ML19259C407
| ML19259C407 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 12/31/1978 |
| From: | VERMONT ELECTRIC POWER CO., INC. |
| To: | |
| Shared Package | |
| ML19259C403 | List: |
| References | |
| NUDOCS 7906190379 | |
| Download: ML19259C407 (13) | |
Text
ARTHUR ANDERSEll & CO.
IloSTox, MASSACHUSETTS To the Stockholders and Board of Directors of Vermont Electric Power Company, Inc.:
We have examined the balance sheet of VERMONT ELECTRIC POWER COMPANY, INC. (a Vermont corporation and subsidiary of Central Vermont Public Service Corporation) as of December 31, 1978, and the related statements of income and 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 ci rc ums tances.
We have no'. examined the financial statements as of December ;1, 1977, and f or the year then ended, and accordingly do not express an opinion on them.
In our opinion, the accompanying financial statements present f airly the financial position of Vermont Electric Power Company, Inc. as of December 31, 1978, and the results of its operations and the changes in its financial position f or the year then ended, in conf ormity with generally accepted accounting principles applied on a consistent basis.
Bos_on, Massachusetts,
$61}
j March 1, 1979.
O
l PE AT, DIARWICK, h1ITC H ELL & CO.
C E RTI FI E D PUBLIC ACCOUNTANTS ONE DOSTON PLACE DOSTON, MASSACI!USETTS O2100 617-723-7700 The Stockholders and Board of Directors Vermont Electric Power Company, Inc.:
We have examined the balance sheet of Vermont Electric Power Company, Inc.
as of December 31, 1977 and the related statements of income and 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.
In our opinion, the aforementioned financial statements present fairly the financial position of Vermont Electric Power Company, Inc. at December 31, 1977 and the results of its operations and the changes in its financial position for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year.
f x, N A. M w..
February 15, 1978
VERMONT ELEC f
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BALANCE SHEETS t
i ASSETS 1978 197 UTILITY PLANT, at original cost
$56,471,999 $53,719, Less-Accumulated depreciation and amortization (Note 2) 8,950,817 7,705,
$4 7,521,182 $46,013, Expenditures for future transmission facilities, at cost (Note 5)
$ 1,452,350 $ 3,346, Expenditures for Seabrook nuclear project, at cost (Note 9) 777,065 $
- 414, CURRENT ASSETS:
Cash 909,054 $ 1,226, Bond sinking fund deposits 436,500
- 404, Bond interest deposits 749,699
- 781, Accounts receivable-Affiliated companies 5,313,925 4,937, other 1,004,017 2,090, Notes receivable from affiliate 415,000
- 305, Materials and supplies, at average cost 419,550
- 480, Other 17,169 67,
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$ h 5 [h[4 h[b 293I DEFERRED CHARGES:
Unamortized cost of site location studies (Note 6) 761,577 $ 1,142, Other, principally unamortized debt 272,246
- 274, expense i
s
$ 1,033,823 $ 1,417,
$60,049,334 $61,484,
=======
The accompanying notes are an i
IC POWER COMPANY, INC.
DECEMBER 31, 1978 AND 1977
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STOCKHOLDERS' INVESTMENT AND LIABILITIES 1978 1977
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CAPITALIZATION:
26 Stockholders' investment (Note 3)-
Common stock, $100 par value per share:
85 Class A, authorized 12,000 shares, outstanding 11,000 shares
$ 1,100,000 $ 1,100,000 1
Class B, authorized 80,000 shares, outstanding 36,000 shares (Note 10) 3,600,000 3,600,000 Retained earnings 23,250 23,250 98
$ 4,723,250 $ 4,723,250 20 First mortgage bonds (Notes 3 and 10)-
Series A, 4.95% due through 1985
$ 3,878,000 $ 4,333,000 Series B, 9-1/2% due through 1999 9,117,000 9,254,000 Series C, 10% due through 2000 4,647,000 4,708,000 Series D, 8-1/2% due through 2000 6,891,000 7,001,000 Series E, 8% due through 2000 6,908,000 7,027,000 Series F, 11-1/2% due through 1990 7,117,000 7,405,000
$38,558,000 $39,728,000 91 Less-Bonds to be retired within 33 one year 1,265,000 1,170,000 94
$37,293,000 $38,558,000 90 76 Total capitalization
$42,016,250 $43,281,250 00 45 CURRENT LIABILITIES:
33 Notes payable to banks (Note 4)
$10,000,000 $ 9,500,000 62 Other current liabilities-Bonds to be retired within one year
$ 1,265,000 $ 1,170,000 Accounts payable-Affiliated companies 3,075,402 3,256,244 Other 2,445,503 3,011,247 Accrued interest on bonds 749,699 781,194 Accrued taxes 395,174 381,650 Other 102,306 102,908 65
$ 8,033,084 $ 8,703,243 07
$18,033,084 $18,203,243 72 COMMITMENTS AND CONTINGENCIES (Note 9)
J 93
$60,049,334 $61,484,490
==
==========
itegral part of these financial statements.
VERMONT ELECTRIC POWER COMPANY, INC.
()
STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1978 AND 1977 1978 1977 OPERATING REVENUES:
Transmission services for the State of Vermont
$ 2,321,072
$ 2,075,179 other transmission revenues 7,525,042 6,888,399 Sales of power 66,717,943 67,316,958
$76,564,057
$76,280,536 OPERATING EXPENSES:
Purchased power
$66,717,943
$67,316,958 Transmission expenses-Operations 330,282 299,983 (p
Maintenance 292,518 257,742 Rents 677,194 695,271 Administrative and general expenses 954,461 720,782 Amortization of site location studies (Note 6) 380,789 380,789 Depreciation and amortization (Note 2) 1,201,667 1,112,333 Taxes, principally property taxes (Note 7) 1,394,142 1,345,564
$71,948,996
$72,129,422 OPERATING INCOME
$ 4,615,061
$ 4,151,114 OTHER INCOME 133,217 76,845
$ 4,748,278
$ 4,227,959 INTEREST EXPENSE:
gg Interest on first mortgage bonds
$ 3,518,822
$ 3,609,252 Interest on notes payable to banks 920,260 508,343 Amortization of debt expense 21,397 21,814 Allowance for borrowed funds used during construction (66,201)
(265,450)
$ 4,394,278
$ 3,873,959 NET INCOME (Note 1) 354,000 354,000 RETAINED EARNINGS AT BEGINNING OF PERIOD 23,250 23,250 377,250 377,250 CASH DIVIDENDS DECLARED AND PAID 354,000 354,000 RETAINED EARNINGS AT END OF PERIOD 23,250 23,250
=
=
$5' The accompanying notes are an integral part of these financial statements.
VERMONT ELECTRIC POWER COMPANY, INC.
9 STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE YEARS ENDED DECEMBER 31, 1978 AND 1977 1978 1977 SOURCES OF FUNDS:
Internal sources-From ope rations-Net income S
354,000 354,000 Charges (credits) not requiring funds-Depreciation and amortization 1,201,667 1,112,333 Amortization of site location studies 380,789 380,789 gg Amortization of debt expense 21,397 21,814
$ 1,957,853
$ 1,868,936 Less-Reduction in first mortgage bonds (1,265,000)
(1,170,000)
Dividends declared and paid (354,000)
(354,000)
Other, net 197,177 138,699 536,030 483,635 Change in net current assets (exclusive of interim financing)-
Cash 317,837 (562,320)
Accounts receivable 709,524 (872,060)
Accounts payable (746,586) 853,048 Other, net 77,214 (208,142) 357,989 (789,474) gg In te rnal sou rces, net S
894,019 (305,839)
Ex te rnal sources-Notes payable to banks 500,000
$ 3,000,000
$ 1,394,019
$ 2,69 4,161
=
=
FUNDS USED FOR CONSTRUCTION:
Utility plant S 1,031,074 S 2,489,570 Seabrook nuclear proj ect 362,945 204,591
$ 1,394,019
$ 2,69 4,161
=
=
The accompanying notes are an integral (D'
part of these financial statements.
YI VERMONT ELECTRIC POWER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1978 AND 1977 (1)
The Company The Company is a subsidiary of Central Vermont Public Service Corporation ("CVPSC"), which owns 86.5% of its Class A common stock and 54.1% of its Class B common stock.
The Company owns and operates the transmission system constructed to transport power under the terms of a contract, administered by the Vermont Public Service Board ( " PS B" ), with the State of Vermont.
gg The transmission contract with the State provides, among other things, f or the Company to earn an annual net income on its transmission operations equal to 6% of the par value of the Class A common stock and 8% of the par value of the Class B common stock.
These defined earnings are distributed annually as dividends to the Company's stockholders.
The Company earns no net income f rom its other activities.
These other activities, which are reflected in the accompanying statements of income, include the Company's function as agent in the purchase, sale and transmission of power under contracts with other Vermont utilities.
CVPSC personnel provide the Company with a wide range of operational and administrative services, principally planning, engineering, personnel, and purchasing services.
In addition, CVPSC employees perf orm construction and maintenance work on the Company's transmission system.
These services are provided at cost, reflecting the payroll cost plus overnead, and amounted to $350,980 45 in 1978 and $627,877 in 1977.
CVPSC's President and Secretary also serve as Chairman of the Board of Directors and Secretary of the Company, respectively, and the allocable portions of their salaries are charged to the Company.
In addition, the Company purchased
$14,137 of materials and supplies in 1978 and $23,624 in 1977 from CVPSC's inventory, priced at direct cost plus related overhead.
CVPSC's automobiles and equipment are used by the Company, and charged at CVPSC's applicable rates.
The Company's effices are located in a building owned by and shared with CVPSC.
The Company's office rent, representing its share of the total cost of the building, amounted to $43,500 in 1978 and $37,300 in 1977.
O
VERMONT ELECTRIC POWER COMPANY, INC.
gg NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1978 AND 1977 (Con ti nued)
(2)
Summary of Significant Accounting Policies Cepreciation and Amortization All of the Company's depreciable utility plant has been financed through sales of first mortgage bonds.
The remaining gg utility plant has been financed through sales of common stock.
The Company's contract with the State of Vermont provides f or funding the amortization of first mortgage bonds.
In accordance with these provisions, the Company utilizes the sinking fund method of depreciation for recovering the cost of utility plant.
Depreciation and amortization are recorded as operating expenses in amounts equivalent to payments made to satisfy sinking fund requirements of the bonds over periods ranging f rom 15 to 30 years.
Allowance for Funds Used During Construction (AFUDC)
AFUDC is the estimated cost, during the period of construction, of funds used for the construction program.
Such allowance is not realized in cash currently but will be recovered over the service life of the plant in the form of increased revenue collected as a result of depreciation expense recorded utilizing the method described above.
The Company capitalized AFUDC at annual ra tes of 9.2% in 1978 and 7.1% in 1977.
4I For other significant accounting policies, see the following Notes:
Note 5 - Expenditures for Future Transmission Facilities Note 6 - Site Location Studies Note 7 - Federal Income Taxes Note 8 - Pension Plan (3)
First' Mortgage Bonds The First Mortgage Bonds are secured by a first mortgage lien on the Company's utility plant.
The annual sinking fund requirements of these bonds, including Series G Bonds described in No te 10, for the next five years will amount to $1,399,000 in 1979,
$ 1,518,0 0 0 in 1980, $1,646,000 in 1981, $1,785,000 in 198 2 and
$1,938,000 in 1983.
O
()
VERMONT ELECTRIC POWER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1978 AND 1977 (Con ti nu ed)
(3)
First Mortgage Bonds (Continued)
The terms of the indenture, as supplemented, under which the First Mortgage Bonds were issued require that to tal stockholders' investment and indebtedness of the Company subordinated to the First Mortgage Bonds must equal at least
()
one-ninth of the aggregate principal amounts of the bonds outstanding.
(4)
Notes Payable to Banks The Company uses short-term borrowings under lines of cred it agreements with two banks to provide interim financing of construction in progress.
The Company had borrowed the maximum amounts permitted under these lines as of December 31, 1978.
As part of these agreements, the Company maintains average compensating balances equal to 10% of credit lines available, and, in one instance, an additional 10% of outstanding borrowings.
Subsequent to December 31, 1978, all short-term borrowings were repaid f rom the proceeds from the sale of a new series of first mortgage bonds and a common stock issue ( see No te 10 ).
Information regarding notes payable to banks for 1978 and qg 1977 is as follows:
1978 1977 Notes Outstanding-Amount at year-end
$10,000,000 $9,500,000 Average daily borrowings 9,719,000 6,999,000 Maximum amount based on month-end balances 10,000,000 9,500,000 Weigh ted Ave rage In te rest Ra te-Year-end 12.21%
8.14%
Daily average 9.47%
7. 26 %
6
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VERMONT ELECTRIC POWER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1978 AND 1977 (Con ti nu ed)
(5)
Expenditures for Future Transmission Facilities During the early 1970's, projects for the planned expansion of the Company's transmission system resulted in expenditures f or purchases of land, securing of rights-of-way and engineering studies.
As a result of lower than expected load growth, the 40 originally anticipated dates of completion for those projects have been postponed.
During 1978, $1,492,372 of these expenditures were reclassed to plant-in-service and $373,570 to land held for future use, both of which were included in the balance in Utility Plant at December 31, 1978.
In addition, $28,006 of these expenditures were charged to operating expenses.
The Company believes that the remaining expenditures will be recovered.
(6)
Site Location Studies The Company had engaged in studies to evaluate proposed generating plant sites in Vermont.
In 1974, as a result of lower than expected load growth forecasts, it was determined not to proceed with these studies.
With the approval of the PSB, the costs incurred for these studies are being amortized to expense over a five-year period ending December 31, 1980.
$b-(7)
Federal Income Taxes The Company computes its Federal income tax expense by applying the statutory rate to its taxable income in accordance with the rate-making practices followed by the PSB.
The tax effects of all timing dif ferences (differences between the periods in which transactions affect pretax income in the financial statements and the periods in which they affect the determination of income subject to tax) are flowed through for accounting purposes.
The Company expects that the unrecorded taxes, arising f rom the tax ef f ects of such timing differences, will be recovered in the future when the timing dif ferences reverse and the related taxes become payable.
.S
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SI VERMONT ELECTRIC POWER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1978 AND 1977 (Continued)
(7)
Federal Income Taxes (Con ti nued)
In 1978, the Company applied substantially all of its available tax operating loss carry-f orwards to reduce taxable income.
The Company records investment tax credits as a reduction of Fede ral income tax expense in the year such credits are utilized gg in its Federal income tax return.
The Company has investment tax credit carry-f orwa rds of appr ?xima tely $1,351,000 as of December 31, 1978 which expire as follows:
$205,000 in 1979; $180,000 in 1980;
$91,000 in 1981; $ 267,000 in 1982; $53,000 in 1983; $396,000 in 1984 and $159,000 in 1985.
These investment tax credit carry-forwards a re s ubj ect to review by the Internal Revenue Service.
The principal reasons for the dif ference between total tax expense and an amount calculated by applying the Federal int;..e tax rate to income before income taxes are as follows:
1978 1977 Income bef ore income taxes S 354,000
$ 354,000 Federal statutory rate 48%
48%
Compu ted "exp ec ted" tax expense 169,920 169,9 20 Increases (reductions) in taxes resulting from:
SP-In te re st and overhead charged to construction and expensed f or tax purposes (36,052)
(20,540)
Excess of book over tax depreciation 29,712 27,680 Dif f erence between property taxes accrued and paid 14,739 17,528 Net operating loss carry-forward utilized (362,350)
(375,282)
Amortization of site location studies 182,778 182,778 Other 1,253 (2,084)
Total income taxes S
0$
0
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8.
qg VERMONT ELECTRIC POWER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1978 AND 1977 (Con ti nu ed)
(8)
Pension Plan The regular employees of the Company participate in the Pension Plan of Central Vermont Public Service Corporation and its Subsidiaries, a noncontributory trusteed plan.
The amounts discussed below rela te to the Company's allocable share of the Jg plan.
The Company follows the practice of funding currently all costs accrued.
The market value of the assets of the trust fund exceeded the actuarially computed value of vested benefits by approxima tely $ 32,000 as of January 1, 1978.
Total pension costs were $76,373 in 1978 and $72,915 in 1977, including amortization of the unfunded prior service costs over a thirty-year period beginning January 1, 1976.
(9)
Commitments and Contingencies Capital expenditures in 1979 are estimated to total
$1,605,000.
Present intentions are to finance these expenditures on an interim basis with short-term borrowings which are expected to be replaced by first mortgage bonds and common stock.
The Company is participating with other New England utilities in a twin unit nuclear generating plant project, now under g~
construction in Seabrook, New Hampshire and, in this regard, is obligated to provide funds through 1985, estimated to total
$2,740,000, excluding AFUDC.
The principal or lead participant in this project is the Public Service Company of New Hampshira
(" PSNH" ).
Although the necessary approvals and permits
.a construction of the Seabrook units have been obtained and construction is currently in progress, seve ral court appeals and regulatory proceedings concerning the approvals and permits are still pending.
In November, 1978, the Governor of New Hampshire reaffirmed his position that the inclusion of construction work in progress
("CWI P" ) in PSNH's rate base should be prohibited and stated that he would support legislation to that effect.
PSNH has tak en the position that the inclusion in rate base of CWIP or an equivalent e f f ect on revenues is necessary to permit it to finance its 50%
share of the Seabrook project on reasonable terms.
As a result,
NI VERMONT ELECTRIC POWER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1978 AND 1977 (Con ti nued)
(9)
Commitments and Contingencies (Con ti nu ed)
PSNH is actively exploring alternative financing arrangements and has considered selling a substantial portion of its ownership in te rest in the Seabrook project to other utilities, several of which have inf ormally indica ted in te rest in purchasing up to 80% of gg PSNH's share.
PSNH's financing problems may result in suspension of the proj ect, which would result in further delays and increased costs.
The impact, if any, which the court appeals, regulatory proceedings or financing problems may have on completion of the project is not presently known.
The Company has reached agreements to sell, for book value, its share of the Seabrook proj ect.
However, the required regulatory approvals for these sales have not yet been completed.
(10)
Subsequent Events On January 3, 1979, the Company sold 6,000 shares of Class B Common Stock ($600,000) to existing stockholders and on January 10, 1979 sold $9,000,000 of First Mortgage Bonds, Series G, 9.70%, due 2000, to institutional investors.
The related proceeds were used to repay a portion of outstanding notes payable to banks, db-the balance of which were repaid by funds previously being used to maintain compensating balances.
W