earned.
The Company amortizes the cost of nuclear RETIREMENT HENEFITS-The fuel based on the rate of consumption. The Company's trusteed, noncontributory defined Company's electric rates include amounts for the benefit pension plan covers almost all full-time i
13
r employees. Upon retirement, employees receive a The Company pays insurance premiums to cover a monthly pension based on length of service and portion of these benefits in excess of set limits; all compensation. The Company uses the projected amounts up to the limits are paid by the Company.
unit credit method for funding purposes and was Expenses associated with health care and life not required to make pension contributions during insurance benefits for retirees were charged to the three years ended December 31,1993. income during the applicable payment periods in The following sets forth the funded status of 1992 and 1991, and amounted to $1,411,000 and the plan and amounts recognized on the Balance $948,000, respectively.
Sheets as of December 31: In 1993 the Company adopted SFAS No.106
" Employers' Accounting for Postretirement
' ",3, ,, ' [2 Benefits Other Than Pensions," which requires Actuarial present value of benefit companies to recognize the expected cost of oblisanons: providing other postretirement benefits to 5 78l,%2 employees and their beneficiaries and covered
{,'$t'd b'l*6t5,
, 3 $ 57, 8]
Accumulated benent nbhramn $ R3.975 $ 62.301 dependents from the time employees are hired until they become eligible to receive those Plan assets at fair value $123.092 $112,764 benefits. The Company does not currently fund Actuarial present value of projected g g-bene 6t obliration 107.702 R0.360 Plan assets in eacess of projected The following sets forth the accrued benent obiigation 15,390 32.404 postretirement benefit cost on the Balance Sheet as unrecogiuzed net gain o.611) 0 7.062) of December 31,1993:
Unrecognized pnor service cost 2.563 2.779 Unrecognired net transition asset (9.479) (10.532)
Net penunn asset 5 6.R63 $ 7.589 Accumulated postretirement benent obligation $ 42,905,000 unrecognized transition obligation t32.287.000)
The assets of the plan consist primarily of 5 common stocks, United States government bonds """', '"[*d "",'"'
7
, 3,.,
n g, c m, , '3Q and corporate bonds. Net pension costs for the three years ended December 31,1993, were The accumulated postretirement benefit computed as follows: obligation is alin:ated to: retirees-$20,604,000, fully eligible active plan participants-$6,794,000, 1993 1992 1991- and other active plan participants-$15,507,000,
") Net periodic postretirement benefit cost for service cosi-benents carned during the period $ 2.802 $ 2,828 $ 2.852 1993 included the following components:
Interest on projected benefit 7,281 6.305 service cost 5 866,000 obligation 6.612 0 5,653) (9,336) (19,448) 'nterest cost 3,129.000 Return on plan assets 2,366 (3,652) 7,335 Amortization of transition obligation 1,699,000 Net deferral (amortizauon)
Voluntary early retirement program expense 1.112.000 voluntary early retirement 3.930 - - Net periodic postrenrement bene'it cost 6.806,000
_prostram expense Net pendon cost $ 726 $ (3.54m $ 0.956) Bene 6ts paid 1.545.000 increase in accrued postretireme it b'"' 6' '"' SE2" "U The assumed discount rate used in determining the actuarial present value of the ,
The health care trend ete assumption is projected benefit obligation was 7.5% in 1993 and 8.25 % m. the first year gradually decreasing to 3.5% for the year 2008 and later. The discount u ure co per s io e els used to n e his rate used to compute the accumulated obligation was 4.5% m. each year. Expected long- postret.irement benefit obligation at December 31, term rates of return on plan assets were assumed 1993, was 7.5%. An increase in the health care to be 11% m each year. trend rate assumpt. ion by one percentage point m The Company provides a minimum amount of all years would increase the accumulated noncontributory life insurance to retired employees postretirement benefit obligat. ion by approximately m addition to optional contributory insurance, $4,400,000 and the aggregate annual service and Health care benefits, which include certain mterest costs by approximately $500,000. 1 employee deductibles and copayments, are also available to retired employees, their dependents and, under certain circumstances, their survivors.
14
The PPUC has authorized the Company to approximate fair market value of preferred stock defer the incremental costs resulting from adopting subject to mandatory redemption was exceeded by SFAS No. 106 ($4,339,000 through December 31, the carrying cost by approximately $200,000 as of 1993) for future recovery from its retail December 31,1993, while the carrying cost was customers. Similar authorization relating to exceeded by the approximate fair market value by another utility is currently under appeal to the approximately $900,000 as of December 31,1992.
Commonwealth Court of Pennsylvania by the The fair value of these instruments reflect the Office of Consumer Advocate. present value of the cash outflows relating to those securities based on the current call price, the yield TRANSACTIONS WITII AFFILIATED to maturity or the yield to call, as deemed COMPANIES-Transactions with affiliated appropriate at the end of each respective year. The companies are included on the Statements of yields assumed were based on securities with Income as follows: similar characteristics offered by a corporation with credit ratings similar to the Company's !
1993 1992 1991 ratings. i (In thousands) l Operating revenues: !
Electric sales to Edison $8.781 $22,755 $23.292 REGULATORY ASSETS-The Company !
aruce Mansricid Plan' recognizes, as regulatory assets, costs which the !
cha es is 5,652 2,529 3,761 FERC and PPUC have authorized for recovery i other transactions with from Customers in future periods. Without such
$i4 7 $25.$ $27N
" * "" "M E" "bd Fuel and purchased power:
to income as incurred. Amounts shown below as Power purchased from Edison $ 8,667 $13,936 $21,339 being recovered currentiy have a composite Nuclear fuel leased from remaining recovery period or approximately 32 oEs Fuel 10.356 15.199 12.910
$19.023 $29.135 $34.249 I uther operauns costs: Regulatory assets on the Balance Sheets were Rental of transmission Comprised of the following:
lines from Edison $1,042 $1,172 $I,182 Data processing services 39,3 g from Edison 3.307 2.624 2,461 other transactions with Currently being recovered through rates:
Edison 4.345 2.679 2.611 g
i 8.694 $ 6.475 $ 6,254 he hw h MN $-
Property Taxes 4,615 4,920 SUPPLEMENTAL CASil FLOWS toss on Reacquired Debt 12,551 5.804 INFORMATION-All temporary cash DOE Decommissioning and
. .. Decontamination Costs 3,192 3,500 mvestments purchased w. it h an imtial maturity of Dererred Mansrield coal costs 3,590 3,428 three months or less are reported as cash other -
152 equivalents on the Balance Sheets. The Company 159.145 17.804 records temporary cash investments at cost, which Not currently recovered through rates:
approximates their market value. Noncash Nuclear Unit Expenses 21,180 21,180 financing and investing activities included capital Ernployee Portretirement Be"*fi' C 5 4.339 -
lease transactions amounting to $2,357,000, Pem unn 2 nnninaen
$10,721,000 and $4,343,000 for the years 1993, 2b80 1992 and 1991, respectively. Totai $222.30i $38.984 All borrowings with initial maturities of less than one year and $4,639,000 and $4,140,000 of 2. CIIANGE IN ACCOUNTING FOR investments other than cash and cash equivalents UNBILLED REVENUES:
as of December 31,1993 and 1992, respectively, which are defined as financial instruments, are On January 1,1993, the Company changed its reflected at their approximate fair market value. accounting policy to recognize revenue relating to The approximate fair market value of all other metered sales which remain unbilled at the end of long-term debt exceeded the carrying cost of those the accounting period. This change was made to financial instruments by approximately more closely match the Company's revenues with
$19,461,000 and $19,220,000, as of the costs of services provided. The effect of this December 31,1993 and 1992, respectively. The change decreased net income for the year ended 15
I December 31,1993, (before the cumulative effect and operating leases are charged to operating from periods prior to 1993) by approximately expenses on the Statements of Income. Such costs
$900,000. The cumulative effect to January 1, for the three years ended December 31,1993, are 1993, was $5,653,000 (net of $4,108,000 of summarized as follows:
income taxes). The reported results of operations for the years ended December 31,1992 and 1991, 1993 1992 1991 would not have been materially different if this (I" " *""*"dd g
new accounting policy had been in effect during interest element 5 171 5 212 5 223 those years, other 912 1.032 826 Capitai Leases
- 3. PERRY UNIT 2 TERMINATION: $[*" ***"'
Total rental navments
$1426
$3 644
[$
$1317 In December 1993, the Company announced that it will not participate in further construction of The future minimum lease payments as of Perry Unit 2 and has abandoned Perry Unit 2 as a December 31,1993, are:
possible electric generating plant. The Company capital operating expects its Perry Unit 2 investment to be tcases i, eases recoverable from its PPUC jurisdictional (to umusanaa customers based on Section 520 of the Pennsylvania Public Utility Code. Due to the
[ 5j 5y 1996 1.765 208 anticipated delay in commencement of recovery 1997 1.543 204 and taking into account the expected PPUC and 1[ ,,
]49g ,,
199 FERC rate treatment, the Company recognized an roui m,mmum iease payments 24,385 gpq2j impairment to its Perry Unit 2 investment of Esecutory costs 4.600
$24,458,000 in 1993, reducing net income by Net minimum lease payments 19.695
$ 14,165,000' '"'"*"""""'" "
Present 5alue of net minimum lease payments 8,690
- 4. RATE PIIASE-IN PLAN AND 1 ess current nonion i.797 Nonent ponion $ 7393 SURCIIARGE:
The PPUC granted the Company a bare rate AM increase, effective May 4,1988, designed t produce approximately $67,100,000 of additional (a) RETAINED EARNINGS-Under the annual operating revenues. The increase was Company's Charter, the Company,s retained d in om uveral years, with amounts e rnings unrestricted for payment of cash deferred during the phase-in period recovered by dividends on the Company s common stock were
$52.778,000 at December 31,1993.
the end of the fourth year. The Company recognized revenue under the phase-in plan as if the full revenue level had been placed into effect (b) PREFERRED STOCK-The Company's in 1988. 7.625% and 7.75% series of preferred stock have On August 24, 1991, the Commonwealth of restrictions which prevent early redemption prior Pennsylvam.a increased certain state tax rates to October 1997 and July 2003, respectively. All retroactive to January 1,1991. In conjunction with other preferred stock may be redeemed by the this increase, the Company deferred the increase in Company in whole, or m. part, with 30-60 days, taxes for collection from customers in the form of n tice. The optional redemption prices shown on a surcharge on electric bills. All amounts deferred the Statements of Capitalization will decline to in 1991 were recovered in 1992. eventu 1 minimums per share according to the Charter provisions that establish each series.
- 5. LEASFS:
(c) PREFERRED STOCK SUBJECT TO The Company leases certain transmission MANDATORY REDEMPTION-The facilities, computer equipment, office space and Company's 13.00% series of preferred stock has other property and equipment under cancelable and n nnu I smking fund requirement for 5,000 noncancelable leases. Consistent with the shares m each year on July 1; its 7.625% series regulatory treatment, rental payments for capital 16
has an annual sinking fund requirement for 7,500 applicable to 1994. Investments for additional shares beginning on October 1,2002. nuclear fuel during the 1994-1998 period are Preferred shares are retired at $100 per share estimated to be approximately $38,000,000, of plus accrued dividends. The Company's sinking which approximately $9,000,000 applies to 1994.
fund requirements for the next five years are During the same periods, the Company's nuclear
$862,000 in 1994 and $500,000 in each year from fuel investments are expected to be reduced by 1995 through 1998. approximately $44,000,000 and $10,000,000, respectively, as the nuclear fuel is consumed.
(d) LONG-TERM DEBT-The first mortgage indenture and its supplements, which secure all of NUCLEAR INSURANCE-The Price-the Company's first mortgage bonds, serve as Anderson Act limits the public liability relative to direct first mortgage liens on substantially all a single incident at a nuclear power plant to property and franchises, other than specifically $9,396,000,000, The amount is covered by a excepted property, owned by the Company. combination of private insurance and an industry Maturing long-term debt (excluding capital leases) retrospective rating plan. Based on its present during the next five years are $50,000,000 in 1996 ownership interests in Beaver Valley Unit I and and $850,000 in 1998. Perry Unit 1, the Company's maximum potential The Company's obligations to repay certain assessment under the industry retrospective rating pollution control revenue bonds are secured by plan (assuming the other CAPCO companies were series of first mortgage bonds and, in some cases, to contribute their proportionate share of any by subordinate liens on the related pollution assessments under the retrospective rating plan) control facilities. would be $18,100,000 per incident but not more than $2,300,000 in any one year for each incident.
7 SilORT-TERM FINANCING The Company is also insured as to its interest ARRANGEMENTS: in Beaver Valley Unit I and the Perry Plant under policies issued to the operating company for each The Company has lines of credit with banks plant. Under these policies, up to $2,750,000,000 that provide for borrowings of up to $35,000,000 is provided for property damage and under var'ious interest rate options. Short-term decontamination and decommissioning costs. The borrowings may be made under these lines of Company has also obtained approximately credit on the Company's unsecured notes. To $53,000,000 of insurance coverage for assure the availability of these lines, the Company replacement power costs for its interests in Beaver is required to pay commitment fees of 0.15% to Valley Unit I and Perry Unit 1. Under these 0.5%. These lines expire at various times during policies, the Company can be assessed a maximum 1994. of approximately $2,600,000 for accidents at any The Company also has a credit agreement covered nuclear facility occurring during a policy with Edison whereby either company can borrow year which are in excess of accumulated funds funds from the other by issuing unsecured notes at available to the insurer for paying losses.
the prevailing prime or similar interest rate. Under The Company intends to maintain insurance the terms of this agreement the maximum against nuclear risks as described above so long as borrowing is limited only by the availability of it is available. To the extent that replacement funds; however, the Company's borrowing under power, property damage, decontamination, this agreement is currently limited by the PPUC to decommissioning, repair and replacement costs and a total of $50,000,000. Either company can other such costs arising from a nuclear incident at terminate the agreement with six months' notice, any of the Company's plants exceed the policy limits of the insurance from time to time in effect 8 COMMITMENTS, GUARANTEES AND with respect to that plant, to the extent a nuclear CONTINGENCIES: incident is determined not to be covered by the Company's insurance policies, or to the extent CONSTRUCTION PROGRAM-The such insurance becomes unavailable in the future, !
Company's current forecast reflects expenditures the Company would remain at risk for such costs. ,
of approximately $140,000,000 for property l additions and improvements from 1994 through GUARANTEES-The Company, together 1998, of which approximately $27,000,000 is with the other CAPCO companies, has severally 17
matters. The Company is developing and guaranteed certain debt and lease obligations in connection with a coal supply contract for the analyzing various compliance options and is Bruce Mansfield Plant. As of December 31,1993, presently unable to determine the ultimate increase the Company's share of the guarantee (which in capital and operating costs at existing sites.
approximates fair market value) was $12,708,000.
Legislative and administrative action and the effect of court decisions can be expected in the The price under the coal supply contract, which includes certain minimum payments, has been future (as they have in the past) to change the way determined to be sufficient to satisfy the debt and that the Company must operate in order to comply l
with environmental laws and regulations. With lease obligations. The Company's total payments under the coal supply contract amounted to respect to any such changes and to the environmental matters described above, the
$13,230,000, $12,082,000 and $12,041,000 during 1993,1992, and 1991, respectively. Under Company expects that any resulting additional l l
the coal supply contract, the Company's future capital costs which may be required, as well as minimum payments are approximately $4,000,000 any required increase in operating costs, would each year from 1994 through 1999. ultimately be recovered from its customers.
ENVIRONMENTAL MATTERS-Various federal, state and local authorities regulate the Company with regard to air and water quality and other environmental matters. The Company has estimated additional capital expenditures for environmental compliance of approximately
$17,000,000, which is included in the construction forecast under " Construction Program" for 1994 through 1998.
The Clean Air Act Amendments of 1990 require significant reductions of sulfur dioxide and oxides of nitrogen from the Company's coal-fired generating units by 1995 and additional emission reductions by 2000. Compliance options include, but are not limited to, installing additional pollution control equipment, burning less polluting fuel, purchasing emission allowances from others, operating existing facilities in a manner which minimizes pollution and retiring facilities. In a system compliance plan for the Company and Edison submitted to the PPUC and to the Environmental Protection Agency, the Company stated that reductions for the years 1995 through 1999 are likely to be achieved by burning lower sulfur fuel, generating more electricity at their lower emitting plants and/or purchasing emission allowances. The Company continues to evaluate its compliance plan and other compliance options as they arise. Plans for complying with the year 2000 reductions are less certain at this time.
The Pennsylvania Department of Environmental Resources has issued regulations dealing with the storage, treatment, transportation and disposal of residual waste such as coal ash and scrubber sludge. These regulations impose additional requirements relating to permitting, ground water monitoring, leachate collection systems, closure, liability insurance and operating 18
.3
- 9.
SUMMARY
OF QUARTERLY REPORT OF INDEPENDENT PUBLIC l ACCOUNTANTS FINANCIAL DATA (UNAUDITED):
The following summarizes certain operating To the Board of Directors of Pennsylvania Power results by quarter for 1993 and 1992. Company:
March 31, June 30, sept. 30, Dec. 31, We have audited the accompanying balance Three Months I?nded 1993 1993 1993 1993 sheets and statements of capitalization of (In thousamis) openung Revenues $74.274 $70,266 $76.226 $71.31 H Pennsylvania Power Company (a Pennsylvania operaung Expenses corporation and wholly-owned subsidiary of Ohio I and Tages 61.272 53.708 56.710 57.617 '
Edison Company) as of December 31,1993 and NeNn$on" Spense) 6 2 4 (1 >
1992, and the related statements of income, set Interest 8.549 8.653 831o 8 A69 retained earnings, capital stock and other paid-in income (toss) nerore
]
capital, cash flows and taxes for each of the three 1 han e n A 7g 0n 4,521 8,10$ 11,134 (8.096) years in the period ended December 31,1993. l cumulanve urect or a These financial statements are the responsibility of Change in Accountitie 5.653 the Company's management. Our responsibility is 5'" " 5 " l "' 5 ' ' ' " 5( * *"
Ia$n"ng" s Archcable t express an pini n n these financial statements en commonsinct $ g 639
$6,37i $ o.706 5,o.462> based on our audits. 1 We conducted our audits in accordance with generally accepted auditing standards. Those ,
l March 31, June 30, Sept. 30, Dec. 31 Three Months l'nded 1992 1992 1992 1992 standards require that we plan and perform the (In thousands) audit to obtain reasonable assurance about whether operating Revenues $82,030 $77,412 $79.370 $76,646 the financial statements are free of material operaung Expenses ,
I ana Taies 62.6so 58.936 su95 63.952 misstatement. An audit includes examining, on a J' opennng income 19,380 18,476 15.975 12.694 test basis, evidence supporting the amounts and l '
$ 7t $ * "" " 8!6$$ 9$ 9St$ 8[, disclosures in the financial statements. An audit Net income $11.116 $ 9.157 5 6,767 $ 3.716 also includes assessing the accounting principles t gi on c"""""" used and significant estimates made by y,os 7 33n6 m, l management, as well as evaluating he overall financial statement presentation. We believe that Results of operations for the first three our audits provide a reasonable basis for our quarters of 1993 were restated to reflect the opinion.
change in accounting for unbilled revenues as In our opinion, the financial statements described m Note 2. Restated net income for the
, referred to above present fairly, in all material first quarter includes $5,653,000 for the respects, the financial position of Pennsylvania cumulative effect of the change. The effect on Power Company as of December 31,1993 and income from continuing operations was as follows:
1992, and the results of its operations and its cash
$(587,000), $330,000 and $(353,000)in the first, flows for each of the three years .in the period second and third quarters, respectively, ended December 31,1993, in conformity with Results of operations for the third and fourth generally accepted accounting principles, quarters of 1992 melude charges of approximately As discussed in Notes I and 2 to the financial
$4,300,000 ($2,500,000 net of income taxes) and i
statements, effective January 1,1993, the l
$8,500,000 ($5,000,000 net of income taxes),
Company changed its method of accounting for :
lespectively, relating to provisions for I unbilled revenues, income taxes and postretirement uncollectible customer accounts.
benefits other than pensions.
(.h (Q 0t LNe r s&
Arthur Andersen & Co.
New York, N.Y.
February 1,1994 19
BOARD OF DIRECTORS OFFICERS
- 11. Peter Burg Willard R. IIolland Senior Vice President and Chief Financial Officer Chairman of the Board and Chief Executive of the Company's parent, Ohio Edison Company, Officer Akron, Ohio.
Robert L. Kensinger Robert IL Carlson President Retired, formerly President and Chief Executive Officer of Universal-Rundle Corporation, a James R. Edgerly j plumbing fixture manufacturer, New Castle, Vice President, Secretary and General Counsel Pennsylvania.
Jack E. Reed James R. Edgerly Vice President Vice President, Secretary and General Counsel of the Company, New Castle, Pennsylvania. Robert P. Wushinske Vice President and Treasurer Willard R. IIolland Chainnan of the Board and Chief Executive David W. McKean Officer of the Company, and President and Chief Comptroller i Executive Officer of the Company's parent, Ohio l
Edison Company, Akron, Ohio. Angeline Comparone Assistant Secretary Robert L. Kensinger President of the Company, New Castle, Francis A. Fazzone Pennsylvania. Assistant Treasurer Joseph J. Nowak Mr. Holland is president and chief executive Retired, formerly Vice President of Armco Inc., a officer of the Company's parent. The principal manufacturer of steel products, Pittsburgh, employment of all other officers is with the Pennsylvania. Company.
Jack E. Reed TRANSFER AGENT and REGISTRAR for Vice President of the Company, New Castle, Preferred Stock:
Pennsylvania. Office of the Company's parent Ohio Edison Company Richard L. Werner Investor Services Chairman of the Board and President of R. D. 76 South Main Street Werner Company, Inc., a manufacturer of Akron, Ohio 44308-1890 aluminum extrusions, ladders and scaffolding, Greenville, Pennsylvania. PRINCIPAL OFFICES:
1 E. Washington Street P. O. Box 891 DIRECTOR EMERITUS New Castle, Pennsylvania 16103-0891 (412) 652-5531 G. Leo Winger Pennsylvania Power Company is an equal opportunity employer.
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Pennsylvania Power Company 1 E. Washington Street IP k Rate P. O. Box 891 g 3, pos,,g, p339 New Castle, PA 16103-0891
, ew Castle, PA (412) 652-5531 Permit No.158 1993 Annual Report
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