ML18038A247
| ML18038A247 | |
| Person / Time | |
|---|---|
| Site: | Nine Mile Point  |
| Issue date: | 12/31/1986 |
| From: | Donlon W, Haehl J, Mangan C NIAGARA MOHAWK POWER CORP. |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| (NMP2L-1013), NUDOCS 8704030486 | |
| Download: ML18038A247 (43) | |
Text
REQUL INFORMATION DISTRIBUT STEN (R IDS)
ACCESSION NBR- 8704030486 DOC. DATE: 86/12/31 NOTARIZED: NO DOCKET FAC IL': 50-410 Nine Nile Point Nucleav Stationi Unit 2i Niagara aloha 05000410 AUTH. NANE AUTHOR AFFILIATION HAEHL> J. Q Niagara Nohatok Power Corp.
DONLON> M. J. Niagav'a Mohawk PoMer Cov p.
RECIP. MANE RECIPIENT AFFILIATION
SUBJECT:
"Niagav a Nohaek Power Corp'986 Annual Rept. "
DISTR IBUTION CODE: N004D COPIES RECEIVED: LTR ENCL SI ZE:
TITLE: 50. 71(b ) Annual Financial Report NOTES:
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Lm V NIAfah A U MOHAWK NIAGARAMOHAWKPOWER CORPORATION/301 PLAINFIELDROAD, SYRACUSE, N.Y. 13212/TELEPHONE (315) 474-1511 March 31, 1987 (NMP2L 1013)
U.S. Nuclear Regulatory Commission Attn: Document Control Desk Washington, D.C. 20555 Re: Nine Mile Point Unit 2 Docket No. 50-410 NPF-54 Gentlemen:
In accordance with Section 50.71(b) of the Commission's Regulations, enclosed are ten (10) copies of Niagara Mohawk Power Corporation's 1986 Annual Report.
Very truly yours, NIAGARA MOHAWK POWER CORPORATION C. V. Mangan Senior Vice President PEF/pns 2920G Enclosures'c:
Regional Administrator, Region I Mr. W. A. Cook, Resident Inspector Ms. E. G. Adensam, Project Director 0~<
QIAGARA MOHAWK POWER CORPORATION ANNUALREPORT 1986
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8704030486 Sb1231 PDR ADOCK 05000410 I PDR
eg Serving upstate New York Qur 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-je Mees
~
~ ELECTRIC SERVICEAREA 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, Osexes industry and business within the com-munities it serves, and advocates regulatory e
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'Neee<~ee Yes'EW and legislative changes that best serve the YORK STREE 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-eeesssee ing and further developing dependable energy Stowe late e resources and delivery systems that are safe, environmentally sound and technologically advanced.
Management willactively pursue strategies eesesee FWe Seeses ele in support of objectives to accomplish this Eeseee mission.
U NATURAL GAS SERVICE AREA NEW YORK EEAEE
tNIAGIARA 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 The year in review Income available for common 11 Market price of common stockholders $ 344,048,000 $ 351,871,000 (2.2) 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?,076,000 122,215,000 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) ... 95,947,000 108,420,000 (11.5) 36 Directors, officers, Natural gas transported corporate information (dekatherms) 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 $ 1.98 $ 2.06 $ 2.08 OMDENDS $ 1 BS $ 15yi $ 1749 St SVi AT YEAR END
$ 2.84 $ 2.88 $ 25yi
$ 2.77 $ 2.71 EARNINGS
$ 2.64 y
RANGE
$ 17%
$ 16% $ 1515
$ 15yi 1982 1983 1984 1985 1986 1982 1983 1984 1985 1986 1986 REVENUE DOLLAR AND WHERE IT WENT Fuel for tho production of electricity 25II and electricity purchased Income and other taxes ISII Residential customers Gas purchased 38II salaries,employee benefits 13'ages, Commercial customers 34II to stockholders 12II, 12'ividends Industrial customers 19II Interest and othercosts-not 1 ttt Allothers 9II Depreciation SII Retained In business
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-
i NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 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 offby 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.
Joltn G. Haehl, Jr.
Chairman ofthe Board and Chief Executive Of/icer 1VilliantJ. Donlon President February 27, 1987 John G. Haehl, Jr. William J. Donlon
4 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPAcAIESy 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 1 i/4-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 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 Coal 16'/o salmon and trout habitat, while examining stream-flow hydraulics, temperatures and other river charac-Oil 16/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 COMPA<NIESi 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 will test 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,
s &DIAG'ARA 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 willbe intro-allowing dispatchers to more effectively utilize exist- duced for nationwide distribution in May f987.
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 will include 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 8z 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.
8 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPAGNIES i 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 ~ 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 4 Energy conservation programs for non-profit Jersey and Oklahoma. Other hydro plants are envisioned by the subsidiary in California, Oregon agencies-will provide 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 4 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.
Economic development rate incentives have been Large-print bills for visually impaired 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 4 Consumer advocates in the Capital, Central and from lending institutions to implement needed con-Frontier Regions willwork with customers having servation improvements.
, NIACsARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 9 MONTHLYRESIDENTIAL ELECTRIC COST FOR 500 KILOWATT-HOURS New Yor Cjt $ 65.05 P lladel Ia P 58.75 NY State Av . not lncludin NM
- 55.42 Newark 54.12 Cleveland OH 4757 Ha lord CT 46.80 Boston MA 45.79 atlonal vera e- 40.75 Los An eles C 39.43 Nla ara ohawk 37.60 Includes fuel and PASNY credit adjustment as applicable.
'NM Rate Department 1/87.
-U.S. Depanment of Enerpy 10/88, All other supplied 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 volving all employees is in progress and has become a Electrical Workers (AFL-CIO).
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-percent of the workforce the first employee survey ceeding Kermit E. Hill,who retired. Attorney Gary J.
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 was revision of our Corporate Mission Statement and death of James F. Aldrich, vice president regional 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. Allbrokerage 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.
NI'AGJIII RA MOHAWK POWER CORPORATION AND 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-1966 per share High Low dends and thereafter until all dividends ers owned common shares of Niagara 1st Quarter -
$ .52 $ 247/8 $ 195/8 thereon 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 19'/4 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 full quar-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 $ 163/8 2nd Quarter .52 and set apart for payment, the holders 1 to 99 50,773 1,618,039 2fRfI 175/8 3rd Quarter .52 217/8 17'/2 of such stock can elect two members of 100 to 999 113,825 28,415,426 4th Quarter the Board of Directors. No dividends on 1,000 or more 9,904 97,107,529
.52 21 175/8 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
$ IPk $ 15Vi $ 1711 $ 20Vi $ 15Vi AT YEAR END
$ 25Vi RANGE
$ 18Vi v
$ 15Vi $ 15Vi
$ 11Pi 1982 1983 1984 1985 1988
N IAG A R A M0 H AW K P 0WER C 0 R P 0 R ATI0 N AN D S UBS IDIAR Y C 0 M P <<4 N I'E $
Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS The following discussion and analysis ELECTRIC SALES M1lfioo$ of Kwrhro.
For 1986, earnings per share decreased 5.9% to $ 2.71 against $ 2.88 for 1985. highlights items having a significant ef- 37,086 fect on operations during the three-year 35 296 The 1986 earnings represent decreases 34 732 34 347 32 640 of 4.6% and 2.2o/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 Fi-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 13.6% 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% 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 ln millfons of dollars 1 5.0'/o 14.9'/o 15.00/o 14.7% Electric revenues 1966 1985 1984 Total 13.6% $ 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............. (100.3) (107.9) 68.7 (139.5)
Miscellaneous operating revenues ......... 9.3 (3.5) 3.1 8.9
$ 35.4 $ (38.1) $ 110.7 $ 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
'/o of Electric 1966 1985 1984 Class of service Revenues Revenues SaIes Revenues Safes Revenues Sales Residential ........... 32.9/o 8.5o/o 4.3/o 6.6o/o 0.4% 4.1% 4.30/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.P/o 1.7Yo (2.7)% (1.8)% (4.8)% 5.5o/o 6.8o/o
5 IAG rIIII RA M0 HAW K POWER CORPORATION AN D SUBSIDIARY C 0 MP ANIE S 13 Gas revenues decreased $ 80.1 million or 13.2% over the three-year period. As Millionsof dekatfrerrns 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. 109.7 108.4 103.2 .00.8 LLJ Increase (decrease) from prior year Cl ln millions of dollars 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 SaIes Revenues Sales Residential ... 56.2Y0 0.6o/0 4.4% (5 9)% (4 4)% 3.1% 5.7o/0 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 .. 100.0o/ (11.7)% (11.5)% (8.1)% (5.7)% 7.0o/ 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%) deferred 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 after 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 COMPANI'E$
AVERAGE COST OF A TON OF COAL MAINTENANCEAND OTHER TOTALTAXESINCLUDING AND A BARREL OF OIL BURNED OPERATION EXPENSE Millionsof dollars INCOME TAXES Miliionsot dollars
$ 50.88 546.8 -482
$ 50.76 $ 50.68 $ 49 16
$ 45.84 494.6 508.3 397.7 424 462.4 364.0 410 353.6 326.1 ro 418.9 8 342 ro 290.1 317
$ 33.35
$ 30.67 $ 31.16 CI os
$ 29.67 co os I r os
$ 18.00 ll 141,0 1443 149.1 cr 128.8 LLr 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 ot items The Company's consolidated finan-1985 and $ 3.96 in 1984. on which deterred taxes are provided cial statements are based on historical Through the energy and purchased increased. The increase in taxes other 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 ditferent 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 otfset 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:
QIAGArRA MOHA WK POWER CORPORATION AND S U'BSI DIARY COMPANIES advances for construction of the Unit on 1986 1985 1984 behalf of LILCO. As described in Note Operating Revenues ($ 000's) .... $ 2l660,319 $ 2,746,798 $ 2,940,448 11 of Notes to Consolidated Financial Gain from decline in Statements, however, LILCO repaid purchasing power on net such obligations in December 1986.
'mounts 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 proximateiy $ 550 million and approxi-Market price at year end ...... $ 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. Debt 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 tong-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 4. o 4,5o 47,0'o slightly to 2.98 at year-end, but remained (see Note 10 of Notes to Consolidated CC at approximately the 3x level for the fifth Financial Statements). The Company is I, cb~
Z co consecutive year and close to the corpo- a 41% owner and had invested about O~
~O 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 CI excluding AFC improved slightly to 2.42 related projects through December 31, 11 5% 12.6% 11 5% 11.5% 10.5 CC LIJ as financing costs not currently reco- 1986. Expenditures for construction of 42.7/o CC 41'/o 42,1oo 2.0/o CL 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% of during the period 1984 to 1986.
the balance available for common stock Total capital requirements in 1986 in-as compared with 53.2% in 1985 and creased due to refinancing efforts and, 1982 1983 1984 1985 1986 52.4% ln 1984. in 1984 and 1985, as the Company made
16 NIAGARA MOHAWK POWER CORPORATION AND S UBS I D IA R Y C 0 M P1A N I'E 5 sions and the elimination of the invest- ANNUALEXTERNAL short-term borrowings are refunded FINANCING BY TYPE Millionsol dollars ment tax credit. The Tax Act when ini- with permanent securities on a continu-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 1,8 323.8 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- I 259.7 by the Company to enhance flexibility os tive impacts are not adequately consid- ds as to the type and timing of its perma-ered in rates, a corresponding loss of CI 120.0 nent security sales. Further increases in 75.0 cash flow, if experienced, could be ex-Od CZ: 50.0 the costs of the Unit, implementation of pected to increase the Company's ex- o 189. 185.3 the Settlement and recent changes in o financial accounting standards could ternal financing requirements and pos- 75.0 sibly lower credit ratings and may im-C) affect the Company's ability to access pact the common stock dividend rate. ED 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- ot 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 ot 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 aftect 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 ot financial strength During 1986, funds needed to pay for sources ot 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 Preter- ment, the adoption of Statement of Fi-pected to approximate $ 687 million, in- ence Stock, will be sutficient 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.
VI'AGfiRA MOHAWK POWER CORPORATION AN D SUBSIDIARY COMPANIES Consolidated Statement of Income and Retained Earnings fn thousands of dollars For the year ended December 31 ~ 1986 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 S 842,115 S 742,462 Average number of shares of common stock outstanding (in thousands) . 127,076 122,215 108,734 Balance available per average share of common stock .. 2.71 6 2.88 $ 2.84 Dividends per share of common stock................. 2.08 5 2.06 $ 1.98
() Denotes deduction
18 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIA/
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 Nuclearfuel(Nofe3) . 392)662 369,126 Gas plant 544,447 517,995 Common plant 129,451 115,316 Construction work in progress(Note10),. 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 onbehalf of Nine Mile Point Nuclear Unit No.2 cotenant, Including deferred supplemental pay ments (Note 11) 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) . 831951 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
NEAGAr RA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 19 ln thousands of dollars At December 31 ~
1966 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 2,571i491 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 6I008,566 5,801,564 Current liabilities:
Short-term debt (Note 4) 1001212 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 payable to customers 2,846 11,381 Cotenant prepayments to Nine Mile Point Nuclear Unit No. 2 project fund(Note11) 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 . 6485641 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 AN D SUBSIDIARY COMPA) N IES Consolidated Statement of Changes in Financial Position fn thousands of dollars For the year ended December 31, 1986 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 tor funds used during construction .... (165I793) (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 75,000 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 transrqission facility ................ 128I000 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 $ 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. 6081269 583,804 608,350 Amounts accrued under Cotenant Agreement(Note 10) .. 1711100 Advances on behalf of Nine Mile Point Nuclear Unit No.2cotenant(Note11) 135,808 120,060 Reduction of long-term debt 467,764 126,717 67,005 Reduction of preferred and preference stock ........... 1071380 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) . 1711100 Other (net) . 1,221 (9,134) 16,940 (21,395) 92,084 38,964
N I'AGORA 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 in 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 of 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 disposal 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 COMPAGNIE~
of 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 of 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 eftect 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 over- proximately 790,000 lbs. of NMU uranium utilized in the 1984 heads deductible currently for 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 of 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 etfect 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 prioi to maturity, are amortized ratably over average delivery prices, substantially all of its investment will the lives of 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 specified 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
YI'AGORA 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 ol dollars The following table summarizes additional information 1986 1985 1984 applicable to short-term debt: Operating revenues:
In thousands ol 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 payabie 212 2,195 Operating Income before taxes:
Bankers acce tances 28,000 5.000 Electric ................... S 596,864 S 529,659 $ 511,842
$ 100,212 S 7,195 Gas ...................... 55,547 55,100 62,651 Weighted average Interest rate(a) .. 8.33% 7.93% Total S 652,411 $ 584,759 $ 574,493 For earendedDecember31:
Pretax operating Income, Including AFC:
Daily average outstanding ...... .. $ 1971557 $ 45,607 ...................
Electric $ 762,362 $ 716,719 $ 672,964 Daily weighted average interest 55,842 55,356 63,025 Gas rate(a) . 6.60% 8.31%
Maximum amount outstandin .. 8396,115 $ 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 Net income S 397,865 $ 411,430 S 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 ..... $ 141,663 $ 137,630 $ 128,521 Gas 13,648 12.997 12,629 construction and for any additions to the units in service. The Company's share of expenses associated with the Roseton Total S 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 ol dollars Construction Electric ................... S 734,348 S 749,912 S 734.706 Gas 39,714 21,208 35.140 owner- Utility AccumuIated work in ship plant depreciation progress Total S 774,062 S 771,120 $ 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 S 631 Gas . 468,299 444,070 432,113 Nine Mile Point Nuclear Total ........ 6,892,955 6,200,656 5,587,485 Station Unit No. 2(c)(d) . 41 $ 2,263,700 Corporate 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%).
fb) 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 . 150,000I000 150,000,000 150,000,000 Issued & outstandin 127,140,994 126,928.340 116,848,974 Preferred stock, $ 100 par value:
Authorized . 3,400)000 3,400,000 3,400,000 Issued & outstandin 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 & outstandin 14,874,000 14,044,000 11,210,000 Preference stock, $ 25 par value:
'uthorized 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* able'hares able* able*
(Net)'alance January 1, 1984 104,010,003 $ 104,010 3,370,240 $ 210,000 $ 127,024(e) 10,136,000 $ 30,000 $ 223,400(a) $ 1,174,382 Salesin1984 ............. 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(e) 11,730,000 30,000 263,250(a) 1,347,806 Salesin1985 ............. 4,465,600 4,465 3,000,000 50,000 25,000 74,216 Issued to stock purchase plans in1985 ............ 5,613,766 5,614 99,535 Redemptions ............. (24,510) (2,451) (686,000) (17,150) 442 Foreign currency translation adjustment ... (2,422)
Balance December 31,1985 126,928,340 126,928 3,318,000 210,000 121,800(e) 14,044,000 80,000 271,100(a) 1,519,577 Sales in 1986 ............. 60,354 61 3,000,000 75,000 (939)
Issued to stock purchase plansin1986 ............ 152,300 152 2,821 Redemptions ............. (58,000) (5,800) (2,170,000) (54,250) 437 Foreign currency translation ad ustment.... 603 Balance December 31,1986 127,140,994 $ 127,141 3,260,000 $ 210.000 $ 116,000(e) 14,874,000 $ 80,000 $ 291.850(a) $ 1,522.499 In thousands of dollars.
(a) Includes sinking fund requir'ements due within one year.
NI'AGORA 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 ... $ 42,000 $ 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. 25,000'5,000 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 . 20,400 25,500 25,500 26.22 25.00 10.13'/o 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; none and 1,000,000 shares............. 25,000 15.00/o Series; none and 800,000 shares .............. 20,000 20,000 Adjustable Rate Series 8; 2,000,000 shares............. 50,000 50,000 50,000 (d) 25.00 Preference $ 25 par value:
7.75% Series; none and 520,000shares .............. 13,000 407,850 392,900 387,501 Lessslnkin fundandredem tionre uirements .. 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 N IAG AR A M0 H AW K POWER CORPORATION AN D SUBSIDIARY C 0 M P ft N I 'E S 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 1988 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% 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 9.75% 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% 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:
3s/e% Series due May 1, 1986 ......... $ $ 30,000 12r/e% Series due November 1, 2012 . 79,355 100,000 4r/e% Series due September 1, 1987... 50,000 50,000 12r/s% Series due March 1,2013 ..... 69,530 100,000 3r/s%Seriesdue June1,1988 ........ 50,000 50,000 12Ve%Seriesdue June15,2013 ..... 50,000 14r/e% Series due August 11, 1988 ..... 34,000 50,000 11V4%Seriesdue July1 2014 .......
~ 75,690 75,690 12% Series due March 1, 1989 ....... 20,000 20,000 '11Vs% Series due October 1, 2014 ... 40,015 40,015 9Ve%SeriesdueOctober 1,1989 ..... 13,000 13,000 10/o Series due June1 2016~ ........ 150,000 4V4% Series due April 1, 1990......... 50,000 50,000 10/o Series due November 1,2016 ... 100,000 15% Series due March 1, 1991 ....... 38,650 8~/s%SeriesdueNovember1,2025 . 75,000 75,000 14e/4% Series due May 1 1991 .........
~ 90,000 Total First Mortgage Bonds ......... 2,246,141 2,129,751 4Ve% Series due November 1, 1991 40,000 40,000 12.73/o Series due February 1, 1992.... 201000 20,000 Promissory notes:
13.06% Series due February 1, 1992.... 50,000 50,000 8% Series A due June 1, 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 15Ve% Series due March 1, 1992 ....... 251045 50,000 December 1, 2025 . 75,000 75,000 1574% Series due June 1 1992 ........
~ 23,346 58,500 December 1,2026 . 50,000 11% Series due May1,1993 ......... 50,000 50,000 12Ve% Series due March 1,1994 ....... 13,000 Notes payable:
8r/s% Series due August 1, 1994 ...... 150,000 17% Eurodollar Guaranteed Notes 4Vs% Series due December 1, 1994 ... 40,000 40,000 due September15,1989 ................. 46,705 9Vs% Series due October 1, 1996 ..... 100,000 Adjustable London Interbank 5r/s% Series due November 1, 1996 ... 45,000 45,000 Offered Rate due September 15, 1989 ..... 9,000 6V4% Series due August 1, 1997 ...... 40,000 40,000 Intermediate Notes, Various rates, due 1989-1992 48,900 6Ve% Series due August 1, 1998 ...... 60,000 60,000 Swiss Franc Bonds due December 15, 1995 .. 50,000 50,000 12e/s% Series due March 1 1999 ....... 17,000
~
15.02/o Unsecured Notes due 1990 ......... 50,000 50,000 9Vs% 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 Revolving credit and loan 7s/s% Series due February 1, 2001..... 65,000 65,000 agreements 25,000 25,000 7Vs% Series due February 1, 2002..... 80,000 80,000 Revolving credit agreement, 7s/4% 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 9Ve% Series due December 1,2003 ... 50,000 50,000 9.95% Series due September 1, 2004 .. 90,000 95,000 Unamortized remlum discount 67) 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 ..... 711050 71,050 Less long-term debt due within one ear . 93,914 65,465 8Vs% Series due December 1, 2007 ... 42,000 44,000 $ 2,799,605 $ 2,643,094
'13Ve% Series due April 1, 2012......... 25,760 25,800 16'/s Series due August 1, 2012 ........ 3i016 3,046 Tax-exempt pollution control related issues
NI/(CA+A 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 ln thousands of dollars amount Commencing 1987 1988 1989 1990 1991 First Mortgage Bonds:
10.20% Seriesdue March1,2005...... $ 1,500 3/1/78 $ 1,500 $ 1,500 $ 1,500 $ 1,500 $ 1,500 8.35% Series due August 1, 2007 ..... 750 8/1/82 550(a) 750 750 750 750 85/8% 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 14r/e% Series due August 11, 1988 ..... 17,000 8/11/86 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 December1,2003 ... 2,941 12/1/87 2,941 2,941 2,941 2,941 2,941 PromIssory Notes:
8%SeriesAdue June1 2004 ........
~ 500 6/1/90 500 500
$ 34,324 $ 34.524 $ 17,524 $ 18.024 $ 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. fn thousands of dollars 1986 1985 The Company and its subsidiaries have non-contributory 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 $ 501,000 $ 433,000 labor and accordingly, was charged to construction projects). Net assets available for plan benefits... $ 677,000 $ 583,000 Studies indicate that the accumulated plan benefits, as de-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 7t!~% in 1986 and 8% in 1985.
28 NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMHANIES 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 beforein-practices.
ln 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 Consoiidatin eliminations . 11,230 7,61 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: ln 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):
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 ot bonds . 15,700 4,601 1,477 Sterling abandonment . (1,243) (3,769) (1,566)
Other 19,207 548) 1,926 Deferred Federai 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:
Computed 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 8 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: ln 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 COMPAGNIE/
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 of either the IROR or "cap" orders previously issued by ducted from the reported cost of the plant and recognized as a 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.
Ratemaklng 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
QIggAsRA MOHAWK POWER CORPORA7ION AND SU'BSI DIARY 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 the remaining con-Niagara struction costs of the Unit which would be implemented as part 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 July1984, the PSC pumped storage issued an opinion and order which amended the IROR pro- generating station..... 2002 270,000 6,156,000 FitzPatrick 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- earbasis 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, 1S86. 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, 1S86. 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 AN D SUBSIDIARY COMPtAN jtES 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- NOTE 12. 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 In 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 Quarterended 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 S 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 Vaterhnuse 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 COMPiAN)ES 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.
1986 1985 1964 1983 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 1674 20'/2 17% 153/4 15%
Ratio of market price to book value at year end .. 82.8o/o 104.5% 92.(P/o 84.F/o 87.2/o Dividend yield at year end . 12.4% 10.1% 11.P/o 12.PYo 11.P/o Earnings per average common share........... S 2.71 $ 2.88 $ 2.84 $ 2.77 $ 2.64 Rate of return on common equity . 13.P/o 15.(P/o 14.P/o 15.(P/o 14.7o/o Dividends paid per common share ............. S 2.08 $ 2.06 $ 1.98 $ 1.89 $ 1.76 Dividend payout ratio . 76.PYo 71.P/o 69.7/o 68.2Yo 66.7'/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 .. 290,000 290,000 240,000 240,000 210,000 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: (including first mortgage bonds maturing within one year)
Common stock equity 42.P/o 42.7Yo 42.(P/o 42.1% 41.(P/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 53.2Yo 52.4% 43.P/o 41.0'/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 ........ 38.0/o 43.4% 46.F/o 50.0o/o 49.PYo 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 . S 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
N[Afi/BA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES 35 Electric and Gas Statistics ELECTRIC CAPABILITY ELECTRIC STATISTICS At January 1, 1987 % 1986 1985 1986 1985 1984 Thermal: Electric sales(Millions of kw-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 Otherelectrics 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 2,746 2,746 36 Other electric systems ...... 95,809 196,104 303,968 Nuclear fuel Miscellaneous ............. 77,014 67,746 71,280 Nine Mile Point, Lake Ontario . 610 9 610 610
$ 2)131I833 $ 2,096,404 $ 2,134,470 Purchased-firm contract Power Authority- Electric customers(Average)
FltzPatrick, 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 .................. 2,481 2,490 2,522 Hydro: Other ..................... 3,282 3,315 3,279 Owned and leased hydro stations (77) . 684 10 695 695 1,433,178 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.. 7.504 6.79tt Power Authority Annual revenue 7.21'508.26 Blenheim-Gilboa per customer ............ $ 543.96 $ 482.52 Pumped Storage Plant........... 270 4 550 550 Other . 262 4 209 63 Total h dro sources... 34 2,565 2,541 GAS STATISTICS Total capability',327 Other urchases...
6,939 80 1 100 445 7,803 400 7,705 Gas sales(Thousands of dekatherms) 1986 1985 1984 Residential ................ 49,430 47,328 49,519 1986 1985 1984 Commercial ............... 27,218 27,006 27,892 Electric eak load durln 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 ass stems.......... 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 ol dollars)
ELECTRICITY GENERATED 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 .............. 407,546 404,116 400,878 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 Authorit . 1,284 3 825 2 878 2 Other ................... 2 2 2 441,261 437,206 433,488 Total thermal 16,559 44 17,656 45 18,233 45 Hydro: Residential(Average)
Generated........ 4,140 11 3,496 9 3,803 9 Annual dekatherm use per customer ........ 121.3 117.1 123.5 Purchased from Power Authorit . 7,683 20 7,815 20 8,312 21 Cost to customer Total h dro .......... 11,823 31 11,311 29 12,115 30 per dekatherm ....... $ 6.01 $ 6.23 $ 6.33 Other purchased power- Annual revenue varlous sources ...... 9,257 25 10,246 26 10,240 25 percustomer ........ $ 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 Ptesident-Purchasing and Chief Executive OHicer and Materials Management Edmund M. Davis (A, B, E)
WilliamJ. Donlon Partner, Hiscock & Barclay, attorneys-at-law, Syracuse Eugene J. Morel 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 Ptesident Vice President-Treasurer John G. Haehl, Jr. (A)
Chairman of the Board and Chief Exccutivc Officer, Syracuse Charles V. Mangan Michael P. Ranalli Senior Vice Pnsident 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. Terry Christopher D. Turner Senior Vice President, Vice President-General Counsel and Secretary Corporate Development Martha Hancock Northrup (D)
Homemaker, 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 President-Regional Operations Gary J. Lavine NeceasedNovetnber14, 1986) Assistant General Counsel Donald B. Riefler I) (Effective August 1, 1986)
Chairman, Sources and Uses of Funds Committee, Anthony J. Baratta, Jr.
Morgan Guaranty Trust Company of New York, Ncw York Vice PtesidentMntmller Herman B. Noll Assistant General Counsel Lewis A. Swyer(B,C,D) Michael J. Cahill Vice President-Regional Operations Nicholas L. Prioletti, Jr.
Chairman, L.A. Swycr 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 & Siemer, attorneys-at-law, Buffalo Gerald J. Currier Vice President~nsumer Services Henry B. Wightman, Jr.
A. Memberof thc Executive Committcc Assistant Controller Richard EA.. Duffy B. Member of thc Compensation Commit tee Vice President-Public Affairs Harold J. Bogan C. MemberoftheAuditCommittce and Corporate Communications Assistant Secretary D. Member of the Committcc on Corporate Public Policy (Effectivehfovember 1, 1986)
E. Memberof the Finance Committee Joseph F. Cleary Gerald D. Garcy Assistant Secretary Vice President-Power Contracts QffectiveMay 6, 1986) Frederick C. McCall, Jr.
Assistant Secretary Kermit E. Hill Vice piesident-Public Affairs Arthur W. Roos and Corporate Communications Assistant Treasurer Netired 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 IntiuMes ShanCtolder inquiries:
Shareholder Ser'vices 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 Ptutchase 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
're femd and Common Stocks:
Niagara Mohawk Power Corporation 300 Erie 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 Common Stock:
Morgan Shareholder Services Trust Company of New York,
, 30 West Broadway, New York, N.Y. 10015 Stock Exchanges
'ommon 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
'fhe information in this report ts not given in connection with Ihe sate ot. or otter to buy, any security.
printed In U.SA.
300 Erie Blvd. West Syracuse, NY 13202