ML19323E012

1979 Annual Financial Rept,1979 for Ny State Electric & Gas Corp

ML19323E012
Person / Time
Site:	Nine Mile Point
Issue date:	12/31/1979
From:	NEW YORK STATE ELECTRIC & GAS CORP.
To:
Shared Package
ML17053B655	List: ML17053B654 ML18037A256 ML19323E012 ML19323E016
References
NUDOCS 8005220645
Download: ML19323E012 (36)

Text

_ _ . . _ _ __ _ _

0 1979 l LE Annual Report I

New Corporate Identification l Keeprng up wuth the ames the Company has adopted a new shorthand identification for the convenience of busy customers and stockholders. The mittals of the Company's I name. .YlSEG. have been adopted as the Contents s:gnctet for routme business purposes.

NYSEG has the benef:t of be ngfas:er to 2 Highlights of the Year say and wnte than :s the offic:al corporate 3 Letter to Stockholders name, which wr:I remam unchanged. S Condensed Statement of Income Beynnung thxs year the Company weil encourage use of the in: rials for o!! rouen, 7 General Review of the Year business purposes, from paymg bulls to 7 Earnings and Dividends signing of advertseme9ts, documents and 7 Dividend Reinvestment P!an reports The smt als well also be used on 7 Stockholders Company vehicles andfacillt:es- 7 Rates

, 8 Generating Company j 9 Somerset Project 9 Power Supply 10 Future Power Supply i 11 1979 Construction 12 Future Construction 12 Financing 12 Management Audit 13 Research and Development 14 Energy Conservation 15 Environmental Protection 15 Electric Operations i

16 Gas Operations f, ., n . . 3 g, . 17 Management

. + 7a 17 Board of Directors C., f'  ;

. *.. -- '{ _ 18 Balance Sheet "I .

1. ' ' 3> 1 19 Statement of Income I CM

,t . 19 Statement of Retained Earnings

'N i .

c7 20 Statement of Changes in Financial Position 21 Statement of Capital Stock and

. 7 :- Long-Term Debt e T 22 Notes to Financ:al Statements

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g . 28 Financial and Operating Statistics

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/- \ \ - 33 Directors and Officers

. , _ - -' - -w t _;

THE ANNUAL MEETING of Cover: The Coravany's 3.0004! owc:

stockhciders will be held at the j; cree ec: c p anr neer:se Ausab e Rmer's Corporation's General Office Bu:Iding na:necw c .:4 m the Ad:rona:cks :s one of on Route 13 (Dryden Road) in the e;;n: such p;cn:syh c, epercte unma-ned 4 70urs J a;v. i ne Company plans to h d %, den, N.Y. on May 9,1980 me ecse as hydroe.ec: c c: pac:tv by 24.000 at 11 a.m. rormal notice of the mee*:ng, cou::s c :he nex: ~ew ye:rs :t 2 cos: of ~

a proxy setement and form of proxy 540 m:!l:en. wdl be sent to stockholders in early Apn!.

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L749 @11214 11 Q111.3 n:

v1 La9 0 %m 1979 1978 increase Percent Gross operating revenues (thousands) . S 588,211 5 532,171 $ 56.040 11 Income before interest charges (thousands) $ 138,169 $ 122,206 $ 15.963 13 Earnings available for common stock (thousands) . $ 73.272 $ 57,473 $ 15.799 27 Earnings per share of common stock . . . . . $2.83 $2.46 $.37 15 A!!awance for funds used during construction per share of common stock . . .. . . . . $.98 $.71 $.27 38 Dividends paid per share of common stock . . . $1.72 $1.68 $.04 2 Taxes per share of common stock . . . .. . . . . $3.12 $2.78 5.34 12 Electricity sales to ultimate customers (mi!! ion kwh) . 10,779 10,492 287 3 Gas sales (thousand dekatherms) . . . . . . . ... 38,398 39,329 (931) (2)

Cost of fuel for electric generation (thousands) .. .. . $ 142,141 5 118,384 $ 23,757 20 Total utility plant (thousands) . . .. . $1,948,899 $1,789,549 $159,350 9 Expenditures for construction (thousands) . . . $ 145,928 $ 115,098 $ 30,830 27 Book value per share of common stock (average) .. $21.17 $20.82 S.35 2 2

To the  !

Stockholders: . . . i

.. 1 l

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t first glance,1979 earnings would indicate a partcularly good year.

A .

However, it is important to recogn:ze that. while the quancty of earnings l' - increased, the quality did not. Allowance for Funds Used During Constructon v- -

j condnues to be a large part of earnings. We were not successful in gettng sufficient rate relief to reduce this non< ash accounting credit to earnings to f[O f.g.

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~

more normallevels.

Operatng inccme in 1979 was favorably affected by sales of energy to neighboring utilites under interchange agreements. Our coal-fired generatng f

M units had an unusually good year which enabled us to sell the available l

'.' low-cost excess electricity.

Growth in electric unit sales was moderate and gas sales declined because of mild weather and conservation measures. Despite higher rates, we continue to add space heating customers. Almost 5,000 electric heating customers, a 10?o increase in such customers, and 940 gas heatng customers, about a 1?o

, increase, were added during the year.

v. , A proposed energy master plan for New York State is currently being

. reviewed by the State Energy Planning Board. The 15-year plan contemplates about a 3?o a year growth in electricity consumption and about I?o a year C.F. Kennedy growth for gas in the Company's service area. We believe these projectons may be low, particularly if oil prices continue to rise.

. But, more importantly, we object to the fact that the plan relies almost entirely on new coal-fired generating facilites and electricity imported from Quebec for future electricity supplies. We believe that nuclear power should play a larger part in the state's energy future and will continue to urge that new nuclear plants be built.

Our concern about the state's energy future also centers on the ability of 3 investor-owned utilites to finance new plants, whether coal or nuclear. The estimated cost of the proposed Somerset generating plant is about $1,200 a 4 kilowatt. or more than a billion deilars. This contrasts with a cost of about $300 a kilowatt for our existng plants.

It is possible to finance such a project at reascnable cost, but it requires some departure from present regulatory rate-setung procedures. We believe iat after a proposed plant has received all the necessary governmental approvals, it is logical sat interest or other money cost of capital furnished by investors during the construction period should be recovered currently in rates. This requires that i

f-. rate-making bodies include construction work in progress in rate base or grant equivalent rate re!!ef.

w. P. A!Ien, Jr. Our pending application for higher electric rates is predicated on the inclusion in rate base of $122 mi!! ion of construccon work in progress related to the planned Scmerset project. In the last rate proceeding we made a similar request but it was denied. The Public Service Commission recently announced Mat it has under sken a special study to determine the best means for financing new generating facilities and whether changes in the Commission's rate-making l policies are desirable. We are par ic:pating in that study.

3 l

It is interestng to note that many economists, in both the private and public sectors, are urging that energy prices should reflect all appropriate costs. In fact, some are advocating that prices should be based on so-called marginal costs which are considerably higher than average costs. In this way consumers receive ~

an economic signal and can justfy conservaton measures or use of alternate .

energy sources. The inclusion of construction work in progress in rate base is consistent with these economic principles and accomplishes a similar result.

Concurrent with our efforts to obtain compensatory rates, we are working hard to reduce operating costs wherever possible. For example, we are taking full advantage of new computer technology to mechanize functions formerly done by hand. In 1979 we installed a new centml processing unit which increased computng capacity by three and a half times at a very modest increment in cost. Constructon management, customer records and other procedures are becoming more efficient as a resul of these computer applications.

We are upgrading our existng steam-electric generating stations to obtain every kilowatt of production that is feasible. Hydroe!ectric potentialis being similarly developed.

For natural gas we rely almost entirely on our pipeline suppliers. From the information we have, we are optimistic about prospects for improved gas supplies. Recent federallegislation permitting gradual deregulation of gas pricing has stimulated domestic exploration and will encourage Canada and Mexico to develop and export natural gas.

Our employees are cooperating with our endeavors to increase productivity, improve efficiency, reduce costs and develop our affirmative action program.

We take this opportunity to express our gratitude for their efforts.

As we indicated at last year's Annual Meetng, the Company's ten-year dividend growth rate' of 2?o a year through 1978 is less than satisfactory. In 1978 and again in 1979 we raisel the dividend rate about 5?o so some progress is being made in this important area. We appreciate the confidence of stockholders and look forward to a continued improvement in operating results.

For the Board of Directors.

e=

Chairman and' Chief Execudve Ofjicer President and Chief Operadng Officer l March 3,1980 l

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1979 1978 Increase Thousands of Dollars REVENUES Sales of electr. city . . $477,643 $433,774 $43,869 Sales of gas and misceSaneous income . 110,662 98.599 12,063 Total .. .. ... . . 588,305 532.373 55,932 EXPENSES Wages and salaries of employees and contribu-tions to retirement and insurance plans (exclu-sive of $41,664,000 in 1979 and $40,179,000 in 1978 charged to construction, etc.) . . 66,611 58,186 8,425 Fuel used to produce electricity 142,141 118,384 23,757 E!ectricity purchased and interchanged . . . 2,626 19,059 (16,433)

Gas purchased . ... 74,542 63,8 % 10,646 Other materials, services and research . 57,184 54.809 2.375 Federal taxes .. . . 20,546 10,569 9.977 State and local taxes . 60,165 54,461 5,704 Depreciation . . .. . . 43,807 41.462 2,345 Total . . . 467,622 420.826 46,7 %

Income available to investors . . . . 120,683 111,547 9,136 ALI.OWANCE FOR FUNDS USED DURING CONSTRUCTION . . . . . . . . . . . 25,342 16,655 8.687 INVESTORS' SHARE Interest on bends . 54,970 51,918 3,052 Interest on notes payable and other. . 3,666 5,721 (2,055)

Dividends on preferred stock . . 14,117 13.090 1,027 Dividends on common stock . . 44,441 38,732 5.709 Total . 117,194 109,461 7,733 RETAINED IN THE BUSINESS . $ 28,831 $ 18,741 $10,090 5

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plan was revised to include a 5% shares outstanding and have an average Eammgs and Dividends discount on shares purchased with holding of 250 shares.

DMDEND RATE INCREASED reinvested dividends and an increase in Most of the remaining shares are the limit on cash-payment purchases. owned by institutions such as pension Operating income rose $7.8 million, Currently 11,000, or 16*o, of funds, banks and trusts. The largest or 8"o, over 1978. Most of the increase stockholders are participants. single holder is an insurance company resulted from higher rates and greater The plan permits stockholders to which owns less than l'a of outstanding sales of interchange power to other reinvest quarterly dividends and make shares.

utilities, cash payrnents of up to $5,000 per Other income was shamly higher, quarter for purchase of shares without primanly reflecting Allowance for Funds brokerage or service charges. Dividends are reinvested to purchase shares at Rctes Used Dunng Construction (AFDC) on larger amounts of construction work 95% of the average market price on the HIGHER ELECTRIC AND in progress during the year. dividend payment date. GAS RATES PENDING AFDC, in effect, subtracts the cost of If you are interested in enrolling in new money, such as bond interest, from the plan, send for further information to In August 1979 the Company applied to the income statement and charges it to New York State Electric & Gas the Public Service Comtr.ission (PSC) capital projects under construction. Corporation, Shareholder Services, for higher rates that would increase Esmings per share of $2.83 were RO. Box 200, Ithaca, New York 14850. electric revenues by $79 7 million, or 15"o higher than in 1978. AFDC as a 17"o, and gas revenues by $8.4 million, percent of per. share earnings was 35"c, or 8"o, based on sales volumes in the Stockholders which ecmpares with 29% in 1978. twelve months ended March 31,1979.

The quarterly dividend rate on MOST HOLDERS The proposed rates are predicated on a common stock was increased from ARE INDMDUALS 14.8"o return on common stock equity, 42 to 44 cents a share effective with normalization of the federalincome tax the August 15,1979 payment. Total About 95"o of the Company's effect related to capitalized pension dividends paid of $44.4 million 67,000 holders of common stock are costs and taxes, and inclusion in rate increased about 15% as a result of a individuals. They own 62% of the base of projec ed test year investment greater numhr of shares outstanding and the higher dividend rate.

The balance of earnings after dividends was $2S.8 million which was added to ccmmon stock equity. Open, g 5&

522 An esumated 5% of 1979 common Revenues stock dividends is a return of capital for g 459 rederat income tax purposes and may 4 be exc!uded from dividend income. E % aM Oewr 341

% Bons of Do2ars Dimdend Remuestment Plan 253

$7,2 MILLION INVESTED 1 221 l

DURING YEAR 125 Partic: pants in the Dividend

' 5 Reinvestment and Stock Purchase P'an "

in 1979 invested $7.2 rmilion ir new shares. which compares with $3.2 70 71 72 73 74 75 76 77 78 79 million in 1978. In February 1979 the 7

l i in ths Somerset G2nerating Station of include construction work in progress or ESPRL The company would have  ;

1 $122 mi!!!on. (CWIP)in rate base. In lieu of CWIP in financed and built new large-scale  !

j Heanngs are being held and a rate base, the Commission permitted generating facilities on a statewide l l recommended decision by the presiding added revenues equal to the federal basis.

l administrative law judge is expected in income tax effect on the interest portion Notwithstanding the recommendation

l Apnl or May. The PSC is required to of AFDC. A return on common equity of the administrative law judge in a i render its decision by late July. of 13.8?. was allowed. The new rates 113-page recemmended decision that A temporary rate increase request went into effect on May 1 and increased the proposal be approved, the-PSC of $10.3 million annually has been 1979 revenues by about $16 million. contended that ESPRI's financial  ;

recommended for disapproval by the advantages were overstated. The i law judge. Generating Company Commission also objected to the fact In Apnl 1979 the PSC approved an that ESPRI's rates would be subject to electric rate increase of $28 million, or PSC REJECTS ESPRI. LOOKS federal rather than state controt l 6?o, and a gas rate increase of $3 AT FINANCING PLANS In its decision the P5C indicated it million, or 3?o. These increases resulted wot.Id investigate the possibility of from a request, made almost a year After four years of study and public adopting rate-making policy changes earlier, for $90 million in higher electric hearings, the PSC in 1979 rejected a that would provide financial benefits rates and $6 million in higher gas rates. pmposal of the state's major electric equivalent to those in the ESPRI Most of the disallowed revenues utilities to form a generating company, proposal. Among the benefits stemmed from the PSC's refusal to Empire State Power Resources, Inc., mentioned were the inc!usion of CWIP in rate base and greater normalization of income tax benefits. A PSC study is now under way and the state's electric y

y........ utilities are required to submit 15-year t t;, financing plans. The study is planned

_. ,~ ::S ?E..t_ 7 , for completion by the end of 1980.

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Traming to insure safe and e?!cient service v .s ,

receives high pronty. A new simulator ~,( -

!cootel of 2 pou;er plant's boiler control & ~

pane!:s used to :rrprove profic'ency of pcu:er Want oper:ters. The c:pcbtlities :l re. : me truck :re demonstrated t nght) to workers n Singhamton. y g

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l Somerset Project BOARD OF DIRECTORS Eectnc Peak Loads LIMITS EXPENDITURES 1970-1980 As the result of the disappointing rate (winter capabtitty penod) dec:sion in Apnl 1979, the Board of Megawar:s l Directors approved only limited work 1993 2070 2034 M 2072 on an S50,000-k:fowatt coal-fired 1724 1701 1 68 .

generating station planned for .

0 *'

constructon on a state-approved site 14 %

near Somerset in western New York.

Constructon of the plant was scheduled

to begin last fall but was postponed

. i unti Spnng 1980 because of problems -

, I in reachtr'g a project agreement with '

construct:en trades contractors and '

unions.

The Board's acton was ta,en so that i

large expenditures would not be made unt! Were were some assurances that 70/7171J2 72n3 7234 74n5 75J6 7667 77n8 78J9 79/80 the PSC wi!! adopt rate-making policies which wtil allow the financing necessa:y , , , . . c. < ._ . . ~

to complete the project _ 17 M .Q'.y " ~j My 79 " ,:s The Board limited expenditures on di.@. j the project to $25 million in the period .JiZ~1 ' .

, September 1,1979 to May 31,1980. ck.$72f,'? ?

Postpcnement of site preparation has kept expenditures well within that limit. 4 M'e dY "}. F x

Total expenditures on the project '.

through the end of 1979 are about $50 mclion, including AFDC.

• 4 Pou:er Supply CONSERVATION AND ~

WEA'I'iER DAMPEN DEMAND -

Customer energy conservation and milder than-normal winter weather kept ,

peak demand for elect-icity in the -

1979-80 winter below the presicus year.

. A peak load of 2,072,000 k:!cwarts (kw) was set :n December, which compares w:th 2,118,000 kw in $e 1978-79 winter.

Power supcly capability to mect -

peak loeds is currently 2.666.0C0 kw.

This is composed of 1,786.000 kw of Hign mortgese .nzeres: ecces hace generating capac:!v, most of which is ._

dcmpened new-home construe::en cc::vtry

~~N coal-f;ted: 650.000 kw of purchases However. mu.r:ple dwe:ing cocr: ment umt.s from se New York State Power

[. .-c%

'k' 'h'3 5' Sho";" ^*T CC""" ' 6' f -

?.uthenty. and 2C0.000 kw of short-

%' ,7' ' /;r; populce kg j @,,-

l terrr. ,urchases from ne:ghboring ,

6 ut!ities. Most of te purchases from the Power Authority are from the Niagara f9 , i(i' e

gggy. 3.f 4 %@ A g

j River hydroelecme project made under a contract expeng in 1990, and be Blenheim-Gilboa pumped storage Am" wm c (m

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i pro!ect, made under a contract expinng A I in 2002. ,

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j Future Power Supply STATE CIRCULATES ENERGY PLAN I Under !eg:slation approved in 1978 the l State Enetsy Office (SEO) has trafted a 1ssear master pian for enereisuppiy in Cost of Coal 123 131 the state. A senes of hearings were held used for , in late 1979 soliciting public comment Generation 107 l on the pian. It is currently being Cents Per Mmon BTU 98 JJ- -

reviewed by a five-member Energy Planning B ard composed of the heads 84/' .,

of state agencies, including the SEO, F

l t and appointees of the state !egislature.

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The final plan is expected to be released

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% shortly. Its findings with respect to load

g. I.Q q ..,; g - , . . @

_ 45 forecasts wul be binding on state l

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3,,ys [6. P. , ipd.. ;;, e . fc '. l.-- 1.n.t

3. M .: @ '.,.i y, 'H -

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3 agencies concerned with energy matters.

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'W GA' s-} ;"i;' The plan, as presently consttuted, I .- Ib $ y. a4 c ,q IJ:;.; '% relies almost entirely on new coal-fired l 9 [i"4 h __ h f.Q 1_3 78 79 generating facilities and electricity imported from Quebec for future power l

,0 71 72 73 74 75 76 77 supplies througn 1995. It projects statewide growth in electncity demand at slightly under 2?o a year which compares with 2.5?o growth estimated by the state's utility companies. For the Company's service area, the plan

. . . . - _ .-....c,.. ., _ . s.c . a , . ;e .1.- : .,  ;- projects 3?o annual growth in

s. l .. . := ? , -, . c ; 3 .

. .;. ,.; .r

. ,., , kilowatt-hour sales and about I?o a year

. ,1 i - 3 r ~-

c. . ' J- Q= .-

',3 % j^.3d ' growthThe in unit gas plan sales.

'.g .y ,.' .. ; t / , .

l- , proposed does not l

, . j.} ' W ; provide for construction of new nuclear

,'2 generating facilities, including the

, q _

- - p, t _

- ; . planned New Haven and Jamesport

/

.N - + ,. 3. j projects, in which the Company is a 4

'l _

; . !, , . P. ; one-half owner with Long Island p.Q"g ,1.

j ,, j .

g ?4 L!ghting Company (LILCO). The New

: .a -

y Haven site is located upstate near

- a;h.q g & Oswego and Jamesport, on eastern J,

D '

w LongIsland.

., .V In October 1979 the New York State

-c d. Board en Electric Generation siting and

. r -

E

$ the Environment (Siting Board)

? ..

. . ' c f dismissed the New Haven siting

4. 1  !

-[ p' . " ; ' i

\ f k [$:j application on the basis that ownership yj y-..a* of the facility was not reasonably y

c.

4

- h1 ,.

I... , -- .l  : .

L . ". certain. A petition for rehearing is

\. 4 pending. In the case of Jamesport, the

-p -

, .[t :. . - q Siting Beard denied the utilitics'

'p

~ '

)S

.. E.A -

e.

4' , ..

application for a nuclear plar.t but

~- .  ; .- . .e  : . m. , ...y 16 indicated approval of a coal-fired faci!ity.

, ., ; . ., ; . .. N. - r  ? c d . It is the Company's intention to

.'. ; 5

• l :- k . ..k

• 5 L. '. :,. ?: { l '. .' . ^:. -;,

. . - 9} 4 , .[ _

. . .at improvement.s at \fil!! ken Gene'==ng

. f h,. * ,;:[(u,f. ...>

~ :,. :'" ; ' ;.c 7 .

. - .. g : *-

. ~.

Q Station have increased the capac:ty of one of its gener: ng uruts from 144 COO to

r,,.. q ; M.

~;y 7;:R.. T : J

,; 153.000 kt!cu;atts. As the cost cf new

_ .gy.. , :_.=.., . . . - L ;:--?

_. .3 4 p . y' ~ _ ,~ gene cnngl c

lines scars. such ucgrcaings N , ;. .:. __ n. .

~

y ' :.? -  : cecome sconornic:ily feasible. in a recert g  ?,- e- _ . . . ;

.&% l-&. _ ~Q ,_ i nc=cnal: survey .\fii!aken ranked .n t! e :op

~'*

. .% . ; ; g :=

.. y qw:.1.n _ ;4% 20 most e@c:entl css;i-lueled ;ener:cng

. .~ *7 .*L_ .

x '. ;- : -: plants :n tt e nacon.

l 10

i J

j cornnue to pursue constructen of e:ther Engineenng and other pre!iminary nuclear or coal. fired plants at 6ese sites. 1979 Cans:ruccon expenditures for the Somerset project At the end of 1979 2e Ccmpany's g(y} AYS TOTAL required $13 maien.

share of expenditures on the New About $100 maion was spent for Haven project was $38 milon and $171 MILLION elec:nc and gas system improvements.

Jamesport about $60 million. In including projec:s for raising operatng Constructen expendtures in 1979 additon. the Company might incur efficiency such as conver:ing elect ..c.

totaled $171 ndlion of which about 90".

contract terminaten charges. related to distnbution circuits to higher vchage was for elec:nc fac:lities. The remainder Jamesport nuclear, of up to $27 maion. peraton. This includes about $40 was expended for gas and common

if 6ese projec

s are not permit:ed to mulien for minor projec:s, each $25 M ees.

progress and are canceded, the thousand or less.

The largest single expenditure was Company would seek regulatory $39 maion for the Company's share of approval to recoup the expenditures Nine Mile Point 2 generating station.

through electric rates over a period of i years. Expenditures pertaining to sites suitable for future generating facuities j p-7 --e - g y S . ,T ggg

. 3 ~

would remain in ut!ity plant asset - y- .i c:- .

accounts. "

The Company is an IS*o partic: pant '

in Nine Mile Po:nt 2 a 1.090.0CO-kw ,

l nuclear plant being built by Niagara i

• Mohawk Power Corporadon near k Oswego. New York. Work on this "

f (( '

project was recently s!ou ed to permit "_ :- -

further study of technical and regulatory - _ [. M; requirements inc!uding reevaluation of _ MM-

.i geolog:c design en:ena. l:s in-service date has been rescheduled from 1984 s b M _

i to 1986. The Company's share of

l expen6tures through 1979, including ,"" ;_

nuclear fuel, amounted to $142 mi!! ion.

E Mn 2 c gf2k&::: mV hY' _ g Q

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d 7

71 W '

)[',

.% ,, \_ f, c y -

'. In

.4 1

5 1 lI i

-w Rese: ch 3 n : moor::nt par: of Company ac:.cres n;:n :nc sncw sampics are ce:ng ca.!ecrea at Company s::es ne - Aibany

.srown cot er inc Corn:ng :s pa': of a n :::cnwide stuav cl :c:d ':.n Sola' space eat:r>g equ:p~ent has :een :nst:.led with Campany av:ce :n a new home near

& # .0<:: cue.rght* Mar' ret services

'e:rese-:: vees assist ,n 50 cr deve!cpment prcrec: at M:~e' Ins::::.te. in ;ncuaturci esearc9 ogarn: t:on located nect

?' ::scuqn ' nght) i l

e 11

l

. Mile Potnt 2 and $22 million for the Financng Future Construccon Company.s share of me samesport l CONSTRUCTION PROGRAM pro!ect CASH REQUIREMENTS i TENTATIVELY SET Expenditures for new hydroelecmc TOTAL S184 MILLION i generatng fac!ites totai $40 maion :n Assuming the Somerset and Jamesport te three-year penod. Cash requirements .n 1979 were $1S4 i million. of which $146 million was for protects are allowed to proceed, The remaining $303 million :s constructon expenditures for the years allocated for generalimprovement of constructon. The balance was used for 1980 through 1982 are esuma:ed at elecmc and gas systems, facetes to addiconal werkmq capitz.2 needs of $1S

$1,035 mi!! ion. About half this amount, serve new customers, and pro.iects million, retrement of $10 maion of or $530 million. :s budgeted for designed to increr.se operacng 2.80*o first mortgage bonds which efficency. marured December 1, and a $10-maion somerset.

Other .arge out!ays mclude $140 reducnon in short-term debt. ,

mdlion for the Company's share of Nine These requirements were met with '

$125 million from outside sources and I to9 million of internally-generatet  !

fund 5 The :nterna 'unc5 conSttut' d Construction Program 534 about 40'o of construction ot tlays.

Secuntv sales dunng the year Cys FORfCAS' included a pnvate placement of $20

.0 YEARS 3 WARS 1970 m 1980 1982 million of 8.25o smkmg fund preferred 51.214.000 000 51.035.000.000 stock, a puolic sale of $50 million of 12Vo first mortgage bonds due 1955, and $7 maion of common stock sold

, through the dividend reinvestment plan.

hs of Ddan l84 188 The Company also raised $19 mi!!ica

162 171 through me sale of partcipations in mine I

132 l 116 33 development loans previously made to 53 42

• the coal companies supplying Homer ggg City Generating Station.

)

70 71 72 73 74 75 76 77 78 79 SO 81 82 UI.CO as conmbution for its one-half l -

share of te New Haven project.

1 - r f o5 4 ' ' g-0

. 4 , 7 It is estimated that $107 maion

,c 79 f j j

O y .f . <.

A M

- we be required from outside sources in 1980 to 'inance constructon.

.~

y .  ;

.M M.

. o w

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l y  ; . .

.n

, ' Wn .Q Management Audit

f. . .L . i .

4 .. . ,

.- , SECOND PHASE OF

.t y1 ;. - '

.~.%'

REVIEW INITIATED

-P-4 f . '. ,

'( - .

A management consulting firm.

f f .

B M 'p 4- 3 g- g.h Theodore Barry and Assocates (TB&A),

.t .

y  : *-f. -

., 7 ..,m Q. compieted the first phase of a l ,,[ D s 1  !' ,E 1 9 (~ h: management audit for te PSC in 1979.

I q f . Y ,. 7i.Y -

4 . <f.

g/ ._

. In general TB&A found the Company gy ;C [ .y . m; L ? " soundly managed" and recommended

- "^'

,. T' .'

Q -

f.,i) %  % ~ '

f

' ' ' " ... j* . ., '

.. ] . 6at 'urther study be undertaken in a f jnk [ ij '"

7 q.- - ' I

.- M second phase, which might result in 44 c" + *f ia,/l #-A - (g certain capital and operacng expense

, i9* [9 J ~...

savings a e!even specfic areas.

m**. y..f.g.

jfg 4

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,. . , y. 'y Y.k y y T, 4 4

'+ .% k*i

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.c - . , ,- c, ,,m,,.

p. ,*1 W ,!

' gen f j s ', ; ,. , ** - 'W. ,y,e gy 5 -,; 5.,g..;_ ,w .,.e ,

9 g & , y _t cn (r f (fpw% yg -pWisW-/Qg i '.: .yl?

ne, n

4. cy*1.A # . =37 y ];<pe a 12

After review of the findings, the PSC Research anc Deceiopment Empire State Elecmc Energy authonzed the firm to proceed in four of Research Corporation (ESEERCO),

the e!even areas. The four provide EXPENDITURES EXCEED which is financed by the state's major for developing prog ams to improve $4 MHilON electric utlites, was paid $784,000 by ut'izaton of transmission and the Company in 1979. ESEERCO spent dismbut:on personnel, further enhance Spending on research and development $6.1 million during the year for 39 quaiio/ and effectveness of customer rose 9% to $4.1 m:llion in 1979. projects rangmg from geologic studies serv.ces, evaluate cost controls for Con tibutions by the Company to and flue gas desulphuri:ation teleser construccon of the Somerset project, naconal and state research organizatens fusion and wind energy. In addition, and improve formal maintenance accounted for 80% of this expenditure. $887,000 was spent for the Company's

, plannmg and labor unlization at existng The Electric Power Research Institute share of the research program of the l generating stadons. (EPRI), which is supported by the State Energy Research and C,racon of these projects is expected nation's pnvate and publicly-owned Development Authority.

to vary from about two months to more unliees, received $1.6 million. EPRI The remaining Company outlays than two years. Consultant fees and budgeted $202 million in 1979 for were devoted to internal research for expenses, which are paid by the research in such areas as fossil fuel such projects as solar water heating and Company, are expected to aggregate systems, advanced technology, nuclear extending '.ives of wooden poles. A over $eC0,000 for the two-phase study. power, overhead and underground major effort is bemg undertaken with transmission, energy analysis and others to improve coal-cleaning i environmental assessment. techniques at a test facility bemg constructed near the Homer C:r/

Generating Station.

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g-Cons: t.c:'on wark on elec:r c and ;as jy systems improcement.s. :nc:uc:ng j i e'wironmer'taiprctec::on. 'equired $100 ,Q md:cn ci captai expena:t: res :n 1979 _ .C; .

Atave. 2 sec::cn of ;cs :ransmiss:on :ine is Rgr -

_ 'e;> aced ne r Ge e::a At the nght. a new *

.. g 213.m.iiton sucuccon :s oe:ng comcieted lt g

wi.'i

en e growing e ectnc:ty demands in southeas:em New York i

i 13 1

\

,a E CES Ejh

• NYSEaG

~V L p

t1 AA DEDICATED TO PROGRAM An increased effort to promote energy onservaten :n te service area wes undertaken :n 1979 Free ene gy aud:ts j

will be conduc*ed for low-income families and the ex:stng program for assisung customers wiil be strengthened.

ggg Twenty-one conservacon representa-tves were recently h: red to augment yi MM market services forces i' u The Company also promotes

" mgf S. conservator. trough taiks to

! community organizatons, schools and l t

-pg_===== 4+= = =ji hr senior c:tizen groups: trough I consuitacons with bu:Iders. developers.

i grass {} Y";l. '

A .- building material suppliers. insulanon and heatng contractors; through displays at trade shows, fairs anc energy

~

anix FW ' n% w - a. -

p== , M K: y_5,W 'itej exhibitions; trough counseling of P=E=r O c community agenc:es wnicn disburse

1. 1. d federal and state censervation funds to 9 "J " .

W low-income families, and through distnbucon c: conservation materials.

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! Environmental Protec: ton EFFORTS PROGRESS The Revenue Dollar-1979 ALONG BROAD FRONT Many of the Company's operations are WhERE TT CAME FROM- 81*o ELECTRICTTY atfected by env:ronmental consider 3 19 GAS .--

, cons. As a resu't, efforts to minim.2e -

Residential 4S.9e 100*o - - -

I adverse environmental effects are a key _

part of operating procedures and Commercial 22.8 engneenng design.

For example, in the dism sei of ash Industrial 20.0 created by burring of coal, the j

^ Street Lighting and Other 11.3 Company studies prospectve disposal 1

sites in detail and consults with state and "R ' "

! local governmental authorites. When a I

site is chosen, extensive preparation

occurs, often including insta2aton of WHERE fr WENT:

, waterproof liners to prevent seepage.

1 The fly ash is deposited in alternate Fuel 23.2e

!ayers with sotl. and the site is eventua!!y Taxes 13.2 restored to its orignal conditon. In Wages to Employees, including Benefits 10.8 additon to disposal techniques, the Gas and Electncity Purchased 12.6 Company studies ways to use fly ash in Interest to Bond Holders, etc. 9.6 road-building and other construction. Other Materials and Services 9.3 Monitoring of air and water quality at Depreciation 7.1 generatng statons continues to be an / Dividends - Common Stock 7.2 important actvity. Mapr expenditures Dividends - Preferred Stock 2.3 have been made in recent years at these i Retained in the Business 4.7 stat: ens for modern equipment to l remove dust particles and recondition _ _ , . . -

waste water. The Company is also cooperatng in a natonwide study of acid rain by collectng precipitation s ,j j

I

samples. ,/ i Building electnc and gas lines requires t "

considerable attention to environmental . -

E" aspects. Efforts are made to blend fac:!ites with the landscape and ._r. ; f ,f .-

j . a..

,,. ,. g- ..; .; y y*y'

., . . . .M. ,. -. P.;. s// l, minimize the impact of construction.

Dunng 1979 it is estmated that $23

I . ., -~ Q **.'.;pH

[p($ 'm

. ^ -; . .*yk[;.S

' c - ?.j ! , 3.g;.. ' g million of new capital was expended for env' onmental protecton. - f" w 1 ;l-';:Tn g.J.s &

4

/

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• 4 d Tf '

. ; c.' -*'s

-Y ,

, c.

w.c ;-ku.$. ng :.~ -

N.

E!ectnc Operanos \., h ff i; + 8 y p, ; A s .g n '

KWH SALES UP 3% FOR THIRD CONSECUTIVE YEAR NYg.M[5h s. E

-AR/illk..; ..,.. 4 .', y7$g'isd' j.?

'--* ~Fp'f . .

.h ~ W~

4 ,. : . . ;.h.

Y :k'W Kilowatt hour sales increased 3*o in J . ' 4. . -  %- '

~"

..?  ?

s . "' J. 'r.,' . J. 'M,, .T' w - .4 --

1979 which is the same rate of increase M 'E- . f d. 2 .i 3 recorded in 197) ed 1978. Revenues r- . % -' ?g i

were up 10%. reflectng a May 1979 rate -' Ql1'.f.$i.-:@-Q@g/b,

?,9 ,~.,.:.,,'yy.Of %y;..: M.; . 3 ~ ~ "

Y U

~k v. ,. -

- d.,

.; - - a.r

? 4 [*%;d[;,. [." t ; [, ,.- (' [.% , . s.,

I ; ;'. ;M, b.,

=- %. $V=rh.Y. y ggy ^% -

.- -h ; *5 h . . .g:(; Y. % 7. $ - w.f h juy n.- w 1.N e :-:.v.4~s w.ne , c=c~ ,.

eren

;n; a:=on :orms ;arr >f:he baw ci aneureas:o nener;mewtxnc u  ;

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a,.

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-4

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3 p.y cen; used ter:sh sscosat Roca buac.ng - - -

(.g__

nd .:ra ec.;;rr cten are :tuo construc:ne - , . 9, .p.;.,..y_ * ,, f,* a m .v.

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uses cr y.\ ash. t .

\ 15 l

4 i

ncrease and . b.er tel coss inciuded

'n custcmer W i llings 3D6TLI. ELECTR'C P2VENCES ne :ncrease in saies stemmed pnmanly from g-eater :ndustnai customer usage. Residentai and com-

9n g,. ten, merc

ai cone mpton :s at'ecrec mere av thousarasi of :ou weather. Anich wac milder Man-,n 197S.

Stone. c!ay and g! ass procucs i 13.277 14 1% and 69 e ergy conservatonsr s.

Macninery, except elecmcsi . 10.130 10 3 Percent :rcreases by maior category Transportanon equipment 3.773 94 were as fodows:

Pnmary metal:ndustnes 8.091 S6 Kwh Sales Revenues E!ectncal machinery and suppiies 7.402 79 Residental 1% 9%

F3bncated metal products 77 Commerc:al 1 o 7.264

. . , Industnai 8 16 Food and k2ndred producs one9 < 1 Totai 3% 10 %

Ruober and plastic products 6.037 64 Chemicais and ulied producs 3.558 38 Operaton and mamtenance .xpense.

Pacer and adied procucts excluding producten costs. :ncreased 3.020 3. 9

, , 310 a mi!! ion, or 15 o. P oduccon costs instruments and related produc s 2.644 2.3 were oniy 4% higher largely because of l Nonme ai mining exciuding fueis 2.287 1.4 greater sales of energy to other utiites l P .ntng and publisning 2.214 2.4 on :ntercnange at higner paces and l Wood products except furniture - 1.703 1.3 reduced outlays for generatng piant Petroieum and rehning 1.120 1.2 l

maintenance. Average fuei cost per i Leather and 'eather products . 1.060 1.1 million Bru was $1.31. or 7% higher Textie mtil producs 939 10 than in 1973.

Yetai mirung 887 1.0 Furniture and Sxtures . 871 .9 ses Opemnons Misceilaneous industnes 1.793 1.9 U.nciass:fied :under 30 kw demand) 4.249 4 a-GAS SALES DECUNE 2,.,o i I

Total $ 94.013 100.0 % Unit sales of gas were off 2% from Total electnc revenues .

$477,643 1978 while revenues increased 13%.

Weather and customer conservation i were largely responsible for the dechne.

7 .. . g y . . , .

$s:L D .. . ; 4 ,3 It was partally offset by the addition of I 940 new space heating customers.

. M. . ._ g

- ..e 4 .,

y y-.

, ' '# - -r %

.. Percent changes by customer r- - '

x. 4- ,% , , .4 category were as follows:

WNCb . %. , Ng ..w .%-d &:

Dekatherm

.- T g-

>- ja 4 Sales Revenues

.pQp? j4 ' . ' . )

4s, *. ~

~

L- J 7%

f* .. -

" g ._i Residential -6%

fyf y*[h '.' : n. 2

( # p 'f . ' gy.1 -

Comme c:al -6 10

~ ydN f' tal -2%  %

.. . . .O N[

$'b y )... ... - g Since 3quefied natural gas (LNG) is

. [., .

..3 ..L f1.t7+ - s.

4 i

3. j

. . .. s [ f*-

s TM g , 4 wa becoming a !arger part of gas supplies.

some pipeline suppliers are seiling gas 1t

s. . ~M ' gf-- ' -

t 7

[ on the basis of its heat content rather

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.g(g,.t , wt m w e M r L J e j" : ;e *S. ti,, e . . %C: C r e.',:r'e:r"e R_ . .. l, i

+ ;- L . . - .  ;;- -.. .  ; -. gW C :-=c r u , n u wo -e m = =s

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4-

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.,,,.gr, ,g g 16 l

l l

than volume. LNG has more heat value per cubu: foot than regular natural gas. -

As a result, sales unns in some areas are -

now bt!!cd and recorded in dekatherms  ! k .- "

( \mf Db

{ (dth) rather than thousand cubic feet 4 2

(mcf). '

Operacng expenses in 1979, /

,p --

3 , ,

excluding purchased gas cost, increased g i

9%. Purchased gas expense was 17%

higher. On a per-unit basis, purchased gas cost $1.94 per dth which compares to $1.62 per dth in 1978.

J ,

A P. Casarett D. R. Newcomb E: A Gumour Management i

SEVERAL SENIOR .

j EMPLOYEES PROMOTED Board of Directors $r r ["sm^t r$ In an i

i THREE NEW Utca MutualInsurance Company. He is I teNo s$oYo$*greatU a com $

e DIRECTORS ELECTED d dh" ng.

responsibility. Rayrnend A Penne, Mr. Gilmour has been assoctated with formeriy assistant vice president. Three new directors have been elected since the !ast Annual Report. They are: the Norwich bank since 1947 and is a gas operations, was elected vice gg g, 1

president-gas operations, and Bernard Alison R Casaren, dean of Cornell

• University's Graduate School; David R Inc. and a number of upstate firms. He M. Rider, formerly chief planning is a graduate of the Stonier School of I

engineer, was elected vice Newcomb, president Buffalo Forge Company, and Everett A. Gilmour, Banking at Rutgers University and the president-e!ectrical engineering and School of Financial Public Relations at planning. president, The National Bank and Trust Company of Norwich Northwestern University.

! Richard W. Page was elected assistant Resigning from the Board after 20 vice president computer services: Lynn Dr. Casarett is a graduate of St.

Lawrence University and received a years of valued service was Robert B.

L Sweedand, assistant vice doctorate in radiation biology from the Adam, president. Adam, Meldrum &

president industrial development; Anderson Company, Inc., a western Vncent W. Rider, assistant vice University of Rochester. She has been associated with ComeS since 1963. New York department store. Mr. Adam president-operations and generation Mr. Newcomb is active in civic affairs left to devote more time to his services, and Michael J. Ray, assistant

"#" 9 ***'

vice president-project engineenng and constructon.

Francis X. Carney, formerly assistant vice president-mechanical engineering.

4 became assistant vice president-research N *-~

1%i and development, succeeding Albert D.

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. G Tuttle, who retired February 1,1980.

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New Y:rk State Electric & Gas Corporation

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1979 1978 ASSETS Thousands of Dollars UTILfW PLANI at original cost (Note 11:

"~'

Electne . $1.390.292 $1.325.609 Gas 118.653 115.577 - --

Common . 39.761 -

39.058 1.548.706 1.460.244 Less. Accumulated deprec:atton 411.742 376.933 Net utility plant in service . 1.136.964 1.103.311 Construction work in progress . . 400.193 309,305 1.537.157 1.412.616 OTHER lNVESTMENTS (Note 4) . 22.979 48.453 CURRE.Yr ASSETS.

Cash . . 5.585 4.550 Spec:al deposits . . 11.530 10.915 Accounts receivable . 63.557 53.606 Fuel, at average cost . 33.314 18.907 Matenais and supplies, at average cost . 20.824 16.272 Prepayments 9.811 8.802 144.621 113.052 DEFERRED CHARGES (Note 11:

Fuel costs deferred . 17,874 14.059 Unamortized debe expense . 7.003 6.654 Other . 7.889 8.591 32.766 29.304

$1.737.523 $1.603.425 CAPITALIZATION AND LIABII.lTIES CAPITALIZATION:

Capital stock and retained earnings-Preferred stock redeemable solely at the option of the Company . $ 115.500 $ 115.500 Preferred stock subject to mandatory redemption requirements . 80.787 60.875 Cominon stock equity-Common stock. .. . ... 174.190 171.166 Captalin excess of par value . 185.590 181.375 Captal stock expense . (4.727) (4.614)

Retained earnings . 214.310 185.479 Total common stock equity . 569.363 533.406 Long-term debt . 7o8.164 711.347 Total . . 1.533.814 1.421,128 CURRENT UABILITIES:

Long-term debt, due within one year . 12.507 10.000 Notes payable (Note 5) . 25.500 35.300 Accounts pay sbie . , ... .... ... 14.513 34.751 Dividends payable on preferred stock . . 3.684 3.272 Pensions accrued . 12.600 '1.750 Taxes accrued . . . 21.291 17.251 Interest accrued . 17.135 16.862 Other. 19.926 17.289 157.156 146.475 DEFERFED CREDITS.

Accurnulated deferre) investment tax credit (Note 3) . 21.808 10.762 Other. 1.601 1.760 23.409 12.522

. ACCUMULATED DEFERRED FEDERAL INCOME TAX (Note 3) . 23,144 23.300

$1.737.523 $1.603.425 The accompanying notes shown on pages 22 through 26 are an integral part of the financial statements.

18

New York Stre Electric & Gas Corporation m e M. ai e m e n :. 011ncome Years Ended December 31 1979 1978 ---

~ ~ -

Thousands of Dollars E'ectne $477.643 5433.774 Gas 110.563 98.397 Total . 588 211 532.171 OPERATING EXPENSES.

Operanon-fuel (Note 1) . 142.141 118,384

-other . 83.226 74,465 E!ectrtc:ty purchased and interchanged 2.626 19.059 Gas purchased . 74.542 63.8 %

Maintenance . 40.So9 38.529 Deprecation . 43.807 41.462 Federalincome tax (Note 3) . 27.163 16.350 Other taxes (Note 61 63.362 57.064 Total . 477.436 429.209 v.TUTTNG INCOME . 110.775 102.c62 OTHERINCCME AND '_ EDUCTIONS.

Mowance for other funds used durtng construccon (Note 1) 17.486 10.659 Federat income tax c: edit (Note 3) 9.815 8.383 Other. net . 93 202 Income before interest charges 138.169 122. _.06 INTEREST CHARGES-Ir.:erest on tong-term debt 55.347 52.337 Other interest 3.289 5.302 Mowanc e for borrowed funds useo dunng construction (Note 1) . (7.856) (5.996)

Interest charges - net . 50.780 51.643 NET INCOME . 87.389 70.563 PREFERRED STOCK DMDENDS . 14.117 13.090 EARNINGS AVAILABLE FOR COMMON STOCK. 573.272 5 57.473 EARNINGS PER SHARE . 52.33 52.46 AVERAGE NUMBER OF SHARES OUTSTANDING . 25.386.419 23.392.583 Statement of Retained Earnings Years Ended December 31 ,

1 1979 1978 Thousands ojDollars Basnce, beginning of year . 5185.479 5166,738 Add. Net income 37,389 70.563 272.868 237.301 Deduct. Dividends on capital stock P eferred stock . 14.117 13.090 Common stock (51.72 a share in 19M and $L68 in 1978) 44.441 38.732 58.558 51.322 Basnce. end of year . 5214.310 5185.479 The accompanying notes shown on pages 22 :hrough 26 are an :ntegrai part of the f.'nancal statements.

19

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1979 1978 SOURCE OF FUNDS Thousands of DcP.1rs het Mme . $ 87,389 5 70.563 Deprecanon . 43.807 41,462 Amorttradon of deferred charges . 1,713 2 792 Federalincorne tax deferred-net . (2981 (1.337)

Inwstment tax credit deferred-net . 11.048 6,192 Allowance for funds used during construccon . (25.342) f16.655)

Funds from operadons 118,317 103,017 Proceeds from sale of first mortgage bonds . 50,000 50.000 l

Proceeds from sale of comrnon stock . 7.243 71,930 Proceeds from sale of preferred stock . 20,000 -

Increase in notes payable to jomt venture . 24,340 -

Proceeds from sale of parecipatsons in muung company notes . 19.375 -

t .otal funds asadable $239.775 $224.947 APPLICATION OF FUNDS Add dons to unlity plant. $145,928 $115.098 Dividends on preferred stock . 14,117 13,090 Dtvidends on common stock 44,441 38,732 l

First mortgage bonds becomog due within one year . 12,500 10,000 Fuel costs deferred . 3,600 2.610 Othertnvestments , f3.286) 23,756 Decrease tn notes payable . 9,800 M 200 Other debt-net . (341 1,021 Debt expense and other-net. 1,621 (251)

Increase (decrease) in woriang capital (exclud:ng changes in notes payable) . 11.088 (28.309)

Total funds applied . 1239.775 $224.947 The accompanying notes showri on pages 22 through 25 are an integral part of the financial statements i

i 20

New Y:rk State Electric & Gas Corporation Statement of Capital Stock and Long-Term Debt December 31,1979" CAPITAL STOCK adempeon Pnce ,

Eventual Shares Current Through Mmimum Outstanding Amount (Thous.)

Preferred stock redeemable solely at the opnon of the Company Senal cumulauve preferred stock, par vaiue $100 a snare, 1,455.000 shares authortzed.

335% senes . . . . . . $104.00 - $104 00 150.000 3 15,000 4% % senes (1949) . 10335- - 10335 40.000 4.000 415% senes . 101.00 - 101.00 40.000 4.000 4.40% senes . 102.00 - 102.00 75.000 7,500 4.15% senes (19M) . 102.00 - 102.00 50.000 5.000 6.48% senes . 103.00 1-31 83 102.00 300.000 30,000 8.8C% senes . 108.34 2 28-81 102.00 250,000 25,000 Senes cumulatiw preferred par value $25 a share. 3,800,000 shares auhrued-3 48% senes . 27.29 1-31.M 2530 1,000,000 25.000 Total . $115.500 P eferred stock subtect 'o mandatory redempoon requirements Senal cumulattw preferred stock, par value $100 a share,507,875 shares authorned-4.50% sinieng fund senes . . . . . . . . . . . . 105.25 -

105.25 7,875 $ 787 S.25% sinking fund senes rssued 1979) . 111.00 12-31-80 100.00 200.000 20.000 9.00% smking fund senes . 107.50 9-30-80 100.00 300,000 30,000 Senal cumulative preferred stock, par value $25 a share, 1,200,000 shares authorned:

3.50% sinWng fund senes . 25 60 6-30-80 25.00 600,000 15,000 910% s:niung fund wnes . 23.75 6-30-84 25.00 600,000 15.000 Total . $ S0387 Preference stock, par value $100 a share, 1,000,000 shares authorized None Common stock, par value $6.66% a share. 40.000,000 shares authonzed* 26.128,491 $174.190

• 'n 1979 the Company issued 453.555 shares of common stock through its dividend rerivestment and stock purchase pian for $7,243.000. In 1978 the Company issued 176.702 shares under the plan and 4,000,000 shares through pubac offenng for aggregate proceeds of $71,930,000.

LONG TERM DEBT Amount (Thous.)

First mortgage bonds:

2.50% senes, due December 1.1980. $ 12.500 7% % senes, due August 1,1981. . 60,000 10.60% senes, due October 1,1982. 50,000 3 % % senes, due May 1,1934 . . . . . . 20.000 3% % unes, due Septe:nber 1,1935 . ..,..... 15.000 12% % unes, due December 1,19% tissued 1979) . 50,000 4% % senes. due May 1.1987 . . . 25.000 3% % senes, due February 1.1988 . 25.000 45 % senes, due May 1,1991. 25.000 5% % unes, due June 1,1996 . . . 50.000 5% % senes, due January 1.1997 . . . 25,000 6% % senes. due Septernber 1,1997 . 25.000 6% % senes, dt.e Septe nber 1,1999 . 30,000 7% % senes, due November 1. 2001 . . . . . . 50,000 9 35% unes, due July 1,2003 tissued 1978) . 50,000 9% % senes, due March 1,2005 . . 75.000 ,

9% % wees, due January 1. 2006 . 75.000 l 7% % senes. due June 1. 2006 . . . . . 12.000 64 % senes. due December 1,2006 . 25,750 8% % wries. due Noveinber 1,2007. 60.000 Total first mortgage bonds. 760.250 Notes payable LNote 4) . 19.375 Other - prinepaily unamort: red premium on debt 1.046 Total debt .... , 780.671 Less. debt due within ene year -included in current '.fabdines . 12.507 Totallong-term debt $768,164 The mortgage indenture, as amended and suppiemented, secures the 8.rst mortgage bonds which consutute a direct arst mortgage lien on j substannady a0 unlity plant j The accompanying notes shown on pages 22 through 26 are an integral part of the anancial statements. l 21

Notes to Financial Statements ..

1. Significant Accot.inting Policies f. Deferred charges Debt expense is deferred and amorti:ed ratably over the

a. Accounting records !ves of the issues.

The Company maintains its accounting records in confor- Pursuant to PSC policy, the Company defers certain fuel mity with the uniform system of accounts prescnbed by the and purchased gas costs which are subsequently bided to Federal Energy Regulatory Commission and the Public Ser- customers through adjustment clauses in rates.

vice Commission of the State of New York (PSC). At December 31, 1979, other deferred charges include

b. Utility plant $1,800,000 of unamortized costs related to an abandoned Cost of current repairs and minor replacements is charged nuclear power plant project. In a 1977 and subsequent rate to appropriate operatng expense and clearing accounts; cost decisions, the PSC granted electric revenues sufficient to of renewals and betterments, including indirect costs, is amortire the defened amount over a five-year period.

capitalized. Original cost of utility plant retired or otherwise g. Depr cfation disposed of and the cost of removalless salvage are charged The annual provision for depreciation is determined using to accumulated depreciation.

straight-line rates, based on average service lives, applied to

c. Allowance for funds used during construction the origmal cost, by groups of depreciable property in service.

(AFDC) Depreciaton accruals were equivalent to 3.2% of average The Company capitalized AFDC on a compound basis at depreciable property for 1979 and 1978.

the following rates-1978 1979

2. Commitments and Sales of Securities Net-of-tax . . . 6%% 7%%

Before tax effect . 8%% 9%% Assuming generating projects proceed as planned, it is estmated that 1980 costs for the Company's construction During 1978 and for the first five months of 1979, AFDC program will approximate $190,000,000. The program is was recorded at the net-of-tax rate on Construccon Work in subject to periodic review and revision, and actual construc-Progress (CWIP) related to construction of electric facilities (in tion costs to be incurred may vary because of revised load excess of $30 million CWIP allowed in rate base) !!mited to a estmates, the imposition of additional regulatory require-base of $220 million. AFDC was recorded on CWIP for ments and the availability and cost of capital Proceeds from electric facdities in excess of $250 million and all other CWlp penodic security sales are used to repay notes payable to at the before tax effect rates. banks and commercial paper, the proceeds of which are used As a result of a PSC rate decision in April 1979, the for construction purposes.

Company recorded AFDC at the net-of-tax rate on all CWIP for the last seven months of 1979. The PSC did not a3cw 3. Federal hcome Taxes CWIP in rate base in this decision. In accordance with the decision, the Company revised its method of recording AFDC For federalincome tax purposes the Company uses the in September 1979 to eliminate a one-month lag between the sum-of-the-years digits depreciation method and the Asset eme construction charges are incurred and recording the Depreciacon Range oystem (ADRL The PSC requires that related AFDC. This change resulted in an additional federal inc me tax reductions resulting from the use of

$2,000,000 AFDC for 1979 (5.08 per share). acce!erated methods of depreciation be reflected currently in income whereas reductions arising from the use of ADR are

d. Revenue deferred and, in general, are returned to income over the Revenues from sa!e of electricity and gas are recorded on book life of the applicable property.

the basis of meters read. In the October 1977 and Apn11979 rate decisions the PSC

e. Retirement plans a!! owed revenues equal to the federalincome tax effect of the The Company has noncentnbutory retirement annuity interest on debt portion of AFDC and directed the Company plans which cover a3 officers and substantially aD employees. to use a net-of-tax method to calculate AFDC on portions of The cost of these annuity plans and supplemental payments CWIP This net-of-tax (imputed income tax) benefit made directfy by the Company to retired employees was ($6.203,000 for 1979 and $4,312,000 for 1978) has been

$13,052,000 and $12.069,000 for 1979 and 1978. The allocated to otherincome and deductions.

annuity plan costs are based on normal cost and amortzstion Investment tax credits (lTC) based on the Revenue Act of of the unfunded liabdity as provided for by the Pension 1973 (4%) are reflected currently in income and are shared Reform Act of 1974. The unfunded liability (excess of equally between stockholders and customers for rate making actuanal liability over actuanal value of the fund) as of purposes. Increased ITC derived from the Tax Reduction Act

! December 31.1978 was estmated to be $53,000,000. The of 1975 are deferred. The Company has estimated ITC

! Company's policy is to fund pension costs ac rued. cany-forward of $3.310,000 at December 31,1979.

l 22 1

Federalincome taxes for 1979 and 1978 arm as foHows: ~ ha Company has ent: red into long-tirm contracts for the 1979 1978 supply of coal to the Homer City Generacng Stacon and, in fThousands of Dollars) that connection, has agreed to make loans (maximum aggre-Charged to operations: gate amount of $23.150,000 approved by the PSC) to th Current . . . . . . $ 6.580 $ 3.040 mining companies. These loans (amounting to $19,375.00s Deferred - net . . . . (298) (1,337) at December 31,1979 and 1978) are being made on first AFDC imputed income tax benefit 6.203 4,312 mortgage notes maturing December 31, 1981 which cur-Investment tax credits. rently bear interest at one-half of one percent above this prime Deferred (net of flow interest rate in effect from time to 'eme. In Apnl 1979, the through, $5.828.000 Company sold to Chemkal Bank 100% partcipations in and $7,584.000) . . . 11,764 6,543 these notes. The pa6pations have been recorded as long-Shared . . 2.914 3.792 tenn notes moote. The agreement with Chemical Bank es e mpanWo repurchase se pa@adons under 27.163 16.350 certain conditons.

Included in other income:

AFDC imputed income tax benetit (4,312)

5. Bank Loans and Other Borrowings (6.203)

Investment tax credits - shared (2,914) (3,792) The Company has a revolving credit agreement with Amortzaton of TTC eighteen New York banks which presides for borrowing up to deferred in pnor years. . (717) (351) $75,000,000 through January 31, 1982 at the pnme com-Tax on other income . 19 72 mercial rate in effect from time to eme at The Chase Manhattan Bank, N.A. and payment of a commitment fee of (9.815) (8.383) one-half of one percent per annum on the unborrowed Total . . $17.348 $ 7,967 amount. There was no balance outstanding during 1979 and Federal income tax provisions for 1979 and 1978 are the average balance outstanding during 1978 was $569,000.

substantally less than the amount obtained by using the The loan agreement does not require compensating balances.

statutory rate due to the following. However, the Company mair4ains balances which generally 1979 1978 have averaged 10% of the available line of credit during Statutory rate . . 46.0% 48.0% 1979. A substantial portion of these balances represent Decreases: normal working account funds.

Excess of allowable tax Interim financing in the form of short-term borrowings on depredation and amortization commercial paper ($25,500,000 at December 31,1979) is over book amounts (6.3)' (10.2) also utilized to finance construction expenditures. The aver-Costs capitalized on books. age daily aggregate commercial paper borrowing outstanding expensed for income taxes: amounted to $22.500,000 during 1979 and $47,500,000 AFDC (11.1) (10.2) during 1978 (calculated as the average of the sum of daily Taxes, pensions and insurance (4.8) (5.9) borrowings) and the weighted average interest rate was Investment tax credits (4.9) (9.4) 11.6% in 1979 and 7.9% in 1978 (calculated by disiding total MisceHaneous . . (2.3) (2.1) interest expense by the average of the sum of the daily Actual rate . 16.6% 10.2% bonowings). The maximum bonowing on commercial pape at any tme was $72,000,000 during 1979 and $75,000,000

4. Other Investments The Company and Long Island Lighting Company have 6. Supplementary Income Statement each conmbuted $58,417,000 as of December 31, 1979

($57,544,000 at December 31,1978) for a joint venture to Information construct a nuclear generating station in the Town of New Charges for maintenance and repairs, and depreciation, Haven near Lake Ontario. The Company has recorded other than those set forth in the statement of income, were

$24,845.000 of its conmbuton in other investments as of not significant in amount. Neither adverusing costs nor re-December 31,1979 ($28,131,000 at December 31,1978) search and development costs exceed 1% of total revenues and the balance of $33,572,000 at December 31, 1979 and there are no royalties.

($29,413,000 at December 31,1978) is included in CWIP. Taxes, other than federal income taxes, and rental charges As of December 31, 1979 the Company has recorded are classified as foHows:

$24.810,000 in notes payable to the jotnt venture which is 1979 1978 netted against other investments. fThousands of Dollars)

The Company's application to the New York State Board Real estate and on E!ecmc Generation Siting and the Environment (Siting pers nalproperty ... $26,773 $24.982 Board), filed in November 1978, was dismissed by the Siting Franchise and gross receipts . . 31,633 28,057 Board in October 1979 on the grounds that ownership of the secunty . .... 2966 4,M e New Haven units was not reasonably ce:tain. A pettien for MisceBaneous . .. 3.098 3.133 reheanrq ..as been filed wth the Siting Board. Also, a mocon Total. charged pnncipa!!y has been filed with the Nuc! ear Regulatory Commission to to tax expense . $67.470 $60.919 postpone its proceedings regarding the Company's applica-con for the nuc! ear units until the proceeding before the Siting Rentals, charged pnncipaHy to peracng expenses . $ 3.033 $ ,3.038 Board is resolved (See also page 10 Future Power Supp!y).

23

7. Industry Segment Information Certain informadon pertaining to the elecmc and gas operations of the Company is as foDows-1979 1978 1977 1976 1975 (Unaudited)

(Thousands of Donars)

Operating Revenues: . ....

Electric . . . $ 477,643 $ 433,774 $ 374.456 $ 330,870 $ 277,097 Gas . . 110.568 98.397 84.996 77.397 63.688 Total .. 588.211 532.171 459.452 408.267 340.785 Operating Expenses:

Electric . . 373,735 339,451 296,775 257,884 214,295 Gas . 103,701 89,758 80.061 70.885 57,750 Total . . 477.436 429.209 376.836 328.769 272.045 Operating Income:

Elecmc . 103,908 94,323 77,681 72,986 62,802 Gas . . 6.867 8.639 4.935 6.512 5.938 Total $ 110.775 $ 102.962 $ 82.616 $ 79.498 $ 68.740 Depreciation:*

Electric . . $ 40,679 5 38,428 $ 31,718 $ 29,820 $ 27,874 Gas . . 3,128 3.034 2.826 2.769 2.720 Total .

$ 43,807 5 41.462 $ 34.544 $ 32.589 $ 30.594 Construction Expenditures:

Electric . $ 141,580 $ 110,784 $ 154,460 $ 190.288 $ 150,011 Gas . . . 4.348 4.314 4.033 3.259 3,225 Total . , S 145.928 $ 115.098 $ 158.493 $ 193.547 $ 153.236 Idenefiable Assets:

Electric . $1,532,984 $1.418,038 $1,310,846 $1,151,977 $ 973,002 Gas . 97,538 95,022 95,029 93,147 92.250 Corporate . 107,001 90.365 83.987 78.858 62.359 Total . . $1.737.523 $1.603.425 $1.489.862 $1.323,982 $1.127.611

'^8 Included in operaeng expenses.

8. Quarterly Financial Information (Unaudited)

The following is a summary of quarterly results of Company operations as previously reported to stockholders:

Earnings Available Average Earnings Quarter Operating Operating Net for Common Shares Per Ended Revenues Income Income Stock Outstanding Share (Thousands of Doilars) (Thousands) 1979 March 31 . . $171,763 $31,801 $24.215 $20,943 25,717 $.81 June 30 . . . . 138,789 26.S90 20,378 16,901 25,828 .65 September 30* . , . 127,847 25.426 22,121 18.437 25,939 .71 December 31. . 149,811 26,658 20,675 16,991 26,057 .65 1978 March 31 . $162.784 $32,448 $24,470 $21,197 21,598 $.98 June 30 . ,, . 128,429 25,835 17,810 14,538 23,547 .62 September 30 . 111,453 22,086 14,026 10,754 23,593 .46 December 31. . .. 129,504 22.593 14,257 10,985 24.796 .44

• See note 1 c 24

9. Jointly-Owned Generating Stations 31,1979 was $37,373,000. The Company's share of opera-The Company has an undivided 50*o interest in me output ton and maintenance expense of Me staten is reflected in the and costs of three generating units compnsing the Homer City Statement of Income.

Generacng Station. The station is owned with Pennsylvania The Company's undivided interest percentages and in-E'ec nc Company which also operates the fac:lity. The Com- vestments included in CWIP at December 31.1979 for other pany's share of the rated capability is 944 megawatts and generating fac:lities, either planned or under construc: ion, cons:sts of a net utlity plant investment of $259.623,000, were Nine Mile Point Unit 2 (IS*o) 5142,356,000 New which includes $37,867,000 of construction work in progress. Haven Units 1&2 (50*o) $37,609.000, and Jamesport (50*o)

The accumulated provision for depreciacon as of December $60,082,000 (See also page 10. Future Power Supply).

10. Supplementanj Information to Current cost amounts ref!ect the changes in specific prices of Disclose the Effects of ue!ity plant from the date the plant was acquired to the Changing Pr:ces (Unaudited) P*"*"dd****""* "*'** '" * * ***"'

that specific pnces have increased more or less rapidly than The following supplemencry information is supplied in pnces in general.

accordance with me requirements of the Statement of Finan- Under the rate-making prescnbed by the regulatory com-cial Accouncng Standards No. 33 for the purpose of provid- missions to which the Company is subject, only the historical ing certam information about the effects of changing prices. cost of uclity plant is recoverable in revenues as depreciation.

The two methods used in this presentaten inherent!y involve Therefore, the excess of the cost of uclity plant stated in terms the use of assumptions, approximations and estimates and, of constant douars or current cost over the histencal cost of therefore, the resuleng measurements should be viewed in plant is not presently recoverable in rates as depreciation and that context and not as precise indicators of the effect of is reflected as a reduction to net recoverable value. While the intlaton. rate-making process gves no recognition to the cost of Constant douar amounts represent historical costs stated in replacing utility plant, based on past practices the Company terms of dollars of equal purchasing power, as measured by believes it wiD be aHowed to eam on the increased cost of its the Consumer Pnce Index for ai1 Urban Consumers (CP!-U). net investment when replacement of fac:lities actually occurs.

Year Ended December 31.1979 Average 1979 Dollars Constant Current Dollar Cost fThousands of Dollars)

Income from continuing operations, as reported in the Statement of Income . . $ 87,389 $ 87,389 Adjustment to restate depreciaton expense (37.315) (51.636)

Income from continuing operatons adjusted to reflect the effects of changng prices (excluding reduction of utility plant to net recoverable value 'er constant dollar measurement) . $ 50.074* $ 35.753 Income from continuing operations per common share after preferred stock dividend requirements . $ 1.39* $ .84 Increase in spec:fic pnces (current cost) of uclity plant held dunng the year ** .. .

$ 204.494 Reduc ion of uclity plant to net recoverable value $ (143,410) (31,484)

Effect of increase in general pnce level, f302.099)

Excess of increase in general price fevel over increase in specific pnces after reducton to net recoversole value (129,089)

Purchasing power gain on net amounts owed , 99.063 99.063 Net . 5 (44.347) $ (30.026)

Net assets at year-end at net recoverable value . $ 649.320 $ 649.320

• At'er te reducson 'o net recoverade value, income from continuing operacons en a constant doilar basis would change io a 'oss of

$107A53 or 5415 per average common share.

"At Oecemoer 31, t979 current ecst of uchty piant. net of accumulated deprec acon, was 52.609.600 while net recoserable vaius at histoncal cost was 51.537.157.

2S

10. Supplementary Inforrnation to Disclose the Effects of Changing Prices (Unaudited)

(Conunued)

Companson of selected financial data stated in terms of a constant dollar, in average 1979 dollars, is as follows-Year Ended December 31.

l 1979 1978 1977 1976 1975 ...

j Operacng revenues (000) . $588,211 $592,088 $550,330 $520.571 $459.595 ---

Dividends declared per common share . 1.72 1.87 1.92 2.04 ~ 1.98 i Market price per common

share at year-end . .... . . . . 15.75 18.77 22.91 25.72 21.69 Average CPI-U . . ... . . .. 217.4 195.4 181.5 170.5 161.2 The current cost of utility plant, which includes land, land schedules. For this reason fuel inventories are effectively rights, intangible plant, property held for future use, and monetary assets.

construction work in progress, represents the estmated cost As prescribed in Rnancial Accounting Standard No. 33, of replacing existing utility plant assets and was determined income taxes were not adjusted.

primanly by indexing existing plant by the Handy-Whitman To properly reflect the economics of rate regulation, the Index of Public Utlity Construction Costs. The current year's reduction of unlity plant to net recoverable value should be provisions for depreciation on the constant dollar and current offset by the purchasing power gain on net amounts owed.

cost amounts of utility plant were determined by applying the The gain from the decline in purchasing power of net Company's depreciation rates to the indexed ple.nt amounts. amounts owed is primanly attnbutable to the substantial Fuel inventories, the cost of fuel used in generation, and amount of debt which has been used to finance utility plant.

gas purchased for resale have not been restated from their Since the depreciation on this plant is limited to the recovery historical cost in nominal dollars. Regulation limits the recov- of historical costs, the Company does not have the opportu-ery of fuel and purchased gas costs to actualcosts through the nity to realize a holding gain on debt and is limited to recovery operaton of adjustment clauses or adjustments in basic rate only of the embedded cost of debt capital l

l COOPERS & LYBRAND 14 PalNCIP4 AA(As 12s1 Avenue Ce fut AuemcAs Cr THE WORLO New Yonn N.Y.10C20 To the Stockholders and Board of Directors New York State Sectric & Gas Corporacon Ithaca, New York i

We have examined the balance sheets of New York State Sectric & Gas Corporation as of December 31,1979 and 1978 and the related statements of income, retained earnings and changes in financial position l for the years then ended and the statement of capital stock and long-term debt as of December 31,1979. Our exammations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounung records and such other auditing procedures as we considered necessary in t! e circumstances.

In our opinion, the financial statements referred to above present fairly the financial position of New York State Eectric & Gas Corporation at December 31,1979 and 1978 and the results of its operations and l the changes in its financial position for the years then ended, in conformity with generally accepted accounting penciples applied on a consistent basis.

February 1,1980 26 L

I i

Discussion and Analysis of the Statement of Income Operating Revenues 1978 and decreased $7,400,000 in 1977. The changes in Total operating revenues increased $56,000,000, federal income tax are due primanly to changes in taxable

$72,700,000 and $51.200,000 respectvely for 1979, 1978 income. Higher real property and state gross receipts taxes and 1977 as compared with each of the previous years. The were largely responsible for increases in other taxes.

increases are attnbutable pisc: pally to increased fuel and gas adjustment revenue ($32.200,000, $16,200,000 and Other Income and Deductions

$43.200.000) increased rates ($17,8C0,000, $45,400,000 Allowance for other funds used during construccon in-and $5,000,000) and additional sa'es of electricity. Kilowatt. creased $6,800,000 in 1979, decreased $3,400,000 in 1978 hour0.0229 days <br />0.549 hours <br />0.00327 weeks <br />7.52629e-4 months <br /> sa'es (excluding sales to other utilities) increased 3*o in ad increased $6.300,000 in 1977 due primanly to corre-each of the years 1979.1978 and 1977. Unit sales of gas spending changes in the levels of construction work in decreased 2*o in 1979, increased 4*o in 1978 and decreased progress.

11*o in 1977. Federal income tax credit increased $1,400,000 in 1979 and $7,100,000 in 1978 due to an increase in the imputed Operating Expenses income tax benefit of AFDC and a larger credit for EC shared During each of the past three calendar years, maior items due to increased taxable income allowing for utlization of of operating expense increased over the corresponding prior more EC' period. Operat:en - fuel increased $23,800,000 (20*o) in 1979, $31,200,000 (36*o) in 1978 and $14,600,000 (20*o) in interest Charges and 1977. The increases in 1979 and 1978 were due to increased Preferred Stock Dividends coal consumption and increased prices. The increase in 1977 Interest charges before offset for AFDC - borrowed funds was due to increased prices. Operacon - other increased increased due to borrowings to finance the Company's between 10% and 12*o in each period primarily due to construction program. The offsetting allowance for borrowed increased Ccmpany labor and material costs. Electricity funds used during construction increased in 1979 and 1977 purcht ad and interchanged decreased in 1979 and 1978 due due primarily to higher amounts of construction work in to increas.d Company generation of power and increased in progress. The increase in 1979 was partally offset by the use 1977 due to power purchased to replace reduced deliveries of of a 'ower net of income tax rate. The AFDC - borrowed low cost hydroelect:icity. Gas purchased reflects higher unit funds decreasad for 1978 due to the use of a lower net of costs for each period. During 1979 and 1977 such higher cost income tax rate and lower amounts of construction work in was part:a!!y offset by decreased units purchased. Federal progress. Preferred dividends increased in 1979 due to the income taxes increased $10.S00,000 in 1979, $16,000,000 in issuance of a new series of preferred stock.

COMMON STOCK - MARKET PRICE RANGE AND DIVIDENDS 1979 AND1978 Price of Common Stock New York Stock Exchange Composite Dividends Paid 1979 1978 Per Share High Low High Low 1979 1978 First Quarter $18% $16% $195 $18% 5.42 $.42 Second Quarter . 18h 15 % 19 % 17% .42 .42 Third Quarter IS% 15 % 19 % IS% .44 .42 Fourth Quarter . 16 % 15 19 16 % .44 .42 27

. . 1 T:D&DC1bl EDd

.. fm g .. ..

C NO2 UlODbb

SUMMARY

OF EARNINGS 1979 1978 1977 1976 1975 -1974 1969 OPERATING REVENUES. Do#ars in Thousands Electnc $477.643 $433.774 $374.456 $330.870 $277.097 $237.955 $137.130 l Gas . 110.568 98.397 84.996 77.397 63.688 58.049 37.727 Total . 588.211 532.171 459.452 408.267 340.785 296.004 174.857 OPERATING EXPENSES:

! Operamon-fuel . 142.141 118,384 S7.131 72.621 69.741 58.059 15.215

--other . 33.226 74.465 67.544 60.132 51.346 46.052 27.892 Electncty purchased and intemhanged . 2.626 19.059 46.599 33.679 15.384 4.108 14.731 Gas purchased . 74.542 63.896 56.284 47.944 37.904 33.366 21.311 Mamtenance . 40.569 38.529 33.709 29.757 22,S87 22.047 10,628 Deprecanon . 43.807 41.462 34.544 32.589 30.594 2S 712 18.978 l Federat income tax 27.163 16.350 330 7.751 5.127 6.674 5.311 l Other taxes . 63.362 57.064 50.615 44.296 38.562 35.039 21.433 l Total . 477.436 429.209 376.836 328.769 272.045 234.557 135.499 l

OPERATING INCOME . 110.775 102. % 2 82.616 79.498 68.740 61,447 39.358 i

OTHER INCOME AND DEDUCTIONS:

A'lowance for other funds used dunng construcuon . 17,486 10.659 14.056 7.803 4.370 2.266 3.767 l Federal income tax credit . 9.815 8.383 1.255 1.166 987 751 -

Other. net . 93 202 (160) (158) 185 3.034 (165)

INCOME BEFORE INTEPIST CHARGES. 138.169 122.206 97.767 88.309 74.292 67.498 42.960 INTEREST CHARGES.

Interest on iong-term debt 55.347 52.337 45.119 39.712 33.516 29.711 17.3 %

Other mterest . ............. 3.289 5.302 4.010 2.673 1.623 675 630 AHowance for borrowed funds used dunng construction . (7.856) (5.996) (11.307) (5.%1) (4.536) (1.643) (2.428)

Interest charges-net . 50.7S0 51.643 37.822 36.424 30.603 29.743 15.598 NETINCOME . 87.389 70.563 59.945 51.885 43.679 38.755 27,362 PREFERRED STOCK DMDENDS . 14 117 13.090 13.094 10.465 10.402 S.610 3.459 EARNINGS AVAILABLE FOR COMMON STOCK 73.272 57.473 4o.351 41.420 33.277 30.145 23.903 COMMON STOCK DMDENDS . 44.441 38.732 33.564 28.375 21.780 19.800 15.587 RETAINED EARNINCS $ 23.831 $ 18.741 5 13.237 $ 13.045 5 11.497 $ 10.345 $ S.316 Average number of shares of common

stoca outstandng (thousands) . 25.886 23.393 21.208 18.181 15.450 13.500 11.391 Earnmss per average share $2.33 $2.46 22.21 $2.28 $2.15 $2.23 $2.10 l Dividends paid per snare $1.72 $L68 $1.60 $1.60 $1.47 $1.47 $1.39 INCOME STATISTICS Income Lefere ' .erest charges-percent of eranng revenues . 24.8 24.1 23.7 23.1 23.1 23.4 25.0 Average com.non stock eqwty per share . $ 21.17 $ 20.82 $ 20.17 $ 19 % $ 19 76 $ 19 98 $ 17.20 Return on average comrnon stock i

equ:ty-percent . 13.4 11.9 10.9 11.4 10.9 11.2 12.2 Mortgage bond interest-nmes earned . 2.6 2.5 2.5 2.4 2.5 2.S 3.3 Interest charges and preferred dividends-umes earned 2.0 1.8 1.3 1.8 1.7 1.3 2.1 Operann9 mcome before income ' axes:

E'ectne $129.869 $110.625 $ 78.608 $ 79.706 $ 67.153 $ 61.375 $ 39.786 Gas . S069 3.687 4.338 7.544 6.714 6.746 4.883 2S

Financial Statistics 1979 1978 1977 1976 1975 19b 1969 PROPERW, PLANT AND EQUIPMEN'E Doilars in Thousands Additions-Electnc $ 165.868 $ 124,746 $ 177.872 $ 202.685 $ 156.406 $ 106 ? 0 $ 82.357 Gas 4.220 3.759 3.623 2 %1 2.659 4.142 5.002 Other . . 1,182 3.248 2.361 1.665 3.077 5.971 1.443 Total . 171.270 131.753 183.856 207.311 162.142 116.323 88.802 Retirements and a@atments:

E'ectnc 10.436 13,359 11.065 7.791 7.757 7.372 1.882 Gas . 628 667 609 644 582 563 41

Other . 856 1.261 508 340 314 640 5.335 Total . 11.920 15.237 12.182 9.275 8.653 8.575 7.258 Balance end of yeac E

ectnc 1.787.229 1.631.797 1.520,410 1.353.604 1.158,710 1.010.061 717.993 Gas 120.760 117.168 114.076 111.062 108.745 106.668 88.657 Other . 40.910 40.584 38.597 36.743 35.918 33.155 21.476 Total . $1.948.899 $1.789.549 $1.673.083 $1.501.409 $1.303.373 $1.149.884 $828,126 ACCUMUIMD DEPREC: ARON. $ 411.742 $ 376.933 $ 350.014 $ 324.852 5 300.862 $ 278.913 $181.301 CAPfTAUZATION:

Debt 1.ong-term . S 780,671 $ 721.347 $ 676.%1 $ 580.026 $ 477.080 $ 452.409 $327.013 Notes payable . 25.500 35.300 80.500 55.500 74.500 32.000 27.500 Total debt 806.171 756.647 757.461 635.526 551.580 484.409 354.513 Preferred stock . 1 %.237 176.375 176.463 176.543 146.638 146,661 67.036 Common stock equrty-Common stock. 359.780 352,541 280.615 243.971 200.460 150.889 126.954 Captal stock expense . (4.727) (4,614) (4.403) (4.238) (3 %9) (3.715) (2,722)

Retained earrungs . 214.310 185.479 166.738 153.451 140.406 128.909 94.687 Total common stock eqwty . 569.363 533.406 442.950 393.184 336.897 276.083 218.919 Total captailzanon . $1.571.921 $1.466.428 $1.376.S74 $1.205.253 $1.035.115 $ 907.153 $640.468 CAPTTAUZATION RATIOS (percenth Long-term debt . 49.7 49 2 49.2 48.1 46.1 49.9 51.0 Notes payab4e 1.6 2.4 5.S 46 7.2 3.5 4.3 Preferred stock . 12.5 12.0 12.8 14.7 14.2 16.2 10.5 Common stock eqwty . 36.2 36.4 32.2 32.6 32.5 30.4 34.2 RAT;O CF MORTGAGE BONDS TO NET UTILT( PLANT (percent) . 49.5 51.0 51.1 49 2 47.5 51.7 47.2 NUMBER OF STOCKHCLCERS Comrnon stock . 67.014 64.579 51.560 45.146 40.033 32.216 20.216 Preferred stock . . 6.308 6.503 6.544 6.591 6.454 6.257 1.526 PAYROLL uncluding penssons, cc.h Charged to ooernoons 5 66.611 5 58.186 3 55.639 5 51.175 $ 44,163 $ 39.271 $ 23.584 Charged to construction and other accounts . 41.664 40.179 37.518 34.419 30.592 29.332 17.397 Total . $ 108.275 $ 98.365 $ 93.157 $ 85.594 1 74.755 $ 68.603 $ 40.981 Number of ernpicyees-end of year . 4.200 4.215 4.202 4.170 4.131 4.179 3.811 29

E:ectric Sales Statistics 1979 1978 1977 1976 1975 1574 1%9 Kwh Sales (millionsk hsidennal . 4.329 4,297 4.203 4,093 3.S64 3.647 2.668 Commeraal . 2,455 2,438 2.370 2,322 2.215 2,090 1.474 Industnal . 2.843 2,632 2,515 2,369 2.221 2.240 1.974 Street lighnng . 109 109 111 111 110 108 91 Pubuc authontles and other . 1.043 1.016 1.012 1,001 972 936 647 Cther e!ectnc urdities . 10 23 27 26 25 224 456 Total 10,789 10.515 10.238 9.922 9.407 9.245 7.310 Operanns bvenues (thousandsk hsidencal . $215.504 $197,024 $168,041 $151,790 $125.928 $109.841 $ 66,575 Commer:.al . 111,292 103.192 89,S99 79.S57 67.554 55.670 2S,675 Industnal . 94,013 81.332 70,009 58,095 48,033 39.523 21.421 Street lighting . 7,355 6.967 6,742 5,971 5.516 5.269 4.071 Pubite authonnes and other . 42,447 38,712 34.0 M 29.837 25.2S5 20.246 9,482 Other operating revenues . 6,731 6,109 5,2S4 4,906 4.394 3.929 2,454 Other electrte unlines . 301 438 447 414 387 3,477 4.452 Total operating revenues . 5477.643 $433.774 $374.456 $330,870 $277.097 $237,955 $137,130 Sales Revenues per kwh (centsh Residential . 4.98 4.59 4.00 3.71 3.26 3.01 2.50 Commercal . 4.53 4 23 3.79 3.44 3.05 2.66 1.95 Industnal . 3 31 3.09 2.78 2.45 2.16 1.76 1.09 Street lighnng . 6.75 6.39 6.07 5.38 5.01 4.88 4.46 Public authonties and other . 4 07 3.81 3.36 2.98 2.60 2.16 1.46 Other elecmc unlities. 3.01 1.90 1.66 1.59 1.55 1.55 .98 Average revenue per kwh . 4.36 4.07 3.61 3.28 2.90 2.53 1.S4 7otaiC stomers tend of year) 656.146 648,638 640,361 632,148 624.087 615.617 554,318 Number of Customers (awrage for yeath Residennal . 586,665 578.982 571.701 564,502 556,622 548.635 490,712 Comrnen:.al . 56,568 55,725 55,113 54,308 54,413 53.990 50.037 induamal . 1,290 1.298 1,284 1.279 1.235 1,192 1.234 Other . 9.396 9.226 9.042 S.633 8.292 7.906 7.136 Total . 653.919 645.231 637.140 629.222 620.562 611.723 549.169 Annual Average Use (kwhh Residennal . 7,379 7,422 7,352 7.252 6.942 6,647 5.436 Carnmercal . 43.399 43,751 43,003 42,366 40,707 38,710 29.462 Industnal(thousands) . 2,204 2,028 1.959 1,852 1,798 1,S79 1.600 Annual Average Biih Residental . $ 367 $ 340 $ 294 3 269 $ 226 $ 200 $ 136 Commercal . 1,967 1.SS2 1,631 1,457 1.242 1,031 573

, !ndusmal . 72,378 62,659 54,524 45.422 38.893 33,157 17,359 30

m .. -

18CCC cpemeng etat:st cs 1979 1978 1977 1976 1975 1974 1%9 PRODUC710N DATA System Capaedity (megawatts):

Net generating capae#y:

5 team . 1,734 1,723 1,527 1.377 1,375 1,367

• 1,317 Hydro . 38 38 38 38 38 38 38 Internal comoustion 14 14 14 14 14 14 13 Total , 1,786 1,780 1,579 1,429 1,427 1,419 1,368 Pwchased-firm contracts . 380 812 924 1.048 339 7% 545 Total system espaedity 2.666 2.592 2,503 2,477 2.266 2.125 1.913 Annualload Factor tpercend 65.2 63.6 62.9 61.0 62.2 66.2 62.4 Coal Burned (thousands of net tons) 4,748 4.430 3,720 3.395 3.238 3,564 2,113 Coal Heat Value (Bru per tb.) . 11.378 11,141 11,056 11.123 11.082 10,927 11,807 Bru per Kwh Generated (net) . 10,582 10.744 11.145 11.112 10,932 10.926 10,745 Kwh Produccon-net (mdlions):

Genersted . 10.430 9,350 7,606 7,046 6,970 7.344 4,909 Purchased . 2,765 3.282 3,509 4.383 3,898 3,681 3,352 Interchanged (1,082) (909) 201 (298) (420) (890) (143)

Total . 12.113 11.723 11,316 11,131 10.348 10.135 8.118 Produccon Expenses (thousands):

Generated . $171,079 $148 235 $110.448 $ 91,724 $ 85.655 $ 73,388 $ 20,652 Purchased . 35,757 37,297 39,670 34,926 22,188 20,776 15,954 Interchanged (net) . (33,131) (18.238) 6.929 (1,247) (6.304) (16,668) (1,224)

Total . $173,705 $167,344 $157,047 $125,403 $101.539 $ 77.4% $ 35,382 Producnon Costs per Kwh (mdis)

Generated . 16.40 15.86 14.52 13.02 12.47 9.99 4.21 Purchased . 12.93 11.36 11.30 7.97 5.69 5.64 4.76 Average cost per kwh . 14.34 14.27 13.88 11.27 9 81 7.65 4.36 ELECTRIC OPERATION AND MAL *CENANCE EXPENSES ithousands);

Producnon $173,705 $167,344 $157,047 $125,403 $101,539 5 77,4 % $ 35,382 Transmasion . 8,616 8,171 7,612 7,058 5.482 5.1% 3,508 Distnbution . 27.306 22,644 22,544 21,009 16,928 16.307 11.167 Custer er accounnng 10.467 9,467 8.527 7,672 6.633 5.730 3,718 Customer semce . 3.137 2,S87 2.605 2,507 2,288 2,487 2.030 Administradve and general . 29.664 25.537 22.972 20.068 16.900 13,901 7,007 Total . $252.895 $236.050 $221,307 $184.277 $149.770 $121.107 5 62,312 ELECTRIC OPERATION AND MALNTENANCE EXPENSES-as a percent of ee tnc operanng revenues-Producnon . 36.4 38.6 42.0 37.9 36.6 32.6 25.8 Transmissen . 1.3 1.9 2.0 2.1 2.0 2.2 2.6 Distnbunon . 5.7 5.2 6.0 6.5 6.1 6.9 8.1 Customer accounung 2.2 2.2 2.3 2.3 2.4 2.4 2.7 Customer service .. .6 .6 .7 8 .8 1.0 1.5 Admirustranse and general . 6.2 59 6.1 6.1 6.1 5.8 5.1 Total . 52.9 54.4 59 1 55.7 54 0 50.9 45.8 31

Gas Depanment Statistics 1979 1978 1977 1976 1975 1974 1%9 Dekatherm (dth) Sales (thousands):

Rendennal 17.312 18,386 18.373 19.958 18.559 19,768 19.964 Commercal . 8.150 8.654 8.408 9.484 9.065 9.639 S.S34 Industnal . ...... . 9,336 8.651 7.968 9.243 8.886 10.411 10.340 Pubuc authortnes and other . 3.600 3.638 3.132 3.808 3.264 3.468 3.178 Total . 38.398 39.329 37.881 42.493 39.774 43.256 42.336 Operacng Revenues (thousands);

Residennal . $ 54.196 $ 50.642 5 44.895 5 40.387 5 33.745 $ 30.627 $ 20.790 Comr ercial . 22.S94 20.908 18.236 16.850 13.996 12.602 7.784 Industnal . . . ... 23.461 13.252 15.205 13.668 11.101 10.531 6.486 Pubac authontes and other . 9.498 8.047 6.289 6.131 4.531 4.007 2.307 Total sales revenues . 110.049 97,349 34.625 77.036 63.373 57.767 37.367 Other operacng revenues . 519 548 371 361 315 282 245 Total operacng revenues . . $110.568 $ 98.397 $ 84.996 5 77.397 $ 63.688 $ 58.049 $ 37.612 Sales Revenues per dth:

Resicennal . . .$ 3.13 $ 2.75 $ 2.44 5 2.02 5 1.82 5 1.55 5 1.04 Commercial . 2.81 2.42 2.17 1.78 1.54 1.31 .88 Industna! . ... . 2.51 2.11 1.91 1.48 1.25 1.01 .63 Pubhc au nonces and other . 2.64 2.21 2.01 1.61 1.39 1.16 .73 Average revenue per dth . .5 2.87 5 2.49 $ 2.23 $ 1.81 $ 1.59 $ 1.33 5 .88 Tota! customers (end of year) . . 126.146 125.492 125.450 126.027 126.507 126.563 121.414 Number of Customers:

(average for yearl Rendennal with house heanng . 93.044 97.469 97.082 97.4 % 97.091  %.532 87.803 Resideneal without house heanng . 11.917 12.124 12.630 12.812 13.329 14.442 16.309 Commercial with space beacng . 12.714 12.752 12.809 12.985 13.109 13.220 12.S42 Commercial w:thout space headng . 1.198 1.233 1.234 1.266 1.282 1.302 1.422 Industnal . 365 371 380 384 389 397 407 Other . . 1.163 1.185 1.241 1.142 1.157 1.136 1.052 Tocal . 125.401 125.134 125.376 126.085 126.357 126.029 119.835 Annual Average Use (dth):

Resdeneal 157 168 167 181 168 180 192 Commercial . 586 619 599 665 630 664 619 Industnal . 25,578 23.321 20.968 24.070 22.343 1.224 25.405 Annual Average Bdi:

Residendal . .5 493 $ 462 $ 409 5 366 5 306 $ 279 5 200 Commercal . 1.646 1.495 1.300 1.182 973 868 546 Industrts . 64.277 49,197 40.013 35.594 28.537 26.526 15.936 Cost of Natural Gas Purchased:

Amount (thousands) . 5 74.542 5 63.896 $ 56.234 5 47.944 5 37.904 5 33.S66 5 21.311 Per dth 1.94 1.62 1.50 1.11 .94 .78 .50 Gas Operanon and Maintenance Expenses (thousands):

Produccon . . .5 74.504 5 64.089 5 56.923 5 48.210 $ 38.089 5 33.956 5 21.364 Transmission and dismbunon . 7.177 6.775 6.469 5.939 4.936 4.678 2.667 Customer accounang . 2.158 1.988 1.312 1,705 1.493 1.367 867 Customer service . . ..... 646 479 480 321 308 306 250 Admm.straeve and general . 5.424 4.952 4.326 3.681 3.166 2.717 1.708 Total . . 5 90.209 5 78.283 5 70.010 5 59.S56 5 47.992 5 43.024 5 26.856 .

Gas Operacon and Maintenance Expenses-as a percent of gas operaung revenues:

Producson ..- 67.7 65.1 67.0 62.3 59 3 58.5 56.8 Transmission and d:stnbunon . 6.5 6.9 76 7.7 7.3 S.1 7.1 Customer 3ccouncng . 1.9 2.0 2.1 2.2 2.3 2.4 2.3 Customer service . . . .. .6 .5 6 .4 .5 .5 .7 Admntstraeve and 2eneral . 49 5.0 5.1 4. 7 5.0 46 4.5 Total . 31.6 79 5 S2.4 77.3 75.4 74.1 71.4 32

\

Directors Charles F. Kennedy Howard W. Gunlocke Alton G. Marshall Directors Emeritus Chairman and Chief Execuuve Former President. Gunlocke President. Rockefeller Centet Officer of the Company Chair Company. Inc., New York, N.Y- Sheldon H. C:ose Wells P. Allen. Jr. David R. Newcomb *** "*" ---

President and Chief Operatng Legare R. Hole President and Chief Executve Ed$ar W. Couper - - .

Officer of the Company Chairman and President. Officer. Buffalo Forge Forme, Chance!!ot New York Columbian Rope Company. Company. Buffalo N.Y. State Board of Regents.

Roy S. Arrandale Aubum. N.Y. Binghamton, N.Y.

Technical ConsuJtant to . William Stuart Thatcher Glass Manufactunng Alexander Horwitz Chairman of the Board and Co., E'mira. N.y r:nanc:a! Consultant.

Binghamton, N.Y. Chief Executive Officet C. H.

Stuart Inc.,

Alison P. Casarett Dean. The Graduate School William A. Lyons bai M Corneil University, Ithaca N.Y. Chairman of the Executive and Rnance Committee Charles A. Winding Everett A. Gilmour of the Company Direct r ivarious corporad ns, ha. M Cha:rman and P estdent.

The Naconal Bank and Trust Company of Norwich.

Norwich, N.Y.

@ CerS Binghamton Executive Offices 4500 Vestal Parkway East. Binghamton N.Y.13902 Tel 607/729-2551 Charles F. Kennedy Eugene P. Waters Bernard M. Rider Francis X. Carney Chairman and Senior Mce President. Rnance tke President Assistant Mce President Chief Execueve Officer and Treasurer E:eceical Engneering Research and Development Wells P. Allen. Jr. James A. Ackerman Michael J. Ray President and tke President Jack H. Roskoa Assistant Mce President Chief Operaeng Officer Area Administra: ion Mce President Project Engineering and Dolores R. Hix' Orlin W. Darrach Richard Kroboth tke President Michael J. Turkovic Vincent W. Rider Assistants to the Chairman Market Services (ke President Assistant Mce President Purchasmg Operations and Generation E. Eugene Forrest Allen E. Kintish Services Semor Mce President Mce President William P. Walker Administraton Generation Mce President Lynn L Swertland Personnel Assistant Mce President Robert B. MacKenzte Raymond A. Perin*

Industrial Development Senzer tke President Mce President Engneenng and Operacons Gas Operations

.xso Assistantsect :ary Ithaca Executive Offices Route 13. Dryden Road, Ithaca, N.Y.14350 Tel 607/347-4131 L Theodore Everett Richard A. Jacobson John D. Scott Matthew F. Felo. Jr.

Seruor uce President Compeciler Assistant Mce President Assistant Treasurer Corporate Economics Jaime S. Hecht Assistant Mce President Richard P. Fagan James M. Niefer Secretary Computer Services Assistant Compeciler Assistant Secretary General Counsel: Stockholder Records: Commun:catens Securities Listed on the New York Huber Magil Lawrence & Farrell regarding stock cansfer requirements or lost Stock Exchange:

49 Park Avenue. New York. N.Y.10016 cernficates should be directed to the cansfer Common Stock agent. Changes of address may be sent to 3.75% P eferred Stock Transfer Agent for Preferred Stock: the Secretary. Inquiries on dividends and S.50% P eferred Stock Chemical Bank diwdend re:nvestment shou!d be direc ed to 55 Water Street. New York, N.Y.10041 8.48% P eferred Stock ($25 Par Valui Shareholder Services. 7%% Prst Mortgage Bonds due 19',1 Transfer Agent for Common Stock: The Company flies an annual report 10.60% Prst Mortgage Bonds due 1982 on Form 10.K with the Securities and , N% Erst Mortgage Bonds due 2001 Manufacturers Hanover Trust Company Exchange Commission. Stockholders 9%'a R:st Mortgage Bonds due 2005 4 New York P!aza. New York N.Y.10015 may obtain a free copy of this report. 94% Rrst Mortgage Bonds due 2C06 excluding exhibits, from the Secretary SS% Rrst Mortgage Bonds due 2007 upon request.

New York State Electric & Gas Corporation BULK RATE Box 287. Ithaca. New York 14850 U.S. POSTAGE PAID New York State Elect:ic & Gas Corporation l Address Conection Requested Retum Postage Guaranteed

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1 LONG ISLAND LIGHTING CO. l ANNUAL REPORT 1979 1

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Corporate information Contents Executive Offices Corpcrate Information . . . Insice front cover 250 Old Ccurtry Road 1979 Higntignts 1 Mee la. NY M501 2 Letter to Shareewners . , , .

Common Stock Listed New YorM Steck Exchange D ' " " * ~ '

Ase:fic Stecx Ecrange Recuc:ng Reiiance en Oil . - 4 Transfer Agents E!ectne Energy's Versatity 6 Ccr"mca Steca The Consumer Turns to Gas 7 Yr'u"st N;ar'y Assunng Long Islanc's Energy Sucply 8

- 4 New York P'aza looking Further Ahead , 12 Y 13 Service is LILCO's Business

$'.t C

tarx. N A.O',"'sIoc)C015 Financial Analysis .14 111 Wall 5 eet. Scrt 3300 Commen and Preferred Stc.:k Paces 18 New Yerx. N J 1GJ43 Recert cf incecencent Accce"Uts 13 Cc a a .8vrerrec Stocx Financ:al Statements . .19 Bractctd Trust Cc ecany Notes to Financ:al Statements . 24 2

• stcncal Stabstcs .M e rw. Y 1 Col 4 Shareowners' Agent for cem and Mcrs _W bad m Automatic Divic end Reinvestment Plan C.t tarr. N A.

Civicend Pernvestment Service 111 Wall Street. Scrt 3301 New York. NY 10C43 Annual Meeting Tme Annual Meetu

• j 5narecwn.

ers will be neid at tne Cornpany's Hicksville Cceratices Center.

Hcasville. NY. cn Acnf 15.1980. at 2.00 p m. In correct;on with tnis freet:rg prox:05 *til Ce soliC;ted ty tre Cerrcany. A nctice of ..

tre meet:09. a Cresy staternent, and a arcxy nill te mailed to shareenrers in Varch.

Form 10-K Annual Report The Comcany wiil furnisn as soon as avanacle *4ncut char;e. a ecoy of tre Ccmpany's Annual Pecort Fcrm 10-K. witn enn4tas.

as Ned *4n (Fe Securtt'es and Eicnarge Commiss;on u en antten request to Vr. Scencer E.

Hugres Jr Manager, investor Aeiat:ces. Lcrg is:and Lgntirg Cerroany. 250 Cic Country Acad.

% recta. NY 11$01, The Comcary art:c: cates that !Pe Form IM MI

s avsdaele a*er Acnl 7.1980.

CN THE COVER The cover shows the architect's rendering of the shoreham Nucteer Power station. Com-poetion of the station is scheduled for 19s1.

Thes station will reduce ULCO's require-monts for oil to generate electrtt ty by eight million Barrots, or about one-thard, annually and wel save customers an estimated total of s2.8 BdNon over a 30 year life se compared with an asternative coal-fired plant.