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 ofthe nation's leading investor-owned utilities, with the largest service area in New YorkState. Electricity from our massive system, ex-prdBB<

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within our electric service area. Two Cana-dian subsidiaries, St. Lawrence Power Company and Canadian Niagara Power Company, Ltd., provide electric ser-vice to parts ofsouthern Ontario.

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Electric Service Area D

Natural Gas Service Area D

Electric and Gas Service Area Lines Planned or in Progress

~~~~ Niagara Mohawk (765,000 volts)

~ Niagara Mohawk

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Other Utilities

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

Gpstate New Yorkconsumers. Niagara Nohawk people.

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

Notjust today, but through the critical decades ahead.

Highlights of 1977 Contents Total operating revenues Income available for common stockholders Earnings per common share Dividends per common share Common shares outstanding (average)

Utilityplant (gross)

Gross additions to utilityplant Kilowatt-hoursales to customers Electric customers at end of year Electric peak load (kilowatts) 1977 1976

% Change

$1,225,832,000

$1,077,230,000 14 98,127,000 84,903,000 16

$1.74

$1.61 8

$1.31'/2

$1.24 6

56,278,556 52,731,329 7

$3,553,560,000

$3,304,072,000 8

289,931,000 282,702,000 3

31,367,000,000 31,802,000,000 (1) 1,326,000 1,317,000 1

6,935,000 6,327,000 10 Natural gas sales to customers(cubic feet) 90,827,000,000 100,115,000,000 (9)

Gas customers at end of year 413,000 416,000 (1)

Maximum day gas sendout (cubic feet) 660,974,000 743,979,000 (11) 2 Letter to Stockholders 4

Management Study, Financial Summary 5 Electric and Gas Revenues 6

Gas Supply, Rate Increases, Operating Expenses 7

Revenue Dollar, Dividends, Securities 8 Construction Program 9

Shared Generation Plans 10 Research and Development, Environmental Projects 12 Consumer Advisory Council, Employees, Stockholders 13 Financial Statements 22 Statistics 24 Stockholder Information, Officers, Directors EARNINGS PER TOTAL OPERATING REVENUES COMMON SHARE (RESTATED)

Dollars Afllllonsoldollars DIVIDENDS PER COMMON SHARE Dollars 1600 2.40 1.60 1200 1.80 1.20 800 1.20

.80 400

.60

.40 1973 1974 1975 1976 1977 1973

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1974 1975 1976 1977 1973 1974 1975 1976 1977

To our stockholders Our earnings for 1977 were $ 1.74 per share ofcommon stock, com-pared with $ 1.61 in 1976 when fewer shares were outstanding. This improvement resulted primarily from electric and natural gas rate increases granted by the New York State Public Service Commission in late 1976.

Although earnings were improved by the revised rates, they still fell far short of budgeted expectations and an adequate return on stockholders'nvestment.

Inflationary elements kept eroding earnings projections despite our continued assault on ris-ing costs. To counter these pres-sures we are continuing to apply strict controls on manpower and are employing effective management techniques to produce the advances in productivity and crea-tive innovation described in the followingpages.

On August 5, we again filed with the Public Service Commission for higher rates. Estimated cost hikes and income projections through mid-1979 indicate rate relief is a must to maintain earnings quality.

As in the past, we willcontinue to pursue rate revisions as may be necessary.

This year's report highlights the ul-timate importance placed upon the future ofour business and its role as upstate New York's principal energy supplier. We have always looked ahead to plan and supply our ser-vice area's electric and gas needs.

However, in view of recent evidence, new trends in various social and economic conditions have required modification of both long and short-term sales growth projections.

Overall electric sales decreased 1X, the mixed result of lethargic recov-ery from economic recession, impact ofthe energy conservation ethic and resistance to higher electric and gas charges as an in-creasing element in customer budgets. Presently, indicators point to very moderate growth in all mar-ket sectors. We are encouraged over a change to a more positive attitude toward business indicated in statements by government offi-cials and we are hopeful the tempo ofthe economy willrise. But the conservation ethic, spurred by necessary increases in the cost of our services, is a restraining growth factor. Instead of a 4X growth pro-jection, a 2.5% increase now ap-pears more realistic.

Thus, in light of 1977's electric load forecast revisions, we have re-scheduled construction ofour Nine Mile Point Nuclear Gnit No. 2 for completion in 1983. Meanwhile, we are progressing with a 14-year plan to expand our existing hydroelectric capacity by more than 30K. High electric generation fuel costs make development of once-uneconomic hydro sites competitive with steam-electric units forthe firsttime in decades. In addition, our Re-search and Development Depart-ment is seeking alternate energy sources, besides enhancing per-formance and environmental com-patibilityofthose in service.

With our mind on the future, we have followed with interest and con-cern Congressional deliberations toward enactment of a National Energy Act. The Act's complicated mixoftaxes, rebates and regulatory reform, when unclothed, appears to be essentially a massive tax bill.We are especially concerned over its potential impact on the cost of fuel for our generating stations.

In our view, the nation would be better served by an effective energy policy to reduce its dependence on imported oil and assure steady, reli-able energy supplies to sustain economic growth. This can only be accomplished through greater domestic production of oil, coal, natural gas and uranium, the dis-covery of new energy sources and easing ofenvironmental restrictions on the mining and use of coal.

Eyeing more secure future supplies of nuclear fuel, our investment in NMUranium, Inc., now totals some

$73 million.This subsidiary owns half of a southeast Texas mining operation that willproduce 500,000 pounds of uranium per year forour Nine MilePoint nuclear units.

Areport on a year-long audit ofour management and operations by ArthurYoung and Company, as di-l rected by the Public Service Com-mission and released in October, was especially gratifying in its rec-ognition that: "The environment at Niagara Mohawk is excellent...

The Company has a nucleus of trained, capable managers who im-

pressed us with their attitude and dedication." Wherever practical, we are implementing the study's rec-ommendations to further upgrade our performance.

Afirst for us in 1977 was formation of an independent Consumer Ad-visory Council on Energy Affairs.

Consisting ofvolunteers from the communities we serve, the Council was conceived to foster better un-derstanding between NMand the public, benefiting both in this era of consumerism. Members'arious suggestions are being incorporated in our practices and procedures.

Our natural gas supply outlook is considerably brighter than in recent years. We were permitted in 1977 by the Public Service Commission to add 5,000 residential gas space heating customers and to increase some commercial and industrial sales, as well as to add some such customers with high priorityuses.

This is the first action to renew mar-kets and to recover portions ofsales denied us since 1975, when con-cern about prospective shortages forced a complete halt on all new sales.

While the price of natural gas is cer-tain to rise, as a result ofthe impact of pending congressional action, we anticipate that gas a clean fuel can continue to be competitive with other fuels in upcoming years.

Again, increasing prices willbring noticeable evidence ofreduction in average customer use through con-servation. The liftingof restrictions willnot affect our abilityto meet emergency supply situations such as occurred in winter 1976-77.

NM's financial posture showed im-provement this year when we re-gained an A rating forour bonds from one ofthe three major rating agencies. This results from our bet-ter earnings-to-debt coverage and lowered financing requirements, thereby reducing the cost of money to us. Allthree agencies currently give our bonds an Arating.

In financing, we sold $75 millionof 8.35%, 30-year first mortgage bonds in August 1977. In De-cember, $50 millionofsimilar bonds were issued through private placement at 8'/eX, and early in 1978 we sold at private placement S40 millionof 8s/eX series preferred stock. Only somewhat limited new public financing willbe necessary for 1978, including probable is-suance ofsome ~40 millionin common stock.

Vfe were pleased to raise our quar-terly dividend to 33'/2 cents a share during the second quarter, our third dividend increase in five years. The indicated annual dividend is now 01.34, up from $ 1.14 in 1973.

Whenever possible, we willadjust dividends to fairlycompensate investors.

The northern New YorkTown of Massena is maintaining its bid, commenced May 1974, to create a municipal electric system by ex-propriating NMfacilities. Recently, the Town secured a court adjudica-tion, now under appeal, permitting it to proceed with condemnation ef-forts. We willprotect the interests of stockholders to the fullest extent by continuing to exert absolute opposi-tion to this effortor any similar takeover threat.

Today more than ever, a motivating influence on each of us in man-agement is the consistent loyaltyof Niagara Mohawk stockholders and employees. For this support, we thank you.

John G. Haehl, Jr.

President and Chief Executive Officer February 1, 1978

Time for action and resolve Our management and operations received high overall ratings in the first phase of an intensive, Public Service Commission-mandated study ofthe Company in 1977. Still under way, the evaluation is yielding numerous recommendations that already are contributing to in-creased productivity and efficiency.

Legislation has been enacted for audit review of all New YorkState utilities every five years. The audits are currently in various stages of planning and examination under the direction ofthe Commission. A management consulting firm,Ar-thur Young 6 Company, has been conducting the NMstudy since 1976.

In their Phase I report, the Young consultants termed the working environment at Niagara Mohawk excellent, adding that our Company has a record of meeting customer needs for energy, achieving operat-ing objectives and minimizing elec-tric interruptions "despite winter operating conditions that are among the most difficultin the nation."

The report also noted that many areas of our operations had been improved followingthe manage-ment restructuring of 1976. Primary recommendations concerned budgeting, major capital projects, emergency and fuel shortage plan-ning, electric and gas losses and power plant operations.

In Phase II,scheduled through mid-1978, the consultants willpro-vide technical assistance in develop-ing and implementing programs and portions ofselected projects re-lated to Phase I recommendations.

Everywhere in our business, con-stant emphasis and attention to controlling expenses prevailed through the year. We are taking all avenues to strengthen our financial stability and combat rising costs, in-cluding measures such as a freeze on work force expansion and strict requirements for fillingvacant posi-tions. Overtime work has been dras-tically reduced.

In 1977, NM's consolidated income available forholders of common stock was $ 1.74 per share, up 130 over 41.61 in 1976 when fewer shares were outstanding. Overall revenues climbed $ 148,602,000 in 1977, 14% higher than for 1976, essentially resulting from rate revi-sions and higher purchased gas and fuel adjustment revenues.

These increases were partially offset by a reduction in revenues from sales to other electric systems. The tables on page 5 show major changes in electric and gas rev-enues and sales.

In 1977 our electric revenues in-creased

$ 124,700,000 compared with $67,100,000 in 1976.

The upturn in electric revenues at-tributable to modified base rates stems from permanent rate in-creases of 452,400,000 annually, effective on December 1, 1976 and

$9,900,000 on June 1, 1977. The June revision was authorized by the PSC to reflect 1977 wage increases.

Electric sales to ultimate consum-ers increased 2.8X compared with a 4.5X rise in 1976.

During 1977, 9,000 customers were added to our electric lines, rais-ing the total to 1,326,000 at year end. Average price per kilowatt-hour paid by residential consumers rose from 3.40 cents to 3.85 cents, about the same unit cost as in 1937.

Natural gas revenues climbed

$23,900,000 in 1977 and

$37,900,000 in 1976. Gas sales de-creased 9.2X in 1977 because of emergency curtailments required in January, warmer weather and con-servation efforts by all customer categories. Sales were 10.8X higher in 1976 than in 1975 due to colder weather in November and December.

The average cost per thousand cubic feet ofgas for residential cus-tomers was S.53 more in 1977 than in 1976, due primarilyto cost in-creases allowed by the Federal Energy Regulatory Commission to our wholesale supplier, Consoli-dated Gas Supply Corporation and the 5.8% rate increase granted NM, effective December 1, 1976. The new rates were designed to provide

$ 10,800,000 in additional annual revenue.

During 1977, the number of gas customers decreased from 416,000 to 413,000. The decline in residen-tial and commercial customers was related to PSC restrictions on the addition of new customers.

Anew electric net system peak of 5,405,000 kilowatts was recorded on December 12, 1977, some 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 millionin 1977 by in-house time-sharing ot computer systems.

ELECTRIC REVENUES Increase (decrease) from prior period In millionsofdollars 1977 1976 GAS REVENUES Increase (decrease) from prior period In millionsof dollars 1977 1976 Increase in base rates.............

Fuel and purchased power cost increases Sales to other electric systems.....

Sales to ultimate consumers.......

Miscellaneous operating revenues

$ 54.2 78.9 (24.0) 13.8 1.8

$124.7

$10.1 10.7 14.5 29.1 2.7

$67.1 Increase in base rates.........

Purchased gas cost increases Gas sales

$ 8.2

$ 5.0 21.7 21.9 (6.0) 1 1.0

$23.9

$37.9 CLASS OF SERVICE

% of total

% increase over 1976 electric Electric Kilowatt-revenues revenues hours CLASS OF SERVICE

% of total % increase from 1976 gas Gas Cubic revenues revenues feet Residential Commercial Industrial Municipal service..

Total to ultimate consumers Other electric systems......

Miscellaneous 31 33 26 2

15 20 24 17 2

4 3

1 92 19 3

6 (29)

(33) 2 8

100%

14 (1)

Residential..

Commercial Industrial 63 13 (8) 22 5

(14) 12 16 (7)

Total to ultimate consumers...

97 11 (9)

Other gas systems............

2 4

(11)

Miscellaneous...............

1 (11) 100%

11 (9)

In mid-1977, the troubled gas supply outlook improved consider-ably, enabling NMto file with the Public Service Commission for a partial liftingof restrictions on at-taching new customers. Permission was granted in November. Among positive developments to allow the easing were new offshore gas fields in the Gulfof Mexico, additional volumes in storage, anticipated deliveries of liquefied gas from Algeria and a variety of conservation efforts by customers. In November, the Commission approved a pro-gram by NMto provide additional gas service, and the Company began issuing permits to qualified customers in all service categories.

The move has already helped im-prove the economic climate and building construction in our service area.

Regarding NM's application on Au-gust 5, 1977 to the PSC for approval to increase electric and natural gas rates, public hearings on the re-quest concluded January 20, 1978.

The Company seeks revised rate schedules to raise annual electric revenues by approximately

$81,964,000, an increase ofabout 8.3% and additional annual gas rev-enues ofsome $21,258,000, an in-crease of 8.5%. Both the electric and gas rate proposals are based on projected sales for the 12 months ending June 30, 1979. We antici-pate a recommendation by the Commission's administrative law judge in the case in early April 1978.

Afinal decision by the PSC is antici-pated about mid-year.

Combined costs offuel, purchased power and gas also continued to climb in 1977, due to higher rates charged by the Company's sup-pliers and higher output from fossil fuel generation while our nuclear plant was shut down for refueling and maintenance. The higher fuel costs associated with sales to ulti-mate consumers produced an in-crease in revenues through NM's fuel adjustment and purchased gas adjustment clauses applied to cus-tomer bills. Higher costs forsales to other utilitysystems are recovered immediately in the price charged.

Other operation and maintenance expenses rose $31,900,000 in 1977, compared with a rise of

$23,700,000 in 1976, due primarily to higher labor costs and increased levels of maintenance work required at our steam generating stations and on our electric distribution system.

Federal and Canadian income taxes climbed $4,200,000 in 1977 and

$3,300,000 in 1976. The higher in-come taxes for 1977 were attribut-able to increased earnings, while-those of 1976 were linked to a de-crease in flow-through tax adjust-ments. Real estate, revenue and other taxes increased

$ 17,200,000 in 1977 and $ 17,800,000 in 1976, due principally to higher property taxes resulting from property addi-tions, increased tax rates and im-proved revenues.

A 413,400,000 increase in allow-ance for funds used during con-struction in 1977 resulted from additional construction work in progress and nuclear fuel in proc-ess. Adecrease in such allowance occurred in 1976 when our new Unit No. 5 at Oswego Steam Station was placed in service.

Other income for 1976 includes

$8,986,000 representing a portion ofthe income tax refunds for the years 1966 through 1968, as a re-sult ofthe retroactive adoption of "guideline" lives in computing tax depreciation, as discussed in Note 12 of Notes to Consolidated Finan-cial Statements, page 18.

ELECTRIC SALES MillionsolKtrr-hrs.

36,000 GAS SALES Millionsolcubicleet 120,000 INCOME (BEFORE INTEREST AND INCOME TAXES)

AND INTEREST CHARGES Millionsoldollars 240 27,000 90,000 180 18,000 60,000 9,000 30,000 60 T CHARG INTERES ES 1973 1974 1975 1976 1977 1973 1974 1975 1976 1977 t 0 1973 1974 1975 '976 1977

y

=r Change In thousands from of dollars 1976 THE 1977 REVENUE DOLLARAND WHERE IT WENT Change In thousands from of dollars 1976

$454,739 15%

37ff Residential customers Fuel for production of electricity 25lr. $311,185 29%

Income and other taxes 14'66,923 16 qk U

377;497 17 283,026 23 110,570 (1 5) 31'3) glf Commercial customers

@II e

Industrial customers Allothers K'~ill KiJIJ I

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Wages, salaries, employee benefits Interest and other costs net Gas purchased Dividends to stockholders Electricity purchased Depreciation Retained in business 14 fr.

166,735 12fr.

144,954 12K 142,071 Sit 99,738 7'3,019 6'7,113 2lf 24,094 12 8

14 12 (6)

(1) 25 Dividend requirements on preferred stock, the average number of shares ofcommon stock outstand-ing and interest charges rose in 1977 and 1976, the result of higher capital costs and additional secu-rities issued to finance construction requirements. During late 1976, declining interest rates and reduced short-term borrowings resulted in a decrease in other interest charges for 1976.

In August 1977, the Company sold

$75,000,000 of 8.35K 30-year first mortgage bonds. Further financing in December involved the private placement of $50,000,000 of 8'/sX 30-year first mortgage bonds. Net proceeds from these sales were applied to reduce outstanding borrowings issued to meet con-struction costs, including planned generating units on Lakes Ontario and Erie and related energy projects.

Also used to finance construction were net proceeds of $21,500,000 from the sale of 1,371,000 shares of common stock sold through our Dividend Reinvestment and Stock Purchase Plan and Employee Sav-ings Fund Plan.

Dividends per share of our com-mon stock and quoted prices were:

Dividends paid Price range 1976 per share High Low 1st quarter... $.31 2nd quarter.. $.31 3rd quarter.. $.31 4th quarter... $.31

$1.24 1977

$14'/4

$ 12'/2

$14

$ 121/2

$ 14'/4

$ 12~/s

$15

$13'/s 1st quarter... $.31

$15s/4

$14 2nd quarter.. $.331/2

$16s/s

$14s/4 3rd quarter.. $.331/2

$171/4

$ 15 4th quarter...

.331/2

$16s/s

$15

$1.31'/2 AVERAGE GROSS ELECTRIC UTILITYPLANT PER ELECTRIC CUSTOMER Dollars 2400 AVERAGE COST OF FUEL BURNED Dollars 40 TOTALTAXES, INCLUDING INCOME TAXES ltrlilllons ofdollars 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 major new power plants to keep pace with long-term future electric needs is enmeshed with the eco-nomic activity ofthe entire upstate New Yorkcommunity. Building these massive generating projects, along with related transmission and other necessary energy installations, entails billions of dollars for payroll, taxes, materials and equipment. All give a needed assist to employment conditions by creating thousands of construction and supplier jobs in our service area.

Atthe site of Unit No. 2 at Nine Mile Point Nuclear Station on Lake On-tario, nearly 2,000 construction workers, representing dozens of trades, kept the 1,080,000-kilowatt installation moving towards its targeted 1983 completion. Over its nine-year construction period, the unit willproduce a total payroll ex-ceeding $300,000,000. Total cost is some $ 1 billion,excluding financing costs. NM's share is $418,000,000.

Just six miles west ofNine Ivtile Point, progress also continued on the new 850,000-kilowatt Gnit No. 6 at Oswego Steam Station, more than 62K completed at the end of 1977. Some 650 construction workers were employed at the oil-fired facility's site. The addition, re-quiring seven years to build, will boost station capacity to a total 2,075,000 kilowatts, some five times its original output. Scheduled forstartup in late 1979, the unit will cost an estimated

$253,000,000, excluding financing. NM's share is

$ 188,000,000. Itwillinclude a total construction payroll of some 4100,000,000.

Near Lake Erie, south of Dunkirk, we are planning a 1,700,000-kilowatt coal-fired generating sta-tion that willemploy 2,500 during peak construction. So far, NMhas spent some $ 11 millionfor en-vironmental hearings concerning the project. The data was submitted to the New YorkState Board on Electric Generation Siting and the Environment and we anticipate a decision in late 1978. During this major power plant's six-year con-struction period, workers willbe paid an estimated

$570,000,000.

In 1977, the Company announced plans for a hydroelectric expansion program to add 205,000 kilowatts to our power system. Included are three altogether new site develop-ments and enlargement of 12 exist-ing hydro stations, with more than 70K ofthe new capacity planned for the upper Hudson River Basin, the remainder from seven other rivers

and streams'in northern and central.

New York. In early 1978, the first application willbe filed with the Federal Energy Regulatory Com-mission and other state and federal agencies. This work, to continue through 1990 at a total cost of more than $200,000,000, willrequire a construction payroll estimated at

-)y~) i)')

$40,000,000, a welcome addition to the economies of northern com-munities in Niagara Mohawk's ser-vice territory.

The year 1977 saw further action toward a proposal by NM,together with five other key New Yorkutilities, to share ownership of large upstate power generating stations. Involved are Oswego Unit No. 6, Nine Mile Point Unit No. 2 and a 1,150,000-kilowatt nuclear station planned at Sterling on Lake Ontario by Roches-ter Gas 6 Electric Corp. Late in 1977 Sterling was certified by the New YorkState Board on Electric Generation Siting and the Environ-ment. This ownership sharing is intended to help pave the way for Empire State Power Resources, Inc.

(ESPRI) a statewide utilityto be re-sponsible for future construction and operation of base-load generat-ing stations needed to supply the load growth of all investor-owned utilities in New YorkState. ESPRI, pending approval by regulatory agencies, features many financial and operating advantages and will reduce the financing requirements for its sponsoring utilities.

Allofthese generation plans will require expansion oftransmission systems, with lines now on the drawing board or being installed to comply with scheduling of new units. During the year, three key NM transmission links, among more than 20 planned in our system for future years, were completed at an expenditure of more than

$50,000,000.

The year also saw formation of a new System Project Management Department, directly responsible for timely execution of all key construc-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 "gullwing" 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 more toward research to help us clear today's critical energy hurdles.

Alternate energy sources, new methods ofstabilizing basic fuel supplies and development of better ways to improve the environment are primary aims.

We introduced formal research into NM's corporate structure more than six years ago in the firmbelief that itwillhelp chart a course to self-sufficiency. For us, and the en-tire utilityindustry, elimination of vulnerability to any fuel supply prob-lems that could impede production ofelectric energy is paramount. Our research work focuses on near-term projects designed to meet these goals.

NN's Research Department has de-veloped into a mature organization with a professional staff experienced in research and energy-related areas. Our research budget has grown from $456,000 in 1971 to almost $9,000,000 in 1977, with

$76,000,000 the estimated total for the next five years.

In 1977, a breakthrough in our hunt for alternate energy possi-bilities was achieved when tests of a 1,000-kilowatt fuel cell proved highly successful. Since 1973 in a contract with United Technologies Corp. and eight other leading utilitiesNN has been striv-ing to develop a commercially vi-able 26,000-kilowatt fuel cell power unit. This effort, an extension of fuel cell technology originallyapplied in U.S. space missions, concentrates on development of modified cells to use coal-derived fuels. Studies indicate that large-scale introduc-tion ofthe battery-like devices throughout our electric system could ultimately bring marked im-provement in total utilization ofthe complete power system and signifi-cant reduction in the consumption of critical fuels used to generate power. Noreover, the quiet, pollution-free units have low main-tenance requirements. By early 1980, two 4,800-kilowatt prototypes willbe constructed and field-tested by utilities. A9,600-kilowatt unit is targeted forour system by 1981.

The 1977 tests confirm the fuel cell as the most significant advance in electric generation technology since the introduction of nuclear energy.

Another important NMresearch project, aimed at enabling power plants to burn lower cost Eastern coal while producing much less waste compared with other methods, is also being watched nationwide. This involves installa-tion of a pilot"scrubber" on the stack at our Huntley Steam Station near Buffalo to demonstrate the abilityto control sulfur dioxide (SO,)

emissions. The regional research organization, Empire State Electric Energy Research Corp. (ESEER-CO) is sponsoring the project.

ESEERCO is making design studies with Atomics International of Los Angeles and the U.S. Environ-

mental Protection Agency. The target, a commercial system for SO, removal that willsave mineral resources, also entails simplified waste disposal facilities which will recover marketable sulfur. The Huntley demonstrator is scheduled to go on line in 1980.

To foster conservation of natural resources, NMis pursuing many other advanced technologies which hold varying promise. Several wind power projects (including a pioneer-ing turbine at a customer's farm and plans forwindmills at a hydro-electric site) were launched in 1977.

For five years we have been directly involved with leading manufacturers in heat pump research efforts cost-ing over $2,000,000, with an eye toward making advanced high-performance heat pumps available for northern climates by 1980.

Solar energy for residential and commercial heating is under inten-sive study by NMand other research parties at an alumni house and con-ference center at the State University of New Yorkin Albany. There, we willobtain valuable data on the feasibility of combining energy from w

the sun with basic power from our utilitysystem.

Other research work by the Company in 1977 focused on management of electric load, transmission losses, customer energy conservation, as well as improved air, land and water pres-ervation. Participation in these and additional research efforts involves the leadership and teamwork of Niagara Mohawk's scientists, en-gineers and technologists, along with colleagues in government and industry.

Our determination to find more effec-tive methods of producing energy and preserving the environment takes us from the vastness of a Northern New York sunset to the microrealm of a slide specimen. At far left, tri-bladed propel-ler of 15-kilowatt wind research proto-type turns quietly above farmer cutting hay. Rooftop collectors reflect particu-lar purpose in NM-aided solar research program at Albany, while algae sample is readied for microscope analysis in laboratory near Lake Ontario. Vineyard study is devoted to quality of grape in-dustry near NM-proposed power plant site on Lake Erie. Over next five years, we willspend more than $76 millionon energy research, most of it interlocked with air, water and land concerns.

Mission to serve In a unique step to gain a candid flowofinformation and attitudes from the customer's side ofour business, NMformed a Con-sumer Advisory Council in 1977.

Representing all walks oflifein our 13 operating areas, the Council's 26 volunteers meet with NMexecutives monthly for discussions of Company policies and procedures. Their frankness, advice and suggestions have al-ready proved helpful in our efforts to further refine service and im-prove communications with our customers. The group, one ofthe few formed to advise a principal G.S. utility,consists of house-wives, retirees, social workers, clergy, business executives, con-sumer advocates and minorities.

Members, all community leaders in their occupations or fields of interest, participate in the Council on their own time. None are stockholders or related to NM employees. In less than a year since its formation, the Council has become recognized as our consumer "sounding board,"

enabling NMto know more about what consumers are thinking of us and to better understand their needs.

Atyear's end, NMemployees numbered 9,200, an increase of 300 over year end 1976. In June 1977, the second year of a two-year contract between NMand the International Brotherhood of Electrical Workers (AFL-CIO) began and included an 8.3X general wage increase for rep-resented employees.

The Company contributed about

$2,662,000 to our Employee Sav-ings Fund Plan in 1977. Some 6,200 or 73% of all eligible employees are subscribers, al-locating from 2X to 6X oftheir wages (matched 50K by the Company) toward purchase of NMcommon stock or U.S. Gov-ernment securities. Ofthose par-ticipating, 98% invest in stock.

The plan holds 4,524,000 shares or 8% ofthe outstanding com-mon shares. Employees may also voluntarily make additional, unmatched contributions of up to 4% oftheir wages.

NMstockholders now number about 210,000, with 196,000 holding common shares and 14,000 owning preferred. Stock-holders live in all 50 states and 40 foreign countries, with 71,000 re-siding in New York and holding 51% of the total shares. Most shares are held for long-term in-vestment. Alarge number of common stockholders (61,000) hold less than 100 shares.

Our Dividend Reinvestment and Stock Purchase Plan continues to grow in popularity each year. Ital-lows purchase ofnewly issued stock directly from the Company and optional payments for purchase ofadditional common shares without brokerage com-missions or service charges. This helps to provide NMwith funds to meet required financing. In 1977, about 22,000 participating stock-holders invested $8,192,000 for purchase ofadditional common shares. Representing 11% of all common stockholders, they rein-vested 85,006,000 of dividends, adding $3,186,000 in optional payments.

NM's Stockholder Records De-partment in Syracuse or Morgan Guaranty Trust Company of New York, Dividend Reinvestment Plan (P.O. Box 3506, Church Street Station, New York, NY 10008) willbe glad to provide application forms and literature describing the reinvestment program upon request.

We note with regret the death on October 16, 1977 of Dean P.

Taylor, who served on our Board of Directors since January 1961.

Former Congressman Taylor re-tired from the G.S. House of Rep-resentatives in 1960 after nine terms of distinguished service.

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 NIAGARAMOHAWKPOWER CORPORATION AND SUBSIDIARIES ln thousands of dollars For the year ended December 31, 1977 1976 1975 1974 1973 Operating revenues:

Electric Gas 987,760 238,072 863,012

$795,917

$671,246 214,218 176,289 159,564

$534,559 136,798 1,225,832 1,077,230 972,206 830,810 671,357 Operating expenses:

Operation:

Fuel forelectric generation................

Electricity purchased Gas purchased Other operation expenses.................

Maintenance Depreciation (Note 2).

Federal and Canadian income taxes(Note 12)

Othertaxes Operating Income Other income and deductions:

Allowance forfunds used during construction (Note 1)

Allowance forother funds used during construction (Note 1)

Income tax refunds(Note12)...........

Other (net) 311,185 93,019 142,071 166,297 84,536 77,113 22,124 148,989 1,045,334 180,498 21,660 3,645 241,040 99,297 124,811 152,759 66,171 77,629 17,896 131,817 911,420 165,810 20,711 8,986 1,251 223,095 86,533 94,960 136,470 58,724 69,228 14,630 113,997 797,637 174,569 29,376 2,153 136,983 122,476 86,900 127,100 59,753 63,055 (4,050) 102,248 694,465 136,345 27 373 528 82,523 93,650 70,770 115,223 54,885 59,181 (2,571) 92,556 566,217 105,140 18,836 (133)

Income before interest charges 25,305 30,948 205,803 196,758 31,529 27,901 206,098 164,246 18,703 123,843 Interest charges:

~

Interest on long-term debt..........

Other interest Allowance for borrowed funds used during construction(Note 1)......

91,563 2,892 (12,484) 87,270 1,039 84,018 7,285 66,080 11,659 54,761 5,979 Income before cumulative effect of accounting change Cumulative effect of accounting change (Note 3) 123,832 108,449 81,971 88,309 91,303 77,739 114,795 86,507 9,406 60,740 63,103 Net income(Note 3)

Dividends on preferred stock..

Balance available for common stock...

Dividends on common stock...........

Retained earnings forthe year.........

Retained earnings at beginning of year 123,832 25,705 98,127 74,033 24,094 313,740 108,449 23,546 84,903 65,642 19,261 294,479 114,795 19,430 95,365 56,590 38,775 255,704 95,913 15,082 80,831 49,444 31,387 224,317 63,103 12,872 50,231 41,409 8,822 215,495 Retained earnings at end of year Average number of shares of common stock outstanding..

337,834 313,740

$294,479

$255,704 56,278,556 52,731,329 47,089,331 42,032,244

$224,317 36,170,326 Per average share of common stock:

Balance available forcommon stock before cumulative effect of accounting change.....

Cumulative effect of accounting change (Note 3).

Balance available for common stock(Note 3)..

Dividends paid Pro forma amounts reflecting the con-sistent application of the change to energy deferral accounting (Note 3):

Balance available forcommon stock...

Per average share of common stock...

( ) Denotes deduction.

1.74 1.61 1.74 1.61 1.31%i 1.24 2.03 2.03 1.21 1.70

.22 1.92 1.18

$71,425 1.70 1.39 1.39 1.15

$56,787 1.57 13

Consolidated Balance Sheet NIAGARAMOHAWKPOWER CORPORATION AND SUBSIDIARIES At December 31, ln thousands of dollars 1977 1976 ASSETS Utilityplant, at original cost(Notes 4 and 5 and Page 20)

Less accumulated depreciation (Note 2)

Other property and investments Current assets:

Cash(Note 6)

Accounts receivable (less allowance for doubtful accounts of $1,500,000 and $1,300,000, respectively)

Income tax refund claims (Note 12)

Materials and supplies, at average cost:

Coal and oil for production of electricity Other.

Prepayments.

Deferred debits:

Unamortized debt expense Deferred recoverable energy costs (Note 3)

Other

$3,553,560 841,498 2,712,062 15,584 6,579 121,855 8,391 79,942 26,367 5,152 248,286 14,375 24,951 3,796 43,122

$3,019,054

$3,304,072 780,799 2,523,273 17.858 7,054 116,605 7,038 66,925 24,877 4,448 226,947 13,803 29,605 4,814 48,222

$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)....

Premium on capital stock(Note 8)

Capital stock expense (Note 8)..

Retained earnings (Page 13)

Cumulative preferred stock (Note 8 and Page 21)

Cumulative preference stock

$25 par value; authorized 4,000,000 shares; issued none (Note 8)

Long-term debt (Page 20)

Total capitalization.

Current liabilities:

Notes payable and commercial paper(Note 6)

Long-term debt due within one year (Page 20)

Sinking fund requirements on preferred stock(Page 21)

Accounts payable Customers'eposits Accrued taxes.

Accrued interest Accrued vacation pay Other Deferred credits:

Income tax refunds(Note12)

Other Accumulated deferred federal Income taxes (Note 12)

Commitments (Note 10)

( ) Denotes deduction.

57,123 581,473 (8,194) 337,834 968,236 366,400 1,394,387 2,729,023 39,200 10,250 1,800 79,031 4,734 18,680 27,760 11,757 6,320 199,532 19,721 9,106 28,827 61,672

$3,019,054 55,751 561,323 (8,079) 313,740 922,735 368,200 1,268,269 2,559,204 40,750 1,800 78,030 4,147 13,853 23,270 10,110 6,116 178,076 19,421 11,260 30,681 48,339

$2,816,300 14

1973 For the year ended December 31, Financial resources were provided by:

Operations:

Income before cumulative effect of accounting change..................

Charges (credits) to income not requir-ing (not providing) working capital Depreciation Allowance forfunds used during construction Amortization of nuclear fuel..........

Provision fordeferred Federal income taxes (net).................

$ 86,507

$ 63,103

$ 114,795

$108,449

$123,832 63,055 59,181*

69,228 77,629 77,113 (18,836) 10,788 (27,373) 10,665 (20,711) 22,555 (29,376) 11,481 (34,144) 21,458 (280) 3,359 14,628 11,800 13 333 Consolidated Statement of Changes in Financial Position NIAGARAMOHAWKPOWER CORPORATION AND SUBSIDIARIES ln thousands ot dollars 1977 1975 1974 Total 496,686 346,206 (130,440) 76,947 42,840 Cumulative effect of accounting change 201,592 202,550 177,928 132,574 117,595 9,406 832,239 9,406 Outside financing:

Sale of common stock..............

Sale of preferred stock..............

Sale of mortgage bonds.............

Sale of promissory note (net)........

Issuance of long-term notes payable Increase (decrease) in notes payable 21,522 125,000 2,338 15)000 (1,550) 70,105 30,000 5,671 18,000 (8,114) 72,557 70,000 100,000 10,839 (117,786) 29,964 125,000 27,752 129,300 88,005 60,000 80,000 (9,850) 282,153 160,000 430,000 46,600 33,000 (8,000)

Other sources:

Deferred recoverable energy costs.....

Income tax refunds (Increase) decrease in working capital other than notes payable............

Miscellaneous (net) 162,310 4,654 300 1,667 52 6,673 115,662 8,785 (8,686) 30,465 4,203 34,767 135,610 (591) 1,241 (122,388) 7,592 (114,146) 312,016 218,155 (37,799) 26,866 (12,727) 28,359 6,031 5,649 (17,629) 34,008 943,753 (24,951) 19,721 (74,624) 23,527 (56,327)

Total resources provided Financial resources were used for:

Construction additions...............

Nuclear fuel Allowance forfunds used during construction.....................

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

$370)575

$264,913 25,018 (34,144)

$352,979

$195,676 87,026 (20,711)

$ 199,392

$ 194,155 11,959 (29,376)

(53,366)

$283,844 11,503

$278,941 7,372

$1,217,529 142,878 (27,373)

(18,836)

(130,440)

(53,366)

$436,367

$369,758

$1,729,071 Net additions Long-term debt due within one year..

Mortgage bonds retired.............

Sinking fund requirements on preferred stock...................

Dividends 255,787 10,250 3,000 11800 99,738 261,991 1,800 89,188 123 372 76,020 267,974 103,867 64,526 267,477 48,000 54,281 1,176,601 162,117 3,000 3,600 383,753 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 Accounts receivable Receivable from plant sharing..........

Income tax refund claims..............

Coal and oil for production of electricity Other materials and supplies...........

Long-term debt due within one year.....

Sinking fund requirements on preferred stock Accounts payable.

Accrued taxes and interest.............

Other(net) 475 (5,250)

(1,353)

(13,017)

(1,490) 10,250 1,001 9,317 1,734

$ 13,620 (11,041) 12,402 (300)

(15,433) 1,193 1,800 18,982 6,205 3,037 (3,067)

(16,310)

(12,402) 15,639 (626) 1,213 (103,867)

(855) 2,435 (4,548)

(4,431)

(19,505)

(16,977)

(33,483)

(10,124) 55,867 9,644 4,609 1,673 (1,856)

(12,936)

(5,400)

(2,954)

(2,420) 48,000 615 638 4,672 4,741 (65,042)

(8,391)

(65,513)

(11,628) 10,250 1,800 29,387 23,204 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 The Company is subject to regulation by the New York State Public Service Commission (PSC) and the Federal Energy Regulatory Commission (FERC) with respect to its rates for service and the maintenance of its accounting rec-ords. The Company's accounting policies conform to gener-ally accepted accounting principles as applied in the case of regulated New York public utilities to give effect to the rate-making and accounting practices and policies of the PSC.

Utility Plant: The cost of additions to utility plant and of replacements of retirement units of property is capitalized.

Cost includes direct material, labor and similar items and charges for such indirect costs as engineering, supervision, payroll taxes, pension benefits, etc. The Company capitalizes an allowance for funds used during construction (AFC) equi-valent to the cost of funds devoted to plant under construc-tion (8'/o tor the period January 1, 1973 through June 30, 1976 and 9/o effective July 1, 1976). As a result of a rate proceed-ing, effective December 1, 1976, the Company began comput-ing AFC on its Oswego Steam Station Unit P6 and Nine Mile Point Nuclear Station Unit k2 at a rate which is reduced to reflect the income tax effect of the interest portion of AFC.

Effective January 1, 1977, the FERC issued an order revis-ing its accounting procedures for determination of the rate for computing AFC and requiring segregation of AFC into its two component parts, borrowed funds and other funds. The revision did not have any effect on income in 1977. The Com-pany, since January 1, 1977, has reflected the borrowed funds component in the Interest Charges section of the income statement.

The Company has not reclassified AFC into its borrowed and other funds components for periods prior to January 1, 1977 since, prior to 1977, rates were not required to be separately determined for the cost of borrowed funds and the cost of other funds. Therefore, the Company believes that such reclassification would be inappropriate since the allocation between the borrowed and other components for prior periods would not be comparable to the components of AFC determined subsequent to December 31, 1976, by using the FERC formula.

The cost of current repairs and maintenance is charged to expense. Whenever utilityplant is retired, the original cost of such utilityplant, together with the cost of removal, less sal-vage, is charged to accumulated depreciation.

Depreciation: For general accounting purposes, deprecia-tion of utility plant is computed on the straight-line basis using the estimated useful lives by classes of depreciable property. For Federal income tax purposes, the Company computes depreciation using accelerated methods and shor-ter allowable depreciabie lives.

Amortization of Nuclear Fuel and Nuclear Generating Plant Decommissioning Costs: The cost of nuclear fuel plus esti-mated reprocessing and storage costs is charged to operat-ing expenses on the basis of the quantity of heat produced for the generation of electric energy. These costs, which are net of an estimated residual value of uranium to be recovered at the time of reprocessing, are charged to customers through base rates or through the fuel adjustment clause.

Events during 1977 and recently proposed federal action could result in the abandonment of reprocessing plans since there is no reprocessing facility presently in operation and it has been proposed that reprocessing be deferred indefinite-ly. The Company believes that under either its reprocessing assumption or an alternative storage assumption similar to that recently proposed by the Department of Energy, costs would be approximately equal. The Company believes that nuclear fuel reprocessing or storage costs, which may be higher than presently estimated, will continue to be allowed to be recovered in the rate process, although no such assur-ance can be given.

Estimated decommissioning costs (costs to take the plant out of service in the future) of the Company's Nine Mile Point Unit N nuclear generating plant are presently not charged to current operations and, therefore, not recognized in rates charged to customers.

As part of a pending rate filing, the Company has before the PSC a request for a cost allowance designed to recognize such decommissioning costs.

Be-cause of many uncertainties, there is no assurance that such additional revenues, if any, as might be provided by this allowance would aggregate a sufficient amount to decom-mission the plant. The Company believes that nuclear generating plant decommissioning costs, which may be higher than now estimated, will ultimately be allowed to be recovered in the rate process, although no such assurance can be given.

Revenues:

Revenues are based on cycle billings rendered to certain customers monthly and others bi-monthly. The Company does not accrue revenues at the end of any fiscal period in respect of energy sold but not billed at such date as a result of this cycle billing method. The Company's tariffs include electric and gas adjustment clauses under which energy and purchased gas costs, respectively, above or below the levels allowed in approved rate schedules are billed or credited to customers. Effective January 1, 1974, the Company adopted the policy of charging operations for energy cost increases in the period of recovery (see Note 3).

Effective September 1, 1975, the Company began deferring similar purchased gas costs as directed by the PSC, which change did not have a material effect on income.

Federal income Taxes: The general policy, in accordance with PSC requirements, is to flow-through the effect of accounting-tax differences; that is, record only income taxes currently payable. However, deferred taxes are provided on the additional depreciation

charges, resulting from using shorter depreciable tax lives, the interest portion of AFC on certain plants (as discussed above) and certain other items as approved by the PSC. Effective as of January 1, 1975, the benefits resulting from a temporary increase in the invest-ment tax credit from 4/o to 10/o and from the temporary change in the limitation on the amount of credit which may be claimed in any year have been deferred. Other than for these increased benefits, investment tax credits are applied currently as a reduction of taxes.

No deferred taxes are provided for other depreciation differences, except under necessity certificates in prior years, or for other expenditures (principally other AFC, taxes, pensions and certain other employee benefits) which are deducted currently for tax pur-poses but are capitalized for accounting purposes.

Pension Plans: The cost of pension plans is based upon current costs, amortization of unfunded past service benefits over periods ranging from 25 to 40 years and amortization over 15 years of unfunded past service benefits arising from plan amendments since inception.

NOTE 2. Depreciation The percentage relationship between the total provision for depreciation and average depreciable property was 2.70/o in 1977, 2.84/o in 1976, 2.84/o in 1975, 2.83%%d in 1974 and 2.83/o in 1973. The Company makes depreciation studies on a con-tinuing basis and adjusts the rates of its various classes of depreciable property, subject to PSC approval, when con-sidered appropriate. Effective December 1, 1976, consistent with a PSC rate decision in November 1976, electric deprecia-tion provisions were modified resulting in a reduction in de-preciation expense of $4,300,000 for the year 1977.

NOTE 3. Accounting Change Effective January 1, 1974, as permitted by a PSC policy statement, the Company changed its accounting for the in-

'reased energy costs above or below the levels allowed in approved rate schedules to defer those costs until the time they are billed to customers, thus achieving a better matching of revenue and expense. This accounting change, net of de-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

$25,223,000 ($.60 per share) was credited to income before cumulative effect of accounting change and $9,406,000 ($.22 per share),

net of deferred income taxes of $400,000, rep-resented the cumulative effect to January 1, 1974 of the ac-counting change. Effective March 1975, the PSC required the Company to make changes in its electric adjustment clause.

As a result, approximately $31,000,000 of then unrecovered deferred energy costs are being recovered through the elec-tric adjustment clause over a period of 36 months.

NOTE 4. N M Uranium, Inc.

During 1976, through a newly created wholly-owned sub-sidiary, N M Uranium, Inc., the Company purchased a 50 per-cent undivided interest in uranium deposits and associated mining equipment for approximately $52,500,000 consisting of $34,500,000 cash and $18,000,000 in 7~/4%%d notes payable guaranteed by the Company (see page 20). The acquisition of this interest was made to provide a more assured future sup-ply of nuclear fuel for the Nine Mile Point Nuclear Stations.

The net assets, including costs incurred since acquisition of the subsidiary, have been included in UtilityPlant in the con-solidated financial statements.

NOTE 5. Replacement Cost (Unaudited)

Because of inflation, the cost of replacing the Company's plant in service today would exceed the amounts actually spent for such facilities and reported in the Company's finan-cial statements.

The Company believes that any higher replacement costs it may experience will be recovered through the normal regulatory process.

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

NOTE 6. Lines of Credit and Compensating Balances At December 31, 1977, the Company had available bank lines of credit aggregating $124,500,000 which are renewable on an annual basis. The banks have the option of terminating

$69,500,000 of the lines at any time. In addition, the Company has a $50,000,000 Acceptance Facility Agreement expiring May 31, 1978, which m'ay be used to finance the seasonal build-up of fuel oil inventory at one of its major generating locations. Substantially all short-term borrowings are made at the prevailing prime interest rate for each respective lender.

With respect to most of its lines of credit, the Company maintains compensating balances which are averaged over time. At December 31, 1977, approximately

$1,000,000 of cash represented compensating balances.

NOTE 7. Sharing of Generating Plants During 1975, the Company sold a 24/o interest in the own-ership of Unit t6 under construction at its Oswego Steam Station and a 59/o interest in the ownership of Unit P2 under construction at its Nine Mile Point Nuclear Station forapprox-imately $53,366,000.

The Company also acquired a 22'/o interest in the ownership of Rochester Gas and Electric Cor-poration's proposed Sterling Nuclear Station for an initial investment of approximately $4,337,000.

NOTE 8. Capital Stock On May 7, 1976, by an amendment to the Certificate of Incorporation, each authorized but unissued share of prefer-red stock and preference stock was changed into four shares with a par value of $25 each. Premium on capital stock in-creased $20,150,000 in 1977 and $64,738,000 in 1976 from the sale of 1,371,311 and 5,367,766 shares of common stock, re-spectively. As a result of the foregoing and the issuance of 1,200,000 shares of preferred stock in 1976, capital stock ex-pense increased

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

In January 1978, the Company, through a private place-ment, will sell 1,600,000 shares of preferred stock, 8%/o series for $40,000,000.

NOTE 9. Pension Plans The Company and its subsidiaries have non-contributory pension plans covering substantially all their employees. The total pension cost was $22,489,000 for 1977, $20,762,000 for

1976,

$18,825,000 for 1975,

$15,589,000 for 1974 and

$13,947,000 for 1973 (of which $4,668,000 for 1977,

$3,878,000 for 1976, $3,344,000 for 1975, $3,755,000 for 1974 and $3,565,000 for 1973, are included in construction costs).

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

Preliminary studies indicate that the estimated amount of vested benefits at December 31, 1977 exceeded the net assets of the funds by approximately $83,000,000.

Amendments to the Company's pension plan resulting from the Employee Retirement Income Security Act of 1974 and periodic collective bargaining agreements did not have a significant effect on the Company's annual contribution to the fund or on unfunded vested benefits.

NOTE 10. Commitments The Company presently estimates that the construction program for the years 1978 through 1980 will require over

$716,000,000, excluding AFC and certain overheads capitalized. At December 31, 1977 substantial construction commitments exist, including those for the Company's share of Unit P2 at Nine Mile Point Nuclear Station, Unit AS at Oswego Steam Station and the Sterling Nuclear Station.

NOTE 11. Information Regarding the Electric and Gas Businesses The Company is engaged in the electric and gas utility businesses.

Certain information regarding these segments for the year ended December 31, 1977 is set forth below.

General corporate expenses, property common to both seg-ments and depreciation of such common property have been allocated to the segments in accordance with practices es-tablished for regulatory purposes.

Corporate assets consist of other property and investments, cash, accounts receivable, income tax refund claims, prepayments, unamortized debt expense and other deferred debits.

ln thousands of dollars ELECTRIC GAS TOTAL Operating revenues..... $

987,760

$238,072

$1,225,832 Operating expenses Depreciation......

Other, excluding income taxes....

Total..

68,400 8,713 77,113 742,541 203,556 946,097 810,941 212,269 1,023,210 Income taxes......

Other income and deductions, net..

Interest charges...

Net income 22,124 3,645 94,455 123,832 Construction expendi-tures (including nuclear fuel).......... $

277,828

$ 12,103.

289,931 Identifiable assets:

Utilityplant, net....... $2,428,623

$283,439

$2,712,062 Material and supplies..

104,653 1,656 106,309 Deferred recoverable energy costs........

19,170 5,781 24,951 Co'rporate assets........

175,732 Total assets

$3,019,054 The Company provides electric and gas service to approx-imately 15,000 federal, state and local governmental agency locations. During the year ended December 31, 1977, approx-imately $122,000,000 of revenue was received from these agencies.

Pretax operating income, including AFC, was $180,077,000

electric,

$24,340,000 gas for 1976; $197,788,000

electric,

$20,787,000 gas for 1975; $143,947,000 electric, $15,721,000 gas for 1974 and $108,938,000 electric, $12,467,000 gas for 1973.

NOTE 12. Federal and Canadian Income Taxes Income lax Refunds: Operations for the years 1974 and 1973 include credits of $4,700,000 and $5,400,000, respec-tively, attributable to the carryback benefits of net operating tax losses.

The Company received refunds in 1974 and 1975 totaling

$21,400,000, including interest, as a result of the retroactive adoption of "guideline" lives in computing tax depreciation for the years 1966 through 1968. In connection with the lnter-Operating income before income taxes...

176,819 25,803 202,622 AFC.

33,991 153 34,144 Pretax operating income, including AFC........ $

210,810

$ 25,956 236,766 nal Revenue Service audit forthe year 1969, the Company has requested a deduction for "guideline" depreciation yielding a tax benefit of approximately $7,300,000, including interest, which has been recorded as a receivable.

The tax depreciation benefits and accrued interest were recorded in Deferred Credits at December 31, 1975 pending resolution of the proper accounting and ratemaking treat-ment, as discussed below. During 1975 the PSC issued an order directing the Company to refund to its customers ap-proximately $12,400,000, which represents the 1966 to 1968 tax refunds and interest, reduced by the tax assessments and interest previously paid forsuch years, and an allowance for a retention by the Company. The Company sought by court review a rescission of the order. By decision dated April 28, 1976, the New York Supreme Court ruled that the PSC lacked statutory authority for its action and that its order must be annulled. The PSC appealed from the judgment and order entered thereon to the Appellate Division which, although issuing an opinion dated November 10, 1976 unanimously affirming such judgment and order, stated the PSC may con-sider "this acquired money when a future rate adjustment is requested."

In an. Opinion and Order on the Company's rate proceed-ing, dated November 16, 1976, the PSC directed that the

$12,400,000 "be treated as customer contributed capital with a zero cost." The PSC, however, reserved the right to treat such amount differently in a future rate proceeding contin-gent on the then prevailing circumstances.

On August 4, 1977, the Appellate Division, after an appeal by the Company, affirmed the PSC's treatment. The Company on September 1,

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

Subsequently, the Company filed a motion with the New York State Court of Appeals for leave to appeal; the motion was denied January 17, 1978. Presently, the Company is consider-ing what legal recourse it may pursue, if any.

The portion of the refunds and accrued interest for the years 1966 through 1968, previously included in Deferred Credits totaling approximately $9,000,000

($.17 per share),

that was no longer subject to a future contingency was credited to Other Income in 1976. The remaining tax depre-ciation benefits and accrued interest through December 31, 1977 approximating

$19,700,000 are recorded in Deferred Credits. The PSC indicated it would consider the accounting and ratemaking treatment of the 1969 refund when received.

Net Operating Tax Loss: During 1977, 1976 and 1975 the Company utilized $300,000,

$20,100,000 and $22,600,000, respectively, of the available net operating tax loss carry-forward. There is no net operating tax loss carryforward at December 31, 1977.

Investment Tax Credits: The Company has deferred the benefit of investment tax credits approximating

$6,800,000

($.12 per share), $5,300,000 ($.10 per share) and $12,500,000

($.27 per share) for the years ended December 31, 1977, 1976 and 1975, respectively, in accordance with the general policy as stated in Note 1.

The Company has unused credits at December 31, 1977 of approximately $39,900,000 which may be utilized to reduce future tax expense, of which $7,900,000 expires in 1981,

$13,700,000 in 1982, $7,600,000 in 1983 and $10,700,000 in 1984.

18

Income Tax Assessment:

In October 1972, the Company paid a net assessment of $16,800,000 of additional Federal income tax for the years 1957 through 1962 relating to the deductions taken for the loss of the Company's water rights Summary Analysis:

Components of Federal and Canadian income taxes Current tax expense:

Federal Canadian Deferred Federal income tax expense Income taxes included in operating expenses Income taxes included in other income and deductions Total at Niagara Falls terminated in connection with the rede-velopment of Niagara power by the Power Authority of the State of New York. The Company has instituted suit for re-covery of this amount.

In thousands of dollars 1977 1976 1975 1974 1973 434

$ (5,500)

$ (7,700) 3,314

$ 2,550

$ 2,830 1,730 1,770 3,748 2,550 2,830 (3,770)

(5,930) 18,376 15,346 11,800 (280) 3,359 22,124 17,896 14,630 (4,050)

(2,571)

(5,043)

(718)

$17,081

$17,178

$14,630

$ (4,050)

$ (2,571)

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

Depreciation Cost of removal of property Investment tax credit Necessity certificates Recoverable energy and purchased gas costs..............

Pension costs under the age retirement allowance plan.....

Other

$ 7,146 245 6,766 (700) 69 4,850

$ 6,223 566

~5,313 (700) 3,650 294

$ 1,313 (899) 12,523 (700)

(477) 40 985

$ 2,767 (750) 1,292 (700)

(700) 2,770 (2,585)

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

$18,376

$15,346

$11,800 (280)

$ 3,359

$67,638

$60,301

$62,124

$39,579

$29,056 Reduction attributable to flow-through of certain tax adjustments:

Depreciation Allowance forfunds used during construction.................

Taxes, pensions and employee benefits capitalized for accounting purposes Real estate taxes on an assessment date basis.................

Release of accrued Federal income taxes no longer required.....

Income tax refunds Other 19,703 16,389 7,071 1,042 619 5,733 19,741 9,942 5,731 2,813 4,313 583 20,123 14,100 7,920 3,035 2,316 16,602 13,426 7,112 4,415 800 1,274 14,186 8,745 4,336 2,373 2,300 (313)

Federal and Canadian income taxes 50,557 43,123 47,494 43,629 31,627

$17,081

$17,178

$14,630

$ (4,050)

$ (2,571)

NOTE 13. Quarterly Financial Data (Unaudited)

Operating

revenues, operating income, net income and earnings per common share by quarters for 1977 and 1976 are shown in the followingtable. The Company, in its opinion, has included all adjustments (consisting only of normal re-curring accruals, except for that portion of the income tax refunds included in Other Income in the quarter ended De-cember 31, 1976 as described in Note 12) necessary for a fair statement of the results of operation for the quarters.

Due to the seasonal nature of the utility business, the annual amounts are not generated evenly by quarter during the year.

December 31 1977

$309,348 1976

$273,280 September 30 1977

$282,209 1976'228,556 June 30 1977

$281,762 1976

$255,590 March 31 1977

$352,513 1976

$319,804

$38,100

$36,271

$24,001

$.31

$29,333

$.41

$35,488

$21,409

$.27

$30,050

$13,619

$.15

$42,647

$41,970

$64,263

$57,519

$28,902

$.40

$24,370

$.37

$49,520

$.77

$41,127

$.70 In thousands of dollars Operating Operating Net Earnings per Quarters ended revenues income income common share 19

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

Electric plant Nuclear fuel (Note 4).

Gas plant Common plant Construction work in progress Total utilityplant

$2,625,797 82,170 341,010 57,584 446,999

$3,553,560 74 10 2,

12 100

$2,542,786 78,610 333,882 56,494 292,300

$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 2r/e'/0 Series due October 1, 1980 12.6% Series due October 1, 1981 3s/8 /0 Series due December 1, 1981.

3~/2!o Series due February 1, 1983 3~/4'/0 Series due October 1, 1983 3~/s /0 Series due August 1, 1984 10s/a'/o Series due September 1, 1985 3s/s'/o Series due May1, 1986 4rls'/o Series due September 1, 1987 37/s% Series due June 1, 1988.

43/4'/0 Series due April 1, 1990 4~/2% Series due November 1, 1991.

4s/e /o Series due December 1, 1994.

57/s /o Series due November 1, 1996.

6~/4 /o Series due August 1, 1997 6'/2'/o Series due August 1, 1998 9~/e'/0 Series due December 1, 1999.

7.%/o Series due February1, 2001 7%'/o Series due February 1, 2002 7'/4'/o Series due August 1, 2002 8'/4'/o Series due December 1, 2003.

10.2/o Series due March 1, 2005 8.35/0 Series due August 1, 2007 8s/s'/o Series due December 1, 2007.

Paul Smith's Electric Light &Power &

. Railroad Company First Mortgage Bonds:

4~/z% Series due July 1, 1979 5~/2/0 Series due May 1, 1985 Promissory Note, 8 lo Series Adue June 1, 2004.............

Notes payable:

7s/4'/0 due in equal installments, November 1, 1978, 1979 and 1980(Note 4)...............

Prime rate plus '/2 /0 (not to exceed 7~/~'/0) due in 24 equal quarterly installments commencing July1, 1978.......

Unamortized premium Total long-term debt Less long-term debt due within one year...

40,000 40,000 125,000 15)000 25,000 40,000 25,000 47,000 30,000 50,000 50,000 50,000 40,000 40,000 45,000 40,000 60,000 75,000 65,000 80,000 80,000 80,000 50,000 75,000 50,000 450 450 46,600 18,000 15,000 7/1 37 11404,637 10,250

$1,394,387 40,000 40,000 125,000 15,000 25,000 40,000 25,000 50,000 30,000 50,000 50,000 50,000 40,000 40,000 45,000 40,000 60,000 75,000 65,000 80,000 80,000 80,000 50,000 450 450 46,600 18,000 7,769 1,268,269

$1,268,269 20

Preferred Stock Redemption price per share (Before adding accumulated dividends)

Eventual December 31, 1977 Minimum In thousands of dollars At December 31, 1977 1976 Cumulative preferred stock, authorized 3,400,000 shares,

$100 par value and 9,600,000 shares, $25 par value

$100 Par Value 3.40% Series; 200,000 shares...

3.60% Series; 350,000 shares...

3.90% Series; 240,000 shares...

4.10% Series; 210,000 shares...

4.85% Series; 250,000 shares...

5.25% Series; 200,000 shares...

6.10% Series; 250,000 shares...

7.45% Series; 600,000 shares...

7.72% Series; 400,000 shares...

10.60% Series; 400,000 shares...

11.75% Series; 300,000 shares...

$25 Par Value 9.75% Series; 1,200,000 shares Total preferred stock Less sinking fund requirements

$ 20,000 35,000 24,000 21,000 25,000 20,000 251000 58,200 40,000 40,000 30,000 30,000 368,200 1,800

$ 20,000 35,000 24,000 21,000 25,000 20,000 25,000 60,000 40,000 40,000 30,000 30,000 370,000 1,800

$103.50 104.85 106.00 102.00 102.00 102.00 103.00 106.49 107.37 110.60 111.75 27.31

$103.50 104.85 106.00 102.00 102.00 102.00 101.00 100.00 102.36 102.65 102.75 25.00

$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 forthe 7.45% Series and 300,000 shares for the 9.75% Series).

Report of Independent Accountants PRICE WATERHOUSE & CO.

To the Stockholders and the Board of Directors of Niagara Mohawk Power Corporation We have examined the consolidated balance sheets of Niagara Mohawk Power Corporation and its subsidiaries as of December 31, 1977 and 1976 and the related consolidated statements of income and retained earnings and of changes in financial position for the five years ended December 31, 1977. Our examinations of these statements were made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered neces-sary in the circumstances.

The Company, effective January 1, 1974, changed its ac-counting for increased energy costs to defer these costs until the time they are billed to customers as permitted by a New York State Public Service Commission policy statement as further discussed in Notes 1 and 3.

As discussed in Note 12, the Company has received or re-quested refunds of Federal income taxes for the years 1966 through 1969 as a result of the retroactive adoption of "guideline" lives in computing tax depreciation for such

Syracuse, New York January 25, 1978 years. The accounting disposition of a part of the refunds'or 1966 through 1968 and the refund to be received with respect to 1969 has been deferred pending possible court review of the New York State Public Service Commission treatment of the 1966 through 1968 refunds and receipt of the 1969 refund by the Company.

In our opinion, subject to the eftect, if any, upon the finan-cial statements of the matter referred to in the preceding paragraph, the consolidated financial statements examined by us present fairly the financial position of Niagara Mohawk Power Corporation and its subsidiaries at December 31, 1977 and 1976, and the results of their operations and the changes in their financial position for the five years ended December 31, 1977 in conformity with generally accepted accounting principles consistently applied during the period except for the change, with which we concur, referred to in the second paragraph of this report.

21

Financial Statistics Capitalization ratios:

Common stock equity Preferred stock Long-term debt 1977 1976 35.5/o 36.0/o 13.4 14.4 51.1 49.6 Ratio of earnings to fixed charges Ratio of earnings to fixed charges and preferred stock dividends..

Other ratios

%%d of operating revenues:

Maintenance and depreciation Taxes Operating income Balance available for common stock Ratio of depreciation reserve to gross utilityplant Ratio of mortgage bonds to net utilityplant 2.49 2.35 1.90 1.82 13.2 13.3 14.0 13.9 14.7 15.4 8.0 7.9 23.7 /o 23.6 /o 48.6/o 47.4/o Electric Capability Thermal Coal fuel Huntley, Niagara River Dunkirk, Lake Erie Total coal fuel Residual oil fuel Albany, Hudson River Oswego, Lake Ontario.

Roseton, Hudson River Middle distillate oil fuel 20 Combustion turbine and diesel units Total oil fuel Thousands ofkilowatts At December 31, 1977

'/o 1976 831 11 831 640 9

640 1,471 20 1,471 400 5

400 1,225 17 1,025 480 7

480 354 5

355 2,459 34 2,260 Nuclear fuel Nine Mile Point, Lake Ontario Purchased firm contract Power AuthorityFitzPatrick, Lake Ontario..

Total nuclear fuel Total thermal sources Hydro Owned and leased hydro stations (81 in 1977)...............

Purchased firm contracts Power AuthorityNiagara River.

Power AuthoritySt. Lawrence River.

Power AuthorityBlenheim-Gilboa Pumped Storage Plant Other Total hydro sources Total capability*

Electric peak load during year Total system demand.

Net system demand 1,172 16 1,195 115 2

115 550 7

550 74 1

74 21648 36 2,665 7,372 100 7,199 6,935 5,405 6,327 5,385 610 8

610 184 2

193 794 10 803 4,724 64 4,534 737 10 731 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:

(Millionsofkw-hrs.)

Thermal:

Generated Coal.

Oil Nuclear Purchased Nuclear from Power Authority.

1977 o/o 7>579 22 8>293 24 2>946 8

911 3

1976 o/o 7,262 20 6,262 18 4,113 12 1,097 3

Total thermal 19,729 57 18,734 53 Hydro:

Generated Purchased from Power Authority.

3,782 11 8,851 26 4,213 12 10,222 29 Total hydro Other purchased powervarious sources Total generated and purchased.

12,633 37 14,435 41 1,926 6

2,069 6

34,288 100 35,238 100 Electric sales:

(Millionsof kw-hrs.)

Residential Commercial Industrial Municipal service......

Other electric systems 1977 7,895 8,770 11,878 276 2,548 1976 7,766 8,407 11,575 274 3,780 Gas sales:

(Millionsofcubic feat)

Residential Commercial Industrial Other gas systems....

1977 1976 52,684 20,305 14,528 3,310 57,166 23,565 15,673 3,711 90,827 100,115 31,367 31,802 Electric revenues:

(Thousands ofdollars)

Residential Commercial Industrial Municipal service......

Other electric systems Miscellaneous

$304,229 325,985 253,690 20,905 58,601 24,350

$263,663 272,315 204,018 17,851 82,622 22,543 Gas revenues:

(Thousands of dollars)

Residential Commercial Industrial Other gas systems.....

Miscellaneous

$150,510 51,512 29>336 5>595 1,119

$133,107 49,098 25,368 5,388 1,257

$238,072

$214,218 Electric customers:

(Average)

Residential Commercial Industrial Other Residential:

(Average)

Annual kw-hr. use per customer...

Cost to customer per kw-hr.......

Annual revenue per customer.....

$987,760

$863,012 6,649 3.85lt

$256.23 6,591 3.40tt

$223.76 1,187,318 1,178,314 128,070 128,155 2,876 2,932 2,235 2,203 1,320,499 1,311,604 Gas customers:

(Average)

Residential Commercial Industrial Other Residential:

(Average)

Annual use per customer (Thousands ofcubic feet).

Cost to customer (per thousand cubic feet)

Annual revenue per customer.......

Maximum day gas sendout (Thousands ofcubic feet)...........

384,197 386,805 28,632 29,183 540 537 2

2 413,371 416,527 137.1 147.8

$2.86

$2.33

$391.75

$344.12 660,974 743,979 23

Officers Directors Annual Meeting The annual meeting of stockholders willbe held on May 2, 1978 at the Company's principal office in Syracuse. Aformal notice of meeting;proxy statement and proxy form willbe sent to holders of common stock in early April.

Transfer Agents Preferred Stock:

Marine Midland Bank-New York 2 Broadway New York, N.Y. 10004 Common Stock:

Morgan Guaranty Trust Company of New York 30 West Broadway New York, N.Y. 10015 Disbursing Agent Preferred and Common Stocks:

Niagara Mohawk Power Corporation 300 Erie Boulevard West Syracuse, N.Y. 13202 Stock Exchanges Common and Certain Preferred Series:

Listed on New York Stock Exchange Common Stock:

Also traded on Amsterdam Netherlands), Boston, incinnati, Detroit, Midwest, Pacific Coast and PBW stock exchanges.

Ticker Symbol: NMK Form 10.K Report Acopy of the Company's Form 10-K report filed annually with the Securities and Exchange Commission is available after March 31, 1978 by writingthe Vice President and Treasurer at 300 Erie Boulevard West, Syracuse, N.Y. 13202.

The information in this report is not given in connection withthe sale of, or ofter to buy, any security, Printed In U.S.rt.

John G. Haehl, Jr.

President and Chief Executive Officer James Bartlett Executive Vice President James J. Miller Senior Vice President Richard F. Torrey Senior Vice President WilliamJ. Donlon Senior Vice President John H. Terry Senior Vice President, General Counsel and Secretary Richard C. Clancy Vice President Research and Environmental Affairs O. Mark DeMlchele Vice President Public Relations Donald P. Disc Vice President Engineering iElected October 6, 1977)

John J. Ehllnger Vice President Employee Relations John M. Endrles Vice President and Controller Richard A. Flynn, Jr.

Vice President Consumer Relations IRetired February f5, 1978)

William C. Franklin Vice President Purchasing John M. Haynes Vice President and Treasurer Eugene J. Morel Vice President Employee Services and Risk Management James F. Morrell Vice President Corporate Planning Gerald K. Rhode Vice President System Project Management IEtected October 6, 1977)

Rudolph R. Schnelder Vice President Electric Production Kenneth A. Tramutola Vice President Rates Robert M. Cleary, Jr.

Vice President and General ManagerWestern Division Raymond Kolarz Vice President and General ManagerCentral Division Richard H. Kukuk Vice President and General ManagerEastern Division Edward P. Gueth, Jr.

Assistant General Counsel Herman B. Noll Assistant General Counsel Anthony J. Baratta, Jr.

Assistant Controller Adam F. Shaffer Assistant Controller Henry B. Wightman, Jr.

Assistant Controller John W. Powers Assistant Treasurer Harold J. Bogan Assistant Secretary Joseph F. Cleary Assistant Secretary Eastern Division Frederick C. McCall Assistant Secretary Western Division James Bartlett Executive Vice President, Syracuse Thomas J. Brosnan Consultant (formerly Vice President Research and Development, Environmental Matters), Syracuse Edmund M. Davis Partner, Hiscock, Lee, Rogers, Henley & Barclay, attorneys-at-law, Syracuse Edward W. Duffy Chairman of the Board and Chief Executive Officer, Marine Midland Banks, Inc., a bank holding company, Buffalo Edmund H. Fallon Executive Consultant, Agway, Inc., purchasing and marketing organization, Syracuse John G. Haehl, Jr.

President and Chief Executive Officer, Syracuse Edwin F. Jaeckle Senior Partner, Jaeckle, Fleischmann &Mugel ~

attorneys-at-law, Buffalo Ralph F. Leach Former Chairman of Executive Committee, Morgan Guaranty Trust Company of New York, commercial bank, New York Lauman Martin Consultant (formerly Senior Vice President and General Counsel), Syracuse Baldwin Maull Director of various corporations, New York Martha Hancock Northrup Housewife, former President, Grouse-Irving Memorial Hospital Board, Syracuse Frank P. Plskor President, St. Lawrence University, Canton Lewis A. Swyer President, L.A.Swyer Company, Inc., builders and construction managers, Albany Dean P. Taylor Senior Partner, Wager, Taylor, Howd, Brearton & Kessler, attorneys-at-law, Troy fDeceased October 18, 1977)

John G. Wick President and Chief Executive Officer, Merchants Insurance Group, Buffalo BOARD COMMITTEES Executive Committee John G. Haehl, Jr., Chairman Edmund H. Fallon Edwin F. Jaeckle Ralph F. Leach Baldwin Maul l John H. Terry, Secretary Pension Committee Edmund H. Fallon, Chairman Edmund M. Davis Baldwin Maull Salary Committee Baldwin Maull, Chairman Edwin F. Jaeckle Ralph F. Leach AuditCommittee Edward W. Duffy,Chairman Lewis A. Swyer Frank P. Piskor Committee on Corporate Public Policy Frank P. Piskor, Chairman Martha H. Northrup Edmund H. Fallon Finance Committee Ralph F. Leach, Chairman John G. Wick Edmund M. Davis 24

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

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