ML20101B696
| ML20101B696 | |
| Person / Time | |
|---|---|
| Site: | Millstone, Seabrook, 05000000 |
| Issue date: | 12/31/1983 |
| From: | Tenney C FITCHBURG GAS & ELECTRIC LIGHT CO. |
| To: | |
| Shared Package | |
| ML17054D536 | List: |
| References | |
| NUDOCS 8412200468 | |
| Download: ML20101B696 (36) | |
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!q >1983 ANNUAL' fi r
REPORT l i
8412E00468 841218 PDR ADOCK 05000443 PDR I
The Common Stock of the Company is listed on the American Stock Exchange (Symt,ol: FGE) and the Boston Stock Exchange. The number of holders of record of the Company's Common Stock at December 31,1983 was 3,436.
CASH DIVIDENDS PAID PER SHARE ON THE COMMON STOCK OF THE COMPANY 1st 2nd 3rd 4th The Quader Quader Quader Quader Year 1983 S.65 $.65 $.65 $.65 $2.60 1982 $.65 $.65 S.65 $.65 $2.60 PRICE RANGE OF COMMON STOCK 1st 2nd 3rd 4th Quader Quader Quader Quader 1983. High 22 % 22W 21 % 21 %
Low 19W 20 % 20 18 %
1982 High 19 % 19 % 20W 22 Low 17W 18 % 18 19 %
The Company expects to continue its policy of paying regular cash dividends, although there is no assurance as to future dividends because they are dependent on future earnings, capital requirements and financial conditions (see Management's Discussion and Analysis of Financial Condition and Results of Operations). In addition, the payment of dividends is subject to the restrictions described in Note 4 of Notes to Consolidated Financial Statements.
The annual meeting of common shareholders is scheduled to be held at The First National Bank of Boston,100 Federal Street, Boston, Massachusetts, in the Directors' Room on the Secc'id Floor, on Thursday, April 12,1984, at 10:30 A.M.
The Company's annual report for 1983 on Form 10-K, as fi!ed with the Securities and Exchange Commission, is available without charge upon written request to Peter J. Stulgis, Vice President and Treasurer, Fitchburg Gas and Electric Light Company,436 South River Road, RFD 5, Bedford, New Hampshire 03102.
The Company's Transfer Agent is The First National Bank of Baston, P.O. Box 644, Boston, Massachusetts 02102.
A Dividend Reinvestment and Stock Purchase Plan is available to all holders of the Company's Common and $4.00 Preferred Stock. This plan provides these shareholders with a simple and economical way to increase their investments in the Company automatically each quarter by reinvesting their dividends and/or making optional cash payments quarterly towards the purchase of additional shares of Common Stock. For information write to: The First National Bank of Boston, FGE Dividend Reinvestment Plan, P.O. Box 1681, Boston, Massachusetts 02105.
The First National Bank of Boston, P.O. Box 1897, Boston, Massachusetts 02105, is Trustee under indentures covering the Company's Notes due March 1,1995 and May 1,1999, respectively.
1983 1982 Net income - S 3,288,245 $ 1,990,205 Earnings per Average Common Share $2.43 $1.86 Dividends Paid per Common Share $2.60 $2.60 Electric Opera ing Revenues S 29,119,262 $ 28,193,890 Gas Operating Revenues S 19,757,977 $ 18,289,210 Total Operating Revenues S 45,877,239 $ 46,483,100
- Kilowatt-Hours of Electricit/ Sold 348,487,926 336,366,775 Average Annual Kilowatt-Hour Sales per Residential Customer 4,929 4,852 Number of Electric Customers 23,233 22,869 Thousands of Cubic Feet of Gas Sold 2,551,245 2,653,131 Average Annual Cubic Feet Sales per Residential Customer 91,438 99,291 Number of Gas Customers 15.023 14,955 Net Utilir/Plant $ 73,089,901 $ 62,366,276 Number of Employees . 147 167 Number of Common Shareholders 3,436 2,953 Number of Preferred Shareholders 295 210 Financial Highlights 1 Letter to Shareholders 2 Year in Review 4 Consolidated Balance Sheets 12 Consolidated Statements of Earnings 14 Consolidated Statements of Changes in Financial Position 15 Consolidated Statements of Retained Earnings 16 Notes to Consolidated Financial Statements 16 Report of Independent Certified Public Accountants 26 Management's Discussion and Analysis of Financial Condition and Results of Operations 26 Selected Financial Data 31 Quarterly Financial Data ... 32 This report, including the financial statements contained herein,is submitted for the general information of the shareholders of the Company, and is not intended to induce, or for use in connection with, any sale or purchase of securities.
1983 proved to be an The successful sale of advantageous to both eventful year at Fitchburg 400,000 shares of Common shareholder and customer.
Gas and Electric Light Stock in October further in cooperation with other Company, a year of transi- confirmed the Company's New England utilities, tion and challenges met, commitment to continue to FG&Eis aggressively obtain new capital forits pursuing contractual com- .
Earnings per common ongoing construction pro- mitments for gas and hydro-share increased to $2.43, gram.That sale and the electric energy from our on a greater number of ongoing sales of Common Canadian neighbors. Simul-shares outstanding, from Stock to participants in the taneously, the Company the 1982Ievel of $1.86. Dividend Reinvestment and is inves'lgating the poten-FG&E estimates that, sub- Stock Purchase Plan and to tial procurement of domes-ject to a final review by the the Employee Stock Owner- tically produced energy Internal Revenue Serv!ce, ship Plan enabled the and its effect on FG&E's Company to raise $8.6 total energy mix.
100% of the dividends paid on its Common Stock and million of new capitalin 72% of the dividends paid 1983. The Company continued on its Preferred Stocks in to closely scrutinize its par-1983 are a return of capital FG&E's voluntary early ticipation in the Seabrook for Federalincome tax retirement program was and Millstone Unit 3 nuclear purposes and accordingly accepted by 29 employees, generating projects in 1983. e are not taxable as dividend including the President Much has been written and income. and the Controller.The spoken in the past year program has allowed the - . about the nation's troubled in early 1983, the Massa- Company to reduce per- nuclear industry. Such chusetts Department of sonnel, decrease operating publicity demonstrates Public Utilities (DPU) costs and reorganize t oth the need to ensure that granted gas and electric managerially and opera- these projects are pru-annual rate increases of tionally. FG&E now has dently managed and (
$2.3 million and $2.1 million, a young, eager and exper- brought to completion in respectively.This rate ienced management team a safe, economic and relief, along with an im- prepared to meet the many timely manner. FG&E's proved economy, had a challenges which exist in announcement on Decem-significant impact on - the utility industry. ber 29,1983 that it could FG&E's increase in earn- no longer support con-Ings per common share. The Company continues struction of Seabrook Unit Such earnings, however, to seek opportunities to 2 was motivated by the still remain lower than enhance its gas and elec- uncertainty surrounding - .
allowed by the DPU. tric supplies which will be the actual completion date ?
o 2
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j of that Unit and its ultirnate On the following pages continued interest in the power cost. The Company you will find detai:s of the Company.
- l- does, however, expect to 1983 operating year and a honor its contractual presentaCon of the Com- Charles H. Tenney II --
obligations with respect pany's financial perform-to Seabrook Unit 2. FG&E Chairman of the Board of i ance. We appre ,iate your Directors and President will continue to closely monitor these plants and '
initiate and support those actions which will benefit our shareholders and custo mer.e.
1984 corporate objac-tives are direc' id towards - ..
providing reliable, eco- -
nomic service to our ctr-io;,iers, while at the sarr 3 time earning a fair return :
for our investors. In sunport o of thesa objectives, et ch deparrrnent manager has developed a measurchie set of grals to meet these 8
challenges.
While FG&E is relatively well positioned to meet the challenges ahead, we ;,iust face changing economic con,1itions and regulatory complexities. However, _
with the positive attitude and talents of cur em- ~T 0 ployees and the continued # T -
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01 the future. --
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Firm gas sales in 1983 on our customers and steps g failed to meet the 1982 leve!, have been taken to minimize b The Compa.iy's financial W
, condition improved in 1983.
declining 9%. Among the the need for rate increases. ;
- factors which contributed to -
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Net income applicable to reduced gas sales were E Corr, mon Stock for 1983, after unseasonablywarm weather increased Preferred Stock
- conditions, conversion from On January 31,1983, 2 dividend requirements, was gas to lower-priced fuel by FG&E was granted an in- -
{ $2.3 million, an increase of crease of approximately $2.3
- some commercial and 61 % from 1982. Earnings per industrial customers who million in its gas rates, t g share of Common Stock, on a have dual fuel capabilities or 73% of the revised t greater number of shares and continued conservation amount requested.The Com- 7 b- outstanding, were $2.43 in efforts by our customers. pany's original request for _-
1983 compared to $1.86 in
= 1982.The increase in net in-come resulted primarily from hs On October 20,1983, the rate relief g' rented by the Massachusetts Department , Company sold to the public r an additional 400,000 --e of Public Utilities (DPU),
reduction in the net amor. shares of Common Stock _- -
at $21.50 per share. Net tizationof costof abandoned proceeds from the sale of L propertiea, lower property these shares were applied to taxes and greater electric the reduction of short-term i,w sales. As a result of improved
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' indebtedness outstanding at earnings in 1983, the Com-pany's return on average common equity increased to _
9.7% for the year ended E
1 the time of the financing. The leaa unct-/ writer for the sale m .
63.38 million had been re-was Menill t.vnch Capital .
vised to $3.17 million.
[
Markets.
.b E December 31,1983 from 7.7% for the year ended <
3eco/ering the full cost of L December 31,1982. -
On March 31,1983, .in Sales of electric energy to. 'providing service has been t o any's
- one of our biggest chal- P"
[ h approximately23,000 electric customers on the FG&E sys- tenges and is necessary in re u t for a increase in its electric base tem 'ncreased 3.67% in order to provide adequate rates, which was subse- A n 1983. This growth :s an indi_ and reliable service to our quently revised to $3.96 L cation that the service area is customers while earning a million, the DPU issued an -
recovenng from a sluggish reasonable return for our order granting the Company _
{- economy and is experiencing investors. an increase of $2.14 million E g s .
The Company is, however' residstitial, commercial and or 54% of the revised amount aware of the burden it places -
indu&qal growth. requested. -
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. The DPU in determining funds used during construc- demands of a town that is r the amount of rate relief to be tion (AFUDC), amounted to experiencing steady -3 5 granted, allowed FG&E a $12.3 milhon for costs asso- residential growth. %
k 16 3% return on Common ciated with the continued g Stock equity and an overall investment in jointly-ownea 'E E return on rate base of nuclear plants and expendi- q 13.68% The need for rate tures for transmission- n 1983, FG&E took -
relief was primarily due to distribution and other general significant additio. ia' steps I continuing increases in the plant facilJies- in pursuit of its goal of 5 cost of operations and fi- Capital expenditures for reducing its dependonce nancing the Company's on- 1984, including AFUDC, are on oil for electnc generation 3 going construction program. estimated to be $15 milhon On March 31,1983. officials 4 In the electric rate order, the DPU denied recovery for This amount includes a
$12.8 million investment in from the New Engiand 5 Power Pool . of which i rate-making purpnses of cer- jointly-cwned nuclear plants, FG&E is a member. and I tain portions of FG&E's net with the remainder directed Quebec Hydro-Electric S investments in the aban- to local construction Corporation signed E doned Pilgnm Unit 2 and requirements- history-making contracts to 3 Montague Units 1 and 2. As bnng hydroelectnc power _-
a result, FG&E charged from the Province of Quebec '=
against ear nings approw to New England starting in og mately S326,000 of this unre- Q covered investment in March The recent expansion of -g 1983. The DPU allowed the 1 -
Company rate rehef to amor-tize the remainmg $712.000 _g investment in those Units ]
over a three-year period. ;
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ai On February 29.1984 the DPU denied the Company's request for a Purchased Power Adjustment Clause (PPAC) which would have been applicable to aH electric 1986 TM cor ac's will W retail sales. The PPAC would -d!
the existing substation in bucam ohective 11 and when :g have allowed FG&E to re-To /.nsenc is ar :no cm an aH appropriato censmg cover S420.000 of non-fuel requirements are met Baser related cost increases im_ of our commitment to posed by the Company's recognize and react to the on projected fuel onces and g needs of our customers. This use of olectnc iti th" ran. ;
major supphe of wholesale substation was modif'ed and tractm ve expected to save power. Boston E% son Cam-constructed from specifica_ New Englanders more than j pany. The Compar:y intends tions developed by FG&E. S100 milhon in 1987 ana _
to appeal the decison of the DPU to the Supreme Judicial including the installation of a nearl/ S350 milhon in 199b g
- new transformer and assoc,. and are expected in saw tb Court of Massachusetts ated equiprnent. Completed burning of more thar 5 mm 3n in November 1983. the sub_ barrois of on annua lb FG&F ]
station is now large enough customers can expect :o save j Capital expenditures in 1983, to satisfy current and ppmnateN $500 M m ,
j including an allowance for anticipated electncal 1987 ana $18 mahon in 1905 g si 5 '
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75 when this projectis fully Management Analysis Com- Public Service Company of Y operable. pany (MAC), emphasized New Hampshire (PSNH), the j.(.?
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Currently the Companyis that Seabrook Unit 2 is par- lead participant owning y
- 2, receiving low-head hydro ticularlyvulnerable to future 35.6% of the project, has an ;
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.* V' capacity from Linweave, Inc. cost escalation. effective veto power and has .[. i and Massachusetts Hydro The continuing uncertainty opted not to cancel Unit 2. Q
- f. J > ;l Associates, which provided as to the ultimate cost and Thus far, the only action "7;;
l"? 5% of FG&E's total energy in-service date of Unit 2 has taken toward halting /
~d : requirements in 1983. led some of the joint owners, progress of Unit 2 was a i.O including the Company, to resolution proposed and $.G.c question the economic unanimously adopted by the 5 viability of that Unit. On -ioint owners on September W, Y g r, Energy provided by the 8,1983 to reduce work on Pilgnm nuclear plant in ' ~'O M Unit 2 to the " lowest feasible j..y.) Plymouth, Massachusetts, level" until either fuel-loading D proved to be an economical .. @
commences on Unit 1 or Unit M
. and reliable source for 3 w FG&E in 1983. The Company
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- nuclear power plants cur-
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G Millstone Unit 3 in Waterford, 'f S$ Connecticut, and Seabrook December 29,1983, FG&E 4.M.
16 Units 1 and 2 in Seabrook, announced that it could no .
2 is cancelled. The resolution New Hampshire. longer support the comple-f.$; FG&E has a 0.217% aHows madmum eHomo M ;j tion of Unit 2 due to the put towards comp'eting Unit M ownership interest (2.5 uncertainty surrounding the 1 while mainta,ining the value y
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$N megawatts) in Millstone Unit actual completion date, the f Unit 2. Minimizing 7 M 3, representing an ' expected cost of the Unititself and the ,
construction progress on el j Y'
N investmentof approximately
$10.6 million, approximately ultimate cost of the power from the Unit. The Company Unit 2 also means temporarily .p.q reduced cash requirements g 3 hN $6.1 million of which had does, however, intend to D been invested as of Decem- comply with its contractual for the j,oint owners dun,ng the 1984-1985 period; how-4 y J
$* ber 31,1983. Scheduled for obligations by making ever, the delayed completion
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.$ .J commercial operation in May monthly payments for Unit 2's ..
1986, the $3.54 billion plant of that Unit would substan- 4q 4.1 - reduced level of construction.
[. is expected to save the Com- Five other utilities also tially ,ncrease i its ultimate -; y j cost to the Company.
Vf pany the burning of about voiced a desire during 1983 At a meeting of the j,o, int j..
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25,000 barrels of oil each year.
and early 1984 to halt construction of Unit 2.
wners on March 1,1984, .g f
l C- The Seabrook project has There were also unsuccessful PSNH announced that the py W experienced considerable attemptsto havethejointown, projected in-service dates for jj Seabrook Units 1 and 2 are L.J$./ delays and produced signifi- ers adopt a resolution calling July 1986 and December 3
,g i Y W cant financial concerns in 1983. Findings by an inde-for the cancellation of that Unit, the most recent of which 1990, respectively, and that p the total cost of the project d; pendent consulting firm, occurred on March 1,1984.
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could be as high as $9 billion. are significant opportunities million. In the event Unit 2 is The previous official esti- forimprovement in the cancelled, the Company will mates for the Seabrook construction of the project. pursue the entire recovery of project. released in Novem- Accordingly, MAC recom- its investment. FG&E cannot ber 1982, set the total cost at mended that the joint owners predict, however, the extent S5.24 billion with in-service not adopt the new cost and to which rate relief would be dates of December 1984 and schedule projections as an granted by the DPU to allow July 1987 for Units 1 and 2, official estimate pending the for such a recovery. Failure respectively. These new further review by PSNH. As projections indicate that to obtain adequate and timely rate relief in the event of cancellation of Seabrook Unit a conservative measure, 2, or either of the other two FG&E is using these new nuclear units in which FG&E projections for financial has an interest, could have a Units 1 and 2 are approxi- planning purposes until the material adverse impact on mately 72% and 22% further review is completed. the Company's earnings and complete, respectively, a While FG&E strongly sup- its abllity to pay dividends change from previous pons the expeditious on its stock.
completion estimates of 89% completion of Unit 1, we are and 29%. PSNH and its convinced that cancellation, newly hired senior construc- rather than delay or slow-tion executive for the Sea- down, of Unit 2 is in the best brook project will be under- interest of our shareholders taking a comprehensive and ratepayers. As an active An important step in reviewof these new participant in all joint owners' broadening FG&E's gas projections in the ensuing meetings, the Company will supply picture occurred months, since PSNH believes continue to scrutinize and when the Canadian National the cost projections to be assess the entire project. Energy Board approved one too high because they do not FG&E has a total interest half of the export volumes of reflect changes that will be in Seabrook of 0.865%, gas requested by Boundary implemented by PSNH. At the which represents an owner- Gas, Inc. (Boundary), a meeting on March 1,1984, ship of 9.95 megawatts of corporation formed by MAC reported that there is a capacity in each Unit.The fourteen northeastern substantial probability that if Company had invested utilities, including FG&E, for significant management and approximately $24.6 million the purpose of importing construction changes are in Unit 1 as of December 31, natural gas from Canada.
not implemented, the above- 1983. As of that date, FG&E This action should provide mentioned cost and com- had invested approximately FG&E with an additional pletion date projectiona will S7.2 million in Unit 2 which baseload s ugly of 184,000 not be achieved. MAC did, represents an af ter tax invest-MCF (thousand cubic feet) of however, indicate that there ment of approximately $4.6 7
natural gas annually to meet thousand MCF of natural gas ..
requirements for high- annually. The Company With additional and more priority residential and expects that,if negctiations economical gas supplies commercial customers. On are successful and neces- available to the Company, January 25,1984, the Fed- sary regulatory approvals are Fitchburg Energy Develop-eral Energy Regulatory granted, the gas will be ment Company (FEDCO), our Commission (FERC) delivered to its distribution exploration and development approved Phase 1 of the system ,n i the early 1990's. subsidiary, has sold its project, allow,ing four other Minuteman Venture 1 utilities to receive 80 assets to Benalty Corporation thousand MCF a day of Ohio. Minuteman Explora-To bctter meet those periods of peak demand and tion Company's holdings 9 hal v hich w be included oil and gas leases, to improve the reliability imported from Canada. wells and surface equipment and efficiency of its gas Boundary has reported that located in Morgan County, this action represents the first operations, FG&E initiated .. w several modifications to its Ohio. FEDC0 s remaining significant increment of firm ,
gas system during 1983. The exploration investment con-gas supply for the Northeast ,
Company installed a natural sists of a portion of one since the early 1970's. While ,
this does not affect FG&E, the gas regulating stat, ion in shut-in well in the Black , ,
Warrior Bas,n i in Mississippi.
Company can expect to The dec,sion as to when -
i receive delivery of gas in late 1986 or 1987 subsequent to - - to produce gas from '
approval of Phase 2. In 4' this well has not yet been g, made; however, it is unlikely addition, regulatory hearings ,,,C. q that gas will be produced ;
relating to the expansion of pipeline facilities necessary
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as to the resale of the gas by . rather than delivered to the
"' 2 Boundary to its participants, Company's service territory .
are currently being con. due to the inability to secure ducted by the FERC. the necessary transportation Long-range energy .- of this gas.
N",
p J planning is essential in . ,.
providing adequate supplies "E" "*
of gas to meet customers' future demands. In order to In September 1983, the City accommodate anticipaRd "
,, of Fitchburg established the <
future growth, the Company, fiscal 1983 property tax rate I along with eighteen utilities after agreeing to a compro-which make up Northeast Fitchburg to bolster gas mise on the tax classification '- -
Gas Markets, Inc., has been ,
pressure during peak issue. Since the enactment of engaged i,n negotiations with demand ,ni cold winter classification, commercial the Canadian government months. FG&E also and industrial property in the i and Canadian producers ior completed an inspection and City of Fitchburg had been '
the annual importation of major overhaul of its pr apane taxed at rate levels 76% and approximately 49 million facility in Lunenburg. As part 73% higher than residential MCF of natural gas from of a preventive maintenance property in fiscal years 1981 -
- Sable Island. Reserves from program, the tanks were and 1982, respectively. In the area near this small hydrostatically tested, com- both fiscal 1983 and 1984, I_"
island off the coast of Nova pressors and manual valves the tax rate for businesses Scotia could provide FG&E were rebuilt and new excess has been reduced to a level with approximately 365 flow valves were installed. that is 42% higher than the .
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residential property rate. Company has sold since organized so that customers The Company will continue moving to its Service Center may receive assistance on -j to pursue equitable tax in February 1981, fulfilling its any matter, from opening an 4 treatment in the City of commitment to keep all for- account to reporti" a storm 9 Fitchburg and the other mer buildings on the City of outage, by caliing 'ngle M communities we serve. Fitchburg's tax rolls. FG&E telephone number. / so, with E has retained long-tern' rights the availability of a sophis- a to continue to use all facilities ticated computer system, g i
Through counseling, presently in operation at its employees can gain instant ;
seminars and home energy Sawyer Passway location, access to the record of any 3 audits, the Company con. including its combustion tur- customer's account. -G 1 tinued to help and encourage bine, the gas regulating .=
its customers to find ways to station, the switch house y use energy more wisely. portion of the electnc station, =
FG&E energy consultants transformers and gas and Programs which address g customers specialneeds I continued to respond to electric lines.
include a budget payment g
i customer requests for com- y 5 prehensive home energy plan, third party not, ices, =s 5 audits to help pinpoint ssistance for customers on j j
conservation measures homeowners could take.
The success of a gas and
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P a e ct i ates f ual f ed
. electric utility depends to a senior citizens and winter I
" The Company also worked great extent on how effec- assistance programs to help E with contractors, builders tively its distribution system needy customers locate the 3 and new industries in an is designed. Supplying correct agencies to aid in effort to increase standards energy safely, reliably and 5 paying energy bil!s. The economically ,is a challeng-ing and complex responsi-Company also introduced in -f 1983 a new bill design and i bility. Communicat,ng with i
a 24-page Customer Hand- 3 book, tools to help customers 4 gain greater understanding 9*
of their local utility and to make wise decisions on their f energy purchases. The Com- -
of thermal efficiency. To complement the energy pany also continues to sup- 3 '
port an active energy educa-audit, FG&E recently tion program, helping E developed a new energy educators impart information I L conservation program pri- on energy sources, safety, marily des,igned to assist our customers and providing electricity, conservation low-income gas heating cus- them with good service is and energy economics. .
tomers in maximizing gas equally as complex and The Company's Speakers }
conservation through imple- challenging. Our customers Bureau also provides a j mentation of the most cost rate the quality of service means of telling the energy 3 effective measures available, provided by FG&E quite story to a variety of audi- U highly and the Company ences. To provide more 3 constantly strives to traintain accessible business loca- -
this reputation. To handle tions for customers who 9 On June 30,1983, the customers' inquiries, and cannot easily travel to our d Company sold its electric anticipate their needs and Customer Service Center, 3 generating station in Fitch- concerns, we provide sound FG&E has nine neighbor- 1
- burg to Rockware Interna- training for employees who hood payment centers tional Corp. This is the last deal with the public. Our strategically located through- 3 of the seven buildings the customer service operation is out its service territory.
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l
. THE SENIOR OPERATIONS STAFF (Left to Right) David K. Foote, Vice President; Frank L. Childs, Executive Vice President; Lawrence T. Gingrow, Jr.,
Vice President; F. William St. Cyr Assistant Vice President, Transmission and Distribution; Allen R. Damren, Controller; and Thomas J. Conry, Jr., Assistant Vico President, Communications.
vance their knowledge in penses,37 senior employees job-related areas. were offered a voluntary early The 147 men and women Many employees are retirement program under employed by FG&E take
, actively involved in their FG&E's pension plans.
pride in their service to communities, working with Twenty-nine employees shareholders and customers. service organizations, local- accepted the offer- 13 By performing eff,ciently, i proje' cts and our Speakers- management and 16 unicn with skill and creativity, our Bureau. Another measure of personnel- and retired on employees provide reliable our employees' concern for September 30,1983. The service at the lowest cost. the co'mmunity is their out- retirements allowed the To further develop our human standing contribution to the Compariy to reduce staff by resources, the Company United Way Campaign and six percent, since not all of provides a broad range of the donation of their time to the vacated positions were training and development serve as loaned executives. filled, and to reorganize programs aimed at improving w thout creating personal individual skills and pro- hardships.
ductivity. All employees are eligible for tuition- In an ef Company [ ort to reduce s operating ex- the assistance benefits to ad-1n - - -
Howard W. Evirs, Jr. Frank L. Childs, an em- Messrs. Tenney, Childs retired as President under ployee of FG&E since 1974, and Stuigis assumed their FG&E's early retirement was designated Executive new positions October 1, program. He continues, Vice President and is respon- 1983.
however, to serve as a Direc- sible for the Company's day- Lawrence T. Gingrow, Jr.
tor of the Compariy. Edward to-day oparations. Prior to was elected a Vice President '
R. Harriman, Cor, troller and holding this position, Mr. effective January 1,1984.
Assistant Vice President, Childs was a Vice President An employee of the Com-also accepted the early and Treasurer. pany since 1979, he was ret,rement i offer.
formerly Assistant Vice President of Administration.
PETER J. STULOIS CHARLES H. TENNEY ll FRANK L CHILDS Board Chairman Charles H. Peter J. Stuigis was Allen R. Damren was ap-Tenney 11 was elected to elected a Vice President and pointed Controller, effective the additional office of Presi- Treasurer. Prior to suc- December 15,1983. Mr.
dent of the Company. A ceeding Mr. Childs in these Damren joined the Company Director since 1946, Mr. positions, Mr. Stu!gis was on December 1,1983 as Tenney has been Chairman Assistant Vice President - Acting Controller.
and Chief Executive Officer Rate Services and Fore-of the Company since 1959. casting. He has been employed by the Company since 1979.
l CONSOLIDATED BALANCE SHEETS-__ _ __._.- i ASSETS December 31, 1983 1983 Utility Plant (at cost):
Electric $31,714,698 $30,829,203 Gas 15,162,443 14,596,942 Common 614,980 681,238 Construction work in progress (Note 10) 38,245,447 27,787,317 Utility Plant 85,737,568 73,895,200 Less: Accumulated depreciation (Note 1) 12,647,667 11,528,924 Net Utility Plant . 73,089,901 62,366,276 Miscellaneous Physical Property (at cost) 33,392 26,005 Investments (Note 1) 56,855 116.424 Current Assets:
Cash (Note 7) 848,352 577,734 Accounts receivable-less allowance for doubtful accounts of
$362,842 and $291,337 7,355,184 6,272,604 Refundable income taxes 232,882 654,566 Materials and supplies (at average cost) 989,917 1,209,660 Prepayments 577,485 726,144 Property tax refunds - 130,320 Total Current Assets 10,003,820 9,571,028 Deferred Debits:
Unamortized debt expense (amortized over term of securities) 378,353 413,792 Unamortized cost of abandoned properties (Note 2) 1,480,946 950,251 Other (Note 2) 744,733 2,067,165 Total Deferred Debits 2,604,032 3,431,208 TOTAL $85,788,000 $75,510,941 (The accompanying notes are an integral part of these statements) 12 __
LIABILITIES December 31, 1983 1982 Capitalization:
Common Stock Equity (Notes 3 and 4):
Common Stock, $10 par value Authorized - 2,000,000 shares Outstanding-1,290,064 and 860,832 shares $12,900,640 $ 8,608,320 Premium on common stock 10,619,842 5,725,616 Capital stock expense (2,008,401) (1,463,361)
Retained earnings 6,535,564 6,744,686 Total Common Stock Equity 28,047,645 19,615,261 Redeemable Preferred Stock (Note 5):
Cumulative preferred stock, S100 par value Authorized - 99,820 shares 5%% Series Gutstanding -14,780 and 15,200 shares 1,478,000 1,520,000 8% Series Outstanding-21,250 and 22,000 shares 2,125,000 2,200,000 Cumulative preferred stock, $1 par value Authorized - 1,000,000 shares
$4.00 Series Outstanding - 180,000 shares 180,000 180,000 Premium on preferred stock , . ,, .. .. 4,320,000 4.320,000 Total Redeemable Preferred Stock 8.103,000 8,220,000 Long-term Debt (Note 6) 22,416,000 25,786,000 Total Capitalization 58,566,645 53,621,261 Current Liabilities:
Long-term debt due within one year 3,291,000 323,000 Notes payable (Note 7) 6,700,000 5,700,000 Accounts payable 6,134,100 6,297,682 Customer deposits and refunds 471,279 529,779 Taxes accrued 408,946 54,221 Interest accrued 1.076,208 1,032,598 Total Current Liabilities 18.081,533 13,937,280 Deferred Credits:
Unamortized investment tax credit (Note 1) 4,089,150 3,661,605 Other 97,665 99,302 Total Deferred Credits 4,186,815 3,760,907 Deferred income Taxes (Notes 1 and 8) 4,858.409 4,109,779 Reserves - Other 94,598 81,714 Commitments (Note 10)
TOTAL $85,788,000 $75,510,941 (The accompanying notes are an integral part of these statements) 13
CONSOLIDATED STATEMENTS OF EARNINGS Years Ended December 31, 1983 1982 1981 Operating Revenues (Notes 1 and 9):
Electric . . . .. ....... ...... $29,119,262 $28,193,890 S31,554,691 Gas .. . .. .. . ... ... ... ...... 19,757,977 18,289,210 16,583,322 Total Operating Revenues 48,877,239 46,483,130 48,138,013 Operating Expenses:
Operating expenses, other 7,607,616 7,101,172 6,766,170 Electricity purchased for resale 13,076,317 13,516,572 14.466,161 Fuel used in electric generation 5,154,998 4,731,089 6,242,038 Gas purchased for resale 14,215,765 13,346,471 11,174,231 Maintenance 1,379,097 1,305,100 1,093,543 Depreciation (Note 1) 1,500,012 1,365.440 1,392,754 Amortization of cost of abandoned properties (Note 2) 171,981 693,949 766,325 Provisions for taxes (Notes 1 and 8):
Federal income tax on net operating income (164,358) (697,375) (124,849)
Deferred Federal income 1,225,211 355,260 833,457 Amortization of investment tax credit . (102,716) (94,029) (97,776)
State franchise - - 2,220 Deferred state franchise 67,488 28,717 (25,652)
Local property-current 950,099 1,484,069 1,673,265
-abatement of prior years - -
(257,807)
Other 268,241 256,560 218,778 Total Operating Expenses 45,349,751 43,492,985 44,122,858 Operating income 3.527,488 2,990,115 4,015,155 Non-operating income:
Allowance for other funds used during construction 1,845,261 849,206 355,992 (Note 1) 68,152 67,788 117,417 Other (net of income taxes) (Note 8)
Total Non-operating income 1,913,413 916,994 473,409 Gross income 5,440,901 3,907,109 4,488,564 Interest and Other Expenses:
Interest on long-term debt 3,055,582 2,524,446 2,249,374 Other interest charges 935,203 1,449,965 1,489,848 Amortization of debt expense 36,582 35,238 26,178 Write-off of investment in abandoned propertieu (Note 2) 326,401 - -
Discount on long-term debt purchased for sinking fund (15,568) (26,280) (19,720)
Other 2,008 3,040 2,812 Gross Interest and Other Expenses 4,340,208 3,986,409 3,748,492 Allowance for borrowed funds used during construction (Note 1) (2,187,552) (2,069,505) (1,850,287)
Net Interest and Other Expenses 2,152,656 1,916,904 1,898,205 Nc. Incomo 3,288,245 1,990,205 2,590,359 Dividend Requirements on Preferred Stock 969,824 549,497 265,449 Net income Applicable to Common Stock $ 2.318,421 $ 1,440,708 _$ ?,324,910 Average Number of Common Shares Outstanding 954,087 773,440 624,574 Earnings per Average Common Share Outstar. ding $2.43 $1.86 $3.72 (The accompanying notes are an integral part of these statements) 14 - _
CONSOLIDATED STATEMENTS OF CHANGES IN FIN ANCIAL POSITION Years Ended December 31, 1983 1982 1981 Funds Provided By:
Funds from Operations Net income $ 3,288,245 $ 1,990,205 $ 2,590,359 Principal Non-rash Charges (Credits) to Earnings Depreciation 1,516,449 1,382,034 1,407,588 Deferred Federal income tax 1,225,211 576,210 688,634 Deferred state franchise tax 67,488 (13,845) 8,886 Amortization of investment tax credit (102,716) (94,029) (97,776)
Allowance for other and borrowed funds used dur-ing construction (4,032,813) (2,918,711) (2,206,279)
Property tax abatements - -
(141,187)
Amortization of deferred debits 436,313 834,908 839,833 Funds Provided by Operations 2,398,177 1,756,772 3,090,058 Sale of (Investment in) Non-utility Operations 59,569 (80,869) (1,204)
Net Proceeds from issuance of Leng-term Debt - 4,910,376 -
Net Proceeds from Sale of Common Stock 8,645,321 2,863,328 2,140,450 Net Proceeds from Sale of Preferred Stock - 4,141,309 -
Increase (Decrease) in Short-term Debt 1,000,000 (4,600,000) 8,600,000 Total Funds Provided $12,103,067 $ 8.990.916 $13,829,304 Funds Applied To:
Additions to Plant S 8,320,207 $ 7,652,010 $ 4,118,145 Purchase of Additional Interest in Seabrook Units - 503,290 9,026,657 Common Stock Dividends 2,527,543 1,995,105 1,616,986 Preferred Stock Dividonds 969,824 490,176 266,129 Funds Used for Retirement of Securities:
Long-term Debt 402,000 396,000 191,000 Preferred Stock 117,000 117,000 117,000 increase (Decrease) in Working Capital, Excludir'g Short-term Debt 256,539 (2,604,861) (341,996)
Other Applications (Sources)-Net (490,046) 442,196 (1,164,617)
Total Funds Applied $12,103,067 $ 8,990,916 $13,829,304 increase (Decrease) in Components of Working Capital, Excluding Short-term Debt Cash $ ),618 $ (1,281,611) $ 762,353 Accounts receivable-net 1,a2,580 (667,193) (1,516,324)
Refundabic income taxes (421,684) (333,687) 590,617 Materials and supplies (219,743) (370,627) 750,541 Prepayments (148,659) 29,7/7 307,265 Property tax refunds (130,320) 13,700 (437,981)
Accounts payable 163,582 (14,920) (861,403)
Customer deposits and refunds 58,500 46,173 (44,890)
Taxes accrued (354,725) 46,238 3,183 Defermd income taxes - 191,692 297,150 Intercs' accrued (43,610) (264,373) (192,507)
Increase (Decrease) in Working Capital $ 256,530 $ (2,604,861) $_(341,996)
(The accompanying notes are an integral part of these statements) 15
_ , - - - ..--n.-----w--~.._---
CONSOLIDATED STATEMENTS OF RETAINEC EARNINGS l
l Years Ended December 31, 1983 1982 1981 Retained Earnings, Beginning of Year S 6,744,686 $7,239,762 $6,532,518 Net inome 3,288,245 1,990,205 2,590,359 Total 10,032,931 9,229,967 9.122,877 Deduct:
Cash dividends declared:
Cumulative preferred stock:
SW% Series at an annual rate of $5.125 per share 76,824 78,976 81,129 8% Series at an annual rate of $8.00 per share 173,000 179,000 185,000 S4.00 Series at an annual rate of $4.00 per share 720,000 232.200 -
Common stock at an annual rate of $2.60 per share 2,527,543 1,995,105 1,616,986 Total Deductions 3,497,367 2,485,281 1,883,115 Retained Eamings, End of Year (Note 4) $ 6.535,564 $6,744,686 $7,239,762 (The accompanying notes are an integral part of these statements)
_ NOTES TO CO_NSOLIDATED FIN ANCI AL STATEMENTS Note 1: Summary of Significant Accounting Policies-The Company is subject to regulation by the Massachusetts Department of Public Utilities (DPU) with respect to its rates and accounting. The Company's accounting policies conform with generally accepted accounting principles, as applied in the case of regulated public utilities, and are in accordance with the accounting requirements of the DPU. A description of the Company's significant accounting policies follows.
Principles of Consolidation - On February 24, 1978, the Company invested $20,000 in the common stock of a wholly-owned subsidiary, Fitchburg Energy Development Company (FEDCO). FEDCO has invested in oil and gas drilling projects, which investments have been recorded on the equity method.
All inter-company items have been eliminated in consolidation.
Revenue Recognition - The Company records unbilled fuel adjustment revenue currently to properly ,
match revenues with related costs. Such unbilled revenue aggregated $483,428, $434,771 and $1,29F 425 at December 31,1983,1982 and 1981, respectively.
Depreciation - Annual provisions are determined on a group straight-line basis. Provisions for de-oreciation were equivalent to the following composite rates based on the average depreciable property balances at the beginning and end of each year: 1983 - 3.31%,1982 - 3.12% and 1981 - 3.24%,
Accounting for income Taxes-For income tax purposes the Company excludes a portion of unbilled fuel adjustment revenue and accordingly provides deferred income t'xes payable in the succeeding year on such revenue which is carried as a current asset.
As required in the electric rate order effective April 1,1983, the Compt ny provides deferred income taxes to fully normalize the tax benefits associated with the debt component of allowance for funds used during construction (AFUDC) cascribed below. Prior to the effective date of this order, the Company provided deferred income taxes on a portion of such benefits as required in a previous order, Thr Company has implemented the Accelerated Cost Recovery System method of tax depreciation fo, all property additions subsequent to December 31, 1980, and uses an accelerated method of tax depreciation for substantially all property additions prior to January 1,1981, which results in tax depreciation amounts in excess of book depreciation. The Company further deducts currently certain 16
i Note 1: Summary of Significant Accounting Policies-(Continued) elements of construction overheads that are capitalized for book purposes. For each of these differr aces, the Company provides deferred income taxes as had been previously approved for rate-maidng purposes by the DPU. The Company received a DPU order dated July 2,1982 reaffirming the principle of full tax normalization as required by the Economic Recovery Tax Act of 1981.
The Company has recorded deferred income taxes related to certain abandoned properties which are recognized as tax losses at differing times. The Company, in 1979, began capitalizing certain maintenance costs for a generating unit, yet continued to deduct these costs currently for tax purposes. Deferred income taxes have been provided for this timing difference.
The annual investment tax credits permitted for additions to the Company's utility property are being amortized to income ratably over the estimated productive lives of the related assets as allowed by.
the DPU. Such deferrals for the years 1983,1982 and 1981 amounted to $568,92i, $769,780 and
$1,255,899, respectively.
During the years 1980-1982 the additionalinvestment tax credit permitted under the Company's Employeo Stock Ownership Plan (ESOP) was available to reduce Federal income taxes payable by 1%% of the Compar'y's qualified property additions. The amounts realized from the reduction in income tax liability were paid to ESOP.
Allowance for Funds Used During Construction - AFUDC, a non-cash item reflected in the consolidated statements of earnings, is included in construction work in progress. The objective of AFUDC is to present the earnings that would result in the absence of construction programs and the related financing require-ments during the period of construction. Accordingly, AFUDC capitalizes the cost of debt and equity employed in meeting these financing requirements based upon a composite rate applied to construction work in progress which assumes that funds used for construction were provided by borrowings, preferred stock and common equity. AFUDC is anticipated to be recovered in rates through depreciation charges over the lives of the related assets.
The combined rates used in calculating AFUDC were approximately 13%,13% and 16% for the years ended December 31,1983,1982 and 1981, respectiveiy. AFUDC amounted to approximately 174%,203%
and 95% of net income applicable to Common Stuck for the years ended December 31,1983,1982 and 1981, respectively. The equity components of AFUDC equaled approximately 80%, 59% and 15% of net income applicable to Common Stock for the years ended December 31,1983,1982 and 1981, respectively.
Note 2: Deferred Debits Unamortized Cost of Abandoned Properties-The unamortized cost of abandoned proper"es is being amortized at various rates as ordered by the DPU:
On October 18,1978, the Company filed with the DPU its proposed accounting treatment relative to the book abandonment ordered by the DPU of the Company's oil-fired generating Unit No. 6, which treatment was approved by the DPU on November 7,1978. As a result, the Company commenced amortization of this property in September 1978, retroactive to January 21,1978. This amortization was completed in November 1982. In September 1981, the Company abandoned the Unit for tax purposes pursuant to management's determination that there was no longer economic justification for retaining the Unit as standby capacity available for future rehabilitation. The tax abandonment had no effect on earnings.
On November 1,1979, the Company began amortizing the costs of its abandoned investment in the proposed Charlestown Units No.1 and No. 2 nuclear generating plants. This abandonment was pre-cipitated by the announcement on October 9,1979 by the lead participant, New England Electric System, of its decision to defer indefinitely the in-service dates and the subsequently announced termination of this project. On November 27,1979, the DPU approved the Company's request to amortize approximately
$653,000 over a three-year period. The amortization was completed in October 1982.
17'
i Note 2: Deferred Debits-(Continued)
On December 31,1980, Northeast Utilities, the parent company of the lead participant in the proposed Montague Units No.1 and No. 2 nuclear generating plants, announced the termination of construction of these Units. On April 24,1981, the Company received permission from the DPU to amortize approxi-mately $294,000 of related costs over a five-year period beginning January 1,1981. On September 16, 1982, the Company requested in its electric rate filing the recovery of its remaining net investment in these Units, amounting to approximately $175,000. In the electric rate order which was received on March 31, 1983, the DPU allowed the recovery of the net investment over a three-year period after excluding the equity component of AFUDC, amounting to approximately $21,000, which was written off in March 1983.
On September 23,1981, the Board of Directors of Boston Edison Company voted to cancel Pilgrim Unit No. 2 due to increased costs resulting from regulatory delays. On October 22,1981, the Unit was officially cancelled. The Company had requested in the above-mentioned 1982 electric rate filing the recovery of its investment in Pilgrim Unit No. 2, net of deferred taxes related thereto. In the March 1983 electric rate order, the DPU allowed the recovery over a three-year period of all costs associated with the Unit incurred prior to July 1,1980, amounting to approximately 5537,000. However, approximately $56,000 of costs related to the equity component of AFUDC were not includable for recovery purposes. All non-recoverable costs, approximating $305,000, were written off in March 1983.
The amounts to be amortized for all properties over the next five years are as follows: 1984 - $435,076; 1985 - $360,709; 1986 - $134,070; 1987 - $58,522; 1988 - $58,522.
Other Deferred Debits-Other deferred debits are composed of the following:
December 31, 1983 1982 Pilgrim Unit No. 2
$1,210,650 Storm damage ,,.
$ 4,969 64,594 Property tax abatements receivable .
129,626 129,626 Notes receivab!e , ,.
106,065 127,171 Deferred maintenance costs (amortized based upon generation) 169,213 171,841 Moving expenses . . .
5,079 35.553 Turbine maintenance expense 91,063 122,216 Rate case expenses . .. 233,712 158,757 Miscellaneous . .
5,006 46.757 Total other deferred debits $744,733 $2,067,165
- Pursuant to the electric rate order effective April 1,1983, the recoverable investment in Pilgrim Unit No. 2 has been reclassified as unamortized cost of abandoned property and the unrecoverable portien of the investment in this Unit was written off in March 1983.
Note 3: Common Stock- On October 20,1983, the Company sold 400,000 shares of Common Stock to the public at $21.50 per share. At various times during 1983, the Company sold 29,232 shares of Common Stock in connection with ESOP and its Dividend Reinvestment and Stock Purchase Plan (DRP) at an average price of $20.21 per share. Aggregate net proceeds of $8,645,324 were used to reduce short-term borrowings incurred in connection with the Company's on going construction program.
On June 24,1982, the Company sold 150,000 shares of Common Stock to the public at $18.50 per share.
At various times during 1982, the Company sold 23,123 shares of Common Stock in connection with ESOP and DRP at an average price of $18.66 per share. Aggregato net proceeds of approximately
$2,863,000 were used to reduce short-term borrowings incurred in connection with the Company's on-going construction prcgram.
On June 23,1981, the Company sold 125,000 shares of Common Stock to the public at $19 per share.
The Company sold an additional 4,232 shares of Common Stock at $18 per share to ESOP on October
'l 8
Note a: Common Stock-(Continued) 22,1981. Aggregate net proceeds of $2,140,000 were used to reduce short-term bc rowings incurred j in connection with the Company's on-going construction program.
Note 4: Restriction on Retained Earnings-Under the most restrictive provisions of indentures and note purchase agreements relating to the Company's long-term debt, $2,529,278, $2,746,807 and
$3,256,074 of retained earnings were available for the payment of cash dividends on Common Stock at December 31,1983,1982 and 1981, respectively.
Note 5: Redeemable Cumulative Preferred Stock -On August 5,1982, the Company sold to the public 180,000 shares of an initial series of Cumulative Preferred Stock, $1 par value, at $25 per share with an annual dividend rate of $4.00 per share. Net proceeds of $4,141,309 were used to reduce short-term borrowings incurred in connection with the Ccmpany's on-going construction program.
Both classes of Cumulative Preferred Stock rank equally and are preferred over Common Stock in voluntary liquidation at the redemption price in effect at the time of such voluntary liquidation and in involuntary liquidation at $100 per share with respect to the 5%% and 8% Series and at $25 per share with respect to the $4.00 Series, all plus accrued dividends.
Shares of the 5% % Series are redeemable at the Company's option at $101.28 per share. The Company is required to purchase on June 1 of each year not less than 420 shares of the 5%% Series, unless a lesser emount of shares is tendered, at $100 per share plus accrued dividends.
Shares of the 8% Series are redeemable at the Company's option at $104.00 per share on or before August 31,1986 and at diminishing premiums thereafter. The Company is required to purchase on June 1 of each year not less than 750 shares of the 8% Series, unless a lesser amount of shares is tendered, at $100 per share plus accrued dividends.
Shares of the $4.00 Series are redeemable at the Company's option at $29.00 per share on or before June 1,1987 and at diminishing premiums thereafter. The Company is required to purchase on June 1 of each year, commencing in 1988, 9,000 shares of the $4.00 Series at $25 per share plus accrued dividends.
Purchases of redeemable Cumulative Preferred Stock during 1983,1982 and 1981 consisted of the following:
Series 1983 1982 1981_,
5% % $42,000 $42,000 $42,000 8% $75,000 $75,000 $75,000 The aggregate amount of sinking fund requirements of the redeemable Cumulative Preferred Stock for each of the five years following 1983 are: 1984-1987 - $117,000; and 1988 - $342,000.
Note 6: Long-term Debt - Details of Long-term Debt at December 31,1983 and 1982 are shown below:
December 31, 1983 1982 Twenty-five year Notes,4%%, due February 1,1984 $ 3,011,000 $ 3,054,000 Ten year Notes,17% %, due August 15,1992 5,000,000 5,000,000 Twenty-five year Notes,9%%, due March 1,1995 6,596,000 6,675,000 Twenty year Notes,10%, due September 1,1996 2,600,0C0 2,800,000 Twenty-five year Notes,10% %, due May 1,1999 3,500,000 3,580,000 Twenty year Notes,15%%, due September 1,2000 5,000,000 5,000,000 Total $25,707,000 $26,109,000 Less Installments due within one year 3,291,000 323,000 Total Long-term Debt . $22,416,000 $25,786,000 19
Note 6: Long-term Debt -(Continued)
The aggregate amount of sinking fund requirements and payments at maturity for each of the five years following 1983 are: 1984 - $3,291,000; 1985 - $351,000; 1986-1988 - $685,000. The Company _
has satisfied through advance purchases $75,000 and $4,000 of the annual sinking fund requirements j for 1984 and 1985, respectively.
Note 7: Credit Arrangements - Under line of credit arrangements for short-term debt with four banks, the Company may borrow up to $14,000,000 on such terms as the Company and the banks may mutually agree upon.
These arrangements do not have termination dates, but are reviewed annually for renewal. At December 31,1983 and 1982, the unused portion of the credit lines outstanding was $7,300,000 and $9,300,000, respectively. The Company has agreed to pay certain fees in lieu of compensating balances and was not required to maintain compensating balances at December 31,1983. Compensating balance require-ments at December 31,1982 were approximately $80,000.
Note 8: Federallncome Tax- Federal income tax expense is comprised of the following components:
Years Ended December 31, 1983 1982 1981 Current expense charged (credited):
Operating expenses $ (164,358) $(597,375) $(124,849)
Non-operating income (276) (63,834) (24,500)
Amortization of investment tax credit (102.716) (94,029) (97,776)
(267,350) (755,238) (247,155)
Deferred tax expense charged (credited):
Deferred unbilled revenue 23,856 (162,653) (276,917)
Accelerated tax depreciation 284,638 325,577 322,551 Abandoned properties (108,324) (174,814) 650,300 Allowance for funds used during construction (Note 1) 758,754 63,231 66,023 235,951 259,075 84,040 Overheads and other Deferred maintenance costs (15,479) 54,949 (2,494)
Percentage repair allowance 45.815 (10,105) (10,046) 1,225,211 355,260 833,457 Non operating expense - (42,983) (19,951) 1,225,211 312,277 813,506 Total Expense (Benefit) $ 957.861 $(442,96 i) $ 566.351 The Federal income tax amounts included in the Consolidated Statement of Earnings differ from the amounts which result from applying the statutory Federa' income tax rate to Net Earr.ings before income tax. The reasons, w;th related percentage effects, are as shown below:
Years Ended December 31, 1983 1982 1981 Statutory Federal income tax rate 46 % 46 % 46 %
Income tax effects of timing differenc 2s; Allowance for funds used during construction (see Note 1) (25) (82) (30)
Miscellaneous 1 7 2 Effective Federal income tax rate 22 % (29)% 18 %
Note 9: Regulatory Matters-On January 31, 1983, the Company was granted in a DPU order an increase in gas base rates of approximately $2,318,000 on an annual basis, which amounted to 73%
of the revised amount requested. lhe Company had originally filed for a $3,378,000 increase on July 16, 1982. This request was revised ta approximately $3,173,000.
n 2V
Note 9: Regulatory Matters-(Continued) ,
On March 14, 1983, the Attorney General of The Commonwealtn of Massachusetts (Attorney General) appeated to the Massachusetts Supreme Judicial Court (SJC) certain issues contained in the DPU's above-mentioned gas rate order. The capital structure utilized in determining the overall cost of capital and the allowed return on common equity by the DPU are the issues being challenged by the Attorney G General. Arguments were to be held before the SJC on February 9,1984 and a decision is expected be-fore the end of the year. While the Company has actively defended the DPU's findings, the ultimate outcome is uncertain and the Company is unable to determine the potential adverse impact of any decision by the SJC on future earnings.
On March 31,1983, in response to the Company's request for an increate in electric rates of approxi-mately $4,103.000 on an annual basis, subsequently revised to approximately $3,959,000 on an annual basis, the DPU issued an order granting the Company an increase of approximately $2,133,000 on an annual basis, or 54% of the revised amount requested. In this electric rate order, the DPU denied recovery for rate-making purposes of certain portions of the Company's net irvestment in the abandoned Pilgrim Unit No. 2 and Montague Units No.1 and No. 2, and the Company, *herefore, charged against earnings approximately 4326,000, net of related taxes, of these unrecoverable nvestments in March 1983.
The DPU allowed the Company electric rate relief to amortize the remaining investment in these Units over a three-year period, commencing on April 1,1983.
Note 10: Commitments Lease Obligations -In accordance with the guidelines of Statement of Financial Accounting Standards No.13 issued by the Financial Accounting Standards Board, the Company is disclosing pertinent information regarding its capital leases. The Securities and Exchange Commission requires, for rate-regulated enterprises, disclosure of the effect on the balance sheet and on expenses if such leases had been capitalized.
The Company has a twenty-five year lease which began April 1,1973 for a combustion turbine and a liquefied natural gas storage and vaporization facility. The lease is subject to a ten-year renewal period at the option of the Company at an annual rental of 14%% of the aggregate fair market value at the end of the initial lease term. Under certain conditions the Company has the right to purchase these facilities at an independently appraised market value. Under the lease, the Company has the obligation to maintain the equipment in good operating condition and pay all taxes and insurance thereon.
The Company leases its service center in Fitchburg under a sale and leaseback arrcngemert. The twenty-two year primary term of the lease began in February 1981 with annual rental payments increasing over the initial term of the lease from approximately $184,000 to 5537,000. The lease is subject to five five-year renewal periods at the option of the Company at an annual rent of $270,000. The Company has the option to purchase the service center on the last day of the primary term or any extended term at a prico equal to its fair market value. The Company has a right of first refusal to purchase the service center during the term of the lease if a bona fide o"er is made to the lessor. Should the servira center be purchased by another party, this right expires a f ar the transfer of ownership resulting from it.i1 offer.
The lease requires that the Company maintain the service center and pay all taxes and insurance thereon.
Had the Company capitalized its capital leases at December 31,1983 arid 1982, tte asset and related liability which wouid have been recorded on the balance sheets for the Company's capital leases would have been as follows:
December 31, 1983 1982 Asset $4,561,875 $4,731,232 Liability $5,700,339 $5,807,364 21
Note 10: Commitments -(Continued)
Had the Company capitalized its capital leases, depreciation and other interest charges would have increased and operating expenses, other, would have (decreased) as follows:
Years Ended December 31, 1983 1982 1981 Depreciation S 305,103 $ 288,133 $ 265,990 Other Interest Charges $ 698,001 $ 694,413 $ 578,755 Operating Expenses, Other $(876,079) $(617,965) $(544,844)
The minimum commitments under all non-canceliabic long-term leases in effect at December 31,1983 are as follows:
1984 $ 926,051 1985 910,211 1986 884,810 1987 871,855 1988 810,775 1989 -1993 3,510,033 1994 -1998 3,643,421 1999 - 2003 2,193,799
$13,750,955 Total rental expense for the years ended December 31,1983,1982 and 1981 amounted to $956,850,
$687,142 and $583,810, respectively.
Pension Plans - The Company has in effect two funded pension plans and related Trust Agreements to provide retirement atinuities for participating employees at age 65. The entire amount of the annual contribution under the actuarial requirements of the plans is borne by the Company. The Company's contribution to the plans during the years ended December 31,1983,1982 and 1981 amounted to
$579,283, $552,824 and $564,661, respectively. The Company's policy is to fund the pension cost accrued which includes amortization of prior service costs over a period of thirty years. The following additional information is presented as of the most recent benefit information dates:
January 1, 1983 1982 Actuarial present value of accumulated plan benefits:
Vested $4,658,878 $4,459,203 Non-Vested 51,097 75,520
$4,709,975 $4.534,723 Net asset available for benefits $2,950,355 $2,183,048 The weighted average assumed rate of return used in determining the actuarial present value of accum-ulated plan benefits was 8% for both 1983 and 1982.
Joint Ownership Units and Construction - The Company is participating on a tenancy-in common basis with other New England utilities in the construction and ownership of five generating Units. New Haven Harbor and Wyman Unit No. 4, both oil-fired stations, have been in commercial operation since August 1975 and December 1978, respectively. The remaining three nuclear Units are under construction.
The Company estimates that construction requirements, including AFUDC relating to these five Units, will be approximately $51,295,000 during the five-year pcriod endir g December 31,1988.
22
Note 10: Commitments -(Continued)
On January 26,1979, the common shareholders approved the acquisition of an additional 0.43332 %
ownership interest in each of the Seabrook Units from The Connecticut Light and Power Company (CL&P). On Maren 25, 1980, the common shareholders approved the acquisition of an additional 0.26087 % ownership in each of the Seabrook Units from Public Service Company of New Hampshire (PSNH). The purchase of both additional interests, representing an additional 16 MW, was approved by the DPU on Octcber 31,1980 and is included in the information presented below. The purchase from l CL&P increasing the Company's ownership interest in the Seabrook Units was consummated on January 30,1981. The purchase from PSNH increasing the Company's ownership interest in the Seabrook Units was phased in over the thirteen-month period, February 1981 through February 1982.
Details with respect to the various Units are set forth in the table below. Estimates issued by PSNH on March 1,1984 reflect an increase in the estimated cost of construction and the deferral of projected in-service dates to July 1986 and December 1990 for Units No.1 and No. 2, respectively. These estimates also reflect the participants' unanimous resolution to reduce expenditures for Unit No. 2 to the lowest feasible level until the time of fuel-loading for Unit No.1, unless Unit No. 2 is cancelled prior to that event.
Company's Share in Thousands of Dolf tra Proportionate Share of Total Amount of Accumu- Amount mated 0 vnership Utility Isted Expended Cost of Plant in Depro- through Construc-Joint Ownership Units State % MW Servict clation 12/31/83 tion Seabrook Unit No.1 New Hampshire 0.86519 9.95 $- $- $24,611 $ 48,875 Seabroak Unit No. 2 New Hampshire 0.86519 9.95 - - 7,179 46,055 Millstone Unit No. 3 Connecticut 0.217 2.50 - - 6,091 10,579 Wyman Unit No. 4 Maine 0.1822 1.13 413 75 - -
New Haven Harbor Connecticut 4.5 20.12 6,972 1,757 - -
43.6S $7,385 $1,832 $37,881 $105,509 Estimates of the total cost of construction are , resented as of March 1,1984 and are based on the most recent information furnished by the utilities supervising construction of the nuclear Units and various other assumptions made by management of the Company regarding sources of financing and costs of capital. The Company has been advised by the supervising participant for each project that construction budgets are periodically updatud in light of changes in costs due to deferrals, delays and other factors. In February 1984, the Company received revised estimated cos'ts of construction from Northeast Utilities, the parent company of the lead participant in Millstone Unit No. 3, with respect to such Unit.
The continuing uncertainty as to the ultimate cost and in-service date of Unit No. 2 have led some of the joint owners, including the Company, to question the economic viability of the Unit. On December 29, 1983, the Company announced that it could r,o longer support the completion of Unit No. 2 due to the uncertainty surrounding the actual completion date, the cost of the Unit itself and the ultimate cost of the power to be generated by that Unit. The Company does, however, intend to continue to comply with its contractual obligations by making monthly payments for Unit No. 2's reduced level of construction.
Tha complexity of present-day electric utility technology and the time required for the construction of generating facilities and completion of licensing and other regulatory proceedings relating thereto have compe' led the Company, as well as other e!cctric utilities, to make substantial investments in nu-clear facilities poor to the completion of licensing and regulatory proceedings. Cancellation of any of the three nuclear generating Units for any reason, including the inability to obtain necessary permits or sufficient financing, could result in substantial and possibly unrecoverable charges against the Com-pany's income. These charges could include the amounts incurred by the Company prior to cancella-tion, cancellation penalties and other charges The scheduling of Millstone Unit No. 3, and the right to can-cel that Unit, are solely the responsibility of the utility which is supervising construction of that Unit. A delay or cancellation of either of the Seabrook Units would require the agreement of 75% of the participating
-- 21
~ _ - - - - - - - _ _ _ _ . _ _ _ _ _
Note 10: Commitments-(Continued) ownership interests of the utilities involved in the construction of those Units. PSNH has a 35.6o'o ownership interest in each Unit and accordingly has, effectively, a veto power over any such proposed action.
In the event that any Unit identified in the table above is cancelled, the Company would request DPU permission to amortize its gross expenditures celating to such cancelled Unit over a suitable period to be accompanied by a return on the unamortized balance during the amortization period, which would thereby achieve, in the opinion of the management of the Company, adequate rate treatment. The Company cannot determine at this time the magnitude of the final costs which would be incurred by the Company in the event that any of the Units identified in the table above is cancelled, or the extent to which rate relief would permit a return on and/or recovery of these costs. Failure to obtain adequate and timely rate relief in such circumstances could have a material adverse impact on the Company's earnings and its ability to pay dividends on its stock.
The Company expects to .1ance the cost of its participation in the Units initially through shcil-term borrowings. At the appropriate times, short-term borrowings are expected to be refunded with the pro-ceeds from the sale of long-term debt and equity.
Operating expenses of the joint ownership units included in the consolidated statements of earnings and proportionate amounts charged to specific operating expenses are as follows:
Percentage of Total Electric New Haven c: manse Wyman Unit No. 4 Harbor Category (In thousands of dollars)
Operating Expense, Other $ 23 $ 374 9%
Fuel Used in Electric Generation 126 4,880 97 Maintenance 4 223 24 Local Property Tax 5 209 29 Other Taxes -
12 8 Total Operating Expenses $158 $5,698 Long-term Obligations-The Company maintains contracts for both natural and supplemental gas supplies and the storage and de:ivery of natural gas stored underground. These contracts contain minimum purchase provisions which the Company is obligated to pay. The minimum purchase provisions of the natural gas contracts may increase or decrease on action by the Federal Energy Pegulatory Commission with regard to curtailment of supply. All of the supplemental supply contracts contain a minimum purchase provision subject to product availability from the supplier.
The minimum commitments under all non-canceliablo contracts in effect at December 31,1983 are as follows: 1984 - $9,786,144; 1985 - $9,154,210; 1986 - $8,948,160; 1987 - $9,821,851; 1988 -
$8,531,051; 1989-1993 - $40,509,255 aggregate for the period; 1994-1998 - !38,039,339 aggregate for the period; 1999-2000 - $12,977,428 aggregate for the period.
The Company has entered into agreements with other New England utilities to support the operation of a terminal facility and transmission line which are planned to permit the interchange of electricity between such uti;ities and Quebec Hydro-Electric Corporation. Related support charges, which will commence in 1986, are expected to cost the Company approximately $200,000 per year.
The Company has contracts for purchases of electric energy with unconditional capacity and transmission charges which approximate $6,100.000 annually through October 1986, then $1,300,000 annually through 1992.
A substantial portion of the Company's electric energy supply is obtained under long-term contracts.
24 -
Note 11: Segment Information-In accordance with Financial Accounting Standard No.14, the following information is presented relative to the gas and electric operations of th6 Company:
Electric Operations 1983 1982 1981 Operating revenues $29,119.262 $28,193,890 $31,554,691 Operating income before income taxes $ 3,010,161 $ 1,650,425 $ 2,950,982 identifiable assets as at December 31 $61,493,038 $53,132,693 $45,101,618 Depreciation $ 966,008 $ 979,783 $ 980,737 Construction expenditures $ 7,506,987 $ 6,963,559 $12,623,393 Gas Operations 1983 1982 1981 Operating revenues $19,757,977 $18,289.210 $16,583,322 Operating income before income taxes 5 1,542,952 $ 1,032.263 $ 1,651,573 Identifiable assets as at December 31 $13,622,946 $13,804.033 $14,229,005 Depreciation 5 534,004 $ 385,657 $ 419.017 Construction expenditures S 813,220 $ 1,191,741 $ 521,409 Total Company 1983 1982 1981 Operating revenues $48,877,239 $46,483.100 $48,138.013 Operating income before income taxes S 4,553,113 $ 2,682,688 $ 4,602,555 Income tax benefit (expense) (1,025,625) 307,427 (587,400)
Non-operating income 1,913,413 916,994 473,409 Net interest and other expenses (2,152,656) (1,916,904) (1,898,205)
Not income $ 3,288,245 $ 1,990,205 $ 2.590,359 Identifiable assets as at December 31 $75,115,984 $66,936,726 $59,330,623 Unallocated assets, primarily working capital 10,672,016 8.574,215 9,728,638 Total assets as of December 31. $85,788,000 $75,510,941 $69,059,261 Depreciation S 1,500,012 $ 1,365,440 $ 1.392,754 Construction expenditures $ 8.320,207 $ 8,155,300 $13,144,802 Expenses used to determine operating income before taxes are charged directly to either segment or are allocated in accordance with factors contained in cost of service studies which were included in rate applications approved by the DPU. Assets allocated to each segment are based upon specific identifica-tion of such assets provided by Company records. Assets not so identified represent primarily working capital items, 25
REUUi1T OFlNDEPENDENT C5FITlFiUD PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS OF FITCHBURG GAS AND ELECTRIC LIGHT COMPANY:
We have examined the consolidated balance sheets of Fitchburg Gas and Electric Light Company and Subsidiary as of December 31,1983 and 1982 and the related consolidated statements of earnings, retained earnings and changes in financial position for each of the three years in the period ended December 31,1983.
Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the financial statements referred to above present fairly the consolidated financial position of Fitchburg Gas and Electric Light Company and Subsidiary at December 31,1983 and 1982 and the consolidated results of their operations and changes in their financial position for each of the three years in the perind ended December 31,1983, in conformity with generally accepted accounting principles applied on a consistent basis.
ALEXANDER GRANT & COMPANY Boston, Massachusetts February 3,1984, except for Note 10 (Commitments-Joint Ownership Units and Construction), as to which the date is March 1,1984 iMN AGEM&lTS DISCUSSION AND AN ALYSIS OF FINANCIAL CONOl!iO2i f(ND RESULTI OF OF E ATIONG Financial Condition The liquidity and capital resources of the Company, like those of most utility companies, are influenced most significantly by construction required to provide the environmentally-acceptable facilities needed to meet the anticipated energy needs of its customers. The rate-making practices of most utility regulatory commissions, including the Massachusetts Department of Public Utilities (DPU), effectively require substantial extemal financing of the investment in additional facilities and equipment. Under these practices, the financing costs of construction projects are generally treated as part of the cost of the new facilities. The inclusion of financing costs in the cost of new facilities is accornplished by recording an allowance for funds used during construction (AFUDC) (a non-cash item) in the Statement of Eamings (see Note 1 of Notes to Consolidated Financial Statements). Although this accounting treatment allows recovery of the cost of construction funds through depreciation over the life of the facilities and results in current credits to income, it is not immediately accompanied by cash flow. As a result, the quantity of earnings may not be greatly reduced during periods of heavy construction, but the cash f!ow content of earnings is substantially reduced.
Low internal cash generation requires a large amount of extemal financing to support the construction program, Consideration of liquidity and capital resources for a utility company must primarily be directed toward an assessment of its ability to attract the capital necessary to support its construction program.
The interest expense incurred by the Company which constitutes the debt component of AFUDC is a deductible item for Federal tax purposes, and substantially all the resulting benefit is used to reduce current income tax expense in accordance with DPU rate-making practice. In order to enhance its cash flow position, the Company petitioned the DPU on January 25,1982 to grant a " normalization allowance", that is, retention of a portion of these tax benefits by tne Company until such time as the related facilities become operational. On July 2,1982, the DPU dismissed the Company'a petitinn, indicating that the issue presented should be considered in the context of the Company's next full electric rate case. On September 16,1982, the Company 26 _ - -
filed for permanent electric rate relief, which is described below, and incorporated into this rate filing an adjustment to implement increased normalization of the debt component of AFUDC. The DPU, in its March 31,1983 electric rate order, reaffirmed the practice of normalizing the debt component of AFUDC and required that the Company provide deferred income taxes to fully normalize the tax benefits associated with the debt component of AFUDC.
It is vital to the interests of the Company's shareholders and customers that income from operations be adequate to finance the capital expenditures necessary to meet its service requirements. To achieve a satisfactory level of earnings and improve the cash flow position of the Company, it became necessary to file for permanent gas and electric rate relief on July 16,1982 and September 16,1982, respectively. The Company's request for gas rate relief amounted to approximately $3,378.000 on an annual basis and was subsequently revised to approximately $3,173,000 on an annual basis. On January 31,1983, the Company was granted an increase of approximately $2,318,000, or 73% of the revised amount requested. On March 31,1983, in response to the Company's request for an increase in electric rates of approximately $4,103,000 on an annual basis, subsequently revised to approximately $3,959,000 on an annual basis, the DPU issued an order granting the Company an increase of approximately $2,139,000 on an annual basis, or 54% of the revised araount requested. In this electric rate order, the DPU denied recovery for rate-making purposes of certain portions of the Company's net investment in the abandoned Pilgrim Unit No. 2 and Montague Units No.1 and No. 2, and the Company, therefore, charged against earnings approximately $326,000, net of related taxes, of these unrecoverable investments in March 1983. The DPU allowed the Company electric rate relief to amortize the remaining investment in these Units over a three-year period, commencing on April 1,1983 (see Note 9 of Notes to Consolidated Financial Statements).
Capital expenditures for utility operations in 1983 were approximately $8,320,000, a 2% increase compared to the previous year. In 1983 the Company expended approximately $10.265,000 of its $12,352,000 utility plant expenditures, inclusive of AFUDC, on Seabrook Units No. I and No. 2 and Millstone Unit No. 3.
Because of its contractual commitmente to Seabrook Units No.1 and No. 2 and Millstone Unit No. 3, the Company has forecasted a cash construction budget of approximately $9,271,000, exclusive of AFUDC, for 1984, of which approximately $7,079,000 consists of the on-going investment in the jointly-owned nuclear plants. The Company's total cash commitment toward these Units is estimated to be approximately
$?5,664,000, excluding AFUDC, over the next five years. This estimated five-year cash commitment assumes that the present cost estimates and in-service dates of the respective Units remain unchanged, unaffected by substantial adverse regulatory actions, labor-related disruptions, delays in construction milestones or other similar events (see Note 10 of Notes to Consolidated Financial Statements).
While purchases of long-term Notes will be made to satisfy several annual sinking fund requirements during the next five years, the Company's only long-term debt oUigation coming due during this period is the payment at maturity of $3,011,000 of the Company's 4% % Notes due 1984.
When internally generated funds are not available, the Company follows a policy of borrowing on a short-term basis to meet its capital requirements and, at the appropriate time, refunds its short-term indebtedness with the proceeds from the sale of long-term debt and equity. The size and timing of such financings will depend upon developments in the financial markets and the ability of the Compar,y to meet financing covenants. The Company has and will continue to review its plans for financing its future service requirements, in particular the timing and amount of cash outlays requirec for Seabrook Units No.1 and No. 2 and Millstone Unit No. 3 now under construction.
On October 7,1983, at a proceeding relating to the approval by the DPU of the issuance and sale of the Company's Common Stock, the Attorney General of The Commonwealth of Massachusetts (Attorney General) requested that the DPU cxamine the necessity and appropriateness of the Company's continued participation in the Scabrook project and the effect of such participation on the Company's future financings.
The DPU took the Attorney General's request under advisement. The Company is unable to predict the decision of the DPU with respect to the Attorney General's request or the effect on future financings of the proceedings, if any, which may result therefrom.
As of December 31,1983, under the Company's most restrictive coverage tests, the Company could have issued approximately $1,000,000 of preferred stock at a dividend rate of 14% and approximately
$10,000,000 of long term debt at an interest rate of 14W % The Company presently anticipates that, during 1984,100% of its estimated construction expenditures and all dividends paid on its stock will be financed by externally generated funds.
27
On February 21,1984, the Company filed petitions before the DPU seeking approval to issue up to
$5 million of Cumulative Preferred Stock, $13 million of long-term Notes and an additional $2 million of long-term Notes to facilitate the issuance of pollution control revenue bonds by a tax-exempt authority. The proposed issuance of such securities embodies the Company's 1984 financing plan. Hearings on the Company's petitions are scheduled for March 19,1984. The Attorney General has intervened in the proceeding for purposes of examining the Company's construction program.
" Based upon current construction estimates, the Company anticipates that it will seek to raise approxi-mately $10-15 million through the issuance of seninr securities in 1985. While the Company has not determined its specific financing plans for any period af ter 1985, it believes that its outside financing require-ments should decrease substantially. This decrease in the need for financino should principally result from a significant improvement in the Company's cash flow associated with the commercial operation of Seabrook Unit No.1, currently projected for July 1986, and its inclusion in rate base. Any delay with respect to the planned in-service dates of these Units may result in significantly higher construction and financing costs for these Units and, consequently, increased future financing requirements.
The continuing uncertainty as to the ultimate cost and in-service date of Unit No. 2 has led some of the joint owners, including the Company, to question the economic viability of the Unit. On December 29,1983, the Company announced that it could no longer support the completion of Unit No. 2 due to the uncertainty surrounding the actual completion date, the cost of the Unit itself and the ultimate cost of the power to be generated by that Unit. The Company does, however, intend to continue to comply with its contractual obligations by making monthly payments for Unit No. 2's reduced level of construction.
At a meeting of the joint owners on March 1,1984, Public Service Company of New Hampshire (PSNH) announced that the projected in-service dates for Seabrook Units No.1 and No. 2 are July 1986 and December 1990, respectively, and that the total cost of the project could be as high as $9 billion. The previous official estimates for the Seabrook project, released in November 1982, set the total cost at $5.24 billion with in-service dates of December 1984 and July 1987 for Units No.1 and No. 2, respectively. These new projections indicate that Units No.1 and No. 2 are approximately 72% and 22% complete, respectively, a change from previous completion estimates of 89% and 295 PSNH and its newly hired senior construction executive for the Seabrook project will be undertaking a comprehensive review of these new projestions in the ensuing months, since PSNH believes the cost projections to be too high because they do not reflect changes that will be implemented by PSNH. At the meeting on March 1,1984, Management Analysis Company (MAC) reported that there is a substantial probability that if significant management and construction changes are not implemented, the above-mentioned cost and completion date projections will not be achieved. MAC did, however, indicate that there are significant opportunities for improvement in the construction of the project. Accordingly, MAC recommended that the joint owners not adopt the new cost and schedule ;
projections as an official estimate pending the further review by PSNH. As a conservative measure, FG&E j is using these new projections for financial planning purposes until the further review is completed. 1 The Company cannot determino at this time the magnitude of the final costs which would be incurred by the Company in the event that any of the above-mentioned Units under construction is cancelled, or the extent to which rate relief would permit a return on and/or recovery of these costs. Failure to obtain adequate and timely rate relief in such circumstances could have a material adverse impact on the Company's carnings and its ability to pay dividends on its stock (see Note 10 of Notes to Consolidated Financial Statements). It is conceivable that cancellation of any of the above-mentioned Units could result if one or more of the other participants in such Units should become financially unable to pay its share of the costs of such Unit (s) or become subject to regulatory or legislative action restricting further payments of such costs The Company is cognin; ant of its responsibility to ensure that each of the major construction projects is prudently managed, has effective cost control and can be completed as expeditiously as possible. The Company has reviewed and will continue to review this situation very closely and will take all reasonable actinn available to it to ensure that the goals are met.
On October 20,1983, the Company sold 400.000 shares of Common Stock to the public. At various dates during 1983, the Company issued 29.232 chares of Common Stock in connectio- *ith its Dividend Reinvestment and Stock Purchase Plan (DRP) and Employee Stock Ownership Plan (ESOP). On June 24,1982,
! the Company issued 150,000 sharc3 of Common Stock to the public. On August 5,1982, the Company sold
<28 .
to the public 180,000 shares of an initial series of Cumulative Preferred Stock, $1 par value, with an annual dividend rate of $4.00 per share. The Company privately sold $5,000,000 of its 17% % Notes due 1992 on August 24,1982. The Company also issued in 1992, at various times,23,123 shares of Common Stock in connection with DRP and ESOP. In 1981 the Company issued 125,000 shares of Common Stock to the public and 4,232 shares in connection with ESOP. The Company previously issued, during 1980.100,000 shares of Common Stock to the public and 3,002 shares in connection with ESOP. In 1980 the Company also sold privately $5,000,000 of its 15%% Notes due 2000. The Company's service ( enter, costing approximately
$2.700,000, is being funded through a sale and leaseback arrangement entered into in February 1981 for an initial term of 22 years. The Company has a 25-year lease on a combustion turbina and liquefied natural gas storage facility which commenced in 1973. The Company leases other equiprient including its computer system.
Operating Results in 1983 Net income rose by approximately $1,298,000 (65%), after declining by approximately $600,000 (23%) in 1982. Earnings per average common share for 1983 were $2.43, a 31 % increase on a larger number of shares outstanding, as compared to $1.86 earned in 1982. During 1981 eamings per average common share were $3.72. Higher earnings in 1983 reflect primarily the gas and electric rate increases granted in 1983, reduction in the net amortization of cost of abandoned properties, lower property taxes and growth in kilowatt-hour sales (KWH), resulting from the economic recovery experienced within the service area. Earnings were adversely a.fected by a non-recurring adjustment to reflect the write-off of the unrecoverable portion of the Company's investment in the abandaned nuclear generating facil ties Pilgrim Unit No. 2 and Montague Units No.1 and No. 2, The declina in 1982's earnings was in large measure due to lower KWH sales to major industrial users and a significant reduction in the gross profit associated with interruptible gas sales (sales to customers who possess alternative energy sources and who use gas on an as-available basis).
Electric Operating Revenues were higher by 3% in 1983, reflecting the impact of the 1983 electric rate order and a 4% KWH growth in residential, commercial and industrial sales. In 1982 Electric Operating Revenues declined by 11%, primarily due to the adverse effects of the economic recessica upon certain of the Company's large industrial customers, which led to a 7% decrease in KWH sales from 1981.
Gas Operating Revenues rose by 8% and 10% in 1983 and 1982, respectively. In 1983 the gas rate increase and higher cost of purchased gas were responsible for the rise in operating revenues In 1982 the increase was principally due to the higher cost of purchased gas, which is passed on to customers through the operation of a cost of gas adjustment clause. The volume of firm gas sales declined by 9%, and 2% in 1983 and 1982, respectively.1983 firm gas sales were adversely affected by the wavmer than normal weather conditions and a conversion from gas to lower priced fuels by certain commercial and industrial customers who have dual fuel capabilities.1982 firm gas sales were also adversely affected by the warmer than normal weather conditions and gas conversions.
Fuel Used in Electric Generation rose by 9% in 1983, reflecting increased demand for e!cctricity and a reduction in the costs of fuel oil during the year. This compares with a 24% decline in Fuel Used In Electric Generation in 1982, a year in which there was a reduction in demand for electricity and the costs of fuel oil.
Electricity Purchased for Resale declined by 3% in 1983, reflecting pnncipally lower energy costs for electricity. This decline in Electricity Purchased for Rcsale occurred despite additional purchased pow 3r contract demand charges in 1983. Electricity Purchased for Resale declined by 7% in 1982, reflecting the reduced demand for electricity, while the per unit energy cost rose by only .06 cent (1.2%). Gas Purchased for Resale rose by 7% and 10% in 1983 and 1982, respectively, due primanly to higher prices charged by the Company's pipeline supplier.
Operating Expenses, Other increased by 7% and 5% in 1983 and 1982, respectively, resulting primarily from higher payroll and related benefits costs. Amortization of Cost of Abandoned Properties dochned in 1983, because of the completion in 1982 of amortization of the costs related to three abandoned units and, beginning in April 1983, the recording of amortization on the recoverable portion of the Pilgnm Unit No. 2 investment (see Note 2 of Notes to Consolidated Financial Statements).
Deferred Federallncome Tax increased significantly as a result of the March 1983 electric rate order which allowed full normalization of the tax benefits associated with the debt component of AFUDC (see Notes 1 and 8 of Notes to Consolidated Financial Statements).
29,
AFUDC rose by 38% and 32% in 1983 and 1982, respectively, reflecting the cost of financing the Company's on-going capital projects. AFUDC increased by 179% in 1981, principally due to a significant rise in the level of average yearly short-term borrowings, resulting primarily from the additional Seabrook purchases (see Note 10 of Notes to Consolidated Financial Statements) and increased interest rates.
Local Property Taxes decreased by 36% in 1983, reflecting primarily a reduction in the property tax rate by the City of Fitchburg on commercial and industrial property. The March 1983 write-off of Investment in Abandoned Properties resulted from the non-recurring adjustment to reflect the write-off of the unrecoverable portion of the Company's investment in the abandoned Pilgrim Unit No. 2 and Montague Units (cee Note 2 of Notes to Consolidated Financial Statements). Local Property Taxes increased by 5% in 1982, due principally to the amount of abatements and reduction of prior period assessments received in 1981.
Other Interest Charges declined by 36% and 3% in 1983 and 1982, respectively, primarily due to lower interest rates. Average daily bank borrowings were approximately $8,221,000 and $8,404,000 in 1983 and 1982, respectively. Average daily interest rates on these borrowings on an annual basis were 9.8% and 15.5% for 1983 and 1982, respectively. Interest on long-term debt increased by 21% and 12% in 1983 and 1982 as a result of the sale of the 17% % Notes in August 1982. Dividend Requirements on Preferred Stock rose by 76% and 107% in 1983 and 1982, respectively. reflecting the issuance in 1982 of Cumulative Preferred Stock, $4.00 Series, mentioned above.
l 3IVl
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- 14, o T % IMAGE EVALUATION .
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SELECTED FINANClhL DhT 1983 1982 1981 1980 1979 Results of Operations (000's)
Operating Revenues:
Electric .. . .. .. ... . .. $ 29,119 $ 28,194 $ 31,555 $ 28,525 $ 24,475 Gas. . ... .. . .. . 19.758 18,289 16,583 13,785 9,786 Total Operating Revenues . . . . .. $ 48,877 $ 46,483 $ 48,138 $ 42.310 $ 34,261 Electricity Purchased for Resale .. . .... $ 13.076 $ 13,517 $ 14,466 $ 13.516 $ 10,471 Fuel Used in Electric Generation . . .. $ 5,155 $ 4,731 $ 6.242 $ 4,917 $ 3,402 Gas Purchased for Resale . . .. . $ 14.216 $ 13.346 $ 11,174 $ 9.172 $ 5,851 Amo:tization of Cost of Abandoned Properties $ 172 $ 694 $ 766 $ 824 $ 657 Local Property Tax - Net . $ 950 $ 1,484 $ 1,415 $ 1,626 $ 1.118 AFUDC: Borrowed and Other Funds .. ... $ 4,032 $ 2.919 $ 2,206 $ 791 $ 629 _
Write-off of Investment in Abandoned Properties $ 326 _
Net income . .. . . $ 3,288 $ 1,990 $ 2.590 $ 1,703 $ 2,261 Dividend Requireme ts on Preferred Stock . . 970 549 265 274 282 Net income Applicable to Common Stock $ 2.318 $ 1,441 $ 2,325 $ 1,429 $ 1,979 Common Stock Data Shares of Common Stock:
Year end (000's) . 1,290 861 688 558 455 Average (000's) . ... .. .. 954 773 625 513 455 Earnings per Average Common Share Outstanding $2.43 $1.86 $3.72 $2.78 $4.34 Dividends Declared per Common Share $2.60 $2.60 $2.60 $2.60 $1.90 Balance Sheet Data (000's)
Utikty Plant (at cost) . , ... $ 85,738 $ 73,895 $ 63.114 $ 51,220 $ 47,144 Accumulated Depreciation S 12,648 $ 11,529 $ 10,441 $ 10,899 $ 9,850 Total Assets .. .. . . .. $ 85,788 $ 70,511 $ 69,059 $ 55,520 $ 50,813 Capitalization and Short-term Notes:
Common stock equity .. .. . $ 28,048 $ 19,615 $ 17,604 $ 14,754 $ 12,545 Redeemable preferred stock equity $ 8,103 $ 8,220 $ 3,837 $ 3,954 $ 4,071 Long-term debt . .. .. $ 22,416 $ 25,786 $ 21,182 $ 21,573 $ 16,780 Short-term notes payable . .. . ..... S 6,700 $ 5,700 $ 10,300 $ 1,700 $ 5,420 31
P SELECTED FINANGlAL DATA -(ConUnued) 1982 1981 1980 1979 13 3 Electric Statistics Sales-Thousands of KWH 348,488 336,367 360,272 370,946 392,691 Electric Customers -Year End 23,233 22,869 22,674 22,339 21,744 Average Annual KWH Sales per Residential Customer 4,929 4,852 4,788 4,844 5,033 Average Revenue per Hundred KWH-Residential $9.57 S9.47 $10.48 S9.07 $7.78 Gas Statistics Sales-Thousands of MCF 2,551 2,653 2,819 2,894 2,343 Gas Customers-Year End 15,023 14,955 14,767 14,280 13,693 Average Annual Cubic Feet Sales per Residential Customer 91,438 99,291 97,914 97,013 86,431 Average Revenue per MCF-Residential S8.78 $7.28 56.31 S5.25 $4.62 OUARTERLY FIN ANC!AL DATA Summarized quarterly financial data for 1983 and 1982 is as follows:
Three Months Ended March 31, June 30, 1983 1982 1983 1982 Tetal operating revenues $14,057,241 S15,836,136 510,683,476 $10,222,040 Operating income S 1,171,129 S 1,198,398 $ 671,771 S 590,287 Net income S 822,844 S 803,375 S 550,098 $ 208,710 Earnings per average common share S.67 S1.07 S.35 S.21 Three Months Ended September 30, December 31, 1983 1982 1983 1982 Total operating revenues $10,373,510 S 9,058,848 513,763,012 S11,366,076 Operating income S 579,721 S 387,494 S 1,104,867 S 784,748 Net income S 637,134 S 312.242 S 1,278,169 $ 665,878 Earnings per average common share S.45 S.16 S.86 S.49 Net income for the quarter ended December 31,1982 has been reduced by $154,224, or S.18 of earnings per average common share, due to additional demand charges under purchased power contracts for 1982 and 1981, About the Company The area served by the Company encompasses approximately 170 square miles in north central Massa-chusetts with a population of approximately 80.000 people. The Company provides both gas and electric service to the communities of Fitchburg, Ashby, Lunenburg and Townsend. In addition, we provide gas service in the neighboring areas of Gardner and Westminster.
32 -
1 Philip H. Bradleyt* John Grado. Jr.* Charles H. Tenney ll*
Retired;lormerly Resident Chairman of the Board of Directors Chairman of the Board of Martager, Northeast, of IBM and President, Technigraphics, Directors, President and Chief Corporation, Waltham, Mass. Inc. (manufacturer of specialty Executive Officer of the Company; paper, printing and forms). Direc ar, Chairman of the Board Richard L. Brickley of Directors and Chief Executive Lawyer;partnerin the law firm of Thomas W. Sherman Officer of subsidiary; Director, Brickley, Sears & Sorett, Boston, Director, Executive Vice President Chairman of the Board of Mass.; Director of subsidiary. and Controller of Bay State Gas Directors and Chief Executive Company, Canton, Mass.; Director Officer of Bay State Gas Howard W. Evirs, Jr. of subsidiary. Company, Canton, Mass., l Retired;formerPresidentof the Concord Electric Company, 1 Company. Robert V. Shupet Concord, N.H.., and Exeter &
President of R. L. Gourley Co., Hampton Electric Company, Inc., Wellesley, Mass. Exeter, N.H.
(distributors of heating, air l conditioning and water heating Robert L. Waret equipment); President of Lawyer; partnerin the law firm of Hydronic Technology, Inc., Ware & Ware, Fitchburg, Mass.
t Member of Audit Committee. Wellesley, Mass. (manufacturers
- Member of Compensation Committee. of gas boilers).
Charles H. Tenney 11 Peter J. Stuigis Angela P. Carlson Chairman of the Board of Vice President and Treasurer; Clerk; Secretary of subsidiary; Directors, President and Chief Director, Vice President and Clerk of Bay State Gas Executive Officer.*
- Treasurer of subsidiary; Vice Company, Canton, Mass.;
President and Treasurer of Secretary of the Board of Directors Frank L. Childs Concord Electric Company, of Concord Electric Company, Executive Vice President; Director Concord, N.H., and Exeter & Concord, N.H., and Exeter &
and President of subsidiary. Hampton Electric Company, Hampton Electric Company, Exeter, N.H. Exeter, N.H.
David K. Foote Vice President; Director and Charles J. Kershaw, Jr. William D. MacGillivray Vice President of subsidiary. Assistant Treasurer; Assistant Assistant Clerk: Assistant Treasurer of subsidiary: Assistant Secretary of subsidiary; Assistant Lawrence T. Gingrow, Jr. Treasurer of Concord Electric Clerk of Bay State Gas Company, Vice President. Company, Concord, N.H., and Canton, Mass.
Exeter & Hampton Electric Company, Exeter, N.H. Allen R. Damren Controller; Controller of sub:Idiary.
Edward D. McKenzie Assistant Treasurer; Assistant To easurer of subsidiary; Assistant Treasurer of Concord Electric Company, Concord, N.H.;
Assistant Treasurer and Secretary of Exeter & Hampton Electric Company, Exeter, N.H. .. See Director listing for other principal occupations.
Subsidiary: Fitchburg Energy Development Company.
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Z8 FITCHBURG GAS AND
- Te ELECTRIC LIGHT COMPANY Using our energies to serve you best j mee Jo*n riTcw usanway. Fivensuno, um es4ee ratarwone (str> 242.eesi b
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