ML20072E558
| ML20072E558 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 12/31/1993 |
| From: | Grossi R UNITED ILLUMINATING CO. |
| To: | |
| Shared Package | |
| ML20072E546 | List: |
| References | |
| NUDOCS 9408220294 | |
| Download: ML20072E558 (45) | |
Text
'4 THE UNITED ILLUMINATING COMPANY -)-10
- 1993 ANNUAL REPORT O
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FINANCIAL HIGHLIGHTS The United illuminating Connecticut. The population of Company, incorporated in 1899, the 17-town sen ice area, approxi-senes approximately 305.000 mately 698.000, represents 21%
customers in a 335-square-mile of the State's population.
service territory in southern 1993 1992 Operating Revenues (000) $ 653,023 5 667,325 lialance for Common Stock (000) $ 36,163 $ 52,430 Earnings per Share of Common Stock $ 2.57' $ 3.76 "
I)ividends Declared per Share of Common Stock $ 2.66 $ 2.56 payout Ratio 103 % 68 %
Ascrage Return on Equity 8.45 % 12.67 %
Ilook Value per Share $ 30.06 $ 30.12 Equity Capitalization 31.1 % 30.7 %
A.crage Common Stock Shares Outstanding (000) 14,064 13,941 Sales of Energ;y (mwh) 5,290,326 5,152,824 Imlu.in a reorpnvaram ihargr d su per shac
-l,i, toda nei pms of sw pr share culume to IW1 9' ]
10 12 Cu 3.76 2 Mi 4h ) 67 1& k4 SM 2 sh 4.' r 27.3%
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y 2Y 519 X kflif%Imttl m che 16. Ut.litm eqan alem io k 94 %4 tsH lh ll '4,5 1 30 v.w>sm m:s: 2:_ 2 l 2
92 93 90 91 92 91 90 91 92 93 90 gl 92 91 UI Comnmn Stock Price Book Value per Share Earnings per Share Omdends per Share sunyured eith Dow (Juliu 9 (dollaru (Jollan) hmes Uu!nv Astrage 1
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I With change in the air and a new century only six years away, United Illuminating is working aggressively to ensure the continuing success of the Company in both the near- and long-term. UI has a history of setting ambitious yet realistic goais and deliver-ing on its promises. UI's performance in 1993 demonstrated once again our commit-ment to provide value-added service to our customers and favorable returns to shareowners.
In February, the Board of Directors voted a 3.9% increase in the common stock quarterly dividend to an indicated annual rate of $2.66. This action was consistent with UI's goal of delivering regular increases in keeping with growth in earnings and cash flow. The Company also established a 4% long-term target for growth in earnings from operations (excluding one-time items) from a 1992 level of 53.17. Although 1993 earnings from operations were down slightly from the prior year, the Company con-tinues to believe its long-term growth goal is realistic.
Total carnings also were down, due to significant one-time gains recorded in 1992 and a significant one-time charge in 1993. This charge was associated with the restructuring costs of an early retirement program and a Company Organization Review. Total cash flow per share in 1993 was a healthy $10.06, or 3.8 times the declared common dividends.
High temperatures in summer months resulted in improved kilowatt-hour sales for 1993. And, in spite of several severe winter storms and a hundred-year blizzard in mid-March, overall reliability of service was excellent at 99.988% i 10.35 487 .
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IO 477 461 fl0 10 60 427 7."J 10 2 10 0 95 391 5 14 g
4M R9 90 91 92 93 R9 90 91 9 91 89 90 91 92 9.1 99 90 91 92 93 Cash Flow pee $hees Gross Seles Meryg toterest txpense UI Averagelletail Ri6ewett home Price (doll,us) net wh (millions) toul (m,b m) revenues less fuel gems) provided by operanng netwmn los preferred and energy and dmdends revenue twed taxes
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's We also established goals to develop sales and control costs. In 1993, we saw a net gain in companies moving into our area or increasing their electric power l
requirements. In addition, our program to retire high cost debt is well underway and - {
is expected to produce a $20 - $25 million reduction in annual interest charges by 1996.
The Seabrook nuclear facility continues to perform at high levels of reliability, Last year,it operated at a capacity factor of 89.81%, providing clean, low-cost power f
j and contributing greatly to both UI's financial performance and a cleaner environment. i p And this brings us to another factor in our success - our fuel mix During ;
the 1970s and 1980s, UI made major investments in order to reduce a 92% dependence f j on oil. Today, we utilize a variety of fuels including oil, nuclear, coal, gas, hydro and
. trash-to-energy. As a result, we can shift among fuels according to market conditions, j guaranteeing stable prices for electricity and forcing the fuel market to compete for j
our business.
l l Strategic goals for the next few years are as follows: ,
-r To achieve annual growth at a challenging level of 4% in recurring earnings and i l dividends, and to reduce Company debt by at least $20 million per year ,
- To operate in a highly-efficient and cost-effective manner
[ To be responsive to the needs of our customers and keep prices as reasonable as j possible with no increases projected ,
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- 'Ib continue the Company's leadership role in fostermg economic development t
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in Connecticut a l
- Tb influence public policy that will make Connecticut more attractive to business ;
- To ensure that UI continues to operate in an environmentally-responsive and safe i manner and participate m programs to achieve a cleaner environment for the State
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- 'Ib strive for a higher quality of life in the communities we serve by continuing and )
j enhancing our support of broad-based community programs Y
THOSE ARE OUR GOALS.THE QUESTION NOWIS: HOW DO WE ACHIEVE THEM7 TO ANSWER i
THIS QUESTION, WE MUST BEGIN BY ADDRESSING THE MOST IMPORTANT ISSUE FACING OUR INDUSTRY- COMPETITION,
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" Competition" may seem like an odd word coming from an electric ut the greatest challenge to our industry today. It arises from the high cost of doing busi-ness in our State, businesses relocating to other areas, today's economic climate and the effects of regulatory activity. Consequently, UI's future success will depend on our ability to retain and attract customers using the traditional tools of competition: value, price and quality of service.
In the early eighties, UI leaders sensed that the days of the protected monopoly utility were ending. They believed survival in a competitive environment would require a sea change in company culture and a new focus on the people and businesses that purchase our " product."
UI began by breaking an old habit. We stopped calling our customers " rate-payers," a small step that signaled a profound shift in thinking, a recognition that our responsibility to our customers did not end at the meter.
U1 also developed a host of economic development, conservation, environmental and community-oriented programs. These programs reach beyond the traditional gener-ation and distribution functions of an electric utility to establish strong ties to our customers and communities. This year, the Department of Public Utility Control (DPUC) acknowledged UI's service excellence describing our Company as "a leader of the State's utilities in becoming a more customer-oriented company by offering innovative rates, conservation programs and customer service."
UI adds value to its unique and necessary product through superior reliability, responding quickly to problems and helping our customers reduce costs and increase efficiency.
To meet the needs of our customers, we are determined to hold rates at cur-rent levels. We are accomplishing this in a variety of ways, including outsourcing some j
-t ii operations and streamlining the Company, through a recent Organization Review, to perform more effectively and efficiently.
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IN ADDITION TO ADDRESSING THESE ASPECTS OF COMPETITION, UlIS FINDING OPPORTUNITIES TD !
" GROW"ITS MARKET AND INCREASE SALES. j I
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A Emerging technologies and economic development hold the key to revenue growth j for UI. In fact, UI has been active along both of these lines for several years, and the .
results are beginning to show.
UI's current mission in the area of electrotechnology is to keep customers i
abreast of new developments, many of which have potential applications in our service area. Microwave technology is being applied to everything from food service to sterilizing medical waste. Commercial and residential heat pumps hear and cool more efficiently than fossil fuels. Electric transportation is becoming increasingly feasible. Widespread , [
acceptance of such technologies holds the promise of greater efficiencies for our customers, and increased sales for the Company. !
7 On the economic development front, the news is highly encouraging. In 1993, more than 26 companies moved into our franchise area or significantly expanded their -
operations, including many previously considered "at risk." Others that might leave Connecticut are coming to us first. They're doing it because of the strong relationships we've built with them, relationships which, by themselves, may not cure their ills, but :
which give us an opportunity to help them. ;
i Another positive sign is the emergence of southern Connecticut as a biomedical center. With Miles Pharmaceutical in West Haven, United Sitates Surgical Corporation j i.
in North Haven, Yale' University, Yale-New Haven Hospital, The Hospital of Saint ]
Raphael and a proposed biomedical park in New Haven, our service area is becoming a magnet for the medical industry. Most recently, a major pharmaceutical distributor l
{ moved to Orange, building a 185,000 square foot facility and bringing in 130 new jobs.
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! All this is important because, as a utility, UI has a stake in the region's -1 i success. We do everything we can to make it work because, in doing so, we develop our customer base and reap the benefits of an expanding economy.
IN ADDITION TO WORKING FOR A HEALTHY BUSINESS ENVIRONMENT, UIIS PLAYING A LEADERSHIP ROLE IN PROMOTING THE HEALTH OF OUR STATE'S NATURAL ENVIRONMENT.
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The future of any electric utility also depends on how it performs environmentally.
UI's approach to environmental issues has always been progressive. We view iti as t natural result of listening to our customers who, by voicing their concerns at the voting booth, have made Connecticut one of the leadership States in adopting stringent pro-environment laws. UI has responded by investing in clean fuels and emission controls, obeying not only the letter of the law, but its spirit as well.
4 We established an Environmental Department in 1969 - before the first Earth Day. In the early eighties, our mission statement included a commitment to go l I
beyond the law. As a result, environmental responsibility is now so ingrained in UI's cuhure that it is " business as usual."
But is this good business? It is. Effective planning has put off the need for {
constructing new generating capacity until at least the year 2007. And the programs we have undertaken in demand-side management and conservation mean that, unlike many utilities, UI may not be required to make major capital investments in the next few years. In fact, while other utilities are going to have to make major capital investmenl
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to comply with Federal and State regulations, UI has already achieved emission that other utilities will not match until the next century.
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And U1 may profit from having had the foresight to attack the problem of emissions as quickly and completely as we did. Under the Clean Air Act Amendmentl of 1990, a trading system was set up that allows utilities to buy and sell emission allowances of sulfur dioxide (SO2), a contributor to acid rain. UI has already made the first publicly-announced ftitures transaction involving these allowances, havin '
l a midwestern utility an option to buy 5,000 of UI's surplus emission allowances annu-ally, beginning in the year 2000.
Finally, although UI's decision to invest in nuclear generation was controver-sial and costly,it has been highly successful, especially from an environmental view- '
point. With Seabrook on-line, sulfur and carbon dioxide emissions in New Eng have dropped significantly.
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STILL.THE ECONOMIC CLIMATE IN CONNECTICUT HAS BEEN HARD ON BU CONSISTENTLY OVER THE PAST IEW YEARS TO CORRECT THAT SITUATION. e 4
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' until the year 7000 Seabrook Nuclear tacility reduces 50 emissions.in New England by 40 000 tens per yeae
{ ' Nitrogen Omides (N'Os) U1 eil and gas units already
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reductions at greater costs <
m.-v; l Carbon Dionede (C0 i President Clinton s National Action Plan seeks to stahilire emissions at 1990 levels by 2000 Environmentally speaking, u e've paid our dues. In fact, UI is in c u,,,,, ,, u, better shape today than most of the other utilities in the Nortbeast will be * *,,," ' ' "o ' ,, ' " " ' " "
by the year 2000.
already VI expects to stay well below the requirement
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\re're nca waitingfi>r thefitture to happen to us. \re're taking charge al our destmy by fornung non-traditional alliances with Inisinc>s and government. We're !ooleing Connecticut's problems right in the eye.
and so!:ing them.
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p Q UI has always worked with State and municipal governments, business associations and civic organizations to make Connecticut more " business-friendly " We've earned tremendous respect for becoming involved with the communities we serve - and some we do not. Whether we're helping customers navigate the intricacies of a State agency, supporting an association's lobbying effort or the Special Olympics, we feel that it's in our best interest to do everything possible to enhance the business climate of Connecticut.
In 1993, UI helped form a business coalition that succeeded in repealing Connecticut's onerous Gross Receipts Tax for manufacturers. The elimination of this tax will help reduce the cost of doing business in the State.
Ui is also working with the Regional Council of Governments, mayors, first selectmen and business leaders from 14 towns to develop strategies for the economy of the south central Connecticut region. A regional approach is important because individual towns can no longer afford to compete against one another. In September 1993, this group published a plan that addresses the region's strengths and weaknesses l and promises bold action to retain and attract business.
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To combat the problem of air pollution caused by mobile sources (transpor-i tation), UI has joined with the Connecticut Fund for the Edvironment, the Department of Environmental Protection, the Department of Transportation and The Rideshare Company to form a consortium studying transportation control strategies. This will help our industrial customers by finding ways to reduce mobile emissions rather than the fixed source industrial emissions that hurt them financially.
Of course there are other qualities that make an area attractive to business, such as education and culture. To this end, UI encourages a high level of community participation by its employees. These activities involve significant time and effort, but we believe that anything that enhances the quality of life in an area helps it compete.
And if the area can compete and remain viable, UI will benefit as well.
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In short, the restructuring of our debt is expected to save tens of millions over [
the next five years. Economic development efforts are gaining momentum and expa h ing our customer base. Advances in electrotechnology will unlock opportunities we can now only imagine.
i The Organization Review, while not without pain, will produce a Company that is strengthened, streamlined and better able to provide customers with the super ,,
service they need and deserve.
Despite the unct:tainties facing our industry, there are many reasons to be optimistic about United Illuminating. Our proven track record of making sound bu ness decisions and our continuing efforts to hone our competitive edge, alor,g with the commitment and dedication of our employees, have prepared UI to move forward.
We understand the issues before us and the needs of our customers. We kn must be done to deal with those issues. And we are confident that our efforts today will help us meet the challenges that lie ahead.
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Richard J. Grossi i
Chairman and Chief Executive Officer 4\
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- BOARD OF DIRECTORS AND OFFICERS Robert L Fieems Dr. l.elend W. Miles 0FFICERS Dea u cama President since May 1991, (Chairman, Audit Committee.)
(Member, Audit Committee. Consultant. President Emeritus,
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Director since May 1992 and ~
Cornnuttee on Ereem C'I sident Transnu.ssion Chief Financial Officer since University of Bridgepon. Presi-S8 c ec tree'}
dent Emeritus, International
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x t;v, August 1983,'Ihe United p d 1985,and Illuminating Company. Director Association of University Presi- James L Benjamin f The Aristode Corporation, dents. Chief, IAUP Mission to Controller rec or nce Ju 988. PeoPl e's Griffin Health Services Corpora- the United Nations. Chairman Bank. President, Chief Executive IAUP/UN Commission on Arms Rita L Bowlby ie's tion and Griffin Hospital.
Vice President Corporate Affairs
] dg e or of ort Ho5P ital, Savings Member, Board of Governors of the University of New Haven. . Managed Investment Funds' Control Trustee of Wright James F. Crewe Brid President of the United Way
& C mmunity Bankers of Amer- Director and Chairman, Advisory Executive Vice President of Greater New Haven. Council, Save The Children-ica, Old State House Private & Chief Customer Officer Industry Council of Southwest- Richard J. Greasi Freak R. O'Keefe.Jr- Robert L Fiscus ern Connecucut and American (Member, Executive Committee.) (Chairman, Compensation and President & Chief Financial Skandia Trust. Chairman of the Board of Executive Development Com- Officer Direct rs and Chief Executive mittee; Member, Strategic Direc-John F. Croweek Officer since May 1991,The tion Committee and Committee Stephen F. Goldschmidt (Chairman, Executive Commit-United Illuminating Company. on Directors.) Independent busi- Vice President Information tee; Member, Compensation and Executive Development Com- Director of Tennis Foundation of ness consultant. Former President Resources Connecticut, Inc., Connecticut of Long Wharf Capital Partners, mittee.) Chairman of the Board Rieberd J. Grossi of Directors since April 1988 and Public Broadcasting, New Haven . Inc. Retired Chairman of th Chairman & Chief Executive President and Chief Execuuve Savmgs Bank and Blue Cross & Board of Directors and ident Pres!
Officer Officer and Director since April Blue Shield of Connecticut,Inc. and Chief Executive Officer of 1985, Blue Cross & Blue Shield Trustee of Yale-New Haven Armtek Corporation. Director of Albert N. Henrickson of Connecticut,Inc. Director Hospital and North American The Southern New England Tele- Vice President Administradon of BCS Financial, New Haven Electric Reliability Council Vice communications Corporation, David W. Hoskinson Savings Bank and Quinnipiac Chairman of Northeast Power Aetna Life and Casualty Com-Vice President Generadon College. Coordinating Council Chairman, pany and Echlin Incorporated. .,
l New Haven Regional Leadership Robert H. Hyde J. Hegh Devlin J'*** A*'O'"**
Council Member of West Haven Vice President Customer Services (Chairman, Comrm. ttee on (Member, Compens2 tion and Planning and Finance Assistance Directors; Member, Compensa' Executive Development E. Jon Mejkowski Board. ,
tion and Executive Development Committee; Audit Committee Vice President Committee and Strategic Direc- Betsy Henley.Cohn and Committee on Directors.) & President UI Subsidiaries tion Committee.) Managing (Member, Audit Committee; Master, Saybrook College, Kurt D. Mohlman Director and Consukant, Barr Compensation and Executive Yale University. Associate Dean, Development Committee and Yale Law School. Trustee of Treasurer & Secretary Devlin Associates. Chairman of the Board of Trustees, River- Strategic Direction Committee.) People's Mutual Holdings. Charles J. Pope view Medical Center. Chairwoman, Birmingham Advisory Director of People's Assistant Treasurer & Secretary -
Utilities,Inc. Chairman of the Bank and New Haven Enterprise John D. Fessett Anthony J.Vallille Board, Joseph Cohn & Son, Development Corporation.
(Member, Audit Committee.) Vice President Marketing Inc. Director of The Aristotle Forrner Chairman and Chief "I'3I'" 8' ""'
Corponda Executive Officer of The United (Member, Audit Committee and Illuminating Company. Con- F. Patrick McFedden.Jr. Execudve Committee.) Chairman sultant, Author. Director of New (Chairman, Strategic Direction of the Board of Directors, Haven Savings Bank. Committee; Member, Executive Aquarion Company (formerly Committee and Committee on The Hydraulic Company).
Directors.) President and Chief Director, Bridgeport Hospital Executive Officer,The Bank Trustee,The Mountain Grove l of New Haven and BNH Banc- Cemetery Association. j shares, Inc. Director of The New '
l Haven Foundation and Science l Park Development Corporat on. i Chairman, Yale-New Haven l Health Services Corporation.
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hM flVE YEAR SlJMMARY OF SELECTED FINANCIAL AND STATISTICAL DATA A 1
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1993 1992 1991 1990 1989 k,
Financial Results of Operation ($000's) r Sales of electricity:
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Retail $ 211,891 $ 205,183 E ,,)
$ 238,185 $ 226,455 $ 226,751 Residential 256,559 253,456m 255,782 234,704 219,852 , 4 '"
Commercial 94,526 92,855 0 97,466 97,010* 91,895 Industrial 10,536 9,943 11,349 11,065 10,886 Other 603,559 587,986 585,314 551,657 527,833 $l Total Retail Wholesale")
45,931 75,484 84,236 85,657 77,925 M Other operating revenues 3,533 3,855 3,821 3,332 3,348 fd Total operating revenues 653,023 667,325 673,371 640,646 609,106 )]
Fuel and interchange energy - net:
Q,4 Retail - own load 98,694 108,084 123,010 119,285 128,739 ?Q 39,356 55,169 61,858 69,117 62,681 Qq Wholesale 47,424 43,560 44,668 42,827 50,234 aM Capacity purchased - net Depreciation 56,287 50,706 48,181 36,526 35,618 4[r-Other operating expenses, excluding tax expense 205,207 27,955 193,841 27,362 189,327 27,223 180,592 25,595 155,282 24,506 #y 1 Gross earnings tax Other non-income taxes 29,977 31,869 28,673 24,648 20,294 M Total operating expenses, excluding income taxes 504.900 510.591 522,940 17,970 498,590 21,503 477,354 0
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7,497 15,959 Deferred return Seabrook Unit 1 4,067 3,232 5,190 3,443 65,443 gd 3g AFUDC Other non-operating income (loss) 71 18,545 2,697 22,654 (219,742) d Interest expense:
g Long-term debt 80,030 88,666 90,296 94,056 91,126 'M 12,260 12,882 9,847 15,468 22,849 Other %a 92,290 101,548 100,143 109,524 113,975 { @g Total M
Income tax expense:
Operating income tax 33,309 48,712 47,231 43,493 37,963 M Non-operating income tax (6,322) 26,987 (12,558) 36,154 (19,299) -
27,932 (17,409) 26,084 (101,135)
(63,172) f M
Total - h, Income (loss) before cumulative effect of 40,481 56,768 48,213 54,048 (73,350)
Y accounting change Cumulative effect of change in accounting 0 0 7,337 0 0 for property taxes - net of tax (73,350) 40,481* 56,768 55,550 54,048 Net income (loss) 4,751 8,233 4<;
4,318 4,338 4,530 Preferred and preference stock dividends
$ 36,163 $ 52,430 $ 51,020 $ 49,297 $ (81,583)
Income (loss) applicable to common stock Operating income
$ 114,814 $ 108,022 $ 103,200 $ 98,563 $ 93,789 g K
M Financial Condition ($000's)
$1,243,426 $1,224,058 $1,219,871 $1,209.173 $ 562,473 S Plant in service - net 59,809 54,771 50,257 675,831
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"5 Construction work in progress 77,395 Plant-related regulatory asser 0 0 0 0 81,768 .
D Other property and investments 58,096 65,320 79,009 90,006 91,648 h 187,981 247,954 164,839 161,066 170,823 h Current assets 567,394 556,493 554,365 553,986 605,696 [i Regulatory assets hr
$2,134,292 $2,153,634 $2,072,855 $2,064,488 $2,188,239 Total Assets
$ 423,324 $ 422,746 $ 401,771 $ 379,812 $ 362,584 @
Common stock equity 69,700 70,000 60,945 60,945 62,640 Preferred and preference stock I ong-term debt excluding current portion 875,268 893,457 909,998 899,993 868,884 -
K(
25,853 96,973 99,933 107,781 o 29,119 ,
Noncurrent liabilities 41,667 18,667 J Y 143,333 92,833 37,500 Current portion of long-term debt 0 84,099 13,000 15,000 45,000 i(
Notes payable Other current liabilities 150,890 133,471 127,524 149,090 142,878 (
451,413 440,230 423,449 409,293 572,445 5F Regulatory liabilities and other
$2,134,292 $2,153,634 $2,072,855 $2,064,488 $2,18W239 q rY Total Capitalization and Liabilities
- [
(1) Operatmg Revenues, for years prior to 1992, indude wholesale power exchange contract ules that were redann6ed from Fuel and Capacity i ! ex rederal Energy Regulatory Comnuss,on requirements. ' f, l
(2) Indudc4 redmi6 canon of certain Commercial and induetnal customers. 1 L
(h Indudes the effect of a reorpmmmn chage of $7.s miSon.
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m *a 3 G (g. 4 7 mge,,e-p- *m.' if g g(3pfhg&,c q ' ,, , , , ,
., _ FIVE YEAR
SUMMARY
OF SELECTED FINANCIAL AND STATISTICAL DATA f
1993 1992 1991 1990 '198'9
[
~conwnon Stock Dets 14,063,854 13,941,150 ~13,899,906 13,887.748 13,887,748 Average number of shares outstanding 14,083,291 14,033,148 13,932,348 13,887,348 13,887,748 Number of shares outstanding at year-end Earnings (loss) Per share (average)
$ 2.57m .g. 3.76 $ 3.67m $ 3.55 $ (5.87)
Book value per share ,
$ 30.06 $ 30.12 . $ 28.84 $ 27.35 $ 26.11 ~
Average return on equity 8.45 % 12.67 % 13.01 % 1" 39 % -18.88 %
! Total I 10.97 % 14.46 % 13.39 % 13.97 % 20.21 %
Utility 2.66 i Dividends declared per share $ $ 2.56 $ 2.44 $ 2.32 $ 2.32
! Market Price:
C~
5 45.875 $ 42.000 $ 39.125 $ 34.125 $ 34.25 6 High
$ 38.500 $ 34.125 $ 30.000 $ 26.8'5 $ 24.75
)~ 1,o,
$ 40.250 $ 41.500 $ 39.000 $ 31.125 ' $ 34.25 Year end '
) 19 I GsSovided by operating .
$102,989 $109,020 $ 73,865 $ 39,189 $ 31,437 4 activities, less dividends ($000's)
$ 94,743 $ 66,390 $ 63,157 $ 64,018 $ 77,041 3 Capital expenditures, excluding AFUDC
{ Other Financial and Statistical Data Sales by class (MWil's)
I 1,844,041 1,799,456 1,851,447 1,826,700 1,883,363 Residential 2,359,023 2,303,216m 2,347,757 2,259,340 2,254,099 I Commercial 1,036,547 997,168m 980,071 1,060,751 1,109,119 3 Industrial 50,715 52,984 55,118 58,013 60,427 i Other
- 2) 5,290,326 5,152,824 5,234,393 5,204,804 5,307,008 Total Number of retail customers by class (average) 4 ,
' 273,752 273,936 274,064 275,637 276,385 Residential
% 28,968 28,848m 29,768 29,808 29,526 Commercial
? Industrial 959 1,017m 268 319 347 Other 1,175 1,358 1,361 1,352 1,316 Total 304,854 305,159 305,461 307,116 307,574
})
3 System requirements (MWii) 5,630,581 5,475,664 5,541,477- 5,501,495 5,603,502 1,114,900 1,034,440 1,145,820 1,054,600 1,094,400
!) Peak load - kilowatts Generating capability - peak (kilowatts) 1,515,420 1,402,800 1,474,190 1,449,600 1,289,800
- 3) - Fuel generation mix percentages Coal 31 34 34 43 39 <
] Oil 16 17 21 24 37 Nuclear 38 35 29 20 11
- 3) 8 3 Cngeneration 8 9 9 9 Gas 1 1 4 3 3 i) 11ydro 6 5 3 1.
- 1
- Revenues - retail sales ($000's)
Base $605,887 $608,176 $607,997 $589,346 $577,611
) Fuel Adjustment Clause (2,328) (41,221) (37,497) (45,900) (49,778)'
I Sales Provision Adjustment 0 21,031 14.814 8,211 0 i Total $603,559 5587,996 $585,314 $551,657 $527,833 -
4 Revenue - retail saks per KWH (cents) 3 11.45 Base 11.80 11.62 11.32 10.88' I
? Fuel Adjustment Clause (0.04) (0.80) (0.72) (0.88) (0.93) '
Sales Provision Adjustment 0.00 0.28 0.16
} 0.41 0 s 1 Total 11.41 11.41 11.18 10.60 9.95 3 Fuel and energy cost per KWil (cents) 1.75 2.43 2.67 2.63 2.78 4 Fossil 2.08 2.98 3.11 2.89 2.98 1 Nuclear 1.23 1.42 1.62 1.55 0.89 -
7 Number of employees 1,490 1,554 1,571 1,587 1,627 3 Total payroll ($000's) $ 75,305 $ 74,052 $ 71,888 $ 69.237 $ 65,175 9
3 0)Indudes the cumulative effect of accounnng change for municipal property cases, which increned earnings by $0.5) per share. .
- 4)locludes reclusifwarion of certain Commeraal and Industrial customers.
,, 0) Indudes the effect of a reorganization charge which decremed earnings by 1.56 per share.
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MANAGEMENT'S DISCUS $10N AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Major insuences On Financial Condition increases due to economic recovery would help to increas
~
The Company's financial condition shculd continue to the Company's earnings.
improve a a result of the December 16,1992 rate decision 1 by the DPUC. The DPUC decision granted levelized Another major factor affecting the Company's financial rate increases of 2.66% ($15.8 million)in 1993 and 2.66% - condition will be the Company's ability to control expenses. ,
A significant reduction in interest expense has been achieved.
(an additional $17.3 million)in 1994. ,
since 1989, and additional savings of $10 million are expected 2 However, the Company's financial condition will continue to in 1994 due to debt refinancing. Since 1990, annual growth be dependent on the level of retail and wholesale sales.The in total operation and maintenance expense, excluding one-two primary factors that affect sales volume are economic time items and cogeneration capacity purchases, has averaged.
conditions and weather. The regional recession has restricted approximately 2.7%, and the Company hopes to restrict retail sales growtl and been largely responsible for a weak future increases to less than the rate of inflation. .
wholesale sales market during the past two years. Sales ;
Liquidity And Capital Resources >
The Company's capital requirements are presently projected as follows:
1994 1995 1996 1997 1998 (000's) '
$ 73,424 $ 84,876 $82,632 $ 51,324 $ 74,304 Capital Expenditure Program 50,000 100,000 53,000 97,000 - ,
Long-term Debt Maturities 15,171 15,562 60,333 66,134 12,770 Mandatory Redemptions / Repayments
$186,757 $248,010 $95,402 $116,495 $189,866 Total Capital Requirements 7
At December 31,1993, the Company had $48.2 million. j The Company presently estimates that its cash on hand and temporary cash investments at the beginning of 1994, totaling cash and temporary cash investments, an increase of $37.
million from the balance at December 31,1992.The compo- i
$48.2 million, and its projected net cash provided by opera-tions,less dividends, of $102 million,less capital expenditures - nents of this increase, whic$ are detailed in the Consolidated y of $73.4 million, will be insufficient to fund the Company's Statement of Cash Flows, a e summarized as follows: y 1994 requirements for long-term debt maturities and man- i datory redemptions and repayments, amounting to $113.3 (Millions) million, by $36 million. The Company currently anticipates Balance, December 31,1992 $11.1 [
145.9 3 ;
that its projected net cash provided by operations,less divi- Net cash provided by operating activities dends and capital expenditures. for 1995 will be insufficient Net cash provided by (used in) financing activities: A to fund the Company's 1995 requirements for long-term -Financing activities, excluding dividend payments .(67.3) O debt maturities and mandatory redemptions and repayments, -Dividend payments (41.3) f by approximately $138 million. The Company currently Net cash provided by investing activities, 94.5 Q
excludmg mvestment m plant (94.7) g anticipates that its projected net cash provided by operations, l
less dividends and capital expenditures, for 1996 through Cash invested m plant, meludmg nuclear fuel }
Net increase 37.1; ".J 1998 will be insufficient to fund the Company's requirements $48.2 Balance, December 31,1993 for long-term debt maturiti-r and mandatory redemptions J
and repayments in the years 1996 through 1998, in amounts that canaot now be predicted accurately, but which may The Company has a revolving credit agreement with a group 3 be substantial in the aggregate, depending on the levels of the of banks, which currently extends to January 19,1995.The h Company's sales, wholesale and retail rates, operation and borrowing limit of this facility is $75 million.The facility. ]
maintenance costs and taxes. All of the Company's capital permits the Company to borrow funds at a fluctuating interest i rate determined by the prime lending market in Ne < c rk, * ?
requirements that exceed available net cash will have to be provided by external financing; and the Company has no and also permits the Company to borrow mnney 0 4 d V l commitment to provide such financing from any source of periods of time specified by the Company at fixed rn . rates}
funds. The Company expects to be able to satisfy its external determined by the Eurodollar interbank market in }
financing needs by issuing common stock and additional ^ by the certificate of deposit market in New York, or b- .
short-term and leng-term debt, although the continued avail-Q; ability of th-<e rrethods of financing will be dependent on i
many fact % ncluding conditions in the securities markets, economic c ,tions, and the level of the Company's income [
and casi 4
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION bidding, at the Company's option. If a material adverse - extends to February 1995. At December 31,1993, approri-han e in the business, operations, affairs, assets or condition, mately $10.1 million of fossil fuel purchases were being financial or otherwise, or pmspects of the Company and financed under this agreement.
its subsidiaries, on a consolidated basis, should occur, the s' UI has four wholly-owned subsidiaries. Bridgeport Electric banks may decline to lend additional money to the Company
- d Company, a single-purpose corporation, owns and leases to under this revolving credit agreement, although borrowings 3 outstanding at the time of such an occurrence would not UI a generating unit at Bridgeport Harbor Station. Research then become due and payable. As of December 31,1993, the Center,Inc. (RCI) has been formed to participate in the Company had nc %rt. term borrowing outstanding under development of one or more regulated power production
- ed ventures, includmg possmle parucipauon m arrangements for this facility-the future development of independent power production The Company's L,,4enn debt instmments do not limit the and cogeneration facilities. United Energy International, Inc. .
) .
amount of short-term debt that the Company may issue.The (UEI) has been formed to facilitate participation in a pro-t Company's revolving credit agreement described in the pre- posed joint venture relating to power production plants vious paragraph requires it to maintain an evailable carnings/ abroad. United Resources, Inc. (URI) serves as the parent interest charges ratio of not less than 1.5:1.0 for each 12-month corporation for several unregulated businesses, each of which period ending on the last day of- ' ndar quaner. is incorporated separately to participate in business ventures that will complement and enhance UI's electric utility business 2 The Company had a $50 million . . san facility with a and serve the interests of the Company and its shareholders 504 group of banks during 1993. Under this agreement, the and customers.
300 Company chose an interest rate from among three alterna-
@2 tives: (i) a fluctuating interest rate determined by the prime Four wholly-owned subsidiaries of URI have been incorpo-3 lending market in New York;(ii) a fixed interest rate deter- rated. Souwestcon Properties, Inc. is participating as a 25%
mined by the Eurodollar interbank market in London; and parener in the ownership of a medical hotel building in i
(iii) a fixed interest rate determined by the certificate of deposit New Haven. A second wholly-owned subsidiary of URIis market in New York. On Febru~ 1,1993, the Company Thermal Energies, Inc., which is participating in the develop-borrowed $50 million from tl p of banks, usi: g the ment of district heating and cooling water facilities in the
} proceeds to repay short-term b,- wings and other current
' obligations. On December 3,1993, the Company repaid the downtown New Haven area, including the energy center for an office tower and participcion as a 37% panner in the
$50 million borrowing and terminated the 2,;reement. energy center for a new city hall and of6ce tower complex. ,
l A third URI subsidiary, Precision Power, Inc., provides The Company had a term loan agreement with Prulease, power-related equipment and services to the owners of -
1.;1 Inc. (Prulease) that expired on December 1,1993. This commercial buildings and industrial facilities. A fourth URI 5.9 agreement was executed on December 31,1992, when the subsidiary, American Payment Systems,Inc., manages agents Company borrowed $49.1 million from PruLease and and equipment for electronic data processing of bill pay-purchased all the nuclear fuel that was owned by Prulease ments made by customers of utilities, including UI, at neigh-
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and leased to the Company on that date. This loan, which borhood businesses. In addition to these subsidiaries, URI l 4.5 was collateralized by a first lien on the Company's own- also has an 82% ownership interest in Ventana Corporation (7) ership interest in the nuclear fuel for Seabrook Unit 1, was (Ventana), which offers energy conservation engineering and 7i repaid in full at maturity, project management services to governmental and private 8.2 msutuuons. In September 1993, URI recorded a $1.2 million The Company has a Fossil Fuel Supply Agreement with a after-tax write off of outstanding debt owed to URI by financial institution pmviding for financing up to $37.5 Ventana, which represented the difference between the amount lP million in fossil fuel purchases. Under this agreement, the owed to URI by Ventana and the value of an additional .
financing entity acquires and stores natural gas, coal and fuel equity interest in Ventana received by URI in Novemb'er 1993.
oil for sale to the Company, and the Company purchases This additional equity interest in Ventana was received in these fossil fuels from the financing entity at a price for each exchange for the forgiveness of debt owed to URI by Ventana.
type of fuel that reimburses the financing entity for the direct '
costs it has incurred in purchasing and storing the fuel, plus The Board of Directors of the Company has authorized the a charge for maintaining an inventory of the fuel determined investment of a maximum of $13.5 million,in the aggregate,
[, by reference to the fluctuating interest rate on thirty-day, of the Company's assets in all of URl's ventures, UEI and
\
dealer-placed commercial paperin New York. The Company RCI, and, at December 31,1993, approximately $10.6 million is obligated to insure the fuel inventories and to indemnify had been so invested. ,
the financing entity against all liabilities, taxes and other expenses incurred as a result of its ownership, storage and sale of fossil fuel to the Company. This agreement currently
6
- e-
- MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAt. CONDITION AND RESULTS OF OPERA ]
l} a.
Results Of Operations Other income dedined by $23 million in 1993 from 1992, S.8g #
$9.4 million of which was attributable to the, absence of net 1993 vs.1992 Earnings for the year 1993 were $36.2 million, one-time gains realized in 1992. The remainder was due '[G or $2.57 per share, down $16.3 million, or $1.19 per share, primarily to an expected decline in deferred revenue and 4 from 1992. This decrease reflects a one-time reorganization income tax benefits associated with the DPUC's 1992 rate l$
decision, offset, in part, by lower interest charges of $9.3 charge of approximately $7.8 million after-tax, or $.56 per share, and the non-recurrence of one-time gains of $.59 per million. " Net" interest margin (interest income less interest ,
share in 1992. Earnings per share for 1993, excluding one- expense) improved by $6.6 million in 1993 over 1992. 3 1
time items and accounting changes, decreased by $.04 per share, to $3.13 per share from $3.17 per share for 1992.
1932 vs.1991 Earnings for 1992 were $52.4 million, or $3.76 d
f per share, up $1.4 million, or $.09 per share, over 1991. ,
Sales margin increased by $10.3 niillion for the year. Retail Earnings per share for 1992, excluding one-time items and j revenues increased $36.6 million; $20.7 million from a recent accounting changes, increased by $.27, to $3.17 from $2.90 rate decision ($12.1 million from rate changes and $13.2 per share for 1991. Non-recurring earnings declined to a level ]
million for the fold-in to base rates of the 1992 sales adjust- of $.59 per share in 1992 from $.77 per share in 1991. f j
ment revenues, partly offset by the pass through to customers Operating revenues in 1992, exclusive of retail and wholesale t.
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of expense credits of $4.6 million), and $15.9 million from increased retail sales. Retail sales increased by 2.7%, mostly fuel recovery revenue, were up $4.3 million over 1991 levels, , j adding $.18 per share after taxes. Increased rates provided ; q due to a return to more normal summer weather.
only $11 millien of an expected annual $15 million revenue 3 The retail revenue increases were offset by anticipated reduc- increase, because commercial and industrial customers .,
tions of $21 million fro n the sales adjustment provision and shifted into lower priced time-of-use rates. An additional $6
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$13.7 million in wholesale capacity revenues. Other operating million of revenue was accrued under the terms of the sales revenues decreased by $0.3 million. Reductions in wholesale adjustment provisions of the Company's 1990 rate decision - a:
energy revenues of $15.8 million were directly offset by by the Department of Public Utility Control (DPUC). Re sales volume declined 1.6% from the prior year, reducing .
reductions in energy expense.
retail revenues by $10.6 million and sales margin (revenue . j !
Other factors affecting sales margin were lower retail fuel minus fuel expense and revenue-based taxes) by $7.4 million.: (
Most of this decline reflected the cool, wet weather for the~
expense, increasing margin by $9.4 million, and higher revenue related taxes, decreasing margin by $0.6 million. summer of 1992. On a weather-adjusted basis, retail sales j were about even with 1991. Wholesale capacity sales declined 4 by $2.1 million for the year, reflecting the end of a major . e f Other operation and maintenance expenses, including pur-chased capacity charges, increased by $10.2 million, or 4.5%, contract in October 1992. OE in 1993 relative to 1992. Major generating station overhauls and unscheduled repairs accounted for $5.2 million of this increase. Employment costs increased by $4.0 million, most of which resulted from the adoption of a liability for postre-Other sales margin improvements were derived from increased nuclear generation, which added $10.5 million to .
margin in 1992 over 1991. An overall capacity factor of 76%y $ j
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I tirement benefits other than pensions that the implementation for the nuclear units was achieved in 1992, compa 'l of Statement of Financial Accounting Standards (SFAS) for 1991. Offsetting this gain, the Company experienced - '
No.106 requires to be accrued over employees' careers. unusually low and intermittent demand by the New England Purchased capacity charges (cogeneration and Connecticut Power Poolfor the operation of the Company's fossil , (J }
Yankee power purchases) for 1993 increased by $4.0 million, generating units, thus degrading their efficiency, increasing fuel expense and decreasing sales margin by $2.5 million' , ;:
f ;l transmission costs increased by $2.4 million; but other from 1991.These amounts are not recoverable through the M '
nuclear operation and maintenance expenses decreased by
$4.0 million.
fuel adjustment clause.
'Y mv; Other operating expenses, including income taxes but excluding a 1993 fourth quarter one-time reorganization
,) .
charge, decreased by $20.3 million in 1993 from 1992, as the ik 1T effect of accounting treatments ordered in recent rate deci-sions for recovery of canceled plant, the flow-through to _
income of certain income tax benefits and lower property ,
taxes more than offset increases in depreciation expense. , , j s
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- , MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF m
Another major factor affecting the Company's financial O eration, maintenance and capacity expense for 1992
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I condition will be the Company's ability to control crpenses.
it clear generation declined only $1.7 million from 1991 levels, m ared to a savings of $4 - $5 million the Company origi- Fuel expense, excluding wholesale fuel expehse,is expected to decline by approximately $2.3 million in 1994 from the nall expected t realize (principally from reduced Seabrook ex enses). Other operation and maintenance expenses, 1993 level, reflecting significantly lower nuclear fuel prices.
ex luding fuel and energy expenses, increased by $2.6 million Also, significant reductions in interest expense have been it for the year (excluding net non-recurring charges for 1992). achieved since 1989, and additional savings of $10 million are expected in 1994 due to debt refinancing. For 1994, Other taxes increased by $3.7 million (excluding a one-time operation and maintenance expenses are expected to increase 6 from normal inflationary pressures, but these increases charge in 1991), reflecting primarily the increased property tax should be substantially offset by savings from the phase-in placed on scabrook by the State of New Hampshire. Depre-d ciation increased by $2.5 million in 1992 over 1991. Net changes of the Company's corporate structure reorganization. Since 10 in interest income and expense added $2.9 million to pre- 1990, annual growth in total operation and maintenance
' level tax income in 1992, excluding one-time credits in 1991 and expense, excluding one-time items and cogeneration capa- i 1992. Iteduct ons in plant balances not in rate base (Seabrook city purchases, has averaged approximately 2.7%, and the and other) led to reductions in deferred revenue of about Company hopes to restrict future increases to less than
, ale the rate of inflation.
$4 million after-tax.
- ls, Non-recurring items decreased by $.18 per share compared The final portion of the cost of Seabrook Unit I has been ie ,
to 1991 levels, to a net earnings figure of $.59 per share. In added to rate base (and retail revenues) for 1994. This will 1992, a net $2.7 million in income, or $.19 per share, was climinate deferred revenues and reduce net income by $7.4
$6 booked for Seabrook Unit I adjustments; $3.6 million, or million after-tax in 1994 from 1993 levels.
es $.26 per share, in non-operating income tax credits were real-
.n ired; a net $3.0 million in income, or $.21 per share, from a Although the Company believes that its financing outlook
- taik gain on the sale of property was realized; and there were and plans are unlikely to be adversely affected by further
[
one-time charges to operating expenses of a net $1.0 million, developments with respect to the licensing and operation of for a loss of $.07 per share. Seabrook Unit 1, the Company's financial status and financing on. cap 2bility will continue to be sensitive to any such develop-e ments and to many other factors, including conditions in Outled the securities markets, economic conditions, the level of the ned The Company's financial condition should continue t Company's income and cash flow, legislative and regulatory improve as a result of the December 16,1992 retail rate deci- developments, including the cost of compliance with increas.
sion by the L)PUC. The DPUC decision granted levelized ingly stringent environmental legislation and regulations and rate increases of 2.66% ($15.8 million) in 1993 and 2.66% competition within the electric utility industry.
(an additional $17.3 million) in 1994. However, the Company did not realire the full anticipated benefit of the 1993 rate o
increase, realizing about $4 million less than awarded due inAation g
t differences between the sales realized in individual rate As a result of inflation and increased environmental and reg-5%
classes and the sales projections used for rate case purpcscs. ulatory requirements, the estimated cost of replacing the The differences arose principally from rate class shifting by Company's productive capacity today would substantially and customers and differential growth in sales among rate classes. exceed the historical cost of such facilities reported in the A similar shortfall may develop in 1994. financial statements. Since the Company's rates for service to its customers have been based in the past on the cost of pro- l
, The Company's financial condition will continue to be viding such service and have been revised from time to time to l dependent on the level of retail and wholesale sales. The two reflect increased costs of service, the Company believes that primary factors that affect sales volume are economic condi- any highc replacement costs it may experience in the future will tions and weather. The regional recession has restricted retail be recovered through the normal regulatory process.
sales growth and been largely responsible for a weak whole-sale sales market during the past two years. Sales increases due to economic recovery would help to increase the Com-m pany's earnings. A 1% increase in sales would add about
$6 million in revenue and about $5 million in sales margin l (revenue minus fuel expense and revenue-based taxes). j Tholesale capacity sales are expected to be approximately
$6 million in 1994.
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LEGAL PROCEEDINGS . : it M
4 amount of $61.5 million. BEC has stated that it will not pay )
On October 27,1992, the Company's wholly-owned sub-
. these tax bills, and it and the Company are contesting the l
sidiary, Bridgeport Electric Company (BEC) received personal City's tax claim vigorously. BEC has commented a second ; ()
propeny tax bills from the City of Bridgepon (the City) for @f action in the Superior Coun to enjoin the City from any effort j
the then current and two past tax years, aggregating $26.7 million, based on an assertion that BEC did not list its only to collect these tax bills. It is the present opinion of the 0
3 Company's Counsel that the City will not prevail in efforts j asset, Bridgeport Harbor Station generating Unit No. 3, on w to collect these tax bills, and that BEC and the Company the City's tax lists during de three years. The Company will be able to defend against such efforts successfully. 3 4 listed and paid taxes on this generating unit in each of the three years, based on values agreed upon in a 1988 court-1 -$f -y On November 2,1993, the Company received " updated" approved settlement with the City of prior years' tax litigation.
personal property tax bills from the City of New Haven (the -i j BEC subsequently commenced an action in the Superior City) for the tax year 1991-1992, aggregating $6.6 million, Court against the City to enjoin the City from any effon to ie l based on an audit by the City's tax assessor. The Company l
collect the personal property tax bills it had sent to BEC.
anticipates receiving additional bills of this sort for the tax - ,
l On June 10,1993, the Superior Court, in denying the City's -
motion to strike BEC's complaint, decided that the City had years 1992-1993 and 1993-1994, the amounts of which can-l not be predicted at this time. The Company is contesting -l not followed the prescribed procedures in assessing and these tax bills vigorously and has commenced an action in the - ,
levying taxes on BEC. Since the time period for assessing and ; l Superior Coun to enjoin the City from any effort to collect levying taxes for the earliest of the three years at issue has '
these tax bills. Due to a lack of data, it is not possible, at this expired, the effect of this decision was to remove $10 million ;
time, to assess accurately the Company's liability,if any.
of the City's $26.7 million claim from the controversy and _ ,1 to require the City to reinstitute its assessment and levying a proceeding with respect to the other two years, and the remaining $16.7 million, at issue. The City, without prejudice 7 to its taking such an appeal, has attempted to remedy the 1, assessment and levying procedures found deficient by the Superior Coun by holding hearings. On October 14,1993, c following these hearings, the City issued " corrected" per- i senal pcoperty tax bills to Bridgeport Electric Company for - 9 the tax years 1986-1987 through 19921993 aggregating $81.6 million, with interest through June 30,1993 in the aggregate .- i i
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. CONSOLIDATED STATEMENT OF INCOME l
A ~
For the Years Ended December 31,1993,1992 and 1991 1993 1992 1991 (Thousands except per share amounts)
$653,023 $667,315 $673,371 Operating Revenues (Note G)
- ffort Operating Expenses Operation 138,050 163,253 184,868.
l '** t. Fuel and energy i
47,424 43,560 44,668 f Capacity purchased 13,620 - -
l Reorgamzation charge 148,332 145,032 137,118 Other 41,475 38,394 41,794 Maintenance 56,287 .50,706 48,181 (the Depreciation 1,172 10,415 10,415 Amortization of cancelled nuclear project (Note J)
"' 608 - -
Arnortization of deferred fossil fuel costs 33,309 48,712 47,231 '
""Y Income taxes (Note A and E)
'
- 57,932 59,231 55,896 Other taxes (Note G)
'n- 538,209 559,303 570,171 Total 114,814 108,022 103,200 Operating income
' I,l' Other income and (Deductions) 999 1,003 1,259
'C',
Allowance for equity funds used during construction 7,497 15,959 17,970 this Deferred return - Seabrook Unit 1 71 18,545 2,697 Other-net (Note G) 6,322 12,558 19,299 Non-operaung mcome taxes 14,gg9 48,065 41,225 Total laceme Before interest Charges 129,703 156,087 144,425 laterest Charges Interest on long-term debt 80,030 88,666 90,296 -
12,260 12,882 9,847 Other interest (Note G) iO) Allowance for borrowed funds used during construction Net Interest Charges (3,068) 89,222 (2,229) 99,319 (3,931).
96,212 income Before Cumulative Effect of Accounting Change 40,481 56,768 48,213
~
Cumulative effect for years prior to 1991 of accounting change for property taxes (net of income taxes of $5,559)(Note N) - - 7,337 Netlacome 40,481 56,768 55,550 Dividends on Preferred Stock 4,318 4,338 4,530 laceme Applicable to Common Stock $ 36,163 $ 52,430 $ 51,020 Average Number of Common Shares Dutstanding 14,064 13,941 13,900 -
Esmings per share of Common Stock before cumulative effect of secounting change $ 2.57 $ 3.76 $ 3.14 Cumulative effect for years prior to 1991 of accounting change for property taxes - -
0.53 Esmings per share of Common Stock $ 2.57 $ 3.76 $ 3.67 Cash Dividends Declared per share of Common Stock $ 2.66 $ 2.56 $ 2.44 The accompanying Notes to Consolidated Fmancial Statements are an integral pan of the financial smements.
! _s
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- . *Jl CONSOUDATED BALANCE SHEET R'f'j #
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9' December 31,1993,1992 and 1991 1992 1991 1993 -
d't Assets (Thousands of Dollars)
Utility Plant at Original Cost $1,690,142 $1,631,787 $1,591,415 h)
In service Less, accumulated provision for depreciation 446,716 407,729 371,544 1,219,871 g
1,243,426 1,224,058 1' 77,395 59,809 54,771
~
Construction work in progress 40,285 52,144 65,450 Nuclear fuel 1,361,106 1,336,011 1,340,092 ,
Net Utility Plant 13,176 13,559 @
17,811 Other Property and Investments .c Current Assets 48,171 11,102 25,273 <
Cash and temporary cash investments - 94,529 -
Short-term investment Accounts receivable 62,703 56,796 58,258 Customers,less allowance for doubtful accounts of $4,700, $3,900 and $3,200 37,411 31,312 28,160 3 Other 22,765 24,389 23,200 Accrued utility revenues 21,178 20,540 22,021 Fuel, materials and supplies, at average cost 3,130 4,633 4,963 Prepayments 41 57 142 Other 247,954 164,839 187,981 Total Regulatory Assets (future amounts duefrom customers through the ratemaking process) 408,272 406,258 418,188 , +
Income taxes due principally to book-tax differences (Note A) 55,432 39,473 62,929 Deferred return - Seabrook Unit 1 26,964 28,136 37,700 Unamortized cancelled nuclear projects 28,186 30,716 32,573 Unamortized redemption costs 20,781 14,814 13,113 ,
Sales adjustment revenues 1,600 -
Uranium enrichment decommissioning costs 1,109 . !,
198 Deferred fossil fuel costs 6,631 6,474 5,391 '
Unamortized debt issuance expenses 15.,114 10,117 8,083 Other 556,493 554,365 567,394 Total $2,153,634 $2,072,855
$2,134,292 The accompanying Notes to Consohdated Financial Sutemenu are an imegni part of the financial suwmenu.
CONSDLIDATED STATEMENT OF RETAINED EARNINGS For the Years Ended L)ecember 31,1993,1992 and 1991 1991 .
1993 1992
( (Thousands of Dollars)
$142,981 $125,448 $105,046 i
Balsace. January 1 40,481 56,768 55,550 C Net Income - 796 3,304 ,7 Discount applicable to repurchase of preferred stock 163,900 T 183,462 183,012 l Total l-l Deduct Cash Dividends Declared 4,318 4,338 4,530 K l Preferred stock 37,419 35,693 33,922 ;
Common stock 40,031 38,452 3 41,737 Total $142,981 $125,448 '?
$141,725 Batsneo, December 31 l -[
The accompanying Nmes to Conmbdated I mancial Sutemenu are an intrgul pan of the financial surements.
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CONSOLIDATED BALANCE SHEET 4
(%
i !
951 December 31,1993,1992 and 1991 3 1992 1991
~ ' Capitalization and Liabilities (Thousands of Dollars) .
415 Capitalization (Note B) -
Common stock ' equity -
,544 , $ 284,028 $ 282,433 $ 279,340
'g7; ,
Common stock 734 495 146 Paid-in capital (3,163) - (3,163) .
'773 (3,163)
Capital stock expense 141,725 142,981 125,448
'450
-- Retained earnings 423,324 422,746 401,771 60,945 60,945 62,640
.'092 559 ;
Preferred stock 875,268 893,457 909,998 I Long-term debt 1,359,537 1,377,148 1,374,409
- '273 Total Noncurrent Liabilities
- Obligations under capital leases - - 69,439
.258 Nuclear fuel 19,871 23,855 26,136
.312 Other properry
.200 1,486 - _
Uranium enrichment decommissioning reserve
.021 Nuclear decommissioning obligation 5,606 _
'633 2,156 1,998 j,39g Other g42 29,119 25,853 96,973 Total 832 i Current Liabilities 143,333 92,833 37,500 Curient portion of long-term debt
- 84,099 13,000 188 Notes payable 49,424 59,522 51,850 473 Accounts payable 700 10,445 10,017 ' 9,602 Dividends payable 6,851 5,834 7,663 716 Taxes accrt,ed 33,547 18,714 13,244 81/m Pensions accrued (Note H) 21,972 24,403 '31,321
(") Interest accrued Obligations under capital leases 1,838 26,813 2,028 12,953 2,174 11,670 391 Other accrued liabilities 083 294,223 310,403 178,024 Total 365 ' 2,667 2,672 3,064 Customers' Advances for Construction
$ Regulatory Liabilities (future amounts owed to customers through the ratemaking process)
Accumulated deferred investment tax credits 19,433 20,195 20,957 -
Deferred gain on sale of utility plant 2,070 3,391 4,574 -
1,837 -
45 Other 23,340 23,586 25,576 Total Deferred Income Taxes (future tax liabilities owed to taxing authorities) 425,406 413,972 394,809 Cor.mitments and Contingencies
$2,134,292 $2,153,634 $2,072,855 The acompanying Notes to Consolidated Financial Statements are an integral part of the fmancial statements.
991 346 %
550 304 900 530 922 i_52_
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CONSOLID ATED STATEMENT OF CASH FLOWS . : ,.
4, 1+
.N,4, 4 For the Years Ended December 31,1993,1992 and 1991 (Thousands of Dollars) 1993 1992 1991
]j:- t, fo y
Cash Flows From Operating Activities 540,481 $56,768 $55,550 Net income Adjustments to reconcile net income to net cash provided
. p.f 4- M;'
by operatmg actmues:
Depreciation and amortization 65,788 70,298 66,406' $
Deferred income taxes 9,422 31,093 19,977 ~ <$~ -
.(762) (762) (3,322) ;
Deferred investment tax credits - net '
Gain on sale of facility
- (5,915) --3 21,922 23,440 21,671 -
Amortization of nuclear fuel ' -
Cumulative effect for years prior to 1991 of accounting
- - (7,337) l change for property taxes - net Allowance for funds used during construction (4,067) (3,232) . (5,190) .
(7,497) (15,959) (17,970)
Deferred return - Seabrook Unit 1 (6,571) 7,668 (6,217) .
Sales adjustment revenue Changes in: 9 3,344 (4,637) (9,022) I Accounts receivable - net 1,481 17,747 _
', I Fuel, materials and supplies (638)
(10,098) 7,672 (14,363) l Accounts payable (2,431) (6,918) 2,019 !
Interest accrued 1 1,017 (1,829) (10,558)'
Taxes accrued 13,620 - .-
Reorganization charge accrued 2,783 i.
8,087 3,354 Other assets and liabilities 105J75 91,869 56,272 Total Adjustments 145,856 148,637 111,822 Net Cash Provided by Operating Activities Cash Flows from Financing A:tivities ..
1,834 3,442 1,51 Common stock 53,00 164,460 247,000 ,
Long-term debt (2,000)
(84,099) 71,099 : l Notes payable
- Securities retired and redeemed, including premiums: ,
- (1,695) (7,060)
Preferred stock (143,543) (214,811) (47,870).
Long-term debt '
(1,742) (1,453) 3,165 '
- Expenses of issu s (4,174) (71,866) (3,106) '
Lease obligations
- 2 Dividends (4,612) .
(4,318) (4,365)
Preferred stock (36,991) (35,252) (33,345) .'
Common stock Net Cash used in Financing Activities (108,573) (7,901) (40,310) y Cash Flows from Investing Activities (94,743) (66,390) (63,157)
Plant expenditures, including nuclear fuel 6,012 i
3 Proceeds from sale of facility 94,529 (94,529)
Investment in debt securities (214) (154,907) (63,157) ,
Not Cash used in investing Activities Cash and Temporary Cash investments:
a-37,069 (14,171) 8,355 .
Net change for the period 11,102 25,273 - 16,918: d Balance at beginning of period
$48,171 $11,102 $25,273 N Balance at end cf period Cash paid during the period for.
. ,, F('
Interest (net of amount capitalized) $78,021 $82,829 $71,641f ; )
$17,435 $12,634 $ 7,912 )
Income taxes ne accompanying Notes to Consoledeed Financial statemems are an integral part of the 6nancial statements. .,
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'. , NOTES TO CONSOU0ATED FINANCIAL STATEMENTS r
/D '
(A) Statement Of Accounting Policies Depreciation Provisions f or depreciation on utility plant for 1991 r book purpose:, excluding costs associated with the 1984 I Accounting Records The accounting records are maintained reconversion of BEC's plant to a dual-firedcapability, are
,550 in accordance with the uniform systems of accounts prescribed computed on a s raight-line basis, using estimated service
~
by the Federal Energy Regulatory Commission (FERC) and lives determined by independent engineers. One-half year's the Connecticut Department of Public Utility Control depreciation is taken in the year of addition and disposition
,408 f utility plant, except in the case of major operating units
,977 (DPUC).
l on which depreciation commences in the month they are 322) placed in service and ceases in the month they are removed Principles of Consolidation The consolidated fmancial statement, include the accounts of the Company and its wholly-owned fro:n service. During the years 1985-1989, depreciation
'671 l subsidiaries, Bridgeport Electric Company (BEC), United associated with BEC's reconversion costs was computed on i r an annuity basis over the original ten-year period that this 7,337) Resources Inc., United Energy International, Inc. and J 1,190) Research Center, Inc. Intercompany accounts and transactions plant was being leased to the Company by BEC. ;J
',970) l have been eliminated in consolidation. Commencing January 1,1990, the reconversion costs are l 571) being depreciated on a straight-line basis over a period l Reclassification of Previously Reported Amounts Certain amounts ending July 2000. The aggregate annual provisions for previously reported have been reclassified to conform with depreciation for the years 1993,1992 and 1991 were equivalent 7
current year presentations. to approximately 3.22% 3.15% and 3.10% respectively, of 363)
.019 l the original c st of depreciable property. l 1
.558) i utility Plant The cost of additions to utility plant and the cost of renewals and betterments are capitalized. Cost consists income Taxes Effective January 1,1993, the Company adopted 283 of labor, materials, services and certain indirect construction SFAS 109, " Accounting for Income Taxes". In accordance
'272 costs, including an allowance for funds used during con- with SFAS 109, the Company has provided deferred taxes for E i struction ( AFUDC). The cost of current repairs and minor all temporary book-tax differences using the liability method.
A y replacements is charged to appropriate operating expense The liability method requires that deferred tax balances be
.5 $ accounts. The original cost of utility plant retired or other- adjusted to reflect enacted future tax rates that are anticipated E wise disposed of and the cost of removal,less salvage, are to be in effect when the temporary differences reverse. In charged to the accumulated provision for depreciation. accordance with generally accepted accounting principles for gg) regulated industries, the Ct>mpany has established a net Allowance for Funds Used During Construction In accordance with regulatory asset that reflects anticipated future recovery in 870) 165 the applicable regulatory systems of accounts, the Company rates of these deferred tax provisions.
106) capitalizes AFUDC, which represents the approximate cost l of debt and equiry capital devoted to plant under construction. For ratemaking purposes, the Company practices full nor- l 612) In accordance with FERC prescribed accounting, the portion malization for all investment tax credits (ITC) related to b5) of the allowance applicable to borrowed funds is presented in recoverable plant investments except for the ITC related to 3_10) the Consolidated Statement of Income as a reduction of Seabrook Unit 1, which was taken into income in accordance interest charges, while the portion of the allowance applicable with provisions of the 1989 Settlement Agreement.
) to equity funds is presented as other income. Although the
[ allowance does not represent current cash income,it has g historically been recoverable under the ratemaking process Accrued Utility Revenues The estimated amount of utility over the service lives of the related properties.The Company revenues (less related expenses and applicable taxes) for 355 c mp unds semi-annually the allowance applicable to major service rendered but not billed is accrued at the end of each 918 construction projects. AFUDC rates in effect for 1993,1992 accounting period.
5 and 1991 were 8.75% 10.25% and 10.88% respectively.
641 912 ,
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.h NOTES TO CONSOLIDATED FINANCIAL. STATEMENTS w
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/O ll Uranium Enrichment Obligation Under the Energy Policy Act j., j Cash and Cash Equivalents For cash flow purposes, the Com-of 1992 (Energy Act), the Company will be assessed for its J
vg pany considers all highly liquid debt instruments with proportionate share of the costs of the decontamination and i [I7
' jS l a maturity of three months or less at the date of purchase deconunissioning of uranium enrichment facilities operated to be cash equivalents. by the Department of Energy.The Energy Act imposes an overall cap of $2.25 billion on the obligation assessed to i
The Company is required to maintain an operating deposit the nuclear utility industry and limits the annual assessment &
with the project disbursing agent related to its 17.5% owner- to $150 million each year over a 15-year periodJAt Decem- gl ship interest in Seabrook Unit 1. This operating deposit,. ber 31,1993, the Company's unfunded share of the obligation, , f which is the equivalent to one and one half months of the I ,(
based on its ownership interest in Seabrook Unit 1 and .
funding requirement for operating expenses,is restricted for Millstone Unit 3, was approximately $1.5 million'. Effective use and amounted to $3.4 million, $2.9 million, and $1.8 January 1,1993, the Company was allowed to recover
]i million at December 31,1993,1992 and 1991, respectively. these assessments in rates as a component of fuel expense. !
Accordingly, the Company has recognized these costs as a 'q Investments The Company's investment in the Connecticut j regulatory asset on its Consolidated Balance Sheet.
Yankee Atomic Power Company joint venture, a nuclear ; ,
generating company in which the Company has a 91/2% Nuclear Decommissioning Tntsts External trust funds are main- ~_
[.
stock interest,is accounted for on an equity basis. tained to fund the estimated future decommissioning costs ll of the nuclear generating units in which the Company has an Fossil Fuel Costs The amount of fossil fuel costs that cannot ownership interest.These costs are accrued as a charge to' be reflected currently in customers' bills pursuant to the depreciation expense over the estimated service lives of the FCA in the Company's rates is deferred at the end of each units and are recovered in rates on a current basis. The accounting period. Since adoption of the deferred accounting Company paid $1,616,000, $1,334,000 and $1,011,000 during '
procedure in 1974, rate decisions by the DPUC and its 1993,1992 and 1991 into the decommissioning trust funds predecessors have consistently made specific provision forfor Seabrook Unit 1 and Millstone Unit 3. At December 31, .
amortization and rate-making treatment of the Company's 1993, the Company's share of the trust fund balances, which existing deferred fossil fuel cost bances. include accumulated earnings on the funds, were $3.7 million ,
and $1.9 million for Seabrook Unit I and Millstone Unit 3, hesearch and Development costs Research and development [
respectively.These fund balances are included in "Other costs, including environmental studies, are capitalized if Property and Investments" and the accrued decommissioning related to specific construction projects and depreciated over obligation is included in "Noncurrent Liabilities" on the the lives of the related assets. Other research and develop-Company's Consolidated Balance Sheet. I ment costs are charged to expense as incurred.
Pension and Other Post-Eniptoyment Benefit The Company accounts for normal pension plan costs in accordance with the provisions of Statement of Financial Accounting ',
Standards (SFAS) No. 87," Employers' Accounting for Pensions", and for supplemental retirement plan costs and i ,
supplemental early retirement plan costs in accordance with the provisions of SFAS No. 88," Employers' Accounting for -a Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits" ~
Prior to January 1,1993, the Company accounted for other post-employment benefits, consisting principally of health and life insurance, on a pay-as-you-go basis. Eficctive k(
January 1,1993, the Company commenced accounting for j,,
these costs under the provisions of SFAS No.106," Employers' ;
Accounting for Post-Retirement Benefits Other than Pen- j I sions", which requires, among other things, that the liability -
9l for such benefits be accrued over the employment period jI that encompasses eligibility to receive such benefits. The
.$ l annualincremental cost of this accounting change has been jl allowed in retail rates in accordance with a 1992 rate decision. 1lni 4
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, '-NOTES TO CONSOLIDATED FINANCIAL STATEMENTS n :
(B)Capitalitetion December 31, s
id 1993 1992 1 d Shares Shares Sharef ' 1991 Outstanding $(000's) Outstanding $(000's) Outstanding $(000's) l hmmon Stock Equity nt Common stock, no par value,
- 14,083,291 $284,028 3 4,033*14 g - $2E2'433 13,932,348 $279,340 at December 31W on, Shares authorized 1991 30,000,000 1992 30,000,000 e
1993 30,000,000 paid-in capital 734 49' 146
~ (3,163) (3,163J Capital stock expense ' '
- N 141,725 '981 125,448 Retained earnings Total common stock equity 423,324 ,746 43g,77; Preferred and Preference Stock W n- Preferred stock issues:
40,425 40,425 4.35% Series A '
50,730 50' 3 67,680 an 4.72% Series B 4.64% Series C 32,100 l 32,100 61,200 61,'200 61,200
. 5 5/8% Series D 125,000 5, 0 125,000 7.60% Series E 150,000 150,000 150,000 7.60% Series F ng 459,455 45,945 459,455 45,945 476,405 47,640 Cumulative preferreu, stock, a
- $25 par value, shares authorized l Ck at December 31, l ion \ 1991 2,400,000 5, 1992 2,400,000 1993 2,400,000 .
Preferred stock issues:
,ing 600,000 15,000 600,000 15,000 600,000 8.80% 1976 Series 15,000 Cumulative preference stock,
]
$25 par value, shares authorized at December 31, 1991 5,000,000 1992 5,000,000 1993 5,000,000 Preference stock issues _ _ - - - ,
Total preferred stock not subject to mandatory redemption 60,945 60,945 62,640 i
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-J NOTES TO CONSOUDATED FINANCIAL STATEMENTS , f
- ?a s
{. l December 31 1992 1991 (000's) 1993 (
Long-term Debt *
, \
- 1-
[jj Long-term debentures: . .
$ - $ . 69,600 , f 101/2%,1995 Series, due October 1,1995 5 -
- 15,000 , ij 5 3/4%,1996 Series, due August 15,1996 - - 22,500 , ;il 6%,1997 Series, due June 15,1997 - - 15,000 -!:
7%,1999 Series, due January 15,1999 - - 25,000 - ,;
7 3/4%,2002 Series, due October 1,2002 - - 30,000.'
- 81/4%,2003 Series, due December 15,2003 - - 2,078 '
12%,2017 Series, due August 1,2017
- - 179,178 First Mortgage Bonds-Bridgeport Electric Company:
9.44%, Series B, maturing serially as to $10,800 principal amount 54,000 54,000 54,000 _-
on February 15 in each of the years 1995 to 1999. '!
10.32%, Series C, maturing serially as to $55,333 principal amount 180,000 110,666 166,000 on January 15 in each of the years 1994 and 1995.
Other Long-term Debt '
Pollution Control Revenue Bonds: 40,000 40,000 . '
110 141/2%,1984 Series, duc October 1,2009 28,400 3,830 28,400 141/2%,1984 Series B, due December 1,2009 7,500 7,500 7,500 91/2%,1986 Series, due June 1,2016 25,000 -
25,000 25,000 9 3/8%,1987 Series, due July 1,2012 43,500 43,500 43,500 10 3/4%,1987 Series, due November 1,2012 25, 25,000 25,000 8%,1989 Series A,due December 1,2014 64,460 -
5 7/8%,1993 Series, due October 1,2033 Solid Waste Disposal Revenue Bonds: 30,000 30,000 30,000 Adjustable rate 1990 Series A, due September 1,2015 Medium-Term Notes: 30,000 30,000 ..30,000 -
7.62 % ,1991 Series A, due September 12,1994 13,000 -
13,000 13,000 7.20 %,1991 Series B, due November 1,1994 10,000 10,000 10,000 . 3 6.82 % ,1991 Series C, due December 2,1994 50,000 50,000 6.00%,1992 Series D, due January 15,1995 50,000 50,000 '- ".
7.00%,1992 Series E, due January 15,1997 ' -
47,000 47,000 7.25%,1992 Series F, due October 2,1995 100,000 100,000 -
5 7 3/8%,1992 Series G, due January 15,1998 - -
6.20%,1993 Series H, due January 15,1999 100.000 Long-term bank loans:
5,000 17,500 32,500 12.9%, maturing in 1994 250,000 250,000 250.000 '
Obligation under the Seabrook Unit 1 sale / leaseback agreement l
' 1,019,066 986,900 948,078 i Unamortized debt discount less premium (l at December 31,1993,1992 R 1991 (465) (610) "(580) 0 1.C18,601 986,290 947,498 Total long-term debt 143,333 92,833 37,500 i
- E Less current portion included in Current Liabilities
- 875,268 893,457 909, Total long-term debt included in Capitalization
$1,359,537 $1,377,148 $1,374,40T Total Capitalization e -
4
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. U ' ' OTES TO CONSOLIDATED FINANCIAL STATEMENTS u
(f g stoet The Company issued 46,000 shues of on stock in 1993,100,800 shues of common stock in of this amount, a total of 4,143 shues were issued to the participants in 1993, and the remainder was distributed in an 1991 i and 44,600 shares of common stock in 1991 pursuant equivalent amount of cash based on the closipg price of the 99 ,
stock option plan. During 1993, the Company also issued Company's Common Stock on March 1,1993, pursuant to the
,9,600 4143 shues of common stock pursuant to a'long-term . terms of the long-term incentive program. Tlus program I 5,000 ended as of December 31,1992.
incentive Program.
?2,500 5,000 Common stock, no par value, authorized at December 31,1993, (b) Roteined Earnings Restriction The indenture under which the 25,000 igluded 400,000 shares reserved for the Company's Employ- Company's Medium-Term Notes and Notes are issued places 60,000 limitations on the payment of cash dividends on common
+
ce Stock Ownership Plan (ESOP). There were no additions .
' 2,078 to ESOP in 1991,1992 or 1993. stock and on the purchase or redemption of common stock.
79,178 Retained earnings in the amount of $82.6 million were free The Company Purchased on the open muket, on behalf of from such limitations at December 31,1993. -
I < shareholders participating in the common stock Dividend q 54,000 Reinvestment Plan, 148,362 shares of stock in 1991,136,679 (e) Preferred end Preference Stock The par value of each of shues of stock in 1992 and 138,145 shues of stock in 1993. these issues was credited to the appropriate stock account and expenses related to these issues were charged to capital
- 0,000 In 1990, the Company's Board of Directors and the share- stock expense.
owners approved a stock option plan for officers and
, key employees of the Company. The plan provides for the In 1991, the Company purchased and cancelled shares of its i awarding of options to purchase up to 750,000 shares of $100 par value Preferred Stock, at a discount, resulting in a .
the Company's common stock over periods of from one to non-taxable addition to common equity of approximately 7 500 ten years following the dates when the options are granted. $3,304,000. The 1991 purchases consisted of: l
.5,000 >
On June 5,1991, the DPUC approved the issuance of 3,5% 500,000 shares of stock pursuant to this plan. The exercise 9,575 shares of 4.35% Preferred Stock, Series A 5,( price of each option cannot be less than the market value of 7,320 shares of 4.72% Preferred Stock, Series B k '
the stock on the date of the grant. Options to purchase 39,900 shares of 4.64% Preferred Stock, Series C 214,000 shares of stock at an exercise price of $30.75 per 13,800 shares of 5 5/8% Preferred Stock, Series D 0,000 shue,2,800 shues of stock at an exercise price of $28.3125 .
per share,1,800 shares of stock at an exercise price of in 1992, the Company purchased and cancelled 16,950 shares '
0,000 $31.1875 per share,4,000 shues of stock at an exercisc price of its $100 par value 4.72% Preferred Stock, Series B, at a 3,000 of $35.625 per share,36,200 shares of stock at an exercise discount, resulting in a non-taxable addition to common 0,000 '
price of $39.5625 per shue and 5,000 shares of stock at an equity of approximately $796,650.
exercise price of $42.375 per share have been granted by the Bond of Directors and remain outstanding at December 31, There was no redemption of preferred stock in 1993.
[ 1993. Options to purchase 44,600 shares of stock at an
, , exercise price of $30.75 were exercised during 1991. Options Shares of preferred stock have preferential dividend and to purchase 98,000 shues of stock at an exercise price of liquidation rights over shares of common stock. Preferred
$30.75 and 2,800 shares of stock at an exercise price of shareholders are not entitled to general voting rights. How; 2,500 $28.3125 were exercised during 1992. Options to purchase ever, if any preferred dividends are in arrears for six or more 42,400 shares of stock at an exercise price of $30.75 per shue, quarters, or if some other event of default occurs, preferred ,
A000 1,400 shares of stock at an exercise price of $28.3125 per shareholders are entitled to elect a majority of the Bond 8,078 shue,1,200 shares of stock at an exercise price of $31.1875 of Directors until all preferred dividend arrears are paid and - J per share and 1,000 shares of stock at an exercise price of any event of default is terminated.
$35.625 per shue were exercised during 1993. '
(580)
Preference stock is a form of stock that is junior to preferred ,
7,498 In addition, certain executive officers were eligible to enn stock but senior to common stock. It is not subject to the shues of the Company's common stock, based upon the div- earnings coverage requirements or minimum capital and sur-l 7,500 idend and market performance of the stock compued to a plus requirements governing the issuance of preferred stock.
peer group of electric utilities over a four-yen period ending There were no shues of preference stock outstanding at
! 9,9? December 31,1992, under the Company's long-term incen- December 31,1993.
tive program.The issuance of shares of stock pursuant to this
, 4,409 <
program received DPUC approval on June 5,1991. The total number of shues of common stock that could have been
- earned under the long-term incentive program was limited to 7,091. For the four-year period ending December 31,1992, 6,027 shares of the Company's common stock were earned.
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NOT1iS TO CONSOLID ATED FINANCIAL STATEMENTS y o4
, y
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(" Refunding Bonds") in a principal amount equal to the y'
(d) tong-Term Debt In January 1993, the net proceeds from the FX ,
aggregate principal amount of Bonds purchased by the liquidation of an investment in tax-exempt municipal debt Company and surrendered to the Bond trustee:.for cancella- /S instruments were used to pay $60 million principal amount .
of maturing 10.32% First Mongage Bonds of the Company's tion, and to loan the issue proceeds of th to the Company to pay for part of the purchase price of wholly-owned subsidiary, Bridgepon Electric Company; to the Bonds being purchased and cancelled. On October 15, , g g repay a $7.5 million 13.1% term loan; to repay short-term 1993, the Company accepted offers from holders of
}
borrowings incurred for the August 1,1992 redemption of the $64,460,000 aggregate principal amount of the Bonds to sell Company's 12% Debentures, due August 1,2017, and for them for an aggregate purchase price of $75,710,000. On ; (y repayment of a $7.5 million 12.9% term Joan on SeptemberOctober 26,1993, the NHBFA issued and sold $64,460,000 #
30,1992; and to repay short-term borrowings incurred for '
principal amount of 5 7/8% Refunding Bonds, due October ,
a $19.1 mi!! ion rent payment on December 31,1992 under .
1,2033, and loaned the issue proceeds to the Company, the Company's facility sale and leaseback arrangement for which used them to pay a portion of the purchase price of . T a portion of its ownership interest in Seabrook Unit 1. the Bonds.The remainder of the purchase price was funded with the proceeds of short-term borrowings. .; pf On September 30,1993, the Company repaid a $5 million y
4 12.9% term loan with funds obtained through short-term On December 7,1993, the Company issued and sold $100 borrowings. million principal amount of five-year and one monthNotes at a coupon rate of 6.20%.The net proceeds were used toF On September 17,1993, the Company invited the owners of repay $60 million principal amount of maturing 10.32%
$68,400,000 aggregate principal amount of 14 t/2% Pollution First Mortgage Bonds of the Company's wholly-owned suly ,, . '
Control Revenue Bonds, due October 1 and December 1, sidiary, Bridgeport Electric Company in January 1994;to ' ;
2009,(" Bonds") to sell to the Company, for cash, any and repay a $5 million 13.1% term loan in January 1994 and for all of the Bonds. The Bonds were iwued in 1984 by The g general corporate purposes, including repayment of short- ?
Industrial Development Authority of the State of New term borrowings.
Hampshire ("NHIDA"), which loaned the issue proceeds to the Company to pay for the cost of installing pollution control f acilities at the Seabrook nuclear generating plant in New ;
Hampshire; and the Business Finance Authority of the State of New Hampshire ("NHBFA"), successor to the NHIDA,
- (g agreed to issue Pollution Control Refunding Revenue Bonds .g W
s Maturities and mandatory redemptions / repayments and annual interest expense on % ex 1995 1996 1997 199b, 1994 ,
(000's) $712,600 $699,830 $634,659 f
$989,067 $875,734 Long-term debt (beginning of period)'"
100,000'
-[ j Less: -- 50,000 53,000 97,000 12,770 15,171 15,5627 Maturities 60,D3 66,134 Mandatory redemptions / repayments $634,659 $519,097 J
$875,734 $712,600 $699,830 v Long-term debt (end of period)" A ." '
Annual interest associated with existing $ 55,221 $ 50,838 $ 42,930..
$ 72,800 $ 59,637 ~
outstanding debtoc $ 2,s h$
Annual amortization of issuance expense and $ 5,451 $ 3,167 $ 2,893
$ 7,915 repurchase premiums associated with existing debt b 1. 2015 classified on the Company's books as '
,} 7
{l) Dies not indude $% mdhon of tax csempt adiustable rate Sohd Taste Disposal Revenue hals.1990 Series A, m -
due S a artent habahty Omerest rate for September 1993 to March 19W u 2 90%). i De Company expects uwne new (2) Does not mdude imereit on any new 6nancmgs the may be required to fund muurines. redempticus or plant addm ,
f'manongs to acur. u l 3 I
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} i, NOTES TO C'ONSOUDATED FINANCIAL STATEMENTS r
C) Rete-Related Reguletory Proceedings permits automatic implementation of the charges or credits if On December 16,1992, the DPUC approved levelized rate the DPUC fails to act within five days of the. administrative lla-proceeding, although all such charges and cre,dits are also nds i"}'$es
- t nal $17,3of 2.66% ($15.8 allowedmillion) for to1993 and 2.66% (anby the
~
million) for 1994, including conser- subject further review and appropriate adjustment l' ation and load management revenue increases. The rate i,' DPUC at public hearings required to be held at least every ,
fncreases totaled $33.1 million, or 5.4%, over two years. three months. The DPUC has made no material changes in UI's FCA charges and credits as the result of any of these '
. ell p In crder to achieve levelized 2.66% rate increases for each of . proceedings or hearings.
these two years, the DPUC determined that the recovery of 00 L
$13.1 rnillion of sales adjustment clause revenues would be . (D) Accounting For Phase-In Plan her d from 1993 to 1994. The Company has been phasing into rate base its allowable i
investment in Seabrook Unit 1, amounting to $640 million, '*
f
" Utilities are entitled by Connecticut law to revenues suffi- since January 1,1990. In conjunction with this phase-in plan, led cient to *Ilow them to cover their operating and capital costs, the Company has been allowed to record a deferred return i i
to attract needed capital and maintain their financial integrity, on the portion of allowable investment excluded from rate '
while also protecting the public interest. Accordingly, the base during the phase-in period. The accumulated deferred 3
DPUC's 1992 rate decision auchorized a return on equity of return has been added to rate base each year since January 1, tes 12.4% for ratemaking purposes. However, the Company may 1991 in the same proportion as the phase-in installment for earn up to 1% above this level before a mandatory review that year has borne to the portion of the $640 million remain-is required by the DPUC. ing to be phased-in. On January 1,1994, the Company phased ab-into rate base the remaining $74.5 million of allowable Since January 1971, UI has had a fossil fuel adjustment clause investment, plus the remaining $28.2 million of accumulated or (FCA)in virtually all of its retail rates. The DPUC is required deferred return. The Company will be allowed to recover by law to convene an administrative proceeding prior to the accumulated deferred return, amounting to $62.9 million,-
approving FCA charges or credits for each month. The law over a five-year period commencing January 1,1995.
(E) income Taxes
'} 1993 1992 399g 1
income tax expense consists of: I income tax provisions:
Current v: Federal $13,484 $ 6,815 $10,869 State 4,843 2,645 407 1998 Total current 18J27 9,460 11,276
]' Deferred Federal 9,620 16,860 '13,297 State (198) 14,233 12,240 000 -
,562 Total deferred 9,422 31,093 25,537 5
Investment tax credits (7f2) (4,399) (3,322)
Totalincome tax expense $26,987 $36,154 $33,491
.930 Income tax components charged as follows:
l Operating expenses $33,309 $48',712 - I $47,231
.543 Other income and deductions - net (6,322) (12,558) (19,299) f
, Cumulative effect of change in accounting for property taxes - - 5,559 Totalincome tax expense $26,987 $36,154 $33,491 l The following table details the components of the deferred income taxes:
Accelerated depreciation $11,318 $15,452 $17,176 Tax depreciation on unrecoverable plant investment 7,915 9,378 10,923 6 Conservation & load management 3,084 3,995 8,374 Property tax adjustment (1,991) (1,991) 5,974 Deferred fossil fuel costs (381) 490 (1,330)
Seabrook sale / leaseback transaction (2,016) 1,629 (1,963)
Premiums on BEC bond redemption (2,378) (3,209) f3,209)
Cancelled nuclear projects (467) (3,795) (3,795)
Alternative minimum tax (139) (1,344) (9,922)
Sales adjustment revenues (3,248) 2,415 2,846 Gains on sale of utility plant - 1,237 -
Pension & postretirement benefits (7,179) (2,489) (885)
Other - net 4.904 9,325 1,348
. w .ws . .
3., 14;3y. ., , .
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ' '
~
Total income taxes differ from the amounts computed by applying the federal statutory tax rate to income before taxes. ^
The reasons for the differences are as follows- .
7,
- \ 1991
'1993 1992 Pre-Tax Tax Pre-Tax Tax Pre-Tax Tax (000's)
. $23,614 $31,593 $30,274 Computed tax at federal statutory rate ~
Increases (reductions) resulting from:
$(7,497) .(2,624) $(15,959) (5,426) $(17,970) (6,110)
Deferred return-Seabrook Unit 1 (3,322); '
.(762) (762) (4,399) ' (4,399) (3,322)
ITC taken into income ~
Allowance for equity funds used
.(349) (1,003) (341) (1,259) (428) during construction (999)
(283) (99) (3,664) (1,246) - -
Tax exempt interest on municipal bonds l Book depreciation in excess of .,
21,711 7,599 20,182 6,862 19,894 6,764 non-normalized tax depreciation State income taxes, net of federal - ,
4,645 3,019 16,878 11,140 12,647 8,347 income tax benefits (2,034)
(9,746) (3,411) (5,968) (2.029) (5,979)
Other items - net
$26,987 $36,154 $33,491 Total income tax expense Book Income Before Federal $89,041
$67,467 $92,921 Income Taxes 40.0 % 38.9 % 37.6% -
Effective income tax rates At December 31,1993, the Company had deferred tax liabilities the banks may decline to lend additional money to the for taxable temporary differences of $574 million and deferred Company under this revolving credit agreement, although '
borrowings outstanding at the time of such an occurrence tax assets for deductible temporary differences of $149 million, resulting in a net deferred tax liabdity of $425 million, would not then become due and payable. As of December l Significant components of deferred tax liabilities and assets ' 1993, the Company had no short-term borrowings outstand-were as follows: tax liabilities on book / tax plant basis differ- ing under this facility. .
ences, $229 million; tax liabilities on the cumulative amount The Company's long-term debt instruments do not limit the - A of income taxes on temporary differences previously flowed through to ratepayers, $163 million; tax liabilities on normal- amount of short-term debt that the Company may issue.The ization of book / tax depreciation timing differences, $89 million Company's revohing credit agreement described in the pre-vious paragraph requires it to maintain an available earnings / y and tax assets on the disallowance of plant costs, $77 million.
interest charges ratio of not less than 1.5:1.0 for each 12-month 7 T
The Tax Reform Act of 1986 provides for a more compre- period ending on the last day of each calendar quarter.
hensh>e corporate alternative minimum tax (AMT) for years
'j beginning after 1986. To the extent that the AMT exceeds The Company had a $50 million term loan facility with a 1 the federal income tax computed at statutory rates, the excess group of banks during 1993. Under this agreement, the t
must be paid in addition to the regular tax liability. For tax Company chose an interest rate from among three alterna-purposes, the excess paid in any year can be carried forward rives: (i) a fluctuating interest rate determined by the prime !;;
indefinitely and offset against any future year's regular tax lending market in New York; (ii) a fixed interest rate deter- ~f liability in excess of that year's tentative AMT. The AMT mined by the Eurodollar interbank market in London; and 9' carryforward at December 31,1993,1992 and 1991 was $11.4 (iii) a fixed interest rate determined by the certificate of deposit million, $11.3 million and $9.9 million, respectively. market in New York. On February 1,1993, the Company y borrowed $50 million from this group of banks, using the ' 4.
(F) Short-Term Credit Arrangements proceeds to repay short-term borrowings and other current I l The Company has a revolving credit agreement with a group obligations. On December 3,1993, the Company repaid the - '
f of banks,which currently extends toJanuary 19,1995. The $50 million borrowing and terminated the agreement.
borrowing limit of this facility is $75 million. The facility 4 permits the Company to borrow funds at a fluctuating inter- The Company had 'a term loan agreement with Prulease, 3 est rate determined by the prime lending market in New inc. (Prulease) that expired on December 1,1993. This .I York, and also permits the Company to borrow money for agreement was executed on December 31,1992, when the i fixed periods of time specified by the Company at fixed Company borrowed $49.1 million from PruLease arit! .?
interest rates determined by the Eurodollar interbank market purchased all the nuclear fuel that was owned by PruLease I in London, by the certificate of deposit market in New York, and leased to the Company on that date. This loan, which . .
or by bidding, at the Company's option. If a material adverse was collateralized by a first lien on the Company's ownership change in the business, operations, affairs, assets or condi- interest in the nuclear fuel for Seabrook Unit 1, was repaid
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' NOTES TO CONSOUDATED FINANCIAL STATEMENTS
\ The Company has a Fossil Fuel Supply Agreement with a by reference to the fluctuating interest rate on thirty-day, t financial institution providing for financing up to $37.5 dealer-placed commercial paper in New York. The Company million in foseil fuel purchases. Under this agreement, the is obligated to insure tne fuel inventones and to indemnify I
" financing entity acquires and stores natural gas, coal and fuel the financing entity against all liabilities, taxes and other Tax expenses incurred as a result of its ownership, storage and o 1 for sale to the Company, and the Company purchases i30,274 these fossil fuels from the financing entity at a price for each sale of fossil fuel to the Company. This agreement currently type of fuel that reimburses the financing entity for the direct extends to February 1995. At December 31,1993, approxi-(6,110) '
costs it has incurred in purchasing and storing the fuel, plus mately $10.1 million of fossil fuel purchases were being i
(3,322) financed under this agreement.
a charge for maintaining an inventory of the fuel determined (428)
Information with respect to short-term borrowings is as follows:
/ 6,764 h 1993 IY92 199I (000's) h12ximum aggregate principal amount of short-term borrowings (2,'03j) $94,635 $84,099 I outstanding at any month-end $59,000
$33.49I we aggregate short-term borrowings outstanding during the year * $73,700 $43,055 $33,364 Weighted average interest rate' 4.1% 4.4% 6.9%
89,041 Principal amounts outstanding at year-end $3 $84,099 $13,000 3 7'6 */" r 2hred interest rate on principal amounts outstanding at year-end N/A 5.1 % 5.7%
^",e"r"gr 3 short-term borrowmgs reprewn the sum of duly bormwings outstandmg. weighted h>r the number of days ouistan penod The weighted average interest raie as determmed by dmding mterest expense by the amount of everage horrowmgt Commitment fees of approximately $2s9,600, ,
$20s,400 and $289.000P8'd durmg IW), IW2 and IWI, respectively, are enduded from the calculai,on of the wnghted average mierest raie.
t (G) Supplementary Information igh ic( 5 (000's) 1993 1992 1991
'Ck Operating Revenues stand- Retail- Itase rates $603,559 $566,955 $570,500 Sales provision adjustment .- 21,031 14,814 Wholesale - capacity 6,575 20,315 22,379
'it the - energy 39,356 55,169 61,857 Other 3,533 3,855 3,821
- c. Ihe Total Operating Res enues $653,023 $667,325 $673,371 pre-nings/
" }' Otherincome end(Deductions) not l interest and dividend income $ 3,568 5 6,681 $ 1,493 l Seabrook funding adjustments - 7,506 -' i Equity earnings from Connecticut Yankee unit 1,350 1,340 1,536
'2 Amortization of loss on investment in tax-exempt bonds -
(1,752) -
Amortization of oil tank lease (1,322) (1,183) (1,059) l na. Gain on sale of property 2,032 7,104 1,058
-ime hii$cellaneous other income and (deductions)- net (5,557) (1,151) (331) ter. Total Other income and (Deductions) - net 5 71 $ 18,545 5 2,697 and '
eposit Other Tames y Charged to:
- Operating
- i State gross earnings $ 27,955 $ 27,362 $ 27,223 7l Local real estate and personal property 24,449 26,339 22,919 I the Payroll taxes 5,525 5,527 5,252 Other 3 3 502- 3 Total 57,932 59,231 55,896 ~
se, ,- . Non-operating and other asunts 335 837 766
$ 58,267 $ 60,068 $ 56,662 he e
Other interest Charges case Notes Payable $ 3,049 $ 2,120 $ 2,338 ich Amortization of debt expense and repurchase premiums 7,818 8,898 7,370 ership Other 1,393 1,864 139
, aid Total Other Interest Charges 5 12.260 $ 12,882 $ 9,847
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_f q Af NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -Dl E4
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(H) Pension And Other Post-Employment Bene 6ts (000's) 1993 1992 9 The Company's qualified pension plan, which is based on M
the highest three years of pay, covers substantially all of its * [mPonents
, c9 , e ,, of na j .
employees, and its entire cost is borne by the Company-The Company also has a non-qualified supplemental plan for follows:
Service cost of benefits earned Y
M certain executives and a non-qualified retiree only plan for during the period $3,977 $3,846 - 'p-certain early retirement benefits. The net pension costs for these Interest cost on projected benefit obligation 13,165 12,300 i.f C.j <
plans for 1993,1992 and 1991 were $14,966,000, $5,749,000 Acmal return on plan assets (23,344) (7,676) p and $2,054,000, respectively.
Net amortization and deferral 10,130 (5,559) jlh The Company's funding policy for the qualified plan is to apm ncat , $2,911" p make annual contributions that satisiy the minimum funding
- 1"dditi n "a's of $U A38M w ruognized under SFAS No. ss as a resuh of %
speaal terminauon benefus provided under the Pennon Plan. l requirements of ERISA but which do not exceed the maxi- ..,, ,33,3,,, , jo,,, sieg. coa ,,, recognized in IW under SFAS No. s8 as a i rauh of a amitrneni with rwrd to the supplemental plans, and a cost of ;J mum deductible limits of the Internal Revenue Code.These amounts are determined each year as a result of an actuarial
- "'"*8'"'*d""d"S"""""""""*"'i"'""""" ~ h,,
valuation of the Plan. In accordance with this policy, the Assumptions used to determine pension costs were: f.@
Company will be contributing $3.3 million in 1994 for 1993 Discount rate 8.25 % 8.25 % d funding requirements. Previously, due to the application Average wage increase 5.50 % 5.50 %
of the full funding limitation under ERISA, the Company Return on plan assets 8.50 % 8.50 %
Q@
had not been required to make a contribution since 1985. '3 The supplemental plan is unfunded. ,
g
<a The qualified plan's irrevocable trust fund consists princi-pally of equity and fixed-income securities and real estate N.
investments in approximately the following percentages: ].
Percentage of Asset Category Total Fund . Oi, Equity Securities 63 Q'
Fixed-income Securities 32 Real Estate 5 S*
- . 9 y.
S O
December 31,1993 December 31,1992
-[
Qualified Non-Qualified Qualified Non-Qualified #
(000's) Plan Plans Plan Plans
.- +
4 The funded status and amounts recognized in ?Q balance sheets are as follows:
Actuarial present value of benefit obligations: 1 M[
Vested benefit obligation $130,582 $3,097 $106,417 $3,572 g Accumulated benefit obligation $137,081 $3,097 $108,820 $3,572 s
Reconciliation of acen2ed pension liability: ., [3 Projected benefit obligation $198,236 $4,262 $159,899 - $4,166 '4 Less f air value of plan assets 167,732 -
152,401 -
.j i Projected benefit greater (less) 3 than plan assets 30,504 4,262 7,498 4,166
- f Unrecognized prior service cost (6,516) (157) (6,955) (180) c 4 Unrecognized net gain (loss). k from past experience (6,966) (327) 840 (478) ., j Unrecognized net asset (obligatioli) y at date of initial application 12,878 (131) 13,986 (16 fj Accrued pension liability $ 29,900 $3,647 $ 15,369 $3,345 . If Assumptions used in estimating benefit obligations:
Discount rate 7.50 % 7.50 % 8.25 % 8.25% , $
Average wage increase 5.50 % 5.50% 5.50 % 5.50% . $
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i' NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
,, .\
In addition to providing pension benefits, the Company also Assumptions used to determine OPEB costs were: .
provides other postretirement benefits (OPEB), consisting Discount rate 8.25 %
princip211y of health care and life insurance benefits, for retired Health Care Cost Trend Rates i employees and their dependents. Employees with 25 years of Pre-age 65 claims -
8.3 %*
service *re eligible for full benefits, while employees with less Post-age 65 claims 9.0%*
5,846 *^""d ; 8'ad"*llY d'diae i 6.2% by the year 2c2a.
than 25 years of service but greater than 15 years of service are Nded to partial benefits. Years of service prior to age 35 are 2,300 A he Percent *Ee Point increase in the assumed health care D ' included in determining the number of years of service.
7,676) cost trend rate would have increased the service cost and interc5t C St C mPonents of the 1993 net cost of perio lic post-
, Prior toJanuary 1,1993, the Company recognized the cost _
~
retuement benefit by approximately $445,000 and would
> of providing OPEB on a pay-as-you-go basis by expensing
""" he annual insurance premiums. These costs amounted to merease the accumulated postretirement benefit obhgation '
' f calth care benefits by approximately $2,421,000.
,. $1.3 million and $1.1 million for 1992 and 1991, respectively.
' Effective January 1,1993, the Company adopted Statement f Financial Accot.nting Standards (SFAS) No.106, The following table reconciles the funded status of the plan l with the amount recognized m the Consolidated Balance
- Em loyers' Accounting for Postretirement Benefits Other Sheet as of December 31,1993:
8.25 % ,
than Pensions", which requires, among other things, thar i 5.50 % OPEB costs be recognized over the employment period that (000's) 8.50 %
encompasses eligibility to receive such benefits. In its Decem- Accumulated Postretirement Benefit Obligation:
ber 16,1992 decision on the Company's application for retail Retirees $12,292 rate relief, the DPUC recognized the Company's obliga. Fully eligible active plan participants 1,950 tion to adopt SFAS No.106, effective January 1,1993, and Other active plan participants 16,088 approved the Company's request for revenues to recover Total Accumulated Postretirement OPEB expenses on a SFAS No.106 basis. A portion of these Benefit Obligation 30,330 an assets at fa,ir value 2,984 expenses represents the transition obligation, which wil accrue over a 20-year period, representing the future liability Accumulated Postretirement Benefit .
gau n m xcen an A ucu 2 ,46 for medical and life insurance benefits ba ed on past service Unrecogmzed net loss (2,990) for retirees and active employees. Unamortized transition obligation (23,089)
For funding purposes, the Company has established two Voluntary Employees' Benefit Association Trusts (VEB A) to fund OPEB for employees who retire on or afterJanuary 1, The weighted average discount rate used to measure the 1994; ene VEBA for union employees and one for non- accumulated postretirement benefit obligation was 7.5%
union employees. Approximately 52% of the Company's , , ,
employees are represented by Local 470-1, Utility Workers During 1993, ,m conjunction with an in-depth organizational 12 Union of America, AFL-CIO, for collective bargaining review, the Company offered a voluntary early retirement ialified Program to non-union employees who were eligible to receive
" purposes. The funding policy assumes contributions to these trust funds to be the total OPEB expense under SFAS No. pensi n benefits. This offer was accepted by 103 employees.
106, excluding the amount that resulted from the reorganiza- The 1993 OPEB cost for this program was $1.267 million.
tion minus pay-as-you-go benefit payments for pre-January These costs are recognized as a component of the reorganiza-1,1994 retirees, allocated in a manner that minimizes current ti n charge shown on the Company's Consolidated income tax liability, without exceeding maximum tax deduc- b '* '#* *" ' I I"' "
$3,572 f tible limits. In accordance with this policy, the Company contributed approximately $3 million to the union VEBA on In November 1992, the FASB issued SFAS No.112, .
$4,166
- Employers' Accounting for Post Employment Benefits".
December 30,1993. The Company currently plans to fund the portion of the OPEB expense that is related to the Ws natement, which will be adopted during the first quarter reorganization during the years 1994-1996. f 1994, establishes accounting standards for employers who 4,166 provide benefits, such as unemployment compensation, The 1993 cost for OPEB includes the following components: severance benefits and disability benefits, to former or inac-tive employees after employment but before retirement (478) (DOC's) and requires recognition of the obligation for these benefits.
( Service cost -
$1,182 The adoption of this new standard will result in a pre-tax g g- Interest cost Actual return on plan assets 1,959 charge against earnings amounting to approximately $2 '
million during the first quarter of 1994. Subsequent pfriod Arnortizauons and deferrals - net 1,215 8.25 % costs are not expected to be material.
L nret ement Benek 9,356 5.50 %
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} NOTES TO CONSOUDATED FINANCIAL STATEMENTS ,
Future minimum lease payments under capital leases, exclud '
(1) Jointly Owned Plant At December 31,1993, the Company had the following ing the Seabrook sale / leaseback transaction, which is being ~
treated as a long-term financing, are estimated to be as follows:
interests in jointly owned plants:
4 Ownership / (000's)
Leasehold Plant In Accumulated .
Next five years:
Share Service Depreciation $22,757 (Millions) 1994
$63 1995 950 Seabrook Unit 1 17.5 % 5650 134 48 J 19% .O Millstone Unit 3 3.685 0
New Haven ~ 1997 132 60 1998 o-Harbor Station 93.7 0
After 1998 Total minimum capital lease payments 23,707 The Company's share of the operating costs of jointly owned 1,998 Less: Amount representing interest ,
plants is included in the appropriate expense captions in the $21,709 Present value of minimum capitallease payments Consolidated Statement of Income.
(J) Unamortized Cancelled Nuclear Project Capitalization of leases has no impact on income, since the From December 1984 through December 1992, the Com- sum of the amortization of a leased asset and the interest on pany had been recovering its investment in Seabrook Unit 2 the lease obligation equals the rental expense allowed for over a regulatory approved ten-year period without a return ratemaking purposes.
on its unamortized investment. In the Company's 1992 rate decision, the DPUC adopted a proposal by the Company Rental payments charged to operating expenses in 1993, to write off its remaining investment in Seabrook Unit 2, 1992 and 1991 amounted to $14.1 million, $14.8 million and beginning January 1,1993, over a 24-year period, corre- $14.9 million, respectively.
sponding with the flowback of certain Connecticut Corpor- "
ation Business Tax (CCBT) credits. Such decision will allow Operating leases, which are charged to operatmg expense, '
the Company to retain the Seabrook Unit 2/CCBT amounts consist of a large number of small, relatively short-term, ,
for ratemaking purposes, with the accumula,cd CCBT renewable agreements for a wide variety of equipment, s
credits not deducted from rate base during the 24-year ,
period of amortization in recognition of a longer period of (O Commitments And Contingencies time for amortization of the Seabrook Unit 2 balance.
Capital Expenditure Program The Company has entered into (K) Fuel Financing Obligations And Other Lease Obligations commitments in connection with its continuing capital -p r
The Company has a Fossil Fuel Supply Agreement with 2 expenditure program, which is presently estimated at financial institution providing for fin 2ncing up to $37.5 approximately $366.5 million, excluding AFUDC, for million in fossil fuel purchases. Under this agreement, the 1994 through 1998.
financing entity acquires and stores natural gas, coal and fuel '
oil for sale to the c ,mpany, ad the Company purchases sembrook After experiencing increasing financial stress l these fossil fue's from the financing eatity at a price for each beginning in May 1987, Public Service Company of New -
type of fuel tiat reimburses the financing entity for the direct Hampshire (PSNH), which held the largest ownership share costs it has i..eurred in purchasing and storing the fuel, plus (35.6%) in Seabrook, commenced a proceeding under Chapter y 11 of the Bankruptcy Code in January of 1988. Under this ' J a charge for maintaining an inventory of the fuel determined statute, PSNH continued its operations while seeking a . , %
by reference to the fluctuating interest rate on thirty-day, dealer-placed commercial paper in New York. The Company financial reorganization. A reorganization plan proposed by ' #
is obligated to insure the fuelinventories and to indemnify Northeast Utilities (NU) was confirmed by the bankruptcy L ,
the financing entity against all liabilities, taxes and other court in April of 1990 and, on May 16,1991, PSNH comple expenses incurred as a result of its ownership, storage and the financing required for payment of its pre-bankruptcy -
sale of fossil fuel to the Company.This agreement currently secured and unsecured debt under the first stage of the reor- N extends to February 1995. At December 31,1993, approxi- ganization plan and emerged from bankruptcy. On May 19, ?
mately $10.1 million of fossil fuel purchases were being 1992, the NRC issued the final regulatory approval necessary. #
- ~J financed under this agreement.-
I The Company has leases (same of which are capitalleases),
e' J including arrangements for data processing and office equip-ment, vehicles, office space and oil tanks. The gross amount t of assets recorded under capitalleases and the related obliga-tions of those leases as of December 31,1993 are recorded on the balance sheet.
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NOTES TO CONSOUDATED FINANCIAL STATEMENTS '
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I\ for the second stage of the NU reorganir.ation plan, under Nuclear generating units are subject to the licensing require-V which PSNH would be acquired by NU; and on June 5,1992, ments of the Nuclear Regulatory Commission (NRC) under ws: , this acquisition was completed. As pan of the transaction, the Atomic Energy Act of 1954, as amensled,%nd a variety pSNirs ownership share of Seabrook Unit I was transferred . of other state and federal requirements.~Although Seabrook .
to a wholly-owned subsidiary of NU.Two previous regula- Unit I has been issued a 40-year operating license, NRC ~
~
tory approvals of the NU reorganization plan for PSNH, by proceedings and investigations prompted by inquiries from
'57 the Federal Energy Regulatory Commission (FERC) and Congressmen and by NRC licensing board consideration of ISO the Securities and Exchange Commission (SEC), continue to technical contentions may arise and continue for an indefi- - '
0 i be ch2llenged in court proceedings, and the Company is nite period of time in the future.
unable to predict the outcome of these proceedings. '
O Nuclearlasurar.ca Contingencies The Price-Anderson Act, t.yo7~ On February 28,1991, EUA Power Corporation (EUA currently extended through August 1,2002, limits public f99g power), the holder of a 12.1% ownership share in Seabrook, liability resulting from a singic incident at a nuclear power
6 commenced a proceeding under Chapter 11 of the plant. The first $200 million of liability coverage is provided '
Bankruptcy Code. EUA Power, a wholly-owned subsidiary by purchasing the maximum amount of commercially avail-of Eastern Utilities Associates (EUA), was organized solely able insurance. Additional liability coverage will be provided for the purpose of acquiring an ownership share in Seabrook by an assessment of up to $75.5 million per incident, levied and selling in the wholesale market its share of the electric on each of the nuclear units licensed to operate in the United power produced by Seabrook. EUA Power commenced this States, subject to a maximum assessment of $10 million per bankruptcy proceeding because the cash generated by its incident per nuclear unit in any year. In addition,if the sum sales of power at current market prices was insufficient to of all public liability claims and legal costs resulting from any pay its obligations on its outstanding debt. Subsequently, nuclear incident exceeds the maximum amount of financial d
EUA power's name was changed to Great Bay Power protection, each reactor operator can be assessed an addi-Corporation (Great Bay). The official committee of Great tional 5% of $75.5 million, or $3J75 million. The maximum Bay's bondholders (Bondholders Committee) has proposed, assessment is adjusted at least every five years to reflect the
- and the bankruptcy court has confirmed, a reorganization impact of inflation. Based on its interests in nuclear generat-plan for Great Bay, under which substantially all of the ing units, the Company estimates its maximum liability equity ownership of Great Bay would pass to its bondhold- would be $20.3 million per incident. However, assessment ers. On February 2,1994, the Bondholders Committee would be limited to $3.1 million per incident, per year. With accepted a financing proposal that would inject $35 million respect to each of the operating nuclear generating units in of new ownership equity into Great Bay. The bankruptcy which the Company has an interest, the Company will be court must approve this structure before the Great Bay reor- obligated to pay its ownership and/or leaschold share of any ganization plan becomes effective. Further approvals are also statutory assessment resulting from a nuclear incident at any required from the NRC, FERC and the New Hampshire nuclear generating unit.
Public Utilities Commission. The bankruptcy court has approved an agreement among Great Bay, the Bondholders The NRC requires nuclear generating units to obtain propeny , '
Committee, UI and The Connecticut Light and Power insurance coverage in a minimum amount of $1.06 billion Company (CL&P), under which up to $20 million in and to establish a system of prioritized use of the insurarice -
advance payments against their respective future monthly proceeds in the event of a nuclear incident. The system Seabrook payment obligations will be made available requires that the first $1.06 billion of insurance proceeds be er
between Ul and CL&P as needed until the reorganization used to stabilize the nuclear reactor to prevent any significant plan becomes effective. Urs share of funding obligations risk to public health and safety and then for decontamination ,
under this agreement totals $8 million. As of December 31, and cleanup operations. Only following completion of these ,
1993, $5.5 million had been advanced by UI under this agree- tasks would the balance,if any, of the segregated insurance ment. At January 31,1994, $602,000 of the Company's proceeds become available to the unit's owners. For each of -
3d advances remained outstanding. This agreement can be ter-the nuclear generating units in which the Company has'an (
minated by UI and CL&P upon thirty days notice or upon interest, the Company is required to pay its ownership and/
failure of the reorganization process to achieve certain mile- or leasehold share of the cost of purchasing such insurance.
- stones by specified dates. UI is unable to predict what impact, '
Y if any, failure of the reorganizationylan to become effective will have on the operating license for Seabrook Unit 1, or s,/ what other actions UI and the other joint owners of the unit may be required to take in response to developments in this
- bankruptcy proceeding as it may affect Seabrook.
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NOTES TO CONSOLIDATED FINANCIA!. STATEMENTS -b E i, Other Commitments and Contingencies (M) Nuclear Feel Disposal And Nuclear Plant Deconunissioning Costs associated with nuclear plant operations include ^
Hydro-Quebec The Company is a panicipant in the Hydro- amounts for disposal of nuclear wastes, including spent fuel, Quebec transmission intertie facility linking New England and .' and for the ultimate decommissioning of the plants'. Under g' ,
Quebec, Canada. Phase II of this facility, in which UI has a the Nuclear Waste Policy Act of 1982, the federal Depart- [
5.45% participating share, has increased the capacity value of ment of Energy (DOE)is required to design, license, f:
the intertie from 690 megawatts to a maximum of 2000 mega- construct and operate a permanent repository for high level 4 -
watts. A ten-year Firm Energy Contract, which provides radioactive wastes and spent nucleu fuel. The Act requires j" for the sale of 7 million megawatt-hours per year by Hydro- the DOE to provide, beginning in 1998, for the disposal of k Quebec to the New England participants in the Phase 11 spent nuclear fuel and high level radioactive waste from s i j' facility, became effective on July 1,1991. The Company is commercial nuclear plants through contracts with the owners .N obligated to furnish a guarantee for its participating share of and generators of such waste; and the DOE has established J, the debt financing for the Phase 11 facility. Currently, the disposal fees that are being paid to the federal government by Company's guarantee liability for this debt amounts to electric utilities owning or operating nuclear generating units. - ]N _
approximately $9.8 million. In return for payment of the prescribed fees, the federal government is to take title to and dispose of the utilities
- high Reorganhetion Cherge During 1993, the Company undertook level wastes and spent nuclear fuel beginning no later than an in-depth organizational review with the primary objective 1998. However, the DOE has announced that its first high .,
I of improving customer service. As a result of this review, the level waste repository will not be in operation earlier than 2010, Company eliminated approximately 75 positions. notwithstanding the DOE's statutory and contractual respon- .. e sibility to begin disposal of high-level radioactive waste and
,f. l In conjunction with this review, the Company offered a spent fuel beginning not later than January 31,1998. "
71 voluntary early retirement program to non-union employees ?
whc were eligible to receive pension benefits. The early Until the federal government begins receiving such materials a retirement offer was accepted by 103 employees and the Com- in accordance with the Nuclear Waste Policy Act, operating pany incurred a one-time charge to 1993 earnings of approxi- nuclear generating units will need to retain high level wastes ]Z. -
mately $13.6 million ($7.8 million, after-tax). No decision has and spent fuel on-site or make other provisions for their y been made as to whether to offer a severance program to storage. Storage facilities for Millstone Unit 3 are expected [
employees who may be affected by the organizational review to be adequate for the projected life of the unit. Storage facil- ' w 4
when it is completed, but who were not eligible for, or did ities for the Connecticut Yankee unit are expected to be ade- y not accept, the early retirement offer. quate through the mid-1990s. Storage facilities for Seabrook ' Ai Unit I are expected to be adequate until at least 2010. Fuel ' Ly Site namediation Costs The Company has estimated that the :onsolidation and compaction technologies are being devel- 4 cost of environmental remediation of its decommissioned Steel oped and are expected to provide adequate storage capability ] l for the projected lives of the latter two units. In addition, Point Station property in Bridgeport will be approximately
$10.3 million and has recorded a liability for this cost. Follow- other licensed technologies, such as dry storage casks, can [.
ing remediation, the Company intends to sell the property accommodate spent fuel storage requirements. .;
for development for a value it estimates will not exceed .[
$6 million. In the Company's last rate decision, the DPUC Disposal costs for low-level radioactive wastes (LLW) that '
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provided additional revenues to recover the $4.3 million result from normal operation of nuclear generating units J difference during the period 1993-1996, subject to true-up have increased significantly in recent years and are expected _l in the Company's next retail rate proceeding, based on actual to continue to increase. The cost increases are functions of 5J remediation costs and the actual gain on the sale of the property. increased packaging and transportation costs and higher fees J(
and surcharges charged by the disposal facilities. Pursuant 9 Property Taxes In November 1993, the Company received to the Low-Level Radioactive Waste Policy Act of 1980,' ,
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" updated" personal property tax bills from the City of New each state was responsible for providing disposal facilities for -
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Haven (the City) for the tax year 1991-1992, aggregating LLT generated within the state and was authorized to join s
$6.6 million, based on an audit by the City's tax assessor, with other states into regional compacts to jointly fulfill ' j The Company anticipates receiving additional bills of this their responsibilities. Pursuant to the Low-Level Radioactive ~l Waste Policy Amendments Act of 1985, each state in which .
4 sort for the tax years 1992-1993 and 1993-1994, the amounts of which cannot be predicted at this tMhe. The Company a currently operating disposal facility is located (South is contesting these tax bills vigorously and fias commenced Carolina, Nevada and Washington)is allowed to impose ,
an action in the Superior Court to enjoin the City from any M effort to collect these tax bills. Due to a lack of data, it is not possible, at this time, to assess accurately the Company's liability,if any.
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g, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in\ t V ,
volume limits and a surcharge on shipments of LLW from electric rates to cover expected decommissioning costs.
states that are not members of the compact in the region in Changes in NRC requirements or technology can increase s which the facility is located. On June 19,1992, the United estimated decommissioning costs, and UI's customers in
- States Supreme Court issued a decision upholding certain parts l future years may experience higher electric rates to offset the of the Low-Level Radioactive Waste Policy Amendments effects of any insuf6cient rate recovery in prior years.
Act of 1985, but invalidating a key provision of that law requir-ing each state to take title to LLW generated within that state New Hampshire has enacted a law requiring the creation of a '
if the state fails to meet federally-mandated deadlines for government-managed fund to finance the decommissioning siting LLW disposal facilities. The decision has resulted in of nuclear generating units in that state. The New Hampshire uncertainty about states' continuing roles in siting LLW Nuclear Decommissioning Financing Committee (NDFC) disposal facilities and may result in increased LLW disposal established $345 million (in 1993 dollars) as the decommis-
! costs and the need for longer interim LLW storage before a sioning cost estimate for Seabrook Unit 1. This estimate "Y ! permanent solution is developed. premises the prompt removal and dismantling of the Unit at the end of its estimated 40-year energy producing life.
The Connecticut 11azardous Waste Management Service Monthly decommissioning payments are being made to the (the Service), a state quasi.public corporation, was charged state-managed decommissioning trust fund. UI's share of
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with coordinating the establishment of a facility for disposal the decommissioning payments made during 1993 was of LLW originating in Connecticut. In June 1991, the Service $1.3 million. UI's share of the fund at December 31,1993 announced that it had selected three potential sites in north- j was approximately $3.7 million.
i central Connecticut for further study. The Service's announcement provoked intense controversy in the affected Connecticut has enacted a law requiring the operators of municipalities and resulted in legislative action to stop the nuclear generating units to file periodically with the DPUC selection process. On February 1,1993, the Service presented their plans for financing the decommissioning of the units the legislature with a new site selection pian under which in that state. Current decommissioning cost estimates for ]
n communities are urged to volunteer a site for a facility in return Millstone Unit 3 and Connecticut Yankee are $421 million
(" ) for 6nancial and other incentives. The volunteer process is (in 1994 dollars) and $324 million (in 1994 dollars), respec-being continued in 1994. The Service's activities in this regard tively. These estimates premise the prompt removal and are funded by assessments on C~nnecticut's LLW generators. dismantling of each unit at the end of its estimated 40-year
- Due to a change in the volunteer process, there was no assess-energy producing life. Monthly decommissioning payments, ment for the 1993-1994 fiscal year and the state projects no based on these cost estimates, are being made to decommis-assessment for the 1994-1995 and 1995-1996 fisal years. sioning trust funds managed by Northeast Utilities. UI's share of the Millstone Unit 3 decommissioning payments Additional LLW storage capacity has been or can be con- made during 1993 was $328,000. UI's share of the fund at structed or acquired at the Millstone and Connecticut Yankee December 31,1993 was approximately $1.9 million. For the l sites to provide for temporary storage of LLW should that -l Company's 9.5% equity ownership in Connecticut Yankee, become necessary. Connecticut L.LW can be managed by decommissioning costs of $1.3 million were funded by UI volume reduction, storage or shipment at least through 1999. during 1993, and Ul's share of the fund at December 31, The Company cannot predict whether and when a disposal 1993 was $9.5 million.
site will be designated in Connecticut.
Environmental Concerns In complying with existing environ-The State of New Hampshire has not met deadlines for mental statutes and regulations and further developn ents in l compliance with the Low-Level Radioactive Waste Policy these and other areas of environmental concern, including Act, and Seabrook Unit I has been denied access to existing legislation and studies in the fields of water and air quality l disposal facilities.Therefore, LLW generated by Seabrook (particularly " air toxies", " ozone non-attainment" and '
Unit 1 is being stored on-site. The Seabrook storage facility " global warming"), hazardous waste handling and disposal, currently has capacity to store approximately five years' toxic substances, and electric and magnetic fields, the Com-l accumulation of waste generated by Seabrook, and the plant pany may incur substantial capital expenditures for equip- l operator plans to expand its storage capacity as necessary. ment modifications and additions, monitoring equipment and recording devices, and it may incur additional operating NRC licensing requirements and restrictions are also appli- expenses. Litigation expenditures may also increase as a
( cable to the decommissioning of nuclear. generating units at result of scientific investigations, and speculation and debate, V the end of their service lives, and the NRC has adopted com- concerning the possibility of harmful health effects of electric prehenshe regulations concerning decommissioning plan- and magnetic fields. The Company believes that any add (-
ning, timing, funding and environmental reviews. U1 and the tional costs incurred for these purposes will be recoverable other owners of the nuclear generating units in which UI has through the ratemaking process. The total amount of these interests estimate deccmmissioning costs for the units and expenditures is not now determinable.
attempt to recover sufficient amounts through their allowed .
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. .s NOTES TO CONSOLID ATED FINANCIAL STATEMENTS (N) Change la Method Of Accounting for Property Taxes -
The effect of the change in accounting was to increase 1991 -
Effective J anuary 1,1991, the Company changed its method earnings for co;nmon stock by $7.9 million, of which $7 3 of accounting for property taxes froni accrual over the million represented the cumulative effect of the change.at twelve-month period following assessment date to accrual January 1,1991, and $.6 million represented an increIse in over the fiscal period of the applicable taxing authority. earnings for \991.
{0) Fair Value Of Financiat instruments
- The estimated fair values of the Company's financialinstruments are as follows: , ,
~.
1993 1992 _
Carrying Fair . Carrying Fair . : -
.5 Value ~
Amount Value Amount (000's)
$ 4 8,171 $ 48,171 $105,631 $105,631 j Cash and temporary cash investments $768,601 $810,329 $736,290 $786,496 l Long-term debt "*
(1) Equity meestmena were not valued because they were not comidered to be matenal (2) Lactudes the $2%.000.:rX Obhgation under the Seabrook Unit I satelleawback agreement.
O)The f air market value of the company's long-term debt is esumated by brokers based on marker er nditions at December 3t,1993 ?
.' and 1992 (P) Quarterly Financial Data (Unaudited) }, s Selected quarterly financial data for 1993 and 1992 are set forth below:
Earnings
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(Loss) Per (000's) Share of i
t'000's) (000's)
Operating Net Income Common 1/;~
Operating
- Revenues Income (Loss)m Stock"2 Quarter -
9 1993 $31,164 $12,586 $ .82 :
$161,936 First 10,374 .66 s 157,012 29.335 '
4 Second 41,358 22,756 1.54 Third 189.432 15M43 12,957 (5,235) (.45) a '
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Fourth 1992 $176,800 $30,177 $13,722 $ .91 . f First 160,451 30,335 21,575 1,47 Second 175,877 29,889 16,014 1.07 ~
Q Third 154,197 17,621 5,457 .31 9
Fourth j )d (1)liased on weighied average number of sharci outuanding each quarter. f h Company. ~, ; _ M (2) Earnmp per share for the fourth quaner of 1993 include an sher-tas charge of $7 8 million or $ 56 per share an oaated with the @
reorganization Market for the Company's Common Equity and Related Stockholder Matters.
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UI's Common Stock is traded on the New York Stock Exchange, where the high and low sale prices during-1993 g and 1992
, -- .4 were as follows:
- M rn, 1992 Sale Price ..
n High 1993 Salt Price Low High Low i.
4
- ce 43 % 41 38 % 34 % - j' j
First Quarter 44 41 % 37 % 35 % 0
- Second Quarter 45 % 42 % 39 % 36 % 'e ;Q Third Quarter 45 % 38 % 42 38 % g 7;g j Fourth Quarter I
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- i of cash dividends on common stock and on the purchase or ( ]i' UI has paid quarterly dividends on its Common Stock since redemption of common stock. Retained earnings in the
.( 4) 1900. The quarterly dividends declared in 1992 and 1993 were Q at a rate of 64 cents per share and 661/2 cents per share, amount of $82.6 million were free from such limitations at ,
December 31,1993. .,
l i respectively.
I As of January 31,1994, there were 21,919 Common Stock Tb inhnture under which the Company's Medium-Term
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" REPORT OF INDEPENDENT ACCOUNTANTS -
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To the Shareowners and Directors of The United Illuminating Company:
t We have audited the accompanying consolidated balance sheets of The United Illuminating Company as of Qecember 31,1993, 1992 and 1991, and related consolidated statements of income, retained earnings and cash flows for the years then ended. 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 lI
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the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,in all material respects, the consolidated financial ,
position of The United Illuminating Company as of December 31,1993,1992 and 1991, and the consolidated results of its l1 operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. :
l Coopers & Lybrand liartford, Connecticut January 24,1994 l
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g INVESTOR INFORMATION Registrar and Co-Transfor Agent Dividend Reinvestment Plan Shereewner Services General Coonsel The United Illuminating Wiggin & Dana Continental Stock Transfer & Common Stock shareowners Trust Company of record interested in' '
Company obtaining informa' tion '
Stock Usting 2 Broadway P.O. Box 1948 regarding the benefits of New York Stock Exchange New York, NY 10004 New Haven, CT 06509-1948 Attention: Stock Transfer participating in UI's dividend Tel: (203) 499-2268 Common Stock Department reinvestment plan may write Fax: (203) 499-3624 Shareowner Services for more Co. Transfer and Dividend Tel: (212) 509-4000 Disbursing Agent information.
Investor Relations The United Illuminating Annual Meeting Date frank Maher Company The Company's Annual The United Illuminating P.O. Box 1948 Meeting will be held at the Company New Haven Lawn Club, New Haven, CT 06509-1948 PO. Box 1564 19.1 Whitney Avenue, New New Haven, CT 06506-0901 Tel: (203) 499-2210 Haven, CT on Wednesday, ,
Tel:(203) 499-2591 Fax:(203) 499-3624 May 18,1994, beginning . ,
Fax: (203) 499-2594 at 10:00 a.m.
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PAID i Permit No.188 I The United Illuminating Company New Itaven l' 157 Cliurch Street Connecticut '!
P.O.!!ox1564 i; New flaten, Connecticut 065h0901
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The Connecticut Light and Power Company CL&P a subsidiary ofNortheast Utilities t
o 4
o 1993 AnnualReport
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Directors Roben G. Abair William T. Frain. Jr.
q' Vice President and Chief Administrative Officer President and Chief Operating Officer Westem Massachusetts Electric Company Public Service Company of New Hampshire Robert E. Buxh Cheryl W. Gris6 Execut've Vice President and Sgg, y; g3;g ;
Chief Financial Officer '
John P. Cagnetta J hn B. Keane 'i Senior Vice President Vice President and Treasurer William B. Ellis Hugh C. MacKenzie ,
Chairman President Bernard M. Fox John F. Opeka l Vice Chairman Executive Vice President Nonheast Utilities Service Company
~
Officers William B. Ellis John W. Noyes Patricia R. McLaughlin Chairman Vice President and Controller Assistant Controller Bernard M. Fox Frank P. Sabatino John J. Roman Vice Chairman Vice President Assistant Controller Hugh C. MacKenzie C. Frederick Sears 'Iheresa H. Allsop President Vice President Assistant Secretary Robert E. Busch Robert P. Wax Mark A.Joyse Executive Vice President and Vice President. Assistant Secretary Chief Financial Officer Secretary and General Counsel Robett C. Aronson John P. Cagnetta Assistant Treasurer Senior Vice President Roger C. Zaklukiewicz Vice President Cheryl W. Gris6 Senior Vice P.rsident Richard R. Carella Francis L. Kinney Senior Vice President Robert J. Kost Regional Vice President Ronald G. Chevalier s Vice President Alfred R. Rogers Regional Vice President Vice President and Treasurer Kerry J. Kuhlman Assistant Vice President Keith R. Marvin Vice President Joseph F. Deegan Assistant Controller e
, February 28. ]994
I l l
r 1993 Annual Report I
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The Connecticut Light and Power Company index Contents Paae Balance Sheets . . ...... .. .. .. ... .. .... .... ... . .. 1-2 Statements of locome ...... ............................. ........ 3 Statements of Cash Flows .. ..... ....... .................... ... 4 Statements of Common Stockholder's Equity . . . . . . . . . . . . ... .......... 5 Notes to Financial Statements . .. . ......... .......... .......... 6-30 Report of Independent Public Accountants . . . . . .......... ... . ........ 31 Management's Discussion and Analysis of Financial Condition and Results of Op? rations . . . . . . . . . . . . . . . . . . . . .......... 32-39 ,
Selected Financial Data . . . . ................. ..................... 40 '
Statements of Quarterly Financial Data . . . . . . . ... .................... 40 Statistics . . . . . . . .. ............. .... . ................ ....... 41 Preferred Stockholder and Bondholder information . . . . . . . . . . . . . . . . . . . . . . . . . Back Cover
The Connecticut Light and Power Company BALANCE SHEETS At December 31, 1993 1992 (Thousands of Dollars)
Assets Utility Plant, at original cost:
Electric.. ... . .. . . . . ... . . . . . . $ 5,936,344 $ 5,822,783 Less: Accumulated provision for depreciation.. . . 2.010,962 1,827,024 3,925,382 3,995,759 Construction work in progress.. . . . . 121,177 110,081 Nuclear fuel, net.. . . . . ... . . . . . . . 156,878 167,816 Total net utility plant.. . .. .. .. . .. 4,203.437 4,273,656 Other Property and investments:
Nuclear decommissioning trusts, at cost.. . 147,657 121,888 investments in regional nuclear generating companies and subsidiary companies, at equity-. 53,951 53,717 Other, at cost.. . . 14,184 14,198 215.792 189,803 Current Assets:
Cash and special deposits (Note 1).. . . . .. .. 2,283 12,104 Receivables, less accumulated provision for uncollectible accounts of $10,816,000 in 1993 and $8,358,000 in 1992.. . . . ... 210,805 231,614 i Receivables from affiliated companies... . . . . 29,687 4,804 l Accrued utility revenues.. .. .. .. .. .... 97,662 92,366 Fuel, materials, and supplies, at average cost.. . 60,247 72,199 Recoverable energy costs, net - current i portion (Note 1).. . . . . . . . . 9,985 77,002 l Prepayments and other.. . . . . . . .. .. 33,697 31,875 1 444,366 521,964 i Deferred Charges: ;
Regulatory asset - income taxes (Note 1).. . . 1,026,046 -
j Deferred costs - nuclear plants (Note 1)... .a.. .. 185,909 199,914 Unrecovered contract obligation - YAEC (Note 3).. . 84,526 98,559 ,
Deferred conservation and load-management costs.. 111,442 87,487 j Recoverable energy costs, net (Note 1).. . 26,311 82,423 Deferred DOE assessment (Note 1).. . . .. . . . 39,279 41,730 Unamortized debt expense.. . .. . .. 8,971 10,497 Amortizable property investment., .. . . . . . . 6,228 8,720 i Other... ... . . . . . 45,073 68,053 1,533,785 597,383 To t al As se t s .. . . . . . . . . . . . . . . . .. . . . . . . . . . . .. . . . .. . $ 6,397,380 $ 5,582,806 '
The accompanying notes are an integral part of these financial statements.
L.
The Connecticut Light and Power Company BALANCE SHEETS C\
Q At December 31, 1993 1992 (Thousands of Dollars)
Capitalization and Liabilities Capitalization:
Common stock, $10 par value - authorized 24,500,000 shares; outstanding 12,222,930 shares in 1993 and 1992... . . .. . $ 122,229 $ 122,229 Capital surplus, paid in.. .. . . . . . . 630,271 634,851 Retained earnings., . . . 750,719 748,817
! Total common stockholder's equity.. . . . . . - . 1,503,219 1,505,897
) Cumulative preferred stock -
$50 par value - authorized 9,000,000 shares; outstanding 5,424,000 shares in 1993 and l 5,123,925 in 1992
$25 par value - authorized 8,000,000 shares; outstanding 5.000,000 shares in 1993 and 7,000,000 shares in 1992 Not subject to mandatory redemption (Note 5).. 166,200 231,196 Subject to mandatory redemption (Note 6).. . 230,000 197,500 l Long-term debt (Note 7).. . . . 1,743,260 1,930,832 l
I Total capitalization.. . . . .. . 3,642,679 3,865,425 Obligations Under Capital Leases......... . ..... . .. 121,892 136,800
\ Current Liabilities:
Notes payable to banks.... .. . .. . 95,000 96,500 Notes payable to affiliated company.. .
1.250 -
Commercial paper.. ,. .. -
109,240 Long-term debt and preferred stock - current portion.. . . 314,020 159,604 Obligations under capital leases - current portion.. . . . . 55,526 60,604 ;
Accounts payable.. 117,858 108,797
)
Accounts payable to affiliated companies.. . .. 52,179 55,808 Accrued taxes... . , . . .. .. 36,114 118,132 Accrued interest.. .
. 29,669 32,829 Other.. . , , , , , . .. 32,287 17,185 733,903 758,699 Deferred Credits: i j
Accumulated deferred income taxes (Note 1).. 1,575,965 475,355 '
Accumulated deferred investment tax credits.. . 154,701 165,710 Deferred contract obligation - YAEC (Note 3).. 84,526 98,559 Deferred DOE obligation (Note 1).. . . 31,523 41,730 Other.. . . . . . . 52,191 40.528 1,898,906 821,882 l Commitments and Contingencies (Note 11)
I Total Capitalization and Liabilities... .. . ... $ 6,397,380 $ 5,582.806 U The accompanying notes are an integral part of these financial statements.
1 The ConnecticutLight and Power Company STATEMENTS OF INCOME
{
For the Years Ended December 31, 1993 1992 1991 (Thousandsof Dollars)
Op eratin g R evenu es.... .. . ... . . ..... ..... ... ....... $ 2,366,050 $ 2,316,451 $ 2,275,737 Operating Expenses:
Operation -
Fuel, purchased and net interchange power.. . . . . . . . . . . . . . . . . . . 657,121 598,287 559,131 I Other.. .. . .. . . . . 641,402 605,675 614,440 Maintenance.. . .. .. . . . . . . . . 180,403 197,460 184,727 Depreciation.. . . . . . . . . 219,776 209,884 198,597 Amortization of regulatory assets, net.. .. 112,353 73,456 55,693 Federaland state income taxes (Note 8).. . 144,547 172,236 173,102 Taxes other than income taxes.. . 170,353 171,642 166,212 Total operating expenses.. 2,125,955 2,028,640 1,951,902 Operating Income. .. . .. . .. 240,095 287,811 323,835 Other income:
Deferred nuclear plants return -
other funds.. .. 23,537 35,396 36,714 Equityin earnings of regional nuclear generating companies... . . 6,193 8,014 8,021 Other, net.. .. . . . (1,044) 6,964 9,226 Income taxes - credit... . . . . 4,859 11,171 13,004 Other income, net.. . . 33,545 61,545 66,965 Income before interest charges.. 273,640 349,356 390,800 Interest Charges:
Interest on long-term debt.. 134,263 151,314 166,256 l Other interest... ... 9,654 4,205 1,542 Deferred nuclear plants return -
borrowed funds (Note 1).. . . (13,979) (12,877) (17,816)
Interest charges, net.. . 129,938 142,642 149,982 l Income before cumulative effect of accounting change.. . 143,702 206,714 240,818 Cumulative effect of accounting change (Note 1)... __ 47,747 - -
Net income...... ... ... . . . . . . . . . . . . . . ......... $ 191.449 $ 206.714 $_ 240.818 The accompanying notes are an integral part of these financial statements. <
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The Conn 2cticut Light and Power Comp 1ny STATEMENTS OF CASH FLOWS (O
(j Forthe Years Ended December 31, 1993 1992 1991 (Thousands of Dollars) j Cash Flows From Operations: !
Net income .. $ 191,449 $ 206,714 $ 240,818 I Adjusted for the following:
Depreciation.. {
226,951 223,058 204.534 Deferred income taxes and investment tax c redits, net.. (20,108) 72,138 107,599 Deferred nuclear plants return, net of amortization... 58,740 10.071 (3,529)
Deferred energy costs, net of amortization.. 123,129 (22,408) (119,629)
Deferred conservation and load-management, net of amortiration... (23,955) (31,989) (47,402)
Other sources of cash...
81,386 13,256 37,143 l Other uses of cash.. (26,431) (66,494) (38,730) i Changes in working capital:
) Receivables and accrued utility revenues..
F uel, materials, and supplies .
(9,370) 11,951 245 1,296 (36.882) 24.735 Accounts payable.. 5,433 (18,067) 52,029 Accrued taxes . (82,018) 15,344 (42228)
Other working capital (excludes cash).. 9.754 7,1 54 12.462 Not cash flows from operations... 546,831 410.318 390,920 Cash Flows Used For Financing Activities:
Long-term debt.. 740,500 491,000 -
Preferred atock... 80,000 75,000 -
Financing expenses... (2,393) (9.825) -
Net increase (decrease) in short-term debt.. (109,490) 15.240 108,385 Reacquisitions and retirements of long-term debt and preferred stock... (886,969) (523,123) (90,877)
Cash dividends on preferred stoc k... (29,182) (31,977) (34,541)
Cash dlvidends on common stock., (160,365) (164,27_7) (172.587)
Net cash flows used for financing activities.. (147,962) (189,620)
(367.899]
Investment Activities:
Jnvestment in plant:
Electne utility plant . (149,308) (178,670)
(225.901)
Nucioar fuel . (13.658) 3,139 (3,432)
Net cash flows used for investments in plant.. (162,966) (222,762) (182,102)
Other truestment actrvities, net.. (25,787) (32,181) (18,334)
Net cash flows used for irwestments.. (188.753) (254,943) _(200436)
Not Increase (Decrease) in Cash for the Period... . . (9,821) 7,413 864 Cash and special deposits - beginning of period... 12,104 4,691 3.827 Cash and special deposits - end of period.. } 2,2_8_3 5 12.104 $ 4.691 Supplemental Cash Flow Information:
Cash paid (recerved) dunng the year for:
Interest, net of amounts capitalized during constructio n... $ 130.592 $ 143.957 $ 162.760 income taxes.. $ 149 056 $ 95,199 $ 92.884 increase in obligations:
Niantic Bay FuelTrust., $ 40,140 $ 30.948 $ 14 713 Capital lea se s... $ $
$ 10.500 O
(_)N The accompanying notes are on integral part of these financial statemerts.
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The Connecticut Light and Power Company STATEMENTS OF COMMON STOCKHOLDER'S EQUITY Capital Common Surplus, Retained Stock Paid in Earnings (a) Total (Thousands of Dollars)
Balance at January 1,1991. . . . ...... $ 122,229 $ 636,175 $ 705,303 $ 1,463,707 Net income for 1991. . . . . . . . . 240,818 240,818 Cash dividends on preferred stock. . .. . . ..
(34,541) (34,541)
Cash dividends on common stock.. (172,587) (172,587)
Capital stock expenses, net... . . . . . 1,027 1,027 Balance at December 31, 19 91. . .. . . ... 122,229 637,202 738,993 1,498,424 Net income for 1992.. .
206,714 206,714 Cash dividends on preferred stock.. . .
(31,977) (31,977)
Cash dividends on common stock.. (164,277) (164,277)
Loss on the retirement of preferred stock.. . .. . ..
(636) (636)
Capital stock expenses, net.. . (2.351) (2,351)
Balance at December 31,1992.. . 122,229 634.851 748,817 1,505,897 Net income for 1993.. 191,449 191,449 Cash dividends on preferred stock.. (29,182) (29,182)
Cash dividends on common stock.. .
(160,365) (160,365)
Capital stock expenses, net.. . .
(4,580) (4,580)
Balance at December 31,19 93.... . . .. $ 122,229 $ 630.271 $ 750.719 $ 1,503,219 (a) The company has dividend restrictions imposed by its long-term debt agreements.
At December 31,1993, these restrictions totaled approximately $540.0 million.
The accompanying notes are an integral part of these financial statements.
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%d The Connecticut Light and Power Company NOTES TO FINANCIAL STATEMENTS
- 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES General The Connecticut Light and Power Company (CL&P or the company), Western Massachusetts Electric Company (WMECO), Holyoke Water Power Company (HWP), Public Service Company of New Hampshire (PSNH), and North Atlantic Energy Corporation (NAEC) are the operating subsidiaries comprising the Northeast Utilities system (the system) and are wholly owned by Northeast Utilities (NU).
Other wholly owned subsidiaries of NU provide substantial support services to the system. Northeast f Utilities Service Company (NUSCO) supplies centralized accounting, administrative, data processing, engineering, financial, legal, operational, planning, purchasing, and other services to the system companies. Northeast Nuclear Energy Company (NNECO) acts as agent for system companies in operating the Millstone nuclear generating facilities. Commencing June 29,1992, North Atlantic Energy Service Corporation (NAESCO) began acting as agent for CL&P and NAEC in operating the Seabrook 1 nuclear facility.
All transactions among affiliated companies are on a recovery of cost basis which may include amounts representing a return on equity, and are subject to approvs! by various federal and state regulatory agencies.
Accounting Changes Property Taxes: CL&P adopted a one-time change in the method of accounting for municipal property y) tax expense for their Connecticut properties. Most municipalities in Connecticut assess property values as of October 1. Prior to January 1,1993, CL&P accrued Connecticut property tax expense over the period October 1 through September 30 based on the lien-date method. In the first quarter of 1993, these subsidiaries changed their method of accounting for Connecticut municipal property taxes to recognize the expense from July 1 through June 30, to match the payment and services provided by the municipalities. This one-time change increased net income by approximately $47.7 million for CL&P in 1993.
Income Taxest The company adopted the provisions of Statement of Financial Accounting Standards No.109, Accounting for /ncome Taxes, effective January 1,1993. For more information on this change, see Note 1, ' Summary of Significant Accounting Policies - Income Taxes."
Postratirement Benefits Other Than Pensions: The company adopted the provisions of Statement of Financial Accounting Standards No.106, Employer's Accounting for Postratirement Benefits Other Than Pensions (SFAS 106), effective January 1,1993. For more information on this change, see Note 10,
'Postretirement Benefits Other Than Pensions.'
Accounting Reclassifications Certain amounts in the accompanying financial statements of CL&P for the year ended December 31, 1992 and 1991 have been reclassified to conform with the December 31,1993 presentation.
Pubile Utility Regulation NU is registered with the Securities and Exchange Commission (SEC) as a holding company under the Public Utility Holding Company Act of 1935 (1935 Act), and it and its subsidiaries, including the n company, are subject to the provisions of the 1935 Act. Arrangements among the system companies, (J' outside agencies, and other utilities covering interconnections, interchange of electric power, and sales
=
The Connecticut Light and Power Company NOTES TO FINANCIAL STATEMENTS of utility property are subject to regulation by the Federal Energy Regulatory Commission (FERC) and/or the SEC. The company is subject to further regulation for rates and other matters by the FERC and the Connecticut Department of Public Utility Control (DPUC), and follows the accounting policies prescribed by the respective commissions.
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Revenues l
Other than special contracts, utility revenues are based on authorized rates applied to each customer's use of electricity. Rates can be changed only through a formal proceeding before the appropriate regulatory commission. At the end of each accounting period, CL&P accrues an estimate for the amount of energy delivered but unbilled. _
Spent Nuclear Fuel Disposal Costs Under the Nuclear Waste Policy Act of 1982, CL&P must pay the United States Department of Energy (DOE) for the disposal of spent nuclear fuel and high-level radioactive waste. Fees for nuclear fuel burned on or after April 7,1983 are billed currently to customers and paid to the DOE on a quarterly basis. For nuclear fuel used to generate electricity prior to April 7,1983 (prior-period fuel), payment may be made anytime prior to the first delivery of spent fuel to the DOE. At December 31,1993, fees due to the DOE for the disposal of prior-period fuel were approximately $136.1 million, including interest costs of $69.6 million. As of December 31,1993, approximately $134.5 million had been collected through rates.
Under the Energy Policy Act of 1992 (Energy Act), CL&P is assessed for its proportionate shares of the costs of decontaminating and decommissioning uranium enrichment plants operated by the DOE (D&D assessment). The Energy Act imposes an overall cap of $2.25 billion on the obligation of the commercial power industry and limits the annual special assessment to $150 million each year over a 15-year period beginning in 1993. The Energy Act also requires that regulators treat D&D assessments as a reasonable and necessary cost of fuel, to be fully recovered in rates, like any other fuel cost. The cap and annual recovery amounts will be adjusted annually for inflation. The D&D assessment is allocated among utilities based upon services purchased in prior years. At December 31,1993. CL&P's remaining share of these costs is estimated to be approximately $39.3 million. CL&P has begun to recover these costs.
Accordingly, CL&P has recognized these costs as a regulatory asset, with a corresponding obligation, on its Balance Sheets.
Investments and Jointly Owned Electric Utility Plant Regional Nuclear Generating Companies: CL&P owns common stock of four regional nuclear generating companies (Yankee companies). The Yankee companies, with the company's ownership interests, are:
Connecticut Yankee Atomic Power Company (CY) . . . . . . ......... . 34.5 %
Yankee Atomic Electric Company (YAEC) . . . . . .. .... ........ . 24.5 Maine Yankee Atomic Power Company (MY) ..................... 12.0 Vermont Yankee Nuclear Power Corporation (VY) . . ........... . ... 9.5 CL&P's investments in the Yankee companies are accounted for on the equity basis. The electricity produced by these facilities that are operating is committed to the participants substantially on the basis
1 I
n The Connecticut Lhht and Power Company NOTES TO FINANCIAL STATEMENTS of their ownership interests and is billed pursuant to contractual agreements. For more information on these agreements, see Note 11, ' Commitments and Contingencies - Purchased Power Arrangements.' I i
The 173 megawatt (MW) YAEC nuclear power plant was shut down permanently on February 26,1992.
For more information on the Yankee companies, see Note 3, ' Nuclear Decommissioning.' ,
Millstone 1: CL&P has an 81 percent joint-ownership interest in Millstone 1, a 660 MW nuclear i generating unit. As of December 31,1993, plant-in-service and the accumulated provision for i depreciation included approximately $332 million and $130.8 million, respectively, for CL&P's share of Millstone 1. CL&P's share of Millstone 1 operating expenses is included in the corresponding operating ;
expenses on the accompanying Statements of income.
Millstone 2: CL&P has an 81 percent joint-ownership interest in Millstone 2, a 875 MW nuclear generating unit. As of December 31,1993, plant-in-service and the accumulated provision for depreciation included approximately $676 million and $151.5 million, respectively, for CL&P's share of Millstone 2. CL&P's share of Millstone 2 operating expenses is included in the corresponding operating expenses on the accompanying Statements of Income.
Millstone 3: CL&P has a 52.93 percent joint-ownership interest in Millstone 3, a 1,149 MW nuclear generating unit. As of December 31,1993, plant-in-service and the accumulated provision for depreciation included approximately $1.9 billion and $366.6 million, respectively, for CL&P's share of Millstone 3. CL&P's share of Millstone 3 expenses is included in the corresponding operating expenses 7
(d on the accompanying Statements of income.
Seabrook: As of December 31,1993, CL&P has a 4.06 percent joint-ownership interest in Seabrook 1, a 1,150 MW nuclear generating unit. As of December 31,1993, plant-in-service and the accumulated provision for depreciation included approximately $173.4 million and $17.7 million, respectively, for CL&P's share of Seabrook 1. CL&P's share of Seabrook 1 expenses is included in the corresponding operating expenses on the accompanying Statements of income.
Depreciation The provision for depreciation is calculated using the straight-line method based on estimated remaining lives of depreciable utilrty plant-in-service, adjusted for salvage value and removal costs, as approved by the appropriate regulatory agency. Except for major facilities, depreciation factors are applied to the average plant-in-service during the period. Major facilities are depreciated from the time they are placed in service. When plant is retired from service, the original cost of plant, including costs of removal, less salvage, is charged to the accumulated provision for depreciation. For nuclear production plants, the costs of removal, less salvage, that have been funded through external decommissioning trusts will be paid with funds from the trusts and charged to the accumulated reserve for decommissioning included in the accumulated provision for depreciation over the expected service life of the plants. See Note 3,
' Nuclear Decommissioning / for additional information.
The depreciation rates for the several classes of electric plant-in-service are equivalent to a composite rate of 3.8 percent in 1993,3.7 percent in 1992, and 3.5 oercent in 1991.
Income Taxes The tax effect of temporary differences (differences between the periods in which transactions affect
(~] income in the financial statements and the periods in which they affect the determination of income V
.s. .
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The Connecticut Light and Power Company NOTES TO FINANCIAL STATEMENTS subject to tax) is accounted for in accordance with the ratemaking treatment of the applicable regulatory commissions. See Note 8, ' Income Tax Expense,' for the components of income tax expenses.
In 1992, the Financial Accounting Standards Board (FASB) issued SFAS 109. SFAS 109 supersedes previously issued income tax accounting standards. The company adopted SFAS 109, on a prospective basis, during the first quarter of 1993. At December 31,1993, the deferred tax obligation relating to the adoption of SFAS 109 approximated $1.0 billion. As it is probable that toe increase in deferred tax liabilities will be recovered from customers through rates, CL&P also established a regulatory asset.
SFAS 109 does not permit not- of-tax accounting. Accordingly, the company no longer utilizes net-of-tax accounting for the deferred nuclear plants retum-borrowed funds and allowance for funds used during construction (AFUDC) - borrowed funds.
The temporary drfferences which give rise to the accumulated deferred tax obligation at December 31, 1993, are as follows:
(Thousands of Dollars)
Accelerated depreciation and other plant-related differences . ... ... .. .... .. $1,049,849 The tax effect of net regulatory assets ...... 434,894 Other . . .. ............ . . . . 91.222
$1.575,965 Energy Adjustment Clauses Retail electric rates include a fuel adjustment clause (FAC) under which fossil-fuel prices above or below base-rate levels are charged or credited to customers. Administrative proceedings are required each month to approve the FAC charges or credits proposed for the following month. Monthly FAC rates are also subject to retroactive review and appropriate adjustment by the DPUC each quarter after public hearings.
Beginning in 1979, the DPUC approved the use of a generation utilization adjustment clause (GUAC),
which defers the effect on fuel costs caused by variations from a specified composite nuclear generation capacity factor embedded in base rates. Generally, at the end of a 12-month period ending July 31 of ,
each year, these deferrals are refunded to, or collected from, customers over the subsequent 11-month '
period beginning in September. Should the annual composite nuclear capacity factor fall below the 55 percent GUAC floor, CL&P would have to apply to the DPUC for permission to recover the additional fuel expense associated with nuclear performance below 55 percent.
On January 5,1994, the DPUC issued a decision which ordered CL&P to offset GUAC deferred charges against prior fuel over-recoveries. The disallowance resulted in a zero GUAC rate for the period September 1993 through August 1994. CL&P is considering an appeal of this decision.
The DPUC further ordered that any GUAC deferrals subsequent to July 1993 will be offset by any fuel overrecoveries whenever the composite nuclear capacity factor is below the level embedded in base i rates. For the period August 1993 to December 1993, there have been no further adjustments necessary l as a result of the DPUC's decision. l
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,q The Connecticut Light and Power Company NOTES TO FINANCIAL STATEMENTS The January 5,1994 DPUC decision creates some uncertainty about the future operation of the GUAC.
, CL&P has requested the DPUC to clanfy the portion of the decision related to future calculation of the l GUAC rate. Management does not expect the decision to have a material adverse impact on CL&P's future results of operations. l f For additionalinformation see Note 11, ' Commitments and Contingencies-Nuclear Performance.'
1 Conservation and Load Management Costs Conservation and Load Management (C&LM) costs are recovered through a Conservation Adjustment l l Mechanism (CAM). The DPUC issued an order in April 1993, which allowed CL&P to recover C&LM !
expenditures over an eight-year period and reaffirmed program performance incentives. In December 1993, CL&P filed a proposed CAM settlement with the DPUC. The settlement proposes 1994 C&LM expenditures of $39 million, a reduction in the cost recovery period from 8 to 3.85 years, and other changes in program designs, performance incentives, and cost recovery Unrecovered C&LM costs at December 31,1993 were $111.4 million.
Phase-In Plans As discussed below, CL&P is phasing into rates the recoverable parts of its investments in Millstone 3 and Seabrook 1. All plans are in compliance with Statement of Financial Accounting Standards No. 92, j Regulated Enterprises-Accounting for Phase-in Plans.
As allowed by the DPUC, CL&P is phasing into rate base its allowed investment in Millstone 3. The O
V DPUC has provided for full deferred earnings and carrying charges on the portion of CL&P's allowed investment in Millstone 3 not included in rate base. Through December 31,1993, CL&P had placed into rate base $1.58 billion, or 90 percent, of its allowed investment in Millstone 3. The remaining
$175.7 million, or 10 percent, is to be phased into rate base annually in two 5-percent steps beginning January 1,1994. The amortization and recovery of deferrals through rates began January 1,1988 and will end no later than December 31,1995. As of December 31,1993, $349.6 million of the deferred return, including carrying charges, has been recovered, and $161.9 million of the deferred return to date, plus carrying charges, remains to be recovered.
As allowed by the DPUC, CL&P phased into rate base its allowed investment in Seabrook 1. The DPUC provided for full deferred earnings and carrying charges on the portion of CL&P's allowed investment in Seabrook 1 not included in rate base. Through December 31,1993, CL&P has placed into rate base its full allowed investment in Seabrook 1. The amort'.zation and recovery of deferrals through rates began September 1,1991 and will end no later than August 31,1996. As of December 31,1993, $15.8 million of the deferred return, including carrying charges, has been recovered, and $24.0 million of the deferred return recorded to date, plus canying charges, remains to be recovered.
Cash and Special Deposits Cash and special deposits at December 31,1992 included $10 million in special deposits that was used to redeem $10 million of CL&P's Pollution Control Notes.
- 2. LEASES CL&P and WMECO have entered into the Niantic Bay Fuel Trust (NBFT) capital lease agreement to finance up to $530 million of nuclear fuel for Millstone 1 and 2 and their share of the nuclear fuel for p Millstone 3. CL&P and WMECO make quarterly lease payments for the cost of nuclear fuel consumed O
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- The Connecticut Light and Power Company NOTES TO FINANCIAL STATEMENTS in the reactors (based on a units-of-production method at rates which reflect estimated kilowatt-hours of energy provided) plus financing costs associated with the fuel in the reactors. Upon permanent discharge from the reactors, ownership of the nuclear fuel transfers to CL&P and WMECO.
CL&P has also entered into lease agreements, some of which are capital leases, for the use of substation equipment, data processing and office equipment, vehicles, nuclear control room simulators, and office space. The provisions of these lease agreements generally provide for renewal options. The following rental payments have been charged to operating expense:
Capital Operating Year Leases Leases 1993. . . .. .... $76,549,000 $24,355,000 1992 . ..... .. 61,795,000 26,919,000 1991 ....... . .. 50,998,000 26,320,000 Interest included in capital lease rental payments was $11,298,000 in 1993, $14,782,000 in 1992, and
$15,974,000 in 1991.
Substantially all of the capital lease rental payments were made pursuant to the nuclear fuel lease agreement. Future minimum lease payments under the nuclear fuel capitallease cannot be reasonably estimated on an annual basis due to variations in the usage of nuclear fuel.
Future minimum rental payments, excluding annual nuclear fuel lease payments and executory costs, such as property taxes, state use taxes, insurance, and maintenance, under long-term noncancelable leases, as of December 31,1993, are approximately:
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l The Connecticut Ught and Power Company l 1
(- 1 NOTES TO FINANCIAL STATEMENTS l
Capital Operating Year Leases Leases (Thousands of Dollars) 1994 . ..... ..... .... .. $ 2,800 $ 20,800 1995... . .. .... .... ... 2,800 19,500 1996 . . . .. . .. . 2,800 17,900 1997 .. . . .,...... 2,800 17,200 1998. ........... ... .. . 2,800 12,300
) After 1998 . ... ..... .,. . . 45.000 75.700 Future minimurn lease payments . . . 59,000 $163.400 Less amount representing interest . . 38.300 Present value of future minimum lease payments for other than nuclear fuel ....... .. . ... . 20,700 Present value of future nuclear fuel lease payments ... . . .. 156.700 Total .......... .... ... $177.400
- 3. NUCLEAR DECOMMISSIONING The company's 1992 decommissioning study concluded that complete and immediate dismantlement at retirement continues to be the most viable and economic method of decommissioning the three Millstone units. A 1991 Seabrook decommissioning study also confirmed that complete and immediate, dismantlement at retirement is the most viable and economic method of decommissioning Seabrook 1.
Decommissioning studies are reviewed and updated periodically to reflect changes in decommissioning ;
requirements, technology, and inflation, i The estimated cost of decommissioning CL&P's ownership share of Millstone 1 and 2, in year-end 1993 dollars, is $312.5 million and $251.0 million, respectively. At December 31,1993, the estimated cost of decommissioning CL&P's ownership share of Millstone 3 and Seabrook 1, in year-end 1993 dollars, is
$223.0 million and $14.9 million, respectively. Nuclear decommissioning costs are accrued over the expected service life of the units and are included in depreciation expense on the Statements of income.
Nuclear decommissioning costs amounted to $21.9 million in 1993 and 1992, and $16.2 million in 1991.
Nuclear decommissioning, as a cost of removal, is included in the accumulated provision for depreciation I on the Ba!ance Sheets. '
l CL&P has established independent decommissioning trusts for its portion of the costs of l decommissioning Millstone 1,2, and 3. CL&P's portion of the cost of decommissioning Seabrook 1 is i paid to an independent decommissioning financing fund managed by the state of New Hampshire. l D
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The Connecticut Light and Power Company NOTES TO FINANCIAL STATEMENTS As of December 31,1993, CL&P has collected, through rates, $148.3 mi!! ion, toward the future decommissioning costs of its share of the Millstone units, of which $116.8 million has been transferred to extemal decommissioning trusts. As of December 31,1993, CL&P has paa approximately $860,000 into Seabrook 1's decommissioning financing fund. Earnings on the decommissioning trusts and financing fund increase the decommissioning trust balance and the accumulated reserve for decommissioning. At December 31,1993, the balance in the accumulated reserve for decommissioning amounted to $179.1 million.
Changes in requirements or technology, or adoption of a decommissioning method other than immediate dismantlement, could change decommissioning cost estimates. CL&P attempts to recover sufficient amounts through its allowed rates to cover its expected decommissioning costs. Only the portion of currently estimated total decommissioning costs that has been accepted by the regulatory agencies is reflected in CL&P's rates. Although allowances for decommissioning have increased significantly in recent years, ratepayers in future years will need to increase their payments to offset the effects of any insufficient rate recoveries in previous years.
CL&P, along with other New England utilities, has equity investments in the four Yankee companies.
Each Yankee company owns a single nuclear generating uriit. The estimated costs, in year-end 1993 dollars, of decommissioning CL&P's ownership share of CY and MY, are $117.3 million and $38.8 million, respectively. The cost to decommission VY is currently being re-estimated. The cost of decommissioning CL&P's ownership share of VY is projected to range from $28.5 million to $33.3 million.
As discussed in the following paragraph, YAEC's owners voted to permanently shut down the YAEC unit on February 26,1992. Unrier the terms of the contracts vnth the Yankee companies, the shareholders-sponsors are responsible for their proportionate share of the operating costs of each unit, including decommissioning. The nuclear decommissioning costs of the Yankee companies are included as part of CL&P's cost of power.
YAEC has begun decommissioning its nuclear facility. On June 1,1992, YAEC filed a rate filing to obtain FERC authorization to collect the closing and decommissioning costs and to recover the remaining investment in the YAEC nuclear power plant, over the remaining period of the plant's Nuclear Regulatory Commission (NRC) operating license. The bulk of these costs has been agtsed to by the YAEC joint owners and approved, as a settlement, by FERO. At December 31,1993, the estimated remaining costs amounted to $345.0 million, of which CL&P's share was approximately $84.5 million. Management expects that CL&P will continue to be allowed to recover such FERC-approved costs from its customers.
Accordingly, CL&P has recognized these costs as a regulatory asset, with a corresponding obligation, on its Balance Sheets. CL&P has a 24.5 percent equity investment, approximating $5.9 million, in YAEC.
CL&P had relied on YAEC for less than 1 percent of its capacity.
- 4. SHORT-TERM DEBT The system companies have various credit lines, totalling $485 million. NU, CL&P, WMECO, HWP, NNECO, and The Rocky River Realty Company (RRR) have established a revolving credit facility with a group of 17 banks. Under this facility, the participating companies may borrow up to an aggregate of
$360 million. Individual borrowing limits are $175 million for NU, $360 million for CL&P, $75 million for WMECO, $8 million for HWP, $60 million for NNECO, and $25 million for RRR. The system companies may borrow funds on a short-term revolving basis using either fixed-rate loans or standby loans. Fixed rates are set using competitive bidding. Standby-loan rates are based upon several alternative variable rates. The system companies are obligated to pay a facility fee of 0.20 percent of each bank's total
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U The Ccnnecticut Light and Power Company i NOTES TO FINANCIAL STATEMENTS commitment under the three-year portion of the facility, representing 75 percent of the total facility, plus ;
.135 percent of each bank's total commitment under the 364-day portion of the facility, representing 25 percent of the total facility. At December 31,1993, there were $22.5 million of borrowings under the facility, $5 million attributable to CL&P Certain subsidiaries of NU, including CL&P, are members of the Northeast Utilities System Money Pool (Pool). The Poul provides a more efficient use of the cash resources of the system, and reduces outside short-term borrowings. NUSCO administers the Pool as agent for the member companies. Snort-term borrowing needs of the member companies are first met with available funds of other member companies, including funds borrowed by NU parent. NU parent may lend to the Pool but may not borrow. Investing and borrowing subsidiaries receive or pay interest based on the average daily Federal Funds rate. Funds may be withdrawn from or repaid to the Pool at any time without prior notice. 3 However, borrowings based on loans from NU parent bear interest at NU parent's cost and must be repaid based upon the terms of NU parent's original borrowing. ,
Maturities of CL&P's short-term debt obligations are for periods of three months or less.
The amount of short-term borrowings that may be incurred by the company is subject to periodic approval by the SEC under the 1935 Act. In addition, the charter of CL&P contains provisions restricting i the amount of short-term borrowings. Under the SEC and/or charter restrictions, the' company was authorized, as of January 1,1993, to incur shon-term borrowings up to a maximum of $375 million. ;
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The Connecticut Light and Power Company NOTES TO FINANCIAL STATEMENTS
- 5. PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPDON Details of preferred stock not subject to mandatory redemption are:
December 31, Shares 1993 Outstanding Redemption December 31 December 31.
Description Price 1993 1993 1992 1991 (Thousands of Dollars)
$1.90 Series of 1947 . . . ... $52.50 163,912 $ 8,196 $ 8,196 $ 8,196
$2.00 Series of 1947 . . . ... 54.00 336,088 16,804 16,804 16,804
$2.04 Series of 1949 . . 52.00 100,000 5,000 5,000 5,000
$2.06 Series E of 1954. ... 51.00 200,000 10,000 10,000 10,000
$2.09 Series F of 1955 . . . . . 51.00 100,000 5,000 5,000 5,000
$2.20 Series of 1949 . . . . . 52.50 200,000 10,000 10,000 10,000
$3.24 Series G of 1968 . .. 51.84 300,000 15,000 15,000 15,000
$3.80 Series J of 1971. ..... - - - 20,000 20,000
$4.48 Series H of 1970 .. .
- - - 15,000 15,000
$4.48 Series I of 1970 . . .
20,000 20,000
$4.56 Series K of 1974 . . .... - - - - 50,000 3.90% Series of 1949 ... ... 50.50 160,000 8,000 8,000 8,000 4.50% Series of 1956 . . . . ... 50.75 104,000 5,200 5,200 5,200 4.50% Series of 1963 .... .. 50.50 160,000 8,000 8,000 8,000 4.96% Series of 1958 ...... 50.50 100,000 5,000 5,000 5,000 5.28% Series of 1967 .. .... 51.43 200,000 10,000 10,000 10,000 6.56% Series of 1968 . . . . . .. 51.44 200,000 10,000 10,000 10,000 7.60% Series of 1971 ... .... - - - 9,996 9,996 9.36% Series of 1970 . . . .... - - - -
10,000 9.60% Series of 1974 . . . . ... - - - -
14,999 1989 Adjustable Rate DARTS .... ... . . ... .. 25.00 2,000,000 50.000 50.000 50,000 Total preferred stock not subject to mandatory redemption .... $166,200 $231,196 $306.195 All or any part of each outstanding series of such preferred stock may be redeemed by the company at any time at established redemption prices plus accrued dividends to the date of redemption.
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,q The Connecticut Light and Power Company U NOTES TO FINANCIAL STATEMENTS
- 6. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION Details of preferred stock subject to mandatory redemption are:
December 31, Shares 1993 Outstanding Redemption December 31, December 31.
Description Price
- 1993 1993 1992 1991 (Thousands of Dollars)
$5.52 Series L of 1975 . . . . . $- -
$ - $ 1,926 10.48% Series of 1980 ...... - - - -
14,000 11.52 % Series of 1975 . ,... - - - -
966 9.10% Series of 1987 . . ... - - -
50,000 50,000 9.00% Series of 1989 . . . . . . . 26.65 3,000,000 75,000 75,000 75,000 7.23 % Series of 1992 . . ... 52.41 1,500,000 75,000 75,000 -
5.30% Series of 1993 . . . . . 51.00 1,600,000 80.000 - -
230,000 200,000 141,892 Less preferred stock to be redeemed within one year . . . . . -
2.500 2.500
- O Total preferred stock subject to mandatory redemption . . . . . $230,000 $197,500 $139,392
- Redemption prices reduce in future years.
The following table details redemption and sinking fund activity for preferred stock subject to mandatory redemption:
Minimum Annual Shares Reacavired Sinking Fund Series Reouirement 1993 1992 1991 (Thousands of Dollars) l l
$5.52 Series L of 1975 $- - 38,524 40,000 1 10.48% Series of 1980 - -
280,000 40,000 1 11.52% Series of 1975 - -
19,318 20,008 9.10% Series of 1987 -
2,000,000 - -
9.00% Series of 1989 (1) 3,750 - - -
7.23% Series of 1992 (2) 3,750 - - -
5.30% Series of 1993 (3) 16,000 - - -
l (1) Sinking fund requirements commence October 1,1995.
(2) Sinking fund requirements commence September 1,1998, tG (3) Sinking fund requirements commence October 1,1999.
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The Corinecticut Light and Power Company NOTES TO FINANCIAL STATEMENTS The minimum sinking-fund provisions of the series subject to mandatory redemption, for the years 1994 through 1998, aggragate approximately $0 in 1994, $3,750,000 in 1995,1996, and 1997, and
$7,500,000 in 1998. In case of default on sinking-fund payments or the payment of dividends, no payments may be made on any junior stock by way of dividends or otherwise (other than in shares of junior stock) so long as the default continues. If the company is in arrears in the payment of dividends on any outstanding shares of preferred stock, the company would be prohibited from redemption or purchase of less than all of the preferred stock outstanding. All or part of each of the series named above may be redeemed by the company at any time at established redemption prices plus accrued dividends to the date of redemption, subject to certain refunding limitations.
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The Connecticut Light and Power Company NOTES TO FINANCIAL STATEMENTS
- 7. LONG. TERM DEBT Details of long-term debt outstanding are:
December 31.
1993 1992 (Thousands of Dollars)
First Mortgage Bonds:
41/4% Series 1963 due 1993 . . . . . . . . . . . . . . . . . . $ -
$ 15,000 -
81/2% Series PP due 1993 . . . . . . . . . . . . . . .. - 125,000 f 41/2% Series 1964 due 1994 ................... 12,000 12,000 41/4% Series WW due 1994 ................... 170,000 170,000 55/8% Series 1967 due 1997 ... ........ ..... 20,000 20,000 6% Series S due 1997 . . . . . ........ ... 30,000 30,000 75/8% Series UU due 1997 ..... .......... 200,000 200,000 67/8% Series U due 1998 . ......... .... .. 40,000 40,000 71/8% Series 1968 due 1998 .. ....... ........ 25,000 25,000 61/2% Series T due 1998 ... ........ ..... 20,000 20,000 61/2% Series 1968 due 1998 ................... 10.000 -10,000 71/4% Series W due 1999 ..... ............. 100,000 100,000 83/4% Series V due 2000 . . . . . . . . . ........ -
40,000 87/8% Series W due 2000 . . . . . . . . . . . . . . . . .. -
40,000 53/4% Series XX due 2000 . . . . . . . . . . . . . . . .. 200,000 0
73/8% Series X due 2001 ............ ...... 30,000 30,000 7 5/8% Series 1971 due 2001 ....... ........... 30,000 30,000 71/2% Series 1972 due 2002 . . ..... .... . ... 35,000 35,000 75/8% Series Y d u e 2002 . . . . . . . . . . . . . . . . . . . 50,000 50,000 75/8% Series Z due 2003 . . . . . . . . . . . . . . . . .. 50,000 50,000 71/2% Series 1973 due 2003 ... ............... 40,000 40,000 83/4% Series AA due 2004 . ............ ,.. -
65,000 91/4% Series 1974 ' due 2004 .......... ........ - 30,000 87/8% Series DD due 2007 . . . . . . . . . . . . . . . . . . . - 45,000 91/4% Series EE due 2008 . . . . . . . . . . . . . . . . . . . -
40,000 93/8% Series 1978 due 2008 . . . . . ............. -
40,000 93/4% Series 00 due 2018 . . . . . . . . . . . . ...... 75,000 75,000 91/2% Series RR due 2019 . . . . . ............. 75,000 75,000 93/8% Series SS due 2019 . . . . . . . . . . . . . . . . . . 75,000 75,000 73/8% Series TT due 2019 . . . . . . . . . . . . . . . . . . . 20,000 20,000 71/2% Series YY due 2023 . . . . . . . . . . . . . . . . . . . 100,000 -
73/8% Series 22 due 2025 . . . . . .., .......... 125.000 -
Total First Mortgage Bonds . . . . . . . . . . . . . . . . . $1,532,000 $1,547,000 U.
1 The Connecticut Light and Power Company l
NOTES TO FINANCIAL STATEMENTS December 31.
1993 1992 (Thousands of Dollars)
Pollution Control Notes:
5.90%, due 1998 ... ... ...... ... .... . . $ -
$ 6,197 6.50%, due 2007 ... .... ... ... . . .. ..... -
16,000 Variable rate, due 2013-2022 .... .. . .... ... 46,400 350,100 Tax exempt, due 2028 . ... . .. . .. ...... .. 315,500 -
Fees and interest due for spent fuel disposal costs . . . . . . . . . . ... . ...... 136,125 132,015 Other . . ... .. .... . . ....., ... 35,417 41,493 Less amounts due within one year . . . . ... . . . .. 314,020 157,104 Unamortized premium and discount, net . .. . (8.162) (4.869)
Long-term debt, net . . . . .. . ... .... ..... . $1,743,260 $1,930,832 Long term debt maturities and cash sinking-fund requirements on debt outstanding at December 31, 1993 for the years 1994 through 1998 are approximately: $189,020,000, $8,111,000, $9,372,000,
$260,828,000, and $95,011,000, respectively. Also, $125 million of first mortgage bonds outstanding at December 31,1993 had been called in December 1993 for redemption in 1994. In addition, there are annual one percent sinking- and improvement-fund requirements, currently amounting to
$13,950,000 for the year 1994, $12,250,000 for 1995,1996, and 1997, and $9,750,000 for 1998.
Such sinking- and improvement-fund requirements may be satisfied by the deposit of cash or bonds or by certification of property additions.
All or any part of each outstanding series of first mortgage bonds may be redeemed by the company at any time at established redemption prices plus accrued interest to the date of redemption, except certain series which are subject to certain refunding limitations during their respective initial five-year redemption periods.
Essentially all of the company's utility plant is subject to the lien of its first mortgage bond indenture.
As of December 31,1993, the company has secured $315.5 million of pollution control notes with second mortgage liens on Millstone 1, junior to the liens of its first mortgage bond indentures.
CL&P has entered into an interest-rate cap contract to reduce the potential impact of upward changes in interest rates on certain variable-rate tax-exempt pollution control revenue bonds.
Approximately $340 million of total outstanding long-term variable-rate debt is secured by this interest rate cap. The total cost of the interest-rate cap for 1993 was approximately $2.9 million, the cost of which is amortized over the terms of the contract, which is three years. The fair market value of the interest-rate cap contract as of December 31,1993 is approximately $388,000.
Fees and interest due for spent fuel disposal costs are scheduled to be paid to the United States Department of Energy just prior to the first delivery of prior-period spent fuel, which is anticipated to be in 1998. Until such payment is made, the outstanding balance will continue to accrue interest at the three-month Treasury Bill Yield Rate. For additional information, see Note 1 of the accompanying Notes to Financial Statements.
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l q The Connecticut Light and Power Compar:y V NOTES TO FINANCIAt. STATEMENTS
- 8. INCOME TAX EXPENSE The components of the federal and state income tax provisions charged to operations are:
For the Years Ended December 31, 1993 (Note 1) 1992 1991 (Thousands of Dollars)
Current income taxes:
Federal
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State . . .
.... .. . . $ 115,403 44.473
$ 61,773 27.153
$ 33,717 18.782 l Total current . . . .... . . . 159.876 88.926 52.499 Deferred income taxes, net:
Federal . . . . 3,808 60,788 88,554 State . l (12.987) 11.833 26.430 Total deferred . {
(9.179) 72.621 114.984 j i
investment tax credits, net . . . .. . (11.009) (6.230) (6,230) l l
Totalincome tax expense . .... . $ 139.688 $155,317 $161.253 l O
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locome taxes charged to operating expenses ... .... ... . . . .. . $144,547 $172,236 $173,102 Income taxes associated with the -
amortization of deferred nuclear plants return borrowed funds . . . . . . . . ..... .. -
(15,157) (12,263) locome taxes associated with AFUDC and deferred nuclear plants return -
borrowed funds . . ... .. .... . . ... . -
9,409 13,418 Other income taxes - credit . . . ..... . ... (4.859) (11.171) (13.004)
Total income tax expense . . .. .. . .... . $139,688 $155.317 $161,253 l
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The Connecticut Light and Power Company NOTES TO FINANCIAL STATEMENTS Deferred income taxes are comprised of the tax effects of temporary differences as follows:
For the Years Ended December 31. 1993 (Note 1) 1992 1991 (Thousands of Dollars)
Depreciation, leased nuclear fuel, settlernent credits, and disposal costs . .. .. .... . ... ... $ 42,663 $ 43,715 $ 49,636 Conservation and load management . .. . .... . 9,156 13,506 22,594 Postretirement benefits accrual . .... . . .. (2,579) - -
Energy adjustment clauses . . . .. .... . . . (52,189) 12,627 47,483 AFUDC and deferred nuclear plants return, net . (13,741) (5,748) 1,155 Early retirement program . . . . . . . (3,355) 3,988 (9,718)
Pension accrual ... . . .. . . . 3,553 885 (351)
Settlement, canceled independent power plants -
7,251 -
Loss on bond redemption ..... .. . . . 8,145 10 -
Other . . . ... . ... .. ..... .
(832) (3.613) 4.185 Deferred income taxes, net .. ... .. G (9.179) $ 72,621 $114,984 A reconciliation between income tax expense and the expected tax expense at the applicable statutory rate is as follows:
For the Years Ended December 31, 1993 (Note 1) 1992 1991 (Thousands of Dollars)
Expected federal income tax at 35 percent of pretax income for 1993 and 34 percent for 1992 and 1991 $115,898 $12'3,091 $136,704 Tax effect of differences:
Depreciation differences . . . . . . . . .. .. . .. 19,264 15,826 10,647 Deferred nuclear plants return - other funds .. (8,294) (12,035) (12,483)
Amortization of nuclear plants return -
other funds . . . .. ... . . . ... .. 18,648 14,511 12,918 Property tax differences . . . . . .... . ... .
(i?.320) (732) 502 lovestment tax credit amortization . .... . . (11,000) (6,230) (6,230)
State income taxes, net of federal benefit . ... .. ...... .. . ... .. . 20,466 25,730 29,987 Adjustment for prior years taxes . .. . . (2,330) (3,500) (7,000)
Other, net .. .. . .... ... . . _ (635) (1.344) (3.792)
Total income tax expense . . . . . .. .. ... .... $139.688 $155.317 $161.253 0
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- p The Connecticut Light and Power Company
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NOTES TO FINANCIAL STATEMENTS
- 9. PENSION BENEFITS The company participates in a uniform noncontributory defined benefit retirement plan covering all regular system employees (the Plan). Benefits are based on years of se:vice and employees' highest eligible compensation during five consecutive years of employment. The company's direct-allocated portion of the system's pension cost, part of which was charged to utility plant, i approximated $7.6 million in 1993, ($1.7) million in 1992, and $10.8 million in 1991. The company's pension costs for 1993 and 1991 include approximately $13.1 m!Ilion and $10.0 million, respectively, related to work force reduction programs.
Currently, the company funds annually an amount at least equal to that which will satisfy the requirements of the Employment Retirement income Security Act and the Internal Revenue Code.
Pension costs are determined using market-related values of pension assets. Pension assets are invested primarily in domestic and international equrty securities and bonds.
The components of the Plan's net pension cost for the system (excluding PSNH and NAESCO in 1992 and 1991) are:
For the Years Ended December 31. 1993 1992 1991 (Thousands of Dollars)
Ci Service cost . . .... ................ % 59,068 $ 27,460 $ 48,738 O interest cost . . . . . . . . . ................ 81,456 69,746 71,041 Return on plan assets . ............ g176,798) (77,232) (198,437)
Net amortization . . . . . . . . . . . . .. ....... 65.447 (16.266) 108.175 Net pension cost . ........ ... ....... $ 29,173 $ 3,728 $29,517 For calculating pension cost, the following assumptions were used-For the Years Ended December 31. 1993 1992 1991 _
Discount rate . .. ... ..... ........ 8.00% 8.50 % 9.00 %
Expected long-term rate '
of return . ............ .......... .. 8.50 9.00 9.70 Compensation / progression rate . . . . . . . .. 5.00 6.75 7.50 1
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The Connecticut Light and Power Company NOTES TO FINANCIAL STATEMENTS The following table represents the Plan's funded status reconciled to the NU Consolidated Balance Sheets:
At December 31. 1993 1992 (Thousands of Dollars)
Accumulated benefit oblipation, including $817,421,000 of vested benefits at December 31,1993 and
$719,608,000 of vested benefits at December 31,1992. ... .... .. . .. $ 898,788 $ 764,432 Projected benefit obligation . . . ..... .. $1,141,271 $1,055,295 Less: Market value of plan assets . ... 1.340.249 1.226.468 Market va!ue in excess of projected benefit obligation . . . . . . ..... . .... 198,978 171,173 Unrecoenized transition amount ... . . . (16,735) (18,277)
Unreccgnized prior service costs . . .. .. 10,287 8,658 Unrecognized net gain .. ...... . . (275.043) (214.894)
Accrued pension liability . . . ... ... . .. $ (82.513) $ (53,340)
O The following actuarial assumptions were used in calculating the Plan's year-end funded status:
At December 31. 1993 1992 Discount rate . . ... . . .. ...... 7.75% 8.00 %
Compensation / progression rate . . . . . . . . . . 4.75 5.00 The discount rate for 1993 was determined by analyzing the interest rates, as of December 31,1993, ;
of long-term high-quality corporate debt securities having a duration comparable to the 13.8-year l duration of the plan. !
During 1993, NU's work force was reduced by approximately 7 percent through a work force reduction program that involved an early retirement program and involuntary terminations. CL&P's ;
direct cost of the program, which approximated $14.8 million, included pension, severance, and other benefits. )
- 10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS i The company provides certain health care benefits, primarily medical and dental, and life insurance benefits through a benefit plan to retired employees. These benefits are available for employees leaving the company who are otherwise eligible to retire and have met specified service requirements. Through December 31,1992, the company recognized the cost of these benefits as
A The Connecticut Light and Power Company
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NOTES TO FINANCIAL STATEMENTS they were paid. In December 1990, the FASB issued SFAS 106. This new standard requires that the expected cost of postretirement benefits, primarily health and life insurance benefits, must be charged to expense during the years that eligible employees render service. Effective January 1, 1993, the company adopted SFAS 106 on a prospective basis. Total health care and life insurance cost, part of which were deferred or charged to utility plant, approximated $23,170,000 in 1993,
$8,791,000 in 1992, and $7,525,000 in 1991.
On January 1,1993, the accumulated postretirement benefit obligation (APBO) represented the company's prior-service obligation upon the adoption of SFAS 106. As allowed by SFAS 106, the l company is amortizing its APBO of approximately $164 million over a 20-year period. For current employees and certain retirees, the total SFAS 106 benefit is limited to two times the 1993 health care costs. The SFAS 106 obligation has been calculated based on this assumption.
During 1993, the company did not fund SFAS 106 postretirement costs through external trusts. The company expects to fund annually amounts once they have been rate recovered and which also are tax-deductible under the internal Revenue Code.
The following table represents the plan's funded status reconciled to the Balance Sheet at December 31,1993:
n (b} Accumulated postretirement (Thousands of Dollars) benefit obligation of:
Retirees .... ............. .... ........
$(119,520)
Fully eligible active employees . . ........ ... (288)
Active employees not eligible to retire . . . . . . . , . . (29.270)
Total accumulated postretirement benefit obligation (149,078)
Unrecognized transition amount . . . ..... .... 139,539 Unrecognized net gain . . . . . . . . . . . . . . . . . . . . . . (2.591)
Accrued postretirement benefit liability . . . . . . ... $ (12.130)
The components of health care and life insurance costs for the year ended December 31,1993 are:
(Thousands of Dollars)
Seryice cost . . . . ................ ..... $ 3,397 Interest cost . .. ... .......... ........ . 12,091 Net amortization . . ............... ........ 7.682 Net health care and life insurance costs . . , . . . . . . $23.170 A
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The Connecticut Light and Power Company NOTES TO FINANCIAL STATEMENTS l
For measurement purposes, an 11.1 percent annual rate of increase in the per capita cost of covered '
health care benefits was assumed for 1993; the rate was assumed to decrease to 5.4 percent for 2002. The effect of increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, ,
1993 by $10.5 million and the aggregate of the service and interest cost components of net periodic I postretirement benefit cost for the year then ended by $1.0 million. l The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.75 percent. The discount rate for 1993 was determined by analyzing the interest rates, as of December 31, 1993, of the long-term, high-quality corporato debt securities having a duration comparable to that of the plan.
CL&P has received approval from the DPUC to defer and recover the incremental SFAS 106 postretirement costs within eight years.
- 11. COMMITMENTS AND CONTINGENCIES Construction Program The construction program is subject to periodic review and revision. Actual construction expenditures may vary from such estimates due to factors such as revised load estimates, inflation, revised nuclear safety regulations, delays, difficulties in the licensing process, the availability and cost of capital, and the granting of timely and adequate rate relief by regulatory commissions, as well as actions by other regulatory bodies.
CL&P currently forecasts construction expenditures (including AFUDC) of approximately $741.8 million for the years 1994-1998, inciuding $157.8 million for 1994. In addition, the company estimates that nuclear fuel requirements, including nuclear fuel financed through the NBFT, will be approximately $317.7 million for the years 1994-1998, including $74.6 million for 1994. See Note 2,
' Leases,' for additional information about the financing of nuclear fuel.
Nuclear Performance Outages that occurred over the period October 1990 through February 1992 at the Millstone nuclear units have been the subject of five ongoing prudence reviews in Connecticut. CL&P has received final decisions on four of the reviews. The Office of Consumer Counsel has appealed decisions favorable to the company in two dockets. The exposure under these two dockets is approximately
$66 mil! ion. The DPUC has suspended a third docket, pending the outcome of one of the appeals.
The exposure under this docket is $26 million. The only remaining nuclear outage prudence docket before the DPUC is the docket established to review the 1992 outage at Millstone 2 to replace the steam generators. A decision is expected in late 1994. Management believes that its actions with respect to these outages have been prudent, and it does not expect the outcome of the prudence reviews to result in material disallowances.
Environmental Matters CL&P is subject to regulation by federal, state, and local authorities with respect to air and water quality, handling and the disposal of toxic substances and hazardous and solid wastes, and the handling and use of chemical products. CL&P has an active environmental auditing program to prevent, detect, and remedy noncompliance with environmental laws or regulations and believes that it is in substantial compliance with current environmental laws and regulations. Changing The Connecticut Light and Power Company NOTES TO FINANCIAL STATEMENTS environmental requirements could hinder the construction of new fossil-fuel envkonmental generating units, transmission, and distribution lines, cubstations, and other facilities. The cumulative long-term economic cost impact of increasingly stringent environmental requirements cannot be estimated.
Changing environmental requirements could also require extensive and costly modifications to CL&P's existing hydro, nuclear, and fossil-fuel generating units, and transmission and distribution I systems, and could raise operating costs significantly. As a result, CL&P may incur significant I additional environmental costs, greater than amounts included in cost of removal and other reserves, l
in connection with the generation and transmission of electricity and the storage, transportation, and dispcsal of by-products and wastes. CL&P may also encounter significantly increased costs to f remedy the environmental effects of prior waste handling and disposal activities.
1 CL&P has recorded a liability for what it believes is, based upon information currently available, the estimated environmental remediation costs for waste disposal sites for which it expects to bear lega!
liability. To date, these costs have not been material with respect to the earnings or financial position of the company. In most cases, the extent of additional future environmental cleanup costs is not estimable due to factors such as the unknown magnitude of possible contamination, the appropriate remediation method, the possible effects of future legislation and regulation, the possible effects of ;
technological changes related to future cleanup, and the difficulty of determining future liability, if l any, for the cleanup of sites at which CL&P has been informed that it may be determined to be legally liable by the federal or state environmental agencies. In addition, CL&P cannot estimate the i potential liability for future claims that may be brought against it by private parties. However, '
considering known facts and existing laws and regulatory practices, management does not believe that such matters will have a material adverse effect on CL&P's financial position or future results of A
operations. At December 31, 1993, the liability recorded by CL&P for its estimated environmental remediation costs, excluding any possible insurance recoveries or recoveries from third parties, amounted to $2.9 million. However, in the event that it becomes necessary to effect environmental remedies that are currently not considered probable for the sites for which CL&P has recorded a liability, it is reasonably possible that, based on information currently available and management intent, that the upper limit of CL&P's environmental liability range could increase to appioximately
$5.8 million.
Nuclear Insurance Contingencies The Price-Anderson Act currently limits public liability from a single incident at a nuclear power plant to $9.4 billion. The first $200 million of liability would be provided by purchasing the maximum amount of commercially available insurance. Additional coverage of up to a total of $8.8 billion would be provided by an assessment of $75.5 million per incident, levied on each of the 116 nuclear units that are currently subject to the Secondary Financial Protection Program in the United States, subject ,
to a maximum assessment of $10 million per incident per nuclear unit in any year. In addition, if the sum of all public liability claims and legal costs arising from any nuclear incident exceeds the maximum amount of firiancial protection, each reactor operator can ce assessed an additional 5 percent, up to $3.8 million, or $437.9 million in total, for all 116 nuclear units. The maximum {
assessment is to be adjusted at least every five years to reflect inflationary changes. Based on CL&P's ownership interests in Millstone 1,2, and 3, and Seabrook 1, CL&P's maximum liability would be $173.6 million per incident. In addition, through CL&P's power purchase contracts with the four Yankee regional nuclear generating companies, CL&P would be responsible for up to an additional
$63.8 rnillion per incident. Payments for CL&P's ownership interest in nuclear generating facilities
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would be limited to a maximum of $29.9 million per incident per year.
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The Connecticut Light and Power Company NOTES TO FINANCIAL STATEMENTS Insurance has been purchased from Nuclear Electric Insurance Limited (NEIL) to cover: (1) certain extra costs incurred in obtaining replacement power during prolonged accidental outages with respect to CL&P's ownership interests in Millstone 1,2, and 3, Seabrook 1, and CY; and (2) the cost of repair, replm. ent, or decontamination or premature decommissioning of utility property resulting from occum rm with respect to CL&P's ownership interests in Millstone 1, 2, and 3, Seabrook 1, CY, MY, and VY. All companies insured with NEIL are subject to retroactive assessments if losses exceed the accumulated funds available to NEIL The maximum potential assessments against CL&P, with respect to losses arising during current policy years are approximately $9.7 million under the replacement power policies and $18.9 million under the property damage, decontamination, and decommissioning policies. Although CL&P has purchased the limits of coverage currently available from the conventional nuclear insurance pools, the cost of a nuclear incident could exceed available insurance proceeds, insurance has been purchased from American Nuclear Insurers / Mutual Atomic Energy Liability Underwriters, aggregating $200 million on an industry basis for coverage of worker claims. All companies insured under this coverage are subject to retrospective assessments of $3.2 million per reactor. The maximum potential assessments against CL&P with respect to losses arising during the current policy period are approximately $9.6 million.
Financing Arrangements for the Regional Nuclear Generating Companies CL&P believes that the regional nuclear generating companies may require additional external financing in the next several years for construction expenditures, nuclear fuel, possible refinancings, and other purposes. Although the ways in which each regional nuclear generating company will attempt to finance these expenditures has not been determined, CL&P may be asked to provide direct or indirect financial support for one or more of these companies. ,
Purchased Power Arrangements CL&P purchases a portion of their electricity requirements pursuant to long-term contracts with the Yankee companies. Under the terms of its agreements, the company pays its ownership share (or entitlement share) of generating costs, which include depreciation, operation and maintenance expenses, the estimated cost of decommissioning, and a return on invested capital. These costs are recorded as purchased power expense, and are recovered through the company's rates. The total cost of purchases under these contracts for the units that are operating amounted to $112.3 million in 1993, $103.2 million in 1992, and $99.7 million in 1991. See Note 1, ' Summary Of Significant Accounting Policies - Investments and Jointly Owned Electric Utility Plant' and Note 3, ' Nuclear Decommissioning
- for more information on the Yankee companies.
CL&P has entered into various arrangements for the purchase of capacity and energy from nonutility generators. Some of these arrangements generally have terms from 10 to 30 years, and require the company to purchase the energy at specified prices or formula rates. For the 12 months ended December 31,1993,14 percent of NU system load requirements was met by cogenerators and small power producers. The total cost of the company's purchases under these arrangements amounted to $279.8 million in 1993, $267.3 million in 1992, and $237.6 million in 1991. These costs are eventually recovered through the company's rates.
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p The Connecticut Light and Power Company NOTES TO FINANCIAL STATEMENTS The estimated annual cost of CL&P's significant purchase power arrangements is provided below:
(in Millions) 1994 1995 1996 1997 1998 Yankee companies . . ... . $106,6 $109.2 $121.5 $111.8 $126.5 Nonutility generators .... .. ... 293.7 303.3 313.1 313.6 324.9 Hydro-Quebec Along with other New England utilities, CL&P, PSNH, WMECO. and HWP entered into agreements to support transmission and terminal facilities to import electricity from the Hydro-Quebec system in Canada. CL&P, PSNH, WMECO, and HWP, in the aggregate, are obligated to pay, over a 30-year period, their proportionate share of the annual operation, maintenance, and capital costs of these facilities, which are currently forecast to be $172.1 million for the years 1994-1998, including $37.2 million for 1994.
Great Bay Power Corporation CL&P and The United lliuminating Company, an unaffiliated company, have agreed t'o make certain advances up to $20 million to cover shortfalls in the funding of the 12.13 percent ownership interest in Seabrook 1 of Great Bay Power Corporation, an unaffiliated company. CL&P's share of this O commitment is limited to 60 percent of the advances, or $12 million. As of December 31,1993, V $1,047,000 of advances from CL&P were outstanding under this agreement.
Property Taxes '
CY has a significant court appeal pending for its property tax assessment in the town of Haddam, Connecticut, concerning production plant. The central issue is the fair market value of utility property. The company believes that a properly derived assessment that recognizes the effect of rate regulation will result in a fair market value that approximates net book cost. This is the assessment level that taxing authorities are predominantly using throughout Connecticut, Massachusetts, and some of New Hampshire. However, towns such as Haddam advocate a method that approximates reproduction cost. The company estimates that, for the Haddam assessment, the change to a reproduction cost-methodology could result in a property tax valuation approximately three times greater than a value approximating net book cost. Although CY is currently paying property taxes based on the higher assessment, to date, the higher assessment has not had a material adverse effect on it or the company.
The company believes that assessment levels that approximate net book cost accurately reflect the fair market value of regulated utility property. However, because of uncertainties associated with the court appeal and the potential impact of an adverse court decision on property tax assessment policy in Connecticut, the company cannot estimate the potential effect of an adverse court decision on future results of operations or financial condition. However, the company believes that, based upon past regulatory practices, it would be allowed to recover any increased property tax assessment prospectively beginning at the time new rates are established.
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The Connecticut Light and Power Company j NOTES TO FINANCIAL STATEMENTS
- 12. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each of the following financial instruments: I Cash, special deposits, and nuclear decommissioning trusts: The canying amounts approximate fair value.
Preferred stock and long-term debt: The fair value of CL&P's fixed rate securities is based upon the quoted market price for those issues or similar issues. Adjustable rate securities are assumed to have a fair value equal to their carrying value.
The carrying amounts of CL&P's financial instruments and the estimated fair values are as follows:
Carrying Fair At December 31,1993 Amount Value (Thousands of Dollars)
Preferred stock not subject to mandatory redemption . . . ... $ 166,200 $ 128,826 Preferred stock subject to mandatory redemption .. ..... ....... . 230,000 240,400 Long-Term Debt:
First Mortgage Bonds ........ ... ............ ..... ... . 1,532,000 1,580,396 Other long-term debt ... ,. .... . ..... . . .. . ..... .. 533,442 539,518 Carrying Fair At December 31.1992 Amount Value (Thousands of Dollars)
Preferred stock not subject to mandatory redemption . . . ........ . $ 231,196 $ 184,910 Preferred stock subject to mandatory redemption . . . . . . . . . . . . . .... . 200,000 208,750 Long-Term Debt:
First Mortgage Bonds ....... ............ .. ........... 1,547,000 1,594,643 Other long-term debt . . . .. . .. .... ........ . ....... 545,805 545,805 The fair values shown above have been reported to meet disclosure requirements and do not purport to represent the amounts that those obligations would be settled at.
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- O The Connecticut Light and Power Company NOTES TO FINANCIAL STATEMENTS In May 1993, the FASB issued Statement of Financial Accounting Standards No.115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115). SFAS 115 requires companies to disclose the classification of investments in debt or equity securities based on management's intent and ability to hold the security. SFAS 115 also requires disclosure of the aggregate fair value, gross unrealized holding gains, g oss unrealized holding losses and amortized cost basis by major security type. Effective January 1,1994, CL&P will adopt SFAS 115 on a prospective basis. CL&P anticipates that the adoption of SFAS 115 will not have a material impact on future results of operations or financial position.
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l The Connecticut Light and Power Company Report of Independent Public Accountants To the Board of Directors of The Cunnecticut Light and Power Company:
We have audited the accompanying balance sheets of The Connecticut Light and Power Company (a Connecticut corporation and a wholly owned subsidiary of Northeast Utilities) as of December 31,1993 and 1992, and the related statements of income, common stockholder's equity and cash flows for each of the three years in the period ended December 31,1993. 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 reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairty, in all material respects, the financial position of The Connecticut Light and Power Company as of December 31,1993 and 1992, and <
the results of its operations and cash flows for each of the three years in the period ended December 31, ,
1993, in conformity with generally accepted accounting principles. . i As discussed in Note 1 to the Financial Statements, ' Summary of Significant Accounting Policies -
Accounting Changes,' effective January 1,1993, The Connecticut Light and Power Company changed its methods of accounting for property taxes, income taxes, and postretirement benefits other than pensions.
l ARTHUR ANDERSEN & CO.
Hartford, Connecticut February 18,1994 0
9 The Connecticut Light and Power Company MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section contains management's assessment of The Connecticut Ught and Power Company's (CL&P or the company) financial condition and the principal factors having an impact on the results of operations. The company is a wholly-owned subsidiary of Northeast Utilities (NU). This discussion should be read in conjunction with the company's financial statements and footnotes.
FINANCIAL CONDITION Overview The company's net income decreased to $191.4 million in 1993 from $206.7 million in 1992. The 1993 net income reflects the cumulative effect of a change in the accounting for Connecticut municipal property taxes.
The company adopted a one-time change in the method of accounting for municipal property tax expense in the first quarter of 1993. This change resulted in a one-time contribution to net income of $47.7 million.
See the " Notes to Financial Statements
- for further information on the property tax accounting change.
Net income before the cumulative effect of the change in accounting for property taxes was $143.7 million in 1993. The decrease from 1992 is primarily attributable to one-time impacts of (a) disallowances ordered by the Department of Public Utility Control (DPUC) in the 1993 rate case decision and (b) the $10 million charge O to earnings in the third quarter of 1993 for the costs of the company's employee reduction program. Other items that affected net income in 1993 include increased revenues from the 1993 retail rate increase and the company's continued cost-management efforts. These increases were offset by higher costs for the recovery of regulatory deferrals and the higher contribution in 1992 of energy transactions with other utilities.
The year 1993 was one of both challenge and success for the company. CL&P's work force was reduced by {
about 11 percent in 1993 through an employee reduction program that involved early retirements and 1 involuntary terminations. The 1993 composite nuclear capacity factor of 80.8 percent was the highest level the j NU system has ever achieved and far above the national average. The DPUC approved a three-year rate plan j that weakened 1993 earnings but will assure CL&P customers rate stability over the next few years which will help to improve CL&P's future earnings and competitive position.
In 1994, CL&P will continue to face challenges associated with a lagging economy and competition. Retail sales for 1993 were flat, as compared to 1992, as a result of a stagnant Connecticut economy. The company expects retail sales growth of about two percent in 1994, based on some modest improvement in the l economy.
Competition within the electric utility industry is increasing. In response, CL&P has developed, and is continuing to develop, a number of initiatives to retain and continue to serve its existing customers and to expand its retail and wholesale customer base. These initiatives are aimed at keeping customers from either leaving CL&P's retail service territory or replacing CL&P's electric service with alternative energy sources.
The cost of doing business, including the price of electricity, is higher. in the Northeast than in most other parts of the country. Relatively high state and local taxes, labor costs, and other costs of doing business in i New England also contribute to competitive disadvantages for many industrial and commercial customers of CL&P. These disadvantages have aggravated the pressures on business customers in the current weakened I
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regional economy. Since 1991, the company has worked actively with the Connecticut Department of Economic Development to package development incentives for a variety of retail and wholesale customers.
These economic development packages typically include both electric rate discounts and incentive payments for energy-efficient construction, as well as technical support and energy conservation services. Targeted reductions in effect at the end of 1993 to a limited group of large customers were successful in preserving CL&P revenues of approximately $28 million. The amount of discounts provided to customers are expected to increase as the company intensifies its efforts to retain existing customers and gain new customers.
As a result of very limited load growth throughout the Northeast and the operation of several new generating plants in the past five years, wholesale competition has grown, and a seller's market for electricity has turned into a buyer's market. The prices the company has been able to receive for new wholesale sales have generally been far lower than the prices prevalent in 1988 and 1989. In future years, competition in the Northeast is expected to increase, putting further downward pressure on prices. However, the potential price decreases may be offset somewhat by an improvement in the region's economy as well as by the retirement of a number of the region's existing generating facilities.
The ability of retail customers to select an electricity supplier and then force the local electric utility to transmit the power to the customer's site is known as ' retail wheeling'. While wholesale wheeling is mandated by the Energ/ Policy Act of 1992 under certain circumstances, retail wheeling is generally not required in the company's jurisdiction. In Connecticut, the DPUC has begun an investigation into the viability of retail wheeling.
NU management has taken steps to make the NU system companies, including CL&P, more competitive and profitable in the changing utility environment. A systemwide emphasis on improved customer service is a central focus of the reorganization of NU that became effective on January 1,1994. The reorganization entails realignment of the system into two new core business groups. The first core business group is devoted to energy resource acquisition and wholesale marketing and focuses on nuclear, fossil, and hydroelectric generation, wholesale power marketing, and new business development. The second core business group oversees all customer service, transmission and distribution operations, and retail marketing in Connecticut, New Hampshire, and Massachusetts. These two core business groups are served by various support functions.
In connection with NU's reorganization, a corporate reengineering process has begun which should help the 4 company to identify opportunities to become more competitive while improving customer service and l maintaining excellent operational performance. NU has aggressive cost-reduction targets over the next three years, which should enable the company to remain competitive by reducing prices to vulnerable customers in particular.
I To date, the company has not been materially affected by competition, and it does not foresee substantial l adverse effect in the near future, unless the current regulatory structure is substantially altered. The company l believes the steps it is taking will have significant, positive effects in the next few years. In addition, CL&P j benefits from a diverse retail base. The company has no significant dependence on any one customer or '
industry. The NU system's extensive transmission facilities and diversified generating capacity are all strong positive factors in the regional wholesale power market. NU serves about 30 percent of New England's l electric needs and is one of the 20 largest electric utility systems in the country.
1 Achieving measurable improvement in earnings in 1994, will depend, in part, on the success of the company's '
wholesale power marketing customer retention and reengineering efforts.
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Rate Matters O Deferred charges at December 31,1993 were $1.5 billion, which includes $1.0 billion for the adoption in 1993 of Statement of Financial Accounting Standards (SFAS) No.109, Accounting for income Taxes. Deferred charges, excluding the regulatory asset for SFAS No.109 decreased almost $90 million in 1993. Recoveries for the defened costs of Millstone 3, Seabrook, and the Yankee Atomic Electric Company (YAEC) contract obligation and reductions in deferred energy costs were partially offset by increased deferrals for conservation and load management costs. The company is currently recovering some amounts of its remaining deferred charges from customers. Management expects that substantially all of the deferred charges will be recovered through future rates.
Under SFAS No.109, the company reflected a regulatory asset and a deferred tax liability for the cumulative amount of income taxes associated with timing differences for which deferred taxes had not been provided but are expected to be recovered from customers in the future. The adoption of SFAS No.109 has not had a material effect on results of operations.
The company also adopted SFAS No.106, Employer's Accounting for Postretirement Benefits Other Than Pensions in 1993. Adopting SFAS No.106 has not had a material impact on financial condition or results of operations, because the company has received approval from the DPUC to defer these costs and expects to recover these costs in the future.
See the ' Notes To Financial Statements' for further details on deferred charges and recently adopted accounting standards.
On June 16, 1993, the DPUC issued a final decision in CL&P's December 1992 retail rate case (the rate decision) approving a mattiyear rate plan which provides for annual rate increases of $46 million, or O
b 2.01 percent, in July 1993; $47.1 million, or 2.04 percent, in July 1994; and $48.2 million, or 2.06 percent, in July 1995. The total cumulative increase granted of $141.3 million, or 6.1 percent, was approximately 42 percent of CL&P's updated request.
In light of the State of Connecticut's concern over economic development and industrial and commercial rates, one important aspect of the rate case was that industrial and manufacturing rates will only rise by about 1.1 percent annually over the three year period. Other significant aspects of the rate decision included the reduction of CL&P's return on equity (ROE) from 12.9 percent to 11.5 percent for the first year of the multiyear plan,11.6 percent for the second year, and 11.7 percent for the third year; a 32-month phase-in beginning in 1995 of CL&P's nonpension, postretirement benefit costs required to be recognized under SFAS No.106 with amortization of deferred amounts over five years; the three-year phase-in of the Millstone 2 steam generators; the deferral of cogeneration expenses with carrying costs of $42.1 million in fiscal year 1994 and $20.9 million in fiscal year 1995 with recovery over five years beginning July 1,1996; and the full recovery of the remaining costs of the Millstone 3 and Seabrook phase-ins (balance of $185.9 million at December 31,1993).
The rate decision used $49 million of prior fuel overrecoveries to offset a similar amount of the unrecovered replacement power costs under CL&P's Generation Utilization Adjustment Clause (GUAC). The GUAC has been in operation since 1979 and was designed as a mechanism to recover or to refund certain fuel costs if the nuclear plants do not operate at a predetermined capacity factor. In January 1994, the DPUC issued a decision ordering CL&P not to include a GUAC amount in customers' bills through August 1994. The DPUC found that CL&P overrecovered its fuel costs during the 1992-1993 GUAC period and offset the amount of the overrecovery against the unrecovered GUAC balance. The effect of the ordar was a disa!!owance of
$7.9 million. The DPUC further ordered that any GUAC deferred charges subsequent to July 1993 will be offset by any fuel overrecoveries. There is an unrecovered GUAC balance at December 31,1993 of
$13.7 million but there is not expected to be an unrecovered balance at the end of the GUAC period in p August 1994. The DPUC's decision creates some uncertainty about the future operation of the GUAC. CL&P
has requested further clarification of the decision, and has appealed it, but does not expect that the decision will have a material adverse effect on future results of operations.
The rate decision also required CL&P to allocate to customers a portion of the property tax accounting change made in the first quarter of 1993, which resulted in a charge against other income of $10.2 million in the second quarter of 1993.
In August 1993, two appeals were filed from the DPUC's June 1993 rate decision. CL&P oopea!ed four issues from the decision. The second appeal was filed by the Connecticut Office of Consumer Council (OCC) and the City of Hartford. This appeal challenges the legality of the multi-year plan accepted by the DPUC. CL&P has filed a motion to dismiss this appeal on jurisdictional grounds. In addition, the Court rejected the City of Hartford's and OCC's motion to stay implementation of the second and third year of the rate plan pending the outcome of their appeal.
Outages that occurred over the period October 1990 through February 1992 at the Millstone nuclear units have been the subject of five ongoing prudence reviews in Connecticut. CL&P has received final decisions on four of the reviews. The OCC has appealed decisions favorable to the company in two dockets. The exposure under these two dockets is approximately $66 million. The DPUC has suspended a third docket, pending the outcome of one of the appeals. The exposure under this docket is $26 million. The only remaining nuclear outage prudence docket before the DPUC is the docket established to review the 1992 nuclear outage at Millstone 2 to replace the steam generators. A decision is expected in late 1994.
Management believes that its actions with respect to these outages have been prudent, and it does not expect the outcome of the prudence reviews to result in material disallowances.
In April 1993, the DPUC issued an order approving a new Conservation Adjustment Mechanism (CAM), which allowed CL&P to recover Conservation and Load Management (C&LM) expenditures over an eight-year period (reduced from ten years) and reaffirmed program performance incentives. In December 1993, CL&P filed a proposed CAM settlement with the DPUC. The settlement proposes 1994 C&LM expenditures of $39 million, reduction in the recovery period from 8 to 3.85 years and other changes in prograrp designs, performance incentives and cost recovery. Unrecovered C&LM costs at December 31,1993, were $111.4 million.
Environmental Matters The NU system devotes substantial resources to identify and then to meet the multitude of environmental requirements it faces. The system has active auditing programs addressing a variety of different regulatory requirements, including an environmental auditing program to detect and remedy noncompliance with environmental laws or regulations.
The company is potentially liable for environmental cleanup costs at a number of sites both inside and outside of its service territory. To date, the future estimated environmental remediation costs for these sites for which the company expects some legal liability have not been material with respect to the earnings or financial I
position of CL&P. At December 31,1993, the liability recorded by CL&P for its estimated environmental remediation costs, excluding any possible insurance recoveries or recoveries from third parties, amounted to approximately $2.9 million. However, while not probable, it is reasonably possible that these costs could rise l to as much as $5.8 million. The extent of additional future environmental cleanup costs is not estimable due l
to factors such as the unknown magnitude of possible contamination and changes in existing laws and regulatory practices.
The company expects that the implementation of Phase I of the 1990 Clean Air Act Amendments will require only modest emissions reductions. CL&P's exposure is minimal because of its investment in nuclear energy in the 1970s and 1980s and the burning of low-sulfur fuels. The costs for meeting the Phase 11 requirements cannot be estimated at this time because the emission limits have not been determined.
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p The company's estimated cost of decommissioning its shares of Milistone Units 1,2, and 3 and Seabrook is y approximately $801 million in year end 1993 dollars. In addition, the company's estimated cost to decommission its shares of the regional nuclear units is estimated to be approximately $185 to $189 million.
Decommissioning costs are recovered and recognized over the lives of the respective units. YAEC has begun decommissioning its nuclear facility. The company's estimated obligation to YAEC has been recorded on its Balance Sheets. Management expects that the company will continue to be allowed to recover these costs.
For further information regarding nuclear decommissioning, environmental matters, and other contingencies, see the ' Notes to Financial Statements."
Nuclear Performance The composite capacity factor of the five nuclear generating units that the NU system operates (including the
) Connecticut Yankee nuclear unit) was 80.8 percent for 1993, compared with 63.7 percent in 1992 and a national average of 70.6 percent for 1993. The lower 1992 capacity factor was primarily the result of the 1992 Millstone 2 steam generator replacement outage and some unexpected technical and operating difficulties.
In 1993, NU was informed by the Nuclear Regulatory Commission (NRC) of three apparent violations related to the circumstances surrounding the repair of a leaking valve in the reactor coolant system at the Millstone 2 nuclear power station. Millstone 2 was shutdown on August 5,1993, when extensive repair efforts proved unsuccessful and the va've began to leak at a level beyond operating requirements. NU was assessed and paid a civil penalty of $237,500 for the three violations that were identified during the NRC investigation.
NU has initiated a number of immediate and long-term actions designed to further enhance the safe operation of all the NU nuclear plants. In an effort to improve nuclear performance, NU managtment announced a reorganization of its Connecticut-based nuclear organization in November 1993. The reorganization, which is h
V based on an overview of NU's future nuclear operational needs, resulted in a number of personnel changes, including the appointment of a new senior vice president of Millstone Station, realignment of engineering operations along unit lines and management consolidation. In addition, centralization of the nuclear engineering function at the generating stations is expected to occur during the sum'mer of 1994. No material expense will be incurred by the company in connection with the reorganization.
Liquidity and Capital Resources Cash provided from operations increased $136.5 million in 1993, compared with the same period in 1992, i primarily due to increased revenues in 1993 from the rate increase and for the recovery of replacement power '
costs under the GUAC. Cash used for financing activities was $219.9 million higher in 1993, compared with !
the same period in 1992, primarily due to a net decrease in short-term debt, long-term debt, and preferred )
stock. Cash used for investments was $66.2 million lower in 1993, compared with the same period in 1992, l primarily due to lower construction expenditures in 1993.
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The company has been able to shift its financing focus to refinancing outstanding high-cost securities.
Internally generated cash has generally been, and is projected to continue to be, more than sufficient to cover construction costs. The forecast through 1998 shows additional new financings only in years with a large amount of securities maturing. CL&P may issue up to $200 million in 1994 to finance maturing debt. The company is obligated to meet $581 million of long-term debt and preferred stock maturities and cash sinking- l fund requirements for the 1994 through 1998 period, including $189 million for 1994. Also, $125 million of '
First Mortgage Bonds outstanding at December 31,1993 has been called in December 1993 for redemption in 1994.
Aggressive refinancing of its outstanding high-cost securities has enabled the company to lower its cost of ;
debt. There was no new money financing in 1993. To take advantage of favorable market conditions during i
1993, the company refinanced $425 million of First Mortgage Bonds, $110 million of preferred stock and
$135.5 million of pollution control bonds, in addition to restructuring the company's various credit lines. It is -
estimated that the 1993 refinancings and restructuring will save the company approximately $15 million per year. The company intends. if market conditions permit, to continue to refinance a portion of its outstanding long-term debt and preferred stock at lower effective cost.
On February 17,1994, CL&P issued two new First Mortgage Bonds, the $140 million 1994 Series A and the
$140 million 1994 Series B Bonds, at annual rates of 5.50 percent and 6.125 percent, respectively. The Series A Bond will mature on February 1,1999, and the Series B Bond will mature on February 1, 2004.
Proceeds from these issues, together with proceeds from short-term debt, will be used to redeem $310 million of outstanding bonds with interest rates ranging from 5.625 percent to 7.625 percent. Savings from the refinancings are estimated to be approximately $4.5 million per year in reduced interest rates.
The company's construction program expenditures, including allowance for funds used during construction (AFUDC), for the period 1994 through 1998 are estimated to be approximately $742 million, including $158 million for 1994. The construction program's main focus is maintaining and upgrading the existing transmission and distribution system as well as the nuclear and fossil-generating facilities. The company does not foresee the need for new major generating facilities, at least until the year 2007.
CL&P and WMECO utilize a nuclear fuel trust to finance nuclear fuel requirements for Millstone 1,2. and 3.
Nuclear fuel requirements, including nuclear fuel financed through the trust, are estimated to be approximately
$318 million for the period 1994 through 1998, including $75 million for 1994.
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4 Results of Operations O,
Change in Operating Revenues increase /(Decrease) 1993 vs.1992 1992 vs.1991 (Millions of Dollars)
Regulatory decisions $34.2 $72.7 Fuel and purchased power cost recoveries 1.9 20.0 Sales volume 3.0 5.4 Other revenues 10.5 (57.4)
Total revenue change $49.6 $40.7 Operating Revenues The components of the change in operating revenues for the past two years are provided in the table above.
Operating revenues increased $49.6 million from 1992 to 1993. Revenues related to regulatory decisions increased in 1993, primarily because of the effects of the June 1993 DPUC retail rate increase and higher revenues under the CAM. Retail sales were essentially fbt in 1993. Other revenues increased primarily because of higher 1993 capacity interchange sales.
Operating revenues increased $40.7 million from 1991 to 1992. Revenues related to regulatory decisions O increased in 1992 primarily because of the effect of the August 1991 DPUC retail rate increase. Fueland purchased-power cost recoveries increased primarily due to the timing in the recovery of fuel expenses under the provisions of CL&P's fuel adjustment clauses. Retail sales in 1992 were slightly higher than 1991. Other revenues decreased primarily because of 1992 capacity sales to other utilities that-took place at lower prices per kilowatt-hour and the 1991 one-time reimbursement of costs associated with the reactivation of fossil-generating units.
Fuel, Purchased, And Net interchange Power Fuel, purchased, and net interchange power increased $58.8 million in 1993, as compared to 1992, primarily due to the timing in the recovery of fuel expenses under the provisions of the company's fuel adjustment clauses and disallowances of replacement power costs deferred under the GLAC, p&tially offset by lower outside purchases due to better nuclear performance in 1993.
Fuel, purchased, and net interchange power increased $39.2 million in 1992, as compared to 1991, primarily I
due to the timing in the recovery of fuel expenses under the provisions of the company's fuel adjustment clauses, and previously deferred replacement power costs that are not recoverable as a result of regulatory l reviews.
l Other Operation And Maintenance Expenses Other operation and maintenance expenses increased $18.7 million in 1993, as compared to 1992, primarily due to the one-time costs in 1993 associated with the employee reduction program and 1993 SFAS No.106 postratirement benefit costs prior to the DPUC order allowing the deferral of these costs, partially offset by lower 1993 costs associated with the operation and maintenance activities of the nuclear units.
Other operation and maintenance expenses increased $4,0 million in 1992, as compared to 1991, primarily due to higher 1992 costs of operation and maintenance activities at nuclear units, partially offset by the 1991 costs associated with a voluntary early retirement program, and lower 1992 conservation expenses.
Depreciation Expenses Depreciation expenses increased $9.9 million in 1993, as compared to 1992, and $11.3 million in 1992, as compared to 1991, pnmarily as a result of higher depreciation rates, higher depreciable plant balances, and higher decommissioning levels in 1992 as compared to 1991.
Amortization Of Regulatory Assets, Net Amortization of regulatory assets, net increased $38.9 million in 1993, as compared to 1992, and $17.8 million in 1992, as compared to 1991, primarily because of higher amortization of Millstone 3 and Seabrook deferred costs. The increase in 1993 is also attributable to the gross-up of taxes due to SFAS No.109, and the amortization in 1993 of costs paid by CL&P to the developers of two wood-to-energy plants as allowed in the recent rate decision. CL&P was allowed to collect and amortize $17.9 million of previously deferred costs over the one-year period beginning July 1993.
Federal And State income Taxes Federal and State income taxes, net decreased $21.4 million in 1993, as compared to 1992, primarily because of lower book taxable income and higher investment tax credit amortization, partially offset by an increase in flow-through depreciation.
Taxes Other Than income Taxes Taxes other than income taxes increased $5.4 million in 1992, as compared to 1991, primarily due to higher property taxes and higher Connecticut gross eamings taxes due to higher revenues. ,
Deferred Nuclear Plants Return Deferred nuclear plants return decreased $10.8 million in 1993, as compared to 1992, and $6.3 million in 1992, as compared to 1991, primarily because of a decrease in Millstone 3 deferred return because additional Millstone 3 investment was phased into rates.
Other income, Net Other income, net decreased $8.0 million ir' 1993, as compared to 1992, primarily because of the allocation to customers of a portion of the property tax accounting change as ordered by the DPUC in the rate decision and lower AFUDC.
Interest Charges Interest on long-term debt increased $17.1 million in 1993, as compared to 1992 and $14.9 million in 1992, compared to 1991, primarily because of lower average interest rates as a result of the substantial refinancing activity.
Other interest charges increased $5.4 million in 1993, as compared to 1992, primarily because of higher interest on short-term borrowings, lower AFUDC for borrowed funds and interest recognized for a potential Connecticut sales tax assessment.
Tha Connscticut Light cnd Powsr Comp:ny N SELECTED FINANCIAL DATA
)
Years Ended December 31, 1993 1992 1991 1990 1989 (Thousands of Dollars)
Continuing Operations:
Operating Revenues . . . . . $2,366,050 $2,316,451 $2,275,737 $2,170,087 $2,069,559 Operating income , . . . . . . . 240,095 287,811 323,835 320,641 327,220 Net income . . . . . . . . . . . . . 191,449 206,714 240,818 224,783 207,875 Discontinued Gas Operations:
) Operating Revenues ..... - - - -
124,229 Operating income . . . . . . . . - - - - 12,563 Net income . .. . ... - - - -
6,630 Cash Dividends on Common Stock . 160,365 164,277 172,587 179,921 155,972 Total Assets . . . . 6,397,380 5.582,806 5,338,441 5,176,784 5,148,120 Long-Term Debt * . . . ...... 2,057,280 2,087,936 2,023,268 2,101,334 2,147,892 Preferred Stock Not Subject to Mandatory Redemption .. . .. . 166,200 231,196 306,195 306,195 306,195 Preferred Stock O
V Subject to Mandatory Redemption * ..... . 230,000 200,000 141,802 146,892 151,892 Obligations Under Capital Leases * . .. .. . 177,418 197,404 208,924 -
233,919 252,652
- Includes portions due within one year.
STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited)
Quarter Ended 1993 March 31 June 30 September 30 December 31 (Thousands of Dollars)
Operating Revenues . . . . . $627.134 $559,894 $604,343 $574,679 Operating Income . . . . .... $ 67,201 $ 47,775 $ 58.321 $ 66,798 Net income . .......... $ 91,596 $ 13,775 $ 39,068 $ 47.010 1992 Operating Revenues . .... $633,933 $547.010 $554,635 $580,873 Operating locome . . . ... $ 90,840 $ 58,892 $ 75.438 $ 62,641
/%
() Net income . . . . . . . . .. $ 68,042 $ 40.615 $ 55,145 - $ 42,912
The Connecticut Light and Power Company STATISTICS Gross Electric Average Utility Plant Annual December 31, Use Per Electric (Thousands of kWh Sales Residential Customers Employees Dollars) _(Millions) Customer (kWh) (Averace) (December 31 )
1993 $6,214,399 26,107 8,519 1,078,925 2,676 1992 6,100,680 25,809 8,501 1,075,425 3,028 1991 5,986,269 24,992 8,435 1,069,912 3,364 1990 5,881,499 25,039 8,434 1,064,695 3,517 1989 5,732,850 25,078 8,570 1,054,055 3,556 0
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The Connecticut Light and Power Company i First and Refundina Mortaane Bonds l Trustee and Interest Paying Agent 1 Bankers Trust Company, Corporate Trust and Agency Group P.O. Box 318, Church Street Station, New York, New York 10015 Preferred Stock j Transfer Agent, Dividend Disbursing Agent and Registrar
) Northeast Utilities Service Company Shareholder Services P.O. Box 5006, Hartford, CT 06102-5006 1994 Dividend Payment Dates 5.28%, 5.30%, 9.00%, $3.24 Series -
January 1, April 1, July 1, and October 1 4.50% (1956), 4.96%, 6.56%
$1.90, $2.00, $2.04, $2.06, $2.09, and $2.20 Series -
February 1, May 1, August 1, and November 1 3.90%, 4.50% (1963), 7.23 % Series -
January 12, March 1, June 1, September 1, and December 1 DARTS
- January 12, March 2, April 20, June 8, July 27, September 14, November 2, December 21 -
Address General Correspondence in Care of:
Northeast Utilities Service Company investor Relations Department P.O. Box 270 Hartford, Connecticut 06141-0270 Tel. p33) 665-5000 General Office Selden Street, Berlin, Connecticut 06037-1616
- Transfer and Paying Agent:
Bankers Trust Company, Corporate Trust and Agency Group P.O. Box 318, Church Street Station, New York, New York 10015 The data contained in this Annual Report is submitted for the sole purpose of providing information to present stockholders about the Company.
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'I Connecticut f Light & Power The Northeast Unhties System -
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