ML17056B864
| ML17056B864 | |
| Person / Time | |
|---|---|
| Site: | Nine Mile Point  |
| Issue date: | 12/31/1991 |
| From: | Mack J CENTRAL HUDSON GAS & ELECTRIC CORP. |
| To: | |
| Shared Package | |
| ML17056B860 | List: |
| References | |
| NUDOCS 9205280202 | |
| Download: ML17056B864 (54) | |
Text
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-NGTICE-entral udson 920S280202 920520 R
ADOCK 05000220
~R 1991 ANNUAL REPORT
BOUT CENTRAL HUDSON ABLE OF CONTENTS Central Hudson is an investor-owned electric and gas utilityfounded in 1900. We serve a population ofapproximately 626,000in a 2,600-sfluare-mile area ofiVew YorkState's Mid-Hudson Valley. Our service area begins 25 miles north ofNew York City and extends to 10 miles below the capital cityofAlbany.
Itcomprises portions ofthe counties ofAlbany, Columbia, Dutchess, Greene, Orange, Putnam, Sullivan and Ulster.
Majorpopulation centers include the cities ofPoughkeepsie, Kingston, iVewburgh, Beacon and the VillageofCatskill.
1 Corporate and Stock Information 2
Chairman's Letter 3
The Year in Review 4
Energy Resource Plan 6
Electric Operations 8
Gas Operations 9
Regulatory Matters 10 Energy Efficiency Programs ll Gas Marketing Program 11 Customer Operations 13 Our Environmental Commitment 15 Subsidiary Operations 17 Financial Section Table of Contents Inside Back Cover Directors and Officers INANCIALHIGHLIGHTS FOR 1991 CATSIQLL 0
KINGSTON0 ca 0 UGHKE SIE 0
BEACO NBVBURGH 1991 Operating Revenues
$494,736,000 Net Income
$42,941,000 Earnings Per Share
$2.40 Average Shares Outstanding 15,530,000 Declared Dividends Per Share
$1.90 Total Assets
$1,141,128,000 Electric Sales Own Territory (kwh.)
Natural Gas Firm Sales (thousands of cubic feet) 8,424,000 Electric Customers Own Territory (average) 253,960 Firm Gas Customers (average) 57,200 1990
$503,608,000
$41,035,000
$2.38 14,850,000
$ 1.82
$1,093,530,000 Change (2)%
5%
1%
5%
4%
4%
4,907,228,000 1 %
8,629,000 (2)%
252,015 1 %
56,293 2 %
4 GENERATING PLANTS Nine Mile2-nuclear High Falls, Sturgeon Pool, Dashville Nexrsink-hpfroelectric Danskammer-oil, coal or natural gas Roseton-oil, natural gas About Our Cmvr On a cold midw'nter day, Substation Electricians Ken Hyland and Walter Kloiber work on insulators at the Todd HillSubstation in Dutchess County. Thc new substation was placed in service during the summer to improve reliabilityin the south central part of the county.
1991 ANNUAL REPORT EPS 8L DIVIDENDS 4t$
Q OMIXIOS 4,00 3.00 1.00 0.60 0.00 1981 1988 1089 1090 1991 32 30 28 26 24 22 N 20
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1981 1988 1989 1990 1091 COMMON STOCK PAICES Q H4H Q lOW Q Cuss Q lOW 34
ORPORATE AND STOCK INFORMATION Annual Meeting The annual meeting of holders of
'common stock willbe held on Tuesday, April7, 1992 at 10:30 a.m. at the Corporation's General Offices, 284 South Avenue, Poughkeepsie, New York. The management welcomes the personal attendance ofshareholders at this meeting. Asummary report of the meeting willbe mailed to all sharehold-ers of record at a later date.
Financial and Statistical Report A comprehensive 10-year financial and statistical supplement to this Annual Report, willbe available to shareholders attending the annual meeting. Copies may also be obtained by writingor calling Steven V. Lant, Assistant Treasurer and Assistant Secretary, 284 South Avenue, Pough-keepsie, NY 12601, Tel. (914) 486-5254 Annual Report to the SEC-Form 10-K Shareholders may obtain without charge a copy of Central Hudson's annual report to the Securities and Exchange Commission, on Form 10-K, by writing or calling Gladys L. Cooper, Corporate Secretary, 284 South Avenue, Poughkeepsie, NY 12601, Tel. (914) 486-5535. The copy provided willbe without exhibits; these may be purchased for a specified fee.
Stockholder Information First Chicago Trust Company of New York, Tel. (212) 791-6422 Telephone Hours: 8 a.m.
6 p.m. weekdays Security Analysts and Institutional Investors Steven V. Lant, Assistant Treasurer and Assistant Secretary, Tel. (914) 486-5254 Dividend Reinvestment Plan Central Hudson offers a Dividend Reinvestment Plan under which all holders of common stock may reinvest dividends and/or make direct cash investments to obtain additional shares. Allbrokerage and other fees to acquire shares are paid by the Corporation. To participate, call Ms. Janet M. Horvat, Director Risk Management R Shareholder Relations, Tel. (914) 486-5204.
Transfer Agent 4 Registrar, Common and Preferred Stock First Chicago Trust Company ofNew York 30 West Broadway, New York, NY 10007 Stock Exchange Listings Common iVew YorkStock Exchange Depositary Preferred Shares/Adjustable Rate Preferred New YorkStock Exchange Stock Trading Symbol: CNH Multiple Copies of this Annual Report Shareholders who receive multiple copies of this Annual Report may, ifthey choose, reduce the number received by calling Janet M. Horvat, Director Risk Management and Shareholder Relations, at (914) 486-5204.
1991
~Hi h Low Dividend 1st Quarter.......
$24 7/8
$22 5/8
$.46 2nd Quarter......
25 1/4 23 7/8
.46 3rd Quarter......
27 7/8 23 7/8
.48 4th Quarter......
28 7/8 26 7/8
.48 1990
~Hi h Low Dividend
$23 7/8
$21 7/8
$.44 22 7/8 20 5/8
.44 23 1/2 20
.46 24 7/8 21 1/4
.46 Common Stock Market Price and Dividends Paid per Share 1991 ANNUAL REPORT
February 28, 1992 To My Fellow Shareholders:
PaulJ. Canci Chairman ofthe Board and Chief Executive Officer Central Hudson's earnings per share increased 2 cents in 1991, 1
reflecting a year ofsolid performance in spite ofthe lagging state and national economy and unusually warm winter weather which depressed gas earnings. Dividends paid to shareholders increased 4.4 percent, from
$1.80 per share in 1990 to $ 1.88 per share in 1991. The ratio of market price to book value increased from illpercent at December 31, 1990, to 126 percent at the close of 1991. Additionally, the Company remains in a good cash position.
Strengthening the Company's financial structure was high on our list of objectives for 1991. During the year we sold $ 100 millionof First Mortgage Bonds, the proceeds ofwhich enabled us to redeem $85 million of high coupon debt. This action reduced our embedded cost of debt by almost a fullpercent. Further, the sale of 600,000 shares ofcommon stock helped increase our common equity ratio to 41 percent.
Three ofthe four major rating agencies upgraded the Company's John E. lilacklll bond ratings, and all four now rate the Company's bonds at A minus or the equivalent.
This was a year in which we carried out many activities in pursuit of our goal ofbeing the energy supplier ofcompetitive choice. We continue to place great emphasis on maintaining competitive prices for our products while providing the highest quality ofservice. We believe that in doing so we provide a strong incentive for new business to locate in this region, as well as enhancing the abilityofour existing commercial and industrial customers to compete successfully in the global market place.
A major step in this direction, and in support ofour commitment to clean air, involves our largest natural gas construction project in many years. Through an interconnection with a fourth major pipeline, we willbe able to provide natural gas for electric generation at the Roseton Generating Plant during the nonheating season. This connection willalso make increased firmsupplies of natural gas available for future customers, as well as for new uses of this environmentally-preferable fuel, such as in the transportation sector.
Our subsidiary operations continue to make a modest contribution to the success of the Company.
These energy related businesses are being expanded at a pace commensurate with the markets in which they operate. Our goal continues to be to maximize the return on investment in these unregulated businesses and thereby provide a benefit to our shareholders.
A major focus ofthis annual report reflects another of our goals, the preservation ofour environment.
We have long accepted the responsibility for corporate environmental stewardship, integrating it into our strategic planning process and our everyday activities. Indeed, over the decades, it has become part of our corporate culture.
Looking ahead to the remaining years of the 20th century, we believe that they willbring significant changes in both federal and state regulation, affecting our industry and impacting the manner in which we operate our business. But regardless of these changes, we remain committed to increasing customer satisfaction Very truly yours, and achieving the position of being the energy supplier of competitive choice. To do this, we willavail ourselves ofall reasonable business opportunities, opportunities which should also provide increased value to c'ur shareholders.
1991 ANNUAL REPORT
HE YEAR IN REVIEW January Records set for both gas and electric use during extended cold spell.
Customer rebates for energy efficiency programs pass the $ 1 millionmark.
Nine Mile 2 Plant completes its first refueling outage.
February "Operation Family Support" aids customers who are dependents of Persian Gulftroops.
)PW I
March 600,000 additional shares of common stock are sold.
PSC approves global settlement of outstanding Nine Mile 2 Plant issues.
25 Company crews help neighboring upstate utilities recover from major ice storm.
Duff6 Phelps upgrades our bond ratings to A-.
April Moody's upgrades bond ratings to A3; Fitch reaffirms our A-rating.
Scholarship award increased from $2,500 to $20,000 to encour-age pursuit of engineering degrees.
May
$ 100 millionof first mortgage bonds are issued and sold.
Company files for an electric
-rate increase of 7.4%.
June Nuclear Regulatory Commis-sion removes Nine Mile2 Plant from its "watch list."
Standard 2 Poor's upgrades our bond ratings to A-.
Directors increase common stock quarterly dividend by 2 cents per share.
July First gas rate increase in almost six years takes effect.
New three-year contract reached with International Brotherhood of Electrical Workers.
Electric usage peaks at 950 megawatts, an all-time record.
Cumulative refinancing of First Mortgage Bonds reduces average embedded cost of debt by 89 basis points.
August
'round is broken for hew Computer Center/System Operations building and two district office additions.
Company crews help Long Island recover from Hurricane Bob.
September Catskill District completes 13 years without a lost-time accident.
October Employee United Way contributions top $ 160,000.
Land operations completed on 10 miles of gas line to supply Roseton.
November Company officers meet with security analysts in New York City.
Employee blood donations top 350 pints in year's four drives.
Zebra mussels discovered in Roseton Plant and Danskammer Plant intakes.
December Conversion of Roseton Plant Unit 2 to dual-fuel use completed.
Construction completed on Danskammer Plant's new solid waste management facility.
Good Neighbor Fund passes
$ 100,000 mark.
1991 AVNUAL REPORT Line creios string conductor at a new substation in southern Dutchess County.
NERGY RESOURCE PLAN The utilitymanager of the 90s is faced with a number of planning constraints unimagined a few short years ago. Historically, we projected future electric demand and met it with our own resources or through arrangements with other utilities.
Today, we are mandated not only to moderate a rising demand but to give consideration to nonutility generators to meet that growth which cannot be forestalled.
It requires taking a fresh look at our responsibility as a supplier of energy, adopting nontraditional methods to meet not only our customers'eeds but those needs dictated by a society whose values are changing. And, just as we have adapted in the past to increased concerns for the environment, to the need to reduce our dependence on imported fuel oil, and a host of other challenges, we are preparing to meet those we face in the waning years of the 20th century.
From 1991 through 1995, peak electric demand on our system is expected to increase by approxi-mately 100 megawatts. Our plan to meet this is a two-fold one, using both savings from increased energy efficiency and supply side additions.
As a corporation, we have em-braced the principles of improved energy efficiency because it is in the best interests of our customers, providing them an opportunity to use electricity more efficiently and reducing the need for future gener-ating plant additions.
Through our energy efficiency program, we expect to reduce our projected system peak by some 50 megawatts. Working with commer-cial and industrial customers, our Energy Efficiency Services Division is demonstrating the benefits of more efficient lighting and motors, reducing both their energy usage and the need to develop additional energy sources in the future. This program, begun in mid-1990, has already achieved a peak reduction of 16 megawatts, one third of our goal.
Our energy resource plan includes working with cus-tomers to help them become more energy efficient.
The Culinary Institute of America, which installed major lightingimprove-ments at its 1,850-student Hyde Park campus, is a typical beneficiary ofour services.
1991 ANNUALREPORT
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It complements our long-standing
- program of promoting the wise and effective use of energy among our residential customers and energy efficiericy among our industrial customers.
The costs of demand side man-agement, including direct costs and lost net revenues, are currently recoverable through electric rates.
In addition, an equity incentive has earned our shareholders one-quarter of one percent return on common equity.
Another aspect of this program is a newly-developed curtailable electric service rate for large indus-trial customers which can reduce peak demand by 8 to 10 megawatts.
To meet the growth which is projected to occur, we anticipate the purchase of Niagara Mohawk's 300-megawatt share of the Roseton Generating Plant in annual 30-megawatt increments beginning December 31, 1994. We have solicit-ed competitive bids for alternate sources to ensure that this is the most effective supply side option.
In addition, we have also solicited bids for up to 50 megawatts of peak-ing capacity and 20 megawatts of energy efficiency services.
In August, a total of 41 bids were received in response to these three separate requests for pro-posals. The evaluation of these bids is in process.
New contracts for coal were negotiated during the year, result-ing in first-year reductions of over
$4 millionin electric generating fuel costs. Also, we are seeking to restructure an existing contract with the Tennessee Gas Trans-mission Company. Ifapproved by the Federal Energy Regulatory Commission, this modification would result in a reduction of$1.3 millionayear in natural gas supply demand charges.
70
~ 60 Z
~ 50 40
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Improued efliciency at our older generating units, such as the Danskammer Point Plani'fore-groundJ, combined withplans to increase our oionership in the Roseton Plant (left background),
are important components ofour supply side energy strategy.
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1981 1988 1SSS 1S90 1991 1991 ANNUAL REPORT
LECTRIC OPERATIONS This was a year in which a three-year-old record in peak usage demand was exceeded three times in as many weeks while the Hudson Valley endured an extended heat wave. The new system peak of 950 megawatts was nearly 60 megawatts above the prior record set in 1988.
Generation, transmission and dis-tribution facilities were available to meet the demand, demonstrating the value ofour maintenance programs.
AThermal Information Pro-gram System (TIPS), tested in 1990 on one unit at our Danskammer Generating Plant, was successful in improving operators'bility to maintain peak unit operating effi-ciency. This system has now been installed on all units at both Danskammer and Roseton. TIPS provides plant operators with a wealth ofcomputer data which allows them to exercise greater control over unit combustion.
Conversion of the Roseton Plant to include natural gas in its fuel mix requires an expenditure of approximately $15 million. Unit 2 was converted during a major overhaul in late 1991; Unit 1 is scheduled to be converted during its spring 1992 overhaul. Many performance enhancements are being incorporated into the con-version, including a state-of-the-art burner management system. Rose-ton's conversion to dual-fuel use willprovide greater fuel flexibility, further reducing our dependence on imported oil. The use of natural gas willalso produce important environmental benefits.
Significant advances in improved operations were made at the Nine Mile2 Nuclear Unit during 1991, and it has now achieved availability and capacity factors which compare favorably with industry averages for units of this type. Further improvements are expected when several major modifications are made to the unit during its second refueling in the spring of 1992. Another milestone occurred in June when, citing an overall improvement in manage-ment oversight and staff perfor-mance, the Nuclear Regulatory Commission (NRC) removed Nine Milefrom its list ofplants which require close monitoring.
In August, a Site Area Emer-gency was declared at the plant due to the loss of control room annunciators and other critical equipment, followed by a shutdown of the plant. The NRC noted the good performance of the plant's operators, stating that "the licensee's emergency response organization, and in particular, its licensed operators, performed well" during the shutdown. Design modi-fications have been made to prevent recurrence of a similar situation.
Atour Danskammer Point Plant, a new solid waste manage-ment facilitywas constructed this Construction ofa new solid waste management facility at our Dansicammer Point Plant required laser-guided earth moving machinery to maintain strict slope con-tours and multiple layers ofheat-sealed plastic liner to prevent leachates from reaching the water table.
1991 ANNUAL REPORT
p'
~ 1y year. This $6 millionproject repre-sents state-of-the-industry design standards to minimize the environ-mental impacts of flyash storage.
Meanwhile, we are continuing our efforts to market flyash, which could reduce future storage needs.
Improvements to our electric transmission system also form a large part of our construction activity. Two new or expanded substations, and a new 345/115-kilovolttransformer at a third, have improved service reliability in central and northeastern Dutchess County. Construction has also begun on a major substation to serve growing loads in southern Dutchess County. And in Orange County, we are implementing a plan to support the expansion programs of Stewart International Airport, where above-average load growth is anticipated to continue.
We have also begun the lengthy approval process to rebuild and upgrade some 40 miles of trans-mission lines and seven substations in Ulster County. This $33 million project willbe carried out over several years.
ELECTRIC PEAKS OWN TERRITORY Z
> 700
~ 600 O
~ QN
~~ 400 I
800 1987 1988 1989 1990 1991 1991 ANNUAL REPORT
AS OPERATIONS Above-normal temperatures during the heating season caused a decline in gas usage per customer during 1991. Nevertheless, a
January cold snap led to a gas peak of 79,956 mcf, a record sendout in a single 24-hour period.
Supplies adequate to meet such peak usage demands are being provided by contracts with pipeline, storage, and vaporized liquefied natural gas sources, spot purchases, and two Company-owned propane-air peaking plants. However, continued provision for expanding our gas markets, as well as the use of natural gas to supply part of Roseton's needs during the non-heating season, requires a major increase in available sources.
This is being accomplished through our largest gas construc-tion project in two decades, linking the Company to a fourth supplier, the Iroquois Gas Transmission System. The $ 14 millioninter-connection project was planned in two sections totalling 10 miles in length, using existing electric rights-of-way. One section willjoin our system with the Iroquois line, which willextend from Canada to Long Island. A second section will supply gas to Roseton.
The 16-inch line for this project crosses 21 federally-designated wetlands, several streams and the Hudson River, necessitating strict mitigation measures during con-struction to avoid adverse environ-mental impacts. For the 4,000-foot 1991 AVNUALREPORT
Ten miles of16-inch line were laid to connect the Roseton Plant to ils supply ofnalural gas. Insels show a Central Hudson crew installing a conlrol valve, and contractor crews lowering welded steel pipe into lhe trench.
river crossing itself, we chose to bore deeply below the bed of the river, rather than followingthe customary procedure of laying the line in a trench. This directional drillingtechnique, which has never before been attempted for any Hudson River crossing, avoids any disturbance of the river itself.
Most construction work on this project was completed in the fall of 1991. The directional bore is scheduled to be completed during the second quarter of 1992.
EGULATORYMATTERS In March, the New York State Public Service Commission (PSC) issued its order approving the global settlement of the remaining issues related to construction of the Nine Mile 2 Nuclear Plant. This action was one of the key factors in the subsequent decisions by three major credit rating agencies to upgrade the ratings of the Company's first mortgage bonds.
Our first increase in firm gas rates since 1985 went into effect in July followingllmonths of hearings by the PSC. We had r'equested a revenue increase of
$6.8 millionand a 13 percent return on common equity; the PSC approved a $4.9 million increase with an authorized 11.7 percent return on common equity.
9 1991 ANNUAL REPORT
In May, we filed a request to increase electric rates by $30.3 million,with a 12.5 percent return on common equity. The proposed increase, our first in two years, would be well below the increase in the Consumer Price Index for the same period. A decision is not expected until April 1992.
. NORTHEAST BUSINESS CENTER k
10 NERGY EFFICIENCY PROGRAMS Electric sales for 1991 increased only about 1 percent from 1990.
Obviously, the national economic recession has led to belt-tightening at the local level, as well. While we witnessed a decline in housing starts, there was a significant in-crease in commercial construction.
Our electric energy efficiency program is aimed at providing our customers with choices which enable them to manage their energy use better. This includes providing rebates for installing high-efficiency air conditioners or
. add;on heat pumps, a major focus of our 1991 demand side manage-ment efforts.
Our voluntary time-of-use rates are an important aspect of this program, offering an opportunity to reduce electric costs to those customers whose life style permits them to shift much of their usage to off-peak hours. We are also work-ing closely with those residential customers whose high usage The rapid growth ofStewart International Airportas a commercial passenger and cargo facilityis spurring economic development in eastern Orange County.
ELECTRIC SALES Q IIKSIXHTIIL Q CCMKICNL Q lorrrltW 6
ELECTRIC CUSTOMERS everege Q erscrmu Q ccrerrr4eraseurrrrAL 260 240 1987 1S88 1S89 19SO 1S91 160 ee 140 o 120 Z
100 40 requires that they be placed on time-of-use rates. This includes providing them with free automatic-setback thermostats and water heater timers.
We are also establishing demonstration projects for ground-source heat pumps. Operating effectively at lower temperatures than air-source units, these types of heat pumps are substantially more 5
efficient and, for new construction, are cost-competitive with most fossil systems.
1991 ANNUAL REPORT 1987 1988 1989 1990 1S91
AS MARKETING PROGRAM USTOMER OPERATIONS New construction and conver-sions added some 600 residential and commercial gas customers during the year, with an annual sales potential of 400,000 mcf. Our marketing program continues to benefit from our recent expansions into new areas and the outstanding participation of employees in providing sales leads. We are very pleased with this continuation of significant growth. We continue to review the cost benefits of future gas line extensions to open new markets.
The national emphasis on reducing pollution in the transpor-tation sector seems certain to create great opportunities for natural gas vehicles. To assess this market, we are purchasing two school buses fueled solely by natural gas. These willbe provided for six-month test periods to the fleets serving several local school districts. The potential market is more than 1,000 school buses, the equivalent ofadding about 5,000 residential customers.
We are also continuing our research program involving a dozen Company cars and light trucks which have been converted to dual-fuel use.
Being the energy supplier of competitive choice continues to be our goal. In spite of the changes facing the utilityindustry, we believe our success is assured as long as we continue to make the customer the focus of our business, creating and delivering'products and services of value.
Itwas with this precept in mind that we introduced our Quality Initiative in 1990. This program recognizes that quality is not defined by the supplier, but by the customer, whose needs must be identified and met. It is a process demanding continuous improvement. During 1991, all management employees attended workshops on quality and the program willhave been extended to all employees by spring 1992.
A key part of the process is obtaining feedback from our cus-tomers. Several thousand "HowAre We Doing?" survey forms were sent to customers who had telephone or personal contact with Company representatives during the year.
Their responses are being used in a continuing program of monitoring customer satisfaction as we seek further ways to improve our service.
Another part of the quality process has been our concentrated effort to improve service reliability.
This improved significantly in 1991 as a result of a number ofactions aimed at providing quality service.
FIRM GAS CUSTOMERS average Q ASSCLSTW Q CCMITSAOALSHOVSTAW 60 0Z 0 30 0Z 1981 1988 1989 1990 1991 FIRM GAS SALES Q
ALSICMOIAL Q
COMMTTCAL Q IMOLZTAIAL 9
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ZLLHOCfSAff OATS 1991 ANNUAL REPORT
new Computer Center, each provid-ing expanded capabilities enabling us to conduct our business and serve customers more effectively.
This year our meter readers began using new and improved hand-held units to record customer usage. With the power of lap-top computers, these were instrumental in helping to reduce the number of estimated bills by 20 percent.
In addition, because their data is downloaded directly to the corpo-rate mainframe, these units have also helped to reduce processing time and billingerrors.
Our Community Relations and Consumer Outreach Section has developed a number of programs for customers with special needs, including senior citizens, low-income, and disabled customers.
We are now trimming our rights-of-way every three years, rather than every four, and we have increased the clearances between trees and power lines. This has measurably reduced weather-related interruptions. We have also added increased lightning protection and concentrated on higher levels of maintenance on our transmission, substation and distribution systems.
Construction began during the year on additions to our Operating Headquarters in Fishkill and our Customer Service Office in Pough-keepsie. The former project includes moving our Beacon Customer Relations Office to Fishkill. This willcomplete the con-solidation of our Customer Service operations in all five districts. The latter project, located adjacent to our Corporate Offices, willincor-porate a drive-up window for greater customer convenience.
A major addition to the corporate complex itselfwillhouse a new System Operations Center and a I
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Duringits firstyear, our Good Neighbor Fund provided more than $100,000 in emergency assistance forcustomers in need.
12 1991 ANNUAL REPORT
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/n" In Decaying pilings ofa 19th century pier offerprotection to a tidal marsh opposite Breakneck tptountain. Here, desirable plants (inset photos) are being introduced under Company-funded research Ivhich seeks to improve the Hudson River's ecology.
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We also work closely with the many public and private agencies which offer those customers support and financial services.
In late 1990, we established a Good Neighbor Fund by which cus-tomers could include with each bill payment up to $10 to help those in need. This program, administered by The Salvation Army, provides one-time grants to provide emer-gency assistance with gas and/or electric payments. Customer contributions during the first year exceeded
$55,000, with the Company matching the first
$50,000.
UR ENVIRONMENTAL COMMITMENT Serving an area as richly en-dowed as the Hudson Valley, our commitment to helping preserve the environment has been a long-standing one, one carried out not simply in words but in deeds, not simply through mandated activities but also through those which we initiate ourselves. Among them:
More than 75 years ago, we pioneered the use of underwater cables to avoid unsightly aerial crossings of the Hudson River.
The section of the river served by Central Hudson remains the only stretch without an overhead power-line crossing.
In the 60s, we funded a major study of regional planning by Arthur D. Little, Incorporated, with emphasis on the preservation of historic and scenic values.
In the 70s, we transferred title to New York State of two potential generating sites, one for a state park at Breakneck Mountain, in the Hudson Highlands, and the second for a wildlifeconservation zone and bird sanctuary at Tivoli Bay, in northern Dutchess County.
FIRM GAS PEAKS 70
~~ 60 cp 50
% 40
>> 30 20 10 1981 1988 1989 1990 1991 CENTRAL HUDSON NET INCOME 50 45 40 eo 35
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13 1991 ANNUAL REPORT
14 The cooling water intakes at the Roseton Plant incorporated novel screen designs to reduce the impact of plant operations on aquatic life, and we are leading the research on even more advanced screens which are now being tested at Roseton.
In the mid-80s, we built a state-of-the-art facilityto treat all wastewater from the Roseton Plant.
In 1984, we built nesting platforms to attract bald eagles back to the upper stretches of the Hudson River valley.
After a multi-year effort, all high-level PCBs have been removed from our electric equipment out-side of fenced substations.
We have instituted a major recycling program for paper and metal scrap.
The addition of natural gas to our generating mix supports the goals of the Clean AirAct.
As major users of the Hudson River, we are sensitive to its unique environmental attributes. This year, we funded a $375,000 research project to demonstrate methods of restoring and enhancing the river's marshlands, which over the years have been disappearing as a result ofsiltation and increasing fresh-water runoff.
The importance of these tidal marshes to fish and wildlifehas long been understood. More recent-ly, it has become recognized that the plant and aquatic life they sup-port also serve an important role in helping the river cleanse itself.
Through this three-year study, volunteers from the Museum of the Hudson Highlands willassess their ability to help nature heal itself.
The dietary habits ofthis sprightly meadow vole are among the environmentally-benign measures being studied which may reduce high growing vegetation on our transmission rights-of-way.
We are also looking at a way to use nature to help reduce the amount of trimming required on our electric transmission rights-of-way. Through an unusual research
. project we are cofunding with the Empire State Electric Energy Research Corporation, we are studying the feasibility of using the natural competition between trees and shrubs and the feeding activi-ties of mice and deer to inhibit the establishment of tall-growing trees within the right-of-way. The collec-tion of field data was completed during the fall of 1991.
1991 ANNUAL REPORT
UBSIDIARYOPERATIONS NET INCOME OF SUBSIDIARIES Our two major subsidiaries are involved in areas which are related to our core business, specifically energy efficiency and electric generation. Considering the diffi-culties experienced by some utilities which have invested outside their sphere of expertise, we continue to believe that this has proven to be a wise decision.
Central Hudson Enterprises Corporation (CHEC) is a full-service energy company, offering clients engineering evaluation, design, construction, financing and opera-tional services. It enjoyed its most successful year in 1991, returning about $367,000 to Central Hudson shareholders, primarily due to completing a major lighting con-servation retrofit in the Stone R Webster building in Boston.
During the year, CHEC began implementing a major demand side management contract, involving 4.8 megawatts of energy savings, with Public Service Electric and O
70 i 60 R
~~ 50 40 10 600
~ 500 g 400
~ 800 O
200 o
100 ZI 0
-1 00
-200 1987 1988 1989 1990 1991 CAPITALI2ATION RATIOS Q Ow Q tf0 Q lTNIT Q 41Ãll 1987 1988 1989 1990 1991 4
- tL8, Cencogen, one of our subsidiaries,
'cquired a 40 percentinterestin a 4-megawatt cogeneration plant atop the C. Fox building (top) in Hartford during 1991. The 15-megawatt Hydro-l(ennebec plant in Naine, in which Cencogen has a 7 percentinterest, appears at left.
15 1991 AiVNUALREPORT
16 Gas Company of New Jersey, and substantially implemented energy conservation measures in the Syracuse City School System.
Central Hudson Cogeneration, Inc. (Cencogen) is in the business of investing in existing or planned cogeneration or generating facili-ties which use renewable resources.
Its failure to contribute to profits in 1991 was due to low water condi-tions which drastically restricted operations at the West Delaware Hydro Plant, in which Cencogen has a 50 percent interest.
In April 1991, Cencogen acquired a 40 percent interest in a 4-megawatt cogeneration plant which produces steam for heating and cooling buildings in downtown Hartford, Connecticut and sells electricity to the Connecticut Light R Power Company. Since the acquisition, earnings from this two-year-old plant have been well above budget.
Cencogen also became a 50 percent partner in the development of two similar cogeneration projects for the State of New Jersey. One will produce steam and electricity for Montclair State College, an expand-ing institution. The second will meet the steam and electric needs of the Hunterdon Development Center, which houses a correctional facility for women and a residence for the mentally handicapped. Both are expected to enter service in 1993.
JOHN WILKIE,1904-1991 We note with regret the passing on August 10 ofJohn Wilkie, a friend and associate throughout his 62 years of service with our Company.
Mr. Wilkiejoined the Company in 1925. During his career, he held the offices ofTreasurer, Vice President, Vice Chairman of the Board, Chairman and Chief Exec-utive Officer, as well as serving as a director of the Corporation. He was regarded in the utilityindustry and among the investment community as an authority on public utility financing. His leadership, concern for employees and high principles were credited as being fundamental to the development of the character of Central Hudson.
His contributions were great, and his passing is a loss to us all.
1991 AVNUAL REPORT
INANCIALSECTION TABLE OF CONTENTS 18 Financial Highlights 19 Five Year Summary of Operations 20 Management's Discussion and Analysis 29 Report of Independent Accountants 29 Consolidated Statement ofRetained Earnings 30 Consolidated Balance Sheet 32 Consolidated Statement ofIncome 33 Consolidated Statement of Cash Flows 34 Notes to Consolidated Financial Statements
FINANCIALHIGHLIGHTS 18 Earnings Per Share: (Page 22)
Earnings per share ofcommon stock were $2.40 in 1991, an increase of2 cents, or '1% from 1990.
Dividends Per Share: (Page 28)
The quarterly dividend rate was increased to $.48 per share, effective August 1, 1991. This represented an increase of4.3%
over the previous quarterly rate of $.46 per share. Dividends paid to shareholders in 1991 were $1.88 per share as compared to $1.80 per share in 1990. No portion ofthe 1991 dividend constitutes a return ofcapital.
Nine Mile 2 Plant: (Note 2)
By Order issued and effective March 1991, the Public Service Commission (PSC) approved a settlement agreement, dated June 6, 1990, which brings to a close all outstanding issues related to the cost ofconstruction ofthe Nine Mile2 Plant, its operation through January 19, 1990 and the 1986 Settlement. Such approval did not require any adjustment to the amount of the disallowed investment written offby the Company in 1987.
Economy:
The Company continued to recognize the effects of a slowing national and regional economy in 1991. Although the sales ofelectricity within Central Hudson's service territory increased for the ninth consecutive year and firm sales of natural gas, normalized for weather, grew for the sixth con-secutive year, the rate ofgrowth has slowed for both services.
Electric Sales: (Page 24)
Electric sales within the service territory increased.7% in 1991. Sales to residential customers remained stable from last year reflecting an increase of less than '1% in the number of customers. Sales to commercial customers increased 1% due to the net effect of a 2% growth in the number of customers and a 1% decrease in usage per customer. The rate ofgrowth in industrial sales declined from 7% in 1990 to 1% in 1991 primarily as a result of the slow down in the economy.
Gas Sales: (Page 25)
Firm sales of natural gas decreased 2.4% in 1991 primarily due to warmer weather. Sales to residential customers de-creased 4/0 due to the net effect ofa 5% decrease in usage per customer and a 1% increase in the number ofcustomers. Sales to commercial customers increased 2/0 due to the net effect of a 5% increase in the number ofcustomers and a 3% decrease in usage per customer. Firm sales to industrial customers decreased 10% primarily from decreased sales to existing cus-tomers and the shift of a large customer to interruptible service.
Rate Proceedings:
(Page 22)
On August 10, 1990, the Company filed a request with the PSC to increase its base rates for firm gas service by $6.8 millionor 9% for the twelve-month period ending June 30, l992. On July 1, 1991, the PSC issued its Opinion and Order (Order) authorizing the Company to increase its base gas revenues by $4.9 million, an increase in gas operating revenue ofapproximately 5.3%. The new rates became effective on July 8, 1991 and are applicable to all usage thereafter. The Order authorized a return on common equity offal.7%
and an overall rate of return for the rate year of9.45%.
On May 17, 1991, the Company filed a request with the PSC to increase its base rates for electric service to produce additional annual revenue of $30.3 million, or 7.4% for the hvelve-month period May 1, 1992 through April30, 1993. On January 21, 1992 the Administrative Raw Judge in this pro-ceeding issued his Recommended Decision. Such Decision recommended additional annual revenue of $ 14.6 million, or 3.7%, and an increase of $2.5 millionin the amount ofMirror CWIP proposed to be used as a rate moderator. The Company expects a final decision in this proceeding in April 1992.
Common Stock: (Note 5)
The Company sold 600,000 shares of common stock in 1991, realizing proceeds of $13.8 million.The Dividend Reinvestment Plan and Customer Stock Purchase Plan raised
$5.5 million.These issuances increased the number of common shares outstanding to 15,767,657. At December 31, 1991, a share of common stock was selling at $28.75 while the book value per share was $22.84. At December 31, 1991, the Company's shares were held approximately 41% by individuals registered with the Registrar and Transfer Agent, 10% by institutional investors, and 49% in "street name.'-'otal return to shareholders in 1991 amounted to $5.88 (24%) per share, consisting of $4.00 of market appreciation and $1.88 ofcash dividends.
1991 Financing Program: (Notes 5 and 6)
During '1991, the Company issued 600,000 additional shares ofcommon stock and $100 millionofnew long-term debt. The proceeds from these offerings were used for the purpose ofoptionally redeeming $85 millionofhigher coupon debt and for the repayment ofshort-term debt. This program helped strengthen the Company's capital structure, increasing the common equity ratio at December 31, 1991 to 40.8% from 39.00/0 at December 31, 1990, and reduced debt expense by approximately $5 million.The replacement of higher coupon debt with lower cost debt offerings reduced the Company's embedded cost ofdebt by approximately one percentage point, from 9'/4% to 8'/~%.
1992/1993 Financing Program: (Page 21)
The Company has the option in 1992 to redeem one or more ofthree series of its First Mortgage Bonds, totaling $52 million. In order to provide for these possible redemptions, to fund its construction program and to provide for other contin-gencies, the Company has requested authorization from the PSC to issue up to one millionadditional shares of common stock and up to $125 millionof new long-term debt during 1992 and 1993.
Taxes: (Page 27)
In 1991, the Company incurred $83.2 millionfor operating taxes levied by federal, state and local governments.
FIVE-YEAR
SUMMARY
OF CONSOLIDATED OPERATIONS AND SELECTED FINANCIALDATA" (Thousands of Dollars)
Operating Revenues Electric Gas.
Total 1991 424,121 70,615 494 736 1990 433,859 69 749 503 608 1989 403,235 66,767 470 002 1988 379,249 59,136 438,385 1987 374,951 54 126 429 077 Operating Expenses Operations.
Maintenance Depreciation and amortization.....
Operating taxes.
Federal income tax.
Total 267,339 31,504 37,230 60,554 22 613 279,602 30,364 36,134 57,234 22,456 419 240 425 790 263,104 23,939 35,344 51,240 19 828 393,455 232,243 23,813 31,938 47,953 21,843 357 790 223,916 20,632 28,163 44,379 31,476 348 566 Operating Income 75 496 77 818 76 547 80 595 80 511 Other Income and Deductions Equity component ofAFDC..
Federal income tax-net Current year effect of adoption of SFAS 90............
Other net.
Total Income before Interest Charges and Cumulative Effect of a Change in Accounting Principle..~....
Interest Charges.
921 1,252 854 3 027 78,523 35 582 785 2,082 1 505 4 372 82,190 41 155 463 910 3 419 4 792 81,339 42 222 403 703 2 739 3 845 84,440 40 636 3,371 (71)
(51,919) 2 198 46 421 34,090 42 559 Income (Loss) before Cumulative Effect of a Change in Accounting Principle.... ~..~............
Cumulative Effect on Prior Years of Adoption of SFAS 90.
Net Income (Loss)
Dividends on Preferred Stock Income (Loss) Available for Common Stock............
Dividends Declared on Common Stock.....................
Amount Retained in the Business
~ ~ ~ ~. ~. ~. ~..~.........
~ ~.~...
Retained Earnings beginning ofyear.....................
Retained Earnings end ofyear.....................~..........
42,941 41,035 39,117 43,804 (8,469) 101 475 42,941 5 659 417035 5 681 39,117 5 698 43,804 (109,944) 5 753 5 593 35,354 27 067 33,419 38,051 25 825 24 851 (115,537) 37 666 37,282 29,800
~7, 82 40 611 (153,203 164 733 7,594 13,200 24 730 11 530 8,287 32 324 48,093 40 611 32 324 24 730 11 530 Common Stock Average Shares Outstanding (000's).................
Income (Loss) Available Per Average Share.....
Dividends Declared Per Share..........................
Book Value Per Share (at year end)..................
Total Assets.
Long-term Debt.
Cumulative Preferred Stock.
Common Equity.
15,530
$2.40
$ 1.90
$22.84
$1,141,128 416,030 81,030 360,203 14,850
$2.38
$1.82
$22.31
$ 1,093,530 407,638 81,030 333,587 14,657
$2.28
$ 1.76
$21.76
$1,073,695 447,440 81,030 320,709 14,473
$2.63
$ 1.715
$21.24
$1,046,290 448,605 81,030 309,269 14,230
$(8.12) ++
$2.645
$20.35
$1,024,371 429,958 81,030 292,240
~ This summary should be read in conjunction with the consolidated financial statements and notes thereto included in the "Financial Section" of this Annual Report.
- The per share loss of the 1987 change in accounting principle was $7.13.
bSWAGEMENT'S DISCUSSION ANDANALYSISOF FINANCIALCONDITIONAND RESULTS OF OPERATIONS CAPITALRESOURCES AND LIQUIDITY CONSTRUCTION PROGRAM As shown in the Consolidated Statement of Cash Flows, the cash expenditures related to the Company's construction program amounted to $70.0 millionin 1991, an increase of
$20.0 millionfrom the $50.0 millionexpended in 1990. As shown in the table below, cash construction expenditures for 1992 are estimated to be $73.8 million,an increase of $3.8 millionover 1991 expenditures. Internal sources funded 88% of the 1991 cash construction expenditures and are presently estimated to fund approximately 85'Yo of the forecasted expenditures for 1992.
Estimates ofconstruction expenditures, internal funds, mandatory redemption of long-term securities and working capital requirements for the five-year period 1992-1996 are set forth by year in the followingtable:
1992 1993 1994 1995 (Thousands of Dollars) 1996 Total 1992-1996 Construction Expenditures (a):
Electric Gas Common.
Connection to Iroquois Gas Pipeline (b)....~...
Roseton buy-back (c)
Nuclear fuel.
Total.
$218,000 35,100 72,300 1,300 21,400 13 900
$ 44,500 7,300 19,500 1,300 1 200
$ 43,600 6,800 13,200
$ 44,000 6,700 12,600 7,100 1 400
$ 41,600 7,100 13,900 7,000 3 000
$ 44,300 7,200 13,100 7,300 5 300 3 000 73 800 66 600 77 200 71 800 72 600 362 000 Internal Funds Available:
Depreciation accruals..
Deferred income tax net...
Other.
Total.
39,900 15,800 7,300 63,000 42,100 43,800 45,500 47,600 218,900 11,700 13,000 13,200 12,300 66,000 8,000 7,400 8,400 8,400 39,500 61,800 64,200 67,100 68,300 324,400 Excess of Construction Expenditures over Internal Funds 10,800 4,800 13,000 4,700 4.300 37,600 Mandatory Redemption of Long-term Securities:
Long-term debt.
Preferred stock.
Total..........
68,900 3 200 4,100 800 4,100 6,600 800 54,100 800 800 4 100 4 900 54 900 7 400 800 72 100 Working Capital Requirements.....
Total Cash Requirements.
6 100 7 800 7 700 7 400 5 800 34 800
$ 21 000 17 500
$ 75 600
$ 19 500
$ 10 900
$144 500 (a) Excluding the equity portion ofAllowance for Funds used During Construction (AFDC), a noncash item.
(b)
Described in Note 9 ofthe Notes to Consolidated Financial St"tements, under the subcaption "Natural Gas Supply."
(c) Described in Note 9 ofthe Notes to Consolidated Financial Statements, under the subcaption "Roseton Plant."
20
Estimates ofconstruction expenditures are subject to continuous review and adjustment, and actual construction expenditures may vary from such estimates. The depreciation accrual for the Nine Mile2 Plant ((NMP-2) described in Note 2 ofthe Notes to Consolidated Financial Statements (Notes)),
assumes a 2.5% annual rate applied to the allowed investment included in electric rate base. The assumed amortization rate for the Danskammer Plant coal reconversion investment is 5%.
The deferred income tax projections are based on applicable federal income tax law.
Excluded from the construction expenditures are any costs which may be required to comply with the Clean AirAct Amendments of 1990. The Company cannot currently predict the level of required expenditures which may result from such legislation. Adiscussion ofthe Clean AirActAmendments is included in Note 9 of the Notes.
As shown in the table above, it is presently estimated that funds available from internal sources willfinance 90% of the Company's cash construction expenditures for the five-year period 1992-1996. During this same five-year period, total external financing requirements are projected to amount to $144.5 million,ofwhich $68.9 millionis related to the redemption of long-term debt.
CAPITALSTRUCTURE Prior to 1987, the Company's policywith regard to capital structure was to maintain its common equity ratio in the
~ 40%45% range. As a result of the Company's recognizing the Nine Mile2 Plant disallowance for financial reporting purposes in 1987 and recording a write-offof $169.3 million in its
" financial statements, the common equity component of the Company's capital structure dropped from 46.4% at December 31, 1986 to 35.4% at December 31, 1987.
As shown in the table below, the Company has been gradually rebuilding its common equity ratio through retained earnings and the issuance ofcommon stock under its Auto-matic Dividend Reinvestment and Customer Stock Purchase Plans, and in March 1991 accelerated that rebuilding process through the public sale of600,000 additional shares ofcommon stock to refinance a portion ofhigh coupon debt that had been called for redemption.
Year-end Ca ital Structure Long-term debt................
Short-term debt...............
Preferred stock...~.......~.....
Common equity...............
1989 52.8%
9.5 37.7 100.0%
1990 48.2%
3.3 9.5 39.0 100.096 1991 47.8%
2.2 9.2 40.8 100.0%
The Company plans to continue this rebuilding process by selling additional shares of common stock through a public
'nderwritten offering in late 1992 or the first half of1993. Such sale willfurther improve the Company's capital structure and its coverage ratios. Improvement in these two key financial indices assisted the Company in securing its recent credit rating upgrades by Moody's Investor Service, Duff&Phelps Inc.,
and Standard &Poor's Corporation to the A-level and moved the Company closer to its longer-term goal ofattaining an Acredit rating.
1992/1993 FINANCING PROGRAM The Company in 1991 optionally redeemed three series of First Mortgage Bonds, totaling $85 million.The funds to redeem these bonds were obtained from a combination ofthe public sale of$100 millionofnew First Mortgage Bonds in May 1991, the sale of600,000 additional shares ofcommon stock in March 1991 and the sale ofadditional shares ofstock under the Company's Automatic Dividend Reinvestment and Customer Stock Purchase Plans. The excess ofthe funds so raised over the $85 millionof debt optionally redeemed in 1991 was used to retire the short-term debt outstanding at year-end 1990 (such debt had been incurred in late 1990 to help fund the optional redemption ofthe Company's 13% Series ofFirst Mortgage Bonds) to fund the 1991 construction program and to reduce the sale ofaccounts receivable.
In 1992 the Company has the option to redeem three additional series of its. First Mortgage Bonds, totaling $52 million.
For a period oftwelve months beginning on April 15, 1992, the Company has the option to redeem its 9'/4% Series First Mortgage Bonds ($15 millionprincipal amount) due 2004 at a redemption price of 104.08% oftheir principal amount. For a period oftwelve months beginning on June 1, 1992, the Company has the option to redeem its 9'/a% Series First Mortgage Bonds
($25 millionprincipal amount) due 2000 at a redemption price of 102.39% oftheir principal amount. For a period oftwelve months beginning on July 2, 1992, the Company has the option to redeem its 11% Series First Mortgage Bonds ($12 millionprincipal amount) due 1995 at a redemption price of 102 445% oftheir principal amount. Ifexisting conditions in the credit markets continue to be favorable, the Company plans to redeem one or more series of these Bonds within the redemption periods noted above.
In addition to such $52 millionofoptional redemptions, the Company faces modest external funding requirements related to its construction program and working capital requirements in 1992 and 1993. In order to provide these funds and to provide for other contingencies, the Company contemplates issuing a combination of long-term debt and additional shares ofcommon stock. With regard to the debt financing, the Company has filed a petition with the Public Service Commission of the State of New York (PSC) for authorization to issue up to $125 millionof Medium-term notes (which Notes can include maturities from one to 30 years). It is presently planned that the firstoffering of Medium-term notes willbe issued in the spring of 1992, with additional Medium-term notes to be issued as required through December 31, 1993. With regard to the common stock financing, the Company has filed a petition with the PSC for 21
authorization to issue up to one millionadditional shares of common stock. The present timetable for issuance ofthe addi-tional shares ofcommon stock is late 1992 or the first half of 1993. Any cash requirements in 1992 and 1993 not met through the sale ofMedium-term notes or additional shares ofcommon stock willbe met through short-term borrowings, the issuance ofcommon stock under the Company's Automatic Dividend Reinvestment and Customer Stock Purchase Plans or by sales ofaccounts receivable.
SHORT-TERN DEBT AND SALE OF RECEIVABLES As more fullydiscussed in Note 4 ofthe Notes, the Company has a revolving credit agreement with four commercial banks for borrowing up to $50 millionthrough December 14, 1997.
In addition, the Company continues to maintain confirmed lines ofcredit totaling $2 millionwith three regional banks.
As discussed in Note 8 ofthe Notes, the Company also has the ability to accelerate its cash flow by selling its accounts receivable from retail sales when deemed desirable.
d RATE PROCEEDING ELECTRIC operations during the rate year comprised of the twelve months ending June 30, 1992 (Rate Year). This represented an overall increase in firmgas revenues of9.0%.
The higher rates were requested to cover costs associated with new gas distrjbution facilities, increased operating expenses and higher taxes projected for the Rate.
Year that were not adequately provided for in present rates and would not be offset by increased revenues from sales. In its filing, the Company requested a 13.0% return on common equity and a 10.26% return on total invested capital.
On July 1, 1991, the PSC issued its Opinion and Order (Order) with regard to the Company's request. In the Order, the PSC authorized the Company to increase its base rates for firm gas service to produce additional annual revenue of $4.9 million, an increase in gas operating revenue of approximately 5.3%. The new rates became effective on July 8, 1991 and are applicable to all usage thereafter. The Order authorized a return on common equity of 11.7% and an overall rate of return for the Rate Year of 9.45%.
The Company's base gas rates were last increased in September 1985. Subsequently, the Company decreased its base gas rates in September 1987 and agreed to freeze such rates for a 40-month period, which ended on January 1, 1991.
On May 17, 1991, the Company filed a request with the PSG to increase its base rates for electric service to produce additional annual revenue of $30.3 million, or 7.4%. The higher rates were requested to cover increases in operating costs, projected for the twelve-month period May 1, 1992 through April30, 1993, that are not adequately provided for in present rates and willnot be offset by increased revenues from sales.
The Company's filingwas based on a return on common equity of12.5', an overall return on invested capital of 9.9% and a targeted cash coverage oftotal interest charges of2.9 times.
On January 21, 1992 the Administrative Law Judge in this proceeding issued his Recommended Decision. Such Decision recommended additional annual revenue of $ 14.6 million,or 3.7%, a return on common equity of 11.25% and cash coverage oftotal interest charges of 2.7 times. The lower-than-requested cash coverage target resulted from the lower return on common equity and the Judge's inclusion of an additional
$2.5 millionofMirrorCWIP as a rate moderator. For a description ofMirrorCWIP, see subcaption "Allowance for Funds used During Construction" in Note 1 ofthe Notes.
The Company expects a final decision in this proceeding in April 1992. The Company can make no prediction as to the PSC's final determination in this proceeding.
RATE PROCEEDING GAS On August 10, 1990, the Company filed a request with the PSC to increase its base rates for firm gas service to produce additional annual revenue of $6.8 millionbased on projected RESULTS OF OPERATIONS EARNINGS Earnings per share ofcommon stock are shown after provision for dividends on preferred stock and are computed on the basis of the average number ofcommon shares outstanding during the year. The number of common shares, the earnings per share, the percentage change and the rate of return earned on average common equity are as follows:
Average shares outstanding (000's)...............
Earnings per share..................
% increase (decrease) over prior year.... ~.~....~..........
Return earned on common equity per books*.................
1989 14,657
$ 2.28 (13%)
'1990 1991 14,850 15,530
$ 2.38
$ 2.40 4%
3.%
10.6%
10.8%
10.6%
- Return on equity for regulatory purposes differs The followingdiscussion and analysis includes an explanation ofsignificant changes in revenues and expenses during the years 1989, 1990 and 1991. Additional information relating to changes between these years is provided in the Notes on pages 34 through 48 ofthis Report.
The Notes also discuss future accounting changes required by "
the Financial Accounting Standards Board and a number of environmental matters (see Notes 3, 7 and 9).
22
The 35-cent reduction in 1989 per share earnings resulted principallyfrom moderating sales growth and expense increases not provided for in the rate-making process. Electric sales in the Company's service territory increased only 3.5% compared to the year earlier growth rate of5.3%. Residential sales, which provide the highest operating margins, increased only 1%
compared to an 8% increase in 1988. Nine Mile2 Plant operation and maintenance expenses substantially exceeded expense levels provided for in rates. Also, subsidiary company results were lower in 1989 because 1988 results included substantial fee income and investment tax credits which were associated with the completion of two major hydroelectric projects at the end of the year.
The 10-cent per share increase in the 1990 earnings resulted primarily from the increase in base electric rates which became effective on May 24, 1990 and the very favorable relationship between sales and related production costs which the Company experienced in 1990. Sales ofelectricity within the Company's service territory increased 3.3% during 1990; however, electric. generation and purchased power increased only 1%. Firm sales ofnatural gas for 1990 remained unchanged from 1989 whereas purchases ofnatural gas were 10% less than the prior year.
The 2-cent per share increase in the 1991 earnings reflects the followingfavorable results. Reduced interest charges resulting from the refinancing of high interest rate debt, increased electric base rates which became effective May 24, 1990 and favorably impacted the first half of 1991, and increased gas base rates which became effective July 8, 1991 and favorably impacted the second halfof 1991. Also contributing to the increase were a reduction in the amount offuel cost increases absorbed by the Company, an increase in the incentive provided to the Company for successful participation in its energy efficiency program and a marked improvement in the relationship between the actual cost ofoperating the Nine Mile2 Plant and the amount provided for in the rate-making process.
While actual costs exceeded those provided for in rates by $2.4 millionand $4.8 millionin 1989 and 1990, respectively, actual costs for 1991>vere $492,000 less than those provided for in rates.
These favorable variations were partially offset, however, by decreased gas sales, a slow down in the rate ofgrowth in electric sales, higher expenses related to tree trimming work, increased payroll and related fringe benefits and higher property taxes.
OPERATING REVENUES Total operating revenues increased $31.6 million (7%)
and $33.6 million (7%) in 1989 and 1990, respectively, and decreased
$8.9 million (2%) in 1991. As shown in the table below, in l989 the increase in revenues was due to increased sales ofelectricity both within the service territory and to other utilities and increased revenues collected pursuant to the electric and gas fuel adjustment clauses. The 1990 increase in revenues was due to increased sales of electricity, the higher electric base rates which became effective May 24, 1990 and increased revenues collected pursuant to the electric fuel cost adjustment clause. The 1991 decrease in revenues was due to decreased revenues collected pursuant to the electric fuel cost adjustment clause and decreased sales of electricity to other utilities, partially offset by higher electric and gas base rates.
Details of the revenue changes are as follows:
1989*
Increase or Decrease from Prior Year 1990*
1991 Customer sales..
Sales to other utilities.
Increases (decreases) in base rates.............~.....
Fuel cost changes reflected in base rates.........
Fuel cost adjustment.
Deferred revenues..
Miscellaneous.........................
Total Eleelric 9,169 10,662 (1,444) 5,072 462 65
$ 23 986
$ 3,963 5,929 (3,451) 1,190
~$ 7 631 Electric Gas (Thousands of Dollars)
$ 13,071
$ 2,530 (100) 7,356 8,691 (547) 1,235 133 371 866
$ 30,624
~$ 2 982
$ 2,503 (4,413) 5,811 (11,123)
(2,927) 411
~$ 9 738)
$(2,812)
'1,157 2,499 (2,015) 2,293
~256) 866 Electric Gas
- Effective 1991, unbilled revenues previously reported as customer sales have been reclassified as miscellaneous. For comparative purposes, prior years have been restated.
23
The Company's electric fuel cost adjustment clause provides for a partial sharing of fuel cost variations, pursuant to an incentive/pena!ty formula. The program adopted by the PSC requires an 85%o/15% sharing, on average, between the customers and the Company for the first$20 millionof variations in actual fuel costs from the forecasted amounts which have been approved by the PSC for a specific twelve-month period. Any variations in excess of $20 millionare credited or charged in total to the customers. See subcaption "Deferred Electric Fuel Costs" ofNote 1 ofthe Notes.
The Company's base rates for electricity include an imputed amount ofnet revenue (gross revenues less incremental costs, principally fuel) from sales of electricity to other utilities. The PSC requires an 80%/20% sharing between customers and the Company ofany variations from the imputed amount, either higher or lower. The Company reflects any credits or charges to its customers resulting from these provisions through the electric fuel cost adjustment clause. The followingtable sets forth the variation in actual net revenue realized from the amounts imputed; the amount charged or credited to retail customers through the electric fuel cost adjustment clause; and the amount ofsuch net revenues retained by the Company and recognized in income:
Variation in actual net revenue from imputed amounts.
Customer (charge) credit.
Amount recognized by Company..........
1989
$ 4,499 3,599 900 1990 (Thousands of Dollars)
$ 2,337 1,870 467 1991
$ (785)
~(525
~$
157 The Company's largest customer is International Business Machines Corporation (IBM).For the year 1991, sales to IBM accounted for 18% of the Company's total electric revenues and 7% of its total gas revenues.
SALES Residential.....
Commercial...
Industrial.......
Electric%
1989*
1990*
1991 1
1 4
2 1
6 7
Residential.................
Commercial...............
Industrial...................
1989>>
1990>>
1991 (1)
(4) 3 1
2 30 12 (10)
- Effective 199l, unbilled sales have been excluded. For comparative purposes, prior years have been restated.
Kwh. sales of electricity within the Company's service territory increased 3.7% in 1989, 3.4% in 1990 and.7% in 1991.
The decline in the growth rate from 1990 to 1991 primarily reflects the effect, of a slow down in the region's economy. Firm sales ofnatural gas, excluding sales to the electric department, increased 3.9% in l989 and.7% in 1990 and decreased 2.4% in 1991 (see footnote to chart below). The 1991 decrease results primarily from the unusually warm weather which occurred in the winter periods and the transfer of a large industrial customer from firm service to interruptible service. Changes in sales by major customer classification are set forth below (parentheses denote decrease):
Residential electric sales: Residential electric sales are primarily affected by the growth in the number ofcustomers and the change in kwh. usage per customer. Customer usage is also sensitive to weather. Changes in these components are set forth in the table below (parentheses denote decrease):
1989 Residential Sa! es %
1990 1991 Growth in number ofcustomers......................
Change in average usage per customer....................
Change in heating degree days...................~....
1 1
1 (I)
(I)
(7)
(3)
(6)
The usage per customer remained stable in 1991 as the warmer weather experienced during the winter heating season was offset by the hotter weather experienced during the summer air conditioning months.
Commercial electric sales: The commercial sales increase of4% in 1989 and 2% in 1990 was primarily due to growth in the number ofcustomers at a rate of4% and 3%, respectively.
Commercial sales increased 1% in 1991 primarily due to the net effect ofa 2% growth in the number ofcustomers and a 1%
decrease in usage per customer.
Industrial electric sales: The 1989 industrial sales increase of 6% was primarily due to the increased usage at existing 24
manufacturing facilities and a fullyear's operation of a container manufacturer at Stewart, International Airport, located
- in the Company's service territory, which commenced operation in July 1988. The increase in industrial electric sales of7% in 1990 and l%%d in 199l was due primarily to increased usage by existing customers.
Gas sales firm:The followingtables set forth customer growth, changes in customer usage and heating degree days for the residential and commercial classifications. Although the changes in residential gas sales are primarilyweather related, the growth in the number ofcustomers has remained a positive factor. Commercial sales are also weather sensitive.
Residential Sales usage, as compared to the cost ofalternative fuel sources. The 1991 decrease in interruptible gas sales is attributable primarily to a decrease in customer usage and a shift ofseveral customers from interruptible sales service to interruptible transportation service. Transportation service permits large volume users of natural gas to purchase gas directly from producers and wholesalers and transport the gas through the Company's distribution system. The Company has offered transportation service since 1985 but only during the last two years have several ofour larger customers elected to use this service. Net revenues from transportation service are approximately equal to those net revenues from the customers who shifted from inter-ruptible service.
1989 1990 1991 Growth in number ofcustomers..................
Change in average usage per customer.......
Change in heating degree days:
Bimonthly billing cycle....................~.....
Calendar year..............
2 2
1 (5)
(5)
(7)
(3)
(4)
(15)
(6) 3 Commercial Sales 1989 1990 1991 Growth in number ofcustomers................
Change in average usage per customer.....
Change in heating degree days:
Bimonthly billing cycle........................
Calendar year............
6 6
(4)
(4)
(3)
(7)
(3)
(4)
(15)
(6) 3 Firm gas sales to industrial customers increased 30% in 1989, aided primarily by the opening in July 1988 of the container manufacturing company referred to above. Firm gas sales to industrial customers increased 12% in 1990, primarily due to an increase in usage by existing customers.
Firm gas sales to industrial customers decreased 10% in 1991 primarily from decreased sales to existing customers and the shift of the container manufacturing company to interruptible service.
Gas sales interruptible: Interruptible gas sales increased 31% in 1989 and 14% in 1990 and decreased 20% in 1991. The 1989 and 1990 increases resulted primarily from the changes in the competitive position of the cost of natural gas for boiler fuel NUCLEAR OPERATIONS During 1989 and 1990 the Company's per share earnings were reduced by 11 cents and 21 cents, respectively, because the cost ofoperating the Nine Mile2 Plant (NMP-2 or Plant) exceeded the amounts provided for in the rate-making process.
During 1991, however, there was a marked improvement in the relationship between the actual cost of operating the Plant and the amount provided for in the rate-making process, thereby eliminating any negative impact on earnings.
During 1989 and 1990, the Plant was an immature unit not only in terms of its physical factors, but also in terms of its operating expense requirements. There had not been enough actual operating experience for the Plant to establish an adequate data base to serve as a solid foundation for making future forecasts. For example, the Company's share of the Plant's operating and maintenance expenses exceeded those provided for in rates by $4.8 millionduring 1990. Ofthis amount, $2.2 millionoccurred in the first five months of the year where the rate projections had been based on expense forecasts contained in a rate filingmade in April 1988. Another
$1.5 millionwas related to the substantial overrun in the expenses forecasted for the Plant's first refueling outage.
Conversely, in 1991 the Plant's operating and maintenance expenses were $492,000 less than those provided for in rates.
Additional operating experience, improvements made in budgeting and forecasting processes and management's efforts to control cost and staffing levels have all contributed to the reduction in operating costs. Additionally, most ofthe costs for the first refueling outage were incurred in 1990, while allowed revenues associated with the outage costs were not fully realized until May 1991.
The Company has continued actively to participate on the management, operations and accounting committees for the Plant and also the financial task force dealing with regulatory issues. Such participation has helped to produce better forecasts and control costs.
25
OPERATING EXPENSES Changes in operating expenses from the prior year are set forth below:
Omoooo 1989 Increase or (Decrease) from Prior Year 1990 Amount (Thousands ofDollars)
Amount 1991 Operating Expenses:
Fuel and purchased electricity.............
Purchased natural gas..........................
Other expenses of operation.................
Maintenance NMP-2 operation and maintenance.....
Depreciation and amortization............
Taxes, other than income tax...............
Federal income tax Total
$19,716 7,294 1,275 (691) 3,393 3,406 3,287
~2015)
$35 665 15.6 22.8 1.8 (3.1) 52.2 10.7 6.9 (9.2) 10.0
$10,164 (387) 2,898 5,005 5,243 790 5,994 2 628
$32 335 7.0 (1.0) 4.1 23.4 53.1 2.2 11.7 13.3 8.2
$(15,511) 9.9 979 2.5 4,852 6.6 2,'138 8.1 (3,581)
(23.7) 1,096 3.0 3,320 5.8 157 0.7
~$
6 550)
(1.5) 26 1987 1988 1989 1990 1991 Danskammer Plant 2.42 2.21 2.27 2.36 2.25 Average Cost (e/Kwh.)
Roseton Plant 2.91 2.27 2.56 2.94 2.43 Nine 11ile 2 Plant 1.28 1.17 1.21
.64*
- The 1991 decrease in the average cost per Kwh. for the Nine Mile2 Plant is primarily a result of the 1991 revaluation of the Plant's remaining MBTUs in the initial load, as well as lower costs associated with the Plant's firstreload which occurred in January of 1991.
In an effort to keep the cost of electricity at the lowest reasonable level, the Company purchases energy from other The most significant elements ofcost are fuel and purchased electricity in the Electric Department and purchased natural gas in the Gas Department. Approximately 36% in 1989 and 1990, and 339o in 1991 ofevery revenue dollar billed in the Electric Department was expended for the combined cost of fuel used in electric generation and purchased electricity. The corresponding figures in the Gas Department for the cost of purchased gas are 59%, 569o and 56%, respectively.
In 1989, the combined cost offuel used in electric generation and purchased electricity increased $20 million(15.6%), resulting from increased sales ofelectricity both within the Company's service territory and to other utilities, and higher fuel prices. In 1990, the combined cost offuel used in electric generation and purchased electricity increased $10 million (7%) resulting from increased sales ofelectricity withinthe Company's service territory and higher fuel prices. In l99l, the combined cost of fuel used in electric generation and purchased electricity decreased
$ 16 million (9.9%o), resulting primarily from lower fuel prices.
The followingtable shows the average fuel cost per Kwh.
for the Company's three major generating plants during the last five years:
Year 1987 1988 l989 1990 1991 Amount ofGas Purchased - h1cf.
9,420,874 11,004,936 l2,402,848 11,813,255 11,640,289 Mlcf.
3.04 3.00 3.22 3.37 3.50 The lower volumes of gas purchased during 1987 resulted from lower sales of interruptible gas.
The $1.3 million (2%) increase for 1989 in other expenses ofoperation was primarily due to increased charge-offs for uncollectibles, higher employee wages and related fringe benefits, increased cost ofthe Company's end use efficiency program, higher legal costs and increased costs associated with environmental regulatory compliance. The $2.9 million'(4%)
increase in other expenses ofoperation in 1990 is primarily due to higher employee wages and related fringe benefits, increased research and development expenses, increased charge-offs for uncollectibles and an increase in the cost for asbestos abatement. The $4.9 million (7%) increase in other expenses of operation in 1991 is primarily due to higher employee wages and related fringe benefits, an increase in major storm costs, an increase in gas department legal expenses and increased operating expenses related to the New York Power Pool.
Maintenance expenses for 1989 decreased
$691,000 (3%)
primarily due to a decrease in tree-trimming costs and the completion of the amortization ofSturgeon Pool Dam rehabilitation costs during 1988. Maintenance expenses increased $5.0 million(23%) in 1990 and $2.1 million(8%) in 1991 primarily due to increases in steam production expenses and tree-trimming costs. The increases in steam production member companies of the New York Power Pool whenever such energy can be purchased at a unit cost lower than the incremental cost ofgenerating the energy in the Company's plants.
The amount of natural gas purchased, excluding gas burned as boiler fuel, and the cost per Mcf. during the last five years are set forth in the followingtable:
maintenance expense ($2.7 millionfor 1990 and $900,000 for 1991) are primarily due to increased costs for routine maintenance ofthe Danskammer Plant Generating Units and the costs for a major overhaul ofUnit 1 at the Danskammer Plant which began in December of 1990. The 1991 increase is attributable also to a major overhaul of Unit2 at the Roseton Generating Plant which began in October of 1991. The increased tree-trimming expenses
($1.3 millionfor both 1990 and 1991) resulted from the intensified program instituted by the Company in the spring of 1990 whereby the trimming cycle for all electric distribution lines was reduced from four years to~
three years.
The Nine Mile 2 Plant commenced commercial operation on April5, 1988. Consequently, operating expenses, taxes and depreciation pertaining to operation subsequent to that date have been included in the Company's financial results for 1988 and all subsequent years. Many ofthe additional expenses were provided for through the rate-making process. However, as noted in the above discussion on Nuclear Operation, the operation and maintenance expenses for 1989 and 1990 exceeded the amounts provided for in rates by $2.4 millionand
$4.8 million, respectively. In 1991, however, NMP-2 operation and maintenance expenses were $492,000 less than those provided for in rates.
The Company's total provision for depreciation amounted to 3.28% in 1989, 3.24% in 1990 and 3.23% in 1991 ofthe original cost ofaverage depreciable property. The ratio of the amount ofaccumulated depreciation to the cost ofdepreciable property at December 31 was 28.2% in 1989, 29.9% in 1990 and 30.9% in 1991.
State and local taxes levied on gross revenues increased
$991,000 in 1989, $3.9 millionin 1990 and $ 1.4 millionin 1991. The 1990 increase was due primarily to the imposition of a 15% surcharge by the State ofNew York effective July 1, 1990, retroactive to January 1, 1990. In 1991, the revenue taxes were further impacted by an increase in the New York State Gross Receipt Tax Rate from 3.09'o to 3.5%. Property taxes, including school taxes, increased $2.3 million, $1.5 millionand $ 1.4 million in 1989, 1990 and '1991, respectively. Commercial operations ofthe Nine Mile2 Plant accounted for $ 1.2 million,
$391,000 and $396,000, respectively, ofsuch increases. These two categories of taxes accounted for a substantial portion of the total increases in operating taxes.
See Note 3 of the Notes for a detailed analysis and reconciliation of the federal income tax.
OTHER INCOMEAND INTEREST CHARGES Details of the Allowance for Funds used During Construction (AFDG) are set forth below:
Nine Mile 2 Plant.
Iroquois Gas Pipeline interconnection.
Other.
Total 1989
$ 591 301
$ 892 1990 (Thousands of Do!lars) 910 770
$~1680 1991 707 272
~1231
~$2 210 AFDC rate 10.2596 10.2596 9.0096 See Note 1 of the Notes for additional information on this subject.
Total interest charges (excluding AFDC) increased $1.4 million (3%) in 1989, decreased
$601,000 (196) in 1990 and decreased
$5.2 million (12%) in 1991. The followingtable sets forth some of the pertinent data on the Company's outstanding debt:
Long-term debt:
New debt issued.
Debt retired........................................
Outstanding at year-end:*
Amount (including current portion)....
Effective rate.
1989 449,2084 9.47%
1990 (Thousands of Do!lars) 35,000 413,528>>'.91%
1991
$100,000 89,000 423,785*
7 70%
Short-term debt:
Average daily amount outstanding Weighted average interest rate.
55 10.0%
2,048 8.98%
8,281 7.12%
- Including debt ofsubsidiaries of $5.786 millionin 1989, $5.188 millionin 1990 and $4.527 millionin 1991.
See Notes 4 and 6 ofthe Notes for additional information on this subject.
27
Details ofthe 1990 and 1991 long-term debt redemptions and issuances are shown below.
Redemptions:
Series of First Mort a e Bonds 13
% Series due 1992 14s/s% Series due 1994 10'/s% Series due 2005 103/4% Series due 2009 ll % Series due 1995 Principal Amount Redeemed
$35,000,000
$45,000,000
$20,000,000
$20,000,000
$ 4,000,000*
Applicable Redemption Price (tent of Princi al Amount 100.00%
103.2596 105.9096 106.4096 100.00%
Redemption Date Dec.
4,1990 June 12, 1991 July 1, 1991 July 1, 1991 July 2, 1991 1991 Decrease m
~Interest Ex ense
$4,221,000 3,656,000 1,063,000 1,069,000 219,000 Issuance and Sale:
Series of First Mort age Bonds 9t/4'eries due 2021 83/4% Series due 2001
- Sinking fund payment.
~nrinci el Amount
$70,000,000
$30,000,000 Proceeds to Company 98.028%
97.83696 Issuance and Sale Date May 14, 1991 May 14, 1991 1991 Increase in Interest Expense
$4,083,000 1,655,000 FINANCIALINDICES Selected financial indices for the last five years are set forth in the followingtable:
19874 1988 1989 1990 1991 Pretax coverage of total interest charges:
Including AFDC Excluding AFDC..
Pretax coverage oftotal interest charges and preferred stock dividends.
Percent ofconstruction expenditures financed from internal funds..
AFDC and MirrorCWIP as a percentage of income available for common stock....
Effective tax rate 2.70x 2.56x 2.23x 16%
42%
2.58x 2.36x 2.53x 2.27x 2.14x 1.99x 1009 o 10096 59o 11%
33%
33o/o 2.46x 2.39x 2.06x 10096 9%
33%
2.74x 2.66x 2.24x 88%o 8%
33%
- For comparative purposes the effect of the Nine Mile 2 Plant disallowance under SFAS 90 has been excluded.
28 COIIIMON STOCK DIVIDENDS AND PRICE RANGES Dividends have been paid by the Company and its principal predecessors for 88 years and the common stock of the Company has been listed on the New York Stock Exchange since 1945. The price ranges and the dividends paid for each quarterly period during the Company's last two fiscal years are indicated on page 1 of this Report.
On June 22, 1990, the Company increased the quarterly dividend to $.46 per share. The Company further increased the dividend on June 28, 1991 to $.48 per share. The Company believes the present quarterly dividend rate of $.48 per share is sustainable, barring unforeseen circumstances. In all events, the Board of Directors willcontinue to consider the declaration ofdividends based on all the facts and circumstances known at the time ofsuch consideration.
The number ofregistered holders ofcommon stock as of December 31, 1991 was 27,503. Ofthese, 27,116 were accounts in the names of individuals with total holdings of 6,451,283 shares, or an average of238 shares per account. The 387 other accounts, in the names ofinstitutional or other nonindividual holders, for the most part hold shares for the benefit ofindividuals.
The Company's 4.85% Promissory Notes due December 1, 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, for a consideration, any shares of its common stock unless the aggregate ofall such dividends, distributions and considerations since December 31, 1964 does not exceed an amount determined by a formula. At December 31, 1991, the amount of retained earnings available for dividends on the Company's common stock under the provisions ofsaid 4.85%
Promissory Notes was $39,680,000.
Report of Independent Accountants Price Paterhouse To the Board of Directors and Shareholders of Central Hudson Gas 2 Electric Corporation ln our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of retained earnings and of cash flows present fairly, in all material respects, the financial position of Central Hudson Gas 6 Electric Corporation and its subsidiaries at December 31, 1991 and 1990, and the results oftheir operations and their cash flows for each ofthe three years in the period ended December 31, 1991, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our respon-sibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
New York, New York January31, 1992 CONSOLIDATED STATEMENT OF RETAINED EARNINGS (Thousands of Dollars) 1991 Year ended December 31, 1990 1989 Balance at beginning ofyear Net Income.
$40,611 42,941 83,552
$32,324 41,035 73,359
$24,730 39,117 63,847 Dividends declared:
On cumulative preferred stock On common stock
($1.90 per share 1991; $1.82 per share 1990;
$ 1.76 per share 1989).
5,659 29,800 35,459 5,681 27,067 32,748 5,698 25,825 31,523 Balance at end ofyear
$48,093*
$40,611
$32,324
- Pursuant to the terms of the 4.85% promissory notes, due 1995, $39,680 is available for payment of dividends on common stock.
The Notes to Consolidated Financial Statements are an integral part hereof.
29
CONSOLIDATED BALANCESHEET (Thousands of Dollars)
UtilityPlant Electric.
Gas.
Common Nuclear fuel Less: Accumulated depreciation......
Nuclear fuel amortization.
Construction work in progress.
Other Property and Investments..
ASSETS 1991
$1,028,394 101,212 65,586 24 638 1,219,830 371,184 15 533 833,113 52 284 885 397 7 869 1990 996,477 95,711 60,453 21 260 1,173,901 344,672 12 350 816,879 38 224 855 103 5 253 Current Assets Cash.
Temporary cash investments Special deposits Accounts receivable from customers net (Note 8).....
Accrued unbilled utilityrevenues (Notes 1 and 8)........
Other receivables.
Materials and supplies, ataverage cost:
Fuel
~
~
~
~
~
~
~
~
~
~
Construction and operating......
Prepaid taxes and other prepayments.,
2,980 2,934 261 41,215 12,989 44318 23,044 14,398 10 602 112 741 6,442 2,032 150 411804 8,721 6,936 27,616 12,966 9 764 116 431 Deferred Charges Deferred finance charges Nine Mile 2 Plant (Note 1)....
Deferred Roseton litigation settlement (Note 1)..............
Unamortized debt expense Deferred vacation (Note 9)
Deferred Nine Mile2 Plant litigation costs (Note 2)........
Deferred energy efficiency costs (Note 1)..
Other 74,475 1,843
'11,914 3,185 4,072 12,419 27 213 135 121 74,870 2,764 8,114 3,052 3,417 2,713 21 813 116 743
$ 1 141 128
$ 1 093 530 The Notes to Consolidated Financial Statements are an integral part hereof.
30
DECEMBER 31, 1991 AND 1990 Capitalization Common Stock Equity Common stock, $5 par value (Note 5)
Paid-in capital (Note 5)..
Retained earnings Capital stock expense Cumulative Preferred Stock (Note 5)
Without sinking fund.
With sinking fund.
LIABILITIES 1991 78,838 239,200 48,093 (5,928) 360,203 61,030 20,000 81,030 1990 74,755 223,957 40,611 (5,736) 333,587 61,030 20,000 81,030 Long-term Debt (Note 6) 416,030 857,263 407,638 822,255 Current Liabilities Current maturities of long-term debt Notes payable Accounts payable Accrued taxes......................................
Accrued interest.
~.
Accrued vacation (Note 9)
Customer deposits..
Dividends declared..
Accrued pension costs (Note 7).
Other..
5,789 19,000 34,611 2,371, 7,265 3,378 3,069 8,976 5,521 7,338 97,318 5,724 28,000 34,602 6,347 7,607 3,245 3,378 8,319 3,089 7,064 107,375 Deferred Credits and Other Liabilities Deferred finance charges-Nine Mile 2 Plant (Note 1)...........,........
Deferred Nine Mile2 Plant litigation proceeds (Note 2).....~.....~......
Operating reserves.........
Other.
Accumulated Deferred Income Tax (Note 3) 59,795 9,198 2,242 10 886 82 121 104 426 60,095 4,230 1,390 7 060 72 775 91 125 Commitments and Contingencies (Notes 2 and 9)...
$ 1 141 128
$ 1 093 530 The Notes to Consolidated Financial Statements are an integral part hereof.
CONSOLIDATED STATEMENT OF INCOME (Thousands of Dollars)
Operating Revenues Electric Gas.
Total own territory Revenues from electric sales to other utilities..
Operating Expenses Operation:
Fuel used in electric generation Purchased electricity.
Purchased natural gas.
Other expenses of operation.
Maintenance Depreciation and amortization (Note 1).
Taxes, other than income tax.
Federal income tax (Note 3)..
Deferred income tax (Note 3).
1991
$404,775 70,615 475,390 19,346 494,736 121,587 18,901 39,867 86,984 31,504 37,230 60,554 10,514 12,099 Year ended December 31, 1990
$410,100 69,749 4797849 23,759 503,608 132,598 23,401 38,888 84,715 30,364 36,134 57,234 15,110 7,346 1989
$379,376 66,767 446,143 23,859 470,002 130,078 15,757 39,275 77,994 23,939 35,344 51,240 10,253 9,575 Operating Income Other Income and Deductions Allowance for equity funds used during construction (Note 1)...
Federal income tax (Note 3).
Deferred income tax (Note 3).
Other-net.
Income before Interest Charges.
Interest Charges Interest on mortgage bonds.
Interest on other long-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.
Income Available for Common Stock Common Stock Average. Shares Outstanding (000's).
Earnings per Share-On Average Shares Outstanding.
419,240 75,496 921 2,454 (1,202) 854 3,02?
78,523 25,236 7,482 2,569 (1,289) 1,584 35,582 42,941 5,659
$ 37,282 15,530
$2.40 425,790 77,818 785 4,198 (2,116) 1,505 4,372 82,190 29,726 9,276 1,951 (895) 1,097 41,155 41,035 5,681
$ 35,354 14,850
$2.38 393,455 76,547 463 3,646 (2,736) 3,419 4,792 81,339 30,055 10,187 1,350 (429) 1,059 42 222 39,117 5,698
$ 33,419 14,657
$2.28 The Notes to Consolidated Financial Statements are an integral part hereof.
32
CONSOLIDATED STATEMENT OF CASH FLOWS (Thousands of Dollars) 1991 Year ended December 31, 1990 1989
$ 42,941 41,367 13,301 (921) 95 3,536 (3,861)
(4,597) 3,140 nts.....................
(949) 9
~
~ \\ ~I ~I ~ 0
~
~
~
~
(4,318) 2,432 98 92,273 (70,907) 921 (69,986)
(1,751)
(753)
(868)
(73,358) 101,131 19,326 (9,000)
T111, !V (90,874)
(34,801)
(7,257)
(21,475)
(2,560) 8,474 5,914
$ 34,499 10,500 Operating Activities Net Income Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and nuclear fuel.
Deferred income taxes, net..
Plant Disallowance applied to Accrued Nine Mile2 Plant Completion Costs Allowance for equity funds used during construction.............
~.~... ~.
Nine Mile 2 Plant deferred finance charges, net.
Deferred electric revenues.
Provisions for uncollectibles.
Other net.
Changes in current assets R liabilities, net:
Accrued Nine Mile 2 Plant completion costs Accounts receivable and unbilled utilityrevenues...
Materials and supplies Special deposits, prepaid taxes and other prepayme Accounts payable Accrued taxes and interest Accrued pension costs Other current liabilities..
Net cash provided by operating activities.
Investing Activities Additions to Plant.
Allowance for equity funds used during construction.
Net cash expenditures..
Investment activity ofsubsidiaries..
Plant retirements, costs of removal and other Nine Mile 2 Plant decommissioning trust fund.
Net cash used in investing activities.
Financing Activities Proceeds from issuance of:
Long-term debt.
Common stock.
Short-term debt, net Cash provided by external sources..
Retirement and redemption of long-term debt.
Dividends paid on preferred and common stock..
Issuance and redemption costs.
Net cash used in financing activities.
Net Change in Cash and Cash Equivalents.
Cash and Cash Equivalents at Beginning ofYear.
Cash and Cash Equivalents at End ofYear..
Supplemental Disclosure of Cash Floe Information Interest paid..
Federal income taxes paid.
$ 41,035 41,105 9,462 4,672 (785)
(2,668) 3,358 (3,237)
(5,554)
(9,463)
(11,409) 474 8,985 1,197 3,089 1,689 81,950 (50,822) 785 (50,037)
(18)
(2,254)
(880)
(53,189) 1,017 4,650 28,000 3nri'36,697)
(32,314)
(60)
(35,404)
(6,643) 15,117 8,474
$ 41,077 13,566
$ 39,117 40,306 12,310 (463)
(2,420)
(551) 2,533 1,274 201 (27,280)
(2,618)
(418) 1,891 1,223 (576) 64,529 (42,086) 463 (41,623)
(2,016)
(369)
(44,008) 499 3,961
~(66 (1,636)
(31,487)
(1,315)
(29,978)
(9,457) 24,574
$ 15,117
$ 42,263 10,158 The Notes to Consolidated Financial Statements are an integral part hereof.
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS NOTE 1 SUMbIARYOF SIGNIFICANT ACCOUNTING POLICIES The Company's shares ofthe investment in the Nine Mile2 Plant and the Roseton Plant, as included in its Consolidated Balance Sheet at December 31, 1991 and 1990, were:
General: The Company is subject to regulation by the Public Service Commission ofthe State of New York (PSC) and the Federal Energy Regulatory Commission (FERC) with respect to its rates for service and the maintenance ofits accounting records. The Company's accounting policies conform to generally accepted accounting principles as applied to regulated public utilities, and are in accordance with the accounting'equirements and rate-making practices of the regulatory authorities having jurisdiction.
For purposes of the Consolidated Statement of Cash Flows, the Company considers short-term investments with a maturity of three months or less to be cash equivalents.
Nine Mile2 Plant Plant in service Construction work in progress Accumulated depreciation Roseton Plant Plant in service Construction work in progress Accumulated depreciation 1991 1990 (Thousands ofDollars)
$301,794
$299,180 5,453 7,225 (27,255)
(20,529)
$121,107
$118,061.
1,383 1,226 (59p493)
(57,432)
Principles of Consolidation: The consolidated financial statements include the accounts ofthe Company and its subsidiaries. Allintercompany balances and transactions have been eliminated.
The Company's subsidiaries are wholly owned landholding, gas exploration, cogeneration and energy management companies. Due to immateriality, the net income ofthe Company's subsidiaries is reflected in the Consolidated Statement of Income as other nonoperating income net.
Summarized financial data for the Company's subsidiaries, included in the consolidated financial statements, is as follows:
Total Assets (year-end)
Net Assets (year-end)
Revenues Net Income 1991 1990 1989 (Thousands of Dollars)
$14,378
$10,731
$ 10,838 6,140 4,945 3,965 5,758 3,879 3,336 195 479 357 UtilityPlant: The costs ofadditions to utilityplant and replacements of retirement units ofproperty are capitalized at original cost. The costs ofUnit No. 2 of the Nine Mile Point Nuclear Station (Nine Mile2 Plant) are capitalized at original cost, less the amount of the disallowed investment (See Note 2)'.
Costs include labor, materials and supplies, indirect charges for such items as transportation, certain taxes, pension and other employee benefits and an allowance for the cost offunds used during construction. Replacement ofminor items ofproperty is included in maintenance expenses.
The original cost ofproperty, together with removal cost, less salvage, is charged to accumulated depreciation at such time as the property is retired and removed from service.
The Company has a 9% or 97.2 MWinterest in the 1,080 MWNine Mile 2 Plant and a 35% or 420 MWinterest in the 1,200 MWRoseton Steam Electric Generating Plant (Roseton Plant). See Note 9 for further discussion.
Allowance for Funds used During Construction: The Company includes in plant costs an allowance for funds used during construction (AFDC) approximately equivalent to the cost of funds used to finance construction expenditures. The concurrent credit for the amount so capitalized is reported in the Consolidated 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. The amount shown on the Consolidated Statement of Cash Flows for investing activities "Net cash expenditures" excludes the equity portion ofthe AFDC, a noncash item.
During the construction ofthe Nine Mile2 Plant, the PSC authorized the inclusion in rate base of increasing amounts of the Company"s investment in that Plant. The Company did not accrue AFDC on any of the Nine Mile2 Plant construction work in progress (CWIP) which was included in rate base and for which a cash return was being allowed; however, the PSC ordered, effective January 1, 1983, that amounts be accumulated in deferred debit and credit accounts equal to the amount of AFDCwhich was not being accrued on the GWIP included in rate base (MirrorCWIP). The balance in the deferred credit account is available to reduce future revenue requirements over a period substantially shorter than the lifeofthe Nine Mile2 Plant, while the balance in the deferred debit account is being recovered through amortization over the lifeof that Plant. The net effect of this procedure is that at the end of the amortization period for the deferred credit, the accounting and rate-making treatment willbe the same as ifthe Aine Mile 2 Plant CWIP had not been included in rate base during the construction period.
Depreciation and Amortization: For financial statement purposes, the Company's depreciation provisions are computed on the straight-line method using rates based on studies ofthe estimated useful lives and estimated net salvage ofproperties.
The provision for depreciation of transportation equipment is charged indirectly to various asset and expense accounts.
For federal income tax purposes, the Company uses an accelerated method ofdepreciation and generally uses the shortest life permitted for each class ofassets.
Amortization of Nuclear Fuel: The cost of the Nine Mile.2 Plant nuclear fuel assemblies and components is amortized to operating expenses based on the quantity of heat produced for the generation ofelectric energy. Niagara Mohawk Power Corporation (Niagara Mohawk), on behalf of the Nine Mile2 Plant cotenants, has entered into an agreement with the U.S.
Department of Energy for the ultimate disposal and storage of spent nuclear fuel. The cotenants are assessed a fee for such disposal based upon the kilowatt-hours actually generated by the Nine Mile2 Plant. These costs are charged to operating expense and recovered from customers through base rates or through the electric fuel cost adjustment clause described below. The Company cannot now determine whether such arrangements with the U.S. Department ofEnergy will ultimately provide for the satisfactory permanent disposal ofsuch waste products.
Rates and Revenues: Electric and gas retail rates applicable to intrastate service (other than contractually established rates for service to municipalities and governmental bodies) are regulated by the PSC. Transmission rates, facilities charges and rates for electricity sold for resale in interstate commerce are regulated by the FERC.
Revenues are recognized on the basis ofcycle billings rendered monthly or bimonthly. Estimated revenues are accrued for those customers billed bimonthly whose meters are not read in the current month. Moreover, as a result ofa gas rate Order of the PSC issued in July 1991, an additional amount ofunbilled revenues for gas customers is recorded in a deferred credit account. This additional amount of unbilled revenue. is available to reduce future revenue requirements. In such Order, the PSC authorized $1.2 millionof this additional revenue to be amortized over a 36-month period. During the six-month period July through December 1991, the Company recognized
$197,000 ofsuch revenue.
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 for electric generation and in certain purchased power costs from the average ofsuch costs included in base rates. The Company's tarifffor gas service contains a comparable clause to adjust gas rates forchanges in the price ofpurchased natural gas and in certain costs ofmanufactured gas.
Deferred Electric Fuel Costs: The provisions of the, electric fuel cost adjustment clause are such that changes in fuel costs incurred in the current month are not billed or credited to customers until subsequent months. Therefore, in order to match costs and revenues, the Company defers that portion of such costs incurred in the current month which willresult in a cost adjustment in subsequent months.
Pursuant to a 1985 Order of the PSC, the Company's electric fuel cost adjustment clause provides for a partial sharing ofvariations in fuel costs from the levels of fuel costs projected in rate proceedings. The Company bears 20% ofthe first $10 millionofvariation and 10% of the second $ 10 million ofvariation. The partial sharing applies to variations in actual fuel costs either above or below the projected levels; accordingly, the Company's maximum annual exposure, or benefit, is $3 million, before taxes.
As a result ofthe adoption ofthe partial sharing electric fuel adjustment clause, the PSC adopted a symmetrical sharing arrangement for net revenues from sales to other utilities.
Shortfalls below the imputed amount, as well as amounts above the imputed amount, willbe shared 80% by the customers and 20% by the Company.
Deferred Gas Costs: In accordance with requirements of the PSC applicable to all New York State regulated gas utilities, the Company defers each month any difference between the amount of gas costs incurred which is recoverable through the gas fuel cost 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 billingand accounting purposes.
See Note 9 Commitments and Contingencies-"Take-or-Pay Gas Costs" as to deferral of certain contract take-or-pay costs charged by pipeline suppliers of gas.
Deferred Electric Revenues: On occasion, revenues which are billed over a twelve-month rate year are designed to cover specific expenses which are projected to be incurred during the latter part of the rate year. Although there willbe a matching of revenues and costs in the rate year there can be a mismatching of revenues and costs within calendar years. Ifthe amount of the projected mismatch is material, the Company may petition the PSC to defer any revenues collected prior to the time the associated expenses are incurred and to restore such deferred revenues at the time the expenses are incurred. Such deferred accounting provides a better matching of revenues and costs during calendar years.
Energy Efficiency Programs: The PSC has required utilities to adopt comprehensive long-range planning which includes an energy conservation component (Energy Efficiency Program). fn response to the PSC's directives, the Company's 1991 and 1992 Energy Efficiency Program was filedwith and substantially approved by the PSC. The Energy Efficiency Program is intended to achieve an overall reduction in the Company's summer peak load demand of 80/0.
For both rate-making and accounting purposes, the Energy Efficiency Program costs are deferred and amortized over five years.
Roseton Plant Litigation Settlement: During 1983, the Company and the two other co-owners ofthe Roseton Plant 35
reached a settlement to recover damages for alleged negligence in the design and construction of the Roseton Plant by certain contractors which resulted in a boiler implosion. The $ 1.8 millionamount recorded at December 31, 1991 in deferred charges represents the Company's 35% interest in the remaining balance of the $26.3 millionsettlement to be received over a ten-year period that commenced in 1984.
NOTE 2 NINE MILE2 PLANT General: The Nine Mile2 Plant is located in Oswego County, Mew York, and is operated by Niagara Mohawk. The Nine Mile 2 Plant is owned as tenants in common by the Company (9%
interest),Niagara Mohawk (41% interest), New York State Electric 6 Gas Corporation (18% interest), Long Island Lighting Company (18% interest) and Rochester Gas and Electric Corporation (14% interest). The output of the Nine Mile2 Plant which has a rated net capability of 1,080 MWis shared, and the operating expenses of the Plant are allocated to the cotenants, in the same proportions as the cotenants'espective ownership interests. The Company's share of direct operating expense for the Nine Mile2 Plant is included in the appropriate expense classification in the accompanying Consolidated Statement of Income.
An Interim Operating Agreement for the operation ofthe Plant was entered into by the cotenants in August 1989 and was approved by the PSC in September 1990. Under that Agreement, Niagara Mohawk continues as operator of the Nine Mile2 Plant but all five owners share certain policy, budget and managerial oversight functions. The Interim Operating Agreement expires on February 22, 1992. Itis expected that the Interim Operating Agreement willbe extended by the cotenants in its current form prior to such expiration date.
Cost Settlements: In September 1986, the PSC approved a settlement (1986 Settlement) arising out of a PSG proceeding to determine the amount ofexpenditures incurred in the construction of the Nine Mile2 Plant which should not be allowed to be recovered through rates. In 1987, the Company wrote off$169.3 million, on an aker-tax basis, as a result of the 1986 Settlement, which amount was based on an estimate of the Company's share ofthe disallowance. Subsequently, issues arose regarding the 1986 Settlement.
By order issued and effective March 1991, the PSC approved a further settlement agreement (1990 Settlement Agreement) relating to the Nine Mile2 Plant. The 1990 Settlement Agreement brings to a close all outstanding issues related to the cost ofconstruction of the Nine Mile2 Plant, its operation through January l9, 1990 and the 1986 Settlement. The 1990 Settlement Agreement does not require any adjustment to the amount of the disallowed investment written offby the Company in 1987. The 1990 Settlement Agreement also provides for the treatment and handling offuture Nine Mile2 Plant operation and maintenance expenses.
Plant Dispute and Litigation Settlements: The cotenants entered into settlement agreements with the followingparties, on the dates indicated, regarding disputes and litigations that arose in connection with the construction ofthe Nine Mile 2 Plant: (i) the General Electric Company, dated January 26, 1989; (ii) Gulf+ Western, Inc., Crosby Valve R Gage Company and Wickes Manufacturing Company, dated May ll, 1990; and (iii)
Stone R Webster Engineering Corporation, dated March 7, l991.
Each agreement provides for settlement, mutual releases and confidential treatment ofthe agreement. The Company regards each of the agreements as a favorable settlement.
Pursuant to the 1990 Settlement Agreement; all proceeds from the settlement with the General Electric Company in excess of legal costs incurred in connection with such settlement were to be shared equally between the Company's shareholders and ratepayers. The fullamount of the shareholders'ortion was included as a credit in computing the Company's share of the disallowance resulting from the 1990 Settlement Agreement and, accordingly, has already been accounted for.
The 1990 Settlement Agreement also provides that all proceeds from the settlements ofthe Gulf+ Western, Inc., Crosby Valve R Gage Company and Wickes Manufacturing Company case, the Stone 6 Webster Engineering Corporation case and from the pending litigation referred to in the next subsection (Pending Plant Litigation) in excess ofthe combined litigation costs ofsuch settlements and pending litigationwillbe shared equally bebveen the Company's shareholders and ratepayers.
If, however, the combined costs ofthe litigation associated with such settlements and the pending plant litigation exceed the combined proceeds recovered from such settlements and such pending litigation, the excess costs willbe borne solely by shareholders. At December 31, 1991, the gross proceeds from such settlements were recorded as a deferred credit and the costs ofsuch pending litigation were recorded as a deferred debit.
The net proceeds at December 31, 1991 were $5.126 million.
Pending Plant Litigation:Action is pending with regard to a complaint filed by the cotenants in August 1988 against ITTFluid Products Corporation and ITTFluid Technology Corporation, successor companies to ITTGrinnell, which fabricated and erected piping for the Nine Mile2 Plant. The Company cannot predict whether the action willbe successful or the amount ofdamages, ifany, which may be recovered.
Operational Matters:
NRC Monitoring: In December 1988, the Nuclear Regulatory Commission (NRC) categorized the Nine Mile2 Plant as requiring close monitoring. The NRC's conclusion was based upon its assessment of the performance of the Nine Mile2 Plant during its firstyear ofoperation. On June 20, 1991, Niagara Mohawk announced that the NRC had removed the Nine Mile 2 Plant from its list of plants that require close scrutiny. The NRC indicated that sufficient improvement had been made by Niagara Mohawk such that close monitoring was no longer necessary.
On June14, 1991 the NRC released the reportof the latest
, systematic assessment oflicensee performance (SALP} review of
, the Nine MilePoint Nuclear Station (includes both UnitNo. 1 and UnitNo. 2) for the period March 1990 through March 1991.
Ofthe seven functional areas reviewed, the three which were, classified in the SALP report received in the spring of1990 as category 3, the lowest ranking under SALP (representing acceptable, although minimally adequate, safety performance),
were upgraded to category 2 (representing a satisfactory level of performance). The other four functional areas which were addressed in the 1990 SALP report'remained unchanged at category 2 or better. The SALP report cited an overall improve-ment by Niagara Mohawk during the assessment period.
Low-Level Radioactive Waste: The Federal Low-Level Radioactive Waste Policy Act as amended in 1985 required states to join compacts or individuallydevelop their own low-level radioactive waste burial site. In response to the federal law, New York State decided to develop its own site because ofthe large volume of low-level radioactive waste it generates.
New York State narrowed its selection to five potential low-level radioactive waste disposal sites in September 1989. On January 1, 1990, Governor Cuomo certified that all of New York State's low-level radioactive waste willbe managed by January 1,
1993. This certification requires that all nuclear power plants in New York State store their low-level radioactive waste on site from January 1, l993 until the end of 1995, by which time an interim storage facility is to be constructed at the site of the permanent low-level radioactive waste site. Recent problems with the Siting Commission in obtaining on-site precharacter-ization of the five sites, because of public opposition, could delay the site development activities and require additional on-site storage until 1998 at the earliest. A low-level radioactive waste management program and contingency plan are currently ongoing to provide assurance that the Nine Mile 2 Plant willbe properly prepared to handle interim storage of low-level radioactive waste until 1998.
Nuclear Plant Decommissioning Costs: NRC regulations require the direct funding ofeventual decommissioning costs of nuclear facilities. The Company, effective. as ofMarch l, l990, established a master trust in order to comply with these NRC requirements. Included in such trust is a fund qualified under the applicable provisions of the federal tax law (Qualified Fund) which, based on receipt ofa favorable ruling from the Internal Revenue Service, dated July 19, 1990, willenable the Company to take advantage of certain federal income tax benefits available to such Qualified Funds.
Certain estimated decommissioning costs for the Nine Mile 2 Plant are currently being recovered jn rates through an annual allowance and charged to operations through deprecia-tion charges. The Company's 90/o share of costs to decommis-sion the Nine Mile2 Plant, which is expected to begin in the year 2027, is estimated to be approximately $118.5 million
($21.7 millionin 1991 dollars), based on an estimate included in the decommissioning plan filed with the NRC on July 18, 1990. The annual allowance for recovery during the period August 1, 1988 through May 31, 1990 was $324,000. Effective June 1, 1990, the PSC authorized recovery, on an annual basis, of $212,000 for internal decommissioning funding (i.e., funds held by the Company) and $787,000 for external decom-missioning funding (i.e., funds held in trust). The external decommissioning trust fund at December 31, l991 amounted to $1.748 million,which is reflected in the Company's Consol-idated Balance Sheet in "Other Property and Investments."
The Company cannot now determine whether the decommissioning costs presently allowed in rates by the PSC, or the estimated costs contained in the plan filed with the NRC, willultimately be adequate to decommission the Nine Mile 2 Plant in accordance with then existing law, regulation, technology and/or costs. The Company believes that decom-missioning costs, ifhigher than currently estimated, will ultimately be recovered in the rate-making process, although no such assurance can be given.
Other: The PSC can institute proceedings to review plant outages and has the authority to impose penalties associated with replacement power costs incurred during such outages to the extent that they are determined to have been imprudently prolonged.
The first refueling outage for the Nine Mile 2 Plant commenced on September 5, 1990. On January 30, 1991, the Nine Mile2 Plant was returned to commercial operation.
The next scheduled refueling outage for the Nine Mile 2 Plant is expected to begin on February 29, 1992.
During the firstrefueling outage, a nozzle-to-pipe weld was identified as having a possible defect. Niagara Mohawk had agreed with the NRC to perform a reinspection within five to nine months followingthat refueling outage. Niagara Mohawk has advised the Company that the reinspection was performed in 1991 and no corrective actions were required.
NOTE 3 FEDERALINCOME TAX The Company's policy with respect to accounting for federal income taxes is to reflect in income the estimated amount of income tax currently payable and to provide for deferred taxes on timing differences between book and taxable income to the extent permitted for rate-making purposes.
37
Components of Federal Income Ihx: The followingis a summary ofthe components of federal income tax as reported in the Consolidated Statement ofIncome:
Charged to operating expense:
Federal income tax.
Deferred income tax.
Income tax charged to operating expense Charged, (credited) to other income and deductions:
Federal income tax.
Deferred income tax.
Income tax charged (credited) to other income and deductions.
Total federal income tax.
Reconciliation: The followingis a reconciliation between the amount of federal income tax computed on net income before taxes at the statutory rate and the amount reported in the Consolidated Statement of Income:
Net income Federal income tax..
Deferred income tax.
Income before taxes.
1991
$ 10,514 12 099 22 613 (2,454) 1 202
~1252
$21 361
$42,941 8,060 13 301
$64 302 1990 (Thousan)ls of Dollars)
$ 154110 7 346 22 456 (4,198) 2 116 (2 082)
$20 374
$41,035 10,912 9 462
$ 61 409 1989
$10,253 9 575
.19 828 (3,646) 2 736
~9)0
$18 918
$39,117 6,607 12 311
$58 035 Computed taxI34% statutory rate Increase (decrease) to computed tax due to:
Tax depreciation.
Cost of removal Deferred electric fuel costs Deferred energy efficiency costs..
Pension expense.
Alternative minimum tax.
Unbilled revenues..
Other Federal income tax..
Deferred income tax.
Total federal income tax Effective tax rate Deferred Income Tax: The following is a summary of the components of deferred income tax:
Tax depreciation.
Investment tax credit.
Deferred electric fuel costs.
Deferred energy efficiency costs.......................................
Pension expense.
Alternative minimum tax Unbilled revenues.
Other.
Deferred income tax.
$21,863 (12,171)
(1,229) 1,221 (2,789) 1,128 3,493 (1,510)
(1,946) 8,060 13 301
$21,361 33%
$ 15,290 (1,381)
(1,221) 2,789 (1,128}
(3,493) 1,510 935
$ 13 301
$20,879 (11,704}
(704)
(872)
(779) 750 3 237 1,376 (1,271) 10,912 9 462
$20.374 33%
$14,725 (1,382) 872
?79 (750)
(3,237)
(1,376)
~169)
$ 9 462
$19,732 (13,337)
(586)
(428) 431 2,650 1,458
~3,313) 6,607 12 311
$18,918 3396
$17,589 (1,200) 428 (431)
(2,650)
(1,637) 212
$ 12 311 38
In December 1987, the Financial Accounting Standards Board (FASB) issued SFAS No. 96, "Accounting for Income lies" (SFAS 96). This Statement requires a company to adjust its deferred tax balances, adhering to enacted tax laws, to reflect an estimate of its future tax liabilitybased on temporary differences between book and tax bases.
Based on the studies it has performed to date, the Company estimates that the cumulative net amount ofincome tax timing differences forwhich deferred income taxes have not been provided was approximately $118 millionat December 31, 1991.
Based upon the Company's present understanding of SFAS 96, such differences would have no immediate effect on its results of operation, but would result in recognition on the balance sheet ofadditional amounts of income taxes to be paid in the future. SFAS 96 must be adopted not later than the first quarter of 1993. The FASB intends to issue a Statement in 1992 which willsupersede SFAS 96. The Company believes that the issuance ofthis Statement willhave no material effect on the above estimate. The Company believes that the final Statement adopted willbe considered in the rate-making process and will therefore not have a significant impact on the Company's results ofoperations.
NOTE 4 SHORT-TERM BORROWING ARRANGEMENTS The Company has in effect a revolving credit agreement with four commercial banks which allows itto borrow up to
$50 millionthrough December 14, 1997 (Agreement). The Agreement gives the Company the option of borrowing at either the prime/federal funds rate, or three other money market rates ifsuch rates are lower. The Agreementalso provides for the payment ofan annual commitment fee of i/i6 of 1% per annum on the unborrowed amount and a facilityfee of '/s of 1% per annum on the total amount of the facility. Compensating balances are not required under the Agreement. There were no outstanding loans under this Agreementat December 31, 1991 or f990. In addition, the Company continues to maintain confirmed lines ofcredit totaling $2 millionwith three regional banks.
The amount ofoutstanding short-term debt at December 31, 1991 and 1990 was $19 millionand $28 million, respectively, con-sisting ofcommercial paper.All commercial paper obligations are supported by credit agreements maintained with the banks.
NOTE 5 CAPITALIZATIONCAPITALSTOCK Common Stock, $5 par value; 30,000,000 shares authorized:
Paid-In Capital:
Shares Outstanding Co onSt ek Amount
($000)
Paiddn Capital
($000)
January 1, 1989.
Issued under dividend reinvestment plan.. ~,...
Issued under customer stock purchase plan................
Transferred to paid-in capital.
December 31, 1989.
Issued under dividend reinvestment plan.
Issued under customer stock purchase plan December 31, 1990.
Issued through public offering........
~
Issued under dividend reinvestment plan....~....,.......
~.~...,......,.......
~..
Issued under customer stock purchase plan December 31, 1991.
14,563,381 170,078 7,889 14,741,348 179,323 30,285 14,950,956 600,000 181,073 35,628 15,767,657
$ 240,034 1,607 39 (167,973) 73,707 897 151 74,755 3,000 905 178 78,838
$ 50,067 2,166 149 167,973 220,355 3,067 535 223,957 10,788 3,701 754
$239,200 39
Cumulative Preferred Stock, $100 par value; 1,200,000 shares authorized:
Series Current Redemption Price T~hrou h Eventual h1inimum Shares Outstanding December 31, 1991 and 1990 Without Sinking Fund:
4 I/z 4.75%
4.35%
4.96%
7.72%
7.44%
8.40%
$10?.00 106.75 102.00 101.00 101.00 103.08 102.80 1/31/93 5/31/92
$ 107.00 106.75
'102.00 101.00 101.00 101.22 101.00 70,300 20,000 60,000 60,000 130,000 120,000 150 000 610 300 With Sinking Fund:
Total.
103.00 3/31/93 100.00 200 000 810 300 The cumulative preferred stock, without sinking fund, is redeemable only at the option of the Company and the sum payable per share is the then current redemption price plus accrued dividends thereon. In the event of involuntary liquidation, the redemption price is $100 per share plus accrued dividends.
The cumulative preferred stock, with sinking fund, provides for the annual retirement of 8,000 shares, at $ 100 per share, plus accrued dividends, on each March 30, commencing March 30, 1993. The dividend to be paid willbe adjusted each quarter and willbe declared at a rate which is 1% per annum below the highest ofthree speciTic U.S. Treasury Rates. The rate willnever be less than 6% or greater than 12.5% per annum. The adjusted rates applied for each quarter of 1991 ranged between 7.40% and 7.96%, compared with the range of 7.16% and 8.20% experienced during 1990 and 7.36% to 8.36% experienced during 1989.
Expenses incurred on issuance of capital stock are accumulated and reported as a reduction in total capital stock and are not being amortized.
40
NOTE 6 CAPITALIZATIONLONG-TERM DEBT Details oflong-term debt are shown below:
December 31, 1991 1990 (Thousands of Dollars)
Series First Mortgage Bonds 14>/s%
8 '/s%
ll 7 i/s%
9 e%%
8 3/4%
7 s/4%
9 '/4%
10 s/s%
6 3/4%
10 '/4%
9 i/4%
8.375%
~Maturi Date (Net ofSinking Fund requirements):
June 12, 1994.
September l, 1994.
July 2, 1995.
January l5, 1999.
June 1, 2000.
May 1, 2001.
February 1, 2002...................
April15, 2004 November 1, 2005.
June 1, 2007.
September 15, 2009.
May l,2021 December 1, 2028..
50,00) 12,000 20,000 25,000 30,000 20,000 15,000 4,500 70,000 16,700 263,200
$ 45,000 50,000 16,000 20,000 25,000 20,000 15,000 20,000 4,500 20,000 16,700 252,200 Promissory Notes issued in connection with the sale by the New YorkState Energy Research and Development Authority (NYSERDA) of tax-exempt pollution control revenue bonds:
1984 Series A l984 Series B 1985 Series A 1985 Series B 1987 Series A 1987 Series B October 1, 2014 October 1, 2014 November 1, 2020.
November 1, 2020.
June 1, 2027............
June 1, 2027....
16,700 16,700 36,250 36,000 33,700 9,900 149,250 16,700 16,700 36,250 36,000 33,700 9,900 149,250 Promissory Notes (net ofsinking fund requirements):
4.85%
December l, 1995...
Secured Notes Payable ofSubsidiary.
Unamortized Premium (Discount) on Debt-Net Total long-term debt.
2,726 2,820 (1,966)
$416 030 2,808 3,546
~(166
$407 633 Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations" for information regarding the amounts of long-term debt maturing within the next five years.
On May 14, 1991, the Company issued and sold $70 million aggregate principal amount of First Mortgage Bonds, 9 i/4%
Series due 2021, and $30 millionaggregate principal amount of First Mortgage Bonds, 8s/4% Series due 2001 (collectively, the Bonds). The net proceeds from the sale ofthe Bonds were applied toward the optional redemption ofa total of $85 millionprincipal amount of the Company's First Mortgage Bonds as follows:
Series of First Mort e Bonds 14 /s% Series due 1994 10 s/s% Series due 2005 103/4% Series due 2009 Principal Amount Outstanding and Redeemed
$45,000,000
$20,000,000
$20,000,000 Applicable Redemption Price (9ft ofPrinci l Amount) 103.25%
105.90%
106.40%
Redemption Date June 12, 1991 July 1, 1991 July 1, 1991
In addition, on July 2, 1991, a portion ofsuch proceeds was applied to the mandatory sinking fund redemption of $4 millionprincipal amount of First Mortgage Bonds, 11% Series due 1995. The balance ofsuch net proceeds was temporarily invested in short-term instruments, or was deposited in the Company's bank account, pending expenditure for the Company's construction program and other corporate purposes.
The NYSERDA Pollution Control Revenue Bonds, Series A and B, issued in 1984, bore interest:, at 7 '/z% per annum through September 30, 1989. Effective October 1, 1989, the Company exercised its one-time option to convert each series to a long-term rate fixed at 7.375%.
The NYSERDA Pollution Control Revenue Bonds, Series A and B, issued in 1985 and 1987 are variable rate obligations subject to weekly repricing and investor tender. The Company has the right, exercisable independently in respect of each series ofthe 1985 and 1987 NYSERDAPollution Control Revenue Bonds, to convert the Bonds of each such series to a fixed rate for the remainder oftheir term.
The Company has irrevocable letters ofcredit which the Company anticipates being able to extend ifthe interest rate on the related series ofNYSERDAPollution Control Revenue Bonds is not converted to a fixed interest rate. Those letters of credit support certain payments required to be made. on such Bonds.
In its rate orders, the PSC has provided for fullrecovery of the interes't costs on the Company's 1985 and 1987 Series Aand B Promissory Notes which were issued in connection with the sale ofcertain NYSERDA Pollution Control Revenue Bonds.
Such Bonds bear interest at variable rates set weekly. Deferred accounting has been granted by the PSC for any variation (above or below) between actual interest rates and those interest rates allowed for rate-making purposes. Such deferred balances are to be disposed of in future rate cases.
Expenses incurred on debt issues and any discount or premium on debt are deferred and amortized over the lives of the related issues. Expenses incurred on debt redemptions prior to maturity have been deferred and are generally being amortized over the remaining lives of the related extinguished issues as directed by the PSG.
Secured notes payable ofa subsidiary ofthe Company consist ofterm loans to finance the installation of energy con-servation equipment at various host facilities, located primarily in the New England states. The majority ofsuch loans accrue interest at the prime lending rate plus '/4 of 1% and interest and principal are amortized in equal installments over the term of each respective contract. Such loans are secured principally by certain power purchase agreements and project assets.
NOTE 7-POSTENPLOYNENT BENEFITS Retirement Income Plan: The Company has a noncontributory retirement income plan (Plan) covering substantially all of its employees. The Plan provides pension benefits that are based on the employee's compensation and years ofservice. Ithas been the Company's practice to provide periodic updates to the benefit formula stated in the Plan.
The Company's funding policy is to make annual contributions equal to the amount of net periodic pension cost, but not in excess ofthe maximum allowable tax-deductible contribution nor less than the minimum require-ment under the Employee Retirement Income Security Act of 1974.
Approximately 72% ofthe cost for the year 1991 and 73%
forboth years 1990 and 1989 were charged to expense. The allocation of pension costs between capital and expense follows the payroll distribution.
Net periodic pension cost for 1991 and 1990 includes the followingcomponents:
Service cost-benefits earned during the period.~.....~.......
Interest cost on projected benefit obligation...............
Actual return on Plan assets...
Net amortization and deferral Net periodic pension cost..
1999 (Thousands of Dolfars) 3,780 4,205 12,140 (43,296) 29 808 10,991 2,454
~14 561
....i 2 432 3 089 The followingtable sets forth the Plan's funded status at September 30, 1991 and 1990:
1991 19K (Thousands of Dollars)
Actuarial present value ofbenefit obligations:
Accumulated benefit obligation, including vested benefits of$ 127,016 and $125,118........... $128 681
$ 127407 Projected benefit obligation for service rendered to date...................
Plan assets at market value...................
Excess ofPlan assets over projected benefit obligation.............
Unrecognized net (gain).......................
Prior service cost not yet recognized in net periodic pension cost.............
Unrecognized net asset being amortized over 15 years...................
Pension liabilityrecognized in the Balance Sheet (b).......................
$N0,536
$ 152,312 198 719(a) 164 108 11,796 (11,0?5) 38,183 (38,543) 3,338 1,352 7 148 6 513
~$
5 521
$~3089 (a) Atthe valuation date, approximately 98% of the Plan's assets were invested in equities and bonds. The remainder was invested primarily in convertible securities and real estate.
(b) The Plan is deemed to be fullyfunded for federal income tax purposes, therefore, the Company did not make any contributions to the Plan during 1991 or 1990.
42
The weighted average discount rate used in determining the actuarial present value of the projected benefit obligations under the Plan was 8% for 1991 and 1990. The rate of future compensation levels utilized was 6/z% and 7'/2%, for 1991 and 1990, respectively. The expected long-term rate of return on Plan assets was 9'/~% for 1991 and 9% for 1990.
Other Postemployment Benefits: In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees. Substantially all of the Company's employees may become eligible, for these benefits ifthey reach retirement age while working for the Company.
These and similar benefits for active employees are provided through insurance companies whose premiums are. based on the benefits paid during the year. The cost ofproviding these benefits was $8.170 millionfor 1991, $6.512 millionfor 1990 and
$5.747 millionfor 1989. The cost ofproviding retirees with these benefits is notseparable from the cost ofproviding those benefits for the active employees.
In December 1990, the FASH issued SFAS No. 106, "Employers'ccounting for Postretirement Benefits Other than Pensions." (SFAS 106), which must be adopted not later than the first quarter of1993. This Statement requires that an employer's obligation for postretirement benefits expected to be provided to or for an employee be fullyaccrued by the date that the employee attains fulleligibilityfor all benefits expected to be received by that employee, any beneficiaries and covered dependents, even ifthe employee is expected to render additional service beyond that date. Currently, the Company records the costs ofproviding such benefits when paid. The Company estimates unfunded accumulated postretirement benefit obligations other than pensions may range between $50 million and $70 millionin the year ofadoption depending primarily upon health care cost assumptions utilized in measuring the liability.The additional annual expense, using the same cost assumptions, may range from $8 millionto $ 12 million.The range of health care cost trend utilized is an ultimate 5% to 7%
rate. The assumed rates in the early years range from 14% to 16% and trend down to the ultimate rate over time.
Recognition ofnet periodic postretirement benefit cost, during the years that employees render necessary service willincrease the annual expense from that currently recorded on a cash basis. The Company believes that the increased costs resulting from the adoption ofSFAS 106 would be recovered through the normal regulatory process; however, the PSC has notyet issued an order regarding the proper accounting and rate-making treatment for such costs.
NOTE 8 SALE OF RECEIVABLESAND RESERVE FOR UNCOLLECTIBLEACCOUNTS The. Company has a program to sell on a daily basis, without recourse, its accounts receivable from retail customers.
Such program provides the Company with the ability to receive cash immediately for such receivables and thereby reduce its working capital requirements. The amount ofthe outstanding receivables sold as ofDecember 31, 1991, 1990 and 1989 were
$3.2 million, $8.2 millionand $ 11.8 million, respectively.
The average daily amount ofaccounts receivable sold was $8.3 millionin 1991, $5.1 millionin 1990 and $11.9 millionin '1989, and the weighted average discount rate was 6.68% for 1991, 8.09% for 1990 and 9.32% for 1989.
The costs associated with the sale ofreceivables are charged to operating expense and amounted to $600,000 in 1991,
$400,000 in 1990 and $ 1.1 millionin 1989.
The Company had an uncollectible reserve balance of
$ 1.1 millionat December 31, 1991 and $950,000 at December 31, 1990.
NOTE 9 COMMITMENTSAND CONTINGENCIES Roseton Plant: The Company currently has a 35%
undivided interest in the ownership and output ofthe 1,200 MWRoseton Plant. The Company is acting as agent for the cotenant owners with respect to operation ofthe Roseton Plant.
Generally, the owners share the costs and expenses ofthe operation ofthe Roseton Plant in accordance with their respective ownership interests. The Company's share ofdirect operating expense for the Roseton Plant is included in the appropriate expense classification in the accompanying Consolidated Statement ofIncome.
The Company has the option to purchase the interests of Niagara Mohawk (25%) and of Consolidated Edison Company ofNew York, Inc. (40%) in the Roseton Plant in December 2004. Exercise ofsuch option is subject to the approval of the PSC.
The Company's option to purchase the 25% interest of Niagara Mohawk in the Roseton Plant in December 2004 is subject to several qualifications. In order to make provision for anticipated requirements for additional generating capacity commencing in the mid-1990s, the Company and Niagara Mohawk have entered into an agreement (Amendment) revising the option which the Company has to buy Niagara Mohawk's interest in the Roseton Plant. Pursuant to the Amendment, Niagara Mohawk willsell to the Company a 2.5% interest in the Roseton Plant on December 31, 1994 and on each succeeding December 31, through and including December 31, 2003, which willbe all ofNiagara Mohawk's interest in the Roseton Plant. In exchange, Niagara Mohawk willhave the option to repurchase from the Company up to a 25% interest in the Roseton Plant in December 2004. The prices for the purchases willbe based on the depreciated book cost ofthe Roseton Plant assuming straight-line amortization to provide for a fullyamortized facilityas ofDecember 31, 2009. Pursuant to the Amendment, the Company also was granted the option to repurchase Niagara Mohawk's interest in that Plant when that Plant reaches the end of its physical life.The Amendment is subject to the approval of the PSC.
Byjointpetition filedwith the PSC on February 29, 1988, the Company and Niagara Mohawk requested the PSC to approve the transfers ofinterests in the Roseton Plant contemplated by the Amendment. On July 19, 1988, the PSC issued an order establishing a proceeding to consider such joint petition.
Among the issues identified by the PSC for consideration in such proceeding are (i) the relationship to such transfers ofthe process for bidding for additional capacity, set forth in a June 1988 PSC order applicable to the major New York State electric utilities, (ii) the potential for demand side management as an alternative to the transfers contemplated by the Amendment and (iii)certain technical, accounting and forecasting issues regarding the information and studies submitted by the Company and Niagara Mohawk in support ofthe jointpetition.
In May 1989, the Company and the PSC Staff reached a Stipulation Agreement indicating that, giving consideration to expected demand side management activities, the proposed transfers of interest in the Roseton Plant were one alternative which would meet the Company's future needs for power.
The Company has issued a Request for Proposals (RFP) for alternative power supply arrangements approximating the capacity reflected in the proposed transfers of interest in the Roseton Plant, so as to test the reasonableness ofsuch proposed transfers from Niagara Mohawk. The Company is currently reviewing the bids received in response to the RFP and cannot yet determine how such bids compare to the proposed transfers of interest. The Company cannot predictwhat action the PSC may ultimately take in connection with the joint petition for the approval ofsuch transfers.
Construction Program: Reference is made to "Manage-ment's Discussion and'Analysis ofFinancial Condition and Results ofOperations" for information regarding the Company's construction program for the five-year period 1992-1996.
Nuclear Liabilityand Insurance: The Price-Anderson Act is a federal law which limits the public liabilitywhich can be imposed in respect ofa nuclear incident at a licensed nuclear electric generating facility. Such Actalso provides for assessment of owners ofall licensed nuclear units in the United States for losses in excess ofcertain limits due to a nuclear incident at any such licensed unit. Under the provisions of the Price-Anderson Act, the Company's potential assessment (based on its 9%
ownership interest in the Nine Mile2 Plant and assuming that the other Nine Mile2 Plant cotenants were to contribute their proportionate shares ofthe potential assessments) would be
$5.67 million(subject to adjustment for inflation) and the Company could be assessed
$283,500 (subject to adjustment for inflation) in respect to an additional surcharge, but would be limited to a maximum assessment of $900,000 in any year with respect to any nuclear incident The public liabilityinsurance coverage of $200 millionrequired under the Price-Anderson Act for the Nine Mile2 Plant is provided through Niagara Mohawk.
The Company also carries insurance to cover the additional costs of replacement power (under a Business Interruption and/or Extra Expense Insurance Policy) incurred by the Company in the event ofa prolonged accidental outage ofthe Nine Mile2 Plant. This insurance arrangement provides for payments of up to $463,000 per week ifthe Nine Mile2 Plant experiences a continuous accidental outage which extends beyond 21 weeks. Such payments willcontinue for 52 weeks after expiration of the 21-week deductible period, and thereafter the insurer shall pay 67% ofthe weekly indemnity for a second 52-week period and 33% for a third 52-week period. Subject to certain limitations, the Company may request prepayment, in a lump sum amount, ofthe insurance payments which would otherwise be paid to itin respect ofsaid third 52-week period, calculated on a net present value basis.
The Company is insured as to its respective interest, in the Nine Mile2 Plant under property damage insurance provided through Niagara Mohawk. The insurance coverage provides
$500 millionofprimary property damage coverage for Units 1 and 2 of the Nine MilePlant and $1.825 billionof excess property damage coverage for the Nine Mile 2 Plant. Such insurance covers decontamination costs, debris removal and repair and/or replacement ofproperty.
The Company intends to maintain, or cause to be maintained, insurance against nuclear risks at the Nine Mile2 Plant, provided such coverage can be obtained at an acceptable cost.
Natural Gas Supply: The Company has three long-term contracts for the supply of natural gas each ofwhich is terminable by either party thereto upon twelve-month's prior written notice. One such supply contract provides for (i) firm transportation services, which willallow the Company to purchase gas directly from a third-party supplier at a cost lower than pipeline gas even during winter months when interruptible transportation is curtailed, and (ii) the ability to inject third-party gas into storage which should result in an overall lower cost ofgas supply. The Company's aggregate gas storage capability is 34,608 mcf. per day. The Company also has a contract for the supply ofvaporized liquefied natural gas which willremain in effect through September 30, 1992 and willcontinue from year to year thereafter unless terminated by either party upon six-month's prior written notice. Generally, all such contracts and associated tariffs are approved by the FERC.
The Company has entered into agreements to obtain an additional peak period gas supply of 19,600 mcf. per day from Canadian sources to be phased in through November 1992.
The Company has also entered into a memorandum of understanding providing for obtaining up to 100,000 mcf. of gas per day for use as boiler fuel at the Roseton Plant during off-peak periods, subject to completion ofthe facilities necessary to supply such gas to, and enable such gas to be burned at, the Roseton Plant. It is anticipated that all such facilities willbe completed by the end ofthe second quarter of 1992.
The 19,600 mcf. per day of new gas and the Roseton Plant boiler fuel gas willbe supplied from sources in Canada through a major new pipeline project being constructed by Iroquois Gas Transmission System (IGTS). Itis anticipated that the IGTS
pipeline willbe fullyoperational by the end of the first quarter
- of 1992.
On July 31, 1991 the FERC issued a notice ofproposed rulemaking (NOPR) which, ifimplemented, willhave a significant impact on the relationship between the Company and its traditional pipeline gas suppliers. The notice of proposed rulemaking has been called the Mega-NOPR because of its broad effect on the natural gas industry.
Under the Mega-NOPR, pipeline gas suppliers would be required to unbundle natural gas sales service from transportation and storage service and adopt market-based pricing for gas. The demand component associated with gas sales and transportation rates would be changed from a modified fixed variable rate to a straight fixed variable rate.
In theory, this would result in higher demand costs and lower gas commodity costs. The FERC, followinga comment period, plans to issue a final rulemaking in 1992 and require the pipeline gas suppliers to file implementing tariffs by January 1993. Allof the Company's pipeline gas suppliers have filed rate applications with the FERC to implement the Mega-NOPR. Major issues in these filings are transition costs for implementing the new services, comparability of service and a change from modified fixed variable to straight fixed variable rates. While the intent of the Mega-NOPR is to make supplies of natural gas more competitive, the effect on costs of natural gas to the Company is not predictable at this time.
Take-or-Pay Gas Costs: Many interstate gas pipeline companies entered into contracts with gas producers which
~ required the pipeline companies to pay for a minimum amount ofgas whether or not the gas is actually taken from the producer (take-or-pay costs). Pursuant to the FERC authorization, the
. Company's gas suppliers have included certain amounts of their take-or-pay costs in the rates charged to the Company.
The PSC in October 1988 commenced a proceeding to determine, among other things, the recoverability and allocation in gas rates ofNew York State distribution companies of contract take-or-pay costs charged them by pipeline suppliers. In connection with such proceeding, the PSC has issued several orders which have directed among other things that 65% of take-or-pay costs being incurred by the Company may be recovered through current rates, subject to refund.
Charges not subject to such conditional recovery are deferred with interest for subsequent consideration by the PSC. The amounts of these deferred charges at December 31, 1991 and 1990 were $1.711 millionand $1.105 million, respectively.
In comments filedwith the PSC, the Company has contended that there is no basis on which the responsibility for its pipeline suppliers'ake-or-pay liabilitycan be attributed to it.
In addition, itis the Company's position that the PSC lacks any authority to deny it recovery of costs included in the FERC approved gas rates and would intend to oppose any attempt by the PSC to require itto absorb any take-or-pay or contract reformation costs which are included in its pipeline suppliers' FERC approved rates.
The Company is unable at this time to estimate the amount of take-or-pay costs which may ultimately be included in its pipeline suppliers'harges to it or to predict what action the PSC might take to require the Company to absorb any portion ofsuch costs. The final amount of such costs will depend on the FERC proceedings, the PSC proceeding and certain court litigation, the outcome ofwhich the Company is not able to predict. Depending on the outcome ofsuch proceedings and litigation, the final amount ofsuch take-or-pay costs could be up to $5 million,which would have a material adverse effect on the Company's future earnings if the PSC were to require the Company to absorb a substantial portion thereof.
Clean AirActAmendments: The Clean AirActAmendments of 1990 (Amendments) were signed into law on November 15, 1990. The Amendments add several new programs which address attainment and maintenance ofnational ambient air quality standards. This includes control ofemissions from fossil-fueled electric power plants that affect "acid rain."
The "acid rain" emissions reduction requirements do not affect the Company's generating plants until January 1, 2000; however, the Company must comply with the monitoring provisions program as ofJanuary 1, 1995 and install continuous emission monitors.
The Company is unable to predict the effect (including cost) of this legislation since details ofthe Amendments are yet; to be established by regulation. Regulations implementing this legislation willbe issued over a period ofyears. However, the amendments could require the Company to expend considerable funds in altering its power plant operations.
Gas Remediation: In 1986, the New York State Department of Environmental Conservation (DEC) added to the New York State Registry of Inactive Hazardous Waste Disposal Sites six locations at which gas manufacturing plants owned or operated by the Company or by predecessors to the Company were once located. The Company completed studies of these sites and two additional sites to determine whether they contain any hazardous wastes which could pose a threat to the environment or public health and, ifsuch wastes are located at such sites, to determine the remedial actions which may be appropriate. Alleight sites were studied using the phase I guidelines of the DEC and four such sites were studied using the more extensive phase IIguidelines ofthe DEC.
As a result of these studies, the Company concluded that no remedial actions were required at any or all of these sites. In November 1991, the DEC advised the Company that four of the six sites had been deleted from the Registry. The DEC also indicated that such deletion of the sites was subject to reconsideration in the future. Ifremedial actions were ultimately required at these sites by the DEC, the cost thereof could have a material adverse effect on the financial condition of the Company ifthe. Co'mpany could not recover a sub-stantial portion thereof through rates.
Accrued Employees'acation Pay: The Company's employees begin accruing vacation in July ofeach year for use in the followingyear; the monthly accrual ofdays is based on the number ofyears ofservice for each employee. However, for rate-making purposes, vacation pay is recognized as an allowable expense only when paid. The Company accrued $3.4 millionand
$3.2 millionas ofDecember 31, 1991 and 1990, respectively, as a current liability'oran estimate ofearned vacation pay and consistent with this rate-making treatment recorded a deferred charge representing the future recoverability of this cost Rental Expenses and Lease Commitments: The Company has lease commitments expiring at various dates, principally for real property and data processing equipment. None of these leases involves any major facilities or any material non-cancelable rental commitments. Although certain items meet the criteria for recording as capital leases, such recognition would have no significant effect on the financial statements.
Therefore, all items are treated as operating leases for rate-making and accounting purposes.
Asbestos Litigation The Company, along with many other parties, has been joined as a defendant or third-party defendant in 256 asbestos lawsuits commenced in New YorkState and federal courts. The plaintiffs in these lawsuits seek millions ofdollars in compensatory and punitive damages from all defendants. The cases were brought by or on behalf ofindividuals who have allegedly suffered injury from exposure to asbestos, including exposure which allegedly occurred at Company facilities.
The Company has given notice ofthe cases to its insurance carriers, but such carriers have neither denied nor conceded coverage ofthese claims.
Ninety-two (92) of the cases have been dismissed with respect to the Company, and the Company has agreed to settle 101 ofthe cases for amounts which are not material in relation to the consolidated financial statements.
Consequently, on December 31, 1991, the Company was a defendant or third-party defendant in 63 asbestos cases. Subsequent to December 31, 1991, the Company, along with many other parties, has been joined as a defendant or third-party defendant in 20 additional asbestos lawsuits. Although the Company is presently unable to assess the validityofthe remaining 83 asbestos lawsuits, based on information known to the Company at this time, including its experience in settling asbestos cases and in obtaining dismissals ofasbestos cases, the Company believes that the costs to be incurred in connection with the remaining 83 lawsuits willnot have a material adverse effect on the Company's financial position.
Environmental Litigation: The Company is a party to a number ofadministrative proceedings involving potential impact on the environment. Such proceedings arise out of, without limitation, the operation and maintenance offacilities for the generation, transmission and distribution ofelectricity and natural gas. Such proceedings are not, in the aggregate, material to the business or financial condition of the Company.
IRS Challenge to Pension Plan Interest Rate Assumption:
The IRS Examining Agent has challenged the deductibility of an aggregate of $7.5 millionofcontributions made to the Retirement Income Plan during the years 1986 through and including 1989. The IRS Examining Agent claims that the assumptions used by the Company in determining projected investment returns were too lowwhich, in turn, resulted in contributions to the Plan in excess ofthose permitted by federal tax law. No formal notice ofassessment has been issued; however, the Company is currently contesting the IRS Examining Agent's position by a request for technical advice from the National Office ofthe IRS. Ifthe National Office of the IRS were to rule favorably with respect to the Company's position, this matter would be resolved without any payments by the Company. The Company may also be able to settle under the IRS's Actuarial Resolutions Program (Program). Under that Program, the Company would be liable for approximately $2.8 millionof taxes, plus interest, but penalties would be waived; and the Company could withdraw the $7.5 millionof challenged contributions from the Plan. Ifthe Program is not applicable to the Plan, or the ruling on the Company's request for technical advice is unfavorable, additional taxes ofapproximately $2.8 millionwould be payable by the Company together with interest and penalties which could be significant. The Company cannot predict the, outcome ofthe matter; however, the Company believes that the PSC would allow recovery of a portion ofsuch amount through rates.
NOTE 10 DEPARTMENTALINFORMATION The Company is engaged jn the electric and natural gas utilitybusinesses and serves the mid-Hudson River Valley region ofNew York State. Total revenues and operating income before income taxes (expressed as percentages),
derived from electric and gas operations for each ofthe last three years, were as follows:
Percent of Total Revenues Percent of Operating Income before Income Taxes 1991 1990 1989 Electric Gas 86%
14%
86%
14%
86%
14%
Electric GM 9376 7%i 91%
9%
94%
6%
For the year ended December 31, 1991, the Company served an average of253,960 electric and 57,246 gas customers.
Of the Company's total electric revenues during that period, approximately 37% was derived from residential customers, 28% from commercial customers, 25% from industrial customers, and 10% from other utilities and miscellaneous sources. Ofthe Company's total gas revenues during that period, approximately 45% was derived from residential customers, 31% from commercial customers, 6% from industrial customers, 12% from interruptible customers and 6% from miscellaneous sources.
The Company's largest customer is International Business Machines Corporation (IBM),which accounted for approximately 18% ofthe Company's total electric revenues and approximately 7% of its total gas revenues for the year ended December 31, 1991.
Certain additional information regarding these segments is set forth in the followingtable. General corporate expenses, property common to both segments and depreciation ofsuch common property have been allocated to the segments in accordance with practice established for regulatory purposes.
1991 Electric 1990 1989 1991 (Thousands of Dollars) 1990 1989 Operating Revenues..
$424,121
$433 859
$403,235
$70,615
$69 749
$66 767 Operating Expenses:
Fuel and purchased electricity....................
Purchased natural gas.
Depreciation and amortization...................
Other, excluding income tax.......................
Total.
145,835 32,835 133 826 140,488 34,563 157 883 155,999 33,399 152 790 332 934 342 188 312 496 39,867 2,667 21 159 63,693 38,888 2,735 19 523 61 146 39,275 2,509 19 347 61 131 Operating Income before Jncome Tax....
Federal Income Tax, including deferred income tax net...................
91,187 91,671 20,886 20,464 90,739 18,826 6,922 l,727 8,603 1,992 5,636 1,002 Operating Income Construction Expenditures.........
$ 70,301
$ 71 207
$ 71 913
$ 5 195
$ 6 611
$ 4 634
$ 52 819
$ 42 515
$ 33 443
$ 18 088
$ 8,306
$ 8 644 Identifiable Assets at December 31~
Net utilityplant.
Construction work in progress..........,......
Total UtilityPlant.
Materials and supplies.
Total.
$750,102 33 458
$761,984 36 408
$759,652 22 147 783,560 35 004 781,799 22 890 798,392 30,992
$829 384
$818 564
$804 689
$71,129 15 876 87,005 6450
$93 455
$66,777 4 766 71,543 5,578
$77 121
$61,159 4 847 66,006 6 283
$72 289
- Identifiable assets not included herein are considered to be corporate assets and have not been allocated between the electric and gas segments.
NOTE 11 SELECTED QUARTERLYFINANCIALDATA(UNAUDITED)
Selected financial data for each quarterly period within 1990 and 1991 are presented below:
Operating Revenues Operating Income (Thousands of Dollars)
Income Available for Common Stock Earnings Per Average Share of Common Stock Outstanding (Dollars)
Quarter Ended:
March 31, 1990.
June 30, 1990 September 30, 1990.
December 31, 1990
~
March 31, 1991.
June 30, 1991 September 30, 1991.
December 31, 1991.
$144,194 113,813 118,202 127,397 145,340 116,061 114,583 118,751
$24,499 16,999 21,125 15,194 23,428 18,334 19,064 14,669
$13,998 6,478 10,455 4,423
'13,876 8,625 9,414 5,368
$.95
.44
.70
.30
.92
.55
.60
.34 This publication printed on recycied paper.
4 DIRECTORS MARJORIE S. BRO)VN Millbrook,NY Homemaker, active in civicand philanthropic work, former executive in retailing and promo-tional organizations; Chairwoman of the Committee on Compensation and Succession; member ofthe Executive and Retirement Committees
<<1979 L. WALLACECROSS Poughkeepsie, NY Former Executive Vice President and Chief Financial Officer ofthe Corporation; retired; member ofAudit and Finance Committees
<<1990 JACK EFFRON Poughkeepsie, NY President, EFCO Products, Inc.; member of the Committee on Compensation and Succession and the Retirement Committee
<<1987 RICHARD H. EYMAN Notwalk, CT Senior Vice President, Brouillard Communications, Division of J. Walter Thompson Company (retired January I, 1992); Chairman of the Committee on Audit; member of the Executive Committee and the Committee on Compensation and Succession
<<1984 HEINZ K. FRIDRICH Ridgefteld, CT IBMVice President-Manufacturing, International Business Machines Corp.; member of the Committee on Audit
<<1988 EDWARD F. X. GALLAGHER Newburgh, NY President and Owner, Gallagher Transportation Services; member ofthe Retirement Committee
<<1984 PAULJ. GANCI Poughkeepsie, NY President and Chief Operating Oflicer; member of the Executive Committee and the Committees on Finance and on Compensation and Succession
<<1989 CHARLES LaFORGE Rhinebeck, NY President of wayfarer Inns and Owner of Beekman Arms; member of the Committee on Finance
<<1987 JOHN E. MACKIII Poughkeepsie, NY Chairman ofthe Board and Chief Executive Officer; Chairman of the Executive and Retirement Committees and member ofthe Committees on Finance and on Compensation and Succession
<<1981 HOWARD C. ST. JOHN Glenford, NY Chairman ofthe Board and Chief Executive Officer, Ulster Savings Bank; Lawyer, Howard C.
St. John 6 Associates; Vice Chairman ofthe Board; Chairman ofthe Committee on Finance; member ofthe Executive Committee and the Committee on Audit
<<1984 EDWARD P. S)VYER Albany, NY Managing Partner, IVTZA-TVAssociates; President, LJL Swyer Realty and Management, Inc.; President, Stuyvesant Plaza, Inc.; member of the Committee on Compensation and Succession and the Retirement Committee
<<1990
<<Year joined the board OFFICERS OF THE BOARD n
JOHN E. MACKIII Chairman of the Board and Chief Executive Officer; Chairman of the Executive and Retirement Committees HOWARD C. ST. JOHN Vice Chairman of the Board and Chairman of the Committee on Finance MARJORIE S. BROWN Chairwoman of the Committee on Compensation and Succession RICHARD H. EYMAN Chairman ofthe Committee on Audit OFFICERS JOHN E. MACKIII Chairman of the Board and Chief Executive Officer PAULJ. GANCI President and Chief Operating Oflicer WILLIAME. VANWAGENEN Senior Vice President - Corporate Services and Governmental Affairs JOHN F. DRAIN Vice President Controller and Treasurer JOSEPH J. DeVIRGILIO,JR.
Vice President Human Resources and Administration CARL E. MEYER Vice President Engineering and Production ALLANR. PAGE Vice President Customer Services GLADYSL COOPER Secretary RONALD P. BRAND Assistant Vice President Engineering HERBERT M. ROUND Assistant siice President Nuclear Operations and Energy Control WALTERA. BOSSERT, JR.
Assistant Secretary and Assistant Treasurer CHARLES H. DENNY,JR.
Assistant Treasurer and Assistant Secretary STEVEN V. LANT Assistant Treasurer and Assistant Secretary GENERALCOUNSEL Gould 6'r Wilkie One Wall Street New York, NY 10005 INDEPENDENTACCOUNTANTS Price Waterhouse 153 East 53rd Street New York, NY 10022 Desigru Chet Karpinstd Pnmary photos: Augusta Upitis Pg. 4 photcc Culinary Institute ofhmeriea Pg. t3 tnset photev Ptuseum ofthe Itudson Highhnds
1 F'
0 OUR CORPORATE MISSION AND COMMITMENTTO OUR CUSTOMERSr INVE TORS EMPLOYEES AND THE COMMUNITY..
o+
0 HOW
+
(1) Improve responsiveness to customer needs in a timely, professional and courteous manner.
(2) Maintain reliabilityof electric and gas service.
(3) Offer goods and services at g~
competitive prices.
(4) Identify and provido for the r(
1
<<(
>>'E COMMITMENT Satisfy our customers'eeds for safe, reliable electric and gas ser-g
'F business.
(4) Identify, evaluate snd develop when Q a
COMMITMENT Provide a competitive return to ou pproprlate, other related business opportunities that offer hIgher rates of return.
vlcc at tho lowest reasonable price.
future needs of our customers.
6 CORPORATE
+.
Investors.
As a private utibty In the public service. our mission Is to provide safe, reliable slootrlo sod Cas service at a reasonable cost to our customers snd In doing so sstlsfy umnssds of our COMMITMENT Investors employees slid commufllty.
Provide corporate
-,s)y~ t.,<<t l
HOW:
HOW:
COMMITMENT Provide a safe working environment (1) In a cost-eflectlvo manner, continue to reduce the envlron-(1) Increase employee awsrenoss to reduce employee related accidents and that willattract, 0
encourage and retain and promote employee motivate em.
health and safety.
ployees to (2) Maintain fairsnd achieve the equitable employee highest lovel of
~0 compensation, produc-perlonnance.
tive working conditions snd opportunities.
(3) Continue to provido for effective employee dovelopment.
P (4) Through strongthened leader-ship, gain greater employee commitment to achieve the highest lovel of
/ a effectlvenoss resources to 0
enhsnco the quality ol life in our region and In the communities wo serve.
mental impact of our operations.
(2) Increase Central Hudson's role in the community through greater involvement In community activities.
- >>fi,-,
(3) Increase community aware-ness of the value of Central Hudson as ~
. ".. r<<.'.q.:<<gr~~@
a private utility,providing quality Products and services to Its customers.
((vr,.
~
r '~*~~,,'a<@
(4) Continuo to promote tho 5.I
/$4'f PA.'"-
E$
f~...
~ General Offic Poughkeepsie Telephone (91 aesthetic, historical, cultural and recreational rosourcos iG of our regIon.
4v,.v....,.v).,ri,k,,,
yg6 e: 284 South Avenue
, NY 12601-4879
- 4) 452-2000 Cy /
HOW:
(1) Strivo to equal or exceed the p
return on equity authorized by the PSC.
P'2]
Maintain financial stability and
. )'-', '.:,<< "r'.-:,.s~,,'1-;;
Improve credit worthiness.
Q;:,~'.,7;.'3)
Continue to pursue the profitable expansIon of our as and electric
MSSI01V MSEG'sdr'uersfrred'businessunils are mnn)iilledlo:
a prouiding qrralityserur'cesandprodrrdsat mmpeliliueprim a pars)ring opporlunilihin misting and e))rerging marl els a ogering our eniplcgm opportrrnitiefor personal andprofessr'o)ral grorutb a ear)ring an attradice relur)rforour sl)arel)olders a proteding our e)rur'ro)rnre)rt asupporlingti)e needsandufsronsofour m))u)ru)rilih a Strategtcttfanage)nent planning emnonric and organizalio)ral deaelopnre)rt) a Strategtc G)Y)ruth (planned'dr'uersirfiadsubsr'dr'arih)
Our total operating reue)ruesin 1991 iuere ouer g1.5 billiona)idtotal assets uvre f49 billion niaking us tt)esemnd largest utililyin iipslale h'eru York. IPege)reratedouer 17 billion kiloruatt-bours ofeledrr'cilyin 1991 atseue)r malfrred'ge)reralingstalions, seueral su)all lgd)T)electricstalionsandone nudearslalion.
IIalso dr'stributed 42 milliondekatl)er)nsof nalural gaspurdJ)asedfronr prpelinemmpa-
)rr'es mar ketersandprodrrcers.
KtWTJ FILI J" CAPYVILLg /RILLC CUIITO-d pugrggRt-uoj I
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DIVIJIONS Gt;NtRATING J'TAT IONJ' I-IYPRO 0 QOAI 0 NUCLtAR-WICu T-ALLf fT LAWRLNCt 0MWU Zu I-@cfog hfftX
'. PROFILE
'5
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~ I ',<,heru YorkState 8adrr'c 8 Gas Corporalion
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LE?XR TOSTOCEPOLOERS Imyfellowstockboldex Despite continued pioyess toward achieving our long-listofstations thatrequire close monitoring. Italso receind term objective ofbecoming a Idlingutility, 1991 earnings slipped to $2.36 per share from $2.48 per share in 1990.
impmiel rankings from the NRC'systematic Assessment of Licensee Performance (SALP) review which indicatedsignifi-The decline was exacted as a resultof the lower alloml cant improvements over thepastym NMP2was also available return on equity granted tous in our last rate case. Unusually warn winter and spring weather and the weakeconomy also depiesed retail sales and earnings.
Hewer, incentins we earned forconducting eAicient demand managementprograms, which help our customers conseive energy, mitigated the decline in earnings. 3 discrasron ofenergy c0)uevalionprogmimandiitcen-fimbeginsonpage
- 8. Whilesome factors that alfcct earnings am beyond our control, we know that our positive internal actions can have an even yeater impact. In 1992 and beyond, we willcontinue to concentrate on improving eaminy yowth.
There is additional significant news from 1991:
a We completed the purchase ofColumbia Gas ofNew
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York, Inc. forapproximately $58 millionand efficiently to generate electricity approximately 70percent ofthe time.
a We continue to have the lowestcustomer complaint rate in the st~ and the eAiciency ofour generating stations ranks sixth in the nation.
a We receiiel high marks from the Public Service Commission (PSC) forour eficiency in restoring power following ampere MarCh ice storm that left approximately 55,000 customerswithoutelectricity. PNver was also mtoiel quicklyand efficientlyfollowinga December ice storm that left 23,500 customerswithoutelectricity.
o InAugust we filedfora 10.8 percent increase in electric rates and a 13.4 peKent increase in natural gas rates. In January 1992, the PSC staff recommended that NYSEG be given 4.6 percent and 4.4peKent increases, respectively. We revised our filingin February 1992 to an 8.3 percent increase in electric integrated 69,000new natural gas customers into the NYSEG rates and a6.9peKentincmse in natural gas rates. Discussions system. 1his represented an increase ofmoie than 46pement on the rate increase requestcontinue and adecision from the in the number ofNYSEG natural gas customers.
IIThe federal Department ofEnergyselected for funding an innovativesulfur dioxide removal system at MillikenStation.
n Nine MilePoint 2 Station (NMP2) had its best)mr since commercial operation began in April.1988. Itwas remonxl from the Nuclear Regulatory Commission's (NRC)
PSC is expected inJuly. We are unable to predict the outcome of tliispmjeeding, Something very exciting is also happening to our organization; it is changing dramatically. To appreciate that change, wliichwillmake us one ofthe leading utilities by 2000, you have to understand the people who are NYSEG. Ithas never been more true nor more apparent that people are our yeatest
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