ML20113A585
| ML20113A585 | |
| Person / Time | |
|---|---|
| Site: | Nine Mile Point  |
| Issue date: | 12/31/1995 |
| From: | Budney A NIAGARA MOHAWK POWER CORP. |
| To: | |
| Shared Package | |
| ML17059B168 | List: |
| References | |
| NUDOCS 9606240352 | |
| Download: ML20113A585 (56) | |
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FCsstorn((isedlwmagagw nne)r; am;3xant, esihHityToCrewj*!C6mpetitien s,ilexibility!Ts; iow#oweiChoice
- nstomer ChoideiE r
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!*'CempetitiLn Q stomer Choice) Flexibility Td GrdwV
=c (PowerG.oic;e
- Flexibility To Grow;* CompetitionW j yoimpetitionfCj L.f Moice t PowerChoicei ' f ECOstomer Choicil lexi!
- 1 ew
- ComPetitionr c
NPlex:ibility, I ! " ' ' Coi i, lit' L V stomer Choiceh i
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Q' lexibilitylTo Grow (Competition + Custdmer Choice
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36mpeetitjonyCustomer Choice
- Flexibility To GrowV mm c
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MWWtes%Kdwe.w6me.Wcamawev
I Contents (]
1 Highlights mM 2 A Letter to Our Shareholders dQ 5 ComI>etition y.
1 6
Customer Choice LM7 Flexibility to Grow hy 8
New President Brings Experience j
and Leadership / Storm Response i
uM 9 Financial Results 3
l jf Offirm and Dirrctors arelisted l
M on the inside back cover uw l
l
% at
.u
=
Corporate Information Smring Our Customers
.w.
in UpstateNew Yorh a
Annual Aleeting The Annual Meeting of shareholders will be held at The Desmond, a*
660 Albany-Shaker Road, Albany, NY, at 10:30 a.m., Tuesday, May 7, 1996. A notice of the meeting, proxy statement and form of proxy j
-1
)
~y will be sent in March to holders of common sto(L.
4
- i
' Giam *ane* $
SEC Form WK Report
\\
-q.
7 iensensj-A (opy of the company's Form 10-K report, filed annually with l
en,,,,,,,,, -
l
? nstavi, syrau
- g e uu
. eesimmas' i the Securities and Exc hange Commission, is available without samenesis y. M charge by writmg the Investor Relations Department at 300 Erie t>
I g, * *t[
Boulevard West, Syracuse, NY 13202.
cornand. "
p e ounwn,y.
Hudson,e
$hareholder $nquiries j
.owaa '
Questions regasding sharehokler accounts may be directed to the l
c mesmke a r & nnw sma, company's Shareholder Senic es Department:
{
l (315) 428-6750 1-800-448-5450 i
(Syracuse)
(clsewhere in the Niagara Mohawk Power Corp. is an continental U.S.)
investot owned utility prmiding energy to the An lystInquiries largest customer senice area in New %>rk.
Au lyst inquiries should be directed to:
I con T. Maiur, Director-im estor Relations, (315) 428-587t,).
Our electric system meets the needs of more than l
1.5 million residential, commercial, and indmtrial customers, Stod Exchange Listings with power supplied by hydroelectric, coal, oil, natural gas, and Ticker Symbol: NMK l
nuclear generating units. Electricity is transmitted through an Common stock and most pref erred series are listed and traded integrated operating network that is linked to other systems in on the NewYork Stock Exchange.
the Northeast for economic exchange and mutual reliability.
B nds are traded on the New Yoik Stock Exchange.
Our natural gas system provides senice to more than DisbursingAgent 500,000 residential and business customers on a retail basis, as Onnmon and preferred sto< ks:
Bonds:
well as a growing number of customers for whom we transport Niagara Mohawk Power Corp.
Marine Midland Bank, N.A.
gas that they purchase directly from suppliers.
300 Eric Boulevard West 140 Broadway We also own a Canadian subsidiary, Opinac Energy Girp,,
Syracuse, NY 13202 New %n k, NY 10015 whic h operates the electric utility Canadian Niagara Power.
Transfer Agent and Registrars Common and preferred stocks:
Bonds:
The Bank of NewUnk Marine Midland Bank, N.A.
i l
P.O. Box 11002 140 Broadway This vrport was produced Irv Niagara Alohawk onpfmees.
cuurt n 5,,ce, stat;on Newyo,g,sg ;oo;5 Page tue photo copynght i9% by Bob Mahonry New Yot k. NY l0286 i
1 1995 1994
% Change i
Total operating revenues..........................
$ 3,917,338,000
$ 4,152,178,000 (5.7)
)
Income available for common stockholders 208,440,000 143,311,000 45.4 j
Earnings per common share....................
1.44 1.00 44.0 Dividends per common share......................
1.12 1.09 2.8 Common shares outstanding (average)........
144,329,000 143,261,000 0.7 I
Utility plan t (gmss)...............................
$10,649,301,000
$ 10,485,339,000 1.6 Construction work in progress...................
289,604,000 481,335,000 (39.8) j Gross additions to utility plant..................
345,804,000 490,124,000 (29.4) 1 Public kilowatt-hour sales..............................
33,228,000,000 34,006,000,000 (2.3) i Total kilowatt-hour sales.............................
37,684,000,000 41,599,000,000 (9.4)
Electric customers at end of year..................
1,568,000 1,559,000 0.6 j
Electric peak load (kilowatts).......................
6,211,000 6,458,000 (3.8)
Natural gas sales (dekatherms)......................
78,481,000 85,615,000 (8.3)
Natural gas transported (dekathenns)............
144,613,060 85,910,000 68.3 Gas customers at end of year......................
518,000 512,000 1.2 Maximum day gas deliveries (dekatherms)....
1,211,252 995,801 21.6 QW5 The 1995
,qgg Revenue Dollar
'"'", a,
and Where it Went
~ * * * *
,,3ts AND 5 T
OTHE8 pgwER pgEL *"#
A pgEC!AI W Abb US[ss gg upCH p
g7ggEST xa OTHERS l
NySgg n pugWESS g
N 1 A G A R A M O 11 A W' K PO W ~ E R-C
'O R P O R A T I O N 1
A Letter to
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Shareholders
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During 1995, the broad outlines of l
the coming competitive electricity
= = = ~
~
j marketplace began to emerge. Plans
..~.
]
for the tnmsition were achanced at the
^
fedend level and in nearly eve:T state.
l Among many parties, there is a devel-O # # # 8 *.
oping consensus as to the basic mar.
s' S SE 88 1
ket structure necessary to secure the
^
i benefits of competition while avoiding undue harm to any stakeholder.
Chairman and CEO William E. Daud Stany. dividual un.h.. ties f.urthered m
preparations f1>r competition, some "Our chiefobjective is to reestablish the cornpany as through mergers, others through
}
restructuring. With the October a viable long-terrn investinent. Through PowerChoice, announcement of our PowerChoice proposal, Niag;uu siohawk opted to ac.
we have developed a plan to ensure the success of l
ulerate the inuoduction of comveti-y;,g,,, y,y,,y,,,,,g,g,g,g,,,,gy p,,,gg,,,,g tion and reconh_gure the company to l
take advantage of future opportunities.
10 position the cornpany to take advantage ofeinerging f he proposal is also intended to help
}
resolve the problems created. both thr unregulated business opportunities. " '
Niagara hiohawk and for New York's l
economy, by more than 20 years of j
failed state and federal energy policies.
Our chief objective is to i cestablish the company as costs, and have raised our electricity prices to well a viable long-tenn investment. Through PourrCholm, above the national aserage.
i l
we have developed a plan to ensure the success of i
Niagam hiohawk as a regulated energy provider and to PowerChoice j
position the company to take achantage of emerging unregulated business opportunities.
Our PowerChoice proposal would create a fully I
As we began the year, piessure continued to mount competitive generation marketplace and restructure j
from two tenacious problems I have written about in Niagara N1ohawk to compete in the new competitive j
the past: rising payments fbr power we are required environment. It wouhl freeze for five years average i
to buy from unregulated generators, and New iin k's electricity prices for each customer class and cut prices l
very heavy utility tax burden. We continued our cost.
for industrial customers to help preseire existingjobs containment efforts, completing a 27 percent and create new ones. We also indicated that we would j
reduction in ovendl stalling, climinating some func.
be willing to sacrifice to make PowerChoice a reality, l
tions, and consolidating others. Ikit our internal cost but only if unregulated generators and the state did i
reductions were outpaced by the growth in externally their shaic to reduce costs as well.
imposed costs. Combined, unregulated generator con-Ilere is how PowerChoice wouhl address several tracts and taxes now represent nearly half of all our key issues:
I i
j N I'A G AR A M "O 'lliA W K'
I O W E R C. 'O R P O R A T I O N i
9 i
I
,
- Disaggregation - As the transition to competi-Response to PowerChoice non goes fbrward, vertically mtegrated unhties will be j
PowerChoice has received national notice and has under increasing pressure to separate generation from the rest of their business, principally because of put Niagara Slohawk at the forefront of the national concerns over market power and the potential fbr industry restructuring debate.
self-dealing if those who own most of the generation Some in the financial community have been skep-
+
also control access to customers through ownership
! tical of our ability to gain the concessions from others
-including unregulated generators and the state of of the transmission and distribution systems.
It is our view that generation will eventually New York - that our proposal contemplates. In this regard, we began negotiations with the state and other become fully deregulated, as will many marketing and related service functions for customers with
! affected parties soon after filing PowerChoice, and we choice. Transmission and distribution are likely to remain hopeful of a successful outcome.
remain natural monopolies and therefore will There was also understandable discomfort with remain regulated.
our disclosure of the possibility of bankruptcy if Anticipating the future structure of the market-PowerChoice is not achieved. Unfortunately, some place, PowerChoice proposes to split Niagara hiohawk focused more on this possibility than on the develop-ment f a siable solution to the difliculties facing our into two parts - a generating company that would also administer those purchased power contracts that are cmnpany and our senice territory.
not restructured, and a holding company that would PowerChoice would require a degree of sacrifice incorporate all remaining utility f unctions, as well as l by Niagam hiohawk, by unregulated generators, and by others. The sacrifice is, however, necessary. The emerging unregulated businesses. Planning under way in many states contemplates at least functional alternative is continued reliance on an outmoded separmion of generation.
, system of regulation that will perpetuate the current t
untenable situation.
j e Reliability - 1b maintain senice reliability, the Our 1995 financial and electricity sales results l
new competitive generation marketplace as etnisioned
.ovided additional confinnation of the need (br the m PowerChoice would be adnu,mstered by an mdepen-fundamental change emisioned in PowerChoice. Earn-dent system opemtor. The recommended decision m ings of $208.4 million, or $1.44 per share, compare to
{
New York's Competiuve Opportumties case (detailed 1994 earnings of $143.3 million, or $1.00 per share.
on page 5) and a recent decmon by the Califonna However,1994 earnings were reduced by a fourth-Public Utih,nes Commission also recmmnend a com-quarter charge for the costs of the company's volun-petitive generation market admuustered by an mry egloyee reduction program of $196.6 million, mdependent system operator.
or S0.89 per share.
- Stranded costs - Depending on how competi.
Continued weak economic conditions had a nega-tion is introduced, the new economics of the market.
tive impact on revenues and sales of both electricity place might not allow full recovery of investments and natural gas in 1995. Electric revenues in 1995 prudently made in the pursuit of' reliable electric were $3.3 billion, a decrease of $193.4 million, or service for all customers. Niagara hinhawk, like 5.5 percent from a year earlier. Retail sales of elec-many other utilities, has made investments in gener.
tricity were down 2.3 percent.1btal electricity sales ating capacity that might be stranded because the fell 9.4 percent, reflecting a significant drop in wholesale sales.
curren t oversupply of electricity has lowered the price on the open market to a level that would not allow Gas revenues for the year were $581.8 million, full recovery.
! down $41.4 million, or 6.6 percent from 1994, prima-rily due to decreased retail sales. lbtal gas delivered, PowerChoice asserts N;agara Stohawk's right to which includes natural gas transported to end users, recover all stranded costs but, in the interest of 1 increased 29.9 percent. Gas margins were also up in resolving the growing purchased power problem, 1995, increasing by approximately $600,000 over offers to fbrego full recovery if unregulated genera-1994 figures.
tors are similarly willing to write down proportionate amounts.
Continued..
I ATG3[RM,1(II3iW$KM M E(E7 RI CI M RT 'P,OiRiA TT I' O [Nl 3
These results underscore the need to maintain the j
The efIiciency of our nuclear units and the exem-company's financial stability as we pursue necessary plary performance of employees in restoring power i changes. Accordingly, your I oard of Directors voted after the storm are only two examples ofa larger story: I in January 1996, to omit the dividend on conanon the continued connnitment to excellence by the stock. Dividends were
_u___
people of Niagara hiohawk. These declared on all series past few years have been difficult and 1
of prefi rred stock.
"Iwant to thankyoufor standing worrisome for our employees, but Although we have by Niagara Mohawk during these
"""i* h"* d *Y h** P"*"*d i" ccomplishing every task set before already implemented significant cost-saving challenging tirnes, especially those them, as I am sure they will continue measures over the i ofyou who have taken time to do in the futum. They are deserv-past several years, i ing of our appreciation, and our j to wn. eo em orfsgoverinnent pledge to do our best to reward :
more is needed. As such, ofTicer salaries I officials and regulators in support of, their efforts.
will be frozen for two our e>/ Torts. You have our urinost
. P.ush hard for appmal of
- "i years and further 3
! PowerChoice m 1996, and we will keep austerity measures gratitude and our assurance that
. you infi>rmed as deveiopments occur. ;
will be implemented.
protecting and enhancingyour
- I want to thank you for standing by 1
At the time we Niagara hiohawk during these chal-lHVCSlMCHI IS OUT OYCMOSI CONCCYN,,
filed PowerClwice, we lenging times, especially those of you also indicated that i who have taken time to write to New without the plan,
~
~ ~
~
- ~ ~ ~
' - -- " Yo rk's government officials and l unregulated generator costs, taxes, and declining sales regulators in support of our efTorts.
T,ou have our utmost gratitude and our assurance that would continue to push up electricity prices. Accord.
ingly, we filed for an average 4.1 percent price increase protecting and enhancing your investment is our fi>r 1996 and a 4.2 percent increase fbr 1997 to protect foremost concern.
shareholden from further erosion of their investment if PowerChoice is not implemented. If and when PowerChoice receives approval - especially the propos-als calling for concessions from unregulated genera-tors - we would move to terminate these proceedings.
Chairman of the Board and Chief Executive Officer Other Highlights
"'*S*"""*'"**'
'P -
Though PowerChoice consumed a great deal of attention last year, there were other important devel-opments. In 51 arch, Albert J. Budney, Jr. joined Niagara hiohawk as president, bringing a wealth of enperience and knowledge in many phases of the utility industy.
Our nuclear operations continued to pciform well, as evidenced by a listing on the honor rolls of the Nuclear Energy Institute and The Gencral Electric Company for both Nine hiile Point units, based on 1994 performance. For 1993, capacity factors for Unit One and Unit Two were 87 percent and 78 percent respectively, and both plants under-went successful refueling outages during 1995.
And few of us will ever forget the sununer storm of 1995, which devastated much of our senice terri-tory but proved that a solid work ethic and dedica-tion to senice are alive and well at Niagara hiohawk.
N I.A;GfA R;Al M(~OllI6ATWfKi [P[O[ W, E ;RE (lC [Ol RTPLOI R'A?TfIfO,N) i 4
m7,
Fossil and hydro were previously in the Electric Supply & Delivery SBU. Heading the Generation Busi-m
.,, _l ness Group is Executive Vice President B. Ralph Syhia, t
j8y' presiously in charge of the Nuclear SBU.
?/! ! 4 The Energy Distribution lhisiness Group, under
$$El Senior Vice President Dailene D. Kerr, combines all
ert J. Budm;y, Jr., Plum Street Enterprises consists of lbur divisions: Ventures and j
intended both to prepare the company for coming competition, and to shape the competitive market-Consulting Scivices, Energy Marketing and Brokenng, i
Alass Market Services, and Land Management &
place so that it provides maximum benefit for consumers. The plan embodies the company's long-Dnelopment/ Investment Recovery.
held belief that competition can benefit end users by holding down rates and increasing the breadth and quality of senices.
Competition will be beneficial for those energy prmiders who are prepared, and requires providers to place their focus on meeting powerChoice Consistent with PSC's customer needs. It makes competitors work Competilme opportun,.tr.es nee,.,.s on harder, smarter and more elliciently.
In December 1995, the NewYork Public Ser-A key provision of the proposal calls for sice Conunission received an Administrative Law establishment of an open, competitive electric _
ity generation market that would allow custom.
Judge's reconnnended decision in its Competi-ers to choose their power suppliers. By opening tive Opportunities case. The reconnnended the market to all electricity suppliers, our plan decision will be accepted, rejected or revised calls for creation of a new wholesale market -
by the PSC commissioners, probably before mid-1996.
under the supervision of the Federal Energy Regulatory Commission -- that would be coordi-The recommended decision emisions a com-nated by an independent system operator.
petitive marketplace quite similar to the company's PownChoice vision, with the genera-Restructuring to Compete ti<ni segment runctionaiiy sepanne, and a mar-etplace in which transactions are coordinated This market will be best served, Niagara Mohawk believes, by a generation company by an independent system operator. The deci-
- * " " " """"* I" """ 'T "I "IIIIII" S '
independent ofall other market functions. While final separation must await the implementation of PouerChoice, the company has already put in Niagara Mohawk has expressed the view that place an interim generation organization in nothing in the PSC recommended decision anticipation of full separation.
would require alteration of PowerChoice. After
- " k"*."iission's final decision is rendered, the This latest reconfiguration has been made Mate s uni.nics will be asked to file their own plans easier by Niagara Mohawk's restructuring five
"' ""'"'I" ring to conform to the decision, years ago into strategic business units. The muething N,iagara Mohawk has already done interim Generation Business Group combines duuugh Poudmm the company's two nuclear facilities with the four fossil-fueled plants and 73 hydroelectric units.
(
N. I A G A lR A M O II A Wf K P 0;W.E R
C O R P'O R A T I O N l
6 1
l 1
r customers uith a uide range of senices, from distrib-uting electricity to responding to inquhies. During l
q 1995, the company took several steps to improve its l
customer senice perfi>rmance and to broaden the l
scope of senices it provides.
, Niagara Mohawk became me of the first utilities m the nation to back up its pledge of excellent g
customer senice uith written guarantees. Covering hO C6 timely senice connection, respect for property, product satisfaction, and courtesy, the guarantees l
include monetary restitution or a specific course of action to fulfill a guarantee that is not l
a L
l satisfitctorily met.
A major challenge for Niagara Mohawk in
- lb serve all customers better,in 1995 the company mosing toward a competitive marketplace for electric.
introduced a toll-free number for customers whose ity has been to prepare for a business environment primary language is Spanish. This is in addition where customers can choose their supplier. When to offiring bills in braille or recorded on audio customers base choice, sup.
cassette tape,which the com-provide pany has inade available fbr pliers who can senices that customers want several years to customers at piices they are willing to PowerChoice erwisions an open who request this senice.
pay will grow and thrive.
generation tnarhet in which,
. Through Plum street PowerChoiccenvisions an Enterprises, its umegulated -
open generation market in eventually, allcustorne s would
,,3,ia i,,y, a,, com p,,,,,
l which, eventually, all custom-choose their suppliers. Custoiners
. deveioping a comprehensive ers would choose their sup-would be able to hurchase in the
- ""v.of senices to meet the pliers. Customers would be r
growmg needs of commer-I able to purchase from the inarhet, orfroin inarheters, bmhers, ciai ana inaustriai customers.
i market, or from marketers, g,.cng' service companies, under These wide-ranging unregu-brokers, or energy service lated business opportunities companies, under any terms any terrns and conditions they could are discussed on page 7.
and conditions they could negotiate.... Pending approval of
. T his I,ast year was the f3rst negotiate. Onh deliven ser-vices provided'bv the trans.
other aspects ofPowerChoice, direct full year of operation at the.
)
/
consolidated Customer Ser-mission and distribution access by retailcustoniers would v;<c ccn,c,in sy,acusc, ana company would be subject to begin as soon as the competitive sigm fica n t progress was regulation.
made to improve overall Pending approval of ECHCY0l50H IH0YNCl IS OhCYGil0H05-mm, mia., pgn other aspects of PowerChoice, larly impressive were fourth-direct access by retail custom-quarter 1995 results of the ers would begin as soon as customer satisfaction survev: I the competitive generation an 80.6 percent satisfliction rating represented'a market is operational. As specified in our proposal, 3.7 percent increase over third-quarter figures, the large customers would have access byJanuary 1,1997, largest single-quarter improvement ever recorded.
and all customers, including residential customers, would have access byjanuary 1,2000.
Customer Service No matter who they choose as their supplier, Niagara Mohawk would continue to provide its N 'l A
_G A R A
. Y.
O 11 A W K P O WE R C O.R P O R A T I O N l
6 l
l l
energy market. Among the areas this group would M
focus on are: wholesale energy senices offering Q@S engineering and design, construction, mainte-j nance, and operations services for bulk energy i p systems; technology solutions such as demand-side qI l
management, renewable energy, and distributed generation; and international energy business
@ :6 development to bring world-class supply and i i distribution systems to countries with developing l%
cconomics.
- 2. Energy Marketing and Brokering uuuld fi>cus on i
yp 1 electric and gas bulk and retail marketing, forward im.sa f. I and real-time trading, and risk management ser-The unregulated marketplace envisioned in vices. This group would be responsible fi>r market-PowerChoice would provide Niagara Mohawk with a
'"R ""d n selling excess energy and capacity -
includ.mg mdepcialent t>ower under contract to wide variety of opportunities to offer senices and enter business ventures not normally associated with Niagara Mohawk. Another key area of business a traditional vertically integrated utility. This will be would be natural gas ami electricity portfolio man-done through Phun Street Enterprises, the unregu_
agement hn odwr unhties and customers.
lated subsidiary created as part of PowerChoice.
- 3. Mass Market Services would use technology, With revenues from electricity and natural gas telecanununications, and information to provide pndected to remain relatively flat in the near term, new solutions to business opportunities in the customers' emerg-unregulated arena have the poten-ing demands for tial to increase profits and grow The strategy ofPlum Street Enterprises is greater emciency shareholder value. Free from the to develop a company capable ofquickly and convenience-regulatory constraints that nowl, mt nirgeting virtually u
the company, Plum Street Enter-tapping emerging markets and creating any custome, _
prises is beginning to make inroads innovativeproducts and services.
with a focus on into several areas with the potential the residential end-to bolster profits in the future.
-- user - this group The strategy of Plum Street Enterprises is to would offer a wide develop a company capable of quickly tapping emerg.
range of products and senices, some ofwhich were ing maikets and creating innovative products ami presionsly offered in our bundled regulated tariffs, senices. The subsidian's operating arms would pur-and others yet to be developed.
sue independent strategies, seeking business in parts of the coum rv and the wodd previously unavailable L Land Management & Development / Investment to traditional'U.S. utilities.
covery would expand the scope and scale of existing land management and investment recov-In creating Plum Street Enterprises, Niagara erv activities into new markets. Activities would Mohawk joins a growing number of utilities include the sale and development of non-essential nationwide that have established a separate subsid-real estate assets, greenways and conservation larv to explore new energy-related, enucpreneurial pndects, timber harvesting,[md recycling.
profit centers.
Developing a Business Focus The evolution of the energy industry can be Initially, Plum Street Enterprises plans to concen-expected to ywid new opportumties to grow revenues trate on four areas:
in utu egulated activities. Plum Street Enterprises plans to offer high41uality, in41cniand energy senices and
- 1. Ventures and Consulting Senices would provide products for customers in both national and interna-technological solutions and technical skills to the tional markets.
N 1. : A' G A.. R A M O HA W K P 'O W E R.
-C.O R P.O R'A T I.O N
7
New President Brinus Budney brings a wealth of top-level experience D
to thejob. Immediately prior tojoining Niagara Experience and Leadership hiohawk. he was corporate managing sice president The first } ear as of UtiliCorp Power Senices Group, a unit of UtiliCorp United Inc., of Kansas City, Afo. In that Niagara hfohawk's new president has been position he was responsible for transforming a regulated generation business into a competitive B dn
~
Y- 'cM/
""Ierpiise. He als > worked closely with a business unit sunilar to Ilum Street Enterprises, the a
2 But the excitement i3 8
company's recently formed unregulated subsidiary, and unpredictability of M
where he learned valuable lessons about non-the utility mdustry is nothmg new for him, traditional business opportunities that will play a critical role in shaping Niagara hiohawk's future.
" Niagara htohawk's demonstrated commit-Prior to that, Budney served as president of ment to shaping the AlbertJ. Budney,Jr.
UtiliCorp's largest operating division, hiissouri h
Public Senice, an electric and gas utility. Previously, mdustry structure that he was vice president of Stone & Webster Engineer-we will compete in tomorrow is one of the pn. mary reasons ljomed the company, said Budney. "Our ing Corp., where he managed the engineering PouerChm,ce proposal gives us the opportumty t firm's Boston Business Development Department take a leadership role m the continuing transfor-and headed the Total Quality Steering Committee, mation of this mdustry. I 1ook at it as a chance t He also was vice president of Stone and Webster be part of someth, g that is truly remarkable.
hianagement Consultants, an international utility m
consulting firm.
Aside from his key role in shaping PouerChoice, Budney's first few months on thejob also gave him A Philadelphia native, Budney holds a master's degree in business administration from liarvard a first-hand look at how unpredictable and devas-tatmg upstate NewYork weather can be m the wake Business School and an engineering degree from Princeton University. He is a veteran of the U.S.
of theJuly 15 storm. "It was a real education ;eeing Navy and served as a lieuten.mi aboard a nuclear-j not only the damage wrought by the storm, but als the mcredible work etluc and skill demonstrated powered ballistic-missile subn.arine.
by our employees m restonng senice," he said.
I j
l Storm Brings Outstanding Employee Response to Record Outages l
For many of Niagara Mohawk's employees and customers, i
the events of July 15,1995, will never be forgotten.
in the early morning hours of that Saturday, an unexpected y>?
wind and lightning storm struck Central, Northern, and Eastern j
New York with unprecedented speed and fury. In the wake of the x
j violent storm,230,000 customers were left without electricity -
'W j
4"~
- ..
- largest single outage in Niagara Mohawk's 45-year history.
When the severe weather passed, employees were faced with
~
a restoration effort unlike any seen before. Adding to the difficulty
~
i of the task was record-breaking heat and the fact that much of l
the heaviest damage occurred in extremely remote parts of the f
1 company's service territory.
Within hours, employees were organized and heading to the lg hardest-hit areas. Assisted by workers from utilities around the
(
Northeast and Canada, a work force that grew to nearly 650 line i
and tree crews performed tirelessly to restore electricity. Two days The Storm of 1995 provided indisputable confirmation that after the storm hit, power was back on to all but 30.000 customers.
the dedication of Niagara Mohawk employees - from customer In some communities, entire power delivery systems had to be service representatives to regional power control personnel to rebuilt from the ground up, the crews working in the field - has never been stronger.
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N I A G A R A NI O H A W K P O W E R C O R P O R A T I O N J
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l FinancialResults
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Contents 10 Market Price of Common Stock and 3
Related Stockholder Matters i
t -
11 Selected Consolidated Financial Data i
W hk 12 Management's Discussion and Analysis of kh Financial Condition and Results of Operations j
C l
1 28 Report of Management 4
l 28 Report ofIndependent Accountants I
29 Consolidated Financial Statements i
L 33 Notes to Consolidated Financial Statements i
j
-52 Electric and Gas Statistics; i
1 I
Market Price of Common Stock and Related Stockholder Matters The Company's common stock and certain ofits Other Stockholder Matters: The holders of common preferred series are listed on the New York Stock stock are entitled to one vote per share and may not Exchange (NYSE). The common stock is also traded on cumulate their votes for the election of Directors.
the Boston, Cincinnati, Midwest, Pacific and Philadelphia Whenever dividends on preferred stock are in default in stock exchanges. Conunon stock options are traded on an amount equivalent to four full quarterly dividends and the American Stock Exchange. The ticker symbol thereafter until all disidends thereon are paid or is "NMK."
declared and set aside for payment, the holders of such Pieferred disidends were paid on March 31, June 30, stock can elect a majority of the board of directors.
September 30 and December 31. Cornmon stock dhi-Whenever disidends on any preference stock are in dends were paid on February 28, May 31, August 31 and default in an amount equivalent to six full quarterly November 30. The Company estimates that none of the dividends and thereafter until all dividends thereon are 1995 common or preferred stock dividends will constitute paid or declared and set aside for payment, the holders a return of capital and therefore all of such dividends are of such stock can elect two members to the board of subject to Federal tax as ordinary income.
directors. No dividends on preferred stock are now in The table below shows quoted market prices (NYSE) arrears and no preference stock is now outstanding.
and disidends per share for the Company's common Upon any dissolution, liquidation or winding up of the stock:
Company's business, the holders of common stock are entitled to receive a pro rata share of all of the Dmdends Paid Pnce Range Companis assets remaining and available for distribution b -1996'-
Per Share High Low
~
after the full amounts to which holders of preferred and
!1st Quarter 5.24 '
515%
$13%
prefe ence stock are entitled have been satisfied.
- 2nd Quarter
.28 15%:
13%-
The indenture securing the Compan/s mortgage l4_-
4
, j.
.k debt provides that retained earnings shall be reserved 1
and held unavailable for the payment of dividends on 1994 common stock to the extent that expenditures for main-1st Quarter
$.25
$20%
$17%
tenance and repairs plus provisions for depreciation do 2nd Quarter
.28 19 14%
not exceed 2.25(fc of depreciable property as defined 3rd Quarter
.28 17M 12 therein. Such provisions have never resulted in a 4th Quarter
.28 14%
12%
restriction of the Company's retained earnings.
At year end, there were approximately 84,600 holders On January 25,1996, the board of directors omitted of record of common stock of the Company and about the common stock dividend for the first quarter of 1996.
5,700 holders of record of preferred stock. The chart This action was taken to help stabilize the Company's below summariies common stockholder ownership by financial condition and provide flexibility as the size of holding:
Company addresses growing pressure from mandated power purchases and weaker sales. See " Management's Size of Holding Discussion and Analysis of Financial Condition and (Shares)
Total Stockholders Total Shares Held Results of Operations" below. In making future dhidend 1 to 99 34,975 977,436 decisions, the board will evaluate, along with standard 100 to 999 44,871 11,155,890 business considerations, the level and timing of future 1,000 or more 4,780 132.198,797 rate relief, the progress of renegotiating contracts with 84,626 144,332,123 unregulated generators (cgs) within the context ofits PowerChoice proposal, the degree of competitive pressure on its prices, and other strategic considerations.
EARNED RATE OF RETURN ON COMMON EQUITY TOTAL ELECTRIC AND GAS OPERATING REVENUES " n: 7mm GAS ELECTRIC 1991
..10.0%
1991 ETEMd.
..$3,383
$475
$2.908 1992 M7!ECLT.YE3..
. $3,702 1992
.10.1 %
$554
$3.148 1993 ZECES35)U-
$3,933 1993
..10.2%
$601
$3.332 1994 M
U 2f.
...$4,152 1994
.. 5.8%
$s23 g5 -aa h h d.
..$3,917 m-,w 1995 1995
'"8.4%
$582
$3.335 N [I FAT GTA' RCAl( TM':fOiH3 fWiK[ [P 1 OiW l ElR C_O.R P. O.R A~ T~ I~O N
~
10
i l
Selected Consolidated Financial Data The following table sets forth selected financial infonnation of the Company for each of the five years during the period ended December 31,1995, which has been derived from the audited financial statements of the Company, and should be read in connection therewith. As discussed in " Management's Discussion and Analysis of Financial Condition and Results I
of Operations" and " Notes to Consolidated Financial Statements," the following selected financial data may not be indica-tive of the Company's future financial condition or results of operations:
1996 1994 1993 1992 1991 Oper:ti:ns: (000's)
Operating revenues.
43,917,338
$4,152,178
$3.933,431
$3,701,527
$3,382,518 Nit income.
248,036 176,984 271,831 256,432 243,369 i
C:mm:n stock data:
I Book value per share at year end.
$17.42
$17.06 517.25
$16.33
$15.54 Market price at year end........
9%.
14%
20%
19%
17%
l Ratio of market price to book value at year end.
54.5 %
83.5 %
117.4 %
117.1 %
115.0 %
l Divid;nd yield at year end.
$ 1.44 5 1.00
$ 1.71
$ 1.61
$ 1.49 11.8%*
7.9%
4.9%
4.2%
3.6%
Eamings per average common share Rats of rtturn on common equity.
8.4% ;
5.8%
10.2%
10.1 %
10.0%
Divdends paid per common share.
$ 1.12 *
$ 1.09
$.95
.76
$.32 Dividend payout ratio.
77.8%*
109.0 %
55.6 %
47.2%
21.5 %
CIpitihzation: (000's) 1 i
Common equity.............
82,513,952-
$2,462,298
$2.456,465
$2,240,441
$2.115,542 i
Non-redeemable preferred stock.......
440,000 440,000 290.000 290,000 290.000 Mandatorily redeemable preferred stock..
96,850 106.000 123.200 170,400 212.600 Long-tirm det:t.
3,582,414i 3,297,874 3,258,612 3,491,059 3,325,028 Total.
6,633,216 '
6,306.272 6,128,277 6,191,900 5,943,17E Long-tirm debt maturing within one year 66,064 77,971 216,185 57,722 175,501 Total.
. 86,698,280 56,384,243
$6,344,462
$6.249,622
$6,118,671 C?pitalization ratios:
(including long-term debt maturing within one year)
Common stock equity.
37.5%'
38.6 %
38.7 %
35.8 %
34.6 %
Pr1f trrrd stock.
8.0 8.5 6.5 7.4 8.2 Long-tzrm debt.
54.5 52.9 54.8 56.8 57.2 Fmincill ratios:
R ttio of aarnings to fixed charges...........
2.29 1.91 2.31 2.24 2.09 Ratio of samings to fixed charges without AFC.....
2.26.
1.89 2.26 2.17 2.03 i
Ratio of AFC to balance available for common stock.
4.3% ;
6.3%
6.8%
9.7%
9.3%
Ratio of eamings to fixed charges and preferred stcck dividends.......
1.90 1.63 2.00 1.90 1.77 Other ratios - % of operating revenues:
Fuel, purchased power and purchased gas.
40.3 %
39.6 %
36.1 %
34.1 %
32.1 %
Other operatinn expenses and maintenance 20.9 23.1 26.9 26.3 27.6 Depreciation and amortization.
8.1 7.4 7.0 7.4 7.7 Total taxes, incl. real property, income and revenue taxes.
17.3 14.7 16.2 17.3 16.4 Operating income..
13.5 10.4 13.3 14.2 15.5 B lance available for common stock 5.3 3.5 6.1 5.9 6.0 l
Mircallineous: (000's)
Gross additions to utility plant.
$ 345,004
$ 490,124
$ 519,612
$ 502,244
$ 522,474 Total utihty plant 10,649,301 10,485,339 10,108,529 9.642,262 9,180,212 Accumulated depreciation and amortization.
3,641,448 3,449,696 3,231,237 2,975,977 2,741,004 Total assits.
9,477,869 9.649,816 9.471,327 8,590,535 8,241,476
- OnJanuary 25,1996, the lloard of Directors omitted the common stock dividend.
MANfTENANCE ANO OTNER OPERATION EXPENSE u w J wm TOTAL TAXES INCLUONNi INCOME TAXES ?.wt a 9 mm MAINTENANCE oTHER OPERATION oPERATloN EXPENSE CONSTRUCTION EXPENDITURES 1991 TiHG J 88AJ.
..$934 1991 l...
.5574
$228
$706
$554
$20 1992 HELCE..
-$974 1992 L..
...$659
$??6
$748
$640
$19 1993 3 F Wd32.
.-$1,058 1993 L.
-$659
$237
$821
$678
$21 1994 252EETMsd..
$958 1994 l...
...$625
$203
$755
$609
$16 1995 EbN5M.
-$818 1995
.5690
$203
$615
$677
$13 i
l N I.A;G AfR;lAT
_MlO[HDA;W K
'Pl lO (W [E j R; LC 0.R II O j R __ AiT ' I
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7 11
Management's Discussion and Analysis ofFinancial Condition and Results of Operations Overview non-essential programs (not related to safety and reliability) to reduce costs.
Earnings in 1995 were $208.4 million or $1.44 per OnJanuary 25,1996, the board of directors omitted share. Earnings in 1994 were $143.3 million or $1.00 the common stock disidend for the first quarter of 1996.
per share and included $101.2 million or 46 cents per This action was taken to help stabilize the Company's share of electric margin recorded under the Niagara financial condition and prmide flexibility as the Mohawk Electric Revenue Adjustment Mechanism Company addresses growing pressure from mandated (NERAM), as well as a charge of about $197 million (89 power purchases and weaker sales. In mak:ng future cents per share) for nearly all of the cost of the Voluntary dividend decisions, the board will evaluate, along with Employee Reduction Program (VERP), NERANI was a standard business considerations, the level and timing of surcharge which assured that the Company's margin on future rate relief, the progress of renegotiating contracts electric sales would equal the margin assumed in estab-with UGs within the context of its Poudhoice proposal, l
lishing rates. InJanuary 1995 NERAh! was discontinued.
the degree of competitive pressure on its prices, and l
1995 earnings were negatively impacted by lower sales of other strategic considerations.
electricity and natural gas, compared to amounts used to Following the announcement of the PouwChoice establish 1995 prices, due primarily to continuing weak proposal, Standard & Poor's (S&P) and Moody's investors economic conditions in upstate New York, loss of industri-Service (Moody's) downgraded all of the Company's al load to New York Power Authority (NYPA) credit ratings to "below investment grade," and placed and discounts. However, cost teduction efforts begun the Company's securities on ' Credit Watch" with negative l
in 1994 through the VERP helped 1995 carnings. The implications. The downgrade of the Company's security l
Company's 1995 carned return on common equity was ratings reflects concerns regarding the uncertainty and l
8.4%, which was below the 11.0% that the New York State potential negative impact of the Poudhoice proposal Public Senice Commission (PSC) authorized on electric on the Company, as well as the potential for bankruptcy.
utility operations due to, among other things: sales below The Company is committed to pursuing PoueChoice as those forecast in determining rates; about $20 million of a positive response to competitive threats and to stabilire 1
negotiated customer discounts in excess of the approxi-and improve the financial condition of the Company.
mately $42 million reflected in rates; the inability to The Company will also consider pursuing other actions, achieve suingent wholesale margin targets set by the PSC; such as requesting rate relief or evaluating solutions l
and fuel target penalties caused by low hydro production other than PouerChoice, to maintain the financial viability due to dry weather. The Company expects the trend of the Company.
of weak sales to continue, given the poor economic Due, in part, to the negative response to the condition of the Company's senice territory.
PouwChoice proposal from rating agencies, the prices of ht the long term, the Company's earnings will the Company's common stock, preferred stock and bonds depend substantially on the outcome of the Company's declined sharply. The downgrading of the Company's PowerChoice proposal discussed below, which was filed bonds can be expected to make it more difficuh and with the PSC in October 1995. The Company filed for expensive Ihr the Company to finance in the manner it price increases of 4.1% for 1996 and 4.2% for 1997 and has used in the past. Consequently, the Company is l
earnings for these years will depend on the outcome of borrowing under its bank revohing credit agreement.
the rate requests. The 1996 rate filing is for temporary in order to further satisfy anticipated financing needs, rate relief for which the Company has asked for immedi-including those which may be necessary as a result of ate action. On February 16,1996, the PSC issued an potential changes to the structure of New York State elec-order that, among other things, established a schedule tricity markets, the Company is currently renegotiating its with respect to temporary rates that would have the case bank credit facilities and filed a petition with the PSC in certified directly to the PSC within 60 days of the order.
December 1995 for authority to enter into a senior debt The 1997 filing will preserve the Company's right to tra-facility. The proposed senior debt facility totals $815 ditional cost-based rates in the event that an acceptable million and would consolidate and replace certain of the regulatory solution cannot be achieved through negotia-Company's existing working capital lines of credit and i
tion of the PowerChoice proposal While negotiations are letter of credit facilities, as well as provide additional l
continuing on PouvrChoice, in view ofincreasing UG pay-reserves of bank credit. There can be no assurance that l
ments, discounts and continued weak sales expectations, the Company will be successful in putting this facility in the Company has found it necessary to seek these price place; in the event the facility is not completed, the increases. Without any form of rate relief in 1996 and Company believes that the elimination of the common 1997, the Company would expect to earn a return on dividend, the implementation of reductions in non-equity substantially below that earned in 1995. The essential programs and the year end 1995 cash position,in Company is implementing additional reductions in combination with alternative sources of credit the Company believes are available if necessary, will be
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O'H~A 1W'K P'O ~W E R -~
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suflicient to fund cash requirements for 1996. Current The Company has responded to these factors by, among market conditions preclude the Company from issuing other actions, sharply reducing internal costs. The stock in 1996 due to the downgrading of the Company's Company has reduced the size ofits work force by about security ratings. See 'Tinancial Position, Liquidity and 3,200 employees, or 27%, in the past three years, and has Captial Resources."
eliminated, consolidated or modernized many ofits oper-The Company faces significant challenges in its efforts ations. The Company has also sharply reduced capital to maintain its financial condition in the face of expand-spending. Electric construction spending in future years ing competition and weak sales. While utilities across the is expecteci to be limited to the level of depreciation nation must address these concerns to varying degrees, expense, thereby resulting in little growth in rate base.
2.- Company believes that it is more financially vulnera-These cost control efforts have produced significant ble aan others to competitive threats. The factors con-savings. Ilowever, the sasings are being outpaced by tributing to this vulnerability include a large industrial continuing escalation in the externally imposed costs customer base, accounting for about 21% of total electric discussed above. Recognizing that major changes in the Ewh sales, an oversupply of high cost mandated power electricity marketplace in New York State were needed, purchases from UGs, an excess supply of wholesale power the Company undertook an exhaustive analytical process at relatively low prices, a high tax burden, a stagnant with the goal of creating a rational energy market that a
economy in the Company's senice territory and signifi-would link supply, demand and price, prmide customers cant investments in nuclear plants. Moreover, sohing the with better and broader senices, and provide greater problems the Company faces, including the implementa-opportunities for building shareholder value. That tion of PowerChoice, requires the cooperation and process resulted in the filing of the Company's agreement of third parties. Accordingly, the outcome PowerChoice proposal on October 6,1995.
cannot be assured and the possibility of restructuring PowerGoice is the Company's proposal for stable under Chapter 11 of the U.S. Bankruptcy Code cannot be retail prices, customer choice and an open, competitive ruled out.
electric generation market. The proposal includes, The following sections present an assessment of among other things, a five-year price freeze for residential competitive conditions and steps being taken to imprme and commercial customers, a price cut for industrial the Company's strategic and financial condition.
customers to help createjobs and spur economic activity, i
and restructuring of the Company's businesses. The Changing Competitive Environment Company would separate its electrical generation opera-tions, along with the UG contracts not restructured,into The accelerating pace of competition is driving a different company that would compete in a deregulated dramatic changes throughout the utility industy. In power market. The remaining company would have addition, the Company is challenged by state-imposed regulated and unregulated subsidiaries that would burdens, especially state-mandated contracts that require transmk and distribute power and engage in new I
the Company to buy electricity from UGs in amounts that business opportunities with growth potential, exceed customer needs and at prices that are above the The Company believes that PowerChoice is the best Company's own cost of pro iding electricity. In addition, course of action to deal with emerging competition and the Company and other New York utilities bear an exces.
address the factors that have been pushing up prices.
sive tax burden that is more than twice the average for However, the success of PowerChoice and its associated utilities nationwide.
price freeze depends upon the willingness of UGs and The Company has pursued a number of actions to the Company to make substantial reductions in embed-mitigate the impact of these factors on prices. These ded costs (i.e., sunk generation costs, regulatog assets actions have included renegotiating and buying out some and future obligations under UG contracts). In addition, UG contracts and canceling others when contract terms the Company believes that the state must play a role in were not being adhered to. The Company has also reducing costs particularly by reducing or eliminating been actively seeking reductions in its state and local tax the state gross receipts tax, which taxes revenue rather obligations. Nevertheless, mandated UG purchases and than income. State involvement with the Company's high taxes have combined to create an irrational energy nuclear plants would also be needed for all aspects of the P an to succeed and achieve a price freeze. Addressing l
market in the Company's senice territog - despite an oversupply of generating capacity, prices are rising.
these issues will be difficult and will almost certainly Further price increases would make it more difficult for requirejudicial, regulatog and/or legislative action.
the Company to retain its customers in the longer term Ilowever, the Company believes that the implementation and an increasing number of customers are pursuing of PowerChoice is achievable.
other supply options including self-generation, alternate When PowerChoice was announced, the Company said supply sources, and municipalization. As a result, electric that failure to approve the plan would mean continued margins are narrowing and sales are eroding, damaging price escalation under traditional regulation, or failing the Company's financial condition and putting further that, further deterioration in the Company's financial pressure on the Company to seek even more rate increas.
condition. The Company filed for price increases of es under traditional cost-of-senice ratemaking.
4.1% for 1996 and 4.2% for 1997 and earnings for these years depend on the outcome of the rate requests. The N. I ' A. G _. A. R A'
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1996 rate filing is for temporary rate relief for which the discussed below, would greatly mitigate any negative eco-Onnpany has asked for immediate action. On February nomic effects on the Company.
16,1996, the PSC issued an order that, among other things, established a schedule with respect to temporary PowerChoice Proposal
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rates that would have the case certified directly to the s
PSC within 60 days of the order. The 1997 filing will The PSC's 1995 rate order directed the Company preserve the Company's right to traditional cost-based and other interested parties to address several key issues rates in the event that an acceptable regulatory solution regarding long-range rate proposals. These issues were cannot be achieved through negotiation of the to include: improving the Company's competitive posi-hwrChoiw proposal. While negotiations are continuing tion by addressing uneconomic utility generation and the f
on PowerChoice,in siew ofincreasing UG payments, high price of many UG contracts; eliminating,if possible, discounts and continued weak sales expectations, the the fuel adjustment clause and other billing mechanisms; Company has found it necessary to seek these price addressing property tax issues with local authorities; increases. The Company expects that the PSC will imprming operating efficiency; and identifying govern-approve cost of-sernce based rate mcreases unul such mental mandates that are no longer warranted in a
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time as implementation of a new competitive market competitive emironment. No proposal under this model becomes probable.
directive could create anti-competitive effects or lead to The Company's current electricity and gas prices a deteiioration in safe and adequate service. The PSC reflect traditional utility regulation. As such, the also said any multi-year plan should ensure that the Company's electricity prices include state-mandated Company has an investment-grade bond rating (although purchased power costs from UGs, at costs far exceeding the Company is currently below investment grade), and the Company's actual avoided costs, as well as the costs of inchide protection for low-income customers. Finally, high taxes in New York. Without legislative or regulatory the PSC directed that the plan should propose changes action, the Onnpany is severely limited in its ability to in the regulatory approach for the Company that support control or reduce these purchased power costs and taxes, fair competition in the electric generation man ket consis-which are major causes of the Company's recent increases tent with the PSC's determination in its generic competi-in prices.
tive opportunities proceeding (COPS), discussed below.
While the Company is experiencing rising prices, rapid Following the PSC's directives, the parties engaged in a technological advances are significantly reducing the collaborative process in which the Company has made a price of new generation and significantly improving the series of presentations describing its views of the transition performance of smaller scale generating unit technology.
to competition and the options it presents the Company.
In addition, the current excess supply of generating On October 6,1995, the Company filed its PowerChoice capacity has driven down the prices a competitive market proposal with the PSC. The proposal was offered as an would support. Actions taken by other utilities through-integrated package (although certain details are subject to out the country to lower their prices, including those in modification) and included these key elements:
areas with already relatively low prices, increase the threat ofindustrial relocation and the need to offer discounts to Creation of a competitive wholesale electricity market e
industrial customers.
and direct access by retail customers. To give cus-The Company continues to take aggressive action to tmnen dwir chmce of pwer supphers and pricing both prevent the loss of certain industrial customers, and tenus, die Cmnpany we, open its system to competing to attract new business. In 1995, the Company granted electricity generato s as early as 1997. The timmg of approximately $62 million of discounts. Discounts are fullimplement u n depends on resolution of techm; expected to increase in 1996 and 1997, but will depend cal, admmistrative and regulatory issues. Enymoned is on energy price levels in the marketplace and other the formation of a competitive wholesale spot market competitive activity. See " Customer Discounts..
n du Company s sernce area under the superu,sion of The ComI>an} also faces the continued threat of the FERC that is consistent with proposals announced October 5,1995 by the Energy Association of New mumcipalization. A growing number of mumc.ipah..ues within the Company's senice territory are investigating Y rk. Ilegm.mng in 199/ w th its largest customers, the the possibility of acquiring less expensive sources of elec-Company would alk>w full direct access to alternative 8"PP en of electnoty. The pompany would deliver h
tricity by forming their own utility operations. If success.
fully established as legitimate wholesale entities, these that power over its transmission and d,stribution i
i new utilities would have open access to transmission and system Access for the remaimng customers would k hased in over du yean E-N P
would be able to by-pass the Company's generation system. The municipalities exploring this possibility are Separation of the Company's power generation b tsiness.
e generally in the early stages ofinquiry and represent a The Company has initially proposed that one company small percentage of Company sales. Municipalization has would own and operate its present power plants md the potential to adversely affect the Company's customer any umegidated generator contracts that are not base and profitability, although rules proposed by the restructured. All the Company's assets and businesses Federal Energy Regulatory Commission (FERC), as other than generation would be held by a holding UN[l[A3(UREAEXd%AM[KT TO[W ? ERl'iClO]R$ P]OiR[A"Tjl[OiN i E
14
company triat would prmide cost-based rate regulated reduction in its fixed costs of sersice be made by mutual transmission, distribution and gas senices through a contribution of the Company's shareholders and UGs regulated subsidiary and through a second subsidiary that are in the same proportion as the contribution of would prmide competitive unregulated senices, such each to the problem of strandable costs, which the as energy marketing and other senices. Both compa-Company calculates to be S4 of UG strandable cost for nies would be financially restructured so that stock-every $1 of Company strandable cost. Achiesing a five-holders and other constituencies would be treated in a year price free /e, as the Company proposes, would f
fair and equitable fashion. Any release of assets under require financial concessions of approximately $2 billion l
the Company's mortgage indenture would involve the (in nominal dollars) over five years, consisting of approxi-
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l substitution of other collateral of equivalent value.
mately $400 million by the Company and $1.6 billion by l
The Company believes NYPA or New York state can be the UGs. The Gmnpany has proposed that the remaining helpful in this restructuring process, through the strandable costs be recoverable by the Company and the j
purc hasing or refinancing of the Company's nuclear UGs through surcharges on rates for remaining distribu-l plants or through the use of other risk-mitigation tion and transmission sersices. To ensure full recovery of l
strategies associated with those facilities.
these costs, the Company has proposed that the remain-Relief from overpriced unregtdated generator ing strandable costs be recovered in rates in a manner contracts that were mandated by public policy, along which nu,nmuies the Company s expostyre due to sales with equitable write-downs of above-market Company volume variations. Recovery of remanung strandable assets. As a result of state and federal policy, the costs by the new owner of the Company's generation Company entered into over 220 contracts, of which f cilities is intended to be structured so as not to impede there are over 150 remaining, to buy power from UGs each unit from being an efficient parucipant m the com-at above-market prices, even when the power is not petitive generation market.
needed. The Company's payments to UGs have The Company is also pursuing other courses of action increased from less than $200 million in 1990 to nearly to support the objectives of restructuring. The Company l
$1 billion in 1995, and will continue to grow by an filed a petition with the PSC in December 1995 seeking l
average of approximately $60 million per year over the an order that certain projects post firm security to ensure I
next five years as contract prices increase. To create an Performance of their obligations (see " Demand for open and compethhw market and achieve a price Adequate Assurance"). The Company,s also actively i
frecie, the Company has offered te negotiate new pursuing various forms of tax relief (see " Tax Initiatives"),
l contracts with UGs.
The timely and successful implementation of If negotiations fail, the Company has proposed to PowerChoice, including, most importantly, the restructur-take possession of these projects and compensate their ing of the energy markct and of UG contracts, will most owners through the Company's power of eminent likely occur only through negotiations and with the full domain. The Company would then resell the projects, and active support of the state. The Company is actively allowing the projects to sell electricity into the compet-neg tiating the PowerChoice proposal with a broad range t
itive pool at market prices. Some of the costs related finterested parties. Separate negotiations are also to the Company and UGs that would be " stranded-under way with the UGs and involve state representatives.
or unrecoverable in a competitive market would be Alternatives to PowerChoice may be proposed during written off (see discussion below). The remaining negotiations that couki,in the Company's siew, be in the stranded costs would be recovered through a contract best interests of shareholders, customers and bondhold-with the distribution company which, in turn, wouki ers. The outcome of PowerChoice and the Company's recover these costs through a' generally non-bypassable other initiatives cannot be assured and the possibility of fee tied to distribution senices.
restructuring under Chapter 11 of the U.S. Bankruptcy Code cannot be ruled out.
A price freeze or eut for all eustomer classes. If the Under PowerCholm, the successor to all the Company's proposal is agreed to by all necessary parties, the aver-assets and businesses other than generation would be an age prices paid by res,denu,al and commercial class unregulated holding company that would provide cost-i customers could be frozen for five years. Prices for based rate regulated transmission, disuibution and gas mdustnal customers, who now subsidtre other cus-services through one subsidiary and would provide l
nomers, would be reduced.
through a second subsidiary competitive unregulated ser-The price frecie and restructming of the Company's vices, such as energv marke' ting and other services. The markets and busmess envisioned in the PowerChoice Company believes tiie regulated subsidiary would contin-proposal are contingent on substanual cost reductions, ue to account for its assets and costs, based on ratemak-which depend in turn on the willingness of the UGs and ing conventions as approved by the PSC and FERC, and j
the Company to absorb the losses required to make in accordance with Statement of Financial Accounting j
substantial reducu,ons_ m the Company's embedded cost Standards No. 71," Accounting for the Effects of Certain structure. The Company's PowerChoice proposal would Tvpes of Regulation" (SFAS No. 71).
reduce its embedded cost structure through substantial
' Effective for the year commencingJanuary 1,1996, i
j wnte<lowns if, and only if, the UGs agree to cost reduc-this accounting standard, under which the Company l
tions that are proportional to their relative responsibihty reports its financial condition and results of( perations, for strandable costs. The Company proposes that l
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15
is amended by Statement of Financial Accounting principal forum for addressing the recovery of stranded Standards No.121," Accounting for the Impairment costs due to potential municipalization or similar situa-oflong-l.ived Assets and for Long-Lived Assets to Be tions where former retail customers become wholesale Disposed Of" (SFAS No.121). As discussed in Note 2 customers, as well as for wholesale stranded costs. For of Notes to Consolidated Financial Statements, the stranded costs that result from retail wheeling, the FERC Company believes there is no impairment ofits invest-proposes that state regulatory authorities assume respon-ment in generating plant assets under the prmisions of sibility, except in the narrow circumstance where state SFAS No.121 under either the PowerChoice proposal or regulatory authorities lack the authority to address the traditional cost-based ratemaking.
recovery of such costs.
As further discussed in Note 2 of Notes to Consolidated The FERC continues to seek comments with respect to Financial Statements, the Company believes that it the complex issues raised by power pools. The New York continues to meet the requirements for application of Power Pool (NYPP), of which the Company is a member, SFAS No. 71 and that its regulatory assets are currently is actively evaluating the effect of wholesale competition probable of recovery in future rates charged to cus-and the NOPR on NYPP operations and pricing policies.
tomers. However, the Company's PowerChoice proposal While changes to existing NYPP arrangements are expect-described above (or a similar proposal) may require a ed, the extent and natme of these changes and their write off of the approximately $400 million of regulatory possible effects on the Company are uncertain.
assets related to generation. There are a number of The Company responded to the NOPR, both individu-events that could change these conclusions in 1996 and ally and as a member of several utility groups, in support beyond, which could result in material adverse effects of the FERC's position with respect to the recovery of on the Company's financial condition and results stranded costs caused by wholesale and retail wheeling, of operations.
but has urged the FERC not to abdicate its responsibility for retail stranded costs. It is anticipated that a final rule Multi-Year Gas Rate Proposal. The Company also filed will be issued in 1996. The Company cannot predict the a proposal to adopt a " performance-based regulation' outcome of this matter or its ef fects on the Company's mechanism, including a gas cost incentive mechanism, for results of operations or financial condition.
its gas operations. The proposal prmides for a complete unbundling of the Company's sales senice, allowing cus-PSC Competitive Opporttmities Proceeding - Electric.
tomers to choose alternative gas suppliers. Increases for InJune 1994, the PSC instituted Phase II of COPS with gas distribution senices would be subject to a price index the overall objective "to identify regulatory and ratemak-through the year 2000. The price index, which is based ing practices that will assist in the transidon to a more on inflation associated with gas senice-related costs, competitive electric industry designed to increase effi-woula be applied to existing 1995 prices after considera-ciency in the provision of electricity while maintaining tion of the senice restructuring. A gas cost incentive safety, environmental affordability, and senice quality mechtnism is also being proposed, along with discontinu-goals."uln aJune 1995 order, the PSC adopted principles ation of the weather normalization clause. Flexibility in to guide the transition to competition. The first principle pu. suing unregulated opportunities related to the gas states that competition in the electric power industry will business is also being sought. In November 1995, the further the economic and environmental well-being of Company filed for a 5.8% gas rate increase, under tradi-New York state. Other adopted principles address various tional cost-based regulation, in the event negotiations on issues, including: safety and reliability, customer senice, the multi-year gas rate proposal are unsuccessful. If economic efficiency, economic development and strand-approved, such rates would become effective on October ed costs. TheJune 1995 order stated that utilities should 1,1996. In either case, the Company believes its gas oper-have a reasonable opportunity to recover prudent and ations will continue to be cost-of-senice rate regulated.
verifiable expenditures and commitments made pursuant to their legal obligations, consistent with all of the princi-Federal and State Regtdatory Initiatives P'es In addition 'hc3""c 1995 "'de'c"' urancs
" respect" for the reasonable expectations of UGs and con-TERC NOPR on Stranded Investment. In March 1995, firms the need for utilities and UGs to share responsibili-the FERC issued two notices of proposed rulemaking ty for mitigating the costs of transition to a more competi-(NOPR) to facilitate the development of competitive tive market. Issues related to both wholesale and retail wholesale electric markets by opening up transmission competition are being examined in this proceeding.
sersices and to address the transition costs, or " stranded On October 25,1995, the PSC staff filed a proposal in costs," associated with open transmission access.
COPS to restructure New York State's electric industry.
Stranded costs are utility costs that may become unrecov.
Under the PSC staff's proposal, which is similar in many erable due to a change in the regulatory emironment, respects to the Company's PowerChoice proposal, utilities In a supplemental NOPR on stranded costs, the FERC and UGs would share the responsibility for reducing the has established the principle that utilities are entitled to current high electric system costs. The PSC staff pro-the full recovery of" legitimate, prudent, and verifiable" posed that electric utilities would absorb a portion of stranded costs at both the state and federal level. The their current generation investments that might become NOPR also concludes that the FERC should be the
" stranded" or unrecoverable in a competitive market and N I A G A R-A M O 11 A>W K P O W E R C O R P O R A T I O N 16
that the UGs wuuld need to cooperatively restructure After a connnent period, the Commissioners will their high-cost power contracts with utilities. In addition, resiew the Alj plan and other plans submitted by inter-the PSC staff's proposal would allow customers to choose ested parties, and ultimately accept, modify or reject it.
annong competing energy suppliers, beginning the transi-A decision is expected by mid-1996.
tion to a competitive retail marLet bv early 1998. A Lev element of the model for wholesale imd retail competi.
Assemblyman Silver's Proposed Plans. New %nk State tion in the proposal is the separation of most generating Assembly Speaker Sheldon Silver introduced a plan on operations from transmission and distribution senices.
January 2,1996, that would freeze electric rates immedi-llowever,it recommended that the electric delivery ately and set a goal of cutting them 2557e through the system, which includes substations, power lines and a introduction of competition among utilities. Key compo-central power pool, continue to be operated by regulated nents of the proposalinclude assurances that reliability, entities. The Company's PowerChoice proposalincludes quality and safety levels are maintained, the dislocation the separation of generation from transmission and of utility war kers is minimized, no guarantee of stranded distribution into distinct entities.
cost recovery, a reduction in the costs of UGs and the in December 1995, the New York PSC Administrative continued encouragement of emironmental protection Lawjudge (AIJ) issued a recommended decision in efforts. Utilities would be required to divest generation COPS (AIJ plan), which is similar in many respects to the by 2002. The Company is unable to predict whether Company's PowerChoice proposal. The Alj plan includes legislation will be introduced in support of this plan, a competitive model in which an Independent Svstem and ifintroduced and enacted, the effect,if any, on the Operator (ISO) would oversee a spot market of electricity Companis financial condition and results of operations.
supplied by generators competing in an open market which would be functionally separated from other utility FERC Order 636 and PSC Competitive Opportunities functions. The ISO would Alispatch generators selling Proceed, g - Gas. Portions of the natural gas industry m
into the s]mt snarket and acquire senices needed to have undergone significant structural changes in recent maintain reliabilitv.
yean. A niajor milestone in this process occurred in The All plan recommends that competition initially be November 1993 with the implementation of FERC Order limited to'the wholesale level,largely because of concerns 636. FERC Order 636 requires interstate pipelines to about the reliability of elecuicity suppiv. If wholesale unbundle pipeline sales service from pipeline transporta-competition works, the state would extend competition don service. This has enabled the Company to arrange to the retail level.
for its gas supply directly with producers, gas marketers or As with the PowerChoice proposal, transmission and pipelines, at its discretion, as well as to arrange for 'rans-disuibution would remain regulated. Consideration portation and gas storage services. Such flexibility should would be given, during the wholesale phase, to the aHow the Company to pro:ect its existing market and to development of effictive competition among energy expand its core and non-core market offerings. With service companies.
these expanned opportunities come increased in addition, the AIJ plan calls for a non-bypassable competition from gas marketers and other utilities.
" wine charge' to be imposed by distribution companies to help utilities recover "strandable" costs. It advocates Other Company Efforts to Address generic rules for defining and measuring such costs, Competitive Challenges requirements for possible reductions, a preferable recov-ery mechanism, and a standard for recovery. The actual Unregulated Generator Initiatives are discussed in a amount of stranded costs to be recmcred by each utility.
separate section below.
l and the timing of recovery, would be left to indisidual rate cases, to begin in 1996 if the A!J plan is given final Tax Initiatives. The Company is working with utility apprmal. The Alj plan requires that strandable costs and state representatives to explain the negative impact be determined to be prudent, verifiable and incapable that all taxes, including the Gross Receipts Tax (GRT),
of being reduced before recovery is allowed. The Alj are having on rates and the state of the economy.
fmther suggests that a careful balancing of customer and Governor Pataki and other state officials have identified utility interests and expectations is necessary, and the changes in the GRT as an element in improving the level of strandable cost secovery may vary utility by utility.
business climate in New York. At the same time, the The Company responded to the Alj plan, as a member Company is contesting the high real estate taxes it is of the Energy Association of New York State (Energy assessed by many taxing authorities, particularly Association). The Energy Association includes the compared to the taxes assessed on UGs.
Company and seven other investor owned utilities as As noted abme, the Company has reduced its work members. The Energy Association expressed concern force over the past three years, resulting in a decrease that the Alfs plan might not allow utilities a reasonable in the amount of payroll taxes incurred over that period.
opportunity to fully recover strandable costs and noted Nicanwhile, the reduction in revenues experienced by the the failure of the plan to address and reconunend lawful Company resulting from reduced sales and an increase in changes which would make possible reductions in elecuic customer discounts, combined with a phase out of the prices, both in the short and long term.
GRT surcharge, has caused the amount of GRT paid by
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1 the Company to be reduced. The following table sets mentioned above was a necessary first step to prevent ero.
forth a summary of the components of other taxes sion ofits customer base. Price pressure in the longer (exclusive ofincome taxes) incurred by the Company term, however, may limit the recovery of such costs from in the years 1993 through 1995:
the remainder ofits customer base.
a in m@ons of dollars Sithe/Alcan. In April 1994, the PSC ruled that, in the
" ^^^-/
1994 1993 event Sithe Independence Power Partners Inc. (Sithe)
Property tax paid.
[ $384A I $262.6
$246.7 ultimately obtained authority to sell electric power at Siles tax..
O P 38.1 j 17.5 19.7 retail, those retail sales would be subject to a lower level Payroll tax.
b -37Ji 42.5 44.3 of regulation than the PSC presently imposes on the l
Go Receipts tax.
f1 198.1 2
Sik On d htdcity to C(msolidated 1
Edison Company of New York,Inc. and to the Company h r ed o nstruction',
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at wimksale froln its 1,040 megawatt (MW) natural gas subsidiaries and b'..j cogenerah,on plant, also provides steam to Alcan Rolled I
regulatory recognition,
b 1.1)
(28.1)
(24.2)
Products (Alcan). As authorized by the PSC in Intalstbettases UaattsJ
$491g__s4_31.4 September 1994, Sithe also sells a portion ofits electricity output on a retail basis to Alcan, previously a customer I
of the Cmnpany, and is authorized to sell to Liberty Customer Discounts. The ComI>an) is experiencing 3
Paperboard (Liberty), a potential new mdustrial cus-a loss of m. dustrial load across its system ihr a variety of mmer. The PSC ordered that Sithe pay the Company reasons. In some cases, customers have found alternative a fee over a period of ten years, based upon the prices at suppliers or are generating their own power. In other which Sithe would sell to Alcan, structured to produce cases a weakened economy or attractwe eneqq pnces a m present value of approximately S19.6 million, q
elsewhere have contributed to customer decisions to Beginning in 1995, the fee was approximately $3.05 g
relocate or close.
m million. The Company had argued fbr compensation, In addressing the threat of further loss of. dustrial dia oM mured discounted rates to Alcan, with load, the PSC established gmdelines to govern flexible a net present value of $39 million. The PSC did not electric rates offered by utthues to retam qualified mdus-authorize a fee in connection with Sithe's sale to Liberty.
trial customers. Under these guidelines, the Company A Company appeal in State Supreme Court, Albany filed for a new service tariff m August 1994, under which County, contending that the April 1994 PSC Crder is a all new contract rates are adnu,m,stered based on demon-3 siolatism oflegal procedure and precedent and should be s[ rated nulustrial and commercial competitive pricing reversed, was dismissed in February 1996. Although the
. snuatmns mcluding, but not hmued to, on-site genera-Company's appeal of Sithe's ability to sell to a retail tion, fuel switching, facihty relocation and partial plant customer and the level of compensation involved was producuon shifung. Contracts are fbr terms not to denied, the PSC's decision to require compensation to i
exceed seven years without PSC approval.
utilities for costs that would otherwise be stranded has j
, The Company has granted discounts to a number of established a precedent in by-pass situations for some
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mdustnal customers and expects others to seek discounts level of recovery of the Company's investment.
through negotiatmg long-term contracts. Many of these contracts may result in increased load that could be rev-Generating Asset Management Studies-The enue enhancing, 'Ihe Company also offers economic Company continues as a matter of course to examine the development rates, which can result in discounts for exist-economic and strategic issues related to operation of all ing, as well as, new load. In 1995, the Company granted its generating units. As a result of economic studies that approximately $62 million of discounts which exceeded the Company has performed (most recently in 1994),it by $20 million the approximately $12 million that were has presently determined that it is economically achanta-anticipated in setting rates for 1995. As ofJanuary 3, geous to continue operation of Nine Mile Point Nuclear 1996, electric commercial and industrial customers have Station Unit No I (Unit 1) over the remaining term of signed 67 discount agreements with an average term of its license, four years. In addition, the average discount negotiated The Company also has, and continues to, study the in 1995 was 21% below tariff prices. The Company economics of continued operation ofits fossil-fueled gen-expects discounts to increase in 1996 to approximately crating plants, given current forecasts of excess capacity.
$87 million,80% of which the Company seeks to recover Growth in UG supply sources, compliance requirements in its February 1996 rate filing. As was the case in 1995, of the Clean Air.Act Amendment of 1990 (Clean Air.Act) the Company would absorb the impact of any discounts and low wholesale market prices are key considerations in in excess of amounts reflected in rates.
evahiating the Company's internal generation needs.
The increase in the Company's prices over the past I)ue to projected excess capacity and Clean Air Act four years, which is largely due to mandated purchases requirements, a tot 2d of 340 MM"s of aging coal fired from UGs, has made cogeneration and self-generation by capacity is expected to be retired by the end of 1999 and many indusuial and large commercial customers more 850 M%"s of oil fired capacity was ;$ laced in long-term attractive. The Cmnpany belieses the pricing flexibility cold standby in 1994. These decisions will be revisited W13MMIG7EdMQGC326MMRE10MICdTMT16Y I8 l
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as facts and circumstances change. These actions permit Substantially all of the remaining balance of NERAM the seduc tion of operating costs and capital expenditutes revenues recorded of approximately $48.8 million will j
for actired and standby plants. The remaining invest.
be collected in 1996.
ment in these plants of approximately $250 million at The MERIT program is an incentive mechanism.
December 31,1995 (of which approximately S180 million Overall goal targets and criteria for the 1993-1995 51 ERIT relates to the facility in cold standby) is currently being periods were results-oriented and intended to measure recovered in rates through depreciation under traditional improvement in key performance areas. The total possi-ratemaking: rec overy wuuld also be provided under ble awaids are S34 million and $41 million for 1991 and PowerChoice. See Note 2 of Notes to Consolidated 1995, respectively. The Company has recogni/cd appn>xi-l Financial Statements, mately $20.3 million, $20.8 million and $16.9 million of These asset management studies have enabled the N1 ERIT revenues in 1993,1994 and 1995, respectively.
Company to make significant reductions in capital spend-The recorded 1995 award represents the objectively l
ing, and with increased output and lower operating costs, determinable portion of the anticipated earned award, to improve the cost-efficiency of the units which is impor-with the balance to be recorded in 1996 when approved.
tant as the Company continues to examine its competitive situation and future strategic ditection.
((HregNlated CeNeratorS Regadatory Agreements / Proposals in recent > ears, the leading cause of higher customer bills and the deterioration of the Company s competitive 1993 Rate Order. See Note 2 of Notes to the position has been the requirement to buy power from l
Consolidated Financial Statements.
UGs in excessive quantities at an average price which is Thtough its Brief Opposing Exceptions dated N! arch 2.
more than twice as high as the cost of power that could 1995, the Company requested an increase in 1995 electric be purchased in the wholesale market.
revenues of approximately S110 million (3.5% ) and an By the emi of 1994, the Company had sirtually all increase in 1995 gas revenues of $16A million (2.7%).
UG capacity scheduled to come into service on line and On April 21,1995, the Company received a rate deci-selling power, which at December 31,1995, consisted of sion (1995 rate onler) from the PSC which approved an 151 facilities with a combined capacity of 2,708 MW.
approximately S 17 million increase in elecuic resenues Of these,2,390 SIW are considered firm capacity. UG and a $4.9 million increase in gas revenues, an expected purchases were apptoximately $736 million in 1993,$960 bill increase of 1.1% for electric customers (a 3.-l%
million in 1994 and $980 million in 1995. In the absence increase for residential and a 1.6% decrease for large of UG contract restructuring under PowerChoice or any industrial) and an 0.8% increase Ihr gas customers.
similar proposal, the Company estimates that purchase The 1995 rate order allows the Company to retain its power payments to UGs will continue to escalate at an fuel adjustment clause (FAC) mechanism, but NERAM, average annual rate of about 6% through the year 2000.
which permined the Company to recover revenue The Company has initiated a series of actions to deal shortfidis during future periods, was discontinued. See with the growth of supply and to realign its supply with "Results of Operations."
demand, but cannot predict the outcomes. These actions The 1995 rate order includes performance-based include mothballing and retiring Company-owned gener-penalties related to custome service quality and demand-ating facilities (see " Generating Asset Management side management progra ns. In December 1995, the Studies") and buyouts of UG projects, as well as the Company estimated and recorded a customer service implementation of an aggressive wholesale marketing penahy fbr 1995 of S4.8 million, or 2 cents per share, effbrt. Such actions have succeeded in reducing installed since it did not maintain certain customer sersice goals capacity reserve margins to normal planning levels. The at 1991 levels. The final amount of the penahy will be Company is actively pursuing other initiatives to reduce subject to audit by the PSC.
its CG costs. The Gmnpany also filed its PowerChoice pro-posal with the PSC as part of its multi-year electric rate Prior Regtdatory Agreements. The Company's results proceeding (sec "PowerChoice Proposal") in an attempt to during the past sescral cars have been strongly influ-address this problem.
3 enced by several agreements with the PSC. A brief discus-sion of the key terms of certain of these agreements is FERC Proceeding. OnJanuary 11,1995,in a case provided below.
invohing Connecticut Light & Power (CL&P), FERC l
The 1991 Financial Recovery Agreement implemented ruled that the Public Utility Regulatory Policy Act NERAM and the Measured Equity Return incentive Term (PURPA) forbids states from requiring utilities to pay (MERIT). See Note 1 of Notes to the Consolidated more than avoided cost to qualifying facilities (QFs) for Financial Statements.
electric power, flowever, FERC also said it would not 1
NERAM requited the Gmnpany to seconcile actual invalidate any prior contracts, but would apply its ruling results to the forecasted electric public sales gross margin prospectisely or to contracts that were subject to a pend-used in establishing rates. NERAM was discontinued in ing challenge (instituted at the time of signing) by a 1995. Appioximately $101.2 million of NERAM resenues utility. On the same day, FERC ordered that an ongoing were rermded in 1991 and $65.7 million in 1993.
challenge by the Company to the New York law requiring 19
utilities to pay QFs a minimum of six cents per Kwh for quate assurance. Court decisions in February 1996 in two electric power (" Sin Cent I.aw") was moot in light of a of these actions Ibund that the Company does not have 1992 amendment to that law prohibiting future contracts the legal right to demand adequate assurance. The that require utilities to pay more than avoided costs. The Company intends to appeal these decisions.
latter proceeding began in 1987. In April 1988, FERC in December 1995, the Company filed a petition had ruled in the unnpany's favor, finding that states with the PSC seeking an order that eight UGs post finn could not impose rates exceeding avoided cost for pur-security to ensure performance of their obligations and chases from QFs. FERC then stayed its decision in light thereby, protect customers' interests under UG contracts.
of a rulemaking it was instituting to address the issue.
Alternatively, the Company asked that the PSC should That rulemaking was never completed.
cancel these contracts if such security is not provided.
On February 10,1995, the Company filed a petition The Company estimates that the above-market payments for rehearing of both orders. The petition was denied.
to these eight UGs, which will amount to more than $100 The Company then asked U.S. Court of Appeals for the million in 1996, will grow to approximately $3.3 billion in District of Columbia to review FERC's denial. FERC and a little more than a decade.
other parties moved to dismiss for lack ofjurisdiction.
The Cmnpany cannot predict the outcome ofits These motions remain pending. On May 11,1995,the petition or of the legal actions regarding adequate Company filed complaints in the U.S. District Court for assurance but because the Company and its customers the Northern District of New York against the FERC and continue to bear the substantial burden these contracts the PSC, contending the FERC unlawfully ruled that its impose, the Gmnpany will continue to press for adequate decision in Cl&P does not apply to purchases of power assurance that the owners of these projects will honor under existing agreements. The PSC was named in this their obligations.
complaint on the basis that its policies required the Company to enter into the above-market-value agree-Results ofOperations ments. InJuly 1995, various parties to these actions, including the FERC and the PSC, moved to dismiss the Earnings for 1995 were S208.4 million, or $1.44 per case. The motions remain pending.
share, as compared to $143.3 million, or $1.00 per share, in 1994, and $240.0 million, or $1.71 per share, in 1993.
Curtailment Procedures. On August 18,1992, the 1994 earnings included $101.2 million, or 46 cents per Company filed a petition with the PSC calling for the share, of electric margin recorded under NERAM, but implementation of" curtailment procedures." Under were adversely affected by the charge to earnings of existing FERC and PSC policy, this petition would allow approximately S197 million (89 cents per share) for the Company to limit its purchases from UGs during light nearly all of the cost of the VERP. The VERP was initiat-load periods as contemplated in FERC regulations. Also, ed in 1994 to bring the Company's stafflevels and work the Company has negotiated settlements with certain UGs practices into line with peer utilities and to create a more regarding curtaihnent provisions of power purchase competitive cost structure. SinceJanuary 1,1993, the agreements. On April 5,1994, after informing the PSC Company has reduced its employment by approximately ofits progress, or lack thereof, in settlement discussions, 3,200, or 27%, as of December 31,1995. About 70%
the Company asked the PSC to expedite its review of the of the Qnnpany's work force is subject to a collective petition. The Company cannot predict the outcome of bargaining agreement with the International this action.
Brotherhood of Electrical Workers. This thirty-three month agreement expired February 29,1996, and is Demand for Adequate Assurance. On February 4, currently in negotiation.
1994, the Company notified the owners of rrine projects 1995 earnings were hurt by lower sales quantities of of the Company's demand fbr adequate assurance that electricity and natural gas, as compared with amounts the owners will fulfill all future obligations, including used to establish 1995 prices. Sales were primarily affect-the obligation to deliver electricity at prices below the ed by the continuing weak economic conditions in Q)mpany's avoided cost. These nine projects have con-upstate New York, loss of industrial customers' load to tracts that provide for initial purchase of power by the NYPA and discounts granted. InJanuary 1995 NERAM Company at rates above avoided cost.
was discontinued. The Company's 1995 earned return The projects at issue total 429 MW. The Company's on common equity was 8.4% compared to 5.8% (10.7%
demand is based on its assessment of the amount of without the VERP charge) in 1994 and 10.2% in 1993.
payments above avoided cost to be accumulated under The Onnpany's return on common equity authoriied in the terms of the contracts. The Company believes it the rate setting process for the year ended December Fi, needs adequate assurance because the projects' future 1995, provided an electric return on equity of 11.0%.md obligations to deliver electricity at prices below avoided a return on equity for gas of 11.45 Factors contributing costs to offset these accumulated account balances would to earnings below authmized levels in 1995 included, involve operating losses that would cause the owners to among other things: sales below those forecasted in abandon the projects. The Company has been sued in detennining rates; about $20 million more in customer three separate actions by the owners of six UG projects discounts than those reflected in rates; the inability to which challenge the Qnnpany's right to demand ade-achieve stringent wholesale margin targets set by the PSC; LMIZG3hf R32MO3[ [$MEP3MfRECOXPZO2RSAMIID$N[
20
and fhel target penalties for low hydro production caused by dry weather. The Company expects the uend of weak sales to continue, given weak economic conditions in the Company's service territory.
The folkming discussion and analysis highlights items that significantly af fccted operations during the three-year period ended December 31,1995. This discussion and analysis may imt be indicative of future operations or carnings.
It also should be read in conjunction with the Notes to Consolidated Financial Statements and other financial and statisticalinfor mation appearing elsewhere in this report.
Electric revenues decreased by $193.4 million, or 5.5% in 1995, and increased by $19(i.5 million, or 5.9L in 1994.
As shown in the following table, electric operating revenues decicased in 1995 primarily due to the climination of NERAh! after 1991, and the decrease in sales to other electric systems and in sales to uhimate consumers. In addition.
FAC revenues decreased $8(i.4 million, in part due to a decrease in fuel and purchased power costs that are recoverable through the FAC as compared to 1994. Despite a decrease in fuel costs, the Company absorbed a hiss of approximately
$11.8 million in 1995, since its actual costs in 1995 were higher than the amounts fbrecasted in rates. In 1994, the Company retained a maximum benefit of $15 million, since its actual costs were lower than the amounts forecasted in rates. The amount forecasted in rates in 1995 reflected a lower fuel cost than 1994. The decrease in FAC revenues also reflects a higher amount of trimsmission revenues ($21.ti million) passed on to customers. These decreases were partially offset by higher electric rates that took effect April 2(i,1995, and by the recording of $71.5 million tmbilled, non-cash revenues in 1995 in accordance with the 1995 rate order. The incicase in demand side management (DSNf) revenues relates to a one-time, non< ash adjustment of prior years' DS5! incentives, partially offset by a reduction in the DShl iebate cost program.
The $19(i.5 million, or 5.9% increase in electric operating revenues in 1994 was primarily due to higher recoveries through the operation of the FAC mechanism, increased sales to other electric systems, NERA51 revenues and rate increases (mainly reflecting the pass through ofincreases in mandated purchases of UG power and rising taxes).
Increase (decrease) from poor year (In mdhons of dollars)
Electric revenues
..10052 -t 1994 1993 Total Amortization of unoilled revenues.
i' 8 71.5 s y
$ 71.5 increase in base rates.
)
Et i 36.0 193.1 297.3
- 2 l (57.8) %{]
Fuel adjustment clause revenues..
b s $5A) 108.3 (42.6)
(20.7)
Changes in volume and mix of sales to ultimate consumers.
a (13.6) 11.0 (60.1)
Sales to other electric systems.
! : (F1.3) l N 62.1 11.7 2.5 DSM revenue.
[ L ~1A ' d (27.7)
(30.3)
(56.6) l Miscellaneous operating revenues.
p -(14.1)z_m.
(4.1) 17.9 (4.3)
NERAM revenues.
0 (101.3) ' M 35.5 24.0 (41.7)
< $(100A) 4
$196.5
$184.8
$187.9 Changes in FAC revenues are generally margin-neutral (subject to an incentive mechanism discussed in Note 1 of Notes to Consolidated Financial Statements), while sales to other utilities, because of regulatory sharing mechanisms and relatively low prices, generally result in low margin contributions to the Company. Thus, fluctuations in these rev-enue components do not generally have a significant impact on net operating income. Electric revenues reflect the billing of a separate factor for DSN1 programs, which provide for the recovery of program related rebate costs.
Electric kilowatt. hour sales were 37.7 billion in both > cars 1995 and 1993, and 41.fi billion in 1994. The 1995 decrease of SS billion kilowatt-hours (Kwh), or 9.4% as compared to 1994, reflects a 41.3% decrease in sales to other electric sys-tems and a 2.3% decrease in sales to ultimate consumers. The decline reflects reduced demand due to the continued stagnant economy, loss of several large industrial customers due primarily to relocations and closings, loss of Alcan to Sithe, loss of sales to NYPA, and more competitive pricing caused by excess supply. The 1994 increase reflected increased sales to other elecuic systems, while sales to ultimate consumers were genemlly flat. See Electric and Gas Statistics - Electric Sales. The lost electric margin effect of sales in 1994 was adjusted by NERAh! except for the large industrial customer class, within which the Company absorbed 20% of the variame from the NERA%f sales forecast.
This adjustment was not made in 1995, since NERANI was discontinued. Industrial-Special sales are NYPA allocations oflow-cost power to specified customers, from which the Company carns a transportation charge. While these sales decreased slightly in 1995 as compared to 1991, usage as a percentage of capacity increased resulting in an increase in revenues.
CNil [AEGllTRI[IMOZ H[11W$ l@EP))lO]WlEM[MO[R IP10[R[R T[I[O $NT 21
Details of the changes in cic(tric revenues and kilowatt-hour sales by customer group are highlighted in the table below:
1995
% increase (decrease) from prior years
>. % of Electric 1995 1994 1993 l
Clus of service
' Revenues Revenues Sales Revenues Sales Revenues Sales Residential..
36.6 %
(1.0)%.
(2.5)%
5.2%
(0 6)%
6.9%
0.8%
Commercial.
37.2 (2.4)
(1.1) 2.5 (2.2) 7.0 3.9 j
industrial......
15.8 (8.7)
(4.3) 4.3 5.0 (6.0)
(5.2) 1.7 14.3 (1.6) 14.5 5.9 9.1 0.8 Industrial - Special.
i Municipal service.
1.5 (0.9)
(1.3)
(2.3) 0.6 (3.1)
Total to utumate consumers.
92.8'
' (2.7)
(2.3) 3.9 0.8 4.3 0.5 Other electric systems.
2.9
- (42.7)
(41.3) 59.1 91.1 12.6 31.2 Miscellaneous.
4.3 -
(19.9) 8.2 40.6 Total.
100.0 %
(5.5)%
(9.4)% -
5.9%
10.3 %
59%
3.0%
ELECTRIC SALES GAS SALES uLilMATE SAIES SALES DELIVERIES SPOT CUSTOMERS FOR AEsALE J
1991 3..
_.36.738 1991 2O.
.122.4 71 7 50 7 i
33,597 3.141 1992 2.
..36,611 1992 STTML...
.146.2 79 2 65 8 12 33.581 3 030 1993 G.
J7,724 1993 f/SM..
.164.2 83 2 67 8 13 2 33 750 3 974 1994 53
..41,599 1994 325.Tddid..
.173.1 34.006 7.593 85 6 85 9 16 1995 Ei2fCETfl3..
..224.8
' 2..
.37.684 1
1995 78 5 144 6 17 33.228 4 456 As indicated in the table below, internal generation f rom fossil-fuel sources declined in 1910, principally at the Oswego oil-fired facility. The decrease in fuel costs reflects a decrease in Company generation due to reduced demand, which reduced the need to operate the fossil plants, even af ter taking into account the 191G Nine Mile Point Nuclear Station Units No.1 (Unit 1) and No. 2 (Unit 2) scheduled refueling and maintenance outages. Quantities purchased from UGs decicased in 1910, due in part to the low water supply which limited the amonm of power the hydroelectric UGs cotdd produce. Although gigawatt-hours (Gwilrs) decreased, total costs escalated due to renegotiated contracts that required payments to be made to the UGs for schedulable capacity. See Note 9 of Notes to the Consolidated Financial Statements " Contracts for the Pun hase of Electric Power."
% Change from pnor year 1995-1994 1993 1995 to 1994 1994 to 1993 (In millions of dollars)
GwHrs.
Cost '
GwHrs.
Cost GwHrs.
Cost Gv Hrs.
Cost GwHrs.
Cost Fu21 for electric generation:
Coal.
6,841 S - 97.9 6.783
$ 107.3 7,088 5 113.0 0.9%
(8.8)%
(4.3)%
(5.0)%
Oil.._.
537 21.3 -
1,245 40.9 2,177 74.2 (56.9)
(47.9)
(42.8)
(44.9)
Natural gas.
996 20.2 700 16.1 548 12.5 42.3 25.5 27.7 28.8 Nuclear.
7,272 '
43.3 8.327 49 5 7.303 43.3 (12.7)
(12.5) 14 0 14.3 Hydro.
2,971 3.485 3.530 (14.7)
(1.3) 18,617 182.7 20.540 213 8 20.646 243.0 (9.4)
(14.5)
(0.5)
(12.0)
Electricity purchased:-
Unregulated generators:
Capacity.
181.2 84.6 20.3 114.2 316.7 Energy and taxes.
14,023 798.7-14.794 875.5 11.720 715.4 (5.2)
(8.8) 26.2 22.4 Total UG purchases.
14,023 979.9 14,794 960.1 11.720 735.7 (5.2) 2.1 26.2 30.5 Other.
9,463 126.5 10.382 140.3 9.046 118.1 (8.9)
(9.8) 14.8 18.8 23,406 - 1,106.4 25.176 1.100.4 20.766 853.8 (6.7) 0.5 21.2 28 9 Total generated and purchased.
42,103 1,289.1 45,716 1,314.2 41.412 1.096 8 (7.9)
(1.9) 10.4 19 8 14.8 '
12.7 (2.2) 16.5 (677.3)
Fuel adjustment clause.
Losses / Company use 4,419 4.11 7 3.688 7.3 11 6 37,684 $1,303.9 41.599
$1.326.9 37.724 $1.094 6 (9.4)%
(1.7)%
10.3%
21.2 %
[ [ Il[A.j[Gl [ R X M[O['IIMMKj ]PlO[W[E !RT M O[R[P 0,[RTA" 'T fl Of N 22
Gas revenues decreased by S 11. I million, or 6.6%, in 1995, and increased by $22.2 million, or 3.7%, in 1991.
As shown by the table below, gas revenues decicased in 199a pnmanly due to decreased sales to ultimate customers, which reflects reduced demand due to the weak economy and warmer weather, and lower gas adjustment clause rec overies. This decicase was partially of fset by an increase in icsennes fnnn the inmsportation of customer-owned gas of approximately $9.9 million which was primarily caused by the Sithe gas-fired generating project coming on-line in the Company's senice territory and an incicase in base rates of S 1.7 million in accordance with the 1995 rate order. Rates for trans[x>rted gas yield lower margins than gas sold directly by the Company. Therefi>re, increases in the vohrme of gas trans}x>rtation senices hase mit had a proponionate impact on earnings. In addition, changes in purchased gas adjustment clause revenues are generally margin-neutral.
In 1991, the revenue increase was primarily attributable to increased sales to ultimate customers, increased base rates, and gas adjustment clause recoveries. This increase was partially of fset by a decline in spot market sales, because the abundance and price of spot gas made it more dillicult to earn sufficient margins on these sales. Spot market sales are generally the higher priced gas available and sold in the wholesale ma:Let and yield margins substantially lower than tra-ditional sales to uhimate customers.
Increase (decrease) from prior year (In mdhons of dollars)
Grs revenues 1995 1994 1993 Total increase in base rates.
8 4.7
$ 7.1
$ 7.3
$ 19.1 Transportation of customer-owned gas.
9.9 ' _
3.5 (9.7) 3.7 Purchased gas adjustment clause revenues.
(10.7) y 7.7 12.2 9.2 Spot market sales.
- (1.3)
(25.4) 27.2 0.5 Miscellaneous operating revenues.
. ' (3.5) 6.3 (5.0)
(2.2)
Changes in volume and mix of sales to ultimate consumers.
(40.5) 23 0 15.1 (2.4) b $(41.4)
$22.2
$47.1
$27.9 Gas sales, culnding transportation of customer-owned gas and spot market sales, were 78.5 million dekatherms (dth) in 1995, an 8.3% decrease from 1991 and a 5.7% decrease from 1993 (see Electric and Gas Statistics - Gas Sales). The decrease in 1995 was in all ultimate consumer classes, which reflects the continuing weak economic conditions in upstate New York. The Company has added approximately 25,000 new customers since 1992, primarily in the residen-tial class, an incicase of 5.1%, and expet ts a continued increase in new customers in 1996 at levels slightly lower than previous lesels. Ihning 1995, these was also a shif t from the industrial sales class to the transportation sales class.
Esen though gas sales and resenues decreased in 1995, corresponding reductions in purchased gas expense enabled a slight improvement in margin on gas sales.
In 1995, the Company transpor ted 1-11.6 million dth, or 68.3% increase, for customers purchasing gas directly from producers. A continued incicase in transinntation solumes is expected in 1996, leading to a forecast increase in total gas transported in 1996 of approximately 8% above 1995. Factors af fecting this fi> recast include the economy, the rela-tive price differences between oil and gas in combination with the relative availability of each fuel, the expanded nund ber of cogeneration projects served by the Company and increased marketing efforts. Changes in gas revenues and dth sales by customer group are detailed in the table below:
"1995
% bcrease (decrease) from prior years
- %of
Gee -
1995-1994 1993 s
C12rs of service Revenuse Revenueo Seles -
Revenues Sales Revenues Sales Residential..
83.3% -
(7.5)%.
(8.2)%.
7.5%
2.9%
4.6%
1.8%
Commercial.
L 24 7 -
.-- (21.0)
(14.1) '
(21.0)
(28.2) 84.8 143 6 (9.7) -
(7.6) :
9.9 8.6 9.2 6.5 Industnal.
F 2.0 Total to ultimate consumers.
t - 90.0 (8.5)
(0.3) -
7.1 2.9 7.4 6.4 Other gas systems 0.1 (34.3)
(34.0) 8.7 4.3 (77.5)
(80.3)
Transportation of
, 25.9 68.3 10.1 26 8 (18.5) 2.9 customer-owned gas.
8J.
Spot market sales.
- 0.5 --
- (29.2).
. 9.6 (85.3)
(88.1) 1,056.1 1.053.8 Miscellaneous.
' 1.1 (16.7) 423.3 (79.4)
Total.
- 100.0 % -
(6.4)%
29.9 %
3.7%
5.4%
8.5%
12.3 %
The total cost of gas purchased decreased 12.5% in 1995 and 3.2% in 1991, anc' increased 13.6% in 1993. The cos lluctuations genendly correspond to sales volume changes, panicularly in 1993, as spot mar Let sales activity increased.
The Company sold 1,7,1.6 and 13.2 million dih on the spot maiket in 1995,1991 and 1993, respectively. In 1993, this activity accounted for two-thirds of the 1993 pun hased gas expense increase. The purchased gas cost decrease
- N L 1]Af GlATR[ A]
M OS.iHE Aj[K! !P[OlWIECRL [CLO' ~R LPL [O [RJ Af [T) 'l 10 ] N -
23
associated with purchases for ultimate consumers in 1995 Net Federal and foreign income taxes incteased in resulted from a 4.3 million decrease in dth purchased 1995 by approximately $17.9 million due to an increase and withdrawn from corage for uhimate consumer sales in pre-tax income, which included the increase related to
($15.1 million) and a 10.8% decrease in the average cost the sale of INDRA-CO. In 1991, the decrease of approxi-per dth purchased ($32.8 million). This was partially of f-mately $35.6 million was due to lower pre-tax income, set by an increase of $10.1 million in purchased gas costs which included a (harge to carnings of approximately and certain other items recognierd and recovered
$197 million in 1991 for nearly all of the costs of VERP.
through the purchased gas adjustment clause (GAC).
The increase in Other taxes increased in 1995 primarily Gas purchased for spot market sales decreased $1.4 as a result of an increase in the amortization of amounts million and $24.4 million in 1995 and 1991, resperthely, deferred in prior years ($19.7 million) related to real The purchased gas cost increase associated with purchas-estate taxes. This increase was partially offset by a reduc-es for ultimate consumers in 1991 resulted from a 1.5%
tion of approximately $7.9 million in gross receipts taxes increase in dth purchased, coupled with a.9% increase in as a result oflower revenues in 1995 as compared to rates charged by suppliers and an increase of $6.4 million 1991, and a reduction in the gross receipts tax surcharge in purchased gas costs and certain other items recogniicd during 1995, as well as, a reduction in payroll taxes ($5.2 and recovered through the purchased GAC. The million) due to a decrease in employees. In 1994, the Company's net cost per dth sold, as charged to expense increase was principally due to an increase in real estate and excluding spot market purchases, decreased to $3.17 taxes ($15.9 million).
in 1995 from $3.44 in 1994 and was $3.34 in 1993.
Through the electric and purchased gas adjustment Net interest charges remained fairly constant for ciruses, costs of fuel, purchased power and gas pur.
the years 1993 through 1995. However, disidends on chased, above or below the levels allowed in approved preferred stock increased during this time by $1.8 rate schedules, are hilled or credited to customers. The inillion and $5.9 million in 1994 and 1995, respectively.
Company's electric FAC ptmides for a partial pass-Disidends on preferred stock increased $5.9 million in through'of fuel and purchased power cost fluctuations 1995 primarily as a result of an increase in the cost of from those forecast in rate proceedings, with the vmiable rate issues and increased $1.8 million in 1994 Company absorbing a portion ofincreases or retaining a due to the issuance of $150 million of preferred stock portion of decreases to a maximum of $15 million per issued in August 1994. The weighted average long-term rate year. While the amount absorbed in 1993 was not debt interest rate and preferred disidend rate paid, material, the Company retained the maximum benefit of reflecting the actual cost of variable rate issues, changed
$15 million in 1994 and absorbed a loss of approximately to 7.77% and 7.19%, respectively,in 1995 from 7.79%
$11.8 million in 1995.
and 6.84% respectively,in 1994, and from 7.97% and 6.70% respectisely,in 1993.
Other operation expense decreased in 1995 by $139.8 million, or 18.5% as compared to a decrease or $66.6 Effects of Changing Prices milhon, or 8.1% m 1994. Desp,te the costs related to the i
1995 scheduled nuclear refueling outages of Units 1 and The Company is especially sensitive to inflation because 2 of approximately $36 million, other operation expense of the amount of capital it typically needs and because its decreased in 1995 primarily as a result of the Company's prices are regulated using a' rate base methodology that cost reduction program. In addition to lower labor costs, reflects the historical cost of utility plant.
the Company also reduced 1995 non-labor costs, such as The Company's consolidated financial statements are research and development expenditures ($21 milFon),
based on historical events and tonsactions when the general office expenses ($8 million), and DSN1 rebate purchasing power of the dollar was substantially different costs ($19 million). The 1991 decrease relates primarily than now. The effects ofinflation on most utilities, to decreases in nuclear costs associated with the Unit 1 including the Company, are most significant in the areas and Unit 2 refueling and maintenance outages in 1993 of depreciation and utility plant. The Company could
($27 million) and the decrease in amortii.ation of regula-not replace its non-nuclear utility plant and equipment tory defer rals ($49 million) which expired in 1993-for the historical cost value at which they are recorded on the Companv*s books. In addition, the Company would Other items, net decreased by $13.0 nu.lh.on m nm replace these with identical assets due to technologi-1995 and mcreased by $8.0 nulhon m 1991. The cal advances and competitive and regulatory changes that 1995 decrease was primarily due to the recognition of.
have occurred. In light of these considerations, the customer service penalties, certain other items disallowed deprecision charges in operating expenses do not reflect m rates and lower subsidiary earnmgs, offset in part the cost of pmviding service if new generating facilities by the gain recognized on the sale ofIWDRA-CO were installed. The Company will seek additional rev-Enterprises, Inc. (INDlWCO). The 1991 nycrease pri-enue or reallocate resources,'if possible, to cover the costs manly related to increased earnings of subudianes which of maintaining service as assets are replaced or retired.
mcluded a nonrecurring gain on the sale of an invest.
ment for $9 million.
ENI?[5M 3MMid3M5'MIC3P1 If51R[IMO[ RIP 10]R$ 2T[ISOAN2 24
Financial Position, Liquidity and Construction and other Capital Requirements.
Tlum>nipann u amounts for the (pal capind u quin niyniuonsiu of Capital Resourres annpany s < onstniction program, Finincial Position. The Gmnpany's capital sti m ture coinpliam e with the Clean Air At t and other eminnunen-41)erM,cr 31,1995 was 51.5% long-term debt,8.0%
tal requirements (as discuwed below and in Note 9 of preferred sto< k and 37.5% common equity, as coinpared Notes to the Conmlidated Finam ial Statements -
to 52.9% 8.5% aint 38.69, respectivel) at 1)c(cr ', 31, "Envinmmental Contingencies'), nudear decommission-1991 liook value of the c ommon stock was $17.42 per ing funding icquitements (see Note 3 of Notes to the shaic at 1)ct ember 31,1995, as c ompared to $17.06 per C<>nsoHdiued Financial Statements "Niulear Plant share at I)cccmber 31,1991. Maiket analvsts have 1)ccomnu,ssm, m,ng,), wor king capital needs, maturing debt obsened that the Company's low maiket to book ratio, iwues and sinking f und punisions on piciened stock, as 51.5% at 1)cc cmber 31,1995, results fium a weak New well as requirements to acc omplish testr uctunng contem-Yor k State economy and regulatory attitudes, and fium gylated by the PowerCholm pinposal. Atmual expenditures usuertainty about the pa<c of iegulaton change, whic h for the years 1993 to 1995 for c onstruction and mulear could increase competition ami reduce' prices, resulering fuel, im luding related alh>wance for iunds used during the Company partic ularly sulnerable. In addition, mar-conuniction ( Al'C )and mcrheads capitali/cd, were ket analysts liare expiessed concern about the umertain-
$519.6 million, S190.1 million aiul $315.8 million, respec-ty and potential negative impact of the PowerChoice tively, and are expected u> be approximately $347 million proposal on the Company, as well as the powibility of for 1996 aiul to range between $307 million - $372 million bankruptcy. As imlicated elsewhere, the Company for caa oNw dwcquent fom > cam believes the PowerChoice proposal is in the best interests of shareholdeis, bondholders and customers. Ilowes er, PROJECTED CONSTRUCTION ADDm0NS the Company is committed to taking necewar) courses of CONSTRUCTION AFC & NUCLE AR FUEL action to impime its financial profile, im luding consider-1996 1
..$347 ation of other alternatives to Power (hoice that inay reine.
sm su sent better vahic to these constituencies.
1997 L
$307
, The 1995 ratio of car nings to fixed changes was 2.29 1998
"$372 u mes. Ihe ratios of earnings to fixed (harges fi>r 1994 3,
m and 1993 were 1.91 times and 2.31 times, respective 1y.
1999 L...
...$319 S,ecurity rating hrms hase begun to impute certam items su so into the Comp.my's interest coverage calculations and 2000 W M 2..
..$319 capital structure, the anost significant of which is the sm 529 inclusion of a -leverage" facto fi>r l'G connacts. The rating firms beliew the financial structure of the l'Gs hWa -&N d
(which typically have ven high debt-to+quity ratios) and odm gd$m n m pdnad M mima s M qwmdmddq uim 4 the character of their power-purchase agreemems.
odm 570 ndHim to dw 1996 min of giul incicase the financial n,sk to unhues. The Compant s icported intciest (merage and debt-to-equits ratios base reqmrements and sigmf cant adch..oonal capital may be recently been discounted by vaiying amounts for pmpos-i d if h N'm Yd h bg ud Ibdp m hdmrity (NWERDA) bonds discussed below need to be es of establishing credit ratings. Ilecause of existing com-G Ed TN en of mmmim Mdine mitments for 1 G purchases, the imputanon has had, and wd, l continue to have. a materially negative impact on inde d b a@d qub m e fm dw pdod 1996 m 2000 MH k & d by eg a m Adm 1996 wie the (,annpany s financ,al ratings. Managemem expects i
dw d@ s M fmdwr adMg du mme a w that the reduced conmjitmems lor LL pun hases. as M h dimWe N "Lipdh ad QWd proposed m PmeerChoice, ymid icduce the m lus,on of i
Resoun es" section below, which describes how the coverage f actor for i G contracts and reduce the
,,,g
.g
- g
,g g I,mannal nsk of the Company.
g g, y
gg Common Stock Dividend. On january 25,1996, the
'Ih" P"'visiom of the Clean Air Act gue expected to board of directors omitted the cInnmon stoc k dividend hau an impact o's the (ompany s fossd generanon plants for the first quaner of 199R This action was taken to during the period through 2000 and beyond. The help stabilire the Company's financial c ondition and pio.
Conipany has con;phed with Phase i of the Clean Air Act, i
vide ficxibility as the Company addresses growing pres _
which indudes sedunit m il nitrogen oxides and sulfur j
sure from mandated power purchases and weaker sales.
dioxide. Phase I became effe< tive onJanuary 1,1995 and In making future dividesul dec isiom, the board will evahe will < outinue through 1999. The Cannpany spent appioxi-ate, along with standard business considerations, the level mauely 55 niiuion and $32 million in 1995 and 1991, and timing of futme rate relief, the progress of renegoti.
n+perou4 on pndens at the fossd generation plants ating contracts with UGs within the mnicxt of its awociated with Phase I compliance. The Company has PowerChoice proposal, the degice of c ompetitive pressure indu&d SB million
'ts 1996 through 1999 c onstruc-on its prices, and other strategic mnsiderations.
non fonmt hn-Phaw c onipliance whh h w,ll become i
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effectiveJanuary 1,2000. The Q>mpany anticipates that A summary of the Company's securities ratings at additional expenditures of approximately $74 million may 1)ccember 31,1995, was:
The asst t management studies, desen; red beyund 200h be necessary for Phase !!! to be inem Secured Preferred Commercial Unsecured hed alx>ve, coimder oeet Stock Paper Debt spending estimates for Clean Air Act compliance.
Standard & Poor's Corporation.
BB B
B B+
agmdity and Cap.tal Resources. Following the L.
i l
's investors PouwChour pro [msal, Standard & Poor,s (S&P) lowered Service..
Ba1 ba3 Not Prime Ba2 its ratings on the Company's senior secuted debt to Illi Fitch investors l
from 111111, senior unsectned debt to 11+ from Bil+, pre-Service..
BB B+
Not apphcable Not appkcabe ferred stock to Il from IIB +, and commercial paper to B
]
from A-3. The present ratings are "below investment These rating agencies have cited the increased risk and grade. In addition S&P's ratings of the Company's secu-uncertainty and the potential for bankruptcy as reasons I
rities me on " Credit Watch" with negative implications.
for downgrade. The Company believes these reasons l
The downgrade of the Company's security ratings reflects likewise increase the risk to third party UGs and their j
S&P's stated concern regarding the uncertainty and security ratings. The Gimpany believes its PouvrChoin potential negative impact of the PowerChoice proposal on proposal is in the best interests of its stocklmlders, the Company. Further, S&P stated that the ultimate pos-customers and Imndlmlders. In the event PowerChoireis l
sibility of restructuring under Chapter 11 of the U.S.
not adopted, and comparable solutions aie not available, l
llankruptcy Code cannot be ruled out, based on the the Oimpany will undertake any other actions necessary l
Onnpany's statements in that regard. In 1)ccember 1995, to act in the best interests of stockholders and other l
S&P assigned a private placement rating of"2-plus" to the constituencies. 'li> that end, on February 12,1996, the j
l
' Company's first mortgage Ixmds. Private placement rat-Onnpany filed for rate relici for 1996 and 1997 and the ings evaluate the extent of potential loss to an investor Company has implemented a reduction of mnwssential l
following default, whereas S&P's traditional debi ratings programs to reduce its costs. See " Changing Competitive measure the risk of default in timely payment. S&P stat-Emiromnent," "PouvrChoice Proposal" aml "Omunon ed the rating (based on a scale of one to six, with "l-plus" Stock 1)isidend."
i the most favorable) " reflects the strong asset protection Cash flows to meet the Onnpany's sequirements li>r and recovery value and low likelihood that first mortgage operating, investing and Gnancing activities during the l
l bondholders would suffer any ultimate loss, even in the past three years are reported in the Gmsolidated l
event of a default by the issuer."
Statements of Cash Flows.
l l
51oody's investors Service (51oody's) lowered its ratings 1)aring 1995, the Onnpany raised approximately $316 i
l below investment grade fi>r the Companfs senior secured million nom external sources, consisting of $275 millhm l
debt, to Bal f rom Baa3; senior unsecured debt to Ba2 of 7X% First Afortgage ihmds due Alay 20(Hiissued during from Bal; its preferred stock to ba3 from bal; and its hlay 1995 and an increase of $71 million issued under the short-term rating for commercial paper to Not Prime Company's Revohing Credit Agreement.
from Prime -3. Stoody's is also maint;dning these ratings The Company neceived approximately $207 million under review for possible further downgrade, hioody's inJanuary 1995, related to the sale of the Company's cited the necessity for agreement by third parties subsidiary IWDIRCO, the proceeds of which were used significantly diminishes the likelihood that the to repay short-term debt. The after-tax gain on the sale IbuerChoice proposal will survive intact and increases ofIWDRACO was approximately $11.3 million. In addi-uncertainty about the Company's future over the interim tion, the Company received $50 million from the sale of period, as related negotiations proceed. Aloody's further customer receivables in the limrth quarter of 1995. See stated that the Company's apparent willingness to Note 9 of Notes to the Consolidated Financial Statements consider restructuring under Chapter 11 of the U.S.
- Sale of Customer Receivables."
Ikmkruptcy Code raises serious doubts as to the Ordinarily, construction related short-term borrowings Company's financial stability. h1oody's stated that its are rehmded with long-term securities on a periodic contimted review will consider iesponses to the basis. This approach generally tesults in the Company IbuerChoice proposal, the likelihood of the proposal showing a wo: Ling capital deficit. Woiking capital being adopted and the effect any imerim or final deficits may also be a result of the seasonal nature of the agreement may have on bondholders.
Companfs operations as well as timing differences l
Fitch investors Services, Inc. (Fitch) also downgraded between the collection of cmtomer receivables and ti.e below investment grade the Company's first mortgage payment of fuel and purchased power costs. Recendy the bonds and secured pollution control bonds rating from Onnpany has experiem ed a detciioration in its coller-BBB to Bil and its preferred stock rating from BBB-to B+
tions as compared to prior years' expriit nce and is taking and noted a declining credit trend. Fitch's stated con-steps to impiove collection. Thi Company beheses it has cerns are similar to those expressed by S&P and 51oody's.
sufficient borrowing capw ty to fund such deficits as ner-l cssary in the near term. 'I he Company's existing revolv-ing ciedit facility, which the Company is in the process of renegotiating as described below, expires in April 1997.
1 I
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The Company's capital structure continues to be weak, financing will expire on the cadier of (i) filteen days and the Company's ability to issue moic common stock to after the senior debt financing is approved by the PSC m improve its capital structure is essentially precluded by the (ii) March 31,1996. As contemplated by the commit-uncertainties that have depressed its stock price. The ment, the term loan and resulving credit f acility and the Company is unlikely to pursue a new issue ollering unless ktter of credit facility will be collateralized by the the common stock price is closer to book value and these
< utnpany's first mortgage bonds and will expire on the uncertainties are mitigated. The reduction to below earlier ofJune 30,1999 or the implementation of the imestment grade ratings on the Company's bonds and Company's PouvrChoice restnicturing proposal or any pieferred stock can be expected to make it more difficult other significant restructuring plan. The Company azul expensive ihr the Company to finance in the manner expe(ts that the first mortgage bonds to be issued as secu-it has used in the past.
rity will be based on additional property imder the earn-Extemal financing plans are subject to periodic ings test required under the mortgage trust indenture; ictision as underlying assumptions are changed to reflect the bonds could also be issued on the basis of previously developments, market conditions and, most imjmrtantly, retired bonds without regard to an earnings test, the Company's rate proceedings. The ultimate level of This commitment for the senior debt facility is subject financing during the period 1996 through 1999 will to the [neparation and execution ofloan documentation reflect, among other things: the outcome of the 1996 agreeable to the parties and the approval of the PSC.
and 1997 rate acquests; the outcome of the restructuring The Company believes that this commitment on behalf envisioned in the PowerChoice pioposal, including of the Agent flanks to provide this senior debt facility is whether the Company proceeds with exercising its right an important step in establishing a firm financial basis for of eminent domain with respect to UG watracts; levels negotiating the Company's PowerChoice restructuring pro-of common dividend payments,if any, and preferred Imsal. The Cmnpany is seeking PSC approval on its peti-disidend payments; the Company's competitive position tion in Starch,1996. In the event the petition is not and the extent to whicii competition penetrates tl.e approved, the Company believes the elimination of the Company's maiLets; uncertain energy demand due to common dhidend, the implementation of reductions in the weather and cronomic conditions; and the extent to mm-essential programs and the 3 car end 1910 c_ ash posi-
~
which the Company reduces non-essential programs and tion, in combination with alternative sources of credit the manages its cash flow during this period. In the longer Company believes are available if necessary, will be sulli-term, in the absence of PowerChoice or some reasonably cient to fund cash requirements for 1996. Sullicient rate equivalent solution, financing will depend on the amount relief, if granted, would prmide adequate funds for 1997.
of rate relief that may be granted.
The Company can provide no assurances beyond 1997 as The Company is renegotiating its bank credit facilities cash flow will depend on sales, the implementation of to insure, to the extent possible, adequate financial PowerChoice, including UG contract renegotiation, levels resources to satisfy its financing needs over the period of cash rate relief, approval of the senior debt bank facili-1996 throughJune 1999. These facilities by their terms ty agreement, levels of conunon and preferred dividends wouhl terminate upon adoInion of PowerChoice.
and the ability to further reduce costs, among other As a result of the Company's ongoing negotiations with things. As of December 31,1995, the Company could its banks, the Company entered into a conunionent letter issue an additional S2,272 million aggregate principal with Citibank, N.A., Morgan Guaranty Trust Company of amount of first mortgage bonds under the applicable New Yo:L and Toronto Dominion llank, as co-syndication tests set forth in the Company's mortgage trust indenture.
agents (the Agent Banks), for the provision of a senior This includes approximately S1,311 million from retired debt facility totaling $815 million for the purpose of con-bonds without regard to an intetest coverage test and solidating and refinancing certain of the Company's exist-approximately S961 million supported by additional ing credit agreements and letter of credit facilities and property curiently certified and available, assuming a providing additional reserves of bank credit. The pro-109 interest rate. In the event of a significant write-down posed senior debt facility will consist of a $380 million in the future, the Company willlikely be preduded from term loan and revolving credit facility and a $435 million issuing first mortgage bonds based on additional property letter of ciedit facility. The letter of credit facility will and the carnings test, for at least the twelve months sul>-
provide credit support fm S414 million of outstanding sequent to su(h write < lown.
i pollution control revenue bonds issued through The Company also has $200 million of Preference NYSERDA whose current letter of credit support expires Stock authorized for sale.. Current market conditions between April 1996 andJanuary 1997. In the absence of preclude the Company from issuing preferred or prefer-this suppmt the Company would seek to rema:Let these ence stm L in 1996 due to the downgrading of the NYSERDA bonds collaterali/ed by its first mortgage Company's security ratings. The Company's c harter also bonds.
limits the amount of unsecured indeb:cdness that may be The interest rate applicable to the senior debt faolity incurred by the Company to 10% of consolidated capital-will be v;uiable based on certain rate options availab;c iration plus S50 million. At December 31,1995, this under the agreement and is currently expected to charter restriction is approximately $683 million and the approximate 8% (but capped at 15% ). The commitment Companfs unsecmed debt outstanding is S200 million.
by the Agent Banks to proceed with the senior debt (N A1[A[G] AER11 XOR 11[A]K KMl{@XMM M{ R{ICO fICAM 1ilOUN 27
1 Report ofManagement Report ofIndependent Accountants The consolidated finamial statements of Niagara To the Stoc klmlders and
% hawk Power (kerporation and its subsidiaries were pre-Ikiard of Directors of pared by and are the responsibility of managemeat.
Niagara Whawk Power Corporation Financial infi>rmation contained elsewhere in this Annual Reimrt is consistent with that in the financir.1 statements.
In our opinion, the accompanying consolidated bal-
'Ib meet its responsibilities with respect to Huancial ance sheets and the related consolidated statements of information, management maintains and enli>rces a sys-income and retained earnings and of cash flows present tem of internal accounting controls, which is designed to f airly, in all material respects, the financial position of provide reasonable assurance, on a cost effective bash, as Niagara hhawk Power Corporation and its subsidiaries to the integrity, oldertivity and icliability of the financial at December 31,1995 and 191H, and the results of their records and protection of assets. This system im ludes operations and their cash flows for each of the thice i
communication through wrinen policies and procedures,
) cars in the period ended December 31,1995,in an organizational sit ucture that provides fi>r appropriate conformity with generally accepted accounting principles.
division of responsibility and the training of personnel.
These financial statemems are the responsibility of the This system is also tested by a compichensive internal Company's management; our responsibility is to express audit program. In addition, the Company has a an opinion on these financial statements based on our Corporate Policy Register and a Code of thisiness audits. We conducted our audits of these statements in i
Conduct that supply employees with a framework describ-accordance with generally accepted auditing standaids ing and defining the CompanyN overall approach to busi-which require that we plan and perform the audit to ness and requhes all employees to maintain the highest obtain reasonable assurance about whether the financial lesel of ethical standards as well as requiring all manage-statements are free of material misstatement. An audit j
ment employees to formally af firm their compliance with includes examining, on a test basis, evidence supporting the Code, the amounts and disclosures in the financial statements, The financial statements hase been audited by Price assessing the accounting principles used and significant Waterhouse l_l.P. the Company's independent account-estimates made by management, and evaluating the over-ants, in accordance with generally accepted auditing stan-all financial statement presentation. We believe that our dards. In planning and performing its audit, Price audits provide a reasonable basis ihr the opinion Waterhouse considered the Company's internal cono ol expressed above.
structure in order to determine auditing procedm es for As discussed in Note 2, the Company belieses that it the purpose of expressing an opinion on the financial continues to meet the respiirements fbr application of statements, and not to provide assurance on the internal Statement of Financial Accounting Standards No. 71, control structure. The independent accountants' audit
" Accounting for the Effi cts of Certain Types of does not limit in any way management's responsibility (br Regulation" (SFAS No. 71) and that its regulatory assets l
the fair presentation of the financial statements and all are currently probable of recovery in future rates charged I
uther inibnnation, whether audited or unaudited, in this to customers. There are a number of events that could Annual Report. The Audit Conunittee of the Ik>ard of c hange these conclusions in 1996 and beyond, resuhing Directms, comisting of five outside dhectors who are not in material adverse effects on the Company's financial employees, meets regulady with management, internal condition and results of operations. As also discussed in auditors and Price Waterhouse to review and discuss Note 2, the Company has filed its PowerGoice proposal i
internal accounting contiols, audit examinations and with the Public Service Commission for restructuring the i
financial reporting matters. Price Wateihome and the Company to facilitate a transition to a competitive electric Company's internal auditors have free access to meet generation market. Ifit becomes probable that the pro-individually with the Audit Committee at any time, with-posal (or a similar proposal) will be implemented and out management being present, certain other conditions are met by third parties, the Company would discontinue application of (SFAS No.
- 71) with respect to the electric generation business and write off the related regulatory assets, currently approxi-mately $392 million. Such an outcome would have a material adverse effect on the Company's resuhs of opera-tions and financial condition.
6ha
& LLP j
Syracuse, New h k January 25,1996 I,
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28 l
Consolidated Statements ofIncome and Retained Earnings In thousands of dollars For the year ended December 31, 1995 1994 1993 Oper ting revenues:
Electric.
L $3,335,548 -
$3,528,987
$3,332,464 Gis.
501,790 623,191 600,967 3,917,338 :
4,152,178 3,933,431 o
Operating expenses:
Operation:
{.
I Full for electric generation.
~ 105,038 j 219,849 231,064 Electricity purchased.
1,137,937 7 1.107,133 863,513 Gis purchased.
276,232 '
315,714 326,273 Other operation expenses, 614,930 :,
754,695 821,247 Employee reduction program.
196,625 Maintenance,...
203,987..
202,682 236,333 Depreciation and amortization (Note f)....
317,031 j 308,351 276,623 Federsi and foreign income taxes (Note 7).
I 158,000 i-117,834 162,515 Othrr taxes.
517,475 ;
496,922 491,363
, : 3,300,312 t 3,719,805 3,408,931 Operating income,
538,038 432,373 524,500 Other income and deductions:
Allowance for other funds used dur,g construction (Note 7).
1,083 ;
2,159 7,119 Federal and foreign income taxes tivote 7),
(3,308) 6,365 15.440 Othir itIms (net).
2,006 '
15,045 7,035
- (316) 23,569 29.594 income before interest charges, 527,710 455,942 554,094 Int rist charges:
IntIrest on long-term debt.
387,019 3 264,891 279,902 Other interest..
20,642 ;
20,987 11,474 Allowance for borrowed funds used during construction.
I (7,987)
(6.920)
(9,11 3) 279,874 '
278,958 282,263 Not income...
348,038 176,984 271,831 Dividends on preferred stock.
38,005 '
33.673 31,857 Balance available for common stock.
. : 208,440 -
143,311 239,974 Dividends on common stock,
181,000 s 156,060 133,908 L
46,790 :
(12,749) 106,066 Ritained eamings at beginning of year.
538,583 '
551,332 445,266 RItainid eamings at end of year.
I $ S05,373 '
$ 538,583
$ 551,332 Average number of shares of common stock out!tanding (in thousands)
. ' 144,338 143,261 140,417 Balance available per average share of common stock.
1,44 1 1.00 1.71 Dividends paid per share.
1.12.
1.09
.95
( ) Denotes deduction
- . i. Rl3,[;.liWO];H
.A'. K Ki [ [Ol W LEl~R) [CIKRS PiOi R[ AT T [1[0, LN -
3 29 1
Consolidated Balance Sheets in thousands of dotta's At December 31, 1905 1994 ASSETS Utility plant (Note 1)
Electnc plant,
8 8,543,429
$ 8,285,263 Nuclear fuel.
517,001 '
504,320 Gas plant...
1,017,083 :
922,459 Common plant..
' 381,525,
291,962 Construction work in progress.
i 300,004 481,335 T tal utility plant,
10,840,3014 10,485,339 Less: Accumulated depreciation and amortization.
3,841,448-3,449.696 Net utility plant.
7,007,083 '
7,035.643 Other property and investments.
218,417 3 224,039 Current assets:
Cash, including temporary cash investments of $114,415 and $50,052. respectively.
153,475 c 94,330 Accounts receivable (less allowance for doubtful accounts of $20,000 and $3,600, respectively)(Notes 7 and 9).
- 483,234 513,982 Electnc margin recoverable.
8,308 66,796 3
Materials and supplies, at average cost:
t
..27,500 i 31,652 3
Coal and oil for production of electricity.
Gas storage.
.'36,431 30,931 1
Other.
ys 141,830 150,186 Prepaid taxes
. 17,238 0 43.249 Other.
46,834 'f 45,189 003,780 1 976,315 Regulatory assets (Note 2)
R2gulatory tax asset.
470,190..;
465,109 Deferred finance charges.
230,000 '
239.880 Deferred environmental restoration costs (Note 9).
235,000 240,000 Unamortized debt expense,
93,548 105,457 Postretirement benefits other than pensions.
08,333 '
67,486
- Other, 204,353 --
227,542 i-1,300,812 ~
1,345.474 Other assets.
U 67,037 J-68,345 8 9,477,000 '
$ 9.649,816 S
.q-y
._[
30
Consolidated Balance Sheets in thousands of dollars At Dec mber 31, 1905 E 1994 CAPITALIZATION AND LIABILITIES C:pitalintion (Note 5) j' Common stockholders' equity:
Common stock, issued 144.332,123 and 144.311,466 shares, respectively.
i 8.144,332 1
$ 144.311 Capital stock premium and expense.
!;.1,704,347 (
1,779.504 Retained earnings.
?? 005,373 538.583 E 2 813,0023 2,462.398 Non-redeemable preferred stock.
I,440,000 :
440.000 MandatorlIy redeemable preferred stock.
08,000 y 106.000 Long-term debt.
3,503,414 C 3.297.874 TLtal cipitalization
< 6,033,310 2 6.306.272 Curr:ntli bilities:
[-
_ 3 Short-term debt (Note 6)..
?
05,004 [L 416.750 Long-term debt due within one year (Note 5)...
77,971
! Sinking fund requirements on redeemable preferred stock (Note 5) 0,100 5 10.950 Accounts payable.
If-308,0004 277,782 Payable on outstanding bank checks.
L.
38,371 j 64,133 Customers' deposits.,,
f 14,370 l 14,562 Accrued taxes.
t 14,770 s 43.358 l Accrued interest
[
84,440 1 63.639 l Accrued vacation pay.
g. -. 35,2141 36,550 i Other.
J - 57,740 4 64.687 1
- 005,744 5 1.070.382 Regulit ry liabilities (Note 2):
L 239,880 Deferred finance charges.
[ { 230,000 1 Other.
' 3,712 )
16.580 242,002 0 256.460 Other liabilities:
l Accumulated deferred income taxes (Notes 1 and 7).
!11,308,700 ]
1.258.463 Employee pension and other benefits (Note 8).
E-245,047.,
248.872 Deferred pension settlement gain.
}i,32,704 )
50.261 Unbilled revenues (Note 1).
6
- 35,410 93.668 l 116,305 ?l Other.
125,438 1,011,317 4 1.776.702 i
C:.mmitments and contingencies (Notes 2 and 9)
Liability for environmental restoration.
f - 225,000 $
240.000 f 80,477,000 s
$9.649.816 l
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. 31 0" 11[1,M[K53P33GE[ RE[C X R[. P[OER} XT[ 1 IO T N [
31 i
t Consolidated Statements of Cash Flows incrrase (Ikcrrase) in Cash l
In thousands of dollars For the year ended December 31, 1996 1994 1993 l
Crh flows from operating activities:
r x
Net income.
8348,038
$176,984
$271,831 Adjustments to reconcile net income to net cash provided by operating activities:
Amo1izat#on of nuclear replacement power cost disallowance.
(23,081)
(23,720) l Drpreciation and amortization,
' 317,831 -
308,351 276,623 Amortization of nuclear fuel,
34,306 37,887 35,971 Provision 1or deferred income taxes,
'114,917,'
7,866 30.067 l
Electric margin recoverable,
58,508 (45,428)
(9,773)
Employee reduction program,
196,625 D:terred recoverable energy costs.
' 48,400 4,748 (5,688)
Gain on sale of subsidiary.
(11,357).
(5,490)
Unbilled revenues.
1(71,250))<
Sale of accounts receivable,
00,000 (Increase) decrease in net accounts receivable.
. 6,748 (59,145)
(36,972)
Decrease in materials and supplies.
- i. 13,083 6,290 43,581 increase (decrease) in accounts payable and accrued expenses, i '(47,048)
(5.991) 15,716 Increase (decrease) in accrued interest and taxes (35,440) '
(19,914) 3,996 Changes in other assets and liabilities,
(33,974)..
12.029 19,251 Not cash provided by operating activities.
001,500-597.221 615,393 Cnh flows from investing activities:
Construction additions,
(333,443)-
(439,289)
(506,267) l Nuclear fuel....
l
. : (13,381)
(46,134)
(12,296)
Less: Allowance for other funds used during construction.
)-
1,083 2,159 7,119 Acquisition of utility plant.
(344,741)
(483,264)
(511,444)
Docrease in materials and supplies related to construction, 3,348 5,143 3,837 increase (decrease) in accounts payable and accrued expenses related to construction.
increase in other investments....,........
. (7.113)
(1,498) 3,929 i
-(115,818)
(23,375)
(26,774)
]
Proceeds from cale of subsidiary (net of cash sold) 181,087 95.408 Other.
38,334 (17,979)
(15.260)
Not cash used in investing activities.
(377,004) '
(520,973)
(450,304) l Cnh flows from financing activities:
29,514 116,764 Proceeds from sale of common stock,
, 304.
i l
Proceeds from long-term debt.
' 348,000 '.
424,705 635,000 issuance of preferred stock...
150,000 l
Redemption of preferred stock.
- (10,980) ;
(33,450)
(47,200) i Reductions of long-term debt,
(05,000)
(526,584)
(641,990)
Net change in short-term debt.
(416,750) -
48,734 50,318 i
Dividends paid.
(301,348)
(189,733)
(165,765)
- Other, (7,799) -
(9,455)
(31,759)
Net cash used in financing activities.
(365,441)
(106.269)
(84,632)
Net increase (decrease)in cash.
Cash at beginning of year.
50,146 (30,021) 80,457 94,330 124,351 43,894 Cxh at end of year.
' $153,475 -
S 94.330
$124,351 1
Supplemental disclosures of cash flow information:
Cah paid during the year for:
Interest.
, $300,352.
$300,242
$300,791 Income taxes.
l
$ 47,378
$136,876
$106,202 l
4 3
4 r
t 32 l
Notes to Consolidated Financial Statement, accrued over the senice lives of the units, remvered in rates through an annual allowance and currently charged to operations through depreciation. The Company NOTE 1. Summary ofSignif. icant expeas m commence accommis,ioning onmdi m;its ACCoui,g,,,g f>g,cies shortly after cessation of operations at Unit 2 (currently gl, mad,b,2 1,, nsing, m,dn,d which,emo,,,,n.
r decontaminates Unit components promptly at that time.
See Note 3 " Nuclear Plant Decommissioning?
l
'I.be Company is subject to regulation by the PSC, and The Financial Accounting Standards lloard (FASil) is j FERC w th respect to its rates for senice under a medjod-expected to issue an exposure draft in February 1996 ology which establishes pnces based on the Company s entitled " Accounting fi>r Certain 1.iabilities Related to cost. 'I he Company's accounting pohcies confi>rm to Closme or Removal of Long-1.ived Assets" (fi>rmerly generally accepted accounting principles (GAAP), as applied to regulated pubh,c unhues, and are in accord-Accounting for Nuclear Decommissioning). The scope of the original project has broadened and will now include ance with the accounting requirernents and ratennking the Company's liissil and hydro plants, as well as nuclear practices of the segulat order to be m contornu$ny authon,ues (see Note 2). In plants. If ap'prmed as drafted, the exposure draft would l
ty with GAAP, management is i dm m of closure and removal obligations to be required to use estimates in the preparation of the
>umed for m a liabilig ud mawd a dm oblipim Company s f manual statements.
is incuned. The recognition of the liability would result in n increase to the cost of the related asset and would Principles of Consolidatiom The consolidated financial statements include the Company and its wholly, he reported based upon discounted future cash flows as
- owned subsidiaries. Intercompany balances and transac-
"PPosed to current cost. The Company would not be tions have been eliminated.
alloued to net the balance of funds accumulated m the nmlear deconunissioning trust funds against the nuclear Utility Plant: The cost of additions to utility plant and plant closure and removal obligation. Additionally, the of replacements of retirement units of propert) is capital.
exposure draft would allow the Company to establish iicd. Cost includes direct material, labor, overhead amt a regulatory asset Ihr the difference between costs of allowance for funds used dming construction (AFC).
closure and removal obligations recognized and the Replacement of minor items of utility plant and the costs allowable fbr rate-making purposes, subject to the cost of current repairs and maintenance is charged to provisions of SFAS No. 71. As noted above, the Company expense. Whenever utility plant is. retired, its original currently recognizes the liability for nuclear decommis-cost, together with the cost of removal,less salvage, is sioning over the senice life of the plant and as an charged to accumulated depreciation.
innease to accumulated depreciation based on amounts allowed in rates. The Company currently does not reflect Allowance for Funds Used During Constructiom The the closure and removal obligation associated with its fos-Company capitalizes AFC in amounts equivalent to the sil and hydro plants in the financial statements. As such, cost of funds devoted to plant under construction. AFC the annual provisions for depreciation could increase.
I rates are determined in accordance with FERC and PSC Under traditional cost based regulation such accounting l
regulations. The AFC rate in effect at December 31,1995 changes would not have an adverse effect on the results I
was 7A7% AFC is segregated into its two components, of operations of the Company. However, with the filing borrowed funds and other funds, and is reflected in the of the Company's PowerChoice proposal and the expecta-l Inteiest charges and the Other income and deductions tion the generating assets associated with this oblienion sections, respectively, of the Consolidated Statements will face competition in the future and the issu.un e of of Income.
Statement of Financial Accounting Standards % 121 (SFAS No.121) entitled " Accounting for the hopairment Depreciation, Amortization and Nuclear Generating of Long-1.ived Assets and Ibr long-Lived Assets to lle Plant Decommissioning Costs: For accounting and Disposed 01" (discussed in Note 2), the Company cannot regulatory purposes, depreciation is computed on the currently predict the impact this exposure draft may have straight-line basis using the remaining senice lises for on the Company's future results of operations.
nuclear and hydro classes of depreciable property and Amortization of the cost of nuclear fuel is detennined l
the average senice lives for all other classes. The per-on the basis of the quantity of heat produced fbr the gen-centage relationship between the total provision for cration of electric energv. 'The cost of disposal of nuclear depreciation and average depreciable property was 3.3%
fuel, which presently is S.001 per kilowatt-hour of net for both years 1995 and 1994, and 3.2% for 1993. The generation available for sale, is based upon a contract Company perfbrms depreciation studies to determine with the U.S. Department of Energy. These costs are senice lives of classes of property and adjusts the charged to operating expense and recovered from cus-depreciation reserves and rates when necessary.
tomers through base rates or through the fuel adjustment Estimated decommissioning costs (costs to remose clause.
a nuclear pimt hom senice in the future) for the Company's Unit I and its shaic of Unit 2 are being 1
" N112ATG[ [RTAl XOlHfMlWiKC ?lP]OZWiElRS [CEOiREP[,OlRMT[12OlNC 33
Revenues: Revenues are based on cycle billings accruals pursuant to the NERAM is accomplished by a resulcred to centain customers monthly and others surcharge (either plus or minus) to customers over a bi-monthly. Although the Company commenced the twelve-month period, to begin when cumulative amounts practice in 1988 of accining electric revenues for energy reach certain specified levels.
consumed and not billed at the emi of the fiscal > ear, the Rate agreements since 1991 also included MERff, impact of such accruals has not yet been fully recognized under which the Company had the opportunity to in the Company's results of operations because of regula-achieve earnings above its allowed return on celuity based tory se<guirements. At December 31,1995 and 1994, on attainment of specified goals associated with its self-approximatel) $5.2 million and S71.8 million, respective-assessment process. The NIERIT program prmided for
- ly, of unbilled electric revenues remained unrecogniecd specific measurement petiods and reporting for PSC in resuhs of operations, are included in Other liabilities approval of AIERIT carnings. Approved NIERIT awants and may be used to reduce future revenue requirements.
are hilled to customers over a period not greater than In 1995, the Company used $71.5 million of electric twelve months. The Company accords AIERIT carnings unbilled revenues to reduce the 1995 revenue require-when attainment of goals is approved by the PSC or ment. At December 31,1995 and 191H, $23.2 million when objectively measured criteria are achieved. NIERIT and $21.9 million, sespectively, of unbilled gas revenues expired at the end of 1995, but collections of allowed remain unrecognized in results of operations and may awards will continue into 1997.
similarly be used to reduce future gas revenue recguire-The Company's PowerChoice proposal, which the ments. The unbilled revenues included in accounts Company filed in October 1995 as part ofits multi-> car receivable at December 31,1995 and 1994, were $202.7 electric rate proceeding, proposed to eliminate all million and $196.7 million, respectively.
surcharges, including the FAC, NERANI and NIERIT The Compan>'s tariffs include electric and gas surcharges, adjustment clauses under which energy and purchased in February 199-1, the Company implemented a gas costs, respectively, above or below the levels allowed weather normaliiation clause for retail customers who in approved rate schedules, are billed or ciedited to cus-use gas for heating to reflect the impact of variations tomers. The Company, as authori/ed by the PSC,(harges frmr. normal weather on a billing month basis for the operations for energy and purchased gas cost increases months of October through Ntay, inclusive.. Normal in the period of recoverv. The PSC has periodically weather is defined as the 30 year average daily high and authoriicd the Company to make changes in the level low temperatures for the Company's main gas senice of allowed energs and purchased gas costs inchuled in territory. The weather normalization danse will only be approved rate schedules. As a result of such periodic activated if the actual weather deviates 2.2% or more changes, a portion of energy costs deferred at the time from the normal weather. Weather normalization clause of change would not be recovered or may be ovenecov-adjustments were not significant to 1995 gas revenues.
cred under the normal operation of the electric and gas As part of the Company's PowerChoice progmsal, as well adjustment clauses. However, the Company has to date as the formal gas rate filing made in November 1995 been permitted to defer and bill or ciedit such portions (see "Stanagement's Discussion and Analysis of Financial to customers, through the electric and gas adjustment Condition and Results of Operations - NIulti-Year Gas clauses, over a specified period of time hom the cifective Rate Proposal"), the Company proposed climination of date of each thange.
the weather normalization clause. These surcharges The Company's electric fuel adjustment clause (FAC) would be reflected in base rates as part of the Company's provides for partial pass-tluough of fuel and purchased proposal to free /c overadl prices.
pmser cost fluctuations from amounts forecast, with the Company absm bing a portion ofincreases or retaining Allowance for Doubtful Accounts: The allowance for a portion of decreases up to a maximum of $15 million doubtful accounts receivable on the consolidated balance per rate year. Thercalier,100% of the iluctuation is sheets amotmied to $20.0 million and S3.6 million at passed on to miepgi> cts. The Company also shares with December 31,1995 and 1994. respectisely. The Company ratepaycis fluctuanons nom amounts forecast for net ncicased its allowance h>r doubtful accounts in 1995 reside margin and transmission benelits, with the and recorded a regulatory asset of $16.4 million, which Company retaining / absorbing 40% and passing 60%
reflects the amount that the Cmnpany expects to recover through to ratepayers. The amounts retained or in rates. Previously, the Company neited expected absorbed in 1993 through 1995 were not material.
rate recmcries for had debt expense from expected Fiom 1991 through 1991, the Company's rate uncollectible accounts in determining its allowance for agreements provided for NERANI, which permitted the doulaful accoums, which was consistent with the manner Company to reconcile actual results to forecast electric in which this item is treated in its ratemaking.
public sales gross margin as defined and utiliecd in estab-lishing rates. Depending on the lesel of actual sales, a Federal Income Taxes: As directed by the PSC, the liability to customers was created if sales exceed the fore-Company defen any amounts payable pursuant to the cast and an asset accorded for a sales shortfall therebt ahernatise minimum tax rules. Deferred investment tax generally presening recorded clernic gioss margin at the credits are amorti/cd to Other Income and Deductions level forecast in established rates. Recmcry or refund of over the useful life of the underlying property.
m n-
.n e
nm n
E#nIldA~hMAik1AyM,siMlMAkt.,,enjgLLyEnheClO1R&Oj RdA-- nn,-v + ~,wn v ~CO;mN_
iX4s 3T2 I u
34
Statement of Cash Flows: The Company considers all to continue to apply SFAS No. 71. Accordingly, the highly liquid investments, pmchased with a remaining Company believes its regulatory assets are currently prob-maturity of three months or less, to be cash equivalents.
able of recovery. While various proposals have been made to develop a new regulatory model, including the Reclassificau,ons: Certain amounts from prior years Company's PowerChoice proposal, none of these proposals have been reclassified on the accompanying Consolidated are currintly probable of implementation since a number Financial Statements to conform with the 1995 presentation.
of parties are required to act on the change in the regula-tory model. The Company expects that the PSC will NOTE 2. Rate and Regulatorv APP"- w+of-senice ha'ed rate increases diat will result
.O
/
m the Company earning a reasonable return on common ISS,les and contingencies equity until such time as implementation of a new wm-petitive market model becomes probable.
While the Company believes that it continues to meet The Quupany's financial statements conform to GAAP, the requirements for the application of SFAS No. 71 to as applied to regulated public utilities and reflect the the electric business, there are a number of events that l
application of SFAS No. 71. Substantively, SFAS No. 71 cotdd change that conclusion during 1996 and beyond.
I permits a public utility regulated on a cost-of-senice basis Those future events include: inaction or inadequate to defer certain costs when authorized to do so by the action on the Company's rate request by the PSC; a deci-regulator which would otherwise be charged to expense.
sion by the Company in the future not to pursue the rate These deferred costs are known as regulatory assets, requests filed; unanticipated reduction in electricity usage which in the case of the Company are approximately by customers; unanticipated customer discounts; adverse
$1,058 million, net of approximately $242 million of reg-resuhs oflitigation; and a change in the regulatory model ulatory liabilities at December 31,1995. The portion of becoming probable.
the $1,058 million which has been allocated to the elec.
As discussed in the Management's Discussion and tric business is approximately $890 million. Generally, Analysis of Financial Condition and Results of regulatory assets and liabilities were allocated to the por.
Operations, the Company has been unable to earn its tion of the business that incurred the underlying transac.
allowed rate of return in 1995 and 1994. Additionally, tion that resulted in the recognition of the regulatory if the Company's rate increase proposals with respect to asset or liability. The allocation methods used between 1996 and 1997 are not approved, then the Onnpany will, electric and gas were consistent uith those used in prior more likely than not, be unable to earn a reasonable regulatory proceedings, return on its common equity for such years. The inability While the allocation of regulatory assets and liabilities of the Onnpany to earn a reasonable rate of return on at December 31,1995 is based on management's assess-common equity over a sustained period would indicate ment, a final determination can only be made at the time that its rates are not based on its cost of senice, in such the Gunpany, or a portion thereof, discontinues the a case, application of SFAS No. 71 would be discontinued.
application of SFAS No. 71. Currently, substantially all of The resulting charges against income would reduce or the Company's regulatory assets have been approved by possibly eliminate retained earnings, the balance of which the PSC and are being amortized to expense as they are is currently approximately $585 million. Various tests being recovered in rates as last established in April 1995.
under applicable law and corporate instruments, includ-ing those with respect to issuance of debt and equity Rate Filing. The Onnpany filed in February 1996 a securities, payment of preferred and common disidends request to increase electric rates. This rate increase and certain types of transfers of assets could be adversely request of 4.1% for 1996 and 4.2% for 1997 was based on impacted by any such write-downs. In addition, such the Onupany's cost of prmiding senices. The Company write-downs could preclude it from borrowing additional requested that its 4.1% increase for 1996 he implemented amounts under its current revohing credit facility, which immediately with a provision that rates charged will be is planned to be replaced by the proposed senior debt subject to refund iflater it is determined that some por-facility (see Note 6) whose terms are intended to I
tion of the request is not allowed by the PSC. These rate acconunodate the discontinuance of SFAS No. 71 as it increases are predicated on a requested rate of return on applies to the Onnpany's electric business.
conunon stock equity of approximately 11% on an annual basis and recover the Onupany's cost of providing elec.
Competition. The public utility industry in general, tric senice. On February 16,1996, the PSC issued an and the Company in particular, is facing increasing com-order that, among other things, established a schedule petitive threats. As competition penetrates the market-with respect to temporary rates that would have the case place, it is possible that the Company may no longer be l
certified directly to the PSC within 60 days of the order.
able to continue to apply the fundamental accounting The Company believes that the PSC will approve rate principles of SFAS No. 71. The Gunpany believes that increases on a timely basis in levels sufficient to enable it in the future some form of market-based pricing may I
to earn a reasonable seturn on equit) in 1996 and 1997.
replace cost-based pricmg in certain aspects of its j
i As a result the Company believes that it will continue to business, in that regard, in October 1995, the Onnpany j
he regulated on a cost-of-senice basis which will enable it filed its PowerChoiw proposal with the PSC. PourrChow, 1
d
} -
E, [R. ;.1.lOlR]P[.OllC32 Ci[U] d
~
35
further described in the Management Discussion and relating to open access to the nation's transmission sys-Analysis "PowerChoice Proposal," wouki:
tem and the recovery of stranded costs.
- Create a competitive wholesale electricity market and Impairment of Long-Lived Assets: In March 1995, allow direct access by retail customers, the FASB issued SFAS No.121. This Statement, which Separate the Company's power generation business the Company will adopt in 1996, requires that long-lived e
from the remainder of the business.
assets and certain identifiable intangibles to be held and t
o Provide relief f. rom merpnced unregulated generator used by an entity, be resiewed for impairment whenever c<mtracts that were mandated by pubhc pohey, along events or changes in circumstances indicate that the with equ, table write-downs of above-market company carning amount of an asset may not be recoverable. In i
performing the resiew for recoverability, the Company is "C "'
required to estimate future undiscounted cash flows
- Freeze or cut prices for all Company electric customers expected to result from the use of the asset and its even-for a period of 5 years.
tual disposition. Furthermore, this Statement amends J
The separated generation business proposed in SFAS No. 71 to clarify that regulatory assets should be PouvrChoin would no longer be rate-regulated and, Charged against earnings if the assets are no longer con-i accordingly, existing regulatory assets related to the sidered probable of recovery rather than probable ofloss, generation business, amounting to $392 million, net of gille the Company is unable to predict the outcome of approximately $242 million of regulatory liabilities at its PouvrChoice proposal, or vanous FERC and PSC imna-December 31,1995 (management's assessment), would tnes, it has analyzed the provisions of SFAS No.121, as it be charged against income if and when PouerChoice (or a rel tes to the impairment ofits investment in generating I
similar proposal) is probable ofimplementation. Under P "".t, under two scenarios: tradiuonal cost-based rate-PauerChoice, the Company's electric transmission and dis-m king and its PbuerChoice proposal, as file 4 As a result tribution business is proposed to continue to be rate reg-of due analyses, die Onnpany does not beheve the ulated on a cost-of-senice basis and, accordingly, contin-eRecu of dopting SFAS 50.121, as it relates to the, ue to apply SFAS No. 71. The PouerChoice proposal also innpairment of nu inmunent in generating plant, will cur-includes prosisions for recovery of" stranded costs" by the rently have an effect on its r;esults of operations and generation business and unregulated generators through financi i condiuon. in addmon, the Company expects surcharges on rates for transmission and distribution diat the PSC will approve cost-of-service based rate i
customers. Stranded costs are those costs of utilities that increa7s until such time as a new competitive regulatory may become unrecoverable due to a change in the regu-anodel is developed. As a result, the Company beheves latory environment and include costs related to the cunently that iu regulatmy anets are probable of recov-Com'pany's generating plants, regulatory assets and eiy. However,,f,i m the future management can no longer overpriced unregulated generator contracts.
muclude that existing regulatory assets are probable of Ciitical to the price frecie and restructuring of the recovery, dien aH or a portion of such regulatory assets Company's markets and business emisioned in the would have to be c,narged to income, which could have a PouerChoice proposal are substantial reductions in the in terial dverse effect on the Gunpany s hnancial posi.
Company's embedded cost structure. Such cost reduc-II " ""U IC""Il* "I "P"'
'I "*'
tions depend in turn on the willingness of the UGs and The Company has recorded the following regulatory the Company to absorb substanual write-offs. The assets on its Consolidated Balance Sheets reflecting th'e Gmnpany's proposal expresses its willingness if, and only rate actions ofits regulators:
if, the UGs agree to cost reductions that are proportional to their relathe responsibility for sinmdable cost. The Regulatory tax asset represents the expected future Company proposes a reduction in its fixed costs of senice recovery from ratepayers of the tax consequences of be made by mutual contribution of the Company's share-temporary differences between the recorded book bases holders and UGs that are in the same proportion as the and the tax bases of assets and liabilities. This amount is contribution of each to the problem of strandable costs, primarily timing difTerences related to depreciation, which the Company calculates to be $4 of UG strandable These amounts are amortized and recovered as the relat-cost for every $1 of Company strandable cost. Under the ed temporary differences reverse, inJenuary 1993, the Company's proposal, the aggregate contribution would PSC issued a Statement ofInterim Policy on Accounting be approximately $2 billion, consisting of $400 million by and Ratemaking Procedures that required adoption of the Company and $1.6 billion by the UGs. The Statement of Financial Accounting Standards No.109 -
Company's PowerChoice proposal faces opposition, princi-
" Accounting for Income Taxes" (SFAS No.109) on a pally from unregulated generators. The Company does revenue-neutral basis.
not presently expect that its PouerChoice proposal or any other alternati e proposal muld be fully effective befbre Deferred finance charges represent the deferral of the sometime in 1997, at the earliest.
discontinued portion of AFC related to construction work There are also other proposals to introduce competi-in progress (CWIP) at Unit 2 which was included in rate tion into the utility marketplace presently before the PSC.
base. In 1985, pursuant to PSC authorization, the In addition, the FERC has pending proposals before it Company discontinued accruing AFC on CWIP fbr which 3[!]%KM@T[jlOXMMER76KMlF[lC5ClOM[PMR[AETMO M 36
a cash return was being allowed. This amount, which was (Central Iludson) - 9%. Unit I was placed in accumulated in deferred debit and credit accounts up to commercial operation in 1969 and Unit 2 in 1988.
the commercial operation date of Unit 2, awaits future In December 1995, a state utility board appointed by disposition by the PSC. A portion of the deferred credit Governor George E. Pataki developed a plan to dismantle l could be utilized to reduce future revenue requirements LILCO. The plan delayed making any recommendation over a period shorter than the life of Unit 2, with a like as to 1.ILCO's ownership interest in Unit 2, but otherwise amount of deferred debit amortired and recovered in recommends the creation of a competitive generation rates over the remaining life of Unit 2.
market on long Island, through the sale of existing generating capacity by LILCO. The Company is unable Deferred emironmental restoration costs represent the to predict what effects, if any, this proposal may have on Company's share of the estimated minimum costs to its results of operations or financial condition, since there l
investigate and perform certain remediation acti ities at are many uncertainties related to this proposal. It is both Company-owned sites and non-owned sites with estimated that the earliest time such a plan could be which it may be associated. Prior to 1995, the Company completed is one to two years.
recovered 100% ofits costs associated with site investiga-tion and restoration. In the Company's 1995 rate order, Unit 1 Status: On Februaq 8,1995, Unit I was taken costs incurred during 1995 for the investigation and out of senice for a planned refueling and maintenance restoration of Company-owned sites and sites with which outage and returned to senice on April 4,1995. Its next it is associated were subject to 80%/20%
refueling and maintenance outage is scheduled to begin (ratepayer / Company) sharing. In 1995, the Company in February 1997. Using the net design electric rating incurred $11.5 million of such costs, resulting in a as a basis, Unit l's capacity factor for 1995 was approxi-l disallowance of $2.3 million (before tax), which the mately 80%. Using Nuclear Regulatog Commission Company has recorded as a loss in Other items (net) on (NRC) guidelines, which reflect net maximum depend-I l
the Consolidated Statements ofIncome. The PSC stated able capacity during ti most restrictive seasonal condi-l in its full opinion, dated December 1995, its decision to tions, Unit l's capacity facwr was approximately 87%.
require sharing was "on a one-time, short-term basis only, l
l pending its further evaluation of the issue in future Unit 2 Status: On April 8,1995, Unit 2 was taken out proceedings." The Company has recorded a regulatog of senice for a planned refueling and maintenance out-asset representing the remediation obligations to be age and returned to senice onJune 2,1995. Its next recovered from ratepavers. See Note 9 " Environmental refueling and maintenance outage is scheduled for Fall Contingencies."
1996. During the 1995 refueling outage the Company completed its power uprate project, installed new turbine Unamortized debt expense represents the costs to issue rotors and made other operational improvements
(
and redeem certain long-term debt securities which were enabling the plant to increase its capacity from 1,062 MW retired prior to maturity. These amounts are amortized to 1,143 MW. Using the net design electric rating as a as interest expense ratably over the lives of the related basis, Unit 2's capacity factor for 1995 was approximately issues in accordance with PSC directives.
75%. Using NRC guidelines as described above, Unit 2's Postretirement benefits other than pensions represent the excess of such costs recognized in accordance with Nuclear Plant Decemmissioning: The Company's site spe-Statement of Financial Accounting Standards No.106 -
cific cost estimates for decommissioning Unit I and its own-l
" Employers' Accounting for Postretirement Benefits enhip interest in Unit 2 at December 31,1995 are r.s follows:
l Other Than Pensions" (SFAS No.106) over the amount l
received in rates. In accordance with the PSC policy Unit t unit 2 l
statement, postretirement benefit costs other than Site Study (year).
1995 1995 pensions are bemg phased-m to rates over a five-year End of Plant Life (year).
2009 2026 period and amounts deferred will be amortized and Radioactive Dismantlement recovered over a period not to exceed 20 years.
to Begin (year).
2026 2028 Method of Decommissioning.
Delayed immediate NOTE 3. Nuclear Operations asmanum~t usunument Cost of Decommissioning (in 1996 dollars) in milhons of dollars a--
e-mmem-Radioactive Components.
$409
$187 The Company is the owner and operator of the 613 Non-radioactive Components.
111 45 MW Unit I and the operator and a 41% co-owner of the Fuel Dry Storage / Continuing Care.
113 40 1,143 MW Unit 2. The remaining ownership interests are
$633
$272 i
long Island Lighting Company (LILCO) - 18%, New York State Electric and Gas Corporation (NYSEG),18%,
The Company estimates that by the time decommis-Rochester Gas and Electric Corporation (RG&E) - 14%,
sioning is completed, the above costs will ultimately j
and Central Iludson Gas and Electric Corporation amount to $1.7 billion and $1.1 billion for Unit 1 and l
l i
l N 1 5G A_R.A
.M O II A W. li,
~.P[ O'(.W E 'R
.C O-R P'O-RA T '1 O N i
37 1
1 Unit 2, respectively, using 3.5% as an annual inflation lion and $134.1 million at December 31,1995 and 1994, factor.
respectively for both Units. Additionally at December 31, In addition to the costs mentioned above, the 1995, the fair value of funds accumulated in the Company expects to incur post-shutdown costs for plant Company's external trusts were $108.8 million for Unit 1
)
rampdown, insurance and property taxes. In 1996 dol-and $28.8 million for its share of Unit 2. The trusts are lars, these costs are expected to amount to $99 million included in Other property and investments. Earnings and $59 million for Unit I and the Company's share of on the external trust aggregated $20.9 million through Unit 2, respectively. The amounts will escalate to $182 December 31,1995 and, because the earnings are avail-million and $190 million for Unit 1 and the Company's able to fund decommissioning, have also been included share of Unit 2, respectively.
in Accumulated depreciation and amortization. Amounts Based upon a 1991 study, the Company had previously recovered for non-radioactive dismantlement are accumu-estimated the cost to decommission Unit 1 to be approxi-lated in an internal reserve fund which has an accumulat-
]
mately $565 million in 1996 dollars. In addition, post-ed balance of $39.8 million at December 31,1995.
shutdown costs were estimated to be $118 million, also in The FASB is expected to issue an exposure draft in j
1996 dollars. While both estimates assume a dela>ed Februaq 1996 on accounting for certain liabilities related i
dismantlement to coincide with Unit 2, the 1995 estimate to closure or removal oflong-lived assets. See Note 1 -
of $633 million differs from the 1994 estimate primarily "Depteciation Amortization and Nuclear Generating due to an increase in burial costs and the labor associated Plant Deconunissioning Costs."
with the non-radioactive dismantlement, partially offset by lower waste volumes. The delayed dismantlement Nuclear Liability Insurance: The Atomic Energy Act approach should be the most economic after applying of 1954, as amended, requires the purchase of nuclear the Company's weighted average cost of capital.
liability insurance from the Nuclear Insurance Pools in The Company had previously estimated the cost to amounts as determined by the NRC. At the present time, decommission its share of Unit 2 by extrapolating data the Company maintains the required $200 million of from the 1994 Unit I decommissioning cost estimate.
nuclear liability insurance.
The extrapolated estimate of $311 million,in 1996 in 1993, the statutory limit for the protection of the dollars, differs from the 1995 study of $272 million public under the Price-Anderson Amendments Act of primarily due to the estimate being based upon plant 1988 (the Act) were further increased. With respect to a specifics rather than extrapolated values.
nuclear incident at a licensed reactor, the statutog limit, NRC regulations require owners of nuclear power which is in excess of the $200 million of nuclear liability plants to place funds into an external trust to provide insurance, is currently $8.3 billion without the 5% sur-for the cost of decommissioning radioactive portions of charge discussed below. This limit would be funded by nuclear facilities and establish minimum amounts that assessments of up to $75.5 million for each of the 110 must be available in such a trust at the dme of decommis-presently licensed nuclear reactors in the United States, sioning. The annual allowance for Unit 1 and the payable at a rate not to exceed $10 million per reactor Company's share of Unit 2 for the years ended December per year. Such assessments are subject to periodic 31,1995,1994 and 1993 was approximately $23.7 million, inflation indexing and to a 5% surcharge if funds prove
$18.7 million and $18.7 million, respectively. The insuflicient to pay claims.
amount for 1995 was based upon the NRC minimum The Company's interest in Units 1 and 2 could expose decommissioning cost requirements of $408 million and it to a maximum potential loss, for each accident, of
$185 million (in 1996 dollars) for Unit I and the
$111.8 million through assessments of $14.1 million per Company's share of Unit 2, respecti ely. The amounts for year in the event of a serious nuclear accident at its own 1994 and 1993 were based upon site studies performed in or another licensed U.S. commercial nuclear reactor.
1989. In the 1995 rate order, the Company was author.
The amendments also provide, among other things, that ired, until the PSC orders othenvise, to continue to fund insurance and indemnity will cover precautionary evacua-to the NRC minimum requirements. In the 1997 rate tions, w hether or not a nuclear incident actually occurs.
filing, the Company has requested, for both units, rate recoveg for all radioactive and non-radioactive compo-Nuclear Property Insurance: The Nine Mile Point nents (including post-shutdown costs) based upon the Nuclear Site has $500 million primary nuclear property amounts estimated in the 1995 site specific studies insurance with the Nuclear Insurance Poob (AN!/MRP).
described above. There is no assurance that the decom-In addition, there is $2,250 million in excess of the $500 missioning allowance recovered in rates will ultimately million primary nuclear insurance with Nuclear Electric aggregate a sufIicient amount to decommission the units.
Insurance Limited (NEIL). The total nuclear property The Company believes that if decommissioning costs are insurance is $2.75 billion. NEIL is a utility industry-higher than currently estimated, the costs would ultimate-owned mutual insurance company chartered in liermuda.
ly be included in the rate process under traditional NEIL also provides insurance coverage against the extra ratemaking and PowerChoice.
expense incurred in purchasing replacement power Decommissioning costs recovered in rates are reflected during prolonged accidental outages. The insurance in Accumulated depreciation and amortization on the provides coverage for outages for 156 weeks, after a Consolidated llalance Sheets and amount to $183.4 mil-21-week waiting period.
, ; N il5 Ai'G T. R/ A
.M [Ol11'.A lV K' ' [P [O f W l E R
'C.O.R P O R A T I' O N 38
NEIL insurar.cc is subject to retrospective premium NOTE 4. Jointl>wOwned adjustment under which the Company could be assessed up to approximately $17.7 million per loss.
Generatm.g Facilities Iow Level Radioactive Waste: The Federal low Level Radioactive Waste Policy Act as amended in 1985 requires The following table reflects the Company's share of states tojoin compacts or to individually develop their jointly-owned generadng facilities at December 31,1995.
own low level radioactive waste disposal site. In response The Company is required to provide its respective share of to the Federal law, New York State decided to develop its financing for any additions to the facilities. Power output own site because of the large volume oflow level radioac-and related expenses are shared based on proportionate tive waste it generates, and committed to develop a plan ownership. The Company's share of expenses associated for the management oflow level radioactive waste in New with these facilities is included in the appropriate operat-York State during the interim period until a disposal ing expenses in the Consolidated Statements of Income.
facility is available.
New York State is still developing a disposal methodolo-gy and acceptance criteria for a disposal facility. The in th usands of dollars latest New York State low level radioactive waste site Construction development schedule now assumes two possible siting Nta9
$n N np ess scenanos, a volunteer approach and a non-volunteer ioseton steam approach, either of which would begin operation in 2001.
station The Company currently uses the Barnwell. South Units No.1 & 2 (a). 25
$ 95,540 $ 48,385
$ 1,345 i Carolina waste disposal facility for low level radioactive Oswego steam l waste, however access to Barnwell was denied by the State station of South Carolina to out of region low level waste Unit No. 6 (b)..
. 76
$ 271,472 $ 111,631
$ 782 generators, including New York State fromJuly 1,1994 Nine Mile Point tajuly 1,1995. The Company also has implemented a alear station low level radioactive waste management program so that Unit No. 2 (c).
41
$1,519,351 $272,888
$ 5,105 Unit I and Unit 2 are prepared to properly handle interim on-site storage of low level radioactive waste ia) The remarning ownership interests are Central Hudson, the operator for at least a 10 year period.
of the plant (35%), and Consohdated Edison Company of New York, Inc. (40%). Output of Roseton Units No.1 and 2, which have a capa-Nuclear Fuel Disposal Cost: In January 1983, the bility of 1,200.000 kw.. is shared in the same proportions as the Nuclear Waste Pohcy Act of 1982 (the Nuclear Waste Act) cotenants' respectue ownership interests.
established a cost of $.001 per kilowatt-hour of net gener-ation for current disposal of nuclear fuel and provides (b) The Company is the operator. The remaining ownership interest is for a determination of the Company's liability to the U.S.
RG&E (24%). Output of Oswego Unit No. 6, which has a capabihty Department of Energy (DOE) for the disposal of nuclear of 850.000 kw, is shared in the same proportions as the cotenants' fuel irradiated prior to 1983. The Nuclear Waste Act als respectwe ownership interests.
provides three payment options for hquidating such l liability and the Company has elected to delay payment, (c) The Company is the operator. The remaining ownership interests are with m, terest, until the year m which the Company ULCO (18%), NYSEG (18%), RG&E (14%), and Central Hudson (9%).
Initially plans to ship irradiated fuel to an approved DOE Output of Unit 2, which has a capabihty of 1,143.000 kw, is shared disposal facility. Progress in developing the DOE facility in the same proportions as the cotenants' respective ownership l has been slow and it is anticipated that the DOE facihty interests' l will not be ready to accept deliveries until at least 2010.
l The Company does not anticipate that the DOE will accept all ofits spent fuel immediately upon opening of the facility, but rather expects a transfer period that will extend to the sea 9044. The Company has several alter-natives under consideration to provide additional storage facilities, a necessary. Each alternative will likely require NRC approval, may require other regulatory approvals and would likely require incurring additional costs, which the Company has included in its decommissioning estimates for both Unit I and its share of Unit 2. The i' Company does not believe that the possible unavailability of the DOE disposal facility until 2010 will inhibit operation of either Unit.
2 1
s
]
o l
4 39
1 l
NOTE 5. Capitalization Capital Stock The Company is authorized to issue 185,000,000 shares of common stock, $1 par value; 3,400,000 shares of preferred stock, $100 par value; 19,600,000 shares of preferred stock, $25 par value; and 8,000,000 shares of preference stock, $25 i
par value. The table below summarizes changes in the capital stock issued and outstanding and the related capital accounts for 1993,1994 and 1995:
1 Preferred Stock
$100 par value
$25 par value Capital Stock Common Stock Premium and
$1 par value Non-Non-Expense Shares Amount
- Shares Redeemable
- Redeemable
- Shares Redeemable
- Redeemable *
(Net)*
Decimber 31,1992:
137,159,607 $137,160 2,412,000 $210,000 $31,200 (a) 9,856,005 $80,000 $166,400 (a) $1,658,015 IsIurd 5,267,450 5,267 111,497 RIdtmptions (18,000)
(1,800)
(1,816,000)
(45,400)
(2,471)
Forrign currency translation adjustment (4,335)
Dec1mber 31,1993:
142,427,057 $142,427 2,394,000 $210,000 $29,400 (a) 8,040,005 $80,000 $121,000 (a) $1,762,706 issuid 1,624,409 1,884 6,000,000 150,000 27,630 Rrd:mptions (18,000)
(1,800)
(1,266,000)
(31,650)
(4,619)
For:ign currency tr:tnslation adjustment (6,213)
Decimber 31,1994:
144,311,466 $144,311 2,376,000 $210,000 $27,600 (a) 12,774,005 $230,000
$89,350 (a) $1,779,504 issued 20.657 21 283 Redimptions (18,000)
(1,800)
(366,000)
(9,150) 1,319 Fortign currency translation adjustment 3,141 December 31, toes:
144,332,123. $144,332 2, ass,000 $210,000 s25,e00 (a) < 12,40s,00s $230,000 te0,ase (a) 81,704,347
- In thousands of dollars (a) includes sinking fund requirements due within one year.
The cumulative amount of foreign currency translation adjustment at December 31,1995 was $( 10,172).
Non-Redeemable Preferred Stock (Optionally Redeemable)
The Company has certain issues of preferred stock which provide for optional redemption at December 31, as follows:
In thousands of dollars Redemption pnce per share Senes Shares 1996 1994 (Before adding accumulated dividends)
Pr1firred $100 par value:
3.40%
200,000
' $ 20,000
$ 20,000
$103.50 l
3 60 %
350,000 36,000 35,000 104.85 3 90 %
240,000 24,000 24,000 106.00 4.10%
210,000 21,000 21,000 102.00 4.85%
250,000 26,000 25,000 102.00 5.25%
200,000 20,000 20,000 102.00 6.10%
250,000 25,000 25,000 101.00 7.72 %
400,000 40,000 40,000 102.36 Pr:,f rred $25 par value:
Adjustable Rate i
9.50 %
6,000,000
- 150,000 150,000 25.00 (a)
Series A 1,200,000 30,000 30,000 25.00 Series C 2,000,000 50,000 50,000 25.00
$440,000
$440,000 (a) Not redeemable until 1999 N, l L Al ' G AlR Af
.M O ' 11 ~A[Wf K;. (Pl'OTW]E R"
Cl 0 R P ' _O l RL ' A.-T I O.. N 40
i Mandatorily Redeemable Preferred Stock At December 31, the Company has certain issues of preferred stock, as detailed below, which provide for mandatory and optional redemption, These series require mandatory sinking funds for annual redemption and provide optional sinking funds through which the Company may redeem, at par, a like amount of additional shares (limited to 120,000 shares of the 7,45% series). The option to redeem additional amounts is not cumulative. The Company's five year mandatory sinking fund redemption requirements for preferred stock, in thousands, for 1996 through 2000 are as follows: $9,150; $10,120; $10,120; $7,620; and $7,620, respectively, Redemption pnce per share Shares in thousands of dollars (Before adding accumulated dividends)
Series i 1985 1994
'1905 1994
- =1905 Eventual minimum Prifirred $100 par value
7.45%
300,000 276,000
$ 25,000.
$ 27,600
[$103.17
$100.00 PreferrId $25 par value:
f, c
7.85 %
>z 014,005 914,005
- j. 22,000 22,850
[
W-25.00 8.375 %
300,000 400,000 7,000 -
10,000 25,22.
25.00 8.70%
200,000 5,000 9.75%
'144,000 210,000 l-5,000 5,250 35,00.
25.00 Adjust;ble Rate
[
Series B
- 1,000,000 1,850,000 45,200 46,250 25.00 25.00 108,000 116,950 1
Less sinking fund requirements 0,100-10,950 L
$08,050
$106,000 i
(a) Not redeemable until 1997.
Long Term Debt long-term debt at December 31, consisted of the following:
In thousands of dollars In thousands of dollars Senes Due 1905 = +
1994 Series 1905--
1994 First mirtgage bonds:
(
$ 45,000
- Adjustable Rate Series due Promissory notes:
(
57 %
1996 i8 ' 45,000
/e 61/%
1997 40,000 40,000 July 1,2015
. 100,000..
100,000 4
61/%
1998 00,000 60,000 December 1,2023
- .. '75,000 ?
75,000 80,000 i 69.800 2
91/%
2000 100,f%0 '
150,000 December 1,2025 L
2 67/a%
2001 21f,000 210,000 December 1,2026 00,000 >
50,000 91/%
2001 100,2M..
100,000 March 1,2027 25,700.
25,760 4
57/e%
2002 230,000 ;
230,000 July 1,2027 y
03,300 i 93,200 i
67 %
2003 05,000 ' f 85,000
/e 7 8,e%
2003 230,000 220,000 Unsecured notes payable:
l 8%
2004 300,000 300,000 Medium Term Notes, 6 s,8%
2005 110,000' 110,000 Various rates, due 1995-2004 30,000 (
45,000 9 s/ %
2005 180,000 150,000 Swiss Franc Bonds due 4
78 %
2006 275,000 December 15,1995 50,000
/4
- 6 s! %
2013 45,000 45.600 Revolving Credit Agreement
' 170,000 '
99,000 i
9 e2%
2021 150,000 150,000 Other 100,108 {
169,421 88 %
2022 150,000 150,000 Unamortized premium (discount)
(11,705)
(12,641)
/4 8/%
2023 105,000 165,000 2
TOTAL LONG-TERM DEBT 3,047,470.
3,375,845 77 %
2024 210,000 210,000
/e Less long-term debt due within one year 05,084 3 77,971
'8 7 */.
2025 75,000 75,000
$3.297,874
/e
- 7.2%
2029 115,705 115,705
- $3,502,414 '
Tot:1 First Mortgage Bonds 2,006,305 2,611,305
- Tax-exempt pollution control related issues N.I A:' G A.R..A-M ~ O.
II. A )Vi K ;P O. R Ej R.
.C. 0, R 1(.O R.; A T, : 1 O.N 41
_ _ _ _ _ ~_._ _.
Several series of First Mortgage Bonds and Notes were letter of credit facility, with such letter of credit facility to issued to secure a like amount of tax-exempt rewnue proside credit support for the pollution control revenue bonds issued by the New York State Energy Research and bonds issued through NYSERDA discussed in Note 5.
Development Authority (NYSERDA). Approximately The interest rate applicable to the facility will be variable
$114 million of such securities bear interest at a daily based on certain rate options available under the agree-adjustable interest rate (with a Company option to con-ment and is currently expected to approximate 8% (but vert to other rates, including a fixed interest rate which capped at 15%). The commitment by the Agent Banks to would require the Company to issue First Mortgage proceed with the senior debt financing will expire Bonds to secure the debt) which averaged 3.81% for on the earlier of (i) fifteen days after the senior debt 1995 and 2.76% for 1994 and are supported by bank financing is approved by the PSC or (ii) March 31,1996.
direct pay letters of credit. Pursuant to agreements As contemplated by the commitment, the term loan and 1
between NYSERDA and the Company, proceeds from revohing credit facility and the letter of credit facility will such issues were used for the purpose of financing the be collateralized by the Company's first mortgage bonds construction of certain pollution control facilities at the and will expire on the earlier ofJune 30,1999 or the Company's generating facilities or to refund outstanding implementation of the Company's PowerChoice restructur-tax-exempt bonds and notes (see Note 6).
ing proposal or any other significant restructuring plan.
Other long-term debt in 1995 consists of obligations This commitment for the senior debt facility will be under capital leases of approximately $36.8 million, a lia-subject to the preparation and execution ofloan bility to the U.S. Department of Energy for nuclear fuel documentation agreeable to the parties, as well as the disposal of approximately $103.1 million and liabilities approval of the PSC.
for unregulated generator contract terminations of The Company is seeking PSC approval on its petition approximately $19.3 million.
in March,1996. In the event the petition is not The aggregate maturities oflong-term debt for the five approved, the Company believes that the elimination of years subsequent to December 31,1995, excluding capital the common dividend, the implementation of reductions leases, are approximately $61 million, $216 million, $66 in non-essential programs and the year end 1995 cash million, $0 and $155 million, respectively.
position, in combination with alternative sources of credit the Company believes are available if necessary, will be
'h"9"'"*'"'""*""'d'"'
NOTE 6. Bank Credit
'""'d'"'"!""' '*d, would provide adequate funds rate relief,if grante AFTGNganents fer 1997. The Cemeany can erevide ne a, urances beyond 1997 as cash flow will depend on sales, the implementation of PowerChoice, including UG contract i
At December 31,1995, the Company had $310 million renegotiations, levels of cash rate relief, approval of the of bank credit arrangements with 14 banks. These credit bank facility agreement, levels of common and preferred arrangements consisted of $200 million in commitmems dividends and the ability to further reduce costs.
under a Revohing Credit Agreement, $99 million in one-The Cmnpany pays fees for substantially all of its bank year commitments under Credit Agreements and $11 credit arrangements. The following table summarizes million in lines of credit. The Revohing Credit additional information applicable to short-term debt:
Agreement extends into 1997 and the interest rate in thousands of dollars applicable to borrowing is based on certain rate options available under the Agreement. All of the other bank At December 31, 1995 1994 l
credit arrangements are subject to review on an ongoing short-term debt:
basis with interest rates negotiated at the time of use.
Commercial paper..
l8-
$ 84,750 in order to enhance the Company's financial flexibility Notes payable.
7 321,000 Bankers acceptances.
11.000 during the period 1996 through 1999, the Company entered into a commitment letter with Citibank, N.A.,
!' S -:
$416,750 6.21 %
l Morgan Guaranty Trust Company of New York and Weighted everage Interest rate (a).
l Toronto Dominion Bank, as co-syndication agents (Agent For Year Ended December 31, Y.
Banks), for the provision of a senior debt facihty totaling i
l
$815 million for the purpose of consolidating and Daily average outstanding.
$179,505] $342.801 refinancing certain of the Company's existing working Monthly weighted average capital lines of credit and letter of credit facilities and interest rate (a).
s.43% '
4.71 %
)
Maximum amount outstanding.
sees,700 - $497,700 providing additional reserves of bank credit. The proposed senior debt facility will consist of a $380 million (a) Excluding fees L
term loan and revohing credit facility and a $435 million i
2 LN[lTA[G [51AI KO[H.[AlWlKh3191W3E[ R( ' [CEO[R[P[OL, R ' A T [1[O( N 42
NOTE 7. Federal and Foreign Income Taxes See Note 9 " Tax Assessments."
Components of United States and foreign income before income taxes:
In thousands of doIIars 1906 1994 1993
, Unit;d Stites.
$400,087 -
$291,501
$438,914 l Fortign.
17,000 15,475 (24,845)
Corcolidating eliminations.
(10,367) '
(18,523) 4,837
- incom) before income taxes.
? $407,429
$288,453
$418,906 l
Following is a summary of the components of Federal and foreign income tax and a reconciliation between the amount I
of Federal income tax expense reported in the Consolidated Staten. nts of Income and the computed amount at the statutory tax rate:
l
SUMMARY
ANALYSIS:
\\
In thousands of dollars 1995 -
1994 1993 j
Ccmponents of Federal and foreign income taxes:
! Curr:nt tax expense:
Fede,al.
$ 67,583
$117,314
$118,918 l
Foreign.
3,900 4.423 8,445 71,463 121,737 127,363 l Defirred tax expense:
Federal.
82,323 (6,931) 35,152 Foreign.
2,222 3,028 l
l i ~ _ 84,545 (3,903) 35,152 l Income tues included in Operating Expenses.....
156,008 117,834 162.515 t
Currtnt Feo9ral and foreign income tax credits included in l
Oth1r trcome and Deductions.
(197)
(11,507)
(16,061) l Defirred Federal and foreign income tax expense l
included in Other income and Deductions.
3,582 5,142 621 l
Total.
2 $150,303
$111,469
$147,075 Reconciliation between Federal and foreign income taxes and the tax computed at prevailing U.S. statutory rate on income before income taxes:
Computed tax.
i $142,001,
$100,959
$146,617 l Reduction (increase) attributable to flow-through of certain tax adjustments::
l Depreciation..
l Cost of removal.
. (31,033) '
(33,328)
(35,153) 9.247 8.908 7,822 5
l DefIrred investment tax credit amortization..
8,500 8,018 8.018 OthIr.
(3,505) 5,892 18,855 (16,792)-
(10,510)
(458)
Federal and foreign income taxes.
- $169,303
$111,469
$147,075 At December 31, the de.rerred tax liabilities (assets) were comprised of the following:
In thousands of dollars 1996 1994 Altimitive minimum tax.
8 (82,809)
$ (93,893)
Unbilbd rsvenue,
(77,875)
(98,201)
Othir.
(248,275) '
(258,621) l Total deferred tax assets.
-(400,819)
(450,715)
Depreciation related.
- 1,456,949 1,398.695 Inyzstment tax credit related.
91,458 95,325 j Other.
249,211 215,158 l
Tot:1 deferred tax liabilities.
1,797,618 1,709,178 Accumulited deferred income taxes.._..
$1,38t,790
$1,258,463 N If A ~ GbATRTA_. M ' O l 'll ; A,, W ' K :
l P [O W EIR C[O[Ri.P[O T A$T:""ll LOM N?
43
NOTE 8. Pension and Other Retirement Plans 1
at _
.-a wsmesmrwse.
i l
The O>mpany and certain ofits subsidiaries have non-conuibutog, defined-benefit pension plans covering substantially all their employees. Benefits are based on the employee's years of senice and compensation level. The Company's general policy is to fund the pension costs accrued with consideration given to the maximum amount that can be deducted for Federal income tax purposes.
During 1994, the Company offered an early retirement program and a voluntary separation program (together the i
VERP) to reduce the Company's stafTing levels and streamline operations. The VERP, which included both represented and non-represented employees, was accepted by approximately 1,400 employees. The program cost the Company approximately $208 million of which $11.4 million, related to the gas business, was deferred with recovery anticipated to occur over a five year period, beginning in 1995.
Net pension cost for 1995,1994 and 1993 included the following components:
In thousands of dol:ars 1905 1994 1993 Service cost - benefits eamed during the period.
$ 22,800
$ 30,400
$ 30,100 intsrest cost on projected benefit obligation.
73,000 '
62,700 54,200 Actual return on plan assets..
(215,000)-
7,700 (106,100)
Nzt amortization and deferral.
140,300 '
(63,600) 38,700 Net pension cost.
20,960 37.200 16,900 VERP costs.
114,000 (6,200)
Regulatory asset.
Total pension cost (1).
$ 20,200 -
$145,000
$ 16,900 (1) $41 milhon for 1995, $5.9 milhon for 1994 and $5 6 milkon for 1993 was related to construction labor and, accordingfy, was charged to construction protects.
The following table sets forth the plan's funded status and amounts recognized in the Company's Consolidated Balance Sheets:
j In thousands of dollars At December 31, 1995 1994 Actuarial present value of accumulated benefit obligations:
Vested benefits.
$ 777,504
$640.689 i
Non-vested benefits.
64,303 69,642 Accumulated benefit obkgations 841,987 710,331 Additional amounts related to projected pay increases.
135,115 222,667 Projected benefits obligation for service rendered to date..
977,002 932,998 Plan assets at fair value, consisting primarily of listed stocks, bonds, other fixed income obligations and insurance contracts.
(1,074,333)-
(893,313)
Plan assets (in excess of)less than projected benefit obliga.io"is.
(97,251)-
39,685 Unrecognized net obligation at January 1,1987 being recognized over approximately 19 years.
(21,800)
(27,122)
Unrecognized net gain from actual return on plan assets difterent from that assumed.
198,035 58,379 Unrecognized net gain from past expenence different from that assumed and effects of changes in assumptions amortized over 10 years.
46,902 67,857 Pnor service cost not yet recognized in net periodic pension cost.
(41,201)
(44,421)
Pension liabihty included in the consohdated balance sheets.
8 84,975
$ 94,378 Principle Actuarial Assumptions (%):
Discount Rate.
7,50 8.00 Rate of increase in future compensation levels (plus merit increases).
. 2.50 3.25 Long-term rate of retum on plan assets.
9.25 8.75 N I.A G. A R A O' 11 A ' W l C Pf O., W E.R C O R P O R A T 1 O N 44
1 I
In addition to providing pension benefits, the Company and its subsidiaries prmide certain health care and life insurance benefits for active and retired employees and dependents. Under current policies, substantially all of the Gimpany's employees may be eligible for continuation of some of these benefits upon normal or early retirement.
The Company accounts for the cost of these benefits in accordance with PSC policy requirements which genem!!y comply with SFAS No.106, " Employers' Accounting for Postretirement Benefits Other Than Pensions". The Company has established various trusts to fund its future postretirement benefit obligation. In 1995, the Company made contribu-tions to such trusts of approximately $53.1 million, which represented the atnount received in rates, certain capital l
portions of the postretirement benefit obligation and amounts received from co-tenants. In 1994 and 1993, the Company contributed $24 million and $12 million, respectively, which represented the amount received in rates.
Net postretirement benefit cost for 1995,1994 and 1993 included the following components:
In thousands of dollars
- 1995, 1994 1993 Sirvica cost - benefits attributed to service during the period.
$12,800
$ 15,000
$12,300 Inttr:st cost on accumulated benefit obligation.
45,400 /
40,200 32,800 (11.200)
(900)
Actu:1 ritum on plan assets.
Amortization of the transition obligation over 20 years.
18,000 20,200 20,400 Nrt e.mortization.
14,000 !
8.900 Nrt postretirement benefit cost.
80,200 83.400 65,500 VERP costs.
80,200 RIgulatory asset.
(4.300)
Total postratirement benefit cost
< S00,300
$159,300
$65,500 The following table sets forth the plan's funded s_atus and amounts recognized in the Company's Consolidated Balance Sheets:
in thousands of dollars At December 31, 1905 1994 Actuarill present value of accumulated benefit obligations:
Retired and surviving spouses.
$214,387
$371,223 Active eligible..
24,374 '
20,400 Active ineligible.
- L 307,547 :
208,900 1 838,300 :
600,523 Accumulated benefit obligations Plan asszts at fair value, consisting primarily of listed stocks, bonds and other fixed obligations.
< (101,721) 3 (36,754)
Accumulated postretirement benefit obligation in excess of plan assets.
834,887 L 563,769 Unrecognized net gain from actual retum on plan assets different from that assumed....
8,713 i Unrecognized net loss from past experience different from that assumed and effects of changes in (64,412))
(71,939) assumptions..
Unrccognized transition obligation to be amortized over 20 years.
(318,508)?
(337,336)
$100,072 s
$154,494 Accru3d postratirement benefit liability included in the consolidated balance sheets. _ _ _ _ _ _
Principle actuarial assumptions (%):
~ 7.50S '
8.00 Discount Rate....
Long-term rate of return on plan assets.
' 9,25 l 8.75 HIalth care cost trend rate:
Prz-65.,
- 8.25 9.75 Post-65.
5.25 -
6.75 1
At December 31,1995, the assumed health cost trend rates gradually decline to 5.0% in 1999. If the health care cost trend rate was increased by one percent, the accumulated postretirement benefit obligation as of December 31,1995 l
would increase by approximately 10.9% and the aggregate of the senice and interest cost component of net periodic postretirement benefit cost for the year would increase by approximately 13.6%
OnJanuary 1,1994, the Company adopted Statement of Financial Accounting Standards No. I12 " Employers' Accounting for Postemployment Benefits" (SFAS No. I12). This Statement requires employers to recognize the obligation to provide postemployment benefits if the obligation is attributable to employees' past senices, rights to those benefits are vested, payment is probable and the amount of the benefits can be reasonably estimated. At December 31,1995 and 1994, the Company's postemployment benefit obligation is approximately $12.5 million and
$26.3 million, respectively, including the portion of the obligation related to the VERP. At December 31,1995, the Company has recorded a regidatory asset of approximately $10.4 million, the majority of which will be recovered over three years beginning in 1995.
j
- % fl- [ Gj[h R'-Al
)1"[O[H][A9I[K['[P[(j] E"IRj
[C _ O R P' lOT RT. AlTillO,N 45
1 NOTE 9. Commitments and The fixed costs re ate to conuacts with 10 facilities where the Company n regtured to make fixed payments,
-Contingencies inauaing paymems when a raciiity is not operating but available fcer senice. These 10 facilities account for m - - - -
~ - - weerw approximately 708 MW of capacity, with contract lengths See Note 2 and Note 6.
ranging from 20 to 35 years. The terms of these contracts allow the Company to schedule energy deliveries from Long-term Contracts for the Purchase of Electric the facilities and then pay for the energy delivered. The Power: AtJanuary 1,1996, the Company had long-term Company estimates the fixed payments tmder these con-contracts to purchase electric power from the following tracts will aggregate to approximately $7.7 billion over generating facilities owned by the New York Power their terms, using escalated contract rates. Contracts 1
Authority (NYPA):
relating to the iemaining facilities in sersice at December 31,1995, require the Company to pay only when energy Expiration Purchased Estimated s delivered. The Company currently recovers schedul-Facihty Co ra t nk Ca c ty ost able capacity thiough base rates and energy payments, Niigara taxes and other schedulable fixed costs through the FAC.
1 The Company paid approximately $980 million, $960 hydroelectric project.
2007 951,000 (a) $25.200,000 miHion and $736 million in 199E 1994 ud 1993 for St. Lawrence 14,000,000 MWh,14,800,000 MWh and 11,720,000 MWh, hydroelectric project.
2007 104.000 1,300.000 ElInheim-Gilboa respectively, of electric power under all uuregulated l
pumped storage generator contracts.
i in an effort to reduce the costs associated with unregu-generating station..
2002 270,000 7,500.000 lated generators, at December 31,1995, the Company Fitzpatrick had agreed to buy out 17 projects consisting of 457 MW nuclear plant.
.. year-to-year of capacity. Additionally, the Company has entered into basis (b) 110.000 (c) 7,900.000 reements with 41 projects, comprising 1,153 MW of 1,435,000
$41,900.000 capacity, which allow the Company to curtail purchases (a) 943,000 kw for summer of 1996; 951,000 kw for winter of 1996-97.
from these UGs when demand is low or otherwise prmide (b) The Company has agreed to not terminate or reduce purchases cost reductions or operational benefits. The Company expects to continue ellorts of these types into the futu're, before May 1,1997 if NYPA does not increase rates.
to control its power supply and related costs, but at this (c. 72,000 kw for summer of 1996; 110,000 kw for winter of 1996-97.
time cannot predict the outcome of such ciforts. (See The purchase capacities shown above are based on
" Management's Discussion and Analysis of Financial the contracts currently m efTect. The estimated annual Condition and Results of Operations - Unregulated Generators").
capacity costs are subject to price escalanon and are exclusive of applicable energy charges. The total cost of Sale of Customer Receivables: The Company has an purchases under these contracts was approximately $92.5 agreement whereby it can sell an undhided interest in million, $85.1 million, and $72.2 million for the years a designated pool of customer receivables, including 1
1995,1994 and 1993, respectively, accrued unbilled electric revenues. The agreement was Under the requirements of the Federal Public Utility amended in September 1995 to allow for sale of an Regulatory Policies Act of 1978, the Company is required additional $50 million of customer receivables. The to purchase power generated by unregulated generators, Company sold this additional $50 million in the fourth as defined therein. The Company has virtually all unreg-quarter of 1995, thereby bringing the total amount of ulated generator capacity on line, amountmg to approxi-receivables sold under the agreement to $250 million, mately 2,708 MW of capacity at December 31,1995. Of For receivables sold, the Company has retained collection this amount 2,390 MW is considered firm. The following and administrative responsibilities as agent for the par-table shows the payments fbr fixed capacity costs, and chaser. As collections reduce previously sold undisided energy and related taxes the Company estimates it will be interests, new receivables are customarily sold.
obligated to make under these contracts. The payments At December 31,1995 and 1994, $250 million and $200 are subject to the tested capacity and availability of the million, respectively, of receivables had been sold under facilities, scheduling and price escalation.
this agreement. The undivided interest in the designated in thousands of donars pool of receivables was sold with limited recourse. The Schedulable Fned Costs agreement prosides for a loss reserve pursuant to which Year Capacity Other Energy Total additional customer receivables are assigned to the pur-chaser to protect against bad debts. Under the terms of 1996
$201,000
$40,000
$ 863.000
$1,104,000 the agreement, a formula determines the amount of the 1997 213,000 41,000 921.000 1,175.000 loss seserve. At December 31,1995, the amount of addi-1998 237,000 42,000 947,000 1,226,000 tional receivables assigned to the purchaser, as a loss 1999 241,000 43,000 981,000 1.265,000 reserve, was approximately $78.3 million. Although this 2000 229.000 44,000 1.020.000 1.293.000 represents the fornmla-based amount of credit exposure b[M.b C. ATRIAC LMf0LlHj A[W 'K'.
'P[O[W[E R
(C10'R PjO[Pt A T[ I O': N
~
46
I at December 31,1995 under the agreement, historical Albany County (NYS Supreme Court). Inter-Power losses base been sulutantially less.
alleged, among other matters, fraud, negligent mis-To the extent actualloss experience of the pool iepresentation and breach of contract in connec-receivables exceeds the loss reserve, the purchaser tion with the Company's alleged termination of a absorbs the excess. Concentrations of credit risk to the power purchase agicement inJanuary 1993. The l
purchaser with respect to accounts receivable are limited plaintiff sought enforcement of the original con-due to the Company's large, diverse customer base within tract or compensatory and punitive damages in an its senice territory. The Company generally does not aggregate amount that would not exceed $1 billion, require collateral, i.e., customer deposits.
excluding pre-judgment interest.
'"#"'N 5"P"*e Cour;t dismissed l
Tax assessments: The Internal Revenue Senice (IRS)
'# P'."*" " ' """'.0u. disnussal was s,
w pppellate Dn)ision, Third has conducted an examination of the Company's Federal income tax returns for the years 1987 and 1988 and has up e submitted a Revenue Agents' Report to the Company.
Dep nment f the NYS Supreme Court.
l Subsequently, the NiS Supreme C,ourt granted The IRS has proposed various adjustments to the Company's Federal income tax liability for these years t e Company s nmdon for sununadudgment on the remaining causes of action in Inter-Power,s whic.h could increase Federal income tax liability by C".* decision and onJuly 27 1995P *i".t.
In August 1994, Inter-Power appealed 1
approximately $80 million, before assessment of penalties the App llate e
and interest. Included in these proposed adjustments are Dm.smn, Third Department aflirmed the granting several significant issues intohing Unit 2. The Company is vigorously defending its position on each of the issues, "I*"""""'I I".dgment as to all counts, except for and submitted a protest to the IRS in 1993. Pursuant to one deahng with an alleged breach of the power i
the Unit 2 settlement entered into with the PSC in 1990,
[m aw agmment re Ong to We nyp ny s haw to the extent the IRS is able to sustain adjustments, the ing declared the agreement null and void on the C,ompany will be required to absorb a portion of any grounds that Inter-Power had failed to provide it ma ansessment. The Cmnpany believes any such disallowance
? mfor"J30m' reK "I!"R R5 fuel 5"Fply.
will not have a material impact on its financial position or tunely fasinon. In August 1995, the Company filed
" " * * " '" '#" T* "
I#"'# Io appe 1 t the results of operations under traditional ratemaking. The Company is currently attempting to negotiate a settle-
"".n o Appeals.
e Conipany s modon was
"" #I
'I ment of these issues with the Appeals Division of the IRS.
In addition, the IRS is currently examining the years (b) In November 1993, Fourth Branch Associates 1989 and 1990. The Company receised a Revenue Mechanicville (Fourth Branch) filed an action Agents' Report in late lanuar 1996. The IRS has raised gainst the Company and several ofits oflicers the issue concerning tiie deductibility of advance pay.
and employees in the Ni'S Supreme Court, seeking ments made to UGs in accordance with certain cont'racts compensatog damages of $50 million, punitive that include a provision fbr an Advance Payment damages of $100 million and injunctive and other Account. The IRS proposes to disallow a current deduc-related relief. The lawsuit grows out of the tion ihr amounts paid in excess of the avoided costs by Company's termination of a contract for Fourth the Company. Ahhough the Company believes that any Branch to operate and maintain a hydroelectric such disallowance ihr the years 1989 and 1990 will not plant the Company owns in the Town of 11alfmoon, have a material impact on its financial position or results New Thrk. Fourth Branch's complaint also alleges of operations, it believes that a disallowance fm these claims based on the inability of Fourth Branch and above-market payments for the years subsequent to 1990 the Company to agree on terms for the purchase of ower from a new facility that Fourth Branch could have a material adverse affect on its cash flows.
P The Company is vigorousiv defending its position on this hoped to construct at the Mechanicrille site.
issue.
InJanuary 1994, the Company filed a motion to dismiss Fourth Branch's complaint. By order Litigation: The Company is unable to predict the dated November 7,1995, the court granted the ultimate disposition of the lawsuits referred to below.
Company's motion to dismiss the complaint in its However, the Company believes it has meritorious entirety. Fourth Branch has filed an appeal from defentes and intends to defend these lawsuits vigorously, the Court's order. Fourth Branch has filed Ihr but can neither provide anyjudgment regarding the protection under Chapter 11 of the Bankruptcy likely outcome nor provide any estimate or range of Code in the Bankruptcy Court for the Northern possible loss. Accordingly, no provision ihr liability, if any, District of New Ym k OnJanuary 5,1996, Fourth that may result from these lawsuits has been made in the Branch vacated the Mechanicville site.
Company's financial statements.
(c) On June 8,1994, Medina Power Company (a) In March 1993, Inter-Power of New York, Inc.
(Medina) filed a lawsuit against the Company in (Inter-Power), filed a complaint against the the New York State Supreme Court, Eric County.
Company and certain ofits officers and employees Medina alleges, among other claims, that the in the Supreme Court of the State of New York, Company siolated various New Ymk State antitrust N fl [Ai G; A " R L A
'M(O[Il[A W (KT jPlOlWl E'f R(
. C $ Oi R [ P.,0 f R \\ A _ ' T, 11 OL ' N
~
l 47
laws in connection with a contract that the Company may be required to contribute some Company has with Medina. OnJuly 11,1995 proportionate shaic of icmedial costs.
51edina amended its cemplaint and removed the Investigations at each of the Company 4>wned sites are allegation of antitrust violations, and is now seeking designed to (1) determine if emironmental contamination umpecified damages.
pr oblems exist, (2) if necessary, determine the appropriate The Company had previously entered into a remedial actions required fi>r site restoration and (3) l contract with Medina, an unregulated generator, where appropriate, identify other parties who slmuld bear l
for the purchase of electricity. The original con.
some or all of the cost of remediation. Legal action tract iequired Medina to be a qualihing facility against such other parties will be initiated where appropri-(Ql') under federal law or face a contractual p'enal.
ate. After site investigations are completed, the Company tv. Ilaving come on-line without a thermal host, expects to determine site-specific remedial actions and to sfedina did not meet this QF requirement, subject-estimate the attendant costs for restoration. Ilowever,
~
dnce technologies are still developing, the ultimate cost of ing it to a 15% rate reduction. The Company advised Medina that it had exercised its contract reniediai actions may change substantially.
i right and reduced the rate accordingly. The Estimates of the cost of remediation and post-remedial Company believes hiedina's lawsuit is without monitoring are based upon a va iety of factors, including i
merit, bdt cannot predict the outcome of identified or potential contaminants, location, size and i
this action.
use of the site, proximity to sensitive resources, status of l
(d) The C,ompany is mvolved.m a nuinber of court regulatorT investigation and knowledge of activities at similarly situated sites, and the United States l
cases regardmg the price of energy it is required to FmirodmemM Protection Agency (EPA) figure for purchase m excess of contract levels from certain l
unregulated generators ("mergeneration ). The cou m remedime a sim AcmM Cqim-m-
l Company has paid the umegulated generators nditmes are dependent upon the total cost of c
based on as short-run avoided cost (under Senice investigation and remediation and the uhimate determi-naion of dm Conym's shaw of nymsibuin for such Class No. 6) for all such overgeneration rather than costs, as well as the lina' ncial siability of other identified i
the price which the unregulated generators con-mmHde nin since clean-up obligations arejoint tend is appbcable under the contracts. At December 31,1995, this amount of overgenerau,on and several. The Company has denied any responsibility adjmtments in dispute that the Company estimates in certain of these Potentially Responsible Party (PRP) it has not paid or accrued is approximately $32 sites and is contesting liability accordingly.
As a consequence of site cliaracterizations and assess-million, exclusive ofinterest. 'Ibe Company cannot predict the outcome of these actions, but wdl mmts coqdeted to date and negotiations with PRP's, the gy,. hm unued a liAUity in the amount of $225 continue to aggressively press as position.
miUim Ed 20 mHliom dich is muerted in die Company's balance sheets at December 31,1995 and Emironmental Contingencies: The public utility 1994, respectively. The liability was reduced in 1995 to industry typically milizes and/or generates in its opera-reflect the Company's curient estimate, which incorpo-tions a broad range of potentially hazardous wastes and rates the recent availability of better information regard-by-products. The Company believes it is handling ing the cost a remediate one ofits major sites, the identified wastes and by-products in a manner consistent Saratoga Sprmgs manufactured gas plant site, since a with Federal, state and local requirements and has Record of Decision was issued by the EPA at that site.
implemented an emironmental audit program to identify The Saratoga Springs site is included on the National any potential areas of concern and assure compliance Priority's 1.ist. This liability represents the low end of the with such requirements. The Company is also currently range ofits shaic of the estimated cost for investigation conducting a program to investigate and restore, as and remediation. The potential high end of the range is necessary to meet current emironmental standards, presently estimated at approximately $930 million, certain properties associated with its former gas manufac-including approximately $430 miHion in the unlikely turing process and other properties which the Company event the Company is required to assume 100% responsi-has learned may be contaminated with industrial waste, bility at non-owned sites.
as well as investigating identified industrial waste sites as Prior to 1995, the Company recovered 100% ofits costs to which it may be determined that the Company associated with site investigation and restoration. In the contributed. The Company has also been advised that Company's 1995 rate onder, costs incurred during 1995 various Federal, state or local agencies believe certain for the investigation and restoration of Companpowned properties acquire investigation and has prioritized the sites and sites with which it is associated were subject to sites based on available inf ormation in order to enhance 80%/20% (ratepayer / Company) sharing. In 1995, the the management of imestigation and remediation, Company incurred $11.5 million of such costs, resulting if necessary.
in a disallowance of $2.3 million (before tax), which the The Company is currently aware of 88 sites with which Campany has recognized as a loss in Other items (net) it has been or may be associated, including 46 which are on the Consolidated Statements of Income. The PSC Company-owned. With respect to non-owned sites, the stated in its opinion, dated December 1995, its decision 1
1 N. I. A. G ; A.
R A M.O li.A:.W.K
~ PTOiW E R; C OR P O R A'T I O N 48
to require sharing was "on a one-time, short-term basis only, pending its further evaluation of the issue in future i
proceedings." The Company has recorded a regulatory asset representing the remediation obligations to be recovered from ratepayers.
Where appropriate, the Company has provided notices ofinsurance claims to carriers with respect to the investigation and remediation costs for manufactured gas plant, industrial waste sites and sites for which the Company has been identified as a PRP. The Company is unable to predict whether such insurance claims will be successful.
Construction Program: The Company is committed to an ongoing construction program to assure delivery ofits elec-tric and gas senices. The Company presently estimates that the construction progmm for the years 1996 through 2000 will iequire approximately $1.5 billion, excluding AFC and nuclear fuel. For the years 1996 through 2000, the estimates are $290 million, $295 million, $307 million, $306 million and $290 million, respectively, which includes $42 million,
$46 million, $58 million, $49 million and $40 million, respectively, related to generation. These amounts are reviewed by management as circumstances dictate.
NOTE 10. Disclosures about Fair Value ofFinancialInstruments i., - -,- -
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Cash and short-term investments: The carrying amount approximates fair value because of the short maturity of the financial instruments.
Short-term debt: The carrying amount approximates fair value because of the short-term nature of the borrowings.
Long-term investments: The carrying value and market value are not material to the financial statements.
Long-term debt and mandatorily redeemable preferred stock: The fair value of fixed rate long-term debt and redeemable preferred stock is estimated using quoted market prices where available or discounting remaining cash flows at the Company's incremental borrowing rate. The carrying value of NYSERDA bonds and other long-term debt are considered to approximate fair value.
The financialinstruments held or issued by the Company are for purposes other than trading. The estimated fair values of the Company's financial instruments are as follows:
In th0USdndS Of dollars 1995 1994
)
I Carrying Fair Carrying Fair At December 31, Amount Value Amount Value Cash and short-term investments
$ 153,475 8 153,475
$ 94,330
$ 94,330 Short-term debt 416.750 416,750 Mandatorily redeemable preferred stock.
108,000 92,876 116,950 134.692 Long-term debt: First Mortgage bonds.
2,806,306 2,815,206 2,611,305 2,367,755 Medium-term notes.
. 30,000 ~
31,026 45,000 45,783 NYSERDA bonds.
413,700 413,760 '
413.760 413,760 Swiss franc bond.
50.000 83,682 Other.
292,436 292,436 224,107 224,107 OnJanuary 1,1994, the Company adopted Statement of Financial Accounting Standards No. I15," Accounting for Certain Investments in Debt and Equity Securities." This statement addresses the accounting and reporting for investments in equity securities that base readily determinable fair values and for all imestments in debt securities.
The Company's investments in debt and equity securities consist of trust funds (br the purpose of funding the nuclear decommissioning of Unit I and its share of Unit 2 (See Note 3 " Nuclear Plant Deconunissioning"), short-term invest-ments held by Opinac (a subsidiary) and a trust fund for certain pension benefits. The Company has classified all investments in debt and equity securities as available fm sale and has recorded all such investments at their fair mar Let value at December 31,1995. The proceeds from the sale ofinvesunents were $70.3 million and $104.6 million in 1995 and 1994, respectively. Net realized and unrealized gains and losses related to the nuclear decommissioning trust are reflected in Accumulated depreciation and amortization on the Consolidated Balance Sheets, which is consistent with the method used by the Company to account for the decommissioning costs recovered in rates. The unreallied gains and losses related to the investments held by Opinac and the pension trust are included, net of tax,in stockholders' equity on the Consolidated Balance Sheets, while the realized gains and losses are included in Other items (net) on the Consolidated Income Statements.
- N L 1 ' A [. 'G AL'R;A'
'M_OiH[AiW!K;
. P ' O. W'. E " R~
C'. O R~ P O RlA T 'I O. N.
49
l The recorded fair values and cost basis of the Company's investments in debt and equity securities is as follows:
In thousands of dollars e
At December 31, 1995 -
1994 Secunty f
Gross; Gross Type k Cast "
. UnroeNeed
. Fair Value f Cost Unrealized Fair Value Geln (Lees) ' ~
Gain (Loss)
U.S. Govemment Obligations.
8 16,271 ' $ 3,000
$-~
$ 19,200 ' f
$15,165 $ 19
$ (325)
$14,859 Commercial Paper.
p 47,105 ;
1,019 '
145,134 i
3 Tzx Exempt Obligations.
E 06,155 :
' 3,830 (72) 00,913 7 45,029 659 (1,778) 43,910 i
Corporate Obligations.
B: 45 279 5,309 " (344)
.50,334.
27,407 9
(1,253) 26,163 Other.
' 10.022 945
~~/
10.,967 -
8.121 28 (348) 7,801
$184,032 - $14.302 t
$(416). $196,818 -,
$95,722 $715
$(3,704)
$92,733_
Using the specific identification method to determine cost, the gross realized gains and gross realized losses were:
In thousands of dollars Year Ended December 31 1995 1 1994 Realized gains.
$2,523 j
$1,123 Realized losses.
330; 1,637
)
The contractual maturities of the Company's investments in debt securitics is as follows:
In thousands of dollars At December 31,1995:
Fair Value Cost Less than 1 year.
$48,124
$47,105 1 year to 5 years, 10,308 9,689 5 years to 10 years,
31,759 30,066 Due after 10 years.
83,112 75,348 NOTE 11. Quarterly Financial Data (Unaudited)
Operating revenues, operating income, net income and earnings per common share by quarters from 1995,1994 and 1993, respectively, are shown in the following table. The Company, in its opinion, has included all adjustments necessary for a fair presentation of the results of operations for the quarters. Due to the seasonal nature of the utility business, the annual amounts are not generated evenly by quarter during the year. The Company's quarterly results of operations reflect the seasonal nature of its business, with peak electric loads in summer and winter periods. Gas sales peak in the winter.
In thousands of dollars Operating Net Eamings (loss) i Quarter Operating income income per i
Ended revenues (loss)
(loss) common share
.-s J8.13 m.i 21 Deesmber 31,1995.
. $113,510.
a
$ 27,874i
$ 986,478 s
1994 1,0 t 8,110 (10,536)
(77,422)
(.61) 1993 988,195 95.623 30,955
.16 6
September 30,1995 L
$ 887.231 s
$114,126 -
? 8 46,941i 8.38 Aa J i
1994 918,810 108,937 48,383
.27 1993 879.952 108,539 48,595
.29 K
June 30,1906 :
$ 938,816-
$121,985 - -
i 8 54,405 8J1 m aa 1994 979,700 130,624 67,559
.42 1993 929,245 132,669 65.325
.41 AZ w z March 31,1906i
' $1,134.813.
? $178,405 4118,736 e
.8.75.s e d 1994 1,235,558 203,348 138,464
.92 1993 1,136,039 187,669 126,956
.86 In the fourth quarter of 1994 the Company recorded $196.6 million (89 cents per common share) for the electric expense allocation of the VERP. In the third quarter of 1993 and the fourth quarters of 1994 and 1995, the Company recorded $10.3 million (5 cents per common shas e), $12.3 million (6 cents per common share), and $16.9 million (8 cents per common share), respectively, for MERIT earned in accordance with the 1991 Agreement.
j; g/{3 q'g737gg yyygyg y 73gg;y,T,Tgl R h ICIOTR ' P [OiRIAT[1[OL N ~
50
NOTE 12. Information Regarding the Electric and Gas Businesses The Cmnpany is engaged principally in the business of production, purchase, transmission, distribution and sale of j
clectricity and the purchase, distribution, sale and transportation of gas in New York State. The Company prosides electric senice to the public in an area of New York State having a total population of about 3,500,000, including among others, the cities of Iluffalo, Syracuse, Albany, Utica, Schenectady, Niagara Falls, Watertown and Troy, The Company distributes or tramports natural gas in areas of central, northern and eastern New hk having a total population of about 1,700,000 neady all within the Company's electric service area. Certain information regarding the Company's electric and natural gas segments is set forth in the following table. General corporate expenses, property common to both segments and depreciation of such common property have been allocated to the segments in accordance with the practice established for regulatory purposes. Identifiable assets include net utility plant, materials and supplies, deferred finance charges, deferred recoverable energy costs and certain other regidatory and other assets. Corporate assets con-sist of other property and investments, cash, accounts receivable, prepayments, unamortized debt expense and certain other segulatory and other assets. At December 31,1995, total plant assets consisted of 24.1% Nuclear,16.7%
Generation,41.5% Transmission and Distribution,4.5% Hydro and 10.3% Gas and 2.9% Common.
In thousands of dollars 1885 1994 1993 Operzting revenues:
Electnc
. $3,335,548.
53,528,987
$3,332,464 Gas.
581,790:
623,191 600,967 Total,
$3,917,338 3
$4,152,178
$3,933,431 Oper ting income before taxes:
Electric
$ 587,282
$ 466,978*
$ 625,852 Gas,
98,752' 83,229 61,163 Total.
$ 884,034
$ 550,207
$ 687,015 Prat:x operating income, including AFC:
Electric.
$ 595,970.
$ 475,694
$ 641,435 Gas.
97,214' 83,592 61,812 Total.
893,084' 559,286 703,247 income taxes, included in operating expenses:
Electric.
129,881:
97,417 148,695 Gas.
26,147 20,417 13,820 Total.
150,000 '
117,834 162,515 Oth2r (income) and deductions.
1,379 (21,410)
(22,475) interest charges.
287,861 !
285,878 291,376 Net income.
$ - 248,038
$ 176,984
$ 271,831 Depr:clition and amortization:
Electric.
$ 292,885
$ 283,694
$ 255,718 Gas.
24,836 24,657 20,905 Total.
$ 317,831 '
$ 308,351
$ 276,623 Conttruction expenditures (including nuclear fuel):
Electric.
$ 285,722.
$ 376,159
$ 429,265 Gas.
80,082 113,965 90,347 Total.
$ 345,804 -
$ 490,124
$ 519,612 Id;ntifilble assets:
Electric.
. $7,592,287 -
$7,759,549
$7,700,888 Gas.
1,123,045 1,093,812 1,008,272 Total.
8,715,332 8,853,361 8,709,160 Corporate assets.
762,537 796,455 762,167 Total assets.
$9,477,889
$9,649.816
$9,471,327
- Includes $196.625 of VERP expenses.
N !I A' G' A.R.A M f 0' H_'AfW K P O'. W E R C O_R P Of'R "A T Tll[O[N l
51
/
Electric and Gas Statistics ELECTRIC CAPABILITY
, GAS STATISTICS Thousands of Allowatt.s 1995 1994 1993 December 31,
'1995 1994 1993 Gas sales (Thousands of dekatherms)
Owned:
Residential..
51,842 '
56.491 54.908 Coal.
' 1,316 18.0 1,285 1,285 Commercial..
28,018 5 25.783 23.743 Od......
. 838. ' 7,7 646 1,496 Industrial.
2,000 3.097 4.316 Dual Fuel - OWGas.
. 700
' O.5 700 700 Other gas systems.
1st -
244 234 Nuclear.
3 1,002 13.2-1,048 1,048 Total sales..
78,481 85.615 83.201 Hydro....
! ges ' ' s.1 --
700 700 Sp t market...
1,733 4 1.577 13223 Natural Gas..
74 Transportate of customer. owned Das.
5 144,813 '
85,910 67.741 i 4,30s 58.5 ' 4.379 5.303 Total gas delivered.
l 234,817 4 173.097 164,165 Purchased:
New York Power Authonty Gas revenues (Thousa@ of do#ars)
' 1,335
' 14.1 1,300 1,302 Residential..
$300,391 - $398.257
$370.565
- Hydro.
L
- Nuclear.
110 -. 1.3 -
74 65 Commercial..
' 143,848 1 159.157 144.834 Unregulated generators..
! 2,300 29.1 :
2.273 2,253 Industnal.
11,530 ;
14.602 18.482 Other gas systems.
. 783 1.159 1.066
- 3,835 48.5 3.647 3.620 Spot market....
3,008 ?
4,370 29.782 Transportatm of customer. owned gas.
48,300 38.346 34.843 Total capability
- 8,234. 100.0.
8.026 8.923 Miscellaneous.
- 5,878 I 7,300 1,395 Electric peak load.
6,211 6.458 6.191
$501,790 ; $623.191
$600,967
- Available capabihty can be increased dunng heavy load penods by purchases from Gas customers (Average) neighbonng interconnected systems Hydro station capabdtty is based on average Residential..
i 471,940 i 463.933 455.629 December stream-flow conditions Commercial..
40,946 ~
40.256 39 662 Industrial.
235 :
256 233 ELECTFilC STATISTICS Otner..
1 1 1
1 Transportation..
-SEE.
661 673
! 513,771 -
505.107 496.198 Electric sales (Mdlions of kw-brs )
Residential (Average)
Rtsidential.
10,150 10.415 10.475 Commercial.
11.584 ;
11,813 12.079 Annual dekatherm use per customer.
100.8.'
121.8 120.5 Cost to customer per dekatherm.
. 87.11 -
$7.05
$6.75 inoustnal.......
7,128 -
7,445 7.088 Annual revenue per customer..,
l 8700.88
$858.44
$813.30 ci al serv e 2
day gas W Wh). VW.-
ME WM Other electnc systems.
4,486 7.593 3.974 Electric revenues (Thousands of obuars)
Ressdential.
$1,221,105 ? $1,233.007
$1,171,787 Commercial.
. 1,241,479 1.272,234 1.241.743 Industnal....
527,244 577.473 553.921 Industnal - Special.
98,250 -
49.217 42.988 Municipal service..
40,543 ~
50.007 50.642 Other electnc systems.
96,812 '
167.131 105,044 Miscellaneous.
144,115 179,918 166,339
- $3,335,548 ' $3,528,987
$3.332.464 Clectric customers (Average)
Residential.
' 1,411,953 -
1,405.343 1,398,756 Commercial.
145,986 '
144249 143.078 Industnal....
2,180 -
2,105 2.132 Industnal - Special.
83 82 76 Other.
. 1,497 "
2,318 3.438 1,561,857 1.554.097 1,547.480 RIsidential (Average)
Annual kw-br. use per customer.
7,180 _
7.411 7.489 Cost to customer per kw-br..
12.036 11.84e 11.19e Annual revenue per customer..
$864.83 -
$877.37
$837.74
. N.1 GA[G[ h[ R LA
.M O.; { i( lKl [P20.1 El R1 [C[ O f RC;.P O ' R ' A '. T. -. I
.O. N 52 o
7_
Y&
M ie u
.n fctTS w.
- L
- N.
. Directors %. 4
.W Q :.
J~
Willizm E. Davis Theresa A. Ilaim William E Allyn (A. C F)
'.hairman of the Board and Vice President President and Chief Executive OJicer Chief Executive Officer Corporate Strategic Planning Welch Allyn,Inc., Skaneateles Falls, NY AlbertJ. Budney,Jr.
Edward E Iloffman Albert J. Budney,Jr.
President Vice President President (EfTective April 3, lW5)
Electric Supply and Delivery Support (Ellective April 3,1995)
John M. Endries (Retired May 1,1995)
Lawrence Burkhardt,III (F)
President PaulJ. Kaleta Former Executive Vice President (Retired May 1,1995)
Vice President Nuclear Operations, San Diego, CA B. Ralph Syhia law and General Counsel Douglas M. Costle (B. D. F)
Executive Vice President Samuel E Manno Distinguished Senior Fellow and Electric Generation and Vice President Chairman of the Board Chief Nuclear OfUcer Purchasing and Corporate Senices Institute for Sustainable C<mimunities DzvidJ. Arrington Martin J. McCormic's,Jr.
M "'PCU U Senior Vice President Vice President Edmund M. Davis (ll. C. D, E)
Human Resources Nuclear Safety Asse 4sment and Support Of Counsel, Hiscock & Barclay Dzrlene D. Kerr Douglas R. McCwn Anorneys-at-law, Syracuse, NY Senior Vice Pr esident Vice President William E. Davis (D)
Energy Distribution Gmernment and Regulatory Relations Chairman of the Board and GuyJ. Lavine Clement E. Nadeau Chief Executive OfIicer Semor Vice President Vice President WilliamJ. Donlon Irgal and Corgmrate Relations Power Transactions and Planning
. Former Chainnan of the Board and John W. Powers James A. Perry Chief Executive Officer, Syracuse, NY Senior Vice President Vice President Edward W. Duffy (C, D, F)
Finance and Corporate Senices Quality Assurance former Chairman of the Board and Micimi P. Ranalli (Retired August 31,1995)
Chief Executive OfIicer Senior Vice President Kapua A. Rice Marine Midland Banks,Inc.
Electric Supply and Delisery Corp n ate Secretary Sarasota, FL (Retired October 31,1995)
Arthur W. Roos j hn M. Endries Ih'*[,hC" $
93$
Richard B. Abbott Vice President-Treasun r d
Vice President and General Manager-Nuclear Richard II. Rycrek Vice President j hn G.Ilacht,Jr.
(Ellective Deceraher 14,1995)
Former Chainnan of the Board and Gas O erations P
3 seph T. Ash Chief Executive Officer 7
Louis E Storz
\\ ice President New Smyrna Beach, FL Vice President Special Proje(ts (Retired May 2,1995)
Nuclear Generation
.Ashooh Dr. Bonm.e Guiton 11i11 ( A. B, D)
NicholasJ.d (Resigned July 28,1995) y.
Dean and Professor am ynw t Mqntire School of Commerce P lic airs and Corporate Communications Vice President Umveruty of \\ irgmta, Charlottesville, VA Thomas II. Bar m Information Systems and Vice President ChiefInforma' tion Officer IIenry A. Panasci,Jr. (C. E)
Fossil and Ilydro Generation Chainnan of the Board and Steven W.Tasker Chief Executive Officer MichaelJ. Bovalino Vice President-Controller Fay'sIncorporated Liverpool,NY ng i Economic Deselopment Carl D. Terry Dr. Patti McGill Peterson (A. II),
Vice Preudent President, St. Lawrence Umversity Mic selJ.Cahill Nuclear Engineering Canton, NV 8
Vice Pepident Andrew M. Veser Donald B. Rieller ( A. D. E F)
Ecogomic and Business D.es.elopment Vice President '
Financial Market Consultant (Reured April 1,1995)
Power Delisery Vero Beach, FL.
EdwardJ. Dienst Vice Preudent Stanley W. Wilczek,Jr.
Stephen B. Schwartz (C, E)
Vice President ons Former IBM Senior Vice President Regional Operau.
Customer Senice Palm Beach Gardens, FL William E Edwards Vice President John G. Wick (A, B. E)
Financial Planning E st Amhent W (Effective December 1,1995)
A. Member. Audit Cmnmittee Thomas R. Fair it Member Comminee on Corporaie Vi<e President PuMc Policy and Environmental Affairs Environmental Affairs "P""?# "" *"
Suurssio' n Lumimnee D. Member. Executive Comminer L Member, Finance Comminee E Member, Nudcar Gersight Committee
Niagara Mohawk P wer Ccrporation 300 Eric Boulevard West Syracuse, New York 13202
$