ML17058B769
| ML17058B769 | |
| Person / Time | |
|---|---|
| Site: | Nine Mile Point  |
| Issue date: | 12/31/1992 |
| From: | Donlon W NIAGARA MOHAWK POWER CORP. |
| To: | |
| Shared Package | |
| ML17058B768 | List: |
| References | |
| NUDOCS 9305240302 | |
| Download: ML17058B769 (56) | |
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j 9305240302 9'30520 PDR ADOCK 05000220 PDR Niagara Mohawk power corporation fl992 ANNUAILIR{Elr OOIR7
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ON THE COVER: A composite photograph illustrates the solid foun-
'dation of quality and service Niagara Mohawk has built through the
~ decades with a look back. at a downtown Syracuse streetr scene of, 1912 and the present-day Albany skyline. The Erie Canal, shown in the foreground, is a reminder of the expanse of the company's service territory which reaches from Buffalo in the west to'Albany in the
. ~
east.'HOTO CREDITS: Historical photograph of Syracuse courtesy. of';
Syracuse Blue Print Company, Inc. Albany skyline photograph cour tesy of Eastman Kodak Company, Rochester, New York.
This report was designed, photographed, written and produced by.
Niagara Mohawk employees. P*
q 0 I Contents Sl Rcport of Management 1 Highlights Sl Report of Independent Accountants 2 Letter to Shareholders S2 Consolidated Financial Statements 5 Strategic Planning S5 Notes to Consolidated Financial Statements 6 Business Unit Overview 50 Market Price of Common Stock 8 Operations Review 51 Selected Financial Data 18 Management's Discussion and Analysis of 52 Statistics, Corporate Information, Financial Condition OHicers, Directors Serving Our Customers in UPstate New YorIr kraicne Odd enabrrry Niagara Mohawk Power Corp. is an investor-owned utility irctrdam providing energy to the largest customer service area in Saranac take e Ncw York.
Our electric system meets the needs of more than 1.5 .2 million residential, commercial and industrial customers, with power supplied by hydroelectric, coal, oil, natural gas and nuclear generating units. Electricity is transmitted through an integrated operating network that is linked to ~ Saravia other systems in the Northeast for economic exchange and mutual reliability. )4ranye 0 Our natural gas system provides service to over 490,000 residential and business customers on a retail basis, as well L( NEW YORK STATE as a growing number of customers from whom we transport ~ oregon gas that they purchase directly from suppliers.
We also operate subsidiary companies in the United ~ &crricandoaaservice Electric Service States and Canada. Opinac Energy Corp. operates an oil
~
and gas exploration company and an electric utility in Canada. HYDRA-CO Enterprises builds and operates power production facilities.
"<ighlights 1992 1991 %Change Total operating revenues $ 3,701,527,000 $ 3,382,518,000 Income available for common stockholders . $ 219,920,000 $ 202,958,000 Earnings per common share . $ 1.61 8.1 Dividends per common share $ 0.76 $ 0.32 137.5 Common shares outstanding (average) 136,570,000 136,100,000 Utilityplant (gross) . $ 9,642,262,000 $ 9,180,212,000 5.0 Construction work in progress.. $ 587,437,000 $ 568,994,000 Gross additions to utilityplant.. $ 502,244,000 $ 522,474,000 (3.9)
Public kilowatt-hour sales... 33,581,000,000 33,597,000,000 Total kilowatt-hour sales... 36,611,000,000 36,738,000,000 (3)
Electric customers at end of year. 1,543,000 1,538,000 Electric peak load (kilofuaffs)... 6,205,000 6,093,000 1.8 Natural gas sales (dekafhenns) 79,195,000 71,729,000 10.4 tural gas transpof ted
( eha ). 65,845,000 50,631,000 30.0 Gas customers at end of year... 493,000 482,000 Maximum day gas deliveries (dehalhenns) . 905,872 852,404 THE 1992 REVENUE DOLLAR AND WHERE IT WENT 26C Fuel for the production of efoctncify
-39C Residential customers and eloctncity purchased 17C Income and other taxes 15C Wages, salaries, employee benefits 35C Commercial customers 12C Other ll BC Gas purchased 17C Industnai customers -
8c Interest not 7C Depreciation
~$ 5555g 9C All others 4C Dividends to stockholders 3c Retained in business
To Qur %arehokkm:
Niagara Mohawk made considerable progress in 1992, enhancing service performance and continuing to build financial strength. The year contained its share of challenges,
. but the process of change and improvement we initiated three years ago has firmly taken hold across the company, and results in many areas are beginning to improve.
Earnings for 1992 were $ 219.9 million or $ 1.61 per share. This represents over 8 per-cent improvement compared to earnings of $ 1 49 in 1991.
The increase resulted from progress in a number of areas of our operations, but increases in base rates for electric and gas service, and our ability to earn financial incentives were very important contributing factors. Somewhat offsetting these gains has been the necessity to provide for a reduction in value of the oil and gas properties of Opinac, our Canadian subsidiary.
As gratifying as the increase is, our earnings for 1992 remained below our allowable rate of return on equity. We remain committed to the goal of earning the full return allowed in rates.
In 1992, our earnings included $ 26.8 million in special performance incentive awards known as MERIT. This raises our total merit earnings to $ 56.8 million since the Public Service Coinmission-approved program began in 1991. We are in the process of final-izing our report of accomplishments during 1992 while also conduding discussions with the PSC on goals for 1993 through 1995.
We achieved our goal of dividend growth in 1992, raising the quarterly dividend from
$ 0.16 per share to $ 0.20 per share. Total return to stockholders in 1992 dividend plus price appreciation was 11.2 percent.
IN CONTROL Above, an early power control center in Albany, and right, Vice Chairman William E Davis, Chairman and CEO William J. Donlon and President John M Endries pictured in front of Niagara Mohawk's modern power control facility near Syracuse.
Increasing the dividend again in 1995 is a key goal of our board.
We also intend to issue additional common stock in 1993 and 1994 to strengthen our capitalization ratios in response to the increasing risk profile of our business. We will continue our aggressive debt refinancing program. I est year, most of the proceeds from more than $ 1 billion in transactions went to retire higher cost debt, resulting in annual savings of about $ 9 million.
In addition to our financial progress, 1992 saw numerous other achievements for our company, some of which will be highlighted in other sections of this annual report. I will touch briefly on several that were of greatest significance.
4 We have made impressive strides in the environmental arena, and lrave begun to receive regional and national attention for our initiatives. A prime example is our land management program, especially the coinprehensive Upper Hudson project that included a land transfer to New York State and which has been lauded by New York Gov.
Mario Cuomo and others.
Also, wc developed an extensive program for the remediation of waste sites left from the era when gas was manufactured from coal. And we are developing cost-effective and efficient ways to meet and, where practical, exceed The Clean AirAct Amendments'mission reduction targets.
Our research and development efforts with photovoltaic cells and wind power are attracting interest across the nation. Niagara Mohawk will continue to be an industry leader in environmental aKairs for two reasons:
it is the right thing to do, and it is good business.
4 Advance planning and a vigorous marketing program enabled NMGas, Niagara Mohawk's natural gas Strategic Business Unit, to enjoy good results. NMGas increased the number of residential gas heat customers it serves by nearly 11,000 last year and increased total throughput by 22.7 million dekatherms. In 1992, a major Federal regulatory change further opened the natural gas industry to cornpctition. The company is well positioned to take advantage of thc change under its new business unit structure.
Other challenges in the near future, both for our gas and electricity business, are expected from the National Energy Policy Act of 1992, and from new environmental and tax rcquircmcnts now under discussion.
~ Last year, we spoke of thc need to come to grips with the proliferation of Non-Utility Generators (NUGs) in our service territory, and the impact they are having on our custorncrs'ills.
Early in 1992, we successfully sought repeal of the state law tlrat granicd a minimum price of six cents per kilowatt.-hour, well above current avoided costs, to qualified NUGs. Wc also actively participated in the Public Service Commission procccding that lowcrcd thc price for future contract negotiations with all NUGs.
Unfortunately, the Six-Cent Law repeal applies only to future NUG projects. We continue to take actions, from contract enforcement to project buyouts, to mitigate the impacts on customer bills caused by NUG contracts grandfathered by the repeal.
~ We negotiated a rate incrcasc that was approved in January by the PSC.
The increase is necessary to mcct cxpcnscs, including significant amounts for NUGs, environmental rcmcdiation efforts, demand-side management programs and amounts caused by cltangcs in accounting for certain post-retiremcnt costs that become cffectivc this year. Thc agrcernent, provided for a reduction in the allowed return on equity to 11.4 percent. We are actively participating in an important generic financing proceeding at the PSC which, among other things, is examining new and improved equity pricing methodologies that would provide compctitivc returns in both high and low interest situations.
Niagara Mohawk has a long tradition of being among the lowest-cost providers of energy services in New York and the Northeast. That is because wc have spent decades developing a divcrsc fuel mix a strategy that has served our shareholders and our customers tvell in good economic times and bad.
Our efforts to control internal costs, to develop new pricing strategies and to reduce thc impact of NUG payments on our customers'ills are all geared toward one thing being compctitivc. Quality service at reason-able prices is not only our hallmark, it is our lifeblood.
To build value for shareholders, we must provide value to our customers.
By working hard to limit price incrcascs we can reduce the risk of losing larger commercial and industrial custorncrs to bypass or to relocation out of our service territory.
letter continued ... T here are a number of competitive challenges we must ovcrcoine if we are to achieve our corporate vision of becoming the most responsive and eAicient v scrviccs company in the Northeast, providing maximum value for customc holders and employees. The depth of talent in Niagara Mohawk's work force an ~ur commitment to continuous improvement make us confident wc will succeed.
For example, our rcccnt economic analysis of our Nine Mile Point Unit One nuclear station indicates the plant will likely provide a net benefit to our customers through its next fuel cycle, and, depending on future events, could provide benefits for the remaining 17 years of its license. The Board of Directors concurred with our decision to operate the plant at least through the cnd of the next fuel cycle, in early 1995.
The company will further evaluate all factors that affect the economics of Unit One.
But it is'clear tlrat the plant's future depends on improved performance and cost control, without compromising safety.
In fact, cost control remains a priority across the company. Negotiations with the International Brotherhood of Electrical Workers in 1993 will include frank discussions of work practices, benefit costs and the nccd to remain coinpetitive. A united effort by all is essential. We have also continued our efforts to insure thc fair valuation of our utilityproperty, and to seek real estate tax reductions where appropriate.
We have been evaluating overall employment lcvcls, to ensure our human re-sources match our scrvicc rcquircments. For example thc nuclear division has reduced staffing levels by approximately 500 positions since 1991, while improving pcrformancc.
Based on a study of non-nuclear cmployincnt coinplctcd in 1992, the company plans to reduce its work force during the next thrcc years, primarily through attrit. n.
We have taken a number of other steps to control labor costs while providI g employees with competitive wages, benefits and performance incentives. Our inc n-tive management compensation program completed its second year in 1992, anu we arc pleased with the results it has stimulated.
Our flcxible benefits program for managcmcnt employccs, as well as ei ments to savings plans for all employees, will improve these services for the pc Niagara tXIohawk while helping the company to control cxpcnses better.
Although this is the last annual report I will sign as Niagara Mohawl"s chairman and chief executive oAiccr, I will remain as a member of your Board of Directors.
I am very pleased to report that in November, thc Board unanimously elected William E. Davis as vice chairman. Hc will succeed me as chairman and chief exccu-tivc officer upon my retirement in April.
Bill Davis joined Niagara Mohawk in 1990 as vice president of corporate planning and was named senior vice president this past April. He joined us from the state' Energy Office, where hc was executive deputy commissioner. His skills are out-standing. Bill has a strong strategic orientation and thc broad expertisc needed for balanced decision making.
He will value and enjoy, as have I since 1988, the effective operational oversight provided by company President Jack Endrics.
Several other changes during 1992 enhanced our outstanding management team.
One was the return of Jack R. Swartz to headquarters in the key position of vice president Employee Relations. He had bccn vice president Electric Customer Service, Eastern. We welcomed Nicholas J. Ashooh as vice prcsidcnt Public Affairs and Corporate Communications, and Neil S. "Buzz" Cams as vice president Nuclear Generation.
During my 45-year career with Niagara Mohawk I have witncsscd many changes in the company and the utility industry. No changes have bccn morc profound than those of the past few years. Niagara Mohawk has come a long way since thc difficult days of the late 1980s. I am proud of thc effor the people of this company have made.
There arc significant issues still to be faced, and diAicult decisions to be made.
But I am confident that Niagara Mohawk will continue to move toward and ultimately achieve its vision of being the best.
williamJ. Donlon Chairman of the Board and Chief Execute OAicer February 22, 1995
the company's Electric Supply and Delivery SBU of the most Strategic Planning aggressive substation preventive maintenance program in company history should help Niagara Mohawk to maintain last tivo annual reports, Niagara Mohawk lias outlined and possibly better that high ranking. Final results for 1992 its vision for thc 1990s to bccomc the best energy services should be available in May.
company in the Northeast and described the process of Niagara Mohawk ranked fourth among nine gas utilitics in reorganization and change tliat was the first stage in achiev- operating and maintenance costs during the baseline period.
ing the vision. Thc company was also fourth among nine Ncw York State Thc reorganization is complete, with thc Strategic Busi- utilities in complaints by customers to thc Public Service ness Units and their Corporate Support Units in place. The Commission. iNiagara Mohawk.'s recorded complaints last process of change goes on, however, as Niagara Mohawk year dropped below 1991 levels, which in turn werc 28 pcr-continually looks within to cxarnine wliat it. docs and deter- ccnt below 1990 levels.
mine how to do it better. A number of specific programs, combined with an overall Determining how to become the best rcquircs a unified emphasis on customer service, helped to reduce complaints.
plan of action. Dctcrrning when a company has become the Electric system reliability continued to improve, as mea-best requires an exacting method of measuring results. sured by customer interruption duration and system inter-Niagara Mohawk developed both during the past year. ruption frequency.
The company's Corporate Strategic Plan is the culmina- Electric Supply 8. Delivery also implemented an advanced tion of many months of planning activities. It sets the foun- program that allows its System Power Control center to dation, and provides the direction, for thc Strategic Business analyze conditions in power plants and on the transmission Units and Corporate Support Units to dcvclop their own system more quickly, avoiding cquipmcnt damage and business plans and budgets. It clearly communicatcs those customer interruptions.
areas of strategic importance that will require the company's Two of the seven performance bcnchmarks mcasurc attention over the next several years. safety, and in those, Niagara Mohawk was lagging near The plan covers the years 1993 to 1995 the period over the bottom during the baseline period. That is chang-which Niagara Mohawk intends to become the best. It sets i llg qlllckly.
goals and strategies based on four clear-cut objectives:
~ T improve total returns to shareholders.
prove customer service quality.
iprove the work cnvironmcnt for employees.
4 improve environmental performance.
The operating plans and budgets developed by thc Strategic Business Units and Corporate Support Units must support those objectives and thc nurncrous specific goals and strate-gies that flesh out the objectives.
To gauge its success in moving toward the objective, Niagara Mohawk has dcvcloped benchmarks measuring performance in seven specific areas against a peer group of 23 utilities.
To bccomc the best energy services company in tile Northeast, Niagara Mohawk must, achieve a top-quartile ranking among these utilitics in all scvcn areas. Over the next three years, the seven benchmarks will also help to identify performance gaps and dctcrminc how to close Niagara MohawVs Human Resources CSU has initiated a the gaps. new company-wide safety program that, for example, Thc seven bench marks are: reduced the disabling injury rate in ES8:D by morc than 50 4 Total return to shareholders. percent last year, and two thirds since 1990. In thc high-4 Ratio of stock price to book value. exposure Fossil 8. Hydro operations, the rate has dropped to 4 Non-fuel operating and maintenance costs pcr mcgawatt- slightly above one injury per 100 cmployec-years worked.
hour of electricity sales. The Electric Customer Service SBU's safety performance 4 Non-fuel operating and maintcnancc costs per dekatherm has also improved beyond expectations.
of gas deliveries.
The remaining two bcnchmarks, measuring financial 4 Customer cornphints to the Public Service Commission.
performance, also pointed to the need for improvcmcnt 4 Lost workday case accident rate. during the 1990-91 period and it has indccd occurred in the total reuirn to shareholders. Howcvcr, our stock price l Occupational Safety and Health Administration-market-to-book ratio lags at this point, and is a focal point ible accident rate.
for management.
, gara Mohawk's basclinc for the seven areas is the 1990-91 Niagara Mohawk has also begun benchnrarking in the time frame. Thc company was in thc top qtiartile in only SBU's. ES8:D inaugurated a program to define thc processes one area, third among 22 electric utilitics in non-fuel oper- that create value for customers, and to measure perfor-ating and maintenance costs per kilowatt-hour of electricity. mance of tasks against industry bcsts. Programs are being Stringent cost control measures and implementation by extended to the other SBU's as well.
Our organization at a glance ...
In 1990, Niagara Mohawh began to restructure its operations into ~r Strategic Business Units (SBUs): Electric Customer Service, Electric Supply and Delivery, Niagara Mohawh Gas and Nuclear. Each is a separate business accountable for its own results in support of overall corporate goals. Each has its own capability for such functions as planning, budgeting and labor relations, so that it can operate at a high level of independence.
The SBUs are largely autonomous. Only those functions that provide economies of scale, such as data processing, and those that require overall corporate policy and direction, such as strategic planning, employee benefits and erternal a+airs, are still performed at the corporate level. These Electric Custotner Servi ce-Niagara Mohawl"s largest business unit, with about 4,600 employees sprc the company's entire 24,000-square-mile service territory. This SBU provi e direct contact point for 1.5 million residential, commercial and industrial customers that used more than 36 billion kilowatt-hours of electricity last year.
Electric Customer Service is divided into eight operating regions. Its broad spectrum of customer contacts include ncw service connections, our innovative demand-side management programs, service tailored to fit the needs of large industrial users, billing, customer telephone contacts and meter reading.
Electric Supply &Delivery-Dcvclops, operates and maintains Niagara Mohawl"s fossil and hydro generating facilities and its extensive electric transmission system, and administers the company's electric research and development programs.
Electric Supply and Delivery also is responsible for buying and selling wholesale power and managing nearly 1,600 megawatts of installed non-utility generating capacity.
Thc company's 4,200 megawatts of fossil and hydro generating capacity is also managed by ESTD.
Niagara Mohawk operates 74 hydro stations, more than any other utility in the country.
The Power Delivery Department of ES8cD controls more than 900 electric substations an t 9,200 circuit miles of clcctric transmission lines.
ions are divided among three Corporate Support Units: Finance and Corporate Services, Legal and Corporate Relatioiis and Human Resources.
Pith tlie restructuring completed during 1991, last year was the firstfull year of operation for the four SBUs, and it was a successful one. The SBU striictuie supports our commitment to customer service by sharpening our fociis on the dijfering needs of customers served by the SBUs. It also fiirthers our egort to give employees greater responsibility and authority to malie tlie decisions necessary to meet customer needs.
Below are brief descriptions of the four SBUs. Their major accomplish-ments and fiiture plans are described in the followingpages.
h NMGas Serves nearly a half million residential, commercial, industrial and transporta-tion customers in a 4,500-stluare-mile service territory and maintains 7000 miles of transmission and distribution mains.
NMGas provides every service related to natural gas supply and delivery including purchasing, trans-portation, marketing, delivery and service to individual customers.
¹clear-Operates the bvo Nine Mile Point nuclear power plants, located near Oswego, N.Y., on the shores of L~ke Ontario. Nine Mile One is a 610-megawatt plant owned by the company. Niagara Mohawk owns 41 percent of 1,080-megawatt Nine Mile Two and operates the plant. Fottr other New York utilities own smaller percentages
Comjetition Niagara Mohawk, like every other utility in the country, is tion in the state Public Service Commission's 1992 now in the midst of an cra of stiff and growing- Run Avoided Cost (LRAC) case, which sets the current and compctition in both its clcctric and gas businesses. future prices for NUGs tliat do not qualify for the six-cent Competition from non-utility gcncrators (NUGs) has mininuim. In deciding thc case, the PSC reduced 1992 eliminated the company's natural monopoly in clcctricity LRACs to about lialfthc 1990 level.
generation but has not lowered prices for customers. Just Niagara Mohawk also has intensified its monitoring of the opposite. NUG compliance with contracts. It has terminated the Fcdcral law requires that Niagara Mohawk buy all the contracts of a number of NUGs that have not been meeting power offered by qualifying NUGs. In addition, a state contract terms. Other contracts have been renegotiated, or statute commonly known as thc Six-Cent Law has, until bought out when that proved economic.
recently, guaranteed certain NUGs a minimum payment Niagara Mohawk has filed a petition with thc PSC pcf kilorvatt-lrour ivhlch ls tivicc as high;ls thc pfcscnt, opcll requesting that it be allowed to verify whether certain market wholesale price. NUGs arc maintaining "Qualifying Facility" (QF) status As a result, Niagara Mohawk has been forced to take under the federal Public UtilityRegulatory Policics Act. The too rlnich NUG supply at too high a price. Thc company Act contains operating and cfficicncy standards and an estimates overpaymcnts to NUGs at $ 268 million in 1992, or ownership test which a NUG nnist satisfy before a NUG about 8 percent extra on our customers'ills. becomes a QF and a utility is required to buy power from it In response, Niagara Mohawk formalized-an action plan at a price set according to the LRAC. The company wants carly in 1992, initially centered on convincing the State to be sure tliat NUGs continue to meet those criteria.
Legislature to rcpcal the Six-Cent Law. In addition, Niagara iVIohawk asked the PSC for permis-Within months, thc Six-Cent Law was repealed, but only sion to curtail NUG output, rather than its own loivcr-cost as it applied to NUGs without contracts. In addition to those capacity, during times of low demand. Thc company also already operating, thc 7G8 megawatts of NUG projects petitioned the PSC to rcquirc certain NUGs to provide firm under construction and thc 1,353 megawatts not yct started security to ensure tliat they will return to Niagara Mohawk but with existing contracts were "grandfathered" in. customers the ovcrpaymcnts they receive in the early years Niagara lvlohalvk's other actions to reduce NUG impacts of operation, as the iNUGs'ontracts require. Action ~
on customers during 1992 have included active participa- petitions is expected in mid-1993.
POWER OF CHOICE The Stora Papyrus plant in Newton Falls, N.Y., at right, is typical of the new options available to industrial elec-tricity customers. It runs a hydro dam to produce one-third ol its power, and Niagara Mohawk supplies the other two-thirds. Stora made the paper for this report, using recycled waste paper from Niagara Mohawk. Shown at far right is a historic view of the electric utility business, a turn-of-the-century street light being serviced by a Buffalo Niagara Company employee. The power came from the first alternating current line in the U.S
e company estimates that its efforts have reduced morc competitive and challenging. Overall, deregulation potential NUG overpayments by more than $ 650 million has driven prices down and created the opportunity for over thc next 30 years. As a result of actions taken tlms far, Niagara Mohawk to tailor services and rates more closely to and reductions in other billing factors, the projected risc in customer needs.
customer bills is slowing, and actions still under way will In 1992, the Federal Energy Regulatory Commission lessen upward pressure on rates still further. issued Order 636, which is designed to complete the Despite the higher costs from NUGs in its wholesale elec- "unbundling" of the nation's natural gas pipeline services.
tric business, Niagara Mohawk sees potential opportunitics Seven years earlier, another FERC order had allowed in competition. Niagara Mohawk's 650 largest customers to buy gas directly Last year's major federal energy legislation will further from producers, with the company providing transporta-open the electric utility industry to competition. Rcpcal tion. In 1991, Niagara Mohawk had successfully negotiated of the Public Utility Holding Company Act may allow an agreement that partially unbundled service with its Niagara Mohawk and its subsidiary, HYDRA-CO, greater major pipeline supplier, giving thc company direct access to latitude to pursue unregulated projects if they make scnsc firm gas supplies, storage and pipeline transportation ser-for customers and shareholders. vices. Order 636 now grants complctc access to these services Another provision opens access to utility transmission for distribution companies such as Niagara Mohawk.
systems, but whether utilities will receive a fair return for Over the past several years, NMGas has increased its that access remains in doubt. Depending on the resolution diversity of supply, improved thc infrastructure, stcppcd up of this issue, Niagara Mohawk could realize signilicant marketing elforts and made great strides in providing supe-additional revenue for transmitting power from the many rior customer service. Those stratcgics leave the company NUGs in its service territory to other utilities. In addition, well positioned to take advantage of the opportunities gas-fired NUGs arc potential large-volume customers offered by the new competition in thc gas market. NMGas for NMGas. also will be focusing on intensified competition from fuel oil, electricity, other gas companies and unregulated energy Natural Gas Market service companies.
tantial deregulation of the nation's interstate natural elines has made the supply side of the gas business
Environment Land Management As part of its environmental policy, Niagara Mohawk has taken a fresh look at its exten- TOWN WATERFRONT PARK 44cs Acccee sive landholdings. oecea Aaa Some land is no longer needed for energy RES IDBIIIALAREA AM.2ceeo loo laeeaaor production, and Niagara Mohawk has devel- 24 oeoer44 4ecscos Aloasl oped a comprehensive land management SISISIER CALIP AJA lcee4 ioeoeaec oscoeeo policy to find the highest and best use for each cocos csea Aosoo4 oecocees cl oeoac44 4 ecosoc Asoaco
~
parcel, achieving the proper balance between environmental preservation and the region's economic needs.
The first fruits of that policy came during mid- WATERFRO%'ARK lose Access Cease local 1992, when the company announced ils plan for ~ ossa Aces oeaaeeloeeo Raseo lease 24400 acres of ils land along the upper Hudson o'-e-co iaa a Qi aeelois River in the Adirondack Park.
Niagara Mohawk developed the plan, called eaa ec the Upper Hudson Greenway Project, in cooper- ~
ation with state government, community inter-ests and environmental groups. As part of the OREENSPACB plan, the company conveyed about 1,200 acres ls ae MaaAaco along 16 miles of shoreline to the Conservation e)
Fund for ultimate inclusion in tho Adirondack RESIDENTIALAREA APA 24so 2ae4 IIea I lcecaece vaacoceac4 Forest Preserve. ~ oocc44 lassoes< Alaacc
'nro plan drew praise from Gov. Cuomo at an Albany ceremony announcing the land convey- e ance to the state, and earned Niagara Mohawk OREBISPACB awards from the Adirondack Council and the to 4e Ssleacse4 Adirondack Park Centennial Committee.
RESIDENIIALAREA APA. 2ceco lee4 icos 2 oeoale4 laessle Aloaoc RIVER OVERLOOK Niagara 121ohawk serves onc of the most beau-tiful and, in some ways, environmentally fragile Ct regions of the Northeast. As a landowner and \
caretaker in scenic forests and wetlands, LI abounding in pristine lakes and rivers, thc com-pany always has bccn aware of its responsibility for environmental prcscrvation.
In recent years, environmental challenges 3 a RPSIDENIIALAREA have multiplied. At the same time our cus- A4A.
2 2aeal seoecoal oeeosea leoacesaN 4sslaoa Asooco tomers'wareness of cnvironmcntal issues ~
has grown.
In response, Niagara Mohawk adopted a GREENS PACE forward-looking "beyond compliance" environ- RESIDENTIALAREA lo la Caocoahoo mental policy in 1991. Last year, the company A4A xoaes aeeosce lccNceaa4 2 ssec44 oasoecs Asoae4 took a number of actions based on thc policy (aa tliat place Niagara Mohawk in the forefront of corporate environmentalism.
Among these actions are the training of all cmployecs in environmental awareness, regu- OREBISPACB lo le lar environmental auditing of the company's Cceoaasao
~
a~~~ka operations to assure compliance, adoption of criteria for measuring corporate environmental performance, and incorporation of the environmental policy and specific targets in business plans. Thc company bcli es it is in thc best interests of customers, shareholders and employees for Niagara Mohawk to be a leader in addressin ronmental concerns.
Niagara Mohawk's approach to environmental protection includes research and development of eflicient and renew;I e energy technologies, and energy conservation (scc separate stories).
Nearly half of the company's electricity is produced using low- or zero-emitting sources such as hydroelectric, nuclear, and natural gas sources which have relatively low environmental impact. At the oil- and coal-fired plants that make up the remainder, Niagara Mohawk has substantially rcduccd ernissions over the past two decades.
10
The Clean Air Act of 1990 will rcquirc still lower emission ment and the environmental community, planned how to and Niagara Mohawk in 1992 forinulated strategy to translate the agreements of the Rio conference into prac-hase I requirements. To achieve compliance, Niagara tical programs to benefit the people of New York state.
awk will implcmcnt a combination of alternatives tliat The company also is a leader in waste recycling. Niagara include: fuel sivitching, lower sulfur coal and gas co-firin, Mohawk.'s Investment Recovery Center, staffed almost exclu-installation of low nitrogen oxide burners on coal units and sively by disabled workers, more than pays for itself. The fine tuning boilers and other steps. Phase I compliance is center recycles more than 2 million pounds of paper a year, expected to require capital investment of about $ 90 million. and is one of the first utility-opcratcd rccycling programs in Phase II of the Act is schcdulcd to go into effect by the year the country to process scrap wire into nuggets, which 2000. Specific requircmcnts for this phase have not yct command a higher market price.
been determined. While most of Niagara Mohawl"s environmental initia-During the year, thc company bccamc onc of the firs tives look to the future, some of its environmental liabilities utilities in the United States to confront thc problem of are a legacy of the past. Thc company's predcccssors oper-greenhouse warming. Despite the current scientific debate ated a number of sites whcrc gas was made from coal to over the iiaturc and cxtcnt of warining, Niagara Mohawk light street lamps and provide heat in thc 19th century. Most thinks the impacts projected by proponents of the green- of these manufactured gas plants sluit down long before house warming theory arc so scvcre that action should not Niagara Mohawk came into cxistcnce, but. many left a be delayed. residue that must be clcancd up.
Niagara Mohawk's Grccnhouse Warming Action Program In December, Niagara Mohawk signed two scparatc has a goal of reducing company carbon dioxide emissions agreements with the state Department of Environmental by almost twice as mtich as current fcdcral government Conservation to study and, where ncccssary, clean up 22 goals for the year 2000. such sites. Niagara Mohawk already lras a clean-up project The company also will take actions to reduce emissions under way at Harbor Point in Utica which will pilot of other greenhouse gases such as chlorofluorocarbons. research and devclopmcnt reinediation tcchnologics. The The actions in thc plan will use low-cost, currently available company estimates that the site rcmcdiation prograin will tcchnologics and will bc economically justifiable in their take more than 10 years.
own rigllt. The company also has been successful in finding uses for Greenhouse warming was a nrajor topic at last June's Rio fly ash, a by-product of burning coal and fuel oil to produce ciro Earth Summit, along with discussions of how to clcctricity. Disposal in landfills has been costly and cnviron-in the diversity of life on earth, and how to accom- mcntally sensitive, but Niagara Mohawl's Fossil Generation p environmental goals while sustaining the global and Fuel Supply pcrsonncl have worked to find uses for fly economy. In December, Niagara Mohawk became one of ash in, for example, building foundations and roads, and as first corporations in the country to begin applying the a component for roofing shingles. As a direct. result of tlieir lessons of Rio. The company, along with the State University efforts, last year the state Department of Environmental of Ncw York and the state Department of Environmental Conservation granted approval for such uses.
Conservation, co-sponsored "Environmental Summit '92, In 1992, about 12 percent, or 40,000 tons, of total ash was Messages from Rio, Directions for New York." diverted from landfills to approved use, lowering landfill For two days, a distinguished group, including Governor costs by S400,000 and generating more tlian $ 130000 in Cuomo and reprcscntativcs of business, academia, govcrn- gross revenues. Efforts will expand in the coming year.
Noted photographer B.R. Stoddard captured this view of boaters en.
4 V\ joying the tranquility of Edmonds r{
Pond in the Adirondacks early in the century.
~ U ~
~ i ii 1
Bemand4ide Management Niagara Mohawk's Demandkide Management (DSM) pro- customers for taking energy conservation measures. T gram links three of the company's main aims: customer a cost to the customer to save a kilowatt-hour, but it is less service, energy efficiency and environmental protection. than thc cost of generating the same kilowatt-hour.
The three-year-old DSM program puts Niagara Mohawk Niagara Mohawk is compensated for DSM program costs in partnership with its customers to improve their energy ef- and the lost profit resulting from usage reduction based ficiency. The program is part of the company's Integrated on reduction goals and cost-effective program implementa-Electric Resource Plan, a dctailcd study of the most econom- tion. In 1992, the company exceeded its goal of 244,000 ical way to meet each additional increment of future cus- megawatt-hour reductions by more than 20 percent, based tomer electricity demand. on preliminary figures.
In many cases, managing demand can be less expensive Thc industrial and commercial DSM programs have been than adding new supply. Long-range plans call for DSM to so successful in promoting energy-efficien technologies and contribute as much as 400 megawatts, or 25 percent, of new accelerating changes in the marketplace, that the high level capacity needed over the next two decades. of rcbates and incentives is no longer necessary.
Niagara Mohawk's 16 company-sponsored and 6 biddcr- The company's 1993 program will be adjusted to allow sponsored DSM programs provide rebatcs and incentives to pricing and other market forces to play a larger role.
DEMAND FOR SAVINGS Linda Heim, a consumer relations represen-tative, and Claude Rounds, vice pres-ident of plant management for Albany Medical Center, discuss Niagara Mohawk's Demand Side Management plan for the center. The project, one of the largest to be sponsored by a utility in the country, will save the Center $ 1.1 million per year in energy costs, a 35 percent reduction.
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Research &'BerjelePment Niagara Mohawk has a significant research and development effort focused on developing the clean, renewable energy sources of the future. In September, the company installed two 360-kilowatt wind turbines on 80-foot towers near Water town, N.Y.
The three-year project is the first of its kind in the North-east and will determine whether the gus'ty 'north 'country winds can develop into an economical, rcliablc source of clcctricity. The advanced, variable speed turbines arc prod-ucts of U.S. Windpowcr, a participant in the project. Also joining Niagara Mohawk in thc project are the Electric Power Rcscarch Institute and Pacific Gas 8e Electric Co.
Another Niagara Mohawk program, exploring the usc of solar cncrgy at a state offic building near Albany, has been named by thc U.S. Department of Energy as a winner of its 1992 "Innovative Energy Award."
The company installed 70 solar photovoltaic panels on thc roof of the state Division of Militaryand Naval AKairs build-ing in 1990. The demonstration project has bccn so success-ful that it has been cxtcndcd by two years and expanded to include testing a battery storage system in combination with the solar array.
Niagara Mohawk is also testing a fleet of seven clcctric-powcred cargo vans as part of a nationwide, three-year ING THE WIND Niagara Mohawk has known of ower's potential for some time, as shown in the project aimed at commercializing clean electric vehicle photo of a 15 kilowatt turbine erected in 1977 in technology.
awrence County. At top, the company's two 360- The "GVan" is designed for urban use, using a Gcncral kilowatt wind turbines, erected in 1992 near Watertown, Motors body, a special propulsion drive train and 86 lcad-demonstrate the advancement of the technology. acid batterics. It has a top speed of 52 mph and can travel 60 miles between charges. Its makers hope the vehicle can bc on the market within three or four years.
Niagara Mohawk Gas, the company's natural gas Strategic tifying growth trends and taking advantage of the Business Unit, liad an outstaritling year in 1992, increasing company's goals include 13,000 new residential custo its total itatural gas throughput 44.4 percent over 1991 to NMGas is developing a Gas Efficiency Plan, requested 79.2 million dckatherms. New business from cogeneration from all utilities by the state Public Service Commission by projects accounted for much of the incrcasc. April 1. Thc plan will emphasize the flexibilityand diversity NMCas contiiiucd its residential marketing push, picking of supply, customer service and operational efficiency up about 11,000 residential heating customers, some of programs'that NMGas has developed in response to the whom added heating to their previous service, and many intense competition in the natural gas industry. It also will others who were new hoolc-ups. NMGas also completed its outline some of the future programs NMGas will offer to merger with Syracuse Suburban Gas. The $ 6 million trans- assist customers in maiiaging their demand for gas, much as action added 4,600 morc customers and filled in a gap in Integrated Resource Plans for electricity have made use of the company's service territory and distribution system. demand-side management.
During the year, NMGas started its Target Account NMGas also will participate in the first installation of a Program, aimed at providing increased value to industrial public vehicular natural gas refueling station in the service customers. NMGas made individual contact with 450 large territory, in partnership with Hess Oil. The station will custorncrs and held quarterly group meetings, technical open in Albany in mid-April. Two more are planned, one scrninars and other events. each for Albany and Syracuse, with a completion goal of The SBU's focus on personal scrvicc, advertising and late this year.
promotions increased public awareness of thc advantages of The company also has supported demonstrations of natural gas during 1992. natural gas vehicles in the Syracuse school system and Thc coming year is cxpccted to see a strong market for regional bus system, in addition to testing natural gas fleet natural gas nationally, and NMGas will conccntratc on iden- vehicles in its own operations and with others.
V
(
I g Qv
, +cuff WHAT'S OLD IS NEW Although gas lights faded out in Niagara Mohawk's service territory in the 1920s, the company helped to recreate an 1892 gas.lit street scene for the 1939 New York World's Fair, top. At right, after an absence of more than 70 years, gas street lighting reap-peared as NMGas began service last May for Bellevue Estates in Syracuse.
¹ clear At left, a portion of the contain-ment structure for the Nine Mile Point Unit 1 nuclear facility is lowered into place in 1965.
ff7 is 6'Q til/ST r.
j g)i One of Niagara Mohawk's most important tools for cutting costs and improving efficiency is its nuclear materials testing laboratory.
The Iab qualifies parts for the plant as "nuclear grade."
Nuclear utilities pay a premium for parts that meet specifications.
The materials Iab has two major roles in cost-cutting: making sure Niagara Mohawk gets what it paid for, and finding off-the-shelf parts for a fraction of the cost of special-ordered components.
For instance, according to Iab director Grant Pierce (above left),
the company ordered a valve supposedly made of stainless steel, but the Iab found it was nickel. coated brass, which is not nuclear grade.
A special-ordered nuclear grade transistor can cost as much as $ 2,000, but the lab found transistors at a local electronics store that met specifications for 30 cents each. Testing and certifying the transistors costs $ 40, but the company still realized considerable savings.
Niagara Mohawk's Nine Mile Point Units One and Two nuclear power plants both finished 1992 on high notes, operating at full power. Nine Mile Onc set monthly production records in November and December, and both plants sct quarterly production records in the last thrcc months of 1992.
The company's Nuclear SBU spent thc year streamlining and strengthening its opentions. In August, thc company rcccivcd two "cxccllcnt" and five "good" marks from the Nuclear Regulatory Commission in an evaluation of seven catcgorics critical to plant safety and performance.
Executive Vice Prcsidcnt- Nuclear, B Ralph Sylvia, said he is pleased with the rcport, but ..., "We arc not satisfied with only being considered a good nuclear operation and will remain focused on ... our vision of becoming an industry lcadcr."
Management systems improvements included initiation of a comprehensive procedure rewriting process, and development of a problem identification and resolution program that empowcrs each employcc to address plant concerns.
The nuclear unit continued its industry-wide search for top talent, bringing in a vice president and other executives from other utilities and internally identifying innovative and skilled managers as candidates for further training and promotion.
At thc same time, the company contiiuicd its "right-sizing" efforts, which it began by comparing Niagara Mohawk nuclear operatioiis to thc best operations in the industry to determine the right number of people required to be a top-flight facility.
Steps toward the ultimate "right-sizing" goal of no morc than 1,600 employees will be taken during 1993. By 1994 the SBU will have reduced more than 900 positions from 1990 levels.
For the third straight year, thc nuclear budget was rcduccd, and the SBU improved operations under the tighter budget.
Expenditures were 30 percent below the 1990 budget.
h Nine Mile Point units will undergo refueling during 1993. Nine Mile Point Onc began a refueling outage in February.
file Point Two will begin its third refueling in the fall.
Qutreaeh O'Education I
i-"
Niagara Mohawk strengthened its emphasis on customer service in 1992 identifying, evaluating and responding to customer energy-related needs.
The company's Outreach 8c Education (08".E) program is a vehicle for two-way communication with customers.
Research is used to identify and analyze customer needs and assess the impact on customers of new or revised programs, policies, procedures and services.
For instance, in 1992 the company conducted focus V$
groups and discovered uvo levels of interest those inter-ested only in the amount of their bills, and those interested in everything the company does.
The O&E program takes this information and coordi-nates production and distribution of informational materials tailored to meet different customer needs, from senior citi-zens to those who might need help paying their bills. The materials are keyed to different levels of interest and literacy.
The materials provide customers with beneficial informa-SERVING A NEED Above, Niagara Mohawk tion about their rights and responsibilities and how to employees demonstrate cooking with electric and obtain full and fair resolution of their problems and gas appliances at a New York State Fair during complaints. Panels, roundtables and other gatherings the '60s; and, lop, a Consumer Advocate explains are sponsored by Niagara Mohawk to provide fee k company services to customers in a home visit.
from customers.
The whole aim of the effort, which also includes tr for Niagara Mohaivk customer contact personnel to improve their communications skills, is to make Niagara Mohawk more "user friendly" for customers.
Economic DevelePment a Mohawk continued efforts to improve economic working with 170 Canadian and 80 domestic companies who con itions within its scrvicc territory during 1992. have indicated intcrcst in locating in the company's service The company's Economic Development program is aimed territory as a result of past, marketing programs.
in part at bringing new business into upstate Ncw York. Late in 1992, Niagara iMohawk played a lead role in The company plans to spend more than $ 800,000 during organizing the "Partnership for a New, Ncw York," a consor-1993 on marketing efforts promoting upstate New York tium of the state's energy and telecommunications utilitics as a great place to do business. As of the end of 1992, that will conduct a five-year effort, in cooperation with state Niagara Mohawk's Department of Economic Development is government, to attract kcy industries and markets.
Subsidiaries HYDRA-CO Entcrpriscs, Inc., Niagara Mohawk's wholly- The company's diversity reflect its judgment of what it owned subsidiary formed to develop, own and operate takes to bc a long-term developer, investor and operator in indcpcndcnt power projects, entered its second decade of the independent power market.
operation by reaching a milestone on a major domestic Niagara iVIohawk's Canadian subsidiary, Opinac Energy project and by expanding into the international market. Corp., faced continuing problems in 1992 largely duc to HYDRA-CO closed construction financing for a $ 2G2 mil- volatile crude oil and natural gas prices, coupled with a sig-lion, 257-megawatt natural gas-fuclcd cogeneration plant nificant reduction in its estimated reserves of natural gas.
in Lakcwood, N.J. As a conseqticnce of the diHiculties encountcrcd, staff and A I-IYDRA-CO partnership was recently selected to nego- management cliangcs werc made and capital expenses were tiate final contracts on a 60-megawatt diesel power station rcstrictcd. During 1992, Opinac reassessed its stratcgics and in 'ngston, Jatnaica. Thc company is working on another direction, and is now positioned to grow through internal in Jamaica, and one in Canada. means or by way of cxtcrnal financing.
RA-CO now has 24 plants in operation or under Canadian Niagara Power Ltd., Opinac's electric division, construction, with a capacity of about 800 megawatts under celebrated its 100th anniversary of operation at cercmonics equity ownership. The plants use a variety of tcchnologics in June. Its ccntcnary year, like those before, was marked powcrcd by divcrsc energy sources, including water, wood, by good performance.
coal, wind and natural gas.
MUTUAL GAINS Management and union repre-sentatives engage in a Mutual Gains Bargaining session, under the direction of facilitator Bernard L.
Flaherty, standing, of the New York State College of Industrial and Labor Relations, Cornell University.
The process is designed to produce better bargain-ing solutions and improve relationships between A the parties. Seated, left to right, are Michael P. Ranalli, senior vice president-Electric Supply and Delivery; Raymond A. Vallilee, acting chairman, Sys-tem Council U.11; Jack R. Swartz, vice president-Employee Relations; Charles A. Borell, president, Local Union 1484; and John W. Powers, senior vice president-Finance & Corporate Services.
17
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES Management's Discussion and Analysis ofFinancial Condition and Results of Operations Ovcrvicw of 1992 financing in 1993, of which $ 438 million represents sc red-Earnings for 1992 were $ 219.9 million or $ 1.61 pcr sharc ver- uled and optional rclinancings.
sus $ 203.0 million or $ 1.49 per sharc in 1991. Factors con- There were several kcy developments during 1992 that tributing to the increase in earnings in 1992 as compared to demonstrate progress in thc Company's continuing sclf-1991 include rate increases for gas and electric customers asscssment program, as well as challenges for the future, cffcctive July 1, 1991 and July I, 1992, decreased levels of including repeal of New York State's "6-cent law" for non-util-nuclear operating and ryaintenance expenditures and cost ity generator (NUG) contracts, an update of the Company's management of non-nuclear expenses relative to amounts economic study of Nine Mile Point. Nuclear Station Unit iNo.
provided in rates, offset by oil and gas writeoffs. Thc Com- 1 (Unit I) which indicated that continued operation of Unit pany's return on common equity in 1992 was 10.1%, as I was economical at least for thc next fuel cycle, issuance by compared to an allowed return on utility operations of the Fcdcral Energy Regulatory Commission (FERC) of rules 12.3%. Thc earnings deficiency was caused by several kcy that could expand opportunities for thc Company's gas busi-factors, including earnings of subsidiaries at a rate below the ness and passage of thc Energy Policy Act of 1992 to repeal Company's authorized return on equity for regulated opcm- certain limiting regulations of the Public Utility Holding tions and spending for operational activities in an amount Company Act, of 1935 and expand to others access to utility that exceeded the amount assumed in setting rates, offset by transmission facilities, including the Company's. These incentive equity returns for iVIERIT and DSM programs, developments will continue to challenge the Company in and the Company's share of Nine Mile Point Nuclear Station 1993 and beyond.
Unit No. 2 (Unit 2) proceeds of litigation relating to its con-struction. These and other factors are discussed in morc Progress Towards Corporate Vision detail under "Results of Operations." Through continuing The Company's Vision is to become the most responsive self-assessmcnt and financial and operational benchmark- and eflicient cncrgy services company in the iNortheast to ing, the Company's Strategic Business Units (SBUs) arc achieve maximum value for customers, shareholders and addressing these and other issues that create earnings dcfi- errrployccs. Progress towards tint Vision bean with the cicncies as well as considering opportunities for earnings self-assessment process in 1989 and now forms th s cnhanccmcnts. Non-cash earnings in 1992 werc $ 35.2 mil- for many of the new initiatives rcccntly underta lion, representing 16.0% of total earnings. the Company.
Dividends pcr common share increased to an annual rate A significant result of self-assessment and thc drive of $ .80 from $ .64 during 1992, consistent with thc Board of towards the Vision is a clnnge in focus in the ratesetting Directors'ong-term financial goals for the Company. process, from base rate incrcascs to customer bill impacts.
The Company's capital structure at December 31, 1992 The Company is keenly aware that changes in the utility was 56.4% long-term debt, 74% preferred stock and 36.2% industry and the regulatory environment arc fostering com-,
common equity. In early 1992 the Company began issuing petition in both the electric and gas businesses. Thc prolif-ncw shares of common stock under the Dividend Reinvcst- eration of NUGs or Independent Power Producers (IPPs) mcnt and Employee Stock Plans, and it now anticipates a aided by federal and state statutes w'hich provide thein guar-public issuance of approximately 5 million shares in 1993. anteed markets at rates in excess of the Company's internal Such cflorts arc intcndcd to continue improvement, in the cost of production, lns put signiTrcant upward pressure on Company's capital structure. Market value and book value of thc Company's clcctric rates. During the past several years, common stock at December 31, 1992, were $ 19.13 and $ 16.33 thc Company's industrial rates have moved from being per share, respectively; a market to book ratio of 117% versus among thc loivcst in New York State and the iNortheast to a 115% ratio at December 31, 1991. The ratio of earnings approximately the middle of the range. Such increases in to lived charges for 1992 was 2.24, up from 2.09 in 1991. rates arc reaching a point where industrial customers must Evpenditurcs for construction in 1992, including nuclear balance the bcncfits and costs of sclfgeneration against fuel, related AFC, overheads capitalized and capitalized rctcntion of utility scrvicc. More importantly, industrial and leases were $ 502.2 million and were primarily funded commercial customers may also consider moving operations through internal sources. Construction expenditures had outside of thc Company's service territory. Loss of industrial been forecast to be $ 513 million in 1992. The reduction in and commercial customers places additional cost burdens spending reflects emphasis on cost management by the on remaining customers. The potential loss of jobs in the SBUs. The 1993 construction estimate is $ 525 million of Company's service territory would put further pressure on which 90% is expected to bc funded from intcrinl sources. rates to remaining customers and on the State's social ser-During 1992, the Company raised approximately $ 944.6 vices delivery system.
million from external sources, consisting of $ 835.0 million Similar issues face thc gas business, as greater fei ral of debt (of which $ 794.8 million was used to refinance emphasis is placed on increasing competition for i debt), $ 19.5 of common stock and a net increase in short- supply and delivery. Although competitive pressures term debt of $ 90.1 million. The Company took advantage of principally to pipclincs and industrial customers, the possi-low interest rates by implementing a refinancing program bility of retail competition is growing. Formation of the Gas for approximately 23% of its outstanding debt, lowering its SBU in 1991 has focused efforts on positioning the business embedded cost of debt from 8.4% to 77%. Thc Company to take advantage of the changing environment, by optimiz-expects to require approximately $ 631 million of external ing its gas supply portfolio to achicvc lower costs without 18
NIAGARA MOHAWK POPOVER CORPORATION AND SVBSIDIARY COMPANIES sacrificing reliability and by aggressively marketing its gas tages and disadvantages of continuing thc operation of Unit to potential or existing customers near its distribu- 1. Based upon thc benefits identified in the gas study and ies. consistent. with thc results of thc self assessrncnt process, the c Measured Equity Return Incentive Tcrrn (MERIT) Company reorganized its electric and gas operations into program, as discussed in more detail below, and the contin- SBUs cffcctive July 1, 1991. The Company performed thc uing self assessment process embody the improvcmcnts in Unit I economic study and filed a report dated Mardi 28, performance necessary to mitigate bill impacts and their 1990 which concluded that continued operation of Unit I attendant effects. Measures that compare Company cost and was in the best interest of the ratcpayers. Although the PSC scrvicc performance with a peer group of similarly situated Staff disputed certain assumptions used in the study, no Northeast utilities will be included in MERIT beginning in further action was taken. In the 1991 Financial Recovery
,1993. Over the next three years, increasingly challenging Agrccmcnt discussed below, the Company agrccd to update perfonnance targets for these external indicators will be its Unit I economic study prior to each rcfucling cycle and cstablishcd, dcsigncd to bring the Company to top-quartile make it available to the PSC Staff (See Note 8 of Notes to performance within the peer group. Achieving these targets Consolidated Financial Statcmcnts).
ivould demonstrate the Company's ability to respond favor-ably to challenges facing utilities and to mitigate the bill 1991 Financial Recovery Agreement impact consequences discussed above. The 1991 Financial Recovery Agreement (1991 Agrccment)
The Company must successfully manage, among other established thc $ 190.0 million temporary rate incrcasc things, the economics of the continued operation of Unit I, that bccamc effective January I, 1991 as permanent and implementation of the Clean Air Act Amendmcnts of 1990 provided for electric rate increases of 2.9% ($ 75.4 mil-and remediation of hazardous waste sites, while responding lion) cffcctivc July I, 1991 and 1.9% ($ 557 million) effec-to thc challenges and taking advantage of thc opportunitics tive July I, 1992. Gas rates increased 1.0% ($ 5.5 million) on of thc Energy Policy Act of 1992 and addressing the oppor- July 1, 1992.
tunitics of cxpandcd gas supply competition, as well as Thc 1991 Agrcemcnt included several kcy clcmcnts which continuing implementation of its strategies to reduce bill represent departures from thc Company's prior rate setting impacts stemming in large part from thc proliferation of methodology. Two of these elements, the Niagara Mohawk cxccss high-cost NUG power. Through initiatives such as electric rcvenuc adjustment mechanism (NERAM) and thc "core process redesign," the Company will also continue its MERIT arc discussed in morc detail below.
ally dircctcd selfassessment, emphasizing low cost The NERAM requires the Company to rcconcilc actual ions and employee empowcrmcnt without compro- results to forecast electric public sales gross margin as g service to customers. defined and utilized in establishing rates. Thc NERAM pro-duces certainty in the amount of electric gross margin the Regulatory Agrccments Company will rcceivc in a given period to fund its opera-The Company's results during the past thrcc years have tions. While reducing risk during periods of economic bccn strongly influenced by several regulatory agrecmcnts uncertainty and mitigating the variable cffccts of wcathcr, it has entered into. A brief discussion of thc kcy tcrrns of the Company does not benefit'from unforsccn growth in certain of these agrccments is provided below. sales. Depending on thc level of actual sales, a liability to customers is crcatcd ifsales cxcccd the forecast and an asset 1989 Agreement is recorded for a sales shortfall, thereby gcncrally holding Thc 1989 Agrccmcnt represented a bcllwethcr scttlcmcnt recorded clcctric gross margin to the level forecast in estab-and a significant change in the approach of thc Company lishing rates. The 1991 Agreement provides for the opera-and the Public Service Commission (PSC) Staff to the ratc- tion of the NERAM through June 30, 1993. Rccovcry or setting process. A key objective of this agrccmcnt was to sta- refund of accruals pursuant to the NERAM is accomplished bilize thc Company's financial condition and attempt to by a surcharge (either plus or minus) to customers over a maintain its senior securities ratings at invcstmcnt grade twelve month period, to begin when curnulativc amounts level. This was accomplished by permitting thc Company to reach certain lcvcls specified in the 1991 Agrccmcnt. Recon-defer, for future recovery, certain operating cxpenscs in an ciliations werc initiated on July I, 1991, Junc I, 1992 and attempt to attain specified intcrcst coverage ratio levels Decernbcr 1, 1992 and thc balances to bc collcctcd were through thc cnd of 1990. Substantially all of the interest reclassified to Accounts Receivable. As of Dcccrnbcr 31, covcragc dcfcrrals will be recovered by thc cnd of 1993. 1992, the Company had a recoverablc NERAM balance In return for stabilizing its financial condition, thc Com- (amounts subject to reconciliation) of $ 11.G million.
pany agreed to formalize the process by which it had been The MERIT program is thc incentive mechanism crcatcd developing a Vision and Mission Statement and a self assess- in contemplation of thc provisions of the 1989 Agrccment ment process for continual improvcmcnt in thc way its which originally allowed the Company to earn up to $ 180 business is managed. The creation of an incentive return million of additional return on equity through May 31, 1994.
anism was recommended to provide thc Company The MERIT program provided for a total of $ 60 million of iortunity to earn an incremental return on equity the $ 180 million pool during 1991, $ 30 million for the on performance targets designed to rcflcct improve- measurcmcnt, period January 1 through May 31, 1991 and ments in the efliciency and effectivcncss of its organization $ 30 million for the balance of calendar 1991.
and management. The PSC granted the full $ 30 million of MERIT award The Company also agreed to study thc advantages and the Company claimed for the period January I, 1991 disadvantages of separation, sale or other action with through May 31, 1991. Criteria for earning thc initial $ 30 respect to its gas business and submit a study of the advan- million of incentive return for the period ending May 31,
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 1991, encompassed nuclear performance, progress in im- increase to become effective January 1, 1993, consisting of plcmcnting ideas to capture savings identified in the self- an electric increase of 4.6% ($ 1371 million) and assessment process, customer satisfaction indicators and a increase of 47% ($ 26.6 million). The significant reduction in the layers of management. This award, amount- nents of the request related to a $ 55 million incre.
ing to approximately $ .14 pcr share, was rcflcctcd in earn- operating expenses, increased environmental site investiga-ings in the third quarter of 1991 and was collected over the tion and related remediation expenditures of $ 28 million, period October 1991 through June 1992. current recovery of the $ 44 million provision for certain MERIT goals for the period June I, 1991 through Decem- post-employment benefits (OPEB) under a new accounting ber 31, 1991 included measures of responsivcncss to custom- pronouncement and inclusion, as now required by the PSC, ers, implementation of selfassessrnent ideas, nuclear and of $ 37 million of NUG capacity payments in base rates ver-non-nuclear generation and planning and environmental sus passing these costs through the fuel adjustment clause.
awareness. The potential value of MERIT for this period was On September 14, 1992, the Company, the PSC Staff and also $ 30 million. Of this amount, the PSC granted $ 22.8 other intcrvenors submitted a rate settlement plan (1993 million, or approximately $ .11 pcr sharc. The difference Rate Settlement) to the PSC for approval. The 1993 Rate between the Company filing requesting $ 26 million and the Settlement increases the Company's revenues by $ 108.5 mil-ultimate award was related to implementation of self-assess- lion (3.1%) for the year ended December 31, 1993 through mcnt cost savings measures. The Company accrued the changes in rates for electric and gas service. Electric MERIT award in Junc 1992 in Accounts Receivable and it is revenues increase $ 98.4 million or 3.4%, while gas rcvcnues being collcctcd over the period July 1992 through May 1993. rise by $ 10.1 million, or 1.8%. The 1993 Rate Settlement The Company and the PSC Staff reached an agreement, was approved by the PSC on January 27, 1993, and new rates which was approved by the PSC on July 9, 1992, to amend werc implcmcnted shortly thereafter. Retroactive application the 1991 Agrccment as it related to the MERIT incentives of the new rates to January I, 1993 has been authorized for,.1992 and beyond. The amendment realigns the MERIT by the PSC.
schedule to make it consistent with the Company's schedule The increase reflect an allowed return on equity of for achieving its Corporate Vision by 1995. The agreement 11.4%, which is below the 12% requested by the Company in makes available $ 25 million of MERIT in 1992, $ 30 million its original filing and the 12.3% rcflected in the 1991 Agree-in 1993, $ 35 million in 1994 and $ 40 million in 1995. This ment for 1992. A decrease in the Company's cost of capital, extends thc original period by 18 months and totals $ 130 including the reduction in return on equity, and allowance million, making available during this period $ 10 million for post-retirement benefits in an amount substa morc than under the original agreement. In addition, below the amount requested by the Company, accoun agreement has been reached to reopen negotiations in 1993 substantially all of the difference from thc Com . s to determine whether additional MERIT incentives should requested revenue increase. The difference in the post-bc established for 1994 and 1995. retiremcnt benefit allowance of approximately $ 33 million Measurement criteria for the $ 25 million of MERIT for will be deferred pending the outcome of the PSC's consider-1992 focus on implementation of self assessment recommen- ation of a Statement of Policy addressing post-retirement dations, including measures of responsiveness to customers, bcncfits. The Company anticipates the release of the PSC's nuclear performance, cost management and environmental final Statement of Policy by no later than the first quarter of performance. A rcport supporting the achievement of 1993. Pending issuance of the Statement of Policy, the 1993 MERIT for 1992 was submitted to the parties to the 1991 Settlemcnt establishes the intent of the parties for the Agreement on February 12, 1993. The Company claimed Company to recover the deferral over a period not to exceed an award of approximately $ 14.3 million, which is expected tcn years. As discussed in Note 7 of Notes to the Consoli-to be billed to customers beginning in May 1993, after PSC dated Financial Statements, thc Company expects that confirmation of the earned award. The shortfall from the both the 1993 Settlement and the policy contemplated in full award available reflects the increasing difficulty of the PSC's proposed Statcmcnt of Policy will allow the achieving the targets established in customer service and Company to record a regulatory asset for the difference cost managcmcnt, as well as lower than anticipated nuclear between the allowance in rates and the full accrual for operating performance. post-rctircment benefits calculated in accordance with the Criteria for the 1993-1995 MERIT periods are currently ncw accounting pronouncement.
being negotiated. Although individual goals have not been Other allowances contributing to the increase in revenues decided, progress is being made on the framework within include increased amounts for hazardous waste site inves-which individual goals will be established. The three focus tigation and remediation costs, capacity payments to non-areas are: (I) Responsiveness to Customer Needs, (2) Efli- utilitygcncrators and slightly higher operating costs, as well cicncy through Cost Management, Improved Operations as inclusion in base rates of costs previously recovered and Employee Empowerment and (3) Aggressive, Respon- through surcharges. Beginning in 1993, DSM program sible Leadership in Addressing Environmental Issues. The costs, exclusive of rebates, will be recovered through base Company expects that targets for full award of MERIT rates rather than through a separate surcharge. Based s will be more exacting and the Company's success through cumulative experience in managing DSM progra the first three MERIT periods may not be indicative of the Company believes that base rate treatment is apl future accomplishments. ate. The settlement also includes extension of the NERAM through December 1993 and provisions to defer expenses related to the Company's NUG Action Plan, including NUG 1993 Rate Set tleiiient contract buyout costs and certain other items.
Early in 1992, the Company filed for a $ 1637 million rate The 1993 Settlement allows the Company to submit a 20
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPAN'IES second-stage filing in 1993 to consider revenue require- known as the Six Cent Law tint provided,NUGs, mihimum a~
m ts that may arise as thc result of negotiating a ncw of $ 0.06/kwh for qiialifying projects. The, rcpcal was 'rice contract. The Company's current labor agreement cx- part of a comprchcnsivc energy law which also contains mea-ay 31, 1993. sures designed to promote competitive bidding for NUG n February 19, 1993, the Company filed for a gas rate power and to require any entity, either utility or non-utility, incrcasc of 3.8% or $ 23.2 million, while submitting a planning a gcncrating facility to demonstrate thc need for motion to defer an electric base rate filing for 60 days. The thc facility. In June 1992, thc PSC also reduced its LRAC Company will usc that time to attempt to reach an agrcc- estimates from previous high levels that had attracted an ment with the PSC to extend certain cost recovery mecha- excess of NUG projects. The Six-Cent L~w rcpcal "grand-nisms in the 1993 electric rate scttlcmcnt without increasing fathered" the minimum price for NUG projects wbich had base rates. The Company has requcstcd that the results of signed contracts filed with the PSC by Junc 26, 1992.
both the deferral request and the gas filing become eflec- Although the Company estimates its total NUG capacity in tive January I, 1994. The increase in gas rates is to cover 1995 to be 2,651 MW, the exact amount is dependent upon slightly higher operating expenses, as well as higher real the outcome of a number of projects for which construction cstatc taxes, property-related costs and construction-rclatcd has not yet begun. Most of thc additional capacity above the costs. While some parties arc actively petitioning thc PSC 1,549 MW in place will qualify for the six-cent subsidy. This to curtail or suspend the use of settlements in lieu of liti- would represent approximately 30 percent of the Company's gated rate cases, the Company believes that all participants then availablc capacity but comprise more tlnn 70 pcrccnt have gained from the settlement process. In an Order issued of its fuel and purchased power costs. As NUG projects and cffcctive December 30, 1992, the PSC initiated a come to completion, the Company expects a continued rise statewide proceeding to investigate and develop a ratcset- in thc cost of its purchased power, which will likewise ting process encompassing long-term planning goals, rate increase the price of retail clcctricity through the operation strategies and resource utilization. of the FAC. Without, any other actions, the Company's installed capacity reserve margin will grow to 42%-51% in Non-UtilityGenerators 1995, as compared to its target of 18%, before beginning The most significant factor increasing the Company's costs to decline in the late 1990's.
and its customer bills has bccn thc requirement to purchase These estimates cxcludc approximately 6,000 MW of non-utility generator power at amounts in excess of its cncrgy and capacity that, in thc Company's estimate, are not i nal cost of production and in volumes greater than likely to mature into actual projects. Most of this additional ds. The Public Utility Regulatory Policies Act of 1978 amount relates to possible projects that are either in thc ini-
'A), New York State Law and PSC policics and proce- tial discussion or negotiation stages. Repeal of the Six-Cent
<611 $ 973.6 I 36,738 $ 837.9 35,544 $ 877.9 (0.3)% 16.2% 3.4% (4.6)%
1991 kilowatt-hour generation increased 77% and fuel costs incurred decreased 6.9% as a result of increased generation he Company's nuclear units. 1991 kilowatt-hour purchases decreased 2.4% as a result of the return to service of Unit 1, osts incurred increased 3.7% as a result of a 6.3% increase in the average cost per kilowatt hour.
Gas revenues increased $ 66.5 million or 13.6% over the three-year period. As shown by the table below, this is primarily attributable to increased base rates effective in 1992 and 1991, increased revenues from transportation of gas for others and increased sales to ultimate consumers. Although rates for transported gas yield lower margins than gas sold directly by the Company, decreases in gas rcvcnucs caused by thc migration of customers to the transported gas classiTication has been con-sidered in the ratesctting process and has not had a significant impact on earnings. Also, changes in purchased gas adjustment clause revenues are generally margin-neutral.
Increase (decrease) from prior year (ln millions of dollars)
Gas revenues I 1992 I 1991 1990 Total fncrease in base rates. $ 4.7 $ 22.6 $ $ 27.3 Transportation of customer-owned gas. 6.3 14.4 2.2 22.9 Purchased gas adjustment clause revenues ... 12.4 (25.7) 5.3 (8.0)
MERIT revenues . (0.3) 2.7 2.4 Miscellaneous operating revenues........... 2.6 3.5 (2.0) 4.1 Sales to ultimate consumers and other sales... 52.9 (27.7) (7.4) 17.8
~
$ 78.6 I $ (10.2) $ (1.9) $ 66.5 Gas sales, excluding transportation of customer-owned 11.4% decrease in sales in the commercial class and a 56.0%
gas, werc 79.2 million dckathcrms in 1992, a 10.4% increase decrease in sales in the industrial class reflecting the reces-from 1991 and a .7% increase from 1990 (See Electric and sion and fuel-switching. The changes in the sales mix for tatistics Gas Sales appearing on page 52.) The 1990 through 1992 reflect more severe weather, unfavorable e in 1992 includes a 12% increase in residential sales competition with oil prices and the ability of large customers 4 10.2% increase in commercial sales, which were to purchase gas directly from producers. In 1992, thc strongly influenced by weather, offset by a 2.2% decrease in Coinpany transported 65.8 million dekathcrms (a 30%
industrial sales reflective of fuel-switching and the recession. increase from 1991) for customers purchasing gas directly The decrease for 1991 includes a 3.6% decrease in sales in from producers and expects a continued increase in such the residential class reflecting milder weather factors, an transportation activities. The Company has forecast an
NIAGARA MOHAWK POPOVER CORPORATION AND SUBSIDIARY COMPANIES increase in total gas deliveries in 1993 in excess of 5.3% of number of cogeneration projects served by the Company 1992 weather-adjusted deliveries principally in the transpor- and incrcascd marketing efforts. In 1992, the Ga tation category, although public sales are expected to added 11,000 new customers, primarily in thc resi increase almost 1.5%. Factors impacting these increases class, an increase of 2.3%, and expects a similar in include the effects of the recession that began in 1990, the in new customers in 1993. Clmnges in gas revenues and relative price differences between oil and gas in combina- dekathcrrn sales by customer group arc detailed in the tion with the relative availability of each fuel, the cxpandcd table below:
1992 Increase (decrease) from prior years
/ of Gas 1992 1991 1990 Class of service Revenues Revenues Sales Revenues Sales Revenues Sales Residential ............. 64.0% 1 7.0% 1 2.0% (1 4)% (3.6)% (3.2)% (5.6)%
Commercial............. 23.9 16.6 10.2 (11.5) (11.4) 2.0 (1.4)
Industrial . 1.8 18.6 (2.2) (56.4) (56.0) 57.0 57.6 Total to ultimate consumers 89.7 16.9 11.1 (6.6) (8 7) (0.2) (2.2)
Other gas systems....... .9 (32.0) (21.7) (11.9) (11.8) (14.7) (14.7)
Transportation of customer-owned gas ... 7.7 17.2 30.0 65.0 47.9 11.4 1.4 Miscellaneous........... 1.7 38.5 574.1 (84.0)
Total. 100 0% 16.5% 18.5% (2.1)% 8.4% (0 4)% (1.4)%
Thc PSC approved the 1991 Agreement on June 12, 1991, decrease in dekatherms purchased to meet customer providing for, among other things, the establishment of per- demand, offset by higher rates clmrged by the Company's manent gas rates at thc same level as the temporary rates suppliers, and an increase in purchased gas costs recog-effcctivc January I, 1991 (an increase of $ 272 million or 4.9%) nized and recovered through the purchased gas adjustment and a $ 5.5 million or 1.0% increase effective July I, 1992. clause. During the thrcc year period, the Company pur-chased the maximum allowable portion of its gas s requirements on the spot market, as permitted u contract with its principal supplier, to take advant GAS SALES lower spot market prices. Effective July I, 1991, thc Company (MILLIONSOF DEKATHERMS) rencgotiatcd its contract with its principal supplier to 145.0 provide for even greater flexibility to purchase gas in the spot market and to provide for the utilization of gas storage 122.4 facilities. Access to these storage facilitics was expanded and 114.5 112 9 liberalized in 1992. Thc Company's net cost pcr dekatherm 108.7 LU 2Lll purchased increased to $ 3.45 in 1992 from $ 3.31 in 1991 27.3 33!8! 34.3! 50.7' 6$ ;8> j and $ 3.70 in 1990.
Q Further changes in the federal regulation of gas pipelines, resulting from FERC Order 636 and its amendmcnts issued in 1992, will rcquirc interstate pipelines that offer open access transportation services to unbundle pipeline sales services from pipeline transportation service. These clmnges will cnablc the Company to arrange for its gas 1988 1989 1990 1991 1992 supply directly with producers, gas marketers or pipelines, at its discretion, as well as arranging for transportation and increased gas storage services. While gas supply flexibilityis expected to improve the competitive position of the Com-In comparison to the prior year, the total cost of gas pur- pany in industrial markets, it must meet the challenge in all chased increased 16.1% in 1992, after having decreased markets of increased competition while balancing supply 13.4% in 1991 and 1.0% in 1990. The increase for 1992 flexibilitywith system reliability.
results from increased dekatherms purchased (11.5%), a As a result of these structural changes, pipclines face 1.5% increase in rates charged by suppliers and a $ 6.9 mil- "transition" costs from implementation of the order. Thc lion increase in purchased gas costs and certain other items principal costs are: unrccovcrcd gas cost that would other-recognized and recovered through the purchased gas wise lmve been billable to pipeline customers under re-adjustment clause. The decrease for 1991 is the result of a viously existing rules, costs related to restructuring 3.3% ($ 21.3 million) decrease in dekatherms purchased to gas supply contracts and costs of assets needed to iml meet customer demand at slightly lower rates charged by the the order (such as meters, valves, ctc.). Under the cr, Company's suppliers, combined with a decrease of $ 170 mil- pipelincs are allowed to recover 100% of prudently incurred lion in purchased gas costs and certain other items recog- costs from customers. Prudence will be determined by the nized and recovered through the purchased gas adjustmcnt FERC review.
clause. The decrease for 1990 was the result of a 9.2% The amount of restructuring costs that may be billable
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES to the Company will bc determined in accordance with by $ 42.6 million of cash surcharge rcvcnues permitted by e restructuring plans which have been submitted to the 1989 Agreement and $ 14.8 million of amortization pur-
'or approval. The Company is actively participating suant to the 1991 Agreement. At December 31, 1992, $ 16.5 ii C hearings on these matters to ensure an equitable million remained to be amortized.
allocation of costs. Based upon information prcscntly avail- Maintenance expense dccrcased slightly in 1992 as able to the Company from thc petitions filed by the increased costs associated with outagcs at Unit, I and refuel-pipelines and the Company's participation in settlement ing Unit 2 were offset by rcduccd transmission linc mainte-negotiations, its liability lor the pipelines'nrccovcrcd gas nance expenses. Maintenance expense decreased L8% in costs could be as much as $ 56 million and its liability for 1991 due to lower Unit 2 maintenance partly offset by trans-pipeline restructuring costs could be as much as $ 60 mil- mission line ice storm damage, but increased 12.5% in 1990, lion. However, the Company believes ultimate liability will primarily due to increased lcvcls of maintenance at pro-be less than $ 64 million in total, based on its assessment of duction steam plants, Unit 2 and on the Company's electric the progress of settlement negotiations. The Company antic- distribution system.
ipates these costs will be primarily reflected in demand Depreciation and amortization cxpensc for 1992 and charges paid to reserve space on the various interstate 1991 incrcascd 5.9% and 172% over 1991 and 1990, respec-pipelincs and will be billed over a period of approximately tively. The increase is attributable to normal plant growth; 7 years, with billings more heavily iveighted to the first 3 howcvcr, the 1991 amount also reflects an $ 18.2 million in-years. The Company is unable to predict the probablc out- crease in the provision for nuclear plant decommissioning.
come of current pipeline restructuring settlemcnts and the Nct Federal and foreign income taxes for 1992 and 1991 amounts for which it may bc ultirnatcly liable or the period increased as a result of incrcascs in book taxable income.
over which this liabilitywill bc billed. The Company believes The 1990 taxes dccrcascd as a result of decreases in book any amounts for which it is ultimately determined to be taxable income. The increase in Other taxes in the three-liable will bc recoverable in the ratcsetting process. year period is due principally to higher property taxes Through the energy and purchased gas adjustment resulting from property additions along with increased clauses, costs of fuel, purchased power and gas purchased, rcvenuc-based taxes.
above or below the levels allowed in approved rate sched- Other items, net, excluding Federal income taxes, AFC ules, are billed or credited to customers. Thc Company's and the nuclear disallowances decreased $ 2.7 in 1992 and clcctric fuel adjustmcnt clause provides for partial pass- $ 21.9 million in 1991. Thc 1992 decrease is the result of the t i of fuel and purchased power cost fluctuations recording of a $ 45 million reserve against the carrying l ose forecast in rate proceedings, with the Company value of Canadian subsidiary oil and gas reserves, offset in a ing a specific portion of increases or retaining a part by the recognition of thc Company's share of Unit 2 portion of decreases to a maximum of $ 15 million per rate contractor litigation proceeds and increased earnings by year. In 1987, the PSC established a generic procccding to the Company's indepcndcnt power subsidiary. The 1991 examine the operation of the existing fuel adjustment dccrcase is primarily thc result of a similar writcdown of clause, including whether the fuel adjustment clause should $ 22.7 million of oil and gas rcscrvcs.
continue. This proceeding is continuing and the Company Nct intcrcst charges dccrcascd $ 12.0 million in 1992 and is unablc to predict the outcome. $ 72 million in 1991, primarily as thc result of thc refinanc-Other operation expense increased $ 52.5 million or 78% ing of debt at interest rates lower than the debt retired. In in 1992 as compared to increases of 78% in 1991 and 9.5% 1990, nct interest charges increased duc to the issuance of in 1990. The 1992 increase is primarily duc to wage additional First Mortgage Bonds. Dividends on preferred increases (including the cffccts of the performance based stock decreased $ 3.9, $ 19 and $ 2.9 million in 1992, 1991 and managcmcnt compensation program and union wage 1990, respectively, as a result of nct reductions in amounts of increases), increased computer software cxpenscs and higher medical benefits paid. Thc 1991 increase is primarily due to wage increases, including thc cffccts of a ncw per- MAINTENANCEAND OTHER formance-based management, compensation program and OPERATION EXPENSE an increase in bad debt expense. The increase is also due to (MILLIONSOF DOLLARS)
DSM program expenses, environmental site investigation $ 953.9
$ 903.0 and remediation costs, and rcscarch and development costs $ 858.1 which totaled approximately $ 41.9 million, but which are $ 778.1 matched with specific rcvcnue factors provided for in the $ 668.9 1991 Agreement. Bad debts have increased as a reflection of 467'9 574 I9 626;2 675.2 727.8 the effects of the continuing national recession. Increased 0
collections efforts and innovative collections managcmcnt begun in 1991 to make long-term improvcrnents also con-tr' to the short-term effect of increased writeoffs.
Agreement interest coverage (deferral)/amortiza-tion icflccts the impact on operating expenses from the tar-get interest coverage ratio defcrrals allowed under the 1989 1988 1989 1990 1991 1992 Agrccmcnt. The 1991 and 1992 amount rcprcscnts amorti-zation, based on amounts recovered in rates, of defcrrals pcrmittcd in 1989 and 1990. The 1990 deferral was reduced 27
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES stock outstanding. The weighted average long-term debt cally have very high debt-to-equity ratios) and the character interest rate and preferred dividend rate paid, reflectin the of the power purchase agreements increase the fi al actual cost of variable rate issues, changed to 8.29% and risk of utilities. The Company is aware that its 704%, respectively, in 1992, from 8.74% and 7.53%, respec- interest coverage and debt-to-equity ratios have r ly tively, in 1991, from 9.11% and 756%, respectively, in 1990. been discounted by varying amounts for purposes of estab-lishing credit ratings. Because of the Company's growing commitments for NUG purchases, thc imputation can have sects of Ciianging Prices The Company is especially sensitive to inflation because of a material negative impact on its indicators. Standard and the amount of capital it must raise to finance its construc- Poors recently changed the "outloolt" for the Company's tion program and because its prices arc regulated using a secured debt from "positive" to "stable" principally due to rate base methodology that reflects the historical cost of NUG commitments.
utilityplant.
The Company's consolidated financial statcmcnts arc Construction and Other Capital Requirements based on historical cvcnts and transactions when the pur- The Company's overall capital requircmcnts consist of chasing power of the dollar was substantially different from amounts for the Company's construction program, working the present. Thc effects of inflation on most utilitics, includ- capital needs, maturing debt issues and sinking fund ing thc Company, are most significant in thc areas of depre- provisions on outstanding debt and preferred stock, and ciation and utility plant. The Company could not replace its have been affected by the Company's efforts in recent utility plant and equipment for the historical cost value at years to lower capital costs through refinancing. Annual which they are recorded on the Company's books. In addi- expenditures for the years 1990-1992 for construction tion, the Company would probably not replace these assets and nuclear fuel, including rclatcd AFC and overheads with identical ones due to technological advances and regu- capitalized, were $ 431.6 million, $ 522.5 million and $ 502.2 latory changes which have occurred. In light of these consid- million, respectively.
erations, the depreciation charges in operating expenses do The 1993 estimate for construction additions, including not reflect the current cost of providing service. The Com- overheads capitalized, nuclear fuel and AFC, is approxi-pany, however, will seek additional revenue'o cover the costs mately $ 525 million, of which approximately 90% is of maintaining service as assets are replaced. expected to be funded by internal sources. Mandatory and optional debt and prcfcrred stock retirements and other requirements are expected to add approximately . er Financial Position, Liquidity and CaPital $ 579 million (expected to be rcfinanccd from I sources) to the Company's capital requirements, for tal Resources of $ 1,104 million. Current estimates of total capital requirements for thc years 1994-1997 are $ 1,170, $ 784, $ 813 Financial Position and $ 712 million, respectively, of which $ 661, $ 557, $ 611, and The Company's capital structure at Dcccmbcr 31, 1992 was $ 546 million relates to expected construction additions. The 56.4% long-term debt, 74% preferred stock and 36.2% com- estimate of construction additions included in capital mon equity, as compared to 56.7%, 8.3% and 35.0%, respec- requirements for thc period 1994 to 1997 will be reviewed tively, at December 31, 1991. Book value of the common by management during 1993 with the objective of reducing stock was $ 16.33 per share at, Dcccmber 31, 1992 as com- these amounts whcrc possible.
pared to $ 15.54 per sharc at December 31, 1991. The The provisions of the Clean Air Act Amendments of 1990 improvement in the capital structure and book value is pri- (Clean AirAct) are expected to ltavc an impact on the Com-marily attributable to rcinvested earnings, although pre- pany's fossil generation plants during the period through ferred stock redemptions and sales of common stock under stock purchase plans also had an impact.
The 1992 ratio of earnings to fixed charges was 2.24 as PROJECTED CONSTRUCTION compared to 2.09 in 1991. The ratio of earnings to fixed ADDITIONS charges for 1990 was 1.41, which reflect the effects of the (MILLIONSOF OOLLARS) loss accrued for disallowed Unit 1 and Unit 2 replacement $ 661 power costs as discussed above in Results of Operations. $ 72 $ 611 Excluding the effect of the loss accrual, the 1990 ratio would o $ 525 i
$557 $546
$ 85 27+
have been 182. The 1990 ratio of earnings to fixed charges "
$ 80 $ 77 $73 I also reflects the effects of the 1989 Agrecmcnt, which pro- $ 76 I vided for near-term financial stabilization while establishing a frameivork for resolving regulatory and financial issues fac-ing the Company. A key aspect of this financial stabilization was the provision assuring specified interest coverage lcvcls (without.AFC) in 1990.
The Company has been made aware that Iirms which publish securities ratings lravc begun to impute certain 1995 1996 1997 19 93 1994 items into the Company's interest coverage calculations and capital structure, the most significant of which is the inclu-sion of a "leverage" factor for NUG contracts. These firms believe that the financial structure of thc NUGs (which typi-28
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 2 000 and beyond. The Company is studying options for acquisition of Syracuse Suburban Gas Company, Inc.) and a liance with the various provisions of Phase I of the i1ct increase of $ 90.1 million of short-term debt and inter-AirAct, which becomes effective January I, 1995 and mcdiatc term bank revolving credit obligations, which iues through 1999, including a possible strategy that include the refinancings discussed below The Company focuses on fuel-switching at its facilities. Thc potential for also completed $ 12.5 million of capital lcasc financing.
changing thc coal burned at the Dunkirk Steam Station to a These amounts include cxtcrnal debt financing done lower sulfur content is under review, and converting Oswego directly by the Company's subsidiaries, which decreased to Units 5 and 6 from oil to co-firing with natural gas and oil $ 20.4 million from $ 54.2 million in 1991.
(including construction of a natural gas pipclinc to the During 1992, the Company issued $ 835 million of First facility) is included in the construction budget. To meet Mortgage Bonds and thc proceeds werc used to refinance compliance requirements, thc Company must also lower its $ 100 million of maturing bonds and provide for the call and nitrous oxide (NOx) cmissions and has included $ 85 million carly redemption of $ 638 million of high coupon First Mort-in its construction forecast for 1993 through 1997 to install gage Bonds. The Company also refinanced debt underlying low NOx burners at the I.Iuntley, Dunkirk and Albany Stcam a long-term leveraged tnnsmission line lcasc to reduce the Stations. Phase II of the Clean Air Act, cffcctivc January I, interest rate from 11.1% to 8.77% and entered into a forward 2000, will require further reductions in sulfur dioxide emis- refunding agreement to rcducc the interest ntc on $ 115.7 sions. The Company has conducted studies indicating that million of tax-exempt bonds from approximately 11.3% to the burning of lower sulfur fuels at all its coal and oil fired 7.2% beginning in 1994.
units is a possible compliance method, but decisions on Phase II liave not yet been made. Thc Company is continu-ing to study its options, taking into consideration thc impacts of emerging environmental laws and regulations at ANNUALEXTERNAL both the Federal and State level and the effect of NUG FINANCING BY TYPE purchases and DSM initiatives on load forecasts, as well as (MILLIONSOF DOLLARS) continuing to examine the emerging market for trading $ 944.6 emission allowances. $ 19.5 Thc Company bclievcs that compliance with the new emission restrictions can be achieved with currently avail-ontrol technology and fuel switching alternatives;
$ 5.8 r, until specific regulations implementing the Clean $ 407.2 t arc issued, thc Company can provide no assurance $372.2
$ 90.7 $ 351.6 in this regard. The Company believes that all capital costs, $ 295.1 as well as incremental operating and maintenance costs and I $ 22.9 fuel costs, will be recoverable from its ratepaycrs.
The Company is also studying dnft Ncw York State emis-sions requirements which, as currently proposed, would be 1988 1989 1990 1991 1992 far more restrictive than federal requirements and could cause a substantial increase in compliance cost and, in the most extreme case, require retirement of certain of the Company's fossil fuel plants. The Company is unable to predict wlrat requirements will ultimately bc adopted by The Company continues to investigate options to reduce New York State. its embedded cost of long-tcrrn debt and take advantage of The Company has undertaken a long-term program to its current bond ratings and lower interest costs.
reinforce sections of its electric transmission network which External financing of approximately $ 631 million is are approaching the end of their useful lives. The anti- expected for 1993, of which $ 438 million is to be used for cipated cost of the reinforcement effort is approximately scheduled and optional rcfundings. This external financing
$ 435 million within the period 1993-1997, but the efforts are is projected to consist of $ 510 million in long-term debt, expected to continue beyond 1997. $ 100 million from a public offering of common stock and The Company has also included amounts in the con- about $ 41 million through the Company's Dividend Rein-struction forecast for hydro relicensing, as well as for gas vestment and Employcc Stock Plans, offset by a $ 20 million system expansion for cogcnention and greater customer decrease in short-term debt. These common stock sales are market penetration. consistent with management's goal to improve the Com-pany's capital structure. External financing plans for 1994 to 1997 are subject to periodic revision as underlying assump-Liquidityand Capital Resources tions are changed to reflcct ncw developments; however, the Cash flows to meet the Company's requirements for operat- Company currently anticipates external financing over this i 'csting and financing activities during the past three period in the aggregate of approximately $ 1,177 million.
e reported in the Consolidated Statements of Cash Substantially all of this financing is for refunding, as cash Flo on page 34. provided by operations is generally expected to provide During 1992, the Company raised approximately $ 944.6 sufficient funds for the Company's anticipated construction million from external sources, consisting of $ 835 million of program. The aggregate level of financing during this First Mortgage Bonds, $ 19.5 million of common stock four year period will reflect, among other things, the nature, (which includes $ 6.1 million issued in connection with the timeliness and adequacy of rate relief, uncertain energy
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES demand due to economic conditions, and capital ex- The Nuclear Regulatory Commission (NRC) issued regu-penditures relating to distribution and transmission load lations in 1988 requiring owners of nuclear power reliability projects, as well as expansion of thc gas business. to place costs associated with decommissioning ac Costs associated with coinpliance with federal and state cnvi- for contaminated portions of nuclear facilities into .
ronmcntal quality standards including the Clean Air Act, ternal trust. Further, the NRC established guidelines for thc effects of rate regulation and various regulatory initia- determining minimum amounts that must be available in tives, the level of internally generated funds and dividend the trust for these specified decommissioning activities at payments, the availability and cost of capital and the ability the time of decommissioning. Based upon studies applying of the Company to meet its interest and prefcrrcd stock divi- the NRC guidelines, the Company has estimated that the dend coverage requirements, to satisfy legal requirements minimum requirements for Unit I and its share of Unit 2, and restrictions in governing instruments and to maintain respectively, will be $ 364 million and $ 381 million in future an adequate credit rating will also impact thc ainount and dollars. The 1991 Agreement includes an allowance for type of future external financing. iniclcar decommissioning of Units I and 2 that exceeds the The Company has initiated a site investigation and reine- Company's currently deterinined minimum requirement.
diation program which sccks a) to identify and remedy These amounts arc being placed in an external trust. Pur-environmental contamination hazards in a proactive and suant to the terms of the 1991 Agreement, such allowances cost-effective manner designed to satisfy regulatory require- will be accepted in future years unless and until the cost of ments and b) to ensure financial participation by other decommissioning changes. Thc Company filed a decommis-responsible parties. The program involves sponsorship of sioning report for each Unit with thc NRC in July 1990.
investigation, reinediation and selected research projects Statement of Financial Accounting Standards No. 106, for 42 Company-owned waste sites and, where appropriate, "Employccs'ccounting for Postretircment Benefits Other participation in remedial action at 42 waste sites owned by than Pensions" becomes effective in 1993 (See Note 7 of others as to which the Company is one of a number of Notes to Consolidated Financial Statcinents). The pro-potentially responsible parties (PRP). nouncement requires accrual accounting for these benefits, The Coinpany has accrued $ 215 million at Deccmbcr 31, which the Company currently accounts for on a cash basis.
1992 for its estimated liabilityfor investigation and remedia- The 1993 Settlement provides for partial rccovcry of thc tion of certain Company-owned and Coinpany-associated post-retirement benefit accrual, with authorization to defer hazardous waste sites. The amount accrued represents the the diAerence for future rccovcry (sce "Rate Agreemcnts" low end of a range of cost estimates developed from thc above). The Company is evaluating its funding optio Company's ongoing site investigation and remediation pro- the extent the Company funds amounts in an cxtcrn; gram. Of the $ 215 million accrued, $ 195 million rclatcs to in excess of thc rate allowance, financing require Company-owned sites and $ 20 million represents the Com- may increase.
pany's estimated cost contribution to sites with which it may The Company believes tltat traditionally available sources bc associated. The accrual of the Company's cost contribu- of financing should be suAicicnt to satisfy the Company's tion for PRP sites is derived by estimating thc total cost of external financing needs during the period 1993 through clean-up of the sites and then applying a contribution factor 1997. As of December 31, 1992, the Company was able to to the estimated total cost. Total costs to investigate and issue an additional $ 1,689 inillion aggregate principal rcmediate sites with which the Company is associated as a amount of First Mortgage Bonds. This includes $ 954 million PRP arc estimated to be approximately $ 492 million. on the basis of rctircd bonds without, regard to an interest The Company believes that costs incurred in the investi- coverage test and approximately $ 735 million supported by gation and remediation process are recoverable in the ratc- additional property currently certified and available, assuin-setting process. (See Note 9 of Notes to Consolidated ing an 8% intcrcst rate, under thc applicable tests set forth Financial Statements under "Environmental Issues.") The in the Company's mortgage trust indenture. A total of 1991 Agreement included a recovery mechanism and an $ 200 million of Preference Stock is currently available for aiinual allowance of approximately $ 9 million for costs sale. The Company also has atithorizcd unissued Preferred expected to be incurred during 1991 and 1992 for site in- Stock totaling $ 342.4 million. Thc Company will also con-vestigation and remediation. The 1993 Scttlcmcnt provides tinue to explore and utilize, as appropriate, other methods for annual recovery of $ 35 million of cxpccted expendi- of raising funds.
tures. The recovery mechanism provides that expenditures The Company's securities ratings at Deccmbcr 31, 1992, were:
over or under the allowance bc deferred for future rate con-sideration. The impact of these cxpcnditures on external financing requirements is depcndcnt upon the timing of Secured Preferred Commercial expenditures and associated recovery; however, thc Com- Debt Stock Paper pany does not expect these costs to impact external financ-ing materially. Standard 8 Poors Corporation BBB BBB- A-2 The Company is also undertaking an environmental com- Moody's Investor Service Baa2 baa3 p-pliance audit program at many of its facilitics. These audits Duff & Phelps BBB BBB- Not ap Fitch Investors Service BBB BBB- Not ap may result in additional expenditures for iiivestigation and remediation that thc Company cannot currently estimate.
Some of the contamination problems thc Company might find include petroleum-related contamination caused by past spills, leaks, or other releases incidental to operation at The security ratings set forth above are subject to revision Company facilities. and/or withdrawal at any time by thc respective rating oryl-
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES nizations and should not be considered a recommendation ment of fuel and purchased power costs. However, the to I i, sell or hold securities of the Company. Company has sufficient borrowing capacity to fund such a Company's cost of financing and access to markets deficit as necessary. Bank credit arrangements which, at e negatively impacted by events outside of its control. December 31, 1992, totaled $ 516 million (including $ 220 T i Company's securities ratings could be negatively million in commitrncnts under Revolving Credit Agrce-impacted by, among other things, the growth in its reliance mcnts, $ 100 million Direct Pay Lcttcr of Credit Facility and on NUG purchase power requirements. Rating agencies Revolving Credit Agrecrnent of Oswego Facilities Trust, $ 40 have cxprcsscd concern about thc iinpact on Company million in one-year commitments under Credit Agrccments, financial indicators and risk that NUG financial leveraging $ 56 million in lines of credit. and a $ 100 million Bankers may have. Acceptance Facility Agreement) arc used by the Company to Ordinarily, construction related short-term borrowings enhance flcxibilityas to the type and timing of its long-term are refunded with long-term securities on a continuing security sales.
basis. This approach generally results in the Company show- The unsecured debt limitation imposed by the Company's ing a working capital deficit. Working capital deficits may charter is 10% of consolidated capitalization plus $ 50 mil-also bc tcrnporarily created as a result of the seasonal nature lion, which, as ofJanuary I, 1993, equates to approximately of the Company's operations as well as timing difTcrenccs $ 661 million and against which thc Company had outstand-between the collection of customer reccivablcs and the pay- ing unsccurcd debt, of approximately $ 315 million.
RePort ofManagement RePort ofIndePendent Accountants The consolidated financial statcrnents of Niagara Mohawk To the Stockholders and Power Corporation and its subsidiaries were prcparcd by Board of Directors of and are the responsibility of management. Financial infor- Niagara Mohawk Power Corporation mation contained elsewhere in this Annual Rcport is consis-tent witli that in the financial statements.
To mcct its responsibilities with respect to financial infor- In our opinion, thc accompanying consolidated balance rnation, martagement maintains and enforces a system of sheets and thc related consolidated statcrnents of income i ial accounting controls, which is designed to provide and retained earnings and of cash flows present fairly, in all ible assurance, on a cost effective basis, as to thc material respects, the firiancial position of Niagara Mohawk y, objectivity and reliability of the financial records Power Corporation and its subsidiaries at December 31, 1992 an protection of assets. This.system includes communica- and 1991, and the results'of their operations and their cash tion through written policics and procedures, an organin- flows for each of the three years in thc period cndcd tional structure that, provides for appropriate division of Dcccmbcr 31, 1992, in conformity with gcncrally accepted responsibility and thc training of personnel. This system is accounting principles. These financial statcmerits are tlie also tcstcd by a comprchensivc internal audit program. In responsibility of the Company's managcmcnt; our responsi-addition, the Company has a Corporate Policy Register and bility is to express an opinion on these financial statcmcnts a Code of Business Conduct. which supply employees with a based on our audits. Wc conducted our audits of these state-framework describing and defining the Company's overall ments in accordance with generally accepted auditing stan-approach to business and reqiiires all cmployces to maintain dards which require that, wc plan and pcrforni thc audit, to the highest level of ethical standards as well as requiring all obtain reasonable assurance about whether the financial managcrncnt employees to formally affir their compliance statements are free of material misstatement. An audit with thc Code. includes examining, on a test basis, evidcncc supporting thc The financial statements have been audited by Price amounts and disclosures in tile financial statements, assess-Watcrhouse, the Company's independent accountants, in ing the accounting principles used and significant cstirnates accordance with generally acccptcd auditing standards. In made by management, and evaluating the overall financial planning and performing their audit, Price Watcrhouse con- statement, prcscntation. We believe tliat our audits provide a sidcrcd the Company's intcriial control structure in order to reasonable basis for the opinion cxprcsscd above.
dctcrrnine auditing proccdurcs for thc purpose of express-ing an opinion on the financial statcrncnts, and not to pro-vide assurance on the internal control structure. Thc indcpendcnt accountants'udit docs not limit, in any ivay manageincnt's responsibility for thc fair presentation of the financial statements and all other informatipn, whether audited or unaudited, in this Annual Report.
The Audit Committee of thc Board of Directors, consist- Syracuse, Ncw York ir we outside directors who are not employccs, meets January 28, 1993
- r. y with management, internal auditors and Price Wa iousc to review and discuss internal accounting con-trols, audit examinations and financial reporting matters.
Price Waterhouse and the Company's internal auditors have free access to meet individually with the Audit Committee at any time, without management being prcscnt.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES Consolidated Balance Sheets ln thousands of dollars At December 31 ~ 1992 1991 ASSETS Utilityplant (Note 1):
Electric plant $ 7,590,062 $ 7,303,184 Nuclear fuel 445,890 408,643 Gas plant 787,448 718,935 Common plant 231>425 180,456 Construction work in progress 587,437 568,994 Total utility plant . 9,642,262 9,180,212 Less: Accumulated depreciation and amortization. 2,975,977 2,741,004 Net utility plant . 6,666,285 6,439,208 Other property and investments 274>169 I 313,371 Current assets:
Cash, including temporary cash investments of $ 4121 and $ 4,32I, respectively .. 43,894 27,378 Accounts receivable (less allowance for doubtful accounts of $ 3,600) (Note 9)... 221>165 176,196 Unbilied electric revenues (Note 1) 180)000 158,700 Electric margin recoverable.. 11)595 15,265 Materials and supplies, at average cost:
Coal and oil for production of electricity . 78>517 65,355 Gas storage . 20,466 16,373 Other 172)637 154,240 Prepayments:
Taxes 14,414 17,808 Pension expense (Note 7). 33,631 32,877 Other 32>522 36,824 808,841 701,016 Deferred debits:
Unamortized debt expense 140,803 108,629 Deferred recoverable energy costs. 61,944 47,615 Deferred finance charges (Note 1) . 239,880 239,880 Deferred operating expe0ses 16>486 36,743 Deferred environmental restoration costs (Note 9). 215,000 200,000 Other 167,127 155,014 841,240 787,881
$ 8,590,535 $ 8,241,476 CAPITAUZATIONAND UABIUTIES Capitalization (Note 4):
Common stockholders equity:
Common stock, issued 137,159,607 and 136,099,654 shares, respectively .. $ 137,160 $ 136,100 Capital stock premium and expense. 1,658,015 1,650,312 Retained earnings . 445>266 329,130 2>240,441 2,115,542 Non.redeemable preferred stock 290,000 290,000 Mandatorily redeemable preferred stock 170)400 212,600 Long-term debt 3,491>059 3,325,028 Total capitalization . 6,191)900 5,943,170 Current liabilities:
Short-term debt (Note 2) 227,698 131,218 Long. term debt due within one year (Note 4) 57,722 175,501 Sinking fund requirements on redeemable preferred stock (Note 4) .. 27,200 26,950 Accounts payable . 275>744 247,401 Payable on outstanding bank checks. 41,738 36,434 Customers'eposits ... 13,059 11,070 Accrued taxes 52,033 34,587 Accrued interest.. 70,882 78,195 Accrued vacation pay . 38>515 36,263 Other 40,220 34,956 844,811 812,575 Deferred credits:
Accumulated deferred income taxes (Note 1) 755,421 699,492 Deferred finance charges (Note 1). 239>880 239,880 Unbilied electric revenues (Note 1). 77,768 56,468 Deferred pension settlement gain (Note 7) 68,292 73,084 Accrued refunds to customers for replacement power cost disallowance ....., .. 46,801 86,348 Other 150,662 130,459 1,338,824 1,285,731 Commitments and contingencies (Note 9):
Uability for environmental restoration . 215,000 200,000 I $ 8>590)535 $ 8,241,476
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES Consolidated Sta~ents ofIncome tained Earnings ln thousands of dollars For the year ended December 31, 1992 1991 1990 Operating revenues:
Electric.............. $ 3,147)676 $ 2,907,293 $ 2,669,308 Gas . 553,851 475,225 485,411',
I 3,701,527 3,382,518 3,154,719 Operating expenses:
Operation:
Fuel for electric generation 323,200 438,957 460,485 Electricity purchased. 650,379 398,882 417,429 Gas purchased 287,316 247,502 285,868 Other operation expenses. 727,766 675,224 626,235 1989 Agreement interest coverage (deferred)/amortization... 20)257 31,176 (52,970)
Maintenance 226,127 227,812 231,895 Depreciation and Amortization (Note 1). 274,090 258,816 220,857 Federal and foreign income taxes (Note 6) 183,233 158,137, 121,114 Other taxes . 484,833 420,578 391,745 I 3,177,201 2,857,084 2,702,658 Operating Income. 524,326 525,434 452,061 Other Income and deductions:
Allowance for other funds used during construction (Note 1). ................................. 9,648 8,251 10,674 Federal and foreign income taxes 27,729 24,242 12,395 Nuclear replacement power cost disallowance...... (139,974) income tax of cost disallowance. 47,600 (net) (16,338) (13,599) 8,251 I 21,039 18,894 (61,054)
Income before interest charges. ~ . I 545)365 544,328 391,007 Interest charges:
Interest on long-term debt. 290,734 302,062 311,728 Other interest. 9>982 9,577 7,141 Allowance for borrowed funds used during construction . (11,783) (10,680) (10,740) 288,933 300,959 308,129 Net Income . 256,432 243,369 82,878 Dividends on preferred stock 36,512 40,411 42,300 Balance available for common stock 219,920 202,958 40,578 Dividends on common stock . 103,784 43,552 116,136 159,406 40,578 Retained earnings at beginning of year. 329,130 169,724 129,146 Retained earnings at end of year. .. I $ 445,266 $ 329,130 $ 169,724 Average number of shares of common stock outstanding (in thousands) . 136,570 136,100 136,100 Balance available per average share of common stock . $ 1.61 $ 1.49 $ .30 Dividends paid per share . $ .76 $ .32 $ .00
( ) Denotes deduction
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES Consolidated Statements of Cash Flozos Increase (Decrease) in Cash ln thousands of dollars For the year ended December 31, 1992 1991 1990 Cash flows from operating activities:
Net income. $ 256,432 $ 243,369 $ 82,878 Adjustments to reconcile net income to net cash provided by operating activities:
Nuclear replacement power cost disallowance and related amortization (39,547) (28,820) 115,168 Depreciation and amortization. 274,090 258,816 220,857 Amortization of nuclear fuel . 26,159 38,687 27,878 Provision for deferred income taxes 55,929 68,138 (24,881)
Electric margin recoverable. 3,670 (20,173) 4,908 Allowance for other funds used during construction............. (9,648) (8,251) (10,674)
Deferred recoverable energy costs (14,329) 4,931 41,300 Loss on investments net . 44,296 30,680 8,386 Unbilled electric revenues (17,031)
Deferred operating expenses 20,257 31,176 (53,939)
(Increase) decrease in net accounts receivable. (44,969) (25,900) 54,964 (Increase) decrease in materials and supplies. (28,293) 7,022 (39,031) increase (decrease) in accounts payable and accrued expenses .. 31,025 4,221 (36,122)
Increase in accrued interest and taxes . 10,133 447 20,423 Changes in other assets and liabilities . 39,565 17,052 106,227 Net cash provided by operating activities 624,770 621,395 501,311 Cash flows from investing activities:
Construction additions. (452,497) (504,485) (418, 328)
Nuclear fuel . (37r 247) (13,236) (3,2 Less: Allowance for other funds used during construction... 9)648 8,251 10, Acquisition of utility plant (480,096) (509,470) (410, (Increase) decrease in materials and supplies related to construction ..
Increase (decrease) in accounts payable and accrued (7,359) 4,682 (26,020) expenses related to construction 7,756 1,055 (9,030)
Increase in other investments (11)615) (69,648) (52,255)
Other. (31,588) (13,721) (16,777)
Net cash used in investing activities. (522,902) (587,102) (514,936)
Cash flows from financing activities:
Proceeds from sale of common stock. 13,340 Sale of mortgage bonds. 835)000 195,600 300,000 Issuance of preferred stock. 22,850 Redemption of preferred stock (41,950) (42,830) (25,980)
Reductions of long-term debt (796,795) (231,941) (240,110)
Net change in short-term debt and revolving credit agreements .. 90,130 76,606 51,591 Dividends paid (140,296) (83,963) (42,300)
Change in dividends payable ( 893) 257 (9,148)
Other. (43,888) (7,065) (4,769)
Net cash provided by (used in) financing activities .. (85,352) (70,486) 29,284 Net increase (decrease) in cash. 16)516 (36,193) 15,659 Cash at beginning of year 27,378 63,571 47,912 Cash at end of year $ 43,894 $ 27,378 $ 63,571 Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest . $ 323,972 $ 331,828 $ 329,390 Income taxes .
Supplemental schedule of noncash investing and 76,519 67,509 19 financing activities:
Capital lease obligations incurred. $ 12,500 $ 4,753 $ 10,051 Liability for environmental restoration 15,000 200,000 During June 1992, the Company acquired all of the common stock of Syracuse Suburban Gas Company, Inc. in exchange for 353,775 shares of the company's common stock haring a vafue of $ 6.120,006
N IAGARA MOHAWK POWER CORPOR ATION AND SUBSIDIARY COMPANIES Notes to Consolidated Financial Statements allowance for funds used during construction (AFC).
Replacement of minor items of utility plant and the cost of
- l. Summary ofSignificant Accounting Poli cies current, repairs and maintenance is charged to cxpcnsc.
Whenever utility plant is retired, its original cost, togcthcr T ic Company is subject to regulation by the Ncw York State with the cost of removal, less salvage, is charged to accumu-Public Service Commission (PSC) and thc Federal Energy lated depreciation.
Regulatory Commission (FERC) with respect to its rates for service and the maintenance of its accounting records. Alloreance for Funds Used During Constrrrctionr The Company Thc Company's accounting policics conform to generally capitalizes AFC in amounts equivalent to the cost of funds accepted accounting principles, as applied to regulated devoted to plant under construction. AFC rates arc deter-public utilitics, and arc in accordance with the account- mined in accordance with FERC and PSC regulations. Thc ing rcquiremcnts and ratemaking practices of the regula- AFC rate in effect at. December 31, 1992 was 9.70%. AFC is tory authoritics. scgrcgatcd into its two components, borrowed funds and other funds, and is reflectcd in the Interest Charges section Principles of Consolidation: Thc consolidated financial state-and the Other Income and Deductions section, rcspcctively, ments include the Company and its wholly-owned sub-sidiaries. All significant intercompany balances and of the Consolidated Statcmcnts of Income.
transactions have been eliminated. Assets and liabilities of In 1985, pursuant, to PSC authorization, the Company dis-its Canadian energy subsidiary, Opinac Energy Corporation, continued accruing AFC on construction work in progress are translated into U.S. dollars at thc exchange rate in cffcct (CWIP) for which a cash return iuas being allowed through inclusion in rate base of tliat portion of the invcstmcnt in at the balance sheet date. Rcvenuc and cxpcnse accounts arc translated at the avcragc exchange rate in effect during thc the Nine Mile Point Nuclear Station Unit Yo. 2 (Unit 2).
Amounts equal to Unit 2's AFC which was no longer accrued year. Currency translation adjustmcnts arc rccordcd as a have bccn accumulated in deferred debit and credit component of equity and do iiot have a significant impact accounts up to thc commercial operation date of Unit 2, on financial condition. The results of operations of thc Com-pany's oil and gas subsidiary arc included in other income (each amounting to $ 239.9 million at December 31, 1992 and deductions on the Consolidated Staterncnts of Income and 1991) and await. future ratemaking disposition by the PSC. A portion of the dcfcrred credit could be utilized to and Retained Earnings.
reduce future rcvcnue requirements over a period shorter
'ary oil and gas properliesr Thc Company's Canadian than the life of Unit 2, with a like amount of deferred debit
~ amortized and recovered in rates over the remaining life of subsidiary owns crude oil and natural gas properties w i are accounted for under the full cost rncthod, whcrc- Unit 2.
by all costs relating to the exploration for and development of conventional crude oil and natural gas reserves arc capi- DePreciation, Amortixatiorr and Nuclear Gerrerating Plant talized. Such costs include'land acquisition expenditures, Deconrmissionr'ng Costs: For accounting and regulatory pur-geological and geophysical expcnditurcs and costs of drill- poses, depreciation is computed on the straight-line basis ing both productive and non-productive wells. using the average or remaining scrvicc lives by classes of Thc nct book value of oil and gas properties and equip- depreciable property. The total provision for dcprcciation mcnt, less rclatcd deferred income taxes, is limited to thc and amortization, including amounts charged to clearing sum of the after tax present value of nct revenues from accounts, was $ 275.3 million for 1992, $ 260.2 million for proved oil and gas rcscrvcs and the lower of cost or fair 1991, and $ 222.1 million for 1990. The percentage relation-value of unproved properties. The calculation of future nct ship between thc total provision for depreciation and avcr-rcvcnucs is based upon prices and costs in cffcct at the end agc depreciablc property was 3.3% for 1992, 3.2% for 1991 of thc year. Based upon the calculation of the "ceiling test" and 2.9% for 1990. The Company performs dcprcciation at December 31, 1991 and March 31, 1992, the Company studies on a contirnring basis and, upon approval by thc rccordcd reserves of approximately $ 23 million and $ 21 mil- PSC, periodically adjusts the rates of its various classes of lion, or an after tax effect of $ .07 and $ .09 pcr share, respec- depreciable property.
tively. At December 31, 1992, the Company recorded a Estimated decommissioning costs (costs to remove a valuation reserve of $ 24 million or an after tax effect of $ .09 nuclear plant from scrvicc in the future) for the Company's pcr share in light of a significant, decline in previous esti- Nine Mile Point Nuclear Station Unit No. I (Unit '1) and its mates of proved reserves as indicated by lower than share of decommissioning costs of Unit 2 are being recov-cxpectcd production volumes. Thc net. investment in such ered ill fates tllrotlgll an alllltlal alloruallce alltl cllafgcd to properties was approximately $ 101 million and $ 171 million operations through depreciation (Scc Yotc 8."Nuclear Plant at Dcccmber 31, 1992 and 1991, rcspcctively. Decommissioning.") Thc amount of accumulated decom-Thc need for additional write<lowns during 1993 will be missioning costs is reflcctcd in Accumulated Dcprcciation dependent, upon future oil and gas prices and on future and Amortization on thc Balance Sheet. Thc annual e cs of rcservcs. Natural gas prices typically experience allowance for Unit I and thc Company's sharc of Unit 2 for ial decline through mid-year, then begin to increase the years cndcd Dccembcr 31, 1992, 1991, and 1990 was ii cipation of winter demand. approximately $ 23.1, $ 23.0, and $ 4.8 million, respectively.
Amortization of thc cost of imclear fuel is determined on Utility Plant: Thc cost of additions to utility plant and of thc basis of thc quantity of heat produced for the generation replacements of retirement units of property is capitalized. of electric cncrgy. Thc cost of disposal of nuclear fuel, which Cost, includes direct material, labor, overhead and an presently is $ .001 per kilowatt-hour of nct generation avail-
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES able for sale, is based upon a contract with the U.S. Depart- (either plus or minus) to customers over a twelve month ment of Energy. These costs are charged to operating period, to begin when cumulative amounts reach c expense and recovered from customers through base rates specified levels.
or through the fuel adjustment clause. The 1991 Agreement also includes a Measured Return Incentive Term (MERIT) under which the Com-Revenues: Revenues are based on cycle billings rcndercd to pany has the opportunity to achieve earnings above its certain customers monthly and others bi-monthly. Althougli allowed return on equity based on attainment of specified the Company cornmenccd thc practice in 1988 of accruing goals associated with its self-assessment process. The MERIT electric rcvcruics for energy consumed and not billed at the program provides for specific measurement periods and cnd of thc fiscal year, the impact of such accruals have not reporting for PSC approval of MERIT earnings. Approved yet been fully recognized in thc Company's results of opera- MERIT awards arc billed to customers over a period not tions. In accordance with regulatory agreemcnts, the Com- greater than twelve months. Thc Company records MERIT pany ceased amortizing unbilled revenues as of June 30, earnings when attainment of goals is approved by the PSC 1990. For the year ended Dcccmber 31, 1990, $ 170 million of or when objectively measured criteria are achieved.
such accrued electric revenues are included in the results of operations. At December 31, 1992 and 1991, approximately Federal Income Taxes: In accordance with PSC rcquircments,
$ 778 million and $ 5G.5 million, rcspcctively, of unbilled the tax effect of book and tax timing diflerences is flowed electric revenues remained unrccognizcd in results of oper- through except as required by the Internal Revenue Code or ations and is included in Dcfcrrcd Credits, and may be used unless authorized by the PSC to be deferred. The Company to reduce future rcvcrnic rcquircments. Tile amount of the provides deferred taxes on certain benefits realized from remaining dcfcrrcd credit balance fluctuatcs as the amount accelerated dcprcciation, on deferred energy and purchased of accrued clcctric unbillcd revcritics is recalculated each gas costs, on nuclear fuel disposal costs accrued prior to year cnd. Thc Company has not been authorized to accrue April 1983, on nuclear generating plant decommissioning unbillcd gas rcvcnucs. costs, on certain construction overheads and on certain The Company's tarifIs include electric and gas adjustment other items. As directed by the PSC, the Company defers any clauses under which energy and purcliased gas costs, respec- amounts payable pursuant to the alternative minimum tax tively, above or below the levels allowed in approved rate rules. In conformity with ratemaking practices of the PSC, schedules, arc billed or credited to customers. The Com- the Company has not provided deferred taxes on the cumu-pany, as authorized by thc PSC, charges operations for lative amount of approximately $ 1 billion of other tax rr energy and purchased gas cost increases in thc period of tions which include certain depreciation diffcren recovery. Thc PSC has periodically authorized thc Company various construction overheads deductible when incui to make changes in thc level of allowed energy and pur- allocated for tax purposes and capitalized and depreciated cliased gas costs included in approved rate schedules. As a for accounting and ratcmaking purposes. The Company has result of such periodic changes, a portion of energy costs claimed investment tax credits and deferred the benefits of deferred at the time of change would not be recovered or such credits as realized in accordance with PSC directives.
may be overrccovcrcd under the normal operation of the Deferred investmcnt credit is amortized to Other Income electric and gas adjustment clauses. However, thc Company and Deductions over thc useful life of thc underlying prop-has bccn permitted to dcfcr and bill or credit such portions erty. For purposes of computing capital cost recovery deduc-to customers, through the electric and gas adjustmcnt tions and normalization, the asset basis has been reduced by clauses, over a specified period of time from thc eflcctivc all or a portion of the credit claimed consistent with then date of each change. current tax laws.
The Company's electric fuel adjustmcnt clause provides Since it is the Company's intention to rcinvcst the undis-for partial pass-through of fuel cost fluctuations from tributed earnings of its foreign subsidiaries, no provision is amounts forecast, with the Company absorbing a specific made for federal income taxes on these earnings. At Decem-portion of incrcascs or retaining a portion of decreases up ber 31, 1992, the cumulative amount of undistributed earn-to a maximum of $ 15 million per rate year. Thereafter, ings of foreign subsidiaries on which the Company has not 100% of the fluctuation to be passed on to ratcpayers. The provided deferred taxes was approximately $ 119 million.
Company also shares with ratcpayers fluctuations from The Financial Accounting Standards Board (FASB) has amounts forecast for nct rcsalc margin and transmission issued Statement of Financial Accounting Standards (SFAS) benefits, with the Company retaining/absorbing 20% and No. 109 effective for fiscal years beginning after December passing 80% through to ratcpaycrs. 15, 1992. This pronouncement will change the way in which Beginning in 1991, the Company's rate agreemcnt pro- income tax expense and liabilities will be calculated and dis-vides for an electric rcvcnue adjustmcnt mechanism closed. Thc Company has determined that the more signifi-(NERAM) which rcquircs the Company to reconcile actual cant effects of adopting this pronouncement will be (i) results to forecast electric public sales gross margin as providing deferred taxes for tax benefits flowed through to defined and utilized in establishing rates. Depending on the ratepayers, (ii) adjustment of deferred tax assets and I iili-level of actual sales, a liability to customers is created ifsales ties for enacted changes in tax law or rates and (iii) cxcccd thc forecast and an asset is recorded for a sales short- tion of net-of-tax accounting. The latter issue would fall, thcrcby generally holding rccordcd electric gross mar- adjustmcnt of the Company's remaining plant balances i iat gin to thc lcvcl forecast in establishing rates. The 1993 rate rcflect net-of tax AFC to a pre-tax basis and record the settlcmcnt provides for thc operation of the NERAM appropriate amount, of deferred taxes. On January 15, 1993, through December 31, 1993. Recovery or refund of accruals the PSC issued a Statement of Interim Policy on Accounting pursuant to the NERArWI is accomplished by a surcharge and Ratemaking Procedures to Implement SFAS 109 in
N IAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES which it is soliciting comments by April 15, 1993 from inter- of fees only at the tiine of issuance of each acceptance.
parties. The Company believes that the SFAS 109 will The following table summarizes additional information isidered in the ratesetting process and will thcrcforc applicable to short-term debt:
ave a significant impact on the Company's results of operations. The Company routinely collects the subsequent increased tax liability from previously flowed-through tax In thousands of dollars benefits. The Company expects that its total reported assets At December 31: 1992 1991 and liabilities will significantly incrcasc.
Thc Company cstiinatcs that a regulatory asset and a Short-term debt:
Commercial paper..... $ 93,248 $ 53,000 deferred tax liabilityof about $ 650 million, duc to previously Notes payable 104,450 28,500 flowe through tax benefits, AFC, and associated revcinie Bankers acceptances .. 30,000 49,718 requirements, and as reduced by excess deferred taxes and defcrrcd investment tax credits, will bc recorded in thc $ 227)698 $ 131,218 Company's financial statcmcnts in the first quarter of 1993. Weighted average interest rate (a) .. 4.33% 6.49%
Substantially all of thc excess deferred taxes relate to prop- For Year Ended December 31:
erty and are not subject to immediate refund to customers.
Daily average outstanding...... $ 110,313 $ 68,852 Monthly weighted average Antortixation of Debt Issue Costs: Thc premium or discount and debt expenses on long-term debt issues and on certain interest rate (a) ............ 4.80% 8.37%
Maximum amount outstanding .. $ 227,698 $ 131,218 debt r'etirements prior to maturity are amortized ratably (a) Excluding fees.
over the lives of thc related issues and included in intcrcst on long-term debt in accordance with PSC directives.
NOTE3.Jointly-Owned Generating Facilities Statentent of Cash Flows: The Company considers all highly liquid investmcnts, purchased with a remaining maturity of The following table reflects the Company's share ofjointly-three months or less, to be cash equivalents. owned generating facilitics at Dcccinber 31, 1992. The Com-pany is required to provide its respective share of financing for any additions to thc facilities. Power output and rclatcd ficationst Certain amounts from prior years have been cxpenscs arc sliarcd based on proportionate ownership. The ified on the accompanying Consolidated Financial State- Company's sliarc of expenses associated with these facilitics ments to conform with the 1992 presentation. is included in the appropriate operating expenses in the Consolidated Statcmcnts of Income.
In thousands or dollars Construct'cn NOTE 2. Banh Credit Anmtgements Rrcentage Utility Accumulated work Ownership Rant depreciation in progress At December 31, 1992, the Company had $ 516 inillion of Roseton Steam bank credit arrangements with 19 banks. These credit Station arrangements consisted of $ 220 million in commitments Units No. 1 and 2 (a) 25 $ 88,643 $ 39,698 $ 274 under Revolving Credit. Agreements (including a Revolving Oswego Steam Credit Agreement f'r I-IYDRA-CO, Inc., a wholly-owned Station Unit No. 6 (b) 76 $ 275,415 $ 94,203 $ 2,852 subsidiary of the Company), $ 100 million under a Direct Pay Letter of Credit Facility and Revolving Credit Agrec- Nine Mile Point mcnt for Oswego Facilitics Trust, $ 40 million in one-year Nuclear Station Unit No. 2 (c) 41 $ 1,481,869 $ 177,140 $ 18,494 commitments under Credit Agreements, $ 56 million in lines of credit and $ 100 million under a Bankers Acceptance Facility Agreement. Thc Revolving Credit Agreements (a) The remaining ownership interests are Central Hudson Gas and Elec-tric Corporation, the operator of the plant (35%) and Consolidated extend into 1993 and 1994, and the interest rate applicablc Edison Company of New York, inc. (40%). Central Hudson Gas and to borrowing is based on certain rate options available Electric Corporation has agreed to acquire the Company's 25% inter-under the Agreements. All of the other bank credit arrange- est in the plant in ten equal installments of 2.5% (30 mw) starting on ments are subject to review on an ongoing basis with interest December 3l 1994 and on each December 31 thereafter. The Com-rates negotiated at. thc tiine of usc. Thc Company also issues pany then has the option to repurchase its 25% interest in 2004. The agreement is subject to PSC approval.
coinincrcial paper. Unused bank credit facilitics are held (b) The Company is the operator. The remaining ownership interest is available to support the amount of commercial paper out- Rochester Gas and Bectric Corporation (24%) Output of Oswego ng. In addition to these credit arrangements, the Unit No. 6, which has a capability of 850,000 kw., is shared in the my obtained $ 50 million in bank loans which will same proportions as the cotenants'espective ownership interests.
ex c in 1993. (c) The Ccmpany is the operator. The remaining ownership interests are The Company pays fees for substantially all of its Long Island Lighting Company (18%). New York State Electric and arrangements. The Bankers Acceptance Facility banl'redit Gas Corporation (18%). Rochester Gas and Electric Corporation (14%) and Central Hudson Gas and Bectric Corporation (9%) Out-Agrccmcnt, which is used to finance the fuel inventory for put of Unit 2, which has a capability of 1080,000 kw is shared in the
~
the Company's generating stations, provides for the payinent. same proportions as the cotenants'espective ownership interests.
NIAGARA MOHAWK PO'tVER CORPORATION AND SUBSIDIARY COMPANIES NOTE 4. Capi talization CaPitat Stoch The Company is authorized to issue 150,000,000 slrares of common stock, $ 1 par value; 3,400,000 shares of preferred s
$ 100 par value; 19600,000 shares of preferred stock, $ 25 par value; and 8,000,000 shares of preference stock, $ 25 par value.
The table below summarizes changes in the capital stock issued and outstanding and the related capital accounts for 1990, 1991 and 1992:
Preferred Stock
$ 100 par value $25 par value Capital Stock Conmon Stock Premium and
$ 1 par value Non- Non- Expense Shares Amount* Shares Redeemable'edeemable Shares Redeemable* Redeemable*
(Net)'anuary 1, 1990: 136,099,654 $ 136,100 2,586,000 $ 210,000 $ 48,600 (a) 12,676,403 $ 80,000 $ 236,910 (a) $ 1,649,285 Redemptions (38,000) (3,800) (887,199) (22,180) 115 Foreign currency translation adjustment (106)
December 31, 1990: 136,099,654 136,100 2,548,000 210,000 44,800 (a) 11,789,204 80,000 214,730 (a) 1,649,294 Issued 914,005 22,850 Redemptions (58,000) (5,800) (1,481,204) (37,030) 340 Foreign currency translation adjustment 678 December 31, 1991: 136,099,654 136,100 2,490,000 210,000 39,000 (a) 11,222,005 80,000 200,550 (a) 1,650,312 Issued 1,059,953 1,060 18,401 Redemptions (78,000) (7,800) (1,366,000) (34,150) 796 Foreign currency translation adjustment (11,494)
(December 31, 1992: 137,159,607 $ 137,160 2,412,000 $ 210,000 $ 31,200 (a) 9,856,005 $ 80,000 $ 166,400(a) $ 1,658
" In thousands of dollars (a) Includes sinking fund requirements due within one year.
The cumulative amount of foreign currency translation adjustment at December 31, 1992 was $ (2771).
NON REDEEMABLEPREI'ERRED STOCK (Optionally Redeetnable)
The Company has certain issues of preferred stock which provide for optional redemption at December 31, as follows:
Redemption price per share In thousands of dollars (Before adding accumulated dividends)
Eventual Series Shares 1992 1991 1992 minimum Preferred $ 100 par value:
3.40% 200,000 $ 20,000 $ 20,000 $ 103.50 $ 103.50 3 60% 350,000 35,000 35,000 104.85 104.85 3.90% 240,000 24,000 24,000 106.00 106.00 4.10% 210,000 21,000 21,000 102.00 102.00 4.85% 250,000 25i000 25,000 102.00 102.00 5 25% 200,000 20)000 20,000 102.00 102.00 6.10% 250,000 25,000 25,000 101.00 101.00 7 72% 400,000 40,000 40,000 102.36 102.36 Preferred $ 25 par value:
Adjustable Rate Series A 1,200,000 30>000 30,000 25.75 25.00 Series C 2,000,000 50>000 50,000 25.75 I $ 290,000 $ 290000
NIAGARA MOHAWK POWER CORPORATION A N D'UBSIDIARY C 0 1)1 P A N I E S MANDATORlLYREDEEMABLEPREFERRED STOCK Company has certain issues of preferred stock which provide for mandatory and optional redemption at, December 31, oivs:
Redemption price per share Shares ln thousands of dollars (Before adding accumulated dividends)
Eventual Series 1992 1991 1992 1991 1992 minimum Preferred $ 100 par value:
7 45% 312,000 330,000 $ 31,200 $ 33,000 $ 102.89 $ 100.00 1 0.60% 60,000 6,000 Preferred $ 25 par value:
7 85% 914,005 914,005 22)850 22,850 (e) 25.00 8.375% 600,000 700,000 15,000 17,500 25.55 25.00 8.70% 1)000,000 1,000,000 25,000 25,000 25.75 25.00 8 75% 1)800,000 3,000,000 45,000 75,000 25.75 25.00 9.75% 342,000 408,000 8,550 10,200 25.39 25.00 Adjustabte Rate Series B 2)000,000 2,000,000 50,000 50,000 25.75 25.00 197,600 239,550 Less sinking fund and redemption requirements 27,200 26,950
( $ 17O4OO $ 212,600 t redeemabte until 1996.
icsc series reqirirc mandatory sinking f'onds for annual redemption and provide optional sinking funds through which the Company may redeem, at par, a like amount of additional shares (limited to 120,000 shares of thc 745% series and 300,000 shares of thc 9.75% series). Thc option to redeem additional amounts is not cumulative.
Thc Company's five year mandatory sinking fund redemption rcquircmcnts for preferred stock, in thousands, for 1993 through 1997 are as follows: $ 27200; $ 27,200; $ 27,200; $ 14,150; and $ 15,120, rcspcctively.
Long-Term Debt (Trust) provide financing for the construction of a new cncrgy management system. Thc Trust has a $ 100 million Several scrics of First Mortgage Bonds and Notes were Direct Pay Letter of Credit. Facility and Revolving Credit issued to secure a like amount of tax-exempt rcvenuc bonds Agreemcnt. Trust obligations arc secured by certain assets and notes issued by the iNew York State Energy Research and held by thc Trust. The Company is required to piirchasc, or Development Authority (NYSERDA). Approximately $ 414 otherwise arrange for, the disposition of thc Trust assets million of such notes bear interest at a daily adjustable inter- upon thc termination of the Trust. Thc Lcttcr of Credit est rate (with a Company option to convert to other rates Facility and Revolving Credit Agrecrnent of thc Trust including a fixed interest rate which would require the Com- require payment of fees which are based upon the amount pany to issue First Mortgage Bonds to secure thc debt) of commercial paper outstanding.
which averaged 2.43% for 1992 and 3.45% for 1991 and are Other long-term debt in 1992 consists of obligations supported by bank direct pay letters of credit. Pursuant to under capital leases of approximately $ 53.2 million (See agreements bctwecn NYSERDA and the Company, proceeds Note 9. "Lease Commitmcnts"), a liabilityto thc U.S. Depart-from such issues >vere used for the purpose of firtancing ment of Energy for nuclear fuel disposal of approxiniately the construction of certain pollution control facilitics at the $ 90.6 million (Scc Note 8. "Nuclear Fuel Disposal Costs" )
Company's generating facilitics. and a liability for contract termination of approximately Thc $ 1157 million of tax-cxempt bonds due 2014 ivill be $ 14 million.
refinanced at. 7.2% during 1994 pursuant to a forward Certain of the Company's debt securities provide for a ling agreement entered into in 1992. mandatory sinking fund for anriual rcdcmption. Thc aggre-s Payable include a ten-year Swiss franc bond issue gate rnaturitics of long-term debt for thc five years subse-
.ilcnt to $ 50 million in U.S. funds. Simultaneously with quent to December 31, 1992, including mandatory sinking the sale of these bonds, the Company entcrcd into a cur- fund rcdcmption rcquircmcnts of approximately $ 24 mil-rency exchange agreement to fully hedge against currency lion per year excluding capital leases arc approximately exchange rate fluctuations. $ 35 million, $ 319 million, $ 68 million, $ 58 million and
,The arrangements with the Oswego Facilitics Trust $ 43 million, rcspectivcly.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY CO)~IPANIES Long-term debt at December 31, consisted of the following: Additionally, certain other series of mortgage bonds pro-vide for a debt retirement fund whereby payment require-In thousands of dollars ments may be met, in lieu of cash, by the property, the waiver of the issuance of addi ccrtificat'dditional Series 1992 1991 bonds or the retirement of outstanding bonds. The First mortgage bo nds: requirements for these series were satisfied by thc certifica-12.68% - 13.06% 1992 100,000 150,000 tion of additional property. The Company anticipates that 8 7/s% 1994 150,000 4 5/so/ 1994 40,000 40,000 the 1993 requirements for these series will be satisfied by
'*9 '/s% 1996 100,000 means other than payment in cash. Total annual debt 5 /s/ 1996 45)000 45,000 retirement fund requirements for these series, based upon
.*9 5/so/ 1997 100,000 mortgage bonds outstanding at December 31, 1992, are 6 i/4o/, 1997 40,000 40,000 $ 4.9 million.
9 7/s% 1998 2001000 200,000 6 '/2o/o 1998 60,000 60,000 10 '/4 1999 100,000 100,000 10 s/s% 1999 100,000 100,000 NOTES. Disclosures about Fair Value of 9'/ 1999 75,000 Financial Instrl nients 9 '/2 2000 1501000 150,000 7 s/so/ 2001 65)000 65,000 9 /4/ 2001 100,000 100,000 The following methods and assumptions werc used to esti-7 5/so/ 2002 80,000 80,000 mate the fair value of each class of financial instruments:
7 s/4 2002 80,000 80,000 7 s/s% 2003 220)000 Cash and short-term investments: The carrying amount 8 '/4 2003 80)000 80,000 approximates fair value because of the short maturity of the "9 /2% 2003 35,295 financial instruments.
8% 2004 300)000 9 950/ 2004 55,000 Long-tenn investments: Thc carrying value and market value 9 /4/ 2005 150,000 150,000 are not material to the financial statements.
- 10.20% 2005 23,000 8.35% 2007 66,640 66,640 8 /s% 2007 30,000 32,000 Mandatorily redeemable preferred stoclu Fair value of '
- 6 /s'/o 2013 45,600 45,600 mandatorily redcemablc preferred stock has been
'11 '/4% 2014 75,690 75,690 'mined by one of the Company's brokers or estimat
- 11 s/s% 2014 40,015 40,015 management based on discounted cash flows.
"10% 2016 150,000 100/ 2016 100,000 Long-tenn debt: The fair value of thc Company's long-term 9 )/20/ 2021 150,000 150,000 8 s/4 2022 150,000 debt has been estimated by one of the Company's brokers.
8'/ 2023 165,000 The carrying value of NYSERDA bonds, the Oswego Facili-
'8 7/s% 2025 75)000 75,000 tics Trust and other long-term debt are considcrcd to Total First Mortgage Bonds 2,757,945 2,663,240 approximate fair value.
The estimated fair values of the Company's financial instruments are as follows:
Promissory notes:
'Adjustabie Rate Series due July 1, 2015 100,000 100,000 December 1, 2023 69,800 69,800 December 31, 1992 December 1, 2025 75,000 75,000 In thousands of dollars December 1, 2026 50,000 50,000 Carrying Fair March 1, 2027 t 25,760 25,760 Amount Value July 1, 2027 93,200 93,200 Cash and short-term investments . $ 43,894 $ 43,894 Unsecured notes payable: Mandatorily redeemable Medium Term Notes, preferred stock ..............
197,600 199,114 Long-term debt:
Various rates, due 1993-2004 87,700 144,200 First Mortgage Bonds......... 2,757,945 2,888,022 Swiss Franc Bonds due Medium Term Notes.......... 87,700 93,890 December 15, 1995 50,000 50,000 NYSERDA bonds............. 413,760 413,760 Oswego Facilities Trust 90,000 96,350 Swiss Franc Bonds........... 50,000 62,374 Other 157,829 135,688 Other. 104,665 104,665 Unamortized premium (discount) (8,453) (2,709)
Oswego Facilities Trust........ 90,000 90, TOTAL LONG-TERM DEBT 3,548)781 3,500,529 Less long-term debt due within one year 57,722 175,501
$ 3,491,059 $ 3,325,028 Tax-exempt pollution control related issues
""Retired prior to maturity 40
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES NOTE 6. Fedmnl and Foreign Income Taxes oncnts of United States and foreign income before income taxes:
In thousands of dollars 1992 1991 1990 United States . $ 410)283 $ 394,596 $ 141,129 Foreign 18)394 (6,252) 19,861 Consolidating eliminations (16,741) (11,080) (16,993)
Income betore income taxes $ 411,936 $ 377,264 $ 143,997 Following is a summary of the components of Federal and foreign income tax and a reconciliation beuveen the amount of Federal income tax expense reported in the Consolidated Statements of Income and the computed amount at the statu-tory tax rate:
SUMMARY
ANALYSIS:
In thousands of dollars 1992 1991 1990 Components of Federal and foreign income taxes:
Current tax expense: Federal . $ 119,929 $ 75,452 $ 121,275 Foreign 915 597 (2,495) 120,844 76,049 118,780 Deferred tax expense: Federal . 54,858 74,983 (8,096)
Foreign 7,531 7,105 10,430 62,389 82,088 2,334 l e taxes included in Operating Expenses............ 183,233 158,137 121,114 t Federal income tax credits included in her Income and Deductions . (31,787) (24,734) (32,756) red Federal and foreign income tax expense (credits) included in Other Income and Deductions............ '4,058 492 (27,239)
Total j $ 155,504 $ 133,895 $ 61,119 Components of deferred Federal and foreign Income taxes (Note 1):
Depreciation related $ 78,467 $ 90,897 $ 84,591 Investment tax credit . (8,067) (8,137) (4,014)
Alternative minimum tax (1,197) (27,276) (16,843)
Construction overheads (1,798) (1,066) (10,324)
Recoverable energy and purchased gas costs........... (1,926) 8,066 (27,897)
Unbilled revenues (2)600) (3,097) (13,898)
Deterred operating expenses 10)867 (2,179) 24,146 Deferred transmission revenues . 6,601 (6,569)
Nuclear settlement disallowance . 20)099 12,865 ,,(32,964)
Reserve for NM Uranium, inc............. (390) (512) (5,013)
MERIT recovery. (4,263) 9,935 Electric revenue adjustment mechanism................ (1,248) 6,859 (1,669)
Opinac reserve for oil and gas properties ............... (19,706) (13,083)
Bond reacquisition premium . 7,379 Other (9,170) 2,707 (14,451)
Deterred Federal income taxes (net) $ 66,447 $ 82,580 $ (24,905)
Reconciliation between Federal and foreign income taxes and the computed at prevailing U.S. statutory rate on income befor e i ncome taxes.
Computed tax $ 140,058 $ 128,270 $ 48,959 R ction (increase) attributable to flow-through of certain tax adjustments:
preciation . (37,543) (36,440) (30,569) owance for tunds used during construction............ 11,205 7,540 8,728 Deferred investment tax credit amortization.......'....... 8,024 7,891 7,820 Other ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ . ~ ~ ~ ~ ..... 2,868 15,384 1,861 (15)446) (5,625) (12,160)
Federal and foreign income taxes. I $ 155 504 $ 133,895 $ 61,119
NIACARA MOHAWK PO)VER CORPORATION AND SUBSIDIARY COMPANIES NOTE 7. Petrsion and Other Retirement Plans some of these benefits upon normal or early retirement.
Thcsc benefits are provided through insurance corn The Company and certain of its subsidiaries have non- whose charges and premiums are based on the claim contributory, defined-benefit pension plans covering sub- during the year. The cost of providing these bencli stantially all their employees. Bcncfits arc based on the retired employees are provided for in rates and amounted employcc's years of scrvicc and compensation level. The to approximately $ 16.7 million for 1992, $ 15.0 million for pension cost was $ 23.2 million for 1992, $ 23.9 million for 1991 and $ 149 million for 1990.
1991 and $ 22.8 million for 1990 (of which $ 6.2 million for In Deceinber 1990, the FASB issued SFAS No. 106 entitled 1992, $ 6.0 million for 1991 and $ 5.5 million for 1990 was "Employers'ccounting for Postretirement Benefits Other related to construction labor and, accordingly, was charged Titan Pensions." This Statement, which the Company will to construction projects). The Company's general policy is to adopt for 1993, requires accrual accounting by einployers for fund the pension costs accrued with consideration given to postretircment benefits other than pensions reflccting cur-the maximum amount. that can bc deducted for Federal rently earned benefits. The Company presently accounts for income tax purposes. Yo contribution was made to the pen- such costs on a cash basis for both active and rctircd sion plan during 1991 and 1990. Contributions are intended employees. The Company cstimatcs unfunded accumulated to provide not only for benefits attributed to service to date postretirement benefit obligations other than pensions to be but also for those cxpectcd to be earned in thc future. approximately $ 409 million at January I, 1993 based upon In both 1992 and 1991, the discount rate and rate of health care cost trend rates of 14% trending down to 6%
increase in future compensation levels used in determining and assuming a long-term discount rate of 8%. Thc annual the actuarial present value of thc projcctcd benefit obliga- cost will be approximately $ 66 million and includes amorti-tions were 8.25% and 4.25% (plus merit increases), respec- zation of the transition amount related to prior service over tively. Thc cxpcctcd long-term rate of return on plan assets a twenty year period. On January 27, 1993, the PSC approved was 9.00% in 1992 and 1991. a rate settlement plan which included an incremental In addition to providing pension bcncfits, the Company allowance for postretireinent benefits of approximately $ 12 and its subsidiaries provide certain health care and life million including capital portion. The difference in the insurance bcneflts for active and retired employees and postretireinent benefit annual expense compared with thc dependents. Under current policies, substantially all of the rate allowance (approximately $ 31 million) will be dcfcrrcd.
Company's employees may be eligible for continuation of The PSC is cvpectcd to issue a Statement of Policy rcgard-Nct pension cost for 1992, 1991 and 1990 included the following components In thousands of dollars At December 31, 1992 1991 1990 Service cost benefits earned during the period. $ 27,100 $ 27,000 $ 25,700 Interest cost on projected benefit obligation . 48,800 43,500 39,100 Actual return on Plan assets . (59,600) (116,600) (7;500)
Net amortization and deferral 6,900 70,000 (34,500)
Net pension cost I $ 23200 $ 23,900 $ 22,800 Thc following table sets forth thc plan's funded status and amounts recognized in thc Company's Consolidated Balance Slleets:
In thousands of dollars At December 31, 1992 1991 Actuarial present vaIue of accumulated benefit obIigations:
Vested benefits. $ 419,582 $ 341,697 Non-vested benefits . 46,563 4,026 AccumuIaled benefit obligations 466,145 345,723 Additional amounts related to projected pay increases 193,630 229,524 Projected benefits obligation for service rendered to date........ 659,775 575,247 Plan assets at fair value, consisting primarily of listed stocks, bonds, other fixed income obligations and insurance contracts.. 796,843 721,132 Plan assets in excess of projected benefit obligations............... 137,068 145,885 Unrecognized net obligation at January 1, 1987 being recognized over approximately 19 years. 35,184 37,977 Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions (174,713) (187,266)
Prior service cost not yet recognized in net periodic pension cost ..... 36,092 36,281 Prepaid pension costs incIuded in current assets . I $ 33 631 $ 32,877
NIAGARA IIOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES i ng thc accounting for pension and postretircmcnt benefit assumed to operate at a 70% capacity factor with future With respect to postrctiremcnt benefits, thc PSC operating and capital costs consistent. with average industry proposal recommended a transition to full accrual in performance. The Company bclicves these goals arc achiev-over a period not to exceed five years, with recovery of able for Unit 1. The "improved performance case" results in any resultant deferrals over a period of ten years from the positive net present value in excess of $ 100 million if the year of adoption. Thc Company can provide no assurance Unit is operated over its renmining life. Such results are that, the Statement of Policy as ultimately approved by the indicative of the volatility of the assumptions and uncer-PSC will be consistent with the PSC Staff's proposal. tainties involved in developing the Unit's economic forecast.
The Emerging Issues Task Force (EITF) rcccntly issued Thc study necessarily relies on a number of significant a consensus position permitting utilities to record a regula- assuniptions which are subject to uncertainty and could pro-tory asset. for differences between allowances in rates and duce a wide range of outcomes. These assumptions include full accrual of postretirement benefits when such deferral the Unit,'s capacity factor, levels of operating and capital is pursuant to a ratemaking plan that provides for a tran- costs, anticipated demand for electricity, anticipated supply sition to full accrual in rates within five years and recovery of electricity including NUG power, implementation and of defcrrals within twenty years of adoption. The Company compliance costs of thc 1990 Clean Air Act and other fed-believes that PSC Staff's proposal meets the EITF consen- eral and state cnvironmcntal initiatives, and fuel availability sus position. and prices, especially imtural gas. Given the potential for In November 1992, the FASB issued SFAS No. 112 rapid and substantial clmngc in any or all of these assunip-
"Employees'ccounting for Postcmploymcnt Benefits" tions, the Company will be developing operational and which is effective for fiscal years beginning after December external measures intended to initiate a prompt periodic 15, 1993. This Statement requires employers to recognize the reasscssmcnt of the economic viability of the Unit.
obligation to provide postemployment benefits if the obliga- An agrccmcnt with the PSC allows recovery of all rea-tion is attributablc to employccs'ervices already rcndercd, sonable and prudently-incurred sunk costs and costs of rights to those benefits are vested, payment is probable and retirement, should a prudent decision be made to retire the amount of the benefits can be reasonably estimated. Unit, 1 before carly 1995. All parties to the 1991 Agrccmcnt Thc adoption of the rcquircmcnts of this Statement arc not reserved thc right to petition the PSC to institute a formal expcctcd to signilicantly impact thc Company's financial investigation to rcvicw thc prudence of any Company deci-condition or results of operations. Any impact of thc State- . sion to retire Unit 1. Any such decision by the Company should be addressed in the ratesctting environment. will bc made in consultation with governmental and regula-tory authoritics.
The Company's net invcstmcnt in Unit I is approxinmtely NOTE 8. Nuclear Operations $ 600 million. Based upon thc Company's 1989 study, the cost of decommissioning Unit I is estirnatcd to be approxi-mately $ 248 million in 1992 dollars. An update of the study I
Unit Economic Study: Under the- tcrrns of the 1989 Agrec-is currently underway as part of thc formal decommission-mcnt, the Company agreed to prepare and update studies of the advantages and disadvantages of continued operation of ing plan discussed above. Thc Company has collected $ 75.9 Unit I, prior to the start of the next tivo refueling outages.
million in rates through 1992, of which $ 43.1 million has been deposited in an cxtcrnal trust, which has ac-The first report, which recommcndcd contiimcd operation cumulated a balance of $ 46.4 million including earnings on of Unit I over the remaining tenn of its license (2009), was fund invcstmcnts.
filed with the PSC in March 1990.
On November 20, 1992 the Company submitted to the Unit I Status: Unit 1 will bc taken out of service in mid-PSC an updated economic analysis which indicated tliat Fcbruary 1993 for an eight ivcck rcfucling outage.
Unit 1 can bc expected to provide value to customers and In an August 1992 Safety Evaluation Report, the Nuclear shareholders through its next fuel cycle, which will cnd in Regulatory Commission (NRC) confirmed thc Company's early 1995. The study also indicated tlmt the Unit could con- assessmcnt tlmt. Unit I could operate until at least 2007 with-tinue to provide bcncfits for the full term of its liccnsc if out making modifications to the plant's torus. Thc torus, a operating costs can be reduced and generating output im- large donut-slmped structure located below thc reactor, is proved above the historical average. The Company is aware half filled with water. It is a suppressivc pool dcsigncd to of only onc formal response to its study, from IPPNY, which rclicvc pressure from thc plant's reactor by converting excess claims that continued operation of Unit 1 is uneconomic. stcam to water.
The Company bclievcs the findings of IPPNY to be flawe. In November, the Company rcquestcd that thc NRC re-Thc study analyzed a number of scenarios resulting in review the asscssmciit to insure that the evaluation of thc break.-even capacity factors, ranging from 44% to 122%. torus pcrforrncd by the NRC was consistent witli thc Com-Thc "base" case assumes a capacity factor of 61%, which is pany's methodology. In the interim, the Company continues c existent with the target reflectcd in the Unit I operating to monitor the torus wall thickness in accordance with code
've mcchanisrn, and also future operating and capital rcquircments to ensure corrosion rates do not exceed anti-lightly lower than historical perlonnance. While a cipated levels. The NRC has stated tlmt it, could take up to m; ginal benefit woukl be realized from operating the Unit twelve months to complete its rc-review for at least the next two years (onc fuel cycle), there would be Thickness mcasurcmcnts for the entire torus were per-a negative nct present, value in excess of $ 100 million if the formed in January 1993. Preliminary results indicate that, wall Unit werc to be operated over its remaining 17-year license thickness continues to mcct code requirements. Measuremcnts period. Under an "improved performance case," thc Unit is of selected areas of the torus will be performed biannually.
NIAGARA MOHAWK POPOVER CORPORATION AND SUBSIDIARY COMPANIES Unit 2 Status: Two cracked low pressure turbine rotor ments of up to $ 63 million for each of the 115 presently blade/wheel assemblies were removed during the last re- licensed nuclear reactors in the United States, payab fueling outage. As a result, the output of Unit 2 has been rate not to exceed $ 10 million per reactor per yca rcduccd by 3% or approximately 37 MW. The next refueling assessmcnts arc subject to periodic inflation indcxin outage is scheduled to begin in September 1993. to a 5% surcharge iffunds prove insufficient to pay claims.
Thc Company's intcrcst in Units 1 and 2 could expose it to a potential loss, for each accident, of $ 88.8 million Nuclear Plant Decommissioning: Based on a 1989 study, thc through assessments of $ 14.1 million per year in the event of cost of decommissioning Unit I, which is expected to begin a serious nuclear accident at its own or another licensed U.S.
in thc year 2009, is estimated by'the Company to be approx- commercial nuclear reactor. The amendments also provide, imately $ 548 million at that time ($ 248 million in 1992 among other things, tliat insurance and indemnity will dollars). Thc Company's 41% share of the total cost to cover precautionary evacuations whether or not a nuclear decommission Unit 2, which is expected to begin in the year incident actually occurs.
2027, is estimated by the Company to be approximately The Act was extended for 15 years with a renewal date of
$ 535 million ($ 105 million in 1992 dollars). The annual August 15, 2002.
decommissioning allowance reflected in ratemaking is based upon thcsc estimates. Through December 31, 1992, Nuclear Property Insurance: The Nine Mile Point Nuclear the Company lias rccovercd approximately $ 86.6 million of Site has $ 500 million primary nuclear property insurance decommissioning costs in rates and $ 39 million in earnings with the Nuclear Insurance Pools (ANI/MRP). In addition, on the decommissioning trusts for both units. The Com- there is $ 765 million in excess of the $ 500 million primary pany continues to review the estimated reqtiircments for nuclear insurance with the Nuclear Insurance Pools (ANI/
decommissioning and plans to seek rate adjustments when MRP) and $ 1.325 billion, which is also in excess of the $ 500 appropriate. Thcrc is no assurance that the decommis- million primary and the $ 765 million excess nuclear insur-sioning allowance recovered in rates will ultimately aggre- ance, with Nuclear Electric Insurance Limited (NEIL). The gate a suAicient amount to decommission the units. The total nuclear property insurance is $ 2.59 billion.
Company believes that decommissioning costs, if higher iNEIL is a utility industry-owned mutual insurance com-than currently estimated, will ultimately be recovered in pany chartcrcd in Bermuda with offices in the United the rate process. States. NEIL also provides insurance coverage against the The NRC issued regulations in 1988 requiring owners of extra expense incurred in purchasing replacement nuclear power plants to place funds into an cxtcrnal trust during prolonged accidental outages. The insuran to provide for thc cost of decommissioning activities of con- vides coverage for outagcs for 156 weeks after a 21 taminated portions of nuclear facilitics as >veil as establish- waiting period.
ing minimum amounts that must be available in such a trust NEIL insurance is subject to retrospective premium for these specified decommissioning activities at the time of adjustment for which the Company could be assessed up to decommissioning. Based upon studies applying the NRC approximately $ 12.4 million pcr loss.
regulations, the Company has estimated that the minimum funding requirements for Unit 1 and its sharc of Unit, 2, Low Level Radioactive IYaste: The Federal Low Lcvcl Radio-respectively, will be $ 564 million and $ 381 million in future active Waste Policy Act as amended in 1985 rcqiiired states dollars. As of Dcccrnber 31, 1992, the Company lias accurnu-to join compacts or individually develop their own low level lated in an external trust $ 46.4 million for Unit I and $ 10.5 radioactive waste burial site. In response to the Federal law, million for its sharc of Unit 2, which are included in Other New York State decided to develop its own site because of Property and Investments. In 1989 the PSC issued an order the large volume of low level radioactive waste it generates.
requesting comments froin utilities in connection with a New York State lias narrowed its selection for potential generic proceeding to examine thc funding and taxation low level radioactive waste disposal sites to five locations in aspects of accumulating nuclear decommissioning funds in Cortland and Allegheny counties.
an cxtcrnal trust in response to the NRC regulations. The On January I, 1990, Governor Cuomo certified that all of Company has responded to the order and is awaiting final New York State's low level radioactive waste would be man-resolution of this matter by the PSC.
aged by January 1, 1993. This certification contained a plan of how thc low level radioactive waste will be managed in Nuclear Liability Insurance: The Atomic Energy Act of New York State until a disposal facility is available. Due to 1954, as amended, requires the purcliasc of nuclear liability public opposition and thc need to rcevaluatc the disposal insurance from the Nuclear Insurance Pools in amounts siting process, the January 1, 1993 date was not attained.
as determined by the iNRC. At the present time, the Com- Currently, an extension of access to the Barnwell, South pany maintains thc required $ 200 million of nuclear lia- Carolina waste disposal facility was made availablc to out-of-bility insurance. region low level radioactive waste generators by thc sta . of
's In August 1988, the Price-Anderson Aincndrnents Act of South Carolina, and Ncw York State has elected to 1988 (the Act) was enacted, which significantly increased option through Junc 30, 1994.
the statutory liability limits for the protection of thc public. The State's management plan includes development of With respect to a nuclear incident at a licensed reactor, thc interim storage capability for non-utility waste generators statutory limit, which is in excess of the $ 200 million of and assumes tliat such facilities should plan for as long as nuclear liability insurance, was incrcascd froin $ 710 million 10 years of interim storage. A low lcvcl radioactive waste to approximately $ 7.5 billion. This limit is funded by asscss- management program and contingency plan is under way so 44
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES that Unit I and Unit 2 will be prepared to properly handle The purclrasc capacities shown below arc based on the 4m on-site storage of low level radioactive waste for at contracts currently in effect. The estimated annual capacity 10 year period, ifrequired. costs are subject to price escalation and are exclusive of applicable energy charges. Total cost of purchases under Nuclear Fuel Disposal Cost: In Jarnrary 1983, the Nuclear these contracts was approximately $ 64.4 million, $ 61.2 Waste Policy Act of 1982 (Act) was passed into law. The Act million and $ 57.2 million for thc years 1992, 1991 and established a cost of $ .001 per kilowatt-hour of net genen- 1990, rcspectivcly.
tion for current disposal of nuclear fuel and provides for a Under the requirements of the Federal Public Utility dctcrmination of the Company's liability to thc DOE for the Regulatory Policies Act of 1978, thc Company is required to disposal of nuclear fuel irradiated prior to 1983. The Act purclrasc power generated by NUGs, as dcfincd thcrcin.
also provides three payment options for liquidating such Approxintatcly $ 543 million and $ 268 million was paid to liabilityand the Company has elected to delay payment, with NUGs in 1992 and 1991 for 8,632,000 rnwhrs and 4,303,000 intcrcst, until 1998, thc year in which the Company lrad rnwhrs of cncrgy and associated capacity, respectively.
initiallyplanned to ship irradiated fuel to an approved DOE Through Dcccmber 31, 1992, thc Company has cntcrcd into disposal facility. Progress in developing thc DOE facility has agrcerncnts with numerous current and prospective inde-been slow and it is anticipated that the DOE facility will pendent producers, including NUGs which, lras substan-not be ready to accept deliverics until at least 2010. The tially increased its future purchase power commitments.
Company lras several viable alternatives under consideration The amount of the commitmcnt, and the availablc capacity tlrat will provide additional storage facilities, as necessary. are dependent upon the completion of these projects. Based Each alternative will likely require NRC approval and may upon contracts entered into and approved to date, thc Com-require other regulatory approvals. Thc Company does not pany estimates tlrat it will bc obligated to purclrase power believe that the possible unavailability of the DOE disposal generated by facilities having an aggregate amount of capac-facility until 2010 will inhibit operation of either Unit. ity in each of the following periods: 2,226 iVIW in 1993, Thc Energy Policy Act of 1992 provides for the establish- 2,309 MWin 1994,2,651 MWin 1995 and 2,651 MWin 1996.
ment of a federal decontamination and decommissioning By 1995, the Company will be paying $ 1.2 billion a year for fund (o provide for the clean up of DOE uranium process- 2,651 MW of capacity. Gcnenlly, the Company must only pay ing facilities, funded in part by nuclear utilities. The Com- for energy delivered.
pany estimates that it has about a $ 25 million liability to this based on prior DOE nuclear fuel processing scrviccs Construction Program: Thc Company is committed to an ved. This amount lras been accrued at December 31, ongoing construction program to assure reliable delivery
,md is expected to be rccovcred as a fuel expense as of its electric and gas services. Thc Company prcscntly esti-provided by the Act. The liability is payable over 15 years mates tlrat the construction program for the years 1993 and annual assessments will be indexed for inflation. through 1997 will require approximately $ 2.28 billion, excluding AFC, nuclear fuel and certain overheads capital-ized. For the years 1993 through 1997, the estimates are $ 412 NOTE 9. Commitments and Contingencies million, $ 504 million, $ 458 million, $ 457 million and $ 446 million, respectively. Thcsc amounts are reviewed by man-Long-tenn Contracts for the Purdrase of Electric Porver: At agement as circurnstanccs dictate.
January I, 1993, the Company lrad long-term contracts to purchase electric power from the following generating facil- Lease Commitmeuts: Thc Company Icascs certain property itics owned by the Ncw York Power Authority (NYPA): and equipmcnt which meet thc accounting criteria for capitalization. Such leases, having a net book value of
$ 53.2 million and $ 48.3 million at Deccmbcr 31, 1992 and 1991, rcspectivcly, arc included in the accompanying Con-Estimated solidated BaLance Sheets. Since current rate-making prac-Expiration Purchased annual date of tice treats all leases as operating leases, the capitalization of capacity capacity Facility Contract in kw. cost these leases has no impact on the Company's Consolidated Statements of Income. The Company recognizes as a clrarge Niagara hydroelectric project... 2007 against income an amount equal to the rental expense 928,000 $ 19,320,000 allowed for rate purposes. Thc Company's future minilIluln St. Lawrence rental conrrnitrncrlts under tllesc capital leases and rlon-hydroelectric project... 2007 104,000 1,248,000 canccllable operating leases aggrcgatc approximately $ 473 Blenheim-Gilboa- million, a substantial portion of which relates to a trmrsmis-pumped storage sion line facility with an "unclapsed term of 34 years. Annual generating. station'..... 2002 270,000 7,452,000 future minimum rental commitments for the period 1993-Fi trick- 1997 range between $ 23 million and $ 28 million.
ar plant......... year-to-year basis 67,000(a) 10,242,000 Sale of Customer Receivables: Thc Company has an agree-ment whereby it, can sell an undivided interest in a designat-1,369,000 $ 38,262,0 ed pool of customer reccivablcs including accrued unbilled (a) 50OOOkw for summer of 1993; 7POOOkw for winter of 1993-94 electric revenues up to a maxinnrrn of $ 200 million. At December 31, 1992 and 1991 respectively, $ 200 million of receivables had been sold under this agrccment. The undi-
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES vided interest in thc designated pool of receivables was local agencies currently believe that certain properties sold with limited recourse. The agrccmcnt provides for a require investigation and is in the process of clas loss reserve pursuant to which additional customer re- of these sites based on available informa 'any ceivables are assigned to the purchaser to protect thc rccciv- enhance inanagement of investigation and remedia f ables sold from bad debts. To thc extent actual loss determined to be necessary.
cxpericnce of the pool rcccivablcs exceeds the loss rcscrvc, The Company is aware of 84 sites with which it has been the purcliaser absorbs thc cxccss. For reccivablcs sold, thc or may be associated, including 42 which are Company-Company has rctaincd collection and administrative owncd. The Company-owned sites include 24 coal gasifi-responsibilities as agent for the purchaser. As collections cation sites (MGP), 14 industrial waste sites and 4 operating reduce previously sold undivided intcrcsts, new receivables property sites where corrective actions are deemed necessary are customarily sold. to prevent, contain and/or remcdiate contamination of soil and/or water in the vicinity. Of these Company-owned sites, 12 are listed on the New York State Registry of Inactive Anti-trust Action: In 1987, Long Lake Energy Corporation Hazardous Waste Sites and I, Saratoga Springs is on the Fed-(Long Lake) filed an action asserting claims under Section eral National Priorities List (NPL). The 42 remaining sites 2 of the Sherman Act and New York.'s Donnelly Act which with which the Company lies been or,may be associated are alleged that the Company interfered with Long I ~ke's generally industrial waste sites as to which the Company is attempts to license hydro-electric projects with the FERC allcgcd to be a Potentially Responsible Party (PRP) and may On Junc 26, 1992 thc Company cntercd into an Agrecmcnt be required to contribute some proportionate share towards with Adirondack Hydro Development Corporation investigation and clean-up. Additional sites with which the (AHDC), which in turn completed an acquisition of certain Coinpany has been or may be associated could be identified assets of Long Lake. The Agreement bctwcen thc Company and AHDC provided for thc dismissal of thc anti-trust case, in thc future as requiring investigation or remediation.
Investigations at each of thc Company-owned sites are as well as a lease transaction and long-terin power purchase designed to (1) determine if environmental contamination contract between the Company and AHDC. The Company problems exist, (2) determine the cxtcnt, rate of movement incurred no loss as a result. of thc resolution of this matter. and concentration of pollutants, (5) ifnecessary, dctcrininc thc appropriate remedial actions required for site rcstoni-Environmental Issues: Thc public utility industry typically tion and (4) where appropriate, identification of other utilizes and/or generates in its operations a broad range parties whom should bear some, if not all, of the f of potentially hazardous products and by-products. These rcmcdiation. Legal action against such other partie.
products or by-products may not have previously been con- essary, will be initiated. After site investigations ha~
sidered hazardous, and may not, bc considered hazardous completed, the Company expects to be able to determine currently, but may be identified as such by Fcdcral, state site-specific rcinedial actions necessary and to estimate thc or local authoritics in the future. The Company bclicvcs it attendant costs for restoration. Hoivever, since technologies is handling identified products and by-products in a man- arc still developing and the Company has not yct under-ner consistent with Federal, state and local rcquircmcnts taken any full-scale remedial actions following Environmen-and has implemented an cnvironmcntal audit program to tal Protection Agency (EPA) rcquiremcnts at any identified identify any potential areas of concern and assure compli- sites, nor have any detailed remedial designs been prepared ance with such rcquircmcnts. Thc Company is also cur- or submitted to appropriate regulatory agencies, the ulti-rently conducting a program to investigate and restore, as mate cost of rcmcdial actions may change substantially as necessary to meet current cnvironincntal standards, certain investigation and remediation progress.
properties associated with its former gas manufacturing Thc Company has determined that it is probable that 55 process and other properties which thc Company has of the 42 owned sites will rcquirc some degree of investigi-learned inay be contaminated with industrial waste, as well tion, remediation and monitoring. This conclusion is based as investigating potential industrial waste sites as to which upon a number of factors, including the nature of the iden-it may be detcrmincd tliat the Company contributed. The tified contaminants, thc location and size of the site, the Company has bccn advised that various Federal, state or proximity of the site to sensitive rcsourccs, the status of regu-Total Company's NPL New York State Number of Estimated Cost Estimated Potential Site Name County Known PRPs Millions Contribution Factor %
Cfothier Disposal Oswego 31 $ 3 .06 Fulton Terminals Oswego 105 4 .28 Johnstown City Landfill Fulton 130 32 .76 Pollution Abatement Services Oswego 105 13 .18 Rosen Brothers Scrap Yard/Dump Cortland 5 32 20.00 Seafand Restoration Site St. Lawrence 22 32 Vofney Municipal Landfill (PAS) Oswego 105 15 York Oil Co. Franklin 20 15 5.00 Quanta Resources Onondaga 25 2 4.00 Vofney Municipal Landfill Oswego unknown 32 unknown Bern Metal Co., fnc. Erie unknown 32 unknown Onondaga Drum Site Onondaga unknown 32 unknown
NIAGARA M 0 H A IV K P 0 1V E R CORPORATION AN D SUBSIDIARY COMPANIES 4
latory investigation and knowlcdgc of activities at similarly on average costs disclosed in the Federal Register of Septcm-si .d sites. Although the Company has not extensively bcr 25, 1991. The contribution factor is calculated using
~ tcd many of those sites, it lias suIIicient information either the Company's pcrcentagc share of the total,PRPs iate a range of cost of investigation and remediation. named, which assumes all PRPs will contribute equally, or As a consequence of a preliminary site characterization the percentage agreed upon with other PRPs through a process completed to date, thc Company has accrued a steering committee or by other means. Actual Company liability of $ 195 million for these owned sites, representing expenditures for these sites arc dependent upon the total the low cnd of the range of cost for investigation and reme- cost of investigation and remediation and the ultimate deter-diation. The high end of thc range is estimated at approxi- mination of thc Company's share of responsibility for such mately $ 514 million. costs as well as the financial viability of other identiTicd In 1991, the Company completed an Interim Remedial responsible parties since clean-up obligations are joint and Measures (IRM) initiative at one of its coal gasification sites several. The Company has dcnicd any responsibility in cer-that was on the New York State Registry. This IRM was thc tain of these PRP sites and is contesting liabilityaccordingly.
first test effort in a Company program intended to remove In Novcrnbcr 1989, an action was commenced against the or control waste sources from sites in an effort to eliminate Company and six other corporations by the US Department, potential threats to human health and the environment, ofJustice in Federal Court pursiiant to the Comprehensive including the cessation of any associated spread of contami- Environmental Response, Compensation and Liability Act.
nants from the site. The cost of the IRM as applied to the Thc complaint allcgcs that the dcfcndants are liable for past first site was approximately $ 3 million, exclusive of ongoing response costs of $ 2.3 million and additional ongoing and monitoring costs. This particular site was removed from the future response costs incurred by the EPA in investigating New York State Registry in October 1991. and rcrncdiating PCB contamination at the Wide Beach The results of this first IRM effort have provided a basis Development Site in Eric County, Ncw York. The Company for the Company to further develop and propose a plan to has reached a monetary scttlcrncnt, at less than $ 300,000, apply thc IRM concept at other qualifying sites. Thc Com- with thc Department of Justice and the other defendants pany and thc New York State Department of Environmental which dismisses the Company from the proceeding. An Conservation (DEC) have exccutcd an Order of Consent Order on Consent incorporating the settlement terms has providing for an investigation and remediation program for been entered with the court, in January 1993 releasing the 21 former MGP sites. The program provides for a ten-year Company from further liabilityfrom this action.
sc ilc of investigation and remediation activities. The The EPA advised the Company by letter that it, is onc of
>y's 1993 rate settlcmcnt includes the estimated costs 833 PRPs under Supcrfund for the investigation and clean-irst year of this program. Thc Coinpany believes that up of the Maxcy Flats Nuclear Disposal Site in Morehead, this proactive approach may allow for morc timely and eco- Kentucky. The Company has contributed to a study of this nomic removal or control of wastes than application of regu- site and estimates that the cost to the Company for its sliarc latory enforcement actions. of investigation and remediation based on its contribution The Company does not currently bclicve that a clean-up factor of 1.3% would approximate $ 1 million.
will bc required at the 7 remaining Company-owned sites, Thc Company belicvcs that costs incurred in the investi-although some degree of investigation of these sites is in- gation and restoration process for both Company owned cluded in its investigation and remediation program. sites and sites with which it is associated will be recoverable With respect to the 42 sites with which thc Company has in thc ratcsetting process. Rate Agreements since 1991 pro-been or may be associated as a PRP, 26 are included in thc vide for recovery of anticipated investigation and remedia-Ncw York State Registry of Inactive Hazardous M',tste Sites tion expenditures, however, the PSC Staff reserves the right and 15 are on the NPL or arc under evaluation for listing. to review the appropriateness of thc costs incurred. No The Company has reached agrecmcnt with regulatory agen- costs liavc been clrallengcd to date by the PSC StaK The cies and other PRP's and settled on 7 of these sites through Company's 1993 rate settlcmcnt includes $ 35 million for site Decernbcr 31, 1992, in an aggregate amount tliat is immater- investigation and remediation, a substantial increase from ial to the Company. Total costs to investigate and remcdiate amounts authorized under thc 1991 Agrccmcnt and rcflcct-the remaining 35 with which the Company is associated are ing implementation of the IRM initiative. Based upon cstimatcd to be approximately $ 492 million. The Company management's asscssmcnts that rcmcdiation costs will bc estimates its share of this total at approximately $ 20 million recovered from ratcpaycrs, a regulatory asset has been and this amount has been accrued at Dcccmber 31, 1992. recorded rcprcsenting thc future recovery of remediation Of the 15 PRP sites on the NPL for Uncontrolled Haz- obligations accrued to date.
ardous Waste Sites as published by the EPA in the Federal The Company also agrccd in thc 1991 Agreement to a Register, onc (Ludlow Landfill) has been settled by the cost sharing arrangement with respect to one industrial Company for less than $ 10,000 and 12 are listed on page 46. waste site. The Company docs not belicvc that this cost Thc remaining two are further discussed below. sliaring agreement, as it rclatcs to this one industrial waste E 'mates of thc Company's potential liabilityfor PRP sites site, will have a material eAect on thc Company's financial a 'vcd by estimating the total cost of clean-up of the position or results of operations.
sa then applying the related Company contribution The Company is also in the process of providing notices fact to that estimate. Estimates of the total clean-up costs of insurance claims to carriers with respect to the investi~-
arc detcrmincd by using the Company's investigation to date, tion and remediation costs for manufactured gas plant and ifany, discussions with other PRPs and, where no informa- industrial waste sites. Thc Company is unable to predict tion is known at the time of estimate, EPA estimates based whcthcr such insurance claims will bc successful.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES Tax assessments: Thc Internal Revcime Service (IRS) is cur- As a result of these structural changes, pipelines face rently conducting an examination of thc Company's Fcdcral "transition" costs from 0
implementation of the order e income tax returns for the years 1987 and 1988 and has sub- principal costs arc: unrecovered gas cost that would mitted a Revenue Agents Report to the Company. The IRS wise have been billable to pipeline customers unde has proposed various adjustincnts to the Company's federal ously existing rules, costs related to restructuring existing income tax liability for these years which could incrcasc the gas supply contracts and costs of assets needed to implement Federal income tax liability by approximately $ 83 million thc order (such as meters, valves, etc.). Under the Order, before asscssmcnt of penalties and intcrcst. Included in pipclines are allowed to recover 100% of prudently incurred these proposed adjustmcnts are several potentially signifi- costs from custoiners. Prudence will be deterinincd by the cant issues involving Unit 2. Thcsc issues include its tax in- FERC review.
scrvice date, cost basis for invcstmcnt tax credit purposes, The amount of restructuring costs that may be billable to partnership short year for depreciation purposes and a pro- thc Company will be determined in accordance with pipe-posed reclassification of plant costs to "licensing costs", an line restructuring plans which have been submitted to intangible asset. The Company is vigorously defending its FERC for approval. Thcrc are four pipelines to which the position on each of these issues. Pursuant to the 1990 Unit 2 Company may have some liability. The Company is actively settlement, to the cxtcnt the IRS is able to sustain disallow- participating in FERC hearings on these matters, to ensure ances in those areas, thc Company will have to absorb a an equitable allocation of costs. Based upon information portion of any disallowance which it belicvcs will not have presently available to the Company from the petitions filed a material impact on the Company's financial position. by the pipelincs and the Company's participation in settle-Thc Company is at various stages of examination by the ment negotiations, its liabilityfor the pipclincs'nrecovered State of Ncw York for sales tax and other state taxes. The gas costs could be as much as $ 56 million and its liabilityfor Company bclicves that the resolution of these cxaininations pipeline restructuring costs could be as much as $ 60 mil-will not have a material impact, on thc Company's financial lion. Howcvcr, the Company believes its ultimate liabilitywill condition or results of operations, and that any asscssincnts be less than $ 64 million in total, based on its assessment of ultimately sustained will bc recoverablc by thc Company the progress of scttlemcnt negotiations. The Company tllfoilglltile fatcscttllig process. anticipates these costs will bc primarily reflected in demand charges paid to reserve space on thc various interstate pipelines and will be billed over a period of approximately 7 FERC Order 696: In April 1992, the FERC issued Order 6%, years, with billings morc heavily weighted to the first s.
which will require interstate pipclincs that offer open access The Company is unable to predict the probable out f transportation scrviccs to unbundle pipeline sales services current pipclinc restructuring settlements and the a from pipclinc transportation service. These changes will for which it may be ultimately liable or the period over enable thc Company to arrange for its gas supply directly which this liabilitywill be billed. The Company believes any with producers, gas markctcrs or pipclincs, at its discretion, amounts for which it is ultimately determined to be liable as well as arrange for transportation and gas storage services. will be recoverable in the rateset ting process.
NOTE 10. Quarterly Financial Data (Unaudited)
Operating revcinies, operating income, net income (loss) and earnings (loss) pcr common share by quarters from 1992, 1991 and 1990, respectively, are shown in the following table. Thc Company, in its opinion, has included all adjustments necessary for a fair presentation of thc results of operations for thc quarters. Due to the seasonal nature of the utilitybusiness, the annual amounts arc not gcneratcd evenly by quarter during thc year.
In thousands of dollars Net Earnings Quarter Operating Operating income (loss) per Ended revenues income (loss) common share
$ 963)629 $ 119,181 $ 41,835 $ .24 1991 848,593 117,139 35,111 .18 781,270 63,531 (104,807) (.85) 1990 LSeeptember 30, 1992 1991
$ 822)530 734,446
$ 89)658 102,627
$ 40,401 40,783 5 .28~
.23 1990 682,114 128,191 60,128 .37 881,427 $ 137,515 $ 71,734 $ .46 1991 807,024 127,159 57,691 1990 737,860 103 750 35 756
$ 1)033,941 $ 177,972 $ 102,462 1991 992,45~178,509 109,784 1990 953,475 156,589 91,801 .60 48
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES In the second quarter of 1992 and the third quarter of 1991, the Company recorded $ 22.8 million ($ .11 pcr common share) 0 million ($ .14 per cominon share), respectively, for MERIT earned in accordance with thc 1991 Agreement. In the first of 1992 and the fourth quarter of 1992 and 1991, the Company rccordcd $ 21 million ($ .09 per common sharc), $ 24 n n ($ .09 per common share) and $ 23 million ($ .07 per commbn sharc), respectively, to writeMown its subsidiary invest; ment in oil and gas properties.
In the fourth quarter of 1991 and 1990, the Company accrued $ 5 million ($ .01 per common share) and $ 15 million ($ .07 pcr common share), respectively, relating to its investment in NM Uranium, Inc., resulting in a decrease in net income for each quarter. In the fourth quarter of 1990, the Company reflectcd a loss of $ 140 million ($ .68 per common share) relating to nuclear rcplaccmcnt power costs disallowed associated with Unit 1 and Unit 2 outages.
NOTE 11. Inj'orntation Regarding the Electric and Gas Businesses The Company is engaged in the electric and natural gas utility businesses. Certain information regarding these segments is sct forth in the following table. General corporate expenses, property common to both seginents and depreciation of such common property have been allocated to thc segments in accordance with practice cstablishcd for regulatory purposes. Iden-tifiable assets include net utility plant, materials and supplies, deferred finance charges, deferred recoverable energy costs and certain other dcfcrred debits. Corporate assets consist of other property and invcstmcnts, cash, accounts receivable, prepaymcnts, unamortized debt expense and other deferred debits.
ln thousands of dollars 1992 1991 1990 Operating revenues:
Electric $ 3,147)676 $ 2,907,293 $ 2,669,308 Gas. 553,851 475,225 485,411 Total . I $ 3,701,527 $ 3,382,518 $ 3,154,719 0 ting income before taxes:
Electric ................ $ 645,696 $ 644,084 $ 522,947 as. 61,863 39,487 50,228 Total I $ 707,559 I $ 683,571 $ 573,175 Pretax operating income, including AFC:
Electric $ 666,269 $ 662,258 $ 543,504 Gas. 62,721 40,244 51,085 Total 728,990 702,502 594,589 Income taxes, included in operating expenses:
Electric..................... 176,901 152,840 119,185 Gas. 6)332 5,297 1,929 Total I 183 233 158,137 121,114 Other (income) and deductions. (10,643) 71,728 Interest charges . 300,716 311,639 318,869 Net income. I $ 256432 I $ 243,369 $ 82,878 Depreciation and amortization:
Electric................. $ 255,256 $ 240,887 $ 204,417 Gas. 18)834 17,929 16,440 Total I $ 274,090 I $ 258,816 $ 220,857 Construction expenditures:
(including nuclear fuel):
Electric.............. $ 442,741 $ 445,298 $ 373,232 Gas. 59,503 77,176 58,347 Total I $ 502,244 I $ 522,474 $ 431,579 Identifiable assets:
lectric....... $ 7,0001659 $ 6,760,375 $ 6,435,401 783,766 725,553 610,648 Total 7,784,425 7,485,928 7,046,049 Corporate assets. 806,110 755,548 719,357 Total assets I $ 8,590,535 I $ 8,241,476 $ 7,765,406
NIAGARA,MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANlES Market Price of Common Stock and Related Stockholder Matters The Company's common stock and certain of its preferred dends thereon are paid or declared and set aside series are listed on the New York Stock Exchange. The com- ment, the holders ol'such stock can elect a majority o the mon stock is also traded on the Boston, Cincinnati, Midwest, Board of Directors. Whenever dividends on any Preference Pacific and Philadelphia stock exchanges. Common stock Stock are in default in an amount equivalent to six full quar-options are traded on the American Stock Exchange. The terly dividends and thereafter until all dividends thereon are ticker symbol is "NMK." paid or declared and set aside for payment, the holders of Preferred dividends were paid on March 31,June 30, Sep- such stock can elect two members to the Board of Directors.
tember 30 and December 31. Common stock dividends were No dividends on Preferred Stock are now in arrears and no paid on February 29, May 31, August 31 and November 30. Preference Stock is now outstanding. Upon any dissolution, The Company presently estimates that, none of the 1992 liquidation or winding up of the Company's business, the common or preferred stock dividends will constitute a holders of Common Stock are entitled to receive a pro rata return of capital and therefore all of such dividends are sub- sliare of all of the Company's assets remaining and available ject to Federal tax as ordinary income. for distribution after the full amounts to which holders of The table below shows quoted market. prices and divi- Preferred and Preference Stock are entitled have been satis-dends per share for the Company's common stock: fied.
The indenture securing the Company's mortgage debt Dividends Paid Price Range provides that surplus shall be reserved and held unavailable 1992 Per Share High Low for the payment of dividends on Common Stock to the 1st Quarter $ .16 $ 19 $ 17N extent that expenditures for maintenance and repairs plus 2nd Quarter .20 19Yi 17Yi provisions for depreciation do not exceed 2.25% of depre-3rd Quarter .20 20M 18N ciable property as defined therein. Such provisions have 4th Quarter .20 19M 18N never restricted the Company's surplus.
1991 At year end, about 115,000 stockholders owned common shares of the Company and about 5,300 held preferred 1st Quarter 15 $ 12s/i stock. The cliart below summarizes common stockholder 2nd Quarter 15N 14Yi ownership by size of holding:
3rd Quarter $ .16 17 15Yi 4th Quarter .16 18 16Yi Size of holding (Shares) Total stockholders Total share d Other Stockholder Mattersr The holders of Common Stock 1 to 99 44,910 1,466,395 are entitled to one vote per share and may not cumtilate 100 to 999 62,931 17,440,068 their votes for the election of Directors. Whenever dividends 1,000 or more 7,107 118,253,144 on Preferred Stock are in default in an amount equivalent 114,948 137,159,607 to four full quarterly dividends and thereafter until all divi-YEAR END PRICE RETAINED EARNINGS OF COMMON STOCK (MILLIONSOF DOLLARS)
"( j kl
, h-I 1
1988 1989 1990 1991 1992 1988 1989 1990 1991 1992 50
NIAGARA NOkfAIVK PO)VER CORPORATION AN D SUBSIDIARY COMPAN I ES S cted Financial Data ussed in Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes to Con-s ed Financial Statements, certain of the following selected financial data may not be indicative of the Company's future financm I cond uron or rosulrs of oporarrons.
1991 1990 1989 1988 Operations: (000's)
Operating revenues .. $ 3,701,527 $ 3,382,518 $ 3,154,719 $ 2,906,043 $ 2,800,453 Net income. 256,432 243,369 82,878 150,783 208,814 Common stock data:
Book value per share at year end. $ 16.33 $ 15.54 $ 14.37 $ 14.07 $ 13.87 Market price at year end . 19'/s 1'/s 13% 14s/s 13 Ratio of market price to book value at year end... 117.1% 115 0% 91 4% 1 02.2% 93 7%
Dividend yield at year end. 4.2% 3.6% P P% P P% 9.2%
Earnings per average common share Rate ot return on common equity
.. S 1.61 10 1%
$ 1.49 10 0%
$ .30 $ .78 $ 1.21 2.1% 5.6% 8.7%
Dividends paid per common share S .76 S .32 S .00 $ .60 $ 1.20 Dividend payout ratio. 47.2% 21.5% P P% 76.9% 99.2%
Capitalization: (000's)
Common equity . $ 2>240>441 $ 2,115,542 $ 1,955,118 $ 1,914,531 $ 1,881,394 Non-redeemable preferred stock 290>000 290,000 290,000 290,000 290,000 Redeemable preferred stock..... 170,400 212,600 241,550 267,530 295,510 Long-term debt. 3,491,059 3,325,028 3,313,286 3,249,328 2,995,748 Total 6,191,900 5,943,170 5,799,954 5,721,389 5,462,652 First mortgage bonds maturing within one year . 100,000 40,000 50,000 33,000 Total . $ 6,191,900 $ 6,043,170 $ 5,839,954 $ 5,771,389 $ 5,495,652 Capitalization ratios: (including first mortgage bonds maturing within one year):
Common stock equity 36.2% 35 0% 33.5% 33.2% 34 2o/
preferred stock . 7.4 8.3 9.1 9.6 10.7 rm debt. 56.4 56.7 57.4 57.2 55.1 I ratios:
earnings to fixed charges 2.24 2.09 1.41 1.71 2.10 Ratio of earnings to fixed charges without AFC...... 2.17 2.03 1.35 1.66 2.06 Ratio of AFC to balance available for common stock.. 9 7% 93% 52.8% 18.3% 6.9%
Ratio of earnings to fixed charges and preferred stock dividends . 1.90 1.77 1.17 1.67 Other ratios-% of operating revenues:
Fuel, purchased power and purchased gas....... 34.1% 32.1% 36.9% 36 So/o 34 6'/
Other operation expenses . 19.7 20.0 19.9 19.7 16.5 Maintenance, depreciation and amortization ...... 13.5 14.4 14.4 14.4 15.1 Total taxes 17.3 16.4 14.4 15.3 16.1 Operating income 14.2 15.5 14.3 14.2 17.0 Balance available for common stock. 5.9 6.0 1.3 3.6 5.7 Miscellaneous: (000's)
Gross additions to utility plant. S 502,244 $ 522,474 $ 431,579 $ 413,492 $ 366,142 Total utility plant. 9>642,262 9,180,212 8,702,741 8,324,112 7,967,625 Accumulated depreciation and amortization.. 2,975,977 2,741,004 2,484,124 2,283,307 2,090,170 Total assets 8,590,535 8,241,476 7,765,406 7,562,472 7,076,041 TOTAL TAXES INCLUDING MARKET/BOOK INCOME TAXES COMPARISON (MILLIONSOF DOLLARS)
$ 19 117 1%
$859 115.0o/o 102.2/o S574 93.7%
I S19
$ 459
$ 15 S470 91 4%
$ 459 M9 ms 13.00 $ 14.38 $ 13.13 $ 17,88 $ 19.13 1988 1989 1990 1991 1992 1988 1989 1990 1991 1992
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES ELECTRIC CAPABILITY GAS STATISTICS Thousands ol kilowatts 1992 1991 December 31, 1992 % 1991 1990 Gas sales (Thousands ol dskafherms)f Owned: Residential . 53,945 48,172 49,955 Coal 1>285 15.5 1,285 1,294 Commercial 22,289 20,226 22,823 Oil. 1>496 18.1 1,961 1,961 Industrial. 1,772 1,812 4,116 Dual Fuel OiliGas ............ 700 8.5 400 400 Other gas systems.................... 1>1 90 1,519 1,723 Nucfear 1>059 12.8 1,059 1,051 Hydro . 706 8.5 708 708 Total sales....................... 79,196 71,729 78,617 Natural Gas ................... 108 1 3 164 211 Transportation of customer-owned gas.... 65,845 50,631 34,242 5,354 64.7 5,577 5,625 Total gas delivered .. 145,041 122/60 112459 Purchased: Gas revenues (Thousands olde/lars):
New York Power Authority Hydro............ 1,302 15.8 1,283 1,278 Residential . $ 354,429 $ 302,900 $ 307,217 Nuclear........... 67 .8 76 63 Commercial Industrial .. . 132,609 10,001 113,727 8,430 128,462 19,322 Non utility generators..., 1,549 18.7 1,027 630 Othergas systems .................... 4,737 6,964 7,907 Total capability '...........,... 8,272 100.0 7,963 7,596 Transportation of customer owned Miscellaneous.
gas.... 42,726 9,349 36,455 6,749 22,100 403 Electric peak load.....,......, .. 6,205 6,093 5,792 $ 553,851 $475,225 $ 485,411 Available capability can be increased during heavy toad periods by purchases Gas customers (Average):
frcmneighboring Interconnected systems Hydro station capability is based on 448,601 438,581 431,588 Residential .
average December stream-flaw conditions, 39,230 37.727 37,011 Commercial Industrial. 234 260 272 ELECTRIC STATISTICS Other 1 2 2 Transportation. 639 625 567 1992 1991 1990 488,705 477,195 469,440 Electric sales (M>fEon ol kw-hrs.):
Residential.................... 10,392 10,321 10,310 Residential (Average)
Commercial.........,..... ., 11,628 11,686 11,623 Annual dekatherm use per customer...... 120.3 109.8 115.7 Industrial,...............,..., 11,334 11>362 11,874 Cost to customer per dekatherm...,..... $ 6.57 $ 6.29 $ 6.15 Municipalservice............... 227 228 226 Annual revenue per customer........... $ 790.08 $ 690.64 $ 711.83 Other efectric systems......, 3,030 3,141 1,511 Maxirnun day gas sendout {dekatherms)..... 905,872 852>404 714,122 36,611 36.738 35W4 Electric revenues (Thousands ol dollars):
Residential.................... $ 1,096,418 $ 985,347 $ 917,057 Commercial.......,........... 1,160,643 1,044,725 978,684 Industrial ..................,.. 628,667 556,934 543,365 ELECTRICITY GENERATED Municipal service............... 50,327 47,566 44,825 AND PURCHASED I992 Other electric systems........... 93,283 106,066 69,821 Miscellaneous................. 118,338 166,655 115,556 NATURAL
$ 3,147>676 $ 2,907,293 $ 2,669,308 VARIOUS GAS SOURCES 4%
Electric customers 5%
(Average).'esidential....................
1,389,470 1,378,484 1,361,961 Commercial......,..........,. 142,345 145,098 145,231 1/oui Industrial,.................... 2,269 2,283 2,309 Other 3,262 3,231 3,158
~ ~
1>537i346 1,529,096 1,512,659 Residential (Average):
Annual kw.hr. use per customer... 7,479 7,487 7,570 Cost to customer per kw.hr....... 10.55O 9.55c 8.89C Annual revenue per cutomer...... $ 789.09 $ 714.80 $ 673.33 CorPora(e Inforsnation Annual Meeting Shareholder Inquiries Sfoch Exchange Listings '&ansfer Agenfs and Registrars The annual meeting of sharehold- Questions regarding shareholder Ticker Symbol: IVA1K Common and Preferred Stocks:
ers will bc held at The Desmond accounts may bc directed to the Common stock and most preferred Cllellllcal B;ink Hotel, GGO AlbanyShaker Roa<l, contpany's Shareholder Services series are listed and traded on the 150 At>est 33rd Street Albany, N.Y. at 10:30 a.m iltesday, Dcparunent: New York Stock Exchange. New York, N.Y. 10001 1>lay 4, 1993. A notice of the meet- (315) 128-G750 Boruls are traded on the New York Bonds:
ing, proxy statement and form of (Syracuse) Stock Exchange. Marine Midland Bank, NA.
proxy will be sent in early April to 140 Broadway holders of common stock. I-800-9G2423G Disbursing Agent New York, N.Y. 10015 (Yew York State)
Common and Preferred Stocks:
SEC Form 10.K RePort 1-800.4 18-5 I50 A copy of the company's Form 10-K Niagara Mollawk Power Corp.
(clscwhere in continental U.S) 300 Erie Boulm>ard West rcport, filed annually with the Analyst lnquincs Syracuse, N.Y. 13202 Securities and Exchange Commis-sion, is available without charge by Anal)st irt<luiries should bc Bonds:
writing the Investor Relations dircctcd to Leon T. Mazur, Marine >bfidland Bank, NA.
Department at 300 Erie Boulevard >>Ianager-Investor Relations, 140 Broadway West, Syracuse, N.Y. 13202. (315) 4285876. New York, N.Y. 10015 52
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES Directors Officers F.Allyn (8, C, I) WilliamJ. Donlon Richard F A. Duffy t IL Chief Executive Oflicer Chairman of the Bmld and Vice Plesldcnt Wc c I Allyn, Inc., Skaneatclcs Falls, NY Chief Excctltive Oflicer Public AiTairs and Corporate Communications Lawlence Burkhardt, HI (I') William E, Davis (Rcsind july 3I, 1992)
Former Executive Vice Prcsidcnt Vice Chairman of the Bmld Nudear Operations (Effcclivc¹vnnbcr 19, 1992) Thomas IL Fair Vice President Douglas hL Costle (A, D, I) John hf. Endries Environmental AKairs Distinguished Senior Fclfolv, President Institute for Sustainable Communitics Joseph F. Firlit Vermont Law School L Ralph Sylvia Vice President, Nuclear Support Executive Vice President, Nudcar South Royal(on, VT Hoffman Edward F.
David J. Arrington Vice President, Power Delivery Edmund M. Davis (A, 8, D, E)
Senior Vice Prcsidcnt Partner, I-Iiscock fk Ihrclay Human Resources Darlene D. Kerr Attorneys at-Law, Syracuse, NY Vice President John P. Hcnnesscy William E Davis Gas Marketing and Rates Senior Vice Prcsidcnt Vice Chairlnan of thc Board Electric Customer Service Samuel F. Manno WilliamJ. Donlon (A) Vice Prcsidcnt Chairman of the Board and Gary J. Lavinc Purclrasing and Corpontc Services Senior Vice President Chief Executive Ofliccr Legal g.. Corporate Relations Douglas R. hfcCuen Edward W. Duffy (A, 8, I) and Gcnenl Counsel Vice President Former Chairman of the Board Government and Regulatory Relations
~
Robert J. Patrylo and Chief Executive Oflice, Senior Vice Prcsidcnt Clement E Nadeau Marine Midhnd Ihnks, Inc.
Gas Customer Service Vice President Coopclstown, NY Po>>cr Tnnsactions and Planning John M Powers John hf. Endrics President Senior Vice President James A. Perry Finance and Corponte Services Vice Prcsidcnt, Quality Assunncc Dr. Bonnie Guiton (A, C, D) hiichacl P. Ranalli Russell E. Perry D Mclntirc School of Commerce Senior Vice President
'ty of Virginia, Charlouesvillc, VA Vice President, Emplo>ce Relations Electric Supply and Delivery (Rcsigncd Junc 19, 1992)
. Haehl, Jr.
Joseph T. Ash Nicholas I Priolct ti, Jr.
Former Chairman of the Board Vice President, Consumer Services Vice Prcsidcnt, Financial Planning and Chief Executive Ofliccr hiartha Hancock Northrup (A, Q E)
Nicholas J. Ashooh Arthur W. Roos Vice President Trcasll rcr Homemaker, Syncusc, NY Public AKairs and Corporate Richard H. Ryczek Henry A. Panasci,Jr. (8, I) Communications Vice Presi<fent Chairman of the Boald and (Isffcrsivc Augtrst I, 1992)
Gas Customer Scrvicc Operations Chief Executive Oflicer Thomas H. Baron Fay's Incorporated, Liverpool, NY Vice President, Fossil Gcncration Jack R. Swartz Vice President, Emplo>cc Relations Patt i McGillPeterson (D, I)
(Effeciivc August I, 1992)
President, St. Lawrence University Harold J. Bogan Canton, NY Secretary WilliamJ. Syn>>uldt (Effcctivc Oriolrcr I, 1992) Vice Pscsident, Information Sptcms Donald IL Rieflcr (rl, C, l~ I)
Financial hfarkct Consultant hiichael J. Cahill Steven M Tasker Vero Beach, FL Vice President, Regional Operations Controller Stephen E Schwartz (8, E) Neil S. Cams Carl D. Terry Former IBhf Senior Vice President Vice President, Nuclear Generation Vice President, Nuclear Enginccring Palm Beach Gardens, FL (EffcriivcAugust I, 1992)
Andrew hf. Vescy John G. Wick (C D, E) Norman E. Crowe> Jr. Vice President, Opentions Support Partner, Falk ft.. Siemer Vice Prcsidcnt, Regional Attornc>mat.Law, Buffalo, NY Stanley M Wilczek, Jr.
Operations Vice President, Special Projects A. Member of the Executive Committee
- 8. hfember of the Compensation 8:
Succcsslon Conlnllucc C. hfember of the Audit Committee D. Member of the Committee on Corporate Public Policy gc Environmental Affairs bcr of the Finance Committcc Ibcr of thc Nuclear Oversight.
Imittce
Niagara Mohawk Power Corporation 300 Erie Bouievard West BULK RATE Syracuse, New York 13202 US. POSTAGE f NMPC
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