ML18038A146
| ML18038A146 | |
| Person / Time | |
|---|---|
| Site: | Nine Mile Point  |
| Issue date: | 12/31/1985 |
| From: | Donlon W, Haehl J, Lempges T NIAGARA MOHAWK POWER CORP. |
| To: | NRC OFFICE OF ADMINISTRATION (ADM), Office of Nuclear Reactor Regulation |
| References | |
| NUDOCS 8604010251 | |
| Download: ML18038A146 (88) | |
Text
REGULATORY I RMATION DISTRIBUTION SYS (RIDS)
ACCESSION NBR: 8604010251 DOC. DATE: 85/12/31 NOTARIZED: NO DOCKET 0 FACIL: 50-220 Nine Mile Point Nuclear Station> Unit 1> Niagara Powe 05000220 50-410 Nine Mile Point Nuclear Station> Unit 2> Niagara Moha 050004IO AUTH. NAME . AUTHOR AFFILIATION HAEHL> J. G. Niagara Mohawk Power Corp.
LEMPQES> T. E. Niagara Mohawk P ower Corp.
DONLON, W. J. Niagara Mohawk Power Corp; RECIP. NAME
SUBJECT:
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NIAGARA IYIOHAWK POWER CORPORATION I'II~N';
NIAGARA '~I MOHAWK 300 CRI C SOULCVARD WEST SYRACUSE, H.Y. I3EOE THOMAS E, I.EMPG ES VCE PAESOKM~ GCNfRATCN March 27, 1986 Director Office of Nuclear Reactor Regulations c/o Distribution Services Branch, DDC, ADM U.S. Nuclear Regulatory Commission Washington, DC 20555
Dear Sir:
As required in Title 10, Chapter I, Code of Federal Regulations, Section 50.71(b), and compiled in Regulatory Guide 10;l,.enclosed are ten (10) copies of Niagara Mohawk Power Corporation's 1985 Annual Report.
Cordially, TEL/jrs Enclosures (10)
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RECORDS FACILITYBRANCH 8604010251 5000220 ADGCK POR
Serving upstate New York Corporate Mission Ranked as one of the most prominent investor-owned Niagara Mohawk is an energy company with diversified utilities in the United States, Niagara Mohawk Power interests and resources committed to providing for Corp. serves an area encompassing more than half the the current and future needs of its customers through land mass of New York State. Our electric system ex- economical products and services of superior quality.
tends from Lake Erie to New England's borders, to The Company is dedicated to maintaining an effi-Canada and Pennsylvania, and meets the diversified cient, progressive, cost-conscious organization that needs of nearly 1.4 million customers. Our natural gas provides a fair and equitable return to its owners.
system serves 440,000 customers in central, eastern The Company recognizes that its most valued re-and northern New York, nearly all within our electric source is its employees, and that the Company's suc-territory. Two Canadian companies, St. Lawrence cess is directly dependent on their efforts. Manage-Power Co. and Canadian Niagara Power Company, Ltd., ment is committed to retaining and motivating tal-owned by our subsidimy, Opinac Investments, Ltd., ented. productive. effective employees by providing provide energy to portions of Ontario. Other sub- reasonable compensation, incentives and a good sidiaries are Hydra-Co Enterprises, Inc., N M Uranium, working environment.
Inc., Niagara Mohawk Finance, N.V. and Opinac The Company pursues opportunities to improve the Energy, Ltd. Our corporate headquarters are 300 Erie economic climate and well-being of citizens, industry Boulevard West, Syracuse, N.Y. 13202. and business within the markets it serves. Appropri-ate actions are taken to meet socioeconomic respon-sibilities. Such actions include seeking those neces-
~ Mainne sary improvements in the regulatory and legislative Pohdan environment that best serve the interests of the Com-pany's customers, employees and owners.
The Company maintains high ethical standards and strives for open communications with all its con-stituencies.
The Company takes an active role in the develop-ment of technologies and opportunities advantageous R
. Giana Faiia ~ to its customers and owners. It is dedicated to main-iagara Faifa ~ u~ taining and developing dependable energy resources 1 L,
~ Buiiain
~ Batavia and delivery systems that are safe and environmen-tally sound.
Management willactively pursue strategies in sup-port of objectives to accomplish this mission.
NEW YORK STATE Cover Giant mapboard in new Power Control Center in Syra-cuse displays status of all principal generating sta-tions, transmission lines and substations in Niagara Mohawk's massive Upstate New York power network.
Center is described on page 4.
Highlights of 1985 Contents 0/ 2 To our stockholders 1985 1984 Change 4 Managing change Total operating revenues...... ~.......... ~ 2,694,940,000 S 2,785,546,000 (3.3) in mid-decade Income available for common 18 Market price of common stockholders . 351,871,000 S 308,274,000 14.1 stock and related stockholder matters Earnings per common share ............ 42.88 S2.84 1.4 18 Management's discussion Dividends per common share S2.06 S1.98 4.0 and analysis of financial condition Common shares outstanding(average) .. ~ 122,215,000 108,734,000 12.4 22 Report of management Utilityplant(gross) S 7,640,905,000 S 6,903,184,000 10.7 23 Consolidated financial Construction work in progress ~..... ~.... ~ 2,336,188,000 S 1,877,689,000 24.4 statements 23 Reportofindependent Gross additions to utilityplant... 771,120,000 S 769,846,000 0.2 accountants Kilowatt-hour sales . 35,296,000,000 37,086,000,000 (4.8) 26 Notes to consolidated Electric customers at end of year........ 1,424,000 1,405,000 1.4 financial statements 39 Statistics Electric peak load(kflotuatts) ... 5,862,000 5,526,000 6. 1 41 Officers, directors, Natural gas sales(dekatherms) .. 108,420,000 114,960,000 (5.7) corporate information Gas customers at end of year........... 440,000 436,000 0.9 Maximum day gas sendout(dekatherms) .. 774,033 772,604 0.2 Earnings and dividends Market price of common stock paid per common share at year end 1985 Dividends $ 2.06 Earning) $ 2.88 1985 $ 20V2 1984 $ 1.98 $ 2.84 1984 1983 $ 1.89 $ 2.77 1983 $ 15%
1982 $ 1.76 1982 1981 $ 1.61 $ 2.35 1981 $ 12%
The 1985 revenue dollar And where it went Fuel for the production of electricity 28f!
and electricity purchased Income and other taxes 16tf Residential customers 35ff Gas purchased 154 Commercial customers 32' Wages, salaries, employee benefits Industrial customers 21II to stockholders 11tf 11'ividends All others 12II Interest and other costs net 9tf
, ~ir Depreciation in business 4tf 6'etained
To om.. stockholders We are pleased to report an increase in earnings Nuclear Unit Two project, we were compelled in by Niagara Mohawk for the fifth straight year, as early 1986 to defer fuel loading from February-earnings rose to 42.88 per share of common the target established five years ago- until May stock in 1985 compared with 42.84 in 1984 on 1986. Essentially, this was the result of delays fewer shares. experienced in finalizing construction and con-We are also pleased to note the increase in the ducting pre-operational testing prior to fuel load-annual dividend rate on our common stock ing. Currently, however, the fuel has been de-during 1985 to 42.08 from the previous 42.00 livered to the site and has undergone inspection, per-share rate. and most of the plant's operating systems have Although 1985 saw significant construction been successfully tested. The fuel-loading post-progress at the nearly completed Nine Mile Point ponement has required rescheduling the Unit's commercial startup to early 1987. Extensive dis-cussions regarding cost, schedule, regulatory and financial matters and other important fac-tors on Nine Mile Two are contained in Note 10 to
-$ ~i' our financial statements, page 33.
In October, we wrote to our stockholders de-scribing a Nine Mile Two cost settlement agree-ment, proposed in a filingwith the N.Y, State
!I+5) Public Service Commission. The proposal seeks to achieve certainty regarding the cost of the Unit that willbe borne by customers of the utilityco-owners sharing the project, with costs in excess of the settlement value to be borne by each co-owner.
Considering all factors, we are confident that, this realistic agreement would be in the best interest of all parties involved in Nine Mile Two the co-owners, their customers and stockholders. Given today's regulatory response John G. Haehl, Jr. to the rate impacts of new nuclear facilities, the probability of our entire investment in Nine Mile Two being recovered in rates is remote.-
Moreover, pursuing that action would take sev-eral years for "prudency review" proceedings by the PSC. Such an exhaustive inquiry would itself seriously burden the project at a time when its managem'ent and staff are concentrating their ef-forts and'resources upon operational testing and final preparations for commercial power service.
The administrative law judges recently recom-mended to the PSC that the settlement be re-jected for various reasons and that a detailed cost review of the Unit be undertaken. They ac-knowledged however, that the proposal may form a reasonable basis for concluding the cost review proceedings. The Company willbe strongly op-posing the recommendation to reject the settle-
, ment We expectadecisionbytheCommission .
in May and shall continue to keep you advised on WilliamJ. Donlon this matter. C
Despite the fuel-loading delay, we met a rigor- year. This state-of-the-art showcase is the heart ous series of construction milestones and ex- of our advanced Energy Management System.
perienced a number of other encouraging de- In reviewing the past few years, we can take velopments during the year at Nine Mile Two. some satisfaction in our achievements. Niagara These included a favorable recommendation, Mohawk common stock has become increasingly with laiidatoiy references to the plant's quality attractive each year, with year-end market value and safety, from the Advisory Committee on, rising annually since 1980 and exceeding book Reactor Safeguards to the Nuclear Regulatoiy value in 1985 for the first time in 13 years. In Commission. This is a key step toward achieving another encouraging development, the credit rat-a full-power license. Further, in 1985, the Nine ings of Niagara Mohawk securities were up-Mile Point site became the nation's first to win graded in May 1985 by one of the nation's leading approval by the Federal Emergency Management investor service agencies. While energy markets Agency for both an emergency plan and prompt willcontinue to be volatile, interest rates, infla-notification system. tion and oil prices are decreasing. These factors Looking at the future, we remain confident that all provide a more favorable economic base as we Nine Mile Two willoccupy a prominent place be- look ahead.
side its well-established partner, Nine Mile One, As we begin to leave the Nine Mile Two con-a nuclear pioneer in service since 1969. Our op- struction era behind us and set a course for the timism is further bolstered by Nine Mile One's ., late 80s and 90s, we willwelcome the more mod-excellent performance in 1985, as production erate overall financing needs, since both capital capacity reached 92 percent, its highest ever. and external financing requirements willdecline Moreover, Nine Mile One was available to meet as Nine Mile Two's building costs reach an end.
load 96 percent of the entire year, also a station Our cash-flow situation should strengthen and record. This outstanding operating experience the Company willalso become better positioned has made Nine Mile One the best performing boil- to pursue innovative new options and oppor-ing water reactor in the world during 1985 in tunities for further growth. Our two young sub-both the capacity and availability categories. sidiaries, Hydra-Co Enterprises, Inc., and Opinac New electric and gas rates to produce an addi- Investments, Ltd, imaginative, independent, tional 458. 1 million annually were approved by expanding provide a glimpse of the oppor-the PSC and implemented in March 1985. The tunities ahead as we enter this new era of re-Company found it necessary to file a new electric sourcefulness in our Corporate Mission.
rate increase in April, including the firstyear of a On behalf of the Board of Directors and man-proposed phase-in for Nine Mile Two. At recent agement, we want to express our gratitude to our public meetings, the PSC indicated that an in- stockholders and employees for your support crease in the amount of Nine Mile Two construc- and loyalty throughout this eventful year. With tion work in progress willbe allowed in rates to you, we look forward to the years ahead.
provide cash flow to cover a portion of financing costs, and that deferral accounting procedures willbe employed for any Nine Mile Two operating expenses prior to April 1987. A phase-in plan of seven years, possibly to be shortened to five years ifthe proposed cost settlement is ap- John G. Haeht,Jr.
Chairman ofthe Board and proved, would also be allowed. Observing that re- Chief Bxecntive Ollicer turns in financial markets are decreasing, the PSC set a return on equity of 13.5 percent for the next rate year ending March 1987, compared to a currently authorized 15.5-percent return.
Featured on the cover of this Annual Report, WilliamJ. Don!on President our new system-wide Power Control Center was formally dedicated in Syracuse in January 1986-a bright start for Niagara Mohawk's new March 10, 1986
Managing change in mid-decade Management's commitment to Niagara Mohawk's The year 1985 was eventful and dynamic for corporate mission in the next decade and the this impressive addition to the nation's nuclear century ahead is clearly evident at our new power base and to New York State's energy Power Control Center, completed and on-line in supply.
1985. Located in the heart of New York State, this One of the most encouraging developments model of modern utilitytechnology willserve as was a report with strong words of recommenda-the nucleus for coordinating the supply and de- tion to the NRC from the Advisory Committee on livery of power throughout our 24,000-square- Reactor Safeguards (ACRS) to allow Nine Mile mile service area. Two to be granted a license to operate up to full The new Center is also evidence of our dedica- power after completion and testing. In its report tion to management excellence and our con- following a detailed technical inspection of the sumer service-keyed "Think Customer" philoso- project, the Committee cited a "clearly evident phy. Years in the planning, the two-story brick dedication to both quality and the assurance of structure is a state-of-the-art, high-tech show- quality" and added that "there is a reasonable case, utilizing the most sophisticated elec- basis for confidence that the quality of the plant tronics and computer equipment. Its focal point willbe adequate... Unit Two can be operated is a large illuminated mapboard in the central without undue risk to the health and safety of the power control room (featured on our Annual Re- public," the Committee concluded. The ACRS port cover), where major generation and supply report willhave a direct bearing upon the NRC's interconnections and transmission facilities are final decision to issue the operating license re-constantly monitored. The mapboard is inter- quired prior to the fuel load, currently scheduled faced with arrays of computers and consoles to for late spring 1986.
provide power dispatchers a constant flow of in- The year 1985 was significant at Nine Mile Two formation on Company-wide operations. A cen- for meeting a series of important testing mile-tral Energy Management System (EMS) compu- stones. These included the integrated systems ter, linked statewide with major utilities in the flush and reactor pressure-vessel hydrostatic New York Power Pool, automatically monitors testing which were completed successfully and customer demand and adjusts generation to pro- enabled our project team to continue to guide vide the lowest-cost electricity to meet custom- the unit toward operational readiness.
ers'nergy demands. Other computers in the Remaining tasks at the site, after fuel loading, Center enable dispatchers to conduct instant involve nuclear heatup and testing of the reactor bulk-power transmission exchanges and trans- and its various components, a sequence of actions with utilities and regional networks control-room tests and related operating inspec-outside New York State. tions. After a series of pre-arranged, automatic A Central Region control center, with its own outages and brief shutdowns, further checks and mapboard and communications system, also will "fine-tuning," it is slated for a 100-hour run at be situated in the Power Control Center. Similar full power in preparation for commercial service.
to the main system-wide facility, this willoperate In its lifetime, Nine Mile Two should produce 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> per day, year-round, to monitor and electricity equal to more than 400 million barrels control transmission and distribution facilities of oil, amounting to billions of dollars in fuel on a Central and Mohawk Region basis. Older savings.
system and regional power control centers in Niagara Mohawk is managing agent and the Syracuse and other points in the system are major partner in the construction, operation and being phased out by the new Center and EMS ownership of Nine Mile Two. The Company's por-systems. tion is 41 percent, with Long Island Lighting Co.
On an historic note, the new Power Control and New York State Electric and Gas Corp. hold-Center commenced operations in the 20th an- ing ownership at 18% each; Rochester Gas and niversary year of the dramatic "Northeast Black- Electric Corp. at 14% and Central Hudson Gas out of 1965." More important, many of the Cen- and Electric Corp. at 9%.
ter's complex high-tech controls and safeguards. More detailed summaries of Nine Mile Two's can be traced to new developments stemming cost, financing and regulatory developments are from research since that memorable date. presented in the Management Discussion and Analysis on page 21 and in Note 10 to financial, Nine Mile Two aears its time statements on page 33.
Nine Mile Point Nuclear Unit Two almost fully Nine Mile One consistent achiever constructed at this writing-is approaching final testing and gradual power ascension, onward to Our Nine Mile Point Nuclear Unit One distin-commercial service, now scheduled in January guished itself again for another year- the 16th 1987. -for the 610,000-kilowatt nuclear pioneer-as it
entered the second half of the decade of the its emergency plan and prompt notification sys-1980 s. tem. These were again subjected to rigorous test-During 1985, Nine Mile One attained 92 per- ing in a formal emergency exercise at Nine Mile cent production capacity its highest ever-and One in late 1985 with federal, state and local gov-generated 4.9 billion kilowatt-hours, operating ernment agencies taking part. The day-long drill, more than 96 percent of the entire year. In terms with realism and urgency in a scenario of simu-of availability, this performance ranks the plant lated mishaps, earned expressions of approval as number one of all nuclear stations of its type and enthusiastic praise from representatives of (boiling water reactor) in the world Compared FEMA and the Nuclear Regulatory Commission with fossil-fired stations, nuclear-generated for the utility, state and county performances.
power from Nine Mile One, which went on line in Emergency plans for similar, agency-mandated 1969 at an original cost of 4158 million, exercises and drills have been prepared for Nine amounted to a savings to consumers of some Mile Two.
4226 million for oil-fired generation, or 463 mil- Also of positive note at Nine Mile One during lion for coal-fired generation in 1985 alone. the year was a required Systematic Assessment Early in 1985, the Nine Mile site became the of Licensee Performance a rigid inspection by first in the U.S. to win approval by the Federal NRC experts performed annually at the Unit. Nine Emergency Management Agency (FEMA) for both Mile One achieved the highest grades possible in Dispatchers at consoles in Power Control Center supervise energy supply and delivery operations to provide lowest-cost electricity for Niagara Mohawk customers.
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seven of the eight categories reported (a satisfac- Customer" is more than a slogan and is achiev-tory middle grade was granted for the eighth ing an impact where it counts most. Our overall category). "favorability rating," comprised of attitude in-dicators we have tracked since 1980, rose Those who come first significantly in 1985.
Exemplifying our "Think Customer" year was Our "Think Customer" campaign, initiated in the deployment of 450 Niagara Mohawk people, late 1984, was stepped up in 1985 to instill including line crews and various support per-further employee appreciation of the need to sonnel, to assist other utilities in restoring maintain the highest quality service to custom- power to the many thousands of families and ers everywhere in our business. storm victims of Hurricane Gloria in October.
"Think Customer" was visibly prominent Niagara Mohawk crews dispatched to cities and throughout the Company and its workforce dur- communities throughout the Northeast, includ-ing the year. Posters in workplaces, employee ing Long Island, Connecticut and Massa-seminars and workshops, periodic newsletters, chusetts, labored around the clock for nearly two video reminders and other communications and weeks under extreme damage conditions to per-training activities were all part of this enthusias- form repairs. Their fine performance brought tic, concerted effort to build greater customer many warm letters of gratitude and praise to rapport. Niagara Mohawk from hurricane victims and A system-wide survey of consumers by a pro- generated appreciative editorial coverage by the fessional opinion research firm indicates "Think news media in communities hit by the storm.
"Think Customer" services helping to pay for their basic energy require-ments.
A prime example of Niagara Mohawk's efforts on Care 8r. Share is conducted by Niagara Mohawk behalf of our customers is the Care 8t Share in close cooperation with the American Red Energy Fund, which provides assistance to Cross, which administers the program. Since its elderly, disabled or handicapped residents by inception in 1984, Niagara Mohawk consumers and employees have contributed S240,000, with the Company's stockholders adding $ 1 for Nine Mile Point Nuclear Unit Two dominates southeast- each S2 contributed. In addition, S250,000 was ern Lake Ontario shoreline in aerial scene of the nearly donated by our stockholders as seed money to completed 1.08-million kilowatt installation. At right is start the fund. The fund's success continues to Nine Mile Point Unit One, in service since 1969, which set grow. In 1985 alone, the funds donated to Care &
a world's operation record in 1985. Share helped some 1,500 needy families pay Large turbine assemblies receive final installation ad-their energy bills (regardless of energy type justments at Nine Mile Point Nuclear Unit Two project. used), to repair home heating equipment and in-High-pressure steam from reactor will activate turbines, stall weatherization materials. In 1985, Niagara on same shaft as unit's generator, to produce power. Mohawk received special recognition from the White House for Care R Share as part of the Pres-ident's plan to promote involvement by business in community projects. Early in 1986, the Company began offering an employee payroll deduction plan for Care 8r Share.
Special Olympics bring out the best Perhaps the most memorable occasion involving Niagara Mohawk and its'employees taking the lead in a worthy cause was the Summer Games of the 1985 N.Y. State Special Olympics for the handicapped. Sponsored in part by NM and manned by many Company volunteers, the Games attracted more than 1,000 competitors in three days of events at the Syracuse University Carrier Dome and New York State Fairgrounds.
Lending our "eyes and ears" Our Radio Watch community service was intro-duced in 1985 to assist police and public safety agencies in emergencies. Personnel operating radio-equipped Company cars and trucks are now providing extra "eyes and ears" on streets served by Niagara Mohawk. Since the start of Radio Watch, a number of incidents were re-ported by alert NM personnel who spotted crimes in progress, suspicious activities, accidents and other emergency situations.
Child Watch Niagara Mohawk is among many utilities par-ticipating in the coast-to-coast National Child Watch Campaign to help locate missing children and help prevent abductions. In 1985, the Com-pany started mailing leaflets with customer bills featuring photos and descriptions of abducted children with a toll-free telephone number. NM is working with the U.S. Justice Department, Na-tional Center for Exploited Children and other organizations and agencies in this program.
sumer issues. Recommendations from the Council have been helpful to us in creating assis-tance programs for consumers.
Direct services for consumers Many other services and support programs were created or continued in 1985, as follows:
~ Savingpower energy conservation surveys of 13,000 consumers'omes, including home energy inspections, with financial assistance and low-interest loans from lending institu-tions for qualified applicants to make energy conservation improvements.
~ Energy Conservation Bank for the needy and elderly in cooperation with county offices of the aging and the State Energy Office.
~ Home Energy Level Payment Plan-helps con-Energy Conservation representative presents package of sumers manage winter energy costs. Some free lightbulbs to one of 13,000 Niagara Mohawk cus- 125,000 customers now have their annual tomers who received home energy surveys in 1985. Bulbs energy costs divided into 12 level payments.
were given as part of survey promotion campaign.
~ Deferred Payment Plan for customers with severe financial hardships. It provides for a combination of down payments and as many as Involving consumers 48 monthly payments to clear remaining balance.
The Consumer Advisory Council on Energy
~ Quarterly Payment Plan for Senior Citizens Affairs begins its tenth year of activity in 1986.
Formed to maintain an open and candid flow of gives customers 62 years or older, with annual information and attitudes from the customer' service charges of up to $ 150, the option of side of the business, the Council performs a paying their utilitybills on a quarterly basis.
unique function by tracking what the public ~ Community Conservation Grant Program thinks of Niagara Mohawk so we can effectively provides direct funding for installation of respond and adjust to consumer needs. ceiling/attic insulation and furnace replace-The Council's 24 members represent all walks ment and repairs in single-family homes of life and meet monthly with NM executives for within certain income guidelines, in coopera-frank discussions of energy policies and con- tion with county affices for the aging.
MONTHLYRESIDENTIAL ELECTRIC COST FOR 500 KILOWATT-HOURS New York City $ 70.60 Philadejp~ia, PA $59.75 .
NYStateAvera e notlncludin $ 58.51 NM'ewark NJ $ 54.12 Hartford, CT $ 48.68 Boston MA $ 48.33 Cleveland OH $ 45.76 Los Angeles CA $ 41.36 National Avera e- $ 40.98 Portland, ME $ 40.04 Nia ara Mohawk $ 36.27 Includes fuel and PASNY credit adjustment as appllcablo.
'N M Rate Department as of 12/1/85 "E.E I. Report with rates effective 7/I/85 All othors supplied by utilitywhich serves city, with rstos and fuol effective 12/I/85
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" I' 102 Maintaining economic vitality Vigorous economic growth, stemming from a thriving industrial and business base, is a top goal of upstate New York communities and-as the utilityserving them energy Niagara r'I .s Mohawk as well. In 1985, the Company under-took a number of innovative economic develop-ment programs to generate such growth.
These include a "New Directions" national ad-vertising campaign to form working partnerships with state and other public and private business associations representing large constituencies.
The over-riding purpose is to attract new busi-ness and industry to the upstate region and offer assistance with expansion plans.
Closely allied with these programs is an ongo-ing project started in 1985 to match emerging new technologies with industrial customers on our lines. Working in close cooperation with Syracuse University's Institute for Energy Re-search, joint research teams surveyed 1,350 in- <<.'assengers dustrial customers in the service area during the board train in Niagara Frontier Transit Au-year. The intent is to help industries improve thority's new rapid transit system, a nearly $ 500-million productivity, reduce energy usage and cut costs addition to Buffalo scheduled to be fully operational in through the possible application of such con- 1986. In lower photo, Army vehicles bound for Europe are cepts as plasma and laser processing, electron- loaded on ocean-going freighter docked at Oswego, a beam and ultraviolet curing and robotics. Such strategic international port in the heart of Niagara measures may help certain customers improve Mohawk's service area.
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their profitabilityand competitiveness. Once Technicians inspect instruments in watershed monitor-several successful case histories are established ing research project at Salmon River hydro station, Os-through high-tech demonstrations with these wego County. Data is automatically transmitted via satel-customers, Niagara Mohawk willshare the in- lite and fiber optics to new Power Control Center in Syra-formation so other industries can implement cuse. Two-year study seeks to learn how weather data can be used in coordination of hydro and thermal power similar modifications and enjoy the resulting plants.
benefits.
A survey in late 1985 by Niagara Mohawk of Monochromatic light is used to measure flatness (to nine major U.S. cities across the nation showed within 40-millionths of one inch) of seal ring for reactor that NM industrial customers pay considerably coolant pump at Nine Mile Point Nuclear Unit One. Re-less for electricity per month than the sults of five-year seal-technology research by Niagara average 412,415 versus 414,716, for 200,000 Mohawk are expected to reduce costs and further refine kilowatt-hours. This positive point is em- plant performance.
phasized in all our economic development pro-motion and advertising work.
The "cutting edge" research Research efforts by Niagara Mohawk were espe-cially productive and promising during the year.
A new emphasis was given to the clean use of coal as we look down the road at generation needs.
Highest priority was placed upon development of the integrated gasification combined-cycle S (IGCC) system as a most promising clean-coal option featuring high-efficiency and extremely low sulfur-emission characteristics. In this latest power-generation technology, coal is first converted to a raw, virtually sulfur-free gas. This pure gas is burned in a turbine to generate elec-tricity, and the exhaust heat is captured in a boiler to create steam. The high-pressure steam is then employed in a conventional turbine-generator to produce additional electric power in this combined cycle concept. In 1985, Niagara Mohawk started appraising a proposal for an IGCC system for our Albany Steam Station, with a 200,000-kilowatt demonstration prototype possible in the early 1990s.
Another research project proposal submitted during the year was for design, construction and demonstration by General Electric Company of a prototype integrated-gasification, steam-injected marketable prices. Compressed natural gas re-gas turbine at our Dunkirk Steam Station. Such a search demonstrations are showing increasing concept, somewhat similar to IGCC, offers promise and potential for CNG as a clean, plenti-utilities a new coal-to-electricity option with all ful and comparatively low-cost fuel for vehicles.
the advantages of IGCC but with flexibilityto add A unique CNG marketing demonstration was un-smaller lower-cost generation units in the dertaken in 1985 to test this promise. (See page 50,000 to 100,000-kilowatt range as load growth 14). NM researchers are also assessing the requires. We have completed initial planning for economic and technical potential of dairy this project and the U.S. Department of Energy is biomass cogeneration produced by waste at the reviewing the proposal. The demonstration is many hundreds of dairy farms in our service planned for the late 1980s. area.
Marked advances and many" firsts" in gas re- Niagara Mohawk has received recognition search were also noted in 1985. Aggressive ef- nationally for its pioneering studies of earth-forts are under way to find new, low-cost gas coupled heat pumps, which apply the earth' energy equipment and services, improved gas stable temperature to draw heat from in winter, distribution and energy management systems and for cooling in the summer. Earth-coupled and to insure long-term supplies of natural gas at heat pumps offer a 50 percent year-round energy
savings and a similar energy demand reduction, compared with conventional heating and air conditioning. So effective has this concept proved that we undertook marketing initiatives for the earth-coupled heat pump during the year.
Additional RRD strides by NM independently and with others (including the nationwide Elec-tric Power Research Institute, and Gas Research Institute) follow in brief:
~ Acid rain involvement by NM in five continu-ing studies related to acid precipitation, primarily in the Adirondacks.
~ Robotics prototypes under study and test for possible use making visual inspections of transmission facilities and performing tasks at Nine Mile Point nuclear facilities.
~ Satellites and fiber optics now serving in Energy Management System, remote wa-tershed monitoring and other varied com-munications tasks.
~ Wind energy-50 square miles of wind-turbine site areas were identified in NM service terri-tory during the year with potential for total bulk-wind power generation of 100,000 kilowatts.
~ Indoor air quality joint project by NM with N.Y. State Energy Research and Development Authority completed in 1985 to investigate in-door air pollution sources.
~ Power "Donut" transmission line monitor-ing system for reduced costs and improved ef-ficiency, invented by NM researchers and about to be marketed commercially, won both federal and state awards for energy innovation in 1985.
Research efforts in 1985 alone produced an estimated savings of some 430.75 million in avoided costs for consumers and improved Com-pany operations, while energy conservation re-search projects saved consumers an additional 47.75 million in 1985.
Corporate strategic planning Management continues to examine the future through a carefully structured strategic planning process. The process appraises the dynamics of situations facing the business and modifies our Corporate Strategic Plan to provide the direction needed to effectively employ resources. Direc-tion is set forth in our corporate mission state-ment (see inside front cover) and corporate ob-jectives. Strategies define our courses of action how to accomplish these objectives.
During 1985, a survey was conducted to de-termine how the beliefs and expectations of all
employees fitwith these objectives and Following a 1984 precedent, Niagara Mohawk strategies. Results are being integrated into the began seeking "outside" proposals from compet-1986 update of the Corporate Strategic Plan. ing energy developers late in 1985 to construct The Plan has proved to be a valuable com- and operate a hydro project at Union Falls on the munications vehicle both within the Company Saranac River. Power generated at the proposed and with outside constituencies. It emphasizes 2,600-kilowatt installation willbe sold exclu-the long term over the short and provides a sively to NM under this plan, which entails total common understanding of what the Company renovation of a hydro plant retired in the 1960s.
wants to happen and how it intends to achieve its The new site is slated for 1988 completion.
objectives. Union Falls is the second hydro project in Working together on strategy development has which Niagara Mohawk has sought proposals created a firm commitment to increased man- from private concerns for the independent con-agement teamwork, a positive benefit of our struction and long-term operation and mainte-Corporate Strategic Plan. nance of a power station, as this arrangement avoids costs and eliminates development expen-Managing our hydro resources ditures for the Company. The first contract was In planning and managing Niagara Mohawk for a 15,500-kilowatt plant at Glen Park on the waterpower resources, 16 hydro projects are Black River. That project is progressing toward slated for either construction, renovation, or its targeted in-service date of 1986 and, pending expansion on Northern New York rivers and Federal Energy Regulatory Commission streams. Together, they willboost the Com'- approval, may be upscaled to 29,000 kilowatts.
pany's hydro output by 113,000 kilowatts. Another 1985 hydro highlight was observed as We are also negotiating contracts with various the 74,600-kilowatt Rankine Station noted its independent small hydro operators in our serv- 80th year of operation. This energy pioneer, ice area for an additional 198,800 kilowatts. owned by our subsidiary Canadian Niagara
Power Company, Ltd., is a working landmark ELECTRICITYGENERATED above the Horseshoe Falls at Niagara Falls, AND PURCHASED Ontario. BYTYPEOF FUEL,1985 Fossil-fired station improvements Hydro 29/o Many modifications were carried out at the Com-pany's fossil-fired stations, reducing costs, up- Various sources 26%
grading operating efficiencies and improving the Coal 19/o environment.
Early in 1986, the boilers of the oil-fired Nuclear 15%
Oswego Steam Station units five and six were Oil 7%
equipped with igniters to burn natural gas in- Natural gas 4%
stead of oil at times of generation start-up. This required construction of 3.5 miles of 16-inch natural gas pipe line to the units from a gas main south of Oswego including crossing under the 1985 at our Huntley and Albany steam stations.
bed of the Oswego River. The new modification Both plants were equipped with wastewater allows the units to be removed from service at treatment facilities, including chemical treat-night, when electrical demands are low, and ment operations. In addition, at Huntley a new brought back on line quickly and economically groundwater containment and collection system in the morning. Clean stack emissions are also a intercepts and purifies all rainwater which per-feature of this project. colates through the plant's coal pile.
Projects reflecting Niagara Mohawk's com- In 1985, we embarked with the Electrical mitment to protection of water resources and Power Research Institute and Empire State Elec-costing a total of 417 millionwere completed in tric Energy Research Corporation on in-depth investigations of our fossil-fired units with the goal of extending their service lives well into the 21st century as much as 20 years beyond their normal 40-year design lifetimes. Using modern metallurgical analysis techniques, we have al-ready determined that this is possible with an older Huntley unit, employing modest upgrading and modernization methods. We plan to perform similar investigations of all active fossil-fired units and implement a coordinated life-extension program for them in forthcoming years.
Newest power ties t
I Electricity from Nine Mile Point Nuclear Unit Two willbe delivered into the cross-state energy g +) b l system via two major new 345,000-volt transmis-sion lines. The first was completed in 1985 and extends 10 miles southeast to our Volney Sub-station. The second line, planned for spring 1986 completion, willrun from Volney some 65 miles southeast to Marcy Substation near Utica In other transmission activity, existing double-circuit 115,000-volt lines were removed Boiler operation is inspected at Huntley Steam Station and reconstructed from Massena to Colton in near Buffalo in research demonstration that injects lime- Northern New York, and a 115,000-volt line was stone "fluxing agent" into boiler to permit burning high-fusion coal. Project promises to reduce fuel costs. constructed from the Olean area to Ellicottville in Western New York.
Autumn view of Sherman Island Hydro Station near Glens Falls shows curved cofferdam, left, temporarily installed Outlook for gas continues to brighten during the year to allow drainage and repairs to 63-year-old concrete dam at 28,800-kilowatt Hudson River site. For Niagara Mohawk and our natural gas con-Project is among many hydro renovation and mainte- sumers the year was a good one. Partial decon-nance activities at NM waterpower sites. trol of wholesale gas prices which became effec-13
tive in January 1985 resulted in lower prices and a continuation of the favorable supply picture.
During 1985 new regulatory developments oc-curred at the Federal level which may lead to 0 "open" transportation of the nation's pipeline system. Niagara Mohawk willtake advantage of any gas supply opportunities that these new P SC regulations may provide to the benefit of our customers.
Overall, 1985 gas sales fell by six percent, but CANADIAN the decline was due primarily to a swing from NIAGARAPOWER cooler-than-normal weather in 1984 to warmer-than-normal weather in 1985. On a weather-adjusted basis, residential and commercial sales tl. LAWIIENCE '@"'POWER COMPN were up four percent from '84 levels. AN%+
Industrial sales were strong early in 1985, but were affected by a 20-percent decline in residual oil prices in the spring. Nevertheless, the Com- Corporate logos identify Niagara Mohawk subsidiaries.
pany managed to retain 85 percent of the alter-nate fuel-sensitive market through the remain-der of 1985. 1985, with service to commercial fleet vehicles Looking ahead, preparations for taking advan- scheduled in spring 1986.
tage of the more favorable outlook for gas sales were stepped up in 1985. We have greater oppor- Hydra-Co growth continues tunity for growth than most other major utilities and are looking to expand our marketing efforts Hydra-Co Enterprises, Inc., a wholly owned, in-to increase our market share. dependent subsidiary of Niagara Mohawk, signed In related gas activities, our wholesale agreements in 1985 to jointlydevelop one supplier, Consolidated Gas Transmission Corpo- cogeneration project and six small-power instal-ration, awarded Niagara Mohawk a new gas- lations with a combined capacity of 109,300
. marketing technology grant in 1985. The funds kilowatts in New York and four other states, in willbe used to build a compressed natural gas addition to earlier projects.
refueling station for use by the public and the A natural gas facility and hydro project are Company. The fillingstation began supplying planned in N.Y. State, while the others involve a Company CNG-fueled trucks and cars in late geothermal site in Nevada, a wood-fueled genera-Mobile flat-bed rig is used for erecting transmission line extend-ing from Nine Mile Point Nuclear Unit Two into main power system, while line mechanics, opposite page, attach insulators to the new 345,000-volt circuits. Project was W
completed in 1985.
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systems to gauge efficiency, productivity, quality collective bargaining agreement expires on May and overall effectiveness of any department seek- 31, 1986 and negotiations for a new agreement ing improvements. began early in 1986.
Our CPS approach is a departure from the usu-ally rigid "efficiency" monitoring functions Savings Plan increasing found in some industries and institutions.
Emphasis is placed on the human and positive More than 8,900 employees are enrolled in the side upon creative innovation, quality of life, Company's Employee Savings Fund Plans, 90 motivation and the employee's contribution to percent of all those eligible. At the start of 1985, the Company as a person. represented employees became eligible to take Among successes already noted by CPS is an advantage of Internal Revenue Code Section employee involvement program established 401-k provisions permitting before-tax Plan con-within a key department in Syracuse that wished tributions, to encourage saving to accomplish re-to refine its productivity and creativity. Several tirement and other long-range goals.
"performance action" teams were formed from within the department's ranks and met periodi- Stock program for our customers cally at discussion sessions. They soon iden- During the last 10 months of 1985, more than tified barriers to creativity and then made spe- 7,500 customers purchased 374,000 shares of cific recommendations that eliminated the ob- Company stock under the amended Dividend stacles in a short time. So favorable was the out- Reinvestment and Common Stock Purchase come of this program that CPS plans to intro- Plan. The Plan was amended to allow customers duce it to other interested departments through to buy stock from Niagara Mohawk for an invest-1986. ment of as little as 425. The Plan provides cus-The workforce tomers and shareholders with a unique savings opportunity and has provided needed capital for The Company's workforce totalled 11,100 at the the Company.
end of 1985. About 8,400 or 76 percent are-mem- Niagara Mohawk is one of the nation's largest bers of 12 locals of the International utilities and while our stock is held by people Brotherhood of Electrical Workers (AFI CIO) from every state, the largest number of shares consisting of System Council U-11. A two-year are owned by New York State residents. One out 16
of every four shareholders, or approximately Events this year also included a number of 50,000, are also our customers. The new stock meetings and discussions with members of the purchase plan allows us to "reach out" to cus- financial community-security analysts, tomers in hopes they willbecome better in- stockbrokers and institutional investors. These formed about the challenges of our business and opportunities allowed the Company to provide take an extra interest in Niagara Mohawk. members of the investment community with the information they need to make informed Talking to investors decisions and recommendations about our securities.
Participation in the Investor tk Financial Confidence in the Company continues to be Relations Department's "In the Know" informa- shown by increased institutional ownership of tion program increased over 13 percent to 2900 our common stock, which rose from nine per-participants during 1985, the result of an active cent of outstanding shares in early 1983 to 25 communications program tailored especially for percent during 1985. This has changed the mix investors. Moreover, approximately 1,500 people of common stockholders and provides a more attended four regional stockholder meetings balanced ownership base while still maintaining held within our service territory. These sessions an ownership profile composed primarily of proved an effective way for our shareholders and small stockholders owning fewer than 500 Company officials to exchange ideas and infor- shares.
mation. Plans call for appraising our communication efforts with shareholders and the investment community as well. One such effort willbe New Nuclear Training Center serves for instructing geared to shareholders whose stock is held by employees assigned to adjacent Nine Mile Point power nominees. The Securities and Exchange Com-plants and contains emergency operations facilities as mission adopted a rule, effective January 1, well as laboratories and classrooms. Below, a licensed 1986, requiring stockbrokers holding securities nuclear operator tests one of the full-sized replicas of in street name for shareholders to disclose to the Unit One and Unit Two control rooms in Center.
issuer (e.g. Niagara Mohawk) upon request, the names, addresses and number of securities held, unless the shareholder specifically objects to the disclosure.
We hope our shareholders support our com-munications efforts and we encourage you to be-jIt fly come a participant in the "In the Know" program by calling one of the toll-free numbers listed on the inside back cover, or by writing the Investor jg I1 R Financial Relations Department in Syracuse.
Dividend Reinvestment Plan revised Niagara Mohawk plans to continue the Com-pany's popular Dividend Reinvestment and Stock Purchase Plan despite expiration at the end of 1985 of the federal tax deferral advantage for reinvested dividends.
At year end 1985, approximately 77,000 ac-counts, representing 40 percent of all stockhold-ers, were enrolled in the Plan. This participation provided over 465.7 million in new equity in 1985, including 416 million in voluntary cash contributions. Our dividend remains competitive in the marketplace and reinvesting dividends provides an easy and inexpensive means of in-creasing investment in Niagara Mohawk.
A prospectus describing the Plan and an authorization form to join may be obtained by writing to Niagara Mohawk Power Corporation, Dividend Reinvestment Plan, P.O. Box 7058, Syracuse, New York 13261.
MARKET PRICE OF COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock and cer- the tax basis of the applicable shares. Upon any dissolution, liquidation or tain of its preferred series are listed on However, the Company estimates that winding up of the Company's business, the New York Stock Exchange. The none of the 1985 common or preferred the holders of Common Stock are enti-common stock is also traded on the stock dividends will constitute a return tled to receive pro rata all of the Com-Boston, Cincinnati, Midwest, Pacific of capital and therefore they are taxable pany's assets remaining and available and Philadelphia stock exchanges. The as ordinary income. for distribution after the full amounts to ticker symbol is "NMK". While the Company intends to con- which holders of Preferred and Prefer-The table below shows dividends per tinue the practice of paying cash div- ence Stock are entitled have been satis-share for the Company's common stock idends quarterly, declarations of future fied.
and quoted market prices: dividends are necessarily dependent The indenture securing the Com-upon future earnings, financial re- pany's mortgage debt provides that Dividend paid Price range quirements and other factors, including surplus shall be reserved and held un-1985 per share High Low restrictions in governing instruments. available for the payment of dividends 1st Quarter $ .50 $ 18 $ 16e/e The holders of Common Stock are en- on Common Stock to the extent that 2nd Quarter .52 20e/e 17e/e titled to one vote per share and may expenditures for maintenance and re-3rd Quarter .52 21 /e 17/2 cumulate their votes for the election of pairs plus provisions for depreciation 4th Quarter .52 -
21 17e/e Directors. Whenever dividends on Pre- do not equal 2.25/o of depreciable
$ 2.06 ferred Stock are in default in an amount property as defined. Such provisions 1984 equivalent to four full quarterly div- have never restricted the Company's idends and thereafter until all dividends surplus.
1st Quarter $ .48 $ 16e/e $ 12 thereon are paid or declared and set At year end, about 191,000 stockhold-2nd Quarter .50 14e/e 12 aside for payment, the holders of such ers owned common shares of Niagara 3rd Quarter .50 15/4 13'/z stock can elect a majority of the Board Mohawk and about 8,600 held pre-4th Quarter .50 17e/4 15 of Directors. Whenever dividends on ferred. The chart below summarizes
$ 1.98 any Preference Stock are in default in common stockholder ownership by size an amount equivalent to six full quar- of holding:
Preferred and common stock div- terly dividends and thereafter until all idends were paid on March 31, June 30, dividends thereon are paid or declared Size of holding Total Total shares (Shares) stockholders held September 30 and December 31. During and set apart for payment, the holders recent years certain percentages of the of such stock can elect two members to 1 to 99 54,059 1,748,796 dividends paid on the common stock the Board of Directors. No dividends on 100 to 999 126,969 31,246,560 were not subject to federal income tax Preferred Stock are now in arrears and 1,000 or more 9,749 93,932,984 as ordinary income to the recipient, but no Preference Stock is now outstand- 190,777 126,928,340 constituted a return of capital reducing ing.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS Results of operations. For 1985, earn- $ 25.8 million also improved earnings to Consolidated Financial Statements).
ings per share increased 1.4%%d to $ 2.88 but was partially offset by a $ 38.6 The Company achieved a 15.0%%d rate against $ 2.84 for 1984. The 1985 earn- million increase in interest and of return on common equity in 1985 as ings represent increases of 4.0%%d and preferred dividend requirements. compared with 14.9/o in 1984 and 15.0/0 9.1/o over 1983 and 1982 earnings per Further, a $ 32.5 million refund to in 1983. The PSC-approved rate of share, respectively, even though the customers ordered by the New York return on equity is currently 15.5/o as number'of shares outstanding grew State Public Service Commission (PSC) compared to 16/o authorized at steadily over the three-year period. resulted in $ .05 and $ .10 per share December 31, 1984 and 15.4/o at The increase in the Company's earn- charges against income in 1985 and December 31, 1983.
ings per share for 1985 over 1984 re- 1984, respectively (see Note 11 of Notes The following discussion and analysis sulted from improved margins on sales EARNED RATE OF RETURN highlights items having a significant ef-despite a decline in electric and gas ON COMMON EQUITY fect on operations during the three-year sales and revenues and a decrease in 14 7o/ 15 0/o 14.9/o 15 IP/o period ended December 31, 1985, but the Company's authorized return on 135/ may not be indicative of future opera-common equity. The decrease in elec- tions or earnings. It should be read in tric revenues is principally due to de- conjunction with the Notes to Consoli-creased sales to other electric systems, dated Financial Statements and other while gas revenues decreased as a re- firiancial and statistical information ap-sult of lower sales volume attributable pearing elsewhere in this report.
to milder weather and competition with Electric revenues increased $ 235.7 oil. Other income, representing interest million or 12.7'/o over the three-year on Nine Mile Unit No. 2 construction period despite a dramatic reversal in advances made on behalf of the Long sales to other electric systems during Island Lighting Company (LILCO) and 1985. This increase is largely an increase in Allowance for Funds attributable to increased base rates and Used During Construction (AFC) of 1981 1982 1983 1984 19 85 increased sales to ultimate consumers, 18
~ I offset somewhat by decreased revenues attributable to fuel and purchased power ELECTRIC SALES Millionsof Kw.-hrs, cost recoveries as indicated in the table below: 37,066 35,296 34,732 Increase (decrease) from prior year 32,890 32 640 In millions of dollars Electric revenues 1985 1984 1983 Total Increase in base rates . $ 659 $ 69.1 $ 68.5 $ 203.5 Fuel and purchased power cost revenues... (4.5) (86.3) 2.6 (88.2)
Sales to ultimate consumers............... 11.9 56.1 21.0 89.0 Sales to other electric systems............. (107.9) 68.7 63.7 24.5 Miscellaneous operating revenues ......... (3.5) 3.1 7.3 6.9
$ (38.1) $ 110.7 $ 163.1 $ 235.7 Electric kilowatt-hour sales were 35.3 billion in 1985, a decrease of 4.8% from 1984, reflecting the effects of increased competition which has reduced the Com-pany's effectiveness in the resale market resulting in decreased sales to other 1S61 1982 1983 1984 1985 electric systems (see Electric and Gas Statistics Electric Sales appearing on page GAS SALES Millioosof dekatherrha 40). Details of the changes in electric revenues and kilowatt-hour sales by customer 115.0 109.6 109.7 group are highlighted in the table below: 103.2 108.4 1985 % Increase (decrease) from prior year
'/o of Electric 1985 1984 1983 Class of service Revenues Revenues Sales Revenues Sales Revenues Sales Residential .......... 30.9o/o 6.6o/o 0.4% 4.1% 4.3o/o 8.2/o 1.2/o Commercial.......... 33.8 5.0 1.7 2.4 3.7 4.8 0.6 Industrial ............ 20.9 (0.4) (2.8) (0.5) 3.1 3.7 4.8 Municipal service..... 1.8 3.7 (1.6) 3.8 (2.4) 4.5 (2.3)
Total to ultimate consumers......... 87.4 4.2 (0.4) 2.3 3.6 5.7 2.3 Other electric systems 9.4 (35.5) (24.1) 29.2 23.1 37.1 34.3 Miscellaneous ....... 3.2 (5.0) 4.5 12.0 1981 1S82 1983 1984 1985 Total .. 100.ty/o (1.8)% (4.8)% 5.5o/o 6.P/o 8.8/o 6.4% TOTAL ELECTRIC AND GAS OPERATING REVENUES Milllonsofdollars Gas revenues increased $ 65.4 million or 12.3% over the three-year period. As 0 2,695 shown by the table below, over half of this rise is attributable to higher costs for purchased gas which were recovered from customers during 1983 through the purchased gas adjustment clause, offset by decreases in 1984 and 1985. The re-mainder of the increase is attributable primarily to higher base rates.
Increase (decrease) from prior year In millions of dollars Gas revenues 1985 1984 1983 Total Increase inbase rates ........ S 8.2 $ 8.7 $ 10.3 S 27.2 Purchased gas cost increases . (21.6) (23.3) 79.2 34.3 Gas sales (39.2) 57.1 (14.0) 3.9 S (52.6) $ 42.5 $ 75.5 $ 65.4 Gas sales were 108.4 million dekatherms in 1985, a 5.7% decrease from 1984 (see 1981 1982 1983 1984 1985 Electric and Gas Statistics-Gas Sales appearing on page 40). The decrease for In summary, total operating revenues 1985 reflects decreased sales in all classes of service, particularly in the industrial class where competition with oil resulted in a 10.8% decrease in sales. Milder increased $ 301.1 million, or 12.6% over weather led to decreased sales in the residential and commercial classes. Changes the three-year period.
in gas revenues and dekatherm sales by customer group are detailed in the table On March 14, 1985, the PSC approved rate increases to provide the Company below:
1985 % Increase (decrease) from prior year additional annual revenues of
%of $ 49,312,000 (2.6%) for electric and Gas 1985 1984 1983 $ 8,826,000 (1.3%) for natural gas. The Class of service Revenues Revenues Sales Revenues Sales Revenues Sales rates are based on a 15.5% return on Residential 49.3o/o (5.9)% (4.4)% 3.1% 5.7o/o 14.9o/o (8.1)% common equity and provide for the cur-Commercial .. 24.7 (6.2) (3.2) 1.0 3.6 13.7 (6.1) rent recovery of finance charges accru-Industrial .... 22.3 (14.6) (10.8) 21.1 27.3 14.6 (1.1) ing on $ 320 million of Construction Total to ultimate Work in Progress (CWIP) associated consumers......... 96.3 (8.1) (6.0) 6.5 10.7 14.5 (5.9) with the Nine Mile Point Nuclear Station Other gas systems .... 3.1 (5.2) 1.6 24.9 32.0 2.4 (8.7) Unit No. 2. These new rates became ef-Miscellaneous ....... 0.6 (11.5) 8.7 14.2 fective March 18, 1985 and represent Total .. 100.0o/o (8.1)% (5.7)% 7.(P/o 1 1 .4% 1 4.P/o (6.0)% 47% of the rate relief requested by the 19
Company. In March 1984, the PSC had by a $ 2.6 million net increase in costs Other operation and maintenance ex-"
approved rate increases providing addi- deferred and recovered through the op- increased 2.8% in 1985, 7.0% in 'enses tional annual revenues of $ 86,350,000 eration of the fuel adjustment clause. 1984, and 10.4% in 1983, primarily as a (4.9%) for electric and $ 9,144,000 (1.4%) Fuel costs at the Company's generating result of increases in wages and as-for natural gas. stations decreased $ 83.5 million. Re- sociated benefits and higher costs Further rate action, initiated in April duced demand and increased low cost charged by suppliers. Effective June 1, 1985, presently seeks an annual electric generation from the Nine Mile Point 1984, the Company entered into a two-rate increase of $ 156.7 million (8.2%), Nuclear Station Unit No. 1 enabled the year labor agreement providing for including $ 91.6 million related to the Company to reduce higher cost fossil wage increases of 5.25% in the first year first year of a proposed three year rate fuel generation by 13.3% and related and 5.50% in the second year. The in-phase-in of Nine Mile Point Nuclear Sta- fuel costs by 20.2%. Purchased power crease in other operation and mainte-tion Unit No. 2. In December 1985, PSC decreased $ 13.4 million as a result of a nance expenses in 1984 also included Administrative Law Judges recom- 2.8% decrease in kilowatt-hour pur- costs relating to the refueling of Nine mended a rate increase of $ 39.6 million chases and a slight decrease in the av- Mile Point Nuclear Station Unit No. 1 in (2.1%) encompassing a phase-in plan erage cost per kilowatt purchased (see the spring of 1984. The next refueling for the Unit. The Company and other Electric and Gas Statistics Electricity outage for this unit is scheduled for the parties have filed exceptions to many of Generated and Purchased appearing on Spring of 1986.
the Judges'ecommendations. While a Page 40). Depreciation and amortization ex-formal opinion is expected in March The total cost of gas purchased de- pense for 1985 increased 6.7% over 1986, the PSC tentatively decided at re- creased 9.1% in 1985, after having in- 1984, principally from normal plant cent public meetings that an additional creased 5% in 1984 and 15% in 1983. growth and increases in depreciation amount of GWIP related to the Unit The decrease for 1985 is the result of a rates applied to certain classes of would be allowed in rates. Operating 2.2% decrease in dekatherms pur- assets.
expenses of the Unit, if any, would be chased to meet customer demand, Total Federal and foreign income subject to deferral accounting proce- combined with lower rates charged by taxes for 1985 were comparable to 1984 dures and not be considered in rates the Company's supplier and an increase since taxable income remained rela-prior to April 1987. The methodology to in amounts refunded by the supplier. tively constant. The increase in taxes be utilized in the rate implementation of The Company's net cost per dekatherm other than income taxes in the three the phase-in plan for the Unit was also purchased decreased to $ 3.68 in 1985 year period is due principally to higher approved and the length of the phase-in from $ 3.96 in 1984 and $ 4.06 in 1983. property taxes resulting from property period was set at seven years, with the Through the energy and purchased additions.
possibility of a reduction to five years if gas adjustment clauses, costs of fuel, the settlement offer is approved. In ad- purchased power and gas purchased, TOTALTAXES INCLUDING dition, a return on common equity of above or below the levels allowed in ap- INCOME TAXES ssdeonsordoears 13.5% will be authorized for the rate proved rate schedules, are billed or 410 424 year ending March 1987. This reduction credited to customers. The Company in the authorized return on common has implemented revisions to its fuel ad- 342 equity, when taken by itself, would be justment clause consistent with PSC di- 317 expected to result in a downward pres- rectives, which essentially provide for sure on earnings. partial pass-through of fuel and pur- 243 In 1985, electric fuel and purchased chased power cost fluctuations from power costs decreased 11.1% to $ 759 those forecast in rate proceedings, with million from $ 853 million in 1984 and the Company absorbing a specific por-
$ 883 million in 1983. This decrease is tion of increases or retaining a portion the result of a $ 96.9 million decrease in of decreases to a maximum of $ 15 mil-actual fuel and purchased power costs lion per rate year (see Note 1 of Notes to incurred during the year, partially offset Consolidated Financial Statements).
1981 1982 1983 1984 1985 AVERAGE COST OF A TON OF COAL MAINTENANCEAND OTHER AND A BARREL OF OIL BURNED OPERATION EXPENSE Millions of dollars The $ 25.8 and $ 43.7 million increases
$ 50.76 $ 50.88 $ 50.68 $ 49.16 494 6 508.3 in total AFC for 1985 and 1984, respec-
$ 47.44 364.0 462.4 353'6 tively, result from increased overall Ton of coal 418.9 326,1 levels of plant construction, principally 290.1 Nine Mile Point Nuclear Unit No. 2, de-
$ 30.84 $ 30 67
'31
$ 33.35 16 376.4 258.1 Olher o eratio spite lower AFC rates and the inclusion of $ 320 million of CWIP in rate base.
Barrel of oil The increase in Other income and deductions other items (net) is primar-ily the result of the interest earned on the advances made for LILCO.
136.3 141.0 144 3 118.3 128.8 Interest expense and preferred stock Mainte ance dividend requirements increased as a result of new issuances to raise the cap-1981 19S2 1983 1984 1985 1981 1982 1983 1984 1985 ital necessary to fund the Company's 20
" fconstruction program. The weighted the fourth consecutive year and close to CAPITALIZATIONRATIOS average Iong-term debt interest rate and the corporate goal of maintaining at 46.4'/o 47.5O/o 45.3/o 46.5'/o 45.8'/o preferred dividend rate increased to least a 3.25 coverage ratio. The cover- Long-te m debt 10.57/o and 9.79/o, respectively, from age ratio, excluding AFC, decreased to 10.23/o and 9.17%%d, respectively, in 1984. 2.37 as financing costs not currently re-The rate of inflation continued to be covered in rates continue to accumulate moderate in 1985. The Company is at an increasing rate as the Nine Mile especially sensitive to inflation because Two project nears completion. AFC for 12.9o/o 11 5Jo 12.6'/o 11.5/0 11.5o/
of the large amount of capital it must the year 1985 amounted to 53.2%%d of the Prefer e d 40.74/ 42.1o/o 42,ty/o 42.7/o raise to finance its construction pro- balance available for common stock as 41 fP/o compared with 52.4'/o in 1984. Commo equity gram and because its prices are regu-lated using a rate base that reflects the During 1985 funds needed to pay for historicai cost of utility plant. Inflation the Company's overall construction re-information in Note 13 of the Notes to quirements amounted to $ 583,804,000 Consolidated Financial Statements in- and were provided 24.4'/o from internal 1981 1982 1983 1984 1985 dicates the approximate effect of infla- sources and 75.6/o from external financ-tion of certain aspects of the Company's ing. pany is guaranteeing LILCO's obliga-operations and financial position. Construction and other capital re- tion to repay the banks which provided quirements. During the period 1983-85, letter of credit support for this financ-Financial Position, Liquidity and Capi- expenditures for construction and nu- ing. The Company used $ 59.9 million of tal Resources. During recent years in- clear fuel, including related AFC and these funds to reduce LILCO obliga-ternal funds from operations have been overheads capitalized, have increased tions referred to above and the balance insufficient to meet the Company's cap- from $ 691.5 million to $ 769.8 million to will be applied to LILCO's remaining ital requirements and therefore, large $ 771.1 million. The principal project construction obligations for the Unit in-amounts of new capital from external presently under construction is the Nine curred on or after November 18, 1985 up sources have been necessary. Mile Point Nuclear Station Unit No. 2 to a maximum of $ 85 million. Construc-The Company's overall requirements (Unit) (see Note 10 of Notes to Consoli- tion cost requirements in excess of consist of amounts for the Company's dated Financial Statements). The Com- amounts provided under the LILCO construction program, construction pany is a 41/o owner and had invested agreements, which would total approx-and other advances for LILCO, working about $ 1.9 billion, including AFC and imately $ 17 million under the present capital needs, maturing debt issues and overheads capitalized, in the project cost estimate and the currently sinking fund provisions on outstanding through December 31, 1985. Expendi- scheduled commercial operation date, debt and preferred stock. Sources and tures for construction of this plant have would continue to be an obligation of uses of funds to meet these require- averaged approximately 51'/o of total LILCO. Also, the Company is working ments during the past three years are construction requirements during the with its investment bankers in the de-reported in the Consolidated Statement period 1983 to 1985. During 1985, the velopment of a plan to sell $ 140 million of Changes in Financial Position on Company's 41%%d share of such expendi- of the LILCO General and Refunding page 25. tures was approximately 55'/o of its Bonds early in 1986, thereby further re-The Company maintained continued overall construction program require- ducing its financial exposure to LILCO financial strength during 1985. During ments. and its own need to sell securities (see the year, the market price for the Com- Total capital requirements have also Note 11 of Notes to Consolidated Fi-pany's common stock rose above the increased particularly in 1984 and 1985 nancial Statements for a further discus-book value. In addition, credit ratings as the Company made advances to the sion of the LILCO agreements).
for first mortgage bonds, pollution con- Unit on behalf of LILCO. As described The 1986 estimate for construction trol bonds and preferred stock were up- below, however, a positive development additions and nuclear fuel, including graded by Moody's Investors Service in occurred late in 1985. AFC and overheads capitalized, is ex-May 1985. Pursuant to an agreement entered pected to be $ 746 million reflecting the Capital structure at year-end was into in August 1984, the Company had current cost estimate for the Unit. Debt 45.8/o long-term debt, 11.5/o preferred been advancing funds for LILCO's 18/o and preferred stock retirements and stock and 42.7/o common equity, repre- ownership share of the Unit. By other requirements will add approxi-senting a continued improvement in the November 18, 1985, the Company had mately another $ 174 million to the common equity ratio. This position is received all of the $ 250 million LILCO Company's capital requirements for a indicative of the Company's corporate General and Refunding Bonds au- total of $ 920 million. This forecast of goal of maintaining a strong equity- thorized by such agreement, which, to- capital requirements, in particular as it based capitalization of 40-45/o common gether with other unsecured obligations relates to the AFC component, will be equity. However, the Company's cap- of LILCO reached a total in 1985 of dependent on the rate decision to be italization structure and earnings could $ 306.4 million. Under an agreement rendered in March 1986 and the cost be adversely impacted by accounting with LILCO signed in December 1985, settlement agreement presently under proposals currently under considera- the Company received $ 144.9 million of consideration by the PSC.
tion by the Financial Accounting Stan- proceeds from the sale of $ 150 million On September 18, 1985, the Company dards Board (see Note 10 of Notes to principal amount of pollution control and the other cotenants, together with Consolidated Financial Statements). bonds issued to finance a portion of the Staff of the PSC, filed a joint motion Coverage of fixed charges decreased LILCO's 18/o share of the pollution con- with the PSC seeking approval of a set-slightly to 3.07 at year-end, but re- trol facilities at the Unit. For approxi- tlement agreement to dispose of the mained at approximately the 3x level for mately the next three years, the Com- PSC's cost review proceeding regard-21
ing the Unit. Among other things, the External financing for 1986 is ex- ANNUALEXTERNAL FINANCING proposed settlement caps the Unit's pected to approximate $ 388 million, BY TYPE Miliioosof dollars total recoverable cost at $ 4.45 billion excluding capital'lease financing but 583.1 614.3 584.1 374.7 with cotenant shareholders absorbing including additional funds needed to 291.8 323.8 costs in excess of this amount and pro- complete the construction of the Nine vides that allowed amounts would be Mile Project. This amount will be in-424.9 phased into each cotenant's rates on creased by up to $ 140 million if the 259.7 reasonable terms and income tax ben- planned sale of the LILCO General and 346.0 efits associated with the disallowed Refunding Bonds is not completed. At 186.7 costs would be reserved for sharehold- December 31, 1985, construction re- Debt 171.3 ers (see Note 10 of Notes to Consoli- lated short-term debt was $ 2,195,000 185.3 189.6 dated Financial Statements). and obligations under bankers accep-101.3 145.2 Liquidity and resources. During 1985, tances for fuel inventory financing were 120.0 the Company raised approximately $ 5,000,000, for a total of $ 7,195,000. Un- mom~
od, 75.0
$ 584,100,000 through external sources, expended proceeds from the issuance 20.0 Preferl 50.0 consisting of $ 400,000,000 of debt, of tax-exempt revenue bonds and notes 1981 1982 1983 1984 1985
$ 75,000,000 of preferred stock, totaled $ 79.9 million at December 31,
$ 185,300,000 of common stock from the 1985, of which $ 56.5 million was with-issuance of 10,079,366 shares through a drawn in January 1986.
combination of public sales and sales Ordinarily, construction related ity. Earnings coverage of interest through its Dividend Reinvestment, short-term borrowings are refunded charges has been well in excess of Employee Savings Fund and Employee with permanent securities on a continu- mortgage indenture restrictions for the Stock Ownership Plans and net reduc- ing basis. Bank credit arrangements, issuance of first mortgage bonds and tions of $ 29,900,000 under intermediate which total $ 573 million (including $ 445 over $ 1.5 billion of property is available term bank revolving credit obligations million of revolving credit and term loan to support the issuance of first and $ 46,300,000 in short-term debt. agreements and a $ 100 million Bankers mortgage bonds. However, continua-
$ 250 million of the 1985 debt financing Acceptance Facility Agreement) are tion of this degree of financial strength was issued to secure tax exempt pollu- used by the Company to enhance flexi- is dependent on a number of events, in-tion control bonds, of which $ 100 mil- bility as to the type and timing of its cluding the ultimate cost of the Nine lion was used to refund previously is- security sales. The unsecured debt limi- Mile Point Nuclear Station Unit No. 2, sued pollution control bonds. The tation imposed by the Company's Char- the rate phase-in plan for the Unit, the Company also completed approxi- ter is $ 700 million. PSC"s ultimate determination in respect mately $ 28,000,000 of capital lease In general, the Company has a strong of the Unit's allowable cost, the resolu-financing. Approximately $ 143 million capital structure, adequate short and in- tion of accounting matters under con-of the total 1985 external financing was termediate term bank borrowing capa- sideration by the PSC and the Financial used for debt and preferred stock re- bility and has been able to access the Accounting Standards Board and funding and retirement. permanent capital markets with flexibil- adequate rate relief.
REPORT OF MANAGEMENT m
The consolidated financial statements of Niagara Mohawk of their examination, they made a study and evaluation of the Power Corporation and its subsidiaries were prepared by and Company's system of internal accounting control. The purpose are the responsibility of management. Financial information of such study was to establish a basis for reliance thereon in contained elsewhere in this Annual Report is consistent with determining the nature, timing and extent of other auditin'g that in the financial statements. procedures that were necessary for expressing an opinion as To meet its responsibilities with respect to financial informa-. to whether the financial statements are presented fairly. Their tion, management maintains and enforces a system of internal examination resulted in the expression of their opinion which accounting controls, which is designed to provide reasonable follows this report. The independent accountants'xamination assurance, on a cost effective basis, as to the integrity, objec- does not limit in any way management's responsibility for the tivity and reliability of the financial records and protection of fair presentation of the financial statements and all other in-assets. This system includes communication through formation, whether audited or unaudited, in this Annual and procedures, an organizational structure that written'olicies Report.
for appropriate division of responsibility and the training pro-'ides The Audit Committee of the Board of Directors, consisting of of personnel. This system is also tested by a comprehensive three directors who are not employees, meets regularly with internal audit program. In addition, the Company has a Code of management, internal auditors and Price Waterhouse to review Conduct which requires all employees to maintain the highest and discuss internal accounting controls, audit examinations level of ethical standards and requires key management and financial reporting matters. Price Waterhouse and the employees to formally affirm their compliance with the Code. Company's internal auditors have free access to meet indi-The financial statements have been examined by Price vidually with the Audit Committee at any time, without man-Waterhouse, the Company's independent accountants, in ac- agement present.
cordance with generally accepted auditing standards. As part 22
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS NIAGARAMOHAWKPOWER CORPORATION AND SUBSIDIARY COMPANIES For the year ended December 31, 1983 Operating revenues:
Electric $ 2,096,404 $ 2,134,470 $ 2,023,728 Gas 598,536 651,076 608,587 2,694,940 2,785,546 2,632,315 Operating expenses:
Operation:
Fuel for electric generation 391,382 476,040 501,328 Electricity purchased 367,406 377,052 381,703 Gas purchased 411,801 452,960 432,898 Other operation expenses 364,010 353,660 326,057 Maintenance . 144,312 140,987 136,338 Depreciation and amortization (Note 2).... 150,627 141,150 127,390 Federal and foreign income taxes (Note 9) . 173,471 181,767 117,089 Othertaxes . 280,643 269,204 254,797 2)283,652 2,392,820 2,277,600 Operating income . 411,288 392,726 354,715 Other income and deductions:
Allowance for other funds used during construction (Note 1) 141,320 122,354 85,350 Federal income taxes (Note 1) . 26,708 33,460 31,511 Other items (net) (Note 11) 53,110 8,591 9,994 221,138 164,405 126,855 Income before interest charges 632)426 557,131 481,570 Interest charges:
Interest on long-term debt . 260,271 224,099 189,006 Other interest . 6,721 12,440 12,598 Allowance for borrowed funds used during construction (Note 1) . (45,996) (39,142) (32,443) 220,996 197,397 169,161 Net income 411,430 359,734 312,409 Dividends on preferred stock 59,559 51,460 42,109 Balance available for common stock 351)871 308,274 270,300 Dividends on common stock 252 218 216,493 185,642 Retained earnings for the year . 99,653 91,781 84,658 Retained earnings at beginning of year .. 742,462 650,681 566,023 Retained earnings at end of year ).:$ 842,115 742,462 $ 650,681 Average number of shares of common stock outstanding (in thousands) 122,215 108,734 97,685 Balance available per average share of common stock .. $ 2.88 $ 2.84 $ 2.77 Dividends per share of common stock................. 2.06 $ 1.98 $ 1.89 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and the Board of Directors York State Public Service Commission with respect to its in-of Niagara Mohawk Power Corporation ,,vestment in the Unit will have, in the aggregate, a material We have examined the consolidated balance sheets of Niag-;effect on its financial position or results of operations.
ara Mohawk Power Corporation and its subsidiaries as of De- ', In our opinion, subject to the effects on the 1985 and 1984 cember 31, 1985 and 1984 and the related consolidated state- 'financial statements of such adjustments, if any, that might ments of income and retained earnings and of changes in fi- "'have been required had the outcome of the uncertainties dis-nancial position for each of the three years in the period ended cussed in the preceding paragraph been known, the consoli-December 31, 1985. Our examinations were made in accord- . dated financial state'ments examined by us present fairly the ance with generally accepted auditing standards and accord- "'financial position of Niagara Mohawk Power Corporation and ingly included such tests of the accounting records and such its subsidiaries as of December 31, 1985 and 1984 and the other auditing procedures as we considered necessary in the results of their operations for each of the three years in the circumstances. period ended December 31, 1985 in conformity with generally The Company is a 41% participant in the construction of the accepted accounting principles consistently applied.
Nine Mile Point Nuclear Station Unit No. 2 (Unit). As a result of the uncertainties discussed more fully in Note 10, management Syracuse, New York is unable to predict whether regulatory actions by the New February24,1986 23
CONSOL)DATED BALANCESHEET NIAGARAMOHAWKPOWER CORPORATION AND SUBSIOIARY COMPANIES ln thousands of dollars At December 31, 1985 1984 ASSETS Utilityplant, at original cost (Notes 1, 3 and 10) $ 7,640,905 $ 6,903,184 Less accumulated depreciation and amortization (Note 2) 1,629,437 1,501,282 Net utility plant 6,011,468 5,401,902 Other property and investments (Note 7) 146)487 112,730, Advances on behalf of Nine Mile Point Nuclear Unit No. 2 cotenant, including deferred supplemental payments (Note 11) 232,847 130,881 Current assets:
Cash, including time deposits of $ 7,521 and $ 7,367, respectively ...... 44,933 32)639 Accounts receivable (less allowance for doubtful accounts of $ 3,600) .. 283,962 282,232 Materials and supplies, at average cost:
Coal and oil for production of electricity 64,454 96,474 Other 65,450 62,018 Prepayments 20,931 13,874 479,730 487,237 Deferred debits:
Unamortized debt expense 64,260 52,658 Deferred recoverable energy costs... 32) 520 16,253 Extraordinary property losses . 1,709 10,838 Deferred finance charges(Note 1) 25,055 Other . 19,761 20,902 143,305 100,651
$ 7,013,837 $ 6,233,401 CAPITALIZATIONAND LIABILITIES Capitalization (Note 7):
Common stockholders'quity:
Common sto'ck, issued 126,928,340 and 116,848,974 shares, respectively $ 126,928 $ 116,849 Capital stock premium and expense . 1,519,577 1,347,806 Retained earnings. 842,115 742,462 2,488>620 2,207,117 Non-redeemable preferred stock 290,000 240,000 Redeemable preferred stock 379,850 367,900 Long-term debt . 2,643,094 2,395,471 Total capitalization 5,801,564 5,210,488 Current liabilities:
Short-term debt (Note 4) 7,195 53,516 Long-term debt due within one year 65,465 63,837 Sinking fund requirements on redeemable preferred and preference stock (Note 7) 13,050 19,601 Accounts payable 186,887 183,039 Payable on outstanding bank checks . 63,340 59,352 Customers'eposits . 7,829 6,640 Accrued taxes . 7) 560 23,446 Accrued interest 76,157 66,261 Accrued vacation pay . 25,945 24,555 Gas supplier refunds payable to customers 11,381 6,244 Cotenant prepayments to Nine Mile Point Nuclear Unit No. 2 project fund (Note 11) 84,904 310 Other 25,937 30,593 575,650 537,394 Deferred credits:
Mandated refunds to customers (Note 11) 80,000 90,191 Accumulated deferred Federal income taxes (Note 9) 515,554 374,364 Deferred finance charges(Note 1) 25,055 Other 16,014 20,964 636,623 485,519 Commitments and contingencies (Notes 3, 10 and 11)
$ 7,013>837 $ 6,233,401 24
'ONSOLIDATED STATEMENT OF CHANGES IN FINANCIALPOSITION NIAGARAMOHAWKPOWER CORPORATION AND SUBSIDIARY COMPANIES ln thousands of dollars For the year ended December 31, 1985 1984 1983 FINANCIALRESOURCES WERE PROVIDED BY:
Operations:
Net income $ 411,430 $ 359,734 $ 312,409 Charges (credits) to income not requiring (not providing) working capital Depreciation and amortization. 150>627 141,150 127,390 Allowance for funds used during construction .... (187,316) (161,496) (117,793)
Amortization of nuclear fuel 25,448 17,612 11,856 Provision for deferred Federal income taxes (net) . 141,206 116,265 80,850 Other (4,707) (10,821) (4,972) 536,688 462,444 409,740 Outside financing:
Sale of common stock . 185,270 189,626 171,269 Sale of preferred stock . 75,000 50,000 120,000 Sale of mortgage bonds 175,000 319,250 200,000 Issuance of other long-term debt. 225,000 81,618 15,135 Net borrowings under revolving credit facilities (Note 7) .. (29,880) 5,060 83,900 Increase (decrease) in short-term debt ................. (46,321) (31,247) (7,237) 584,069 614,307 583,067 Other sources:
Deferred recoverable energy costs (16>267) 9,480 47,560 Mandated refunds to customers (Notes 9 and 11) .. (10,191) (9,273) (5,793)
Repayment of construction advances ............ 38,481 Unamortized debt reacquisition expense ......... (22,421)
Other investments (32,775) (27,495) (22,670)
Unamortized debt expense . (11,602) (8,128) 159 (Increase) decrease in working capital other than short-term debt (see below) ......... 92,084 38,964 (29,455)
Miscellaneous (net) (9,331) 3,643 (13,618) 50,399 7,191 (46,238)
Total resources provided $ 1,171,156 $ 1,083,942 $ 946,569 FINANCIALRESOURCES WERE USED FOR:
Construction additions, including capital leases . $ 718,903 $ 746,910 $ 677,155 Nuclear fuel 52>217 22,936 14,309 Allowance for funds used during construction ... (187,316) (161,496) (117,793)
Net additions .. 583,804 608,350 573,671 Advances on behalf of Nine Mile Point Nuclear Unit No. 2 cotenant 135,808 120,060 Reduction of long-term debt . 126,717 67,005 130,829 Reduction of preferred and preference stock ....... 13,050 20,574 14,318 Dividends . 311,777 267,953 227,751 Total resources used $ 1,171,156 $ 1,083,942 $ 946,569 (Increase) decrease in working capital other than short-term debt:
Cash $ (12,294) $ (1,440) $ (11,816)
Accounts receivable . (1,730) (8,156) (44,827)
Coal and oil for production of electricity ............... 32,020 (564) 46,243 Other materials and supplies (3,432) (5,764) ', (2,148)
Long-term debt due within one year 1,628 33,685 (39,348)
Accounts payable 3,848 (2,213) 7,501 Payable on outstanding bank checks 3,988 (17,119) 15,556 Accrued taxes and interest . (5,990) 27,440 (7,362)
Gas'supplier refunds due customers 5,137 (8,989) 1,934 Cotenant prepayments to Nine Mile Point Nuclear Unit No. 2 project fund 84,594 (2,507) (494)
Other (net) . (15,685) 24,591 5,306
$ 92,084 $ 38,964 $ (29,455) 25
NOTES TO CONSOL(DATED FINANC(ALSTATEMENTS NOTE 1. Summary of Significant Accounting Policies debit account will be amortized and recovered in rates over the The Company is subject to regulation by the New York State life of the Unit.
Public Service Commission (PSC) and the Federal Energy Depreciation, Amortization and Nuclear Generating Plant Regulatory Commission (FERC) with respect to its rates for Decommissioning Costs: For accounting purposes, deprecia-service and the maintenance of its accounting records. The tion is computed on the straight-line basis using the average or Company's accounting policies conform to generally accepted remaining service lives by classes of depreciabie property. In accounting principles, as applied to regulated public utilities, addition, certain costs associated with the discontinued Ster-and are in accordance with the accounting requirements and ling Nuclear Station (See Note 2) are being amortized over ratemaking practices of the regulatory authorities. shorter periods as approved by the PSC. For Federal income Principles of Consolidation: The consolidated financial tax purposes, the Company computes depreciation using ac-statements include the Company and its wholly-owned sub- celerated methods and shorter allowable depreciabie lives.
sidiaries. All significant intercompany balances and transac- Estimated decommissioning costs (costs to remove the plant tions have been eliminated. Assets and liabilities of foreign from service in the future) of the Company's Nine Mile Point subsidiaries are translated into U.S. dollars at the exchange Nuclear Station Unit No. 1 are being recovered in rates through rate in effect at the balance sheet date. Revenue and expense an annual allowance and charged to operations through accounts are translated at the average exchange rate in effect depreciation charges. The Company continues to review the during the year. Currency translation adjustments are recorded estimate and requirements for decommissioning and plans to as a component of equity and do not have a significant impact seek rate adjustments when appropriate. There is no assurance on financial condition. that the decommissioning allowance will ultimately aggregate a Utility Plant: The cost of additions to utility plant and of re- sufficient amount to decommission the plant. The Company placements of retirement units of property is capitalized. Cost believes that decommissioning costs, if higher than currently includes direct material, labor, overhead and an allowance for estimated, will ultimately be recovered in the rate process, al-funds used during construction (AFC). The cost of current re- though no such assurance can be given. Based on a study pairs and maintenance is charged to expense. Whenever utility completed in 1985, the cost of decommissioning, which is ex-plant is retired, its original cost, together with the cost of re- pected to begin in the year 2005, is estimated to be approxi-moval, less salvage, is charged to accumulated depreciation. mately $ 553,000,000 at that time ($ 193,600,000 in 1985 dollars).
The following table summarizes the components of Utility Through December 31, 1985, the Company has recovered Plant: $ 19,100,000 of decommissioning costs in rates. The Company's 41'/o share of costs to decommission Nine Mile Point Nuclear In thousands of dollars Station Unit No. 2 beginning in the year 2027, is estimated to be At December 31, 1985 /o 1984 approximately $ 923,000,000 ($ 93,300,000 in 1985 dollars). Pro-Electric plant ............... $ 4,302,280 56 $ 4,083,042 vision to commence recovery based upon currently estimated Nuclear fuel (Note 3) ........ 369I126 5 316,909 decommissioning costs over the life of these plants is expected Gas plant ................... 517,995 7 494,628 to be considered in the Company's next rate proceeding.
Common plant .............. 115,316 2 130,916 Amortization of Nuclear Fuel: Amortization of the cost of Construction work in progress 2>336,188 30 1,877,689 nuclear fuel is determined on the basis of the quantity of heat Total utility plant .. $ 7)640)905 100 $ 6 903 184 produced for the generation of electric energy. The cost of disposal of nuclear fuel, which presently is $ .001 per kilowatt-hour of net generation, is based upon a contract with the U.S.
Allowance for Funds Used During Construction: The Com- Department of Energy. These costs, which are associated with pany capitalizes AFC in amounts equivalent to the cost of generation at Nine Mile Point Unit No. 1, are charged to operat-funds devoted to plant under construction. AFC rates are de- ing expense and recovered from customers through base rates termined in accordance with FERC and PSC regulations. The or through the fuel adjustment clause.
Company computes AFC at a rate which is reduced to reflect Revenues: Revenues are based on cycle billings rendered to the income tax effect of the borrowed funds component of AFC certain customers monthly and others bi-monthly. The Com-for all additions to electric utility plant. The AFC rates in effect pany does not accrue revenues for energy consumed and not December 31, 1985 were 12.40/o and, net of tax, 10.25/o. AFC is billed at the end of any fiscal period. The Company's tariffs segregated into its two components, borrowed funds and other include electric and gas adjustment clauses under which funds, and is reflected in the Interest Charges section and the energy and purchased gas costs, respectively, above or below Other Income and Deductions section, respectively, of the the levels allowed in approved rate schedules, are billed or Consolidated Statement ot Income. credited to customers. The Company, as authorized by the PSC, Effective April 1985, pursuant to a PSC authorization, the charges operations for energy and purchased gas cost in-Company discontinued accruing AFC on $ 320 million of con- creases in the period of recovery. The PSC has periodically struction work in progress (CWIP) for which a cash return is authorized the Company to make changes in the level of allowed being allowed through inclusion in rate base of that portion of energy and purchased gas costs included in approved rate the investment in the Nine Mile Point Nuclear Station Unit No. 2 schedules. As a result of such periodic changes, a portion of (Unit). Amounts equal to the AFC which is no longer accrued energy costs deferred at the time of change would not be recov-on the CWIP included in rate base are being accumulated in ered under the normal operation of the electric adjustment deferred debit and credit accounts and, at the time the Unit clause. However, the Company has been permitted to amortize commences commercial operation and is placed in rate base, and bill such portions to customers, through the electric ad-the balance in the deferred credit account will be available to justment clause, over 36 months from the effective date of each reduce future revenue requirements over a period substantially change. The Company has implemented, beginning April 1984, shorter than the life of the Unit. The balance in the deferred revisions to its fuel adjustment clause consistent with the PSC's 26
Opinion in a proceeding which reviewed the Company's electric equipment to be held by a jointly-owned mining venture. Ac-fuel adjustment clause. The revisions essentially provide for quisition of this interest was made primarily to provide a more partial pass-through of fuel cost fluctuations from those fore- assured future supply of nuclear fuel. The investment in the cast in rate proceedings with the Company absorbing a specific subsidiary, which includes costs incurred since acquisition portion of increases or retaining a portion of decreases to a and AFC accrued through March 31, 1981, has been reduced maximum of $ 15 million per rate year. by the proceeds from the sale of uranium, net of tax, and trans-Federal Income Taxes: In accordance with PSC require- fers to the Company and is included in the consolidated finan-ments, the tax effect of book and tax timing differences is cial statements as part of the nuclear fuel component of utility flowed through unless authorized by the PSC'to be deferred. plant (see Note 1). Such investment, excluding amounts being The Company provides deferred taxes on certain benefits reviewed in the Company's current rate proceeding (including realized from depreciation, on deferred energy and purchased inventory with a spot market value of approximately gas costs, on nuclear fuel disposal costs accrued prior to April $ 22,600,000 at January 1, 1986 and 1985), totaled $ 73,800,000 7, 1983, on nuclear generating plant decommissioning costs, at December 31, 1985 and $ 87,500,000 at December 31, 1984.
on certain construction overheads and on certain other items In 1978, the PSC issued an order approving the Company's (see Note 9). In conformity with ratemaking practices of the investment in NMU. This approval was subject to the condition PSC, the Company has not provided deferred taxes on approx- that rates which the PSC will approve in the future will reflect imately $ 1.5 billion of other tax deductions which include cer- the cost of NMU uranium at the lower of cost or the market tain depreciation differences and various construction over- price. The PSC also stated that the reasonableness of the heads deductible currently for tax purposes and capitalized for Company's future uranium costs will be judged with reference accounting and ratemaking purposes. The Company claims 10 to costs of uranium under "currently" available long-term con-percent investment tax credit and defers the benefits of such tracts and in the spot market. Subject to PSC approval, the credits as realized in accordance with PSC directives. For pur- comparison of cost to market will be on an aggregate basis poses of computing capital cost recovery deductions and nor- over the life of the project.
malization, the asset basis is reduced by one-half of the credit In connection with the Company's March 1984 rate decision, claimed for expenditures made subsequent to 1982. For proj- the PSC allowed $ 38.37 per lb. as the cost of approximately ects specified in the AFC section above, the imputed tax ben- 300,000 lbs. of NMU uranium utilized in the 1984 reload of the efit of the borrowed funds component of AFC has been cred- Company's Nine Mile Point Nuclear Unit No. 1. This price rep-ited to Other Income and Deductions. The tax effect of General resents the average United States delivery price, as reported by and Refunding Bond interest and supplemental payments is the U.S. Department of Energy (DOE), for all uranium during recorded in Other Income and Deductions (see Note 11). 1982 including long-term contracts and spot market price set-Amortization of Debt Issue Costs: The premium or discount tlements. The Company's cost of this NMU uranium was $ 42.14 on long-term debt issues is amortized ratably ovei the lives of per lb., inclusive of AFC prior to April 1, 1981. The differential the issues (see Note 7). between the Company's cost of this NMU uranium and that Pension Plans: The cost of pension plans is based upon cur- amount allowed to be recovered in rates charged to customers rent costs, amortization of unfunded past service benefits over has been deferred subject to the PSC approval of the compari-periods ranging from 15 to 40 years and amortization over 15 son of cost to market on an aggregate basis over the life of the years of unfunded past service benefits arising from plan project.
amendments. The Company's policy is to fund pension costs In connection with the Company's current rate proceeding, accrued (see Note 8). the PSC is reviewing approximately 590,000 lbs. of NMU In December 1985, Statement of Financial Accounting Stan- uranium transfers to the Company valued at appioximately dards No. 87 "Employers'ccounting for Pensions" was is- $ 23.0 million using appropriate DOE prices. The cost to the sued and is effective for fiscal years beginning after December Company of this uranium is approximately $ 26.3 million.
15, 1986. The adoption of the requirements of this statement is Since regulatory restrictions exist on the extent to which the not currently anticipated to have a significant impact on the costs of uranium produced by this mining operation may be results of operations or financial position of the Company as allowed in future rates, management is continually evaluating shown in the Consolidated Financial Statements. the status of the Company's investment to assure maximum recovery. Based upon current forecasts of DOE average deliv-NOTE 2. Depreciation and Amortization ery prices and the Company's uranium requirements through The total provision for depreciation and amortization, includ- 1991, it is presently anticipated that the mining process will be ing amounts charged to clearing accounts, was $ 151,817,000 completed and all production will be utilized.
for 1985, $ 142,500,000 for 1984 and $ 128,976,000 for 1983. The provisions include approximately $ 9,500,000, $ 10,200,000 and NOTE 4. Bank Credit Arrangements
$ 9,200,000, respectively, resulting from the PSC allowed re- At December 31, 1985, the Company had $ 573 million of covery of the amortization of costs associated with the discon- bank credit arrangements, including the Oswego Facilities tinued Sterling Nuclear Station. The percentage relationship Trust, with 38 banks. These credit arrangements consisted of between the total provision for depreciation and average de- $ 445 million in long-term commitments under Revolving Credit preciable property was 3.0/o in 1985, 2.9/o in 1984 and 2.8/o in and Term Loan Agreements, $ 10 million in short-term com-1983. The Company makes depreciation studies on a continu- mitments under Credit Agreements, $ 18 million in lines of cred-ing basis and, upon approval by the PSC, periodically adjusts it and $ 100 million under a Bankers Acceptance Facility the rates of its various classes of depreciable property. Agreement. The Revolving Credit and Term Loan Agreements extend through 1990. At the option of the Company, the in-NOTE 3. N M Uranium, Inc. terest rate applicable to borrowings under these agreements is During 1976, through a wholly-owned subsidiary, N M based on the prime rate or at specified increments over the Uranium, Inc. (NMU), the Company purchased a 50 percent rates applicable to certificates of deposit or, in certain agree-undivided interest in uranium deposits and associated mining ments, eurodollar deposits. All of the other bank credit 27
arrangements are subject to review on an ongoing basis with NOTE 6. Information Regarding the Electric interest rates negotiated at the time of use. The Company also and Gas Businesses issues commercial paper. Unused bank credit facilities are The Company is engaged in the electric and natural gas util-held available to support the amount of commercial paper out- ity businesses. Certain information regarding these segments standing, including amounts currently issued in connection is set forth in the following table. General corporate expenses, with Interest Rate Exchange Agreements (see Note7). property common to both segments and depreciation of such The Company pays fees for substantially all of its bank credit common property have been allocated to the segments in ac-arrangements. The Bankers Acceptance Facility Agreement, cordance with practice established for regulatory purposes.
which is used to finance the fuel inventory for the Company's Identifiable assets include net utility plant, materials and generating stations, provides for the payment of fees only at supplies and deferred recoverable energy costs. Corporate as-the time of issuance of each acceptance. sets consist of other property and investments, cash, accounts Amounts outstanding under Interest Rate Exchange Agree- receivable, prepayments, unamortized debt expense and other ments and Revolving Credit and Term Loan Agreements to- deferred debits.
taled $ 100 million at December 31, 1985 and are recorded as long-term debt. ln thousands of dollars Additional bank credit arrangements in connection with the 1985 1984 1983 Company's guarantee of certain obligations of LILCO are dis- Operating revenues:
cussed in Note 11. Electric ........... $ 2,096>404 $ 2,134,470 $ 2,023,728 The following table summarizes additional information Gas . 598,536 651,076 608,587 applicable to short-term debt: Total $ 2,694,940 $ 2,785,546 $ 2,632,315 ln thousands of dollars 1985 1984 Operating income before taxes:
At December 31: Electric ................... $ 529,659 $ 511,842 $ 420,600 Short-term debt:
Commercial paper.... ".$ $ 8,000 Gas................ 55,100 62.651 51,204 Total $ 584,759 $ 574,493 $ 471,804 Notes payable 2,195 3,516 Bankers acceptances . 5,000 42,000 Pretax operating Income, Including AFC:
S 7195 $ 53,516 Electric ................... S 716,719 $ 672,964 $ 538,097 Weighted average ln'tefest rate (a) .... 7.93/o 9 67/0 Gas.................... 55,356 63,025 51.500 Total ................... 772>075 735,989 589,597 For year ended December 31: Income taxes ................ 173>471 181,767 117,089 Daily average outstanding .......... S 45,607 $ 87,271 Other income and deductions 79,818 42,051 41,505 Daily weighted average interest Interest charges ............. 266,992 236,539 201,604 rate(a) . 8.31o/o 10.4S /o Maximum amount outstanding ..... 4182,818 Net income S 411,430 $ 359,734 S 312,409
$ 228,893 (a) Excluding compensating balances and fees.
Depreciation:
NOTE 5. Jointly-Owned Generating Facilities Electric $ 137,630 S 128,521 $ 115,075 The following table reflects the Company's share of jointly- Gas . 12,997 12,629 12,315 owned generating facilities at December 31, 1985. The Com- Total S 150,627 $ 141,150 $ 127,390 pany is required to provide financing for the unit in process of construction and for any additions to the units in service. The Construction expenditures Company's share of expenses associated with the Roseton (including nuclear fuel):
units and Oswego Steam Station Unit No. 6 are included in the Electric .................. S 749>912 $ 734,706 $ 654,020 appropriate operating expenses in the Consolidated Statement Gas . 21,208 35,140 37,444 of Income. Total $ 771,120 $ 769,846 S 691,464 ln thousands of dollars Percentage Construction owner- Utility AccumuIated work in Identifiable assets:
ship plant depreciation progress Electric ........... $ 5>756 586 $ 5 155 372 $ 4 443 154 Roseton Steam Station Gas . 444,070 432,113 429,133 Units No.1 and 2(a) ... 25 $ 82,880 $ 25,328 $ 405 Total ........ 6,200,656 5,587,485 4,872,287 Oswego Steam Station Corporate assets . 813,181 645,916 485,285 Unit No.6(b).......... 76 $ 259,190 $ 40,408 $ 599 Total assets $ 7,013,837 $ 6,233,401 $ 5,357,572 Nine Mile Point Nuciear StationUnitNo.2(c)(d) . 41 $ 1,917,956 (a) The remaining ownership interests are Central Hudson Gas and Electric Corporation, the operator of the plant (35'/o) and Consoli-dated Edison Company of New York, Inc. (40/o).
(b) The Company is the operator. The remaining ownership interest is Rochester Gas and Electric Corporation (24/o).
(c) The remaining ownership interests are Long Isfand Lighting Com-pany (18'/o), New York State Electric and Gas Corporation (18/o),
Rochester Gas and Electric Corporation (14%), and Central Hud-son Gas and Electric Corporation (9%%d) (see Note 10).
(d) Excludes amounts spent for nuclear fuel and certain costs as-sociated with non.generating facilities being constructed in con-nection with the Unit.
28
'hlOTE 7. Capitalization CAPITAL STOCK At December 31, 1985 1984 1983 The following table summarizes the shares of Common stock, $ 1 par value:
capital stock authorized, issued and outstanding Authorized .................. 150,000,000 150,000,000(a) 125,000,000 Issued & outstanding ......... 126,928,340 116,848,974 104,010,003 Preferred stock, $ 100 par value:
Authorized ................... 3,400,000 3,400,000 3,400,000 Issued & outstanding .......... 3,318,000 3,342,510 3,370,240 Preferred stock, $ 25 par value:
Authorized ................... 19>600>000 19,600,000(a) 9,600,000 Issued & outstanding .......... 14,044,000 11,210,000 9,376,000 Preference stock, $ 25 par value:
Authorized ................... 4>000>000 4,000,000 4,000,000 Issued & outstanding .......... 0 520,000 760,000 (a) Increased authorizations approved by shareholders.
The table below summarizes changes in capital accounts for 1983, 1984 and 1985:
Preferred and Preference Stock
$ 100 par value $ 25 par value Capital stock Common stock Non- Premium and Amount'on-($ 1 par value)
Shares Shares Redeem- Redeem-able'ble* Shares Redeem-able'ble* Redeem- Expense (Net)'alance January 1, 1983 93,832,151 $ 93,832 3,161,920 $ 210,000 $ 106,192(a) 6,662,000 $ $ 166,550(o) $ 1,020,795 Sales in1983 ............ 5,000,000 5,000 250,000 25,000 3,800,000 30,000 65,000 78,629 Issued to stock purchase plans in 1983 ........... 5,177,852 5,178 80,465 Redemptions ............ (41,680) (4,168) (326,000) (8,150) 607 Foreign currency translation adjustment .. (6,114)
Balance December 31,1983 104,010,003 104,010 3,370,240 210,000 127,024(o)10,136,000 30,000 223,400(a) 1>174,382 Sales in 1984 ............. 6,534,400 6,534 2,000,000 50,000 87,878 Issued to stock purchase plans in1984 ............ 6,304,571 6,305 87,117 Redemptions ............. (27,730) (2,773) (406,000) (10,150) 555 Foreign currency translation adjustment ... (2,126)
Balance December 31,1984 116,848,974 116,849 3,342,510 210,000 124,251(a)11,730,000 30,000 263,250(a) 1,347,806 Safes in1985 ............. 4,465,600 4,465 3,000,000 50,000 25,000 74,216 Issued to stock purchase plans in 1985 ............ 5,613,766 5,614 99,535 Redemptions ............. (24,510) (2,451) (686,000) (17,150) 442 Foreign currency translation adjustment.... (2,422)
Balance December31,1985 126,928,340 $ 126,928 3,318,000 $ 210,000 $ 121,800(o)14,044,000 $ 80,000 $ 271,100(a) $ 1,519,577
- In thousands of dollars (a) Includes sinking fund requirements due within one year NON-REDEEMABLE PREFERRED STOCK (Optionally Redeemable)
The Company has certain issues of preferred stock which provide for optional redemption as follows: Redemption price per share (Before adding accumulated dividends) ln thousands ol dollars Eventual At December 31, 1985 1984 1983 December 31, 1985 minimum Preferred $ 100 par value:
3.40% Series; 200,000 shares .. $ 20,000 $ 20,000 $ 20,000 $ 103.50 $ 103.50 3.60% Series; 350,000 shares .. 35,000 35,000 35,000 104.85 104.85 3.90% Series; 240,000 shares .. 24,000 24,000 24,000 106.00 106.00 4.10% Series; 210,000 shares .. 21,000 21,000 21,000 102.00 102.00 4.85% Series; 250,000 shares .. 25,000 25,000 25,000 102.00 102.00 5.25% Series; 200,000 shares .. 20,000 20,000 20,000 102.00 102.00 6.10% Series; 250,000 shares .. 25,000 25,000 25,000 101.00 101.00 7.72% Series; 400,000 shares .. 40,000 40,000 40,000 105.44 102.36 Preferred $ 25 par value:
Adjustable Rate Series A; 1,200,000 shares ........... 30,000 30,000 30,000 (a) 25.00 Adjustable Rate Series C; 2,000,000 shares ........... 50,000 (b) 25.00
$ 290,000 $ 240,000 $ 240,000 (a) Not redeemable until 1988. (b) Not redeemable until 1990.
29
MANDATORILYREDEEMABLE PREFERRED STOCK The Company has certain issues of preferred and preference stock which provide for mandatory and optional redemption as follows: Redemption price per share
\ (Before adding accumulated dividends) ln thousands of dollars Eventual At December 31, 1985 1984 1983 December 31, 1985 minimum Preferred $ 100 par value:
7.45% Series; 438,000, 456,000, and 474,000 shares .. $ 43,800 $ 45,600 $ 47,400 $ 104.57 $ 100.00 10.13% Series; 250,000 shares. 25,000 25,000 25,000 (a) 100.00 10.60% Series; 280,000, 286,510 and 296,240 shares . 28>000 28,651 29,624 107.95 102.65 12.75% Series; 250,000 shares. 25,000 25,000 25,000 (h) (b)
Preferred $ 25 par value:
8.375% Series; 1,300,000, 1,400,000 and 1,500,000 shares . 32,500 35,000 37,500 26.32 25.00 9.75%Series;804,000,870,000and936,000shares.... 20,100 21,750 23,400 26.29 25.00 9.75% Series (second); 1,020,000 shares ............ 25,500 25,500 25,500 26.63 25.00 10.13% Series; 1,000,000 shares ..................... 25,000 25,000 25,000 (a) 25.00 10.75% Series; 1,600,000 shares . 40,000 40,000 40,000 (a) 25.00 12.25% Series; 700,000 shares. 17,500, 17,500 17,500 (c) 25.00 12.50/o Series; 620,000 shares. 15>500 15,500 15,500 (c) 25.00 12.75% Series; 1,000,000 shares ..................... 25,000 28.20 25.00 15.00/o Series; 800,000 shares. 20,000 20,000 20,000 28.28 25.00 Adjustable Rate Series B;2,000,000shares............ 50,000 50,000 (d) 25.00 Preference $ 25 par value:
7.75% Series; none, 520,000 and 760,000 shares ....... 13,000 19,000 392,900 387,501 350,424 Less sinking fund requirements 13,050 19,601 11,950
$ 379,850 $ 367,900 $ 338,474 (a) Not redeemable until 1988.
(b) Entire issue to be redeemed at par value June 30, 1991.
(c) Not redeemable until 1991.
(d) Not redeemable until 1989.
These series require mandatory sinking funds for annual redemption and provide optional sinking funds through which the Company may redeem, at par, a like amount of additional shares (limited to 120,000 shares of the 7.45% series and 300,000 shares of the 9.75% series). The option to redeem additional amounts is not cumulative.
The Company's five-year mandatory sinking fund redemption requirements for preferred stock are as follows:
ln thousands of dollars No. of shares Commencing 1986 1987 1988 1989 1990 Preferred $ 100 par value:
7.45% Series .......... 18,000 -6/30/77 $ 1,800 $ 1,800 $ 1,800 $ 1,800 $ 1,800 10.13% Series .......... 25,000 12/31/87 2,500 2,500 1,875 2,500 10.60% Series ........ ~ ~ 20,000 3/31/80 2,000 2,000 2,000 2,000 2,000 Preferred $ 25 par value:
8.375% Series ........ 100,000 4/1/83 2,500 2,500 2,500 2,500 2,500 9.75% Series ... ~ ~ ~ ~ ~ ~ 66,000 10/1/80 1,650 1,650 1,650 1,650 1,650 9.75% Second Series . 204,000 4/1/86 5,100 5,100 5,100 5,100 5,100 10.13% Series ......... 100,000 12/31/87 2,500 2,500 1,875 2,500 10.75% Series ......... 320,000 6/30/89 8,000 8,000 12.25% Series ......... 43,060 3/31/87 1,077 1,077 1,077 1,077 12.50/o Series ......... 38,139 3/31/87 953 953 953 953 15.00% Series . ~ ~ ~ ~ . ~ ~ ~ 40,000 3/31/87 1,000 1,000 1,000 1,000
$ 13,050 $ 21,080 $ 21,080 $ 27.830 $ 29.080 30
LONG-TERM DEBT Long-term debt and long-term debt due within one year consisted of the following:
In thousands of dollars In thousands oi dollars At December 31 ~ 1985 1984 At December 31 ~ 1985 1984 First mortgage bonds: 16% SeriesdueAugust1,2012 ........... 3,046 3,046 10Vs% Series due September 1,1985.... 8 $ 47,000 12r/s%Seriesdue November1,2012 ........ 100,000 100,000 3%% Series due May 1, 1986 .......... 30,000 30,000 12r/s% Series due March 1,2013 ............ 100,000 100,000 4r/s% Series due September 1 1987....
~ 50,000 50,000 12V~% Series due June 15,2013 ............ 50,000 50,000 3r/s%Serlesdue June1,1988 ......... 50,000 50,000 '11>/4% Series due July 1,2014 .............. 75,690 100,000 14r/s% Series due August 11, 1988 ...... 50,000 50,000 *11%% Series due October 1, 2014 .......... 40>015 56,250 12% Series due March 1,1989 ........ 20,000 20,000 'r/s%Serlesdue November1,2025 ........ 75,000 9Vs% Series due October 1, 1989 ...... 13,000 13,000 Paul Smith's Electric Light & Power &
4'%eries due April 1, 1990.......... 50,000 50,000 Railroad Company first mortgage bonds:
15% Series due March 1,1991 38,650 90,000 38,650 100,000 5'/z% Series due Ma 1, 1985 .............. 450 Total First Mortgage Bonds ...
........'4V4%SeriesdueMay1,1991 2,129,751 2,069,996 4'/z% Series due November 1, 1991 40,000 40,000 12.73% Series due February 1, 1992..... 20>000 Promissory Notes:
13.06% Series due February 1 1992.....
~
'50,000 8%SeriesAdue June1,2004... 46,600 46,600 12.73% Series due February 20, 1992 ... 10,000 12.68% Series due February 28, 1992 ... '0,000 'Adjustable Rate Series due July1,2015 ..... 100,000 15>/2% Series due March 1, 1992 ........ 50>000 50,000 'Adjustable Rate Series due 15V4%Seriesdue June1,1992 ......... 58,500 62,500 December1,2025 . 75,000 11% Seriesdue May1,1993 .......... 50,000 50,000 Notes payable:
12V2% Series due March 1, 1994 ........ 13,000 13,000 'Variable Rate Pollution Control Notes....... 54,950 4%% Series due December 1,1994 .... 40,000 40,000 17% Eurodollar Guaranteed Notes 5~/s%SeriesdueNovember1,1996 .... 45,000 45,000 due September15,1989 ................. 46,705 46,705 6>/4%SeriesdueAugust1,1997 ....... 40,000 40,000 7.8125% Adjustable London Interbank 6>/~% Series due August 1, 1998 ....... 60,000 60,000 Offered Rate due September 15, 1989 ..... 9,000 17,000 12Vs% Series due March 1, 1999 ........ 17>000 17,000 Swiss Franc Bonds due December 15, 1995 .. 50,000 9>/e%Seriesdue December1,1999 .... 75,000 75,000 15.02% Unsecured Notes due 1990 ......... 50,000 50,000 12.95% Series due October 1, 2000 ..... 80>000 80,000 Notes, Interest Rate Exchange Agreement... 50,000 50,000 7%% Series due February 1, 2001 ...... 65,000 65,000 Revolving credit and loan 7%% Series due February1,2002...... 80,000 80,000 agreements ............................ 25>000 7'%eries due August 1, 2002 ....... 80,000 80,000 Revolving credit agreement, 8>/4% Series due December 1, 2003 .... 80>000 80,000 Oswego Facilities Trust ................. 25,080 25,010 9>/~% Series due December 1, 2003 .... 50,000 50,000 Other 99,875 97,095 9.95% Series due September 1 2004... 95,000 100,000
~
Unamortized premium 1,548 1,952 10.20% Series due March 1, 2005 ....... 35,000 36,500 8.35% Series due August 1, 2007 ...... 71,050 71,600 TOTAL LONG-TERM DEBT ................ 2,708,559 2.459,308 8%% Series due December 1, 2007 .... 44>000 46,000 Less long-term debt due within one year .... i 65,465 63,837
- 13V2% Series due April 1,2012.......... 25,800 30,000 62,643,094 $ 2,395,471
'ax-exempt pollution control related issues Several series of First Mortgage Bonds and Notes were issued $ 25,000,000 was for Oswego Facilities Trust (Trust). The to secure a like amount of tax-exempt revenue bonds and agreements require the Company to make fixed rate payments notes issued by the New York State Energy Research and De- which calculated on a semi-annual bond basis, are equivalent velopment Authority (NYSERDA). During 1985, $ 250,000,000 of to 12.25%, and in exchange, receive a LIBOR-based floating these pollution control securities with maturities ranging from rate payment from a bank. The Company generally uses its own 30-40 years were issued. $ 175,000,000 bear interest at a daily commercial paper notes as the source of funding for adjustable interest rate (with a Company option to convert to a $ 50,000,000 and Trust notes for $ 25,000,000. The related inter-fixed interest rate) and are supported by bank direct pay letters est expense is recorded on a net basis.
of credit. $ 75,000,000 are at a fixed rate of 87/s% and are se- The arrangements with the Trust provide financing for the cured by the Company's first mortgage bonds. Pursuant to construction of a new energy management system. The Trust agreements between NYSERDA and the Company, trust funds has a $ 40,000,000 Direct Pay Letter of Credit Facility and Re-have been established with the proceeds from the bond and volving Credit Agreement, $ 25,000,000 of which is subject to an note issues. Such proceeds are to be used for the purpose of Interest Rate Exchange Agreement, which is available through constructing certain pollution control facilities at the Com- December 31, 1990, and is used to support its commercial pany's generating facilities. Unexpended proceeds in the trust paper obligations. All such obligations are secured by certain funds amounted to $ 79,916,000 at December 31, 1985 and are assets held by the Trust. The Company is required to purchase, recorded in Other Property and Investments. or otherwise arrange for, the disposition of the Trust assets Notes Payable include a ten-year Swiss franc bond issue upon the termination of the Trust. The Letter of Credit Facility equivalent to $ 50,000,000 in U.S.,funds. Simultaneously with and Revolving Credit Agreement of the Trust require payment of the sale of these bonds, the Company entered into a currency fees which are based upon the amount of commercial paper exchange agreement to fully hedge against currency exchange outstanding.
rate fluctuations. Other tong-term debt consists of obligations under capital During 1984, the Company entered into seven-year Interest leases of $ 41,896,000 and the liabilityto the U.S. Department of Rate Exchange Agreements for $ 75,000,000, of which Energy for nuclear fuel disposal of $ 57,979,000.
31
Certain of the Company's Mortgage Bonds provide for a mandatory sinking fund for annual redemption. The mandatory sinking fund redemption requirements for First Mortgage Bonds are as follows:
Company's'ive-year Principal In thousands of dollars amount Commencing 1986 1987 1988 1989 1990 10.20/o Series due March 1, 2005...... $ 1,500 3/1/78 $ (a) S 1,500 $ 1,500 S 1,500 S 1,500 8.35% Series due August 1, 2007 ..... 750 8/1/82 (a) 550(a) 750 750 750 8Vs% Series due December 1, 2007 ... 2,000 12/1/83 2,000 2,000 2,000 2,000 2,000 9.95% Series due September 1, 2004 . 5,000 9/1/85 5,000 5,000 5,000 5,000 5,000 14~/s% Series due August 11, 1988 ..... 16,000 8/11/86 16,000 17,000 17,000 12.95% Series due October 1, 2000 .... 5,333 10/1/66 5,333 5,333 5,333 5,333 5,333 9~/~% Series due December 1, 2003 ... 2,941 12/1/87 2,941 2,941 2,941 2,941 124% Series duo March 1, 1999....... 1,700 3/1/90 1,700
$ 26,333 $ 34,324 $ 34,524 $ 17,524 $ 19,224 (a) Requirements, or a portion thereof, have been met by advance purchases.
Additionally, certain other series of mortgage bonds provide In addition to providing pension benefits, the Company and for a debt retirement fund whereby payment requirements may its subsidiaries provide certain health care and life insurance be met, in lieu of cash, by the certification of additional prop- benefits for retired employees. Substantially all of the Com-erty, the waiver of the issuance of additional bonds or the re- pany's employees may become eligible for these benefits if tirement of outstanding bonds. The 1985 requirements for they reach retirement age while working for the Company.
these series were satisfied by the certification of additional These benefits are provided through an insurance company property. The Company anticipates that the 1986 requirements whose premiums are based on the benefits paid during the for these series will be satisfied by other than payment in cash. year. The cost (insurance premiums) of providing these ben-Total annual debt retirement fund requirements for these efits amounted to approximately $ 7,500,000 for 1985 and series, based upon mortgage bonds outstanding December 31, $ 6,000,000 for 1984.
1985, are $ 7,850,000.
NOTE 9. Federal and Foreign Income Taxes NOTE 8. Pension and Other Retirement Plans Income Tax Refund: In September 1981, the Company re-The Company and its subsidiaries have non-contributory ceived a refund of Federal income tax, including interest there-pension plans covering substantially all their employees. The on, amounting to $ 9,943,000, net of Federal income taxes on total pension cost was $ 42,100,000 for 1985 and 1984 and the interest portion of the refund. The refund resulted from the
$ 40,000,000 for 1983 (of which $ 13,400,000 for 1985, allowance of certain deductions for the loss of water rights at
$ 11,400,000 for 1984 and $ 12,200,000 for 1983 was related to Niagara Falls in connection with the redevelopment of Niagara construction labor and, accordingly, was charged to construc- power by the Power Authority of the State of New York. As part tion projects). of the Company's March, 1983 rate decision, the PSC ordered Studies indicate that the accumulated plan benefits, as de- that one-half of the refund be passed on to ratepayers over a termined by consulting actuaries, and plan net assets for the two-year period and the remaining one-half be retained by the Company's plans at December 31, 1985 and 1984 are as fol- Company. Accordingly, one-half of the amount has been re-lows: funded to customers and the remaining one-half is included in In thousands of dollars the Consolidated Statement of Income for 1983. In July 1983, 1985 1984 the Company filed a suit seeking to annul the PSC's decision to Actuarial present value of accumulated benefits: share the refund with ratepayers. In October 1985, the Court of Vested . $ 409,000 $ 361,000 Appeals upheld the PSC's original decision. No further appeal Non-vested . 24,000 21,000 is contemplated by the Company.
Total $ 433,000 $ 382,000 Net assets available for plan benefits..... $ 583,000 $ 455,000 Components of United States and foreign income before in-come taxes:
The weighted average assumed rate of return used in deter- In thousands of dollars 1985 1984 1983 mining the actuarial present value of accumulated plan ben-efits was 8% in 1985 and 7% in 1984. United States ................. $ 551,907 $ 499,285 $ 388,051 The above table summarizes accumulated plan benefits at- Foreign 17,516 18,326 19,989 tributable to employee wage levels and service rendered Consolidating eliminations .... 11,230 9,570) (10,053) through December 31, 1985 and 1984. These amounts do not Income before income taxes.. $ 558,193 $ 508,041 $ 397,967 take into consideration expected future service, wage in-creases and associated actuarial assumptions. These addi-tional factors and assumptions are considered in determining Following is a summary of the components of Federal and the funding requirements of the Company's ongoing pension foreign income tax and a reconcilation between the amount of plans, based upon an approved actuarial cost method, and are Federal income tax expense reported in the Consolidated in conformity with generally accepted actuarial principles and Statement of Income and the computed amount at the statu-practices. tory tax rate:
32
kummary Analysis: ln thousands of dollars 1985 1984 1983 Components of Federal and foreign income taxes:
Current tax expense: Federal. $ (21,329) $ 17,713 $ (4,566)
Foreign 7,746 8,498 9,294 (13>583) 26,211 4,728 Deferred Federal income tax expense 187,054 155,556 112,361 Income taxes included in Operating Expenses . 173,471 181,767 117,089 Federal income tax expense included in Other Income and Deductions . 19,140 5,831 Federal income tax credits included in Other Income and Deductions... (45,648) (39,291) (31,511)
Total . $ 146,763 $ 148,307 $ 85,578 Components of deferred Federal Income taxes(Note 1)r Depreciation. $ 38,822 $ 52,130 $ 22,185 Cost of removal of property 295 870 2,479 Investment tax credit 36>507 54,900 51,163 Construction overheads 17,973 6,756 Recoverable energy and purchased gas costs .......... 6>472 (2,458) (22,523)
Necessity certificates . (700) (700) (700)
Nuclear tuel disposal cost 41,148 3,100 20,746 Sterling abandonment (3,769) (1,566) 188 Other 4,458 3.233 7,312 Deferred Federal income taxes (net) $ 141,206 $ 116,265 $ 80,850 Reconciliation between Federal and foreign income taxes and the tax computed at prevailing U.S. statutory rate on Income before Income taxes:
Computed tax . $ 256,769 $ 233,699 $ 183,074 Reduction attributable to flow-through of certain tax adjustments:
Depreciation. (16,274) (14,926) (6,431)
Allowance for funds used during construction 86>166 74,288 54,185 Taxes, pensions and employee benefits capitalized for accounting purposes .. 5>113 11,896 22,376 Real estate taxes on an assessment date basis 6>062 (406) 3,590 Deferred taxes provided at other than the statutory rate. 13>855 12,143 10,457 Other ...... 15,084 110,006 2,397 85,392 13,319 97,496 Federal and foreign income taxes. $ 146,763 $ 148,307 $ 85,578 NOTE 10. Nine Mile Point Nuclear Station Unit No. 2 Nine Mile Point Nuclear Station Unit No. 2 (the Unit), a nu- estimated to be $ 5.35 billion (comprised of construction costs clear power plant being constructed and to be operated by the of $ 3.577 billion and AFC of $ 1.773 billion). The increased cost Company and shared with other utilities, is the only major of the Unit is primarily attributable to delays incurred in com-generating facility currently under construction by the Com- pleting construction and the consequential effects upon the pany. Ownership is shared by the Company (41%) Long Island ~
pre-operational test schedule. The decline in the amount of Lighting Company (LILCO) (18%), New York State Electric & AFC included in the current estimate is primarily attributable to Gas Corporation (18%), Rochester Gas and Electric Corpora- the partial inclusion of the Unit's cost in rate base for three of tion (14%), and Central Hudson Gas & Electric Corporation the cotenant companies. The Company's 41% share of the total (9%). Output of the Unit, which will have a projected capability estimate is approximately $ 2.287 billion and, as of December of 1,084,000 kw., is to be shared in the same proportions as the 31, 1985, the Company has invested approximately $ 1.918 bil-cotenants'espective ownership interests. lion, including AFC and overheads capitalized.
Construction Status-Cost and Schedule: As 1985 came to a The primary emphasis of the construction efforts on the Unit close, construction activities at the Unit fell short of what was is directed towards that work necessary to support the start-up planned and, as a result, certain key milestones necessary for and tests required for fuel load and commercial operation.
fuel load were not achieved. As a result, the previously an- Canatom, Inc., independent consultants retained by the PSC, nounced February 24, 1986 fuel load date will not be met. Cur- indicated during 1985 that, in their opinion, there could be a rent assessments indicate that the fuel load will be ac- delay of four to six months in the October 1986 commercial complished within ten weeks of the February 24, 1986 date, operation date of the Unit. Also, in a routine analysis for pur-although no such assurance can be provided. The delay in poses of forecasting staffing requirements for licensing ac-achieving fuel load will result in a proportionate delay in tivities, the Staff of the Nuclear Regulatory Commission issued achieving the October 1986 commercial operation date. The a memorandum in October 1985, indicating its belief that a fuel Company has recently completed a revised cost estimate for load date of late 1986 is more probable for the Unit. Certain the Unit, incorporating the impact of the delay in achieving fuel cotenants in the Unit have also expressed their belief that the load and current financing cost assumptions, and now esti- previously scheduled commercial operation date of October mates the total Unit cost will be $ 5.526 billion (comprised of 1986 may be subject to a delay of up to six months. The Com-construction costs of $ 3.827 billion and AFC of $ 1.699 billion) pany believes that its revised construction schedule, incor-with commercial operation now expected to commence porating the current delay in fuel load, is achievable and ap-January 1987. In January 1985 the cost of the Unit had been propriate for scheduling the remaining completion effort.
Construction activities early in 1986 include two key mile- The rate phase-in of each cotenant's share of a(lowed costs is to be included in rate base over a reasonable
~'nit stones necessary for fuel load; the loss of power test and the integrated leak rate test. However, as delays have previously period, together with accumulated deferred carrying occurred with respect to the Unit, the Company can provide no costs on the portion of allowed Unit cost that has not yet assurance as to the precise date or dates on which various been included in rate base.
construction milestones, as well as fuel load and commercial Appropriate income tax deductions and credits appli-cable to the Unit's completion cost will be allocated to operation, will be accomplished. Any delay in achieving the the disallowed costs and reserved for shareholders.
January 1987 commercial operation date is estimated to add a The provisions of the Settlement would be in full satis-minimum of approximately $ 60 million each month to the total faction of the penalty and incentive provisions of the cost of the Project (approximately $ 25 million with respect to PSC's prior Incentive Rate of Return (IROR) and "cap" the Company's 41%%d share), the major portion of which would orders, discussed below, relating to the Unit.
be attributable to financing costs. Under either the Cost Set- The cotenants agree not to challenge the legal validity tlement Proposal discussed below or the $ 5.4 billion ceiling of either the IROR or "cap" orders previously issued by placed on the Unit by the PSC on July 18, 1984, the Company the PSC. In addition, each cotenant would waive any and does not expect the additional costs arising as a result of the all claims it may have against any other cotenant con-cerning the design, engineering or construction of the delay in fuel load and commercial operation, or costs arising as Unit.
a result of further delays, if any, to be recoverable through rates. On February 24, 1986, the Administrative Law Judges in the Cost Settlement Proposal: In connection with a 1982 PSC proceeding recommended to the PSC that the Settlement be proceeding discussed below, which concluded that comple- rejected and a detailed cost review of the Unit be undertaken.
tion of the Unit is warranted, the PSC stated that it would apply While they indicated that although, in their view, the methods a strict standard of prudence for all costs incurred in complet- used to justify the Settlement were not sufficiently compelling to ing the project. On July 3, 1985, the PSC issued an Order estab- warrant its adoption, they also stated that the Settlement may, lishing a proceeding to investigate the appropriateness of nevertheless, provide a reasonable basis for concluding the cost costs relating to the construction of the Unit. The Order con- review proceeding. Comments responding to their recommen-tained an Ordering Clause which required the cotenants to dations are scheduled to be filed by April 1, 1986 with a decision respond within 120 days to specific directives concerning fac- from the PSC expected in May. Should the PSC ultimately adopt tors which contributed to increases in the cost of the Unit and the recommendation of the Administrative Law Judges, a to provide written descriptions of the programs and techniques resumption of the detailed cost review proceeding ordered on employed by the cotenants in managing the project. The Order- July 3,1985, would be expected.
ing Clause was suspended pending the resolution of the joint The Company is unable to predict whether or not the PSC motion discussed below. will approve the Settlement or, if approved, to what extent the On September 18, 1985, the Company and the other coten- approval of the Settlement may be appealed. Under current ants, together with the Staff of the PSC, filed a joint motion generally accepted accounting principles, the Company will with the PSC seeking approval of an agreement titled "Speci- continue to capitalize all costs, including AFC, associated with fications of Terms and Conditions of Offer of Settlement" (Set- the Unit through completion, with recognition over the life of tlement) that, if approved by the PSC, would constitute a com- the Unit of disallowed costs resulting from the Settlement. (See plete disposition of the cost review proceeding. The Settlement discussion below regarding potential changes being consid-has been approved by the PSC Staff and by the management ered by the Financial Accounting Standards Board (FASB)).
and board ot directors of each of the five cotenants. In December 1985 the PSC issued an Order to LILCO disal-The Settlement submitted to the PSC contains the following lowing a portion of the cost of LILCO's Shoreham Nuclear Sta-key terms and conditions: tion. The PSC ordered an immediate write-off of the disallowed amount for ratemaking purposes, but delayed implementation The maximum amount of the Unit's expenditures to be included in the cotenants'ate bases would be $ 4.45 bil- of such a write off pending a submission of an accounting plan lion, and disallowed expenditures would not be less than for regulatory accounting purposes by LILCO. The Company
$ 900 million with amounts, if any, above the January 1985 understands that LILCO intends to ask to reopen the proceed-completion cost estimate of $ 5.35 billion being for the ings and may seek to stay any write off. The Company is unable account of the cotenants, except in the case of an "ex- to predict whether or not LILCO will be successful or whether traordinary event" as discussed below. The allowed cost the Company will receive a similar order.
of $ 4.45 billion will be reduced by the financing costs Ratemaking and Financial Accounting Recognition: On April "prepaid" by ratepayers as a result of rate base inclusion 16, 1982, the PSC, atter an extensive proceeding, issued an of a portion of the Unit's cost prior to completion. The opinion and order which stated that completion of the Unit is current cost estimate of $ 5.526 billion reflects the benefit of about $ 126 million related to such "prepaid" financing warranted and indicated the PSC's intention to closely monitor costs, thereby indicating a total disallowance of approx- construction activities. Full time PSC Staff are resident on site imately $ 1.202 billion to be appropriately proportioned to and, along with PSC retained consultants, monitor the Unit's the respective cotenant ownership interests. The Com- construction progress and issue periodic reports. The PSC, in pany's share of the disallowed amount is expected to 1982, also adopted an incentive rate of return (IROR) program approximate $ 490 million, reduced to approximately in connection with the remaining construction costs of the Unit
$ 330 million net of federal income tax. which would be implemented as part of the rate proceeding for
'The cotenants may request from the PSC an upward each cotenant that considers rate,-recognition of the Unit's adjustment of the $ 4.45 billion cap based only on the completion cost. On July 18, 1984, the PSC issued an opinion occurrence of an "extraordinary event" as contemplated and order which amended the IROR program to also include a in prior PSC orders concerning the Unit. At the time the agreement was entered into, the cotenants stipulated $ 5.4 billion ceiling on the Unit's final allowable cost. Under the that they were not then aware of any basis for such a amended IROR Program, costs incurred in excess of $ 4.6 bil-claim. lion, but less than $ 5.4 billion, are required to be borne by 34
cotenant shareholders to the extent of 20/o of the variation in therein and would allow the adoption of such requirements to revenue requirements, with costs in excess of $ 5.4 billion to be be reflected in the financial statements of the Company through borne in total by the cotenant shareholders. Although it cur- a restatement of prior periods.
rently appears, assuming a completion cost of $ 5.526 billion as The Company is unable to predict whether the foregoing currently projected, that the imposition of an IROR induced changes in financial recognition requirements will be adopted, penalty over the expected life of the Unit will not have a mate- , the ratemaking implications of any changes or the impact rial effect on the Company's financial position or results of thereof, if any, on its financial condition or results of opera-operations, no such assurance can be provided. As indicated tions. However, should the Exposure Draft be adopted in its above under "Cost Settlement Proposal," the approval of the present form, the Company would be required to write-off ap-Settlement by the PSC would render the IROR and Cap Orders proximately $ 490 million reduced to approximately $ 330 mil-inoperative. lion net of federal income taxes. The accounting period to Based upon the current high cost of large, base-load which this write-off would be charged is dependent upon the generating facilities, legislators, regulatory commissions and implementation requirements ultimately adopted by the FASB.
utility companies nationwide have ordered or are considering Proposed Legislation: The Governor of the State of New the phase-in of these costs over a period of years. In accor- York in January 1985 and 1986, in his annual "Message to the dance with current generally accepted accounting principles, Legislature", indicated he was committed to enacting legisla-Unit operating and financing costs may be deferrable under a tion to, among other things, phase in prudent costs of the Unit, phase-in plan for recovery in the future. In connection with the clarify the applicability of the "used and useful" principle as it Company's rate decision dated March 14, 1985, the PSC di- applies to nuclear units and affirm the PSC's authority to set a rected the Company to submit, with its next rate filing, rate cap on total construction expenditures and establish incentive moderation plans that would phase in the rate impact of the rate of return programs. In March 1985, the Governor's pro-Unit over 3, 5 and 7 year periods. On April 19, 1985 the Com- posals were introduced in the Assembly of the New York State pany included in a rate case filing applicable to the rate year Legislature.'The Assembly legislation would, among other ended March 31, 1987, one-third of its investment in the Unit things, establish a $ 5.1 billion cap on the total construction with a preference expressed for phasing in the remaining por- expenditures for the Unit recoverable in rates, mandate a tion of the Unit's cost over the two succeeding rate years end- phase-in period for cost recovery of not less than five years, ing March 31, 1988 and 1989. The Staff of the PSC and the clarify the "used and useful" principle to prevent recovery of Company are in agreement on the methodology to be utilized the cost of nuclear units which do not commence commercial .
in the rate implementation of a phase-in plan including recov- operation and eliminate future construction work in progress ery of deferred costs and carrying charges over the operating allowances for nuclear units. In June 1985, legislation was in-life of the Unit. The aspect of the phase-in plan which is pres- troduced into the Senate which would, among other things, ently not agreed upon is whether such plan should be a 3 year authorize a phase-in of up to five years and direct the Power phase-in, as proposed by the Company, or a 5 to 7 year phase Authority of the State of New York to purchase LILCO's share in as proposed by Staff. The Staff 5 year phase-in is premised of the Unit. The Senate and the Assembly have not reached on PSC approval of the Settlement discussed above, while agreement on any such proposed legislation. The Company is their 7 year phase-in presumes no disallowance of plant costs. unable to predict whether or not any of the proposed legisla-The Administrative Law Judges in the proceeding, in their tion, or additional legislation which may be submitted, will ul-Recommended Decision issued in December 1985, have rec- timately be enacted or, if enacted, to what extent they may be ommended adopting the PSC Staff's 5 to 7 year phase-in pro- subject to legal challenge. Likewise, the overall impact on the posal. Despite the currently scheduled commercial operation Company's financial condition and results of operations of the of the Unit in January 1987, the PSC at their public meeting on adoption of any such proposals cannot be predicted.
February 5, 1986 tentatively decided not to commence the Emergency Response Plan: Unlike other nuclear plants phase-in plan during the rate year ended March 31, 1987. A which have encountered widely publicized local resistance portion of the Unit will continue to be reflected as construction with respect to the development of emergency plans in the work in progress in rate base until that time. However, the PSC event of a nuclear incident, the Federal Emergency Manage-adopted the phase-in methodology proposed by the Company ment Agency approved the Nine Mile Point Emergency Re-and Staff which includes deferral accounting procedures for sponse Plan (Plan) on February 1, 1985. The Plan encompasses the Unit's operating costs should they be incurred prior to April all emergency preparedness activities, including the 1, 1987. The PSC is still deliberating the length of the phase-in Emergency Notification System, at Nine Mile Point. Subject to period and the Company is unable to predict at this time over certain testing, the Unit will come under this Plan when it be-what period of time the phase-in will ultimately be ordered or gins operation. The Unit is located between two currently when it will commence. operating nuclear plants and the Company has received sub-The FASB is currently reviewing, among other things, the fi- stantial cooperation from local authorities in connection with nancial accounting recognition of disallowed project costs and the continuing development of this emergency plan.
rate phase-in plans for major capital additions. The FASB has Nuclear Regulatory Commission-Audits and Licensing: In issued for public comment an Exposure Draft concerning these April 1985, the Staff of the NRC concluded an assessment of issues and expects to issue a final statement effective for calen- the Unit's overall construction program. The assessment cov-dar year 1987. The Exposure Draft proposes, among other ered the sixteen months ended January 1985 and concluded things, rules requiring the immediate write-off against income of that notable improvements in management of the project had disallowed costs when it becomes probable such costs will not been made since their 1983 review. Certain areas reviewed by be recovered in the rate making process and prohibiting the the NRC were noted as being minimally satisfactory and requir-deferral of any costs under a phase-in plan if they will not be fully ing increased NRC and Company attention. The Company ad-recovered in rates within ten years from the commencement of dressed the NRC recommendations in a response submitted to the phase-in plan. The Exposure Draft would also require re- the NRC on May 14, 1985. Many of the NRC's recommen-troactive application of the accounting requirements included dations had already been adopted and were in the process of 35
implementation before the assessment was received and a proximately $ 1,712 million, excluding AFC, nuclear fuel and number have already been completed. The Company does not certain overheads capitalized. By years the estimates are $ 454 expect that the implementation of these recommendations will million, $ 314 million, $ 316 million, $ 297 million and $ 331 mil-materially affect either cost or scheduled completion of the lion, respectively.
Unit. Long-term Contracts for the Purchase of Electric Power: At As part of the Company's effort to further assure the ade- January 1, 1986 the Company had long-term contracts to pur-quacy of installed hardware for its intended use in the Unit, the chase electric power from the following generating facilities Company initiated a hardware assessment program in the last owned by the New York Power Authority (NYPA):
quarter of 1984. The final results of this assessment were pre- Expiration Purchased Estimated sented to the NRC Region I during June and July 1985. Based date of capacity annual on the evaluation of the inspection results and the corrective contract in kw. capacity cost actions taken, the Company has concluded that no significant Niagara deficiencies exist on installed hardware, and no further hydroelectric project .. 1990 1,111,332 $ 13,336,000 reinspection should be required. Blenheim-Gilboa-pumped storage On March 11, 1985, the full committee of the Advisory Com- generating station..... 2002 550,000 (a) 7,220,000 mittee on Reactor Safeguards, an independent committee FitzPatrick-whose members are selected by the NRC, after completion of nuclear plant ......... year-to- 167,000 (b) 12,664,000 year basis its technical review of the Unit, issued a favorable recommen-1,626,332 $ 33,420,000 dation to the NRC as to the ability of the Unit to be operated safely at full power. (a) In accordance with this contract NYPA has notified the Company Lateiin 1985, the NRC raised questions concerning the en- that it intends to withdraw up to 260,000 kw of the Company's pur-gineering design of parts of the primary containment at the chase rights effective March 1, 1986, Unit. The Company and its contractors responded to these (b) 50,000 kw for summer of 1966; 14,000 kw, for winter of 1986-87.
NRC questions in early January 1986. Late in January 1986, the The purchase capacities shown above are based on the con-NRC indicated that although the engineering design in ques- tracts currently in effect. The estimated annual capacity costs tion meets substantially all licensing criteria, the Company had are subject to price escalation and are exclusive of applicable not yet demonstrated to the satisfaction of the NRC that the energy charges.
engineering design related to this specific area would be Mandated Refunds to Customers: As part of the Company's adequate under certain abnormal operating conditions. The March 1984 rate decision, the PSC ordered the refund of ap-NRC indicated that the Company may be able to receive a proximately $ 96 million of previously collected nuclear fuel schedule exemption, thus allowing licensing, fuel load and disposal costs over a five-year period. The Company had col-commercial operation to take place as currently planned. The lected in rates approximately $ 146 million for the disposal of Company is applying for a schedule exemption and believes nuclear fuel irradiated prior to 1983. The refund represents the such exemption will be granted, however, no such assurance amount these previously collected costs were in excess of the can be provided. company's liabilityas of March 31, 1984 to the U.S. Department A number of nuclear power plant construction projects in the of Energy for nuclear fuel disposal under the Nuclear Waste United States have encountered substantial delays, licensing 'olicy Act. At December 31, 1985, $ 80 million remains to be difficulties and cost escalation due to a variety of factors. Also, refunded and is recorded in deferred credits.
completion of the Unit consistent with its present schedule and Litigation: In August 1983, the PSC instituted a proceeding cost estimate and the issuance of an operating license could to investigate the Company's operating practices and certain be adversely affected by a wide variety of industry and plant other matters that it is alleged may have resulted, among other specific construction, operating, regulatory, legislative, things, in excessive fuel adjustment charges in previous economic and other factors. periods; and, further, to determine whether and to what extent Although the outcome of the remaining regulatory licensing remedial action with respect to any such matters is proper proceedings relating to the completion of the Unit cannot be under the PSC's-regulations or otherwise. In March 1985, the predicted with certainty, the Company believes an operating PSC ordered the refund of approximately $ 32.5 million, which license will be issued upon completion of construction since incorporates interest charges, over a twelve month period. The the Unit is being designed and constructed to meet applicable Company charged 1984 and 1985 earnings for $ 20.0 million regulatory requirements. and $ 12.5 million, respectively, net of taxes. The Company has Notwithstanding the company's belief that an operating appealed this decision to the Supreme Court, Appellate Di-license will be issued, if statutory or regulatory restrictions or vision, Third Department. Oral argument was held in January prohibitions as to the use of nuclear power develop which af- 1986. The Company is unable to predict the outcome of this fect the Unit, the Company believes that it would be permitted matter.
to amortize its investment in this project, net of any costs disal- Advances on Behalf of Nine Mile Point Nuclear Unit No. 2 lowed, and any related cancellation charges against income Cotenant: In August 1984, the Company and Long Island Light-and to recover such net investment and related carrying costs ing Company (LILCO) entered into an agreement (LILCO Bond through rates over a period of years, although no such assur- Agreement) providing for the issuance by LILCO of up to $ 250 ance can be provided. million in General and Refunding Bonds (the LILCO Bonds) to evidence and secure LILCO's repayment obligation for funds Note 11. Commitments and Contingencies advanced by the Company on behalf of LILCO for its 18%%d own-Construction Program: At December 31, 1985, substantial ership in the'Unit.
construction commitments existed, including those for the The LILCO Bonds mature on August 1, 1993, with mandatory Company's share of Unit No. 2 at the Nine Mile Point Nuclear quarterly sinking fund payments beginning November 1, 1989, Station. The Company presently estimates that the construc- and carry a stated interest rate of 0.5%%d .Th eLILCOBond tion program for the years 1986 through 1990 will require ap- Agreement also requires supplemental payments at the rate of 0
36
18.5% on the LILCO Bonds issued to the Company. Although The LILCO Bond and Capital Funds Agreements do not in any interest and supplemental payments are due quarterly, the way modify LILCO's obligations associated with its 18'/o owner-LILCO Bond Agreement provides that supplemental payments ship interest in the Unit, pursuant to the Basic Agreement en-may be deferred and evidenced by the issuance of unsecured tered into in September 1975, which remains in full force and notes equivalent to such deferred supplemental payments. The effect. Also, neither agreement precludes participation in the unsecured notes bear interest at 19/o, which may also be de- Unit by another party or the sale of LILCO Bonds.
ferred and added to the principal of the unsecured notes. Sub- Irrespective of the LILCO Bond and Capital Funds sequent to the earlier of (i) commencement of commercial op- Agreements, under certain circumstances it is possible that the eration of the Unit, (ii) August 1, 1987, or (iii) assignment by Company would be unable to recover in full the advances LILCO of any of its interest in the Unit to a third party, the made on behalf of LILCO, whether secured, unsecured or supplemental payments and interest payments on the unse- otherwise. However, the Company believes that the LILCO cured notes will be payable in equal quarterly installments over Bond and Capital Funds Agreements provide the best security a maximum period of four years. Interest and supplemental available at this time and the ultimate recoverability of the payments on the LILCO Bonds along with interest on the unse- LILCO advances has been and will be substantially enhanced cured notes amounted to $ 40.6 million for 1985. by such agreements.
On December 31, 1985, the Company and LILCO entered into a second agreement (Capital Funds Agreement) whereby the NOTE 12. Quarterly Financial Data (Unaudited)
Company provided its guarantee for a period of approximately Operating revenues, operating income, net income and earn-three years through March 31, 1989, of up to $ 165 million of ings per common share by quarters for 1985, 1984 and 1983 are LILCO's reimbursement obligations to Citibank, N.A., and shown in the following table. The Company, in its opinion, has Bankers Trust Company as issuers of, letters of credit providing included all adjustments necessary for a fair presentation of credit enhancement for LILCO's tax exempt debt. On De- the results of operations for the quarters. Due to the seasonal cember 31, 1985 LILCO issued $ 150 million principal amount of nature of the utility business, the annual amounts are not gen-such tax-exempt pollution control bonds. $ 144.9 million of the erated evenly by quarter during the year.
proceeds from the sale of the bonds was paid to the Company In thousands of dollars on December 31, 1985, and applied as follows: (i) repayment of Operating Operating Net Earnings per
$ 25 million of the LILCO Bonds, (ii) repayment of $ 34.9 million revenues income income common share of the unsecured notes, and (iii) $ 85 million to be applied to LILCO's share of cash construction costs for the Unit com- Dec. 31, 1985 $ 661>237 $ 84,791 $ 91>724 $ .61 mencing November 18, 1985 through completion of the Unit. 1964 675,069 81,165 59,708 .39 1983 658,733 76,824 64,081 .52 After being reduced by $ 13.6 million for advances plus interest through December 31, 1985, the proceeds provide the Com- Sept.30, 1985 $ 554>779 $ 73>095 $ 79>503 $ .52 pany with $ 71.4 million at December 31, 1985, to be applied 1964 606,437 66,421 64,636 .66 against future LILCO cash advance requirements. Construc- 1963 562,707 72,309 62,376 .52 tion cost requirements in excess of amounts provided under June 30, 1965 $ 637,724 $ 100,036 $ 96,758 $ .67 the LILCO agreements, which would total approximately $ 17 1984 696,325 101,319 94,197 .77 million under the present cost estimate and the currently 1963 651,467 92,266 79,027 .72 scheduled commercial operation date would continue to be an obligation of LILCO under the Basic Agreement entered into in March 31 1965 ~ $ 841,200 $ 153,366 $ 143,445 $ 1.11 1.04 1964 607,695 123,601 121,193 September 1975. The Company has agreed to waive interest 1963 759,386 113,296 106,925 1.03 and supplemental payments on a principal amount of LILCO Bonds equal to the daily unused portion of such $ 71.4 million NOTE 13. Supplementary Information to Disclose the Effects as construction continues during 1986. LILCO's portion of of Changing Prices (Unaudited) cash construction costs subsequent to December 31, 1985, are With increasing governmental deficit spending, the threat of presently estimated to be $ 88 million. inflation resulting in a decline in the purchasing power of the The Company expects LILCO to honor its obligations in con- dollar and its negative impact on all sectors of the economy nection with the bonds throughout the next three years while continues. The Company's consolidated financial statements the guarantee is in effect. The Company has arranged for are based on historical events and transactions when the pur-four-year term loans with the letter of credit banks to fund its chasing power of the dollar was substantially different from the guarantee obligation, if needed. Also, the Company has re- present. The effects of inflation on most utilities, including quested an $ 85 million third mortgage from LILCO which Niagara Mohawk, are most significant in the areas of deprecia-would serve as partial security in the event its guarantee is tion and utility plant and amounts owed on borrowed funds.
required to be honored. LILCO is required to pay fees to the In recognition of the fact that users of financial reports need Company in connection with the guarantee. to have an understanding of the effects of inflation on a busi-At December 31, 1985, the Company held $ 225 million in ness enterprise, the following supplementary information is LILCO Bonds and $ 7.2 million in unsecured notes and re- supplied for the purpose of providing certain information corded a current liability for the $ 71.4 million construction ad- about the effects of both changes in specific prices and gen-vance from LILCO. eral inflation. It should be viewed as an estimate of the approx-If all supplement payments were deferred by LILCO, and as- imate effect of inflation, rather than as a precise measure.
suming the Company sells $ 140 million of the LILCO Bonds, Current cost amounts reflect the changes in specific prices the outstanding unsecured note balance would be approxi- of plant from the date the plant was acquired to the present.
mately $ 63 million at the currently scheduled commercial The current cost of utility plant, net of accumulated deprecia-operating date of the Unit. The acquisition of the LILCO Bonds tion and amortization;>represents the estimated cost of replac-and unsecured notes was approved by the PSC and the FERC ing existing plant assets in kind. Since existing utility plant is in October 1984. not expected to be replaced precisely in kind due to technolog-37
ical changes, current cost does not necessarily represent the investment. Current ratemaking policy provides for the recov-replacement cost of the Company's utility plant. The portion of ery of historical costs. Therefore, any difference between the the accumulated amortization relating to disposal costs of nu- historical cost of utility plant stated in terms of current cost not clear fuel wa's not used in the calculation of current costs but presently includible in rates as depreciation, is reflected as an rather reclassified to a monetary liability. In most cases, cur- increase (reduction) to net recoverable cost. While the rent costs were determined by indexing surviving plant dollars ratemaking process gives no recognition to the current cost of by the Handy-Whitman Index of Public Utility Construction replacing utility plant, based. on past practices, the Company Costs. However, when an account could not be indexed by believes it will be allowed to earn on the increased cost of its Handy-Whitman, other appropriate indices were used. The cur- net investment when replacement of facilities actually occurs.
rent year's provision for depreciation and amortization on the To properly reflect the economics of rate regulation in the current cost amount of utility plant was determined by applying Statement of Income from Continuing Operations, the increase the Company's average annual depreciation rates to the in- (reduction) of net utility plant to net recoverable cost should be dexed plant amount. adjusted by the gain from the decline in purchasing power of Fuel inventories, the cost of fuel used in generation, and net amounts owed on borrowed funds. During a period of infla-electricity and gas purchased have not been restated from their tion, holders of monetary assets suffer a loss of general pur-historical cost in nominal dollars. The recovery of energy and chasing power while holders of monetary liabilities experience purchased gas costs, in base rates or through the operation of a gain. The gain from the decline in purchasing power of net the Company's electric and gas adjustment clauses, is limited amounts owed is primarily attributable to the substantial to historical costs. For this reason fuel inventories and de- amount of debt which has been used to finance utility plant.
ferred recoverable energy costs are effectively monetary Since the depreciation on this plant is limited to the recovery of assets. Income taxes have not been adjusted. historical costs, the Company does not have the opportunity to The Company is subject to the jurisdiction of regulatory realize a holding gain on debt and is limited to recovery only of commissions in the determination of a fair rate of return on its the embedded cost of debt capital.
Statement of income from continuing operations adjusted for changing prices for the year ended December 31, 1985 In thousands of dollars
(. Conventional Current cost historical cost average 1985 dollars Operatin revenues $ 2,694,940 $ 2,694,940 Fuel for electric generation 391,382 391,382 Electricity purchased 367,406 367,406 Gas purchased. 411,801 411,801 Depreciation and amortization . 150,627 435,955 Other operating and maintenance expenses 788,965 788,965 Federal and foreign income taxes . 173,471 173,471 Interest charges. 220,996 220,996 Other income and deductions net . 221,138 (221,138) 2,283,510 2,568,838 Income from continuing operations (excluding adjustment to net recoverable cost) $ 411,430 $ 126,102 Increase in specific prices of utility plant held during year' $ 395,969 Adjustment to net recoverable cost 196,509 Effect of increase in general price level . (542,791)
Excess of increase in specific prices over increase in general price level after adjustment to net recoverable cost 49,687 Gain from decline in purchasin power of net amounts owed . 106,734 Net $ 156,421
'At December 31, 1985, current cost of utility plant, net of accumulated depreciation, was $ 11,042,802 while historical cost or net cost recoverable through depreciation was $ 6,011,468.
Five year comparison of selected supplementary financial data adjusted for effects of changing prices.
In thousands ol average 1985 dollars For the year ended December 31 ~ 1985 1984 1983 1982 1981 Operatin revenues $ 2,694,940 $ 2,884,934 $ 2,842,265 $ 2,667,842 $ 2,543,911 Current cost Informatioru Income (loss) from continuing operations (excluding adjustment to net recoverable cost) S 126,102 $ 95,876 $ 86,160 $ 86,710 $ 22,640 Income(loss) percommonshare(afterdividendrequirementson preferred stock and excluding adjustment to net recoverable cost) S .54 $ .39 $ .41 $ .51 S (.22)
Excess (deficiency) of increase in general price level over increase in specific prices after adjustment to net recoverable cost.......... $ (49,687) $ (41,189) S (58,876) S (39,736) $ 151,488 Net assets at year end at net recoverable cost $ 2,734,488 $ 2,462,217 $ 2,319,145 $ 2.083,335 $ 1,909,088 General Informatloru Gain from decline In purchasing power of net amounts owed S 106,734 $ 113,679 S 95,573 S 89,776 $ 204,355 Cash dividends declared per common share S 2.06 $ 2.05 $ 2.04 S 1.96 $ 1.90 Market price per common share at year end $ 20.50 $ 17.99 $ 17.01 $ 17.41 $ 14.64 Average consumer price index 322.2 311.2 298.4 289.1 272.4 38
p o I
jf
'~RELET FD FlNANCIALDATA t~ (
1985 1984 1983 1982 1981 y Operations: (000's)
-,~Operating revenues . $ 2,694,940 $ 2,785,546 $ 2,632,315 $ 2,393,771 $ 2,150,718 Net income . 411,430 359,734 312,409 268,534 220,643 Common stock data:
.- Book value per share at year end $ 19.61 $ 18.89 $ 18.55 $ 17.91 $ 17.36 Market price at year end. 20'/2 17% 153/4 155/8 12%
Ratio of market price to book value at year end .. 104.P/o 92.(P/o 84.9/o 87.2'/o 71.3o/o Dividend yield at year end 10.1% 11.P/o 12.2'/o 11.P/o 13.P/o Earnings per average common share........... $ 2.88 $ 2.84 $ 2.77 $ 2.64 $ 2.35 Rate of return on common equity 15.tP/o 14.PYo 15.(P/o 14.7Yo 13.P/o Dividends paid per common share ............. $ 2.06 $ 1.98 $ 1.89 $ 1.76 $ 1.61 Dividend payout ratio 71.P/o 69.7Yo 68.2/o 66.7'/o 68.P/o Capitalization: (000's)
Common equity $ 2,488,620 $ 2,207,117 $ 1,929,073 $ 1,680,650 $ 1,457,934 Non-redeemable preferred stock 290,000 240,000 240,000 210,000 210,000 Redeemable preferred stock . 379,850 367,900 338,474 262,792 254,748 Long-term debt 2,643,094 2,395,471 2,048,548 1,881,441 1,663,671 Total 5,801,564 5,210,488 4,556,095 4,034,883 3,586,353 First mortgage bonds maturing within one year 30I000 47,450 25,000 65,000 Total $ 5,831,564 . $ 5,257,938 $ 4,581,095 $ 4,099,883 $ 3,586,353 Capitalization ratios: (inciuding first mortgage bonds maturing within one year):
Common stock equity 42.7Yo 42.(P/o 42.1% 41.(P/o 40.7'/o Preferred stock 11.5 11.5 12.6 11.5 12.9 Long-term debt 45.8 46.5 45.3 47.5 46.4 Financial ratios:
Ratio of earnings to fixed charges................... 3.07 3.11 2.98 2.95 2.63 Ratio of earnings to fixed charges without AFC....... 2.37 2.43 2.40 2.42 2.16 Ratio of AFC to balance available for common stock .. 53.2/o 52.4% 43.P/o 41.tP/o 38.P/o Ratio of earnings to fixed charges and preferred stock dividends . 2.36 2.39 2.35 2.32 2.10 Other ratios-% of operating revenues:
Fuel, purchased power and purchased gas ........ 43AYo 46.P/o 50.(P/o 49.8o/o 52.7o/o Maintenance and depreciation 10.9 10.1 10.0 10.5 10.3 Total taxes . 15.7 14.7 13.0 13.2 11.2 Operating income . 15.3 14.1 13.5 13.2 12.6 Balance available for common stock .............. 13.1 11.1 10.3 9.6 8.7 Miscellaneous: (000's)
Gross additions to utility plant . 771,120 $ 769,846 $ 691,464 $ 594,469 $ 457,415 Total utility plant . 7)640,905 6,903,184 6,165,711 5,516,532 4,985,315 Accumulated depreciation and amortization 1,629,437 1,501,282 1,486,196 1,389,112 1,304,436 Total assets . 7,013,837 6,233,401 5,357,572 4,781,767 4,220,234
r.
ELECTRIC AND GAS STATISTICS ELECTRIC CAPABILITY ELECTRIC STATISTICS Thousands of kilowatts At January 1 ~ 1986 % 1985 1984 1985 1984 1983 Thermal: Electric sales(Millions of kw-hrs.)
Coal fuei Residential ................ 8>976 8,944 8,578 Huntley, Niagara River .. 715 9 715 715 Commercial ............... 9,907 9,739 9,387 Dunkirk, Lake Erie ..... 555 7 555 550 Industrial .................. 10,886 11,194 8'0,860 Total coal fuei .. 1,270 16 1,270 1,265 Municipal service .......... 241 245 251 Residual oii fuel Other electric systems ...... 5,286 6,964 5,656 Albany, Hudson River" . 400 5 400 400 35,296 37,086 34,732 Oswego, Lake Ontario .. 1,736 22 1,736 1,736 Electric revenues(Thousands of dollars) 300 300 Roseton, Hudson River . 300 4 Residential ................ $ 647,507 $ 607,527 $ 583,645 Middie distillate oii fuel Commercial ............... 708,517 674,929 658,960 20 Combustion turbine and diesel units ........ 310 4 310 310 Industrial .................. 437,292 438,920 441,219 Municipal service .......... 39,238 37,846 36,466 Total oii fuel 2,746 35 2,746 2,746 Other electric systems ...... 196,104 303,968 235,257 Nuclear fuel Miscellaneous ............. 67,746 71,280 68,181 Nine Mile Point, Lake Ontario .... 610 8 610 610
$ 2>096>404 $ 2,134,470 $ 2,023,728 Purchased firm contract Power Authority- Electric customers(Average)
FitzPatrick, Lake Ontario ...... 8167 2 138 139 Residential ................ 1,273,969 1,259,077 1,245,590 Totainuciear fuei ... 777 10 748 749 Commercial ............... 134,787 133,234 131,803 Total thermal sources... 4,793 61 4,764 4,760 Industrial.>.................. 2,490 2,522 2,594 Hydro: Other ..................... 3,315 3,279 3,257 Owned and leased hydro stations (83) . 695 9 695 695 1 >414>561 1,398,112 1,383,244 Purchased-firm contracts PowerAuthority NiagaraRiver.... 1,111 14 1,118 1,118 Residential (Average)
Power Authority- Annual kw-hr. use St. Lawrence River .............. - - . 115 115 per customer ............ 7,046 7,104 6,887 Power Authority Cost to customer per kw-hr.. 7.21/ 6.79ff 6.80II Blenheim-Gilboa Annual revenue Pumped Storage Plant........... 550 7 550 550 per customer ............ $ 508.26 $ 482.52 $ 468.57 Other . 209 3 63 63 Total h dro sources... 33 2,541 2,541 Total capability',565 Other purchases .. 445 7,803 100 6 400 7,705 400 7,701 GAS STATISTICS 1985 1984 1983 1985 1984 1983 Gas sales(Thousands of dekatherms)
Electric peak load during year 5,862 5,526 5,625 Residential ................ 47,328 49,519 46,865
- Available capability can be increased during heavy load periods by Commercial ............... 27,006 27,892 26,921 purchases from neighboring interconnected systems. Hydro station Industrial .................. 29,213 32,755 25,736 capability is based on average December stream-flow conditions. Other gas systems.......... 4,873 4,794 3,631
-Has capability to burn natural gas (as well as oil) as a fuel. 108,420 114,960 103,153 Gas revenues(Thousands of dollars)
ELECTRICITY GENERATED AND PURCHASED Residential ................ $ 295,060 $ 313,536 $ 304,157 Millions of kw-hrs. Commercial ............... 147,751 157,469 155,858 1985 % 1984 % 1983 Industrial .................. 133,446 156,307 129,056 Other gas systems.......... 18,691 19,708 15,783 Thermal: Miscellaneous ............. 3,588 4,056 3.733 Generated
$ 598,536 $ 651,076 $ 608,587 Coal ............ 7,409 19 7,863 20 7,873 21 Oil ............,. 2,866 7 3,754 9 4,313 11 Gas customers(Average)
Nuclear ......... 4,932 13 3,635 9 2,802 7 Residential ............... 404,116 400,878 398,597 Natural gas ...... 1,624 4 2,103 5 1,839 5 Commercial .............. 32>603 32,106 31,697 Purchased Industrial ................. 485 502 524 Nuclear from Other .................... 2 2 2 Power Authority .. 825 2 878 2 790 2 437>206 433,488 430,820 Total thermal 17,656 45 18,233 45 17,617 46 Hydro: Resldentlal(Average)
Generated ......... 3,496 9 3,803 9 3,527 9 Annual dekatherm use per customer ........ 117.1 123.5 117.6 Purchased from Power Authority .. 7,815 20 8,312 21 7,587 20 Cost to customer Totaih dro .... 11,311 29 12,115 30 11,114 29 per dekatherm ....... $ 6.23 $6.33 $ 6.49 Other purchased power- Annual revenue various sources ...... 10,246 26 10,240 25 9,621 25 per customer ........ $ 730.14 $ 782.12 $ 763.07 Total generated Maximum day gas and purchased 39,213 100 40,588 100 38,352 100 sendout dekatherms . 774,033 772,604 754.061 40
r Directors Officers James Bartlett John G. Haehl, Jr. Donald L MacVittie Formerly Executive Vice President, Syracuse Chairman of the Board Vice President-Fossil Generation Edmund M. Davis (A, B, E) and Chief Executive Officer (Retired December 31, 1985)
Partner, Hiscock 8s Barclay, attorneys-at-law, Syracuse WilliamJ. Donlon Samuel F. Manno President Vice President-Purchasing WilliamJ. Donlon and Materials Management President, Syracuse Richard C. Clancy Senior Vice President Eugene J. Morel Edward W. Duffy(A,B, C) (Retired January 31, 1985) Vice President-Risk Management Former Chairman of the Board and Chief Executive Officer, John M. Endries James F. Morrell Marine Midland Banks, Inc., a bank holding company, Buffalo Senior Vice President Vice President-Corporate Planning John G. Haehl, Jr. (A) John M. Haynes James A. Perxy Chairman of the Board and Chief Executive Officer, Syracuse Senior Vice President Vice President-Quality Assurance Edwin F. Jaeckle (A, B) John P. Hennessey John W. Powers Senior Partner, Jaeckle, Fleischmann 8s Mugel, Senior Vice President Vice President-Treasurer attorneys-at-law, Buffalo Charles V. Mangan Michael P. Ranalli (Resigned February 28, 1985) Senior Vice President Vice President-Lauman Martin James J. Miller Engineering (Non-nuclear)
Consultant (formerly Senior Vice President Senior Vice President Kenneth A. Tramutola and General Counsel), Syracuse Vice President-Gas John H. Terry Baldwin Maull(A, B) Senior Vice President, Christopher D. Turner Corporate Director, New York General Counsel and Secretary Vice President-Richard F. Torrey Corporate Development Martha Hancock Northrup (D)
Homemaker, former President, Crouse-Irving Memorial Senior Vice President Perzy B. Woods, Jr.
Hospital Board, Syracuse James F. Aldrich Vice President-Frank P. Piskor(A, C, D) Vice President-Regional Operations Employee Relations President Emeritus, St. Lawrence University, Canton Anthony J. Baratta, Jr. Herman B. Noll Vice President-Controller Assistant General Counsel Donald B. Riefler(E) Nicholas L Prioletti, Jr.
Chairman, Sources and Uses of Funds Committee, Michael J. Cahill Morgan Guaranty Trust Company of New York, New York Vice President-Regional Operations Assistant Controller Robert M. Cleary Adam F. Shaffer Lewis A. Swyer(B, C, D) Vice President-Regional Operations Assistant Controller Chairman, L. A. Swyer Co., Inc., builders and construction managers, Albany Gerald J. Currier Henry B. Wightman, Jr.
Vice President-Consumer Services Assistant Controller John G. Wick(D, E) Kermit E. Hill Harold J. Bogan Partner, Falk 6s Siemer, attorneys-at-law, Buffalo Assistant Secretary Vice President-Public Affairs A. Member of the Executive Committee and Corporate Communications Joseph F. Cleary B. Metnber of the Compensation Committee Edward F. Hoffman Assistant Secretary C. Member of the Audit Committee Vice President-Fossil Generation Frederick C. McCall, Jr.
D. Member of the Committee on Corporate Public Policy Raymond Kolarz Assistant Secretary E. Member of the Finance Committee Vice President-Regional Operations Arthur W. Roos (Retired December 31, 1985) Assistant Treasurer Thomas E. Lempges Richard N. Wescott Vice President-Nuclear Operations Assistant Treasurer Corporate Information Dividend Reinvestment Plan Transfer Agents Shareholders desiring information on enrolling in the Preferred Stock and Preference Stock:
Dividend Reinvestment and Stock Purchase Plan should Marine Midland Bank, N.A., 140 Broadway, New York, N.Y. 10015 write or call our Shareholder Sexvices Department, Common Stock:
300 Erie Boulevard West, Syracuse. NY 13202. Morgan Guaranty Trust Company of New York, 30 W. Broadway, Telephone Inquiries New York, N.Y. 10015 We maintain a toll-free telephone inquiry service for Stock Exchanges stockholders. Callers from outside New York State may Common and Certain Preferred Ser fest dial 1+800+448-5450. The number for New York , Listed on New York Stock Exchange residents is 1+800+962-3236. Common Stock: Also traded on Boston, Cincinnati, Midwest, Annual Meeting Pacific and Philadelphia stock exchanges.
The annual meeting of stockholders willbe held May 6, Bonds: Traded on New York and Luxembourg stock exchanges.
1986 at the Company's main office in Syracuse. A notice of meeting, proxy statement and form of proxy willbe Ticker symbol: NMK sent to holders of common stock in early ApriL Form 10-K Report Disbursing Agent A copy of the Company's Form 10-K report filed annually with Preferred, Preference and Common Stocks: the Securities and Exchange Commission is available after Niagara Mohawk Power Corporation March 31, 1986 by writing John W. Powers, Vice President-300 Erie Boulevard West. Syracuse, N.Y. 13202 Treasurer at, 300 Erie Boulvard West, Syracuse, N.Y. 13202 The tntonnetlcn in this report is not given in connection with the saic of. or ofter to buy. any secvrity Printed In U SA.
41
T NIAGARA H U MOHAWK 300 Erie Boulevard West Syracuse, New York 13202 The upper Raquette River flows serenely at Jamestown Falls, St. Lawrence County. Adirondack watersheds supply nearly a billion kilowatt-hours of hydro power yearly clean, renewable energy for our customers at reasonable cost.
NIAGARA MQHAWK PQWER CGRPGRATIQN ANNUALREPQRT 1986
'"fjlxe Mixe Mxlle 'll'mo coxxstvzctxoxx em xs nmxly lbekxndl us. We xxoev face Qxe futuxe wAtlh z fimoai resolve, dledlxcatedl to pxotecthxg sxxdl zeiunfoxchxg the AH fiixxaxxcxajl stxexxgxjh of oux conxpaxxy...
Serving upstate Nevr York Our Corporate Mission Ranked as one the most prominent investor-owned utilities in Niagara Mohawk is an energy company with the United States, Niagara Mohawk Power Corp. serves an diversified interests and resources committed area encompassing more than half the land mass of New York to meeting customers'eeds through econom-State. Our electric system extends from Lake Erie to New ical products and services of superior quality.
England's borders, from Canada to Pennsylvania, and meets We are dedicated to providing a fair and the diversified needs of more than 1.4 million customers. Our equitable return to shareholders. In this natural gas system serves 445,000 customers in central, east- period of increasing competition and chang-ern and northern New York, nearly all within our electric ing regulation, we willstrive to be the low-territory. Two Canadian companies, St. Lawrence Power Co. cost supplier of reliable energy while develop-and Canadian Niagara Power Company, Ltd., owned by our ing and marketing new products.
subsidiary, Opinac Investments, Ltd., provide energy to The dedicated, well-trained men and portions of Ontario. Other subsidiaries are Hydra-Co Enter- women of Niagara Mohawk are the company's prises, Inc., N M Uranium, Inc., Niagara Mohawk Finance, most valuable resource. The company's suc-N.V. and Opinac Energy, Ltd. Our corporate headquarters are cess is directly dependent on their efforts.
at 300 Erie Boulevard West, Syracuse, N.Y. 13202. Management remains committed to retaining and motivating this talented, productive, ef-
~
LJ ELECTRIC SERVICE AREA fective work force by providing reasonable compensation, incentives and a good working environment.
Niagara Mohawk seeks ways to improve the economic climate and well-being of citizens, industry and business within the com-Sy ~ munities it serves, and advocates regulatory and legislative changes that best serve the NEW YORK STATE interests of customers, employees and owners.
The company maintains high ethical stan-dards and strives for open communications with all its constituencies.
Niagara Mohawk is dedicated to maintain-ing and further developing dependable energy resources and delivery systems that are safe, environmentally sound and technologically advanced.
Management willactively pursue strategies in support of objectives to accomplish this mission.
D NATURALGAS SERVICE AREA NEW YORK STATE
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES Highlights of 1986 1966 1985 Change Contents 2 To our stockholders Total operating revenues $ 2,660,319;000 $ 2,694,940,000 (1.3) 4 Theyearinreview Income available for common Market price of common stockholders ............... $ 344,048,000 $ 351,871,000 (2.2) 11 stock and related Earnings per common share $ 2.71 $ 2.88 (5.9) stockholder matters Dividends per common share $ 2.08 $ 2.06 1.0 12 Management's discussion Common shares outstanding and analysis of (average) . 12?,0?6,000 122,215,000 4.0 financial condition 17 Consolidated financial Utilityplant (gross) .. $ 8,445,993,000 $ 7,640,905,000 10.5 statements Construction work in progress... $ 2,820,044,000 $ 2,336,188,000 20.7 21 Notes to consolidated Gross additions to utilityplant .. $ 774,062,000 $ 771,120,000 0.4 financial statements Kilowatt-hour sales ............ 34,347,000,000 35,296,000,000 (2.7) 33 Report of independent accountants Electric customers at end of year. 1,443,000 1,424,000 1.3 33 Report of management Electric peak load (kilowatts) 5,724,000 5,862,000 (2.4) 34 Statistics Natural gas sales (dekatherms) ... 95,94?,000 108,420,000 (11.5) 36 Directors, officers, Natural gas transported corporate information (dekathef7ns) ........... 4,868,000 Gas customers at end of year 445,000 440,000 1.1 Maximum day gas sendout (dekatherms) ........... ~ . 786,165 774,033 1.6 EARNINGS AND DIVIDENDS RANGE AND YEAR END MARKET PAID PER COMMON SHARE PRICE OF COMMON STOCK
$ 1.76 $ 189 $ 1.98 $ 2.06 $ 2.08 DIVIDENDS $ 15% $ 15rA $ 1749 $ 20% $ 16V4 AT YEAR END
$ 2.84 $ 2.88 $ 25yr
$ 2.77 $ 2.71 EARNINGS
$ 2.64
$ 2tr/e RANGE
$ 17V4 p $ 15y<
$ 161'15y 1982 1983 1984 1985 1986 1982 1983 1984 1985 1986 1986 REVENUE DOLLAR AND WHERE IT WENT Fuel for the production of electricity 25tf and electricity purchased Income and other taxes 18II Gas purchased 13II Residential customers 38II Wages, salaries,employeebenefits 12II Commercial customers 34II Dividends to stockholders 128 Industrial customers 19II Interest and other costs-net I 1 if All others 9II Depreciation 6II Retained In business
2 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES To our stockholders:
Earnings were $ 2.71 per share of common stock in positions, reduced overtime, redemption of high-cost 1986, compared with $ 2.88 per share in 1985. This debt and other securities, and tightening of existing decrease resulted primarily from a reduction early in cost constraints-these and other restrictions prevail 1986 in earnings return on common equity allowed by throughout our business.
the N.Y. State Public Service Commission from the 15.5 percent previously authorized to 13.5 percent. Nine Mile Two operation delayed We are especially concerned about this continued by faulty valves lowering of authorized return and early in 1987, as We were disappointed in February when difficulties ongoing rate-case proceedings neared completion, we encountered with main steam-isolation valves com-reinforced our petitions to the commission to grant us pelled us to postpone the commercial operation date a fair return on equity. Recommendations by other of the Nine Mile Two project. At this writing, every parties in the rate case thus far have been signifi- avenue is being pursued to rectify these problems, cantly below the average return granted to utilities in enabling us to expeditiously proceed toward produc-other states-leaving you, our shareholders, at a tion of first power for our customers. At press time, severe disadvantage. the effect of the situation on the project schedule re-mains under continuing assessment. Stockholders Maintaining the dividend willbe kept advised of developments.
At the year end, we were pleased to pay our 148th We have every confidence that Nine Mile Two, once consecutive dividend on our common stock since in service, willearn recognition as a quality addition Niagara Mohawk's consolidation in 1950. Every effort to New York State's energy picture. With the unit on is being made to maintain the current stock dividend line and in rates, Niagara Mohawk's residential elec-level, despite pending regulatory uncertainties and tric rates willcontinue to be the lowest among the the many challenges we face in bringing Nine Mile state's major utilities, a fact in which we can take Point Nuclear Unit Two to operational readiness. justifiable pride. As you know, Niagara Mohawk's Our determination to achieve authorized earnings share in the project is 41 percent.
levels is evidenced by an extensive austerity program, A settlement agreement for Nine Mile Two, pro-initiated in 1986 with additional measures likely to posed jointly by Niagara Mohawk and the unit's co-follow this year. A freeze on management salaries and tenants, was approved in early October by the Public the size of the workforce, abolition of vacant Service Commission. The agreement "caps" costs re-
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 3 coverable through customer rates at $ 4.16 billion. Creative innovations our patented Power Donut' Niagara Mohawk's share of costs disallowed would system and our PCB-removal process, for instance, amount to approximately $ 1 billion, before reduction discussed on page 6 are generating practical bene-for federal income tax benefits. Both the timing and fits for both the company and others in the energy the amount of loss to be written off by the company industry. In all planning, we are intent on seeking are contingent upon pending regulatory decisions, new and better concepts, sometimes venturing to new loan covenants and final completion cost. frontiers of technology. The tangible results and pros-Rate recognition of the Nine Mile Two project and pects are discussed in the following pages-implementation of the cost settlement have been in- achievements which have earned Niagara Mohawk tegral parts of our pending electric rate case, before national recognition as a company of innovators. In the PSC since April 1986. We do not expect a final the same bold spirit, we have embarked upon new decision from the PSC on the rate case until March marketing, diversification and competitive ventures 1987, but we shall continue to keep stockholders in- to position ourselves for tomorrow's opportunities.
formed through periodic reports. (More detailed dis-cussions of Nine Mile Two and related financial and regulatory affairs are presented on pages 4, 13, 29.) Confidence in our future Our confidence in charting a steady course through Leading the way with innovation these often frustrating but ever-challenging times is Our financing activities in 1986 were highlighted by rooted in the proven resourcefulness and resilience of innovation, with impressive results. A "reverse dutch the men and women of Niagara Mohawk. The Nine auction" tender offer (first-ever by a utility)resulted Mile Two construction era is nearly behind us. We in the cost-effective retirement of $ 153 million of now face the future with a firm resolve, dedicated to high-coupon bonds (some as high as 15'/4 percent). protecting and reinforcing the full financial strength Cash proceeds from the sale/leaseback of a newly con- of our company and providing our customers the structed high-voltage transmission facility were also quality energy service they expect, at the lowest pos-used to retire high-cost long-term debt by another sible price.
$ 114 million, while a $ 6-million reduction was Our heartfelt thanks are extended to our stockhold-achieved in preferred stock dividends through calls ers for their support, and to our fellow employees for and refundings during the year. their sacrifices, hard work and continuing loyalty.
John G. Haehl, Jr.
al r$ Chairman ofthe Board and Chief Executive Officer rJ:
1VilliantJ. Donlon President February 27, 1987 John G. Haehl, Jr. William J. Donlon
4 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES The year in review Nine Mile Two approaching its time lion barrels of imported oil, with billions of dollars in A long-awaited milestone took place in October 1986 fuel savings.
at the Nine Mile Point Nuclear Unit Two project when Niagara Mohawk is principal partner and manag-the U.S. Nuclear Regulatory Commission issued a ing agent of the project, owning 41% of Nine Mile low-power license and loading of the plant's uranium Two. Long Island Lighting Co. and New York State fuel was completed in 14 days one week ahead of Electric and Gas Corp. hold 18% each; Rochester Gas schedule. and Electric Corp. 14% and Central Hudson Gas and However, recurring problems with the unit's eight Electric Corp. 9%.
main steam-isolation valves subsequently required Further information in more detail on Nine Mile delaying initial startup operations and, in late Feb- Two's costs, financing and regulatory developments ruary, extensive tests of the valves were still in prog- are presented in the Management Discussion and ress. The tests willhelp determine whether to modify Analysis on page 13 and in Note 10 to financial state-the valves or replace them altogether, and until this ments on page 29.
situation is resolved the date of the plant's commer-cial service remains pending. Nine Mile One continuing nuclear leadership Once this condition is corrected, the unit is Our Nine Mile Point Unit One was cited by the Utility scheduled to "go critical" with initial nuclear fission Data Institute in 1986 as the third lowest-cost nuclear achieved. Five weeks of testing at low power will then power producer and fourth lowest-cost steam-electric follow and, after issuance of a full-power license by plant in the nation.
the NRC, its output willbe brought up to 150,000 During the year, this pioneering nuclear develop-kilowatts. This willgradually be stepped-up to full ment, designed and engineered in-house by Niagara power capacity during a series of power ascension Mohawk, and in service since 1969, produced 3.1 bil-tests and inspections. lion kilowatt-hours of electricity, representing a sav-With Nine Mile Two an operating nuclear station ings of $ 72 million and $ 37 million respectively, com-(the 104th to be licensed in the United States), this pared with oil and coal-fired power generation.
1.08-million kilowatt addition to our power system Early in the year, Unit One "coasted down" to 70 and the New York Power Pool will mark the culmina- percent of its rated power before shutdown and the tion of a long and arduous course. The project will start of its scheduled biennial refueling and mainte-serve nearly four million customers of its five par- nance. While 200 of its 532 uranium fuel bundles were ticipating utilites this decade and next, and well replaced with fresh inserts, the most significant facet into the next century ahead. Nine Mile Two repre- of the shutdown was replacement of more than 246 sents modern nuclear technology, epitomizing the miles of tubing used to condense steam from the state of the art. unit's turbine. Some 13,000 of these 100-foot long, In October, 1986, an emergency exercise, involving I V4-inch tubes were part of Unit One's original New York State and Oswego County representatives equipment in use since 1969. The15-week outage also and observed by the Nuclear Regulatory Commission, enabled the plant staff to complete many other was conducted at Nine Mile Two. The realistic day- routine replacements and additions.
long drill, in which a radiological accident at the Nine Mile One lived up to its reputation as a de-plant was simulated, was a requirement for licensing pendable power performer by remaining available for and received approval from the NRC. generation 90 percent of the time since its return to Operation of the new plant willbe the responsibil- service after the refueling outage. The next such out-ity of a staff of more than 200 highly trained age is not scheduled until spring 1988.
specialists, including 36 who hold senior reactor Also during 1986, our Nuclear Division moved from operator licenses and 24 with reactor licenses. Most of our corporate headquarters in downtown Syracuse to these professionals have extensive backgrounds in the new leased offices in the suburban Town of Salina, U.S. nuclear industry. just north of Syracuse, due to a need for additional Looking ahead, the station is scheduled for a 10- office space.
week shutdown for maintenance and NRC inspections in late 1988. It willthen be brought back on line until Cost-containment campaign started its first scheduled outage for refueling in 1989. In autumn, the company announced its most sweep-During its lifetime, Nine Mile Two is expected to ing cost-containment program in more than a decade, generate electricity equivalent to more than 400 mil- the result of serious financial problems imposed upon
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 5 Niagara Mohawk by recent inadequate rate-case pressures, fuel-consumption rates, etc.) are automati-awards and the settlement of the Nine Mile Point cally collected from each unit and continuously Nuclear Unit Two prudency case. transmitted to Energy Management System compu-The austerity campaign thus far includes a freeze ters in Syracuse. This data is processed and guidance on management salaries and an ongoing review in all information instantly transmitted and displayed in departments to consolidate and reduce the size of the the control room to help make proper adjustments workforce. Operation review teams also were formed and "fine-tuning" refinements on the units while they to identify additional areas of potential improve- continue to operate.
ments in costs and revenues. In addition, a plan for unpaid personal leaves, part-time work arrange- A high-water hydro year ments, reduction of non-emergency overtime work Abnormally high rainfall enabled our hydroelectric and other belt-tightening measures were undertaken. stations to generate 4.1 billion kilowatt-hours in 1986, The program emphasizes that every effort possible the highest in 10 years and a welcome development must be made so that the company can continue to for consumers. The abundant waterpower generation provide quality service to customers at the lowest helped hold other electric power-production costs possible cost and to protect the interests of Niagara down, thus reducing fuel-adjustment charges on cus-Mohawk stockholders. tomers'ills.
Life-extension for fossil-fueled stations Niagara Mohawk operates 77 hydro stations on up-state New York waterways, more than any other util-Throughout the year, the Fossil Generation Depart- ity in the free world. During the year, we continued to ment continued a life-extension program at our coal pursue plans to renovate or develop various hydro and oil-fired generating plants. The long-term objec- installations for a total of 150,000 kilowatts by the tive is to lengthen the useful life of existing generating late 1990s. By 1995 we must relicense 11 hydro to defer the need for new generation capacity. 'nits facilities encompassing 35 individual power plants.
Studies by Niagara Mohawk's Research and De- One application seeks to re-develop five separate velopment Department, the Empire State Electric power installations on the Oswego River alone.
Research Corp. and Electric Power Research Institute At year end, a new 32,000-kilowatt hydro facility have determined that it can be far more cost-effective was completed and brought on line at Glen Park on to refurbish and modernize existing plants than to the Black River. It was the first project where Niagara install new units. Mohawk sought "outside" proposals from private The life-extension entails performing detailed in- concerns for the independent construction and long-spections of critical components of each unit. Their term operation of a power facility, an arrangement remaining years are assessed, and a dollar/time that offers the company avoided costs and eliminates schedule is formulated to implement the improve- development costs. Energy produced at Glen Park is
=
ments and repairs needed to lengthen their operation. sold exclusively by a private developer under contract Late in 1986, special computer software went into to Niagara Mohawk. A similar agreement with a sec-service to help fossil station operators upgrade the ond private developer, Synergics, Inc. of Maryland, on-line efficiency of each generating unit at coal, oil or was reached in 1986, involving construction and op-gas-fired power stations. Specific data (temperatures, eration of a 2,600-kilowatt plant slated for 1987 startup at Union Falls on the Saranac River.
A fisheries-keyed research venture, being watched ELECTRICITYGENERATED AND PURCHASED nationwide, was initiated on the Salmon River in BY TYPE OF FUEL, 1966 Oswego County in 1986 by Niagara Mohawk with the U.S. Fish and WildlifeService, N.Y. State Department Hydro 31% of Environmental Conservation and Empire State Various sources 25% Electric Research Corp. The program focuses upon 16/o salmon and trout habitat, while examining stream-Coal flow hydraulics, temperatures and other river charac-Oil 1B'/o teristics with the objectives of more efficient and Nuclear 11% cost-effective methods of fisheries management on Natural gas 1%
hydro waterways. A computer model is a part of this effort, in which a number of other U.S. utilities in-
6 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES volved in the licensing and operation of hydro plants turbine. The most attractive feature is the project's have expressed interest. ability to function economically and reliably with vir-tually no sulfur emissions from the plant's stack, a Energy research ventures primary goal in efforts to reduce acid rain concerns.
Another year of solid research gains was again The demonstration is also intended to reduce the achieved by Niagara Mohawk in 1986. Working inde- number of components normally used to make such a pendently on "in-house" projects and jointly with concept workable. Construction of the unit willbegin other energy interests, including the nationwide Elec- in late 1987, with operation scheduled for 1990-91.
tric Power Research Institute and Gas Research Insti-tute, a number of exploratory projects progressed to New power control center in western New York practical utilityapplications. At the same time, ac- Further evidence of our dedication to meeting future tivities were broadened in various research areas. energy needs economically and efficiently was the ac-One project demonstrating both environmental and tivation in late December of a new Regional Power economic promise was the successful development of Control Center in Buffalo, the latest addition to Niag-a solution to the problem of processing polychlori- ara Mohawk's extensive Energy Management Sys-nated biphenyls (PCBs). In a procedure patented by tems (EMS). The center is similar to our main Power Niagara Mohawk in 1986, PCB-contaminated oil used Control Center in Syracuse but is responsible solely in electrical transformers can now be recovered for for high-voltage transmission and distribution re-use in "clean" form a welcome breakthrough in facilities in western New York. The center is equipped toxic waste technology. with a 100-foot wide dynamic mapboard and the most This novel concept has been demonstrated and ap- modern electronics and computer facilities for proved for commercial use by both the U.S. Environ- anticipating and dispatching energy to nearly one-mental Protection Agency and N.Y. State Department half million customers in western New York. A simi-of Environmental Conservation. A chemical process, lar control center is presently under construction in the project involves a mobile treatment unit that can Watertown for the Northern Region and another is be transported from site-to-site to remove PCBs. Pres- planned for the Capital Region in Albany. Their ently, Niagara Mohawk is negotiating with several design and function willfollow those of the western prominent hazardous-waste contracting firms to sell Power Control Center.
the rights of this new technology, making its benefits Significant power transmission projects during the available to other utilities and industry. year included completion of a 345,000-volt transmis-A similar research venture was initiated in 1986 to sion line to carry power from the new Nine Mile Point remove toxic waste from soils. With support from Nuclear Unit Two from our Volney station some 65 several industry groups, Niagara Mohawk is evaluat- miles southeast to Marcy near Utica. This double cir-ing a number of innovative techniques for the on-site cuit links Nine Mile Two with Niagara Mohawk's remediation of toxic waste. Initial work in 1986 cross-state energy system and the New York power looked at one approach for biological treatment. This grid. The sale and leaseback of the Volney-Marcy line process focuses on enhancing the natural biodegrada- to a private firm for $ 128 million was consummated tion by growing harmless organisms and injecting in November. Proceeds from this transaction were them into the soil to cause unwanted chemicals to applied to reduce high-cost debt.
decompose naturally, but at a highly accelerated rate. In conjunction with transmission technology and Also during the year, an experimental "clean coal" Niagara Mohawk's diversification efforts to broaden power-plant research project planned jointly by its earnings sources, the company formed a 50-50 Niagara Mohawk with the N.Y. State Energy Re- joint venture corporation with Product Development search and Development Authority and other energy Services, Inc. of Fairfield, Conn., to market a one-of-innovators at the company's Dunkirk Steam Station a-kind line-monitoring concept invented and was selected for funding support by the U.S. Depart- patented through our research program. The new ment of Energy. Planned is a 5,000-kilowatt demon- firm, NITECH, Inc. willsell, install and provide sup-stration unit at the western New York site, among port services for our Power Donut'" system, a nine major concepts named by the department as the trademark used by Niagara Mohawk for this equip-most promising choices to undergo large-scale test- ment. The Power Donut sensor so named for its ing. The new unit willtest a simplified gas-from-coal shape automatically measures vital conditions af-concept to generate power, using a steam-injected fecting load-carrying capacity of transmission lines,
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES voltage, temperature, current and environmental tee connector willbe used to attach plastic gas service conditions in which the lines function. Such data is laterals to gas mains and should reduce installation relayed from the device to power control facilities, costs considerably. The patented device will be intro-allowing dispatchers to more effectively utilize exist- duced for nationwide distribution in May 1987.
ing transmission facilities and equipment. Three U.S.
utilities have installed these Power Donut systems New oil and gas ventures in western Canada and three others placed orders with NITECH by the Our young Canadian subsidiary, Opinac Energy, Ltd.,
year end. posted another impressive year after successfully drilling 17 new oil wells and 36 new natural gas wells An eventful and promising year for natural gas in 1986. These and other drilling ventures have been Expansion of the Army's Fort Drum in northern New pursued jointly by Opinac with other industry York largest "stateside" military base-expansion partners working in the western provinces.
here in the U.S. in more than 40 years resulted in Opinac produced more than $ 1 million (U.S.) of construction of a major new link in our natural gas crude oil and natural gas during the year, with plans system in 1986, Niagara Mohawk's largest gas project calling for an expenditure of $ 11 million for continua-since the early 1960s. tion of this exploration and development program in The base is being enlarged to accommodate the re- the western Canada sedimentary basin in British Col-located 10th Division (Light Infantry) with the popu- umbia, Alberta, Saskatchewan and Manitoba in 1987.
lation in and around Fort Drum expected to more Since its formation in 1983, Opinac-based in Cal-than double to some 30,000 by 1990. To meet antici- gary, Alberta has discovered and developed more pated gas demands, the company has installed more than 50-billion cubic feet of natural gas and 1.2-than 20 miles of pipeline in the area and further plans million barrels of proven crude-oil reserves with a are under way to extend gas service to communities combined value of more than $ 21 million.
west and north of the nearby City of Watertown. As with all Niagara Mohawk subsidiaries, Opinac is Also in 1986, the company purchased approxi- fully independent and not subsidized in any way by mately 25 percent of its gas supply in the "spot" mar- the customers of its parent corporation. This joint ket for the first time as the result of federal changes exploration company and three other Canadian firms opening pipelines for transportation. These pur- are subsidiaries of Opinac Investments, Ltd. of chases, combined with declining rates, have lowered Toronto, itself a wholly owned Niagara Mohawk sub-costs to our more than 445,000 gas customers. While sidiary. The others are Canadian Niagara Power "spot" purchases have been conducted on a tempo- Company, Ltd., which generates and distributes rary basis, they likely will become a permanent way power to a portion of Ontario's Niagara Peninsula; of acquiring a portion of gas supplies for our custom- St. Lawrence Power Company, distributor of electric-ers in the years ahead. ity to Cornwall, Ontario; and Opinac Holdings, Ltd.
We are also progressing with plans for a new Gas Energy Management System employing the latest Rewarding year for Hydra-Co techniques and technologies for obtaining cost- A banner year with increasing national perspective effective gas supplies. Scheduled for implementation was reported by our wholly owned Hydra-Co Enter-in 1988, the concept willinclude computerized flow prises, Inc., an independent cogeneration subsidiary modeling, remote-control of select gas facilities, of Niagara Mohawk. In 1986 alone, some 61,000 monitoring and control of peak load periods, main- kilowatts of hydroelectric production were brought replacement priorities, computerized property rec- on line in New York State and a 5,000-kilowatt gas-ords, records-information dispatch and other auto- fired cogeneration plant was completed at Little Falls mated functions. Serving as the hub for all these op- by Hydra-Co with various energy partners. Other erations willbe a new Gas Energy Management Con- projects are planned across the nation.
trol Center, similar to and located near our electric A major project announced in 1986 by Hydra-Co EMS Control Center in Syracuse. Targeted for opera- under a joint agreement with th'e Babcock & Wilcox tion by the 1988 heating season, the center willover- Company is the proposed rehabilitation of the former see the 6,300 miles of pipelines and all regulator sta- Allied Chemical Company's power-generating plant tions in the Niagara Mohawk gas system. in Solvay, near Syracuse. When completed in 1988 the In 1986, Niagara Mohawk gas researchers devel- coal-fired facility will have an 80,000-kilowatt oped a unique "mechanical main tee." This plastic capacity, its total cost estimated at $ 87 million.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES In Maine, Hydra-Co is planning development of difficultypaying bills by counseling and referring some 77,000-kilowatts in both hydro and wood-fueled them to available human-service agencies.
cogeneration. Regulatory action is pending on o Senior ombudsman willdirectly assist elderly Hydra-Co power projects to yield some 6,300 customers with their energy problems with the kilowatts in Vermont and New York State, while company.
cogeneration agreements are being negotiated in New o Energy conservation programs for non-profit Jersey and Oklahoma. Other hydro plants are envisioned by the subsidiary in California, Oregon agencies willprovide funds and staff support to and New England. community foundations to assist them in securing Hydra-Co, based in Syracuse, was formed in 1981 to State Energy Office funds for energy conservation participate in the development, ownership and opera- programs.
tion of cogeneration, alternate-energy and small o Senior I.D. program encourages customers 60 power-production installations. years and over to register with the company for special protection, relative to their energy needs.
Vitalityin the economy 4 Heat/Cold Stress Program a locally focused pro-Success with a special economic development rate gram conducted jointly with coalitions of agencies (EDR) created especially for electric industrial and to disseminate health information on stress from commercial customers in 1985 led to the introduction summer and winter weather extremes.
of a similar rate for gas customers in 1986. o Large-print bills for visually impaired Economic development rate incentives have been provides widely accepted by area industry and in several upon request, bills with above-normal sized type instances have been the key to encouraging firms to for customers with visual problems.
remain in our service area rather than moving 4 Energy Savgo A bingo-like game with energy-elsewhere. saving tips, created for widespread use by senior The electric EDR has already been utilized by 54 citizen groups and other organizations.
separate accounts with 49 companies in our 37-county service territory. This has produced a more- Assistance programs already available to customers than 192.6-million kilowatt-hour increase in sales- increased in popularity during the year. Among these or added revenues totaling nearly $ 12 million yearly. are our Community Conservation Grant, Energy Con-Also significant, along with this energy sales growth, servation Bank, Home Energy Level Payment, Third is the resulting growth in employment, with some Party Notification, Life Support and Extended Pay-3,100 new jobs resulting in upper New York State. ment Plan programs. These, no doubt, contributed to During the year, our Economic Development De- improved favorability ratings accorded the company partment took part in a number of positive new inno- in a series of customer attitude surveys in recent years.
vations to retain businesses and attract new firms to One of our most positive and visible assistance pro-upstate New York. Among these are an "incubator grams is the Care & Share Energy Fund. It assists the business" initiative to assist those getting off to a elderly, disabled or those experiencing a medical start; a computerized inventory of available building emergency by helping them pay for their emergency sites and industrial parks; and a venture-capital energy needs. In conjunction with the American Red "network" for matching skills and business prospects Cross which administers Care & Share directly the with entrepreneurial firms seeking prospects in the fund has helped some 2,770 needy families pay energy regions we serve. bills and make essential home energy improvements.
This program is solely supported by contributions Thinking customer from our stockholders, customers and employees.
Under Niagara Mohawk's Savingpower campaign, Strong emphasis was maintained throughout the year some 24,000 customers highest for any year and for on our "Think Customer!" campaign aimed at helping any other utilityreceived home energy conservation the many persons and communities we serve. To this surveys by the company's specially trained techni-end, seven new consumer-oriented initiatives were cians in 1986. Many customers followed through by under way or in final planning in 1986, as follows: obtaining financial assistance and low-interest loans o Consumer advocates in the Capital, Central and from lending institutions to implement needed con-Frontier Regions willwork with customers having servation improvements.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 9 t
MONTHLYRESIDENTIAL ELECTRIC COST FOR 500 KILOWATT-HOURS ew York Clt $ 65.05 P iladel la P 58.75 NYStateAv . notlncludn 55.42 NM'ak NJ 54.12 Clevela d OH 47.57 Ha ttord C 46.80 B sto MA 45.79 ation vera e- 40.75 Los An ele CA 39.43 Nla ara Mo aw 37.60 lncfudes fuel and PASNV credit adlustmenl as applicable.
'NM Rate Department I/87.
"U.S. Department of Energy 10/BB.
All other supptled by utility which serves city, with rates and fuel effective 1/87.
Wherever possible, our customer communications tation and progress of this extensive employee make note of the fact that Niagara Mohawk's residen- relations and participation effort through 1987 and tial electric rates remain the lowest among New York the coming years.
State's major utilities. At the end of 1986, Niagara Mohawk's workforce totaled approximately 11,400. About 8,600 or 76 per-People in the mainstream cent are members of 12 local unions forming System A far-reaching self-evaluation and action process in-Council U-11 of the International Brotherhood of Electrical Workers (AFL-CIO).
volving all employees is in progress and has become a Management changes in 1986 included the election principal theme in Niagara Mohawk's total future planning. Evolving into our People-Related Values of Gerald D. Garcy to vice president power con-tracts, and Richard E.A. Duffy to vice president Program, this is the outgrowth of a 1985 survey of more than 8,000 employees representing nearly 76 public affairs and corporate communications, suc-ceeding Kermit E. Hill, who retired. Attorney Gary J.
percent of the workforce the first employee survey ever at Niagara Mohawk. Lavine was elected assistant general counsel.
We were deeply saddened in November over the The immediate response to the survey's findings death of James F. Aldrich, vice president-regional was revision of our Corporate Mission Statement and Strategic Plan to more accurately stress the impor- operations.
tance of employee contributions to the company's success. A special task force on people-related values Strategy for competition diversity was formed, with 50 employees recruited from both Competition and regulatory challenges are altering union and management to address employee concerns the business environment for the nation's utilities as and make specific recommendations to management. never before. Niagara Mohawk is responding to this Teams were also organized to pursue specific prob- shifting climate with positive and dynamic measures lems and find answers to them. Members were drawn for both the stockholder and the consumer.
from a cross-section of the company. Areas of concern The company recognizes, above all, the need to re-included decision-making, employee communications main competitive by providing continuing low-cost and recognition, teamwork and development. Pres- energy service of the highest quality. But at the same ently, we are creating a management model intended time we are exploring the possibilities of extending to foster improved communication of Niagara our "core business" to other related services, markets Mohawk's mission and purpose at all levels, step-up and ventures. Recent tangible results of expansion/
employee commitment through more decisive diversification are our Power Donut' monitoring decision-making and encourage a higher leadership system currently being nationally advertised and profile within work groups. A steering committee was marketed by NITECH; the sale of technology rights appointed by senior management to track implemen- for our patented PCB-removal concept; heat pump
10 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES research/development/promotion; and the creation contact with institutional investors, a number of and growth of Niagara Mohawk energy subsidiaries broker and security analyst meetings were held in both the U.S. and Canada. throughout the U.S. in 1986. These sessions provided Our guiding document for the future is our Corpo- members of the investment community the opportu-rate Strategic Plan, amended to emphasize competi- nity to obtain first-hand from company leaders the tive opportunities. information needed to make informed, factual rec-Various levels of management and all departments ommendations about our securities.
take part in the collective strategic planning process by evaluating situations facing Niagara Mohawk and Dividend Reinvestment Plan popular in '86 adjusting the plan for proper direction to best employ Participation in our Dividend Reinvestment and our resources. Direction is set forth in our Corporate Common Stock Purchase Plan is a popular method to Mission Statement (see inside front cover) and in increase stock ownership in Niagara Mohawk. At published corporate objectives. year-end 1986, some 66,600 plan participants held All departments working together on strategic approximately 10.7 million shares of the company's planning have helped to solidify the spirit of common stock, representing 8.4 percent of the out-teamwork- itself a substantial reward from our standing common shares. One of the features of the Corporate Strategic Plan as we view the century ahead. plan allows customers of Niagara Mohawk to buy stock through the company and become plan partici-Investor communications a two-way exchange pants. Since this modification in April 1985, some An increasingly diverse mix of institutional and in- 7,700 customers have purchased about 600,000 com-dividual investors owns Niagara Mohawk common mon shares. Despite recent changes to federal tax stock. To meet their growing needs for information in legislation, this allows shareholders a unique, cost-this media age, our Investor Relations Department effective savings method.
has intensified "two-way" communications with In the first quarter of 1986, in response to changing stockholders and the investment community. capital needs, the company made a number of A prime example was the marked rise in the popu- changes in the plan. However, the plan remains in larity of our toll-free telephone service available to all effect and all holders of Niagara Mohawk common or shareholders. This channel provides direct access to preferred stock are eligible and invited to participate.
account information and quick answers to questions In the past, stock added to each participant's divi-on the company's operations and related matters. In dend reinvestment plan account was newly-issued addition, regional stockholders meetings, rotated shares purchased directly from the company. Effec-yearly throughout our service territory, continue to be tive March 1, 1986, Niagara Mohawk appointed an an effective means of communication and promote an agent to purchase shares of stock on the open market informal, person-to-person exchange of ideas between for participants'ccounts. The purchase price of the management and shareholders. Further, the company stock allocated to plan participants is the average has re-vamped its "In the Know" publications pro- price paid by the agent on the open market. In addi-gram. "In the Know" is specifically tailored to indi- tion to the reinvestment of dividends, the plan allows vidual investors and supplements information optional cash payments up to $ 5,000 per calendar routinely provided in our annual and quarterly re- quarter to be applied toward the purchase of addi-ports. Stockholders interested in more comprehensive tional common stock. All brokerage fees and commis-information about the company can join the growing sions associated with the purchase of shares in the number of "In the Know" readers by calling the toll- open market continue to be paid by the company.
free number listed on the inside back cover or by writ- A copy of the new plan prospectus, which discusses ing the Investor Relations Department in Syracuse. the changes in greater detail, was mailed to plan par-As we continue to face challenging times, our com- ticipants in February 1986. Ifyou have any questions munication efforts with the investment community about the plan or wish to obtain a copy of the prospec-continue to receive the support and endorsement of tus, please call our Shareholder Services Department senior management. In addition to direct, personal at the appropriate toll-free number for your area.
NIAGARA MOHAWK POWER CORPORATION AN D SUBSIDIARY COMPANIES Market Price of Common Stock and Related Stockholder Matters The Company's common stock and cer- While the Company intends to con- Upon any dissolution, liquidation or tain of its preferred series are listed on the tinue the practice of paying cash div- winding up of the Company's business, New York Stock Exchange. The common idends quarterly, declarations of future the holders of Common Stock are enti-stock is also traded on the Boston, Cin- dividends are necessarily dependent tled to receive pro rata all of the Com-cinnati, Midwest, Pacific and Philadelphia upon future earnings, cash flow and fi- pany's assets remaining and available stock exchanges. The ticker symbol is nancial requirements which the Com- for distribution after the full amounts to "NMK", pany cannot predict with certainty and which holders of Preferred and Pref-Preferred and common stock dividends which could be adversely affected by erence Stock are entitled have been were paid on March 31, June 30, Sep- ratemaking uncertainties as more fully satisfied.
tember 30 and December 31. The Com- discussed below and in Note 10 of The indenture securing the Com-pany presently estimates that none of the Notes to Consolidated Financial State- pany's mortgage debt provides that 1986 common or preferred stock div- ments. Also, other factors, including re- surplus shall be reserved and held un-idends will constitute a return of capital strictions in governing instruments, available for the payment of dividends and therefore they are subject to Federal may affect the declaration and payment on Common Stock to the extent that income tax as ordinary income. of future dividends. expenditures for maintenance and re-The table below shows dividends per The holders of Common Stock are en- pairs plus provisions for depreciation share for the Company's common stock titled to one vote per share and may do not equal 2.25% of depreciable and quoted market prices: cumulate their votes for the election of property as defined. Such provisions Directors. Whenever dividends on Pre- have never restricted the Company's ferred Stock are in default in an amount surplus.
Dividend paid Price range equivalent to four full quarterly divi- At year end, about 175,000 stockhold-1986 per share High Low dends and thereafter until all dividends ers owned common shares of Niagara 1st Quarter $ .52 $ 247/8 $ 1%5 the'reon are paid or declared and set Mohawk and about 7,900 held preferred 2nd Quarter .52 25'/2 193/4 aside for payment, the holders of such stock. The chart below summarizes 3rd Quarter .52 247/8 19V4 stock can elect a majority of the Board common stockholder ownership by size 4th Quarter .52 19'/8 15'/2 of Directors. Whenever dividends on of holding:
any Preference Stock are in default in
$ 2.08 an amount equivalent to six fuii quar-1985 terly dividends and thereafter until all Size of holding Total Total shares dividends thereon are paid or declared (Shares) stockholders held 1st Quarter $ .50 $ 18 $ 1 &Vs and set apart for payment, the holders 1 to 99 50,773 1,618,039 2nd Quarter .52 203/8 175/8 3rd Quarter .52 217/8 171/2 of such stock can elect two members of 100 to 999 113,825 28,415,426 4th Quarter .52 21 175/8 the Board of Directors. No dividends on 1,000 or more 9,904 97,107,529 Preferred Stock are now in arrears and
$ 2.06 174,502 127,140,994 no Preference Stock is now outstand-ing.
RANGE ANO YEAR END MARKET PRICE OF COMMON STOCK
$ 1515 $ 15V4 $ 17% $ 20Va $ 1 &a AT YEAR ENO
$ 2515 RANGE
$ 15Vs 1982 1983 1984 1985 1988
12 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS ELECTRIC SALES MilliOh$Of Kwhr+
For 1986, earnings per share decreased The following discussion and analysis 5.9% to $ 2.71 against $ 2.88 for 1985. highlights items having a significant ef- 37.086 The 1986 earnings represent decreases fect on operations during the three-year 34.732 35.296 32.640 of 4.6% and 2.2'/o from 1984 and 1983 period ended December 31, 1986. It may earnings per share, respectively. The not be indicative of future operations or average number of shares outstanding earnings. It should be read in conjunc-has increased approximately 30% over tion with the Notes to Consolidated Fj-the three-year period. nancial Statements and other financial The decrease in the Company's earn- and statistical information appearing ings per share for 1986 from 1985 re- elsewhere in this report.
sulted from a decrease in the Com- Electric revenues increased $ 108.0 pany's authorized return on common million or 5.3% over the three-year equity. The Company achieved a 13.65%%d period. The increase is largely attribut-rate of return on common equity in 1986 able to increased base rates and in-as compared with 15.0'/o in 1985 and creased sales to ultimate consumers, 1982 1983 1984 1985 1986 14.9% in 1984. The PSC-approved rate offset somewhat by decreased revenues of return on equity, which is currently attributable to fuel and purchased 13.5% as compared to 15.5% authorized power cost recoveries and the decrease at December 31, 1985 and 16% at De- in sales to other electric systems as in-cember 31, 1984, averaged 14.0% for dicated in the table below:
1986.
EARNED RATE OF RETURN ON COMMON EQUITY Increase (decrease) from prior year in millions ol dollars 15.O/o 14.9'/o 15.0/o 14.7 /o Electric revenues 1966 1985 1984 Total 13.8/o $ 181.4 Increase in base rates $ 46.4 $ 65.9 $ 69.1 Fuel and purchased power cost revenues... 12.6 (4.5) (86.3) (78.2)
Sales to ultimate consumers............... 67.4 11.9 56.1 135.4 Sales to other electric systems.............
Miscellaneous operating revenues .........
(100.3) 9.3
$ $ $ .4 (107.9)
(3.5)
Si38.1) 68.7 3.1
$ 110.7,
'.9 (139.5)
$ 108.0 Electric kilowatt-hour sales were 34.3 billion in 1986, a decrease of 2.7% from 1985 and 7.4% from 1984, reflecting the effects of increased competition which has 1982 1983 1984 1985 1986 reduced the Company's effectiveness in the resale market resulting in decreased sales to other electric systems (see Electric and Gas Statistics Electric Sales appearing on page 35). Details of the changes in electric revenues and kilowatt-hour sales by customer group are highlighted in the table below:
1966 % Increase (decrease) from prior year
%%dof Electric 1966 1985 1984 Class of service Revenues Revenues Sales Revenues Sales Revenues Sales Residential ........... 32.9/o 8.5%%d 4.3/o 6.6/o 0.4% 4.1% 4.3'/o Commercial .......... 36.0 8.2 4.7 5.0 1.7 2.4 3.7 Industrial ............. 21.1 2.6 (0.8) (0.4) (2.8) (0.5) 3.1 Municipal service ..... 1.9 4.6 (2.9) 3.7 (1.6) 3.8 (2.4)
Total to ultimate consumers ......... 91.9 6.9 2.5 4.2 (0.4) 2.3 3.6 Other electric systems . 4.5 (51.1) (32.3) (35.5) (24.1) 29.2 23.1 Miscellaneous ........ 3.6 13.7 (5.0) 4.5 Total ...100.IP/o 1.7'/o (2.7)% (1.8)% (4.8)% 5 5% 6.8'/o
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 13 Gas revenues decreased $ 80.1 million or 13.2/o over the three-year period. As Millionsof deka therm s shown by the table below, this decrease is attributable to lower costs for purchased 115.0 gas coupled with reduced volume offset by higher base rates. 109.7 108.4 co nr 103.2 100.8 co Lrr 95.9 lal Increase (decrease) from prior year CI fn millions of doffars Gas revenues 1986 1985 1984 Total Increase in base rates ........... $ 3.0 $ 8.2 $ 8.7 $ 19.9 Purchased gas adjustment clause (20.0) (21.6) (23.3) (64 9)
Gas sales volume ............... (53.0) (39.2) 57.1 (35.1)
$ (70.0) $ (52.6) $ 42.5 $ (80.1)
Gas sales were 95.9 million dekatherms in 1986, an 11.5% decrease from 1985 1982 1983 1984 1985 1986 (see Electric and Gas Statistics Gas Sales appearing on page 35). The decrease for 1986 reflects a 46.7% decrease in sales in the industrial class because of com-petition with oil and the ability of customers to purchase gas directly from produc-TOTAL ELECTRIC AND GAS ers. The Company transported 4.9 million dekatherms for customers purchasing OPERATING REVENUES Millionsof dollars gas directly from producers and expects such transportation activities to increase 2,786 with corresponding reductions in gas revenues. Revenues from the transportation 2,632 2 695 2,660 of customer-owned gas are included in miscellaneous gas revenues. Changes in 2.394 gas revenues and dekatherm sales by customer group are detailed in the table below:
1986 % Increase (decrease) from prior year
%of Gas 1986 1985 1984 Class of service Revenues Revenues Sales Revenues Sales Revenues Sales Residential .. 56.P/o 0.6o/0 4.4% (5.9)% (4.4)% 3.1% 5.7o/o Commercial .. 27.0 (3.3) 0.8 (6.2) (3.2) 1.0 3.6 Industrial .... 13.0 (48.7) (46.7) (14.6) (10.8) 21.1 27.3 Total to ultimate 1982 1983 1984 1985 1986 consumers......... 96.2 (11.8) (10.9) (8.1) (6.0) 6.5 10.7 Other gas systems .... 2.7 (23.5) (23.6) (5.2) 1.6 24.9 32.0 Miscellaneous ....... 1.1 68.6 (11.5) 8.7 Total ... 100.9/o (11.7)% (11.5)% (8.1)% (5.7)% 7.0o/o 11.4%
On March 12, 1986, the PSC approved were not considered in the March 1986 the result of a $ 121.9 million decrease in a 2.1% electric rate increase to provide decision. The new rates became effec- fuel and purchased power costs in-the Company additional annual rev- tive August 29, 1986. curred during the year, partially offset enues of $ 39,974,000. The rates are Rate action, initiated in April 1986, by a $ 35.0 million net increase in costs based on a 13.5% return on common presently seeks $ 181.7 million (9.9%) deterred and recovered through the op-equity and provide for the current re- additional electric revenues based upon eration of the fuel adjustment clause.
covery of finance charges accruing on forecast operations for the rate year Fuel costs incurred at the Company's
$ 680 million of Construction Work in ending March 31, 1988. The application generating stations decreased $ 81.8 Progress (CWIP) associated with the includes $ 133.1 million for the first year million as a result of reduced demand Nine Mile Point Nuclear Station Unit No. of a four-year phase-in of the Com- and lower oil prices. The cost of pur-2 (Unit). These new rates became effec- pany's 41% share of the Unit into rates. chased power decreased $ 40.1 million tive March 17, 1986 and represent 26% In December 1986, PSC Administrative as a result of a 3.5% decrease in of the revised rate relief requested by Law Judges recommended a rate in- kilowatt-hour purchases and a 7.5% de-the Company. In March 1985, the PSC crease of $ 130.8 million (7.1%). The crease in the average cost per kilowatt had approved rate increases providing Company is unable to predict what purchased (see Electric and Gas additional annual revenues of amount of rate relief will ultimately be Statistics-Electricity Generated and
$ 49,312,000 (2.6%) for electric and granted. The PSC opinion is expected in Purchased appearing on Page 35).
$ 8,826,000 (1.3%) for natural gas. March, 1987. No adjustment to gas rates The total cost of gas purchased de-On August 23, 1986, in connection is being requested at this time. creased 17.8% in 1986 and 9.1% in 1985, with a second-stage filing involving In 1986, electric fuel and purchased atter having increased 5% in 1984. The rates approved March 12, 1986, the PSC power costs decreased 11.4% to $ 672 decrease for 1986 is the result of a approved additional annual electric million from $ 759 million in 1985 and 14.0% decrease in dekatherms pur-revenues of $ 7,475,000 for items which $ 853 million in 1984. This decrease is chased to meet customer demand,
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES AVERAGE COST OF A TON OF COAL MAINTENANCEAND OTHER TOTALTAXES INCLUDING AND A BARREL OF OIL BURNED OPERATION EXPENSE Millionsof dollars INCOME TAXES Millionsoi dollars
$ 50.76 $ 50.68 546.8 482
$ 49 16
$ 45.84 494.6 508.3 397.7 424 462.4 364.0 410 353.6 418.9 326.1 290.1
$ 33.35 317
$ 30.67 $ 31.16 CI
$ 29.67 co o
I
$ 18.00
~ r 141.0 149.1 Ct 1288 136.3 Lrr co sd 1982 1983 1984 1985 1986 1982 1983 1984 1985 1986 1982 1983 1984 1985 1986 combined with lower rates charged by in depreciation rates applied to certain nance its construction program and be-the Company's principal supplier and classes of assets. cause its prices are regulated using a spot market purchases. The Company's Total Federal and foreign income rate base that reflects the historical cost net cost per dekatherm purchased de- taxes for 1986 rose 21.8% as net taxable of utility plant.
creased to $ 3.52 in 1986 from $ 3.68 in income and the dollar amount of items The Company's consolidated finan-1985 and $ 3.96 in 1984. on which deferred taxes are provided cial statements are based on historical Through the energy and purchased increased. The increase in taxes othBf events and transactions when the pur-gas adjustment clauses, costs of fuel, than income taxes in the three-year chasing power of the dollar was sub-purchased power and gas purchased, period is due principally to higher prop- stantially different from the present. The above or below the levels allowed in ap- erty taxes resulting from property addi- effects of inflation on most utilities, in-proved rate schedules, are billed or tions. cluding Niagara Mohawk, are most sig-credited to customers. The Company's The $ 21.5 million decrease in total nificant in the areas of depreciation and fuel adjustment clause provides for par- Allowance for Funds Used During Con- utility plant. The Company could not re-tial pass-through of fuel and purchased struction (AFC) for 1986 results from place its utility plant and equipment for power cost fluctuations from those lower AFC rates and an increase in the the historical cost value at which they forecast in rate proceedings, with the amount of CWIP included in rate base are recorded on the books. In addition, Company absorbing a specific portion from $ 320 million to $ 680 million effec- the Company would probably not re-of increases or retaining a portion of tive April 1, 1986, despite increased place these assets with identical ones decreases to a maximum of $ 15 million overall levels of plant construction, due to technological advances and reg-per rate year. principally the Unit. ulatory changes which have occurred.
Other operation and maintenance ex- The decrease in other income and In light of these considerations, the de-penses increased 7.6% in 1986, 2.8% in deductions-other items (net) is primar- preciation charges in operating ex-1985, and 7.0% in 1984, primarily as a ily the result of the reduction in the in- penses do not reflect the current cost of result of increases in wages and as- terest earned on the advances made for providing service. The Company, how-sociated benefits and higher costs LILCO (see Note 11 of Notes to Consoli- ever, will seek additional revenue to charged by suppliers. Effective June 1, dated Financial Statements). cover the costs of maintaining service 1984, the Company entered into a two- Interest expense and preferred stock as assets are replaced.
year labor agreement providing for dividend requirements increased During a period of inflation, holders wage increases of 5.25% in the first year slightly as a result of new issuances to of monetary assets suffer a loss of gen-and 5.50% in the second year. A new raise the capital necessary to fund the eral purchasing power while holders of three-year contract providing for annual Company's construction program offset monetary liabilities experience a gain.
wage increases of 4.1%, 4.5% and 4.7%, by a reduction in high coupon se- The gain from the decline in purchasing respectively, became effective June 1, curities. The weighted average long- power of net amounts owed is primarily 1986. The increase in other operation term debt interest rate and preferred attributable to the substantial amount of and maintenance expenses in 1984 and dividend rate paid in 1986 decreased debt which has been used to finance 1986 also includes scheduled mainte- from 10.30% and 8.85% in 1985, respec- utility plant. Since the depreciation on nance costs relating to the refueling of tively, to 9.82'/o and 8.20%, respectively, this plant is limited to the recovery of Nine Mile Point Nuclear Station Unit No. as a result of the Company's refinancing historical costs, the Company does not 1 in those years. The next refueling out- efforts. have the opportunity to realize a hold-age for this unit is scheduled for the ing gain on debt and is limited to recov-Spring of 1988. Effects of Changing Prices. The rate of ery only of the embedded cost of debt Depreciation and amortization ex- inflation continued to be moderate in capital. The table on the following page pense for 1986 increased 3.1% over 1986. The Company is especially sensi- presents selected financial data re-1985 and 10.0% over 1984, principally tive to inflation because of the large stated for the effects of changing prices from normal plant growth and increases amount of capital it must raise to fi- in average 1986 dollars:
NIAGARA MOHAWK POWER CORPORATION AND SU'BSIDIARY COMPANIES 15 advances for construction of the Unit on 1986 1985 1984 behalf of LILCO. As described in Note Operating Revenues ($ 000's) .... $ 2,660,319 $ 2,746,798 $ 2,940,448 11 of Notes to Consolidated Financial Statements, however, LILCO repaid Gain from decline in purchasing power on net such obligations in December 1986.
amounts owed ($ 000's) ....... $ 36,418 $ 108,788 $ 115,867 The 1987 estimate for construction additions and nuclear fuel, including Per Common Share: AFC and overheads capitalized, is ap-Cash dividends declared...... $ 2.08 $ 2.10 $ 2.09 proximately $ 550 million and approxi-Marketpriceatyearend ...... $ 16.75 $ 20.89 $ 18.34 mately 28% of this estimate is for the Average Consumer Price Index .. 328.4 322.2 311.1 Unit.'ebt and preferred stock retire-ments, the amount due under the Co-FINANCIALPOSITION, LIQUIDITYAND CAPITAL RESOURCES tenant Agreement and other require-,
ments are expected to add approxi-Financial Position. During recent years During the year, the market price for internal funds from operations have mately another $ 468 million to the the Company's common stock fell Company's capital requirements for a been insufficient to meet the Com- below the book value after having total of $ 1.018 billion.
pany's capital requirements and there- shown substantial improvement in Complete estimates of the Company's fore, large amounts of new capital from 1985. In addition, credit ratings for first capital requirements and resources for external sources have been necessary. mortgage bonds, pollution control the years 1987 through 1991 are being The Company's overall requirements bonds and preferred stock were low- reviewed by the Company to take into consist of amounts for the Company's ered by rating agencies because of the consideration, among other things, the construction program, working capital delays and related cost increases ex- impact of the Settlement Agreement, needs, maturing debt issues and sink- perienced at the Unit. the $ 171 million to be paid by the Com-ing fund provisions on outstanding debt Continued delays in the Unit's com-pany to the cotenant companies upon and preferred stock and are affected by pletion, and the related increases in commercial operation of the Unit pur-its refinancing efforts. Sources and costs coupled with a prospective suant to the Cotenant Agreement, the uses of funds to meet these require- write-off of disallowed Unit costs of ap- impact of the Tax Reform Act of 1986 ments during the past three years are proximately $ 1 billion ($ 626 million net (Tax Act), the Financial Accounting reported in the Consolidated Statement of tax at a 46% rate), recent reductions Standards Board's ("FASB") Exposure of Changes in Financial Position on in the authorized rate of return on Draft concerning proposed changes in page 20. common equity experienced by the accounting for income taxes and the The Company's key financial indi- Company and other New York State January.1987 cost estimate of the Unit.
cators remained constant in 1986. Capi- utilities and uncertainty regarding the The FASB Exposure Draft would re-tal structure at year-end was 47.0% ratemaking treatment relative to the im- quire, among other things, adjustment long-term debt, 10.5% preferred stock plementation of the Settlement Agree- of net deferred tax liabilities or assets and 42.5% common equity. This posi- ment, are expected to have a negative for the net change in the tax rates paid tion is indicative of the Company's cor- impact on the financial condition and by the Company. However, the Tax Act porate goal of maintaining a strong results of operations of the Company prohibits rapid reduction of excess de-equity-based capitalization of 40-45% and, in turn, could jeopardize the ferred taxes relating to accelerated de-common equity. However, the strength maintenance of the current common preciation occasioned by the reduction of the Company's capitalization struc- stock dividend level. of the corporate tax rate. The Tax Act ture and earnings will be adversely im- contains numerous other provisions pacted upon the adoption of new ac- Construction and Other Capital Re- likely to affect the Company. The most counting rules, which will require an quirements. Annual expenditures for significant changes relate to a reduc-immediate write-off of Unit disallowed the years 1984-1986 for construction tion in the marginal corporate income costs, and the recognition of the Set- and nuclear fuel, including related AFC tax rate, increased minimum tax provi-tlement Agreement in rates (see Note 10 and overheads capitalized, were $ 769.8 of Notes to Consolidated Financial million, $ 771.1 million and $ 774.1 mil- CAPITALIZATIONRATIOS Statements). lion, respectively. The principal project Coverage of fixed charges decreased presently under construction is the Unit 47>5o/o 45.6/ 46 5'/ 45 8'/ 47 0'/o slightly to 2.98 at year-end, but remained (see Note 10 of Notes to Consolidated X CL at approximately the 3x level for the fifth Financial Statements). The Company is c5 ~
consecutive year and close to the corpo- a 41% owner and had invested about O~
AO rate goal of maintaining at least a 3.25 $ 2.4 billion, including AFC and over-coverage ratio. The coverage ratio heads capitalized, in the Unit and Unit excluding AFC improved slightly to 2.42 related projects through December 31, 11.5% 12.6o/o 11,5% 11.5% 10 5o/o as financing costs not currently reco- 1986. Expenditures for construction of 42.1o/ 42.0% 42.7/o 42.5oo 41.0/o vered in rates decreased, primarily as the the Unit have averaged approximately result of $ 680 million of CWIP in rate 51% of total construction requirements base. AFC for 1986 amounted to 48.2/o of during the period 1984 to 1986. Og the balance available for common stock Total capital requirements in 1986 in- OO as compared with 53.2/0 in 1985 and creased due to refinancing efforts and, 1982 1983 1984 1985 1986 52.4% in 1984. in 1984 and 1985, as the Company made
16 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES sions and the elimination of the invest- ANNUALEXTERNAL short-term borrowings are refunded FINANCING BY TYPE Millions ol dollars with permanent securities on a continu-ment tax credit. The Tax Act when ini-tially considered in the rate setting pro- 780.5 ing basis. Bank credit arrangements, cess, is likely to create a reduction in 700.9 which total $ 673 million (including $ 450 internal generation of cash. However, million of revolving credit and term loan 614.3 reductions in the Company's cash gen- 583.1 374.7 584.1 agreements, $ 123 million in lines of eration and coverage ratios would also 291.8 323.8 credit and a $ 100 million Bankers Ac-likely be addressed in the rate setting ceptance Facility Agreement), are used 424.9 process. To the extent any such nega- r 259;7 by the Company to enhance flexibility tive impacts are not adequately consid- Cl as to the type and timing of its perma-ered in rates, a corresponding loss of o nent security sales. Further increases in 75.0 cash flow, if experienced, could be ex- Cd 50.0 the costs of the Unit, implementation of pected to increase the Company's ex- g rs:
189.6 185.3 the Settlement and recent changes in ternal financing requirements and pos-CL 75.0 financial accounting standards could sibly lower credit ratings and may im-os affect the Company's ability to access pact the common stock dividend rate. 1982 1983 1984 1985 1986 certain of its bank credit arrangements.
Certain of these agreements, as well as Liquidity and Resources. During 1986, other agreements of the Company, con-the Company raised approximately refund debt and preferred stock ex- tain representations and covenants
$ 780,500,000 through external sources, pected to be retired prior to maturity. which, if not met or re-negotiated, re-consisting of $ 598,900,000 debt, The Company expects to secure the quire the Company to provide security
$ 75,000,000 of preferred stock, majority of its capital needs from tradi- in the form of First Mortgage Bonds or
$ 4,600,000 of common stock from the tional financing sources. However, it prevent the Company from making new issuance of 212,654 shares, and net in- will continue to explore and utilize, as borrowings under such agreements creases of $ 9,000,000 under inter- appropriate, other methods of financ- (see Notes 4 and 11 of Notes to Consoli-mediate term bank revolving credit ob- ing. Recent adoption by the FASB of dated Financial Statements). Any se-ligations and $ 93,000,000 in short-term amendments with respect to financial curity provided in the form of First debt. The Company also completed ap- accounting recognition of disallowed Mortgage Bonds may diminish the proximately $ 22,000,000 of capital lease Unit costs, together with the anticipated amount of First Mortgage Bonds availa-financing, received $ 225,000,000 from charge against earnings based on the ble for issuance on the basis of retired the sale and redemptions of the LILCO Settlement, may prohibit or severely re- bonds. The unsecured debt limitation General and Refunding Bonds it held strict the Company's ability to borrow imposed by the Company's Charter is and $ 128,000,000 from a sale and under revolving credit agreements, and $ 700 million declining to 10% of leaseback of a transmission facility. In for a period of approximately twelve capitalization plus $ 50 million after addition to sinking fund and scheduled months, issue Preferred Stock or First 1988. This limitation on unsecured debt retirements, during 1986 the Company Mortgage Bonds under its Indenture on together with certain restrictions on retired prior to maturity $ 381 million of the basis of additional property. There secured financing may limit the Com-high-coupon long-term debt and $ 47 are currently no tests or restrictions on pany's ability to complete certain types million of preferred stock. A portion of the Company's ability to issue Prefer- of financing.
the funds needed to complete these re- ence Stock. In addition, the 1986 reduc- In general, the Company has had a demptions were obtained from the sale tion of the credit ratings on the Com- strong capital structure, adequate short by the Company of LILCO General and pany's First Mortgage Bonds and Pre- and intermediate term bank borrowing Refunding Bonds and the transmission ferred Stock, with the possible adverse capability and has been able to access facility. These early retirements of high effect on the rates of interest and div- the permanent capital markets with flex-coupon securities contributed to a re- idend rates that may be required on fu- ibility. Earnings coverage of interest duction in the estimated year-end aver- ture issues of such securities, may also charges may remain in excess of age cost of capital. Using the maximum reduce the Company's financing flexi- mortgage indenture restrictions for the rates payable on variable rate securities bility and adversely affect its capital issuance of First Mortgage Bonds and the year-end average cost of long-term structure and financial position. Not- over $ 1.3 billion of property is available debt decreased from 10.57% to 9.76% withstanding these possible limitations to support the issuance of First and the preferred dividend rate de- on its financing capacity and flexibility, Mortgage Bonds. However, continua-creased from 9.79% to 9.43%. the Company believes that available tion of this degree of financial strength During 1986, funds needed to pay for sources of financing, including as of is dependent on a number of factors, the Company's overall construction re- December 31, 1986, approximately $ 566 including the ultimate cost of the Nine quirements amounted to $ 774,100,000, million principal amount of First Mile Point Nuclear Station Unit No. 2, including AFC, and were provided 29% Mortgage Bonds issuable on the basis the rate phase-in plan for the Unit, the from internal sources and 71% from ex- of retired bonds (to the extent not re- methodology adopted by the PSC in ternal financing. quired for other purposes) and $ 100 implementing the Settlement Agree-External financing for 1987 is ex- million aggregate par value of Prefer- ment, the adoption of Statement of Fi-pected to approximate $ 687 million, in- ence Stock, will be sufficient to satisfy nancial Accounting Standards No. 90 cluding funds needed to complete the the Company's external financing (see Note 10 of Notes to Consolidated construction of the Unit, pay amounts needs for.1987. Financial Statements) and adequate due under the Cotenant Agreement and Ordinarily, construction related rate relief.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES Consolidated Statement of Income and Retained Earnings In thousands of dollars For the year ended December 31, 1966 1985 1984 Operating revenues:
Electric.............. $ 2,131,833 $ 2,096,404 $ 2,134,470 Gas . 528,486 598,536 651,076 2,660,319 2,694,940 2,785,546 Operating expenses:
Operation:
Fuel for electric generation 319,834 391,382 476,040 Electricity purchased 352,126 367,406 377,052 Gas purchased . 338,634 411,801 452,960 Other operation expenses....... 397,714 364,010 353,660 Maintenance 149,124 144,312 140,987 Depreciation and amortization 155,311 150,627 141,150 Federal and foreign income taxes . 211,237 173,471 181,767 Othertaxes 295,165 280,643 269,204 2,219,145 2,283,652 2,392,820 Operating Income 441,174 411,288 392,726 Other income and deductions:
Allowance for other funds used during construction . 121,932 141,320 122,354 Federal income taxes . 32,293 26,708 33,460 Other items (net) (Note 11) . 37,539 53,110 8,591 191,764 221,138 164,405 Income before interest charges 632,938 632,426 557,131 Interest charges:
Interest on long-term debt 264,054 260,271 224,099 Other interest 14,880 6,721 12,440 Allowance for borrowed funds used during construction . (43,861) (45,996) (39,142) 235,073 220,996 197,397 Net Income 397,865 411,430 359,734 Dividends on preferred stock 53,817 59,559 51,460 Balance available for common stock 344,048 351,871 308,274 Dividends on common stock 264,312 252,218 216,493 Retained earnings for the year 79,736 99,653 91,781 Retained earnings at beginning of year .. 842,115 742,462 650,681 Retained earnings at end of year $ 921,851 $ 842,115 $ 742,462 Average number of shares of common stock outstanding (ln thousands) . 127,076 122,215 108,734 Balance available per average share of common stock .. 2.71 $ 2.88 $ 2.84 Dividends per share of common stock................. $ 2.08 $ 2.06 $ 1.98
() Denotes deduction
18 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES Consolidated Balance Sheets ln thousands of dollars At December 31 ~ 1986 ASSETS Utilityplant, at original cost (Note 1):
Electric plant $ 4,559,389 $ 4,302,280 Nuclear fuel (Note 3) 392,662 369,126 Gas plant . 544)447 517,995 Common plant 129,451 115,316 Construction work in progress (Note 10) . 2,820,044 2,336,188 Total utility plant 8,445,993 7,640,905 Less accumulated depreciation and amortization 1,763,443 1,629,437 Net utility plant 6,682,550 6,011,468 Other property and investments 76,504 146,487 Advances on behalf of Nine Mlle Point Nuclear Unit No. 2 cotenant, including deferred sup plemental payments (Note 1 1) 232,847 Current assets:
Cash, including time deposits of $ 78,389 and $ 7,521, respectively ..... 175,979 44,933 Accounts receivable (less allowance for doubtful accounts of $ 3,600) .. 289,350 283,962 Materials and supplies, at average cost:
Coal and oil for production of electricity 43,504 64,454 Other . 73,015 65,450 Prepayments 21,109 20,931 602,957 479,730 Deferred debits:
Unamortized debt expense 118,209 64,260 Deferred finance charges (Note 1) 83,951 25,055 Deferred recoverable energy costs . 9,935 32,520 Extraordinary property losses . 1,709 Other 37,097 19,761 249,192 143,305
$ 7,611,203 $ 7,013,837
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 19 ln thousands of dollars At December 31, 1966 1985 CAPITALIZATIONAND LIABILITIES Capitalization (Note 7):
Common stockholders'quity:
Common stock, issued 127,140,994 and 126,928,340 shares, respectively $ 127,141 $ 126,928 Capital stock premium and expense . 1,522>499 1,519,577 Retained earnings... 921,851 842,115 2,571>491 2,488,620 Non-redeemable preferred stock 290>000 290,000 Redeemable preferred stock 347,470 379,850 Long-term debt 2,799,605 2,643,094 Total capitalization 6,008,566 5,801,564 Current liabilities:
Short-term debt (Note 4) 100,212 7,195 Long-term debt due within one year 93>914 65,465 Redemption and sinking fund requirements on redeemable preferred stock (Note 7) . 60,380 13,050 Accounts payable 141,338 186,887 Payable on outstanding bank checks 59,512 63,340 Customers'eposits . 8,645 7,829 Accrued taxes . 10,232 7,560 Accrued interest 68,759 76,157 Accrued vacation pay. 28,234 25,945 Gas supplier refunds payabie to customers 2,846 11,381 Cotenant prepayments to Nine Mile Point Nuclear Unit No. 2 project fund (Note 11) 1,096 84,904 Due to cotenants under Cotenant Agreement (Note 10) ...... 171,100 Other 24,231 25,937 770,499 575,650 Deferred credits:
Accumulated deferred Federal income taxes . 648>641 515,554 Mandated refunds to customers (Note 11) 63>229 80,000 Deferred finance charges(Note 1) . 83,951 25,055 Other 36,317 16,014 832,138 636,623 Commitments and contingencies (Notes 3, 10 and 11)
$ 7,611,203 $ 7,013,837
20 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES Consolxdated Statement of Changes in Financial Position fn thousands, of dollars For the year ended December 31 ~ 1966 1985 FINANCIALRESOURCES WERE PROVIDED BY:
Operations:
Net income . 397,865 411,430 359,734 Charges (credits) to income not requiring (not providing) working capital ,
Depreciation and amortization . 155,311 150,627 141,150 Allowance for funds used during construction .... (165,793) (187,316) (161,496)
Amortization of nuclear fuel 18>257 25,448 17,612 Provision for deferred Federal income taxes (net) . 133>743 141,206 116,265 Other (4,707) (10,821) 539,383 536,688 462,444 Outside financing:
Sale of common stock . 4>603 185,270 189,626 Sale of preferred stock 75,000 '5,000 50,000 Sale of mortgage bonds . 500,000 175,000 319,250 Issuance of other long-term debt 98>900 225,000 81,618 Net borrowings under revolving credit facilities . 8>959 (29,880) 5,060 Increase (decrease) in short-term debt ......... 93,017 (46,321) (31,247) 780,479 584,069 614,307 Other sources:
Deferred recoverable energy costs 22,585 (16,267) 9,480 Mandated refunds to customers(Note 11) ............. (16,771) (10,191) (9,273)
Sale of LILCO General and Refunding Bonds(Note 11) . 140,000 Repayment of construction advances(Note 11) ........ 92,847 38,481 Sale/leaseback of transqission facility ................ 128,000 Other investments 72>596 (32,775) (27,495)
Unamortized debt expense (53,949) (11,602) (8,128)
(Increase) decrease in working capital other than short-term debt (see below) .............. (21,395) 92,084 38,964 Miscellaneous (net) (11,133) (9,331) 3,643 352,780 50,399 7,191 Total resources provided $ 1,672,642 $ 1 171,156
~ $ 1,083,942 FINANCIALRESOURCES WERE USED FOR:
Construction additions, including capital leases . $ 750,526 S 718,903 $ 746,910 Nuclear fuel . 23,536 52,217 22,936 Allowance for funds used during construction ... (165,793) (187,316) (161,496)
Net additions 608,269 583,804 608,350 Amounts accrued under Cotenant Agreement(Note 10) .. 171,100 Advances on behalf of Nine Mile Point Nuclear Unit No. 2 cotenant (Note 11) 135,808 120,060 Reduction of long-term debt. 467,764 126,717 67,005 Reduction of preferred and preference stock ........... 107,380 13,050 20,574 Dividends 318,129 311,777 267,953 Total resources used . $ 1,672,642 $ 1,171,156 $ 1,083,942 (Increase) decrease In working capital other than short-term debt:
Cash $ (131,046) (12,294) (1,440)
Accounts receivable (5,388) (1,730) (8,156)
Coal and oil for production of electricity ............... 20>950 32,020 (564)
Other materials and supplies (7,565) (3,432) (5,764)
Long-term debt due within one year ................... 28,449 1,628 33,685 Redemption and sinking fund requirements on redeemable preferred stock ............ 47,330 (6,551) 7,651 Accounts payable (45,549) 3,848 (2,213)
Payable on outstanding bank checks.................. (3>828) 3,988 (17,119)
Accrued taxes and interest . (4,726) (5,990) 27,440 Gas supplier refunds due customers .................. (8,535) 5,137 (8,989)
Cotenant prepayments to Nine Mile Point Nuclear Unit No. 2 project fund (83,808) 84,594 (2,507)
Due to cotenants under Cotenant Agreement(Note 10) . 171,100 Other (net) 1,221 (9,134) 16,940 (21,395) 92,084 38,964
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 21 Notes to Consolidated Financial Statements NOTE 1. Summary of Significant Accounting Policies the life of the Unit. It is currently expected that the balance in The Company is subject to regulation by the New York State the deferred debit account will be amortized and recovered in Public Service Commission (PSC) and the Federal Energy rates over the life of the Unit.
Regulatory Commission (FERC) with respect to its rates for service and the maintenance of its accounting records. The Depreciation, Amortization and Nuclear Generating Plant De-Company's accounting policies conform to generally accepted commissioning Costs: For accounting purposes, depreciation accounting principles, as applied to regulated public utilities, is computed on the straight-line basis using the average or and are in accordance with the accounting requirements and remaining service lives by classes of depreciable property. In ratemaking practices of the regulatory authorities. addition, certain costs associated with the discontinued Ster-In December 1986, Statement of Financial Accounting Stan- ling Nuclear Station (See Note 2) were amortized over shorter dards No. 90, "Regulated Enterprises Accounting for Aban- periods as approved by the PSC. For Federal income tax pur-donments and Disallowance of Plant Costs" was issued by the poses, the Company computes depreciation using accelerated Financial Accounting Standards Board (FASB) and is required methods and shorter allowable depreciable lives.
to be adopted not later than 1989. (See Note 10-Nine Mile Estimated decommissioning costs (costs to remove the plant Point Nuclear Station Unit No. 2 for a detailed discussion of the from service in the future) of the Company's Nine Mile Point effects of this pronouncement). Nuclear Station Unit No. 1 are being recovered in rates through an annual allowance and charged to operations through de-Principles of Consolidation: The consolidated financial preciation charges. Based on a study completed in 1986, the statements include the Company and its wholly-owned sub- cost of decommissioning Nine Mile Point Nuclear Station Unit sidiaries. All significant intercompany balances and transac- No. 1, which is expected to begin in the year 2005, is estimated tions have been eliminated. Assets and liabilities of foreign to be approximately $ 442,000,000 at that time ($ 211,700,000 in subsidiaries are translated into U.S. dollars at the exchange 1986 dollars). Through December 31, 1986, the Company has rate in effect at the balance sheet date. Revenue and expense recovered $ 23,200,000 of decommissioning costs in rates. The accounts are translated at the average exchange rate in effect Company's 41% share of costs to decommission Nine Mile during the year. Currency translation adjustments are recorded Point Nuclear Station Unit No. 2 which is expected to begin iri as a component of equity and do not have a significant impact the year 2027, is estimated to be approximately $ 565,000,000 on financial condition. ($ 108,100,000 in 1986 dollars). The annual allowances for re-covery, based upon currently estimated decommissioning Utility Plant: The cost of additions to utility plant and of re- costs over the life of these units, are under consideration in the placements of retirement units of property is capitalized. Cost Company's current rate proceeding. The Company continues includes direct material, labor, overhead and an allowance for to review the estimated requirements for decommissioning funds used during construction (AFC). The cost of current re- and plans to seek rate adjustments when appropriate. There is pairs and maintenance is charged to expense. Whenever utility no assurance that the decommissioning allowance will ulti-plant is retired, its original cost, together with the cost of re- mately aggregate a sufficient amount to decommission the moval, less salvage, is charged to accumulated depreciation. units. The Company believes that decommissioning costs, if higher than currently estimated, will ultimately be recovered in Allowance for Funds Used During Construction: The Com- the rate process, although no such assurance can be given.
pany capitalizes AFC in amounts equivalent to the cost of funds devoted to plant under construction. AFC rates are de- Amortization ol Nuclear Fuel: Amortization of the cost of nu-termined in accordance with FERC and PSC regulations. The clear fuel is determined on the basis of the quantity of heat Company computes AFC at a rate which is reduced to reflect produced for the generation of electric energy. The cost of the income tax effect of the borrowed funds component of AFC disposai of nuclear fuel, which presently is $ .001 per kilowatt-for all additions to electric utility plant. The AFC rates in effect hour of net generation, is based upon a contract with the U.S.
December 31, 1986 were 11.02% and, net of tax at the current Department of Energy. These costs, which are associated with statutory rate of 46%, 8.90%. AFC is segregated into its two generation at Nine Mile Point Unit Nuclear Station No. 1, are components, borrowed funds and other funds, and is reflected charged to operating expense and recovered from customers in the Interest Charges section and the Other Income and through base rates or through the fuel adjustment clause.
Deductions section, respectively, of the Consolidated State-ment of Income. Revenues: Revenues are based on cycle billings rendered to Effective April 1985, pursuant to a PSC authorization, the certain customers monthly and others bi-monthly. The Com-Company discontinued accruing AFC on $ 320 million of con- pany does not accrue revenues for energy consumed and not struction work in progress (CWIP) for which a cash return is billed at the end of any fiscal period. The Company's tariffs being allowed through inclusion in rate base of that portion of include electric and gas adjustment clauses under which the investment in the Nine Mile Point Nuclear Station Unit No. 2 energy and purchased gas costs, respectively, above or below (Unit). This amount was increased to $ 680 million in April 1986. the levels allowed in approved rate schedules, are billed or Amounts equal to the AFC which is no longer accrued on the credited to customers. The Company, as authorized by the CWIP included in rate base are being accumulated in deferred PSC, charges operations for energy and purchased gas cost debit and credit accounts and, at the time the Unit commences increases in the period of recovery. The PSC has periodically commercial operation and is placed in rate base, the balance in authorized the Company to make changes in the level of al-the deferred credit account could be available to reduce future lowed energy and purchased gas costs included in approved revenue requirements over a period potentially shorter than rate schedules. As a result of such periodic changes, a portion
22 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES ot energy costs deferred at the time of change would not be preciable property was 3.0% in 1986 and 1985 and 2.9% in recovered under the normal operation of the electric adjust- 1984. The Company makes depreciation studies on a continu-ment clause. However, the Company has been permitted to ing basis and, upon approval by the PSC, periodically adjusts amortize and bill such portions to customers, through the elec- the rates of its various classes of depreciable property.
tric adjustment clause, over 36 months from the effective date of each change. The Company's electric fuel adjustment clause provides for partial pass-through of fuel cost fluctua- NOTE 3. N M Uranium, Inc.
tions from those forecast in rate proceedings with the Com-
'During 1976, through a wholly-owned subsidiary, N M Uranium, Inc. (NMU), the Company purchased a 50 percent pany absorbing a specific portion ot increases or retaining a portion of decreases to a maximum of $ 15 million per rate year. undivided interest in uranium deposits and associated mining equipment to be held by a jointly-owned mining venture. Ac-Federal Income Taxes: In accordance with PSC requirements, quisition of this interest was made primarily to provide a more the tax effect of book and tax timing differences is flowed assured future supply of nuclear fuel. The investment in the through unless authorized by the PSC to be deferred. The subsidiary, which includes costs incurred since acquisition Company provides deferred taxes on certain benefits realized and AFC accrued through March 31, 1981, has been reduced from depreciation, on deferred energy and purchased gas by the proceeds from the sale of uranium, net of tax, and trans-costs, on nuclear fuel disposal costs accrued prior to April 7, fers to the Company and is included in the consolidated finan-1983, on nuclear generating plant decommissioning costs, on cial statements as part of the nuclear fuel component of utility certain construction overheads and on certain other items (see plant. Such investment totaled $ 82,200,000 at December 31, Note 9). In conformity with ratemaking practices of the PSC, 1986 and $ 73,800,000 at December 31, 1985.
the Company has not provided deferred taxes on approxi- In connection with the Company's rate decisions in March mately $ 1.6 billion of other tax deductions which include cer- 1984 and March 1986 the PSC has allowed, as the cost of ap-tain depreciation differences and various construction ov'er- proximately 790,000 lbs. of NMU uranium utilized in the 1984 heads deductible currently tor tax purposes and capitalized for and 1986 reloads of the Company's Nine Mile Point Nuclear accounting and ratemaking purposes. The Company has Unit No. 1 and approximately 107,000 lbs. utilized for a portion claimed 10 percent investment tax credit and deferred the ben-. of the initial core at Nine Mile Point Nuclear Unit No. 2, a price efits of such credits as realized in accordance with PSC direc- which represents the average United States delivery price for tives. For purposes ot computing capital cost recovery deduc- the year, as reported by the U.S. Department of Energy (DOE).
tions and normalization, the asset basis is partly reduced by The total allowed value of these transfers using DOE prices is the credit claimed. The imputed tax benefit of the borrowed approximately $ 30.5 million while the Company's cost is ap-funds component of AFC and the tax effect of LILCO General proximately $ 39.4 million. The differential between the Com-and Refunding Bond interest and supplemental payments are pany's cost of'this NMU uranium and that amount allowed to recorded in Other Income and Deductions (see Note 11). be recovered in rates charged to customers has been deferred subject to the PSC approval of the comparison of cost to mar-Amortization of Debt Issue Costs: The premium or discount ket on an aggregate basis over the life of the project. The Com-and debt expenses on long-term debt issues and on certain pany anticipates that, based upon present DOE forecasts of debt retirements prior to maturity, are amortized ratably over average delivery prices, substantially all of its investment will the lives ot the related issues and included in interest on long- be recovered, although no such assurance can be provided.
term debt (see Note 7).
Pension Plans: The cost of pension plans is based upon cur-NOTE 4. Bank Credit Arrangements rent costs, amortization of unfunded past service benefits over At December 31, 1986, the Company had $ 673 million of periods ranging from 15 to 40 years and amortization over 15 bank credit arrangements, including the Oswego Facilities years of unfunded past service benefits arising from plan Trust, with 34 banks. These credit arrangements consisted of amendments. The Company's policy is to fund pension costs
$ 450 million in commitments under Revolving Credit and Term accrued (see Note 8). Loan Agreements, $ 10 million in short-term commitments In December 1985, Statement of Financial Accounting Stan- under Credit Agreements, $ 113 million in lines of credit and dards No. 87 "Employers'ccounting for Pensions" was is- $ 100 million under a Bankers Acceptance Facility Agreement.
sued by the FASB and is effective for fiscal years beginning The Revolving Credit and Term Loan Agreements extend after December 15, 1986. The adoption of the requirements of through 1990 although the revolving credit periods under the this statement is not currently anticipated to have a significant agreements for $ 135 million of the $ 450 million expire in 1987.
impact on the results of operations or financial position of the At the option of the Company, the interest rate applicable to Company as shown in the Consolidated Financial Statements. borrowings under these agreements is based on the prime rate or at specitied increments over the rates applicable to certifi-cates of deposit or, in certain agreements, eurodollar deposits.
NOTE 2. Depreciation and Amortization All of the other bank credit arrangements are subject to review The total provision for depreciation and amortization, includ- on an ongoing basis with interest rates negotiated at the time ing amounts charged to clearing accounts, was $ 156,494,000 of use. The Company also issues commercial paper. Unused for 1986, $ 151,817,000 for 1985 and $ 142,500,000 for 1984. The bank credit facilities are held available to support the amount provisions include approximately $ 2,800,000, $ 9,500,000 and of commercial paper outstanding, including amounts currently
$ 10,200,000, respectively, resulting from the PSC allowed re- issued in connection with Interest Rate Exchange Agreements covery of the amortization of costs associated with the discon- (see Note 7). $ 215 million of the Revolving Credit and Term tinued Sterling Nuclear Station. The percentage relationship Loan Agreements contain representations and covenants between the total provision for depreciation and average de- which, if not met or re-negotiated, would prevent the Company
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 23 from making new borrowings under such agreements and re- NOTE 6. Information Regarding the Electric quire the Company to begin scheduled repayment over three and Gas Businesses years of amounts outstanding. The Company is engaged in the electric and natural gas util-The Company pays fees for substantially all of its bank credit ity businesses. Certain information regarding these segments arrangements. The Bankers Acceptance Facility Agreement, is set forth in the following table. General corporate expenses, which is used to finance the fuel inventory for the Company's property common to both segments and depreciation of such
,generating stations, provides for the payment of fees only at common property have been allocated to the segments in ac-the time of issuance of each acceptance. cordance with practice established for regulatory purposes.
Amounts outstanding under Interest Rate Exchange Agree- Identifiable assets include net utility plant, materials and ments and Revolving Credit and Term Loan Agreements to- supplies, deferred finance charges and deferred recoverable taled $ 100 million at December 31, 1986 and are recorded as energy costs. Corporate assets consist of other property and long-term debt. investments, cash, accounts receivable, prepayments, unamor-Additional bank credit arrangements in connection with the tized debt expense and other deferred debits.
Company's guarantee of certain obligations of LILCO are dis-cussed in Note 11. In thousands of dollars The following table summarizes additional information 1986 1985 1984 applicable to short-term debt: Operating revenues:
In thousands of dollars Electric ............ $ 2,131,833 $ 2,096,404 $ 2,134,470 At December 31: 1986 1985 Gas 528,486 598,536 651,076 Short-term debt: Total $ 2,660,319 $ 2,694,940 $ 2,785,546 Commercial paper .... ..S 72>000 $
Notes payable 212 2,195 Bankers acceptances . 28,000 5,000 Operating Income before taxes:
Electric ................... S 596,864 $ 529,659 $ 511,842
$ 100>212 $ 7,195 Gas 55,547 55,100 62,651 Weighted average interest rate (a) .. 8.33% 7.93o/o Total S 652,411 $ 584,759 S 574,493 For earendedDecamber31:
Pretax operating Income, Including AFC:
Daily average outstanding ...... .. $ 197,557 $ 45,607 Daily weighted average interest Electric ................... $ 762,362 $ 716,719 S 672,964 Gas . 55,842 55,356 63.025 rate(a) . 6.6ty/o 8.31%
Maximum amount outstandin .. 4396,115 $ 182.818 Total ................... 818,204 772,075 735,989 Income taxes................ 211,237 173,471 181,767 (a) Excluding fees. Other Income and deductions. 69,832 79,818 42,051 Interest char es ............. 278,934 266,992 236,539 Nat income $ 397,865 $ 411,430 $ 359,734 NOTE 5. Jointly-Owned Generating Facilities The following table reflects the Company's share of jointly-owned generating facilities at December 31, 1986. The Com- Depreciation:
pany is required to provide financing for the unit in process of Electric ..... S 141,663 $ 137,630 $ 128,521 construction and for any additions to the units in service. The Gas 13,648 12,997 12,629 Company's share of expenses associated with the Roseton Total $ 155,311 $ 150,627 $ 141,150 units and Oswego Steam Station Unit No. 6 is included in the appropriate operating expenses in the Consolidated Statement Construction expenditures of Income. (including nuclear fuel):
Percentage In thousands of dollars Construction Electric ................... S 734,348 S 749,912 S 734,706 Gas 39,714 21,208 35,140 owner- Utility Accumulated work in ship plant depreciation progress Total S 774,062 $ 771,120 S 769,846 Roseton Steam Station Units No. 1 and 2(a) ... 25 $ 83,199 $ 27,513 $ 738 Identifiable assets:
Oswego Steam Station Electric .......... $ 6,424,656 $ 5,756,586 $ 5,155,372 Unit No. 6 (b).......... 76 $ 260,099 $ 47,961 $ 631 Gas 468,299 444,070 432,113 Nine Mile Point Nuclear Station Unit No. 2(c)(d) . 41 $ 2,263,700 Total ........ 6,892,955 6,200,656 5,587,485 Cor orate assets . 718,248 813,181 645,916 (a) The remaining ownership interests are Central Hudson Gas and Total assets $ 7,611,203 $ 7,013,837 $ 6,233,401 Electric Corporation, the operator of the plant (35%) and Consoli-dated Edison Company of New York, Inc. (40%).
(b) The Company is the operator. The remaining ownership interest is Rochester Gas and Electric Corporation (24%).
(c) The remaining ownership interests are Long Island Lighting Com-pany (18%), New York State Electric and Gas Corporation (18%),
Rochester Gas and Electric Corporation (14%), and Central Hud-son Gas and Electric Corporation (9%) (see Note 10).
(d) Excludes amounts spent for nuclear fuel, unshared internal Com-pany charges, certain costs associated with non-generating facilities being constructed in connection with the Unit and ac-crued amounts due under the Cotenant Agreement.
24 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES NOTE 7. Capitalization CAPITAL STOCK The following table summarizes the shares of capital stock authorized, issued and outstanding:
At December 31 ~
1986 1985 1984 Common stock, $ 1 par value:
Authorized 150,000,000 150,000,000 150,000,000 Issued & outstandin 127,140,994 126,928,340 116.848.974 Preferred stock, $ 100 par value:
'uthorized 3,400,000 3,400,000 3,400,000 Issued & outstanding ............ 3,260,000 3,318,000 3.342.510 Preferred stock, $ 25 par value:
Authorized 19,600,000 19,600,000 19,600,000 Issued & outstanding ........... 14,874,000 14,044,000 '1,210,000 Preference stock, $ 25 par value:
Authorized 4,000,000 4,000,000 4,000,000 Issued & outstandin 0 0 .520,000 The table below summarizes changes in capital accounts for 1984, 1985 and 1986:
Preferred and Preference Stock
$ 100 par value $25 par value Capital Stock Common Stock on- on- Premium
($ 1 par value) Redeem- Redeem- Redeem- Redeem- Expense able'ble'hares able* able'Net)*
Balance January 1, 1984 104,010,003 $ 104,010 3,370,240 $ 210,000 $ 127,02/a) 10,136,000 $ 30,000 $ 223,40/'e) $ 1,174,382 Sales in 1984 ............. 6,534,400 6,534 2,000,000 50,000 87,878 Issued to stock purchase plans in 1984 ............ 6,304,571 6,305 87,117 Redemptions ............. (27,730) (2,773) (406,000) (10,150) 555 Foreign currency translation ad'ustment ... (2,126)
Balance December 31, 1984 116,848,974 116,849 3,342,510 210,000 124,251(a) 11,730,000 30,000 263,250fa) 1,347,806 Salesin1985 ............. 4,465,600 4,465 3,000,000 50,000 25,000 74,216 Issued to stock purchase plansin1985 ............ 5,613,766 5,614 99,535 Redemptions ............. (24,510) (2,451) (686,000) (17,150) 442 Foreign currency tr'anslation adjustment ... (2,422)
Balance December 31,1985 126,928,340 126,928 3,318,000 210,000 121,80+a) 14,044,000 80,000 271,100(a) 1,519,577 Salesin1986 ............. 60,354 61 3,000,000 75,000 (939)
Issued to stock purchase plans in1986 ............ 152,300 152 2,821 Redemptions ............. (58,000) (5,800) (2,170,000) (54,250) 437 Foreign currency tran'slation ad'ustment.... 603 Balance December31,1986 127,140,994 $ 127,141 3,260,000 $ 210,000 $ 116,00ga) 14,874,000 $ 80,000 $ 291,850(e) $ 1,522,499
'In thousands of dollars.
(e) Includes sinking fund requirements due within one year.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 25 NON-REDEEMABLE PREFERRED STOCK (Optionally Redeemable)
The Company has certain issues of preferred stock which provide for optional redemption as follows:
Redemption price per share (Before adding accumulated dividends)
In thousands of dollars Eventual At December 31, 1986 1985 1984 December 31, 1986 minimum Preferred $ 100 par value:
3.40% Series; 200,000 shares .. $ 20,000 $ 20,000 $ 20,000 $ 103.50 $ 103.50 3.60% Series; 350,000 shares .. 35,000 35,000 35,000 104.85 104.85 3.90% Series; 240,000 shares .. 24,000 24,000 24,000 106.00 106.00 4.10% Series; 210,000 shares .. 21,000 21,000 21,000 102.00 102.00 4.85% Series; 250,000 shares .. 25,000 25,000 25,000 102.00 102.00 5.25% Series; 200,000 shares .. 20,000 20,000 20,000 102.00 102.00 6.10% Series; 250,000 shares .. 25,000 25,000 25,000 101.00 101.00 7.72% Series; 400,000 shares .. 40,000 40,000 40,000 105.44 102.36 Preferred $ 25 par value:
Adjustable Rate Series A; 1,200,000 shares ........... 30,000 30,000 30,000 (a) 25.00 Adjustable Rate Series C; 2,000,000 shares ........... 50,000 50,000 (b) 25.00
$ 290,000 $ 290,000 $ 240,000 (a) Not redeemable until 1988.
(b) Not redeemable until 1990.
MANDATORILYREDEEMABLE PREFERRED STOCK The Company has certain issues of preferred and preference stock which provide for mandatory and optional redemption as follows:
Redemption price per share (Before adding accumulated dividends)
In thousands of dollars At December 31, 1986 1985 1984 December 31, 1986 minimum Preferred $ 100 par value:
7.45% Series; 420,000,438,000, and 456,000 shares ... $ 42I000 $ 43,800 $ 45,600 $ 104.33 $ 100.00 10.13/o Series; 250,000 shares . 25,000 25,000 25,000 (a) 100.00 10.60% Series; 240,000,280,000 and 286,510 shares .. 24,000 28,000 28,651 107.95 102.65 12.75% Series; 250,000 shares . 25I000'5,000 25,000 Preferred $ 25 par value:
8.375% Series; 1,200,000, 1,300,000 and 1,400,000 shares 30,000 32,500 35,000 26.21 25.00 8.75% Series; 3,000,000 shares . 75,000 (b) 25.00 9.75%Series; 738,000, 804,000 and 870,000shares 18,450 20,100 21,750 26.1625 25.00 9.75% Series (second); 816,000 and 1,020,000 shares . 25,500 25,500 26.22 25.00 20,400'5,000 10.13/o Series; 1,000,000 shares . 25,000 25,000 (a) 25.00 10.75% Series; 1,600,000 shares . 40>000 40,000 40,000 (a) 25.00 12.25% Series; 700,000 shares. 17,500 17,500 17,500 (c) 25.00 12.50/o Series; 620,000 shares . 15,500 15,500 15,500 (c) 25.00 12.75% Series; none and 1,000,000 shares............. 25,000 15.00'/o Series; none and 800,000 shares .............. 20,000 20,000 Adjustable Rate Series B; 2,000,000shares............. 50,000 50,000 50,000 (d) 25.00 Preference $ 25 par value:
7.75% Series; none and 520,000 shares .............. 13,000 407,850 392,900 387,501 Lesssinkin fundandredem tionrequirements .. 60,380 13,050 19,601
$ 347,470 $ 379,850 $ 367,900 (a) Not redeemable until 1988.
(b) Not redeemable until 1992.
(c) Not redeemable until 1991.
(d) Not redeemable until 1989.
'Series called for redemption January 19, 1987.
26 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES These series require mandatory sinking funds for annual redemption and provide optional sinking funds through which the Company may redeem, at par, a like amount of additional shares (limited to 120,000 shares of the 7.45% series and 300,000 shares of the 9.75% series). The option to redeem additional amounts is not cumulative.
The Company's five-year mandatory sinking fund redemption requirements for preferred stock are as follows:
In thousands of dollars No. of shares Commencing 1987 '988 1989 1990 1991 Preferred $ 100 par value:
7.45% Series .......... 18,000 6/30/77 $ 1,800 $ 1,800 $ 1,800 $ 1,800 $ 1,800 10.13/o Series .......... 25,000 12/31/87 2,500 2,500 1,875 2,500 2,500 10.60% Series .......... 20,000 3/31/80 2,000 2,000 2,000 2,000 2,000 Preferred $ 25 par value:
8.375% Series ......... ~ 100,000 4/1/83 2,500 2,500 2,500 2,500 2,500 8.75% Series 600,000 12/31/92 9 75o/o Series ........... 66,000 10/1/80 1,650 1,650 1,650 1,650 1,650 10.13/o Series ........... 100,000 12/31/87 2,500 2,500 1,875 2,500 2,500 10.75% Series .. ~ ~ ~ . ~ ~ ~ ~ ~ 320,000 6/30/89 8,000 8,000 8,000 12.25% Series ........... 43,060 3/31/87 1,077 1,077 1,077 1,077 1,077 12.50/o Series ........... 38,139 3/31/87 953 953 953 953 953 Ad ustable Rate Series B . 50,000 9/30/93
$ 14,980 $ 14,980 $ 21,730 $ 22.980 $ 22,980 LONG-TERM DEBT Long-term debt and long-term debt due within one year consisted of the following:
In thousands of dollars In thousands of dollars At December 31, 1986 1985 At December 31 ~ 1986 1985 First mortgage bonds:
3Vs% Series due May 1,1986 ......... $ $ 30,000 12r/s% Series due November 1, 2012 . 79,355 100,000 4r/s% Series due September 1, 1987... 50,000 50,000 12'/s% Series due March 1,2013 ..... 69,530 100,000 3Vs%Seriesdue June1,1988 ........ 50,000 50,000 12Vs% Series due June 15, 2013 ..... 50,000 14Vs% Series due August 11, 1988 ..... 34,000 50,000 '11V4% Series due July 1,2014 ....... 75,690 75,690 12% Series due March 1, 1989 ....... 20,000 20,000 11%% Series due October 1,2014 ... 40,015 40,015 9Vs% Series due October 1, 1989 ..... 13,000 13,000 10/oSeriesdue June1,2016 ........ 150>000 4s/4% Series due April 1, 1990......... 50>000 50,000 10/oSeriesdueNovember1,2016 ... 100,000 15% Series due March 1, 1991 ....... 38,650 8~/s% Series due November 1 2025 .
~ 75,000 75,000 14s/4% Series due May 1, 1991 ......... 90,000 Total First Mortgage Bonds ......... 2>246,141 2,129,751 4>/s% Series due November 1, 1991 40>000 40,000 12.73/o Series due February 1, 1992.... 20>000 20,000 Promissory notes:
13.06% Series due February 1, 1992.... 50,000 50,000 '%SeriesAdue June1,2004....... 46,600 46,600 12.73% Series due February 20,1992 .. 10,000 10,000 'Adjustable Rate Series due 12.68% Series due February 28, 1992 .. 20,000 20,000 July 1, 2015 100,000 100,000 15Vs%Seriesdue March1,1992 ....... 25,045 50,000 December 1, 2025 . 75,000 75,000 15s/4% Series due June 1,1992 ........ 23,346 58,500 December 1, 2026 . 50,000 11% Series due May1,1S93 ......... 50>000 50,000 12Vs% Series due March 1, 1994 ....... 13,000 Notes payable:
Br/s% Series due August 1, 1994 ...... 150,000 17% Eurodollar Guaranteed Notes 4Vs% Series due December 1, 1994 ... 40,000 40,000 due September 15,1989 ................. 46,705 9Vs% Series due October 1, 1996 ..... 100,000 Adjustable London Interbank 5r/s%SeriesdueNovember1,1996 ... 45,000 45,000 Offered Rate due September 15, 1989 ..... 9,000 6>/4% Series due August 1, 1997 ...... 40,000 40,000 Intermediate Notes, Various rates, due 1989-1992 48,900 6Vs% Series due August 1, 1998 ...... 60,000 60,000 Swiss Franc Bonds due December 15, 1995 .. 50,000 50,000 12Vs% Series due March 1, 1999 ....... 17,000 15.02/o Unsecured Notes due 1990 ......... 50,000 50,000 9>/s% Series due December 1, 1999 ... 75,000 75,000 Notes, Interest Rate Exchange Agreement ... 50,000 50,000 12.95% Series due October 1, 2000 .... 69>334 80,000 7s/s% Series due February 1, 2001 ..... 65,000 65,000 Revolving credit and loan agreements . 25,000 25,000 7Vs% Series due February 1, 2002..... 80,000 80,000 Revolving credit agreement, 774% Series due August 1,2002 ...... 80,000 80,000 Oswego Facilities Trust ................. 34,039 25,080 8V4% Series due December 1,2003 ... 80>000 80,000 Other 117,906 99,875 SVs% Series due December 1,2003 ... 50>000 50,000 9.95% Series due September 1, 2004 .. 90,000 95,000 Unamortized remlum discount 6 1,548 10.20% Series due March 1,2005 ...... 35,000 35,000 TOTAL LONG-TERM DEBT ............. 2,893,519 2,708,559 8.35% Series due August 1 2007 .....
~ 71,050 71,050 Less lon -term debt due within one ear . 93,914 65,465 8Vs%SeriesdueDecember1,2007 ... 42,000 44,000 $ 2,799,605 $ 2,643,094 13Vs% Series due April 1, 2012......... 25,760 25,800 16% Series due August 1,2012 ........ 3>016 3,046 Tax-exempt pollution control related issues
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 27 Several series of First Mortgage Bonds and Notes were issued Company to make fixed rate payments which, calculated on a to secure a like amount of tax-exempt revenue bonds and semi-annual bond basis, are equivalent to 7.53%, and, in ex-notes issued by the New York State Energy Research and De- change, receive a LIBOR-based floating rate payment from a velopment Authority (NYSERDA). $ 225,000,000 bear interest at bank. The Company generally uses its own commercial paper a daily adjustable interest rate (with a Company option to con- notes as the source of funding for $ 50,000,000 and Trust notes vert to a fixed interest rate) which averaged 4.38% for 1986 and for $ 25,000,000. The related interest expense is recorded on a are supported by bank direct pay letters of credit. Pursuant to net basis.
'agreements between NYSERDA and the Company, trust funds The arrangements with the Trust provide financing for the have been established with the proceeds from the bond and construction of a new energy management system. The Trust note issues. Such proceeds are to be used for the purpose of has a $ 50,000,000 Direct Pay Letter of Credit Facility and Re-constructing certain pollution control facilities at the Com- volving Credit Agreement, $ 25,000,000 of which is subject to an pany's generating facilities. Unexpended proceeds in the trust Interest Rate Exchange Agreement and is used to support its funds amounted to $ 2,238,000 at December 31, 1986 and are commercial paper obligations. All such obligations are se-recorded in Other Property and Investments. cured by certain assets held by the Trust. The Company is Notes Payable include a ten-year Swiss Franc Bond issue required to purchase, or otherwise arrange for, the disposition equivalent to $ 50,000,000 in U.S. funds. Simultaneously with of the Trust assets upon the termination of the Trust. The Letter the sale of these bonds, the Company entered into a currency of Credit Facility and Revolving Credit Agreement of the Trust exchange agreement to fully hedge against currency exchange require payment of fees which are based upon the amount of rate fluctuations. commercial paper outstanding.
The Company has Interest Rate Exchange Agreements ex- Other long-term debt in 1986 consists of obligations under tending into 1991 for $ 75,000,000, including $ 25,000,000 for capital leases of $ 56,180,000 and a liability to the U.S. Depart-Oswego Facilities Trust (Trust). The agreements require the ment of Energy for nuclear fuel disposal of $ 61,726,000.
Certain of the Company's debt securities provide for a mandatory sinking fund for annual redemption. The Company's five-year mandatory sinking fund redemption requirements are as follows:
Principal In thousands of dollars amount Commencing 1987 1988 1989 1990 1991 First Mortgage Bonds:
10.20% Series due March 1, 2005...... 81,500 3/1/78 8 1,500 8 1,500 8 1,500 8 1,500 8 1,500 6.35% Series due August 1, 2007 ..... 750 8/1/82 550(a) 750 750 750 750 8Vs% Series due December 1, 2007 ... 2,000 12/1/83 2,000 2,000 2,000 2,000 2,000 9.95% Series due September 1, 2004 . 5,000 9/1/65 5,000 5,000 5,000 5,000 5,000 14~/s% Series due August 11, 1966 ..... 17,000 6/11/66 17,000 17,000 12.95% Series due October 1, 2000 .... 5,333 10/1/86 5,333 5,333 5,333 5,333 5,333 9'%eries due December 1 2003 ...
~ 2,941 12/1/87 2,941 2,941 2,941 2,941 2,941 Promissory Notes:
6% Series A due June 1,2004 ........ 500 6/1/90 500 500
$ 34,324 $ 34,524 $ 17,524 $ 16,024 $ 18,024 (a) A portion of the requirements have been met by advance purchases.
Additionally, certain other series of mortgage bonds provide for a debt retirement fund whereby payment requirements may be met, in lieu of cash, by the certification of additional property, the waiver of the issuance of additional bonds or the retirement of outstanding bonds. The 1986 requirements for these series were satisfied by the certification of additional property. The Com-pany anticipates that the 1987 requirements for these series will be satisfied by other than payment in cash. Total annual debt retirement fund requirements for these series, based upon mortgage bonds outstanding December 31, 1986, are $ 7,050,000.
NOTE 8. Pension and Other Retirement Plans. In thousands of dollars The Company and its subsidiaries have non-contributory 1986 1985 pension plans covering substantially all their employees. The Actuarial present value of accumulated benefits:
total pension cost was $ 44,300,000 for 1986 and $ 42,100,000 Vested . $ 471,000 $ 409,000 for 1985 and 1984 (of which $ 15,600,000 for 1986, $ 13,400,000 Non-vested . 30,000 24,000 for 1985 and $ 11,400,000 for 1984 was related to construction Total 8501,000 $ 433,000 labor and accordingly, was charged to construction projects).
Studies indicate that the accumulated plan benefits, as de-Net assets available for lan benefits .. 8677,000 $ 563,000 termined by consulting actuaries, and plan net assets for the The weighted average assumed rate of return used in deter-Company's plans at December 31, 1986 and 1985 are as fol- mining the actuarial present value of accumulated plan ben-lows: efits was 7~/~% in 1986 and 8% in 1985.
28 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES The table on page 27 summarizes accumulated plan benefits NOTE 9. Federal and Foreign Income Taxes attributable to employee wage levels and service rendered Income Tax Reform: In October 1986, the Tax Reform Act of through December 31, 1986 and 1985. These amounts do not 1986 (Act) was signed into law. One of the provisions of the Act take into consideration expected future service, wage in- lowered the statutory corporate Federal income tax rate from creases and associated actuarial assumptions. These addi- 46% to 34% effective July 1, 1987. The deferred Federal income tional factors and assumptions are considered in determining taxes below relating to book/tax timing differences have been the funding requirements of the Company's ongoing pension provided at the current statutory rate of 46%.
plans, based upon an approved actuarial cost method, and are in conformity with generally accepted actuarial principles and Components of United States and foreign income before in-practices.
In thousands of dollars In addition to providing pension benefits, the Company and 1986 1985 1984 its subsidiaries provide certain health care and life insurance benefits for retired employees. Substantially all of the Com- United States .............. $ 570,113 $ 551,907 $ 499,285 Foreign 14,311 17.516 18,326 pany's employees may become eligible for these benefits if Consolidatin eliminations . 7,61 11,230 9,570 they reach retirement age while working for the Company.
Income before income taxes . $ 576,809 $ 558,193 $ 508,041 These benefits are provided through an insurance company whose premiums are based on the benefits paid during the year. The cost (insurance premiums) of providing these ben- Following is a summary of the components of Federal and efits amounted to approximately $ 7,900,000 for 1986, foreign income tax and a reconcilation between the amount of
$ 7,500,000 for 1985 and $ 6,000,000 for 1984. Federal income tax expense reported in the Consolidated Statement of Income and the computed amount at the statu-tory tax rate:
Summary Analysis: In thousands of dollars 1986 1985 1984 Components of Federal and foreign Income taxes:
Current tax expense: Federal. $ 24,959 $ (21,329) $ 17,713 Forei n . 6,767 7,746 8,498 31,726 (13,583) 26,211 Deferred Federal income tax expense 179,511 187,054 155,556 Income taxes included In Operating Expenses ........................ 211>237 173,471 181,767 Federal income tax expense included In Other Income and Deductions . 13,475 19,140 5,831 Federal income tax credits included in Other Income and Deductions. '.. 45,768 45,848 39,291)
Total $ 178,944 $ 146,763 $ 148,307 Components of deferred Federal Income taxes(Note 1)t Depreciation $ 50,399 $ 38,822 $ 52,130 Investment tax credit 48,252 36,507 54,900 Construction overheads . 26,111 17,973 6,756 Recoverable energy and purchased gas costs (9,309) 6,472 (2,458)
Gain on disposition of property . (15,374)
Nuclear fuel disposal cost. 41,148 3,100 Reacquisition of bonds . 15,700 4,601 1,477 Sterling abandonment . (1,243) (3,769) (1,566)
Other . 19,207 548) 1,926 Deferred Federal income taxes net $ 133,743 $ 141,206 $ 116,265 Reconciliation between Federal and foreign income taxes and the tax computed at prevailing U.S. statutory rate on Income before Income taxes:
Com uted tax $ 265,332 $ 256,769 $ 233,699 Reduction attributable to flow-through of certain tax adjustments:
Depreciation (18,235) (16,274) (14,926)
Allowance for funds used during construction . 76>266 86,166 74,288 Taxes, pensions and employee benefits capitalized for accounting purposes .. 1,645 5,113 11,896 Real estate taxes on an assessment date basis . 4>074 6,062 (406)
Deferred taxes provided at other than the statutory rate. 7,210 13,855 12,143 Other 15,428 15,084 2,397 86,388 110,006 85,392 Federal and forei n income taxes $ 178,944 $ 146,763 $ 148,307
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 29 NOTE 10. Nine Mile Point Nuclear Station Unit No. 2 changes in financial accounting recognition adopted by the Nine Mile Point Nuclear Station Unit No. 2 (Unit), a nuclear Financial Accounting Standards Board (FASB) in December power plant being constructed and to be operated by the 1986.)
Company and shared with other utilities, is the only major During 1987, the primary activity at the Unit will be the power generating facility currently under construction by the Com- ascension program leading to commercial operation. However pany. Ownership is shared by the Company (41%), Long Island as delays have previously occurred with respect to the Unit, the Lighting Company (LILCO) (18%), New York State Electric & Company can provide no assurance as to the precise date Gas Corporation (18%), Rochester Gas and Electric Corpora- commercial operation will be accomplished. Any delay in tion (14%), and Central Hudson Gas 8 Electric Corporation achieving the September 1987 commercial operation date is (9%). Output of the Unit, which will have a projected capability estimated to add a minimum of approximately $ 60 million each of 1,084,000 kw., is to be shared in the same proportions as the month to the total cost of the Unit (approximately $ 25 million cotenants'espective ownership interests. with respect to the Company's 41% share). Under the Cost The recovery of costs associated with the Unit is being af- Settlement discussed below, the Company does not expect the fected by the Cost Settlement Agreement and the implementa- additional costs arising under the current estimate, or addi-tion of such Agreement for ratemaking purposes as discussed tional costs arising as a result of further delays, if any, to be below. Also, recent changes in generally accepted accounting recoverable through rates.
principles will require the recognition of the loss associated with disallowed plant costs by the year 1989. Under the terms Cost Settlement: In connection with an extensive 1982 PSC of the Cost Settlement Agreement, the loss to the Company proceeding, which concluded that completion of the Unit is would approximate $ 626 million, net of Federal income taxes warranted, the PSC stated that it would apply a strict standard at a 46% rate, and could increase as described more fully under of prudence for all costs incurred in completing the Unit. On "Ratemaking and Financial Accounting Recognition" below. July 3, 1985, the PSC ordered the establishment of a proceed-ing (Case No. 29124) to investigate the prudence of costs in-Construction Status-Cost and Schedule: On October 31, 1986, curred for the construction of the Unit.
the Company obtained a low power license from the Nuclear On September 18, 1985, the Company and the other coten-Regulatory Commission (NRC), which included a schedule ants, together with the Staff of the PSC, filed a joint motion exemption to permit the loading of fuel to take place. The fuel with the PSC seeking approval of an agreement entitled loading process has been successfully completed. The Com- "Specifications of Terms and Conditions of Offer of Settle-pany is presently awaiting the approval by the NRC of certain ment" (Settlement) that, if approved by the PSC, would consti-engineering analyses related to repairs made to the Unit's eight tute a complete disposition of Case No. 29124 and establish, main stream isolation valves (MSIV's) that verify their con- among other things, an allowed cost for the Unit of $ 4.450 tinued suitability for operation. The Company anticipates the billion.
NRQ will approve the Company's findings and recommenda- On June 26, 1986, the PSC decided not to accept the Settle-tions and allow the power ascension program to proceed, al- ment as proposed and ordered the cotenants to inform the though no such assurance can be provided. Once approval is PSC whether they would agree to a settlement of the proceed-obtained, Unit start-up will be initiated leading to planned ing using a $ 4.160 billion cost allowance. On July 15, 1986, the commercial operation in September 1987. cotenant companies notified the PSC that they would accept a As a result of the MSIV engineering analysis and repair, Settlement modified only for a change in the allowable cost to coupled with the NRC review and a consequent change in the $ 4.160 billion from that amount originally proposed of $ 4.450 estimated commercial operation date to September 1987, the billion. In addition, in order to induce settlement among the completion cost of the Unit is currently estimated to be $ 5.878 cotenants, the Company entered into an agreement with the billion (comprised of construction costs of $ 4.059 billion and other cotenant companies (Cotenant Agreement) whereby it AFC of $ 1.819 billion), representing an increase of $ 91 million will reimburse the cotenant companies, upon commercial op-as compared to the November 1986 cost estimate which as- eration of the Unit, for $ 171 million representing their respec-sumed a July 1987 commercial operation date. In addition to tive ownership shares of the $ 290 million incremental disallow-incorporating the current timetable for power ascension and ance. This obligation will not cause a reallocation of ownership commercial operation, this cost estimate considers each co- interests in the Unit.
tenants current estimate for financing cost rates and the inclu- On September 10, 1986, the PSC approved the Settlement sion of construction work in progress (CWIP) included in rate which contained the following key terms and conditions:
base for three of the cotenants. The increase in the cost of the Unit is primarily attributable to delays occasioned by the en- The maximum amount of the Unit's expenditures to be gineering analyses and repairs to the MSIV's coupled with the included in the cotenants'ate bases would be $ 4.160 required NRC approval. The Company's 41% share of the total billion, and disallowed expenditures would not be less estimate is approximately $ 2.417 billion, exlusive of the $ 171 than$ 1.190 billion with amounts, if any, above the million of payments (described below) to be made by the Com- January 1985 completion cost estimate of $ 5.350 billion pany to the cotenants and, as of December 31, 1986, the Com- being for the account of the cotenants, except in the case pany has invested approximately $ 2.3 billion in the Unit, includ- of an "extraordinary event" as discussed below. The al-ing AFC and overheads capitalized. As discussed below, the lowed cost of $ 4.160 billion will be reduced by the financ-Company will be required to write off a portion of this invest- ing costs "prepaid" by ratepayers as a result of rate base ment, which includes AFC currently reflected in income and inclusion of a portion of the Unit's cost prior to comple-tion.
AFC which will accrue to income to the extent permitted by The cotenants may request from the PSC an upward applicable generally accepted accounting principles. (See adjustment of the $ 4.160 billion cap based only on the Ratemaking and Financial Accounting Recognition regarding occurrence of an "extraordinary event" as contemplated
30 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES in prior PSC orders concerning the Unit. At the time the tions of the Company. A decision on the Company's pending agreement was entered into, the cotenants stipulated rate filing, which will include Settlement implementation re-that they were not then aware of any basis for such a quirements, is expected in March 1987. The Company will con-claim. tinue to oppose the Staff's proposals and cannot predict The rate phase-in of each cotenant's share of allowed whether such proposals will ultimately be adopted and Unit costs is to be included in rate base over a reasonable sustained period, together with accumulated deferred carrying In December 1986, the FASB issued Statement of Financial costs on the portion of allowed Unit cost that has not yet been included in rate base. Accounting Standards No. 90 "Regulated Enterprises Appropriate income tax deductions and credits appli- Accounting for Abandonments and Disallowances of Plant cable to the Unit's completion cost will be allocated to Costs", an amendment of FASB Statement No. 71 (SFAS No.
the disallowed costs and reserved for shareholders. 90). Among other things, this statement requires that when it The provisions of the Settlement would be in full satis- becomes probable that part of the cost of a generating facility faction of the penalty and incentive provisions of the will be disallowed for ratemaking purposes and a reasonable PSC's prior Incentive Rate of Return (IROR) and "cap" estimate of the amount of the disallowance can be made, the orders relating to the Unit. estimated amount of the probable disallowance shall be de-The cotenants agree not to challenge the legal validity ducted from the reported cost of the plant and recognized as a of either the IROR or "cap" orders previously issued by the PSC. In addition, each cotenant would waive any and loss. Also, once adopted the statement would prohibit the all claims it may have against any other cotenant con- capitalization of an allowance for funds used during construc-cerning the design, engineering or construction of the tion (AFC) unless it is probable that such AFC will be includa-Unit. ble as an allowable cost for ratemaking purposes. The FASB is continuing to review the financial accounting recognition for Based upon the proposal adopted by the PSC, the January rate phase-in plans. In the case of the Company, the applica-1987 cost estimate of $ 5.878 billion, which reflects the benefits tion of this statement is generally required no later than 1988.
of approximately $ 273 million of prepaid financing costs, re- However, the effective date of SFAS No. 90 may be delayed sults in the disallowance of $ 1.991 billion of the total Unit cost. until 1989 if its adoption would cause a violation or probable The Company's share of the disallowed amount (including the future violation of a restrictive clause in an existing loan inden-impact of the Company's 41% share of the $ 290 million de- ture or other agreement and relief from such restrictive clause crease in the allowed cost amounting the $ 119 million, and the is being actively pursued (see Note 4).
$ 171 million payment to the cotenants under the Cotenant Based upon the Company's interpretation of the terms and Agreement) would be approximately $ 1 billion. The disallow- conditions of the Settlement discussed above, the Company ance to the Company would increase by its proportionate would be required to write-off approximately $ 1 billion, re-share of the cost of any further delays in the commercial opera- duced to approximately $ 626 million, net of Federal income tion of the Unit and might be further increased dependent on taxes at a 46% rate. The amount of this write-off could increase the ultimate PSC decision as to the costs covered by the Set- by approximately $ 200 million, net of Federal income taxes, tlement. Also, the magnitude of the loss to the Company would should the PSC adopt all of the PSC Staff's positions previ-be affected by the implementation requirements that may ulti- ously described. These amounts do not take into consideration mately be ordered by the PSC. (See "Ratemaking and Financial any delay in commercial operation beyond September 1987.
Accounting Recognition.") The accounting period to which a write-off would be charged is Several intervening parties petitioned for rehearing of the dependent upon the Company's decision with respect to the Settlement. Such petitions were denied and these intervenors timing of adoption of SFAS No. 90. If SFAS No. 90 had been in have indicated that they will take legal action to overturn the effect in 1986 and 1985, the net of tax loss would have been PSC's approval and require the PSC to resume the proceeding allocated to each of those years. Therefore, reported 1986 and investigating the prudence of costs incurred for construction 1985 balance available for common stock would have been, on of the Unit. The Company is unable to predict whether such a pro-forma basis, approximately $ 61 million and $ 65 million, legal action will be taken, or if taken, the results thereof. respectively, and pro-forma earnings per share would have been $ .48 per share and $ .53 per share, respectively.
Ratemaking and Financial Accounting Recognition: In connec- Based upon the current high cost of large, base-load tion with the Company's pending rate filing, the Staff of the generating facilities, legislators, regulatory commissions and PSC on August 22, 1986, proposed adjustments to the Com- utility companies nationwide have ordered or are considering pany's original rate case filing to incorporate the terms of the the phase-in of these costs over a period of years. In accor-Settlement. The Staff's implementation requirements, which dance with current generally accepted accounting principles, include among other things an expansion of costs covered by Unit operating and financing costs may be deferrable under a the Settlement, if ultimately sustained, would result in a greater phase-in plan for recovery in the future. The Staff of the PSC level of disallowed Unit costs to be considered in the rate set- and the Company are in agreement on the methodology to be ting process. Also, the Staff has proposed the adoption of utilized in rate implementation of a phase-in plan, including ratemaking methodologies which the Company believes are recovery of deferred costs and carrying charges over the contrary to the terms and intent of the Settlement. These in- operating life of the Unit.
clude the recognition of tax benefits at a 34% rate rather than a The PSC has adopted the phase-in methodology proposed 46% rate, the discounting of tax benefits, exclusion from rate by the Company and Staff. The PSC also adopted a phase-in base of unrealized tax benefits and a departure from prevailing period for the Unit of seven years, noting that a five-year ratemaking methodologies used in developing capital struc- phase-in period would be reasonable in the event of a disallow-ture. These proposals, if adopted, would have a further detri- ance of cost in the magnitude contemplated by the Settlement mental impact on the financial condition and results of opera- discussed above. In connection with the Company's currently
NIAGARA MOHAWK POWER CORPORATION AND SU'BSIDIARY COMPANIES 31 pending rate proceeding, the Staff has proposed a five-year Long-term Contracts for the Purchase of Electric Power: At phase-in of allowed Unit costs. The Company is unable to pre- January 1, 1987, the Company had long-term contracts to dict at this time over what period of time the phase-in will purchase electric power from the following generating ultimately be ordered or when it will commence. A portion of facilities owned by the New York Power Authority (NYPA):
the Unit's cost ($ 680 million) is presently being reflected as CWIP in rate base. Expiration Purchased Estimated date of capacity annual Also, in April 1982, the PSC adopted an incentive rate of Facility contract in kw. capacity cost return (IROR) program in connection with tlie remaining con-struction costs of the Unit which would be implemented as part Niagara hydroelectric project .. 1990 1,111,332 $ 13,336,000 of the rate proceeding for each cotenant that considers rate Blenheim-Gilboa-recognition of the Unit's completion cost. In July 1984, the PSC pumped storage issued an opinion and order which amended the IROR pro- generating station..... 2002 270,000 6,156,000 Fitzpatrlck-gram to also include a $ 5.4 billion ceiling on the Unit's final nuclear plant ......... year-to- 153,000 (a) 14,686,000 allowable cost. Under the amended IROR program, costs in- ear basis curred in excess of $ 4.6 billion, but less than $ 5.4 billion, are 1,534,332 $ 34,178,000 required to be borne by cotenant shareholders to the extent of (a) 61,000 kw for summer of 1987; 59,000 kw for winter of 1987-88.
20% of the variation of revenue requirements, with costs in excess of $ 5.4 billion to be borne in total by the cotenant The purchase capacities shown above are based on the con-shareholders. As indicated above under "Cost Settlement," the tracts currently in effect. The estimated annual capacity costs approval of the Settlement by the PSC and the ability of the are subject to price escalation and are exclusive of applicable PSC's adoption of the Settlement to sustain judicial challenge energy charges.
would render the IROR and "cap" orders inoperative.
Lease Commitments: The Company leases certain property Nuclear Regulatory Commission-Audits and Licensing: In May and equipment which meet the accounting criteria for capitali-1986, the Staff of the Nuclear Regulatory Commission (NRC) zation. Such leases, having a net book value of $ 56.2 million concluded an assessment of the Unit's overall construction and $ 41.9 million at December 31, 1986 and 1985, respectively, program. The assessment covered the twelve months ended are included in Utility Plant in the accompanying Consolidated January 1986 and concluded that management of the project Balance Sheets. Since current ratemaking practice treats all was satisfactory in all areas, although increased management leases as operating leases, the capitalization of these leases attention to certain items was recommended. The Company has no impact of the Company's Consolidated Statement of addressed the NRC recommendations in a response submitted Income. The Company recognizes as a charge against income to the NRC on June 30, 1986. Most of the actions recom- an amount equal to the rental expense allowed for rate pur-mended, as described in the Company's response, were al- poses. The Company's future minimum rental commitments ready initiated and, in some cases, completed prior to receipt under these capital leases and non-cancellable operating of the report from the NRC. The Company does not expect that leases aggregate'approximately $ 634 million, a substantial por-the implementation of the remaining recommendations will tion of which relates to a 41-year operating lease of a transmis-materially affect either cost or scheduled completion of the sion line facility. Annual future minimum rental commitments Unit. for the period 1987-1991 range between $ 23 million and $ 32 A number of nuclear power plant construction projects in the million.
United States have encountered substantial delays, licensing difficulties and cost escalation due to a variety of factors. Also, Mandated Refunds to Customers: As part of the Company's the issuance of a full power operating license and achievement March 1984 rate decision, the PSC ordered the refund of ap-of commercial operation could be adversely affected by a wide proximately $ 96 million of previously collected nuclear fuel variety of industry and plant specific construction. operating, disposal costs over a five-year period. The Company had col-regulatory, legislative, economic and other factors, including lected in rates approximately $ 146 million for the disposal of recent international events. Although the outcome of the re- nuclear fuel irradiated prior to 1983. The refund represents the maining regulatory licensing proceedings relating to receipt of amount by which these previously collected costs are in excess a full power license cannot be predicted with certainty, the of the Company's liability as of March 31, 1984 to the U.S.
Company believes a full power operating license will be issued Department of Energy for nuclear fuel disposal under the Nu-since the Unit is designed and constructed to meet applicable clear Waste Policy Act. At December 31, 1986, $ 63.2 million regulatory requirements. remains to be refunded and is recorded in Deferred Credits.
Litigation: In 1983, the PSC instituted a proceeding to investi-NOTE 11. Commitments and Contingencies gate the Company's operating practices and certain other mat-Construction Program: At December 31, 1986, substantial con- ters that it was alleged may have resulted, among other things, struction commitments existed, including those for the Com- in excessive fuel adjustment charges during the years 1977 to pany's share of Unit No. 2 at the Nine Mile Point Nuclear Sta- 1982, and further, to determine whether and to what extent tion. The Company presently estimates that the construction remedial action with respect to any such matters is proper program for the years 1987 through 1991 will require approxi- under the PSC's regulations or otherwise. In 1985, the PSC mately $ 1.572 billion, excluding AFC, nuclear fuel and certain ordered the Company to refund approximately $ 31.9 million overheads capitalized. By years the estimates are $ 330 million, over the twelve months ending April 30, 1986. The Company
$ 317 million, $ 296 million, $ 315 million and $ 314 million, appealed this decision to the Supreme Court, Appellate Divi-respectively. sion, Third Department which, in March 1986, held that the
32 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES PSC could not order refunds arising from rates charged prior portion of cash construction costs. The Company agreed to to June 21, 1981, when certain public service laws were waive interest and supplemental payments on a principal adopted. The PSC was directed to recalculate the amount of amount of LILCO Bonds equal to the daily unused portion of the refund and take action to correct for additional amounts such $ 71.4 million. In May 1986, the Company sold $ 140 million refunded by the Company. Under this decision a substantial of the LILCO Bonds to a single-purpose trust, which trust is-portion of the amounts refunded by the Company would be sued certificates to a limited number of institutional investors.
recovered from ratepayers. The PSC has appealed this deci- On December 30, 1986, the LILCO Bonds held by the Company sion to the Court of Appeals and a decision is expected in 1987. and related unsecured notes, together with the LILCO Bonds The Company is unable to predict the outcome of this matter. held by the single-purpose trust were repaid and at December 31, 1986, LILCO's obligations to the Company have been fully Advances on Behalf of Nine Mile Point Nuclear Unit No. 2 Co- satisfied. However, the Company's guarantee obligation under tenant: In August 1984, the Company and Long Island Lighting the Capital Funds Agreement remains in effect. Interest and Company (LILCO) entered into an agreement providing for the supplemental payments on the LILCO Bonds and unsecured issuance by LILCO of up to $ 250 million in General and Refund- notes amounted to $ 27.1 million for 1986, $ 40.8 million for 1985 ing Bonds (LILCO Bonds) and $ 150 million in unsecured notes and $ 10.9 million for 1984 and are included in other income to evidence and secure LILCO's repayment obligation for and deductions other items in the Consolidated Statement of funds advanced by the Company on behalf of LILCO for its 18% Income.
ownership in the Unit.
The LILCO Bonds were fully issued by November 1985 and under the terms of a second agreement (Capital Funds Agree- NOTE12. Quarterly Financial Data (Unaudited) ment), the Company provided its guarantee for a period of Operating revenues, operating income, net income and earn-approximately three years through March 31, 1989, of up to ings per common share by quarters for 1986, 1985 and 1984 are
$ 165 million of LILCO's reimbursement obligations in connec- shown in the following table. The Company, in its opinion, has tion with $ 150 million principal amount of tax-exempt pollution included all adjustments necessary for a fair presentation of control bonds issued by LILCO on December 31, 1985. The the results of operations for the quarters. Due to the seasonal guarantee of the Company contains certain representations nature of the utility business, the annual amounts are not gen-which, should the Company be unable to meet, require it to erated evenly by quarter during the year.
provide security in the form of First Mortgage Bonds. The ln thousands of dollars Company expects LILCO to honor its obligations in connection Operating Operating Net Earnings per with the LILCO tax-exempt bonds throughout the period while Quarter ended revenues income income common share the guarantee is in effect. The Company has arranged for four-year term loans to fund its guarantee obligation, if Dec. 31, 1986 $ 637,896 $ 104>633 $ 84,698 $ .57 needed. The Company has an interest of $ 85 million in LILCO's 1985 661,237 84,791 91,724 .61 third mortgage, which serves as partial security in the event its 1984 675,089 81,185 59,708 .39 guarantee is required to be honored. LILCO is required to pay fees to the Company in connection with the guarantee. Sept. 30, 1986 $ 554,546 $ 92,640 $ 74,909 $ .49 In 1985, the Company received $ 146.7 million of the pro- 1985 554,779 73,095 79,503 .52 ceeds from the sale of the LILCO tax-exempt bonds and 1984 606,437 86,421 84,636 .66 applied $ 25 million against the LILCO Bonds, $ 36.7 million against unsecured notes and $ 85 million to LILCO's share of June 30,1986 $ 636,859 $ 97>585 $ 85,535 $ .56 cash construction costs for the Unit commencing November 1985 637,724 100,036 96,758 .67 18, 1985. After being reduced by $ 13.6 million for advances 1984 696,325 101,319 94,197 .77 plus interest through December 31, 1985, the proceeds pro-vided the Company with $ 71.4 million at December 31, 1985. March 31 1986
~ $ 831,018 $ 146>316 $ 152>723 $ 1.08 This balance was applied against subsequent LILCO cash con- 1985 841,200 153,366 143,445 1.11 struction obligations until fully expended in September 1986, 1984 807,695 123,801 121,193 1.04 at which time LILCO resumed making cash payments for its
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 33 Report of Independent Accountants Report of Management Price Vaterhouse The consolidated financial statements of Niagara Mohawk Power Corporation and its subsidiaries were prepared by and are the responsibility of management. Financial information To the Stockholders contained elsewhere in this Annual Report is consistent with and the Board of Directors that in the financial'statements.
of Niagara Mohawk Power Corporation To meet its responsibilities with respect to financial informa-tion, management maintains and enforces a system of internal We have examined the consolidated balance sheets of accounting controls, which is designed to provide reasonable Niagara Mohawk Power Corporation and its subsidiaries as assurance; on a cost effective basis, as to the integrity, objec-of December 31, 1986 and 1985, and the related consoli- tivity and reliability of the financial records and protection of dated statements of income and retained earnings and of assets. This system includes communication through written changes in financial position for each of the three years in policies and procedures, an organizational structure that pro-the period ended December 31, 1986. Our examinations vides for appropriate division of responsibility and the training were made in accordance with generally accepted auditing of personnel. This system is also tested by a comprehensive standards and accordingly included such tests of the ac- internal audit program. In addition, the Company has a Code of counting records and such other auditing procedures as we Conduct which requires all employees to maintain the highest considered necessary in the circumstances. level of ethical standards and requires key management As described in Note 10, the Financial Accounting Stan- employees to formally affirm their compliance with the Code.
dards Board issued Statement of Financial Accounting The financial statements have been examined by Price Standards No. 90 "Regulated Enterprises Accounting for Waterhouse, the Company's independent accountants, in ac-Abandonments and Disallowances of Plant Costs" which cordance with generally accepted auditing standards. As part provides, among other things that the cost of a generating of their examination, they made a study and evaluation of the facility disallowed for ratemaking purposes, be recognized Company's system of internal accounting control. The purpose as a loss. Application of this Statement is required not later of such study was to establish a basis for reliance thereon in than 1989. determining the nature, timing and extent of other auditing The Company is a 41% participant in the construction of procedures that were necessary for expressing an opinion as Nine Mile Point Nuclear Station No. 2 (Unit). As a result of to whether the financial statements are presented fairly. Their continuing uncertainties discussed in Note 10, management examination resulted in the expression of their opinion which is unable to predict whether further regulatory actions by appears on this page. The independent accountants'xamina-the New York State Public Service Commission with respect tion does not limit in any way management's responsibility for to its investment in the Unit will have, in the aggregate, a the fair presentation of the financial statements and all other material effect on its financial position or results of opera- information, whether audited or unaudited, in this Annual Re-tions. port.
In our opinion, subject to the effects on the 1986, 1985 The Audit Committee of the Board of Directors, consisting and 1984 financial statements of such adjustments, if any, directors who are not employees, meets regularly with of'hree that might have been required had the outcome of the un- management, internal auditors and Price Waterhouse to re-certainties discussed in the preceding paragraph been view and discuss internal accounting controls, audit examina-known, the consolidated financial statements examined by tions and financial reporting matters. Price Waterhouse and us present fairly the financial position of Niagara Mohawk the Company's internal auditors have free access to meet indi-Power Corporation and its subsidiaries as of December 31, vidually with the Audit Committee at any time, without man-1986 and 1985 and the results of their operations and agement present.
changes in their financial position for each of the three years in the period ended December 31, 1986 in conformity with generally accepted accounting principles consistently applied.
Syracuse, New York January 28, 1987
34 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES Selected Financial Data As discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes to Consolidated Financial Statements, certain of the following selected financial data may not be indicative of the Company's future financial condition or results of operations.
1966 1985 1984 1963 1982 Operations: (000's)
Operating revenues $ 2,660,319 $ 2,694,940 $ 2,785,546 $ 2,632,315 $ 2,393,771 Net income . 397,865 411,430 359,734 312,409 268,534 Common stock data:
Book value per share at year end $ 20.23 $ 19.61 $ 18.89 $ 18.55 $ 17.91 Market price at year end . 163/4 20'/2 17% 1574 15%a Ratio of market price to book value at year end .. 82.PYo 104 5% 92 tP/o 84.PYo 87.F/o Dividend yield at year end 12.4% 10.1% 11.5o/o 12.P/o 11.5o/o Earnings per average common share........... $ 2.71 $ 2.88 '2.84 $ 2.77 $ 2.64 Rate of return on common equity 13.6o/o 15 tP/o 14.P/o 15.lP/o 14.7Yo Dividends paid per common share ............. $ 2.08 $ 2.06 $ 1.98 $ 1.89 $ 1.76 Dividend payout ratio . 76.P/o 71.5o/o 69.7Yo 68.2Yo 66.7o/o Capitalization: (000's)
Common equity . $ 2,571,491 $ 2,488,620 $ 2,207,117 $ 1,929,073 $ 1,680,650 Non-redeemable preferred stock 2901000 290,000 240,000 240,000 210,000 Redeemable preferred stock . 347,470 379,850 367,900 338,474 262,792 Long-term debt . 2,799,605 2,643,094 2,395,471 2,048,548 1,881,441 Total 6,008,566 5,801,564 5,210,488 4,556,095 4,034,883 First mortgage bonds maturing within one year 50,000 30,000 47,450 25,000 65,000 Total $ 6,058,566 $ 5,831,564 $ 5,257,938 $ 4,581,095 $ 4,099,883 Capitalization ratios: (inciuding first mortgage bonds maturing within one year)
Common stock equity . 42.5o/o 42.7/o 42.(P/o 42.1% 41.tP/o Preferred stock 10.5 11.5 11.5 12.6 11.5 Long-term debt . 47.0 45.8 46.5 45.3 47.5 Financial ratios:
Ratio of earnings to fixed charges. 2.98 3.07 3.11 2.98 2.95 Ratio of earnings to fixed charges without AFC....... 2.42 2.37 2.43 2.40 2.42 Ratio of AFC to balance available for common stock .. 48.2/o 53.P/o 52 4% 43.6o/o 41.tP/o Ratio of earnings to fixed charges and preferred stock dividends 2.35 2.36 2.39 2.35 2.32 Other ratios-% of operating revenues:
Fuel, purchased power and purchased gas ........ 38.P/o 43 4% 46.9o/o 50.(P/o 49.8o/o Maintenance and depreciation . 11.4 10.9 10.1 10.0 10.5 Total taxes 18.1 15.7 14.7 13.0 13.2 Operating income 16.6 15.3 14.1 13.5 13.2 Balance available for common stock .............. 12.9 13.1 11.1 10.3 9.6 Miscellaneous: (000's)
Gross additions to utility plant 774,062 $ 771,120 $ 769,846 $ 691,464 $ 594,469 Total utility plant . 8,445,993 7,640,905 6,903,184 6,165,711 5,516,532 Accumulated depreciation and amortization . 1,763,443 1,629,437 1,501,282 1,486,196 1,389,112 Total assets 7,611,203 7,013,837 6,233,401 5,357,572 4,781,767
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES Electric and Gas Statistics ELECTRIC CAPABILITY ELECTRIC STATISTICS At January 1, 1987 % 1986 1985 1986 1985 1984 Thermal: Electric sales(Millionsofkw-hrs)
Coal fuel Residential ................ 9,359 8,976 8,944 Huntley, Niagara River .. 715 10 715 715 Commercial ............... 10,374 9,907 9,739 Dunkirk, Lake Erie ..... 555 8 555 555 Industrial .................. 10,801 10,886 11,194 Total coal fuel... 1,270 18 1,270 1,270 Municipal service .......... 234 241 245 Residual oil fuel Other electrics stems ...... 3,579 5,286 6,964 Albany, Hudson River- . 400 6 400 400 34,347 35,296 37,086 Oswego, Lake Ontario .. 1,563 23 1,736 1,736 Electric revenues(Thousands of dollars)
Roseton, Hudson River . 299 4 300 300 Residential ................ $ 702,309 $ 647,507 $ 607,527 Middle distillate oil fuel Commercial ............... 766,815 708,517 674,929 20 Combustion turbine and diesel units ........ 237 3 310 310 Industrial .................. 448,855 437,292 438,920 Municipal service .......... 41,031 39,238 37,846 Total oil fuel 2,499 36 2,746 2,746 Other electric systems ...... 196,104 303,968 95,809 Nuclear fuel Miscellaneous ............. 77,014 67,746 71,280 Nine Mlle Point, Lake Ontario . 610 9 610 610
$ 2,131,833 $ 2,096,404 $ 2,134,470 Purchased-firm contract Power Authority- Electric customers(Average)
FitzPatrick, Lake Ontario ... 153 2 167 138 Residential ................ 1,291,111 1,273,969 1,259,077 Total nuclear fuel .. 763 11 777 748 Commercial ............... 136,304 134,787 133,234 Total thermal sources .. 4,532 65 4,793 4,764 Industrial .................. 21481 2,490 2,522 Hydro: Other 3,282 3,315 3,279 Owned and leased hydro stations (77) . 684 10 695 695 11433)178 1,414,561 1,398,112 Purchased-firm contracts ResIdentIal(Average)
Power Authority-Niagara River.... 1,111 16 1,111 1,118 Annual kw-hr. use Power Authority- per customer ............ 7,249 7,046 7,104 St. Lawrence River .............. 115 Cost to customer per kw-hr.. 7.50it 6.79tf Power Authority- Annual revenue 7.21'508.26 Blenhelm-Gilboa per customer ............ $ 543.96 $ 482.52 Pumped Storage Plant........... 270 4 550 550 Other 262 4 209 63 Total h dro sources .. 2,327 34 2,565 2,541 GAS STATISTICS Other urchases .. 80 1 445 400 1986 1985 1984 Total capability'. 6I939 100 7,803 7,705 Gas sales(Thousands of dekatherms)
Residential ................ 49,430 47,328 49,519 1986 1985 1984 Commercial ............... 27,218 27,006 27,892 Electric eak load durin ear 5,724 5,862 5,526 Industrial .................. 15,575 29,213 32,755 Available capability can be increased during heavy load periods by Other as systems.......... 3,724 4,873 4,794 purchases from neighboring interconnected systems. Hydro station Totalsales .......... 95,947 108,420 114,960 capability is based on average December stream-flow conditions. Transportation of
- Has capability to burn natural gas (as well as oil) as a fuel. customer-owned as .. 4,868 Total gas delivered ..... 100,815 108,420 114,960 Gas revenues(Thousands of dollars)
ELECTRICITYGENERATED AND PURCHASED Millions of kw-hrs.
Residential ................ $ 296,853 $ 295,060 $ 313,536 Commercial ............... 142,807 147,751 157,469 1986 % 1985 % 1984 Industrial .................. 68,476 133,446 156,307 Thermal: Other gas systems.......... 14,300 18,691 19,708 Generated Miscellaneous ............. 6,050 3,588 4,056 Coal ........... 6,140 16 7,409 19 7,863 20 $ 528,486 $ 598,536 $ 651,076 Oil ............. 5,811 16 2,866 7 3,754 9 Gas customers(Average)
Nuclear ........ 3,147 8 4,932 13 3,635 9 Residential .............. 4071546 404,116 400,878 Natural gas ..... 177 1 1,624 4 2,103 5 Commercial ............. 33,248 32,603 32,106 Purchased- Industrial ................ 465 485 502 Nuclear from Power Authorlt . 1,284 3 825 2 878 2 Other ................... 2 2 2 Total thermal 16,559 44 17,656 45 18,233 45 441I261 437,206 433,488 Hydro: Residential(Average)
Generated ........ 4I140 11 3,496 9 3,803 9 Annual dekatherm use percustomer ........ 121.3 117.1 123.5 Purchased from Power Authorit . 7,683 20 7,815 20 8,312 21 Cost to customer Totalh dro ... 11,823 31 11,311 29 12,115 30 perdekatherm ....... $ 6.01 $ 6.23 $ 6.33 Other purchased power Annual revenue various sources ...... 9,257 25 10,246 26 10,240 25 per customer ........ $ 728.39 $ 730.14 $ 782.12 Total generated Maximum day gas and urchased 37,639 100 39,213 100 40,588 100 sendout dekalherms . 786,165 774,033 772,604
36 NIAGARA MOHAWK POWER CORPORATION Directors Officers James Bartlett John G. Haehl, Jr. Samuel F. Manno Former Executive Vice president, Syracuse Chairman of the Board Vice President-Purchasing and Chief Executive OQicer and Materials Management Edmund M. Davis (A, B, E)
WilliamJ. Donlon Eugene J. Morel Partner, Hiscock & Barclay, attorneys-at-law, Syracuse President Vice President-Risk Management William J. Donlon John M. Endries James F. Morrell President, Syracuse Senior Vice President Vice President-Corporate Planning Edward W. Duffy (A, B, C) John M. Haynes James A. Perry Former Chairman of the Board and Chief Executive Officer, Senior Vice President Vice President-Quality Assurance Marine Midland Banks, Inc., a bank holding company, Buffalo John P. Hennessey John W. Powers Senior Vice President Vice President-Treasurer John G. Haehl, Jr. (A)
Chairman of the Board and Chief Executive Officer, Syracuse Charles V. Mangan Michael P. Ranalli Senior Vice President Vice President-Lauman Martin Engineering (Non-nuclear)
Consultant (formerly Senior Vice President James J. Miller and General Counsel), Syracuse Senior Vice President Kenneth A. Tramutola (Retired January 31, 1987) Vice President-Gas Baldwin Maull (A, B)
Corporate Director, New York John H. Terq Christopher D. Turner Semor Vice President, Vice President-General Counsel and Secretary Corporate Development Martha Hancock Northrup (D)
Homcmakcr, former President, Crouse-Irving Memorial Richard F. Torrey Hospital Board, Syracuse Perry B. Woods, Jr.
Senior Vice President Vice President-Employee Relations Frank P. Piskor (A, C, D) James F. Aldrich President Emeritus, St. Lawrence University, Canton Vice Ptesidcnt-Regional Operations Gary J. Lavine (Deceased ¹ncmber 14, 1986) Assistant General Counsel Donald B. Riefler (E) (Effective August 1, 1986)
Chairman, Sources and Uses of Funds Committee, Anthony J. Baratta, Jr.
Morgan Guaranty Trust Company of Ncw York, New York Vice PresidcntMntrollcr Herman B. Noll Assistant General Counsel Lewis A. Swyer (a, C, D) Michael J. Cahill Vice president-Regional Operations Nicholas L. Prioletti, Jr.
Chairman, L>. Swyer Co., Inc., builders and construction managers, Albany Assistant Controller Robert M. Cleary Vice President-Regional Operations Adam F. Shaffer John G. Wick (D, E) Assistant Controller Partner, Falk & Siemcr, attorneys-at-law, Buffalo Gerald J. Currier Vice Ptesident~nsumer Services Henry B. Wightman, Jr.
A. Member of the Executive Committee Assistant Controller Richard EA,. DuKy B. Mcmbcr of the Compensation Committee Vice Ptesident-Public Alfairs Harold J. Bogan C. Member of the Audit Committee and Corporate Communications Assistant Secretary D. Member of the Committee on Corporate Public Policy (Effective November 1, 1986)
E. Member of the Finance Committee Joseph F. Cleary Gerald D. Garcy Assistant Secretary Vice President-Power Contracts (Effective May 6, 1986) Frederick C. McCall, Jr.
Assistant Secretary Kermit E. Hill Vice president-Public Affairs Arthur W. Roos and Corporate Communications Assistant Treasurer (Retited October 31, 1986)
Richard N. Wescott Edward F. Hoffman Assistant Treasurer Vice President-Fossil Generation Thomas E. Lempges Vice President-Nuclear Operations
Corporate Information Investor InquIries Shareholder inquiries:
Shareholder Services Department, (315) 474-1151, Ext. 4150 (Syracuse); 1-800-962-3236 (New York State); 1-800-448-5450 (elsewhere in continental U.S.)
Analyst inquiries:
Investor Relations Department, (315) 428-3134 Dividend Reinvestment Plan Shareholders desiring information on enrolling in the Dividend Reinvestment and Common Stock Purchase Plan should call or write our Shareholder Services Department at P.O. Box 7058, Syracuse, N.Y. 13261.
Annual Meeting The annual meeting of shareholders willbe held in the auditorium of the Company's main office in Syracuse, N.Y. on Tuesday, May 5, 1987. A notice of the meeting, proxy statement and form of proxy willbe sent to holders of common stock in early April.
Form 10-K Report A copy of the Company's Form 10-K report filed annually with the Securities and Exchange Commission is available after March 31, 1987, by writing the Investor Relations Department at 300 Erie Boulevard West, Syracuse, N.Y. 13202.
Disbursing Agent Prefened and Common Stocks:
Niagara Mohawk Power Corporation 300 Eric Boulevard West, Syracuse, N.Y. 13202 Transfer Agents and Registrars Preferred Stock: (through July I, 1986)
Marine Midland Bank, NA., 140 Broadway, New York, N.Y. 10015 Preferred and Corrrrnon Stock:
Morgan Shareholder Services Trust Company of New York, 30 West Broadway, New York, N.Y. 10015 Stock Exchanges Common stock and Certain Preferred Series:
Listed and traded on the New York Stock Exhange.
Common Stock: Also traded on the Boston, Cincinnati, Midwest, Pacific and Philadelphia stock exchanges.
Bonds: Traded on the New York and Luxembourg stock exchanges.
Trading Symbol: NMK The tntorrnation in this repen is nol given in connection with the sale ot. or otter to buy. any security.
printed in U.S.A.
300 Erie Blvd. Vfest Syracuse, NY 13202 OTICE-
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