Text

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)
	v • d • e

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Principal Office 89 East Avenue Rochester, New York 14649 1716) 546-2700 Financial Contact Paul W. Brlggs President Annual Meeting May 17, 1978 At Rochester, New York New York Stock Exchange Symbol Rochester Gas and Electric Corporation Common StockRGS 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 30 West Broadway New York, New Yoik 10015 Co.registrar The Chase Manhattan Bank (National Asso One Chase Manhanan Plaza New York, New York 10015 York elation)

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 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 Financial Statements/Operating Statistics 15 Directors 28 Officers ffnsfde back cover) 0 g V z4 Weri Annual Report for year ended December Oci o

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0 col 3T; 1977 P Shareholder Inquiries Communications regarding stock transfer requirements, lost certificates or dividend payments may be directed to Lincoln First Bank of Rochester.

Other inquiries should be directed to D. W. Caple, Secretary and Treasurer at the Company.

The Company willprovide, without charge, a copy of the Annual Report on Form 10-K filed with the Securities and Exchange Commission with respect to fiscal year 1977, upon written request of any shareholder addressed to the Secretary.

A fullcolor 11' 14'rint of our cover photo, suitable for framing and without caption, is available upon request without charge. Write:

Rochester Gas and Electric Corporation Department 34 89 East Avenue Rochester, New York 14649

% Change (5) 4 4

13 10 22 45 (10) 5 (6) 3 1976

$2.30 11,634 11,983 11,366 40,153 High Low 1'7'5'/z 16/s 15'/s 18'/s 15%

19'/s 17

$.32

.32

.32 3%

4,805,740

$ 170,558 1,187,942

$ 18,259 467,831

$ 101,027 3,147,359

$ 18,383 1977

$2.19 12,111 12,474 12,890 44,135 High Low 20%

17/4 20% '8 21'/s 19/s 21%

19Vs

$.32

.32

.35

.35 3%

4,938,362

$179,940 1,453,590

$ 26,403 420,438

$'I05,797 2,950,287

$ 19,004 Highlights Common Stock Earnings per weighted average share Number of shares (000's)

Weighted average Pro forma weighted average after stock dividend paid in following year (See Note)

Actual number at December 31 Number of shareholders Price range (Sales on New York Stock Exchange) 1st quarter 2nd quarter 3rd quarter 4th quarter Cash dividends paid (100% taxable) 1st quarter 2nd quarter 3rd quarter 4th quarter Stock dividend paid (See Note)

Sales and Revenue Electricity to customers Kilowatt-hours (000's)

Revenue (000's)

Electricity to other utilities Kilowatt-hours (000's)

Revenue (000's)

Gas Therms (000's)

Revenue (000's)

Steam Pounds (000's)

Revenue (000's)

$308,227

$331,144 Total revenue 23 (25) 10 7

12

$ 46,361 18,195 56,192 47,097 30,786

$ 56,993 13,635 62,086 50I318 34,548 Operating Expense (000's)

Electric and steam fuels Purchased electricity Purchased natural gas Wages and benefits Other expense 10

$ 198,631

$217,580 Total operating expense 8

(20) 25 4

$ 40,502 5,365

$ 67,162 13,829

$649,611 2,644

$ 43,876 3,858

$ 83,641 14,450

$722,780 2,624 Taxes (000's)

Local, state and other Federal income tax charged to operations Capital Expenditures (000's)

Utilityplant, less allowance for funds used during construction Nuclear fuel Net UtilityPlant at December 31 (000's)

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.

Inadequate rate relief and minimal industrial and commercial expansion combined to produce a year where little growth evidenced itself.

Common stock earnings for the year totaled $26.5 million, down $ 307,000 from 1976. Earnings per share on common stock were $2.19, five percent less than the 1976 earnings of $2.30. The 1977 earnings per share figure includes the dilution resulting from the September 1977 sale of one million shares of common stock.

Total revenue from electric, gas and steam sales, including sales to other utilities, was $331.1 million, up 7.4 percent from the $308.2 million combined revenue in 1976. Excluding sales to other utilities, our customer revenues rose by $ 14.8 million to a total of

$304.7 million. Of the increase, about $8.0 million was a direct result of rate increases granted in April 1976 and November 1977.

Electric sales to customers in 1977 totaled 4.9 billion kilowatt-hours (KWH) which were 2.8 percent more than the 4.8 billion KWH sold in 1976. This moderate increase in electric sales was lower than anticipated and reflects both customer conservation and the influence of a relatively flat economic environment.

Electric sales to other utilities showed a sharp increase of 22 percent, going from 1.2 billion KWH in 1976 to 1.5 billion KWH in 1977. This was made possible by the impressive 86 percent availability performance of our Ginna nuclear power plant that allowed us to sell surplus coal-fired generation to other utilities.

Natural gas deliveries declined 10.1 percent in 1977 to 420.4 million therms as compared with 467.8 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 million in electric and $ 7.0 million in gas revenue-the minimum we calculated would be required to meet rising operating costs.

In November 1977, followingthe full 11-month statutory hearing process, the Public Service Commission (PSC) virtually echoed its April 1976 decision and granted us only half of the electric request and 35 percent of the gas. The Company was permitted to raise electric rates by $ 10.2 million and gas rates by $2.5 million. In February 1978, the Company was allowed an additional $3.7 million annually in consideration of certain wage and tax payments that could not be determined at the time of the initial decision. This brought the total increase granted to 60.5 percent of the amount RG8(E had requested.

Knowing that these inadequate rates would force us to quickly file again for general increases and proceed once more through the lengthy hearing period, we petitioned for a rehearing of major issues in the case on December 1, 1977. The PSC denied that petition, and this will compel us to again file for general rate increases in the spring of this year.

This piecemeal approach that the PSC has adopted with regard to rate matters promotes significant expenses and will only serve to increase long-term costs for customers while jeopardizing the high levels of service they have come to expect from RG8 E.

One valuable customer service that had been offered since the turn of the century has already been lost. In 1971, the PSC restricted our practice of promoting appliance sales through advertising. As a result, sales dropped off. The recent PSC rate decisions forced

action and, regretfully, we felt compelled to discontinue the Appliance Sales Department effective December 31, 1977.

Total capital expenditures in 1977 were $ 98.1 million, exclusive of Allowance for Funds Used During Construction (AFDC). More than $35 million of the total was spent for new electric generation capability.

This included $3.6 million for licensing efforts in connection with the Sterling nuclear unit to be built by RGRE. Another $9.7 million was allocated for a 24 percent share of Niagara Mohawk's 850 MWoil-fired unit now under construction at Oswego and scheduled for operation in 1979. The Company's 14 percent share of Niagara Mohawk's 1,084 MW nuclear power plant under construction at Nine Mile Point cost $22.1 million. That plant is now scheduled to be operating in 1983.

In a January 1978 decision, after nearly four years of licensing procedures, the New York State Board on Electric Generation Siting and the Environment granted permission, subject to certain limitations, to construct our proposed nuclear power plant at Sterling, New York. We previously received a construction permit from the Nuclear Regulatory Commission in a September 1977 decision.

The long-awaited approvals are major milestones for the Company and our customers. The Sterling plant willensure our ability to meet future electric requirements and will save customers more than a hundred million dollars a year in fuel costs alone over a comparable fossil-fired plant.

Regulatory delays in the licensing process forced us to miss the planned Sterling construction start in the fall of 1977. Also, there are still some issues that have to be resolved before we can start construction. We are hoping that ground preparation can begin in the fall of 1978, with major construction to get underway in 1979. Because of the delays, the Sterling plant is now scheduled for commercial operation in 1986. It is only coincidence that electric conservation and a soft economy have tempered increases in demand'to the point where even with this delay we expect to be able to meet electric requirements in the mid-80's and beyond.

In September 1977, the Company sold directly to the public an additional one million shares of common stock that produced $ 21 million in capital. At the same time, in competitive bidding, the Company sold

$50 million in 8/s percent Series CC first mortgage bonds. Proceeds from these sales were used to defray capital costs and pay off $48.8 million in short-term debt.

In December 1977, the Company refunded all 250,000 shares of its 11% Preferred Stock, Series 0 at a redemption price of $ 111.00 per share. The refunding was accomplished through the issue of a 7.60% Preference Stock, Series A, which is junior to the Preferred. The refunding improved the financial condition of the Company and will provide a reduction in its cost of money.

The Automatic Dividend Reinvestment Plan (ADRP) continued to gain popularity in 1977 with 16.8 percent of shareholders participating. The participation represented 11.8 percent of all.common shares outstanding. The total investment, including optional cash payments, was $3.1 million as compared with the $2.6 million invested in 1976, and

$ 1.9 million in 1975. In 1977, 158,000 shares were issued under ADRP.

The Company also established a Tax Reduction Act Stock Ownership Plan (TRASOP) for its employees in 1977. The initial contribution to the TRASOP Trust fund, which was financed by the one percent investment tax credit against 1976 Federal income tax, consisted of 24,300 shares of common stock.

Employees have received approximately one-half share for every thousand dollars earned during 1976.

We continued our support for the Empire State Power Resources, Inc. (ESPRI) proposal, and were somewhat encouraged by a recommendation from an administrative law judge to the PSC in January 1978.

The ESPRI proposal, through special financing, plus unified power plant licensing, construction, and operation, could save RG8 E customers as much as a billion dollars through 1998.

Again, RG&E had the lowest number of service complaints per 100,000 customers of any New York State utilityas recorded by the PSC. Such a record could only have been achieved through the outstanding efforts of our employees.

While we had a flat year in 1977, we do anticipate there will be an increase in energy use in our service

- area during this coming year. For 1978, we are estimating a 4.6 percent increase in electric consumption and a 1.9 percent increase in gas. There is already tangible evidence of a pickup in industrial growth. Rochester Products Fuel Systems Division of General Motors Corporation is completing construction on a new manufacturing facility.

Construction is progressing on Monroe County's

Refuse Recycling Facility that is scheduled for operation in 1979 and from which RG&E will purchase refuse derived fuel for use at Russell Station.

Genesee Brewing Company is embarked on a long-term, $40 million expansion program, and Eastman Kodak is planning to spend $ 183 million locally in 1978 for plant expansion and improvements.

As for natural gas, the addition of new customers, coupled with expanded use in commerce and industry, will produce a gradual climb in volumes delivered.

Taxes, fuels, materials, supplies and other operating costs willcontinue to rise. Local, state and other taxes will increase an estimated

$3.4 million in 1978. The February 1978 wage adjustment, together with merit and promotional increases, will increase payroll by

$4.7 million.

From a conservative point of view, considering increased costs of operation, customer conservation, a

slowly recovering economy, and inadequate rate relief, 1978 may be a year for only modest growth in earnings.

Capital expenditures in 1978, including AFDC, have been forecasted to amount to $ 119.7 million for property and equipment, plus $ 19.3 million for nuclear fuel.

Our 1978 plans call for raising capital through the sale of $62 million of bonds, $3.6 million ADRP shares of common stock, and $20.5 million in short-term debt.

Francis E. Drake, fr.

Chairman of the Board and Chief Executive Officer Paul W. Briggs President March 1; 1978 The EL PASO CONSOLtDATEDis one ofnine supertankers that willtransport liquefied natural gas from Algeria to Consolidated Gas Supply Corporation's Cove Point receiving station on the Chesapeake.

The 92 l-foot tanker carries the equivalent of2.6 billioncubic feet ofgas-enough to heat 14,000 homes for a year. RG&E's gas supply willincrease due to theimports.

The balance of funds to finance construction is expected to be supplied by internal cash flow.

RG&E is in sound financial position and we intend to continue to provide an attractive return on shareholder investment as evidenced by the july 1977 annual cash dividend increase from $ 1.28 to $ 1.40 a share.

The Rochester-Monroe County region has consistently represented one of the more attractive and stable economic areas in New York State. There is growth within our nine-county service territory, and we expect it to continue. Economic progress and development may accelerate dramatically ifthe State Legislature follows through on its promises to improve the State's business and economic climate. We are preparing to meet that growth.

Sincerely,

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.

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> XOOD0000000 awe RC&E executives and plant operators display a sign that tells about the 20 billion kilowatt-hours ofelectricity 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 willown 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 almost continuous operation of the plant in 1977. It supplied the major share of RG8cE's own system load, saving customers

$25 million in fuel costs. A newly designed turbine rotor will be installed at Ginna during the annual shutdown for refueling, inspection and maintenance in 1978, and the plant will regain its design rating of 470 MW net.

Distribution Work was completed on the crosstown 115 KV underground pipe-cable that.will accommodate future growth in the City and improve reliability. The underground cable route through the City was chosen so that it would be available to feed a planned major substation addition that will be needed to supply the growing eastside system loads.

In response to industrial and commercial growth, a 115 KV line has been extended to the City's far westside. Additional capacity has been installed to Kodak Park Works.

Outlying districts in the Company's service area have been experiencing increases in electric demand, largely due to space heating and a spread of recreation and campsites. To meet the demand, the Company has accelerated its construction of 34.5 KVdistribution facilities in the Cenesee District, south of Rochester.

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Solar collectors tap the sun's thermal energy on the back roofofthe new Canandaigua.Finger Lakes District Office building.

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IP The 1977 construction stan on Monroe County's Refuse Recycling Plant was one ofmany signs of pending industrial and commercial growth in the Rochester area.

Rail Right-of-Way In December, RCatE purchased 52 miles of railroad bed from the trustees of Penn Central Railroad. The $ 1.8 million acquisition willfacilitate 115 KV power distribution to the Lake Shore District east of Rochester. The ability to construct transmission lines on an established corridor without complex easement negotiations and interference with normal land use is a distinct economic advantage and is in keeping with the Company's concern for the environment.

Power Pool Data Link A systems operations computer has been installed in the control room at the Electric Load Dispatch Center that enables direct data link with the New York State Power Pool control room, and through the Pool to other utilities in the system. Current status information is instantaneously coordinated and displayed on visual readout screens for increased system reliability.

New Home for Canandaigua Operations The Canandaigua-Finger Lakes District office, southeast 'of Rochester, has been relocated to a new building adjacent to the original office structure. Space heating in the new offices is being assisted by thermal energy collected from solar panels on the roof. Costs and benefits of the system are being monitored as part of our research and development in solar heat. The old office building is being retained for conference rooms and storage.

RC&E System Capability and Electric Loads Thousands of Kilowatts 4

Total Capability cs Total Capability Forecast

--,Required Capability lLoad plus icquired reserve)'a Peak Loads Actual gs Peak Loads Foiecast

<<The most recent generating unit added to the RCtSE system was the Cinna nuclear plant which was completed in 1970, at approximately onc-sixth of the present cost ofa comparable unit. it is estimated that the plant has saved customers more than S 135 millionin fuel costs alone during its operating lifetime, and itprovides elecuicity at the lowest total cost olany steam generating unit on our system.

This low.cost generating capacity willcontinue to bcnelit RC8 E customers.

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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 fullyoperational 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

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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 ofthe reuofit experiment in gas conservation and efficiency.

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effective, the retrofit option will be available to all our gas space heating customers through trained and reputable contractors.

Other Programs Along with its own experimental conservation programs, RC&E is cooperating in the American Gas Association's Space Heating Efficiency Improvement Program and with the New York Cas Group's study of

'as appliance operation, efficiency and safety.

Electric Kilowatt-Hour Sales to our Customers by Classes millions 1.

1500 I

1000 0 500 0,

1500 0210 Total Electric KWH Sales In Millions Year Total 1977 4938 1976 4806 1975 4521 1974 4408 1973 4540 1972 4292 1971 3982 1970 3802 1969 3578 1968 3280 Customer applications for new gas space heating service flooded the Company following approval of RG&E's request to li% the 1975 new customer prohibition on gas use.

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1500 1000 500 0 s ial on a limited and controlled basis.

The PSC granted the request in November, thereby ending the 34-month period during which RG8 E had been unable to accept any new customers.

By March 1978, we had already received more than 1500 applications for new gas service.

Retrofit Conservation RC &E has instituted an experimental conservation and energy efficiency program in which a number of residential gas space heating customers have had their gas furnaces derated through retrofitting. Preliminary results indicate substantial savings for the customer.

Historically, furnaces have been oversized to ensure they would handle any contingency. Such oversizing is not conducive to the highest efficiency.

In the retrofit process, local heating contractors trained by RG&E adjust the furnace capacity in a safe and economic manner to more closely match the heating requirements of the house.

Preliminary results are expected to be compiled in 1978. If the experiment proves to conserve gas, provide comfort and be cost RC&E employees gained another benefit in 1977 with the TRrtSOP program ~here each employee became a shareholder.

Research and Development RC&E invested more than $2.5 million in research and development projects in 1977.

More than half was allocated to research and development organizations the Company supports including: the Electrical Power Research Institute, a national organization of electric utilities; the Empire State Electric Energy Research Corporation, a state-wide organization; and the New York State Energy Research and Development Authority, a branch of State government.

Additionally, the Company joined the newly formed Gas Research Institute (CRI), an independent organization administered by educators, government officials and gas industry representatives.

GRI is charged with guiding research and development in gas conservation, supply and efficiency.

rive olhÃlW 1968 69 70 71 72 73 74 75 76 77 Gas Therm Sales to our Customers by Classes millions 1

a 150 0 100 00 0

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Other 1968 69 70 71 72 73 74 75 76 77 Total Gas Therm Sales In Millions Year Total 1977 420 1976 468 1975 424 1974 454 1973 435 1972 469 1971 442 1970 425 1969 403 1968 374

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The Company has its own research and development projects that study optimum insulation levels, heat pump operation, and the previously mentioned furnace modifications under the retrofit program. One project of particular note is RC&E's program with Monroe County whereby the Company will use refuse derived fuel from the County's recycling facilityto help fire boilers at Russell Station.

Construction on the Rochester Institute of Technology (RIT) Energy House has been completed.

Through direct funding of research and providing professional assistance, RG&E has been instrumental in promoting this project. Energy House is a joint project of RG&E, RIT and Rochester Home Builders Association. The house is being tested under actual living conditions to determine the effectiveness of the solar-assisted opposite page, top Sponsored by RC&E, RITand Rochester Home Builders'ssociation, the completed Energy House collects thermal energy in the midst ofa Rochester winter.

bottom left RC&E engineers look over specifications in the dining room of the 1800 square foot, three bedroom home.

bottom right The engineers review the solar-assisted heat pump system in the Energy House basement.

RC&E's Howard Rowley (left) chats with /ohn D Rockefeller illand Iroquois Chief Oren Lyons.

Rowley received the prestigious Rockefeller Public Service Award for his mediation workin Indian negotialions at Wounded Knee, S.D. and Eagle Bay, N.Y.

heating systems and othe'r energy-efficient devices.

RC&E supports viable research projects that are directed toward providing clean energy for the future at the most reasonable cost.

By the end of 1978, it is expected that the Company will be directly involved in more than 40 research and development projects.

Management Appointment Richard J.

Rudman was elected to the position of Vice President, Electric Transmission and Distribution by the board of directors effective August 1, 1977. He succeeded Granger E. Green who retired after 41 years of service.

Mr. Rudman joined RG&E in 1945 as an apprentice in electric substations and subsequently held a series of engineering positions. In 1968 he was named assistant superintendent of the electric transmission and distribution division, and became superintendent in 1970.

Robert R. Koprowski On December 30, 1977 Robert R. Koprowski died at the age of 54. He had been Vice President, Engineering and Construction, and was nationally recognized for his efforts and guidan'ce in creating the Standardized Nuclear Unit Power Plant System that will be used at our Sterling plant. His death was a loss to the Company, the community and the utilityindustry.

Alexander M. Beebee A pioneer of RC&E died June 1, 1977 at the age of 84. Alexander M. Beebee joined RC&E in 1916 as an engineer, having worked summers at the Company whileenrolled at Cornell University.

He gained the respect of his fellow workers from the old coke ovens where he started his career to the executive offices. In his 41 years with the Company he worked his way from cadet engineer to chairman of the board. Mr.

Beebee made outs-tandingg contribu-tions to the Company and the community.

Electric Generating Projects Plant Net Estimated Megawatt Year of Total Project Capability Operation Cost (1)

Millirxrs d Dollars RG8 E's Share Estimated Construction Cost (1)

Megawatts Percent 1978 Total Millionsot Dollars Oswego Unit 0'6Oil (2)..............

850 1979

$ 252.7 (4) 204 Nine Mile Point Nuclear Unit r)t2 (2).....

1084 1983 1089.8 (5) 150 Sterling Nuclear (3)....................

1150 1986 1142.7 (6) 322 24 14 28

$ 11.1

$ 60.6 25.5 152.6 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 Kilowatt Hours Customers Per Employee 0000 4 000 3000 1

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175 150 120 100 I'I0 IIO 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 I690 1.61 1500 1.50 1.00 I43 I.'I3 143 1.33 500

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'rttdiosted lor normalized weather by degree days.

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 12

Source of Revenue Dollar in Cents RG&E Production Costs Per Kilowatt-Hour in Cents 5411 Electric Revenue 32/

Cas Revenue 2.00 6

Steam Revenue 1.80 1.60 Electric Sales to Other Utilities 1.40 14(L 40(

Use of Revenue Dollar in Cents Cost of Fuels Elecuic (S Steam Fuels

Purchased Cas

Purchased Elecuicity 7tt Depreciation Taxes 1.20 1.00

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

Reinvested Earnings Misc. Materials & Services

.0 1969 tt BeCbCC StatiOn (GO)frO't fired (90 MW) gl RuSSell StatiOn (CO2(-fired 2(rO MlV) zs Weighted Average Cost tt Cinna Station (Nrrdear 470 Ml)S (3 Hydro Efccuic (47 MwMa)i 70 71 72 73 74 75 76 77 300 250 200 222.5 Capitalization in Millionsof Dollars 350 2))A 2)rA 121.1 2)rA 24)A 24X)

)11 A 249 1 24)A D Long.Term Debt a

Common Shareholders'quity ct Preferred Equity 150 142.5 50 l

I 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 13

Customer Revenue (estimated) from Rate increases Fuel cost adjustment Sales of KWH.

Other Total Change in Customer Revenue Electric Sales to Other Utilities....

Total Change in Electric Revenue..

Increase or (Decrease) from Prior Year 1977 1976 rfhouknndk of Dollnrk)

. $ 5,312

$ 8,449 410 9,395 3,523 6,051 137 34 9,382 23,929 8,144 (7,237)

$ 17,926

$ 16,692 Total revenue from electric customers increased

$9.4 million in 1977 and $23.9 million in 1976. Effective November 11, 1977 the Company received approval to increase electric rates $ 10.2 million annually. Previously rates increasing revenue $ 1'I million annually were approved in April 1976.

Electric kilowatt-hour sales to our customers increased 2.8 percent in 1977 and 6.3 percent in 1976. Both 1977 and 1976 showed increased consumption in the residential, commercial and industrial sectors. The increase in 1976 was attributable to an improved economy, new electric heating customers and colder weather during the heating season.

The moderate 1977 increase reflected mainly additional electric heating customers offset by conservation and a relatively flat economy.

Revenue from electric sales to other utilities increased

$8.1 million in 1977 and decreased

$7.2 million in 1976.

Fluctuations in electric sales to other utilities and in purchased electricity discussed under Expense below generally are related to the availability of electric generation from the Ginna nuclear plant. Generation at the Ginna nuclear plant was not available for sale during 51 days of 1977, 145 days of 1976 and 78 days of 1975.

Changes in Gas Revenue Customer Revenue (estimated) from Rate increases Gas cost adjustment Weather effects Sales of therms Other Total Change in Gas Revenue.....

Increase or (Decrease) from Prior Year 1977 1976 (Thou$6ndk of Oolbrk)

. $ 2,683

$ 2,460 12,475 9,266 (12144) 41488 (7,631) 2,297 (1,613)'8

$ 4,770

$ 18,549

'Includes $ 1.6 million as a one. lime $ 10 reduction lo the February 1977 residential heating bills.

Management's Discussion and Analysis of the Statement of Income The followingfinancial review discusses major changes that affected differences in Net Income, between 1977/1976 and between 1976/1975, as reported in the Statement of Income on page 16 of this report. The Notes to Financial Statements on page 19 of this report contain additional information that relates to this discussion.

Revenue Changes in Electric Revenue Customer Revenue (estimated) from Rate increases Fuel cost adjustment Weather effects Sales of Ebs. of steam Other Total Change in Steam Revenue...

Increase or (Decrease) from Prior Year 1977 1976 (thoukandk of Dolbrk)

960 1,824 (109)

(198) 977 (997)

(796)

(8) 14 621

$ 1,046 The modest 3.4 percent increase in steam revenue for 1977 is a reflection of higher fuel cost adjustment revenue. A steam rate increase designed to raise annual revenue

$2.5 million was approved in April 1975.

Expense Changes in Operation and Maintenance Expense Electric and steam fuels........

Purchased electricity.

Purchased natural gas Other operation Maintenance Total Change in Operation and Maintenance Expense Increase or (Decrease) from Prior Year 1977 1976 0houkandk of Ool4 2k)

$ 10,632 93 (4,560) 5,983 5,894

'1 3,945 4,817, 7,048 2,166 506

$ 18,949

$27,575 The 1977 increase in electric and steam fuels expense was mainly due to an increase in electricity generated in 1977 and an increased fuel cost per kilowatt-hour generated by nuclear fuel. The purchased electricity expense decrease in 1977 reflects decreased kilowatt-hour purchases netted against a relatively modest increase in the cost per kilowatt-hour. In 1976 an 11.6 percent increase in kilowatt-hour purchases and a 33.5 percent increased cost per kilowatt-hour caused a rise in purchased electricity expense.

Purchased natural gas expense increased in both periods. In 1977 a decrease in consumption due mainly to conservation partially offset higher pipeline rates. The Total gas revenue increased by $4.7 million in 1977 and

$ 18.5 million in 1976 principally due to higher gas cost adjustments in both periods, the effects of rate relief and colder than normal weather during the fourth quarter of 1976. Therm sales for 1977 were down 10.1 percent from 1976 attributable mainly to customer conservation and gas restrictions. The Company received approval of new gas rates effective in November 1977 increasing revenue

$2.5 million annually. Previously, rates increasing revenue

$5 million annually were approved in April 1976.

Revenue changes from weather effects, on a degree day basis, resulted from 2.6 percent warmer weather in 1977 than in 1976 and 11.2 percent colder weather in 1976 than in 1975.

Changes in Steam Revenue

increase in 1976 was principally due to increased consumption because of colder weather.

Other operation and maintenance expenses increased

$7 million in 1977 and $ 7.6 million in 1976 largely as a result of higher wages and employee benefit costs in both periods, increased maintenance in 1977 and the higher cost of materials and supplies in 1976.

Changes in Taxes Taxes local, state and other increased

$3.4 million in 1977 and $4.3 million in 1976, principally due to higher property taxes resulting from the addition of new plant, increased property tax rates, and higher franchise and gross income taxes based on increased revenues.

Financial Statements Income 16 Balance Sheet 17 Changes in Financial Position 18 Retained Earnings 19 Notes to Financial Statements 19 Report of Independent Accountants 24 Operating Statistics Electric Department 25 Gas Department 26 Steam Department 27 Changes in Federal Income Tax Increase or (Decrease) in Tax from Prior Year 1977 1976 IIIeusands d Oolian)

(862)

$ 2,982 (3,645) 156 (507)

(1,320) 427

$ (1,755)

Change in Iax resulting from difference, in pre(ax income...

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........

Other Total Change in Federal Income Tax........

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 was due to increases in utilityplant expenditures in both periods. The rates used to capitalize allowance for funds used during construction were: January 1, 1976 to April 30, 1976, 8'/4%; and effective May 1, 1976, 8/+%.

Interest on long term debt increased

$3.2 million in 1977 and $2.4 million in 1976 reflecting additional'bonds issued in September 1977 and June 1976.

The 1976 decrease of $ 1 million in other interest reflects mainly interest on contract payments for jointly-owned generating facilities amounting to less than $.1 million in 1976 as compared with almost $ 1 million in 1975.

Preferred stock dividends increased

$2.2 million in 1976 because of additional preferred stock issued in October 1975, which was subsequently redeemed in January 1978.

Rate Increases Cranted Class of Service Electric Gas Steam Effective Date of Increase October 25, 1972 October 23, 1974 April 20, 1976 November 11, 1977 February 18, 1978 April 28, 1972 October 23, 1974 April 20, 1976 November 11, 1977 February 2, 1978 May 11, 1972 November 12, 1973 April 15, 1975

$ 10,154 11.5%

17,992 16.0 11,002 7.9 10,186 5.8 3,000 1.6 3,676 6.8 4,854 7.6 4,983 6.3 2,536 2.4 678

.6 897 11.4 500 5.1 2,475 12.0 7.96%

12.00%

8.83 13.19 9.35 13.50 9.31 12.80 9.31 12.80 7.77 12.00 8.42 12.09 9.35 13.50 9.31 12.80 9.31 12.80 6.48 7.25 8.69 Amount of Rate of Rate of Increase Percent Return on Return on (Annual Basis) of Rate Base Equity (000's)

Increase Authorized Authorized 15

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

$ 116,512

$ 127,560

$ 146,629

$ 170,558

$179,940 64,633 75,463 82,478 101,027 105,797 10,014 16,321 17,337 18,383 19,004 Revenue(Notes 1 and 4)

Electric Gas Steam 191,159 219,344 246,444 21,112 14,697 25,496 289,968 304,741 18,259 26,403 Electric sales to other utilities 212,271 234,041 271,940 308,227 331,144 25,612 8,841 29,923 40,999 15,888 121,263 15,145 29,993 7,639 36,693 12,070 37,342 44,356 17,966 148,427 16,491 32,410 1,151 46,268 12,212 42,247 50,629 19,700 171,056 17,414 36,157 5,295 46,361 18,195 56,192 57,677 20,206 198,631 18,621 40,502 5,365 56,993 13,635 62,086 62,494 22I372 217,580 21,053 43,8/6 3,858 Expense (Notes 1 and 4)

Electric and steam fuels Purchased electricity Purchased natural gas Other operation Maintenance Total operation and maintenance expense Depreciation Taxeslocal, state and other 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 447 1,741 3,574 7,531 (173)

(613)

(1,264)

(2,853) 715 670 537 1,128 11,317 (4,844) 1,310 Other Income and Deductions Allowance for funds used during construction (Note 1)

Less: Portion applicable to borrowed funds Other 989 1,798 2,847 5,806 7,783 39,220 37,360 44,865 50,914 52,560 Income before Interest Charges 13,738 1,246 103 (173) 14,965 16,963 2,255 1,568 210 1,227 (613)

(1,264) 19,378 1,054 246 (2,853) 22,542 1,319 494 (4,844)

Interest Charges Long term debt Short term debt Other 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)

At December 31 JERE ROCHESTER GAS AND EEECFRIC CORPORATION 1973 1974 1975 1976 1977 Balance Sheet m

$453,484

$485,889

$516,199 149,399 156,951 160,322 16,008 16,468 16,883

$551,724 158,386 17,577

$609,387 162,946 17,442 ASSETS UtilityPlant, at original cost (Note 1)

Electric Gas Steam 618,891 659,308 693,404 727,687 789,775 111,401 34,965 4,234 125,941 37,114 4,590 142,046 38,365 5 044 158,216 34,967 5,595 184,746 38,448 5,928 LessAccumulated depreciation and amortization Electric Gas Steam 150,600 167,645 185,455 198,778 229,122 468,291 24,542 492,833 5,434 22,239 3,791 7,008 510 491,663 39,324 530,987 1,834 7,458 25,354 8,912 10,105 849 507,949 79,381 587,330 1,871 7,247 24,217 12,292 9,383 657 528,909 120,702 649,611 1,911 6,429 33,806 10,836 9,373 646 560,653 162,127 722,780 1,947 6,617 30,332 10,787 9,724 927 Construction work in progress Net utility plant Investment in subsidiary, at equity Current Assets Cash (Note 6)

Accounts receivable Materials and supplies, at average cost Fossil fuel Construction and other supplies Prepayments 38,982 52,678 53,796 61,090 58,387 1,981 2,893 2,477 3 737 1,999 2,308 3,739 1,403 2,651 3,452 2,048 3,348 6,338 5,574 Deferred Debits Unamortized debt expense Deferred fuel cost (Note 4)

Other (Note 5)

$237,382

$267,348

$267,314 67,000 67,000 89,000 148,566 52,184 154,758 53,568 173,586 60,502 4,874 8,213 7,450

$536,689

$593,712

$650,447 8,151

$720,763

$311,395 92,000 181,301 67,812 15,260

$798,374

$361,022 67,000 28,000 212,533 70,819 Total CAPITALIZATIONAND LIABILITIES Capitalization (Note 5)

Long term debt Preferred stock Preference stock Common shareholders'quity Common stock Retained earnings 200,750 208,326 234,088 249,113 283,352 Total common shareholders'quity 12,909 8,922 4,657 1,763 840 21,000 21,500 11,028 2,428 6,767 1,909 820 14,544 6,505 6,100 2,005 1,058 18,051 6,000 18,153 2,959 6,306 2,203 980 9,000 18,635 4,610 7,355 2,388 825 505,132 542,674 590,402 652,508'39,374 Current Liabilities Short term debt (Note 6)

Long term debt due within one year Accounts payable Taxes accrued, including income taxes Interest accrued Payroll accrued Other 29,091 783 1,683 43,952 1,126 5,960 51,712 1,268 7,065

$536,689

$593,712

$650,447 54,652 1,045 12,558

$720,763 42,813 954 15,233

$798,374 Reserves and Deferred Credits Accumulated Deferred Income Taxes (Notes 1 and 3)

Commitments and Other Matters (Note 7)

Total

1973 Year Ended December 31 1974 1975 1976 1977 JK~~%

ROCHESTER GAS AND ELECTRIC CORPORATION Statement of Changes in Financial Position rrl

~~o II. I 15,145 6,829 915 (447) 397 16,491 2,584 (3,737) 4,277 (1,741) 577 17,414 7,591 (2) 1,105 (3,574) 563 18,621 6,125 287 5,493 (7,531) 634 21,053 14,386 (2,886) 2,675 (11,317) 757

$24,306

$20,543

$26,371

$ 33,089

$ 33,049 Working capital was provided by:

Net income Non-working capital items:

Depreciation of utilityplant Amortization of nuclear fuel Deferred fuel cost Deferred income taxes Allowance for funds used during construction Other (net) 47,145 38,994 49,468 21,000 500 30,000 19,726 494 17,258 22,000 19,726 51,494 39,758 56,718 50,000 2,626 3,000 55,626 57,717 50,000 24,579 28,000 102,579 Total from operations Financing Proceeds of short term debt (net)

Sale of long term debt Sale of common stock Sale of preferred stock Sale of preference stock

$66,871

$90,488

$89,226

$ 112,344

$160,296 Total

$34,181 3,195

$50,931 5,240

$71,733

$ 67,162 6,415 13,829

$ 83,641 14,450 Working capital was used for:

Utilityplant Plant additions less allowance for funds used during construction Nuclear fuel 37,376 3,550 9,922 18,000 2,145 925 2,281 (7,328) 56,171 3,550 11,614 75 625 (1,382) 19,835 78,148 4,054 12,258 1,555 (647)

(6,142) 80,991 6,245 14,312 3,449 6,000 133 401 (92) 905 98,091 6,453 59 16,009 9,051 333 27,750 167 892 1,406 85 Preferred stock dividends Preference stock dividends Common stock dividends Payment of short term debt (net)

Reduction of long term debt Nuclear fuel contract due in one year Redemption of preferred stock, including call premium Capital stock expense Long term debt issue expense Other (net)

Increase (decrease) in working capital (exclusive of short term debt)

$66,871

$90,488

$89,226

$ 112,344

$160,296 Total

$ (8,217)

$ 2,024 (211) 2,596 3,115 (1,137) 218 5,121 3,380 693 3,097 (722)

(20) 339 (192)

(4,730) 13,696 1,118 (818) 9,589 (1,456)

(10)

(11) 7,294 188 (3,474)

(49) 351 281 (2,703)

Changes in working capital accounted for by:

Increase (decrease) in current assets Cash Accounts receivable Materials and supplies Fossil fuel Construction and other supplies Prepayments (1,179) 3,964 (206) 19 (1,881)

(6,494) 2,256 (20) 3,516 4,077 (571) 238 6,000 3,609 (3,546) 404 (78)

(6,000) 482 1,651 1,234 (155)

Increase (decrease) in current liabilities other than short term debt Long term debt due within one year Accounts payable Taxes Accrued interest and payroll Other (net) 2,598 (6,139) 7,260

$ (7,328)

$ 19,835

$ (6,142) 6,389 905 (2,788) 85 Changes in working capital, as above

Year Ended December 31 RSR ROCHESTER CAS AND ELECTRIC CORPORATION 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) 3,550 3,550 4,054 6,245 6,453 59 9,922 11,614 12,258 14,312 16p009 5,719 4,944 3,125 5,222 6,820 19,191 20,108 19,437 25,779 29,341 Dividends on capital stock:

Cumulative preferred stock, at required rates (Note 5)

Preference stock (Note 5)

Common stock:

Cash (Note 1)

Stock (Note 5)

$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 Service Commission of the State of New York (PSC) with respect to its rates for service and the maintenance of its accounting records.

The Company's accounting policies conform to generally accepted accounting principles as applied to New York State public utilities giving effect to the ratemaking and accounting practices and policies of the PSC.

A description of the Company's principal accounting policies follows.

UtilityPlant and Depreciation. The cost of additions to utility plant and replacement of retirement units of property is capitalized. Cost includes labor, material, and similar items as well as indirect charges for engineering, supervision, etc. The Company capitalizes an allowance for funds used during construction approximately equivalent to the cost of capital devoted to plant under construction. Replacement of minor items of property is included in maintenance expenses.

Costs of depreciable units of plant retired are eliminated from utilityplant accounts, and such costs, plus removal expenses, less salvage, are charged to accumulated depreciation and amortization.

Depreciation in the financial statements is provided on a straight-line basis at rates based on the estimated useful lives of property, which have resulted in provisions as follows:

1973-1975 2.8%, 19762.9%, and 19773.0% per annum, of average depreciabie property.

Nuclear Fuel and Decommissioning Costs. The cost of nuclear fuel and estimated permanent storage costs are charged to operating expense on the basis of the thermal output of the reactor. These costs are charged to customers through base rates and through the fuel cost adjustment.

Due to a Federal government policy adopted in 1977, the Company has changed its nuclear fuel cost computation to reflect the costs of permanent storage of spent nuclear fuel. Prior years'uclear fuel cost computations anticipated spent nuclear fuel would be reprocessed.

Cumulative prior years'uel expenses would have been increased by approximately $8.0 million if they had been determined on the basis of current cost estimates for permanent storage of spent nuclear fuel, rather than on an estimated amount for reprocessing.

If the government permanent storage policy is continued, the Company believes that such amount will be fullyallowable for ratemaking purposes.

Decommissioning costs (costs to take the plant out of service in the future) for the Company's Ginna nuclear power plant cannot be estimated at this time. The Company believes that the costs of decommissioning will be fullyallowable for ratemaking purposes.

Allowance for Funds Used During Construction. The Company capitalizes an Allowance for Funds Used During Construction (AFDC) based upon the net cost (without adjustment for income taxes) of borrowed funds for construction purposes and a reasonable rate upon the Company's other funds when so used.

The rates for such purpose were: January 1, 1973 to August 31, 1973, 7s/a%; September 1, 1973 to May 31, 1974, 8%; June 1, 1974 to June 30, 1975, 10%; July 1, 1975 to April 30, 1976, 8s/4%; and effective May 1, 1976, 8%%. The rate changes together with the impact of the large increase in co'nstruction work in progress during the years 1974-1977, account for the variance in the amount of the allowance. AFDC is segregated into two component parts and classified in the Statement of Income to disclose an Allowance for Borrowed Funds Used During Construction as a credit to Interest Charges and an Allowance for Other Funds Used During Construction as a part of Other Income.

19

Rates and Revenue. Revenue is recorded on the basis of meters read during the calendar year.

Tariffs for electric and steam service include fuel cost adjustment clauses which serve to adjust electric and steam rates from time to time to reflect changes in the average costs of fuels used in electric and steam generation from the average cost of such fuels during the base period. Tariffs for gas service contain a comparable clause to adjust gas rates for changes in the price of purchased natural gas.

Federal Income Tax. For income tax purposes, depreciation is computed using the most liberal methods permitted. In addition, certain costs capitalized for financial reporting purposes are deducted currently for income tax purposes. The resulting tax reductions are offset by provisions for deferred income taxes only to the extent ordered or permitted by regulatory authorities.

Beginning in 1975, the investment tax credit rate was increased from 4% to 10%. The prior rate of 4% is applied to reduce current tax provisions. However, as recommended by the PSC, normalized tax accounting is followed in the application of the temporary 6% increase.

The Company uses the separate period approach in calculating the interim quarterly tax provision.

Pension Plan. The Company's retirement plan is noncontributory and covers all regular employees.

Retirement plan benefits are provided for by payments made to an insurance company and to trust funds with banks. Current service costs are funded annually.

The period over which prior costs are being amortized was changed in 1976 from 30 years to 40 years.

Retirement plan expenditures for the years 1973 through 1977 were $5.7 million, $5.5 million, $6.8 million, $8.1 million, and

$9.2 million, respectively. The actuarially computed value of vested benefits at December 31, 1977 exceeds the assets in the plan by approximateiy $ 15 million.

Earnings and Dividends Per Share. Earnings applicable to each share of common stock are based on the weighted average number of shares outstanding during the respective years, adjusted for stock dividends. Assuming the 1,000,000 shares of common stock issued on September 29, 1977 were outstanding at the beginning of 1977 and the proceeds were applied to reduce the short term debt, the earnings per share for 1977 would have been

$2.10. Cash dividends per share are based on the shares outstanding at the time dividends are paid, adjusted for stock dividends. Cash'dividends per share at the rates declared in each period amount to $ 1.22 for 1973, $1.24 for 1974, $ 1.26 for 1975,

$ 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 information1977 Operating revenues Operating expenses, excluding provision for income taxes Pre-tax operating income Provision for income taxes Net operating income..

Other incomenet Interest charges Net income per statement of income Other information Depreciation Nuclear fuel amortization Capital expenditures Investment informationDecember 31, 1977 Identifiable assets Assets utilized for overall Company operations (a)

Total assets per balance sheet (a) Consists primarily of cash, prepayments and unamortized debt expense.

$206,343 165,858 40,485 4,041

$ 36,444

$ 15,333 14,386 90,722

$626,464

$ 105,797 97,465 8,332 147 8,185 5,140 6,943

$141,130

$ 19,004 19,186 (182)

(330) 148 580 426

$ 16,619

$331,144, 282,509 48,635 3,858 44,777 7,783 19,511

$ 33,049

$ 21,053 14,386 98,091

$784,213 14,161

$798,374 20

Net income Federal income tax Current Deferred Charged to operating expense........

Amort. of deferred investment tax credit Other Included in Other Income...........

Actual Federal income tax expense.......

Income before Federal income tax........

961 2,897 3,858 (222)

(1,460)

(1,682) 2,176

$35,225 (291) 5,656 5,365 (163)

(1,271)

(1,434) 3,931

$37,020 NOte 3. Federal InCOme TaX PrOViSiOn Irtxxnam or Oottant The following is a reconciliation for the years 1973 through 1977 of the difference reported in the Statement of Income and the amount computed by multiplying the 1977 1976

% of

% of Pretax Pretax Amount Income Amount Income

$33,049

$33,089 4,162 1,133 5,295 (28)

(829)

(857) 4,438

$30,809 (3,126) 4,277 1,151 (792)

(792) 359

$20,902 6,724 915 7,639 (418)

(418) 7,221

$31,527 between the amount of Federal income tax expense income before tax by the statutory tax rate.

1975 1974 1973

% of

%of

% of Pretax Pretax Pretax Amount Income Amount Income Amount Income

$26,371

$20,543

$24,306 Computed tax expense Increases (reductions) in tax resulting from:

Excess of tax depreciation less amount deferred Expenses capitalized for financial statements including interest, payroll and use tax, etc...

Investment tax credit Property taxes on basis of date of taxable status Cost of removal, less net amount deferred.....

Miscellaneous items, net....................

Actual Federal income tax expense............

(7,765)

(22.0)

(2,624)

(7.4)

(254)

(.7)

(655)

(1.9) 146

.4

$ 2,176 6.2 (5,491)

(2,257)

(1,159)

(603)

(333)

$ 3,931 (14.8)

(6.1)

(3.1)

(1.7)

(.9) 10.6 (3,032)

(9.9)

(1,228)

(4.0)

(955)

(3.1)

(437)

(1.4)

(655)

(2.1)

$ 4,438 14.4 (2,121)

(1,320)

(1,152)

(312)

(272) 359 (10.2)

(1,374)

(4.4)

(6.3)

(890)

(2.8)

(5.5)

(527)

(1.7)

(1.5)

(204)

(.6)

(I 3)

(487)

(I 5) 1.7

$ 7,221 22.9

$ 16,908 48.0

$ 17,770 48.0

$ 14,788 48.0

$ 10,032 48.0

$ 15,133 48.0 (3,580)

(10.2)

(3,996)

(10.8)

(4,043)

(13.1)

(4,496)

(21.5)

(4,430)

(14.1)

A summary of the deferred amounts charged Investment tax credit Class life depreciation Fuel costs Nuclear fuel amortization.......

Nuclear fuel storage costs.......

Fossil plant abandonment costs..

Other or (credited) to income is as 1977 1976

$ 2,003

$ 3,423 1,379 1,082 1,386 (138)

(362) 289 (3,346) 2,160 (545)

$ 2,675 837

$ 5,493 f'ollows:

1 975 822 850 I

(755) 187

$ 1,105 1974 640 1,794 1,615 228

$ 4,277 1973 600 315 915 Note 4. Changes in Method of Accounting The Company's tariffs for electric and steam services include fuel cost adjustment clauses under which rates are adjusted to reflect changes in the average costs of fuels. There is a lag from the time the average cost of fuel is determined to the application of the fuel cost adjustment rates to customer bills. In 1974, the Company began to defer a portion of the increased costs to the month in which the resultant revenues were recorded in order to achieve a better matching of fuel costs and fuel cost adjustment revenues. As a result of this accounting change, fuel costs included in operating expenses reported for 1974 were decreased by $3.7 million and net income for the year, after appropriate tax accruals, was increased by $ 1.9 million (18 cents per share). The cumulative effect of the change on retained earnings at the beginning of 1974, would have been immaterial.

21

Note 5. Capitalization Long Term Debt First Mortgage Bonds Series Due 1977 4'

Sept. 1, 1977..

3 L

Mar. 1, 1979..$ 16,677 2s/4 M

Aug. 15, 1980.

12,000 3%

N June 1, 1982..

6,000 3'

Mar. 1, 1985..

10,000 4r/a R

July 1, 1987...

15,000 5

S Oct. 15, 1989 12,000 4ya T

Nov. 15, 1991 15,000 4%

U Sept. 15, 1994.

16,000 5.3 V

May 1, 1996..

18,000 6'

Sept. 15, 1997.

20,000 6.7 X

July 1, 1998...

30,000 8

Y Aug. 15, 1999.

30,000 9ys Z

Sept. I, 2000..

30,000 10%

AA Aug. I, 1983..

29,667 9k/4 BB June 15, 2006.

50,000 8%

CC Sept. 15, 2007...50,000 360,344 Less: Series D due in 1977 Total Long Term Debt

$360,344 IThovkaeh)

Principal Amount December 31, 1976 1975.1974 6,000 6,000 16,677 16,677 12,000 12,000 6,000 6,000 10,000 10,000 15,000 15,000 12,000 12,000 15,000 15,000 16,000 16,000 18,000 18,000 20,000 20,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 50,000 1973 6,000 16,677 12,000 6,000 10,000 15,000 12,000 15,000 16,000 18,000 20,000 30,000 30,000 30,000 316,677 266,677 236,677.

6,000

$310,677

$266,677

$236,677 Bond premium applicable to the years 1973 through 1977 is

$705,382, $ 671,000, $636,417, $717,313, and $677,702, respectively.

Sinking and improvement fund requirements aggregate

$333,540 per annum. Such requirements may be met by certification of additional property or by depositing cash with the Trustee. The 1973-1975 requirements were met by certification of additional property. The 1976 requirement was met with funds deposited with the Trustee, and these funds were used for redemption of outstanding bonds of Series AA at the special price of 100%.

Series 4

F 4.10 H

4%

I 4.10 J

4.95 K

4.55 M

7.50 N

11 0

Shares Outstanding

.120,000

..... 80,000

..... 60,000

..... 50,000

. 60,000

.100,000

.200,000 670,000 1977

$ 12,000 8,000 6,000 5,000 6,000 10,000 20,000

$67,000 Capital Stock Preferred Stock (cumulative)Par value $ 100; 2,000,000 shares authorized:

(Thoukandh)

December 31, 1976

$ 12,000 8,000 6,000 5,000 6,000 10,000 20,000 25,000

$92,000 1975

$ 12,000 8,000 6,000 5,000 6,000 10,000 20,000 22,000

$89,000 1974.1973

$ 12,000 8,000 6,000 5,000 6,000 10,000 20,000

$67,000 Redemption (per share) (a) 105 At any time 101 At any time 101 At any time 102.50 At any time 102 At any time 102 Before 3/1/80 108 Before 6/1/79 (b)

(a) Redeemable at the option of the Company on 30 days'inimum notice, plus accrued dividends in all cases.

(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

Common StockPar.value $5; 25,000,000 shares authorized:

Outstanding, December 31, 1972..