ML18018B042

Niagara Mohawk Power Corporation Annual Report 1977

ML18018B042
Person / Time
Site:	Nine Mile Point
Issue date:	03/30/1978
From:	Niagara Mohawk Power Corp
To:	Office of Nuclear Reactor Regulation
References
Download: ML18018B042 (28)

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Our Service Area Niagara Mohawk is one of the nation's leading investor-owned utilities, with the largest service area in New York State. Electricity from our massive system, ex- prdBB<

tending from Lake Erie to New England's borders, ~zsttcs to Canada and Pennsylvania, serves the electric hovowkh v ~

needs of 1326000 customers. Ptfvt's natural gas ooogsv>

(pA system serves 413,000 customers in central, eastern and northern New York, nearly all tfte within our electric service area. Two Cana- r r deftt dian subsidiaries, St. Lawrence Power ~,

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Company, Ltd., provide electric ser- I Vettt1pttt vice to parts of southern Ontario. o Our corporate he adquartersis Cld i 300 Erie Bouleva rd W., n Vtetette Syracuse, NY 13 202.

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Mohawk Other Utilities Interconnections with Neighboring Utilities S Key Niagara Mohawk Generating Stations 0 Power Authority of tho State of New York (PASNY) Generating Stations

Gpstate New York consumers. Niagara Nohawk people.

We'e charged with the never-ending responsibility of providing ample, affordable, reliable energy to more than 3 "/2 million residents.

Not just today, but through the critical decades ahead.

Highlights of 1977 Contents 1977 1976  % Change 2 Letter to Stockholders Total operating revenues $ 1,225,832,000 $ 1,077,230,000 14 4 Management Study, Financial Summary Income available for common stockholders $ 98,127,000 $ 84,903,000 16 5 Electric and Gas Revenues Earnings per common share $ 1.74 $ 1.61 8 6 Gas Supply, Rate Increases, Dividends per common share $ 1.31'/2 $ 1.24 6 Operating Expenses Common shares outstanding (average) 56,278,556 52,731,329 7 7 Revenue Dollar, Dividends, Securities Utilityplant (gross) $ 3,553,560,000 $ 3,304,072,000 8 8 Construction Program Gross additions to utility plant $ 289,931,000 $ 282,702,000 3 9 Shared Generation Plans Kilowatt-hour sales to customers 31,367,000,000 31,802,000,000 (1) 10 Research and Development, Environmental Projects Electric customers at end of year 1,326,000 1,317,000 1 Consumer Advisory Council, 12 Electric peak load (kilowatts) 6,935,000 6,327,000 10 Employees, Stockholders Natural gas sales to customers(cubic feet) 90,827,000,000 100,115,000,000 (9) 13 Financial Statements Gas customers at end of year 413,000 416,000 22 Statistics (1) 24 Stockholder Information, Maximum day gas sendout (cubic feet) 660,974,000 743,979,000 (11) Officers, Directors EARNINGS PER DIVIDENDS PER TOTAL OPERATING REVENUES COMMON SHARE (RESTATED) COMMON SHARE Afllllonsol dollars Dollars Dollars 1600 2.40 1.60 1200 1.80 1.20 800 1.20 .80 400 .60 .40 1973 1974 1975 1976 1977 1973 ~ 1974 1975 1976 1977 1973 1974 1975 1976 1977

To our stockholders Our earnings for 1977 were $ 1.74 new trends in various social and With our mind on the future, we per share of common stock, com- economic conditions have required have followed with interest and con-pared with $ 1.61 in 1976 when modification of both long and cern Congressional deliberations fewer shares were outstanding. This short-term sales growth projections. toward enactment of a National improvement resulted primarily Overall electric sales decreased 1X, Energy Act. The Act's complicated from electric and natural gas rate the mixed result of lethargic recov- mix of taxes, rebates and regulatory increases granted by the New York ery from economic recession, reform, when unclothed, appears to State Public Service Commission in impact of the energy conservation be essentially a massive tax bill. We late 1976. ethic and resistance to higher are especially concerned over its electric and gas charges as an in- potential impact on the cost of fuel Although earnings were improved creasing element in customer for our generating stations.

by the revised rates, they still fell far budgets. Presently, indicators point short of budgeted expectations and to very moderate growth in all mar-an adequate return on ket sectors. We are encouraged In our view, the nation would be Inflationary elements better served by an effective energy stockholders'nvestment.

over a change to a more positive kept eroding earnings projections attitude toward business indicated policy to reduce its dependence on despite our continued assault on ris- in statements by government offi- imported oil and assure steady, reli-ing costs. To counter these pres- cials and we are hopeful the tempo able energy supplies to sustain sures we are continuing to apply of the economy will rise. But the economic growth. This can only be strict controls on manpower and are conservation ethic, spurred by accomplished through greater employing effective management necessary increases in the cost of domestic production of oil, coal, techniques to produce the our services, is a restraining growth natural gas and uranium, the dis-advances in productivity and crea- factor. Instead of a 4X growth pro- covery of new energy sources and tive innovation described in the jection, a 2.5% increase now ap- easing of environmental restrictions following pages. pears more realistic. on the mining and use of coal.

Eyeing more secure future supplies On August 5, we again filed with Thus, in light of 1977's electric of nuclear fuel, our investment in the Public Service Commission for load forecast revisions, we have re- NM Uranium, Inc., now totals some higher rates. Estimated cost hikes scheduled construction of our Nine $ 73 million. This subsidiary owns and income projections through Mile Point Nuclear Gnit No. 2 for half of a southeast Texas mining mid-1979 indicate rate relief is a completion in 1983. Meanwhile, we operation that will produce 500,000 must to maintain earnings quality. are progressing with a 14-year plan pounds of uranium per year for our As in the past, we will continue to to expand our existing hydroelectric Nine Mile Point nuclear units.

pursue rate revisions as may be capacity by more than 30K. High necessary. electric generation fuel costs make A report on a year-long audit of our development of once-uneconomic management and operations by This year's report highlights the ul- hydro sites competitive with Arthur Young and Company, as di- l timate importance placed upon the steam-electric units for the first time rected by the Public Service Com-future of our business and its role as in decades. In addition, our Re- mission and released in October, upstate New York's principal energy search and Development Depart- was especially gratifying in its rec-supplier. We have always looked ment is seeking alternate energy ognition that: "The environment at ahead to plan and supply our ser- sources, besides enhancing per- Niagara Mohawk is excellent...

vice area's electric and gas needs. formance and environmental com- The Company has a nucleus of However, in view of recent evidence, patibility of those in service. trained, capable managers who im-

pressed us with their attitude and 1978 we sold at private placement dedication." Wherever practical, we S40 million of 8s/eX series preferred are implementing the study's rec- stock. Only somewhat limited new ommendations to further upgrade public financing will be necessary our performance. for 1978, including probable is-suance ofsome ~40 million in common stock.

A first for us in 1977 was formation of an independent Consumer Ad- Vfe were pleased to raise our quar-visory Council on Energy Affairs. terly dividend to 33'/2 cents a share Consisting of volunteers from the during the second quarter, our third communities we serve, the Council dividend increase in five years. The was conceived to foster better un- indicated annual dividend is now derstanding between NM and the 01.34, up from $ 1.14 in 1973.

public, benefiting both in this era of Whenever possible, we will adjust consumerism. Members'arious dividends to fairly compensate suggestions are being incorporated investors.

in our practices and procedures.

The northern New York Town of Massena is maintaining its bid, Our natural gas supply outlook is commenced May 1974, to create a considerably brighter than in recent municipal electric system by ex-years. We were permitted in 1977 propriating NM facilities. Recently, servation. The lifting of restrictions by the Public Service Commission will not affect our ability to meet the Town secured a court adjudica-to add 5,000 residential gas space tion, now under appeal, permitting it heating customers and to increase emergency supply situations such as occurred in winter 1976-77. to proceed with condemnation ef-some commercial and industrial forts. We will protect the interests of sales, as well as to add some such stockholders to the fullest extent by customers with high priority uses. NM's financial posture showed im-continuing to exert absolute opposi-This is the first action to renew mar- provement this year when we re-gained an A rating for our bonds tion to this effort or any similar kets and to recover portions of sales takeover threat.

denied us since 1975, when con- from one of the three major rating cern about prospective shortages agencies. This results from our bet-ter earnings-to-debt coverage and Today more than ever, a motivating forced a complete halt on all new influence on each of us in man-sales. lowered financing requirements, thereby reducing the cost of money agement is the consistent loyalty of to us. All three agencies currently Niagara Mohawk stockholders and While the price of natural gas is cer-give our bonds an A rating. employees. For this support, we tain to rise, as a result of the impact thank you.

of pending congressional action, we anticipate that gas a clean fuel In financing, we sold $ 75 million of can continue to be competitive 8.35%, 30-year first mortgage with other fuels in upcoming years. bonds in August 1977. In De-John G. Haehl, Jr.

Again, increasing prices will bring cember, $ 50 million of similar President and Chief Executive Officer noticeable evidence of reduction in bonds were issued through private average customer use through con- placement at 8'/eX, and early in February 1, 1978

Time for action and resolve Our management and operations tions. Overtime work has been dras-received high overall ratings in the tically reduced.

first phase of an intensive, Public In 1977, NM's consolidated income Service Commission-mandated available for holders of common study of the Company in 1977. Still under way, the evaluation is yielding stock was $ 1.74 per share, up 130 over 41.61 in 1976 when fewer numerous recommendations that shares were outstanding. Overall already are contributing to in-revenues climbed $ 148,602,000 in creased productivity and efficiency.

1977, 14% higher than for 1976, Legislation has been enacted for essentially resulting from rate revi-audit review of all New York State sions and higher purchased gas utilities every five years. The audits and fuel adjustment revenues.

are currently in various stages of These increases were partially offset planning and examination under by a reduction in revenues from the direction of the Commission. A sales to other electric systems. The management consulting firm, Ar- tables on page 5 show major thur Young 6 Company, has been changes in electric and gas rev-conducting the NM study since 1976. enues and sales.

In their Phase I report, the Young In 1977 our electric revenues in-consultants termed the working creased $ 124,700,000 compared environment at Niagara Mohawk with $ 67,100,000 in 1976.

excellent, adding that our Company The upturn in electric revenues at-has a record of meeting customer needs for energy, achieving operat-tributable to modified base rates stems from permanent rate in-ing objectives and minimizing elec-tric interruptions "despite winter creases of 452,400,000 annually, effective on December 1, 1976 and operating conditions that are among $ 9,900,000 on June 1, 1977. The the most difficultin the nation."

June revision was authorized by the The report also noted that many PSC to reflect 1977 wage increases.

areas of our operations had been improved following the manage- Electric sales to ultimate consum-ment restructuring of 1976. Primary ers increased 2.8X compared with a tomers was S.53 more in 1977 than recommendations concerned 4.5X rise in 1976. in 1976, due primarily to cost in-budgeting, major capital projects, During 1977, 9,000 customers creases allowed by the Federal emergency and fuel shortage plan- were added to our electric lines, rais- Energy Regulatory Commission to ning, electric and gas losses and ing the total to 1,326,000 at year our wholesale supplier, Consoli-power plant operations. end. Average price per kilowatt-hour dated Gas Supply Corporation and paid by residential consumers rose the 5.8% rate increase granted NM, In Phase II, scheduled through from 3.40 cents to 3.85 cents, about effective December 1, 1976. The mid-1978, the consultants will pro- new rates were designed to provide vide technical assistance in develop- the same unit cost as in 1937.

$ 10,800,000 in additional annual ing and implementing programs Natural gas revenues climbed revenue.

and portions of selected projects re- $ 23,900,000 in 1977 and lated to Phase I recommendations. $ 37,900,000 in 1976. Gas sales de- During 1977, the number of gas creased 9.2X in 1977 because of customers decreased from 416,000 Everywhere in our business, con-emergency curtailments required in to 413,000. The decline in residen-stant emphasis and attention to tial and commercial customers was controlling expenses prevailed January, warmer weather and con-servation efforts by all customer related to PSC restrictions on the through the year. We are taking all addition of new customers.

avenues to strengthen our financial categories. Sales were 10.8X higher in 1976 than in 1975 due to colder stability and combat rising costs, in- A new electric net system peak of weather in November and December.

cluding measures such as a freeze 5,405,000 kilowatts was recorded on work force expansion and strict The average cost per thousand on December 12, 1977, some requirements for fillingvacant posi- cubic feet of gas for residential cus- 20,000 kw over 1976's peak.

Advances in productivity, with unprecedented specialization and precision, are continuing assets of computer technology at NM. Computer applications are constantly broadening and include, from left, stockholder records and information, meter testing, transmission tower design and system power control operations. NM saved

$ 3.4 million in 1977 by in-house time-sharing ot computer systems.

ELECTRIC REVENUES Increase (decrease) from prior period GAS REVENUES Increase (decrease) from prior period In millions of dollars In millions of dollars 1977 1976 1977 1976 Increase in base rates ............. $ 54.2 $ 10.1 Increase in base rates......... $ 8.2 $ 5.0 Fuel and purchased power cost Purchased gas cost increases . 21.7 21.9 increases 78.9 10.7 Gas sales (6.0) 1 1.0 Sales to other electric systems ..... (24.0) 14.5 $ 23.9 $ 37.9 Sales to ultimate consumers....... 13.8 29.1 Miscellaneous operating revenues . 1.8 2.7

$ 124.7 $ 67.1 CLASS OF SERVICE  % of total  % increase over 1976 CLASS OF SERVICE  % of total % increase from 1976 electric Electric Kilowatt- gas Gas Cubic revenues revenues hours revenues revenues feet Residential . 31 15 2 Residential .. 63 13 (8)

Commercial 33 20 4 Commercial . 22 5 (14)

Industrial . 26 24 3 Industrial 12 16 (7)

Municipal service .. 2 17 1 Total to ultimate consumers ... 97 11 (9)

Total to ultimate consumers . 92 19 3 Other gas systems ............ 2 4 (11)

Other electric systems ...... 6 (29) (33) Miscellaneous ............... 1 (11)

Miscellaneous 2 8 100% 11 (9) 100% 14 (1)

In mid-1977, the troubled gas crease of 8.5%. Both the electric and on our electric distribution system.

supply outlook improved consider- gas rate proposals are based on Federal and Canadian income taxes ably, enabling NM to file with the projected sales for the 12 months climbed $ 4,200,000 in 1977 and Public Service Commission for a ending June 30, 1979. We antici- $ 3,300,000 in 1976. The higher in-partial lifting of restrictions on at- pate a recommendation by the come taxes for 1977 were attribut-taching new customers. Permission Commission's administrative law able to increased earnings, while-was granted in November. Among judge in the case in early April 1978. those of 1976 were linked to a de-positive developments to allow the A final decision by the PSC is antici- crease in flow-through tax adjust-easing were new offshore gas fields pated about mid-year. ments. Real estate, revenue and in the Gulf of Mexico, additional other taxes increased $ 17,200,000 volumes in storage, anticipated in 1977 and $ 17,800,000 in 1976, deliveries of liquefied gas from Combined costs of fuel, purchased due principally to higher property Algeria and a variety of conservation power and gas also continued to taxes resulting from property addi-efforts by customers. In November, climb in 1977, due to higher rates tions, increased tax rates and im-the Commission approved a pro- charged by the Company's sup- proved revenues.

gram by NM to provide additional pliers and higher output from fossil gas service, and the Company fuel generation while our nuclear A 413,400,000 increase in allow-began issuing permits to qualified plant was shut down for refueling ance for funds used during con-customers in all service categories. and maintenance. The higher fuel struction in 1977 resulted from The move has already helped im- costs associated with sales to ulti- additional construction work in prove the economic climate and mate consumers produced an in- progress and nuclear fuel in proc-building construction in our service crease in revenues through NM's ess. A decrease in such allowance area. fuel adjustment and purchased gas occurred in 1976 when our new adjustment clauses applied to cus- Unit No. 5 at Oswego Steam Station Regarding NM's application on Au- tomer bills. Higher costs for sales to was placed in service.

gust 5, 1977 to the PSC for approval other utilitysystems are recovered to increase electric and natural gas immediately in the price charged. Other income for 1976 includes rates, public hearings on the re- $ 8,986,000 representing a portion quest concluded January 20, 1978. Other operation and maintenance of the income tax refunds for the The Company seeks revised rate expenses rose $ 31,900,000 in years 1966 through 1968, as a re-schedules to raise annual electric 1977, compared with a rise of sult of the retroactive adoption revenues by approximately $ 23,700,000 in 1976, due primarily of "guideline" lives in computing tax

$ 81,964,000, an increase of about to higher labor costs and increased depreciation, as discussed in Note 8.3% and additional annual gas rev- levels of maintenance work required 12 of Notes to Consolidated Finan-enues of some $ 21,258,000, an in- at our steam generating stations and cial Statements, page 18.

INCOME (BEFORE INTEREST AND INCOME TAXES)

ELECTRIC SALES GAS SALES AND INTEREST CHARGES Millions ol Ktrr-hrs. Millions olcubicleet Millionsol dollars 36,000 120,000 240 27,000 90,000 180 18,000 60,000 INTERES T CHARG ES 9,000 30,000 60 t 0 1973 1974 1975 1976 1977 1973 1974 1975 1976 1977 1973 1974 1975 '976 1977

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THE 1977 REVENUE DOLLAR AND WHERE IT WENT Change Change In thousands from In thousands from of dollars 1976 of dollars 1976 Fuel for production of electricity 25lr. $ 311,185 29%

$ 454,739 15% 37ff Residential customers Income and other taxes 14'66,923 16 qk U Wages, salaries, employee 377;497 17 Commercial customers benefits 14 fr. 166,735 12 31'3) Interest and other costs net 12fr. 144,954 8

@II e K'~ill Gas purchased 12K 142,071 14 283,026 23 Industrial customers KiJIJ Dividends to stockholders Sit 99,738 12

%l Electricity purchased 7'3,019 (6) 110,570 (1 5) glf All others I

~%9] Depreciation 6'7,113 (1) 25 Retained in business 2lf 24,094 Dividend requirements on preferred placement of $ 50,000,000 of 8'/sX Dividends per share of our com-stock, the average number of 30-year first mortgage bonds. Net mon stock and quoted prices were:

shares of common stock outstand- proceeds from these sales were ing and interest charges rose in applied to reduce outstanding Dividends paid Price range 1976 per share High Low 1977 and 1976, the result of higher borrowings issued to meet con-capital costs and additional secu- struction costs, including planned 1st quarter... $ .31 $ 14'/4 $ 12'/2 rities issued to finance construction generating units on Lakes Ontario 2nd quarter .. $ .31 $ 14 $ 121/2 requirements. During late 1976, and Erie and related energy 3rd quarter .. $ .31 $ 14'/4 $ 12~/s declining interest rates and reduced projects. 4th quarter... $ .31 $ 15 $ 13'/s short-term borrowings resulted in a $ 1.24 decrease in other interest charges Also used to finance construction 1977 for 1976. were net proceeds of $ 21,500,000 1st quarter... $ .31 $ 15s/4 $ 14 from the sale of 1,371,000 shares of 2nd quarter .. $ .331/2 $ 16s/s $ 14s/4 In August 1977, the Company sold common stock sold through our 3rd quarter .. $ .331/2 $ 171/4 $ 15

$ 75,000,000 of 8.35K 30-year first Dividend Reinvestment and Stock 4th quarter... $ .331/2 $ 16s/s $ 15 mortgage bonds. Further financing Purchase Plan and Employee Sav- $ 1.31'/2 in December involved the private ings Fund Plan.

AVERAGE GROSS ELECTRIC UTILITYPLANT AVERAGE COST TOTAL TAXES, PER ELECTRIC CUSTOMER OF FUEL BURNED INCLUDING INCOME TAXES Dollars Dollars ltrlilllons of dollars 2400 40 200 1600 30 150 1200 20 10 50 1973 1974 1975 1976 1977 1973 1974 1975 1976 1977 1973 1974 1975 1976 1977

Unending responsibility Construction by Niagara Mohawk of ceeding $ 300,000,000. Total cost is kilowatt coal-fired generating sta-major new power plants to keep some $ 1 billion, excluding financing tion that will employ 2,500 during pace with long-term future electric costs. NM's share is $ 418,000,000. peak construction. So far, NM has needs is enmeshed with the eco- spent some $ 11 million for en-nomic activity of the entire upstate Just six miles west of Nine Ivtile vironmental hearings concerning New York community. Building Point, progress also continued on the project. The data was submitted these massive generating projects, the new 850,000-kilowatt Gnit No. 6 to the New York State Board on along with related transmission and at Oswego Steam Station, more Electric Generation Siting and the other necessary energy installations, than 62K completed at the end of Environment and we anticipate a entails billions of dollars for payroll, 1977. Some 650 construction decision in late 1978. During this taxes, materials and equipment. All workers were employed at the oil- major power plant's six-year con-give a needed assist to employment fired facility's site. The addition, re- struction period, workers will be conditions by creating thousands of quiring seven years to build, will paid an estimated $ 570,000,000.

construction and supplier jobs in boost station capacity to a total our service area. 2,075,000 kilowatts, some five times its original output. Scheduled In 1977, the Company announced At the site of Unit No. 2 at Nine Mile for startup in late 1979, the unit will plans for a hydroelectric expansion Point Nuclear Station on Lake On- cost an estimated $ 253,000,000, program to add 205,000 kilowatts tario, nearly 2,000 construction excluding financing. NM's share is to our power system. Included are workers, representing dozens of $ 188,000,000. It will include a total three altogether new site develop-trades, kept the 1,080,000-kilowatt construction payroll of some ments and enlargement of 12 exist-installation moving towards its 4100,000,000. ing hydro stations, with more than targeted 1983 completion. Over its 70K of the new capacity planned for nine-year construction period, the Near Lake Erie, south of Dunkirk, the upper Hudson River Basin, the unit will produce a total payroll ex- we are planning a 1,700,000- remainder from seven other rivers

and streams'in northern and central. $ 40,000,000, a welcome addition to load growth of all investor-owned New York. In early 1978, the first the economies of northern com- utilities in New York State. ESPRI, application will be filed with the munities in Niagara Mohawk's ser- pending approval by regulatory Federal Energy Regulatory Com- vice territory. agencies, features many financial mission and other state and federal and operating advantages and will The year 1977 saw further action reduce the financing requirements agencies. This work, to continue toward a proposal by NM, together through 1990 at a total cost of more for its sponsoring utilities.

with five other key New York utilities, than $ 200,000,000, will require a to share ownership of large upstate construction payroll estimated at All of these generation plans will power generating stations. Involved require expansion of transmission are Oswego Unit No. 6, Nine Mile systems, with lines now on the Point Unit No. 2 and a 1,150,000- drawing board or being installed to kilowatt nuclear station planned at comply with scheduling of new Sterling on Lake Ontario by Roches- units. During the year, three key NM ter Gas 6 Electric Corp. Late in transmission links, among more 1977 Sterling was certified by the than 20 planned in our system for New York State Board on Electric future years, were completed at an Generation Siting and the Environ- expenditure of more than

" i)') ment. This ownership sharing is $ 50,000,000.

-)y~) intended to help pave the way for Empire State Power Resources, Inc. The year also saw formation of a (ESPRI) a statewide utilityto be re- new System Project Management sponsible for future construction Department, directly responsible for and operation of base-load generat- timely execution of all key construc-ing stations needed to supply the tion activities.

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Building to meet future energy requirements with night scene of construction at Nine Mile Point Unit No. 2, left, views of penstock pipe being installed at NM hydroelectric plant, transmission line with "gull wing" supports near Utica and work on turbine at Oswego Steam Station Unit No. 6. Our construction budget for 1978 is

$ 215.9 million.

Quest-creative technology Our Company looks more and $ 76,000,000 the estimated total for tenance requirements. By early more toward research to help us the next five years. 1980, two 4,800-kilowatt prototypes clear today's critical energy hurdles. will be constructed and field-tested Alternate energy sources, new In 1977, a breakthrough in our by utilities. A 9,600-kilowatt unit is methods of stabilizing basic fuel hunt for alternate energy possi- targeted for our system by 1981.

supplies and development of better bilities was achieved when tests of The 1977 tests confirm the fuel cell ways to improve the environment a 1,000-kilowatt fuel cell proved as the most significant advance in are primary aims. highly successful. Since 1973 electric generation technology since in a contract with United the introduction of nuclear energy.

We introduced formal research into Technologies Corp. and eight other NM's corporate structure more than six years ago in the firm belief leading utilities NN has been striv- Another important NM research that it will help chart a course to ing to develop a commercially vi- project, aimed at enabling power able 26,000-kilowatt fuel cell power plants to burn lower cost Eastern self-sufficiency. For us, and the en-tire utility industry, elimination of unit. This effort, an extension of fuel coal while producing much less cell technology originally applied in waste compared with other vulnerability to any fuel supply prob-U.S. space missions, concentrates methods, is also being watched lems that could impede production of electric energy is paramount. Our on development of modified cells to nationwide. This involves installa-research work focuses on near-term use coal-derived fuels. Studies tion of a pilot "scrubber" on the indicate that large-scale introduc- stack at our Huntley Steam Station projects designed to meet these goals.

tion of the battery-like devices near Buffalo to demonstrate the throughout our electric system ability to control sulfur dioxide (SO,)

NN's Research Department has de- could ultimately bring marked im- emissions. The regional research veloped into a mature organization provement in total utilization of the organization, Empire State Electric with a professional staff experienced complete power system and signifi- Energy Research Corp. (ESEER-in research and energy-related cant reduction in the consumption CO) is sponsoring the project.

areas. Our research budget has of critical fuels used to generate ESEERCO is making design grown from $ 456,000 in 1971 to power. Noreover, the quiet, studies with Atomics International of almost $ 9,000,000 in 1977, with pollution-free units have low main- Los Angeles and the U.S. Environ-

mental Protection Agency. The Our determination to find more effec-target, a commercial system for tive methods of producing energy and preserving the environment takes us SO, removal that will save mineral from the vastness of a Northern New resources, also entails simplified York sunset to the microrealm of a slide waste disposal facilities which will specimen. At far left, tri-bladed propel-recover marketable sulfur. The ler of 15-kilowatt wind research proto-Huntley demonstrator is scheduled type turns quietly above farmer cutting to go on line in 1980. hay. Rooftop collectors reflect particu-lar purpose in NM-aided solar research program at Albany, while algae sample To foster conservation of natural is readied for microscope analysis in w

resources, NM is pursuing many laboratory near Lake Ontario. Vineyard other advanced technologies which study is devoted to quality of grape in-hold varying promise. Several wind dustry near NM-proposed power plant power projects (including a pioneer- site on Lake Erie. Over next five years, ing turbine at a customer's farm we will spend more than $ 76 million on and plans for windmills at a hydro- energy research, most of it interlocked electric site) were launched in 1977. with air, water and land concerns.

the sun with basic power from our For five years we have been directly utilitysystem.

involved with leading manufacturers in heat pump research efforts cost-ing over $ 2,000,000, with an eye Other research work by the toward making advanced high- Company in 1977 focused on performance heat pumps available management of electric load, for northern climates by 1980. transmission losses, customer energy conservation, as well as Solar energy for residential and improved air, land and water pres-commercial heating is under inten- ervation. Participation in these and sive study by NM and other research additional research efforts involves parties at an alumni house and con- the leadership and teamwork of ference center at the State University Niagara Mohawk's scientists, en-of New York in Albany. There, we gineers and technologists, along will obtain valuable data on the with colleagues in government and feasibility of combining energy from industry.

Mission to serve In a unique step to gain a candid At year's end, NM employees Our Dividend Reinvestment and flow of information and attitudes numbered 9,200, an increase of Stock Purchase Plan continues to from the customer's side of our 300 over year end 1976. In June grow in popularity each year. It al-business, NM formed a Con- 1977, the second year of a two- lows purchase of newly issued sumer Advisory Council in 1977. year contract between NM and stock directly from the Company the International Brotherhood of and optional payments for Representing all walks of life in Electrical Workers (AFL-CIO) purchase of additional common our 13 operating areas, the began and included an 8.3X shares without brokerage com-Council's 26 volunteers meet general wage increase for rep- missions or service charges. This with NM executives monthly for resented employees. helps to provide NM with funds to discussions of Company policies meet required financing. In 1977, The Company contributed about and procedures. Their frankness, about 22,000 participating stock-

$ 2,662,000 to our Employee Sav-advice and suggestions have al- holders invested $ 8,192,000 for ready proved helpful in our efforts ings Fund Plan in 1977. Some 6,200 or 73% of all eligible purchase of additional common to further refine service and im- shares. Representing 11% of all prove communications with our employees are subscribers, al-locating from 2X to 6X of their common stockholders, they rein-customers. The group, one of the vested 85,006,000 of dividends, few formed to advise a principal wages (matched 50K by the Company) toward purchase of adding $ 3,186,000 in optional G.S. utility, consists of house- payments.

wives, retirees, social workers, NM common stock or U.S. Gov-ernment securities. Of those par- NM's Stockholder Records De-clergy, business executives, con-sumer advocates and minorities. ticipating, 98% invest in stock. partment in Syracuse or Morgan The plan holds 4,524,000 shares Guaranty Trust Company of New Members, all community leaders in their occupations or fields of or 8% of the outstanding com- York, Dividend Reinvestment interest, participate in the Council mon shares. Employees may Plan (P.O. Box 3506, Church on their own time. None are also voluntarily make additional, Street Station, New York, NY stockholders or related to NM unmatched contributions of up to 10008) will be glad to provide 4% of their wages. application forms and literature employees. In less than a year since its formation, the Council describing the reinvestment has become recognized as our NM stockholders now number program upon request.

consumer "sounding board," about 210,000, with 196,000 enabling NM to know more about holding common shares and We note with regret the death on what consumers are thinking of 14,000 owning preferred. Stock- October 16, 1977 of Dean P.

us and to better understand their holders live in all 50 states and 40 Taylor, who served on our Board needs. foreign countries, with 71,000 re- of Directors since January 1961.

siding in New York and holding Former Congressman Taylor re-51% of the total shares. Most tired from the G.S. House of Rep-shares are held for long-term in- resentatives in 1960 after nine vestment. A large number of terms of distinguished service.

common stockholders (61,000) hold less than 100 shares.

Size of holding Total Total shares (Shares) stockholders held 1 to 99....... 61,000 2,090,439 100 to 999 ... 129,000 28,763,713 1,000 or more 6,000 26,268,489 196,000 57,122,641

Consolidated Statement of Income and Retained Earnings NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARIES ln thousands of dollars For the year ended December 31, 1977 1976 1975 1974 1973 Operating revenues:

Electric . $ 987,760 $ 863,012 $ 795,917 $ 671,246 $ 534,559 Gas 238,072 214,218 176,289 159,564 136,798 1,225,832 1,077,230 972,206 830,810 671,357 Operating expenses:

Operation:

Fuel for electric generation ................ 311,185 241,040 223,095 136,983 82,523 Electricity purchased 93,019 99,297 86,533 122,476 93,650 Gas purchased 142,071 124,811 94,960 86,900 70,770 Other operation expenses ................. 166,297 152,759 136,470 127,100 115,223 Maintenance . 84,536 66,171 58,724 59,753 54,885 Depreciation (Note 2) . 77,113 77,629 69,228 63,055 59,181 Federal and Canadian income taxes(Note 12) . 22,124 17,896 14,630 (4,050) (2,571)

Othertaxes 148,989 131,817 113,997 102,248 92,556 1,045,334 911,420 797,637 694,465 566,217 Operating Income 180,498 165,810 174,569 136,345 105,140 Other income and deductions:

Allowance for funds used during construction (Note 1) 20,711 29,376 27 373 18,836 Allowance for other funds used during construction (Note 1) 21,660 Income tax refunds(Note12)........... 8,986 Other (net) 3,645 1,251 2,153 528 (133) 25,305 30,948 31,529 27,901 18,703 Income before interest charges 205,803 196,758 206,098 164,246 123,843 Interest charges: ~

Interest on long-term debt .......... 91,563 87,270 84,018 66,080 54,761 Other interest 2,892 1,039 7,285 11,659 5,979 Allowance for borrowed funds used during construction(Note 1) ...... (12,484) 81,971 88,309 91,303 77,739 60,740 Income before cumulative effect of accounting change . 123,832 108,449 114,795 86,507 63,103 Cumulative effect of accounting change (Note 3) . 9,406 Net income(Note 3) 123,832 108,449 114,795 95,913 63,103 Dividends on preferred stock .. 25,705 23,546 19,430 15,082 12,872 Balance available for common stock... 98,127 84,903 95,365 80,831 50,231 "

Dividends on common stock ........... 74,033 65,642 56,590 49,444 41,409 Retained earnings for the year ......... 24,094 19,261 38,775 31,387 8,822 Retained earnings at beginning of year . 313,740 294,479 255,704 224,317 215,495 Retained earnings at end of year $ 337,834 $ 313,740 $ 294,479 $ 255,704 $ 224,317 Average number of shares of common stock outstanding .. 56,278,556 52,731,329 47,089,331 42,032,244 36,170,326 Per average share of common stock:

Balance available for common stock before cumulative effect of accounting change..... $ 1.74 $ 1.61 $ 2.03 $ 1.70 $ 1.39 Cumulative effect of accounting change (Note 3) . $ .22 Balance available for common stock(Note 3) .. $ 1.74 $ 1.61 $ 2.03 $ 1.92 $ 1.39 Dividends paid $ 1.31%i $ 1.24 $ 1.21 $ 1.18 $ 1.15 Pro forma amounts reflecting the con-sistent application of the change to energy deferral accounting (Note 3):

Balance available for common stock... $ 71,425 $ 56,787 Per average share of common stock ... $ 1.70 $ 1.57

( ) Denotes deduction.

13

Consolidated Balance Sheet NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARIES ln thousands of dollars At December 31, 1977 1976 ASSETS Utilityplant, at original cost(Notes 4 and 5 and Page 20) $ 3,553,560 $ 3,304,072 Less accumulated depreciation (Note 2) 841,498 780,799 2,712,062 2,523,273 Other property and investments 15,584 17.858 Current assets:

Cash(Note 6) . 6,579 7,054 Accounts receivable (less allowance for doubtful accounts of $ 1,500,000 and $ 1,300,000, respectively) 121,855 116,605 Income tax refund claims (Note 12) 8,391 7,038 Materials and supplies, at average cost:

Coal and oil for production of electricity 79,942 66,925 Other. 26,367 24,877 Prepayments. 5,152 4,448 248,286 226,947 Deferred debits:

Unamortized debt expense . 14,375 13,803 Deferred recoverable energy costs (Note 3) 24,951 29,605 Other 3,796 4,814 43,122 48,222

$ 3,019,054 $ 2,816,300 LIABILITIES Capitalization:

Common stockholders'quity:

Common stock-41 par value; authorized 65,000,000 shares; issued 57,122,641 shares and 55,751,330 shares, respectively (Note 8) .... $ 57,123 $ 55,751 Premium on capital stock(Note 8) 581,473 561,323 Capital stock expense (Note 8) .. (8,194) (8,079)

Retained earnings (Page 13) 337,834 313,740 968,236 922,735 Cumulative preferred stock (Note 8 and Page 21) 366,400 368,200 Cumulative preference stock $ 25 par value; authorized 4,000,000 shares; issued none (Note 8)

Long-term debt (Page 20) 1,394,387 1,268,269 Total capitalization. 2,729,023 2,559,204 Current liabilities:

Notes payable and commercial paper(Note 6) . 39,200 40,750 Long-term debt due within one year (Page 20) . 10,250 Sinking fund requirements on preferred stock(Page 21) 1,800 1,800 Accounts payable 79,031 78,030 Customers'eposits . 4,734 4,147 Accrued taxes. 18,680 13,853 Accrued interest 27,760 23,270 Accrued vacation pay . 11,757 10,110 Other 6,320 6,116 199,532 178,076 Deferred credits:

Income tax refunds(Note12) 19,721 19,421 Other 9,106 11,260 28,827 30,681 Accumulated deferred federal I ncome taxes (Note 12) 61,672 48,339 Commitments (Note 10)

$ 3,019,054 $ 2,816,300

( ) Denotes deduction.

14

Consolidated Statement of Changes in Financial Position NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARIES ln thousands ot dollars For the year ended December 31, 1977 1975 1974 1973 Total Financial resources were provided by:

Operations:

Income before cumulative effect of accounting change .................. $ 123,832 $ 108,449 $ 114,795 $ 86,507 $ 63,103 $ 496,686 Charges (credits) to income not requir-ing (not providing) working capital Depreciation 77,113 77,629 69,228 63,055 59,181* 346,206 Allowance for funds used during construction (34,144) (20,711) (29,376) (27,373) (18,836) (130,440)

Amortization of nuclear fuel .......... 21,458 22,555 11,481 10,665 10,788 76,947 Provision for deferred Federal income taxes (net) ................. 13 333 14,628 11,800 (280) 3,359 42,840 201,592 202,550 177,928 132,574 117,595 832,239 Cumulative effect of accounting change . 9,406 9,406 Outside financing:

Sale of common stock .............. 21,522 70,105 72,557 29,964 88,005 282,153 Sale of preferred stock .............. 30,000 70,000 60,000 160,000 Sale of mortgage bonds ............. 125,000 100,000 125,000 80,000 430,000 Sale of promissory note (net) ........ 2,338 5,671 10,839 27,752 46,600 Issuance of long-term notes payable . 15)000 18,000 33,000 Increase (decrease) in notes payable . (1,550) (8,114) (117,786) 129,300 (9,850) (8,000) 162,310 115,662 135,610 312,016 218,155 943,753 Other sources:

Deferred recoverable energy costs ..... 4,654 8,785 (591) (37,799) (24,951)

Income tax refunds . 300 (8,686) 1,241 26,866 19,721 (Increase) decrease in working capital other than notes payable ............ 1,667 30,465 (122,388) (12,727) 28,359 (74,624)

Miscellaneous (net) 52 4,203 7,592 6,031 5,649 23,527 6,673 34,767 (114,146) (17,629) 34,008 (56,327)

Total resources provided $ 370)575 $ 352,979 $ 199,392 $ 436,367 $ 369,758 $ 1,729,071 Financial resources were used for:

Construction additions............... $ 264,913 $ 195,676 $ 194,155 $ 283,844 $ 278,941 $ 1,217,529 Nuclear fuel 25,018 87,026 11,959 11,503 7,372 142,878 Allowance for funds used during construction..................... (34,144) (20,711) (29,376) (27,373) (18,836) (130,440)

Construction costs relating to sharing of generating plants(Note 7)........ (53,366) (53,366)

Net additions . 255,787 261,991 123 372 267,974 267,477 1,176,601 Long-term debt due within one year .. 10,250 103,867 48,000 162,117 Mortgage bonds retired ............. 3,000 3,000 Sinking fund requirements on preferred stock ................... 11800 1,800 3,600 Dividends . 99,738 89,188 76,020 64,526 54,281 383,753 Total resources used ... $ 370)575 $ 352,979 $ 199,392 $ 436,367 $ 369,758 $ 1,729,071 (Increase) decrease in working capital other than notes payable:

Cash $ 475 $ 13,620 $ (3,067) $ (4,431) $ (1,856) 4,741 Accounts receivable (5,250) (11,041) (16,310) (19,505) (12,936) (65,042)

Receivable from plant sharing .......... 12,402 (12,402)

Income tax refund claims .............. (1,353) (300) 15,639 (16,977) (5,400) (8,391)

Coal and oil for production of electricity . (13,017) (15,433) (626) (33,483) (2,954) (65,513)

Other materials and supplies ........... (1,490) 1,193 1,213 (10,124) (2,420) (11,628)

Long-term debt due within one year ..... 10,250 (103,867) 55,867 48,000 10,250 Sinking fund requirements on preferred stock 1,800 1,800 Accounts payable. 1,001 18,982 (855) 9,644 615 29,387 Accrued taxes and interest ............. 9,317 6,205 2,435 4,609 638 23,204 Other(net) . 1,734 3,037 (4,548) 1,673 4,672 6,568

$ 1,667 $ 30,465 $ (122,388) $ (12,727) $ 28,359 $ (74,624) 15

Notes to Consolidated Financial Statements NOTE 1. Summary of Significant Accounting Policies ly. The Company believes that under either its reprocessing assumption or an alternative storage assumption similar to The Company is subject to regulation by the New York that recently proposed by the Department of Energy, costs State Public Service Commission (PSC) and the Federal would be approximately equal. The Company believes that Energy Regulatory Commission (FERC) with respect to its nuclear fuel reprocessing or storage costs, which may be rates for service and the maintenance of its accounting rec- higher than presently estimated, will continue to be allowed ords. The Company's accounting policies conform to gener- to be recovered in the rate process, although no such assur-ally accepted accounting principles as applied in the case of ance can be given.

regulated New York public utilities to give effect to the rate- Estimated decommissioning costs (costs to take the plant making and accounting practices and policies of the PSC. out of service in the future) of the Company's Nine Mile Point Utility Plant: The cost of additions to utility plant and of Unit N nuclear generating plant are presently not charged to replacements of retirement units of property is capitalized. current operations and, therefore, not recognized in rates Cost includes direct material, labor and similar items and charged to customers. As part of a pending rate filing, the charges for such indirect costs as engineering, supervision, Company has before the PSC a request for a cost allowance payroll taxes, pension benefits, etc. The Company capitalizes designed to recognize such decommissioning costs. Be-an allowance for funds used during construction (AFC) equi- cause of many uncertainties, there is no assurance that such valent to the cost of funds devoted to plant under construc- additional revenues, if any, as might be provided by this tion (8'/o tor the period January 1, 1973 through June 30, 1976 allowance would aggregate a sufficient amount to decom-and 9/o effective July 1, 1976). As a result of a rate proceed- mission the plant. The Company believes that nuclear ing, effective December 1, 1976, the Company began comput- generating plant decommissioning costs, which may be ing AFC on its Oswego Steam Station Unit P6 and Nine Mile higher than now estimated, will ultimately be allowed to be Point Nuclear Station Unit k2 at a rate which is reduced to recovered in the rate process, although no such assurance reflect the income tax effect of the interest portion of AFC. can be given.

Effective January 1, 1977, the FERC issued an order revis-Revenues: Revenues are based on cycle billings rendered ing its accounting procedures for determination of the rate for computing AFC and requiring segregation of AFC into its to certain customers monthly and others bi-monthly. The Company does not accrue revenues at the end of any fiscal two component parts, borrowed funds and other funds. The period in respect of energy sold but not billed at such date as revision did not have any effect on income in 1977. The Com-a result of this cycle billing method. The Company's tariffs pany, since January 1, 1977, has reflected the borrowed funds include electric and gas adjustment clauses under which component in the Interest Charges section of the income statement. The Company has not reclassified AFC into its energy and purchased gas costs, respectively, above or below the levels allowed in approved rate schedules are borrowed and other funds components for periods prior to billed or credited to customers. Effective January 1, 1974, the January 1, 1977 since, prior to 1977, rates were not required to be separately determined for the cost of borrowed funds Company adopted the policy of charging operations for energy cost increases in the period of recovery (see Note 3).

and the cost of other funds. Therefore, the Company believes Effective September 1, 1975, the Company began deferring that such reclassification would be inappropriate since the similar purchased gas costs as directed by the PSC, which allocation between the borrowed and other components for prior periods would not be comparable to the components of change did not have a material effect on income.

AFC determined subsequent to December 31, 1976, by using Federal income Taxes: The general policy, in accordance the FERC formula. with PSC requirements, is to flow-through the effect of The cost of current repairs and maintenance is charged to accounting-tax differences; that is, record only income taxes expense. Whenever utility plant is retired, the original cost of currently payable. However, deferred taxes are provided on such utility plant, together with the cost of removal, less sal- the additional depreciation charges, resulting from using vage, is charged to accumulated depreciation. shorter depreciable tax lives, the interest portion of AFC on Depreciation: For general accounting purposes, deprecia- certain plants (as discussed above) and certain other items as tion of utility plant is computed on the straight-line basis approved by the PSC. Effective as of January 1, 1975, the using the estimated useful lives by classes of depreciable benefits resulting from a temporary increase in the invest-property. For Federal income tax purposes, the Company ment tax credit from 4/o to 10/o and from the temporary computes depreciation using accelerated methods and shor- change in the limitation on the amount of credit which may ter allowable depreciabie lives. be claimed in any year have been deferred. Other than for these increased benefits, investment tax credits are applied Amortization of Nuclear Fuel and Nuclear Generating Plant currently as a reduction of taxes. No deferred taxes are Decommissioning Costs: The cost of nuclear fuel plus esti- provided for other depreciation differences, except under mated reprocessing and storage costs is charged to operat- necessity certificates in prior years, or for other expenditures ing expenses on the basis of the quantity of heat produced (principally other AFC, taxes, pensions and certain other for the generation of electric energy. These costs, which are employee benefits) which are deducted currently for tax pur-net of an estimated residual value of uranium to be recovered poses but are capitalized for accounting purposes.

at the time of reprocessing, are charged to customers through base rates or through the fuel adjustment clause. Pension Plans: The cost of pension plans is based upon Events during 1977 and recently proposed federal action current costs, amortization of unfunded past service benefits could result in the abandonment of reprocessing plans since over periods ranging from 25 to 40 years and amortization there is no reprocessing facility presently in operation and it over 15 years of unfunded past service benefits arising from has been proposed that reprocessing be deferred indefinite- plan amendments since inception.

NOTE 2. Depreciation has a $ 50,000,000 Acceptance Facility Agreement expiring The percentage relationship between the total provision for May 31, 1978, which m'ay be used to finance the seasonal depreciation and average depreciable property was 2.70/o in build-up of fuel oil inventory at one of its major generating 1977, 2.84/o in 1976, 2.84/o in 1975, 2.83%%d in 1974 and 2.83/o locations. Substantially all short-term borrowings are made in 1973. The Company makes depreciation studies on a con- at the prevailing prime interest rate for each respective tinuing basis and adjusts the rates of its various classes of lender.

depreciable property, subject to PSC approval, when con- With respect to most of its lines of credit, the Company sidered appropriate. Effective December 1, 1976, consistent maintains compensating balances which are averaged over with a PSC rate decision in November 1976, electric deprecia- time. At December 31, 1977, approximately $ 1,000,000 of tion provisions were modified resulting in a reduction in de- cash represented compensating balances.

preciation expense of $ 4,300,000 for the year 1977. NOTE 7. Sharing of Generating Plants NOTE 3. Accounting Change During 1975, the Company sold a 24/o interest in the own-ership of Unit t6 under construction at its Oswego Steam Effective January 1, 1974, as permitted by a PSC policy Station and a 59/o interest in the ownership of Unit P2 under statement, the Company changed its accounting for the in- construction at its Nine Mile Point Nuclear Station for approx-

'reased energy costs above or below the levels allowed in imately $ 53,366,000. The Company also acquired a 22'/o approved rate schedules to defer those costs until the time interest in the ownership of Rochester Gas and Electric Cor-they are billed to customers, thus achieving a better matching poration's proposed Sterling Nuclear Station for an initial of revenue and expense. This accounting change, net of de- investment of approximately $ 4,337,000.

ferred income taxes of $ 3,170,000, resulted in an increase in net income for 1974 of $ 34,629,000 ($ .82 per share), of which NOTE 8. Capital Stock

$ 25,223,000 ($ .60 per share) was credited to income before On May 7, 1976, by an amendment to the Certificate of cumulative effect of accounting change and $ 9,406,000 ($ .22 Incorporation, each authorized but unissued share of prefer-per share), net of deferred income taxes of $ 400,000, rep- red stock and preference stock was changed into four shares resented the cumulative effect to January 1, 1974 of the ac-with a par value of $ 25 each. Premium on capital stock in-counting change. Effective March 1975, the PSC required the creased $ 20,150,000 in 1977 and $ 64,738,000 in 1976 from the Company to make changes in its electric adjustment clause. sale of 1,371,311 and 5,367,766 shares of common stock, re-As a result, approximately $ 31,000,000 of then unrecovered spectively. As a result of the foregoing and the issuance of deferred energy costs are being recovered through the elec-1,200,000 shares of preferred stock in 1976, capital stock ex-tric adjustment clause over a period of 36 months.

pense increased $ 115,000 and $ 390,000 in 1977 and 1976, respectively.

NOTE 4. N M Uranium, Inc.

In January 1978, the Company, through a private place-During 1976, through a newly created wholly-owned sub- ment, will sell 1,600,000 shares of preferred stock, 8%/o sidiary, N M Uranium, Inc., the Company purchased a 50 per- series for $ 40,000,000.

cent undivided interest in uranium deposits and associated mining equipment for approximately $ 52,500,000 consisting NOTE 9. Pension Plans of $ 34,500,000 cash and $ 18,000,000 in 7~/4%%d notes payable The Company and its subsidiaries have non-contributory guaranteed by the Company (see page 20). The acquisition of pension plans covering substantially all their employees. The this interest was made to provide a more assured future sup- total pension cost was $ 22,489,000 for 1977, $ 20,762,000 for ply of nuclear fuel for the Nine Mile Point Nuclear Stations. 1976, $ 18,825,000 for 1975, $ 15,589,000 for 1974 and The net assets, including costs incurred since acquisition of $ 13,947,000 for 1973 (of which $ 4,668,000 for 1977, the subsidiary, have been included in Utility Plant in the con- $ 3,878,000 for 1976, $ 3,344,000 for 1975, $ 3,755,000 for 1974 solidated financial statements. and $ 3,565,000 for 1973, are included in construction costs).

The Company's policy is to fund pension costs accrued.

NOTE 5. Replacement Cost (Unaudited) Preliminary studies indicate that the estimated amount of vested benefits at December 31, 1977 exceeded the net assets Because of inflation, the cost of replacing the Company's of the funds by approximately $ 83,000,000.

plant in service today would exceed the amounts actually Amendments to the Company's pension plan resulting spent for such facilities and reported in the Company's finan- from the Employee Retirement Income Security Act of 1974 cial statements. The Company believes that any higher and periodic collective bargaining agreements did not have a replacement costs it may experience will be recovered significant effect on the Company's annual contribution to through the normal regulatory process. The Company has the fund or on unfunded vested benefits.

computed the replacement cost data in accordance with Securities and Exchange Commission requirements and NOTE 10. Commitments such data are reported in its Form 10-K.

The Company presently estimates that the construction NOTE 6. Lines of Credit and Compensating Balances program for the years 1978 through 1980 will require over

$ 716,000,000, excluding AFC and certain overheads At December 31, 1977, the Company had available bank capitalized. At December 31, 1977 substantial construction lines of credit aggregating $ 124,500,000 which are renewable commitments exist, including those for the Company's share on an annual basis. The banks have the option of terminating of Unit P2 at Nine Mile Point Nuclear Station, Unit AS at

$ 69,500,000 of the lines at any time. In addition, the Company Oswego Steam Station and the Sterling Nuclear Station.

NOTE 11. Information Regarding the Electric nal Revenue Service audit for the year 1969, the Company has and Gas Businesses requested a deduction for "guideline" depreciation yielding a The Company is engaged in the electric and gas utility tax benefit of approximately $ 7,300,000, including interest, businesses. Certain information regarding these segments which has been recorded as a receivable.

for the year ended December 31, 1977 is set forth below. The tax depreciation benefits and accrued interest were General corporate expenses, property common to both seg- recorded in Deferred Credits at December 31, 1975 pending ments and depreciation of such common property have been resolution of the proper accounting and ratemaking treat-allocated to the segments in accordance with practices es- ment, as discussed below. During 1975 the PSC issued an tablished for regulatory purposes. Corporate assets consist order directing the Company to refund to its customers ap-of other property and investments, cash, accounts receivable, proximately $ 12,400,000, which represents the 1966 to 1968 income tax refund claims, prepayments, unamortized debt tax refunds and interest, reduced by the tax assessments and expense and other deferred debits. interest previously paid for such years, and an allowance for a ln thousands of dollars retention by the Company. The Company sought by court ELECTRIC GAS TOTAL review a rescission of the order. By decision dated April 28, Operating revenues ..... $ 987,760 $ 238,072 $ 1,225,832 1976, the New York Supreme Court ruled that the PSC lacked Operating expenses statutory authority for its action and that its order must be Depreciation ...... 68,400 8,713 77,113 annulled. The PSC appealed from the judgment and order Other, excluding entered thereon to the Appellate Division which, although income taxes .... 742,541 203,556 946,097 issuing an opinion dated November 10, 1976 unanimously Total .. 810,941 212,269 1,023,210 affirming such judgment and order, stated the PSC may con-sider "this acquired money when a future rate adjustment is Operating income requested."

before income taxes... 176,819 25,803 202,622 In an. Opinion and Order on the Company's rate proceed-AFC. 33,991 153 34,144 ing, dated November 16, 1976, the PSC directed that the Pretax operating income, $ 12,400,000 "be treated as customer contributed capital with including AFC ........ $ 210,810 $ 25,956 236,766 a zero cost." The PSC, however, reserved the right to treat Income taxes ...... 22,124 such amount differently in a future rate proceeding contin-Other income and gent on the then prevailing circumstances. On August 4, deductions, net .. 3,645 1977, the Appellate Division, after an appeal by the Company, Interest charges ... 94,455 affirmed the PSC's treatment. The Company on September 1,

$ 123,832 1977 filed a petition for a reargument of the decision or alter-Net income natively, leave to appeal to the Court of Appeals. The petition Construction expendi- was denied by the Court's decision dated October 14, 1977.

tures (including Subsequently, the Company filed a motion with the New York nuclear fuel) .......... $ 277,828 $ 12,103. $ 289,931 State Court of Appeals for leave to appeal; the motion was Identifiable assets: denied January 17, 1978. Presently, the Company is consider-Utilityplant, net ....... $ 2,428,623 $ 283,439 $ 2,712,062 ing what legal recourse it may pursue, if any.

Material and supplies .. 104,653 1,656 106,309 The portion of the refunds and accrued interest for the Deferred recoverable years 1966 through 1968, previously included in Deferred energy costs........ 19,170 5,781 24,951 Credits totaling approximately $ 9,000,000 ($ .17 per share),

Co'rporate assets........ 175,732 that was no longer subject to a future contingency was Total assets $ 3,019,054 credited to Other Income in 1976. The remaining tax depre-ciation benefits and accrued interest through December 31, The Company provides electric and gas service to approx- 1977 approximating $ 19,700,000 are recorded in Deferred imately 15,000 federal, state and local governmental agency Credits. The PSC indicated it would consider the accounting locations. During the year ended December 31, 1977, approx- and ratemaking treatment of the 1969 refund when received.

imately $ 122,000,000 of revenue was received from these Net Operating Tax Loss: During 1977, 1976 and 1975 the agencies.

Company utilized $ 300,000, $ 20,100,000 and $ 22,600,000, Pretax operating income, including AFC, was $ 180,077,000 respectively, of the available net operating tax loss carry-electric, $ 24,340,000 gas for 1976; $ 197,788,000 electric, forward. There is no net operating tax loss carryforward at

$ 20,787,000 gas for 1975; $ 143,947,000 electric, $ 15,721,000 December 31, 1977.

gas for 1974 and $ 108,938,000 electric, $ 12,467,000 gas for 1973. Investment Tax Credits: The Company has deferred the benefit of investment tax credits approximating $ 6,800,000 NOTE 12. Federal and Canadian Income Taxes ($ .12 per share), $ 5,300,000 ($ .10 per share) and $ 12,500,000 Income lax Refunds: Operations for the years 1974 and ($ .27 per share) for the years ended December 31, 1977, 1976 1973 include credits of $ 4,700,000 and $ 5,400,000, respec- and 1975, respectively, in accordance with the general policy tively, attributable to the carryback benefits of net operating as stated in Note 1.

tax losses. The Company has unused credits at December 31, 1977 of The Company received refunds in 1974 and 1975 totaling approximately $ 39,900,000 which may be utilized to reduce

$ 21,400,000, including interest, as a result of the retroactive future tax expense, of which $ 7,900,000 expires in 1981, adoption of "guideline" lives in computing tax depreciation $ 13,700,000 in 1982, $ 7,600,000 in 1983 and $ 10,700,000 in for the years 1966 through 1968. In connection with the lnter- 1984.

18

Income Tax Assessment: In October 1972, the Company at Niagara Falls terminated in connection with the rede-paid a net assessment of $ 16,800,000 of additional Federal velopment of Niagara power by the Power Authority of the income tax for the years 1957 through 1962 relating to the State of New York. The Company has instituted suit for re-deductions taken for the loss of the Company's water rights covery of this amount.

In thousands of dollars Summary Analysis: 1977 1976 1975 1974 1973 Components of Federal and Canadian income taxes Current tax expense:

Federal $ 434 $ (5,500) $ (7,700)

Canadian 3,314 $ 2,550 $ 2,830 1,730 1,770 3,748 2,550 2,830 (3,770) (5,930)

Deferred Federal income tax expense 18,376 15,346 11,800 (280) 3,359 Income taxes included in operating expenses 22,124 17,896 14,630 (4,050) (2,571)

Income taxes included in other income and deductions (5,043) (718)

Total $ 17,081 $ 17,178 $ 14,630 $ (4,050) $ (2,571)

Timing differences resulting in deferred Federal income taxes (see Note 1)

Depreciation $ 7,146 $ 6,223 $ 1,313 $ 985 $ 2,767 Cost of removal of property . 245 566 (899) (750) 1,292 Investment tax credit . 6,766 ~

5,313 12,523 Necessity certificates . (700) (700) (700) (700) (700)

Recoverable energy and purchased gas costs .............. 69 3,650 (477) 2,770 Pension costs under the age retirement allowance plan ..... (2,585)

Other 4,850 294 40

$ 18,376 $ 15,346 $ 11,800 $ (280) $ 3,359 Reconciliation between Federal and Canadian income taxes and the tax computed at prevailing U.S. statutory rates (48%) on income before income taxes and cumulative effect of accounting change Computed tax $ 67,638 $ 60,301 $ 62,124 $ 39,579 $ 29,056 Reduction attributable to flow-through of certain tax adjustments:

Depreciation . 19,703 19,741 20,123 16,602 14,186 Allowance for funds used during construction ................. 16,389 9,942 14,100 13,426 8,745 Taxes, pensions and employee benefits capitalized for accounting purposes 7,071 5,731 7,920 7,112 4,336 Real estate taxes on an assessment date basis................. 1,042 2,813 3,035 4,415 2,373 Release of accrued Federal income taxes no longer required ..... 800 2,300 Income tax refunds 619 4,313 Other . 5,733 583 2,316 1,274 (313) 50,557 43,123 47,494 43,629 31,627 Federal and Canadian income taxes $ 17,081 $ 17,178 $ 14,630 $ (4,050) $ (2,571)

NOTE 13. Quarterly Financial Data (Unaudited) In thousands of dollars Operating Operating Net Earnings per Operating revenues, operating income, net income and Quarters ended revenues income income common share earnings per common share by quarters for 1977 and 1976 December 31 are shown in the following table. The Company, in its opinion, 1977 $ 309,348 $ 38,100 $ 24,001 $ .31 has included all adjustments (consisting only of normal re-1976 $ 273,280 $ 36,271 $ 29,333 $ .41 curring accruals, except for that portion of the income tax refunds included in Other Income in the quarter ended De- September 30 cember 31, 1976 as described in Note 12) necessary for a fair 1977 $ 282,209 $ 35,488 $ 21,409 $ .27 statement of the results of operation for the quarters. Due 1976'228,556 $ 30,050 $ 13,619 $ .15 to the seasonal nature of the utility business, the annual June 30 amounts are not generated evenly by quarter during the year. 1977 $ 281,762 $ 42,647 $ 28,902 $ .40 1976 $ 255,590 $ 41,970 $ 24,370 $ .37 March 31 1977 $ 352,513 $ 64,263 $ 49,520 $ .77 1976 $ 319,804 $ 57,519 $ 41,127 $ .70 19

Summary of Electric and Gas UtilityPlant In thousands of dollars At December 31, 1977 o/o 1976 Utilityplant:

Electric plant . $ 2,625,797 74 $ 2,542,786 Nuclear fuel (Note 4) . 82,170 78,610 Gas plant 341,010 10 333,882 Common plant . 57,584 2, 56,494 Construction work in progress 446,999 12 292,300 Total utility plant $ 3,553,560 100 $ 3,304,072 Long-Term Debt In thousands of dollars At December 31, 1977 1976 First Mortgage Bonds:

23/4'/0 Series due January 1, 1980 40,000 40,000 2r/e'/0 Series due October 1, 1980 40,000 40,000 12.6% Series due October 1, 1981 125,000 125,000 3s/8 /0 Series due December 1, 1981 . 15)000 15,000 3~/2!o Series due February 1, 1983 25,000 25,000 3~/4'/0 Series due October 1, 1983 40,000 40,000 3~/s /0 Series due August 1, 1984 25,000 25,000 10s/a'/o Series due September 1, 1985 . 47,000 50,000 3s/s'/o Series due May1, 1986 . 30,000 30,000 4rls'/o Series due September 1, 1987 . 50,000 50,000 37/s% Series due June 1, 1988. 50,000 50,000 43/4'/0 Series due April 1, 1990 . 50,000 50,000 4~/2% Series due November 1, 1991. 40,000 40,000 4s/e /o Series due December 1, 1994. 40,000 40,000 57/s /o Series due November 1, 1996. 45,000 45,000 6~/4 /o Series due August 1, 1997 40,000 40,000 6'/2'/o Series due August 1, 1998 60,000 60,000 9~/e'/0 Series due December 1, 1999. 75,000 75,000 7.%/o Series due February1, 2001 65,000 65,000 7%'/o Series due February 1, 2002 80,000 80,000 7'/4'/o Series due August 1, 2002 80,000 80,000 8'/4'/o Series due December 1, 2003. 80,000 80,000 10.2/o Series due March 1, 2005 50,000 50,000 8.35/0 Series due August 1, 2007 75,000 8s/s'/o Series due December 1, 2007. 50,000 Paul Smith's Electric Light & Power &

. Railroad Company First Mortgage Bonds:

4~/z% Series due July 1, 1979 . 450 450 5~/2/0 Series due May 1, 1985 . 450 450 Promissory Note, 8 lo Series A due June 1, 2004 ............. 46,600 46,600 Notes payable:

7s/4'/0 due in equal installments, November 1, 1978, 1979 and 1980(Note 4) ............... 18,000 18,000 Prime rate plus '/2 /0 (not to exceed 7~/~'/0) due in 24 equal quarterly installments commencing July1, 1978 ....... 15,000 Unamortized premium 7/1 37 7,769 Total long-term debt 11404,637 1,268,269 Less long-term debt due within one year... 10,250

$ 1,394,387 $ 1,268,269 20

Preferred Stock Cumulative preferred stock, authorized 3,400,000 shares, $ 100 par value and 9,600,000 shares, $ 25 par value Redemption price per share (Before adding accumulated In thousands of dollars dividends)

Eventual At December 31, 1977 1976 December 31, 1977 Minimum

$ 100 Par Value 3.40% Series; 200,000 shares... $ 20,000 $ 20,000 $ 103.50 $ 103.50 3.60% Series; 350,000 shares... 35,000 35,000 104.85 104.85 3.90% Series; 240,000 shares... 24,000 24,000 106.00 106.00 4.10% Series; 210,000 shares... 21,000 21,000 102.00 102.00 4.85% Series; 250,000 shares... 25,000 25,000 102.00 102.00 5.25% Series; 200,000 shares... 20,000 20,000 102.00 102.00 6.10% Series; 250,000 shares... 251000 25,000 103.00 101.00 7.45% Series; 600,000 shares... 58,200 60,000 106.49 100.00 7.72% Series; 400,000 shares... 40,000 40,000 107.37 102.36 10.60% Series; 400,000 shares... 40,000 40,000 110.60 102.65 11.75% Series; 300,000 shares... 30,000 30,000 111.75 102.75

$ 25 Par Value 9.75% Series; 1,200,000 shares . 30,000 30,000 27.31 25.00 Total preferred stock 368,200 370,000 Less sinking fund requirements . 1,800 1,800

$ 366,400 $ 368,200 Certain of the Company's preferred stock series provide for a mandatory sinking fund for the annual redemption, at par, as follows:

Number of shares Beginning

$ 100 Par Value 7.45% Series 18,000 June 30, 1977 10.60% Series 20,000 March 31, 1980 11.75% Series 15,000 September 30, 1980

$ 25 Par Value 9.75% Series 66,000 October 1, 1980 These series also have optional sinking funds through which the Company may at its option redeem, at par, a like amount of additional shares (limited to a total of 120,000 shares for the 7.45% Series and 300,000 shares for the 9.75% Series).

Report of Independent Accountants PRICE WATERHOUSE & CO. Syracuse, New York To the Stockholders and the Board of Directors January 25, 1978 of Niagara Mohawk Power Corporation We have examined the consolidated balance sheets of years. The accounting disposition of a part of the refunds'or Niagara Mohawk Power Corporation and its subsidiaries as 1966 through 1968 and the refund to be received with respect of December 31, 1977 and 1976 and the related consolidated to 1969 has been deferred pending possible court review of statements of income and retained earnings and of changes the New York State Public Service Commission treatment of in financial position for the five years ended December 31, the 1966 through 1968 refunds and receipt of the 1969 refund 1977. Our examinations of these statements were made in by the Company.

accordance with generally accepted auditing standards and In our opinion, subject to the eftect, if any, upon the finan-accordingly included such tests of the accounting records cial statements of the matter referred to in the preceding and such other auditing procedures as we considered neces- paragraph, the consolidated financial statements examined sary in the circumstances. by us present fairly the financial position of Niagara Mohawk The Company, effective January 1, 1974, changed its ac- Power Corporation and its subsidiaries at December 31, 1977 counting for increased energy costs to defer these costs until and 1976, and the results of their operations and the changes the time they are billed to customers as permitted by a New in their financial position for the five years ended December York State Public Service Commission policy statement as 31, 1977 in conformity with generally accepted accounting further discussed in Notes 1 and 3. principles consistently applied during the period except for As discussed in Note 12, the Company has received or re- the change, with which we concur, referred to in the second quested refunds of Federal income taxes for the years 1966 paragraph of this report.

through 1969 as a result of the retroactive adoption of "guideline" lives in computing tax depreciation for such 21

Financial Statistics Capitalization ratios: 1977 1976 Common stock equity 35.5/o 36.0/o Preferred stock 13.4 14.4 Long-term debt 51.1 49.6 Ratio of earnings to fixed charges 2.49 2.35 Ratio of earnings to fixed charges and preferred stock dividends .. 1.90 1.82 Other ratios  %%d of operating revenues:

Maintenance and depreciation 13.2 13.3 Taxes 14.0 13.9 Operating income 14.7 15.4 Balance available for common stock 8.0 7.9 Ratio of depreciation reserve to gross utility plant 23.7 /o 23.6 /o Ratio of mortgage bonds to net utility plant 48.6/o 47.4/o Electric Capability Thousands of kilowatts Thermal At December 31, 1977 '/o 1976 Coal fuel Huntley, Niagara River 831 11 831 Dunkirk, Lake Erie 640 9 640 Total coal fuel 1,471 20 1,471 Residual oil fuel Albany, Hudson River 400 5 400 Oswego, Lake Ontario . 1,225 17 1,025 Roseton, Hudson River 480 7 480 Middle distillate oil fuel 20 Combustion turbine and diesel units 354 5 355 Total oil fuel 2,459 34 2,260 Nuclear fuel Nine Mile Point, Lake Ontario 610 8 610 Purchased firm contract Power Authority FitzPatrick, Lake Ontario .. 184 2 193 Total nuclear fuel 794 10 803 Total thermal sources 4,724 64 4,534 Hydro Owned and leased hydro stations (81 in 1977) ............... 737 10 731 Purchased firm contracts Power Authority Niagara River. 1,172 16 1,195 Power Authority St. Lawrence River. 115 2 115 Power Authority Blenheim-Gilboa Pumped Storage Plant . 550 7 550 Other 74 1 74 Total hydro sources 21648 36 2,665 Total capability* 7,372 100 7,199 Electric peak load during year Total system demand. 6,935 6,327 Net system demand . 5,405 5,385 Available capability can be increased during heavy load periods by purchases from neighboring interconnected systems. Hydro station capability is based on average December stream-flow condi-tions. Total system demand includes sales to other utilities; net system demand excludes such sales.

22

Electric and Gas Statistics Electricity generated and purchased: 1977 o/o 1976 o/o (Millionsof kw-hrs.)

Thermal:

Generated Coal . 7>579 22 7,262 20 Oil 8>293 24 6,262 18 Nuclear 2>946 8 4,113 12 Purchased Nuclear from Power Authority . 911 3 1,097 3 Total thermal 19,729 57 18,734 53 Hydro:

Generated 3,782 11 4,213 12 Purchased from Power Authority . 8,851 26 10,222 29 Total hydro 12,633 37 14,435 41 Other purchased power various sources 1,926 6 2,069 6 Total generated and purchased. 34,288 100 35,238 100 Electric sales: 1977 1976 Gas sales: 1977 1976 (Millionsof kw-hrs.) (Millionsof cubic feat)

Residential 7,895 7,766 Residential . 52,684 57,166 Commercial . 8,770 8,407 Commercial . 20,305 23,565 Industrial 11,878 11,575 Industrial 14,528 15,673 Municipal service...... 276 274 Other gas systems .... 3,310 3,711 Other electric systems . 2,548 3,780 90,827 100,115 31,367 31,802 Gas revenues:

Electric revenues: (Thousands of dollars)

(Thousands of dollars) Residential $ 150,510 $ 133,107 Residential $ 304,229 $ 263,663 Commercial . 51,512 49,098 Commercial 325,985 272,315 Industrial 29>336 25,368 Industrial 253,690 204,018 Other gas systems ..... 5>595 5,388 Municipal service ...... 20,905 17,851 Miscellaneous . 1,119 1,257 Other electric systems . 58,601 82,622 $ 238,072 $ 214,218 Miscellaneous . 24,350 22,543

$ 987,760 $ 863,012 Gas customers:

(Average)

Electric customers: Residential 384,197 386,805 (Average) Commercial 28,632 29,183 Residential 1,187,318 1,178,314 Industrial 540 537 Commercial 128,070 128,155 Other 2 2 Industrial . 2,876 2,932 413,371 416,527 Other 2,235 2,203 1,320,499 1,311,604 Residential:

(Average)

Residential: Annual use per customer (Thousands (Average) of cubic feet) . 137.1 147.8 Annual kw-hr. use per customer... 6,649 6,591 Cost to customer (per thousand Cost to customer per kw-hr....... 3.85lt 3.40tt cubic feet) $ 2.86 $ 2.33 Annual revenue per customer..... $ 256.23 $ 223.76 Annual revenue per customer....... $ 391.75 $ 344.12 Maximum day gas sendout (Thousands of cubic feet) ........... 660,974 743,979 23

Officers Directors Annual Meeting John G. Haehl, Jr. James Bartlett The annual meeting of President and Chief Executive Officer Executive Vice President, Syracuse stockholders willbe held on James Bartlett Thomas J. Brosnan May 2, 1978 at the Executive Vice President Consultant (formerly Vice President Research and Company's principal office James J. Miller Development, Environmental Matters), Syracuse in Syracuse. A formal notice Senior Vice President of meeting;proxy statement Edmund M. Davis and proxy form will be sent Richard F. Torrey Partner, Hiscock, Lee, Rogers, Henley & Barclay, to holders of common stock Senior Vice President attorneys-at-law, Syracuse in early April. William J. Donlon Edward W. Duffy Senior Vice President Chairman of the Board and Chief Executive Officer, Transfer Agents John H. Terry Marine Midland Banks, Inc., a bank holding company, Preferred Stock: Senior Vice President, General Counsel and Buffalo Marine Midland Bank- Secretary New York Edmund H. Fallon Richard C. Clancy Vice President 2 Broadway Executive Consultant, Agway, Inc., purchasing and New York, N.Y. 10004 Research and marketing organization, Syracuse Environmental Affairs Common Stock: John G. Haehl, Jr.

O. Mark DeMlchele Morgan Guaranty Trust Company of New York Vice President Public Relations President and Chief Executive Officer, Syracuse 30 West Broadway Donald P. Disc Edwin F. Jaeckle New York, N.Y. 10015 Vice President Engineering Senior Partner, Jaeckle, Fleischmann & Mugel ~

iElected October 6, 1977) attorneys-at-law, Buffalo Disbursing Agent John J. Ehllnger Ralph F. Leach Preferred and Common Vice President Employee Relations Former Chairman of Executive Committee, Morgan Stocks: John M. Endrles Guaranty Trust Company of New York, commercial bank, Niagara Mohawk Power Vice President and Controller New York Corporation Richard A. Flynn, Jr. Lauman Martin 300 Erie Boulevard West Syracuse, N.Y. 13202 Vice President Consumer Relations Consultant (formerly Senior Vice President and General IRetired February f5, 1978) Counsel), Syracuse Stock Exchanges William C. Franklin Common and Certain Vice President Purchasing Baldwin Maull Director of various corporations, New York Preferred Series: John M. Haynes Listed on New York Stock Vice President and Treasurer Martha Hancock Northrup Exchange

• Housewife, former President, Grouse-Irving Memorial Eugene J. Morel Common Stock:

Vice President Employee Services and Risk Hospital Board, Syracuse Also traded on Amsterdam Management Frank P. Plskor Netherlands), Boston, James F. Morrell President, St. Lawrence University, Canton incinnati, Detroit, Midwest, Pacific Coast and PBW stock Vice President Corporate Planning Lewis A. Swyer exchanges. Gerald K. Rhode President, L.A. Swyer Company, Inc., builders and Vice President System Project construction managers, Albany Ticker Symbol: NMK Management Dean P. Taylor IEtected October 6, 1977) Senior Partner, Wager, Taylor, Howd, Brearton & Kessler, Form 10.K Report Rudolph R. Schnelder attorneys-at-law, Troy A copy of the Company's Form 10-K report filed Vice President Electric Production fDeceased October 18, 1977) annually with the Securities Kenneth A. Tramutola John G. Wick and Exchange Commission Vice President Rates President and Chief Executive Officer, Merchants is available after March 31, Robert M. Cleary, Jr. Insurance Group, Buffalo 1978 by writing the Vice Vice President and General President and Treasurer at Manager Western Division BOARD COMMITTEES 300 Erie Boulevard West, Raymond Kolarz Syracuse, N.Y. 13202. Vice President and General Executive Committee The information in this report is not Manager Central Division John G. Haehl, Jr., Chairman Edmund H. Fallon given in connection with the sale of, or Richard H. Kukuk Edwin F. Jaeckle ofter to buy, any security, Vice President and General Ralph F. Leach Printed In U.S.rt. Manager Eastern Division Baldwin Maul l Edward P. Gueth, Jr. John H. Terry, Secretary Assistant General Counsel Pension Committee Herman B. Noll Edmund H. Fallon, Chairman Assistant General Counsel Edmund M. Davis Anthony J. Baratta, Jr. Baldwin Maull Assistant Controller Salary Committee Adam F. Shaffer Baldwin Maull, Chairman Assistant Controller Edwin F. Jaeckle Henry B. Wightman, Jr. Ralph F. Leach Assistant Controller Audit Committee John W. Powers Edward W. Duffy, Chairman Assistant Treasurer Lewis A. Swyer Harold J. Bogan Frank P. Piskor Assistant Secretary Committee on Corporate Public Policy Joseph F. Cleary Assistant Secretary Eastern Division Frank P. Piskor, Chairman Martha H. Northrup Frederick C. McCall Edmund H. Fallon Assistant Secretary Western Division Finance Committee Ralph F. Leach, Chairman John G. Wick Edmund M. Davis 24

L. Martin E.H. Fallon L.A. Swyer M.H. Northrup E.W. Duffy T.J. Brosnan E.M. Davis J.G. Wick F.P. Piskor J. Bartlett E.F. Jaeckle 4~

7 NIAGARA U MOHAWK 300 ERIE BOULEVARO WEST SYRACUSE, NEW YORK 13202 cP