ML20140F403

Yankee Atomic Electric Co,Annual Rept 1985

ML20140F403
Person / Time
Site:	Yankee Rowe
Issue date:	12/31/1985
From:	Papanic G, Tribble J YANKEE ATOMIC ELECTRIC CO.
To:	Office of Nuclear Reactor Regulation
References
FYR-86-038, FYR-86-38, NUDOCS 8604010039
Download: ML20140F403 (19)

Text

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Yankee Atomic Electric Company Annua' Repon 1985 60-( ys=~C rnte J ywem, go. , ,,

Contents

!hi Description of Business.. I Common Stock Ownership.: 1 President's Letter.. - 2 Selected Financial Data.. 3 Re; ort of Independent Certified Public .\ciountants..

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3 Financial Review , 4 Statements of Income and Retained Farnino. 5 Balance She ts.. 6 Statements of Changes in Financial Position.. 7 Notes to Financial Statements. 8 OtTicers of the Company . I5 Board of Directors . 16

a-.s YANKEE ATOhllC ELECTRIC COhlPANY 1671 WORCESTER ROAD FRAhllNGIIAh!, AI ASSACilUSETFS 01701 Yanker Atomic Electric Company an c!cctric utility company, was incorporated in Slassachusetts m 19%

under the provisions of the Alas,achusetts utility law which permits two or nmre electric companics to join in the construction and operation of a generating plant to sene thrir common needs.

The Company was formed by New England utilitics for the purpow of construsting and operating -New England's first nuclear power plant. In addition to its license to generate, huy, transmit and sell electricit>, the Company is authorized to conduct research and engineering and assist others engaged in a similar business. The ten sponsoring utilitics own the entire common capital stock of the Company and arc e ntitled to and obligated to purchav the output of the pIant at a cost equal to total operating r%penses plus.a return on mVestment.

The Yankee plant is locateil on the Decrfield River in the licrkshire lidis in the Tow n of Rowe, Alassachusetts. The plant was plat ed in commercial operation in 19til and ha, heen in full operation since that time except for maintenance and refueling shutdowns. The unit is rated at 185 megawatts (grow) and has generated over 27 billion kw h of c!cctncity sinte inception.

In 1968, the Securitics and Exchange Commissmn authorired the Company to organiic a Nuclear Senices Division under the Company's corporate structure. This Divhion has a stati of approumately 400 engineers who provide scrvices in all aspects of nuclear power plant design and operation including Nuilcar Engineering, Environmental Engineering. Operations, Quality Assuranic, Plant Engineering and Fuct ilanagement.

i Services are performed on a cost basis for the Yanker plant and other power plants of the sponsoring companics.

A limited amount of work is performed at a profit for other companic3 in the United States and abroad.

Common Stock Ownership E )w nr+sh.p $ hares pen rnvage ()n ne,i New England Power Company.. .. 30Jr1 4(>,020 The Connecticut Light and Power Company. 24.s 37,583 lloston Edison Company. 9.5 14,573 Central Alair.c Powcr Company . 9.5 14,573 Public Service Company of New llampshirc.. 7.0 10,738 Western Alassachusetts Electric Company. 7,0 10,73H hlontaup Electric Company . 4.5 (>,903 Central Vermont Public Senice Corporation- 3.5 5,3t>9 Commonwealth Electric Company. . 2.5 3.8 15 Cambridge Electric 1.ight Company. 2.0 3.0f>H luolri 153,4{N) i't I

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i President's Letter J l

l l 1985 was an outstandmg 3rar for Yanker m man, w an. We telebrated the sih rr annis er an of our plant I l

at Rowe, Massachusetts, by setting a new plant tr<ord for t ontmuous operation. 3 M J.ns without a shutdow n.

The 1985 refueling outage of ses en w orks was also the shortest smir 1970. Tins n ipnte an as hin ement f or th-l

! nationi oldest, operating nuclrar plant. Iludt m l'M to demonstrate the irasduhts of commertial nuilrar l

power, the Yankee plant has certainly fulfilled its objectne.

f a tnings per sharr and return on equity de- }

l tlined shghtly in 1%% primarily due to a trilut tion l

'} in benefits obtamed from deferred starstment tas (

c red its. Ilowever, the resulting MI.5% per sharr and 16.11 carned return was most trsprt tahle for out mdustry. .\lran w hile good plant as allabel ti and kh]

f I .- tight cost control measures reduc ed the t ost of pow rr

! '[ to our customers to 5.3C/ kw h. irom %.9C /kw h in ,

I l []) 1984.

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[3: On the rate front, a settlment w as reathrd i I

j S, with the federal Encre) Regulatory Commnuon j'( that tontinurs our depreciation tollections through -

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,; IWI, and estabbshes a decommiumnmc fund w hi<h

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j ;y will be fully funded by the espiratmn of the Rowe j

, 2% plant operatmg brense, rurrently I W 7. 1)ct om-missioning collectiorn were ruled tas deductible b5 l

the l'nited Statr> Court of Claims. and that detision j

was tr(entig upheld by the 1).C. Circuit Court of '

, ,, , .\ppeals. Thn ruling w as in response to a suit j brought b) Yankre agamst the l'.S. Gos crnment.

Yanker also discharged all past obhgations to the i l)cpartment of Energy for spent furt disposal, in ,

I doing so saving our customers millions of dollars m  !

interest t harges. I l I The Company continues to provide quality enginerring servicr> to other operatmg plants in New England I and ciscwhere. Our major customers in Vermont and .\taine had escellent operating rctords in 148%. although Vermont Yankee shut down in Septen.ber to replace rreiri ularmn system piping. Several Yanker employers are i

aiding Vermont Yankee in this major effort.

1985 was a comeback ) car er Yankrei other major (ustomer for enginerrme servit rs. the Srabrook nuclear power project. Construction of the Srabrook plant proceeded at a rapid t' lip, and all kr) milestones were reached ahead of schedule, including the all-importnt, hot funt tional test. Ynker personnel are mvolved in many aspects of the job at Scabrook, including dirrttion of r"gineering, litensing and quahty anurance activities.

i The coming year promises to be an exciting one. Vermont Yanker should come back on hnr. and the Seabrook plant is scheduled for initial operation. The Row e riant is running well and could rasih better its j 1985 performance. Aa elderly resident of Row e ont e remarked, "the older she gets. the briter she gets": hewas j right.

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flaud , ,,a L ,

February 14 l9S6 James E. Tribble i

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Selected Financial Data (in thousands, except where notea) ~

Year Faded Decemler 31 19MJ 1984 1983 1982 1981 ,

Operating revenues:

Electric sales - .. $62,398 $60,522 $53.672 $52,097 $46,725 Engmeermg services - 1 M,977 28,081 27,339 24,283 18.897 Total - $92,375 $88.603 $81,011 $76,380 $65.622 Operating income... _ . . . . $ 6,390 $ 7,429 $ 7,267 $ 5,811 $ 5,610 l Net income -- $ 3,612 5 3,750 $ 3.928 $ 3,649 $ 3.090 Common dividends-- $ 3.605 $ 3,758 5 3.835 $ 3,298 $ 2.454 Total assets - .. $76,919 $78,446 $77,313 $71,724 $53.030 Long-term debt- $29,213 $16,325 $15,750 $15,300 $11.100 i

Short-term debt... . $ 7.700 $ 9,300 $13,000 $15,300 $ 8,900

, Earnings per share ($ per share) .._.. .. $ 23.55 $ 24.45 $ 25.61 $ 23.79 $ 20.14

) Return on equity (percm) . .. . . . 16.3% 16.9% 17.7 % 16ft 14.7 %

Net generation (millions of kwh). ... .. 1.182 1.026 1.343 882 885 Power cost (c/kwh)- . 5.3e 5.9e 4.0e 5.9e 5.3e 1

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Coorrns & Lysarso Report ofIndependent Certifed Public duounta,,ts i YAsm AToute ELECTRIC COMPANY Framingham, Afassachusetts

' We have examined the balance sheets of Yankee Atomic Electric Company as of December 31,1985 and I 1984, and the related statements of income and retained earnings and changes in financial position for each of the three years in the period ended December 31,1985. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such

other auditing procedures as we considered necessary in the circumstan

es.

In our opinion, the financial statements referred to above present fairly the financial position of Yankee Atomic Electric Company as of December 31,1985 and 1984 and the results of its operations and the changes in its financial position for each of the three years in the perio1 ended December 31,1985, in conformity with generally accepted accounting principles applied on a consistent basis, d "

Boston, hfassachusetts  !

, January 31,1986 i

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Financial Review The Company has power contracts with its stockholder utilities through June 1991 w his h require these utilities to purchase all of the electrical output of the plant at a cmt equal to total operating espenws plus a return on inve>tment, whether or not the plant operates. The Company also operates a Nuclear Senices Division which furnishes engineering services to the Yankee plant and to other New England pow er projec ts on a cost basis. 1.imited engineering work is also performed for c'hers at a profit.

During 1985, the Yanker plant orcrated with an asailability of 80 S"i and provided cles tricity to stockholder utilities at a cost of 5.3e per kilowatt hour. The plant was routinely refueled in the fall of 1985, and the nest refueling is scheduled for May 1987.

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In April 1985, the Federal Energy Regulatory Commi sion approved a rate schedule winch allows collection of the entire estimated cost of decommi >ioning the plant (apprmimatel> $6S million in 1984 dollars) over its license life, curre ntly 1997. Thew furah are being accumulated in an irrevocable trust espres l>

provided to meet future decommissioning obligations as incurred.

In June 1985, the Company made a $13.207,000 lum sum payment to the Department of Energy for spent fuel disposal ch:irges incurved prior to April 7,1983. The Compa*.y continues to make quarterly payments for current disposa; charges, based on plant generation, as required by the Nuclear Waste l'olic3 Act of 1982.

Fuel expense increased $1.516.000 in 1985 from 1984 primarily due to increased generation, while operations expenses increased $4,507,000 principally due to the payment of prior core spent fuel espense. (See Note B for additional information regarding nuclear fuel.)

The $2,777,000 increase in engineering espenses during 1985 was caus-d by the increawd engineering services provided to the Yanker plant and to other companies.

Maintenance expense decreased by $787,000 in 1985 because refueling costs were not as large as in 1984.

Approval of the revised decommissioning rate schedule, discussed abme, resulted in a $2,128,000 increaw in decommissioning espenses in 1985 from 1984. (See Note G for additional information regarding rate proceedings.)

Federal income taxes decreased by $4,493.000 in 1985 primarily because of the recogmtion of prior year tax benefits related to the fixed fee for spent nuclear fuel and the reflection in 1985 of tas benefits relating to decommissioning expense. (See Note F for additional information regarding federal income taxes.)

Interest on short-term debt decreased by $502.000 in 1985 from 1984 because of the decrease in aserage short-term debt outstanding and a decline in interest rates during 1985.

Allowance for funds used during construction ( AFUDC) increased $321,000 in 1985 from 1984 primarily because the Federal Energs Regulatory Co:nmission (FERC) allowed the Company to capitahre the cost of borrowed and other fundt on a portion of fuel balances, beginning in April 1985. I'reviously, thew balances were included in the rate base and a return was allowed thereon.

The decline in net income in 1985 was primarily caused by a reduction in benefits obtained from deferred investment tax credits. In December 1985, the Company paid its 37th consecutive dividend.

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Statements of Income and Retained Earnings Year Ended December 31.

19M 19s4 1983 Operating revenues (Note A):

Elettric sales.. $62.397.278 $60.521.821 $ 53.672.086 Engineering services to others . 29.977.261 28.081.445 27.338.835 Total operating revenues.. 88.603.2th 81.010.921 92.374 ]

Operating expenses (Note A):

Fuel (Note B).. 10.984.. " 9.468.952 12.172.976 Operations.. 21.638.4o9 17.131.173 12,148.961 Engineering.. 39.594.648 36.817.412 34.335.463 Maintenanec . 2.706.299 3.493.218 1.820.232 Decommissioning ( Note G) . 5.031.558 2.903.220 2.903.220 Depreciation . 5.216.940 4.896,688 4.592.166 Taxes, other than federal income.. 1.778.046 2,936,014 3.061,980 Federal income taxes INote F) . (965.848) 3.527.486 2.708.772 Total operating expenses . 85.984.924 81.174.f 43 73.743.770 Operating income .. 6.389.615 7.428.tA13 7.267.151 Other income:

Allowance for equity funds used during construction (Note A) . 228.308 - -

Othe r. net.. (34.101) 188.435 54.894 Total other income.. 194.207 188.435 54.894 Operating and other income.. 6.583.822 7,617.038 7.322.045 Interest:

Interest on long-term debt.. 2.861.747 2.719.253 1,951.710 Interest on short. term debt.. 483.919 986.366 995.059 Other interest. net . (220,100) 222.244 455,195 Allowance for borrowed funds used during construc-tion-credit (Note A). (154.050) (61,114) (8.025)

Total interest .. 2.971.516 3.866.749 3.393.939 Net income.. $ 3.612.306 $ 3.750.289 $ 3.928.106 Retained earnings:

Retained earnings at beginning of > car.. $ 6.001.11I $ 6,009.122 $ 5.916.016 j Net income.. 3.612.306 3.750.289 3.928.106 9.613,417 9.759.411 9,844.122 Dividends paid . 3.604.900 3.758.300 3.835.000 Retained earnings at end of year (Note C) . $ 6.008,517 $ 6.001.111 $ 6,009.122

, Per share data:

Earnings per share.. $23.55 $24.45 $25.61 l

Dividends per share. $23.50 $24.50 $25.00 The accompanying notes are an integral part of these financial statements.

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Balance Sheets ASSETS linemkr 11.

IM IW4 Utility plant, at original cost (Nnte A) . $82,059,3 s8 $77,777,784 Less accumulated provisions for depreciation .  %,941,984 53,728,859 23,117,374 24,048,925 Construction work in progress . _

200,711 152,524 Nuclear fuel, at amortized cost iNotes B and 1) . 31,848.637 28.390.984 Net utility plant.. ..

55,I(4>.722 52,592,433 Non-utility property,Irss accumulated provisions for depreciation of $404,594 and $355,650.. . . _ . .

574,283 623.227 Other investmerts .. 607,931 224,622 Current assets:

Ca sh .. I10,409 I I 1,875 Accounts receivable:

Electric sales.. 12,212,978 9,035,210 Engineering services to others (Note A) . 5,975,149 5,028,989 Other.. 79.955 932,069

.\laterials and supplies, at average cost.. 844,936 849,357 Prepa>ments and other.. . . . .

764,708 632,687 Total current assets . 19,988,135 16,590,187 Deferred federal income taxes (Note F) . 581.924 -

Unbilled spent fuel disposal costs (Note B) . - 8,415,317

$76,918,995 $78.445,786 CAPITALIZATION AND LIABILITIES Capitalization:

Capital stock, par value $100 per share: 153,400 shares authorized and outstanding . $15,340,000 $15.340,000 ,

Retained earnings (Note C).. 6,008,517 6,001,11i Lc,ng-term debt (Note D).. 29,212,500 16,325,000 Total capitalization . 50,561,017 37,666,111 Current liabilities:

Long-term debt due within one year (Note D) . 1,800,000 4,050,000 Short-term debt (Note E). 5.900,06u 5,250J)00 Accounts payable.. I1,884,595 6,715,853 Accrued federalincome tax (Note F) . . . . .

- 520,3fA Accrued interest.. 448,165 345,375 Total current liabilities . 20,032,760 16,881,592 Decommissioning liability (Note G) . 1,266,721 -

Unamortized investment tax credits (Note F) . 5,058,497 4,626,237 Deferred federalincome taxes (Note F) . - 3,741,787 Spent fuel disposalliability (Note B) . - - 15.530,059 Commitments and contingencies (Notes B, F and I) .

$76.918 995 $78,44 5,786 The accompanying notes are an integral part of these financial statements.

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Statements of Changes in Financial Position Year Fruird Dr<cmber 31, 1(M 198+ l983 Financial resources werev ovided by:

Net income.. $ 3,612,300 $ 3,7v),289 5 3,928,106 Principal non-cash items:

Depreciation, including non-utility property. 5,2t> 5,884 4,945,632 4,641,110 Amortization of nuclear fuel.. 9,720,926 8,373.024 10.734,739 Allowance for funds used during construction

( AFUDC ).. (382,358) (61,114) (8,025)

Deferred federal income taxes . (4,323,711) 3,%87,770 (4,390,134)

Investment tax credits-net.. 432.260 248,224 (619,632)

Provision for prior core spent fuel disposal liability . 6,091.888 2,221,797 1,864,323 Working capital provided from operations . 20,417,195 23,065,622 16.150,487 Issuance of long-term debt . 14,000,000 5,000,000 3,000,000 Decommissioning liability. 1,2th,72 l - -

Ot he r .. 218,6th 4.538 -

35,902,585 28.070,ltA) 19,150,487 Financial resources were used for:

Construct.on expenditures, net of AFUDC. 4,502,374 3.082,416 926,328 Nuclear fuel purchases, net of AFUDC. 12,846,092 9,630.156 8,764,047 Repayment of long-term debt.. 3.362,500 2,925,000 1,800Jmo Spent fuel payment . 13,206,630 - -

Other investments . 383,309 224.622 -

Dividends on ccmmon 3tock.. 3,604,900 3,758,300 3,835J)00 37,905,805 19,620,494 15.325,375 Increase (Decrease) in working capital . $( 2,003,220) $ 8,449,666 $ 3,825.112 Changes in components of working capital:

Cash and temporary cash investments.. 5 (I,466) $( 1,546.823) $(l 596,000)

Accounts receivable.. 3,271,814 3,944,775 465,263 Materials and supplies.. (4,421) (106,410) 37,510 Prepayments and other.. 132,021 (29,222) I11,265 Short-term debt . (650,000) 5,200,000 3,050,000 Accounts payable.. (5,168,742) ( 518,2t>5 ) 3,0SO,781 Accrued federalincome tax.. 520,364 1,441,882 (1,521,109)

Accrued interest.. (102,790) 63,729 197.402 Increase (Decrease) in working capital . $(2,003,220) $ 8.449/66 $ 3,825,112 The accompanying notes are an integral part of these financial statements.

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Notes to Financial Statements Note A-Surnmary of Significant Accounting Policiec

l. System of Accounts:

The accounts of the Company are maintained in anordance with the Uniform S5 stem of .bounts prescribed by regulatory bodies having jurisdiction.

2. Nuclear Sert ices Dit ision:

The Company operates a Nuclear Services Division under the applicable ruin and regulations of the Public Utility Holding Company Act of 1935 for the purpose of furnishmg engineering .crvices to the Company and its sponsoring utilitin. Such services are provided on a full cost basis, mcluding a return on working capital. The cost of services provided to the Yanker plant amounted to $11.%H.311 in 1985. $10.6S7.980 in 19S4 and $8,762,618 in 1983, and are included as engineering costs in the Statements of Income and Retained Earnings.

3. Utility Plant:

Utility plant is stated at the original cost of construction, which includes an allowance for the co t of funds used during construction. Costs of current repairs and minor replacements of plant and propertin, which do not extend the current life of the plant are charged to maintenance espense accounts as incurred. Plant retired or otherwise disposed of, together with costs of removal less salvage, is charged to accumulated provisions for depreciation.

4. Depreciatuon:

For financial statement purposes, depreciation is provided over the estimated service lives of the vanous classes of property on a straight-line basis. The estimated average remaining service life at December 31.1985 is approximately 5 years.

5. Alloscance for Funds Used During Construction 'AFUDC):

The Company capitalizes as a part of construction costs, an item called allowance for herrowed funds used during construction, which represent, the approximate pre-tax cost of short-term debt ud an item called I

allowance for equity funds used during construction, which represents the cost of other funds. AFUDC is recognized as a cost of " Utility plant" Accordingly, AFUDC is capitalized in the same manner as construction labor and material costs with an offsetting credit to " Interest" This is in accordance with an established regulatory approved rate-making practice under which a utility is permitted a return on, and the recovery of, these capital costs through their ultimate inclusion in the rate base and in the provision for depreciation.

The combined rate used in calculating AFUDC was i1.0'~c in 1985. I1.7"c in 1984 and 10.47 in 1983. In accordance with regulatory directives, these rates included the before-income-tax eficct of borrowed funds.

6. Nuclear Decommissioning:

In a 1984 decommissioning study, the Company estimated the cost of decommissioning the Yankee plant, utiiizing the immediate dismantlement and removal method, at approximately $68 million in 1984 dollars. The Company records and bills decommissioning on a remaining life basis in accordance with regulatory approval.

(See Note G.)

7. Income Taxes:

The tax eficct of the timing differences (differences between the permds in which tiansattions aficct income in the financial statements and the periods in which they aficct the determinatjon of inton.c subject to tax) is accounted for in accordance with regulatory approval.

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. 1 Notes to Financial Statements (continued)

Note A-Summary of Significant Accounting Policies (continued):

Investment tax credits are deferred and amortized over the estimated service hves of the property gning rise to the credits.

8. Format Changes and Rutassification:

l Certain spent nuclear fuel disposal costs and awciated interest bas e been reclawfied betw een furl espense and operations expense for all periods presented in the Statements of income and Retained Earnings.

Certain format changes were made to the Statements of Changes in Financial 1%ition which rrsulted in the combination of certain prior period amounts to provide conformity with the 1985 presentatmn.

Note B-Nuclear Fuel:

The cost of nuclear fuel in the reactor is amortized to fuel espense on a umt of production method at rates based on estimated kilowatt hours to be produced from each core. Fuel expense also includes a charge for the permanent disposal of spent fuel.

The following table lists nuclear fuel components.

)ct emlert ll.

19 6 1984 In stock.. $ 6.667,102 -

In process . -

$ 11.095.998 Assemblies in reactor.. 32.241.997 29.245,079 Gross nuclear fuel . 38.959,099 40.341,077 Less accumulated amortization.. 7,110.462 11,950.(P3 Net nuclear fuel.. $31,848.637 $28.390,984 Components of fuel expense are ser ' orth in the following table.

Year Fnded December 31.

19M 1%4 1913 Amortization of nuclear fuel:

Enriched uranium.. _

$ 8,277.089 $7,101,537 $8.989,334 Fabrication.. 1,435.820 1,271.487 1,745,405 AFUDC.. 8.011 - -

9,720,926 8.373,024 10,734.739 Provision for current core spnt fuel dhrosal.. 1,263.886 1,095.928 1.438.237 Fuel expense.. $10,984,812 $9.468,952 512,172.976 Under the Nuclear Waste Policy Act of 1982, the Company entered into a contract with the United States Department of. Energy (DOE), under which it is required to pay a fee of 1.0 mil per kilowatt hour for electricity generated after April 6,1983.

On June 30. 1985, the Company paid a lump-sum amount of $13.206.630 to the DOE to satisfy its contractual liability for disposal of nuclear fuel used prior to April 7,1983. As a result of this election, the Company reversed and refund-d an interest accrual of $2,323,429 previously billed to its customers. In additmn.

the Company amortized to operations expense its remaining halance of unhilled spent fuel dhrosal cmts, amounting to $8,415.317 at December 31.1984, and recognized certain tas benefits not presiomly recognized.

(See Note F.)

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Notes to Financial Statements (continued)

Note C-Restrictions on Retained Earnings Available for Dividends on Common Stock:

Pursuant to restrictions contained in the Loan Agreements, $4.060.000 of the Company's retained earnings at December 31,19SS were restricted as to disidends on common stock.

Note D-Long-Term Debt:

The Company has a revolving credit and term loan agreement with banks which proside lines of credit of

$20,000,000. When the revolving credit period terminates on December 31, 1986, any amounts outstanding may, at the option of the Company, be converted into a irrm loan repayable in quarterly varying installments through Alarch 31,1991. Interest rates are variable and are set, at the Company's electmn, at either the banks' prime rate or the London Interbank OHered Rate plus a fraction thereof. In lieu of compensating balance requirements, the Company is obligated to pay a monthly commitment fee. At December 31,1985, the balance outstanding was $14.000,000 In 1984, the Company converted a $15.000,000 revolving credit agreement with other banks into a term loan. Commencing on September 30,1984, the loan was to be repaid in principal amounts of 15% for each of the first four years and 20"e for each of the following two scars with final payment required on June 30,1990. After the Alarch 30, 1985 installment payment, an agreement was reached with the banks to delay orincipal installments until 1988, with final payment required in June 1991. Interest rates under this credit agreement are variable and are set, at the Company's election, at either the banks' prime rate or the 1.ondor. Interbank OHered Rate plus a fraction thereof. There are no compensating balance or monthly commitment fee requirements. At December 31,1985, the balance outstanding was $13,312,500.

The revolving credit and term loan agreements arc secured by the collateral assignment of all the Company's rights under the customer power contracts.

The Company has an unsecured long term note for $3.700jM) with an SW1 interest rate maturing on January 2,1988. Beginning July 1.1982, the Company paid the first of ten semiannual principal installments amounting to $900.000 per installment on the original $10JR)0,000 loan. The last two principal installments of l

the note will be $;00,000 each.

Information regarding long-term horrowings is summarirrd in the following table.

Ik.mbn 11.

19M 19s4 141 l Revolving credit and term loans.. $27.112,500 $ 14.875,0t H) $ 11.000.000 Installment note-8W. 3.700,000 5.500.000 7.300,000 Total.. 31.012,9N) 20,375.000 18.300JH N)

Less long-term debt due within one year . 1,800,000 4.Os0JHN) 2.550JHW) i l

Long-term debt, net.. $29,212.500 $16.325JX W) $ 15.7 50JMH) l i

I The weighted average interest rates on year-end, long-term horrowings w ere 10.4';,10.8'1 and 10.t/", l respectively, for 1985,1984 and 1983. The weighted average interest rat _es during 1985,1984 and 1983, ha ed on average month-end balances, w ere 10!Y7.11.S'1 and 10!V:, respei tively.

Note E-Short-Term Debt:

In November 1985, the Company increased its lines of credit with banks from $15JFKlf)00 to $25JHN)JHH).

Interrst on borrowings is set at the banks' prime rate or the London Interbank OHered Rate plus a fraction thereof at the time of the advante. In heu of compensating balance requirements, th- Compan3 is obligated to pay a commitment fee.

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Notes to Financial Statements (continued)

Note E-Short-Term Debt (continued):

The Company has been authorized by the Securities and Exchange Commission to issue and sell up to

$15,000.000 of short-term notes and/or commercial paper through December 31,1986. From time to time, the Company utilizes this commercial paper, supported by its lines of credit, to finance construction projects or meet general working capital requirements.

Information regarding short-term borrowings is summarized in the following table.

19M 1984 1981 Borrowings outstanding at > ear end:

Commercial paper . $ 5,9tM).000 $ 5.250fMM) $10,450J)oo Banks.. - - -

$ 5.9tM1.000 $ 5.250A)00 $10.4 so.thK)

.\taximum amount of borrowings at any month end. $ 12.2001WN) $ I 2.tN M),tXM) $ 1 S.000.tMM)

Weighted monthly average borrowings out-standing during year.. $ 6.435fMX) $ 9,077.000 $10.038.000 The weighted average interest rates on year-end. short. term borrowings were 8.M. 9.3'i and 10.5'7, respectively, for 1985,1984 and 1983. The weighted average interest rates during 1985.1984 and 1983, based on average month-end balances, were 7.5"< 10.9'T and 9fri, respectively.

Note F-Federal Income Taxes:

Federal income taxes consist of the following components.

1985 1984 1983 Current income taxes .. . . . . $ 2/n7.870 $ (280.821) $ 7,717,432 Deferred income taxes.. (4,323,71I) 3.587,770 (4,390.134) l Investment tax credits-net.. 432.260 248.224 (619.632)

$ (893,581) $ 3,555.173 $ 2,707.%6 Investment tax credits-net reflect increases or decreases in federal income taxes attributable to such investment tax credits which have been <!cierred and amortized.

The Company has adopted comprehensive interperiod tax allocation (normalization) consistent with regulatory approval. The following table det.,ils the components of deferred federal income taxes.

19 6 1%4 14 0 Provision for spent fuel disposal . $( 3,98 5,41 I ) $ 4,658,138 $ (672,727)

Provision for plant decommissioning.. (599.101) - -

Allowance for funds used during construction . 261.815 (57,818) (82,114)

Excess book depreciation and fuel amortization . (l.014) (l.012.550) (3,635,293)

$(4.323,711 ) $ 3,587,770 $(4.390.134 )

11

Notes to Financial Statements (continued)

Note F-Federal Income Taxes (continued):

The tax eHect of the cumulative amount of timing difterences at December 31,1985 for which deferred income taxes have not been provided is not material. Total federal income taxes diRet from the ams.unts computed by applying the statutory tax rate to income l efore tases. The reasons for the difierentes are as follows: l l

1985 19s4 1983 l 1

Computed tax at statutory rate.. $ 1,250,614 $ 3.360,513 $ 3,0 52.4 56 l Increase (reductions) in tax resulting from:

Provision for decommissioning . 363.432 1,335.481 1.335,4 x I Amortization of investment tax credits.. (l.306.240) (l 173,756) ( l .7 53.S27 )

Provision for spent fuel disposal . (l.;78,024) -

184.861 All other differences _ 376.637 32.93; I I i 1,305 )

Federal income tax provisions (including $72.267,

$27,687 and $(1,106) charged to other income) . $ (S93.;81) $ 3,555.173 $ 2.707A66 Efiective federal income tax rate.. (32.97 ) 48.75 40Xj As discussed in Note B. in 19S5. the Company made a lump-sum payment of $13.206h30 to the DOE for disposal of spent fuel produced prior to April 7.1983. Concurrently, the Company rec ognized $1.578,024 of federal tax benefits not previously recorded.

Under rate authority granted during 19S1, the Federal Energy Regulatory Commiwion required that, pending final resolution of the Company's proceedings before the courts relative to the taxability of the provision for decommissioning, the Company provide for taxes swiated with d-commiuionmg res enues. The Company is seeking a refund for taxes paid durmg the period 1981 through 1983. In 1985. the l's. Court of Claims ruled in favor of the Company and, in January 1986, the D.C. Circuit Court of Appeals upheld the Claims Court decision. The Company is awaiting potential appeals by the IRS before recording these tax benefits amounting to approximately $8.700.000. In the event the Company receises fasorable tax treatment, the disposition of these funds will be determined by the Federal Energy Regulatory Commission.

In 1981. the Company established a decommissioning trust fund. (See Note G.) Consistent with 1984 federal tax legislation, the Company has decided to amend the ori;:inal Trust to comph with the new Irentative requirements. The Company intends to file for approval from the IRS and has reflected a federal tas benefit of

$1,427.010 in 1985, including $475,870 related to 1984 expenses.

Beginning in April 1985 in accordance with regulatory approval, the Company began recordmg deferred federal income tax benefits on that portion of decommissmning expense which is not s urrently deductible for federal tax purposes. This amounted to $1.266,721 at December 31,1985 Federal income tax returns for the Company have been exammed and reported on by the Internal Revenue Service through 1981.

Note G-Rate Proceedings-Decornmissioning:

In April 1985, the Federal Energy Regulatory Commimon approved a resned duomnuuioning rate schedule filed by the Compan>. The revised schedule allows the Company to collect $5.741 (NH) annually, inclusive of federal income taxes, during the period from Aprd I,1985 through its plant license espiration date of November 4.1997. This will allow the Company to (ollect $68JHH).000 from customers (m 1984 dollars) to provide for decommissioning of the Yankee plant.

Funds collected are being deposited in an unconsolidated irrevocable trust, maintamed by a ommercial bank, with principal and interest to be used exclusively to discharge future dec ommimoning obhgations as 12

Notes to Financial Statements (continued)

Note G-Rate Proceedings-Decommissioning (continued):

incurred. At Decernber 31,1985, funds accumulated in the Decommissioning Trust amounted to $14,200,534 which were invested in federally guaranteed securities, valued at cost w hich approsimated market. A decommissioning liability in the amount of $1,2ts,721 represents federal income tases paid on decommn.sioning collections which will be recusered when the Yanker plant is decommissioned. Thi amount wdl also be available to discharge decommissioning obligations.

Note H-Retirement Plans:

The Company has noncontributory pension plans covering all quali6cd umon and nonunion emplo>ces.

The Compan>*s policy is to fund annually the actuarially determined (ontribution, whnh includes that year's normal cost plus any interest thereon, the amortiration of prior sersice costs over 20 y ears and the amortiration of actuarial gains and lowes over 10 yean. Total pension espense, including amortization of prior senice costs and of actuarial gains and losses charged principally to operating espenses of both the Yanker plant and the Nuclear Services Division, was $740jhM in 19SS,5652,000 in 1984 and $532J00 in 1983.

The increase in pension costs in 1985 was due to actuarial adjustments and increases in cmered payroll.

The increase in pension costs in 1984 was due to an improvement in plan prmismns.

The Company participates in the plans with sub idiaries of New England Elet tric Srtem. The comparison, as shown below, of the market value of pension fund 'awts with the at tuarial present value of accumulated plan benefits is provided as a measure of the financial condition of the plans if thry had been terminated as of April 1,1985 and 1984. The comparison shows that the planJ net assets euced the attuarial present value of all plan benefits carned to date.

At Apr.11 1%s 1%4 tthousanA of J.illaro Actuarial present value of accumulated plan benefits:

Veste d .. 5210,661 $ 189,631 Non-vested . 3,086 6,015 Total . $213,749 5195.646 Net assets available for plan benefits . 5331,422 $297,541 l

The above calculation of the actuarial present value of accumulated plan benefits used an insestment return of 8.9 percent in 1985 and 1984, which represents a weighted aserage of the interest rates used by the Pension Benefit Guaranty Corporation Ia federal insurer of pension benefitsl: the above calculation does not reflect any future salary increases.

However, System plan benefits are based on average salary levels during the final > ears of employment.

Therefore, future salary increases will increase plan benefits. The actuarial liability, shown below, was calculated using the plans' actuarial funding method and assumptions, mcluding an assumption for future salary increases.

At April 1.

1%4

_1% %

oL~ns ef u2ro Net assets available for plan benefits . $331,422 $297,541 Actuarial liability . 319,086 297,497 Excess of net assets over actuarial liability. s 12,336 $ 44 13

Notes to Financial Statements (continued)

Note H-Retirement Plans (continued):

In addition to providing pension benefits, the Company provides certam health care and life insurance benefits for retired employees. Substantially all of the Company's employrr$ may become eligible for those benefits if they reach retirement age w hile working for the Company. The cost of retirer health care and life insurance benefits is recognized as espense as claims are paid. In 19S5 and 1984, these costs totalled $33,(NC and $35,000, respectisely.

Note I-Commitments and Contingencies:

1. The Company has contracts for the consersion, enrichment and fabrication of nuctrar fuel through the year 1946. Contractual ebhgations under such agreements amounted to approsimately $10,064,000 at December 31,1985. None of these obligations are scheduled to be paid in 1956.

The Company has contracted for uranium through the 3 car IW9 The Company is icmmitted under a long-term purchase contract to make minimum payments aggregating $6,798,128, which may be required under a long-term contract for uranium if certain lesels of production are not achieved by the supplier. At December 31,1985, the total commitments under these contracts are estimated to be:

linmaird C,nt of

\finimum prmlut o,,n 1986.. $ 1,354.677 $ 5.288,000 1987. 1,484,578 5,303.000 1988.. 1,484,578 5.583,000 1989.. _. 1,484,577 2,995,000 1990.. 989,7I8 4,887,000 199I-1995.... .. . . . .

- 13,264,000 Later years.. -

10.442.fXX)

Total . .. .. $6,748,128 $47,762.000

2. The Company maintains the maximum amount of public nalcar liability insuran , currently

$160,000,000 available from private insurers. A federal stature, the Price-Anderum Act (which is scheduled to expire in 1987), mandates an industry-wide program under which nuclear facilities could be assessed in the event that a nuclear incident resulted in damages exceeding the $160,000,000 of private coveracc. Under this Act, each nuclear reactor may be assessed a retrospective insurance premium of up to $5.000,000 for each nuclear incident within the United States. In the event of more than one incident per 3rar, the masimum annual assessment per reactor is $10,000,000. Under the billing provisions of the power contracts, the retrospective insurance premium would be includable in the cost of power.

3. At December 31,1985 and 1984, the Company had leases covering its oHice facilities, certain equipment and vehicles. Such lease payments are included in and recovered through the bilhngs of the Nuclear Services Division and, therefore, have no rRect on net income. In the normal course of businew, the Company espects that as leases expire they will be renewed or replaced by other leases.

Estimated future annual lease payments, esclusive of taws and insurance are as follows:

1986.. $ 2.231,681 1987. 1,858.338 1988.. 1,618,920 1989.. 1,512.375 1990.. 1.162,143 Later years.. -

Total . $ 8,383,457 14

Notes to Financial Statements (continued)

Note I-Commitments and Contingencies (continued):

Lease payments charged to operating expense amounted to $1,859.tNk) in .,5. $1.723.000 in 1984 and

$1,783,000 in 1983.

4 The Company, in common with other utilities, is subject to current and future regulations relatisc to nuclear power plant licensing.

)

l l

1 Officers of the Company J A% ifs E. Tainstr, EowAnn A. Ilnows, President and ChiefExuutive Ofiar Chairman Lotis H. iiEIDER, DOS At D Ill NTER.

l' ice President l' ice President AtrRED D. HorsToN, AsonEw C. K Ao sK, l' ice President l' ice President AR11 AND R. Soccy. KiuK L. RuisAtr a.

Treasurer and Chief Financial Ogiar Clerk This report is not to be considered an offer to sell or buy or solicitation of an offer to sell or buy any security. -

s 15

Board of Directors Enwsuo A. Brows. Chairman clthe Company: J ntt> V. t ;uit sis. Presudent and Chairman and Chief Ese eutus e Othca r <l Chuaj Ex,< utsi e Hjha a r, i Nere llampshire )*ankee Elea tric Corporation C,.ntral l'erm.,nt PuHuc Sa ri o r Corporats.,n Wit.u nt F. Ut:RT, Jssis: ant to the y , ( y g ,, p,, , ,

Chief Eanutit c Ot!cer.

CO.\l/Ener<n- h. ~ert u n t.,ompa ur Chief Exe utsti t }llia er.

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% Teoephone (617) 872 8100 n

TWX 7103807619 YANKEE ATOMIC ELECTRIC COMPANY FYR 86-038 2.C2.1 M~ . ,

1671 Worcester Road, Framingham, Massachusetts 01701

• sYANKEE...

March 28, 1986 Director of Nuclear Reactor Regulation United States Nuclear Regulatory Commission Washington, DC 20555

Reference:

License No. DPR-3 (Docket 50-29)

Subject:

1985 Certified Financial Statements Gentlemen:

In accordance with Yankee Atomic Electric Company's Facility Operating License No. DPR-3, we enclosed a copy of our annual certified financial statements for the three-year period ending December 31, 1985, pursuant to the requirements of 10 CFR Section 140.15 and Section 50.71.

Please acknowledge receipt of this document by signing and returning the enclosed postcard.

Very truly yours, YAhT.EE ATOMIC ELECTRIC COMPANY 4

6% 1*

Georg apanic r Senior Project Engineer GP/djw Enclosures D

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