ML20140G118

Forwards Certified Financial Statements for 1984,per 10CFR50.71(b)

ML20140G118
Person / Time
Site:	Vermont Yankee File:NorthStar Vermont Yankee icon.png
Issue date:	03/27/1986
From:	Capstick R VERMONT YANKEE NUCLEAR POWER CORP.
To:	Harold Denton Office of Nuclear Reactor Regulation
References
FVY-86-25, NUDOCS 8604010271
Download: ML20140G118 (21)

Text

{{#Wiki_filter:, VERMONT YANKEE NUCLEAR POWER CORPORATION RD 5, Box 169. Ferry Road, Brattleboro, VT 05301' ENGINEERING OFFICE y 3 1671 WORCESTER ROAD FRAMINGHAM, MASSACHUSET TS 01701 T E LENNE 617 872-4100 March 27, 1986 FVY 86/25 U. S. Nuclear Regulatory Commission Washington, D. C. 20555 Attention: . Office of Nuclear Reactor Regulation Mr. Harold R.'Denton, Director

Reference:

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

Subject:

Vermont Yankee Annual Financial Statements

Dear Sir:

In accordance with the provisions of 10CFR 50.71 (b), enclosed please find ten (10) copies of Vermont Yankeefs certified financial statements for the year ending December 31, 1984. Should you have any questions regarding this report, please do not hesitate to contact this office. Very truly yours, I Robert W. Capstick Licensing Engineer RWC/no Enclosures , io 8604010271 860327 PDR ADOCK 05000271 I PDR t

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T i VERMONT YANKEE NUCLEAR POWER CORPORATION Financia.1 Statements 4 l December 31, 1985, 1984 and 1983 f (With Accountants' Report Thereon) i a h i 5 0 1 1.$ l l 1 1 l I i

' ' " ' " - ' " " " * " ^ " - PEAT Ortdied Ibbbc Act0untants MARWICK ~ nan n>" Baston, Maswhmetts 02108 617-723-7700 The Stockholders and Board of Directors Vermont Yankee Nuclee.r Power Corporation: t$e have examined the balance sheets of Vermont Yankee Nuclear Power Corporation as of December 31, 1985 and 1984 and the related statements of income and retained earnings and changes in financial position for each of the years in the three-year 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 circumstances. In our opinion, the aforementioned financial statements present fairly the financial position of Vermont Yankee Nuclear Power Corporation at December 31, 1985 and 1984 and the results of its operations and the changes in its financial position for each of the years in the three-year period ended December 31,

1985, in conformity with generally accepted accounting principles applied on a consistent basis.

(g, 44Wil Y f I February 14, 1986 I b.

VERM07Fr YANKEE NUCLEAR POWER CORPORATION Balance Sheets December 31, 1985 and 1984 Assets 1985 1984 (Dollars in thousands Utility plant: Electric plant, at cost i 279,072 267,067 Less accumulated depreciation 104.350 102.186 174,722 164,881 Construction work-in progress 30.757 8.771 Net electric plant 205.479 173.652 Nuclear '!uel, at cost: Asse611es in reactor 80,629' 80,629 Fuel in process 11,048 14,983 Fuel in stock 29,373 1,587 Spent fuel 108.762 108.762 229,812 205,961 Less accumulated amortisation 166.079 148.307 Net nuclear fuel 63.733 57.654 Net utility plant 269.212 231.306 -Current assets: Cash (note 5) 3,185 3,503 Special deposit (note 4) 3,030 487 Temporary investments, at smortised cost which 26,598 approximates market Accounts receivable, primarily from sponsors 14,987 13,462 Income tax refunds receivable 5,426 1,080 Materials and supplies, at cost 8.764 7,876 Prepaid expenses 1.643 1.277 Total current assets 37.035 54.283 Deferred charges: Decosmiissioning fund (note 4) 5,395 2,784 Deferred decommissioning costs (note 4) 22,795 24,479 Unamortised debt expense 630 725 Accumulated deferred income taxes (note 8) 6,256 6,563 Deferred reload analysis development costs 431 948 Other deferred charges _ 554 Total deferred charges 36.061 35.499 8M M See accompanying notes to financial statements.

Capitalization and Liabilities 1985 1984 (Dollars in thousands) Capitalization: Common stock equity (note 6): Common stock, $100 par value; authorized 400,100 shares; outstanding 400,014 shares $ 40,001 40,001 Additional oaid-in capital 14,403 14,392 Retained earnings 5.547 5,449 Total common stock equity 59,951 59,842 Redeemable cumulative preferred stock, 7.48% series; $100 par value; authorized 300,000 shares; out-standing 116,830 shares in 1985 and 1984 (note 6) 11,683 11,683 Long-term debt, net (note 7) 74,457 59,328 Disposal fee for spent nuclear fuel (note 3) 39,285 ~ 39,285 Accrued interest on disposal fee for spent nuclear fuel (note 3) 10,766 6,777 Total capitalization 196,142 176,915 Current liabilities: Long-term debt to be retired within one year (note 7) 4,871 2,746 Notes payable (note 5) 29,000 Accounts payable 28,060 11,502 Accrued interest 1,395 1,447 Accrued taxes 2,816 2,912 Total carrent liabilities 37,142 47,607 Accrued decommissioning costs (note 4) 34,219 30,535 Accumulated deferred income taxes (note 8) 57,391 50,834 Accumulated deferred investment tax credits (note 8) 12,617 10,530 i Unamortized gain on reacquired debt, net 4,797 4,667 Total deferred credits 109.024 96,566 Commitments and contingencies (notes 3, 4 and 10) f $ 342.308 321.088

VERMONT YANKEE NUCLEAR POWER CORPORATION Statements of Income and Retained Earnings Years ended December 31, 1985, 1984 and 1983 1985 1984 1983 L (Dollars in thousands) Operating revenues (note 2)- $ 118.868 117.009 113.070 Operating expenses: Nuclear fuel expense (note 3) 20,771 21,449 18,750 Other operation expense 40,508 35,475 33,992 i Maintenance 16,175 16,749 20,398 l Depreciation ~12,460 12,031 10,889 Decoenissioning expense (note 4) 4.984 3,640 2,234 Taxes on income (note 8) 2,678 3,609 5,558 Property and other taxes 4.287 4.715 4.192 Total operating expenses 101.863 97.668 96.013 Operating income 17.005 19.341 17.057 Other income and deductions: Allowance for equity funds used during construction 767 Interest 1,598 2,078 40 Taxes on other income (667) (1,041) (47) Other, net (25) (2) 38 1.673 1.035 31 Income before interest expense 18.678 20.376 17.088 Interest expense: Interest on long-tere debt, net 5,945 6,537 7,192 Interest on disposal costs of spent nuclear fuel (note 3) 3,990 4,169 2,608 other interest expense 2.415 2,805 319 Allowance for borrowed funds used during construction (2.440) Total interest expense 9.910 13.511 10.119 Net income 8,768 6,865 6,969 . Retained earnings at beginning of year 5.449 5.259 5.165 14.217 12.124 12,134 Dividends declared: Preferred stock, $7.48 per share 874 '915 1,115 Comunon stock, $19.49, $14.40 and $14.40 per share, respectively 7.796 5.760 5.760 Retained earnings at end of year 5.547 5.449 5.259 Net income per average share of common stock outstanding $M M M See accompanying notes to financial statements.

\\ VERMONT YANKEK NUCLEAR POWER CORPORATION Statemento of Changao in Financial Pcoltica Years ended December 31, 1985, 1984 and 1983 1985 1984 1983 (Dollars in thousands) Source of funds: Net income 8,768 6,865 6,969 Charges (credits) to income not requiring funds: Depreciation 12,460 12.031 10,889 Amortization of nuclear fuel 17,772 18,462 18,750 Allowance for equity funds used during construction (767) Deferred income taxes 6,863 (3,538) 16,921 Investment tax credit adjustments 2,087 1,568 3,217 Increase in decommissioning costs 5,368 3,817 2,239-Interest on disposal costs of spent nuclear fuel 3,990 4,169 2,608 Other, net 199 1,491 524 Total funds from operations 56,740 44,865 62,117 Additions to long-term debt 20,018 12 8,948 Decrease in working capital 6,783 7,409 Total funds provided $ 83.541 gg ggg 71.065 U o of funds: Electric plant additions 37,435 11,740 18,650 Plant removal costs, net of salvage value 6,852 (7) 19 Nuclear fuel additions 23,851 10,423 22,678 Allowance for equity funds used during construction (767) Decommissioning fund 2,611 2,185 599 956 Increase in deferred charges Reduction of'long-term debt 4,889 19,059 ~ 3,040 Redemption of preferred stock 2,211 1,013 Preferred stock dividends 874 915 1,115 Common stock dividends 7,796 5,760 5,760 Increase in working capital 17,235 Total funds applied $ 83.541 gg ggg 71.065 4 Changes in components of working capital: Increase (decrease) in current assets: Cash (318) 2,223 474 Special deposit 2,543 (106) 593 Temporary investments (26,598) 26.598 Accounts receivable 1,525 (2,981) 2,430 Income tax refunds receivable 4,346 (9,804) 10,884 Materials and supplies 888 446 1,421 Prepaid expenses 366 137 (690) (17,248) 16,513 15,112 Increase (decrease) in current liabilities: Long-term debt to be retired within one year 2,125 544 (2,629) Notes payable (29,000) 24,900 4,100 Accounts payable 16.558 (731) 1,656 Accrued interest (52) (192) 67 Accrued taxes (96) (599) (5,317) (10,465) 23,922 (2,123) Increase (decrease) in working capital $ (6.783) (7.409) 17.235 Sea accompanying notes to financial statements.

e VERMONT YANKEE NUCLEAR POWER CORPORATION Notes to Financial Statements December 31, 1985, 1984 and 1983 (1) Summary of Significant Accounting Policies (a) Regulations aed Operations The Company is subject to regulations prescribed by the Federal Energy Regulatory Commitsion ("FERC"), the Securities and Exchange Commission ("SEC") and the Public Service Board of the State of Vermont as to accounting, trnnsactions with associated companies, and securities issues, respect.ively. The Company is also subject to regulation by the Nuclear Regulatory Commission ("NRC") for nuclear plant licensing and safety, and by Federal and state agencies for environ nental matters such as air qualit.y, wa*.er quality and land use. Pursaant to the terms of the amended Power Contracts and Additional Power Contracts, each Sponsor is obligated to pay the Company each month, an amount equal to such Sponsor's entitlerent percentage of the Company's total fuel costs and operating expenses of the Plant, and an allowed return on equity. Such contracts also obligate the Sponsors to make decomissioning payments through the end of the plant's service life and the completion of the decommissioning of the unit, even though the unit may not by operating or may be prematurely decommissioned. All Sponsors are comitted to such payments regardless of the Plant's operating level or whether the Plant is out of service during the period. At December 31, 1985 the plant was out of service for a major replacement of the recirculation piping system. See notes 2 and 10 to the financial statements. Under the terms of the Capital Funds Agreements, which terminate on December 31, 2002, Sponsors are comitted, subject to obtaining necessary regulatory authorizations, to make funds available to obtain or maintain licenses necessary to keep the Plant in operation. (b) Depreciation and Maintenance Electric plant is being depreciated on the straight-line method at rates designed to fully depreciate all depreciable properties by 2007. Depreciation expense was equivalent to overall effective rates of 4.38%, 4.33% and 4.18% of the cost of depreciable utility plant for the years 1985, 1984 and 1983, respectively. See note 2 to the financial statements. Renewals and betterments constituting retirement units are charged to electric plant. Minor renewals and betterments are charged to maintenance expense. When properties are retired, the original cost, i plus cost of removal, less salvage are charged to the accumulated provision for depreciation. Costs associated with scheduled plant downtime for replacement of nuclear fuel assemblies and major maintenance are expensed as incurred. (Continued)

2 VERM0hT YANKEE NUCLEAR POWER CORPORATION Notes to Financial Statements (c) Amortization of Nuclear Fuel The cost of nuclear fuel is amortized to expense based on the rate of burn-up of the individual assemblies comprising the total core. The Company also accrues the estimated future costs of disposing of t, pent nuclear fuel. In 1985, the Company began amortizing to expense the final unspent nuclear fuel ccre and unused inventory which is expected to be in place in 2007, the end of the plant's service life. Such amortization was approved in the Company's 1985 rate case. See note 2 to the financial statements. (d) Allowance for Funds Used During Construction Allowance for funds used during construction ("AFUDC") represents the estimated cost of funds used to finance the Company's construction work in progress and nuclear fuel which is not recovered from customers through current revenues. Although the allowance is not realized in cash currently, under the rate-making process the allowance is expected to be recovered in cash over the plant's service life. Such recovery will be from increased revenue collected because of higher depreciation and amortization expense. I AFUDC was equivalent to an overall effective rate of 9.597. for 1985. The l Company recorded AFUDC using the gross rate method. l (e) Deconunissioning The Company accrues the estimated costs of decommissioning its nuclear reactor over its estimated useful life. Any costs not billed currently are deferred. See note 4 to the financial statements. (f) Taxes on Income The tax ef fects of timing differences are accounted for as prescribed by and in accordance with the rate-making policies of FERC. Provisions for deferred income taxes reflect the tax effects of all timing differences. Investment tax credits are deferred and amortized to income over the lives of the related assets. (2) Rate Increases Granted On July 16, 1985 and September 18, 1985 FERC approved temporary and permanent rate increase requests filed by the Company on May 31, 1985 and July 10, 1985, respectively. The new return on equity rates of I 15.5% and 15% were effective on May 14, 1985 and June 1,

1985, respectively.

The September 18, 1985 FERC order also provided for changes in depreciation, amortization and deconunissioning to be reflected in power billings to Sponsore. The Company is not required to refund amounts collected during the interim period. (Continued)

3 VERMONT YANKEE NUCLEAR POWER CORPORATION Notes to Financial Statements The rate case allows the Company to extend the depreciation term of its electric plant from the year 1998 to the year 2007, the life of the unit as determined by its operating license. This includes all electric plant except certain property units specified in the settlement. The Company anticipates unburned nuclear fuel will remain in the reactor core at the end of the plant's operating life. The settlement allows the Company to begin amortizing the estimated costs of such remaining unburned fuel at the initial rate of 757. of the estimate. The Company is also allowed to begin fully depreciating the costs of materials and supplies inventory. Such depreciation and related collections are pursuant to a formula specified in the FERC settlement. The FERC settlement included two modifications to the deconunissioning funding schedule. First, the estimated decommissioning amount required by the year 2007 was modified to reflect the increased burial costs through 1984. Second, the funding methodology was modified for tax advantages allowed under the Deficit Reduction Act of 1984. See note 4 to the financial statements. (3) Nuclear Fuel Expense The Company has a contract with the United States Department of Energy / (" DOE") for the permanent disposal of spent nuclear fuel. Under the terms of this contract, DOE will provide disposal services when a facility for spent nuclear fuel and other high-level radioactive waste is available, which is required by current statute to be prior to January 31, 1998. Effective April 7, 1983, the Company began billing Sponsors a disposal fee, which is subject to annual DOE adjustment, of $.001 per kilowatt hour of generation. This $.001 fee was based on gross generation through December 31, 1984 and net generation thereafter. The fee is for disposal of all fuct burned after April 7, 1983 and all funds collected are remitted to the DOE quarterly. Included in operating approximately $2,999,000, $2,987,000 and $3,300,000, for expenses are

1985, 1984 and 1983, respectively for contractual obligations to dispose of spent nuclear fuel.

(Continued)

l 4 VFJL510NT YANKEE NUCLEAR POWER CORPORATION Notes to Financial Statements The DOE contract also obligates the Company to pay a one-time fee of $39,285,000 for disposal costs of all spent fuel discharged through April 7, 1983. Such amount has been collected from Sponsors and is included as a long-term obligation in the accompanying financial statements as of December 31, 1985 and 1984, respectively. In 1985, the Company elected to pay this fee in a lump sum, along with interest, prior to the first delivery of spent nuclear fuel to the DOE. Interest, based on the thirteen-week Treasury Bill rate, amounted to $3,990,000, $4,169,000 and $2,608,000 at weighted average interest rates of 7.78%, 9.74% and 8.67%, for the years ended December 31, 1985, 1984 and 1983, respectively. (4) Decomissioning The Company anticipates that three methods of decommissioning nuclear power plants will be acceptable to the

NRC, which maintains responsibility for approving the method used.

Such methods include complete and prompt dismantling and

removal, entombment and mothballing.

A combination of such methods may ' also be acceptable. The estimated cost of decomissioning using the complete and prompt dismantlement method, which management presently believes is the most desirable alternative, is approximately $96,798,000 in 1984 dollars. The determination of this amount is based on a comprehensive study which will be periodically updated as necessary. Decomissioning billings, adjusted for 7% annual inflation, commenced on September 24, 1983 pursuant to the terms of the Power Contracts and Additional Power Contracts which obligate all Sponsors for their pro rata share of such cost. The Company is required to modify its schedule of collections every four years based on actual inflation. When the average inflation rate, as determined by the Consumer Price Index (" CPI"), differs from the 7% rate used for the prior four years, the prior four-year period must be recomputed using actual inflation rates. Effective January 1,

1985, the Company adjusted its collection schedule based on actual inflation rates of 4.3%, 3.2% and 6.1% for 1984, 1983 and 1982, respectively.

An estimated 7% inflation rate is being used for all future years to fund the estimated liability through the time of decommissioning. As discussed in note 2, the Company adjusted its decommissioning funding schedule in 1985 pursuant to its rate case settlement with the FERC. Such adjustments increased the projected decommissioning fund balance in the year 2007 from approximately $394,000,000 to $459,000,000. (Continued)

5 1 l VERMONT YANKEE NUCLEAR POWER CORPORATION Notes to Financial Statements The accompanying financial statements include the following amounts relative to decomissioning costs at December 31, 1985 and 1984: 1985 1984 (Dollars in thousands) Accrued decomissioning costs: Decomissioning fund $ 5,395 2,784 Accounts receivable from sponsors 224 233 Deferred income taxes 5,805 3,039 Deferred decomissioning costs 22,795 24,479 $ 34.219 30.535 (5) Compensating Balances and Short-Term Borrowings The Company had lines of credit f rom various banks totalling $16,000,000 and $15,750,000 at December 31, 1985 and 1984, respectively. None of the credit lines required compensating balances at December 31, 1985. At December 31, 1984, $8,000,000 of the credit lines required average compensating balances equal to 7% of the outstanding line. The Company also had a $50,000,000 Eurodollar Credit Agreement which was cancelled on October 30, 1985. The balance outstanding under such agreement at December 31, 1984 of $29,000,000 was due January 28, 1985, and had an interest rate of 9.06%. The Company replaced this credit agreement with a $75,000,000 Eurodollar Credit Agreement dated July 19, 1985. See note 7 to the financial statements. The maxmimum amount of short-term borrowings outstanding at any month-end during 1985 and 1984 was $29,000,000 and $29,770,000, respectively. The average daily amount of such borrowings outstanding was $23,245,000 and $22,592,000 with corresponding weighted average interest rates of 9.10% and 11.23%, respectively. (6) Capital Stock If cumulative preferred stock is outstanding, the payment of cash dividends and distributions on Common Stock is limited when Common Stock Equity (as defined) is less than 25% of Total Capitalization (as defined). This excludes redemptions which require 30% common equity after redemption. At December 31, 1985. Common Stock Equity was 40% of Total Capitalization. (Continued)

6 VERMONT YANKEE NUCLEAR POWER CORPORATION Notes to Financial Statements The 7.48% series preferred stock is redeemable at par through a mandatory sinking fund in the amount of $1,100,000 per annum and is redeemable at an additional $1,100,000 per annum at the option of the Company. Redemption prices range from $105 per share in 1985 to $100 per share in 1998, along with accrued and unpaid dividends to the redemption date. Gains or losses on redemption of preferred stock are charged or credited to other paid-in capital. (7) Long-Term Debt A sumary of long-term debt at December 31, 1985 and 1984 is as follows: 1985 1984 (Dollars in thousands) First mortgage bonds: Series A - 9.625% due 1998 $ 40,770 42,339 Series B - 8.50% due 1998 7,624 8,024 Series C - 7.70% due 1998 10,170 10,958 Total first mortgage bonds 58,564 61,321 Unamortized premium on debt _56,555 61,419 91 98 Net first mortgage bonds Eurodollar Credit Agreement 14,940 Vernon Energy Trust borrowings 5,064 Obligation under capital lease 669 655 Total long-term debt 79,328 62,074 Less long-term debt to be retired within one year 4.871 2,746 Long-term debt, net $ 74.457 59.328 The first mortgage bonds are secured by a first lien on utility plant, exclusive of nuclear fuel. Such bonds are further secured by the terms of the Power Contracts (except for related fuel payments) and the Capital Funds Agreements with Sponsors. Sinking fund requirements with respect to first mortgage bonds amount to $4,514,000 annually. (Continued)

7 VERMONT YANKEE NUCLEAR POWER CORPORATION Notes to Financial Statements On July 19, 1985, the Company entered into a $75,000,000 Eurodollar Credit Agreement which expires on July 19, 1990. The Company has issued comercial paper under this Agreement with a weighted average interest rate of 8.20% which is secured by the nuclear core of the Company's generating facility. Although the commercial paper matures through February 3, 1986, the Company intends to refinance the obligations under this Agreement beyond 1986. Accordingly, this borrowing has been classified as long-term debt at December 31, 1985. In November 1981, the Company entered into agreements to finance its nuclear fuel through the Vernon Energy Trust. The Trust finances nuclear fuel through the issuance of commercial paper and bank loans on a revolving credit basis up to an amount of $40,000,000. The Trust may acquire an inventory of nuclear fuel in process from or on behalf of the Company. After fabrication, the Trust may sell the fuel to the Company and lend the Company funds to pay for such fuel. Loans issued by the Trust are secured by a pledge of the Company's right to receive fuel costs under power contracts with Sponsors. Loans outstanding to the Trust are paid as fuel is consumed. The Company has borrowed under the above agreement based on the net book value of the fuel in its reactor. As additional financing is needed, the Company may assign its interest in uranium and fuel contracts to the Trust. The Trust will continue in existence for one-year periods through the year 2000, unless the Trust notifies the Company in writing of its intention to terminate. Such notification mus t be received at least one year in advance of the effective termination date. (8) Taxes on Income The components of income tax expense for the years ended December 31, 1985, 1984 and 1983 are as follows: 1985 1984 1983 (Dollars in thousands) Taxes on operating income: Federal - current $ (5,858) 4,163 (13,174) Federal - deferred 5,545 (2,959) 14,578 State - current (414) 1,416 (1,406) State - deferred 1,318 (579) 2,343 Investment tax credit adjustments 2,087 1,568 3,217 2,678 3,609 5,558 Taxes on other income: Federal - current 653 870 40 State - current 14 171 7 Total income taxes $ L.3M 4,&Q L,Q,M, (Continued)

8 VERMONT YANKEE NUCLEAR POWER CORPORATION Notes to Financial Statements A reconciliation of the Company's effective income tax rates with the Federal statutory rate is as follows: 1985 1984 1983 Federal statutory rate 46.0 46.0% 46.0% State income taxes, net of Federal income tax benefit 4.1 4.1 4.0 Investment credit (23.5) (13.5) (9.1) Other 1.0 3.8 3.7 _22d% _40.d% fdt g% The items comprising deferred income tax expense are: 1985 1984 1983 (Dollars in thousands) Decommissioning costs $ (2,766) (1,925 ) (1,114) Excess of tax depreciation over financial statement depreciation 4,242 1,191 265 Fuel amortization for financial statement purposes less (greater) than tax amortization 1,495 (1,153) 19,084 Interest on disposal costs of spent nuclear fuel 3,424 (2,101) (1,314) Other 463 450 (3.538) 16.921 (9) Pension Plans The Company has two non-contributory trusteed pension plans covering all regular employees and funds all costs accrued. Pension costs were $526,000, $311,000 and $320,000 for the years 1985, 1984 and 1983, respectively, including amortization of unfunded liabilities over a period ending in 1998. Accumulated plan benefits and net assets available for benefits as of the latest valuation dates are presented below: January 1, 1985 1984 (Dollars in thousands) Actuarial present value of accumulated plan benefits: Vested $ 1,493 1,180 Nonvested 294 261 $ LIBZ M Nest assets available for benefits M Ar. assumed weighted average rate of return of 8.5% was used in determining the actuarial present value of accumulated plan benefits. (Continued)

l 9 VERMONT YANKEE NUCLEAR POWER CORPORATION Notes to Financial Statements (10) Comitments and Contingencies The Company has comitments for nuclear fuel purchases through 1999 approximating $152,000,000. Such comitments amount to approximately $12,000,000, $22,000,000, $28,000,000, $21,000,000 and $14,000,000 for the years 1986 through

1990, respectively, and approximately

$55,000,000 thereafter. The Company has contracted for uranium concentrate to meet substantially all its power production requirements through 1991. It has two long-term contracts for uranium by-product extraction, expiring in 1992 and 2003, respectively, each of which at the time of execution was expected to provide up to about 207. of its uranium requirements during these periods. The Company and others initiated legal action in January 1983 to terminate the contract expiring in 1992 because of the seller's failure to comply with the contract terms. In February, 1986 the Company and others reached a settlement agreement with the supplier under this contract to modify and improve the contract terms as they affect the Company. Accordingly, the Company and others have withdrawn the legal action. Under the contract expiring in 2003, the Company is committed to make minimum payments, aggregating $3,798,000 plus interest as of December 31, 1985, over a period ending not later than 1993 regardless of the amount of uranium that is actually produced. These minimum payments exclude the Company's portion of decomissioning charges from the extraction ccmpany which Vermont Yankee is contesting. The Company has contracted for uranium enrichment services from a source other than the Department of Energy, which has its facilities in France. The contract provides for all the Company's uranium enrichment services for the period 1987 to 1996, with an opcion to extend if the Company so chooses. The Company also has an enrichment contract with the Department of Energy through

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

The Company has comitments for capital expenditures amounting to approximately $19,000,000 and $9,000,000 for the years 1986 and 1987, respectively. The Company is replacing the plant's recirculation piping system during the outage which began in September 1985. The Company estimates the outage will last for approximately 40 weeks. Although information obtained from other plants and long-range planning are considered in the Company's estimate, unforeseen conditions could extend the outage. (Continued)

l 10 VERMONT YANKEE NUCLEAR POWER CORPORATION Notes to Financial Statements The Price-Anderson Act currently limits public liability from a single accident at a nuclear power plant to $650,000,000. If the total damages resulting f rom an accident exceed the private pool insurance coverage of $160,000,000, then the Company would be required to pay its share of the excess up to a maximum of $5,000,000 per accident with a maximum of $10,000,000 per year. Under the provisions of the Power Contracts, the Company's share of any such payments would be passed on to the Sponsors. Although the Price-Anderson Act expires by its terms in 198,7, Congressional hearings on possible extension are now underway. Pursuant to its First Mortgage Bond Indenture, the Company is limited to $50,000 as the amount which can be expended as "other income deductions," as defined in the FERC Uniform System of Accounts. In the third quarter of 1985, the Company was assessed a $50,000 fine by the NRC, and af ter an appeal of the assessment was denied, the Company paid the fine in March, 1986. If the Company is required to make any other expenditures which are "other income deductions" during calendar 1986, the Company would be in technical default under the Indenture. The Company is in the process of requesting modification of the Indenture to relax or eliminate this restriction. (11) Unaudited Quarterly Financial Information The following quarterly financial information is unaudited and in the ( opinion of management includes all adjustments (consisting only of normal recurring accruals) necessary to a fair statement of results of operations for such periods. Quarter ended 1985 March June September December (Dollars in thousands - except per share amounts) Operating revenues $26,348 28,493 28,256 35,771 Operating income 3,845 4,328 4,463 4,369 Net income 1,713 2,119 2,469 2,467 Net income per share of common stock 3.74 4.75 5.62 5.63 Quarter ended 1984 March Juna September December (Dollars in thousands - except per share amounts) Operating revenues $ 24,745 29,228 31,888 31,148 i Operating income 4,681 4,919 4,864 4,877 Net income 1,728 1,710 1,714 1,713 Net income per share of comon stock 3.67 3.73 3.74 3.73 (Continued)

11 VERMONT YANKEE NUCLEAR POWER CORPORATION Notes to Financial Statements (12) Unaudited Information on the Effects of Changing Prices (Inflation) The following supplementary information is supplied in accordance with Statement of Financial Accounting Standards ("SFAS") No. 33, Financial Reporting and Changing Prices, as amended. It should be viewed as an estimate of the approximate effects of inflation, rather than as a precise measure. Such data is not intended as a substitute for earnings reported on a historical basis. Year ended December 31, 1985 (dollars in thousands) Adjusted for Conventional changes in historical specific cost prices Operating revenues $ 118,868 118,868 Operating expenses: Nuclear fuel expense 20.771 21,703 Other operation expense 40,508 40,508 Maintenance 16,175 16,175 Depreciation 12,460 28,634 Decommissioning expense 4,984 4,984 Taxes on income 2,678 2,678 Property and other taxes 4.287 4,287 Total operating expenses 101.863 118,969 d Operating income (loss) 17,005 (101) Other income and deductions, net 1,673 1,673 Interest expense (9.910) (9,910) Net income (loss), excluding reduction to net recoverable cost 8.768 (8.338) (A) Gain from decline in purchasing power of net amounts owed 3,386 Reduction to net recoverable cost (7.922) (4.536) Increase in specific prices (current cost) of property, plant and equipment held during the year (B) 32,897 Effect of increase in general price level 18,363 Excess of increase in specific prices over increase in general price level $ 14.534 ( (A) Including the reduction to net recoverable cost, the net loss would have been $16,260,000. (B) At December 31,

1985, the current cost of utility plant, net of accumulated depreciation and amortization, was estimated to be approximately $525,636,000 as compared with net utility piant recoverable through depreciation and amortization of $269,212,000.

(Continued)

12 VERMONT YANKEE NUCLEAR POWER CORPORATION Notes to Financial Statements A five-year comparison of selected supplementary financial data adjusted for the effects of changing prices, stated in average 1985 dollars follows: 1985 1984 1983 1982 1981 (dollars in thousands-except per share amounts) Operating revenues $ 118,868 121,183 122,088 118,422 104,289 Current cost information: Net loss (excluding reduction to net recoverable cost) 8,338 13,212 21,936 13,089 10,283 Net loss per share of common stock (excluding reduction to net recoverable cost) 23.03 35.40 57.84 27.12 28.53 Increase in general price level over (under) increase in specific prices (14,534) 15,308 (8,198) (29,820) 13,634 Net assets at year-end at net recoverable cost $ 58,998 60,010 50,595 60,030 66,134 ( General information: _ Gain from decline in purchasing power of net amounts owed 3,386 2,561 7,175 7,208 16,966 Cash dividends declared per common share 19.49 14.91 15.55 16.04 17.74 Average consumer price index 322.2 311.1 298.4 289.1 272.4 Dollar amounts adjusted for changes in specific prices (current cost amounts) reflect the changes in specific prices of net utility plant from the date the plant was acquired to the present. The current cost of property, plant and equipment, which includes land, land rights, intangible plant and construction work in progress, represents the estimated cost of replaclng existing plant assets and was determined by indexing surviving plant by the Handy-Whitman Index of Public Utility Construction Costs. The current cost of nuclear fuel was determined by engineering estimates of the replacement cost of fuel currently in the reactor. The current year's provisions for nuclear fuel expense and depreciation of utility plant were determined by applying the Company's depreciation and amortization rat.es to the restated plant amounts. As prescribed in SFAS No. 33, income taxes were not adjusted. (Continued)

13 VERMONI YANKEE NUCLEAR POWER CORPORATION Notes to Financial Statements Under terms of the Power Contracts, which specify costs billable to the Company's Sponsors, only the historical cost of utility plant is recoverable in revenues as depreciation. Therefore, the excess of the cost of plant stated in terms of current cost that exceeds the historical cost of plant is not presently recoverable in rates as depreciation, and is reflected as a reduction to net recoverable cost. The Company will be allowed to earn on the increased cost of its net investment when replacement of facilities actually occurs. To properly reflect the economics of rate regulation in the statement of income adjusted for changing prices, the reduction of net property, plant and equipment should be offset by the gain from the decline in purchasing power of net amounts owed. During a periad of inflation, holders of monetary assets suffer a loss of general purchasing power while holders of monetary liabilities experience a gain. The gain f rom the decline in purchasing power of net amounts owed is primarily attributable to the substantial amount of debt which has been used to finance property, plant and equipment. Since the depreciation oit this plant is limited to the recovery of historical costs, the Company does not have the opportunity to realize a holding gain on debt and is limited to recovery only of the embedded cost of debt capital. w /\\ l

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