1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-3701
THE WASHINGTON WATER POWER COMPANY
(Exact name of registrant as specified in its charter)
Washington 91-0462470
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1411 East Mission Avenue, Spokane, Washington 99202-2600
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 509-489-0500
None
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was re-
quired to file such reports), and (2) has been subject to such filing require-
ments for the past 90 days.
-----------------------
Yes [X] No [ ]
-----------------------
At November 1, 1995, 55,696,399 shares of Registrant's Common Stock, no par
value (the only class of common stock), were outstanding.
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THE WASHINGTON WATER POWER COMPANY
Index
Page No.
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Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Income - Three Months Ended
September 30, 1995 and 1994 .................................. 3
Consolidated Statements of Income - Nine Months Ended
September 30, 1995 and 1994 .................................. 4
Consolidated Balance Sheets - September 30, 1995
and December 31, 1994 ........................................ 5
Consolidated Statements of Capitalization - September 30, 1995
and December 31, 1994 ........................................ 6
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1995 and 1994 .................................. 7
Schedule of Information by Business Segments - Three Months Ended
September 30, 1995 and 1994 .................................. 8
Schedule of Information by Business Segments - Nine Months Ended
September 30, 1995 and 1994 .................................. 9
Notes to Consolidated Financial Statements ....................... 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .................... 15
Part II. Other Information:
Item 5. Other Information ............................................ 21
Item 6. Exhibits and Reports on Form 8-K ............................. 22
Signature ......................................................................... 23
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3
CONSOLIDATED STATEMENTS OF INCOME
The Washington Water Power Company
- --------------------------------------------------------------------------------
For the Three Months Ended September 30
Thousands of Dollars
1995 1994
--------- ---------
OPERATING REVENUES ............................. $ 157,869 $ 142,334
OPERATING EXPENSES:
Operations and maintenance ................... 84,856 80,722
Administrative and general ................... 14,844 12,661
Depreciation and amortization ................ 15,591 15,040
Taxes other than income taxes ................ 11,013 10,938
--------- ---------
Total operating expenses ................... 126,304 119,361
--------- ---------
INCOME FROM OPERATIONS ......................... 31,565 22,973
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense ............................. (14,709) (13,751)
Interest capitalized and AFUCE ............... 208 435
Net gain on subsidiary transactions .......... -- 1,306
Other income (deductions)-net ................ 944 1,794
--------- ---------
Total other income (expense)-net ........... (13,557) (10,216)
--------- ---------
INCOME BEFORE INCOME TAXES ..................... 18,008 12,757
INCOME TAXES ................................... 7,123 4,653
--------- ---------
NET INCOME ..................................... 10,885 8,104
DEDUCT-Preferred stock dividend requirements.... 2,267 2,186
--------- ---------
INCOME AVAILABLE FOR COMMON STOCK .............. $ 8,618 $ 5,918
========= =========
Average common shares outstanding (thousands)... 55,363 53,751
EARNINGS PER SHARE OF COMMON STOCK ............. $ 0.16 $ 0.11
Dividends paid per common share ................ $ 0.31 $ 0.31
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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CONSOLIDATED STATEMENTS OF INCOME
The Washington Water Power Company
- --------------------------------------------------------------------------------
For the Nine Months Ended September 30
Thousands of Dollars
1995 1994
--------- ---------
OPERATING REVENUES .......................... $ 514,770 480,404
--------- ---------
OPERATING EXPENSES:
Operations and maintenance ............... 253,102 249,930
Administrative and general ............... 47,876 43,040
Depreciation and amortization ............ 46,656 44,534
Taxes other than income taxes ............ 36,994 34,223
--------- ---------
Total operating expenses ............... 384,628 371,727
--------- ---------
INCOME FROM OPERATIONS ...................... 130,142 108,677
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense ......................... (44,160) (39,186)
Interest capitalized and AFUCE ........... 650 3,242
Net gain on subsidiary transactions ...... 1,952 2,639
Other income (deductions)-net ............ (688) 5,771
--------- ---------
Total other income (expense)-net ....... (42,246) (27,534)
--------- ---------
INCOME BEFORE INCOME TAXES .................. 87,896 81,143
INCOME TAXES ................................ 33,393 30,652
--------- ---------
NET INCOME .................................. 54,503 50,491
DEDUCT-Preferred stock dividend requirements 6,863 6,405
--------- ---------
INCOME AVAILABLE FOR COMMON STOCK ........... $ 47,640 $ 44,086
========= =========
Average common shares outstanding
(thousands)............................... 54,980 53,329
EARNINGS PER SHARE OF COMMON STOCK .......... $ 0.87 $ 0.83
Dividends paid per common share ............. $ 0.93 $ 0.93
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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CONSOLIDATED BALANCE SHEETS
The Washington Water Power Company
- --------------------------------------------------------------------------------
Thousands of Dollars
September 30, December 31,
1995 1994
------------- ------------
ASSETS:
PROPERTY:
Utility plant in service-net .............................. $1,853,545 $1,802,280
Construction work in progress ............................. 27,976 27,316
---------- ----------
Total ................................................... 1,881,521 1,829,596
Less: Accumulated depreciation and amortization .......... 539,368 500,551
---------- ----------
Net utility plant ....................................... 1,342,153 1,329,045
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Investment in exchange power-net .......................... 83,882 88,615
Other-net ................................................. 119,738 114,145
---------- ----------
Total other property and investments .................... 203,620 202,760
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents ................................. 3,911 5,178
Temporary cash investments ................................ 27,195 27,928
Accounts and notes receivable-net ......................... 62,856 74,524
Materials and supplies, fuel stock and natural gas stored . 29,231 21,384
Prepayments and other ..................................... 7,428 7,552
---------- ----------
Total current assets .................................... 130,621 136,566
---------- ----------
DEFERRED CHARGES:
Regulatory assets for deferred income tax ................. 170,840 174,349
Conservation programs ..................................... 64,095 66,511
Other-net ................................................. 89,427 85,022
---------- ----------
Total deferred charges .................................. 324,362 325,882
---------- ----------
TOTAL ................................................. $2,000,756 $1,994,253
========== ==========
CAPITALIZATION AND LIABILITIES:
CAPITALIZATION (See Consolidated Statements of
Capitalization) ........................................... $1,522,491 $1,533,640
---------- ----------
CURRENT LIABILITIES:
Accounts payable .......................................... 36,282 46,217
Taxes accrued ............................................. 25,941 17,977
Interest accrued .......................................... 16,141 10,954
Other ..................................................... 59,341 57,369
---------- ----------
Total current liabilities ............................... 137,705 132,517
---------- ----------
DEFERRED CREDITS:
Deferred income taxes ..................................... 317,287 312,525
Other ..................................................... 21,920 14,399
---------- ----------
Total deferred credits .................................. 339,207 326,924
---------- ----------
MINORITY INTEREST ............................................ 1,353 1,172
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 4)
TOTAL ................................................. $2,000,756 $1,994,253
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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CONSOLIDATED STATEMENTS OF CAPITALIZATION
The Washington Water Power Company
- --------------------------------------------------------------------------------
Thousands of Dollars
September 30, December 31,
1995 1994
------------- ------------
COMMON EQUITY:
Common stock, no par value: 200,000,000 shares authorized:
shares outstanding: 1995-55,617,091; 1994-54,420,696........................ $ 588,872 $ 570,603
Note receivable from employee stock ownership plan ........................... (11,840) (12,267)
Capital stock expense and other paid in capital............................... (10,066) (10,031)
Unrealized investment gain-net................................................ 20,190 14,341
Retained earnings............................................................. 111,875 114,848
---------- ----------
Total common equity....................................................... 699,031 677,494
---------- ----------
PREFERRED STOCK-CUMULATIVE: (Note 1)
10,000,000 shares authorized:
Not subject to mandatory redemption:
Flexible Auction Series J; 500 shares outstanding ($100,000 stated value)... 50,000 50,000
---------- ----------
Total not subject to mandatory redemption................................. 50,000 50,000
---------- ----------
Subject to mandatory redemption:
$8.625, Series I; 500,000 shares outstanding ($100 stated value)........... 50,000 50,000
$6.95, Series K; 350,000 shares outstanding ($100 stated value)............ 35,000 35,000
---------- ----------
Total subject to mandatory redemption..................................... 85,000 85,000
---------- ----------
LONG-TERM DEBT: (Note 1)
First Mortgage Bonds:
4 5/8% due March 1, 1995.................................................... - 10,000
7 1/8% due December 1, 2013................................................. 66,700 66,700
7 2/5% due December 1, 2016................................................. 17,000 17,000
Secured Medium-Term Notes:
Series A - 4.72% to 8.06% due 1996 through 2023........................... 250,000 250,000
Series B - 6.61% to 8.25% due 1997 through 2010........................... 121,000 63,000
---------- ----------
Total first mortgage bonds................................................ 454,700 406,700
---------- ----------
Pollution Control Bonds:
6% Series due 2023.......................................................... 4,100 4,100
Unsecured Medium-Term Notes:
Series A - 7.94% to 9.58% due 1997 through 2007............................. 72,500 92,500
Series B - 5.50% to 8.55% due 1996 through 2023............................. 135,000 150,000
---------- ----------
Total unsecured medium-term notes......................................... 207,500 242,500
---------- ----------
Notes payable (due within one year) to be refinanced.......................... 14,500 58,000
Other......................................................................... 7,660 9,846
---------- ----------
Total long-term debt...................................................... 688,460 721,146
---------- ----------
TOTAL CAPITALIZATION............................................................. $1,522,491 $1,533,640
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
The Washington Water Power Company
- --------------------------------------------------------------------------------
For the Nine Months Ended September 30
Thousands of Dollars
1995 1994
--------- ---------
OPERATING ACTIVITIES:
Net income ............................................................... $ 54,503 $ 50,491
NON-CASH REVENUES AND EXPENSES
INCLUDED IN NET INCOME:
Depreciation and amortization .......................................... 55,573 52,140
Provision for deferred income taxes .................................... 1,805 7,198
Allowance for equity funds used during construction .................... (624) (1,110)
Power and natural gas cost deferrals and amortization .................. 11,741 2,163
Deferred revenues and other-net ........................................ 197 (3,487)
(Increase) decrease in working capital components:
Receivables and prepaid expenses-net ................................ 11,467 18,140
Materials & supplies, fuel stock and natural gas stored ............. (7,798) (3,967)
Payables and other accrued liabilities .............................. 3,483 2,126
Other-net ........................................................... (16,594) (2,770)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................... 113,753 120,924
--------- ---------
INVESTING ACTIVITIES:
Construction expenditures (excluding AFUDC-equity funds) ................. (51,527) (67,771)
Other capital requirements ............................................... (523) (18,470)
(Increase) decrease in other noncurrent balance sheet items-net .......... 10,961 (17,305)
Assets acquired and investments in subsidiaries (Note 3) ................. (947) (9,708)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES ....................................... (42,036) (113,254)
--------- ---------
FINANCING ACTIVITIES:
Increase (decrease) in commercial paper, notes payable
and bank borrowings-net ................................................ (43,500) (35,001)
Maturity of unsecured medium-term notes .................................. (35,000) (7,500)
Sale of secured medium-term notes ........................................ 58,000 56,000
Maturity of first mortgage bonds ......................................... (10,000) --
Sale of common stock-net ................................................. 9,761 12,043
Other-net ................................................................ (3,157) 8,666
--------- ---------
NET FINANCING ACTIVITIES BEFORE CASH DIVIDENDS .............................. (23,896) 34,208
Less cash dividends paid .............................................. (49,088) (47,221)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES ....................................... (72,984) (13,013)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS ................................... (1,267) (5,343)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............................ 5,178 11,201
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................. $ 3,911 $ 5,858
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period:
Interest ............................................................... $ 34,918 $ 30,095
Income taxes ........................................................... $ 26,356 $ 22,919
Non-cash financing and investing activities .............................. $ 14,654 $ 8,618
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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SCHEDULE OF INFORMATION BY BUSINESS SEGMENTS
The Washington Water Power Company
- --------------------------------------------------------------------------------
For the Three Months Ended September 30
Thousands of Dollars
1995 1994
---------- ----------
OPERATING REVENUES:
Electric . . . . . . . . . . . . . . . . . . . . $116,564 $103,960
Natural gas . . . . . . . . . . . . . . . . . . 24,191 21,158
Non-utility . . . . . . . . . . . . . . . . . . 17,114 17,216
---------- ----------
Total operating revenues . . . . . . . . . . . $157,869 $142,334
========== ==========
OPERATIONS AND MAINTENANCE EXPENSES:
Electric:
Power purchased . . . . . . . . . . . . . . . $ 23,061 $28,190
Fuel for generation . . . . . . . . . . . . . 12,612 10,201
Other electric . . . . . . . . . . . . . . . . 19,784 15,363
Natural gas:
Natural gas purchased for resale . . . . . . . 15,736 13,045
Other natural gas . . . . . . . . . . . . . . 4,268 3,626
Non-utility . . . . . . . . . . . . . . . . . . 9,395 10,297
---------- ----------
Total operations and maintenance expenses . . $ 84,856 $80,722
========== ==========
ADMINISTRATIVE AND GENERAL EXPENSES:
Electric . . . . . . . . . . . . . . . . . . . . $ 9,183 $ 7,466
Natural gas . . . . . . . . . . . . . . . . . . 2,735 2,146
Non-utility . . . . . . . . . . . . . . . . . . 2,926 3,049
---------- ----------
Total administrative and general expenses . . $ 14,844 $12,661
========== ==========
DEPRECIATION AND AMORTIZATION EXPENSES:
Electric . . . . . . . . . . . . . . . . . . . . $ 12,401 $12,132
Natural gas . . . . . . . . . . . . . . . . . . 2,415 2,090
Non-utility . . . . . . . . . . . . . . . . . . 775 818
---------- ----------
Total depreciation and amortization expenses . $ 15,591 $15,040
========== ==========
INCOME FROM OPERATIONS:
Electric . . . . . . . . . . . . . . . . . . . . $ 29,986 $21,341
Natural gas . . . . . . . . . . . . . . . . . . (2,145) (1,148)
Non-utility . . . . . . . . . . . . . . . . . . 3,724 2,780
---------- ----------
Total income from operations . . . . . . . . . $ 31,565 $22,973
========== ==========
INCOME AVAILABLE FOR COMMON STOCK:
Utility operations . . . . . . . . . . . . . . . $ 5,927 $2,626
Non-utility operations . . . . . . . . . . . . . 2,691 3,292
---------- ----------
Total income available for common stock . . . $8,618 $5,918
========== ==========
ASSETS: (1994 amounts at December 31)
Electric . . . . . . . . . . . . . . . . . . . . $1,453,498 $1,441,643
Natural gas . . . . . . . . . . . . . . . . . . 247,992 247,060
Common plant . . . . . . . . . . . . . . . . . . 27,602 25,849
Other utility assets . . . . . . . . . . . . . . 82,667 106,118
Non-utility assets . . . . . . . . . . . . . . . 188,997 173,583
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . $2,000,756 $1,994,253
========== ==========
CAPITAL EXPENDITURES (excluding AFUDC):
Electric . . . . . . . . . . . . . . . . . . . . $11,100 $17,459
Natural gas . . . . . . . . . . . . . . . . . . 6,730 8,649
Common plant . . . . . . . . . . . . . . . . . . 3,081 5,189
Non-utility . . . . . . . . . . . . . . . . . . 349 1,476
---------- ----------
Total capital expenditures . . . . . . . . . . $21,260 $32,773
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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SCHEDULE OF INFORMATION BY BUSINESS SEGMENTS
The Washington Water Power Company
- --------------------------------------------------------------------------------
For the Nine Months Ended September 30
Thousands of Dollars
1995 1994
---------- ----------
OPERATING REVENUES:
Electric . . . . . . . . . . . . . . . . . . . . . . $345,454 $330,006
Natural gas . . . . . . . . . . . . . . . . . . . . 118,631 100,937
Non-utility . . . . . . . . . . . . . . . . . . . . 50,685 49,461
---------- ----------
Total operating revenues . . . . . . . . . . . . . $514,770 $480,404
========== ==========
OPERATIONS AND MAINTENANCE EXPENSES:
Electric:
Power purchased . . . . . . . . . . . . . . . . . $ 61,551 $ 74,447
Fuel for generation . . . . . . . . . . . . . . . 23,371 28,721
Other electric . . . . . . . . . . . . . . . . . . 55,700 45,809
Natural gas:
Natural gas purchased for resale . . . . . . . . . 72,502 59,142
Other natural gas . . . . . . . . . . . . . . . . 11,830 10,405
Non-utility . . . . . . . . . . . . . . . . . . . . 28,148 31,406
---------- ----------
Total operations and maintenance expenses . . . . $253,102 $249,930
========== ==========
ADMINISTRATIVE AND GENERAL EXPENSES:
Electric . . . . . . . . . . . . . . . . . . . . . . $29,322 $25,569
Natural gas . . . . . . . . . . . . . . . . . . . . 9,269 7,730
Non-utility . . . . . . . . . . . . . . . . . . . . 9,285 9,741
---------- ----------
Total administrative and general expenses . . . . $47,876 $43,040
========== ==========
DEPRECIATION AND AMORTIZATION EXPENSES:
Electric . . . . . . . . . . . . . . . . . . . . . . $36,868 $36,215
Natural gas . . . . . . . . . . . . . . . . . . . . 7,274 6,116
Non-utility . . . . . . . . . . . . . . . . . . . . 2,514 2,203
---------- ----------
Total depreciation and amortization expenses . . . $46,656 $44,534
========== ==========
INCOME FROM OPERATIONS:
Electric . . . . . . . . . . . . . . . . . . . . . . $109,352 $ 91,887
Natural gas . . . . . . . . . . . . . . . . . . . . 11,103 11,492
Non-utility . . . . . . . . . . . . . . . . . . . . 9,687 5,298
---------- ----------
Total income from operations . . . . . . . . . . . $130,142 $108,677
========== ==========
INCOME AVAILABLE FOR COMMON STOCK:
Utility operations . . . . . . . . . . . . . . . . . $40,024 $37,185
Non-utility operations . . . . . . . . . . . . . . . 7,616 6,901
---------- ----------
Total income available for common stock . . . . . $47,640 $44,086
========== ==========
ASSETS: (1994 amounts at December 31)
Electric . . . . . . . . . . . . . . . . . . . . . . $1,453,498 $1,441,643
Natural gas . . . . . . . . . . . . . . . . . . . . 247,992 247,060
Common plant . . . . . . . . . . . . . . . . . . . . 27,602 25,849
Other utility assets . . . . . . . . . . . . . . . . 82,667 106,118
Non-utility assets . . . . . . . . . . . . . . . . . 188,997 173,583
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . $2,000,756 $1,994,253
========== ==========
CAPITAL EXPENDITURES (excluding AFUDC):
Electric . . . . . . . . . . . . . . . . . . . . . . $30,894 $54,591
Natural gas . . . . . . . . . . . . . . . . . . . . 16,735 22,229
Common plant . . . . . . . . . . . . . . . . . . . . 5,582 14,271
Non-utility . . . . . . . . . . . . . . . . . . . . 1,130 7,443
---------- ----------
Total capital expenditures . . . . . . . . . . . . $54,341 $98,534
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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THE WASHINGTON WATER POWER COMPANY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements of The Washington Water Power Company
(Company) for the interim periods ended September 30, 1995 and 1994 are
unaudited but, in the opinion of management, reflect all adjustments,
consisting only of normal recurring accruals, necessary for a fair statement of
the results of operations for those interim periods. The results of operations
for the interim periods are not necessarily indicative of the results to be
expected for the full year. These financial statements do not contain the
detail or footnote disclosure concerning accounting policies and other matters
which would be included in full fiscal year financial statements; therefore,
they should be read in conjunction with the Company's audited financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
NOTE 1. FINANCINGS
Reference is made to the information relating to financings and borrowings as
discussed under the caption "Liquidity and Capital Resources" in Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
NOTE 2. COMMITMENTS AND CONTINGENCIES
SUPPLY SYSTEM PROJECT 3
In 1985, the Company and the Bonneville Power Administration (BPA) reached a
settlement surrounding litigation related to the suspension of construction of
Washington Public Power Supply System (Supply System) Project 3. Project 3 is
a partially constructed 1,240 MW nuclear generating plant in which the Company
has a 5% interest. Under the settlement agreement, the Company receives power
deliveries from BPA from 1987 to 2017 in proportion to the Company's investment
in Project 3.
The only material claim against the Company arising out of the Company's
involvement in Project 3, which has been pending since October 1982 in the
United States District Court for the Western District of Washington (District
Court), was the claim of Chemical Bank, as bond fund trustee for Supply System
Projects 4 and 5, against all owners of Projects 1, 2 and 3 for unjust
enrichment in the allocation of certain costs of common services and facilities
among the Supply System's five nuclear projects. Projects 4 and 5 were being
constructed adjacent to Projects 1 and 3, respectively, under a plan to share
certain costs. Chemical Bank was seeking a reallocation of $495 million in
costs (plus interest since commencement of construction in 1976) originally
allocated to Projects 4 and 5.
On July 6, 1995, the Company paid Chemical Bank $500,000 in settlement of all
remaining claims involving the Company in connection with the "cost sharing"
litigation. The payment was consistent with a settlement agreement executed by
all parties to the litigation except PacifiCorp, as PacifiCorp had unrelated
claims pending against the Supply System. A U.S. District Court order dated
July 26, 1995, approved the settlement agreement and adopted it as an order of
the Court.
NEZ PERCE TRIBE
On December 6, 1991, the Nez Perce Tribe filed an action against the Company in
U. S. District Court for the District of Idaho alleging, among other things,
that two dams formerly operated by the Company, the Lewiston Dam on the
Clearwater River and the Grangeville Dam on the South Fork of the Clearwater
River, provided inadequate passage to migrating anadromous fish in violation of
rights under treaties between the Tribe and the United States made in 1855 and
1863. The Lewiston and Grangeville Dams, which had been owned and operated by
other utilities under hydroelectric licenses from the Federal Power Commission
(the "FPC", predecessor of the Federal Energy Regulatory Commission, the
"FERC") prior to acquisition by the Company, were acquired by the Company in
1937 with the approval of the FPC, but were dismantled and removed in 1973 and
1963, respectively. The Tribe initially indicated through expert opinion
disclosures that they were seeking actual and punitive damages of $208 million.
However, supplemental disclosures reflect allegations of actual loss under
different assumptions of between $425 million and $650 million.
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THE WASHINGTON WATER POWER COMPANY
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Discovery had been stayed pending a decision by the Court on a case involving
some similar issues brought by the Tribe against Idaho Power Company. The
Court has since decided these issues and has dismissed all claims against Idaho
Power. The Idaho Power case has now been appealed by the Nez Perce Tribe to
the Ninth Circuit Court of Appeals. On November 21, 1994, the Company filed
its Motion and Brief in Support of Summary Judgment of Dismissal. The Nez
Perce Tribe has filed a reply brief, and has requested oral argument. A
hearing on the Company's Motion for Summary Judgment was held by the Court on
July 27, 1995. On September 22, 1995, the federal magistrate issued a written
opinion recommending to the District Court that the Company's Motion for
Summary Judgment be granted and the Tribe's claims dismissed. The matter is
still pending before the District Court. The case has not yet been set for
trial. The Company is presently unable to assess the likelihood of an adverse
outcome in this litigation, or estimate an amount or range of potential loss in
the event of an adverse outcome.
OIL SPILL
The Company recently completed an updated investigation of an oil spill from an
underground storage tank that occurred several years ago in downtown Spokane at
the site of the Company's steam heat plant. The Company purchased the plant in
1916 and operated it as a non-regulated plant until it was deactivated in 1986
in a business decision unrelated to the spill. After the Bunker C fuel oil
spill, initial studies suggested that the oil was being adequately contained by
both geological features and man-made structures. The Washington State
Department of Ecology (DOE) concurred with these findings. However, more
recent tests showed that the oil has migrated approximately one city block
beyond the steam plant property. On December 6, 1993, the Company asked the
DOE to enter into negotiations for a Consent Decree which provided for
additional remedial investigation and a feasibility study. The Consent Decree,
entered on November 8, 1994, provided for 22 additional soil borings to be made
around the site, which have been completed. It is anticipated that a clean-up
action plan will be approved by the first quarter of 1996 and that the oil
spill clean-up will be conducted in 1996. As of September 30, 1995, a reserve
of $3.1 million is reflected on the Company's financial statements, which
reflects the Company's estimate of its liability for the clean-up, net of
potential insurance recovery.
The Company has completed a remedial investigation/feasibility study (RI/FS)
report, which has been submitted to the DOE. The RI/FS report will be subject
to public review and comment. The report includes a recommended clean-up
action plan (RCAP).
On August 17, 1995, a lawsuit was filed against the Company in Superior Court
of the State of Washington for Spokane County by Davenport Sun International
Hotels and Properties, Inc., the owner of a hotel property in downtown Spokane,
Washington. The Complaint alleges that the oil released from the Company's
Central Steamplant trespassed on property owned by the plaintiff. In addition,
the plaintiff claims that the Steamplant has caused a diminution of value of
plaintiff's land. Generally, the Complaint is based on a claim of negligence,
trespass and nuisance. Discovery has been initiated by the Company and is in
the initial stages. The matter has not been set for trial. The Company is
presently unable to assess the likelihood of an adverse outcome in this
litigation, or estimate an amount or range of potential loss in the event of an
adverse outcome.
FIRESTORM
On October 16, 1991, gale-force winds struck a five-county area in eastern
Washington and a seven-county area in northern Idaho. These winds were
responsible for causing 92 separate wildland fires, resulting in two deaths and
the loss of 114 homes and other structures, some of which were located in the
Company's service territory. Four separate class action lawsuits were filed
against the Company by private individuals in the Superior Court of Spokane
County on October 13, 1993. These suits concern fires identified as Midway,
Golden Cirrus, Nine Mile and Chattaroy. All of these suits were certified as
class actions on September 16, 1994, and bifurcated for trial of liability and
damage issues by order of the same date. The Company's Motion for
Reconsideration was denied on October 21, 1994, and a Motion for Discretionary
Review of the Court's decision on certification of class actions was timely
filed with the Washington Court of Appeals (Division III) on November 14, 1994.
The Company was also served with two suits in Spokane County Superior Court
filed on April 20, 1994 and on September 15, 1994, both of which sought
individual damages from separate fires within the Chattaroy Fire complex. Five
additional and separate suits were brought by Grange Insurance Company, and
were filed in Spokane County Superior Court on October 10, 1994, for
approximately $2.2 million paid to Grange insureds for the same fire areas.
Two additional class action suits were also filed - one in Lincoln County
Superior Court, filed on October 14, 1994, for a fire known as "Nine Mile West"
(previously included in the Spokane County Nine Mile suit certified
11
12
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
as a class action), and the second in Spokane County Superior Court, filed on
October 14, 1994, for the Ponderosa Fire area (which had not been the subject of
previous suit). The Lincoln County suit has been transferred to Spokane County
and both suits have now also been certified as class actions.
Complainants in all cases allege various theories of tortious conduct,
including negligence, creation of a public nuisance, strict liability and
trespass; in most cases, complainants allege that fires were caused by electric
distribution and/or transmission lines downed by wind-downed trees. The
lawsuits seek recovery for property damage, emotional and mental distress, lost
income and punitive damages, but do not specify the amount of damages being
sought. Discovery is ongoing and the Company is presently unable to assess the
likelihood of an adverse outcome or estimate an amount or range of potential
loss in the event of an adverse outcome. Trials are scheduled to commence on
various dates between February 3, 1997 and November 2, 1998. The Company was
previously presented with a claim from the Washington State Department of
Natural Resources (DNR) for fire suppression costs associated with five of
these fires in eastern Washington. The total of the DNR claim was $1.0
million. On July 22, 1993, the Company entered into a settlement with the DNR
whereby the Company agreed to pay $200,000 to DNR in full settlement of any and
all DNR claims; however, there was no admission of liability on the part of the
Company.
WILLIAMS LAKE LAWSUIT
On February 2, 1995, a lawsuit was commenced in Spokane County Superior Court
against the Company and its subsidiary, Pentzer Corporation (Pentzer), by Tondu
Energy Systems, Inc. and T.E.S. Williams Lake Partnership alleging contract
violations, conspiracy, misrepresentation and breach of fiduciary duties in
regard to the 1993 sale of Pentzer Energy Services, Inc. to B.C. Gas, Inc. The
suit claims damages in excess of $10 million, plus exemplary damages,
prejudgment interest, costs and attorneys' fees. Also named as defendants are
B.C. Gas, Inc., Inland Pacific Energy (Williams Lake) Corp. and the former
Pentzer Energy Services, Inc. subsidiaries which were involved in the sale.
The claims involve an alleged first right to purchase interests in the Williams
Lake, British Columbia wood-fired generating station. By Order of Summary
Judgment entered June 16, 1995, all claims against the Company were dismissed
with prejudice. Actions against the remaining defendants, including Pentzer,
were dismissed without prejudice on grounds of an inconvenient forum. The
Company cannot predict whether or not an action will be commenced against the
remaining defendants in another court.
DOLLAR ROAD
Soil contamination was discovered on a Company-owned site located east of
Spokane on Dollar Road in 1993. The property was originally acquired under
lease in 1956 and was subleased to other entities until 1992. The property was
purchased by the Company in 1993 and DOE was notified of the contamination.
The site has a land area of 4.4 acres of which one-half is involved. The
Company recorded the $1.0 million estimated cost of the site remediation in the
second quarter of 1995. Clean-up is expected to be completed by December 1995.
OTHER CONTINGENCIES
The Company has long-term contracts related to the purchase of fuel for thermal
generation, natural gas and hydroelectric power. Terms of the natural gas
purchase contracts range from one month to five years and the majority provide
for minimum purchases at the then effective market rate. The Company also has
various agreements for the purchase, sale or exchange of power with other
utilities, cogenerators, small power producers and government agencies.
NOTE 3. ACQUISITIONS AND DISPOSITIONS
In November 1995, Pentzer, the Company's wholly-owned private investment firm,
acquired Advanced Manufacturing and Development, Inc., a manufacturer and
assembler of metal and wood products for the computer, video arcade and
point-of-purchase industries. In February 1995, Pentzer acquired The Decker
Company, Inc., a company that designs and packages point-of-purchase displays
and other marketing materials for national manufacturers of consumer products.
12
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THE WASHINGTON WATER POWER COMPANY
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NOTE 4. PROPOSED MERGER
In June 1994, the Company, Sierra Pacific Resources (SPR), Sierra Pacific Power
Company, a subsidiary of SPR (SPPC), and Altus Corporation, a newly formed
subsidiary of the Company (Altus, formerly named Resources West Energy
Corporation) entered into an Agreement and Plan of Reorganization and Merger,
dated as of June 27, 1994, as amended October 4, 1994 which provides for the
merger of the Company, SPR and SPPC with and into Altus. The merger is
designed to qualify as a pooling-of-interests for accounting and financial
reporting purposes. Under this method of accounting, the recorded assets and
liabilities of the Company, SPR and SPPC will be carried forward to the
consolidated financial statements of Altus at their recorded amounts; income of
Altus will include income of the Company, SPR and SPPC for the entire fiscal
year in which the merger occurs; and the reported income of the separate
corporations for prior periods will be combined and restated as income of
Altus.
The cost savings from the merger are estimated to approximate $450 million, net
of merger transaction and transition costs, over a 10-year period following the
consummation of the merger. As of September 30, 1995, $12.1 million in merger
transaction and transition costs have been incurred and are included on the
Company's balance sheet as Other Deferred Charges. The Company will determine
the treatment of these costs based on regulatory rulings, generally accepted
accounting principles and tax regulations. It is anticipated that for
accounting purposes these merger transaction and transition costs will be
expensed by Altus in the quarter the merger is completed.
The following pro forma condensed financial information combines the historical
consolidated balance sheets and statements of income of the Company and SPR
after giving effect to the merger. The unaudited pro forma condensed
consolidated balance sheet at September 30, 1995 gives effect to the merger as
if it had occurred at September 30, 1995. The unaudited pro forma condensed
consolidated statements of income for the quarter and nine-months ended
September 30, 1995 give effect to the merger as if it had occurred at January
1, 1995. These statements are prepared on the basis of accounting for the
merger as a pooling-of-interests and are based on the assumptions set forth in
the paragraph below. The pro forma condensed financial information has been
prepared from, and should be read in conjunction with the Company's historical
consolidated financial statements and related notes thereto of which this note
is a part and SPR's historical consolidated financial statements and related
notes thereto included in reports filed by SPR pursuant to the Securities
Exchange Act of 1934, as amended. The information contained herein with
respect to SPR and its subsidiaries has been supplied by SPR. The information
is not necessarily indicative of the financial position or operating results
that would have occurred had the merger been consummated on the date, or at the
beginning of the periods, for which the merger is being given effect, nor is it
necessarily indicative of future operating results or financial position.
Intercompany transactions (including purchased and exchanged power
transactions) between the Company and SPR during the period presented were not
material and, accordingly, no pro forma adjustments were made to eliminate such
transactions. For comparative purposes, certain historical amounts have been
reclassified to conform to the pro forma condensed financial statement format.
The $450 million net cost savings estimated to be achieved by the merger are
not reflected in the pro forma financial statements. Pro forma per share data
and common shares outstanding for Altus give effect to the conversion of each
share of WWP Common Stock into one share of Altus Common Stock and the
conversion of each share of SPR Common Stock into 1.44 shares of Altus Common
Stock.
See Item 5, Other Information - Regulatory Proceedings for additional
information pertaining to the status of the state and federal approvals of the
merger.
13
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THE WASHINGTON WATER POWER COMPANY
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Unaudited Pro Forma Condensed Consolidated Balance Sheets at September 30, 1995
(in thousands of dollars):
WWP SPR PRO FORMA
---------- ---------- ----------
Assets
Utility plant in service-net...................... $1,853,545 $1,798,095 $3,651,640
Construction work in progress..................... 27,976 121,497 149,473
---------- ---------- ----------
Total......................................... 1,881,521 1,919,592 3,801,113
Accumulated depreciation and amortization......... 539,368 542,729 1,082,097
---------- ---------- ----------
Net utility plant............................. 1,342,153 1,376,863 2,719,016
Other property and investments.................... 203,620 17,521 221,141
Current assets.................................... 130,621 149,553 280,174
Deferred charges.................................. 324,362 170,278 494,640
---------- ---------- ----------
Total assets.................................. $2,000,756 $1,714,215 $3,714,971
========== ========== ==========
Capitalization and Liabilities
Common stock and additional paid-in capital....... $ 588,872 $ 535,711 $1,124,583
Other shareholders equity......................... 110,159 - 110,159
Preferred stock................................... 135,000 86,715 221,715
Long-term debt.................................... 688,460 575,477 1,263,937
---------- ---------- ----------
Total capitalization.......................... 1,522,491 1,197,903 2,720,394
Current liabilities............................... 137,705 171,626 309,331
Deferred income taxes............................. 317,287 203,315 520,602
Other deferred credits............................ 21,920 141,371 163,291
Minority interest................................. 1,353 - 1,353
---------- ---------- ----------
Total capitalization and liabilities.......... $2,000,756 $1,714,215 $3,714,971
========== ========== ==========
Common shares outstanding (thousands)............. 55,617 29,951 98,746
Unaudited Pro Forma Condensed Consolidated Statements of Income for the three
months ended September 30, 1995 (in thousands of dollars, except per share
amounts):
WWP SPR PRO FORMA
-------- -------- ---------
Operating revenues............................ $157,869 $151,220 $309,089
Operating expenses............................ 126,304 114,688 240,992
Income from operations........................ 31,565 36,532 68,097
Net income.................................... 10,885 18,244 29,129
Income available for common stock............. 8,618 16,459 25,077
Average common shares outstanding............. 55,363 29,878 98,387
Earnings per share............................ $ 0.16 $ 0.55 $0.25
Unaudited Pro Forma Condensed Consolidated Statements of Income for the nine
months ended September 30, 1995 (in thousands of dollars, except per share
amounts):
WWP SPR PRO FORMA
-------- -------- ---------
Operating revenues............................ $514,770 $453,597 $968,367
Operating expenses............................ 384,628 350,361 734,989
Income from operations........................ 130,142 103,236 233,378
Net income.................................... 54,503 48,181 102,684
Income available for common stock............. 47,640 42,592 90,232
Average common shares outstanding............. 54,980 29,669 97,703
Earnings per share............................ $ 0.87 $ 1.44 $ 0.92
14
15
THE WASHINGTON WATER POWER COMPANY
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is primarily engaged as a utility in the generation, purchase,
transmission, distribution and sale of electric energy and the purchase,
transportation, distribution and sale of natural gas. Natural gas operations are
affected to a significant degree by weather conditions and customer growth. The
Company's electric operations are highly dependent upon hydroelectric generation
for its power supply. As a result, the electric operations of the Company are
significantly affected by weather and streamflow conditions, and to a lesser
degree, by customer growth. Revenues from the sale of surplus energy to other
utilities and the cost of power purchases vary from year to year depending on
streamflow conditions and the wholesale power market. The wholesale power market
in the Northwest region is affected by several factors, including the
availability of water for hydroelectric generation, the availability of base
load plants in the region and the demand for power in the Southwest region.
Other factors affecting the wholesale power market include new entrants in the
wholesale market, such as power brokers and marketers, and competition from low
cost generation being developed by independent power producers. Usage by retail
customers varies from year to year primarily as a result of weather conditions,
the economy in the Company's service area, customer growth, conservation,
appliance efficiency and other technology.
The Company intends to continue to emphasize the efficient use of energy by its
customers, increase efforts to grow its customer base, and continue to manage
its operating costs, which will result in improved margins. The Company also
intends to pursue resource opportunities through system upgrades, purchases,
demand side management and other options that will result in obtaining electric
power and natural gas supplies at the lowest possible cost.
RESULTS OF OPERATIONS
OVERALL OPERATIONS
Overall earnings per share for the third quarter of 1995 increased to $0.16 from
$0.11 in 1994. Total earnings per share for the first nine months of 1995
increased to $0.87 from $0.83 for the same period in 1994. Both the quarterly
and year-to-date increases in earnings per share were primarily the result of
the Company's electric operations, partially offset by non-operating items. The
improvement in electric operating income primarily resulted from increased
wholesale revenues during the third quarter of 1995, due to new power contracts
and improved streamflow conditions, and decreased purchased power and fuel
expense over the first nine months of the year, which were also due to improved
streamflow conditions. Other income decreased in the first nine months of 1995,
primarily due to lower levels of AFUDC and AFUCE, as a result of lower levels of
construction and Demand Side Management (DSM) program expenditures and increased
interest expense, primarily due to higher levels of outstanding debt, a shift
from short-term debt to long-term debt and resulting higher interest rates.
Other factors contributing to the decline in other income were the accrual for
remediation work at Dollar Road (see Note 2 to the Financial Statements for
additional information) and amortization of the Sandpoint acquisition adjustment
from the Company's acquisition of PacifiCorp's electric properties in northern
Idaho in late December 1994.
Utility income available for common stock contributed $0.11 to earnings per
share for the third quarter of 1995 compared to $0.05 in the third quarter of
1994. Non-utility income available for common stock contributed $0.05 to
earnings per share for the third quarter of 1995 compared to $0.06 in the same
period in 1994. For the first nine months of 1995, utility income available for
common stock contributed $0.73 to earnings per share compared to $0.70 during
1994. Non-utility income available for common stock contributed $0.14 to
earnings per share for the first nine months of 1995 compared with $0.13 in
1994. The increases in utility earnings are primarily due to electric
operations, partially offset by non-operating activities, such as the decline in
other income, lower levels of AFUDC and AFUCE, increased interest expense, the
Dollar Road accrual and the Sandpoint acquisition adjustment discussed above.
The year-to-date increase in non-utility operating results is primarily due to
the impact of a transactional gain of $1.3 million, net of tax, from the sale of
Itron, Inc. (Itron) stock in 1995.
15
16
THE WASHINGTON WATER POWER COMPANY
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ELECTRIC OPERATIONS
Operating income summary
(Dollars in thousands)
Three months ended Nine months ended
September 30 Change September 30 Change
------------------ ------------- ----------------- -------------
1995 1994 Amount % 1995 1994 Amount %
---- ---- ------ - ---- ---- ------ -
Operating Revenues................... $116,564 $103,960 $12,604 12 $345,454 $330,006 $15,448 5
Operating Expenses:
Purchased power................... 23,061 28,190 (5,129) (18) 61,551 74,447 (12,896) (17)
Fuel for generation............... 12,612 10,201 2,411 24 23,371 28,721 (5,350) (19)
Other operating and maintenance... 19,784 15,363 4,421 29 55,700 45,809 9,891 22
Administrative and general........ 9,183 7,466 1,717 23 29,322 25,569 3,753 15
Depreciation and amortization..... 12,401 12,132 269 2 36,868 36,215 653 2
Taxes other than income........... 9,537 9,267 270 3 29,290 27,358 1,932 7
-------- -------- ------- -------- -------- -------
Total operating expenses........ 86,578 82,619 3,959 5 236,102 238,119 (2,017) (1)
-------- -------- ------- -------- -------- -------
Income from operations............... 29,986 21,341 8,645 41 109,352 91,887 17,465 19
Electric operating income taxes... 7,487 4,291 3,196 74 29,243 24,732 4,511 18
-------- -------- ------- -------- -------- -------
Net operating income (1)............. $ 22,499 $ 17,050 $ 5,449 32 $ 80,109 $ 67,155 $12,954 19
======== ======== ======= ======== ======== =======
(1) Does not include interest expense or other income.
- --------------------------------------------------------------------------------
Total electric revenues increased $12.6 million in the third quarter of 1995
over 1994. Residential and commercial revenues rose by a combined $2.0 million
due to customer growth which led to increased kWh sales. Residential customers
increased by approximately 14,600 and commercial customers grew by over 3,000 in
the third quarter of 1995 as compared to third quarter 1994. Approximately
10,000 residential and commercial customers were added through the acquisition
of PacifiCorp's electric properties in northern Idaho in late December 1994.
Wholesale revenues increased by $9.8 million, or 49%, as a result of new firm
wholesale contracts, improved streamflow conditions which led to the increased
availability of hydroelectric generation in the region and generation from the
Rathdrum turbine. Wholesale kWh sales increased by 91% and average prices
declined by 22% in the third quarter of 1995 as compared to 1994.
Year-to-date, total electric revenues increased $15.4 million in 1995 as
compared to 1994. Customer growth, primarily due to the acquisition of the
PacifiCorp electric properties in northern Idaho, was the primary reason for the
increase in electric revenues during the first nine months of 1995. Residential
and commercial revenues rose by a combined $13.0 million due to increased kWh
sales from customer growth. Wholesale revenues increased by $2.3 million during
the first nine months of 1995 as a result of new firm wholesale contracts,
improved streamflows and increased availability of hydroelectric generation in
the region and generation from the Rathdrum turbine.
ELECTRIC REVENUES AND KWH SALES BY SERVICE CLASS
----------------------------------------------------------
Class Increase (Decrease) from prior year
- ----------------- -----------------------------------
Three months ended September 30, 1995 Nine months ended September 30, 1995
------------------------------------- ------------------------------------
REVENUE KWH SALES REVENUE KWH SALES
------- --------- ------- ---------
(Dollars and kWhs in millions)
Residential..... $ 0.7 2% (2.3) (1)% $ 6.8 7% 82.6 4%
Commercial...... 1.3 4 4.0 1 6.2 6 57.8 3
Industrial...... 1.2 8 29.5 7 3.1 7 74.4 6
Wholesale ...... 9.8 49 480.2 91 2.3 3 195.5 9
- --------------------------------------------------------------------------------------------------
Improved streamflow conditions, which resulted in increased hydroelectric
generation, caused purchased power costs to decline by $5.1 million in the
third quarter of 1995 over 1994. Fuel expense increased by $2.4 million, or
24%, in the third quarter of 1995 compared to 1994 due to generation from the
Rathdrum turbine, which went into service during the
16
17
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
first quarter of 1995, as a result of the economic dispatch of other thermal
resources and to meet wholesale market opportunities. Other operating and
maintenance expenses increased $4.4 million, or 29%, during the third quarter
of 1995 primarily due to lease payments and operating expenses related to the
Rathdrum combustion turbine, amortization of the DSM programs and the Idaho
Power Cost Adjustment (PCA). Administrative and general expenses increased by
$1.7 million in the third quarter of 1995 due primarily to lease payments for
computer software systems and labor-related costs.
Improved streamflow conditions which resulted in increased hydroelectric
generation caused year-to-date 1995 purchased power costs to decline by $13.9
million. Fuel expense decreased by $5.1 million in the first nine months of 1995
compared to 1994 as increased hydroelectric generation resulted in the economic
dispatch of thermal plants during the first six months of the year, partially
offset by fuel costs for generation from the Rathdrum combustion turbine during
the third quarter of 1995. Other operating and maintenance expenses increased
$9.9 million year-to-date primarily due to lease payments and operating expenses
related to the Rathdrum combustion turbine, amortization of the DSM programs and
the Idaho PCA. Administrative and general expenses increased by $3.8 million in
the first nine months of 1995 due primarily to lease payments for computer
software systems and labor-related costs.
NATURAL GAS OPERATIONS
Operating income summary
(Dollars in thousands)
Three months ended Nine months ended
September 30 Change September 30 Change
------------------ ------------ ----------------- ------------
1995 1994 Amount % 1995 1994 Amount %
---- ---- ------ - ---- ---- ------ -
Operating Revenues................... $24,191 $21,158 $3,033 14 $118,631 $100,937 $17,694 18
Operating Expenses:
Natural gas purchased............. 15,736 13,045 2,691 21 72,502 59,142 13,360 23
Other operating and maintenance... 4,268 3,626 642 18 11,830 10,405 1,425 14
Administrative and general........ 2,735 2,146 589 27 9,269 7,730 1,539 20
Depreciation and amortization..... 2,415 2,090 325 16 7,274 6,116 1,158 19
Taxes other than income........... 1,182 1,399 (217) (16) 6,653 6,052 601 10
------- ------- ------ -------- -------- -------
Total operating expenses........ 26,336 22,306 4,030 18 107,528 89,445 18,083 20
------- ------- ------ -------- -------- -------
Income from operations............... (2,145) (1,148) (997) (87) 11,103 11,492 (389) (3)
Natural gas oper. income taxes.... (1,590) (1,063) (527) (50) 2,155 2,654 (499) (19)
------- ------- ------ -------- -------- -------
Net operating income (1)............. $ (555) $(85) $ (470) - $ 8,948 $ 8,838 $ 110 1
======= ======= ====== ======== ======== =======
Actual Heating Degree Days (2)....... 255 120 135 113 3,852 3,626 226 6
Historical Heating Degree Days (3)... 309 309 4,243 4,243
Actual Degree Days as a Percent
of Historical Degree Days......... 83% 39% 91% 85%
(1) Does not include interest expense or other income.
(2) Heating degree days information is for Spokane area.
(3) Historical degree days represent the 30-year average.
- --------------------------------------------------------------------------------
Total natural gas revenues increased by $3.0 million in the third quarter of
1995 compared to the third quarter of 1994, primarily due to customer growth
from conversions from electric service to natural gas, population growth and new
construction, partially offset by lower customer usage. The average number of
residential and commercial customers increased in the third quarter of 1995 as
compared to 1994, by approximately 13,500, or 8%, and 1,300, or 6%,
respectively.
Total natural gas revenues increased $17.7 million during the first nine months
of 1995 over the same period in 1994. Residential and commercial revenues
combined increased by $11.1 million, primarily due to customer growth.
Residential and commercial customers grew by approximately the same percentages
described above during the first nine months of 1995 compared to the same period
in 1994. Sales for resale added $4.3 million to revenues for the first nine
months of 1995 as compared to the same period in 1994. However, these revenues
were offset by
17
18
like increases in purchased gas expense and any margins from these transactions
will be credited back to customers through rate changes for the cost of gas.
NATURAL GAS REVENUES AND THERM SALES BY SERVICE CLASS
-----------------------------------------------------
Class Increase (Decrease) from prior year
- ------------------------------ -----------------------------------
Three months ended September 30, 1995 Nine months ended September 30, 1995
------------------------------------- ------------------------------------
REVENUE THERM SALES REVENUE THERM SALES
------- ----------- ------- -----------
(Dollars and therms in millions)
Residential................ $0.7 10% 0.5 4% $7.8 16% 10.4 11%
Commercial................. (0.2) (4) (1.9) (14) 3.3 10 2.9 4
Industrial - firm.......... (0.1) (11) (0.6) (15) 0.3 7 0.2 2
Industrial - interruptible. (0.4) (31) (1.3) (23) (0.7) (23) (2.1) (20)
Sales for resale........... 1.3 47 25.5 131 4.3 114 59.1 231
Transportation............. 0.2 7 6.8 16 0.7 8 17.5 12
- --------------------------------------------------------------------------------
Natural gas purchased expense increased $2.7 million, or 21%, in the third
quarter of 1995 as compared to third quarter 1994. The increased cost was
primarily the result of a 43% increase in therm sales, primarily as a result of
increased sales for resale, generation at the Rathdrum combustion turbine and
new customers. Administrative and general expenses increased by $0.6 million in
1995 over the third quarter of 1994, primarily due to lease payments for
computer software systems and labor-related costs. Depreciation and amortization
expense increased by 16% during the third quarter of 1995 as a result of
increased natural gas plant-in-service.
Total natural gas operating expenses increased by $18.1 million, or 20%, in the
first nine months of 1995. Natural gas purchased costs increased $13.4 million
in the first nine months of 1995 due primarily to a 29% increase in therm sales
as a result of sales for resale, generation at the Rathdrum combustion turbine,
customer growth and cooler temperatures through the first nine months of 1995 as
compared to 1994. Other operating and maintenance expenses increased $1.4
million in the first nine months of 1995 over 1994 primarily due to amortization
of the DSM programs. Administrative and general expenses increased by 20% in
1995 over 1994, primarily due to lease payments for computer software systems
and labor-related costs. Depreciation and amortization expense increased by $1.2
million during the first nine months of 1995 as a result of increased natural
gas plant-in-service. Other taxes, primarily excise and business and occupation
taxes, were also up $0.6 million from the first nine months of 1994, primarily
due to increased year-to-date revenues.
NON-UTILITY OPERATIONS
Operating income summary
(Dollars in thousands)
Three months ended Nine months ended
September 30 Change September 30 Change
------------------- ------------- ----------------- ------------
1995 1994 Amount % 1995 1994 Amount %
------ ------ ------ - ------- ------ ------ -
Operating revenues............... $17,114 $17,216 $ (102) (1) $50,685 $49,461 $ 1,224 2
Operating expenses............... 13,390 14,436 (1,046) (7) 40,998 44,163 (3,165) (7)
------- ------- ------- ------- ------- -------
Operating income................. 3,724 2,780 944 34 9,687 5,298 4,389 83
Other income .................... 730 2,183 (1,453) (67) 2,223 5,121 (2,898) (57)
------- ------- ------- ------- ------- -------
Income before income taxes....... 4,454 4,963 (509) (10) 11,910 10,419 1,491 14
Income tax provision............. 1,763 1,671 92 6 4,294 3,518 776 22
------- ------- ------- ------- ------- -------
Net income....................... $ 2,691 $ 3,292 $ (601) (18) $ 7,616 $ 6,901 $ 715 10
======= ======= ======= ======= ======= =======
Non-utility operations include the results of Pentzer and one other active
subsidiary. Pentzer's business strategy is to acquire controlling interest in a
broad range of middle-market companies, to help these companies grow through
internal development and strategic acquisitions, and to sell the portfolio
investments to the public or to strategic buyers. Pentzer's objective is to
produce current returns from its portfolio investments that are higher than that
of the utility operations and to supplement these current returns by generating
transactional gains through the sale of portfolio investments when appropriate.
From time to time, a significant portion of Pentzer's earnings
18
19
THE WASHINGTON WATER POWER COMPANY
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contributions may be the result of transactional gains. Accordingly, although
the income stream is expected to be positive, it may be uneven from year to
year.
Pentzer's earnings for the third quarter of 1995 were less than 1994 by $0.6
million. Pentzer recognized no transactional earnings in 1995, compared to
transactional gains of $1.2 million in 1994 primarily from the sale of Itron
stock. Non-transactional earnings from its portfolio investments exceeded 1994
by $0.6 million due to stronger earnings from existing investments as well as
earnings from two companies acquired in the past twelve months.
Pentzer's earnings for the first nine months of 1995 exceeded 1994 by $0.7
million. Transactional gains, primarily from the sale of Itron stock in both
periods, were less than 1994 by $0.5 million. Non-transactional earnings from
its portfolio investments exceeded 1994 by $1.2 million due to stronger earnings
from existing investments as well as earnings from companies acquired in 1994
and 1995.
In November 1995, Pentzer, the Company's wholly-owned private investment firm,
acquired Advanced Manufacturing and Development, Inc., a manufacturer and
assembler of metal and wood products for the computer, video arcade and
point-of-purchase industries. In February 1995, Pentzer acquired The Decker
Company, Inc., a company that designs and packages point-of-purchase displays
and other marketing materials for national manufacturers of consumer products.
19
20
THE WASHINGTON WATER POWER COMPANY
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LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
UTILITY
- -------
The Company funds capital expenditures with a combination of
internally-generated cash and external financing. The level of cash generated
internally and the amount that is available for capital expenditures fluctuates
annually. Cash provided by operating activities remains the Company's primary
source of funds for operating needs, dividends and construction expenditures.
OPERATING ACTIVITIES. Cash available from operating activities in the first nine
months of 1995 decreased by over $7 million from the same period in 1994
primarily due to increases in various working capital components, such as an
increase in receivables, increased materials and supplies, fuel stock and
natural gas stored and prepayments on power contracts, partially offset by the
positive effect of purchased gas deferrals. See the Consolidated Statements of
Cash Flows for additional details.
INVESTING ACTIVITIES. Cash used in investing activities decreased by more than
$71 million in the first nine months of 1995, when compared to the same period
in 1994, primarily due to a 50% decrease in construction and DSM program
expenditures. See the Consolidated Statements of Cash Flows for additional
information.
FINANCING ACTIVITIES. Cash used in financing activities increased by
approximately $60 million in the nine months ended September 30, 1995 when
compared to the same period in 1994. Since January 1, 1995, $58 million of
Secured Medium Term Notes, Series B (Series B Notes) have been issued with an
average interest rate of 7.31% and an average maturity of 7.3 years. The
proceeds were used to fund the maturity of $35 million of Unsecured Medium-Term
Notes and $10 million of 4 5/8% First Mortgage Bonds.
Capital expenditures are financed on an interim basis with short-term debt. The
Company has $160 million in committed lines of credit. In addition, the Company
may borrow up to $60 million through other borrowing arrangements with banks. As
of September 30, 1995, $14.5 million was outstanding under the other borrowing
arrangements with banks.
The Company's total common equity increased by $22 million during the first nine
months of 1995 to $699 million. The increase was primarily due to the issuance
of 1,196,000 shares of common stock through both the Dividend Reinvestment Plan
and the Investment and Employee Stock Ownership Plan for proceeds of
approximately $18 million and a $5.8 million increase in unrealized investment
gains from Pentzer's investment in Itron. No shares were issued under the
Company's Periodic Offering Program. The utility capital structure at September
30, 1995, was 46% debt, 9% preferred stock and 45% common equity as compared to
50% debt, 10% preferred stock and 40% common equity at year-end 1994.
During the 1995-1997 period, utility capital expenditures are expected to be
$228 million, and $132 million will be required for long-term debt maturities
and preferred stock sinking fund requirements. During this three-year period,
the Company estimates that internally-generated funds will provide approximately
90% of the funds needed for its capital expenditure program. External financing
will be required to fund maturing long-term debt, preferred stock sinking fund
requirements and the remaining portion of capital expenditures. These
projections relate to the Company on a stand-alone basis and do not reflect any
adjustment for the effects of the proposed merger of the Company, SPR and SPPC
with and into Altus (formerly Resources West Energy Corporation). See Item 5.
Other Information - Regulatory Proceedings for additional merger information.
NON-UTILITY
- -----------
The non-utility operations have $43 million in borrowing arrangements ($24.6
million outstanding as of September 30, 1995) to fund corporate requirements on
an interim basis. At September 30, 1995, the non-utility operations had $34.3
million in cash and marketable securities with $10.9 million in long-term debt
outstanding.
The 1995-1997 non-utility capital expenditures are expected to be $5 million,
and $7 million in debt maturities will also occur. During the next three years,
internally-generated cash and other debt obligations are expected to provide the
majority of the funds for the non-utility capital expenditure requirements.
20
21
THE WASHINGTON WATER POWER COMPANY
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PART II. OTHER INFORMATION
--------------------------
ITEM 5. OTHER INFORMATION.
- ---------------------------
REGULATORY PROCEEDINGS.
MERGER. On June 28, 1994, the Company announced that it had entered into a
proposed merger agreement with SPR, SPPC and RWE (renamed Altus). Applications
seeking approval of the merger were filed with the FERC and with the state
utility commissions in the states of California, Idaho, Montana, Nevada, Oregon
and Washington. The Montana Public Service Commission issued an order in October
1994 declining to exercise jurisdiction. The Company has received orders
approving the merger from the commissions of each state. The major points of
each order and the current status are as follows:
Washington: A final order was issued on September 28, 1995
Electric and gas base rate freeze through
December 31, 2000
Purchased gas benefits flowed through annual PGA
(Purchased Gas Adjustment)
Accelerated amortization of Washington electric DSM to
provide full amortization by December 31, 2003
A joint petition by the Commission staff and Public
Counsel was filed on September 29, 1995 requesting the
Commission to stay the effectiveness of the Washington
Commission order to give all parties adequate time for
review and evaluation of the final order of the Nevada
Public Service Commission (PSCN), which was issued on
October 10, 1995. The petition was filed on October 24,
1995 by Commission Staff and Public Counsel after their
review of the Nevada order. Based on their
interpretation of certain language in the final Nevada
order, the petition requested clarification of certain
provisions of the Washington stipulation or, in the
alternative, an order vacating the Commission's order
approving the merger, and reopening the record. In the
petition, two "Major Issues" were discussed: electric
single system pricing for retail services and
distribution of benefits related to the Alturas
transmission project. The petition also discussed four
"Other Issues" for the purpose of bringing them to the
attention of the Commission and to record their
concerns.
Idaho: Final order was issued on September 19, 1995
Electric and gas base rate freeze through
December 31, 2000
Purchased gas benefits flowed through annual PGA
Earnings capped at 12.0% ROE, with earnings above 12.0%
shared 50/50 with customers through PGA/PCA (Power
Cost Adjustment)
Oregon: Final order was issued on June 23, 1995
No rate freeze
Purchased gas benefits flowed through annual PGA, plus a
sharing of non-purchased gas benefits to partially
offset the expenses associated with additional
transmission capacity on Pacific Gas Transmission
facilities to Medford
California: Final order was issued on October 18, 1995
Electric and gas base rate freeze through December 31,
1999.
All electric and gas tracking mechanisms suspended
during the rate freeze. Balances in the electric
and gas tracking accounts will be set to zero at
January 1, 1996 or upon merger, whichever is later.
Exempt from annual electric and gas cost of capital
proceedings.
Electric rate reduction of $3.1 million in 1996 related to
the suspension of the electric tracking mechanism and
elimination of the balances in the tracking accounts.
21
22
THE WASHINGTON WATER POWER COMPANY
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Nevada: Final order was issued on October 10, 1995.
Electric and gas base rate freeze through December 31,
1999. Water rates frozen through December 31, 1996
Gas tracker suspended through January 1, 1997. Electric
power/fuel cost tracker suspended through
December 31, 1999
One-time refunds related to a prior rate stipulation of $9
million electric and $4 million gas. Earnings for
1997-1999 capped at 12.0% ROE, with earnings above
12.0% shared 50/50 with customers
On October 25, 1995, WWP and SPR filed a petition with
the PSCN requesting clarification of their final order.
The companies are seeking clarification on two key
issues within the PSCN's final order. The two issues are
electric single system pricing for retail services and
the distribution of benefits related to the Alturas
transmission project. The PSCN issued an order on
November 1, 1995 granting the WWP and SPR request for
expedited treatment of their petition.
The FERC has not yet included the proposed merger on its docket. However, the
Company continues to anticipate receiving final orders from all jurisdictions
and closing the merger transaction by the end of 1995. See Note 4 to Financial
Statements for additional information.
ADDITIONAL FINANCIAL DATA.
The following table reflects the ratio of earnings to fixed charges and the
ratio of earnings to fixed charges and preferred dividend requirements:
12 Months Ended
---------------------------------------
September 30, December 31,
1995 1994
------------------ ------------
Ratio of Earnings to Fixed Charges 3.10(x) 3.24(x)
Ratio of Earnings to Fixed Charges and
Preferred Dividend Requirements 2.67(x) 2.59(x)
The Company has long-term purchased power arrangements with various Public
Utility Districts, with interest on these contracts included in purchased power
expenses. These amounts do not have a material impact on fixed charges ratios.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------------------------------------------
(a) Exhibits.
12 Computation of ratio of earnings to fixed charges and
preferred dividend requirements.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
22
23
THE WASHINGTON WATER POWER COMPANY
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WASHINGTON WATER POWER COMPANY
----------------------------------
(Registrant)
Date: November 13, 1995 /s/ J. E. Eliassen
---------------------------------
J. E. Eliassen
Vice President - Finance and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
23
1
EXHIBIT 12
THE WASHINGTON WATER POWER COMPANY
Computation of Ratio of Earnings to Fixed Charges and Preferred
Dividend Requirements (1)
Consolidated
(Thousands of Dollars)
12 Mos. Ended Years Ended December 31
September 30 --------------------------------------------------
1995 1994 1993 1992 1991
------------- -------- -------- -------- --------
Fixed charges, as defined:
Interest on long-term debt $ 54,567 $ 49,566 $ 47,129 $ 51,727 $ 52,801
Amortization of debt expense
and premium - net 3,483 3,511 3,004 1,814 1,751
Interest portion of rentals 3,292 1,282 924 1,105 1,018
-------- -------- -------- -------- --------
Total fixed charges $ 61,342 $ 54,359 $ 51,057 $ 54,646 $ 55,570
======== ======== ======== ======== ========
Earnings, as defined:
Net income from continuing ops $ 81,208 $ 77,197 $ 82,776 $ 72,267 $ 70,631
Add (deduct):
Income tax expense 47,437 44,696 42,503 41,330 38,086
Total fixed charges above 61,342 54,359 51,057 54,646 55,570
-------- -------- -------- -------- --------
Total earnings $189,987 $176,252 $176,336 $168,243 $164,287
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 3.10 3.24 3.45 3.08 2.96
Fixed charges and preferred
dividend requirements:
Fixed charges above $ 61,342 $ 54,359 $ 51,057 $ 54,646 $ 55,570
Preferred dividend requirements (2) 9,684 13,668 12,615 10,716 14,302
-------- -------- -------- -------- --------
Total $ 71,026 $ 68,027 $ 63,672 $ 65,362 $ 69,872
======== ======== ======== ======== ========
Ratio of earnings to fixed charges
and preferred dividend requirements 2.67 2.59 2.77 2.57 2.35
- -----------------
(1) Calculations have been restated to reflect the results from continuing
operations (ie. excluding discontinued coal mining operations).
(2) Preferred dividend requirements have been grossed up to their pre-tax
level.
UT
1000
9-MOS
DEC-31-1995
SEP-30-1995
PER-BOOK
1,342,153
203,620
130,621
324,362
0
2,000,756
577,032
10,124
111,875
699,031
85,000
50,000
631,335
14,500
7,617
0
38,351
0
8
7
474,907
2,000,756
514,770
33,393
384,628
384,628
130,142
1,264
131,406
43,510
87,896
6,683
47,640
51,117
0
113,753
0.87
0.87
LONG-TERM DEBT-NET DOES NOT MATCH THE AMOUNT REPORTED ON THE COMPANY'S
CONSOLIDATED STATEMENT OF CAPITALIZATION AS LONG-TERM DEBT DUE TO THE OTHER
CATEGORIES REQUIRED BY THIS SCHEDULE.
OTHER ITEMS CAPITAL AND LIABILITIES INCLUDES THE CURRENT LIABILITIES, DEFERRED
CREDITS AND MINORITY INTEREST, LESS CERTAIN AMOUNTS INCLUDED UNDER LONG-TERM
DEBT-CURRENT PORTION AND LEASES-CURRENT, FROM THE COMPANY'S CONSOLIDATED BALANCE
SHEET.
THE COMPANY DOES NOT INCLUDE INCOME TAX EXPENSE AS AN OPERATING EXPENSE ITEM.
IT IS INCLUDED ON THE COMPANY'S STATEMENTS AS A BELOW-THE-LINE ITEM.
INCOME BEFORE INTEREST EXPENSE IS NOT A SPECIFIC LINE ITEM ON THE COMPANY'S
INCOME STATEMENTS. THE COMPANY COMBINES TOTAL INTEREST EXPENSE AND OTHER INCOME
TO CALCULATE INCOME BEFORE INCOME TAXES.
