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:
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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 Long Island Sound New York

~ <<nesport Shorehsm Point Bronx Gtemrood ~ Greenlawn Suffolk Riverhead

~ East on R~ Nassau

~ Brtdttehampton

~ Southern pton

~ Htoksvttle ~ Ronkonkoma Queens ~ Mineota Brenhrood

~ Garden City 'e

~ Hampstead Patoho9oe Bay Shore

';Kings

'y~~

~ Vattey Stream

~ Hevrtett

~RM [3Territory Served By Long Island Lighting Company AtIantic Ocean LILCO supplies electric and gas service in Nassau and Suffolk Counties 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.

4 Highlights 1981 A Year of Significant Progress Contents Percent Increase or (Decrease) 1981 1980 1979 1981/1980 1980/1979 System Map Earnings Per Share Inside front cover increased 2'n 1981, increased 12'n 1980. $ 2.55 $ 2.53 $ 2.41 0.8% 5.0% Territory Served Inside front cover Indicated Annual Dividend Rate on common stock Highlights 1981 1 increased 8tt in June 1981 and in June 1980. $ 1.94 $ 1.86 $ 1.78 4.3 4.5 Letter to Shareowners 2 Income for. Common Stock (millions of dollars) $ 164.9 $ 128.8 20.6 28.0 Financial

$ 198.9 4 Progress Average Common Shares Progress in Outstanding (millions) 78.0 65.1 53.4 19.7 22.1 Reducing Oil Dependence 7 Permanent Electric Rates increased $ 9.1 million annually effective February 14, 1981, and $ 183.1 Progress in million annually effective May 29, 1981, (including $ 90.0 million effective November 27, 1980, on a Response to temporary basis). Community Needs 11 Gas Rates increased $ 8.6 million annually effective November 1, 1981.

Financial The Nuclear Regulatory Commission issued its Safety Evaluation Report on Shoreham and the Analysis 14 independent federal Advisory Committee on Reactor Safeguards informed the Nuclear Regulatory Commission that, subject to satisfactory completion of plant systems and training programs, Financial Shoreham can be operated at full power "without undue risk to the health and safety of the public." Statements 20 Hharings with respect to the operating license are expected to begin in mid-1982.

Notes to Financial Statements 25 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 Selected preoperational tests required to be completed before loading tuel, about one-half had been started by Financial Data 32 the end of '1981. The tests require integration of various numbers of the 300 systems.

Officers and Directors Total cash proceeds of $ 42.7 million, before deduction of litigation expenses and payments to New Inside back cover 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 Corporate because ot the failure of Westinghouse to deliver uranium concentrates. Information Inside back cover 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 billion against the petitioning creditors, including LILCO, was also granted without prejudice.

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 million during 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.

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 utility indust is to effectively meet its service obligations. Finally, o Charles R. Pierce Long Island service area continues to display resiliency Chairman ol the Board and the face of uncertain economic conditions, exhibiting Chief Executive Officer 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 I

C the dividend rate on the common stock was increased, 3 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 difficult economic environment of 19 and by the fact that they were attained while the Compa was involved in the largest financing program in its r L+( %~i history, totalling $ 525 million. The success in raising th 4~J 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 will inevitab continue. In this regard, we propose to file for increas Wllfred O. Uhl President 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 utility operations. 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 difficult fo regulators today to withstand the pressures which seek keep utility rates 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 analysis of the economics of coal conversion but also a indications at the federal level of a better understanding of full environmental review to assure the protection of the utility industry's financial situation, action to improve neighboring communities. We are also involved in new tax treatment, and much delayed reform of nuclear plant coal use technologies such as coal/oil mixture and licensing regulations. In this connection, we are hopeful of coal/water slurry which may permit the practical utilization a timely start and expeditious handling of the Nuclear of coal at the large Northport plant, which was not Regulatory Commission (NRC) hearings on our designed for coal burning.

Shoreham Nuclear Power Station operating license. Progress continues to be made, as well, in reducing our Major steps in this process were completed during the community's reliance on oil at the consumer level. 1981 year with the issuance of a Safety Evaluation Report by again saw substantial numbers of Long Island home-the NRC staff and a favorable Shoreham owners turn from oil to natural gas to meet home heating recommendation to the NRC from the independent needs. In the last three years the number of LILCO Advisory Committee on Reactor Safeguards. Our residential gas space heating customers increased by expectation is that the NRC public hearings should begin 31,000, or 22.4%, prompted largely by concern with the in the spring. A timely conducted hearing would allow fuel uncertainty of supply and price associated with oil. While loading in the fall of 1982. Commercial operation should we might expect the price advantage of gas to narrow in follow some six months later. the years ahead as gas deregulation becomes more Construction of Shoreham is proceeding on a parallel widespread, the anticipation is that gas heating will schedule with licensing. AII of the heavy construction work remain at least price competitive with oil heating. Other is complete and the plant is now undergoing Company programs include the aggressive promotion of comprehensive testing of all plant equipment. Thus far, such energy efficient devices as heat pumps and solar the testing program has gone extremely well. However, water heating systems, and the strengthening of our many things could still interfere with timely operation, home energy audit and consumer conservation seminar including the possibility of licensing delay, but signs are programs, all of which are designed to increase efficient now positive. About two months after fuel load Shoreham energy use and lessen oil dependency.

willbegin to produce Long Island's first nuclear generated In looking back at 1981, one of the most encouraging electric power. Even before full commercial operation it developments has been our Long Island community's will begin to reduce oil consumption and fuel cost. sustained economic health. The diversification of its The decline in oil prices last year has encouraged some to economy has enabled it to successfully resist the reflect on the possibility that the oil supply crisis has business uncertainties experienced in other parts of the passed or at least become permanently tolerable. This is nation. Total area employment increased last year and not a correct reading of the situation. It is quite clear that 1982 business activity is predicted to grow at a rate the stability or instability of the world's oil supply is a double that of the country as a whole. The relationship of function of international affairs over which our nation has our Company with the community is a close one. A strong very limited control, and that the choice to use oil as a and prosperous Long Island is important to the health of diplomatic weapon is an always present danger. The LILCO, and we supply the essential energy services that uncertainty of its supply and the volatility of its price allow the economy to run efficiently. But our role on Long remain our customers'ingle biggest burden. We have Island is, of course, more than energy supplier. We are, at continued, therefore, to proceed in our plan to minimize both the corporate and employee level, members of the reliance on oil as our basic generating fuel. Replacing oil community and have the opportunity to serve Long Island with the use of nuclear energy, of course, is the in two ways. In this report, we show examples of how centerpiece of this program, through the operation of Company employees serve the community at home as Shoreham and our involvement as a partner in the Nine well as on the job. These examples are just a small look at Mile Point 2 nuclear project in upstate New York. the community service tradition of LILCO people who are While Shoreham will provide the single most effective way the foundation of our Company's strength.

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 of the OPEC suppliers.

An important part of this planning is the Company's effort to provide customers as much immediate relief from high Chairman and Chief Executive Officer 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 Quality Air Control monitoring system, resulted in a total of some $ 125 million in savings to LILCO electric billpayers in 1981 alone. We President are continuing, as well, our investigation into the feasibility of reconverting to coal LILCO power plants at Port Jefferson and Island Park, which were originally designed as coal-burning units. This investigation includes not only IREGULATDRV DDCKET FILE Nits

1981 A Year of Financial Progress Significant Progress Earnings and Dividends Long Island Lighting Company's ability to provide These are difficult times for adequate and reliable electric and gas service to Long many Americans. But, Island depends heavily on the continued support of investors. The need for investor support is perhaps confident of the individual's greater today than ever before, as capital-intensive potential to influence for utilities nationwide are finding it most difficult to operate good and for change, people within complex regulatory restrictions and under severe financial conditions. Therefore, LILCO's commitment is to are drawing from protect its investors'nterests as it meets its service inherent strengths and objectives to its customers. Significant progress toward resources to meet today' this commitment was made in 1981.

trying circumstances. Earnings and Dividends In recent years, LILCO has Dollars per share faced a series of challenges- 53.00 Earnings per share have oil embargoes, cost boon Increased In 19 of tho last 23 years. Tho dlvldend increases, changing rate on the common stock has been raIsed In 22 of the governmental regulations, last 23 years. The current Indicated annual dividend and limitations on natural gas 200 availability in meeting its Eamngs Par State rate of 81.94 per share a payout to a'epresents shareowners of 76% of 1981 legal mandate to provide earnings per share. Tho Company estimates that .

adequate and reliable tttdicated Annual Dividend Rate at Year End approximately 63% of tho dividends paid In 1981 were electric and gas service. not taxable as ordInary Income because they The successful response to .50 represented a roturn of capital. A substantial these many challenges is portion of the common stock dividends to be paid a tribute to the Company's In 1982 Is estimated to be a roturn of capital.

basic strength- '71 '73 '75 '77 '79 '81 the skill and dedication of LILCO people. Because Income for the common stock rose to $ 198.9 million from

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

work on the part of all LILCO's higher. Earnings per share increased from $ 2.53 in 1980 5,800 employees, 1981 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 was a year of significant years. The increased quarterly dividend of 481/2g per progress, and we face 1982 share provides an indicated annual dividend rate of $ 1.94 with optimism. 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 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.

financing, and a partial offset to the inflationary costs of Don Is one of LILCO's supervising service providing electric and gas service. Included in the PSC operators, directing the maintenance of gas and rate order was an increase in the amount of Shoreham electric service. While on shift, he makes sure that construction work in progress (CWIP) allowed in rate the lights go on and stay on.

base from $ 255 million to $ 355 million. This makes a total Off the Job, Don serves the community as Lieutenant of $ 400 million CWIP that is currently allowed in electric of Engine fy288 and as an emergency medical rate base. Although this revision does not affect the level technician with the Dlx Hills Fire Department. Last year, his fire department answered 400 alarms and of Company earnings, it does improve cash flow and the over 1,000 rescue calls a lot of ringing phones In uality of these earnings. The current effect on the middle of the night.

consumers of paying the interest and return for Don thinks thIs Is all Just part of doing his share.

shareowners on this $ 400 million of CWIP is only about "Making sure the heat comes back on when It' 5% of their bill. bitter cold Is vital," he says. "And there's no other feeling quIte like the one that comes from getting a Effective November 1, 1981, the PSC granted an heart beating again."

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.

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

$ 70 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 40 component was 10 times Its 1971 level. As a result, the cost of fuel now represents nearly 50% of the average resldentlal bill compared 30 with 20% ten years ago.

The average LILCO rosldentlal customer's cost 20 per kilowatt hour during 1981 was 34% higher than In 1980. This was duo to tho sharp rise In fuel costs late 10 In 1980 and early In 1981, followed by a docllno later ~iamb In tho year. As a result, the total residential electric bill for 600 kWh was only 10%

higher In December 1981, 71 '73 '75 '77 '79 '81 than In December 1980. The current outlook for 1982 ls for stable prlcos for both 0 Fuel Costs fuel oil and LILCO 0 Non-Fuel Costs 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 Ay%~

Ey i iki~iti Bonds with a total principal amount of $ 300.0 million; >~X~ PY ~

,I P qt' referred stock, $ 25 par value, to provide $ 65.0 million;

External Flnanclng Long Term of nuclear fuel. Initial partial cash payments totalling $ 42.7 Q Trusts million were made to LILCO in 1981. In addition, the P LILCO MilliOnS Of Dollars settlement includes an option to purchase up to 200,000 8700 ULCO sold over one-halt pounds of uranium per year from 1987 through 1991, and billion dollars of long. term the option to purchase fuel fabrication services, uranium securltles In tho capital markets In 1981. It also conversion services, and other goods, materials and raised approximately 890 services, all at advantageous prices to the Company.

million through borrowlngs from the lending banks of Approximately 29% of the settlement proceeds have been Its Trl.counties or will be paid by LILCO to NYSEG toward its share of t Construction financing trust. After Shoreham Is In Westinghouse uranium intended for the now cancelled commercial operation, the Jamesport plant. Additional cash payments may be need for such financing Is expecled to be sharply forthcoming as a result of the settlement in 1981 of reduced, and the debt of the litigation commenced by Westinghouse against a number construction financing trust Is planned to be prepaid. of uranium producers.

These prepayments as well as repayments to Trl.Counties Resources Bokum Resources Corporation Trust for the consumption The Westinghouse contract was an agreement LILCO of nuclear tuel aro reflected In tho net amounts shown entered into in 1973 to provide a long-term domestic on tho chart. supply of nuclear fuel for electric generation at prices favorable to the Company. After Westinghouse U announced it did not intend to honor its nuclear fuel

'77 '78 '79 '80 '81 '82 '83 '84 '85 '88 commitments, the Company initially contracted with Bokum Resources Corporation (BRC) in 1976 for and $ 160.5 million of common stock. The sales of deliveries of replacement uranium.

common stock included $ 128.2 million sold directly to the LILCO began a foreclosure action against BRC in public, $ 30.2 million sold to shareowners through the November 1980, after it became clear that the mining firm Company's Automatic Dividend Reinvestment Plan, and could not complete the uranium mine and mill and deliver

$ 2.1 million sold through its Employee Stock Purchase the uranium concentrates pursuant to BRC's contract with Plan. LILCO. This foreclosure action was stayed pending a As a result of these sales, the total $ 118 million of decision on the petition of LILCO and other creditors in commercial paper and bank loans outstanding at 1981, to the United States Bankruptcy Court for the 'une December 31, 1980, was fully repaid, and LILCO entered District of New Mexico for a reorganization of BRC under 1982 with short-term investments totalling $ 55.2 million, bankruptcy law. These legal steps were taken to preserve including $ 13.2 million invested in its financing trusts. the interests of Long Island Lighting by protecting advances, loans, and related interest totalling $ 82.3 Recovery of New Haven Expenditures million made by the Company to finance the Hokum Following completion of hearings on the abandoned New uranium mine and mill. A federal bankruptcy court granted'he Haven nuclear project, an administrative law judge of the petition of creditors, including LILCO, in December PSC concluded that the co-owners, LILCO and New York 1981, and declared BRC bankrupt. BRC has appealed State Electric & Gas Corporation (NYSEG), acted this decision. Also in December 1981, $ 1.05 billion of prudently in proceeding with the project. Therefore, the counterclaims BRC had made against the creditors who".

judge recommended that the PSC authorize amortization filed the bankruptcy petition were dismissed without and recovery of the full project costs in rates. He also prejudice. Additional BRC counterclaims totalling $ 710 recommended the continuation of AFC until such rate million are still pending.

recovery begins and approval to earn a return on the The BRC mill complex is nearly complete and is licensed unamortized balance of the project costs. The Company's subject to limited conditions. The mine and mill complex share of the New Haven nuclear expenditures was stands above substantial proven reserves of uranium, of approximately $ 31.8 million at December 31, 1981, after which LILCO contracted for 10 million pounds, enough to reduction by $ 15.7 million for estimated tax effects. A fuel Shoreham throughout its life. Additional expenditures decision of the PSC is expected shortly. will be required to make the mine and mill complex initially operational.

Settlement Reached with Westinghouse For further information about BRC and associated An outstanding financial issue was resolved when litigation including indemnification of officers and litigation begun by the Company against Westinghouse directors, see Note 7 of the Notes to Financial Electric Corporation in November 1975 was settled Statements.

favorably in April 1981. The Company began this litigation after Westinghouse advised its customers, including LILCO, that it would not fulfillits commitments for delivery

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 million barrels 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 for the 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, )--

LILCO will 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. S~

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. LILCO will 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 LILCO's Consumer Education Center Is located In pool of experienced people currently in the construction, Levlttown, but Jean Hersey takes energy tips to engineering, and startup organizations at the site who, consumers all over Long Island. She conducts a series of following fuel load, will be incorporated into the Iong-term approximately 30 different home and energy support of the plant operation. Thus, the experience management classes In six Nassau and Suffolk locations throughout the year. TopIcs Include energy conservation, gained in construction and in bringing the station on-line fire safety, solar and nuclear energy, and electrical wiring.

will be applied to assure continued safe and reliable plant "Long Islanders have a great interest In energy. Our class operation. enrollment never shrinks, It Just keeps growing."

In her hometown, Jean is active on the board of directors 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 LILCO environmental scientist, his Iob c'i >'I r r 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.

0

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The second major step leading to an operating license for Nine Mlle Point 2 Shoreham was successfully completed in October 1981 when LILCO met with the independent federal Advisory The Nine Mile Point Nuclear Unit 2 (NMP-2), under Committee on Reactor Safeguards (ACRS). Following a construction near Oswego, New York, will further reduce LILCO's dependence on foreign oil by about 2 million visit to the plant site and presentations by senior nuclear personnel on such subjects as compliance with changes barrels, or about 8%, per year, and will further stabilize the cost of electricity to LILCO customers. LILCO has 5h required following the incident at Three Mile Island in 1979, engineering, plant operation, training, and 18%, or 195 MW, share in the unit being built by Niagara Mohawk Power Corporation. The co-owners estimate a emergency planning, the ACRS issued a recommendation for a full power operating license subject construction cost of $ 2.4 billion, exclusive of financing to resolution of the same issues set forth in the SER. costs. Of that total, $ 1.0 billion had been spent at December 31, 1981.

The third and last effort in obtaining an operating license is successful completion of public hearings before the The PSC ordered public hearings to review two 1981 Atomic Safety and Licensing Board. Many plants in studies concerning the economic, financial, and similar positions have not required such hearings when construction status of NMP-2: an independent audit of successful SER and ACRS letters have been received. cost and schedule prepared by Theodore Barry &

However, intervenors have filed contentions on various Associates (TB&A), as consultants to the PSC; and the PSC staff's own economic analysis of alternatives. TB8 A aspects of Shoreham plant design, construction, and concluded that a 1986 commercial operation date was operation, as well as preparedness planning. Hearings on these matters are expected to begin in the spring of 1982. possible but, in their opinion, schedule slippage of a year The actions of the intervenors could delay receipt of the was likely, and future regulatory and economic operating license. Possible delays in completing uncertainties exist which could add significantly to the construction could also delay fuel loading. Each one ultimate cost and the time required for completion. The staff report concluded that completion of NMP-2 is month delay in commercial operation of Shoreham will add $ 35-40 million to its cost. warranted when compared with alternate plans for new coal-fired facilities, even if construction costs are Emergency preparedness efforts for Shoreham are well substantially in excess of those estimated by the under way. An exercise to test state, county, and LILCO co-owners. A PSC decision following the hearings, which plans will be conducted. The Federal Emergency began in early December 1981, and were completed by Management Agency and the NRC will evaluate the year's end, is expected early in 1982.

results of this exercise before an operating license is issued.

Jamesport During 1981, the United States Department of Energy In 1980, LILCO's and NYSEG's joint petition to build two rescinded its proposed orders that would have prohibited rluclear electric-generating units at Jamesport, New York, continued burning of oil at the Northport Power Station and terminated the related proceedings. The Company previously approved by the NRC, was denied by the New York State Board on Electric Generation Siting and the had requested rescission of these proposed orders on the Environment. However, the Jamesport Siting Board did grounds that coal conversion would have been grant a certificate to build an 800 MW coal-fired plant at economically disastrous. Company studies indicate that the Jamesport site. NYSEG decided not to participate in a under certain conditions conversion of two of the Port coal-fired project at Jamesport. In October 1981, LILCO Jefferson and the two Barrett units to coal would be economic. No final decision has been made by LILCO accepted the Jamesport Siting Board certification, subject to certain conditions. These conditions include an concerning these conversions.

allowance of one year's time to seek new partners and to Coal/water slurry (CWS) is finely pulverized coal mixed conduct studies of the plant's optimum size and with water to form an oil-like fuel. LILCO has organized completion date. The Siting Board has not yet acted on and heads a research team investigating the feasibility of the Company's conditional acceptance. burning CWS as a utility fuel. CWS may prove to be In early 1981, LILCO and NYSEG petitioned the PSC for attractive because it is potentially less costly to convert a authority to amortize and recover in rates the plant to CWS burning than to solid coal burning, and it nuclear-related portion of the Jamesport project eliminates many of the impacts on the community of expenditures. No action was requested regarding burning coal. Adelphi University's Center for Energy amortization of the coal-related portion pending a Studies is part of the research team and is conducting determination with regard to construction of a coal plant. laboratory tests on coal/water mixes of various types.

EBASCO, Inc. is studying necessary power plant The two companies were authorized by the PSC to modifications to permit use of CWS as a generating fuel.

continue to accrue allowance for funds used during (Modifications could include a new fuel unloading system construction (AFC) on the Jamesport costs pending either and the addition of agitators in storage tanks to prevent the completion of the certified coal unit or the the CWS mixture from separating.) Babcock and Wilcox, abandonment of the entire project. The PSC deferred a major boiler manufacturer, is investigating the impact of action on the amortization request. The Company's share CWS burning on boiler performance. Acting as a of the Jamesport nuclear expenditures was approximately consultant on the project is Combustion Processes, Inc.,

$ 44.7 million at December 31, 1981, after reduction by a company experienced with CWS research.

$ 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.

10 Llonel Smith Is a man totally Involved In the health and Natural Gas welfare of his community. As Pastor of the Faith Missionary Baptist Church In Greenlawn, he provides Increased availability of natural gas and conservation of spiritual leadership to young and old. gas by present customers has allowed LILCO to offer this As a LILCO lineman, Llonel sees much of the Long Island fuel to additional existing gas customers converting from world from a bucket truck. Like other LILCO linemen, oil heat to gas heat. At the end of 1981, a total of 168,900 neither snow nor rain nor heat slows his efforts as he works to provide Long Island's electrical needs. LILCO customers 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 LILCO joined 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 LILCO system 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

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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, LILCO saved 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 million in 1981 and displace 6.0 and 4.8 million barrels of oil, respectively.

The Company contributed over $ 2.5 million in 1981 to the Electric Power Research Institute (EPRI) for research into and development of new technologies to meet Long Progress in LlLCO Response to Island's present and future electric needs in Community Needs environmentally and economically acceptable ways. LILCO is concretely demonstrating its commitment to These funds supported investigations into fuels research, meeting the challenges facing the Long Island community such as coal gasification and liquefaction; solar and other in a variety of ways.

renewable resource and improved fossil-fired technologies; environmental studies including the causes and effects of acid rain; and energy conservation and Efficiency and Service Reliability more efficient transmission and distribution systems. To offset rising electric generating costs, LILCO has Another EPRI project in which LILCO is involved is a aggressively pursued an innovative program with a goal study on wind turbine siting. Working with Battelle of performing required maintenance work in an even more Laboratories, LILCO is providing the meteorological and expeditious and cost effective manner.

land-use data to establish a method of evaluating To spearhead this effort, a production planning center potential wind turbine sites. This study will aid other was established to more effectively schedule overhaul utilities seeking wind turbine sites in their own service work and improve worker productivity, while a training territories. LILCO personnel participate in many of these center was established to insure that mechanic skill levels studies through various EPRI committees. are further enhanced. To identify and solve persistent Five miles west of Montauk Point, at the Ocean Science operating problems affecting the efficiency of Northport, Laboratory, stands a 160 foot instrument tower. This LILCO's largest generating station, a technical services Department of Energy/LILCO tower has been collecting group was also established. The result of this group effort wind-energy data for five years. LILCO is pursuing plans coupled with innovative maintenance practices initiated to erect another tower one-half mile from the Montauk by plant personnel resulted in an annual fuel savings to lighthouse. One year of simultaneous readings collected our customers of $ 8.5 million in 1981.

from the two towers will verify whether or not winds in the The electric submarine cables connecting Connecticut area are strong and consistent enough to power a and Long Island are an important link in maintaining the g-3 MW wind turbine. lowest possible cost for electric energy. During severe cold weather, the cable system was damaged when Net Power Purchased by LlLCO from navigational buoys embedded in moving ice floes Other Utilities dragged their anchors across the cables. Historically, Millions of kwh repair work involved the installation of sophisticated cable 3000 repair joints requiring the skills of foreign technicians.

In each of tho last seven However, in 1981, this repair was completed utilizing a years, LILCO has been able to purchase substantial newly designed cable joint developed by LILCO which quantities of power from permitted the joints to be installed by LILCO personnel.

other utllltlos moro economically than It could This effort resulted in timely restoration of the cables with generate the power by a savings of approximately $ 1.0 million over the previous burning fuel oil In Its own power plants. These techniques.

purchases have saved LILCO customers $ 175.5 Service reliability is improved by LILCO's year-round tree million ovor tho seven-year trimming program. Branches that may tangle electrical porlod, Including $ 54.4 million In t98f. 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 71 'ra 'rs 74 75 'rs 'rr 'rs 'rs 're 'st 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.

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12 Certain customers are classified as a Critical Facility. This Economy In General Operations notation indicates that the customer merits special Efficient LILCO operations benefit the whole Long Island consideration during periods of restoration of electric community by helping to keep the cost of energy as low service lost during emergencies. Included in this as possible.

classification are police, fire stations, hospitals, water pumping stations and certain individuals who have a As an example, LILCO's Environmental Quality Control medical problem that requires some type of electrical system (EQUAC) constantly measures the sulfur dioxide apparatus for life support. In 1981, all Critical Facility content of the air, indicating when LILCO can burn less customers were field surveyed during the Company's expensive higher sulfur oil. This monitoring enables annual Emergency Restoration field exercise. Priority LILCO to keep fuel costs down by burning a less attention is given to these customers during periods of expensive fuel without damaging air quality. Long Island's emergency. excellent air quality is maintained, and LILCO customers save money. The EQUAC system has saved LILCO During 1981, six new VHF radio frequencies were customers over $ 300 million since 1973, when the 14 licensed and placed in service, and 362 mobile radio units air-sampling stations were put into operation. In 1981, were converted to operate on four of these six new EQUAC saved Long Islanders $ 48 million in fuel costs.

frequencies. This culminated the first year's activities of a three-year plan to improve both routine and emergency Significant gains were made during 1981 in improving the communications. These communications improvements effectiveness of existing billing meters. Modernization of will not only help improve LILCO service, but will also be a certain electric and gas meters, and improved techniques boon to the Long Island community as well. They will to verify meter accuracy, will result in additional annual enable LILCO personnel to more rapidly contact the revenue of $ 1.8 million.

nearest customer service headquarters and request LILCO processes over 7 million customer bill payments assistance via their direct telephone links to fire, police, annually. The Company has been using an automated and other emergency service units. check processing system since 1972. During 1981, this LILCO's unique Computer Assisted Restoration of system was upgraded, bringing a 60% increase in Electric Service system (CARES) has also contributed to productivity over the former processing system. The service efficiency. By input of customer telephone processing system enables LILCO to deliver customers'hecks numbers, the CARES system shows a customer' directly to the bank upon which they were drawn.

location on a graphic computer map display that matches on the same day they are received. This yields an annual LILCO's service area maps. This helps to pinpoint service cost savings of approximately $ 0.8 million.

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.

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 will with 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 For years, LILCO buildings, grounds, and properties have LILCO responds in many other ways to provide services been used to support bicycle paths, Boy Scout meetings, to its customers and the community. parks, summer camps, boat ramps, farms, nurseries, and vegetable gardens. Selected right-of-ways are LILCO's Balanced Billing plan, started in 1979, was landscaped to harmonize with surrounding developed to respond to customer needs. The plan neighborhoods. Many appear to be extensions of an balances out seasonal energy bills by spreading yearly adjacent homeowner's property. Each parcel is used to energy costs into 12 level payments. This program was maximize the benefits of the land to the community.

expanded in 1981. Over 125,000 LILCO customers now manage their energy expenses with Balanced Billing. In In June 1981, the 216-year old Ella Hallock farmhouse addition, a newly designed LILCO bill carries more billing and outbuildings located on LILCO's Jamesport property information and is easier to read. were donated to Hallockville, Inc., a community organization pledged to preserve the historic homestead The Home Energy Assistance Program (HEAP) grants as a living museum and cultural center. In this way, a federal funds to help qualified individuals pay heating or remnant of the once-active farming hamlet of Hallockville, utility expenses. In 1981, LILCO produced and distributed Long Island will not be lost.

information on the HEAP program in its bill enclosures, in a special brochure titled, "L.I.G.H.T. Long Islanders Nearly two decades ago, in hopes of bolstering the dwindling osprey population on Long Island, LILCO Get Help Tips," and by taking ads in weekly and daily newspapers. Long Islanders received over $ 1.5 million in began placing nesting platforms atop poles in eastern aid through the HEAP program in 1981. Long Island. Ospreys are fish hawks that are native to Long Island but their numbers had decreased due to In 1977 New York State passed the Home Insulation and ingestion of the insecticide DDT. In 1965, only four Energy Conservation Act (HIECA). HIECA mandated that fledglings hatched at a favored Gardiners Island nesting all New York State utilities (municipals excluded) provide site. DDT spraying was halted in 1966, and records show subsidized energy audits and loans for eligible that 126 osprey chicks were hatched on Long Island

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homeowners or tenants. From June 1978, through during 1981. The ospreys are finding the LILCO platforms December 31, 1981, LILCO completed 24,000 on-site the perfect spot to nest.

home energy audits.

The Company also lends a hand by funding events such as the "Ability is 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.

14 Financial Analysis This analysis discusses matters of significance in the Dividends: The dividend rate on the common stock has Company's Financial Statements, which follow, with been raised annually for the last 23 years with the regard to results of operations, capital requirements, and exception of 1974. The quarterly dividend rate was liquidity for the last three years. raised from 441/2g to 461/2g per share in June 1980 and to 481/2. per share in June 1981. These actions increased Results of Operations the indicated annual dividend rate by 8g each year to Earnings: Earnings per share have been increased in 19 $ 1.94 in 1981 from $ 1.86 in 1980 and $ 1.78 in 1979.

of the past 23 years. For 1981, earnings of $ 2.55 per Although the Company contemplates the continuation of share were 2g above the $ 2.53 earned in 1980 and 14/ quarterly dividend payments, the payment of future above the $ 2.41 earned in 1979. Income for common dividends will depend upon future earnings, the financial stock of $ 198.9 million in 1981 was $ 34.0 million, or condition of the Company, and other factors. (See "Rate 20.6%, greater than in 1980, more than offsetting the Increases" and "Capital Requirements and Liquidity.")

19.7% increase in the average number of common Quarterly dividends were paid as follows during the last shares outstanding. Income for common stock of $ 164.9 three years:

million in 1980 was $ 36.1 million, or 28.0%, greater than in 1979, more than offsetting the 22.1% increase in the Payment Dates Paid Per Share average number of common shares outstanding. The 1981 1980 1979 increases in average common shares outstanding indicated in the foregoing reflect the sale of 9.0 million Feb. 1 46vig 44Vaff 42Vag May 1 46Valf 44VaII 42Vaff shares in April 1981, 8.1 million shares in July 1980, and Aug. 1 48Valf 46Vag 44VrII 7.5 million common shares in 1979 and continuing sales Nov. 1 48Valf 46Vaff through the Company's Automatic Dividend Total Paid $ 1.90 $ 1.82 441/2'1.74 Reinvestment and Employee Stock Purchase Plans totalling 2.3 million shares during 1981, 1.6 million shares during 1980, and 1.2 million shares during 1979. The The Company estimates that for federal income tax incieases in income for common stock, which include purposes certain percentages of the dividends paid increases in LILCO allowance for funds used during 1980, and 1979 represented a return of capital in'981, construction (AFC), reflect the inflationary impact of and, therefore, may not be taxable as ordinary income.

higher costs of capital and additional capital raised. The These percentages are 63% of the common stock of the dividends paid on all series of preferred stock and'one current level of rates charged customers has not been significantly affected by the factors which have resulted in 1981, 100% of the common stock and 100% of the in'the increases in income. 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.

Income for Common Stock and Average Such estimates are subject to audit by the Internal Common Shares Outstanding Revenue Service. Whether or not any portion of future Percent Increase common stock dividends will constitute a return of capital 400%

Since 1971, LILCO has is dependent upon future rate relief, the resultant Increased Its Income for earnings of the Company, the size of the Company's common stock 374% whllo construction program, the amount of construction work in tho average number of common shares progress (CWIP) permitted in rate base, and changes in outstanding has risen 286%. income tax laws, including those which became law in In the period 1971-1981, Inclusive, LILCO sold 10 August 1981. The Company currently estimates that a Issues of common stock to substantial portion of the common stock dividends to be the public totaling 51.8 million shares. An paid in 1982 will represent a return of capital.

Income additional 8.1 million shares For Common were sold to shareowners The trends of earnings, dividends, and coverage of Stock through the Automatic interest and fixed charges over the past six years are Dividend Reinvestment Plan and to employees. Based on provided in the Summary of Operations, Table 1, in the tho current estlmato of section of this report entitled "Selected Financial Data."

Average future capital requirements, Common Shares no additional common stock Information with regard to the electric and gas segments Outstanrrrrg 50 Is expected to be sold with of the Company's business for the most recent three tho exception of the balanco contained In this year' years is provided in Note 9 of the Notes to Financial

'71 '73 '75 '77 '79 '81 flnanclng program and Statements. Additional data for prior years for both continued sales through dividend reinvestment and electric and gas operations is contained in the various to employees. 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 The principal factors causing these revenue increases The average unit prices of fuels and the increases in were: average unit prices between current and prior Increase from Prior Year comparable periods were as follows:

1981 1980 increase from Prior YeaC (Dollars in Millions) S $ 981 1980 1981 (1) Fuels and Purchase Power $ 213.6 $ 173.3 Average (2) Rate Increases 153.4 48.0 UnIt Unit Unit (3) Changes in Energy Sales and Other 20.9 10.1 Price'ost '/o Cost /o Total $ 387.9 $ 231.4 For Electric Operations If/kwh Fuels consumed for Additional information about these factors: net generation 5.02I! 1.58if 45.94/o 0.87tf 33 go/o Purchased power 4.60I! 0.92if 24.9 0.68II 22.7 (1) Fuel Costs: Changes between periods in the costs of For Gas Sendout electric fuels, purchased power, and gas fuels were $/mcf $ 2.90 $ 0.32 12.4 /o $ 0.68 36.1'/o influenced primarily by (a) the mix of each fuel used and

'Includes fuel cost adjustment deferred.

(b) increases in the cost of the fuels.

(a) During 1981 and 1980, the Company substantially Additional fuel data for prior years is contained in Tables decreased the use of high-cost, low-sulphur-content oil 4 and 5 of "Selected Financial Data."

to generate electricity on its own system by purchasing record amounts of power from other utilities, and by (2) Rate Increases: Total revenues net of the above fuel burning substantial volumes of natural gas. Purchased costs increased $ 174.3 million, or 27.9/o, in 1981 to power displaced 4.8 million barrels in 1981 and 6.0 $ 799.5 million and $ 58.1 million, or 10.3/o, in 1980 to million barrels in 1980. Burning gas displaced 3.9 million $ 625.2 million.

barrels of oil in 1981 and 3.4 million barrels in 1980. The

.'.Company estimates that these actions saved customers The principal factor affecting these revenues net of fuels

a total of $ 77.1 million in 1981 and $ 69.7 million in 1980 was rate increases. Permanent annual electric rates were

, compared to the estimated cost of generating an increased by a total of $ 192.2 million in 1981, $ 25.1

equivalent amount of power on the LILCO system with oil. million in 1980, and $ 31.4 million in 1979. Permanent annual gas rates were increased $ 17.1 million annually in

",The mix of fuels and purchases for providing the 1979.

.,Company's electric system energy requirements during

',1981 and 1980 were as follows: On May 26, 1981, the PSC issued its order in the permanent phase of the Company's request to increase 1981 1980 electric rates by $ 228 million annually. The salient Oil 64o/o 61 o/o features of this order were:

Gas 16 14 Purchases 20 26 (a) The amount of rate relief granted was $ 183.1 million, an increase of 13.6/o over revenues forecasted in the Total 100 /o 100 /o rate case for the 12 months ending April 30, 1982. The new rates became effective May 29, 1981. These rates (b) The cost of fuels and the increases in cost during include $ 90 million of interim cash flow relief effective 1981 and 1980 were: November 27, 1980. All of this interim rate relief was Increase from Prior derived from normalization of income tax deductions of 1980 interest related to LILCO's Tri-Counties Resources and 1981 1g81 Year'Dollars Construction Trusts, and Shoreham-related items not Total previously permitted to be normalized. As a result of this in Millions) Cost' /o $ /o normalization, the additional revenues were offset by Electric Fuels $ 588.2 $ 199.7 51.4 /o $ 103.7 36.4 /o deferred income tax expense. Thus, there was no effect Purchased Power 131.6 (0.9) (0.7) 27.7 26.5 Gas 145.5 14.8 11.4 41.9 47.2 on earnings, but cash flow and coverage of interest charges before taxes were improved.

Total $ 865.3 $ 213.6 32.8 /o $ 173.3 36.2 /o (b) Returns of 16.0/o on common equity and 12.21/o

'Includes fuel cost adjustment deferred. 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 will be increased and AFC will be reduced correspondingly.

16 (d) The deferral of the federal income tax benefits Approximately 70% of the Company's annual system mcf associated with the interest on amounts financed through sales of gas results from consumption by space heating the Company's Tri-Counties Construction and Resources customers. Accordingly, total gas system revenues and Trusts, real property taxes, and certain construction sales are heavily influenced by seasonal temperature costs associated with Shoreham, granted in the interim variations between periods and the availability of gas for phase of the case, was continued in the permanent rates, sale to interruptible customers. The number of degree and provides cash flow relief. days billed in 1981 was 1.3% above those in 1980, while the average use of gas by space heating customers was (e) The Company was allowed to transfer an additional 0.2% lower in 1981 than in 1980. Thus, conservation 3.0g per kWh of fuel costs into base rates and to amortize and recover approximately $ 35 million of unrecovered partially offset the effect of a 7.4% increase in the number deferred fuel costs. of average gas heating customers served and limited the growth in sales of gas for this purpose to 7.2%. Firm sales (f) The Company was permitted to file for a second step in 1981 reflect only a part of the winter consumption by increase in February 1982 to recoup increases in the customers who converted from oil to gas for space property taxes. heating during the year. Sales of gas available to On May 15, 1981, LILCO filed an application with the non-firm customers are reflected in interruptible sales in PSC to increase gas rates by $ 9.2 million, or 2.5%, the table below. The record amount of gas sent out on annually. On October 27, 1981, the PSC authorized an any one day, 371.8 million cubic feet on January 4, 1981, increase in the Company's gas rates, effective November was exceeded on January 11 and 17, 1982, when 383.2 1, 1981, designed to provide $ 8.6 million in additional and 402.5 million cubic feet, respectively, were sent out.

gas revenues annually. The Company is permitted to file The stable level of total firm gas system energy sales a second stage filing in July 1982 to reflect increases in over several years prior to 1980 was primarily due to property taxes and wages. restrictions on the addition of new gas load due to limitations on gas supply.

(3) Changes in Energy Sales: Consumption by residential customers accounts for approximately 45% of the Gas Sales Increase or (Decrease) from Prior Year ~

Company's annual system kWh sales of electricity. This is 1981 1980 1981 one of the highest proportions of such sales in the Total electric utility industry, and contributes to relatively stable mcf operations of the Company. As a result of conservation of Sales mcf mcf energy use, however, the 1.3% decrease in residential (Millions)(Millions) (Millions) sales in 1981 from 1980 was caused by a 2.0% decrease Firm System in average use and a 0.7% growth in average customers. Sales The 1.0% increase in residential sales in 1980 over 1979 Space was primarily due to the 0.9% growth in average Heating 34.8 2.3 7.2% 1.4 4.4 Non.space customers. The 1.0% rise in commercial-industrial sales Heating 7.6 0.1 1.3 0.4 5.5 in 1981 reflected a 0.2% decrease in average use and a Total Firm 42.4 2.4 6.1 1.8 4.6 1.2% gain in average customers. The gain in 1980 of Interruptible 6.0 (1.3) (17.5) 1.8 33.7 2.2% was comprised of a 1.0% increase in average use Total and a 1.2% gain in average customers. System Sales 48.4 1.1 2.5 % 3.6 8.2 %

Electric Sales Increase or (Decrease) from Prior Year 1 981 1980 Degree Days 1 981 Billed 4,975 65 1.3% 298 6.5%

Total kWh Additional energy sales data for prior years is contained Sales kwh kWh (Millions) (Millions) (Millions) in Tables 6 and 7 of "Selected Financial Data."

System Sales Residential 5,581 (74) (1.3)% 56 1 0%

Commercial and Industrial 6,494 63 1.0 140 2.2 Other 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 Operations and Maintenance Expenses: Total About one-half of the increase in 1981 and almost all of operations and maintenance expenses exclusive of fuels the increase in 1980 in operations and maintenance and purchased power increased $ 36.8 million, or 19.4%, expenses exclusive of fuels and purchased power was in 1981 to $ 226.5 million and $ 18.9 million, or 11.0%, in due to inflation. The other one-half of the increase in 1981 1980 to $ 189.7. Approximately 57% of these total costs in was due principally to additional maintenance on electric 1981 represented employee wages and benefits. The generating facilities and additional research and Company has 5,800 employees, about 4,200 of whom development expenses. Information concerning the belong to either Local 1049 or Local 1381 of the effects of inflation on the Company's operation is International Brotherhood of Electrical Workers contained in Note 11 of the Notes to Financial (A.F.L.-C.I.O.). As a result of collective bargaining Statements. Additional expense data is contained in negotiations between the Company and the unions in Table 8, and operating ratio information is contained in 1980, a general wage increase of 8.70% became Table 9 of "Selected Financial Data."

effective July 1, 1980, and a general wage increase of 8.25% became effective July 1, 1981. The current Other Items: Other items such as depreciation, contracts expire June 30, 1982. 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 Uso of Electric Revenue offset by a $ 65.3 million increase in total AFC. The gain in Cents por kWh 1980 over 1979 was $ 62.7 million, or 16.7%, somewhat offset by a $ 46.0 million increase in total AFC. Increases LILCO's average revenue in depreciation generally result from the addition of plant 10.0 por kwh sold has risen 333/o from 2.42I.'In 1971 to in service. Increases in operating taxes are largely due to 9.0 11.0'eratens 10.48I! In 1981. About 60% higher property taxes resulting from the addition of new of this Increase has been 8.0 due to the Increased cost of plant and increased property tax rates, as well as higher an

'> Maintenance Expenses I 70 the tuel component, which state and local gross income and franchise taxes on roso 896/o during tho porlod and accounted for about increased revenues. Increases in interest charges and I 60 one-halt of the revenue preferred stock dividends result primarily from the sale of 5.0 In 1981. This Increase would I

have been significantly additional securities and from increased Trust FUet Expenses/) 40 greater without the borrowings used to finance the Company's continuing purchases of economy construction and nuclear fuel programs. Interest charges

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3O power, the burning of gas, Taxes and the burning of high on Trust obligations are capitalized and vary with 2.0 sulfur oil through the Company's Environmental changes in the lending rates of the Trust's credit banks.

1.0 Quality Air Control systom. Such charges are offset by AFC related to Trust interest 0 at'nctxne Atter Taxes 0 so there is no effect on the net income of the Company.

'71 .,

'73 '75 '77 '79 '81 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 Uso of Gas Revenue (including AFC corresponding to interest on Trust obligations) fluctuates from period to period with Dollars per mcl

$ 6.00 changes in the cost of money, the level of construction LILCO's average revenue activity, the amount of CWIP included in rate base, and per mcf of gas sold has modifications in regulatory policy. The amount of electric Increased by $3.65, or 206%, to $ 5.42 In the last 10 CWIP included in rate base (on which the Company is years. Two.thirds of this allowed to earn a cash return in lieu of non-cash AFC)

Increase was duo to the 4.00 457%%d tncrease In tho cost of was increased, effective May 29, 1981, from $ 300 million gas, whIch now accounts to $ 400 million. The total average amount of CWIP for over half of tho total price of gas. 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 Depreciation 1980 and 1979.

Taxes LILCO AFC (excluding AFC related to Trust interest) totalled $ 148.0 million in 1981, $ 109.9 million in 1980, and Operatons and Mabtenance Ex $ 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,

'71 '73 '75 '77 '79 '81 respectively, were $ 5.3 million, $ 4.2 million, and $ 3.8 million of 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 (2) During 1981, 1980, and 1979, the maximum variations in net income before income taxes, recognition aggregate amount of bank loan and commercial paper of investment tax credits, and the deduction of interest on borrowings at any one month-end was $ 187.1 million at Trust obligations and items capitalized for financial February 1981, $ 126.9 million at June 1980, and $ 121.7 statement purposes that are allowed as current million at August 1979. The daily averages of total bank deductions on the Company's tax returns. The deferral of loan and commercial paper borrowings were $ 95.8 tax benefits associated with the rate increase effective million, $ 59.4 million, and$ 41.8 million, respectively. The November 27, 1980, was the prime component in the approximate weighted average interest rates (excluding increase in 1981 in the provision for federal income the effects of compensating balances and commitment taxes. (See Notes 1 and 6 of the Notes to Financial fees) on revolving credit and commercial paper Statements.) 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 Capital Requirements and Liquidity Financial Statements.)

Financial ObJectives: The electric utility industry is one (3) At December 31, 1981, the Company's capitalization of the most capital intensive industries in the world. Very ratios were: (a) 47.9%%d long-term debt, including the large amounts of capital must be obtained to construct Trusts; (b) 14.2/o preferred stock (no preference stock new generating facilities to meet customer demands for outstanding); and (c) 37.9/o common stock and retained energy and, in the future, to convert existing oil-fired earnings.

generating facilities to coal to reduce this nation's Capital Requirements: Total capital requirements for" dependence upon imported foreign oil. To provide this 1981 and those estimated for 1982 and the total for the capital, electric utilities customarily issue short-term five years 1982-1986, inclusive, are as follows:

debt, which is repaid periodically with the proceeds from the sale of long-term securities and from funds provided Actual Estimated through internal cash generated from operations. A 1982-general objective in the industry is that internal cash (Dollars ln Millions) 1981 1982 198&

generation from operations (as described under Capital Provided) should provide about 50/o of the total funds LILCO ConstructIon Requirements required for construction. LILCO management concurs Electric Shoreham $ 403 $ 439 $

with this objective. LILCO's financial corporate objectives Other production 42 512'2 320 also include: (1) retirement of all short-term debt at least Other 47 53 550 once a year; (2) in the normal course of events, a Total electric 472 534 1,382 maximum amount of short-term debt outstanding not Gas 23 18 80 exceeding $ 100 million unless the Company has the Common 7 16 91 clear ability to refinance completely such short-term debt Total LILCO construction with long-term securities; and (3) maintenance of (Incl. AFC) 502 568 1,553 capitalization ratios of (a) not over 50% long-term debt, Less AFC (148) (194) (448) including the Trusts, (b) 10-12t/z/o preferred and Total LILCO construction preference stock, and (c) 40-37t/z/o common stock and (Excl. AFC) 354 374 1,105 retained earnings. Trust Requirements (1)

Nine Mile Point 2 94 128 519 (1) In recent years, including 1981, the Company has Less capitalized interest (50) (62) (257)

Nuclear fuel 21 27 186 essentially met these objectives, with the exception of the Less capitalized interest (20) (17) (93) level of internal cash generation from operations. No short-term debt has been outstanding at least once in Total construction and nuclear fuel each of the last seven years, including at year-end (Excl. AFC &

1975-1979, inclusive, and 1981. At the end of 1980, capitalized interest) 399 450 1,460 however, $ 100.0 million of bank loans under the Refunding Requirements Company's $ 250 million Revolving Credit Agreement and Senior Securities 68 84 413

$ 18.0 million of commercial paper were outstanding. At Resources Trust 28 2 119 Construction Trust 500 the end of 1981, the Company had short-term investments totalling $ 55.2 million, including $ 13.2 million invested in its financing Trusts.

Total capital requirements (Excl. AFC) 495 '36 2,492 Repay Short-term Debt 118 10 Short-term Investment 55(2) 185 Loans to BRC 1 Other 11 Total Capital Requirements (Excl. AFC and capitalized interest) $ 680 $ 536 $ 2,687 (1) See Notes 4 and 7 of the Notes to Financial Statements.

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

For additional data on construction expenditures for prior Internal cash generation from operations provided 5% of years, see Table 10 of "Selected Financial Data." total construction expenditures in 1981. For this purpose, construction includes (1) LILCO construction less AFC Capital Provided: The capital provided to meet LILCO's plus (2) construction expenditures of Tri-Counties construction requirements is as follows: Construction Trust for the Company's share of Nine Mile Estimated Point 2 less interest capitalized by the Trust plus (3) net Actual expenditures of Tri-Counties Resources Trust for nuclear 1982- fuel less interest capitalized by the Trust. For 1982, and (Oollars ln Mialons) 1981 1982 1986 for the five years 1982-1986, internal cash generation External Financing Long-term from operations is estimated to provide negative 6% but G&R bonds $ 300 $ 200 $ 280 average 95%, respectively, of total construction Preferred stock 65 Common stock requirements (excluding AFC).

public sales 128 159 159 The Company's ability to continue its planned ADRP, ESPP 32 29 149 construction program, including the completion of Total 525 388 588 Shoreham, depends upon the ability of the Company to Trusts 45 89(3) 368 sell long-term securities in planned amounts. Assuming Total External Long-term 570 477 956 Shoreham is adequately reflected in rates in 1983, the Short-term Debt 10 Company's earnings, coverages, and cash flow are Short-term Investment 42 67 Westinghouse Settlement 43 expected to improve substantially. Thereafter, the Internal Cash Generation Company's financial position will depend upon the extent from Operations (1) 19 (26) 1,392 of expenditures required to convert existing or build new Other Internal Funds generating units to burn coal.

Generation (2) 48 33 262 Total Capital Provided $ 680 $ 536 $ 2,687 When Shoreham begins commercial operation, the Company anticipates that fuel savings resulting from the displacement of higher cost oil with nuclear fuel will (1) Includes: offset, in part, rates reflecting the costs of the Shoreham (a) Retained earnings (net income less dividends on preferred and common stock) investment to be placed in rate base. The degree of (b) Depreciation offset will be dependent on the cost of fuel oil at that time.

(c) Deferred and other federal income taxes If the net result of Shoreham's operation would be to Less: cause a substantial initial increase in rates, the Company (d) Allowance for funds used during construction may propose a rate treatment which would reduce that (2). Includes: impact on customers. The evaluation of any proposal will (a) Other sources of funds from operations (b) Changes in working capital be based on obtaining rate relief adequate to maintain (c) Other non-cash sources (net) the financial integrity of the Company.

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

Financial Statemen 20 Balance Sheet Assets At December 31 (In thousands of dollars) 1981 1980 197 Utility Plant Electric $ 1,705,033 $ 1,647,627 $ 1,568,31 Gas 319,534 296,604 284,46 Common 77,425 75,105 72,35 Construction work in progress 2,153,832 1,757,898 1,444,63 Nuclear fuel in process 36 13 Construction and nuclear fuel in trusts 406,542 318,649 242,20 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 Nonutility property, principally at cost 2,863 1,694 1,87 Investments Investment in subsidiary companies, at equity 547 398 37'4,73 Other investments and deposits 58,773 54,870 Total Other Propert and Investments 62,183 56,962 76,98 Current Assets Cash 10,023 5,910 8,62 Temporary cash investments 42,200 200 3,48 Special deposits 602 1,579 12,42 Accounts receivable (less allowance for doubtful accounts of $ 4,342,000,

$ 3,188,000 and $ 3,147,000) 155,620 142,522 115,85 Accrued revenue on accounts billed bimonthly 19,553 16,117 13,86 Materials and supplies at average cost 27,736 27,808 24,60 Fuel oil at average cost 68,662 50,149 42,S2 Gas in storage at average cost 36,145 27,926 24,32 Pre payments 1,318 1,167 1,20 Total Current Assets 361,859 273,378 246,70 Deferred Charges Electric fuel cost adjustment deferred 4,188 39,219 22,70 Other 38,136 26,056 28,2.1 Total Deferred Charges 42,324 65,275 50,91 Total Assets $ 4,508,152 $ 3,917,746 $ 3,459,58 See Notes to Financial Statements.

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 fairly the 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.

Price Waterhouse Jericho, New York February 1, 1982

apitallzation and Liabilities December 31 (In thousands of dollars) 1980 1979 pltallzatlon Long-term debt $ 1,492,629 $ 1,264,677 $ 1,274,722 Preferred stock Preferred stock cost'981 Unamortized premium and (discount) on debt redemption required no redemption required (2,349) 1,490,280 414,650 158,083 (39) 1,264,638 361,250 158,968 1,274,746 24 294,100 160,090 Treasu stock at (569) (186)

Total Preferred Stock 572,164 520,032 454,190 Common stock 406,853 349,907 301,116 Premium on capital stock 724,241 619,333 520,324 Capital stock expense (42,107) (35,140) (30,138)

Retained earnings 439,285 391,113 346,001 Total Common Shareowners'qui 1,528,272 1,325,213 1 137,303

~

Total Capitalization 3,590,716 3,109,883 2,866,239 ust Obligations 439,425 348,935 287,308 rrent Liabilities Current maturities of long-term debt 72,048 60,044 20,040 Sinking fund requirements on preferred stock 11,600 7,850 7,850 i8 Notes payable 118,000 24,836 0 ~

Accounts payable 152)930 110,306 96,383 Accrued taxes, (includina federal income tax of $ 2,307,000, $2,062,000 and $ 2,092,000) 28)526 38,762 32,467 Accrued interest 40,216 27,820 22,195 Customer deposits 9,769 8,606 8,080 Dividends pa able 46,104 36,515 30,864 Total Current Liabilities 361,193 407,903 242,715 ferred Credits Accumulated deferred income tax reductions 106,795 43,821 55,698 Other 6,091 2,239 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(" Total Capitalization and Liabilities $ 4,508,152 $ 3,917,746 $ 3,459,582 e Notes to Financial Statements.

Qn) elr no 3fff

22 Statement of Income For Year Ended December 31 (ln thousands of dollars) 1981 1980 1979 1978 19 Revenues Electric $ 1,402,719 $ 1,039,666 $ 860,798 $ 738,339 $ 682,9 Gas 262,113 237,272 184,700 160,632 141,0 Total Revenues 1,664,832 1,276,938 1,045,498 898,971 824,0 Expenses Operations fuel and purchased power 865,352 651,726 478,416 365,307 350,4 Operations other 158,267 132,207 118,644 104,384 97,2 Maintenance 68$ 253 57,503 52,206 44,660 40,9 Depreciation, depletion and amortization 60,065 56,668 54,060 51,192 45,0 Operating taxes 198,979 172,916 153,706 141,160 131,5 Federal income tax current (1,008) (2,915) (2,267) 7,297 7,8 Federal income tax deferred and other 89,036 14,205 19,749 24,183 15,3 Total Expenses 1,438,944 1,082,310 874,514 738,183 688,4 Operating Income 225,888 194,628 170,984 160,788 135,6 Other Income and (Deductions)

Allowance for other funds used during construction 113,648 80,993 58,086 47,294 44,6 Other income and (deductions) (1,084) 5,002 4,129 (1,026) (1 Federal income tax credit current (1,128) (2,985) (2,417) 3,498 4,9 Federal income tax credit deferred and other 29,855 24,910 17,855 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 134,174 113,679 101,889 91 195

~ 80,5 Other interest 19,631 12,710 7,119 5,720 50 Allowance for borrowed funds used during construction (34,358) (28,859) (22,034) (18,883) (21~1 Interest capitalized by trusts 69,876 42,730 26,496 3,562 Allowance for borrowed funds used during construction trusts (69,876) (42,730) (26,496) 3,562 Total Interest Charges and (Credits) 119,447 97,530 86,974 78,032 64,4 Net Income 247,732 205,018 161,663 141,993 132,3 Preferred stock dividend re uirements 48,830 40,103 32,851 30,688 27;7 Income for Common Stock $ 198,902 $ 164,915 $ 128,812 $ 111,305 $ 104,5 Average Common Shares Outstanding (000) 77,988 65,138 53,366 45,670 40,3 Earned per Common Share 2.55 $ 2.53 $ 2.41 $ 2.44 $ 2 Dividends Declared per Common Share $ 1.92 $ 1.84 $ 1.76 $ 1.70 $ 1.'

See Notes to Financial Statements.

23 5areowners'quity December 31 (In thousands of dollars) 1981 1980 1979 1978 1977 atement of Retained Earnings lance, January 1 $ 391,113 $ 346,001 $ 311,838 $ 279,157 $ 242,147 d Net income for the year 247,732 205,018 161,663 141,993 132,310 ss Cost of issuance of retired preferred stock 1,335 ss Capital stock expense 1 1 1 ss Cash dividends declared:

.ferred stock 49,289 39,701 32,215 30,651 27,223 mmon stock 150,270 120,204 95,284 78,661 66,742 lance, December 31 $ 439,285 $ 391 113

~ $ 346,001 $ 311,838 $ 279,157 immon Stock Par Value $ 5 per Share ares authorized 110)000>000 80,000,000 80,000,000 80,000,000 60,000,000 ares issued and outstanding 81) 370>597 69,981,436 60,223,283 ~

51,414,352 44,041,453

.rease in shares outstanding 11,389,161 9,758,153 8,808,931 7,372,899 6,402,068 reases in $ 5 Par Value $ 56,946 $ 48,791 $ 44,044 $ 36,865 $ 32,010

.reases in Premium on capital stock 104,908 99,009 77,971 91,124 88,348

reases in Capital stock expense 6>967 5,002 ',817 1,211 8,713 eferred Stock r Value $ 100 per Share, Cumulative:

ares authorized 7,000)000 5,050,000 5,050,000 5,050,000 5,050,000 ares issued and outstanding 3,633,330 3,700,675 3,770,403 3,064,993 3,024,360 ares subscribed 70,000

% Series 8 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 5% Series D 7,000 7,000 7,000 7,000 7,000 35% Series E 20,000 20,000 20,000 20,000 20,000 5% Series F 5,000 5,000 5,000 5,000 5,000 a % Series H 20>000 20,000 20,000 20,000 20,000

') % Series I Convertible 6,083 6,968 8,090 11,499 14,436 12% Series J 25,000 25,000 25,000 25,000 25,000 0% Series K 30,000 30,000 30,000 30,000 30,000 t0% Series L: 31)850 32,900 33,950 35,000 35,000 f0% Series 35,000 35,000 35,000 35,000 35,'000 48,000 48,000 48,000 M'0%

Series Q'%

38,400 43,200 Series R* 60,000 60,000 60,000 60,000 60,000 0% Series S" 75,000 75,000 75,000 tal Par Value $ 100 $ 363,333 $ 370,068 $ 377,040 $ 306,499 $ 309,436

'r Value 25 per Share, Cumulative:

ares authorized 14,400>000 7,200,000 7,200,000 7,200,000 7,200,000

.ares issued and outstanding 8,840,000 6,310,000 3,400,000 3,400,000 3,400,000

! ares held in treasu 34,800 10,000

!.47 Series $ 46,000 $ 48,000 $ 50,000 $ 50,000 $ 50,000 Series P0'..43 35,000 35,000 35,000 35,000 35,000

'.31 Series T* 75,000 75,000

'-.25 Series 65,000 85,000 85,000 85,000 U'tal Par Value $ 25 221,000 158,000

,ss Sinking fund requirements 11,600 7,850 7,850 1,050

,ss Treasury stock at cost 569 186 Ital Preferred Stock $ 572,164 $ 520,032 $ 454,190 $ 390,449 $ 394,436 e Notes to Financial Statements.

ademption required, see Note 3.

24 Statement of Changes in Financial Position For Year Ended December 31 (In thousands of dollars) 1981 1980 1979 1978 19 Source of Funds Operations Net income $ 247,732 $ 205,018 $ 161,663 $ 141,993 $ 132,3 Principal noncash charges and (credits) to income:

Depreciation, depletion and amortization 60,070 56,668 54,060 51192 45,0 Deferred and other federal income taxes 59,181 (10,705) 1,894 14,712 3,6 Allowance for funds used during construction (148,006) (109,852) (80,120) (66,177) (65,8 Other 8,473 9,145 9,023 8,478 7,2 Interest capitalized by trusts 69,876 42,730 26,496 3,562 Allowance for borrowed funds used during construction trusts (69,876) (42,730) (26,496) (3,562)

Funds Provided from Operations 227,450 150,274 146,520 150,198 122,4 Long-term Financing Long-term debt 300,000 50,000 119,100 75,287 85, Preferred stock 65,399 75,114 75,000 1080 Common stock 161 1409 147,676 121,999 127,862 120,3 Trust obligations 90,490 61,628 97,705 159,603 30,0 Other Increase in short-term debt 93,164 24,836 Decrease in working capital 45,353 29,534 7 Other sources 12,824 27.337 2,719 2,046 6,1 Total Source of Funds S 857,572 $ 650,546 $ 587,879 $ 544,530 $ 472,7 Use of Funds qA Construction expenditures $ 501,894 $ 422,473 $ 392,062 $ 292,519 $ 359,4 Nuclear fuel expenditures 23 13 (3,675) (42,169) 23,9 Construction and nuclear fuel in trusts 87,893 76,448 76,698 165,503 Less Allowance for funds used during construction (AFC) 148,006 109,852 80,120 66,177 I'5,8 Construction and Nuclear fuel expenditures, less AFC 441,804 389,082 384,965 349,676 317,5 Dividends on preferred stock 49,289 39,701 32,215 30,651 27;2 Dividends on common stock 150,270 120,205 95,284 78,661 66p7 Reduction of long-term debt 72,048 60,044 20,040 Preferred stock conversions and retirements 12,867 9,159 11,259 2,937 44,9 Decrease in short-term debt 118,000 1, Increase in working capital 17,191 13,749 Electric fuel cost adjustment deferred (35,031) 16,510 14,578 (6,801)

Other investments and deposits 3,903 6,632 67,646 (8',7',8 Capital stock expense 8,144 6,179 2,994 2,388 Cost of removal 3,797 4,638 2,367 4,074 Other uses 15,290 5,028 3,796 15,298 6,6 Total Use of Funds $ 857,572 $ 650,546 $ 587,879 $ 544,530 $ 472;7 Increase (Decrease) in Working Capital by Element Cash $ 4,113 $ (2,715) $ 1,405 $ (1,126)

Temporary cash investments 42,000 (3,280) 480 3,000 Special deposits (977) (10,848) 9,519 (2,746) (9,2 Accounts and notes receivable 13,098 26,668 (25,190) 45,791 9,5 Accrued revenue 3,436 2,250 2,822 523 JZ Materials, supplies, gas in storage and fuel 26,660 14,635 28,022 (4,315) 4I4 Prepayments 151 (39) 187 (126) ,a(

Current maturities on long-term debt (12,004) (40,004) (20,003) (37) vO Sinking fund requirement on preferred stock (3,750) (6,800) (1,050) tT Accounts payable (42,624) (13,923) 32,902 (58,585) (6 Accrued taxes 10,236 (6,295) (1,064) (4,591) (Z.

Accrued interest (12,396) (5,625) (3,696) (2,584) (1,7' Customer deposits (1,163) (526) 45 174 Dividends payable 9,589) 5,651) (4,880) (3,862) (3,1 Net Increase (Decrease) $ 17,191 $ (45,353) 13,749 $ (29,534) $ (7 See Notes to Financial Statements

I4otes to IFinancial Statements 25 ote 1. Summary of Significant Accounting matching of costs and revenues, defers this difference along Policies with the related income tax effects to those future periods in The accounting records of the Company are maintained in which it will be billed to customers. The Company's tariffs for gas service contain comparable adjustments. The Company accordance with the Uniform Systems of Accounts prescribed believes that the PSC will continue to permit the recovery of by the Public Service Commission of the State of New York deferred fuel costs.

(PSC) and the Federal Energy Regulatory Commission (FERC).

Federal Income Taxes Utility Plant The Company's general policy is to reflect as income tax Additions to and replacements of utility plant are recorded at expense the amount of income taxes currently payable; original cost, which includes material, labor, overheads, and an however, in certain instances authorized by the PSC, provision allowance for the cost of funds used during construction (AFC). is made for income tax effects of the differences between net The cost of renewals and betterments relating to units of income before income taxes and taxable income, as disclosed in property is added to utility plant. The cost of property replaced, Note 6.

retired, or otherwise disposed of is deducted from utility plant and, generally, together with dismaritling costs less any salvage, The major items which are part of the deferred tax provision are is charged to accumulated depreciation. The cost of repairs and as follows:

minor renewals is charged to maintenance expense. Mass ~ Income tax deductions for reduced depreciation lives properties (such as poles, wire, and meters) are accounted for permitted by the Revenue Act of 1971.

on an average unit cost basis by year of installation. ~ Income tax deductions for deferred fuel cost.

Allowance for Funds Used During Construction ~ Income tax deductions associated with cancelled nuclear The Uniform Systems of Accounts define AFC, which is not an projects at Jamesport and New Haven.

item of current cash income, as the net cost of borrowed funds ~ Income tax deductions for interest on amounts financed for construction purposes and a reasonable rate upon the through the Company's Tri-Counties Construction and utility's other funds when so used. AFC is computed monthly on Resources Trusts.

that portion of construction work in progress (CWIP) which is not ~ Income tax deductions for real property taxes and certain included in the Company's rate base. The Company computes construction costs associated with Shoreham.

AFC on its Shoreham Unit at a rate which reflects the income tax ~ Income tax deductions for increased tax depreciation on effect of the interest portion of AFC. In 1978, the Company post-1980 asset additions mandated by the Economic Recovery adopted the FERC method for calculating AFC. Tax Act of 1981.

The average annual AFC rate, without giving effect to ~ The increases in investment tax credits under the Tax cdmpounding or the reduced Shoreham net of tax rate, was Reduction Act of 1975.

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 Investment tax credits allowable under the Revenue Act of 1971 AfC rate, without giving effect to compounding, was 7.63/o, are accounted for as a reduction of federal income tax expense.

7.93/o, 8.21 /o, 8.70/o, and 9.69'/o for the years 1977 through The basis of accounting for these credits was modified by PSC 1981, respectively. rate orders, the effect of which has been to recognize a cumulative total of $ 13,422,000 of additional credits for financial In compliance with a FERC order, the Company allocates the accounting and rate-making purposes for the three years ended portion of AFC relating to borrowed funds to the Interest 1980. (See Note 6.) The balance is being amortized over 36 Charges and (Credits) section of the Statement of Income. months beginning in June 1981. The utilization of such Depreciation additional credits for tax purposes, however, continues to be The provisions for depreciation result from the application of subject to the provisions of the Internal Revenue Code.

straight-line rates to the original cost, by groups, of depreciable Capitalization-Premiums, Discounts, and Expenses properties in service. The rates are determined by annual Premiums or discounts and expenses related to the issuance of age-life studies of depreciable properties. Depreciation accruals long-term debt are amortized over the lives of the issues. Capital were equivalent to 3.2/o for electric and 2.3/o for gas of stock expense related to that portion of preferred stock required respective average depreciable plant costs for the five years to be redeemed is written-off as an adjustment to retained

.1977 through 1981. earnings or, if redeemed below par value, as a gain on Revenues reacquired capital stock in Premium on capital stock. Such gain Revenues are recorded when billed. Billings are rendered on a was $ 513,000 and $ 114,000 at the end of 1981 and 1980, monthly or bimonthly cycle basis. The Company accrues respectively.

estimated revenues for customers billed bimonthly in the month Reserves for Claims and Damages in which they normally are not billed. Losses arising from claims against the Company, from The Company's tariffs for electric service include a fuel extraordinary storm losses, and from certain equipment damage

'adjustment clause under which electric rates charged to most are partially self-insured. Provisions to the reserves are based

'customers are adjusted to reflect changes in the average cost of upon experience, risk of loss, and/or specific orders of the PSC.

fuels and of certain purchased power costs. The Company's jariffs for gas service contain a comparable clause. Note 2. Retirement Plan Deferred Fuel Cost Adjustments The Company maintains a pension plan which covers most The Electric Fuel Cost Adjustment represents the difference employees. The total costs related to the plan were Between actual fuel costs and the fuel costs allowed in the $ 14,418,000, $ 12,946,000, $ 11,694,000, $ 10,732,000, and

'Company's base tariff rates. The Company, to achieve a proper $ 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 i7 a 30 year period. All pension costs are borne by the Company.

The Company makes annual contributions to the plan equal to

26 the amounts accrued for costs related to the plan. A comparison that the maturity date automatically will be extended by one of accumulated plan benefits and plan net assets for the additional year each September unless the lending banks Company's defined benefit plan is presented below: decline in writing. The Construction Trust loan is payable according to a repayment schedule beginning not earlier than January 1, March 31, 1985, and ending not later than June 30, 1988. The 1960 1979 Trusts may, with available funds not immediately needed for Actuarial present value such financing, make certain investments, including investments of accumulated plan in the Company's promissory notes. The Trusts'otal obligation benefits: of $ 439,425,000 at December 31, 1981, is comprised of Vested $ 214,726,000 $ 192,491,000 $ 179,758,000 $ 394,325,000 for financing construction and nuclear fuel Nonvested 8,203,000 6,175,000 5,527,000 expenditures and $ 45,100,000 invested in the Company for Total $ 222,929,000 $ 198,666,000 $ 185,265,000 general corporate purposes.

Net assets available The Company is obligated to purchase nuclear fuel owned by for benefits $ 190,322,000 $ 166,225,000 $ 150,184,000 the Resources Trust, or heat from such fuel. Similarly, the Company is obligated to reimburse the Construction Trust for The weighted average assumed rate of return used in nuclear fuel and construction just prior to Nine Mile Point 2 going determining the actuarial present value of accumulated plan into operation. Upon termination of either Trust, the Company is benefits was 6% for all years. obligated to purchase the Trust assets.

In addition to the retirement plan, in 1981 the Company began The Resources Trust's interest on borrowings in 1981 was providing, without contribution from such employees, calculated principally at 105% of the prevailing prime rate. In supplemental death and retirement benefits for officers and 1981, the Construction Trust's interest was calculated at 105%

other key executives. Death benefits are currently provided by (during the first six months) and at 108% (during the last six insurance; retirement benefits, which are not available until months) of the prevailing prime rate. The Trusts'nterest costs 1986, are unfunded. The unfunded liability for these benefits for on borrowings utilized to finance construction and nuclear fuel the year 1981 is immaterial. are reflected in the Company's Construction and Nuclear Fuel in Trust accounts and are deducted currently for tax purposes on Note 3. Capital Stock the Company's tax return. The Company has negotiated additional credit as well as alternative and lower borrowing rates Of the 110,000,000 shares of authorized common stock, for both Trusts that are expected to become effective early in 543,337 shares were reserved for sale to employees, 6,065,107 1982.

shares were committed to the Automatic Dividend Reinvestment Plan, and 334,415 shares were reserved for conversion of the The Trusts'verage annual interest rates (excluding

" Series I Convertible Preferred Stock at $ 18.19 per share. The commitment fees) on average borrowings of $ 381,614,000, Series I Convertible Preferred Stock is not considered, under $ 314,360,000, $ 231,500,000, and $ 69,062,000 (excluding loans generally accepted accounting principles, to have a dilutive from the Company) outstanding during the years 1981, 1980,"

effect on earnings per share. 1979, and 1978 were 19.4%, 15.6%, 13.2%, and 10.6%,

respectively. Of the total average borrowings, $ 45,100,000, In December 1977, the Company refunded its 13% Series N $ 45,100,000, $ 35,018,000, and $ 39,303,000 related to general Preferred Stock with the issuance of 7.50% Series Q Preferred corporate purposes for the respective periods.

Stock. In accordance with a PSC order, the cost of issuance of Series N was charged to Retained Earnings and the cost of Note 5. Short-term Loans and Compensating issuance of Series Q and the $ 8,000,000 call premium of Series Balances N was charged to Capital Stock Expense and is being amortized and recovered in the Company's rates over seven years, the The Company has authority from FERC to issue up to a total of term of the Series Q issue. $ 400,000,000 in notes to banks and commercial paper. The, Company has a Revolving Credit Agreement with several banks, Redemption of Series L, M, 0, Q, R, S, T, and U Preferred Stock permitting the Company to borrow up to $ 250,000,000 through is provided for through varying sinking fund provisions, certain of January 24, 1985. Borrowings are at a fluctuating interest rate which commenced in 1979. The aggregate amount of preferred equal to each participating bank's prime or alternate base stock required to be redeemed in each of the years 1982 January 1982, and thereafter at 105% of such rate until-rate'ntil through 1986 is $ 11,600,000, $ 11,600,000, $ 38,038,000, maturity. In addition, the Company pays a commitment fee of ~/i'f

$ 10,638,000, and $ 13,638,000, respectively. 1% per annum on the average daily unused portion of each In 1980, the shareowners eliminated their mandatory commitment. The Company maintains compensating 'ank's preemptive rights and authorized a new class of balances, which are not legally restricted, averaging 5% of each non-participating Preference Stock, par value $ 1 per share, bank's commitment, or at the Company's option, provides a ranking junior to the Preferred Stock. combination of equivalent balances and fees in lieu thereof. The Revolving Credit Agreement is used to back up 100% of the Note 4. Trust Obligations paper outstanding. 'ommercial The Company has arrangements with Tri-Counties Resources Net of average "float", compensating balances at December 31,.

Trust and Tri-Counties Construction Trust to finance, 1981 amounted to approximately $ 3,102,000. There were no respectively, the Company's nuclear fuel program and its share borrowings from banks outstanding at December 31, 1981 and of the costs of construction of a nuclear plant, Nine Mile Point 2. outstanding at December 31, 1980. '100,000,000 The Resources Trust and the Construction Trust are primarily Commercial paper is issued at various discount rates and financed by revolving credit loans which, together with certain usually matures within 30 to 45 days. No commercial paper was t term loans, provide for borrowings of up to $ 135,000,000 and outstanding at December 31, 1981 and $ 18,000,000 was

$ 300,000,000, respectively, which have been fully utilized at December 31, 1981. The aggregate Trust Obligations of outstanding at December 31, 1980. No commercial paper or, borrowings from banks were outstanding at December 31, 1979.,

$ 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

27

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

(In thousands oi dollars) 1981 1980 1979 1978 1977

%of %of %of %of %of Pre-tax Pre-tax Pre-tax Pre-tax Pre-tax Amount Income Amount Income Amount Income Amount Income Amount Income Federal income tax, per State-ment of Income current $ (1,008) $ (2,915) $ (2,267) $ 7,297 $ 7,860 Included in other income and deductions current 1,128 2,985 2,417 (3,498) (4,973)

Total Current 120 70 3,799 2,887 Deferred and other (See Note 1)

Accelerated tax depreciation (1)967) 4,740 2,010 692 662 Fuel cost adjustments (7,072) 5,330 1,502 (3,604) (1,309) investment tax credits Tax Reduction Act of 1975 321568 38 2,385 11,461 6,328 Interest capitalized by Trusts 18,038 Shoreham overheads 7,196 Westinghouse settlement (2,847)

Cancelled nuclear projects (24,743) 31,060 Tax benefit of net operating loss 421283 (45,390) (782)

Additional investment tax credits 5,911 (10,512) (5,007) 2,097 Other items, net (10,186) 4,029 1,786 4,066 (2,025)

Total Deferred 59,181 (10,705) 1,894 14,712 3,656 Total 59,301 (10,635) 2,044 18,511 6,543 N t income 247,732 205,018 161,663 141,993 132,310 income Before Taxes $ 307,033 $ 194,383 $ 163,707 $ 160,504 $ 138,853 Statutory Federal income tax $ 141,235 46.0% $ 89,416 46.0% $ 75,305 46.0% $ 77,042 48.0% $ 66,649 48.0%

Ryductions in Federal income tax resulting from:

Excess of tax depreciation over book depreciation (2,402) (0.8) (2,808) (1.4) (4,147) (2.5) (6,830) (4.3) (10,967) (7.9)

AFC, which does not constitute taxable income (68,083) (22.2) (50,526) (26.0) (36,855) (22.5) (31,765) (19.8) (31,585) (22.7)

Costs charged to plant but deducted currently (2,973) (1.0) (12,105) (6.2) (11,567) (7.1) (10,142) (6.3) (10,143) (7.3)

Property taxes deducted on a lien date basis (4,428) (1.4) (4 655) (2 4) (961) (0.6) (2,266) (1.4) (1,911) (1.4)

Interest capitalized by Trusts 1,832 0.6 (17,964) (9.3) (12,262) (7.5) (1,666) (1.0)

Investment tax credits (9,758) (3.2) (11,632) (6.0) (9,811) (6.0) (5,973) (3.7) (10,257) (7.4)

Other items, net 3,878 1.3 (361) (0.2) 2,342 1.4 111 4,757 3.4

~

Total Federal income tax expense $ 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 will be deferred when recognized. The amount of ITc carrIiiorward available as credits to tax returns for years 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 total cost ot the Shoreham project remain subject to continuing review and revision. Approximately $ 1.98 billion has been spent Nuclear Power Plants on the project through December 31, 1981.

The Company is constructing a nuclear plant at Shoreham, N.Y. Consulting engineers selected by the PSC to provide an and has an 18 percent share in Nine Mile Point 2, under independent assessment of the Nine Mile Point 2 project have construction by Niagara Mohawk Power Corp. in Oswego, N.Y. concluded that schedule slippage of a year beyond 1986 for the The Shoreham plant is currently scheduled to begin commercial commercial operation ot the plant is likely and that future operation in 1983 at an estimated total cost of $ 2.5 billion. Nine regulatory and economic uncertainties exist which could add Mile Point 2 is currently scheduled to begin commercial significantly to the ultimate cost and the time required for operation in 1986, with the Company's share ot that project completion of the project. Approximately $ 295.0 million has estimated to be $ 925 million. Both estimates are exclusive of been spent by the Company tor its share of the project through nuclear fuel. December 31, 1981.

Operation ot each nuclear plant is subject to receipt ot an The PSC is presently conducting separate proceedings operating license. Hearings on the issuance of the operating respecting the Shoreham and Nine Mile Point 2 plants. The license for Shoreham are expected to begin in mid-1982. Shoreham proceeding is reviewing the prudency of the total Further delays in the schedule as well as Increased costs for project costs. The Company is unable to evaluate the likelihood completion may be encountered before commercial operation of of an unfavorable outcome of the proceeding or to estimate the Shoreham can begin. Consequently, current estimates of the financial impact, if any, upon the Company. The Company

28 believes that the PSC will support the Company's efforts to To the extent that the moneys advanced or loaned to BRC or the complete Shoreham at the earliest possible date and that it can interest capitalized on non-interest bearing advances are not demonstrate to the PSC that the costs of Shoreham have been applied as a credit against the purchase of other nuclear fuef, prudently incurred. The Nine Mile Point 2 proceeding will returned to the Company upon the sale or refinancing of the consider the financial requirements and economic Impact of BRC properties, recovered through litigation, or offset by the completing the project. The report with respect to Nine Mile Westinghouse settlement proceeds, a portion of which was Point 2 is expected ln early 1982. received in 1981, the Company will apply to the PSC for Nuclear Fuel appropriate rate relief. As a general rule, utility investments which have been prudently incurred may be recovered from Expenditures for procurement of nuclear fuel, including ratepayers. The Company believes its investments in BRC were advances for the purchase of uranium concentrates from Bokum prudent. While the Company believes that the PSC should act Resources Corporation, (BRC), totaled $ 111.6 million at favorably, it cannot predict the outcome of any proceedings December 31, 1981. before the PSC relating to BRC.

Bokum Resources Corporation Two shareowners have commenced separate derivative actions In 1976 and 1978, the Company made long-range commitments 'against certain Company directors and officers, claiming with BRC to purchase ten million pounds of uranium negligence and breach of fiduciary duties by these officers and concentrates. Furthermore, the Company agreed to provide directors in connection with the BRC transactions. The Board of loans to BRC for the development of a uranium mine and Directors of the Company has authorized a special litigation ore-processing mill in New Mexico. BRC did not deliver the committee to conduct an independent investigation of the uranium concentrates as agreed and is in default under certain transactions between the Company and BRC and recommend provisions of its contracts with the Company. On June 12, 1981, to the Board appropriate actions to be taken in the best interest the Company and several other creditors of BRC petitioned a of the Company. A third shareowner of the Company, on behalf United States Bankruptcy Court for a reorganization of BRC of herself and other shareowners similarly situated, commenced under Chapter 11 of the United States Bankruptcy Code. An a class action against the Company, certain of its officers and order granting the petition for bankruptcy was filed by the Court directors, and certain of the underwriters of the Company's 1978 on December 21, 1981, and BRC has filed an appeal. In Common Stock offering, alleging a failure to disclose material response to the petition for reorganization, BRC filed information concerning the contracts and the financial counterclaims against the petitioning creditors including the arrangements between the Company and BRC. Through Company, for $ 1.05 billion in the aggregate and reasserted the December 31, 1981, the Company had expended $ 650,000 in counterclaims against the Company for $ 710 million previously defense of these claims. Of this amount, approximately alleged in an action commenced by the Company In November $ 400,000 was paid on behalf of all of the Company's directors 1980 to foreclose the Company's interest in the BRC mine and (except Alan M. Fortunoff who is not a defendant in any of thess mill properties. An order dismissing the counterclaims for $ 1.05 actions) and its Senior Vice President Finance. The Company billion against the petitioning creditors was also granted in had recovered $ 143,000 of the $ 650,000 through December 31, December 1981 without prejudice. While the Company believes 1981, pursuant to its directors'nd officers'iability Insurance~

that both its claims against BRC and its defenses against the with the National Union Fire Insurance Company of Pittsburgh, BRC counterclaims are meritorious, no assurance can be given Pa. This insurance and insurance from the New England as to the outcome of the litigation determining the Company's Reinsurance Corp., provides the Company with coverage for claims and BRC's counterclaims. wrongful acts by directors and officers as well as indemnification BRC has suspended all construction. The mill is virtually for the Company and its directors and officers. The National completed but construction of tailings disposal facilities would be Union Fire Insurance Company policy also provides fiduciary required to comply with licensing requirements. As part of a plan liability coverage for the Company, its directors and officers, and to preserve the BRC properties, water pumps and equipment any employee deemed to be a fiduciary or trustee, for any were removed from the partially completed mine, resulting in alleged breach of fiduciary liability under the Employee some water intrusion in the shaft. A significant additional Retirement Income Security Act of 1974. The total annual investment will be required to start up construction activity and to premium for these coverages, which are effective through complete the mine and mill. August 26, 1982, is $ 94,000.

The eventual disposition of the Company's investment in BRC Due to the many contingencies upon which the outcome of the and the viability of BRC as a source of nuclear fuel depend on BRC transactions and the related litigation are dependent, the many factors, including the market price for uranium. At present, Company cannot accurately measure either the probability of its the estimated cost to mine and mill uranium from BRC's realizing a loss on the investment in BRC, or the amount of that properties substantially exceeds the spot-market price of loss if it should occur. While under the most adverse uranium. circumstances such a loss could be material, the Company believes that the loss, if any, will not have a material adverse The Company's ability to recover its loans and advances to BRC impact on the financial condition of the Company.

through liquidation of the BRC properties or by completing and operating the mine and mill properties is dependent upon an The Company initially entered into its contracts with BRC as a increase in the market price for uranium to levels substantially result of the failure of the Westinghouse Electric Corporation higher than the 1978 market price levels. The Company believes (Westinghouse) to deliver uranium concentrates. In 1981, the that market conditions for uranium will begin to improve in the Company received total cash proceeds of approximately $ 43 mid-1980's, but no assurance can be given that this will occur as million in partial settlement of its resultant litigation against expected, or that price levels will rise to a point where the Westinghouse, before deduction of litigation expenses and operation of the mine and mill will be economically viable. payments to New York State Electric 8 Gas Corp. (NYSEG)

At December 31, 1981, the Company's claims against BRC toward its share in the Jamesport nuclear project. On November" totaled approximately $ 82.3 million, including $ 20 million of 24, 1981, at the Company's request, the PSC approved advance payments to BRC for uranium concentrates. Interest accounting treatment which could ultimately provide ratepayers capitalized on these advance payments totaled approximately with the benefits of the Westinghouse settlement. It is the Company's view that the value of the Westinghouse settlement

$ 16.7 million. The Company ceased accruing further interest on its loans to BRC after filing of the bankruptcy petition in June is related to the Company's investment in BRC and, at an 1981. However, interest continues to be capitalized on the appropriate time, the Company anticipates that it will apply to the advance payments. The Company has deferred interest in 1981 PSC to recognize such relationship. The Company cannot, prior to the filing of the bankruptcy petition on substantially all of however, predict the outcome of this application.

the BRC moneys and has applied to the PSC for approval of Cancelled Nuclear Power Plants such accounting treatment. In 1980, New York State Boards on Electric Generation Siting

'and the Environment, in separate proceedings, denied the end of 1982. Any cash deposited for the sinking and applications by the Company and NYSEG (co-owners) for depreciation funds under the First Mortgage can be withdrawn nuclear plants proposed for construction at Jamesport, N.Y. and through the use of Shoreham property additions after receipt of at New Haven, N.Y. the operating license anticipated by September 1982 or through In the Jamesport proceeding, the Siting Board certified, as an the use of non-Shoreham property additions. Such cash may alternative, an 800 megawatt coal-fired plant. In October 1981, also be used to retire part of $ 70 million of First Mortgage Bonds NYSEG advised the Company and the Siting Board that it would which mature in late 1982. Similar requirements under the G & R not participate in the coal plant project. At the same time, the Mortgage will continue to be satisfied by the use of bondable Company advised the Siting Board that it would accept the property additions.

certificate for a coal plant with the understanding that the LOng. term Debt at December 31 (fn thousands of dollars)

Company will attempt to find other partners for the project and

, will conduct further studies as to the optimum size and Rate of Interest Series Due 1981 1980 1979 completion date for the plant with and without partners. The First Mortgage Bonds Company requested one year to complete these studies. The 3 A 1980 $ $ $ 20,000

'iting Board has not acted on the Company's request. 3% E 1982 20,000 20,000 20,000 3Vs F 1983 25>000 25,000 25,000 The Company's share of costs incurred, after reduction for the 3Vs G 1984 15>000 15,000 15,000 estimated tax effects of $ 15.9 million and $ 15.7 million, for 3Vs H 1985 15>000 15,000 15,000 4'

Jamesport and New Haven was approximately $ 44.7 million and 1986 20,000 20,000 20,000

$ 31.8 million, respectively, at December 31, 1981. In connection 4Vs J 1988 20,000 20,000 20,000 with the cancellation of Jamesport, the Company is negotiating 5 L 1991 25,000 25,000 25,000 with Westinghouse respecting the nuclear steam supply system 4.40 M 1993 40,000 40,000 40,000 (NSSS) which Westinghouse was to have furnished. 4% N 1994 25>000 25,000 25,000 Cancellation costs of the NSSS are expected to be substantial. 4.55 0 1995 25,000 25,000 25,000 The Company has filed petitions with the PSC requesting rate 5' 1996 40,000 40,000 40,000 relief to recover its share of the costs incurred for the Jamesport 5Vs Q 1997 35,000 35,000 35,000 8.20 R 1999 35,000 35,000 35,000 and New Haven projects. An administrative law judge issued a S 2000 9Ys 25>000 25,000 25,000 recommended decision to the PSC, finding that the Company 7V~ U 2001 40,000 40,000 40,000 and NYSEG acted prudently in proceeding with the New Haven V 2001 7Ys 50,000 50,000 50,000 project. The decision also recommends that the PSC authorize 7% W 2002 50,000 50,000 50,000 5YSEG and the Company to continue to accrue AFC on the 8Vs X 2003 60>000 60,000 60,000 pFoject costs until recovery through rates begins, and to 10 Y 1981 60,000 60,000

'amortize and recover such costs, including carrying charges on 9Y~ Z 1982 50>000 50,000 50,000 any unamortized balance, over a period to be established in t Pledged First Mortgage separate rate cases. In a separate proceeding, the PSC Bonds 595,000 490,000 490,000 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 t Less Pledged First Mortgage Bonds 1,210,000 595,000 1,165,000 490,000 1 ~ 185,000 490,000

'roposed coal-fired plant at Jamesport are resolved. The 615,000 675,000 695,000 Company cannot predict what the final outcome will be on the Less Current maturitles 70,000 60,000 20,000 applications for amortization and rate recovery of the Jamesport Total First Mortgage Bonds 545,000 615,000 675,000 or New Haven expenditures.

General and Refunding Bonds Other 9>/~  % Series Due 1983 80,000 80,000 80,000 The Company has entered into substantial long-range 9~/s  % Series Due 1984 90,000 90,000 90,000 commitments for fuel and gas supply. The costs of fuel and gas 9Ys % Series Due 2006 70,000 70,000 70,000 supply are normally recovered from customers through 8% % Series Due 2006 50,000 50,000 50,000 provisions in the Compariy's rate schedules. 8% % Series Due 2007 85,000 85,000 85,000 9.20% Series Due 2008 75,000 75,000 75,000 There are currently pending in the Federal courts, before the 9.75% Series Due 1999 100,000 100,000 100,000 U.S. Equal Employment Opportunity Commission and the New 14' Series Due 2010 50,000 50,000 York State Division of Human Rights, complaints by employees 15.75% Series Due 1991 100,000 alleging that the Company has discriminated against them on 17s/s % Series Due 2011 50,000 the basis of race. The Company believes it has meritorious 16' Series Due 1991 50>000 defenses to these complaints, but it cannot predict the ultimate 18  % Series Due 2011 50,000 17  % Series Due 1991 50,000 outcome of these matters.

900,000 600,000 550,000 Note 8. Long. term Debt at December 31 Less Current malurilies 2,000 The First Mortgage is a direct first lien on substantially all of the Total General and Company's properties. The lien of the G8 R Mortgage on Refunding Bonds 898,000 600,000 550,000 substantially all of the same properties is junior to the lien of the Other Long-term Debt First Mortgage. All First Mortgage Bonds, issued on and after 7 Vs% Authority June 1, 1975 (Pledged Bonds), are held by the Trustee of the Financing Notes 2006 30,375 30,375 30,375 G & R Mortgage as additional security for G 8 R Bonds and are 7.8% Authority excluded from long-term debt because they do not create Financing Note 2009 19,100 19,100 19,100 additional debt in the Company's capital structure. 8Vs% Promissory The annual First Mortgage depreciation fund and sinking fund Notes 1985 202 246 287 requirements estimated at $ 145,000,000 and $ 12,000,000, Less Current

'espectively, for 1981, are normally met by utilizing bondable maturity on 8Ys%

Promissory Notes 48 44 40 property additions. However, by June 30, 1982, the Company

'resently estimates it will be required to deposit approximately Total Other Long-term Debt 49,629 49,677 49,722

$ )5,000,000 in cash to satisfy these requirements; the Total Long-term Debt $ 1,492,629 $ 1,264,677 $ 1,274,722 remainder will be satisfied by the use of bondable property Tho aggregate of tho Company's iong.term debt duo in tho next five years is additions. The Company intends to withdraw such cash before $ 72,000,000 (1982), $ f 07,000,000 (1 983), $ 1 07,000,000 (1984), $ 1 8,000,000 (1985) and $ 23,000,000 (1986).

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 Total Total Tol (In millions of dollais) Eloctrlc Gas Company Electric Gas Company Electric Gas Comp OperatIng Information (Year ended December 31):

Revenue $ 1,403 S 262 $ 1,665 $ 1,040 $ 237 $ 1,277 $ 861 $ 184 $ 1,04 Expenses (excluding income tax) 1,117 234 1,351 860 211 1,071 699 158 85 Operating income (before income tax) $ 286 $ 28 $ 314 $ 180 $ 26 $ 206 $ 162 $ 26 $ 18 AFC and other 113 86 6 Interest charges 120 98 8 Income taxes operating 88 11 1 Income taxes nonoperating (credit) (29) (22) (1 J

Net income per accompanying Statement of Income S 248 $ 205 $ 16 Other Information (Year ended December 31):

Depreciation, depletion and amortization S 53 $ 7 $ 60 $ 50 $ 6 $ 56 $ 48 $ 6 $ 5 Capital expenditures for construction and nuclear fuel 567 23 590 477 22 499 451 14 46 Investment Information (At December 31):

Assets (a) $ 3,857 $ 290 $ 4,147 $ 3,374 $ 260 $ 3,634 $ 2,922 $ 247 $ 3,16 Nonutility plant 3 2 )

Other investments (b) 58 59 54 55 74 7 Assets utilized for overall Company operations 299 227 p21 Total Assets $ 4,508 $ 3,918 $ 3,46 (a) Includes not utility plant 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)

Income for Earned p Operating Operating Net Common Comm (In millions of dollars except Earned por Common Share) Revenues Income Income Stock Sha

.)r First Quarter 1981 $ 452 S 63 $ 52 S 0.

1980 348 53 45 pl 1979 266 47 39 0 Second Quarter 1981 S 371 S 46 $ 52 40 S 0.

1980 271 42 43 34 01 1979 232 36 26 0.

Third Quarter 1981 S 449 $ 85 $ 74 $ 0.

'0'.

1980 60 1979 292 57 54 46 10, Fourth Quarter )lq 1981 S 393 S 38 $ 47 $ 33 $ :0:

1980 323 40 44 32 pl 1979 255 29 28 18 0;.

31

'Note 11. Supplementary information Concerning At December 31, 1981, the cost of property, plant, and the Effects of inflation (Unaudited) equipment, net of accumulated depreciation, restated for Throughout the decades following World War II, the utility general inflation since year of expenditure, was $ 6.8 billion while industry has constantly pointed out to economists, regulators, historical cost net of accumulated depreciation was $ 4.0 billion.

and law makers that calculating depreciation on the original cost The effect of 1981 inflation which specifically affected the of the utility plant would not permit the recovery of the cost industry on the cost of replacing the Company's undepreciated required to replace a piece of equipment which became plant investment (cost of replacing the Company's obsolete or fully depreciated if any degree of inflation were undepreciated plant investment was calculated by restating experienced over the life of the property. The solution suggested plant and related accumulated depreciation for industry inflation by the industry was to calculate depreciation on the reproduction since year of expenditure) from the beginning to the end of the cost of existing facilities, or to use a depreciation rate which year, less the $ 83.6 million increase in depreciation expense reflects inflation. In an attempt to have information available to shown above, amounted to $ 507 million. Further, the effect of inform investors of the consequence of this inflationary erosion 1981 general inflation, of about 9.2/o, on the cost of replacing throughout the business world, the Financial Accounting the Company's January 1, 1981, undepreciated plant Standards Board developed certain standards for quantifying investment amounted to $ 549 million. In comparison, the effect and providing this information to investors. While we believe the of 1981 general inflation exceeded the effect of industry inflation concept has merit if it leads to wiser governmental decisions as by $ 42 million. The effect of 1981 general inflation on the to taxation and utility regulation, we wish to point out to our historical cost of the Company's January 1, 1981, undepreciated shareowners the theoretical nature of this information, and to plant investment, less the $ 83.6 million increase in depreciation suggest caution in its use for the purpose of making investment expense shown above and less the $ 42 million excess of decisions in the utility field and for comparing one company to general inflation over industry inflation, amounted to $ 200 another in terms of expected future performance. million. Similarly, the calculations for the years 1980 and 1979, The data which follows reflect a restatement of the historical cost when restated in average 1981 dollars, amounted to $ 80 million of property, plant, and equipment (by approximate year of and $ 134 million, respectively. If the 1981 amount of $ 200 expenditure), the related accumulated depreciation and million were to be applied as a loss ln 1981, to Net Income as depreciation expense. Income tax expense has not been adjusted for industry inflation, it would have resulted in a net loss restated for the effects of inflation. The effect of inflation on the of $ 36 million.

Company's operations is shown in two ways: as measured for At December 31, 1981, the cost of property, plant, and general inflation by using the Consumer Price Index for All equipment, net of accumulated depreciation, restated for Urban Consumers and more specifically as measured for that industry inflation since year of expenditure was $ 6.8 billion while infiation which impacts the utility industry by using the historical cost net of accumulated depreciation was $ 4.0 billion.

Handy-Whitman Index for Public Utility Construction Costs. Effect of Inflation on Certain Assets and Liabilities Effect of Inflation on Net Income and Common Stock During periods of inflation, monetary assets such as cash and Ehrnings Per Share receivables lose their purchasing power. Similarly, monetary (Average 1981 dollars, liabilities such as long-term debt can be a benefit because they in thousands of dollars except Adjusted for Adjusted Ior will be repaid in dollars having less purchasing power. The net Earned per Common Share) General Inflation Industry inflation monetary amounts owed by the Company during the years 1981, 1980, and 1979 resulted in an unrealized benefit of $ 202 1981 Net Income as shown million, $ 235 million, and $ 202 million, respectively. The on the Statement of Income Company's net assets (total assets less total liabilities) at

$ 247,733 $ 247,733

'Increase in depreciation year-end, when restated in average 1981 dollars, for the years n'xpense if adjusted for 1981, 1980, and 1979 were $ 2.0 billion, $ 2.0 billion, and $ 1.9

,r inflation 76,114 83,645 billion, respectively.

1981 Net Income Effect of Inflation on Revenues, Common Stock Dividends, as adjusted $ 171,619 $ 164,088 and Common Stock Market Price Earned per Common Share Revenues were $ 1.7 billion in 1981. Revenues restated in

'-'" as adjusted 1.57 1.48

$ $ average 1981 dollars for the years 1980 through 1977, Net Income as adjusted respectively, would have been $ 1.4 billion, $ 1.3 billion, $ 1.3 1980 $ 154,555 $ 144,830 billion, and $ 1.2 billion. Cash dividends declared per common

!.0 1979 140,520 122,148 share in 1981 were $ 1.92. Dividends declared in prior years

Earned per Common Share restated in average 1981 dollars for the years 1980 through adjusted 1977, respectively, would have been $ 2.03, $ 2.21, $ 2.37, and 0 as 1980

$ 1.69 $ 1.55 $ 2.45 per share. The market price per common share at 1979 1.87 1.52 year-end was $ 14.13 in 1981. The market prices per common share restated ln year-end 1981 dollars for the years 1980 Effect of Inflation on Net Plant Investment through 1977, respectively, would have been $ 15.28, $ 17.98,

-The effect of 1981 general inflation, of about 9.2/o, on the $ 23.98, and $ 28.24. The average consumer price indices for the Historical cost of the Company's January 1, 1981, undepreciated years 1981 through 1977 were 272.4, 246.8, 217.4, 195.4, and plant investment, less the $ 76.1 million increase in depreciation 181.5, respectively.

expense shown above, amounted to $ 249 million. If this 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.

Selected Financial Data Summary of Operations'981 1980 1979 1978 1977 1976 19 Tabf Total revenues ($ 000) $ 1)664I832 $ 1,276,938 $ 1,045,498 $ 898,971 $ 824,080 $ 724,589 $ 346,1 Total operating income ($ 000)

Before federal income taxes S 313,916 205,918 188,466 $ 192,268 $ 158,779 $ 138,340 $ '87,5 After federal income taxes $ 225,888 194,628 170,984 $ 160,788 $ 135,608 $ 124,126 $ 71,3 Income for common stock ($ 000) $ 198,902 164,915 128,812 $ 111,305 $ 104,593 $ 86,787 $ 41,9 Average common shares outstanding (000) 77,988 65,138 53,366 45,670 40,399 34,437 20,1 Earned per common share S 2.55 $ 2.53 $ 2.41 $ 2.44 $ 2.59 $ 2.52 $ 2.

Dividends paid per share S 1.90 $ 1.82 $ 1.74 $ 1.68Vi $ $ 1.54Vz $ 1.

1.61'18.70 Book value per share at year end $ 18.78 $ 18.94 $ 18.88 $ 19.12 $ 17.93 $ 16.r Common shareowners at year end 169I124 159,678 151,752 143,267 130,018 123,057 88,0 Ratio of earnings to fixed charges 2.37 2.14 2.20 2.59 2.61 2.61 3.

Ratio of earnings to fixed charges and preferred dividends 1.87 1.74 1.77 1.93 1.95 1.92 2,4

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

Electric Operating Income (In thousands of dollars) Tabi Revenues Residential S 634,378 478,618 400,936 $ 348,307 $ 326,035 $ 284,774 $ 130,11 Commercial and Industrial 666,078 479,486 393,040 337,521 315,952 270,513 113,72 Street and highway lighting 17/697 13,594 12,209 12,743 12,817 12,619 9,3 Other public authorities 27I746 21,685 15,240 13,615 13,647 11,005 3,65 Other utilities 822 196 564 921 1,287 543 35 Other 6,416 7,094 5,949 4,885 3,578 2,747 18 System revenue 1,353,137 1,000,673 827,938 717,992 673,316 582,201 257,40 Power pools 49,582 38,993 32,860 20,347 9,681 7,464 4,86 Total Operating Revenue 1,402,719 1,039,666 860,798 738,339 682,997 589,665 262,26 Expenses Operations tuel and purchased power 719,845 521,062 389,622 294,911 290,576 238,185 58g6 Operations other 118,870 98,017 89,071 78,328 72,860 66,101 37,35 Maintenance 57,746 47,587 43,587 37,086 32,665 32,501 19,09 Depreciation 531108 50,235 47,872 45,217 39,451 37,399 25,89 Operating taxes 167I535 143,589 128,496 118,047 109,285 100,102 51,36 Federal income tax current (1,843) (9,862) (7,816) 1 110 4,830 (4,398) 13,12

~

Federal income tax deferred and other 83,621 15,128 18,933 24,249 15,399 13,752 36 Total Expenses 1,198,882 865,756 709,765 598,948 565,066 483,642 206,15 Electric Operating Income 203,837 173,910 151,033 $ 139,391 $ 117,931 $ 106,023 $ 56.11 u

Gas Operating Income (In thousands of dollars) Table Revenues Residential space heating' S 134,407 117,228 93,077 $ 88,168 $ 75,626 $ 74,225 $ 44,40 other 28,028 26,556 23,861 21,098 18,672 17,734 13,09 Non.residential, firm space heating' 45,500 37,729 31,145 30,033 25,039 24,903 13,83 other 21,318 18,483 15,005 12,464 10,726 10,208 6,82 Total firm sales revenue 229,253 199,996 163,088 151,763 130,063 127,070 78,15 Interruptible 30,757 35,395 19,810 7,098 9,477 6,374 4,29 Total system sales revenue 260,010 235,391 182,898 158,861 139,540 133,444 82,45 Other utilities Total sales revenue 260I010 235,391 182,898 158,861 139,540 133,444 82,45 Other revenue 2,103 1,881 1,802 1,771 1,543 1,480 1,46 Total Operating Revenue 262,113 237 272 184,700 160,632 141,083 134,924 83,91 Expenses Operations tuel 145,507 130,664 88,794 70,396 59,889 54,522 25,59 Operations other 39,397 34,190 29,573 26,056 24,429 23,162 16,31 Maintenance 10,507 9,916 8,619 7,574 8,270 6,975 6,06 Depreciation, depletion and amortization 6,957 6,433 6,188 5,975 5,598 5,338 4,63 Operating taxes 31,444 29,327 25,210 23,113 22,278 21,964 13,32 Federal income tax current 835 6,947 5,549 6,187 3,030 4,626 2,47 Federal income tax deferred and other 5,416 (923) 816 (66) (88) 234 22 Total Expenses 240,062 216,554 164,749 139,235 123,406 116,821 68,63 Gas Operating Income 22,051 20,718 19,951 $ 21,397 S 17,677 $ 18,103 $ 15,27

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

33 1981 1980 1979 1978 1977 1976 1971 eetric Operations Table 4 ergy millions of kWh t generation 11,720 11,295 11,085 12,739 12,710 12,450 11,753 er purchased and (sold) net 2,091 2,719 2,636 980 889 868 (229) al system requirements 13>811 14,014 13,721 13,719 13,599 13,318 11,524 pany use and unaccounted for (1,196) (1,331) (1,254) (1,282) (1,225) (1,326) (1,051) tern sales 12,615 12,683 12,467 12,437 12,374 11,992 10,473 er pool sales 772 882 852 790 346 250 413 al Sales 13,387 13,565 13,319 13,227 12,720 12,242 10,886 k Demand net MW tion coincident demand 2,730 ',994 2,718 2,899 2,994 2,566 2,400 chased or (sold) 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 3,721 3,721 3,842 3,842 3,709 3I727 2,788 purchase or (sale) 56 62 108 126 121 136 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 15,665 15,428 16,671 21,017 20,669 20,287 18,131 thousands of mcf 23,374 20,426 10,909 75 1,980 1 195 11,487 billions of Btu

~

I 122,577 117,965 115,376 131,096 130,904 127,244 123,763 lars per million Btu $ 4.58 $ 3.41 $ 2.56 $ 1.86 $ 1.98 $ 1.70 $ .46 ts per kWh of net generation 4.79C 3.57s 2.674 1.924 2.04c 1.744 .48C t rate Btu per net kWh 10,459 10,456 10,480 10,304 10,299 10,221 10,531 s Operations Table 5 rg)r thousands of mcf (1,000 Btu) ural gas 50,224 50,489 46,799 44,611 44,103 46,034 49,327 ufactured gas and change in storage (62) 124 (4) 19 (11) (77) 46 I natural and manufactured gas 50I162 50,613 46,795 44,630 44,092 45,957 49,373 s to other utilities il system requirements 50,162 50,613 46,795 44,630 44,092 45,957 49,373 npany use and unaccounted for (1,800) (3,419) (3,170) (2,596) (1,377) (2,809) (1,855) tern sales 48,362 47,194 43,625 42,034 42,715 43,148 47,518 s to other utilities I Sales 48,362 47,194 43,625 42,034 42,715 43,148 47,518 Imum Day Sendout mcf (1,000 Btu) 371,845 358,638 336,996 303,844 340,684 325,836 324,800

>ability at Time of Peak mcf per day ural gas 308,800 308,800 307,200 303,500 326,500 326,500 304,600

, manufactured or LP gas 142,300 142,300 142,300 142,300 148,300 148,300 180,000

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

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

34 1981 1980 1979 1978 1977 1976 19>

Electric Sales and Customers Tab Sales millions of kWh Residential 5,581 5,655 5,599 5,559 5,620 5,486 4,8 Commercial and industrial 6,494 6,431 6,291 6,259 6,120 5,905 5,0 Street and highway lighting 180 188 188 188 189 190 1 Other public authorities 345 404 370 399 397 386 2 Other utilities 15 5 19 32 48 25 System sales 12>615 12,683 12,467 12,437 12,374 11,992 10,4 Power pool sales 772 882 852 790 346 250 4 Total Sales 13,387 13,565 13,319 13,227 12,720 12,242 10,8 Customers monthly average Residential 818,879 812,898 806,325 798,288 791,808 784,359 725,7 Commercial and industrial 83,899 82,918 81,955 81,071 80,205 78,535 70,2 Others 4,683 4,185 4,137 4,014 3,881 3,882 2,5 Customers total monthly average 907,461 900,001 892,417 883,373 875,894 866,776 798,5 Customers total at year end 908,303 900,419 892,772 885,591 877,022 869,126 802,5 Residential kWh per customer 6>815 6,957 6,944 6,964 7,098 6,994 6,7 Revenue cents per kWh 11.370 8,46c 7.16s 6.27s 5.80~ 5.19~ 2.

Commercial and Industrial kWh per customer 77>403 77,559 76,762 77,204 76,309 75,197 72 4 Revenue per kWh 10.26C 7.46c 6.254 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 Tab Sales thousands of mcf (1,000 Btu)

Residential space heating' 25,753 24,187 22,873 24,085 23,887 24,357 23',3 other 3,566 3,654 3,496 3,386 3,396 3,390 Non.residential firm space heating' 9,042 8,269 8,228 8,628 8,534 8,849 8,7 other 4,021 3,833 3,603 3,427 3,398 3,418 3.3 Total firm sales 42,382 39,943 38,200 39,526 39,215 40,014 39,2 Interruptible 5,980 7,251 5,425 2,508 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' 165,093 153,440 139,672 137,486 137,580 137,724 125,81 other 198,336 206,331 217,172 219,062 219,930 220,768 228,91 Non.residential firm space heating' 19>282 18,229 17,452 17,326 17,470 17,501 17,0 other 12,160 12,441 12,658 12,781 12,961 13,184 13,8 Total firm customers 394,871 390,441 386,954 386,655 387,941 389,177 385, Interruptible 323 339 347 368 382 388 3 Customers total monthly average 395,194 390,780 387,301 387,023 "'88,323 389,565 385,9 Customers total at year end 396,094 392,723 387,310 386,091 386,830 388,147 385,5 Degree days billed 4,975 4,910 4,612 5,352 5,277 5,277 5,21 Residential mcf per customer 80.7 77.4 73.9 77.1 76.3 77.4 76.

Revenue per mcf $ 5.54 $ 5.16 $ 4.43 $ 3.98 $ 3.46 $ 3.31 $ 2g1 Non-residential firm mcf per customer 415.5 394.6 392.9 400.4 392.1 399.8 652.

Revenue per mcf $ 5.12 $ 4.64 $ 3.90 $ 3.53 $ 3.00 $ 2.86 $ 1.2 System Total revenue per firm mcf sold $ 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.

35 1981 1980 1979 1978 1977 1976 1971 eraticnS and MaintenanCe EXpenSe DetailS (In thousands of dollars) Table 8 al payroll and employee benefits S 185I265 $ 168,137 $ 150,479 $ 139,334 $ 126,013 $ 118,379 $ 81,043 s Charged to construction and other 55,272 53,649 49,065 47,367 39,873 37,558 25,079 arged to operations 129,993 114,488 101,414 91,967 86,140 80,821 55,964 Is electric operations 560,857 402,696 295,428 244,546 258,988 216,264 56,291 Is gas operations 145,507 130,664 88,794 70,396 59,889 54,522 25,590 chased power costs 123,958 134,876 108,772 43,564 30,752 22,916 2,669 ctric fuel cost adjustment deferred 35,030 (16,510) (14,578) 6,801 836 (995) al Fuel and Purchased Power 865,352 651,726 478,416 365,307 350,465 292,707 84,550 other 96,527 75,222 69,436 57,077 52,084 47,918 22,860 al Operations and Maintenance $ 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 Table 9 cent of Total Revenues ctric 84.3/o 81.4% 82.3% 82.1% 82,9o/o 81.4% 75.8%

s 15.7 18.6 17.7 17.9 17.1 18.6 24.2 cent of Electric Revenue erations expense fuel and chased power 51.3o/o 50,1% 45 3% 39 9o/o 42 5% 4Q 4% 22.5/o erations expense other 8.5 9.4 10.3 10.6 10,7 11.2 14.2 intenance expense 4.1 4.6 5.1 5.0 4.8 5.5 7.3 I Operations and Maintenance Expense 63.9/o 64.1% 60.7% 55 5% 58.0% 57.1% 44.0o/o er(t ting Income 14.5o/o 16.8o%%d 17.5% 18.P/o 17.2o/o 18.0o/o 21.5%

cent of Gas Revenue erations expense fuel 55.5o/o 55.1% 48.1 /o 43.8% 42,5% 4Q.4% 3Q.6%%d eruptions expenseI, other 15.0 14.4 16.0 16.2 17.3 17.2 19.4 intenance expense 4.0 4.2 4.7 4.7 5.9 5.2 7.2 al Operations and Maintenance Expense 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) S 517,971 $ 399,219 $ 362,689 $ 321,181 $ 279,207 $ 249,045 $ 85,197 smission 8,987 14,529 25,991 31,865 39,788 27,466 7,927 tribution:

ew business facilities 12I116 11,011 9,704 9,537 10,871 9,907 10,849 I(ter facilities 21,835 21,824 19,163 16,566 15,400 15,753 17,252 eral 3,872 3,265 1,617 2,716 1,502 2,016 1,367 I Electric 564,781 449,848 419,164 381,865 346,768 304.187 122,592 duction and storage 1,572 528 396 483 525 486 3,154 nsmission and distribution:

ew business facilities 8,655 9,817 5,512 1,559 1,083 303 4,479 ther facilities 10,881 9,513 5,338 5,196 5,507 5,101 5,849 eral 1,428 1,256 2,099 906 1,133 938 753 I Gas 22,536 21 114

~ 13,345 8,144 8,248 6,828 14,235 mon Total 71237 4,822 7,037 3,999 4,404 3,110 2,098 I Construction Expenditures S 594,554 $ 475,784 $ 439,546 $ 394,008 $ 359,420 $ 314,125 $ 138,925

36 1981 1980 1979 1978 1977 1976 1974 BalanCe Sheet tin thousands ot dollars) Table 11 Assets Utility Plant $ 4,662,402 $ 4,095,896 $ 3,611,962 $ 3,167,601 $ 2,775,231 $ 2,398,900 $ 1,344,225 Less Accumulated depreciation, depletion and amortization 620,616 573,765 526,992 486,865 456,019 413,305 264,534 Total Utility Plant 4>041>786 3,522,131 3,084,970 2,680,736 2,319,212 1,985,595 1,079,691 Other Property and Investments 62,183 56,962 76,985 70,784 3,972 3,803 869 Current Assets 361,859 273,378 246,708 229,463 188,462 183,780 74,723 Deferred Charges:

Electric fuel cost adjustment deferred 4>188 39,219 22,709 8,131 14,932 15,768 Other 38,136 26,056 28,210 27,599 19,967 18,775 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 $ 1 >492>629 $ 1,264',677 $ 1,274,722 $ 1,175,662 $ 1,100,375 $ 1,015,375 $ 571,875 Unamortized premium and discount on debt (2,349) (39) 24 89 1,628 2,602 2,559 Preferred stock redemption required 414,650 361,250 294,100 226,950 228,000 160,000 Preferred stock no redemption required 158>083 158,968 160,090 163,499 166,436 171,431 147,175 Treasury stock, at cost (569) (186)

Common stock and premium 1,131,094 969,240 821,440 699,425 571,436 451,078 198,423 Capital stock expense (42>107) (35,140) (30,138) (28,321) (27,110) (18,397) (6,230)

Retained earnings 439,285 391 113

~ 346,001 311,838 279,157 242,147 146,474 Total Capitalization 3,590,716 3,109,883 2,866,239 2,549,142 2,319,922 2,024,236 1,060,276 Trust Obligations 439,425 348,935 287,308 189,603 30,000 Current Liabilities 361>193 407,903 242,715 214,383 143,848 138,403 86,422

~- Deferred Credits:

',Accumulated deferred income tax reductions 106,795 43,821 55,698 55,731 42,835 35,264 8,~66

>~Other 6,091 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 3,932 4,965 5,961 6,446 7,932 7,178 2,7 9 Total Capitalization and Liabilities $ 4,508,152 $ 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 5'A>

8 4.35'eries Series E SV>Vi I 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 High Low High Low High Low High Low High Low High Low High Low High Low High Low High Low High Low 1978 1st Quarter 19Yi 1 7% ST 54 481t> 45>/>> 90 86 92Yi 87 94 89Vi 27% 26 27Vi 26 2nd Quarter 19Vi 18Vi 52Vi 50 4TVi 44Vi 92 88Vi 86M> 80 92 80 27 24% 26Vi 24Vi 3rd Quarter tgVi 18Vi 54 52 481t> 43 92Vi 91Yi 90 81 93Vi 83 27Yi 24Vi 27 25 4th Quarter 18>/>> 17 52% 49 44'hh 43 85Vi 83 85 77 89Yi 80 26>/>> 2SV>> 26Vi 23 1979 1st Quarter 18Vi 17 49% 4TVi 43 41 85Vi 83 82 TTVi 84Vi 79 26% 24Y~ 2SM> 23Ve 2nd Quarter 17Vi 1 SYs 48Yi 47 44% 40Yi 82% 76 81Yi 73Yi 83 75 26M> 24Vi 24>/>> 21Vi 3rd Quarter 17Vi 16 50 47 43% 41 8SVi 80yi 82% 74 81Yi 76Vi 2SYi 23>/>> 25Vi 2t Vi 4th Quarter 16Yi 13V> 49 40Yi 40 37>/a 74Vi 72 72Yi 63 76 67Vi 24% 20V 22 18Ye 96Y 89 1980 1st Quarter tSV>> 13Vi 43 33Vi 38 35 75 72% 67% 56 6T>h 61 23Vi tsVi 20Vi 1SVi 95 69 2nd Quartor 17>h 13% 38tt> 30Vi 87Yi 72 70 SS 71 >h 56Yi 24% 18Vi 21 Vi 15>/>> 89 3rd Quarter 69'8 16Vi 14Y~ 39% 36Vi 37Yi 34 83 82Vi 60 68% 61 22% 18Yi 21 17% 85 73Yi 4th Quarter 1 SVi 1 3Vi 38 33 32 29>/>> 80Vi 73Vs 60 53Vi 61 54Yi t9% 16Vi 18Vi 15Vi TS 73 23Vi 21Vi 1981 1st Quarter 1SVi 14 34 33 32 28Yi 79 TTVi 57% 53Yi 58 53% 19'8tt> 17Vi 1SVi 72>/>> 69Vi 24 22 2nd Quartor 15>/>> 14 35 32% 32 29 76Vi 75Vi SSVi 52Vi 58% 53 19% 17% 1 7Yi t S>>t> 74 70 23% 22 3rd Quarter 15Yi 14Y>> 33Yi 30Yi 3t Yi 2SVi 81 77Yi 54 48Vi Seyi 49 18 1SVi 17Yi 14Vi 69Yi 60Vi 23 19Vi 4th Quarter 1SV>> 13Vi 33Vi 31 31 25% 81 74Yi 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 Charles R. Pierce Executive Offices Chairman and Chairman of the Board 250 Old Country Road Chief Executive Officer and Chief Executive Officer Mineola, NY 11501 Applied Digital Data Systems, Inc, Wllfred O. Uhl Common Stock Listed Electronics President New York Stock Exchange Edward C. Duffy Pacific Stock Exchange Charles J. Davis Retired Vice Chairman of the Senior Vice President Transfer Agents Board Engineering, Purchasing and Common Stock Long Island Lighting Company Stores Manufacturers Hanover Alan M. Fortunoff James W. Dye, Jr. Trust Company President 4 New York Plaza Senior Vice President Fortunoff's Operations, New York, NY 10015 Retail Transmission/Distribution Pre/erred Stock and Nuclear Citibank, N.A.

Wlnfield E. Fromm 111 Wall Street, Sort 3300 Vice President Frank C. Mackay New York, NY 10043 Eaton Corporation Senior Vice President Electronics Commercial Operations RegIstrar Common and Preferred Stock Nathaniel M. Giffen Thomas H. O'Brien Bradford Trust Company Chairman of the Board Senior Vice President 67 Broad Street and Chief Executive Officer Finance New York, NY 10004 Suffolk County Federal Savings and Loan Joseph G. Acker Shareowners'gent Association Vice President for Automatic Dividend Transmission/Distribution and Reinvestment Plan Llonel M. Goldberg Service Operations Citibank, N.A.

Vice President Matthew C. Cordaro Dividend Reinvestment Service Alexander & Alexander, Inc Vice President 111 Wail Street, Sort 5710 Insurance Engineering New York, NY 10043 John D. Maxwell Annual Meeting Chairman and Director Ira L Frelllcher Vice President The Annual Meeting of Shareown-Kollmorgen Corp. ers will be held at the Company's Vice President and Director Public Affairs Hicksviile Operations Center, Powers Chemco, Inc. John R. Gummersall, Jr. Hicksville, NY, on April 20, 1982, at Manufacturing Vice President 2:00 p.m. In connection with this Charles R. Pierce Operations and Construction meeting, proxies wiII be soIicited

'hairman of the Board and Mlllard S. Pollock by the Company. A notice of Chief Executive Oificer Vice President the meeting, a proxy statement, Long Island Lighting Company Nuclear and a proxy will be mailed to Eben W. Pyne shareowners in March.

Matthew S. Procelll Senior Vice President Vice President Form 10-K Annual Report Citibank, N.A Employee Relations The Company will furnish as soon Wilfred O. Uhl as available, without charge, a John J. Russell copy of the Company's Annual President Vice President Long Island Lighting Company Report, Form 10-K, as filed with Customer Relations the Securities and Exchange Phyllis S. Vineyard Andrew W. Wofford Commission, upon written request Vice Chairman Vice President to Mr. Spencer E. Hughes, Jr.,

N.Y. Statewide Purchasing and Stores Manager, Investor Relations, Health Coordinating Long Island Ughting Company, Council Michael Czumak 250 Old Country Road, Mineola, Voluntary Nonprofit Controller NY 11501.

Planning Agency Edward W. Eacker Treasurer John J. Kearney, Jr.

Secretary Raymond J. Forrer Associate Controller Kathleen M. Brown Assistant Secretary Edward M. Barrett General Counsel Francis M. Walsh General Claims Attorney

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