ML20134B710

Duke Power Co,1984 Annual Rept

ML20134B710
Person / Time
Site:	Oconee, Mcguire, Catawba, McGuire, 05000000
Issue date:	12/31/1984
From:	Booth D, Willie Lee DUKE POWER CO.
To:
Shared Package
ML20134B666	List: ML20134B664 ML20134B676 ML20134B696 ML20134B710
References
NUDOCS 8508160046
Download: ML20134B710 (48)

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About Duks Power Comp:ny Duke Power is the nation's of which were derived from eighth largest investor-owned North Carolina,30 percent f electric utility. With headquar- from South Carolina. Revenues I ters in Charlotte, N.C., the Com- totaled $2.7 billion.

pany serves nearly 1.4 million customers in a 20,000-square- Duke's retail customers are mile area of North and South served through 96 district and Carolina known as the branch offices. In addition, the Piedmont. Company sells electricity to bulk users at wholesale and Duke operates two nuclear contractual rates.

stations, eight coal-fired plants and 26 hydroelectric facilities.

A third nuclear stationis under-going pre-operationaltesting ^

and is scheduled for commer-cialoperation in 1985.

Sales in 1984 totaled 54.4 bil-lion kilowatt-hours,70 percent l

1 1

Financial Highlights Percent Duke Power Company 1984 1983 (decrease)

Kilowatt-hour sales 54,399,254,000 54,151,333,000 -

Electnc revenues $2,710,015,000 $2,420,252,000 12.0 Earnings for common stock $ 399,545,000 $ 368,677,000 8.4 Common stock data Average shares outstanding 100,346,000 97,784,000 2.6 Eamings per share $3.98 $3.77 5.6 Dividends per share $2.42 $2.32 4.3 Book value per share (yearend) $27.80 $26.26 5.9

~

Return on average common equity 14.8 % 14.8 % -

Plant construction costs $ 644,754,000 $ 679,726,000 (5.1)

Total electric plant, net $6,152,618,000 $6,162,492,000 -

Fbak load (Kw)

Summer 11,043,000 11,554,000 (4.4)

Writer 10,863,000 10,378,000 4.7 l

Eamings per share Retum on average common equity Dollars Percent 16 W% i l l l

U 19

$2 32 M 42 52.24 1908l %3 98

$208

$195 1980 1961 1982 1963 1964 1980 1981 1982 1983 tw,4 b$$NEs$2 IIrn 2

, ,,- ,-<- -- - n nu $YcM,y-

,3.g ### -- -

To Our Shareholders:

1984 was a productive and profit- proved a revised long-term financial plan able year for Duke Power Company. designed to maintain Duke's improved Eamings per share rose to $3.98, financial strength.

up 5.6 percent from $3.77 in 1983. Total retum on common equity remained sta-ble at 14.8 percent. Superb nuclear performance Higher sales, increased investment Nuclear power continues to be a income and higher non-utility income success story at Duke Power. The Com-contnbuted to the improved earnings. pany's five nuclear units compiled an The effect of rate increases was sub- operating record in 1984 unequaled in stantially offset by higher costs. the electric utility industry. And for the Total kilowatt-hour sales, including f rst time in the Company's history, more portions of electricity supplied to certain than half of its electricity was generated purchasers of the Catawba Nuclear Sta- w th clean, economical nuclear power. If tion, increased 4 percent in 1984. this electricity had been generated with coal,it would have cost an estimated Financial position stronger m on n aMod bel expense.

We also took major steps toward Improved eamings further wrapping up one of the largest nuclear strengthened the Company's long-term plant construction programs in the financial position, building on 1983's nation.

noteworthy gains. We generated 86 per- Unit 2 of the McGuire Nuclear Sta-cent of our capital requirements from in- tion was brought through the regulatory ternal sources. Fixed charges coverage, thicket into commercial operation at the which indicates the number of times lowest cost of any comparable unitin eamings comr fixed costs bcfore taxes the nation. Construction of the Catawba and dividends, increased to 4.21 times. Nuclear Station is nearing completion.

Common stock equity as a percentage We loaded fuelinto Unit 1 of Catawba, of total capitalization climbed to 45 received a full-power operating license percent. and began generating electricity during Eachof thesemeasuressatisfied pre-operational testing. The unit is

a target of the Company's long-term fi- scheduled for commercial service this i

nancial plan. In recognition of this spring. Construction of Unit 2 is ahead stronger financial condition, major rating of its 1987 scheduled completion date.

agencies again upgraded several of the in late December the Company Company's securities during the year. completed the sale of another portion of Responding to heightened inves- the Catawba station to a group of South tor concern about nuclear utilities, the Carolina municipal customers. The $457 Board of Directors in January 1985 ap- million received at closing added signifi-3

cantly to corporate liquidity. The Com- begin operating, corresponding rate in- outstanding service. We all benefited pany will retain the remaining 12.5 per- creases will be required. Although most from his wise counsel and wish him well cent of Catawba and will be responsible of the station has been sold, the Com- in future endeavors. W. W. Johnson, for the station's completion and pany will be purchasing large amounts chairman and chief executive officer of operation. of power from the plant's other owners Bankers Trust of South Carolina, was Duke's noted successes in the for some years. The cost of this pur- elected to replace Bill Watkins on the design, construction and operation of chased power, along with the cost of Board. We welcome him to the Duke what we think are the finest nuclear Duke's interest in the plant, will have to Power family.

plants in the country are featured in a be reflected in rates - a fact not well The continued hard work and spacial section of this report, beginning understood by many of our customers. dedication of our employees also de-on page 14. We prepared for this, and an active pub- serve applause. We must remember it is lic education effort is under way their individual achievements combined throughout our service territory to ex- that produce the many accomplish-1985 and beyond plain the need for increases. ments we are so proud of as a The next several years will be a Similar educational efforts will be company.

period of both opportunity and chal- required to address a number of other Finally, thank you for your contin-lenge for Duke Power. With completion issues likely to confront the electric util- ued support. Let us hear from you if you of our nuclear construction program, we ity industry in the years ahead. These have any suggestions or questions.

expect to be able to finance near-term include tax legislation, proposals to deal capital requirements entirely from inter- with acid rain, and nuclear regulatory re-nal sources. Therefore, no public offer- form. Management will continue to keep ings of common stock are anticipated shareholders informed on these and .

for a number of years. This respite from other issues. -

capital markets, together with the pros- As we look ahead, we understand William S. Lee pect of our area's continued economic we cannot be satisfied with past and cha,rinan or rne soard and ch,er necure oricer growth, strong nuclear generation and current successes. The environment for increased non-utility eamings, should Duke and all electnc utilities is con-help sustain or improve our financial stantly changing. Markets and technolo-position. gies change. I c."s and regulations The addition of Catawba Units 1 and 2 to Duke's generating system will change. The needs of our customers change. We intend to approach all m

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provide sufficient generating capacity areas of our bminess with the same 9,,Ias

, W. Booth and relatively stable rates into the 1990s flexibility and determination we have cn,er operar, rig orr,cer

-to the benefit of shareholders and demonstrated in our nuclear power pro- February 15,1985 customers alike. We are working hard to gram. We face the future, alert to the dif-get both units into service on or ahead of ficulties, but confident in our abilities.

schedule and under budget. We would especiallylike to thank However, some critical challenges William L. Watkins, who retired from the I still lie ahead. When the Catawba units Board of Directors after nine years of 4

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Yearin Review Financial results in September, marked the ninth consec-utive year the dividend has been raised.

Eamings per share of common stock rose 5.6 percent to $3.98 in 1984, It continued the Company's policy of up from $3.77 in 1983. Total earnings regularly increasing the dividend and were $399.5 million, up from $368.7 maintaining a payout ratio of between 60 and 65 percent.

The improved eamings were attnb- &nancW Statements anMotes utable to higher sales, increased invest- gin n page 26.

ment income and higher non-utility eam-ings. The effect of rate increases was substantially offset by higher costs. Total Total kilowatt-hour sales, including Company retum on common equity re- portions of electricity supplied to certain mained steady at 14.8 percent in 1984. purchasers of the Catawba Nuclear Sta-Eamings coverage of fixed tion, increased 4 percent for the year.

charges rose to 4.21 times, attaining Sales of electricity, excluding cer-the Company's long-sought goal of tain joint Catawba owners, were essen-3.5 times. tially flat, reflecting milder weather during Duke generated 86 percent of its the year. Sales totaled 54.4 billion kilo-capital needs intemally in 1984, includ- watt-hours, compared with 54.2 billion ing proceeds from the Catawba sale, in 1983.

compared with 83 percent in 1983. The Of the 54.4 billion kilowatt-hours increase resuned primarily from the ad- sold in 1984, general service sales in-dition of Unit c of the McGuire Nuclear creased 5.6 percent, while residential Station to rate base and the $457 million sales rose 1.9 percent.

received from the sale of 25 percent in- Total industrial sales increased 4.4 terest in Unit 2 of the Catawba Nuclear percent, primarily because of an 8 per-Station. cent rise in non-textile industrial sales.

At year-end the Ccmpany's capi- Textile sales grew 0.5 percent for the tal structure consisted of 44 percent year. However, in the last quarter, sales long-term debt,11 percent preferred to textile customers declined 7.3 per-and preference stocks, and 45 percent cent, compared with the fourth quarter common equity. of 1983. This reflected the rising pres-The Board of Directors in July sure of imports on American textile rabed the quarterly cash dividend on producers.

comrr on stock to 62 cents per share, Wholesale and other energy sales up from 59 cents. This brought the cur- declined 17.5 percent because of re-rent indicated annual dividend rate to classification of certain wholesale cus-

$2.48 per share, up from $2.36. The in- tomers who were joint owners of the crease, effectrve with the dividend paid Catawba Nuclear Station during the year.

Sales Electric revenues BAonsof KWH Buons of dollars MS M2 M4 NI b2

$14 . $2 4 q Y k

, e  ; o a m 7 .

1980 1961 1982 1983 1984 1980 1961 1982 1963 1964 M k2 tr non e t M tr non xtee t E h12stnal temtee E W1;stnal textee 7 i

f Of the Company's total sales in Rate increases will be filed in both and will be reset annually. The funds are 1984, residential customers accounted North Carolina and South Carolina in to be used to finance pollution control for 27 prcent, general service custom- early 1985 to reflect commercial opera- facilities at the Catawba Nuclear Station ers 20 percent, non-textile industrial tion of Unit 1 of the Catawba Nuclear in York County.

customers 21 percent and textile cus- Station and power purchased under At the time the bonds were sold, tomers 19 percent. Wholesale and other contracts with the station's joint owners. the county reimbursed the Company energy sales accounted for the remain- See Note 2 on page 37 for addi- $34.1 million for costs already incurred ing 13 percent. tionalinformation. for the facihties.

The Company's customer base Also in October, Duke defeased grew 2.8 percent in 1984, totaling nearly Financing $32.9 million of its $50 million issue of 1.4 million at year-end. Duke financed its construction 14% percent first and refunding mort-Additionalinformation on sales and program and fulfilled other capital re- gage bonds, due in 1987.

(

customars can be foundon page 39. quirements with internal funds in 1984. (A defeasance of debt is accom-For the second consecutrve year the plished by placing into an irrevocable Rates and regulation Company had no public sales of com- trust a portfolio of U.S. Treasury securi-mon stock, and none are anticipated in ties that will meet all interest and princi-Regulatory commissions in both Carolinas approved rate increases in the foreseeable future. pal requirements of the debt being 1984, primanly to reflect operation of The Company received $457 mil- defeased. It is a method of removing Unit 2 of the McGuire Nuclear Station. hon on December 20 from the sale of a debt from the balance sheet before the Nmrtheless, the Company's rates re- 25 percent interest in Unit 2 of the Ca- debt is retired.)

mained well below the national average. tawba Nuclear Station to the Piedmont The Company also has chosen to The North Ca olina Utilities Com- Municipal Power Agency. The agency redeem the remaining $17.1 million of mission authorized an 8.4 percent, or represents 10 wholesale municipal cus- the issue at par value on March 1,1985,

$131 million, rate increase in June. The tomers in South Carolina, the first call date.

ruling allows a 15.25 percent rate of re- A group of North Carolina munici- Two major rating agencies recog-turn on common equity. The Company pahties purchased 75 percent of Ca- nized the Company's improved finan-had asked the Commission for a 13.6 tawba Unit 2 in 1978. Groups of cooper- cial condition in 1984 by upgrading cer-prcent increase that would have gener- atives in North Carohna and South tain of its securities. For the second ated an additional $212.8 million a year. Carolina bought 75 percent of Unit 1 in consecutive year, Moody's investors The request sought a 16.5 percent rate 1981. The Company will retain a 25 per- Service, Inc., raised its ratings on the of return on common equity. cent interest in Unit 1 and operate the Company's fixed-income secunties.

The Public Service Commission of station for the joint owners. Moody's raised its ratings on Duke's Scuth Carolina approved a 17.4 per- Duke raised $40 million in October first and refunding mortgage bonds to cent, or $99.7 million, rate increase in through the sale of annual tender, Aa2 from Aa3, preferred stock to aa2 March. The decision allows a 14.75 per- pollution-control revenue bonds issued from aa3 and preference stock to aa3 cent rate of return on common equity. by York County, S.C. It was the Compa- from al. Duff & Phelps improved its rat Duke had requested a 23.7 percent, or ny's first use of canual tender bonds. ing on Duke's first and refunding mort-

$136 million, increase with a rate of re- The rate on these 30-year, tax-exempt gage bonds to 4 from 5 and its ratings turn on common equity of 16.5 percent. bonds is 7% percent for the first year on preferred and preference stocks Capital structure mam,-- Eamings coverage of fixed charges BAons of dollars ss i $6 2 SEC method IS 8 43 % 45% t 21 =

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b Duke also began testing Unit 1 of the Catawba Nuclear Station, located in Catawba Unit 2, the Company's final nuclear unit, was 87 percent com-Qg York County, S.C. The 1,145,000-kilowatt plete at year-end. It is scheduled for E unit is scheduled for commercial service commercial operation in 1987 and is 'M in the spring of 1985. It first generated currently ahead of that timetable. g' electricity during testing January 22, 1985, after receiving a full-power license The Board of Directors in February 1984 set completion dates for the Bad g -

January 17. Creek Hydroelectric Station, under con-struction near Lake Jocassee in north-i

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3;;O gQ ' Q(f 4 W '.' . ,4 - J' . .. t . . 4 :- ; i J c: Duke Power generated more than half of b33 $s;. a YN.hY N .~ 1 i..':- .' ? .. ',' [s ,_

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The Company's network of eight 5

Unit 2 of the oconee Nuclear staten cornpleted 418 days of uninterrupted operaton January 29.1985 - a Coal-fired plants continued to carry a  !

y world record for a light water reactor During its contin large portion of the load, producing 45 y uous run. the 860 000 kikmatt unit generated rnore percent of total generation. Hyoroelec- .?

than 8 billion kilowatt hours of electroty. a national g.

record triC stations supplied 4 percent of sys- ar tem energy. g Interchange sales, pnncipally to ,

certain Catawba owners, reduced total -

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generation available to Duke's custom- eration of a light-water reactor - 418 Light & Tbwer magazine's most recent ers by 5 percent in 1984. days. It generated 8.3 billion kilowatt- survey of comparative heat rates among The addition of Unit 2 of the Mc- hours of eicctricity during the uninter- the country's 100 largest investor-Guire Nuclear Station to the Duke gen- rupted run, a national record. owned electric utilities.

erating system boosted nuclear output. Belews Creek Steam Station, the (Heat rate is the amount of energy The 1,180,000-kilowatt unit, declared largest coal-fired generating plant on the required to produce a kilowatt-hour of commercial in March, generated 7.4 bil- Duke system, celebrated its 10th anni- electricity) lion kilowatt-hours of electricity during versary in September. At year-end the In addition to the overall award, the year. two-unit,2,240,000-kilowatt facility had Duke's network of eight coal-fired gen-Concurrent with commercialoper. generated almost 125 billion kilowatt- erating plants was recognized as the ation of the McGuire unit, the Corrpany hours of electricity since going into op- most efficient fossil system in the nation removed 997,000 kilowatts of aging coal- eration. Belews Creek has consistently again in 1983. The coal-buming system fired capacity from service. The units are competed with the Company's Marshall has led the country in efficiency 12 of being prepared for extended cold shut. Steam Station for top national honors in the past 14 years.

down for possible usein the future. generating efficiency, placing one of its Further, six of Duke's individual Duke's nuclear units act%ved their units first in the country three times. coal-fired units placed in the top 10 best operating performance ever in 1984. Duke Power's generating capacity among more than 2,000 fossil-fired The nuclear system achieved an overall as of December 31,1984, totaled generating units evaluated in the survey capacity factor of 76 percent for the year, 13,594.000 kilowatts. It consisted of Unit 3 of Marshall Steam Station was a substantial improvement over last year's 6,603,000 kilowatts of coal-fired capac- named the most efficient fossil unit in 68 percent and wc!! above the industry ity,4,940.000 kilowatts of nuclear power, the country. A Duke unit has held the awrage of approximately 60 percent. 1,452,000 kilowatts of hydroelectnc ca- top spot seven of the past eight years.

The three-unit Oconee Nuclear pability and 599,000 kilowatts of com- If the Company's overall generating Station recorded an 83 percent com. bustion turbines. This represented 49 system had performed at the average bined capacity factor for the year, sur. percent coal,36 percent nuclear,11 efficiency of the systems surveyed, fuei passing 1983's record performance of percent hydroelectnc and 4 percent costs would have been $73 million higher.

79 percent McGuire Nuclear Station's combustion turbine capacity. Duke also operated the two most two units achieved a 68 percent capac- efficient pressurized-water reactor ity factor. Generating efficiency (PWR) nuclear units in the nation in (Capacity factor refers to the Duke Power was cited as the most 1983, according to heat rate statistics amount of electricity a unit produces in etficient producer of electricity in the compiled by the Nuclear Regulatory relation to the amount it is designed to United States in 1983, the latest year for Commission.

produce if operated without interruption which industry operating statistics are Overall, the four nuclear units the year round.) available. It was the third time the Com- Company operated placed among the On an individual-unit basis Oco- pany has captured the honor in the past top seven of the 46 units of similar de-nee Unit 2 led the nation in 1984 with a four years. sign. Unit 1 of the McGuire Nuclear Sta-capacity factor of almost 97 percent. Duke's combined coal and nu- tion led the nation's PWRs. A Duke nu-On January 29,1985, the unit set the clear generating system led the nation clear unit has ranked first in the United world record for longest continuous op- in fuel efficiency, according to Electric States seven of the past 10 years.

Net generation BAons of KWH r

m em wm wny am w nm nr.n m

i Load management / peak demand 352,000 kilowatts and winter peak de-mand by 427,000 kilowatts in 1984.

I Duke Power's load management Since the load management effort l program aims to reduce the rate of began in 1976, the Company has growth in peak demand while increasing achieved a cumulative reduction of 1.8 j off-peak energy usage. The program million kilowatts in summer peak de-

! continued surpassing its targets by re- mand and 2.3 mdlion kilowatts in winter I ducing summer peak demand by peak demand. The goalis to reduce the summer peak by 5.4 mdlion kilowatts and the winter peak by 6.9 million kilo-4# l watts by 1999 and thereby avoid or j delay the need to build costly new gen-

erating facilities.

Expanding on 40 existing load

management programs, the Company introduced in 1984 an off-peak water l l heating rate for residential customers. It offers a lower kilowatt-hour rate to cus-l tomers who agree to heat water during 5 limited, off-peak hours.

y Winter usage for 1984 peaked 4 ,-

l j February 8, when customer demand i

/3 F reached 10,863,000 kilowatts. This fig-

,/ ure was 4.7 percent above 1983's win-

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, x f> 7 1983.

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% kilowatts was reached January 21,1985,

'4F

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frwestment in new and expanded industry in Duke s serwce territory rose to a record $2 6 bilhon v11984 a 43 percent increase over 1983 The General Electre Microelectronics Center in Research inangle Park near Durham N C . es representatue of the igw of hujh 12 technology that is being attracted to the Piedmont Carohnas

Employee incentive program Through a related effort, the Com-p ny is awarding six, four-year college Duke Power's 20,000 employees scholarships and 14 honorary stipends continued to excel in the ever toughen-each year to high school seniors in its ing Employee incentive Goals Program service area. Called "The Duke Power in 1984, achieving eight of 10 Scholastic Excellence Awards,' the goals'.

p0us a bonus goal of cost reduction scholarships and stipends will be Employees met or surpassed tar' awarded to students who show excep-gets in safety, service reliabihty, affirma-tional scholastic ability and leadership tive action, load management, nuclear otential.

geraration, design and construction, Duke employees responded to the corporate spending and quahty of nu-1984 general election by organizing a clear operations

. bipartisan good government campaign Employees have achieved 36 of called " Power in Citizenship." The grass 42 corporate goals since the program roots effort registered nearly 20,000 began in 1981 - an 86 percent suc- new voters, informed citizens about is-cess rate. Achievement of the goals re-sues and encourcged them to vote.

sults in additional Company contnbu-Duke Power set a record in 1984 tions to the Stock Purchase-Savings for United Way giving. Employee contri-Prcgram for Employees.

butions and corporate gifts to local New, more stringent goals have campaigns across the service area to-been established for 1985.

taled nearly $2.3 million, making Duke and its employees the largest single Community service contnbutor in North Carolina and South Carchna.

Duke Power employees gave from Duke also expanded its Commu the heart as well as the pocketbook in nity Challenge Heating Fund, which 1984, serving on community boards, helps the needy pay their heating bills.

volunteering in schools, supporting local The Company provided $1 to desig-churches and helping the less fortunate.

n ted community service organizations In addition to serving in traditional for every $3 raised from other sources.

ways, the Company and its employees Duke pledged $150,000 in matching established important new civic pro-funds, making available $600,000.

9 rams. Through its ' Power in Education,,

prcgram announced in April, the Com-pany is marshaling its resources to im-prote primary and secondary education in the Piedmont Carolinas and is en-couraging other businesses and indus-tries to do the same.

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Making Nuclear Power Work 1984 was generally a bad news wasn't new. The achievements of 1984 year for the nuclear power industry Re- simply continued a Duke tradition of ports of delayed and abandoned plants, making nuclear power work. Going skyrocketing costs, licensing holdups back to 1973, when the first unit of the and charges of mismanagement made Oconee Nuclear Station began opera-front-page news. In many cases these tion. Duke has built each of its nuclear problems found their way to Wall Street. plants at a cost substantially below the l

Against this bleak backdrop, Duke national average. And year after year they have ranked among the top in the Power's nuclear program recorded its "While other utilities are reeling most outstanding year ever. nation for efficiency.

from cost overruns and operating The Company placed its fifth nu- Before exploring the reasons be-d83** 8 " *38 P38" clear unit into commercial operation at a hind Duke's nuclear success, it is ap-

,,,',,,,%,,,,,,,,,,g cost of only $918 per kilowatt - the propriate to assess the benefits: Why has compiled a record that is the lowest of any nuclear unit completed in should anyone evaluating Duke Power envyof theindustryp its era. Duke also began pre-operational considerits nuclear program a plus?

The mistmet Jbumat, october 17,1984 testing of its sixth unit, built at a price The answers are several, and they expected to be well below the compara- are allimportant.

ble national average. The Company's five operating nuclear units set records a Secunty. In the face of an uncertain for both capacity factor and efficiency world energy picture, it would be impru-And far from being a financialliability, dent to rely on any one fuel source.

the nuclear units were again credited Duke's mix of nuclear, coal and hydro-with boosting eamings. At the same electric generation ensures its custom.

time, fuel saUngs from the units helped ers a reliable supply of electricity The keep customer rates well below the na. Company is dependent on no overseas tional average. country for its fuels.

Duke's successes helped balance a Economy Despite higher construction the nuclear news of 1984 as upbeat costs, nuclear plants pay off through stories about the Company's program lower fuel expenses. In 1984 the cost of appeared in print. One long-time nuclear fuel for electricity generated by Duke's cntic told The Wall Street Joumal that nuclear plants averaged only .6 cents Duke was "the glaring exception," de-per kilowatt hour - just over half a scribing it as "the company that man- penny By comparison, the per kilowatt-ages to do it right." Duke's top execu- hour cost for coal was 1.8 cents, while tives were repeatedly asked to share the oil and gas were many times higher.

Company's nuclear philosophy and help formulate industry policy a The environment. Nuclear plants offer While the attention was flattering, the cleanest available method of gener-the truth of the matter is that the news ating electricity on a large scale. That's 15

especially important as Americans be- materials by purchasing them through come increasingly concerned about its subsidiary, Mill-Power Supply.

acid rain. But more important than the fees Summing up the pluses, Duke's saved is the control gained with the use nuclear plants promise a reliable, se- of in-house personnel. The people cure, cost-efficient and environmentally building a Duke Power plant work for sound source of electricity. With com- the same company that will operate it pletion of the Catawba Nuclear Station for decades. They have along-term in 1987, the Company will haw a gener- commitment to Duke Power,its objec-

". . . Duke has an engineer's con- ating system adequate to meet the ex- tives and its programs. Therefore, they viction that the best-engineered panding needs of the Piedmont Caro- have a long-term stake in the plant's plant inevitably also will be the finas into the 1990s. quality, safety, reliability and efficiency.

most efficient, lowest-cost, most Duke put its faith in nuclear power Many of the skilled craftsmen re n end,mo and is making it work for customers and building the Catawba plant today shareholders alike. worked on the Oconee and McGuire much worked out that way.,,

ree2s. rebruary 11,1985 plants before it. They share the pride The do-it yourself approach when those plants lead the nation in ca-Duke's nuclear success is rooted pacity factor and efficiency.

in its "do-it yourself" approach - Duke construction and operating unique among the nation's investor. employees are also part of the commu-owned utilities. Design, construction, nity in which a plant is being built. They operation - it's all done in-house, with and their f amilies live nearby, and their Duke people, from start to finish. This presence in the community is testimony do-it yourself tradition dates back 80 to their commitment to the plant's years to the Company's founders. safety and quality.

Duke's design engineering staff of Finally, use of in-house talent en-nearly 1,500 qualifies it as one of the sures intimate management involve-principal architectural / engineering ment in the design and construction of teams in the nation. Add to that a 5,000- Duke's nuclear plants. Lines of commu-member construction force, a quality nication are short, and keeping them assurance team of 400 and a power op- open is a top prionty. Managers and su-erations department of more than pervisors work on-site and ask the 5,700, and Duke has the in-house re- tough questions, enabling them to iden-sources to meet any challenge, tify problem areas and make corrections Much like the do-it-yourselfer at early This saves time and money.

home, Duke saves money by avoiding Management attention to design contractors' fees, outside consultants and construction goes beyond the and mark-ups on materials. The Com- drawing board and construction site.

pany reduces substantially its cost for Four of Duke's top five officers are 16

- .. - _ . . ___________________]

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experienced engineers. Together they in design, construction, testing, opera-have accumulated 135 years of experi- tion, radiation monitoring and decom-l ence in designing, constructing and missioning. In addition, Duke hired i operating power plants. nuclear experts from the project, inte-l grating their knowledge and talents into j Experience and expertise the organization.

The Company broke ground onits While there are advantages to st nuclear und, Wonee W 1, m being a do-it-yourselfer, most people I

know from personal experience that if

• • U"** '"#8 ** * "'

"Idlany electric utility analysts ished in just seven years and at a total have concluded that heavy reli- you don,t know what you,re doing, you cost of only $500 million, an average of ance on nuclear p spells had better callthe plumber. So along

$194 per kilowatt. Today, Oconee has trouble. One utility that contra. with Duke s do-it-yourself approach came a commitment to acquire the ex-enemted me elec2 Wag dicts this theory is the Duke other nuclear plant in the nation. When Power Company." perience and expertise necessary to d Catawba Unit 2 is completed, the Com-Fec (1taties Fortnightly. November 22,1984 the job right.

any will have designed and built seven The importance of this was high' units in 20 years. Throughout that time, lighted in a report prepared by a leading knowledge acquired from the operating engineering and construction firm in units has been applied to the design 1983 for the U.S Department of Energy.

and construction of new units. Experi-Not surprisingly, it concluded that the ence has been translated into expertise.

more experience a utility had with nu-In addition to on-the-jobleaming, clear power, the better its plants were Duke was one of the first utilities to es-built, the less they cost and the better tablish formal training programs for nu-clear personnel. At its Technical Training uke started acquiring its nuclear Center, adjacent to the McGuire Nuclear expertise early. In the late '50s and early Station, the Company offers compre-

'60s, the Company participated with hensive instruction for nuclear plant op-three other Southeastem utilities in an erators as well as for technicians in experimental reactor project at Parr health physics, chemistry, m&atenance, Shoals, SC. Duke's top engineers s en abon and eMonks. kru&

worked closely with the designer and contractor on the 17,000 kilowatt, ing m stlylocalpeople from nearby n s s, Wkdas Mo#

heavy-water reactor prototype. At the highly skilled work force with a strong same time, others were sent to study loyalty to the Company and the com-nuclear operations at federal training mun ties it serves.

centers and major universities.

Duke and the other Parr owners operated the plant from 1963 to 1967, coming away with invaluable experience 19

Looking ahead Through these activities the Com-pany will continue to build on its tradi-With this kind of nuclear success tion of supena mclear pedonance.

story, what path does Duke Power fol_

Duke stands ready to take the lead Iow in an age in which the pundits are when the United States tums back to asking: "Is nuclear dead"?

nuclear power and looks for the exper-in the face of today's regulatory tise needed to make it work.

uncertainty, Duke has no plans for nu.

clear units beyond Catawba Unit 2.

e ill on W ch "For winning big, our hats off to . . . mnstruchon und mgulatay mfos ena-e Me h h!s leader William bles a utility to shorten the time neces-States Lee for proving that utili-ties can build nuclow-poww sary to complete a plant and accurately I plants at affordable prices." predict its cost from the outset. While l cun's Business Month, December 1984 the nation needs the nuclear energy op-tion, the Company cannot accept the fi-nancial risk of new nuclest construction until public policy again supports the peaceful use of the atom.

To help achieve this, Duke is work-ing to inform and educate the public about nuclear power. The Company is also participating in national efforts to shape a more supportive nuclear policy in the meantime, Duke looks for-ward to operating seven superior nu-clear units while constantly honing its skills to enhance safety, reliability and efficiency. In addition to operating its own plants, Duke will continue its role as an industry leader through support of the Institute of Nuclear Power Opera-tions and other industry organizations.

And the Company will continue to put its nuclear expertise to work for other utilities through its Management and Technical Services section, established in 1982 to market its skills in design, construction and operation of power plants.

80

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l l

Uquidity and resources in January 1985 the Company began purchasing common stock on the The Company demonstrated contin-pen m rket for its Dividend Reinwst-ued financialimprovement in 1984.

ment and Stock Purchase Plan and its i Dunng the year - and at year-end -

Customer Stock Purchase Plan. For i the market price of the Company's t

the next several years, the Company common stock exceeded book value expects to issue new shares of com- ..

[ for the first time since 1978. Credit rat-mon stock only for the conwrsion of 1 4 ings on first and refunding mortgage the outstanding 6.75%, Convertible bonds, preferred stock, and prefer-ence stock were upgraded during the es AA Memnce Sh

.. _. T year, reflecting the improwd financial condition. Funds / tom operations including the proceeds from the sales in January 1985 the Board of Directors f portions of the Catawba Nuclear approwd a revised long-term financial n, a s Wned in hsiness plan. The goals established by the accounM M pemenMotakaph plan are designed to maintain the im-tal requirements in 1984 and 63 per-proved financial pos; tion the Company cent for the period 1980 through 1983.

has achieved in recent years.

Maintaining this current level of inter-Fixed charges coterage nally generated funds will require timely '

Coverage of fixed charges, using the and adequate recovery of increases in Secunties and Exchange Commission costs. These increases will occur be-method, increased to 4.21 times at causeof theCompany'sshareof the i year-end. operating expenses, its investment in Construction costs the Catawba Nuclear Station, and the

-  % f donars sa d '

This improvement is the result of eam. requirements for the purchased capac-ity and energy expenses established  ?

)

ings increasing while fixed charges re.

• by the agreements with the Catawba sc79 7 mained relatively constant. The near 56'4 8 completion of major nuclear construc. buyers. (See Note 14, " Notes to Finan-j tion projects and the sale of a portion cialStatements?)

5 of the Catawba Nuclear Station re-duced the amount of long-term financ- Add /tional funds ing needed and contnbuted to stable i fixed charges. During the past five years, the Com-pany obtained additional funds from A revised goal of 4.00 times has been the sale of $599 million in first and re-

" " "3

• funding mortgage bonds and $88 mil-y '

[ established to maintain the Compa.

ny's financial position. lion in preferred stock. Proceeds from the sale of common stock, including 4 Intemal cash generation the issuance of common stock in a Percent Capitalstructure non-cash exchange for bonds, totaled

The Company's capital structure at $462 million. (See Note 4, " Notes to Fi-

, 35 sv year-end was 44 percent long-term nancial Statements")

debt,45 percent common equity and

, ,, 11 percent preferred stock. This com- The Company also receiwd $978 mil-position is in line with the revised goal lion from the sales of portions of the of maintaining a capital structure with a Catawba Nuclear Station in 1984 and

(

i 39s maximum of 45 percent long-term 1981. The December 20,1984 sale of 1, , ,

debt,45 to 50 percent common eq-uity and the remainder in preferred stock.

a 25 percent interest b Catawba Unit 2 to the Piedmont Municipal Power Agency contributed $457 million of

, e ma-acee ,,

^

' llr

}}

,a@

this total amount. The Company will tional revenues, were granted to the Construction and other expenditures continue to retain a 12.5 percent own- Company from 1980 to 1983. These rate increases sought recowry of the Total plant construction costs declined ership interest in the two-unit station.

Company's investment in both units of during the period 1980 through 1984 (Sac Note 3. " Notes to Financial because the Company placed the Mc-Statements.") the McGuire Nuclear Station, higher rates of retum on common equity, Guire Nuclear Station in commercial compensation for increased operating operation (Unit 1 in 1981; Unit 2 in 1984),

in October 1984 the Company bor. sold portions of the Catawba Nuclear rowed the proceeds of the sale of $40 expenses, and recovery for the amorti.

Station and canceled two nuclear proj-milton principal amount of annual zation of two canceled nuclear proj.

ects. As a result, construction work in tender, pollution-control revenue bonds ects. In 1984 the Company was granted 66 percent of the amounts re. progress as of December 31,1984, was issued by York County, S.C. The less than $1.0 billion for the first time bonds were issued to finance quested from its retail jurisdictions, pri.

marily to recover its investment in Mc. since 1975.

pollution-control and solid waste dispo-sal facilities at the Catawba Nuclear Guire Unit 2. (For rate information by Station. As of year-end the Company jurisdiction, see Note 2, " Notes to Fi- Expenditures for construction of major had received $34 million in proceeds, nancial Statements.") generating facilities and for nuclear fuel constituted approximately 61 percent of with the remainder to be received as The Company intends to file rate re. capital requirements during 1984, com-expenditures are made.

quests with the North Carolina Utilities pared with 80 percent for 1980. Addi-Commission, The Public Service Com. tional funds were required for the expan-On October 2,1984, the Company sion and replacement of transmission transferred certain U.S. govemment mission of South Carolina and the Fed.

eral Energy Regulatory Commission by and distribution facilities, the refunding securities to an irrevocable trust for the of maturing secunties and the require-defeasance of $32.9 million of its 14% the spring of 1985. These requests for rate increases will reflect the Compa. ments of sinking funds.

percent first and refunding mortgage bonds. The entire series of the 14% ny'sinvestment in Unit 1 of the Ca-percent bonds will be retired by the tawba Nuclear Station and the ex- Future construction program Company o.. March 1,1985. (See penses related to purchased power contracts associated with portions of Major plant construction costs will con-Note 12, " Notes to Financial the units that have been sold. (See stitute a lower percentage of the Com-Statements.") pany's capital requirements from 1985 Note 14. " Notes to Financial Statements.") through 1987, compared with the previ-The short-term obligations of one of ous frve years. Projected construction the Company's nuclear fuel trusts and nuclear fuel costs, excluding costs were reduced by $40 million in January related to portions of the Catawba Nu-5 ital needs 1985. This reduction resulted in a tota clear Station that have been sold, are balance of $85 million in the two nu- Pigerty additions and retirements $2.3 billion for the three-year period.

clear fuel trusts. (See Note 12, " Notes to Financial Statements.") Addtions to property and nuclear fuel of

$66 million and retirements of $410 mil- An operating license was granted to the lion have resulted in a net increase in Company for the Catawba Nuclear Sta-The Company intends to make a gross plant of $235 million in 1984. tion on January 17,1985. Commercial lump-sum payment of $122 million in operation of Unit 1 is scheduled for the mid-1985 to the Department of Energy spring of 1985. Commercial operation in accordance with the Nuclear Waste Since January 1,1980, additions to f Catawba Unit 2 is planned for 1987, Policy Act of 1982. This payment is for property and nuclear fuel of $3.7 billion and construction on that unit ,s i currently the obligation related to disposal costs and retirements of $1.5 billion have re.

ahead of schedule.

for nuclear fuel consumed prior to sulted in a net increase in gross plant of Apnl 7,1983. (See Note 1, " Notes to $2.2 billion. Retirements during the per-Financial Statements.") iod were unusually large because por- The Company's portion of the total esti-tions of the Catawba Nuclear Station mated construction and initial core nu-were sold and the Cherokee and Per- clear fuel costs for both units of Ca-Rateincreases kins nuclear projects were canceled. tawba is $517 million. This amount Retail rate increases, allowing approxi- (See Notes 3 and 5, " Notes to Financial includes $405 million spent as of De-mately 57 percent of requested addi- Statements.")

cember 31,1984.

23

Construction of the Bad Creek Hydro- cent from 1980 to 1984. This growth Interest and dividend income, subsidiary electric Station continued in 1984. Units rate was largely the result of placing two earnings, merchandise sales, and Man-1 and 2 of the 1,000,000-kilowatt nuclear units into commercial operation, agement and Technical Services earn-pumped storage facility are scheduled additional Nuclear Regulatory Commis- ings increased from 1983 to 1984.

for completion in 1991, with Units 3 and sion requirements and inflation. (See These non-utility earnings represented 4 in 1992. The estimated cost of Bad " Selected Financial Data - Effects of 10 percent of total earnings for 1984, an Creek totals $1.0 billion, with $41.5 mil- Changing Prices," page 41.) increase from 5 percent in 1983.

lion spent as of December 31,1984.

In the last three years, fuel expense has Earnings and dividends for common Beyond the completion of Catawba and decreased at an annual rate of 5 per- stock '

Bad Creek, the Qmpany has no plans cent. Fuel expense decreased in 1984 to place a new generating plant in ser- and 1983 because increased nuclear Earnings per share increased at an an-vice before the mid-1990s. generation reduced the Company's nual rate of 7 percent, to $3.98 in 1984 need for coal, a more expensive source from $3.08 in 1980.

of fuel per kilowatt-hour. The 1982 de-Rasults of operations crease reflected lower levels of produc. In 1984 the Company's total earned re-tion mainly because of the economic re. turn on average common equity was Rewnues andsales cession. Fuel expense rose from 1980 14.8 percent, the same percentage to 1981 because the unit price of fuel eamed in 1983.

Electric revenues increased at an annual increased.

rate of 13 percent from 1980 to 1984 Dividends paid increased at an annual because of increases in rates and kilo- rate of 6 percent, to $2.42 in 1984 from

" Net interchange and purchased watt-hour sales. Kilowatt-hour sales fluc~ $1.95 in 1980. Indicated annual divi-power" expense decreased in 1984 and tuated during the frve-year penod. The dends per share increased to $2.48 in 1983. The decrease resulted from the factors affecting sales included the eco- 1984, up 5 percent from 1983.

McGuire Reliability Exchange, an agree.

nomic recession in the early 1980s, un-ment which entitles certain Catawba usual weather pattems and the eco-buyers to a portion of the energy from Significant trends l nomic growth in the Piedmont Carolinas the McGuire Nuclear Station prior to the over the past few years. Although the Company has expen-commercial operation of Catawba Unit l enced several years of solid growth, the

1. The energy purchased by the Ca-Kilowatt-hour sales in 1984, including next several years present many l tawba buyers, which was previously re-portions of electricity delivered to certain corded as sales to wholesale custom- "9 **'

purchasers of the Catawba Nuclear Sta-ers, is now ciassified as a part of tion under the terms and conditions of interchange sales' u aNs M ahadngs, their contracts, were 4 percent higher liquidity and capital resources. The most than in 1983, largely because of contin. significant of these is whether the Com-Other pany will receive timely and adequate uing economic growth in the Piedmont Carolinas. Allowance for funds used during con- rates to cover costs of the Catawba struction (ADC) was equivalent to 32 units after they begin commercial opera-Non-textile industrial kilowatt-hour sales percent of earnings for common stock tion. Revenues from sales to textile cus-rose 8 percent in 1984, while textile in- in 1984, a decrease from 67 percent for tomers could be materially affected if dustrial sales increased only slightly be- the period 1980 through 1983. The re. the economic problems caused by for-cause of the recent slowdown in the duction of construction work in progress eign imports continue to plague the in-textile industry. While sales to textile resulting from the completion of two nu- dustry. Factors that could have a posi-customers amounted to approximately clear units, the sale of an additional por. tive effect on earnings, liquidity and 19 percent of total Company sales, tion of the Catawba Nuclear Station and capital resources include continuing in-fourth quarter textile sales declined 7 the cancellation of two nuclear projects creases in non-utility eamings, a steady percent from the same period in 1983. caused a decline in ADC from 1981 to growth in non-textile kilowatt-hour sales 1984. (See Notes 3 and 5, " Notes to Fi- and maintaining high lemls of nuclear Operating expenses nn temen ncm sesin con- W" struction work in progress and higher Non-fuel operation and maintenance ex- embedded costs of funds caused ADC pense rose at an annual rate of 17 per- to rise during 1980 and 1981.

24

I Duke Powr Cornpany l Auditors' Opinion Duke Power Company:  ;

We haw examined the balance sheets cial position of the Company at December and the statements of capitalization of 31,1984 and 1983, and the results of its Duke Power Company as of December operations and the source of its funds for 31,1984 and 1983, and the related state- plant construction costs for each of the ments of income, retained earnings and three years in the penod ended December source of funds for plant construction 31,1984, in conformity with generally ac-costs for each of the three years in the cepted accounting pnnciples applied on a period ended December 31,1984. Our ex- consistent basis, aminations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of -

the accounting records and such other au-diting procedures as we considered nec-M '

essary in the circumstancess Deloitte Haskins & Sells Certhed Pubhc Accountants in our opinion, the financial statements re- Charlotte, North Carolina ferred to above present fairly the finan- February 15,1985 Responsibility for The financial statements of Duke Power perform their assigned functions. The Financial Statements Company are prepared by management, Company's accounting controls are con-which is responsible for their integnty and tinually reviewed for effectiveness. In addi-objectivity. The statements are prepared in tion, written policies, standards and proce-conformity with generally accepted ac- dures, and a strong internal audit program l counting principles appropnate in the cir- augment the Company's accounting l cumstances to reflect in all material re- controls.

I spects the substance of emnts and j transactions which should be included.

l The other information in the annual report The Board of Directors pursues its over-l is consistent with the financial statements. sight role for the financial statements In preparing these statements, manage- through the audit committee, which is j ment makes informed judgments and esti- composed entirely of directors who are

( mates of the expected effects of eents not employees of the Company. The audit and transactions that are currently being committee meets with management and

reported. internal auditors periodically to review the work of each group and to monitor each The Company's system of internal ac. group's discharge of its responsibilities.

counting control is designed to provide The audit committee also meets periodi-reasonable assurance that assets are cally with the Company's independent au-safeguarded and transactions are exe- ditors, Deloitte Haskins & Sells. The inde-cuted according to management's author- pendent auditors have free access to the ization. Internal accounting controls also audit committee and the Board of Direc-provide reasonable assurance that trans- tors to discuss intemal accounting control, actions are recorded properly, so that fi- auditing and financial reporting matters l

nancial statements can be prepared ac- without the presence of management.

cording to generally accepted accounting principles. In addition, the Company's ac-l counting controls provide reasonable as-surance that errors or irregularities which could be material to the financial state-ments are prevented or are detected by Norman P. Morrow employees witb5 a timely period as they Controner 25

Statsm:nta cf Incoma Dollars in thousands Duke Power Company Year ended December 31. 1984 1983 1982 Electric revenues (Notes 1 and 2) $2,710,015 $2,420.252 $2.244.480 o

Electric expenses Operation Fuel used in electric generation (Note 1) 683,563 739,829 781,406 Net interchange and purchased power (credit) (36,408) (19,819) (10,685)

Wages, benefits and materials 393,448 350,162 329,954 Maintenance of plant facilities 207,951 187,267 177,766 Depreciation and amortization (Notes 1 and 5) 303,429 209,750 186.080 Generaltaxes 194,095 173,826 158.289 locome taxes (Notes 1 and 6) 415,836 330,023 231,902 Total electric expenses 2,161,914 1,971,038 1.854.712 Electric operating income 548,101 449.214 389,768 Othsrincome(Notes 1 and 6)

Allowance for equity funds used dunng construction 98,711 144,048 146,214 Earnings of subsidiaries, net 17,221 10,415 7,039 Provision for loss on disposal of assets - -

(30,000)

Other, net 33,834 5,391 12,548 Income taxes - other, net (29,180) (3,037) (11,687) income taxes - credit 42,209 56,184 50,934 Total other income 162,795 213,001 175,048 income before interest deductions 710,896 662.215 564.816 Int: rest deductions Interest on long-term debt 276,520 272,349 254,643 Other interest 3,075 6,766 12,802 Allowance for borrowed funds used during construction (credit)(Note 1) (30,030) (48,177) (52,506)

Totalinterest deductions 249,565 230.938 214,939 Income before extraordinary item 461,331 431,277 349.877 Extraordinary item (Note 4) - -

48.304 N:tincome 461,331 431,277 398,181 Dividends on preferred and preference stocks 61,786 62.600 62,164 Esmings for common stock $ 399,545 $ 368.677 $ 336.017 Common stock data Average shares outstanding (thousands) 100,346 97,784 93,679 t

Earnings before extraordinary item $3.98 $3.77 $3.07 Extraordinary item - -

0.52 Eamings per share $3.98 $317 $3.59 Dwidends per share $2.42 $2.32 $2.24 See Notes to Fonancial Statements.

26 r

Ctatements of Source of Funds for Mant ConstrJction Costs Dollars in thotisands Duke Power Comoany Year ended December 31, 1984 1983 1982 Funds from operations Income before non-fund extraordinary item $ 461,331 $431,277 $349,877 Non fund items Depreciation and amortization (Notes 1 and 5) 469,711 324,608 268,651 Deferred income taxes and investment tax credit, net of amoitization (Note 6) 103,800 333,045 159,515 Equity component of the allowance for funds used during construction (98,711) (144,048) (146,214)

Other, net (13,137) (6,073) 25,171 Funds from operations 922,994 938,809 657,000 Dividends paid (304,577) (289.564) (272.115)

Funds retained in the business 618,417 649,245 384,885 Funds from financings and sale of assets - net proceeds Sale of an interest in the Catawba Nuclear Station (Note 3) 457,086 -- -

Common stock (Note 4) 37,194 84,326 199,134 Pollutioncontrol series 60,720 45,648 -

Nuclear fuel trusts 84,461 60,645 33,052 Term notes - - 79,721 First mortgage bonds - - 221,521 Preferred stock - - 38,296 Decrease in notes payable -

(57,210) (114,140)

Funds from financings and sale of assets 639,461 133,409 457,584 Total available funds 1,257,878 782,654 842,469 increase in working capital (Note 13) (303,952) (170,979) (20,816)

Long-term debt retired / preferred stocks reacquired (Note 4) (138,652) (81,097) (194,555)

Other, net (Notes 1 and 13) (269,231) 5,100 (37,252)

Plant construction expenditures 546,043 535,678 589,846 Equity component of the allowance for funds used during construction 98,711 144,048 146,214 Plant construction costs $ 644,754 $679.726 $736,060 Summary of plant construction costs Production $ 253,025 $376,134 $405,329 Transmission 42,765 32,022 40,599 Distribution 156,075 127,989 113,881 General 55,558 38,966 23,895 Subtotal 507,423 575,111 583,704 Nuclear fuel 137,331 104,615 152,356 Plant construction costs $ 644,754 $679,726 $736,060 See Notes to Financsal Statements.

t 27

Balance Sheet 3 Dollarsin thousands Duke Power Company December 31. 1984 1983 Assets Electric plant (at orig;nal cost - Notes 1, 3,12 and 14)

Electric plant in service $7,810,094 $6,270,799 Less accumulated depreciation and amortization 2,646,266 2,405,150 Electric plant in service, net 5,163,828 3,865.649 Construction work in progress 988,790 2,296,843 Total electric plant, net 6,152,618 6,162,492 Other property and investments Other property - at cost (less accumulated depreciation: 1984 - $7,423; 1983 - $8,022) 38,774 34,773 Investments in and advances to subsidiaries (Note 1) 77,785 61,808 Other investments - at cost or less 22,596 29,317 Total other property and investments 139,155 125,898 Current assets l

Cash (Note 7) 5,754 596 Short-term investments 815,628 125,590 Receivables (less allowance for losses: 1984 - $4,030; 1983 - $3,982) 262,669 232,577 Refundable income taxes (Note 6) -

41,209 Materials and supplies - at average cost Coal 114,787 138,217 Other 107,831 105,735 Prepayments 8,073 10,316 Total current assets 1,314,742 654.240 Deferred debits Debt expense, being amortized over terms of related debt 4,068 4,045 Canceled construction projects (Note 5) 395,519 414,633 Other 12,716 18,137 Total deferred debits 412,303 436,815 Totaltssets $8,018,818 $7,379,445 December 31. 1984 1983 I Capitalization and Liabilities Capitalization (See Statements of Capitalization) $6,214,754 $6,079,430 Currentliabilities Accounts payable 153,109 116,297 Nuc!aar fuel disposal costs payable (Note 1) 122,003 -

Taxes accrued 214,064 56,063 ,

Interest accrued 88,114 89.973 I Other 67,668 26,075 Total 644,958 288,408 Current maturities of long-term debt and preferred stocks 119,819 55,993 Total current liabilities 764,777 344,401 Accumulated deferred income taxes (Notes 1 and 6) 683,023 605,399 Deferred credits and other liabilities investment tax credit (Notes 1 and 6) 329,376 313,139 Other 26,888 37,076 Total deferred credits and other liabilities 356,264 350,215 Commitments and contingencies (Notes 5 and 14) - -

Total capitalization and liabilities $8,018,818 $7,379,445 See Notes to FinancialStatements 28

Ctatements of Capitalization and Retained Eamings Dollarsin thousands Duke Power Company December 31. 1984 *;:G (

Capitalization Common stock equity (Note 9)

Common stock, no par, 150,000,000 shares authorized, 101,152,724 shares outstanding for 1984 and 99,633,699 shares outstanding for 1983 $1,859,639 $1.820,828 Retained eamings 952,360 795.512 Total common stock equity 2,811,999 2,616.340 Preferred and preference stocks without sinking fund requirements (Note 10) 420,534 422,148 Preferred stocks with sinking fund requirements (Note 11) 285,426 295,053 Long-term debt (Note 12)

First and refunding mortgage bonds 2,530,506 2,511,370 Promissory note due subsidiary,16%% - due 1989 58,725 58,725 Term note, floating rate - due 1987 21,000 21,000 Tenn note, floatina rate - due 1985 2,000 4,000 Capitalizedleases 90,877 93,937 Nuclear fuel trusts 125,000 125,000 Unamortized debt discount and premium, net (17,894) (18,550)

Current maturities of long-term debt (113,419) (49,593)

Totallong-term debt 2,696,795 2,745,889 T talcapitalization $6,214,754 $6,079,430 Year ended December 31. 1984 1983 1982 Retained Eamings Balance - Beginning of year $ 795,512 $ 653,981 $ 529,842 Add - Net income 461,331 431,277 398,181 Total 1,256,843 1,085,258 928.023 Deduct Dvidends Common stock c 242,791 226,964 210,206 Preferred and preference stocks 61,786 62,600 62,164 Capital stock transactions, net (94) 182 1,672 Total deductions 304,483 __ 289,746 274,042 Balance - End of year $ 952,360 $ 795,512 $ 653,981 See Notes to FinancialStatements.

29

Notes to Financial Statements Ode Pbwer Company Note 1 Summary of significant accounting policies A. Additions to electric plant C. Depreciation and amortization The assets of Eastover Mining Company Tb Company capitalizes all construction- Provisions for depreciation are recorded and the related land leased from Eastover related direct labor and matenals, as well using the straight-line method. The year- Land Company were sold in 1983. A provi-as indirect construction costs. Indirect end composite weighted-average depreci- sion for loss of $30 million (net of income costs include general engineering, taxes ation rates were 3.56 percent for 1984 and tax benefits of $28 million) was recorded and tha cost of money (allowance for 3.47 percent for 1983 and 1982. All coal- in 1982.

funds used during construction). The cost fired generating units are depreciated at of renewals and betterments of units of the rate of 3.57 percent. Nuclear units are E. Income taxes proparty is capitalized. The cost of repairs depreciated at a 4 percent rate, which in- The Company and its subsidiaries file a ard replacements representing less than a cludes an allowance for decommissioning consolidated federal income tax return. in-unit of property is charged to electric ex- costs. come taxes are allocated to each com-penses. The original cost of property re- pany based on its taxable income or loss.

tired, together with removal costs less sal- Provisions for amortization of nuclear fuel vage value, is charged to accumulated include amounts for disposal costs. Such Income taxes are allocated to electnc depreciation. provisions, which are included in " Fuel operating expense and to non-electric op-used in electric generation," are recorded erations under "Other income." The "In-B. Allowance for funds used during using the unit-of-production method. come taxes - credit

• classified under construction (ADC) "Other income" results from tax deduc-ADC represents the debt and equity costs Under provisions of the Nuclear Waste Pol- tions of interest costs relating to invest-of cap-tal funds necessary to finance the icy Act of 1982, the Company began mak- ments in non-utikty properties, mainly construction of new facilities. ADC, a non- ing quarterly payments to the Department CWIP not included in rate base and can-cash, non-operating item, is recognized as of Energy (DOE)in 1983. These payments celed construction projects a cost of " Construction work in progress," are based on nuclear fuel consumption with offsetting credits to "Other income" after Apnl 7,1983. Deferred income taxes are provided for and " Interest deductions" After construc- timing differences between book and tax tion is completed, a utility is permitted to The Companyis obligated to pay DOE a income, pnncipally resulting from acceler-reccvar these capital costs, including a fair one-time fee of $122,003,000 relating to ated tax depreciation, capitalized taxes, return, through their inclusion in rate base disposal costs for nuclear fuel consumed employee benefits and loss on canceled and in the provision for depreciation. before Apnl 7,1983. The Company in- construction projects. Investment tax tends to make a single payment for this credit is deferred and amortized over the ADC is not capitalized on construction fee before June 30,1985. Although this usefulliNes of the related properties. The work in progress (CWIP) included in rate amount has been reclassified to current li- Company had no unused investment tax base. As of December 31,1984, no CWIP abilities from accumulated depreciation credit as of December 31,1984.

was included in the Company's rate base. and amortization, the increase in electric CWIP of approximately $280 million was plant has been included in "Other, net" on F. Fuel cost adjustment procedures included in North Carolina rate base as of the Statements of Source of Funds for Fuel costs are reviewed semiannually in C3cember 31,1983 and 1982. Plant Construction Costs. the wholesale and South Carolina retail ju-risdictions, with provisions for changing ADC, which is compounded semiannually, D. Subsidiaries such costs in base rates. These junsdic-was calculated on average embedded The Company uses the equity method to tions allow the Company to reflect in reve-rates (net of applicable income taxes) of account for investments in its subsidiaries, nues the difference between actual fuel 9.65 parcent for 1984,9.45 percent for all of which are wholly owned. (See "Sub- costs incurred and fuel costs recovered 1983 and 9.38 percent for 1982. sidiaries," page 43.) Retained earnings as of through base rates.

December 31,1984, include $70,894,000 of undistributed earnings of subsidiaries. In the North Carolina retail jurisdiction, an Dividends received from subsidiaries were annual fuel hearing to review fuel costs in

$2.300,000 in 1984, $2,250,000 in 1983 base rates is required. In addition, fuel and $1,600,000 in 1982. costs must be reviewed during general rate case proceedings.

30

Note 2 Rate matters Tha North Carolina Utihties Commission A summary of all general rate increases re-and The Public Service Commission of quested or implemented by the Company South Carolina must approve rates for retail since January 1,1982,is as follows:

sries within the respective states. The Fed-eralEnergy Regulatory Commission , ,,

(FERC) must approw the Company's Junsdicton and Requested  % of mer prevous End of rates for sales to wholesale customers. d ""d " * """S * 'eauest reenues Rate order eMectme 12monnuest Denod The rewnues shown (in millions of dollars) N.C. retad are annualized on the basis of the filing March 1982 $197.0 $ 61.7 31.3 4.38 Nommber 1982 December 31,1981 test year. February 1983 112.9 76.2 67.5 5.18 September 1983 September 30,1982 November 1983 212.8 131.0 61.6 8.40 June 1984 June 30,1983 SC. retad December 1980 103.7 57.0 54.9 13.00 January 1982 December 31,1980 February 1982 99.4 40.7 40.9 7.10 f&rch 1983 June 30,1982 September 1983 136.0 99.7 73.3 17.40 March 1984 Apnl 30,1983 FERC wholesale

• June 1981 46.9 30.7 65.5 11.90 August 1982 September 30,1982 August 1982 44.1 26.0 59 0 8.70 June 1983 December 31,1983 December 1983 9.5 8.0 84 2 9.60 October 1984 December 31,1984

• FERC wholesale filings beginning December 1983 do not include the North Catolina Municipal Fbser Agency Number 1, the North Catalina Electric Membership Corpora-tion and the Saluda Riwr Electric Cooperatim, Inc. that in previous years purchased in-terests in the Catawba Nuclear Station. Eflectiw July 1,1983, and Nowmber 1,1983, these rates are set through contractual agreements. Sales to these municipalities and cooperatives previously represented a majority of the Company's wholesale revenues.

Note 3 Note 4 Note 5 Saleof assets Extraordinaryitem Canceled constructum projects Tha Comp ~1y sold a 25 percent interest in The Company issued 3,727,544 shares The Cherokee and Perkins Nuclear Sta-Unit 2 of the Catawba Nuclear Station on of common stock with a market value of tions have been canceled. All jurisdictions December 20,1984, to the Piedmont Mu- $73,489,000 on January 7,1982, in ex- have permitted recovery of the costs in-nicipal Power Agency, which represents 10 change for portions of several series of curred through April 30,1983. These costs South Carolina municipalities. The Com- outstanding first and refunding mortgage are being amortized principally over a 10-pany receiwd $457.086,000 at closing. bonds with a face value of $119,902,000. year penod beginning October 1983. The Tha $1.8 million net of tax profit from the The transaction resulted in a non-taxable Company intends to seek recovery of the sale has been deferred. gain of $48,304,000, or $0.52 per share, remaining incurred costs.

on the retirement of the bonds.

As of December 31,1984, " Construction As of December 31,1984 and 1983, the work in progress" included $404,823,000, balance for these canceled projects, ex-representing the Company's inestment in ciuding land and net of amortization, was its remaining interest in Catawba. $611,971,000 and $632,127,000, respec-tively ($395,519,000 and $414,633,000 net of income tax benefits, respectively). (See Note 6.)

31 m _. - __. _ _ _ _ _ _ _ _

)

Note 6 income tax expense incorr.3 tax expense consisted of the fol- (a) Cunent income tax expense for 1983 lowing (dollars in thousands); is a credit principally due to the loss on 1984 1983 1982 the cancellation of all units of the Chero-Ehctnc expenses kee Nuclear Station and the deduction of Current income taxes the Company's liability to date under the Federal $271,960 $ 701 $ 58,118 Duke / Department of Energy Spe.it Nu-State 47.876 (96s, 21,694 clear Fuel Disposal Contract. The benefit 319.836 (265)(a) 79.812 of this tax loss for 1983 has been recog-Deferred taxes, net nized as " Refundable income taxes" on Excess tax owr book depreciation 67,107 79.890 46,985 the Balance Sheets. This loss also elimi-Caputanzed taxes, employee benefits, etc. 10,337 8.999 9,287 nated allinestment tax credit utilization Loss on cancellation of for 1983.

Cherokee Nuclear Station (b) (2,234) 210,329 -

IVuclear fuel disposal costs (c) (6,184) 51.260 (12,893) (b) Represents defened income tax ex-Other 8.143 (6.318) 6,456 pense related to the loss on the cancella-77,169 344,160 49.835 tion of all units of the Cherokee Nuclear Irwestment tax credit Station. The related deferred income tax Deferred 37,381 -(a) 109,596 credits ham been classified as a reduc-Amortization of deferments (credit) (18.550) (13.872) (7.341) tion of " Canceled construction projects" 18.831 (13.872) 102,255 on the Balance Sheets. (See Note 5.)

Total electnc expenses 415,836 330.023 231.902 (c) Reflects deferred income tax expense related to the non-deductible portion of other income nuclear fuel disposal costs.1983 also in-bcome taxes - other, net 91,497 (d) 3,037 11,687 cludes reersal of deferred income tax ex-Income taxes -(credit) (42.209) (56,184) (50.934) pense related to prior period liabilities Total other income 49.288 (53,147)(a) (39,247) underthe Duke / Department of Energy Totalincome tax expense $465.124 $276 876 $192 655 Spent Nuclear Fuel Disposal Contract.

(d) Includes $62,317,000 msulting from Total current income taxes were Totaldeferred income taxes were ,

tN sale of assets in December 1984

$376.949,000 for 1984, $(56,186,000) for $69,344,000 for 1984, $346,934,000 for 1983 and $33,128,000 for 1982. Of these 1983 and $57,272,000 for 1982. Of these amounts, state income axes were amounts, deferred state income taxes e 'S I reflect a taxable gain in excess of book

$57,587,000 for 1984, $(7,981,000) for were $7,687,000 for 1984, $42,773,000 for

' Y ' b 1983 and $15,687,000 for 1982. 1983 and $7,430,000 for 1982. 9 ',"

nt o e incoma taxes differ from amounts com-l puted by applying the statutory tax rate to pretaxincome as follows(dollarsin i thousands):

1984 1983 1982 Irxxma taxes on pretax income at the st ttutory federal rate of 46% $426,169 $325,751 $263,365*

Increase (reduction) in tax resulting from:

Allowance for all funds used dunng construction (ADC) (59,220) (88.424) (91,411)

Amortization of electnc inwstment tax credit deferrals (18,550) (13.872) (7,341)

ADC in book depreciaton/amortizaton 45,298 23,884 12,798 State income taxes, net of federalincome tax benefd 35.832 18,874 12,132 Increase in tax expense pnmanly because of excess of tax gain owr book profit on sale of assets 27,280 - -

Other items, net 8.315 10.663 3.112 Totalincome tax exnense (see abom) $465.124 $276.876 $192.655

• Pretax income excludes provision for loss on disposal of assets of subsidiaries re-corded net ofincome tax benefits. (See Note 1.)

32

Note 7 Short-term borrowings Tb Company had short-term credit facili- A summary of short-term borrowings and t:ss with 60 commercial banks as of De- credit arrangements is as follows (dollars cember 31,1984. These facilities, plus the in thousands):

1984 1983 1982 sale of commercial paper, are normally used to finance current cash requirements. Amount outstanding at yearend (average rate The facilities were on a fee basis and/or a of 10.38% for 1982) $ - $ - $ 57,210 compensating balance basis, with total av-erage balance requirements of $1,372,000. Maximum amount outstanding dunng the year $ - $111.210 $189.950 Bank loans are at the lending bank's com-Average amount outstandag dunng the year $ - $ 30.951 $ 74,148 mercial prime or market rate. Certain of the f acilities may require additional balances Weighted average interest rate for the year related to usage. 8.92 % 12.38 %

(computed on a daily basis) -

Credit faolities at year-end $319.500* $385.400 $385,400

• Includes $40,000,000 allocated to the 1984 issue of annual tender, pollution-control rev-enue bonds.

Note 8 Retirement plan Tb Company and two of its subsidiaries A comparison of accumulated plan bene-have a non-contnbutory, defined benefit fits and plan net assets as of December retirement plan covering substantially all 31,1983, the date of the latest actuarial re-tbir employees. The Company's policy is port, and December 31,1982, is as fol-to fund pension costs accrued. Total pen- lons (dollars in thousands):

1983 1982 sion expense, including trustee fees, amounted to $32,828,000 in 1984, Actuanal present value of

$33,137,000 in 1983 and $32,000,000 in accumulated plan benefits 1982. In 1983 the plan was amended to Vested $310.185 $251,426 Non-Vested 71,011 52.554 provide for certain changes, including in-creased benefits for retired employees Total $381.196 $303.980 artd additional survivor benefits. Also, the Net assets available for benefits $421,556 $343.430 plan was changed in 1984 to include the Early Retrement Supplement Plan, a one-tirne early retirement offer to eligible em- The weighted-awrage assumed rate of re-p'ayees. The effect of these changes did tum used to determine the actuarial pres-rtot significantly increase the Company's ent value of accumulated plan benefits pension cost. was 8.6 percent in 1983 and 9.25 percent in 1982. The actuarial present value of ac-cumulated plan benefits does not con-sider future salary increases.

33

Note 9 Common stock and retained earnings Common stock A summary ofissuances of shares of in 1983 and 1984 the Company began As of December 31,1984, a total of comnon stock is as follows (dollars in using open-market purchases ta satisfy 4,805,091 shares was reserwd for the is-thcusands). (See Note 4.) the requirements of certain stock plans. suance to stock plans and for the conver-shares For the next sewral years, the Company sion of preference stock.

Year P m eds ssued anticipates using open-market purchases 1984 $ 37,194 1.451,607 to satisfy the requirements of all its stock Retained eamings 1983 84,326 3,605,980 plans and intends to issue new shares of As of December 31,1984, none of the 1982 199,134 7,274,724 common stock only for the conversion of Company's retained eamings were re-preference stock. stricted as to the declaration or payment

, of dividends.

l Note 10 Preferred and preference stocks without sinking fund requirements The following shares of stock were author- Preferred and preference stocks without ized with or without sinking fund require- sinking fund requiremente,as of December rnants as of December 31,1984 and 31,1984 and 1983, were as follows (dol-1983: lars in thousands):

Par Year shares value Shares Rate / seres ssued outstandrq 1984 1983 Preferred stock $100 10,000.000 4.50% C 1964 350,000 $ 35,000 $ 35,000 Preferred stock A 25 10,000,000 5.72% D 1966 350,000 35,000 35,000 Preference stock 100 1,500,000 6.72% E 1908 350,000 35,000 35,000 8.70% F 1970 600,000 60,000 60,000 Tha outstanding preference stock,6%% 8.20% G 1971 600.000 60.000 60.000 Convartible Series AA, is convertible into 7.8&oH 1972 ME 60 E M 8.28% K 1977 500,000 50,000 50,000 shares of common stock at the adjusted 400,000 40,000 40,000 i

8 84% M 1978 conwrsion price of $23.89 per share, with 15 40% A 1982 1.600,000 40,000 40.000 each share of preference stock valued at 6%%, AA

$100 par. The conwrsion price is subject Conwrtele 1969 55.346 5,534 -

to certain adjustments designed to protect 71,482 - 7,148 tha conwrsion privilege against dilution. In Total 5420.534 $422.148 198+3,1983 and 1982, shares of prefer-ence stock were converted into shares of common stock as follows:

P'eterence Cornmon Yett shares shares 1E34 16.136 67,510 1983 18,868 78.936 1982 45,759 191,463 34

Note 11 Preferred stocks with sinking fund requirements Tha following shares of stock were author- Preferred stocks with sinking fund require-ized with or without cinking fund require- ments as of December 31,1984 and mants as of December 31,1984 and 1983, were as follows (dollars in 1983: thousands):

l Par Year shares I

value Shares Rate /senes issued outstanding 1984 1983 Preferred stock $100 10,000,000 7.35 % 1 1973 576,000 $ 57.600 $ -

Preferred stock A 25 10,000,000 600,000 - 60,000 Preference stock 100 1,500,000 8 20% J 1977 440,000 44,000 -

460,000 - 46,000 8.375% L 1978 460,000 46,000 -

480.000 - 48,000 8.84% N 1979 483,750 48,375 -

500,000 -

50.000 11.00 % O 1980 500,000 50,000 50,000 10.76% A 1975 2,100,000 52,500 -

2,160,000 - 54,000 Less: Preforted shares reacquired for current and future sinking fund requirements (at cost) shares macoured 10.76% A 120,000 (2,891) (2,899) 8.84% N 32,500 (2,529) (2,419) 11.00 % O 13,750 (1,229) (1,229)

Less: Current sinking fund requirements 7.35 % I (2,400) (2.400) 820% J (2,000) (2,000) 8.375% L (2,000) (2,000)

Total $285.426 $295.053 The annual sinking fund requirements The call provisions for the outstanding pre-through 1989, net of amounts reacquired, ferred and preference stocks specify vari-are $6,400,000 in 1985 and 1986, ous redemption pnces not exceeding 115

$9,525,000 in 1987 and $10,900,000 in percent of par values, plus accumulated 1988 and 1989, with some additional re- dividends to the redemption date.

demptions permitted at the Company's option.

I 35 i

Note 12 Long-term debt

!- First and refunding mortgage bonds out- On October 2,1984, the Company trans-standing as of December 31,1984 and ferred certain US gommment secunties 1983, were as follows (dollars in to an irrevocable trust for the defeasance thousands): of $32,850,000 of its 14% percent first and refunding mortgage bonds. The cash sanes Yes due 1984 1983 Sem s Yes due 1984 1983 flow from this trust will be sufficient to fund the scheduled principal and interest pay-3%% 1986 $ 30,000 $ 30000 8$' 2003 $ 98.050 $ 98,050 14%% 17,150 9%% 2004 95,623 ments on these bonds. Accordingly, in 1987 50.000 95.623 12% 1990 75.000 75.000 9W% 2005 92.800 92,800 1984 this amount was removed from the 15W% 1991 100.000 100,000 8%% 2006 96.850 96,850 balance sheet. The entire series of 14%

4W% 1992 50.000 50,000 8%% 2007 119,500 119,500 percent bonds will be retired on March 1, 4%% B 1992 50,000 50,000 9%% 2008 120,610 120.610 1985.

11 % 1994 71,000 77,750 10%% 2009 145,050 145.050 4W% 1995 40.000 40,000 10%% B 2009 148,000 148,000 The annual matunties of long term debt 5%% 1997 72.600 72,600 14% % 2010 100,000 100,000 (including sinking fund requirements and 6%% 1998 68.500 68,500 13W% B 2010 50.000 50.000 capitalized lease pnncipal payments) 7% 1999 56.075 56,075 14W % 2012 125,000 125,000 through 1989 are $113.419,000 in 1985,

$80,095,000 in 1986, $32,844,000 in

% R#a m con u 95,635 1987, $36,091,000 in 1988 and 8%% B 2000 95.635 7W% 2001 97.900 97,900 $70,216,000 in 1989.

7%% B 2001 38.050 38.050 40,000 7%% 2014 -

7%% 2002 78,100 78,100 The annual matunties for 1985 include $40 Less: Funds held 7%%B 2002 67,900 67,900 million related to the reduction of one of n trust (39,742) (58,478) 7%% 2003 94,872 94,872 the Company's two nuclear fuel trusts. An-Total $2 530.506 $2.511.370 nual maturities through 1989 include Substantially all electric plant was mortgaged as of December 31,1984. mounts relating to the remaining $85 mil-lion in outstanding obligations under the fuel trusts. The maturities are based on es-timated fuel consumption. Instead of mak-ing cash payments, the Company intends to transfer title of additonal nuclear fuel to the trusts as fuelis consumed.

(

Not 213 Rect =sification On the Statements of Source of Funds for Plant Constructon Costs, certain prior year informaton has been reclassified to conform with 1984 classifications.

i 36

Note 14 Commitments and contingencies A. Joint ownership of plants are $1.71 billion and $560 million, respec- The Company is also a member of Nu-The Company, the North Carolina Munici- tively The program is subject to periodic clear Electric Insurance Limited (NEIL).

pal Power Agency Number 1 (NCMPA No. review and revision, and actual construc- This organization provides insurance for 1), the North Carolina Electric Membership tion costs incurred may vary from such es- the increased cost of generation and/or Corporation (NCEMC), the Saluda River timates. Cost vanances are due to various purchased power resulting from an acci-Electnc Cooperative, Inc. and the Pied- factors, including revised load estimates, dental outage of a nuclear unit. If NEIL's mont Municipal Power Agency (PMPA) are the outcome of licensing and environmen- losses ewr exceed its reserves, the Com-joint owners of the 2,290.000-kilowatt Ca- tal matters, and the cost and availability of pany would be liable, on a pro rata basis, tawba Nuclear Station. Unit 1 is scheduled capital. for additional assessments of up to $20 to begin commercial operation in 1985, million. This amount represents five times Unit 2 in 1987. The Company owns 12.5 C. Nuclear insurance the Company's current annual premium to percent of the plant. Each participant has The Company's public liability for claims NEIL.

provided its own financing for its share of resulting from any nuclear incident is lim-the plant. ited to $620 million under provisions of the The Company purchases $450 million Price-Anderson Act, which provides for of property damaya insurance through In connection with this joint ownership, the nuclear liability insurance up to that NEIL's Excess Property insurance Pro-Company has entered into agreements amount. Under these provisions the Com- gram. This coverage is in addition to the with these buyers to purchase declining pany could be assessed up to $5 million $500 million of coverage provided by the percentages of the capacity and energy for each of its licensed reactors for a nu- Company's underlying property damage from the plant. The agreements will be ef- clear incident involving any licensed facility policies issued through NML If losses eer fective beginning with the commercial in the nation. If more than one nuclear inci- exceed the accumulated funds available operation of each unit - 15 years for dent occurred, the Company could be as- to NEIL for the Excess Property Insurance NCMPA No.1 and PMPA and 10 years sessed up to $10 million a year for each of Program, the Company would be liable, on for NCEMC and Saluda River. its licensed reactors. As of December 31, a pro rata basis, for additional assess-1984, the Company had six licensed reac- ments of up to $28 million. This amount Energy cost payments will be based on tors, including Catawba Unit 1, which had represents 7.5 times the Company's cur-the vanable operating costs, a function of a low-power license but is not scheduled rent annual premium for excess property the generation of the plant. Capacity pay- to begin commercial operation until the insurance.

ments will be based on the fixed costs spnng of 1985.

of the plant. The estimated purchased D. Other capacity payments through 1989 are $225 The Companyis a member of Nuclear The Company is involved in legal and reg-million in 1985, $425 million in 1986, $624 Mutual Umited (NML), which providas ulatory proceedings before vanous courts million in 1987, $583 million in 1988 and property damage coverage for certain of and agencies with respect to matters aris-

$542 million in 1989. The capacity and en- the Company's nuclear facilities. If NML's ing in the ordinary course of business, ergy costs will be reported in " Net inter- losses ever exceed its reserves, the Com- some of which involw substantial change and purchased power" in the pany would be liable, on a pro rata basis, amounts. Management is of the opinion Statements of income. for additional assessments of up to $70 that the final disposition of these proceed-million. This amount represents 10 times ings will not have a material adwrse effect B. Construction program the Company's current annual premium to on the results of operations or the financial For the years 1985 through 1987, pro- NML. position of the Company jected construction and nuclear fuel costs

/

37

Long-Term Financings and Sale of Assets 1984 1983 1982 Pnce per Net Net Net Dukop,wer Company share proceeds proceeds proceeds To meet its capital requirements, the Financings Company has financed with long-term Common stock debt and equity securities and has raised Dividend Reinvestment and additional capital through other types of Stock Purchase Plan

• financings plus the sale of certain assets. (1,188.333 shares) $25.70 $ 30,539 In March 1983 the Companyintroduced (1,226,818 shares) 23.56 $ 28,903 the Customer Stock Purchase Plan, (1,019,484 shares) 21.62 $ 22,042 which enables customers to purchase Customer Stock Purchase Plan

• common stock without paying brokerage (263,274 shares) 25.28 6,655 fees. Financings and sale of assets from (403,911 shares) 23.37 9,439 1982 through 1984 were as follows (dol- Stock Purchase-Savings Program lars in thousands): for Employees *

(1,831,618 shares) 23.32 42,712 (1,624,436 shares) 21.79 35,390 Employees' Stock Ownership Plan *

(143,633 shares) 22.78 3,272 (903,260 shares) 22.04 19,909 Bond / Stock Exchange (3,727.544 shares) 19.715 121,793 Totalcommon stock 37,194 84.326 199,134 Preferred stock, $25 par 15.40% Series A,1982 (1,600,000 shares; March 2) 38,296 Total preferred stock 38,296 Long-term debt First mortgage bonds Pollution-Control Series 60,720 45,648 15Ya% Series due 1991 (March 2) 98,680 14W% Series due 2012 (September 16) 122,841 Total first mortgage bonds 60,720 45,648 221,521 Other financings Nuclear fuel trusts 84,461 60,645 33,052 Promissory note due subsidiary

- due 1989 58,725 Term note - due 1987 20.996 Total other financings 84,461 60,645 112,773 q Totallong-term debt 145,181 106,293 334,294 Total financings 182,375 190.619 571,724 Sale of assets Sale of an interest in the Catawba Nuclear Station 457,086 Totallong-term financings and sale of assets $639,461 $190.619 $571,724

• Auerage price per share C,'en-market purchases initiated The Company began open market pur- Employees' Stock Ownership Plan 1983 chases in the following years to satisfy Stock Purchase-Savings Program for Employees 1984 the requirements of its stock plans: Dividend Reinvestment and Stock Purchase Plan 1985 Customer Stock Purchase Plan 1985 38

,m.,,.__.._._______....s_a____._____________..._________..-

Selected Finrncirl Drta Y Duke Power Company 1984 1983 1982 1981 1980 Condensed statements of income (thousands)

$2,710,015 $2,420,252 $2,244,480 $1,908,454 $1,682,822 Electric rewnues Electric expenses 2,161,914 1,971,038 1,854,712 1,632,104 1,402,722 --

Electric operatingincome 548,101 449:214 389,768 276,350 280,100 _-

162,795 213,001 175,048 254,043 208,365 Other income Income before interest deductions 710,896 662,215 564,816 530,393 488,465 _

interest deductions 249,565 230.938 214,939 194,142 177.374 Income before extraordinaryitem 461,331 431,277 349,877 336,251 311.091 _-

Extraordinary item - - 48,304 - -

Netincome Dividends on preferred and preference stocks 461,331 61,786 431,277 62.600 398,181 62,164 336,251 57,895 311,091 58,612 h Earnings for common stock $ 399,545 $ 368,677 $ 336,017 $ 278,356 $ 252,479 -

Common stock data _

Shares of common stock - year-end (thousands) 101,153 99,634 95,949 88,483 86,294 _

- average (thousands) 100,346 97,784 93,679 87,313 81,985 -m Per share of common stock y

Earnings before extraordinary item $3.98 $3.77 $3.07 $3.19 $3.08 j Extraordinary item - -

0.52 - -

H Earnings $3.98 $3.77 $3.59 $3.19 $3.08 j Dividends $2.42 $2.32 $2.24 $2.08 $1.95 T Book value - year-end $27.80 $26.26 $24.89 $23.83 $22.82 '

Market pnce - high-low $30%-22% $26%-21% $24-20% $22%-15% $19%-14%

- year-end $29 $25% $23% $20% $18%

Balance sheet data (thousands)

Total assets $8,018,818 $7,379,445 $7,057,780 $6,531,044 $6,328,174 Long-term debt $2,696,795 $2,745,889 $2,712,372 $2,545,694 $2,594,008 1 Preferred stocks with sinking fund requirements $ 285,426 $ 295,053 $ 304,026 $ 308.674 $ 316.559 s

__=

Electric and other statistics r-Kilowatt-hour sales (millions)  :

Residential 14,493 14,219 13,711 13,861 13,765  !-

General service 10,922 10,339 10,087 9,731 9,395 +

Industnal 21,821 20,907 19.345 20,667 20,060 Other energy and wholesale

• 7,163 8,686 8,237 9,289 9,091 54,399 51,380 53,548 52,311 Total kilowatt-hour sales 54,151  ?

Number of customers - year-end Residential 1,199,718 1,167,846 1,139,248 1,125,371 1,105,035 Other 195,992 189.329 183.061 181,331 179,370 Total customers 1,395,710 1,357,175 1,322,309 1.306,702 1,284,405 Residential customer data Average annual KWH use 12,210 12,278 12,065 12,392 12,560 -

Aarage revenue billed per KWH 6.11C 5.67c 5.41c 4.51C 4.11e Number of employees - year-end  ;

13,465 13,278 12,539 12,134 11,463 -

Operating and maintenance Engineering and construction 6,860 7,687 7,735 7,943 8,149 _

Source of energy (millions of KWH)

Generated- Coal 26,394 32,466 38,927 42,513 40,984

- Nuclear 32,632 " 25,059" 15,009 14,229 14,213

- Hydro 1,995 2,114 1,569 843 1,820 -

i

- Od and gas -

8 7 146 203 $

Net interchange and purchased power * (2,908) (1,003) (301) 494 (472)

System awrage heat rate 9,853 9,762 9,666 9,633 9,675

~

System load factor 62.2 % 58.6 % 56.8 % 61.9 % 61.6 %

• Renects the ettect of the McGure Rehabohty Exchange invoked by certain muncpahres and cooperaties that purchased inteests in the Catawba Nuclear Staten. 5 (See Note 2, " Notes to Financial Statements.")

" Includes McGure Unit 2 generaten pnar to commercial operation.

39 .-

g

Selected Financial Data Electrc Electre operatuxj Net Earnings Duki Fower Company revenues income ocome per share Quarterly financial data 1984 by quarter A summary of quarterly financial data for Fourth $680,177 $129,979 $ 97,862 $0.81 1984 and 1983 is as follows (dollars in Third 729,047 156,746 139,001 1.23 thousands, except per share data): Second 629.483 132,990 101,276 0.86 First 671,308 128,386 123,192 1.08 1983 by quarter Fourth $593,064 $ 91,310 $ 89,717 $0.74 Third 667,947 136,525 129,867 1.17 Second 553,388 103,450 96,922 0.83 First 605,853 117,929 114,771 1.03 l

Generally, quarterly eamings fluctuate with seasonal weather conditions, timing of rate increases, fuel cost adjustment procedures and maintenance of electric generating units, especially nuclear units.

Div.dends Stock pnce range N;dends Stock pnce range per share Hoh Low per share Hoh Low Stock marketinformation 1984 by quarter 1983 by quarter The Company had approximately Fourth $0.62 $30Vs $27% Fourth $0.59 $26% $24 120,395 holders of record of common Third 0.62 27 % 24 % Third 0.59 24 % 21 %

stock as of December 31,1984, and Second 0.59 25 22 % Second 0.57 24 22 %

124,609 holders as of December 31, First 0.59 26 % 22 % First 0.57 24 22 1983. During 1984, approximately 39,432,900 shares of common stock were traded, compared with 58,664,500 dunng the previous year. The Company's common stock prices, as quoted by the

New York Stock Exchange, and dividends l paid are as follows

l l

i 40

Selected Financial Data i

f Duke Power Company l Cffects of changing prices in recent years, the impact of general infla- Financial Accounting Standards Board re-tion and changes in specific prices has quires certain disclosures of the effects of caused distortions in traditional accounting inflation on a company's operations and fi-measurements of income and capita!. Al- nancial position.

though the rates of inflation in recent years have substantially decreased, the replace- Because the accompanying supplemen-l ment of existing plant capacity occurs at a tary information involves various assump-l signifcantly higher cost than recoered tions and approximations, it should be i through historical cost depreciation be- viewed as an estmate of the effects of in-cause of the high feels of inflation in previ- flation, rather than a precise measurement.

ous years. In response to this problem, the Constant dollar accounting j Constant dollar accounting reflects the terms of dollars of equalpurchasing overall decline in the purchasing power of power l the dollar by restating historical costs in l

l Current cost accounting l Current cost accounting reflects changes costs by internally generated indces or the in specific pnces of the property used in Handy-Whitman Index of Public Utility the Company's operations from the date Construction Costs. Since plant facilities the property was acquired to the present. are not expected to be replaced precisely This method differs from constant dollar in kind, " current cost" does not necessar.

accounting to the extent that costs of spe- ily represent the replacement cost of exist-cific utility property have increased more or ing productive capacity. Current cost de-less rapidly than the rate of generalinfla- preciation is computed by applying the tion. The current cost amounts of plant in same rates used in the historical cost service represent the estimated cost for re- statements to the current cost plant placing existing plant facilities and were amounts.

I determined by indexing survivirg plant Effects of rate regulation Under the Company's present ratemaking The Company has significant amounts of procedures, only the historical cost of long-term debt outstanding which serves plant in service is recoverable in rates as as a partial hedge against inflation, as well depreciation. Therefore, in tmes of rela- as other net monetary liabilities, which will tively high inflation, tie erosion of plant in be paid back in dollars of less purchasing service resulting from inflation in the cur- power. In the accompanying schedules, rent year may be greater than is reflected the gain from decline in purchasing power in current cost adjustments and is re- of net amounts owed results from infla-

. flected as a reduction to net recoverable tion's effect on obligations to pay cash at cost. This reduction was not necessary in a future date.

1984 and 1983 because the level of infla-tion was less than in previous years.

Other income statement items other than depre- made to them. No adjustments to income ciation have not been adjusted. The Com- tax expense have been made in comput-pany's operation and maintenance ex- ing the impact of inflation since only histor-penses alreadyinclude the average ical costs are deductible for income tax effects of changing prices during the per- purposes.

iod. Therefore, no adjustments haw been 41 j l

l j

Supplementary Statement of Earnings for Common Ctock Adjusted for Changing Prices Dollarsin thousands L

Histoncal Current Duke Power Company Year ended December 31.1984 dollar cost Electric revenues $2,710,015 $2,710.015 Operating expenses 1,040,603 1,040,603 Maintenance of plant facilities 207,951 207,951 Depreciation 303,429 566,691 Taxes 609,931 609,931 Total electric expenses 2,161,914 2,425,176 Electric operatingincome 548,101 284,839 O;her income 162,795 162.795 income before interest deductions 710,896 447,634 Interest deductions 249,565 249,565 Netincome 461,331 198,069 Divider'ds on preferred and preference stocks 61,786 61,786 Eamings for common stock $ 399,545 $ 136.283 Increase in specific prices (current cost) of utikty plant held during the year * $ 117,903 Reduction to net recoverable cost ** -

Effect of increase in general price level (376,032)

Excess of increase in general pnce level overincrease in specific prices (258,129)

Gain from dechne in purchasing power of net amounts owed 137,912 Net $ (120,217)

• At December 31,1984, cunent cost of electnc plant, net of accumulated deprectat:On, was $9,673,781,000.

"Due to the decrease in the rates ofinflatoon on recent years, there os no reductoon to the net recowrable cost of plant teflected for 1984.

Five-Year Comparison of Selected Supplementary Financial Data Adjusted for the Effects of Changing Prices in thousands of average 1984 dollars, except per-share figures

\

(

Duke Power Company 1984 1983 1982 1981 1980 Current cost information:

income before extraordinary item $198,069 $207,023 $135,244 $165,293 $190,979 Eamings per share before extraordinary item 1.36 1.45 0.72 1.13 1.43 Net assets at year-end 2,772,783 2,681,856 2,541,351 2,330,692 2,370,741 Decrease in the current cost of electric plant in service, net of inflation, after reduction to net recoverable cost 258,129 279,226 107,053 301.990 564,248 Constant dollar information:

Electnc rewnues 2,710,015 2,523.259 2,415.281 2,179,589 2,121,256 Common stock dividends per share 2.42 2.42 2.41 2.38 2.46 Market pnce per common share at year-end 28.60 25.75 24.74 22.79 21.82 Generalinformation:

Purchasing power gain on net monetary items 137,912 140,026 157,269 373,361 519,675 Average consumer price index 311.1 298 4 289.1 272.4 246.8 42

i Subsidiaries l Cuke Power Company

)

Subsidiaryinvestments 1984 1983 rs Mhousands Property and investments - at cost Real estate, recreational and land development $39,323 $39,115 Net current assets, principally investments, receivables and inventories 42,485 27.600 Total assets 81,808 66,715 Deferred income taxes (4,023) (4,907)

Totalliabilities (4,023) (4,907)

Investments in and advances to subsidiaries $77,785 $61.808 Crescent Land & Timber Corp. In 1984 Crescent Land & Timber opened non-utility property. In addition to investi-its second major business park - the gating the potential for expanded indas-Richard C. Ranson 150-acre Greenway Industnal Park located trial, commercial and residential develop-Pesa nr just south of Charlotte. It also began ment, Crescent continued to carry out construction of a 100,000-square-foot exploration programs for minerals and build to-suit facility at the site. other natural resources that may exist on its land.

Crescent established its first park, Lake-mont Business Park, in 1983. The 45-acre in 1984 Crescent harvested 44.5 million development for light industry, office and board feet of timber and 82,600 cords certain limited retad uses, is located south of pulpwood and planted 3.3 million of Charlotte in South Carolina. seedlings.

Crescent was formed in 1969 to own and manage approximately 270,000 acres of Duke Power Overseas Finance N.V. Duke Power Overseas Finance N.V. was Alsoin 1982 Duke Power borrowed from

} formed in 1982 in Curacao, Netherlands the subsidiary the net proceeds of the sale Antilles, to provide financial resources from in the Eurodollar market of $60 million prin-outside the United States. cipal amount of notes. The notes will ma-Duke Power made a capital contnbution to the subsidiary that year, which is invested in short-term secunties.

Mill-Power Supply Company Mdl Power Supply Company continued its tries then converting to electricity and to

) plan of growth in 1984 by establishing the act as Duke Power's purchasing agent.

! W. T. Robertson, Jr. Applied Technologies Department. This The subsidiary has 284 employees.

' Foscat new group in the Sales Division represents I MillPower's entry into the high-technology From its headquarters and warehouse in market. Charlotte, N.C., its distnbution centers in Greensboro, N.C., Greenville, SC., and in addition to energy management equip- Lancaster, SC., and sales offices in Hick-ment which the subsidiary has marketed ory, N C., and Kinston, N.C., Mill-Power's for sewral years, the new department has Sales Division continues to perform as added programmable controllers and one of the largest electrical wtiolesale dis-computer equipment and systems to its tnbutors in the Southeast.

product lines. Professional staff has been added also. As Duke Power's purchasing agent, Mill-Power's Purchasing Division purchased Mill Power was founded in 1910 to supply approxirnately $1 billion worth of equip-equipment to textile mills and other indus- ment, fuel, senaces and supplies in 1984.

43

Board of Directors Officers i

William S. Lee George R. Herbert William S. Lee James R. Bavis C. Joe Sherrill Chaaman and Pesdent Research Tnangte Chairman of the Board and Vce Pesdent Human Assistant Vce Pesdent Institute 2 Chet Enecurne ottocer Resources Transmossen-Substaten Chief Esecurrue offocer'-

• Dowson NaomiG. Albanese John D. Hicks Douglas W. Booth Thomas C. Berry Sonce Voce Presdent Puble Pesdent and Vce Pesdent Southem Lewis F. Camp, Jr.

Dean Ementus Schoolof Atfairs' Chet operatung offcer Dowson Secretary and Assocome Home Economes Unrarsety of North Carotona GeneralCounset e G,sansboc2 James V. Johnson William H. Grigg Shem K. Blackley, Jr.

Vce Charman and Drector Esecute.e Vce Presdent Vce Pesdent Wsm ssen Norman P. Morrow Douglas W. Booth of huc Altars Fonance and Admunostraten Controffer Pesant and Cocacola sorti,ng Co, Ralph W. Bostial Cheroperat:ngoricert ' Consoidated Warren H. Owen Vce Pesdent Peductoon Richard J. Osborne Enecutne Vce Pesdent Support Department Deasurer Thomas H. Dav.is W. W. Johnson Eng,neenng, Construcron Charman of the EEutne Charman and and Poductm Group J. Kenneth Clark Eugene C. Sites Committee Choet Executne offcer Vce Pesdent Corporate Asststant Controller Padmont Awton,inc 2 aankers nust of South Austin C. Thies Communcatens Caroorna2 Enecutove Voce Pesdent Hansel D. Whitley Robert C. Edwards riansm,sson. Ostnbuten William A.Coley Ass,stant Contener Charman or the Boara Buck Mickel and Dectre operatens vce Presdent operation Textrie HallCorparatuun Chairman of the Board Group Sue A.Becht Danetintematonat Robert L Dick Ass,stant neasuer John L Fraley Corporat,on3 Henry L Cranford vce Pesdent Constructen Vce Charm. s and Senoor Vcs Pesdent W Bruce Shannon Chet Executne ortcer Reece A.Overcash,Jr. Dwson operatens George W. Ferguson, Jr. Ass,stant Teasuer ht Carrers Charman of the Board and Vee Pesdent and Deputy Carotona Corporca 3Fre/s Chet Execufne offcer Donald H. Denton, Jr. Geners Counsei Carolyn R.Duncan Assocsates Cwpraten of Sena Vce Preso&su Assistant Secretary Alester G. Furman,lil North Amenca Ma*ering and Rates Excell O. Ferrell,111 Phyi mpson

$ U o,'s$ W Warren H. Owen Steve C. Griffith, Jr. $**s#****"' ""'"*'" 3 s s, t ,a,y Enecutne Vce Pesdent Sensor Vce Pesdent and Steve C. Griffith, Jr. Engmunng. Constructen Genera / Counsei Elbert N. Hedgepeth, Jr.

and Peducten Goup' Voce President Ostnbuten Senoor Voce Presy and caneras Counset John D. Hicks James C. Self sene, Vee Pesdent Auc Duncan E. Lennon William H. Grigg Cnarrman of the Esecurre Affars Vce Presdent and ran Executsa Vce Pesdent Commuttee Courtser Finance and Greermood Mills. Inc.

Adm,n,straton' d John F. Lomax jeust ng Eer, Vce Pesdent estem Paul H. Henson DaSca Chairman and Maceo A.Sloan Chet Enecutne orfecer Vce Charman North Paul G. Martin Unoted Tetecommuncatcos. Cactuna Mutualble a VcePe inc.4 Insurance Company y,sdent Eastem Austin C. Thies DwiSht B. Moore Executin Vce President Vce Pesdent Central Transmessoon. Ostnbution Drwson and Electnc operatens GS"P' William O. Parker, Jr.

Vce Presdent Fossil Production Department I Enecutne Commottee 2 Audit Committee Richard B. Priory 3 Compensaron Comm,ttee s 4 FenanceCommottee Vce Pesodent Design Engineenng

{

William R. Stimart J Vce Pesdent Regulatory Affars George E. Stubbins Vce Presdent Informatron Systems HalB. Tucker Vce Pesdent Nuclear Producten Department Fred E. West, Jr.

Vce Pesdent Chartotte Drwsson James W. White Vce Pesdent General Serwces 44

Retired Officers Otherinformation

?

l The following officers Notice of annual meeting The 1985 meeting of holders of Duke Power Frank A.Jenkins Company common stock will be held Fri-sen.or vee Pesent day, April 26, at 10 a.m. in the O.J Meer

$,*'"jan ,8'

" *"d Auditorium of the Electric Center,526 South Church Street, Charlotte, N.C.

Linwood C. Dail Vee Pes &nt Design Engeneerung M. Thomas Hatley, Jr. Transfer agent and registrar vce Prescent Rates SamuelT.Lattimore 9n u ranh st Company vem Present r, nance of NewYork Aormnisteen 30 West Broadway Joseph G. Mann New York, N.Y.10015 vee Pescent tuortrern Ovts;on Paul H. Mann, Jr. Stock exchange listing vo Prescent operaron Duke Power Company common stockis E. Bruce Shuler vce Peseent Transenisson listed and traded on the New York Stock John C. Goodman, Jr. Exchange. The trading symbolis DUK.

Assistant Secretary Corporate headquarters

, 422 South Church Street RO. Box 33189 l

Charlotte, N.C. 28242 704/373-4011 Joe S. Major, Jr., vce Presdent, Personnel, dred March S.1984, after rnote than 46 SEC Form 10-K and statistical years of servce to DuAe her supplement Yb are gratefulfor his many contntxifons and eget his Upon request, the Company will provide passing. without charge a copy of its 1984 Annual Report to Shareholders on Form 10-K as fded with the Secunties and Exchange Commission. Also available without charge is the Statistical Supplement to the 1984 Annual Report. Requests for these docu-ments should be directed to Richard Wd-liams, inwstor Relations, Duke Power Com-pany, RO. Box 33189, Charlotte, N.C.

28242. Shareholders may call investor Rela-tions at 3734579 (Charlotte) or at the fol-lowing toll free numbers: 1-800-532-0492 (North Carolina); 1-800-4380142 (elsewhere in the United States).

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