ML18040B181

Forwards Annual Financial Rept for 1986,including Certified Financial Statements for Allegheny Electric Cooperative,Inc for Nov 1985 - Oct 1986

ML18040B181
Person / Time
Site:	Susquehanna
Issue date:	04/22/1987
From:	Keiser H PENNSYLVANIA POWER & LIGHT CO.
To:	Murley T Office of Nuclear Reactor Regulation
References
PLA-2847, NUDOCS 8704280020
Download: ML18040B181 (17)

Text

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Pennsylvania Power & Light Company Two North Ninth Street ~ Allentown, PA 18101 ~ 215/7706151 Harold W. Keiser V/ce President-Nuclear Operations 21 5/770-7502 APR 22 887 Dr. Thomas E. Murley .

Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, DC 20555 SUSQUEHANNA STEAM ELECTRIC STATION

.ANNUAL FINANCIAL REPORT Docket Nos. 50-387 PLA-2847 FILE R41-2A 50-388

Dear Dr. Murley:

In accordance with 10CFR50.71(b), attached is the 1986 annual financial report including certified financial statements for Allegheny Electric Cooperative, Inc. The attached report covers the period November 1, 1985 through October 31, 1986. The 1986 annual report for Pennsylvania Power & Light Co. was forwarded on March 19, 1987 (PLA-2820):

Very truly yours, H. W. Keiser Vice President-Nuclear Operations Attachment cc: NRC Document Control Desk (original)

NRC Region I Mr. L. R. Plisco, NRC Resident Inspector Mr. M. C. Thadani, NRC Project Manager 87042800~0 otk R +DOC+ ~04 pgppp38~

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Audited Financial Statements and Other Financial Information ALLEGHENY ELECTRIC COOPERATIVE, IN'ctober 31, 1986 Audited Financial Statements Auditors t Report................................. 1 Ba'lance Sheets............................,...,,, ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 2 Statements of Operations and Patronage Capital... ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~, 4 Statements of Changes in Financial Position...... ~ ~ 5 Notes to Financial Statements.................... 6 Other Financial Information Auditors'eport on Other Financial Information.. 13 Schedules of Nonoperating Rental Income (Expense) 14 Schedules of Administrative and General Expenses. 15

Ernst &Whinney 300 Locust Court 212 Locust Street Harrisburg, Pennsylvania 17101 717/232-7575 Board of Directors Allegheny Electric Cooperative, Inc.

Harrisburg, Pennsylvania We have examined the balance sheets of Allegheny Electric Cooperative, Inc.

as of October 31, 1986 and 1985, and the related statements of operations and patronage capital and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the financial statements referred to above present fairly the financial position of Allegheny Electric Cooperative, Inc. at October 31, 1986 and 1985, and the results of its operations and the changes in its financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

Harrisburg, Pennsylvania January 13, 1987

BALANCE SHEETS ALLEGHENY ELECTRIC COOPERATIVE, INC.

October 31 1986 1985 (In Thousands)

ASSETS ELECTRIC UTILITY PLANT Note C In service Note B $ 558,098 $ 540,436 Construction work in process 23,267 9,985 Nuclear fuel in process 20,650 27,345 602,015 577,766 Less accumulated depreciation and amortization 38,651 25,838 563,364 551,928 OTHER ASSETS AND INVESTMENTS, Nonutility property, at cost (net of accumulated depreciation of $ 928 in 1986 and $ 793 in 1985) 5,668 5,799 Investments in associated organizations Note D 5,009 4,938 Construction advances 327 848 Other noncurrent assets 4,304 5 539 1 ,308 17,124 CURRENT ASSETS Cash and short-term investments of $ 5,675 in 1986 and $ 16,559 in 1985 5,257. 16,242',208 Accounts receivable from members 8,022 Other accounts receivable 2,564 3,160 Other 213 550 16,056 27,160

$ 594,728 $ 596,212

October 31 1986 1985 (In Thousands)

EQUITIES AND LIABILITIES EQUITIES Memberships 3 $ 3 Donated capital 50 49 Patronage capital 29,590 24,434 29,643 24,486 LONG-TERM DEBT, less current portion Note F 494,452 505,148 CURRENT LIABILITIES Notes payable Note E 30,646 27,474 Current portion of long-term debt Note F 7,744 7,003 Accounts payable and accrued expenses 11,722 10,406 Accounts payable to members 209 1,688 50,321 46,571 DEFERRED CREDITS Deferred income tax benefits from safe harbor lease Note G 15,087 15,816 Other 5 225 4,191 20,312 20,007 S 594,728 S 596,212 See notes to financial statements.

STATEMENTS OF OPERATIONS AND PATRONAGE CAPITAL ALLEGHENY ELECTRIC COOPERATIVE, INC.

Year Ended October 31 1986 1985 (In Thousands)

Operating revenue, including sales to members of $ 97,170 in 1986 and $ 87,901 in 1985 139,582 $ 131,246 Operating expenses:

Purchased power 43,543 43,280 Transmission 5,987 6,450

'Production 16,245 14,385 Fuel 7,8,75 8,280 Depreciation 7,156 5,674 Taxes 3,148 3,356 Administrative and general 4,353 3,004 88,307 84,429 OPERATING MARGIN BEFORE INTEREST AND OTHER DEDUCTIONS 51 j 275 46,817 Interest and other deductions:

Interest expense 51,560 55,430 Allowance for funds used during construction (3,380) (10,149)

Other deductions (credits), net (43) (465) 48,137 44,816 OPERATING MARGIN 3,138 2,001 Nonoperating margins Net nonoperating rental expense (76) (63)

Interest income 1,365 2,031 1,289 1,968 MARGIN BEFORE INCOME TAXES 4,427 3,969 Deferred income tax benefits from safe harbor lease 729 559 NET MARGIN 5,156 4,528 Patronage capital at beginning of year 24,434 19,906 PATRONAGE CAPITAL AT END OF YEAR $ 29,590 $ 24,434 See notes to financial statements.

STATEMENTS OF CHANGES IN FINANCIAL POSITION ALLEGHENY ELECTRIC COOPERATIVE, INC.

Year Ended October 31 1986 1985 (In Thousands)

SOURCE OF WORKING CAPITAL Net margin $ ,

5,156 $ 4,528 Charges (credits) to margin not affecting working capital:

Depreciation 7,291 5,808 Fuel amortization 6,775 7,132 Deferred income tax benefits from safe

, harbor lease (729) (559)

TOTAL FROM OPERATIONS 18,493 16,909 Additions to long-term debt 4,990 37,047 Decrease in construction advances 521 1,461 Other sources 2,270 3,073 26,274 58,490 APPLICATION OF WORKING CAPITAL Additions to electric utility plant 25,371 30,233 Reduction of long-term debt 15,686 7,690 Other applications 71 41,128 37,923 INCREASE (DECREASE) IN WORKING CAPITAL $ (14,854) $ 20,567 CHANGES IN COMPONENTS OF WORKING CAPITAL Increase (decrease) in current assets:

Cash and short-term investments (10,985) $ (9,154)

Accounts receivable from members 814 1,908 Other accounts receivable (596) (19)

Other (337) 21 Increase (decrease) in current liabilities:

Notes payable 3,172 (32,976)

Current portion of long-term debt 741 5,794 Accounts payable and accrued expenses 1,316 (1,396)

Accounts payable to members (1,479) 767 3,750 (27,811)

INCREASE (DECREASE) IN WORKING CAPITAL $ (14,854) $ 20,567 See notes to financial statements.

NOTES TO FINANCIAL STATEMENTS ALLEGHENY ELECTRIC COOPERATIVE, INC.

October 31, 1986 NOTE A

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES Allegheny Electric Cooperative, Inc. (Allegheny) is a rural electric cooperative utility established under the laws of the Commonwealth of Pennsylvania. Financing assistance is provided by the U. S. Department of Agriculture, Rural Electrification Administration (REA) and, therefore, Allegheny is subject to certain rules and regulations promulgated for rural electric borrowers by REA. Allegheny is a generation and transmission cooperative, providing power supply to fourteen owner/members who are rural electric distribution cooperative utilities providing electric power to consumers in certain areas of Pennsylvania and New Jersey.

Allegheny maintains its accounting records in accordance with the Federal Energy Regulatory Commission's chart of accounts as modified and adopted by REAo Electric Utility Plant and Depreciation: The electric utility plant is stated at cost, which includes an allowance for funds used during construction.

Depreciation is provided on the modified sinking fund method for nuclear utility plant production assets and the straight-line method for all other assets, except nuclear fuel. The cost of units of property retired or replaced is removed from utility plant accounts and charged to accumulated depreciation.

Nuclear Fuel: Nuclear fuel usage is charged to fuel expense based on the quantity of heat produced for electric generation. Under the Nuclear Waste Policy Act of 1982, the U. S. Department of Energy (DOE) is responsible for the permanent storage and disposal of spent nuclear fuel removed from nuclear reactors. Allegheny currently pays to Pennsylvania Power 6 Light Company (PPSL), co-owner of Susquehanna Steam Electri.c Station (SSES), its portion of DOE fees for such future disposal services.

Cost of Decommissionin Nuclear Plant:. Allegheny's portion of the estimated decommissioning costs of SSES is charged to operating expenses over the estimated useful life of the plant.

Allowance for Funds Used During Construction: Allowance for funds used during construction represents the cost of directly related borrowed funds used for construction of electric utility plant. The allowance is capitalized as a component of the cost of electric utility plant while under construction.

Investments in Associated Organizations: Investments in associated organizations are carried at cost.

NOTES TO FINANCIAL STATEMENTS--Continued ALLEGHENY ELECTRIC COOPERATIVE, INC.

NOTE A

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES Continued Preliminary Surveys: Costs of preliminary surveys for potential development projects are recorded as deferred charges in other noncurrent assets. If construction of a project results from such surveys, the deferred charges are transferred to the cost of the facilities. If a preliminary survey 'is abandoned, the costs incurred are written off.

Short-Term Investments: Short-term investments are carried at cost, plus accrued interest, which approximates market value.

Income Taxes: Investment and energy tax credits, other than those sold through the safe harbor lease arrangement, are accounted for under the flow-through method whereby credits are recognized as a reduction of income'ax expense in the year in which the credit is utilized for tax purposes.

Variations in the customary relationship between pretax accounting income and income tax expense are the result of patronage dividends. Net operating losses for financial and tax reporting purposes differ as a result of timing differences relating primarily to depreciation.

NOTE B ELECTRIC UZILITY PLANT IN SERVICE Electric utility plant'in service consists of the following:

Depreciation/

Amortization, October 31 Lives/Rates 1986 1985 (In Thousands)

Nuclear Utility Plant:

Production 39 years 482, 021 S 480, 363 Transmission 2.75% 29,713 29,200 General plant 3% 12.5% 829 829 Nuclear fuel Heat production 44,466 29,120 Non-Nuclear Utility Plant 3% 20% 1,069 924 TOTAL S 558,098 S 540,436

NOTES TO FINANCIAL STATEMENTS Continued ALLEGHENY ELECTRIC COOPERATIVE, INC.

NOTE C SUSQUEHANNA STEAM ELECTRIC STATION Allegheny owns a 10% undivided interest in SSES. PP&L owns the remaining 90%.

Both participants provide their own financing. Allegheny's portion of costs associated with the station totalled $ 596 million and $ 576 million at October 31, 1986 and 1985, respectively. Allegheny's share of anticipated costs for ongoing construction and nuclear fuel for SSES are estimated to be approximately $ 48.5 million over the next five years.

Unit /Il of SSES began commercial operations in June of 1983. Unit //2 began commercial operations in February 1985. Allegheny receives a portion of the total station output equal to its percentage ownership. The statement of operations reflects Allegheny's share of fuel and other operating costs associated with the station.

NOTE D INVESTMENTS IN ASSOCIATED ORGANIZATIONS Investments, in associated organizations consist primarily of National Rural Utilities Cooperative Finance Corporation (CFC) patronage capital, "Capital Term Certificates" and "Subordinate Term Certificates," and Baltimore Bank for Cooperatives (BBC) "C" stock. Certificates bear interest at 3% and begin maturing in 2025.

Allegheny is required to maintain these investments pursuant to certain loan and guarantee agreements.

NOTE E NOTES PAYABLE Allegheny has short-term lines of credit available with banks and CFC of $ 52 million of which $ 2.0 million and $ 8.9 million were outstanding at October 31, 1986 and 1985, respectively. Interest rates are generally at prime plus 1X.

'otes payable of $ 28.6 million and $ 18.6 million were outstanding at October 31, 1986 and 1985, respectively, relating to Pollution Control Revenue Bonds issued by an Industrial Development Authority on Allegheny's behalf. The bonds are subject to purchase .on demand of the holder and remarketing on a "best efforts" basis. Sinking fund redemption is scheduled in varying amounts through 2014, and interest is due monthly at variable rates (4.0% to 8.3% for 1986 and 4.5% to 6.7X for 1985). The bonds are convertible to a fixed interest rate and fixed term at Allegheny's option. $ 1.8 million of investments included in other noncurrent assets at both October 31, 1986 and 1985 relate to a debt service reserve fund required under the bond indenture.

NOTES TO FINANCIAL STATEMENTS Continued ALLEGHENY ELECTRIC COOPERATIVE, INC.

NOTE E NOTES PAYABLEContinued Restrictions are imposed under certain short-term credit arrangements including, among other things, maintenance of ratio requirements, under existing long-term debt arrangements and limitation of total short-term indebtedness outstanding to an amount not to exceed the remaining unadvanced portion of certain existing REA long-term loan commitments ($ 66 million at October 31, 1986).

NOTE F LONG-TERM DEBT Long-term debt consists principally of mortgage notes payable for the electric utility plant to the United States of America acting through the Federal Financing Bank (FFB) and guaranteed by REA, and a mortgage loan payable to CFC relating to nonutility property. Substantially all the assets of Allegheny are pledged as collateral. Long-term debt consists of the following:

October 31 1986 1985 In Thousands)

Mortgage notes payable to FFB at interest rates varying from 6.473% to 13.185%, due in varying amounts through 2020 499,575 8 509,488 9 1/4% mortgage loan payable to CFC,

$ 53 thousand payable quarterly, including interest, to January 2015. Interest, rate to be renegotiated in 1987 2,106 2,121 Other 515 542

'02,196 512,151 Less current portion 7,744 7,003 S 494,452 S 505,148

NOTES TO FINANCIAL STATEMENTS Continued

,ALLEGHENY ELECTRIC COOPERATIVE, INC.

NOTE F LONG-TERM DEBTContinued Allegheny has the option on FFB promissory note advances to elect (subject to REA approval) interim maturity dates of not less than two years nor more than seven years after the date of the advance. At the date of the advance or on the maturity of an interim advance, Allegheny may also designate that it desires a long-term maturity of 34 years after the end of the calendar year in which the advance was made. At October 31, 1986, Allegheny had $ 147 million of advances maturing within one year which it intends to refinance for 34 years.

Aggregate maturities of long-t'erm debt for the four years subsequent to October 31, 1987 are as follows (in thousands):

1988 $ 9,613 1989 10,057 1990 12,044 1991 13,627 The above maturity schedule reflects management's intent to convert FFB advances with interim maturity dates to long-term debt. Allegheny has used a rate it estimates to be an appropriate long-term rate, based on the October 31, 1986 interest rate, to compute the annual principal requirements.

'llegheny is required by mortgage covenants to maintain certain levels of interest coverage and annual debt service coverage. Allegheny was in compliance with such requirements at October 31, 1986.

NOTE G INCOME TAXES At October 31, 1986, Allegheny had available net operating loss carryovers of

$ 2.0 million for financial reporting purposes and $ 206 million for tax reporting -purposes, and investment tax credit carryovers of approximately

$ 32.3 million for both financial and tax reporting purposes, expiring through 2001. Under the Tax Reform Act of 1986, the amount of investment tax credit allowable as a result of a carryforward must be reduced by 12/ for the year ended October 31, 1987 and 35%%u for years thereafter.

In 1983, Allegheny sold certain investment and energy tax credits and depreciation deductions .pursuant to a safe harbor lease. The proceeds from the sale, including interest earned thereon, have been deferred and are being recognized over the term of the lease (30 years). The net proceeds and related interest were required by REA to be used to retire outstanding FFB debt.

NOTES TO FINANCIAL STATEMENTS Continued ALLEGHENY ELECTRIC COOPERATIVE, INC.

NOTE G-. -INCOME TAXES Continued Under the terms of the safe harbor lease, Allegheny is contingently liable in varying amounts in the event the lessor's tax benefits are disallowed and in the event of certain other occurrences. The maximum amount for which Allegheny was contingently liable approximated $ 22 million at October 31, 1986. Payment of this contingent liability has been guaranteed by CFC.

NOTE H RELATED PARTY TRANSACTIONS Allegheny has an arrangement with an associated organization, Pennsylvania Rural Electric Association (PREA), under which PREA provides Allegheny with certain management, general, and administrative services on a cost reimbursement basis. Total costs for the services provided for the years ended October 31, 1986 and 1985, were $ 2.1 million and $ 1.8 million, respectively.

NOTE ICOMMITMENTS AND CONTINGENCIES Allegheny and PP&L are members of certain insurance programs which provide coverage for property damage to members'uclear generating plants.

Allegheny's portion of the facilities at SSES is insured against property damage losses up to $ 120 million under these programs. Allegheny is also a member of an insurance program which provides coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions . Under the property and replacement power insurance programs, Allegheny could be assessed retrospective premiums in the event the insurers'osses exceed their reserves. The maximum amount Allegheny could be assessed under these programs during the current policy year is $ 1.6 million.

Allegheny's public liability for claims resulting from a nuclear incident is currently limited to $ 70 million under provisions of the Price-Anderson Act (Act). Allegheny is protected against this potential liability by a combination of commercial insurance and an industry retrospective assessment program.

NOTES TO FINANCIAL STATEMENTS Continued ALLEGHENY ELECTRIC COOPERATIVE, INC.

NOTE ICOMMITMENTS AND CONTINGENCIES Continued In the event of a nuclear incident at any of the facilities owned by others and covered by the Act, Allegheny could be assessed up to $ 1 million per incident, but not more than $ 2 million in a calendar year in the event more than one incident is experienced. The Act is scheduled to expire in August 1987, and Congress is considering several proposals to amend the Act. The proposed amendments generally include provisions which would increase the public liability limit of utilities in the event of a nuclear incident.

Management is unable to predict what action Congress might ultimately take regarding the Act and what effect such action might have on Allegheny's potential liability.

The Board of Directors has approved construction of a hydroelectric generation facility and purchase of equipment for a project to reduce peak power demand (Load Management Project). Financing for these projects has been arranged with REA ($ 48.8 million) and CFC ($ 3.2 million). At October 31, 1986, total project costs of the hydroelectric generation facility and Load Management Project were estimated at $ 33 million and $ 11.4 million, respectively. Costs incurred through October 31, 1986 were $ 3.7 million for the hydroelectric generation facility and $ 2.1 million for the Load Management Project.

Ernst 8~Whinney 300 Locust Court 212 Locust Street Harrisburg, Pennsylvania 17101 717/232-7575 Allegheny Electric Cooperative, Inc.

Harrisburg, Pennsylvania The audited financial statements of the Cooperative and our report thereon are presented in the preceding section of this report. The information presented hereinafter is for purposes of additional analysis and is not required for a fair,presentation of the financial position, results of operations, or changes in financial position of the Cooperative. Such information has been subjected to the auditing procedures applied in our examination of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole.

Harrisburg, Pennsylvania January 13, 1987

SCHEDULES OF NONOPERATING RENTAL INCOME (EXPENSE)

ALLEGHENY ELECTRIC COOPERATIVE, INC+

Year Ended October 31 1986 1985 (In Thousands)

INCOME:

Rental-building 709 669 Rental-parking 51 47 760 716 EXPENSES'tilities 182 139 Payroll and employee benefits 37 38 Management and leasing fees 22 21 Office and administrative expenses 6 5 Maintenance and repairs 81 75 Real estate taxes 138 136 Insurance 40 34 Interest 196 197 Depreciation 135 134 Gain on property disposal (1) 836 779 NET NONOPERATING RENTAL EXPENSE $ 76 63 SCHEDULES OF ADMINISTRATIVE AND GENERAL EXPENSES ALLEGHENY ELECTRIC COOPERATIVE, IN'ear Ended October 31 1986 1985 (In Thousands)

Office supplies 112 122 Travel, conventions, and meetings 104 78 Payroll and employee benefits 1,103 541 Legal, auditing, and engineering 1,316 478 Association membership dues (34) 71 Experimental and general research 223 361 Board meetings, directors'ees, and travel 116 102 Penn Lines 91 87 Information programs 195 192 Rent 143 66 Payroll taxes 89 46 Insurance 30 19 Insurance SSES 818 804 Miscellaneous 47 37 TOTAL ADMINISTRATIVE AND GENERAL EXPENSES $ 4,353 S 3,004

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