ML18130A328
| ML18130A328 | |
| Person / Time | |
|---|---|
| Site: | Surry, North Anna  |
| Issue date: | 03/31/1981 |
| From: | VIRGINIA POWER (VIRGINIA ELECTRIC & POWER CO.) |
| To: | |
| Shared Package | |
| ML18130A329 | List: |
| References | |
| NUDOCS 8104030388 | |
| Download: ML18130A328 (43) | |
Text
NOTICE -
THE ATTACHED FILES ARE OFFICIAL RECORDS OF THE DIVISION OF DOCUMENT CONTROL. THEY HAVE BEEN CHARGED TO YOU FOR A LIMITED TIME PERIOD AND MUST BE RETURNED TO THE RECORDS FACILITY BRANCH 016. PLEASE DO NOT SEND DOCUMENTS CHARGED OUT THROUGH THE MAIL. REMOVAL OF ANY PAGE(S) FROM DOCUMENT FOR REPRODUCTION MUST Be REFERRED TO FILE PERSONNEL.
DEADLINE RETURN DATE RECORDS FACILITY BRANCH
On the Cover Massive coal pile at Chesterfield Power Station symbolizes our significant shift to coal. Vepco leads the nation in switching to this fossil fuel , resulting in lower charges to customers and less dependence on foreign oil.
Disposition of the 1980 Revenue Dollar po
.I:.
-(")
I
-0
- r co Contents Highlights .. . .. . .... .. . ... ....... .. . . . . . . .. . .. ....... ..... .. 1 Nuclear Units . .. ....... ............ ........... ..... . .... .. 8 Investor Relations ........ .... ....... .. ....... .... ....... 14 Stockholders Letter .. ................. ...... ....... .... 2 Bath County Pumped Storage .. ... ........ ........ 10 Financial Report ......... .. ..... ......... ....... .. .. .... . 17 Revenues .. .. .. ..... ... ..... .... .......... .. .. ........... .. . 4 Revised Construction Program ............ ........ 10 Description of Business . . . . . . . . . . . . . . . . .. . . . .. . . . . . . . 18 Expenses .................... ............ .. ..... ..... .. .. .. . 4 Load Management ................... ......... .......... 10 Management's Discussion and Earnings and Dividends . . . . . . . . . . . . . . . . .. . .. . . . . . . . . . 4 Coal Conversion ............................ ........... .. 12 Analysis of Statement of Income .... .. ...... .. 18 Electric Output ............................. ........... ... 6 Nuclear Insurance Pool. .................. ... ....... .. 12 Statistical Information . . . . . . . . . . . . . . . . . . .. . . . . . . ... . . . . 36 Rates .. ......... ................. ............. ......... ....... 6 Finance ........ .. ...... ...... ...... .. .......... .. ... ... ... .. . 12 Directors and Officers ... ... ............ ...... .. .. ..... 40 Customer Relations . . . . . .. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 12
1980 Highlights Increase % Increase 1980 1979 (Decrease) (Decrease)
Financial -
Total Operating Revenues $2,119,774,000 $1,703,309,000 $416,465,000 24 .5 Total Operating Expenses $1,730,242,000 $1,386 ,915,000 $343,327,000 24.8 Net Income $ 241,620,000 $ 196,467,000 $ 45 ,153,000 23 .0 Balance Available for Common Stock $ 184,329,000 $ 141 ,344 ,000 $ 42,985,000 30.4 Average Shares of Common Stock Outstanding 95,520,000 86,965 ,000 8 ,555,000 9 .8 Stockholders---Common, Preferred and Preference 206,800 195,100 11 ,700 6.0 Earnings Per Share of Common Stock $1.93 $1 .63 $.30 18.4 Dividends Per Share of Common Stock $1.40 $1 .38 $.02 1.4 Book Value Per Share of Common Stock $18.63 $18 .65 $(.02) (0.1)
Capital Expenditures $ 681,120,000 $ 708,756,000 $(27 ,636 ,000) (3.9)
Long-Term Financings $ 480,874,000 $ 407,198 ,000 $ 73 ,676 ,000 18.1 Operations System Output--Megawatt-hours (thousands) 42,489 40,484 2,005 5.0 Capability--Megawatts 11,154 9 ,999 1,155 11 .6 Service Area Peak Load-Megawatts 8,484 7,929 555 7.0 Customers--Electric--Heating 325,728 296 ,234 29 ,494 10.0
--Other 1,021,372 1,012,866 8,506 0 .8 Total Electric 1,347,100 1,309,100 38 ,000 2 .9 Customers--Gas 120,100 118,600 1,500 1.3 Average Residential Use--Electric-Kilowatt-hours 11,056 10,721 335 3 .1 Employees--Full Time 10,580 9,625 955 9 .9 Virginia Electric and Power Company
- One James River Plaza
- Richmond, Virginia 23261
To Our Stockholders:
This annual report records some of Surry 2 resumed normal operations in Construction Program the most significant operating events late summer after successful replace- Our corporate strategy for the in the recent history of Vepco. The re- ment of its steam generators. A similar 1980s implies our conviction that rate versals of 1979, caused in part by the generator replacement at Surry 1 was restraint and profitability require close regulatory reaction to the accident at on schedule at the end of the year. control of new construction costs. In Three Mile Island (TMI), compelled us Vepco was the first utility to undertake the years since the OPEC oil embargo to begin 1980 with a recital of pros- such replacements, which may even- shattered worldwide assumptions pects for possible improvements in op- tually be necessary at more than 20 about our energy future, utilities have erations and earnings. By year 's end, nuclear units in the United States and scrambled to adjust expansion pro-it was no longer necessary to speak Canada. Our satisfactory completion grams, mandated by public service im-only of prospects and plans. The first of the difficult construction project at peratives, to a new set of energy eco-fruits of our corporate strategy for the Surry 2 has attracted the attention of nomics.
1980s already were apparent to cus- other utilities confronted by the same Vepco completed its adjustment in tomers, investors and regulators . The problem. 1980 after the most comprehensive results of the year spoke for them- The work at Surry is renewing the analysis we have ever made of future selves. life of two relatively young units that generating options.
Most conspicuous among the good were built before the severe construc- As a result, we reduced our plans to results were the simultaneous reduc- tion cost inflation of the 1970s. It construct new generating capacity by tion in rates and increase in earnings. would cost eight times as much to re- approximately 50% . We accomplished Earnings per share rose by 18% while place them with nuclear power today this by canceling construction of the our most widely reported energy and seven times as much to build North Anna 4 nuclear unit and by price-the 1,000 kilowatt-hour cost to equivalent coal-fired generating ca- reaching preliminary agreement in Virginia residential customers-de- pacity. principle with the Allegheny Power clined by 7.2% . This performance rec- System for joint use or ownership of Our nuclear operations in 1 980 ac-ord clearly demonstrated that Vepco's the Bath County Pumped Storage counted for 27% of the energy sup-dual objectives for the 1980s-rate re- Project. The effect of these actions is straint and income improvement-are plied to Vepco customers, compared with 17% in 1979. We project that nu- to reduce our construction financing compatible and realistic. requirements for the rest of this dec-clear power will produce 41 % of total We took our first steps toward these ade by almost $2 billion.
generation in 1981. This increased objectives with initial attainment of Use of our share of Bath County in nuclear reliance is expected to reduce four primary goals-restoration of nor- the mid-1980s and completion of the total fuel costs in 1981 by 20%-a sav-mal operations at nuclear generating North Anna 3 nuclear unit by the end ings of $200 million-despite projected units, rigorous control of our construc- of the decade will meet projected increases in fossil fuel prices.
tion expenditures, aggressive con- growth in demand, which has fallen to version of oil-fired units to coal and im- Some of our severe regulatory crit- an annual rate of about 2% from al-proved productivity at all fossil ics of the past now regard Vepco as most 11 % before the OPEC embargo.
generating stations. the best operator of nuclear units in We have positioned ourselves to re-the United States. This is a judgment spond to future changes in demand Nuclear Operations that reflects due credit on the team of growth by refraining from a com-Nuclear unit operations in 1980 engineers, construction managers and mitment to a new plant after North confirmed the potential they hold for operators who run our program. Their Anna 3, by undertaking new programs profitability and reasonable energy performance in 1 980 can be illus- to control electrical demand and by prices. We began the year in the midst trated by a single episode that oc- deciding to follow North Anna 3, when of a national crisis of confidence in nu- curred last fall. a commitment is necessary, with a clear power. But by year's end, Vepco On the night of November 30, North coal-fired unit. Coal-fired units take contributed significantly to the restora- Anna 2 was operating at full power less time to build than nuclear units tion of that confidence. Full-power op- during the last phase of testing. Eight and can be more easily varied in size.
erations at North Anna 2 were delayed hours before it was scheduled for A coal unit will, therefore, give us more for more than a year by a nationwide commercial operation, a transformer flexibility in the timing and magnitude licensing moratorium, but it withstood failure destroyed the conduits that of our response to changes in demand unprecedented scrutiny, including the carry electrical power from the unit's during the balance of the century.
country 's most comprehensive emer- generator to the transmission system. Because the decisions on North gency evacuation test, to become the The unit shut down automatically as Anna 3 and 4 were difficult and inher-first nuclear unit in the nation since designed, but our hopes for com- ently controversial, we were gratified TMI to receive a full-power permit and mercial operation in 1980 appeared to by the generally favorable response to begin commercial operation. Its per- have ended. Two months was a rea- them . A Washington Post editorial formance so far gives us every reason sonable estimate of the time required commented: "Vepco's original deci-to expect it to equal or surpass the op- to assemble the materials, complete sion to begin North Anna 4 was right at erating record of North Anna 1, which the repairs and return the unit to serv- the time it was made. But since then ranks among the most productive nu- ice. The Vepco team did the work in the whole development of the econ-clear units in the country. 1O days and North Anna 2 was placed omy has shifted and the decision to At our Surry station, a serious set- in commercial operation on December cancel the plant is the right one now."
back to our nuclear program is being 14. It was an achievement that spoke In support of favorable regulatory overcome by an outstanding engineer- plainly for the competence and morale treatment of cancellation costs, The ing and construction achievement. of everyone involved . Post added: " Utilities all over the 2
country face similar decisions. It's im- of residual oil , critical to our opera- about $6 .3 million in new equity funds .
portant not to penalize them for mak- tions, rose 36%. A survey of these subscribers showed ing the unconventional choices that It is especially gratifying that our that almost half had never before pur-will ultimately save the customers far performance improvement was recog- chased a share of common stock in more than they cost.*
- nized by customers. Perhaps the most any company.
significant indicator of this recognition In summary, 1980 was a year in Fossil Station Programs was the response to our customer which we renewed our commitment to By the end of 1980, our program of stock purchase plan . By year-end, superior performance and established converting about 2,250 megawatts of about 14,000 individuals, more than an operating record that will challenge oil-fired generating capacity to coal 1 % of our residential customers, had all of our 10,500 employees to im-was more than two-thirds complete. subscribed to Vepco shares under this prove on it this year. We are confident We lead all other U.S . utilities in coal plan . Their purchases will provide they are equal to the challenge.
conversions, and by the time we finish the program in 1983 it will reduce im-ported oil consumption about 20 mil-lion barrels a year.
The most direct benefit of the con-version program flows to customers in
-,k-i T. Justin Moore, Jr.
Chairman of the Board
~am::.~ President the form of reduced fuel charges.
However, it is important to bear in mind that any fuel charge reduction improves customer relations and the regulatory climate and thus yields a significant indirect benefit to stock-holders.
Of equal importance to our con-version program is the systematic up-grading of fossil station productivity through capital improvements, mainte-nance improvements and improve-ments in operator training. The objec-tive of this program, which will be completed in 1983, is very simple. It is to achieve the maximum efficiency possible at our coal-fired generating stations.
Gas Department In recent years, price decontrol and supply increases have combined to create opportunities for renewed growth of our natural gas business.
Sales increased again last year and have now returned to the peak levels of the early 1970s. Prospects are bright for continued growth of this im-portant part of our energy utility serv-ice.
Summing Up Looking back at all aspects of our performance in 1980 is a cause of sat-isfaction . Our profit growth contrasted sharply with the overall profit decline for U.S. corporations, including other utilities. Our success in overcoming operating and regulatory problems at nuclear stations put us in a favorable competitive position with other utilities that are now confronting problems that faced us in the past. Our rate reduc-tions contrasted favorably with contin-ued nationwide inflation-consumer prices rose another 12%-and with the new surge in energy prices-the cost 3
Revenues Earnings and Dividends Vepco operating revenues in 1980 ex- The improvement in earnings per ceeded $2 billion for the first time. Our share to $1 .93 in 1980, compared electric business generated $2,049.5 with $1 .63 in 1979, reflects changes million and the gas business $70.3 in a number of factors, including a million for a total of $2 .1 billion , an in- substantial increase in generation c rease of $416 .5 million , or 24%, from nuclear units, higher electric en-compared with 1979. ergy sales and improved performance Unusu ally warm weather in the of coal-fired units.
summer resulted in a 4% increase in The Company paid its common kilowatt-hour sales compared with stockholders dividends of $1 .40 per sales last year. share in 1980, compared with $1.38 paid in 1979.
Expenses A preliminary determination in-Total operating expenses were $1 . 7 dicates that 100% of the common and billion, an increase of $343 .3 million , preference stock dividends and 3.3%
or 25% . Increased sales, inflation, of the preferred stock dividends paid regulatory delay of nuclear unit opera- in 1 980 constitute a return of capital tions and the resulting cost of replac- and therefore are not taxable as divi-ing nuclear generation with purchased dend income under requirements of power combined to increase expenses the Federal income tax laws. It should in 1980. be noted that this determination has Planned maintenance programs not been reviewed by the Internal Rev-and renovations at several large gen- enue Service . The percentages may erating stations resulted in a mainte- change based on a subsequent audit nance expense increase of $20. 1 mil- of the Company 's Federal income tax lion . Other operating costs, including returns.
taxes, depreciation, employee benefits Common stock prices and divi-and additional personnel , increased dends for the last two years were:
$61 .8 million .
Fuel expenses including purchased and interchanged power costs were up $261 .5 million in 1980, although 1979 High Low Dividends First Quarter 14 3-4 13 $ .33 an analysis of these expenses on a Second Quarter 13 'h 12 .35 monthly basis indicates that our fuel Third Quarter 13 V. 11 % .35 expenses have been decreasing dur- Fourth Quarter 12 % 103/a .35 ing the past year. This was due to our $1 .38 increased use of nuclear and coal- --
fired generating units. Although pur- 1980 High Low Dividends chased and interchanged power ex- First Quarter 123/a gy. $ .35 penses in 1980 were up 75% , our cost Second Quarter 12V. 93,4 .35 per kilowatt-hour for purchases was Third Quarter 12 10 V. .35 Fourth Quarter 11 % 9 'h .35 less than the cost of generating elec-tricity with some of our own oil-fired $1 .40 units.
Fuel and Purchased and Interchanged Power Costs (Cents per Ki lowatt-hour) 3 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~-3 2
1 0 ************
JFMAMJJASOND JFMAMJJASOND 1979 1980 4
Electric Output The number of residential custom-Electric output rose 5% in 1980. Un- ers and the average annual residential usually hot summer weather was the usage of electricity each climbed 3%
principal reason for the increase. Our in 1980.
customers set a new peak power de-mand record of 8,484 megawatts Rates (Mw) in August, which was 7% higher Despite 1980 increases in base rates, than 1979 's peak demand . the net effect of all rate changes filed The 1980 winter peak demand of in Virginia, the Company's largest ju-7,445 Mw in February was surpassed risdiction, and North Carolina was an in February 1981 when a new peak of overall reduction in residential rates.
8,451 Mw occurred. Expanding use of This was accomplished through re-electric heat pumps is moving us rap- duced fuel expenses made possible idly toward the day when we will ex- by increased generation from nuclear perience balanced peak demands in units, economical power purchases the summer and winter. and decreased use of costly oil.
As shown on the chart below, gen- In Virginia, a residential customer's eration from nuclear units increased 1 ,000 kilowatt-hour monthly bill de-substantially in 1980, contributing creased 7.2%. Although residential 27% of the electrical energy we sup- rates in North Carolina decreased plied , compared with 17% in 1979. slightly, the full effect of reduced fuel Nuclear generation saved $414 million expenses will not be experienced until in fuel costs compared to the cost of 1981 because of regulatory provi-oil that would have been necessary to sions.
produce the same amount of electric- Rate increases granted by regula-ity. Coal generation accounted for tory authorities and negotiated with 25%, and oil generation was greatly governmental customers totaled reduced to 19%, compared with 33% $132 .3 million in 1980. Approximately in 1979. $64 .6 million of these increases are Sources of Electric Energy subject to refund pending final hear-Percent ing.
Coal All rate filings are aggressively pur-80 ,'.d sued and are crucial to our financial 79 I stability. Adequate rate relief is essen-78 tial if we are to continue to provide re-77 liable service when inflation is rapidly 72 *.*,*= I escalating our operating and mainte-Oil nance expenses.
80 r--
,- --, Following is a summary of 1980 79 '--- r:i rate cases:
78 I -=-i Basic Rates 77 I
,_ The Virginia State Corporation Com-72 ,...-
1- -
mission granted the Company $60 mil-Nuclear lion of a $72 .6 million request on Sep-80 I tember 12, 1980. The request was to 79 I make up the deficiency below a 9 .86%
78 ,.*.. I rate of return experienced in the test 77 .
"' ,,, . I year 1979. The Commission previously 72 I had approved a $46 million increase Purchased and Interchanged
- Other to be effective upon commercial oper-80 I ation of North Anna Unit 2, which oc-79 curred on December 14.
78 . The Company filed a $16.6 million 77 *
- rate increase with the North Carolina 72
- Utilities Commission on December 29.
0 10 20 30 40 50 This request was based on 1979 re-sults. It seeks a return on common During 1980, the Company took ad- equity of 15% and an overall return of vantage of opportunities to purchase 10.54% .
power priced below our own oil-fired The West Virginia Public Service generating costs. These purchases Commission suspended on August 29, accounted for 27% of electrical en- 1980 the Company 's filing for a $3 .1 ergy supplied to customers. Most of million increase until January 1, 1981 .
these purchases were from coal-fired An interim hearing was held October units of neighboring utilities that had 20, 1980 and a full hearing is sched-capacity to spare. Hydro and com- uled for March 9, 1981.
bustion turbine generation contributed On June 2, 1980, a Federal Energy the remaining 2%. Regulatory Commission (FERG) Ad-In 1 981 , we are projecting an en- ministrative Law Judge issued an ini-ergy supply mix of 41 % nuclear; 40% tial decision in the Company 's pending Replacing the steam generators at Sur coal ; 10% oil ; 7% purchases, and 2% rate case relating to its municipal cus- is part of an extensive overhaul progra hydro and combustion turbine. tomers. These customers have been both nuclear units to insure greater reliab 6
billed for an $8.5 million increase, piping support modifications required subject to refund. However, we now by the NRC before the unit could oper-estimate that the initial decision would ate. The Company also completed the permit an increase of only $5.1 mil- replacement of that unit's steam gen-lion . erators, the first project of its kind in Exceptions to the initial decision the country. Many other utilities with were filed with FERG on July 2, 1980. similar steam generator problems are A provision is being recorded monthly now looking to Vepco for expertise in for the difference between rates billed dealing with such problems. During and rates indicated by the initial deci- the remainder of the year, Surry 2 op-sion. erated at a capacity factor of 87% .
The Company also filed on Novem- Surry Unit 1 was out of service from ber 14, 1980 an application with February through May for repairs to its FERG for an $18.4 million rate in- turbine and an engineering survey of crease to cooperative and municipal its piping systems. The unit was re-customers due to the commercial op- moved from service in September for eration of North Anna Unit 2. This was refueling, replacement of its steam put in effect January 13, 1981, sub- generators and pipe support modifica-ject to refund. tions similar to those performed on Unit 2. From its May start-up until it Fuel Adjustment was removed from service in Septem-Approximately 98% of the Company 's ber, the unit operated at a 80% capac-kilowatt-hour sales are subject to re- ity factor .
covery of current fuel costs, actual or In addition to replacement of the estimated, through fuel expense re- steam generators, work performed on covery procedures. Surry 2 and being performed on Surry 1 includes extensive overhaul of the Nuclear Units turbines and installation of new equip-ment that will prevent steam generator Fourth Nuclear Unit Begins problems in the future. This work also Operation will increase the reliability of these Vepco 's fourth nuclear unit, North units.
Anna Unit 2, received the first full- A number of modifications also power operating license granted by were performed on all of the Com-the Nuclear Regulatory Commission pany 's nuclear units in 1980 as a re-(NRC) since the March 1979 accident sult of lessons learned from the acci-at Three Mile Island. The Company dent at Three Mile Island. Many of was granted a low-power operating li- these improvements were required by cense to load nuclear fuel and to per- the NRC, and many were made at form various tests in April 1980. The Vepco's own initiative.
unit achieved its first self-sustaining nuclear chain reaction June 12 and North Anna 4 Cancellation was approved for full-power operation When the North Anna station was August 21. first planned, the demand for electric-The full-power license was granted ity in our area was growing at nearly following the successful completion of 11 % a year. Today, our demand the most comprehensive emergency growth has dropped to about 2% a drill reviewed by the NRC and the Fed- year, making the capacity of North eral Emergency Management Agency Anna 4 unnecessary in the early at that time . More than 300 represen- 1990s.
tatives of Vepco, Federal, State and Since both the original decision to local authorities participated in the build North Anna 4 and the recent de-day-long drill. cision to cancel it were made in the in-North Anna 2 was tested exten- terest of our customers, we will seek sively and placed in commercial oper- recovery of approximately $165 mil-ation December 14. At that time, a rate lion invested in engineering, construc-reduction of 4.3% went into effect for tion and equipment for North Anna 4 the Company 's Virginia customers due that cannot be used in completing Unit to the lower fuel costs associated with 3. The Company is requesting regula-nuclear power. tory approval of recovery through rates over a 10-year period.
Other Nuclear Units During 1980, North Anna Unit 1 oper- From the customers' standpoint, ated at a capacity factor of 75%, well however, the savings from canceling above the industry average of 56%. A the unit will more than offset the costs unit operating at full power every hour of cancellation during the 10 years.
of the year would have a capacity fac- North Anna 3 Construction tor of 100%, a theoretical maximum. A Because of the need for new gener-perfect capacity factor cannot be at- ating capacity before 1990 and the tained because of refueling every 12 current investment of more than $400 to 18 months and periodic mainte- million, we believe it is in the best in- Construction will be continued on No nance outages. terest of our customers and stock- Anna 3 (foreground). Licensing ,
Surry Unit 2 returned to service in holders to complete North Anna 3 in full-power operation of North Anna 2 w August after successful completion of 1989 as planned . granted in August 19t 8
Bath County nomic conditions and regulatory poli-cies. From the end of World War II until Pumped Storage Project the OPEC embargo of 1973, energy The Company announced an agree- utilities, their customers and their ment in October with Allegheny Power stockholders benefited from govern-System CAPS) that provides for joint ment policies and an economic climate ownership or use of the Bath County that supported rapid growth . Since Pumped Storage Project. that time, we have taken measures to Under the agreement, APS must adapt to a rapidly changing world of purchase either 40% of the project or severe inflation, soaring fuel costs and the use of 40% of the project's capac- vascillating regulatory policy. Our re-ity under long-term contract, or any vised construction program will enable combination of the two. APS may in- us to cope with these changes without crease its share of the project up to sacrificing the reliability of energy 50% prior to December 31, 1984. Un- supplies, or the support of our inves-der any agreement, APS will be re- tors.
sponsible for providing the pumping The key ingredient in utility plan-energy required for its share of Bath ning over the next decade will be flexi -
County operations. bility. Our program balances energy Negotiations are continuing on con- needs with the Company 's ability to fi-tract details. Vepco now expects to re- nance the facilities to meet those ceive about $260 million in 1981. The needs. While our reliance on nuclear final agreement is subject to regula- power continues to produce savings to tory approvals. The financing of the our customers, it is tempered by a full sale of an ownership interest in the appreciation of the financial and regu-project may be accomplished through latory risks associated with nuclear the Bath County Hydroelectric Trust, a units.
construction trust previously estab- Current forecasts of growth in de-lished by the Company for financing mand for electricity indicate the need the project. for additional generating capacity The Company 's agreement with sometime in the mid-1990s. Our cur-APS will reduce our external financing rent plan is to delay the need for any requirements while permitting us to new generating facilities through load continue construction of facilities management. However, when it is needed to serve our customers. Three again necessary to expand capacity, 350-Mw units are scheduled to begin we plan to build a coal-fired unit. The operation in 1985 and three more in size and in-service date of a coal-fired 1986. The station will have a total ca- unit can be varied more easily than a pacity of 2,1 00 Mw. nuclear unit, thus giving the Company continued flexibility . Also, the capital cost of a coal unit is smaller than a nu-Revised Construction clear unit, and a commitment to build a Program coal unit can be made later due to its shorter construction time .
In November , the Company an- Our commitment to build North nounced a revised construction pro- Anna 3 remains firm . However, the gram designed to provide the flexibility major share of construction ex-and balance necessary to meet cus- penditures for North Anna 3 will not be tomer demand in the 1980s. made for several years. If the economy This program includes the can- takes an unexpected turn, or if units of cellation of the North Anna 4 nuclear a similar design now nearing com-unit, which was previously planned for pletion encounter licensing difficulties, operation in 1992. The unit was less we will still be able to reassess our than 10% complete. plans anytime before 1984.
Other elements of the revised pro-gram include the completion of the North Anna 3 nuclear unit in 1989, the Load Management completion of the Bath County One factor essential to the success of Pumped Storage Project in *1985-86 our revised construction program is and a major emphasis on load man- effective use of load management. The agement, conservation and alternate goal of load management is to utilize energy sources to reduce the need for generating units more efficiently by costly new facilities in the future . shifting demand from peak to off-peak This program is the result of an ex- periods. By controling peak demands tensive, year-long study of future de- on our system , the need to build costly mand growth, external financing re- new facilities can be delayed .
quirements, the regulatory uncertainty Vepco has employed load manage-surrounding nuclear power and the ment techniques for years and is devel-costs associated with various gener- oping new approaches through re-ating options. search and experimental programs. Work continues on the powerhouse!
This revised construction program Among programs the Company now has Bath County Pumped Storage Project, whe is our response to the unprecedented under way are interruptible service to generating facilities will be shared WI challenges posed by today 's eco- customers ' water heaters, interruptible Allegheny Power SysteJ 10
service to large industrial customers the financial impact of purchasing re-with alternate fuel sources, and time-of- placement power following the loss of usage rate schedules to promote off- a nuclear unit from an accident.
peak energy consumption. The insurance company , Nuclear Vepco 's commitment to energy effi- Electric Insurance Limited (NEIL), is ciency will help us match a financially owned by the utilities and each partici-feasible expansion program to our pating company is represented on its service area ' s still growing demand for board of directors. NEIL was formed electricity. because the coverage it provides is not available from existing commercial Coal Conversion insurers.
The Company is continuing an aggres-sive program of converting oil-fired Participating companies are eligible for replacement power benefits from units to burn coal. We now have con-NEIL after 26 weeks following an acci-verted 1,639 Mw of capacity from oil dent. A substantial portion of replace-to coal, more than any other utility in ment power costs are covered for two the nation . The use of coal not only years.
produces lower costs for our custom-ers, it also helps our nation reduce its Finance dependence on foreign oil. The most significant aspect of the Oil to Coal Conversions 1980 financing program was the crea-Units Capability (Mw) tion of the Bath County Hydroelectric Chesterfield 4 1 66 Trust to finance the completion of the Chesterfield 5 31 0 Bath County Pumped Storage Project .
Chesterfield 6 658 The Trust was structured as a financ-Portsmouth 4 1 90 ing vehicle for Vepco and Allegheny Possum Point 3 (1981) 101 Possum Point 4 214 Power System . The Trust has issued Total 1,639 $201 .8 million of short-term notes, guaranteed by the Company, to fi-After another 598 Mw of capacity nance Vepco 's 1980 expenditures on are converted by the end of 1983, our the project. Fourteen foreign banks coal conversions will displace about and one U.S. bank participated in the 20 million barrels of oil consumption financing by providing credit support each year. to the notes of the Trust.
Vepco ' s use of oil as a major fuel We continued to utilize the inter-dates back to the 1960s and early mediate term market in 1980 by plac-1970s. At that time, oil was less ex- ing notes totaling $85 million with three pensive than coal and had less effect foreign and four domestic lenders.
on the environment. The Company A summary of the $480 .9 million in was able to save its customers money financings in 1980 is given in the fol-by taking advantage of this fuel which lowing table.
was available mostly to utilities with generating stations on navigable wa- Millions of Dollars ters. First and Refunding Mortgage However, the OPEC oil embargo of Bonds of 1980,Series A, 12 'h% ,
1973 reversed the price relationship Due July 1, 2000 $ 75 .0 between coal and oil, thus making Bath County Hydroelectric Trust 201 .8 conversion of certain units economi- Pollution Control Note
- 40.0 cally justifiable. Since that time, the Common Stock cost differential has continued to in- Public Offering $54 .0 crease and environmental require- Automatic Dividend Rein-ments have been better defined and vestment Plan 16.4 Vepco is now converting all of its units Employee Savings Plan 6 .2 that are capable of burning coal and Installments received not close to retirement. through Customer Installation of electrostatic precipi- Stock Purchase Plan 2.5 79.1 tators, or dust collection devices, to Intermediate Term Loans 85 .0 meet new air pollution standards is the Total $480.9 major cause of coal conversion ex-
- The Company through an Industrial De-pense and delays. The design, pro- velopment Authority is financing the con-curement and installation of a new struction o.f tour electrostatic precipi-precipitator takes about three years. tators. Funds will be requisitioned as Increasing the collection efficiency they are spent.
from the previously-required 80% to the 99% now required significantly in-creases costs.
Customer Relations We continued during the past year to Nuclear Insurance Pool look for ways to improve our custom-In recognition of the severe financial ers ' understanding of our policies and impact of the accident at Three Mile operations. Two programs were un-Island , nuclear utilities across the dertaken to meet this objective.
country, including Vepco , have formed To provide a new forum for custom- At Chesterfield Power Station, entire r an insurance company to protect the ers to express their views on Company cars of coal are dumped automatically intc companies and their customers from operations, we began to establish hopper that leads to conveyor belt for stockpi/i, 12
Customer Advisory Boards in each of employees from all departments in the our five divisions. The tfoard members Company, spoke to 1,832 groups dur-are appointed from a list of candidates ing 1980 to present the Company's nominated by legislators, other gov- views and respond to customer ques-ernment officials, educators, con- tions. Approximately 20,000 students, sumer groups, church groups and teachers and interested citizens vis-leaders in business and industry. Rep- ited our information centers at the resentatives of the Company do not Bath County and North Anna construc-serve on the boards. tion sites .
We also implemented what we be- Our operating districts compete lieve to be the first and most success- through the President's Customer Re-ful Customer Stock Purchase Plan of lations Award Program to achieve the any utility in the nation. About 14,000 best customer relations record during customers enrolled during 1980 and the year. Competition is conducted in the volume of customer inquiries leads such areas as customer complaints us to expect an even larger response and reductions in meter reading er-to a 1981 offer we plan to make. rors.
The plan enables our customers to acquire stock in the Company without Investor Relations paying brokerage fees or commis- The Company undertook an important sions. Participants contribute a fixed initiative last year to strengthen its monthly installment they elect at the relationship with professional financial time they enroll in the 12-month plan. analysts who influence investor atti-The minimum monthly contribution is tudes toward our securities.
$10. Participants receive 8% interest A manager of investor relations was on their contributions, and pay any ad- appointed June 1 to maintain a steady ministrative expenses that exceed 4% flow of information on corporate per-of the value of the stock issued. We formance to these analysts. The new expect under this plan to issue ap- manager responds daily to questions proximately $6.3 million of our com- about the Company from investment mon stock in September 1981. professionals, arranges meetings be-In addition to these new programs, tween financial analysts and senior other proven customer and community management, distributes a compre-relations programs continued to oper- hensive five-year financial profile and ate effectively in 1980. Our Speakers' prepares and distributes a monthly fi-Bureau, composed of knowledgeable nancial newsletter, Recent Events.
Stockholders Geographic Distribution END OF YEAR Preferred and Common Stock Owners Shares Preference Stocks Owners Shares Virginia 41 ,101 17,658 ,195 Virginia ....... ... ............. 7,254 725 ,130 New York .. ..... .... .. ...... 15,934 35,639,411 North Carolina ... .. .. .. .... .... 2,177 468,496 Florida ..... ........... .. .. ... 15,561 5,163 ,057 Florida ...... .... . .. ... .. .......... 1,971 295 ,127 California ......... 11 ,294 5,170,346 New York . ........ **...* *. .*. *... 1,469 2,576 ,939 North Carolina .... .. ..... . 9,007 2,993,134 California .......... . 1,117 253,728 Maryland ... .......... ...... 8,298 2,223,157 Maryland ... .. .. ... 1,022 166,842 Illinois ...... .... ... ... ... 8,173 2,791,186 South Carolina . ... .. ....... ... 796 155,838 New Jersey ...... .. . 7,257 4,149 ,177 Illinois ... . 763 484,945 Ohio 5,932 1,889,336 New Jersey ..... ... 689 1,252 ,498 Massachusetts ... 5,658 2,684,983 Ohio .. .. . ........... . .. . **.. .* ... 659 102,253 Michigan .. .... ..... . 5,298 1,478,923 West Virginia .. 498 41 ,885 Texas .. 4,516 1,944 ,304 Pennsylvania .. 496 205,185 Pennsylvania ... .. 4,305 1,622,180 Texas .. . 487 105,450 Connecticut ... ........ .... 3,369 1,659,050 Michigan ..... 442 60 ,189 South Carolina .. . 2,638 844 ,425 Massachusetts .... 380 105,762 Wisconsin 2,588 657 ,560 Missouri 346 106,554 Missouri ... .. .. .... .... ...... 2,576 967 ,500 District of Columbia ...... .... 322 48 ,063 Tennessee ........... .. .... 2,186 814 ,542 Georgia .... ..... . 308 79,666 West Virginia .. ....... ..... 2,113 665,846 Arizona .. .... .... .. .... .. 239 36,444 19 States ..... .... ....... ... 157,804 91 ,016 ,312 18 States and D.C. 21,435 7,270,g94 31 Other States, 32 Other States D. C. and 40 and 9 Foreign Foreign Countries 25 ,128 8,937 ,845 Countries 2,437 1,3 28,084 TOTALS ...... 182,932 99 ,954 ,1 57 TOTALS .. .. 23,872 8 ,599 ,078 Distribution of Ownership Preferred and Common Stock Owners Shares Preference Stocks Owners Shares Women .. 54,035 14,272,861 Women .............. 8,120 785,002 Men ... 53,049 16,789,100 Men ... ... ..... ........ ... .... ...... 6,198 800,204 Joint Accounts ........... 50,964 13,470,728 Joint Accounts ... .. .. .... ...... 5,194 615 ,464 Trust Accounts ..... .. .. .. 20,224 4 ,339 ,561 Trust Accounts ... .. ........... 1,931 220 ,590 Nominees ... ....... ..... .. .. 1,271 36,891,781 Nominees .......... .. ... .. .. . 669 2,105 ,573 Institutions and Institutions and Foundations ..... ...... 460 647,930 Foundations ... ..... .. . 141 1,57 1,434 Brokers and Brokers and Security Dealers .... . 98 5,278 ,693 Security Dealers .......... 82 38,024 Others .. ................ 2,831 8,263,503 Others ..... .... .... 1,537 2,462,787 Huge steel linings for the giant tunnels t TOTALS .......... ..... 182 ,932 99,954 ,157 TOTALS .. .... .. ....... ... 23,872 8,599,078 will ca rry water from upper to lower reservo at Bath County Proje 14
Description of Business The electric business of the Company is conducted in most of tives and municipalities. Gas service is provided only in the Nor-Virginia and in parts of North Carolina and West Virginia. In its folk-Newport News area (except Portsmouth) and in the area ex-service area it sells electricity to retail customers (including gov- tending from Newport News to and including Williamsburg.
ernmental agencies), and at wholesale to rural electric coopera-Selected Financial Data Millions of Dollars (except per share amounts) 1980 1979 1978 1977 1976 Operating revenues .......................................................... . $2,120 $1,703 $1,465 $1,359 $1,104 Operating income ............................................................ . 390 316 305 265 241 Balance for common stock ............................................... . 184 141 150 142 123 Earnings per share of common stock ................................ . 1.93 1.63 1.88 1.92 1.80 Dividends paid per share of common stock ....................... . 1.40 1.38 1.30 1.24 1.221h Total assets ..................................................................... . 6,491 5,961 5,211 4,802 4,315 Net utility plant ................................................................. . 5,586 5,229 4,686 4,305 3,909 Long-term debt and preferred stock subject to mandatory redemption .................................. . 3,216 2,941 2,681 2,407 2,144 Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY. Since the Arab oil embargo in 1974, the sigried to fund construction costs for future generating ca-Company has experienced deficiencies in its internal cash pacity. The Company has unsuccessfully sought to include generation. Most recently these deficiencies have resulted the cost of financing in customer charges from the Virginia from substantial increases ih the use of fossil fuels and re- Commission and substantially reduce the accrual of AFC.
placement power for unanticipated nuclear unit outages The Company expects to continue in similar efforts, but for and for the steam generator repairs to Surry Nuclear Units the foreseeable future, liquidity will be maintained by the 1 and 2 and from delays in obtaining recovery of these in- ability to obtain outside funds.
creased costs in rates.
As a result of several reductions in projected load CAPITAL RESOURCES. The 1981 capital requirements growth, together with escalating construction costs, fi- result principally from the estimated $643 million of capital nancing constraints upon the Company and regulatory expenditures and $124.3 million of refunding and manda-constraints upon nuclear power, the Company has during tory cash -sinking fund obligations of long-term debt and the past six years, canceled three nuclear units and de- Preferred Stock. The Company presently expects that ferred in-service dates for one other nuclear unit and six 35% to 40% of these requirements will be obtained from pumped storage units. In spite of the cancellations and de- internal sources, about 35%-40% from the sale of a por-ferments, construction expenditures during this period tion of the Bath County Pumped Storage Project (dis-have required substantial sales of securities. cussed below) and the remainder will be financed through Allowance for Funds Used During Construction (AFC), sales of securities of various types, with the long-term ob-non-cash income included in the accounts in accordance jective of achieving and maintaining capitalization ratios in with the regulatory Uniform Systems of Accounts, has the range of 52% long-term debt, 13% Preferred and Pref-been increasing in recent years and now represents a sub- erence Stock and 35% Common Equity.
stantial portion of net income. At the same time, deprecia- Capital expenditures are generally financed initially by tion charges, a non-cash expense which includes depreci- sales of commercial paper. To support these borrowings ation of previously capitalized AFC, have exceeded AFC the Company has available bank lines of credit amounting credits in each year. As a result of the above and other to $391 million. See Note J to Financial Statements as to non-cash charges, funds provided by operations have ex- lines of credit and the amounts and costs of such borrow-ceeded net income for each of the years 1976 through ings in 1980.
1980 (see Statements of Changes in Financial Position). Commercial paper is refunded by means of the sales of Internal cash generation during 1981 will be affected intermediate and long-term debt and equity securities, but not only by the availability of the Company's nuclear gen- an earnings limitation of the Mortgage would permit the is-erating units and the cost of fossil fuel or replacement suance at December 31, 1980 of $511 million of addi-power, but also by the level of capital expenditures, the tional Bonds assuming an interest rate of 15% for addi-cost of funds to the Company to finance those ex- tional Bonds. Another earnings limitation would permit no penditures, the outcome of rate proceedings and the pos- additional shares of Preferred Stock to be issued.
sible consummation of plans to sell a portion of the Bath The construction program and related expenditures and County Pumped Storage Project (see Capital Resources financing can continue to change as a result of, among
. below). other factors, higher than anticipated inflation, additional Liquidity for electric utilities like the Company, who regulatory and environmental costs, further changes in the have large amounts committed for construction projects, rate of growth in peak demand, licensing and construction depends to a great extent on the ability to obtain outside delays, results of rate proceedings and the possible con-funds, since charges to present customers are not de- sumation of sales of certain facilities.
18
The Company has been continuing negotiations for a units. The average cost of fuel consumed per kilowatt-hour sale for cash of some portion of its nuclear facilities in generated is shown below:
service and under construction with Cooperative custom- Mills Per Kilowatt-hour ers. It cannot be predicted at this time whether ultimate 1980 1979 1978 agreement can be reached or the terms upon which such Nuclear................................ 8.09* 5.27 5.18*
an agreement might be reached or whether necessary reg-ulatory approvals could be obtained. Coal-Mt. Storm (mine-mouth)17.16 13.80 13.48 The Company is continuing negotiations on the details -Other........................ 20.36 20.61 18.68 of a contract with Allegheny Power System, Inc. for the Oil ....................................... 44.73 31.45 21.67 sale of a 40% interest (which may be increased to 50% Total system .. . . ... .. . .. .. .. .. .. .. .. 21. 76 20.44 14.04 prior to 1985) in the Bath County Pumped Storage Project
- Includes generation at North Anna Unit 2 (1980) and Unit 1 (1978) and associated transmission facilities ($631 million in- priced at the cost of displaced fuel during preliminary operations. Actual vested through December 31, 1980). If agreement is costs were 6.19 (1980) and 4.63 (1978) mills per kilowatt-hour.
reached and regulatory and other approvals are received (there can be no assurance of either), the Company could Kilowatt-hour output by energy source is shown below:
receive about $260 million of cash in 1981.
RESULTS OF OPERATIONS. Due to the effects of infla- 1980 1979 1978 tion, delays in obtaining a nuclear unit license, unsched-Nuclear ................................ 27% 17% 35%
uled outages of nuclear and coal fired units, rapidly esca-Coal-Mt. Storm lating costs of oil, major maintenance and repairs at most (mine-mouth) ............. 13 17 17 of the fossil units, increased depreciation and mainte-
-Other ........................ 12 10 7 nance associated with additional power station units Oil ....................................... 19 33 37 placed in service and increased cQsts of capital and capi-Purchased and interchanged 27 19 tal expenditures, expenses have risen substantially during Other ................................... 2 4 4 the past several years, and as a result, the Company has 100% 100% 100%
been granted substantial rate increases during these -- --
years. Since the receipt of rate increases has lagged in-The Company plans to convert most of its oil-fired gen-creases in expenses up to a year or more, Balance for eration to coal by the end of 1983. After the conversions Common Stock has fluctuated since 1973. An increase of only 1604 Mw or about 16% of present total net summer
- 34. 7 million average shares of Common Stock since 1975 generating capability will remain oil-fired excluding 4 7 4 has caused 1980 earnings per share of Common Stock to Mw that will have been placed in a non-operating cold re-decline from its 1976 level despite the increase in Balance serve status and 439 Mw of combustion turbines.
for Common Stock from 1976 to 1980.
Maintenance and depreciation expenses have in-creased since 1978 principally as a result of the addition of North Anna Unit 1 in mid 1978 and will increase in 1981 Electric revenues increased from 1978 through 1980 prin-with the addition of North Anna Unit 2 in De.camber 1980.
cipally as a result of the following:
Revenues Increase For information with respect to changes in depreciation From Prior Year rates see Note G to Financial Statements.
(Millions of Dollars) For information with respect to Federal income and 1980 1979 other taxes see Notes C and E to Financial Statements.
Rate increases and fuel cost recovery .. . $321.2 $215.3 Continuation of the Company's capital expenditures Unit sales (excluding effect of above) ... . 76.8 14.8 and the related financing together with increases in con-Other, net ........................................... . 3.6 4.0 struction and nuclear fuel costs and changes in internally Total ................................................... . $401.6 $234.1 generated funds and costs of capital have resulted in in-creases in the amounts of interest charges, preferred and preference dividends and AFC.
INFLATION. From the mid 1940's until the early 1970's Gas revenues represent about 3.3% of total revenues. customer demand increased so rapidly that the cost per With the Company again permitted to connect new gas kilowatt-hour to the customer declined. With the persistent customers, substantial numbers of residential and signifi- high rates of inflation and rapid rises in oil costs during the cant industrial customers have been added. As a result of 1970's, and significant decrease in the rate of growth of increased sales to customers and deregulation of natural demand, the Company has required substantial amounts gas pricing, which will be passed on to the consumers of rate relief including increases in fuel cost recovery bill-through the purchased gas adjustment clause, gas reve- ings.
nues should rise substantially in the future but not to a For a capital intensive electric utility, inflation increases level that would be significant compared to electric opera- the cost of materials and labor in not only operating ex-tions. penses but also the construction program at a time when inflation and the fiscal and monetary policies of the Fed-eral government have resulted in record high costs of capi-Fuel and purchased and interchanged power expenses tal. Also to a great extent, operating and construction have fluctuated from 1978 through 1980 as a result of costs have been affected by the tremendous growth in reg-changes in fuel costs (see Notes A and F to Financial ulation in recent years, particularly at the Federal level.
Statements), increased sales and the availability of coal- An estimate of the effect of inflation measured by con-fired generation purchased from neighboring ultilities at a stant dollar accounting and current cost accounting for se-cost less than the Company's oil-fired generation during lected financial data is presented in Note P to Financial unscheduled outages of the Company's nuclear and coal Statements.
19
*.,a _ _ _ ~ - - - - ~
Report of Management The management of Virginia Electric and Power Company is responsible for all information and representations con-tained in the financial statements and other sections of the annual report. The financial statements, which include amounts based on estimates and judgments of management, have been prepared in conformity with generally accepted accounting principles. Other financial information in the annual report is consistent with that in the financial statements.
Management maintains a system of internal accounting control designed to provide reasonable assurance at a rea-sonable cost that the Company's assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed and recorded in accordance with established procedures. This system includes written poli-cies, an organizational structure designed to ensure appropriate division of responsibilities, careful selection and train-ing of qualified personnel and a program of internal audits.
- The financial statements have been examined by Coopers & Lybrand, independent certified public accountants. Their examination is conducted in accordance with generally accepted auditing standards and includes a review of the Com-pany's accounting systems, procedures and internal controls, and the performance of tests and other auditing proce-dures sufficient to provide reasonable assurance that the financial statements neither are materially misleading nor con-tain material errors.
The Audit Committee of the Board of Directors, composed entirely of directors who are not officers or employees of the Company, meets periodically with the independent auditors, the executive manager-internal auditing and management to discuss auditing, internal accounting control and financial reporting matters and to ensure that each is properly dis-charging its responsibilities. Both the independent auditors and the executive manager-internal auditing periodically meet alone with the Audit Committee and have free access to the Committee at any time.
VIRGINIA ELECTRIC AND POWER COMPANY
- - ----***- -- --- -- -- -- -*-----*------- --- ------ - - -- - ---- --- ----------*------------------~
\
Report of Independent Certified Public Accountants To the Stockholders and Board of Directors of Virginia Electric and Power Company:
We have examined the balance sheets of Virginia Electric and Power Company as of December 31, 1980 and 1979, and the related statements of income, earnings reinvested in business and changes in financial position for each of the five years in the period ended December 31, 1980. 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 report dated February 6, 1980, our opinion was qualified as being subject to the effects on the 1979 financial statements of such adjustments as might have been required had it been known what part of deferred costs associated with purchased and interchanged power, if any, would not be recoverable either through fuel cost recovery procedures or in base rates. As discussed in Note B to Financial Statements, the Virginia State Corporation Commission has issued a rate order permitting recovery of these deferred costs in base rates. Accordingly, our present opinion on the 1979 finan-cial statements, as presented herein, is no longer qualified.
In our opinion, the financial statements referred to above present fairly the financial position of Virginia Electric and Power Company as of December 31, 1980 and 1979, and the results of its operations and the changes in its financial position for each of the five years in the period ended December 31, 1980, in conformity with generally accepted ac-counting principles applied on a consistent basis.
COOPERS & LYBRAND New York, New York February 4, 1981 20
Virginia Electric and Power Company Statements of Income Years 1980 1979 1978 1977 1976 (Thousands of Dollars)
Operating revenues (Notes A and L)
Electric .................................................................... . $2,049,518 $1,647,928 $1,413,866 $1,313,937 $1,060,663 Gas ......................................................................... . 70,256 55,381 51,039 44,923 43,413 Total ................................................................ . 2,119,774 1,703,309 1,464,905 1,358,860 1,104,076 Operating expenses:
Operation:
Fuel used in eiectric generation (Notes A, Band F) ...................................................... . 674,996 559,998 585,625 575,151 446,984 Purchased and interchanged power (Note B) ......... . 341,011 194,547 9,384 52,273 15,747 Other (Note F) ....................................................... 250,848 210,840 183,906 153,514 131,485 Maintenance (Note A) ............................................... . 123,962 103,856 90,317 69,885 53,749 Depreciation (Notes A and G) ................................... . 145,032 136,280 117,481 98,527 95,191 Amortization of abandoned project costs (Note D) ............................................................... . 6,933 7,292 6,760 3,173 Taxes-Federal income (Notes A and C) .................. . 70,004 69,744 72,658 59,736 48,751
--Other (Note E) ............................................ . 117,456 104,358 93,499 81,174 71,413 Total ................................................................ . 1,730,242 1,386,915 1,159,630 1,093,433 863,320 Operating income ............................................................ . 389,532 316,394 305,275 265,427 240,756 Other income:
Allowance for other funds used during construction (Note A) ........................................... . 73,206 66,603 64,002 72,361 Allowance for funds used during construction (Note A) ........................................... . 80,429 Miscellaneous, net ...................*................................ 2,973 1,282 2,209 (305) 283 Income taxes associated with miscellaneous, net ...... . (550) (308) (867) (358) 208 Total ................................................................ . 75,629 67,577 65,344 71,698 80,920 Income before interest charges ........................................ . 465,161 383,971 370,619 337,125 321,676 Interest charges:
Interest on long-term debt ........................................ . 234,561 204,392 184,947 168,885 147,481 Other ....................................................................... . 28,530 12,417 6,677 5,748 7,409 Allowance for borrowed funds used during construction (Note A) ........................................... . (39,550) (29,305) (24,869) (27,301)
Total ................................................................ . 223,541 187,504 166,755 147,332 154,890 Net income ...................................................................... . 241,620 196,467 203,864 189,793 166,786 Preferred and preference dividends .................................. . 57,291 55,123 53,588 47,719 43,821 Balance for common stock ............................................... . $ 184,329 $ 141,344 $ 150,276 $ 142,074 $ 122,965 Shares of common stock-average for year (thousands) ... . 95,520 86,965 80,060 74,025 68,137 Earnings per share of common stock ................................ . $1.93 $1.63 $1.88 $1.92 $1.80 Cash dividends paid per common share ............................ . $1.40 $1.38 $1.30 $1.24 $1.221h
) Denotes red figure.
The accompanying notes are an integral part of the financial statements.
21
Virginia Electric and Power Company Balance Sheets Assets December 31, December 31, 1980 1979 (Thousands of Dollars)
UTILITY PLANT (Note A):
Electric ......................................................................... $6,445,405 $5,960,549 Gas .............................................................................. 66,289 62,130 Common ....................................................................... 16,892 14,293 Total (includes $1,451,292,000 plant under construction [1979-$1, 731,012,000]). 6,528,586 6,036,972 Less accumulated depreciation (Note G) .................... 1,118,308 999,990 5,410,278 5,036,982 Nuclear fuel (less accumulated amortization of
$131,321,000 [1979---$79, 151,000]) ********************** 176,187 191,521 Net utility plant ........................................... 5,586,465 5,228,503 INVESTMENTS:
Nonutility property at cost or written-down amounts (less allowance of $7,575,000) .................... 6,327 5,150 Subsidiary companies at equity (includes advances of $13,659,000 [1979---$15, 789,000]) (Notes A and N) ...................................................................... 19,851 20,223 Net investments ......................................... 26,178 25,373 CURRENT ASSETS:
Cash (Note J) ................................................................ 6,261 4,868 Temporary cash investments ......................................... 8,500 Accounts receivable:
Customers ................................................................ $181,745 $156,378 Uranium settlement (Note N) ...................................... 41,000 Other ...................................................'..................... 7,128 6,912 188,873 204,290 Less allowance for doubtful accounts ......... 1,360 187,513 2,038 202,252 Accrued unbilled revenues ............................................ 83,123 93,802 Materials and supplies at average cost or less:
Plant and general (including construction ma-terials) .................................................................. 55,515 40,301 Fossil fuel ................................................................. 130,203 185,718 131,370 171,671 Prepayments:
Taxes ....................................................................... 32,959 31,615 Other ........................................................................ 11,806 44,765 4,713 36,328 I Total current assets ................................... 515,880 508,921 DEFERRED DEBITS:
Unamortized abandoned project costs (less ac-cumulated amortization of $24, 158,000 [1979-
$17,225,000]) (Note 0) ............................................. 172,720 56,322 Deferred fuel costs (Notes A and 8) ............................... 78,104 89,250 Pollution control project funds ....................................... 45,570 7,836 Unamortized expense on debt ....................................... 8,754 8,009 Other ............................................................................ 57,793 36,370 Total deferred debits .................................. 362,941 197,787
$6,491,464 $5,960,584 The accompanying notes are an integral part of the financial statements.
22
Capital and Liabilities December 31, December 31, 1980 1979 (Thousands of Dollars)
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-
$1 00 par, cumulative (Note H) ................................................................. . $ 328,911 $ 330,894 PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION-
$100 par, cumulative (Note I) ................................................................... . 289,014 289,014 PREFERENCE STOCK NOT SUBJECT TO MANDATORY REDEMPTION-no par, cumulative; authorized 30,000,000 shares (Note I) ................................... . 57,360 57,360 COMMON STOCKHOLDERS' EQUITY (Note I):
Common stock-no par ................................................................................... . 1,400,874 1,319,303 Other paid-in capital ......................................................................................... 25,352 27,859 Earnings reinvested in business, as annexed .................................................... . 435,430 384,600 Total common stockholders' equity .................................................. . 1,861,656 1,731,762 LONG-TERM DEBT (Note K) ................................................................................ . 2,887,114 2,610,308 CURRENT LIABILITIES:
Securities due within one year (Notes H and K) ................................................. . 124,276 62,093 Loans payable, pending permanent financing (Note J) ...................................... . 83,721 131,730 Accounts payable, trade .................................................................................. . 111,674 127,684 Customer deposits ........................................................................................... 11,884 12,004 Payrolls accrued *.............................................................................................. 13,498 11,365 Taxes accrued ................................................................................................. 53,606 25,764 Interest accrued ..................................... :........................................................ . 76,501 69,284 Deferred income taxes (Notes A and C) ............................................................ . 14,856 17,316 Other ................:.-. ............................................................................................ 60,797 40,683 Total current liabilities ..................................................................... . 550,813 497,923 DEFERRED CREDITS:
Uranium settlement (Note N) ............................................................................ . 142,172 130,346 Accumulated deferred income taxes (Notes A and C):
Liberalized depreciation .............................................................................. . 149,867 108,758 Abandoned project costs ............................................................................. . 63,514 24,931 Accelerated amortization ............................................................................. . 10,036 11,583 Other ........................................................................................................... 16,004 39,528 Deferred investment tax credits (Notes A and C) ............................................... . 106,808 100,181 Other (Note F) .................................................................................................. 28,195 27,996 Total deferred credits ...................................................................... . 516,596 443,323 COMMITMENTS AND CONTINGENCIES (Note N)
$6,491,464 $5,960,584 23
Virginia Electric and Power Company Statements of Earnings Reinvested in Business Years 1980 1979 1978 1977 1976 (Thousands of Dollars)
Balance at beginning of year ............................................ . $384,600 $364,215 $318,507 $328,115 $290,260 Net income (see "Statements of Income") ........................ . 241,620 196,467 203,864 189,793 166,786 Total ................................................................ . 626,220 560,682 522,371 517,908 457,046 Cash dividends:
Preferred stock subject to mandatory redemption:
$7 .325 preferred ..................................................... . 5,128 5,128 5,128 5,128 5,128
$8.40 preferred ....................................................... . 6,720 6,720 6,720 6,720 6,720
$9.125 preferred ..................................................... . 1,825 1,825 1,825 1,825 345
$8.20 preferred ....................................................... . 4,920 4,920 4,920 1,134
$8.60 preferred ....................................................... . 3,189 3,291 3,392
$8.625 preferred ..................................................... . 3,191 3,191 1,785
$8.925 preferred ..................................................... . 2,499 153 Preferred stock not subject to mandatory redemption:
$5.00 preferred ....................................................... . 533 533 533 1,447 1,447
$4.04 preferred ....................................................... . 52 52 52 404 404
$4.20 preferred ....................................................... . 62 62 62 420 420
$4. 1 2 preferred ....................................................... . 134 134 134 515 515
$4.80 preferred ....................................................... . 351 351 351 1,440 1,440
$7.72 preferred ....................................................... . 2,702 2,702 2,702 2,702 2,702
$8.84 preferred ....................................................... . 3,094 3,094 3,094 3,094 3,094
$7 .45 preferred ....................................................... . 2,980 2,980 2,980 2,980 2,980
$7.20 preferred ....................................................... . 3,240 3,240 3,240 3,240 3,240
$7. 72 preferred (1972 Series) .................................. . 3,860 3,860 3,860 3,860 3,860
$9. 75 preferred ....................................................... . 5,850 5,850 5,850 5,850 4,566 Preference stock not subject to mandatory redemption:
$2.90 preference ..................................................... . 6,960 6,960 6,960 6,960 6,960 Common stock ............................................................. . 133,005 120,638 103,474 91,225 82,923 Total dividends ............................................ . 190,295 175,684 157,062 138,944 126,744 Transfer to common stock as authorized by Board of Directors ........................................................ . 60,000 Other deductions, net. ...................................................... . 495 398 1,094 457 2,187 Total ............................................................ . 495 398 1,094 60,457 2,187 Balance at end of year ...................................................... . $435,430 $384,600 $364,215 $318,507 $328,115 The accompanying notes are an integral part of the financial statements.
24
Virginia Electric and Power Company Stafements of Changes in Financial Position Years 1980 1979 1978 1977 1976 (Thousands of Dollars)
SOURCE OF FUNDS:
Funds provided by operations:
Net income .................................................................... $241,620 $196,467 $203,864 $189,793 $166,786 Items not affecting working capital:
Provision for depreciation (Notes A and G) ................. 145,032 136,280 117,481 98,527 95,191 Amortization of nuclear fuel (Note A) .......................... 52,170 25,576 29,702 14,526 8,962 Amortization of abandoned project costs (Note D) ....... 6,933 7,292 6,760 3,173 Allowance for other funds used during construction (Note A) ............................................. (73,206) (66,603) (64,002) (72,361)
Allowance for borrowed funds used during construction (Note A) ............................................. (39,550) (29,305) (24,869) (27,301)
Allowance for funds used during construction (Note A) ................................................................ (80,429)
Deferred income taxes (Notes A and C) ...................... 52,177 66,545 14,668 31,536 14,002 Deferred investment tax credits, net (Notes A and C) ..................................................... 6,627 (5,250) 34,827 19,009 32,540 Total funds provided by operations ..................... 391,803 331,002 318,431 256,902 237,052 Funds provided by financing and other sources:
Mortgage bonds (Note K) ............................................... 75,000 235,000 213,000 150,000 220,000 Preferred stock subject to mandatory redemption (Note H) .................................................................... 28,000 37,000 60,000 20,000 Preferred stock not subject to mandatory redemption (Note 1) ...................................................................... 60,000 Common stock (Note I):
Public offering ........................................................... 53,950 64,050 68,275 70,400 73,875 Automatic dividend reinvestment plan ........................ 16,379 12,926 11,690 9,229 7,727 Employee savings plan and TRASOP .......................... 6,261 7,222 4,774 4,213 3,900 Customer stock purchase plan subscriptions .............. 2,474 Bath County hydroelectric trust (Note K) ......................... 201,810 Term notes (Note K) ...................................................... 125,000 60,000 104,750 108,500 25,000 Increase (decrease) in loans payable .............................. (48,009) 128,293 (49,613) 26,550 (83,550)
Uranium settlement (Note N) .......................................... 11,826 130,346 Total funds provided by financing and other sources ................................................ 444,691 665,837 389,876 428,892 326,952
$836,494 $996,839 $708,307 $685,794 $564,004 APPLICATION OF FUNDS:
Utility plant expenditures (excluding AFC) .......................... $536,049 $551,881 $422,857 $394,875 $343,693 Nuclear fuel (excluding AFC) .............................................. 32,315 60,967 17,458 74,531 57,479 Abandoned project costs (Note D) ...................................... 1,332 (2,542) 2,631 16,050 Pollution control project funds ............................................ 37,734 (3,914) 8,019 721 1,227 Dividends on common, preferred and preference stocks ..... 190,295 175,684 157,062 138,944 126,744 Increase (decrease) in deferred fuel costs (Notes A and B) ............................................................. (11,146) 85,867 (29,898) (18,812) 8,427 Securities reacquired or repaid .......................................... 65,300 74,883 97,273 58,250 10,000 Increase (decrease) in investment (net of repayment of advances) in subsidiary companies (Notes A and N) ........ (372) 797 4,345 3,137 4,869 Increase (decrease) in working capital other than loans payable* ............................................................. (31,757) 42,136 36,551 14,684 10,968 Other, net .......................................................................... 16,744 11,080 (7,991) 3,414 597
$836,494 $996,839 $708,307 $685,794 $564,004 Changes in the individual amounts comprising working capital other than loans payable* were as follows:
Accounts receivable (excluding uranium settlement) ....... . $ 26,261 $ 33,197 $ 20,312 $ 2,103 $ 13,017 Uranium settlement (Note N) .......................................... . (41,000) 41,000 Accrued unbilled revenues ............................................ . (10,679) 32,395 (2,523) 4,965 19,386 Deferred fuel surcharge ................................................ . (11,028) 628 (1,670)
Materials and supplies .................................................. . 14,047 42,675 7,284 26,392 17,080 Accounts payable, trade ................................................ . 16,010 (73,271) 19,350 1,775 (32,963)
Taxes accrued .............................................................. . (27,843) 8,027 (20,426) (4,842) 666 Interest accrued ........................................................... . (7,217) (4,633) (11,388) (6,916) (7,177)
Deferred income taxes (Notes A and C) .......................... . 2,460 1,464 4,657 (2,537) (577)
Other, net ..................................................................... . (3,796) (38,718) 30,313 (6,884) 3,206
$(31,757) $ 42,136 $ 36,551 $ 14,684 $ 10,968
- Does not include reclassification as current liabilities of maturing long-term debt and cash sinking fund obligations of debt and preferred stock as follows: 1980-$124,276,000; 1979--$62,093,000; 1978-$75,293,000; 1977--$89,433,000 and 1976--$58,250,000.
The accompanying notes are an integral part of the financial statements.
25
Notes to Financial Statements A. Significant Accounting Policies:
General: Investment Tax Credits:
The Company's accounting practices are prescribed by Accumulated investment tax credits at July 1 , 1970 are the Uniform System of Accounts promulgated by the regula- being amortized over a ten-year period, and credits re-tory commissions having jurisdiction. corded after that date are being amortized over the service lives of the property giving rise to such credits. An addi-Revenues:
tional investment tax credit of 1 % related to the Tax Reduc-Operating revenues are recorded on the basis of service tion Act Stock Ownership Plan (TRASOP) does not affect rendered.
net income and is recorded as a liability until the contribu-Utility Plant and Depreciation: tion is made to the TRASOP trust.
Utility plant is recorded at original cost which includes la-bor, materials, services, allowance for funds used during Allowance for Funds Used During Construction:
construction and other indirect costs. The cost of depre- The applicable regulatory Uniform Systems of Accounts ciable utility plant retired and cost of removal, less salvage, defines AFC as the net cost for the period of construction of are charged to accumulated depreciation. borrowed funds used for construction purposes and a rea-The cost of maintenance and repairs is charged to the sonable rate on other funds when so used.
appropriate operating expense and clearing accounts. The In accordance with a change in FERC accounting rules cost of renewals and betterments is charged to the appro- effective January 1 , 1977, the Company is separately de-priate utility plant account, except the cost of minor re- termining rates and reporting amounts applicable to bor-placements which is charged to maintenance expense. rowed funds, calculated on a net of tax basis, and to equity Provisions for depreciation, which include amounts funds.
applicable to estimated decommissioning costs of In accordance therewith, for 1980, 1979, 1978 and
$30,000,000 for nuclear units in service (assuming moth- 1977, aggregate rates of 7. 79%, 7 .80%, 7 .54% and balling in pairs), are recorded on the straight-line method 7. 75%, respectively, were employed for the accrual of AFC.
based upon estimated service lives. For 1976, AFC was accrued at 8% and reported in ac-cordance with the accounting rules then in effect. Since the Nuclear Fuel: assumptions as to source of construction funds, costs of Progress payments are being made for fuel to be owned such funds and capital ratios used by the Company prior to or leased. January 1, 1977, are not equivalent to those prescribed in Amortization of owned nuclear fuel is provided on a unit the new accounting rules, the Company believes that retro-of production basis sufficient to amortize the cost over the active reclassification of AFC accrued in 1976 would be in-*
estimated service life. Before 1978, the Company provided appropriate. Assuming that funds used to finance construc-for estimated reprocessing costs relating to fuel, which was tion in 1976 were obtained, 35% from common equity, 52%
being burned, for all jurisdictions. Effective in 1978, the from debt and 13% from preferred and preference stocks, North Carolina Commission granted approval to recover the the common equity component of AFC as related to earn-cost of permanent storage of spent fuel in base rates and ings available for common stock amounted to 17.4% for the Federal Energy Regulatory Commission (FERC) allowed 1976. .
the recovery of these costs through the fuel clause. For pe-For expenditures on the Bath County Pumped Storage riods subsequent to these two decisions, operating ex-Project after December 31, 1979, AFC is being accrued in penses include reprocessing costs for Virginia jurisdictional an amount equal to the cost of borrowings associated with customers and costs of permanent storage for North Caro-the Project Financing.
lina and FERC jurisdictional customers.
Subsidiaries: Deferred Fuel Costs:
The Company has two wholly-owned subsidiaries. Laurel The Company is deferring for accounting and rate-mak-Run Mining Company is engaged in the underground mining ing purposes that portion of the cost of fuel consumed of coal, which is utilized solely by the Company. Virginia Nu- which, through the application of the annual fuel factor, may clear, Inc. was organized to explore for uranium reserves; result in increased operating revenues in a later period.
however, no such activities are presently being conducted.
Federal Income Taxes: Retirement Annuity Plan:
The Company's practice is to reduce the current provi- The Company has a contributory retirement annuity plan sion for Federal income taxes to reflect the tax benefit re- and funds pension costs accrued. Prior service cost arising sulting from the use of the double-declining-balance out of amendments to the plan in 1976 and 1979, and method of depreciation for property additions and the adop- changes in actuarial assumptions in 1977 is being provided tion of the Asset Depreciation Range and Class Life Sys- in the accounts and funded on the basis of future salaries of tems. Effective with property additions placed in service in participants currently covered by the plan.
1974, the Company has provided deferred income taxes on the aforementioned benefit and, subsequently, has pro- Leases:
vided deferred taxes on other differences between book in- The Company's practice is to account for all leases as come and income taxable for Federal income taxes to the operating leases in accordance with the rate-making prac-extent permitted by the regulatory commissions having ju- tices presently in effect.
risdiction.
26
B. Deferred Fuel Accounting:
Monthly billings under the annual fuel factor which was costs amounting to $21.5 million were deferred in 1979 and approved by the Virginia Commission but subject to quar- the Virginia Commission has issued a rate order permitting terly hearings, include projected 1980 fuel costs, including the recovery of 1979 costs in base rates beginning October net estimated fuel costs unrecovered at December 31, 1980.
1979. Projected 1981 fuel costs, including unrecovered In the event that future developments dictate a change in costs at December 31, 1980, are to be considered by the the fuel adjustment billing lag period or in the fuel cost base, Virginia Commission in hearings scheduled to begin March the Company will request regulatory approval to recover 13,1981. through billings to customers any unrecovered deferred In 1980, the Company deferred $39.6 million of costs as- fuel costs.
sociated with purchased and interchanged power. Similar C. Federal Income Taxes:
Details of Federal income taxes were as follows:
Years 1980 1979 1978 1977 1976 (Thousands of Dollars)
Computed tax expense on book income before Federal income taxes at statutory rate ....................... $143,600 $122,599 $133,147 $119,946 $103,358 (Decreases) increases resulting from:
Excess of tax over book depreciation not normalized ....................................................... (12,982) (4,301) (16,402) (9,956) (14,840)
AFC ..................................................................... (51,868) (44,118) (42,658) (47,838) (38,606)
Investment tax credits, amortization ...................... (5,171) (5,820) (5,467) (4,539) (3,028)
Other, net ............................................................ (3,575) 1,384 4,038 2,123 1,867 (73,596) (52,855) (60,489) (60,210) (54,607)
Federal income tax expense ......................................... $ 70,004 $ 69,744 $ 72,658 $ 59,736 $ 48,7_51 Currently payable ......................................................... $ 11,200 $ 8,449 $ 23,163 $ 9,191 $ 2,209 Tax effects of timing differences:
Abandoned project costs ...................................... 38,582 (4,421) (1,822) 31,175 Fuel related items:
Current year ..................................................... (19,087) 47,054 (21,681) (9,588) 3,243 Reprocessing/disposal costs on nuclear fuel .... (7,988) (8,067) (6,791) (6,385) (4,076)
Fuel expense-nuclear plant testing ................. (3,663)
Nuclear fuel-owned ....................................... (2,669) (4,452) (487)
Liberalized depreciation ....................................... 41,108 32,418 38,509 13,101 12,320 Virginia gross receipts taxes ................................. (2,460) (1,464) 636 2,375 1,379 Nuclear decommissioning costs ............................ (764)
Spare parts inventory adjustment .......................... 4,120 Accelerated amortization ...................................... (1,547) (1,547) (1,547) (1,547) (1,547)
Indirect construction costs .................................... 2,800 3,463 3,154 2,912 1,796 Cost of removal of property retirements ................. 3,729 3,545 2,484 1,696 1,426 Contributions in aid of construction ....................... 2,203 (2,203)
Other ................................................................... 16 16 10 (539) 52,177 66,545 14,668 31,536 14,002 Investment tax credits ................................................... 11,798 570 40,294 23,548 35,568 Investment tax credits, amortization .............................. (5,171) (5,820) (5,467) (4,539) (3,028)
Net deferred investment tax credits ....................... 6,627 (5,250) 34,827 19,009 32,540 Federal income tax expense ......................................... $ 70,004 $ 69,744 $ 72,658 $ 59,736 $ 48,751 The Company has investment tax credit carry-forwards $65,025,000 will expire in 1985, 1986, and 1987, respec-of $97,119,000, of which $12,464,000, $19,630,000 and tively.
27
D. Abandoned Project Costs:
In March 1977, the Company canceled Surry Units 3 and continue construction of Unit 3 on a schedule that would
- 4. At December 31 , 1980, the Company had expended permit commercial operation in 1989. But Unit 4 was can-
$74.5 million, and additional cancellation costs could be as celed due primarily to reduced load growth projections, much as $34.6 million. The Company has been amortizing high financing costs, the uncertainty surrounding the regu-such costs, net of Federal income taxes, over a ten-year pe- lation of nuclear power and the Company's load manage-riod as incurred. The Virginia, North Carolina and West Vir- ment programs which are estimated to result in a delay of ginia State Commissions have approved the recovery of additional generating capacity requirements. Expenditures these costs in base rates and an Administrative Law Judge at December 31, 1980 amounted to $122.4 million net of has recommended approval of recovery from FERC cus- transfers of certain parts and equipment to other projects.
tomers. After additional costs which may be incurred, the loss is In November 1980, following completion of a study presently estimated to be in the range of $165 million. The which assessed the advantages and disadvantages associ- Company will request rate relief to recover from customers, ated with both the continued construction of North Anna over a ten-year period, the actual loss resulting from the Units 3 and 4, as well as the replacement of those Units with cancellation.
alternative coal-fired facilities, the Company has decided to E. Supplementary Income Statement Information:
The amounts of royalties, advertising costs and research than Federal income taxes charged to expenses were as and development costs were not significant. Taxes other follows: Years 1980 1979 1978 1977 1976 (Thousands of Dollars)
Taxes, other than Federal income taxes:
Real estate and property ....................................... . $ 29,182 $ 28,462 $26,333 $25,257 $22,899 State and local gross receipts ................................ . 71,838 60,934 54,865 49,812 42,382 State income ......................................................... . 162 57 505 248 215 Other ..................................................................... . 16,274 14,905 11,796 5,857 5,917 Total ............................................................................. . $117,456 $104,358 $93,499 $81,174 $71,413 F. Leases:
Rents charged to expenses consisted of the following: Years 1980 1979 1978 1977 1976 (Thousands of Dollars)
Operating leases:
Nuclear fuel .......................................................... . $21,140 $11,632 $35,491 $29,518 $21,447 Combustion turbines ............................................. . 5,524 5,611 5,694 5,935 6,185 Other (principally buildings and teleprocessing equipment) ........................................................ . 11,206 10,583 8,427 6,648 5,552 Total ............................................................................. . $37,870 $27,826 $49,612 $42,101 $33,184 In 1971, the Company sold and leased back 28 com- present value of these commitments would be $99,118,000 bustion turbines for a term of 20 years (plus two optional and $102,398,000, respectively, at December 31, 1980 five-year renewal terms). Annual rental payments are and $103,395,000 and $106,162,000, respectively, at De-
$3,674,000 for the remaining year of the first ten-year term cember 31, 1979.
and $6,444,000 during the second ten-year term. Addi- In 1974, the Company sold and leased back three office tional rentals are being accrued during the first ten years, buildings for terms of twenty years (plus two optional five-when payments represent only interest, so that the annual year renewal terms). Annual rental payments are $730,000 effect on net income will be equalized over the twenty-year during the initial terms of the leases. In 1978, the Company period. Deferred credits, other at December 31, 1980, in- leased a newly constructed headquarters office building for clude $19,254,000 with regard to such accruals. Had the a term of thirty years (plus four optional five-year renewal lease been capitalized, the net asset value and present terms). Annual rental payments are $2,993,000 during the value of the lease commitment would be $22,721,000 and initial term of the lease. Had the leases been capitalized, the
$42,601,000, respectively, at December 31, 1980 and net asset value and present value of the lease commitments
$24,851,000 and $42,601,000, respectively, at December would be $37,087,000 and $40,106,000, respectively, at 31, 1979. December 31, 1980 and $38,610,000 and $40,675,000, The Company has heat supply contracts for the nuclear respectively, at December 31, 1979.
fuel for Surry Units 1 and 2 providing for an aggregate com- If the Company had capitalized the above noted leases mitment of $110 million at December 31, 1980. Quarterly and contracts, the increase in operating expenses for 1977 payments are charged to income in amounts sufficient to through 1 980 would not have been material.
pay for the fuel burned during each quarter (excluding re- The Company is responsible for expenses in connection processing and permanent disposal costs) plus interest. with the leased turbines, nuclear fuel and buildings noted Had the contracts been capitalized, the net asset value and above, including insurance, taxes and maintenance.
28
G. Depreciation:
The provision for depreciation based on mean depre- With Virginia Commission approvals, the depreciation ciable plant has been as follows: rates were increased for Gas plant as of January 1, 1978 Electric Gas Common and for Electric and Common plant as of April 1, 1979.
1980 3.3% 3.1% 4.0%
1979 3.3 3.1 4.4 1978 3.2 3.1 2.4 1977, 1976 3.1 2.6 2.3 H. Preferred Stock Subject to Mandatory Redemption:
Preferred Stock Subject to Mandatory Redemption was represented by 3,308,938 shares outstanding at December 31, 1980, as follows: Entitled Per Share Upon Voluntary Liquidation Redemption Shares And Thereafter To Amounts Dividend Authorized Outstanding Amount Through Declining In Steps To
$7.325 700,000 700,000 $110.00 3/31/83 $101.00 after 3/31 /88 8.40 800,000 800,000 115.00 3/31/84 100.00 after 3/31 /04 9.125 200,000 200,000(1) 110.00 9/19/81 102.00 after 9/19/91 8.20 600,000 600,000(2) 115.00 9/20/87 100.41 after 9/20/96 8.60 358,938 358,938(3,5) 107.00 12/20/87 100.00 after 12/20/97 8.625 370,000 370,000(4) 108.63 6/20/83 100.00 after 6/20/02 8.925 280,000 280,000(6) 108.93 9/20/84 100.00 after 9/20/09 Total 3,308,938 3,308,938(7)
Less shares due within one year ... . 19,834(7)
Balance ...................................... . 3,289, 104(8)
(1) Issued October 1976. (2) Issued September 1977. (3) Issued December 1977. (4) 355,000 shares issued in May 1978 and 15,000 shares issued in September 1978. (5) No voluntary redel']lption priqr to December 20, 1982. (6) Issued November 1979. (7) Sinking Fund requirements call for annual redemption at $100 per share as follows:
Percentage of Percentage of Series Shares Issued Beginning Ending Series Shares Issued Beginning Ending
$8.60 3% Dec. 1978 Dec. 2010 8.625 5 % June 1984 June 2002 9.125 4 Sept.1981 Sept. 2000 8.925 3.75 Sept. 1984 Sept. 2009 8.20 5 Sept.1983 Sept. 1996 8.40 4 April 1985 April .2009 7.325 4 April 1984 April 2008 (8) Maturities through 1985 are as follows: 1981-$1,983,000; 1982-$1 ,983,000; 1983-$4,983,000; 1984-
$10,683,000; 1985-$13,883,000.
The total number of authorized shares for all Preferred share plus accrued dividends. Dividends are cumulative Stock is 7,500,000 shares. Upon involuntary liquidation, and payable March 20, June 20, September 20 and De-all Preferred Stock shares are entitled to receive $100 per cember 20.
I. Preferred and Preference Stock Not Subject to Mandatory Redemption, Common Stock and Other Paid-In Capital:
Preferred Stock, Not Subject to Mandatory Redemption:
Preferred Stock, that is not subject to mandatory redemption, was represented by 2,890,140 shares outstanding at December 31, 1980, as follows: Entitled Per Share Upon Voluntary. Liquidation Redemption Authorized and Outstanding And Thereafter To Amounts Dividend Shares Amount Through Declining In Steps To
$5.00 106,677 $112.50 4.04 12,926 102.27 4.20 14,797 102.50 4.12 32,534 103.73 4.80 73,206 101.00 7.72 350,000 106.00 5/31/81 $101.50 after 5/31 /84 8.84 350,000 107.00 8/31/82 101.00 after 8/31 /85 7.45 400,000 106.00 2/28/81 101.00 after 2/29/84 7.20 450,000 106.00 1/31/82 101.00 after 1 /31 /85
- 7. 72(1972 Series) 500,000 106.00 9/30/82 101.00 after 9/30/85 9.75 600,000(1) 109.75 2/28/81 101 .00 after 2/28/91 Total 2,890,140 (1) Issued March 1976.
29
Preference Stock Not Subject to Mandatory Redemption:
Preference Stock was authorized for issuance effective option at $27 .90 per share prior to May 1 , 1980, and there-April 17, 1975. On May 22, 1975, the Company issued after declines in steps to $25.25 on May 1, 1990. Upon liq-2,400,000 shares of $2.90 Dividend Preference Stock at uidation, all shares are entitled to receive $25 per share
$23.90 per share which aggregated $57,360,000. plus accrued dividends. Dividends are cumulative and pay-The Preference Stock is redeemable at the Company's able March 20, June 20, September 20 and December 20.
Common Stock:
Common Stock was represented by 99,954,157 shares are reserved for conversion of the 3% % Convertible Deben-outstanding at December 31, 1980. In addition, 2,222,222 tures due May 1, 1986. During the years 1976 through shares (based on the conversion price of $22.50 per share) 1980 the following changes in Common Stock occurred:
Automatic Dividend Savings and Stock Public Ottering Reinvestment Plan Ownership Plans Total Outstanding Additions to Additions to Additions to Shares Capital Account Shares Capital Account Shares Capital Account Shares Capital Account 1980 .... 5,000,000 $ 53,950,000 1,505,423 $16,378,807 574,622 $6,261,638 99,954,157 $1,400,874,668(1) 1979 .... 6,000,000 64,050,000 1,049,874 12,925,755 583,138 7,222,482 92,874,112 1,319,303,162 1978 .... 5,000,000 68,275,000 827,514 11,689,651 337,143 4,774,135 85,241,100 1,235,104,925 1977 .... 5,000,000 70,400,000 626,886 9,229,553 284,167 4,212,884 79,076,443 1, 150,366, 139(2) 1976 .... 5,000,000 73,875,000 541,248 7,726,113 277,798 3,900,245 73,165,390 1,006,523,702 67 ,346,344(3) 921,022,344 (1) Includes $2,507,316 of transfers from Other Paid-In Capital and $2,473,745 of subscriptions received pursuant to the Customer Stock Purchase Plan.
(2) In May 1977, $60,000,000 was transferred from Earnings Reinvested in Business to the Common Stock account as authorized by the Board of Directors.
(3) Outstanding January 1 , 1976.
On April 22, 1976, and May 8, 1979, the number of authorized shares was increased from 70,000,000 to 95,000,000 and from 95,000,000 to 120,000,000, respectively.
Other Paid-In Capital:
In 1977, the Company solicited tenders of shares of cer- between the stated value of the shares exchanged and that tain series of Preferred Stock in exchange for shares of of the $8..60 Dividend series shares amounting to
$8.60 Dividend Preferred Stock. The purpose of this ex- $27,859,000, net of cash paid for fractional shares, was change offer was to increase the balance sheet ratio of transferred to Other Paid-In Capital.
Common equity to total equity consistent with the objective In 1980, with Virginia Commission Staff approval, the of the Company to achieve and maintain capitalization ra- Company transferred $2,507,000 associated with $8.60 tios in the range of 52% long-term debt, 13% Preferred and Dividend shares redeemed to the Common Stock account.
Preference Stock and 35% Common equity. The difference J. Short-Term Loans and Compensating Balances:
Dally Year End Average Outstanding Interest Rate At End Interest 1980 Maturity Amount ofYear(1) Amount Rate(1) Maximum Outstanding Commercial paper ........................ (2) $ 72,003,000 18.25% $155,772,000 13.54% $280,525,000 Master notes ................................ (3) 2,058,000 15.00 3,520,000 10.47 12,300,000 Pollution control notes ................. (2) 9,660,000 7.26 5,177,000 7.09 9,660,000 1979 Commercial paper ........................ (2) 122,543,000 14.25 69,736,000 11.03 175,750,000 Master notes ................................ (3) 6,937,000 12.25 3,520,000 9.98 6,937,000 Pollution control notes ................. (2) 2,250,000 7.25 203,000 7.25 2,250,000 (1) Weighted average interest. (2) Principally 30 to 90 days. (3) Maximum 180 days.
Available bank lines of credit amounted to balances in connection with its lines of credit. Utilization un-
$390,975,000 at December 31, 1980, including der the line of credit may require additional balances or
$180,000,000 applicable to revolving credit agreements fees. Compensation for the revolving credit agreements are effective through August 29, 1981. The Company maintains consistent with the requirements for the lines of credit.
compensating balances of up to 1 0% or pays fees in lieu of 30
K. L:ong-Term Debt:
Long-term debt outstanding at December 31, 1980: (1) The Mortgage provides for sinking funds as follows:
Annual Sinking First and refunding mortgage bonds(1 ): Commencing Fund Requirements Series I 3%%, due 1981 .............. $ 20,000,000 Series I through CC ............. . $10,000,000 Series J 31.4%, due 1982 ............. . 20,000,000 Series EE and FF ................. . Begun 13,250,000 Series DD 101h%, due 1983 ............. . 75,000,000 Series KK ........................... . 1984 2,750,000 Series K 3Ya%, due 1984 ............. . 25,000,000 1979 Series A and B ........... . 1985 10,750,000 Series L 3%%, due 1985 ............. . 25,000,000 1980 Series A ..................... . 1986 4,875,000 Series A 6¥s%, due 1985 ............. . 8,000,000* Pollution Control Series A 1986 500,000 Series M 4 Ya%, due 1986 ............. . 20,000,000 Pollution Control Series B 1992 250,000 Series N 41h %, due 1987 ............. . 20,000,000 Pollution Control Series C 1989 375,000 Series O 3%%, due 1988 ............. . 25,000,000
- The Company may satisfy these requirements by waiv-Series P 4%%, due 1990 ............. . 25,000,000 ing the privilege to issue an equal amount of Bonds by sub-Series a 4%%, due 1991 ............. . 30,000,000 stituting property therefor and intends to do so in 1981.
Series R 4%%, due 1993 ............. . 30,000,000 Substantially all of the Company's property is subject to Series S 41h%, due 1993 ............. . 30,000,000 the lien of the Mortgage.
Series FF 11 %, due 1994 ................ . 117,000,000 Series EE 11 %, due 1994 ................ . 81,793,000 (2) Term Notes: Variable Interest Rate Percentage of Base Notto Series T 41h%, due 1995 ............. . 60,000,000 Principal Lending Exceed an Fixed Inter-Amount Maturity Rate of Average of est Rate Series U 5%%, due 1997 ............. . 50,000,000 Series V 6%%, due 1997 ............. . 50,000,000 $60,000,000 1981 115% 81h%
Series KK 8.95%, due 1998 ........... . 55,000,000 5,000,000 1981 8.15%
Series W 7%%, due 1999 ............. . 85,000,000 25,000,000 1981 100% 9.65 Series X 7% %, due 1999 ............. . 75,000,000 50,000,000 1982 115 8%
Series Y 9%, due 2000 ................ . 83,725,000 5,000,000 1982 8%
1980 Series A 121h%, due 2000 ....... . 75,000,000** 10,000,000 1983 8%
- Series Z 8%%, due 2000 ............. . 83,725,000 5,000,000 1983 11%
Series AA 7%%, due 2001 ............. . 90,000,000 5,000,000 1983 8%
, Series BB 71h%, due 2001 ............. . 50,000,000 40,000,000 1983 60 8 Series CC 7%%, due 2002 ............. . 100,000,000 10,000,000 1984 8%
Series C 6.15%, due 2003 ............. . 8,000,000* 5,000,000 1984 115 9.9 1979 Series B 9.95%, due 2004 ....... . 135,000,000 5,000,000 1984 1071h 9.9 Series A 81h%, due 2005 ............. . 18,000,000* 50,000,000 1984 10%
Series GG 10%, due 2005 ................ . 100,000,000 25,000,000 1984 11 %
Series HH 9%%, due 2006 ............. . 100,000,000 20,000,000 1985 115 8%
Series B 6%%, due 2006 ............. . 20,000,000
- 5,000,000 1985 8%
Series II 8%%, due 2006 ............. . 100,000,000 15,000,000 1985 15%
Series JJ 8%%, due 2007 ............. . 150,000,000 5,000,000 1985 151h Series LL 9%%, due 2008 ............. . 150,000,000 15,000,000 1985 11 %
1979 Series A 10%%, due 2009 ....... . 100,000,000 10,000,000 1987 141h Total ............................................. . 2,290,243,000 50,000,000 1988
- 9 Term notes (including 10,000,000 1995 12%
$125,000,000 issued in 1980) (2) .. 430,000,000 $430,000,000 Convertible debentures 3%%, due 50,000,000
- 118% of the higher of commercial paper rate plus % of 1986 ********************************************* 1 % or base lending rate. Interest not to be less than 8%.
Pollution control revenue bonds (3) .... . 47,000,000 Bath County project financing (4) ....... . 201,8~ 0,000 (3) Pollution Control Revenue Bonds: Mandatory Sinking Fund Reguirements Principal Interest Annual 3,019,053,000 Amount Maturity Rate Amount Commencing Less amounts due within one year: $ 6,000,000 1981-83* 7.2-7.4% None Sinking fund obligations(1) ............ . 10,043,000 $250,000 1981 Term notes(2) ............................... . 90,000,000 4,500,000 1989 8.0 500,000 1984 First and Refunding Mortgage {
750,000 1987 Bonds ....................................... . 20,000,000 22,000,000 2002 5% 500,000 1990 Pollution Control Revenue Bonds(3) 2,250,000 14,500,000 2004 8% 750,000 1990 Less unamortized discount-net $47,000,000 of premium..................................... 9,646,000 Total long-term debt ................... $2,887,114,000 * $2,000,000 of the $6,000,000 principal amount of Serial Bonds mature annually.
- Pollution Control Series. *
- Issued in 1980. (4) In 1980, the Company issued a 31h year term collat-eral note securing borrowings of a trust which is fi-The Company has redeemed the $64,117,000 of long- nancing construction expenditures (including interest) term debt and sinking fund obligations due in 1980. Matu- after 1979 on the Bath County Pumped Storage Proj-rities (including cash sinking fund obligations) through ect. Borrowings under the present arrangements are 1985 are as follows: 1981-$122,293,000; 1982- limited to $220 million. Weighted average interest for
$90,500,000; 1983-$150,500,000; and 1984- 1980, including fees for supporting lines of credit,
$338,310,000; 1985-$120,250,000. amounted to 14.16%.
31
L. Effect of Rate Increases on Operating Revenues:
In 1980, the Company obtained rate relief of about
$132.3 million on an annual basis from the three State Com-missions, FERC and non-jurisdictional customers. (Millions of Dollars)
Rate increases and a decrease which became effective 1980 1979 1978 1977 1976 for portions of the following years increased (decreased) Electric ................ $36.4 $56.4 $56.9 $3.0 $6.3 operating revenues for the respective years by the approxi- Gas..................... (.7) .4 .9 mate amounts shown:
M. Retirement Annuity Plan:
Costs to the Company under the plan were: 1980-- determined by the actuaries, were as follows:
$11,186,000; 1979-$9,697,000; 1978-$8,586,000; Vested accumulated plan benefits....... $129,406,000 1977-$7,594,000; and 1976-$5,046,000. At January Nonvested accumulated plan benefits. 16,136,000 1, 1980, the date of the latest available actuarial report the Total.......................................... $145,542,000 unfunded liability of the plan amounted to approximately Plan net assets available for benefits... $129,722,000
$12.4 million.
A 6% rate of return is used in determining the present The present value of benefits, as of January 1 , 1980, as value of vested and nonvested accumulated plan benefits.
N. Commitments and Contingencies:
The Company has made substantial commitments in con- Through December 31 , 1980, the Company had received nection with its construction program, which is presently $147 million in cash and goods and services, $55 million of estimated to be $643 million for 1981. Additional financing which was received in 1980 (including $41 million of cash).
is contemplated in connection with this program. Settlement proceeds will reduce fuel expenses under pro-The major portion of Laurel Run Mining Company's min- cedures currently under review by regulatory authorities.
ing equipment is leased. As guarantor, the Company has a On January 8, 1979 the Company filed with the Internal contingent liability for annual lease payments of $1 .1 million Revenue Service a request for a ruling with respect to the in 1981, $1.0 million in* 1982 and $.8 million in 1983. Federal income tax consequences of the settlement. Such The FERC has directed the Company to write-off $6.3 filing requested that the value received froni the settlement million ($4.3 million of AFC and $2.0 million of other costs) be treated as a reduction in fuel expense over the life of the associated with a boiler implosion in 197 4 at Yorktown Unit nuclear fuel, and not as taxable income in the year of the 3 which the Company has capitalized on its books. In 1980, settlement. The Company's ruling request is still under con-an Administrative Law Judge ruled against the Company, sideration by the Internal Revenue Service.
but the Company intends to appeal. For a discussion of possible sales of power station proj-In 1979, settlement was reached in the Westinghouse ects and related facilities, see the last two paragraphs un-uranium dispute which provides for cash and discounts on der Capital Resources under MANAGEMENT'S DISCUSSION uranium and goods and services over the period 1979- AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPER-1997 which is estimated to equal the value of contracts liti- ATIONS.
gated had they been fully performed by Westinghouse.
The following amounts (not examined by independent tory adjustment recorded in the fourth quarter of 1 980 and certified public accountants) reflect all adjustments, con- except for the deferral of purchased and interchanged sisting of only normal recurring accruals, necessary in the power costs in 1979 (as discussed in Note B to Financial opinion of the Company for a fair statement of the results for Statements.)
the interim periods, except as disclosed below for the inven-Balance Earnings Ba1Bnce Earnings for Per Share for Per Share Operating Operating Common of Common Operating Operating Common of Common Quarter Revenues Income Stock Stock Quarter Revenues Income Stock Stock 1980 (Thousands of Dollars) 1979 (Thousands of Dollars) 1st.. ........... $572,820 $88,649 $40,173 $.43 1st ............. $403,952 $76,138 $34,710 $.41 2nd ............ 473,472 79,395 28,395 .30 2nd ............ 374,082 73,039 29,772 .35 3rd ............ 576,472 107,780 57,311 .60 3rd ............ 457,004 92,361 47,951 .56 4th ............. 497,010 113,708 58,450 .60 4th ............. 468,271 74,856 28,911 .31 Results for interim periods may fluctuate as a result of ment which had been expensed. The effect of the adjust-weather conditions, rate relief and other factors. ment, which amounted to $8.9 million ($4.8 million net of In the fourth quarter of 1980, the Company began ac- Federal .income taxes), was to increase earnings per share counting on an inventory basis for spare parts and equip- by $.05.
32
P. Supplementary Data On Changing Prices (Unaudited):
The following supplementary information is supplied in Fuel inventories, with the exception of nuclear fuel, have accordance with the requirements of FASB Statement No. not been restated from their historical cost in nominal dol-33, Financial Reporting and Changing Prices, for the pur- lars. The nuclear fuel inventory is considered an integral pose of providing certain information about the effects of part of the plant investment and, therefore, should be re-changing prices. It should be viewed as an estimate of the stated and adjusted to net recoverable cost. As indicated approximate effect of inflation, rather than as a precise above, other types of fuel inventories have not been re-measure. stated since the costs of these assets are considered to be Constant dollar amounts represent historical costs current.
stated in terms of dollars of equal purchasing power, as Preferred stock subject to mandatory redemption has measured by the Consumer Price Index for All Urban Con- been classified as a monetary liability in determining the sumers (CPI-U). Current cost amounts reflect the changes gain from decline in purchasing power of dollars related to in specific prices of plant from the date the plant was ac- net amounts owed, in accordance with the definition of a quired to the present, and differ from constant dollar monetary liability in FASB Statement No. 33.
amounts to the extent that specific prices have increased As prescribed in Statement 33, income taxes were not more or less rapidly than prices in general. adjusted.
The current cost of property, plant and equipment, which To properly reflect the economics of rate regulation in the includes intangible plant, property held for future use and Statement of Income from Continuing Operations, the ad-construction work in progress, represents the estimated justment of property, plant and equipment to net recover-cost of replacing existing plant assets and was determined able cost should be offset or combined, as appropriate, by by indexing the surviving plant by the Handy-Whitman Index the gain from the decline in purchasing power of the dollars of Public Utility Construction Costs. The current cost of land related to net amounts owed. During a period of inflation, and general plant was determined by using the CPI-U. The holders of monetary assets suffer a loss of general purchas-current year's provision for depreciation on the constant ing power while holders of monetary liabilities experience a dollar and current cost amounts of property, plant and gain. The gain from the decline in purchasing power of the equipment was determined by applying the Company's de- dollars related to net amounts owed is primarily attributable preciation rates to the indexed plant amounts. to the substantial amount of debt which has been used to Fuel used in electric generation has been restated to re- finance property, plant and equipment. Since the deprecia-flect the constant dollars and current cost of nuclear fuel. tion on this plant is limited by regulation to the recovery of The cost of other types of fuel used in electric generation historical costs, a holding gain on debt is not allowed and and gas purchased for resale have not been restated since the Company is limited to recovery of the embedded cost of these costs are considered to be current. the asset.
33
Statement of Income from Continuing Operations Adjusted for Changing Prices (Unaudited)
For The Year Ended December 31, 1980 Conventional Constant Dollar Current Cost Historical Average Average Cost 1980 Dollars 1980 Dollars (Thousands of Dollars)
Operating revenues ..................................................... . $2,119,774 $2,119,774 $2,119,774 Fuel used in electric generation ................................... . 674,996 693,777 706,816 Depreciation ............................................................... . 145,032 279,720 305,465 Other operating and maintenance expense .................................................................. . 840,210 840,210 840,210 Federal income taxes .................................................. . 70,004 70,004 70,004 Interest expense (net of allowance for borrowed funds used during construction) ................ . 223,541 223,541 223,541 Other income and deductions-net ................................ . (75,629) (75,629) (75,629) 1,878,154 2,031,623 2,070,407 Income from continuing operations (excluding adjustment to net recoverable cost) ........................................... . $ 241,620 $ 88,151* $ 49,367 Increase in specific prices (current cost) of property, plant and equipment held during the year** ............. . $ 516,022 Adjustment to net recoverable cost .............................. . $ (473,392) 113,815 Effect of increase in general price level ............................................................... . (1,064,445)
Excess of increase in general price level over increase in specific prices after adjustment to net recoverable cost ................................................ . (434,608)
Gain from decline in purchasing power of dollars related to net amounts owed ......................... . 388,967 388,967 Net ............................................................................. . $ (84,425) $ (45,641)
- Including the adjustment of property, plant and equipment to net recoverable cost, the loss from continuing oper-ations on a constant dollar basis would have been $385,241,000 for 1980.
- At December 31, 1980, current cost of property, plant and equipment, net of accumulated depreciation and amortization was $9,532,569,000, while historical cost or net cost recoverable thrOLigh depreciation and amortization was $5,586,465,000.
34
Five Year.Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices (Unaudited)
Years Ended December 31, 1980 1979 1978 1977 1976 (In Thousands* of Average 1980 Dollars)
Operating revenues .................................................. $2,119,774 $1,933,655 $1,850,248 $1,847,750 $1,598,158 Historical cost information adjusted for general inflation Income from continuing operations (excluding adjustment to net recoverable cost)...... $88,151 $91,951 Income per common share (after dividend requirements on preferred and preference stock)....................... $0.32 $0.34 Net assets at year-end at net recoverable cost .................................................. $2,111,046 $2,231,871 Current cost information Income from continuing operations (excluding adjustment to net recoverable cost)...... $49,367 $42,815 (Loss) per common share (after dividend requirements on preferred and preference stock)....................... $(0.08) $(0.23)
Excess of increase in general price level over increase in specific prices after adjustment to net recoverable cost......................................... $548,423 $520,206 Net assets at year-end at net recoverable cost .................................................. $2,111,046 $2,231,871 General information Gain from decline in purchasing power of dollars related to net amounts owed................................. $388,967 $421,584 Cash dividends declared per common share..................................................... $1.40 $1.57 $1.64 $1.69 $1.77 Market price per common share at year-end .. .. ............ ...... .... .... .... ...... ................ .. $9.92 $11 .27 $17.03 $19.23 $21.77 Average consumer price index (1967=100).............. 246.8 217.4 195.4 181.5 170.5
- Except per share amounts and indexes.
35
Ten Year Comparative Summary of Performance (Thousands of Dollars) 1980 1979 1978 1977 Operating revenues:
Electric ................................................................................. . $2,049,518 $1,647,928 $1,413,866 $1,313,93i Gas ....................................................................................... 70,256 55,381 51,039 44,92~
Total operating revenues ............................................... . 2,119,774 1,703,309 1,464,905 1,358,86(
Expenses (operation and maintenance) ..................................... . 1,390,817 1,069,241 869,232 850,82~
Depreciation ............................................................................. . 145,032 136,280 117,481 98,52i Amortization of abandoned project costs ................................... . 6,933 7,292 6,760 3,17~
Taxes:
Federal income:
Currently payable (refundable) .......................................... . 11,200 8,449 23,163 9,19" Investment tax credits, including carry-back ...................... . 11,798 570 40,294 23,54f Investment tax credits, amortization ................................... . (5,171) (5,820) (5,467) (4,53!
Deferred-accelerated amortization .................................. . (1,547) (1,547) (1,547) (1,54;
-liberalized depreciation .................................... . 41,108 32,418 38,509 13,10"
--other ............................................................... . 12,616 35,674 (22,294) 19,98:
Other .................................................................................... 117,456 104,358 93,499 81,17*
Total operating expenses .............................................. . 1,730,242 1,386,915 1,159,630 1,093,43:
Operating income ..................................................................... . 389,532 316,394 305,275 265,42'.
Other income:
Allowance for other funds used during construction ................ . 73,206 66,603 64,002 72,36" Allowance for funds used during construction ....................... ..
Miscellaneous, net ................................................................ . 2,423 974 1,342 (66:
Total other income ........................................................ . 75,629 67,577 65,344 71,691 Income before interest charges ................................................. . 465,161 383,971 370,619 337,12!
Interest charges:
Interest on long-term debt ..................................................... . 234,561 204,392 184,947 168,88!
Other ................................................................................... . 28,530 12,417 6,677 5,74:
Allowance for borrowed funds used during construction ......... . (39,550) (29,305) (24,869) (27,30 Total interest charges ................................................... . 223,541 187,504 166,755 147,33:
Income before cumulative effect of change in accounting method 241,620 196,467 203,864 189,79:
Cumulative effect to January 1 , 1974 of accruing estimated unbilled revenues, net of taxes .............................................. .
Net income ............................................................................... . 241,620 196,467 203,864 189,79 Dividends paid:
On preferred and preference stock ....................................... .. 57,290 55,046 53,588 47,71 On common stock ................................................................. . 133,005 120,638 103,474 91,22 Total dividends ............................................................. . 190,295 175,684 157,062 138,94 Earnings reinvested in business ................................................. . $ 51,325 $ 20,783 $ 46,802 $ 50,84 Shares of common stock-average for year (thousands) .................................................................. . 95,520 86,965 80,060 74,02 Earnings per share of common stock ......................................... . $1.93 $1.63 $1.88 $1.9 Dividends paid per share of common stock ................................ . $1.40 $1.38 $1.30 $1.2 Pay-out ratio ............................................................................. . 72% 85% 69% 6 Return of capital:
Common stock dividends ..................................................... .. 100.000% (2) 72.65 Preferred stock dividends ..................................................... . 3.300%
Preference stock dividends ................................................... . 100.000%
Utility plant at original cost ........................................................ . $6,836,094 $6,307,644 $5,626,671 $5,109,09 Utility plant expenditures ........................................................... . $ 681,120 $ 708,756 $ 529,186 $ 569,06 Accumulated depreciation and amortization ............................... . $1,249,629 $1,079,142 $ 940,958 $ 803,60 Capitalization:
Preferred and preference stock ............................................. . $ 677,268 $ 678,451 $ 651,634 $ 619,10 Common equity ..................................................................... . 1,861,656 1,731,762 1,627,179 1,493,52 Debt (excluding short-term debt) ........................................... . 3,019,053 2,681,360 2,460,060 2,238,40 Total capitalization ........................................................ . $5,557,977 $5,091,573 $4,738,873 $4,351,03 Short-term debt-pending permanent financing ..................... . $ 83,721 $ 131,730 $ 3,437 $ 53,05 Capitalization ratios:
Preferred and preference stock ............................................. . 12% 13% 14% 1, Common equity ..................................................................... . 34 34 34 3 Debt (excluding short-term debt) ........................................... . 54 53 52 e (1) Includes non-recurring cumulative effect of change in accounting for unbilled revenues of $.24 per share.
(2) 1979 Return of capital was 33.02% for the first quarter and 91 .95% for the remainder of the year.
36
~
1976 1975 1974 1973 1972 1971 1970 1,060,663 $ 998,933 $ 735,962 $ 524,963 $ 445,668 $ 390,370 $ 353,151 43,413 34,403 28,050 26,000 25,185 23,302 21,729
,104,076 1,033,336 764,012 550,963 470,853 413,672 374,880 647,965 629,162 478,716 278,750 264,906 218,846 181,434 95,191 89,805 77,757 68,436 53,058 49,950 46,841 2,209 (1,142) (7,678) (1,010) (6,850) 8,652 23,784 35,568 2,286 (3,195) 3,901 7,368 1,952 1,163 (3,028) (2,452) (2,412) (2,413) (2,225) (2,062) (1,318)
(1,547) (1,547) (1,547) (1,547) (1,547) (1,547) (1,547) 12,320 9,360 3,202 3,229 20,873 5,018 7,265 1,356 1,050 71,413 57,169 48,216 42,170 36,629 33,514 29,367 863,320 803,514 598,077 395,552 352,695 310,355 279,724 240,756 229,822 165,935 155,411 118,158 103,317 95,156 80,429 66,873 65,735 57,359 58,451 39,993 24,175 491 544 411 336 (156) 142 274 80,920 67,417 66,146 57,695 58,295 40,135 24,449 321,676 297,239 232,081 213,106 176,453 143,452 119,605 147,481 122,951 94,058 78,350 67,554 58,130 44,083 7,409 19,556 23,214 10,684 5,162 3,274 3,368 154,890 142,507 117,272 89,034 72,716 61,404 47,451 166,786 154,732 114,809 124,072 103,737 82,048 72,154 12,353 166,786 154,732 127,162 124,072 103,737 82,048 72,154 43,821 35,971 30,419 24,147 16,472 12,216 7,728 82,923 70,786 60,165 54,796 46,905 41,993 39,906 126,744 106,757 90,584 78,943 63,377 54,209 47,634 40,042 $ 47,975 $ 36,578 $ 45,129 $ 40,360 $ 27,839 $ 24,520 68,137 60,854 52,100 47,021 41,883 37,829 35,881
$1.80 $1.95 $1.86(1) $2.13 $2.08 $1.85 $1.80
$1.22% $1.18 $1.18 $1.16% $1.12 $1.12 $1.12 67% 60% 71% 55% 54% 60% 62%
25.267% 100.000% 49.407% 100.000% 96.724% 54.243%
100.000% 55.565%
- 609,416 $4,142,900 $3,739,395 $3,298,447 $2,847,614 $2,416,130 $2,082,487 481,601 $ 432,139 $ 460,912 $ 486,709 $ 472,819 $ 380,268 $ 338,074 700,254 $ 609,304 $ 545,296 $ 476,121 $ 414,941 $ 373,834 $ 335,605 583,807 $ 503,807 $ 446,447 $ 366,447 $ 296,447 $ 201,447 $ 161,447
,334,639 1,211,282 1,042,677 948,369 810,121 680,800 574,633
,038,150 1,803,150 1,578,350 1,289,890 1,242,440 1,070,440 932,000
,956,596 $3,518,239 $3,067,474 $2,604,706 $2,349,008 $1,952,687 $1,668,080 26,500 110,050 $ 256,945 $ 220,150 $ 88,400 $ 61,800 $ 53,700 15% 14% 15% 14% 13% 10% 10%
34 35 34 36 34 35 34 51 51 51 50 53 55 56 37
Ten Year Operating Statistics ELECTRIC DEPARTMENT 1980 1979 1978 1977 Operating revenues (thousands):
Residential ....................................................................... . $ 806,156 $ 637,519 $ 563,561 $ 524,3 Commercial ...................................................................... . 534,241 431,191 392,101 365,3 Industrial .......................................................................... . 281,316 220,814 182,901 176,5 Other sales of electric energy ........................................... . 413,022 347,276 268,213 242,6 Other electric revenues .................................................... . 14,783 11,128 7,090 5,0 Total operating revenues---electric ............................... . $2,049,518 $1,647,928 $1,413,866 $1,313,9 Population served at retail-estimated .................................. . 3,579,000 3,523,000 3,465,000 3,415,0 Number of customers:
Residential ....................................................................... . 1,208,500 1,174,351 1,138,470 1,100,8 Commercial ....................................................................... . 120,869 117,965 115,121 111,6 Industrial ........................................................................ , .. 920 920 920 9 Other ............................................................................... . 16,878 15,873 15,446 14,9 Total customers ............................................................ . 1,347,167 1,309,109 1,269,957 1,228,3 Sales of electricity-Mwh (thousands):
Residential ....................................................................... . 13,154 12,397 12,405 11,8 Commercial ...................................................................... . 9,597 9,161 9,170 8,7 Industrial .......................................................................... . 6,459 6,460 6,152 6,0 Other ............................................................................... . 10,035 9,557 9,340 8,8 Total sales of electricity ................................................ . 39,245 37,575 37,067 35,4 Losses and miscellaneous system uses ................................. . 3,244 2,909 2,901 2,7 Total distribution-energy supply ................................. . 42,489 40,484 39,968 38,2 Less: Sales outside of service area ........................................ .
Total distribution .......................................................... . 42,489 40,484 39,968 38,2 Source of electricity-Mwh (thousands):
Steam-Fossil ................................................................. . 18,840 24,301 24,438 26,4
-Nuclear ............................................................... . 11,466 7,055 14,098 9,4 Hydro .............................................................................. . 616 1,122 967 4 Other ................................................................................ . 208 356 399 6 Net purchased and interchanged ........................................... 11 359 7 650 66 .
12 Company energy supply_ ................................................ 42,489 40,484 39,968 38,2 Less: Sales outside of service area .........................................
System output ............................................................... 42,489 40,484 39,968 38,2 Interchange deliveries for account of others ....................... 326 325 325 3 Company's service area output ...................................... 42,815 40,809 40,293 38,5 Company's service area peak load-Mw ................................ 8,484 7,929 7,805 7,9 Power supply available for peak load-Mw Generating capability:
Steam-Fossil .............................................................. 6,144 6,321 6,321 6,3
-Nuclear ........................................................... 2,329 2,448 2,448 1,5 Hydro ........................................................................... 326 326 326 3 Other ..................................................*......................... 439 439 439 4 Total generating capability ......................................... 9,238 9,534 9,534 8,6 SEPA power disposed of in Company's service area ........... 165 165 165 1 Available for firm peak load ............................................ 9,403 9,699 9,699 8,8 Purchase (sale) outside service area .................................. 1,300 300 300 3 Available for service area peak load ............................... 10,703 9,999 9,999 9, 1 BTU per kilowatt-hour generated ............................................ 11,235 11,067 11,018 10,9 Average fuel cost per KWH generated-mills ............................ 21.76 20.44 14.04 15.
Electric line-pole miles ........................................................ 42,297 42,149 41,698 41,4 Underground construction-miles of route ............................. 10,127 9,314 8,395 7,7 GAS DEPARTMENT Operating revenues (thousands):
Residential .................................................................... $ 35,323 $ 29,380 $ 30,621 $ 26,6 Commercial and industrial. .............................................. 34,411 25,346 20,000 17,9 Other ............................................................................ 522 655 418 3 Total operating revenues--gas .................................. $ 70,256 $ 55,381 $ 51,039 $ 44,9 Population served at retail-estimated ............................... 971,000 875,000 875,000 875,C Number of customers ........................................................ 120,108 118,656 119,288 120.~
Sales-Met (thousands) .................................................... 17,495 16,307 15,303 15,(
Output-Met manufactured (thousands) ............................ 57 74 236 E Met natural gas purchased (thousands) ................ 18,906 17,499 16,407 15,4 Miles of main ..................................................................... 2,108 2,095 2,096 2,0
- Excludes the cumulative effect to January 1, 1974 of accruing estimated unbilled revenues ($18,842,000 electric-$1,565,000 gas) shown as a non-recurring item on the income statement, net of taxes.
38
1976 1975 1974 1973 1972 1971 1970 420,150 $ 402,889 $ 308,834 $ 229,860 $ 191,924 $ 169,113 $ 158,698 298,681 288,357 211,486 150,758 130,599 113,646 99,957 144,770 137,181 106,309 66,131 58,785 48,375 41,889 193,096 166,854 106,018 75,170 61,440 56,392 50,073 3,966 3,652 3,315 3,044 2,920 2,844 2,534
,060,663 $ 998,933 $ 735,962* $ 524,963 $ 445,668 $ 390,370 $ 353,151
,365,000 3,315,000 3,270,000 3,225,000 3,185,000 3,150,000 3,100,000
,071,528 1,041,234 1,018,346 989,471 954,374 920,839 895,210 108,197 105,942 105,531 103,253 100,175 98,223 97,113 920 918 916 910 894 874 873 14,462 14,881 13,045 12,350 11,817 11,392 10,948
, 195,107 1,162,975 1,137,838 1,105,984 1,067,260 1,031,328 1,004,144 11,137 10,373 9,850 9,911 8,775 8,121 7,873 8,455 7,970 7,307 7,330 6,471 5,980 5,617 6,011 5,404 5,658 5,535 5,136 4,683 4,456 8,510 7,741 7,120 7,268 6,529 5,902 5,560 34,113 31,488 29,935 30,044 26,911 24,686 23,506 2,261 2,585 2,518 2,335 2,199 2,019 1,777 36,374 34,073 32,453 32,379 29,110 26,705 25,283 216 36,374 34,073 32,453 32,379 29,110 26,705 25,067 27,090 23,562 22,819 22,311 23,710 24,335 23,218 7,740 8,969 5,953 6,857 370 599 988 774 949 1,071 825 445 407 226 629 459 558 323 350 538 328 2,278 1,803 3,401 1,222 1,270 36,374 34,073 32,453 32,379 29,110 26,705 25,283 216 36,374 34,073 32,453 32,379 29,110 26,705 25,067 326 325 325 315 312 307 301 36,700 34,398 32,778 32,694 29,422 27,012 25,368 7,040 7,133 6,734 6,900 6,232 5,295 4,852 6,321 6,321 5,684 4,866 4,306 4,334 4,330 1,576 1,576 1,576 1,576 788 326 326 326 326 326 326 326 454 469 530 530 530 530 342 8,677 8,692 8,116 7,298 5,950 5,190 4,998 165 165 165 165 132 132 131 8,842 8,857 8,281 7,463 6,082 5,322 5,129 313 316 251 122 680 610 194 9,155 9,173 8,532 7,585 6,762 5,932 5,323 10,739 10,892 10,868 10,673 10,529 10,382 10,268 12.94 13.06 12.43 4.98 4.63 4.28 3.55 41,186 40,663 40,121 39,578 39,055 38,404 37,803 6,824 6,266 5,641 4,772 4,055 3,367 2,763 24,914 $ 21,280 $ 17,265 $ 16,038 $ 16,132 $ 14,847 $ 14,600 18,308 12,944 10,598 9,775 8,858 8,252 6,922 191 179 187 187 195 203 207 43,413 $ 34,403 $ 28,050* $ 26,000 $ 25,185 $ 23,302 $ 21,729 875,000 875,000 864,000 853,000 852,000 850,000 800,000 122,103 122,486 124,395 125,525 125,277 124,029 122,489 17,228 15,017 16,888 17,666 17,620 17,772 16,239 138 92 12 297 247 341 378 18,519 16,274 17,938 18,696 18,824 18,563 17,035 2,100 2,014 2,012 1,992 1,993 1,955 1,909 39
Membership of Committees of the Board 0 Committee Chairman
- Member* Ex Officio*
Organization and Employee Finance Audit Nominating Compensation Benefit Directors William W. Berry,<1l President James F. Betts, President Continental Financial Services Company, Richmond Charles F. Burroughs, Jr., Retired Milton L. Drewer, Jr., President First American Bank of Virginia, McLean
- Mrs. Mary C. Fray, Culpeper Bruce C. Gottwald,<2 i President Ethyl Corporation, Richmond Dr. Allix B. James, President Emeritus 0 Virginia Union University, Richmond T. Justin Moore, Jr., Chairman of the Board of Directors 0 William S. Peebles, Ill, President W. S. Peebles and Company, Inc., Lawrenceville 0
Shirley S. Pierce, President The Ahoskie Fertilizer Company, Inc., Ahoskie, N.C.
- Kenneth A. Randall, President, The Conference Board, New York William T. Roos, President, Penn Luggage, Inc., Hampton Roy R. Smith, Chairman of the Board
- 0 Smith's Transfer Corporation, Staunton William F. Vosbeck, Jr., President VVKR Incorporated, Alexandria 0
Officers T. Justin Moore, Jr., Chairman of the Board and Chief Executive Officer, Age 55 William W. Berry, President and Chief Operating Officer, Age 48 Jack H. Ferguson, Executive Vice President, Age 49 Senior Vice Presidents Samuel C. Brown, Jr., Power Station Engineering and Construction, Age 55 Leon D. Johnson, Ill, Support Servlces, Age 63 John I. Oatts, Power Operations, Age 51 William L. Proffitt, Commercial Operations, Age 51 Vice Presidents Wadsworth Bugg, Jr., Age 59 Robert F. Hill, Age 44 Charles M. Jarvis, Age 52 B.D. Johnson, Vice President and Controller, Age 48 Ronald H. Leasburg,< 3 > Age 47
- 0. James Peterson, Ill, Vice President and Treasurer, Age 45 Stock and Convertible Debenture Listings William C. Spencer, Age 48 William N. Thomas, Age 57 New York Stock Exchange Corporate Secretary S. Brooks Robertson, Age 63 Transfer Agents-Registrars Division Vice Presidents United Virginia Bank, Richmond Northern Division, James P. Cox, Jr., Age 62 The Chase Manhattan Bank, N.A., New York Eastern Division, Harrison Hubard, Age 63 Southern Division, Randolph D. Mciver, Age 50 Annual Meeting Western Division, Richard W. Carroll, Age 62 Central Division, David W. Poole, Age 56 April 15, 1981 (1) Effective 5/16/80 replacing Stanley Ragone (2) Effective 1 /1 /81 replacing John M. McGurn (3) Effective 2/23/81 40
A TRIBUTE Stanley Ragone ' s tragic death on April 25 , 1980, in an automobile accident that also was fatal to his devoted wife Ber-tha , deprived our Company and our indus-try of a trusted leader and cherished friend . As President from 1978 to 1980, his ability, integrity and consideration for others strengthened th e bonds of respect and loyalty within the Vepco family .
NORTH CAROLI NA