ML20003E573

Annual Financial Rept 1980

ML20003E573
Person / Time
Site:	Haddam Neck File:Connecticut Yankee Atomic Power Co icon.png
Issue date:	03/17/1981
From:	CONNECTICUT YANKEE ATOMIC POWER CO.
To:
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ML20003E572	List: ML20003E571 ML20003E573
References
NUDOCS 8104060402
Download: ML20003E573 (18)

Text

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Reports of Independent Public Accountants f~x b

To Connecticut Yankee Atomic Power Company:

hehaveexaminedthebalancesheetsofConnecticutYankeeAtomic Power Company (a Connecticut corporation) as of December 31, 1980 and 1979 and the related statements of income, retained earnings and sources of funds for gross property additions for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our auditors' report dated March 21, 1980, our opinion on the 1979 financial statements was qualified as being subject to the effect on the financial statements of adjustments, if any, that might result from the final outcome of a pending rate matter. As explained in Note 2 of Notes to Financial Statements, the matter was resolved during 1980 with no material effect on the financial statements. Accordingly, our present opinion on the 1979 financial statements, as presented herein, is unqualified.

In our opinion, the financial statements referred to above present fairly the financial position of Connecticut Yankee Atomic Power Company as of December 31, 1980 and 1979, and the results of its operations and the sources of funds for gross property additions for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

ARTHUR ANDERSEN 6 CO.

Hartford, Connecticut, March 17, 1981.

Stockholders and Board of Directors Connecticut Yankee Atomic Power Company We have examined the balance sheet of Connecticut Yankee Atomic Power Company as of December 31, 1978 (not included herein) and the related statements of income, retained earnings and sources of funds for gross property additions for the year then ended. Our examination was made in accordance with generally accepted auditing standar s and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, such financial statements present fairl. the financial position of Connecticut Yankee Atomic Power Company at December 31, 1978 and the results of its operations and the sources of funds for gross property ' additions for the year then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

MAIN HURDMAN & CRANSTOUN New York, New York, March 9, 1979.

CONNECTICUT YANKEE ATOMIC POWER COMPANY Balance Sheets December 31, 1980 and 1979 Assets 1980 1979 (Thousands of Dollars)

Utility Plant, at original cost:

Electric plant

$144,053

$126,367 Less: Accumulated provision for depreciation 50,591

__47,429 93,462 78,938 Construction work in progress 10,521 9,084 Nuclear fuel, net of amortization 68,904 55,538 Total net utility plant 172,887 143,560 Current Assets:

Cash 4,374 1,391 Accounts receivable:

Associated companics 6,503 9,009 Other 193 68 Refundable income taxes 3,575 Materials-and supplies, at average cost 1,342 1,369 Prepayments and other.

441 413 16,428 12,250 Deferred Charges:

Unamortized debt expense 199 243 Accumulated deferred income taxes 2,021 4,206 Other 1,472 555 3,692 5,004 Total Assets

$193,007

$160,814 The. accompanying notes are an-integral part of these financial statements.

CONNECTICUT YANKEE ATOMIC POWER COMPANY Balance Sheets (Continued) e December 31, 1980 and 1979 Capitalization and Liabilities 1980 1979 (Thousands of Dollarr)

Capitalization:

Common stock - $100 par value; authorized 700,000 shares; 350,000 shares outstanding 1980, 1979 and 1978

$ 35,000

$ 35,000 Capital surplus, paid in (no change during years 1980, 1979 and 1978) (Note 4) 2,964 2,964 Retained earnings (Note 5) 13,165 11,716 Total common stockholders' equity 51,129 49,680 Long-term debt, net (Note 5) 55,145 62,056 Total capitalization 106,274 111,736 Current Liabilities:

Notes payable to banks (Note 6) 19,000 Commercial paper (Note 6) 12,950 Long-term debt due within one year 8,775 1,375 Nuclear fuel payable 11,575 11,000 Revenues to be refunded to Sponsor companies (Note 2) 10,719 Accounts payable:

Associated companies 4,013 1,168 Other 19,807 3,517 Accrued taxes 2,686 8,929 Accrued interest 1,700 1,733 Other 67 21 78,342 40,693 Deferred Credits:

Unamortized gain on reacquired debt 2,798 2,513 Accumulated deferred investment tax credits 5,547 1,920 Reserve for revenues subject to possible refund (Note 2) 3,920 Other 46 32 8,391 8,385 Commitments and Contingencies (Note 9)

Total Capitalization and Liabilities

$193,007

$160,814 The accompanying notes are an integral part of these financial statements.

CONNECTICUT YANKEE ATOMIC PO'JER COMPANY Statements of Income For the Years Ended December 31, 1980 1979 1978 (Thousands of Dollars)

Operating Revenues (Note 2)

S78,552 S62,620 S40,770 Operating Expenses:

Operation -

Fuel 18,422 17,415 13,025 Other 25,828 12,863 6,625 Maintenance 12,066 7,828 3,575 Depreciation 5,234 5,075 6,092 Federal and state income taxes (Note 3) 4,023 4,485 1,277 Taxes other than income taxes (Note 3) 1,90_6 1,627 1,502 Total operating expenses 67,479 49,293 32,096 Operating income 11,073 13,327 8,674 Other income:

Allowance for equit" funds used during construction 93 14 4

Other, net (2)

(30)

Income taxes applicable to other income - credit -(Note 3)

(5) 8 (5)

Net other income 86 (8)

(1)

Income before interest charges 11,159 13,319 8,673.

Interest Charges:

Interest on long-term debt 6,090 5,679 4,264 Amortization of debt premium and 29 30 30 expense,_ net

. Amortization of gain on reacquired bonds (216)

(184)

(149)

Other. interest 5,872 2,568 1,467 Allowance for borrowed funds used' during construction (4,865)

(582)

(5)

Total interest charges 6,910 7,511 5,607 Net income (per share $12.14 in 1980,

$16.60 in 1979 and $8.76 in 1978)

S 4,249

$ 5,808 S 3,066 Statements of Retained Earnings For the Years Ended December 31, 1980 1979 1978 (Thousands of Dollars)-

Balance at beginning of period

$11,716

$ 8,708

$ 8,442 Net Income 4,249 5,808 3,066 Dividends declared on common stock

($8.00 per share)

(2,800)

(2,800)

(2,800)

Balance at end -of period (Note 5)

$13,165

$11,716-

$ 8,708 The accompanyingfnotes are an integral part of these financial statements.

CONNECTICUT YANKEE ATOMIC POWER COMPANY Statements of Sources of Funds for Gross Property Additions For the Years Ended December 31, 1980 1979 1978 (Thousands of Dollars)

Funds Generated From Operations Net income

$ 4,249

$ 5,808

$ 3,066 Principal noncash items:

Depreciation and nuclear fuel amortization 23,656 22,490 19,117 Deferred income taxes, net 5,808 (3,992)

(39)

Change in reserve for revenues subject to possible refund (3,920) 3,920 Amortization of deferred charges and other noncash items (168)

(116)

(114)

Allowance for equity funds used during (14)

(4) construction (93)

_ 28,096 22,026 Total funds from operations 29,532 Less - Cash dividends paid on common stock 2,800 2,800 2,800 Net funds generated from operations 26,732 25,296 19,226 Funds Obtained From Financing Proceeds from issuance of long-term debt 20,000 Advance from Sponsor companies 5,000 Increase (decrease) in short-term debt 6,050 (2,525) 5,650 Increase in nuclear fuel payable 575 11,000 Total 11,625 8,475 25,650 Less - Reacquisitions and retirements of long-term debt 4,506 2,704 12,778 Net funds from financing 7,119 5,771 12,872 Other Sources (Uses) of Funds Decrease (increase) in net current assets (excluding short-term debt, long-term debt due within one year and nuclear fuel payable):

Cash and special deposits (2,983)

(693) 390 Receivables 2,381 (5,560) 1,460 Refundable income taxes (3,575)

Materials and supplies 27 (325)

(204)

Revenues to be refunded to Sponsor companies 10,719 Accounts payable 19,135 2,886 (1,652)

Accrued taxe; (6,243) 6,437 (2,811)

Other, net-(15) 161 (248)

Net change 19,446 2,906 (3,065)

Other, net (709) 12 75 Net other sources (uses) of funds 18,737 2,918 (2,990)

Total Funds For Construction From Above Sources 52,588 33,985 29,108 Allowance For Equity Fuads Used During-Construction 93 14 4

GROSS PROPERTY ADDITIONS

$52,681

$33,999

$29,112 Composition of Gross Property Additions:

Utility plant

$20,893

$ 9,297

$ 2,317 Nuclear fuel 31,788 24,702 26,795 Total

$52,681

$33,999

$29,112 The accompanying notes are an integral part of these financial statements..

CONNECTICUT YANKEE ATOMIC POWER COMPANY Notes to Financial Statements (1)

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES General - The Company. owns and operates a single unit nuclear power electric generating plant of the pressurized water type, having a gross capability of 580,000 kilowatts. The plant commenced commercial operation on January 1, 1968. The Company's common stock is owned by eleven New England electric utilities.

The Company has entered into power contracts with its eleven stockholders (Sponsors) for the sale to them of the entire output of the plant for a thirty-year period commencing January 1,1968.

Under the terms of the contract each Sponsor is required to pay the Company an amount equal to.its entitlement percentage of the Company's total costs, including a return on net investment.

Regulatory Commissions - The Company and each of its Sponsors is a public utility under Part II of the. Federal Power Act and is subject to regulation by the Federal Energy Regulatory-Commission (FERC) with respect to, among other things, wholesale rates and accounting

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procedures. The income statement and balance sheet submitted as part of this-annual report are in accordance with the the Uniform System of Accounts prescribed by FERC.

Allowance'for Funds Used During Construction - The allowance for funds used during-construction (AFUDC) represents the estimated cost of capital: funds used to ' finance the Company's construction and nuclear-fuel program. The total capitalized costs of construction are not. recognized as part of the rate base for ratemaking purposes until - facilities 'are brought into service. AFUDC~is recovered over the service life of plant in the-form of increased revenue collected asia - result' of higher depreciation expense..AFUDC is also recovered

.asLnuclear. fuel is consumed in the reactor in the form of increased.

revenue. collected as a result of higher' nuclear' fuel expense. -The AFUDC rate was;9.5 percent for.1980.and 8.5 percent forl1979 and 1978. Both 1980 and 1979 include.the.effect of semiannual compounding of AFUDC. The following section discusses-capitalized financing costs applicable 1to nuclear fuel financed by a-fuel supply trust-agreement.

, Nuclear Fuel - The cost of nuclear fuel'is amortized on a unit-of-production method'attrates based on estimated kilowatt-hours of-

' energy to'be provided. Commencing January 1,.1979, a provision for.

estimated spent fuel disposal-costs was included in nuclear fuel

-expense. This includes a provision for recovery.over a ten-year -

- period iof the estimated disposal cost of previously accumulated spent nuclear fuel, plus a current year provision;for fuel assemblies in the reactor. Storagenforlsuch spent: fuel at' the Company's plant is

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- sufficient until'at least the mid-1990s. -

1(-

A portion of the Company's nuclear fuel is being financed pursuant to a fuel supply trust agreement, entered into during 1979, under which the trust owns and finances the natural uranium prior to the fuel being fabricated. The trust obtains funds by the sale of commercial paper and/or through bank loans. The Company will be obligated to purchase the natural uranium and reimburse the trust for payments made by the trust and for financing costs, just prior to delivery of the fuel for fabrication.

Interest costs of

$2,326,000 in 1980 and $342,000 in 1979, incurred in connection with financing this nuclear fuel, were capitalized by the Company.

The weighted average interest rate charged by the trust was 14.2 percent in 1980 and 18.9 percent in 1979.

Depreciation - The provision for depreciation is computed using the straight-line remaining life method at rates which are tised on the estimated service lives of the deprecialle utility plant in service and estimated removal costs less expected salvage, except for the net cost of removal values for nuclear production plant as stated below. The depreciation rates for the various classes of property, which are equivalent to a composite rate of 4.2 percent in 1980 and 1979 and 4.9 percent in 1978, are applied to the depreciable plant in service-at the beginning of the year. At the time depreciable

. property is retired from service, the original cost of such property, plus cost of removal less salvage, is charged to the accumulated provision for depreciation.

A study completed in 1980 indicates that complete removal commencing at the time of retirement of the unit, with an estimated cost of $65 million, is the most viable and economic method of

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decommissioning this unit. The depreciation rates currently recognized on the books and for regulatory rate setting are those rates allowed in the November 1980 FERC decision (see Note 2) and are based on a total recovery of $7.8 million-of decommissioning costs.

If rates allowed by FERC had been based on the $65 million, rather than the

$7.8 million, depreciation expense and revenues in 1980 would have increased by approximately $3.5 million.

Maintenance - The cost of. maintenance, repairs and replacements of minor items is charged to maintenance expense. Replacements and renewals of items considered to be units of property are charged to

'the utility plant accounts.

(2) RATE MATTERS In 1

' the Company filed with FERC Supplementary ks wer Contracts o igned to increase the overall rate of return p.ovided to tha Company on its power sales from 6 percent to 10 pe: cent.

.FERC accepted the filing and suspended its effectiveness until November 5, 1978. Since that date, the Company had been tilling under the Supplementary Power Contract subject to refund pending.

the final decision'of-FERC..On November 21, 19E9. FERC issued its

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. final decis ion which allowed an overall 9.74 perront rate of return, based upon an 11.5 percent return on common equity, and which

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reduced 'other elements of the Company's revenue requirements. The

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final FERC decision will require the Company to refund approxi-mately $11 million (including interest) which will be refunded to Sponsors within thirty days of receipt of the approved Supplementary Power Contract from FERC. The Company presently expects this to occur in the second quarter of 1981.

On August 29, 1980, the Company submitted for filing with FERC contracts amending the Supplementary Power Contracts between the Company and its Sponsors. The amendment provides for a variable, rather than fixed, rate of return on net unit investment, based on a 17 percent return on common equity, which would fluctuate with changes in long-term interest costs and preferred stock dividends, if applicable, paid by the Company. These rate amendments are expected to increase annual revenues on a test year basis by approximately $13 million above the revenue level allowed in the November 21, 1980 FERC rate decision. On October 28, 1980, FERC accepted the filing and suspended it for five months, making the rate changes effective on April 1, 1981, subject to refund pending the final decision of FERC. On March 6, 1981, the Company filed a

><ttlement proposal with FERC. The Company's proposed settlement agreement would result in a reduction of $6.5 million from the proposed rate increase of $13 million.

(3) INCOME TAXES The detail of federal and state income tax provisions is set forth below:

1980 1979 1978 (Thousands of Dollars)

Current income taxes Federal

$(2,212)

$ 6,787 995 State 427 1,678 321 Total current (1,785) 8,465 1,316 Deferred income taxes, net Investment tax cred!ts 3,627 155 (43)

Federal 1,796 (3,402) 8 State 390 (741) 1 Total deferred 5,813 (3,988)

(34)

Total income taxes-

$ 4,028

$ 4,477

} I,282

Such provisions (credits) are included in the accompanyiag statements of income as follows:

1980 1979 1978 (Thousands of Dollars)

Operating expenses

$ 4,023

$ 4,485

$ 1,277 Other income 5

(8) 5 Total income taxes S 4,028

$ 4,477

$ 1,282 Deferred income taxes are comprised of the tax effects of timing differences as follows:

1980 1979 1978

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(Thousands of Dollars)

Investment tax credits

$ 3,627 155 (43)

Interest capitalized 1,150 117 4

Spent nuclear fuel storage accruals (2,684)

(2,162)

Provision for revenues subject to possible refund 2,098 (1,098)

Liberalized deprociation 1,617 Other 5

5 Deferred income taxes, net

$ 5,813

$(3,988)

(34)

The reasons for the difference between total tax expense and the amounts calculated by applying the federal income tax rate to pretax income are as follows:

1980 1979 1978 (Thousands of Dollars)

Expected tax at 46% of pretax income in 1980 and 1979 and 48% in 1978

$3,807

$ 4,732

$2,087 Tax effect of differences:

Book depreciation over tax depreciation 452 91 490 Amortization of gain on redemption of bonds deferred in prior years (99)

(85)

(71)

Adjustment of prior yeads accrual (932)

Investment tax credits (549)

(775)

(459)

State tar net of federal benefit 441 506 167 Other, net (24) 8 Total income taxes

$4,028

$ 4,477

$1,282 Effective income tax rate 49%

44%

30%

Tax returns through 1976 have been audited by the Internal Revenue Service. Tax provisions no longer needed subsequent to the examination were reversed in 1978.

(4) CAPITAL CONTRIBUTIONS The Sponsor companies are obligated under the terms of the Capital Funds Agreements entered into with the Company in 1964 to provide their percentage ownership of capital to the Company either through common stock purchases or loans or ad*,ances.

The total obligation of the Sponsor companies under t'ais Agreement is limited

.to an aggregate amount of $70,000,000, of which approximately

$32,000,000 was available at December 31, 1980.

The Company has also entered into Five-Year Capital Contribution Agreements with each of the Sponsor companies as of November 1, 1980. The Agreements allow the Company to borrow (and to repay and

^ reborrow) from the Sponsor companies, based upon their percentage ownership of the Company's common stock, an aggregate amount up to

$40,000,000.

In December 1980, the Company borrowed $5,000,000 from the Sponsor companies pursuant to these Agreements at an interest rate of,, rime rate plus 1-1/2 percent.

(5)' LONG-TERM DEBT Details of long-term debt outstanding are as follows:

1980 1979 (Thousands of Dollars)

First mortgage bonds, Series A, 4-1/2% due

.Janua ry 1,-.1993

$14,730

$17,861' Firtt' mortgage bonds, Series B,' 9-3/4% due-July 1, 1986 13,800 13,800 Pollution control notes:

8.375% notes _due 1984 4,000 5,000;

.6'.0%' notes.due 1997 6,375_

6,750 Five-year bank loan' 20,000 20,000 Loans from Sponsor companies (Note 4) 5,000 Unamortized premium 15 20 63,920 63,431

Less: Amounts due within one year, net of-reacquired bonds-8,775 1,375

$55,145'

$62,056

~The First Mortgage Indenture, secured by utility plant,1 requires

deposits of $945,000 semiannually through July-1, 1992 of cash and/or Series A Bonds into a Sinking Fund. Series'B Bonds have annual serial maturities 1of '$1,400,000 on. July 1, 1981-1985 and a final' maturity _of $6,800,000 'cni July 1,1986. --During the life of the' indenture,, cash dividends on common stock'are limited to retained earnings' accumulated after December 31, 1975, the undistributed balance of which' amounted to $4,767,000 at December 31,'1980.

The Pollution' Control Notes maturing in 1984 'are to be. retired 7 y-annual' deposits of- $1 million to 'a sinking -fund commencing in b

1980. The: Pollution Control Notes maturing in 1997 are to be-

. retired ~by annual" deposits of $375,000 to a sinking fund which commenced in 1979.

. -The'five-year term unsecured loan is withLthe Connecticut Bank

.'and Trust Company (CBT), Chase Manhattan Bank, N.A. and Chemical'.

Bank for.$5' million, ;$7.5;million and $7.5. million[ respectively.

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.The interest rate on this loan is 105 percent of CBT's floating prime: rate to February 28, 1981, 106 percent of CBT's floating prime rate from March 1, 1981 to and l7 eluding August 31, 1981 and 107 percent-of CBT's floating prime rat from September 1, 1981 to

.the maturity date of August 31, 1983.

Prior to March 1, 1981, these rates may be renegotiated. At December 31, 1980, the interest rate was 22.6 percent. Quarterly sinking fund payments of $2

.million will become due and payable commencing June 1, 1981.

-(6) SHORT-TERM DEBT The Company'has available bank credit lines totaling $25,000,000 of which $6,000,000 was available at. December 31, 1980. These credit lines. require compensating ~ balances equal to 5 percent of the'line of. credit plus 15 percent o' the,.verage borrowings. The credit lines can be withdrawn at any.ttw for good cause at the option of.the banks. The interest rate on any borrowing against the credit line will be at.the prime rate.

Additional informttion with' respect to short-term debt is as follows:

1980 1979 1978 (Thousands of Dollars) a Weighted average interest rate-ii

.for borrowinga outstanding at i

year end:

.Not'es payable to banks 21.5%

Commercial paper.

13.9

'10.4 1 Maximum amount of borrowings outstanding during the. period:

Notes payable to banks

$22,500

$ 5,000

$10,000 1:

Commercial paper.

24,800 20,100-19,800 Average' daily;borrowings during the year:

Notes payable to banks.

$ 2,285

$ 1,271.

=$ 1,585 Commercial _ paper

-14,252 16,406 15,343:

Weighted lsverage interest

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-rate.during'the period:

Notes payable to banks 21.8%

12.2%

9.4-%

Commercial papero 12.4 11.2 7.8

. Range of maturities 1at-6 December 31.(in: days)

Notes'payableLto banks 14-23

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2-32 3-32

-Commercial paper'

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._. w.-- _,_. -, -.,

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(7) PENSION PLAN The Company has a noncontributory retirement plan wnich covers substantially all employees. The Company's policy is to annually fund an actuarially determined contribution which includes that year's nonial cost and the amortization of prior service costs over twenty years. -Total pension cost approximated $394,200 in 1980,

$223,300 in 1979, and $214,500 in 1978.

Accumulated plan benefits information, as estimated by consulting actuaries, and plan net assets for the Company's plan is presented below:

January 1, 1980 1979 (Thousands of Dollars)

Benefits:

Vested S 820

$ 610 Nonvested 368 203

$1,188

$ 813 Net assets available for benefits

}2,200

$1,673 The assumed rate of return used to determine the actuarial present velee of accumulated plan benefits was 6.5 percent in 1980 and 1979.

'(8) COMMITMENTS AND CONTINGENCIES The Company currently forecasts nuclear fuel expenditures to be approximately $32,050,000 in 1981 and $164,393,000 for the years 1982-1986, and construction expenditures to be approximately

$28,961,000 in 1981 and $48,852,000 for the years 1982-1986.

It is expected that cc,.pliance with present and future statutes, and regulations established-by vsrious federal and state authorities, in the areas of nuclear plant licansing and operation, land use, water and air quality, and other environmental matters will require additional capital expenditures and increased operating costs the amount of which is not now determinable..Sdditional-expenditures may also be required as a result' of the Nuctear Regulatory Commission's analysis of the Three Mile Island accident.

In addition, uncertainties related to the reprocessing or permanent storage of nuclear fuel may rem '.re revisions in future nuclear fuel costs.

The Price-Anderson Act currently limits public liability from a single accident at a nuclear power plant to $560 aillion.

If the total damages resn1 ting frou the accident exceed the private pool insurance coverage of $160 million, then the Company would be required to pay its share of the excess. Under the provisions of the Supplementary Power Contracts the Company's share, which would be a maximum of $5 million, would be passed on to the Sponsor companies.

(9) QUARTERLY FINANCIAL DATA (UNAUDITED)(a)

Quarter Ended March 31 June 30 September 30 December 31 (Thousands of Dollars) 1980 (a)

Operating revenue

$16,277

$18,512

$24,050

$19,713 Operating income

$ 3,025

$ 3,059

$ 3,221

$ 1,768 Net income

$ 1,152

$ 1,222

$ 1,206 669 Earnings per common share

$3.29

$3.49

$3.45

$1.91 1979 (b)

Operating revenue

$12,878

$17,400

$15,312

$17,030 Operating income

$ 1,599

$ 4,829

$ 2,507

$ 4,392 Net income

$ (109)

$ 3,167

$ 643

$ 2,107 Earnings per common share

$(0.31)

$9.05 S1.83

$6.03 (a) Fluctuations in the last quarter of 1980 were primarily due to adjustments resulting from the November 21, 1980 final FERC rate decision (see Note 2).

(b) Fluctuations between quarters during 1979 were primarily due to estimates used in the billing process which were corrected in each subsequent month.

(10) IMPACT OF CHANGING PRICES (UNAUDITED)

The.following supplementary information was prepared on the basis prescribed by the Financial Accounting Standards Board in

-Statement of Financial Accounting Standards No. 33, " Financial Reporting and Changing Prices", for the purpose of providing certain information about the effects of hanging prices.

Since inflation accounting is expe'.imental in nr+ure, it should be viewed as an estimate of the. approximate effect of inflation, rather than as a precise measure. Fixed assets, nuclear fuel and related depreciation and amortization expense appearing in the historical cost financial statements have been restated to show the effect of both general inflation (constant dollar amounts) and changes in specific prices (current cost amounts). Restatement of other items would not materially affect the restated amount of operating income.

1 Statement of Income Adjusted For Changing Prices i

For the Year Ended Decerber 31, 1980 Conventional Constant Dollat Current Cost Historical Average Avera ge Cost 1980 Dollars 1980 Dollars (Thousands of Dollars)

Operating revenues

$78,552

$78,552

$ 78,552 Depreciation and nuclear fuel' amortization 23,656 31,447 39,095 Other operation and maintenance

~ Federal and state income taxes 37,894 37,894 37,894 expenses 4,023 4,023 4,023 Interest expense 6,910 6,910 6,910 Taxes other than income taxes 1,906 1,906 1,906 Other income =(expenses) 86 86 86 Net income (loss) (excluding

' adjustment to_ net recoverable cost)

$ 4,249

'$(3,542)

$(11,190)

- Increase in specific prices (current cost) of fixed assets a

and_ nuclear fuel held _during the year (aj

$ 19,739 Adjustment to net recoverable cost

$ 7,094 27,985 Ef fect of increase in general price level-(32,982)

' Excess of increase in specific 1

prices; af ter. adjustment to net recoverable cost over increase'in' general price level-

$ 14,742

- Gain from decline in purchasing power of net _ amounts owed

$12,367

$~12,367 (a) At December 31, 1980, current cost of fixed assets and nuclear fuel, net 'of' accumulated deprec.ation and amortization, was $288,502,000, while. historical ~ cost or net cost recoverable through depreciation was $172,887,000.

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a Five-Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices (In Average 1980 Dollars, except historical amounts)

Years Ended December 31, 1980 1979 1978 1977 1976 (In Thousands of Dollars, except per share amounts)

L Operating revenues:

Historical

$78,552

$62,620

$40,770

$38,191

$36,373 Constant dollar 78,552 71,088 51,494 51,931 52,650 Net income (loss)-(excluding

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adjustment to net recoverable cost):

Historical

$ 4,249

$ 5,808 Constant dollar (3,542) 3,307 Current ' cost.

(11,190)

(11,863)

. Income (loss) per common share (excluding adjustment to net 5

recoverable cost):

E Historical

$ 12.14 u$.16.60 Constant dollar (10.12) 9.45 Current cost (31.97)

_(33.89)-

- Net assets at year-end:

Historical

$51,129

$49,680 Constant dollar and current cost 48,834 53,332 L

Excess offincrease in general price. level over increase in specific prices after adjustment: to net recoverable

-cost:

-Current cost

- $(14,742)- $ 1,051-Gain:from decline'in pur-chasing power of: net amounts,

owed

$12,367

$12,725 Cash-dividends declared per icommon' share:

i-Historical ~

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-$18.00

$ 8.00: $. 9.00.

$. 7.80,

- Constant dollar 7.92-9.01 10.04 12.14 11.29 Average consumer price index 246.8.

217~4 195.4 181.5-

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Constant dollar amounts rep esent historical costs stated in dollars of equal purchasing power, as measured by the average level of the Consumer Price Index for all Urban Consumers (CPI-U) during the year. With the exception of CWlP, the data for plant was determined by applying the appropriate CPI-U to the historical cost of plant.

4 Constant dollar restatement adjusts transactions orginally 7

recorded in dollars of varying purchasing power into dollars of equal purchasing power. The restated amoun.s do not purport to be appraised value, replacement cost, current value, or the individual prites of particular goods and services in the current market; nor are they indicative of the Company's future capital requirements.

Current cost amounts reflect the changes in specific prices of plant from the date.the plant was acquired to the present. They are based on estimates of the costs to acquire or produce today, assets identical to those owned or assets having the same service potential as the assets owned.

The current cost of plant and equipment was determined by indexing the-historical cest of plant by the applicable llandy-Whitman Index of Public Utility Construction Costs. Nuclear fuel accounts reflect the currer.t replacement cost of such fuel based on current market prices. Both the constant dollar and current cost amounts of land have been estimated by using the CPI-U.

The current. year's depreciation expense for both c.onstant dollar. and current cost methods was determined by applying the Company's depreciation rates to indexed plant amounts.. Accumulated depreciation of plant under both methods was estimated by multiplying the respective cost data.by a percentage representing the expired life ~of existing facilities at December 31, 1980.

Amortization of nuclear fuel on the constant dollar and current cost methods was computed based on the Company's present refueling cycle.

' As prescribed in Statement of Financial-Accounting Standards No. 33, income taxes were not adjusted.

1 The results of operations, under both current cest and constant L

dollar. statements, show a net loss. This is the result'of increased depreciation expense on inflation-adjusted' assets.

In addition, the Company will eventually have to replace its assets at a price many times greater than the~ original' cost, without having the opportunity"to recover the replacement.value of its assets through historical cost depreciation.

~An adjustment to incomeitaxes would also;be necessary to re-flect the true impact of inflation. LPresent income tax regulations

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do not. give ef fect to the decline in. purchasing power of the dollar.

Although a loss would-result in lower income tax, this is not.taken into account in the-adjusted income statements.,

Inflation erc.*es the value of the dollar.

Generally during periods of increasing inflation, holders of monetary assets suffer a loss of purchasing power, while holders of monetary liabilities experience a gain. The gain from the decline in purchasing power of net amounts owed is attributable to the substantial amount of debt used to finance property, plant and equipment. However, this

" gain" is not a revenue item and, therefore, cannot be considered additional funds for reinvestment or dividend distribution.

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