ML18038A646

Annual Financial Rept 1983.W/840322 Ltr

ML18038A646
Person / Time
Site:	Nine Mile Point
Issue date:	12/31/1983
From:	Donlon W, Haehl J, Lempges T NIAGARA MOHAWK POWER CORP.
To:	NRC OFFICE OF ADMINISTRATION (ADM), Office of Nuclear Reactor Regulation
References
NUDOCS 8403290177
Download: ML18038A646 (44)

Text

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LEMPGES>T.E, Niagara Mohawk Power Corp, RECIP ~ NAME- RECIPIENT AFFILIATION l

Annual Financia} Rept 1983,H/840322 ltr.

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NIAGARA MOHAWK POWER CORPORATION NIAGARA ~( MOHAWK 300 ERIK GOULEVARO WEST SYRACUSE, N.Y. 13202 THOMAS 6. LSMPGES VCE P$ CSICNT~ GENERATION March 22, 1984 Director Office of Nuclear Reactor Regulations c/o Distribution Services Branch, DDC, ADM U.S. Nuclear Regulatory Commission Washington, DC 20555

Dear Sir:

As required in Title 10, Chapter I, Code of Federal Regulations, Section 50.71(b), and compiled in Regulatory Guide 10.1, enclosed are ten (10) copies of Niagara Mohawk Power Corporation's 1983 Annual Report.

Cordially, TEL/jkr Enclosures (10)

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8403290177 83123i PDR AJ3I3CK 05000220 I PDR

o Serving Upstate Nem York Contents Investor notes Ranked as one of the most promi- To our stockholders Dividend Reinvestment Plan nent investor-owned utilitics in the Stockholders participating in our United States, Niagara Mohawk A year of momentum Dividend Reinvestment and Stock I'ower Corp. serves an area encom- Research on technology's 8 Purchase Plan enjoy its tax-deferral passing morc titan half the land cutting edge and convenience features, while mass of New York State. Our elec- Commitment to serve 10 ncw capital is generated for the tric system extends from Lake Erie People in thc mainstream 14 Company. Sce page 14 for details.

to Ncw England's borders, to Telephone Inquiries Canada and Pennsylvania, and Market price of common stock 16 and related stockholder We ntaintain a toll-free telephone rnccts the diversified needs of matters inquiry service for stockholders.

nearly I 4 million customers. Our Callers from outside Ncw York natural gas system serves 433,000 Management's discussion and 16 State may dial 1 + 800 + 448-5450.

analysis of financial condition customers in central, eastern and The number for New'ork residents northern New York, nearly all Report of management and 20 is I + 800 + 962-3236.

within our electric territory. Two independent accountants Annual Meeting Canadian companies, St. Lawrence Financial statements 21 The annual meeting of stockholders Power Co. and Canadian Niagara Statistics 35 will be held iplay I, 1984 at the Power Company, Ltd. owned by Company's main office in Syracuse.

Officers, directors 37 our subsidiary, Opinac Investments, Formal notices, proxy statements Ltd., provide energy to portions of and forms willbe sent to holders of Ontario. Other subsidiaries arc common stock in carly April.

Hydra-Co Enterprises, Inc., N itrl Uranium, Inc, and Niagara Mohawk Cover Transfer Agents Preferred Stock anal Preference Stock:

Finance, N.V. Our corporate head- Computer-styled map of our service Marine Midland Bank, N.A.

quarters are 300 Erie Boulevard area depicts electric and gas systems 140 Broadway, New York, N.Y. 10015 West, Syracuse, N.Y. 13202. in graphic design used in program to attract new business and industry ConInton Stock:

to "Thc State of Niagara Mohawk". iVlorgan Guaranty Trust Company nese rs ~,

of New York Electric ool\ovn 30 W'. Broadway, Ncw York, N.Y. 10015 The Information In this report is not given In connection Service with the saic of, or oifer to buy, any security. Disbursing Agent Area orereown Prln led in USA. Preferrefl, Preference and Co)n)non Opere F Stocks:

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Niagara ttplohawk Power Corporation 300 Erie Boulevard West Syracuse, N.Y. 13202 NEW YORK STATE StockExchanges Connnon and CertainPreferrertSeries)

Listed on New York Stock Exchange Con))non Stock)

Also traded on Boston, Cincinnati, iblidwest, Pacific and Philadelphia stock exchanges.

Gas Service Bonfls:

Area orerlown Traded on New York and Luxem-oron)fl bourg stock exchanges.

~ ovo pope

~~a '. ov +Oj Ticker symbol: NMK

~n, es evw So ~ eorreppe r eV I'orm 10-K Report Conlonoe ~ I, 7

A copy of the Company's Form 10-K NEW YORK STATE rcport filed annually with the Secu-rities and Exchange Commission is available after March 31, 1984 by writingJohn W. Powers, Vice Presi-dent-Treasurer, at 300 Erie Boule-vard West, Syracuse, N.Y. 13202:

1 Highlights of 1983 Stock and dividend data 1983 1982  % Change Earnings and Dividends Total operating revenues 10 Paid per Common Share

$ 2)632)315)000 $ 2,393,771,000 Income available for common $ 2.77

$ 2.64 stockholders 270,300,000 S 230,948,000 17

$ 2.35 Earnings per common share $ 2.77 $ 2.64 5 Dividends per common share Common shares outstanding

$ 1.89 $ 1.76 7 $ 2.00

$ 1.87

'1,61 Earnings

$ 1.76

$ 1.89 (average) 97,685,000 87,340,000 12

$ 1.44 $ 1,50 Utilityplant (gross) $ 6)165,711,000 $ 5,516,532,000 Gross additions to utility Dividends plant $ 691)464)000 $ 594,469)000 16 Kilowatt-hour sales 34,732,000,000 32,640,000,000 6 Electric customers at 1979 1980 1981 1982 1983 end of year 1,392,000 1,380,000 Electric peak load (Mlotvatts) 5,625,000 5,512,000 Market Price of Common Stock at Year End Natural gas sales (dettathenns) 103,153,000 109,693,000 (6) $ 15@ $ 15Va Gas customers at end of year 433)000 431,000 Maximum day gas sendout $ 12% $ 12%

(dekathenns) 754,061 832,307 (9) $ 11 Vs The 1985 revenue dollar...

Residential customers customers 13'979 34'ommercial customers 31'ndustrial 1980 1981 1982 1983 22'II others DivMcnd paid Price range 1983 pcr share 1 1lgh Low 1st Quarter $ .45 $ 171/8 $ 15>/8 2nd Quarter .48 177/8 161/8 3rd Quarter .48 17>/8 16 4th Quarter .48 181/2 151/4 and where it went 1982

$ 1.89 Fuel for tho production of electricity 1st Quarter $ .41 $ 13>/4 $ 1 17/8 electricity purchased 34'nd 2nd Quarter .45 147/8 127/8 Gas purchased 16C 3rd Quarter 45 167/8 1 3ys Income and other taxes 4th Quarter .45 161/2 143/4 and other costs-net 13'nterest

$ 1.76 salaries, employee benefits 10'ages, 104 Dividends to stockholders 9r.

Depreciation in business 5f.'etained 3g

TO Olli StOCkholdeirS Harnings for 1983 were $ 2.77 per share of com-mon stock, compared with S2.64 for 1982.

This 5% improvement resulted from a favor-able combination of factors, including an easing of inflationary pressures, a 6% increase in total sales of electricity and rate adjustments effective in March 1982 and 1983. Hlectric sales to other utilitysystems climbed an impressive 34%.

Strict adherence to cost controls, productivity measures and innovation also contributed to our 1983 earnings performance. Natural gas sales decreased 6% because of conservation by cus-tomers and competition with stable oil prices.

The N.Y. State Public Service Commission in John G. Hachl, Jr. WilliamJ. Donlon March approved a 2.8% overall electric and gas tariffincrease and in late April we filed for a total 8.9% increase. A decision on that request is ex-pected from the PSC in March 1984. As in previ-ous years, Niagara Mohawk's rates still are com-petitive when compared to those of other utilities, both state and nationwide. This advan-tage has been an important influence in several major customer plant locations and expansions on our lines during the year.

Our service area is making a recovery from a very serious recession. Signs of economic revival and technological transition are growing more pronounced as Upstate New York enters the mid-1980s, proof of the region's strength and resilience.

On February 9, 1984, Long Island Lighting Company, 18% owner in the Nine Mile Point Nuclear Unit No. 2 project, indicated it will no longer fund its ownership share due to its own financial difficulties. This new development, to-gether with the multitude of other recent nuclear-related news events, has caused uncer-tainties in the financial community which have had an adverse impact on our securities. We are certainly concerned about the dramatic drop in the market price of our common stock shares and the reduction in our credit rating, which

nevertheless remains investment grade. In our state and local officials. Over its 15-year life, view, these results do not fullytake into account Nine Mile 1 production has saved consumers our otherwise strong financial health. $ 1.8-billion compared to the equivalent of oil-

'~Vith our partners in the project, we are exam- fired generation at current oil prices.

ining the alternatives relative to the funding of The Company's external financing require-LILCO's share. Further, we are working dili- ments amounted to $ 575 million in 1983 and gently with our state government as we seek to are estimated at $ 500 million in 1984 to fund shape the most feasible solutions. In the mean- our construction programs and to refund matur-time, Niagara Mohawk will temporarily advance ing securities.

the shortfall in funding to allow construction to In 1983, the Board of Directors declared a proceed unimpeded. A planned overall project common stock dividend increase, to an an-cost re-estimate based on progress to date, nualized rate of $ 1.92 per share from the previ-which will include a re-assessment of the quan- ous $ 1.80. This increase reflects our commit-tity of material and labor hours necessary for ment to provide a fair return to our existing completion of the unit, is currently under way shareholders and to enhance the attractiveness and expected to be completed in the second of our securities as we compete for new capital quarter of 1984. The Company does not pres- in the financial markets.

ently expect the total project cost re-estimate to The year also saw tangible advances in our vary significantly from the $ 4.6-billion target corporate strategic planning process, an ongoing completion cost established by the PSC in early activity under the direction of senior executives 1982. Nor do we believe that the actions of and selected management people. Basically, LILCO willhave a significant impact on the their mission as a team is to strengthen the Company's 1984 construction budget or the Company's abilities to cope successfully with all amount of external financing currently planned. challenges we face in forthcoming years.

Construction progress at Nine Mile 2 con- Our warmest regards and sincerest gratitude tinued at a steady pace throughout 1983. This go to our stockholders and employees for their 1.08-million kilowatt power plant a vital ele- continuing loyalty and support during 1983 and ment of the New York State Energy Master through the years ahead.

Plan is four-fifths complete and has progressed from the bulk construction phase into the more exacting stage involving installation of complex controls and equipment and operating systems. John G. Hachl, Jr.

We continue to stress quality construction as we Chairman of the Board move toward completion of the project in late and Chief Executive OfHccr 1986. More detailed discussions of the Nine Mile 2 project appear elsewhere in this report.

We are pleased to note the timely return of Nine Nile Point Nuclear Unit No. 1 to service in XvilliamJ. Donlon June, more than three months earlier than an- President ticipated. An emergency drill at the site in Sep-tember was most successful and earned the Company high marks in evaluations by federal, February 24, 1984

A year of momeniurxx The past year was among the most eventful and ponents to force abandonment of the project. In productive ever experienced at our Nine Mile early November a thorough economic re-Point nuclear facilities. evaluation study of the project presented to the Constant momentum prevailed throughout Public Service Commission and similar to previ-the Lake Ontario complex as Unit No. 1 was ous evaluations by NM and thc PSC Staff re-brought back on line and as construction of the emphasized the economic advantages for thc adjacent Unit No. 2 continued at full pace. more than nine million consumers of the unit's five participating utilitics.

0 The 610,000-kilowatt Unit No. 1 returned to Niagara Mohawk is agent for construction and service in June, a full three months ahead of operation and principal partner with 41% own-schedule, after more than a year's shutdown.

ership of Nine Mile 2. The other utilitypartners During the outage, resourceful NM engineers, include Long Island Lighting Co., 18% (see page operating staff and the primary contractor 19); Ncw York State Electric & Gas Corp., 18%;

applied highly specialized and automated Rochester Gas and Electric Corp., 14% and Cen-machining and welding techniques, installing a tral Hudson Gas and Electric Corp., 9%.

new grade of corrosion-resistant stainless steel pipe. The same piping willbe employed at Unit 0 The signing into law of the Federal Nuclear No. 2. The U.S. Nuclear Regulatory Commission Waste Policy Act in early 1983 was applauded by described our performance during this outage as Niagara Mohawk and all others in the utilityin-

"exemplary." Over its seven months of service in dustry. This long-overdue legislation sets a firm 1983 alone, Unit No. 1 had gcncrated some 2.8 course for the permanent disposal of nuclear billion kilowatt-hours of energy and achieved waste well into the decades ahead and resolves a capacity and availability factors of 86.8% and previously growing concern.

97.9%, respectively.

In late summer, thc second full-scale 0 Plans were rcvcaled late in 1983 for a multi-emergency exercise was conducted at Unit No. purpose training center adjacent to the power 1 and nearby Oswego, with federal, state and plants on the Nine Mile Point shoreline. Con-local government agencies and key NM person- struction of the two-story stone and concrete nel all taking an active part. The realistic, day- building began in late 1983, with completion long drill, mandated by the Nuclear Regulatory and occupancy anticipated in late 1984. The Commission for continuing the plant's operating center will be used for instructing personnel as-license, received favorable comments and posi- signed to our nearby nuclear units and as a tech-tive grades from all regulators and community nical support facility in case of an emergency at leaders involved. Nine Mile Point. Precise computerized control room replicas full-size teaching aids to simu-0 At thc Unit No. 2 site, all major construction late Units 1 and 2 willbe the center's main milestones were achieved on or ahead of feature. The building willalso contain class-schedule, with vital components of the control rooms, laboratories, an emergency operations room, reactor building and 115,000-volt switch- center and administrative office. An estimated yard installed by year end. Thc scope of work 1,500 employees at all lcvcls will undergo in-activity has begun to shift from finishing the struction each year. We expect this new addi-plant's fundamental bulk structures to installing tion to earn widespread recognition over the thc refined mechanical and clcctrical systems, years as a nuclear professional education and controls, safeguards and miles of piping. The training showcase.

project's cost estimate announced in 1983 will be updated in thc second quarter of 1984. 0 In spring 1983, the first hydroelectric project, Again in 1983, a series of inquiries and dc- part of our long-term plan to enlarge or build vclopments surrounding Unit No. 2 served only new waterpower installations, went into full to further strengthen our dctcrmination to bring commercial operation on the Oswego River. The the project on line in late 1986. The future pub- 10,000-kilowatt Granby Hydro redevelopment lic need for this essential energy cornerstone in Fulton incorporates state-of-the-art hydro was also underscored in thc 1983 New York technology. Its two 5,000-kilowatt units more State Energy Master Plan. Further, late in 1983 than double the output of the original turn-of-the State Supreme Court Appellate Division the-century generators. By the year end, Granby unanimously rejected an appeal designed by op- produced 20 million kilowatt-hours of cconomi-

Only a pa'r6al impression of its size is apparent in this view within the cooling tower at Nine Mile Point. Heat from Nu-clear Unit No. 2 willdissipate constantly through natural draft upward inside this 540-foot-high concrete cylinder.

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cal energy for our consumers, the same amount A pivotal decision in September by the FERC of power generated by more than 35,000 barrels on hydro relicensing was welcomed by Niagara of imported oil. The plant's projected lifetime is Mohawk and other U.S. investor-owned utilitics.

60 years or more. The Commission reversed a 1980 decision based The year also saw solid construction progress on a 1920 provision giving preference to at the Trenton Falls hydro renovation site on the government-owned entities when licenses for West Canada Creek near Utica. By late fall, nearly hydro plants come up for renewal. In effect, the a half mile of 14-foot diameter piping and tunnel 1980 FERC decision awarded a utilityowned linking the dam and powerhouse werc in place. and-operated hydro project to a governmental Redevelopment of this 83-year-old waterpower entity when the utility's term expired. With 35 landmark willraise its generating output from of 83 Niagara Mohawk hydro installations of 24,000 kilowatts to 30,000 kilowatts upon com- many years up for relicensing through 1993, the pletion in 1988. Company viewed this as a threat to both our Further plans for a 15,500-kilowatt hydro consumers and stockholders. While the recent station at Glen Park on the Black River west of interpretation is currently under appeal in the Watcrtown were approved in 1983 by the Fed- courts, we arc seeking Congressional action in eral Energy Regulatory Commission (FERC). 1984 to confirm FERC's decision, removing any However, extreme environmental stipulations in further threat of capture to our long-standing the license could well outweigh the economic hydroelectric resources.

and power reliability merits justifying such an undertaking by thc Company. Accordingly, we 0 At our fossil-fired power stations, there were a number of productive accomplishments in are reassessing the Glen Park proposal.

1983. Improvements made at coal-fueled Cl Niagara Mohawk's non-regulated, wholly their total power generation capability units."'ncreased owned subsidiary, Hydra-Co Enterprises, Inc., is over 1982. Further, Niagara Mohawk's standing moving ahead in joint ventures with three inde- for system heat rate (BTU/KW-HR)performance pendent companies for development of sites on advanced from 47th to 28th in just one year, Upstate Ncw York watcrways. Hydra-Co and according to the annual survey of the 100 largest these firms will own and co-manage all phases of U.S. utilities published byLleelricLigJ>t and planning, construction and operation of seven Power in 1983.

small hydro projects by 1987. At the same time, CI Looking ahead at power transmission and de-Hydra-Co is pursuing fossil-fired co-generation projects as well as further waterpower part- livery in the Niagara Mohawk System and with nerships. neighboring utilitics and energy networks, an During the year, a geothermal property in automated and computerized master control Idaho was acquired by Hydra-Co for a proposed center, under construction since 1982 in Syra-5,000-kilowatt station using 300.degree water as cuse, willserve as the heart of our planned new a power source. This cntails selling thc energy to Energy Managcmcnt System (EMS). While the a local utilitywhen the station begins service in advanced EMS concept, applying space satellites and fiber optics for communication purposes, carly 1985.

willnot sce full implementation until the early 1990's, the ncw control center is slated for 1985 ELECTRICITY GENERATED operation, replacing older System and Central AND PURCMASED Region power control operations. Employee BY TYPE OF FUEL, 1983 occupancy of the modern two-story brick struc-ture will begin in fall 1984, with computer Hydro 29/o hardware, transmission map boards and asso-Various sources 25% ciated electronic equipment arriving early Coal 21%

in 1985 for installation.

OII 11% Contracts with neighboring Canadian electric Nuclear 9% power producers to obtain low-cost energy for Niagara Mohawk customers proved beneficial Natural gas 5%

throughout another year. We shall continue to import 400,000 kilowatts of mainly coal-

Welder strikes arc on strut in new steel penstock installed at Trenton Falls Hydro Station on West Canada Creek.

Renovation of octogenarian waterpower landmark willboost capacity by one-fourth to 30,000 kilowatts.

Rese +eb-on technology's cutting edge generated energy from Ontario Hydro under an We embarked upon our second decade of agreement that extends through December creative energy research in 1983.

1986, with provision for extension to December In 1983 alone, more than $ 36 million in cost 1992. The present cost is 3.3 cents per savings for our customers resulted directly from kilowatt-hour about half that of oil-generated new and improved state-of-the-art methods de-electricity. At the same time, steps were taken to veloped in various ventures. Similar reductions increase an interruptible energy contract with projected in 1984 willalso have positive impact Hydro Quebec from the previous 120,000 kilo- on consumers'ills.

matts to 240,000 kilowatts. This solely hydro-electric energy willbe brought across the 0 Technology at its highest was displayed by NM researchers in mid-year in a first-ever noise border from the Province of Quebec to reduce cancellation experiment that attracted interna-the use of more expensive fossil fuels in our Sys-tional attention. In this scientific breakthrough, tem. These imports from Ontario and Quebec noise was successfully deployed to eliminate of-willsave our consumers many millions of dollars fending noise, a problem at some electric instal-through the 1980's.

lations. For the first time, combining sophisti-0 Transmission system expansion consisted cated nem electronics mith arrays of micro-primarily of planning and constructing three phones and speakers, the unwanted humming of vital circuits during the year. The halfway mark a transformer was electronically processed and was reached in construction of a 65-mile, projected back to the source, simultaneously 345,000-volt line to deliver energy from Nine cancelling the noise in all directions.

Mile Point Unit No. 2 in Oswego County to Another RKD first by NM in 1983 was the Marcy Substation, near Utica. Work on a line of laboratory creation of a safe, environmentally the same voltage extending nearly 10 miles from harmless method of destroying toxic PCBs in oil Unit No. 2 to Volney Substation, north of Syra- used for cooling electric equipment. Our Re-cuse, is targeted for completion in early 1985. search Department has applied for a patent in a The third project, also scheduled for 1985, is process which blends PCB-contaminated oil construction of a 115-volt line through 30 miles with newly developed chemical components to of rugged north-country terrain from Massena to yield a non-toxic chloride. In partnership with a Colton in St. Lawrence County. That link will Central New York technical engineering firm, serve as the main carrier of imported Hydro NM plans to construct a small pilot plant to vali-

. Quebec pomer into our System. Each of these date the process. Ifsuccessful, a large process transmission additions is being built "in-house" plant mill be built, capable of recycling millions by a work force made up solely of Niagara of gallons of oil yearly, with substantial dollar Mohawk employees. savings.

0 In carly autumn, Theodore Barry K 0 Foremost among Niagara Mohawk's $ 144.1 Associates, an independent consulting firm, was million five-year research commitment is partic-selected by the Public Service Commission to ipation in an advanced Flue Gas Desulfurization perform a management study of Niagara (FGD) prototype that went into test operation in Mohawk. The review should require about eight the spring on a 100,000-kilowatt unit at our months and is similar to mandated audits of all coal-fired Huntley Stcam Station near Buffalo. A the state's utilities conducted under Nem York cooperative venture costing up to $ 61 million, 1am. We shall cooperate fully with the project with NM's investment at $ 7.2 million, this proj-and look forward to any recommendations. ect proved in 1983 that low-cost, high-sulfur Eastern coal can be burned at large power sta-tions with virtually no effect on air, land or water quality.

The FGD unit removes 90 percent of sulfur dioxide gas from stack emissions, converting the gas into a high-grade elemental sulfur as the sole by-product. Presently, the sulfur produced by the demonstrator is being sold to a Western New York chemical firm for processing and ultimate use for agricultural, community water-

Something extraterrestrial is suggested in view across vast interior of new rad-waste building at Nine Mile Point Nu-clear Unit No. 1. Crane in distance travels along rails on walls to move plant's low-level radioactive wastes.

tr c w < w o e purification and varied manufacturing purposes. H Late in 1983, NM announced a two-year ex-The FGD project's far-reaching pollution-control periment to convert fly ash trapped by pollution and environmental implications have earned it controls at coal-fired power plants into efFicient, nationwide interest. As host utility, Niagara low-cost insulation for homes and other struc-Mohawk is the manager. Frincipal sponsor is the tures. The Company is sponsoring and managing Empire State Electric Energy Research Corp. a pilot plant to recycle the gray, gritty ash into a (ESEERCO), in partnership with other utilities marketable fiber material similar to conventional and federal and state agencies. The demonstra- fiberglass "batts". The project promises to elimi-tion willcontinue through the mid-1980's. nate the considerable expense and environmen-

Commitment to setme tal problems of the present practice of handling The past year has sharpened Niagara Mohawk's large bulk quantities of this waste for disposal at awareness of dramatic economic and industrial diminishing landfill sites. Testing of the insula- transformation taking place in our service terri-tion product, marketing and sales studies are a tory and the entire Northeast as well.

part of the program. No longer do the traditional heavy industries steel and automotive are leading examples 0 More than a decade of pioneering research upon which thousands relied for their liveli-activity with low-temperature fuel cells, born of hood, appear as Upstate New York's basic the U.S. space program, willadvance to the field economic backbone. Pronounced shifts from phase in early 1984. NM and other utilities, these and other "smokestack" industries to working with United Technologies Corp., have manufacturing and commerce in the categories sponsored efforts leading up to installation and tests of a 4,800-kilowatt prototype fuel cell adja-of high technology, computer and related software, electronic information and services, cent to an oil-fired New York City power station.

are altering the economic complexion of our Similar in appearance to large batteries, but re-service area. Revitalized employmcnt and mar-quiring no charging, these futuristic devices op- ket horizons, with attractive new investment erate on light hydrocarbon fuels without noise, opportunities, arc emerging in this transition.

pollution or vibration. Plans call for Niagara Mohawk to start its own trials in 1986, with the 0 Closely tracking all economic trends, Niagara largest fuel cell ever built 11,000 kilowatts- Mohawk has strengthened its commitment to to be installed at one of our generation sites. We attracting and helping to expand business and willdevote extensive study to this attractive industry in the region served. Our Economic form of supplemental power generation well Development Department has undertaken a into the 1990's. nationwide "Discover the State of Niagara Mohawk" communications campaign. This 0 The Adirondack region in Niagara Mohawk's promotional effor is geared to acquainting U.S.

service area, a center for widespread concern business and industrial leaders with the area's over acid deposition, willbe the focus of an natural and energy resources, its quality work NM-supported water-quality and fisherics study force and many other diverse assets available for to start in spring 1984. Besides our role as host new plant investment, profit potential and, in utilityin a joint three-year program, we are particular, hi-tech and automation opportunities.

chairing the project's management committee. This concerted drive alone prompted hun-This is the fourth scientific effort in the Adiron- dreds of active inquiries to Niagara Mohawk in dacks by Niagara Mohawk with other utilities 1983, and each was followed up individually by and government agencies to better understand our Economic Development staff. Thc staff the acid rain phenomenon. directly assisted 75 businesses and local com-0 In autumn, a new magazine was co-produced munities with development and expansion ac-and issued by our research and corporate com- tivities, while confidence in Upstate New York munications staffs to promote practical applica- was further demonstrated by announced plans tion of our research accomplishments. Next for the addition of one million square feet of Generation, a semi-technical journal, is issued industrial and business space during the year.

periodically to engineers, energy research cen- Such ongoing strategies by the Company to per-ters, technical educators, college and university form plant location studies and provide the libraries, manufacturers and others with access latest information on market, raw materials, in-to the marketplace. dustrial sites, labor and available financing are Thc resounding readership response to the being intcnsiflied to meet the economic chal-premier edition confirmed its effectivenes as lenges of the 1980's.

a two-way communications bridge between 0 Services and supportive functions for con-Niagara Mohawk and these individuals and sumers received more attention and emphasis organizations. than ever in 1983. Several were either cxpandcd or undertaken for the first time. A sampling of programs follows:

~ Home Insulation and Energy Conservation Analysis. Through "Operation Sunflake", more

Thrusting skyward nearly 200 feet, tower for 345,000-volt transmission line extending from Oswego County to Mohawk Valley is a study in steel. Line willdeliver power from Nine Mile Point to Eastern energy systems.

than 18,000 consumers received free cus- were specially trained to winterize homes of the tomized home energy audits during the year. elderly and disadvantaged. Sponsored by Niagara Financial assistance and low-interest loans Mohawk in conjunction with many local com-from lending institutions totaled 82.2 million munity agencies across the System, the program in 1983 for qualified persons to help imple- resulted in weatherizing some 1,500 low-ment conservation measures such as insula- income residences in our service area.

tion and storm windows. Q To keep the Company informed as to what

~ Energy Conservation Bank. A special program consumers are thinking about NM, a residential for the needy and senior citizens in coopera- customer survey was conducted across the ser-tion with county offices of the aging through- vice area in 1983 by an independent opinion-out our service area. Special grants and loan- research consulting firm. Findings showed im-principal reductions of $ 870,000 were offered provement over data gathered in a similar 1982 to NM customers through the State Energy survey. Consumers also gave NM an 89 percent Office and administered by the Company in favorable rating for courtesy, 85 percent for ser-connection with our program of energy vice reliability and 83 percent for knowledgea-audits. bility. We attribute much of this improvement to

~ Home Energy Level Payment Plan. Designed our consumer services programs and our con-to help consumers manage winter's higher tinuing "1IVe're with you!" communications energy costs. More than 122,000 customers campaign, launched by Public AC'airs and Corpo-now have their estimated annual costs divided rate Communications in 1982 to assure con-into 12 level payments.' sumers of our willingness to assist them with their personal energy problems and concerns.

Deferred Payment Plan. For customers who have severe financial problems. Allows for a Q Niagara Mohawk's Educational Services Pro-combination of down payment and as many gram, first formed in 1972, established a new as 48 equal monthly payments to clear the performance record in 1983. A seven-member balance. Educational Advisory Council, comprised of pro-fessional teachers and school administrators Closely allied with energy conservation and within the NM service area, was organized dur-consumer relations, the second annual Summer ing the year to make recommendations and re-

'IVeatherization Program generated 121 jobs for view instructional materials provided by the inner-city youngsters and senior citizens who Company to schools. More that 78,000 students viewed films loaned by our circulating film MONTHLYRESIDENTIAL ELECTRIC COST library while another 332,000 received NM FOR 500 KILOWATT-HOURS energy publications in 1983.

New York City $ 78.19 The Energy Information Center at Nine Mile Point has also been undergoing renewal and re-NY State Avg. (not including NM)'56.66 vitalization. Jointly sponsored by Niagara Boston, MA $ 55.30 Mohawk and the New York Power Authority, the Center is reaching out to area schools, organiza-Newark, NJ , $ 5375 tions and the general public, offering audiences Philadelphia, PA ,

$ 50.13 factual information on nuclear energy, fossil generation and alternate energy sources. The Hartford, CT $ 47.'43 year 1983 saw attendance at the Center in-Cleveland, OH $ 41.01 creased by 20 percent over 1982. Since 1967, National Avg.-

when the facility first opened, it has served more

$ 38.10 than a half million visitors from across the Los Angeles, CA $ 37.43 United States and around the world.

Portland, M $ 35.89 Niagara Mohawk'$32.26 Includes fuel and PASNY credit adjustments as applicable.

'NM Rate Oepartment as of 12-1.83

• '6.6.I. report with rates elfective 7.1-83 Allothers supplied by local utilities, rates effective 12-1.83.

~ ~

High-tech Qrms are finding Upstate New York the ideal home. American Com-puter Assembly, Inc., manufacturer of printed circuit boards, settled in Ogdensburg in 1982 and employs a skilled work force of 150.

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An Investor and Financial Relations Department eluded from income may be taxed as a capital was established in 1983 in response to clear gain, rather than ordinary income, ifthe shares signals from stockholders and finance profes- were held for a year or morc.

sionals of their particular need for a specialized source of information on Niagara Mohawk.

0 Our work force totaled about 10,600 at the The new, Syracuse-based Department is re- year end. Approximately 8100 or 76 percent of our employees arc members of 12 locals of the sponsible for timely investor and financial com--

International Brotherhood of Electrical Workers munications while also working closely'wjth NM (AFL-CIO)which constitute System Council senior officers in analyzing and implementing U-11. Our two-year collective bargaining agree-major financing strategies and programs. Its ment expires on May 31, 1984 and negotiations main objective is to develop, through com-for a new agreement commenced early in 1984.

prehensive and up-to-date communications, a well-informed financial and inv'estor community. About 7500 or 79 percent of all eligible Staff assignmcnts include, in addition to respond- cmployces subscribe to the Employee Savings Fund Plan, in which 2 to 6 percent of wages ing to inquiries, involvement in such publica- werc allocated for common stock or U.S. Gov-tions as iriterim reports, an In-the-Know bulletin ernment Bonds in 1983. At the year-end 1983, for stockholders and the quartcrlyNMKDigest, a the Plan held about 10.6 million shares or 10 newsletter for security analysts and others in the financial community. percent of thc outstanding comon stock.

The new Department is scheduling prcscnta- 0 Starting January 1984, the Employee Savings tions to analysts and broker organizations and Fund Plan for non-represented employees was stepping-up direct personal contacts with in- modified to take advantage of Internal Revenue stitutional investors, rating agencies and others Service provisions which will encourage retire-in the field of finance. These activities are ment savings and achieve other long-term finan-founded on the belief that an informed securities cial goals. The improved version allows con-market willhelp insure that a consistently fair tributions of up to 10 percent of gross pay using value willbe placed on NM securities. Stock- pre-tax dollars. Moreocvcr, it now offers two holders are encouraged to contact the Depart- added investment options, including a fixed in-ment for information about Niagara Mohawk's come fund and an index fund of mixed common programs and plans. stocks. The attractive new Plan was greeted en-thusiastically by cligiblc employees.

Q Participation in the Company's Dividend Reinvestment and Common Stock Purchase Plan was more active than ever in 1983, with mem-bers representing more than 32 percent of NM's shareholders at the year end.

The Plan offers significant tax incentives and investment opportunities and provides the Company with a valued source of capital, generating some $ 51 million and representing 30 percent of common equity requirements in 1983. Recent improvements allow stockholders to join whose shares are held by certain brokers or nominees. Further, participants may elect to partially reinvest dividends in the Company's shares. These new fcaturcs permit participants to manage and maximize their investments more effectivel.

Since thc Plan qualifies for tax-deferred treat-ment under existing tax legislation, members are allowed to exclude up to $ 750 ($ 1,500 for a joint return) of dividend income for federal in-come tax purposes on rcinvested dividends.

When these shares are sold, the dividends ex-

~ ~

Heart of our growing computer and telecommunications functions is this new Network Control Center console, latest in state-of-the-art. Compact unit was installed in 1983 to manage complex data and information systems.

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Market for the registrant's common stock and related security'holder matteis The Com'pany's common stock and cer- 1982 common stock dividends are a re- Upon any dissolution, liquidation or tain of its preferred series are listed on turn of capital and therefore are not winding up of the Company's business, the New York Stock Exchange. The taxable as dividend income for income the holders of common stock are enti-common stock is also traded on the tax purposes. The remaining percen- tled to receive pro rata all of the Com-Boston, Cincinnati, Midwest, Pacific tage of common dividends and 100/o of pany's assets remaining and available and Philadelphia stock exchanges. The preferred stock dividends are taxable as for distribution after the full amounts to ticker symbol is "NMK". dividend income. which holders of preferred and prefer-The table below shows dividends per While the Company intends to con- ence stock are entitled have been share for our common stock and quoted tinue the practice of paying cash div- satisfied.

market prices: idends quarterly, declarations of future The indenture securing the Com-dividends are necessarily dependent pany's mortgage debt provides that Dividend paid Price range 1983 per share High Low upon future earnings, financial re- surplus shall be reserved and held un-quirements and other factors, including available for the payment of dividends 1st Quarter $ .45 $ 17~/e $ 15% restrictions in governing instruments. on common stock to the extent that ex-2nd Quarter .48 177/e 16'/8 The holders of common stock are en- penditures for maintenance and repairs 3rd Quarter .48 173k 16 titled to one vote per share and may plus provisions for depreciation do not 4th Quarter .48 18~/g 15 ~/4 cumulate their votes for the election of equal 2.25'/o of depreciable property as

$ 1.89 Directors. Whenever dividends of pre- defined. Such provisions have never re-1982 ferred stock are in default in an amount stricted the Company's surplus.

equivalent to four full quarterly div- At year end, over 209,000 stock-1st Quarter $ .41 $ 133/4 $ 11r/8 idends and thereafter until all dividends holders owned common shares of 2nd Quarter .45 147/s 12'/8 thereon are paid or declared and set Niagara Mohawk and 10,000 held pre-3rd Quarter .45 16'/s 13~/8 aside for payment, the holders of such ferred and preference stock. The chart 4th Quarter .45 16~/z 143/4 stock can elect a majority of the Board below summarizes common stock-

$ 1.76 of Directors. Whenever dividends on holder ownership by size of holding:

any issued preference stock are in de-Preferred and common stock div- fault in an amount equivalent to six full Size of holding Total Total shares idends.were paid on March 31, June 30, quarterly dividends and thereafter until (Shares) stockholders held September 30 and December 31. The all dividends thereon are paid or de- 1 to 99 57,241 1,894,436 Company presently estimates that all of clared and set apart for payment, the 100 to 999 142,690 34,767,328 the March 1983 common dividend is holders of such stock can elect two 1,000 or more 9,457 67,348,239 taxable and between 25-35/o of the re- members of the Board of Directors. No 209,388 104,010,003 maining 1983 and about 30'/o of the such dividends are now in arrears.

Management's discussion and analysis of financial condition and results of operations Results of operations. Earnings in 1983 maintenance expenses, including de- The Company's rate of return on were $ 2.77 per share, up $ .13 from 1982, preciation and amortization, increased common equity rose to 15.0'/o in 1983

$ .42 above 1981 and $ .90 above 1980 10/0, Federal income and other taxes from 14.7'/0 in 1982 and 13.5'/o in 1981.

earnings, with fewer shares outstanding increased 8'/0 and interest charges were This earned return on common'equity in each of the earlier years. 10'/o higher, reducing the impact of the reflects an improvement from prior The improvement in the Company's increase in revenues. years and compares favorably to the earnings per share for 1983 over 1982 15.4'/o currently approved by the New EARNED RATE OF RETURN resulted primarily from higher electric ON COMMON EQUITY York State Public Service Commission sales, rate relief granted in March 1982 (PSC) for the rate year ending March 14 7o/ 15.(P/o and 1983 and management's efforts to 1984.

13 So/o control costs wherever possible. Elec- The following discussion and analysis tric and gas revenues increased 8.8%%d 11.4/o 10 So/ highlights items having a significant ef-and 14.2'/o, respectively, from the prior fect on operations during the three-year year. The increase in electric revenues period ended December 31, 1983, but is principally due to higher rates and in- may not be indicative of future opera-creased sales to other electric systems. tions or earnings. It should be read in Gas revenues increased primarily from conjunction with the Notes to Consoli-recovery of increased purchased gas dated Financial Statements and other costs through the gas adjustment financial and statistical information ap-clause. However, operation and pearing elsewhere in this report.

1979 1980 1981 1982 1983 16

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4 Electric revenues increased $ 630.3 million or 45.2% over the three-year period. ELECTRIC SALES Millionsof Kw.-hrs.

This increase is largely attributable to increased base rates, recovery of increased 34,732 33,315 32 566 32,690 32 640 fuel and purchased power costs and increased sales to other electric systems, as indicated in the table below:

Increase (decrease) from prior year ln millions of dollars 1983 1982 1981 Total Increase in base rates $ 68.5 $ 128.8 $ 115.2 $ 312.5 Fuel and purchased power cost increases 2.6 (1 .9) 141.5 142.2 Sales to ultimate consumers ............ 21.0 (21.9) 27.1 26.2 Sales to other electric systems .......... 63.7 34.2 30.9 128.8 Miscellaneous operating revenues ...... 7.3 1.5 11.8 20.6

$ 163.1 $ 140.7 $ 326.5 $ 630.3 1979 1980 1981 1982 1983 Electric kilowatt-hour sales were 34.7 billion in 1983, an increase of 6.4% from GAS SALES Millions of dekafherrns 1982, reflecting the effects of the improved economy in the Company's service area 109.8 1 09.7 and increased sales to other electric systems (see Electric and Gas Statistics 103.2 966 Electric Sales appearing on page 36). Details of the changes in our electric rev-enues and kilowatt-hour sales by customer group are highlighted in the table below:

1983  % Increase (decrease) from prior year

%of

, Electqic 1983 ;1982 f1981 Class of service Reventes Revenues Sales Revenues Sales Revenues Sales Residential ....... 288% 82/o 1 2% 11 5% P2% 195o/o 1 5%

Commercial ...... 32.6 4.8 0.6 8.7 (0.9) 24.8 0.6 Industrial ......... 21.8 3.7 4.8 (1.1) (10.9) 24.9 (0.6)

Municipal service . 1.8 4.5 (2.3) 11.6 (3.4) 15.2 (2.6) 1979 1980 1981 1982 1983 Total to ultimate In summary, total operating revenues consumers ........... 85.0 5.7 2.3 6.9 (4.5) 22.9 0.4 increased $ 855.2 million, or 48.1% over Other electric systems ... 11.6 37.1 34.3 24.9 35.4 29.0 6.5 Miscellaneous .......... 3.4 12.0 2.5 24.8 the three-year period, largely represent-ing recoveries of higher energy and Total '1 P Q.P% 8.8% 6.4% 8.2% (P.8)% 23.4% P.9% purchased gas costs through electric and gas adjustment clauses and in-Gas revenues increased $ 224.9 million or 58.6% over the three-year period. As creased rates.

shown by the table below, this rise is primarily from increased costs of purchased gas which are recovered from customers through the purchased gas adjustment TOTAL ELECTRIC AND GAS OPERATING REVENUES clause. Millions of dollars Increase (decrease) from prior year ln millions of dollars 2.632 Gas revenues 1983 1982 1981 Total 2,394 Increase in base rates ........ $ 10.3 $ 17.8 $ 11.0 $ 39.1 2,151 ...:;4 "'

Purchased gas cost increases . ?9.2 74.1 4.8 158.1 1,777 Gas sales .................... (14.0) 10.4 31.3 27.7 1,517 J

$ 75.5 $ 102.3 $ 47.1 $ 224.9 Gas sales were 103.2 million dekatherms in 1983, a 6.0% decrease from 1982 (see Electric and Gas Statistics Gas Sales appearing on page 36). The decrease for 1983 reflects reduced sales in all classes of service, resulting from customer con-servation in response to rising gas prices, partly offset by colder weather, and 1979 1980 1981 1982 1983 competition with stabilized oil prices. Changes in gas revenues and dekatherm sales by customer group are detailed in the table below: On March 24, 1983, the PSC approved rate increases to provide the Company 1983  % Increase (decrease) from prior year additional annual revenues of

%of (3.3%) for electric and Gas 1983 1982 1981 $ 56,383,000 Class of service Revenues Revenues SaIes Revenues Sales Revenues SaIes $ 11,009,000 (1.6%) for natural gas.

Residential .. 5Q.0% 14.9% (8.'1)% I 9.1% (1.3)% 6.1%

These new rates became effective March 28, 1983. In March 1982, the PSC Commercial .. 25.6 13.7 (6.1) 33.5 8.8 15.3 10.5 had approved rate increases providing Industrial .... 21.2 14.6 (1.1) 26.0 (3.0) 28.5 23.9 revenues of additional annual Total to ultimate $ 142,519,000 (7.9%) for electric and consumers....... 96.8 14.5 (5.9) 24.2 0.8 12.6 8.6

$ 17,143,000 (3.3%) for natural gas.

Other gas systems .. 2.6 2.4 (8.7) 1 1.8 (18.7) 2.5 3.6 Miscellaneous ..... 0.6 14.2 23.6 21.2 Further rate action, made necessary by the lingering effects of inflation, con-Total 1PP Q% 14.2/o (6.Q)% 23.8% (P.1)% 12.3% 8.3% tinued relatively high financing costs 17

and the need to increase cash flow, was fossil fuels. Nuclear fuel costs per kilo- growth. During 1981, the Company con-requested on April 29, 1983 when the watt hour of generation were reduced verted its Albany Steam Station to burn Company filed for an annual increase of as a result of reduced fuel disposal natural gas as well as oil to enable utili-

$ 211.3 million, including $ 196.2 million costs as provided in the Nuclear Waste zation of lowest cost fuel supplies. The (11.5/o) electric and $ 1 5.1 million (2.2/o) Policy Act of 1982 (see Note 10 of Notes cost of this conversion (about gas. In December 1983, PSC Adminis- to Consolidated Financial Statements). $ 7,900,000) was charged to deprecia-trative Law Judges recommended rate The total cost of gas purchased, net tion on an accelerated basis in 1981 and increases of $ 67.9 million (3.3'/o) electric of refunds from the Company's 1982.

and $ 8.8 million (1.3%) gas or about supplier, rose 15/o in 1983, 29%%d in 1982, Federal and foreign income taxes 36'/o of the original request. The Com- and 6/o in 1981. These increases are rose in 1983, 1982 and 1981 as a result pany and other parties have filed primarily the result of gradual deregula- of increased income, including an in-exceptions to many of the Judges'ec- tion of gas prices at the wellhead. The crease in the amounts on which de-ommendations. The PSC's opinion is Company's net cost per dekatherm pur- ferred taxes are provided. The increase expected in March 1984 with new rates chased has increased to $ 4.06 in 1983 in taxes other than income taxes in to be effective promptly thereafter. from $ 3.39 in 1982 and $ 2.64 in 1981. these same thiee years is due princi-Recent rate awards have not Through the energy and purchased pally to higher property taxes resulting adequately provided for steadily in- gas adjustment clauses, costs ot fuel, from property additions and higher creasing costs and the Company ex- purchased power and gas purchased, state and local gross income taxes re-pects to continue filing annual petitions above or below the levels allowed in ap- sulting from increased revenues.

for rate increases. proved rate schedules, are billed or In 1983, electric fuel and purchased credited to customers. The Company TOTAL TAXES INCLUDING INCOME TAXES Millions of dollars power costs increased to $ 883 million has filed revisions to its fuel adjustment from $ 815 million in 1982 after having clause consistent with PSC directives, 342 decreased from $ 840 million in 1981. 317 which essentially provide for partial The major portion of the 1983 increase pass-through of fuel cost fluctuations arose from a 7'/o increase in amounts from those forecast in rate proceedings 243 generated and purchased to meet cus- 211 with the. Company absorbing a specific 188 tomer requirements. Increased nuclear portion of increases or retaining a por-generation and low cost purchases tion of decreases to a maximum of $ 15 from Ontario Hydro and Hydro Quebec million (see Note 1 of Notes to Consoli-enabled the Company to satisfy cus- dated Financial Statements).

tomer needs and still reduce generation Other operation and maintenance ex-from stations using higher cost oil and penses increased 10.4'/o in 1983, 11.3/o natural gas as fuel. Fuel and purchased in 1982 and 16.8'/o in 1981, primarily as a 1979 1980 1981 1982 1983 power costs also increased as a result result of increases in wages and as-of unusually high fuel costs which were sociated benefits and higher costs The $ 23.1 million increase in total deferred in 1982 being recognized and charged by suppliers. In June 1982, the Allowance for Funds Used During Con-recovered through the fuel adjustment Company entered a two-year labor struction (AFC) for 1983 results from in-clause in 1983 (see Electric and Gas agreement providing for increased creased overall levels of plant under Statistics Electricity Generated and wages of 9.5/o in the first year and 9.0%%d construction, principally Nine Mile Purchased appearing on page 36.) in the second year. The increase in Point Nuclear Unit No. 2, partially offset other operation and maintenance ex- by lower AFC rates.

AVERAGE COST OF A TON OF COAL The Company's revenues and costs of AND A BARREL OF OIL BURNED penses in 1981 was also attributable, in part, to the refueling of Nine Mile Point operation over the past three years Nuclear Station Unit No. 1. The next re- show substantial increases in several 7.44 fueling outage for this unit is presently respects, due primarily to the effect of

$ 41.9 scheduled for the spring ot 1984. general inflation and higher tuel costs.

Ton of coal The Company is especially sensitive to MAINTENANCEAND OTHER inflation because of the large amount of

$ 30,64

$ 29 6~$ 30.67 OPERATION EXPENSE Millionsof dollars capital it must raise to finance its con-

$ 23.72 462.4 struction program and because its

$ 16.34 416.9 prices are regulated using a rate base Barrel of oil 376.4 that reflects the historical cost of utility 3223 plant. Inflation information in Note 12 of 300.6 the Notes to Consolidated Financial 1979 1980 1981 1982 1983 Statements indicates the approximate Other operation effect of inflation on certain aspects of Nine Mile Point Nuclear Station Unit the Company's operations and financial No. 1 returned to service in June 1983 128 8 136.3 position.

118 3 after having been out of service since gg.g 100.4 March 1982 for replacement of recircu- Maintenance Financial position, liquidity and capital lation piping. Since returning to service, resources. Financial resources pro-1979 1980 1981 1982 1983 the unit has operated at an 87'/o capac- vided from operations consist of net in-ity factor and has generated 2.8 billion Depreciation and amortization ex- come adjusted for non-cash expenses, kilowatt-hours of electricity at a fuel pense for 1983 increased,4.9'/o over such as depreciation, amortization of cost averaging about one-sixth that of 1982 principally from normal plant nuclear fuel and deferred income taxes, 18

~ ~ \

and hon-cash income, such as AFC. of requirements. On February 9, 1984, amounted to 43.6% of the balance AFC represents the financing costs of the Long Island Lighting Company available for common stock. The Com-the Company's construction program (LILCO), an 18/o owner of the Unit, pany has attempted to control costs And is added to the cost of construction notified the Company and the other Co- where possible and has adopted strin-until such time as a capital project is tenants of LILCO's intention to cease gent budgets for 1984 and beyond and

'completed, and is then recovered participation in the funding of the con- will continue to file for appropriate rate through depreciation included in rates struction costs of the Unit and failed to improvements, including those which charged to customers. Internal funds make a required payment. During the will increase cash flow in a timely and from operations are insufficient to meet remainder of 1984, construction fund- adequate manner.

the Company"s capital requirements, ing for LILCO's 18/o interest in the plant During the period 1981-1983, the therefore, large amounts of new capital is expected to average approximately $ 9 Company generated $ 514,000,000 (35%%d from external sources are necessary. million per month. Various arrange- of its construction requirements, External capital needs are first met ments are being investigated for the excluding AFC) from internal sources, through utilization ot short-term bor- funding of LILCO's remaining interest in the remainder being funded through a rowing arrangements, including bank the plant. On a temporary basis, the mix of security issuances, bank and lines of credit and commercial paper. Company will advance funds as neces- commercial paper borrowings. During These short-term borrowings are refi- sary for that portion of construction 1983, the Company generated nanced on a continuing basis through costs not being paid by LILCO. The $ 182,000,000 (32'/o of construction re-the issuance of securities, consisting of Company does not believe that the ac- quirements, excluding AFC) from inter-intermediate and long-term debt, pre- tions of LILCO will have a signiticant nal sources. The remainder was ob-ferred and preference stock and com- impact on the Company's 1984 con- tained initially from short-term bank and mon stock. struction budget or the amount of ex- commercial paper borrowings (see Note Capital resources consisting of both ternal financing currently anticipated. 4 of Notes to Consolidated Financial internal and external sources are used Future requirements for capital could Statements) which were later substan-to pay for the Company's construction be affected by changes in construction tially refunded with permanent securi-program, working capital needs, matur- costs, inflation, financing costs, regula- ties or bank revolving credit borrow-ing debt issues and sinking fund provi- tory requirements and other factors. ings.

sions on outstanding debt and pre- Liquidity and resources. The Com-ferred stocks. Sources and uses of SOURCE OF CAPITAL pany's long-term financial plan is de- FOR CONSTRUCTION PROGRAM funds during the past three years are signed to improve the percentage of in- Millionsof dollars reported in the Consolidated Statement ternal cash generation and to 573.7 of Changes in Financial Position at strengthen its capital structure. With page 23. regard to the latter, the proportion of 4997 /

37oo Capital needs. During the period long-term debt to total capitalization 1981-83, expenditures for construction has decreased from 48.6/o at the end of 385.5 38 o 68/o and nuclear fuel, including related AFC 1980 to 45.3%%d at the end of 1983 while 316 9 319 7 and overheads capitalized, have in- common equity as a percent of total 40/, fnternalI 63o/-

creased from $ 457.4 million to $ 594.5 capitalization has increased from 38.9/o 62'/o million to $ 691.5 million. Total capital to 42.1'/o during the same period. The 67/. ---6~/-

requirements, including debt and pre- Company will endeavor to turther External ferred stock redemptions and working strengthen these capitalization ratios in capital, have also increased. The 1984 1984. The trend in the percentage of in-1979 1980 1981 1982 1983 estimate for construction additions ternally generated cash, however, has fuel, including AFC and over- been less controllable. The PSC has not During 1983, the Company raised and'uclear heads capitalized, is $ 754 million. Debt provided the necessary increases in approximately $ 575,000,000 through and preferred stock retirements and cash flow to stabilize and enhance in- external sources, consisting of other requirements will add approx- ternally generated funds. Thus, while imately another $ 71 million to the Com- overall levels of earnings have in- ANNUALEXTERNAL FINANCING pany's capital requirements. creased, a substantial portion of this in- BY TYPE Millionsof dollars This upward trend in capital require- crease represents non-cash earnings in 583.1 ments is a result ot increasing construc- the form of AFC. AFC for the year 1983 Debt tion expenditures and relatively high Common CAPITALIZATIONRATIOS Percent capital costs. The principal project Preferred 12 8o/o 12 5o/o 12 9/o 11 So/o 12 6o/o 424.9 presently under construction is Nine . Preferred ..

Mile Point Unit No. 2 (Unit), scheduled 37 5oj< 38.9/o 40 7o/o 41.0 /o 42 fo/o 346.0 for completion in late 1986. The Com- 306.9 pany is a 41/o owner and had invested Common equity 171,3 about $ 1.1 billion, including AFC and 251.6 overheads capitalized, in the project I 48.6'/0 46 40/ 47 5/o through December 31, 1983. Expendi- 45 3O/

tures for construction of this plant have 1p 1 3 145.2 averaged approximately 40% of total Long-term debt 93.8 120.0 construction requirements during the 75.3 58.0 period 1981-1983. During 1983, such 20.0 expenditures were approximately 45%%d 1979 1980 1981 1982 1983 1979 1980 1981 1982 1983 19

ll ~ ~

1f

$ 200,000,000 of mortgage bonds, obligations under bankers acceptances flexibilityin its access to the pern>anent

$ 120,000,000 of preferred stock, for fuel oil inventory financing were capital markets. The Company is, how-

$ 83,900,000 of intermediate term bank $ 43,000,000, for a total of $ 84,763,000. ever, unable to predict the ultimate im-revolving credit obligations, and In general, construction related pact of the actions of LILCO on the

$ 171,269,000 of common stock from the short-term borrowings are refunded Company's flexibility in accessing vari-issuance of 10,177,852 shares through a with permanent securities on a continu- ous permanent capital markets.

combination of public sales and its Div- ing basis. Bank credit arrangements of In addition, in recent months, several idend Reinvestment, Employee Savings $ 345 million, in addition to a $ 100 mil- utilities have made announcements Fund and Employee Stock Ownership lion Bankers Acceptance Facility concerning the licensing and/or cancel-Plans. The Company also completed Agreement, are available to the Com- lation of unfinished nuclear plants

$ 15,135,000 of lease financing. Approx- pany to enhance flexibilityas to the type which, absent regulatory recognition, imately $ 210 million of the total 1983 ex- and timing of these security sales. Also, could result in substantial write-offs and ternal financing was used for debt and the Company expects to add $ 100 mil- dividend reductions. Also, regulatory preferred stock refunding and retire- lion of committed bank credit arrange- agencies nationwide are reviewing vari-ment and reductions of short-term debt. ments in early 1984. ous plans for the moderation of the rate Of this amount, $ 118.4 million repre- During 1983, the unsecured debt limi- impact of placing major generating sented early redemption of certain high tation imposed by the Company's Char- facilities in service. These factors have coupon debt in order to reduce interest ter was increased to $ 700 million. Earn- had an adverse impact on utility stock costs. ings coverage of interest charges has prices and bond ratings, including External financing for 1984 is ex- been well in excess of mortgage inden- those of the Company. Additionally, the pected to approximate $ 500 million, ture restrictions for the issuance of first cost and availability of external sources excluding lease financing. The Com- mortgage bonds. Also, approximately of funds will be affected by the mainte-

~

pany expects to secure the majority of I $ 1.1 billion 'of property is 'available to jnance of',adequate credit ratings 'and its capital needs from traditional financ- support the issuance of first mortgage conditions in the financial mar- 'eneral ing sources, however, it will continue to bonds. kets. Adverse changes in any of these explore and utilize, as appropriate, In general, the Company has a rela- -

factors could have an effect on the other methods of financing. At De- tively strong capital structure, a high Company's ability to fully implement its cember 1983, construction related degree of short and intermediate term intended construction and financing short-term debt was $ 41,763,000 and borrowing capability and a degree of programs.

Report of management The consolidated financial statements of Niagara Mohawk The Audit Committee of the Board of Directors, consisting of Power Corporation and subsidiary companies were prepared three directors who are not employees, meets regularly with by and are the responsibility of management. Financial infor- management, internal auditors and Price Waterhouse to review mation contained elsewhere in this Annual Report is consistent and discuss internal accounting controls, audit examinations with that in the financial statements. and financial reporting matters. Price Waterhouse and the To meet its responsibilities with respect to financial informa- Company's internal auditors have free access to meet indi-tion, management maintains and enforces a system of internal vidually with the Audit Committee at any time, without man-accounting controls, which is designed to provide reasonable agement present.

assurance, on a cost effective basis, as to the integrity, objec-tivity and reliability of the financial records and protection of assets. This system includes communication through written Report of independent accountants policies and procedures, an organizational structure that pro-vides for appropriate division of responsibility and the training To the Stockholders and the Board of of personnel. This system is also tested by a comprehensive Directors of Niagara Mohawk Power Corporation internal audit program. In addition, the Company has a Code of In our opinion, the accompanying consolidated balance Conduct which requires all employees to maintain the highest sheets and the related consolidated statements of income and level of ethical standards and requires key management retained earnings and of changes in financial position present employees to formally affirm their compliance with the Code. fairly the financial position of Niagara Mohawk Power Corpora-The financial statements have been examined by Price tion and its subsidiaries at December 31, 1983 and 1982, and Waterhouse, the Company's independent accountants, the results of their operations and the changes in their finan-with generally accepted auditing standards. As in'ccordance cial position for each of the three years in the period ended part of their examination, they made a study and evaluation of December 31, 1983, in conformity with generally accepted ac-the Company's system of internal accounting control. The pur- counting principles consistently applied. Our examinations of pose of such study was to establish a basis for reliance thereon these statements were made in accordance with generally ac-in determining the nature, timing and extent of other auditing cepted auditing standards and accordingly included such tests procedures that were necessary for expressing an opinion as of the accounting records and such other auditing procedures to whether the financial statements are presented fairly. Their as we considered necessary in the circumstances.

examination resulted in the expression of their opinion which follows this report. The independent accountants'xamination does not limit in any way management's responsibility for the Syracuse, New York January 25, 1984, fair presentation of the financial statements and all other in- except as to Note 10 formation, whether audited or unaudited, in this Annual which is as of Report. February 9, 1984 20

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Consolidate'd statement of income and retained earnings NIAGARAMOHAWKPOWER CORPORATION AND SUBSIDIARY COMPANIES In thousands of dollars For the year ended December 31 ~

1983 1982 1981 Operating revenues:

Electric $ 2,023,728 $ 1,860,649 $ 1,719,933 Gas . 608,587 533,122 430,785 2,632,315 2,393,771 2,150,718 Operating expenses:

Operation:

Fuel for electric generation . 501,328 502,491 582,033 Electricity purchased 381,703 312,451 257,788 Gas purchased 432,898 377,596 292,863 Other operation expenses . 326,057 290,091 258,124 Maintenance 136,338 128,801 118,331 Depreciation and amortization (Note 2)..... 127,390 121,422 102,536 Federal and foreign income taxes (Note 9) .. 117,089 109,519 53,043 Othertaxes ............................ 254,797 235,615 214,624 2,277,600 2,077,986 1,879,342 Operating income 354,715 315,785 271,376 Other Income and deductions:

Allowance for other funds used during construction (Note 1) 85I350 69,195 48,281 Federal income tax credits (Note 1) 31,511 26,390 19,548 Other items (net) 9,994 10,557 9,598 126,855 106,142 77,427 Income before interest charges . 481,570 421,927 348,803 Interest charges:

Interest on long-term debt 189,006 156,133 131,146 Other interest . 12,598 22,801 20,623 Allowance for borrowed funds used during construction (Note 1) (32,443) (25,541) (23,609) 169,161 153,393 128,160

. Net Income 312,409 268,534 220,643 Dividends on preferred stock 42,109 37,586 34,285 Balance available for common stock 270,300 230,948 186,358 Dividends on common stock 185,642 153,681 127,781 Retained earnings for the year 84,658 77,267 58,577 Retained earnings at beginning of year .. 566,023 488,756 430,179 Retained earnings at end of year $ 650,681 $ 566,023 $ 488,756 Average number of shares of common stock outstanding (in thousands) 97,685 87,340 79,204 Balance available per average share of common stock $ 2.77 $ 2.64 $ 2.35 Dividends per average share of common stock 1.89 $ 1.76 $ 1.61

() Denotes deduction 21

Consolidated balance sheet NIAGARAMOHAWKPOWER CORPORATION AND SUBSIDIARY COMPANIES ln thousands ol dollars At December 31, 1983 1982 ASSETS Utilityplant, at original cost (Notes 1 and 3) . $ 6,165,711 $ 5,516,532 Less accumulated depreciation and amortization (Note 2) 1,486,196 1,389,112 Net utility plant 4,679,515 4,127,420 Other property and Investments (Note 7) 85,602 63,751 Current assets:

Cash, including time deposits of $ 4,521'and $ 4,216, respectively (Note 4) 31,199 19,383 Accounts receivable (less allowance for doubtful accounts of $ 3,600 and $ 3,200, respectively) 274,076 229,249 Materials and supplies, at average cost:

Coal and oil for production of electricity. 95,910 142,153 Other 56,254 54,106 Prepayments . 17,498 10,260 474,937 455,151 Deferred debits:

Unamortized debt expense 22,109 22,268 Deferred recoverable energy costs 25,733 73,293 Extraordinary property losses(Note10) 14,875 21,233 Unamortized debt reacquisition expense(Note 7) 22,421 Other . 32,380 18,651 117,518 135,445

$ 5,357,572 $ 4,781,767 CAPITALIZATIONAND LIABILITIES Capitalization (Note 7):

Common stockholders'quity:

Common stock, issued 104,010,003 and 93,832,151 shares, respectively $ 104,010 $ 93,832 Capital stock premium and expense . 1,174,382 1,020,795 Retained earnings. 650,681 566,023 1,929>073 1,680,650 Non-redeemable preferred stock 210,000 210,000.-

Redeemable preferred stock 368,474 262,792 Long-term debt 2,048,548 1,881,441 Total capitalization 4,556,095 4,034,883 Current liabilities:

Short-term debt (Note 4) 84,763 92,000 Long-term debt due within one year 30,152 69,500 Sinking fund requirements on redeemable preferred and preference stock (Note 7) 11,950 9,950 Accounts payable 185,252 177,751 Payable on outstanding bank checks . 76,471 60,915 Customers'eposits 5,727 5,049 Accrued taxes 15,773 22,132 Accrued interest 46,494 47,497 Accrued vacation pay 22)657 20,519 Gas supplier refunds payable to customers .. 15,233 13,299 Other . 22,905 15,671 517,377 534,283 Deferred credits:

Income tax refunds (Note 9) 9,943 Mandated refunds to customers (Note 9) 3I244 4,065 Accumulated deferred Federal income taxes (Note 9) 259,816 178,580 Other . 21,040 20,013 284,100 212,601 Commitments and contingencies (Notes 3 and 10)

$ 5,357,572 $ 4,781,767

() Denotes deduction 22

Consolidated statement of changes in financial position NIAGARA MOHAWKPOWER CORPORATION AND SUBSIDIARY COMPANIES ln thovsands of dollars For the year ended December 31, 1983 1982 1981 FINANCIALRESOURCES WERE PROVIDED BY:

Operations:

Net income . $ 312)409 $ 268,534 $ 220,643 Charges (credits) to income not requiring (not providing) working capital Depreciation and amortization 127,390 121,422 102,536 Allowance for funds used during construction ..... (11'7,793) (94,736) (71,890)

Amortization of nuclear fuel . 11)856 12,967 37,427 Provision for deferred Federal income taxes (net) .. 80,850 68,900 19,734 Other (4,972) 409,740 377,087 308,450 Outside financing:

Sale of common stock . 171,269 145,194 101,313 Sale of preferred stock 120,000 20,000 58,000 Sale of mortgage bonds . 200,000 330,000 113,650 Issuance of other long-term debt 15,135 67,000 Net borrowings under revolving credit facilities (Note 7) . 83,900 (55,330) 5,350 Increase (decrease) in short-term debt ................. (7,237) (15,000) 680 583,067 424,864 345,993 Other sources:

Deferred recoverable energy costs ....... 47,560 (22,816) 11,362 Mandated refunds to customers (Note 9) . (5,793) (8,416) (10,445)

Unamortized debt reacquisition expense . (22,421)

Income tax refund 9,943 Other investments (22,670) (1 9,999) (23,349)

Sale of utility plant 13,316 Unamortized debt expense 159 (6,239) (1,988)

(Increase) decrease in working capital other than short-term debt (see befow) . (29,455) 29,693 (75,599)

Miscellaneous (net) (1 3,618) (28,016) 1,280 (46,238) (42,477) (88,796)

Total resources provided $ 946,569 $ 759,474 $ 565,647 FINANCIALRESOURCES WERE USED FOR:

Construction additions $ 6771155 $ 562,749 $ 439,418 Nuclear fuel 14,309 31,720 17,997 Allowance for funds used during construction (117,793) (94,736) (71,890)

Net additions... 573,671 499,733 385,525 Reduction of long-term debt. 130,829 56,518 8,880 Reduction of preferred and preference stock (Note 7) . 14,318 11,956 9,176 Dividends . 227,751 191,267 162,066 Total resources used . $ 946,569 $ 759,474 $ 565,647 (Increase) decrease in working capital other than short-term debt:

Cash . $ (11,816) $ (11,124) $ 5,570 Accounts receivable (44)827) (33,292) 2,193 Coal and oil for production of electricity 46,243 6,949 (41,594)

Other materials and supplies (2,148) (2,364) (3,567)

Long-term debt due within one year (39)348) 43,920 (133,900)

Accounts payable 7,501 12,397 20,478 Payable on outstanding bank checks 15,556 10,557 50,358 Accrued taxes and interest (7, 362) 9,946 (972)

Gas supplier refunds due customers 1,934 (20,781) 23,644 Other (net) 4,812 13,485 2,191

$ (29,455) $ 29,693 $ (75,599) 23

Notes to consolidated financial statements '

NOTE 1. Summary of Significant Accounting Policies remaining service lives by classes of depreciable property. In The Company is subject to regulation by the New York State addition, certain costs associated with the discontinued Ster-Public Service Commission (PSC) and the Federal Energy ling Nuclear Station (see Notes 2 and 10) are being amortized Regulatory Commission (FERC) with respect to its rates for over shorter periods as approved by the PSC. For Federal in-service and the maintenance of its accounting records. The come tax purposes, the Company computes depreciation Company's accounting policies conform to generally accepted using accelerated methods and shorter allowable depreciable accounting principles, as applied to regulated public utilities, lives.

and are in accordance with the accounting requirements and Estimated decommissioning costs (costs to remove the plant ratemaking practices of the regulatory authorities. from service in the future) of the Company's Nine Mile Point Principles of Consolidation: The consolidated financial Nuclear Station Unit No. 1 are recovered in rates through an statements include the Company and its four wholly-owned annual allowance and charged to operations through depre-subsidiaries. All significant intercompany balances and trans- ciation charges. The cost of decommissioning, which is ex-actions have been eliminated. Assets and liabilities of foreign pected to begin in the year 2005, is estimated to be approxi-subsidiaries are translated into U.S. dollars at the exchange mately $ 278,000,000 at that time ($70,600,000 in 1983 dollars).

rate in effect at the balance sheet date. Revenue and expense Through December 31, 1983, the Company has recovered accounts are translated at the average exchange rate in effect $ 12,700,000 of decommissioning costs in rates. There is no during the year. Currency translation adjustments are recorded assurance that the decommissioning allowance will ultimately as a component of equity and do not have a significant impact aggregate a sutficient amount to decommission the plant. The on financial condition. Company believes that decommissioning costs, if higher than Utility Plant: The cost of additions to utility plant and of re- currently provided, will ultimately be recovered in the rate placements of retirement units ot property is capitalized. Cost process, although no such assurance can be given.

includes direct material, labor, overhead and an allowance for Amortization of Nuclear Fuel: Amortization of- the cost of funds used during construction (AFC). In accordance with nuclear fuel is determined on the basis of the quantity of heat Statement ot Financial Accounting Standards No. 71, capital produced for the generation of electric energy. The cost of leases executed in 1983 have been capitalized and in accor- disposal of nuclear fuel, which presently is $ .001 per kilowatt-dance with the transition rules included therein, leases exe- hour of generation, is based upon a contract with the Depart-cuted prior to 1983 amounting to approximately $ 20,000,000 at ment of Energy (DOE). These costs, which are associated with December 31, 1983, have not been capitalized. The cost of generation at Nine Mile Point Unit No. 1, are charged to operat-current repairs and maintenance is charged to expense. ing expense and recovered from customers through base rates Whenever utility plant is retired, its original cost, together with or through the fuel adjustment clause (see Note 10).

the cost of removal, less salvage, is charged to accumulated Revenues: Revenues are based on cycle billings rendered to depreciation. The following table summarizes the components certain customers monthly and others bi-monthly. The Com-of Utility Plant: pany does not accrue revenues for energy consumed and not billed at the end of any fiscal period. The Company's tariffs In thousands of dollars At December 31, 1963  % 1982 include electric and gas adjustment clauses under which energy and purchased gas costs, respectively, above or below Electric plant................... $ 3>636>374 62 $ 3,598,488 the levels allowed in approved rate schedules, are billed or Nuclear fuel (Note 3) ............ 293>973 5 279,738 credited to customers. The Company, as authorized by the Gas plant 473,757 8 449,398 Common plant, Including PSC, charges operations for energy and purchased gas cost equipment leased under increases in the period of recovery. The PSC has periodically capital leases ................ 106,144 2 78,347 authorized the Company to make changes in the level of al-Construction work in ro ress... 1,455,463 23 1,110.561 lowed energy and purchased gas costs included in approved Total utility plant $ 6,165,711 100 $ 5,516,532 rate schedules. As a result of such periodic changes, a portion of energy costs deferred at the time of change would not be Allowance for Funds Used During Construction: The Com- recovered under the normal operation of the electric adjust-pany capitalizes AFC in amounts equivalent to the cost of ment clause. However, the Company has been permitted to funds devoted to plant under construction. AFC rates are de- amortize and bill such portions to customers, through the elec-termined in accordance with FERC and PSC regulations. As a tric adjustment clause, over 36 months from the effective date result of rate proceedings, the Company began computing of each change. The Company has filed proposed revisions to AFC at a rate which is reduced to reflect the income tax effect its fuel adjustment clause consistent with the PSC's Opinion in of the borrowed funds component of AFC for its Nine Mile a proceeding which reviewed the Company's electric fuel ad-Point Nuclear Station Unit No. 2 in 1976, for the capitalized justment clause. The revisions are being reviewed in the Com-costs associated with its investment in N M Uranium, lnc. in pany's current rate proceeding and implementation is ex-1978 (see Note 3) and for all additions to electric utility plant pected to coincide with the rate year beginning April 1984. The beginning in 1982. The AFC rates in effect December 31, 1983 revisions essentially provide for partial pass-through of fuel were 11.75% and, net of tax, 9.50%. AFC is segregated into its cost fluctuations from those forecast in rate proceedings with two components, borrowed funds and other funds, and is re- the Company absorbing a specific portion of increases or re-flected in the Interest Charges section and the Other Income taining a portion of decreases to a maximum of $ 15 million.

and Deductions section, respectively, ot the Consolidated The revisions are not expected to materially impact the finan-Statement of Income. cial condition or results of operation of the Company..

Depreciation, Amortization and Nuclear Generating Plant Federal Income Taxes: ln accordance with PSC require-Decommissioning Costs: For accounting purposes, deprecia- ments, unless otherwise authorized, the tax effect of timing tion is computed on the straight-line basis using the average or differences between book and taxable income is flowed 24

through, that is, only income taxes currently payable are re- crated recovery of the costs to modify the Company's Albany corded. However, as authorized by the PSC, deferred taxes are Steam Station to burn natural gas as a fuel. The percentage provided on benefits realized from the class life system of de- relationship between the total provision for depreciation and preciation permitted under the Revenue Act of 1971 (shorter average depreciable property was 2.8/o in 1983, 2.9'k in 1982 depreciable lives, repair allowance and cost of removal), on and 2.8/o in 1981. The Company makes depreciation studies on Accelerated Cost Recovery System (ACRS) tax depreciation in a continuing basis and, upon approval by the PSC, periodically excess of book depreciation, calculated on tax basis, as a re- adjusts the rates of its various classes of depreciable property.

sult of the Economic Recovery Tax Act of 1981 (ERTA), on deferred energy and purchased gas costs, on nuclear fuel dis- NOTE 3. N M Uranium, Inc.

posal costs accrued prior to April 7, 1983, on nuclear generat- During 1976, through a wholly-owned subsidiary, N M ing plant decommissioning costs and on certain"'other items Uranium, Inc. (NMU), the Company purchased a 50 percent (see Note 9). The Company has not provided deferred taxes on undivided interest in uranium deposits and associated mining approximately $ 1.3 billion of various other tax deductions and equipment to be held by a jointly-owned mining venture. Ac-depreciation method differences for property placed in service quisition of this interest was made primarily to provide a more prior to 1981 which, in conformity with the ratemaking prac- assured future supply of nuclear fuel. The investment in the tices of the PSC, have been flowed through. These various subsidiary, which includes costs incurred since acquisition other flow-through tax deductions, which are deductible cur- and AFC accrued through March 31, 1981, has been reduced rently for tax purposes but capitalized for accounting and by the proceeds from the sale of uranium, net of tax, and trans-ratemaking purposes, include certain taxes, a portion of AFC, fers to the Company and is included in the consolidated finan-pensions and certain other employee benefits. cial statements as part of the nuclear fuel component of utility The benefits resulting from an increase in the investment tax plant (see Note 1). Such investment (including inventory with a credit from 4'/o to 10'/0 and from the change in the limitation on spot market value of approximately $ 28,300,000 and the amount of credit which may be claimed in any year for $ 18,300,000 at January 1, 1984 and 1983, respectively) totaled property additions prior to January 1, 1981 have been deferred $ 86,300,000 at December 31, 1983 and $ 83,000,000 at and are being amortized over the book life of the property December 31, 1982.

which gives rise to such credits. One-half of the 4/o investment In 1978, the PSC issued an order approving the Company's tax credits realized have been allocated to Other Income and investment in NMU. This approval was subject to the condition Deductions, consistent with PSC directives. As a result of that rates which the PSC will approve in the future will reflect ERTA, all investment tax credits on property additions sub- the cost of NMU uranium at the lower of cost or the'market sequent to December 31, 1980 are being deferred and amor- price. The PSC also stated that the reasonableness of the tized over the book life of the property which gives rise to such Company's future uranium costs will be judged with reference credit. In accordance with the provisions of the Tax Equity and to costs of uranium under "currently" available long-term con-Fiscal Responsibility Act of 1982, the Company claims the full tracts and in the spot market. Subject to PSC approval, the 10'/o investment tax credit and, for purposes of computing cap-comparison of cost to market will be on an aggregate basis ital cost recovery deductions and normalization, is reducing over the life of the project.

the asset basis by one-half of the credit claimed. For the proj- Because of unsettled conditions in the uranium industry, the ects specified in the AFC section above, the imputed tax ben- spot market price of uranium continues to be depressed below efit of the borrowed funds component of AFC has been cred- levels anticipated by the Company at the time of its investment.

ited to Other Income and Deductions. The spot market price of uranium was $ 22.00 per lb. at January Amortization of Debt Issue Costs: The premium or discount 1, 1984 and $ 20.25 per lb. at January 1, 1983 as compared to on long-term debt issues is amortized ratably over the lives of approximately 43.00 per lb. during 1979. However, in Sep-the issues (see Note 7). tember 1983 the DOE reported that the average United States Pension Plans: The cost of pension plans is based upon cur- delivery price for all uranium during 1982, including long-term rent costs, amortization of unfunded past service benefits over contracts and spot market price settlements, was $ 38.37 per lb.

periods ranging from 15 to 40 years and amortization over 15 Due to regulatory restrictions on the extent to which the years of unfunded past service benefits arising from plan costs of uranium produced by this mining operation may be amendments. The Company's policy is to fund pension costs allowed in future rates and considering current market price accrued (see Note 8). levels, a portion of the Company's investment may not be re-Statement of Financial Accounting Standards No. 71 "Ac- coverable. Accordingly, the Company suspended accruing counting for the Effects of Certain Types of Regulation": The AFC on this investment as of April 1, 1981. Due to the uncer-Company has adopted the provisions of this statement in 1983. tainty of future uranium market prices during the period of The adoption of this statement did not have a significant effect utilization of the mine's output and of operating costs over the on the results of operations or financial position of the remaining productive life of the mine, the potential unrecover-Company. able portion of the Company's investment, if any, cannot be reasonably estimated. Management is continually evaluating NOTE 2. Depreciation and Amortization the status of this mining operation to assure maximum recov-The total provision for depreciation and amortization, includ- ery of the Company's investment. Based upon current fore-ing amounts charged to clearing accounts, was $ 128,976,000 casts of market prices and the Company's uranium require-for 1983, $ 123,104,000 for 1982 and $ 104,252,000 for 1981. The ments through 1991, it is presently anticipated that the mining 1983 and 1982 provisions include approximately $ 9,200,000 process will be completed and all production utilized.

and $ 6,700,000, respectively, resulting from the PSC allowed In connection with the Company's current rate proceeding, recovery of the amortization of costs associated with the dis- the PSC is reviewing the cost of NMU uranium to be utilized in continued Sterling Nuclear Station (see Note 10). The 1982 and the next reload of the Company's Nine Mile Point Nuclear Unit-1981 provisions also include approximately $ 6,400,000 and No. 1. The Company is unable to predict the outcome of this

$ 900,000, respectively, resulting from the PSC allowed accel- review.

25

NOTE 4. Bank Credit Arrangements and In thousands of dollars Construction Compensating Balances Percentage Utility Accumulated work in ownershl lant de reciation ro ress At December 31, 1983, the Company had $ 445 million of Roseton Steam Station bank credit arrangements, including the Oswego Facilities Units No.1and2(a) ...... 25 S 80,039 $ 21,087 S 1,732 Trust, with 43 banks. These credit arrangements consisted of Oswego Steam Station

$ 230 million in long-term commitments under Revolving Credit Unit No. 6(b)............. 76 $ 262,736 $ 25,535 $ 2,050 and Term Loan Agreements, $ 70 million in short-term com- Nine Mile Point Nuclear mitments under Credit Agreements, $ 45 million of lines of cred- Station Unit No. 2(c)(d).... 41 $ 1,091,190 it and $ 100,million under a Bankers Acceptance Facility (a) The remaining ownership interests are Central Hudson Gas and Agreement. The Revolving Credit and Term Loan Agreements Electric Corporation, the operator of the plant (35/o) and Consoli-are seven-year commitments and were all renegotiated in 1983. dated Edison Company of New York, Inc. (40/o).

At the option of the Company, the interest rate on 'these (b) The Company is the operator. The remaining ownership interest is agreements is based on the prime rate or interest rates appli- Rochester Gas and Electric Corporation (24/o).

cable to certificates of deposit or eurodollar deposits. All of the (c) The remaining ownership interests are Long Island Lighting Corn-pany (18/o), New York State Electric and Gas Corporation (18/o),

other bank credit arrangements are subject to review on an Rochester Gas and Electric Corporation (14/o), and Central Hud-annual basis with interest rates negotiated at the time of use. son Gas and Electric Corporation (9/o) (see Note 10).

The Company also issues commercial paper. Unused bank (d) Excludes amounts spent for nuclear fuel.

credit facilities are held available to support the amount of commercial paper outstanding.

The Company pays fees for the unused portion of the Revolv- NOTE 6. Information Regarding the ing Credit and Term Loan Agreements, the Oswego Facilities Electric and Gas Businesses Trust and certain of its lines of credit. The Credit Agreements The Company is engaged in the electric and natural gas util-and other lines of credit require the Company to pay a combi- ity businesses. Certain information regarding these segments nation of fees and compensating balances. Cash representing is set forth in the following table. General corporate expenses, compensating balance requirements was not significant at De- property common to both segments and depreciation of such cember 31, 1983. The Bankers Acceptance Facility Agreement, common property have been allocated to the segments in ac-which is used to finance the fuel oil inventory for one of the cordance with practice established for regulatory purposes.

Company's generating stations, provides for the payment of Identifiable assets include net utility plant, materials and fees only upon the issuance of each acceptance. supplies and deferred recoverable energy costs. Corporate as-Amounts outstanding under the Revolving Credit and Term sets consist of other property and investments, cash, accounts Loan Agreements, including the Oswego Facilities Trust, are receivable, prepayments, unamortized debt expense and other recorded as long-term debt and totaled $ 68,900,000 at De- deferred debits.

cember 31, 1983 (see Note 7). In thousands of dollars The following table summarizes additional information 1983 1982 1981 applicable to short-term debt: Operating revenues:

Electric ........... $ 2,023,728 $ 1,860,649 $ 1,719,933 In thousands of dollars Gas . 608,587 533,122 430,785 1983 1982 Total $ 2,632,315 $ 2,393,771 $ 2,150,718 At December 31: Operating Income before taxes:

Short-term debt: Electric ................... $ 420,600 S 381,378 S 288,990 Commercial paper.... S 37,100 S 44,000 Gas . -

51,204 43,926 35,429 Notes payable . 41663 Total S 471,804 S 425,304 S 324,419 Bankers acceptances . 43,000 48,000 Pretax operating Income, including AFC:

S 84,763 $ 92,000 Electric ................... 476,006 S 360,580 S 538,097 S Weighted average interest rate (a) .. 9.60'/o 9.76'/o Gas . 51,500 44,034 35,729 Total ................... 589,597 520,040 396,309 Income taxes................ 117,089 109,519 53,043 For year ended December 3 1: Other income and deductions 41,505 36,947 29,146 Dally average outstanding ...... $ 1191981 $ 147,910 Interest char es ............. 201,604 178,934 151,769 Daily weighted average interest Net income S 312,409 S 268,534 S 220,643 rate(a) 9.01y/o 13.03 /o Maximum amount outstandin Depreciation:

$ 232,160 $ 260,890 Electric ..... 115,075 $ 109,215 S 91,571 (a) Excluding compensating balances and fees. Gas . 12,315 12,207 10,965 Total $ 127,390 $ 121,422 S 102,536 Construction expenditures (including nuclear fuel):

NOTE 5. Jointly-Owned Generating Facilities Electric ................... S 654,020 $ 562,047 $ 424,596 Gas 37,444 32,422 32,819 The following table reflects the Company's share of jointly- Total S 691,464 S 594,469 S 457,415 owned generating facilities at December 31, 1983. The Com- Identifiable assets:

pany is required to provide financing for the unit in process of Electric ........... $ 4>443y1 54 $ 4 01 1 265 $3 561 592 construction and for any additions to the units in service. The Gas . 429,133 406,940 370,608 Company's share of expenses associated with the Roseton Total ........ 4,872,287 4,418,205 3,932,200 units and Oswego Steam Station Unit No. 6 are included in the Corporate assets . 485,285 363,562 288,034 appropriate operating expenses in the Consolidated Statement Total assets $ 5,357,572 $ 4,781,767 $ 4,220,234 of Income.

26

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NOTE 7. Capitalization CAPITAL STOCK The following table summarizes the shares of capital stock authorized, issued and outstanding:

At December 31 ~ 1983 1982 1981 Common stock, $ 1 par value:

Authorized .................. 125,000,000 125,000,000 125,000,000 Issued & outstandin 104,010,003 93,832,151 83,973,252 Preferred stock, $ 100 par value:

Authorized ................... 3,400,000 3,400,000 3,400,000 Issued 8 outstandin 3,370,240 3,161,920 3,199,980 Preferred stock, $ 25 par value:

Authorized ................... 9,600,000 9,600,000 9,600,000 Issued & outstandin 9,376,000 5,742,000 5,008,000 Preference stock, $ 25 par value:

Authorized ................... 4,000>000 4,000,000 4,000,000 Issued & outstandin 760,000 920,000 1,080,000 The table below summarizes changes in capital accounts for 1981, 1982 and 1983:

Non.redeemable Redeemable Redeemable preferred preferred preferred Capital stock Common stock stock stock stock premium and

($ 1 par value) ($ 100 par value) ($ 100 par value) ($ 25 par value) expense (net)

Shares Amount'hares Amount* Shares Amount'hares Amount Amount'alance January 1, 1981 75,231,144 $ 75,231 2,100,000 $ 210,000 885,240 $ 88,524(a) 4,974,000 $ 124,350(a) $ 792,591 Salesin1981 ............ 5,000,000 5,000 250,000 25,000 1,320,000 33,000 51,706 Issued to stock purchase plans in 1981 ........... 3,742,108 3,742 40,049 Redem tions ............ 35,260,526 206,000 5,150 859 Balance December 31,1981 83,973,252 83,973 2,100,000 210,000 1,099,980 109,998(a) 6,088,000 152,200(a) 885,205 Sales in1982 ............. 5,000,000 5,000 800,000 20,000 70,705 Issued to stock purchase plans in 1982 ............ 4,858,899 4,859 64,285 Redem tions ............. 38,060 ,806 226,000 5,650) 600 Balance December 31,1982 93,832,151 93,832 2,100,000 210,000 1,061,920 106,192(a) 6,662,000 166,550(a) 1,020,795 Salesin1983 ............. 5,000,000 5,000 250,000 25,000 3,800,000 95,000 78,629 Issued to stock purchase plansin1983 ............ 5,177,852 5,178 80,465 Redemptions ............. (41,680) (4,168) (326,000) (8,150) 607 Foreign currency translation ad ustment.... 6,114)

Balance December 31,1983 104,010,003 $ 104,010 2,100,000 $ 210,000 1,270,240 $ 127,024(s)10,136,000 $ 253,400(a) $ 1,174,382

• In thousands of dollars (a) Includes sinking fund requirements due within one year NON-REDEEMABLE PREFERRED STOCK (Optionally Redeemable)

The Company has certain issues of preferred stock which provide for optional redemption as follows:

Redemption price per share (Before adding accumulated dividends) in thousands ol dollars Eventual At December 31 ~ 1983 1982 1981 December 31, 1983 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

$ 210,000 $ 210,000 $ 210,000 27

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 Eventual At December 31, 1983 1982 1981 December 31, 1983 minimum Preferred $ 100 par value:

7.45'/o Series; 474,000, 492,000 and 510,000 shares.... $ 47,400 $ 49,200 $ 51,000 $ 105.05 $ 100.00 10.13/o Series; 250,000 shares........................ 25,000 (a) 100.00 10.60/o Series; 296,240, 319,920 and 339,980 shares.... 29,624 31,992 33,998 110.60 102.65 12.75/o Series; 250,000 shares. 25,000 25,000 25,000 (>) (>)

Preferred $ 25 par value:

8.375/o Series; 1,500,000 and 1,600,000 shares .......... 37>500 40,000 40,000 26.54 25.00 9.75/o Series;936,000, 1,002,000and1,068,000shares... 23,400 25,050 26,700 26.545 25.00 9.75 /o Series (second); 1,020,000 shares ................ 25,500 25,500 25,500 27.44 25.00 10.13'/o Series; 1,000,000 shares . 25,000 (a) 25.00 10.75'/o Series; 1,600,000 shares . 40,000 (a) 25.00 12.25'/o 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 15.00/o Series; 800,000shares. 20,000 20,000 28.59 25.00 Adjustable Rate Series A; 1,200,000 shares................ 30,000 (a) 25.00 Preference $ 25 par value:

7.75'/o Series; 760,000, 920,000 and 1,080,000 shares ... 19,000 23,000 27,000 25.28 25.00 380,424 272,742 262,198 Less slnkin fund re uirements 11,950 9,950 7,450

$ 368,474 $ 262,792 $ 254,748 (a) Not redeemable until 1988.

(b) Entire issue to be redeemed at par value June 30, 1991.

(c) Not redeemable until 1991.

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'/o series and 300,000 shares of the 9.75'/0 series). The option to redeem additional amounts is not cumulative.

The Company's five-year mandatory sinking fund redemption requirements for preferred and preference stock are as follows:

In thousands of dollars No. of shares Commencing 1984 1985 1986 1987 1988 Preferred $ 100 par value:

7.45'/o Series .......... 18,000 6f30/77 $ 1,800 $ 1,800 $ 1,800 $ 1,800 $ 1,800 10.60/o Series .......... 20,000 3/31/80 (a) 1,624(a) 2,000 2,000 2,000 10.13/o Series .......... 25,000 12/31/87 2,500 2,500 Preferred $ 25 par value:

9.75/o Series ......... 66,000 10/1/80 1,650 1,650 1,650 1,650 1,650 8.375/o Series ......... 100,000 4/1/83 2,500 2,500 2,500 2,500 2,500 9.75/o Second Series . 204,000 4/1/86 5,100 5,100 5,100 10.13/o Series ......... 100,000 12/31/87 2,500 2,500 12.25/o Series ......... 43,060 3/31/87 1,077 1,076 12.50/o Series ......... 38,139 3/31/87 953 954 15.00/o Series ......... 40,000 3/31/87 1,000 1,000 Preference $ 25 par value:

7.75/o Series ........... 240,00 b 9/30/80 6,000 13,000

$ 11,950 $ 20,574 $ 13,050 $ 21,080 $ 21,080 (a) Requirements, or a portion thereof, have been met by advance purchases.

(b) The balance of the issue is to be redeemed September 30, 1985.

LONG-TERM DEBT Long-term debt and long-term debt due within one year are tween NYSERDA and the Company, trust funds have been es-detailed in the table on the following page. tablished with the proceeds from the bond and note issues.

The 13~/z'/o First Mortgage Bonds and the $ 56,000,000 Ad- Such proceeds are to be used for the purpose of constructing justable Rate Pollution Control Notes are both tax-exempt and certain pollution control facilities at the Company's generating were issued to secure a like amount of Revenue Bonds and facilities. Unexpended proceeds in the trust funds amounted to Notes issued by the New York State Energy Research and De- $ 29,769,000 at December 31, 1983 and are recorded in Other velopment Authority (NYSERDA). Pursuant to agreements be- Property and Investments.

28

J

~

Notes Payable include $ 47,800,000 Eurodollar Guaranteed of Credit Facility and Revolving Credit Agreement of the Trust Notes issued by the Company's subsidiary Niagara Mohawk requires payment of fees which are based upon the amount of Finance, N.V. and guaranteed by Credit Lyonnais. In connec- commercial paper outstanding.

tion with the formation and capitalization of this subsidiary, the Other long-term debt consists of obligations under capital Company also issued a $ 17,000,000 note payable which bears leases of $ 15,135,000 and the liability for nuclear fuel disposal interest at the London Interbank Offered Rate (LIBOR), cur- of $ 45,472,000 (see Note 10).

rently set at 10.5/o through March 15, 1984. During 1983, the Company reacquired $ 98,004,000 of its out-The arrangements with Oswego Facilities Trust (Trust) pro- standing long-term debt prior to maturity. The refunding pre-vide financing for the first construction phase of a new energy mium, commissions and expenses paid upon reacquisition and management system. The Trust has a $ 40,000,000 Direct Pay the unamortized debt expense associated with the reacquired Letter of Credit Facility and Revolving Credit Agreement which debt, amounting to $ 22,421,000, is recorded in "Deferred deb-is available through December 31, 1990, and is used to support its: Unamortized debt reacquisition expense". The Company its commercial paper obligations. All such obligations are se- has requested approval from the PSC to amortize these costs cured by certain assets held by the Trust. The Company is over subsequent periods and believes these costs will be re-required to purchase, or otherwise arrange for, the disposition . coverable in future rates.

of the Trust assets upon the termination of the Trust. The Letter In thousands of dollars In thousands of dollars At December 31, 1983 1982 At December 31, 1983 1982 First mortgage bonds: 13Vz /o Series due April 1 ~ 2012........... 30,000 30,000 3Vz /o Series due February 1 1983....

~ $ $ 25,000 16 lo Series due August 1 2012 ~ ........ 3,046 75,000 3V4/oSeriesdueOctober1,1983 .... 40,000 12r/8'/o Series due November 1, 2012 ..... 100,000 100,000 3VS%SeriesdueAugust1 1984 .....

~ 25,000 25,000 12r/8'/o Series due March 1,2013 ......... 100,000 10VS/o Series due September 1, 1985 .. 47,000 47,000 12Vz'/oSeriesdue June15,2013 ......... 50>000 AS'/o Series due May 1, 1986 ........ 30,000 30,000 4r/e'/o Series due September 1 1987 .. 50>000 50,000 Paul Smith's Electric Light & Power &

~

Railroad Company first mortgage bonds:

3r/s/o Series due June 1,1988 ....... 50,000 50,000 14r/8/o Series due August 11, 1988 .... 50,000 50,000 5Vz/o Series due May 1, 1985 ........... 450 450 474'/o Series due April 1, 1990........

PromIssory notes:

50,000 50,000 15/o Series due March 1, 1991 ...... 38,650 50,000 8/oSeriesAdue June1,2004 .......... 46,600 46,600 4>/z'/o Series due November 1, 1991 Notes payable:

40,000 40,000 Adjustable Rate Pollution 15Vz /o Series due March 1, 1992 ...... 50,000 50,000 Control Notes 56,000 1574'/o Series due June 1,1992 ....... 62>500 75,000 17/o Eurodollar Guaranteed Notes 11'/o Series due May 1,1993 ........ 50,000 due September15,1989 .............. 47>800 50,000 45@/o Series due December 1, 1994 .. 40,000 40,000 10.5/o Adjustable London Interbank 5r/8'/oSeriesdueNovember1,1996 .. 45,000 45,000 Offered Rate due September15,1989 .. 17,000 17,000 6>/4/o Series due August 1, 1997 ..... 40,000 40,000 Prime rate plus Vz'/o (not to exceed 6>/z/o Series due August 1, 1998 ..... 60>000 60,000 7>/z/o) due in equal quarterly install-9>/8/o Series due December 1, 1999 .. 75,000 75,000 ments through April 1, 1984 ........... 625 3,750 12.95'/o Series due October 1, 2000 ... 80>000 80,000 Revolving credit end term loan 7% /o Series due February 1, 2001 .... 65,000 65,000 agreements . 50,000 35,000 7rri>'/o Series due February 1, 2002.... 80>000 80,000 Revolving credit agreement, 7@4'/o Series due August 1,2002 ..... 80>000 80,000 Oswego Facilities Trust .............. 18,900 6,000 8>/4/o Series due December 1, 2003 .. 80,000 80,000 Other 60,607 45,472 9/o Series due December 1, 2003 .. 50,000 50,000 Unamortized premIum 1,835 2,934 9.95'/o Series due September 1, 2004 ..

10.2'/oSeriesdue March1,2005 ......

100>000 37,887 100,000 38,935 TOTAL LONG-TERM DEBT ............. 2,078,700 1,950,941 Less lon -term debt due within one year 30,152 69,500 8.35'/o Series due August 1,2007 ..... 71,800 72,800

$ 2,048,548 $ 1,881,441 878/oSeriesdue December1,2007 .. 48,000 50,000 Certain of the Company's First Mortgage Bonds provide for a mandatory sinking fund for annual redemption. The Company's five-year mandatory sinking fund redemption requirements for First Mortgage Bonds are as follows:

Principal In thousands of dollars amount Commencing 1984 1985 1986 1987 1988 10.20/o Series due March 1 2005......

~ $ 1,500 3/1/78 $ (e) $ 1,387(a) $ 1,500 $ 1,500 $ 1,500 8.35'/o Series due August 1, 2007 ..... 750 8/1/82 (e) (e) 550(e) 750 750 8V>>'/o Series due December 1, 2007 ... 2,000 12/1/83 2,000 2,000 2,000 2,000 2,000 9.95/o Series due September 1, 2004 . 5,000 9/1/85 5,000 5,000 5,000 5,000 14r/s% Series due August 11, 1988 ..... 16,000 8/11/86 '6,000 17,000 17,000 12.95/o Series due October 1, 2000 .... 5,333 10/1/86 5,333 ~ 5,333 5,333 9'/o Series due December1,2003 ... 2,941 12/1/87 2,941 2,941

$ 2,000 $ 8,387 $ 30,383 $ 34,524 $ 34,524 (a) Requirements, or a portion thereof, have been met by advance purchases.

29

Additionally, certain other series of mortgage bonds provide Company's plans at December 31, 1983 and 1982'are as for a debt retirement fund whereby payment requirements may follows:

be met, in lieu of cash, by the certification of additional prop- In thousands of dollars 1983 1982 erty, the waiver of the issuance of additional bonds or the re-tirement of outstanding bonds. The 1983 requirements for these series were satisfied by the certification of additional Vested Non-vested .

Actuarial present value of accumulated benefits:

$ 328,000 20,000

$ 302,000 18,000 property. The Company anticipates that the 1984 requirements for these series will be satisfied by other than payment in cash. Total $ 348,000 $ 320,000 Total annual debt retirement fund requirements for these series, based upon mortgage bonds outstanding December 31, Net assets available for plan benefits..... $ 408,000 $ 341,000 1983, are $ 7,850,000.

The weighted average assumed rate of return used in deter-mining the actuarial present value of accumulated plan ben-NOTE 8. Pension Plans efits was 7% in each year.

The Company and its subsidiaries have non-contributory The above table summarizes accumulated plan benefits at-pension plans covering substantially all their employees. The tributable to employee wage levels and service rendered total pension cost was $ 40,000,000 for 1983, $ 38,000,000 for through December 31, 1983 and 1982. These amounts do not 1982 and $ 34,100,000 for 1981 (of which $ 12,200,000 for 1983, take into consideration expected future service, wage in-

$ 11,000,000 for 1982 and $ 9,300,000 for 1981 was related to creases and associated actuarial assumptions. These addi-construction labor and, accordingly, was charged to construc- tional factors and assumptions are considered in determining tion projects). the funding requirements of the Company's ongoing pension Studies indicate that the accumulated plan benefits, as de- plans, based upon an approved actuarial cost method, and are termined by consulting actuaries, and plan net assets for the in conformity with generally accepted actuarial principles and practices.

NOTE 9. Federal and Foreign Income Taxes Income Tax Refund: In September 1981, the Company re- part of a March 1983 rate decision, the PSC ordered that one-ceived a refund of Federal income tax, including interest half of the refund be passed on to ratepayers over a two-year thereon, amounting to $ 9,943,000, net of Federal income taxes period and the remaining one-half be retained by the Com-on the interest portion of the refund. The refund resulted from pany. Accordingly, one-half of the amount has been recorded the allowance of certain deductions for the loss of water rights in "Deferred Credits: Mandated refunds to customers", and is at Niagara Falls in connection with the redevelopment of Niag- being amortized over two years. The remaining one-half is in-ara power by the Power Authority of the State of New York. As cluded in the Consolidated Statement of Income. In both Summary Analyslsr In thousands ol dollars 1963 1982 1981 Components of Federal and foreign income taxes:

Current tax expense: Federal . $ (4,566) $ 4,860 $ 6,996 Forei n . 9,294 9,369 6,765 4>728 14,229 13,761 Deferred Federal income tax ex ense 112,361 95,290 39,282 Income taxes included in Operating Expenses ..........,....... 117,089 109,519 53,043 Federal income tax credits included in Other Income and Deductions... (31,511) 26,390) 19,548)

Total . $ 65,578 $83,129 $33,495 Components of deferred Federal Income taxes(Note 1)r Depreciation $ 22>185 $ 26,842 $ 12,533 Cost of removal of property . 2,479 5,930 193 Investment tax credit 51,163 21,859 21,501 Recoverable energy and purchased gas costs (22,523) 24,307 (1,811)

Necessity certificates (700) (700) (700)

Nuclear fuel disposal cost. 20,746 (9,940) (12,224)

Sterling abandonment . 188 (908) 2,018 Other . 7,312 1,510 1,776)

Deferred Federal income taxes net $ 60,850 $ 68,900 $ 19,734 Reconciliation between Federal and foreign Income taxes and the tax computed at prevailing U.S. statutory rate on Income before income taxes:

Computed tax $ 183,074 $ 161,765 $ 116,904 Reduction attributable to flow-through of certain tax adjustments:

Depreciation. (6,431) 796 9,422 Allowance for funds used during construction . 54,185 43,579 33,069 Taxes, pensions and employee benefits capitalized for accounting purposes .. 22,376 19,092 12,515 Real estate taxes on an'assessment date basis . 3,590 4,282 3,086 Investment tax credit . 7,861 12,354 Deferred taxes provided at other than the statutory rate 9,269 1,598 7,424 Other 14,507 1,428 5,539 97,496 78,636 83,409 Federal and forei n income taxes $ 65,578 $ 83,129 $ 33,495 30

cases, the tax portion of the refund has served to reduce cur- ments from a target completion cost of $ 4.6 billion (including rent tax expense. In July 1983, the Company filed a suit seeking AFC) as apportioned to each Co-tenant. The PSC stated that to annul the PSC's decision to share the refund with adjustments to this target cost may be permitted should ex-ratepayers. A decision from the Appellate Division of the State traordinary events beyond the control of the Co-tenants occur, Supreme Court is expected in 1984. The Company is unable to or if differing regulatory treatment than that assumed in deter-predict the ultimate disposition of this refund. mining the target cost is adopted by the PSC in future rate Investment Tax Credits: The Company deferred the net ben- proceedings. Under the IROR program, 20% of the variation in efit of investment tax credits of approximately $ 51,200,000 revenue requirements caused by construction cost overruns

($ .52 per share), $ 21,900,000 ($ .25 per share) and $ 21,500,000 would penalize, and those caused by underruns would reward

($ :27 per share) for the years ended December 31, 1983, 1982 stockholders. Any IROR-induced reduction in the return on and 1981, respectively, in accordance with the general policy equity may not exceed one-half of the normal unadjusted as stated in Note 1. The Company has unused credits at De- equity return on the applicable investment in the Unit. The cember 31, 1983 of approximately $ 5,800,000, which may be IROR program will be implemented as part of the first rate utilized to reduce current tax expense in subsequent years. proceeding involving each Co-tenant that considers rate rec-Such credits, if unused, expire in 1998. ognition of the Unit's completion cost.

United States and foreign components of income before In May 1982, various parties including the New York State income taxes: Attorney General and the New York State Consumer Protection ln thousands of dollars Board (CPB), petitioned the PSC to reconsider the Order. The 1983 1982 1981 PSC denied the petition and in December 1982, several parties,

................ including the CPB and the Attorney General of the State of New Foreign.....

United States Consolidatin eliminations....

$ 386,051 19,989 (10,053)

$ 341,962 20,906 11,207,411

$ 247,374 14,175 York, filed a petition to appeal the PSC's decision. In November 1983, the Supreme Court Appellate Division, Third Department, Income before income taxes $ 397,967 $ 351,663 $ 254,138 affirmed the PSC's decision and the time for further appeal has expired.

In 1983, the Staff of the Nuclear Regulatory Commission NOTE 10. Commitments and Contingencies (NRC), in accordance with their procedures for regular review, Construction Program: At December 31, 1983, substantial conducted assessments of the Unit's overall construction pro-construction commitments existed, including those for the gram. In connection with these assessments, the NRC in-Company's share of Unit No. 2 at the Nine Mile Point Nuclear formed the Company that, in its opinion, management's atten-Station. The Company presently estimates that the construc- tion to certain aspects of the Unit's construction program tion program for the years 1984 through 1988 will require ap- should be increased. The Company is in the process of review-proximately $ 1,804 million, excluding AFC and certain over- ing the NRC's recommendations and implementing corrective heads capitalized. By years the estimates are $ 505 million, $ 345 action, as appropriate.

million, $ 300 million, $ 301 million and $353 million, respec- A planned overall project cost re-estimate based on progress tively (see "Nine Mile Point Nuclear Station Unit No. 2" below). to date, which will include a re-assessment of the quantity of Nine Mile Point Nuclear Station Unit No. 2: Nine Mile Point material and labor hours necessary for completion of the Unit, Nuclear Station Unit No. 2 (Unit), a nuclear power plant being is currently in process and is expected to be completed in the constructed by the Company and shared with other utilities, is second quarter of 1984. The Company does not presently ex-the only major generating facility currently under construction pect the total project cost re-estimate to vary significantly from by the Company. Ownership is shared by the Company (41%),

the target completion cost established by the PSC in the IROR Long Island Lighting Company (18%), New York State Electric program.

8 Gas Corporation (18%), Rochester Gas and Electric Corpora- The Co-tenants have completed a re-estimate of the project tion (14%), and Central Hudson Gas 8 Electric Corporation cost to be incurred in 1984 resulting in an increase in 1984 (9%). Output of the Unit, which will have a projected capability construction costs to approximately $ 579 million, representing of 1,084,000 kw., will be shared in the same proportions as the a $ 189 million increase, excluding in both cases AFC and cer-Co-tenants'espective ownership interests. tain overheads capitalized. The Company's 1984 estimate of its Commercial operation of the Unit is scheduled for late 1986 construction program expenditures, as presented above under at a cost, as estimated in January 1983, of $ 4.2 billion (com- "Construction Program", has been increased by $ 77 million to prised of construction costs of $ 2.65 billion and AFC of $ 1.55 reflect the Company's 41% share of the aforementioned billion). The Company's share of the total estimate is approxi- change. Estimates for the years 1985 and 1986 will be revised, mately $ 1.7 billion. as necessary, upon completion of the overall project cost re-In September 1981, the Staff of the PSC issued a report on a estimate.

comparative analysis of the economic and financial feasibility On February 9, 1984, the Long Island Lighting Company of the Unit versus coal alternatives. This report concluded that (LILCO) notified the other Co-tenants of its intention to cease completion of the Unit is warranted. Also in September 1981, participation in the funding of the construction costs of the the PSC ordered a public proceeding to inquire into the finan- Unit and failed to make a required payment. During 1984, con-cial and economic cost implications of completing the Unit. struction funding for LILCO's 18% interest is expected to aver-In an opinion and order issued on April 16, 1982 (Order), the age approximately $ 9 million per month.

PSC affirmed that completion of the Unit is warranted and in- The non-defaulting Co-tenants have stated they will take all dicated its intention to closely monitor construction activities. appropriate steps to preserve their legal and regulatory rights In addition, the PSC adopted an incentive rate of return (IROR) with respect to the actions taken by LILCO. Various arrange-program in connection with the remaining construction costs ments are being investigated for the funding of LILCO's re-of the Unit. The purpose of this program is to reward savings in maining interest in the Unit which, based upon the January construction costs and penalize cost overruns based on a 1983 cost estimate revised for increases in costs for the 1984 "sharing factor" of 20% of the variation in revenue require- Unit work plan, amounts to approximately $ 150 million, exclu-31

sive of AFC. On a temporary basis, the Company will advance power purchased from PASNY be allocated exclusively'for funds as necessary for that portion of construction costs not their benefit and asking monetary damages for the difference being paid by LILCO. Although the Company believes that the between rates charged by the Company and rates that would actions of LILCO will not significantly affect the present otherwise have been charged if this power had been furnished schedule and ultimate cost of the Unit, no such assurance can to them since the initiation of the suit in 1978 and for the six be given. years prior thereto. A settlement was reached in January 1982 A number of nuclear power plant construction projects in the wherein these electric customers will receive an initial alloca-United States have recently encountered substantial delays, tion of power and thereafter an increased allocation (through licensing difficulties and cost escalation due to a variety of December 31, 1987) when their proposed plant expansion ac-factors. Although the outcome of the remaining regulatory tivities are completed. No monetary damages were awarded. In licensing proceedings relating to the completion of the Unit February 1982, certain other parties that did not join in the cannot be predicted with certainty, the Co-tenants believe an original litigation commenced litigation which sought to set operating license will be issued upon completion of construc- aside the January 1982 settlement. This litigation is continuing tion since the Unit is being designed to meet applicable regula- and the Company is unable at this time to predict the ultimate tory requirements. outcome of these proceedings. In the opinion of management, It is possible that completion of the Unit consistent with its the ultimate disposition of this matter will not materially affect present schedule and cost estimate and the issuance of an the Consolidated Financial Statements of the Company.

operating license could be adversely affected by the aforemen- In October 1982, the CPB petitioned the PSC to exclude the tioned and other factors. Also, if all requisite governmental Nine Mile Point Nuclear Station Unit No. 1 from rate base for approvals are not received, or if governmental restrictions or the duration of the outage which occurred from March 1982 prohibitions as to the use of nuclear power develop which af- through June 1983. In addition, the CPB requested evidentiary fect this Unit, the Company's investment in the Unit ($ 1,091.2 hearings to determine whether imprudence played a role in million, including AFC and overheads capitalized, at December either the cause or the duration of the outage. In November 31, 1983) may have to be written off, and in certain cir- 1982, the PSC rejected the CPB petition, but did announce it cumstances, the Company could incur substantial cancellation would conduct a formal investigation into the cause and dura-charges. Although the Company believes that it would be per- tion of the outage after completion of repairs to the unit. Ac-mitted to amortize its investment in this project and any related cordingly, in July 1983 the PSC issued an order instituting such cancellation charges against income and to recover such in- a proceeding. The Company is unable to predict the outcome vestment, cancellation charges and related carrying costs of this proceeding.

through rates over a period of years, no such assurance can be In August 1983, the PSC instituted a proceeding to investi-given. gate the Company's operating practices and certain other mat-Long-term Contracts for the Purchase of Electric Power: At ters that it is alleged may have resulted, among other things, in January 1, 1984 the Company had contracts to purchase elec- excessive fuel adjustment charges in previous periods; and, tric power from the following generating facilities owned by further, to determine whether and to what extent remedial ac-the Power Authority of the State of New York (PASNY) and tion with respect to any such matters is proper under the PSC's from Ontario Hydro of Canada: regulations or otherwise. Although the Company believes it has acted properly, it cannot predict to what extent, if any, Expiration Purchased Estimated adjustment of previous collections under the fuel adjustment date of capacity annual Facility contract in kw. capacity cost clause may be required.

PASNY FERC Audit: As a result of an audit conducted by the Federal St. Lawrence Energy Regulatory Commission (FERC) for the years 1973 hydroelectric project .... 1985 115,000 $ 1,360,000 through 1978, the FERC proposed certain adjustments con-Niagara cerning the base cost of nuclear fuel on which AFC should be hydroelectric project .... 1990 1,118,332 13,420,000 applied. Resolution of this matter has been deferred by FERC Blenheim-Gilboa-pumped storage pending their development of generic rulemakings concerning generating station.... 2002 550,000 12,540,000 accounting for nuclear fuel. If these recommended adjust-FitzPatrick nuclear plan t .. year-to- 139,000 15,346,000 ments are sustained by FERC, the resulting reduction in re-year basis tained earnings would approximate $ 26,000,000 through 1983.

Ontario Hydro 1986 400,000 39,200,000 The Company believes that the adjustments are not justified 2,322,332 $ 61,666,000 and is contesting them. At present, the Company is unable to

'121,000 kw. for winter of 1984-85. predict the outcome of this matter.

Sterling Nuclear Station: The PSC granted the Company The purchase capacities shown above are based on the con- permission to recover over a three-year period, commencing in tracts currently in effect. The estimated annual capacity costs 1982, its costs, together with carrying charges on the unrecov-are subject to price escalation and are exclusive of applicable ered balance, of the abandoned Sterling Nuclear Station. Ac-energy charges. In October 1982, FERC issued an order requir- cordingly, the investment is recorded in "Deferred debits: Ex-ing the Company to negotiate reformation of its present con- traordinary property loss" and is being amortized. Such amor-tracts with PASNY for Niagara Project power such that prefer- tization is included in depreciation and amortization in the ence be given to municipal electric utilities along with rights to Consolidated Statement of Income. In September 1982, the At-interconnections and/or wheeling service. The Company and torney General of, the State of New York commenced a pro-PASNY have appealed this order and the appeal is expected to ceeding challenging the prudence of the PSC decision which be heard in early 1984. The Company is unable to predict the permitted the Co-tenants to recover their costs and carrying outcome of this proceeding. charges associated with the project. A motion by the Co-Litigation: In 1978, several electric customers brought suit tenants to dismiss the Attorney General's petition was denied against the Company and PASNY requesting that certain and the Co-tenants appealed that denial. In July 1983, the Sup-32

o ~

rerge Court, Appellate Division, in a unanimous decision, dis- NOTE 12. Supplementary Information to Disclose missed the Attorney General's petition. The decision was af- the Effects of Changing Prices (Unaudited) firmed by the New York Court of Appeals in January 1984. While much reduced from levels experienced in 198041, in-Nuclear Fue/ Disposal Costs: In January 1983, the Nuclear flation, resulting in a decline in the purchasing power of the Waste Policy Act (Act) was enacted. Among other things, the dollar, remains one of our nation's concerns. The threat of Act provided for a determination of the liability to the Depart- inflation and its negative impact on all sectors of the economy ment of Energy (DOE) for the disposal of nuclear fuel irradiated continues.

prior to 1983, and three payment options for liquidating such 'he Company's consolidated financial statements are based liability. The Company's liability to the DOE associated with on historical events and transactions when the purchasing generation at its Nine Mile Point Unit No. 1 prior to 1983, is power of the dollar was substantially different from the pres-approximately $ 45,500,000. Based upon an optio'n;for payment ent. The effects of inflation on most utilities, including Niagara in 1998, the year in which the Company first plans to ship Mohawk, are most significant in the areas of depreciation and irradiated fuel to an approved DOE disposal facility, it is esti- utility plant and amounts owed on borrowed funds.

mated that the cost of such disposal will be approximately In recognition of the fact that users of financial reports need

$ 177,000,000, including interest charges as prescribed in the to have an understanding of the effects of inflation on a busi-Act. ness enterprise, the following supplementary information is The Company, through ratemaking methodology approved supplied for the purpose of providing certain information by the PSC, has collected in rates approximately $ 145,800,000 about the effects of both general inflation and changes in for the disposal of nuclear fuel irradiated prior to 1983. Of this specific prices. It should be viewed as an estimate of the ap-amount, $ 45,500,000, representing the liability to the DOE, is proximate effect of inflation, rather than as a precise measure.

reflected in long-term debt and the remaining portion is in- Constant dollar amounts attempt to adjust for general infla-cluded in accumulated depreciation and amortization. In con- tion and represent historical costs stated in terms of dollars of nection with the Act and current PSC policy, the Company has equal purchasing power, as measured by the Consumer Price petitioned the Commission for future ratemaking considera- Index for all Urban Consumers. Current cost amounts reflect tion of the ultimate future nuclear fuel disposal cost in relation the changes in specific prices of plant from the date the plant to amounts previously collected. Such petition has been incor- was acquired to the present and differ from constant dollar porated into the Company's current rate proceeding and is amounts to the extent that specific prices have increased more being opp'osed by the Staff of the PSC in favor of a five-year or less rapidly than prices in general.

refund of amounts collected in excess of the DOE contracted The current cost of utility plant net of accumulated deprecia-liability of $ 45,500,000. The Company is unable to predict the tion and amortization, represents the eslimated cost of replac-ratemaking treatment that will ultimately be prescribed by the ing existing plant assets in kind. Since existing utility plant is PSC. not expected to be replaced precisely in kind due to technolog-ical changes, current cost does not necessarily represent the replacement cost of the Company's utility plant. The portion of the accumulated amortization relating to disposal costs of nu-NOTE 11. Quarterly Financial Data (Unaudited) clear fuel was not used in the calculation of current costs but Operating revenues, operating income, net income and earn- rather reclassified to a monetary liability. In most cases, cur-ings per common share by quarters for 1983, 1982 and 1981 are rent costs were determined by indexing surviving plant dollars shown in the following table. The Company, in its opinion, has by the Handy-Whitman Index of Public Utility Construction included all adjustments necessary for a fair presentation of Costs. However, when an account could not be indexed by the results of operations for the quarters. Due to the seasonal Handy-Whitman, other appropriate indices were used. The cur-"

nature of the utility business, the annual amounts are not gen- rent year's provision for depreciation and amortization on the erated evenly by quarter during the year. constant dollar and current cost amounts of utility plant was determined by applying the Company's average annual depre-ln thousands of dollars ciation rates to the indexed plant amounts.

Operating Operating Net Earnings per Fuel inventories, the cost of fuel used in generation, and Quarters ended revenues income income common share electricity and gas purchased have not been restated from their December 31 historical cost in nominal dollars. The recovery of energy and 1983 $ 658,733 $ 76>824 $ 64,081 $ .52 purchased gas costs are limited to historical costs through the 1982 608,939 66,325 54,621 .49 operation of the'ompany's electric and gas adjustment 1981 529,844 63,879 52,063 .52 clauses. For this reason fuel inventories and deferred recover-September 30 able energy costs are effectively monetary assets. Income 1983 $ 562,707 $ 72>309 $ 62>376 $ .52 taxes have not been adjusted.

1982 510,983 63,981 52,699 .50 The Company is subject to the jurisdiction of regulatory 1981 481,377 60,831 48,500 .48 commissions in the determination of a fair rate of return on its investment. Current ratemaking policy provides for the recov-June 30 ery of historical costs. Therefore, any difference between the 1983 $ 651>487 $ 92,286 $ 79,027 $ .72 historical cost of utility plant stated in terms of constant dollars 1982 587,350 85,745 73,271 .75 or current cost not presently includible in rates as deprecia-1981 528,216 69,303 55,696 .61 tion, is reflected as an increase (reduction) to net recoverable cost. While the ratemaking process gives no recognition to the March 31 current cost of replacing utility plant, based on past practices, 1983 $ 759,388 $ 113,296 $ 106,925 $ 1.03 the Company believes it will be allowed to earn on the in-1982 686,499 99,734 87,943 .94 creased cost of its net investment when replacement of 1981 611,281 77,363 64,384 .76 facilities actually occurs.

33

To properly reflect the economics of rate regulation in the a gain. The gain from the decline in purchasing gower C'erience Statement of Income from Continuing Operations, the increase of net amounts owed is primarily attributable to the substantial (reduction) of net utility plant to net recoverable cost should be amount of debt which has been used to finance utility plant.

adjusted by the gain from the decline in purchasing power of Since the depreciation on this plant is limited to the recovery of net amounts owed on borrowed funds. During a period of in- historical costs, the Company does not have the opportunity to flation, holders of monetary assets suffer a loss of general realize a holding gain on debt and is limited to recovery only of purchasing power while holders of monetary liabilities ex- the embedded cost of debt capital.

Statement ofincome from continuing operations adjusted for changing prices for the year ended December 31, 1983 In thousands of dollars Conventional Constant dollar Current cost historical cost average 1983 dollars average 1983 dollars Operatin revenues $ 2,632,315 $ 2,632,315 $ 2,632,315 Fuel for electric generation 501,328 501,328 501,328 Electricity purchased . 381,703 381,703 381,703 Gas purchased. 432,898 432,898 432,898 Depreciation and amortization 127,390 289,112 361,003 Other operating and maintenance expenses . 717,192 717,192 717,192 Federal and foreign income taxes 117,089 117,089 117,089 Interest charges. 169,161 169,161 169,161 Other income and deductions net . 126.855 126,855 126,855) 2,319,906 2,481.628 2,553,519 Income from continuing operations (excluding adjustment to net recoverable cost $ 312 409 $ 150 687* $ 78,796 Increase in specific prices (current cost) of utilityplant held during year" .. $ 151,052 Adjustment to net recoverable cost . $ (17,364) 340,979-Effect of increase in eneral price level . 437,504)

Excess of Increase in specific prices over Increase in general price level after adjustment to net recoverable cost. 54,527 Gain from decline in urchasin power of net amountsowed ........... 89,805 89,805 Net S 72,441 S 144,332

• Including the adjustment to net recoverable cost, the income from continuing operations on a constant dollar basis would have been $ 133,323 for 1983.

• • At December 31, 1983, current cost of utility plant. net of accumulated depreciation, was $ 9,249,935 while historical cost or net cost recoverable through depreciation was $ 4,779,783.

Five year comparison of selected supplementary financial data adjusted for effects of changing prices.

In thousands of average 1983 dollars For the year ended December 31, 1983 1982 1981 1980 1979 0 eratin revenues $ 2,632,315 $ 2,470,850 $ 2,355,896 $ 2,148,710 $ 2,081,552 Historical cost Information adjusted for general Inflation:

Income from continuing operations (excluding adjustment to net recoverable cost) . S 150,687 $ 136,569 $ 81,452 $ 28,980 $ 73,861 Income (loss) per common share (after dividend requirements on preferred stock and excluding adjustment to net recoverable cost) $ 1.11 S 1.11 S .56 S (.10) $ .56 Net assets at ear end at net recoverable cost .................... $ 2,147,836 $ 1.929.503 $ 1.767.992 $ 1,745,526 $ 1,79'l,146 Current cost information:

Income (loss) from continuing operations (excluding adjustment to net recoverable cost) . $ 78,796 $ 80,307 S 20,967 S (37,337) $ (2,764)

Income (loss) per common share (after dividendrequirements on preferred stock and excluding adjustment to net recoverable cost) $ .38 $ .47 $ (.21) S (1.03) S (.65)

Excess (d eficiency) of increase in general price level over increase in specific prices after adjustment to net recoverable cost.......... S (54,527) $ (36,802) $ 140,293 S 242,359 S 346,907 Net assets at ear end at net recoverable cost $ 2,147,836 $ 1,929,503 $1,767,992 $ 1,745,526 $ 1,791 146

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General Information:

Gain from decline in purchasing power of net amounts owed . S 89,805 S 83,147 $ 189,251 S 253,362 $ 291,905 Cash dividends declared per common share $ 1.89 $ 1.82 S 1.76 S 1.81 S 1.98 Market price per common share at year end S 15.75 S 16.13 $ 13.56 $ 13.45 $ 17.33 Avera e consumer price index 298.4 289.1 272.4 246.8 217.4

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0 v Selected financial data 1983 1982 1981 1980 1979 Operations: (000's)

Operating revenues. $ 2,632,315 $ 2,393,771 $ 2,150,718 $ 1,777,115 $ 1,516,503 Net income 312,409 268,534 220,643 162,639 156,030 Common stock data:

Book value per share at year end $ 18.55 $ 17.91 $ 17.36 $ 17.25 $ 17.33 Market price at year end 153/4 15% 12% 11V8 125/8 Ratio of market price to book value at year end 84.P/o 87.P/o 71.PYo 64 72.9o/o Dividend yield at year end 12.2Yo 11.5% 13.P/o 13.T/o 11.4%

Earnings per average common share .. $ 2.77 $ 2.64 $ 2.35 $ 1.87 $ 2.00 Rate of return on common equity . 15 IF/o 14 7% 13 5% 10.8o/o 11.4%

Dividends paid per common share .... $ 1.89 $ 1.76 $ 1.61 $ 1.50 $ 1.44 Dividend payout ratio . 68.2Yo 66.T/o 68.5% 80.P/o 72.(F/o Capitalization: (000's)

Common equity . $ 1)929) 073 $ 1,680,650 $ 1,457,934 $ 1,298,001 $ 1,177,725 Non-redeemable preferred stock 210,000 210,000 210,000 210,000 210,000 Redeemable preferred stock . 368,474 262,792 254,748 205,924 189,650 Long-term debt . 2,048,548 1,881,441 1,663,671 1,484,535 1,479,294 Total 4,556,095 4,034,883 3,586,353 3,198,460 3,056,669 First mortgage bonds maturing within one year . 25,000 65,000 140,000 80,000 Total $ 4,581,095 $ 4,099,883 $ 3,586,353 $ 3,338,460 $ 3,136,669 Capitalization ratios: (inciuding first mortgage bonds maturing within one year):

Common stock equity . 42.1% 41.IF/o 40. T/o 38.9o/o 37.5%

Preferred stock. 12.6 11.5 12.9 12.5 12.8 Long-term debt . 45.3 47.5 46.4 48.6 49.7 Financial ratios:

Ratio of earnings to fixed charges . 2.98 2.95 2.63 2.43 2.61 Ratio of earnings to fixed charges without AFC... 2.40 2.42 2.16 1.99 2.09 Ratio of AFC to balance available for common stock . 43.6o/o 41.P/o 38.6o/o 44.P/o 44.PYo Ratio of earnings to fixed charges and preferred stock dividends 2.35 2.32 2.10 1.93 2.03 Other ratios-% of operating revenues:

Fuel, purchased power and purchased gas 50.IF/o 49.PYo 52.7% 51.8% 48.6o/o Maintenance and depreciation . 10.0 10.5 10.3 10.8 12.1 Total taxes 13.0 13.2 11.2 11.9 12.4 Operating income . 13.5 13.2 12.6 11.9 12.8 Balance available for common stock .......... 10.3 9.6 8.7 7.5 8.5 Miscellaneous: (000's)

Gross additions to utility plant $ 691,464 $ 594,469 $ 457,415 $ 378,503 $ 374,530 Total utility plant 6,165,711 5,516,532 4,985,315 4,563,309 4,218,528 Accumulated depreciation and amortization .. 1,486,196 1,389,112 1,304,436 1,191,747 1,074,325 Total assets 5,357,572 4,781,767 4,220,234 3,849,747 3,565,175 35

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Electric and gas statistics ELECTRIC CAPABILITY ELECTRIC STATISTICS Thousands of kilowatts At January 1, 1984  % 1983 1982 1983 1982 1981 Thermal: Electric sales(Millions of kw-hrs.)

Coai fuel Residential ................ 8,578 8,475 8,459 Huntley, Niagara River .. 715 9 705" 705 Commercial ............... 9,387 9,330 9,418 Dunkirk, Lake Erie ..... 550 7 540 540 Industrial .................. 10,860 10,366 11,636 Total coal luei .. 1,265 16 1,245 1,245 Municipal service .......... 251 257 266 Residual oii fuel Other electric s stems ...... 5,656 4,212 3,111 Albany, Hudson River" ...... 400 5 400 400 34,732 32,640 32,890 Oswego, Lake Ontario ....... 1,736 23 1,723 1,736 Electric revenues(Thousands of dollars)

Roseton, Hudson River .. z... 300 4 300 358 Residential ................ $ 483,852

$ 583,645 $ 539,317 Middle distillate oii fuei 20 Combustion turbine Commercial ............... 658,960 628,601 578,186 and diesel units ............. 310 4 310 .310 Industrial .................. 441,219 425,331 429,870 Total oii fuel 2,746 36 2,733 2,804 Municipal service .......... 36,466 34,907 31,274 Other electric systems ...... 235,257 171,597 137,341 Nuclear fuel Miscellaneous ............. 68,181 60,896 59,410 Nine Mile Point, Lake Ontario .... 610 8 610 610

$ 2,023,728 $ 1,860,649 $ 1,719,933 Purchased firm contract Power Authority Electric customers(Average)

FitzPatrick, Lake Ontario ...... 139 2 118 116 Residential ................ 1,245,590 1,232,164 1,223,484 Total nuclear fuel 749 10 728 726 Commercial ............... 131,803 130,872 131,119 Total thermal sources .. 4,760 62 4,706 4,775 Industrial.................. 2>594 2,686 2,807 Hydro: Other .................=.... 3,257 3,260 3.232 Owned and leased hydro stations (83) . 695 9 685 650 1,383,244 1,368,982 1,360,642 Purchased -firm contracts PowerAuthority-NiagaraRiver.... 1,118 15 1,122 1,122 Residential(Average)

Power Authority- Annual kw-hr. use St. Lawrence River .............. 115 1 115 115 per customer ............ 6>887 6,878 6,914 Power Authority Cost to customer per kw-hr.. 6.800 6.36tf 5.72If Blenheim-Gilboa Annual revenue Pumped Storage Plant........... 550 7 550 550 per customer ............ $ 468.57 $ 437.70 $ 395.47 Other 63 1 64 67 Total hydro sources .. 33 2,536 2,504 Total capability',541 Other purchases .. 400 7;701 5

100 400 7,642 7,279 GAS STATISTICS 1983 1982 1981 1983 1982 1981 Electric peak load during year .. 5,625 5,512 5,616 Gas sales(Thousands of dekatherms)

Residential ................ 46,865 51,019 51,701 Available capability can be increased during heavy load periods by Commercial ............'... 26,921 28,672 26,342 purchases from neighboring interconnected systems. Hydro station capability is based on average December stream-flow conditions.

Industrial .................. 25,736 26,026 26,826 Other ass stems.......... 3,631 3,976 4,889

-Has capability to burn natural gas tas well as oil) as a fuel.

V 103,153 109,693 109,758 Gas revenues(Thousands of dollars)

Residential ................ $ 304,157 $ 264,747 $ 222,280 ELECTRICITY GENERATED AND PURCHASED(Millions of kw hrs ) Commercial ............... 155,858 137,105 102,727 1983  % 1982  % 1981 Industrial .................. 129,056 112,582 89,337 Other gas systems.......... 15,783 15,418 13,795 Thermal: Miscellaneous ............. 3,733 3,270 2,646 Generated

$ 608,587 $ 533,122 $ 430,785 Coal ........... 7,873 21 7,897 22 7,046 20 Oil ............. 4>313 11 4 892 14 7 044 19 Gas customers(Average)

Nuclear ........ 2,802 7 1,135 3 3,270 9 Residential ............... 398,597 396,729 393,182 Natural gas ..... 1>839 5 1,999 6 681 2 Commercial .............. 31>697 31,188 30,564 Purchased Industrial ................. 524 534 530 Nuclear from Other .................... 2 2 2 Power Authorit . 790 2 768 2 690 2 430>820 428,453 424,278 Total thermal 17,617 46 16,691 47 18,731 52 Hydro: , Residential (Average)

Generated ........ 3,527 9 3,575 10 3,703 10 Annual dekatherm uso Purchased from per customer .... 117.6 128.6 131.5 Power Authorit 7,587 20 8,000 22 8,522 24 Cost to customer Total hydro ... 11,114 29 11,575 32 12,225 34 per dekatherm ... $ 6.49 $ 5.19 $ 4.30 Other purchased power- Annual revenue varlous sources ...... ',621 25 7,621 21 4,907 14 per customer ........ $ 763.07 $ 667.32 $ 565.34 Total generated Maximum day gas and purchased 38,352 100 35,887 100 35,863 100 sendout dekaiherms . 754,061 832,307 824,777

Directors Officers James Bartlett Baldwin Maull (it, IIJ John G. Haehl,Jr. Charles V. Mangan Consultant (formerly Director of various corporations Chairman of thc Board Vice President-Nuclear Executive Vice President) New York and Chief Executive Officer Engineering and Licensing Syra'cuse Martha Hancock Northrup (DJ WilliamJ. Donlon Samuel I'. Manno Ednfund M. Davis fa, a, AJ flomcmakcr, former President, Prcsidci1t Vice Prcsidcnt-Partner, Iiiscock, Lcc, Rogers, Crousc-Irving i~fcmoriaf liospital Nuclear Construction lienley Z. Barclay, Board Richard C. Clancy attornc> s at.law Syracuse Senior Vice President Eugene J. iVIorel Syracuse Vice Prcsidcnt-P. Piskor (.t, c, DJ

'rank John M. Endrics Risk hfanagcmcnt WilliamJ. Donlon President Emeritus Senior Vice President Prcsidcnt St. Lawrcncc University James F. iblorrell Syracuse Canton Vice President-John M. I-Iayncs Senior Vice President Corporatc Planning Edward W. Duffy(cy Donald B. Ricfler fsJ Former Chairman of thc Board Chairman, Sources and Uses of John W. Powers and Chief Executive OAiccr, Funds Comnlittcc, Morgan John P. Hennessey Senior Vice Prcsidcnt Vice President- Trcasurcr Marine Midland Banks, Inc., Guaranty Trust Compan> of a bank holding company Nciv York Buffalo New York James J. Miller Michael P. Ranalli Senior Vice President Vice Prcsidcnt-Engineering (Non nuclear)

John G. Haehl,Jr.(.tJ Lewis A. Sivyer ps, c, a)

Cltairman of thc Hoard President, LA. Swyer Company, Gerald K. Rhode and Chief Executive OAicer Inc., builders and construction Senior Vice President Kenneth A. Tramutola Syracuse ntanagcrs Vice Prcsident-Gas and Consumer Services Albany John H. Terry Edwin F. Jaeckle f.f, aJ Senior Vice President Senior Partner,Jacckfc, John G. Wick fD,O General Counsel and Secretary Perry B. Woods,Jr.

Flcischmann tk iifugcf, Cox, Barrcll, Wafsh, Grace 8: Vice Presidcnt-at torncys-at-faw Roberts, at tom cys-at-law Richard I'. Torrcy Employee Ifelations Buffalo Buffalo Senior Vice Prcsidcnt Edward P. Gueth,Jr.

Lauman iXIartin Anthony J. Baratta,Jr. Assistant General Counsel Consultant (formerly Senior Vice Prcsidcnt-Controller Vice President and General Herman B. Noll Counsel) Robert M. Cleary Assistant General Counsel Syracuse Vice Prcsidcnt-Rcgional Operations Nicholas L Prioletti,Jr.

Assistant Controller rf. ilfcmbcr of thc Executive Committee Donald P. Disc B. Mcmbcr of thc Compensation Committee Vice Prcsidcnt- Adam F. ShaQ'cr C. Member of the Audit Commit tcc Quality Assurance Assistant Controller D. i~fcmber of the Commit tec on Corporate Ihtbffc Policy William C. Franklin Henry B. Wightman,Jr.

I.'. Member of thc Finance Committee Vice Prcsidcnt Purcltasing Assistant Controller Kermit E. Hill Harold J. Bogan Vice President-Public Affairs Assistant Secretary and Corporate Communications Joseph F. Cleary Raymond Kolarz Assistant Secretary Vice Prcsident-Rcgional Operations Frederick C. McCall, Jr.

Assistant Secretary Thomas E. Lcmpges Vice Prcsident- Richard N. Wescott Nuclcar Operations Assistant Treasurer Donald L. MacVittie Vice President-Fossil Generation 37

N1 V NIAGARA lM 0 MOHAWK 300 Erie Boulevard W.

Syracuse, NY 13202 Night settles in northern Adirondacks, finding Niagara Mohawk crew finishing cmcrgcncy repairs against wilderness backdrop.

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