ML20012C648
| ML20012C648 | |
| Person / Time | |
|---|---|
| Site: | Shoreham File:Long Island Lighting Company icon.png |
| Issue date: | 12/31/1989 |
| From: | Catacosinos W, Steiger W LONG ISLAND LIGHTING CO. |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| SNRC-1697, NUDOCS 9003220322 | |
| Download: ML20012C648 (53) | |
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y gg[ y LONG ISLAND LIGHTING COMRANY sHOREHAM NUCLEAR POWER STATION wnv m:auenwa m,mr.,e,em u WILLIAM L STEIOER, JR.
~ At03 TANT VICE PRESIDENT. NUCLE AM OPERATIONS SNRC-1697' MAR 151990 -
U.S. Nuclear Regulatory Commission
-ATTN: Document Control Desk
-Washington, D.C;- 20555 Annual Financial-Report
- Shoreham Nuclear Power Station-- Unit 1 Docket No. 50-322 I:
Gentlemen:
The purpose of this-letter is to transmit the financial-information required by 10 CFR 50.71(b). Attached please find a copy of the-Long Island Lighting Company's 1989--Annual Financial Report.
- If there are any questions concerning this information, please contact-this office.
O /
y fj L~
W.-E.1Stei e , Jr.
Assistant Vice President
-Nuclear, Operations
=DRH/ck Attachment
-cc: S. Brown T. T. Martin L. Doerflein g;
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'Ii 9003220322 891231 PDR I
ADOCK 05000322 PDC
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lamgIsl:nd Lighting Comp:ny .
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1 supplies electric and gis service in Nassau ' ,' .--
- and Suffolk Countics and the Rockaway k Peninsula in Queens County, all on Long
- Island, New York. The 1,230-square mile -
service area contains a population of '
approximately 2.8 million personsc Connecticut
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Kings Atlantic Ocean mi Jonee Beach inTerritory Served By Long Island Lighting Company e
.m . Table of Contents Highlights 1
'Ib Our Shareowners 2 Electric Operations 5 Reliability and Response 7
- Gas Expansion 9 Customer Outreach 11 Training 13 Looking Ahead 15 FinancialReview 16 Audited Financial Statements About the Cover and Notes 21 LILCO energy expert Mike Hughes (left)
Report ofIndependent Auditors 41 assists a commercial customer in planning Selected Financial Data 42 for the energy needs of a new office complex.
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1 "Ib Our Sharenwners '2 l
, , q In 1989 we set t he company gi anted a 5 percent rate increase on a course toward financial on December 1,1989 and approved health - we received a rate an additional 5 percent increase p.i .
increase for the first time in three which is expected to become years, resumed dividend payments ofTective on December 1,1990. ,
y and refinanced our high cost debt. The agreement also targets rate i
- Rating agencies demonstrated increases of between 4.5 percent '
renewed confidence in our to 5 percent for each subsequent financial condition by signifi year through 1998. I cantly upgrading each of the Renewed Financial Strength company's securities. The settlements opened the 3 Settlements Mark Turning door to financial recovery -
l Point enhancing our shareowners'
' On June 28,1989, LII.00 investment in the company. In l shareowners approved an agree. 1989, LILCO's common stock l .
i ment negotiated with New York price rose more than 50 percent 1 a ...
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State that ended the controversy surrounding Shoreham. Share-during the year, On June 30,1989, LILCO sold j 4 c..
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l owners also endorsed a class $1 1 billion of debent ures - the William J. Catacosinos action smknient that rmhed a largest single debt offering ever Chmrman and Chief l Decurrer O//icer civil lawsuit brought by SufTolk by an electric and gas utility. The County against the company and sale reflects the invest ment certain of its former ofTicers. These community's continued confi.
two agreements removed many dence in the company. In August, of the financial uncertamties LILCO redeemed $495 million surrounding the company, of the company's outstanding l'nder the terms of the agree- general and refunding bonds - a ment with the state, Shoreham move that will save the company l will be transferred to t he Long approximately $17 million each Island Ibwer Authority iLIPAi. an year in interest.
agency of New York State, for $1; in addition, the company LILCO will receive annual rate renegotiated a $446 million increases over a ten-year period; seven year term bank loan, and the state will assist the obtained a $300 million bank line company m meeting the energy of credit and sold $100 million of needs of Long Island. tax-exempt bonds.
As part of the settiement con- In September, we paid our cernmg Shoreham, t he Pubhc preferred stoch dividend Service Commission i PSc i made arrearages aggregating $390 l permanent a temporary 5 4 million, resumed preferred l
percent rate increase it had dividend payments for the first I approved in February 1959. time m five years e.nd sold $320
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- 2 million of preferred stock as part In 1990,we hope to make surgein home heating oilprices
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da pmgram to refinance our high applications to the NRC to during December's bitter cold
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cost debt and equity. On October 1, further reduce the costs at prompted calls from hundreds of i f . 1989,we resumed dividend pay. Shoreham in preparation for homeownersinquiring how they
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. mentstoour common shareowners transferring the Shoreham plant could convert to natural gas heat. 1 tt the rate of $.25 per share per to LIPA.The state authority has We have secured additional gas i L . quarter. indicated it will decommission supplies to provide natural gas to l
- Shoreham Update Shoreham and is expected to file more customersin the 1990s.
, Our settlement agreement a decommissioning plan with the On January 11,1990,the PSC l
with New York State prohibits the NRC. LIPA is also studying the approved a 1.28 percent increase
- companyfromoperatingShoreham. feasibility of converting the in our natural gas rates,which
, . 'Ib protect the interests ofits share- facility to a natural gas-fired will raise $5.5 million for the t' owners,the company pursued a generating plant. company each year.The gas rate full power operatinglicense for Electric And Gas Outlook increase,the first for LILCO in
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- reham pending final approval Our planners project Long six years,will help us expand our i
l of tha settlement. On April 20, Island's demand for electricity to gas facilities. )
.1989, the Nuclear Regulatory grow by approximately 1.5 percent New Service Culture
.C:mmission(NRC) authorized a cach year over the next several With the Shoreham full-powerlicense for Shoreham, years. We are meeting increased controversy behind us,we are
- but thicompany fulfilled its demand through an aggmssive usheringin a new era marked by 1obligitions under the settlement energy conservation program, the serviceimprovements. Employees by not operating the plant, emergence ofindependent power are working closely with manage-In August, plant staff producers and the construction of ment to explore new ways to t
removed the fuel rods from the new combustion turbine genera, improve service to our customers.
t re ctor vessel as stipulated by the tors. Cooler weatherlast summer It's an exciting. productive process -
F ; settl: ment, prompting the NRC to held peak demand below 1988's that's making LILCO a etmnger,
- .cIlow us to reduce stafTing at the record settinglevels,but during more eflicient company.
. pl:nt and shut down various a month.long deep freeze in On behalfof the Board of
, systems normally required for December,we set new records for Directors,I extend my sincere L full power operation. Since the winter electric consumption. appreciation for your interest settitment prohibits us from We are expanding our natural and support as we strive to return L cper: ting Shoreham, we have gas system to keep pace with the company to financial health
' csked the NRC toissue a "zero growing demand. In 1989, we and provide our customers with power" license to reflect the installed new gas mains in unparalleled service.
' current status of the plant. In eastern LongIsland to bring this Sincerely, addition, we are seeking an economic fuel to more neighbor-4x;mption from offsite emergency regulttions and insurance hoods. More than 7,400 Long Island homes and businesses Q, g g requirements to reduce our became new gas heat customers.
William J. Catacosinos costs at the plant.The NRC has LILCO's low-cost natural gas Chairman and Chic /
y;t to render a decision on these has triggered keen competition in Executiec O//icer requests. , the home heating market. A n
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Electric Operations 5
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' Electric use on Long Island continues to inerease -
up 17 percent in the last five years. The power supply situation remained tight,but cooler temperatures held last summer's peak demand short of the record set in 1988. During a month long cold snap in "Pi pointing ' December, new records for winter electric consumption pos:Ible were set on two difTerent days.
failures and LILCO was able to meet peak customer demand fire-tuning the by installing new turbine generators, implementing tnits have a comprehensive energy conservation program and Electric System Sales (Mdhons of Kilowatt ilours6 provided our operating the company's aging generating plants cu; timers with efliciently. h arellible During the fall and spring, skilled LILCO gn hhh vp" source of engineers and technicians perform periodic overhauls o 4 14TMK) ha cl:ctricity." on generating units. An extensive $20-million pre- ,
Ltb-nwn~ ; y; n; ventive maintenance program in the power plants paid ?
.L f num; yt off- LILCO plant operators kept their units running U u sw ' %s even on the most demanding days.
" Pinpointing possible failures and fine. tuning the ss se at 88 - so
. units have provided our customers with a reliable source of electricity," said James Flynn, group vice president of Engineering and Operations.
In July, we completed the installation of three combustion turbine generators. On line ahead of schedule and under budget, the turbines provide an yor exanann additional 240 megawatts ofpower on peak demand days.
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' ower shortages in 1989. By participating in the the energy needs of Long1sland. company's energy conservation programs, businesses and households helped shave 132 megawatts from peak demand.
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bliability and Response 7 i .. .
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LILCO successfully managed the critical electricity shortage on Long Island during the 80s - providing reliable, responsive electric service. Customer satisfac-tion will continue to be a challenge in the 90s. LILCO has made significant strides in satisfying customers as
" Red:cing the demonstrated by the steady reduction in our customer freq=ncy complaint rate.
and duration In September, LILCO's responsiveness was put to ofettages Reduction in the test when the remnants ofIlurricane llugo hit Long Customer depends on . . . Island with wind gusts approaching 100 miles per hour mPlaints (Per 100.000 Customers) c ye:r round - knocking out power to more than 107,000 customers. ,,
devotion to LILCO emergene) service crews, working 16 hour1.851852e-4 days <br />0.00444 hours <br />2.645503e-5 weeks <br />6.088e-6 months <br /> shifts, h1 system restored service to all customers within 48 hours5.555556e-4 days <br />0.0133 hours <br />7.936508e-5 weeks <br />1.8264e-5 months <br />.
3 miintenance." " Reducing the frequency and duration of outages f depends on our ability to respond quickly when a
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Bill M useler, vice president of Electric Operations. 1 As part of our reliability program, we began es 88 - et as 89 installing additional radio controlled switches through-
- out the company's 45,000 miles of power lines. The switches isolat e electric line problema remotely, enabling our operators to restore service to customers more quickly 'Ib minimize the inconvenience power outages Electric linemen Arthur Van Gorden cause, we are developing a complex computer program and Chirles Tansey QSyly,"tive to let individual customers know how long it will take
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[ttsNmers with in 1989 we installed 57 miles of weather resistant reli:ble electric service. plastic covered wire and scanned 2,600 miles of power lines to detect potential trouble spots before they cause power outages. We also trimmed trees for 38,000 customers and pruned along 1,700 miles of power lines to keep branches from interfering with electric lines.
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0 L 3 Cas Exp:n:lon 9 More and more Long Islanders are ergoying the outstanding value of natural gas for heating -its cleanliness convenience and economy. In 1989,7,400 Long Island homes and businesses became new gas heat customers. The company expects to add about
. . . we are 130,000 new gas space-heating customers over the exp:nding our next decade, citurd gas To meet growing demand, we are expanding our cystem to make Growth in Gas natural gas system to make this premium fuel Heating this premium .
available to more customers. Canadian gas from the Customers GnThousands) ftul cvailable Iroquois Pipeline will play a maior role in LILCO's g, to more gas expansion system. The pipeline, extending 369 .
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miles irom Canada to Long Island,is expected to be , tv2 Gbe = .y 4 F y completed by 1991* 7qpg Y g
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' in 1989 LILCO installed 20,000 feet of new gas, m ( .C n-vg yf or " vent ure," mains in eastern Long Island to bring fl natural gas to many neighborhoods. The three. mile-
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long Yaphank main in eastern SufTolk County will
$ks provide natural gas for up to 10,000 customers. 65 66 87 '8 88 An intensified marketing program has encouraged more customers to " turn on the comfort" of gas heat and increr. sed our share of the home heating market.
Long considered the most dependable and eflicient source of space heating, Long Islanders realized the ;
economy of gas heat this winter when home heating oil pricesjumped 50 percent during December's record Gas equipment operator Bill Kiente C Id 8""P-g n a n a p rt "Nearly 240,000 LILCO customers use natural of LILCO's gas expansion program. gas for heating, representing 20 percent of the heating market on Long Island," said Jay Kessler, vice presi-dent of Gas Operations. "We have a tremendous opportunity to expand our gas business to provide more customers with gas heat."
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In 1989 we improved our consumer outreach
. programs and developed new services to respond to customer concerns. .
"Our customer representatives are available 24 ;
hours a day, seven days a week, to serve customers at "Our c:stomer their convenience," said Walter Wilm, vice president of representatives Customer Relations. "We encourage customers to call cre cvr.ilable us anytime, day or night." '
24 h:urs a We are committed to helping our customers control
'Ibtalllome Energy d;y, seven their energy costs. In 1989, LILCO energy specialists Audits Conducted ]
(In Thousands) d ys a week, performed free home energy audits for over 22,000 ;
to serve Long Islanders. In a brand new program for the 90s, h customers LILCO energy experts provide assistance in weather-14, n m h
y, .m , ., ~; ;ke ttth:fr izing the homes oflow income families. ii M
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}f-convenience." More than 36,000 senior citizensjoined our f ;j[ l :
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" Golden Link" program this year - doubling the size <1 so[f'M r< <
, J of the program to 72,000 members. And we provided I 73 no a more than 30,000 s,chool children with electric and k
gas safety demonstrations. 85 86 87 88 In one of the most innovative programs in the ,
utility industry, LILCO consumer advocates are reaching out to hundreds of customers with fm' ancial hardships to work out payment agreements, arrange energy budgets and provide help when applying for various government assistance programs.
Et$ ray [iNorour This year we introd uced large print and braille
$isf[cIs' tom [r$th bills for our visually impaired customers. We SIso have billing inquiries and . , ,
special equipment to receive typewritten messages by pmides information about our many outreach programs. telephone for hearing and speech impaired customers who have compatible ('ITY) devices at home.
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. We are engaged in an extensive employee training program as part of our commitment to provide cus-tomers with unparalleled service. More than two-thirds of our workforce receives detailed training annually to learn new skills, upgradejob performance and enhance M:re than professional development, two-thirds Many employees receive specialized instruction in ofcur their profession at the company's J.W. Dye, Jr. Training workforce Center in Hauppauge. Over 95 different courses in CustomerInquiries ree:ives topics ranging from forklift operatious to digital Handled un Thousands >
detailed electronics are taught by LILCO experts and outside ,
training consultants, gs, cnnurlly . . . RMTPQ tyTP-'-
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intensive classroom and on thejob training to prepare wppg [l ,w them to respond to the more than 1.4 million business _g'$ w g' , y ?j inquiries from customersin 1989. '5, , 9 We focus much of our attention on storm restora- ['
tion training. Under the company's Storm Restoration Plan, all 6,200 LILCO employees turn from their n 86 87 88 a regularjobs to emergency storm duties. When storm-related outages occur, this specialized training enables workers to respond quickly and effectively to minimize incom'enience to our customers.
LILCO's training programs stress safety on the job at all times. Our electric and gas service crews
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- learn to protect themselves, their fellow workers
$'dd te h aa "j$."ErEnj u and our customers when installing or repairing C:ntir - home of
' the most modern service equipment, wekling lab in the country. In addition to being experts in their particular field, each LILCO employee - from corporate officer to field worker - has participated in customer sensitivity training to improve their understanding of our customers' concerns.
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3 looking Ahe d 15 The 19808 marked a decade of tremendous growth in energy demand on Long Island. Our customer base !
swelled 26 percent to nearly one million, peak electric demand climbed 11.6 percent to an all time high of ;
3,822 megawatts and peak gas demand reached a f Our people record of 463,000 decatherms. Aner years of political tre1:ading discord, we ended the controversy surrounding the this new servlee Shoreham nuclear power plant, regained financial c ulture by strength and embarked on a program to become a Electric Customer providing premier service company for the 90s. Growth an Thous. ands) prompt and Our people am leading this new service culture by effici:nt pmviding prompt and efficient service to our cus- I service to our tomers. We are nurturing a customer driven culture imo g yw.m h '
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c=tomers. throughout the company by recognizing that many yd, mms morre y 4 y;M_
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transform our corporate culture to a customer driven 8s , so 87 as 89 ,
company. Our new management team and dedicated employees are reexamining the way we do business so we can become more responsive to the concerns of our customers.
Our employees are meeting in small " focus groups" to explore ways to improve the eiTiciency of our opera-t tions. In this way, employees participate in the decision.
Order reprenentathy making process to help reorient our company to better Judy Gine turns on ch etric .ervice at serve our customers.
a farmstand on eastern Long Mand. Backed by a talented work force, LILCO is poised to tackle new challenges and thrive in the competitive environment of the 90s. We are proud of our accomplish-ments this past year and look forward to adding " service-driven" to our list of achievements in the new decade.
Financial Revizw
? a Overvien The class action settlement (the Class Settlement P resolves a civillawsuit brought against the Company The year 1989 marked a year of transition and and certain ofits former Officers by ratepayers acting fin k989,the first such " * " ' ** tmder the der RacketeerInnuenced and I O r e (g 0 edditional cash revenues ni more than three years and The Class Settlement, which is discussed further in resumed preferred and common stock dividend Note 5 of Notes to Financial Statements, provides for payments for the first time m five years. The Company rate reductions aggregating $390 million to be made sold equity securities for the first time in six years and to the Company's ratepayers' monthly electric bills over for the first time in four years was able to utilize tax- a ten-year period beginning in June of 1990. For infor-exempt securities. Also,in 1989,the rating agencies mation concerning contingencies relating to the Class sigmficantly upgraded their ratings on each of the Sdm> see Note 6 of Notes to Financial Statements.
Company's prmespal securities.
In1989,amongetheraccomplishments theCompany: The 1989 Settlement
- Sold $1.1 billion of debentures; As pan of the 1989 Settlement, the Company and -
- Restructured its $446 million of bank debt; the State entered into an agreement (the 1989 Issues
- Established a $300 million Revolving Credit Agreement) which provides for the transfer of Shoreham Agreement (the 1989 RCA) with its banks; and recites that the parties intend to return LILCO to
- Redeemed $595 million of higher interest rate investment grade financial condition.
General and Refunding Bonds (G&R Bondsh On April 13,1989, the Public Service Commission of the State of New York (the PSC) approved a Rate
- Resumed the payment of preferred stock hioderation Agreement (the Rh1At The RhiA provides dividends, including the payment of $390 that the Company will receive rate increases of 5.09 on million of arrearages; December 1,1989 (which the Company is currently
- Sold $320 million of preferred stock: receiving),5.09 on December 1,1990 and targeted
- Resumed the payment of common stock annual rate increases thereafler of 4.59 to 5.09 in dividends at the annual rate of $1.00 per share, each year for the following eight years through 1998. In of which 254 per share, or approximately $28 addition, the temporary 5.49 rate increase granted by million,was paid in 1989; the PSC in February 1989 was made permanent when
- Restructured $165 million ofletters of credit; the 1989 Settlement becamo ellective. The 5.49 rate increase granted in February and the 5.09 rate increase
- Redeemed approximately $300 million of higher granted in December provide the Company with an dividend rate preferred stock; "d increase in cash revenues of approximately
- Utilized $100 million of tax exempt securities. """""".*l h.
$165 mi on.
These accomplishments followed a settlement with The rate increases contemplated by the Rhl A are New York State (the State)concerning the Shoreham designed to provide the Company with pre tax interest Nuclear Ibwer Station (Shoreham') and a settlement of coverage ratio targets of 1.3 to 1.4 times in 1990 and a class action suit with ratepayers. Both settlements 1991 and an allowed return on common equity of 139 became effective on June 28,1989, when shareowners in 1990 and 12.759 in 1991, approved them. The RhiA does not reflect the impact that the Class The Shoreham settlement (the 1989 Settlement) Settlement will have upon future rates that are provided with the State is designed to eliminate the controversy by the Rh1 A. However, the Company estimates that over Shoreham by providing for the transfer of Shoreham such rate increases will only be approximately .29 to .39 to an agency of the State. lower than they would otherwise be under the rate The controversy had jeopardized LILCO's financial structure embodied in the Rh1A.
viability because the Company had not been permitted to recover a significant portion ofits investment in Shoreham. The 1989 Settlement provides for fixed rate increases in 1989 and 1990 and annual targeted rate increases through 1998.
t 37 Further, the PSC cuthorized the Company to r ecord Fina cialCondition on its books the Financi:1 Resource Asset (the FRA) which mpmsents the present value of the future net.
after-tax cash flows which the RMA provided the t ber 31,1989, the Company's cash and short Company for its financial recovery. The FRA will be km m. vestment balances wen $340 million, compared to $93 million at December 31.1988. In addition, the amortized over a forty-year period and a full return will Company has $300 milhon of endit available to it '
be cllowed on the unamortized balance. The Company
- '1992, pmvided by the 1989 RCA.
recorded the asset on its books at the end of June 1989 c t cn cmount of appmximately $4 billion. This hne of credit is secured by the Company's accounts For the next several years, a substantial portion of mecivable and fuel oil mventories. The termination date the Company's earnings will be non cash earnings f the 1989 RCA may be extended for one year periods reflecting the rate structure under the RMA. For 1989, up n the Company's request. At December 31,1989, no these non cash earnings were approximately $131 amounts were outstanding under the 1989 RCA.
million.The Company estimates that its non cash The 1989 Settlement is mtended to provide the c:rnings could approximate between 80490% of carn. Company with adequate and timely rate relief which, ings for the years 1990 and 1991 and decrease thereafter. together with continued access to the capital markets,is Th) RMA provides for full recovery of these non cash expected to enable the Company to meet its operatm, g earnings by approximately 1999. and capital requirements. The Company does not believe it will need to access the capital markets to meet its On April 17,1989, the Company received a private ,
1:tter ruling from the Internal Revenue Service con. operatmg and capital requirements in 1990.
firming LILCO's entitlement on its federal income tax The 1989 Settlement assumes that the Company is t be allocated up to $500 million (at a minimum of $100 return to an abandonment loss deduction in connection
'*U' " E*'I""",' ough 1993)of the New York State with Shoreham as a result of the 1989 Settlement.The C;mpany will claim this deduction for 1989 which will private activity bond volume cap to permit the Company cntitl3 the Company to an estimated tax refund of to utilize tax exempt securities. In 1989, the Company utilized $100 million of such securities. In 1990, the cpproximately $23 million.
Company m, tends to apply for permission to utih,re at At December 31,1989, the Company's Net Operating Loss (NOL) carryforward is estimated to be $2.1 billion. least an additional $100 milhon of these tax exempt The Company estimates that the NOL carryforward will securities with the proceeds prmeipally used to reim-be utilized to reduce federal income tax payments within burse the Company for expenditures previously meurred th> 15 year statutory carryforward period, f r qualifyms facilities. This will,in turn, permit the Company to retire higher cost G&R Bonds previously On April 21,1989, the Nuclear Regulatory Com-issued. If market conditions permit, the Company may mission (the NRC) issued a full power operating license f:r Shoreham, but the 1989 Settlement prohibits the issue debentures m 1990 to refinance certain other currently outstanding higher cost G&R Bonds.
Company from operating Shoreham and calls for the O:mpany to transfer Shoreham to an agency of the State Capital Requirements and Capital Provided '
following NRC approval. The Company expects to file an In 1989, capital requirements amounted to $1.9 cpplic: tion in 1990 with the NRC to transfer Shoreham billion and consisted of construction requirements, cnd expects the agency of the State to apply to the NRC refundings, dividends and Shoreham post settlement f:r authority to decommission Shoreham. costs. Construction requirements were $201 million, 5 For a further discussion of the 1989 Settlement, see refundings amounted to $1,2 billion and dividend Note 5 of Notes to Financial Statements. Contingencies payments on the Company's preferred stock and rel: ting to the 1989 Settlement are discussed in Note 6 common stock amounted to $418 million and $28 ofNotes to Financial Statements, million, respectively. Shoreham post settlement costs in 1989 amounted to $75 million, including $36 million of property taxes.
For 1990, total capital requirements (excluding Shoreham post settlement costs) are estimated at $324 million, of which construction requirements are estimated to be $235 million, refundings are $7 million, preferred stock sinking fund requirements are $14 million and preferred stock dividends are $68 million.
Capital requirements and capital provided for 1989 and 1988 were as follows:
? 18 Th> ch:rt below indic*tes th> ratings for each of the Capital Requirements: 1989 1988 (munons o/donars; Company's principal securities ct December 31,1989 l
Construction and the minimum investment grade rating used by Electric each agency.
hor 7 ham $ 104 $ 369 Moody's S&P Fitch _ D&P Nine Mile Point 2 (NMP2) 6 19 First Mortgage Bonds Ba1 BB+ BB+ BBB-Fuel 6 9 G&R Bonds Bal BB+ BB+ BB+
Non Nuclear 121 144 Debentun.s Ba2 BB- BB- BB- ,
Total Electrie 237 541 Preferred Stock ba3 BB- BB- B Gas 50 37 Minimum investment Common 10 9 Grade Haa3 BBB- BBB- BBB-Total Construction 297 587 Less: NMP2 Reimbursement - 52 Capitalization FSA Revenues 96 203 Capitalization (defined as the total of Long/Ibrm Total Construction 201 332 Debt, Pref (rred Stock and Common Shareowners' ,
Equity) was approximately $7.2 billion at December 31, Refundings and Dividends Long Term Debt 621 43 1989, an increase from $6.6 billion at December 31,1988.
Short. Term Debt 112 - The approximate $547 million increase in capitalization ,
Bank Loans 112 37 reflects the increase in debt associated with the 1989 I nancing activity, partially ofTset by the payment of e Dividends -
dividends (including the payment of $390 million of Common Stock Dividends 28 -
Treasury Stock 1 18 preferred stock dividends in arrearsi, and a reduction in retained earnings caused by the Company's 1989 loss.
Total Refundings and Dividends 1,600 98 The 1989 loss results from recording non cash
- 43 charges to net income which resulted from the 1989 re am Post Settlement Costs -
Settlement and the Class Settlement becommg effective Total Capital Requirements 8 1,876 $430 and from the cessation of the allowance for funds used I
during construction (AFC) accruing on its Shoreham 1989 1988 investment effective January 1,1989, the aggregate Capital Provided:
(muhone o/douars; effect of which is approximately $382 million, net of tax benefits, or $3.43 per share.
(Increase in)Une of Cash Balances $ (247) $ 118 Long Term Debt 1,542 -
Under the 1989 Settlement, the Company recorded Short. Term Debt 112 - on its books the write off ofits remaining investment in +
Preferred Stock 309 -
Shoreham (and other related assets) and the establish-tern 1 ash Generation from m n ss nspng hMmm,ap the reduction of net income resultmg from the cessation Operations 241 312 Total Capital Provided 8 1,876 $430 wrste-off, totaled approximately $269 milhon, net of tax benefits. Upon the effectiveness of the Class Settlement, For further information, see the Statement of Cash the Company recorded a charge to income of approxi-Flows and Note 1 of Notes to Fmancial Statements. For mately $113 million which represented the present information with respect to Financial Stability Actiust- value, at June 30,1989, of the total amount of the Class ment (FSA) revenues, see Note 5 of Notes to Financial Settlement, net of tax benefits.
Statements. Capitalization, at December 31,1988, was approxi-Investment Rating mately $1.4 billion lower than the December 31,1987 The Company's securities are rated by Moody's balance of $8.0 billion. The decrease in 1988 was caused Investor Service, Inc. (Moody's), Standard and Pbor's by the Company's 1988 loss which was attributable to a Corporation (S&P), Fitch Investor Service, Inc. (Fitch) write down of net assets amounting to approximately and DufTand Phelps(D&P). $1.3 billion, net of tax benefits, or $12.10 per common During 1989, each of the rating agencies upgraded share resulting from the adoption of Statement of its ratings of the Company's principal securities. At Financial Accounting Standards Na 90 (SPAS Na 90).
December 31,1989, LILCO's First Mortgage Bonds At December 31,1989,1988 and 1987, the compon-were rated minimum investment grade by D&P. At ents of the Company's capitalization ratios were as December 31,1989, D&P rated the Company's G&R follow 8:
Bonds one " notch" below minimum investment grade.
i The Company's First Mortgage Bonds and G&R Capitalization Ratios 1989 1988 1987
!- Bonds were rated one " notch" below minimum invest- Long-Term Debt 63.1 % 51.79 46.4%
l ment grade by each of the other three agencies at Preferred Stock 9.7 15.4 12.1 December 31,1989. Common Shareowners' Equity 27.2 32.0 41.5 100.0% 100.09 100.04 l
o
'l 19
- Results of Operations Electric Rcrenurs In 1989, clectric rev:nues Earnings increased $196 million, or 11.0% ov:r 1988. Rev: nun In 1989, the Company incurred a loss for common in 1988 had increased $68 million, or 4.0% , over 1987, stock of approximately $175 million, or $1.57 per The increases in electric revenues resulted primarily common share resulting from recording non cash from the following factors:
charges to net income reflectit!g the 1989 Settlement and the Class Settlement becoming effective and the 89'88 88'87 cessation of accruing AFC, the aggregate effect of which <mulions ofdollarsi is c pproximately $382 million, net of tax benefits, or Customer Consumption 8 (45) $ 59
$3.43 per common share. Excluding these items, Customer Additions 17 23 earnings for common stock in 1989 would have been nue Accruals 3
(", big I
- pproximately $207 million, or $1.86 per common share. Rate Inercases 75 -
In 1988, the Company incurred a loss for common Total $ 196 $ 68 stock of approximately $1.1 billion, or $10.08 per common share resulting from a non cash write-down Average customer consumption decreased by .2% ,
c ttributable to adopting SFAS No. 90. The write down or approximately 25 kilowatt. hours in 1989, with the cmounted to approximately $1.3 billion, net of tax decrease attributable,in part, to cooler summer weather benefits, or $12.10 per common share and resulted in 1989 as compared to 1988. The successful implemen-principally from certain costs of Shoreham and NMP2 tation of the Company's energy conservation programs which the PSC determined the Company may not was also a contributing factor to the decrease in con-recov:r. Before this write down, earnings for common sumption. The average number of electric customers stock in 1988 were approximately $224 million, or $2.02 served in 1989 was approximately 995,000, up 9,500, or per c:mmon share. 1.0% over 1988.
N:t income (Loss), Earnings (Loss) for Common Unbilled revenue accruals represent revenues Stock, and Earnings (Loss) per Common Share are which have been earned on electric service supplied to shown below for the years 1989,1988 and 1987. our customers, but not yet billed to them. See Note 1 of Ncres to Financial Statements.
1989 1988 1987 Revenues from fuel cost adjustments were higher un mulions, acept per share amounts) in 1989, due primarily to an increase in oil prices. The N;t income (1,oss) $ (95.8) $ (1,046.6) $ 269.9 average cost of oil burned in the Company's steam Earnings (Loss)for generating plants in 1989 was $17.83 per barrel, com-C mmon Stock 8 (175.0) $ (1,121.1) $ 192.3 pared with $15.78 per barrel in 1988. The average cost
- mo hr 8 (1.57) $ (10.08) $ 1.73 of oil burned in 1987 was $18.16 per barrel, in 1989, the Company was granted rate increases of The loss in 1989 and the loss in 1988 were attrib- 5.4% on February 15 and 5.0% on December 1. No rate utable to the items previously mentioned. Also increases were grantedin 1988, contributing to the overall variance bet ween 1989 when (;as Revenues
- In 1989, gas revenues increased by c:mpared to 1988 were higher operating expenses and $14 million, or 3.8%, compared to 1988. Revenues in oper: ting taxes as well as higher interest expenses in 1988 had decreased $2 million, or .79, compared to 1989 ofiset, in part, by higher revenues. The overall 1987. The increases (decreases)in gas revenues resulted v;ri: nee between 1988 when compared to 1987 includes primarily from the following factors:
high:r revenues and lower federal income taxes, due to lower tax rates in 1988 offset, in part, by reductions in gg.gg gg,g7 AFC and increases in expenses.
dero Revenues Customer Consumption $6 $6 Tbtal revenues in 1989, including revenues from Customer Additions 4 5 recovery of fuel costs, ware $2.3 billion, which represents FuelCost Adjustments 4 (13) cn increase of $210 million, or 9.89, over 1988 revenues. Total 8 14 $ (2)
'Ibtal revenues for the Company's electric and gas opera.
tions for 1989,1988 and 1987 are shown below:
1989 1988 1987 (millions ofdollars)
Revenues 1 Electric $1,983 $ 1,787 $ 1,719 Gis 365 351 353 Tot:1 Revenues 8 2,348 $ 2.138 $ 2.072 i
2D The increase in tv: rage customer consumption in Depreeiiti:n expense increased by $10 million in -
1989 was 1.53 dekatherms (dth), or 1.2%, despite 1989 end by $20 million in 1988, prim:rily cttributabl>
warmer winter weather. to the addition of Nhf P2 to plant in service in 1988.
The average number of gas customers served in Interest expense increased by $54 million in 1989, 1989 was 424,000, up 5,100, or 1.24, over 1988. principally due to the financing activities, and by $3 Revenues from fuel cost adjustments were higher in million in 1988. Changes in rates were also a con-1989, due primarily to an increase in gas prices. The tributing factor to changes in interest expense in both cverage cost of gas sold in 1989 was $3.31 per dth, com- 1989 and 1988.
pared with $3.10 per dth in 1988. The average cost of gas In addition to the charge to income recorded on June sold in 1987 was $3.12 per dth. 30,1989, resulting from the Class Settlement becoming in January 1990, the Company was granted a $5.5 efTective, the Company recorded non cash charges to million gas rate increase, or approximately 1.3%. income during the second half of 1989 of $16 million, or
$11 milli n, net of tax benefits, for the ongoing carrying Operating and Maintenance Expenses c st8 n mpany s Mgadon unk Mass Excluding fuels and purchased power, operating and Settlement.
maintenance (O&hi) expenses were $427 million in In January 1990, the Company, the other cotenants 1989, an increase of $69 million, or 19.4%, over 1988. In of NMI 2, the PSC and other mterested parties reached 1988, these O&M expenses increased $16 million, or an agreement subject to final documentation resolving 4.6'k, over 1087. The increases in 1989 and 1988 were all NMP2 ratemaking issues with respect to the con-principally attributable to costs of maintaining produc- struction of NMP2 and its operation through January tion plant in an effort to further improve customer 19,1990. Under the terms of the agreement, the service. The success of this efTort was evidenced by the Company a share of disallowed costs would aggregate extraordinary performance and reliability levels of the approximately $11 million, or $7 million, net of tax Company's electric generation facilities during the past benefits, and these costs were charged to income in 1989.
three. year period. Higher costs for employee wages and in December 1989, the Company recorded an addi-medical insurance also contributed to the increases. In ,
tional charge to earnings of $7.2 million which reflects 1989, the Company embarked on aggressive energy con- revisi ns to certam estimates relating to the 1989 servation programs which, while reducing the use of Settl ment.
cnergy by its customers, also contributed to the increase (f O&M expenses in 1989 through the implementation portion of the Company's earnings. AFC is a non-cash of such programs. O&M expenses in 1989 also include credit to income that represents the cost of borrowed costs associated w ith the first full year of operation funds for construction purposes and a reasonable rate cf NMP2, w hereas in 1988 NMP2 was placed in com-upon a utility's other funds when so used. The amount mercial operation in the second quarter. of AFC fluctuates from period to period with changes in Otheritems the cost of money, the level of construction activity, For a discussion of the accounting treatment of the the amount of construction work in progress included in 1989 Settlement and the Class Settlement, see Note 5 of rate base, and modifications in regulatory policy and the Notes to Financial Statements. effect of regulatory disallowances.
Federal income taxes, excluding tax benefits As a result of the cessation of accruing AFC on attributable to the write down of net assets in 1988, the Company's investment in Shoreham effective were $1.1 billion lower in 1989 than in 1988. In 1988, January 1,1989, and the effectiveness of the 1989 these taxes were $57 million lower than in 1987. The Settlement in June 1989, AFC will no longer be a decrease in 1989 was principally due to the tax benefits significant component of the Company's earnings, but resulting from the abandonment loss deduction in con- other non cash income will be substantial, generated nection with Shoreham as a result of the 1989 Settle- principally by the accretion over the next several years ment and the Class Settlement. Changes in federal of a component of the FRA. For a further discussion of income taxes are also due to variations in net income AFC and the 1989 Settlement, see Note 5 of Notes to before income taxes, recognition ofinvestment tax Financial Statements.
credits and items capitalized for financial statement Selected Financial Data purposes that are allowed as current deductions on the Additional information respecting revenues, Company's tax returns.
expenses, electric and gas operating income and Operating taxes, predom.mantly property taxes, . operations data, capital expenditures and balance were $364 million in 1989, compared to $311 milhon in sheet information for the last five years is provided in j 1988 and $300 million in 1987. Tables 1 through 10 of Selected Financial Data.
Information with regard to the Company's business segments for the last three years is provided in Note 8 of Notes to Financial Statements.
i Nascial Statements si i Statement of Income l
For year ended December 31 (in thousands ofdollars except per share amounts) 1989 1988 1987 {
' Revenues
~ Electric $ 1,983,288 $ 1,786,933 $ 1,718,861 !
Gas ' 364,326 350,901 353,216 l
TotalRevenues 2,347,614 2,137,834 2,072,077 '
Expenses I
Operations - fuel and purchased power 772,452 674,429 685,689 Operations-other 297,518 248,698 240,713 Mitenance 129,788 109,198 101,287 Depreciation, depletion and amortization 103,430 93,596 73,905 j Base financial component amortization 50,485 - -
Rate moderation component (131,167) - -
Regulatoryliability component 750,554 - -
J:mesport amortization 104,160 - -
Operating taxes 364,391 310,864 300,159 1 Feder:1 income tax-current 14,612 18,395 83,577 :
Feder:1 income tax (credit)- deferred and other (729,032) 181,716 204,143 Total Expenses 1,727,191 1,636,896 l
1,689,473 OperatingIncome 620,423 500,938 382,604 ,
OtherIncome and(Deductions) l All:w:nce for other funds used during construction, !
net of financial stability adjustment revenues (54,918) 75,491 127,958 j Oth:r income and(deductions) 33,630 (10,049) 14,885 1989 Settlement (303,947) - -
Cl:ss Settlement (186,000) - -
Federalincome tax credit-current - - 80,597 I Feder:1 income tax credit - deferred and other 322,991 88,264 - 38,269 ,
Total OtherIncome and(Deductions) (188.244) 153,706 261,709 Income Before Interest Charges and Cumulative Effect of Accounting Change 432,179 654,644 644,313 ,
5 terest Charges and(Credits)
Interest onlong term debt 453,267 410,966 410,097 Oth rinterest 31,366 19,702 17,404 Allm nee for borrowed funds used during construction, net of financial stability adjustment revenues 43,349 (74,514) (53,076) .
Tctil Interest Charges and (Credits) 527,982 356,154 374,425 I come(Loss)Before Cumulative Effect of Accounting Change (95,803) 298,490 269,888 C:mulative Effect of Accounting Chswe for Disallowed Costs "
(net of applicable taxes of $448,978) - (1,345,110) -
NetIncomo(Loss) (95,803) (1,046,620) 269,888 ,
Pref rred stock dividend requirements 79,232 74,508 77,576 E:rninge(Loss)for Common Stock $ (175,035) $(1,121,128) $ 192,312 Av: rage Common Shares Outstanding (000) 111,215 111,177 111,129 E rninge(Loss) pet Common Share Income (loss) before cumulative effect of accounting change
- f r disallowed costs 4 (1.57) $ 2.02 $ 1.73 Cumulative effect of accounting change -
(12.10) -
E:rninge(Loss)per Common Share $ (1.57) $ (10.08) $ 1.73 Dividinds Declared per Common Share $ .50 $ -
Pro Fcrma Earnings - with 1988 Accounting Change
. Applied Retroactively E;rnings for common stock $ 223,982 $ 176,712
' Errnings per common share $ 2.02 $ 1.59 See Notes to FinancialStatements.
(2 Balance Sheet Assets At December 31 (in thousands of dollars) 1989 1988 Utility Plant Electric $ 3.119,085 $ 2,965,213 Gas 519,979 476,950 Common 131,989 128,866 Construction work in progress 128,820 4,249,845 Nuclear fuel in process and in reactor 42,743 199,379 3,942,616 8,020,253 Less - Accumulated depreciation, depletion and amortization 1,161,459 1,075,129
- Total Net Utility Plant 2,781,157 6,945,124 Regulatory Asset Base financial component (less accumulated amortization of $50,485) 3,988,344 -
Other Property and Investments Nonutility property, principally at cost 4,574 1,027 Investment in subsidiary companies, at equity 355 334 '
Bokum Resources Corporation - 66,767 Other investments and deposits 1,121 1,143 Total Other Property and Investments 6,050 69,271 Current Assets Cash 15,963 13,647 Temporary cash investments 324,341 78,902 -
Special deposits 27,636 17,940 Accounts receivable (loss allowance for doubtful accounts of $5,072 and $4,239) 234,060 193,083 Accrued revenue 173,031 96,110 Materials and supplies at average cost 82,776 46,997 Fuel oil at average cost 36,232 36,581 Gas in storage at average cost 35,422 35,971 Prepayments and other current assets 52,571 52,703 Total Cur;mt Assets 982,032 571,934 Deferred Charges Accumulate ( deferred income taxes 262,298 525,029 Rate moderation component 102,971 -
1989 Settlement charges 106,248 -
Shoreham post settlement costs 75,044 -
Unamortized storm damage costs 40,902 44,048 Unamortized cost of issuing securities 150,610 52,689 Unamortized cost of Jamesport abandoned generating project - 98,616 Other 24,382 19,626 Total Deferred Charges 762,455 740,008 Total Assets $ 8,520,038 $ 8,326,337 See Notes to Financial Statements.
23 1
Capitalization and Liabilities At December 31 an thousands o/ dollars) 1989 1988 i Capitalization Long term debt ' $ 4,560,016 $ 3,449,821 i Unamortized premium and i (discount) on debt (28,587) (25,011) l
_ 4,531,429 3,424,810 Preferred stock - redemption required 541,187 513,924 Preferred stock - no redemption required 155,592 221,050 Treasury stock, at cost - (58,430)
Retained earnings restricted for preferred stock dividend requirements - 341,008 Total Preferred Stock 696,779 1,017,552 {
C:mmon stock 556,247 555,965 Premium on capital stock 991,724 1,001,328 C:pital stock expense (42,916) (56,151)
Retained earnings 436,690 679,579 ;
Total Common Shareowners' Equity 1,941,745 2,180,721 T tal Capitalization 7,169,953 6,623,083 )
C::rrent Liabilities Curnnt maturities oflong term debt 7,000 274,780
- Current redemption requirements of preferred stock 13,638 19,888 Accounts payable and accrued expenses 229,755 164,977 Accrued taxes (including federal income taxes of $25,631 and $12,570) 98,435 35,877 Accrued interest 64,425 70,207 Dividends payable 39,173 -
Customer deposits 18,459 17,288
~ Total Current Liabilities 470,885 583,017 Deferred Credits 1989 Settlement credits 191,933 -
Clras Settlement 164,040 -
Accumulated deferred income taxes 430,933 963,975 Other 81,443 144,015 Total Deferred Credits 868,349 1,107,990 Heserves for Claims, Damages, Pccslons and Benefits 10,851 12,247 Commitments and Contingencies - -
Tctal Capitalization and Liabilities $ 8,520,038 $ 8,326,337 See Notes to Financial Statements.
22 Shareowners' Equity -
At December 31 an thousands of dollars) 1989 1988 1987 j Statement of Retained Earnings Balance, January 1 8 679,579 $ 1,801,919 $ 1,609,268 Add - Restricted for preferred stock dividend requirements at beginning of year 341,008 265,288 188,051 Add (deduct) - Net income (loss) for the year (95,803) (1,046,620) 269,888 Deduct - Cash dividends declared on preferred stock 429,749 - -
Deduct - Cash dividends declared on common stock 55,618 - -
Deduct - Capital stock expense 2,727 - -
Deduct - Restricted for preferred stock dividend requirements at end of year - 341,008 265,288 Balance, December 31 8 436,090 $ 679,579 $ 1,801,919 Call Price Per Share 1989 Final Preferred Stock Par Value $100 per Share, Cumulative:
Shares authorized 7,000,000 7,000,000- 7,000,000 Shares issued and outstanding 2,624,172 2,715,116 2,793,227 Shares held in treasury * - 283,500 205,404 5.00% Series 3 $101.00 $101.00 $ 10,000 $ 10,000 $ 10,000 4.25% Series D 102.00 102.00 7,000 7,000 7,000 4.35% Series E 102.00 102.00 20,000 20,000 20,000 4.35% Series F 102.00 102.00 5,000 5,000 5,000 51/8% Series II 102.00 102.00 20,000 20,000 20,000 5 3/49 Series I Convertible 100.00 100.00 3,592 4,050 4,052 8.12% Series J 101.00 101.00 25,000 25,000 25,000 8.30% Series K 103.29 103.29 30,000 30,000 30,000 7.40% Series L" 103.88 100.00 23,450 27,650 27,650 8.40% Series M" 104.20 100.00 28,000 33,600 33,600 8.50% Series R** 102.50 100.00 30,000 45,000 45,000 9.80% Series S** 103.00 100.00 60,375 72,562 72,562 Total Par Value $100 $ 262,417 $ 299,862 $ 299,864 l
Par Value $25 per Share, Cumulative:
Shares authorized 30,000,000 30,000,000 30,000,000 Shares issued and outstanding 17,920,000 17,140,000 17,348,600 Shares held in treasury * - 1,060,000 851,400
$2.47 Series O** $ 25.75 $ 25.25 $ 30,000 $ 40,000 $ 40,000
$2.43 Series P 28.50 27.75 35,000 35,000 35,000
$3.31 Series T" 26.25 25.00 63,000 75,000 75,000
$4.25 Series U" - - - 65,000 65,000
$3.50 Series V" - - - 75,000 75,000
$3.52 Series W - - - 65,000 65,000
$3.50 Series X** - - - 100,000 100,000
$2.65 Series Y** 27.65 25.00 320,000 - -
Total Par Value $25 $ 448,000 $ 455,000 $ 455,000 Less - Sinking fund requirements 13,638 19,888 13,025 Less - Treasury stock at cost * - 58,430 40,881
- Add - Retained earnings restricted for preferred stock dividend requirements - 341,008 265,288 Total Preferred Stock $ 696,779 $ 1,017,552 $ 966,246 Common Stock Par Value $5 per Share Shares authorized 150,000,000 150,000,000 150,000,000 Shares issued and outstanding 111,249,468 111,193,008 111,149,818 Increase in shares outstanding 56,460 43,190 44,823 Increase in $5 par value $ 282 $ 216 $ 224 Increase in premium on capital stock 608 149 221 Increase (decrease) in capital stock expense (13,235) 7 6 See Notes to Financial Statements. *Reid to meet annual sinking fund requirements. " Redemption required, see Note 2.
e .
25
- Statement of Cash Flows For year ended December 31 (7n thousands of dollars) 1989 1988 1987 Operating Activities:
' Net Ineome (Loss) $ (95,803) $ (1,046,620) $ 269,888 A4lustments to reconcile net income (loss) to net
. cash provided by operating activities:
Cumulative effect of accounting change for disallowed costs - 1,345,110 -
Depreciation, depletion and amortization 103,430 93,596 73,905 Base financial component amortization 50,485 - -
l' Rate moderation component (131,167) - -
Regulatory liability component 750,554 - -
Jamesport amortization 104,100 -- -
1989 Settlement 303,947 - -
Class Settlement .
186,000 - -
Federal income taxes (credit) - deferred and other (1,052,023) 93,452 165,874 Allowance for other funds used during construction 1,106 (177,656) (258,623).
Other 40,481 19,873 32,462 Changes in operating assets and liabilities:
Accounts receivable (41,980) (24,766) 2,991 Accrued revenue _ (97,983) (31,185) . (1,585)
M:terials and supplies, fuel oil and gas in storage (6,681) 8,414 (26,256)
Prepayments and other current assets 23,890 4,965 (16,209)
Accounts payable and accrued expenses 42,818 11,814 3,249 l Accrued taxes 66,750 9,577 (6,345) l Other (7,456) 5,695 (32,527) l N:t Cash Provided by Operating Activities 240,588 312,269 206,824
- I; vesting Activities:
! C:nstruction and nuclear fuel expenditures (297,396) (586,514) (507,414)
Funneial stability a$ustment revenues 96,180 203,013 184,862 Construction and nuclear fuel expenditures, net of fimancial stability a@ustment revenues (201,216) (383,501) (322,552)
Shoreham post settlement costs (75,044) - -
E Receivable - Nine Mile Point 2 settlement - 52,200 -
! Other (393) (532) (434) nit Cash Used in Investing Activities (276,653) (331,833) (322,986)-
Financing Activities:
Proceeds from issuance oflong term debt 1,541,350 - -
Proceeds from issuance of short term debt 111,585 - -
Redemption of long term debt (732,585) (81,195) (24,000)
Redemption of short term debt (111,585) - -
Proceeds from sale of preferred stock 309,120 - -
Redemption of preferred stock (307,738) - -
- Preferred stock dividends paid (418,387) - -
Common stock dividends paid (27,807) - -
Acquisition of treasury stock (1,400) (17,549) (15,179)
Cost of issuing long term debt (53,156) (280) (601) l ~ Cost related to the sale or preferred stock (24,827) - -
Other (750) 356 437
. N;t Cash Provided by (Used in) Financing Activities 283,820 (98,668) (39,343)
~ Ntt Increase (Decrease)in Cash and Cash Equivalents 8 247,755 $ (118,232) $ (155,505)
C:sh and cash equivalents at beginning of year $ 92,549 $ 210,781 $ 366,286
' Ntt increase (decrease) in cash and cash equivalents 247,755 (118,232) (155,505)
Cash and Cash Equivalents at End of Year 8 340,304 $ 92,549 $ 210,781 See Notes to Financial Statements. i
- Notes to Financial Statem:nts .
28 Note L Summary of Signific:nt Nine Mile Point 2 -
Accounting Policies The Company has an 189 undivided interest in
. Nine hiile Pbint 2 (Nhf P2), a nuclear power plant near The Company's accounting poh. .cies conform to Oswego, New York. The cotenants of NhiP2, in addition generally accepted accounting prmeiples (GAAP) as to the Company, are Niagara hiohawk Pbwer Corpora-they apply to a regulated enterprise. Its accountmg tion (NhiPC), New York State Electric & Gas, Rochester records are maintamed m accordance with the Uniform Gas and Electric Corporation and Central Iludson Gas System of Accounts prescribed by the Public Service & Electric Corporation. At December 31,1989, the Commission of the State of New York (PSC) and the Company's net utility plant investment in NhiP2 was Federal Energy Regulatory Commission (FERC). $836 million, net of accumulated depreciation of $38 Utility Plant million, which is included in the Company's rate base.
Additions to and replacements of utility plant are The Company's share of expenses associated with NhiP2 recorded at original cost, which includes material, labor, is included in the appropriate operating expenses in overhead and an allowance for the cost of funds used the Statement ofIncome. The Company is required to ,
during construction (AFC), net of Financial Stability provide its respective share of financing for any capital A$ustment (FSA) revenues. The cost of renewals and additions to NhiP2.
betterments relating to units of property is added to NhiPC has contracted with the United States utility plant. The cost of property replaced, retired or Department of Energy (DOE) for the disposal of nuclear otherwise disposed ofis deducted from utility plant and, fuel. The Company is reimbursing Nhf PC for its 18%
g:nerally, together with dismantling costs less any share of the cost under the contract of $1.00 per megawatt salvage, is charged to accumulated depreciation. The hour of net generation.
cost of repairs and minor renewals is charged to The Company has been informed by Nhf PC that m:intenance expense hiass properties (such as poles, its 184 share of the cost to decommission NhfP2 is wire and meters) are accounted for on an average unit currently estimated to be $37 million (in 1989 dollars).
cc:t basis by year ofinstallation. This estimate assumes that decommissioning of NhtP2
- **".neg n 202me amounWawumulakd Allowance for Funds Used During Construction w numni mnge s s neludedin theCompany,a The Uniform System of Accounts defines AFC,
. electric rates is $222,000, which is based on a prior which is not an item of current cash income, as the net estimate of $22 million (in 1984 dollars) for the cost of borrowed funds for construction purposes and Company's 184 share of decommissioning NhiP2 in a reasonable rate of return upon the utility's equity, 2027. The Company will seek recovery in rates for these when so used. AFC is computed monthly using a increased decommissioning costs, rate permitted by FERC on that portion of construct,on i In June 1988, the Nuclear Regulatory Commission work in progress (C% IP) which is not included in the (NRC) issued new regulations governing the funding of ;
Company's rate base. It is the Company's pohey not t I nuclear plant decommissioning costs. These regulations record AFC or interest on costs upon receipt of an order require the use of an external trust fund and accelerate l from a regulator disallowmg such costs for ratemaking
_ previous funding requirements. A formal funding plan purposes or when it is probable that such costs will not must be submitted to the NRC no later than July 27 I be allowed for ratemaking purposes. The portion of AFC 1990. 7b the extent that the NRC funding requirement relatm, g to borrowed funds is included in the Interest is greater than the corresponding decommissioning Charges and(Credits)section of the Statement ofIncome, costs aHowed in rates by the PSC, the Company may be The average annual AFC rate, without givmg required to make deposits of the greater amount and ,
effect to compounding was 12.204,12.129 and 13.53%
w 11 seek recovery in rates. I for the years 1989,1988 and 1987, respectively. The everage annual AFC rate, net of tax, which had been Revenues l epplied to the Shoreham Nuclear Power Station Effective January 1,1988, the Company recorded I (Shoreham) CWIP, without giving effect to compounding, an asset for electric unbilled revenue, for all customers was 9.90%,9.95% and 11.784 for the years 1989,1983 through December 31,1987, and a corresponding liability and 1987, respectively. amounting to $63.2 million to conform to an order of the PSC in its December 1987 rate decision. Pursuant to the Depreciation same rder,the Company is amortizing theliability and, The provisions for depreciation result from the therefore, increasing electric revenues by approximately application of straight line rates to the original cost, by ,
$1.8 million per month, subject to any changes which I groups, of depreciable properties in service. The rates are determined by age. life studies performed annually the PSC may subsequently make to the level of amor ,
on depreciable properties. Depreciation was equivalent
" "' *'" E" " # "" **""*'*
e nf nm.ty with the I SC order, me N'luding the liability to approximately 3.2%,3.6% and 3.5% for electric and 2.9%,2.8% and 2.7% for gas of respective average am au n, nma 8 kW menues om W i depreciable plant costs for the years 1989,1988 and 1 1987, respectively.
1
e 27 electric nvenues by approximately $29.5 milli:n. SFAS Na 96 will b) prohibit n:t of tax accounting cnd Previously, unbilled revenue was recognized only for reporting and (b) require recognition of a deferred tax customers billed on a bi monthly cycle basis for the liability for (in the tax benefits which are flowed through month in which they are normally not billed. to its customers and (ii) the equity component of AFC.
A regulatory asset or liability should be recognized FuelCost Adjustments relating to such items ifit is probable that the future The Company's electric and gas tariffs include fuel increase or decrease m taxes payable thoreon shall be cost cdjustment clauses representing the difTerence ree vered from or returned to customers through future between actual fuel costs and the fuel costs allowed in the Company's base tariff rates. The Company, to raks Compan@s nomp(e aupGM No. 96 prior to January 1,1992, w hich will provide achieve a proper matching of costs and revenues, defers additional time for the Company to complete its eval.
these adjustments, net of related income tax effects, to untion and analysis of SFAS Na 96. The impact of those future periods in which they will be billed or
' S ay n u Statened oMncome is not expected credited to customers.
to be material, llowever, the Company estimates that FERC has ruled that, subject to its regulations,
. . had it adopted SFAS No. 96 at December 31,1989, the interstate pipeline companies may pass on to their Company would have recorded an accumulated deferred customers certain costs which resulted when demand for tu liability and offsetting regulatory asset of approxi.
n:tural gas from interstate gas pipelines dropped off mately $1.5 billion.
bec use of changing market conditions. In 1989, the PSC determined that 87.5% of these coats, known as Reserves for Claims, Damages, tak>or-pay costs, will be recovered from ratepayers, and, Pensions and Benefits secordingly, the Company wrote ofTthe non recoverable Losses arising from claims against the Company portion of such costs estimated to be approximately and extraordinary storm losses are partially self.
$4.7 million, insured. Provisions credited to the reserves are based up n experience, risk ofloss, actuarial estimates and/or Fed:ralIncome Taxes specific orders of the PSC.
The Company provides deferred federal income taxes with respect to certain differences between net income Capitalization Premiums, Discounts bef:re income taxes and taxable income in certain and Expenses in:tances when approved by the PSC, as disclosed in Premiums or discounts and expenses related to the Note 7, The Company defers the benefit of 60% of pre- issuance oflong term debt are amortized over the lives 1982 gas and pre.1983 electric and 100% of all other of the issues. Upon redemption, capital stock expense involtment tax credits, with respect to regulated related to that portion of preferred stock required to be properties, when realized on its tax returns. redeemed is written ofias an adjustment to retained For ratemaking purposes, certain accumulated earnings or,if the preferred stock is redeemed below par d:firred federal income taxes are deducted from rate value, any resulting gain, net of the related capital stock base and amortized or otherwise applied as a reduction expense, is recorded as additional premium on capital (increase)in federal income tax expense in future years. stock. The capital stock expense and redemption costs Accumulated deferred investment tax credits are associated with redeeming Preferred Stock Series U, V, cmortized ratably over the lives of the related properties. W and X and the cost ofissuance of Preferred Stock The t ax effects of other differences between income Series Y are being amortized over ten years.
for financial statement purposes and for federal incom? SupplementalInformation for Statement tax purposes are accounted for as current adjustments in fed:ralincome tax provisions. of Cash Flows The Company considers all highly liquid invest.
In December 1987, the Financial Accounting
. ments with a maturity of three months or less when Standards Board (FASB) issued Statement of Fmancial purchased to be cash equivalents. The Company Accountmg Standards (SFAS)Na 96, Accounting for did not make any federal income tax payments during Income Taxes, effective for fiscal years beginning after 1989. The Company made federal income tax payments December 15,1988. The FASB subsequently deferred of $17,000,000 and $13,044,000 during the years 1988
- thxficctive date of SFAS Na 96 to fiscal years begmm.ng and 1987, respectively. Additionally, the Company cfter December 15,1991. SFAS Na 96 will require' received refunds of federalincome taxes applicable to cmong other matters,(a) recognition of the amount of prior years of $2,660,000, $7,827,000 and $15,650,000
. current and deferred taxes payable or refundable at the during the years 1989,1988 and 1987, respectively. The dite of the financial statements as a result of all events Company made interest payments totaling $475,672,000, that have been recognized in the financial statements end (b) adjust ment of deferred income taxes for an $422,780,000 and $418,065,000 during the years 1989, 1988 and 1987, respectively. . !
enacted change in tax laws. For regulated enterprises, l
l
.~ . .. .. .. .
a
28' Abardorments c2d Disallow =ces Preferred Stock -
of Plant Costs In October 1989, the Company sold 12,800,000 In December 1986, the FASB issued SFAS No. 90, shares of Preferred Stock, $2.65, Series Y, cumulr tive, Regulated Enterprises- Accounting for Abandonments par value $25 per share. The Company used the pmceeds and Disallowances of Plant Costs. SFAS No. 90 requires, from the issuance of the Series Y Preferred Stock to call emong other matters, that a loss be recognized when at applicable redemption prices its high cost Preferred it becomes probable that (i) costs of a plant will be Stock Series U, V, W and X.
disallowed for ratemaking purposes or (ii) the cost of pg gg en abandoned plant is in excess of the present value of None of the authorized shares of nonparticipating the future revenues expected to be realized relative to preference stock, par value $1 per share, which ranks the abandoned plant. As a result of adopting SFAS junior to the preferred stock, are outstanding.
No. 90 eEcetive January 1,1988, the Company a 1988 financial statements reflect a write down of net assets, Common Stock amounting to approximately $1.3 billion, net of tax Of the 150,000,000 shares of authorized common effects, or $12.10 per common share, which was stock at December 31,1989,1,927,062 shares were recounted for as the cumulative ofTect of a change in reserved for sale to employees,6,802,247 shares were accounting principle. This write.down related prin- committed to the Automatic Dividend Reinvestment cipally to certain costs of Shorehnm determined to be Plan, and 209,469 shares were reserved for conversion imprudent by the PSC in 1985 and to the estimate as of of the Series I Convertible Preferred Stock at a rate of January 1,1988 of the Company's share of NMP2 costs $17.15 per share.
In excess of the amount provided in the settlement Common Stock Dividends emong the cotenants of NMP2. Further, the Company On August 14,1989 and November 15,1989, the had recorded in 1988 an adjustment reflecting revised Company's Board of Directors declared common stock estimated NMP2 disallowed project costs that are dividends of $.25 per share payable on October 1,1989 meluded within the settlement among the cotenants and January 1,1990, respectively. Dividend limitations of NMI 2.This adjustment reduced the write down contained in the mortgage securing the Company's recorded efTective January 1988 b) $3.2 milh,on, net of First Mortgage Bonds are not material.There are no tax effects, and is reported in the Other income and dividend limitations contained in the Company's other (Deductions)section of the Statement ofIncome. An debt instruments.
additional NMP2 adjustment was recorded in December 1989, which is more fully discussed in Note 9. In June Note 3. Debt at December 31 1989 the Company recorded the effects of the 1989 Settlement and in December 1989 recorded an addi- Each of the Company's four mortgages is a lien on tional charge to earnings reflecting revisions to certain substantially all of the Company's properties, estimates relating to the 1969 Settlement, which are pgg ,
discussed in Notes 5 and 9. All of the bonds issued under the First Mortgage, including those issued ann June 1,1975 and pledged Note 2, Capital Stock with the Trustee of the G&R Mortgage (G&R Trustee)
Preferred Stock Dividends as additional security for General and Refunding Preferred stock dividends are cumulative. On Bonds (G&R Bonds), are secured by the lien of the First September 1,1989, the Company paid dividends Mortgage. First Mortgage Bonds pledged with the amounting to approximately $390 million on all series G&R Trustee do not represent outstanding indebted, of preferred stock, then in arrears. At December 31, ness of the Company. Amounts of such pledged bonds 1989, there were no preferred stock dividends in arrearn. outstanding were $449 million and $469 million at December 31,1989 and 1988, respectively. The annual Preferred Stock Sinking Funds First Mortgage depreciation fund and sinking fund Redemption of various series of preferred stock is requirements for 1989, due not later than June 30, effected through the operation of various sinking fund 1990, are estimated at $175 million and $12 million, provisions. However, the Company's Certificate of re8pectively. The Company expects to meet these Incorporation prohibits the retirement of preferred stock requirements with property additions and retired First so long as dividends are in arrears. On July 25,1989, M rtgage Bonds, simultaneous with the declaration of all preferred stock dividends in arrears, the Company satisfied sinking fund requirements totaling approximately $56 million then in arrears on all series of preferred stock by crediting previously acquired shares of preferred stock held in the Company's treasury. The aggregate par value of preferred stock required to be redeemed in each of the years 1990 through 1994 is $13,637,500.
- . ] 29 D&R Mdrtg:ge - .
Oth:rlong!Itrm Debt !
The li:n of the G&R Mtrtgrg) is subordinits to the li:n of the First Mortgage. The annual G&R Mortgage 1989 Credit Agreement -i
-- sinking fund requirement for 1989, due not later than - In February 1989, the Company and certain ofits Jun3 30,1990,is estimated at $26 million. lending banks entered into a credit agreement (the 1989 -
Credit Agreement) pursuant to which an amount up to -
Third Mortgage .
$200 million of credit secured by a first lien upon the The Third Mortgage, which is a lien on substantially Company's accounts receivable and fuel oil inventory cll of the Company's properties, is subordinate to the was made available to the Company. Under the terms of liens of the First Mortgage and the G&R Mortgage this agreement, which was due to expire in February c nd was created in 1984 to secure certain bank debt. 1990, the Company immediately borrowed and applied i Th2 bank debt secured by the Third Mortgage was approximately $112 million to prepay the March, June -
restructured on June 30,1989, at which time, the - and September 1989 payments of approximately $37 0:mpany entered into the 1989 Amended and Restated million each associated with the Company's 1986 RCA.
Restructuring Credit Agreement (1989 %rm Loan On June 30,1989, the Company repaid the $112 million Agreement) pursuant to which the Company is to pay outstanding under the 1989 Credit Agreement. The to its lending banks approximately $446 million pre. 1989 Credit Agreement was subsequently replaced vi:msly outstanding under the 1986 Restructuring by the 1989 Revolving Credit Agreement, described
- Credit Agreement (1986 RCA)in sixteen substantially . immediately below, equil consecutive quarterly installments commencing on Jxnuary 1,1993 and ending on October 1,1996. This 1989 Revolving Credit Agreement On June 30,1989, the Company and certain ofits paym nt schedule deferred, for three years, the repay-mint of the remaining balance outstanding under the lending banks entered into the 1989 Revolving Credit 1986 RCA, the next installment of which would have Agreement (1989 RCA) which provides credit to the -
be:n due on December 31,1989. Pursuant to the 1989 Company through October 1,1992, secured by a first
'Ibrm Loan Agreement, the Company has the option lien upon its accounts receivable and fuel oil inventory, to commit to one of three interest rates including:(i) of up to $300 million. The Company has the option to Adjusted Certificate of Deposit Rate (CD Rate) which commit to one of three interest rates including:(i) the
, CD Rate,(ii) the Base Rate and (iii) the Eurodollar Rate, is c rate based on the certificate of deposit rates of '
Currently, the 1989 RCA is unused and remains certain of the lending banks,(ii) Base Rate which is available to the Company. The Company has agreed to gen: rally a rate based on Citibank a prime rate and (iii) pay a fee of three tenths of one percent per annum on Eurodollar Rate which is a rate based on LIBOR. At the unused portion. The termination date of the 1989
- Dec2mber 31,1989, the Company had approximately
$446 milhon outstandm, g under the 1989 %rm Loan RCA may be extended for one year periods upon the Agreement at the LIBOR Rate which was at 9.55% Company's request delivered to the lending banks in June of each year beginningin 1991, per annum.
Debetures On April 17,1989, the Company issued $375 million e ourt rtgage was created in October 1989 to p;rtially secure,in the amount of $85 million, letters of of d&ntms, ib3Mn,es Due q93.
On July 11,1989, the Company issued $1.1 bilh,on credit, described below under the heading Authority f debentures ($400 milhon,10.25% Senes Due 1994; Financing Notes. The Fourth Mortgage ranks pari passu
$350 milhon,10.875% Senes Due 1999 and $350 with the Thijd Mortgage, million,11.375% Series Due 2019). The Company used
$535 million of the proceeds from the issuance of the debentures to redeem, at applicable redemption prices,
$495 million principal amount of high interest rate G&R Bondsin August 1989.
The Company's debentures rank on parity with all t other unsecured indebtedness of the Company. '
l l
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, 30*
Authority Fin:neing Notes '
L ng Term Debt [
The Company issued $317 million of Authority Financing Notes (Notes) to the New York State Energy At December 31 an thousands ofdollars) 1989 1988
' Research and Development Authority (NYSERDA)to First Mortgage Bonds (excludes Pledged Bonds >
secure certain tax exempt bonds issued by NYSERDA. 5% Serier L Due 1991 $ 25,000 $ 25,000 ,
Of this amount $100 million was issued in 1989, $150 4.409 Series M Due 1993 40,000 40,000 4%9 Series N Due 1994 25,000 25,000 million was issued in 1985 and $17 million was issued 4.55% Series O Due 1995 25,000 25,000 in 1982, all of which are subject to periodic tender by 40,000 40,000 54% Series P Due 1996 the holders thereof, The remaining $50 milh.on of 5%% Series Q Due 1997 35,000 35,000
. Notes were issued at varying fixed rates and are not 8.20% Series R Due 1999 35,000 . 35,000 subject to tender. 949 Series S Due 2000 25,000 25,000
- The $100 million of Electric Facilities Revenue 7%% Series U Due 2001 40,000 40,000 Bonds (1989 EFRBs)were issued in December 1989 by 7%% Series V Due 2001 E0oe 50,000
.. 7%9 Series W Due 2002 (A,000 50,000 NYSERDA with an imtlal interest rate of 61/4% and 849 Series X Due 2003 m,isd 60,000 were remarketed at an interest rate of 6% effective d0,000 Total First Mortgage Bonds 450,000 February 1,1990. The 1989 EFRBs are scheduled to be *"***" "" ~ ~
tendered by the holders on September 4,1990 and Total Less Currgntjaturities 450,000 450,000 r: marketed at such tender date. Thereafter, the 1989 EFRBs are subject to periodic tender by the holders. The General and Refunding Bonds 17%9 Series Due 1989 - 100,000 1989 EFRBs are supported by letters of credit pursuant to which the letter of credit bank has agreed to pay the $ $'l* j $$ l$$$$ <
principal, interest and premium on any tendered 1989 179 Series Due 1991 .- 50,000 EFRBs, in the aggregate, up to approximately $108 12';% Series Due 1992 75,000 75,000 million in the event of default.The obligation of the 13%9 Series Due 1995 225,000 225,000 11%9 Series Due 1996 250,000 250,000 Company to reimburse the letter of credit bank is unsecured. These letters of credit expire on December E75%g ;g Sj s 999 31,1991, at which time the Company is required to 8%9 Series Due 2006 50,000 - 50,000 obtain either an extension orthe letters of credit or 8*;9 Series Due 2007 85,000 85,000 substitute credit backup. If neither can be obtained, 9.20% Series Due 2008 75,000 75,000 14%9 Series Due 2010 - 50,000 the EFRBs must be redeemed unless the Company l
purchases the EFRBs in lieu of redemption and i5 Ei$ 2 subsequently remarkets them- 13%% Series Due 2013 - 105,000 The $150 million of Pollution Control Revenue 11%9 Series Due 2015 275,000 275,000 Bonds (PCRBs) issued by NYSERDA in 1985 are deemed Total General and Refunding Bonds 1,179,000 1,800,000 to be tendered by the holders each March I and are Less current Maturities 7,000 126,000 remarketed at such tender date. The interest rate for Total Less Current Maturities 1,172,000 1,674,000 these PCRBs is subject to redetermination at each tender date and is currently 7%. The letter of credit Third Mortgage I98*
bank, partially secured by the Fourth' Mortgage in the 1986 A 446,341 557,926 amount of $85 million, has agreed, in the event of Less Current Maturities - 148,780 default to pay the principal, interest and premium on Total Less Current Maturities 446,341 409,146 the tendered PCRBs, in the aggregate, up to approxi-mately $165 million. These letters of credit expire on Other Long-Term Debt September 15,1992, at which time the Company is required to obtain either an extension of the letters of
$2 o 11.759 Due 1993 2019 2,175,000 Authority Financing Notes 700,000 credit or substitute credit backup. If neither can be 5%% to 8%9 Due 2006 2019 316,675 216,675 obtained, the PCRBs must be redeemed unless the Total Other Long. Term Debt 2,491,675 916,675 Company purchases the PCRBs in lieu of redemption Less Current Maturities - -
and subsequently remarkets them. Total Less Current Maturities 2,491,675 916,675 The $17 million of PCRBs issued by NYSERDA in To a rm bt Less 1982 may be tendered by the holders every three years. t9 The next such tender will occur in October 1991. The interest rate on the 1982 PCRBs is currently 81/4%. The aurete of the Company's long-term debt due in the next live years is $7,000 (1990), $29,000 (1991), $85,000 (1992), $705,585 (1993) and $715,585 (1994).
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,c 7
31 Note di Retirem;nt Benefit PI:n3 Net periodic pension cost for 1989,1988 cnd 1987 for The Company maintains a primary defined benefit the Primary Plan included the following components:
pension plan (Primary Plan) which covers substantially 39,9 3ggg 3gg7
- all cmployees and a supplemental plan (Supplemental Pl:n)which covers key executives. All pension costs are service cost - benefits earned
. borne by the Company. The Company's funding policy is during the period $ 10,797 $ 9,800 $ 10,858 to contribute annually to the Primary Plan a minimum Interest cost on projected ,
c m ;unt consistent with the requirements of the Employee benefit obligation and
.. Retirement Income Security Act of 1974 (ERISA) plus service cost 31,458 29,004 26,759 c.uch additional amounts,if any, as the Company may Actualreturn n plan assets (49,3161 (34,061) (23,490)
. Net amortization and deferral 22,955 8,773 (847) determine to be appropriate from time to time. Pension Net periodic pension cost $ 15,894 $ 13.516 $ 13,280 ben; fits are determm, ed by creditmg the emphyee with cn amount determined using the base salary for each Assumptions used in accounting for the Primary Plan yerr the employee is a participant in the plan, plus an n 1989,1988 and 1987 respectively, were:
idditional amount credited for each year the employee
. remtins a participant beyond the age of 50. Effective 1989 3938 jgg7 January 1,1989, employees become vested in the pen- :
. c1o.1 plan after five years of service with the Company. $*teoffutur compensation The Supplemental Plan provides, without contribu- increases 6.0% 6.0% 6.0%
tion from such employees, supplemental death and Long term rate of return retirement benefits for officers and other key executives, on assets 7.0% 7.0% 7.0%
The Supplemental Plan is a non. qualified plan under .
the Internal Revenue Code. Death benefits are currently Pursuant to an order issued by the PSC in September provided by insurance. Retirement benefits totaling 1987, the Company has deferred $.7 milh.on, $2.1 milh,on
- approximately $546,000, $688,000 and $690,000 have and $4.6 milhon in 1989,1988 and 1987, respectively, been recognized as expense in 1989,1988 and 1987, which represents the excess of pension expense collected respectively, but are unfunded, fr m its ratepayers over that determined under SPAS The Primary Plan's funded status and amounts No. 87, Employers Accounting for Pensions.
recognized in the Balance Sheet at December 31,1989 The primary plan assets at fair value primarily '
. and 1988 are as follows: include cash, cash equivalents, group annuities, bonds and listed equity securities.
1989 1988 In addition to providing pension benefits, the nommds ordollar,; Company provides certain health care and life insurance Actuarial present value of benefit benefits for retired employees. Substantially all of the obligation. Company's employees may becomo eligible for these -
T'ested benefits $ 335,535 $ 344,000 benefits if they reach retirement age while working for Nonvested benefits - 17,846 11,000 the Company. These and similar benefits for active Accumulated benefit obligation S 353,381 $ 355.000 employees are provided through insurance companies whose premiums are based on the benefits paid during Plan assets at fair value $ 454,159 $ 406,400 the year. The cost of providing these benefits was A*("
p e et ligation 423,769 381,184 $27,155,000, $23,298,000 and $20,638,000, for 1989, Projected benefit obligation 1988 and 1987, respectively, and were recognized as an le:s than plan assets 30,390 25,216 expense as premiums were paid. The cost of providing Unrecognized January 1, net those benefits for 2,112, 2,020 and 1,952 retirees, is not obligations 27,855 14,351 separable from the cost of providing benefits for the Unrecognized net gain (56,535) (42,006) 5,937, 5,931 and 6,033 active employees in 1989,1988 Net prepaid (accrued) pension cost $ 1,710 $ (2,439) and 1987, respectively.
32' Note 5. Thi1989 Settism:nt The 1989 Settlement, which conIists of:(i)the 1989 ,
Cnd Class Settlement Issu:s Agreem:nt;(ii)the Rate Moderation Agreemsnt; -
(iii)the Amended and Restated Asset Transfer Agree-
~ The 1989 Settlement ment and (iv)the Amended Power Supply Memorandum On February 28,1989, the Company and the State of became effective on June 28,1989, having been approved New York (by its Governor) entered into the 1989 Issues by the PSC, the New Wrk Pbwer Authority (NYPA), the Agreement. The prmeipal matters to which the 1989 Long Island Pbwer Authority (LIPA), the Company's ,
Issues Agreement relates are:(i) the operation, the Board of Directors and the Company's shareowners. The transfer of ownership and decommissioning of Shoreham, 1989 Settlement has been challenged in the courts and (ii) the settlement of certam then pending litigation and is subject to further challenges and uncertainties, as admimstrative proceedings and (iii) the implementation discussed in Note 6.
of certam recommendations contained in two PSC- As a result of the efTectiveness of the 1989 Settlement, directed management audits. The 19891ssues A greement the Company simultaneously recorded on its Balance '
- recites the miention of the parties that the Company Sheet the retirement ofits investment in Shoreham and shall be returned to investment grade financial condi. Bokum Resources Corporation (Bokum)and the establish-tion and that the Company and the State of New Wrk ment of the BFC. Immediately prior to the effectiveness anticipate that the PSC shall ensure that the future of the 1989 Settlement, the amount of the Company's impacts on rates are to be mimmized to the maximum investment in Shoreham and Bokum was approximately extent practicable and shall promptly determine just $4.2 billion. At June 30,1989, the BFC was approxi-and reasonable rates for the Company. It is the Company's mately $4.0 billion. The Company recognized a loss in position that these objectives can be achieved, m part, June 1989, of approximately $62 million, net of tax through the contmued receipt of adequate and timely effects, which primarily reflects the difference between the recorded costs of the Company's investment in n pril 13,1989> the PSC issued the Rate Order' Shoreham and Bokum and the BFC. As a result of the embodying its approval of the 1989 Issues Agreement, PSC's approval of the RMA in 1989, the Company believed the Rate Moderation Agreement (RMA)and the Amended that the remaining approvals necessary for the elTec.
and Restated Asset Transfer Agreement. The RMA tiveness of the 1989 Settlement would be obtained and provides that the Company receive rate increases of 5.4% that the 1989 Iseues Agreement and RMA would become -
efTective February 18,1989,5.0% efTective December 1, effective. Accordingly, the Company, effective January 1, 1989 (each of which the Company is currently receiving) 1989, ceased the accrual of AFC on Shoreham in its and 5.0% effective December 1,1990 and targeted GAAP basis financial statements, the result of which increases of approximately 4.5% to 5.0% in each year for was to reduce net income by approximately $200 million the following eight years. The targeted rate increasea through June 1989. The discontinuance of accruing AFC will generally be subject to normal ratemakmg pro- on Shoreham had no efTect on the Company's cash flow cedures. The RMA provides for the full capital recovery and mitigated the foregoing write-off resulting from the of a regulatory asset known as the Fmancial Resource effectiveness of the 1989 Settlement.
Asset (FRA). The FRA has two components, the Base , The RMA provides for full recovery of the BFC over Fm.ancial Component (BFC) and the Rate Moderation 40 years. Pursuant to the RMA, a substantial amount of Component (RMC). The RMA recognized the establish- the Company's carnings will, for several years, be non-ment of the BFC which, as mitially established, cash, resulting from the ratemaking treatment of the represents the present value of the future net-after-tax FRA. At December 31,1989, these non cash earnings, cash flows which the RMA provided the Company for its recorded as the RMC of the FRA, were approximately financial recovery. See the discussion below under the $131 million. The RMA contemplates the full recovery of heading Accounting Treatment of the 1989 Settlement, the RMC within approximately ten years from the efTec-The RMA does not reflect the impact that the Class tive date of the 1989 Settlement. The RMC initially Settlement, discussed below, will have upon future rates. increases as the difference between revenues resulting The Company estimates, however, that the annual rate from the implementation of the rate moderation plan increases which the Company will receive under the provided for in the RMA and revenue requirements RMA will be approximately .2% tr .3% per year lower under conventional ratemaking, together with a carry-than they would otherwise have been during the Class ing charge based on the allowed rate of return on rate Settlement period. base, are deferred and will subsequently decrease and is expected to be fully amortized by approximately 1999 as these deferred revenue requirements are recovered.
9 33 The Rh1A targets allowed common equity returns of o Rate moderation component - The Rh1C reflects 14.2% for the period ending November 30,1989,139 for the difference between the Company's revenue the period ending November 30,1990 and 12.759 for the requirements under conventional ratemaking and period ending November 30,1991. The Company may the revenues resulting from the implementation of retain an additional 50 basis points of the earned return the rate moderation plan provided for in the RhiA.
on common equity in excess of the targeted allowed This rate moderation plan is designed to hold elec-return, as a result of reducing preferred stock dividend tric rate increases to the levels provided for in the requirements. In addition, the Company may also Rh1A, subject to the achustments provided for realize as much as 20 basis points above the targeted therein. The Rh1C is recorded based on forecast allowed return ifit successfully implements an data filed in connection with the Rh1A, achusted to aggressive conservation and demand side management reflect actual property taxes, cost of asbestos program. Earned returns on common equity in excess of removal, interest expense, energy conservation the targeted allowed returns, adjusted for the foregoing, and load management program costs and infla-will be applied to reduce the Rh1C or mitigate rates, as tion. For the year ended December 31,1989 the determined by the PSC. The Company did not earn in Rh1C deferral was approximately $131 million. A excess of the targeted allowed returns, as adjusted, for return on the Rh1C of approximately $1 million for the year ended December 31,1989. the year ended December 31,1989, is included in The PSC had authorized the Company, since 1984, Other Income and Deductions.
to collect additional revenues, designated as FSA
- Regulatory liability component - A regulatory revenues, which were in excess of the amounts to which I ability of'approximately $794 million was recorded the Company was entitled under conventional ratemak- in June 1989, to preserve an amount equivalent to ing. The effect of the FSA revenues was to provide the the ratepayer tax benefits attributable to the Company with current cash and reduce the cost of con. Shoreham abandonment. Under the 1989 Settle-struction through a decrease in non. cash AFC. The total ment, certain tax benefits of the transactions are amount of such cash flow revenues, net of tax efTects, was to be shared between ratepayers and shareowners.
$96, $203 and $185 million during 1989,1988 and 1987, Based on discussions with the PSC staff, the respectively. As a result of the discontinuance of AFC on Company has allocated the abandonment loss Shoreham, discussed above, the FSA revenue offset to tax deduction to ratepayers and recognized a AFC exceeded AFC recorded during the year ended corresponding regula;ory liability recorded as an December 31,1989 through the date of the effectiveness expense to be amortized over ten years on a of the 1989 Settlement, at which time the PSA revenues straight line basis from the effective date of the ceased. 1989 Settlement. Other tax benefits relating to Accounting Treatment of the 1989 Settlement Shoreham have been alh>cated to shareowners.
The accounting treatment of the 1989 Settlement is The tax benefit arising from the abandonment loss subject to review by the PSC and FERC, which may con. deduction has been offset against the correspond-cur, reject or modify the accounting treatment for ing regulatory liability in the Company's Balance regulatory purposes. The Company believes that the
~
Sheet as it could not have been fully recognized accounting treatment afTorded the FRA under the 1989 under GA AP were it not for the fact that its Settlement conforms to GAAP For purposes of admin- recovery is assured under the 1989 Settlement istering its Uniform System of Accounts, FEllC has through the regulatory liability offset. The adopted the provisions of SFAS No. 90 which sets forth amortization of the regulatory liability for the the criteria for recognition of regulatory created assets year ended December 31,1989 was approximately resulting from abandonments. Accordingly, the Company $43 million.
believes that the accounting treatment afTorded the FRA
- Jamesport amortization - The Jamesport amor-conforms to FERC's standards for accounting and asset tization of approximately $104 million was offset recognition of regulatory created assets. by deferred federal income tax credits of an The accounting treatment of the 1989 Settlement equivalent amount.
is reflected in the Company's financial statements 1989 Settlement - The 1989 Settlement amount "3 I"Il " of approximately $304 million principally reflects Statement ofIncome the net difTerence between the write offofShoreham and Bokum, the establishment of the BFC, and the
- Base financial component amortization -The BFC,,
a justment required to correspond with the which is afforded rate base treatment under the terms of the Rh1 A, is included in the Company's ""# U" "" "*""I"""*"'
revenue requirements through an amortization included in rates over 40 years on a straight-line basis. The BFC amortization for the year ended December 31,1989 was approximately $50 million.
. 34 ,
Bince Sheet- Assets - Th: Cl:ss Settl:m:nt - -
- Constructionworkinprogress-CWIPwasreduced On February 14,1989, the Company and certain of at June 30,1989 by approximately $4 billion to its former Officers entered into an agreement (the Class reflect the write-off of the Company's investment Settlement) settling a civil lawsuit against the Company in Shoreham. brought under the Federal Racketeer Influenced and Corrupt Organizations Act (the RICO Act), alleging that
- Nuclear fuel in process and in reactor - Nuclear the Company made inadequate disclosures before the fuel in process and in reactor was reduced at PSC concerning the construction and completion of June 30,1989 by approximately $100 million to nuclear generatmg facilities and seekmg damages reflect the reclassification of Shoreham related n behalf of the class of all present and former rate. ,
nuclear fuel as Deferred 1989 Settlement charges payers. The Class Settlement was entered into after and is being amortized and recovered over 40 years the dismissal by the trial court of Suffolk County s on a straight-line remaining life basis. Nuclear RICO Act claims as to which ajury had earlier found fuel also was reduced at June 30,1989 by approxi-the Company liable.
mately $65 million to reflect the write off of the With the approval by the shareowners on June 28, Company's nuclear fuel investment in Bokum. 1989, all of the conditions for the effectiveness of the
- Base financial component - The BFC of the FRA Class Settlement have been met. The Class Settlement was established in June 1989 in the amount of provides for rate t eductions aggregating $390 million to approximately $4 billion. At December 31,1989, be made to the ratepayers monthly electric bills over the BFC,less accuraulated amortization, was a ten year period beginning June 1,1990. Fairness approximately $3.988 billion. hearings were held to hear comments by class members, l
- Materials and supplies at average cost - Materials including intervenors and the public, concerning the and supplies at average cost was increased at June adequacy and reasonableness of the Class Settlement.
30,1989 by approximately $28 million to reflect Upon the effectiveness of the Class Settlement, the l Shoreham materials and supplies reclassified Company recorded the effects of the Class Settlement as from CWIR a charge to income of approximately $113 million (net of
- 1989 Settlement charges - The 1989 Settlement tax effects of $57 million) which was the present value at charges principally reflects the unamortized June 30,1989 of the Class Settlement amount including balance of the reclassification of Shoreham $10 million for attorneys' fees and expenses and certain nuclear fuel. other costs associated with the Class Settlement. The
- Rate moderation component - The current RMC Class Settlement amount of $186 million included in the Company s Statement ofIncome for the year ended balance represents the RMC, discussed above December 31,1989 represents the Class Settlement under the heading Statement ofIncome, offset am unt recorded in June 1989, before tax effects, plus under the terms of the RMA by certain prior carrying charges through December 31,1989. The Class deferred credits' Settlement amount of $1C>l million on the Company's
- Shoreham post settlement costs-Shoreham post Balance Sheet at December 31,1989 and the current settlement costs represents all costs associated portion of $22 million, included in accounts payable and with Shoreham incurred subsequent to the effect- accrued expenses, represents the present value at iveness of the 1989 Settlement. The Company December 31,1989 of the Class Settlement, before tax believes that the RMA will enable the Company to effects. See Note 6 for additional information respecting capitalize all prudent costs relating to Shoreham, the uncertainties related to the Class Settlement and incurred after the effectiveness of the 1989 Settle- the RICO Act litigation, ment, and to recover them from its customers through electric rates.
Balance Sheet - Liabilities
- 1989 Settlement credits-1989 Settlement credits of approximately $192 million, net of amortiza-tion, reflects an adjustment of the book write-off to the negotiated 1989 Settlement amount, and is being amortized over a ten year period.
l
35 Nue 6. Commitments and Contingencies Entbreeability of the Itate Modemtion Agrrement:
Because the parties to the 1989 Settlement, other than During 1989, the 1989 Settlement and the Class t he Company, are governmental entities, a question Settlement discussed in Note 5 were approved by the arises as to whether the terms of the 1989 Settlement Company,s shareowners and thereafter certain of the and the obligations of such parties, as embodied therein, financing. discussed in Notes 2 and 3 were completed. .
will be enforceable against them. Because of their nature, These events brought to a resolution some of the
. governmental entities may have legal obligations or material uncertainties which had arisen from the limitatione that circumscribe their ability to be irrevoc-circumstances surrounding the Company 8 mvestment ably bound by contract. Consequentiv, the PSC could m Shoreham and brought other uncertainties closer t ' '
tak'e the position in the future that it is not legally resolutmn. I'hus, some uncertainties still exist respec-bound by the rate increases contemplated by the 1989 ting the settlements and certain other matters.
Settlement and may, pursuant to its statutory authority, RICO Act Litigation and Related Matters seek to modify or avoid the provisions of the 1989 Settle-The Class Settlement, discussed in Note 5, settles a ment. The power of the PSC to claim that it is not bound civillawsuit against the Company brought under the by the 1989 Settlement may be limited, however, as a RICO Act. The Company has made no provision for any result of, among other things, the provisions in the 1989 liability beyond the amount referred to in Note 5. Settlement that permit the 1989 Settlement and the SufTolk County has opted out of the Class Settlement. PSC's decision to be submitted to the appropriate courte A jury had found the Company liable to Suffolk County for approval and enforcement in this connection, the for approximately $7.6 million which, under the 111C0 ItMA is one of a significant number of rate settlement Act, would have been trebled to approximately $23 agreements between the PSC, itsjurisdictional utilities, million. The trial court diamissed the claims asserted including the Company, and ot her parties. The Company by Suffolk County. Suffolk County has appealed the is unaware of any instance in which the PSC has taken dismissal ofits claims. In addition, certain members of any action to attempt to withdraw its support of a settle-the class have appealed the trial court's approval of the ment to which it is a party. Consequently, the Company Class Settlement. The Company has also appealed cer- has no reason to believe that the PSC, which has tain portions of the Class Settlement, as approved by the authorized the first two of the three rate increases trial court. Plaintiffs in a second lawsuit brought under provided by the ItM A, will not permit the third increase the Federal False Claims Act did not sign the definitive to go into effect on December 1,1990 or will fail to honor agreement embodying the Class Settlement. In this its commitments, contained in the ItM A, respecting the second lawsuit, plaintiffs' counsel stated that their total rate increases for the years beginning December 1,1991 recovery would be approximately $500 million. The through November 30,1998 or recovery of tii both com-court has dismissed this lawsuit and plaintiffs have ponents of the FItA and tii> other 1989 Settlement-appealed. If, on appeal, all determinations in the IllCO related deferred charges, described above in Note 5.
Act and Federal False Claims Act lawsuits were adverse Furthermore, the State of New York could enact subse-to the Company, the Company's potential ultimate quent legislation and any other party to the 1989 Settle-liability could be approximately $9 billion. The ment could take or refrain from taking some action Company cannot predict the outcome of these appeals. which would in some way impair or alter the rights of the Company pursuant to the 1989 Settlement. In the The 1989 Settlement -
event any party fails to perform in accordance wit h its Pursuant to the 1989 Settlement, the C,ompany has obligations under the 1989 Settlement, the Company recorded the FRA and received two permanent electric '
rate increases in 1989. Certain litigation and other he able to contend, in a judicial proceeding or other-matt.ers discussed below, relating to the 1989 Settie-w se, that such failure impairs the Company's contract H s set forth in the 1989 Settlement and that it ment, remain unresolved. The Company can give no violates the terms of certain proposed judicial settle-assurance that it will realize all of the benefits con-ments which incorporate the 1989 Settlement. Ilowever, templated by the 1989 Settlement. Severtheless, the there can be no assurance that the Company would Company has no reason to believe that the PSC will not ..
prevail in such judicial or other proceeding.
honor its commitments respecting the recover y of the FRA and other assets provided by the ItM A. Accordingly Challenges to the 1989 Settlement: Currently there and based upon the PSC's actions which have been con- are three actions pending in the Appellate Division of sisterit with establishment and recovery from ratepayers the New York Supreme Court against the Company of the FRA and the other assets, the Company believes challenging the 1989 Settlement. The first lawsuit seeks that recovery of such assets is likely to be provided by ajudgment declaring the 1989 Issues Agreement null the PSC. and void and enjoining the proposed transfer of Shoreham to LIPA as contemplated in that agreement.
In a second lawsuit. other plaintifTs seek to have the 1989 Settlement declared invalid and to require that
O environmental guidelines be followed. The United technical and financial qualifications. The 1989 Settle-.
States, on behalf of the DOE, has been permitted to ment also contemplates that LIPA will apply to the NRC i
intervene as a party in this case. In a third lawsuit, for authority to decommission Shoreham. No application petitioners seek to annul the determination of the PSC for a transfer of the Shoreham licenses is presently pend-which granted the Company rate relief in connection ing before the NRC. The Secretary of Energy has with the 1989 Settlement. Petitioners also request such stated that the DOE intends to oppose the transfer of other relief as may be deemedjust and proper. The Com- Shoreham's operating license in its transfer proceeding pany cannot predict the outcome of these challenges to before the NRC. In addition, the Shoreham Wading the 1989 Settlement. River Central School District (the School District),
Scientists and Engineers for Secure Energy, Inc. (the Effect of the 1989 Settlement on Holders o/the 8cientists and Engineers) and the Long Island Assoc,a- i Company's Securitiest it is the Company's position that t. ion, Inc. have each petitioned the NRC, setting forth the transactions contemplated by the 1989 Settlement their opposition to the transfer of Shoreham and its do not require the consideration or consent of the holders decommissioning and requesting various relief w hich, if of bonds issued under the Company's First htortgage granted, would delay and perhaps prevent the transfer or the Company's G&R hiortgage and that those trans- and decommissionmg of Shoreham. The NRC, which is actions, including the transfer of Shoreham, do not reviewing these petitions, has not granted them to date.
constitute a breach of, or default under, and are not On October 13,1989, the School District and the prohibited by, and do not require a deposit or retirement Scientists and Engineers petitioned the United States of bonds under, either mortgage. The trustee of the First Circuit Court of Appeals for the District of Columbia to h1ortgage has questioned the Company's position. The review the alleged failure of the NRC to grant the relief Company cannot predict whether the trustee under which the petitioners had requested. On January 22, either mortgage or a bondholder will take any action to 1990, the court demed this petition. The Company assert a position contrary to the Company's position. believes that any efTorts in opposition to the transfer and Notwithstanding the Company's position in this matter, decommissiomng of Shoreham could increase the time in the event that there is a finaljudicial determination and cost associated with such transfer and that a default has occurred, such default, if not cured or decommissiomng.
waived, could, under certain circumstances, result in an d acceleration of all amounts due under the Company's I" 089'" P' P. S? amendment to the Nuclear Regulatory Commission Authorization Act was passed mortgages and credit facilities. Under such circum- by the Energy & Commerce Committee of the United stances, the Company might seek the protection of the States House of Representatives. The proposed amend-federal bankruptcy laws while it continues its opera. inent,if enacted into law, would prohibit the NRC from tions. Alternatively, the Company might consider the using any funds, and thereby prohibit any action by it, possibility of seeking to refinance and redeem all with respect to the proposed transfer to LIPA, or the outstanding G&R Bonds and First hlortgage Bonds termination, of the Shoreham operating license. The unless the indebtedness is first accelerated and payment pr posed amendment contains a provision that except of principal and interest is then due as at maturity. if there is a transfer of the operatmg license to a third Any such refinancing would be subject to market condi- party other than LIPA, no amount appropriated to the tions at the time. Consequently, the Company can give NRC under that Act may be used by the NRC for any no assurance that such refinancing could be completed purpose related to the decommissiomng of Shoreham or as to the interest rates which would be established for unless the NRC determines that the operation of the new securities if such refinancing takes place.
Shoreham is unsafe. If the amendment were to be Shorelmm: Although on April 21,1989,the NRC approved by the full House of Representatives, the issued a full power operating license for Shoreham, the appropriate Senate Committee and the full Senate, 1989 Settlement prohibits the Company from operating and subsequently became a law and withstood legal Shoreham at any level of power. The NRC's grant to the challenge, the effect could be to prohibit the transfer of Company of a license to operate Shoreham at full power Shoreham and the Shoreham operating license to LIPA has been appealed. The Company has petitioned the and to inhibit the reduction of the staffing, maintenance NRC to amend the full power operating license to allow and other costs relating to Shoreham. If the amendment the Company to curtail its operations at Shoreham is enacted into law in its present form, the Company which, if granted, will remove the Company's authority intends to pursue its legal remedies. The Company to operate Shoreham at any power level for so long as cannot predict when further consideration of this legis-the amended license is in effect. The 1989 Settlement lation, if any, is likely to occur. While the Company provides that the Company will transfer Shoreham believes that enactment of the proposed amendment is to LIPA upon approval by the NRC of thejoint request of unlikely, it can give no assurance that this or similar the Company and LIPA for the transfer of the Shoreham legislation will not become law before the actions con-license to LIPA or an entity designated by LIPA. Before templated by the Amended and Restated Asset Transfer approving the transfer of the Shoreham license, the NRC Agreement are consummated.
must be satisfied that a licensee has the necessary
y O y 37 Thi Comp:ny believes th:t the RMA will remain in b: sed on a current a ssessm:nt by the NRC of tha over:Il L : force regardless of any inability to transfer Shoreham. performance of NMP2 during the first year ofits opera.
Th; C:mpany also believes that the RMA will enable tion. The NRC was advised of the steps which NMPC the C:mpany to capitalize all prudent costs relating to has taken, including a strengthening ofits nuclear L Sh:reham, incurred after the effectiveness of the 1989 management organization, to improve operations.
Settl: ment, and to recover them from its customers llowever, a report issued subsequently by the stafTof the ;
through electric rates over the balance of a forty year NRC relating to the problems at Nine Mile Point 1 and
_ period ending 2029. Ilowever, the Company cannot NMP2 stated that there had been no significant im-predict what the costs resulting from an inability to provement. NMPC has signed an agreement with the tr:nsf:r Shoreham would be, the effects such costs would PSC which is intended to stabilize NMPC's declining
< hive upon the rates contemplated by the 1989 Settle- financial condition by, among other things, omitting m;nt, or the position that parties other than the dividends on its common stock and providing for the
- Company might take respecting the recovery of such implementation of a management assessment program.
. costs under the 1989 Settlement. Since the Company is A new interim agreement for the operation of NMP2 contr:ctually prohibited from operating Shoreham, the has been signed by each of the five cotenants permitting Comp:ny also believes that any inability to transfer the cotenants greater oversight of the plant's operations.
Shoreham or the Shomham operating license or to In addition, the cotenants have agreed to conduct an decommission Shoreham would not afTect the conclusion 18-month study on the formation of a separate company reached by the Internal Revenue Service (IRS)in the to operate the plant.
priv te letter ruling described in Note 7.
Litigation Nins Mile Point 2 Anbeston: The Company is a co defendant with Under a settlement approved in 1986(the 1986 manufacturers, distributors and other utilities in per.
NMP2 Settlement), the PSC has limited the Company's conal injury and wrongful death actions brought by
. recovery from its ratepayers of the costs incurred in the approximately 700 plaintifTs in New York County construction of NMP2 to $725 million. All of the costs Supreme Court alleging exposure since the 1930s to llowed pursuant to the 1986 NMP2 Settlement are asbestos in buildings. The damages demanded in each currently reflected in the Company's rates. The NMP2 of these complaints range up to $55 million including cotenants and other parties, including the New York punitive damages 'Ib date, the cases of 36 plaintiffs have State Consumer Protection Board (the CPB), separately proceeded to pre. trial discovery of which 11 cases have challenged the decision of the PSC implementing the been disposed of Of these cases, the Company has been 1986 NMP2 Settlement in the courts. The parties to dismissed in 10 cases and has settled one case for a de !
these appeals have agreed to a settlement of this litiga. minimus amount. Discovery is continuing with respect tion as part of the agreement discussed below. to the remaining claims.
In January of 1990, the Company and the other cot:nznts of NMP2 reached an agreement subject t En rimnmental Litigation: The Company has been final documentation with the Attorney General, th named as a potentially responsible party by the United !
CPB and the staff of the I SC resolving certain ratemak. States Environmental Protection Agency (the EPA) ing issues regarding the construction of NMI 2 and its which has requested the Company to assist in the fund.
ing of remedial actions and reimbursement of costs j oper;tton through January 19,1990. The agreement, '
which will require PSC approval, also disposes of the which the EPA has incurred to date at a landfill
' appeals of the 1986 NMP2 Settlement and the proceeding located in Port Washington, New York. In addition, the brought by the Attorney General with respect to an out- Company has been named, along with several other age in 1988-1989. The agreement contemplates a net utilities, by the EPA as a potentially responsible party disallowance of the Company's costs (which have been for certain pollutants, in particular, polychlorinated I biphenyls at a second site. While the outcome of these .4 charged to income in 1989) amounting to approximately
$7 milhon. NMP2 was shut down on December 26,1989 matters is not certain, based upon the Company's past for repairs and resumed operation on February 6,1990, experience in similar matters and the respective finan-NMPC, the manager and a cotenant in NMP2, and e al condition of the other parties involved, the Company the sole owner of Nme Mile Point 1, another nuclear does not believe these matters will have a material generating umt located at the same site, has been impact on its financial condition.
notified by the NRC that NMP2, along with Nine Mile Point 1, had been categorized "as requiring close monitoring." The requirement for close monitoring was
._ m I 3Il oth:r- Note 7. FcderzlIncome 'Itxes -
Commitments: The Company has entered int On April 17,1989, the Company received a private
, substantial commitments for fossil fuel and gas supply, letter ruling from the IRS which stated that the The costs of fuel and gas supply are normally recovered Company would be entitled, for federal income tax
. from ratepayers through provisions in the Company's purposes, to an abandonment loss deduction in connec-r:te schedules. The Company has also entered into a tion with Shoreham, upon efTectiveness of the 1989 contract with NYPA pursuant to which the Company Settlement. The Company will claim this deduction on has obligated itself to pay NYPA for the construction its 1989 federal income tax return.The Company and operation of a new interconnection between estimates that this deduction will be approximately Westchester and Nassau Counties. The Company will $1.8 billion. The Company's net operating Ims carry-seek to recover the costs of the mterconnection from its forward is estimated to be approximately $2.1 billion at ratepayers. Deber 3L 1989.
Nuclear Plant Insumnce:The Company has both On January 8,1990, the Company received a Revenue property damage insurance and third. party bodily Agent's Report disallowing certain deductions claimed iryury and property liability insurance for its 18'7c share by the Company on its tax returns for the years under in Nh1P2 and for Shoreham. The NRC requires a audit. The Revenue Agent's Report reflects proposed minimum of $1.06 billion of property damage coverage adjustments to the Company's federal income tax to be in effect at each nuclear generating site. The Price returns for 1984 through 1987 which, if sustained, would Anderson Act limits liability for third party bodily give rise to tax deficiencies totalling approximately $87 iryury and third party property damage arising out of a million. The Company intends to protest some of nuclear occurrence at each unit to $7.8 billion. the adjustments and seek an administrative and,if The insurable value of Nh1P2 at December 31,1989 necessary, a judicial review of the conclusions reached was $3.4 billion, of which the Company's share was $612 in the Revenue Agent's Report. The Company cannot million. The maximum amount of property damage predict either the timing or the manner in which this insurance currently m ailable at Nine hiite Point, where matter will be resolved. If, however, the ultimate there are two units, is approximately $2,035 billion for disposition of any or all matters raised in the Revenue each unit under certain circumstances. The NhiP2 Agent's Report is adverse to the Company, the Company cotenants have approximately $1.875 billion of property expects that any deficiencies that may arise will be damage coverage in effect but, under certain circum- substantially ofTset by the net operating loss carrybacks stances, only a portion of that amount would be associated with the Shoreham abandonment loss deduc-available. The NhiP2 cotenants have $200 million in tion and thus any impact would not have a material third. party bodily injury liability coverage, effect on the Company's financial condition or cash flows.
The insurable value of Shoreham at December 31, The amount ofinvestment tax credit (ITC) carry-1989 was $2.2 billion. The ranximum amount of property forward for financial statement purposes after 1989 is damage insurance coverage currently available at approximately $192 million. These credits expire by the Shoreham is approximately $2.035 billion. For year 2002. In accordance with the Tax Reform Act of Shoreham, the Company currently carries $1.06 billion 1986 (TRA 86), ITC allowable as credits to tax returns in coverage. The Company currently carries third party for years after 1987 must be reduced by 359. The bodily irVury liability coverage for Shoreham in the amount of the reduction will not be allowed as a credit amount of $200 million. Pursuant to the 1989 Settle- for any other taxable year.
ment, the Company will maintain insurance on The Company has not provided deferred taxes on Shoreham until the transfer of Shoreham to LIPA and approximately $500 million of various other deductions thereafter will reimburse LIPA (and recover from and depreciation method differences for property placed
. ratepayers) for any insurance which the NRC requires in service prior to 1981 which,in conformity with the LIPA to maintain. ratemaking practices of the PSC, have been flowed Certain of the property damage insurance programs through. These various other flow.through tax deduc-provide for retroactive premium adjustments pursuant tions, which are deductible currently for tax purposes to which the Company would be liable for maximum but capitalized for accounting and ratemaking purposes, assessments of approximately $30.5 million in any one include certain taxes, a portion of AFC, pensions and policy year in the event of property loss to any other certain other employee benefits. See Note 1 with respect insured utility company, of which $1.7 million is for its to SFAS No. 96 which the Company must adopt by no share of Nh1P2 and $28.8 million is for Shoreham. This later than 1992, assessment would only be required if existing premiums The PSC required the Company to defer the effect and loss reserves were exhausted. of certain TRA 86 tax changes, including the lower Under agreements established pursuant to the Price corporate federal income tax rate, for future disposition.
Anderson Act, the Company may be assessed up to $63 This resulted in recording an additional $1.3 million, million per nuclear incident in any one year at other $1.7 million and $27.8 million of income tax expense in nuclear units, but not in excess of $10 million in pay- 1989,1988 and 1987, respectively.
ments per year for each incident.
e
-o 39
.= The feder:.1 incomi tax amounts included in the Statem:nt of Incom3 diff;r from th) : mounts which result from 7:pplying th3 stntutory fad:r:1 income tax rite to net income before income taxes. The table below sets forth the rcasons for such differences. In 1989, the difference results principally because the tax basis attributable to Shoreham was less than its recorded basis for financial statement purposes and the FRA and certain other 1989 Settlement items recorded by the Company pursuant to the 1989 Settlement have no tax basis.
n ,
'(in thousands of dollarsF 1989 1988 1987-
% of 9 of % of Pre-tax Pre-tax ~ Pre tax .
Amount - Income Amount Income Amount Income ,
Fed:ral income tax, per Statement of-
'. Income - current $ 14,612 $ 18,395 $ 83,577 :1 Included in other income and deductions - current - - (80,597)
. Tot:1 Current 14,612 18,395 2,980 Def;rred and other (see Note 1):
, 1989 Settlement Shoreham abandonment (907,467) - -
"J1mesport recovery (104,159) - -
Bokum Resources Corporation (35,977) - -
P Rate moderation component 27,879 .- -
Other 1989 Settlement items (20,782) - -
Cliss Settlement (63,240) - -
~ Interest capitalized (3,752) 185 2,796
.~ Accrued utility revenues (2,803) 8,131 (13,585)
Deferred tax credits (580) (13,611) . (67,642) :
Accelerated tax depreciation 36,242 47,926 150,833 Call premiums 12,452 (221) (538)
Fuel cost acUustments 4,451 1,448 2,236 Nine Mile Point 2 deferred revenues 4,151 (4,151) -
Capitalized overheads 1,272 55,504 62,531-
- TRA 86 benefits 1,283 1,659 27,756 Other items, net (993) (3,418) 1,487 Total Deferred (1,052,023) 93,452 165,874 Total federal income tax expense (credit) (1,037,411) 111,847 168,854 Income (loss) before cumulative effect of accounting change (95,803) 298,490 269,888 Income (Loss) Before Cumulative EfTect of
- Accounting Change and Incoms Taxes $ (1,133,214) $ 410,337 $ 438,742 Statutory federal income tax (credit) $ (385,293) 34.0% $' 139,515 34.0% $ 175,277 39.95 %
~ Additions (reductions)in federal income tax resulting from:
1989 Settlement Shoreham abandonment (691,242) 61.0 - - - -
Jamesport recovery 20,101 (1.8) - - - -
Bokum Resources Corporation (34,015) 3.0 - - - -
Rate moderation component (7,360) 0.7 - - - -
Other 1989 Settlement items (19,821) 1.8 - - - -
' Allowance for funds used during
' construction 31,527 (2.8) (54,899) (13.4) (72,035) (16.4)
' Lien date property taxes 20,034 (1.8) (2,673) (0.6) (4,840) (1.1)
Tax credits 13,534 (1.2) 4,153 1.0 24,303 5.5 Excess of book depreciation over tax' depreciation 10,842 (1,0) 10,014 2.4 6,304 1.4
? TRA 86 benefits 1,283 (0.1) 1,659 0.4 27,756 6.3 Interest capitalized 3,251 (0.3) 8,066 2.0 9,354 2.1 Other items, net (252) 0.0 6,012 1.5 2,735 0.7 Total Federal Income Tax Expense (Credit) $ (1,037,411) 91.5 % $ 111,847 27.3% $ 168,854 38.45%
L
o *
- 4^
LNote 8. Segm:nts cf Businns Ncte 9 Qu rterly Fin nci:1 Inf;rmitien-The Company is a public utility operating company (U" "didl
- ngaged in the generation, distribution and sale of an mittions of dollars cicept cornings per common share) e;lectric energy and the purchase, distribution and 1989 1988 sale of natural gas. Identifiable assets by segment include net utility plant, financial resource asset, Operating revenues:
materials and supplies (excluding common), accrued For quarter ended hiarch 31 $ 607 $ 593 revenues, gas in storage, fuel and deferred charges June 30 510 454
(:xcluding common). Assets utilized for overall September 30 661 611 Company operations consist of other property and December 31 567 480 investments, cash, temporary cash investments, special deposits, accounts receivable, prepayments Operating income:
cnd other current assets, unamortized debt expense For quarter ended hiarch 31 $ 137 $ 146
- end other deferred charges. June 30 110 100 (in millions of dollars) September 30 261 191 For year ended December 31 1989 1988 1987 Operating revenues: Net income Goss):
' Electric $ 1,983 $ 1,787 $ 1,719 For quarter ended h1 arch 31 $ 6 (a) $ (1,271)(c)
Gas 365 351 353 June 30 (215)(a) 64 Total $ 2,348 $ 2,138 $ 2,072 September 30 139 143 December 31 (26)(b) 17 (d) i Operating expenses: -
(excluding income tax) Earnings Goss) for common stock: 4 Electric $ 2,116 $ 1,140 $ 1,101 For quarter ended hlarch 31 $ (14)(a) $ (1,290)(c) - ~i Gas 326 297 301 June 30 (235)(a) 44 l Total $ 2,442 $ 1,437 $ 1,402 September 30 119 125 December 31 - (45)(b) 0(d)
Operating income Goss):
- (before income tax) Earnings Goss) per common share:
Electric- $ (133) $ 647 $ 618 For quarter ended hfarch 31 $ (.13)(a) $ (11.61)(c)
Gas 39 54 52 June 30 (2.11)(a) .40 Total ' (94) 701 670 September 30 1.07 1.13 AFC, net of FSA revenues 98 (150) (181) December 31 (.40)(b) - .00 (d) ;
Other income and deductions 456 10 (15)
Interest charges 485 431 427 (a) E/Tective January 1,1989, the Company ceased accruing Income taxes-operating (714) 200 288 AFC on Shoreham schich reduced net income by approxi. ,
Income taxes-non operating mately $100 mulion, or $.90 per common share, in each of l (323) (88) (119) the first and second quarters. Addihonally, m June 1989, '
Income (loss) before the Company rewgnized losses in connection ri:h the 1989 cumulative effect of Settlement and the Class Settlement of approxw !v $62 accounting change (96) 298 270 million, net of tax efkets, and $113 million, net r s Cumulative etTect of ellects, respectively, or $.55 and $1.02 per common .nare.
uccounting change (b) in Denmber 1989, the Company rewrded an additional (net of tax) - (1,345) -
charge to earnings of $7.2 million, net of tax effects, or
$ (96) $(1,047) $ 270 $26 per wmmon share, to repect revisions to certain Net income Goss) estimates relatir.g to the 1989 Settlement. In addition, Depreciation, depletion as a result of an agreement subject to final documentation and amortization: resolving certain ratemaking issues regarding the con-Electric $ 92 $ 83 $ 64 struction and operation of NME2, in December 1989, the Gas 11 11 10 Company recorded a charge to earnings of $7.3 million, net of tax effects, or $.07 per wmmon share. Further, as a Total $ 103 $ 94 $ 74 result of a PSC order relating to gas takeor-pay costs, the Construction and nuclear company recorded, during the (burth quarter of1989, a fuel expenditures:e charge to earnings of $3.1 million, net of tax effects, or $.03.
Electric $ 150 $ 523 $ 547 ##" * * * " "A "-
. Gas 50 38 34 (c) As a result of adopting SFAS No. 90 in January 1988,
' Total
$ 200 $ 561 $ 581 hake (<rY<?!YouedYt. $$nt nt ? ophr$t ly Identifiable assets:(at December 31) $1.345 billion, net of tax elTects, or $12.10 per common
$ 7,133 $ 7,220 $ 8,195 share.
Electric Gas 451 411 371 td> As a result of the settlement of the 1984 consolidated class action and shareowners' derivative action securities Total 7,584 7,631 8,566 litigati<m, which became ellective in December 1988, the Assets utilized for overall Company had recorded. during the fburth quarter of1988, Company operations 936 695 758 a charge to earnings amounting to approximately $21 Total Assets $ 8,520 $ 8,326 $ 9,324 milli n or $.19 per common share.
- 1ncludes non. cash allowance for other funds used during construction.
lRebott of Ernst & Young, u
,Indspondent Auditors
'Ib the Shareewners and Board of Directors of LongIsland Lighting Company We have audited the accompanying balance sheet o r Long Island Lighting Company as of December 31,1989 and 1988 and the related statements ofincome, share-owners' equity and cash flows for each of the three years
.in the period ended December 31,1989. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
- We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
'-I reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects., the financial position of Long Island Lighting Company at December 31,1989 and 1988, and the results ofits operations and its cash flows for each of the three years in the period ended December 31,1989 in conformity with generally accepted accounting principles.
As more fully discussed in Note 6 of the Notes to Financial Statements, the Company is presently unable to predict the outcome of the appeals taken with respect to the RICO Act litigation and related matters.
g
-1 Melville, New York February 6,1990 m
l l
Pw Selected FinancialData 1989 1988 1987 1986 1985
~ Summary of 0perations (See Notes 1,2,5 and 6 ofNotes to Financial Statements) Tahle 1
- Total revenues (000) $ 2,347,614 $ 2,137,834 $ 2,072,077 $ 1,977,121 $ 2,050,340
' Total operating income Ooss)(000)
Before federalincome taxes $ (93,997) $ 701,049 $ 670,324 $ 640,021 $ 627,307 After federalincome taxes $ 620,423 $ 500,938 $ 382,604- $ 387,077 $ 388,140 Income Ooss) before cumulative efTect of accounting change (000) $ (95,803) $ 298,490 $ 269,888 $ 316,675 $ 524,288 Cumulative effect of accounting change for disallowed costs (net of taxes)(000) -- $(1,345,110) - - - -
Earnings Goss) for common stock (000) $ (175,035) $(1,121,128) $ 192,312 $ 236,864 $ 440,563 Average common shares outstanding (000) 111,215 111,177 111,129 111,085 110,842-Earnings Goss) per common share before
- cumulative effect of accounting change $ (1.57) $ 2.02 $ 1,73 $ 2.13 $ 3.97 Earnings Goss)per common share $ (1.57) $ (10.08) $ 1.73 $ 2.13 $ 3.97 Common stock dividends declared per share $ .50 - - - -
Book value per common share at year end $ 17.45 $ 19.61 $ 29.71 $ 27.99 $ 25.88 Common shareowners at year end 85,142 93,267 -106,117 117,962 143,627 Ratio of earnings to fixed charges
- 1.95 2.02 2.17 2.75 Ratio of earnings to combined fixed charges and preferred stock dividends
- 1.58 1.56 1.68 2.15 Ratio of earnings to fixed charges (excluding AFC and RMC)
- 1.60 1.60 1.53 1.62 Ratio cf earnings to combined fixed charges and preferred stock dividends (excluding AFC and RMC)
- 1.30 1.24 1.18' 1.27 -
Pro forma earnings - with 1988 accounting change applied retroactively:
Earnings doss) for common stock (000) $ 223,982 $ 176,712 $ 30,864 $ (682,947)
Earnings Goss)per common share $ 2.02 $ 1.59 $ .28 $ (6.16)
- The Company had no earnings to cover l1xed charges.
Operations and Maintenance Expense Details (In thousands ofdollars) Table 2 Total payroll and employee benefits $ 349,242 $ 333,359 $ 315,114 $ 283,427 $ 257,509 Less - Charged to construction and other 117,761 129,990 115,315 102,987 99,415 Payroll and Employee Benefits Charged 231,481 203,369 199,799 180,440 158,094 to Operations Fuels - electric operations 461,576 410,174 422,997 311,872 511,193 Fuels - gas operations 188,139 172,431 174,610 205,616 201,458-Purchased power costo 128,368 88,465 93,186 134,347 113,867 Fuel cost adjustments deferred (5,631) 3,359 (5,104) 14,180 4,410 772,452 674,429 685,689 666,015 830,928 Total Fuel and Purchased Power 195,825 154,527 142,201 142,514 96,215 All other Total Operations and Maintenance Expense $ 1,199,758 $ 1,032,325 $ 1,027,689 $ 988,969 $ 1,085,237 6,239 6,281 6,378 6,219 5,676 Employees at December 31
$ c ' .d y 43 1989 1988 1987 1986 1985 Electric Operating income an thousands of dollars) Table 3 Revr.ucs J Residential : $ 915,644 $ 835,584 $ 800,952 $ 744,898 $ 772,861 Commercial and industrial 981,740 883,267 849,626 804,387 844,636 Oth*r 43,024- 43,930 56,394 51,447 48,791 System revenue 1,940,408 1,762,781 1,706,972- 1,600,732 1,666,288 c Sales to other utilities 42,880 24,152 11,889 11,057 12,971 ,
Total Revenues 1,983,288 1,786,933 1,718,861 1,611,789 1,679,259 Expenses Operations - fuel and purchased power 584,313 501,998 511,079 460,399 629,470
, Operations - other 237,931 195,283 187,573 173,702 141,312 Mrintenance 115,502 96,599 88,431 91,611- 60,154' r Depreciation 91,759 82,811 63,840 61,194 58,510 Base fmancial component amortization 50,485 - - - -
Rite moderation component (131,167) - - - -
R:gul: tory liability component 750,554 - - - -
Jrme: port amortization ' 104,160 - - - -
Operating taxes 312,456 262,644 250,047 230,508 224,376 Federal income tax - current 14,612 18,394 64,095 24,452 (6,921) i p Fed:ral income tax - deferred and other (738,500) 166,557 208,954 218,256 225,442 Total Expenses 1,392,105 1,324,286 1,374,019 1,260,122 1,332,343
- Electric Operating Income $ 591,183 $ 462,647 $ 344,842 $ 351,667 $ 346,916 i
Gm Operating Income an thousands of dollars) Table 4 Rev:nues Resid:ntial - space heating * $ 209,192 $ 201,312 $ 194,303 $ P07,937 $ 190,357 I
- other 31,692 31,803 32,877 35,393 35,638 .
. Non residential, firm - space heating
- 72,351 68,114 63,267 68,330 62,268
- other 28,674 28,078 28,443 31,473 31,043 Total firm sales revenue 341,909 329,307 318,890 343,183 319,306 4 Interruptible sales 19,226 18,821 24,150 22,132 33,446 !
Total system sales revenue 361,135 348,128 343,040 365,315 352,752 Salei to other utilities - - 4,970 - -
Total sales revenue 361,135 348,128 348,010 365,315 352,752 Other revenue 3,191 2,773 5,206 17 18,329 l Total Revenues 364,326 350,901 353,216 365,332 371,081 l
. Expenses
' Operations - fuel 188,139 172,431 - 174,610 205,616 201,458
' Operations - other 59,587 - 53,415 53,140 46,607 41,948 :
Maintenance 14,286 12,599 12,856 11,034 10,895 g D:preciation, depletion and amortization 11,671 10,785 10,065 8,945 8,232 Operating taxes 51,935 48,220 CO,112 47,484 46,678 i Federal income tax - current - - 19,482 16,895 7,435 Fed:ral income tax - deferred and other 9,468 15,160 (4,811) (6,659) 13,211 Total Expenses 335,086 312,610 315,454 329,922 329,857 !
A Gu Operating Income $ 29,240 $ 38,291 $ 37,762 $ 35,410 $ 41,224
- In the heating classifications, the revenun shown cover all gas used including nonheating use.
W
Oy 1989 1988- 1987 1986 1985 Electric Sales and Customers Table 5.
Sales - millions of kWh 6,251 5,970
- Residential 7,063 6,979 6,603 8,636 8,566 8,004 7,713 7,369 Commercial and industrial Other 470 495 439 429 451 16,169 16,040 15,046 14,393 13,700 System sales 633 433 239 244 226 Sales to other utilities 16,802 16,473 15,285 14,637 14,016 Total Sales Customers - monthly average 890,406 882,962 872,419 861,011 850,683 Residential 90,548 100,481 98,450 95,871 93,228 Commercial and industrial 4,391 4,452 4,436 4,389 4,362 Others Customers - total monthly average 995,339 985,848 972,679 958,601 945,622 Customers - total at year end 996,488 989,097 976,928 963,197 948,797 Hesidential 7,932 7,905 7,569 7,260 7,018 kWh per customer Revenue per kWh 12.96e 11.97c 12.134 11.92C 12.950 Commercial and Industrial 85,943 87,005 83,487 82,732 81,382 kWh per customer Revenue per kWh 11,37c 10.31c 10.62c 10.43c 11.46c 12,00e 10.974 11.35e ,_11.12t 12.08C System - total revenue per kWh sold Gas Sales and Customers 'Iable 6 Sales - thousands of dth 28,438 26,387 Residential - space heating
- 32,024 31,276 29,239 3,589 3,952 3,629 3,642
- other 3,491 9,711 8,967 Non residential - space heating
- 11,548 11,054 10,055 4,580 4,389 4,533 4,510-
- other 4.539 51,602 50,499 47,635 46,311 43,506 Total firm sales -
5.300 5,078 6,456 5,507 6,275 Interruptible sales -
56,902 55,577 54,091 51,818 49,781 Total system sales Sales to other utilities - - 2,218 - -
56,902- 55,577 56,309 51,818 49,781 Total Sales Customers - monthly average 204,982 198,949 192,550 186,625 182,593 Residential - space heating
- 179,415 181,926 184,411 186,600 188,594
- other Non-residential - space heating
- 27,733 25,979 24,234 22,514 20,935 11,517 11,725 11,778 11,889 11,930
- other 423,647 418,579 412,973 407,628 404,052 Total firm customers Interruptible customers 359 325 301 289 297 424,006 418,904 413,274 407,917 404,349
_C_ustomers - total monthly average Customers - total at year end 426,060 421,429 415,629 410,064 405,330 Degree days - billed 4,987 5,074 4,802 4,795 4,444 Residential dth per customer 92.4 91.5 88.0 85.9 80.9 Revenue per dth $ 6.78 $ 6.69 $ 6.84 $ 7.59 $ 7.53 Non. residential, firm dth per customer 409.9 414.6 401.1 414.0 410.1 Revenue per dth $ 6.28 $ 6.15 $ 6.35 $ 7.01 $ 6.92 System - total revenue per firm dth sold $ 6.63 $ 6.52 $ 6.69 $ 7.41 $ 7.34
- In the heating classifications, the sales shown cover all gas used including nonheating use.
g o ,, -
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45 1989 1988 1987 1986 1985 Electric Operations Table 7 Energy - millions of kWh -
Net generation 15,220 15,228 14,004- 11,707 12,292 Power purchased and (sold)- net 2,087 1,940 2,516 3,952 2,844
. Total system requirements - 17,307 17,168 16,520 15,659 15,136 Company use and unaccounted for (1,138) (1,128) (1,474) _ (_1,266) (1,346)
L System sales 16,109 16,040 15,046 - 14,393 13,790
- Sales to other utilities 633 433 239 244 226
' T_otal Sales 16,802 16,473 15,285 14,637 14,016 L Peak Demand - mW Station coincident' demand 3,178 - 3,347 3,333 2,969 2,773
^ Purchased or (sold)- net 510 475 243 472 607=
System Peak Demand 3,688 3,822 3,576 3,441 3,380 .
System Capability - mW LILCO stations _ _
4,066 3,834 3,799 3,743 3,743
. Firm purchase or (sale) - net 400 482 550 454 171 Total Capability ,
4,466 4,316 4,349 4,197 3,914 Fu:1 Consumed for Electric Operations
~ Oil - thousands of barrels 20,480 19,927 18,624 15,625 '15,790
~ G:s - thousands of dth - 26,490 29,126 29,762 26,103 29,154
- Nucle:r - thousands of mW days 105 87 - - -
~ Total - billions of Btu 154,669 153,828 146,536i 124,098 128,629
' Doll;rs per million Btu
$ 2.86 $ 2.53 $ 2.86 $ 2.51' $_ 3.97 Cents per kWh of net generation 3.06e 2.67e 3.014 2.66e - 4.16e lleIt rate - Btu per net kWh 10,704 10,545 10,509 10,600 10,465 G:s Operations Table 8
. Energy - thousands of dth N:tur:1 gas 60,359 58,743 58,832 53,035 53,030
.Manuf:.ctured gas and change in storage 53 (18) (63) 65 (30)
Total Natural and Mamtfactured Gas - 60,412 58,725 58,769 53,100 53,000-Total system requirements 60,412 58,725 56,551 53,100 53,000 jCompany use and unaccounted for (3,510) (3,148) (2,460) (1,282) (3,219) -
System sales . 56,902 55,577 54,091 51,818 49,781 Sal:s to other utilities - - 2,218 -
Total Sales 56,902 55,577 56,309 51,818 49,781
- M ximum Day Sendout - dth 462,610 431,940 404,679 365,991 441,122 System Capability - dth per day Natural gas 411,596 411,596 388,400 345,200 '335,700 LNG manufactured or LP gas 145,600 145,600 145,600 145,600 145,600 Total Capability 557,196 557,196 534,000 490,800 481,300
'Cchndar Degree Days (63 year average 5,048) 5,169 5,162 4,805 4,715 4,638 l
I $6-1989 1988 1987 1986 1985 Construction Expenditures' an thousands ordollars) Table 9 Electric $ 807,067 Production $ 59,880 $ 419,028 $ 453,544 $ 603,916 9,022 13,379 23,668 6,451 4,971 Transmission 50,847 38,333 66,679 64,653 32,209 Distribution 4,165 (4,132)
(4,677) 1,588 6,470 General 130,904 498,648 515,891 665,379 846,239 Electric Total 31,978 19,564
' Gas Total 49,847 37,518 34,270 11,007 9,352 17,795 5,434 13,198 Common Total Total Construction Expenditures $ 191,758 $ 545,518 $ 567,956 $ 702,791 $ 879,001
$ 8,292 $ 15,639 $ 13,219 $ 10,353 $ 22,241 Nuclear Fuel
- Includes non< ash allowance for other funds used during wnstruction.
Balance Sheet an thousands ofdollars)
Table 10 Assets $ 8,167,239
$ 3,942,616 $ 8,020,253 $ 9,277,309 $ 8,710,063 Utility plant Less- Accumulated depreciation, 1,161,459 1,075,129 983,272 919,452 853,071 depletion and amortization 2,781,157 6,945,124 8,294,037 7,790,611 7,314,168 Total Net Utility Plant
' Regulatory asset 3,988,344 - - - -
6,050 -69,271 68,763 68,383 139,783 Other property and investments 367,967 982,032 571,934 606,579 702,825 Current assets Deferred charges:
262,298 525,029 127,061 65,799 26,286 Accumulated deferred income taxes 115,062 500,157 214,979 227,247 230,537 =
Other 762,455 740,008 354,808 296,336 141,348 Total Deferred Charges
$ 8,520,038 $ 8,326,337 $ 9,323,687 $ 8,858,155 s 7,963,266 Total Assets Capitalization and Liabilities Capitalization:
$ 4,560,010 $ 3,449,821 $ 3,724,601 $ 3,805,796 $ 2,718,192 Long-term debt (28,587) (25,011) (26,646) (28,281) (9,414)
Unamortized premium and (discount) on debt Preferred stock - redemption required 541,187 513,924 520,788 527,465 527,612 Preferred stock - no redemption required 155,592 221,050 221,051 221,053 221,056 (58,430) (40,881) (25,701) (7,654)
Treasury stock, at cost .
Retained earnings restricted for preferred stock dividend requirements - 341,009 265,288 188,051 -
Common stock and premium 1,547,971 1,557,293 1,556,928 1,556,483 1,556,026 (42,916) (56,151) (56,144) (56,138) (56,116)
Capital stock expense 436,690 679,579 1,801,919 1,609,268 1,480,644 Retained earnings 7,169,953 6,623,083 7,966,904 7,797,996 6,430,346 TotalCapitalization 470,885 583,017 339,573 277,173 975,214
' Current Liabilities Deferred Credits:
430,933 963,975 921,397 692,758 486,333 Accumulated deferred income taxes 437,416 144,015 83,217 75,195 62,039
'Other _
868,349 ^ 1,107,990 1,004,614 767,953 548,372 Total Deferred Credits Reserves for Claims, Damages, Pensions 10,851 12,247 12,596 15,033 9,334 and Benefits S 8,520,038 $ 8,326,337 $ 9,323,687 $ 8,858,155 $ 7,963,266 Total Capitalization and Liabilities l
4't l Common and Preferred Stock Prices Table 11
- The Common Stock of the Company is traded on the New York Stock Exchange and the Pacific Stock Exchange.
The Preferred Stock $100 par value, Series B, E, I, J, K and S and the Preferred Stock $25 par value, Series 0, P,
- T and Y of the Company are, and Series U, V, W and X were, traded on the New York Stock Exchange. The table below indicates the high and low prices on the New York Stock Exchange listing of composite transactions for the years 1988 and 1989.
1988 1989 Quader Quader First Second Third Fourth First Second Third Fourth Common Stock - High 10% 14 15% 17% 15% 17% 19 20%
Low 7% 8 12% 11% 12% 14% 16% 17% l Preferred Stock Series B 5.00% High 50 66 % 61% 64 60% 68 74 % 51%-
Low 44 49 53 % 51% 51 % 60% 46% 46%
Series E 4.35% High 49% 63% 52 % 56 54 % 58% 64 - 44 %
Low 40% 49 49% 41% 44 52 41 41 Series I 5%% High 80 % 100 106 114 106 122 134% 117 i Low 78 % 79 % 97 99 100 107 106 % 104 %
Series J 8.12 % High 81 98 98 102 97 % 106 % 112 % 82 Low - 67% 82 89 % 78% 80% 96% 75 % 76 %
Series K 8.30% High 83 101% 99 % 105 100% 109 118 % 84 Low 67 % 82 90 80% 83 % 97% 76% 76 Series O $2.47 High 27 30% 31% 32% 31% 34 36% 25% _i Low 21 24 % 28 % 23% 26% 31% 23%
23%
Series P $2.43 High 27 30% 30 31% 30% 33 35 25% l Low 18 % 24 % 26% 21% 25%- 29 22 %
22% ;
Series S 9.80% High 102 122 % 122 % 125 122 131 142 96 !
Low 81 99% 116 106% 106 123 92% 94 Series T $3.31 High 30 37 % 37% 38% 38 % 40% 42% 26%
Low 23 % 29% 34% 27% 32 38% 25% 25%
Series U $4.25 High 34 42% 42% 44% 43% 46% 48% 27 %
Low 27 % 32 % 40 34 36 % 43% 26% 26%
Series V $3.50 High 31% 38 39 40% 40% 42% 44 % 26%- -!
Low 25 30% 35% 30% 33 % 39% 26 26%
Series W$3.52 High 33 40% 41 % 43% 42% 44% 46% 29%
Low 25 % 31 37% 32 35 42% 28 % 29 Series X $3.50 High 32 38 38% 40% 40% 42% 44 27%
Lcw 24 % 30 35 % 30 % 33% 39 % 26 26% !
Series Y $2.65 High - - - - - - -
26 %
Low - - - - - - -
25 The Series D 4.25% Stock is traded in the over-the counter market and no price data is available. The Series F, IL L, M and R Preferred Stock are held privately.
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' 48 02rporite Informr_ tion - .
. Executive Offices . Annut! Meeting The Annual Meeting of Shareowners will ?
i I 175 East Old Country Road Hicksville, N.Y 11801 be held on April 24,,1990 at 3:00 p.m. In connection with this meeting, proxies will Common Stock Listed be solicited by the Company. A notice of
- New York Stock Exchange the meeting, a proxy statement, and a proxy-Pacific Stock Exchange . will be mailed to shareowners in March.. '
Ticker Symbol: LIL Form 10 K Annual Report Transfer Agents The Company will furnish, without charge, a copy of the Company's Annual Report, .
Common Stock Form 10 K, as filed with the Securities and ;
Manufacturers IIanover Trust Company Exchange Commission,upon written 450 West 33rd Street request to: Investor Relations, Long Island i New York, N.Y.10001 Lighting Company,175 East Old Country 212 613 7147 Road, Hicksville,N.Y.11801
- Preferred Stock The First National Bank of Boston 50 Morrissey Boulevard
Dorchester,MA 02102 800-442 2001 Registrar Common and Preferred Stock Mellon SecuritiesTrust Company 120 Broadway
. New York, N.Y 10271 Shareowners' Agent for Automatic Dividend Reinvestment Plan -
Manufacturers Hanover Trust Company
- Dividend Reinvestment Department P.O. Box 24850, Church Street Station
.New York, N.Y.10242 212 613-7147
' DirMrs - . Officers .1 i
Willi:m J.~ C:tacosinis . William J. Citico:ino3 Jeseph W. McDonn:ll~
Ch:irmin of the Board and Chairman of the Board and ~ Vice President i Chi:f Executive Omcer Chief Executive Omcer ' Communications Long Island Lighting -
1: C;mpan> Anthony F. Earley, Jr. William J. Muscler President and Vice President
' A thony F. Earley, Jr. Chief Operating Omcer Electric Operations hief perat ng Omcer Geo J. Sideris William G. Schiffmacher k Long Island Lighting b'",rge,IC'
"\ .Presulent Finance
. Vice President and Chief Financial Omcer Engineering and Construction Company .
James T. Flynn Robert B. Steger A i t nt Su er$ntendent for Group Vice President Vice President, Finance, East Meadow School Engineering and Operations Fossil Production District; Chairman, Suffolk P. Alan Gambill Walter F. Wilm, Jr.
' County Water Authority Group Vice President . Vice President Winfi:Id E. Fromm - Commercial Operations Customer Relations R:tir:d Vice President Ralph T. Brandifino Edward J. Youngling E: ton Corporation Vice President Vice President Electronics Finance Conservation and Li n:1 M. Goldberg - L ad Management *
' Robert X. Kelleher -
Senior Vice President Vice President Victor A. Staffier! *
.- A1:xander & Alexander Human Resources General Counsel and of New York, Inc. Corporate Secretary usurane Jay R. Kessler Vice President Michael Czumak 1 Bi ll A. Paterson Gas Operations Controller and Putn:r Chief Accounting Omcer John D. Leonard, Jr.
& bin Pbzi, English Vice President Andrew R. Ragogna Law Corporate Services Treasurer l'- . Eb2n W. Pyne Adam M. Madsen Herbert M. Leiman
. Corporate Director Vice President Assistant General Counsel and Consultant Corporate Planning and Assistant Corporate
' Ritired Senior Vice President Secretary Brian R. McCaffrey Citibink, N.A. - Vice President J:hn H. Talmage Administration 7
- Partn:r -
H.R. Talmage & Son Phyllis S. Vineyard '
cDirector l 1Long Island Community..
u - Foundation -
- Regional and L Community Planning 4 l.
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.kngIclend Lighting Comp.~rny- U.s:foSTAGE+
e 175 East Old Country, Road '
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. Hicksville,NY 11801 seksviiie, wy - .,.
, 1 Pormit No 254 J
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