ML17058B770
| ML17058B770 | |
| Person / Time | |
|---|---|
| Site: | Nine Mile Point  |
| Issue date: | 12/31/1992 |
| From: | Mack J CENTRAL HUDSON GAS & ELECTRIC CORP. |
| To: | |
| Shared Package | |
| ML17058B768 | List: |
| References | |
| NUDOCS 9305240305 | |
| Download: ML17058B770 (58) | |
Text
9305240305 930520 PDR ADOCK 05000220 I
PDR entral udson 1992 Annual Report
Helping to Restore the Hudson s Marshlands The Museum ofthe Hudson Highlands is conducting a research project to determine the potentialforrestoring the Hudson River's snarshes and wetlands.
The study is <<meaningful because the plant and aquatic lifein the marshlands play a signify'cant role in water quality and the river's food chain.
The ~narshes also provide habitats for waterfowl.
1n the cover photograph taken frotn the Appalachian TrailManitou Inarsh is the beige-colored area to the leftofBear Mountain bridge on thefar shoreline.
Located a few zniles south ofthe U. S. MilitaryAcademy at West Point, Manitou Inarsh is one offour sites on the Hudson River which are being studied.
Experience gained at Cornwall Bay, another site shown below, has been invaluable in deterjnining which plaI't species and planting tecIutiques yield the best survival rates, and which are tnost effective in deterring Canada geese, which like to eat the plant roots.
Larlyindications are thatfringe wetlands can be re-established where conditions siInilar to Cornwall Bay exist elsewhere along the river.
This is good news not onlyfor the Hudson but also for the Atlantic Coast fishery, which depends in large part on a healthy and productive Hudson River.
Central Hudson is the principal sponsor ofthe <<marshland s
Table of Contents hairman's Report The Year In Review Board ofDirectors Corporate &Stock Information Financial Section Directors &Officers Shareholder Survey 2
4 15 16 17 Inside Back Cover Inside Back Cover ELECTRIC SALES Q rcoorrrroc ri cororrrcoo ooosrrrar 4.=--==-=- -- -
40Z0 3
X Financial Highlights 1988 1989 1990 1991 1992 Operating Revenues Net Income Earnings Per Share Average Shares Outstanding Declared Dividends Per Share Total Assets lectric Sales-Own Territory (kwh.)
Natural Gas Firm Sales (thousands ofcubic feet)
Electric Customers-Own Territory (average)
Firm Gas Customers (average)
~2
$523,557,000
$47,688,000
$2.65 15,901,000
$ 1.98
$ 1,167,124,000 4,840,244,000 9,379,000 256,503 58,038 129l
$494,736,000
$42,941,000
$2.40 15,530,000
$ 1.90
$ 1,141,128,000 Qiaogr 6%
11%
10%
2%
4%
2%
253,960 57,200 1%
1%
4,941,302,000 (2)%
8,429,000 11 %
VIX0 o
IL O
FIRM GAS SALES 82 oreorrrrrwc Q coN!rrrococ ooosrRw.
10-1
',E 1988 1989 1990 1991 1992 csee e.rrts e.crt s.err e.as
'rrLHocrew orrs CAPITALIZATIONRATIOS 22 aor D rro nore D erorer 110 -
COMMON STOCK PRICES rl rror U uw O croM 82 eox EPS & DIVIDENDS O rre
+worlos 2.70 a 70 o 50
~ 50 4
0--
25 ce 20 0a 15-10-2.40
~ 280 rc 220
< 2,10 2.00 1.90 10 1.70 1988 1989 1990 1991 1992 1988 1989 1990 1991 1992 1988 1989 1990 1991 1992
Despite the economy, unfavorable weather and a changing business envi ment, my message is encouraging: for our shareholders, Central Hudson had a so year financially; for our customers, we continue to meet their needs in creative ways.
Looking to the future, I am confident that we will build on our accomplish-ments, largely because our employees have a strong commitment to meeting a number of important financial and operating goals. I am proud of Central Hudson's 1,385 employees who, I am certain, willcontinue to perform in the best interests of shareholders and customers alike.
Earnings per share increased 10.4 percent, from $2.40 in 1991 to $2.65 in 1992.
A one-time inclusion of Nine Mile 2 net litigation proceeds added $.10 to earnings CI +i+~++ 9g g++0+g per share.
Dividends paid io shareholders increased 4.3 percent, from $ 1.88 to $ 1.96 for the s'arne period of time. I am particularly pleased to report that during the last three years, the average annual increase in the dividend has been 3.7 percent. As a result of a number of refinancings during 1992, we further reduced the effective interest rate on debt from 7.70 percent at the end of 1991 to 7.05 percent at the end of 1992. This willresult m additional savmgs for our customers of $3.7 million annually in interest expense.
And since March 1991, all four rating agencies have upgraded their credit ratings on our First Mortgage Bonds. The most recent upgrading was to an "A" rating; the other ratings are "A-."
Construction of a natural gas pipeline int connection and the conversion of our Roseton plant to burn natural gas as well as oil were the principal capital projects completed during 1992.
When this construction project was com-pleted last spring, it represented another milestone in our decade-long program to diversify our fuel mix and reduce our dependence on oil as a fuel to generate electricity. By burning natural gas in our Paul J. Ganci, President Jolm E. black, Chairmnn ROSetOn plant, We Were able tO reduCe fuel COStS anrl ChiefOperating 0+icer and Chief&dermis'd 0+icer by apprOXimately $ 1 5pp ppp during 1992 was a significant savings for our customers. By the end of the year, oil represented only 28 percent of our fuel mix, down from 95 percent at the beginning ofthe 1980s.
As a result of our fuel diversification program, we are able to take advantage of price and supply options for five different fuels and provide our customers with more competitively-priced energy.
Reducing interest expense and the cost of fuel are just two examples of how we are controlling costs and working toward becoming the energy supplier of competitive choice in the Mid-Hudson Valley. In this report, we describe how we have made quality and value a major part of providing electric and gas service, and how we are making decisions which focus on the needs of our customers.
We a describe how we are expanding our natural gas business as part of our dyna business plan, and how we are preparing for increased competition as a result of the trend toward the deregulation of the electric and gas utilityindustries.
The theme of this year's annual report is "A History of Environmental tewardship."
It has been the privilege of Central Hudson and its predecessor companies to provide gas and electric service to the communities in the Mid-Hudson Valley since before the turn of the century.
As a regional energy company, Central Hudson has many public service responsibilities, one of which is to participate in the preservation of the region's magnificent environmental pptggtfsppllgg Ogp heritage.
KT we believe few organizations in the valley can tcr++l+0+llg8+itQl match Central Hudson's history of caring for and
+dspjgggds nurturing the region's air, water and land resources.
Over the decades, many decisions have been made which protected the region's natural environment. In the early 1900s, for example, Central Hudson made a decision to use an underwater cable to cross the scenic Hudson River rather than building an unsightly overhead line.
In more recent
- times, Central Hudson made 670 acres on Breakneck J
Mountain available for inclusion in what became a state park in the ruggedly-eautiful Hudson Highlands. Central dson also provided New York State tth 700 acres of ecologically-important Hudson River property in northern Dutchess County for a wildlife conser-vation zone.
Looking at the past year, our natural gas pipeline interconnection crossed more than 20 federally-designated
- wetlands, several streams and the Hudson River.
The project waS designed and carried out Cleannantralgasisbeingnsedasafitelinnrosehoolhasesaspanofa Central Hudson research program to demonstrate the environmental aml in cooperation with a ~~mb~r of regul tory and governmental organizations.
To cross the Hudson, we chose to bore below the bed of the river rather than simply laying the line in a trench, which would have disturbed aquatic life. Completion of this project has enabled us to further improve air quality by using clean natural gas as an additional fuel to generate electricity at our Roseton plant.
All of us at Central Hudson are proud of our company's environmental accomplishments, both past and present. The photographs in this year's annual report help illustrate our awareness of our responsibility to be a partner in the preservation and enhancement of the region's environmental heritage.
Very truly yours, Chairman of the Board and Chief Executive Officer
Ifa business is responsive to the needs ofits customers, itwillhave an opportunity to be successful "Keeping The Customer In Focus" is a phrase which w introduced during 1992 to symbolize Central Hudson's program to improve quality by pursuing excellence, creating customer satis-faction and improving productivity.
The phrase, which has become part of our logotype, is being used in all of our print, radio and television advertising, and on all Central Hudson publications.
The objective is to make all of our customers aware that our employees are dedicated to providing quality electric and gas service. To this end, all employees participated in "Quality Initiative" workshops which emphasized the importance of strength-ening various customer. relationships. The focus is on making decisions which are in the best interest ofcustomers.
Being responsive to the special needs of our customers also has a high priority at Central Hudson.
As an example, voltage sags which occur during faults on electric systems are a common problem affecting the quality of electric service to industrial customers.
While there is no loss of power during a sag, or dip, the change can be enough to be detected by sensitive equipment, such as th~
used by International Business Machines, Inc. at one. of its facili in Dutchess County.
A sag of only a tenth of a second can be enough to cause the equipment to shut down, which creates a tremendous impact on IBM's operations. However, through a joint effort involving Central Hudson, IBM and Superconductivity, Inc., state-of-the-art technology is being tested at the IBM site to protect sensitive equipment from the effects of voltage sags.
The technology is known as a Superconducting Magnetic Energy Storage Device (SSD), for which Central Hudson has invested $250,000 for its development by Superconductivity, Inc.
The SSD unit at the IBM site is the first of its kind to be designed, built and tested.
To date, the results have been impressive. The SSD unit has operated on many occasions, and in each instance the equipment being protected by the SSD rode through the sags and experienced no down time or lost work hours, compared to equipment not protected by the SSD.
Being responsive to the needs of customers also resulted in the relocation of our Customer Relations office to Fishkill and the redesign of our Customer Relations office in Poughkeepsie.
The
'atter site features a drive-through payment window for the c~
venience of customers.
In addition, the hours that Custon~
Relations Representatives are available throughout our System by telephone have been extended to assist customers after normal business hours.
Barren oftrees, the face ofBreakneck Mountain is a prominent geological feature ofthe Hudson Highlands, which many believe is the Inost scenic part ofthe Hudson River Valley. Today, Breakneck is part ofthe Hudson Highlands State Park, largely because of670 acres which Central Hudson sold at cost to the Jackson Hole Preserve, a major environmental organization.
Jackson Hole, in turn, gave the property to New York State forincorporation into a new state park. Atthe time ofthe park's dedication, the Central Hudson parcel, including Breakneck, was described as "the key to the park plan."
Central Hudson's interest in keeping Breakneck in iis natural state, coupled with the efforts ofmany people in the public and private sectors, made itpossible forbusiness and govennnent to become partners in preserving an important part ofthe region's scenic and environmental heritage.
Investing in new facilities shows our confidence in the future growth ofthe Mid-Hudson Valley As noted in the Chairman's Report, the two major projects which were completed during 1992 were the natural gas pipeline interconnection and the conversion of the Roseton plant to burn natural gas as well as oil to generate electricity.
In combination, these two projects have major significance for our customers:
by burning clean natural gas at Roseton, we have been able to improve air quality and substantially reduce the cost of fuel.
While we have always operated our generating plants in compliance with air quality standards, the use of natural gas makes a further contribution to a cleaner environment.
It also is noteworthy that the pipeline construction project was completed on schedule and under budget.
By making our generating plants as efficient as possible, they burn less fuel and have less of an impact on the environment. As a result of a number of performance improvements and the training of plant operators, our fossil generating plants now rank second in New York State in efficiency.
The construction of a major substation in southern Dutchess County during 1992 is another example of bringing together t necessary resources to manage, design, license and construe complex project on schedule and within budget. The new substatio strengthens our electric system and will help meet the electric requirements of existing and future customers.
The construction of substations in southern Ulster County and near the Stewart International Airport in Orange County during 1993 and 1994 will help meet future growth in those parts of our service area.
We also are involved in a regulatory proceeding to rebuild several substations and reconstruct two transmission lines in Ulster County which were built decades ago and are nearing the end of their useful lives. This multi-year project will enhance reliability, provide more efficient operation and help meet the expected growth in the use ofelectricity.
Our new Computer Center featuring one of IBM's most powerful mainframe computers was opened during 1992 to meet Central Hudson's growing computer needs.
The IBM ES 9000 computer, which was designed and built in IBM's facilities located in our service area, will enable Central Hudson to accommodate an increasing amount of work and provide faster handling ofcustomer transactions.
And at the end of the year, our new System Operations Cen was opened, featuring state-of-the-art equipment to control a monitor our electric and gas systems.
A nuinber ofelected officials and community leaders gathered infront oftlie Roseton Electric Generating Plant last suminer for the dedication ofa new pipeline interconnection, which is enabling Central Hudson to iinprove air quality and reduce fiielcosts by burning clean natural gas to generate electricity.
T/ie construction oft'e pipeline and the conversion ofthe Roseton plant to burn natural gas as well as oilmarked another step in ourfiieldiversification program which /ias enabled Central Hudson to reduce its dependence ripon oilfrom 95 percent a decade ago to 28 percent at the end of1992. P/iase Iofthe acid rain coinpliance section ofthe Federal Clean AirAct ainendknents of1990 willhave a substantial impact on a number ofelectric companies. The effect on Central Hridson, however, willbe ininirnal because ofan on-going prograin which already has rediiced gaseoris and particulate emissions at the Roseton and Danskaininer plants.
We offer service, product and pricing options n hich fitthe needs OfOttr customers Customer interest in energy efficiency enables us to replace less efficient energy sources with natural gas or electncity Our customers not only want quality and value from Central Hudson, they want choices.
Our Marketing and Energy Efficiency Services programs identify the needs of customers with respect to service, products and prices, and then meet those needs, often with the assistance of research and development programs.
In cooperation with the Gas Research Institute, Central Hudson is participating in a pilot program to test one of the first natural gas heat pumps to be installed in the United States.
Among the advantages offered to customers are: lower operating costs than conventional heating and cooling units, quiet operation, more uniform temperature distribution and superior heating capacity during the winter, and up to 100 percent of domestic hot water needs during the summer.
Another option available to customers is the geothermal heat pump, which extracts heat from below the earth's surface to provide an efficient, pollution-free system for homes and businesses.
Voluntary time-of-use prices represent an opportunity for customers to control their energy costs by shifting electric usage to off-peak hours.
We also are promoting the New York State Energy-St program which certifies that a new home is at least 25 percent more efficient than required by the New York State Energy Code, which-is one of the most stringent in the nation.
Central Hudson is also exploring all opportunities to extend natural gas service into new areas in order to provide another energy option to residential, commercial and industrial customers.
We also are working closely with commercial and industrial customers to reduce their lighting costs. During 1992, we paid
$5,400,000 in rebates to about 1,300 customers who installed more efficient lighting equipment.
Natural Gas Vehicle technology offers a potential market for a significant increase in our gas business. With the help of two school districts, we are collecting data to demonstrate the economic and environmental advantages of natural gas-fueled school buses. We also are testing about 25 Central Hudson vehicles which are fueled with compressed natural gas. We believe natural gas is the most attractive alternative fuel because of cleaner emissions, and lower fuel and maintenance costs.
As part ofour economic development program, we have filed a new electric rate with the Public Service Commission which w'rovide an incentive for businesses to move into vacant facilities our service area. This new economic development rate willprovi a discount for electric service for a five-year period.
4, New York State is expected to adopt new regulations which willset strict standards formotor vehicle emissions. As a result, auto manufacturers willhave to produce non-polluting vehicles, many ofwhich willbe electric or utilize natural gas as a fuel. In the years ahead, many ofthe vehicles sold in New York State willhave to be ultra-low or zero emission vehicles.
Aspart ofits natural gas vehicle (NGV)program, Central Hudson has made two natural gas school buses available to two school districts to demonstrate the environmental and economic advantages ofNGVtechnology. The buses, which use compressed natural gas, have cleaner emissions and lowerfuel and maintenance costs than conventional buses.
Shown above is one ofthe buses which is being used forthe day-to-day transportation ofstudents in the Arlington School Districtin Dutchess County.
We have been preparing for the deregulation ofthe electric and gas utilityindustries.
We millbe competitive.
The nature of the utility business has been changed by the Energy Policy Act of 1992 which was adopted after almost two years of debate in Congress.
This federal energy law promotes greater competition by facilitating the entry of Exempt Wholesale Generators (EWGs) into the areas of generating, selling and transmitting electricity.
The law allows EWGs to generate and sell power at wholesale rates in competition with investor-owned utility companies, such as Central Hudson. In addition, the law provides for EWGs to have access to the utility industry's electric transmission system under certain circumstances.
The federal statute represents a major step in the deregulation of the generation and transmission of electricity in this country.
Deregulation has become a reality on the gas side. of our business too.
The Federal Energy Regulatory Commission issued an orde last year which offers the opportunity for Central Hudson and ot gas utilities to negotiate directly with gas producers for supplies natural gas. Previously, we obtained natural gas from gas pipeline companies which transmitted the fuel to our service area.
The deregulation of the electric and gas industries will create new competitive pressures and many uncertainties. At Central Hudson, however, we have been anticipating and preparing for deregulation, principally by striving toward becoming the region's energy company of competitive choice.
We are moving toward that goal by controlling costs, operat-ing safely and efficiently, providing service and products which add extra value, and by responding to the special needs of our customers.
With respect to lawmaking at the state level, a comprehensive energy law was enacted last year which brought about a change which electric companies have advocated for many years.
As part of the new State energy package, a law was repealed which required electric companies to pay a minimum of six cents per kilowatt hour to Independent Power Producers even ifthe actual cost of the electricity was less than six cents, and even ifthe utilities could generate the electricity at lower cost themselves.
State government finally recognized the inequity of the"~
cent" law which required customers of the investor-owned utilit~
to provide tens of millions of dollars in subsidies to the Independent Power Producers.
As part ofCentral Hudson's Resource Recovery PrograIn, employees ofthe Ulster Association for Retarded Citizens (UARC) sort, bale and ship recyclable paper and salvageable wire and electrical equipment at our General Storeroom located near New Paltz in Ulster County.
During the lastfouryears, the UARC etnployees have recycled 646 tons ofcable and wire and 325 tons ofpaper. During 1992, Central Hudson received an I.">nployer ofthe Year" award from Mid-Hudson Projects With Industry, which is a cooperative program for the employInent ofpersons with disabilities, Central Hudson's recycling program not only saves valuable landfillspace, itis providing employment forabout 30 people who, although functionallyimpaired, have the training and ability to make a significant contribution to the protection ofthe enviroInnent.
Our duty is to plan and perform every job safely A refueling of the Nine Mile 2 Nuclear Plant was successfully completed in the spring and the plant has been operating satis-factorily since that time.
A shareholder proposition to have Central Hudson sell its nine percent share of the nuclear plant was overwhelmingly defeated by
.shareholders by a margin of nine to one at last year's Annual Meeting of Shareholders.
The net recovery by Central Hudson and the other Nine Mile2 co-tenants from litigation involving the nuclear plant is approx-imately $ 126 million. Central'Hudson's nine percent share of the proceeds amounted to approximately $ 11 million, and willbe shared equally between our shareholders and our customers in accordance with the Nine Mile2 settlement.
With respect to meeting future growth in the use of electricity, we have an option to purchase Niagara Mohawk Power Corpora-tion's interest in the Roseton plant over a ten-year period starting in 1994, if approved by the Public Service Commission. In addition, we have analyzed more than 40 bids for both supply side and demand side capacity. However, all bids were rejected because of short-term uncertainties involving the economy and future electri growth. This matter willbe reviewed again during 1993.
A management audit of Central Hudson was begun in the Spring of 1992 under the statutory requirement that all utilities in New York State be audited every five years.
A consultant, selected by the Public Service Commission, reviewed certain programs in Human Resources, Construction Program Planning, Corporate Budgeting, Consumer Services Computerized Information Systems and Economic Development.
Near the end of 1992, we had an opportunity to comment on the consultant's findings and develop recommendations, which were based on interviews with 186 employees and a review of 253 "requests for documents." A final report will be submitted by the consultant to the Commission early in 1993.
By working more than one million hours without a lost-time accident over a period of fourteen years, Central Hudson employees in our Catskill Transmission and Distribution Division helped demonstrate that safety has the highest priority at Central Hudson.
The record, which started in 1978, was set by 54 present and former employees.
"Our Duty Is To Plan And Perform Every Job Safely" is Central Hudson's safety creed and a daily reminder to our 1,385 employees that no job is done well unless it is done safely.
The rare geological beauty ofthe land in the Minnewaska State Park was framed by the autumn colors in the foreground and a snow squall in the distance. Visiblein the foreground is an electric transmission line which crosses the Shawangunk Mountain ridge.
Central Hudson is participating in a regulatory proceeding to obtain permission to rebuild several Ulster County substations o reconstruct two transmission lines, including this one, h were builtin the l930s. Aspart ofthe reconstruction, Central Hudson has agreed to >nodifyits construction techniques in the Park, including adhering to a height liinitationin sensitive areas in order to minimize any adverse visual effects on the landscape.
Our electric prices continue to be among the lowest in Ne~ York State To help "focus" our attention on the needs of our residential customers, we conduct "How Did We Do?" surveys to obtain their opinions about our continuing performance. The surveys rate promptness, satisfaction, courtesy, professionalism, knowledge and responsiveness.
Among residential customers who responded, nine out of ten rated Central Hudson as good, very'good or excellent. In those areas where per-formance needs to be strengthened, we try to modify our programs to meet the customers'xpectations, or we create new programs whenever possible.
As one might expect, especially considering the economy, only 35 percent of our residential customers believe that electric prices are low or reasonable, according to an independent Customer Satisfaction Survey conducted on behalf of Central Hudson.
The fact is, however, that Central Hudson's residential prices continue to be below the State average and electric prices for our largest industrial and commercial customers are among the lowest in the State and region.
This favorable price comparison includes a price increase which became effective on April 15 of last year and increased electric revenues by
$ 18.25 million. Central Hudson adjusts prices only when it is absolutely necessary, and we try to minimize the amount of the increases and to lengthen the interval of time between increases.
As an example, in November of last year, we filed for new electric a gas prices which would become effective near the end of 1993. The increase would be below the Consumer Price Index, and the time between price changes would be 18 months for electric and 28 months for natural gas.
Central Hudson's two subsidiaries expanded their involvement in energy efficiency and electric generation projects during the year.
Central Hudson Enterprises Corporation, which is a full-service energy company, completed two lighting retrofit projects and has several more in progress, completed a cogeneration project for a school in Syracuse, and is implementing 4.8 megawatts ofenergy savings under a contract with a utility company in New Jersey.
Central Hudson Cogeneration, Inc. (Cencogen) continues to invest in cogeneration, and in generating facilities which use renewable resources.
Cencogen is a partner in five operating projects: two hydroelectric plants, two methane gas generation plants, and one cogeneration plant. Three other cogeneration plants are under construction.
With respect to management changes, William E. VanWagenen, Senior Vice President of Corporate Services and Governmental Affairs, retired after more than 38 years of service. Ronald P. Brand, Assistant Vice President-Engineering, was promoted to Vice President-Engineering and Environmental Affairs. Benon Budziak, Manager of Fossil Production, was promoted to Assistant Vice President-Production.
Ellen Ahearn, Manager Internal Auditing, assumed the additional responsibility for the Secreta'ffice as Assistant Secretary during the absence of Gladys L. Cooper, Corporate Secretary, who is on an educational leave-of-absence.
Board of Directors Frorrf roiv, frorrr left: Marjorie S. Brown; Edward F. X. Gallagher; John E. Mack, III, Chairman and Chief Executive Officer; Howard C. St. John, Vice Chairman; and Edward P. Swycr.
Bacl'ow, frorrr left: Jack Effron; Clrarles LaForge; Paul J. Ganci, President and Chief Operating Officer; Heinz K. Fridrich; Richard H. Eyman; and L. Wallace Cross.
Ernest R. Ackcr, a man who was an inspiration to generations of Central Hudson employees, died on June 26 at the age of96.
Mr. Acker joined Central Hudson in 1919 and was elected a
Director in 1926. During his 45-year career, he served 32 years as Central Hudson's principal officer, first as President and General Manager from
" to 1960, and thereafter as man and Chief Executive er.
At the time of his retirement in 1964, the Board of Directors pro-claimed: "...throughout his dedicated and distinguished career he has not Ernest R. Acker, 1896-1992 Former Chaimtan &Chief Executive OAicer only maintained the high principles established by his predecessors as a basis for the Corporation's develop-ment, but he has inspired his associ-ates and set an example for them in the conduct and progress of the Corporation's affairs by his own integrity and through his own ideals and standards of public service..."
Among his many accomplish-ments in community service and in industry activities, Mr. Acker was tire only person to serve as President of both the Edison Electric Institute and the American Gas Association.
Mr. Acker's passing is a loss to the entire Central Hudson family.
Corporate 4 Stock Information Annual Meeting The annual meeting of holders of common stock will be held on Tuesday, April6, 1993 at 10:30 a.m.
at the Corporation's General Offices, 284 South Avenue, Pough-keepsie, New York.
The management welcomes the personal attendance of share-holders at this meeting. A summary report of the meeting willbe mailed to all shareholders, of record at a later date.
Financial and Statistical Rcport A comprehensive ten-year financial and statistical supplement to this Annual Report will be available to shareholders attending the Annual Meeting. Copies may also be obtained by writing or calling Steven V. Lant, Assistant Treasurer and Assistant Secretary, 284 South Avenue, Poughkeepsie, N. Y. 12601; telephone (914) 486-5254.
Shareholder Information First Chicago Trust Company of New York; telephone (800) 428-9578 between 9 a.m. and 5 p.m.
weekdays.
Security Analysts and Institutional Investors Steven V. Lant, Assistant Treasurer and Assistant Secretary; telephone (914) 486-5254.
Dividend Reinvestment Plan Central Hudson offers a
Dividend Reinvestment Plan under which all holders of common stock may reinvest dividends and/or make direct cash investments to obtain additional shares. Allbrokerage and other fees to acquire shares are paid by the Corporation. To participate, call Janet M. Horvat, Director of Risk Management & Shareholder Relations, at (914) 486-5204 or First Chicago Trust Company of New York at (800) 428-9578.
Stock Exchange Listings Common: New York Stock Exchange Depositary Preferred Shares/
Adjustable Rate Preferred: New YorkStock Exchange Stock Trading Symbol: CNH MultipleCopies ofthis Annual Report Shareholders who receive multiple copies of this Annual Report may, if they choose, reduce the number received by calling First Chicago Trust Company of New York at (800) 428-9578.
General Counsel Gould &Wilkie One Wall Street New York, N.Y. 10005 Independent Accountants Price Waterhouse 153 East 53rd Street New York, N.Y. 10022 Annual Rcport to the SEC; Form 10-K Shareholders may obtain without charge a copy of Central Hudson's annual report to the Securities and Exchange Commis-sion, on Form 10-K, by writing or calling Ellen Ahearn, Assistant Secretary, 284 South
- Avenue, Poughkeepsie, N.Y., 12601; tele-phone (914) 486-5757. The copy provided will be without exhibits; these may be purchased for a specified fee.
Transfer Agent &Registrar, Common and Preferred Stock First Chicago Trust Company of New York, 30 West Broadway, New York, N.Y. 10007.
antral UdsOA Keeping TlmCus tom erin Focus 1st Quarter 2nd Quarter
'3rd Quarter 4th Quarter High
$ 28 M 29M 30 /'~
31 /~
1992 Low Dividend
$25 M
$.48 26
.48 28 N
.50 28 M
.50 1991 High Low Dividend
$ 24M
$22N
$.46 25 ~A 23 3/4
.46 27 M 23 3/4
.48 29 26 3/4
.48 Common Stock Market Price and Dividends Paid Per Share
INANCIALSKCTItGtN TABLE OF CONTENTS 18 19 20 31 31 32 34 35 36 Financial Highlights Five-Year Summary of Operations Management's Discussion and Analysis Report of Independent Accountants Consolidated Statement of Retained Earnings Consolidated Balance Sheet Consolidated Statement of Income Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements
FINANCIALHIGHLIGHTS Earnings Per Share: (Page 23)
Earnings per share ofcommon stock were $2.65 in 1992, an increase of25 cents, or 10% from 1991.
Dividends Per Share: (Page 30)
The quarterly dividend rate was increased to $.50 per share, effective August I, 1992. This reprcsentcd an increase of4.2%
over the previous quarterly rate of$.48 pcr sharc. Dividends paid to shareholders in 1992 werc $ 1.96 per share as compared to $ 1.88 per sharc in 1991. No portion of the 1992 dividend constitutes a return ofcapital.
Nine Mile2 Plant: (Note 2)
With thc conclusion of the litigation regarding the construction of the Nine Mile2 Plant, 1992 results reflect thc one-time inclusion of$2.3 million in other income, representing 50% of the excess of litigation proceeds over litigation costs.
Thc remaining 50% of the nct proceeds willbe refunded to Central Hudson's customers.
Economy:
The Company continued to recognize the effects of a slowing national and regional economy in 1992. Although the sales ofelectricity within Central Hudson's service territory decreased slightly in 1992, firm sales of natural gas, normalized for weather, grew for thc seventh consecutive year.
Electric Sales: (Page 25)
Sales ofelectricity within the Company's service territory decreased 2% in 1992. Sales of clcctricity to residential customers remained stable in 1992 rcflecting a 1% increase in the number ofcustomers and a 1% decrease in usage pcr customer. Sales to commercial customers remained stable in 1992 as a result of the net effect of a 2% increase in the number of customers and a 2% dccrcasc in usage per customer. Electric sales to industrial customers decreased 6% due primarily to the slow down in thc economy.
Gas Sales: (Page 25)
Firm sales of natural gas increased 11% in 1992 resulting primarily from colder weather. Sales of gas to residential customers increased 14% due to the combined effect of a 13%
increase in usage per customer and a 1% increase in the number of customers. Sales to commercial customers increased 14%
resulting from the combined effect of an 11% increase in usage per customer and a 3% increase in the number of customers.
Usage per customer for both residential and commercial categories was favorably impacted by a 14% increase in heating degree days in 1992. Firm gas sales to industrial customers decreased 19% resulting primarily from thc shift of a large container manufacturing company to intemiptiblc and transportation gas service.
Rate Proceedings Electric: (Page 21)
On April9, 1992, the Public Service Commission of the State of New York (PSC) issued its Opinion and Order authorizing the Company to incrcasc its rates and charges for electric service, effective April 15, 1992, to receive additional revenues of$ 18.251 millionannually, an increase ofapprox-imately 4.6%. This increase was based upon an authorized rate of return on common equity of 11.45%, an overall rate of return 18 of 9.08% and a targeted cash coverage of total interest charges of 3.03 times.
On November 12, 1992, the Company filed a request w the PSC to increase its base rates for clcctric service to produce additional annual nct revenues of$ 15.728 million based on projected operations during thc rate year November 1, 1993 October 31, 1994 (Rate Year). In developing the request to increase its base rates for electric service the Company made substantial usc of proposed rate moderators. The total effect of rate moderators is $ 10.153 millionwhich amount has the effec of reducing thc base rate revenue rcquircmcnts in the Rate Year from $25.881 million to $ 15.728 million, or 3.79%. In its filing, the Company requested an 11.75% return on common equity and a 9.15% return on total invested capital.
Rate Proceeding Gas: (Page 22)
On November 12, 1992, the Company fllcd a request with the PSC to increase its base rates for firm natural gas service to produce additional annual net rcvenucs of$ 1.838 million based on projected operations during the rate year Novcmbcr I, 1993 October 31, 1994. This represents an overall increase in firm gas revenues of2.52%. In its filing, thc Company requested an 11.75% return on common equity and a 9.15% return on total invested capital.
Common Stock: (Note 5)
Issuanccs under the Dividend Reinvcstmcnt Plan and Customer Stock Purchase Plan increased thc number of common shares outstanding to 16,028,569. At December 31 1992, a sharc of common stock was selling at $31.00 while the book value per share was $23.60. At December 31, 1992, the Company's shares werc held approximately 41% by individuals registered with the Registrar and Transfer Agent, 10% by institutional investors, and 49% in "street name." Total return to shareholders in 1992 amounted to $4.21 (15%) per share, consisting of $2.25 of niarket appreciation and $ 1.96 of cash dividends.
1992 Financing Program: (Notes 5 &6)
In 1992 the Company rcdecmcd three series of First Mortgage Bonds, totalling $56 million.The funds to redeem these bonds werc obtained from thc sale of $56 millionof Medium Term Notes, in several tranchcs. In addition, Medium Term Notes in the amount of $20 million werc sold and 260,912 shares of common stock were issued under tlie Company's Automatic Dividend Rcinvestmcnt and Customer Stock Purchase Plans realizing net proceeds of $7.5 million, to fund the 1992 construction program and rcducc outstanding short-tenn debt.
1993 Financing Program: (Page 21)
In 1993, the Company intends to obtain external funding related to its construction program and working capital requirements by issuing additional shares of common stock under its Automatic Dividend Rcinvcstmcnt and Customer Stock Purchase Plans and by issuing 700,000 shares ofcomi stock to the public in March 1993.
Taxes: (Page 27)
In 1992, thc Company incurred $91.5 million for operating taxes levied by federal, state and local governments.
FIVE-YEAR
SUMMARY
OF CONSOLIDATEDOPERATIONS ANDSELECTED FINANCIALDATA*
ousands of Dollars) 1992 1991 1990 1989 1988 Operating Revenues Electric.....................
Gas....':.........".."...........
Total.
427,436 424,121 433,859 403,235 379,249 96,121 70,615 69,749 66,767 59,136 523,557 494,736 503,608 470,002 438,385 Operating Expcnscs Operations.....................
Maintenance Depreciation and amortization......
Operating taxes.
Federal and deferred income tax...
Total.
Operating Income Other Income and Deductions Allowance for equity funds used during construction.
Federal and deferred income tax....
Other net otal.
c bcforc Intcrcst Cltargcs.....
Interest Charges Net Income Dividends on Prefcrrcd Stock.
Income Available for Common Stock..........
Dividends Declared on Common Stock.......
Amount Rctaincd in the Business................
Rctaincd Earnings beginning of year.....
Retained Earnings end ofyear................
Common Stock Average shares outstanding (000's)..........
Earnings per sharc on average shares outstanding Dividends declared per share Book value pcr sharc (at year-cnd)...........
283,787 34,226 39,596 66,339 25,111 449,059 74,498 596 748 4,427 5,771 80,269 32,581 47,688 5,544 42,144 31,545 10,599 48,093 58,692 15,901
$2.65
$ 1.98
$23.60 267,339 31,504 37,230 60,554 22,613 419,240 75,496 921 1,252 854 3,027 78,523 35,582 42,941 5,659 37,282 29,800 7,482 40,611 48,093 15,530
$2.40
$ 1.90
$22.84 279,602 30,364 36,134 57,234 22,456 425,790 77,818 785 2,082 1,505 4,372 82,190 41,155 41,035 5,681 35,354 27,067 8,287 32,324 40,611 14,850
$2.38
$ 1.82
$22.31 263,104 23,939 35,344 51,240 19,828 393,455 76,547 463 910 3,419 4,792 81,339 42,222 39,117 5,698 33,419 25,825 7,594 24,730 32,324 14,657
$2.28
$ 1.76
$21.76 232,243 23,813 31;938 47,953 21,843 357,790 80,595 403 703 2,739 3,845
,/
84,440 ~
40,636 43,804 5,753 38,051 24,851 13,200 11,530 24,730 14,473
$2.63
$ 1.715
$21.24 Total Assets Long-term Debt Cumulative Preferred Stock
.on Equity
$ 1,167,124 441,096 81,030 378,214
$ 1,141,128 416,030 81,030 360,203
$ 1,093,530 407,638 81,030 333,587
$ 1,073,695 447,440 81,030 320,709
$ 1,046,290 1>
448,605 81,030 309,269 2-+
- 'is summary should be read in conjunction with thc consolidated financial statements and notes thereto included in the "Financial Section" of this Annual Rcport.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS CAPITALRESOURCES ANDLIQUIDITY CONSTRUCTION PROGRAM As shown in the Consolidated Statement of Cash Flows, thc cash expenditures related to thc Company's construction program amounted to $61.1 million in 1992, a decrease of
$8.9 million from the $70.0 million expended in 1991.
As shown in the table below, cash construction cxpcnditurcs for 1993 are estimated to be $70.6 million, an increase of
$9.5 million over 1992 expenditures. Internal sources funded 100% of the 1992 cash construction expcnditurcs and are presently estimated to fund approximately 94% of the forecasted expenditures for 1993.
Estimates ofconstruction expenditures, internal funds, mandatory redemption of long-term securities, and working capital requirements for the five-year period 1993-1997 are set forth by year in thc following table:
1993 1995 l996 (Thousands of Dollars) l997 Total l993-l997 Construction Expenditures ~:
Electric.................................
Gas.
Common.
Roseton buy-back"*.
Nuclear fuel.
Total.
$ 45,400 10,000 12,200 3,000 70,600
$ 46,700 8,100 13,400 7,300 4,600 80,100
$ 40,100 7,600 12,900 7,100 300 68,000
$ 40,600 7,700 14,400, 7,000 2,500 72,200
$ 43,100 7,900 15,500 6,800 73,300
$215,900 41,300 68,400 28, 10
- 364, Internal Funds Available:
Dcprcciation accruals Deferred income tax net.....
Other.
40,700 16,800 9,000 43,500 12,100 7,600 45,400 13,100 7,100 47,200 13,300 8,500 48,800 2,800 8,400 225,600 58,100 40,600 Total.
66,500 63,200 65,600 69,000 60,000 324,300 Excess ofConstruction Expenditures over Internal Funds.
4,100 16,900 2,400 3,200 13,300 39,900 Mandatory Redemption of Long-term Securities:
Long-tenn debt.
Preferred stock.
Total...
100 800 50,100 800 50,900 2,600 800 3,400 100 52,900 800 4,000 900 56,900 Working Capital Requirements.....
10,000 8,500 9,600 10,600 15,000
~
53,700 Total Cash Requirements..
$ 15,000
$ 76,300
$ 15,400
$ 14,600
$ 29,200
$ 150,500 Excluding the equity portion of Allowance for Funds used During Construction (AFDC), a noncash item.
- Described in Note 9 ofthe Notes to Consolidated Financial Statements, under the subcaption "Roseton Plant."
20
Estimates ofconstruction expenditures are subject to continuous review and adjustment, and actual construction ditures may vary from such estimates. The depreciation al for the Nine Mile2 Plant (as described in Note 2 of the otes to Consolidated Financial Statcmcnts [Notes)), is based on the remaining life method. The assumed amortization rate for the Danskammer Plant coal reconversion investment is 5%.
The deferred income tax projections arc based on current federal income tax law.
Included in thc construction expenditures are expenditures which may be required to comply with the. Clean AirAct Amendments of 1990. However, the Company cannot currently predict with certainty the level ofrequired expenditures which may result from such legislation. A discussion of the Clean Air Act Amendments is included in Note 9 of the Notes.
As shown in the table above, it is presently estimated that funds available from internal sources willfinance 89% of the Company's cash construction expenditures for the five-year period 1993-1997. During this same five-year period, total external financing rcquircments are projected to amount to
$ 150.5 million,of which $56.9 millionis related to the redemption of long-term securities.
CAPITALSTRUCTURE Prior to 1987, the Company's policy with regard to capital ure was to maintain its common equity ratio in the 40%-
range. As a result of the Company's recognizing the Nine Mile2 Plant disallowance for financial reporting purposes in 1987 and recording a write-offof$ 169.3 millionin its financial statements, the common equity coinponcnt of thc Company's capital structure dropped from 45.8% at December 31, 1986 to 35.4% at December 31, 1987.
During the years 1988 to 1990, the Company gradually rebuilt its common equity ratio through retained earnings and the issuance ofcommon stock under its Automatic Dividend Reinvestment and Customer Stock Purchase Plans. In March 1991, it accclcrated that rebuilding process through the public sale of 600,000 additional shares ofcommon stock, the proceeds of which werc used to refinance a portion of high coupon debt that had been called for redemption.
Improvement in these two key financial indices assisted the Company in securing its credit rating upgrades in 1991 and 1992 by Moody's Investor Service, Duff&, Phelps Inc., and Standard &Poor's Corporation to the "A-"level and by Fitch Investors Service to the "A"level, and moved the Company closer to its longer-term goal of attaining an"A"credit rating.
1993 FINANCINGPROGRAM In 1992 the Company redeemed three series ofFirst Mortgage Bonds, totalling $56 million.The funds to redeem these bonds werc obtained from the sale of an aggregate of$56 millionofMedium Term Notes, issued in several tranches. In addition, Medium Term Notes in the amount of$20 million were sold, and 260,912 shares ofcommon stock were issued under the Company's Automatic Dividend Reinvestment and Customer Stock Purchase Plans realizing nct proceeds of $7.5 million, to fund the 1992 construction program and reduce outstanding short-tenn debt.
In 1993, the Company intends to fund its external funding requirements related to its construction program and working capital rcquircmcnts by issuing additional shares ofcommon stock under its Automatic Dividend Reinvestment and Customer Stock Purchase Plans and by issuing 700,000 shares ofcommon stock to the public in March 1993. Any cash rcquircments in 1993 not mct through thc sale of common stock willbe mct through short-term borrowings, issuances of Medium Term Notes, or by sales of accounts receivable.
SHORT-TERM DEBT ANDSALE OF RECEIVABLES As more fullydiscussed in Note 4 of thc Notes, the Company has a revolving credit agreement with four commercial banks for borrowing up to $50 millionthrough December 14, 1997. In addition, thc Company continues to maintain confirmed lines ofcredit totalling $2 million with three regional banks.
As discussed in Note 8 of the Notes, the Company also has the ability to accclcratc its cash flow by selling its accounts receivable from retail sales when deemed desirable.
Year-end Ca ital Structure Long-term debt......
Short-term debt......
Preferred stock......
Common equity.....
l990 48.2%
3.3 9.5 39.0 100.0%
1991 47.8%
2.2 9.2 40.8 100.0%
t992 48.3%
1.6 8.8 41.3 100.0%
The Company plans to continue this rebuilding process lling additional shares ofcommon stock through a public ing in March 1993. Such sale willfurther improve the Company's capital structure and its coverage ratios.
RATE PROCE<EDINGS E<LECTRIC Concluded: On May 17, 1991, the Company filed a request with the Public Service Commission of the State of New York (PSC) to increase its base rates for electric service to produce additional annual revenue of $30.3 million, or 7.4%.
The higher rates werc rcquestcd to cover increases in operating costs, projected for the twelve-month period May 1, 1992 through April30, 1993, that were not adequately provided for in prcscnt rates and would not be offset by increased revenues from sales.
The Company's filingwas based on a return on common equity of 12.5%, an overall return on invested capital of 9.9% and a targeted cash coverage of total interest charges of 2.9 times.
On April9, 1992, thc PSC issued its Opinion and Order (Order) with regard to the Company's request. In the Order, the PSC authorized the Company to increase its rates and charges for electric service, effective April 15, 1992, to receive additional revenues of$ 18.251 millionannually, an increase of approximately 4.6%. This increase was based upon an authorized rate of return on common equity of 11.45%, an overall rate of return of 9.08% and a targeted cash coverage of total interest charges of 3.03 tiines. In the Order, the PSC also authorized the utilization of $ 11.5 millionofMirrorCWIP, as discussed in Note 1 of the Notes.
Pending: On November 12, 1992, the Company filed a request with the PSC to increase its base rates for electric service to produce additional annual net revenues of $ 15.728 million based on projected operations during the rate year comprised of the period Novcmbcr I, 1993-October 31, 1994 (Rate Year). The Company has proposed that such base rate increase be partially offset by a credit related to 50% of the net proceeds received from litigation relating to thc construction of the Nine Mile2 Plant. The effect of such credit is estimated to be $3.475 million and would be refunded through the Company's electric fuel cost adjustment clause for a period of twelve inonths beginning in the first month of the Rate Year.
Giving effect to such credit, the overall increase in electric revenues'is 2.95olo for the Rate Year.
In developing the request to increase its base rates for electric service the Company made substantial use of proposed rate moderators. The total effect of rate moderators is $ 10.153 million which amount has the effect of reducing the base rate revenue requirements in the Rate Year from $25.881 millionto
$ 15.728 million. The proposed rate moderators include
$391,000 resulting from thc amortization over three years of an overcollcction of interest on variable rate debt, $2.234 million resulting from an amortization over three years offunds withdrawn from the Company's Retirement Income Plan pursuant to the Closing Agrecmcnt with the Internal Revenue Service under its Actuarial Resolutions Program (as described in Note 9 of the Notes), and $7.528 million, which is the effect on revenue requirements of an increase in thc amortization of MirrorCWIP from its current level of$3.0 millionto $8.0 million. In addition, the Company proposed to use an additional
$6.172 millionofMirrorCWIP to write-offprojected net deferred debit balances at Novernbcr 1, 1993, the start of the Rate Year.
The higher electric rates have been requested to cover costs associated with recognizing postrctirement benefits other than pensions under Statement of Financial Accounting Standards No. 106, "Employers'ccounting for Postretirement Benefits Other than Pensions" ([SFAS 106] as described in Note 7 of the Notes) issued by the Financial Accounting Standards Board (FASB), new electric distribution facilities, increased operational expenses and higher taxes projected for the Rate Year that are not adequately provided for in present rates and to offset an anticipated reduction in revenue from sales.
In its filing, the Company requested an 11.75% return on common equity and a 9.15% return on total invested capita~
It is not cxpccted that any change in electric rates resulting~
this filingwillbecome effective before October 1, 1993.
Based on the Company's proposed allocation between customer classes, the proposed increase in base rates would range bctwcen 1.9% and 4.8% for various customer classes, and between 1.3% and 4.3% after giving effect to thc credit which the Company has proposed be applied through the electric fuel cost adjustment clause in the first Rate Year.
Thc Company can make no prediction as to what action the PSC willtake on its request, including thc amount of any electric rate increase which may be authorized by the PSC.
RATE PROCEEDING GAS On November 12, 1992, the Company filed a rcqucst with the PSC to increase its base rates for firm natural gas service to produce additional annual net revenues of$ 1.838 million based on projected operations during the rate year comprised of the period November 1, 1993 October 31, 1994 (Rate Year). This represents an overall increase in firm gas revenues of 2.52%.
Thc higher rates have been requested to cover costs
'ssociated with new gas distribution facilities, recognition of postretircment benefits other than pensions under SFAS 106 incrcascd operational expenses and higher taxes projected f the Rate Year that are not adequately provided for in present rates and willnot be offset by increased revenue from sales.
The increase in revenues of$ 1.838 millionreflects thc proposed amortization over a five-year period of previously retained profits from sales of gas to interruptible customers, the effect on revenue requirements ofsuch amortization in the Rate Year being $886,000.
In its filing,the Company requested an 11.75% return on common equity and a 9.15% return on total invested capital. It is not cxpcctcd that any new gas rates resulting from this filing willbecome cffcctive before October 1, 1993.
Based on the Company's proposed allocation between firm customer classes, the proposed increase would be approximately 3.6% for residential customers and 1.3%
for commerciaVindustrial customers.
The Company can make no prediction as to what action the PSC willtake on its request, including the amount ofany gas rate increase which may be authorized by the PSC.
OTHER DEVELOPMENTS Electric Sales to IBM:The Company's largest customer.
is International Business Machines Corporation (IBM),whic accounted for approximately 18% of the Company's total electric rcvcnues for the year ended December 31, 1992.
Published reports indicate that IBMreduced its labor force by about 40,000 worldwide in 1992 and intends further to reduce its labor force by about 25,000 worldwide in 1993. The reports 22
also indicate that up to 3,500 IBMemployees in the Company's service territory may be part of these labor force reductions.
reductions would bring the total number employed by in the Company's service territory to about 18,500, as npared to thc peak level of IBMemployment in excess of 30,000 in 1985. Electric sales to IBMdeclined by about 7% in 1992. The Company cannot assess at this time the effec, ifany, of such'IBM eiiiployment reductions on the Company's.'future results of operations.
Ncw Accounting Standards: In December 1990, the FASB issued SFAS No. 106, "Employers'ccounting for Postretirement Benefits Other than Pensions" (SFAS 106),
which the Company willadopt in the first quarter of 1993.
As discussed in Note 7 of the Notes, the Company believes that the increased costs resulting from the adoption of SFAS 106 willbe recovered through the normal regulatory process.
In February 1992, thc FASH issued SFAS No. 109, "Accounting for Income Taxes" (SFAS 109), which the Company willadopt in the first quarter of 1993. As discussed in Note 3 of thc Notes, the Company believes this new accounting standard willnot have a material impact on the Company's results ofoperations.
Environmental Issues: On an ongoing basis, thc Company assesses environmental issues which could impact the Company and its ratcpayers. Note 9 of the Notes discusses current environmental issues affecting the Company, including the ean AirAct Amendmcnts of 1990 which require control issions from fossil-fueled electric generating units.
RESULTS OF OPERATIONS The followingdiscussion and analysis includes an explanation of significant changes in revenues and expenses during thc years 1990, 1991 and 1992. Additional information relating to changes between these years is provided in the Notes on pages 36 through 52 of this Report.
The 2-cent per share increase in the 1991 earnings reflects the following favorable results: reduced interest charges resulting from the refinancing of high interest rate debt, increased electric base rates which became effective May 24, 1990 and favorably impacted the first half of 1991, and increased gas base rates which became effective July 8, 1991 and favorably impacted the second halfof 1991. Also contributing to the increase were a reduction in the amount of fuel cost increases absorbed by thc Company, an increase in the incentive provided to the Company for successful participation in its energy efficiency program and a marked improvcmcnt in the relationship between the actual cost ofoperating the Nine Mile2 Plant and the amount provided for in the rate-making process. While actual costs exceeded those provided for in rates by $4.8 million in 1990, actual costs for 1991 were $520,000 less than those provided for in rates.
Thcsc favorable variations were partially offset, however, by decreased gas sales, a slow-down in thc rate of growth in clcctric sales, higher expenses related to tree-trimming work, incrcascd payroll and related fringe benefits and higher property taxes.
The 25-cent per share increase in the 1992 earnings resulted primarily from increased firm gas sales, increased electric base rates which became effective April 15, 1992, and increased firm gas base rates which became effective July 8, 1991. In addition, lower interest charges resulting from the refinancing ofhigh interest rate debt in 1992 and an increase in thc amortization to income ofMirrorCWIP as a rate moderator favorably impacted earnings in 1992. The one-time inclusion in income of50% ofthe Nine Mile 2 Plant nct litigation proceeds of$2.3 million, as more fullydiscussed in Note 2 of the Notes, accounted for 10 cents of the increase in the 1992 pcr share earnings.
These favorable variations were partially offset, however, by increased maintenance on the Company's fossil-fueled electric generating plant, increased payroll costs, an increase in operating reserve provisions, and higher dcprcciation expense.
EARNINGS Earnings pcr share of common stock are shown after provision for dividends on prcfcrred stock and are computed on the basis of the average number of common shares outstanding during thc year. The number ofcommon shares, the earnings per sharc, thc pcrccntagc change and the rate ofreturn earned on average common equity are as follows:
l99I l992 Average shares outstanding (000's)..............
Earnings per share.................
'rease over prior year.....
ni carncd on common uity per books*................
14,850
$ 2.38 4%
15,530 15,901
$ 2.40
$ 2.65 1%
10%
10.8%
10.6%
11.4%
- Return on equity for regulatory purposes differs.
23
OPERATING REVENUES Total operating revenues increased $33.6 million (7%) in 1990, decreased
$8.9 million(2%) in 1991, and increased $28.8 million (6%) in 1992. As shown in the table below, the 1990 increase in revenues was due to increased sales ofelectricity, the higher electric base rates which became effective May 24, 1990, and increased revenues collected pursuant to the electric fuel cost adjustmcnt clause. The 1991 decrease in revenues was due to decreased revenues collected pursuant to the electric fuel cost adjustment clause and decreased sales ofelectricity to other utilities, partially offset by higher electric base rates. The I" incrcasc in revenues was due to increased sales of natural higher electric and gas base rates, and higher gas costs incluau in revenues partially offset by decreased revenues from sales of electricity to other utilities. Details of the revenue changes are as follows:
1990 Increase or (Decrease) from Prior Year 1991 1992 Customer sales..
Sales to other utilitics.
Increases in base rates.
Fuel cost changes reflecte in base rates.....
Fuel cost adjustment.
Deferred rcvenucs.
Miscellaneous.
Total
$ 13,071 (100) 7,356 8,691 1,235 371
$30,624 S 2,530 (547) 133 866
$ 2,982 Electric Gas Electric Gas (Thousands of Dollars)
S 2,503 S (2,812)
(4,413) 5,811 1,157 2,499 (11,123)
(2,015)
(2,927) 2,293 411 (256)
S (9,738)
S 866 Electiic S (1,515)
(5,353) 11,455 (2,774) 770 732
$ 3,315
$ 16,957 3,618 6,850 (2,518)
(2,255) 2,854
$25,506 Thc Company's electric fuel cost adjustment clause provides for a partial sharing of fuel cost variations, pursuant to an incentive/penalty formula. The PSC requires a sharing bctwccn thc customers and the Company ofvariations in actual fuel costs from the forecasted amounts which have been approved by thc PSC for a specific twelve-month period whereby the Company bears 20% of thc first $ 10 millionof variation and 10% of the second $ 10 millionof variation. Any variations in cxccss of $20 million are credited or charged in total to the customers. See subcaption "Deferred Electric Fuel Costs" of Note I of the Notes. The following table sets forth the variation in actual electric fuel costs from the targeted amounts approved by the PSC; the atnount charged or credited to retail customers through the electric fuel cost adjustment clause; and thc amount rctaincd by the Company and recognized in the results ofoperations:
The Company's base rates for electricity include an imputed amount of net revenue (gross revenues less incremental costs, principally fuel) frotn sales of electricity to other utilities.
The PSC requires an 80%/20% sharing between customers and the Company of any variations from the imputed amount, either higher or lower. Thc Company reflects any credits or charges to its customers resulting from these provisions through the electric fuel cost adjustment clause. The following table sets forth the variation in actual net revenue realized from the amounts imputed; the amount charged or credited to retail customers through the clcctric fuel cost adjustment clause; and thc amount of such nct revenues retained by the Company and recognized in the results ofoperations:
1990 1991 1992 (Thousands of Dollars)
Variation in actual clcctric fuel costs from targeted amounts................................
Customer (charge) credit........
Income (expense) recognized by the Company...................
1990 1991 1992 (Thousands ofDollars)
S(9,916)
S 852
$(1,067)
(7,933) 682 (854)
$(1,983)
$ 170 S (213)
Variation in actual nct revenue from imputed amounts................................
Customer (charge) credit........
Income (expense) rccognizcd by the Company...................
S 2,337
$ (785)
S(3,118) 1,870 (628)
(2,494)
S 467
$ (157)
S (624)I 24
SALES Kwh. sales ofelectricity within the Company's service tory increased 3.4% in 1990 and.7% in 1991, but decreased
. % in 1992. The decline in the growth rate from 1990 to 1991 and the decrease in sales in 1992 primarily reflects the effect of a slow down in the region's economy. Firm sales of natural gas, excluding sales to the Company's electric department, increased
.7% in 1990, dccrcased 2.3% in 1991 and increased 11.3% in 1992. The 1991 decrease resulted primarily from the unusually warm weather which occurred in the winter periods and the transfer of a large industrial customer from firm service to interruptible service. The increase in 1992 is due primarily to the much colder weather experienced this year. Heating degree days increased 14% in 1992. Changes in sales by major customer classification are set forth below (parentheses denote decrease):
commercial sales remained stable as a result of the net effect of a 2% increase in the number ofcustomers and a 2% decrease in usage per customer.
Industrial electric sales: The increase in industrial electric sales of7% in 1990 and 1% in 1991 was due primarily to increased usage by existing customers. In 1992, industrial electric sales decreased 6% due to decrcascd usage by existing customers, including IBM.
Gas sales firm:The following tables sct forth customer growth, changes in customer usage and heating degree days for the residential and commercial classifications. Although the changes in residential gas sales arc primarily weather related, the growth in thc number ofcustomers has remained a positive factor. Cominercial sales are also weather sensitive.
Residential Sales 1990 1991 1992 Residential......
Commercial....
Industrial........
Electric %
1990 1991 1
2 1
7 1
1992 (6)
Growth in number ofcustomers..........................
Change in average usage per customer................
Change in heating degree days:
Bimonthly billingcycle....
Calendar year....................
(5)
(5)
(3)
(15)
(6) 3 2
1 13 14 14 sidential......
mercial....
strial........
1990 1991 1992 (1)
(4) 14 I
2 14 12 (10)
(19)
Rcsidcntial electric sales: Residential electric sales are primarily affected by thc growth in the number of customers and the change in Kwh: usage per customer. Custoiner usage is also sensitive to weather. Changes in these components arc sct forth in the table below (parentheses denote decrease):
Growth in number ofcustomers..........................
Change in average usage per customer................
Change in heating degree days:
Bimonthly billingcycle......
Calendar year......................
1990 Commercial Sales %
1991 1992 6
5 3
(4)
(3)
(3)
(6) 14 (15) 3 14 Growth in number ofcustomers.....................
Change in average usage per custoincr...................
1990 Residential Sales %
1991 1992 I
1 The usage pcr customer remained stable in 1991 as warmer weather expcricnced during the winter heating season was offset by thc hotter weather experienced during the summer air conditioning months. In 1992, usage pcr customer decrcascd due to cooler weather experienced during the summer air conditioning months. Residential cooling degree days decreased 77% in 1992.
Commercial clcctric sales: The commercial sales increase 2% in 1990 was duc priinarily to a 3% growth in the number stomcrs. Commercial sales increased 1% in 1991 duc tarily to the net effect of a 2% growth in the number of customers and a 1% decrease in usage per customer. In 1992, Firm gas sales to industrial customers increased 12%
in 1990 due primarily to an increase in usage by existing customers. Firm gas sales to industrial customers decreased 10% in 1991 and 19% in 1992 primarily from dccrcascd sales to existing customers and the shift of a container manufacturing company located within the Company's service territory to interruptible and transportation gas service.
Gas sales interruptible: Intcrruptible gas sales increased 14% in 1990, decreased 20% in 1991 and increased 192% in 1992. The 1990 increase resulted printarily from the change in the competitive position of the cost of natural gas
'or boiler fuel usage as compared to the cost ofalternative fuel sources. The 1991 decrease in intcrruptible gas sales is attributable primarily to a decrease in customer usage and a shift of several customers from intcrruptible sales service to intcrruptiblc transportation service. Transportation service perinits large voluine users of natural gas to purchase gas directly from producers and wholesalers, and transport the gas through thc Company's distribution system. Net revenues from transportation service are approximately equal to those nct 25
revenues from the customers who shifted from interruptible service. The 1992 increase was due primarily to the sale of natural gas to the Roseton Electric Generating Station (Roscton Plant) for use as a boiler fuel as well as the shift of several customers to interruptible sales scrvicc from intcrruptible transportation service.
NUCLEAROPERATIONS During 1990 the Company's per share earnings were reduced by 21 cents because the cost ofoperating the Nine Mile 2 Plant (Plant) exceeded the amounts provided for in the rate-making process. During 1991 and 1992, however, there was a marked improvement in the relationship between the actual cost ofoperating the Plant and the amount provided for in thc rate-making process, thereby eliminating any negative impact on earnings.
Through 1990, the Plant was an iminaturc unit not only in terms of its physical factors, but also in terms of its operating expense requircmcnts. There had not been enough actual operating experience for the Plant to establish an adequate data base to serve as a solid foundation for making future forecasts.,
For example, the Company's share of the Plant's operating maintenance expenses exceeded those provided for in rates
$4.8 millionduring 1990. Of this amount, $2.2 millionoccurre in the first five months ofthe year where the rate projections had been based on expense forecasts contained in a rate filing made in April 1988. Another $ 1.5 million was related to the substantial overrun in the expenses forecasted for the Plant's first refueling outage. Conversely, in 1991 and 1992 the amounts provided for in rates exceeded the Plant's operating and maintenance expenses by $520,000 and $ 19,000, respectively. Additional operating experience, improvements made in budgeting and forecasting processes, and efforts to control cost and staffing levels have all contributed to the reduction in operating costs.
The Company has continued to participate actively on the management, operations and accounting committees for the Plant and also the finance committee dealing with regulatory and budgeting issues in an effort to produce better forecasts and control costs.
OPERATING EXPENSES Changes in operating expenses from the prior year are set forth below:
Amount Increase or (Decrease) from Prior Year l99 I Amount flttousands ofDollars)
Amount l992 Operating Expenses:
Fuel and purchased electricity.........................
Purchased natural gas.
Other expenses ofoperation............................
Maintenance.
Nine Mile2 Plant operation and maintenance Depreciation and amortization.........................
Taxes, other than income tax...........................
Federal income tax Total.
$ 10,164 (387) 2,898 5,005 5,243 790 5,994 2,628
$ 32,335 7.0 (1.0) 4.1 23.4 53.1 2.2 11.7 13.3 8.2
$(15,511)
(9.9) 979 2.5 4,852 6.6 2,138 8.1 (3,581)
(23.7) 1,096 3.0 3,320 5.8 157 0.7
$ (6,550)
(1.5)
$ (7,683)
(5.5) 15,199 38.1 6,347 8.1 2,916 10.2 2,391 20.8 2,366 6.4 5,785 9.6 2,498 11.0
$ 29,819
'.1 The most significant elements of cost arc fuel and purchased electricity in the Company's electric department and purchased natural gas in the Company's gas department.
Approximately 36% in 1990, 33% in 1991 and 31% in 1992 ofevery revenue dollar billed in the Company's electric department was expended for thc combined cost of fuel used in
~
electric generation and purchased electricity. Thc corresponding figures in the Company's gas department for the cost of purchased gas are 56%, 56% and 57%, respectively. As discussed in Note 9 of the Notes, contracts that the Company has in place for a majority of its gas supply willexpire in 1993.
In 1990, the combined cost of fuel used in electric generation and purchased electricity increased $ 10.2 million (7%) resulting from increased sales ofelectricity within the Company's service territory and higher fuel prices. In 1991, the combined cost of fuel used in electric generation and purchased electricity decreased $ 15.5 million(9.9%), resulting primarily from lower fuel prices. In 1992, the combined cost of fuel used in electric generation and purchased electricity decreased
$7.7 million(5.5%) resulting primarily from decreased sales of electricity.
26
The following table shows the average fuel cost pcr Kwh.
the Company's three major generating plants during the last years:
Danskammer Plant 1988.~.;
2.21 1989 2.27 1990 2.36 1991 2.25 1992 2.01 Average Cost (t!/Kwh.)
Roseton Plant 2.27 2.56 2.94 2.43 2.64 Nine Mile 2 Plant
.1.28 1.17 1.21
.60
- The 1991 decrease in the average cost per Kwh. for the Nine Mile2 Plant is primarily a result ofthe 1991 revaluation ofthe Plant's remaining MBTUs in the initial load, as well as lower costs associated with the Plant's first reload which occurred in January 1991.
In an effort to keep the cost ofelectricity at the lowest reasonable level, the Company purchases energy from other member companies of the New York Power Pool whenever such energy can be purchased at a unit cost lower than the incremental cost ofgenerating the energy in thc Company's platlts.
The amount of natural gas purchased, excluding gas burned oiler fuel at the Danskammer Plant and the Company's of gas burned as a boiler fuel at the Roseton Plant, and the t per Mcf. during thc last five years are set forth in the following table:
gas facilities cltarges, and an increase in the reserve provisions for injuries and datnagcs and uncollectible customer accounts.
Maintenance expenses increased $5.0 million (23%) in 1990 and $2.1 million (8%) in 1991 due primarily to increases in steam production cxpenscs and tree-trimming costs. The increases in stcam production maintenance expense ($2.7 million for 1990 and $900,000 for 1991) are due primarily to increased costs for routine maintenance ofthe Danskammcr Plant generating units and thc costs for a major overhaul of Unit I at the Danskammcr Plant which began in December 1990. The 1991 increase is attributable also to a major overhaul of Unit 2 at the Roseton Generating Plant which began in October 1991.
The increased tree-trimming expenses
($ 1.3 million for both 1990 and 1991) resulted from the intensified program instituted by the Company in the Spring of 1990 whereby the trimming cycle for all electric distribution lines was reduced from four years to three years. Maintenance expenses increased $2.9 million(10%) in 1992 duc primarily to increased costs for a major overhaul ofUnit 2 at the Danskammer Plant which began in January 1992. Increased maintenance costs related to Unit 4 at the Danskamrner Plant in 1992 were offset by a reduction in maintenance costs related to Unit I at the Danskammer Plant.
The Nine Mile 2 Plant commenced commercial operation on April5, 1988. Subsequent to that date, the Company's portion of operating expenses, taxes and depreciation pertaining to operation have been included in the Company's financial results. As noted in thc above discussion on nuclear operation of the Nine Mile 2 Plant, the operation and maintenance expenses for 1990 cxcccdcd thc amounts provided for in rates by $4.8 million. In 1991 and 1992, however, the amounts provided for in rates exccedcd operation and maintenance expenses for the Year 1988 1989 1990 1991 1992 Amount of Gas Purchased Mcf.
11,004,936 12,402,848 11,813,255 11,640,289 16,831,406 S/Mef.'.00 3.22 3.37 3.50 3.59 Nine Mile2 Plant by $520,000 and $ 19,000, respectively.
The Company's total provision for depreciation amounted to 3.24% in 1990, 3.23% in 1991 and 3.29% in 1992 of the original cost ofaverage depreciable property. The ratio of the amount of accumulated depreciation to the cost ofdepreciable property at Decetnbcr 31 was 29.9% in 1990, 30.9% in 1991, and 31 4% in 1992.
State and local taxes levied on gross revenues increased The large increase in gas purchased in 1992 is due primarily to the increased sales of natural gas to residential and commercial customers and the sale of natural gas to the other cotenants of the Roseton Plant for use as a boiler fuel beginning in February 1992.
The $2.9 million(4%) increase in other expenses of operation in 1990 is due primarily to higher cmploycc wages and related fringe benefits, increased research and devclopmcnt
- expenses, increased charge-offs for uncollectibles and an increase in thc cost for asbestos abatemcnt. The $4.9 million (7%) increase in other expenses of operation in 1991 is due primarily to higher employee wages and related fringe benefits, ncrease in major storm costs, an increase in gas department I expenses and increased operating expenses related to the York Power Pool. The $6.3 million (8%) increase in other expenses of operation in 1992 is due primarily to higher employee wages, increased costs associated with the Company's energy efficiency programs, increased electric and
$3.9 million in 1990, $ 1.4 million in 1991 and $4.9 million in 1992. The 1990 increase was due pritnarily to the imposition of a 15% surcharge by the State ofNcw York effective July I, 1990, retroactive to January I, 1990. In 1991, the revenue taxes were further impacted by an increase in the New York State Gross Receipt Tax Rate from 3.0% to 3.5%. In 1992, the revenue taxes increase was due to the increase in the Ncw York State Gross Receipt Tax Rate as well as the increase in revenues in 1992.
Property taxes, including school taxes, increased $ 1.5 million,$ 1.4 million and $405,000 in 1990, 1991 and 1992, respectively. Commercial operations of the Nine Mile2 Plant accounted for $391,000, $396,000, and $259,000, respectively, of such increases. These two categories of taxes accounted for a substantial portion of the total increases in operating taxes.
Sce Note 3 of the Notes for a detailed analysis and reconciliation of the federal income tax.
27
OTHER INCOMEAND INTEREST CHARGES Details of the Allowance for Funds used During Construction (AFDC) are sct forth below:
Nine Mile2 Plant..
Iroquois Gas Pipeline interconnection Other Total l990 910 770
$ 1,680 l99l (Thousands ofDollars) 707 272 1,231
$2,210 l992 597 201 749
$ 1,547 AFDC rate 10.25%
9.00%
6.75%
Sce Note 1 of the Notes for additional information on this subject.
Total interest charges (excluding AFDC) dccrcascd $601,000 (1%) in 1990, $5.2 million (12%) in 1991 and $3.3 million (9%) in 1992. Thc followingtable sets forth some of the pertinent data on thc Company's outstanding debt:
Long-term debt:
New debt issued..
Debt retired.
Outstanding at year-cnd:*
Amount (including current portion)....
Effective rate 35,000 413,5284 8.91%
l99I (Thousands of Dollars)
$ 100,000 89,000 423,785*
7.70%
1992
$ 76,000 56,000 443,618~
7.05%
Short-tenn debt:
Average daily amount outstanding.
Weighted average interest rate 2,048 8.98%
8,281 7.12%
$ 12,984 4.48%
- Including debt ofsubsidiaries of $5.188 millionin 1990, $4.527 millionin 1991, and $4.442 millionin 1992.
See Notes 4 and 6 of the Notes for additional information on this subject.
In an effort to reduce its cost ofdebt, the Company refinanced a large portion of its high interest rate debt with much lower interest rate debt during the period of Decetnbcr 1990 to August 1992. Details of thc 1990- 1991 long-tenn debt rcdcmptions and issuances are shown below.
Redemptions:
Series of First Mort a e Bonds 13 % Series due 1992 14M% Series due 1994 10/% Series due 2005 10/A% Series due 2009 11
% Series due 1995 Principal Amount Redeemed
$35,000,000
$45,000,000
$20,000,000
$20,000,000
$ 4,000,000*
Applicable Rcdcmption Price
(% of
~Pri ol lAm ntl 100.00%
103.25%
105.90%
106.40%
100.00%.
Redemption Date Dec. 4, 1990 June 12, 1991 July 1,1991 July 1,1991 July 2,1991 Issuance and Sale:
Series of First Mort a e Bonds 9/% Series due 2021 St/A% Series due 2001
- Sinking fund payment.
Princi al Amount
$70,000,000
$30,000,000 Proceeds
~toCom n
98.028%
97.836%
Issuance and Sale Date May 14, 1991 May 14, 1991 28
Details of the 1992 long-term debt redemptions and issuances are shown below.
cmptions:
Series of First Mort a e Bonds ll % Scrics due 1995 11 % Series due 1995 9N% Scrics due 2000 9/A% Series due 2004 Principal Amount Redeemed 4,000,000'12,000,000
$25,000,000
$ 15,000,000 Applicable Redemption Price
(% of
~P'ooi alAmo al 100.000%
102 445%
102.390%
104.080%
Redemption Date July 2, 1992 July 2, 1992 August I, 1992 August I, 1992 Issuance and Sale (under the Company's Medium Term Note Program):
Tranchcs of Medium Term Notes 7.70% due 2000*e 7.97% due 2003**
7.97'Po due 2003**
7.85% due 2004***
8.12% due 2022*"
8.14% due 2022**
~PA ol al Amoo l
$25,000,000
$ 8,000,000
$ 8,000,000
$ 15,000,000
$ 10,000,000
$ 10,000,000 Proceeds
~to Com e~n 99.400%
99.375%
99.375%
99.375%
99.250%
99.250%
Issuance and Sale Date June 11, 1992 Junc 11, 1992 June 11, 1992 July 2, 1992 August 31, 1992 August 31, 1992 Sinking fund payment.
First Mortgage Bonds.
"**Promissory Note.
Under the Company's Medium Term Note Program, the Company has authorization from the PSC to issue up to $ 100 million in ediutn Term Notes through December 31, 1994, of which thc Company has issued and sold $76 millionthrough December 31, 1992 as detailed above.
FINANCIALINDICES Selected financial indices for the last five years are set forth in the following table:
1988 1989 l99 I l992 Prctax coverage oftotal interest charges:
Including AFDC........................................
Excluding AFDC Pretax coverage of total interest charges and preferred stock dividends...................
Percent ofconstruction expenditures financed from internal funds AFDC and MirrorCWIP as a percentage of income available for cotnmon stock.....
Effective tax rate....
2.58x 2.53x 2.14x 100%
5%
33%
2.36x 2.27x 1.99x 100%
11%
33%
2.46x 2.39x 2.06x 100%
9%
33%
2.74x 2.66x 2.24x 88%
8%
33%
3.15x 3.03x 2.54x 100%
10%
34%
29
COMMONSTOCK DIVIDENDSANDPRICE RANGES The Company and its principal predecessors have paid dividends on its common stock in each year commencing 1903, and the common stock of the Company has been listed on the New York Stock Exchange since 1945. The price ranges and the dividends paid for each quarterly period during the Company's last two fiscal years are indicated on page 16 of this Report.
On Junc 22, 1990, the Company increased the quarterly dividend to $.46 pcr share. On June 28, 1991 the quarterly dividend rate was increased to $.48 per share and on June 26, 1992 the Company further increased the quarterly dividend to
$.50 per share. While the Board of Directors of the Company intends to continue thc practice of paying dividends quarterly, the amounts and dates ofsuch dividends as may be dcclarcd willbe based on all the facts and circumstances known at the time ofconsideration ofsuch declaration.
The number of registered holders ofcommon stock as of December 31, 1992 was 27,209. Ofthese, 26,855 were accounts i the names of individuals with total holdings of6,582,419 share or an average of 245 slrares per account. The 354 other account.
in the names of institutional or other nonindividual holders, for the most part hold shares for the benefit of individuals.
The Company's 4.85% Promissory Notes due December 1,
1995 contain limitations upon the right of the Company to declare or pay any dividend or make any other distribution on (other than dividends or distributions payable in common stock), or acquirc, for a consideration, any shares of its common stock unless the aggregate of all such dividends, distributions and considerations since December 31, 1964 does not exceed an amount determined by a formula. At December 31, 1992, the amount of retained earnings available for dividends on the Company's common stock under thc provisions of said 4.85%
Promissory Notes was $50,278,000.
30
ort ofIndependent Accountants Price Paterhouse To the Board ofDirectors and Shareholders of Central Hudson Gas &Electric Corpontion In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of retained earnings and of cash flows present fairly, in all material respects, the financial position of Central Hudson Gas &
Electric Corporation and its subsidiaries at Dcccmber 31, 1992 and 1991, and the results of their operations and their cash flows for each of thc three years in the period ended December 31, 1992, in conformity with generally accepted accounting principles. These financial statements are the responsibility of thc Company's management; our responsibility is to express an opinion on these financial statements based on our audits. Wc conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, cvidcnce supporting the amounts and disclosures in thc financial statements, assessing thc accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe tliat our audits provide a reasonable basis for the opinion expressed above.
New York, New York January 29, 1993 SOLIDATEDSTATEMENTOF RETAINEDEARNINGS (Thousands of Dollars) 1992 Year ended December 31, 1991 1990 Balance at beginning ofyear Net Income
$48,093 47,688 95,781
$40,611 42,941 83,552
$32,324 41,035 73,359 Dividends declared:
On cumulative preferred stock.
On common stock
($ 1.98 pcr share 1992; $ 1.90 per share 1991;
$ 1.82 per sltare 1990).
5,544 31,545 37,089 5,659 29,800 35,459 5,681 27,067 32,748 Balance at end ofyear
$58,692*
$48,093
$40,611
- Pursuant to thc terms of the 4.85% promissory notes, due 1995, $50,278 is available for aynicnt of dividends on common stock.
The Notes to Consolidated Financial Statements are an integral part hereof.
31
CONSOLIDATEDBALANCESHEET (Thousands of Dollars)
E UtilityPlant Electric Gas..
Common.
Nuclear fuel.
Less: Accumulated depreciation.
Nuclear fuel amortization.
Construction work in progress.
ASSETS 1992
$ 1,060,528 121,021 77,870 25,989 1,285,408 397,893 17,872 869,643 34,930 904,573 l99l
$ 1,028,394 101,212 65,586 24,638 1,219,830 371,184 15,533 833,113 52,284 885,397 Other Property and Investments..
9,078 7,869 Current Assets Cash..
Temporary cash investmcnts.
Special deposits.
Accounts receivable from customers net (Note 8).....
Accrued unbilled utilityrevenues (Notes 1 and 8).......
Other receivables Materials and supplies, at average cost:
Fuel.
Construction and operating.
Prepaid taxes and other prepayments..
6,787 4,471 1,209 46,603 15,485 3,280 23,791 14,249 10,603 126,478 2,980 2,934 261 41,215 12,989 4,318 23,044 14,398 10,602 112,741 Deferred Charges Deferred finance charges Nine Mile 2 Plant (Note 1).............
Deferred finance charges approved for amortization (Note 1)...
Deferred Roseton litigation settlement (Note 1).........................
Unamortized debt expense Deferred vacation (Note 9).
Deferred Nine Mile2 Plant litigation costs (Note 2)..................
Deferred energy efficiency costs (Note 1).
Other 48,208 25,631 921 13,524 3,441 9,220 26,050 126,995 60,166 14,309 1,843 11,914 3,185 4,072 12,419 27,213 135,121
$ 1,167,124
$ 1,141,128 32 The Notes to Consolidated Financial Statcrncnts are an integral part hcrcof.
DECEMBER 31, 1992 AND 1991 Capitalization Common Stock Equity
'd Common stock, $5 par value (Note 5)
Paid-in capital (Note 5).
Retained earnings..
Capital stock expense Cumulative Preferred Stock (Note 5)
Without sinking fund.
With sinking fund..
Long-term Debt (Note 6)
LIABILITIES 1992 80,143 245,349 58,692 (5,970) 378,214 61,030 19,200 80,230 441,096 899,540 1991 78,838 239,200 48,093 (5,928) 360,203 61,030 20,000 81,030 416,030 857,263 Current Liabilities Current maturities of long-term debt and prcfcrred stock.....
Notes payable.
ccounts payable Accrued taxes.
Accrued interest.
Accrued vacation (Note 9).
Customer deposits.
Dividends declared..
Other 2,243 15,000 27,886 3,949 7,222 3,634 3,191 9,374 5,172 77,671 5,789 19,000 34,611 2,371 7,265 3,378 3,069 8,976 7,338 91,797 Deferred Credits and Other Liabilities Deferred finance charges Nine Mile2 Plant (Note 1).............
Deferred finance charges approved for amortization (Note 1)...
Deferred Nine Mile2 Plant litigation proceeds (Note 2)............
Accrued pension costs (Note 7)
Operating reserves Other Accumulated Dcfcrred Income Tax (Note 3).
48,208 1,000 2,911 14,295 1,818 9,116 77,348 112,565 60,166 (371) 10,412 5,521 2,242 9,672 87,642 104,426 Commitments and Contingencies (Notes 2 and 9)....
$ 1,167,124
$ 1,141,128 The Notes to Consolidated Financial Statements are an integral part hereof.
33
CONSOLIDATEDSTATEMENT OF INCOME (Thousands of Dollars)
Operating Revenues Electric.
Gas.
Total own territory.
Revenues from electric sales to other utilities Operating Expenses Operation:
Fuel used in electric generation.
Purchased electricity.
Purchased natural gas.
Other expenses of operation..
Maintenance Depreciation and amortization (Note I)
Taxes, other than income tax Fcdcral income tax (Note 3).
Defcrrcd income tax (Note 3).
Operating Income Other Income and Deductions Allowance for equity funds used during construction (Note I)...
Federal income tax (Note 3).
Deferred income tax (Note 3).
Other net Income before Interest Charges l992
$413,443 96,121 509,564 13,993 523,557 106,970 25,835 55,066 95,916 34,226 39,596 66,339 5,467 19,644 449,059 74,498 596 (7,789) 8,537 4,427 5,771 80,269 Year ended December 31, 199l
$404,775 70,615 475,390 19,346 494,736 121,587 18,901 39,867 86,984 31,504 37,230 60,554 10,514 12,099 419,240 75,496 921 2,454 (1,202) 854 3,027 78,523 1990
$410,100 69,749 479,849 23,759 503,608 132,598 23,401 38,888 84,715 30,364 36,134 57,234 15,110 7,346 425,790 77,818 785 4,198 (2,116) 1,505 4,372 82,190 Interest Charges Interest on mortgage bonds..
Interest on other long-term debt Other interest Allowance for borrowed funds used during construction (Note I)...
Amortization of premium and expense on debt.
Nct Income Dividends on Preferred Stock.
Income Available for Common Stock.
Common Stock:
Average shares outstanding (000's).
Earnings per sharc on average shares outstanding.
23,207 6,286 1,954 (951) 2,085 32,581 47,688 5,544
$ 42,144 15,901
$2.65 25,236 7,482 2,569 (1,289) 1,584 35,582 42,941 5,659
$ 37,282 15,530
$2.40
, 29,726 9,276 1,951 (895) 1,097 41,155 41,035 5,681
$ 35,354 14,850
$2.38 Thc Notes to Consolidated Financial Statcrnents are an integral part hereof.
34
CONSOLIDATEDSTATEMENTOF CASH FLOWS (Thousands of Dollars)
Operating Activities Net Income..................................................
Adjustments to reconcile net income to nct cash
~; provided by operating activities:
Depreciation, amortization and nuclear fuel amortization.....
Deferred income taxes, net.
Plant disallowance applied to accrued Nine Mile2 Plant completion costs.
Allowance for equity funds used during construction...........
Nine Mile 2 Plant deferred finance charges, nct Provisions for uncollectibles.
Accrued pension costs..
Nine Mile2 Plant net litigation proceeds..
Other net.
Changes in current assets & liabilities, nct:
Accrued Nine Mile2 Plant completion costs.
Accounts receivable and unbilled utilityrevenues............
Materials and supplies.
Special deposits, prepaid taxes and other prcpayments....
Accounts payable Accrued taxes and interest.
Other current liabilities..
~
~
Net cash provided by operating activities..
esting Activities Additions to Plant.
Allowance for equity funds used during construction.
Net cash expenditures.
Investment activity ofsubsidiaries Plant retirements, costs ofremoval and other Nine Mile2 Plant decommissioning trust fund Net cash used in investing activities.
Financing Activities Proceeds from issuance of:
Long-term debt.
Common stock Net borrowings (repayments) ofshort-tenn debt.
Retirctnent and redemption of long-term debt.
Dividends paid on preferred and common stock Issuance and redemption costs..
Net cash used in financing activities.
Net Change in Cash and Cash Equivalents..
Cash and Cash Equivalents at Beginning ofYear Cash and Cash Equivalents at End ofYear.
Supplemental Disclosure of Cash Flow Infornmtion Interest paid (net of amounts capitalized).
Federal income taxes paid.
1992
$ 47,688 42,999 11,107 (596)
(9,951) 3,824',774 (2,328) 2,009 (10,670)
(598)
(949)
(6,725) 1,535 (1,788) 84,331 (61,721) 596 (61,125)
(204)
(467)
(917)
(62,713) 77,630 7,453 (4,000)
(57,797)
(36,691)
(2,869)
(16,274) 5,344 5,914 11,258
$ 30,413 11,298 Year ended December 31, 1991
$ 42,941 41,367 13,301 (921) 95 3,536 2,432 (3,861)
(4,597) 3,140 (949) 9 (4,318) 98 92,273 (70,907) 921 (69,986)
(1,751)
(753)
(868)
(73,358) 101,131 19,326 (9,000)
(90,874)
(34,801)
(7,257)
(21,475)
(2,560) 8,474 5,914
$ 34,499 10,500 1990
$ 41,035 41,105 9,462 4,672 (785)
(2,668) 3,358 3,089 (3,237)
(5,554)
(9,463)
(11,409) 474 8,985 1,197 1,689 81,950 (50,822) 785 (50,037)
(18)
(2,254)
(880)
(53,189) 1,017 4,650 28,000 (36,697)
(32,314)
(60)
(35,404)
(6,643) 15,117 8,474
$ 41,077 13,566 The Notes to Consolidated Financial Statements are an integral part hereof.
35
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS NOTE 1-
SUMMARY
OF SIGNIFICANTACCOUNTING POLICIES General: The Company is subject to regulation by the Public Service Commission of the State of New York (PSC) and the Federal Energy Regulatory Commission (FERC) with respect to its rates for service and the maintenance of its accounting records. The Company's accounting policies conform to generally accepted accounting principles as applied to regulated public utilities and are in accordance with the accounting requirements and rate-making practices of thc regulatory authorities having jurisdiction.
For purposes of the Consolidated Statement of Cash Flows, the Company considers temporary cash investments with an original maturity of three months or less to be cash equivalents.
Certain amounts froin prior years have been reclassified on the consolidated financial statements to conform with the 1992 prcscntation.
Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries. Allintercompany balances and transactions have been eliminated.
The Company's subsidiaries are wholly owned land-holding, cogcncration and energy management companies. Due to immateriality, the net income of the Company's subsidiaries is reflected in the Consolidated Statement of Income as other nonoperating income nct.
Summarized financial data for the Company's subsidiaries, included in the consolidated financial statements, is as follows:
Total Assets (year-end)
Net Assets (year-end)
Revenues Net Income 1992 I99I l990 (Thousands ofDollars)
$ 17,651
$ 14,378
$ 10,731 9,274 6,140 4,945 4,753 5,758 3,879 634 195 479 UtilityPlant: The costs of additions to utilityplant and replacements ofretirement units of property are capitalized at original cost. The costs of Unit No. 2 of the Nine Mile Point Nuclear Station (Nine Mile 2 Plant) arc capitalized at original cost, less thc amount of thc disallowed investment (Sce Note 2).
Costs include labor, materials and supplies, indirect cliargcs for such items as transportation, certain taxes, pension and other employee benefits and an allowance for the cost of funds used during construction. Replacement of minor items of property is included in maintenance cxpcnses.
The original cost ofproperty, together wilh removal cost, less salvage, is charged to accumulated depreciation at such time as the property is retired and removed from service.
The Company has a 9% or 97.2 MW interest in the 1,080 MW Nine Mile2 Plant and a 35% or 420 MW interest in the I',200 MW Roseton Steam Electric Generating Plant (Rosetoi Plant). See Note 9 for further discussion.
The Company's shares of the investment in the Nine Mile2 Plant and the Roseton Plant, as included in its Consolidated Balance Shcct at Dcccmbcr 31, 1992 and 1991, were:
Nine Mile2 Plant Plant in service Construction work in progress Accumulated depreciation Roscton Plant Plant in service Construction work in progress Accumulated depreciation l992 199I (Thousands of Dollars)
$301,722
$301,794 6,299 5,453 (33,272)
(27,255)
$ 124,085
$ 121,107 373 1,383 (62,340)
(59,493)
Allowance for Funds used During Construction: The Company includes in plant costs an allowance for funds used during construction (AFDC) approximately equivalent to the cost of funds used to finance construction expenditures. The concurrent credit for the amount so capitalized is reported in the Consolidated Statcmcnt of Income as follows: thc portion applicable to borrowed funds is reported as a reduction of interest charges while the portion applicable to other funds (t equity component, a noncash item) is reported as other inco The amount shown on thc Consolidated Statement of Cash Flows for investing activities "Net cash expenditures" excludes the equity component ofthe AFDC.
During the construction of the Nine Mile2 Plant, the PSC authorized thc inclusion in rate base of increasing amounts of the Company's investment in that Plant. Thc Company did not accrue AFDC on any of the Nine Mile 2 Plant construction work in progress (CWIP) which was included in rate base and for which a cash return was being allowed; however, the PSC ordered, effective January 1, 1983, that amounts bc accumulated in dcfcrrcd debit and credit accounts equal to the amount of AFDC which was not being accrued on the CWIP included in rate base (MirrorCWIP). The balance in the deferred credit account is available to reduce future revenue requirements by amortizing portions of the deferred credit to other income or by the elimination through writingoffother deferred balances as dircctcd by the PSC. Based on the history of cost escalation in the electric utilityiiidustry and the history of the Company's rate incrcascs, thc Company expects such application of the dcferrcd credit willoccur over a period substantially shorter than the life of thc Nine Mile2 Plant. When ainounts ofsuch deferred credit are applied in order to rcducc revenue requirements, amortization is started for a corresponding amount of the deferred debit, which amortization continues o level basis over the remaining lifeof the Nine Mile2 Plant resulting in recovery of such corresponding ainount through rates. Deferred debit and dcfcrred credit amounts approved for 36
ortization arc identified on the balance sheet as "Deferred nce charges approved for amortization." Deferred debit and erred credit amounts not yet approved for amortization are identified on the balance sheet as "Deferred finance charges Nine Mile2 Plant." Both the deferred debit and thc deferred credit are expected to be exhausted by the end of the useful lifeof the Nine Mile2 Plant either through the amortization or write-offprocedures described above or through the write-offof the remaining debit and credit as directed by the PSC. The net effect of this procedure is that at the end of the amortization period for the deferred credit, the accounting and rate-making treatment willbe the same as ifthe Nine Mile2 Plant CWIP had not been included in rate base during the construction period.
Pursuant to the PSC Order and Opinion issued April9, 1992 regarding the Company's electric rate case, the Company was authorized to write-off$8.5 millionofthe deferred credit against other dcfcrrcd balances and to amortize $3.0 millionto other income over 12 months beginning in May 1992. In 1992, the Company amortized a total of$2.1 millionofthe deferred credit.
Depreciation and Amortization: For financial statement purposes, the Company's depreciation provisions are computed on the straight-line method using rates based on studies ofthe estimated useful lives and estimated net salvage of properties, i the exception of the Nine Mile2 Plant which is dcpreciatcd remaining life amortization method. The Company estimates e useful lifeof the Nine Mile2 Plant willend in the year 2026.
The provision for depreciation of transportation cquipmcnt is charged indirectly to various asset and expense accounts.
For federal income tax purposes, the Company uses an accelerated method ofdepreciation and generally uses the shortest life permitted for each class of assets.
Amortization ofNuclear Fuel: The cost of the Nine Mile 2 Plant nuclear fuel assemblies and components is amortized to operating cxpcnscs based on the quantity of heat produced for the generation ofelectric energy. Niagara Mohawk Power Corporation (Niagara Mohawk), on behalf of the Nine Mile2 Plant cotenants, has entered into an agreement with the U.S.
Department of Energy for thc ultimate disposal and storage of spent nuclear fuel. The cotenants are assessed a fee for such disposal based upon the kilowatt-hours sold which are gcncrated by the Nine Mile2 Plant. These costs arc charged to operating expense and recovered from customers through base rates or through the electric fuel cost adjustment clause described below. The Company cannot now determine whether such arrangements with the U.S. Department of Energy will ultimately provide for the satisfactory permanent disposal of such waste products.
established rates for service to municipalities and governmental bodies) are regulated by the PSC. Transmission rates, facilities charges and rates for electricity sold for resale in interstate commerce are regulated by thc FERC.
Revenues are recognized on the basis ofcycle billings rendered monthly or bimonthly. Estimated revenues are accrued for those customers billed bimonthly whose meters are not read in the current month. Moreover, as a result of a gas rate Order of the PSC issued in July 1991, an additional amount ofunbilled revenues for gas customers is recorded in a deferred credit account. This additional amount of unbilled revenue is available to reduce future revenue requirements. In such Order, the PSC authorized $ 1.2 millionof this additional revenue to be amortized over a 36-month period. During 1992 and the six-month period July through December 1991, the Company amortized $394,000 and $ 197,000, respectively, ofsuch revenue.
The Company's tarifffor retail clcctric service includes a fuel cost adjustment clause pursuant to which electric rates are adjusted to reflect changes in the avcragc cost of fuels used for electric generation and in certain purchased power costs from the average of such costs included in base rates. The Company's tarifffor gas service contains a comparable clause to adjust gas rates for changes in the price of purchased natural gas and in certain costs of manufactured gas.
Deferred Electric Fuel Costs: The provisions of the electric fuel cost adjustmcnt clause are such that changes in fuel costs incurred in the current month arc not billed or credited to customers until subsequent months. Thcrcfore, in order to match costs and revcnucs, the Company defers that portion of such costs incurred in the current month which willresult in a cost adjustment in subsequent months.
Pursuant to a 1985 Order of thc PSC, the Company's electric fuel cost adjustmcnt clause provides for a partial sharing of variations in fuel costs from the lcvcls of fuel costs projected in rate proceedings. Thc Company bears 20% of the first $ 10 millionof variation and 10% of the second $ 10 millionof variation. The partial sharing applies to variations in actual fuel costs either above or below the projected lcvcls; accordingly, the Company's maximum annual exposure, or bencflt, is $3 million,before taxes.
As a result of thc adoption of thc partial sharing electric fuel adjustment clause, the PSC adopted a symmetrical sharing arrangement for net revenues from sales to other utilities.
Shortfalls below the imputed amount, as well as amounts above the imputed amount, willbc shared 80% by the customers and 20% by the Company.
Reference is made to "Management's Discussion and Analysis ofFinancial Condition and Results of Operations" for results ofboth sharing arrangemcnts mentioned above.
Rates and Rcvcnucs: Electric and gas retail rates plicable to intrastate service (other than contractually Deferred Gas Costs: In accordance with requirements of the PSC applicable to all Ncw York State regulated gas utilities, 37
the Company defers each month any difference between the amount of gas costs incurred which is recoverable through the gas cost adjustment clause (GAC) and GAC revenues.
The nct deferral remaining at August 31 ofeach year is amortized over a subsequent twelve-month period for both billingand accounting purposes.
See Note 9-Commitments and Contingencies "Take-or-Pay Gas Costs" as to deferral of certain contract take-or-pay costs charged by pipeline suppliers of gas.
Deferred Electric Revenues: On occasion, revenues which are billed over a twelve-month rate year are designed to cover specific expenses which are projected to be incurred during the latter part of the rate year. Although there willbe a matching of revenues and costs in the rate year, there can be a mismatching ofrevenues and costs within calendar years. Ifthe amount of the projected mismatch is material, the Company may petition the PSC to defer any revenues collected prior to the time the associated cxpcnses are incurred and to restore such deferred revenues at the time the expenses are incurred. Such deferred accounting provides a better matching ofrevenues and costs during calendar years.
Energy Efficienc Programs: The PSC has required utilities to adopt comprehensive long-range planning which includes demand side management and energy conservation (Energy Efficiency Program). In response to the PSC's directives, the Company's 1991 and 1992 Energy Efficiency Program was filed with and substantially approved by the PSC. The Company filed its 1993 and 1994 Energy Efficiency Program with the PSC in June 1992. The 1993 Energy Efficiency Program was substantially approved by the PSC, however, the Company expects that the PSC willrequire the Company to refile its 1994 Energy Efficiency Program targeting greater levels ofenergy savings. The Energy Efficiency Program costs are deferred and amortized over five years.
In addition to the deferral of Energy Efficiency Program costs, the Company defers for future recovery lost revenues and an equity incentive allowance for achieving energy efficiency goals.
Roscton Plant Litigation Settlemcnt: During 1983, the Company and the two other co-owners of the Roseton Plant reached a settlcmcnt to recover damages for alleged negligence in the design and construction of the Roseton Plant by certain contractors which resulted in a boiler implosion. The $921,000 recorded at December 31, 1992 in deferred charges represents the Company's 35% interest in the remaining balance of the
$26.3 millionsettlement to bc received over a ten-year period that commenced in 1984.
NOTE 2-NINE MILE2 PLANT General: The Nine Mile2 Plant is located in Oswego County, New York, and is operated by Niagara Mohawk. The Nine Mile2 Plant is owned as tenants in common by the Company (9% interest), Niagara Mohawk (41% interest), New York State Electric &Gas Corporation (18% interest), Long Island Lighting Company (18% interest) and Rochester Gas and Electric Corporation (14% interest). The output of the Nine Mile2 Plant, which has a rated net capability of 1,080 MW, is shared and the operating expenses of the Plant are allocated to the cotenants in the same proportions as the cotenants'espective ownership interests. The Company's share ofdirect operating expense for the Nine Mile2 Plant is included in the appropriate expense classifications in the accompanying Consolidated Statement of Income.
An Interim Operating Agreement for the operation of the Plant was entered into by the cotenants in August 1989 and was approved by the PSC in September 1990. Under that Agreement, Niagara Mohawk continued as operator of the Nine Mile2 Plant, but all five cotenant owners shared certain policy, budget and managerial oversight functions. The Interim Operating Agreement expired on December 31, 1992 and was replaced by an Operating Agreement, effective January 1, 1993, entered into by such owners, which is substantially the same as the Interim Operating Agreement. The fixed term of such Operating Agreemcnt is two years from its effective date an unless terminated on the expiration of such two-year period, continues subject to termination on six months notice. The cotenant owners willpetition thc PSC for approval of the Operating Agreement.
Cost Scttlemcnts: In September 1986, the PSC approved a settlement (1986 Settlcmcnt) arising out of a PSC proceeding to determine the amount of expenditures incurred in the construction of the Nine Mile 2 Plant which should not bc allowed to be recovered through rates. In 1987, the Company wrote off$ 169.3 million,on an after-tax basis, as a result of the 1986 Settlement, which amount was based on an estimate of the Company's share of the disallowance. Subsequently, issues arose regarding the 1986 Settlemcnt.
In March 1991, the PSC approved a settlement agreement, dated June 6, 1990 (1990 Settlement Agreement), which was reached among the cotenants of thc Nine Mile2 Plant, the Staff of the PSC, the New York State Consumer Protection Board, the Attorney General of the State ofNew York and other interested parties. The 1990 Settlement Agreement brought to a close all outstanding issues related to the cost ofconstruction of the Nine Mile2 Plant, its operation through January 19, 1990 and open issues related to the 1986 Settlement. The 1990 Settlement Agreement contemplated subsequent negotiations among the interested parties dealing with operation and maintenance 38
&M)expenses and rate issues for the Nine Mile2 Plant for r time periods. Supplemental settlements ofNine Mile2 ant-rate issues (Supplements ¹I and ¹2) were subsequently reached among the interested parties and filed with the PSC.
Supplement ¹1: On March 25, 1992, the PSC issued its formal, written Opinion and Order approving Supplement ¹l.
Supplement ¹1 contains agreed-upon Nine Mile,2 Plant,O&M expense amounts for the 19 months from June 1991 through December 1992. Pursuant to Supplement ¹1, the Company was allowed to recover the Nine Mile2 Plant O&Mexpense amounts through rates. In 1992, the Company recorded $ 13.9 millionofO&Mexpenses.
Supplement ¹1 also provides that, commencing with the calendar year 1993, O&Mexpenses for all cotenants willbe included in rates in accordance with a "common" rate year mechanism set forth in Supplement ¹1. Deferral mechanisms are provided in Supplement ¹I to allow the Nine Mile2 Plant common rate year determinations to be implemented in the rates of each Nine Mile2 Plant cotenant.
Supplement ¹2: Supplement ¹2, which the PSC voted to approve on January 27, 1993, provides for agreed-upon Nine Mile2 Plant O&Mexpense amounts of$20.6 million for calendar year 1993.
Plant Litigation and Settlements: The cotenants cntcrcd settlement agreements with the following parties, on the es indicated, regarding disputes and litigations that arose in connection with thc construction of the Nine Mile 2 Plant: (i) the General Electric Company, dated January 26, 1989; (ii)
Gulf + Western, Inc., Crosby Valve &, Gage Company and Wickcs Manufacturing Company, dated May 11, 1990; and (iii)
Stone &Webster Engineering Corporation, dated March 7, 1991. Each agrccment provides for settlement, mutual releases and confidential trcatmcnt of the agreement. Thc Company regards each of the agreements as a favorable settlement.
In addition to the disputes and litigations listed above, a complaint was filed by the cotenants in August 1988 against ITTFluid Products Corporation and IVI'luidTechnology Corporation, successor companies to ITTGrinncll, which fabricated and erected piping for the Nine Mile2 Plant (ITTLitigation). On July 30, 1992, a jury found in favor of defendants in the ITTLitigation, resulting in no recovery for the Nine Mile2 Plant cotenants.
Pursuant to thc 1990 Settlement Agreement, all proceeds from the settlements and ITTLitigation referred to above in excess of thc combined litigation costs ofsuch settlements and the IVI'itigationare to be shared equally between the Company's shareholders and ratepayers. The fullamount of the shareholders'ortion of the net proceeds from the settlement with the Gcncral Electric Company was included as a credit in puting the Company's share of the disallowance resulting the 1990 Settlement Agrcemcnt. In 1992, the Company recognized $2.328 millionin other income representing the shareholders'0%
share of the nct proceeds from such settlements and the ITI'itigation,excluding the settlement with the General Electric Company. The remaining net proceeds from all settlements and the IVI'itigation,or $2.911 million, is recorded as a deferred credit at December 31, 1992 and, in accordance with the 1990 Settlement Agreement, are to be refunded by the Company to its ratcpaycrs. The Company has proposed including this refund as a partial offset to a requested electric rate increase, as discussed in "Management's Discussion and Analysis ofFinancial Condition and Results of Operations" under the caption "Rate Proceeding Electric Pending."
Operational Matters:
NRC Monitoring: On August 25, 1992, the Nuclear Regulatory Commission (NRC) released a preliminary report of the latest systematic assessment of licensee performance (SALP) review of the Nine Mile Point Nuclear Station (including both Unit No.
1 and Unit No. 2, Unit No. 2 being the "Nine Mile2 Plant") for the period April 1991 through May 23, 1992. Such SALP report indicates that thc NRC grades nuclear performance as superior in two and good in five of the seven functional areas reviewed. The grades in such preliminary report were consistent with the grades rcccivcd in the previous SALP report which covered the period March 1990 through March 1991, which reported two functional areas as category I (representing superior performance) and five functional areas as category 2 (representing a good lcvcl of performance).
The Institute of Nuclear Power Operations (INPO), an industry sponsored oversight group, conducted evaluations of the Nine Mile2 Plant during December 1991 and January 1992.
The INPO report discussing the results of such evaluation was received by Niagara Mohawk during the second quarter of 1992. Niagara Mohawk infortncd the Company that the INPO rcport concluded that while performance improvement must continue, overall performance of thc Nine Mile2 Plant has improved since the last evaluation and such Plant's overall performance is generally in keeping with the high standards required in the nuclear power industry. This conclusion constitutes an improvement in INPO's rating of the Nine Mile2 Plant. INPO evaluations arc conducted at twelve (12) to eighteen (18) month intervals.
Low-Level Radioactive Waste: The Federal Low-Level Radioactive Waste Policy Act (Act), as amended in 1985, requires states to join compacts or individually develop their own low-level radioactive waste burial site.
On January 1, 1990, the Governor of thc State of New York certified a plan that requires all nuclear power plants in New York State to store their low-level radioactive waste on-site from January 1, 1993 until the end of 1995, by which time an interim storage facilityis to be constructed at the site of the permanent low-level radioactive waste site. Niagara Mohawk has informed the Company that a low-level radioactive waste 39
management program and contingency plan has been developed and provides assurance that the Nine Mile 2 Plant is properly prepared to handle interim storage of low-level radioactive waste until 1998.
Refueling Outage: A scheduled rcfucling outage for the Nine Mile2 Plant commenced on March 4, 1992 and was expected to continue until June 16, 1992. Such refueling was completed on July 4, 1992 and full plant output was achieved on July 8, 1992. During such outage, required corrective and preventative maintenance tasks, required inspections, and several modifications to improve plant performance were successfully completed. The outage was extended beyond that which was originally scheduled due to corrective action required as a result of such inspections, including discovery ofcracks in two of the main turbine wheels which had thc potential to affect operation ofsuch Plant. These wheels were removed and appropriate modifications made to assure the continued reliabilityof such Plant's main turbine. Such modifications resulted in a decrease in the rating of the Nine Mile2 Plant from 1,080 MWto 1,047 MW. The next scheduled refueling outage for the Nine Mile2 Plant is expected to begin in September 1993.
Nuclear Plant Decommissioning Costs: NRC regulations require the direct funding ofeventual decommissioning costs of nuclear facilities. The Company, effective as ofMarch 1, 1990, established a master trust in order to comply with these NRC requirements. Included in such trust is a fund qualified under the applicable provisions ofthe federal tax law (Qualified Fund) which, based on receipt of a favorable ruling from the Internal Revenue Service (IRS) dated July 19, 1990, willenable thc Company to take advantage ofcertain federal income tax bcneflits available to such Qualified Funds.
Certain estimated decommissioning costs for the Nine Mile 2 Plant are currently being recovered in rates through an annual allowance and are charged to operations through depreciation charges. The Company's 9% share ofcosts to decommission the Nine Mile 2 Plant, which is expcctcd to begin in thc year 2027, is estimated to be approximately $ 118.5 million($22.8 million in 1992 dollars), based on an estimate included in the decommissioning plan filed with the NRC on July 18, 1990.
The annual allowance for recovery during thc period August 1, 1988 through May 31, 1990 was $324,000. Effective Junc 1,
1990, the PSC authorized recovery, on an annual basis, of
$212,000 for internal decommissioning funding (i.e., funds held by the Company) and $787,000 for external decommissioning funding (i.c., funds held in trust). Total recoveries authorized
'he PSC for thc internal decommissioning fund from August 1988 through December 31, 1992 amounted to $757,000. The external decommissioning trust fund at December 31, 1992 amounted to $2.665 million, which is reflecte in the Company's Consolidated Balance Shcct in "Other Property and Investmcnts."
The Company cannot now determine whether the decommissioning costs presently allowed in rates by the PSC, or thc estimated costs contained in the plan filed with the NRC, willultimately be adequate to decommission the Nine Mile2 Plant in accordance with then existing law, regulation, technology and/or costs. The Company believes that decommissioning costs, ifhigher than currently estimated, willultimately bc recovered in the rate-making process, although no such assurance can be given.
Decontamination and Decommissioning Fund: The Energy Policy Act of 1992, signed into law in October 1992, established a Uranium Enrichment Decontamination and Decommissioning Fund (Fund) for the decommissioning of the Department of Energy's enrichment facilities. Special annual assessments to utilitics with nuclear power plants, which will begin in 1993 and continue for 15 years, and government appropriations willbc deposited into the Fund. The Energy Policy Act of 1992 also provides that such assessmcnts shall i considered a cost of fuel and shall bc recoverablc in rates.
Niagara Mohawk has informed the Company that the Company's share of the annual assessmcnt related to thc Nine Mile2 Plant willbe approximately $45,000. The Company believes that the PSC willallow rccovcry of such assessed amounts through rates. Therefore, costs incurred related to such decontamination and decommissioning are not expected to have a material adverse effect on the Company's results ofoperations.
NOTE 3 FEDERAL INCOMETAX Thc Company's policy with respect to accounting for federal income taxes is to reflect in income the estimated amount of income tax currently payable and to provide for dcfcrred taxes on timing differences between book and taxable income to the extent permitted for rate-making purposes.
The Company estimates that the cumulative net amount of income tax timing differences for which deferred taxes have not been provided was approximately $99 million at December 31, 1992.
40
mponcnts of Federal Income Tax: The following is a mary ofthe components of federal income tax as reported the Consolidated Statement of Income:
Charged to operating expense:
Federal income tax Dcferrcd income tax...
Income tax charged to operating expense.
Charged (credited) to other income and deductions:
Federal income tax Deferred income tax...............................................
Income tax charged (credited) to other income and deductions...................
Total federal income tax.
Reconciliation: The following is a reconciliation between the amount of federal income tax computed on income before taxes at thc statutory rate and the amount reported in the Consolidated Statement of Income:
l992 5,467 19,644 25,111 7,789 (8,537)
(748)
$ 24,363 l99l (Thousands of Dollars)
$ 10,514 12,099 22,613 (2,454) 1,202 (1,252)
$ 21,361
$ 15,110 7,346 22,456 (4,198) 2,116 (2,082)
$ 20,374 Net income Federal income tax.
Deferred income tax ncome before taxes..
Computed tax 8 34% statutory rate Increase (decrease) to computed tax due to:
Tax depreciation Cost of removal Deferred electric fuel costs.........................
Dcfcrrcd gas costs..
Deferred cncrgy efficiency costs Pension cxpcnse Alternative minimum tax Unbilled revenues Other Federal income tax Deferred income tax Total federal income tax Effective tax rate
$ 47,688 13,256 11,107
$ 72,051
$ 24,497 (11,833)
(1,040) 562 (1,315)
(2,386) 3,257 1,971 752 (1,209) 13,256 11,107
$ 24,363 34%
$ 42,941 8,060 13,301
$ 64,302
$ 21,863 (12,171)
(1,229) 1,221 58 (2,789) 1,128 3,493 (1,510)
(2,004) 8,060 13,301
$ 21,361 33%
$ 41,035 10,912 9,462
$ 61,409
$ 20,879 (11,704)
(704)
(872) 147 (779) 750 3 237 1,376 (1,418) 10,912 9,462
$ 20,374 33%
Deferred Income Tax: The following is a summary of the components of deferred income tax:
Tax depreciation.
Investment tax credit.
Defcrrcd electric fuel costs.
fcrred gas costs
'rcd cncrgy efficiency costs.
sion expense...
Alternative minimum tax Unbillcd revenues.
Other.
Deferred income tax
$ 14,605 (1,396)
(562) 1,315 2,386 (3,257)
(1,971)
(752) 739
$ 11,107
$ 15,290 (1,381)
(1,221)
(58) 2,789 (1,128)
(3,493) 1,510 993
$ 13,301
$ 14,725 (1,382) 872 (147) 779 (750)
(3,237)
(1,376)
(22) 9,462 41
In February 1992, the Financial Accounting Standards Board (FASH) issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109, which supersedes SFAS 96, willbe adopted by the Company in the first quarter of 1993 and, as discussed below, is not expected to have a material adverse effect on the Company's results of operations.
SFAS 109 requires the use of the liabilitymethod, whereby deferred tax liabilities or assets would be rccognizcd for the temporary book/tax basis differences. The statement also requires that deferred tax liabilities or assets be adjusted to reflect enacted changes in tax law or tax rates. Also, SFAS 109 provides that regulated enterprises recognize a regulatory asset representing the probable future recovery of previously flowed-through tax benefits to ratepayers.
On January 15, 1993, the PSC issued a Statement of Interim Policy on Accounting and Rate-making Procedures to Implement SFAS 109. This Statement of Interim Policy adopts, on an interim and revenue-neutral basis, SFAS 109 for regulatory purposes until the PSC issues a final Policy Statement, expected some time in 1993, and affirms the continued recovery from ratcpaycrs of previously flowed-through tax benefits.
Upon adoption of SFAS 109, thc Company expects that its total assets and liabilities willincrease significantly. The Company estimates that a regulatory asset and deferred tax liabilityof approximately $54 million, due primarily to 2
previously flowed-through tax benefits, willbe recorded on t Company's financial statements in the first quarter of 1993.
These amounts are subject to further refinement but are not expected to be materially adjusted.
NOTE 4 SHORT-TERM BORROWING ARRANGEMENTS The Company has in effect a revolving credit agreement with four commercial banks which allows it to borrow up to
$50 millionthrough December 14, 1997 (Agreement). The Agreement gives the Company the option ofborrowing at either the prime/federal funds rate, or three other money market rates ifsuch rates are lower. The Agreement also provides for the payment of an annual commitment fee of 1/16 of 1% per annum on the unborrowed amount and a facility fee of 1/8 of 1%
per annum on the total amount of the facility. Compensating balances are not required under the Agreement. There were no outstanding loans under this Agreement at December 31, 1992 or 1991. In addition, the Company continues to maintain confirmed lines ofcredit totaling $2 millionwith three regional banks.
The amount ofoutstanding short-term debt at December 31, 1992 and 1991 was $ 15 millionand $ 19 million, respectively, consisting ofcommercial paper. Allcommercial paper obligations are supported by such credit agreement.
NOTE 5 CAPITALIZATIONCAPITALSTOCK Common Stock, $5 par value; 30,000,000 shares authorized:
Paid-In Capital:
Common Stock Shares
~Outs(andh Amount
($000)
Paid-In Capital (QSO)
January 1, 1990 Issued under dividend reinvestment plan.
Issued under customer stock purchase plan.
December 31, 1990.
Issued through public offering.
Issued under dividend reinvestment plan.
Issued under customer stock purchase plan.
December 31, 1991 Issued under dividend reinvestment plan.
Issued under customer stock purchase plan.
December 31, 1992 14,741,348 179,323 30,285 14,950,956 600,000 181,073 35,628 15,767,657 205,950 54,962 16,028,569
$ 73,707 897 151 74,755 3,000 905 178 78,838 1,030 275
$ 80,143
$220,355 3,067 535 223,957 10,788 3,701 754 239,200 4,847 1,302
$245,349 42
mulative Preferred Stock, $ 100 par value; 1,200,000 shares authorized:
Sh<<res Outst<<ndin S cries Redemption Price December 3 I, l992 <<nd l99t Without Sinking Fund:
With Sinking Fund (c):
Total 4N%
4.75%
4.35%
4.96%
7.72%
7.44%
8.40%
$ 107.00 106.75 102.00 101.00 101.00 103.08 (a) 101.00 103.00 (b) 70,300 20,000 60,000 60,000 130,000 120,000 150,000 610,300 200,000 810,300 (a) Redemption price through January 31, 1993; eventual minimum redemption price is $ 101.22.
(b) Redemption price through March 31, 1993; eventual minimum redemption price is $ 100.00.
(c) Annual sinking fund payments to commence March 30, 1993. The portion that is due within one year at December 31, 1992 is included on the balance sheet under "Current maturities of long-term debt and preferred stock."
The cumulative preferred stock, without sinking fund, is cemable only at the option of thc Company and the sum payable per share is the then current rcdcmption price plus accrued dividends thereon. In the event of an involuntary liquidation of the Company, thc redemption price is $ 100 pcr share plus accrued dividends.
The cumulative preferred stock, with sinking fund, provides for the annual retirement of 8,000 shares at $ 100 per share, plus accrued dividends, on each March 30, commencing March 30, 1993. The dividend to be paid willbe adjusted each quarter and willbe declared at a rate which is 1% pcr annum below the highest of three specific U.S. Treasury Rates, which rate willnever be less than 6% or grcatcr than 12.5% per annum. The adjusted rates applied for each quarter of 1992 ranged between 6.56% and 7.40%, compared with the range of 7.40% to 7.96% experienced during 1991 and 7.16% to 8.20%
experienced during 1990.
Expenses incurred on issuance ofcapital stock are accumulated and reported as a reduction in common stock equity. Such expenses arc not being amortized, with the exception of expenses associated with the cumulative preferred stock with sinking fund, which expenses are being amortized evenly over 300 months cffcctive April 1992, as allowed by the PSC.
43
NOTE 6-CAPITALIZATIONLONG-TERMDEBT Details oflong-term debt are shown below:
Dcccmbcr 3l, l992 199l fnrousands of Dollars)
Series First Mortgage Bonds 8N%
ll 7N%
9N%
7.70%(a) 8 s/i%
7 i/~%
7.97%(a) 7.97%(a)
'/i%
6 /i%
9 /i%
8.12%(a) 8.14%(a) 8.375%
M~atettt Date (net ofsinking fund requirements):
September 1, 1994.
July 2, 1995.
January 15, 1999.
June 1, 2000.
June 12, 2000.
May 1, 2001 February 1, 2002 June 11, 2003.
Junc 13, 2003.
April 15, 2004.
June 1, 2007 May I, 2021 August 29, 2022 August 29, 2022 December 1, 2028..
$ 50,000 20,000 25,000 30,000 20,000
',000 8,000 4,500 70,000 10,000 10,000 16,700 272,200
$ 50,000 12,000 20,000 25,000 30,000 20,000 15,000 4,500 70,000 16,700 263,200 Promissory Notes issued in connection with the sale by the New York State Energy Research and Development Authority (NYSERDA)oftax-exempt pollution control revenue bonds:
1984 Series A (7.375%)
1984 Series B (7.375%)
1985 Series A (Var. Rate) 1985 Series B (Var. Rate) 1987 Series A (Var. Rate) 1987 Series B (Var. Rate)
October 1, 2014 October 1, 2014 November 1, 2020.
November 1, 2020.
June 1, 2027 June 1, 2027 16,700 16,700 36,250 36,000 33,700 9,900 16,700 16,700 36,250 36,000 33,700 9,900 a
Promissory Notes (nct ofsinking fund requirements):
4.85%
December 1, 1995..
7.85% (a)
July 2, 2004..
Secured Notes Payable ofSubsidiary Unamortized Premium (Discount) on Debt Net.
Total long-term debt.
149,250 2,644 15,000 17,644 3,081 (1,079)
$441,096 149,250 2,726 2,726 2,820 (1,966)
$416,030 (a) Issued under the Company's Medium Tenn Note Program.
In 1992 the Company redeemed three series of First Mortgage Bonds, totalling $56 million.The funds to redeem these bonds werc obtained from the sale of an aggregate of
$56 millionof Medium Term Notes, issued in several tranches.
In addition, Medium Term Notes in the amount of $20 million werc sold in 1992.
At December 31, 1992, the Company, under its registration statcmcnt, effective under the Securities Act of 1933, could issue and sell $49 millionof Medium Term Notes, of which the PSC has authorized issuance ofup to $24 millionthrough December 31, 1994. The amounts and timing of future sales willdepend on market conditions and the requirements of the Company.
Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations" details of the Company's Medium Term Note Program and for information regarding the amounts of long-term debt maturing within the next five years.
Thc NYSERDA Pollution Control Revenue Bonds, Series d B, issued in 1985 and 1987 are variable rate obligations ject to weekly repricing and investor tender. The Company has the right, exercisable independently in respect ofeach series of the 1985 and 1987 NYSERDA Pollution Control Revenue Bonds, to convert the Bonds ofeach such series to a fixed rate for the remainder of their term.
The Company has irrevocable letters ofcredit which expire on various dates and which the Company anticipates being able to extend ifthe interest rate on the related series ofNYSERDA Pollution Control Revenue Bonds is not converted to a fixed interest rate. Those letters ofcredit support certain payments required to be made on such Bonds. Ifthe Company were unable to extend thc letter of credit that is related to a particular series of NYSERDA Pollution Control Revenue Bonds, that series would have to be redeemed unless a fixed rate of interest becomes effective. Payments made under the letters ofcredit in connection with purchases of tendered NYSERDA Pollution Control Revenue Bonds are repaid with the proceeds from the remarketing of such Bonds. To the cxtcnt the proceeds are not sufficient, the Company would be required to reimburse the bank that issued thc letter of credit for the amount of any resulting draw under thc letter of credit by the expiration date of the letter ofcredit. During 1992, the letter of credit expiration dates for the letters ofcredit supporting the 1985 NYSERDA ds were extended from Noveinber 16, 1994 to November 16,
, and for the letters ofcredit supporting the 1987 SERDA Bonds were cxtendcd from September 16, 1992 to September 16, 1995.
In its rate orders, the PSC has provided for fullrecovery of the interest costs on the Company's 1985 and 1987 Series A and B Promissory Notes which werc issued in connection with the sale of thc NYSERDA Pollution Control Revenue Bonds. Such Bonds bear interest at variable rates set weekly. Deferred accounting has been granted by the PSC for any variation (above or below) between actual interest rates and those interest rates allowed for rate-making purposes. Such deferred balances are to be disposed of in future rate cases.
Expenses incurred on debt issues and any discount or premium on debt are dcfcrred and amortized over the lives of thc related issues. Expenses incurred on debt redemptions prior to maturity have been deferred and are generally being amortized over the remaining lives of thc related extinguished issues as directed by thc PSC.
Certain debt agreements require the maintenance by the Company ofcertain financial ratios and contain other restrictive covenants.
Secured notes payablc of a subsidiary of the Company consist of terin loans to finance thc installation ofenergy conservation equipment at various host facilities, located arily in the Northeastern United States. The majority of loans accrue interest at the prime lending rate plus 3/4 of
.o and interest and principal are ainortized in equal installments over thc term ofeach respective contract. Such loans are secured principally by certain power purchase agreements and project assets.
NOTE< 7 POSTEMPI.OYMENT BENEFITS Service cost benefits earned during the period......................
$ 4,002 Interest cost on projected benefit obligation.....................
12,801 Actual return on Plan assets...... (21,941)
Net amortization and deferral.
6,411 Net periodic pension cost.......... $
1,273
$ 3,780
$ 4,205 12, 140 (43,296) 10,991 2,454 29,808
$ 2,432 (14,561)
$ 3,089 The following table sets forth the Plan's funded status at Septeinber 30, 1992 and 1991:
l992 l99l (Thousands ofDo!tars)
Actuarial prcscnt value of bcncfit obligations:
Accuinulated bcncfit obligation, including vested benefits of
$ 140,156 and $ 127,016................
$ 142,020
$ 128,681 Projected benefit obligation for service rendered to date.........:...........
Plan assets at inarket value..................
Excess of Plan assets over projected bcncfit obligation..............
Unrecognized net gain........................
Prior service cost not yet recognized in net periodic pension cost...............
Unrecognized net asset being amortized over 15 years....................
Contributions withdrawn from the Plan (Note 9).
Pension liabilityrccognizcd in the Balance Sheet
$ 169,858
$ 160,536 211,435 198,719 41,577 38,183 (43,748)
(38,543) 1,254 1,352 (5,877)
(6,513)
(7,501)
$ (14,295) $
(5,521)
Retirement Income Plan: The Company has a noncontributory retirement income plan (Plan) covering substantially all of its employees. The Plan provides pension benefits that are based on the employee's compensation and years of service. It has been thc Company's practice to provide periodic updates to the benefit formula stated in the Plan.
Thc Company's funding policy is to make annual contributions equal to the amount of net periodic pension cost, but not in excess of the maximum allowable tax-deductible contribution under the federal income tax law nor less than the minimum requirement under the Employee Retirement Income Security Act of 1974.
Charges to expense were approximately 71%, 72% and 73% of the net periodic pension costs for the years 1992, 1991 and 1990, respectively. The allocation of net periodic pension costs between capital and expense follows the payroll distribution.
Nct periodic pension costs for 1992, 1991 and 1990 include the following components:
t99Z t99t t990 (Thousands ofDollars) 45
Plan assets consist primarily of equities and fixed income securities. The Plan is deemed to be fullyfunded for federil~
income tax purposes, therefore, the Company did not make any contributions to the Plan during 1992 or 1991.
The weighted average discount rate used in determining the
'ctuarial present value of the projected benefit obligations under the Plan was 7 3/4% for 1992 and 8% for 1991. The rate of future compensation levels utilized was 6 1/2% for 1992 and 1991. The expected long-term rate of return on Plan assets was 9 1/2% for 1992 and 1991.
The Company also has an Executive Deferred Compen-sation Plan (EDC Plan) which was established in 1992 for a select group of key executives, under which periodic payments willbe made to such employees upon retirement. The net periodic costs of the EDC Plan for 1992 amounted to approximately $ 142,000. In order to minimize the costs of thc EDC Plan, thc Company has obtained life insurance policies on the participants in such Plan, with the Company as beneficiary.
Future annual costs are not expected to bc significantly different from 1992.
Other Postrctircment Benefits: In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees. Substantially all of the Coinpany's employees may become eligible for these benefits ifthey reach retirement agc while working for the Company. These and similar benefits for active employees are provided through insurance companies whose premiums are based on the benefits paid during the year. The cost of providing these benefits for active and retired employees was $7.920 million for 1992, $8.170 millionfor 1991 and $6.512 million for 1990. Prior to 1992, the cost of providing retirees with these benefits was not separable from the cost ofproviding those benefits for the active employees. Beginning in 1992, such costs were separated, and for the period ofAprilthrough December 1992, the cost of such benefits for retirees amounted to $ 1.356 million, which is included in the 1992 amount above.
In December 1990, thc FASB issued SFAS No. 106, "Employers'ccounting for Postretirement Benefits Other than Pensions" (SFAS 106), which the Company willadopt in thc first quarter of 1993. This Statement requires that an employer's obligation for postretirement benefits expected to be provided to or for an employee be fullyaccrued by the date that the employee attains fulleligibilityfor all benefits expected to be received by that employee, any beneficiaries and covered dependents, even ifthe employee is expected to render additional service beyond that date. Currently, the Company records the costs of providing such benefits when paid. The Company estimates that unfunded accumulated postretiremcnt benefit obligations other than pensions upon adoption of SFAS 106 (Transition Obligation) willbe approximately $68 million in 1993 subject to the health care cost assumptions utilized by the Company in measuring its liability.As allowed by SFAS 106, thc Company intends to recognize the Transition Obligation on a delayed basis over a 20-year period. The Company's additional annual cost resulting from the adoptioi of SFAS 106, using the same cost assumptions, is estimated at approximately $9 million, including the amortization of the Transition Obligation. Thc assumed health care cost trend is 14% in the carly years and trends down over time to an ultimate rate of 5.5%. Ifthe health care cost trend rate assumptions were increased by 1%, the accumulated postretirement benefit obligation at January 1, 1993 would be increased by 13%.
Recognition of net periodic postretirement benefit cost during the years that employees render necessary service will increase the annual expense from that currently recorded on a cash basis. Thc Company bclicves that the increased costs resulting from the adoption of SFAS 106 willbe recovered through the normal regulatory process. In a PSC proceeding, initiated in March 1992, to develop a PSC Statement of Policy concerning the accounting and rate-making for pensions and other postretirement benefits, the PSC Staff recommended deferred accounting for any difference between the amount of the expense resulting from the adoption of SFAS 106 and the amount allowed in rates. The PSC is cxpccted to act on this matter early in 1993. In January 1993, the Emerging Issues Task Force (EITF) of the FASB reached a consensus on the criteria under which a regulatory asset should be recognized for the differcncc bctwcen actual SFAS 106 costs and thc amount of postretiremcnt benefit costs other than pensions that are included in rates. While no assurance can bc given that the PS willfollowthc EITF criteria for deferral of said difference, the Company believes that the PSC willdo so, and accordingly, the Company expects that the impact of adopting SFAS 106 willbe immaterial to its future results of operations.
In order to better manage its postretirement benefit costs other than pensions, thc Company has established a tax-effective funding vehicle for such retirement benefits for collective bargaining employees in the form of a qualified Voluntary Employee Beneficiary Association (VEBA)trust.
Establishment of a qualified VEBAtrust for such retirement benefits for management employees is currently in progress.
The Company anticipates funding the VEBAtrusts in 1993 with tax-deductible contributions. Earnings on contributions to the VEBAtrust cstablishcd for collective bargaining employees'etirement benefits would not bc subject to income tax. Benefits willbc paid out of the VEBAtrusts. The amount of funding will ultimately depend upon the amount ofrate recovery allowed by the PSC.
Other Postcmploymcnt Benefits: The Company provides certain illness and disability-related benefits to former or inactive employees, beneficiaries, and covered dependents.
Thc cost of providing these benefits was $216,000 in 1992. I November 1992, the FASB issued SFAS No. 112, "Employ Accounting for Postemployment Benefits" (SFAS 112), whic 46
ablishes accounting and reporting requirements mployers who provide benefits to former or inactive loyees after employment but before retirement. The Company must adopt SFAS 112 not later than the first quarter of 1994. Based on studies thc Company has performed to date, the adoption ofSFAS 112 is not expected to have a material adverse effect on the Company's results of operations..
4, NOTE 8 SALE OF RECEIVABLES AND RESERVE FOR UNCOLLECTIBLEACCOUNTS The Company has a program to sell on a daily basis, without recourse, its accounts receivable from retail customers.
Such program provides the Company with the ability to receive cash immediately for such receivables and thereby reduce its working capital rcquircmcnts. There was no amount of outstanding receivables sold as of December 31, 1992. The amount of the outstanding receivables sold as of Deccrnber 31, 1991 and 1990 was $3.2 million and $8.2 million, respectively.
The average daily amount of accounts receivable sold was $4.3 million in 1992, $8.3 million in 1991 and $5.1 millionin 1990.
The costs associated with the sale of receivables are charged to operating expense and amounted to $200,000 in 1992, $600,000 in 1991 and $400,000 in 1990.
The Company had a reserve balance for uncollectible unts receivable of$ 1.5 million at December 31, 1992 and
. I million at December 31, 1991.
NOTE 9-COMMITMENTSAND CONTINGENCIES Roseton Plant: The Company currently has a 35%
undivided interest in thc ownership and output of the 1,200 MW Roscton Plant. The Company is acting as agent for the cotenant owners with respect to operation of the Roseton Plant.
Generally, the owners share the costs and expenses of the operation of the Roscton Plant in accordance with their respective ownership interests. The Company's share ofdirect operating expense for the Roseton Plant is included in the appropriate expense classification in the accompanying Consolidated Statement of Income.
The Company, under a 1968 Agreement (Basic Agreement), has tlie option to purchase the interests of Niagara Mohawk (25%) and of Consolidated Edison Company of New York, Inc. (Con Edison) (40%) in the Roseton Plant in December 2004, exercise of which option is subject to the approval of the PSC. However, in 1987, in order to make provision for anticipated requirements for additioiial generating capacity commencing in the mid-1990s, thc Company and ara Mohawk entcrcd into an agreement (Amendment) ing the Basic Agreement option which the Company has to y Niagara Mohawk's interest in the Roseton Plant. The Company's option to buy Con Edison's interest in the Roseton Plant is not affected by thc Amendment. The Amendment is subject to the approval of the PSC and, in the event such approval is not obtained, the Amendment is cancelled and the parties return to their same positions under the Bhsic Agreement.
Pursuant to the Amendment, Niagara Mohawk willsell to the Company a 2.5% interest in the Roseton Plant on December 31, 1994 and on each succccding December 31, through and including December 31, 2003, which willbe all ofNiagara Mohawk's interest in the Roscton Plant. In exchange, Niagara Mohawk willhave the option to repurchase from the Company up to a 25% interest in the Roscton Plant in December 2004.
The prices for the purchases willbe based on thc depreciated book cost of the Roscton Plant, assuming straight-line depreciation to provide for a fullydcprcciatcd facility as of December 31, 2009. Pursuant to thc'Amendment, the Company also was granted the option to repurchase Niagara Mohawk's interest in that Plant when that Plant reaches the end of its assumed physical life as agrccd upon by the parties.
Byjoint petition filed with the PSC on February 29, 1988, the Company and Niagara Mohawk rcqucstcd the PSC to approve the transfers of interests in the Roseton Plant contemplated by the Amendment. On July 19, 1988, the PSC issued an order establishing a proceeding to consider such joint petition. Among the issues identified by the PSC for consideration in such proceeding are (i) the relationship to such transfers of the process for bidding for additional capacity, set forth in a June 1988 PSC order applicable to the major New-York State electric utilitics, (ii)the potential for demand side management as an alternative to the transfers contemplated by the Amendment and (iii)certain technical, accounting and forecasting issues regarding thc information and studies submitted by thc Company and Niagara Mohawk in support of the joint petition.
In May 1989, the Company and the PSC Staff reached a Stipulation Agreement indicating that, giving consideration to expected demand side management activities, the proposed transfers of interest in thc Roscton Plant were one alternative which would meet thc Company's future needs for power. The Company issued a Request for Proposals (RFP) for alternative power supply arrangements approximating the capacity reflected in the proposed transfers of interest in the Roseton Plant, so as to test the rcasonablcncss of such proposed transfers from Niagara Mohawk. On or about September 15, 1992, the Company concluded that it was neither in its interest nor in its customers'nterest for it to accept any of the third party bids for additional long-term generating capacity submitted under such RFP. As the date of thc first proposed transfer of interest approaches, the Company intends to test thc commercial rcasonablcncss of thc Amcndmcnt through a new RFP solicitation. The Company cannot predict what action the PSC may ultimately take in connection with the joint petition for the 47
approval of such transfers under the Amendment.
Construction Program: Reference is made to "Managcmcnt's Discussion and Analysis of Financial Condition and Results ofOperations" for information regarding the Company's construction program for the five-year period 1993-1997.
Nuclear Liabilityand Insurance: The Price-Anderson Act is a federal law which limits the public liabilitywhich can be imposed in respect of a nuclear incident at a licensed nuclear electric generating facility. Such Act also provides for assessment ofowners of all licensed nuclear units in the United States for losses in excess ofcertain limits due to a nuclear incident at any such licensed unit. Under the provisions of the Price-Anderson Act, the Company's potential assessment (based on its 9% ownership intcrcst in the Nine Mile2 Plant and assuming that the other Nine Mile 2 Plant cotcnants were to contribute their proportionate sliares of the potential assessments) would be $5.67 million (subject to adjustrncnt for inflation) and the Company could bc assessed
$283,500 (subject to adjustment for inflation) in respect to an additional surcharge, but would be limited to a maximum assessment of $900,000 in any year with respect to any nuclear incident. The public liabilityinsurance coverage of $200 millionrequired under the Price-Anderson Act for the Nine Mile2 Plant is provided through Niagara Mohawk.
The Company also carries insurance to cover the additional costs of replacement power (under a Business Interruption and/or Extra Expense Insurance Policy) incurred by the Company in the event of a prolonged accidental outage of the Nine Mile2 Plant. This insurance arrangement provides for payments ofup to $472,000 per week ifthe Nine Mile2 Plant experiences a continuous accidental outage which extends beyond 21 weeks. Such payments willcontinue for 52 weeks after expiration of the 21-week deductible period, and thereafter the insurer shall pay 67% of the weekly indemnity for a second 52-week period and 67% for a third 52-week period. Subject to certain limitations, the Company may request prepayment, in a lump sum amount, of the insurance payments which would otherwise be paid to it in respect of said third 52-week period, calculated on a net present value basis.
The Company is insured as to its rcspcctive interest in the Nine Mile 2 Plant under property damage insurance provided through Niagara Mohawk. Thc insurance coverage provides
$500 millionof primary property dainage coverage for Units 1
and 2 of the Nine MilePoint Nuclear Station and $2.015 billion of excess property damage coverage for the Nine Mile 2 Plant.
Such insurance covers decontamination costs, debris removal and repair and/or replacement ofproperty.
The Company intends to maintain, or cause to be maintained, insurance against nuclear risks at the Nine Mile2 Plant, provided such 'coverage can be obtained at an acccptablc cost.
Natural Gas Supply: The Company presently has in place five term contracts (Contracts) for thc supply of natural gas.
Two of such Contracts are with interstate pipeline companies (Pipelines) and three of such Contracts are with third-party suppliers (Suppliers). Under the Contracts with Pipelines, th Pipelines acquire and deliver gas directly to the Company's gas transmission system. Under the Contracts with Suppliers, the Suppliers deliver thc gas to the Pipelines and the Pipelines deliver the gas to the Company's gas transmission system under separate firm transportation contracts which the Company has in place with such Pipelincs. It is anticipated that, during 1993, the two Contracts with Pipelines will.be converted to firm transportation contracts which willallow the Company to purchase gas directly from third-party suppliers at a cost lower than pipeline-supplied gas. With the exception of 19,940 Mcf.
per day of gas purcliased from Canadian sources, or approximately 20% of total gas purchases (which expires in January 2012), all of the above gas supply contracts will terminate in 1993. Allsuch expiring gas supply contracts willbe replaced with competitively bid contracts with third-party gas suppliers.
The Company has in aggregate, gas storage capability of 34,608 Mcf. pcr day, under long-term,contracts. The Company also has a contract for the supply of liquefied natural gas which willremain in effect through September 30, 1995 and will continue from year-to-year thereafter. Allpipeline gas supply, transportation and storage contracts and associated tariffs are approved by FERC.
In addition to the above gas supply transportation, stora and liquefied natural gas supply contracts, thc Company has in place a contract for the supply of up to 100,000 Mcf. per day of gas during Aprilthrough October of each year for use as boiler gas at the Roseton Plant. Modifications to the Roseton Plant to permit the consumption ofsuch gas were completed during the second quarter of 1992.
In April 1992, FERC issued its final rule (Order 636) regarding the "unbundling" of natural gas services from transportation and storage services. Order 636, entitled "Pipeline Service Obligations and Revisions to Regulations Governing Self-Implementing Transportation under Part 284 of the Commission's Regulations," contains three central features as follows:
I) n mllin f
sl nlTsn i n rvic Gas pipclines that offer firm and interruptible transportation services must "unbundlc" (separate) those services from firm and interruptible sales services at an upstream point near the production area.
2) i T
i Gas pipelines that make bundled sales must provide non-discriminatory, no-notice transportation.
must be offered on a basis that is equal in quality for all gas supplies whether purchased from the pipeline or not.
Order 636 and subsequent amendments, Order 636-A an Order 636-B, establish a restructuring proceeding by which eac pipeline must file with FERC a comprehensive explanation of how it intends to implcmcnt restructuring. FERC has stated that it 48
cts to act on all compliance filings in time to implement such in advance of the 1993-94 winter heating season. The ipany can make no prediction as to the effect ofsuch Order, including the cost effect, until such filingsofits gas pipeline suppliers have been made in compliance with such Order and have been approved by FERC.
Take-or-Pay Gas Costs: Many interstate gas pipeline companies entered into contracts with gas producers which required the pipeline companies to pay for a minimum amount of gas whether or not the gas is actually taken from thc producer (take-or-pay costs). Pursuant to the FERC authorization, the Company's gas suppliers have included certain amounts of their take-or-pay costs in the rates charged to the Company.
The PSC in October 1988 commenced a proceeding to determine, among other things, the recoverability and allocation in gas rates of New York State distribution companies of contract take-or-pay costs charged them by pipeline suppliers.
In connection with such proceeding, the PSC has issued several orders which have directed among other things that 65% of take-or-pay costs being incurred by the Company may be recovered through current rates, subject to refund. Charges not subject to such conditional recovery are deferred with interest for subsequent consideration by the PSC. The amounts of the deferred charges not subject to conditional recovery at mber 31, 1992 and 1991 werc $2.208 million and I million, respectively.
In the PSC proceeding, the Company has contended that there is no basis on which the responsibility for its pipeline suppliers'ake-or-pay liabilitycan be attributed to it. In addition, it is the Company's position that the PSC lacks any authority to deny the Company recovery ofcosts included in the FERC approved gas rates and would intend to oppose any attempt by the PSC to require it to absorb any take-or-pay or contract reformation costs which are included in its pipeline suppliers'ERC approved rates.
The Company is unable at this time to estimate the amount of take-or-pay costs which may ultimately be included in its pipeline suppliers'harges to it or to predict what action the PSC might take to require the Company to absorb any portion of such costs. The final amount of such costs willdepend on the FERC proceedings, tfte PSC proceeding and certain court litigation, the outcome of which the Company is not able to predict. Depending on the outcome of such proceedings and litigation, the final amount ofsuch take-or-pay costs could be up to $6 million, which would have a material adverse effect on the Company's future earnings ifthe PSC were to require the Company to absorb a substantial portion thereof. The PSC has recently approved certain take-or-pay costs settlements with other utilities that, ifapplied to the Company, would not have a rial adverse effect on the Company's earnings.
Clean AirAct Amendments: The Clean AirAct Amendments of 1990 (CAAAmendments) add several new programs which address attainment and maintenance of national ambient air quality standards. This includes control ofemissions from fossil-fueled electric power plants that affect "acid rain" and ozone.
The "acid rain" emissions reduction requirements do not affect the Company's generating plants until January 1, 2000; however, the Company must comply with the monitoring provisions program as ofJanuary 1, 1995 and install continuous emission monitors. The Company's emissions of nitrogen oxides may also be subject to additional controls by May 31, 1995 under Title I of the CAA Amendments.
The Company is unable to predict the effect (including cost) of this legislation since details of the CAA Amendments are yct to be cstablishcd by regulation. Regulations implementing this legislation willbe issued over a period of years. The amendments could require the Company to expend considerable funds in altering its fossil-fueled power plant operations. However, the Company expects that it willhave adequate financial resources to comply with the requirements of the CAAAmendments.
Gas Remediation: In 1986, thc New York State Department of Environmental Conservation (DEC) added to the New York State Registry ofInactive Hazardous Waste Disposal Sites six locations at which gas manufacturing plants owned or operated by the Company or by predecessors to the Company were once located. The Company completed studies of thcsc sites using guidelines of the DEC. As a result of these studies, the Company concluded that no remedial actions were required at any of these sites. Subsequently, the DEC advised the Company that all sites had been deleted from such Registry.
The DEC also indicated that such deletion of the six sites was subject to reconsideration in the future.
Accrued Employees'acation Pay: The Company's employees begin accruing vacation in July ofeach year for use in the followingyear; the monthly accrual of days is based on thc number of years of service for each employee. However, for rate-making purposes, vacation pay is recognized as an allowable expense only when paid. The Company accrued
$3.6 million and $3.4 millionas of December 31, 1992 and 1991, rcspectivcly, as a current liabilityfor an estimate of carncd vacation pay, and consistent with this rate-niaking treatment, recorded a deferred charge rcprescnting thc future recoverability of this cost.
Rental Expenses and Lease Commitmcnts: The Company has lease commitments expiring at various dates, principally for real property and data processing equipment.
None of these leases involves any major facilitics or any material noncancelable rental commitments. Although certain items meet the criteria for recording as capital lcascs, such recognition would have no significant effect on the 49
consolidated fiiiancial statements. Therefore', all items are treated as operating leases.
Asbestos Litigation: Since 1987, the Company, along with many other parties, has bccn joined as a defendant or third-party defendant in 358 asbestos lawsuits commenced in New York State and federal courts. The plaintiffs in these lawsuits have each sought millions of dollars in compensatory and punitive damages from all defendants. The cases were brought by or on behalf of individuals who have allegedly suffered injury from exposure to asbestos, including exposure which allegedly occurred at Company facilities.
The Company has given notice of the cases to its insurance carriers, but such carriers have neither denied nor conceded coverage of these claims.
One hundred forty-one (141) of these cases have been dismissed with respect to the Company, and thc Company has agreed to settle 105 of thc cases for amounts which are not material in relation to the consolidated financial statements.
Consequently, on January 15, 1993, tlic Company was a defendant in 112 asbestos cases. Although the Company is presently unable to assess the validityofthe remaining 112 asbestos lawsuits, and accordingly cannot determine the ultimate liabilityrelating to these cases, based on information known to the Company at this time, including its experience in settling asbestos cases and in obtaining dismissals of asbestos cases, thc Company bclicvcs that the cost to be incurred in connection with the remaining 112 lawsuits willnot have a material adverse effect on the Company's financial position.
Environmental Matters: The Company is a party to several administrative proceedings (which are in their early stages) involving the effect on the environment of the operation and maintenance of facilities for the generation, transmission and distribution of electricity and the manufacture, transmission and distribution of natural gas. At this stage of such proceedings, the Company can make no determination as to the outcome ofsuch proceedings or the impact, ifany, on the Company's financial position or results ofoperations.
IRS Challenge to Pension Plan Interest Rate Assumption and Actuarial Resolutions Program: In 1990, the IRS challenged the dcductibility of an aggregate of$7.501 millionofcontributions made to thc Retirement Income Plan (Plan) during the years 1986 through and including 1989. The IRS alleged that the assumptions used by the Company in determining projected investmcnt returns were too low which, in turn, resulted in contributions to the Plan in excess of those permitted by federal tax law. The Company contested the IRS's position by a request for tcchnical advice from the National Office of the IRS. By National Office Technical Advice Memorandum, dated August 6, 1992, the National Office of the IRS 'r'uled in favor of the IRS. By letter, dated July 31, 1992, as amcndcd by letter, dated October 13, 1992, the IRS offered the Company the opportunity to settle this matter under the IRS's Actuarial Resolutions Program. On November 11, 1992, th Company accepted such offer by executing a Closing Agreement, which was executed by the IRS on November 1, 1992. Such Closing Agreemcnt disallows $7.501 millionof the Company's claimed deductions for taxable years 1986 through 1989 and waives all related "penalties." The resultant increased tax due to the loss of such deductions is $ 1.903 million and interest on such amount is currently estimated to be about
$ 1.160 million. In accordance with such Closing Agreement, the Company withdrew the $7.501 millionofcontributions in question from the Plan on December 18, 1992. The Company has requested authorization from the PSC for deferral accounting on such interest until it can be recovered through rates. While no assurance can be given that the PSC willgrant such a request, thc Company believes that recovery through rates of the taxes and interest willbe permitted as a normal cost of service and accordingly the Company has deferred these amounts at Dcccmbcr 31, 1992.
Tax Matters: The IRS has closed out all of thc Company's Federal Income Tax returns through 1986. The Company's Federal Income Tax returns for thc years 1987 and 1988, which are currently under rcvicw, reflect significant tax matters related to the Nine Mile2 Plant. The Company believes that the results of such review willnot have a material adverse effect on the Company's results ofoperations.
Other Matters: The Company is involved in various othe legal and administrative proceedings incidental to its business which are in various stages. While these matters collectively involve substantial amounts, it is thc opinion of management that their ultimate resolution willnot have a material adverse effect on the Company's financial position or future results ofoperations.
Included in such proceedings is a PSC investigation of a November 1992 explosion in a dwelling in Catskill, New York involving personal injuries, including thc death of an occupant, and property damage. Thc National Transportation Safety Board and the PSC are investigating this incident. On January 27, 1993, the Staff of the PSC issued a report which attributes the cause of this incident to the Company's alleged violations ofthe PSC's gas safety regulations and the Company's operating procedures.
Based upon such rcport, the PSC has approved the commence-ment ofa penalty proceeding against thc Company. The Company understands that thc PSC Staff, based on its interpretation of the New York Public Service Law, intends to seek a penalty up to approxiniately $8.25 million. In the opinion ofthe Company's counsel, there is no statutory basis for a level of penalty under such Law which would be materially adverse to the Company's financial condition. The Company intends to contest any proposed penalty of the magnitude which it understands the PSC Staff intends to seek. The Company can make no prcdic
's to the liabilityof the Company relating to this incident, including the final outcornc of such penalty procccding or any other governmental investigation.
E 10- DEPARTMENTALINI<'ORMATION nte Company is engaged in the electric and natural gas utilitybusinesses and serves the Mid-Hudson Valley region of New York State. Total revenues and operating income before income taxes (expressed as percentages),
derived from electric and gas operations for each of the last three years, w'ere as follows:
1992 1991 1990 Percent of Total Revenues Electric Gas 82%
18%
86%
14%
86%
14%
Percent of Operating Income before Income Taxes Electric Gas 87%
13%
93%
7%
91%
9%
For the year ended December 31, 1992, the Company served an average of256,503 electric and 58,091 gas customers.
Of the Company's total electric revenues during that period, approximately 39% was derived from residential customers, 28% from commercial customers, 25% from industrial customers and 8% from other utilities and miscellaneous sources. Of the Company's total gas revenues during that period, approximately 42% was derived from residential customers, 27% from commercial customers, 4% from industrial customers, 21% from interruptible customers and 6%
from miscellaneous sources (including revenues from transportation ofcustomer-owned gas).
The Company's largest customer is International Business Machines Corporation (IBM),which accounted for approximately 18% of the Company's total electric revenues and approximately 8% ofits total gas revenues for the year ended December 31, 1992. Reference is made to "Management's Discussion and Analysis ofFinancial Condition and Results of Operations" for further information regarding IBM.
Certain additional information regarding these segments is set forth in the followingtable. General corporate expenses, property common to both segments and depreciation of such common property have been allocated to the segments in accordance with practice established for regulatory purposes.
1992 Electric 1991 1990 1992 (Thousands of Dollars) 1991 1990
,tting Revenues..
perating Expenses:
Fuel and purchased clcctricity....
Purchased natural gas.
Depreciation and amortization....
Other, excluding income tax.......
Total.
Operating Income before Incotne Tax.....
Federal income tax, including deferred income tax net....................
132,805 36,074 172,301 341,180 86,256 21,368 140,488 34,563 157,883 332,934 91,187 20,886 155,999 33,399 152,790 342,188 91,671 20,464 55,066 3,522 24,180 82,768 13,353 3,743
$427,436
$424,121
$433,859
$ 96,121 39,867 2,667 21,159 63,693 38,888 2,735 19,523 61,146 6,922 8,603 1,727 1,992
$70,615
$69,749 Operating Income
$ 64,888
$ 70,301
$ 71,207 9,610
$ 5,195
$ 6,611 Construction Expenditures...
$ 50,159
$ 52,819
$ 42,515
$ 11,562
$ 18,088
$ 8,306 Identifiable Assets at December 31*
Net utilityplant.
Construction work in progress........
Total utilityplant.
Materihls and supplies Total.
$779,291 30,282
$761,984 36,408
$750,102 33,458
$ 90,352 4,648 809,573 31,496 798,392 30,992 783,560 35,004 95,000 6,544
$841,069
$829,384
$818,564
$ 101,544
$71,129 15,876 87,005 6,450
$93,455
$66,777 4,766 71,543 5,578
$77,121
- lentifiable assets not included herein are considered to be corporate assets and have not been allocated between the electric and gas ents.
NOTE 11 DISCLOSURES ABOUTFAIR VALUEOF FINANCIALINSTRUMENTS In December 1991, thc FASH issued SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" (SFAS 107) which requires the Company to disclose the fair value of all financial instruments.
The followingmethods and assuinptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Long-term Debt: The fair value of the Company's ion term debt is estimated based on the quoted market prices f same or similar issues or on the current rates offcrcd to tlie Company for debt of the same remaining maturities and quality.
Notes Payablc: The carrying amount approximates fair value because of the short maturity of those instruments.
Thc estimated fair values of the Company's financial instruments are as follows:
Cash, Temporary Cash Investments and Special Deposits: Thc carrying ainount approximates fair value because of the short maturity of those instruments.
Long-term Invcstmcnts: Long-tenn investments, consisting primarily of investmcnts in insurance companies, are immaterial in amount.
Cumulative Prcfcrrcd Stock with Sinking Fund: The fair value of the Company's cumulative preferred stock with sinking fund is estimated based on the quoted market price of that instrument.
Cash, temporary cash investments and special deposits........................
Cumulative preferred stock with sinking fund (including current maturities)..........................
Long-tenn debt (including current maturities)..........................
Notes Payable...................................
December 3 I. I992 Carrying Fair Amount Value (Thousands ofDollars)
$ 12,467
$ 12,467 (20,000)
(20,200)
(442,539)
(465,368)
(15,000)
(15,000)
SELECTED QUARTERLYFINANCIALDATA(UNAUDITED)
Selected financial data for each quarterly period within 1991 and 1992 are prcsentcd below:
Operating Revenues Operating Income (Thousands of Do!lars)
Income Available for Common Stock Earnings'Per Average Share of Common Stock Outstanding (Dollars)
Quarter Ended:
March 31, 1991.
June 30, 1991.
September 30, 1991 December 31, 1991.
$ 145,340 116,061 114,583 118,751
$ 23,428 18,334 19,064 14,669
$ 13,876 8,625 9,414 5,368
$.92
.55
.60
.34 March 31, 1992.
June 30, 1992 September 30, 1992 December 31, 1992.
146,587 126,171 118,715 132,084 23,540 17,058 17,046 16,854 14,601 8,699 10,087 8,756
.92
.55
.63
.55 52
DIRECTORS MARJORIE S. BROWN Millbrook,NY llomemakcr, active in civic and philanthropic work. former executive in retailing and promo-tional organizations; Chairwoman of the Committee on Compensation and Succession; member of the Executive and Retirement Committccs
- l979 L. WALLACECROSS Poughkeepsie, NY Former Executive Vice President and Chief Financial Officer of the Corporation; retired; member of the Committccs on Audit and Finance i'990 JACK EFFRON Poughkeepsie, NY President, EFCO Products. Incd member of thc Committees on Compensation and Succession and on Finance
- l987 RICHARD H. EYMAN Norwalk.
CI'mier Senior Vice President, Brouillaid Com-inications, Division of J. Walter Thompson mpany; retired; Chairman of the Committee on Audit; member of thc Exccutivc Commiuee and the Committcc on Compensation and Succession
- l984 HEINZK. FRIDRICH Ridgcfield, CT IBM Vice Prcsidcnt -
lvlanufacturing, lntcmational Business hlachines Corp.; mcmbcr of the Committee on Audit
- l988 EDWARD E X. GALLAGHER Ncwburgh. NY Prcsidcnt and Owner, Gallagher Transportation Scrviccs; mcmbcr of thc Rctiremcnt Conunittec
- l984 PAULJ. GANCI Poughkeepsie, NY President and Chief Operating OAiccr: mcmbcr of the Executive Committee and the Committccs on Finance and on Compensation and Succession 4'989 HOWARD C. ST. JOI.IN Glenfoid, NY Chairman of the Board and Chief Executive Officer, Ulster Savings Bank; Lawyer, lloward C. St. Joh'n'tk,"Associates; Vice Chairman of the Board; Chairman of the Committee on Finance; member of the Executive Commiuee and (he Commiuce on Audit
- l984 EDWARD P. SWYER Albany, NY Managing Partner, WTZA-TVAssociates; President, L. A. Swyer Realty and Management, lncd President, Stuyvesant Plaza, lncd mcmbcr of thc Committee on Compensation and Succes-sion and the Rctiremcnt Committee
- l990
- Year joined the Board OFFICERS OF THE BOARD JOHN E. MACK,III Chairman ofthc Board and Chief Executive OAiccr: Chaimian of thc Executive and Rctircmcnt Committees HOWARD C. ST. JOHN Vice Chairman ofthe Hoard and Chairman of thc Committee on Finance MARJORIE S. BROWN Cliaiiwoman of thc Committcc on Compensation and Succession RICHARD H. EYMAN Chaimian of'the Committee on Audit OFFICERS JOHN E. MACK,III Chairnian ofthe Board and Chief Exccutivc Olliccr PAULJ. GANCI President and Chief Opcmting Officer WILLIAME. VANtiVAGENEN Senior Vice President - Corpomte Services and Governmental Affairs(I)
RONALD P. BRAND Vice President - Enginccring and Environmental Affairs JOIIN E DRAIN Vice President Controller and Treasurer JOSEPH J. DeVIRGILIO,JR.
Vice President - Iluman Resources and Administration CARL E. MEYER Vice President-Customer Services ALLANR. PAGE Vice President Corporate Services GLADYS S. COOPER Secretary BENON BUDZIAK Assistant Vice Prcsidcnt Production HERBERT M. ROUND Assistant Vice President - Nuclear Operations and Energy Control ELLENAHEARN Assistant Sccrctaiy WALTERA. BOSSERT, JR.
Assistant Sccrctaiy and Assistant Treasurer STEVENV.LANT Assistant Treasurer and Assistant Secretary (I) Retired on February I, l993 CHARLES LaFORGE Rhincbcck, NY President of Wayfarer lnns and Owner of Bcckman Arms; member of the Retircmcnt Commiucc
- 1987 HN E. MACK,III Poughkeepsie, NY Chairman of the Board and Chief Executive Officer; Chairman of the Executive and Rctircmcnt Comniittccs; mcmbcr of the Committees on Finance and on Compensation and Succession
~ 1981 AffirmativeAction Statement ofPolicy It is the policy ofCentral I.Iudson Gas A Electric Corpontion to provide equal employmcnt opportunitics for all persons. This means that all personnel policics and practices including, but not limited to, those related to hiring, layoff, tcrtttination, compensation, bencl its, trans-fers, promotions, training, recruitmcnt, tuition assistance and social and recreational pro-grams sltall be administered without regard to race, color, religion, agc, sex, national origin, physical or mental disability or military service during thc Vietnam cm so as to assure ful-fillment of the Company's equal employment goals and objcctivcs, except where scx, agc, physical or mental ability is a bona fide occupational qualilication.
"Be duyfels dans kammer" In the year 1609, Henry Hudson sailed the "Halv Maen," or "HalfMoon" up what is now known as the Hudson River. According tofolklore, w/iilesailing up the river seeking a Northwest Passage, he and his crew saw Indians dancing and s/iouting on a proinontory. So friglitfiilwas the spectacle that they exclaiined: "De duyfels dans kanuner," or "Tliedevil's dance chainber." The Dutch explorers and the Algonquin Indians becaine part ofthe history ofthe land and the river.
And the proinontory, wliich eventiially becaine known as Danskaininer Point, becaine the site of Central Hudson's Danskaininer Electric Generating Plant. During 1992, Central Hudson observed the 40th anniversary ofthe firstgenerating unit at tlie Danskainrner Plant.
During the surniner, a replica ofthe HalfMoon sailed past the plant on a foggy inorning during a visit to a nuniber ofcities between New York City and Albany. Tlieplioto shows the HalfMoon as itbroke orit ofthe fog with the Danskanriner Plant in tlie background.
Last sumnter, a replica of Henry Hudson's 1.)alf Moon sailed in thc fog past our electric gcncrating plant at Danskammer Point, which was named by the Dutch explorer in 1609. Please sce thc back cover.
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c4 o BUSINESS REPLY MAIL RRST CLASS MAIL PERMITNO 104 POUGHKEEPSIE NY POSTAGE WILLBE PAID BY ADDRESSEE CORPORATE COMMUNICATIONS CENTRAL HUDSON GAS & ELECTRIC CORPORATION 284 SOUTH AVE POUGHKEEPSIE NY 12601-9860 l<sslls<lsl<lls<llss << sslllslsslssl<sllsslls<slsssll NO POSTAGE NECESSARY IF MAILED IN THE UNITEDSTATES