ML19031A126
| ML19031A126 | |
| Person / Time | |
|---|---|
| Site: | Salem  |
| Issue date: | 07/28/1976 |
| From: | Delmarva Power & Light Co |
| To: | Office of Nuclear Reactor Regulation |
| References | |
| Download: ML19031A126 (32) | |
Text
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- gula.tory Qoc~~~ fj!§ DEADLINE RETURN DATE 1.-.-a..7,
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RECORDS FACILITY BRANCH
ANNUAL MEETING Third Tuesday in April at 12:30 p.m., in the Company's General Offices 800 King Street Wilmington, Delaware FIRST MORTGAGE AND COLLATERAL TRUST BONDS -
Trustee, Chemical Bank, New York, N. Y.
PREFERRED STOCK -
Transfer Agent, Wilmington Trust Company, Wilmington, Del.
Registrar -
Delaware Trust Company, Wilmington, Del.
COMMON ST0CK -
Stock Symbol, DEW, Listed on the New York and PBW Stock Exchanges.
Transfer Agents -
Wilmington Trust Company, Wilmington, Del., and INing Trust Company, New York, N. Y.
Registrars -
Delaware Trust Company, Wilmington, Del. and Bankers Trust Company, New York, N. Y.
DIVIDEND REINVESTMENT AND COMMON SHARE PURCHASE PLAN -
The response to the Company's Dividend Reinvestment and Common Share Purchase Plan has been most gratifying since its inception in November 197 4.
As of January 31, 1976 approximately 6,000 or 11 % of shareholders, were participating in the plan. Their investments represented more than 200,000 shares of the Company's common stock.
The plan provides common stockholders the opportunity to reinvest cash dividends and/or invest additional cash to purchase additional shares of common stock without paying any brokerage or service charges. If you are not already participating and wish to do so, please write Delmarva Power, Stockholder Relations, 800 King Street, Wilmington, Delaware 19899.
Delmarva Dn111Ar
~ ~~~~
FINANCIAL HIGHLIGHTS Percent 1975 1974 Increase (Decrease)
Revenues
$278.5 million
$261.9 million 6.4 Net Income
$32.8 million
$32.9 million (0.3)
Earnings per share
$1.45
$1.73 (16.2)
Dividends Declared
$1.20
$1.20 Common Stock Outstanding (Average Shares) 17,579,509 14,862,401 18.3 Construction Requirements
$80.5 million
$85.7 million (6.1)
Electric Sales 6.4 billion kwh 6.6 billion kwh (3.0)
Gas Sales 12.9 million mcf 14.9 million mcf (13.2)
Electric Customers 250,593 244,040 2.7 Gas Customers 73,827 74,098 (0.4)
CONTENTS President's Letter/2 Review of Operations/4 Earnings and Dividends/6 Revenues and Expenses/6 Construction and Financing/6 Electric Rate lncreases/6 Gas Rate lncreases/8 Load Management/8 Electric Consumption/8 Gas Supply/1 O Gas Exploration Project/1 O Fuel Supply/1 O Summit Project Terminated/12 Generation Planning/12 Environmental Matters/12 FEA Conversion Order/12 Research and Development/14 River Crossing Line/14 Higher Distribution Voltages/14 Organizational Changes/14 Communications/14 Employees/14 Officers and Directors/16 Service Area Map/17 Financial Section/18 Consolidated Statistics/28 1
To The Shareholders:
Earnings of $1.45 per share for 1975 are very disappointing. The earnings reflect an increase in the average shares of common stock outstanding, higher interest charges and a substantial decrease in industrial electric sales in the northern part of the system as the result of adverse economic conditions.
The cost of fuel stabilized somewhat during the year and the commercial operation of the Peach Bottom nuclear units contributed favorably toward our cost of electric generation. We strengthened our fuel buying capability, leased 77 coal cars to improve reliability of delivery to the Indian River Power Station and we can now receive oil for the Edge Moor Power Station in large tankers. We will continue to make every effort to lower fuel costs, but they will remain the Company's largest operating expense and a significant portion of our customers' bills.
Rate Increases Increased electric and gas rates in Delaware, and increased electric rates for municipals and cooper-atives were in effect during 1975 subject to refund.
An increase in electric rates in Maryland was approved by the Maryland Commission, effective January 17, 1976.
On January 30, 1976 we filed with the Federal Power Commission for an additional increase in electric rates for municipals and cooper-atives. On February 18, 1976 we put into effect, subject to refund, the second step of a requested increase in retail electric rates in Delaware. The first step was put into effect in September 1975.
The electric rate requests seek a return on common equity of about 2
15%. We believe that this return is necessary to maintain the Company in a sound financial position and restore earnings to an adequate level. We will continue to seek rate relief to meet this objective.
In the area of rate making, the Company is considering changes to its rate structure which will permit customers to derive benefits from using electricity during off-peak periods. Such rates must be based as closely as possible on the cost of providing service.
Summit Project Cancelled A major change in our construc-tion program occurred in October when the Summit Nuclear Power Station project was cancelled as a result of discussions with General Atomic Company, the reactor sup-plier. The contract for the reactors was terminated because of sub-stantial cost increases and prob-lems of General Atomic in connec-tion with the commercialization of the high temperature, gas-cooled reactor systems. In agreeing toter-minate the contract, the Company obtained a settlement of $125 mil-lion. This amount provides for the recovery of all expenditures and compensation for part of the cost of providing replacement generating capacity for the Summit units. We believe that the settlement was a fair one and in the best interests of the Company's stockholders and cus-tomers.
As a result of the Summit can-cellation, we are now studying possible alternatives for providing additional generation to meet projected demands in 1981 and 1984, the years when the Summit units were scheduled for operation.
Fossil-fired and nuclear generation are being considered and the Summit site south of Wilmington is a viable one. The study will take into consideration government energy policy, fuel availability and up-dated load growth forecasts.
As a result of the contract settle-ment no external financing is planned for 1976. We will require external financing after 1976 to meet construction program requirements.
FEA Conversion Order The Federal Energy Admin-istration ruled in 1975 that four generating units at the Edge Moor Power Station should be converted from oil to coal. These units were originally coal-fired. A substantial capital investment will be required in order that the units meet environmental standards. If low-sulfur coal can be obtained, it will be necessary to install only dust collecting equipment -
without sulfur dioxide scrubbers -
and a change to coal could be justified economically for two of the units.
However, if scrubbers are required, it is doubtful that the conversion could be justified. We have proposed that no changes be made to the other two units, which are more than 20 years old, and that they be allowed to burn oil for peaking purposes.
Natural Gas Situation Natural gas sales in New Castle County, Delaware, continue to be reduced due to the curtailment of supply from Transcontinental Gas Pipeline Corporation, our sole supplier. For several years we have searched for supplemental sources of gas. After careful study, the use of Synthetic Natural Gas was ruled out because of its high end cost and the inefficient use of scarce petroleum products. The Company is participating in a gas exploration project to the extent of about
$250,000 a year for 3 years, which is about 1 % of gas revenues. A new wholly-owned subsidiary Company, "Delmarva Energy Company", will handle the exploration project through a partnership involving other utility companies. The actual exploration is being conducted by Enterprise Resources, Inc., a subsidiary of Stone & Webster Corporation. We are hopeful that our participation will result in additional natural gas to supplement our pipeline supply.
Other Matters Delmarva has formed a Load Management Committee consisting of key rate making, marketing and Austin T. Gardner Chairman of the Board engineering personnel from the parent and subsidiary companies to conduct research on rate structure, metering, off-peak loads and improvement of load factor.
Our aim is to direct the growth of our load rather than having it develop without any control.
In order to operate the Company as efficiently as possible, changes in organization have been made and are continuing to be made. A group reporting directly to me monitors the performance of Com-pany operations and recommends changes which result in reduced personnel requirements, better customer services and other im-provements in efficiency.
With the upturn of the economy, which has begun and is expected to continue during 1976, we believe 3
Robert D. Weimer President that kilowatt-hour sales will increase about 5% over 1975. Improvement in the Company's financial con-dition will be dependent upon the outcome of rate decisions which are pending before regulatory commissions.
Your confidence in the Company is greatly appreciated.
R. D. Weimer President and Chief Executive Officer February 19, 1976
MANAGEMENT REVIEW OF OPERATIONS Consolidated Summary of Earnings 1975 Operating Revenue..................
$278,548 Operating Expenses Operation.......................
165, 165 Maintenance....................
17,769 Depreciation....................
24,579 Taxes..........................
17,963 Total operating expenses.....
225,476 Operating Income....................
53,072 Other Income Allowance for funds used during construction............
8,354 Other, net of taxes........
- ~......
605 Income Before Interest Charges.......
62,031 Interest Charges.....................
29,244 Net Income.........................
32,787 Dividends on Preferred Stock.........
7,250 Earnings Applicable to Common Stock.
25,537 Dividends on Common Stock..........
21,107 Addition to Retained Earnings.........
4,430 Common Stock Average shares outstanding (thousands)...................
17,580 Earnings per share..............
$1.45 Dividends per share.............
$1.20 Operating Revenue Total operating revenue for the year ended December 31, 1975 increased $16.6 million or 6.4%
over 197 4. The increase was due principally to rate increases placed into effect, additional fuel adjustment charges and gas production cost adjustments partly offset by the repeal of the 5% Delaware Utility Tax to residential customers, the termination of a facilities agreement between the Company and a neighboring utility, and reduced industrial sales as a result of the (Thousands of Dollars) 1974 1973 1972 1971 1970
$261,916
$188,359
$158,844
$129,505
$110,861 153,494 99,323 80,517 66,982 54,950 16,289 13, 715 12,960 10,536 10,425 21,656 18,278 16,329 13,961 12,858 18,898 15,545 14,609 9,479 8,977 210,337 146,861 124,415 100,958 87,210 51,579 41,498 34,429 28,547 23,651 8,527 10,251 9,770 8,037 3,698 190 54 156 92 277 60,296 51,803 44,355 36,676 27,626 27,355 21, 141 16,848 13,368 10,330 32,941 30,662 27,507 23,308 17,296 7,250 6,360 6,050 4,637 2,702 25,691 24,302 21,457 18,671 14,594 17,995 15,851 13,940 12,233 11,046 7,696 8,451 7,517 6,438 3,548 14,862 13,547 12, 128 10,921 9,861
$1.73
$1.79
$1.77
$1.71
$1.48
$1.20
$1.17
$1.13
$1.12
$1.12 economic slowdown. Sales of electrical energy during the twelve months ended December 31, 1975 compared to the period ended December 31, 197 4 decreased only slightly (3.0%). Industrial sales decreased approximately 319,000,000KWHor13.0%
compared to last year. Gas sales decreased 13.2%.
Total operating revenue for 197 4 increased $73.6 million over 1973 or 39.1%. The increase was due mainly to a $60.2 million increase in fuel adjustment charges and $8.6 million in rate increases placed into effect.
4
Operating, Fuel and Maintenance Expenses Total fuel expense for the year indicates only a slight increase over 197 4. This increase reflects higher previously deferred fuel costs, offset by a decrease in fuel cost per million BTU combined with lower generation during the year (see Note 1-Fuel Costs).
Nuclear energy was 11 % of system generation in 1975 and 4% of system generation in 197 4. Fuel expense per million BTU at the Company's generating stations is shown in the following table:
1975 1974 1973 Oil
$2.12
$2.18
$.89 Coal 1.09
.90
.55 Refinery By-Product 2.03
- 1. 71
.53 Nuclear
.26
.26 Overall Cost
$1.53
$1.70
$.74 Fuel expenses for 1975 and 197 4 were offset partially by the sale of energy to the Pennsylvania-New Jersey-Maryland interconnection. Energy interchange sales decreased in 1975 due to extensive maintenance performed on one of the Company's larger generators.
Other operation expenses increased 13% over 197 4 due primarily to an increase in the cost of gas purchased, escalated labor costs and general inflationary pressures. The cost of gas purchased increased from $.66 per MCF in December, 1974 to
$1.06 per MCF in December, 1975.
Taxes Taxes on income increased only slightly for the year ended December 31, 1975. The decrease of $658,000 between 197 4 and 1973 was due to increased operating expenses and the effect of book-tax differences, Taxes other than income decreased $1.1 million from 1974 due largely to the repeal of the residential Delaware Public Utility Tax and 1974 increased $4 million or 32.5% over 1973 due principally to an increase in the Delaware Public Utility Tax. These taxes eventually were recovered in customer billings.
Allowance for Funds Used During Construction The allowance for funds used during construction for the year ended December 31, 1975 decreased
$172,000 from 1974. The allowance during 1974 decreased $1. 7 million from 1973 due primarily to the transfer of Edge Moor Unit No. 5 and Peach Bottom Unit No. 2 from construction work in progress to plant in service.
Interest Charges, Dividends on Preferred Stock Total interest charges on long-term debt for the year 1975 increased 27.2% over 1974, and 1974 increased 5
16% over 1973. These increases reflect the Company's need for large amounts of capital for its construction program. During the year 1975, the Company issued First Mortgage and Collateral Trust Bonds in the amount of $30 million in January and $30 million in July at 9%% and 11 %, respectively.
Interest charges on short-term debt for the year 1975 decreased 68.3% below 197 4 as a result of the repayment of short-term debt with the proceeds of the securities sold and the Company's share of funds from the cancellation of the Summit Nuclear Power Station contract (see Note 8 to Financial Statements).
Preferred dividends for the year 1974 increased over 1973 due to the issuance of 150,000 shares in late 1973.
Earnings Per Share Decreases in earnings per share in 1975 and 1974 were due largely to an increase in the average number of shares of common stock outstanding and the factors referred to previously. In July the Company issued 2 million additional shares of common stock. In November, 1974 the Company had issued 1.5 million shares of common stock.
Dividends and Price Range of Common Stock The initial public distribution of the Common Stock of the Company was made in May 1944, and quarterly dividends have been paid continuously since July 1944. A quarterly dividend of 30¢ per share has been declared for the fourth quarter of 1975 payable January 31, 1976 to shareholders of record January 9, 1976.
Dividends on common stock increased $3.1 million over 1974 and 1974 dividends increased $2.1 million over 1973. These increases were due to an increase in the number of shares outstanding. Dividends paid during 1975 averaged 83.0% of earnings applicable to common stock compared to 70.0% in 1974 and 65.0%
in 1973. Future dividends will be dependent upon future earnings, the financial condition of the Company and other factors (see Note 9 to Financial Statements).
The following tabulation shows the price range and dividends per share of the Common Stock of the Company on the New York Stock Exchange during the periods indicated:
1975 1974 High Low Div.
High Low Div.
1st Quarter 113/s 9
$0.30 15Vs 133,1,i
$0.30 2nd Quarter 133/s 10V4 0.30 14 83/4 0.30 3rd Quarter 135/s 10V2 0.30 95/s
?Va 0.30 4th Quarter 13 103/4 0.30 10
?'l's 0.30
Earnings and Dividends Earnings on common stock for 1975 were $25.5 million, a decrease of $0.2 million or 0.6% from 1974.
On a per share basis, earnings were $1.45 for 1975, compared to $1. 73 for 197 4.
There were 17,579,509 average common shares outstanding in 1975, an increase of 2,717,108 shares over the prior year. At year's end, there were 54,426 shareholders of common stock. Quarterly dividends of 30¢ per share were paid on common stock, totaling
$1.20 per share for the year.
The Company has determined that 100% of 1975 common stock dividends are taxable for federal income tax purposes.
Earnings & Dividends per Share Earnings Dividends
$1.77
$1.79
$1.48
$1.12
$1.12 I
I
$1.13
$1.17 I
$1.20 I
$1.20 I
1970
'71
'72
'73
'74
'75 Revenues and Expenses Revenues for 1975 totaled $278.5 million, a 6.4%
increase over 197 4 revenues. The increase is due primarily to additional rate increases.
Electric revenues increased 5. 7% to $241.9 million and accounted for 86.9% of total revenues. Gas and refinery service revenues increased 11.1 % to $36. 7 million.
Increases and decreases in revenue over 1974 by customer class were as follows:
Residential.......
Commercial......
Industrial.........
Resale...........
(Millions of Dollars)
Revenues Expenses 1970
'71
'72 Electric Gas 12.1%
13.6%
(3.4%)
14.5%
'73
'74 7.5%
11.3%
16.6%
'75 6
Operating expenses for 1975 totaled $225.5 million, an increase of $15.1 million or 7.2% over 1974. The increase primarily reflects inflationary conditions in the economy that continue to increase costs of materials, labor and services.
Construction and Financing Program Construction requirements for 1975 were approximately $80.5 million, consisting of approximately $34.3 million for electric production facilities, $26.2 million for electric transmission facilities, $17.4 million for electric distribution facilities,
$1 million for gas distribution facilities and $1.6 million for general facilities.
To finance the 1975 construction program, retire unsecured short-term debt in the amount of $53.1 million and for other corporate purposes, approximately $50.2 million was obtained from internally generated funds. In addition, a total of $85.2 million was obtained from the sale of $30 million First Mortgage bonds in January, an additional $30 million in July, the sale of 2 million shares of common stock also in July and 165,000 additional shares through the Dividend Reinvestment and Common Share Purchase Plan.
Construction requirements for 1976 are estimated at approximately $102.5 million. Because of the funds available from the settlement of the nuclear power plant construction contract with General Atomic, the Company does not anticipate a need for any external financing in order to meet the 1976 construction program.
Electric Rate Increases Delaware In July, the Company filed with the Public Service Commission (PSC) of Delaware for an overall increase in retail electric revenues of 13.5% or $20.4 million. In September, the Company put approximately 50% of the increase into effect under bond and subject to refund as permitted by Delaware law. This amount, had it been collected during the entire year, would have brought the Company's earnings only up to the level authorized by the Delaware PSC in its 197 4 electric rate decision. The hearings began in October and the Commission's Order is anticipated in early 1976. In October, the Company filed an amendment to the rate application requesting a revision in the fuel adjustment clause. The revision would allow a mo(e current method of collecting fuel costs and would create a temporary surcharge of 1 /20 of one cent per kilowatt-hour of sales in order to collect such costs not previously recovered in billings to customers and to reduce and eventually eliminate deferred fuel expenses in excess of two months' accruals from the Company's balance sheet.
7
Maryland In July, the Maryland subsidiary applied to the Public Service Commission (PSC) of Maryland for an overall increase in retail electric revenues of 8.9% or $4.1 million. In January 1976, the Maryland Commission approved an increase of 5.2%, effective January 17, 1976, which represents $2.4 million in additional revenues annually.
The PSC of Maryland is reviewing methods which utility companies subject to its jurisdiction have used to calculate amounts billed to their customers for the changing costs of fuel used in generating stations. As a result of one aspect of this proceeding, the PSC of Maryland concluded that the Maryland subsidiary should revise its previous calculation method to avoid overcollection. The Commission's auditors concluded that the Company's method of calculation resulted in the collection of $400,000 more during 1974 than the proposed method. The Commission directed the Company to file a plan to refund such amount to its customers in Maryland or show cause why such refunds should not be made. A hearing was held in August and rebuttal testimony has been filed on the case. The Company is unable to predict what the decision will be. on this matter.
Virginia In August 1974, the Virginia subsidiary filed with the State Corporation Commission of Virginia for an annual increase in retail electric revenues of 14.6% or
$770,000. In March 1975, the Virginia Commission approved an increase of 14.0%, effective May 1, 1975, which represents an increase in revenue of approximately $740,000.
Municipals and Cooperatives A decision is expected in 1976 on the Company's application before the Federal Power Commission for an increase in electric rates of 17.1 % to all resale customers. The increase has been in effect, subject to refund, since October 1974. If approved, revenues would be increased by approximately $3. 7 million annually.
Gas Rate Increases In March, the Company filed an application with the Delaware Public Service Commission for an increase in revenue from natural gas rates of approximately $2.7 million, or 11.4%. The Company put the new rates into effect on June 1 under bond and subject to refund.
Hearings have begun on this request and a decision is expected early in 1976.
In August, the Company appealed to the courts, for the second time, the decision of the Delaware Public Service Commission concerning a 1973 request for a 12% increase in gas rates. The Commission granted an increase of about4V2% in April 1974. On remand by the Court, the Commission reaffirmed in August 1975 the 8
4W7'o increase to be effective from June 1, 1973 through March 8, 1974 and agreed to reexamine the subsequent period until June 1, 1975 in connection with the present application for increased gas rates.
The decision is being appealed because the Company believes that the Commission's decision on remand was not responsive to the opinion of the Court.
During the appeal, the Company will continue to collect the 12% increase subject to refund.
Load Management A load management committee has been established to investigate load management practices and techniques with a long-range goal of reducing the need for generating and transmission facilities in the future by shifting load from peak periods to off-peak periods. The committee's objective is to identify conditions which will produce optimum economic utilization of plant, formulate a program which will produce the desired results, implement the program and monitor the results.
Projects are underway in the areas of metering, rate structure and customer's end-use equipment. The Company is developing a method of metering suitable for peak load pricing using standard components and plans are being formulated to test automatic meter reading equipment on residential customers. Peak load pricing is being considered for implementation on an optional basis during 1976. The committee is investigating solar energy, electric vehicles and devices which store energy for heating and cooling.
Electric Consumption Total electric sales in 1975 were 6.4 billion kilowatt-hours, or 3% less than 197 4. This decrease was due to major industrial customers operating at reduced levels of production because of prevailing economic conditions. During the last quarter of the year, industrial customers were beginning to increase their output as the economy started its recovery.
Total residential sales increased 74.7 million kilowatt-hours, or 4.7% above 1974 and commercial sales were 56.6 million kilowatt-hours, or 4.3% over last year. Total kilowatt-hours sales for resale customers decreased 1.2% below last year because of an Electric Sales
(% Change from 1974)
Industrial
-13%
interconnection agreement with Dover, Delaware, which became operative September 1, 1975. Electric sales were reduced to the City of Dover due to this agreement and the operation of a new generating unit in that municipality. Electric sales to other municipalities recorded substantial increases during 1975.
The peak demand for the system was 1,463, 100 kilowatts on August 26, 1975 at 5:00 P.M. This peak was 3% less than the all-time peak of 1,508,000 kilowatts in 1973. The 1975 peak was affected by general economic conditions and the slow-down in operations of major industries.
During the year, the number of residential electric customers increased by 6,264. The electric heating classification gained 3,870 of these customers, indicating a continuing trend for this type of heating system. The commercial classification gained 213 new customers during the year, and 153 of these also utilized electric heating. In general, new home construction was down during 1975 as a result of economic conditions and high interest rates.
Gas Supply The supply of natural gas which the Company receives from the Transcontinental Gas Pipe Line Corporation (Transco) continues to be curtailed. The average daily curtailment for 1975 was 31.8% of our daily contractual volume of 54,800,000 cubic feet.
Under an interim curtailment plan approved by the Federal Power Commission, the Company's gas volume will be reduced 24.9% for the winter season ending April 15, 1976, and 45% for the summer season ending October 31, 1976.
In order to avoid the curtailment of gas to our firm customers, the Company has aggressively pursued efforts to increase the supply of gas. The Company was able to purchase two blocks of 60-day emergency gas totaling 502,000,000 cubic feet for the 1975-76 winter period. Thus far no firm customers have been curtailed.
. Service to residential and small commercial customers is not expected to be affected. However, all customers are asked to conserve gas wherever possible. No new gas customers of any classification are being added.
Gas Supply Available to Company
(%of Contract Volume) 100%
1970
'71
'72
'73
'74
'75 10 Gas Exploration Project In September 1975, a new wholly-owned subsidiary Company, Delmarva Energy Company, along with seven gas distributors, formed a limited partnership with Enterprise Resources, Inc., a subsidiary of Stone and Webster Corporation. The partnership is to explore for and develop on-shore gas fields in Texas, Louisiana, Mississippi, Alabama and other areas.
Delmarva Energy Company's portion of the partnership is $750,000 or 7.5%. Any significant volumes of gas which might be discovered will be transported by the Transcontinental Gas Pipe Line Corporation to the members of the partnership. The Company is unable to determine the effect such exploration activities will have on the overall gas supply problem. The project is part of the Company's continuing effort to secure more natural gas.
Fuel Supply The availability of nuclear generation from Peach Bottom Atomic Power Station, in which the Company is a part owner, together with a more abundant fossil fuel supply, resulted in reduced fuel costs per million BTU during 1975 (See Management Review of Operations).
These savings were passed on to our customers through applicable fuel adjustment charges.
Fossil fuel costs continued to decline in the last quarter of 1975. However, expectations are that they will begin to rise somewhat in 1976. Dramatic increases similar to those experienced in late 1973 and early 197 4 as a result of the oil embargo are not anticipated.
The Company is endeavoring to upgrade its reliability of fuel supply by becoming more involved in the mode of delivery. Fuel oil deliveries by ocean-going tankers for the Edge Moor Power Station have been instituted to obtain reduced transportation rates. In addition, the Company took delivery in 1975 of 77 leased, 100-ton railroad coal hopper cars for service between central Pennsylvania and the Company's Indian River Power Station in Southern Delaware. These cars will alleviate some of the problems resulting from the inability of the railroad to provide adequate equipment.
Although the price of nuclear fuel at Peach Bottom did not increase significantly during the year, station production was curtailed by 50% in mid-year as a result of instrument vibrations in the reactor. Correction of this difficulty in Unit 2 was completed in November 1975, after which similar repairs were initiated for Unit 3.
During 1975, the Company received about 11 % of its generation from the Peach Bottom units, which represents a savings of fossil fuel -
coal and oil -
equivalent to 1,250,000 barrels of fuel oil.
The resulting increase in available nuclear capacity from Peach Bottom plus generation expected from the Salem Nuclear Generating Station in the last quarter of 1976 should significantly benefit system fuel costs in 1976.
11
Fuel Costs (Cents per Million BTU) oi1 coal Nuclear 71¢ 67 30¢ 1970
'71 I 50¢
'72
'73 Summit Project Terminated 26¢
'74 26¢
'75 On October 27, 1975, the Company and General Atomic Company terminated contractual arrangements for construction of two 770,000 kilowatt High Temperature Gas-cooled Reactor Units and their related fuel supply. The units were scheduled for operation in 1981 and 1984. In terminating these arrangements, General Atomic Company agreed to pay $125 million to the Company for expenditures on the project to date, for anticipated additional expenditures to terminate the project and for anticipated additional capital expenditures to provide substitute generating capacity.
The decision to terminate the project was primarily influenced by cost escalation and problems confronting General Atomic in the commercialization of the reactor systems.
Generation Planning Capacity added to the Delmarva System during 1975 consisted of 200,000 kilowatts in May at the Edge Moor Power Station, which previously was contractually committed to Philadelphia Electric Company. The Company anticipates commercial operation of the Salem Nuclear Generating Station Unit #1 in the last quarter of 1976 and Salem Unit #2 in 1979. The Company owns 7.4% (163,000 kilowatts) of these facilities, which are being constructed by Public Service Electric and Gas Company, New Jersey.
The Company is also committed to the construction of a 400,000 kilowatt addition at the Indian River Power Station, scheduled for completion in the first half of 1979. This unit will use low sulfur coal.
The Company is currently studying the feasibility of various types of generation alternatives to replace the Summit Power Station. New generation may take the form of purchased or leased capacity or Company-owned fossil or nuclear generation. The Company expects to make a decision on this matter in 1976.
Environmental Matters The Company is engaged in a continuing program to 12 assure compliance with the environmental quality standards adopted by various regulatory agencies. In this endeavor, the Company strives to balance the costs for such expenditures against the requirement to provide reliable electric service at the lowest possible cost.
The cost of low sulfur fuel at the Edge Moor Power Station prompted the Company to apply to the Delaware environmental agency for permission to burn 1 % sulfur oil instead of 0.5% sulfur oil. The Company demonstrated that the use of the higher sulfur oil would not adversely affect air quality in the Wilmington area and would provide annual fuel savings estimated at $2 million to $3 million. Permission was granted by the State to burn 1 % sulfur fuel.
In Maryland the Company requested and received permission to burn 2% sulfur oil at the Vienna Power Station instead of the 1 % sulfur oil previously required.
The Company has entered into a consent agreement with the State of Delaware and the Environmental Protection Agency (EPA) concerning the upgrading of particulate emission control equipment at the Indian River Power Station. The Company conducted studies which indicated that particulate emissions were in excess of standards and subsequently proposed a schedule by which new electrostatic precipitators will be installed on Units 1 and 2 and the existing electrostatic precipitator on Unit No. 3 will be upgraded. The improvements are estimated to cost about $7.5 million.
An agreement has been reached between the State of Delaware, Getty Oil Company and the Company concerning the sulfur content of fuel burned at the Delaware City Power Station. The agreement will allow Getty Oil to supply the Company with 3.5% sulfur fuel until May 30, 1980, at which time the facility must be in compliance with a 1 % sulfur limitation. In the meantime, Getty Oil is required to investigate and implement some means of satisfying the 1 % sulfur limitation. The State is presently seeking to have the agreement approved by the EPA as a part of the State's Air Quality Implementation Plan.
FEA Conversion Order On June 30, 1975, the Federal Energy Administration (FEA) issued an order to prohibit the burning of oil or gas as the primary fuel in Units 1 through 4 at the Edge Moor Power Station. The effect of the order will require a conversion to coal in these units, which were coal-fired prior to 1971.
The Company questions the advisability of converting all units because three of the units have remaining useful lives of from 7 to 9 years and the availability of an adequate supply of low sulfur coal is questionable. The Company has filed with the EPA a plan for converting two of the four units to 1 % sulfur coal with an upgrading of particulate control equipment.
Under our proposal the remaining units would remain oil-fired.
13
The FEA and EPA are performing site specific environmental studies to determine if the plant can burn coal and meet various air and water quality criteria. A time table for accomplishing the conversion must be agreed upon by both agencies.
Research and Development We believe that an expanded and accelerated research and development effort is crucial to finding solutions to the energy problems facing our industry and nation. During 1975, the Company provided approximately $744,000 in support of a wide range of electric and gas research projects.
Our contributions to electric research are administered primarily by the Electric Power Research Institute through the Edison Electric Institute. Company support of natural gas research is in cooperation with the American Gas Association and the Institute of Gas Technology.
As part of our research commitment, $25,000 was provided to the University of Delaware's Institute of Energy Conversion for the continued study of solar energy. Since 1972, the Company has contributed
$92,500 towards solar research at the University.
River Crossing Line During the year, the Company actively pursued the issuance of permits for the construction of a 500,000 volt transmission line across the Delaware River. The line will provide an important link in a regional high voltage transmission system and enable the Company to receive its share of power from the Salem Nuclear Generating Station, located in New Jersey.
In order to expedite construction of the project and be responsive to the concerns of some citizen groups, the Company is seeking permits for crossing the river at an alternate location. It is expected that necessary permits will be obtained to begin construction in 1976.
Higher Distribution Voltages During the year, the Company began using 34,500 volt distribution lines in one of its faster growth areas.
The purpose of going to this higher distribution voltage is to realize economies in the construction and operation of the distribution system. At present, 34,500 volt is the highest distribution voltage being utilized in the United States.
Organizational Changes James A. Clark, Jr., was named vice president, electric operations in July. He succeeded George J.
Pinto who was named vice president, administrative services. Mr. Clark has 26 years' experience in the Company's engineering and electric operations departments and previously has served as assistant to the president. Mr. Pinto has 27 years' experience with the Company.
Financial planning and analysis, productivity development, fuel procurement and internal auditing are four areas of management which were 14 strengthened during the year in order to more closely monitor and control these aspects of Company operations.
Communications The opinions and attitudes of our many "publics" toward our operations is an important consideration in the conduct of our business. Our on-going communications program is designed to inform customers about a wide range of energy issues and conservation techniques.
During the year, Company representatives were invited to appear before several hundred organizations throughout our service area to present energy programs.
Company communications received recognition in 1975 by the Public Utility Advertising Association, which presented awards to the Company for excellence in newspaper and television advertising.
Monopoly is not a four-letter word The word* monopo1y*' isooeo1 today'smos!ll'll$Unotl<Slood a separat* netWOf\\< ol POW8f ~nes through your neoghbo<-
W01ds This t11et was~ted1ousnotlongagowhefl llOCXl.andpaylorthecostsolcompletetyseparatelaci!rtoes ooeolourreprfiefltatr1ttaSl<&dagrovpolgracie$ChOOlcnll-andmenagem1tnt. You can unaginewhat1hatwoukld01o dtl!<l what they 1hought it meant There -* a Wl(le vane1y ot the COi5l DI S&MCe The dup!oca1ion would be ul'lbelievllbly defor.i.ona inckldir.g several chiklre-n wl\\Q thought lhe word e*p&O$M!I. and to1ally impf8CllC.ill Which company would be wasoneol1t-.e"dittyWOfds"l1Bllhey~ *1psrronec11ai..
pe<mt1edtoHitefconnectwithadf0<01ngsta1estomakesura Untor1unatety, ltlele are many adults who don't 1.mder-1t1&1e w85 an adeQuale rese<V9 wpply? Would eve<y new standthemearnngollhewordmonopolymuclibe"er1han tamdymavingintoaoeoghbo<hoodbeapprO&Chedbysales*
tr.ose childreo, or how imponan1mooopoliesare10 us all.
men !rom -al powe< eompeflleS compe11ng tor tneor busi*
Whal don monopoly mean?
ntss? These are just a 1ew d lhll l'uno:t"ec!S ol P<Qtllems whd1 The word monopoly sompty me.ns "without eompebtoon..
WOUid result trom suci'1 8ll arrangement Some peoJlle t>elieve m.t e lack ot compebbon it a Vf!fy bad How *bout c:ontrolt?
!hong A!1er 1111. ~ 111ere*s no c:ompe!r!oon what keeps a com-Con1ro1 owr c:°""'1al"OM such as ou<S rs extremely keen. A pany llone$!? What keep$ therr pnces lair? What onc:entMI spec.al comrrnsion hn tleell created by the leglSla!ure.
- ~.::-~~~:;::i;::egoodq.ies-1:,~~=::!,~m;'~'::;:i:
- ',;*,:;~:::o~.suchasl~.gas. S1~t~~:~=~~=~~
wa1er.el<<:tnc:,istoprovldebasocseMCMI01thepublicgood olitseus\\OfTlefS
- n::r.enotsys~em~~~~o!.,~ 1or~=-:1:rn:"or~=~
loallwrioreqvestlt ASyoucansee.amonopolywh>Choperatesunderstrlcl Wh1 not MV<<al power c:ompenlH?
reg<J\\a!lons. 1or the good or lhe people. is really something Fi<S1 1et"s !lllPPOM that -al power companteS wert In to t>t 1htll'lk1ul for SO. ntxt time someone 1rlts to tell )'OU c:ompe!o!ion IOI )'OU* bltliness Eac:f\\ of thOM c:ompenits th.al.. monopoly"" IS. bad word, Wf hope )'OU"N takt lime to woul<l~tobuildandmaln1a>ns.&peraleeQIJ'pmerll.1un r;ethlmstraight Delmarva ft41111lo.11141111lo...
~~~~;
Employees A total of 2,355 men and women were employed throughout our service area at the end of the year, a decrease from the number employed in 197 4. Wages and salaries amounted to $35.6 million in 1975.
About 1,668 employees are represented by the International Brotherhood of Electrical Workers. In 1975, the labor contracts covering union-represented employees included general wage increases amounting to $2.6 million annually.
The Company is committed to an Affirmative Action program for the employment and promotion of minorities and females. Seminars on employment laws and anti-discrimination rulings are conducted for supervisory employees on a continuing basis to effectively administer the Company's commitment.
15 Dependable service is the result of indi-vidual efforts of many employees through-out the system. Their contributions are vital to our continued success.
Officers ROBERT D. WEIMER President and Chief Executive Officer of the Company 28 Years' Service THOMAS C. ROE Vice President of the Company and President of Delmarva Power & Light Company of Maryland and Delmarva Power & Light Company of Virginia 40 Years' Service CHARLES G. MINICH, JR.
Vice President (Gas Operations) of the Company and President of Delmarva Energy Company 42 Years' Service JAMES L. HAMMOND Vice President, Finance & Accounting 17 Years' Service JAMES A. CLARK, JR.
Vice President, Electric Operations 26 Years' Service GEORGE J. PINTO Vice President, Administrative Services 27 Years' Service WILLIAM G. PRICE Vice President, Generation 5 Years' Service EDWARD F. SPEAR Vice President, Market Services & Public Relations 29 Years' Service J. KENNETH WILEY Vice President, Engineering 1 Year Service ALFRED C. THAWLEY, JR.
Secretary and Treasurer 20 Years' Service WILLIAM E. ROSSELL, SR.
Comptroller 27 Years' Service JAMES W. PORTER Assistant Comptroller 19 Years' Service PAUL A. MODESTO Assistant Secretary and Assistant Treasurer 5 Years' Service RUTH V. LOKEY Assistant Secretary and Assistant Treasurer 38 Years' Service RALPH H. SMITH Assistant Secretary and Assistant Treasurer 15 Years' Service 16 Board of Directors AUSTIN T. GARDNER*
Chairman of the Board 32 Years' Service ROBERT D. WEIMER*
President and Chief Executive Officer of the Company 28 Years' Service WERNER C. BROWN**
President and Director of Hercules, Inc.
(chemical manufacturer) Wilmington, Delaware OSCAR L. CAREY President and Director of Larmar Corporation (general real estate and home builders)
Salisbury, Maryland I RENEE du PONT, JR.*
Senior Vice President and Director of E. I. duPont de Nemours & Company (chemical manufacturer) Wilmington, Delaware DR. EARL C. JACKSON, SR.
Retired Superintendent of the Wilmington Public Schools Wilmington, Delaware THOMAS C. ROE Vice President of the Company and President of Delmarva Power & Light Company of Maryland and Delmarva Power & Light Company of Virginia 40 Years' Service CHARLES G. MINICH, JR.
Vice President of the Company and President of Delmarva Energy Company 42 Years' Service DR. E. ARTHUR TRABANT President of the University of Delaware Newark, Delaware JAMES M. TUNNELL, JR.
- Partner of Morris, Nichols, Arsht & Tunnell, attorneys Wilmington, Delaware FRANK R. GRIER Director of Dentsply International, Inc.
(manufacturer and distributor of dental and optical supplies) and retired Vice President, the L. D. Caulk Division of Dentsply, Milford, Delaware
- Member of Executive Committee
- Chairman of Executive Committee
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- Cities
- Power Stations Proximity to major cities from Wilmington (In Miles) 31 Philadelphia 98 NewYork 335 Boston 68 Baltimore 106 Washington 736 Atlanta 204 Chesapeake Bay Bridge-Tunnel
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31 (Thousands of Dollars)
OPERATING REVENUES Electric.....................................................
Gas........................................................
Steam and electric (refinery servic.e)...........................
OPERATING EXPENSES Fuel........................................................
Energy interchange, net......................................
Other operation..............................................
Maintenance................................................
Depreciation.................................................
Taxes on income.............................................
Taxes other than income......................................
OPERATING INCOME..........................................
OTHER INCOME Allowance for funds used during construction...................
Other, net of taxes...........................................
INCOME BEFORE INTEREST CHARGES INTEREST CHARGES Long-term debt..............................................
Short-term debt and other.....................................
NET INCOME DIVIDENDS ON PREFERRED STOCK...........................
EARNINGS APPLICABLE TO COMMON STOCK COMMON STOCK Average shares outstanding (thousands).......................
Earnings per share...........................................
Dividends per share..........................................
1975
$241,an 25,673 10,998 278,548 122,020 (13,190) 56,335 17,769 24,579 2,689 15,274 225,476 53,072 8,354 605 8,959 62,031 27,217 2,027 29,244 32,787 7,250
$ 25,537 17,580
$1.45
$1.20 The Notes to Financial Statements are an integral part of the above statements.
DELMARVA POWER & LIGHT COMPANY and Subsidiary Comp~n i es 18 1974
$228,895 23,879 9,142 261,916 119,485 (15,843) 49,852 16,289 21,656 2,568 16,330 210,337 51,579 8,527 190 8,717 60,296 21,359 5,996 27,355 32,941 7,250
$ 25,691 14,862
$1.73
$1.20
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE YEARS ENDED DECEMBER 31 (Thousands of Dollars)
SOURCE OF FUNDS Net income..................................................
Items not requiring (providing) funds:
Depreciation...............................................
Allowance for funds used during construction.................
Investment tax credit adjustments, net........................
Deferred income taxes, net.................................
Funds provided from operations...........................
Net proceeds from sale of:
Long-term debt............................................
Common stock............................................
Increase in short-term debt.....................................
Proceeds from sale of contracts for nuclear plant................
Other.......................................................
USE OF FUNDS Construction expenditures (excluding allowance for funds used during construction)........................................
Dividends on common and preferred stock.....................
Decrease in short-term debt...................................
Estimated termination expenditures for nuclear plant.............
Increase in working capital*...................................
- CHANGES IN COMPONENTS OF WORKING CAPITAL (excluding items reflected in source and use of funds)
Cash and temporary cash investments.......................
Receivables from sale of contracts for nuclear plant...........
Accounts receivable........................................
Deferred fuel expense......................................
Materials and supplies......................................
Accounts payable..........................................
Taxes accrued.............................................
Interest accrued...........................................
Other, net.................................................
1975
$ 32,787 24,579 (8,354) 2,962 (1,764) 50,210 59,339 25,823 106,250 1,585
$243,207
$ 72,100 28,357 53,050 13,600 76,100
$243,207
$ 16,654 90,000 (1,477)
(2,916) 4,338 (23,062)
(1,350)
(2,928)
(3, 159)
$ 76,100 The Notes to Financial Statements are an integral part of the above statements.
DELMARVA POWER & LIGHT COMPANY and Subsidiary Companies 19 1974
$ 32,941 21,656 (8,527)
(781) 4,027 49,316 34,619 32,503 11,600 1,582
$129,620
$ 77, 145 25,245 27,230
$129,620 3,388 10,615 9,391 14,079 (6,446)
(544)
(323)
(2,930)
$ 27,230
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31 (Thousands of Dollars)
ASSETS UTILITY PLANT, at original cost Electric.....................................................
Gas........................................................
Steam and electric (refinery service)...........................
Common....................................................
Construction work in progress.................................
Less: Accumulated depreciation...............................
NONUTILITY PROPERTY AND OTHER INVESTMENTS...........
CURRENT ASSETS Cash.......................................................
Temporary cash investments..................................
Receivable from sale of contracts for nuclear plant..............
Accounts receivable..........................................
Deferred fuel expense........................................
Materials and supplies, at average cost:
Fuel......................................................
Operation and construction.................................
Prepayments................................................
DEFERRED DEBITS...........................................
TOTAL.......................................................
20 1975
$702,393 54,268 22,216 17,766 796,643 131,228 927,871 198,965 728,906 2,200 15,559 12,499 90,000 25,813 7,980 22,556 17,263 2,691 194,361 9,257
$934,724 1974
$662,321 53,653 22,216 17,267 755,457 130,603 886,060 177,762 708,298 1,813 11,404 27,290 10,896 20,257 15,224 2,899 87,970 3,865
$801,946 The Notes to Financial StatemJ DELMARVA POWER & UC
LIABILITIES CAPITALIZATION Stockholders' equity:
Preferred stock, cumulative, par value $100, authorized 1,800,000 shares:
Outstanding 1,050,000 shares...........................
Premium on preferred stock.................................
Common stock, par value $3.375, authorized 25,000,000 shares:
Outstanding 18,652, 779 and 16,487,340 shares...........
Premium on common stock.................................
Retained earnings..........................................
Long-term debt..............................................
CURRENT LIABILITIES Short-term debt:
Banks....................................................
Commercial paper.........................................
Accounts payable............................................
Taxes:
Accrued..................................................
Deferred..................................................
Interest accrued.............................................
Dividends declared..........................................
Other.......................................................
DEFERRED CREDITS Net credit arising from sale of contracts for nuclear plant...........................................
Accumulated deferred income taxes...........................
Accumulated deferred investment tax credits...................
Other.......................................................
TOTAL........................................................
an integral part of the above statements.
MPANY and Subsidiary Companies 21 1975
$105,000 226 62,953 119,562 94,545 382,286 407,348 789,634 38,641 3,411 4,003 8,717 7,501 4,570 66,843 64,878 4, 111 8,171 1,087 78,247
$934,724 Delmarva Dn111or
~
~~~~
1974
$105,000 226 55,645 101,047 90, 115 352,033 347,839 699,872 29,600 23,450 15,579 2,061 5,556 5,789 6,835 2,285 91, 155 4,322 5,209 1,388 10,919
$801,946
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31 (Thousands of Dollars)
BALANCE, JANUARY 1 NET INCOME.................................................
CASH DIVIDENDS DECLARED Preferred Stock..............................................
Common Stock..............................................
BALANCE, DECEMBER 31.....................................
1975 90,115 32,787 122,902 7,250 21,107 28,357 94,545 The Notes to Financial Statements are an integral part of the above statements.
DELMARVA POWER & LIGHT COMPANY and Subsidiary Companies NOTES TO FINANCIAL STATEMENTS
- 1. Significant Accounting Policies:
Financial Statements:
1974
$ 82,419 32,941 115,360 7,250 17,995 25,245
$ 90, 115 The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary companies. The accounts are maintained in accordance with the uniform systems of accounts prescribed by the regulatory commissions having jurisdiction with respect to accounting matters.
Revenue:
Revenues are billed to customers on a monthly cycle basis which includes rate increases permitted to be billed under law, subject to refund pending final approval. At the end of each month, there is an amount of unbilled electric and gas service which has been rendered from the last meter reading to the month-end.
Fuel Costs:
Fuel costs are deferred and charged to operations on the basis of the fuel cost per kilowatt hour included in customer billings. This method of accounting for fuel costs was adopted by the Company in 1973 to more properly match costs with revenue. The effect of this method was to decrease earnings applicable to common stock (net of taxes) for 1975 by $1,363,000 ($.08 per share) and to increase earnings applicable to common stock (net of taxes) for 1974 by $4,635,000 ($.31 per share). For tax purposes fuel costs are expensed as incurred.
The Company believes, but has no assurance, that the appropriate regulatory authorities will permit the recovery from customers of unbilled fuel costs which may exist at the time of any modifications of the fuel adjustment clauses.
The Company's share of nuclear fuel costs relating to the Peach Bottom nuclear generating station has been charged to fuel expense on a unit of production basis.
Depreciation:
The annual provisions for depreciation are computed by the use of composite rates applied on the straight-line method for financial accounting purposes and principally on accelerated methods and use of shorter lives for income tax purposes. The cost of removing retired depreciable property, charged to accumulated depreciation for financial accounting purposes, is deducted as an expense for income tax purposes.
22
The effect of these differences in recording depreciation for financial accounting and income tax purposes is a reduction in income taxes, the benefits of which, prior to 1975, were not deferred. Effective January 1, 1975, the Company deferred the tax benefits of such differences (normalized) with respect to additions to utility plant in 1975, for credit to subsequent years when financial accounting expense exceeds tax expense. In 1975 the amount of such deferral was $544,000. The previous deferral of such reductions in income taxes was discontinued in 1962, and the deferments accumulated to that date ($4,611,000 in the aggregate), are being restored to income over a 10-year period beginning in 1967. Accumulated tax deferments relating to amortization of completed construction costs under necessity certificates are being restored to income ($295,000 and $268,000 in 1975 and 197 4, respectively) as straight-line depreciation charges exceed the amounts deductible for income tax purposes.
Investment Tax Credit:
Investment tax credits utilized ($4,605,000 in 1975 and $828,000 in 1974) to reduce federal income taxes are deferred for financial accounting purposes by equivalent charges to income and are credited to income over subsequent five-year periods.
Allowance for Funds Used During Construction:
Allowance for funds used during construction is defined in regulatory systems of accounts as the net cost, during the period of construction, of borrowed funds used for construction purposes and a reasonable rate for other funds so used. The allowance is considered a cost of utility plant and an item of other income in the consolidated statements of income; for income tax purposes, the allowance is excluded from taxable income. The rate used in determining the amount of the allowance was 7V2% in 1975 and 197 4.
The estimated portion of the allowance for funds used during construction attributable to the common equity component of total capitalization was 11.0% and 16.3% of earnings applicable to common stock for the years 1975 and 1974, respectively.
Maintenance and Repairs:
The cost of maintenance and repairs, including renewals of minor items of property, is charged to operating expenses. The cost of replacements of depreciable property units is charged to the utility plant account and the recorded cost of the depreciable property units retired, net of the related salvage and removal costs, is charged to accumulated depreciation.
Pension Plan:
The Company and Subsidiaries have a trusteed non-contributory pension plan covering all of their regular employees. Pension contributions, charged principally to operating expenses (aggregating $4,454,000 for 1975 and $3, 761,000 for 197 4) provide for normal cost and amortization of prior service costs over a period of approximately twenty years. At December 31, 1975, the prior service costs exceeded the market value of the assets in the retirement fund by approximately $13,300,000. As of the same date, the market value of the fund assets exceeded the actuarially computed value of vested benefits.
Plan amendments required by the Employee Retirement Income Security Act and certain changes in actuarial methods and assumptions adopted effective January 1, 1976, are not expected to have a significant effect upon pension expense and funding in future years.
Capital Stock Expenses:
The premiums on preferred and common stock are stated net of the expenses related to the issuance of such stocks.
- 2. Revenue Subject to Refund:
Operating revenues for the years 1975 and 1974 include $9,821,000 and $1,807,000, respectively, of amounts billed but subject to refund, pending final determination of requested electric and gas rate increases by regulatory and judicial authorities. In addition, the Public Service Commission of the State of Delaware, in an order dated January 15, 1976 prescribing the accounting for normalization of income tax benefits related to accelerated depreciation, determined that the Company shall refund to customers certain revenues collected during 197 4.
Although the amount will be the subject of a subsequent order, the Company is of the opinion that such an amount would not have a material effect on previously reported earnings for 197 4. If all of the amounts billed but subject to refund or any portion thereof is ultimately refunded in a subsequent accounting period, and the amount of such refund is material to that period, the revenue and related income tax accounts for the accounting periods in which such revenue was originally billed would be restated for the refund. See "Electric Rate Increases" and "Gas Rate Increases" in the accompanying text for additional information concerning rate proceedings.
23
- 3. Taxes on Income:
1975
($000) 1974 Operations:
Federal income...............................
$ 789
$ (808)
State income.................................
702 130 Deferred income, net..........................
(1,764) 4,027 Investment tax credit adjustments, net..........
2,962 (781) 2,689 2,568 Other income:
545 73
$3,234
$2,641 The Company's effective income tax rates for financial reporting purposes were substantially less than the federal statutory (ate of 48%. The reasons for these differences are as follows:
Statutory income tax expense........................
Reduction in taxes resulting from:
Excess of tax depreciation over book depreciation not normalized..................................
Exclusion of the allowance for funds used during construction for income tax purposes.............
Investment tax credits amortized to income........
Other, net......................................
Income tax expense.................................
- 4. Taxes Other Than Income:
Delaware utility...................................
Property.........................................
Franchise and gross receipts......................
Social security....................................
Other............................................
- 5. Capital Stock:
1975 Amount
$17.290 (7,111)
(4,010)
(1,643)
(1,292)
$ 3,234 1975
$ 7,164 4,309 1,981 1,359 461
$15,274
($000)
Rate 48%
(20)
(11)
(5)
_m_
9%
($000) 1974 Amount
$17.079 (7,543)
(4,093)
(1,609)
(1,193)
$ 2,641 1974
$ 8,874 4,205 1,580 1,278 393
$16,330 Rate 48%
(21)
(12)
(5)
(3) 7%
Preferred stock outstanding at December 31, 1975, redeemable at the option of the Company, was as follows:
Series 3.70% - 5%...........................
7.52% - 7.88%........................
8% - 8.96%...........................
Shares 320,000 450,000 280,000 1,050,000 24 Redemption Prices per Share at 12/31/75
$103 - $105 107 -
110 108 -
109 Par Value
($000)
$ 32,000 45,000 28,000
$105,000
Changes in capital stock and related accounts for the period January 1, 197 4 to December 31, 1975 were as follows:
Aggregate Par Value Premium Shares
($000)
($000)
Common Preferred Common Preferred Common Preferred Balance, January 1, 197 4......... 13,548,446 1,050,000
$45,726
$105,000
$ 78,463
$226 Sale of common stock............ 2,900,000 9,788 22,242 Issuance of common stock for acquisition of certain utility plant...
25,714 87 269 Issuance of common stock for Dividend Reinvestment and Common Share Purchase Plan.....
13,180 44 73 Balance, December 31, 1974..... 16,487,340 1,050,000 55,645 105,000 101,047 226 Sale of common stock............ 2,000,000 6,750 17,277 Issuance of common stock for Dividend Reinvestment and Common Share Purchase Plan....
165,439 558 1,238 Balance, December 31, 1975..... 18,652,779 1,050,000
$62,953
$105,000
$119,562
$226 At December 31, 1975 there were 281, 708 shares of common stock reserved for issuance under the Dividend Reinvestment and Common Share Purchase Plan.
- 6. Long-Term Debt:
Long-term debt outstanding at December 31, 1975 was as follows:
First Mortgage and Collateral Trust Bonds:
3Va% Series, due 1977..........................................
2:Va% Series, due 1979..........................................
23/4% Series, due 1980..........................................
93/ao/o Series, due 1983..........................................
3Va% - 3:Va% Series, due 1984 - 1988............................
4%% - 7% Series, due 1994 - 1998..............................
7W7'o - 8314% Series, due 2000 - 2002..........................,.
8% - 11 % Series, due 2003 - 2005...............................
Pollution Control Notes, 5.8%
effective rate, due 1983 - 1998..................................
Unamortized premium and discount on debt, net......................
Principal Amount
($000)
$ 10,000 10,000 12,000 30,000 45,000 75,000 125,000 90,000 397,000 8,000 405,000 2,348
$407,348 The annual interest requirements on the above indebtedness at December 31, 1975 are $29, 185,000.
Substantially all utility plant of the Company now or hereafter owned and all securities issued by its subsidiaries are subject to the lien of the related Mortgage and Deed of Trust.
25
- 7. Short-Term Debt:
Information with respect to short-term borrowings is as follows:
1975
($000) 1974 Commercial Commercial Banks Paper Banks Paper Average outstanding balance (calculated using month-end balances)...........
$ 4,667
$16,554
$ 8,217
$46,029 Average interest rate................................
12.6%
7.7%
11.3%
10.7%
Maximum outstanding month-end balance:
Month.........................................
June March December March Amount........................................
$26,000
$35,050
$29,600
$64,450 Outstanding balance at December 31.................
$29,600
$23,450 Average interest rate on balances at December 31.....
10.4%
9.7%
Established bank lines of credit as of December 31, 1975 amounted to $75, 190,000 all of which bear interest at the prime rate. The Company is required to maintain a 10% compensating balance on these lines when not in use and an additional 10% balance when in use.
- 8. Sale of Contracts Relating to Nuclear Plant:
On October 27, 1975, the Company and General Atomic Company terminated contractual arrangements for a nuclear steam supply system and the related fuel supply. Concurrently the Company sold the contracts to General Atomic Company for $125 million, which was paid in amounts of $35 million and $90 million on November 3, 1975 and January 2, 1976, respectively. The Company received interest at the rate of 8% on the latter amount which is included in other income. The proceeds of this sale are in consideration of expenditures on the project, additional estimated termination expenditures and to partially provide funds for alternative projects. Philadelphia Electric Company received 15% of the aforementioned sales price and interest in satisfaction of its participation as a joint owner.
The sales proceeds received by the Company, net of plant expenditures which are considered of no future value to the Company, are classified as a credit of $64,878,000 in the balance sheet at December 31, 1975. It is the intention of the Company to reduce the cost of subsequent plant expenditures by the amount remaining in this account after all expenditures related to this terminated plant have been charged thereto. The Company, under advice of Counsel, is not treating the sale of these contracts as taxable for Federal and State income tax purposes.
If taxes are ultimately considered payable they could approximate between $24 million and $35 million and would be applied to the aforementioned credit balance.
- 9. Dividend Restriction on Common Stock:
The Fiftieth Supplemental Indenture restricts the amount of retained earnings available for cash dividend payments on common stock to $29,600,000 plus accumulations after June 30, 1975. The unrestricted consolidated retained earnings amounted to approximately $32,200,000 at December 31, 1975.
- 10. Contingencies and Commitments:
As required in an order issued by the Securities and Exchange Commission in 1972, hearings have been held to determine if the electric and gas properties of the Company constitute a single integrated public utility system.
The Company cannot predict the outcome of these proceedings but believes, in the event of an order requiring disposition of its gas properties, the Commission would permit adoption of a plan for disposing of such property which would permit full realization of its intrinsic value.
See Note 2 for information relating to possible refunds of amounts billed to customers.
The Company intends to construct a fossil fuel unit estimated to cost approximately $189,000,000. At December 31, 1975, construction commitments for the aforementioned plant and other facilities aggregated approximately $100,000,000.
26
Minimum rental commitments as of December 31, 1975 under all non -cancelable agreements are as follows:
1976...........................................
$ 5,641,000 1977...........................................
5,391,000 1978...........................................
5,019,000 1979...........................................
4, 728,000 1980...........................................
2,657,000 1981-1985.....................................
10,680,000 1986-1990.....................................
7,155,000 1991-1995.....................................
5,486,000 Remainder......................................
3,990,000 Total.......................................
$50,747,000 The total minimum rental commitments are applicable to the following types of property: Company's share of Peach Bottom nuclear fuel $9, 119,000 (estimated to be charged to operations over a four-year period); fuel storage and pipeline facilities $36,505,000; railroad coal cars $4,330,000; other, principally computer equipment
$793,000. Rentals charged to operating expenses aggregated $5,901,000 in 1975, including $2,204,000 for nuclear fuel. Rentals were not significant in 1974.
AU DITO RS' REPORT COOPERS & LYBRAND Certified Public Accountants To the Board of Directors Delmarva Power & Light Company Wilmington, Delaware We have examined the consolidated balance sheet of Delmarva Power & Light Company and subsidiary companies as of December 31, 1975, and the related consolidated statements of income, retained earnings and changes in financial position for the year then ended. Our examination was made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
We previously examined and reported upon the consolidated financial statements of the companies for the year 1974.
As explained in Note 2 to the financial statements, operating revenues include amounts subject to refund pending final determination of requested electric and gas rate increases.
In our opinion, subject to the effect upon operating revenues for the year 1975 of the final determination of requested electric and gas rate increases referred to in the preceding paragraph, the aforementioned financial statements present fairly the consolidated financial position of Delmarva Power & Light Company and subsidiary companies at December 31, 1975 and 197 4, and the consolidated results of their operations and the changes in their financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.
1900 Three Girard Plaza Philadelphia, Pennsylvania February 6, 1976 27 COOPERS & LYBRAND
CONSOLIDATED STATISTICS 10 YEARS OF PROGRESS... 1965 - 1975 1975 1974 1973 1972 1971 ELECTRIC REVENUES (thousands): Residential..............
$ 77,069
$ 68,730
$ 51,799
$ 43,878
$ 36,19 Commercial.............
58,169 51, 192 37,888 31,810 25,46 Industrial...............
64,141 66,381 41,284 35,962 28,90 Other utilities, etc........
38,128 33,397 21,518 16,833 12,9q Miscellaneous revenues..
4,370 9,194 5,287 2,857 1,20 Total electric revenues.
$241,877
$228,894
$157,776
$131,340
$104,74 ELECTRIC SALES (1,000 kilowatt-hours): Residential..............
1,672, 180 1,597,472 1,629,641 1,463,821 1,380,76 Commercial.............
1,359,673 1,303,053 1,360,216 1,227,230 1,099,89 Industrial...............
2,142,151 2,461,303 2,512,877 2,412,239 2,252,21 Other utilities, etc........
1,218,785 1,230,528 1,252,977 1, 137,272 1,014,97 Total electric sales.....
6,392,789 6,592,356 6,755,711 6,240,562 5,747,85 ELECTRIC CUSTOMERS (end of period): Residential..............
221,780 215,516 208,073 200,595 193,28 Commercial.............
27,345 27,132 26,708 25,856 25,13 Industrial...............
923 891 867 869 81 Other utilities, etc........
545 501 506 496 46 Total electric customers 250,593 244,040 236, 154 227,816 219,69 GAS REVENUES (thousands): Residential..............
$15,365
$14,298
$13,018
$12,944
$11,94 Commercial.............
4,676 4,201 3,715 3,532 3, 12 Industrial...............
4,343 3,726 3,505 3,265 2,99 Interruptible.............
1,211 1,532 1,363 1,035 1 '1 El Other utilities, etc........
33 26 30 25 1
Miscellaneous revenues..
45 96 22 18
~
Total gas revenues....
$25,673
$23,879
$21,653
$20,819
$19,28 GAS SALES (million cubic feet): Residential..............
6,540 6,863 7,134 7,737 7,58 Commercial.............
2,429 2,526 2,614 2,696 2,5:::
Industrial...............
2,849 3,215 3,653 3,875 3,7S Interruptible.............
1,073 2,257 2,346 2,134 2,7(
Other utilities, etc........
18 16 23 20 1
Total gas sales........
12,909 14,877 15,770 16,462 16,6:::
GAS CUSTOMERS (end of period): Residential..............
69,418 69,525 69,833 69,891 69, 6~
Commercial.............
4,189 4,356 4,418 4,407 4,4~
Industrial...............
198 195 197 195 2(
Interruptible.............
21 21 21 21 r
t:
Other utilities, etc........
1 1
1 1
J Total gas customers...
73,827 74,098 74,470 74,515 74, 2~
REFINERY SERVICE Electricity delivered......
297,282 350,021 (1,000 kilowatt-hours) 341,700 295,236 272,6L Steam delivered.........
(1,000 pounds) 5,517,000 5,921,000 5,926,000 7,261,000 7,564,0C 28
Delmarva Dn111Ar
= ~~~~
Average Annual Compound%
1970 1969 1968 1967 1966 1965 Rate of Growth ELECTRIC REVENUES
)30,992
$27,857
$25,487
$22,900
$21,406
$19,546 14.71 Residential
,21,430 19,333 17,754 16,377 15,256 14,094 15.23 Commercial
.24,069 22,483 20,120 16,471 15, 187 13,272 17.06 Industrial 110,175 8,936 7,962 7,099 6,594 6,148 20.02 Other utilities, etc.
530 513 504 497 490 456 25.36 Miscellaneous revenues
)87,196
$79, 122
$71,827
$63,344
$58,933
$53,516 16.28 Total electric revenues ELECTRIC SALES
!80,420 1, 151, 108 1,037,223 910,548 838,548 748,050 8.38 Residential
)09,488 923,064 856,258 774,382 719,001 643,677 7.77 Commercial
~64,084 2,217,655 2,048,776 1,633,827 1,509,966 1,228,524 5.72 Industrial 185,720 792,1 51 708,899 629,643 570,961 530,1 79 8.68 Other utilities, etc.
~39, 712 5,083,978 4,651,156 3,948,400 3,638,476 3, 150,430 7.33 Total electric sales ELECTRIC CUSTOMERS 87,683 183,458 178,948 174,039 169,906 165,007 3.00 Residential 24,383 24,058 23,474 22,966 22,644 22,401 2.01 Commercial 834 815 806 760 769 780 1.70 Industrial 375 283 281 281 274 275 7.08 Other utilities, etc.
!13,275 208,614 203,509 198,046 193,593 188,463 2.89 Total electric customers GAS REVENUES I
i11,283
$10,708
$10,290
$10,041
$ 9,333
$ 8,767 5.77 Residential 2,861 2,555 2,207 1,980 1,693 1,463 12.32 Commercial 2,618 2,641 2,536 2,032 1,668 1,584 10.61 Industrial r 1.340 1,222 1,155 1,293 1,197 1, 102 0.95 Interruptible 10 7
8 8
8 8
15.22 Other utilities, etc.
~
225 251 215 204 186 172 (12.55)
Miscellaneous revenues
\\
18,337
$17,384
$16,411
$15,558
$14,085
$13,096 6.96 Total gas revenues GAS SALES 7,406 6,942 6,601 6,432 5,851 5,390 1.95 Residential 2,384 2,097 1,770 1,564 1,305 1,104 8.21 Commercial
' 3,549 3,700 3,455 2,659 2,125 1,999 3.61 Industrial 3,423 3,263 3,089 3,447 3,152 2,885 (9.42)
Interruptible 8
6 6
7 6
6 11.61 Other utilities, etc.
116,770 16,008 14,921 14, 109 12,439 11,384 1.27 Total gas sales GAS CUSTOMERS 168,614 68,074 67,270 66,079 65,097 63,820 0.84 Residential 4,444 4,423 4,341 4,225 4, 117 4,014 0.43 Commercial 206 103 93 95 91 82 9.22 Industrial 21 19 19 16 15 13 4.91 Interruptible 1
1 1
1 1
1 Other utilities, etc.
73,286 72,620 71,724 70,416 69,321 67,930 0.84 Total gas customers REFINERY SERVICE 44,614 281,120 265,824 276,598 288,431 267,930 1.05 Electricity delivered (1,000 kilowatt-hours) 79,000 7,536,000 7,296,000 7,390,000 7,300,000 7,067,000 (2.45)
Steam delivered (1,000 pounds) 29
DELMARVA POWER & LIGHT COMPANY 800 KING STREET, WILMINGTON, DE. 19899 U.S. POSTAGE PAID Wilmington, De.
Permit No. 68 Zip Code 19899