ML20095E444

1983 Annual Rept

ML20095E444
Person / Time
Site:	Oconee, Mcguire, Catawba, McGuire, 05000000, Cherokee
Issue date:	12/31/1983
From:	Booth D, Willie Lee DUKE POWER CO.
To:
Shared Package
ML20095E402	List: ML20095E397 ML20095E434 ML20095E444
References
NUDOCS 8408240242
Download: ML20095E444 (47)

Text

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: B0kg Powe$Do',mpany 1983 Annual Report .

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- DUKE POWER COM/ANY -

About Duke Duke Ibwer is the nation's eighth largest investor owned electric utility serving approxi-  !

Power Company mately 1.4 million customers in a 20 coo-square- I mile area of North and South Carolina. The Company operates two nuclear stations, eight coal-burning plants and 26 hydroelectric stations. 1 Sales totaled 54.2 billion kilowatt-hours in  !

1983, with approximately 70 percent de-rived from North Carolina and 30 percent derived from South Carolina.

The Company's retail cus-tomers are served through %

district and branch offices. In addition, Duke sells electricity I to bulk users at wholesale and

, contractual rates. Revenues totaled

$2.4 billion in 1983.

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About the Cover Duke Power's unprecedented record of generat- dustry statistics for 1983 are not yet available, but ing efficiency is indicative of the Company's com- preliminary figures indicate the Duke coal-fired

mitment to excellence in all its operations. system will again lead the nation in fuel Duke's network of eight coal-fired generating sta- efficiency.

tions has led the nation in fuel efficiency 11 of How the Company is building on its tradition the past 13 years, placing second the other two of design, construction and operating expertise is years. In 15 of the last 17 years, a Duke plant has featured in a special section of this report, begin-been rated as the top station in the country. In- ning on page 12.

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- DUKE POWER COMPANY Highlights Percent Increase 1983 1982 (Decrease)

Kilowatt-hour sales . 54,151,333,000 51,380,037,000 5.4 Electric revenues $2,420,252,000 $2,244,480,000 7.8 Earnings for common stock before extraordinary item $ 368,677,000 $ 287,713,000 28.1 Extraordinary item - $ 48,304,000 -

Earnings for common stock . $ 368,677,000 $ 336,017,000 9.7 Common stock data Average shares outstanding. 97,784,000 93,679,000 4.4 Earnings per share before extraordinary item . $ 3.77 $ 3.07 22.8 Extraordinary item . -

$ 0.52 -

Earnings per share $ 3.77 $ 3.59 5.0 Dividends per share $ 2.32 $ 2.24 3.6 Book value per share (year-end) $26.26 $24.89 5.5 Return on average common equity 14.8% 13.9W 6.5 Plant construction costs . $ 679,726,000 $ 736,060,000 (7.7)

Total electric plant, net . $6,162,492,000 $6,385,691,000 (3.5)

Peak load (Kw)

Summer 11,554,000 10,097,000 14.4 Winter 10,378,000 11,145,000 (6.9)

• Excluding extraordinary item - gain on retirement of bonds, and excluding provision for loss on the

_sale of certain coal mining assets.

Contents ' LHighlights 1

- Letter to Shareholders . 2 Year m Review . 4

" Building on a Tradition of Excellence" 12 Management's Discussion and Analysis . 20 Financial Statements 22 Notes to Financial Statements . 27 Auditors' Opinica and Responsibility for Financial Statements . 34 Other Financial Data . 35 Subsidiaries 41

Board of Directors V 42 Officers 44 s

. 4, I

DUKE POWER COMPANY -

To Our 1983 was a year of marked improvement for Duke Power. Both earn-Shareholders: -

ings and long-term financial strength increased as we continued streamlining operations, reduced our construction program, sold more electricity, improved service to our customers and helped the commu-nities we serve. l Earnings per share rose to $3.77 from $3.59 reported in 1982.

Earnings for common stock increased to $368.7 million from $336 million. Results in 1982 included the effects of an extraordinary gain i from the exchange of new common stock for outstanding bonds and a provision for loss on the disposal of coal mining assets.

Total Company return on common equity rose to 14.8 percent  !

from 13.9 percent a year ago. The 13.9 percent excluded the effects of the extraordinary gain and the provision for loss.

Higher earnings were largely attributable to greater nuclear gener-ation, rate increases and higher kilowatt-hour sales. Sales totaled 54.2 billion kilowatt-hours, up 5.4 percent from 51.4 billion sold in 1982.

Most of the gain occurred in the second half of 1983 as our industrial customers' business improved, reflecting the economic recovery.

The quarterly cash dividend on common stock was raised in the third quarter to 59 cents per share from 57 cents, increasing the indi-cated annual dividend to $2.36 per share from $2.28. This marks the eighth consecutive year dividends have been increased.

While we are pleased with this year's results, a more far-reaching development was the improvement in the Company's long-term finan-cial strength, affected most dramatically by a major reduction in our construction program and continued improvement in our capital structure.

In April, the Board of Directors canceled Unit 1 of the planned three-unit Cherokee Nuclear Station. (Units 2 and 3 had previously been canceled.) This decision was made after new load-growth fore-casts indicated additional large, baseload generating facilities would not l be needed until after 1995.

l The North Carolina Utilities Commission allowed recovery of l our investment in the Cherokee project over a 10-year period. We are currently seeking recovery of the investment in our other regulatory jurisdictions.

The Company's continued progress toward achieving its long-term financial objectives was recognized this year when three rating agencies upgraded their credit ratings on our fixed-income securities.

We continue to seek electric rates that will allow us to build on l

the financial achievements of 1983. A request for a 13.6 percent in-crease is pending in North Carolina. In South Carolina we are seeking approval of a 23.7 percent increase. Both requests reflect the invest-

, ment in and operating costs for Unit 2 of the McGuire Nuclear Sta-2

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Even with these increases, our li . v./. 4 I . . ' Y.

p; ;;1, n , , ,l _  :[y s.pt-M Y 4-, .p.M .-[i).L 7 rates tionalwill remain below the na-average.

$ If /_ ~ g, y".  :? j /k.. .i To avoid additional construc-O f pg - c ;, [.r  ; 9 m.: ,. .: J tion for as long as possible, we o

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4. . .' ' ze - i. J . H: ;' . continue to emphasize controlling

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) .: h i E h load management. We are also ini-7 iPWC;.9@#1l.7 :f J' ' '4#

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tiating new programs to increase 77 g q - [?!%{K.'T . cyl, . 3 ;.. {- power

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a . n.. to maximize use of our generating J ~.) , }; E ? : f. ' "7 S. W .g .; f,l j .l 4;.a' .. facilities.

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Despite the gains of this year, we and the industry as a whole i a. x.3s,. .... .t 9

• face several issues of concern. The William S. Lee def0 tortuous regulatory process may affect our ability to obtain a license to Daglas W. B*th (righo load fuel on schedule at Unit 1 of the Catawba Nuclear Station. The acid rain question is also receiving increased political attention, and leg-islation enacted prematurely could impose a heavy financial burden on our customers. Finally, proposed legislation limiting tax-exempt pollu-tion control financing would raise our future borrowing costs.

Nevertheless, we are pleased to be in a stronger financial position today after more than two decades of building to meet rapid growth in demand for electricity. The reduced need for new construction marks

, a major change for Duke Power, allowing us to further refine our oper-ations and focus on new opportunities.

As we direct our future, we will draw on our past experience while maintaining the flexibility necessary to be responsive to change.

Ways we are building on our 79-year tradition of engineering and con-struction excellence and operating efficiency are discussed in detail in the feature section of this report, beginning on page 12. -

Finally, we are proud of the performance of our 20,000 dedicated  !

employees, both on the job and in their communities. Relying on their talents and energy, we are committed to earning a competitive return for our shareholders, while providing reliable electric service at the lowest possible price.

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William S. Lee Douglas W. Booth Chairman of the Board and President and Chief Executive Officer Chief Operating Officer February 17,1984 3

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DUKE FOWER COMPANY Year in Review Financial Results Earnings per rose to 3.46 times in 1983. Although share rose to $3.77 in 1983, up from still below the Company's goal of 3.5

$3.59 in 1982. Earnings for common times, this was the highest level since stock totaled $368.7 million, up from 1968.

$336 million. The Company generated 83 per-(1982 earnings included an ex- cent of its capital requirements inter-traordinary gain of 52 cents per nally in 1983, compared with 46 per-share, or $48.3 million, from the ex- cent in 1982. This exceeded the change of new common stock for Company's goal of 50 percent and outstanding bonds. Earnings in 1982 was enhanced by tax benefits related  :

also included a provision for loss of to the cancellation of Unit 1 of the 32 cents per share, or $30 million, in Cherokee Nuclear Station.

anticipation of the 1983 disposal of The Board of Directors raised the certain coal mining assets.) quarterly cash dividend on common Improved earnings for 1983 re- stock to 59 cents per share from 57 sulted primarily from excellent nu- cents, effective with the dividend clear performance, rate increases and paid in September 1983. This in-higher kilowatt-hour sales. creased the Company's indicated an-Bolstered by higher earnings, total nual dividend to $2.36 from its previ-Company return on common equity ous level of $2.28.

improved to 14.8 percent from 13.9 Thirty cents of the 1983 fourth percent in 1982. (The 1982 return quarter dividend will be treated as re-excluded the extraordinary gain and turn of capital and therefore will not the provision for loss.) be subject to federalincome taxes.

Earnings coverage of fixed charges "" 4"*

Earmdn Rr Share &8cE^d((m 5 Di Itr Share m Indicated Rate- $2.36 Allowed Retum(N C Junedom n Yewmh 3 51 '" $2.88 RMIB&MSQMs74{Mghng] 13.674 -

• 51 * $3.08 EWl@MiiMM$j 14.1&4 As a result of the impmnd 4 s: M $3.19 MMMM67dM 16.50 %

es t te ny 5 tex-

< 5 24 $359' W M?$M SQd@$ 15.50w tile customers, such as u s: e $3.77 KWpMg6M 15.25%

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wou Sales and Customers Sales of elec-K ./ # 2 tricity rose 5.4 percent in 1983, KI '

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• . j economy in the second half of the

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year and hot summer weather. Sales g

gi (Mc-totaled 54.2 billion kilowatt-hours, S .- ,_ c up from 51.4 billion in 1982.

E Sales to industrial customers showed a substantial increase, rising 8.1 percent, with textile sales growing 9.8 percent. Sales to non-textile in-dustrial customers rose 6.5 percent.

67 General service customers (including

- w a. - commercial customers) used 2.5 per-4

cent more electricity in 1983, while The Company's customer base consumption by residential custom- grew 2.6 percent in 1983, totaling l ers increased 3.7 percent. Wholesale nearly 1.4 million customers at l and other energy sales rose 5.4 per- year-end.

cent from 1982. sales -nno Of the Company's total sales in " M M M somc g g u g ende ,

1983, residential customers ac- ,' I ., F m f:ZM4 counted for 26 percent, general serv-ice customers 19 percent, non-textile '

E =:i 52.3 l industrial customers 20 percent and m M f.1.1 O s3.5 textile customers 19 percent. Whole- < 7r 3 ~ 3,.4 l sale and other energy salet contrib-uted the remaining 16 percent. "

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The North Carolina Utilities Commission in September allowed fe. , 4 the Company to recover costs associ-1 - ated with the plant over a 10-year 9 '

period, but did not permit a return

• on the unamortized balance. The Company had requested recovery of the interest expense and preferred dividends related to the unamortized balance. The Company currently is seeking recovery of Cherokee costs in its South Carolina and wholesale jurisdictions.

The Company received a full-work on Unit I of the .

Status of Construction Program power operating license for Unit 2 of Catawba Nuclear Stanon

' d The Board of Directors canceled the McGuire Nuclear Station in May

,"n7'e ' *#'7,""'ai,"! Unit 1 of the Cherokee Nuclear Sta- 1983. The 1,180,000- kilowatt unit ing of the 1,145,an tion in April after revised load fore- underwent extensive testing during kilowatt unit are planned casts indicated additional baseload ca- the remainder of the year and gener-for 1934 in preparation for 9

pacity would not be needed until ated 2.5 billion kilowatt-hours of

',p,ss connnerdal after 1995. Completion in that time electricity. It is scheduled for com-frame would have raised the cost of mercial operation in early 1984.

the unit to more than $6 billion. Work on Unit 1 of the Catawba Cherokee Units 2 and 3 were can- Nuclear Station neared completion at celed by the Board in November 1982 year-end. Fuel is expected to be because of reduced growth forecasts. loaded in the spring of 1984, with l The Cherokee project was con-ceived in the early 1970s when fore- h casts showed peak demand growing ."ll",d"

, .- ,?s sgtggePruceeds about 8 percent a year. At the time of cancellation, the Company had in, e 2m vested about $635 million in the u !wg _

wMa three-unit station. Settlement of out- , o standing contracts is not expected to add substantially to this amount. h *l ca m 5

h g go,n c e = ~ it is hoped the necessary license will ob ined in time to load fuelin 3,g

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3ssw Beyond the demand to be met by m 5"

. sem Catawba's baseload generation, pro-jected growth patterns indicate peak demand will rise faster than night-C .

$679.7 time and weekend loads. The most commercial operation scheduled for economical type of generation to 1985. Catawba Unit 2 is 65 percent meet this pattern is pumped-storage complete and slated for commercial hydroelectric power.

operation in 1987. Accordingly, Duke is continuing construction of the 1,000,000-Operation of Catawba is contin, kilowatt Bad Creek Pumped-Storage gent on approval of an operating li, cense by the Nuclear Regulatory Hydroelectric Station for service in Commission (NRC). Hearings before the early 1990s. This four-unit facil-the NRC's Atomic Safety and Li, ity is to be located above Lake censing Board began in October, and Jocassee in South Carolina.

Rate Matters Electric rates were in- its North Carolina retail rates. The creased in all regulatory jurisdictions request reflects inclusion of Unit 2 of ..

in 1983. the McGuire Nuclear Station in rate The North Carolina Utilities base and seeks a 16.5 percent rate of Commission (NCUC) approved a return on common equity.

$76.2 million, or 5.18 percent, retail Duke had asked the NCUC for rate increase in September 1983 that permission to implement an interim included a 15.25 percent rate of re- rate increase in conjunction with the

! nirn on common equity. The Com- commercial operation of McGuire pany had requested a $112.9 million, Unit 2. The NCUC denied that re-

or 7.68 percent, increase and sought quest, but ruled instead that the l

a 15.5 percent rate of return on com- Company defer all costs associated mon equity, comparable to the re- with the unit until the final rate or-l Rate requests pending in turn allowed in the NCUC's previ- der is issued. Fuel savings from pre-l each of Duke's three regu- ous rate order. commercial operation of McGuire Io'"Nc'i$'Oer"a!i [y In November 1983, the Company Unit 2 will be treated as a reduction Unit 2 of the McGuire filed a request for an additional $212.8 of operating costs.

Nuclear Station. million, or 13.6 percent, increase in Hearings are scheduled to begin in m- March 1984, with a final ruling ex-I pected by June.

- South Carolina retail rates were in-l creased 7.1 percent in March 1983 L

when The Public Service Commis-sion of South Carolina (PSC) ap-proved a $40.7 million increase, with a 13 percent rate of return on com-mon equity. The Company had re-

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quested a $99.4 million, or 17.56 per-

~~~_ 3 cent, increase with a rate of return of

"% 7! 17.5 percent. The PSC decision left 6

South Carolina rates lower than LectgRygesMY rexse North Carolina rates. a rmem rexse e s mae a os The PSC currently is considering m ' E"i si.5 the Company's request for a $136 million, or 23.7 percent, retail rate g] ,,

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increase. This request reflects inclu- " _ $19 i i.i.e sion of McGuire Unit 2 in rate base, -

M.2 .m - su 10-year recovery of the investment in s

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Unit 1 of the Cherokee Nuclear Sta- -

tion, and a 16.5 percent return on those municipalities and cooperatives common equity. A final ruling is ex- that are members of agencies owning

,, pected in March 1984. 75 percent of the Catawba Nuclear The Company and its wholesale Station. Rates to the agencies are set customers settled on a $26 million through contractual agreements that 1 rate increase in March 1983. The in- became effective during the second crease is based on the rate of return half of 1983.

approved for North Carolina retail In March 1983, the NCUC held industrial customers in November hearings to establish a procedure to 1982 and was approved by the Fed- adjust rates to reflect fluctuations in eral Energy Regulatory Commission. fuel costs. As yet, no such procedure In December, Duke filed a request has been adopted. Future earnings  ;

for a $12.7 million increase in whole- therefore could be affected, since salerates. North Carolina rates may not accu-Wholesale rates no longer apply to rately reflect fuel expense incurred.

matically, without being subject to refund. Further, the law makes no explicit provision for interim in-creases. Previously, as long as 13 months elapsed between a rate filing and a PSC ruling. However, interim

% 'E - rate increases were permitted, subject u== *M

' ~ - A -jr to refund,30 days after filing.

In addition, the new law incorpo-7 .x e-g%g= 4g b~ - '

Cgp.n, rates the current fuel-cost recovery procedure into South Carolina gen-w -- -

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eral statutes. The procedure initially Legislation enacted in Legislation The South Carolina was developed as a commission rule-South Carolina in 1983 re-General Assembly enacted legislation making.

4",',"'j",','I",['"j"fi. I in 1983 that can reduce regulatory The South Carolina fuel-cost re-

, c ci,, to no ,nor, than one lag in the processing of rate requests, covery procedure provides for adjust-general rare rcquest a year. but also limits utilities to filing for no ing rates twice each year, based on more than one general rate adjust- estimated fuel expenses for the up-ment within a 12-month period. coming six months. Differences be-The new law requires The Public tween actual fuel expenses and the Service Commission of South Caro- amount collected are reflected in the lina (PSC) to rule on rate requests adjustment for the following six within six months of filing, or the months.

full amount becomes effective auto-7

L l

Rawm uurmawk pr.mmm a Memn Lnk l

shareholders were participating in

- the plan, investing an additional l

$28.9 million during the year. l

! The Company began purchasing l shares ofits common stock on the 1 open market in September to satisfy 1 -

the requirements of the Employees' Stock Ownership Plan. In addition,

- open-market purchases for the Stock

! Purchase-Savings Program for Em-l ployees began in early 1984. Contin- 1 onke s comm<m stock Financing The Company had no uing this practice should allow the amedats m ,m occcm-public sales of common stock in 1983 Company to avoid issuing about 10 r eNQ$%"' and anticipates no public issues of million shares of new common stock

! wart common stock in the foreseeable fu- through 1987.

ture. It did, however, raise a total of The Company's only public, long-

$84.3 million by issuing more than term financing in 1983 was the June 3.6 million shares through its stock issuance of $102 million of pollution purchase and dividend reinvestment control bonds for construction of a plans. radioactive waste treatment system at l The Company introduced its Cus- the Oconee Nuclear Station. The tomer Stock Purchase Plan in March Company also filed a registration l 1983 in an effort to broaden its inves- statement with the Securities and Ex-

! tor base and increase customer un- change Commission for the prospec-derstanding of issues affecting the tive sale of up to $100 million of first Company. Under the plan, custom- mortgage bonds. However, the Com-ers are eligible to purchase Duke pany does not plan to issue these

stock in amounts as small as $25 or bonds during 1984.

) as large as $3,000 per quarter without Three major rating agencies up- '

paying brokerage fees. At year-end, graded certain of the Company's se-more than 8,000 Duke Power cus- curities in 1983 in recognition ofits tomers were enrolled in the plan, improved financial strength and re-i having invested about $9.4 million in duced construction program.

the Company. Moody's Investors Service, Inc.

Participation in the Company's raised its rating on the Company's Dividend Reinvestment and Stock first and reftmding mortgage bonds Purchase Plan continued to grow in to Aa3 from Al. Standard and Poor's 1983. At year-end,33 percent of the Corporation raised its rating on first

! Company's common shareholders and refunding mortgage bonds to l Cgi*al Structure u.u nu l' l rwir. n,m.m hnne , Elrnings Coverage of Fixed Charges E L-T 1%r E Preferred and Preference a Common liputy Mc unna I9 49 % . If' $4 7 N 2 86 x so A m ))su o  : ns ,

s gem- n 2 7n m 5.a a"f ~ e~ J1 ss 4 N $ h' I24 sis $2 2%*

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AA- from A+, and Fitch Investors long-term debt,12 percent preferred .

Service, Inc. raised its bond rating to and preference stocks, and 43 per-AA from A+. cent common equity. This is consis-As of December 31, Duke's capital tent with the Company's financial structure consisted of 45 percent objectives.

Sale of Assets The Company sold legal challenge.

during the year substantially all the The proposed sale has been ap-assets of Eastover Mining Company proved by The Public Service Com-and Eastover Land Company, two of mission of South Carolina, but has its wholly owned subsidiaries. been appealed to the South Carolina This action was precipitated by the Supreme Court by a group opposed refusal of the North Carolina Utili- to the sale. This opposition will not ties Commission to allow full recov- affect the completion or operation of ery of the cost of coal from these the plant.

mines. A $30 million after-tax provi- The North Carolina Municipal sion for loss was recorded in 1982 for Power Agency No.1 purchased 75 the disposition of these properties. percent of Catawba Unit 2 in 1978.

Plans to sell 25 percent of Unit 2 In 1981, groups of rural electric co-of the Catawba Nuclear Station to operatives in North and South Caro-the Piedmont Municipal Power lina bought 75 percent of Unit 1.

Agency, representing a group of 10 The Company plans to retain 25 per-South Carolina cities and towns, cent ownership in Unit 1 and oper-continued to be delayed in 1983 by a ate the station for the joint owners.

Generation and Capacity The , gegge,ngtgygg Company s nuclear units produced record amounts of electricity in 1983, " E E*

generating 42 percent of total output. so l s7.2 This compares with 27 percent in 1982. o l s7.7 Coal-fired plants continued to ,

contribute the largest share to total " '

Ouke's eight coal fired generation, producing 54 percent in 83

~

I" 6ls9 1983. Hydroelectric facilities gener- . .

plants burned more than .

existing units as well as pre-com-ated 4 percent of the Company's U million cons of coali" mercial generation from Unit 2 of electricity ff)h)$p"#[toal Increased nuclear production re, the McGuire Nuclear Station.

generation. suited from excellent performance by The Oconee Nuclear Station,

.. . .. . . .- c y . s ..-.,m.,s.. .

. , . . , . which celebrated its 10th anniversary

p. 1. ., . ;;.%.* -.. . * -; e. . J in July, had its best operating year

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., . q ; c ~ - . . . . - ? j J., -. ;.( .- ever, recording a 79.2 percent com-ff y *. > , . . _

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t3 -&: bined capacity factor. Foremost was

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p- y, Unit 3, which achieved a 94.2 per-Jl J . cent capacity factor, the highest of j.) ;

.L any nuclear unit in the nation for the

1. r g , , .' ' . l ,. . ' .:-1 7 J'1., year. (Capacity factor represents the

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portion of potential generation actu-

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- % f ",n..- ally achieved by a facility.)

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. . . .y ' e McGuire Unit I returned to full e, y <. . . ;..t .e x.  ;. - i.. . .

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power in mid-year following modifi-9

cations to its steam generators. The January 1983, generating its 100 bil-unit produced 4.6 billion kilowatt- lionth kilowatt-hour of electricity hours in 1983, representing 18 per- since beginning operation in 1974.

cent of the Company's nuclear gen- As of December 31, the Compa-eration. McGuire Unit 2, which is ny's installed generating capacity to-scheduled to begin commercial oper- taled 13,411,000 kilowatts, consisting ation in early 1984, contributed 2.5 of 7,600,000 kilowatts of coal-fired billion kilowatt-hours during on-line units,3,760,000 kilowatts of nuclear

testing in 1983. units,1,452,000 kilowatts of hydro-The coal-fired Belews Creek electric facilities and 599,000 kilowatts Steam Stition passed a milestone in of combustion turbines.

1 and nuclear generating system ranked second in the country, ac-

1. 6 i cording to the survey, marking the

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Duke customers would have faced Duke's Marshall Steam Generating Efficiency The Compa- more than $90 million in additional station uas the most em' ny's fossil-fired generating system led fuel costs in 1982 had the Compa-f'",','y'[1"d[""[j"u'h' the nation in fuel efficiency again in ny's generating system performed at plant has led the nation in 1982, according to the most recent the median level of the utilities l'

fuel esciency 150f the efficiency survey conducted by Elec- surveyed.

Past 17 year 5- tric Light & Power magazine. Duke's Based on information compiled by system has led the nation in effi- the Nuclear Regulatory Commission, ciency 11 of the past 13 years. Duke's Oconee Nuclear Station was

! The survey was based on compara- the most efficient pressurized water l tive heat rates of the nation's 100 reactor nuclear plant in the nation in largest electric utilities. (Heat rate is a 1982, achieving this recognition for measure of the amount of energy re- the third consecutive year. The sta-quired to produce a kilowatt-hour of tion has placed first or second each electricity.) of the past nine years.

l The Company's combined coal Load Management The Company cumulative tml Management exceeded its load management goals  % E'? "^"""d*"""

in 1983, achieving an additional re- l=-

duction of 319,000 kilowatts in sum- u .

mer peak demand and 393,000 kilo- @Eligg@"--

watts in winter peak demand. ggg3pajpgh As of December 31, the Company +I= i EE: ;E a r n nz-"- _

had achieved an accumulated reduc- 7~5 EseEMEi EERIE tion of 1.4 million kilowatts in sum- ~~T ~~C T f~~!-~T7 to

watts in winter peak demand since 1976.

g3 g-Through more than 40 load man-u agement programs available to its cus-tomers, the Company is seeking to

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reduce projected summer peak de-mand by 5.3 million kilowatts and

, r, winter peak demand by 6.8 million N J kilowatts by 1998.

i g Reducing growth in peak demand will help the Company avoid con-struction of costly new generating Duke Pouer load manage- mer peak demand and 2 million kilo- facilities.

ment experts helped Flor-l ida Steel Corp reduce demand by almost 40 per. Peak Demand Peak demand watts was set August 23. This was 9 cent at its charlorre mill. reached an all-time high in August percent above the previous record i

1983 when a series of heat waves summer peak set August 5,1981, and baked the Piedmont Carolinas with 3.7 percent above the previous all-l 100-degree-plus temperatures. time peak of 11,145,000 kilowatts set A new peak of 11,554,000 kilo- January 11,1982.

Employee incentive Program The tion progress, affirmative action,

! Company's 20,000 employees community service and profitability. I achieved 10 of 11 goals established Achievement of these goals is re- l under the 1983 Corporate Goals warded with an additional Company l Program. contribution to the Stock Purchase- l Goals attained in 1983 related to Savings Program for Employees.

employee safety, service reliability to Since the program was initiated in customers, load management, nuclear 1981, employees have met 27 of 31 power production, fossil production, targeted goals.

.i cost reduction, design and construc-Community Service Duke emplov- In addition, through the Compa-ees contributed to the well-being of ny's Low-Income Weatherization their local communities in 1983 Program, Duke's employees helped through service on community and recruit, organize and train commu-state boards, participation in civic nity volunteers to weatheri:e the and professional associations, and homes of more than 26,000 low-l volunteer work with youth organiza- income families, using materials do-tions and schools. nated by the Company.

The Company's employees ac- Duke also operated the Commu-tively supported the 1983 United nity Challenge Heating Fund, con-Way campaign, pledging more than tributing $1 to designated commu-

$1 million to United Way agencies. nity service organizations for every They also contributed nearly $4 raised from other sources to help

$150,000 to 144 colleges and univer- the needy pay their heating bills. The sities through the Company's Match Company contributed $100,000 to ing Gifts Program. the fund in 1983.

I1

DUKE POWER COMPANY Building on a Over the past 79 years, Duke Power has established itself as a leader in Tradition of the electric utility industry.

Duke is the only investor-owned utility that uses its own work Exce11eme force to design and build its power plants, doing so at a cost far below the national average. Its network of eight coal-burning plants has achieved an unparalleled record of fuel efficiency, leading the nation for nine consecutive years. Its Oconee Nuclear Station has generated more electricity than any other nuclear plant in the United States. Its rates are substantially below the national average and among the lowest in the Southeast. It was one of the first utilities to develop a compre-hensive load management plan, praised by a leading securities firm as among the most aggressive in the nation. Its environmental protection program dates back to the 1920s and today serves as a model for other utilities.

From the days ofits founding, Duke Power has been guided by a "do-it-yourself and do-it right" philosophy. The Company's record of achievement is built on a commitment to excellence spearheaded by t

senior management and shared by its 20,000 employees.

But past achievements are no guarantee of future success. To sur-vive in today's unpredictable economic environment, a company must carefully control its costs, strengthen those operations vital to its suc-cess and continually be on the lookout for new opportunities.

To position itself for the future, Duke is directing its efforts toward achieving greater cost efficiency and increased productivity, while structuring itself to capitalize on new and expanded business op-portunities. By building on its tradition of excellence, Duke will have i the strength and flexibility to meet whatever challenges lie ahead.

Cost Efficiency Duke initiated a Corporate Goals Program in 1981 to improve cost ef-and Productivity ficiency, productivity and profitability. Under this program, the Com-pany challenges its employees each year to meet specific, measurable performance goals. Employees have responded by achieving 27 of the 31 targeted goals since the program began, saving the Company and its 3

customers millions of dollars in labor, materials and administrative i expenses.

! In 1983 alone, for example, Duke succeeded in increasing less-expensive nuclear power production 50 percent. Since 1981, the Com-pany has continued to surpass fuel efficiency goals for its coal-fired plants - maintaining its perennial dominance in fossil-plant efficiency.

D,N,"n","ric;"jy",c- Other performance goals achieved during the past three years include back to th,,arly 10003, a 44 percent improvement in service reliability to customers, a 29 per-Duke has consistently built cent drop in the number of accidents involving Company vehicles, and

$',l$IoYth,"n$ri$n'"[' a 26 percent reduction in the number of disabling injuries on the job.

amage. The success of the Corporate Goals Program has spawned other 12

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Through a cost reduction program introduced in 1982, for example, employees have identified ways to cut operating and capital costs by

. more than $10 million. Suggestions adopted range from switching in-dustrial cleaning agents for an approximate savings of $12,000 a year, to reducing the volume and the cost of processing low-level radioactive

' waste at the Oconee Nuclear Station for an estimated annual savings of

$1.2 million.

This emphasis on cost efficiency and greater productivity has per-meated all levels at Duke Power. Many departments are using quality circles to involve workers directly in solving day-to-day problems. Sala-ried employees work under a performance management program that clearly defines individual performance objectives and ties future pay 4

and promotion opportunities to meeting them.

In addition to stressing day-to-day cost efficiency, the Company j also is working on several fronts to reduce the need for expensive new  ;

construction and make more efficient use of existing generating facili-4 ties. Through more than 40 load management programs, Duke is seek-

ing to reduce growth in peak demand by almost seven million kilo-l watts by 1998 and spread the use of electricity more evenly around the clock. Achievement of this goal will eliminate the need to build about six new, large generating units.

j As part of this effort, the Company is encouraging its conenercial and industrial customers to install sophisticated energy management equipment. The new Charlotte / Douglas International Airport, for ex-1 ample, is equipped with three 125-ton water chillers that reduce air i conditioning load during periods of peak demand. The system chills i and stores water during off-peak periods and recirculates it for cooling the facility during on-peak hours.

i Duke also is experimenting with advanced energy management i technology in its own facilities. A 40-module, zinc-bromide battery was j installed this year in the Charlotte headquarters, storing power pro-duced off peak for use on-peak. This type of battery may ultimately have a wide range of utility and industrial applications.

To further minimize investment in new construction, the Com-l l pany is upgrading and modernizing its older power plants to extend their lives. As part of this effort, microprocessors are being installed so plant systems may be monitored continually and more precisely. New graphics monitors for station control rooms will display schematics of

! [c'a$'$nc'e 'prex all tant vital components, helping operators keep a constant eye on impor-plant functions.

1 are used to monitor enei.

, mnmental conditions as As Duke applies new technology to improve plant performance, l' """,%n","$m. it also is putting technology to work to improve the performance and ance. productivity ofits employees. Duke was one of the first electric utilities 14

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- a to invest in a computer-operated control room simulator for training nuclear plant operators. Lessons learned on the simulator enhance safety and reduce costly downtime at the Company's nuclear plants. ,

Advanced technology also is playing a major role in the Compa- i ny's continuing commitment to preserving the natural resources sur-rounding its generating facilities. Staffed by more than 200 profession-als, the Company's environmental facilities are among the most modern in the electric utility industry. Application of the latest tech- i nology is helping Duke meet one of the industry's toughest challenges:

complying with increasingly restrictive environmental regulations while continuing to operate efficiently, provide affordable power and earn a fair return for shareholders.

Through these efforts to improve productivity and cost efficiency, Duke is working to maintain its leadership position in the electric util-ity industry.

New and Duke Power is also exploring ways to enhance profitability and flexibil-Expanded ity by developing new business strategies within and beyond the scope Business of the electric utility business.

Strategies The guiding philosophy behind this effort is to capitalize on the Company's existing strengths, while minimizing capital commitments.

Through its Management and Technical Services (MATS) section, Duke is marketing the expertise it has acquired in designing, building and operating its own plants. MATS was established in 1982 to market engineering, construction, quality assurance, consulting and additional utility-related services to other companies.

On a selective basis MATS already has undertaken 44 projects for 22 different clients throughout the country. They range from design-ing cogeneration facilities for industry to assisting other utilities in im-proving their power plant performance.

Through its MATS activities, Duke is seeking not only to capital-ize on its established strengths, but also to stay at the forefront of new technology. MATS was selected in 1983 to perform the design and en-gineering work for an atmospheric fluidized bed combustion demon-stration plant to be operated by the Tennessee Valley Authority in western Kentucky. This advanced coal burning process holds promise for both economical power production and environmental benefits.

computer aiaca arafting The Company will gain firsthand experience with the coal-burning has increasea proauaitity technology of the future through its role in the project.

fiefold for engineering Duke also is expanding the role of its subsidiaries, Mill-Power d"jfE7',Ia'cl!$3d';a i$ " Supply Company and Crescent Land & Timber Corp., to maximize for outsia< projects unaer- their potential.

'"h'ad),',h',c",",P""j Mill Power has moved beyond its traditional wholesale electrical Technical s<rtices section. supply business and is now selling advanced energy management sys-16

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tems and controls to a variety of businesses and industries. The subsid-iary opened its third major distribution center in the Carolinas in 1983 and recently acquired an electrical equipment distributor in South Carolina.

Crescent Land & Timber is detennining the best and most prof-itable uses for its many resources. In addition to systematically planting and harvesting timber on more than 220,000 available acres, Crescent is now exploring the potential for mineral deposits on its land. It also is embarking on real estate development with the establishment of a new business park south of Charlotte.

Duke subsidiaries contributed $10.4 million to after-tax earnings in 1983. While the Company is pursuing expanded unregulated activi-ties to enhance its profitability, it is doing so with deliberate caution, and earnings growth is likely to be moderate in the near-term. Still, they should provide the Company with greater flexibility and a base for future expansion.

Along with efforts to increase non-utility business earnings, Duke also is moving to market electricity more aggressively through new pro-grams to increase power sales without adding to peak demand. The Company is developing innovative rate structures and promoting the use of sophisticated energy management equipment to encourage cus-tomers to use more electricity during off-peak hours.

A prime example is the add-on heat pump, designed to be used in combination with oil or gas furnaces. Heat pumps operate most effi-ciently in less severe weather, when adequate generating capacity is also available. The customer's supplementary oil or gas system takes over in extreme cold, when those systems work more efficiently and demand for electricity is high.

The Company also is working to attract more three-shift indus-tries to its service area and is seeking additional contracts for bulk crescene I.and e Timber power sales to other utilities and large industrial customers.

Although these new ventures are important to Duke's future, the c;l,P),"

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nocooact,onanacut Company's primary commitment continues to be providing reliable, hid Pmmisc hr vearer reasonably priced electric service to its 1.4 million customers. As in the

$*iI"/n$e'la*e',"","' d past, Duke's commitment to excellence and its detennination to be the denlopment. best will be the cornerstone ofits future success.

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-rom comm Management's Discussion and Analysis of 1, Results of Operations and Financial Condition 1

Net Income and Dividends From 1979 to 1983, in 1981, requirements by the Nuclear Regulatory Results of camings per share increased at an annual rate of Commission and inflation. (See " Selected Finan- l Operations 7 percent, from $2.88 to $3.77. Total Company cial Data - Effects of Changing Prices.") Fuel earned return on average common equity was and purchased power expenses increased at an 14.8 percent for 1983. During the past five years, annual rate of 6 percent over the five-year period.

the return achieved on the Company's retail elec- From 1979 to 1981, fuel expense rose because the tric business has been consistently below the re- unit price of fuel increased while the generation turn found fair and reasonable by the North Car- mix remained relatively constant. In 1982, lower olina Utilities Commission (NCUC). The levels of generation reflected the decline in the NCUC currently alkrvs a 15.25 percent return economy, thus reducing fuel expense. As a result on common equity. Dividends per share in- of improved nuclear and hydroelectric genera-creased at an annual rate of 6 percent, from $1.83 tion, fuel expense continued to decline in 1983, in 1979 to $2.32 in 1983. even though total generation rose 7.5 percent Revenues Electric revenues increased at an over the prior year.

annual rate of 13 percent between 1979 and 1983 Other Allowance for funds used during con-because ofincreases in rates and kilowatt-hour struction (ADC) increared during the 1979 1981 sales. Rate increases were necessitated by the ef- period as a result of higher construction work in fects of increased operating expenses, recovery of progress and embedded cost of funds. However, the cost cf canceled construction projects and the in 1982 and 1983, ADC decreased because inclusion of construction work in progress McGuire Unit 1 began commercial operation, ad.

(CWIP) and McGuire Unit 1 in rate base. ditional CWIP was included in rate base and sev-Kilowatt hour sales increased by an average of eral nuclear projects were canceled. Since 1979, 2 percent annually. Sales in 1983 were 5.4 per- interest deductions and dividends on preferred cent higher than in 1982, primarily because of and preference stocks have increased at annual the improved economy and unusually hot sum- rates of 10 percent and 4 percent, respectively.

mer weather. These increases are due to higher financing rates Operating Expenses During the 1979-1983 and the issuance of additional securities.

period, the most significant increase in electric The assets of Eastover Mining Company and expenses was in non-fuel operating and mainte- the related land leased from Eastover 1.and Com-nance, which rose at an annual rate of 18 percent. pany were sold in 1983. A provision for loss of This increase was primarily attributable to $30 million was recorded in 1982 (after the effect McGuire Unit i beginning commercial operation ofincome tax benefits of $28 million).

Capital Needs Since January 1,1979, additions to property of through 1986, excluding costs related to the por-

$3.9 billion (including nuclear fuel) and retire- tions of the Catawba Nuclear Station that have ments of $1.1 billion have resulted in a net in- been sold. Major plant construction costs should crease in gross plant of $2.8 billion. During 1983, constitute a lower percentage of the Company's additions to property of $680 million (including capital requirements for the next three years.

nuclear fuel) and retirements of $598 million re- Construction plans continue to reflect a lower suited in a net increase in gross plant of $82 mil- projected growth rate of peak load, which is due lion. Retirements were unusually large because of in part to the Company's comprehensive load i the sale of a portion of the Catawba Nuclear Sta- management program and energy conservation.

tion in 1981 and the cancellation of the Perkins The construction program includes plans for and Cherokee nuclear projects during 1982 and three nuclear units to begin commercial opera-1983. (See Notes 3 and 5 in Notes to Financial tion within the next four years. Commercial op-Statements.) eration of McGuire Unit 2 is scheduled for early Expenditures for construction of major gener- 1984. Total estimated costs, including initial core I ating facilities and for nuclear fuel constituted ap- nuclear fuel, for both units of McGuire are $2.2 I proximately 78 percent of the Company's capital billion. The Company's portion of the total esti-requirements during the past five years. Addi- mated construction and initial core nuclear fuel tional funds were required for transmission and costs for both units of Catawba is $1.0 billion, in-distribution facilities, the refunding of maturing cluding $654 million spent as of December 31, securities and sinking funds, and increased work. 1983. Commercial operation of Catawba Units 1 ing capital. and 2 is scheduled for 1985 and 1987, respective-Projected construction and nuclear fuel costs ly. Construction of this station is currently ahead are $2.1 billion for the three year period 1984 of schedule.

20

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p Liquidity ad - Improvement = in several key Anancial indicators book ratio improved, generally exceeding 90 per-

were largely attnbutable to improved earnmes cent. In 1963, the Company L=/- - =. red a plan and the cancellanon of mapr constructen proj-to purchase common stock on the open market

[..- Iects. During 1963, intemal cash generanon, in. - to sansfy the requirements of the Employees' ciudmg the tax effects o(the Cherokee cancella.

.j Stock Ownership Plan and authorned open-tion, amounted to 83 percent, ---A = the market purchases, which began in 1964, for the '

Company's goal of 50 percent. From 1979 to Stock Purchase-Savings Program for Ew.vk r a j

L 1982, funds from operanons provided approxi- Utilizing open-market purchases for these two mately 33 percent of the Company's capaal re. plans will reduce the need to issue additional quirernents. As a result o(an improved Anancial common stock, thereby miniminns revenue re-ponnion, the Company had approximately $126 quirements and the dilution o(earnings and com-million in short term investments at year end. mon stock equity The Company prefers to limit short term debt to . During the past Ave years, the Company has about $150 milhon and currently maintains bank been granted retail rate increases allowing ap-lines of credit of $385 million. The appropriate prosumately 58 percent of the requested addi-amcunt of such lines of credit is under tional revenues. As of December 31,1963, the recensideration. _

Company had race requests pendmg in each o(its Additional funds were obtained during the three regulatory jurisdictions. These requests 1973-1983 penod from the sales of $788 million seek recovery of the Company's investment in in Arst and refunding mortgage bonds, $137 mil- McGuire Unit 2, a higher rate of retum on com-lion in preferred stock, and $557 million in com- mon equity and increased operating expenses.

mon stock, including the non-cash exchange for The Company's requests in its South Carolina bonds in January 1962. (See Note 4 in Notes to and wholesale jurisdictions also include Financial Statements.) The Company also ob- Cherokee cancellation costs not previously re-tained $521 million from the 1981 sale of a por- flected in rates. (For rate information by jurisdic-tion of the Catawba Nuclear Station, eliminating tion, see Notes 2 and 3 in Notes to Financial the need for external Anancing in that year. In Statements.)

june 1983, the Company borrowed the proceeds in the North Carolina jurisdiction, the Com-of the sale of $102 million principal amount of pany requested permission to implement an in-pollution control revenue bonds issued by terim rate increase in conjunction with the com-Oconee County, S.C. As of December 31,1963, mercial operation of McGuire Unit 2, scheduled the Company had received approximately $% for early 1964. The Commission denied the million in proceeds, with the remainder to be re. Company's request, but ruled instead that the ceived over the next three years as expenditures costs associated with the unit allocated to the are incu red. Further significant long-term public North Carolina retail jurisdiction must be de-Anancings are not anticipated in the near future.

ferred until a rate order is issued on the entire case.

As of December 31,1963, the capital structure Certain of the Company's wholesale customers was 45 percent long-term debt,12 percent pre- purchased ownership interests in the Catawba ferred stock and 43 percent common equity. This Nuclear Station in prior years. In accordance structure is consistent with the Company's finan- with these purchase agreements, in 1983 the buy-cial goals. ers began supplying electricity to their members As a result of higher camings,1963 Axed. - municipalities and cooperatives that formerly charges coverage, using the Securities and Ex. were customers of the Company.

change Commission method, increased to While 1983 was a year of signincant Anancial 3.% times, representing signincant progress to- achievement, the Company's ability to maintain ward meeting the Company's soel of 3.5 times. Its level of Anancial strength will be dependmt i For 1979 through 1982, actual coverage did not upon many factors. Signincant factors in the '

change signincantly because higher camings were Company's immediate Anancial future include offset by increasing costs of debt. adequate and timely race relief, reliable nuclear From 1979 through 1962, the market price of plarit performance, increased kilowatt hour sales, the Company's common stock averaged 85 per- and continued economic imymwa.at in the cent of book value. During 1963, the market-to- Piedmont Carolinas.

21

DUKE POWER COMPANY 8tatementS OfIncome Year Ended December 31 fMan in rhouundo 1983 1982 1981 54,151,333 51,380,037 53,547,929 Kilowatt Hour Sales (thousands) .

$2,420,252 $2.244.480 $1.908.454 Electric Revenues (Notes 1 and 2) .

Electric Expenses Operation Fuel used in electric generation (Note 1) . 739,829 781,406 790,% 7 l Net interchange and purchased power (credit) (19,819) (10,685) 25,068 Wages, benefits and materials. 350,162 329,954 264,488 l

Maintenance of plant facilities . 187,267 177,766 131,670 Depreciation and amortization (Notes 1 and 3) 209,750 186,080 142,899 173,826 158,289 139,140 General taxes . .

330,023 231.902 137.872 Income taxes (Notes 1 and 12) . .

Total electric expenses . 1,971,038 1.854.712 1.632.104 Electric operating income 449,214 389.768 276.350 Other Income (Notes 1,5 and 12)

Allowance for equity funds used during construction . 144,048 146,214 159,285 Earnings of subsidiaries, net . . . 10,415 7,039 14,662 Provision for loss on disposal of assets . - (30,000) -

Other, net .. ..

5,391 12,548 28,791 Income taxes-other, net (deduction) . (3,037) (11,687) (9,442)

%,184 50.934 60,747 Income taxes-credit .

Total other income 213,001 175.048 254.043 income before interest deductions . 662,215 564.816 530.393 Interest Deductions Interest on long-term debt. 272,349 254,643 245,070 6,766 12,802 11,694 Other interest , ... ..

Allowance for borrowed funds used during (48,177) (52,506) (62,622) construction (credit)(Note 1) .

Totalinterest deductions . 230,938 214.939 194.142 income before extraordinary item 431,277 349,877 336,251 Extraordinary item (Note 4) -

48.3N -

Net income .

431,277 398,181 336,251 Dividends on preferred and preference stocks 62,600 62.164 57.895 Earnings for Common Stock $ 368,677 $ 336.017 $ 278.356 Common Stock Data Average shares outstanding (thousands) . 97,784 93,679 87,313 Earnings before extraordinary item . $3.77 $3.07 $3.19 Extraordinary item -

0.52 -

Eamings per share . $3.77 $3.59 $3.19 Dividends per share . $2.32 $2.24 $2.08 See Notes to Financial Statements.

22

DUKE POWER COMmm 8tatements of Source of Funds

for Plant Construction Costs Year Ended December 31 (ddlan in riunuando 1983 1982 1981 Funds from Operations Income before non-fund extraordinary item . $431,277 $349,877 $336,251 Non-fund items Depreciation and amortization (Notes 1 and 3) 324,608 268,651 224,675 Deferred income taxes and investment tax credit, net of amortization (Note 12) . . . 333,045 159,515 109,572 Equity component of the allowance for funds used during construction . (144,048) (146,214) (159,285)

Other, net (6,073) 25,171 (13,146)

Funds from operations. 938,809 657,000 498,067 Dividends paid. . (289,564) (272,115) (239,598)

Funds retained in the business . 649,245 384,885 258,469 Funds from Financiugs and Sale of Assets-Net Proceeds Common stock (Note 4) 84,326 199,134 35,954 lbilution control series 45,648 - -

Nuclear fuel trusts . 60,645 33,052 42,248 Term notes -

79,721 -

First mortgage bonds . - 221,521 -

Preferred stock -

38,2 % -

Sale of an interest in the Catawba Nuclear Station (Note 5) - -

520,562 Decrease in notes payable (57,210) (114,140) (25,650)

Funds from financings and sale of assets 133,409 457,584 573.114 Total available funds . 782,654 842,469 831,583 Increase in Working Capital . (165,879) (58,068) (92,946) long-Term Debt Retired / Preferred Stocks Reacquired (Note 4) . (81,097) (194,555) (93,551)

Plant Construction Expenditures . 535,678 589,b46 645,086 Equity Component of the Allowance for Funds Used During Construction . 144,048 146,214 159,285 Plant Construction Costs $679,726 $736,060 $804,371 Summary of Plant Construction Costs Production . $376,134 $405,329 $504,292 Transmission . 32,022 40,599 36,233 Distribution . 127,989  !!3,881 112,073 General 38,966 23,895 22,557 l Subtoral . 575,111 583,704 675,155 l Nuclear fuel . 104,615 152,356 129,216 Plant Construction Costs $679,726 $736,060 $804,371 See Notes to Financial Statements.

l 23

DUKE POWER COMPANY B; dance Sheets k

I Assets December 31 (douan in %-# 1983 1982 Electric Plant (at original cost-Notes 1,3,10 and 13)

Electric plant in service . . ... . .

$6,270,799 $5,940,941 <

Less accumulated depreciation and amortization . 2,405,150 2.106.427 Electric plant in service, net . . . .. 3,865,649 3,834,514 Construction work in progress .

2,2 %,843 2.551.177 Total electric plant, net . 6.162,492 6.385.691 Othee Property and Investments Other property-at cost (less accumulated depreciation:

1983 - $8,022; 1982 - $7,384). .

34,773 28,675 61,808 75,430 Investments in and advances to subsidiaries (Note 1) . .

29,317 24.900 Other investments-at cost or less Total other property and investments 125,8 % 129.005 Current Assets 596 4,053 Cash (Note 6) .

Short-term investments . .

125,590 -

Receivables (less allowance for losses:

1983 - $3,982; 1982 - $3,983). . 232,577 162,671 Refundable income taxes (Note 12) 41,209 -

Materials and supplies-at average cost Coal . 138,217 179,987 Other . 105,735 98,815 Prepayments . 10,316 8.841 Total current assets . 654,240 454.367 Deferred Debits Debt expense, being amortized over terms of related debt . 4,045 4,%1 Canceled construction projects (Notes 3 and 12) . 414,633 77,794 Other . 18,137 5.%2 Total deferred debits . 436,815 88.717 Total Assets. $7,379,445 $7.057.780 See Notes to Financial Statements.

24

Capitalization and Liabilities December 31 (ddian in elvmsandd 1983 1982 Capitalization (see Statements of Capitalization) f Common stock equity . .

.. $2,616,340 $2,388,592 Preferred and preference stocks without sinking fund requirements . 422,148 424,035 Preferred stocks with sinking fund requirements. 295,053 304,026 Long-term debt 2,745,889 2.712.372 Total capitalization 6,079,430 5.829,025 Current Liabilities Accounts payable . 116,297 87,664 Interest accrued . 89,973 85,453 i Taxes accrued . 56,063 61,037 Other . 26,075 25.360 Total . . 288,408 259,514 Notes payable for construction (Note 6) . . - 57,210 Current maturities of long-term debt and preferred stock . 55,993 60,851 Total current liabilities l 344,401 377,575 Accumulated Deferred Income Taxes (Notes 1 and 12) . 605,399 486.834 Deferred Credits investment tax credit (Notes 1 and 12) . 313,139 349,327 Other. 37,076 15.019 Total deferred credits . 350,215 364,346 l Commitments and Contingencies (Notes 3 and 13)

Total Capitalization and liabilities $7,379,445 $7,057,780 l

l See Notes to Financial Statements.

25

muu.ro - co - w Statements of Capitalization and Retained Earnings 1

December 31 l Capitalization 1983 1982 l taaran in (N=iando Common Stock Equity (Notes 4 and 7)

Common stock, no par,150,000,000 shares authorized; 99,633,699 and

$1,820,828 $1,734,611 95,948,783 shares outstanding for 1983 and 1982, respectively 795,512 653.981 Retained earnings. .

Total common stock equity 2,616,340 2.388.592 j i

Preferred and Preference Stocks Without Sinking Fund Requirements (Note 8) 415,000 415,000 Preferred stock . .

7,148 9.035 Preference stock .

Total preferred and preference stocks without sinking fund requirements 422,148 424.035 1 Preferred Stocks With Sinking Fund Requirements (Note 9) 295,053 304.026 fong-Term Debt (Note 10)

First and refunding mortgage bonds .

2,511,370 2,474,598 58,725 58,725 Promissory note due subsidiary,16%%-due 1989 .

Term note, floating rate-due 1987 . 21,000 21,000 Term note,9.025%-due 1985. .. ...

4,000 6,000 Ibilution control obligations,75% of prime rate-due 1983 - 2,500 93,937  %,738 Capitalized leases . .

125,000 125,000 Nuclear fuel trusts . ..

Unamortized debt discount and premium, net (18,550) (15,338)

Current maturities of long-term debt . (49,5_93) (56.851)

Totallong term debt . 2,745,889 2.712.372 Total Capitalization $6,079,430 $5.829.025 Retained Earnings Year Ended December 31 1983 1982 1981 iJdian in iN=rando Balance-Beginning of year . $653,981 $529,842 $433,245 431,277 398.181 336.251 Add-Net income .

Total . 1,085,258 928.023 769.4 %

Deduct Dividenda 226,964 210,206 181,703 Common stock . . .

Preferred and preference stocks . 62,600 62,164 57,895 Capital stock expense 182 1.672 56 Total deductions. _ 289,746 274.042 239.654 Balance-End of year . $795,512 $653,981 $5E8_42 See Notes to Financial Statements.

26

DUKE POWER CJMIMY s

Notes'to' Financial Statements g:%

q 45 ,, >

\/ .\

1, Summary of ctric Plant

~^ A.

TheAddM CWanygcowt t%eizes all construction related ized; the cost of repairs and replacements repre-

SI'gninCanty ,, I , ', direct' tabor and raanrials, as well as indirect con- senting less than a umt of property is charged to Accounting strucen cws, including general erenemng. electric expenses. The orig >nai cost of property y' j polici,C1 taxes and ti;e cost of m ney (all wance for funds turd Puring cori tiuction). The cost of renewals retired, together with removal costs less salvage value, is charged to accumulated depreciation.

gN s

\ ,

an'd bettt rmens of units of property is capital-t

1. Allowance for Funds Used During Copstmetion (ADC) 3, ADC is an accounting procedure whereby tt e pleted, a utility is permitted to recover these capi-

./ L net composite interest and equity costs or capital tal costs, including a fair return, through their in-i"' '

funds used to fmance construction are capitali:ed clusion in rate base and in the provision for de-in the same manner as construction labor and preciacion. CWIP included in the Company's material costs. ADC, a non-cash, non-operating North Carolina rate base and excluded for pur-item, is recognized as a cost of" Electric Plant" poses of capitalizing ADC was $282 million and with offsetting credits to "Other Income" and $276 million as of December 31,1983 and 1982,

" Interest Deductions." Under established regula- respectively.

k

, tory prrtices, a utility is permitted to capitalize ADC, which is compounded semiannually,

,g ADC with respect to construction work in prog- was calculated on average embedded rates (net of ress (CWIP) not included in rate base, but is not applicable income taxes) of 9.45 percent,9.38 per-

$ permitt'ed to do so with respect to CWIP in. cent and 8.67 percent for 1983,1982 and 1981,

, N' . tiuded in rate base. After construction is com- respectively.

.h '?((-

tS'.. f

t C. Depreciation and Amortization

', di mvisions f for depreciation are recorded using the clude estimates for disposal costs. Such provi-

, vr*ht-lirk method. The year end composite sions, which are included in " Fuel used in electric t

ydghted-avecage depreciation rates were 3.47 generation," are recorded using the unit of-s , percent for 1983 and 1982 and 3.44 percent for production method. Under the provisions of the

, c /1981, b'Icual fired generating units are depreci. Nuclear Waste iblicy Act of 1982, the Company 3 ' ated .it the rate of 337 percent. Nuclear units are began making payments in 1983 to fund develop-O depreciated at a 4.0 percent rate, which includes ment and implementation of nuclear waste repos-an allowance for decommissioning costs. Itories to be constructed and maintained by an

, ProWlons for amortization of nuclear fuel in- agency of the United States government.

\

.\ D. Subidiaries The Company m( ounts for investments in 1982 its and $981,302 in 1981.

\' '

x subsidules, all dwhich are wholly owned, using The assets of Eastover Mming Company a.v1 N the equity me6ad /See " Subsidiaries" on page the related land leased from Eastover 1.and Com.

k x' 41.) Retained cirnings include $55,902,347 of pany were sold in 1983. A provision for loss of undistriin ed earnings of subsidiaries as of De- $30 million was recorded in 1982 (after the effect cember 31,1983. Dividends received from subsid- ofincome tax benefits of $28 million).

laries were $2,2%,C)0 in 1983, $1,600,000 in E. Income Taxes The Company and its subsidiaries file a consoli- rate base.

dated federal income tax return. Income taxes are Deferred income taxes are provided for timing allocated to each company based on its taxable in. diiferencer, between book and tax income, princi-come or loss. pally resulting from loss on canceled construction Income taxes are allocated to electric operating projects, accelerated tax depreciation, capitalized expense and to non-ciectric operations under taxes and employee benefits, and nuclear fuel dis-

"Other Income." The " Income taxes credit" clas- posal costs. Investment tax credit is deferred and sified under "Other Income" results from tax de- amortized over the useful lives of the related ductions of interert costs relating to im estments properties. At December 31,1983, the Company in non utility properties, mainly canceled con- had unused investment tax credit of approxi-struction projects and CWlP not included in mately $i9 million.

5 F. Fuel Cost Adjustment Procedures Fuel costs are reviewed semlannually in the through base rates. Fuel costs in base rates in the wholesale and South Carc>ina retail juttsdictions North Carolina retail jurisdiction are reviewed

(

with provisions fa changing such costs m base during general rate case proceedings. Also, an an-N rates. These jurisdictions allow the Company to nual fuel hearing to review such costs in base reflect in revenues the difference between actual rates is provided.

fuel costs incurred and fuel costs recovered l

1. , 27 o

The North Carolina Utilities Commission and wholesale rate schedules. The following table sets 2, Rate Matters The Public Service Commission of South Caro- forth, as filed, information concerning all rate in-lina must approve the Company's rates for retail creases requested or implemented by the Com-sales within the respective states. The Federal En- pany since January 1,1981. The revenues shown ergy Regulatory Commission (FERC) must ap- (in milliorts of dollars) are annualized on the basis i prove the Company's rates for sales under its of the fding test year.

Approved

% of increase Over End of Jurisdiction and Requested  % of Previous Rate Order 12 Mon *h Date Filed Revenues Revenues Request Revenues Effective Test Ibriod N. C. Retail March 1981 $211.0 $166.4 78.9 14.99 December 1981 December 31,1980 March 1982 197.0 61.7 31.3 4.38 November 1982 December 31,1981 February 1983 112.9 76.2 67.5 5.18 September 1983 September 30,1982 November 1983 212.8 - - - Pending June 30,1983 S. C. Retail December 1980 103.7 57.0 54.9 13.00 January 1982 December 31,1980 February 1982 99.4 40.7 40.9 7.10 March 1983 June 30,1982 September 1983 136.0 - - - Ibnding April 30,1983 FERC Wholesale

• June 1981 46.9 30.7 65.5 11.90 August 1982 September 30,1982 August 1982 44.1 26.0 59.0 8.70 June 1983 December 31,1983 December 1983 12.7 - - - Ibnding December 31,1984 TERC wholesale fdings beginning December 1983 do not include certain municipalities and coopera-tives that in prior years purchased interests in the Catawba Nuclear Station. Sales to these municipali-ties and ccoperatives previously represented a majority of the Company's wholesale revenues. Effec-tive July 1,1983, and November 1,1983, these rates are set through contractual agreements.

The Board of Directors in 1983 announced the The Federal Energy Regulatory Commission has 3* Canceled , cancellation of Unit 1 of the Cherokee Nuclear Construct 10n Station. Cancellation of Units 2 and 3 of the brmitted e Company recovery of costs is currently related seeking to of recovery IVrkins.

Projects Cherokee Nuclear Station and the ltrkins Nu- the remaining incurred costs.

clear Station was announced in 1982. The in- As of December 31,1983 and 1982, the bal-curred costs of Ittkins and Cherokee are being ance for these canceled projects, excluding land amortized principally over a 10-year period begin- and net of amortization, was $632,127,000 ning October 1983 in accordance with recovery ($414,633,000 net ofincome tax benefits - see permitted by the North Carolina Utilities Com- Note 12) and $77,794,000, respectively. Addi-mission. The Ibblic Service Commission of tional costs relating to the cancellations are not South Camlina has permitted recovery of costs expected to be significant.

related to Ibrkins and Cherokee Units 2 and 3.

4, Extraordinary on January 7,1982, the Company issued mortgage bonds with a face value of 3,727,544 shares of common stock with a market $119,902,000. The transaction resulted in a non-Itent value of $73,489,000 in exchange for portions of taxable gain of $48,304,000, or $0.52 per share, several series of outstanding first and refunding on the retirement of the bonds. l 28

t i

5. Other Income .. In libruary 1981, the Company sold a 75 percent totaling $76 million were received. At December interest in Unit 1 of the Catawba Nuclear Station 31,1983 and 1982, " Construction work in prog-Q' and a 37.5 percent interest in the station's sup-$653,553,000 and $516,951,000, ress" included port facilities to groups of North Carolina and respectively, representing the Company's invest-

• ' South Carolina rural electric cooperative custom- ment in its temaining interest in Catawba.

ers. At closing, $521 million and two notes

6. Short-Term ^5 of De*mber 31,1983, the Company had balance requirements of $1,443,000. Bank loans Borrowings lines ot'dedit with 67 commercial banks. These are either at the lending bank's commercial prime lines, plus the sale of commercial paper, were or market rate. Certain of the Company's bank used to Gnance current cash requirements. The line arrangements may require additional balances lines of credit were on a fee basis and/or a related to usage.

compensating-balance basis, with total average A summary of short-term borrowings and credit arrangements is as follows (dollars in thousands):

1983 1982 1981 Amount outstanding at year-end-average rates of 10.38%

and 11.69% for 1982 and 1981, respectively . $ - $ 57,210 $171,350 Maximum amount outstanding during the year . $111,210 $189,950 $250,398 Average amount outstanding during the yen $ 30,951 $ 74,148 $ 38,829 Weighted-average interest rate for the year-computed on a daily basis 8.92 % 12.38 % 15.39 %

Lines of credit at year-end $385,400 $385,400 $305,400

7. Common Stock Common S,ock and Retained in 1983,1982 and 1981, the Company received and 1,884,944 shares of common stock, respec-Earnings $84,326,000, $199,134,000 and $35,954,000 from tively. (See Note 4.)

the issuance of 3,605,980 shares,7,274,724 shares As of December 31,1983, certain shares of common stock were reserved for issuance as follows:

Shares Stock Purchase-Savings Program for Emplo 1,798,024 Conversion of Preference Stock . . . . . . . . yees 311,228 Dividend Reinvestment and Stock Purchase Plan 1,263,762 Customer Stock Purchase Plan . 1,096,089 Employees' Stock Ownership Plan 1.855.105 Total . 6,324.208

- Retained Earnings As of December 31,1983, none of the Com- respect to the declaration or payment of divi-pany's retained earnings were restricted with dends.

9 29 iea. ii i -+ ' - '

At December 31,1983 and 1982,10,000,000 price of $23.89 per share, with each share of pref-

8. Preferred and shares of preferred stock ($100 par value), erence stock valued at $100 par for such purpose.

Preference 10,000,000 shares of preferred stock A ($25 par The conversion price is subject to certain adjust-value) and 1,500,000 shares of preference stock ments designed to protect the conversion privi-Stocks Without lege against dilution. In 1983,1982 and 1981,

($100 par value) were authorized and issuable SinkinEFund with or without sinking fund requirements. 18,868 shares,45,759 shares and 72,477 shares Requirements The outstanding Preference Stock,6% percent were converted into 78,936 shares, 191,463 shares Convertible Series AA,is convertible into shares and 303,236 shares of common stock, respec-of common stock at the adjusted conversion tively.

Preferred and preference stocks without sinking fund requirements at December 31,1983 and 1982, were as follows (dollars in thousands):

Year Shares Issued Outstanding 1983 1982 Rate / Series 350,000 $ 35,000 $ 35,000 4.50% C 1964 1966 350,000 35,000 35,000 5.72% D 35,000 1968 350,000 35,000 6.72% E 60,000 1970 600,000 60,000 8.70% F 60,000 600,000 60,000 8.20% G 1971 60,000 1972 600,000 60,000 7.80% H 50,000 1977 500,000 50,000 8.28% K 40,000 1978 400,000 40,000 8.84% M 40,000 1982 1,600,000 40,000 15.40% A 6 % %, AA Convertible 1%9 71,482 7,148 -

90,350 -

9.035

$422,148 $424,035 Total .

-s value) and 1,500,000 shares of preference stock

9. Preferred Stocks At December 31,1983 and 1982,10,000,000 shares of preferred stock ($100 par value), ($100 par value) were authorized and issuable WIth io,ooo, coo sa,,es of preferred stock A ($25 par with or without sinking fund requirements.

Sinking Fund Preferred .tocks with sinking fund requirements at December 31,1983 and 1982, were as follows Requirements (dollars in thousands):

Year Shares Rate / Series issued Outstanding 1983 1982 7.35 % I 1973 600,000 $ 60,000 $ 60,000 8.20% j 1977 460,000 46,000 -

480,000 - 48,000 8.375% L 1978 480,000 48.000 500,000 - 50,000 =

8.84% N 1979 500,000 50,000 50,000 11.00 % O 1980 500,000 50,000 50,000 10.76% A 1975 2,160,000 54,000 -

2,220,000 - 55,500 Less: Preferred shares reacquired for current and future sinking fuad requirements-at cost Shares Rea: quired 10.76% A 120,000 (2,899) -

83,998 - (1,826) e 84% N 32,500 (2,419) (2,419) 11.00 % O 13,750 (1,229) (1,229)

Less: Current sinking fund requirement 7.35 % I (2,400) -

(2,000) (2,000) 8.20% J 8.375% L (2,000) (2.000)

$295,053 $3(M,026 Total .

30

The annual sinking fund requirements through The call provisions for the outstanding pre-1988, net of amounts reacquired, are $6,400,000 ferred and preference stocks specify various re-in 1984, $6,400,000 in 1985, $9.525,000 in 1986, demption prices not exceeding 115 percent of par

$9,525,000 in 1987 and $10,900,000 in 1988, with values, plus accumulated dividends to the re-some additional redemptions permitted at the demption date.

Company's option.

10. Long-Term First and refunding mortgage bonds outstanding at December 31,1983 and 1982, were as (c!!ows Debt (d liars in thousands):

Year Year Series Due 1983 1982 Series Due 1983 1982 (conunued) 3%% 1986 $ 30,000 $ 30,000 7%% 2003 $ 94,872 $ 94,872 14 % % 1987 50,000 50,000 81/e % B 2003 98,050 98,050 12 % 1990 75,000 75,000 9%% 2004 95,623 95,623 15 % % 1991 100,000 100,000 9%% 2005 92,800 92,800 4%% 1992 50,000 50,000 8%% 2006  %,850  %,850 4%%B 1992 50,000 50,000 8%% 2007 119,500 119,500 11% 1994 77,750 84,500 9%% 2008 120,610 120,610 4%% 1995 40,000 40,000 10 % % 2009 145,050 145,050 5%% 1997 72,600 72,600 10 % % B 2009 148,000 148,000 6%% 1998 68,500 68,500 14 % % 2010 100,000 100,000 7% 1999 56,075 56,075 13 % % B 2010 50,000 50,000 8% B 1999 64,739 64,739 14 % % 2012 125,000 125,000 8%% 2000 69,244 69,244 8%%B 2000 95,635 95,635 lbiluti n Control 7%% 2001 97,900 97,900 6%% 1988 25,000 -

7%%B 2001 38,050 38,050 9%% 2013 77,000 -

7%% 2002 78,100 78,100 Less: Funds held 7%%B 2002 67,900 67,900 in trust (58,478) -

Total . $2,511,370 $2,474,598 Substantially all electric plant was mortgaged at December 31,1983.

The annual maturities oflong-term debt (includ- Included in the annual maturities are amounts ing sinking fund requirements and capitali:ed relating to $125,000,000 in outstanding obliga-lease principal payments) through 1988 are tions under two nuclear fuel trusts. Such maturi-

$49,593,000 in 1984, $44,046,000 in 1985, ties are based on estimated nuclear fuel consump-

$74,793,000 in 1986, $102,591,000 in 1987 and tion. The Company intends to transfer title of

$36,096,000 in 1988. additional nuclear fuel to the trusts as fuel is consumed.

11 Retirement The Company and two ofits subsidiaries have a $32,000,000 in 1982 and $31,8%,000 in 1981. In Plan 1983, the plan was amended to provide for cer-non-contributol, plan covering s defined antially allbenefit retirement tain their employees. changes, including increased benefits for re-The Company's policy is to fund pension costs tired employees and survivor benefits. The effect accrued. Total pension expense, including trustee of these changes did not increase the Company's fees, amounted to $33,137,000 in 1983, pension cost for 1983.

A comparison of accumulated plan benefits and plan net assets at December 31,1982, the date of the latest actuarial report, and December 31,1981, is as follows (dollars in thousands):

1982 1981 Actuarial present value of accumulated plan benefits Vested . . . . . $251,426 $229,783 Non Vested . 52,554 71,742 Total $303,980 $301,525 Net assets available for benefits . $343,430 $263.241 The weighted-average assumed rate of return 1982 and 9.0 percent in 1981. The actuarial pres-used in determining the actuarial present value of ent value of accumulated plan benefits does not accumulated plan benefits was 9.25 percent in consider future salary increases.

31

12. Income Tax Income tax expense consisted of the following (dollars in thousands):

1983 1982 i981 Expense Electric Expenses Current income taxes Federal . $ 701 $ 58,118 $ 30,244 State (966) 21,694 11.183 (265Xa) 79.812 41,427 Deferred taxes, net Excess tax over book depreciation. 79,890 46,985 49,353 Capitali:cd taxes, employee benefits, etc. . 8,999 9,287 16,634 Loss on cancellation of Cherokee Nuclear Station . 210,329 (b) - -

Nuclear fuel disposal costs . 51,260(c) (12,893) (12,336)

Other , (6,318) 6.456 (8,281) 344.160 49,835 45,370 Investment tax credit Deferred ...... ........ - (a) 109,5 % 56,146 Amonization of deferments (credit) . (13.872) (7,341) (5.071)

(13.872) 102,255 51,075 Total electric expenses . 330,023 231.902 137.8].2.,

Other Income Income taxes-other, net (deduction) . 3,037 11,687 51,592 (d)

Income taxes-credit (56.184) (50,934) (60,747)

Total other income (53.147Xa) (39,247) 0.155)

Total income tax expense . $276.876 $192,655 $128,717 (a) Current income tax expense for 1983 is a credit principally due to the loss on the cancellation of all units of the Cherokee Nuclear Station and the deduction of the Company's liability to date under the Duke / Department of Energy Spent Nuclear Fuel Disposal Contract. The benefit of this tax loss for 1983 has been recognized as

• Refundable Income Taxes" on the Balance Sheets. This loss also eliminated all investment tax credit utilization for 1983.

(b) Represents deferred income tax expense related to the loss on the cancellation of all units of the Cherokee Nuclear Station. The related deferred income tax credits have been classified as a reduc-tion of" Canceled Construction Projects" on the Balance Sheets.

(c) Includes reversal of deferred income tax of $70,296,000 related to the current tax deduction of prior and current period liabilities for the Duke / Department of Energy Spent Nuclear Fuel Dispo-sal Contract.

Mincludes $42,150,000 resulting from the sale of assets in February 1981 and nominal amounts there-after. (See Note 5.) Such income taxes, which are included in "Other, net" on the Statements of in-come, reflect a taxable gain in excess of book gain resulting principally from the treatment of ADC.

Total current income taxes were $(56,186,000), $33,128,000 and $24,002,000 of which state income taxes were $(7,981,000), $15,687,000 md $11,086,000 for 1983,1982 and 1981, respectively.

Total deferred income taxes were $346,934,000, $57,272,000 and $53,641,000 of which deferred state income taxes were $42,773,000, $7,430,000 and $7,699,000 for 1983,1982 and 1981, respectively.

32

Income taxes differ from amounts computed by applying the statutory tax rate to pretax income as fol-lows (dollars in thousands)-

1983 1982 1981 Income taxes on pretax income at the statutory federal rate of 46% . ... $325,751 $263,365* $213,885 Increase (reduction)in tax resulting from:

Allowance for all funds used during construction (ADC) . (88,424) (91,411) (102,077)

Amortization of electric investment tax credit deferrals . (13,872) (7,341) (5,071)

State income taxes, net of...

federal income tax benefit . . . 18,874 12,132 13,595 increase in tax expense primarily because of excess of tax gain over book profit on sale of assets . - -

12,468 Other items, net 34.547 15,910 (4,083)

Total income tax expense (see above) . $276,876 $192,655 $128,717

• Pretax income excludes provision for loss on disposal of assets of subsidiaries recorded net of applica-ble income taxes. (See Note 1.)

13. Commitments A. Construction Program UUd The Company is engaged in a construction pro- sion, and actual construction costs incurred may

{ gram for which substantial commitments have vary from such estimaces. This is due to various Contingencies been made. Projected construction and nuclear factors, including changing levels ofinflation, re-fuel costs are $1.54 billion and $531 million, re- vised load estimates, the cost and .vailability of spectively, for the years 1984 through 1986. The capital, and the outcome oflicensing and envi-program is stAject to periodic review and revi- ronmental matters.

B. Nuclear Insurance The Company's public liability for claims result- premium to NML.

ing from any nuclear incident is limited to $580 The Company is a member of Nuclear Electric million under provisions of the Price-Anderson Insurance Limited (NEIL), which provides insur-Act, which provides for nuclear liability insur- ance for the increased cost of generation and/or ance up to that amount. A portion of this insur- purchased power resulting from the accidental ar.ce is provided through Nuclear Regulatory outage of a nuclear unit. Iflosses were to exceed Commission regulations pursuant to which the the accumulated funds available to NEIL, the Company could be assessed up to $5 million for Company would be liable for a retrospective pre-each of its licensed reactors in the event there is a mium adjustment currently estimated to be $31 nuclear incident imching any licensed facility in million, which is up to five times the regular an-the nation, with a maximum of $10 million a year nual premium.

for each ofits licensed reactors in the event of The Company purchases from NEIL, through more than one incident. At December 31,1983, its Excess Property Insurance Program, $425 mil-the Company had five licensed reactors includ- lion of property damage insurance. This is in ad-ing McGuire Unit 2, which is licensed but not dition to the $500 million of coverage provided scheduled to begin commercial operation until by the Company's underlying property damage early 1984. policies issued through NML Iflosses were to Property damage coverage for certain of the exceed the accumulated funds available to NEIL Company's nuclear facilities is provided through for the Excess Property Insurance Program, the membership in Nuclear Mutual I 'mited (NML). Company would be liable for a retrospective pre-If NML's losses were to exceed ita reserves, the mium adjustment of up to 7.5 times the regular Company could be liable, on a pro rata basis, for annual premium. The maximum potential liabil-additional assessments of up to $103 million, rep- ity per incident currently is estimated to be $18 resenting 14 times the Company's current annual million.

33

DUKE POWER COMPANY Auditors' Opinion Duke Power Company:

We have examined the balance sheets and the the costs of two units of the canceled station. As statements of capitalization of Duke Power Com- a result, recovery of costs related to the canceled pany as of December 31,1983 and 1982 and the nuclear station appears to be reasonably assured.

related statements ofincome, retained earnings Accordingly, our present opinion on the 1982 and source of funds for plant construction costs and 1981 financial statements, as expressed here-for each of the three years in the period ended in,is different from that expressed in our previ-December 31,1983. Our examinations were ous report.

made in accordance with generally accepted au- In our opinion, the financial statements re-diting standards and, accordingly, included such ferred to above present fairly the financial posi-tests of the accounting records and such other tion of the Company at December 31,1983 and auditing procedures as we considered necessary 1982 and the results ofits operations and the in the circumstances. source ofits funds for plant construction costs In our report dated February 18,1983, our for each of the three years in the period ended opinion on the 1982 and 1981 financial state- December 31,1983, in conformity with generally ments referred to above was qualified as being accepted accounting principles applied on a con-subject to the effects of such adjustments, if any, sistent basis.

as might have been required if the outcome of the uncertainty concerning regulatory approval to recover the costs associated with the cancella-tion of certain nuclear generating units had been known. As described in Note 3, during 1983 the N bMD J- b/1 Deloitte Ha-k.ms & Sells Company received approval to recover the costs of these canceled units allocated to its North Car, Certified Pub 9c Accountants olina retail jurisdiction and similar recovery has Charlotte, North Carolina been permitted in South Carolina with respect to February 17,1964 The financial statements of Duke Ibwer Com- normal course of performing their assigned func-Responsibility tions. The Company's accounting controls are

, . pany were prepared by management which is re-for Financial sponsible for their integrity and objectivity. The continually reviewed for effectiveness and are statements have been prepared in conformity augmented by written policies, standards and Staternents with generally accepted accounting principles ap- procedures, and a strong program ofinternal propriate in the circumstances to reflect in all ma- audit.

terial respects the substance of events and trans- The Board of Directors pursues its oversight actions that should be included. The other role for the financial statements through the au-information in the annual report is consistent dit committee, composed solely of directors who with the financial statements. In preparing the fi- are not officers or employees of the Company.

nancial statements, management makes informed The audit committee meets with management judgments and estimates of the expected effects and internal auditors periodically to review the l of events and transactions that are currently be- work of each and to monitor the discharge by ing reported. each of their responsibilities. The audit commit-The Company's system of internal accounting tee also racets periodically with the Company's control is designed to provide reasonable assur- independent auditors, Deloitte Haskins & Sells, ance that assets are safeguarded and transactions who have free access to the audit committee or are executed in accordance with management's the Board of Directors, without management authori:ation and recorded properly to permit present, to discuss internal accounting control, the preparation of financial statements irt accord- auditing and financial reporting matters.

ance with generally accepted accounting princi-ples. The Company's accounting controls pr&

vide re2sonable assurance that errors or g irregularities that could be material to the finan- M /*

cial statements are prevented or would be de- Norman P. Morrow tected by employees within a timely period in the Controller 34

DUKE POWER COMRM Long-Term Financings and Sale of Assets l

To meet its capital requirements, the Company has fmanced extensively with long-term debt and equity securities and has raised additional capital through other types of Anancings plus the sale of certain assets. In March 1983, the Company intro-duced the Customer Stock Purchase Plan, which enables customers to purchase common stock without paying brokerage fees. Financings from 1981 through 1983 were as follows (dollars in thousands):

1983 1982 1981 Price Per Net Net Net Financings Share Proceeds Proceeds Proceeds Common stock Stock Purchase-Savings Program for Employees *

(1,831,618 shares) $23.32 $ 42,712 (1,624,436 shares) 21.79 $ 35,390 (1,236,180 shares) 18.88 $ 23,344 Dividend Reinvestment and Stock Purchase Plan *

(1,226,818 shares) 23.56 28,903 (1,019,484 shares) 21.62 22,M2 (534,151 shares) 19.49 10,412 Employees' Stock Ownership Plan *

(143,633 sharcs) 22.78 3,272 (903,260 shares) 22.M 19,909 (114,613 shares) - -- 19.18 2,198 Customer Stock Purchase Plan *

(403,911 shares) 23.37 9,439 Bond / Stock Exchange (3,727,544 shares) 19.715 121,793 Total common stock 84,326 199,134 35,954 Preferred stock, $25 par 15.40% Series A, 1982 (1,600,000 shares; March 2). 38,296 Total preferred stock . 38,2 %

Long-term debt First mortgage bonds 15%% Series due 1991 (March 2) 98,680 14%% Series due 2012 (September 16) . 122,841 lbilution Control Series . 45,648 Total first mortgage bonds 45,648 221,521 Other financings Nuclear fuel trusts 60,645 33,052 42,248 Promissory note due subsidiary-due 1989 58,725 Term note-due 1987. 20,996 Total other financings . 60,645 112,773 42,248 Total long-term debt 106,293 334,294 42,248 Total financings . 190,619 571,724 78,202 Sale of Assets Sale of an interest in the Catawba Nuclear Station 520,562 Total long-term financings and sale of assets . $190,619 $571,724 $598,764

' Average price per share The Company began open-market purchases in September 1983 to satisfy the requirements of the Employees' Stock Owner-ship Plan. In addition, open-market purchases for the Stock Purchase-Savings Program for Employees began in early 1984.

35

DUKE POWER COMMNY Selected Financial Data 1983 1982 1981 1980 1979 Condensed Statements of Income (thousands)

Electric revenues $2,420,252 $2,244,480 $1,908,454 $1,682,822 $1,492,557 1,971,038 1,854,712 1,632,104 1,402,722 1,238,680 Electric expenses Electric operating income . 449,214 389,768 276,350 280,100 253,877 213,001 175,048 254,043 208,365 168,612 Other income Income before interest deductions 662,213 564,816 530,393 488,465 422,489 230,938 214,939 194,142 177,374 147,729 Interest deductions.

Income before extraordinary item. 431,277 349,877 336,251 311,091 274,760 Extraordinary item . - 48,301 - - -

431,277 398,181 336,251 311,091 274,760 Net income . .

Dividends on preferred and preference stocks 62,600 62,164 57,895 58,612 52, % 2 Eamings for common stock . $ 368,677 $ 336,017 $ 278,356 $ 252,479 $ 222,198 Common Stock Data Shares of common stock-year-end (thousands) 99,634 95,949 38,483 86,294 79,489

-average (thousands). 97,781 93,679 87,313 81,985 77,168 lYr share of common stock Earnings before extraordinary item . $3.77 $3.07 $3.19 $3.08 $2.88 Extraordinary item . -

0.52 - - -

Earnings . $3.71 , $3.59 $3.19 $3.08 $2.88 Dividends . $2.32 $2.24 $2.08 $1.95 $1.83 Book value-year-end $26.26 $24.89 $23.83 $22.82 $22.12 Market price-high-low . $26%-21% $24-20% $22%-15% $19%-14% $20%-16%

-year-end . $25% $23% $20% $18% $17%

Balance Sheet Data (thousands)

Total assets . $7,379,445 $7,057,780 $6,531,044 $6,328,174 $5.615,372 Long-term debt $2,745,839 $2,712,372 $2,545,694 $2,504,008 $2,300,488 Preferred stocks with sinking fund requirements . $ 295,053 $ 301,026 $ 308,674 $ 316,559 $ 268,500 Electric and Other Statistics Kilowatt hour sales (millions)

Residential 14,219 13,711 13,061 13,765 12,832 General service . 10,339 10,087 9,731 9,395 8,778 Industrial 20,907 19,345 20,667 20,060 20,260 Wholesale and other er.ergy sales . 8,686 8,237 9,289 _ 9.091 8,453 Total kilowatt-hour sales . 54,151 51,380 53,548 52,311 50,323 Number of customers-year-end Residential 1,167,846 1,139,248 1,125,371 1,105,035 1,078,419 Other . 189,329 183,061 181,331 179,370 175,258 Total customers 1,357,175 1,322,309 1,306,702 1,284,405 1,253,677 Residential customer data Average annual KWH use 12,278 12,065 12.392 12,560 12,013 Average revenue billed per KWH . 5.67c 5.41c 4.51c 4.11c 3.90c Number of employees-year-end Operating and maintenar.ce . 13,278 12,539 12,134 11,463 10,758 Engineering and construction 7,687 7,735 7,943 8,149 9,372 Source of energy (millions of KWH)

Generated-Coal . 32,46', 38,927 42,513 40,984 37,404

-Nuclear 25,059* 15,009 14,229 14,213 14,228

-Hydro 2,114 1,%9 843 1,820 2,809

-Oil and gas . 8 7 146 203 163 Net interchange and purchased power (1,003) (301) 494 (472) (512)

System average heat rate . 9,762 9,666 9,633 9,675 9,742 System load factor 58.6% 56.8 % 61.9 % 61.6 % 62.3 %

• Includes McGuire Unit 2 generation prior to commercial operation.

36

DUKE POWER COMBWY Selected Financial Data 1

i Quarterly Financial Data A summary of quarterly fmancial data for 1983 and 1982 is as follows (dollars in thousands, except per-share data):

i l Electric Electric Net Earnings i Revenues Operating Income Income Per Share 1983 by Quarter Fourth . $593,064 $ 91,310 $ 89,717 $0.74 Thh! 667,947 136,525 129,867 1.17 S sond -

553,388 103,450 96,922 0.83 Fe,- 605,853 117,929 114,771 1.03 _

l '-C by Q nrter lim.th . $540,925 $105,358 $ 71,127 $0.58

'I hird . 578,902 97,144 97,702 0.87 Second 531,2M 86,069 83,027 0.72 First . 593,449 101,197 146,325 1.42 Net income and earnings per share for the Arst quarter of 1982 include an extraordinary item of $48,304.000, or $0.52 per share. Net income and earnings per share for the fourth quarter of 1982 include a provision for loss on disposal of certain coal mining assets of $30,000,000, or $0.32 per share. Generally, quarterly earnings fluctuate with seasonal weather conditions, timing of rate increases (including fuel cost adjustment procedures) and maintenance of electric generating units, especially nuclear units.

Stock Market Information At December 31,1983 and 1982, the Company had approximately 124,609 and 121,218 holders of record of common stock, respectively. During 1983, approximately 58,664,500 shares of common stock were traded, compared with 47,462,800 during the previous year. The Company's common stock prices, as quoted by the New York Stock Exchange, and dividends paid are listed below.

Stock Stock Dividends Price Range Price Range Dividends _

Per Share ((igl3 Low thr Share High Low 1983 by Quarter 1982 by Quarter Fourth $0.59 $26% $24 Fourth $0.57 $23% $20%

Third 0.59 24 % 21 % Third . 0.57 23 % 20 %

Second. 0.57 24 22 % Second . 0.55 24 20 %

First 0.57 24 22 First 0.55 23 % 20 %

37

' MM . - . . , . . .

DUKE POWER COMPANY 8 elected Financial Data l

In recent years, the impact of peneral inflation ing Standards Board (FASB) issued Statement Effects of and changes in specific prices has caused distor- No. 33 requiring disclosure of the effects ofinfla-ganging prices tions in traditional accounting measurements of tion on a company's operations and financial income and capital. Although the rates ofinfla- position.

tion in recent years have suostantially decreased, Because the accompanying supplementary in-the replacement of existing plant capacity occurs formation involves various assumptions and ap-at a significantly higher cost than recovered proximations, it should be viewed as an estimate through historical cost depreciation because of of the effects ofinflation, rather than a precise the high levels of inflation in previous years. In measurement.

response to this problem, the Financial Account-Constant Dollar Accounting Constant dollar accounting reflects the overall historical costs of plant with the Consumer Price decline in the purchasing power of the dollar by Index for All Urban Consumers (CPI-U). Histor-restating historical costs in terms of dollars of ical depreciation rates were applied to the restated equal purchasing power. amounts of plant, thereby trending the provision Constant dollar amounts for electric plant in for depreciation to reflect the impact of general service were determined by indexing surviving inflation.

Current Cost Accounting Current cost accounting reflects changes in spe- indexing surviving plant costs by internally gen-cific prices of the property used in the Compa- erated indices or the Handy-Whitman Index of ny's operations from the date the property was Public Utility Construction Costs. Since plant fa-acquired to the present. This method differs from cilities are not expected to be replaced precisely constant dollar accounting to the extent that in-kind, " current cost" does not necessarily rep-costs of specific utility property have increased resent the replacement cost of existing productive more or less rapidly than the rate of general infla- capacity. Current cost depreciation is computed tion. The current cost amounts of plant in ser- by applying the same rates used in the historical vice represent the estimated cost for replacing ex- cost and constant dollar statements to the current isting plant facilities and were determined by cost plant amounts.

Effects of Rate Regulation Under the Company's present ratemaking proce- level of inflation was less than in prior years.

dures, only the historical cost of plant in service The Company has significant amounts oflong-is recoverable in rates as depreciation. Therefore, term debt outstanding serving as a partial hedge in times of relatively high inflation, the erosion of against inflation, as well as other net monetary li-plant in service resulting from inflation in the abilities, which will be paid back in dollars of less current year may be greater than is reflected in purchasing power. Thus, the gain from decline in constant dollar or currect cost adjustments, and purchasing power of net amounts owed in the ac-is reflected as a reduction to net recoverable cost. companying schedules results from inflation's ef-This reduction was not necessary in 1983 as the fect on obligations to pay cash at a future date.

Other income statement items other than depreciation made to them. No adjustments to income tax ex-have not been adjusted. The Company's opera- pense have been made in computing the impact tion and maintenance expenses already include of inflation since only historical costs are deducti-the average effects of changing prices during the ble for income tax purposes.

period; and, therefore, no adjustments have been 1

38

DU%E POWER COMPMY Supplementary Statement of Earnings for -

Common Stock Adjusted for Changing Prices j n

Year Ended December 31,1983 -

Historical Constant Current 5 M4 fan in ibusands) Dollar Dollar Cost a Electric revenues . _$2,420,252 $2,420,252 $2,420,252 _

Operating expenses . 1,070,172 1,070,172 1,070,172 "

Maintenance of plant facilities . 187,267 187,267 - 187,267 Z Depreciation 209,750 428,794 442,455 =

Taxes. 503,849 503.849 503,849 __

Total electric expenses . 1,971,0'8 2,190,082 2,203.743 Electric operating income 449,214 230,170 216,509 [

Other income 213,001 213,001 213,001 2 Income before interest deductions. 662,215 443,171 429,510 =

Interest deductions 230,938 230,938 230,938 --

Net income 431,277 212,233 198,572 Dividends on preferred and preference stocks 62,600 62,600 _ 62,600 ,

Earnings for common stock . $ 368,677 $ 149,633 $ 135,972

]

Increase in specific prices (current cost) of utility plant held during the year * $ 102,265 _

Reduction to net recoverable cost" $ - -

Effect ofincrease in general price level (370,092) i Excess of increase in general price level Z over increase in specific prices . (267,827) -

Gain from decline in purchasing power of net amounts owed 134,310 134,310 Net y

$ 134,310 $ (133,517) e

• At December 31,1983, current cost of electric plant, net of accumulated depreciation, was $10,031,270,000.

]

"Due to the decrease in the rates ofinflation in recent years, there is no reduction to the net recoverable cost of plant re- d flected for 1983 on either a constant dollar or current cost basis.

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r DUKE PCMVER COMWu Five-Year Comparison of ~

Selected Supplementary Financial Data Adjusted for the Effects of Changing Prices Im hm uis dam 19e utan. ,1cene per.h tvu,,9 1983 1982 1981 1980 1979 Electric revenues

$2,420,252 $2,244,480 $1,908,454 $1,682,822 $1,492,557

' In histoincaldollars .

2,420,252 2,316,682 2,090,612 2,034,660 2,048,661 In constant dollars .

Income from continuing operations 431,277 349,877 336,251 311,091 274,760 In historical dollars ..

212,233 148,035 180,719 203,543 223,166 In constant dollars .

196,572 129,723 158,545 183,183 194,% 5 In current cost .

Earnings per share before extraordinary item 3.77 3.07 3.19 3.08 2.88 In historical dollars 1.53 0.89 135 1.62 1.%

In constant dollars . .

In current cost . . 139 0.69 1.08 137 - 1.59 Common stock dividends per share 2.32 2.24 2.08 1.95 1.83 in historical dollars -

In constant dollars . 2.32 -231 2.28 236 2.51 Market price per common share at yeareid In historical dollars 25.125 23.25 20.625 18.125 17.25 In constant dollars . 24.70 23.73 21.86 20.93 2239 Net assets at year-end 2,616,340 2,388,592 2,108,935 1, % 9,140 1,758,016 In historical dollars 2,572,375 2,437,606 2,235,546 2,273,960 2,281,827 In constant dollars .

In current cost . 2,572,375 2,437,606 2,235,546 2,273,960 2,281,827 lbrchasing power gain on net monetary items . 134,310 150,849 358,119 498,460 531,235 Decrease in the current cost of electric plant in service, net of inflation, after reduction to net recoverable cost . 267,827 102,683 289,662 541,214 603,391 Average Consumer Price Index . 2%.4 289.1 272.4 246.8 217.4 40

DUKE POWER COMPANY Subsidiaries r 5

Subsidiary December 31 _

gollars in acusands) 1983 1982 Investments -

Property and investments-at cost Real estate, recreational and land development $ 39,115 $ 33,391 ,

Coal mining -

56,545 -

Net current assets, principally investments, '

receivables and inventories 27,600 46,820 _

Total assets 66,715 136,756 Coal production commitments 7

(24,868) _

Deferred income taxes (4,907) (36,458)

Total liabilities (4,907) (61,326) 7 Investments in and advances to subsidiaries $ 61,808 $ 75,430 Crescent Land & Crescent Lant' & Timber opened a 45-acre busi- resources that may exist on its land. Additional

. ness park in 1983 for light industrial, office and programs to determine the best use for Cres-Timber Corp. certain limited retail uses. Named Lakemont cent's properties may lead to expanded industrial, _

Business Park, the site is located just south of commercial and residential development. -

Charlotte in South Carolina. In 1983 Crescent harvested 38.8 million board ._,

Crescent was formed in 1%9 to manage ap- feet of timber and 65,686 cords of pulpwood. Ap-proximately 270,000 acres of Duke's non-utility proximately 2.8 million new trees are being

~- '

property. The subsidiary has 50 employees. planted each year. Since Duke initiated its refor-Crescent continued to carry out exploration estation activities in 1939, more than 60 million programs in 1983 for minerals and other natural seedlings have been planted on 88,000 acres.

Duke Power Duke Power Overseas Finance NV was formed invested in short-term securities. Also in 1982

. in 1982 in Curacao, Netherlands Antilles, to pro- Duke Power borrowed from the subsidiary the Overseas Finance vide nnancial resources from outside the United net proceeds of the sale in the Eurodollar market N.V. States. In 1982 Duke Power made a capital con- of $60 million principal amount of notes. The

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tribution to the subsidiary, which continues to be notes will mature April 15,1989.

Mill Power Mill-Power Supply Company opened a new currently has 275 employees.

12,500-square-foot distribution center in Green- From its 80,000-square-foot headquarters and Supply Company 1 vale, S.C., in 1983. It also acquired the assets of warehouse in Charlotte, its distribution center in an electrical supply 'irm in Lancaster, S.C., and Greensboro, N C., and its new South Carolina added both new professional staff and product facihties, Mill-Power Sales Dwision contmues to _

lines to its expanding energy management equip- perform as one of the largest electrical wholesale ment business. distributors in the Southeast. __

Mill-Ibwer was founded in 1910 to supply nec- As Duke Power's purchasing agent, Mill-Power essary equipment to textile mills and other indus- Purchasing Division contracted for approximately tries then converting to electricity and to be $1 billion worth of equipment, fuel, services and -

Duke Ibwer's purchasing agent. The subsidiary supplies in 1983.

The Eastover During 1983 Duke Power disposed of substan- Utihties Commission prohibited ruil recovery of tially all the assets of Eastover Mining Company the cost of coal from these mines.

C,ompantes and the related land leased from Eastover Land A $30 million after-tax provision for loss was Company. established in the fourth quarter of 1982 to cover The Company determined to sell these proper- the k>ss from the sale of these properties.  ;

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DUKE POWER COMPANY William S. lee Robert L Dick William R. Stimart Officers Chairman of the Board and Vice President Vice President Chief Executive Officer Construction Regulatory Affairs Douglas W. Booth George W. Ferguson, Jr. George E. Stubbins Pre.,ident and Vice President and Vice President Chief Operating Officer Deputy General Counsel Information Systems William II. Grigg hi. Thomas llatley, Jr. IIal B. Tucker Executive Vice President Vice President Vice President Finance and Administration Rates Nuclear Production Warren 11. Owen E. N. IIedgepeth, Jr. Fred E. West, Jr. Executive Vice President Vice President Vice President Engineering and Construction Distribution Charlotte Division Austin C. Dies SamuelT. lattimore James W. White Executive Vice President Vice President Vice President Ibwer Operations Finance Administration General Services llenty L Cranford Lewis F. Camp, Jr. John F. Iemax Senior Vice President Vice President Secretary and Division Operations Western Division Associate General Counsel Donald 11. Denton, Jr. Joe S. hiajor, Jr. Norman P. hiorrow Senior Vice President Vice President Controller hiarketing and Rates Personnel Richard J. Osborne Steve C. Griffith, Jr. Joseph G. hiann Treasurer Senior Vice President Vice President C. Joe Sherrill and General Counsel Northern Division Assistant Vice President John D. Ilicks Paul 11. hiann, Jr. Transmission-Substation Senior Vice President Vice President Division Public Affairs Operation Carolyn R. Duncan PaulG hiartin Assistant Secretary Frank A.Jenkins Senior Vice President Vice President John C. Goodman, Jr. Transmission and Distribution Eastern Division Assistant Secretary Romas C. Berry Dwight B. hiocre Charles A.hiarkel Vice President Vice President Assistant Treasurer Southern Division Central Division W. Bruce Shannon Ralph W. Bostian William O. Parker, Jr. Assistant Treasurer Vice President Vice President Eugene C. Sites Pnx!uction Support Fossil Pnxluction Assistant Controller J. Kenneth Clark E. Bruce Shuler II. D. Whitley Vice President Vice President Assistant Controller Corporate Communications Transmission Linwood C. Dail Vice President Design Engineering Richard C. Ranson W. T. Robertson, Jr. Subsidiaries President cresident Crescent Umd & Timber Corp. Klill Power Supply Company 44

' DUKE PCPWER COMPANY - Other Information Notice of Annual Meeting The 1984 meeting of holders of Duke Pbwer Company common stock will be held Friday, April 27, at 10 a.m. in the O.J. Miller Auditorium of the Electric Center,526 South Church Street, Charlotte, NC. Transfer Agent and Registrar Morgan Guaranty Trust Company of New York 30 West Broadway New York, NY 10015 Stock Exchange listing Duke Pbwer Company common stock is listed and traded on the New York Stock Exchange. The trading symbolis DUK. General Offices 422 South Church Street P.O. Box 33189 Charlotte, NC 28242 (704)373-4011 = SEC Form 10-K and Statistical Supplement Upon request, the Company will provide, with-out charge, a copy ofits 1983 Annual Report to Shareholders on l'orm 10-K, as filed with the Se-curities and Exchange Commission. Also avail-able without charge is a Statistical Supplement to the 1983 Annual Report. Requests for such doc-uments should be directed to Sue H. Cannon, Investor Relations Department, Duke Pbwer Company, P.O. Box 33189, Charlotte, NC 28242. Or call Investor Relations toll-free: in Charlotte at 373 4579; elsewhere in North Carolina at 1800 5324492; and cutside North Carolina at 1400 438 0142.}}