ML19261D614

Annual Financial Rept 1978

ML19261D614
Person / Time
Site:	Millstone
Issue date:	12/31/1979
From:	HARTFORD ELECTRIC LIGHT CO.
To:
Shared Package
ML19261D612	List: ML19261D611 ML19261D613 ML19261D614 ML19261D615
References
NUDOCS 7906200376
Download: ML19261D614 (21)

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The Hartford Electric Light Company March 5,1979 To The Shareholders:

The Annual Report of Northeast Utilities, which provides coverage of the entire Northeast Utilities system, in.luding The Hartford Electric Light Company, has been mailed to all HELCO preferred shareholders. This report is brief for that reason.

The financial statements and statistical data included in this report show the results of operations of the Companyin 1978.

On October 3,1978, the Connecticut Supreme Court released its decision on the ap-peals taken by The Connecticut Public Utilities Control Authority (PUCA) and others from the Connecticut Court of Common Pleas decision regarding the Company's 1977 rate decision. The Supreme Court held that the lower court had erred in ordering the PUCA to reconsider the Company's request for an attrition allowance. In all other respects the lower court's decision was sustained.

As a result of the Supreme Court's upholding of the lower court's decision regarding certain operating expenses, the Company filed a proposal with the PUCA to levy a sur-charge that would recover about $3.6 million in such expenses. Hearings were held on this proposal in January 1979 and the PUCA granted the Company permission to recover the 53.6 million through a surcharge to be added to customers' bills over a five month period commencing February 1979.

The Company filed an application with the PUCA in February 1979 for increased electric and gas rates totaling approximately $43.6 million. Hearings on this application are expected to commence in early April and a decision is expected by late July 1979.

The Company sold in April 1978 540 million of 9-3/8% First Mortgage Bonds due in 2008 at a cost of 9.45%. The proceeds from this sale were used to retire short-term debt which had been incurred to finance the Company's continuing construction program and to pay at maturity $15 million of 3-1/4% bonds.

Several organizational changes were made to unify the Boards of Directors and Offices of all operating companies of the Northeast Utilities system.

2286 153 1

1 Donald C. Switzer was elected Vice Chairman and William B. Ellis was elected President of the Company. Other changes included the elections of Herbert W. Sears as a Director, Walter F. Torrance, Jr. as a Director and Vice President, Walter F. Fee as Executive Vice President, Philip T. Ashton, William G. Counsil, Raymond E. Donovan, Jack R. McClendon and Peter M. Stern as Vice Presidents and Robert W. Bishop as Secretary.

Four retirements were noted in 1978. Retiring as Directors were Paul H. Mehrtens after i

i 36 years of system service and Joseph R. Maher after 31 years of system service. Retiring as Vice Presidents were John B. Madigan after 38 years of system service and Robert H.

Pearson after 31 years of system service.

Sincerely,

. f.. C a. C. i fr.

President Chairman

_r eei me e

2286 154 eM l'

3 2

AUDITORS' REPORT To the Board of Directors of The Hartford Electric Light Company:

We have examined the balance sheets of The Hartford Electric Light Company (a Connecticut corporation and a wholly owned subsidiary of Northeast Utilities) as of December 31,1978 and 1977, and the related statements of income, retained earnings and sources of funds for gross property additions for the years then ended.

Our examination was made in accordance with generally accepted auditing stan-dards, 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 accompanying financial statements present fairly the financial position of The Hartford Electric Light Company as of December 31,1978 and 1977, and the results of its operations and the sources of funds for gross property additions for the years then ended, in conformity with generally accepted accounting principles consistently applied during the periods.

ARTHUR ANDERSEN & CO.

Hartford, Connecticut, February 14,1979.

2286 155 3

I i

The Hartford Electric Light Company STATEMENTS OF INCOME For the Years Ended December 31.

1978 1977 l

(Thousands of Dollars)

Operations Excluding Gas Operations To Be Sold Operating Revenues 5241,584 5227,794 Operating Expenses:

Operation -

Fuel 59,478 59,333 Other 56,029 45,341 Maintenance 16,244 12,416 Depreciation 25,496 24,926 Federal and state income taxes (Note 3) 6,879 7,861 Taxes other than income taxes 24,053 24.747 Total operating expenses 189,079 174.624 i

Operating Income 52,505 53.170 Other Income:

Allowance for equity funds used during construction 4,335 3,813 Equity in earnings of regional nuclear generating companies 1,044 973 Other, net 192 (88)

Income taxes applicable to other income-credit (Note 3) 60 182 Net other income 5.640 4 880 Income before interest charges 58,145 58.050 Interest Charges:

Interest on long-term debt 27,174 24,948 Other interest 1,004 986 Allowance for borrowed funds used during construction (3,704)

(3.663)

Totalinterest charges 24,474 22.271 Net income From Continuing Operations 33,671 35,779 Net income From Gas Operations To Be Sold (Note 4) 1,124 073 Net Income 5 34,795 5 36.752 STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31.

1978 1977 (Thousands of Dollars)

Balance at beginning of period

$113,859 5105,196 Net income 34,795 36,752 Cash dividends on preferred stock (6,626)

(6,626)

Cash dividends on common stock (24,871)

(21.463)

Balance at end of period (a) 5117,157

$113.859 (a) At December 31,1978, retained earnings of $32,900,000 were available for payment of cash dividends on common stock.

The accompanying notes are an integral part of these financial statements.

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The Hartford Electric Light Company STATEMENTS OF SOURCES OF FUNDS FOR GROSS PROPERTY ADDITIONS For the Years Ended December 31.

1978 1977

Thousands of Dollars)

Funds Generated From Operations From continuing operations:

Income from continuing operations 533,671

$35,779 Principal noncash items -

Depreciation 25,496 24,926 Deferred income taxes, net 2,349 4,163 Amortization of deferred charges and other noncash items 1,608 2.330 Amortization of deferred fuel costs 91 1,861 Allowance for funds used during construction f 8,039)

(7,476)

Total from continuing operations 55,176 el,583 From gas operations to be sold 2,172 1,853 Total funds from operations 57 348 e3,436 Less - Cash dividends paid on:

Common stock 24,871 21,463 Preferred stock 6.626 6,626 Net funds generated from operations 25,851 35,347 Funds Obtained From Financing Proceeds from issuance of long-term debt 39,701 3,984 Increase (decrease) in short-term debt (27,475) 14,975 Repayments of long-term debt (4,335)

(15,408)

Net funds from financing 7,891 3,551 Other Sources (Uses) Of Funds Decrease (increase) in net current assets (excluding short-term debt and long-term debt due within one year):

Cash and special deposits (901)

(101)

Receivables and accrued utility revenues (5,499) 1,866 Fuel, materials and supplies (1,883) 1,716 Accounts payable 4,503 2,673 Accrued taxes 2,436 (10,478)

Revenues to be refunded to customers (Note 2) 1,970 998 Other, net 1.370 (652)

Net change 1,996 (3,978)

Sales of utility plant 8,719 Deferred fuel costs (287)

(960)

Other, net 42 (568)

Net other sources (uses) of funds 1,751 3.213 Total Funds For Construction From Above Sources 35,493 42,111 Allowance For Funds Used Durmg Construction (electric and gas) 8,103 7.558 GROSS PROPERTY ADDITIONS S43,596 S49.669 Composition Of Gross Property Additions:

Electric utility plant 542,167 545,635 Gas utility plant 1,000 1,972 Nuclear fuel 339 2 062 Total 543,596 S49.660 2286 157 o

+

The.2ccompanying notes are an integral part of these financial statements.

5

i The Hartford Electric Light Company BALANCE SHEETS At December 31.

1978 1977 (Thousands of Dollars)

ASSETS i

Utility Plant:

Electric plant in service, at original cost 5755,736 5734,815 Less: Accumulated provision for depreciation 171,613 150.062 584,123 584,753 Construction work in progress (Note 9) 118,628 101,185 Nuclear fuel, in process 2,324 1.985 Net utility plant (for continuing operations) 705,075 687.023 Cas plant (to be sold), at original cost (including construction work in progress of $908,000 in 1978 and $1,113,000 in 1977)(Note 4) 33,693 32.686 Less: Accumulated provision for depreciation 7,616 6.987 Net gas plant (to be sold) 26,077 25.699 Total net utility plant 731,152 713.622 Other Property and Investments:

Investments in regional nuclear generating companies, at equity 11,130 11,098 Other, at cost 3,274 3.271 14,404 14.369 Current Assets:

Cash and special deposits (Note 5) 4,031 3,130 Receivables, less accumulated provision for uncollectible accounts of $815,000 in 1978 and 5692.000 in 1977 24,080 24,383 Due from affiliated companies 7,764 4,215 Accrued utility revenues 12,582 10,329 Fuel, materials and supplies, at average cost 16,895 15.012 Prepayments and other 253 210 65.605 57.279 Deferred Charges:

Unamortized debt expense 1,027 948 Deferred fuel costs 1,456 1,379 IOther 4,210 5.595 e.693 7.922 Total Assets 5817,854 5793,192 2286 158 The accompanying notes are an integral part of these balance sheets.

6 4

At December 31, 1978 1977 IThousands of Dollars >

CAPITALIZATION AND LIABILITIES Capita!ization:

Common stock - $12.50 par value. Authorized 4,500.000 shares: outstanding 3,291,916 shares S 41,149 5 41,149 Capital surplus, paid in (no change during years) 109,457 109,457 Retained earnings 117,157 113.850 Total common stockholder's equity 267,763 264.4o5 Preferred stock (cumulative) - 550 par value. Authorized 3,000.000 shares: outstanding 1.824.000 shares (Note o) 91,200 91.200 Long-term debt, net (Note 7) 389.047 349.484 Total capitalization 748.010 705.I49 Current Liabilities:

Commercial paper (Note 5) 27.475 Long-term debt due within one year 340 4.315 Accounts payable 6,279 6.213 Due to affiliated companies 13,708 8.518 Accrued taxes 18,364 15.928 Accrued interest 7,090 5.906 Revenues to be refunded to customers (Note 2) 2,968 908 Other 2.653 2.424 51,402 71.777 Deferred Credits:

Accumulated deferred income taxes 3,109 3,802 Accumulated deferred investment tax credits 13,046 10.694 Other 2,287 1.770 18.442 10.26o Commitments and Contingencies (Notes 2, 4 and 9)

Total Capitalization and Liabilities 5817,85j

$793.192 2286 159 7

9 l

The Hartford Electric Light Company NOTES TO FIN ANCIAL STATEMENTS (1)

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES General: The Company, The Connecticut Light and Power Company (CL&P), Western Massachusetts Electric Company (WMECO) and Holyoke Water Power Company are the principal operating subsidiaries comprising the Northeast Utilities system (system) and are wholly owned by Northeast Utilities, a registered holding company under the Pubhc Utility Holding Company Act of 1935. Other wholly owned subsidiaries of Northeast Utilities providing substantial support services to the system operating companies include Northeast Utilities Service Company (NUSCO) (a system service company supplying centralized ad-ministrative, accounting, engineering, financial, legal, operations, planning, purchasing and other services to the system companies), Northeast Nuclear Energy Company (NNECO)

(agent for the system companies in construction and operation of nuclear generating facilities and the financing of nuclear fuel for such facilities) and The Rocky River Realty Company and The Quinnehtuk Company (each a real estate company which rents administrative facilities to the system companies). All transactions among affiliated companies are on a recovery of cost basis and are subject to approval of various federal and state regulatory commissions having jurisdiction.

The Company is part of a New England bulk power system which provides for purchases and sales of electric energy through a regional dispatch control agency. Arrangements among

+

the Company and system companies, outside agencies and other utilities covering inter-connections, interchange of electric power and sales of utility property are subject to regulation by the Federal Energy Regulatory Commission (FERC) or the Securities and Ex-change Commission (SEC). The Company is subject to further regulation by FERC and the Connecticut Public Utilities Control Authority (PUCA) and follow the accounting policies prescribed by the respective commissions.

The Company is a part owner with other system and New England electric utilities of the stock of four regional nuclear generating companies. These companies, with the Company's ownership interest shown parenthetically are: Connecticut Yankee Atomic Power Company (9.5 percent), Yankee Atomic Electric Company (9.5 percent), Maine Yankee Atomic Power Company (4 percent) and Vermont Yankee Nuclear Power Corporation (3.5 percent). The Company's investment in these companies is accounted for on an equity basis. The electricity produced from these facilities is committed to the participants based on their ownership in-i terests and is billed pursuant to contractual agreements which are approved by FERC.

Revenues: Revenues are based on authorized rates applied to customer consumption of utility services. Rates may not be increased without a formal proceeding before the Connecticut Public Utilities Control Authority (PUCA). The Company accrues an estimate for energy delivered but unbilled at the end of accounting periods.

Nuclear Fuel: The Company, CL&P and WMECO own the Millstone Unit Nos. I and 2 as tenants in common and NNECO owns the nuclear fuel for such units. The cost of NNECO's nuclear fuel, based on a net salvage value of zero, is amortized on a unit-of-production method at rates based on estimated kilowatt-hours of energy to be provided and is billed to the companies based on their percentage ownership in the units. The amount of nuclear fuel expense charged to the Company, based on its 28 percent ownership, aggregated $5,497,000 and $5,742,000 in 1978 and 1977, respectively. The Company has requested the PUCA to allow the amortization of estimatcd spent fuel disposal costs on its 28 percent share of Millstone Unit Nos. I and 2 as part of its nuclear fuel costs. It is estimated that the Company's portion of the future disposal costs of Millstone Unit Nos. I and 2 spent fuel, excluding prior period disposal costs, could approximate $1.1-51.4 million per year. If the prior period disposal costs are amortized over ten years as requested of the PUCA, such amortization would amount to an additional 5800,000-51.1 million per year during such ten-year period.

Storage for spent fuel at the Millstone nuclear station, including the facilities currently under construction at Millstone Unit No. 3, will be sufficient until at least the mid-1990's.

Depreciation: The provision for depreciation is computed using the straight-line method at approved rates which are based on the estimated service lives of depreciable utility plant in service and estimated removal costs less expected salvage. The depreciation rates for the several classes of electric plant, which are equivalent to a composite rate of 3.49 percent in 2286 160

1978 and 3.54 percent in 1977, are applied to the average plant in service during the year, other than for major facilities which are depreciated from the time such facilities are placed in service. At the time depreciable property is retired from service, the original cost, plus cost of removal less salvage, of such property is charged to che accumulated provision for depreciation.

A study completed in 1976 estimated decommissioning costs for the two nuclear units owned by the system at approximately $70 million. This study contemplated a decom-missioning method with an indefinitely long period of time between retirement and com-pletion of the removal process. Preliminary results of a 1979 study indicate increased costs for three alternative methods of decommissioning. The complete removal of the facilities at the time of retirement method, with an estimated cost of $127 million, is the most viable and economic method of decommissioning these units. Depreciation rates recognized for regulatory rate setting for the Company include an element based on the recovery of a portion of the Company's share of the 570 million. The increased costs indicated by the 1979 study are not currently included in the Company's rates. It is estimated that, at such time as allowed by the PUCA, the Company's share of the depreciation expense for decommissioning will in-crease from approximately 5650,000 per year to approximately 51.5 million per year.

Maintenance: The cost of maintenance, repairs and replacements of minor items of property is charged to maintenance expense. Replacements and renewals of items considered to be units of property are charged to the utility plant accounts.

FederalIncome Taxes: The tax effect of timing differences (differences between the periods in which transactions affect income in the financial statements and the periods in which they affect the determination of income subject to tax), is accounted for as prescribed by and in accordance with the rate-making treatment of the PUCA. The Company follows the flow-through method, except for the additional investment tax credits received as a result of the Tax Reduction Act of 1975, which requires normalization of such additional credits. It is expected that deferred taxes not provided for currently will be collected in customers' rates when such taxes bscome payable. See Note 3 for the detail of income tax expense.

Allowance for Funh 1 sed During Construction: The allowance for funds used dt. ring con-

~

struction (AFUDC) represents the estimated cost of capital funds used to finance the Com-pany's construction program. The costs of construction are not recognized as part of the rate base for rate-making purposes until facilities are brought into service and, as permitted by the PUCA, the Company charges AFUDC to the construction cost of utility plant. The AFUDC rate applied to construction work in progress for 1978 and 1977 was 9 percent. The Company has not recorded the effect of compounding such rate.

Retirement Plan: The Company participates in a uniform noncontributory retirement plan covering all regular employees. It is the policy of the Company to provide fcr and fund the actuarial liability, which includes the current cost and the amortization of prior service cost over a period of 40 years. Total pension cost, part of which was charged to utility plant, approximated 53,000,000 in 1978 and $2,400,000 in 1977. At December 31,1978, the pension fund assets exceeded the actuarially computed value of the vested benefits. The unfunded actuarialliability of the plan was approximately $17,200,000 at December 31,1978.

Deferred fuel Costs: The Company defers the changes in fuel costs which have not been billed under its fuel adjustment clauses.

(2)

RATE MATTERS The 52,968,000 of revenues to be refunded to customers results from FERC approved set-tiements between gas distribution companies and their gas suppliers which required refunds of certain amounts related to quantities of gas which were delivered to the Company in recent years. The refunds, which have been received from gas suppliers, will be passed on to the Company's customers by reduciag their gas bills in February 1979. Refunds received in 1977 and originally included in other deferred credits have been reclassified consistent with the 1978 presentation.

On January 19,1979, the PUCA approved the recovery of an aggregate of 53,593.000 by p

the Company from its electric and gas customers. This amount represents previously 9

2286 161

I unrecovered costs which were found by the court to have been improperly disallowed by the PUCA in its 1977 rate case decision. The recovery of these costs will be recorded in revenues, as collected, during the first half of 1979.

(3)

INCOME TAX EXPENSE The detail of federal and state income tax provisions charged to continuing operations is set forth below:

Year Ended December 31, 1978 1977 (Thousands of Dollarst Current income taxes:

Federal 52,706

$1,851 State 1,755 j.665 Total current 4.461 3.516 Deferred income taxes, net:

Investment tax credits 2,942 5,712 Federal (532)

(1,265)

State (61)

(284)

Total deferred 2,349 4.163 Totalincome taxes

$6,810 57.670 1

Such provision (credit) is included in the accompanying i

statements of income as follows:

Operating expenses

$6,879

$7,861 Other income (69)

(182)

Totalincome taxes

$6,810 57.679 Deferred income taxes are comprised of the tax effects of timing differences as follows:

Investment tax credits 52,942

$5,712 Unbilled revenues (398)

(401)

Deferred fuel costs 106 (451)

Unusual operating expenses deferred (395) i (Dther (301)

(302)

Deferred income taxes, net 52,349 54 163 The principal reasons for the difference between total tax expense and the amount calculated by applying the federal in-come tax rate to pretax income from continuing operations are as follows:

Expected tax, at 48% of pretax income from continuing operations

$19,431

$20,860 Tax effect of differences:

Additional depreciation for tax purposes (5,174)

(5,396)

Allowance for funds used during construction -

not recognized as income for tax purposes (3,859)

(3,589)

Overhead costs of construction - expensed for tax purposes (886)

(740) investment tax credits (1,444)

(1,716)

Allocated affiliated companies' losses (760)

(797)

Cost of removal - expensed for tax purposes (634)

(821)

State tax, net of federal benefit 881 718 Other, net t745)

(840)

Totalincome taxes 5 6.810 5 7.670 Effective income tax rate 17 %

18 %

2286 162 10

+

9

,b

(4)

CAS OPERATIONS TO BE SOLD in 1974, the Company entered into an agreement to sell its gas properties. In June 1977, the PUCA gave conditional approval of the sale but withheld final approval until a number of conditions, such as adequate financing and savings to customers, are met by the purchaser.

Certain conditions have not t>een met at year-end and the parties have agreed to extend the purchase agreement until September 1,1979. In the event the sale is not consummated, the Company will be required, under certain circumstances, to refund the deposit received in 1974, of 5821,000, currently recorded in other deferred credits. Under the proposal, had the sale been completed on December 31,1978, the Company would have been paid $32,096,000.

At December 31,1978, the gas properties had an aggregate net book value of $26,091,000.

In segregating the results of gas operations to be sold, the Company allocates certain indirect expenses common to both electric and gas operations. The methods of allocation have been accepted by the PUCA for use in establishing rates to be charged to electric and gas service customers. Common operation and maintenance expenses are primarily allocated based on the relationship of electric and gas operating revenues to total operating revenues; interest charges and preferred stock dividends are primarily allocated based on the relationship of beginning of year utility plant in-service balances.

Summarized results of operations of the Company's gas properties are as follows:

Year Ended December 31.

1978 1977 (Thousands of Dollars)

Operating Revenues

$17,438 515.052 Operating Expenses:

Operation -

Purchased and produced gas 9,844 8.441 Other 2,184 1,973 Maintenance 695 717 Depreciation 848 816 Federal and state income taxes 292 (82)

Taxes other than income taxes 1,306 1.192

~

Total operating expenses 15,160 13.057 Operating Income 2,269 1,995 Other Income, Net 54 44 Income before interest charges 2,323 2,039 Interest Charges, Net 1,193 1 066 Net Income From Gas Operations To Be Sold 5 1,124 5 073 (5)

SHORT-TERM DEBT The Company utilizes bank loans and commercial paper to finance temporarily its continuing construction program. The system companies have joint bank credit lines with terms calling for interest rates equal to the prime rate or the prime rate plus a fraction thereof, at the time of borrowing. The credit lines expire at various times in 1979 and, although these lines are generally renewable, the continuing availability of the unused lines of cralit is subject to review by the banks involved. At December 31, 1978, the amount of unused available borrowing capacity under the credit lines available to the Company was $158,450,000:

however, substantially all of these joint credit lines are also available to other system com-panies. The maximum amount of short-term borrowings as currently authorized by the SEC is

$35,000,000.

Essentially all of the cash of the Company represents compensating balances in support of the system's lines of credit: however, the compensating balances are not subject to contractual restrictions on withdrawal.

2286 163 11

i Additional information with respect to short-term debt is as follows:

1978 1977 Weighted average interest rate for borrowings outstanding at end of period (excluding effect of compensating balances) g Q

Maximum amount of borrowings outstanding at any month-end 530.800,000 527.475 000 Average daily borrowings during period S 8,365,000

$12.582.000 Weighted average interest rate during the period (based on the daily amounts out-standing and excluding effect of compensating balances)

8. 5 ';.

6.0 %

Range of maturities at December 31(in days)

_ 3-50 l

(6)

PREFERRED STOCK

~l Details of preferred stock outstanding at December 31,1978 and 1977 are as follows:

Current Shares Description Redemption Price Outstanding Par Value (Thousands of Dollars) 3.90% Series of 1949 550.50 160.000

$ 8,000 4.50% Series of 1956 50.75 104,000 5,200 4.96% Series of 1958 50.50 100,000 5,000 4.50% Series of 1963 50.50 160,000 8,000 5.28% Series of 1967 52.09*

200,000 10,000 6.56% Series of 1968 52.26*

200,000 10,000 9.36% Series of 1970 54.38*

200,000 10,000 7.60% Series of 1971 53.51*

200,000 10,000 9.60% Series of 1974 55.86*

300,000 15,000 11.52% Series of 1975 55.76*

200.000 10.000 1.824.000 591.200

• Redemption price reduces in future years.

All or any part of each outstanding series of preferred stock may be redeemed by the Company at any time at estah!ished redemption prices plus accrued dividends to the date of redemption, except that certain Series are, during their respective initial five-year redemption periods, subject to certain refunding limitations. The 11.52% Series preferred stock requires a sinking fund sufficient to retire a minimum of 10,000 shares at $50 per share each year commencing October 1,1980.

2286 164 12

(7)

LONC-TElBi DEBT Details of long-term debt outstanding are as follows:

December 31, 1978 1977 (Thousands of Dollars)

First Mortgage Bonds:

3%

Series B, due 1978 5

- S 3,975 23/4% Series C, due 1980 10,000 10,000 25/8%. % ies, due 1982 5,532 5,772 31/8%

y~, S D, due 1984 7,536 7,657 5%

Series, due 1987 15,000 15,000 43/8% Series E, due 1988 18,000 18,000 41/4% Series, due 1903 15,000 15,000 41/2% Series, due 1994 12,000 12,000 55/8% Sedes, due 1997 20,000 20,000 61/2% Series, due 1998 10,000 10,000 71/8% Series, due 1998 25,000 25,000 91/4% Series, due 2000 20,000 20,000 75/8% Series, due 2001 30,000 30,000 71/2% Series, due 2002 35,000 35,000 71/2% Series, due 2003 40,000 40,000 91/4% Series, due 2004 30,000 30,000 11 %

Series, due 1982 20,000 20,000 11 1/2 % Series, due 1995 30,000 30,000 93/8% Series, due 2008 40,000 Total First Mortgage Bonds 333,068 347,404 Less due within one year 340

.t.315 Total First Mortgage Bonds, net 382,728 343,089 Pollution Control Notes:

5.90% due 1908 3,262 3,262 6.50% due 2007 4,130 4,130 Unamortized premium and dist.ount, net (1.073)

(907) long-term debt, net S389.047

$349.484 Long-term debt maturities and cash sinking fund requirements on debt outstanding at December 31, 1978, are as follows: 1979, 5340,000: 1980, $12,215,000: 1981 S2,215,000:

1982, $26,787,000 and 1983, $1.975,000. In addition, there is an annual 1% sinking and improvement fund requirement amounting to $3,000,000 for 1979. Such sinking and im-provement fund requirement may be satisfied by the deposit of cash or bonds, or by cer-tification of property additions.

All or any part of each outstanding series of first mortgage bonds may be redeemed by the Company at any time at established redemption prices plus accrued interest to the date of redemption, except that certain series are, during their respective initial five-year redemption periods, subject to certain refunding limitations. The 11% % Series bonds requires a sinking fund sufficient to retire a minimum of $1,875,000 in principal amount each year commencing October 1,1980.

Essentially all utility plant is subject to the lien of the mortgage indenture.

s s

2286 165 13

O e

(8)

LEASES The Company has entered into lease agreements for the use of substation equipment, data processing and office equipment, vehicles and office space. Since lease rentals are charged to expense for rate-making purposes, capitalization of these leases is not required. Had the Company capitalized the leased property at the beginning of the lease terms, the effect on assets, liabilities, expenses or net income would not be material.

Rental payments charged to electric and gas operations, including rental payments on capitalizable leases, amounted to $2,462.000 for 1978 and $2,357,000 for 1977.

Future minimum rental payments, excluding executory costs such as real estate taxes, state use taxes, insurance and maintenance, under long-term noncancellable leases are ap-proximately as follows: 1979, $1,700,000: 1980, $1,700,000: 1981, $1,400,000: 1982,

$1,300,000: 1983, $1,400,000; and for years subsequent to 1983, an aggregate of $15,900,000.

(9)

CONSTRUCTION PROGRAM, FINANCING AND CONTINGENCIES The Company is engaged in a continuous construction program and currently forecasts construction expenditures, including nuclear fuel, to be approximately $59 million in 1979 and

$380 million for the years 1980-1984.

The construction program is subject to periodic review and revision, and actual con-struction expenditures may vary from such estimates due to various factors such as revised load estimates, inflation, the availability and cost of capital and the granting of timely and adequate rate relief by the PUCA. It is expected that compliance with present and developing regulations established by various authorities in the areas of nuclear plant licensing and 4

safety, land use, water and air quality and other environmental matters will require additional capital expenditures and increased o,rrrating costs not now determinable in amount. In ad-dition, uncertainties related to the revocessing or permanent storage of nuclear fuel may require revisions in future nuclear fuel costs.

At December 31, 1978, construction work in progress included an investment of

$104,800,000 in jointly owned nuclear generating facilities consisting of an 18.2 percent in-terest in Mi!! stone Unit No. 3 of $97,700,000, and a 21 percent interest in the proposed Montague nuclear plant of $7,100,000. All the companies owning undivided interests in these jointly owned facilities are required to provide their own financing in order to support their portion of construction costs.

In October 1977, the PUCA granted 42 percent of the Company's requested rate increase, Subsequently, the system announced certain reductions in its construction program and deferred the planned in-service date of Millstone Unit No. 3 from 1982 to 1986. The current estimated cost of Millstone Unit No. 3 is $2 billion wnen placed in service in 1986. In 1978, primarily because of regulatory delays, the system suspended its early site review effort for the Montague Units, but continues to perform meteorological and aquatic studies of the site and is continuing to capitalize AFUDC.

In 1979, the Company's construction program is expected to be financed from internal sources and short-term debt. Future earnings and the Company's ability to meet earnings coverage requirements for long-term financing will be affected by a number of factors in-cluding timely and adequate rate relief, growth in sales, performance of nuclear generating units, inflation, interest and preferred stock dividend rates and other factors, the nature and effect of which cannot be determined in advance. In 1977, the Company sold a 2 percent interest in Millstone Unit No. 3.

The U.S. Department of Energy has issued Prohibition Orders against burning oilin three of the Company's oil-fired generating units and requested a compliance schedule for con-version to coal. The Company is v,isting the orders for both financial and environmental reasons. If the conversion requirements are made final, an expenditure of approximately $188 million will be required in addition to currently forecasted construction expenditures.

2286 166 14

An antitrust lawsuit was instituted against the Company, Northeast Utilities, CL&P and NUSCO in 1973 by six Connecticut municipal-owned electric utilities for 564 million in treble damages and is still pending. In August 1978, the U.S. District Court issued a ruling denying the companies' motion for summary judgement. The action must now proceed to a hearing. In the opinion of counsel for the system, based upon all the facts now known to them, the system companies will not be held liable for the antitrust offenses claimed in the plaintiffs' complaint.

(10) GENERAL IMPACT OF INCREASED COSTS (UNAUDITED)

Substantial increases in recent years in fossil fuel prices have generally been recovered directly by increased revenues under fossil fuel and purchased gas clauses. To recover increases in other operating expenses, frequent requests for general rate increases have been required. The increases in recent years in construction costs of utility plant have exceeded general rates of inflation and the estimated replacement cost of such assets are significantly greater than the historical cost which forms the basis for revenue determination by the regulatory authorities.

The Company's ability to replace its productive capacity in the future will be contingent upon its ability to finance such replacement. This, in turn, will depend on the Company's ability to obtain adequate and timely rate relief. In compliance with the reporting requirements of the SEC, additional information with respect to replacement cost of productive capacity will be included in Annual Report Form 10-K filed with the SEC for the year 1978.

(11) QUARTERLY FINANCIAL DATA (UNAUDITED) (a)

Summarized quarterly financial data for 1978 and 1977 are as follows:

Quarter Ended March 31 June 30 September 30 December 31 (Thousands of Dollars) 1978 Operating Revenues S62,375 556,020 561,655 561,534 Operating income S 9,160 S11,753 515,217 516,375 Net income From Continuing Operations S 4,706 S 7,076 510,405 S11,484 Net income (Loss) From Gas Operations To Be Sold 782 (83)

1. 127) 552 Net income 5 5,488 5 6,993 510,278 512,036 1077 Operating Revenues M

$52,673 550 191

$56. 861, Operating Income

$16 754

_512.291 513.564 510.541 Net Income From Continuing Operations

$12,400 5 7,926 5 9,227 5 6.226 Net income (Loss) From Gas Operations To Be Sold 540 E

(56) 600 Net Income

$12,940

$ 7 815 5 0.171 56826 (a) Fluctuations between quarters within a year and as compared to the previous year are primarily due to seasonal variations and the impact of nuclear performance.

2286 167 15

1 I,

The Hartford Electric Light Company

SUMMARY

OF OPERATIONS For the Years Ended December 31.

t?78 1977 Operations Excluding Gas Operations To Be Sold Operating Revenues

$241.584 5227.704 Operating Expenses:

(

Operation and maintenance 131,751 117,000 Depreciation 25,496 24.02o Federal and state income taxes 6,879 7.8o1 Taxes other than income taxes 24,o53 24 747 Total operating expenses 180.070 174.624 Operating Income 52,505 53,170 Other Income, Net 5,640 4 880 Income Before Interest Charges 58.145 58 050 Interest Charges, Net 24.474 22 271 Net Income From Continuing Operations (before cumulative effect of accounting changes) 33,671 35.770 Net Income From Gas Operations To Be Sold (before cumulative effect of account-ing changes) 1,124 073 Net Income (before cumulative effect of accountingchanges) 34,795 36,752 Cumulative effect prior to January 1,1974 of accounting changes, relating to deferred fuel cost and unbilled revenues, net of applicable income taxes of $3,018,000:

Continuing operations Cas operations to be sold Net income 5 34.705 5 36.752 Pro Forms Net Income (assuming the 1974 accounting changes above were applied retroactively)

(a) The pro forma change for 1968 is estimated to be immaterial and therefore, has r at been computed.

e 16

1976 1975 1974 1973 1968 (Thousands of Dollars) 5219.444 5212.572

$182.059 5141.908 580.282 111,282 123,613 107,473 74,539 39,1 %

21,081 16,240 15,483 13,949 8,088 4,523 750 (2,350) 557 5,016 25.038 22.677 20.341 17,171 0.526 161,924 163.280 140,947 106.216 61,736 57.520 49,292 41,112 35.782 18,546 4.076 6.096 4.804 5.463 (12) 61,596 55 388 46.006 41,245 18 534 23.071 20.432 10,730 15 094 4.803 38,525 34,956 26,276 26,151 13,731 907 602 1,109 934 67,0 39,432 35,558 27,3d5 27,085 14,410 6,679 439

$ 39.432 5 35.558 5 34.5C3 5 27.085 514,410

$ 27,385 5 28,340 (a) 2286 169 17

The Hartford Electric Light Company i

MANAGEMENTDISCUSSION AND ANALYSIS OF

SUMMARY

OF OPERATIONS Comparison of the Year 1978 with the Year 1977 Operating revenues increased 513.8 million (6.1%) in 1978 over 1977, primarily due to a rate is. crease which was received in late 1977 and higher kilowatt-hour sales. The increase in revenues was partially offset by a decrease in fuel cost recoveries, reflected in billings through lower fossil fuel clause charges on customers' bills.

j The increase in operating revenues was accompanied by a net increase in operating expenses of

$14.5 million (8.3%). The most significant portion of this increase resulted from a $14.7 million (12.5%) increase in operation and maintenance expenses. This increase was due primarily to the operation and maintenance expenses associated with the Millstone Unit Nos. I and 2 outages for refueling and maintenance, and the continuing impact of inflation. In addition,1978 reflects in-creased net capacity costs due to lower capacity sales to other utilities. Income taxes increased primarily due to the utilization of a lesser amount of investment tax credits.

The increase in allowance for equity funds used during construction caused the increase in other income and reflects the growth in construction work in progress. Most of this growth in construction work in progress relates to the Company's share of Millstone Unit No. 3.

Interest charges increased due to the additional interest on a new bond issue in April 1978.

Income from gas operations to be sold increased due to a rate increase granted in late 1977.

Comparison of the Year 1977 with the Year 1976 Operating revenues increased 58.4 million (3.8%) in 1977 over 1976. This increase resulted primarily from higher fuel costs recovered through billings to customers and higher kilowatt-hour sales.

Although revenues increased in 1977, they were more than offset by an increase in operating expenses of $12.7 million (7.8%). This increase was due to escalating fuel costs and higher sales. In addition, the increase reflects the impact of inflation on salaries, wages, materials and services.

Depreciation increased in 1977 due to additions to utility plant and higher depreciation rates allowed by the PUCA. Federal and state income taxes increased in 1977 as a result of increased taxable income after the utilization of net operating losses and the increased normalization of investment tax credits.

The increase in allowance for equity funds used during construction caused the increase in other income and reflects growth in construction work in progress, most of which relates to the Company's share of Millstone Unit No. 3.

2286 170 IS

The Hartford Electric Light Company STATISTICS Operating Revenues Utility Plant December 31, (Thousands)

(Thousands)(a)

Electric Gas Total 1968 5370,187 5 80,282 5 6,815 5 87,097 1973 671,447 141,998 8.994 150,992 1974 731,434 182,059 10,774 192,833 1975 798,544 212,572 11,396 223,968 1976 832,468 219,444 13,017 232,461 1977 870,671 227,794 15.052 242,846 1978 910,381 241,584 17,438 259,022 (a) Includes ga, "tility plant to be sold.

Average Average Annual

= ~ - -

Annual Cubic Feet Residential Electric Gas

=.=.

.= -

Kwh Saler Residential of Gas Sales Cubic Feet Customers Customers Employees (Millions)

Kwh Uselb)

(Millions) of Gas Used (Average) (Average) (December 31) 1%8 3,773 5,393 4,482 73,884 260,309 32,900 1,768 1973 5,270 7.038 4.611 74,461 279,110 31,319 1,703 M74 5,014 6,703 4,601 75.233 282,909 31,188 1,677 1975 5,066 6,703 4,384 71,853 285,881 31.091 1,544 1976 5,283 6,930 4,598 77,981 288,055 31.012 1,395 1977 5.424 6,942 4,490 76,554 291,671 31,001 951 (c) 1978 5,567 6.963 4,627 75,753 295,387 30,909 187 (c)

(b) Based on residential equivalent customers, reflecting total dwelling units.

(c) Decreases are due to the consolidation of the Company's and CL&P's operations.

2286 171 19

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