ML19343B126
| ML19343B126 | |
| Person / Time | |
|---|---|
| Site: | Arkansas Nuclear  |
| Issue date: | 12/31/1976 |
| From: | ARKANSAS POWER & LIGHT CO. |
| To: | |
| References | |
| NUDOCS 8012080570 | |
| Download: ML19343B126 (24) | |
Text
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N Only a few people were needed to keep the small electric generators F going and the lines up when Harvey
) Couch founded what is now Arkansas Power & Light Company in 1913. ~
g From that small system between Malvern and Arkadelphia, AP&L has expanded to become the state's largest supplier of electric energy. That growth to meet customer needs has required the dedication and expertise of thousands of people over the last 64 years. Their one goal has been and continues to be providing our state with high-quality, reliable electric service at a reasonable cost. Today that round-the-clock task requires more than 3,000 employees in 61 counties who g collectively serve over 438,000 customers. pq As you can see from some of their photographs in this report, our employees represent a cross section of Arkansas life who each individually bring their talents to AP&L's important mission. The growing complexity of the . electric utility industry requires their skills in many disciplines. Linemen, accountants, meter readers, clerks, engineers, construction specialists, administrators, generating station technicians, data processors and dozens of other occupational categories all make up the AP&L family.
- We're proud of the tradition of service that all of our employees-past
,5 and present-have established since the
, p; days when we started with a generator in a chair factory. Even with a total f investment of more than 51.4 billion at
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year-end 1976, the people of AP&L remain
. < our most valuable asset.
POCR ElGMAL
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m 5 (' 04M h higher costs and limited availability of tunds; fuels TM shortages; compliance with environmental require-ib$U ments; regulato y lag in granting rate increases and L g $ the inadequacy of such increases when granted. Against this background, we would like to provide y A ' y"p~' j wh 4 you with some msights into the performance of the
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Company over the past year and how we an seeking
"- to find solutions to many of the widespread problems
!- facing AP&L.
Perhaps the greatest challenge ever confronted by our Company is now taking place in our efforts to plan, finance and construct the additional gene-
- rating capacity that is presently needed and will be required if we are to continue to provide reliable
' , electric service to our customers.
0~ Several key motivating factors have brought AP&L to this path of action.
;3 First, we have an obligation and public trust to
- assure that our service area has an adequate electric i / 1 energy supply at a fair price now and in the future.
f . Second, in order to assure that adequacy, we l / - ,j Ik O dat need to diversify the fuel base on our system. From l the late lo20's until the early 1970's, we were able l to fuel our generating units primarily with natural , Energy-its availability, its costs and its effects gas. However, over the past few years, curtailments ( on the present and future growth of our society-has of natural gas supplies have made it necessary for i become a high-priority concern. The implications us to convert these units to burn fuel oil. This con-of the " energy crisis" that were first brought to wide version to high-cost oil has had a tremendous impact public attention in 1073-74 have now broadened on AP&L's operating expensesand in turn on customer to touch the lives of every American. bills. That's why, within the foreseeable future, At Arkansas Power & Light Company, we have we believe that nuclear energy and coal are our been acutely aware of the magnitude of this situation best fuel options since they are lower in cost than and, throughout 1076, sought to meet the problems oil, are domestically available resources and are in associated with providing reliable electric energy more abundant supply. service to our customers with positive solutions. Third, our future projections indicate that more AP&L, as is the electric utility industry in general, and more electric energy will be needed to meet is currently experiencing problems in a number residential, commercial and industrial requirements. of areas including increasing costs of fuel, wages and Over the past ten years, the peak demand on our materials; requirements of greater capital outlays system has risen from 1,710,000 kilowatts in 1967 and longer construction periods for generating to 3,242,000 kilowatts in 1976. We project that facilities; increased reliance on capital markets with our peak load will continue to grow. Be<ause of performance liighlights 1976 1o75 % Increase Revenues from operations (000) 5 307,253 5 300,0e5 20 Operation and maintenance expenses (00N 5 265,802 5 157,267 42 l 5 46,9o3 5 36,600 28 Net income (000). Capitalization (000) 51,1N,774 51,121,330 4 Construction expenditures (000) 5 174,740 5 le o,517 3 Total utility plant investment-end of year (000) . 51,621,350 51,457,033 11 Customers (End of year) 438,830 429,051 2 Energy sales to ultimate customers 11,143 o,eco 16 (Millions of Kilowatt hours) Employees (End of year) 3,012 3,193 (6) Peak demand (Megawatts) 3,2 12 2,8o8 13 Average use per customer (Kilowatt hours) Residential . 8,975 9,211 (3) Commercial 46,632 45,715 2 Average price per kilowatt hour (cents) Residential 3.57 3.23 11 Commercial - 3.48 3.12 12
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the long years of lead time required to plan and Our Company's 107e tmanaal pertormance. construct genemting stations, AP&L has to build which is presented m detail m the fo!!owmg tmancial plants now m order to meet this increawd enern statements, notes and othtr statistics. reflects the reqmrement of tomorrow. ixa: trends et the past several years. Net mcome All of these primary factors have mandated that n leie, mJudmg 53.5 mdhon trom the cumulative we take the necessary steps now to expand our etfect to lanuary 1. IWe,of a change m accountmg Company's capabihties to meet customer needs. for fue! costs, mcreased to sr mdhon com;'ared Thererore, major ef forts have been directed to to 53ex mdlion at year-end 165, however, the major improvmg AP&L s abihty to finance this needed portion of IWe total net mcome t52e.4 mdhon' censtruction of generating capabihty. is irom allowance ter fund, used durmg construction. The need for fiscal improvement has necessitated a non-cash source of mcome. Cash net income from repeated apphcations for wholesale and retad rate customer paid revenues at 517 milhon is the same ad:ustmems over the past f our years before appro- as the year-end Ices comparable total, whi'e the priate regulatory aderities. Smce ICA the Company mvestment to be sup;,orted by net mcome more than has been able to gain approvai .ar only sAo mdhon tnpied frem 517e 8 mdhon to s573.4 milbon. in additional wholesaic annua! revenues and only To aid in energy conservation, the Compant 541.1 mdlion in additional retail annual revenues, contmued a number of research and developnsent amounts tota!!y inadequate to both pay increased projects durmg the year. Maior projects mcluded expense 3 and to maintain our ability to attract the second vear of experimentation on a radio-additional capital At year-end 1Me, the Company controlled air conditioning study to help moderate had a 53e.4 milhon retai! rate apphcation pendmg peak demand; cooperation wi:h'the Federal Energy betore the Arkansas Public Service Commission. We Administration and the Arkansas Pubhc Service ' are confident that ont presentation of the facts Commission on a special time-or-day pncing study, fully justities the need for approval of this mnual and turther development of the " Energy Savmg revenue mcrease. Home" designed through cooperative cifort between Withm the pending application, our Company AP&L and the Little Rock Area Ortice of the Depart-proposed mclusion or Construction Work in Progress ment of Housing and Urban Deve!opment. 4 CWIPi in the rate base and estabhshment of a Cost Our Company al o authonzed two maior interna! of Service Index Clause. studies to identity opportumties for additional Inclusion of CWIP in the rate base is sought improvement of AP&L operating procedures and because this will improve the Company's cash flow pohcies. A broad management audit is being and will ultimately benefit our customers by reducing conducted bv Theodore Barry & Associates while
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the total cost of a generating station or other con- Umred Research Companc assisted AP&L manage-structmn project. ment in the development of improved construction Under tbc Co-t of Service Index Clause, the Public crew scheduling techniques, power plant mawtenance Service Commirion would estabbsh a range for planning and mventory control procedures. Company earnings and would review quarterly While we regret the escalating cost of electric Company records to ad;ust rates in line with the service and are aware of the growing concern about regulated earnings range. Adoption of the Clause tb price of energy, we are sincerely seeking to would reduce costs of frequent. full-scale rate cases, imt ment innovative and practical solutions to the would permit more effective planning and use of prob zms that AP&L and virtually every electnc > resources and would reduce the cost of borrowed utility in the industry are facing. We are mindf ul, money. too, that reasonable cost must also be coupied with We are hopeful that the Commission will approve paying an adequate return en investor do!!ars because this appbcation since it will make it possible for such investment provides the avenue for Company AP&L te again attract add:tional investor capital expansion to meet customer needs. for construction fmancmg. We appreciate your continuing confidence and sup-The present inabihty to finance has created a port and encourage vour comments and questions so serious delay in AP&Us plans to build White Bluf f that we can have an even better understandmg of each Steam Electric Station near Redfield. An orderly other's viewpoints during these ditticult times. shutdown of construction on these two 700,000-Ldowatt coal-tired umts was begun in July.1W5. With the requested rate mcrease, we wdl be able to ~ ' resume construction at White Bluff m mid-1W7 "" " f' ' ' with compietion on the first umt during 1050 and the cond unit during 1091. Reeves E Ritchie Arch P. Pettit Construction at Lmt 2 of Arkansas N.uclear One Chairman of the Board President near Russedvu c contmued in 10,o with commercui o;,cration expected to begin in 1W5. With a net capabihty ot 012,000 kilowatts, this nuclear-fueled unit is now estimated to cost a total of more than 544e mi' lion. 2
em 1976 Arkansas Power & Light Company Financial Review 550
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES A. System of Accounts The accounts of the Company are maintained in accordance with the system of accounts prescribed by the Federal Power Commission B. Revenues Except as referred to in Note 1. the Company records revenues as billed to its customers on a cycle billing basis. Revenue is not accrued for energy delivered but not billed at the end oi a fiscal period Substan-tially all of the rate schedules of the Company include adjustment clauses under which fuel costs above or below the levels allowed in vanous rate schedules are permitted to be billed or required to be credited to customers. C. Fuel Costs As described in Note 2. the Company adopted in 1976, a deferral method of accounting for fuel costs which vary from the levels allowed in the various rate schedules Under this method. fuel costs above or below base levels. which are includable in fuel adjustment clauses. are deferred to the month in which the related revenues are recorded. D. Utility Plant and Depreciation Utility plant is stated at onginal cost. The costs of additions to utility plant include contracted work. direct labor and materials. allocable overheads, and an allowance for the composite cost of funds used during con-struction. The costs of units of property retired are removed from utility plant. ant such costs plus removal costs. less salvage. are charged to accumulated depreciation. Maintenance and repair of property and replace-ment of items determined to be less than units of property are charged to operating expenses. Depreciation is computed on the straight-line basis at rates based on the estimated service lives of the various classes of property. Depreciation provided in 1976 and 1975 amounted to approximately 3.3% on average depreciable property. Principally all the Company s utility plant is subject to the lien of its mortgage. E. Pension Plan The Company has a pension plan covering substantially all of its employees Pension costs in 1976 and 1975 amounted to 54137.000 and $5 035.000, respectively, including amortization of unfunded prior service costs. The policy of the Company is to fund pension costs accrued in June 1976. a valuation of the pension plan as of December 31,1975 was completed As a result of changt s in certain assumptions, unfunded prior service costs were reduced by 510.526.000 to $606.000. The reducaon in pension costs resulting from such changes in actuarial assumptions will not have a matenal effect on the results of future operations. Likewise. Certain amendments, essentially technical in nature, which were made to the plan effective January 1.1976 to conform with the Employee Retirement income Secunty Act of 1974. are not expected to have a signifi-cant effect on pension costs l F. Income Taxes The Company joins its parent in filing a consolidated Federal income tax return and income taxes are I allocated to the Company in proportion to its contnbution to the consolidated tax liability. Deferred income taxes are provided for differences between book and taxable income to the extent per-m;tted by the regulatory bodies for rate-making purposes. Investment tax credits utilized are deferred and amortized over the average useful life of the related plant. G. Allowance For Funds Used During Construction in accordance with the regulatory system of accounts. the Company capitalizes as an appropriate cost of I utility plant an allowance for funds used during construction. This allowance represents the net cost of funds (interest on borrowec' funds and a reasonable rate on other funds) used to finance construction with a corre-sponding credit to non-operating income. The Company continues to capitalize allowance for funds used during construction on projects during periods of interrupted construction when such interruption is temporary and c 3n be justified as being reasonable I under the circumstances l H. Reserves it is the policy of the Company to provide reserves for uninsured property risks, and for claims for injuries and damages. through charges to operating expense on an accrual basis Accruals for these reserves have been allowed for rate-making purposes. 3
Nin;Ail; BALANCE SHEET AT DECEMBER 31,1976 AND 1975 ASSETd 1976 1975 in Thousands Utility Plant: 51.111,119 51,097,913 Electric plant . Construction work in progress . 505,669 350.941 _ .__4.562 8,179 Nuclear fuel _ 1,621,350 1,457,033 Total 240,014 Less - accumulated depreciation and amortization ._.265,099 1.35.6 251 1.217,019 Utility plant-net Other Property and Investments: 17,157 Investments in associated companies, at equity (Note 6). 15,707 Other, at cost (less accumulated depreciation). _ _ _ _1.,16.6 ___1,094 _ _ _1.6,873 ._18,25_1 Total . Current Assets: 10,142 9,878 Cash. 131 2.222 Special deposits . 1,500 21,104 Temporary investments, at cost which approximates market . 1,313 1,302 Notes receivable (less allowance for doubtf ul notes) Accounts receivable: Customer and other (less allowance for doubtful accounts - 18,594 18,400
$410,000) .
78 85 Associated companies . 8,167 Deferred fuel cost (Note 2) 5,275 5.961 Materials and supplies, at average cost 476 672 Prepayments . 1,244 3.491 Other. 63,126 46,909 Total Deferred Debits: 10,863 Advances for fuel oil purchases (Note 6) 1,907 2,174 Other _1,907 13.037 Total 51,42.1,940 51,3_11.433 Total See Notes to Fmancial Staternents 4
LIABILITIES 1976 1975 In_Thousan.ds Capitalization: Equity capital: Preferred stock (Page 8) $ 171,772 5 161,720 Common stock ($12.50 par value), authorized 50,000,000 shares; issued and outstanding 29,436,773 shares in 1976 and 26,990,000 shares in 1975. 367,960 337,375 Retained earnings (Notes 1 & 7) 3316_0 35,917 Total equity capital 573,392 535,012 Long-term debt (Page 8) 591,382 586,318 Total. 1,164,774 1,121,330 Current Liabilities: Notes payable - Banks (Note 4) . 4,500 Currently maturing long-term debt . 11,000 Accounts payable: Associated companies . 8,432 8,720 Other . . 30,392 9,428 Customer deposits . . . . 6,415 5,904 Taxes accrued . . 14,445 21,721 Accumulated deferred income taxes 4,175 Interest accrued . 12,245 12,480 Dividends declared . 3,284 2,684 __;2J53 1,983 Other. . Total. . , 97,241 62,920 Deferred Credits and Other Liabilities: Accumulated deferred income taxes . -64,563 53,572
- Accumulated deferred investment tax credits . 33,066 24.932 Revenues subject to possible refund plus interest 26,893 26,892 (Note 1) .
Deferred payments on construction contracts (Note 6) . 26,709 17,570 Other. _ 7,875 _ _ __3,219 Total 159,106 126,185 , Reserves . 819 998 ) Commitments and Contingencies (Notes 5 & 6) . __ Total. _S1_,421,940 .S_1,311 A33 l _ F i l See Notes to Finanaal Statements 5
" e
STATEMENTS OF INCOME AND RETAINED EARNINGS lJss Es0 For the Years Ended December 31,1976 and 1975 1976 1975 _in Thousands Statement of Inc_ome Operating Revenues (Note 1). 5397.253 S_309,065 Operating Expenses: Operation: Fuel. 107.213 76.322 Purchased power . 107,983 56,022 44,056 41,239 Other. Maintenance . 13,794 13.684 Depreciation . 35,025 33.790 18,858 17,989 Taxes other than income taxes 17,164 16,072 Income taxes (Note 3) . Total. 344.09_3_ 255 118 53.160 53,947 Operating income Other income and Deductions: Allowance for funds used during construction . 26,445 18,978 3,314 3,020 Miscellaneous-net . 7,014 5,111 Income taxes (Note 3) . Total. 36,773 27.109 Interest Charges: Interest on long-term debt . 43,152 40,553 Other interest-net of debt premium . 3,359 3 #94 Total. 46,511 _4_4_.4 4_7_ Income Before Cumulative Effect of Accounting Change. 43,422 36,609 Cumulative Effect to January 1,1976 of Change in Accounting for Fuel Costs (Note 2) . 3.541 S 46.963 $ 36 60_9 Net income (Note 2) . _ i t l Statement of Retained Earnings Retained Earnings, January 1 S 35,917 5 40.593 l 46.963 36,609 ! Add-Net income . Total. _82 88_0 _77,202 l l Deduct-Cash dividends: ' 13.136 8.034 Preferred stock . 33,251 36,084 Common stock . . 49220 _ _41,285 1 Total . ! Retained Earnings, December 31 (Notes 1 & 7) . S 33.660 535g17_ l l l See Notes to Financial Statements l l
, 1 STATEMENT OF SOURCE OF FUNDS FOR UTILITY PLANT ADDITIONS sfid !M For the Years Ended December 31,1976 ard 1975 1976 1975 in Thousands Source of Funds:
From operations: Net income . $ 46,963 $ 36,609 Depreciation . 35,025 33,790 Deferred income taxes and investment tax credit adjustments-net . 23,289 8,170 Allowance for funds used during construction . _(26,44_5) _]183_78) Total. 78,832 59,591 Dividends declared: Preferred stock. (13,136) (8,034) I Common stock . _(36,084) _(33,251) Total. _(49,220) _L41,28.5) Funds retained in business . 29,612 18.306 From decrease in working capital excluding short-term securities and currently maturing long-term debt . 15,435 11,087 Advances for fuel oil purchases: Payments (12,629) (8,058) Refund (Note 6) 23,492 Deferred payments on construction contracts . 9,139 17,570 Miscellaneous-net . _ (5,874) 21 121_4 Total 59,175 _ 6_0,119 From financing transactions: Common stock . 30,585 45,000 Preferred stock . 10,000 60,000 First mortgage bonds . 40,000 Sale and leaseback / installment purchase transactions 53,317 Short-term securities-net 24,104 _(34.10_4) Total _118 006 110,896 TOTAL $1_7_7,181-
- - . $1_711 015- - - - _ -
UTILITY PLANT ADDITIONS: Construction expenditures (excludes allowance for funds used during construction) . $148,495 $151,056 Nuclear fuel . . 3,669 2,434 Other plant additions-net . _2_5,017 _17_,525 TOTAL $ 177,181 $ 17_1.,015 See Notes to Financial Staternents 7
MM M SCHEDULE OF PREFERRED STOCK AND LONG-TERM DEBT Current Shares Shares Outstanding Call Prce Preferred Stock Authorized _ 1._97_6 _ 197_5 _ Per Share CUMULATIVE $100 PAR VALUE 70.000 70 COO 70 CCO $103 647 4 32% senes 93SCO 93 500 93 500 107 CC 4 72% senes . 75OCO 75 000 75CCO 102 53 4 56% senes 75 CCO 75 COO 75 CCO 1C2 50 4 56%-1965 senes 1CO COO 100 OCO 1CO CO3 10283 6 C8% senes 100 000 1COCOO 100 CCO 10467 7 32% senes 150OCO 150 CCC 150 000 109 10 7.80% senes , 200 CCO 2CC COO 1Ce 35 200 COO 7 40% senes 150 CCO 150 CCO 150 CCO 108 91 7 58% senes 2CO.CCC 200 CCC 200 COO 112 C4 10 60% senes* 403 OCO 430.CCO ACO COO 112 54 11.04% ser.es* 2.366 500 Unissued 4 OCO COO 1 613 500 1.613 500 TOTAL. CUVULATIVE 525 PAR VALUE 400.CCO 400 CCO 5 2821 8 84% senes . 9 600 OCO Un.ssuec . 4CO 000 10 000 OCO TOTAL. 14 000.CO3 2 013.500 1.613 SCO TOTAL PREFERRED STOCK _ _ _ _ _ _ _ . In Thousats
$ 161.350 $161.350 STATED AT 5100 A SHARE . 10 000 STATED AT $25 A SHARE .
422 370 PREMlUM ON PREFERRED STOCK 5171.772 5161.720 TOTAL. 1976 _1975_ Long-Term Debt In Thousands FIRST MORTGAGE BONDS $ 11.CO3 5 11.0C0 2-7 8% senes c.:e 1977. 7.500 7 500 3-1 8% senes due 1978 8 7CO 8.700 2-7,8% senes cue 1979 6 COO 6 COO 2-7,8% sanes due 1980 8000 8CCC 3-5 8% senes due 1981. 60 COO 60.000 9-1:4% senes due 1991 15CCO 15 000 3-1 2% senes due 1982 7.5CO 7.500 3-1/4% senes due 1964. 18.CO3 18.CCC 3-3 8% ses es due 1985 - 12.CCO 12.CCO 4-7,8% senes cJe 1991. 15.000 15.000 4-3 8% senes cue 1993 25,0C0 25 COO 4-5 8% senes due 1995. 25.OCO 25.000 5-3 '4% senes due 1996. 30 000 30. COO 5-7 8% senes cue 1997 15 000 15 COO 7-3. 8% senes due 1998 25 000 25 CCO 9-1/41 senes due 1999 25CO3 25 000 9-5 85 senes cue 2000 30 COO 30 DCC 7-5 '8% senes cue 2001. 30 000 30OCO 8% senes due 2001. 35 000 35 CCO 7-3 4% senes due 2002 15 000 15.CCO 7-1/2% senes due 2002 40 CCO 40 CO3 8% senes cue 2003 40 COO 40 COO 6-1/8% senes cue 2033. 40 CCO 40 COO 10-1/2% senes due 2004 40.C00 40 000 1C-1/8% senes due 2005. 583.7CO 583.700 Tota! first rnort9 age bonds ** . INSTALLMENT PURCHASE CONTRACT, POPE 16 600 COUNTY. ARKANSAS. DUE 20C6 7-3 81. 2.062 2 618 UNAMORTIZED PREM:UM AND DISCOUNT ON DEST-NET 602 3S2 586 318 TOTAL .. .. ... . . . . .. . . LESS CURRENT MATURITIESINCLUDEDIN 11 000 CURRENT LI ABILITIES LONG-TERM DEBT. EXCLUDING AMOUNT 5591 382 55e6 318 DUE WITHIN ONE YEAR
*Commenong in tne yea' 1950 and annuauy thereaMe* 10.000 shares of the 10 601 senes and 20 C00 s*we 11 C4% senes reust be redeemed at $100 per share plus accumu'ated cnneend to date of recenton ** Annual smk:ng fund recurrements. wtucn may be met by certhcabcn of prcoefty add tons at the rate of 167%
reau rements amount to 55 427.000 in 1977. See Notes to Financ:ai Statements 5
MWs UsG Notes to Financial Statements
- 1. Rate increase On September 1.1974, the Company placed into effect. subject to refund with interest, revised retail rate schedules designed to yield approximately $38.600.000 in additional annual revenues. In its order dated March 14.1975. the Arkansas Public Service Commission (APSC) having completed hearings on the Company's request for rate increases, approved rate increases which would yield approximately $20,200.000 annually, or 52% of the amount requested. and ordered the Company to refund all revenues collected in excess of that amount. On April 2,1975. the Company filed a petition for rehearing with th6 APSC; such petition for rehearing was deemed denied as of May 2,1975 On May 13,1975, the Company filed a petition with the Circuit Court of Pulaski County. Arkansas, to review. partially set aside and modify the order of the APSC. The decision of that court, which is currently on appeal to the Arkansas Supreme Court. was issued during 1976 upholding the APSC order.
Until December 23,1975, the Company continued to bill its retail customers on the basis of the full rates placed in effect on September 1,1974. However, pending final decision by the courts, the Company in 1975 decided to defer, for accounting purposes. the ditference between the amounts billed, retroactive to September 1, 1974, and the amounts allowed by the APSC and to accrue interest on the amounts so deferred As of December 31,1976. the amount deferred, including interest, was $26.893.000. On December 23.1Q75. the Company placed into effect. subject to refund with interest. revised retail rate schedules designed to yield approximately $34.300.000 in annual revenues in addition to those allowed by the APSC order of March 14.1975. In its order dated April 21.1976 the APSC approved rate increases which would yield approximately $20.979.000 annually and ordered the Company to refund all revenues collected in excess of that amount. The Company refunded the difference between the amounts billed and the amounts allowed by the APSC. On September 13.1976. the Company filed a general rate increase application w,th the A/SC for approval of new retail schedules designed to provide additional annual revenues of approximately $56.400.000 on the basis of pro forma test year data. Hearings on this application began in January 1977, and the Company antici-pates receiving a final order from the Commission in early 1977. On January 1.1974 and December 1.1975, the Company placed in effect, subject to refund with interest, revised wholesale rate schedules designed to yield approximately $2.400.000 and $8.400,000, respectively, in additional annual revenues. On the basis of an agreement reached by the Company and intervenors on September 16.1976, which was approved by the Federal Power Commission on November 15,1976 the Company refunded approximately $4.789.000. including interest. The effect of these refunds, which were re-corded in 1976. was not material.
- 2. Accounting Change I In 1976. the Company adopted. retroactive to January 1.1976, the accounting policy of deferring fuel costs in excess of base levels allowed in rate schedules until their recovery two months later through the fuel ad-justment clause. Deferral of the excess fuel costs for accounting purposes was adopted due to (1) the con-tinuing increase in the unit cost of fuel and (2) the significant increase in unrecovered fuel costs during those periods when the Company's nuclear plant is not operating This accounting change resulted in an increase in net income for 1976 of $3.992.000. Of this amount
$3.541.000 represents the cumulative effect of the change (net of taxes) as of January 1.1976 and is shown separately on the Statement of Income. and the balance is reflected in income before cumulative effect of the change Had the accounting change been made on a retroactive basis. net income for 1975 would have been reduced by $1.216.000.
9
- 3. Income Taxes income tax expense consists of the following:
1976 1975 In Thousands Charged (Credited) to operating expenses: Federal income taxes. $ (3.434) $ 6,059 State income taxes . 1,012 1.843 Deferred Federal income taxes - net . 10,196 1,968 Deferred State income taxes - net . 1,263 363 Investment tax credit adjustments - net . 8.127 5,839 Total . 17,164 j6pl2 Credited to other income and deductions: Federal income taxes. (6,191) (4,511) State income taxes . (823) (600) Total. _{_7.014) (5,111) Cumulative effect of change in accounting for fuel costs (deferred income taxes) . 3,704 Total income tax expense . . $13,854 $10.961 Deferred income tax provisions have been made as follows: Excess ofliberalized tax depreciation and amortization over straight-line tax depreciation . $ 9,277 $12,883 Revenues subject to possible refund which are deferred per books . . . (10,486) Unbilled revenues taxed but not recorded per books . (648) (137) Taxes and pension costs capitalized on books and deducted on tax return . 4.125 71 Fuel costs deferred per books but deducted for tax purposes (includes cumulative effect of accounting change - $3.704,000) . 4,175 Gain on sale of assets. . (3,729) Other. . 1,963 Total . $15,163 $ 2431 1 The total income tax expense reflects reductions resulting primarily from: a) the exclusion from taxable income of the allowance for funds used during construction; anr1 b)the effects of currently deducting certain overhead costs, which for book purposes arc aoitalized i i as part of the cost of utility plant, except that in 1976 deferred taxes have been provicec; on such I differences. t The effective income tax rete for 1976 and 1975 was 23%. The Federal income tax returns for the years 1967 through 1972 have been examined and assessments have been proposed by the Internal Revenue Service which are or will be protested; also, the years 1973-1976 remain open. Management is of the opinion that adequate provisions have been made for any taxes that may ultimately be assessed. I i
- 4. Lines of Credit and Short-Term Borrowings
^
The Company has arrangements with certain banks and 'a commercial paper dealer providing for short-term borrowings of up to $110,000.000. Accounts are maintained with certain lending Arkansas banks and. [ although balances in some of these accounts may be deemed to be compensating balances most of these accounts are working accounts and fluctuations in their balances do not reflect or depend upon fluctuations in the amounts of the bank loans outstanding in support of the arrangements with non-ArkaN,as banks, the [ Company maintains compensating balances of 10% of the amount of the total lines of credit with these banks ($6.300.000 at December 31,1976) which are not restricted as to withdrawal. Borrowings under these lines of credit require additional compensating balances of up to 10% of the average annual amount of outstanding loans from these banks. The aggregate of the unused lines of credit as of December 31,1976 was $105,500,000. I~ 10
The bank and commercial paper notes are unsecured short-term loans with various maturity dates not in excess of nine months. The interest rates on bank loans are the prime rates in effect fre 7 time to time of the lending banks. During 1976 the maximum aggregate amount of short-term borrowings outstanding at the end of any month was $56,200,000. The average amount of short-term borrowings outstanding during 1976(based on the average of the sum of daily outstanding principal balances) approximated $5,132,000 of bank loans and
$13,636,000 of commercial paper, The approximate average interest rate (determined by dividing the actual interest expense on short-term borrowings during the year by the average short-term borrowings) was 6.81%
for bank loans and 5.91% for commercial paper.
- 5. Leases Rental expense (including amounts charged to clearing accounts but excluding nuclear fuel) amounted to
$4,606,000 in 1976 and $2.101,000 in 1975. Of these amounts, $2.661,000 in 1976 represents rentals under non-capitalized financing leases.
At December 31,1976 there were non-canceliable leases (excluding nuclear f uel) with minimum rental com-mitments as follows: Non-Capitalized Total Financing Leases i in Thousands 1977 $ 4,622 5 3,716 1978 4,145 3,298 1979 3,818 2.988 1980. 3.506 2,764 1981 3,335 2.614 1982-1986 . 12,642 10.573 1987-1991 10.627 10,573 1992-1996 . 10.576 10,573 Remainder of leases . 20,936 20,936 , Total . $74.207 $68,035 l In 1974, the Company entered into a $40,000,000 nuclear fuel lease and has agreed to lease additional fuel in the future for Unit No.1 of Arkansas Nuclear One. Lease payments, which are not included in the tabulation above, are based upon nuclear 'uel use. This unit was placed in commercial operation on December 19,1974, and $9,057,000 and $12.157,000 of nuclear fuel expense was charged to operations in 1976 and 1975, respec-tively. The lease, unless sooner terminated by one of the parties, will continue through December 31,2013. On April 6,1976, the Company sold its interest in the supply of nuclear fuel for the initial core of Unit No. 2 of Arkansas Nuclear One for $7,477,000 (representing book value) and simultaneously entered into a
$50,000,000 fuel lease. Lease payments. which are expected to begin in 1978 and also are not included in the tabulation above, will be based upon nuclear fuel use. Annual payments, based on normal generation and an initial investment of approximately $30,000,000, will be approximately $16,000,000 and will be treated as cost of fuel. The lease, unless sooner terminated by one of the parties, will continue through June 30,2018.
In 1976, the Company sold certain transportation and power operated equipment and real estate properties with a net book value of $21,891,000 for $29,240,000 under several sale-and-leaseback agreements. The re- [ sulting gains are being amortized over the term of the leases which are thirty years for real estate properties and range from two to five years for transportation and power operated equipment. Annual rental cost under
- these leases will approximate $4,200,000.
( At December 31,1976 the present value of minimum lease commitments related to non-capitalized financing leases, excluding nuclear fuel, is approximately $26,700,000, consisting of $22,900,000 - real estate properties (primarily office buildings and service centers) and $3,800,000 - transportation and power operated equipment. These present values have been computed by discounting net lease payments for real estate properties by 8.5% and for transportation and power operated equipment by 10.0%. The unrecovered cost base of the nuclear fuel leases at December 31,1976 is approximately $63,100,000. In general, the leases contain renewal options I and obligate the Company to pay maintenance, insurance, taxes and other related costs. The impact on net I income of capitalizing all non-capitalized financing leases, including the nuclear fuel leases, would not be material. 11 L
i
- 6. Commitments and Contingencies 1
On June 25,1975, the Company announced that, due to economic factors, the completion dates for its two coal-fueled units at the White Bluff Steam Electric Generating Station (White Bluff Plant) site had been extended from 1978 to 1979 for Unit No.1 and from 1979 to 1981 for Unit No 2. Subsequently, a decision to effect an orderly shutdown of construction of the White Bluff Plant was announced due to the f ailure of the Company to receive necessary rate increases. The shutdown of construction of the White Bluff Plant is premntly scheduled to continue until mid-1977. However, resumption of construction at that time is dependent upon the outcome of the pending retail rate proceeding and the abihty of the Company to raise adequate capital i funds. Without an increase in earnings from operations (which will be largely dependent upon receiving fair and adequate rate increases) the Company will be precluded from issuing additional first mortgage bonds, ex-cept for refunding purposes. and will be limited in the number of additional shares of preferred stock which
! may be issued At December 31,1976. approximately $162,067,000 in costs related to the White Bluff Plant
- were included in const.uction work in progress. The estimated cost of the White Bluff Plant is approximately 4
5573.900.000. The Company's total construction program contemplates expenditures of approximately $171.700.000 in 1977 and $212,700,000 in 1978. These estimates are based on the assumption that construction of the White Bluff Plant will resume in mid-1977, and that 35% will be sold tr Arkansas Electnc Cooperative Corporation I and 5% to the City of Jonesboro, Arkansas by September 1977 'dstimated construction expenditures for 1977 have been reduced by the expected proceeds from this sale. The Compan,y ias renegotiated certain of its construction contracts whereby certain progress payments have been deferred from the dates originally scheduled for payment. At December 31,1976, the Company had negotiated deferral of approximately $42,335.000 of such construction costs. of which $15.626.000 be-comes payable dJring 1977. The portion of such deferrals which is not due within one year has been included in Deferred Credits and Other Liabilities at December 31,1976. The balance of such deferrals at December 31, 1975 has been reclassified to conform with this presentation. The Company is attempting to negotiate additionat deferrals, the timing and amounts of which cannot presently be determined. The Company has a 35% interest in System Fuels, Inc. (SFI), a jointly-owned subsidiary of four of the principal operating subsidiaries of Middle South Utilities. Inc. (SFl stockholders). SFl operates on a non-profit basis in planning and implementing programs for the procurement of fuel supplies for the generating units of these operating companies; its costs are recovered through charges for fuel delivered. The Company has made loans to SFI to further its fuel supply business under certain loan agreements which provide for SFl to borrnw from its stockholders up to $156.500.000. As of December 31,1976. the Company had loaned $15 5m 000 to SFl pursuant to the loan agreements. and the Company's share of the
- unused loan commitmerit is approximately $36.465,000. Loans mature in 10 and 25 years from the date of
! borrowing. in connection with certain bank borrowings by SFI totaling $42.184,000 at December 31,1976, the Com-pany and the other SFl stockholders have covenanted and agreed severally in accordance with their respective i shares of ownership of SFls common stock, that they will take any and all action necessary to keep SFl in a sound financial condition and to place SFl in a position to discharge, and to cause SFI to discharge. its 4 obligations to the lending banks. Also, SFl s stockholders, including the Company, have made similar covenants i and agreements in connection with arrangements entered into by SFI covering the sale, for a consideration
! of $20,827.104, and leaseback pursuant to a 25-year lease of certain oil storage and handling facilities located at a generating station of one of the operating companies.
During the years 1974 through 1976, SFI made advance payments under an oil supply agreement to a supplier in connection with the construction of a refinery. In 1976, the supplier was sold to a major oil com-pany and SFl (1) entered into a now long-term oil supply agreement with the oil ccmpany providing for the sale to SFl of up to 50.000 barrels of oil per day for a twenty-year penod; (2) agreed to cancellation of the oil supply agreement with the first oil supplier; and (3) received repayment of the advan as previously made, by SFI, tpgether with accrued interest thereon, in the aggregate amount of $67,120,000, of which the Company ! received its share, approximately $23,492.000, including interest r The Company has agreed to purchase over a 20 year period.100 million tons of coal for use in the two coal-fueled units to be constructed at the White Bluff Plant. During 1976. SFl entered into a contract with a ! joint venture for a supply of coal which is expected to provide 150 to 210 million tons over a period of 26 to 42 years; coal so supplied is expected to be used in the next two coal-fueled units to be constructed by ! the Company. ! 7. Retained Earnings ! The indenture relating to the Company's long-term debt and provisions of the articles of incorporation re- ' lating to the Company's preferred stock provide for restrictions on the payment of cash dividends on common stock. As of December 31,1976. 524,579.000 of retained earnings are free from such restrictions. 12
- 8. Quarterly Results Unaudited operating results for the year ended December 31,1976. by quarter, are as foilows:
Quarter Ended March _31 June _30 S_eptember 30 December 31 in Thousands Operating revenues . 584.908 583,987 $125.224 5103,134 Operating income . 11.668 10.090 17,930 13.472 income before cumulative effect of accounting change . 8.671 8.042 15,778 10.931 12,212(a) 8,042 15,778 10,931 Net income (b) . (a)The quarter ended March 31,1976 has been adjusted for the change in accounting described in Note 2. The cumulative effect of the change as of January 1,1976 increased net income for the quarter ended March 31,1976 by $3,541.000. (b)The Quarterly results are affected by changes in accounting estimates and other adjustments, re-lated primarily to the settlement of certain rate matters. As a result of these adjustments, net in-come increased in the second Quarter by S874.000 and decreased in the third and fourth Quarters by $1,056.000 and $406.000, respectively. In addition to the adjustments noted in (a) and (b) above, the quarterly figures reflect the seasonal fluc-tuations which are normal to the Company's operations.
- 9. Replacement Cost information (Unaudited)
The impact of the rate of inflation experienced by the Company in recent years has resulted in replace-men costs of productive capacity that are significantly greater than the historical costs of such assets reported in the Company's financial statements. In compliance with reporting requirements of the Securities and Ex-change Commission, estimated replacement cost information is disclosed in the Company's annual report to the Commission which is included in the Form USS filed by its parent. Middle South Utilities, Inc.
- 10. Accounting Policies The summary of significant accounting policies on page 3 is an integral part of these notes to financial statements.
Accountants' Opinion Ten Broadway HASKINS & SELLS Saint Louis, Missouri 63102 Certified Public Accountants Arkansas Power & Light Company: We have examined the balance sheet of Arkansas Power & Light Company as of December 31,1976 and 1975 and the related statements of income, retained earnings, and source of funds for utility plant additions for the years then ended. Our examination was made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessaryin the circumstances. As onginally issued, our opinion with respect to the Company's financial statements for 1975 was cualified as being subject to the settlement of certain rate matters. As explained in the fifth paragraph of Note 1, the rate matters applicable to wholesale customers have been resolved and our opinion Qualification with respect thereto has been removed. The Company is appealing to the Arkansas Supreme Court the decision of the Circuit Court of Pulaski County, Arkansas, affirming the order of the Arkansas Public Service Commission granting only a portion of a reuested retail rate increase. All amounts disallowed by the Commission have been excluded. retroactive to September 1,1974, from operating revenues. See Note 1. In our opinion, subject to the effect of any ir$ crease in operating revenues which may result from the final settlement of the rate matter referred to in the preceding paragraph, the above-mentioned financial statements present fairly the financial position of the Company at December 31,1976 and 1975 and the results of its operations and its source of funds for utility plant additions for the years then ended, in conformity with generally accepted accounting principles consistently applied during the period except for the change, with which we concur, in accounting ior fuel costs as discussed in Note 2.
/s/ HASKINS & SELLS January 31,1977 13
~
Ten Years of Progress / Financial 1976 ' capitalization and capitalization satios WLucNs oF DOLLARS Capitalization-End of period: 600 _ P E m !s wmw M .rcs , Eauity capital: sso- Preferred stock and premium . S 171.77: ms- n g wacc.:r" cwore" "# " 367.96 300 _ Common stock . Retained earnings . 33.66f 4sc 4x R- Total ~ 573.39. aso $- $,b S-- Long-term debt: First mortgage bonds and premium 2 575.18 300 l!!;- 2sc h- ' t- d
!!L_
Installment purchase contract and discount . 16,19 200 _ ' Sinking fund debentures 1sc- 2-- lL Total. 591 38. 300 _ i T so-b fi - Total capitalization . 51,164.77 g , m 9.ce ! !, + 3 rm 7pq sw t. wa i j e j j s - i l s- :ai g g 1973 1975 197e Annual Payment Requ,irements: 39e7 1959 1971 Interest on: First mortgage bonds S 42.83 Installment purchase contract . 1,22 Dividends on preferred stock . 14,02 ELU F LLARs I I ! Utility Plant-End of period: l
- Electric plant completed . 51.111.11
- eoe }' -*- =>+ Construction work in progress . 505.66
'400 l l /
, Nuclear fuel . 4.56 Total utility plant . i.~6E1.35 3200 Less-accumulation depreciation . 265.09 l l/ /
r _ Net utility plant . 51.356.25 l
* [Mb[
pr- . l Income Statement: Operating revenues S _397.25 4x Operating expenses: Fuel. 107.21 Purchased power . 107,95 2T o P-' Payroll-Operation and o maintenance . . 26,62 19e7 68 69 70 71 72 73 74 75 197e 31.22 Other operation and maintenance . Depreciation , 35.02 Taxes. 36.02 Net income Total 344.0c ~ MLUoNS OF DOLLARS 53.1 E Operating income . so Other income and deductions-net C1J7,as (excluding allowance for funds 30 _ used during construction) . 10.32 emt>m c-s w Interest and other charges: Interest on long-term debt 43.15 40 Other interest-net of debt premium . _ _3.35 30 46.51 20 . -EB-g1 I- Total . . . Income f rom revenues . . . . . . . Non-cash income from AFDC* 16.9: 26.44 Egmi kl 1 1g:'E Income from accounting change 2 5 3.5 46.9( to 4 x r - i
~
Net income
/ ,
,g 1967 fB 69 70 71 72 73 74 7s 1976 2Crsa ra e"ect to Ja%vy 1.1975 cd ce;e e acce rg f a f# cesis
'AFDC - Mcy.,nce t v f gy usec g,ca;;;mac,y , , , ,, , _ ,
1975 1974 1973 1972 1971 1970 1969 1968 1967 S 161,720 S 101,657 5 101,657 5 86,615 5 51,529 S 51,529 5 51,529 5 41,487 5 41,487 337,375 292,375 257,375 202,375 172,375 137,375 121,375 111,375 102,750 35,917 40,593 36,827 34,714 31,043 25,982 26.582 23,954 27,736 535,012 434,625 3951 859 323,704 254,947 214,886 199,486 176 816 171,973 586,318 546,284 476,354 393,700 343,700 283,700 258,700 233,700 218,700 4A75 4.1475 4,7Q0 4,925 5,150 5,375 5,60_0 586,318 546,284 480,829 398,175 348,400 288,625 263,850 239,075 224,300 S L 121,330 _S_ 98_0,909 _$ 876,68_8 S721,879_S6_03 34_7_$_5_03,511_S463,3_36 S415,891 $_3.9_6_,273 5 42,837 5 38,787 5 29,974 S 23,524 5 19,687 5 15,000 5 12,593 $ 10,281 S 9,174 13,136 6,600 6,600 5,418 2,768 2,768 2,768 2,036 2,036 $1,097,913 51,051,248 5 762,319 S727,558 $684,668 S658,853 5587.608 5563,176 5540,917 350,941 215,794 330,585 216,055 151,797 49,595 56.557 28,808 7,690 8,179 5,229 29,953 26,722 9,148 1,457,033 1,272,271 1,122,857 970,335 845,613 708,448 644,165 591,984 548,607 240,014 211,456 193,400 175,144 160,665 145,712 131,726 120,060 108,114 51,217,019 $1,060,815 S_929,451_S795,191_S6p4,948_S_562_,736_S5121 439_S471J24_S_440g93 $ 309,065 5 294,243 $ 209,327 5184,810 S166,063 S149,317 $136,044 5118,943 $105,516 76,322 83,840 46,605 36,648 30,151 27,124 20,516 17,187 10,639 56,022 55,936 28,737 25,334 16,705 9,592 13,808 9,052 14,663 24,286 19,486 17,647 15,731 14,841 13,840 13,108 12,045 11,124 30,637 24.114 19,416 16,799 15,621 14,501 12,396 11,206 9,421 33,790 23,885 21,373 19,609 18,742 17,400 16,059 15,060 12,970 34,061 23,614 25,766 25,288 30,235 31,110 29,375 26,685 21,955 255,118 230,875 159,544 139,409 126,295 113,567 105.262 91,235 80,772 53,947 63,368 49,783 45,401 39,768 35175_0 _ 30,782 27,708 24,744 8,131 1,352 572 45 75 _(127L__1149L _1179L__(66) 40,553 32,554 25,528 21,843 17,750 13,594 10,543 9,888 8,976 3,894 3,366 1,557 1,002 592 701 1,164 635 439 44,447 35,920 271 085 22,845 18,342 14,295 11,707 10423_ _ 9,41_5 17,631 28,800 23,270 22,601 21,501 21,328 18,926 17,006 15,263 18,978 25,486 18,676 14.170 7,407 3,429 2,878 1,405 3,039 5 _ _36,609 _S _ 5_4,286_ S _ _ _41,9.4.6_ S _ .36,771_ $ 28,90_8_. S _24,757_ S 21,804 5 18,411 S 18.302
-~ . . - . - - - . - - - . __. ..- -
15
Average Annual Kilowatt Hour Use Ten Years of Progress / Operating 1976 Residential Customers Electric Operating Revenues: ul e4! l l' l I d ' , 4' ,! epl m 4 1 (in Thousands of Dollars) Residential . Commercial S120.42: 75.195 j l l
'i 33.10'.
industrial- Aluminum processing
- l ! t-- 'A- industrial-Other 82.87:
I j !
! f * 'l/.l * ' j i
I
,' Government and municipal Revenue acjustment .
8 45' 2,99f Total from ultimate customers $323.04e i ; ; ) ! !' l' l Public utilities 70.36:
" i i i ; j; Miscellaneous revenues 3.84 ,,....r. , m, - l aa - Total electnc operating revenues . S397.25:
g _ u s . t . .. : ; j j
' l
! ! I i
.-1 l l ! Electric Sales (Millions of Kilowatt Hours):
i ,w e c. ,, < m; Residential 3.36' Commercial 2,16 Industrial- Aluminum processing 2,14 industnal-Other . 3.16 Kilowatt Hour Sales Government and municipal 30 to Ultimate Customers 11,14-m ; Total sales to ultimate customers . l Pubhc utilities 3.24 l l l 14 39
' Total energy sold j j l l e : .
14 . j l ! Number of customers-end of year: ( i l 379.55
" , 1 Residential .
, i ;
M*I Commercial . 46,84
$d J
p
! jag l 7!l ~
i. Industnal- Aluminum processing Industnal-Other . 10,91
!I Government anc municipal 1.50 e
! Total ultimate customers . 438.81 4
l 2 Pubhc utilities l l 2 Total customers . 438.83
- - l M ee 69 70 71 72 73 74 75 :97e Electric Energy:
Source and disposition (Millions of Kilowa!! Hours) Payroll Generated-net station output
- v. .. s :. m Gas . 1.1 E 50 1 I ! i Oil . 4.01 J . , ,, a .. l l Nuclear - 3.85 45
,,.* Hydro . E Lp g r--avr m .l l '
Total generated . 9 15 II i lg Purchased 6.17 35 7 Net interchange . 4 3c
,_ ; [ jr
,1 Total Less. Company uses. losses 15.34 "lp r
/ and unaccounted for . 95
,e' '
15 w / ! Total energy sold . 1 4.35
' y Hgr.. !
Peak demand (Megawatts) 3.2< 5 n l tW 68 69 70 71 72 73 74 75 197e ib [N s ' ".
- I C 77 M t
m !di[gik(6t,
- gw@an!
AR i
1975 1974 1973 1972 1971 1970 1969 1968 1967
$109,258 5 87,329 S 68,098 5 57,976 5 49,718 S 45,230 S 41,045 5 36,998 5 33,656 64,760 53,975 43,448 38,092 33,989 31,214 28,697 26,575 24,631 12,652 28.061 17,358 14,803 13,132 12,334 12,147 12,173 11,247 66,431 60,601 43,865 36,380 31,141 27,930 27,246 25,057 22,740 7,623 6.126 4.737 4,248 3,836 3,594 3,424 3,139 2,952
_{2.0.373__C(6,2_741_ . _ _ _ _ . _ _ 240,351 229,818 177,506 _ _151,499 _ _ . _ _ _131,816 120,302 112,559 103,942 95,226 65,346 61,169 28,942 30,392 32,209 27,067 21,934 13,894 9,172 5,368 3,256 2,879 2,919 2,038 1,948 1,551 1,107 1,118 5309,065 S294,243 S209,327 S184,810 $166,063 $149,317 5136,044 $118,943 5105,516 i 3.386 3,077 3,103 2.770 2,393 2,182 1,917 1,644 1.401 2,072 1,893 1,903 1,753 1,614 1,503 1,373 1,247 1,116 1,011 2,569 2,594 2,569 2,540 2,574 2,574 2,564 2,511 2,840 3,042 2,920 2,702 2,426 2,230 2,170 1,969 1,753 297 284 290 285 276 265 262 242 229 9,606 10,865 10,810 10.079 9,249 8,754 8,296 7,666 7,010 3.548 3,640 2,899 3,382 4 1594 4,906 4,123 2,470 1,297 14,50_5..__1_3,7_0_9 1_3 461 13,843 13,660 12,419 10,136 8.307 __1_3.154._ 364,954 355,673 343,468 330,566 318,732 311,815 306,950 301,335 371.491 45,657 44.957 44,073 43,188 46,785 45,606 44,771 44,195 43,747 1 1 1 1 1 1 1 1 1 10,431 9,926 9,508 9,175 4.733 4,638 4,532 4,428 4,259 1,446 1,396 1,317 1,282 1,235 1,188 1,131 1,085 1,043 429,026 421,234 410,572 397,114 383,320 370,165 362,250 356,659 350,385 25 25 25 24 71 75 75 78 73 421,2.5.9 410,597_ 397,138_._383,391_ 370,2_40 362,32_5_ _35_61 737 35_0,458 _429 0_51 1 2,645 3,209 3,919 5,932 7,630 9,676 7,386 6,416 4,000 2,242 3.920 4,089 2,484 1,496 382 177 82 21 4,874 171 172___ . 230_ _ 3_21_ 125 . 92____.133.__ 1_39. _____208 _ _ __97 4,118 9,933 7,530 8,329 8,541 G,218 10,191 7,702 6,706 4,070 7,670 5,890 5.944 5,474 4,268 5,467 4,078 4,874 101 __ 18_1 3_61 10 17 . _ ._36___. 4.1 . 8.8 _ _ _ ._ ( 62) 8,930 14,104 15.381 14,580 14,495 14,709 14.495 13.210 10,872
._. 950 .. 876 871 1,034 866 .
835 791 . 7.36_ _. _ _ _623 13.154 ._13,461 13,843 13,660 ._12,41.9 1_0,136 8,307 _14,50.5, 1,3,709 . 1,710 2,868 3,049 2,744 2,607 _2,565 2,312 2,176 _ 1,927 17 _ _ _ . - . . , .- . . . . _ . - _, ._ . . , -- - . - _ . _ _ _ ~ , _ ~ - , . - - . . , _ - . _ _ _ . -
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Company Directory Transfer Agents for Preferred Stock-Union National Bank of Little Kot L, i Union National Pla:a, Litt!c Rock, ArLansas 72203, and The Commercial National B.mL of Little Rock, Secomiand Alain Streets, Little Rock, ArLansas 72203 Registrar for Preferred Stock-The First National Bank in Litt!c Rock, Capito! and Broadway Streets, Litt!c Rock, Arkansas ~2:03 I Certified Public Accountants-Haskins & Sells, Ten Broadway, Saint Louis, Missons t c3102 1 Executive Oiiice-The First National Building, Capito! and Broadway Streets, Little Rock, ! Arkansas 72203, Phone (501) 37I-4000 Engineering Ottice-Shth Avemw and Pine Strect<, Pme B!nff. ArLansas 71c01, Phone (501) 534-1330 Annual Meeting-Fourth Tharsday of Alay Tin, recon < vrcim,I !or f::c i&c, + s : o wcw:tu 1:o:.icr+. c,>r:ouces a . I cf.a . .
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1 yooyjfv31C2-Y ANNUAL REPORT 1979 '
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f v ; {} ks~ ;r l4 f Wendell /. Johnson John P. Williamson President O'.airrmn G Chief Execut:ve Cfficer l l l l l l 1 On the Cover Redeveloprnent of Toledo's riverfront tegan wth refurbishing of our Water Street station, a fme turn-of-the-century masonry structure, and constructen of I our Edison Plaza, captured here reflect-ing a sunrise across the Maumee River. l 1980 will see major new structures rising l aiong the river, with the 100 mdlion dollar Owens-liiinois World Headcuarters and Toledo Trust's new office budding , l already above ground. The finishing touch will come with comp letion of the City's twelve mdhon dollar Promenade Park, spanning six blocks of dov.ntown riverfront. e i s . coa ouwouomu 7
To Our Shareowners: for Northwestern Ohio. Along with other utilities in our power pool, the Central Area Power Co-ordination Group (CAPCO), we have shared throughout the Seventies in the construction and ownership of large generating units, both coal and The end of one decade and the beginning of the nuclear. It is widely accepted that these wi;i be the next is not unlike reaching the crest of a hill. It gives most-and possibly thc only-viable sources of us a point of perspective, and it seems like a good electricity durinq the coming years. place to pause briefly and look around-backwards down the slope we've been climbing fm ten years A signal accomplishment was completion of the and ahead toward the terrain we have to cover dur. Davis-Besse Nuclear Power Station, in spite of inflation and the uncertain, ever-shifting, and often ing the next ten. sharply conflicting rules of the game imposed by Nobody needs to be told that the road through [egulatory bodies. All nuclear plants constructed in that same time frame were confronted by similar the Seventies was difficult and full of surprises, bstacles, and yet Dav,s-Besse i was completed in especially for those of us in the energy field. The 79 months-a shorter time than any of the other long period of headlong and profligate use of our Pl ants built during the same time period. Nuclear resources came to an end, most abruptly it seemed. Power plants now average about 120 months con-The inexorable pressures of inflation disrupted our struction time. The final cost was greater than we lives and our plans time and again. The constric_ c uld have anticipated at the outset, of course, but tion of government regulation grew ever tighter it was much lower than the cost of nuclear piants and management seemed to be losing many of its Presently going on stream. Moreover, the com-traditional prerogatives. As a nation we rediscov- bined investment and operating costs of Davis-ered the Middle East-to our dismay. Besse are still 25 per cent less than those of a com-parable new CAPCO coal-fired plant equipped with And yetin the face of all this, your Company made required environmental controls. significant gains. Let us cite a few. Total annual operating revenues by the end of the decade were After going on line in 1977, the Davis-Besse plant four times greater than they were in 1969. Despite performed reliably during difficult periods when, the severe upward pressure of inflation on operat- due to strikes or severe weather, coal either was ing expenses, the significant item of operating in- not moving or arrived at power plants frozen solid come from customers increased more than three in the rail cars. Although subjected to an unduly and one half times. The gain in earnings on com- long embargo on its operation imposed by the Nu-mon stock was nearly that high also, and earnings clear Regulatory Commission following the ac-per share improved-even though more than three cident at Three Mile Island, Davis-Besse operated times as many shares were outstanding at the close reliably during this past summer, saving our cus-of the Seventies. For our common shareowners, tomers substantial amounts in fuel charges. Based the bottom line was a 35 per cent increase in de- on the lessons learned from Three Mile Island, we clared annual dividend payments as we were able made extensive studies of our operation and estab- [ to continue a pattern of increasing dividends r early lished additional safeguards both in technology every year since 1960. and personnel training. In addition, the Nuclear Regulatory Commission mandated stringent and Our central concern throughout the Seventies sensitive automatic controls which caused several wcs the pressing need for construction, and the trip-offs during the Fall and reduced the plant's l financing required to pay for it during a decade of reliability record. We are overcoming these handi- '- mounting ir/lation and increasing interest rates. caps, however, and expect growing reliability as Our construction expenditures totalled well over a we go into the Eighties. billion dollars during the ten years. By the end of the decade, however, Toledo Edison had sufficient A vital Company strength during the past decade, owned generating capacity to be virtually inde. and one which has done much to mitigate the prob-pendent of the need for outside power purchases, lems of inflation, has been our ability to obtain and that expense item, which was so burdensome timely re'e increases. In the decade of the Seven-during much of the period, was reduced substan. ties, Toled Edison was granted four major retail tially. In the first year of the new decade, comple-rate increans, three of which included interim tion of another coal-fired generating unit in which increases in advance of the final order. The cumu-we have an ownership share is expected to give us lative effect of these, together with completion of Davis-Besse and another major CAPCO generat-a generating reserve of about 20 per cent. ing unit, resulted in increased cash flow and much-The construction program of the Seventies a!so improved interest coverage ratios by the end of the has added to'our strength in another area: the mix decade. This forms an excellent base for profit-of the fuels we depend upon to provide electricity ability in the Eghties. 1
Finally, the establishment for your Company of have reduced by one third the projections of energy a more flexible, responsive and participative man- usage growth during the Eighties. Very soon we agement organization during the early Seventies willjoin in an even more extensive effort called the has proved to be of immense value to us. A man- Residential Conservation Services Program. Home agement team structured by objectives, coupled energy audits, followed by analyses and recom-with systematiciong-range planning. enabled us to mendations, will be offered to every householder. move Toledo Edison more smoothly through the Strong financing and credit incentives will be m-extreme challenges of the decade. Some indication volved. We can see two major benefits to the pro-of the results are provided by the yardsticks of gram: it will help us to delay construction of in-utility management performance during the past creasingly expensive generating units, and it five years compiled by Forbes Magazine early in should contribute heavily to good customer rela-1980. Among the 24 Midwest utilities rated Toledo tions in these days of rising energy charges. Edison ranked second in growth of average dollar sales, sixth in profitability, and tenth in return on As we've said many times in our reports to you over recent years, we are entering a New Energy capital. Era which is marked by diminishing supplies of Toledo Edison is entering the Eighties with sub- traditional sources and the emergence of new stantially improved earnings goality, and with the energy technologies that can supply the world's prospect of growing revenues coupled with re- energy bountifully in the generations to come. duced level of construction commitments. "This transi"on requires time for planning and We are forecasting increases in electricity sales of developmer' on the scale of half a century," the about three to four per cent annually, and we have NAS report concludes. "The question is whether applied for a further rate increase to be effective we are diligent, clever, and lucky enough to make early in 1980. These additional revenues, com- this transition an orderly and smooth onel bined with reduction of expensive power purchases from outside sources, can be expected to continue At Toledo Edison, we believe that Americans can our cash flow improvement, do it. Cordially, As described in ..ce detail elsewhere in this re-port, our CAPCO power pool has recently an- s nounced a substantia eduction in construction planned for the decace ahead, and this will pro- (( f'w side relief from the high construction and financ-ing expense of recent years. John P. Williamson Our conviction that coal and nuclear energy will M[cNe officer continue as our best options in the electric in-dustry is reflected in plans which call for a balanced dependence on each of those fuels by the mid-Eighties and beyond. This conviction is wholly sup- - ported by the results of a landmark study announc-ed by the National Academy of Sciences (NAS) in January,1980. Termed one of the most exhaustive Wendell A. Johnson energy studies ever undertaken, it concludes that for the next 30 years coal and nuclear will provide % "j g,jng g,,,c,, this country's only realistic alternatives in electricity ~' generation. Further, it predicts that by the end of the Eighties coal will have become so valuable as a source for synthetic fuels that nuclear power will have to assume a constantly increasing proportion of the load. The trend will be hastened, the study says, by the marked environmental and safety advantages of nuclear. The NAS report gives top priority to conservation of all forms of energy in order to quickly counter the oil shortages expected during the Eighties.The electric industry, with its National Energy Watch conservation program, already has accomplished a great dealin reducing household consumption of energy. That and other conservation programs 2
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l Highlights 1979 1978 Earnings per Common Share $2.65 $2.78 Dividends Declared per Common Share $2.20 $2.14 Operating Revenues (millions) $365 $340 Opereting income (millions) $ 68 $ 65 i 1 System Energy Sales (million kwh) 7709 7685 System Peak Load (megawatts) 1395 1386
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- Management's Discussion
! and Analysis of Financial Results l ! _, m &>- . i l i 1979 Revenues increase l Toledo Edison's 1979 revenues were more than l l seven per cent higher than in the preceding year, ; due primanly to an increase in rates approved by l the Pubt:c Utihties Commission of Ohio (PUCO) .vorm danwr pt.nni os usual nJr m tme lwpertment I l in mid-1978, and to the recovery of a substantial m inno loornesman tmeman Acah stunte snams a i part of the highar fuel expenses encountered innfennaf .s-rw r drop af ter a turufsrorm m our soort crn during the inflationary year 1979. In a later ruling, Daf"d '"'"n cr Tno hoc nca s <fon er nahn n o4 in l
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the PUCO responded to a court decision by order- "#"""8 "u"s "s "rew"s* loaned to th tron D hson ,d ter 1her n ere two of ing a 2.45% reduction in the non-fuel portion of a notent umduorm rm Ae d the Southern shr huian f our customers' bills pending a decision on our arca m A pnl.
- subsequent application for a further rate increase, i amounting to $38 million on an annual basis. The continued upwards. Fortunately much of this [
l PUCO hearings on this latest case were completed expense was recovered through the fuel cost ad-1 in mid-January. Final action by the Commission justment provisions in our rates. A second factor l is expected in early 1980. Xilowatt-hour sales in- was the greater amount of fuel used after the two l creased less than one per cent during the year, new units began operation. As they are providing mainly resulting from the economic slowdown, an a greater and greater portion of our generation j exceptionally mild summer air-conditioning sea- needs, our dependence on expensive power pur-l son, and perhaps, the energy conservation efforts chased from outside sources has been reduced. I of our customers. We feel this low increase was due This is evident in the decrease in total purchased l to a combination of possibly non-recurring factors and interchanged power. As the new units com-and therefore are forecasting that annum growth plete tneir initial operating periods and we pro- , will be in the three to four per cent rang through duce nearly all of our needs with Company-owned ! the Eighties . capacity, these reductions in purchased power are ( expected to be even greater. . Operating Expenses Climb; Operating income in the operation and maintenance expense cate- I Rises gories, the effect of the new units
- operation is j i
In considering the various items of operating seen, also. Inflation was an important f actor, but ; expense, it's important to review briefly our activ- the addition of major facilities produced further r I ities with the four other utilities which comprise increases in both operation and maintenance. i j the Central Area Power Coordination Group Operation of our nuclear plant was interrupted for I i (CAPCO). Formed to take advantage of the econ- an extended period of time by order of the Nuclear omies of scale achievable with large generating Regulatory Commission following the Three-Mile , l Island Nuclear Plant accident in late March. During
- units, CAPCO is a power poolin which members l' share in the construction and output of such facil- that tirnt we made extensive changes in opera-ities.The operation of two major CAFCO units- tional and personnel training procedures, but l one coal fired, the Bruce Mansfield Unit No. 2, throughout the balance of the year periodic shut - E and the other, our Davis-Besse Nuclear Power downs occurred to accommodate f urther changes !
j Station-had a profound effect upon our 1979 ordered by NRC. In general the changes narrowed i financial results, and one that we feel will be very the parameters within which the plant must oper- l beneficial,long range. We own 20 per cent of the ate, and also resulted in more complex and sensi- ! l coal-fired unit, and atmost half of the Davis-Besse tive safeguard controls. Even so, Davis-Besse i nuclear facility. provided about 22 per cent of our Company gen- , eration during the year, with 77 per cent geneiated !
- Operating expenses were paced by higher fuel by coal, and the balance mostly by oil. i costs and greater usage, so fuel expense accounted j The depreciation item merits some comment in for nearly a third of our total operating expenses.
I As inflation progressed, the costs c' mining and that connection. Although the base broadened
- transporting coal-our principal energy source- appreciably with the new units on line, deprecia- ,
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i tion expense was held down by an innovative ac- benefits the consumer and shareowner alike in counting method called " unit-of-production de- better matching this large expense item with the preciation", a method which allows us to charge revenues denved from the plant's output. j; depreciation ori the nuclear unit based upon the Addition of new facilities to the tax base brought amount of generation.This depreciation method an increase in state and local property taxes. Also, was approved by the PUCO as a method which the Ohio escise tas on utility sales increased along with oui growing revenues. Finally, we i Price Range and Dividends Paid Per Share of were required to pay a new Pennsylvania pubhc Common Stock utility realty tas on our share of CAPCO facilities , Pnce Range Dividends in that state, which included a sizable special i High Low Paid one-time assessment in 1979.
- 1979 First Quarter 23% 215 5.55 Although total operating expenses were up about i eight per cent during the year, operating income Second Quarter 21% 19 .55 from sales to our customers continued to inaease. ,
Third Quarter 20% 19N .55 Gains Noted in Earnings on Common and f Fourth Quarter 19% 17% .55 Dividends Declared ( l l Even though the burden of financing an estensive construction program at a time of record-high 1978 First Quarter 25M 233 $.53 interest rates was very heavy-a trend that we l expect to turn down in coming years-the Com-t Second Quarter 24% 21% .53 pany's earnings on common stock increased eight ! .53 per cent during the year. New shares sold as part Third Quarter 24% 22% of our financing program increased the average l Fourth Quarter 23% 20% .53 number of shares outstanding, so earnings per l share declined somewhat, from $2.78 in 1978 to The Cornmon Stock is listed on The New York Stock
$2.65. However, dividends declared increased Exchange. These stock price quotations are f rom the from $2.14 to 52.20 in the same period, continu-( Wall Street Journ al. irig the upward trenu of the past decade.
As reported to you in the Fourth Quarter Report the common dividends paid during 1979 are estimated to be a 52.5 per cent return of capital and s thus not taxable as ordinary income for Federal income Tax purposes. All 1979 dividends paid on the various series of preferred stock are fully tax-able as ordinary income. We currently estimate that due to a combination of non-recurring factors, the 1980 common stock dividends will be 100 per cent non-taxable as current income. 5239 Million Construction Program is Financed
',... With the completion of a 5239 million construction program in 1979, and a considerable reduction i
' in construction commitments for the future, it appears that Toledo Edison's construction expend-
/ itures peaked this year. External financing included
,N N, Lr ; 540.9 million from the sale of two million new N y! <
f shares of common stock; 53.7 million from the sale
- s_ of 183,497 common shares through our Share-
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owner Dividend Reinvestment and Stock Purchase Plan; $25 million from the sale of 250,000 shares
* ' 'g: of cumulative preferred stock; $16.5 million from Si
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- the sale of a pollution control note, and $74.5 l9 ,
million from the sale of 11% first mort h This external financing, together30 with $ age bonds. million gp . 1 of funds generated internally, was used to meet n. construction expenditures and repay almost $2 million of 3% first mortgage bonds that matured 7,~ ~ a during the year. fn Nch W'~ - A substantial amount of the financing costs have been capitalized through the allowance for funds
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used during construction ( AFUDC) Twa ' actors 4 l ] accounted for the increase in AFUDC cmmg [ j 1979. first, a greater volume of construction I work-in-progress and, second, an increase in 1 the AFUDC rate from 73 to 7% effective m January,1979. ,,- ., . ', Recent and prospectae rate increases, together _ L l with reduced construction commitments, shou!d , i i provide more internally generated funds and an improved cash flow during the years immediately p% ;* ' l ahead of us. particularly after 1980. { gth , l , f Future Construction Commitments Reduced , [ y l The lengthening construction time required for . g j _ g { , , major generating units makes long-range planning _ _ p . P' ,,
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essential. At the same time, ever-changing con- /j. i ' se g i' ! ditions dictate caref ul periodic reviews in the hght 7 -
/N of existing circumstances and future prospects I.y f , ,
insofar as we can foresee them. Along with the . j 1-. l I other C APCO companies we have done this, and ds a resuit there have been several reakgnments -, ( 4'f y f l of plans through the years. One of these was an- ! ( l nounced early in 1980, a modihcation that reflects
- i /f !
a variety of trends that we expect in the coming g? ? l I decade. For example we now forecast a growth in ' bC .' ' f r l our customers' electricity requirements of about three to four per ceret annually for the next few pQ' .4 ' " years.This will result from the twin effects of rising '
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g ! energy prices and possibly the intensifying of / conservation measures by our customers under the guidance of both the electnc industry and the Rr Har Shon Stanon r ontmued is to onf rNs rear e one ( M" ' "" Pm 'd * ""N government. Over a longer time frame we expect Th ree. here h a m er that electricity will provide an increasing share o' the rno't ""E"[Tt "d r! (>l
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l of our country's energy needs, and therefore would anticipate a somewhat higher growth rate l in future years.That program was outlined in the l letter which opened this report. Another trend is the increasing time and money required for build-ing generating facilities. Inflation is a big f actor, of course, but by far the most critical element is Status of Rate increases l the increasingly oppressive effect of government The Company's request for an increase in electric over-regulation and interference. This pertains rates filed with the PUCO on September 1,1977 both to coal-fired plants, which are subject to was granted in fuli on June 9,1978, with an interim severe environmental constraints and, to the more increase of 80%of the request granted in December, environmentally acceptable nuclear facilities. 1977. The Consumer's Counsel of Ohio filed an which are the hardest hit by the constantly chang- appeal to the Supreme Court of Ohio on September ' ing edicts flowing from various regulatory levels. 25,1978 which resulted in a remand to PUCO tor The combination of regulatory uncertainties, di- further action. On December 19,1979 the PUCO minishing load grow h and the greater cost of issued its order reducing the authorized increase of i building and financng major units has led CAPCO $55.8 million to 550.3 million. This reduction be-to terminate work on four generating units and to came effective in January,1980, and will remain in , spread out the construction periods for three effect until the rate case described below is com-others, as detailed on the following page. pleted. Annual revenue decrease-55.5 million, , Our forecasts indicate that in spite of these effective January 3,1980 changes, we should be able to provide for our On May 22,1979 the Company filed a new request l customers' nor mal day-to-day requirements. Mean- for rate relief. Hearings on this request were in I while there should be some respite trom the very progress at year end and the PUCO's decision is l large construction expenditures and management expected in early 1980. Annual revenue increase . burdens we would have had, and we will be (pending)-538.3 million l supplying electricity f rom the two most promising ' energy options: coal and nuclear power. _ . . , . , _ , ij L s (m e,n ['< f
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Construction Program Modified By CAPCO Companies. The extension of construction schedules on three CAPCO Power Pool Service Area nuclear units and the termination of four other __ nuclear units in the design stage was announced January 23,1980 by the utility company members E T"N7 Toledo LAMklE E Clev-Jand of the Central Area Power Coordination Group . (CAPCO). The Toledo Edison Company has about -. -- , a 20 per cent ownership in each of the units in- M ,W . volved. .
- ca . . ,
Extended schedules were announced for Perry i - Unit 1, from May,1983 to May,1984; Beaver J ..C. M ' d ,:c y xy my' jT Valley Unit 2, from May,1984 to May,1986; and Perry Unit 2, f rom May,1985 to May,1988. Cleve- g g. %g[ f 7': 4 i ~ t land Electric illuminating is building the Perry + 6 <. . s a .n w a_,:n , units, each 1205 megawatts, near North Perry, Ohio. Duquesne Light is the builder of the 833 MW O Toiedocasoaco. OonoEa'sooco. Beaver Valley unit, at Shippingport, Pennsylvania. C Geveland Electric illuminating Co.
$ Duquesne Light Co. $ Pennsylvania Power Co.
CAPCO terminated the second and third Davis. Besse 906 MW units and the first and second 1760 MW Erie units. Toledo Edison was to be the . made to bring our capacity into line with our pro-builder and operator of the Davis-Besse units, on jected load growth,in recognition of uncertain the existing site near Port Clinton, Ohio. Ohio Edison was to build and operate the Erie County g vern ent policies on nuclear power and to relieve the burden of the heavy nuclear construc-units, north of Berlin Heights, Ohio. tion and financing program, he said. Additionally, the move will enable us to concentrate all of our "We remain convinced after considering all of the trained manpower on improving the performance options that nuclear power is a safe, economical f the Dav,s-Besse i number one unit. and environmentally superior method of generat-ing electricity," John P. Williamson, Chairman and Toledo Edison's owned generating capacity is Chief Executive Officer for Toledo Edison, said at expected to increase by 164 MW to 1789 MW in the time of the announcement. "Upon completion late 1980 with the addition of the coal-fired Mans-of the ccostruction program as presently planned, field Unit 3 on the Ohio River. In all, the continuing Toledo Edison will have a well-balanced generating CAPCO schedule is expected to add 810 MW in mix of 50 percent in coal; 45 percent in nuclear the period from 1980 through 1988 to Toledo and about 5 percent in oil. The changes were Edison's system. CAPCO Construction Schedule (includes changes of January,1980) Expected Net Actual or Demonstrated Percentage Scheduled Construction and Fuel Capabihty of Company Completion Generating Unit Operation by Source (Kilowatts) Ownership 1977 Mansfield No. 2 Pennsylvania Power Coal 825,000 17.30% 1977 Davis-Besse No.1 Toledo Edison Nuclear 906,000 48.62% 1980 Mansfield No. 3 Pennsylvania Power Coal 825,000 19.91% 1984 Perry No.1 Cleveland Electric liluminating Nuclear 1,205,000 19.91% 1986 Beaver Valley No. 2 Duquesne Light Nuclear 833,000* 19.91% 1988 Perry No. 2 Cleveland Electric tiluminating Nuclear 1,205,000 19.91%
' Initial rating. Expected to have an ultimate rating of 862.000 kilowatts.
As of January 23,1980, Davis Besse No. 2 and 3-Erie No.1 and 2 were cancelleo. b i 7
- A nuns
Rasults cf Operctions Thouw.snds of Dollars increase For The Years Ended December 31, 1979 1978 (Decrease) OPERATING REVENUES Electric 358 707 334 083 24 624 Gas 3 583 3 085 498 Steam heating 2 831 2 888 (57) Total operating revenues 365 121 340 056 25 065 OPERATING EXPENSES Fuel used in power plants 93 295 82 039 11 256 Purchased power-CAPCO Power Pool 20 631 29 748 (9 117) Other purchased and interchanged power-net 32 943 26 102 6 841 Fuel and purchased power 146 869 137 889 8 980 Operation 44 691 38 883 5 808 Maintenance 21 137 19 604 1 533 Depreciation provisions 29 117 26 532 2 585 State and local taxes 29 760 24 320 5 440 Federal income taxes 25 139 27 397 (2 258) Total operating expenses 296 713 274 625 22 088 OPERATING INCOME FROM SALES TO CUSTOMERS 68 408 65 431 2 977 OTHER INCOME Allowance for equity funds used during construction 23 512 17 470 6 042 Income tax credits applicable to nonoperating activities 8 251 6 484 1 767 Other income and deductions-net 1 017 720 297 Total other income 32 780 24 674 8 106 INCOME BEFORE INTEREST CHARGES 101 188 90 105 11 083 INTEREST CHARGES Long-ter m debt 48 315 41 094 7 221 Short-term borrowings 4 269 1 652 2 617 Allowance for borrowed funds used during construction (9 991) (7 090) (2 901) Interest charges- net 42 593 35 656 6 937 NET INCOME 58 595 54 449 4146 PREFERRED STOCK DIVIDENDS ACCRUED 13 694 13 020 874 EARNINGS ON COMMON STOCK 44 701 41 429 3 272 EARNINGS PER COMMON SHARE (Based on average number c,f shares outstanding of 16,848,431 in 1979 and 14,900,405 in 1978) $2.65 $2.78 (130) _ 8 The notes on pages 15 through 21 are an integral part of this statement.
Earnings R: Invested Thousands of Dollars For The Years Ended December 31, 1979 1978 BALANCE,BEGINNING OF YEAR 111 110 102 187 Add-Net income 58 595 54 449 Deduct-Preferred stock quarterly dividends declared 14 276 13 020
-Common stock cash dividends declared,
$2.20 per share in 1979 and 52.14 in 1978 38 123 32 506 EARNINGS REINVESTED DURING THE YEAR 6 196 8 923 BALANCE, END OF YEAR 117 306 111 110 Federal Income Taxes Thousands of Dollars For The Years Ended December 31, 1979 1978 FEDERAL INCOME TAX EXPENSE WAS COMPUTED AS FOLLOWS Tax at statutory rates on pre-tax income 34 722 36 174 Less tax effects due to-Allowance for funds used during construction 15 411 11 789 Accelerated depreciation methods and other depreciation differences (329) 975 Removal cost of property retired 623 681 Miscellaneous 2 129 1 816 Total federalincome tax expense 16 888 20 913 Tax included as credit in Other income 8 251 6 484 Federal income Taxes included in Operating Expenses 25 139 27 397 FEDERAL INCOME TAX EXPENSE DETAILS ARE AS FOLLOWS Payable 2 245 2 189 Investment tax credits-Deferred 5 713 7 518 Amortized (756) (570)
Deferred taxes-Ace'erated depreciation-net 9 716 11 661 Property taxes applicable to subsequent years (80) 65 Other prov;sions 50 50 Total Federal income Tax Expense 16 888 20 913 The notes on pages 15 through 21 are an integral part of this statement. 9
B:1:nce Shaat Thousands of Dollars increase December 31, 1979 1978 (Decrease) ASSETS PROPERTY, PLANT AND EQUIPMENT Plant in service, at original cost 979 809 950 873 28 936 Less accumulated provision for depreciation 201 895 176 450 25 445 777 914 774 423 3 491 Construction work in progress CAPCO power stations p41917 332 006 109 911 Other work in progress 26 872 50 675 71f.7' Nuclear fuel in reactor, at amortized cost 11'786 15 875 (4 089) 1 309 164 1 149 176 159 988 CURRENT ASSETS Cash 4 302 4 711 (409) Temporary cash investments - 4 500 (4 500) Accounts receivable-net 38 480 38 136 344 Fuel for use in power plants 24 307 19 122 5 185 Materials and supplies 9 430 7 067 2 363 Prepaid taxes 5 024 4 382 642 Special deposits and other 5 250 4 555 695 86 793 82 473 4 320 INVESTMENTS AND OTHER Construction funds (pollution control) held in escrow 3 322 2 443 879 investments, at cost 1 015 973 42 Property taxes applicable to subsequent years 15 840 15 328 512 Deferred charges Abandoned project cc sts 45 719 - 45 719 Other 5 659 5 554 105 71 555 24 298 47 257 i TOTAL ASSETS 1 467 512 1 255 947 211 565 i 10 The notes on pages 15 through 21 are an integral pa t of this statement.
increase 1979 1978 (Decrease) LIABILITIES CAPITALIZATION Common stock equity 432 554 382 084 50 470 Cumulative preferred stock 150 000 150 000 - Cumulative preferred stock subject to mandatory redemption requirements 34 000 9 500 24 500 Long-term debt 611 137 560 644 50 493 ,_ 1 227 691 1 102 228 125 463 CURRENT LIABILITIES Short-term notes payable 23 500 - 23 500 Preferred stock and long-term debt due within one year 41 912 8 022 33 890 Accounts payable 43 113 38 107 5 006 Accrued taxes 38 413 35 679 2 734 Accrued interest 12 313 9 143 3 170 Dividends declared 13 679 11 906 1 773 Accrued expenses and other 5 530 3 804 _ 1726 178 460 106 661 71 799 ACCUMULATED PROVISIONS AND OTHER Deferred federal income taxes Accelerated depreciation 29 435 19 372 10 063 Accelerated amortization 2 447 2 794 (347) Property taxes applicable to subsequent l years 7 389 7 469 (80) Federal investment tax credits 20 801 15 973 4 828 Deferred credits and other 1 289 1450 (161) l 61 361 47 058 14 303 TOTAL LIABILITIES 1 467 512 1 255 947 211 565 . l l l I l The notes on pages 15 through 21 are an integral part of this statement }I l l
Ccpit::liz:tinn And Capitalization Ratios Thousands of Dollars December 31, 1979 1978 COMMON STOCK EQUITY Common Stock, $5 par value, authorized 30,000,000 shares, outstanding at year end, 17,911,971 in 1979 and 15,728,474 in 1978 89 560 78 642 Premium on capital stock 225 688 192 332 Earnings reinvested 117 306 111 110 432 554 35% 382 084 35% CUMULATIVE PREFERRED STOCK Shares outstanding Redemption price Eventual 1979 1978 Current Through minimum
$100 par value 4X% 160 000 160 000 $104.625 -
$104.625 16 000 16 000 4.56% 50 000 50 000 101.00 -
101.00 5 000 5 000 4.25% 100 000 100 000 102.00 - 102.00 10 000 10 000 8.32% 100 000 100 000 107.70 9-1-81 102.46 10 000 10 000 7.76% 150 000 150 000 107.257 9-1-82 102.437 15 000 15 000 7.80% 150 000 150 000 106.50 9-1-83 101.65 15 000 15 000 10% 190 000 190 000 110.00 2-29-80 101.00 19 000 19 000
$25 par value 8.84% 1 000 000 1 000 900 27.20 11-30-81 25.25 25 000 25 000
$2.365 1400 000 1400 000 29.85 9-30-82 27.75 35 000 35 000 150 000 12% 150 000 13%
CUMULATIVE PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS. excluding current sinking fund payments Shares outstanding Redemption price Eventual 1979 1978 Current Through minimum
- $100 par value 11% 90 000 95 000 $111.00 8-31-84 $101.00 9 000 9 500 9%% 250 000 -
106.92 5-31-85 100.00 25 000 - I- 34 000 3% 9 500 1% 611 137 50% 560 644 51% LONG-TERM DEBT TOTAL CAPITALIZATION 1 227 691 100% 1 102 228 100% 12 The notes on pages 15 through 21 are an integral part of this statement.
Long-Term Debt Thousands of Dollars 1 l 1 December 31, 1979 1978 FIRST MORTGAGE BONDS, excluding current maturities and bonds acquired and held for sinking fund purposes 2%%, due 1980 - 7 500 10%, due 1982 40 000 40 000 3%%, due 1984 14 000 14 000 9.35%, due 1985 50 000 50 000 3%%, due 1986 15 000 15 000 4%, due 1988 15 000 15 000 6%%, due 1997 35 000 35 000 9%, due 2000 35 000 35 000 7%%, due 2002 30 000 30 000 8%, due 2003 40 000 40 000 9.65%, due 2006 50 000 50 000 9%%, due 2008 65 000 65 000 11%, due 2009 75 000 - Discount in process of amortization (363) , (186) 463 637 396 314 OTHER LONG-TERM DEBT Bank loan note,6%%, due 1980 - 30 000 Unsecured notes,8.75%, due 1983 through 1997 110 000 110 000 Unsecured pollution control note, average interest rate 5.71%, due 1984 through 2003 6 000 6 000 Unsecured pollution control note,7%%, due 1992 through 2006 15 000 15 000 Unsecured pollution control note,7%%, due 1999 through 2009 16 500 - Nuclear fuel lease - 3 330 TOTAL LONG-TERM DEBT 611 137 560 644 i l l l l The notes on pages 15 through 21 are an integral part of this staternent. 13
. . - - , - - . - , - - , _ , . ~ . , . - . - . . , , . . . . . . . . - . - , - - , . . - -- .,- . - - . . - - , . . . , - . - , . . -
Source @f Funds invested In Plant and Facilities Thousands of Dollars For The Years Ended December 31. 1979 1978 PROVIDED FROM OPERATIONS Net income 58 595 54 449 Less-Preferred dividends declared 14 276 13 020
-Common dividends dechred 38 123 32 506 Earnings reinvested during the year 6 196 8 923 Principal income charges not requiring current funds:
Depreciation provisions 29 117 26 532 Amortization of nuclear fuel 4 089 3 665 Deferred federal income taxes-net 9 636 11 726 < Investment tax credits-net 4 828 7 139 Allowance for equity funds used during construction (23 512) (17 470) Total provided from operations 30 354 40 515 PROVIDED FROM FINANCING Sale of securities: Common stock 44 275 45 069 Preferred stock 25 000 - First modgage bonds (principal amount) 75 000 65 000 Pollution control notes: Proceeds on issuance 16 500 - Change in escrow deposit (878) 307 Net change in temporary cash investments 4 500 (4 500) 23 500 (9 500) Net change,in short-term borrowings Reduction of long-term debt and preferred stock (7 440) (5 897) Total provided from financing 180 457 90 479
! OTHER Allowance for equity funds used during construction 23 512 17 470 Net change in current assets, current liabilities and other accounts 4 687 21 424 Total other 28 199 38 894 TOTAL SOURCES OF CONSTRUCTION FUNDS 239 010 169 888 CAPITALIZED NUCLEAR FUEL LEASE 10 800 - INVESTED IN PLANT AND FACILITIES 239 010 180 688 14 The notes on pages 15 through 21 are an integral part of this statement.
Notas to Fin:ncid Statements December 31,1979 a f j past depreciation provisions. Depreciation ex-pense on Davis-Besse Unit No.1 is based on the unit-of-production method using a rate which includes a provision for the Company's share of the total current estimated decommissioning costs of $40 million.
- c. FederalIncorne Taxes The Company provides deferred federal income taxes on the additional depreciation resulting from the difference between straight-line and accel-erated tax depreciation methods for property additions placed in service after December 1973 in accordance with provisions of PUCO rate orders.
The Company does not provide deferred federal income taxes resulting from other depreciation differences or from the use of accelerated tax depreciation methods for property additions prior
- 1. Summary of Significant Accounting Policies to January 1974 since, based on Ohio court and 1
a Construction Overheads PUCO decisions, the Company is of the opinion that such future taxes will be recoverable out of Construction costs of property, plant and equip-future revenues. Book depreciation rates include ment include overneads for payroll-related costs an all wance f r tem val c sts with such costs such as taxes, pensions and other fringe benefits, charged to the accumulated provision for depre-and adm.irus. trative and general expenses, as well ciation as incurred. Removal costs are deducted as an allowance for funds used during construction for federal income tax purposes as incurred. (AFUDC). AFUDC represents the estimated com-l
- posite interest and equity costs of capital funds All interest costs are deducted for tax purposes i used to finance construction to the extent that such as incurred. Tax deductions applicable to interest I costs have been transferred to property, plant expense arising from investments in non-utility and equipment from the statement of Results of properties, primarily construction work in pro-Operations. Based upon Federal Energy Regu- gress, have been classified in income tax credits latory Commission requirements adopted in 1977, applicable to non-operating activities.
including provisions for the compounding of , AFUDC, the net-of- tax rate of such allowance was Investment ta x credits have been deferred and are being added to income over the life of the property 7M% in 1978 and 7%% in 1979. giving rise to the credits. Unrealized . investment
- b. Depreaction tax credits from 1977 to 1979 aggregate $19 l Depreciation rates used in computing depreciation million and will be recorded in future years when expense shown in the financial statements, except utilized.
l l for Davis-Besse Unit No.1, are based upon age-life studies and averaged 3.4% in 1979 and 1978 d. State and Local Taxes cnd are applied on a straight-line basis. In accord- State and local taxes for 1979 consisted of ance with a Public Utilities Commission of Ohio $14,100,000 of local property taxes, $13,466,000 > (PUCO) rate order effective January 1977,. the of Ohio state excise taxes, and $2,194,000 of other ! Company began accruing additional depreciation taxes. These taxes in 1978 were $11,405,000, of approximately $1.4 million annually to adjust $10,867,000 and $2,048,000,respectively. 15 i
- - , ,-. ., , . ~ , , . ~ . - , - . , , + ,- - - ,- ~ , . . , --
-. . __ -. . - - - _ ~ _ - - - . _ - _- -. ..
- c. Revenues and Fuel effective cost of money in certain refunding opera-tions. The annual interest requirement on long-Revenues.are included in income as billed to cus-
] tomers on a daily cycle billing basis. Revenues term debt outstanding at December 31,1979 is
$56,962,000 for an average interest rate of 8.78%.
from larger industrial customers are based on
- month-end meter readings. 3. Preferred Stock Subject to Mandatory l
Virtually all of the Company's rate schedules in- Redemption Requirements clude fuel adjustment provisions under which The 11% series includes prov.is ions for a manda-almost all fuel costs are permitted to be billed tory sinking fund sufficient to retire a minimum to customers during the month following recording f 5,000 shares (5% of the originalissue) of the of the expense. Such adjustments are subject to 5I*S " T periodic review and hearings by the PtlCO. The Company charges to expense the cost of fuel as beginning1979. m. The Poor 9%%toseriesSeptember includes 1 in e Provisions for a mandatory smking fund sufficient it is consumed. to retire a minimum of 16,650 shares on June 1 in each of the years 1985-1998 and 16,900 shares
- f. Retirement income Plan on June 1,1999. The shares of bc,th issues will The Company has a non-coatributory retirement be purchased at the sinking fund redemption income plan covering all employee groups. The price of $100 per share plus accrued and unpaid
+ Company s cost was $3,941,000 in 1979 and dividends'
$3,645,000 in 1978. The Company's policy is to fund annual costs as accrued each year,in- 4. Assets Subject to Lien cluding amortization of unfunded actuarialliability The mortgage and supplements thereto securing
($14,461,000 as of January 1,1979) over the first mortgage bonds issued by the Company 20-year period ending December 31,1995. constitute a direct first mortgage lien on sub-g Reclassifications stantially all property and franchises owned by the l Company, other than expressly excepted property l Certain minor reclassifications have been made to which includes cash and securities, accounts re-1 amounts reported in 1978 to conform to the
' ceiv ble, fuel, supplies and automotive equipment.
presentation used in 1979.
- 5. Short-Term Borrowing Arrangements
- 2. Capitalization l In 1979, the Company sold 2,000,000 shares of The Company regularly obtains funds on an in-Common Stock at a public offering price of terim basis to meet current construction costs.
' Such short-term funds are obtained by issuing
$21.125 per share, 183,497 shares of Common Stock at an average price of $20.01 per share commercial paper or executing short-term notes through the Shareowner Dividend Reinvestment payable to banks. During 1979 and 1978, the and Stock Purchase Plan, and sold 250,000 shares maximum month-end balance was $64,800,000 and $43,490,000, respectively. The daily average of preferred stock at $100 per share.The increase in premium on capital stock ($33,356,000) results balance outstanding during 1979 was $30,822,000 from the excess over par value of the net pro. with an average interest rate of 11.45%. Short-term ceeds from the sale of common shares notes payable at December 31,1979 consisted of
($33,495,000) less the expenses of issuing $23,500,000 of commercial paper with an average the preferred shares ($139,000). discount rate of 11.24%. There were no short-term borrowings outstanding at December 31,1978.
'i he Company estimates, subject to final determi-noJon by the Internal Revenue Service, that ap- The Company has unused lines of credit at De-proximately 52.5% af the 1979 Common Stock cember 31,1979 with various banks aggregating dividend paymerra will be considered a retum of $71,490,000. The Company has informal com-capital for federri income tax purposes. pensating balance arrangements with all but one '
The Company is authorized to issue 2,000,000 of these banks and is expected to maintain average shares of $100 par value and 6,000,000 shares tf deposits, based on bank ledger records, equal to
$25 par value cumulative preferred stock under 10% to 20% of the line of credit depending on the articles of incorporation. The annual dividend the amount of borrowings outstanding at the requirement on preferred stock is $15,309,000 for respective bank. The balances are not legally re-an average dividend rate of 8.30%. Redemption of stricted and also serve to compensate the banks the 11%,10%,9%%,8.84% and $2.365 series of for banking services and to provide operating preferred stock during their initial redemption balances to the Company. The Company pays a period is subject to restrictions regarding the commitment fee to one bank for the line of credit.
16
- 6. Power Pooling level of 25% in November 1977,40% in December The Company,in the interest of reliability and 1977,75% in January 1978 and 100% in July economy, has entered into a power-pooling ar- 1978.
rangement with four other utilities (CAPCO Group) The Company's ownership share in the other four which involves substantial commitments for joint CAPCO units, which are under construction and participation in additional power generation and planned for operation in 1980 and beyond, will transmission facilities. The Company will have an total an investment of approximately $1.4 billion. ownership share in six CAPCO generating units The Company provides its own financing for this (of which four are nuclear and two are coal) with investment.The Company's share of direct ex-two of these units presently m service. penses for operation of the jointly owned units is The first unit at the Davis-Besse Nuclear Power included in the operating expenses on the state-Station was declared in commercial service at a ment of Results of Operations. The following represents the Company's ownership in each of the CAPCO joint-owned units at December 31,1979: (thousands of dollars) Ownership Plant Accumulated Construction Generating Unit Share in-Serv' Depreciation Work in Progress Davis-Besse No.1 48.62% 333,a8 13,780 11,322 Mansfield No. 2 17.30% 64,707 5,372 1,958 Mansfield No. 3 19.91% 16,643* 1,409 87,658 Beaver Valley No. 2 19.91% 6,435' 712 133,991 Perry Nos.1 G 2 19.91% - - 220,552
*The plant in-service amounts of these units cur- generating station.These common facilities were rently under construction represent facilities which placed in-service coincident with the commercial are common to the operation of the respective operation of other units at the generating station.
- 7. Debt Guarantee 8. Construction G Financing The Company, together with the other CAPCO Construction expenditures in 1980 are estimated companies, has made long-term coal supply ar- at $194 million. In addition to the $117 million rangements with Quarto Mining Company toward future CAPCO generating units, the Com-(Quado), a subsidiary of North AmericanCoal pany plans to spend approximately $11.4 million j Company. The CAPCO companies have severally, for pollution control facilities required at the and not jointly, agreed to guarantee their pro- Company's Acme and Bay Shore Stations.The portionate shares of Quarto's debt and lease obli- Company's financing program is estimated to gations incurred in connection with developing require approximately $136 million of external and equipping the mines, expected to produce funds in 1980 to meet the above construction 4.7 million tons per year. As of December 31, program. A $30 million long-term bank loan note
- 1979, the Company's share of the guarantee was maturing February 1,1980 is being refunded with
$25,600,000. At December 31,1979, the coal new long-term bank loan notes totaling $50 mil-mining systems were certified as complete. Be- lion and maturing from 1985 through 1987. The cause of difficulties experienced during the devel- additional $20 million will be used to retire out-opment period, the CAPCO Companies are re- standing short-term debt. In addition, a $7.5 mil-viewing the various alternatives available to re- lion first mortgage bond issue will mature on duce unit production costs, which are presently December 1,1980. The Company has limitations in excess of the current spot market price of coal. imposed upon it by the first mortgage bond inden-ture and articles of incorporation which require the maintenance of required earnings coverage ratios in order to issue additional first mortgage bonds and preferred stock.
17
- 9. Abandoned Project Costs lieved of its obligations to supply uranium under the contract, plus damages in an unspecified in January 1980, the Company along with the other amount, based, in general, upon alleged acts of CAPCO companies terminated plans for the con- ~
struction of the Davis-Besse No. 2, Davis-Besse 'epudiation" and breach of the contract by the CAPCO companies in refusing to agree to certain No. 3, Erie No.1, and Erie No. 2 nuclear generating upward price ad.iustments proposed by Kerr-units scheduled for completion in 1988,1990, McGee. Kerr-McGee also alleges that the CAPCO 1989, and 1991, respectively. At December 31. c mpanies' actual needs for deliveries of uranium 1979, the Company's share of the amounts al. are far less than indicated by the contract. The ready expended on these projects amounted to Company intends to vigorously contest this litiga-
$45,719,000. Additional costs could be incurred as tien. On June 28,1979, the CAPCO companies the Company terminates the outstanding contracts filed suit against Kerr-McGee and its parent, Kerr-associated with these projects. Such additional McGee Corporation for the actual damages and termination costs cannot be reasonably estimated ther relief.
at this time but could be substantial. The Company will seek regulatory approval to amortize the 12. Leases costs already expended as well as subsequent The initial nuclear f uel core for Davis-Besse Unit i termination charges,if any,over a period of years. No.1 s leased. The nuclear fuel lease was capital-Subsequently, the Company will seek to recover ized in July 1978 in accordance with provisions of ' this amortization in rates. It is the opinion af the the June 9,1978 PUCO rate order. The Company's Company that the anticipated regulatory treatment share of the remaining nuclear fuellease payments of the amounts already expended on the p:ojects of principal for the initial nuclear fuel core at De-
. together with term (nation costs,if any, would not ember 31,1979 is opproximately $3,910,000.
result in any matenal adverse effect on the Com- Payments for charges for utilization of the nuclear pany's financial condition or results of operations fuel (based on the burn-up method) plus interest
- 10. Environmental related to this nuclear fuel lease are estimated at
$3,790,000 in 1980 and $440,000 in 1981.The The Company is subject to environmental regula. burn-up rate is designated to amortize the total tion as to air, water and noise matters and as to investment in nuclear fuel. The fuel will be re-location of certain facilities by federal, state and pl ced over an approximate three-year production local authorities. In 1979, the Company spent $40 cycle.
million for pollution control facilities. The Com. pany's five-year construction program includes Ultimate disposition of the spent fuel, whether by
$19 million toward initiation and completion reptocessing or permanent storage,is currently for such pollution control facilities as it presently under study. Spent fuel removed from the reactor
! foresees as being required at its present generating through 1990 can be accommodated on an interim stations. In order to assure continued compliance basis in present storage facilities. with all applicable laws and regulations, the Com-pany has plans for installation of equipment, has In addition to the nuclear fuel lease described applied for permits or variances,is awaiting pro- above, members of the CAPCO Group have mulgation of applicable regulations or is contesting entered into commitments to lease nuclear fuel to the validity of existing or proposed regulations. be loaded through 1982 for Davis-Besse Unit No. 1 and other CAPCO nuclear units. The Company's Since environmental controls are in the process share of this CAPCO lease, aggregating $248 of development, the Company can not estimate milli n, amounts to approximately $47 million. the effect of existing and potential regulations Estimated payments for the Company s share and legislation. The Company may incur substan- f this nuclear fuel lease are $2,000,000 in 1980, tial civil and criminal penalties if it fails to comply $4,630,000 in 1981, $9,110,000 in 1982, with environmental controf regulations. $10,850,000 in 1983 and $22,980,000 in 1984.
- 11. Litigation Other financing leases entered into by the Com-Pany are not significant.
On April 10,1979, Kerr-McGe t Nuclear Corpora-tion (Kerr-McGee) filed suit against the members 13. Interim Financial Reporting of the CAPCO power pool, including the Company. The suit relates to the status of a 1973 contract The following represents the quarterly results, between Kerr-McGee and the CAPCO companies which are unaudited, but in the opinion of the for the supply by Kerr-McGee to CAPCO of Company reflect all adjustments (which are of a 4,914,200 kilograms of uranium over a period normal recurring nature) necessary for a fair state-extending to 1985. Kerr-McGee seeks to be re- ment of results for such periods: 18
(thousands of dollars) Total Total Earnings Earnings Operating Operating on Common Per Common Three Months Ended Revenues income Stock Share 1978 March 31 86,714 15,835 10,527 5.77 June 30 79,278 13,550 8,063 .56 September 30 90,609 20.024 13,380 .85 December 31 83,455 16,023 9,459 .60 1979 March 31 99,680 19,412 12,736 $.81 June 30 87,888 16,737 10,268 .65 September 30 87,567 18,645 13,689 .77 December 31 89,986 13,614 8,009 .45 14.The Effects of Changing Prices (Unaudited) Preparing the Constant Dollar financial statements. Only the measuring unit is restated from dollars recorded at the date of the original transactions Pursuant to a 1979 pronouncement by the Finan- to units of average 1979 purchasing power. Con-cial Accounting Standards Board, Statement No. stant Dollar values represent historical costs stated 33, the Company is required to present supple- in terms of average 1979 general purchasing mentary information to the basic financial state- power, as measured by the Consumers Price ments which reflects the impact of changing prices, index for all Urban Consumers. particularly inflation. Compliance with Statement Current Cost values represent the changes in No. 33 involves presenting financial information specific prices of property, plant and equipment, to show the effects of general inflation (Constant from the year the plant was acquired to average Dollar Accounting) and changes in prices of spe- 1979 values and is determined by indexing sur-cific assets, namely property, plant and equipment viving plant by the Handy-Whitman index of Public (Current Cost Accounting). Utility Construction Costs. The amounts restated The same generally accepted accounting principles to Constant Dollar and Current Costs are estimates used in preparing the Conventional Historical of the effects of inflation on the Company. Cost Accounting financial statements are used in The following supplementalinformation is pro-vided to show the effects of changing prices on the Company's results of operations. Statement of income from Continuing Operations Adjusted for Changing Prices Thousands of Dollars Conventional Constant Current Historical Cost Dollar Costs
- For the Year Ended December 31,1979 Accounting Accounting
- Accounting
- Operating revenues 365,121 365,121 365.121 Depreciation expenses (including amortization of nuclear fuel) 32,710 50,583 56,534 Other operating expenses, other income, and interest charges 273,816 273,816 273,816 306,526 324,399 330,350 Net income 58,595 40,722 34,771 Preferred stock dividends accrued 13,894 13,894 13,894 Earnings on common stock from continuing operations exclusive of reduction to recoverable cost 44,7 01 26,828 20,877 Earnings per common share $2.65 $1.59 $1.24
- Constant Dollar and Current Cost values are based on average 1979 dollars.
19 l t
The comparative Constant Dollar and Current Cost Under the PUCO and FERC rate-making pro-values of all items on the income statement, visions to which the Company is subject, only the except depreciation. represent the amounts re- historical cost of plant is recoverable in revenues corded in the conventional historical cost income as depreciation. Therefore, the excess of the cost statement, which amounts generally occurred of plant stated in terms of Constant Dollars or ratably throughout the year. Fossil fuel inventories Current Cost that exceeds the historical cost of and the cost of fuel used in generation have not plant is not presently recoverable. While the rate-been restated from their historical cost basis. making process gives no recognition to the current PUCO and FERC regulations limit the recovery of cost of replacing property, plant, aad equipment, fuel and purchased power and gas costs through based on past practices the Company believes it the operation of adjustment clauses or adjustments will be allowed to earn on the increased cost of in basic rate schedules to actual costs (historical its net investment when replacement of facilities cost basis). Also,fuelinventories turn over ap- actually occurs. proximately three times a year. For these reasons During a period of inflation, holders of rnonetary fuel inventories are effectively monetary assets. liabilities experience an inflationary gain to the No Federal income tax benefits for any inflation extent such debts are fixed amounts which will be adjustment are reflected since current tax law does repaid with dollars of reduced purchasing power, not allow any consideration for the erosion of This type of inflationary gain is particularly sig-capital which exists during inflationary periods. nificant for electric utilities due to the substantial The current year's provision for depreciation on amounts of debt used to finance property, plant the Constant Dollar and Current Cost amounts of and equipment. This inflationary gain from the property, plant, and equipment was determined decline in purchasing power of net amounts owed by applying the Company's depreciation rates should be offset against the inflationary loss to the indexed plant values. The current year's experienced on net property, plant and equipment amortization on the Constant Dollar and Current to determine the net erosion of stockholders
- Cost amounts for nuclear fuel was determined by equity. The following statement reflects the erod-applying the current year's consumption to the ing effects of inflation on stockholders
- equity indexed nuclear fuel amounts. during 1979.
Effects of Inflation on Stockholders' EquP.y Thousands of Dollars increase (Decrease) from Historical Cost Constant Current ! Dollar Cost For the Year Ended December 31,1979 Accounting
- Accounting
- Inflation Effect During 1979 on Capital investment:
Increase in specific prices to current costs"
- 227,317 Effect of change in general price level
- (277,202) l (133,197) (77,361) l Reduction to net recoverable cost ***
Additional provision for depreciation (17,873) (23,824) (151,070) (151,070)
, Gain from decline in purchasing power of net amounts owed (primarily debt) 85,138 85,138 l (65,932) (65,932)
Effects of Inflation on Stockholders
- Equity
' Constant Dollar and Current Cost values are based on average 1979 dollars.
**As of December 31,1979, current cost of property, plant and equipment, net of accumulated depreciation was $2.457.613.000 l while the historical cost (net recoverable through depreciation) was $1,355.898.000, which includes non-utility plant of $1.015.000 I and abandoned project costs transferred to Deferred Charges of $45.719.000. At year end, the net recoverable cost of net assets is
$552,560.000.as calculated under Constant Dollar and Current Cost Accounting.
*" Including the reduction to net recoverable cost, the Earnings (Loss) or. Common Stock on a constant dollar basis would have been (5106.369.000).
lF 20 J-
The erosion in the value of money through inflation electric utilities. The following statement presents has been at or near the double digit level during selected operating and financial data for the most the last five years.The cumulative effect of recent recent five years on a historical cost basis and annual rates of inflation have had substantial adjusted for inflation as measured by the Con-impact on all sectors of the economy, especially sumer Price Index for all Urban Consumers. Five-Year Comparison of Selected Supplementary Financial Data Adjusted for Elfects of Changing Prices Operating Revenues Cash Divider.ds Declared Market Value at Year End Consumer Per Share Per Share Price (thousands) Index
- Historical Restated Historical Restated Historical Restated (Annual Cost to Average Cost to Average Cost to Average Year Average) Basis 1979 Dollars Basis 1979 Dollars Basis 1979 Dollars 1979 217.4 $365,121 $365,121 $2.20 $2.20 $17.50 $17.50 1978 195.4 340,056 378,343 2.14 2.38 21.63 24.06 1977 181.5 276,794 331,543 2.12 2.54 25.13 30.09 1976 170.5 223.736 285.280 2.12 2.70 26.50 33.79 1975 161.2 191,564 258,350 2.06 2.78 24.38 32.87
- Base Year 1967 = 100 Auditors' Report To the Shareowners and Board of Directors of The Toledo Edison Conipany:
We have examined the balance sheets and state- In our opinion, the financial statements referred ments of capitalization and capitalization ratios, to above present fairly the financial position of and long-term debt of The Toledo Edison Com- The Toledo Edison Company as of December 31, pany (an Ohio corporation) as of December 31, 1979 and 1978, and the resu!ts of its operations 1979 and 1978, and the related statements of and the source of funds invested in plant and results of operations, earnings reinvested, Federal f acilities f or the years then ended,in conformity income taxes and source of funds invested in with generally accepted accountir'g principles plant and facilities for the years then ended. Our applied on a consistent basis. examinations were made in accordance with gener-ally accepted auditing standards and, accordingly, Arthur Andersen G Co. included such tests of the accounting records and such other auditing procedures as we con- Toledo, Ohio, sidered necessary in the circumstances. January 28,1980. 21
Financial Revisw OPERATING REVENUES thousands of dollars and percent of electric revenues ve., [e'n'el , me$.i , inauser .: , o.ner , EIc$i,!c c, M7s On T ino).se 1979 113 464 32 72 354 20 128 931 36 4'l 958 12 358 707 3 583 2 831 365 121 7 1978 106 512 32 67 563 20 120 570 36 39 438 12 334 083 3 085 2 888 340 056 23 1977 86 977 32 55 870 21 97 586 36 31 296 11 271 729 2 743 2 322 276 794 24 1976 71 562 33 45 384 21 76 998 35 25 185 11 219 129 2 315 2 292 223 736 17 1975 61 236 33 39566 21 64 767 34 21 803 12 187 372 1 924 2 268 191 564 30 1974 46 590 32 30 566 21 49 203 34 17 868 13 144 227 1901 1 667 147 795 14 1973 40 696 32 27 390 21 43 632 35 14 697 12 126 415 1 682 1 050 129 147 9 1972 37 055 32 24 698 21 38 013 33 16 001 14 115 767 1 619 1 196 118 582 14 1971 32 071 32 21 194 21 33 838 33 14 599 14 101 702 1 531 1 131 104 364 11 1970 29 952 33 18 721 20 29 442 32 13 674 15 91 789 1431 925 94 145 7 1969 27 663 32 16 919 20 28 194 33 13 108 15 85 884 1 314 877 88 075 10 OPERATING EXPENSES thousands of dollars and percent of total revenues d t o,.i i ICEn'.ae$ n red. .i ve., r .e, , M , o,..,_ , *=: ~ , oc-.,_ , to$1.? , , 'Tr,' , fra';"! , 1979 93 295 25 53 574 15 44 691 12 21 137 6 29 117 8 29 760 8 25 139 7 296 713 81 1978 82 039 24 55 850 16 38 883 12 19 604 6 26 532 8 24 320 7 27 397 8 274 625 31 1977 73 677 27 86 735 31 27 951 10 12 249 5 19 565 7 19 129 7 6 173 2 245 479 89 1976 61 227 27 46 950 21 26 612 12 9148 4 15 964 7 15 956 7 12 446 6 188 303 84 1975 51 411 27 32 328 17 25 059 13 7955 4 14 305 8 14 091 7 13 062 7 158 211 83 1974 40 648 27 20 077 14 23 160 16 7677 5 13 089 9 12 922 9 5 081 3 122 654 83 1973 27 697 21 14 810 12 22 098 17 7 471 6 12 318 10 11 822 9 8 040 6 104 256 81 1972 23 721 20 13 959 12 20 097 17 6799 5 11 778 10 10 513 9 8 209 7 95 076 80 1971 21 573 21 8 643 8 18 306 17 6700 7 10 617 10 10 075 10 7 755 7 83 669 80 1970 16 885 18 6 934 7 16 085 17 6082 7 10 232 11 9 427 10 8 568 9 74 213 79 1969 14 370 16 5 983 7 14 403 16 5390 6 9 838 11 8 499 10 10 555 12 69 038 78 INCOME thousands of dollars COMMON STOCK dollars per share and percent Allow.nce n M.'ket D:vdends JJ/o"m"1,'O'er 'r"'To"7 e, rerred in* Yo'r'n?
$0N ve., C GS C
C'n"' C2! 4"0l;;', c"n'!l;;', in?!',e o 'Co, (s 2" 2.",*%, t"% n,on to. M vTa >}g S 1979 68 403 33 503* 8 251 111 179* 52 584* 58 595 13 894 44 701 2.65 10.7 23 17 17 24.15 120 1978 65 431 24 560* 6 484 97 195* 42 746* 54 449 13 020 41 429 2.78 11.3 26 21 22 24.29 2.14 1977 31 315 43 564* 9 032 83 904* 35 249' 48 655 10 518 38 137 2.95 12.4 27 24 25 24.02 2.12 1976 35 433 24 457 6 087 67 923 28 460 39 463 7 683 31 780 2.82 12.2 27 22 27 22.85 2.12 1975 33 353 20 458 5 820 59 453 24 071 35 382 7 135 28 247 3.29 14.5 24 16 24 22.39 2.06 1974 25 141 15 886 4 323 45 554 20 904 24 650 4 964 19 686 2.85 12.5 28 13 16 21.73 2.00 1973 24 891 10 282 2 294 37 694 14 126 23 568 3 911 19 657 3.13 14.3 31 23 27 22.20 1.94 1972 25 506 4 458 1 004 29 058 9 972 19 086 2 650 16 436 2.91 14.5 32 26 30 20.44 1.86 1971 20 695 2 672 562 24 038 8 754 15 284 1 675 13 609 2.64 14.4 36 27 31 18.39 1.81 1970 19 932 1 050 264 21 397 6 555 14 842 1 333 13 509 2.62 14.9 35 28 35 17.68 1.74
. 1969 19 037 701 142 19 974 5 515 14 459 1 333 13 126 2.54 15.3 36 26 29 16.80 1.63
*In the 1979.1978 and 1977 Results of Operations.the al!owance for funds used during construction is reported in two pr>rtions. equity and borrowed, with the borrowed amount shown as a credit to interest charges.
" Average number of shares outstanding (thousandst 1979 - 16.848. 1978 - 14.900. 1977 - 12.909; 1976 - 11,250;1975- 8,596:1974 -
22 6.917; 1973-6.282; 1972-5.649.1969 through 1971 - 5.160.
Stctisticrl Revi;w SALES millions of kilowatt-hours CUSTOMERS end of year USAGE residential Annu.I Ptne We enue ve., IeZ m'e%.i industn.i ciner LIesc incr).se ucudent..i Commerc .i Yo?'Y n EIltr!< Cus e en si$i ll 1979 1 934 1 256 3 559 960 7 709 - 238 353 23 636 3 695 265 684 8 166 5.87 479 1978 1 914 1 231 3 617 923 7 685 3 234 450 23 334 3 551 261 335 8 244 5.57 459 1977 1 874 1 233 3 475 906 7 488 4 230 583 23 226 3 478 257 287 8 192 4.64 380 1976 1 782 1 203 3 394 8!3 7222 8 227 167 22 912 3 428 253 507 7 903 4.02 317 1975 1 722 1 156 3 011 769 6 658 2 223 807 22 495 3 340 249 642 7 732 3.56 275 1974 1 634 1 107 3 062 739 6 542 (1) 221 846 22 360 3 249 247 455 7 419 2.85 212 1973 1 552 1 102 3 232 705 6 591 3 218 105 22 591 2 927 243 623 7 187 2.62 188 1972 1 460 1 014 3 062 885 6 421 9 213 546 22 471 3 015 239 032 6 916 2.54 176 1971 1 366 924 2 757 832 5 879 7 208 448 21 984 2 963 233 395 6 640 2.35 156 1970 1 281 838 2 557 831 5 507 (1) 203 808 21 313 2 939 228 060 6 348 2.34 148 1969 1 181 766 2 647 960 5 554 12 200 058 21 069 2 924 224 051 5 967 2.34 140 LOAD megawatts ENERGY millions of kilowatt hours FUEL Net C.p.tulity Toledo Edison system Purch. sed Pc wer effniency Lo.d F.ctor CUCO Pur t . ed G Fuci Cost BTU ve., I"d a'h*: f::a ? 7' T# Tc'" "#toi' '"W" Tet.i "J'#,," ,a 1979 1 884 1825 1 395 67 31 6 884 465 883 8 232 1.33 10 262 1978 1 892 1 813 1 386 67 31 6 674 582 984 8 240 1.20 10 283 1977 1 777 1 536 1 393 66 10 5 972 1 548 580 8 100 1.19 10 247 1976 1 465 1 465 1 340 66 9 5 421 1 644 750 7 815 1.11 9 963 1975 1 410 1 397 1 256 64 11 4 877 1 371 856 7 104 1.04 9 982 1974 1 412 1 453 1 249 64 16 5 259 1 061 676 6 996 .75 10 065 1973 1 510 1 358 1 246 64 9 5 376 969 701 7 046 .52 9 880 1972 1 377 1 273 1 096 68 16 5 036 616 1 221 6 873 .47 10 030 1971 1 295 1 228 1 054 65 17 4 845 168 1 267 6 280 .44 10 037 1970 1 244 1 217 939 67 30 4 604 - 1 275 5 879 .36 10 022 1969 1 204 1 175 897 69 31 4 764 - 1 142 5 906 .30 9 899 INVESTMENT thousands of dollar:? CAPITALIZATION thousands of dollars Pl.nt in Prow s a s or Deprc on Annu.I Common % Cumul.tive % Long- %
"It!2d (vite 3,"En"U"_ Tnf E "'"dUe".EN ve.r T$i T$i Ile? T$i Tot.i 1979 979 809 201 895 21 239 010 432 554 35 184 000 15 611 137 50 1 227 691 i 1978 950 873 176 450 19 169 888 382 084 35 159 500 14 560 644 51 1 102 228 1977 727 226 153 463 21 194 283 328 100 34 160 000 16 494 280 50 982 380 l 144 714 266 469 34 125 000 16 388 270 50 779 739 1976 531 459 137 540 26 1975 479 723 126 149 26 112 399 216 277 33 100 000 15 349 181 52 665 458 1974 438 639 116 062 26 121 360 177 296 32 81 000 14 299 172 54 557 468 1973 407 195 108 467 27 119 524 145 665 31 71 000 15 259 164 54 475 829 1972 387 874 100 305 26 75 278 117 745 33 56 000 16 183 969 51 357 714 1971 367 918 95 589 26 53 056 94 908 33 41 000 14 154 687 53 290 595 1970 344 898 92 957 27 34 762 91 211 33 31 000 11 154 952 56 277 163 I
1969 327 998 86 301 26 18 549 86 680 36 31 000 13 120 781 51 238 451 23
l l Management Staff g~ i g .- __- .
,) l i ! , M l t E , -
/
t C ~ l y r , R \ l ( l g Dcna d G b:chmson 2k l j D r.id A S e < l 7 C e e v. s -- l g l b- ' R , F rann W. heith p* t w.3 L p 3.. . i
'J, AJ" "& t r .4 3 g ,
a l I ; r b. c f f * + g Dasid K Zask, }* } John R. Dyer Customer Sr. ices n PEc wear es
- r
, s '
emr e ' L3 M. Dona:d H Saunders l
!. Richrd P. Crouse Treass e- [
N.cea i it [
.: sk .
Stratman Cooke Lu 4: .C P h.+ Paul G. Busby l-secret 3n e . .- co-tev P Management Changes in order to further ermance the e'f:ciency of the maragement structure there were seseral enecutae changes made in 1979 On Aprd 2 ' the Board of D: rectors elected '
.g f John P. Lihamson as tha:rman of the Boa d Mr. Wdhamson continues in his role '
as Chief Executae C%cer. He was succeeded as President by Wendell A Johnson. formerly Executne \ite Presidert. who woi serve as Ch.ef Operating Othcer for the Olk Company. ' Richard P Crouse was elected %ce President for Ene g*, Supply on August 29
#f following the unumely death of James 5 Grant On hosember 30 the Company re-abgned and cons;idated a!! cf its nuc! ear operations under Mr. Crouse who .as then I ,
des:gnated %ce President. Nuclear, and elected to the Board of Deectors Mr Crouse was formerly re ponsible f or the operation o' eli ou coal and nucreat plants. He 4dt no* concentrate on the operat.on and back-up engineering for the existing Davis-Besse buclear Plant At the same time %ce President Lo*e i E. Roe s responsib.httes were sh:tted f rom Mrs. Isabel Martin cf Totedo facilities Dese;opment to Energy Suppiv. Mr Roe was formerly responsible for the was elected to our Board af Di-design and construction of all new nuclear and coal plants He wdl now concentrate tectors in hosember.1979 Mrs I on the operation cf cur coal plants and transmission system Mr. Roe has been a Myt:n has been one o' ou a ea's outstand.ng cmr 'eaders f or more member of the board smce 1975 John R. Dyer was elected %ce President. Pubhc Re:ations, on August 1. succeedmg than t4enty years She currenti, John H Barker. w50 retired ser ses as consulta"' 't the metro-Effectae December 1. Frank W. Keith. %ce President. Personnel. w as designated po hta n d sisan of the Gcc atc r
%ce President. Administration Mr Ke:th wd! be workmg to furthe desetop a set cf To! eda UNed was As an othcer general corporate poboes. coordinate speoal management stud.e3 and act as the and board membe o' rnaw or-executne assistant to the chaaman's ofhce. gamlations she possessas the in-Donald H. Saunders, formerly Controller, was named the Company s Treasurer sight into human needs wh;ch wd; on February 28 Paul G. Busby. formerly Accounting Analyses Dirtctor, replaced Mr prose part.cularly wa:uab:e to > our Saunders as Controller ,.Coqany . , , ,
~
24 N d M} a * ( ~dw!N .. 2.a03 h
Board of Directors Officers (Other than Directors) Floyd M. Canter (C) John R. Dyer Dividend Reinvestnent Agent Executive Vice President, Retired Vice President, Public Relations Gtibank, N.A Owens-liknois, Inc. Box 3305 (Packaging) Frank W. Keith New York, N.Y.10043 Vice President, Administration Samuel G. Carson (E)(O) Stock Registrars Chairrmn of the Board David A Nelson The Ohio Gtizens Trust Company The Toledo Trust Company Vice President, Toledo, Ohio 43603 Corporate Development Nnufacturers Hanover Trust Richard P. Crouse Company Vice President, Nudear Lyman C. PhilliPs New York, N.Y.10022 Vice President, Robert H. Davies (C)+ (O) Adrnnistrative Services Mortgage Trustee Senior Vice President. The Chase Nnhattan Bank, N.A Owens-ilknois, Inc. David K. Zaski New York, N.Y.10081 (Packaging) Vice President, Customer Services Auditors Elwood L Elberson (A) Arthur Andersen G Co. President and Stratman Cooke 300 Ndison Avenue Chief ExecutiveOfficer Secretary Toledo, Ohio 43604 Dnner Bell Foods,Inc. Donald H. Saunders Counsel Virgil A Gadieux(E) Treasurer Fuller, Henry, Hodge G Snyder Chairrmn d the Board and 300 Madison Avenue Chief ExecutiveOfficer Paul G. Busby Toledo, Ohio 436(M Gladieux Food Services, Inc. Controller Exchange Listings Wendell A Johnson (E) Corrmon President Annual Meeting + New York Stock Exchange Midwest Stock Exchange Marvin S. Kobacker (E) The annual meeting of The Toledo Edison + Amsterdam Stock Exchange Vice Chairrmn of the Board, Compny will be held at 10 AM (E.S.T.) Kobacker Stores, Inc. on Tuesday, April 22,1980 in the Compny's Unhsted Tradina Privileges and Private Investor headquarters, Edison Plaza 300Ndison
- Boston Stock Exchange Avenue. Tdedo, Ohio. Formal notice of the Gncinnati Stock Exchange Isabel F. Mart.in meeting will be sent to shareowners with
- Detroit Stock Exchange Consultant the proxy statement.
- Philadelphia, Ba!timore and United Way of Greater Tdedo Washington Stock Exchange e d nt i nce This report, induding the financial state. Preferred-$25 par value-8.84%,$2.365 ments. is submitted for the general in- . New York Stock ExcNnge Henry A Page,Jr.(A) formaton of Toledo Edison Company's Drector of Development, shareowners. It is not intended to be used Preferred-$100 par value-4%%,8.32%,
Medical College of Ohio in cmection with any sale or purciuse of 7.76% and 10% at Toledo any securities. , g Lowell E. Roe A copy of Form 10-K as filed with the Sccurities and Exchange Commission will B nds Vice President
- 10%-Due 1982,9.35% -Due 1985 Ener9Y S*WY te available to shareowners upon written request to the Company's Vice President
- 9%-Due 2000,7%% -Due 2002 Willard I, Webb,111( A)* Finance. 8%-Due 2003,9.65% -Due 2006 Chainmn of the Board, 9%%-Due 2008.11% -Due 2009 Key to Directors' Committees . NewYork Stock Exchange The Ohio Gtizens Trust Company (A) Audit Committee John P.Williamson (E). (C) Compensation Committee Chainmn and (E) Executive Committee Chief ExecutiveOfficer (O) Operations Committee
( * ) Committee Chairman About Toledo Edison Robert G.Wingerter (C)(O)* . Chairrmn of the Executive Committee Executive Offices ' The Toledo Edison Company is a Libbey-Owens-Ford Company 300 Ndison Avenue Public utility engaged primarily ,n i (Flat Glass) Toledo, Ohio 43652 the generation, transmission, dis-Phone (419) 259-5000 tribution and sale of electric energy n Toledo and Northwestern Ohio, Dih N4 % C vering an area IaPProximately The Toledo Trust Company 2,500 square miles, with an esti-Toledo, Ohio 43603 mated population of 750,000. The 7,tock Transfer Agents Company also provides relatively William S. Carlson 11 roledo Trust Company small amounts of natural gas and Drector Emeritus Toledo, Ohio 43603 steam heating services. Morgan Guaranty Tn st Fred E. Fuller Company of New York Drector Ementus New York, N.Y.10015}}