ML17053D167

Annual Financial Rept 1981

ML17053D167
Person / Time
Site:	Nine Mile Point, 05000000, 05000516, 05000517, Shoreham
Issue date:	05/27/1982
From:	LONG ISLAND LIGHTING CO.
To:
Shared Package
ML17053D168	List: ML17053D167 ML17053D169 ML18037A379 ML20053C613
References
NUDOCS 8206020385
Download: ML17053D167 (40)

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The Cover LILCO has a tradition of responding to community needs, not only in supplying energy, but in providing leadership for the betterment of the community. LILCO crews can be seen day and night throughout Long Island's neighborhoods, connecting new electric or gas lines and services, improving established service lines, or trouble-shooting to restore service or to prevent future outages. LILCO people work hard to provide the most adequate and reliable service possible. And, because they are partners in our Long Island community, they work in their home towns, at the fire stations, churches, and town halls to keep the Island strong and prosperous by devoting their time and energies where they are needed most.

Territory Served Connecticut

~ White Ptatne 7

New York Long Island Sound Bronx Queens Gtemrood

~ Greenlawn R~ Nassau

~ Htoksvttle

~ Mineota

~ Garden City

~ Hampstead Suffolk

~

<<nesport Shorehsm Riverhead

~ Ronkonkoma Brenhrood

'e Patoho9oe Bay Shore Point

~ East on

~ Brtdttehampton

~ Southern pton

';Kings

~ Vattey Stream

~ Hevrtett

~RM 'y~~

LILCOsupplies electric and gas service in Nassau and SuffolkCounties and the Rockaway Peninsula in Queens County, all on Long Island, New York. The 1,230 square mile service area contains a population of approximately 2.7 million persons, about 95,000 of whom live in Queens County. Nassau and Suffolk Counties together constitute a federally-designated Standard Metropolitan Statistical Area (SMSA) which is among the highest in per capita income of the more than 280 SMSA's of the nation and ranks in the top twelve such areas, including metropolitan New York, Los Angeles and Chicago, in population, total income and retail sales. About 70% of all workers resident in Nassau-Suffolk are employed within the two counties. While the area served is predominantly residential, the Company receives significant commercial and industrial electric revenues. Although electronics and aerospace are the largest manufacturing industries In the area, about 85% of total employment is non.manufacturing.

AtIantic Ocean

[3Territory Served By Long Island Lighting Company

4Highlights 1981 A Year of Significant Progress Contents 1981 1980 Percent Increase or (Decrease) 1979 1981/1980 1980/1979 Earnings Per Share increased 2'n 1981, increased 12'n 1980.

Indicated Annual Dividend Rate on common stock increased 8tt in June 1981 and in June 1980.

2.55 2.53 2.41 1.94 1.86 1.78 0.8%

4.3 5.0%

4.5 System Map Inside front cover Territory Served Inside front cover Highlights 1981 1

Letter to Shareowners 2

Income for. Common Stock (millions of dollars) 198.9 164.9 128.8 20.6 28.0 Financial Progress 4

Average Common Shares Outstanding (millions) 78.0 65.1 53.4 19.7 22.1 Progress in Reducing Oil Dependence 7

Permanent Electric Rates increased $9.1 million annually effective February 14, 1981, and $183.1 million annually effective May 29, 1981, (including $90.0 million effective November 27, 1980, on a temporary basis).

Gas Rates increased

$8.6 million annually effective November 1, 1981.

The Nuclear Regulatory Commission issued its Safety Evaluation Report on Shoreham and the independent federal Advisory Committee on Reactor Safeguards informed the Nuclear Regulatory Commission that, subject to satisfactory completion of plant systems and training programs, Shoreham can be operated at full power "without undue risk to the health and safety of the public."

Hharings with respect to the operating license are expected to begin in mid-1982.

Almost 90% of about 300 mechanical and electrical systems associated with Shoreham had been turned over from the construction forces to the startup team for testing by the end of 1981. Of the 175 preoperational tests required to be completed before loading tuel, about one-half had been started by the end of '1981. The tests require integration of various numbers of the 300 systems.

Total cash proceeds of $42.7 million, before deduction of litigation expenses and payments to New York State Electric 8 Gas Corporation tor its share in the Jamesport nuclear project, were received in partial settlement of LILCO's litigation against Westinghouse Electric Corporation initiated in 1975 because ot the failure of Westinghouse to deliver uranium concentrates.

The petition placing Bokum Resources Corporation (BRC) into involuntary bankruptcy was granted.'RC has appealed this decision. An order dismissing the BRC counterclaims for$1.05 billionagainst the petitioning creditors, including LILCO, was also granted without prejudice.

Progress in

Response

to Community Needs 11 Financial Analysis 14 Financial Statements 20 Notes to Financial Statements 25 Selected Financial Data 32 Officers and Directors Inside back cover Corporate Information Inside back cover The United States Department of Energy rescinded its proposed orders which would have prohibited the burning of oil at LILCO's Northport Power Station and terminated the related proceedings.

A record $525.5 million was raised during 1981 through the external sale of LILCO long-term securities.

Customers saved $125.4 millionduring 1981 as a result ot LILCO's purchases of economy power from other utilities, use ot natural gas to generate electricity, and operation of the Company's Environmental Quality Control Systems.

Charles R. Pierce Chairman ol the Board and Chief Executive Officer I

r L+(%~i Wllfred O. Uhl President C

3 4~J In 1981 we made substantial progress toward achievi the dual goals of adequate return for shareowners an rate stability for customers in the face of persistent negative external forces. The effects of these external forces often tended to overshadow the many positive accomplishments achieved by the Company, but if w look beyond the negatives, we can see that this really a year of significant progress.

Abnormal inflation, high interest rates, and fuel price increases continued in 1981, but some developments warrant optimism as we look ahead. There are indicatio that the oppressive inflationary spiral of the last sever years is moderating. Oil prices peaked in March 1981 and declined 20% by year-end. There seems, further, be a growing realization at the federal level of the need revise regulatory controls as they relate to both finan and plant construction requirements, if the utilityindust is to effectively meet its service obligations. Finally, o Long Island service area continues to display resiliency the face of uncertain economic conditions, exhibiting strength in employment, buying power and labor skill Earnings results for 1981 showed a small improveme over the previous year as earnings per share increas two cents to $2.55. For the 22nd time in the past 23 yea the dividend rate on the common stock was increased, eight cents, from $1.86 to $ 1.94 on an annual basis. Vl these improvements are modest, they should be judge the context of the difficulteconomic environment of 19 and by the fact that they were attained while the Compa was involved in the largest financing program in its history, totalling $525 million. The success in raising th record amount of capital in unstable financial markets i significant indicator of investor support. The fact that i was accomplished without an earnings decline is a sou of satisfaction.

Rate increases of $183.1 million in electric and $8.6 million in gas revenues, granted respectively in May a November 1981, benefited cash flow and earnings results. As long as inflationary pressures sustain high interest rates and outpace our ability to hold down operating costs, the need for rate increases willinevitab continue. In this regard, we propose to file for increas gas and electric rates in February 1982, to go into effe early in 1983. Our ability to meet our obligations to customers and shareowners depends largely on regulatory treatment that recognizes the special difficulties that an inflationary economy imposes upon utilityoperations. The response of regulatory authoriti essentially determines how well we can maintain invest support and how available capital funds will be to me customer needs. While it is understandably difficultfo regulators today to withstand the pressures which seek keep utilityrates low at any cost, the cost of succumbi to those pressures is exceedingly high lower investment ratings, and greater financing costs that le ultimately to higher rates for consumers.

Brightening signs in the regulatory sector are the indications at the federal level of a better understanding of the utility industry's financial situation, action to improve tax treatment, and much delayed reform of nuclear plant licensing regulations. In this connection, we are hopeful of a timely start and expeditious handling of the Nuclear Regulatory Commission (NRC) hearings on our Shoreham Nuclear Power Station operating license.

Major steps in this process were completed during the year with the issuance of a Safety Evaluation Report by the NRC staff and a favorable Shoreham recommendation to the NRC from the independent Advisory Committee on Reactor Safeguards.

Our expectation is that the NRC public hearings should begin in the spring. Atimely conducted hearing would allow fuel loading in the fall of 1982. Commercial operation should follow some six months later.

Construction of Shoreham is proceeding on a parallel schedule with licensing. AIIof the heavy construction work is complete and the plant is now undergoing comprehensive testing of all plant equipment. Thus far, the testing program has gone extremely well. However, many things could still interfere with timely operation, including the possibility of licensing delay, but signs are now positive. About two months after fuel load Shoreham willbegin to produce Long Island's first nuclear generated electric power. Even before full commercial operation it will begin to reduce oil consumption and fuel cost.

The decline in oil prices last year has encouraged some to reflect on the possibility that the oil supply crisis has passed or at least become permanently tolerable. This is not a correct reading of the situation. It is quite clear that the stability or instability of the world's oil supply is a function of international affairs over which our nation has very limited control, and that the choice to use oil as a diplomatic weapon is an always present danger. The uncertainty of its supply and the volatility of its price remain our customers'ingle biggest burden. We have continued, therefore, to proceed in our plan to minimize reliance on oil as our basic generating fuel. Replacing oil with the use of nuclear energy, of course, is the centerpiece of this program, through the operation of Shoreham and our involvement as a partner in the Nine Mile Point 2 nuclear project in upstate New York.

While Shoreham willprovide the single most effective way to reduce our dependence on oil by replacing some 8 million barrels of oil per year, we are looking into a wide range of energy supply strategies that will free our customers from the manipulations ofthe OPEC suppliers.

An important part of this planning is the Company's effort to provide customers as much immediate relief from high oil costs as possible through the purchase of non-oil produced power from neighboring electric systems and the use of surplus natural gas in our power plants in place of oil. This, plus the cost-savings that result from our being able to use less expensive oil in connection with the operation of the Environmental QualityAirControl monitoring system, resulted in a total of some $125 million in savings to LILCOelectric billpayers in 1981 alone. We are continuing, as well, our investigation into the feasibility of reconverting to coal LILCO power plants at Port Jefferson and Island Park, which were originallydesigned as coal-burning units. This investigation includes not only analysis of the economics of coal conversion but also a full environmental review to assure the protection of neighboring communities. We are also involved in new coal use technologies such as coal/oil mixture and coal/water slurry which may permit the practical utilization of coal at the large Northport plant, which was not designed for coal burning.

Progress continues to be made, as well, in reducing our community's reliance on oil at the consumer level. 1981 again saw substantial numbers of Long Island home-owners turn from oil to natural gas to meet home heating needs.

In the last three years the number of LILCO residential gas space heating customers increased by 31,000, or 22.4%, prompted largely by concern with the uncertainty of supply and price associated with oil. While we might expect the price advantage of gas to narrow in the years ahead as gas deregulation becomes more widespread, the anticipation is that gas heating will remain at least price competitive with oil heating. Other Company programs include the aggressive promotion of such energy efficient devices as heat pumps and solar water heating systems, and the strengthening of our home energy audit and consumer conservation seminar programs, all of which are designed to increase efficient energy use and lessen oil dependency.

In looking back at 1981, one of the most encouraging developments has been our Long Island community's sustained economic health. The diversification of its economy has enabled it to successfully resist the business uncertainties experienced in other parts of the nation. Total area employment increased last year and 1982 business activity is predicted to grow at a rate double that of the country as a whole. The relationship of our Company with the community is a close one. A strong and prosperous Long Island is important to the health of LILCO, and we supply the essential energy services that allow the economy to run efficiently. But our role on Long Island is, of course, more than energy supplier. We are, at both the corporate and employee level, members of the community and have the opportunity to serve Long Island in two ways. In this report, we show examples of how Company employees serve the community at home as well as on the job. These examples are just a small look at the community service tradition of LILCO people who are the foundation of our Company's strength.

Chairman and Chief Executive Officer President IREGULATDRV DDCKET FILE Nits

1981 A Year of Significant Progress These are difficulttimes for many Americans. But, confident of the individual's potential to influence for good and for change, people are drawing from inherent strengths and resources to meet today' trying circumstances.

In recent years, LILCO has faced a series of challenges-oil embargoes, cost increases, changing governmental regulations, and limitations on natural gas availability in meeting its legal mandate to provide adequate and reliable electric and gas service.

The successful response to these many challenges is a tribute to the Company's basic strength-the skill and dedication of LILCO people. Because of the dedication and hard work on the part of all LILCO's 5,800 employees, 1981 was a year of significant progress, and we face 1982 with optimism.

Financial Progress Earnings and Dividends Long Island Lighting Company's ability to provide adequate and reliable electric and gas service to Long Island depends heavily on the continued support of investors. The need for investor support is perhaps greater today than ever before, as capital-intensive utilities nationwide are finding it most difficultto operate within complex regulatory restrictions and under severe financial conditions. Therefore, LILCO's commitment is to protect its investors'nterests as it meets its service objectives to its customers. Significant progress toward this commitment was made in 1981.

Earnings and Dividends Dollars per share 53.00 Eamngs Par State tttdicated Annual Dividend Rate at Year End

'71

'73

'75

'77

'79

'81 Earnings per share have boon Increased In 19 of tho last 23 years. Tho dlvldend rate on the common stock has been raIsed In 22 of the last 23 years. The current 200 Indicated annual dividend rate of 81.94 per share a'epresents a payout to shareowners of 76% of 1981 earnings per share. Tho Company estimates that approximately 63% of tho dividends paid In 1981 were not taxable as ordInary Income because they represented a roturn of

.50 capital. A substantial portion of the common stock dividends to be paid In 1982 Is estimated to be a roturn of capital.

Income for the common stock rose to $ 198.9 million from

$164.9 million in 1980, or 20.6%, while the average number of common shares outstanding was 19.7%

higher. Earnings per share increased from $2.53 in 1980 to $2,55 in 1981. In June 1981, the dividend rate on the common stock was raised for the 22nd year in the last 23 years. The increased quarterly dividend of 481/2g per share provides an indicated annual dividend rate of $1.94 per share. The previous indicated annual rate was $1.86 per share. The Company's estimate is that approximately 63% of the common stock dividends paid in 1981 represented a return of capital. In addition, based on preliminary estimates, a substantial portion of the dividends to be paid on the common stock during 1982 is currently expected to represent a return of capital.

Rate Increases The Company's internal cash generation from its operations was strengthened by the favorable response of the New York State Public Service Commission (PSC) to the Company's May 1980 request for a $228 million rate increase. The amount of permanent rate relief granted in May 1981 was $183.1 million (including $90 million of interim cash flow relief that became effective November 27, 1980) ~ This permanent rate increase will help provide further improved service reliability, financial

lexibility,and the basis for needed continued construction financing, and a partial offset to the inflationary costs of providing electric and gas service. Included in the PSC rate order was an increase in the amount of Shoreham construction work in progress (CWIP) allowed in rate base from $255 millionto $355 million.This makes a total of $400 million CWIP that is currently allowed in electric rate base. Although this revision does not affect the level of Company earnings, it does improve cash flow and the uality of these earnings. The current effect on consumers of paying the interest and return for shareowners on this $400 million of CWIP is only about 5% of their bill.

Effective November 1, 1981, the PSC granted an increase in gas rates of $8.6 million.

he Company plans to file for increases in both electric and gas rates in February 1982, to offset the effect of nflation and to insure an adequate return to shareowners.

s of the date of this printing, the amounts of these rate increases had not yet been determined. The new rates ovid become effective late in 1982 or early in 1983.

Don Gackenhelmer Is committed to serving Long Islanders 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> a day.

Don Is one of LILCO's supervising service operators, directing the maintenance of gas and electric service. While on shift, he makes sure that the lights go on and stay on.

Offthe Job, Don serves the community as Lieutenant of Engine fy288 and as an emergency medical technician with the Dlx Hills Fire Department. Last year, his fire department answered 400 alarms and over 1,000 rescue calls a lot of ringing phones In the middle of the night.

Don thinks thIs Is all Just part of doing his share.

"Making sure the heat comes back on when It' bitter cold Is vital," he says. "And there's no other feeling quIte like the one that comes from getting a heart beating again."

ost Components of Monthly Electric Bills o I.ILCO Residential Customers n december of Each Year Dollars

$ 70 40 30 20 10 71

'73

'75

'77

'79

'81 0 Fuel Costs 0 Non-Fuel Costs In December 1981, the total electric bill for a LILCO rosldentlal customer using 600 kWh a month was

$67.48. This was tour tImes tho $16.68 tho samo amount of energy cost In 1971. The non-fuel cost of energy Included In the total bill In Docember 1981, was only 2.6 times what It was In 1971, but the fuel cost component was 10 times Its 1971 level. As a result, the cost of fuel now represents nearly 50% of the average resldentlal bill compared with 20% ten years ago.

The average LILCO rosldentlal customer's cost per kilowatt hour during 1981 was 34% higher than In 1980. This was duo to tho sharp rise In fuel costs late In 1980 and early In 1981, followed by a docllno later In tho year. As a result, the total residential electric bill for 600 kWh was only 10%

higher In December 1981, than In December 1980. The current outlook for 1982 ls for stable prlcos for both fuel oil and LILCO electricity.

Record Financing Completed During 1981, LILCO successfully raised a record $525.5 million through the external sale of long-term securities.

hese securities consisted of: General and Refunding Bonds with a total principal amount of $300.0 million; referred stock, $25 par value, to provide $65.0 million; Ay%~ i ikti Ey

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External Flnanclng Long Term Q Trusts P LILCO MilliOnS Of Dollars 8700 U

'77 '78 '79 '80 '81 '82 '83 '84 '85 '88 ULCO sold over one-halt billion dollars of long.term securltles In tho capital markets In 1981. It also raised approximately 890 million through borrowlngs from the lending banks of Its Trl.counties Construction financing trust. After Shoreham Is In commercial operation, the need for such financing Is expecled to be sharply reduced, and the debt of the construction financing trust Is planned to be prepaid.

These prepayments as well as repayments to Trl.Counties Resources Trust for the consumption of nuclear tuel aro reflected In tho net amounts shown on tho chart.

and $160.5 million of common stock. The sales of common stock included $128.2 million sold directly to the public, $30.2 million sold to shareowners through the Company's Automatic Dividend Reinvestment Plan, and

$2.1 million sold through its Employee Stock Purchase Plan.

As a result of these sales, the total $ 118 million of commercial paper and bank loans outstanding at December 31, 1980, was fullyrepaid, and LILCOentered 1982 with short-term investments totalling $55.2 million, including $13.2 million invested in its financing trusts.

Recovery of New Haven Expenditures Following completion of hearings on the abandoned New Haven nuclear project, an administrative law judge of the PSC concluded that the co-owners, LILCOand New York State Electric & Gas Corporation (NYSEG), acted prudently in proceeding with the project. Therefore, the judge recommended that the PSC authorize amortization and recovery of the full project costs in rates. He also recommended the continuation of AFC until such rate recovery begins and approval to earn a return on the unamortized balance of the project costs. The Company's share of the New Haven nuclear expenditures was approximately $31.8 million at December 31, 1981, after reduction by $15.7 million for estimated tax effects. A decision of the PSC is expected shortly.

Settlement Reached with Westinghouse An outstanding financial issue was resolved when litigation begun by the Company against Westinghouse Electric Corporation in November 1975 was settled favorably in April1981. The Company began this litigation after Westinghouse advised its customers, including LILCO,that itwould not fulfillits commitments fordelivery of nuclear fuel. Initial partial cash payments totalling $42.7 million were made to LILCO in 1981. In addition, the settlement includes an option to purchase up to 200,000 pounds of uranium per year from 1987 through 1991, and the option to purchase fuel fabrication services, uranium conversion services, and other goods, materials and services, all at advantageous prices to the Company.

Approximately 29% of the settlement proceeds have been or will be paid by LILCO to NYSEG toward its share of t Westinghouse uranium intended for the now cancelled Jamesport plant. Additional cash payments may be forthcoming as a result of the settlement in 1981 of litigation commenced by Westinghouse against a number of uranium producers.

Bokum Resources Corporation The Westinghouse contract was an agreement LILCO entered into in 1973 to provide a long-term domestic supply of nuclear fuel for electric generation at prices favorable to the Company. After Westinghouse announced it did not intend to honor its nuclear fuel commitments, the Company initiallycontracted with Bokum Resources Corporation (BRC) in 1976 for deliveries of replacement uranium.

LILCO began a foreclosure action against BRC in November 1980, after it became clear that the mining firm could not complete the uranium mine and milland deliver the uranium concentrates pursuant to BRC's contract with LILCO. This foreclosure action was stayed pending a decision on the petition of LILCO and other creditors in

'une 1981, to the United States Bankruptcy Court for the District of New Mexico for a reorganization of BRC under bankruptcy law. These legal steps were taken to preserve the interests of Long Island Lighting by protecting

advances, loans, and related interest totalling $82.3 million made by the Company to finance the Hokum uranium mine and mill.Afederal bankruptcy court granted'he petition of creditors, including LILCO, in December 1981, and declared BRC bankrupt. BRC has appealed this decision. Also in December 1981, $1.05 billion of counterclaims BRC had made against the creditors who".

filed the bankruptcy petition were dismissed without prejudice. Additional BRC counterclaims totalling $710 million are still pending.

The BRC mill complex is nearly complete and is licensed subject to limited conditions. The mine and mill complex stands above substantial proven reserves of uranium, of which LILCOcontracted for 10 million pounds, enough to fuel Shoreham throughout its life. Additional expenditures willbe required to make the mine and millcomplex initially operational.

For further information about BRC and associated litigation including indemnification of officers and directors, see Note 7 of the Notes to Financial Statements.

Progress in Reducing Oil Oependence Significant progress was continued in 1981 toward LILCO's objective of reducing its dependence on oil-fired generation.

ShorehalTI Nuclear Power Station The Shoreham Nuclear Power Station, the Company's most important near-term contribution to its goal of providing electricity from energy sources other than foreign oil, is nearing completion. When in full operation, Shoreham is expected to displace 8 millionbarrels of oil a year, or about one-third of the oil LILCO currently would require to generate all its system electric requirements.

By the end of 1981, almost 90% of the plant's mechanical and electrical systems had been turned over to startup teams, which run the numerous tests required to assure readiness for plant operation, and over one-half of the preoperational tests required to be completed on integrated combinations of these systems prior to loading nuclear fuel had been started. Nuclear fuel is expected to be loaded in the reactor in late September 1982.

Commercial operation is anticipated six months th'ereafter.

The application for an operating license forthe Shoreham nuclear Power Station was docketed by the Nuclear Regulatory Commission (NRC) in January 1976.

Following five years of intensive examination of Shoreham, the NRC staff issued its initial Safety Evaluation Report (SER) in April 1981. A supplement to the SER was issued in September 1981. While a number of issues remain to be resolved prior to loading fuel, the SER confirmed that, upon resolution of these issues, LILCOwill be technically and financially qualified to operate the plant.

The SER also found that the operating staff for the plant has been in place for many years with staffing levels at fuel load that are expected to exceed NRC requirements.

LILCO training has utilized special programs developed for the Company by the Brookhaven National Laboratory and has emphasized training assignments at operating nuclear stations similar to Shoreham. In addition, both the General Electric simulator and simulators at other nuclear power stations continue to be utilized extensively by the operating staff to enhance their safety training. LILCOwill install a simulator to replicate Shoreham in order to maintain this training at a high level.

Further, the SER found that LILCO has a considerable pool of experienced people currently in the construction, engineering, and startup organizations at the site who, following fuel load, willbe incorporated into the Iong-term support of the plant operation. Thus, the experience gained in construction and in bringing the station on-line willbe applied to assure continued safe and reliable plant operation.

( )--

S ~

LILCO's Consumer Education Center Is located In Levlttown, but Jean Hersey takes energy tips to consumers all over Long Island. She conducts a series of approximately 30 different home and energy management classes In six Nassau and Suffolk locations throughout the year. TopIcs Include energy conservation, fire safety, solar and nuclear energy, and electrical wiring.

"Long Islanders have a great interest In energy. Our class enrollment never shrinks, It Just keeps growing."

In her hometown, Jean is active on the board ofdirectors of the Glen Cove Boys and GIrls Club at Lincoln House, where young people explore their athletic and artistic talents. She's enthusiastic In her support of the club and the community "There's always somethIng good happening there."

Andy Matura Is committed to makIng Long Island a better place to live. As a LILCOenvironmental scientist, his Iob Is to see that Long Island's air quality Is preserved.

In the community, he and his wife Kathleen, who also works for LILCO, are leaders In organizing the March of Dimes "Super Walks" that have raised thousands of dollars to better the lives of those who are less fortunate.

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The second major step leading to an operating license for Shoreham was successfully completed in October 1981 when LILCO met with the independent federal Advisory Committee on Reactor Safeguards (ACRS). Following a visit to the plant site and presentations by senior nuclear personnel on such subjects as compliance with changes required following the incident at Three Mile Island in 1979, engineering, plant operation, training, and emergency planning, the ACRS issued a recommendation for a fullpower operating license subject to resolution of the same issues set forth in the SER.

The third and last effort in obtaining an operating license is successful completion of public hearings before the Atomic Safety and Licensing Board. Many plants in similar positions have not required such hearings when successful SER and ACRS letters have been received.

However, intervenors have filed contentions on various aspects of Shoreham plant design, construction, and operation, as well as preparedness planning. Hearings on these matters are expected to begin in the spring of 1982.

The actions of the intervenors could delay receipt of the operating license. Possible delays in completing construction could also delay fuel loading. Each one month delay in commercial operation of Shoreham will add $35-40 million to its cost.

Emergency preparedness efforts for Shoreham are well under way. An exercise to test state, county, and LILCO plans will be conducted. The Federal Emergency Management Agency and the NRC will evaluate the results of this exercise before an operating license is issued.

Nine Mlle Point 2 The Nine Mile Point Nuclear Unit 2 (NMP-2), under construction near Oswego, New York, willfurther reduce LILCO's dependence on foreign oil by about 2 million barrels, or about 8%, per year, and willfurther stabilize the cost of electricity to LILCOcustomers. LILCOhas 5h 18%, or 195 MW, share in the unit being built by Niagara Mohawk Power Corporation. The co-owners estimate a construction cost of $2.4 billion, exclusive of financing costs. Of that total, $1.0 billion had been spent at December 31, 1981.

The PSC ordered public hearings to review two 1981 studies concerning the economic, financial, and construction status of NMP-2: an independent audit of cost and schedule prepared by Theodore Barry &

Associates (TB&A), as consultants to the PSC; and the PSC staff's own economic analysis of alternatives. TB8 A concluded that a 1986 commercial operation date was possible but, in their opinion, schedule slippage of a year was likely, and future regulatory and economic uncertainties exist which could add significantly to the ultimate cost and the time required for completion. The staff report concluded that completion of NMP-2 is warranted when compared with alternate plans for new coal-fired facilities, even if construction costs are substantially in excess of those estimated by the co-owners. A PSC decision following the hearings, which began in early December 1981, and were completed by year's end, is expected early in 1982.

Jamesport In 1980, LILCO's and NYSEG's joint petition to build two rluclear electric-generating units at Jamesport, New York, previously approved by the NRC, was denied by the New York State Board on Electric Generation Siting and the Environment. However, the Jamesport Siting Board did grant a certificate to build an 800 MW coal-fired plant at the Jamesport site. NYSEG decided not to participate in a coal-fired project at Jamesport.

In October 1981, LILCO accepted the Jamesport Siting Board certification, subject to certain conditions. These conditions include an allowance of one year's time to seek new partners and to conduct studies of the plant's optimum size and completion date. The Siting Board has not yet acted on the Company's conditional acceptance.

In early 1981, LILCO and NYSEG petitioned the PSC for authority to amortize and recover in rates the nuclear-related portion of the Jamesport project expenditures.

No action was requested regarding amortization of the coal-related portion pending a determination with regard to construction of a coal plant.

The two companies were authorized by the PSC to continue to accrue allowance for funds used during construction (AFC) on the Jamesport costs pending either the completion of the certified coal unit or the abandonment of the entire project. The PSC deferred action on the amortization request. The Company's share of the Jamesport nuclear expenditures was approximately

$44.7 million at December 31, 1981, after reduction by

$15.9 million for estimated tax effect.

Coal The Company continues to investigate the conversion of some of its existing generating stations to coal as well as the construction of a new coal-burning plant at Jamesport to provide fuel cost savings and energy independence.

During 1981, the United States Department of Energy rescinded its proposed orders that would have prohibited continued burning of oil at the Northport Power Station and terminated the related proceedings. The Company had requested rescission of these proposed orders on the grounds that coal conversion would have been economically disastrous. Company studies indicate that under certain conditions conversion of two of the Port Jefferson and the two Barrett units to coal would be economic. No final decision has been made by LILCO concerning these conversions.

Coal/water slurry (CWS) is finely pulverized coal mixed with water to form an oil-like fuel. LILCO has organized and heads a research team investigating the feasibility of burning CWS as a utilityfuel. CWS may prove to be attractive because it is potentially less costly to convert a plant to CWS burning than to solid coal burning, and it eliminates many of the impacts on the community of burning coal. Adelphi University's Center for Energy Studies is part of the research team and is conducting laboratory tests on coal/water mixes of various types.

EBASCO, Inc. is studying necessary power plant modifications to permit use of CWS as a generating fuel.

(Modifications could include a new fuel unloading system and the addition of agitators in storage tanks to prevent the CWS mixture from separating.) Babcock and Wilcox, a major boiler manufacturer, is investigating the impact of CWS burning on boiler performance. Acting as a consultant on the project is Combustion Processes, Inc.,

a company experienced with CWS research.

10 Llonel Smith Is a man totally Involved In the health and welfare of his community. As Pastor of the Faith Missionary Baptist Church In Greenlawn, he provides spiritual leadership to young and old.

As a LILCOlineman, Llonel sees much of the Long Island world from a bucket truck. Like other LILCO linemen, neither snow nor rain nor heat slows his efforts as he works to provide Long Island's electrical needs.

?

Natural Gas Increased availability of natural gas and conservation of gas by present customers has allowed LILCOto offer this fuel to additional existing gas customers converting from oil heat to gas heat. Atthe end of 1981, a total of 168,900 LILCOcustomers were heating their homes using natural gas, 31,000, or 22.4%, more than three years earlier. This increased use of natural gas displaces over 650 thousand barrels (nearly 28 million gallons) of home heating oil annually.

Additional Gas Supply LILCOjoined 13 other northeastern utilities to form Boundary Gas, Inc. in July 1980. Boundary Gas was established to import Canadian gas and transport it through existing interstate pipelines. Canadian gas reserves provide an additional supply to offset interstate pipeline curtailments in the next decade. LILCO's share of the purchases from TransCanada Pipelines, Ltd., will be 8.4 billion cubic feet per year, about 13% of LILCO's current contractual gas supplies. All required filings have been submitted to the appropriate Canadian and United States governmental agencies.

Decisions of these agencies with regard to export and import of this gas are expected late in 1982. Canadian gas is expected to begip arriving on Long Island in late 1983.

Other Alternatives Other alternatives to utilizing nuclear, oil, and coal on the LILCOsystem include natural gas, purchases of economy power, and various research projects.

For the past two years, substantial quantities of natural gas have been burned to generate electricity during non-winter months in certain plants, thereby displacing more expensive imported oil as a fuel. Although economics and the availability of natural gas for this purpose might not allow this arrangement to continue, to date it has been quite beneficial to LILCO's customers.

In 1980 and 1981, LILCOsaved its customers $ 1 8.1 million and $22?7 million, respectively, by burning natural gas instead of oil to generate electricity and saved 3.4 and 3.9 million barrels of oil, respectively.

The Company continues its campaign to hold down increases in the cost of electricity to Long Islanders by purchasing nuclear, coal, and hydro power when available from Canada and other utilities through the New York Power Pool and New England. An important part of this is LILCO's involvement in the New York Power Pool's economic dispatch program. Every five minutes, the program automatically distributes the generation of member companies throughout New York State using telemetered information from each member. This maximizes the efficiency of electric generation and minimizes its production costs. Through such purchases, LILCO was able to reduce customers'ills by $51.6 million in 1980 and $54.4 millionin 1981 and displace 6.0 and 4.8 million barrels of oil, respectively.

The Company contributed over $2.5 millionin 1981 to the Electric Power Research Institute (EPRI) for research into and development of new technologies to meet Long Island's present and future electric needs in environmentally and economically acceptable ways.

These funds supported investigations into fuels research, such as coal gasification and liquefaction; solar and other renewable resource and improved fossil-fired technologies; environmental studies including the causes and effects of acid rain; and energy conservation and more efficient transmission and distribution systems.

Another EPRI project in which LILCO is involved is a study on wind turbine siting. Working with Battelle Laboratories, LILCO is providing the meteorological and land-use data to establish a method of evaluating potential wind turbine sites. This study will aid other utilities seeking wind turbine sites in their own service territories. LILCO personnel participate in many of these studies through various EPRI committees.

Five miles west of Montauk Point, at the Ocean Science Laboratory, stands a 160 foot instrument tower. This Department of Energy/LILCO tower has been collecting wind-energy data for five years. LILCO is pursuing plans to erect another tower one-half mile from the Montauk lighthouse. One year of simultaneous readings collected from the two towers willverifywhether or not winds in the area are strong and consistent enough to power a g-3 MWwind turbine.

Net Power Purchased by LlLCO from Other Utilities Millionsof kwh 3000 In each of tho last seven years, LILCOhas been able to purchase substantial quantities of power from other utllltlos moro economically than It could generate the power by burning fuel oil In Its own power plants. These purchases have saved LILCO customers $175.5 million ovor tho seven-year porlod, Including $54.4 million In t98f.

71 'ra 'rs 74 75 'rs 'rr 'rs 'rs 're 'st Progress in LlLCO Response to Community Needs LILCO is concretely demonstrating its commitment to meeting the challenges facing the Long Island community in a variety of ways.

Efficiency and Service Reliability To offset rising electric generating costs, LILCO has aggressively pursued an innovative program with a goal of performing required maintenance work in an even more expeditious and cost effective manner.

To spearhead this effort, a production planning center was established to more effectively schedule overhaul work and improve worker productivity, while a training center was established to insure that mechanic skill levels are further enhanced.

To identify and solve persistent operating problems affecting the efficiency of Northport, LILCO's largest generating station, a technical services group was also established. The result of this group effort coupled with innovative maintenance practices initiated by plant personnel resulted in an annual fuel savings to our customers of $8.5 million in 1981.

The electric submarine cables connecting Connecticut and Long Island are an important link in maintaining the lowest possible cost for electric energy. During severe cold weather, the cable system was damaged when navigational buoys embedded in moving ice floes dragged their anchors across the cables. Historically, repair work involved the installation of sophisticated cable repair joints requiring the skills of foreign technicians.

However, in 1981, this repair was completed utilizing a newly designed cable joint developed by LILCO which permitted the joints to be installed by LILCO personnel.

This effort resulted in timely restoration of the cables with a savings of approximately $1.0 million over the previous techniques.

Service reliability is improved by LILCO's year-round tree trimming program. Branches that may tangle electrical wires are trimmed back, and trees are pruned to grow away from existing lines. This lessens damage to lines caused by falling limbs during ice storms, snow fall or high winds. In 1981, LILCO refined its productivity incentive program with a net improvement of approximately 10% in performance over the previous year's planned tree trim activity.

A new job classification, senior lineman splicer, calls for the skills of an overhead lineman and an underground cable splicer in one individual. This combination enables the Company to use smaller crew units to maintain and repair electrical lines. The economic benefits and efficiency of service brought about by this more flexible work force should be evident especially during peak work load conditions such as storms or power interruptions, when a greater amount of work can be accomplished by fewer men in the field.

~

~

12 Certain customers are classified as a Critical Facility. This notation indicates that the customer merits special consideration during periods of restoration of electric service lost during emergencies.

Included in this classification are police, fire stations, hospitals, water pumping stations and certain individuals who have a medical problem that requires some type of electrical apparatus for life support. In 1981, all Critical Facility customers were field surveyed during the Company's annual Emergency Restoration field exercise. Priority attention is given to these customers during periods of emergency.

During 1981, six new VHF radio frequencies were licensed and placed in service, and 362 mobile radio units were converted to operate on four of these six new frequencies. This culminated the first year's activities of a three-year plan to improve both routine and emergency communications. These communications improvements willnot only help improve LILCOservice, but willalso be a boon to the Long Island community as well. They will enable LILCO personnel to more rapidly contact the nearest customer service headquarters and request assistance via their direct telephone links to fire, police, and other emergency service units.

LILCO's unique Computer Assisted Restoration of Electric Service system (CARES) has also contributed to service efficiency. By input of customer telephone numbers, the CARES system shows a customer' location on a graphic computer map display that matches LILCO's service area maps. This helps to pinpoint service interruptions so that they can be analyzed and crews dispatched appropriately, saving time and money throughout the LILCO system. CARES was initially implemented in 1980 on a limited area basis and was expanded system wide in 1981.

Economy In General Operations Efficient LILCOoperations benefit the whole Long Island community by helping to keep the cost of energy as low as possible.

As an example, LILCO's Environmental Quality Control system (EQUAC) constantly measures the sulfur dioxide content of the air, indicating when LILCO can burn less expensive higher sulfur oil. This monitoring enables LILCO to keep fuel costs down by burning a less expensive fuel without damaging air quality. Long Island's excellent air quality is maintained, and LILCOcustomers save money. The EQUAC system has saved LILCO customers over $300 million since 1973, when the 14 air-sampling stations were put into operation. In 1981, EQUAC saved Long Islanders $48 million in fuel costs.

Significant gains were made during 1981 in improving the effectiveness of existing billing meters. Modernization of certain electric and gas meters, and improved techniques to verify meter accuracy, will result in additional annual revenue of $1.8 million.

LILCO processes over 7 million customer bill payments annually. The Company has been using an automated check processing system since 1972. During 1981, this system was upgraded, bringing a 60% increase in productivity over the former processing system. The processing system enables LILCO to deliver customers'hecks directly to the bank upon which they were drawn.

on the same day they are received. This yields an annual cost savings of approximately $0.8 million.

Rlta Louise enJoys reachIng out and meeting people face to face.

Working In a busy LILCO district office, she meets a steady stream of new people every day. She tries to see that each person leaves her office feeling positive about doing busIness with the Company.

Rlta also spreads good willwith the LILCO Energy Makers, LILCO employees who travel throughout Long Island providing musical entertainment for a variety of organizations and groups of senior citizens and children.

Involved with the ensemble since Its inception, Rlta believes It's an excellent way to bring a little entertaInment and happiness to others.

I

LILCO in the Community LILCO responds in many other ways to provide services to its customers and the community.

LILCO's Balanced Billing plan, started in 1979, was developed to respond to customer needs. The plan balances out seasonal energy bills by spreading yearly energy costs into 12 level payments. This program was expanded in 1981. Over 125,000 LILCO customers now manage their energy expenses with Balanced Billing. In addition, a newly designed LILCObill carries more billing information and is easier to read.

The Home Energy Assistance Program (HEAP) grants federal funds to help qualified individuals pay heating or utilityexpenses.

In 1981, LILCOproduced and distributed information on the HEAP program in its billenclosures, in a special brochure titled, "L.I.G.H.T.Long Islanders Get Help Tips," and by taking ads in weekly and daily newspapers.

Long Islanders received over $1.5 million in aid through the HEAP program in 1981.

In 1977 New York State passed the Home Insulation and Energy Conservation Act (HIECA). HIECAmandated that all New York State utilities (municipals excluded) provide subsidized energy audits and loans for eligible

~homeowners or tenants. From June 1978, through December 31, 1981, LILCO completed 24,000 on-site home energy audits.

The Company also lends a hand by funding events such as the "Abilityis Ageless" job fair held in September.

LILCO Chairman Charles Pierce was honorary General Chairman of the fair, which suggested job opportunities as well as job ideas.

For years, LILCObuildings, grounds, and properties have been used to support bicycle paths, Boy Scout meetings, parks, summer camps, boat ramps, farms, nurseries, and vegetable gardens. Selected right-of-ways are landscaped to harmonize with surrounding neighborhoods.

Many appear to be extensions of an adjacent homeowner's property. Each parcel is used to maximize the benefits of the land to the community.

In June 1981, the 216-year old Ella Hallock farmhouse and outbuildings located on LILCO's Jamesport property were donated to Hallockville, Inc., a community organization pledged to preserve the historic homestead as a living museum and cultural center.

In this way, a remnant of the once-active farming hamlet of Hallockville, Long Island will not be lost.

Nearly two decades ago, in hopes of bolstering the dwindling osprey population on Long Island, LILCO began placing nesting platforms atop poles in eastern Long Island. Ospreys are fish hawks that are native to Long Island but their numbers had decreased due to ingestion of the insecticide DDT. In 1965, only four fledglings hatched at a favored Gardiners Island nesting site. DDTspraying was halted in 1966, and records show that 126 osprey chicks were hatched on Long Island during 1981. The ospreys are finding the LILCOplatforms the perfect spot to nest.

14 Financial Analysis Income for Common Stock and Average Common Shares Outstanding Percent Increase 400%

Income For Common Stock Average Common Shares Outstanrrrrg 50

'71

'73

'75

'77

'79

'81 Since 1971, LILCOhas Increased Its Income for common stock 374% whllo tho average number of common shares outstanding has risen 286%.

In the period 1971-1981, Inclusive, LILCOsold 10 Issues of common stock to the public totaling 51.8 million shares. An additional 8.1 million shares were sold to shareowners through the Automatic Dividend Reinvestment Plan and to employees. Based on tho current estlmato of future capital requirements, no additional common stock Is expected to be sold with tho exception of the balanco contained In this year' flnanclng program and continued sales through dividend reinvestment and to employees.

This analysis discusses matters of significance in the Company's Financial Statements, which follow, with regard to results of operations, capital requirements, and liquidity for the last three years.

Results of Operations Earnings: Earnings per share have been increased in 19 of the past 23 years. For 1981, earnings of $2.55 per share were 2g above the $2.53 earned in 1980 and 14/

above the $2.41 earned in 1979. Income for common stock of $198.9 million in 1981 was $34.0 million, or 20.6%, greater than in 1980, more than offsetting the 19.7% increase in the average number of common shares outstanding. Income for common stock of $164.9 million in 1980 was $36.1 million, or 28.0%, greater than in 1979, more than offsetting the 22.1% increase in the average number of common shares outstanding. The increases in average common shares outstanding indicated in the foregoing reflect the sale of 9.0 million shares in April 1981, 8.1 million shares in July 1980, and 7.5 million common shares in 1979 and continuing sales through the Company's Automatic Dividend Reinvestment and Employee Stock Purchase Plans totalling 2.3 millionshares during 1981, 1.6 millionshares during 1980, and 1.2 million shares during 1979. The incieases in income for common stock, which include increases in LILCO allowance for funds used during construction (AFC), reflect the inflationary impact of higher costs of capital and additional capital raised. The current level of rates charged customers has not been significantly affected by the factors which have resulted in'the increases in income.

Dividends: The dividend rate on the common stock has been raised annually for the last 23 years with the exception of 1974. The quarterly dividend rate was raised from 441/2g to 461/2g per share in June 1980 and to 481/2. per share in June 1981. These actions increased the indicated annual dividend rate by 8g each year to

$1.94 in 1981 from $1.86 in 1980 and $1.78 in 1979.

Although the Company contemplates the continuation of quarterly dividend payments, the payment of future dividends willdepend upon future earnings, the financial condition of the Company, and other factors. (See "Rate Increases" and "Capital Requirements and Liquidity.")

Quarterly dividends were paid as follows during the last three years:

Payment Dates Feb.

1 May 1

Aug.

1 Nov.

1 Total Paid 1981 46vig 46Valf 48Valf 48Valf

$1.90 Paid Per Share 1980 44Vaff 44VaII 46Vag 46Vaff

$1.82 1979 42Vag 42Vaff 44VrII 441/2'1.74 The Company estimates that for federal income tax purposes certain percentages of the dividends paid in'981, 1980, and 1979 represented a return of capital and, therefore, may not be taxable as ordinary income.

These percentages are 63% of the common stock and'one of the dividends paid on all series of preferred stock in 1981, 100% of the common stock and 100% of the dividends paid on all series of preferred stock in 1980, and 100% of the common stock and 63% of the dividends paid on all series of preferred stock in 1979.

Such estimates are subject to audit by the Internal Revenue Service. Whether or not any portion of future common stock dividends willconstitute a return of capital is dependent upon future rate relief, the resultant earnings of the Company, the size of the Company's construction program, the amount of construction work in progress (CWIP) permitted in rate base, and changes in income tax laws, including those which became law in August 1981. The Company currently estimates that a substantial portion of the common stock dividends to be paid in 1982 will represent a return of capital.

The trends of earnings, dividends, and coverage of interest and fixed charges over the past six years are provided in the Summary of Operations, Table 1, in the section of this report entitled "Selected Financial Data."

Information with regard to the electric and gas segments of the Company's business for the most recent three years is provided in Note 9 of the Notes to Financial Statements.

Additional data for prior years for both electric and gas operations is contained in the various tables of "Selected Financial Data."

Revenues: Total revenues, including the recovery of fuel costs, increased

$387.9 million, or 30.4%, to $1,664.8 million in 1981 from $1,276.9 million in 1980. The gain in 1980 over 1979 was $231.4 million, or 22.1%. Revenues realized from sales of electricity and gas to the various classes of the Company's customers are shown in deta! I.

in Tables 2 and 3 of "Selected Financial Data."

15 Total

$387.9

$231.4 Additional information about these factors:

(1) Fuel Costs: Changes between periods in the costs of electric fuels, purchased power, and gas fuels were influenced primarily by (a) the mix of each fuel used and (b) increases in the cost of the fuels.

(a) During 1981 and 1980, the Company substantially decreased the use of high-cost, low-sulphur-content oil to generate electricity on its own system by purchasing record amounts of power from other utilities, and by burning substantial volumes of natural gas. Purchased power displaced 4.8 million barrels in 1981 and 6.0 million barrels in 1980. Burning gas displaced 3.9 million barrels of oil in 1981 and 3.4 million barrels in 1980. The

.'.Company estimates that these actions saved customers

a total of $77.1 million in 1981 and $69.7 million in 1980

, compared to the estimated cost of generating an

equivalent amount of power on the LILCOsystem with oil.

",The mix of fuels and purchases for providing the

.,Company's electric system energy requirements during

- ',1981 and 1980 were as follows:

1981 1980 Oil Gas Purchases Total 64o/o 16 20 100 /o 61 o/o 14 26 100 /o (b) The cost of fuels and the increases in cost during 1981 and 1980 were:

Increase from Prior Year'Dollars in Millions) 1g81 1981 1980 Total Cost'

/o

/o Electric Fuels

$588.2

$199.7 51.4 /o $ 103.7 36.4 /o Purchased Power 131.6 (0.9)

(0.7) 27.7 26.5 Gas 145.5 14.8 11.4 41.9 47.2 Total

$865.3

$213.6 32.8 /o $173.3 36.2 /o

'Includes fuel cost adjustment deferred.

The principal factors causing these revenue increases were:

Increase from Prior Year 1981 1980 (Dollars in Millions)

S (1) Fuels and Purchase Power

$213.6

$173.3 (2) Rate Increases 153.4 48.0 (3) Changes in Energy Sales and Other 20.9 10.1 The average unit prices of fuels and the increases in average unit prices between current and prior comparable periods were as follows:

increase from Prior YeaC 981 1980 1981 Average UnIt Unit Price'ost Unit

'/o Cost

/o For Electric Operations If/kwh Fuels consumed for net generation 5.02I!

1.58if 45.94/o 0.87tf Purchased power 4.60I!

0.92if 24.9 0.68II For Gas Sendout

$/mcf

$2.90

$0.32 12.4 /o $0.68

'Includes fuel cost adjustment deferred.

33 go/o 22.7 36.1'/o Additional fuel data for prior years is contained in Tables 4 and 5 of "Selected Financial Data."

(2) Rate Increases: Total revenues net of the above fuel costs increased $ 174.3 million, or 27.9/o, in 1981 to

$799.5 million and $58.1 million, or 10.3/o, in 1980 to

$625.2 million.

The principal factor affecting these revenues net of fuels was rate increases. Permanent annual electric rates were increased by a total of $192.2 million in 1981, $25.1 million in 1980, and $31.4 million in 1979. Permanent annual gas rates were increased $17.1 millionannually in 1979.

On May 26, 1981, the PSC issued its order in the permanent phase of the Company's request to increase electric rates by $228 million annually. The salient features of this order were:

(a) The amount of rate relief granted was $183.1 million, an increase of 13.6/o over revenues forecasted in the rate case for the 12 months ending April 30, 1982. The new rates became effective May 29, 1981. These rates include $90 million of interim cash flow relief effective November 27, 1980. All of this interim rate relief was derived from normalization of income tax deductions of interest related to LILCO's Tri-Counties Resources and Construction Trusts, and Shoreham-related items not previously permitted to be normalized. As a result of this normalization, the additional revenues were offset by deferred income tax expense. Thus, there was no effect on earnings, but cash flow and coverage of interest charges before taxes were improved.

(b) Returns of 16.0/o on common equity and 12.21/o overall were allowed. These returns were based on a common equity ratio representing 42.72/o of total capitalization exclusive of Trust obligations.

(c) The amount of Shoreham CWIP allowed in rate base was raised from $255 million to $355 million, making a total of $400 million of CWIP currently allowed in electric rate base. Revenues willbe increased and AFC will be reduced correspondingly.

16 Electric Sales Increase or (Decrease) from Prior Year (d) The deferral of the federal income tax benefits associated with the interest on amounts financed through the Company's Tri-Counties Construction and Resources Trusts, real property taxes, and certain construction costs associated with Shoreham, granted in the interim phase of the case, was continued in the permanent rates, and provides cash flow relief.

(e) The Company was allowed to transfer an additional 3.0g per kWh of fuel costs into base rates and to amortize and recover approximately $35 million of unrecovered deferred fuel costs.

(f) The Company was permitted to file for a second step increase in February 1982 to recoup increases in property taxes.

On May 15, 1981, LILCO filed an application with the PSC to increase gas rates by $9.2 million, or 2.5%,

annually. On October 27, 1981, the PSC authorized an increase in the Company's gas rates, effective November 1, 1981, designed to provide $8.6 million in additional gas revenues annually. The Company is permitted to file a second stage filing in July 1982 to reflect increases in property taxes and wages.

(3) Changes in Energy Sales: Consumption by residential customers accounts for approximately 45% of the Company's annual system kWh sales of electricity. This is one of the highest proportions of such sales in the electric utilityindustry, and contributes to relatively stable operations of the Company. As a result of conservation of energy use, however, the 1.3% decrease in residential sales in 1981 from 1980 was caused by a 2.0% decrease in average use and a 0.7% growth in average customers.

The 1.0% increase in residential sales in 1980 over 1979 was primarily due to the 0.9% growth in average customers. The 1.0% rise in commercial-industrial sales in 1981 reflected a 0.2% decrease in average use and a 1.2% gain in average customers. The gain in 1980 of 2.2% was comprised of a 1.0% increase in average use and a 1.2% gain in average customers.

Approximately 70% of the Company's annual system mcf sales of gas results from consumption by space heating customers. Accordingly, total gas system revenues and sales are heavily influenced by seasonal temperature variations between periods and the availability of gas for sale to interruptible customers. The number of degree days billed in 1981 was 1.3% above those in 1980, while the average use of gas by space heating customers was 0.2% lower in 1981 than in 1980. Thus, conservation partially offset the effect of a 7.4% increase in the number of average gas heating customers served and limited the growth in sales of gas for this purpose to 7.2%. Firm sales in 1981 reflect only a part of the winter consumption by the customers who converted from oil to gas for space heating during the year. Sales of gas available to non-firm customers are reflected in interruptible sales in the table below. The record amount of gas sent out on any one day, 371.8 million cubic feet on January 4, 1981, was exceeded on January 11 and 17, 1982, when 383.2 and 402.5 million cubic feet, respectively, were sent out.

The stable level of total firm gas system energy sales over several years prior to 1980 was primarily due to restrictions on the addition of new gas load due to limitations on gas supply.

Gas Sales Increase or (Decrease) from Prior Year

~

1981 1981 Total mcf Sales mcf (Millions)(Millions) 1980 mcf (Millions)

Firm System Sales Space Heating Non.space Heating 34.8 2.3 7.2%

1.4 7.6 0.1 1.3 0.4 4.4 5.5 Total Firm 42.4 2.4 6.1 1.8 4.6 Interruptible 6.0 (1.3)

(17.5) 1.8 33.7 Total System Sales 48.4 1.1 2.5 %

3.6 8.2 %

1 981 1 981 Total kWh Sales kwh (Millions) (Millions) 1980 kWh (Millions)

Degree Days Billed 4,975 65 1.3%

298 6.5%

Additional energy sales data for prior years is contained in Tables 6 and 7 of "Selected Financial Data."

System Sales Residential Commercial and Industrial Other 5,581 (74)

(1.3)%

56 1 0%

6,494 63 1.0 140 2.2 540 (56)

(9.4) 19 3.4 Total System Sales 12,615 (67)

(0.5) 215 1.7 Power Pool Sales 772 (111)

(12.5) 30 3.6 Total Sales 13,387 (178)

(1.3)%

245 1.8%

17 Uso of Electric Revenue Cents por kWh 11.0'eratens an Maintenance Expenses 10.0 9.0 8.0 I

70 I

60 I

5.0 FUet Expenses/)

4 0

~

3O Taxes 2.0 1.0 LILCO's average revenue por kwh sold has risen 333/o from 2.42I.'In 1971 to 10.48I! In 1981. About 60%

of this Increase has been due to the Increased cost of the tuel component, which roso 896/o during tho porlod and accounted for about one-halt of the revenue In 1981. This Increase would have been significantly greater without the purchases of economy power, the burning of gas, and the burning of high sulfur oil through the Company's Environmental Quality AirControl systom.

0 at'nctxne Atter Taxes 0

'71

'73

'75

'77

'79

'81 Uso of Gas Revenue Dollars per mcl

$6.00 LILCO's average revenue per mcf of gas sold has Increased by $3.65, or 206%, to $5.42 In the last 10 years. Two.thirds of this Increase was duo to the 4.00 457%%d tncrease In tho cost of gas, whIch now accounts for over half of tho total price of gas.

Depreciation Taxes Operatons and Mabtenance Ex

'71

'73

'75

'77

'79

'81 Operations and Maintenance Expenses:

Total operations and maintenance expenses exclusive of fuels and purchased power increased $36.8 million,or 19.4%,

in 1981 to $226.5 million and $ 18.9 million, or 11.0%, in 1980 to $189.7. Approximately 57% of these total costs in 1981 represented employee wages and benefits. The Company has 5,800 employees, about 4,200 of whom belong to either Local 1049 or Local 1381 of the International Brotherhood of Electrical Workers (A.F.L.-C.I.O.). As a result of collective bargaining negotiations between the Company and the unions in 1980, a general wage increase of 8.70% became effective July 1, 1980, and a general wage increase of 8.25% became effective July 1, 1981. The current contracts expire June 30, 1982.

About one-half of the increase in 1981 and almost all of the increase in 1980 in operations and maintenance expenses exclusive of fuels and purchased power was due to inflation.The other one-half of the increase in 1981 was due principally to additional maintenance on electric generating facilities and additional research and development expenses.

Information concerning the effects of inflation on the Company's operation is contained in Note 11 of the Notes to Financial Statements.

Additional expense data is contained in Table 8, and operating ratio information is contained in Table 9 of "Selected Financial Data."

Other Items: Other items such as depreciation, operating taxes, interest expense (both Iong-term and short-term) and preferred dividend requirements in aggregate increased $92.7 million, or 21.1%, to $531.5 million in 1981, from $438.8 million in 1980, somewhat offset by a $65.3 million increase in total AFC. The gain in 1980 over 1979 was $62.7 million, or 16.7%, somewhat offset by a $46.0 million increase in total AFC. Increases in depreciation generally result from the addition of plant in service. Increases in operating taxes are largely due to higher property taxes resulting from the addition of new plant and increased property tax rates, as well as higher state and local gross income and franchise taxes on increased revenues.

Increases in interest charges and preferred stock dividends result primarilyfrom the sale of additional securities and from increased Trust borrowings used to finance the Company's continuing construction and nuclear fuel programs. Interest charges on Trust obligations are capitalized and vary with changes in the lending rates of the Trust's credit banks.

Such charges are offset by AFC related to Trust interest so there is no effect on the net income of the Company.

AFC represents the cost of borrowed funds for construction purposes and a reasonable rate upon a utility's other funds when so used. AFC, thus, represents a non-cash credit to income. The amount of AFC (including AFC corresponding to interest on Trust obligations) fluctuates from period to period with changes in the cost of money, the level of construction activity, the amount of CWIP included in rate base, and modifications in regulatory policy. The amount of electric CWIP included in rate base (on which the Company is allowed to earn a cash return in lieu of non-cash AFC) was increased, effective May 29, 1981, from $300 million to $400 million. The total average amount of CWIP allowed in rate base was $358.3 million in 1981 and

$304.1 million in 1980 and 1979 including the $309.2 million related to Shoreham in 1981 and $255.0 million in 1980 and 1979.

LILCO AFC (excluding AFC related to Trust interest) totalled $148.0 millionin 1981, $109.9 millionin 1980, and

$80.1 million in 1979, representing 74%, 67%, and 62%

of income for common stock in each year, respectively.

Included in income for the years 1981, 1980, and 1979, respectively, were $5.3 million, $4.2 million, and $3.8 millionof AFC related to the New Haven project and $8.4 million, $6.4 million, and $5.3 million of AFC for nuclear related costs for the Jamesport project. (See Note 7 of the Notes to Financial Statements.)

18 Changes in federal income taxes are due principally to variations in net income before income taxes, recognition of investment tax credits, and the deduction of interest on Trust obligations and items capitalized for financial statement purposes that are allowed as current deductions on the Company's tax returns. The deferral of tax benefits associated with the rate increase effective November 27, 1980, was the prime component in the increase in 1981 in the provision for federal income taxes. (See Notes 1 and 6 of the Notes to Financial Statements.)

Capital Requirements and Liquidity Financial ObJectives: The electric utility industry is one of the most capital intensive industries in the world. Very large amounts of capital must be obtained to construct new generating facilities to meet customer demands for energy and, in the future, to convert existing oil-fired generating facilities to coal to reduce this nation's dependence upon imported foreign oil. To provide this capital, electric utilities customarily issue short-term debt, which is repaid periodically with the proceeds from the sale of long-term securities and from funds provided through internal cash generated from operations. A general objective in the industry is that internal cash generation from operations (as described under Capital Provided) should provide about 50/o of the total funds required for construction. LILCO management concurs with this objective. LILCO'sfinancial corporate objectives also include: (1) retirement of all short-term debt at least once a year; (2) in the normal course of events, a maximum amount of short-term debt outstanding not exceeding $100 million unless the Company has the clear abilityto refinance completely such short-term debt with long-term securities; and (3) maintenance of capitalization ratios of (a) not over 50% long-term debt, including the Trusts, (b) 10-12t/z/o preferred and preference stock, and (c) 40-37t/z/o common stock and retained earnings.

(1) In recent years, including 1981, the Company has essentially met these objectives, with the exception of the level of internal cash generation from operations. No short-term debt has been outstanding at least once in each of the last seven years, including at year-end 1975-1979, inclusive, and 1981. At the end of 1980, however, $100.0 million of bank loans under the Company's $250 millionRevolving Credit Agreement and

$18.0 million of commercial paper were outstanding. At the end of 1981, the Company had short-term investments totalling $55.2 million, including $13.2 million invested in its financing Trusts.

(Dollars ln Millions)

LILCO ConstructIon Requirements Electric Shoreham Other production Other Total electric Gas Common Total LILCOconstruction (Incl. AFC)

Less AFC Total LILCOconstruction (Excl. AFC)

Trust Requirements (1)

Nine Mile Point 2 Less capitalized interest Nuclear fuel Less capitalized interest Total construction and nuclear fuel (Excl. AFC &

capitalized interest)

Refunding Requirements Senior Securities Resources Trust Construction Trust Total capital requirements (Excl. AFC)

Repay Short-term Debt Short-term Investment Loans to BRC Other Actual Estimated 1982-1981 1982 198&

$ 403

$ 439 512'2 42 320 47 53 550 472 534 1,382 23 18 80 7

16 91 502 568 1,553 (148)

(194)

(448) 354 374 1,105 94 128 519 (50)

(62)

(257) 21 27 186 (20)

(17)

(93) 399 450 1,460 68 28 84 413 2

119 500 495 '36 2,492 118

10 55(2)

185 1

11 Total Capital Requirements (Excl. AFC and capitalized interest)

$ 680

$ 536

$2,687 (2) During 1981, 1980, and 1979, the maximum aggregate amount of bank loan and commercial paper borrowings at any one month-end was $187.1 million at February 1981, $126.9 million at June 1980, and $121.7 million at August 1979. The daily averages of total bank loan and commercial paper borrowings were $95.8 million,$59.4 million,and$ 41.8 million, respectively. The approximate weighted average interest rates (excluding the effects of compensating balances and commitment fees) on revolving credit and commercial paper borrowings were 18.2/o, 14.0/o, and 11.2%%d, respectively, in 1981, 1980, and 1979. (See Note 5 of the Notes to Financial Statements.)

(3) At December 31, 1981, the Company's capitalization ratios were: (a) 47.9%%d long-term debt, including the Trusts; (b) 14.2/o preferred stock (no preference stock outstanding); and (c) 37.9/o common stock and retained earnings.

Capital Requirements: Total capital requirements for" 1981 and those estimated for 1982 and the total for the five years 1982-1986, inclusive, are as follows:

(1) See Notes 4 and 7 of the Notes to Financial Statements.

(2) Includes $13 million invested in the Trusts.

(Oollars ln Mialons)

External Financing Long-term G&R bonds Preferred stock Common stock public sales ADRP, ESPP Total Trusts Total External Long-term Short-term Debt Short-term Investment Westinghouse Settlement Internal Cash Generation from Operations (1)

Other Internal Funds Generation (2)

Total Capital Provided Actual Estimated 1982-1981 1982 1986

$300

$200 280 65 128 159 159 32 29 149 525 388 588 45 89(3) 368 570 477 956 10 42 67 43 19 (26) 1,392 48 33 262

$680

$536

$2,687 (1) Includes:

(a) Retained earnings (net income less dividends on preferred and common stock)

(b) Depreciation (c) Deferred and other federal income taxes Less:

(d) Allowance for funds used during construction (2). Includes:

(a) Other sources of funds from operations (b) Changes in working capital (c) Other non-cash sources (net)

(3) Includes $13 million to repay LILCO's investment in the Trusts.

For additional data on construction expenditures for prior years, see Table 10 of "Selected Financial Data."

Capital Provided: The capital provided to meet LILCO's construction requirements is as follows:

Internal cash generation from operations provided 5% of total construction expenditures in 1981. For this purpose, construction includes (1) LILCO construction less AFC plus (2) construction expenditures of Tri-Counties Construction Trust for the Company's share of Nine Mile Point 2 less interest capitalized by the Trust plus (3) net expenditures of Tri-Counties Resources Trust for nuclear fuel less interest capitalized by the Trust. For 1982, and for the five years 1982-1986, internal cash generation from operations is estimated to provide negative 6% but average 95%, respectively, of total construction requirements (excluding AFC).

The Company's ability to continue its planned construction program, including the completion of Shoreham, depends upon the ability of the Company to sell long-term securities in planned amounts. Assuming Shoreham is adequately reflected in rates in 1983, the Company's earnings, coverages, and cash flow are expected to improve substantially. Thereafter, the Company's financial position willdepend upon the extent of expenditures required to convert existing or build new generating units to burn coal.

When Shoreham begins commercial operation, the Company anticipates that fuel savings resulting from the displacement of higher cost oil with nuclear fuel will offset, in part, rates reflecting the costs of the Shoreham investment to be placed in rate base. The degree of offset willbe dependent on the cost of fuel oil at that time.

If the net result of Shoreham's operation would be to cause a substantial initialincrease in rates, the Company may propose a rate treatment which would reduce that impact on customers. The evaluation of any proposal will be based on obtaining rate relief adequate to maintain the financial integrity of the Company.

For information with regard to the Company's actions to recover its costs in the New Haven and Jamesport nuclear projects and to protect its investment in Bokum Resources Corporation, see Note 7 of the Notes to Financial Statements.

For additional data on the Company's capitalization and other Balance Sheet items, see Table 11 of "Selected Financial Data."

For quarterly data on the market prices of the Company's securities during the past three years, see Table 12 of "Selected Financial Data."

20 Balance Sheet Financial Statemen Assets At December 31 (In thousands of dollars)

UtilityPlant Electric Gas Common Construction work in progress Nuclear fuel in process Construction and nuclear fuel in trusts 1981

$1,705,033 319,534 77,425 2,153,832 36 406,542 1980

$1,647,627 296,604 75,105 1,757,898 13 318,649 197

$1,568,31 284,46 72,35 1,444,63 242,20 4,662,402 4,095,896 3,611,96 Less Accumulated depreciation, depletion and amortization 620,616 573,765 526,99 Total Net Utilit Plant 4,041,786 3,522,131 3,084,97 Other Property and Investments Nonutility property, principally at cost Investment in subsidiary companies, at equity Other investments and deposits 2,863 547 58,773 1,694 398 54,870 1,87 37'4,73 Total Other Propert and Investments 62,183 56,962 76,98 Current Assets Cash Temporary cash investments Special deposits Accounts receivable (less allowance for doubtful accounts of $4,342,000,

$3,188,000 and $3,147,000)

Accrued revenue on accounts billed bimonthly Materials and supplies at average cost Fuel oil at average cost Gas in storage at average cost Pre payments 10,023 42,200 602 155,620 19,553 27,736 68,662 36,145 1,318 142,522 16,117 27,808 50,149 27,926 1,167 115,85 13,86 24,60 42,S2 24,32 1,20 5,910 8,62 200 3,48 1,579 12,42 Total Current Assets 361,859 273,378 246,70 Deferred Charges Electric fuel cost adjustment deferred Other 4,188 38,136 39,219 26,056 22,70 28,2.1 See Notes to Financial Statements.

Total Deferred Charges Total Assets 42,324 65,275 50,91

$4,508,152

$3,917,746

$3,459,58 Report of independent Accountants To the Shareowners and Board of Directors ot Long Island Lighting Company In our opinion, the financial statements appearing on pages 20 to 31 present fairlythe financial position of Long Island Lighting Company at December 31, 1981, 1980 and 1979, and the results of its operations and the changes in its financial position for each of the tive years the period ended December 31, 1981, in conformity with generally accepted accounting principles consistently applied. Our examination of these statements were made in accordance with generally accepted auditing standards and accordingly included such tests of th accounting records and such other auditing procedures as we considered necessary in the circumstances.

Jericho, New York February 1, 1982 Price Waterhouse

apitallzation and Liabilities December 31 (In thousands of dollars) pltallzatlon Long-term debt Unamortized premium and (discount) on debt Preferred stock redemption required Preferred stock no redemption required Treasu stock atcost'981 1980 1979

$1,492,629

$1,264,677

$1,274,722 (2,349)

(39) 24 1,490,280 1,264,638 1,274,746 414,650 361,250 294,100 158,083 158,968 160,090 (569)

(186)

Total Preferred Stock 572,164 520,032 454,190 Common stock Premium on capital stock Capital stock expense Retained earnings 406,853 724,241 (42,107) 439,285 349,907 619,333 (35,140) 391,113 301,116 520,324 (30,138) 346,001 ust Obligations Total Common Shareowners'qui Total Capitalization 1,528,272 1,325,213 1

~137,303 3,590,716 3,109,883 2,866,239 439,425 348,935 287,308 rrent Liabilities i8 0 ~

Current maturities of long-term debt Sinking fund requirements on preferred stock Notes payable Accounts payable Accrued taxes, (includina federal income tax of $2,307,000, $2,062,000 and $2,092,000)

Accrued interest Customer deposits Dividends pa able 72,048 11,600 152)930 28)526 40,216 9,769 46,104 60,044 7,850 118,000 110,306 38,762 27,820 8,606 36,515 20,040 7,850 24,836 96,383 32,467 22,195 8,080 30,864 Total Current Liabilities 361,193 407,903 242,715 ferred Credits Accumulated deferred income tax reductions Other 106,795 6,091 43,821 2,239 55,698 1,661 Total Deferred Credits 112,886 46,060 57,359 serves for Claims and Damages 3,932 4,965 5,961 riimltments and Contingencies l8("

e Notes to Financial Statements.

Total Capitalization and Liabilities

$4,508,152

$3,917,746

$3,459,582 Qn) elr no 3fff

22 Statement of Income For Year Ended December 31 (ln thousands of dollars) 1981 1980 1979 1978 19 Revenues Electric Gas Total Revenues

$1,402,719

$1,039,666 860,798 738,339 682,9 262,113 237,272 184,700 160,632 141,0 1,664,832 1,276,938 1,045,498 898,971 824,0 Expenses Operations fuel and purchased power Operations other Maintenance Depreciation, depletion and amortization Operating taxes Federal income tax current Federal income tax deferred and other 865,352 158,267 68$ 253 60,065 198,979 (1,008) 89,036 651,726 132,207 57,503 56,668 172,916 (2,915) 14,205 478,416 118,644 52,206 54,060 153,706 (2,267) 19,749 365,307 104,384 44,660 51,192 141,160 7,297 24,183 350,4 97,2 40,9 45,0 131,5 7,8 15,3 Total Expenses Operating Income 1,438,944 1,082,310 874,514 738,183 688,4 225,888 194,628 170,984 160,788 135,6 Other Income and (Deductions)

Allowance for other funds used during construction Other income and (deductions)

Federal income tax credit current Federal income tax credit deferred and other 113,648 (1,084)

(1,128) 29,855 80,993 58,086 5,002 4,129 (2,985)

(2,417) 24,910 17,855 47,294 44,6 (1,026)

(1 3,498 4,9 9,471 11,6 Total Other Income and Deductions) 141,291 107,920 77,653 59,237 61,1.

Income Before Interest Charges 367,179 302,548 248,637 220,025 196,7 Interest Charges and (Credits)

Interest on long-term debt Other interest Allowance for borrowed funds used during construction Interest capitalized by trusts Allowance for borrowed funds used during construction trusts 134,174 19,631 (34,358) 69,876 (69,876) 113,679 12,710 (28,859) 42,730 (42,730) 101,889 7,119 (22,034) 26,496 (26,496) 91

~195 5,720 (18,883) 3,562 3,562 80,5 50 (21~1 Total Interest Charges and (Credits) 119,447 97,530 86,974 78,032 64,4 Net Income Preferred stock dividend re uirements 247,732 48,830 205,018 40,103 161,663 32,851 141,993 30,688 132,3 27;7 Income for Common Stock Average Common Shares Outstanding (000)

Earned per Common Share Dividends Declared per Common Share See Notes to Financial Statements.

198,902 164,915 128,812 111,305 104,5 77,988 65,138 53,366 45,670 40,3 2.55 2.53 2.41 2.44 2

1.92 1.84 1.76 1.70 1.'

5areowners'quity 23 December 31 (In thousands of dollars) atement of Retained Earnings lance, January 1

d Net income for the year ss Cost of issuance of retired preferred stock ss Capital stock expense ss Cash dividends declared:

.ferred stock mmon stock lance, December 31 1981

$ 391,113 247,732 1

49,289 150,270

$ 439,285 1980

$ 346,001 205,018 1

39,701 120,204

$ 391

~113 1979

$ 311,838 161,663 1

32,215 95,284

$ 346,001 1978

$ 279,157 141,993 30,651 78,661

$ 311,838 1977

$ 242,147 132,310 1,335 27,223 66,742

$ 279,157 immon Stock Par Value $5 per Share ares authorized ares issued and outstanding

.rease in shares outstanding 110)000>000 81)370>597 11,389,161 80,000,000 69,981,436 9,758,153 80,000,000 80,000,000 60,223,283

~ 51,414,352 8,808,931 7,372,899 60,000,000 44,041,453 6,402,068 reases in $5 Par Value

.reases in Premium on capital stock

reases in Capital stock expense eferred Stock r Value $100 per Share, Cumulative:

ares authorized ares issued and outstanding ares subscribed

% Series 8 5% Series D 35% Series E 5% Series F a % Series H

') % Series I Convertible 12% Series J 0% Series K t0% Series L:

f0% Series M'0%

Series Q'%

Series R*

0% Series S" tal Par Value $100

'r Value $25 per Share, Cumulative:

ares authorized

.ares issued and outstanding ares held in treasu

!.47 Series 0'..43 Series P

'.31 Series T*

'-.25 Series U'tal Par Value $25

,ss Sinking fund requirements

,ss Treasury stock at cost Ital Preferred Stock e Notes to Financial Statements.

ademption required, see Note 3.

56,946 104,908 6>967 7,000)000 3,633,330 10,000 7,000 20,000 5,000 20>000 6,083 25,000 30,000 31)850 35,000 38,400 60,000 75,000

$ 363,333 14,400>000 8,840,000 34,800 46,000 35,000 75,000 65,000 221,000 11,600 569

$ 572,164 48,791 99,009 5,002 5,050,000 3,700,675 10,000 7,000 20,000 5,000 20,000 6,968 25,000 30,000 32,900 35,000 43,200 60,000 75,000

$ 370,068 7,200,000 6,310,000 10,000 48,000 35,000 75,000 158,000 7,850 186

$ 520,032 44,044 77,971

',817 5,050,000 3,770,403 10,000 7,000 20,000 5,000 20,000 8,090 25,000 30,000 33,950 35,000 48,000 60,000 75,000

$ 377,040 7,200,000 3,400,000 50,000 35,000 85,000 7,850

$ 454,190 36,865 91,124 1,211 5,050,000 3,064,993 10,000 7,000 20,000 5,000 20,000 11,499 25,000 30,000 35,000 35,000 48,000 60,000

$ 306,499 7,200,000 3,400,000 50,000 35,000 85,000 1,050

$ 390,449 32,010 88,348 8,713 5,050,000 3,024,360 70,000 10,000 7,000 20,000 5,000 20,000 14,436 25,000 30,000 35,000 35,'000 48,000 60,000

$ 309,436 7,200,000 3,400,000 50,000 35,000 85,000

$ 394,436

24 Statement of Changes in Financial Position For Year Ended December 31 (In thousands of dollars)

Source of Funds Operations Net income 1981

$ 247,732 1980

$ 205,018 1979

$ 161,663 1978

$ 141,993 19

$ 132,3 Principal noncash charges and (credits) to income:

Depreciation, depletion and amortization Deferred and other federal income taxes Allowance for funds used during construction Other Interest capitalized by trusts Allowance for borrowed funds used during construction trusts Funds Provided from Operations Long-term Financing Long-term debt Preferred stock Common stock Trust obligations Other Increase in short-term debt Decrease in working capital Other sources 60,070 59,181 (148,006) 8,473 69,876 56,668 (10,705)

(109,852) 9,145 42,730 54,060 1,894 (80,120) 9,023 26,496 300,000 65,399 161 1409 90,490 12,824 50,000 75,114 147,676 61,628 93,164 45,353 27.337 119,100 75,000 121,999 97,705 24,836 2,719 (69,876)

(42,730)

(26,496) 227,450 150,274 146,520 51192 14,712 (66,177) 8,478 3,562 (3,562) 150,198 75,287 127,862 159,603 29,534 2,046 45,0 3,6 (65,8 7,2 122,4 85, 1080 120,3 30,0 7

6,1 Total Source of Funds Use of Funds Construction expenditures Nuclear fuel expenditures Construction and nuclear fuel in trusts Less Allowance for funds used during construction (AFC)

Construction and Nuclear fuel expenditures, less AFC Dividends on preferred stock Dividends on common stock Reduction of long-term debt Preferred stock conversions and retirements Decrease in short-term debt Increase in working capital Electric fuel cost adjustment deferred Other investments and deposits Capital stock expense Cost of removal Other uses Total Use of Funds Increase (Decrease) in Working Capital by Element Cash Temporary cash investments Special deposits Accounts and notes receivable Accrued revenue Materials, supplies, gas in storage and fuel Prepayments Current maturities on long-term debt Sinking fund requirement on preferred stock Accounts payable Accrued taxes Accrued interest Customer deposits Dividends payable Net Increase (Decrease)

See Notes to Financial Statements S 857,572

$ 501,894 23 87,893 148,006 441,804 49,289 150,270 72,048 12,867 118,000 17,191 (35,031) 3,903 8,144 3,797 15,290

$ 857,572 4,113 42,000 (977) 13,098 3,436 26,660 151 (12,004)

(3,750)

(42,624) 10,236 (12,396)

(1,163) 9,589) 17,191

$ 650,546

$ 422,473 13 76,448 109,852 389,082 39,701 120,205 60,044 9,159 16,510 6,179 4,638 5,028

$ 650,546 (2,715)

(3,280)

(10,848) 26,668 2,250 14,635 (39)

(40,004)

(13,923)

(6,295)

(5,625)

(526) 5,651)

$ (45,353)

$ 587,879

$ 392,062 (3,675) 76,698 80,120 384,965 32,215 95,284 20,040 11,259 13,749 14,578 6,632 2,994 2,367 3,796

$ 587,879 1,405 480 9,519 (25,190) 2,822 28,022 187 (20,003)

(6,800) 32,902 (1,064)

(3,696) 45 (4,880) 13,749

$ 544,530

$ 292,519 (42,169) 165,503 66,177 349,676 30,651 78,661 2,937 (6,801) 67,646 2,388 4,074 15,298

$ 544,530 (1,126) 3,000 (2,746) 45,791 523 (4,315)

(126)

(37)

(1,050)

(58,585)

(4,591)

(2,584) 174 (3,862)

$ (29,534)

$ 472,7 qA

$ 359,4 23,9 I'5,8 317,5 27;2 66p7 44,9 1,

(8',7',8 6,6

$ 472;7 (9,2 9,5 JZ 4I4

,a(

vO tT (6

(Z.

(1,7' (3,1 (7

I4otes to IFinancial Statements ote 1. Summary of Significant Accounting Policies The accounting records of the Company are maintained in accordance with the Uniform Systems of Accounts prescribed by the Public Service Commission of the State of New York (PSC) and the Federal Energy Regulatory Commission (FERC).

UtilityPlant Additions to and replacements of utility plant are recorded at original cost, which includes material, labor, overheads, and an allowance for the cost of funds used during construction (AFC).

The cost of renewals and betterments relating to units of property is added to utilityplant. The cost of property replaced, retired, or otherwise disposed of is deducted from utility plant and, generally, together with dismaritling costs less any salvage, is charged to accumulated depreciation. The cost of repairs and minor renewals is charged to maintenance expense.

Mass properties (such as poles, wire, and meters) are accounted for on an average unit cost basis by year of installation.

Allowance for Funds Used During Construction The Uniform Systems of Accounts define AFC, which is not an item of current cash income, as the net cost of borrowed funds for construction purposes and a reasonable rate upon the utility's other funds when so used. AFC is computed monthly on that portion of construction work in progress (CWIP) which is not included in the Company's rate base. The Company computes AFC on its Shoreham Unit at a rate which reflects the income tax effect of the interest portion of AFC. In 1978, the Company adopted the FERC method for calculating AFC.

The average annual AFC rate, without giving effect to cdmpounding or the reduced Shoreham net of tax rate, was 9.38/o, 9.72/o, 9.99/o, 10.54/o, and 11.52/o for the years 1977 through 1981, respectively. The Shoreham net of tax annual AfC rate, without giving effect to compounding, was 7.63/o, 7.93/o, 8.21 /o, 8.70/o, and 9.69'/o for the years 1977 through 1981, respectively.

In compliance with a FERC order, the Company allocates the portion of AFC relating to borrowed funds to the Interest Charges and (Credits) section of the Statement of Income.

Depreciation The provisions for depreciation result from the application of straight-line rates to the original cost, by groups, of depreciable properties in service. The rates are determined by annual age-life studies of depreciable properties. Depreciation accruals were equivalent to 3.2/o for electric and 2.3/o for gas of respective average depreciable plant costs for the five years

.1977 through 1981.

Revenues Revenues are recorded when billed. Billings are rendered on a monthly or bimonthly cycle basis. The Company accrues estimated revenues for customers billed bimonthly in the month in which they normally are not billed.

The Company's tariffs for electric service include a fuel

'adjustment clause under which electric rates charged to most

'customers are adjusted to reflect changes in the average cost of fuels and of certain purchased power costs. The Company's jariffs for gas service contain a comparable clause.

Deferred Fuel Cost Adjustments The Electric Fuel Cost Adjustment represents the difference Between actual fuel costs and the fuel costs allowed in the

'Company's base tariff rates. The Company, to achieve a proper i7 matching of costs and revenues, defers this difference along with the related income tax effects to those future periods in which itwillbe billed to customers. The Company's tariffs for gas service contain comparable adjustments. The Company believes that the PSC will continue to permit the recovery of deferred fuel costs.

Federal Income Taxes The Company's general policy is to reflect as income tax expense the amount of income taxes currently payable; however, in certain instances authorized by the PSC, provision is made for income tax effects of the differences between net income before income taxes and taxable income, as disclosed in Note 6.

The major items which are part of the deferred tax provision are as follows:

~ Income tax deductions for reduced depreciation lives permitted by the Revenue Act of 1971.

~ Income tax deductions for deferred fuel cost.

~ Income tax deductions associated with cancelled nuclear projects at Jamesport and New Haven.

~ Income tax deductions for interest on amounts financed through the Company's Tri-Counties Construction and Resources Trusts.

~ Income tax deductions for real property taxes and certain construction costs associated with Shoreham.

~ Income tax deductions for increased tax depreciation on post-1980 asset additions mandated by the Economic Recovery Tax Act of 1981.

~ The increases in investment tax credits under the Tax Reduction Act of 1975.

Investment tax credits allowable under the Revenue Actof 1971 are accounted for as a reduction of federal income tax expense.

The basis of accounting for these credits was modified by PSC rate orders, the effect of which has been to recognize a cumulative total of $ 13,422,000 of additional credits for financial accounting and rate-making purposes for the three years ended 1980. (See Note 6.) The balance is being amortized over 36 months beginning in June 1981. The utilization of such additional credits for tax purposes, however, continues to be subject to the provisions of the Internal Revenue Code.

Capitalization-Premiums, Discounts, and Expenses Premiums or discounts and expenses related to the issuance of long-term debt are amortized over the lives of the issues. Capital stock expense related to that portion of preferred stock required to be redeemed is written-off as an adjustment to retained earnings or, if redeemed below par value, as a gain on reacquired capital stock in Premium on capital stock. Such gain was $513,000 and $114,000 at the end of 1981 and 1980, respectively.

Reserves for Claims and Damages Losses arising from claims against the Company, from extraordinary storm losses, and from certain equipment damage are partially self-insured. Provisions to the reserves are based upon experience, risk of loss, and/or specific orders of the PSC.

Note 2. Retirement Plan The Company maintains a pension plan which covers most employees. The total costs related to the plan were

$14,418,000, $12,946,000, $11,694,000, $10,732,000, and

$9,712,000 for the years 1981 through 1977 (of which

$3,901,000, $3,699,000, $3,344,000, $2,904,000, and

$2,826,000 were included in construction costs), respectively.

The costs are determined as the amount needed to meet current service costs and to amortize unfunded past service costs over a 30 year period. Allpension costs are borne by the Company.

The Company makes annual contributions to the plan equal to 25

26 the amounts accrued forcosts related to the plan. Acomparison of accumulated plan benefits and plan net assets for the Company's defined benefit plan is presented below:

January 1,

1960 1979 Actuarial present value of accumulated plan benefits:

Vested Nonvested Total

$214,726,000

$ 192,491,000

$179,758,000 8,203,000 6,175,000 5,527,000

$222,929,000

$ 198,666,000

$185,265,000 Net assets available for benefits

$190,322,000

$166,225,000

$ 150,184,000 Note 4. Trust Obligations The Company has arrangements with Tri-Counties Resources Trust and Tri-Counties Construction Trust to finance, respectively, the Company's nuclear fuel program and its share of the costs of construction of a nuclear plant, Nine MilePoint 2.

The Resources Trust and the Construction Trust are primarily financed by revolving credit loans which, together with certain term loans, provide for borrowings of up to $135,000,000 and

$300,000,000, respectively, which have been fully utilized at December 31, 1981. The aggregate Trust Obligations of

$439,425,000 at December 31, 1981 includes $4,425,000 of accrued interest. Company loans to the Resources Trust and Construction Trust totaled $8,582,000 and $4,636,000, respectively, at December 31, 1981. The revolving credit loan of the Resources Trust matures in September 1985 and provides The weighted average assumed rate of return used in determining the actuarial present value of accumulated plan benefits was 6% for all years.

In addition to the retirement plan, in 1981 the Company began providing, without contribution from such employees, supplemental death and retirement benefits for officers and other key executives. Death benefits are currently provided by insurance; retirement benefits, which are not available until 1986, are unfunded. The unfunded liabilityfor these benefits for the year 1981 is immaterial.

Note 3. Capital Stock Of the 110,000,000 shares of authorized common stock, 543,337 shares were reserved forsale to employees, 6,065,107 shares were committed to the Automatic Dividend Reinvestment Plan, and 334,415 shares were reserved for conversion of the

" Series I Convertible Preferred Stock at $18.19 per share. The Series I Convertible Preferred Stock is not considered, under generally accepted accounting principles, to have a dilutive effect on earnings per share.

In December 1977, the Company refunded its 13% Series N Preferred Stock with the issuance of 7.50% Series Q Preferred Stock. In accordance with a PSC order, the cost of issuance of Series N was charged to Retained Earnings and the cost of issuance of Series Q and the $8,000,000 call premium of Series N was charged to Capital Stock Expense and is being amortized and recovered in the Company's rates over seven years, the term of the Series Q issue.

Redemption ofSeries L, M, 0, Q, R, S, T, and U Preferred Stock is provided forthrough varying sinking fund provisions, certain of which commenced in 1979. The aggregate amount of preferred stock required to be redeemed in each of the years 1982 through 1986 is $11,600,000, $11,600,000, $38,038,000,

$10,638,000, and $13,638,000, respectively.

In 1980, the shareowners eliminated their mandatory preemptive rights and authorized a new class of non-participating Preference Stock, par value $ 1 per share, ranking junior to the Preferred Stock.

that the maturity date automatically will be extended by one additional year each September unless the lending banks decline in writing. The Construction Trust loan is payable according to a repayment schedule beginning not earlier than March 31, 1985, and ending not later than June 30, 1988. The Trusts may, with available funds not immediately needed for such financing, make certain investments, including investments in the Company's promissory notes. The Trusts'otal obligation of $439,425,000 at December 31, 1981, is comprised of

$394,325,000 for financing construction and nuclear fuel expenditures and $45,100,000 invested in the Company for general corporate purposes.

The Company is obligated to purchase nuclear fuel owned by the Resources Trust, or heat from such fuel. Similarly, the Company is obligated to reimburse the Construction Trust for nuclear fuel and construction just prior to Nine Mile Point 2 going into operation. Upon termination of either Trust, the Company is obligated to purchase the Trust assets.

The Resources Trust's interest on borrowings in 1981 was calculated principally at 105% of the prevailing prime rate. In 1981, the Construction Trust's interest was calculated at 105%

(during the first six months) and at 108% (during the last six months) of the prevailing prime rate. The Trusts'nterest costs on borrowings utilized to finance construction and nuclear fuel are reflected in the Company's Construction and Nuclear Fuel in Trust accounts and are deducted currently for tax purposes on the Company's tax return. The Company has negotiated additional credit as well as alternative and lower borrowing rates for both Trusts that are expected to become effective early in 1982.

The Trusts'verage annual interest rates (excluding commitment fees) on average borrowings of $381,614,000,

$314,360,000, $231,500,000, and $69,062,000 (excluding loans from the Company) outstanding during the years 1981, 1980,"

1979, and 1978 were 19.4%, 15.6%, 13.2%, and 10.6%,

respectively. Of the total average borrowings, $45,100,000,

$45,100,000, $35,018,000, and $39,303,000 related to general corporate purposes for the respective periods.

Note 5. Short-term Loans and Compensating Balances The Company has authority from FERC to issue up to a total of

$400,000,000 in notes to banks and commercial paper. The, Company has a Revolving Credit Agreement with several banks, permitting the Company to borrow up to $250,000,000 through January 24, 1985. Borrowings are at a fluctuating interest rate equal to each participating bank's prime or alternate base rate'ntil January 1982, and thereafter at 105% of such rate until-maturity. In addition, the Company pays a commitment fee of

~/i'f 1% per annum on the average daily unused portion of each

'ank's commitment. The Company maintains compensating balances, which are not legally restricted, averaging 5% of each bank's commitment, or at the Company's option, provides a combination of equivalent balances and fees in lieu thereof. The Revolving Credit Agreement is used to back up 100% of the

'ommercial paper outstanding.

Net of average "float",compensating balances at December 31,.

1981 amounted to approximately $3,102,000. There were no borrowings from banks outstanding at December 31, 1981 and

'100,000,000 outstanding at December 31, 1980.

Commercial paper is issued at various discount rates and usually matures within 30 to 45 days. No commercial paper was t outstanding at December 31, 1981 and $18,000,000 was outstanding at December 31, 1980. No commercial paper or, borrowings from banks were outstanding at December 31, 1979.,

Note 6. Federal Income Taxes The Federal income tax amounts included in the Statement of Income differfrom the amounts which result from applying the statutory Federal income tax rate to Net Income before income tax. The reasons are as shown below

27 (In thousands oi dollars) 1981 1980 1979 1978 1977

%of Pre-tax Amount Income

%of

%of Pre-tax Pre-tax Amount Income Amount Income

%of

%of Pre-tax Pre-tax Amount Income Amount Income Federal income tax, per State-ment of Income current

$ (1,008)

Included in other income and

" deductions current 1,128

$ (2,915) 2,985 (2,267) 2,417 7,297 (3,498) 7,860 (4,973)

" Total Current Deferred and other (See Note 1)

Accelerated tax depreciation Fuel cost adjustments investment tax credits Tax Reduction Act of 1975 Interest capitalized by Trusts Shoreham overheads Westinghouse settlement Cancelled nuclear projects Tax benefit of net operating loss Additional investment tax credits Other items, net Total Deferred Total N t income 120 (1)967)

(7,072) 321568 18,038 7,196 (2,847)

(24,743) 421283 5,911 (10,186) 59,181 59,301 247,732 70 4,740 5,330 38 31,060 (45,390)

(10,512) 4,029 (10,705)

(10,635) 205,018 2,010 1,502 2,385 (782)

(5,007) 1,786 1,894 2,044 161,663 3,799 692 (3,604) 11,461 2,097 4,066 14,712 18,511 141,993 2,887 662 (1,309) 6,328 (2,025) 3,656 6,543 132,310 income Before Taxes

$307,033

$ 194,383

$ 163,707

$160,504

$138,853 Statutory Federal income tax Ryductions in Federal income tax resulting from:

Excess of tax depreciation over book depreciation AFC, which does not constitute

, taxable income Costs charged to plant but deducted currently Property taxes deducted on a lien date basis Interest capitalized by Trusts Investment tax credits Other items, net

~Total Federal income tax expense

$141,235 46.0%

$ 89,416 46.0%

$ 75,305 46.0%

$ 77,042 48.0%

$ 66,649 48.0%

(2,402)

(0.8)

(2,808)

(1.4)

(4,147)

(2.5)

(6,830)

(4.3)

(10,967)

(7.9)

(68,083)

(22.2)

(50,526)

(26.0)

(36,855)

(22.5)

(31,765)

(19.8)

(31,585)

(22.7)

(2,973)

(1.0)

(12,105)

(6.2)

(11,567)

(7.1)

(10,142)

(6.3)

(10,143)

(7.3)

(4,428)

(1.4) 1,832 0.6 (9,758)

(3.2) 3,878 1.3 (4 655)

(2 4)

(17,964)

(9.3)

(11,632)

(6.0)

(361)

(0.2)

(961)

(0.6)

(12,262)

(7.5)

(9,811)

(6.0) 2,342 1.4 (2,266)

(1.4)

(1,666)

(1.0)

(5,973)

(3.7) 111 (1,911)

(1.4)

(10,257)

(7.4) 4,757 3.4

$ 59>301 19.3%

$ (10,635)

(5.5)%

2,044 1.2%

$ 18,511 11.5%

6,543 4.7%

Certain originating timing differences included ln the deferred income tax provision abovo aro ln part shown not ol investment Iax credit. In addition, the year 1981 roliocts

$33,800.000 of unused investment tox credit offset against proviousiy existing doforrod tax credit balances.

At Docombor 31 ~ 1981

~ the Company had an investment tax credit carrylorward for financial statement purposes, in accordance with PSC orders, of approxtmatoty

$81,500,000. In accordance with the company's accounting policy, approximately $62,700,000 of the carryforward willbe deferred when recognized. The amount of ITc carrIiiorward available as credits to tax returns foryears aiior 1980 Is $149,600,000. These credits expire by 1996. Furthormoro, the company has not operating iossos of approximately $16,000,000 for tax return purposos which expire by 1995.

Note 7. Commitments and Contingencies Nuclear Power Plants The Company is constructing a nuclear plant at Shoreham, N.Y.

and has an 18 percent share in Nine Mile Point 2, under construction by Niagara Mohawk Power Corp. in Oswego, N.Y.

The Shoreham plant is currently scheduled to begin commercial operation in 1983 at an estimated total cost of $2.5 billion. Nine Mile Point 2 is currently scheduled to begin commercial operation in 1986, with the Company's share ot that project estimated to be $925 million. Both estimates are exclusive of nuclear fuel.

Operation ot each nuclear plant is subject to receipt ot an operating license. Hearings on the issuance of the operating license for Shoreham are expected to begin in mid-1982.

Further delays in the schedule as well as Increased costs for completion may be encountered before commercial operation of Shoreham can begin. Consequently, current estimates of the total cost ot the Shoreham project remain subject to continuing review and revision. Approximately $1.98 billion has been spent on the project through December 31, 1981.

Consulting engineers selected by the PSC to provide an independent assessment of the Nine Mile Point 2 project have concluded that schedule slippage of a year beyond 1986 for the commercial operation ot the plant is likely and that future regulatory and economic uncertainties exist which could add significantly to the ultimate cost and the time required for completion of the project. Approximately $295.0 million has been spent by the Company tor its share of the project through December 31, 1981.

The PSC is presently conducting separate proceedings respecting the Shoreham and Nine Mile Point 2 plants. The Shoreham proceeding is reviewing the prudency of the total project costs. The Company is unable to evaluate the likelihood of an unfavorable outcome of the proceeding or to estimate the financial impact, if any, upon the Company. The Company

28 believes that the PSC will support the Company's efforts to complete Shoreham at the earliest possible date and that it can demonstrate to the PSC that the costs of Shoreham have been prudently incurred. The Nine Mile Point 2 proceeding will consider the financial requirements and economic Impact of completing the project. The report with respect to Nine Mile Point 2 is expected ln early 1982.

Nuclear Fuel Expenditures for procurement of nuclear fuel, including advances forthe purchase of uranium concentrates from Bokum Resources Corporation, (BRC), totaled $111.6 million at December 31, 1981.

Bokum Resources Corporation In 1976 and 1978, the Company made long-range commitments with BRC to purchase ten million pounds of uranium concentrates.

Furthermore, the Company agreed to provide loans to BRC for the development of a uranium mine and ore-processing mill in New Mexico. BRC did not deliver the uranium concentrates as agreed and is in default under certain provisions of its contracts with the Company. On June 12, 1981, the Company and several other creditors of BRC petitioned a United States Bankruptcy Court for a reorganization of BRC under Chapter 11 of the United States Bankruptcy Code. An order granting the petition for bankruptcy was filed by the Court on December 21, 1981, and BRC has filed an appeal.

In response to the petition for reorganization, BRC filed counterclaims against the petitioning creditors including the Company, for $1.05 billion in the aggregate and reasserted the counterclaims against the Company for $710 million previously alleged in an action commenced by the Company In November 1980 to foreclose the Company's interest in the BRC mine and mill properties. An order dismissing the counterclaims for $1.05 billion against the petitioning creditors was also granted in December 1981 without prejudice. While the Company believes that both its claims against BRC and its defenses against the BRC counterclaims are meritorious, no assurance can be given as to the outcome of the litigation determining the Company's claims and BRC's counterclaims.

BRC has suspended all construction. The mill is virtually completed but construction of tailings disposal facilities would be required to comply with licensing requirements. As part of a plan to preserve the BRC properties, water pumps and equipment were removed from the partially completed mine, resulting in some water intrusion in the shaft. A significant additional investment willbe required to start up construction activity and to complete the mine and mill.

The eventual disposition of the Company's investment in BRC and the viability of BRC as a source of nuclear fuel depend on many factors, including the market price for uranium. Atpresent, the estimated cost to mine and mill uranium from BRC's properties substantially exceeds the spot-market price of uranium.

The Company's abilityto recover its loans and advances to BRC through liquidation of the BRC properties or by completing and operating the mine and mill properties is dependent upon an increase in the market price for uranium to levels substantially higher than the 1978 market price levels. The Company believes that market conditions for uranium will begin to improve in the mid-1980's, but no assurance can be given that this willoccur as expected, or that price levels will rise to a point where the operation of the mine and mill will be economically viable.

At December 31, 1981, the Company's claims against BRC totaled approximately $82.3 million, including $20 million of advance payments to BRC for uranium concentrates.

Interest capitalized on these advance payments totaled approximately

$16.7 million.The Company ceased accruing further interest on its loans to BRC after filing of the bankruptcy petition in June 1981. However, interest continues to be capitalized on the advance payments. The Company has deferred interest in 1981 prior to the filingof the bankruptcy petition on substantially all of the BRC moneys and has applied to the PSC for approval of such accounting treatment.

To the extent that the moneys advanced or loaned to BRC or the interest capitalized on non-interest bearing advances are not applied as a credit against the purchase of other nuclear fuef, returned to the Company upon the sale or refinancing of the BRC properties, recovered through litigation, or offset by the Westinghouse settlement proceeds, a portion of which was received in 1981, the Company will apply to the PSC for appropriate rate relief. As a general rule, utilityinvestments which have been prudently incurred may be recovered from ratepayers. The Company believes its investments in BRC were prudent. While the Company believes that the PSC should act favorably, it cannot predict the outcome of any proceedings before the PSC relating to BRC.

Two shareowners have commenced separate derivative actions

'against certain Company directors and officers, claiming negligence and breach of fiduciary duties by these officers and directors in connection with the BRC transactions. The Board of Directors of the Company has authorized a special litigation committee to conduct an independent investigation of the transactions between the Company and BRC and recommend to the Board appropriate actions to be taken in the best interest of the Company. A third shareowner of the Company, on behalf of herself and other shareowners similarlysituated, commenced a class action against the Company, certain of its officers and directors, and certain of the underwriters of the Company's 1978 Common Stock offering, alleging a failure to disclose material information concerning the contracts and the financial arrangements between the Company and BRC. Through December 31, 1981, the Company had expended $650,000 in defense of these claims. Of this amount, approximately

$400,000 was paid on behalf of all of the Company's directors (except Alan M. Fortunoff who is not a defendant in any of thess actions) and its Senior Vice President Finance. The Company had recovered $143,000 of the $650,000 through December 31, 1981, pursuant to its directors'nd officers'iability Insurance~

with the National Union Fire Insurance Company of Pittsburgh, Pa. This insurance and insurance from the New England Reinsurance Corp., provides the Company with coverage for wrongful acts by directors and officers as well as indemnification for the Company and its directors and officers. The National Union Fire Insurance Company policy also provides fiduciary liabilitycoverage for the Company, its directors and officers, and any employee deemed to be a fiduciary or trustee, for any alleged breach of fiduciary liabilityunder the Employee Retirement Income Security Act of 1974. The total annual premium for these coverages, which are effective through August 26, 1982, is $94,000.

Due to the many contingencies upon which the outcome of the BRC transactions and the related litigation are dependent, the Company cannot accurately measure either the probability of its realizing a loss on the investment in BRC, or the amount of that loss if it should occur. While under the most adverse circumstances such a loss could be material, the Company believes that the loss, if any, will not have a material adverse impact on the financial condition of the Company.

The Company initially entered into its contracts with BRC as a result of the failure of the Westinghouse Electric Corporation (Westinghouse) to deliver uranium concentrates.

In 1981, the Company received total cash proceeds of approximately $43 million in partial settlement of its resultant litigation against Westinghouse, before deduction of litigation expenses and payments to New York State Electric 8 Gas Corp. (NYSEG) toward its share in the Jamesport nuclear project. On November" 24, 1981, at the Company's request, the PSC approved accounting treatment which could ultimately provide ratepayers with the benefits of the Westinghouse settlement.

It is the Company's view that the value of the Westinghouse settlement is related to the Company's investment in BRC and, at an appropriate time, the Company anticipates that itwillapply to the PSC to recognize such relationship. The Company cannot, however, predict the outcome of this application.

Cancelled Nuclear Power Plants In 1980, New York State Boards on Electric Generation Siting

'and the Environment, in separate proceedings, denied applications by the Company and NYSEG (co-owners) for nuclear plants proposed for construction at Jamesport, N.Y. and at New Haven, N.Y.

In the Jamesport proceeding, the Siting Board certified, as an alternative, an 800 megawatt coal-fired plant. In October 1981, NYSEG advised the Company and the Siting Board that itwould not participate in the coal plant project. At the same time, the Company advised the Siting Board that it would accept the certificate for a coal plant with the understanding that the Company will attempt to find other partners for the project and

, will conduct further studies as to the optimum size and

', completion date for the plant with and without partners. The Company requested one year to complete these studies. The

'iting Board has not acted on the Company's request.

The Company's share of costs incurred, after reduction for the

, estimated tax effects of $15.9 million and $15.7 million, for Jamesport and New Haven was approximately $44.7 millionand

$31.8 million, respectively, at December 31, 1981. In connection with the cancellation of Jamesport, the Company is negotiating with Westinghouse respecting the nuclear steam supply system (NSSS) which Westinghouse was to have furnished.

Cancellation costs of the NSSS are expected to be substantial.

The Company has filed petitions with the PSC requesting rate relief to recover its share of the costs incurred for the Jamesport and New Haven projects. An administrative law judge issued a recommended decision to the PSC, finding that the Company and NYSEG acted prudently in proceeding with the New Haven project. The decision also recommends that the PSC authorize 5YSEG and the Company to continue to accrue AFC on the pFoject costs until recovery through rates begins, and to

'amortize and recover such costs, including carrying charges on any unamortized balance, over a period to be established in separate rate cases.

In a separate proceeding, the PSC authorized the Company and NYSEG to continue to accrue and accumulate AFC on their respective shares of the expenditures for Jamesport until, in effect, certain matters concerning a

'roposed coal-fired plant at Jamesport are resolved. The Company cannot predict what the final outcome will be on the applications for amortization and rate recovery of the Jamesport or New Haven expenditures.

Other

" The Company has entered into substantial long-range commitments for fuel and gas supply. The costs of fuel and gas supply are normally recovered from customers through provisions in the Compariy's rate schedules.

There are currently pending in the Federal courts, before the U.S. Equal Employment Opportunity Commission and the New York State Division of Human Rights, complaints by employees alleging that the Company has discriminated against them on the basis of race. The Company believes it has meritorious defenses to these complaints, but it cannot predict the ultimate outcome of these matters.

Note 8. Long.term Debt at December 31 The First Mortgage is a direct first lien on substantially all of the Company's properties. The lien of the G8 R Mortgage on substantially all of the same properties is juniorto the lien of the First Mortgage. All First Mortgage Bonds, issued on and after June 1, 1975 (Pledged Bonds), are held by the Trustee of the G &R Mortgage as additional security for G 8 R Bonds and are excluded from long-term debt because they do not create additional debt in the Company's capital structure.

The annual First Mortgage depreciation fund and sinking fund requirements estimated at $145,000,000 and $12,000,000,

'espectively, for 1981, are normally met by utilizing bondable property additions. However, by June 30, 1982, the Company

'resently estimates it will be required to deposit approximately

$)5,000,000 in cash to satisfy these requirements; the remainder will be satisfied by the use of bondable property additions. The Company intends to withdraw such cash before First Mortgage Bonds 3

A 1980 3%

E 1982 3Vs F

1983 3Vs G

1984 3Vs H

1985 4'

1986 4Vs J

1988 5

L 1991 4.40 M

1993 4%

N 1994 4.55 0

1995 5'

1996 5Vs Q

1997 8.20 R

1999 9Ys S

2000 7V~

U 2001 7Ys V

2001 7%

W 2002 8Vs X

2003 10 Y

1981 9Y~

Z 1982 t Pledged First Mortgage Bonds t Less Pledged First Mortgage Bonds Less Current maturitles 20,000 25>000 15>000 15>000 20,000 20,000 25,000 40,000 25>000 25,000 40,000 35,000 35,000 25>000 40,000 50,000 50,000 60>000 50>000 20,000 25,000 15,000 15,000 20,000 20,000 25,000 40,000 25,000 25,000 40,000 35,000 35,000 25,000 40,000 50,000 50,000 60,000 60,000 50,000 20,000 20,000 25,000 15,000 15,000 20,000 20,000 25,000 40,000 25,000 25,000 40,000 35,000 35,000 25,000 40,000 50,000 50,000 60,000 60,000 50,000 595,000 490,000 490,000 1,210,000 1,165,000 1 ~ 185,000 595,000 490,000 490,000 615,000 675,000 695,000 70,000 60,000 20,000 Total First Mortgage Bonds 545,000 615,000 675,000 General and Refunding Bonds 9>/~ % Series Due 1983 9~/s % Series Due 1984 9Ys % Series Due 2006 8% % Series Due 2006 8% % Series Due 2007 9.20% Series Due 2008 9.75% Series Due 1999 14' Series Due 2010 15.75% Series Due 1991 17s/s % Series Due 2011 16' Series Due 1991 18

% Series Due 2011 17

% Series Due 1991 80,000 90,000 70,000 50,000 85,000 75,000 100,000 50,000 100,000 50,000 50>000 50,000 50,000 80,000 90,000 70,000 50,000 85,000 75,000 100,000 50,000 80,000 90,000 70,000 50,000 85,000 75,000 100,000 Less Current malurilies Total General and Refunding Bonds 900,000 600,000 550,000 2,000 898,000 600,000 550,000 Other Long-term Debt 7Vs% Authority Financing Notes 7.8% Authority Financing Note 8Vs% Promissory Notes Less Current maturity on 8Ys%

Promissory Notes 2006 2009 1985 30,375 30,375 19,100 19,100 202 246 48 44 30,375 19,100 287 40 Total Other Long-term Debt 49,629 49,677 49,722 Total Long-term Debt

$1,492,629

$1,264,677

$1,274,722 Tho aggregate of tho Company's iong.term debt duo in tho next five years is

$72,000,000 (1982), $f07,000,000 (1 983), $ 1 07,000,000 (1984), $ 18,000,000 (1985) and $23,000,000 (1986).

the end of 1982. Any cash deposited for the sinking and depreciation funds under the First Mortgage can be withdrawn through the use of Shoreham property additions after receipt of the operating license anticipated by September 1982 or through the use of non-Shoreham property additions. Such cash may also be used to retire part of $70 millionof First Mortgage Bonds which mature in late 1982. Similar requirements under the G &R Mortgage will continue to be satisfied by the use of bondable property additions.

LOng.term Debt at December 31 (fn thousands of dollars)

Rate of Interest Series Due 1981 1980 1979

30 Note 9. Segments of Business The Company is a public utilityoperating company engaged in the generation, distribution, and sale of electric energy and the purchase, distribution, and sale of natural gas.

1981 1980 1979 (In millions of dollais)

OperatIng Information (Year ended December 31):

Revenue Expenses (excluding income tax)

Total Total Tol Eloctrlc Gas Company Electric Gas Company Electric Gas Comp

$1,403 S

262

$1,665

$1,040 237

$1,277 861 184

$1,04 1,117 234 1,351 860 211 1,071 699 158 85 Operating income (before income tax)

AFC and other Interest charges Income taxes operating Income taxes nonoperating (credit) 286 28 314 113 120 88 (29) 180 26 206 162 26 18 86 6

98 8

11 1

(22)

(1 Net income per accompanying Statement of Income S

248 205 J

16 Other Information (Year ended December 31):

Depreciation, depletion and amortization Capital expenditures for construction and nuclear fuel 567 23 590 477 22 499 451 14 46 S

53 7

60 50 6

56 48 6

5 Investment Information (At December 31):

Assets (a)

Nonutility plant Other investments (b)

Assets utilized for overall Company operations Total Assets

$3,857 290

$4,147 3

58

59 299

$4,508

$3,374 260 54

$3,634 2

55 227

$3,918

$2,922 247

$3,16

)

74

7 p21

$3,46 (a) Includes not utilityplant and deferred charges (excluding common), materials and supplies, accrued revenues, gas in storage and tuel.

Ii I (b) Consisting of, in 1961 ~ $55,157,000 Bokum Resources Corporation, $547,000 subsidiary companies ($60,000 electric, $467,000 gas), $3,551,000 other invostmontA and in 1960. $54,260,000 Bokum Resources Corporation, $398,000 subsidiary rxxripsnios ($22,000 electric, $376,000 gas), $590,000 other investments; and in 1979,

$49 557 000 Hokum Resources corporation, $24 636 000 New Haven Units, $379 000subsidiary companies ($21,000 oloclric, $356 000 gas), $338 000olhor Invostmonts.

Note 10. Quarterly Financial Information (Unaudited)

(In millions of dollars except Earned por Common Share)

Operating Revenues Operating Income Net Income Income for Common Stock Earned p Comm Sha First Quarter 1981

$ 452 S

63

.)r 52 S

0.

1980 348 53 45 pl 1979 266 47 39 0

Second Quarter 1981 1980 1979 Third Quarter 1981 1980 1979 Fourth Quarter 1981 1980 1979 S 371 271 232 S 449 292 S 393 323 255 S

46 42 36 60 57 S

38 40 29 52 43 85 54 47 44 28 40 34 26 74 46 33 32 18 S 0.

01 0.

$ 0.

'0'.

10,

)lq

$ :0:

pl 0;.

1981 Net Income as shown on the Statement of

- Income

'Increase in depreciation n'xpense if adjusted for

,r inflation 1981 Net Income as adjusted Earned per Common Share

'-'"as adjusted Net Income as adjusted 1980

!.0 1979

Earned per Common Share 0 as adjusted 1980 1979

$247,733 76,114

$ 171,619 1.57

$154,555 140,520 1.69 1.87

$247,733 83,645

$164,088 1.48

$ 144,830 122,148 1.55 1.52 Effect of Inflation on Net Plant Investment

-The effect of 1981 general inflation, of about 9.2/o, on the Historical cost ofthe Company's January 1, 1981, undepreciated plant investment, less the $76.1 million increase in depreciation expense shown above, amounted to $249 million. Ifthis were to be applied as a loss in 1981 to Net Income as adjusted for general Inflation, it would have resulted in a net loss of $77 million.

'Note 11. Supplementary information Concerning the Effects of inflation (Unaudited)

Throughout the decades following World War II, the utility industry has constantly pointed out to economists, regulators, and law makers that calculating depreciation on the original cost of the utilityplant would not permit the recovery of the cost required to replace a piece of equipment which became obsolete or fullydepreciated if any degree of inflation were experienced over the lifeofthe property. The solution suggested by the industry was to calculate depreciation on the reproduction cost of existing facilities, or to use a depreciation rate which reflects inflation. In an attempt to have information available to inform investors of the consequence of this inflationary erosion throughout the business world, the Financial Accounting Standards Board developed certain standards for quantifying and providing this information to investors. While we believe the concept has merit if it leads to wiser governmental decisions as to taxation and utility regulation, we wish to point out to our shareowners the theoretical nature of this information, and to suggest caution in its use for the purpose of making investment decisions in the utility field and for comparing one company to another in terms of expected future performance.

The data which follows reflect a restatement of the historical cost of property, plant, and equipment (by approximate year of expenditure), the related accumulated depreciation and depreciation expense.

Income tax expense has not been restated for the effects of inflation. The effect of inflation on the Company's operations is shown in two ways: as measured for general inflation by using the Consumer Price Index for All Urban Consumers and more specifically as measured for that infiation which impacts the utilityindustry by using the Handy-Whitman Index for Public UtilityConstruction Costs.

Effect of Inflation on Net Income and Common Stock Ehrnings Per Share (Average 1981 dollars, in thousands of dollars except Adjusted for Adjusted Ior Earned per Common Share)

General Inflation Industry inflation At December 31, 1981, the cost of property, plant, and equipment, net of accumulated depreciation, restated for general inflation since year ofexpenditure, was $6.8 billionwhile historical cost net of accumulated depreciation was $4.0 billion.

The effect of 1981 inflation which specifically affected the industry on the cost of replacing the Company's undepreciated plant investment (cost of replacing the Company's undepreciated plant investment was calculated by restating plant and related accumulated depreciation for industry inflation since year of expenditure) from the beginning to the end of the year, less the $83.6 million increase in depreciation expense shown above, amounted to $507 million. Further, the effect of 1981 general inflation, of about 9.2/o, on the cost of replacing the Company's January 1, 1981, undepreciated plant investment amounted to $549 million. In comparison, the effect of 1981 general inflation exceeded the effect of industry inflation by $42 million. The effect of 1981 general inflation on the historical cost of the Company's January 1, 1981, undepreciated plant investment, less the $83.6 million increase in depreciation expense shown above and less the $42 million excess of general inflation over industry inflation, amounted to $200 million. Similarly, the calculations for the years 1980 and 1979, when restated in average 1981 dollars, amounted to $80 million and $134 million, respectively. If the 1981 amount of $200 million were to be applied as a loss ln 1981, to Net Income as adjusted for industry inflation, itwould have resulted in a net loss of $36 million.

At December 31, 1981, the cost of property, plant, and equipment, net of accumulated depreciation, restated for industry inflation since year of expenditure was $6.8 billionwhile historical cost net of accumulated depreciation was $4.0 billion.

Effect of Inflation on Certain Assets and Liabilities During periods of inflation, monetary assets such as cash and receivables lose their purchasing power. Similarly, monetary liabilities such as long-term debt can be a benefit because they will be repaid in dollars having less purchasing power. The net monetary amounts owed by the Company during the years 1981, 1980, and 1979 resulted in an unrealized benefit of $202 million, $235 million, and $202 million, respectively. The Company's net assets (total assets less total liabilities) at year-end, when restated in average 1981 dollars, for the years 1981, 1980, and 1979 were $2.0 billion, $2.0 billion, and $1.9 billion, respectively.

Effect of Inflation on Revenues, Common Stock Dividends, and Common Stock Market Price Revenues were $1.7 billion in 1981. Revenues restated in average 1981 dollars for the years 1980 through 1977, respectively, would have been $1.4 billion, $1.3 billion, $1.3 billion, and $1.2 billion. Cash dividends declared per common share in 1981 were $1.92. Dividends declared in prior years restated in average 1981 dollars for the years 1980 through 1977, respectively, would have been $2.03, $2.21, $2.37, and

$2.45 per share. The market price per common share at year-end was $14.13 in 1981. The market prices per common share restated ln year-end 1981 dollars for the years 1980 through 1977, respectively, would have been $15.28, $17.98,

$23.98, and $28.24. The average consumer price indices forthe years 1981 through 1977 were 272.4, 246.8, 217.4, 195.4, and 181.5, respectively.

31

Selected Financial Data Summary ofOperations'981 1980 1979 1978 1977 1976 19 Tabf Total revenues ($000)

Total operating income ($000)

Before federal income taxes After federal income taxes Income for common stock ($000)

Average common shares outstanding (000)

Earned per common share Dividends paid per share Book value per share at year end Common shareowners at year end Ratio of earnings to fixed charges Ratio of earnings to fixed charges and preferred dividends S

313,916 225,888 198,902 77,988 S 2.55 S 1.90

$18.78 169I124 2.37 205,918 194,628 164,915 65,138

$ 2.53

$ 1.82

$18.94 159,678 2.14 188,466 170,984 128,812 53,366

$ 2.41

$ 1.74

$18.88 151,752 2.20

$ 192,268

$ 160,788

$111,305 45,670

$ 2.44

$ 1.68Vi

$19.12 143,267 2.59

$158,779

$135,608

$ 104,593 40,399

$ 2.59 1.61'18.70 130,018 2.61

$138,340

$124,126

$ 86,787 34,437

$ 2.52

$ 1.54Vz

$17.93 123,057 2.61

$ '87,5

$ 71,3

$ 41,9 20,1

$ 2.

1.

$16.r 88,0 3.

1.87 1.74 1.77 1.93 1.95 1.92 2,4

$1)664I832

$1,276,938

$1,045,498

$898,971

$824,080

$724,589

$346,1

'See Table 11 of Selected Financial Data for Assets and Capitalization.

Electric Operating Income (In thousands of dollars)

Tabi Revenues Residential Commercial and Industrial Street and highway lighting Other public authorities Other utilities Other System revenue Power pools Total Operating Revenue Expenses Operations tuel and purchased power Operations other Maintenance Depreciation Operating taxes Federal income tax current Federal income tax deferred and other Total Expenses Electric Operating Income S

634,378 666,078 17/697 27I746 822 6,416 1,353,137 49,582 1,402,719 719,845 118,870 57,746 531108 167I535 (1,843) 83,621 1,198,882 203,837 478,618 479,486 13,594 21,685 196 7,094 1,000,673 38,993 1,039,666 521,062 98,017 47,587 50,235 143,589 (9,862) 15,128 865,756 173,910 400,936 393,040 12,209 15,240 564 5,949 827,938 32,860 860,798 389,622 89,071 43,587 47,872 128,496 (7,816) 18,933 709,765 151,033

$348,307 337,521 12,743 13,615 921 4,885 717,992 20,347 738,339 294,911 78,328 37,086 45,217 118,047 1 ~110 24,249 598,948

$139,391

$326,035 315,952 12,817 13,647 1,287 3,578 673,316 9,681 682,997 290,576 72,860 32,665 39,451 109,285 4,830 15,399 565,066

$117,931

$284,774 270,513 12,619 11,005 543 2,747 582,201 7,464 589,665 238,185 66,101 32,501 37,399 100,102 (4,398) 13,752 483,642

$106,023

$130,11 113,72 9,3 3,65 35 18 257,40 4,86 262,26 58g6 37,35 19,09 25,89 51,36 13,12 36 206,15

$ 56.11 Gas Operating Income (In thousands of dollars)

Revenues Residential space heating' other Non.residential, firmspace heating' other Total firm sales revenue Interruptible Total system sales revenue Other utilities Total sales revenue Other revenue Total Operating Revenue Expenses Operations tuel Operations other Maintenance Depreciation, depletion and amortization Operating taxes Federal income tax current Federal income tax deferred and other Total Expenses Gas Operating Income S

134,407 28,028 45,500 21,318 229,253 30,757 260,010 260I010 2,103 262,113 145,507 39,397 10,507 6,957 31,444 835 5,416 240,062 22,051 117,228 26,556 37,729 18,483 199,996 35,395 235,391 235,391 1,881 237 272 130,664 34,190 9,916 6,433 29,327 6,947 (923) 216,554 20,718 93,077 23,861 31,145 15,005 163,088 19,810 182,898 182,898 1,802 184,700 88,794 29,573 8,619 6,188 25,210 5,549 816 164,749 19,951

$ 88,168 21,098 30,033 12,464 151,763 7,098 158,861 158,861 1,771 160,632 70,396 26,056 7,574 5,975 23,113 6,187 (66) 139,235

$ 21,397

$ 75,626 18,672 25,039 10,726 130,063 9,477 139,540 139,540 1,543 141,083 59,889 24,429 8,270 5,598 22,278 3,030 (88) 123,406 S 17,677

$ 74,225 17,734 24,903 10,208 127,070 6,374 133,444 133,444 1,480 134,924 54,522 23,162 6,975 5,338 21,964 4,626 234 116,821

$ 18,103 u

Table

$ 44,40 13,09 13,83 6,82 78,15 4,29 82,45 82,45 1,46 83,91 25,59 16,31 6,06 4,63 13,32 2,47 22 68,63

$ 15,27

'In the heating classifications, the revenues shown cover all gas used, including nonhsatlng use.

eetric Operations 1981 1980 1979 1978 1977 1976 1971 Table 4 33 ergy millions of kWh t generation er purchased and (sold) net 11,720 11,295 11,085 12,739 12,710 12,450 11,753 2,091 2,719 2,636 980 889 868 (229) al system requirements pany use and unaccounted for 13>811 (1,196) 14,014 (1,331) 13,721 (1,254) 13,719 (1,282) 13,599 (1,225) 13,318 (1,326) 11,524 (1,051) tern sales er pool sales al Sales k Demand net MW tion coincident demand chased or (sold) 12,615 12,683 12,467 12,437 12,374 11,992 10,473 772 882 852 790 346 250 413 13,387 13,565 13,319 13,227 12,720 12,242 10,886 2,730

',994 2,718 2,899 2,994 2,566 2,400 402 149 201 98 113 153 5

tern Peak Demand 3,132 ',143 2,919 2,997 3,107 2,719 2,405 ability at Time of Peak net MW 0 stations purchase or (sale) 3,721 56 3,721 62 3,842 108 3,842 126 3,709 121 3I727 2,788 136 60 I Capability 3 777 3,783 3,950 3,968 3,830 3,863 2,848 I Consumed for Electric Operations thousands of barrels thousands of mcf Ibillions of Btu lars per million Btu ts per kWh of net generation t rate Btu per net kWh 15,665 23,374 122,577 4.58 4.79C 10,459 15,428 20,426 117,965 3.41 3.57s 10,456 16,671 10,909 115,376 2.56 2.674 10,480 21,017 75 131,096 1.86 1.924 10,304 20,669 1,980 130,904 1.98 2.04c 10,299 20,287 1 ~195 127,244 1.70 1.744 10,221 18,131 11,487 123,763

.46

.48C 10,531 s Operations rg)r thousands of mcf (1,000 Btu) ural gas ufactured gas and change in storage I natural and manufactured gas s to other utilities Table 5 50,224 50,489 46,799 44,611 44,103 46,034 49,327 (62) 124 (4) 19 (11)

(77) 46 50I162 50,613 46,795 44,630 44,092 45,957 49,373 il system requirements npany use and unaccounted for 50,162 (1,800) 50,613 (3,419) 46,795 (3,170) 44,630 (2,596) 44,092 (1,377) 45,957 49,373 (2,809)

(1,855) tern sales s to other utilities I Sales Imum Day Sendout mcf (1,000 Btu) 48,362 47,194 43,625 42,034 42,715 43,148 47,518 48,362 47,194 43,625 42,034 42,715 43,148 47,518 371,845 358,638 336,996 303,844 340,684 325,836 324,800

>ability at Time of Peak mcf per day ural gas

, manufactured or LP gas 308,800 142,300 308,800 142,300 307,200 303,500 326,500 326,500 304,600 142,300 142,300 148,300 148,300 180,000

~l Capability 451,100 451,100 449,500 445,800 474,800 474,800 484,600 ural Gas Purchased tric operations thousands of mcf operations thousands of mcf 15,294 49,026 12,221 50,402 2,726 75 1,978 1,195 11,596 46,103 43,967 44,638 45,690 48,464

'~I Natural Gas Purchased ender Degree Days year average 5,084) 64,320 62,623 48,829 44,042 46.616 46,885 60,060 4,851 5,151 4,622 5,441 5,178 5,373 4,951

34 Electric Sales and Customers 1981 1980 1979 1978 1977 1976 19>

Tab Sales millions of kWh Residential Commercial and industrial Street and highway lighting Other public authorities Other utilities 5,581 6,494 180 345 15 5,655 6,431 188 404 5

5,599 6,291 188 370 19 5,559 6,259 188 399 32 5,620 6,120 189 397 48 5,486 5,905 190 386 25 4,8 5,0 1

2 System sales Power pool sales 12>615 772 12,683 12,467 12,437 12,374 11,992 10,4 882 852 790 346 250 4

Total Sales 13,387 13,565 13,319 13,227 12,720 12,242 10,8 Customers monthly average Residential Commercial and industrial Others 818,879 83,899 4,683 812,898 82,918 4,185 806,325 81,955 4,137 798,288 81,071 4,014 791,808 80,205 3,881 784,359 725,7 78,535 70,2 3,882 2,5 Customers total monthly average Customers total at year end 907,461 900,001 892,417 883,373 875,894 866,776 798,5 908,303 900,419 892,772 885,591 877,022 869,126 802,5 Residential kWh per customer Revenue cents per kWh 6>815 11.370 6,957 6,944 6,964 7,098 6,994 6,7 8,46c 7.16s 6.27s 5.80~

5.19~

2.

Commercial and Industrial kWh per customer Revenue per kWh 77>403 10.26C 77,559 76,762 7.46c 6.254 77,204 76,309 75,197 72 4 5.39s 5.16s 4.584 2.

System Total revenue per kWh sold 10.73C 7.89s 6,64c 5.77c 5.44s 4.85s 2.

Gas Sales and Customers Sales thousands of mcf (1,000 Btu)

Residential space heating' other Non.residential firmspace heating' other 25,753 3,566 9,042 4,021 24,187 3,654 8,269 3,833 22,873 3,496 8,228 3,603 24,085 3,386 8,628 3,427 23,887 3,396 8,534 3,398 24,357 3,390 8,849 3,418 Tab 23',3 8,7 3.3 Total firm sales Interruptible 42,382 5,980 39,943 7,251 38,200 5,425 39,526 2,508 39,215 40,014 39,2 3,500 3,134 8,2 Total system sales 48,362 47,194 43,625 42,034 42,715 43,148 47,51 Customers monthly average Residential space heating' other Non.residential firmspace heating' other 165,093 198,336 19>282 12,160 153,440 206,331 18,229 12,441 139,672 217,172 17,452 12,658 137,486 219,062 17,326 12,781 137,580 219,930 17,470 12,961 137,724 220,768 17,501 13,184 125,81 228,91 17,0 13,8 Total firm customers Interruptible Customers total monthly average Customers total at year end Degree days billed Residential mcf per customer Revenue per mcf Non-residential firm mcf per customer Revenue per mcf System Total revenue per firm mcf sold 394,871 390,441 386,954 386,655 387,941 389,177

385, 323 339 347 368 382 388 3

395,194 390,780 387,301 387,023 "'88,323 389,565 385,9 396,094 392,723 387,310 386,091 386,830 388,147 385,5 4,975 4,910 4,612 5,352 5,277 5,277 5,21 80.7 77.4 73.9 77.1 76.3 77.4 76.

$ 5.54

$ 5.16

$ 4.43

$ 3.98

$ 3.46

$ 3.31

$ 2g1 415.5 394.6 392.9 400.4 392.1 399.8 652.

$ 5.12

$ 4.64

$ 3.90

$ 3.53

$ 3.00

$ 2.86

$ 1.2

$ 5.41

$ 5.01

$ 4.27

$ 3.84

$ 3.32

$ 3.18

$ 1.9

'In the heating classifications, the sales shown cover all gas used, including nonheallng use.

1981 1980 1979 1978 eraticnS and MaintenanCe EXpenSe DetailS (In thousands of dollars) 1977 1976 1971 Table 8

35 al payroll and employee benefits s Charged to construction and other S

185I265

$168,137

$150,479 55,272 53,649 49,065

$139,334 47,367

$126,013 39,873

$ 118,379 37,558

$ 81,043 25,079 arged to operations 129,993 114,488 101,414 91,967 86,140 80,821 55,964 Is electric operations Is gas operations chased power costs ctric fuel cost adjustment deferred 560,857 145,507 123,958 35,030 402,696 130,664 134,876 (16,510) 295,428 88,794 108,772 (14,578) 244,546 70,396 43,564 6,801 258,988 59,889 30,752 836 216,264 56,291 54,522 25,590 22,916 2,669 (995) al Fuel and Purchased Power other al Operations and Maintenance 865,352 651,726 478,416 365,307 350,465 292,707 84,550 96,527 75,222 69,436 57,077 52,084 47,918 22,860

$1,091,872

$841,436

$649,266

$514,351

$488,689

$421,446

$163,374 ployees at December 31 5,777 5,669 5,563 5,442 5,381 5,444 5,413 crating Ratios cent of Total Revenues ctric s

cent of Electric Revenue erations expense fuel and chased power erations expense other intenance expense I Operations and Maintenance Expense er(tting Income cent of Gas Revenue erations expense fuel eruptions expense other I,

intenance expense al Operations and Maintenance Expense Table 9

84.3/o 81.4%

82.3%

82.1%

82,9o/o 81.4%

75.8%

15.7 18.6 17.7 17.9 17.1 18.6 24.2 51.3o/o 50,1%

45 3%

39 9o/o 42 5%

4Q 4%

22.5/o 8.5 9.4 10.3 10.6 10,7 11.2 14.2 4.1 4.6 5.1 5.0 4.8 5.5 7.3 63.9/o 64.1%

60.7%

55 5%

58.0%

57.1%

44.0o/o 14.5o/o 16.8o%%d 17.5%

18.P/o 17.2o/o 18.0o/o 21.5%

55.5o/o 55.1%

48.1 /o 43.8%

42,5%

4Q.4%

3Q.6%%d 15.0 14.4 16.0 16.2 17.3 17.2 19.4 4.0 4.2 4.7 4.7 5.9 5.2 7.2 74.5o/o 73.7%

68,8%

64.7%

65.7%

62.P/o 57.P/o crating Income 8.4%

8.7%

10.8o/o 13.3o/o 12.5%

13.4%

18.2o/o cent of Total Operating Income ore Income Taxes cfric 91.P/o 87.0%

86.0%

85.7%

87.0o/o 83.4%

79.5%

9.0 13.0 14.0 14.3 13.0 16.6 20.5 nStruCtien EXpenditureS (ln thousands ol dollars)

Table 10 trlc duction (includes construction trust) smission tribution:

ew business facilities I(ter facilities eral 12I116 21,835 3,872 11,011 21,824 3,265 S

517,971

$399,219 8,987 14,529

$362,689 25,991 9,704 19,163 1,617

$321,181 31,865 9,537 16,566 2,716

$279,207 39,788 10,871 15,400 1,502

$249,045 27,466 9,907 15,753 2,016

$ 85,197 7,927 10,849 17,252 1,367 I Electric 564,781 449,848 419,164 381,865 346,768 304.187 122,592 duction and storage nsmission and distribution:

ew business facilities ther facilities eral 1,572 8,655 10,881 1,428 528 9,817 9,513 1,256 396 5,512 5,338 2,099 483 1,559 5,196 906 525 1,083 5,507 1,133 303 5,101 938 4,479 5,849 753 486 3,154 I Gas 22,536 21

~114 13,345 8,144 8,248 6,828 14,235 mon Total I Construction Expenditures 4,822 3,999 4,404 3,110 2,098 71237 7,037 S

594,554

$475,784

$439,546

$394,008

$359,420

$314,125

$138,925

36 BalanCe Sheet tin thousands ot dollars) 1981 1980 1979 1978 1977 1976 1974 Table 11 Assets UtilityPlant Less Accumulated depreciation, depletion and amortization

$4,662,402 620,616

$4,095,896

$3,611,962

$3,167,601

$2,775,231

$2,398,900

$1,344,225 573,765 526,992 486,865 456,019 413,305 264,534 Total UtilityPlant Other Property and Investments Current Assets Deferred Charges:

Electric fuel cost adjustment deferred Other 4>041>786 62,183 361,859 4>188 38,136 3,522,131 56,962 273,378 39,219 26,056 3,084,970 76,985 246,708 22,709 28,210 2,680,736 70,784 229,463 8,131 27,599 2,319,212 3,972 188,462 14,932 19,967 1,985,595 3,803 183,780 15,768 18,775 1,079,691 869 74,723 3.232 Total Assets

$4,508,152

$3 917 746

$3 459 582

$3.016 713

$2 546.545

$2 207 721

$ 1 ~ 158 515 Capitalization and Liabilities Capitalization:

Long.term debt Unamortized premium and discount on debt Preferred stock redemption required Preferred stock no redemption required Treasury stock, at cost Common stock and premium Capital stock expense Retained earnings

$ 1 >492>629 (2,349) 414,650 158>083 (569) 1,131,094 (42>107) 439,285

$ 1,264',677 (39) 361,250 158,968 (186) 969,240 (35,140) 391

~113

$1,274,722 24 294,100 160,090 821,440 (30,138) 346,001

$1,175,662 89 226,950 163,499 699,425 (28,321) 311,838

$ 1,100,375 1,628 228,000 166,436 571,436 (27,110) 279,157

$ 1,015,375 2,602 160,000 171,431 451,078 (18,397) 242,147 571,875 2,559 147,175 198,423 (6,230) 146,474 Total Capitalization Trust Obligations Current Liabilities 3,590,716 439,425 361>193 3,109,883 2,866,239 2,549,142 2,319,922 2,024,236 1,060,276 348,935 287,308 189,603 30,000 407,903 242,715 214,383 143,848 138,403 86,422

~- Deferred Credits:

',Accumulated deferred income tax reductions 106,795

>~Other 6,091 43,821 55,698 55,731 42,835 35,264 8,~66 2,239 1,661 1,408 2.008 2,640 712

. Total Deferred Credits 112,886 46,060 57.359 57,139 44.843 37,904 9,078

'eserves for Claims and Damages Total Capitalization and Liabilities 3,932

$4,508,152 4,965 5,961 6,446 7,932 7,178 2,7 9

$3,917,746

$3,459,582

$3,016,713

$2,546,545

$2,207,721

$1,158,515

"". Common and Preferred Stock Prices Table 1 The Common Stock of the Company is traded on the New York Stock Exchange and the Pacific Stock Exchange. The Preferred Stock

$100 par value Series B, E, I, J, K, and S, and the Preferred Stock $25 par value Series 0, P, and T of the Company, are traded on the New York Stock Exchange. Trading in the Preferred Stock, $25 par value, Series U, commenced on October 28, 1981, on the New York Stock Exchange. The table below indicates the high and low sale prices on the New York Stock Exchange listing of composite transactions for the years 1978 through 1981.

Common Stock Preferred Stock Series 8 5'A>

Series E 4.35'eries I

SV>Vi Series J 8.12%

Series K 8.30'>>

Series 0

$2.47 Series P

$2.43 Series S 9.80Vi Series T

$3.31 Series u

$4.25 1978 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter High Low High Low High Low High Low 19Yi 1 7%

ST 54 481t>

45>/>>

90 86 19Vi 18Vi 52Vi 50 4TVi 44Vi 92 88Vi tgVi 18Vi 54 52 481t>

43 92Vi 91Yi 18>/>>

17 52%

49 44'hh 43 85Vi 83 High Low High Low High Low High Low High Low High Low High Low 92Yi 87 94 89Vi 27%

26 27Vi 26 86M>

80 92 80 27 24%

26Vi 24Vi 90 81 93Vi 83 27Yi 24Vi 27 25 85 77 89Yi 80 26>/>>

2SV>>

26Vi 23 1979 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 18Vi 17 17Vi 1 SYs 17Vi 16 16Yi 13V>

49%

4TVi 43 41 85Vi 83 48Yi 47 44%

40Yi 82%

76 50 47 43%

41 8SVi 80yi 49 40Yi 40 37>/a 74Vi 72 82 TTVi 84Vi 79 26%

24Y~

2SM>

23Ve 81Yi 73Yi 83 75 26M>

24Vi 24>/>>

21Vi 82%

74 81Yi 76Vi 2SYi 23>/>>

25Vi 2t Vi 72Yi 63 76 67Vi 24%

20V 22 18Ye 96Y 89 1980 1st Quarter 2nd Quartor 3rd Quarter 4th Quarter 1981 1st Quarter 2nd Quartor 3rd Quarter 4th Quarter tSV>>

13Vi 43 33Vi 38 35 75 72%

17>h 13%

38tt>

30Vi 87Yi 72 16Vi 14Y~

39%

36Vi 37Yi 34 83 82Vi 1 SVi 1 3Vi 38 33 32 29>/>>

80Vi 73Vs 1SVi 14 34 33 32 28Yi 79 TTVi 15>/>>

14 35 32%

32 29 76Vi 75Vi 15Yi 14Y>>

33Yi 30Yi 3t Yi 2SVi 81 77Yi 1SV>>

13Vi 33Vi 31 31 25%

81 74Yi 67%

56 6T>h 61 23Vi tsVi 20Vi 1SVi 95 69 70 SS 71 >h 56Yi 24%

18Vi 21 Vi 15>/>>

89 69'8 60 68%

61 22%

18Yi 2 1 17%

85 73Yi 60 53Vi 61 54Yi t9%

16Vi 18Vi 15Vi TS 73 23Vi 21Vi 57%

53Yi 58 53%

19'8tt>

17Vi 1SVi 72>/>>

69Vi 24 22 SSVi 52Vi 58%

53 19%

17%

1 7Yi t S>>t>

74 70 23%

22 54 48Vi Seyi 49 18 1SVi 17Yi 14Vi 69Yi 60Vi 23 19Vi SSYi 49Vi 55 49 17%

14>/>>

16>/s 14Vi 65 60Vs 23Yi 19Yi 28Vi 24>/>>

The Series D-4.25% Preferred Stock is traded in the over-the-counter market. We have been advised of scattered trading at prices ranging between $23 and $29 per share during 1981. The Series F, H, L, M, Q, and R Preferred Stock are held privately.

Directors Officers Corporate Information William J. Catacoslnos Chairman and Chief Executive Officer Applied Digital Data Systems, Inc, Electronics Edward C. Duffy Retired Vice Chairman of the Board Long Island Lighting Company Alan M. Fortunoff President Fortunoff's Retail Wlnfield E. Fromm Vice President Eaton Corporation Electronics Nathaniel M. Giffen Chairman of the Board and Chief Executive Officer Suffolk County Federal Savings and Loan Association Llonel M. Goldberg Vice President Alexander & Alexander, Inc Insurance John D. Maxwell Chairman and Director Kollmorgen Corp.

Vice President and Director Powers Chemco, Inc.

Manufacturing Charles R. Pierce

'hairman of the Board and Chief Executive Oificer Long Island Lighting Company Eben W. Pyne Senior Vice President Citibank, N.A Wilfred O. Uhl President Long Island Lighting Company Phyllis S. Vineyard Vice Chairman N.Y. Statewide Health Coordinating Council Voluntary Nonprofit Planning Agency Charles R. Pierce Chairman of the Board and Chief Executive Officer Wllfred O. Uhl President Charles J. Davis Senior Vice President Engineering, Purchasing and Stores James W. Dye, Jr.

Senior Vice President Operations, Transmission/Distribution and Nuclear Frank C. Mackay Senior Vice President Commercial Operations Thomas H. O'Brien Senior Vice President Finance Joseph G. Acker Vice President Transmission/Distribution and Service Operations Matthew C. Cordaro Vice President Engineering Ira L Frelllcher Vice President Public Affairs John R. Gummersall, Jr.

Vice President Operations and Construction Mlllard S. Pollock Vice President Nuclear Matthew S. Procelll Vice President Employee Relations John J. Russell Vice President Customer Relations Andrew W. Wofford Vice President Purchasing and Stores Michael Czumak Controller Edward W. Eacker Treasurer John J. Kearney, Jr.

Secretary Raymond J. Forrer Associate Controller Kathleen M. Brown Assistant Secretary Executive Offices 250 Old Country Road Mineola, NY 11501 Common Stock Listed New York Stock Exchange Pacific Stock Exchange Transfer Agents Common Stock Manufacturers Hanover Trust Company 4 New York Plaza New York, NY 10015 Pre/erred Stock Citibank, N.A.

111 Wall Street, Sort 3300 New York, NY 10043 RegIstrar Common and Preferred Stock Bradford Trust Company 67 Broad Street New York, NY 10004 Shareowners'gent for Automatic Dividend Reinvestment Plan Citibank, N.A.

Dividend Reinvestment Service 111 Wail Street, Sort 5710 New York, NY 10043 Annual Meeting The Annual Meeting of Shareown-ers will be held at the Company's Hicksviile Operations Center, Hicksville, NY, on April 20, 1982, at 2:00 p.m. In connection with this meeting, proxies wiII be soIicited by the Company. A notice of the meeting, a proxy statement, and a proxy willbe mailed to shareowners in March.

Form 10-K Annual Report The Company willfurnish as soon as available, without charge, a copy of the Company's Annual Report, Form 10-K, as filed with the Securities and Exchange Commission, upon written request to Mr. Spencer E. Hughes, Jr.,

Manager, Investor Relations, Long Island Ughting Company, 250 Old Country Road, Mineola, NY 11501.

Edward M. Barrett General Counsel Francis M. Walsh General Claims Attorney

Long Island LlghtIng Company 250 Old Country Road Mineola, NY 11501