ML20117E170

Forwards Certified Financial Statements for 1984

ML20117E170
Person / Time
Site:	Vermont Yankee File:NorthStar Vermont Yankee icon.png
Issue date:	05/07/1985
From:	Morgan G VERMONT YANKEE NUCLEAR POWER CORP.
To:	Harold Denton Office of Nuclear Reactor Regulation
References
FVY-85-41, NUDOCS 8505100347
Download: ML20117E170 (18)

Text

l VERMONT YANKEE NUCLEAR POWER CORPORATION yh RD 5, Box 169, Ferry Road, Brattleboro, VT 05301 (TY (802)257 5211 May 7, 1985 FVY 85-41 U.S. Nuclear Regulatory Commission Washington, D.C.

20555 Attention: Office of Nuclear Reactor Regulation Mr. Harold R. Denton, Director

Reference:

License No. DPR-28 (Docket No. 50-271)

Subject:

Vermont Yankee Annual Financial Statements

Dear Sir:

In accordance with the provisions of 10CFR 50.71 (b), enclosed please find ten (10) copies of Vermont Yankee's certified financial statements for the year ending December 31, 1984.

Should you have any questions regarding this report please do not hesitate to contact me.

Very truly your,

Glenn J. Mor an Assistant Treasur r GJM/vms Enclosures I(10 8505100347 850507 PDR ADOCK 05000271 I

PDR L.

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O PEAT MARWICK t

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i VERMONT YANKEE NUCLEAR POWER CORPORATION l

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Financial Statements

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December 31, 1984, 1983, and 1982 i

I (With Accountants' Report Thereon) i I

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' O PE Peat, Marwick, Mitchell & Co.

Certified Public Accountants MARWICK one "*toa 'd Boston, Massachusetts 02108

- O 617 723 7700 2O

' O The Stockholders and Board of Directors Vermont Yankee Nuclear Power Corporation:

We have examined the balance sheets of Vermont Yankee Nuclear Power Corporation as f December 31, 1984 and 1983 and the related statements of income and O

retained earnings and changes in financial position for each of the years in the three year period ended December 31, 1984.

Our examinations were made in accordance with generally accepted auditing standards and, accordingly, in-cluded such tests of the accounting records and such other auditing procedures r

as we considered necessary in the circumstances.

In our opinion, the aforementioned financial statements present fairly the financial position of Vermont Yankee Nuclear Power Corporation at December 31, 1984 and 1983 and the results of its operations and the changes in its finan-cial position for each of the years in the three year period ended December 31, 1984, in conformity with generally accepted accounting principles applied on a

O consistent basis.

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February 8, 1985 O

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O VERMONT YANKEE NUCLEAR POWER CORPORATION Balance Sheets December 31, 1984 and 1983 Assets 1984 1983 (Dollars in thousands)

Utility plant:

gg Electric-plant, at cost

$ 267,067 262,391 Less accumulated depreciation 102,186 90,430 164,881 171,961 Construction work in progress 8,771 1,034 Net electric plant 173,652 172,995 dD!

Nuclear fuel, at cost:

Assemblies in reactor 80,629 76,991 Fuel in process 14,983 30,932 Fuel in stock 1,587 Spent fuel 108,762 87,615 205,961 195,538 (p

Less accumulated amortization 148,307 129,845 Net nuclear fuel 57,654 65,693 Net utility plant 231,306 238,688 4

Current assets:

Cash (note 4) 3,503 1,280 Restricted fund (note 3) 487 593 Temporary investments, at amortized cost which approximates market 26,598 Accounts receivable, primarily from sponsors (note 3) 13,462 16,443 GD Income tax refunds receivable 1,080 10,884 Materials and supplies, at cost 7,876 7,430 Prepaid expenses

'1,277 1,140 Total current assets 54,283 37,770 (Di Deferred charges:

Restricted fund (note 3) 2,784 599 Deferred decommissioning costs (note 3) 27,518 25,034 Unamortized debt expense 725 895 Accumulated deferred income taxes (note 7) 3,524 1,680

-Deferred reload analysis development costs 948 1,465 ID Other' deferred charges

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959

-Total deferred charges 35,499 30,632

$ 321.088 307,090 e

-See accompanying notes to financial statements.

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10 lO Capitalization and Liabilities 1984 1983 (Dollars in thousands)

O Capitalization:

Common stock equity (note 5):

Common stock, $100 par value; authorized 400,100 shares; outstanding 400,014 shares

$ 40,001 40,001 Additional paid-in capital 14,392 13,953

()

Retained earnings 5,449 5,259 Total common stock equity 59,842 59,213 Redeemable cumulative preferred stock, 7.48% series;

$100 par value; authorized 300,000 shares; out-

()

standing 116,830 shares (138,941 shares in 1983)

(note 5) 11,683 13,894 Long-term debt, net (note 6) 59,328 78,375 Disposal fee for spent nuclear fuel (note 2) 39,285 39,285 Total capitalization 170,138 190,767

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Current liabilities:

Long-term debt to be retired within one year (note 6) 2,746 2,202 Notes payable (note 4) 29,000 4,100 Accounts payable 11,502 12,233 Accrued interest 1,447 1,639

!(3 Accrued taxes 2,912 3,511 Total current liabilities 47,607 23,685 Accrued decommissioning costs (note 3)'

30,535 26,159 Accrued interest on disposal fee for spent nuclear 13 fuel (note 2) 6,777 2,608 Accumulated deferred income taxes (note 7) 50,834 50,603 Accumulated deferred investment tax credits (note 7) 10,530 8,962 Unamortized gain on reacquired debt, net 4,667 4,306 Total deferred credits 103,343 92,638

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Commitments and contingencies (notes 2, 3 and 9) s

$ 321,088 307,090

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O VERMONT YANKEE NUCI. EAR POWER CORPORATION Statements of Income and Retained Earnings Years ended December 31, 1984, 1983 and 1982 0

1984 1983 1982 (Dollars in thousands -

except per share amounts)

Q Operating revenues

$ 117,009 113,070 106,256 Operating expenses:

Nuclear fuel expense (note 2) 21,449 18,750 31,725 Other operating expenses 35,475 33,992 29,758 Maintenance 16,749 20,398 10,718 O

Depreciation 12,031 10,889 9,942 Decommissioning expense (note 3) 1,793 1,122 Taxes on decommissioning (note 3) 1,847 1,112 Taxes on income (note 7) 3,609 5,558 5,048 Property and other taxes 4,715 4,192 4,349 T **1 Perating expenses 97,668 96,013 91,540 O

Operating income 19,341 17,057 14,716 Other income and deductions:

Interest 2,078 40 88 Taxes on other income (1,041)

(47)

(43)

O Other, net (2) 38 (57) 1,035 31 (12)

Income before interest expense 20,376 17,088 14,704 Interest expense:

O Interest on long-term debt, net 6,537 7,192 7,684 Interest on disposal costs of spent nuclear fuel (note 6) 4,169 2,608 Other interest expense 2,805 319 107 Total interest expense 13,511 10,119 7,791 O

Net income 6,865 6,969 6,913 Retained earnings at beginning of year 5,259 5,165 5,193 12,124 12,134 12,106 Dividends declared:

Preferred. stock, $7.48 per share 915 1,115 1,181 O

Common stock, $14.40 per share 5,760 5,760 5,760 Retained earnings at end of year 5.449 5,259 5,165 Net income per average share of common stock

"*"di"8 8 I'*87 I'*6' I'*33

-O See accompanying notes to financial statements.

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O VERMONT YANKEE NUCLEAR POWER CORPORATION Statements of Changes in Financial Position Years ended December 31, 1984, 1983 and 1982

,0 1984 1983 1982 (Dollars in thousands)

Source of funds:

Net income 6,865 6,969 6,913 Charges (credits) 'to income not requiring funds:

10 Depreciation 12,031 10,889 9,942 Amortisation of nuclear fuel 18,462 18,750 31,725 7,876 Amortization of deferred downtime costs Deferred income taxes (1,613) 18,035 (11,213)

Investment tax credit adjustments 1,568 3,217 (592)

Increase in decoussissioning costs 1,892 1,125

O Interest on disposal costs of spent nuclear fuel 4,169 2,608 1

Other, net 1,498 505 567 Total funds from operations 44,872 62,098 45,218 Additions to long-term debt 12 8,948 6,233

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Decrease in working capital 7,409 10 Total funds provided S 52,293 71,046 51,451 Use of funds:

Electric plant additions 11,740 18,650 8,674 Nuclear fuel additions 10,423 22,678 21,205 Restricted fund 2,185 599 201 D*f*"*d

• • l *d ""*1 818 devel Puent costs 7

.O 956 Increase in deferred charges Reduction of long-term debt 19,059 3,040 4,135 Redemption of preferred stock 2,211 1,013 1,158 Preferred stock dividends 915 1,115 1,181 Common stock dividends 5,760 5,760 5,760 17,235 9,137 i O I"c'*88* i" " ' kin 8 c8P tal i

Total funds applied

$ 52,293 71,046 51,451 Changes in components of working capital:

Increase (decrease) in current assets:

Cash 2,223 474 (339) iO Restricted fund (106) 593 Temporary investments 26,598 Accounts receivable (2,981) 2,430 2,387 Income tax refunds receivable (9,804) 10,884 Materials and supplies 446 1,421 1,596 Prepaid expenses 137 (690) 1,387 lO 16,513 15,112 5,031 Increase (decrease) in current liabilities:

Long-term debt to be retired within one year 544 (2,629)

(8,694)

Notes payable 24,900 4,100 Accounts payable (731) 1,656 (2,957)

Accrued interest (192) 67 (354)

Accrued taxes (599)

(5,317) 7,899 23,922 (2,123)

(4,106)

Increase (decrease) in working capital S

(7,409) 17,235 9,137 See accompanying notes to financial statements.

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VERMONT YANKEE NUCLEAR POWER CORPORATION O.

Notes to rinancial Statemenes December 31, 1984, 1983 and 1982 (1) summary of Sinnificant Accountina Policies O

(a) Romulation and Doerations The Company is subject to the regulatory authority of the Federst Energy Regulatory Coussission (FERC), the Recurities and Exchange Commission (SEC) and the Public Service Board of the State of Vermont as to accounting, i

transactions with associated companies, and securities issues, respective-

'Q ly.

The Company is also-subject to regulation by the Nuclear Regulatory f

Consission (NRC) with respect to nuclear plant licensing and safety, and by l

. Federal and state' agencies with respect to air and water quality, land use j

and other environmental matters.

i Pursuant to the terms of Power Contracts, as amended, and Additional Power

!O Contracts, each Sponsor is obligated to pay the Company each month (regard-

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1ess of the Plant's operating level or whether it is operating or_ shutdown j

during the period), an amount equal to such Sponsor's entitlement percent-age of the Company's total fuel costs and operating expenses with respect to j

the Plant, and an allowed return on equity.

Such contracts obligate the j

Sponsors to make decosmiissioning payments to the end of the service life and

O the completion of the decommissioning of the unit, 'notwithstanding that the unit may not operate or may be prematurely _decommnissioned.

Under the terms of the Capital Funds Agreements, which terminate on December j'

31, 2002, the Sponsors are committed, subject to obtaining necessary'regu-4 latory authorisations, to make fuads available in amounts required to ob-jO tain or maintain ~ licenses necessary to keep'the Plant in operation.

2 (b) Depreciation and Maintenance l

Electric plant is being depreciated on the straight-line method at rates de-signed to fully depreciate all depreciable properties by 1998. Total depre-clation expense was between 4.0% and 4.33% of the cost of depreciable O

utility plant for the years 1982 through 1984.

I Renewals and betterments constituting retirement units are charged to electric plant. Minor renewals and betterments are charged to maintenance expense.

At the time depreciable properties ate retired, the original cost, plus cost l

of removal, less salvage of ~ such p.operty is charged to the accumulated jO provision for depreciation.

(c) Amortisation of Nuclear Fuel l

The cost of nuclear fuel is amortised to expense on the basis of the rate of j

burn down of the individual ' assemblies comprising the total core.

The lO Company also accrues the estimated future costs of disposing of. spent nuclear fuel.

In -compliance with Statement of Financial Accounting l

Standards. No. 71 'the Company has classified 'the disposal fee for spent nuclear fuel as other long-term debt and has revised the 1983 presentation j

to conform to the '1984 presentation.

See note 2 to the financial state-l ments.

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O VERMONT YANKEE NUCLEAR POWER CORPORATION Notes to Financial Statements

O' (d) Deferred Charges Costs associated with scheduled,lant downtime for replacement of nuclear fuel i

I assemblies and major maintenance are expensed as incurred.

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(=) Deeomaissionin The Company accrues and defers the estimated costs of decommissioning its nuclear reactor as such costs are incurred.

See note 3 to the financial statements.

(f) Taxes on Income 10 The tax effects of timing differences ara accounted for as prescribed by and in accordance with the rate-making policies of FERC. Provisions for deferred 4

i income taxes reflect the tax effects of all timing differences.

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Investment tax credits are deferred and amortised to income over the lives of the related assets.

Jo (2) Nuclear Fuel Expense

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j On June 10, 1983, the Company entered into a contract with the United States Department of Energy (DOE) for the permanent disposal of spent nuclear fuel.

4 Disposal services will be provided to the Company when the DOE's disposal f*Cility f r 8 pent nuclear fuel and other high-level radioactive waste is

O available, which'is required by statute to be prior to January 31, 1998.

Consistent with the terms of the above contract, Sponsors are billed a fee, subject to annual adjustment by the DOE, of $.001 per gross kilowatt hour of generation. Such billings commenced on April 7, 1983. Funds collected are remitted t the DOE on a quarterly basis.

Operating expenses include

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approximately $2,987,000, $3,300,000, and $10,500,000, for 1984, 1983 and 1982, respectively for contractual obligations to dispose of spent nuclear fuel.

l The above contract also obligates the Company to pay a one-time fee of lQ

$39,285,000, which has been collected from Sponsors, for the disposal costs associated with all fuel burned through April 7, 1983. This amount can be j

paid by one of three payment options which include (1) a lump sum payment of the fee anytime prior to June 30, 1985; (2) a lump sua payment of the fee 1

plus accrued interest anytime prior to the first delivery of spent nuclear fuel to the DOE; or (3) quarterly payments of the fee plus accrued interest 1

!O over a ten year period beginning anytime prior to January 31, 1988.

Interest charges for the last two options are based on the thirteen-week 1

Treasury-Bill rate and a combination of the thirteen-week Treasury Bill and j

ter. year Treasury Note rates, respectively..The Company began collecting these anticipated interest charges from its Sponsors, based on the j

thirteen-week Treasury-Bill rate, in June, 1983. As of December 31, 1984,

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$6,777,000 of such interest has been collected which is subject to refund, l

depending on the method of payment ' selected. The weighted average interest rate for such collections was 9.74% and 8.67% for 1984 and 1983, l

respectively.

(Continued) 0 1

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VERM0lff YANKEE NUCLEAR POWER CORPORATION O

Notes to rinanetal Statemenes (3) Decommissionina The Company anticipates that any of three methods of decommissioning nuclear O

Power plants will be acceptable to the NRC, which maintains responsibility for approving the method used.

Such methods include complete dismantling and removal, entombment, and mothballing; or a combination of these methods. Based on a consultant's study, the estimated cost of decommission-Ing using the complete dismantlement method, which management presently believes is the most desirable alternative, is approximately $72,700,000 in Q

1981 dollars.

Such study will be updated on a periodic basis.

Billings for decommissioning, adjusted for 7% annual inflation, commenced on September 24, 1983 pursuant to the terms of the Power Contracts which obligate all Sponsors for their pro rata share of such cost.

Funds collected for decommissioning and the related tax liability thereon are O

Presently placed in decomeissioning escrow accounts.

The Company is required to modify its schedule of collections every four years based on inflation, with the first modification effective January 1, 1985.

If the average inflation rate, as determined by the Consumer Price Index, differs from the 7% rate used for the prior four year period, the prior four O

year period will be recomputed using actual inflation rates. An estimated 7% rate will be used for all future years and future collections will then be adjusted to fund the estimated liability through the time of decoussissioning.

In compliance with Statement of Financial Accounting Standards No. 71 the O

company besan to accrue and defer the above decosusissioning liability, as adjusted for inflation, in 1984.

The accompanying financial statements include the following amounts relative to deconssissioning:

1984 1983 (Dollars in thousands)

Accrued decoausissioning costs:

Restricted fund - deferred

$ 2,784 599 Accounts receivable from sponsors 233 526 Deferred decommissioning costs 27,518 25,034 O

$ 30.535 26,t59 Income taxes:

Restricted fund - current 487 593 L

Accounts receivable from sponsors 242 521 O

729 1,114 (Continued)

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VERMONT YANEEE NUCLEAR POWER CORPORATION O

notes to Pinaaetal Statements Operating expenses include $1,793,000 and $1,122,000 for decommiissioning costs, and $1,847,000 and $1,112,000 for the reisted tax liability for 1984 and 1983,~ respectively.

Income taxes collected are subject. to refund pending resolution of the tax status of the decomnissioning funds.

(4) Consensatina Balances and Short-tern Borrowinas O

The Company had lines of credit from various banks totalling $15,750,000 and

$16,000,000 at December 31, 1984 and 1983, respectively. Of these amounts

$8,000,000 and $10,000,000 required average compensating balances equal to 7.0% and 7.1% of the outstanding line.

. Additionally $1,000,000 of the December ~ 31, 1983 credit line required an average compensating balance equal to 2.5% of the outstanding loans.

O The Company also has a $50,000,000 Eurodollar Credit Agreement which expires on October 4,

1987.

The - balance outstanding under such agreement was

$29,000,000 at December 31, 1984.- This amount, due January 28, 1985, has an interest rate of 9.06% and is secured by the nuclear core of the company's generating facility.

'O The maxminum amount of short-term borrowings outstanding at any month-end during 1984 and 1983 was $29,770,000 and $5,600,000, respectively.

The average daily amount of such borrowings outstanding.was $22,592,000 and

$2,236,800, respectively, with a corresponding weighted average interest rate of 11.23% and 10.12%.

O (5) Capital Stock So long as any shares.of.the Cumulative Preferred Stock are outstanding, the payment of cash dividends and distributions on Common Stock (other than redemptions, which requires 30% common equity after redemption) is limited O

" hen Coas on Stock Equity (as defined) is less than 25% of Total Capitatisa-tion (as defined).

At December 31, 1984 Comunon Stock Equity was 46% of Total Capitalisation.

The 7.48% series Preferred Stock is redeemable (1) at par through a mandatory sinking fund in the amount of $1,100,000 per annum, (2) at the option of the

.O Company, se par, an addition.1 $1,100,000 per annum and (3) in whole or in part from time to time, at redemption prices per share ranging from $105 in 1984 to $100 in 1998, together in each case with accrued and unpaid divi-donds to the redemption date.

Any gains or losses on redemption of' pre-ferred stock are charged or credited to other paid-in capital.

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VERMONT YANKEE NUCLEAR POWER CORPORATION i

Q Notes to Financial Statements (6) Lona-Tera Debt A suussary of long-term debt is as follows

1984 1983 4.O (3 11,, to twoo,eoa )

First mortgage bonds:

i Series A - 9.625% due 1998

$ 42,339 45,529 i

Series B - 8.50% due 1998 8,024 8,024 Series C - 7.70% due 1998 10,958 11,738 O

T **1 fic mortgage bonds 61,321 65,291 Unamortised premium on debt 98 105 Net first mortgage bonds 61,419 65,396 l

Obilgation under capital lease 655 643 i

Vernon Energy Trust borrowings 14,538

O Total long-term'd.bt 62,074 80,577

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Less long-term debt to be retired within one year 2,746 2,202 Long-term debt, net

$ 59.328 78,375 The Mortgage constitutes a first lien on utility plant, excluding nuclear fuel.

lO Bonds issued under the Mortgage are further secured by the terms of the l

Power Contracts (except for related fuel payments) and the Capital Funds l

Agreements with the sponsors.

Sinking fund requirements with respect to j

First Mortgage Bonds amount to $4,514,000 annually.

In November 1981, the Company entered into agreements to finance its nuclear

O fuel through the Vernon Energy Trust.

The Trust finances nuclear fuet through the issuance of commiercial-paper 'and bank loans on a revolving credit basis up to an aggregate amount of $40,000,000 outstanding.

The Trust may acquire an inventory of nuclear fuel in process from or on behalf i

of the Company. Af ter fabrication is completed, the Trust may sell the fuel 1

t the Company and lend the Company funds to pay for such fuel.

Loans O

1 issued by the Trust are secured ' by a pledge of the Company's right ' to l

receive fuel costs under power contracts with its sponsors.

Loans out-standing to the Trust are to be paid as fuel is consumed.

4 The Company initially borrowed under the above agreement based on the value of

'O the fuel in its reactor. As additional financing is needed, the Company may assign its interest in uranium and fuel contracts to the Trust. The initial term of the agreement is through November 1, 1985.

If the Trust fails to give written notification of termination, the term will continue for addi-tional one year periods through the year 2000.

Such written notification.

l must be at least one year in advance of the effective termination date.

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(Continued)

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VERMONT YANKEE NUCLEAR POWER CORPORATION

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Notes to Financial Statements (7) Income Taxes The componenti of income tax expense are:

1984 1983 1982 (Dollars in thousands)

Taxes on operating income:

Federal - current 2,553 (14,106) 14,416 (3

Federal - deferred (1,349) 15,510 (9,644)

State - current 1,101 (1,588).2,437 State - deferred (264) 2,525 (1,569)

Investment tax credit adjustments 1,568 3,217 (592) 3,609 5,558 5,048

[(3 Taxes on other income:

Federal - current 870 40 38 State - current 171 7

5 Total income taxes 4,650 5,605 5,091 C)

A reconciliation of the Company's effective income tax rates with the Federal statutory rate is as follows:

1984 1983 1982 Federal statutory rate 46.0%

46.0%

46.0%

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State income taxes, net of

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Federal income tax benefit 4.1 4.0 3.9 Investment credit (13.5)

(9.1)

(9.0)

Other 3.8 3.7 1.5 40.4%

44.6%

42.4%

.O The items comprising deferred #acome tax expense are:

1984 1983 1982 (Dollars in thousands)

Excess of tax depreciation over financial

. C) statement depreciation 1,191 265 1,726 Fuel amortization for financial statement purposes less (greater) than tax amortization (1,153) 19,084 (9,236)

Interest on disposal costs of spent nuclear fuel (2,101)

(1,314)

Deferral of maintenance expenses for financial statement purposes (3,920)

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H Other 450 217 (1,613) 18,035 (11,213)

(Continued)

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VERMONT YANKEE NUCLEAR POWER CORPORATION.

i Notes to Financial Statements

'O (8) Pension Plana The Company has two non-contributory trusteed pension plans covering all regu-lar employees. and follows the consistent policy of. funding all costs i

accrued. Pension costs were $311,000, $320,000, and $254,000 for the years i

1984, 1983 and 1982, respectively, including amortisation of unfunded lia-

O bilittee over a period ending in 1998.

Accumulated plan benefits and net i

assets available for benefits as of the latest valuation dates are presented i

below:

January 1, 1984 1983 lO (Dollars in thousands)

Actuarial present value of accumulated plan benefits:

vested

$ 1,180 965 Nonvested 261 206 4

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& 1.441 M

]

Net assets available for benefits

$ 3.172 2g I

l An assumed weighted average rate of return of 8.5% was used in determining the actuarial present value of accumulated plan benefits.

lO (9) Commitments and Continaencies The Company has commitments for nuclear fuel purchases through 1989 approxi-mating $87,000,000.

Such consnitments amount to approximately $25,000,000,

$12,000,000, $15,000,000, $17,000,000 and $18,000,000 for the years 1985 j

through 1989, respectively.

O Vermont Yankee has contracted for uranium concentrate to meet sub'stantially l

all its power production requirements through 1991.

It has two long-term

~

contracts for uranium by product extraction, expiring in 2003 and 1992, respectively, each of which at the time of execution was expected to provide i

up to about 20% of its uranium requirements during these periods. Under the

O contract expiring in 2003, the Company is committed to make minimum pay-i ments, aggregating $4,987,000 plus interest as of December 31, 1984, over a period ending not later than 1993 regardless of the amount of uranium that is actually produced.

In January 1983, the company and others initiated j

legal' action to determine whether the latter contract (expiring in 1992) j could be terminated because of the seller's failure to. perform properly jO thereunder.

1 The Company has also contracted for uranium enrichment services from a source 2

other than the Department of Energy, which has its facilities.in France.

The contract provides for all of the Company's uranium enrichment services, j

for the term of 1987-1996, with option to extend if the Company so chooses.

O The Company also has an enrichment contract with the Department of Energy j

through 2001, which it has' partially terminated for the period 1987 to 1996.

The Company has comunitments for capital expenditures amounting to approxi-mately $23,000,000 and $10,000,000 for the years 1985 and 1986, respective-

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4 VERMONT YANKEE NUCLEAR POWER CORPORATION iO Notes to Financial Statements The Company has filed a petition for a rate increase with the FERC.

In its

. petition the-Company requested that it be allowed to (1) increase the rate of return e'arned on its common equity capital from 10% to 18%, (2) modify

,!O the re==ining d*Preciable lives of certain components of its plant in service, and (3) adopt the FERC's current rulemaking regarding the inclu-sion of construction work in progress in the Company's rate base.

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Events at Three Mile Island Nuclear Unit No. 2 in Pennsylvania ("TMI") have prompted a rigorous reexamination of safety related equipment and operating iO Procedures in all nuclear facilities. New regulatory requirements involv-ing both physical and procedural changes have been and are being promul-gated, with which all nuclear facilities will have to comply.

Until the scope of these improvements, as they apply to the Plant, and the time 1

schedules for compliance have been fully defined, neither the cost of all modifications nor their effect, if any, on the operations of the Company can

!Q be definitively determined.

The Company anticipates these and other i

requirements will necessitate significant capital expenditures in the future.

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The Price-Anderson Act currently limits public liability from a single acci-dent at a nuclear power plant to $610,000,000. If the total damages result-lO ing from an accident exceed the private pool insurance coverage of

$160,000,000, then the Company would be required to pay its share of the excess up to a maximum of $5,000,000 per accident with a maximum of

$10,000,000 per year..

Under the provisions of the Power Contracts, the Company's share of any such payments would be passed on to the Sponsors.

l Although the Price-Anderson Act expires by its terms in 1987, Congressional 10 hearings on possible bases for its extension are expected in the coming j

months.

(10) Unaudited Quarterly Financial Information The following quarterly financial information is unaudited and in the opinion

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of management includes all adjustments (consisting only of normal recurring

- accruals) necessary to a fair statement of results of operations for such periods.

Quarter ended 1984 March June.

September December 1

(Dollars in thousands --except per share amounts) iO Operacing revenues

$ 24,745.

29,228 31,888 31,148 Operating income 4,681 4,919 4,864 4,877 l

Net income 1,728 1,710

.1,714 1,713 Net income per share i

of conson stock 3.67 3.73 3.74 3.73 Quarter ended l O.

1983 March aune se,eember December 1

(Dollars in thousands - except per share amounts)

Operating revenues S 23,845 31,064 23,707 34,454 Operating income 3,409 3,609 3,597 6,442 Net income 1,736 1,740 1,742 1,751

!O Net income per share-

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of cossnon stock 3.64 3.65 3.65 3.70 (Continued)

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. VERMONT YANKEE NUCLEAR POWER CORPORATION a

O Notes to rinancial seacements i

(11) Unaudited Information on the Effects of Changing Prices (Inflation)

The following is ' supplied for the purpose of providing certain information about the

O effects of inftstion. It should be viewed as an estimate of the approximate effects of inflation, rather than as a precise measure. A statement of income adjusted for changes in specific prices (current cost) follows

Year ended December 31, 1984 (dollars in thousands)

'O Adi"***d f r Conventional changes in historical specific cost prices Operating revenues

$ 117,009 117,009

' O Perating expenses:

Nuclear fuel expense 21,449 24,619 Other operating expenses 35,475 35,475 Maintenance 16,749 16,749 Depreciation 12,031 28,483 Decoimaissioning expense 1,793 1,793

,Q Taxes on decommissioning 1,847 1,847 Taxes on income 3,609 3,609 i

Property and other taxes 4,715 4,715 Total operating expenses 97,668 117,290 Operating income (loss) 19,341 (281)

'O Other income and deductions, net 1,035 1,035 Interest expense (13,511)

(13,511)

Net income (loss), excluding reduction to net recoverable cost 6,865 (12,757) (A)

O Gain from decline in purchasing power of net amounts owed 2,473 Reduction to net recoverable cost (10,420)

(7,947)

Effect of increase in general price level 18,971 Increase in specific prices (current cost) of property, plant and equipment held during the year (B) 4,191 Excess of increase in general price level over increase in specific prices 10 14.780

-(A) Including the reduction to net recoverable cost, the net loss would have been

$23,177,000.

(B) At December 31, 1984, the current cost of utility plant, net of accumulated deprecia-tion and amortization 6 was estimated to be approximately $471,940,000 as compared with net utility plant recoverable through depreciation and amortization of 0

$231,306,000..

1 (Continued)

!O to VERMONT YANKEE NUCLEAR POWER CORPORATION Notes to Financial Statements A five-year comparison of selected supplementary financial data adjusted for the effects of changing prices, stated in average 1984 dollars follows:

O 1984 1983 1982 1981 1980 (dollars in thousands-except per share amounts)

Operating revenues

$ 117,009 117,882 114,342 100,696 98,749 Current cost information:

'O

"** * " (*** "di"8 "*d"**i net recoverable cost)

$ 12,757 21,180 12,638 9,929 8,804 Net loss per share of common stock (excluding reduction to net recoverable cost) 34.18 55.85 26.19 27.55 27.35 Increase in general price level lQ over (under) increase in specific prices 14,780 (7,915) (28,792) 13,164 29,668 Net assets at year-end at net recoverable cost S 57,943 48,851 57,961 63,855 75,054 General information:

)Q Gain from decline in purchasing power of net amounts owed 2,473 6,928 6,960 16,382 23,181 Cash dividenda declared per 4

common share 14.40 15.01 15.49 17.13 18.92 Average consumer price index 311.1 298.4 289.1 272.4 246.8 O

Dollar amounts adjusted for changes in specific prices (current cost amounts) reflect the changes in specific prices of net utility plant from the date the plant was acquired to the present.

The current cost of property, plant, and equipment, which includes land, land rights, intangible plant and construction work in progress, represents the IO estimated cost of replacing existing plant assets and was determined by i

indexing surviving plant by the Handy-Whitman Index of Public Utility Con-struction Costs.

The current cost of nuclear fuel was determined by engineering estimates of the replacement cost of fuel currently in the The current year's provisions for nuclear fuel expense and depre-reactor.

,O ciation of utility plant were determined by applying the Company's depreci-ation and amortization rates to the restated plant amounts.

As prescribed in Financial Accounting Standard No. 33, income taxes were not adjusted.

(Continued)

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[C) 11 I)

VERMONT YANKEE NUCLEAR POWER CORPORATION

()

Notes to Financial Statements Under terms of the Power Contracts, which specify costs billable to the Com-pany's Sponsors, only the historical cost of utility plant is recoverable in revenues as depreciation. Therefore, the excess of the cost of plant stated IC) in terms of current cost that exceeds the historical cost of plant is not presently recoverable in rates as depreciation, and is reflected as a reduc-tion to net recoverable cost.

The Company will be allowed to earn on the increased cost of its net investment when replacement of facilities actually occurs.

. C)

To Properly reflect the economics of rate regulation in the statement of income adjusted for changing prices, the reduction of net property, plant, and' equipment should be offset by the gain from the decline in purchasing power of net amounts owed. - During a period of inflation, holders of monetary assets suffer a loss of general purchasing power while holders of monetary liabilities experience a gain.

The gain from the decline in purchasing oC) power of net amounts owed is primarily attributable to the substantial amount of debt which has been used to finance property, plant, and equip-ment.

Since the depreciation on this plant is limited to the recovery of historical costs, the Company does not have the opportunity to realize a holding gain on debt and is limited to recovery only of the embedded cost of debt capital.

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