ML18143A474

R. E. Ginna - Annual Report for Year Ended December 31, 1977

ML18143A474
Person / Time
Site:	Ginna
Issue date:	03/01/1978
From:	Rochester Gas & Electric Corp
To:	Office of Nuclear Reactor Regulation
References
Download: ML18143A474 (32)

Text

EO~ClhW887 Q845 SXillo lgC0i7Ã GEI7po0>IPKl000<X t.

l],~

~ '

/

P jul'L

/f

('A,"$

ii(

E t

I

'i

'U~

'if jap 4

'I. 1 t z>

fr

'< fi ~l 4j

}

t C

I

~

C I )I,

'.wiL'L~4 3 P

I 1 l~, I-aK

"<' cM I

~

' ~ ~

~ '

~ ' ~ ~

~ ~ ~ ~ ~ ~

VOOIL 0NAW3HO N3GA3lS snonv8vllvo vnonvlnv Ho

'831AAHOS ANVO 11V SNI8dWOL 0

VO3N3S Cy NOLSONIN I 3183 S3lvA 0NIWOAM e 5!epueueO Ol VlNO o!eIIng VOAAVO 3333N30 VONONO 308NOW 3MAVM V8VOVIM lJIIOQ'JOu SNV3180

'TP

~ ~

003MSO ~ '

~ ~ ~

0

~,, ~

~ ~ ~ ~ ~ ', 3 ~

~ ' ~

~ ~ ~ ~ ~ ~ ~

~ ~

~ ~ - 3 ~ ' .

III If< ~ ~ ~ ~ ~ ~ ~ ~

~ ~

~

~

~ ~ ~

~ ' ' ~ ~

~ ~ ~ ~ I

~

' ~ ~ ~

' ~

~ ~

Contents Highlights 2 Letter to Shareholders 3 Electric Operations 6 Gas Operations 8 Research and Development 9 Management's Discussion and Analysis of the Statement of Income 14 0 Financial Statements/Operating Statistics 15 Directors 28 Officers ffnsfde back cover)

Oci clz'"

Principal Office o fl 89 East Avenue g V ~xzrsi z4 Rochester, New York 14649 1716) 546-2700 na rri-cnc"I Financial Contact Weri c 0 Paul W. Brlggs col President Annual Meeting Annual Report for year ended December 3T; 1977 P May 17, 1978 At Rochester, New York New York Stock Exchange Symbol Rochester Gas and Electric Corporation Common Stock RGS Transfer and Dividend Disbursing Agent Lincoln First Bank of Rochester Stock Transfer Department Post Office Box 1250 Rochester, New York 14603 Registrar Security Trust Company of Rochester One East Avenue Rochester, New York 14638 Co-transfer Agent Morgan Guaranty Trust Company of New York 30 West Broadway New York, New Yoik 10015 Co.registrar The Chase Manhattan Bank (National Asso elation)

One Chase Manhanan Plaza New York, New York 10015 Agent for Automatic Dividend Reinvestment Plan Lincoln First Bank of Rochester Automatic Dividend Reinvestment Service Post Office Box 1507 Rochester, New York 14603 Bond Trustee and Paying Agent Bankers Trust Company Post Office Box 318 Church Street Station New Yixk, New York 10015 Shareholder Inquiries Communications regarding stock transfer requirements, lost certificates or dividend payments may be directed to Lincoln First Bank of Rochester. A full color 11' 14'rint of our cover photo, Other inquiries should be directed to D. W. Caple, suitable for framing and without caption, is Secretary and Treasurer at the Company. available upon request without charge. Write:

The Company will provide, without charge, a copy Rochester Gas and Electric Corporation of the Annual Report on Form 10-K filed with the Department 34 Securities and Exchange Commission with respect 89 East Avenue to fiscal year 1977, upon written request of any Rochester, New York 14649 shareholder addressed to the Secretary.

% Change 1976 1977 Highlights Common Stock (5) $ 2.30 $ 2.19 Earnings per weighted average share Number of shares (000's) 4 11,634 12,111 Weighted average 4 11,983 12,474 Pro forma weighted average after stock dividend paid in following year (See Note) 13 11,366 12,890 Actual number at December 31 10 40,153 44,135 Number of shareholders High Low High Low Price range (Sales on New York Stock Exchange) 1'7'5'/z 16/s 15'/s 20%

20%

21'/s

'8 17/4 1st quarter 2nd quarter 18'/s 15% 19/s 3rd quarter 19'/s 17 21% 19Vs 4th quarter Cash dividends paid (100% taxable)

$ .32 $ .32 1st quarter

.32 .32 2nd quarter

.32 .35 3rd quarter

.32 .35 4th quarter 3% 3% Stock dividend paid (See Note)

Sales and Revenue Electricity to customers 4,805,740 4,938,362 Kilowatt-hours (000's)

$ 170,558 $ 179,940 Revenue (000's)

Electricity to other utilities 22 1,187,942 1,453,590 Kilowatt-hours (000's) 45 $ 18,259 $ 26,403 Revenue (000's)

Gas (10) 467,831 420,438 Therms (000's) 5 $ 101,027 $ 'I 05,797 Revenue (000's)

Steam (6) 3,147,359 2,950,287 Pounds (000's) 3 $ 18,383 $ 19,004 Revenue (000's)

$ 308,227 $ 331,144 Total revenue Operating Expense (000's) 23 $ 46,361 $ 56,993 Electric and steam fuels (25) 18,195 13,635 Purchased electricity 10 56,192 62,086 Purchased natural gas 7 47,097 50I318 Wages and benefits 12 30,786 34,548 Other expense 10 $ 198,631 $ 217,580 Total operating expense Taxes (000's) 8 $ 40,502 $ 43,876 Local, state and other (20) 5,365 3,858 Federal income tax charged to operations Capital Expenditures (000's) 25 $ 67,162 $ 83,641 Utility plant, less allowance for funds used during construction 4 13,829 14,450 Nuclear fuel

$ 649,611 $ 722,780 Net Utility Plant at December 31 (000's) 2,644 2,624 Number of Employees Note: The 19th annual stock dividend was paid February 24, 1978 at the rate of three percent.

To Shareholders Earnings for the year 1977 were disappointing. million in electric and $ 7.0 million in gas revenue-Inadequate rate relief and minimal industrial and the minimum we calculated would be required to commercial expansion combined to produce a year meet rising operating costs.

where little growth evidenced itself.

In November 1977, following the full 11-month Common stock earnings for the year totaled $ 26.5 statutory hearing process, the Public Service million, down $ 307,000 from 1976. Earnings per Commission (PSC) virtually echoed its April 1976 share on common stock were $ 2.19, five percent less decision and granted us only half of the electric than the 1976 earnings of $ 2.30. The 1977 earnings request and 35 percent of the gas. The Company was per share figure includes the dilution resulting from permitted to raise electric rates by $ 10.2 million and the September 1977 sale of one million shares of gas rates by $ 2.5 million. In February 1978, the common stock. Company was allowed an additional $ 3.7 million Total revenue from electric, gas and steam sales, annually in consideration of certain wage and tax including sales to other utilities, was $ 331.1 million, payments that could not be determined at the time of up 7.4 percent from the $ 308.2 million combined the initial decision. This brought the total increase revenue in 1976. Excluding sales to other utilities, our granted to 60.5 percent of the amount RG8(E had customer revenues rose by $ 14.8 million to a total of requested.

$ 304.7 million. Of the increase, about $ 8.0 million Knowing that these inadequate rates would force us to was a direct result of rate increases granted in April quickly file again for general increases and proceed 1976 and November 1977. once more through the lengthy hearing period, we Electric sales to customers in 1977 totaled 4.9 billion petitioned for a rehearing of major issues in the case kilowatt-hours (KWH) which were 2.8 percent more on December 1, 1977. The PSC denied that petition, than the 4.8 billion KWH sold in 1976. This moderate and this will compel us to again file for general rate increase in electric sales was lower than anticipated increases in the spring of this year.

and reflects both customer conservation and the This piecemeal approach that the PSC has adopted influence of a relatively flat economic environment. with regard to rate matters promotes significant Electric sales to other utilities showed a sharp increase expenses and will only serve to increase long-term of 22 percent, going from 1.2 billion KWH in 1976 to costs for customers while jeopardizing the high levels 1.5 billion KWH in 1977. This was made possible by of service they have come to expect from RG8 E.

the impressive 86 percent availability performance of One valuable customer service that had been offered our Ginna nuclear power plant that allowed us to sell since the turn of the century has already been lost. In surplus coal-fired generation to other utilities. 1971, the PSC restricted our practice of promoting Natural gas deliveries declined 10.1 percent in 1977 appliance sales through advertising. As a result, sales to 420.4 million therms as compared with 467.8 dropped off. The recent PSC rate decisions forced million therms sold in 1976. The decline was primarily a result of customer conservation and gas restrictions.

Operation and maintenance expenses in 1977 were

$ 217.6 million, almost ten percent more than the previous year. Electric and steam fuel expenses increased $ 10.6 million, or 22.9 percent. Wages and employee benefits increased 6.8 percent, or $ 3.2 million over 1976. Employee overtime was kept to a minimum, and the total number of employees was reduced by 20 over the year.

Cost of purchased electricity was down by $ 4.6 million at $ 13.6 million, again due to the excellent performance of Ginna Station.

On December 3, 1976, the Company filed for a 12.2 percent electric and 7.3 percent gas rate increase that would have generated annually an additional $ 20.1 Francis E. Drake, /r. Paul W. Brtggs

action and, regretfully, we felt compelled to to defray capital costs and pay off $ 48.8 million in discontinue the Appliance Sales Department effective short-term debt.

December 31, 1977. In December 1977, the Company refunded all Total capital expenditures in 1977 were $ 98.1 million, 250,000 shares of its 11% Preferred Stock, Series 0 at exclusive of Allowance for Funds Used During a redemption price of $ 111.00 per share. The Construction (AFDC). More than $ 35 million of the refunding was accomplished through the issue of a total was spent for new electric generation capability. 7.60% Preference Stock, Series A, which is junior to This included $ 3.6 million for licensing efforts in the Preferred. The refunding improved the financial connection with the Sterling nuclear unit to be built condition of the Company and will provide a by RGRE. Another $ 9.7 million was allocated for a 24 reduction in its cost of money.

percent share of Niagara Mohawk's 850 MW oil-fired The Automatic Dividend Reinvestment Plan (ADRP) unit now under construction at Oswego and continued to gain popularity in 1977 with 16.8 scheduled for operation in 1979. The Company's 14 percent of shareholders participating. The percent share of Niagara Mohawk's 1,084 MW participation represented 11.8 percent of all.common nuclear power plant under construction at Nine Mile shares outstanding. The total investment, including Point cost $ 22.1 million. That plant is now scheduled optional cash payments, was $ 3.1 million as to be operating in 1983. compared with the $ 2.6 million invested in 1976, and In a January 1978 decision, after nearly four years of $ 1.9 million in 1975. In 1977, 158,000 shares were licensing procedures, the New York State Board on issued under ADRP.

Electric Generation Siting and the Environment The Company also established a Tax Reduction Act granted permission, subject to certain limitations, to Stock Ownership Plan (TRASOP) for its employees in construct our proposed nuclear power plant at 1977. The initial contribution to the TRASOP Trust Sterling, New York. We previously received a fund, which was financed by the one percent construction permit from the Nuclear Regulatory investment tax credit against 1976 Federal income tax, Commission in a September 1977 decision. consisted of 24,300 shares of common stock.

The long-awaited approvals are major milestones for Employees have received approximately one-half the Company and our customers. The Sterling plant share for every thousand dollars earned during 1976.

will ensure our ability to meet future electric We continued our support for the Empire State Power requirements and will save customers more than a Resources, Inc. (ESPRI) proposal, and were somewhat hundred million dollars a year in fuel costs alone over encouraged by a recommendation from an a comparable fossil-fired plant. administrative law judge to the PSC in January 1978.

Regulatory delays in the licensing process forced us to The ESPRI proposal, through special financing, plus miss the planned Sterling construction start in the fall unified power plant licensing, construction, and of 1977. Also, there are still some issues that have to operation, could save RG8 E customers as much as a be resolved before we can start construction. We are billion dollars through 1998.

hoping that ground preparation can begin in the fall of Again, RG&E had the lowest number of service 1978, with major construction to get underway in complaints per 100,000 customers of any New York 1979. Because of the delays, the Sterling plant is now State utility as recorded by the PSC. Such a record scheduled for commercial operation in 1986. It is only could only have been achieved through the coincidence that electric conservation and a soft outstanding efforts of our employees.

economy have tempered increases in demand'to the point where even with this delay we expect to While we had a flat year in 1977, we do anticipate be able to meet electric requirements in the mid-80's there will be an increase in energy use in our service and beyond.

area during this coming year. For 1978, we are estimating a 4.6 percent increase in electric In September 1977, the Company sold directly to the consumption and a 1.9 percent increase in gas. There public an additional one million shares of common is already tangible evidence of a pickup in industrial stock that produced $ 21 million in capital. At the growth. Rochester Products Fuel Systems Division of same time, in competitive bidding, the Company sold General Motors Corporation is completing

$ 50 million in 8/s percent Series CC first mortgage construction on a new manufacturing facility.

bonds. Proceeds from these sales were used Construction is progressing on Monroe County's

Refuse Recycling Facility that is scheduled for The balance of funds to finance construction is operation in 1979 and from which RG&E will expected to be supplied by internal cash flow.

purchase refuse derived fuel for use at Russell Station. RG&E is in sound financial position and we intend to Genesee Brewing Company is embarked on a continue to provide an attractive return on long-term, $ 40 million expansion program, and shareholder investment as evidenced by the july 1977 Eastman Kodak is planning to spend $ 183 million annual cash dividend increase from $ 1.28 to $ 1.40 locally in 1978 for plant expansion and improvements. a share.

As for natural gas, the addition of new customers, The Rochester-Monroe County region has consistently coupled with expanded use in commerce and represented one of the more attractive and stable industry, will produce a gradual climb in volumes economic areas in New York State. There is growth delivered. within our nine-county service territory, and we Taxes, fuels, materials, supplies and other operating expect it to continue. Economic progress and costs will continue to rise. Local, state and other taxes development may accelerate dramatically if the State will increase an estimated $ 3.4 million in 1978. The Legislature follows through on its promises to improve February 1978 wage adjustment, together with merit the State's business and economic climate. We are and promotional increases, will increase payroll by preparing to meet that growth.

$ 4.7 million. Sincerely, From a conservative point of view, considering increased costs of operation, customer conservation, a slowly recovering economy, and inadequate rate Francis E. Drake, fr. Paul W. Briggs relief, 1978 may be a year for only modest growth in Chairman of the Board and President earnings. Chief Executive Officer Capital expenditures in 1978, including AFDC, have been forecasted to amount to $ 119.7 million for March 1; 1978 property and equipment, plus $ 19.3 million for nuclear fuel. The EL PASO CONSOLtDATED is one of nine supertankers that will transport liquefied natural Our 1978 plans call for raising capital through the sale gas from Algeria to Consolidated Gas Supply of $ 62 million of bonds, $ 3.6 million ADRP shares of Corporation's Cove Point receiving station on the Chesapeake. The 92 l-foot tanker carries the common stock, and $ 20.5 million in short-term debt. equivalent of 2.6 billion cubic feet of gas-enough to heat 14,000 homes for a year. RG&E's gas supply willincrease due to theimports.

Electric Operations Ceneration RG8tE is proceeding with long-range programs designed to provide adequate electric capacity additions that will meet future demand. The Company is buying a 204 MW share in Niagara Mohawk's proposed 850 MW Oswego P6 oil-fired plant, and a 150 MW share in that company's planned 1,084 MW nuclear power plant, Nine Mile Point P2.

V 'ill 9X!III Q GIII GIIIDGD a P s

~H

> XOOD0000000 awe RC&E executives and plant operators display a sign that tells about the 20 billion kilowatt-hours of electricity that the Cinna nuclear power plant has generated since commercial operation beganin 1970.

Ground preparation for RG&E's nuclear power plant near Sterling, New York is planned to begin in late 1978, provided all regulatory licensing has been accomplished.

The Company will construct and operate the 1,150 MW plant and will own a 28 percent share (322 MW) of the capacity. RG8 E's partners in the project are Niagara Mohawk Power Corporation with a 253 MW share, Orange and Rockland Utilities, Inc. with 379 MW, and Central Hudson Gas 8t Electric Corporation with 196 MW.

Cood Year at Cinna Ginna Station's nuclear power plant was available 86 percent of the time in 1977. In 1976, its availability was only 58 percent due to recurrent turbine blade failures. Temporary left A computer display screen at Electric Load Dispatch Center is part ol the Company's new systems operations data link with the New York State Power Pool.

modification of the turbine allowed Qt WQP, ~ l use is a distinct economic almost continuous operation of the advantage and is in keeping with plant in 1977. It supplied the major the Company's concern for the share of RG8cE's own system load, environment.

saving customers $ 25 million in Power Pool Data Link A systems fuel costs. A newly designed operations computer has been turbine rotor will be installed at installed in the control room at the Ginna during the annual shutdown f Electric Load Dispatch Center that IP for refueling, inspection and enables direct data link with the maintenance in 1978, and the New York State Power Pool control plant will regain its design rating of room, and through the Pool to 470 MW net. other utilities in the system. Current Distribution Work was completed status information is instantaneously on the crosstown 115 KV coordinated and displayed on underground pipe-cable that. will visual readout screens for accommodate future growth in the The 1977 construction stan on Monroe County's increased system reliability.

Refuse Recycling Plant was one of many signs of City and improve reliability. The pending industrial and commercial growth in the New Home for Canandaigua underground cable route through Rochester area.

Operations The Canandaigua-the City was chosen so that it Finger Lakes District office, would be available to feed a Rail Right-of-Way In December, southeast 'of Rochester, has been planned major substation addition RCatE purchased 52 miles of relocated to a new building that will be needed to supply the railroad bed from the trustees of adjacent to the original office growing eastside system loads. Penn Central Railroad. The $ 1.8 structure. Space heating in the new In response to industrial and million acquisition will facilitate offices is being assisted by thermal commercial growth, a 115 KV line 115 KV power distribution to the energy collected from solar panels has been extended to the City's far Lake Shore District east of on the roof. Costs and benefits of westside. Additional capacity has Rochester. The ability to construct the system are being monitored as been installed to Kodak Park transmission lines on an part of our research and development Works. established corridor without in solar heat. The old office Outlying districts in the Company's complex easement negotiations building is being retained for service area have been and interference with normal land conference rooms and storage.

experiencing increases in electric demand, largely due to space heating and a spread of recreation RC&E System Capability and Electric Loads Thousands of Kilowatts and campsites. To meet the demand, the Company has accelerated its construction of 34.5 KV distribution facilities in the 4 cs Total Capability Total Capability Forecast i )PP~j Cenesee District, south of --,Required Capability lLoad plus icquired Rochester. Peak Loads Actual reserve)'a gs Peak Loads Foiecast

<<The most recent generating unit p, 'I'i o~'cl0000 l 300 added to the RCtSE system was the Cinna nuclear plant which was completed in 1970, at D'~ 0000000 approximately onc-sixth of the present cost of a comparable 000000000000 unit. it is estimated that the plant

' has saved customers more than

( P@9( S 135 millionin fuel costs alone during its operating lifetime, and 0 0 it provides elecuicity at the lowest total cost ol any steam 00000000 00 0 0 0000 0 000000000 0 ,"

generating unit on our system.

This low.cost generating capacity willcontinue to bcnelit 0000Z~O Solar collectors tap the sun's thermal energy on 1968 69 70 7l 73 73 74 13 16 11 78 79 80 81 83 83 86 8S 86 81 88 89 90 RC8 E customers. Acsvxl forecxu the back roof of the new Canandaigua.Finger Lakes District Office building.

Gas Operations favorable Supply Picture The natural gas supply situation improved significantly during 1977 as a result of customer conservation and increases in the amount of gas available to the Company's supplier, Consolidated Gas Supply Corporation. During the latter part of the year, Consolidated's liquefied natural gas (LNG) receiving terminal on Chesapeake Bay was in its final stages of construction. The first LNG tanker delivery from Algeria is expected by April, 1978. When the LNG project is fully operational in 1979, this additional gas source will further enhance supplies to RG8tE.

In addition to the LNG, Consolidated's offshore Louisiana production is increasing, its production and purchases from the Appalachian area are continuing at a constant level, deliveries from its interstate pipeline suppliers are improving, and new gas discoveries are being encouraged by higher field prices.

New Cas Customers In light of the favorable long-term supply situation, RG8tE filed a request with the PSC on September 1, 1977 for permission to deliver gas to new customers and to supply additional gas to existing customers l i t

Cas service lines are being run to new eligible RC&E gas space heating customers throughout the service area.

left An RC&E serviceman checks instrumen-tation while inspecting a gas furnace that is part of the reuofit experiment in gas conservation and efficiency.

effective, the retrofit option will be Electric Kilowatt-Hour Sales to our Customers by Classes available to all our gas space heating customers through trained millions 1.

Total Electric KWH Sales and reputable contractors. 1500 In Millions I

Year Total Other Programs Along with its own 1000 1977 4938 j

<<5 experimental conservation programs, RC&E is cooperating in 500 0 1976 4806 1975 4521 1974 4408 the American Gas Association's 0, 1973 4540 1972 4292 Space Heating Efficiency 1500 1971 3982 1970 3802 Improvement Program and with the 1969 3578 New York Cas Group's study of 1968 3280 appliance operation, efficiency

'as 0210 and safety.

Customer applications for new gas space heating 1500 I I service flooded the Company following approval of RG&E's request to li% the 1975 new 1000 0

0 5 0 s ial customer prohibition on gas use. 0 500 on a limited and controlled basis.

The PSC granted the request in November, thereby ending the 34-month period during which rive olhÃlW 1968 69 70 71 72 73 74 75 76 77 RG8 E had been unable to accept any new customers. By March 1978, we had already received RC&E employees gained another benefit Gas Therm Sales more than 1500 applications for to our Customers by Classes in 1977 with the TRrtSOP program ~here each new gas service. employee became a shareholder.

millions 1 Total Gas Retrofit Conservation RC &E has instituted an experimental Research and Development a Therm Sales In Millions conservation and energy efficiency RC&E invested more than $ 2.5 00 Year Total 1977 420 program in which a number of million in research and 150 0 00 1976 468 1975 424 residential gas space heating customers have had their gas development projects in 1977.

More than half was allocated to 100 0 1974 454 1973 435 furnaces derated through research and development 0 tj0 1972 469 1971 442 1970 425 retrofitting. Preliminary results organizations the Company 0 1969 403 indicate substantial savings for the supports including: the Electrical 1968 374 customer. Power Research Institute, a 100 Historically, furnaces have been national organization of electric ~~cClDODCID j

oversized to ensure they would utilities; the Empire State Electric ': nITSnn handle any contingency. Such Energy Research Corporation, a 100 oversizing is not conducive to the state-wide organization; and the highest efficiency. New York State Energy Research ~aciClDDeac and Development Authority, a ln s al In the retrofit process, local heating 0 contractors trained by RG&E branch of State government.

Additionally, the Company joined 50 I adjust the furnace capacity in a Other the newly formed Gas Research safe and economic manner to more Institute (CRI), an independent 1968 69 70 71 72 73 74 75 76 77 closely match the heating organization administered by requirements of the house.

educators, government officials Preliminary results are expected to and gas industry representatives.

be compiled in 1978. If the GRI is charged with guiding experiment proves to conserve gas, research and development in gas provide comfort and be cost conservation, supply and efficiency.

"I

.L) 0 1 t

'1 t

t 0 Jt ~r 1.

I t t~

3 t't 1.-); r 1

t'ai.'t 1 Ip 1,t t J

'I 1

g 1 t l t,lt t ~

).

The Company has its own research a series of engineering positions. In and development projects that 1968 he was named assistant study optimum insulation levels, superintendent of the electric heat pump operation, and the transmission and distribution previously mentioned furnace division, and became modifications under the retrofit superintendent in 1970.

program. One project of particular Robert R. Koprowski On December note is RC&E's program with 30, 1977 Robert R. Koprowski died Monroe County whereby the at the age of 54. He had been Vice Company will use refuse derived President, Engineering and RC&E's Howard Rowley (left) chats with /ohn D fuel from the County's recycling Construction, and was nationally Rockefeller ill and Iroquois Chief Oren Lyons.

facility to help fire boilers at Rowley received the prestigious Rockefeller recognized for his efforts and Russell Station. Public Service Award for his mediation workin Indian negotialions at Wounded Knee, S.D. and guidan'ce in creating the Construction on the Rochester Eagle Bay, N.Y. Standardized Nuclear Unit Power Institute of Technology (RIT) Energy Plant System that will be used at heating systems and othe'r House has been completed. our Sterling plant. His death was a energy-efficient devices.

Through direct funding of research loss to the Company, the and providing professional RC&E supports viable research community and the utility industry.

assistance, RG&E has been projects that are directed toward providing clean energy for the Alexander M. Beebee A pioneer of instrumental in promoting this future at the most reasonable cost. RC&E died June 1, 1977 at the age project. Energy House is a joint of 84. Alexander M. Beebee joined project of RG&E, RIT and By the end of 1978, it is expected that the Company will be directly RC&E in 1916 as an engineer, having Rochester Home Builders involved in more than 40 research worked summers at the Company Association. The house is being and development projects. while enrolled at Cornell University.

tested under actual living He gained the outs- respect of his fellow conditions to determine the Management Appointment Richard J. workers from the old coke ovens effectiveness of the solar-assisted Rudman was elected to the where he started his career to the position of Vice President, Electric executive offices. In his 41 years Transmission and Distribution by with the Company he worked his opposite page, top Sponsored by RC&E, RIT and the board of directors effective Rochester Home Builders'ssociation, the way from cadet August 1, 1977. He succeeded engineer to chairman completed Energy House collects thermal energy in the midst of a Rochester winter. Granger E. Green who retired after of the board. Mr.

bottom left RC&E engineers look over 41 years of service. Beebee made specifications in the dining room of the 1800 square foot, three bedroom home. Mr. Rudman joined RG&E in 1945 tandingg contribu-bottom right The engineers review the solar-assisted heat pump system in the Energy as an apprentice in electric tions to the Company House basement. substations and subsequently held and the community.

RG8 E's Share Electric Generating Projects Net Estimated Estimated Megawatt Year of Total Project Construction Cost (1)

Plant Capability Operation Cost (1) Megawatts Percent 1978 Total Mill irxrs d Millions ot Dollars Dollars Oswego Unit 0'6 Oil (2) .............. 850 1979 $ 252.7 (4) 204 24 $ 11.1 $ 60.6 Nine Mile Point Nuclear Unit r)t2 (2) ..... 1084 1983 1089.8 (5) 150 14 25.5 152.6 Sterling Nuclear (3) .................... 1150 1986 1142.7 (6) 322 28 4.0 320.0

$ 40.6 (1) Construction costs exclude allowance for funds used during construction and certain overhead costs to be capitalized.

(2) To be constructed and operated by Niagara Mohawk Power Corporation.

(3) To be constructed and operated by Rochester Gas gr Electric Corporation.

(4) Total project costs include $ 8.5 million for oil handling facilities and excludes common facilities.

(5) Total project costs include $ 71.4 million for the initial nuclear fuel loading and excludes common facilities.

(6) Total project costs include $ 87.0 million for the initial nuclear fuel loading.

11

Average Annual Use Per Residential Electric Customer Customers Per Employee Kilowatt Hours 7000 6533 IOIO dial 6336 0000

-'"'~ II II II 1 I!

4 000 165 3000 I II II II II fl II 175 2000 150 II II II II II lI II 1000 I I II I I II 120 I IO 0

68 69, 70 71 72 73 74 75' 6 77 I'I 0 I 100 75 50 25 1930 1940 1950 1960 1970 1977 Average Annual Use Per Residential Space Heating Gas Customer Therms'arnings and Dividends Per Common Share in Dollars 2.50 a19 3.19 2000 I 690 1.61 1.50 1500 1.33 143 I.'I3 I 43 1.00 500 .50 1968 69 70 71 72 73 74,75 76t 77 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 0 Earnings per Common Share Ct Cash Dividends per Common Share (Adiosted ror Stock t3(vkiendls

'rttdiosted lor normalized weather by degree days.

12

Source of Revenue Dollar RG&E Production Costs Per Kilowatt-Hour in Cents in Cents 5411 Electric Revenue 32/ Cas Revenue 6 2.00 1.80 Steam Revenue 1.60 Electric Sales to Other Utilities 1.40 1.2 1.20 ln Use of Revenue Dollar 1.00 92 in Cents

.94

.80 40( Cost of Fuels n)

Ar Elecuic (S Steam Fuels

.60, 9

-- ----- Purchased Cas 55 .5

---

Purchased Elecuicity 7tt Depreciation

.20 14(L Taxes 15(L

~4/

7(L Wages & Benefits Interest on Bonds & Notes Dividends (Com. 5(L & Pfd. 2(()

.0 1969 tt 70 71 72 73 BeCbCC StatiOn (GO)frO't fired (90 MW) 74 75 76 77 gl RuSSell StatiOn (CO2(-fired 2(rO MlV) 3(L) Reinvested Earnings zs Weighted Average Cost tt Cinna Station (Nrrdear 470 Ml)S Misc. Materials & Services (3 Hydro Efccuic (47 Mw Ma)i Capitalization in Millions of Dollars D Long. Term Debt 350 a Common Shareholders'quity ct Preferred Equity

)11 A 300 24)A 24)A 24X) 249 1 250 2))A 2)rA 2)rA 222.5 200 121.1 150 142.5 l I 50 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 13

Management's Discussion and Analysis of the Statement of Income The following financial review discusses major changes that Total gas revenue increased by $ 4.7 million in 1977 and affected differences in Net Income, between 1977/1976 $ 18.5 million in 1976 principally due to higher gas cost and between 1976/1975, as reported in the Statement of adjustments in both periods, the effects of rate relief and Income on page 16 of this report. The Notes to Financial colder than normal weather during the fourth quarter of Statements on page 19 of this report contain additional 1976. Therm sales for 1977 were down 10.1 percent from information that relates to this discussion. 1976 attributable mainly to customer conservation and gas Revenue restrictions. The Company received approval of new gas rates effective in November 1977 increasing revenue $ 2.5 Changes in Electric Revenue million annually. Previously, rates increasing revenue $ 5 Increase or (Decrease) from Prior Year million annually were approved in April 1976.

1977 1976 Revenue changes from weather effects, on a degree day Customer Revenue (estimated) from rfhouknndk of Dollnrk) basis, resulted from 2.6 percent warmer weather in 1977 Rate increases . . $ 5,312 $ 8,449 Fuel cost adjustment 410 9,395 than in 1976 and 11.2 percent colder weather in 1976 than Sales of KWH. 3,523 6,051 in 1975.

Other 137 34 Changes in Steam Revenue Total Change in Customer Revenue 9,382 23,929 Electric Sales to Other Utilities .... 8,144 (7,237) Increase or (Decrease) from Prior Year Total Change in Electric Revenue .. ......... $ 17,926 $ 16,692 1977 1976 (thoukandk of Dolbrk)

Customer Revenue (estimated) from Total revenue from electric customers increased $ 9.4 Rate increases $ $ 960 Fuel cost adjustment 1,824 (109) million in 1977 and $ 23.9 million in 1976. Effective Weather effects (198) 977 November 11, 1977 the Company received approval to Sales of Ebs. of steam (997) (796) increase electric rates $ 10.2 million annually. Previously Other (8) 14 rates increasing revenue $ 1'I million annually were Total Change in Steam Revenue... .......... $ 621 $ 1,046 approved in April 1976.

The modest 3.4 percent increase in steam revenue for 1977 Electric kilowatt-hour sales to our customers increased 2.8 is a reflection of higher fuel cost adjustment revenue. A percent in 1977 and 6.3 percent in 1976. Both 1977 and steam rate increase designed to raise annual revenue $ 2.5 1976 showed increased consumption in the residential, million was approved in April 1975.

commercial and industrial sectors. The increase in 1976 was attributable to an improved economy, new electric Expense heating customers and colder weather during the heating Changes in Operation and Maintenance Expense season. The moderate 1977 increase reflected mainly additional electric heating customers offset by conservation Increase or (Decrease) from Prior Year and a relatively flat economy. 1977 1976 0houkandk of Ool4 2k)

Revenue from electric sales to other utilities increased $ 8.1 Electric and steam fuels ........ ............ $ 10,632 $ 93 million in 1977 and decreased $ 7.2 million in 1976. Purchased electricity . (4,560) 5,983 Fluctuations in electric sales to other utilities and in Purchased natural gas . 5,894 '1 3,945 Other operation 4,817, 7,048 purchased electricity discussed under Expense below Maintenance 2,166 506 generally are related to the availability of electric Total Change in Operation and generation from the Ginna nuclear plant. Generation at the Maintenance Expense . $ 18,949 $ 27,575 Ginna nuclear plant was not available for sale during 51 days of 1977, 145 days of 1976 and 78 days of 1975. The 1977 increase in electric and steam fuels expense was mainly due to an increase in electricity generated in 1977 Changes in Gas Revenue and an increased fuel cost per kilowatt-hour generated by Increase or (Decrease) from Prior Year nuclear fuel. The purchased electricity expense decrease in 1977 1976 1977 reflects decreased kilowatt-hour purchases netted Customer Revenue (estimated) from (Thou$ 6ndk of Oolbrk) against a relatively modest increase in the cost per Rate increases . . $ 2,683 $ 2,460 kilowatt-hour. In 1976 an 11.6 percent increase in Gas cost adjustment . 12,475 9,266 kilowatt-hour purchases and a 33.5 percent increased cost Weather effects . (12144) 41488 Sales of therms . (7,631) 2,297 per kilowatt-hour caused a rise in purchased electricity Other (1,613)'8 expense.

Total Change in Gas Revenue..... .......... $ 4,770 $ 18,549 Purchased natural gas expense increased in both periods. In

'Includes $ 1.6 million as a one. lime $ 10 reduction lo the February 1977 residential 1977 a decrease in consumption due mainly to heating bills. conservation partially offset higher pipeline rates. The

increase in 1976 was principally due to increased Financial Statements consumption because of colder weather. Income 16 Balance Sheet 17 Other operation and maintenance expenses increased $ 7 Changes in Financial Position 18 million in 1977 and $ 7.6 million in 1976 largely as a result of higher wages and employee benefit costs in both periods, Retained Earnings 19 increased maintenance in 1977 and the higher cost of Notes to Financial Statements 19 materials and supplies in 1976. Report of Independent Accountants 24 Operating Statistics Changes in Taxes Electric Department 25 Taxes local, state and other increased $ 3.4 million in Gas Department 26 1977 and $ 4.3 million in 1976, principally due to higher Steam Department 27 property taxes resulting from the addition of new plant, increased property tax rates, and higher franchise and gross income taxes based on increased revenues.

Changes in Federal Income Tax Increase or (Decrease) in Tax from Prior Year 1977 1976 Change in Iax resulting from IIIeusands d Oolian) difference, in pre(ax income... ............... $ (862) $ 2,982 Change in Iax resulting from differences in items deductible for Iax purposes but not expensed on the books for which Iax benefit is recognized currently ........ (1,320) (3,645)

Other 427 156 Total Change in Federal Income Tax ........ $ (1,755) $ (507)

See Note 3 Io the financial statements for a detailed analysis.

Other Statement of Income Items The increase in allowance for funds used during con-struction of $ 3.8 million in 1977 and $ 4 million in 1976 Rate Increases was due to increases in utility plant expenditures in both periods. The rates used to capitalize allowance for funds C ranted Amount of Rate of Rate of Increase Percent Return on Return on used during construction were: January 1, 1976 to April 30, Class of Effective (Annual Basis) of Rate Base Equity 1976, 8'/4%; and effective May 1, 1976, 8/+%. Service Date of Increase (000's) Increase Authorized Authorized Interest on long term debt increased $ 3.2 million in 1977 Electric October 25, 1972 $ 10,154 11.5% 7.96% 12.00%

and $ 2.4 million in 1976 reflecting additional'bonds issued October 23, 1974 17,992 16.0 8.83 13.19 in September 1977 and June 1976. April 20, 1976 11,002 7.9 9.35 13.50 November 11, 1977 10,186 5.8 9.31 12.80 The 1976 decrease of $ 1 million in other interest reflects February 18, 1978 3,000 1.6 9.31 12.80 mainly interest on contract payments for jointly-owned Gas April 28, 1972 3,676 6.8 7.77 12.00 generating facilities amounting to less than $ .1 million in October 23, 1974 4,854 7.6 8.42 12.09 1976 as compared with almost $ 1 million in 1975. April 20, 1976 4,983 6.3 9.35 13.50 November 11, 1977 2,536 2.4 9.31 12.80 Preferred stock dividends increased $ 2.2 million in 1976 February 2, 1978 678 .6 9.31 12.80 because of additional preferred stock issued in October Steam May 11, 1972 897 11.4 6.48 1975, which was subsequently redeemed in January November 12, 1973 500 5.1 7.25 1978. April 15, 1975 2,475 12.0 8.69 15

RLf's& ROCHESTER GAS AND ELECTRIC CORPORATION Year Ended December 31 1973 1974 1975 1976 1977,Statement of IITCome (Thousands oI Doll ssI Revenue(Notes 1 and 4)

$ 116,512 $ 127,560 $ 146,629 $ 170,558 $ 179,940 Electric 64,633 75,463 82,478 101,027 105,797 Gas 10,014 16,321 17,337 18,383 19,004 Steam 191,159 219,344 246,444 289,968 304,741 21,112 14,697 25,496 18,259 26,403 Electric sales to other utilities 212,271 234,041 271,940 308,227 331,144 Expense (Notes 1 and 4) 25,612 36,693 46,268 46,361 56,993 Electric and steam fuels 8,841 12,070 12,212 18,195 13,635 Purchased electricity 29,923 37,342 42,247 56,192 62,086 Purchased natural gas 40,999 44,356 50,629 57,677 62,494 Other operation 15,888 17,966 19,700 20,206 22I372 Maintenance 121,263 148,427 171,056 198,631 217,580 Total operation and maintenance expense 15,145 16,491 17,414 18,621 21,053 Depreciation 29,993 32,410 36,157 40,502 43,8/6 Taxes local, state and other 7,639 1,151 5,295 5,365 3,858 Federal income tax (Note 3) 174,040 198,479 229,922 263,119 286,367 38,231 35,562 42,018 45,108 44,777 Operating Income Other Income and Deductions 447 1,741 3,574 7,531 11,317 Allowance for funds used during construction (Note 1)

(173) (613) (1,264) (2,853) (4,844) Less: Portion applicable to borrowed funds 715 670 537 1,128 1,310 Other 989 1,798 2,847 5,806 7,783 39,220 37,360 44,865 50,914 52,560 Income before Interest Charges Interest Charges 13,738 14,965 16,963 19,378 22,542 Long term debt 1,246 2,255 1,568 1,054 1,319 Short term debt 103 210 1,227 246 494 Other (173) (613) (1,264) (2,853) (4,844) Allowance for borrowed funds used during construction 14,914 16,817 18,494 17,825 19,511 24,306 20,543 26,371 33,089 33,049 Net Income 3,550 3,550 4,054 6,245 6,5'I2 Dividends on Preferred and Preference Stock, at required rates

$ 20,756 $ 16,993 $ 22,317 $ 26,844 $ 26,537 Earnings Applicable to Common Stock Weighted average number of shares outstanding in each period, 9,469 10,319 10,667 11,634 12,111 adjusted for stock dividends (000's)

$ 2.19 $ 1.64 $ 2.09 $ 2.30 $ 2.19 Earnings per Common Share (Note 1)

Cash Dividends per Common Share, adjusted for stock dividends

$ 1.08 $ 1.13 $ 1.18 $ 1.23 $ 'I.33 (Note 1)

JERE ROCHESTER GAS AND EEECFRIC CORPORATION At December 31 1973 1974 1975 1976 1977 Balance Sheet m ASSETS Utility Plant, at original cost (Note 1)

$ 453,484 $ 485,889 $ 516,199 $ 551,724 $ 609,387 Electric 149,399 156,951 160,322 158,386 162,946 Gas 16,008 16,468 16,883 17,577 17,442 Steam 618,891 659,308 693,404 727,687 789,775 Less Accumulated depreciation and amortization 111,401 125,941 142,046 158,216 184,746 Electric 34,965 37,114 38,365 34,967 38,448 Gas 4,234 4,590 5 044 5,595 5,928 Steam 150,600 167,645 185,455 198,778 229,122 468,291 491,663 507,949 528,909 560,653 24,542 39,324 79,381 120,702 162,127 Construction work in progress 492,833 530,987 587,330 649,611 722,780 Net utility plant 1,834 1,871 1,911 1,947 Investment in subsidiary, at equity Current Assets 5,434 7,458 7,247 6,429 6,617 Cash (Note 6) 22,239 25,354 24,217 33,806 30,332 Accounts receivable Materials and supplies, at average cost 3,791 8,912 12,292 10,836 10,787 Fossil fuel 7,008 10,105 9,383 9,373 9,724 Construction and other supplies 510 849 657 646 927 Prepayments 38,982 52,678 53,796 61,090 58,387 Deferred Debits 1,981 2,477 2,308 2,651 3,348 Unamortized debt expense 3 737 3,739 3,452 6,338 Deferred fuel cost (Note 4) 2,893 1,999 1,403 2,048 5,574 Other (Note 5) 4,874 8,213 7,450 8,151 15,260

$ 536,689 $ 593,712 $ 650,447 $ 720,763 $ 798,374 Total CAPITALIZATIONAND LIABILITIES Capitalization (Note 5)

$ 237,382 $ 267,348 $ 267,314 $ 311,395 $ 361,022 Long term debt 67,000 67,000 89,000 92,000 67,000 Preferred stock 28,000 Preference stock Common shareholders'quity 148,566 154,758 173,586 181,301 212,533 Common stock 52,184 53,568 60,502 67,812 70,819 Retained earnings 200,750 208,326 234,088 249,113 283,352 Total common shareholders'quity 505,132 542,674 590,402 652,508'39,374 Current Liabilities 21,000 21,500 18,051 9,000 Short term debt (Note 6) 6,000 Long term debt due within one year 12,909 11,028 14,544 18,153 18,635 Accounts payable 8,922 2,428 6,505 2,959 4,610 Taxes accrued, including income taxes 4,657 6,767 6,100 6,306 7,355 Interest accrued 1,763 1,909 2,005 2,203 2,388 Payroll accrued 840 820 1,058 980 825 Other 29,091 43,952 51,712 54,652 42,813 783 1,126 1,268 1,045 954 Reserves and Deferred Credits 1,683 5,960 7,065 12,558 15,233 Accumulated Deferred Income Taxes (Notes 1 and 3)

Commitments and Other Matters (Note 7)

$ 536,689 $ 593,712 $ 650,447 $ 720,763 $ 798,374 Total

JK~~% ROCHESTER GAS AND ELECTRIC CORPORATION Year Ended December 31 1973 1974 1975 1976 1977 Statement of Changes in Financial Position rrl ~~o II. I Working capital was provided by:

$ 24,306 $ 20,543 $ 26,371 $ 33,089 $ 33,049 Net income Non-working capital items:

15,145 16,491 17,414 18,621 21,053 Depreciation of utility plant 6,829 2,584 7,591 6,125 14,386 Amortization of nuclear fuel (3,737) (2) 287 (2,886) Deferred fuel cost 915 4,277 1,105 5,493 2,675 Deferred income taxes (447) (1,741) (3,574) (7,531) (11,317) Allowance for funds used during construction 397 577 563 634 757 Other (net) 47,145 38,994 49,468 56,718 57,717 Total from operations Financing 21,000 500 Proceeds of short term debt (net) 30,000 50,000 50,000 Sale of long term debt 19,726 494 17,258 2,626 24,579 Sale of common stock 22,000 3,000 Sale of preferred stock 28,000 Sale of preference stock 19,726 51,494 39,758 55,626 102,579

$ 66,871 $ 90,488 $ 89,226 $ 112,344 $ 160,296 Total Working capital was used for:

Utility plant

$ 34,181 $ 50,931 $ 71,733 $ 67,162 $ 83,641 Plant additions less allowance for funds used during construction 3,195 5,240 6,415 13,829 14,450 Nuclear fuel 37,376 56,171 78,148 80,991 98,091 3,550 3,550 4,054 6,245 6,453 Preferred stock dividends 59 Preference stock dividends 9,922 11,614 12,258 14,312 16,009 Common stock dividends 18,000 3,449 9,051 Payment of short term debt (net) 6,000 333 Reduction of long term debt 2,145 Nuclear fuel contract due in one year 27,750 Redemption of preferred stock, including call premium 925 75 1,555 133 167 Capital stock expense 625 401 892 Long term debt issue expense 2,281 (1,382) (647) (92) 1,406 Other (net)

(7,328) 19,835 (6,142) 905 85 Increase (decrease) in working capital (exclusive of short term debt)

$ 66,871 $ 90,488 $ 89,226 $ 112,344 $ 160,296 Total Changes in working capital accounted for by:

Increase (decrease) in current assets

$ (8,217) $ 2,024 $ (211) $ (818) $ 188 Cash 2,596 3,115 (1,137) 9,589 (3,474) Accounts receivable Materials and supplies 218 5,121 3,380 (1,456) (49) Fossil fuel 693 3,097 (722) (10) 351 Construction and other supplies (20) 339 (192) (11) 281 Prepayments (4,730) 13,696 1,118 7,294 (2,703)

Increase (decrease) in current liabilities other than short term debt 6,000 (6,000) Long term debt due within one year (1,179) (1,881) 3,516 3,609 482 Accounts payable 3,964 (6,494) 4,077 (3,546) 1,651 Taxes (206) 2,256 (571) 404 1,234 Accrued interest and payroll 19 (20) 238 (78) (155) Other (net) 2,598 (6,139) 7,260 6,389 (2,788)

$ (7,328) $ 19,835 $ (6,142) $ 905 $ 85 Changes in working capital, as above

RSR ROCHESTER CAS AND ELECTRIC CORPORATION Year Ended December 31 1973 1974 1975 1976 1977 Statement of Retained Earnings rrha>>ands or Dollar)

$ 47,069 $ 52,184 $ 53,568 $ 60,502 $ 67,812 Balance at beginning of period 949 Adjustment to record subsidiary at equity 47,069 53,133 53,568 60,502 67,812 Balance at beginning of period as adjusted 24,306 20,543 26,371 33,089 33,049 Net income 71,375 73,676 79,939 93,591 100,861 701 Series 0, Preferred issuance costs (Note 5)

Dividends on capital stock:

3,550 3,550 4,054 6,245 6,453 Cumulative preferred stock, at required rates (Note 5) 59 Preference stock (Note 5)

Common stock:

9,922 11,614 12,258 14,312 16p009 Cash (Note 1) 5,719 4,944 3,125 5,222 6,820 Stock (Note 5) 19,191 20,108 19,437 25,779 29,341

$ 52,184 $ 53,568 $ 60,502 $ 67,812 $ 70,819 Balance at end of period Notes to Financial Statements Note 1. Summary of Accounting Policies General. The Company is subject to regulation by the Public Due to a Federal government policy adopted in 1977, the Service Commission of the State of New York (PSC) with respect to Company has changed its nuclear fuel cost computation to reflect its rates for service and the maintenance of its accounting records. the costs of permanent storage of spent nuclear fuel. Prior fuel cost computations anticipated spent nuclear fuel years'uclear The Company's accounting policies conform to generally accepted accounting principles as applied to New York State would be reprocessed. Cumulative prior years'uel expenses public utilities giving effect to the ratemaking and accounting would have been increased by approximately $ 8.0 million if they practices and policies of the PSC. had been determined on the basis of current cost estimates for permanent storage of spent nuclear fuel, rather than on an A description of the Company's principal accounting policies estimated amount for reprocessing. If the government permanent follows. storage policy is continued, the Company believes that such Utility Plant and Depreciation. The cost of additions to utility amount will be fully allowable for ratemaking purposes.

plant and replacement of retirement units of property is Decommissioning costs (costs to take the plant out of service in capitalized. Cost includes labor, material, and similar items as the future) for the Company's Ginna nuclear power plant cannot well as indirect charges for engineering, supervision, etc. The be estimated at this time. The Company believes that the costs of Company capitalizes an allowance for funds used during decommissioning will be fully allowable for ratemaking purposes.

construction approximately equivalent to the cost of capital devoted to plant under construction. Replacement of minor items Allowance for Funds Used During Construction. The Company of property is included in maintenance expenses. Costs of capitalizes an Allowance for Funds Used During Construction depreciable units of plant retired are eliminated from utility plant (AFDC) based upon the net cost (without adjustment for income accounts, and such costs, plus removal expenses, less salvage, are taxes) of borrowed funds for construction purposes and a charged to accumulated depreciation and amortization. reasonable rate upon the Company's other funds when so used.

The rates for such purpose were: January 1, 1973 to August 31, Depreciation in the financial statements is provided on a 1973, 7s/a%; September 1, 1973 to May 31, 1974, 8%; June 1, straight-line basis at rates based on the estimated useful lives of 1974 to June 30, 1975, 10%; July 1, 1975 to April 30, 1976, property, which have resulted in provisions as follows:

8s/4%; and effective May 1, 1976, 8%%. The rate changes together 1973-1975 2.8%, 1976 2.9%, and 1977 3.0% per annum, of with the impact of the large increase in co'nstruction work in average depreciabie property. progress during the years 1974-1977, account for the variance in Nuclear Fuel and Decommissioning Costs. The cost of nuclear the amount of the allowance. AFDC is segregated into two fuel and estimated permanent storage costs are charged to component parts and classified in the Statement of Income to operating expense on the basis of the thermal output of the disclose an Allowance for Borrowed Funds Used During reactor. These costs are charged to customers through base rates Construction as a credit to Interest Charges and an Allowance for and through the fuel cost adjustment. Other Funds Used During Construction as a part of Other Income.

19

Rates and Revenue. Revenue is recorded on the basis of meters Pension Plan. The Company's retirement plan is noncontributory read during the calendar year. and covers all regular employees. Retirement plan benefits are Tariffs for electric and steam service include fuel cost adjustment provided for by payments made to an insurance company and to trust funds with banks. Current service costs are funded annually.

clauses which serve to adjust electric and steam rates from time to The period over which prior costs are being amortized was time to reflect changes in the average costs of fuels used in electric changed in 1976 from 30 years to 40 years.

and steam generation from the average cost of such fuels during the base period. Tariffs for gas service contain a comparable Retirement plan expenditures for the years 1973 through 1977 clause to adjust gas rates for changes in the price of purchased were $ 5.7 million, $ 5.5 million, $ 6.8 million, $ 8.1 million, and natural gas. $ 9.2 million, respectively. The actuarially computed value of Federal Income Tax. For income tax purposes, depreciation is vested benefits at December 31, 1977 exceeds the assets in the plan by approximateiy $ 15 million.

computed using the most liberal methods permitted. In addition, certain costs capitalized for financial reporting purposes are Earnings and Dividends Per Share. Earnings applicable to each deducted currently for income tax purposes. The resulting tax share of common stock are based on the weighted average reductions are offset by provisions for deferred income taxes only number of shares outstanding during the respective years, adjusted to the extent ordered or permitted by regulatory authorities. for stock dividends. Assuming the 1,000,000 shares of common Beginning in 1975, the investment tax credit rate was increased stock issued on September 29, 1977 were outstanding at the from 4% to 10%. The prior rate of 4% is applied to reduce current beginning of 1977 and the proceeds were applied to reduce the short term debt, the earnings per share for 1977 would have been tax provisions. However, as recommended by the PSC, normalized tax accounting is followed in the application of the $ 2.10. Cash dividends per share are based on the shares outstanding at the time dividends are paid, adjusted for stock temporary 6% increase.

dividends. Cash'dividends per share at the rates declared in each The Company uses the separate period approach in calculating the period amount to $ 1.22 for 1973, $ 1.24 for 1974, $ 1.26 for 1975, interim quarterly tax provision. $ 1.28 for 1976, and $ 1.34 for 1977.

Note 2. Departmental Financial Information m The Company's records are maintained by operating departments, in accordance with PSC accounting policies, giving effect to 'the ratemaking process. The following is the operating data for each of the Company's departments and no interdepartmental adjustments are required to arrive at the operating data included in the Statement of Income.

Electric Cas Steam Operating information 1977 Operating revenues $ 206,343 $ 105,797 $ 19,004 $ 331,144, Operating expenses, excluding provision for income taxes . 165,858 97,465 19,186 282,509 Pre-tax operating income 40,485 8,332 (182) 48,635 Provision for income taxes 4,041 147 (330) 3,858 Net operating income .. $ 36,444 $ 8,185 $ 148 44,777 Other income net 7,783 Interest charges . 19,511 Net income per statement of income $ 33,049 Other information Depreciation . $ 15,333 $ 5,140 $ 580 $ 21,053 Nuclear fuel amortization 14,386 14,386 Capital expenditures 90,722 6,943 426 98,091 Investment information December 31, 1977 Identifiable assets . $ 626,464 $ 141,130 $ 16,619 $ 784,213 Assets utilized for overall Company operations (a) 14,161 Total assets per balance sheet $ 798,374 (a) Consists primarily of cash, prepayments and unamortized debt expense.

20

NOte 3. Federal InCOme TaX PrOViSiOn Irtxxnam or Oottant The following is a reconciliation for the years 1973 through 1977 of the difference between the amount of Federal income tax expense reported in the Statement of Income and the amount computed by multiplying the income before tax by the statutory tax rate.

1977 1976 1975 1974 1973

% of  % of  % of %of  % of Pretax Pretax Pretax Pretax Pretax Amount Income Amount Income Amount Income Amount Income Amount Income Net income $ 33,049 $ 33,089 $ 26,371 $ 20,543 $ 24,306 Federal income tax Current 961 (291) 4,162 (3,126) 6,724 Deferred 2,897 5,656 1,133 4,277 915 Charged to operating expense ........ 3,858 5,365 5,295 1,151 7,639 Amort. of deferred investment tax credit . (222) (163) (28)

Other (1,460) (1,271) (829) (792) (418)

Included in Other Income ........... (1,682) (1,434) (857) (792) (418)

Actual Federal income tax expense ....... 2,176 3,931 4,438 359 7,221 Income before Federal income tax ........ $ 35,225 $ 37,020 $ 30,809 $ 20,902 $ 31,527 Computed tax expense $ 16,908 48.0 $ 17,770 48.0 $ 14,788 48.0 $ 10,032 48.0 $ 15,133 48.0 Increases (reductions) in tax resulting from:

Excess of tax depreciation less amount deferred (3,580) (10.2) (3,996) (10.8) (4,043) (13.1) (4,496) (21.5) (4,430) (14.1)

Expenses capitalized for financial statements

• including interest, payroll and use tax, etc... (7,765) (22.0) (5,491) (14.8) (3,032) (9.9) (2,121) (10.2) (1,374) (4.4)

Investment tax credit (2,624) (7.4) (2,257) (6.1) (1,228) (4.0) (1,320) (6.3) (890) (2.8)

Property taxes on basis of date of taxable status (254) (.7) (1,159) (3.1) (955) (3.1) (1,152) (5.5) (527) (1 .7)

Cost of removal, less net amount deferred..... (655) (1.9) (603) (1.7) (437) (1.4) (312) (1.5) (204) (.6)

Miscellaneous items, net.................... 146 .4 (333) (.9) (655) (2.1) (272) (I 3) (487) (I 5)

Actual Federal income tax expense ............ $ 2,176 6.2 $ 3,931 10.6 $ 4,438 14.4 $ 359 1.7 $ 7,221 22.9 A summary of the deferred amounts charged or (credited) to income is as f'ollows:

1977 1976 1 975 1974 1973 Investment tax credit $ 2,003 $ 3,423 $ 822 Class life depreciation 1,379 1,082 850 $ 640 $ 600 Fuel costs . 1,386 (138) I 1,794 Nuclear fuel amortization....... (362) 289 (755) 1,615 Nuclear fuel storage costs....... (3,346)

Fossil plant abandonment costs .. 2,160 Other (545) 837 187 228 315

$ 2,675 $ 5,493 $ 1,105 $ 4,277 $ 915 Note 4. Changes in Method of Accounting The Company's tariffs for electric and steam services include fuel better matching of fuel costs and fuel cost adjustment revenues. As cost adjustment clauses under which rates are adjusted to reflect a result of this accounting change, fuel costs included in operating changes in the average costs of fuels. There is a lag from the time expenses reported for 1974 were decreased by $ 3.7 million and the average cost of fuel is determined to the application of the fuel net income for the year, after appropriate tax accruals, was cost adjustment rates to customer bills. In 1974, the Company increased by $ 1.9 million (18 cents per share). The cumulative began to defer a portion of the increased costs to the month in effect of the change on retained earnings at the beginning of 1974, which the resultant revenues were recorded in order to achieve a would have been immaterial.

21

Note 5. Capitalization Bond premium applicable to the years 1973 through 1977 is Long Term Debt IThovkaeh) $ 705,382, $ 671,000, $ 636,417, $ 717,313, and $ 677,702, Principal Amount respectively.

First Mortgage Bonds December 31, Series Due 1977 1976 1975.1974 1973 Sinking and improvement fund requirements aggregate $ 333,540 4' Sept. 1, 1977 .. $ 6,000 $ 6,000 $ 6,000 per annum. Such requirements may be met by certification of 3 L Mar. 1, 1979 ..$ 16,677 16,677 16,677 16,677 additional property or by depositing cash with the Trustee. The 2s/4 M Aug. 15, 1980 . 12,000 12,000 12,000 12,000 1973-1975 requirements were met by certification of additional 3% N June 1, 1982 .. 6,000 6,000 6,000 6,000 property. The 1976 requirement was met with funds deposited 3' Mar. 1, 1985 .. 10,000 10,000 10,000 10,000 with the Trustee, and these funds were used for redemption of 4r/a R July 1, 1987... 15,000 15,000 15,000 15,000 outstanding bonds of Series AA at the special price of 100%.

5 S Oct. 15, 1989 . 12,000 12,000 12,000 12,000 4ya T Nov. 15, 1991 . 15,000 15,000 15,000 15,000 4% U Sept. 15, 1994 . 16,000 16,000 16,000 16,000 5.3 V May 1, 1996 .. 18,000 18,000 18,000 18,000 6' Sept. 15, 1997. 20,000 20,000 20,000 20,000 6.7 X July 1, 1998... 30,000 30,000 30,000 30,000 8 Y Aug. 15, 1999 . 30,000 30,000 30,000 30,000 9ys Z Sept. I, 2000 .. 30,000 30,000 30,000 30,000 10% AA Aug. I, 1983 .. 29,667 30,000 30,000 9k/4 BB June 15, 2006 . 50,000 50,000 8% CC Sept. 15, 2007...50,000 360,344 316,677 266,677 236,677.

Less: Series D due in 1977 6,000 Total Long Term Debt $ 360,344 $ 310,677 $ 266,677 $ 236,677 Capital Stock Preferred Stock (cumulative) Par value $ 100; 2,000,000 shares authorized: (Thoukandh)

Shares December 31, Redemption Series Outstanding 1977 1976 1975 1974.1973 (per share) (a) 4 F .120,000 $ 12,000 $ 12,000 $ 12,000 $ 12,000 105 At any time 4.10 H ..... 80,000 8,000 8,000 8,000 8,000 101 At any time 4% I ..... 60,000 6,000 6,000 6,000 6,000 101 At any time 4.10 J ..... 50,000 5,000 5,000 5,000 5,000 102.50 At any time 4.95 K . 60,000 6,000 6,000 6,000 6,000 102 At any time 4.55 M .100,000 10,000 10,000 10,000 10,000 102 Before 3/1/80 7.50 N .200,000 20,000 20,000 20,000 20,000 108 Before 6/1/79 11 0 25,000 22,000 (b) 670,000 $ 67,000 $ 92,000 $ 89,000 $ 67,000 (a) Redeemable at the option of the Company on 30 notice, plus accrued dividends in all cases.

days'inimum (b) Called for redemption on December 20, 1977. The issuance costs related to Series 0 were charged to retained earnings, and the call premium of $ 2,750,000 related to this series is reported as other deferred debits, and will be amortized beginning in January 1978 in accordance with an order from the PSC.

The Company's Certificate of Incorporation was amended on June 1, 1977 to authorize 4,000,000 additional shares of cumulative preferred stock, having a par value of $ 25 per share. None of this preferred stock has been issued.

22

Preference Stock Par value $ 1; 5,000,000 shares authorized: Note 6. Short Term Debt (Thousands) Under informal agreements with certain banks, the Company is Shares Occembcr 31, Series Outstanding 1977 Issued expected to maintain an average compensating balance of 10 7.6 A 280,000 $ 28,000 12/20/77 percent of the lines of credit plus an additional 10 percent of the principal amount of each borrowing. Under the agreements, During January 1985, the Company must offer to purchase on withdrawal of the compensating balances is not legally restricted, October 1, 1985 all of the outstanding 7.6% Series A preference and at December 31, 1977 the balances amounted to $ 4.7 shares at a price of $ 100 per share. Any holder may accept or million. Bank lines of credit aggregated $ 64 million and reject the offer. If the offer is rejected, the shares are callable at borrowings are at current floating prime interest rates. The

$ 100 per share at the option of the Company at any time after Company also issues commercial paper at various discount rates, December 20, 1987. usually maturing within 30-45 days.

Preference stock is subordinate to preferred stock but is senior to common stock. Balances and average interest rates of short term borrowings as of December 31 for the years indicated were as follows:

Common Stock Par.value $ 5; 25,000,000 shares authorized: 1977 1976 Rates Amount Rates Amount (Thousands)

Outstanding short term (Thousands) (Thousands)

Per Share Shares Amount Outstanding, December 31, 1972 .. 7,942,176 $ 124,045 debt and average 3% Stock Dividend ............. $ 24.00 238,294 5,719 interest rate at end Sale of Stock .................. 20.25 950,000 19,238 of period:

Employee Purchases ............ 19.00 25,719 489 Notes Payable ....... 7.00% $ 7,000 6.25% $ 8,000 Capital Stock Expense........... (925) Commercial Paper ... 6.63 2,000 4.76 10,051 Outstanding, December 31, 1973 .. 9,156,189 148,566 Maximum short term 3% Stock Dividend ............. 18.00 274,690 4,944 debt outstanding EmpIoyee Purchases ............ 19.00

• 5,212 99 during the period:

Automatic Dividend Notes Payable ....... $ 25,000 $ 31,500 Reinvestment Plan............ 11.88 33,299 395 Commercial Paper ... 26,500 10,051 Other Paid-In Capital ........... 829 Weighted average short Capital Stock Expense........... (75) term debt and interest Outstanding, December 31, 1974 .. 9,469,390 154,758 3% Stock Dividend ............. 11.00 284,082 3,125 rates during the period:

....... 6.76 SaIe of Stock .................. 15.375 1,000,000 15,375 Notes Payable Commercial Paper ...

6.43 5.27

$ 10,338 11,138 4.99

$ 14,385 2,267 Automatic Dividend 13.75-Reinvestment Plan............ 15.88 126,457 1,883 The above averages were based upon the end-of-month balances Capital Stock Expense........... (1,SSS) and interest rates in effect for the periods during which short term Outstanding, December 31, 1975 .. 10,879,929 173,586

............. 5,222 borrowings were outstanding and before giving effect to the 3% Stock Dividend 16.00 326,398 Automatic Dividend 15.94- additional interest cost resulting from compensating balances.

Reinvestment Plan ............ 17.19 159,784 2,626 Note 7. Commitments and Other Matters Capital Stock Expense ........... (133)

Outstanding, December 31,1976 ... 11,366,111 181,301 Company's Capital Expenditures Program. The Company's capital 3% Stock Dividend ............. 20.00 340,984 6,820 expenditures program involves an estimated expenditure of $ 125 Sale of Stock .................. 21.00 1,000,000 21,000 million, not including allowance for funds, used during 20.91 24,300 508 construction, in 1978 and the Company has entered into certain Dividend ............

TRASOP'utomatic 18.31- commitments for purchase of materials and equipment in Reinvestment Plan............ 20.94 158,236 3,071 connection with such program.

Capital Stock Expense........... (167)

Outstanding, December 31, 1977 .. 1 2)889p63 1 $ 2 1 2I533 Operations of the Company's generating stations are subject to various Federal, state and local environmental standards.

'Tax Reduction Act Stock Ownership Plan The Environmental Protection Agency (EPA) has issued National Pollutant Discharge Elimination System Water Permits for all the The Company's Certificate of Incorporation was amended on June Company's major generating facilities. A number of conditions 1, 1977 to authorize an additional 10,000,000 shares of common relating to thermal and chemical discharge limitations have been stock, par value $ 5 per share. contested by the Company.

At December 31, 1977 there were 222,224 shares of common stock reserved and unissued under the Automatic Dividend Reinvestment Plan. No other shares of common, preferred or preference stock are reserved for officers and employees or for options, warrants, conversions,- and other rights.

23

Report of Independent Accountants As a result of recent negotiations, the Company, EPA and the New York State Department of Environmental Conservation have To the Shareholders and Board of Directors of Rochester Gas and entered into agreements with respect to these matters which are Electric Corporation subject to final approval and are described below.

We have examined the balance sheets of Rochester Gas and The Company is actively pursuing resolution of the thermal issues Electric Corporation at December 31, 1973-1977, and the related by the preparation and submission of demonstrations in an effort statements of income, retained earnings and of changes in to justify less stringent efflu'ent limitations. Approval of such financial position for the years then ended. Our examinations limitations is expected to resolve the outstanding thermal issues. If were made in accordance with generally accepted auditing they are not approved, the Company could be burdened with standards and accordingly included such tests of the accounting capital expenditures estimated at $ 45 million plus significant records and such other auditing procedures as we considered operating and maintenance expenses. necessary in the circumstances.

The Company is awaiting final concurrences of regulatory Effective January 1974, the Company, in conformance with agencies to schedules and stipulations regarding attainment of accounting policy prescribed by the Public Service Commission of appropriate non-thermal effluent limitations for its generating the State of New York, changed its method of accounting for fuel facilities. ModiTications to achieve the "best practical technology" costs recoverable from customers under the fuel adjustment levels involved are expected to require capital expenditures of clauses in the Company's tariffs. The change and its effect are some $ 10.5 million over the next three years. described in Note 4 to the financial statements.

The Company believes that additional expenditures and costs In our opinion, the accompanying financial statements examined made necessary by environmental regulations will be fully by us present fairly the financial position of Rochester Gas and allowable for ratemaking purposes.. Electric Corporation at December 31, 1973-1977, the results of its operations and the changes in financial position for the years then Note 8. Interim Financial Information (Unaudited) ended, in conformity with generally accepted accounting In the opinion of the Company, the following quarterly principles consistently applied during the period except for the information includes all adjustments, consisting of normal change, with which we concur, referred to in the preceding recurring adjustments, necessary for a fair statement of the results

~

paragraph.

of operations for such periods. The variations in operations reported on a quarterly basis are a result of the seasonal nature of the Company's business. ] A)MgQ~

quarter Ended (Thousands)

Dec. 31, Sept. 30, June 30, Mar. 31, 1900 Lincoln First Tower 1977 1977 1977 1977 Rochester, New York 14604 Operating revenues ... $ 84,458 $ 67,199 $ 74,138 $ 105,349 January 27, 1978 Operating income .... 9,395 7,479 10,626 17,277 Net income .......... 444 4 61 9 7~775 14,211 Earnings on common stock .............. 4,657 3,044 6,200 12,636 Earnings per common share (in dollars).... .36 .25 .52 1.07 Dec. 31, Sept. 30, June 30, Mar. 31, 1976 1976 1976 1976 Operating revenues ... $ 88,514 $ 58,316 $ 76,199 $ 85,198 Operating income .... 11,951 8,863 11,295 12,999 Net income.......... 8,957 5,765 8,370 9,997 Earnings on common stock .............. 7,382 4,190 6,795 8,477 Earnings per common share (ln dollars).... .63 .36 .58 .73 Note 9. Replacement Cost Information (Unaudited)

The impact of the rate of inflation experienced in recent years has resulted in replacement costs of productive capacity greater than the historical costs of such assets reported in the Company's financial statements. In compliance with reporting requirements, estimated replacement cost information is disclosed in the Company's annual report to the Securities and Exchange Commission on Form 10-K.

24

~l'i~ ROCHESTER CAS AND ELECTRIC CORPORATION 1973 1974 1975 1976 1977 Electric Department Electric Revenue (000's)

$ 42,125 $ 45,354 $ 53,904 $ 61,498 $ 64,986 Residential 34,387 37,908 43,884 50,791 53,520 Commercial 27,597 30,858 33,244 39,402 41,783 Industrial 12,403 13,440 15,597 18,867 19,651 Other 116,512 127,560 146,629 170,558 179,940 Electric revenue from our customers 21,112 14,697 25,496 18,259 26,403 Other electric utilities 137,624 142,257 172,125 188,817 206,343 Total electric revenue Electric Expense (000's) 19,461 25,739 33,442 34,247 44,010 Fuel used in electric generation 8,841 12,070 12,212 18,195 13,635 Purchased electricity 28,378 32,177 35,662 40,930 45,011 Other operation 11,029 12,390 14,282 14,796 16,339 Maintenance 11,026 11,977, 12,731 13,865 15,333 Depreciation 21,281 22,784 25,369 28,543 31,530 Taxes local, state and other 100,016 117,137 133,698 150,576 165,858 Electric revenue deductions 37,608 25,120 38,427 38,241 40,485 Operating Income before Federal Income Tax 7,235 (433) 5,069 3,102 4,041 Federal income tax

$ 30,373 $ 25,553 $ 33,358 $ 35,139 $ 36,444 Operating Income from Electric Operations (000's) 49.2 57.9 55.5 57.3 57.7 Electric Operating Ratio %

Electric Sales KWH (000's) 1,468,376 1,456,335 1,530,421 1,618,314 1,660,425 Residential 1,261,697 1,226,333 1,294,816 1,366,094 1,392,023 Commercial 1,424,639 1,346,116 1,284,940 1,384,235 1,431,855 Industrial 385,243 379,379 411,122 437,097 454,059 Other 4,539,955 4,408,163 4,521,299 4,805,740 4,938,362 Electric sales to our customers 2,269,686 1,182,902 1,864,050 1,187,942 1,453,590 Other electric utilities 6,809,641 5,591,065 6,385,349 5,993,682 6,391,952 Total electric sales Electric Customers at December 31 241,032 244,063 246,613 249,177 250,121 Residential 23,436 23,827 23,874 23,983 24,023 Commercial 1,360 1,365 1,380 1,371 1,353 Industrial 1,995 2,316 2,305 2.271 2,328 Other 267,823 271,571 274,172 276,802 277,825 Total electric customers Electricity Cenerated and Purchased KWH (000's) 1,869,079 1,961;453 1,731,723 2,060,186 2,272,182 Fossil

.3,395,564 2,079,539 3,026,894 2,040,746 3,018,305 Nuclear 243,582 234,568 265,401 277,010 222,391 Hydro 57,801 131,311 98,743 118,716 193,340 Pumped storage (86,362) (192,311) (148,180) (180,317) (283r 573) Less energy for pumping 8,776 12,806 2,198 2,797 850 Other 5,488,440 4,227,366 4,976,779 4,319,138 5,423,495 Total generated Net 1,709,420 1,836,911 1,888,091 2,106,904 1,400,505 Purchased 7,197,860 6,064,277 6,864,870 6,426,042 6,824,000 Total electric energy Electric Production Costs (000's)

$ 17,951 $ 30,130 $ 32,907 $ 36,628 $ 40,317 Fossil generation 10,365 8,276 14,188 13,480 22,325 Nuclear generation 1,072 1,073 1,020 960 1,118 Hydro generation 123 (1,006) 664 (870) (1,887) Other generation Electric Department Fuel 20,331,338 20,911,993 18,388,874 21,822,976 23,862,599 Fossil Total BTU (million) 62.12- 117.05 142.18 137.42 136.92 ~ Cents per million BTU 36,683,359 22,909,968 33,128,471 23,837,620 37,822,209 Nuclear Total BTU (million) 18.62 11.28 22.91 25.69 38.04 Cents per million BTU System Net Capability KW at December 31 457,000 452,000 452,000 452,000 443,000 Fossil 420,000 470,000 470,000 470,000 470,000 Nuclear 53,100 47,000 47,000 47,000 47,000 Hydro 42,500 29,000 29,000 29,000 29,000 Other 352,000 347,000 356,000 342,000 338,000 Purchased 1,324,600 1,345,000 1,354,000 1,340,000 1,327,000 Total system net capability 922,000 880,000 925,000 934,000 987,000 Net Peak Load KW 61.0 63.3 61.7 63.8 62.0 Annual Load Factor Net %

25

RES RocHEsTER cAS AND ELEcTRlc coRPQRATIQN 1973 1974 1975 1976 1977 Gas Department Gas Revenue (000's)

$ 3,627 $ 3,809 $ 3,964 $ 4,426 $ 4,828 Residential 40,453 47,758 52,584 63,974 66,900 Residential spaceheating 10,433 12,533 13,593 16,848 I8,057 Commercial 7,648 8,583 9,167 11,900 12,014 Industrial 2,472 2,780 . 3,170 3,879 3,998 Municipal and other 64,633 75,463 82,478 101,027 105,797 Total gas revenue Gas Expense (000's) 29,923 37,342 42,247 56,192 62,086 Purchased natural gas 11,420 11,492 13,310 14,921 15,072 Other operation 4,043 4,757 4,500 4,510 5,078 Maintenance 3,615 3,978 4,137 4,194 5,140 Depreciation 7,281 7,937 8,715 9,729 10,089 Taxes local, state and other 56,282 65,506 72,909 89,546 97,465 Gas revenue deductions 8,351 9,957 9,569 11,481 8,332 Operating Income before Federal Income Tax 840 1,221 914 2,212 147 Federal income tax

$ 7,511 $ 8,736 $ 8,655 $ 9,269 $ 8,185 Operating Income from Gas Operations (000's) 70.2 71.0 72.8 74.9 77.7 Gas Operating Ratio %

Gas Sales Therms (000's) 15,141 14,903 14,328 14,404 13,833 Residential 245,368 263,290 249,224 275,582 252,923 Residential spaceheating 79,039 84,872 78,217 86,400 77,751 Commercial 78,137 73,926 65,760 72,847 59,956 Industrial 17,148 16,696 16,705 18,598 15,975 Municipal 434,833 453,687 424,234 467,831 420,438 Total gas sales Gas Customers at December 31 45,958 42,884 41,437 40,892 39,977 Residential 144,847 151,154 153,848 153,583 152p856 Residential spaceheating 11,303 11,478 11,390 11,475 11,268 Commercial 762 767 756 757 746 Industrial 865 1,024 957 936 989 Municipal 203,735 207,307 208,388 207,643 205,836 'otal gas customers Gas Therms (000's) 30,834 31,518 23,160 9,830 Purchased for reforming and mixing 422,718 438,494 421,252 478,935 428,811 Purchased for resale 6,535 7,063 7,019 7,911 10,123 Other 460,087 477,075 451,431 496,676 438,934 Total gas available 7.77II 9.50< 10.92< 14.09tt Cost of gas per therm 6.53'10,844 Total Daily Capacity Therms at December 31 410,844 269,000 Mixed gas 3,762,672 3,871,448 3,895,000 4 1 64 000 4p1 64p000 Straight natural gas 4,1 73,516 4,282,292 4,164,000 4,164,000 4,164,000 Total daily capacity 2,985,392 3,192,631 3,041,070 3 497 861 3I578 468 Maximum daily sendout Therms Degree Days (Customer Billing) 5,883 6,808 6,211 6,905 6,726 For the period (12.2) 1.3 (7.2) 1.6 (0.1) Percent (warmer) colder than normal

ROCHESTER GAS AND ELECTRIC CORPORATION 1973 1974 1975 1976 1977 Steam Department Steam Revenue (000's)

$ 3,668 $ 5,419 $ 5,668 $ 6,401 $ 6,352 Commercial 5,470 9,396 9,862 9,799 10,455 Industrial 876 1,506 1,807 2,183 2,197 Municipal and other 10,014 16,321 17,337 18,383 19,004 Total steam revenue Steam Expense (000's) 6,151 10,954 12,826 12,983 Fuel used in steam. generation 1,201 687 1,657 2p411 Other operation 816 819 918 955 Maintenance 504 536 546 580 Depreciation 1,431 1,689 2,073 2,257 Taxes local, state and other 10,103 14,685 18,020 17,632 19,186 Steam revenue deductions (89) 1,636 (683) 751 (182) Operating Income before Federal Income Tax (436) 363 (688) 51 (330) Federal income tax

$ 347 $ 1,273 $ 5 $ 700 $ 148 Operating Income from Steam Operations (000's) 81.6 76.3 88.8 80.7 86.0 Steam Operating Ratio %

Steam Sales Lbs. (000's) 1,268,917 1,160,122 980,324 1,041,415 933,609 Commercial 2,136,794 2,127,837 1,839,402 1,738,391 1,682,033 Industrial 318,323 334,463 325,727 367,553 334,645 Municipal 3,724,034 3,622,422 3,145,453 3,147,359 2,950,287 Total steam sales Steam Customers at December 31 302 292 281 271 254 Commercial 78 78 77 77 74 Industrial 30 31 31 32 32 Municipal 410 401 389 380 360 Total steam customers Steam lbs. (000's) 1~442p472 1 532 246 1 387 363 1 408 029 1p194p132 Produced by steam department 2 613 321 2 588 120 2 344 693 2 193 283 2p133p853 By-product steam from electric department 4,055,793 4,120,366 3,732,056 3,601,312 3,327,985 Total steam produced Steam Department Fuel 6,849,830 6,807,500 6,230,767 6,022,360 5,548,290 Total BTU (million) 89.80 196.31 203.08 203.35 232.60 Cents per million BTU 27

Directors Keith W.

Amish'xecuu've Vice President, Rochester Cas and Elecvic Corporation Paul W.

Briggs'resident, Rochester Cas and Elecvic Corporation John D. Cockcroftet Former Chairman of the Board, Keith W. Amish Francis E. Drake, Jr. A. J. McMullen The R. T. French Company Wilmot R. Craig Former Chairman of the Board, lincoln First Banks Inc.

E. Kent Damon Vice President and Secretary, Xerox Corporauon Francis E. Drake, of the Board and Chief Executive Officer, Jr.'hairman Rochester Gas and Elecvic Corporation J. Wallace Ely't Chairman of the Board, Security New York State Corporation Walter A. Fallon Paul W. Briggs J. Wallace Ely Paul A. Miller Chairman of the Board and Chief Execuuve Officer, Eastman Kodak Company Ernest J. Howeet Chairman of the Executive and Finance Commigee, Rochester Cas and Elecvic Corporauon Daniel G. Kennedyet Partner, Nixon, Hargrave, Devans 4 Doyle A. J. McMullen Chairman of the Executive Committee, Carlock Inc.,

and Director of the parent company, Colt Industries, Inc.

Paul A. Miller President, Rochester Institute of Technology John D. Cockcroft WaIter A. Fallon Edward J. Nelson Edward J. Nelson Former President, Rochester Cas and Elecvic Corporation William S. Vaughn't Former Chairman of the Board, Eastman Kodak Company William G. vonBergt President and Chief Execuuve Officer, Sybron Corporation

'Member of the Executive and Finance Committee d the Company thcember of the Audit Comminee of the Board of Directors Wilmot R. Craig Ernest J. Howe William S. Vaughn E. Kent Damon Danid O. Kennedy William G. vonBerg 28

h h

l h Officers i

1 Francis E. Drake, Jr.

Chairman of the Board and Chief Executive Officer Age 62, Years of Service, 40 3 Paul W. Briggs President Age 55, Years of Sewice, 32 2 Keitll)W. Amish Executive Vice President Age 54, Years of Service, 30 17 John L. Kennedy Vice President, Rates and Covemmentaf Affairs Age 59, Years of Service, 37 5 .John E. Maier Vice Prei ident, Employee Relations Age 50, Years of Sewice, 30 13 Richard J. Rudman Vice President, Electric Transmission and Oisuibution Age 50, Years of Service, 32 6 Harry G. Saddock Vice President, Electric System Planning and Operation Age 48, Years ol Sewice, 27 9 Mar'io Silvestrone i

I Vice, President, Consumer Sewices,

)

Corporate Communications and Purchasing Age 54, Yea~s of Sewice, 27 Il! I J 10 Elviri $ . Skibinski

'Vice President, Cas and Transportation Age 64, Years of Sewice, 31 'h 8 11 Leon D. White, Jr.,"

Vice President, Electric and Steam Producuon.

58, Years of Servfce,"40

'ge 10 14 Deari W. Caple .'

'Secietary and Tfeasurer Age 54, Years of Sgwice, 29 h

16 Francis A. Sullivan, Jr.,

Controller Age 54, Years of Sewice, 27 13 12 12 Robert W. Ball u

Assistant Treasurer 17 Age 61, Years of Service, 39 B David C.'eiligman Assistant Secretary hh I Age 37, Years of Service, 14 4 Robert C. Henderson Assistant Conuoller Age 37, Years of Service, 14 h

7 Stephen Kowba Assistant Conuoller Age 58, Years of Sewice, 27 h

15 John M. Kuebel Auditor Age 42, Years of Sewice, 13

Rochester Gas and Electric Corporation 89 East Avenue Rochester, New York 14649