ML19309C421
| ML19309C421 | |
| Person / Time | |
|---|---|
| Site: | Millstone  |
| Issue date: | 03/14/1980 |
| From: | HARTFORD ELECTRIC LIGHT CO. |
| To: | |
| Shared Package | |
| ML19309C401 | List: |
| References | |
| NUDOCS 8004080581 | |
| Download: ML19309C421 (24) | |
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ANNUAL REPORT l
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1979
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NORTHEAST HELE"O UT L T E.
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DIRECTORS LELAN F. SILLIN, JR.
WILLIAM B.ELLIS Chairman of the Board and Chief Executive Officer, President, Northeast Utilities Northeast Utilities PETERM. STERN WALTER F. FEE
' Northeast Utilities Service Company Vice President, Executive Vice Presidentc Northeast Utilities Service Company -
WARREN A.GRETEN*
/?, DONALD C. SWITZER Vice Chairman.
Vice President, Northeast Utilities i
Northeast Utilities Service Company '
f WALTER F. TORRANCE, JR.
LEON E. MAGLATHLIN, JR.
Vice President, General Counsel & Assistant Secretary, Vice President and Chief Administrative Officer,. Northeast UtilitiesServiceCompany Western Massachusetts Electric Company ANTHONY E.WALLACE HERBERT W. SEARS -
. ~ C' '
Executive Vice President, J
Northeast Utilities Service Company -
Northeast Utilities Service Company Vice President.
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' OFFICERS LEONARD A.O'CONNOR
'i LELAN F. SILLIN, JR.
4 Vice President andTreasurer.
Chairman and Chief Executive Officer WALTER T. SCHULTHEIS DONALD C. SWITZER
, ' Vice President
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Vice Chairman HERBERT W. SEARS WILLIAM B. ELLIS Vice President President PETERM. STERN WALTER F. FEE Vice President Executive Vice President WALTER F. TORRANCE, JR.
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ANTHONY E.WALLACE Vice President, Gene al Counsel & Assistant Secretary Executive Vice President CHARLES S. BEACH PHiLIPT. ASHTON RegionalVice President-Western Vice President W.LINDSEYB OTH O
ALilERT G. BAER" Regional Vice President-Eastern Vice President WARREN F. BRECHT
~ THOMASF.BRENNAN RegionalVice President-Central Vice President and Controller Emit B. GROSS CARROLL A.CAFFREY Regional Vice President-Southern Vice President ALBERT E.MAGEE -
WILLIAM G. COUNSIL '
RegionalVice Presiden't-Northern Vice President ROBERTW. BISHOP RAYMOND E. DONOVAN Secretary I
Vice President ROY M. SEGER WARREN A.GRETEN*
Assistant Secretary Vice President ROBERTC. ARONSON t
FRANCIS L KINNEY Assistant Treasurer Vice President JACK R,McCLENDON Vice President and General Manager-Cas I
- Resigned 1/1/80
" Resigned 2/29/80 -
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The Hartford Electric Light Company March 14,1960 To The Shareholders:
The Annual Report of Northeast Utilities, which provides coverage of the entire Northeast Utilities system, including The Hartford Electric Light Company, has been mailed to all HELCO preferred stockholders. This report is brief for that reason.
The financial statements and statistical data included in this report show the results of operations of the Company in 1979.
As you will note, the Company's earnings showed a decline during 1979 and remained significantly below the return allowed by the Connecticut Division of Public Utility Control (DPUC). Additional revenues generated by a 532.3 million rate increase, approved by the DPUC in June of 1979, were offset by the effects of rapid inflation, higher fossil fuel costs, expenses required for service restoration following storms, costs associated with im-piementing new requirements of the Nuclear Regulatory Commission and higher short-term interest rates. In addition, earnings were adversely affected by a lower level of nuclear generation than in 1978 and the operation, during the last five months of the year, of the Generation Utilization Adjustment Clause (GUAC), which was authorized by the DPUC as part of its 1979 rate decision. The GUAC should have a stabilizing effect on earnings in the future, however. The Company expects to file shortly for increased electric and gas rates.
Later this month, the Company expects to sell, through a private placement, SIC million of 13.35% First Mortgage Bonds due in 1990.
Carroll A.' Caffrey and Walter T. Schultheis were elected Vice Presidents in 1979.
R. bert S. Bromage Vice President, retired after 43 years of system service and Warren A.
Creten Vice President, resigned after 30 years of system service. Warren F. Brecht, previously Vice President - Financial Control and Information Services, was named Vice President - Management Information Systems and Controller when Warren A. Hunt became System Director - Revenue Requirements.
Sincerely, J24(4 f c;22 :, h, President Chairman 1
L
The Hartford Electric Light Company STATEMENTS OF INCOME For the Years Ended December 3I.
1979 1978(a)
(Thousands of Dollar;)
Operating Revenues (Note 2) 5297,917 S259 022 0;4 rating Expenses:
Operation -
Fuel used in generation 84,824 59,478 Cas purchased for resale 12,113 9,844 Other 64,152 58,213 Maintenance 20,216 1o,939 Depreciation 26,552 26,344 Federal and state income taxes (Note 3) 5,867 7,171 Taxes other than income taxes 29,777 26 250 Total operating expenses 243,501 204 248 Operating Income 54,416 54 774 Other Income:
Allowance for equity funds used during construction 4,956 4,370 Equity in earnings of regional nuclear generating companies 1,302 1.044 Other, net (31) 211 Income taxes applicable to other income-credit (Note 3) 206 69 Net other income 6,433 5,604 Income before interest charges 60,840 60.468 Interest Charges:
Interest on long-term debt 29,445 28,365 Other interest 2,090 1,042 Allowance for borrowed funds used during construction (4.682)
(3.734)
Total interest charges 26,853 25.673 Net income M
$ 34,795 (a) The 1978 financial statements have been restated, as discussed in Note 10.
STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31.
1979 1978 (Thousands of Dollars)
Balance at beginning of period
$117,157 5113,859 Net income 33,906 34,795 Cash dividends on preferred stock (6,626)
(6.626)
Cash dividends on common stock (18.879)
(24.871)
Balance at end of period (a) 5125,648 5117,157 (a) At December 31, 1979, retained earnings of $41.400,000 were available for payment of cash dividends on common stock under the provisions of the Company's First Mortgage Indenture and Deed of Trust.
The accompanying notes are an integral part of these financial statements.
2
The Hartford Electric Light Company STATEMENTS OF SOURCES OF FUNDS FOR GROSS PROPERTY ADDITIONS For Ihe Years Ended December 3L 1979 1978(a)
(Thousands of Dollars 1 Funds Generated From Operations Net income 533,996 534.795 Principal noncash items -
Depreciation 26,552 26.344 Deferred income taxes, net 2.464 2.413 Amortization of deferred charges and other noncash items 1,149 1 o80 Amortization of deferred fuel costs 720 210 Allowance for funds used during construction to.o38)
(8.103)
Total funds from operations 55,243 57.348 Less - Cash dividends paid on:
Common stock 18,879 24,871 Preferred stock A
6.626 Net funds generated from operations
( 29.738 J 25.851 Funds Obtained From Financing increase (decrease) in short-term debt 33.o95 (27,475)
Proceeds from issuance of long-term debt 39.701 Repayments of long-term debt (440)
(4.335)
Net funds from financing 33.255 7.891 Other Sources (Uses) Of Funds Decrease (increase)in net current assets (excluding short-term debt. long-term debt due within one year and preferred stock to be redeemed within one yeath Cash and special deposits 3,501 (901)
Receivables and accrued utility revenues (11,8861 (5.499)
Fuel, materials and supplies (12,e00)
(1,883)
Accounts payable 13,118 4,503 Accrued taxes (1,166) 2,436 Revenues to be refunded to customers (Note 2) 1.070 Other, net (3,807) 1.370 Net change t 12,o30) 1,90o Energy adjustment clauses, net (3,375)
(287)
Other. net 80 42 Net other sources (uses) of funds tIo.225i 1.751 Total Funds for Construction from Above Sources 4o,768 35.403 Allowance For Funds Used During Construction 9.638 8.103 GROSS PROPERTY ADDITIONS 55o.406
$43.50o Composition Of Cross Property Additions:
Electric utility plant 552,525
$42.le7 Cas utility plant 1,85o 1.000 Nuclear fuel 2.025 330 Total 556.406 543.50o (a) The 1078 tinancial statements have been restated. as discussed in Note 10.
The accompanying notes are an integral part of these financial statements.
3
The Hartford Electric Light Company BALANCE SHEETS At December 31.
1979 1978 (Thousands of Dollars)
ASSETS Utility Plant, at original cost:
Electric 5771,797 5755,736 Gas 34,443 32.785 806,240 788,521 I ess: Accumulated provision for depreciation 201,943 170,229 604,297 609,292 Construction work in progress (Note 9) 151,706 119.536 Neicar fuelin process, net 3,345 2.324 Total net utility plant 759,348 731,152 Other Property ano icvestments:
Investments in regionel nuclear generating companies, at equity 11,553 11,130 Other, at cost 3,264 3.274 14,817 14,404 Current Assets:
Cash and special deposits (Note 4) 531 4,031 Receivables, less accumulated provision for uncollectible accounts of 5825,000 in 1979 and 5815,000 in 1978 31,881 24.080 Due from affiliated companies 10,118 7,764 Accrued utility revenues 14,313 12.582 Fuel. materials and supplies, at average cost 29,585 16,895 Prepayments and other 009 253 87,337 65.605 Deferred Charges:
Unamortized debt expense 956 1,027 Energy adjustment clauses, net 4,063 1.456 Other 2,837 4.210 7,856 6.603 Total Assets
$8e9.358 5817.854 The accompanying notes are an integral part of these financial statements.
4
At December 31, 1979 1978 (Thousands of Dollars)
CAPITALIZATION AND LIABILITIES Capitalization:
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 125,648 117,157 Total common stockholder's equity 276,254 267,763 Preferred stock not subject to mandatory redemption (cumulative) - $50 par value. Authorized 2.800,000 shares: outstanding 1,624,000 shares (Note 5) 81,200 81,200 Preferred stock subject to mandatory redemption (cumulative) - 550 par value. Authorized 200,000 shares: outstanding 200,000 shares (Note 6) 9,500 10,000 Long-term debt, net (Note 7) 376,802 389,047 Total capitalization 743,756 748.010 Current Liabilities:
Commercial paper (Note 4) 33,695 Long-term debt due within one year (Note 7) 12,215 340 Preferred stock to be redeemed within one year (Note 6) 500 Accounts payable 9,149 6,279 Due to affiliated companies 22,912 13,708 Accrued taxes 17,197 18,364 Accrued interest 6,712 7,000 Revenues to be refunded to customers (Note 2) 2,968 Other 2,498 2.653 104.878 51,402 Deferred Credits:
Accumulated deferred income taxes 2,885 3,109 Accumulated deferred investment tax credits 15,774 13.046 Other 2,065 2.287 20,724 18.442 Commitments and Contingencies (Note 9)
Total Capitalization and Liabilities 5869,358 5817.854 5
The Hartford Electric Light Company NOTES TO FINANCIAL STATEMENTS -
(1)
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES General: The Hartford Electric Light Company (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 (the system) and are wholly owned by Northeast Utilities, a registered holding company under the Public 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 administrative, 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. except for transactions with NNECO, which also include amounts representing a return on equity, and are subject to approval of various federal and state regulatory commissions having jurisdiction.
The Company and CL&P have consolidated their operations by means of a transfer of all Company regional personnel (other than production personnel) to CL&P. CL&P is respon-sible for meeting the local service needs of customers of both companies and bills the Com-pany for work performed for the Company on a recovery of cost basis. The Company and CL&P have been investigating the feasibility of a corporate merger, in which CL&P would be t he surviving corporation.
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 Ev change Commission (SEC). The Company is subject to further regulation by FERC and the Connecticut Division of Public Utility Control Authority (DPUC) and follows 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 compar,ies. These companies, together 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 by these facilities is committed to the participants based on their ownership interests and is billed pursuant to contractual agreements whi n are approved by FERC.
Reremacs: Revenues are based on authorized rates applied to customer consumption of utility services. Rates may not be increased without a formal proceeding before the DPUC. 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 Millstone I and 11 as tenants in common. NNECO owns the nuclear fuel for such units. The cost of NNECO's nuclear fuel 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 57,155,000 and $5,497,000 in 1979 and 1978, respectively. This includes a provision in 1979 for estimated spent nuclear fuel disposal costs on the Millstone units which the Company is allowed by the DPUC to collect from customers: however,-
amounts collected from customers must be deducted from rate base. The Company is not paying NNECO, the amer of the nuclear fuel, until NNECO has to make payments for such costs. The unpaid spent nuar fuel costs. which amounted to $1,003.000 in 1979, wcre transferred from accounts payable a the accumulated provision fc,r amortization of nuclear l
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9 fuel assemblies. As approved by the DPUC, the estimated spent fuel disposal costs pertaining to fuel amortized prior to 1979 are being amortized over a ten-year period. Storage for spent fuel at the Millstone nuclear station, including the facilities currently under construction at Millstone III, 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 3.4 percent in 1979 and 3.5 percent in 1978, and for several classes of gas plant. which are equivalent to a com-posite rate of 2.7 percent in 1979 and 2.7 percent in 1978, 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 the ac-cumulated provision for depreciation.
A study completed in 1979 indicates that the complete removal commencing at the time of retirement of the two nuclear units in which the Company has a 28 percent ownership interest is the most viable and economic method of decommissioning these units. The Company's share of the total estimated decommissioning cost is $37.4 million. Depreciation rates recognized for regulatory rate setting for the Company include an element of decom-missioning costs. It is estimated that. at such time as the costs indicated in the 1970 study are allowed by the DPUC, depreciation expense will increase from approximately So08.000 per year for the Company to approximately $1.5 million per year.
Maintenancc: 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 DPUC. 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 ex-pected that deferred taxes not provided for currently will be collected in customers' rates when such taxes become payable. See Note 3 for the detail of income tax expense.
Allowance for Fimds Used During Constructior:: The allowance for funds used during 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 DPUC. the Company charges AFUDC to the construction cost of utility plant. The AFUDC rate applied to construction work in progress for 1970 and 1978 was 9 percent. Through 1079, the Company did not record the effect of compounding such rate.
Effective January 1,1980, the Company adopted an AFUDC rate of 9.5 percent and also adopted, subiect to the approval by the DPUC. net-of-income fax accounting treatment. In addition. AFUDC on Millstone 111 wdl be compounded semi-annually.
Retirement Plan: The Company participates in the Northeast Utilities Service Company Retirement Plan (the Plan). The Plan, which covers all regular employees. is noncontributory.
The system's policy is to annually fund an actuarially determined contribution, which in-cludes that year's normal cost, the amortization of prior years' actuarial losses over fifteen -
years. and the amortization of prior service costs over forty years. At December 31,1079, it is estimated that the Plan's unfunded liability was approximately $111.200.000 and that the Plan's assets exceeded the value of vested benefits. The Company's allocated portion of the system's contribution, part of which was charged to utility plant approximated 5800,000 in 1070 and Se00,000 in 1978.
Energy Adinstment Clauses: The Company's retail electric and gas rates include adjustment clauses under which certain fossil fuel and purchased power costs and purchased gas costs, respectively, above or below base rate levels are charged or credited to customers. As prescribed by the DPUC; costs not currently recovered under the adjustment clauses are deferred until recovery is permitted by the DPUC.
7
Effective August 1,1979, the Company implemented a Generation Utilization Ad-justment Clause (GUAC), as approved by the DPUC. Monthly, this clause levelizes the effect on fuel costs caused by variations from a 70 percent nuclear generation factor. At the end of the twelve-month period ending July 31 of each year, any deferred balance resulting from the actual nuclear generation factor being above or below 70 percent will be either refunded to or collected from customers over the subsequent twelve. month period. For the period August 1, 1979 to December 31, 1979, the nuclear capacity factor was 76.o percent. resulting in a leveling charge to fuel expense of 53.002.000.
As of December 31,1979, the components included in the energy adjustment clauses, net are as follows:
Fuel and Purchased Power
$6,247,000 Gas Purchased for Resale 818.000 CUAC (3.002.000)
TOTAI.
54.0o3.000 (2)
RATE MATTERS in June 1979, the DPUC issued a decision granting the Company an increase in retail electric and gas revenues of $32.3 million The level granted was 74 percent of the 543.6 million the Company had requested. The new rates went into effect in July 1979.
In January 1979, the DPUC approved the recovery of an aggregate of 53.593.000 by the Company from its electric and gas customers, representing previously unrecovered costs which were found by the Connecticut Supreme Court to have been improperly disallowed by the DPUC in its 1977 rate case decision. The recovery of these costs was recorded in revenues during the first half of 1979 The 52.968,000 of revenues to be refunded to customers as of December 31,1978 resulted from FERC approved settlements between gas distribution companies and their gas suppliers which required refunds to ultimate customers. The refunds were passed on to the Company's customers by reducing their gas bills in February 1979.
(3)
INCOME TAX EXPENSE The detail of federal and state income tax provisions charged to operations is set forth below:
Year Ended December 31, 1979 1078 f Thousands of Dollars 1 Current income taxes:
Federal 51,709 52,844-State 1.488 1.845 Total current 3,197 4.689 Deferred income taxes, net:
Investment tax credits 2,687 3,106 l
Federal (241)
(612)
State 18 (81)
Total deferred 2,404 2.413 Totalincome taxes 55.661 57.102 l
Such provision (credit) is included in the accompanying statements of income as follows:
Operating expenses
$5,867 57,171 l
Other income (206)
(69) l Total income taxes
$5,661 57.102 l
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1-Year Ended December 31.
1070 lo78 Deferred income taxes are comprised of the tax effects of c
timing differences as follows:
Investment tax credits 52,687 53,106 Unbilled revenues (420)
(425)
Settiement credits - nuclear fuel (653)
Energy adjustment clauses 1,151 33 Other (301 (301)
Deferred income taxes, net
$2,464 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 are as follows:
Expected tax, at 46% of pretax income in 1979 (48% in 1978) 518,242 S20,110 Tax effect oi differences:
Additional depreciation for tax purposes (4,843)
(5,407)
Allowance for funds used during construction -
not recognized as income for tax purposes (4,433)
(3,800)
Overhead costs of construction - expensed for tax purposes (1,036)
(894)
Investment tax credits (1,639)
(1,409)
Allocated affiliated companies' losses (71e)
(810)
Cost of removal-expensed for tax purposes (604)
(658)
State tax, net of federal benefit 813 017 Other, net (123)
(797)
Totalincome taxes S 5.661 S 7.102 Effective income tax rate 14 %
17 %
(4)
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 1980 and, although these lines are generally renewable, the continuing availability of the unused lines of credit is subject to review by the banks involved. At December 31, 1979, the amount of unused available borrowing capacity under the credit lines available to the Company was $168,450,000:
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 Soo.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.
Additional information with respect to short-term debt is as follows:
1079 107b Weighted average interest rate for borrowings outstanding at end of period (excluding effect of compensating balances) 15.2 %
Maximum amount of borrowings outstanding at any month-end 533,605,000
$30.800.000 Average daily borrowings during period S13.271,000 5 8.365.000 Weighted average interest rate during the period (based on the daily amounts out-standing and excluding effect of compensating balances) 13.8 %
8.5 %
Rangeof maturities at December 31(in days) 2-50 9
(5)
PREFERRED STOCK NOT SUBJECT TO h1ANDATORY REDEMPTION Details of preferred stock outstanding are as follows:
Par Value Current Sisares December 31.
Description Redemption Price Outstanding 1079 1978 (TI:ousands of Dollars) 3.90% Series of 1949
$50.50 160,000 S 8,000
$ 8,000 4.50% Series of 1956 50.75 104.000 5,200 5,200 4.96"o Series of 1958 50.50 100,000 5,000 5,000 4.50% Series of 1963 50.50 160,000 8.000 8,000 5.28"o Series of 1967 52.09*
200,000 10,000 10.000 6.56"o Series of 1968 52.26*
200,000 10,000 10,000 9.36"o Series of 1970 54.38*
200,000 10,000 10,000 7.t>0"o Series of 1971 53.51*
200,000 10,000 10,000 9.60% Series of 1974 54.66*
300.000 15.000 15.000 Total preferred stock not subject to mandatory redemption 1.624.000 581.200 581.200
- 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 established redemption prices plus accrued dividends to the date of redemption.
(6)
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION '
Details of preferred stock oustanding are as follows:
Par Value Current Sisares December 31, Description Redemption Price Outstanding I979 1978 (Tiscusands of Dollars) 11.52"o Series of 1975 55.76*
200 000 10,000 10,000 Less preferred stock to be redeemed within one year (5001 Total preferred stock subject to mandatory redemption 5 9.500 510.000
- Redemption price reduces in future years.
The 11.52% Series of 1975 preferred stock (the Series) requires a sinking fund sufficient to retire a minimum of 10,000 shares at $50 per share each year commencing October 1,1980. In case of default on sinking fund payments, no payments may be made on any junior stock by way of dividends or otherwise (other than in shares of junior stock) so long as the default continues. The Company's preferred stock provisions would prohibit the redemption or purchase of shares of the Series if the Company is in arrears with respect to payrnent of dividends on any outstanding shares of preferred stock. There were no changes during the year in the Series. All or part of the Series may be redeemed by the Company at any time at established redemption prices plus accrued dividends to the date of redemption, except that during the initial five-year redemption period, the Series is subject to certain refunding limitations.
171 LONC-TERM DEBT Details of long-term debt outstanding are as follows:
December 31, 1o70 1078 (Titousands of Dollars)
First Mortgage Bonds:
23/4% Series C, due 1980 5 10,000 5 10.000 25/8% Series, due 1982 5,292 5,532 31/8"o Series D, due 1984 7,431 7,536 5"o
- Series, due 1987 15,000 15.000 43/8% Series E, due lo88 18,000 18,000 41/4% Series, due 1993 15,000 15,000 41/ 2 *e
- Series,
'due 1094 12,000 12,000 1
i 10.
o December 31, 1970 1078
. (Thousands of Dollars) 55/8% Series, due 1997 S 20,000 5 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 40,000 Total First Mortgage Bonds 382,723 383,068 Pollution Control Notes:
5.90% due 1998 3,262 3,262 6.50% due 2007 4,130 4.130 Less due within one year (including 505,000 of reacquired First Mortgage Bonds in 1979) 12,310 340 Unamortized premium and discount, net (1,003)
(1,073) long-term debt, net
$376.802 5389.047 Long-term debt maturities and cash sinking fund requirements on debt outstanding at December 31,1979, are as follows: 1980, 512,215,000: 1981, 52,215,000: 1982, 526,787,000; 1983, 51,975,000 and 1984, 58,932,000. In addition, there is an annual 1 percent sinking and improvement fund requirement amounting to 53.000,000 for 1980. 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 i
periods, subject to certain refunding limitations. The 11b% 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 ehe lien of the mortgage indenture.
(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 operations, including rental payments on capitalizable leases, amounted to 52,337,000 for 1970 and $2.462,000 for 1978.
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: 1980, $2,000,000: 1981, 51,800,000: 1082, 51,700,000: 1983, 51,700,000: 1984, 51,400,000: and for the years subsequent to 1084,. an aggregate of 515.500,000.
(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 Sc6.3 million in 1980 and 5437 million for the years 1981-1985.
. 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 11
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F load estimates, inflation, the availability and cost of capital, and the granting of timely and adequate rate relief by the DPUC. It is expected that compliance with present and developing
. regulations established by various authorities in the areas of nuclear plant licensing and safety, land use, water and air quality, and other environmental matters will require ad.
ditional capital expenditures and increased operating costs not now determinable in amount.
Substantial capital and operating expenditures have been budgeted by _the Company in response to known and anticipated requirements of the U.S. Nuclear Regulatory Commission (NRC) as a result of its analysis of the Three Niile Island accident. However, additional ex-penditures may be required as a result of further NRC analysis of the accident. In addition, uncertainties related to the reprocessing or permanent storage of nuclear fuel may require -
revisions in future nuclear fuel costs.
At December 31,1979, construction work in progress included an investment of $130.4 million in jointly owned nuclear generating facilities consisting of an 18.2 percent interest in N!illstone !!! of $122.7 million, and a 21 percent interest in the proposed Nlontague nuclear plant of 57.7 million. 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.
The N1distone !!! nuclear unit is being constructed for a 1986 in-service date. The an-ticipated cost of the Company's 18.2 percent ownership share of the unit, assuming approval by the appropriate regulatory commissions of the net-of-income tax accounting treatment, as discussed in Note 1, will be 5377 million. In 1978. because of regulatory delays and financial constraints, the system suspended its early site review effort for the N!ontague facility but continues to perform meteorological and aquatic studies of the site and to capitalize AFUDC.
In 1980, the Company's construction program is expected to be financed from internal sources, long-term financing 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,. including 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.
The current six-year construction program does not include any funds for the conversion of any of the Company's oil-fired generating units to coal. Certain of the Company's units may be subjected to federal orders prohibiting the use of oil. The estimated cost of conversion of units which the Company believes are presently under consideration by the federal government for conversion, ranges from approximately 591 million to approximately $270 million. depending on the environmental requirements applicable to each unit.
An antitrust action was instituted against NU. CL&P, HELCO and NUSCO in 1973 by six Connecticut municipally owned electric utilities claiming So4,500.000 in treble damages.
Three of the plaintiffs have settled their claims for amounts which have been accrued by the system companies as of December 31,1970. The claims of the remaining three plaintiffs. for which amounts have also been accrued, must proceed to trial 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 of fenses claimed in the plaintiffs' complamt.
(10) TERN!! NATION OF AGREENIENT FOR THE SALE OF THE CAS PROPERTIES On October 1,1979,the Company, CL&P and Connecticut Natural Gas Corporation (CNG) jointly terminated their agreement under which gas properties of the Company and CL&P would be sold to CNG. The Company and CL&P are currently reevaluating the future of their gas businesses in light of SEC requirements that a registered holding company limit its utility operations to either electric or gas service. The 1978 financial data has been restated to e
eliminate the discontinued operations disclosure reflected in the 1978 Annual Report in order to conform with the 1979 presentation.
(11) SEGNIENTS OF BUSINESS Segments of Business information relating to the Company's electric and gas operations for the years ended December 31.1970 and 1978 can be located in the Statements of Segments of Business on page 19 of this Annual Report.
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(12i ' QUARTERLY FINANCIAL DATA (UNAUDITED) ( 0 Summarized quarterly financial data for 1979 and 1978 are as follows:
Quarter Ended March 31 June 30 September 30 December 31 (Thousands of Dollars) 1979 Operating Revenues
$76,186 565,766, 577,511 578,454 Operating income
$15,702 5 9,341 S15, % 7 513,406 Net income
$10,720 5 4.416 510,829 5 8_.031 1078ib)
Orerating Revenues 569.298 559.602 563.917 566.205 Operating income 510.212 511.953 515.382 517.227 Net income 5 5.488 5 6003 510,278 512.036 (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. However, the comparison of the third and fourth quarters of 1979 have been levelized for the impact of nuclear performance due to the implementation of the GUAC, as discussed in Note 1, Energy Adjustment Clauses.
(b) 1978 data has been restated to include amounts related to gas operations.
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(13) IMPACT OF CHANCING PRICES (UNAUDITED)
The following supplementary information was prepared on the basia prescribed by the Financial Accounting Standards Board in Statement of Financial Accounting Standards No.
33, " Financial Reporting and Changing Prices", for the purpose of providing certain in-formation about the effects of changing prices. It should be viewed as an estimate of the approximate effect of inflation, rather than a precise measure. Specifically, fixed assets and related depreciation expense appearing in the primary, historical cost financial statements have been restated on two bases, constant dollar and current cost amounts. Restatement of otf er items would not materially affect the restated amount of net income.
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6 13 4
Statement of income Adjusted for Changing Prices For the Year Ended December 31,1979 Conventional Constant Dollar Current Cost Historical Average Average Cost 1979 Dollars 1979 Dollars (Millions of Dollars)
Operating revenues
$298 5298 S208 Fuel used in generation 85 85 85 Cas purchased for resale 12 12 12 Depreciation and nuclear fuel amortization 27 51 oO Other operation and maintenance expenses 83 83 83 Federal and state income taxes 6
o o
Interest expense 27 27 27 Taxes other than income taxes 30 30 30 Other income 6
6 o
Net income (loss)
(excluding reduction to net recoverable cost)
$ 34 5 10(b) 5 1 Increase in specific prices (current cost) of fixed assets and nuclear fuel held during the year (a) 5167 Reduction to net recoverable cost S(43)
(7)
Ef fect of increase in general price level (194)
Excess of increase in general price level over increase in specific prices af ter reduction to net recoverable cost (34)
Cain from decline in purchasing power of net amounts owed 61 61 Net 5 18 5 27 (a) At December 31.1970, current cost of fixed assets and nuclear tuel, net of accumulated depreciation, was 51.617.783.000, while historical cost or net cost recoverable through depreciation was $762,514.000.
(b) Including the reduction to net recoverable cost, net income (loss) on a constant dollar basis would have been (533.000.000) for 1079.
Five Year Comparison Of Selected Supplementary Financial Data Adjusted For Effects Of Changing Prices Years Ended December 31.
1970 1978 1977 1976 1975 (In Millions of Average 1979 dollars!
Operating revenues
$298 5288 5291 5206
$302 Historical cost information adjusted for general inflation Net income (loss) (excluding reduction to net recoverable cost) 5 10 Net awets at year-end at net recoverable cost 5261 Current cost information Net income (lossHexcluding reduction to net recoverable cost)
$ 1 Excess et increase in general price level over increase in specific prices atter reduction to net recoverable cost S 34 Net assets at year-end at net recoverable cost 5261 Generalinformation Gain from decime in purchasing power of net amounts owed S 61 Average consumer price index 217.3 105.4 181.5 170.5 161.2 14
Constant dollar amounts represent historical costs stated in terms of dollars of equal purchasing power, as measured by the average level of the Consumer Price Index for all Urban Consumers (CPI-U) during the year. With the exception of CWIP, which has been escalated for AFUDC during the construction period, the data for plant was determined by applying the applicable cpl.U to the historical cost of each plant function for which an average age was determined.
Constant dollar restatement corrects distortions caused by recording transactions in dollars of -
varying purchasing power. The restated amounts do not purport to be appraised value, replacement cost, current value, or the individual prices of particular goods and services in the current market:
nor are they indicative of the Company's future capital requirements.
Current cost amounts reflect the changes in specific prices of plant from the date the plant was acquired to the present, and are based on estimates of the costs to acquire or produce today, assets identical to those owned or assets having the same service potential as the assets owned.
The current cost of plant and equipment was determined by indexing the historical costs of each plant function, for which an average age was determined by the applicable Handy Whitman Index of Public Utility Construction Costs. Both the constant dollar and current cost amounts of land have been estimated by using the CPI U.
The current year's depreciation expense for both constant dollar and current cost methods was determined by applying the Company's depreciation rates to the indexed plant amounts. Ac -
cumulated depreciation under both methods was estimated for each maior plant function by multiplying the respective cost data by a percentage representing the expired life of existing facilities of each function at December 31,1979 Fossil fuel inventorin and the cost of fossd fuel used in generation have not been restated from their historical cost as regulation permits the recovery of fuel costs through the operation of ad-justment clauses. For this reason, f uel inventories are considered to be monetary assets.
As prescribed in Statement of Financial Accounting Standards No. 33, income taxes were not adjusted.
The excess of the increase in general prices over the increases in specific prices of plant indicates that, for the year 1079, general inflation was greater than the increase in specific prices of plant.
Under the rate-making process prescnbed by the regulatory commissions to which the Company-is subject, only the historical cost of pLnt is recoverable in revenues as depreciation. Therefore, the eue s of the cost of plant stated in terms of constant dollars or current cost that esceeds the historical cost of plant is not presently recoverable in rates as depreciation. and is reelected as a reduction to net recoverable cost.
During a period of intiation, holders of monetary assets suffer a loss of general purchasing power, while holders of monetary liabilities expenence a gain. The gain from the dedine in pur-chasing power oi net amounts owed is primarily attributable to the substantial amount of debt which has been used to finance property. plant and equipment.
Auditors' Report To the Board of Directors of The Hartford Electric Light Company:
L We have esamined the balance sheets of The Hartford Electric Light Company (a Connecticut corporation and a wholly owned subsidiary of Northeast Utdities) as of December 31.1979, and 1478, and the related statements of income, retained earnings and sources of funds for gross property additions for the years then ended. Our esaminations were made in accordance with generally ac-certed auditing standards and accordingly, included such tests of the accounting records and such other auditing procedures as we consider necesgry in the circumstances.
In our opinion, the financial statements referred to above present faitly the financial position of
-The Hartford Electric Light Company as of December 31.1970, and 1978, and the results of its operations and the sources of funds for gross property additions for t,he years then ended, in con-formity with generally accepted accounting principles applied on a consistent basis.
ARTHUR ANDERSEN & CO'.-
Hartford. Connecticut, l'ebruary 20,1080.
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The Hartford Electric Light Company
SUMMARY
OF OPERATIONS (a)
For the Years Ended December 31, 1979 1978 Operating Revenues
$297,917 5259.022 Operating Expenses:
Operation and maintenance 181,305 144,474 Depreciation 26,552 26,344 Federal and state income taxes 5,867 7,171 Taxes other than income taxes 29,777 26,259 Total operating expenses 243,501 204.248 Operating Income 54,416 54,774 Other Income, Net 6,433 5,694 income Before Interest Charges 60,849 60,468 Interest Charges, Net 26,853 25,673 Income (before cumulative effect of accounting changes) 33,996 34,795 Cumulative effect prior to January 1,1974 of accounting changes, relating to energy adjustment clauses and unbilled revenues, net of applicable income tases of 53,018,000 Net income 5 33,996 5 34,795 Pro Forma Net income (assuming the 1974 accounting changes above were applied retroactively)
(a) These financial statements have been restated, as discussed in Note 10.
(b) The pro form change for 1o60 is estimated to be immaterial and, therefore, has not been computed.
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s 1977 1976 1975 1974 1969 (Thousands of Dollars) 5242,846 5232.461 5223.968 5192.833 592,753 128,221 120,711 131,655 114,263 45,395 25,742 21,858 16,980 16,179 9,162 7,779 4,342 780 (2.021) 5,193 25,939 26.089 23.624 -
21.251 11.646 187,681 173,000 173,039 149,672 71,396 55,165 59,461 50,929 43,161 21,357 4,924 4.098 6.118 4.910 1,303 60,089 63,559 57.047 48,071 22,660 23.337 24.127 21.489 20.686 6.787 36,752 39,432 35,558 27,385 15,873 7,118 5 36.752, 5 39.432 5 35.558 5 34.503 515.873 5 27,385' (b) i l
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The Hartford Electric Light Company MANAGEMENT DISCUSSION AND ANALYSIS OF
SUMMARY
OF OPERATIONS A summary of the changes in the principalitems affecting earnings is shown below:
Increase 4 Decrease) 1979 vs.1978 1978 vs.1977 Amount Percent Amount Percent IThousands of Douars)
Operating revenues.
538,805 15.0
$16.176 6.7 Operation and maintenance expenses:
Cost of fuel and gas 27,615 39.8 1,548 2.3 Other operation expenses.
5,939 10.2 10,899 23.0 N1aintenance.
3,277 19.3 3.807 29.0 Provision for depreciation.
208
.8 e02 2.3 Provision for income taxes.
(1,304)
(18.2)
(608)
(7.8)
Other taxes.
3,518 13.4 320 1.2 Allowance for funds used during construction.
1,534 18.9 546 7.2 Interest and other charges (excluding allowance for borrowed funds used during construction).
2.128 7.2 2.367 8.8 Operating Revenues The revenue increase in 1970 resulted principally from the rate increase granted by the DPUC in July 1970 and from additional fuel cost recoveries resulting from rising fuel prices. Additional revenues were received in 1979 due to a temporary surcharge amounting to 53.6 million to recover costs which were found by the Connecticut Supreme Court to have been improperly disallowed by the DPUC. The revenue increase in 1978 was due primarily to a rate increase which was received in late 1977 and higher kWh sales.
Operation and N1aintenance Expenses Operation and maintenance expenses increased in 1979 and 1078 by 536.8 million (26 percent) and 516.3 million (13 percent), respectively. The most significant portion of the increase in 1979 was a fuel and gas cost increase of 527.6 million (40 percent). Fuel cost increases in 1979 were attributable to escalating fossil fuel prices, additional purchases of interchange power, and increased nuclear fuel costs. Nuclear fuel expenses increased due to an increase in fuel prices and the provision for the ultimate disposal of spent fuel. Another contributing factor was the implementation of GUAC which deferred fuel cost reductions related to the high nuclear performance for the months of August through December 1979. The most significant portion of the operation and maintenance expense increase in 1978 related to cests associated with the h1illstone I and II outages for refueling and maintenance. hlaintenance expense increases in 1979 were due to increased maintenance expenditures on fossil and nuclear plants of 52.0 million (28 percent) and the continuing impact of inflation.
Taxes Federal and Connecticut state income taxes decreased in 1979 due to lower taxable income and the lower federal statutory rate. Income taxes increased in 1978 primarily due to the utilization of a lesser amount of investment tax credits. Taxes other than income taxes increased in 1o70 largely due to an increased Connecticut gross earnings tax as a result of higher revenues. In Connecticut, 5 percent of all utility revenues are paid to the state as a gross earnings tax.
Other income Other income consists mainly of the allowance for equity funds used durmg construction (AFUDC). Total AFUDC. including the portion classified as a credit to interest charges, increaseu by
$1.5 million (19 percent) in 1979 and 5500.000 (7 percent) in 1978. The increase in AFUDC for 1079 represents growth in the average monthly balance of construction work in progress which is primarily due to the Company's investment in the construction of nuclear projects.
Interest Charges Total interest charges (euluding the credit for allowance for borrowed funds used during constructien) increased in 1970 and 1078 by $2.1 million (7 percent) and 52.4 million (o percent),
respectively. Increased short term borrowings and higher rates on these borrowings contributed to the increase in 1979. Additional interest charges were incurred in both 1079 and 1978 due to the interest on a new bond issue in April 1978.
18
The Hartford Electric Light Company STATEMENTS OF SEGMENTS OF BUSINESS 1979 1978 1977 1976 1975 (Thousands of Do!!ars)
For the Year Ended December 31.
Operating Information Electric Operations:
Operating revenues
$277.643 5241.554 5227.794 5219.444 5212.572 Operating expenses, excluding provision for income taves 219.688 182.200 1o6.763 157.401 162.530 Pre-tax operating income 57.955 59.384 01.031 62.043 50.042 Provision for income taxes 5.736 6.879 7.801 4.523 750 Allowance for funds used during construction ( AFUDC) 9.5o7 8.039 7.476 5.942 10.04o Operating income and AFUDC 5 e1.786 5 o0.544 5 60.o46 5 o3.462 5 59.338 Depreciation expense g
5 25.406 5 24.926 5 21.081 5 16.240 Cap.tal espenditures 5 54.550 5 42.506 5 47.697 5 53.576 5 68.752 Cas Operations:
Operating revenues 5 20.274 5 17,438 5 15.052 5 13.017 5 11.396 Operating cipenses. excluding provision for income taxes 17.946 14.877 13.139 11.257 9.729 Pre-tax operating income 2.328 2.501 1.913 1.760 1.667 Provision (credit) for income taxes 131 292 (82)
(181) 30 AFUDC 71 65 82 46 36 Operating income and AFUDC 5 2.268 5 2.334 5 2.077 5 1.987 5 1.673 Depreciation expense 5
880 848 5
816 5
777 5
740 Capital eurenditures 5 1.856 5 1.090 5 1.972 5 2.013 5 1.263 At December 31.
Investment information:
Identifiable assets (a)
Electric
$735.o03 5708.158 So91.06o 567o.197 5647.714 Cas 27.527 26.296 25.919 24,752 23.486 Nonallocable awets 106 228 83.400 76.207 82.577 82.253 Total as ets 5869.358 5817.854 5793.192 5783 526 5753.453 (a) includes construction work in p ogress, matenals and supplies and allocated common utility property.
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The Hartford Electric Light Company STATISTICS Operating Reverues Utility Plant December 31, (Thousands]
(Thousands)
Electric Gas Total 1%9 5402,886 5 85,851 5 6,902 5 92,753 1974 731,434 182,059 10,774 192.833 1975 798,544 212,572 11,396 -
223,968 i
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 1979 961,291 277,043 20,274 297,917 Average Average Annual Annual Cubic Feet Residential Electric Gas Ktch Sales Residential of Gas Sales Cubic Feet Customers Customers Employees (Alillions)
Ktch Use(a)
(hfi!Iions) of Gas Used (Average) (Average) (December 31) 1%9 4,073 5,763 4,547 74,568 264,799 32,589 1,773 1974 5.014 6,703 4,601 75,233 282,900 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 (b) 1978 5,567 6,963 4,627 75.753 295,387 30,909 187 (b) 1970 5,691 6,924 4,979 73,187 300,013 30.801 184 (a) Based on residential equivalent customers, reflecting total dwelling units, (b) Decreases are due to the consolidation of the Company's and CL&P's operations.
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