ML17053D169
| ML17053D169 | |
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|---|---|
| Site: | Nine Mile Point, Sterling, 05000000 |
| Issue date: | 03/01/1982 |
| From: | CENTRAL HUDSON GAS & ELECTRIC CORP. |
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| ML17053D168 | List: |
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| NUDOCS 8206020438 | |
| Download: ML17053D169 (46) | |
Text
'"-~1981 ANMJALREPORT 5
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During the past year we have been encouraged by the development ofbusiness in the Mid-Hudson Region, and we see in the 80's the prospect ofsustained growth in the use of our services...a resurgence in electricity and naturaL gas.
These are superior forms ofenergy and we believe that the continuing vitality of the Company requires the selective promotion ofthese services. By promoting the efficient use of electricity and gas, and increasing our share of certain markets, we can provide benefits to our customers, advance the interests ofour investors and enhance the weLL-being of the Company.
Edison Award Chairman Theodore J. Carlson and President H. Clifton Wilson are shown with the Edison Award Plaque presented to Central Hudson by the Edison Electric Institute in recognition of outstanding accomplishment in the electric utilityindustry.
Central Hudson received the award for successfully pursuing the issue ofcorporate free speech all the way to the Supreme Court. The Company had challenged a New York State Public Service Commission ban on promotional advertising.
The Edison Award was shared with Consolidated Edison Company of New York, Inc.
which challenged a Public Service Commission ban on billinserts dealing with contro-versial issues of public policy.
The Edison Award citation reads:
"For successfully resisting denial of the electric utility industty's First Amendment rights by persevering through initialjudicial adversity and obtaining favorable Supreme Court decisions permitting promotional ad-vertising of electricity in the public interest and the use of bill inserts to present utility positions on 'controversial issues of public policy,'hus preserving Constitutional rights of all utilities to present facts bearing on energy issues to counter distortions emanating from other sources and to publish information to help consumers make informed decisions on energy use, and making possible a major 0
advance in the doctrine of freedom of commercial speech.
Central Hudson Gas I'lectric Corporation and Consolidated Edison Company of New York. Inc. are declared the recipients of the Edison Award for 1980."
The cover design for thc 1981 Annual Rcport Is an abstiat't representation df the services
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Centtaf Hudson p'rovldes... clcctrtctty and gas.
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NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES BUSINESS REPLY CARD FIRST CLASS PERMIT IIO. 104 POUGHKEEPSIE. II.Y.
POSTAGE WILL BE PAID BY ADDRESSEE Central Hudson Gas O'lectric Corp.
284 South Avenue Poughkeepsie, N.Y. 12601
Dear Reader:
To help us in planning future Annual Reports would you please take a minute to complete this survey card and place it ln the mail. No postage is necessary.
We would very much appreciate your cooperation.
- 1. What is your interest in Central Hudson?
I I Individual Shareowner
[ I Institutional Investor I I Financial Analyst I I News Media I
I Employcc I I Other I I Stockbroker
- 2. How would you rate this Annual Report?
I I Exccllcnt
[ I Fair I
I Good I I Poor
- 3. Which part of the report do you find of most interest?
( [5-Year Summary
(
I Management's Discussion
(
I Letter to Shareholders and Analysis
( I General Review of Year
[ I Photographs
[ I Financial Section
(
I Gmphs 4.
Do you find the general level of readability:
I I Vc~ Dimcu[t I I Avcragc I I Dlmcult I I Easy
- 5. Would you like to see any other information inthe report, or are there any general comments you would like to make about the Report or the Company's operations?
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Table of Contents Five-Year Summary of Operations and Selected Financial Data Letter to Shareholders.
Electricity.
Natural Gas Construction Shareholders and Investors.
Customer Relations Research and Planning Regulation and Litigation Corporate 2
3 4
6 7
8 10ll 13 16 31 Financial Section Financial Statements 18 Notes to Financial Statements 23 Management's Discussion and Analysis ofFinancial Condition and Results ofOperations Supplementary Information to Disclose the Effects of Changing Prices..............
38 Board ofDirectors and Officers.. Inside Back Cover Shareholders Meeting The annual meeting ofholders ofcommon shares will be held on Tuesday. April6, at 10:30 a.m.. at the South
,Avenue office of the Company In Poughkeepsie, New York. Notice of this meeting, together with the proxy statement and proxy. will be mailed to shareholders about March 8. The management welcomes the per-sonal attendance ofshareholders at the meeting.
!Additional Information
> Shareholders may obtain, without charge, a copy of
'entral Hudson's annual report to the Securities and Exchange Commission, on Form 10-K by writing to Joseph F. Furlong, Secretaty, Central Hudson Gas 8'lectric Corporation, 284 South Avenue, Poughkeepsie, New York 12601. A comprehensive statistical supple-ment to the Company's 1981 Annual Report, containing key financial and operating results for a ten-year period, willbe available soon on request to Mr.Furlong.
AffirmativeAction Policy Central Hudson Gas O'lectric Corporation affirms that equal opportunity shall be provided foraH persons.
This means that all personnel policies including those related to compensation.
benefits, transfers, promo-tions, training, tuition assistance and social and recre-ational programs shall be administered without regard to race. color. creed, age, sex or national origin. Re-cruiting and hiring practices shall be administered to assure fulfillmenofthe Company's equal employment opportunity objective.
Central Hudson Gas O'lectric Corporation amrms that It willnot discriminate against any employee or applicant foremploymentbecause ofphysical or mental handicap in regard to any position for which the individual is qualified. This means that all personnel policies including those related to employment, pro-motion. demotion or transfer. training, compensation, benefits and termination shall be administered without discrimination based upon physical or mental handi-cap against qualified handicapped Individuals.
Central Hudson Gas O'lectric Corporation
,'General Omce
~ 284 South Avenue, Poughkeepsie.
New York 12601
~ Telephone (914) 452-2000 IIEGULATQRY DOCKET FILE COI'V.
Five-Year Summaxy of Operations and Selected Financial Data*
(Thousands ofDollars) 1981 1980 1979 1978 1977 Operating Revenues:
Electric Gas Total.
Operating Expenses:
Operations Maintenance Depreciation Operating taxes Federal income tax Total.
$398,392 46.489
$291,999 35,994
$225,971 28,813
$ 186,264 24,738
$ 184.391 23,449 444,881 327,993 254,784 211.002 207.840 169.742 9,818 14.839 21,268 5,965 235.252 11,132 15,220 24,481 6.210 333,966 12.450 16.108 29,274 11,550 132,554 8,151 13,393 18.779 9,891 133,688 8,098 13,279 18.560 7.099 403,348 292.295 221.632 182.768 180,724 Operating Income Other Income and Deductions:
Allowance for equity funds used during construction Federal income taxcredit.......
Othernet.
Total Income before Interest Charges........
Interest Charges:
Interest on debt Other Allowance for borrowed funds used during construction Total 41.533 6,198 2,748 (533) 8.413 49.946 27,154 831 (7.718) 20.267 35.698 4,495 671 (295) 4,871 40,569 23.558 400 (7.287) 16.671 33,152 3,476 1,111 (333) 4.254 37.406 19,923 325 (4.536) 15,712 28.234 2.388 859 (348) 2.899 31
~ 133 13,185 328 (2.640) 10,873 27,116 1,560 703 (90) 2,173 29,289 12.507 866 (1,831) 11.542 Net Income....
Dividends on Preferred Stock............
Income Available for Common Stock.....
Dividends Declared on Common Stock...
Amount Retained ln the Business.......
Retained Earnings beginning ofyear...
Retained Earnings end ofyear.........
29,679 4,126 23.898 4.126 21,694 4.126 20,260 4.126 17,747 3.626 25,553 16,751 19,772 13,308 17.568 10,961 16,134 10.531 14,121 8,966 8,802 80,155 6,464 73,691 6.607 67.084 5.603 61.481 5.155 56.326 S 88.957 S 80,155 S 73.691 S 67.084 S 61,481 Common Stock:
Average Shares Outstanding (000's)..
Earnings Per Share on Average Shares Outstanding Earnings Per Share Assuming Conversion ofthe Convertlb(e Debentures Dividends Declared Per Share........
Book Value Per Share (atyear end)...
Ratio of Earnings to Fixed Charges"...
Total Assets Long-Term Debt.
Cumulative Preferred Stock............
Common Equity.
6.867
$3.72
$2.39
$26.52 2.38
$611,118 241,050 61,030 197,709 5,851
$3.38
$3.26
$2.20
$26.51 2.23
$570,705 217,225 61.030 173,442 5,373
$3.27
$3.16
$2.04
$27.52 2.31
$523,572 195,400 61,030 147,884 5,310 S3.04 S2.93
$ 1.96
$26.29 3.17
$476,266 202,575 61,030 141,277 4,873
$2.90
$2.70
$ 1.84
$25.74
'.81
$419,420 167,750
.61,030 125,425
'This summary should be read In con]unction with the financial statements and notes thereto Included In the "Financial Section" ofthis Annual Report.
"For the purpose ofcomputing the Ratio ofEarnings to Fixed Charges. earnings consist of net Income plus fixe charges plus all federal Income tax amounts. Fixed charges consist oftotal Interest charges, excluding the allowance for borrowed funds used during construction.
CENTRAL HUDSON GAS & ELECTRIC CORPORATION March 1, 1982
The progress of our business in the year 1981 was very encouraging.
Notwithstanding that electricity and gas have consistently been recognized as superior energies, during the 1970's the use of our product had not been favorably received.
During this period the costs ofboth services have increased largelydue to causes beyond our control, while our sales have not grown. We have also encountered constantly repressive governmental restraints and expressions of opinion by leaders of various groups which militate against the successful operation of our business.
We are pleased, however. to see signs that there is a growing recognition in society ofthe great benefit which both electricity and gas produce. and it is our hope that the favorable results ofour operation last year are a sign ofimproved acceptance with respect to our affairs.
In 1981 our earnings rose to $3.72 from $3.38 in 1980 and the Indicated annual rate of our dividends was increased through the year from $2.24 to $2.48.
During the course of the year we received rate relief from the New York State Public Service Commission that demonstrates an awareness by that Commission of/he financia support needed to assure a productive electric and gas business responsive to the needs ofthe customers.
In fact, the electric and gas industry in New York State is one of the great reservoirs of strength for the State. While there are several reasons whyindustry mayleave NewYorkState, it cannot be said that insufficien electric supply in New York State is one of those reasons.
Indeed, in order to continue to supply superior electric service, the utilitybusiness mustbe kept strong so that it does not become a burden such as mass transportation has become.
In order to operate our business effectivelyin theyears ahead, we relyvery much upon the work ofour employees and this Annual Report acknowledges both the expectation ofa greater acceptance ofour services and the continued devotion ofour employees which willmake this future possible.
Thus this Annual Report sets forth the principal aspects oi our business as unfolded in the past year and gives substance to our expectation that the 1980's willsee a resurgence in the electric and gas business.
With best regards.
Cordially.
President Chairman of the Board and Principal Omccr
Electricity Supply Central Hudson's electric facilities are adequate to serve any increasing load presently projected. In addition, the Company is diligentlypursuing a program to diversify its fuel mix so that generation facilities willbe available which operate from oil, gas, coal, hydro and nuclear resources. Such diversificatlon should serve to materially reduce costs ofgeneration and increase the reliability ofsupply.
The peak demand for electricity has not increased over the past year due to a combination offactors.
including the aggressive efforts ofindustry, Institutions and residential customers to reduce unneeded consumption ofenergy in response to the rising costs ofgas and electricity. The termination of business activities at the Schatz Federal Bearings Company in Poughkeepsie and other business estab-lishments was a significant factor in moderating potential growth.
International Business Machines commenced con-struction ofnew facilities for expanding operations in the area which willadd significant electric and gas load to our system. Throughout the Mfd-Hudson area, other small business and residential load continues to develop.
Nine MilePoint 2 In the early part of 1981, a decision was made by Central Hudson and the other cotenants to accelerate engineering and construction activityin order to complete Unit2 ofthe Nine MilePoint Nuclear Station and place the unit in service by 1986. The h
E The 82-unit Ferry Crossing Condominium is heated and cooled with energy-e+ctent electric heat pumps.
Ouerlooldng Newburgh Bay and the majestic Hudson Highlands, Ferry Crossing ts an excellent example ofthe rejuuenatton ofthe city's rluer front. Joseph Schaetzl, Superufsor-Commercial &
Industrial Seruicesfor Central Hudson, and James Salahshourtan, owner, are shown discussing operating costs and conseruatton measures for the total electrtc complex. Vindicating the builder's confidence tn the reuitalization oftnner-city Newburgh. euery condomtnium unit was purchased prior to completion.
C ir:rqg=fl~79'yr: R~QiPI:If=I11iJ:
(OYjtNTERRITORY)
SALES lMILUONSOC KWN)
REVENUES MILUON(5) 3500 350 necessary employment ofmanpower was begun imme-diately. and the project ls proceeding on a satisfactory schedule.
Atthis time, the Company has no reason to believe that the schedule willnot be met, or that the co-tenants'osts estimate willbe exceeded. As of December 31, 1981, Central Hudson had invested
$ 131 millionin the project.
On July 3, 1981, the Public Service Commission issued an order instituting a proceeding to consider the Company's ability to finance its share ofNine MllePoint.
Central Hudson is confident that it has fully justified lts participation in the project; that the Company can Anance its ownership in this plant given adequate and timely rate relief; and that the completion of the project willresult in economic benefits to the customer because ofits prospective low cost ofoperation.
On September 2, 1981. the Commission instituted a second proceeding involvingall cotenants to examine the financial and economic cost Implications ofconstrucUng Unit 2.
The proceeding is centered on a study performed by the Staff of the Public Service Commission, which concluded that the continued construction and operation ofthe plant Is ln the best interests of electric ratepayers. The cotenants support the StafFs position. The hearing phase was completed in December and a decision by the Commission had not been made at the time this report went to press.
Adecision on both proceedings was expected in the latter part ofFebruary.
Hydro The Company is in the licensing stage of the High
, Falls Hydro Project and negotiaUons are proceeding
, with New YorkState and federal environmental authorities regarding the renewed operaUon ofthis plant which was previously abandoned. Studies for redevelopment ofthe High Falls site began in 1979 and it is anticipated that a federal license to begin construction maybe obtained in mid-1982.
The Company is conUnuing to assess other sites in I the area that may have the potential to generate electricity and displace the use ofoil for generation.
Amajor rehabilitation program on the dam and intake facilities at the Sturgeon Pool Plant willbe completed In 1982. As ofDecember 31, 1981.
approximately $7.5 millionhad been expended on the 2500 250 200 1500 150 50
~971 1972 1979 1974 1975 1979 1977 1979 1979 1990 1991 project. While this facility.completed in 1924, had always been maintained in a suitable operating condition. the effects of time and erosion had led the Company to conclude that this major program would be necessary In order that the operation ofthis plant could saUsfactorily and safely continue. These expenditures were fullyjustified because ofthe continued displacement of the use ofexpensive oil by hydro resources.
Natural Gas for Generation During 1981, the Company generated 401,728 megawatt hours ofelectricity using natural gas as the boiler fuel. This amounted to 10.4% of total generation. This use replaced over 650.000 barrels of imported oil and resulted in savings to electric customers of$ 4.6 millionand to gas customers of
$ 1.3 million.
Coal Conversion Current and projected prices ofcoal and oil fndicate that reconversion ofUnits 3 and 4 at the Company's, Danskammer Point Plant from o11 to coal would substantially reduce generating costs. However, the capital cost ofreconversion is high, principally because ofthe stringent poHutant emission control required by environmental law and regulations, arid.
the process ofobtaining the necessary environmental per mits is complex and Ume corisumfng.
In March of 1981 the Public Service Commission
'nitiated a reassessment ofits regulatory policies to determine what changes might-be made to facilitate.
the conversion ofoil-Ared generaUng units to coal.
firing. In response to the Commission's inquiry the Company urged the Commission to provide current cash income to support Anancing costs during construction and to authorize rapid amortization of
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f the Investment In coal conversion In fiveyears or less.
In mid-December the Public Service Commission Issued a Statement ofPolicy which endorsed, In principle. the concept ofrapid amortization ofutIlity Investments In coal conversion In five years or less, but deferred to subsequent proceedings the determination ofthe exact length of the amortization period which would be authorized for each utility.
The Statement ofPolicy took no position with regard to the provision ofcurrent cash Income to support Anancing costs during construction.
Legislation has been Introduced In the Congress which would attempt to ameliorate suspected adverse effects ofacid rain. Asubstantial reduction ofsulfur dioxide emissions from utilityboilers and other major fuel-burning installations would be mandated In additon to reductions already required by the Clean AirAct. Passage ofsuch legislation would place additional obstacles In the path ofutilities seeking to convert oil-firedplants to coal.
Natural Gas Conversions The demand for natural gas as a residential heating fuel has remained high throughout the year.
Conversions to natural gas heating totaled 1,500 residences and 2500 apartment dwelling units.
Natural gas was delivered to the Company's customers at rates signiAcantly below the costs for fuel oil. In most instances enabling customers to pay for their conversions within two years.
Over 292 commercial customers also have converted their heating systems to natural gas during the year.
These conversions took place In the face ofa concerted. highlyvisible advertising campaign waged by national and state petroleum Industry associations and by local fuel oil dealers.
With the passage ofthe National Energy Act In late 1978. supplies ofnatural gas became available that previously had been available onlywithin the producing states or that had been uneconomical to market In the northeastern part ofthe nation. Since that time. Central Hudson has been involved in sub-stantial efforts to provide gas service to customers who have chosen to heat with gas to replace petroleum fuel.
Many Industrial, commercial and Institutional establishments, In addition to residential customers, have made the decision to use gas and, as a result, both the number ofcustomers and gas load are rising.
n Shown above ts a panoramic view ofa part ofthe IBMKtngston complex, with the Catskill Mountains ln the dtstance. IBMts Central Hudson's largest customer and during 1981 engaged tn stzable construction programs fn the Kingston, Poughkeepste and Beacon dtstrtcts. To the left the Research Informatton Dlvtsion and Btologtcal Systems butldtng, tn Wtccopee near Beacon, was completed during the year. It ts automatically heated and cooled withelectric heat pumps.
Supply Supplies ofgas from the Company's three major suppliers are adequate to serve projected loads in the near future. In anticipation ofincreased sales ofgas In the future, the Company is in the process ofnegoti-ating with suppliers foradditional contracted deliveries.
Afterfouryears oflitigation before the Federal Energy Regulatory Commission, a proposed storage proJect in Western Pennsylvania and New York State has been approved, as have the pipeline reinforce-ments necessary to transport the gas to Central Hudson. This gas willbe used to assure service on peak winter days.
Construction International Business Machines is undertaking a substantial expansion ofits facilities in the area. A major new facilitywith an expected load of 11,000 kilowatts Is being constructed In the Town of Wappinger, requiring additional funds for the construction ofa 69.000-volt transmission line extension and substation reinforcement. The IBM growth currently planned and under construction is alone equal to the growth projected for the next Ave years in the Company's forecast presented to the State Energy ofAce for Its most recent published report.
Shareholders and Investors During the past year, the rate ofnew business growth has increased. Anew enclosed sh'opping mall has been completed in Kingston and occupancy has improved in existing shoppfng mails. Scattered new housing has been constructed, mostly In the southeastern portion of the franchise area. This new business has required reinforcement ofelectric facilities and relocation offacilities as a result of road fmprovement programs, which have been major factors in the Company's construction expenditures.
Central Hudson's normal construction program
'ncludes projects to improve the safety, efAcfency and reliabilityofexisting generating facilities, Including the Sturgeon Pool hydro facilitypreviously mentioned. The capital requirements for the normal program ln 1982 are $24,997,000 as compared to
$ 18.556,000 in 1981.
In addition to its normal program, Central Hudson's Roseton Agreement commits It to buy from Niagara Mohawk Power Corporation. at the end of 1982, 60 megawatts ofRoseton capacity. The cost ofthis purchase Is $ 13,448.000. The Company willthen have a total ownership ofRoseton capacity of420 megawatts.
Payments to support partfcipation fn the nuclear program, which includes the construction ofNine Mile Point 2 and costs Involved in the cancellation of items contracted for In the Sterling Project. willtotal
$4s,ss5,ooo.
Expenditures for Roseton. Nine Mile and Sterling account for approximately 71% of the $87,330,000 of construction expenditures budgeted for 1982.
Long-Term Debt Short-Term Debt Preferred Stock Common Equity Total Amount
($000)
$246,229 16,500 61,030 197,709
$521.468
/o of p 47.2%
3.2 11.7 37.9
'100.0%
As part ofIts ongoing financfng program the Company anticipates Issuing additional shares of common stock and additfonal Arst mortgage bonds in 1982. The amounts and timing ofsuch issues, however, have not yet been determined.
Financing On August 26, 1981. the Company sold 900,000 shares ofnew common stock and $30 millionoffirst mortgage bonds. The common stock was offered to the public at a price of$ 17.75 per share and the Company received proceeds of$ 17.11 per share. The offering was well received by investors and the underwriters were able to Increase the sfze of the issue. as originallyproposed, from 750,000 shares to 900,000 shares. The Company received total proceeds of$ 15.4 millionfrom this sale.
The Arst mortgage bonds, which bear an interest rate of 17'/8%, have a ten-year maturity. The Company realized proceeds of$29.4 millionfrom this sale and the cost to the Company for this serfes ofbonds ls 17.56%.
The proceeds from these two offerings were used to fund a portion of the Company's construction program and to refund maturing debt securities. On.
June l. $8 millionof 4~/8% convertible debentures matured. and on August 31 the Company prepaid the Anal Installment, $ 10 million,ofits term loan notes.
At December 31, 1981. outstanding short-term debt, all fn the form ofcommercial paper, amounted to $ 16.5 million,as compared to $ 18 mlllfonat December 31, 1980. The Company maintains lines of,'ank credit of$55 million.
The Company's capitalization at December 31, 1981 was as follows:
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Dividends Dividends paid to shareholders increased 7% In 1981, from $2.18 per share in 1980 to $2.33 per share in 1981. This was the fifthconsecutive year in which the dividend has been increased and such Increases have averaged 6.3% over that flve-year period. During this same period the number of outstanding shares ofcommon stock has increased 53L On December 18, 1981. the Board ofDirectors further Increased the quarterly dividend rate from
$.59 to $.62 per share, an Indicated annual rate of
$2.48. The quarterly dividend rate had previously been Increased from $.56 to $.59 per share effective May 1, 1981.
It is currently estimated that 7 % ofthe 1981 dividend constitutes a return ofcapital and therefore Is not subject to federal income tax as ordinary income. The remaining 93 % of the dividend paid is taxable as ordinary income.
The AiltriaritInstitute rlfAmerica, located tn Hitde Park, is the u~orld's largest <<ultnarJ arts school, mlth an enrollment of 1,650 fiill-timestudents. John Mitchell, I'oughkeepste Supervisor ofCommercial 4 Industrial Servtces, and Ierdtiiand Met%, President c>fthe Instttiite, observe advanced students morktng ln an all=-gas ldtchen. Over 100 <<ommerctal gas ranges are use d at the Instttute. and gas is also used exi lustvelg forheating and mater heating.
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Customer Relations Home Energy Fair Practices Act The Company has always had a liberal program under which the service to customers was shut off only as a last resort, and fair consideration has always been given to cases involvingspecial concerns and hardships. Accordingly. the Company generally supported the Home Energy Fair Practices Act, intended to protect consumer interests and commonly referred to as the Consumer Billof Rights, which was passed by the New York State Legislature in mid-year.
Under the Act, new rules codfoed many existing regulations and programs already being provided by the Company in an effort to be responsive to its customers'eeds.
However, the Act also included a number ofcomplex procedural changes whfch seriously affect the ability of the Company to collect for gas and electric service in a timely manner. As a result. significantly fncreased costs are anticipated in the implementation ofthese rules.
Home Energy Assistance Plan (HEAP)
Since 1977. many customers have qualified for cash grants under a variety offederally funded programs. During the 1980-1981 winter period a total of3,545 customers with limited income received allocations to assist them in paying their heat-related utilitybills. The grants were authorized by the Department ofSocial Services and were credited directly to the customer accounts. The total amount ofsuch grants was $667,876 during the past winter.
Home Energy Audits An amendment to the Home Insulation O'nergy Conservation Act sfgned into law in 1981 eliminated the 810 fee the utilities were previously able to charge a customer for a Home Energy Audit. This change, combined with added provisions which included solar domestic water heater audits and furnace efficiency checks, resulted in a significantly increased demand for this conservation service. During the fall, the Company hired an outside agency to assist our Company employees in handling the backlog ofaudits.
Altogether, 1,738 energy audits were conducted during 1981. Since the program was begun in 1978, 4,353 audits have been completed and Company guaranteed loans totaling $ 545,000 have been arranged for our customers.
Energy Symposium forWomen Following the successful 1980 Energy Symposium for Dutchess County Women. the Company presented a similar program last September for women from Orange and Ulster counties. Nearly 100 community leaders attended the Symposium, held at the Roseton Electric Generating Plant. The program provided timely informatfon on energy fssues and options.
A total-electric Hess's department store ts located tn the Hudson Valley Mall tn Kingston. Thts enclosed. 70-store mall was completed in October, only 100 days after ground-breaktng. Other prtmary tenants are a K-Mart, and J. C. Penney which ts scheduled to open in 1982.
Tlapflyingthe trend to energy conservatton, thts 103-apartment structure ln Poughkeepsie has natural gas heat individually metered foreach apartment The owners. Stephen and Julfe Mlmn.
are shown here with Willtam Cotting, Central Hudson Representative, on the left Consumer AdvisoryPanel Formed in 1980 to provide a channel of communication between the Company and customers, the Consumer Advisor Panel has expanded fts membership to include a wider geographic area. The 15-member panel including representatives ofminoritygroups, social, educational and charitable organizations has made recommendations to improve storm procedures.
corporate communications and service restoration programs. Anumber ofthese recommendations have been implemented.
Research and Planning Research and Development During 1981 Central Hudson continued a wide-ranging research and development program designed to improve the eNciency and reduce the cost of generating and distributing electricity. to maximize the eNcient use ofall forms ofenergy in customer facilities, and to assess opportunities for the use of renewable energy resources both in its own system and by its customers.
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c Early fn the year the Company, ln cooperaUon with the New YorkState Energy Research and Development Authority, began a Jointly funded, mulU-year program to explore the technical and economic feasibility of electric generation with wind turbines fn the Company's service territory.
Work continued on programs designed to test the operatfonal and economfc feasibility offuel cells for electric generation, to improve the efficienc and availability ofexisting generating units, to fdenUfy the opUmum design configuraUons for resident1al and commercial space heaUng, water heating. and lighUng systems, to assess the potential effects of wood stoves, electric vehicles, and customer-owned wind generation on future electric system loads, and to reduce the impact ofthe Company's generating plants on Hudson River f1sh populaUons.
The Company contributes to research leading to the improvement ofgas supply and the increased efficienc ofgas utflfzaUon equipment.
Corporate Planing Following the restructuring ofits corporate planning organization. as described in last year' report, the Company fs actively studying alternative strategies for future development. During 1981, a computer model was acquired to facilitate improved sfmulaUon offuture electric production costs under a The Company promotes energy conseruatton, energy-e+ctent electric heat pumps and natural gas heat atfatrs and exhtbtttons throughout the Mtd-Hudson Valley. Serulce Superutsor Euerett Pelham and Ltghttng Spectaltst Elmer Crans are shorun dtstrtbutlng conseruatton literature to customers at the Dutchess County Fatr, largest ofall countyfatrs ln Neru YorkState.
wide range oftechnical and economic conditions, and development ofa comprehensive, long-range flnancial planning model was initiated with a targeted compleUon date in 1982.
While the provfsfon ofeconomical electric and gas service fs and willcontinue to be its principal mission. the Company's Board ofDirectors, in November 1981. authorized the use ofa whollyowned subsidiary to explore the potential ofselected, unregulated business activities as a possible means ofstrengthening the Company's financia conditfon and broadening its managerial horizons. This pro-gram is being reviewed currently with the Public Service Commission.
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Regulation and Litigation Rate Proceedings Increased electric and gas rates became effective on July 18, 1981. Pursuant to an order of the Public Service Commission (PSC). revised tariffs were designed to increase electric revenues by $31,690,000, or 11.8'K and gas revenues by $2.654,000, or 5.8L based on estimated sales for a "test year" from August 1, 1981 to July 31, 1982, the flrstyear in which the new rates willbe effective. The total revenue Increase authorized by the PSC was approximately 88% of the amount requested by the Company in its rate Increase application flled in August 1980.
In arriving at its decision, the PSC allowed a return on common stock equity of 16.9% and an overall return on the Company's total invested capital of 12.24% and authorized certain accounting changes designed to improve cash flow. In Its determination with respect to the Increased electric rates, the PSC decided to defer determination ofthe Company's request for Increased annual electric revenues of 87.718,000 for the amortization and recovery In rates over a flve-year period ofIts investment in the terminated Sterling Nuclear Unit No. 1 (Sterling Project) until ithad reached Its decision fn a separate proceeding with respect to such matter. Regarding electric sales to other utilities for resale, the PSC (1
I The Mid-Hudson Regton is expertencing a marked expanston ofthe electronics business. Fairchtld. a rapidly deueloplng company, ls ananging foran addition of about 70,000 to 120,000 square feet tn 1982. Kamal Aggarwal, Plant Manager, and Thomas Vatl, Central Hudson Director-Economic Deuelopment, are shorun examtning a microprocessor wafer. produced tn 1Vapptngers Falls, and being tested by FairchtlcL Central Hudson ts renerutng its area deuelopment act tul ties; attract tng neru business into the area, and assisting extstlng companies rutth expansion plans.
~ g
~0 modlAed its prior treatment and provided that net revenues (revenues less Incremental costs, principally fuel) from all sales for resale, except certain continuing Arm sales imputed in deriving the base rates, be flowed through the electric fuel adjustment clause to the Company's retail customers as a credit to fuel costs.
On November 23, 1981, the Company Aled a request with the PSC foran 11.1% increase ln electric revenues and a 5.9% increase In gas revenues from Arm customers. The new rates are needed to cover the estimated cost ofproviding service for the period starting fn November of 1982 and continuing through 1983. In its fling, the Company is requesting an 18.5% return on common equity and a 13.75% return on total Invested capital. The Company's electric filingalso Includes $9.9 millionfor the amortization ofcosts associated with the Sterling Project.
The proposed electric increase has been allocated among the various customer classifications in the Under a Small Cities Grant, Newburgh has undertaken a three-year neighborhood improvement program involving house rehabilitation, facade restoration and road reconstruction ln the downtown section.
MayorJoan Shapiro is shown with Central Hudson Representatives Joseph Schaetzl and Theodore Musal ln the Lander Street reconstruction area. Sofar, 21 buildings have been rehabilitated, 15facades restored and sections ofstreet repaired ln the style of the orlglnal 19th century paving.
~ ~
~ 0 V
~ ~ii manner directed by the PSC at the conclusion of the Company's last rate case. The PSC is conducting a separate proceeding to consider the allocation of revenue requirements among customer classes, the rate structure ofeach class, and time-differentiated rates. Itis expected that the PSC willrender a decision in this proceeding prior to or concurrent with a decision in the Company's current electric rate proceeding.
Sterling Project The Company has been participating as a tenant in common in the Sterling Project, which was to have been constructed in upstate New Yorkand placed in service in 1988. The Company has a 17% interest in this project.
The New YorkState Board on Electric Generation Siting and the Environment (Siting Board) initially
, approved the construction and siting ofthe Sterling Project on Janua1y 11, 1978; however. this approval was suspended on May 4, 1978 and ultimately re-versed on Januauy 23, 1980 when the Siting Board voted to revoke its earlier approval.
On February 6, 1980. the Company, together with
, the other owners of the Sterling Project, Aled a petition with the PSC for permission to amortize its investment in the Sterling Project and any related cancellation charges against income and to recover I such investment and charges through rates over a I period ofyears.
In June 1980. the PSC commenced a proceeding to consider the owners'etition. The proceeding was I divided into the followingphases: Phase I to examine the prudence ofthe owners in incurring types or categories ofexpenditure in connection with the Sterling Project; Phase I-Ato consider whether the Sterling Project owners should be permitted to recover a return on the unamortized investment in the Sterling Project during the period ofamortization; and Phase II to examine spect tie dollar amounts incurred in each category and the length of the amortization period.
Phase I was completed in January 1981 and the PSC in its Opinion concluded that the categories of expenditure incurred for the Sterling Project up to January 11, 1978 were prudent in principle.
On January 13. 1982, the PSC issued its Opinion in Phases I-Aand IIofsaid proceeding. The PSC Allocation of Actual Electric Costs (1971 -1981 )
$ 398.4 D
FUEL & PURCHASED ENERGY LABOR EXPENSE O
OTHER 0&M EXPENSES TAXES D
DEPRECIATION &
PURCHASED CAPACITY 0
OPERATING INCOME
$2928)
$226.0 573$
$1844
$ 186.3 5K3%
$ 149.9
$ 138.4 5ILIe/e S 1 14.5 4Z8e/,
43.8%
f 9.4'/4 IIL5'/e IUo"/e 6S'/
6.I%
129%
10.2%
I 105%
IIL6'/o 6.4%
66'/i 13.4%%ue 125%
$ 77.8
$ 71.7
$ 64.9 20'/e 18Z/e 203o/el IIL9%
16.9'/i 79'/o 667/i 66'/o 89o/o 18 Io/o'Ne 1'/e I2Z/
le'/e IMIo/e IIL2'/i IOS%
83%
lire 9>1o 99'/e 13A'4.2'/i 22A%
15.7'/o I6A%
157'/
IL7%
r 8.1%
66'/o 63'/i ILIF/e
&9'/e 6.1'/i 7$ '/e 9.4%
1971
\\972 1973 1974 1978 1978 1977 1978 1979 1980 1981 Thts cost attocaffon chart vtvtdlydeptcts the dramattc effect offuel prtce tncreases on the cost of electrtc servtce, and thefact that ten years agofuel costs comprtsed only 20% ofelectrtc costs, whtle todayfuel makes up 63.7% ofthese costs. Apartfrom the cost offuel. Central Hudson rates have fncreased almost tdentfcally with increases tn the consumer prtce tndex. And excludfngfue4 the rates remain the second lowest tn New YorkState.
determined that all the expenditures on the Sterling Project, including those incurred after January 11.
1978. were prudent. Also, the Commission approved amortizaUon ofthe Company's investment ln the Sterling Project on a levelized basis over a five-year period, and itpermitted a return on the unamortized balance equal to the Company's authorized overall rate ofreturn. The PSC directed that the amortization and recovery commence upon the conclusion ofthe Company's pending rate proceeding.
As ofDecember 31, 1981, the Company had $20.7 millioninvested fn the Sterling Project, including AFDC. Afterproviding for the reduction offederal income tax resulting from the abandonment loss, part ofwhich was claimed fn 1980, and reflecting can-cellation charges expected to be incurred and accrual ofadditional AFDC. the Company's investment fn the Sterling Project fs projected to be $ 18.5 millionas of October 31, 1982. As part ofits pending rate proceeding the Company has requested increased revenues fn the amount of$9,863,000 in order to amortize this investment on a levelized basis over a five-year period with a return on the unamortized balance of 13.75%.
Roseton Legal acUon to recover damages from certain contractors involved ln the Roseton Plant fs being continued by the owners: Central Hudson, Consoli-dated Edison Company of New York, Inc., and the Niagara Mohawk Power Corporation.
The utflfUes claim the defendants'ailure to construct properly the Roseton Plant led to a series of incidents. including a boiler implosion, which delayed the completion and commercial operation of the Plant. The matter is being aggressively pursued by the owners ofthe Plant because oftheir convfcUon that their daim fs based on solid legal principles and that the major damage which has been suffered should be recovered.
The parties are actively engaged in pre-trial discovery proceedings, but no estimate can be made at this Ume as to the duraUon or outcome of the litigation.
Corporate Ward Manor-Cruger Island The Company was delighted to convey in July 1981 title to its 706-acre Ward Manor-Cruger Island property to the State ofNew York. Twenty-one years ago the Company had purchased this choice property to use as a site for a future generating plant, thus taking the property out ofcommercial use and permitting ft to be dedicated to the public use. When the Company determined that the land would not be needed for a generating site, ltdecided that itwas fn the best interests ofall concerned to convey the property to the State ofNew York so that itcould be used by the public. The State acquired this site for a consideration of$710,000. whfch represents the Company's actual investment. The Ward Manor-Cruger Island tract is located on the east bank ofthe Hudson River near Tivoliand is not only rich fn historical interest but ls a valuable waterfowl refuge and fish spawning ground. In relinquishing title to the State. Central Hudson acted on its commitment to preserve and protect the environmental quality of the area it serves.
OfGcers John E. Mack III,Executive Vice Presfdent, was elected a member of the Board ofDirectors fn January 1981. Mr. Mack has served in the financial, personnel and customer services groups.
Labor Agreement The Company entered into a two-year contract with Locals 320 and 2218 of the International Brotherhood of Electrical Workers effectiv July 1.
1981 to June 30, 1983. The contract provided for improvements fn certain benefit programs plus a 10%
wage increase to become effective July 1, 1981, and an additional 10% increase on July 1, 1982.
16
1981 ANNUAL REPORT P'fz18121Q2.81Il Gect~ooz Central Hudson Gas O'lectric Corporation General ONce 284 South Avenue. Poughkeepsie.
New York 12601 Telephone (914) 452-2000
Report of Independent Accountants
'ib the Board of Directors and Shareholders of Central Hudson Gas O'lectric Corporation In our opinion. the accompanying balance sheet and the related statements of income, of retained earnings, and ofchanges in financial position present fairlythe financial position ofCentral Hudson Gas O'lectric Corporation at December 31, 1981 and 1980, and the results ofIts operations and the changes in its financial position for each of the three years in the period ended December 31, 1981. In conformity withgenerally accepted accounting principles conslstentlyapplied. Our examinations ofthese statements were made in accordance withgenerally accepted audltlng standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
New York, New York January 29, 1982 PRICE WATERHOUSE Statement of Retained Earnings (Thousands of Dollars)
Balance at beginning ofyear..
Net Income 1981
$80.155 29,679 109.834 Year ended December 31 ~
1980
$73,691 23.898 97,589 1979
$67,084 21,694 88,778 Dividends declared cash:
On cumulative preferred stock.
On common stock
($2.39 per share 1981; $2.20 per share 1980;
$2.04 per share 1979)
Balance at end of year 4,126 4,126 16.751 20,877 13,308 17,434
$88.957'80,155 4,126 10,961 15.087
$73,691
'Pursuant to the terms of the 4.85% promissory notes, due 1995. 880543 Is available I'or payment ofdividends on common stock.
The Notes to Financial Statements are an integral part hereof.
Statement of Income (Thousands of Dollars)
Operating Revenues Electric Gas Totalown territory Revenues from electric sales to other utilities....
Revenues from gas sales to other utilities........
$287,063 46,076 333,139 111,329 413
$228.598 35.630 264,228 63,401 364
$ 181,705 28,813 210,518 44.266 Year ended December 31.
1981 1980 1979 Operating Expenses Operation:
Fuel used in electric generation (Note 1)..
Purchased electricity.
Purchased natural gas Other expenses of operation.
Maintenance Depreciation (Note 1)
Taxes, other than income tax Federal income tax (Note 2)................
Deferred income taxnet (Note 2)
Operating Income 444,881 184,167 80,268 28.579 40,952 12,450 16,108 29,274 8,981 2,569 403,348 41,533 327,993 125,007 52,556 22,525 35,164 11,132 15,220 24,481 (2,534) 8,744 292,295 35.698 254,784 90,897 32.845 16,693 29,307 9,818 14,839 21,268 171 5,794 221,632 33,152 Other Income and Deductions Allowance for equity funds used during construction (Note 1)
Federal income taxcredit (Note 2)....
Deferred income taxcredit (Note 2)..
Othernet Income before Interest Charges 6,198 2,528 220 (533) 8,413 49,946 4.495 418 253 (295) 4,871 40,569 3,476 933 178 (333) 4.254 37.406 Interest Charges Interest on mortgage bonds Interest on unsecured long-term debt..
Interest on short-term debt Other interest Allowance for borrowed funds used during construction (Note 1)
Amortization of premium and expense on debt Net Income..
~..
Dividends on Preferred Stock 21,043 1,815 4.296 652 (7,718) 179 20,267 29,679 4,126 15,017 3,778 4.763 305 (7,287) 95 16,671 23,898 4.126 11,306 5,195 3,422 262 (4,536) 63 15.712 21,694 4,126 Income Available for Common Stock S 25,553 S 19.772 S
17,568 Common Stock:
Average Shares Outstanding (000's)
Earnings per Share On Average Shares Outstanding..
Earnings per Share Assuming Conversion of the Convertible Debentures (Note 3)..............
6,867
$3.72 5,851
$3.38 S3.26 5,373
$3.27 S3.16 The Notes to Financial Statements are an integral part hereof.
Balance Sheet (Thousands of Dollars)
Assets 1980 1981 UtilityPlant, at original cost Electric Gas Common
$433,640 53,551 23.976
$441,945 55,642 26.930 511.167 165.487 524,517 179.268 20 Less accumulated depreciation Construction work in progress 345.249 160,249 505.498 Other Property and Investments (Note 1)..
1,840 Current Assets Cash Special deposits.
Accounts receivable from customers Accrued unbllled utilityrevenues (Note 1)..
Other receivables (Note 2)
Materials and supplies, at average cost:
Fuel Construction and operating Prepaymen ts.
2,958 252 39,151 7,535 1,148 18.642 8,237 4,259 82.182 Deferred Charges Deferred electric fuel costs (Note 1)
Deferred gas costs (Note 1)
Deferred environmental costs (Note 1)
Unamortized debt expense Unamortized project costs Other 6,410 1,000 3,422 2,493 4,449 3.824 21.598
$611,118 The Notes to Financial Statements are an integral part hereof.
345.680 123,827 469,507 1.968 3,341 247 31,947 5,771 6,554 19,391 7,873 3,771 78.895 10,351 623 3,099 2.190 411 3,661 20,335
$570.705
December 31, 1981 and 1980 Liabilities Capitalization Capital Stock (Note 5)
Cumulative preferred stock Premium on cumulative preferred stock...
Common stock......
Capital stock expense Retained Earnings.
Long-term Debt (Note 6).......
Unamortized Premium and Discount on DebtNet...
Current Liabilities Long-term debt maturing within one year...
Sinking fund requirements.
Notes payable (Note 4).
Accounts payable Accrued taxes.
Accrued interest Customer deposits Dividends declared Other 1981 8 61,030 67 111,165 (2.480) 169,782 88,957 241,050 (821) 498.968 6,000 175-16,500 26.669 6,073 5,855 2.840 5,654 5,190 74.956 1980 8 61,030 67 95,546 (2,326) 154,317 80,155 217,225 (253) 451,444 18.000 175 18,000 25,808 7.183 4,022 2,677 4.696 5,775 86,336 Deferred Credits and Other Liabilities Deferred gas refunds Miscellaneous reserves Other.
Accumulated Deferred Income Tax (Note 2)
Commitments and Contingencies (Note 8).
~..
1.970 992
~ 3.181 6,143 31,051
$611.118 1,618 760 1,845 4.223 28,702
$570,705 The Notes to Financial Statements are an integral part hereof.
Statement of Changes in Financial Position (Thousands of Dollars)
Source of Funds Internal sources:
Net income Income items not requiring current outlays:
Depreciation accrual s:
Charged to depreciation expense Charged to other income accounts Deferred income taxnet.
Allowance for funds used during construction (Note 1)...
Othernet Net funds from internal sources.
Year ended December 31.
1981 1980 1979 16,108 629 2,349 (13,916) 1,973 36,822 15,220 586 8,491 (11.782) 1,314 37.727 14,839 530 5,616 (8,012) 355 35,022
$29,679 S 23,898
$21,694
~ ~
Available from financing:
Mortgage bonds Common stock Short-term debt Total funds from external sources 30,000 15,619 45,619 50,000 19,175 69,175 20,000 22,000 42,000 Total source of funds
$82,441
$ 106.902
$77,022 Application of Funds Construction charges:
Gross charges for construction.
Less allowance for funds used during construction (Note 1)
Cash expenditures.
Dividends:
Preferred stock Common stock 4,126 16,751 4,126 13,308 4,126 10,961
$56,050 S 41,455
$40,526 13,916 11,782 8,012 42,134 29,673 32,514 20,877 17.434 15,087 Retirement of securities and short-term debt:
Mortgage bonds Convertible debentures Long-term promissory notes Term loan notes...........
Short-term debt 12,000 8,000 175 175 10,000 10,000 1,500 27,000 175 15,000 19,675 49.175 15,175 Net increase in working capital, other than short-term debt and current maturities of long-term debt.
Changes in deferred and other accounts net............
~
Total funds applied 1.166 6.170 (1,41 1) 4,450
$82.441
$ 106.902 7,722 6.524
$77.022 The Notes to Financial Statements are an integral part hereof.
22
l'otes to Financial Statements
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Note 1Summary ofAccounting Policies General: The Company is subject to regulation by the New York State Public Service Commission (PSC) and the Federal Energy Regulatory Commission (FERC) with respect to its rates forservice and the maintenance ofits accounting records. The Company's accounting policies conform togenerallyaccepted accounting principles as applied in the case ofregulated public utilities and are in accordance with the accounting requirements and rate-making practices of the regulatory authorities having jurisdiction.
UtilityPlant: The costs ofadditions to utilityplant and replacements ofretirement units ofproperty are capitalized at original cost. Costs include labor, materials and supplies, indirect charges forsuch items as transportation, certain taxes, pension and other employee benefits, and an allowance for the cost of funds used during construction. Replacement of minor items of property is included in maintenance expenses.
The original cost of property, together with removal cost; less salvage, is charged to accumulated depreciation at such time as the property is retired and removed from service.
Allowance for Funds used During Construction (AFDC): The Company includes in plant costs an allowance for funds used during construction approximately equivalent to the cost of funds used to finance construction expenditures. The concurrent credit for the amount so capitalized is reported in the Statement of Income as follows: the portion applicable to borrowed funds is reported as a reduction of interest charges while the portion applicable to other funds (the equity component) is reported as other income. AFDC is not considered a current source of funds and therefore is not included as such in the Statement of Changes in Financial Position.
Effective July 18, 1981, pursuant to Commission authorization, the Company began accruing AFDC on its investment in the Nine Mile No. 2 Plant on a net-of-tax basis. This change in method results in a lower AFDC rate and a reduction in the amount ofAFDC accrued; however, such reduction ln AFDC is offset by increased after tax cash income generated by increased rates. The tax benefit which results from the interest cost deduction has been reclassified from "Operating Expenses" to "Other Income and Deductions."
Depreciation: For financial statement purposes.
the Company's depreciation provisions are com-puted on the straight-line method using rates based on annual studies of the estimated useful lives and estimated net salvage ofproperties. The provision fordepreciation oftransportation equipment is charged indirectly to various asset and expense accounts, while the depreciation provision for certain properties included in the account "Plant Held for Future Use" is charged to "Other Income Deductions" for accounting purposes.
For federal income tax purposes, the Company uses an accelerated method of depreciation and generally uses the shortest life permitted for each class of assets.
Rates and Revenues:
Electric and gas retail rates applicable to intrastate service (other than contractually established rates forservice to municipalities and governmental bodies) are regulated by the PSC. Transmission rates and rates for electricity sold for resale in interstate commerce are regulated by FERC.
Revenues are recognized on the basis of cycle billings rendered monthly or bimonthly. Estimated revenues are accrued for those bimonthly customers whose meters are not read in the current month.
The Company's tarifffor retail electric service includes a fuel cost adjustment clause pursuant to which electric rates are adjusted to reflect changes in the average cost offuels used in electric generation and certain purchased power costs from the average ofsuch costs included ln base rates. The Company's tariffforgas service contains a comparable clause to adjust gas rates forchanges in the price ofpurchased natural gas and certain costs of manufactured gas.
Deferred Electric Fuel Costs: The provisions ofthe electric fuel cost adjustmentclause are such that changes in fuel costs incurred in the current month are not billed to customers untilsubsequentmonths.
Therefore, in order to match costs and revenues, the Companydefers that portion ofsuch costs incurred in the current month which willresult in a cost adjustment ln subsequent months.
23
Effectiv November 3. 1979, the Company was authorized to include an additional $.015 per kwhr. of fuel costs in its base rates and to recover over a 36-month period the portion ofdeferred fuel costs that was associated with this increase in base rates and corresponding reduction in fuel adjustment factor. At December 31, 1980 and 1981, $3,756.000 and $ 1,622,000, respectively, of such costs remained to be recovered.
Effective July 18, 1981, the Company was further authorized to include an additional $.012 per kwhr.
of fuel costs ln its base rates and to recover associated deferred fuel costs over a 36-month period. At December 31, 1981. $4,052,000 of such costs remained to be recovered.
Deferred Gas Costs: In accordance with requirements applicable to all regulated gas utilities ln the State, the Company defers each month any difference between the amount ofgas costs incurred which are recoverable through the gas adjustment clause (GAC) and GAC revenues. The net deferral remaining at August 31 of each year is amortized over a subsequent twelve-month period for both billing and accounting purposes.
Deferred Environmental Costs: Pursuant to an Order of the PSC, the Company had been deferring, pending final resolution of the issues. the cost of certain environmental studies lt was conducting to contest certain provisions ofthe discharge permits issued by EPA forits Danskammer and Rose ton plants.
Effective November 3, 1979, the Company was authorized to charge to current operating expense the continuing costs ofthese studies and to recover over a 60-month period the costs that had been deferred.
At December 31. 1980 and 1981. $3,099.000 and $2,251,000, respectively, ofsuch costs remained to be recovered.
Pursuant to an Order of the PSC issued May 8. 1981. the Company.has been authorized to defer its share of the costs incurred ln the settlement agreement ln connection with the Hudson River Cooling Tower proceeding before the EPApendlng determination ln a rate case ofthe recoverability of such costs in rates. At December 31, 1981, $ 1.171.000 of such costs had been deferred.
Investments in Subsidiaries:
The subsidiaries are whollyowned land-holding companies, and they are not consolidated for financial reporting purposes since their assets, liabilitiesand operations are not significant in relation to those ofthe Company. The Company uses the equity method ofaccounting forits investment in subsidiaries.
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Note 2Federal Income Tax General: The Company's general policy with r'espect to accounting for the federal Income tax ls to reflect in income the estimated amount ofincome tax currently payable and to provide for deferred taxes on timingdlfferencesbetwee book and taxable income to theextentpermltted forrate maklngpurposes.
Depreciation: In computing depreciation forfederal income tax purposes forthe years 1979 and 1980 the Company used an accelerated method as permitted under the Internal Revenue Code, and'the class life system prescribed in the Revenue Actof 1971. For the year 1981, the Company used the Accelerated Cost Recovery System as prescribed in the Economic Recovery Tax Act of 1981.
Investment Tax Credit: The federal income tax ls reduced by the investment taxcredlt. The additional investment tax credit resulting from increasing the rate ofsuch credit from 4% to 10%. as provided by the Tax Reduction Act of 1975, is being deferred and amortized over the life of the related property in accordance with a Statement of Policy of the PSC. The investment tax credit which is not deferred is allocated equally between "UtilityOperating Income" and "Other Income and Deductions" ln accordance with the Uniform Systems ofAccounts of the PSC.
In addition, effectiv July 18, 1981, the Company was authorized by the PSC to defer the full 10%
investment tax credit associated with the Company's participation ln the Nine MilePoint No. 2 Plant to be subsequently amortized over a period yet to be determined.
The Company has a Tax Reduction Act Stock Ownership Plan (TRASOP) which is funded by the use of the additional 1% investment tax credit permitted by the Tax Reduction Act of 1975. The 1% credit amounted to $401,000 for 1979, $261,000 for 1980, and ls estimated to be $379,000 for 1981.
Deferred Income Tax: A summary of the amounts deferred or credited to income is as follows:
Amounts Deferred Amounts Credited 1981 1980 1979 1981 1980 1979
('nrousands of Dollars)
Operating Income:
Class life depreciation................
Accelerated cost recovery system......
Cost of removal Investment tax credit................
Deferred fuel and gas costs...........
Sterling abandonment lossnet......
Other
$ 1,459 87 512 2,445 2,905 434 879 S 1,363 471 1,544 3,083 4.834 328 8,721 11,623 Sl,342 669 2,383 3,325 409 8.128 S
102 443 4,918 689 6,152 S
54 473 1,762 590 2,879 S
86 421 1,625 202 2,334 Other Income (Investment tax credit)...
Total.....................
S 8,721 220 S11,623
$8,128
$6,372 253
$3,132 178
$2,512 ol'retax Income Amount ISOOO)
Amount (SOOO)
Income ISOOO)
$23898 (2,952) 8,491
$29,437 46.0%
$ 13,541 Income
$29,679 6,453 2,349 Net income......................
~
~
~
~
Federal income tax Deferred income taxnet...............
Income before tax.
$21,694 (762) 5.616 S38,481
$ 17,701 Computed tax expense.................
Increases (reductions) in computed taxes resulting from:
Allowance for funds used during construction.
Investment tax credit..............
Deferred fuel and gas costs net....
Excess of tax depreciation over book depreciation................
1hxes and pension costs expensed on tax return and capitalized on books Cost of removal.
Other deferred costs..............'.
Miscellaneous itemsnet..........
Sterling abandonment loss.........
Recapture of Sterling investment tax credit Federal income tax 46.0%
$ 12,212 46.0%
(6,401)
(3,845) 2,013 (16.6)
(5,420)
(18.4)
(3,685)
(139)
(10.0)
(2,647)
(9.0)
(3,973)
(15.0) 5.2 (1,321)
(4.5)
(1,768)
(6.6)
(540)
(1.4)
(1,060)
(3.6)
(1.540)
(5B)
(706)
(2.7)
(836)
(3.1)
(357)
(1.4)
(109)
(.4)
(2.3)
(809)
(2.8)
(1.7)
(589)
(2.0)
(0.8) 196
.7 (0.5)
(9)
(1.1)
(5,690)
(19.3)
(880)
(640)
(320)
(201)
(434) 856 2.9 16.8 (2,952)'10.0)
(762)
(2.9) 6,453 Deferred income taxnet..............
2,349 6.1 8,491 28.8 5,616 21.2 Reconciliation: The following is a reconciliation of the difference between the amount of federal income tax as reported in the Statement ofIncome and the amount computed by multiplyingthe income before tax by the statutory tax rate.
1981 1980 1979
%of
% of Total o
~
~
~
~
S 8.802 22.9%
S 5539 18.8%
S 4854 18.3%
'Due to the Sterling abandonmcnt loss. 1980 resulted In a net operations tax loss which thc Company applied to a prior year' taxable Income. In addition. the Company had unused 1980 Investment tax credit which also was carr)cd back to a prioryear Thc total claim which amounted to 84.676,000 was reflected In Other Receivables at Dcccmbcr 31. 1980. This claim was collected during 1981.
Note 3Earnings per Share and Convertible Debentures The dual presentation ofearnings per share data in the Statement of Income for the years 1979 and 1980 reflects the net reduction in earnings per share which would have been realized ifthe debentures outstanding at the end of each year had, in fact, been converted to common stock. The 4s/s% convertible debentures were paid at maturity on June 1, 1981: therefore, at December 31, 1981 there was no effect on earnings per share.
Note 4Short-Term Borrowing Arrangements and Compensating Balances At December 31. 1980 and 1981, the Company maintained lines ofcredit with seven banks totaling
$55,000,000. At December 31. 1980, the outstanding short-term obligations consisted onlyofbank loans amounting to $ 18,000,000, while at December 31, 1981 such obligations consisted only ofcommercial paper amounting to $ 16,500,000. Outstanding short-term obligations at both dates were backed by the lines ofcredit maintained by the banks.
Compensating balance requirements are not formalized under the lending arrangements withbanks, but the Company is expected to maintain certain average balances against its lines ofcredit and/or the average amounts borrowed. The requirements differ from bank to bank, but in general call for the maintenance of average balances equal to 10% of the line of credit plus 10% of the average amount borrowed. Inasmuch as requirements are informal and are on an average basis, bank balances are not subject to any restriction with respect to withdrawals. Accordingly, amounts on deposit, including float.
maybe greater or less than computed average balances atanygiven date. Substantiallyall cash balances were considered to represent compensating balances at December 31, 1981.
Note 5Capital Stock Common stock without par value; 10,000,000 shares authorized:
Outstanding, December 31, 1978 and 1979......
Sale ofstock..............................
Issued under TRASOP Capital stock expense Outstanding, December 31, 1980 Sale ofstock.
Issued under TRASOP Capital stock expense Outstanding, December 31, 1981 Shares
~Oursrandrn 5,372,873 1,150.000 20.739 6,543.612 900,000 12,393 7,456,005 Amount (sooo)
$ 74,126 18,775 400 (81) 93.220 15,400 219 (154)
$ 108,685 Cumulative preferred stock, at December 31, 1980 and 1981, $ 100 par value; 1,200,000 shares authorized:
Redempt ton Price 4th% series 4.75% series 4.35% series 4.96% series 7.72% series 7.44% series 8.40% series Total Current
$ 107.00 106.75 102.00 101.00 104.00 106.80 108.40
~Thmu h 1/31/84 1/31/83 5/31/82 Eventual Minimum
$ 107.00 106.75 102.00 101.00 101.00 101.22 101.00 Shares O~urslandrn 70,300 20,000 60,000 60,000 130,000 120,000 150,000 610,300 The cumulative preferred stock is redeemable onlyat the option ofthe Company and the sum payable per share is the then current redemption price plus accrued dividends thereon. In the event ofinvoluntary liquidation the redemption price is $ 100 per share plus accrued dividends.
Expenses incurred on issuance ofcapital stock are accumulated and reported as a reduction in total capital stock and are not being amortized.
26
Note 6Long-Term Debt Details of long-term debt at. December 31 are shown below:
1981 1980 (Thousands of Dollars)
First mortgage bonds (net ofcurrent maturities):
3.30% series. due December 1, 1982.....
3.20% series, due October 1, 1984 41/s% series. due May 15. 1988 14'h% series. due November 15, 1990 17'/s% series, due August 15, 1991 71/s% series, due January 15, 1999 9'/s% series, due June 1, 2000 7'/4/ series, due February 1, 2002......
9'/4% series, due April 15. 2004 105/s% series. due November 1. 2005 6~/4% series, due June 1, 2007 10'/4% series, due September
- 15. 2009 12s/s% series, due May 15, 2010.
Promissory notes (net of sinking fund requirements):
4.85%, due December 1, 1995......
Total long-term debt 11,000 18,000 25,000 30,000 20,000 25,000 20,000 15,000 20,000 4,500 20,000 25.000 233,500 7,550
$241,050 6,000 11,000 18,000 25,000 20,000 25.000 20,000 15,000 20,000 4,500 20,000 25,000 209,500 7,725
$217.225 Expenses incurred on debt issues and any discount or premium on debt are deferred and amortized over the lives of the related issues.
Note 7Retirement Income Plan The Company has a noncontributory retirement income plan (Plan) which covers all employees.
The cost of the Plan to the Company amounted to $2,526,000 for the calendar year 1979, $2,960,000 for 1980 and $3,363.000 for 1981. Approximately 20% ofeach year's cost for the years 1979 and 1980 and 19% forthe year 1981 were charged to construction. Based upon the Annual Valuation Report furnished to the Company by the independent actuary for the Plan, the unfunded liabilitywas $7,879,000 as of September 30. 1981, the end ofthe last Plan Year. Such amount was $4 909 000 more than at the end ofthe prior Plan Year and reflects amendments to the Plan and changes inactuarial assumptions. The unfunded liabilityis being amortized and funded over a period of fifteen years. Current service costs are funded annually.
The independent actuary has also furnished the Company with its opinion that as ofSeptember 30, 1981 the assets ofthe Plan were sufficien to cover the liabilitiesin respect ofthe members ofthe Plan who are eligible forvested benefits. The actuarial present value ofaccumulated Plan benefits using an assumed rate ofinvestment return of7~8% and net assets available forbenefit as ofSeptember 30, 1980 and 1981 are as follows:
September 30, 1981 September 30.
1980 Vested Non-vested
$43,262,000 85.000
$43,347,000 Net assets available for benefits 343543000
$30.653.000 1,174,000
$31,827.000 341 975 000 27
Note 8Commitments and Contingencies Sterling Nuclear UnitNo. 1: The Company has been participating as a tenant in common in Sterling Nuclear Unit No. 1 (Sterling Project) which was to have been constructed in upstate New York. The New YorkState Board on Electric Generation Siting and the Environment (Siting Board) initiallyapproved the construction and siting ofthe Sterling Project on January 11, 1978; however, this approval was ultimately reversed on January 23, 1980 when the Siting Board voted to revoke its earlier approval.
On February 6, 1980, the Company, together with the other owners of the Sterling Project, filed a petition with the PSC for permission to amortize its investment in the Sterling Project and any related cancellation charges against income.and to recover such investment and charges through rates over a period ofyears. As part ofitspetition to the PSC. the owners ofthe Sterling Project requested permission to continue to accrue and accumulate AFDC on their respective investments ln the Sterling Project until such time as recovery ofsuch investment in rates commences. Said permission was granted bythe PSC by Order dated February 19. 1980.
In June 1980, the PSC commenced a proceeding to consider the owners'etition. Phase I was completed in January 1981 and the PSC in its Opinion concluded that the categories of expenditure incurred for the Sterling Project up to January 11, 1978 were prudent in principle. On January 13, 1982.
the PSC issued its Opinion in Phases I-Aand II of said proceeding. The PSC determined that all the expenditures on the Sterling Project, including those incurred after January 11, 1978, were prudent, it approved amortization ofthe Company's investment in the Sterling Project on a levelized basis over a five-year period, and it permitted a return on the unamortized balance equal to the Company's authorized overall rate ofreturn. The PSC directed that the amortization and recovery commence upon the conclusion of the Company's pending rate proceeding.
As of December 31, 1981, the Company had a net investment of$ 14.8 millionin the Sterling Project, including AFDCand after providing for the reduction ln federal tax resulting from the abandonment loss.
Reference is made to the section of this Report entitled "Regulation and Litigation" for additional information on this subject.
Nine MilePoint Nuclear Station UnitNo. 2: The Company's principal construction project is its 9%
participation (97 mw.) in Unit No. 2 of the Nine Mile Point Nuclear Station (NMP-2) which is being constructed by Niagara Mohawk Power Corporation (Niagara Mohawk) ln Oswego County, New York,and which is presently scheduled foroperation in 1986. The current estimate ofthe cost ofNMP-2, prepared for the owners by Stone O'ebster (the architect/engineer and construction agent for the project), is $2.4 billion, excluding the cost of nuclear fuel and AFDC. ofwhich the Company's 9% share would be $216 million.The Company's share ofthe cost ofnuclear fuel is currently estimated to be $9 million.The amount ofAFDCon the Company's investment is currently estimated to be $ 128 million.Accordingly, the total cost ofthe Company's interest in NMP-2 is presently estimated to be $353 million,ofwhich $ 131.3 millionhas been expended by the Company as of December 31. 1981.
NMP-2 is not subject to thejurisdiction ofthe Siting Board. In December 1977, the PSC approved the Company's participation in NMP-2.
In early 1980. the owners engaged independent engineering and management consulting firms to perform a review ofthe estimated cost and scheduled in-service date ofNMP-2, together withengineering, construction and management systems at the project. Also. a reassessment was conducted by Niagara Mohawk and Stone O'ebster. As a result of these reviews, a revision of the NMP-2 cost estimate from
$ 1.352 billion to the current estimate of $2.4 billion (exclusive of AFDC and nuclear fuel) and a rescheduling of the operation date from 1984 to late 1986 were announced in September 1980.
Also during 1980, the PSC directed Theodore Barry and Associates and Canatom Limited to perform a comprehensive management audit of NMP-2. This audit covered essentially the same areas as the study commissioned by the owners and a report thereon (the,TBS'A Report) was issued in July 1981. While stating that the planned 1986 completion date is possible, the TEAReport states that a one year slippage in schedule is likely.The TBS'AReport also stated that slippage in schedule. new regulatory requirements, 28
higher cost escalation and other factors could increase the cost ofNMP-2 significantlybeyond the current estimate. However, while recognizing that schedule slippage and cost increases inany major construction project are always possible, the owners believe that the current cost estimate and the anticipated construction schedule are achievable.
The Company recognizes that the projected increased costs for NMP-2, combined with high inflation rates and prevailing high interest rates, are placing additional financial burdens on Itand the Company has sought to reduce Its level ofparticipation In NMP-2 but thus far has been unsuccessful.
The PSC determined, In the Company's rate proceeding decided fn July 1981, that a separate proceeding should be initiated to inquire into the Company's abilityto finance its continued participation in the construction of NMP-2 without jeopardizing its ability to provide safe and adequate service to its customers at reasonable costs. On September 23, 1981, the Company filedwiththe PSC its Submission In support of Its position that it Is able to finance its continued participation in NMP-2. The Company believes that ft has fullyjustiffedIts participation In NMP 2; that ithas demonstrated that itcan finance Its ownership in this plant; that the rate reliefprojected to be necessary to maintain financial parameters adequate to Anance Its continued participation in NMP-2 would be reasonable: and that the completion of the project willresult ineconomic benefits to its customers because ofIts prospective lowcost ofoperation.
The PSC Staff, the onlyparty who filed comments on the Company's Submfssfon, did not take exception to the Company's position, but noted that the conversion ofthe Company's Danskammer Plant Units 3 and 4 from of1-Aring to coal was an important factor contributing to the reasonableness of the projected rate relief.
During July and August 1981, various groups petitioned the PSC to establish a single consolfdated public evidentiary proceeding involving all of the owners to consider the future ofNMP-2. In September 1981, the Staff of the PSC issued a report on a comparative analysis of the economic and Anancial feasibility of NMP-2 as compared to various alternatives wherein the NMP-2 capacity was replaced with coal-Ared generation. This report concluded that completion ofNMP-2 Is warranted. In response to these motions and petftfons and based on the TBS'AReport and PSC Staffs comparative analysis. InSeptember 1981 the PSC ordered an expedited proceeding to inquire into the financial and economic cost implications of completing NMP-2. In December 1981, public evidentiary hearings were completed. The PSC Is expected to reach a decision by March 1982 fn both this proceeding and the separate proceeding fnvolving only the Company. The Company Is unable to predict what recommendations or actions may arise as a result ofthese proceedings. The resulting recommendations or actions may have an effect on the ultimate recoverability of the Company's investment in NMP-2.
Roseton Plant: The Company's undivided interest ln the ownership and output of the 1,200-mw.
Roseton Plant was Increased from 20% to 30% as ofDecember 31, 1978. ItIs obligated to purchase a further 5% interest on December 31, 1982 and has an option to acquire the remaining Interests ofthe other two owners fn 2004. In addition. the Company is obligated to purchase speclfied amounts ofRoseton Plant capability through 1982. The Company's share of direct operating expense for the Roseton Plant fs included In the appropriate expense classification in the accompanying income statement.
Natural Gas Supply: The Company has long-term contracts for the supply ofnatural gas with three pipeline suppliers. The earliest expiration date ofany ofthese contracts is In 1988. The Company also has a contract for the storage ofgas. Allsuch contracts are under tariffs on file with and approved by FERC.
Reference ls made to the section ofthis Report entitled "Natural Gas" foradditional information on this subject.
Construction Program: Reference Is made to "Management's Discussion and Analysis ofFinancial Condition and Results ofOperations" for information regarding the Company's construction program for the five-year period 1982-1986.
Leases: Commitments for minimum rentals under noncancellable leases are minor, and neither the present value ofnon-capitalized financing leases nor the impact on net Income ofcapitalizing such leases is significant.
29
Note 9Departmental Information The followingpresents certain information pertaining to the Company's operations for its electric and gas departments for the years ended December 31, 1979. 1980 and 1981:
Electric Gas 1981 1980 1979 1981 1980 1979 (Thousands of Dollars)
Operating Revenues Operating Expenses:
Depreciation Fuel and Purchased Electricity..
Purchased Natural Gas.........
Other, excluding income tax.....
Total.
Operating Income before Income Tax Federal Income Tax, including deferred income taxnet........
Operating Income Construction Expenditures'398392
$291999
$225971
$46489
$35994
$28813 13,974 13,633 13,305 2,134 1,587 1,534 264.435 177,564 123,742 28.579 22,525 16,693 71 907 61 923 52 752 10 769 8 853 7641 350 316 253 120 189 799 41 482 32 965 25 868 48,076 38,879 36,172 5,007 3.029 2,945 10 463 6 100 5 733 1 087 110 232
$ 37.613
$ 32,779
$ 30.439
$ 3,920
$ 2,919
$ 2,713
$ 52631 8 38229
$ 38473
$ 3419 8 3226 8 2053 Identifiable Assets at December 31'et UtilityPlant Construction Work fn Progress....
Total UtilityPlant...............
Materials and Supplies...........
Total
$305,054
$306,140
$308,356
$40.195
$39,540
$37,519 157 638 121 887 95 781 2611 1 940 2 238 462,692 25 472 428,027 404,137 42,806 41,480 39,757 26 113 23 488 1 407 1 151 846 8488 164 8454 140
$427 625 844 213 842 631
$40 603
'Includes allocation ofCommon UtllltyProperty.
Note 10Selected Quarterly Financial Data (Unaudited)
Selected Anancfal data for each quarterly period within 1980 and 1981 are shown below:
Operating Revenues Operating Net Income Income (Thousands ofDollars)
Income Available for Common Stock Earnings Per Average Sharc of Common Stock
~0ntstandln (Dollars)
Quarter Ended:
March 31. 1980.............
June30,1980..............
September 30, 1980........
~
December 31, 1980...... ~...
$ 83.836 69,552 85,975 88,629
$ 10,792
$7,271
$6,239
$ 1.13 7,322 4,415 3.383
.58 8,716 6.153 5,121
.87 8,867 6,059 5,027
.82 March 31, 1981...........
June 30, 1981............
September 30, 1981.......
December 31, 1981. ~......
127.552 12,579 9,208 8,176 1.25 101.737 6,950 3,864 2,832
.43 105,230 11,101 8,315 7,283 1.05 110,362 10,904 8,292 7,260
.97
'The flnanclal results forthis quarter have been restated frompreviously reported flnanclal results Increasing earnings per share by 8.07 to reflect an Order ofthe PSC Issued on November 20, 1980.
30
~
~ e 8.
1 MANAGEMENT'SDISCUSSION ANDANALYSISOF FINANCIALCONDITIONAPE) RESULTS OF OPERATIONS Capital Resources and Liquidity The Company is engaged in a construction program which is presently estimated to involve cash expenditures during the period 1982 through 1986 of$316.6 million.The estimates by years are as set forth below:
Total 1982 1983 1984 1985 1986 1982-1986 (Thousands ofDollars)
$30,500
$31,000
$25,900
$27,400
$ 14.100
$ 128,900 8.700 26,900 8,900 44,500 13,400 26 600 129 800
$49600
$316600 Construction Expenditures':
Participation in Unit No. 2 of the Nine Mile Point Nuclear Station (9%)...................
Conversion of Danskammer Units 3 and 4 to coal-firing....................
Purchase of an additional 5%
interest in the Roseton Plant.................
13,400 Expenditures excluding major generating projects...........
28000 28 100 22000 25 100 Total.
$71 900 859 100
$56600
$79400
'Exdudlng allowance forfunds used during construct(on (AFDC).a noncash Item. (See Note 1 ofthe Notes to Flnanclal Statements)
As shown in the above table, the two most significant construction projects are the Company's 9%
participation (97 mw.) in UnitNo. 2 ofthe Nine MilePoint Nuclear Station (NMP-2) and the conversion of Danskammer Units 3 and 4 from oil-firingto coal-firing.
NMP-2 is being constructed by Niagara Mohawk Power Corporation in Oswego County. NewYork,and presently scheduled for operation in 1986. The cotenants'urrent estimate of the cost ofNMP-2 is $2.4 billion. excluding the cost of nuclear fuel and AFDC, ofwhich the Company's 9% share would be $216 million. With the addition of the cost of nuclear fuel. currently estimated to be $9 million. and AFDC, currently estimated to be $ 128 million. the total cost of the Company's interest in NMP-2 is currently estimated to be $353 million.
Based on current fuel cost projections. the conversion ofDanskammer Units 3 and 4 from oil to coal appears to provide substantial fuel savings for the Company's customers. In order to finance both its continued participation in NMP-2 and the coal conversion, the Company is currentlyplanning asequential (rather than simultaneous) conversion ofthe two units withUnit3 in service inJune 1986 and Unit4 in service inJune 1988. Such an approach willenable the Company to levelize its cash expenditures, reduce its financing requirements in 1984-1986, and enhance its abilityto raise the necessary capital. The total cost ofa sequential conversion is currently estimated to be $83.8 millionwithout flue gas desulfurizatlon (FGD) equipment and $ 193.3 millionwith FGD equipment. In view ofthe many regulatory and environ-mental problems involved in coal conversion. the current plans and cost estimates may be changed substantially.
Estimates ofconstruction expenditures are subject to continuous review and adjustment, and actual construction expenditures may vary from such estimates.
31
It is currently estimated that $ 138 million, or 44%, of the cash construction expenditures for the five-year period 1982-1986 willbe provided from internal sources and the balance willbe met from interim short-term borrowfngs and the issuance ofnew securities. In its estimate ofinternal funds. the Company has assumed the continuation ofa net-of-tax AFDC rate forNMP-2 and the inclusion fn rate base ofsome construction workinprogress during the years 1984-1986. The Companyassumed an AFDCratio (ratio of AFDC to income available forcommon stock) of50% for 1984 and 1985, and 45% for 1986.
Inaddition to Anancing its construction program. the Company must refund $ 18 millionoflong-term debt maturing during this period and itis presentlyestimated that the Company willalso need to provide approximately $21 millionforworking capital purposes.
The issuance ofnew securlUes willbe based upon the Company's general Anancial policies in regard to capital structure, coverage and pay-out ratios, as well as market and other economic condiUons existing over the next Ave years.
The Company's policywith regard to capital structure (excluding short-term debt) is to increase its common equity ratio to at least 40% withinthe next several years and ithas already made progress toward this goal. The common equity raUo has increased from35.5%at December31,1979 to 36.9%at December31, 1980, and then to 39.1% at December
- 31. 1981. With regard to preferred stock, itis the Company's objective to maintain an average capitalization ratio ofapproximately 10% to 12%. The balance of the capital structure would consist oflong-term debt, prlnclpaHy first mortgage bonds. With regni to short-term debt, itis the Company's objective to keep such debt under 5% oftotal capitalization on average forany given calendar year. Aftercompleting its 1981 financing program. the Company had no short-term debt outstanding at the end ofSeptember.
Because the public utilityindustry is a capital intensive industry, one of the key measurements of liquidity,or cash adequacy, is the raUo ofnet internal cash flowto cash construction expenditures. This ratio is influenced byboth the magnitude ofa utility'sconstruction program and the amount ofinternal funds available. The raUos forCentral Hudson for the last Aveyears have been as foHows:
1977 68%
1978 31%
1979 61%
1980 68%
1981 38%
Inthe Company's 1981 rate order, the NewYorkState Public Service Commission (PSC) authorized the Company to use a net-of-tax AFDC rate for its investment in NMP-2. In addiUon, the PSC authorized the deferral ofthe tax effect ofconstruction overheads and all investment tax credits fromprogress payments related toNMP-2 and ordered that such deferred amounts be used to reduce the base upon which AFDCis computed for NMP-2.These changes willhelp maintain the Company's cash flowratio at adequate levels.
~ ~
Results ofOperations The followingdiscussion and analysis includes an explanation ofsignificant changes in the amounts ofrevenues and expenses during the years 1979, 1980, and 1981. Certain addiUonal information relating to changes between these years is provided in the Notes to Financial Statements (Notes) on pages 23 through 30 ofthis Report.
Earnings Earnings per share ofcommon stock are shown after provision fordividends on preferred stock and are computed on the basis ofthe average number ofcommon shares outstanding during theyear. The amount ofsuch shares, the earnings per share, the percentage increase, and the rate ofreturn earned on average common equity are as follows:
1981 Average Shares Outstanding (000's)..............
6,867 Earnings Per Share
$3.72
% Increase over Prior Year 10.1%
Return Earned on Average Common Equity.....
14.0%
1980 5,851
$3.38 3.4%
12.5%
1979 5,373
$3.27 7.6%
12.2%
32
The improved earnings in 1981 resulted primarily from the increased electric and gas rates which became effective during July 1981 and Increased sales.
Notwithstanding a rate increase in November 1979, a number offactors combined to limitearnings growth in 1980. Such factors included the decision by a large industrial customer to terminate its operations, the continuing high rate ofinflation.a substantial increase in interest rates, and the extremely cold weather fn late December which increased expenses without matching revenues within the calendar year.
The primary factors contributing to the 7.6% growth fn earnings in 1979 were increased sales of electricity, including a substantial amount ofsales ofeconomy energy to other utilities,and higher electric and gas rates which became effective on November 3. 1979.
Operating Revenues Total operating revenues increased $ 116.9 million (36%) in 1981. S73.2 million (29%) fn 1980, and
$43.8 million (21%) in 1979. Details ofthe revenue changes are as follows:
Increase or Decrease from Prior Year 1981 1980 1979 Customer sales Rate increase Sales to other utilities.....................
Fuel and gas cost adjustment charges..
Additional fuel costs included in base rates..................
Miscellaneous, Total Electric Gas Electric Gas (Thousands ofDollars)
$ (2,244)
S 353 17,997 1,621 19,135 364 (12,402)
(6,208)
S 2.828 S 3,521 15.960 798 47.928 49 20,273 5,372 18,882
43,656 10,672 522 755
~114 379 S106 393 S10 495
$66028
$7 181 Electric Gas S 3,169 S
390 2,829 312 16,786 8,470 451 8,532 2,597
~79 325 S39707
$4075 The revenues received by the Company pursuant to the applfcation of the electric and gas cost adjustment clauses onlyrecover the additional costs incurred by the Companyand, therefore, do not affec net income.
In the Company's last rate case the PSC directed the Company, effective July 18, 1981, to include an additfonal $.012 per kwh. of fuel costs in fh base rates for electricity in order to make them more representative and to reflect more closely the total cost ofserving customers, including the cost offuel.This had the effect of reducing the amount of fuel adjustment charges and Increasing the base rates. At the conclusion ofIts prior rate case the Company had transferred an additional $.015 per kwh. offuel costs to fts base rates, effective November 3, 1979.
With respect to electric sales to other utilities. there was a change fn the treatment ofthe net revenues (revenues less incremental costs. principallyfuel) from such sales in late 1979. The PSC directed. effectiv November 3. 1979, that all net revenues resulting from any sales ofeconomy energy to other utilities be credited to the Company's retail customers vfa the fuel adjustment clause. During 1979 such sales increased 44%, with most ofthe increase occurring fn the Arst two quarters ofthe year when these sales were abnormallyhfgh. The net revenues from these sales contributed to the growth fnearnings forthe Arst 10 months ofthe year.
Durfng the spring of 1980, the Company entered into capacity sales agreements with Ave other utilities. Sales under these contracts are not considered as economy sales and. accordingly, the net revenues from such sales were not credited to customers except fn those instances when such sales were estimated to have displaced economy sales. Net income for 1980 included S803,000 from such sales.
In its 1981 rate order, the PSC modified its prior treatment and provided that net revenues from all sales ofenergy and capacity to other utilities, except certain continuing Arm sales imputed fn deriving the base rates, be credited to the retail customers.
33
Both of these changes had been proposed by the Company. The uncertain nature ofsales for resale, largely because offactors beyond the control ofthe Company, makes imputation ofnet revenues fromsuch sales inadvisable.
The Company's largest customer is International Business Machines Corporation. which accounted fornearly 11% ofthe Company's total electric revenues and about 12% ofits total gas revenues forthe year ended December 31, 1981.
Sales Total kwh. sales ofelectricitywithin the Company's service territory increased 2% in 1981. Such sales had decreased 2% in 1980 and increased 3% in 1979. Sales of natural gas increased 8%, 1%, and 12% in 1981, 1980, and 1979, respectively. Changes in sales by major customer classification are set forth below (parentheses denote decrease):
Residential Commercial Industrial.
Interruptible 1981 Electric Gas 0%
7%
2 17 5
22 N/A 3
1980 Electric Gas (3)%
(1)%
2 4
(4) 11 N/A 1
1979 Electric Gas 0%
(5)%
3 (5) 6 2
N/A 66 The lack ofgrowth in residential electric sales reflects the effects ofconservation, price elasticity and the absence ofnew home construction. The number ofcustomers has increased approximately 1% peryear, but usage per customer has continued to decline.
The 11% increase in firm sales of natural gas in 1981 reflects primarily the effect of 7% and 12%
increases during the year in the number ofresidential and commercial heating customers, respectively, and over an 80% increase in the requirements ofthe textile industry.
The 4% reduction in industrial electric sales in 1980 isprimarilydue to the permanent closing in May 1980 ofa major cement manufacturer.
The 66% increase in the sales of interruptible gas service in 1979 resulted from the improved availabilityofgas from the Company's pipeline suppliers. Such sales, however. did not contribute to the growth inearnings since the net revenues from these sales are being reflecte in the gas cost adjustment for the benefit ofcustomers taldng firmgas service.
Operating Expenses The most significant elements ofcost are fuel and purchased electricityin the Electric Department and purchased natural gas in the Gas Department. Approximately 55% in 1979, 61% in 1980, and 66% ln 1981 ofevery revenue dollarbilled in the Electric Department were expended forthe combined cost offuel used in electric generation and purchased electricity. The corresponding figures in the Gas Department forthe cost ofpurchased gas are 58%, 62%, and 61%, respectively.
The followingtable shows the amount offuel oilburned and the average cost per millionBtu and per barrel offuel for the Company's two major generating plants during the last fiveyears:
Danskammer Plant Roseton Plant (Company's Share)
Year 1977 1978 1979 1980 1981 Barrels Burned 3,808,940 3,212,787 2,508,615 2,404.873 2,803,371
$2.19 2.06 2.82 4.09 5.10
$ 13.38 12.76 17.42 25.38 31.76 Ave e Cost Barrels Burned 1.910,012 2,110,487 2.807,251 2,532,477 2,619.294
$2.02 1.90 2.52 3.55 4.70
$ 12.47 11.76 15.71 22.16 29.41 Ave e Cost 34
/~ e
~ ~
Inan effortto keep the cost ofelectricityas lowas possible, the Company willpurchase energy frommember companies ofthe NewYorkPower Pool whenever such energy can be purchased at a unitcost lower than the incremental cost ofgenerating the energy fn the Company's plants.
As the result ofthe increase in the amount ofgas available, and under a petftfon to the Department of Energy foran exemption from the prohibition on the burning ofnatural gas as a primary fuel inboilers. the Company resumed the burning ofgas as a boiler fuel at Its Danskammer Plant in 1979. The followingtable sets forth the amount ofgas burned as boiler fuel. the barrels ofoildisplaced. and the savings infuel costs to the Company's customers since 1979:
Amount of Gas Burned Mcf.
Barrels ofOil
~Dla laced Savin s fn Fuel Costs Electric Gas Customers Customers (Thousands ofDollars) 1979 1980 1981 2,441,100 3,412,490 4,587,349 357,967 498,037 650,168
$ 1.359 2,379 4,612 S
325 658 1,279 The amount ofnatural gas purchased, excluding gas burned as boiler fuel, and the cost per mcf.during the last fiveyears are set forth in the followingtable:
Year 1977 1978 1979 1980 1981 Amount of Gas Purchased Mcf.
7,603,027 7.965,393 8,790.766 9,257,841 9,685.075
~6Mcf.
$ 1.57 1.71 2.01 2.56 3.08 Other expenses ofoperation increased $2 2 million,or 8%, in 1979. Increased wages and related fringe benefits together with increased production expenses resulting from the acquisition as ofDecember 31, 1978 of the additional 10% interest in the Roseton Plant were the primary factors accounting for thfs increase. In 1980. such expenses were $5.9 million, or 20%. more than 1979. The principal factors contributing to this increase were higher wages and related fringe benefit costs, increased research and development expendftures, the effects offnfiation, and a $ 1.3 millfonincrease in certain envfronmental costs which were being deferred fn periods prior to November 3, 1979 but which subsequent to that date are being charged to current operating expense.
See Note 1 for additional information. In 1981, other expenses ofoperation were $5.8 million.or 16%, more than 1980. The principal factors contributing to this increase were higher wages and related fringe benefit costs, increased provisions for uncollectible accounts. increased regulatory commission expenses and the effects of fnfiatfon.
Maintenance expenses increased $ 1.7 million.or 20%, fn 1979. The two most significant varfatfons were a S646,000 increase in the cost ofmaintaining electric generating units and a $379,000 fncrease in costs for storm repairs. During 1979 the Company's service territory experienced two major storms, fnciudfng tropical storm David, one ofthe most severe summer storms in the Company's history. In 1980, such expenses were $ 1.3 million,or 13%, higher than 1979. The two most significan variations were an
$811,000 increase fn the cost ofmaintaining electric generating units and a $238,000 increase fn costs associated with the Company's tree-trimming program. Maintenance expenses increased $ 1.3 million.or 12%, in 1981. The most significant variations were an $803 000 increase in the cost ofmaintaining electric generating units, a $282,000 increase fn maintenance costs related to the Company's gas distribution system and a S272,000 increase fn the cost ofmaintaining the Company's electric distribution system.
35
The Company's total provision fordepreciation amounted to 3.21% in 1979,3.22% in 1980. and 3.24%
in 1981 of the original cost of average depreciable property. The ratio of the amount of accumulated depreciation to the cost ofdepreciable property at December 31 was 31.0% in 1979, 32.8% in 1980, and 34.6% In 1981. The $ 1.4 mlHion increase in depreciation In 1979 was primarilydue to the Company's additional investment In the Roseton Plant.
Stateand local taxes levied on gross revenues increased $ 1.2 miHionIn 1979, $2 2 millionin 1980. and
$2 7 millionin 1981. Property taxes, including school taxes, increased $917 000, $884 000, and $ 1,682 000.
respectively. In 1979, 1980. and 1981. These two categories oftaxes accounted forthe substantial portion of the total increases in operating taxes.
See Note 2 for a detailed analysis and reconciliation ofthe federal income tax.
Other Income and Interest Charges Details ofthe Allowance for Funds used During Construction are set forth below:
1981 1980 1979 (Thousands ofDollars)
Nine MilePlant..............
S11.608 S 9,493
$ 6,235 Sterling Plant...............
1,898 1,894 1,393 Other
~..
410 395 384 Total........
$ 13,916
$ 11.782
$ 8.012
~ ~
Weighted Average Rate.......
11.00%
11.25%
9.91%
See Notes 1 and 8 foradditional Information on this subject.
Total interest charges (excluding AFDC)increased $6.7 miHion,or50%, In 1979, $3 7 miHIon.or 18%, in 1980, and $4 0 million.or 17%, in 1981. These increases result from the increasing amounts ofoutstanding debt plus the high levels ofinterest rates which have prevailed since the fallof1979. The foHowingtable sets forth some ofthe pertinent data pertaining to the Company's outstanding debt.
1981 1980 1979 (Thousands ofDoHars)
Long-Term Debt:
New Debt Issued...........
$ 30.000 Debt Retired..............
18,175 Outstanding at Year-end:
Amount '....... ~......
247,050 EffectivCost...........
10.17%
S 50,000 22.175 235,225 9.27%
$ 20.000 15,175 207,400 7.88%
Short-Term Debt:
Average DallyAmount Outstanding..........
~. $ 24,742 Weighted Average Interest Rate..... ~......
17.4%
'induding long-term debt maturing within one year.
See Notes 4 and 6 foradditional information on this subject.
$ 33,142 14.4%
$ 30.233 11.3%
Coverage Ratios As a consequence ofthe high levels ofinterest rates prevailing during the last threeyears together with the shortfall inearnings, as compared to the authorized rates ofreturn, coverage ratios have been adversely affected. For example, the ratio ofearnings to Axed charges, an Important coverage ratio which measures the coverage oftotal Interest charges, was 3.17 times for 1978 but declined to 2.31 times for 1979. And In 1980, despite the fact that increased electric and gas rates were Ineffect forthe firstten months ofthe year.
this coverage ratio declined even further to 2.23 times. This downward trend, however, was reversed in 1981 as this coverage ratio improved to 2.38 times. This ratio should show further improvement in 1982 as a result ofthe rate order received in July 1981 and the rate increase application filed In November 1981.
36
Effect ofInflation For information on this subject see the section entitled "Supplementary Information to Disclose the Effects ofChanging Prices" on pages 38 and 39 ofthis report.
Common Stock Dividends and Price Ranges Dividends have been paid by the Companyand its principal predecessors for78 years. and the common stock ofthe Company has been listed on the NewYorkStock Exchange since 1945. The price ranges and the dividends paid for each quarterly period during the Company's last two fiscal years were as follows:
Fourth Quarter...
Third Quarter....
Second Quarter..
First Quarter.....
High
$ 183/8 18~/4 19 1'P/4 1981 Low
$ 16'/4 16'/e 16'8 16 Dividend High
$.59
$ 18'8
.59 19'/e
.59 195/e
.56 19 1980 Low Dividend
$ 15'8
$.56 18
.54 15
.54 15
.54 The number of registered holders of common stock as of December 31, 1981 was 25,296. Of these.
24,665 were accounts in the names ofIndMduals with total holdings of4,881.787 shares, or an average of 198 shares per account. The 631 other accounts, in the names of institutional or other non-individual holders. for the most part hold shares for the beneilt ofIndMduals.
The Company's 4.85% Promissory Notes due December l. 1995 contain limitations upon the right of the Company to declare or pay any dividend or make any other distribution on (other than dividends or distributions payable in Common Stock). or acquire fora consideration, any shares ofits Common Stock unless the aggregate ofallsuch dividends, distributions and considerations since December 31, 1964 does not exceed an amount determined by a formula. At December 31, 1981, the amount ofretained earnings available for dividends on the Company's Common Stock under the provisions ofsaid 4.85% Promissory Notes was $80,543,000.
37
Supplementary Information to Disclose the Effects of Changing Prices The following supplementary information is supplied in accordance with the requirements of the Financial Accounting Standards Board Statement No. 33, FinancIal Reporting and Changing Prices, for the purpose ofproviding certain information about the effects ofchanging prices. Itshould be viewed as an estimate of the approximate effect of inflation, rather than as a precise measure.
Under the rate-making policy to which the Company is subject, only the original, or historical, cost of plant is recoverable in revenues as depreciation. Therefore, the excess ofthe cost ofplant stated in terms of constant dollars or current cost over the historical cost ofplant Is not recoverable in rates as depreciation.
While the rate-making process gives no recognition to the currentcost ofreplacing facilities, based on past practice, the Company believes that any higher costs it may experience upon actual replacement of existing facilities would be recovered through the normal regulatory process and that as part of this process it willbe allowed to earn on the increased cost of its net investment.
Constant dollar amounts represent historical costs stated in terms of dollars of equal purchasing power, as measured by the Consumer Price Index forAllUrban Consumers (CPI-U). Currentcostamounts reflect the changes in specific prices ofplant from the date the plant was acquired to the present and differ from constant dollar amounts to the extent that specific prices have increased more or less rapidly than prices in general.
~ ~
Statement of Income from Continuing Operations Adjusted for Changing Prices for the Year Ended December 31, 1981 (Thousands of Dollars)
Conventional Constant Dollar Current Cost 1 llstorical Average Avetagc Cost 1981 Dollars 1981 Dollars Operating revenues....
Operations Maintenance....................
Depreciation Operating taxes Federal income tax Interest charges.
Other income and deductions 333,966 12,450 16,305 29,274 8,802 20,267 (5,862) 333.966 12,450 39,237 29,274 8,802 20.267 (5,862) 333,966 12.450 45,497 29,274 8,802 20,267 (5.862)
S444,881 S444.881 S444.881 415,202 438.134 444,394 Income from continuing operations (excluding reduction to net recoverable cost)
Increase in specific prices (current cost) of property. plant and equipment held during the year" Reduction to net recoverable cost Effect of increase in general price level Excess of increase in general price level over increase in specific prices after reduction to net recoverable cost Gain from decline in purchasing power of net amounts owed Net...........................................
S 29,679 S
6,747' 487 S 108,691 S (16,960)
(30,568)
(88.823)
(10.700) 16,817 16.817 S
(143)
S 6,117
'Including the reduction to net recoverable cost, the Income (loss) from contlnulng opetattons on a constant dollar basis would have been (S30.277) for 1980 and (810213) for 1981.
"At December 31. 1981. current cost of property. plant and equipment, less accumulated dcpreclatlon was $ 1.088.320. while net hlstorlcal cost was S484.796. excluding Sterling Nuclear Plant.
38
Five-Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices (In Thousands ofAverage 1981 Dollars)
Historical cost information ad'usted for eneral inflation Income from continuing operations'.........
Income per common share (after dividend requirements on preferred stock)'..........
Net assets at year end at net recoverable cost..
Current cost information Income (loss) from continuing operations'....
Income (loss) per common share (after dividend requirements on preferred stock)'xcess of increase in general price level over increase in specific prices after reduction to net recoverable cost".
Net assets at year end at net recoverable cost General information Gain from decline in purchasing power of net amounts owed.
Cash dividends declared per common share..
Market price per common share at year end..
Average consumer price index................
'Excluding reduction to net mcoverable cost.
"Excluding Sterling Nuclear Plant.
Years Ended December 31, 1977 1978 1979 1980 1981
$311.932
$294.150
$319,242
$362,015
$444,881 6,635 4,754 6,747
$.28
$.03
$.38 247.642 247,175 285.578 (3,317)
(2.246) 487
$(1.58)
$(1.16)
$ (.53) 34,327 28.031 10.700 247,642 247.175 285,578 30,583 25,703 16,817
$2.76
$2.73
$2.56
$2.43
$2.39
$33.30
$27.59
$22.98
$ 19.08
$ 18.25 181.5 195.4 217.4 246.8 272.4 The current cost ofproperty, plant and equipment. which includes land. land rights, intangible plant, property held for future use. and construction work in progress, represents the estimated cost of reproducing existing plant assets and was determined by indexing the surviving plant by the Handy-Whitman Index of Public UtilityConstruction Costs for the North Atlantic Region with the exception of general structures which was indexed based on the Engineering News Record Index. Allother property for which the Handy Whitman Index is not available was indexed based on CPI-U. The currentyear's provision for depreciation on the constant dollar and current cost amounts ofproperty, plant and equipment was determined by applying the Company's depreciation rates to the indexed plant amounts. Sterling Nuclear Plant was excluded from plant and included as a deferred cost in this presentation.
Fuel inventories, the cost of fuel used in generation, and gas purchased for resale have not been restated from their historical cost in nominal dollars. Regulation limits the recovery offuel and purchased gas costs through the operation ofadjustment clauses or adjustments in basic rate schedules to actual costs. For this reason fuel inventories are effectively monetary assets. As prescribed fn Statement No. 33, income taxes were not adjusted.
To properly reflect the economics of rate regulation in the Statement of Income from Continuing Operations, the excess of the cost of plant stated in terms of constant dollars or current cost over the historical cost ofplant is reflected as a reduction to net recoverable cost. In addition, the reduction ofnet property, plant and equipment should be offset by the gain from the decline in purchasing power ofnet amounts owed. During a period ofinflation, holders ofmonetary assets suffer a loss ofgeneral purchasing power while holders of monetary liabilities experience a gain. The gain from the decline in purchasing power of net amounts owed is primarilyattributable to the substantial amount ofdebt which has been used to ()nance property. plant and equipment. Since the depreciation on this plant is limited to the recovery of historical costs, the Company does not have the opportunity to realize a holding gain on debt and is limited to recovery only of the embedded cost of debt capital.
39
A
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'I
'C 1
DituKTORS ERNEST E. ALTHOUSE Poughkeepsie.
N.Y.
Vice Chairman ofthe Board and Vlcc Chairman ofCommit tce on Finance: hlembcr ofExccuthe Committee and Committee on Compensation and Succession WILLIAMP. ARNOLD New York. N.Y.
Chairman ofthc Board and Chief Exccuthe Omcer Associated Dry Goods Corporation.
a department store chain: Mcmbcr of Committee on Audit RAYMONDT. BENEDICT Stamford. Ct.
Ltw1er. ofCounsel. Cummings 6'ockwood:
Member ofExccuthe Committcc and Commlttce on Finance JAMES R BREED. M.D.
Poughkeepsie.
N.Y.
Surgeon Member ofCommittee on Audit MARJORIE S. BROWN Mlllbrook.N.Y.
Homemaker. act tm In civicand philanthropic>>hark. formerly exccut tn In retailing and promotional organizations:
Member o(Retirement Committee THEODORE J. CARLSON Poughkeepsie.
N.Y.
Chairman ofthe Board and Principal ONcen Chairman ofExccuthe Commlttce: Memberof Retirement Committee. and Committees on Finance and on Compensation and Succession ROY C. KETCHAM F1shklll. N.Y.
Clmlrman ofthe Board and Chief Execut tm Omccr. Kctcham Motors. inc.:
Chairman ofthc Board ofThe Flshklll National Bank: Chairman ofCommit tee on Compensation and Succession:
Member ofExccuthe Committee JOHN E. MACKIII Poughkeepsie.
N.Y.
Execut tn Vice President HERBERT L SHULTZ Kingston. N.Y.
Special Assistant to the President. Vassar College Chairman ofRetirement Committee:
Member ofCommittcc on Audit JOHN WILKIE Katonah. N.Y.
Chairman ol'Committees on Finance and on Audit:Member ofExecuthe and Retirement Committees H. CLIFTONWILSON Poughkeepsie.
N.Y.
President: hicmber ofExecuthe and Retirement Committees. and Committees on Finance and on Compensation and Succession OFFICERS OF THE BOARD THEODORE J. CARLSON Chairman ofthe Board and Principal Omcer and Chairman of Execut1m Committee JOHN WILKIE Chairman ol'Committees on Finance and on Audit ERNEST E. ALTHOUSE Vice Chairman of the Board and ofCommittee on Finance ROY C. KETCHAM Chairman ofCommittee on Compensation and Succession HERBERT L. SHULTZ Chairman ofRetirement Commit tee OFFICERS H. CLIFTONWILSON President JOHN E. MACKIII Executhe Vice President LWALLACECROSS Senior Vice President Finance and Accounting CHARLES E. RIDER Senior Vice President.Corporate Planning CHARLES A. BOLZ Vice President.Engineering WILLIAMA. KLING Vice President-Community Aifalrs HENRY L.WALKER Vice President.Production JOSEPH F. FURLONG Secretary and Treasurer JOHN F. DRAIN Controller PAULJ. GANCI Assistant Vice Prcsldcnt STEWART P. LAIDLAW Assistant Vice President JAMES E. SMITH Assistant Vice President WILLIAME. VANWAGENEN Assistant Vice President WALTERA. BOSSERT, JR.
Assistant Sccrctary and Assistant Treasurer CHARLES P. KOVAR Assistant Secretary EMORY R OSBORN Assistant Treasurer TRANSFER AGENTO'EGISTRAR COMMONO'REFERRED STOCK hlorgan Guaranty Trust Company ofNew York 30 West Broadway New York. N.Y. 10015 GENERALCOUNSEL Gould O'llklc Onc IVallStreet New York. N.Y. 10005 INDEPENDENTACCOUNTANTS Price Wa'tcrhouse 153 East 53rd Street New York. N.Y. 10022
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