ML20062D305

Submits 2 Final Responses to NRC Requests for Info Needed for Constr Permit Applicants Financial Qual Review.Forwards Statement of Major Accounting Changes Implemented During 1978 & Financial Statements for Period Ending 780930

ML20062D305
Person / Time
Site:	05000471
Issue date:	11/15/1978
From:	Rhonda Butler BOSTON EDISON CO.
To:	Parr O Office of Nuclear Reactor Regulation
References
NUDOCS 7811210326
Download: ML20062D305 (5)

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l BOSTON EDISON CO M p8ANY GEhENAL OrrscES B00 SQYLSTON STREET GOSTON. M ASS ACHUSETTS O 219 9 ROSEm? M. BUTLER .

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NUCLEAR PRO CTS DEPARTMENT November 15, 1978 Mr. Olan D. Parr, Chief

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Light Water Reactors Branch #3 /

Division of Project Management ' ,

Office of Nuclear Reactor Regulation j ,

U.S. Nuclear Regulatory Commission Washington, D.C. 20555 J

Pilgrim Station Unit 2 NRC Review of Financial Qualifications:

Submission of Final Responses

Dear Sir:

On October 25, 1978, NRC telecopied to BECo a list entitled " Additional Information Requested to Proceed with Financial Qualifications Review of Boston Edison Company's Application for Permit to Design and Con-struct Pilgrim Unit 2". At this time we are supplying the final two responses to the information requests.

Response #6, " Boston Edison Company, Statement of Significant Anticipated Changes in Accounting Principles."

(This is supplied in response to NRC request #6,

, for a statement of significant changes in accounting practices implemented during 1978, indicating impact upon earnings.)

Response #8. NRC has requested SEC Form 10-Q for the quarter ended 9/30/78. As discussed with you on 10/25/78, this form will not be available for several weeks. We believe that your information requirements can be satisfied by referring to the documents provided on 11/3/78. Specifically, we refer you to page 1-4 of

" Boston Edison Company Financial Statements, Period Ending September 30, 1978," which was provided in response to information requests #4, & 5.

Very truly yours ,

?S112103 g g () ,,( Q g

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Attachment o 7 WRG/cac $j cc: Mr. M. Karlowicz(NRC) w/a g h

RESPONSE d6 B0STON EDISON COMPANY STATEMENT OF SIGNIFICANT ANTICIPATED CHANGES IN ACC0llNTING PRINCIPLES

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RESPONSE #6 BOSTON EDISON COMPANY i

Statement of Significant Anticipated Changes  !

In Accounting Principles  ;

The accounting for AFUDC is the only significant change in accounting principles which is anticipated in 1978.

Prior to January 1, 1977 the Company had used the DPU method to compute AFUDC. Pursuant to a FERC order, on January 1, 1977, the Company changed l its method for determining the rate used in computing AFUDC and the method r of presentation (split between borrowed and other AFUDC) of AFUDC in the

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statements of income. The earnings for the nine months ended September 30, 1978 reflect the FERC method. ,

f- Please note the attached schedule which illustrates, for the nine months .

ended September 30, 1978, the differences between and earnings impact of - !

the two methods. The AFUDC rate under the DPU method (9.69%) utilizes t the imbedded cost of long-term capitalization; that is, it ignores the  ;

effect of short term funds in the calculation. The AFUDC rate under the FERC method (10.3%) does recognize the money costs of short term funds along  !

with the imbedded long term capitalization costs. Since short term funds presently have a higher money cost than the imbedded costs, the AFUDC rate increases under the FERC method. For the same reasons the debt portion of AFUDC and the resultant income tax effect differ under each method. DPU 17795 allowed the Company to provide deferred taxes on the debt portion of AFUDC. Under the DPU method, using imbedded money costs, this debt portion is 45%. Under the FERC method, using short term money costs as well as imbedded costs, the debt portion is 70%. In summary, these differences result in an income effect of $8,523,419 under the DPU method and $7,381,732 under the FERC method.

( In the most recent rate order to the Company (DPU 19300 - March 1978) the DPU ,

ruled that further study of the FERC method must be made before it is allowed. i-The DPU also ruled that the Company will remain using the DPU method for ,

ratemaking purposes. Based upon this ruling and af ter preliminary discussions ,

with both the FERC and the DPU, it is the Company's intention to revert to i the DPU method for 1978. The income effect of this change would be $1,141,687 <

(9.9c per share) for the nine months ended September 30, 1978.

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i BOSTON EDISON COMPANT September 30, 1978 Effect on Nine Months Earnings Alternative Methods of Calculating AFUDC DPU Method FERC Method AFUDC Accrual Rate 9.69% 10.3%

AFUDC Amt. (A) 11,086,797 11,527,834 Income Taxes Thereon:

Debt Portion of AFUDC 45% 70% j

( Debt Component 4,989,059 8,069,486 t

Income Taxes at 51.38% (B) 2,563,378 4,146,109 '

Effect-on Net Income (A-B) 8,523,419 7,381,732 Earnings Per Share 73.9c 64.0c l

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BOSTON EDISON COMPANY Calculation of AFUDC Rates ,

Percent Composite DPU Method Amount of Total Cost Cost First Mortgage Bonds $ 504,714 45.19% 7.80% 3.52%

Note-First National City Bank 75,000 6.72 7.75 .52 Secured Notes 23,000 2.06.

11.43 .24 Preferred Stock 82,372 7.37 6.66 .49 Preference Stock 84,590 7.57 11.58 .88

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Common Equity 347,262 31.09 13.00 4.04 Total $1,116,938 100.00%

Composite Cost of Capital 9.69%

FERC Method Short Term Borrowing Rate

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Average Short Term Borrowing Outstanding $ 82,027

( Average CWIP 180,298 Short Term Weighting Factor .4550 Short Term Component of AFUDC 5.0%

Weighted Capital Costs 9.69%

Capital Cost Weighting Factor (1 minus short term weighting factor) .5450 Capital Cost Component of AFUDC 5.3%

, Total AFUDC Rate 10.3%

• Includes the effects of compensating balance requirements.

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