ML19308A791

Annual Financial Rept 1975

ML19308A791
Person / Time
Site:	Oconee, Mcguire, Catawba, McGuire, Perkins, Cherokee
Issue date:	04/26/1976
From:	DUKE POWER CO.
To:
References
NUDOCS 7912110782
Download: ML19308A791 (39)

Text

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Duke Power Annadi Report 1975

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THE ATTACHED FILES arc OFFICI AL RECORDS OF THE OFFICE OF REGULATION. THEY HAVE BEEN CHARGED TO YOU FOR A LIMITED TIME PERIOD ANS MUST BE RETURNED TO THE CENTR AL RECORDS STATION 008. ANY PAGE(S)

REMOVED FOR REPRODUCTION MUST BE RETURNED TO ITS/THEIR ORIGIN AL ORDER.

Negulatorf O ccket Sq DEADLINE RETURN DATE Z

, p 3 O- 2 CT - a7o g 2 497 m W, AF k.:_bd-2d CENTRAL RECO DS STATION

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1 As we celebrate the Bicentennial. it s important to remember that the use of energy helped make America great. Without an adequate energy supply, Amenca's great-ness is threatened Our view of today's energy cnsis begins on page 12.

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Per Cent 1n Increase

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Electric Revenues S 818.803.000* 16.6 Earnings for Common Stock $ 74.269.000* 26.4 Return on Average Book Common Equity 8.6%* 11.6 Per Share of Common Stock Earnings $1.74* 5.7 3

Dividends Paid $1.40 -

1 Average Common Shares Outstanding 42.618,000 19.7 Ptant Construction Costs 5 510.752.000 (14.1) i Sectnc Plant. Net ' 53.055.899.000 10.2 Kilowatthour Sales (thousands) 42.344 000 (05)-

Peak Load (kw) 8.057,625 4.5 ,

Restated - see Note 2 to financialstatements.

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To Our Shareholders:

In view of the tremendous financial pressures under severe recession in the textile industry, which contnb-which our Company has operated dunng the past six uted to an overa!! 2 6 per cent decline in kilowatthour years. Our re;; ort to you this year is devoted to those saies compared to the first half of 1974. Earnings per influences which we feel now offer very real hope for share for the first two quarters of 1975 amounted to recovery. only 57 cents. -

We are optimistic. in fact, that our Company has in contrast to first ha:f results. eamings per share for finally reached the turning point in its long struggle to the second half of 1975 totaled $1.27. This improve-overcome the effects of inflation and inadequate rate ment resulted from a reversal of the declin:ng sa!es ievels trend which existed dunng the fast ha!f of the year Financial results for the second half of 1975 were and. to an even greater extent. from rate increases particularly encouraging Combined earnings per placed into effect in mid er.

share for the third and fourth quarters more than Total kilowatthour sales .975 were only one-half doubled those of the first half. boosting total earnings per cent below those of the previous year, reflecting per share for 1975 to $1.84, a six per cent increase a marked improvement in the textile industry's level of over the restated $1.74 earnings per share for 1974, operations dunng the second half.

Based on those resuits. the Board of Directors at its interim rate increases of approximately 20 per cent January,1976. meeting voted to increase the quarterly were placed into effect on all the Company's retail common dividend to 37M cents per share. The divi- and wholesale operations in mid-year. Subsequent dend is payable on March 15.1976. to shareholders regulatory decisions on requests for permanent of record on February 20.1976. increases in retail rates provide a reaicic opportunity Fnor to that decision. the quarterly dividend on Duke for the Company to eani a more adequa,'e level of Power common stock had remained constant at 35 return on shareholders' investments.

cents per share since reaching that level in the third On October 3,1975. the North Carolina Utilities Com-quarter of 1968. One of our pnmary concerns through- n..sion granted 91 per cent of the requested $123 out this period has been the inability to increase the million incic3eo in revenues and affirmed over $21 dividend to keep pace with increases in interest rates million collected sirce June 30 under the intenm and returns on other secunties increase In addition. tre Commission raised the Since 1969. the year that costs associated with our allowed return on commcq equity to 13.5 per cent, industry began their dramatic climb. Duke Power has adjusted on a fair value basis as required by North Carolina statute not eamed the allowed level of return on shareholders.

investments. The pnmary reason for this failure has On January 13.1976. The Public Service Commission been delays in obtaining rate increases to offset spiral- of South Carolina granted 88 per cent of the requested ing costs in nearly a!! areas of the Company's opera- $54 million increase in retail revenues in that state. The tions. Inadequate rate levels resulting from hose delays South Carolina order also affirmeo all revenues caused revences to trail actual expenses by a year and more.

This pricing dilemma existed through the first half of 1975, dunng which earnir.gs per share fell oe!aw the common divider'd rate for the first t:me in tie Company's history. Efforts to achieve adeauate earn-ings dunng this period were further harrpered by a 2

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l Collected under the mterim increase which in this case Some of the maior actions taken by your Board of amounted to approximate!y $21 milhon. The Commis- Directors in 1975 to help assure future stability are sion said the approved additional revenues would have discussed elsewhere in this report provided the Company a G 5 per cent return on Much of the credit for the successes outhned in this common equity for the test year report be!ongs to many thousands of people who have The dec:s:ons by both state agenc:es were based on steacfastly supported the Company throughout one of 1974 ! eve's of business the most cha!!enging periods of its history Hearings before the Fcderal Power Commission on a We are especially grateful to the nearly 12.000 Duke requested 22 9 oer cent permanent increase in Power employees who have remained loyal and wholesale rates were scheduled to begin in May. ded:cated to the objective of making our Company 1976 The increase in whciesale rates has been :n the best e!ectnc utikty in the natron, and to the more effect on an intenm casis s;nce July 1.1975 than 82.000 shareholders of Duke Power who have Two add;t:onal factors :end hope to the prospect of demonstrated their confidence in our Company by now earning the allowed level of return en share- investing in t ho;ders equity One is that current rates in all three Credit also be! cogs to the many shareholders and regulatory junsdict:ons :nC!ude the necessary means customers of Duke Power who spoke out loudly and for recovenng increases in fuel costs While these clearly in support of free enterpnse electnc service mect anisms do not result in any additional earnings whe ' unwise legislation was introauced in the legis-for the Company. they do respond to fluctuetions in latures of our service area fuel costs so as to minimize their impact on earnings Througn a.: 'he years ahead. the management of your The second factor is that no additional generating units Company will continue working to deserve the confi-will be placed into service pnor to 1978 when Unit I dence of its shareholders. the loyalty of its employees of the McGuire Nuclear Station is scheduled for com- and the respect of the communities it serves.

mercial operation Although additional rate increases For the Board of Directors may be required to offset increased expenses in other areas of the Company's operat:ons. the magnitude of those increases would be far fess than that necessary to cover the higher incremental costs of new plants The management cf your Company realizes of /

course. that total recovery and stable earnings for this Carl Horn. Jr or any company will remain an e!usive goal so long as Chairman of the Board and Chief Executive Officer

nflation and recession cont;Ne in the national economy Efforts to improve efficicy must continue When necessary, rate increases to offset nsing costs f

must be vigorously pursued. More than ever before, management must take the long view in planning for B B Parker growth _ President and Chief Operating Officer February 11.1976 3

4 Plant additions The third phase of the Keowee-Toxaway Project was completed on May 1 when Units 3 and 4 of the Jocassee Hydroelectnc Station were placed into commercial operation Jocassee's 610.000 kilowatts of pumped-storage capability brought Keowee-Toxaway s maxi-mum generating capability to 3.363.000 kilowatts. The Project also includes the Oconee Nuc! ear Station and the Keowee Hydroelectric Station. _

Unit 2 of the Belews Creek Steam Station was de-clared in commercial operation on December 13. The 1

completed Belews Creek station is rated at 2.200.000 kilowatts, making it the largest coal-fired generating station on the Duke system.

Duke's total generating capability on December 31 was 12.361.000 kilowatts.

Keowee-Toxaway Honored The Keowee-Toxaway Project which combines nuclear, pumped-storage and conventional hydroe!ectric gen-eration, was honored as the nation's outstanding civil engineenng achievement for 1975. The selection was made by the American Society of Civil Engineers over such notable ennineering feats as the San Francisco Bay Area Rapid Transit System, the Dallas-Fort Worth Airport. the Chesapeake Bay Bridge Parallel Span, and New York's Bruckner Interchange.

Construction Progress At year-end. Unit 1 of the McGuire Nuc! ear S.tation was approximately 64 per cent completed, and Unit 2 was about 48 per cent completed. The two 1.180.000 kilowatt nuclear units are scheduled for operation in 1978 and 1979.

Full-scale construction of the Catawba Nuclear Station is underway following receipt of the required i

Nuclear Regulatory Commissica construction permits.

The issuance of these permits, however, has been ap-pealed by intervenors in the licensing proceeding. The two Catawba units. rated at 1.153.000 kilowatts each, are scheduled for operation in 1981 and 1982.

! Completion dates of the six units of the proposed' Perkins and Cherokee nuclear stations have bwn pushed back one year. The first of the six identical units is now scheduled for completion in 1984 with the remaining five to follow at one-year intervals.

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Rate Increases On October 3. the North Carolina Utilities Commission l granted 91 per cent of a requested $123 million in-crease in retail revenues. and on January 13.1976.

The Public Service Commission of South Carolina granted 88 per cent of a requested $54 million in-crease in revenues from retail operations in that state.

Both agencies affirmed all revenues collected under

. , - . . intenm rate hikes placed into effect on June 30. and '

raised the allowed return on common equity to 13.5

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per cent. Decisions by both agencies were based on a i . 1974 test year. The Company also has been collecting i~ - - revenues, subject to refund under a 22.9 per cent i

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intenm increase in whclecale rates placed into effect on July 1.

Efficiency Record l According to the Edison Electric Institute.. Duke's Marshall Steam Station has beer' *he nation's most efficient steam-electnc generating station for nine consecutive years. Company operating figures for 1975. however. show that Marshall's efficiency was narrowly exceeded in that year by our own Belews Creek Steam Station. During the most recent four years for which Federal Power Commission statistics are available. Duke's total generating system was the

most efficient for two of those years and second most 4 efficient for the other two.

Nuclear Generation Output of the Oconee Nuclear Station represented 33 per cent of Duke's total generation in 1975. Oconee.

the world's largest operating nuclear station, generated 15.3 billion kilowatthours of e!ectricity during the year.

compared with the system total of 46.3 billion l kilowatthours.

Financing Public financing in 1975 included the saie of 2.400,000 shares of $25 par value 10.76% preferred stock; $100 l million in first and refunding mortgage bonds. 9H%.

due 2005; and 5.000.000 shares of common stock at

$13.75 per share.

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! The Comoany negotiated the private placement of $125 million in 11% first and refunding mortgage bonds due 1994. of which $105.7 million was issued in 1975 and the balance in January.1976. Safe and sa!e/ lease-back transactions of approximately $61 million in t

assets also were consummated during the year.

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l A number of major decisions that will have long-term effects on the Company were made by j the Board of Directors in 1975. One such de- '

cision involved the possible sale of the yet-to-be-completed Catawba Nuclear Station to a group of wholesale customers. Another delayed for an additional year the scheduled completion dates of each of the six units of the Perkins and Cherokee nuclear stations. A new marketing strategy was developed to restrain the growth in the peak demand for electricity. Why were these decisions made? What will they mean to Duke's shareholders and customers? The answers to these questions, along with an appraisal of Duke Power's future, are ccontained in the fol-lowing interview with Carl Horn, Jr., Chairman af the Board of Directors a.1d Chief Executive Officer.

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Mr. Horn, why would Duke Power consider selling to do five and ten years from now and even further the Catawba Nuclear Station to its own municipal and into the future We know. for example. that because of cooperative customers? the tremendous increases in construction costs. the The decision to offer this station for sale was based on 6&tnc utility industry is going to require over $100 tne same corporate oblectives that have governed bi!! ion in new investments dunng the next five years every ma}or decision this Company has made in the alone.

22 years ! ve been associated with it Those chectives Companies which are not financially healthy will find are to earn a fair and reasonable return for our share- it very difficult, if not impossible. to raise the capital holders. to provide our customers dependable electnc they need Reheving ourselves of the immediate need service. and to keep the cost of that service at the to finance the Catawba stat!on. particularly at a time .

lowest possible level Purely and simply. the proposal when our :ommon stock has been selling below book to sell the Catawba station to our who!esale customers value. is one way of he! ping to rebuild our financial is a financing alternative to help us achieve those strength dunng the next few years.

oQeches What does the market price of common stock have Duke has been building power plants for a long time to do with it?

and never before considered selling one as a financ-Any company that hopes to compete for capital in the ing alternative. Why would you consider it now?

1980 s wol have to have a good record of growth in Ten years ago. when we were a declining cost industry, earnings and dividends and the potential to continue there was never any doubt about our being able to that growth it s a mathematical fact that if a company attract the necessary capital to build new plants Today. earns a constant level of return. and sells common we re in a completely different situation New units are stock below book value, earnings per share are auto-being built at higher incremental costs. At the same matically diluted Our common stock was selling below time the cost of operating the plants once they're book value for most of 1974 and 1975 and recently built has more than doubled in just the past five years has been selling only slightly above book value De!ays in obtaining rate increases to recover those costs have resulted in depressed earnings. a reduction But Duke was able to finance in 1974 and 1975 when in bond ratings from tnple-A to sing!e-A. and a dec e its common stock was selling below book value.

in the market pnce of our common stock Under 'nese That s just partly true. In fact. there were a number of conditions. no company can pursue a long term con. occasions dunng that period when we were unable to struction program under the assumption that it can sell the desired amounts of first mortgage bonds or attract all the capital it needs preferred stock because of inadequate earnings cover-age of fixed charges This is one of the reasons why. in Does that mean Duke Power couldn't build and August of 1974. we deferred virtually all of the major finance the Catawba station?

generating units that were under construction or on No. it doesn t mean that at all We can. and will. build the drawing boards and operate the station if the safe is not consummated is that when you first began looking into the possibility in fact we made it c! ear to the wholesale customers of offering the Catawba station for sale?

that we might withdraw the offer if the market once of our common stock were to nse i a level above book Yes. after we announced the deferral of our construction va!ue and maintain some stabihty above that tevel. You schedub certain of our North Carolina cooperative have to remember, though, that utility financing is a customers and municipal customers approached us continuing proposition. We can t be concerned only on whether Duke would be willing to consider selling with how we're going to raise capital this year or next generating facihties to them. After studying the eco-year We have to be concerned with what we re going nomic benefits that might ressit from such a sale. we put together the proposal to se.' the Catawba station.

To be fair to all our wholesale customers. we issued invitations to participate in the negotiations to all our wholesale customers in both North Carolina and 9

South Caro lina has to be added Since the cost of new units is climbing is this offer, in effect, fostering public ownership in higher every day. each delay in stew plant construction the electric utility industry? represents a definite saving. Another importantaspect of load management is its effect on the system load Both the cooperatives and the municipalities already factor. While we would be building fewer peaking have the authonty to build and operate their own gen' plants the shifting of peak loads to off-peak would erating plants If we can make an arrangement that automatically improve the load e'fic:ency of operating benefits our Company by selling them the Catawba plants that will be in service.

station, we would be simply taking advantage of an opportunity that is already available to those customers.

I should point out, however. that the economic benefits of load management are long-range We do not antici- _

Since Duke has effered to sell the Catawba station, pate any immediate effects on either earnings or rates.

does that mean the plant won't really be needed?

Getting back to Catawba - is the Company relying No 't doesn t mean that at all. Since we re proposing on that propnsal alone to rebuild its financial strength?

to se;l the station to our own customers. its output will be used in the Duke service area. regardless of Absolutely not Construction and operations must be who owns and operates it if those customers reject comprehensively integrated with the Company s fi-the offer. or if we withdraw it, we will still have to build nancingplans Totiethesethreecrucialaspectstogether, the Catawt a s ation to serve the total requirements we have recently deve!oped a ten-year financial plan of our service area It is not a question of whether the which assumes that Duke Power will own and operate Catawba stat:on will be needed The only issues are the Catawba station. As I pointed out earlier. we may who will finance it and who will own and operate it withdraw the offer to sell the plant if certain conditions exist before it is accepted. And there is the possibility once 6t is built.

that the offer may not be accepted. The pnmary objective What if there isn't enough capital available to meet of the ten-year financial plan is to strengthen the Com-your forecasts? pany's capital structure and thereby improve our That s where load management comes in. In the past, financing flexibility Our immediate goal in this respect power companies increased the:r generating capability is to regain double-A ratings on our senior secunties to meet an unrestrained growth in peak load. Market- as soon as possible. To put ourselves in contention for ing efforts were directed almost entirely toward double- A ratings, we intend to raise our coverage improving system efficiency by encouraging uses of ratiol to three times fixed charges. We pian to attain electncity dunng the off-peak penods Today if a capitalization ratics of 52 per cent debt.13 per cent company feels it may have difficulty in meeting an preferred equity and 35 per cent common equity We unrestrained peak demand. then it has to influence that also plan for internal cash generation to remain above peak to bnng it within the limits of its generating ca. 40 per cent of our total cash requirements.

pability This can be done by promoting higher levels of How do you plan to achieve those objectives?

insu!ation. by encouraging customers to shift certain peak loads that are not time-sensitive to off-peak. and First of all. we11 take advantage of every possible op-if necessary. by installing equipment that would allow portunity to reduce expenses and to improve efficiency in all areas of the Company's operations, Secondly.

the Compary to shed certain loads for bnef periods dunng peak emergencies You have to keep in mind.

though, that load management can restrain the growth in peak just so much. It can t halt the growth in peak demand, and it can't eliminate the eventual need to butid new generating plants.

What effects would load management have on the Company's financial operations?

The e!fects should be beneficial both to the Company and our customers. For one thing, load management reduces the amount of new peaking capability that

' The ratio determoned by cividing earnir>gs. Oefore interest charges andincome taxes byinterest charges.

7o

we 11 continue to pursue timely rate relief when necessary Mr. Horn, as you see it, what's ahead for Duke Power?

to recover increases in those expenses over which we g.m sure anyone who has followed our Company have no control recognizes that we've been involved in an uphill struggle One of the keys to the success of this financial plan is for the past six years Frankly, we feel that we ve finally fair regulation Basad on recent rate orders. we believe begun to reach the crest of the hill. One of the things the agencies which regulate our Company have a that put so much pressure on earnings in the early better grasp of our needs and will act fairly in their 1970's was our inability to recover increases in fuel Judgments. This doesn t mean, of course, that we can costs on a timely basis. Today we have that ability in expect to get rate increases without first proving that all junsdictions, they're needed and that the Company itself has done In the early 1970's. we were a net purchaser of power everything possible to keep costs down from other companies at amounts sometimes exceed-Was the decision to defer the Perkins and Cherokee ing $30 million a year. Today, we're net seller of power stations influenced by this financial plan? to other companies.

To some extent. yes. We were looking for a way to An improved regulatory environment is evidenced by reduce our construction budget by about two hundred recent rate dec sions which provide the first opportunity million do!!ars over the next five years and the ability since 1969 for the Company to earn a fair and reason-to defer these units provided that opportunity At the able return on investment.

time the dec:sion was made. we had just completed Another factor which we feel places Duke Power in a new peak load study which showed. in effect. that an enviable position is our fuel mix Some utilities are the recession had caused us to lose about a year s very heavily committed to oil and natural gas as boiler growth in the peak demand for e'ectricity So instead fuels. Both these fuels are in tight supply, and there of completing the first of these six units in 1983. we're are projections that we may run out of them by the now scheduled to comp!ete it in 1984.

end of this century. Our generating units. of course.

What effect wiH this have on the Company's reserve are almost totally dependent on coal and nuclear fuel.

margin? These are the world's most abundant. and least ex-As I mentioned before, a company can influence its ploited. energy resources. So when it comes to the future reserve margin by actively restraining the growth availability of fuels. we think Duke Power has a very in peak !oad through a program of load management. definite edge on many other companies.

Our own load management program is well underway. Our service area is growing and diversifying The and through this program we're expecting to have a Company itself is leaner and more efficient than ever reserve margin of around 15 per cent in 1983. When before.

you ta!k about reserve margins. however, it's important Considenng all these ftctors. we're more confident to keep in mind that project:ng electnc demands has about the future of o' ur Company than at any time never been an exact science, and it's probably more since 1969.

diff:cuit today than ever before. Some of the factors l which will influence future cemands fer electncity -

particularly those associated with erwrgy conservation, the effects of pricing. and the substitution of electricity for other energy sources - are very difficult to Quantify.

Still, we have to make the best possible evaluation of all the factors involved and plan our expansion efforts accordingly. j 1

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! America faces an energy shortage in the midst of p!enty I

This apparent contradiction defines one of the nation's most frustrating. and inghtening dilemmas l No civilization, even one which has sent men to the moon and rockets into the sun, can prosper without an adequate energy supply Energy is the fundamental ll Currency of human deve!opment.

Suggest:ng the collapse of tnis civilization seems a

' preposterous notion Yet, while great resources of

energy lie buned beneatn the earth's surface. millions i

of Amencans face each winter uncertai; that enough energy will be available to protect them from the cold.

Human achievement has advanced to the coint of re-leasing and controlling the energy of atort s. Yet.

America ~s industnes, strapped by a recysion that has

! eft nearly one in ten of our work force without employ-ment. have no assurance that sufficient energy will be available to effect the recovery.

i An Energy Imbalance

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The energy crisis that faces our nation is large!y the product of a drastic imoalance between known energy resources and actual energy usage.

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units. Much of this time is taken up in the licensing adequate protection of the environment will never be process. In Westem Europe and Japan. a nac! ear possible without more energy to operate pollution con-station can be plannec and built in about half that time trol equipment. Consumer groups lobby in local, state In the case of the Oconee Nuclear Station,it was and federal agencies for stricter control of energy pro-ducing companies. Their concem is mainly intended necessary to obtain licenses permits. agreements and to relieve the burden of higher efectnc rates on the o her approvals from 68 separate governmental enti-po r and disadvantaged. and on people with fixed ties in one instance. it was necessary to obtain 30 incomes Yet, the hopes of these people for a better approvals from a single agency life will never be realized unless additional energy is Start of construction of the Catawba Nuclear Station provided. And to provide that energy, companies must ~

was delayed whiie intervenors in the licensing pro- be able to increase raies as necessary to cover their ceeding were a!! owed to reiterate arguments that had increasing expenses.

been presenied. and satisfactonly answered. in a pre-The key to solving the energy cnsis is understanding.

vious proceeding involving the almost identical McGuire As people become aware of the reasons for our energy.

cMar Staton failures and their potential consequences, they can Energy's Price D'*SS ' ' Cti " ' * *'" t* C"PP"9 ' "b' kS-They can support the balancing of energy neds with it is not enough, however, to simply recognize that the protection of the environment. They can recognize development of coal and uranium resources must be that the once which must be paid for an adequate acceterated. Reclaiming the land once it has yielded energy supply is far less than the cost in human suf-its energy, providing the necessary safeguards for fenng that would result from an inadequate supply.

protecting the environment when the energy is used. Americans already understand that the environment building the power plants in which basic energy re- must be protected. And they eventually will know that sources are converted to electncity - all these factors even in this worthy cause there is a pointof diminish-affect the cost of energy. ng retum To have air that is 99 per cent clean is both To have the energy we need, we must be willing to pay economically feasible and environmentally beneficial.

for it. We should have it. But the cost of achieving additional Resistance to higher electnc rates has been no less punty is multiplied many times perhaps beyond the vigorous than the movement to protect the environ. realm of affordability, while resulting in little,if any, ment. Organized opposition to rate increases has. in additional environmental benefits.

many cases, successfully stalled rate proceedings and Man must continue to insure that his environment is jeopardized companies' efforts to maintain the neces- not abused. But his existence upon the planet requires sary financial strength to finance plant construction. that the environment be used - for food, for shelter, for industry, and for er'ergy. The challenge is to under-Understanding-The Key stand ine e,fference.

If the nation's pnonties appear to be at cross purposes. Understanding is essential.

it is only for lack of understanding. Environmentalists work fevenshly to restnct development of energy re-sources so that the environment can be protected. Yet, u

L

Fuel Used in Electric Generation The total cost of fuel in 1975 increased only 14% over 1974. Essentially all these fuel costs increases in 1975 and 1974 in 1975. the types of fuel used in generation changed signif- were recovered through rate relief.

icantly resultingin a more favorable mix. A major contnbuting factor to the more favorable mix in fuels was the high ooerating level of the Company's Oconee Nuclear Station in 1975. The system awrage fuel cost was 79 55c per million BTU for 1975 and 81.79c per million BTU for 1974 Fuel expenses increased 74% in 1974 over the previous ~

year. This increase was due to higher coal prices which. N d Wd M .

on a burned basis rose from a yearly average cost of EI'jiNC '"' ration g

47 27c per million BTU in 1973 to 9169c per million BTU s t 30 Montniy costs for 1974.

1 20 Fossd Generation '

exns at x ws , 1 10 Nuctear 45 i 46 3 1 00 &om Mear

---

Weghted Average 44 e

" n Unit #3

,3 90 33% 80 -'. ,.

Oconee Nuclear 70 Unit *2 l 60 50 i . I 40 Oconee Nuclear l Unit #1 30 20 /

ora rW4 1975 10

] Coai  % ctear Hforo and otner see Net interenar ge and Pu crr,ec power cr 1973 1974 1975 e o anaton o a+errg trenas ce<*een sa'es i Net Interchange and Purchased Power New generating plants brought into service in 1974 reduced the Company's need for purchased power in 1974, and eliminated it in 1975. Net Interchange and Purchased Power The Company in 1975 was able to arrange interchange (gggon,o, goy,,,)

transactions with neighbonng utilities resulting in a net s35 interchange and purchased power credit.

Net interchange and purchased power amounted to a credit 25 of $11.588.000 for 1975 and costs of $8.495.000 for 1974. 15 0 1 5

-15 1971 1972 1973 '974. 1975 17

Other Operation, Maintenance and Depreciation Expenses _

Other operation and maintenance expenses increased 16%

and 17% for 1975 and 1974 over the rest,ective previous years These increases were due pnncipally to the addition of new generating units, and continuing inflation in wages. Electric Plant in Service materials and supplies. (Bdlions of Dollars)

' Depreciation expense showed annualincreases of 20% and s34 19% for 1975 and 1974. respectively, as a result of additions $31 to plant in service.

j S25 s2.0 s18 1

1971 1972 1973 1974 1975 Represents Generating Faciht!es Taxes Gross receipts taxes. which represent approximately 54%

of total general taxes. increased 17% for 1975 and 37% for 1974 rising proportionately with the increases in revenues.

Property taxes. which represent approximately 33% of total general taxes, increased 27% and 22% for 1975 and 1974.

respectively, generally reflecting the increases in the Com-

pany's electric plant.

l As a result of higher pre-tax income. the current federal

and state income tax provision, including the income tax.

credit, increased $35.201.000 in 1975. (See Notes to i Financial Statements.)

Increases in deferred income tax expense of $7.323.000 in 1975 and $18.613.000 in 1974 were due to higher ac-ca.erated tax depreciation resulting from additions to plant in service and to normalization of tax effects of certain capitalized overhead items--

l Allowance for Funds Used During Construction (ADC) l ADC for 1975 was $7,365.000 below the 1974 level. This

~

! resulted from a decline in the average investment on which ADC was calculated when certain generating units were placed in service.

i 18

_. . .._ . .~ ._ _ __ _, _

Interest Deductions and Preference and Preferred Dividends Total interest deductions and preferred d:vidends increased Other ir.terest declined in 1975 with the reduction in the

$24.395.000 and $36.725.000 for 1975 and 1974. respec- average level of short-term debt outstanding and lower rively Thest : creaser were pnmanly due to the issuance short-term interest rates.

of additior.al secunties to finance the Company's con-struction program and the higher cost of capital. See Financing /

Return on Average Book Cornmon Equity ~

In 1975 the reurn on averace book common equity did not reach the level authonzed by the Company's regulatory agencies. However, with the rate relief implemented in the second half of the year, the return on average book common Return on Average equityfor 1975 increased to 9.6%. ccmpared to 8 6% for 1974. Bo k Common Eqm.ty 10 7%

973 9%

91%

86%

1971 1972 1973 1974 1975 1975 Quarterly Resuits Earnings per share of common stock for the first half of 1975 reflect the lag in obtaining needed rate relief The substantially higher earnings in the last half of 1975 result Earnings and Dividends Per from rate increases implemented at mid-year. Share of Common Stock-1975 5 80 70 60  % -

50 40 30 ~- ~ _

20

.10 1st 2nd 3rd 4th

- Earnings Per Share By Cuarters Omdends Per Snare By Quarters

s Financing l To meet its capital requirements. the Company has financed extensively with debt and equity secunties and has raised additional capital through the sale and safe / lease-back of j ' certain assets Net proceeds are summarized below'.

i 1975 1974 i

Shares Amount Shares Amount Common stock -

Pubhc sales 5.000.000 $ 64.935.000 8.500.000 $115.083.000 Stock Purchase-Savings Program for Employees 504.241 7.407.000 407,884 5.436.000 Dividend Reinvestment and Stock Purchase Plan 180.968 2.846.000 177.503 2.139 000 I Totalcommon stock 5.685.209 75.188 000 9.085.387 122.658.000 Preferred stock e Preferred stock A 10.76E $25 par 2.400.000 57 450 000 -

Bonds and term notes First mortgage bonds 9%% Series 2005 98.419.000 -

11% Senes 1994 105.213.000 -

9h% Series 2004 - 97,730.000 Term notes Floating prime -

-18.500.000

, 13%

98.482.000 I Total bonds and term notes 203.632.000 214.712.000 i

! Sale and safe / lease-back transactions i Capitalized construction equipment lease 14.694.000 -

Nuclear fuelleases 24.894,000 34.702.000 Other 21.841.000 19,082.000

{ 61.429.000 53 784.000-

Total sale and sale / lease-back transactions Total $397 699.000 $391.154.000 l Stock Market Information

! At December J1.~ 1975 and 1974 the Company had Stock Price Ranoe Dividend I approximately 82.300 and 75.200 holders of common Common Stock Per Share Hioh LQw 4

stock. respectively. Dunng 1975 approximately 10.075.000 shares of common stock were traded as 1974 by Quarter compared to 5.575.000 in the previous year. First 50.35 $20% $16%

l t Second -0.35 17H 12M l Third 0.35 13% 10

! Fourth 0 35 13% 10%

Total $140 <

1975 by Quarter First 50.35 $15 $10N Second 0.35 17 12M lI Third 0.35 16% 15 Fourth 0 35 '19% 15%

Total $140 l r 1

20

4 Year Er.3ed oecember 31 (dottars in thousands) 1974*

ELECTRIC REVENUES (Notes 2. 3 and 10) $818.803 ELECTRIC EXPENSES Operation Fuelused in electric generation $333.399 Net interchange and purchased power (credit) 8.495 Wages, benefits and matenals 92.732 -

Maintenance of plant facilities 33.527 Depreciation 83.914 Taxes (Notes 1 and 7)

General 64.710 i

Federalincome 10.905 Stateincome 1.539 Deferred income, net 43.885 investment tax credit amortization (credit) (949)

Totalelectnc expenses 672.157 Electnc operating income 146.646 OTHER INCOME Allowance for funds used dunng construction 62,159 Earnings of subsidiaries from operations. net 299 Other, net (deduction)(Note 9) 4.787 Income tax-credit (Notes 1 and 7) 16 094 Totalotherincome 83.339 income beforeinterest deductions 229.985 INTEREST DEDUCTIONS Interest onlong-term debt 110.777 Otherinterest 16.052 Amortization of deet discount, premium and expense 353 Totalinterestdeductions 127.182 NETINCOME 102.803 Dividends on preference and preferred stock 28,534 EARNINGS FOR COMMON STOCK $ 74.269 COMMON STOCK DATA Average shares outstanding (thousands) 42.618 Earnings per share $1.74 Dividends per share $1.40

• Restated-See Note 2.

See notes to finan Istatements.

21

Assets vecemoer3, (dotars en thcusands) 1974 ELECTRIC PLANT (At onginal cost-Notes 1 and 5)

Electnc plant in service $3.146.529 Less accumulated depreciation and amortization 727.878 Electnc piant in service. net 2.418.651 Construction work in progress 637.248 Total electnc plant. net $3.055.899 OTHER PROPERTY AND INVESTMENTS Other property-at cost Dess accumulated depreciation. 1975 - 33.748.1974 - $3.395) 22.043 Investmentsin and advances to subsidianes-at equity 39.633 Other investments-at cost or less 8 330 Total other property and investments 70.006 CURRENT ASSETS Cash (Note 8) 18.643 Receivables Dess allowance for losses:

1975 - 52.394: 1974 - $963) 76.255 Fuel clause revenues accrued (Notes 1 and 10) 36.239 Matenals and supphes -at average cost Coal 64.558 Other 60.438 Totalcurrent assets 256.133 DEFERRED DEBITS Debt expense. being amortized over terms of related debt 10.964 0ther 19 017 Totaldeferred debits 29 981 TOTAL ASSETS $3.412.019 See notes to funanaal statements.

22

Capitalization and Liabilities vecemw 3, (dottars in thousands) 1974 CAPITALIZATION (See Statement of Capitalization)

Common stock equity $ 931,150*

Preference and preferred stock 395.000 Long-term debt 1.638.752 Total capitalization $2.964.902 -

CURRENT LIABILITIES Accounts payable 64.957 Interest accrued 33.755 Taxes accrued 9.258 Other 9.968 Total 117.938 Notes payable for construction-pending permanent financing (Note 8) 142.092 Current matunties of long-term debt 83 500 Total current liabilities 343.530 ACCUMULATED DEFERRED INCOME TAXES (Note 1) 84.356*

l DEFERRED CREDITS Investment tax credits (Note 1) 2.796 Other(Note 2) 16 435*

Total de' erred credits 19.231 COMMITMENTS AND CONTINGENT LIABILITIES (Notes 6 and 10)

TOTAL CAPITALIZATION AND LIABILITIES $3.412 019

' Rest.ated-See Note 2.

I i

See notes to financsal statements.

23

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i Year Ended December 31 (coitars in thousanos) 1974*

FUNDS FROM OPERATIONS Netincome $102.803 Non-fund items j Depreciation and amortization 96.846 i Deferredincome taxes. net 43.885 j Less common ecuity component of the allowance for _

funds used dunng construction (29.644)

Other, net 7.187 i Funds from operations $221.077

Dividends paid on common stock (59.263) j Dividends paidon preference

and preferred stock (28.534)

Funds retainedin the business 133.280 i

FUNDS FROM FINANCING - NET PROCEEDS First mortgage bonds 97.730

Common stock 122.658

] Preferred stock -

Sale and sale / lease-back transactions 53.784 Term notes 116.982 increase (decrease) in current notes payable 72.790 Retirement oflong-term debt (4 190)

Funds from financing 459.754

[

j Totalavailable funds 593.034 j DECREASE (INCREASE) IN WORKING CAPITAL. ETC.

Matenals and supplies ' (61.460)-

i Other current assets (56.426)

Other current liabihties 34.612 Investment in and advances to subsid: aries (13.437)

Other, net (15.215)

Decrease (increase) in working capital. etc. (111 926)

Plant construction expenditures 481.108

- Common equity component of the allowance for

- funds used during construction (see above) -29.644 PLANT CONSTRUCTION COSTS SS10.752 .

• Restated-See Note 2 - .

s P

L See notes to financialstatements.

24 s w c-- aa- w+ - -

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Decem* . 31 (dollars in thousands) 1974 COMMON STOCK EQUITY (Note 4)

Common stock. no par. authorized 70.000.000 shares:

53.521,268 and 47.836.059 shares outstanding for 1975 and 1974, respectively $ 822.,1 Retained earnings 10003F Totalcommon stock equity 931 150 Percent of captalization 31.4%

~

PREFERENCE AND PREFERRED STOCK (Note 4)

Shares Senes Outstanding l Preference stock. $100 par. Convertible authonzed 1.500.000 shares l 6M%AA 500.000 50.000 Preferred stock $100 par, l authonzed 5.000.000 shares 4.50% C 350.000 35.000 5.72% D 350.000 35.000 6.72% E 350.000 35.000 8.70% F 600.000 60.000 8 20% G 600.000 60.000 7.80% H 600.000 60.000 7.35% 1 600.000 60.000 Preferred stock A. $25 par.

authonzed 10.000.000 shares 10.76%.1975 2,400,000 -

Total preference and preferred stco 395 000 I Percent of captalization 133%

LONG TERM DEBT (Note 5) Rate D_ u.e First and refunding mortgage bonds 2.65%-11% 1975-2005 1,415.000 Sinking fund debentures 44% 1982 32.500 Term notes 68-7% 1975-1978 111,000 Floating Pnme 1975-1976 49,000 l

13%- 1979 100,000 Turbine generator leases (Note 6) 12.626 Capitalized construction equipment lease -

)

Unamortized debt discount and premium. net 2.126 Current matunties of long-term debt (83.500)

' Totallong-term debt 1.638.752 Percent of captalization 55.3%

TOTAL CAPITALIZATION $2.964.902

' Restated-See Note 2.

l i

See notes to fi.ancal statements. .

25

= . ,

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Year Ended December 31 (doriars on mousands] 1974 BALANCE-Beginning of year (as previously reported) $104.629 Poor penod portion of wholesale revenue refund, net of taxes (Note 2) (3.243)

BALANCE- Beginning of year (as restated) 101.386 ADD-Net income 102.803 _

Total $204,189 DEDUCT Cash dividends Commen stock 59.263 Preference and preferred stock 28.534 Capitalstock expense 7 355 Total deductions 95.152 BALANCE-End of year $109 037 See notes tu hnancial statements.

i!ASKINS & SELLS Certified Fut!? Accountants DUKE POWER COMPANY:

We have examined the balance sheet and the statement of capitalization of Duke Power Company as of December 31.1975 and 1974 and the related statements of income, retained earnings. and source of funds for plant construction costs for the years 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.

As explained in paragraph (D) of Note 10 to the financial statements, the Attorney General of North Carolina has appealed the North Carolina Utility Commisse.;n order of August 27,1975.which authonzed the Company to replace its fuel clause effective Ser. ember 1,1975 with a corresponding increase in base rates and to collect revenues attnbutable to undlied fuel charges accrued at September 1.1975. The ultimate outcome of this matter cannot be pre sently determined, in our opinion. sublect to the effects. if any, of the ultimate resolution of tne matter referred to in the preced-ing paragraph. the above mentioned financial statements present fairly the financial position of the Company at December 31,1975 and 1974 and the results of its operations and the source of its funds for plant con-struction costs for the years then ended. in conformity with generally accepted accounting principles applied on a consistent basis.

Charlotte. North Carolina [, .,e l

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February 11.1976 26

L Swnmary of Significant Accoimting Policies A Adatrions to Electnc Plant. The Company capitalizes all amortized over the depreciabfe lives of the related property; direct l abor and materials, as well as related indirect con- those ansing from the 3% investment tax credit in effect -

struction costs including general engineering, taxes and the until 1969 have been amortized. as approved by regulatory cost of money (allowance for funds used dunng construction). authonties. over a five-year penod. At December 31.1975.

Allowance for funds used dunng construction (ADC) is an the unused investment tax credits. including the 10% invest-accounting procedure whereby the net compos;te interest ment tax credit effective for 1975. availt.ble for carry-over to and eauity costs of capital funds used to finance construc. future years are $50.308.000. Of this amount S17.371.000 tion are transferred from the income statement to construc. is available for use through 1980. $15.089,000 through tion work in progress in the balance sheet and. accordingly. 1981. and $17.848.000 through 1982.

are capitalized in the same manner as construction labor D. Retirement Plan Costs. The Company has a non-contnb-and matenal costs. This item is recognized as a cost of utory retirement plan for the benefit of its employees. The Electoc Plant? with an off-setting credit to '~Other Company's pohcy is to fund pension costs accrued which income because. under established regulatory rate amounted to S6.493.000 in 1975 and $6.040.000 in 1974.

practices, a utihty is permitted to include a fair return on. and The plan was amended effective September 1.1975. to the recovery of. these capital costs through their inclusion in the rate base and in the provision for depreciation. ADC provide for increased survivor benehts. early retirement has been calculated using the rates. net of applicable income benefits without penalty at age 62 with 10 years service. and taxes, of 7M% through June 30.1974. and 8% thereafter' to comply with the " Employee Retirement income Secunty Act of 1974." onncipally by permitting employee participa-B Depreciation and Amortization. Provisions for deprecia- tion at an earher age and vesting nghts with lesser service.

tion are recorded using the straight-line method. The year- In addition. the assumed earnings rate was increased ' im end composite average rate was 3.26% for 1975 and 3.25% 4M% to 5% and the period of funding was inusetd ro 1 for 1974 Provisions for amortization of nuclear fuel which ten to 20 years These changes increased the approxim< te are included in " Fuel used in electnc generaton" are total unfunded onor service costs of the plan from recorded ssing the unit of production method. S3.600.000 to S19.100.000, and commencing in 1976 will C. /ncome Taxes. The Company and its subsidianes flie a increaw the annual costs of the plan by approximately consohdated federal income tax retum. Income taxes are $3.600,000.

allocated to each company based on the taxable income or The actuaria!!y computed value of vested benefits under the loss of each. plan exceeded the assets of the plan by $6.500.000 as of The Company's income taxes are allocated to electnc the date of the latest available actuarial reports.

operating expense and to non-electric operations under E. Fuel Clause Revenue Accrued. The Company accrues.

"Other income." The income tax-credit classified under where permitted. the estimated revenues recoverable under "Other income" results pnncipally from tax deductions for its fuel adjustment clauses for increases in fuel costs from interest costs relating to investments in non-utility properties, the date such costs are incurred until the date billed to mainly construction work in progress. customers. At December 31,1974, such accruals provided The Company has provided deferred income taxes under for a 60-day time lag on all wholesale and retail business.

normahzation accounting for differences in book and tax Effective September 1.1975. the North Carolina retail kel depreciation arising from the use of accelerc.ted tax adjustment clause was terminated alternative procedures depreciation. except for certan plant additions in 1968 and for the recovery of increases in fuel costs were adopted and 1969. In 1975. the Company expanded its normalization to provision was made for the Company to recover the accrued include capitatized overhead it9ms currently deducted for revenues unbilled through a temporary surcharge over income tax purposes as now allowed by regulatory authori- twelve months. Accordingly, at December 31.1975. fuel ties. Tne effect of the change on the financial statements Clause revenues accrued included amounts applicable to is immatenal. the 60-day time lag for wholesale customers and South locome tax reductions ansing from the 4% Job Development Ca@a retad cuses, at me mW peon d me investment Tax Credit placed in effect dunng 1971 are being September 1.1975 North Carolina accrual.

27

2. Restatement of Financial Statements-Wholesale Revenue Refund The Company and certain of its wholesale customers have years have been restated to reflect the agreement. The entered into a settlement agreement dealing, among other amounts to be refunded and the decreases in net income things with certain rate increases and the fuel adjustment and earnings' per common share were as follows (dollars in clause The agreement provides for refund:ng $11.682.000 thousandsh over a 36 month penod from September 30.1975. This 1975 1974 1973 amount represents revenues collected subject to refund Amounts to be refunded $430 $4.763 $6.489 from Apnl 26.1973. to June 30.1975, plus interest thereon Netincome $214 $2.293 $3.243 to September 30.1975. The financial statements of prior Earnings per common share -

$0 06 $0.08

3. Rate Matters -

Rate increases granted since January 1,1974. which are included in ' E!ectnc Revenues" in the accompanying Statement of locome. are summanzed below.

Acorommate Revenue increases idollars in thousands i Per Cent Annuahzed Reve%e Effectwe on 1975 Year Ended December 31 he Seedue increase Date sa'es 1975 1974 N C Reta,t (1) 16 8 Apot 15 1974 5 62.400 5 62.400 $55 400 S C Reta>i(1: 16 7 Aord15 1974 26 900 26 900 24 000 N C Reta>I(2? 23 6 October 3 t975 109 900 47 800 -

S C Retad (2) 22 d January 13.1976 49 000 21 200 -

Who'esale (3'. 22 9 Juif 1 1975 23 600 10 400 -

$271600 $168 700 $79 400 (11 These increases cors.st of an 8% -nterim increase effect;ve Novemoer 15.1973 an add:t.cna! 2.25% ettective January 19.1974 and tne remainder e*1ectme Apri !5 1974 (2) incluces intenm re',enue increases of aporommateiy 20% piated into effect on June 30 1975 (3' Subiect to refund w:tn interest The Company recovers increased fuel costs in all three of Until August 32.1975. the Company had essentially the -

.ts regulatory lunsdictions through fuel cost adjustment same fuel clause operating in North Carolina as it did for its clauses or alternative procedures. Total revenues accrued other businesses. From September 1.1975 to October 3.

under such clauses and procedures amounted to 1975. alternate procedures having substantially the same

$156 500.000 and $151.500.000 for 1975 and 1974, effect were in force. On October 3.1975. tha North Carohna respectively. Utilities Commission adjusted the level of fuel costs in base in its wholesale and South Carohna retail junsdictions. the rates to current fuel costs. Subsequent to this date. adjust-Company has automatic fuel cost adjustment clauses that ments in base rates to reflect fluctuations in fuel costs require Commission action which must occur within 90 provide for a 60-day tag from the time increased costs are days.

incurred and such increases are billed to customers. Bill.

ings under these clauses began on August 23.1972, and 4

January 19.1974. respectively.

l f

i 2s i

I

4. Capital Stock Ir,1975. 5.685.209 shares of common stock were issued The outstanding Preference Stock. 6h% Convertible Senes for a consideration of 579.003.000 and 2.400.000 shares AA. is convertible into shares of common stock at the adjust-of 10 76% Preferred Stock A.1975 Senes were issued for ed conversion pace of $26.35 per share. each share of such 560.000.000 In 1974. 9.085.387 shares of common stock preference stock being taken at $100 for such purpose The were issued for a consideration of 5130 012.000. conversion pnce is subject to certain adjustments designed At December 31.1975. certain shares of common stock to protect the conversion pnvilege against dilution.

were reserved for issuance as follows- The call provisions for the outstanding preference and snarc-s preferred capital stocks specify various redemption onces Conversion of Preference Stock 1 897 533 not exceeding 111 % of par value plus accumulated dividends Stock Purchase Savings Program for Employees 899 286 to redemption date. _

Ovcend Reinvestment and stock Purchase Plan 586 179 OmW Tots 3 382 998 31.1975 and 1974 was restncted with respect to the declaration or payment of dividends.

5. Long-Tenn Debt First and refunding mortgage bonds outstanding at December 31.1975 and 1974 were as follows (dollars in thousands)

J Year Year senes Due 1975 1974 Senes Due 1975 1974 (Continuedi 3% 1975 5 - $40 000 8% 2000 75 000 75.000 2 65% 1977 40 000 40 000 8%%8 2000 100 000 100 000 2i% 1979 40.000 40.000 7%% 2001 100 000 100.000 3W 1981 35.000 35 000 7%B 2001 40 000 40.000 3% 1986 30 000 30 000 7% 2002 100 000 100 000 4W 1992 50 000 50 000 7%8 2002 75 000 75 000 4%B 1992 50 000 50 000 /% 2003 100 000 100 000 l 4% 1995 40 000 40 000 8%B 2003 100 000 100 000 j 5% 1997 75.000 75 000 9% 2004 100.000 100 000  ;

6%% 1998 75 000 75.000 9%% 2005 100 000 - 1 7% 1999 75 000 75 000 11% 1994 105 750* -

l 8% 8 1999 75 000 75 000 Total S1 580 750 51 415 000  !

• An add,tional 519 250 of it'ese conds was :ssued on January 13 1976 l 4

)' Substantia!!y all e!ectnc plant was mortgaged at December 31.1975 The annual amounts of long-term debt matunties S30.649.000 in 1976 576 799.000 in 1977. 570.099.000 in 1978. 5150.099.000 in 1979 and 310.099.000 in 1980.

(including sinking fund requirements) through 1980 are

6. Leases

, Penta!s incurred in 1975 and 1974, and rental commitments at December 31,1975. under all non-cancelable leases

(substantially all non-capitalized financing feases as defined by the Secunties and Exchange Commission) were as follows (collars in thousands).

Combustion Real Nucisar Turbiras Estya Fuel Other Total Aecta:s locurred I 1974 $ 8.546 s 999 $ 261 54 099 314 005 1975 8 587 2.475 23 517 3 484 38 063 Rentaf Comm.tments 1976 8 587 2.747 22.768 2.828

" 26 930 1977 8 SS6 2.723 16 603 2 047 29 959

1973 8 587 2.723 7 893

• 742 20 945 1979 3 587 2.723 -

1 594 12 904 1990 8 586 2.706 1 472 12.764 4 '951 '985 42 932 12.569 -

3.234 58 735

'936 -1990 6 798 12 569 -

386 19 753 1991 -1995 -

t 2.569 - -

12 569 mem rcer -

36.457 - -

36 457 29 t

Amounts in 1975 and 1974 include $34.593.000 and satisfy the obligations of the feases. net of salvage. at the

$11.765.000. resoectively charged to operating expenses. end of the estimated usefullife of tha nenerators. Such ,

leases contain options to purchase beginning in 1981 at the Substantiaily all leases reautre the Company to pay taxes and operation and maintenance expenses. Rentals incurred lessors unrecovered cost. Rentals under nuclear fuelleases are based on usage. Orner feases generafly contain options and rental commitments under combustion turbine gener, to purchase at the lessors' unrecovered cost or fair market ator leases include accrua!s in excess of current payments in amounts required to equalize annual rent expense and value.

7. Income Tax Expense -

Income tax expense is made up of the following components (dollars in thousande.):

1975 1974 Tax expense apphcable to electric operations Federal $46.599 $10.905 State 6.741 1.539

$53.340 $12.444 Tax credit apphcable to other income Federal (19.232) (14.250)

State (2.557) (1.844)

(21.789) (16.094)

Income taxes currently payable (credit) 31.551* (3.650)

Deferred taxes net (timing differences)

Excess tax over book depreciation 42.756 38.459 F cairallowanceandcostof removal 4.091 5.426 Allotheritems 4 361 -

51.208 43.885 Amortization of investment tax credit deferrals (406) (94_9)

Totalrecordedincome tax expense $82.353 $39.286

• For consoiidated income tax return purposes, only a negligible amount of income taxes is payable for 1975 due to utiliza-tion of tax loss carry-overs of the parent and certain subsidiaces.

Deferred taxes. net. include state income taxes of $5.511.000 for 1975 and $5.151.000 for 1974.

Income taxes differ from amounts computed by applying the statutory tax rate to pre-tax income as follows (dollars in thousands):' 1975 1974 income taxes on pre-tax income at the statutory federal rate of 48% $101.082 $ 68.203

Adjustments to above at 48%-

Allowance for funds used during construction (ADC) (26.301) (29.836)

- Pensions and taxes capitalized on books (2.797) - (4.884)

Amortization of investment tax credd deferrals . (406) (949)

Amortization of nuclear fuel book-tax basis differences (principally ADC) 1.845 -

Other items, net .3.889 4.232, State income taxes. net of federal income tax benefit -5 041 2.520 Recorded income tax expense (see above) $ 82.353 $39 286 i

i 3o _

. . - - . - , _ _ - - . _ _ _ _ . _ . . _ ~ - - - - . . - . - _ ,

8. Short-Term Borrowing 1975 1974 (dollars in thousands)

Amount outstanding at year end S 85.043 $142.092 Maximum amount outstanding dunng the year 214.813 208.169 Average amount outstanding during the year 87.791 134.989 Lines of credit at year end 246.698 163.757 Average daily bank balances 23.000 19.000 Weighted average interest rate at par end Bank notes payable 7.79% 10.35%

Commercial paper 5.90 10 63 -

Weighted average interest rate for the year - Computed on a daily basis 7.60 10.61 The Company has lines of credit with 79 commercial banks pollution control bond anticipation notes at Sh% matunng and uses these hnes plus commercial paper to finance its on March 11.1975 current cash requirements Bank loans are for 90 days or At December 31.1975. $189.198.000 of the Company s less At December 31.1975. " Notes payable for construc-

~

bank lines of credit required compensating balances of tion consisted of $52.000.000 of bank loans at interest approximately $18.920.000. The remaining lines of credit rates ranging from 7.250% to 8 225% $21.800.000 of (poncipally non-daily depository accounts) were on a fee commercial paper at rates of 5%% to 6M% and $11.243.000 basis calculated in general to equate to the cost of balances.

of poi!ution control bond anticipation notes at 6%% matunng Borrowings are pnncipally at the !ending banks' commercial on March 10.1976 At December 31.1974. " Notes payable pnme interest rate. Many of the Company's bank line ar-for construction" consisted of $55.100.000 of bank loans rangements require additional balances equal to 10% of the at interest rates ranging from 10% to 10H% $71.150.000 borrowings on an annual average ($1.250.000 at of commercial paper at 9%% to 10h% and $15.842.000 of December 31,1975)

9. Other Income The Company has disposed of certain propert;es to for the year 1974. In connection with the disocsition of a augment its sources of funds. Gains and losses on such subsidiary project the Company has recorded provisions transactions are included in "Other, net." Aggregata gains for losses of $1.414.000 and 55.000.000 (on an equity amounted to $9,000.000 (related income taxes of basis. net of income taxes) for the years 1975 and 1974

$4 500.000 have been included in the " Income tax-credit") respectively.

10. Commitments and Contingent Liabilities A. The Company is engaged in a long range construction D. The Attorney General has appealed to the North Carolina program for which substantial commitments have been Court of Appeals the NCUC order of August 27.1975, which made Costs under the program for the years 1976 through authonzed the Company (a) to collect the revenues at-1980 are currently estimated at $3.3 billion. tnbutable to unbilled fuel charges accrued at September 1. l B Certain wholesale revenues are being collected subject 1975. amounting to S 18.500.000 at that date, and (b) to to refund as mentioned in Note 3. replace its fuel clause effective September 1.1975, with a corresponding increase in its base rates. The increase in C The Company has recorded revenues pursuant to a fuel base rates during the period such order was in effect. from l cost adjustment clause appicable to its North Carolina

September 1.1975. to October 3.1975. resulted in revenues retait business totaling S69.100.000 for 1975 and of 514.400.000. The appeal contends that the NCUC

$81.200.000 for 1974. The Attomey General of North Carohna appea!ed the order of the North Carolina Utihties exceeded its statutory authonty under recently enacted legislation. Upon motion of the Attorney General. the NCUC Commission (NCUC) allowing such clause, contending.

reconsidered its order and determined that the Attorney among other things. that the clause was improperly allowed Generafs exceptions were without ment. However, in the in that no advance pubhc heanng was held by the NCUC. absence of a judicial decision, the ultimate outcome of this On August 6.1975 the North Carolina Court of Appeals matter is not presently determinable.

aff;rmed the NCUC decision. The case has been appealed j

to the North Carchna Supreme Court.

31

1974(a) l a 3(a) 1972 1971 1965 CONDENSED STATEMENT OF INCOME itnousands)

E:ectre revenues Residental sales $ 269105 $ 212.213 $ 194 581 $ 166 442 5 88 591 Commercial sales 156 562 122.788 104.479 91.18 J 45.867 Industnat sa:es 254 999 189 879 157 407 139 560 75.003 Other energy saies 98.493 66.274 57.258 49396 22.337 Other revenues 39 644 3 172 4 507 4 560 2 567 Totai electre revenues 818 803 594 326 508 232 451 541 234 365 Electrc expenses Fuel 333 399 191 861 172 072 161 087 51.283.

Net interchange and purchased power (credit) 8.495 28 575 30.478 18.510 1.717 Operation and maintenance 126.259 107 466 94.209 81.581 43.344 Deprecianon 83.914 70 459 59.923 53.062 28.855 Taxesancome 55.380 34.293 18.075 16.020 37.585 Taxes general 64 710 49 776 44 421 39 226 21.185 -

Total e4ctre expenses 672.157 482.430 419 178 369 486 183 969 Eiectnc operating income 146.646 111.896 89 054 82.055 50.396 Ott'er income Allowance for funds used during construction 62.159 59 459 51.185 37.676 2.215 Otnerincome net (deauction) 5.086 1.093 1,511 4 966 1.696 income tax-cred.t 16 094 15.406 13 035 9 553 249 Interest deduct:ons (127 182) r91535) f74 418) (62 3951 f14 794) income before entraordinary item 102.803 96 319 80.367 71.855 39.762 Extraord: nary item - - - -

1067 (b)

Net income 102.803 96.319 80.367 71.855 40 829 Dmdends on oreference and preferred stocn 28 534 27 456 21 901 16 341 1575 Earnings for common stock 74 269 68 863 58.466 55.514 39 254 Dmdends on common stock 59 263 54 036 47 758 40 763 22.957 Earnings retained for use in the business $ 15.006 $ 14 827 5 10708 $ 14 751 $ 16 297 COYMON STOCK DATA Shares of common stock -year end (thousands) 47.836 38.751 35 493 30.229 22.979 ,

-average (thousands! 42.618 38.465 34.592 29.482 22.955 l Per share of common stock Earnings before extraordinary item $174 $ 1.79 $ 169 $188 $1.66 Extraordinary item. net of related income taxes - - - -

05 (b)

Earnings for common stock $ 1.74 $ 1.79 $ 169 $188 $1.71 Dmdends $140 $140 $ 1.40 $1.40 $100 '

Market value- high-low 20N 10 234-16 25421 27 % 20% 44-35 year end 10% 17M 23M 23% 42%

BALANCE SHEET DATA (thousancs)

E'ectre plant (onginalcost) $3 783.777 $3.355.392 $2.903.710 $2.459.572 $1.038.386 Accumu:ated depreciation 727.878 652.922 584.748 534.216 - 327.166 Capitahzation and short-term notes Common stock equity 931.150 793.487 706.899 580.025 314.985 Preference stock 50.000 50.000 50.000 50.000 -

Preferred stock 345 000 345.000 285.000 225.000 35.000 Long-term debt 1.638,752 1.505.174 1.270.224 1.040.891 368.750 Short-term notes payable 142.092 69.296 9G 000 119.343 18.000 ELECTRIC AND OTHER STATISTICS Ntowatthour sales (mdhons)

Residentral 10.325 10.186 9 237 8.780 4 817 Commercial 7.053 7.287 6.515 5 938 2 955 industnal 17.881 18.848 17.778 16.357 10 032 Other 7 085 6 83A 6.158 5 838 2.878 Total kdowatthour safes 42 344 43 159 39 688 36 913 20 682 Number of customers (year end)

Residential 951.459 931.020 895.488 864.361 711.942 Other 154 221 152.132 144.939 137.090 107.560 Total customers 1.105 680 1 083.152 1.040 427 1.001.451 819 502 Residential customer data Average annual KWH use 10.927 11.072 10 447 10 299 6.856 Average revenue per KWH 2 61s 2.08c 2.00c 1.90c 1.84c Number of employees (year end) -

7.392 5.641 Operatna and maintenance 8.103 7.938 7.721 General plant construction and engineenng 4.240 5.125 4.780 3.910 594 Source of eneroy (mdhons of KWH)

Generated-Steam-Fossd 35.538 38.604 37.736 35.393 -20.386

. -Steam-Nuclear 6.761 2.402 - - -

-Hycro 2.320 2.377 1.961 2.028 1.862

-Comoust:on turbine generators 508 650 869 726 -

Net intercnange and curchased power 503 . 2 469 2.607 .1.789 401 Less and company use 3.286 3.343 3.485 3.023 1.967

% loss and company use 72% 72% 81% 75% 87%

System average heat rate 9.780 9 713 9.702 9.728 9.557 -

System load tactor 64 t% 64 2% 65 7% 68 2% - 67 6%

la) RestatediSee Ncte 2 to financial statements.

LD) Undistnbuted eammgs of a sucsid:ary recorded upon its hcu.dation.

32

Power's coal-fired generanng ctations On December Crescent Land & Timber Corp. 31.1975. Eastover owned or had controlling interest in approximately 30.600 acres of coal reserves with Timber harvesting and reforestation continue to be the ~

pnmary activities of this land-management subsidiary. an estimated 250.000.000 tons et recoverable coat Those reserves are located in Virginia and eastern in 1975, Crescent harvested nearly 32 million board Kentucky feet of timber and 51.366 cords of pulpwood. More The 1975 production from operating mines was ap-than 46 million seedlings have been planted on Com-proximately two mdlion tons it is estimated that the pany land since the beginning of the reforestation mines being develooed by Eastover will reach full orogram in 1939. Crescent is currently planting new annual oroduction level of approximately three and trees at the rate of 1.6 million per year.

one-ha!f mdlion tons in late 1977.

Also in 1975. Crescent initiated a sales program that in addition to those mining properties owned or con-wid adow Qualified lease-holders to purchase recrea-trolled by Eastover, Duke has made capital investments tronal'ots on Duke reservoirs. An estimated 6.000 lots in two additional properties being developed by other are expected to be offered for safe through this program.

coal companies These are expected to provide an Crescent's equity interest in Carowinds. a theme additional three to four million tons of coal annually amusement park on the North Carolina-South Carolina wnen full production is reached.

Une. was terminated in 1975 with the park's sale to Family Leisure Centers, Inc. Crescent also terminated Mill-Power Supply Company its land sales contract with Lake Keowee Development Company. developers of resort-residential properties in addition to selling items to Duke and others as a on Lake Keowee wholesale distnbutor of electncal eculpment. this sub-sidiary purchases virtually all supplies. equipment and Eastover Mining Company '"*' 'ea"i'** bY D"ke Eastover Land ComFanF

• • • m'"* "*'"*';"Y"*'**"'"'"Y"**'**

in 1975 by the economic recession A decline in new The Eastover companies were organized in 1970 to construction work. coupled w:th an increasingly com-help assure an adequate supply of coal for Duke petitive market, resulted in a decrease in total sales.

Subsidiary Investments oecemeer 3 r (dollars in thousands) 1974 Property and investments-at cost Real estate. recreational and land development $55.330 Coal mining 67.000 Net current assets. principally receivables andinventones 10 555 Totalassets $132.885 Long-term debt Lifeinsurance company (6.220)

Bank. etc. (26.188)

Coalproduction commitments (34.000)

Deferred income taxes (26.842)

Parent company investment and advances 39.633 Advances from parent r10 855)

Net assets of subsidianes S 28 778 33

i

• CARL HORN, JR 1 i

Chairman of the Board j and Chief Executive Officer

• B B PARKER @@ s

! President and Chief Operating Officer KD l\

j

, ' g'  : ,s  ;

DOUGLAS W BOOTH g

p j Executive Vice President ,

[ '{  ;

HORN WILLIAM S LEE g ' , (, r Executive Vice President ,

~~

+

• WILLIAM H GRIGG t 4 Senior Vice President l-Legal and Finance 2: * ,

AUSTIN C THIES PARKER Senior Vice President Product:on and Transmission t ,

[ h,,, A JOHN D HICKS y Vice President LEE ks*4" -- 'h i Corporate Affairs ,

1$b / M~ -

%mber at the Fmance commstree Y J' l E .

, 4

,jf

%) :

1 ,

BOOTH HICKS GRIGG Effective January 1.1976. Carl Horn Jr.. who had Three new members were elected to the Board of served as President and Chief Executive Officer of the Directors in 1975. The new directors are Dr. Naomi Company s;nce 1971. became Chairman of the Board Gertrude Albanese. Dean of the School of Home and Chief Executive Officer B B Parker. formerly Economics. University of North Carolina at Greensboro:

Executive Vice President and General Manager. was John Sylvester Stewart. President of Mutual Savings efected President and Chief Operating Officer. and Loan Association. Durham. N. C.; and William L The position of Chairman of the Board of Directors Watkins. member of the Anderson. S. C.. law firm of Watkins. Vandiver, Kirven. Long and Gable. They re-has been vacant since the death of Thomas L. Perkins pl ce Wilkam B McGuire and John Paul Lucas. Jr..

in June.1973 who retired. and Richard B. Henney. who did not stand At the same time. the Board elevated Douglas W Booth, for reelection.

formerly Senior Vice President-Retail Operations and Also in 1975. Donald H. Denton. Jr.. formerly General Wditam S Lee. formerly Senior Vice President.

Sales Manager. was elected Vice President-Marketing Eng:neenng and Construction. to ocsitions of Executive i

' He succeeded E. Robert Davis, who retired.

Vice Presidents.

34

l 1

OR NAOW G ALBANESE

• ADDISCN H REESE ' Y Dean Schoci of Home Cna rman of the F: nance Emnomcs

- ~* j i Comm ttee

• ~

Unwrs ty of North Carcana at Greersboro No. 9 Carohna Nat cnal Bann and NCNB Corporation p

N 6 I

(

l l DR ROBERT C EDWARDS " JOHN S STEWART T\

Pres dent Pres; cent ALBANESE EDWARDS HOLDERNESS C:emson Unissa!Y Mutuai Sawngs and Loan  ?

'HOWARD HOLDEANESS Amaton Dwnam .

p Charman of the Board CHAS B WADE. JR Jet *erson Standard LJe Senror Vce Prescent , H, f

insurance Company and R J Reynoldsindustr:es Inc (0) ~

p -

Je'*erson Pdot Corcorat.on gh s s 1 WILLIAM L WATK!NS T  %<

y 1

• HERMAN W LAY Partner in the taa f rm Cha,rman of the Executwe of Watkins Vandiver Kirven # 1

+

[ b Comm:ttee Long and Gatue lay PICKENS REESE PepsiCo inu fa;

• MAR $ HALL I o CKENS * * '

Trustee

, , p. er., 'l Tre Di e Endournent t "h{ '- <.

Us %g ..

Y

. Atember of the Fmance Committee

&s f

+ All oursude derectors are members of the Audit Committee.

tal S1fg. ar.J Just. of soft JrmL s. snack roods. sportmg goods; transportation and lcasmg ser:'uce.

o bt S1% and dist. of tobacco tood, alummum and petroleum products; contameraed shippmg.

A MELL DOOLITTLE WILLIAM O PARKER JR SAMUEL T LATTIMORE Vice Prestent Vce Prescent Ass ' int Vice Presdent KEITH ARLEDGE Southern Dms;on Steam Production Computer Services V>ce Pres dent Western Div:s.on PATRICK D HUFF THOMAS M PATRICK. JR RICHARD R PIERCE Vice Prescent V'ce Pres, dent Assistant Vce Prescent FRANZ W BEYER D str but on Engineering Eastern Desion Corporate Commun: cations V ce Prescent System Prann:ng FRANK A JENKINS STEVE C GRIFFiTH JR EDWARD D POWELL Vce Prescent General Counsel Ass.stant Vice Prescent CARL J BLADES Transm'ss,on and E ectnc Product;on and Transm.ss'en Vce Prescent Instabt-ons W8%MM Rea' Estate Secretary and LEWIS F CAMP J WESLEY LEWIS / ssoc. ate General Counse Assistant Secretary and WILLIAM J BURTON Vce Pres 4ent Ass stant General Counsel V ce Presdent Dms.on Ocerations ER A HAUSER Corporate Communicat. ors Controner JOHN C GOCDMAN, JR JOE S MAJOR JR Ar s.stant Secretary HENRY L CRANFORD Vce Prestent Vice Prestent Personnei Deaswer W BM %ANO Central Dvsion

.OSEPH G MANN ROBERT J ASHMCRE DONALD H CENTON JR Vce Pres: cent Ass stant to the Sen:or KENNETH C. STONEBRAKER i

V<ce Prescent Northern Deston Vice Prescent Ass.stant Controuer Mark e$r'g Legal and F nance DOROTHEA B STROUPE RCBERT L DICK vice prestent EMPMM hsm h m Oce P escent Des;gn Eng:neering Assistant We Rescent Ccnstruct.c n Coerat on 1

i 35

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$ TEAM ELECTAtC STATION Q Mv0R0 ELECTA #C STATION O NuCaia EuCTR.C sT ATiON m . m . ..--~ ..- 4 Duke Power Company is an investor-owned electnc 2.613.000 kilowatts from nuclear-fueled steam utihty serv ng approximately 1.125.000 customers in stations. 1.452.000 kifowatts from hydroefectne North Carohna and South Carolina. Its service area stations. and 684.000 kilowatts from combusuon encompasses approximately 20.000 square miles turbines and other sources.

through the Ptedmont sections of the two states. Re- Dunng the 12 months ended December 31.1975. the j tail customers are served locally through 91 distnct Compan/s efectnc revenues amounted to acoroxi-and branch offices mately 5954 miliion. of which approximately 70 per Generat;ng capabsty on December 31.1975. of cent was derived from sales in North Carolina and 30 12.361.000 kilowatts was composed of 7.612.000 per cent from sales in South Carolina.

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Duke Potver Company R O. Box 2173 sulk RATE Charlotte, N. C. 23242 U.S POSTAGE PAID CHARLOTTE, N C.

PERMIT NO 41 k

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