ML20141E983

Public Svc Co of Colorado,1985,Annual Rept

ML20141E983
Person / Time
Site:	Fort Saint Vrain
Issue date:	12/31/1985
From:	Brey H PUBLIC SERVICE CO. OF COLORADO
To:	NRC OFFICE OF ADMINISTRATION (ADM), Office of Nuclear Reactor Regulation
References
P-86263, NUDOCS 8604220437
Download: ML20141E983 (53)

Text

{{#Wiki_filter:- of CElorado Anibiak Regbirt i 1985 E = inanciitI f strength h and profitability f E f i e ! A__ A

n. m .n .. r m-4 --i----- mim im i - m m ii 4 q 'N &s, s y a + f f M r , y _Y' 1 , + ,g , -- h '-l LL +A, 4r; e x e A 4 -A3-'.,, f q r i s 9 ,- &l. a - Y y t ,Q1 JAq ['_' ;v ; i n v 8 ,5 y',,A* s r v s a' +'6 ~f g+ g-1 ,e .e g y N-( ;. 4-: 3 w N E ~ ' 4' 1, W-' af. -f r s '[%.-- g 4 4 i Y_' d er m "1_ r. t .%? h- +

• '?.

,..p. p' _.,; ), 3 'a - < 7 13-, c-- a F L ) '.sh i,g, ' .ft c s 'ay, ,c ~, 4 5 A M5 S..-.,E L d ,.y g E k "Er f g l g v. j g w ,Y* 4 o '.f a*' y ( ' s-g.,,- t 8 + .n -v_. y 8 ~ ^^*,, af g. '{ V:= ~

m p >

~ l 7_ ~ 5 ~ y ~ + 4 s.g:- y . + w f' 1 q N 6 1 V >.e*.. e L-4 + i ..l di ,t i 54 s 1 r ^ 4 A 4, g M k [U<_ Y s* -6' ~. Y e j. 6 ' ty. / 4 4-' 4 n, Q [' y 'O'. >,/ ? ; h k, y 6 + 2 / p % - j,',. 'k f$ ~ - ~ 5 'I ~ b g !' a 34 4 -M 's' ' ., s ~, y s 4 e. 1 M ee,, u-s- .v w, . l

C.

.p. ,. -t 4 -s... rn-g r 7 f,,. -.e r 4 l'f -7#* 5 1 *A .f [ '_ " e [ ( t g. J- -.9 ,':-+ ; ~;-,, + h.t c r. 3 ,[,.- s< y. 7 s -sM u .,'

• f ]

4 +4., s -'>k'- m x. a .s. j p ,,3, m 4 y - p h 4 4 F I s y ,r= ~ ^ A-C,] 'y y J ' ~ a. + 1 A .yy t / / .r. '<'( L P' 3 Tr 9 n* } b w %Q.: I 4 3 a 5 y-w I \\ I J ./ A Y , Ai ) .~., J 4 ) 't- ..4 '.g, S 4 a.- muumm-mm mummumii

Financial and Operations Highlights Financial 1985 1984 % Change Earnings Per Share $ 1.81 $2.55 (29.0) Dividends Paid Per Share $ 1.98 51.90 4.2 Return on Average Common Shareholder Equity 10.5 % 15.0 % (30.0) Common Shareholder Equity - % of Capitalization (year-end) 43.6 % 44.1% (1.1) Operating Revenues (000) $ 1,747,483 $ 1,802,024 (3.0) Operating Expenses (000) 51,561,553 $ 1,591,704 (1.9) Net income (000) $ I10,693 $ 145,247 (23.8) Capital Expenditures (000) 5 237,508 $ 196.551 20.8 Gross Plant Investment (000) $3,497,658 53,281,869 6.6 Number of Employees 7,044 6,894 2.2 Common Stock Shareholders 72,834 73,702 (1.2) Commm.. stock Shares Outstanding (000) 52,333 51,632 l'.4 Operations Electric Revenues (000) $ 1,022,283 5 999,628 2.3 Kilowatt-flour Sales (Millions) 17,535 17,005 3.1 Electric Customers 941,391 919,267 2.4 Gas Revenues (000) $ 714,252 3 790,068 (9.6) Mcf Dcliveries (000) 191,363 198,474 (3.6) Gas Customers 794,581 771,532 3.0 Earnings & Year End St(xk Price Customer Growth-Sales Growth-Dividends Per share & Dividend YIcid Electrie and Gas Electrie and Gas 0 Earnmg3 Per share E Cornrns m sti n k Market Pru e - 8 5 lin tru (.trsenistre ( tsinth Rate N Flettruicy bles Growth Ra,e-Ash ) C fhvidctwis Paki Per % hare 3 (crnrne o sim k f)ni&ru! )icki-9. N Natural Gas Cuemer Growth R.are 3 Natural (,as % ales Growth Rate-M(f S 3.<W) 82t h its. 9% 10 % 2.$0 1 M/ 31 4 9 1 \\ . l 2... ..I.. t.

1....

l., $ 3.iNI $ 12. M% { lop % 79 Al N2 N3 M4 R$ 7$ M1 A2 43 M4 R$ 75 NI M2 Al N4 MS 71 M2 M R$

l , Year In Retrospect Penalties Undercut Earnings bonds during 1985. Moody's r.used its rating to Following record earnings per share of 52.55 A.13 from Al. I)utf and Phelps increased its in 1984, earnings for 1985 were 51.81, a rating to 4 from 5, a level comparable to decrease of 29h Earnings declined prinurity Moodyi The higher ratings helped the Com-because of increased operating and mainte-pany refinance some high interest rate bonds, re-nance expenses and potential refunds to cus-ducing interest expense by 51 million annu. illy. tomers to cover state regulatory penalties re-I lectric Peak Tops 3,000 Megaw atts lating to the operations of the Company's Fort For the first time ever, the Company's peak St. Vrain Nuclear Generating Station. These electrie load topped 3,000 megawatts during penalties for 1985 result in potential customer 1985. On December 10, usage rose to 3.029 refunds of about SM million. An appeal has meg.iwatts - a rare winter peak. The 19H1 been made to the Colorado Supreme Court. peak of 2,948 megawatts occurred on July 19. The plant has been shut down since June of Power Plant Construction Plans Postponed 1984 for mechanical repairs and environmental Due to the availability of inexpensive pur-qualification work. chased power for the next several years and Fort St. Vrain Status forecasts of slower grow th rates in the Com-Even though the environmental qualification pany's servac territory, plans for construction work is not completed, the Nuclear Hegulatory of.i second coal-tired unit at the Paw nee plant Commission has authorized the Company to site have been postponed again. The proposed operate Fort St. Vrain at approximately 110 in-service date for the plant is now 199 6 megawatts until May 31,1980. The Company instead of 1991. The decision delays the need is proceeding to complete this work so that for large capital expendnures for this unit until authority to operate at full power can be re-the next decade. stored. Additional detail is provided in the Declining Gas Prl(es Stimulate M.arketing Management Perspective section, which Natural gas prices have been deciming due to follows, and in the Notes to Financial 5 tate-an oversupply caused m part by deregulation. ments section beginning on page 31. This trend is expected to continue over the Walker Elected floard Chairman next several years. As a result, the Company Effective September I,1985 Richard F. Walker launched a marketing program to take advan-became chairman of the board of directors in tage of the opportunities arising out of lower addition to his duties as Company president pnces. Iloilders are being encouraged to plan and chief executive officer !!c succeeds R T. to use natural gas in homes Commercial Person, who has served as (hairman since 1906 desclopers are encouraged to use gas for water Dividend Increased Fifth Straight Year and space heating. During 1985, hundreds of 1985 was the fifth straight year in w hich the homeowners us ng propane or electricity con-Company increased the dividend on its common serted to the use of natural gas for heating. stock. At its March meeting, the board of The effort has helped to supplant sales that had directors increased the dividend to an annual been slowing due to conservation and reduced rate of 52.00 per share. This is a 4 n increase migration into the service territory. from the 51.92 rate in ef fect during 1984. The Company Parcs Construction iludget dividend has been increased 27 times in the A nud-year reevaluation of the Comp.iny's con-past 30 years. struction budget resulted in a 21 % reduction to PSCo liond Natings I?pgraded $238 nulhon in at tual expenditures for 1985. Two major rating agencies Moody's Investors 'l his compares with 5197 nullion spent on capit.il Service, and Dulf and Phelps, upgraded their constru( tion in 198 6, and 5196 million in 198 t credit ratings of the Company's first mortgage 2

O PSCo Select 0 Industry Average Financial Charts ?s as n2 a3 a4 at ?s ni n2 m3 no as ?s ni na m3 a4 as ?s na n2 n) ne as Return on Equity Common Equity Ratio Debt Natio Pretax Coverage of This tells common share-The amount of shareholder The proportion of Imr-Interest Expenses holders how well(>ur Com-investment as a percent of rowed funds as compared A measure of safety of the pany is doing with its share-the total $2 billion invested with the total $2 billion interest expenses for bor-holders

• investment. It is in our Company. Out objec-invested in our Company.

rowed money. It is hke a the primary indicator of tive is to have about 45% of Our objective is to hold homeow ner who must have profit ibility for share-totalinvestment or capitaliz-debt to about 45% of total monthly income so nuny holders and measures the at;on in shareholder equity. investment. times his monthly mortgage actual average return earned payments. Our goal is to for each of the years have annual income before indicated. taxes at least.4.5 times our annual interest payments. ws ~ - sus Iss s2 aus

• 5

+0 14 1.50 (10 40 12 1 00 4s 20 ti U. 50 30 % tus los lo tut 75 si n2 a3 no as ?s ni n2 m) no as 75 ni n2 m3 se as ?S ne na n3 no as Internal Funds AFDC*-% of Earnings Construction Composite Fuel Costs' Generation The proportion of carmngs Expenditures as a % Our average cost of fuels The amount of funds avail-derived from certain non. of Capitalization used in the generation of able from Company oper-cash additions to income The portion of total invest-clectricity has been rela-ations for spending on new based on the composite ment (capitahration)in our tively stable in recent years or existing utility plant. Our cost of funds used to finance Company being spent an-and h well below the aver-objective h for at least 50% construction work in prog-nually on new or exhting age for the industry. The of our annual spending to rest The lower thh ratio the utthty plant. Our goal h not primary reason is our low come from operations. The higher the quahty of to spend more than In% of cost of coal which repre-higher this percentage, the reported earnings per share. our current $2 billion sents over 90% of our fuel. less finJncing we must do. ' Allowance for Funds I' sed capitahration in one year.

• 5 gwr nulinin llII:

During Constru(teon b

Y

l. y.

~ ',l l...* If.- ~

- )... _

.) ;.

. 'f . e .s v. - n s ..,..[, g*. 1 - - /, 4-9 -: ? --A..-.- .-=, y. . 'i..

• a

+ ,,s y. .,e .- ',* i.,,w. (. f -r . g I a.,~ .. p e, ,-l.',',,~.f,. I * ". hen &d f Q f 'f 4.. .. i y, e.. 4.. 4 s .%/ *. ?,.,.... s g '.i.. t. ,,.a b a. y( k. Q '.. d,'., . ; ^q. y). : ' l. , )',. J..

.; ql. '%,e,\\ '.f

• l

.%' l ~ :l

f...

) ',.l D, w,'. ' ~ . x _ '.-,o.'. ? .e ,a J* s

y r *p 3 -.,

.p -.. a. qw- ,.7,. :' ;. - y. :+.... ~. - f.. s % g, q..r ; s'.?

i.... '.l. y -'

, _ -',.,rs ",t.-,* p9 .s .+ s apeiA, - ,,,4. r,- h ; ..p

3.. a

'y e

W; - ...4 y. 'z 7i .g .. f.. ; 3,; *. ',. -- - '-, Y. ' ff : y.rl- -"..s -. -Q ; . 7), 3 a, ? j . _,3

=..--,._ ' L.

y : ~^., ~+ 6 7p - .,y_- .,,, g.j .s.., 'v. i,, ' ....._c*- ..z- + s 1 ?,-,g. ,.s; y c '. .. '

• p'.

..,8 ..pg';s.s ',.= 4 4 . ip@ *,l r g -.3,. , J..

• l~-

H. d.v .'p, ,..s..A. .,,..,l : .q: g.., y-I. A, i * ' t' (.. 1,a .2 .l 3 o F-,. 3 r .,y y ,d A , ' ',.,..- Q g" w/? ..... W y-3.. >.,' T' ,,. ap... ~. ; /

• L

. 4 c. 2...*v,f 4 .d.,-..s. ? .$ y v +

1. . N.

g. 6: ,*.4 M 0'

• .1 i u] *,, f..3., 4 *

+M t.,,I, ,*4.-. ;

n., '%,. %.

s.- e-- 5-.. ~ b.. .A .*e 'g -.4 ." r.. '.,, ?. 5,3...,.. y . 7.p.m, '.,,. o,. z. . jM - h.~ 4;. ~. .-. * ', g 's. , e..,..- l-ir-3,.:, .s at L. ; 6' 1. y. ', 3 g, a,. -s % uw .a .n-i.y....,. r.,' ,v~ . m? p. 'j 4 ' ',.-. fV." p g . g.... ' ' g,,[

• h,,

E.,'p D[ Y.' 3.;< w c. y. - -+ i 4.. . fE i ['

• ?

y c 0 j 4r y x...' g. =

• • a.

6 ,e- .m .s. >.a -p ',..,. ; g..- m..?4 ..*,~y, ~'....s.. e.-.,;~,....., A- .v e ....... p :... OnStant r..G + ' a V ^... M,,,i *.' N. ? * ' * ~ '. '. O C.*, i ~ ~ *N: w.. - w..- ,.-u

9 w

~ l,., s s. p. Q,. i m', J -

7. ~ m. 9,. '1 o.m.., 4 -.; p.

yD. s-r A &. :/ -

3llentf()n l,M. / V..; O'- {l - }{.): [,~ h }.~- ' ~' } '.,'s,'. hk.;.,# : - vA [O ()Ur .1, fH. v... ' ' t.5.e.*.. f. 4,g.. r;%. t. 44..%- %, 9 !P.. t - ,p.. a,

u. 3.. g. - - - n-3.....-

...-.14 .. j t c. w M. u..,*f,, t.. e%, '. f.,; ' ;. ': CUSIOmCTS' needs M.

• -.u. --

-p. r 3 Qw., 3 .E. t. f.< w O c. A. t w .s. ~.,.. .7 i .,... m-. s. . ~,$ 3 t - w., L(i?F v% f* 4: } w. c.y.. f,,i '.- 34 .. a,. N"h,i -;b :. - '9,%' v o' M2"

• .4'.

A3n e. W. l,R:.$ /-.W + ?) N, p l,,h,l_~ [V.; p.*f Vf. q,n. ] ! wege y, .g -%.);Y.A.,, )/-@. ,. a...:,,-,. .a f :g;'

f. k - &

' 'y?%,;f 71 - y s 9-t , +.- - 2 g,. e- .,, J : /,,. a 4. s' h,5 g? ,_' r. = - (...., .i _,-.,,>g..... -a... k.:.. ~-.. ..,,y... '. - _... w' p. y,x v. . M,,,.s.h' g.,W. (4' 4g. 'f. '..y, j s. s d* ,U i.',. 4 o N, :.<-: 4 A. -5* W.-. - . y.. ii j 3,. v, y,./n )M. ;-N E, .4 1 m ' ) i M ^ ;, /, { ',, ( '- 9[.: .- c., y' 4 . r, t ', - ' '. - + ' bi- _,y..,.,..) - f* j - y }; " .g 0,. ? ,e.f>. y. g..- - - '9 ',k .w.,y,,t 1,. e - ),.M' :,4'a6',k, g. hI 7 h*l, v %.y ( 7.1 " ',,,.. a +-[. $ ' kk (, -h '1 -4.* b_. g .?-- ) r1 ys +.. , u. a, - . (-h..N.h..... ,.[.' ~ +.9 ,,h f f [ 4 ' N' +.3 7 t ll m 'l;:<. ',8, ..,l S W O. fe

Management Perspective Public Service Company of Colorado is proud of several positive accom-plishments during 1985, despite disappointing setbacks relating to diffi-culties at the Fort St. Vrain Nuclear Generating Station. As for our problems, we have in place a plan of action for financial strength and profitability, as the cover of this report suggests. Earnings per share declined 29% to $1.81 from $2.55 in 198-which was a record year for the Company. At the same time, however, the Company was able to increase its annual dividend to $2.00 per share from $1.92 declared during 1984. This was the fifth consecutive year in which the dividend was raised in Match by 8 cents a share. The Company has mcreased its dividend 27 times in the past 30 years. Bond Ratings l'pgraded The ratings on our first mortgage bonds improved during the year. The Company lias Moody's investors Service upgraded its rating to Aa3 from Al, and Duff ,inercased its and Phelps, Inc., increased its rating to 4 from 5, equivalent to the Aa3. These higher ratings helped us to refinance $ 50 million of 15% bonds with a 13% dividend D times interest rate, thereby saving almut $ 1 million annually in interest expense. After careful review, our 1985 capital expenditures budget was In the past 30 vears. reduced by 21% to $238 million, reflecting reduced long-term business growth projections and economic conditions in our operating territory. We have postponed major capital expenditures for our next coal-fired generating unit. Instead, we have contracted for enough additional low-cost electric power from other producers to meet our anticipated needs into the next decade. Declining natural gas prices and the advent of increasing competition within the natural gas industry have produced new opportumties for the Company. During 1985 we instituted an aggressive gas marketing program and expanded gas transportation services, both of which should suengthen the profitability of our gas business and enable us to maintain our gas marketing area and customer base. We also re-emphasized stringent internal cost controls in 1985. Our objective is to provide our customers with the greatest value for their energy dollars, while earning an adequate return for shareholders. Fort St. Vrain: A Difficult Year Our toughest corporate challenge in 1985 was to deal effectively with problems posed by our Fort St. Vrain Nuclear Generating Station. The plant, which constitutes about H% of the Company's electric generating capacity, was shut down while $10.6 million in modifications were made to its control rods. These repair costs were charged as an expense item. In addition, a Colorado Public Utilities Commission decision in 1984 resulted in a charge against pre-tax income of $32.9 million in 1985 for possible refunds to customers because of the plant's inahility to meet the operating standards set by the commission. 5

r y, ' T',3. ' 3t, r .,.m.a: ;. ;, ' -.4;'_-,

e..

.r.- '.. '..,. y.,.! 4 1 __ s T.. T .b.. .../',..... .i-), t 1.; a% -,,. %o,, r.. ,,.--,.1,-

w.

. ~.. 4 9 ... --+.. g_q..<,..... _._.j... 4 .r...; .q., ...,.c, 3.- -.3.<- ?. - x.;.. f g ...1 ....u' 7 4 $'.,'~', ~ ~

• m.f.

t h ,fr..y ' Q., N > 4......f' *.. ' l ,; j. '. .,? 19 L _ ~.,.,,, 1-s. $,.1. 3,j. .,J.*g-p...* y 1, '( f g. ' ig' ,s.4 (.~i 4 tr,,, '^ 2 r '. 7 s. ,,,S.+ .u w-M . - - s p.f &.,, . e j. 4. p... =., 3 9 ; 'a y ..-? ,, i l .~ ..... [. h. Ni ..c... s 4.g j (g. ? ;.[' q ". '.. F J. '. ,3. 5 - [' v...z $..) 'f,'$ ) .y 4 . J ,, - u.., u 4..,y.., ' y. '. :. 3... g.. *p { e...;. l*. 5, V J",', s4' %'........j. 1 ,4 ; ~- 4 5 &, y _g,g,. r..: ..m ,v. ,.5 ,%.c g 1,,.. p 7 p.-._.,9,~,f 7 -.. ..,; -. y.. )j.. e ~_. p,_ .. ', ; ~ p, s n, g.7... . w s j' '.i

• ~

p.' f s ;-. L- . *. m -4 ...;4 y %. f... .c o. N3 ..,e a,., -. - ~,.m '_ '- R.~ _l ..4,.. 3.. ,-. -a l -l ?. ' "Q,;' ..s . ~l' [ & % :.$ Q ....l.. ; ^ -; h 49 w f.; .. 1 e, g y. ; , ; 3. h ;, ;- } - 7l;f,}','M ..;[.,l ' p. 3.. )j, 9.. r_ . ~ - - (.. J g.'y y . %,j v. 'I .4'.g.; g# -. *, y y. j, ; i.. p. ...j . o.. y..m m., -2 .i.. ,,o..e. 3.> 1 f, n i..., 4;y,.pi. b o.... r., t-4 ,, - r .... 3,.,. n,. t -p r. .t. ..c., p, 3 3 y /3.. ;,, y.=;.y _ ~.,~.., 9. - :.,p,z, %.w.....:.;. p e 7 del y:..'. v..., 3 g,.. .c. < r t. , e,g,.

c... s u..~.

y -, _.s .r,. y ,4; p,s ye.. +<.. p,. n,.. .s. ;g g n.s ^ .?.- k .+,

o. m s q.

,.q ...;._ < -. '... 'l "u Y f, ~ s.y .g. - p r ?s v.+ 'i,,. c.z y_. y: e ~. 1 i,m K . o e,.. ' L .p.1 g [$

• f

~ ..A, aj n h.- 5

• • hi.

g, y ,), g . w..

We believe the commission erred by establishing an incentive Pl.m Penalty for substandard performance, while providing no economic incentive for performance that exceeds the commission's standards. We have appealed the commission's refund order in the Colorado Supreme Court. We are hopeful that a decision will be handed down during the year. No refunds will be made until that decision has been rendered it should be noted that if the commission's penalty decision is allowed to stand, it will take several months after the plant has resumed generation before revenues derived from its operation return to satisf.ictory levels. This extended period of recovery stems from the fact that the commission's Incentive Plan requires penalties to be calculated on a " rolling" 12-month period. This means that the penalty's negative influence on earnings will be felt in 1986, even after the plant has resumed generation. Replacement Power Penalty In a separate but related matter, the Denver District Court in December 1985 upheld a 1984 commission order involving a Replacement Power Penalty against Fort St. Vrain. As a result, an additional $1" million was charged against pre-tax income in the fourth quarter of 1985. The Replace-ment Power Penalty was supplanted in Nosember 1984 by the incentisc The Ni(C did. Plan Penalty described above. The Company intends to appeal the Di<trict g , g, Court decision. In all, Replacement Power Penalties charged agamst pre-tax income for 1985 totaled $3.2 million. Conillany to ('l) crate Nuclear Hegulatory Commission (NHC) Decision li>rt 5t. Vrain. During 1985, the Company became involved with the NRC on the issue of environmental qualification of certam electrical equipment at Fort St. Vrain, which prevented the Colapany from resuming electric generation at the plant. The Company proceeded with environmental quahlication work and, even though this work is not completed, the NRC did, by letter dated February -',1986, authori/c the Company to operate Fort St Vrain at up to 35"4 of full power (approximately 110 Slw) until Stay 31,1986 The Company is proceeding to complete this environmental quahfication work so that its authorization to operate at full power can be restored. To summari/c, penalties and control rod repairs at Fort St. Vrain in 1985 amounted to a decrease of about SC million in pre-tax income. Heturn to Full Production Fort 5t. Vrain. The Company's management is committed to returning the pl.mt to full service as soon as possible. We are confident that this course of action will rej) resents an in1l)or-achieve the most favorable possible result for our shareholders. I'or tant tiew technology, additional details on Fort St. Vrain, see Note 11 of Notes to Consolidated l Financial Statements l Fort St. Vrain is the nation's only high temperature gas cooled nuclear generating plant. It represents an important new technology which we are convinced can play a vital role in meeting future energy needs Our Corporate Principles in Action The measure of a utihty's success in today's regulatory dimate is its abihty to manage adversity under pressure and to resolve its problems citiciently Our established corporate principles, w hith constitute the theme of tins report, are servlag us well and continue to guide our planning and our actiont Indeed, our firm mmmitment to maintain and - when powible - increase the dividends to our shareholders, as well as our mntinuing efforts to enhance the value of their investments, reflet t our dedication to l a key corporate principle, nnancial Strength imd I'roftfahshly 7

/ mphasis on performana,, . weg,,i wwwme w p% ;.y q 3%yd ;b',.. A'- e,.,N -*~ r.- % %.'. - 'i [ 'D N-

1. Fp,wkn.e4r w.

%..g+ '" w 4%wm W ** % 4 % % % W - M$5c !E mg.c.t.ew.msnamn+A,s.,4 -,e e 596 Yl>%. - 5 and rewards s ~. ~, : ?.- _.4 9%.-wQg - u%lV..a.esdQW4f?(N(f&y4 =&,.:ks -gfnk tf'l ', p [. -) '_ b

• _f i

ew3% that recognize f;. y a.w.w%IwYe e- : % e. '* 'i.'s.[. i,.> 1 #

4.,*'ry'W689t

, ? 840** M W W qc+Y+-JS'A'/ 4 ., {Tg@&%T* 'j7.. '0WN.2 '.f'.).; contribution J. '. .y ~ Qad ?,- [*?.i ' q. yp n_mp p.,... y 1.-.

..

;... ' l- - -

y,. ~ - l p, ._ -h, ^ - ; .,; + , -e .a . y ..s .9 ~). .( g_, g,MQP. . k,,, , ',,sg,py. ( 5. ,a,- s y MNY'-. , - f g-ripsbyew s

• 'y 4

s ~ ,2 it ylehulhlh'.*t,1.,, g.. f "a *,d - 5',. f-i ~ c'-- y 3.,

v ' ~; - ;..T

.+ y. ' ::::,.o [ _ e s -.y ,e s .. z 9' a . -.g .q 'g' -. _ o g... r, ; -, r s.- s. -( 4 $,y, v - ,4 .= - }.,. ~ '>. ~ '. -,_ e s . + =_:-,, o a, t.m. - _. - a ., v.-

4. -.

2 s-L

p&.

r -:..:... :. n w n. y y~ a v -s. t.;, p y* p. o s.: g. r.l.4 . _ 7 ~ ",..~.. _n. ,, J. ".,.

v.

- 4 -gy . e y-r

o. :

6:. - _ h..f.;t ~. _. + v,y .i. .m p. s, a.- u,

t, g.

' h:'y3,..f& .. -cynr.A

h..

.. "..,$. ' ]3i;h. -- A. i - -4 ., t _,.,, a W '-.., , i. ; n_v,g...n.p',,$,n ',,.. -,;* ', 1 Q,,)n..' ',v- ',, m.., f, f. V.::w, !,

s

).

• .i ;..

1.g ,...,.8.;.., r :g)a t. ) , c.n t .. ;. Q ?;,.;x,.

s u

'.,g ;g, p l -- g .y s i .s ,._. y. - \\ %v,$ .,'s Q, v

g.,..., ' s.

,.y . w r.,, ..e.,.. s. v'y,,. ?, r l h' f1 l '

• b ' ', '_ ' /,

d*, ,. 4 _,R N,' l(. t. '. 4 y 4 ..;1.... -d, 4',.. IM I@.v@. %, M, [.[. } f:.N Q,;. j,Q.',; }:[ g. __ G.g, f.f.

• . h

. pg, g'i. .. ~ ,e i. 1 4,f f. *, ., ', p. s ; p u 4 _,ys., ?.pl,, ).,.- -g,, g. d g v

• , y's s

y 4 o. m-1, _, x *: s 2 *. n '. _ s : ': 7,,; L_, w. " 3,. g.: ; ,4-g,,.,., - .,t g , 'I, - k. ". 4p ' '. ,; 4 - g- ' 9., ' 1

• w t

? - ; v. 6 - i.. ~ ,. y. I.

• i' '

F, 4.* 3 - ~. - -.. r .,syi.,, i,, y ' J' ' t. ~ q. ', *, <- g - 4. J h 's '. I k e y, g.1-, wn ;,',, y,. -- + 9,h. ,, ' r ', ' f ~.,a # M, ; ' ' #'.' * ' '-' g.

i., J 2 -

s ,'W. 4 ,., [ h.f ~.,. y L....,, ? -. 7.- [ - '.* v , p. -. u .W t.. A., .), ,, a.,),'../g a.. ~, . t e).,.,. 8 e@-.,,, o, N - ' -n, ..,7 3

• . a4 r i, f -

6. j J'., -1 *., .e 4,.

• = e4 }YT 3.);,,[ 3 } 'f'

.-f N,5 N.,.q*1 it{ % $ %I

s. 5

. r. c..* %V[, h,4.- ci O / h If ':p [,*[, }

• 1 48

? a

6 a3ud alqiwxl hawoj ays ir sJatuonn3 Jno on a3psas sr8 alqripJ Huipp<ud jo aAinaalgo Jno Huiuirne apy w aJrys la3Jrtu Jno aWJrjua pur unuauJ Jno a3uryua on Xurdtuo:) aq uoppod on puatur a,g Tapua8r trJapal Aq pasappuo3 Mulmi oWurtp truopippe an1ls layrus jo syWy ut p>prtu sr8 [rJnaru [ruo!Wa; ay Jo uonnloAa atp Huay33r.w AnnjaJea air a,n ' A[ddns Jno AJhJarip on ay.wjatpo pur 'o3pd a]qrJoArj Jno ad.tr[tla pur AJ.'A ir sr8 sol Jns boa.wol Anq os Wup3rnuo3 Aq ssaupnq sr8 Jnojo d sanuaAaj Jno aaurt[ua Xungris ay aroJdini on sdais ua3ri arry a,w AJonput ain jo uonrin8aJap Aq pairan suopipuoa na32rtu.wau aip oi Supsnipe y Aurdtuo:) ay1 ol 5tirdtuo:) at{l Ta83ry3 uopruodsurn atp jo unsaJ alp se aturs atp ApAprpJ llogisod ol pualui a3\\ u!rtua; pinoys atuoaut lau Jno 'auipap Artu satrs sr8 tuoJJ sanuaraJ wuS Jno apy w irty suraiu siy1 Tr8 natp undsuen on A[uo sa8Jry3.wou Aurdtuo:) atp 'sJatuonna asatp on H Huypsa; pur sr8 8unry3Jnd jo prabug Tpnj Jatpo ni sr8 tuoJJ Huiyanws lo Appqrdra atp pry oy.w sJatuonna alqudnualul aJa.w Apalujoj NJasn a83rj actp jo AurW Tr8 Jply suothurn Xurdtuo:) arp pur 'uondo arty papaps arry XJounal a3 AJas Joo tu sJasn a82rl atuos sa3ud Jawol ir sJaanpoJd tuoJJ Apaanp sr8 asey3Jnd os sJasn sr8 [ruonninsul pur 1rdp!untu '[rponpui 'lrpJatutuoa a8Jrl ptusad sainJ asoyl Tsauisnq sr4 Jno jo uorund r ui uopiladtuoa ut asraJaut ur patru8W irtp ognj paidop uonsnutuo:) AJoir[n8an A8;au;I trJapa;{ atp 5861 Supn(1 sr9 jo unpruodsurJ,1. 'oirs trut4aphaJ pur trpJatutuoa 2no tpoq WutuatpMuans sr8 [rJntru sr8 [rJntrtl on 01 sJasa aurdoad o spajpuny SupJaAuoa ut injssa33ns uaaq aary a.w 'uojja J sJasn aurdold jo pairp2 e ul Huuray Jair.w pur aards Joj vr8 Wunn s8uippnq trpJatutuna uM sap os sJappnq Jatpo aaupuoa os pur *atuoy.wau ut saaurydde spajptlutl dlillJaA sr8 Joj suoipauuo3 appold os sJappngatuoy 33upuo3 0) tucJ8oJd aansa188r ur no pa3Jrqtua aary a.w 'uopr[n8aJap oi anp sJeaA [rJaAas ixau -uoa ul [npaaans agi ut %01 oi %5 Aq autpap oapd sr8 aas os padxa una sJan woatuoy Haag aarq a,\\\\ iry aAayaq a.w asneaati witotuaJ!nbaJ 58Jaua Jptp patu oi %5r.w aAnarJur A[iraguouoaa sJatuoisna Jno Huuajjo anyw suoJJa 8upa3Jetu sr8 Jno uay:Muans os Apunuoddo alp yn.w sn paluasaJd arry 'pury Jatpo atp uo sair; to woJ8 Jatuoisna Ja.wo[s pur saagd sr8 8tuu!paa sairs Jangoq pad ay pur purtuap JaySp1 A ruosraw l lt r pairan Jeal atp Jo stpuotu Munop alp ui Jatpra.w ploa Agensnun 'JaAa .woll Jonas grponpui atp tuoJJ purtuap 8uiua:Jos jo ynsaJ atp ApJrtupd sr.w 9y.1. TH61 ty urtp ssa[ paj a!qna uogpq 12 'paj aigna uonpq y[(31 aja.w 'sr8 pauodsurJ Su!pnpui '5H61 ut saparipp sr8 rJntru {rio JnO t pauatp8uaJig suojj:1Hupasiswsto '%5'T inoqr on airJ yi.woJW Jatuobn3.wau Jno .wo[s l[ps spp pur '8upso[s y oprJo[03 oiul uoprJ8pu artp.woys sapspris 'SJattlobna aIJ1aaja A\\all ()OO'77 pur NJaluol irpurbqns on patuobnaar atuoam] aAry a.w pur 'sairJ tp.woJ8 08cJaAc uryi JayWiy paAnlua sry Agrapowiy iry raJe ur saAjas Aurdtuo') ay1 -Nna srd Asal 000'97-sJatuonna ooo'oF6 1n04r Joj a3IAJaN inoqr saAJas Aurdtuo;) ay: '((r ul a8urJ %f Syl ut sr.w ((Us airJ 1pwoJ8 papIAoJd Atirdtuo') pauiqtuoa atp 'istaajoj Jno urtp ssat sr.w tp.woJ8 spp yWnotply sjatuonna appap.wau o00 77 pur sJatuown3 sr8.wau ooo'er inoqr Jo; aanJas al{1Jra$ INr] pappoJd lurdtuo3 alp JeJX Wr-] 5861 ut paAappe a.w aapJas appap pur sr8 jo sparpurw y861 atp ut pairnsnly A rapi rJ8 s! 'spaay,s.4aissonna li d .4no of no/iteatly isn>; strop 'a[dpupd alejodJoa puoaas y souisnq ano jo uoprpunoj ay) tuJoj 'sJaployaJrys Jno yn.w Huolt 'sJatuoisna JnO

e w k E i ? E ~: ; vr 4: i ,:s.t...,;.,:. u b N ' '_ ",'. 7' g .,,,..t-

i. ' *.,

\\ f,,.{,. 'y ':$ t .s- ..4. v ;,. ..( c F g - '-. in .g ,g ,. g. s. .n. g . s, p.,.: _. m . r --a-., -.. .g- . i u O,,. w: .;l* k,. E3i!h.4 .[ N 8.h

• S ' b b

$xya X ' i L. 5.). h& 1h i r y n,7+,.-9.' ; f.,; f } lk: p . y :.-

• A..] - [ ' -

,7 p. '.r - e6 3.,, y ,: :y4. e n-4 s

t-

i- =. t s. g 7 o 3 . 'f,.. E N 24. ' +"h h-e ao z* .F ' 9( E ,r4' ' _ V. '3, " f z .,e r '.[^"'{?g,'j'~~"'J-{y';l. p k" '?b (y g, f- ,, 4,., .,g. j -j.. -,.. - y 4 -.:.,r..,, .,.:_y j 3 r ._ %,,. y? /,A *;- ^ '.- i.2' ' g, A,,_2 ; ' ' J

th

,'f, }. - m 7 s,fy' l f. k q-* ,y r ,,,'f s Y '7 i, ; ..+ j- - 4 e. [ '.h,.".,~ ~ > ".ll. ". p..' ~h ..+-+; s: S 'e !,. I. ' p., ',- } l 'l . ~.. ...','.o k.. ', 0 i h' , % 'v y e* ._s-A F - [ \\ "

t.,a...g'*-'t

,' y -f i,' i h (p, .,..'(,. 4 g w : ,~ ; y n. 6:..,.;,.,, a . y ;. t. s. L E a = B } g ompetent / managers t - {L 4 at all levels e mL d 1ir i b L h l Ir. !Iw b1 l 6 p kk

Subsidiarica Pliy Role Two of our'subsidi[try companies also are playing an important role in en3uring the availability of gas to our customers and the stability of the gas segment of our business. Fuelco, one of our non-regulated subsidiaries, has continued its investments in oil and gas exploration, and is experiencing positive earnings despite the general downturn in the industry. Fuelco continued its exploration and development activities at about the same rate as prior years. During the year, Fuelco also entered the gas brokerage business, providing an additional source of revenue and a new dimension to its operations. WestGas, our intrastate natural gas pipeline subsidiary, successfully resolved several lawsuits with its suppliers during the year. As new regulations on the transportation and marketing of natural gas emerge from federal agencies, both Fuelco and WestGas will help put the Company in a good position to manage those changes. Electric Growth Slows; Pawnee Il Postponed Our continuing concern for customer needs and energy requirements and our careful monitoring of changing market conditions also led to significant developments in 1985 with respect to the electric power segment of our Sales grow th business. Foremost among these was management's decision to postpone will rentain the construttion of the second 500 megawatt coal-fired generating unit at our Pawnee Steam Electric Generating Sration. V'e are now planning for a in the area commercial operation date of 1994. The delay in construction defers for several years the commitment of several hundred milhon dollars. of 3"b annually. We anticipate that our kilowatt-hour sales growth will remain in the area of 3% annually for the next few years, due largely to reduced levels of customer growth and a decline in consumption in the commercial and industrial sectors. This reduced growth rate comea at a time when there is an increasing supply of relatively inexpensive surplus electricity in the region. Even though growth will come at a slower pace, it will place increasing demands on our system each year. Total kilowatt-hour sales increased by 3.1% in 1985, to 17.5 bilhon Kwh, from 17 billion Kwh in 1984. These positive results were modified somewhat by a softening demand from some of our commercial and industrial customers, notably the mining industry in Colorado. Our peak electric load exceeded 3,000 megawatts for the first time, reaching 3,029 megawatts on December 10, a rare winter peak. The 198 6 Our inanagentent record was 2,948 megawatts during the summer, when peaks occur imost barn detuonstrated often. Total system capability at peak is about 3,952 megawatts, including about 761 megawatts of firm purchase power. This leaves the Company the kind of ingenuity with a reserve capacity of about 923 megawatts, demonstrating the and initiative that growing importance to the Company of firm purchase power until operation of the second Pawnee unit. enables the Company Management Emphasis on Excellence to face the f.uture The Company's abihty to cope successfully wah future growth and to accommodate changes in our business environment depends on the skill with confidence. and determination of those who make up our management team, a concept reflected in another of our corporate principics, Competent.tlanagers at All f.erels. In addition to the day-to-day operating decisions that were required to meet our customers' energy requirements during 1985, our management team demonstrated the kind of ingenuity and initiative that enables the 11

l l l l airness -v 7 in our dealings with our suppliers l l l 4 ' ;.f7 y. ( ; '. _ .h_m,p.,. .s a/.. y; j,.([ [} ; /; } f 4. :,. 4, i ;, . Yfl{l;f..w.f! _, f!b m.,lk[:'.;. l ' ' '.~ - ). ' ' _. &l : *Q i a.t,,. ~. -... ,V

9,.. <

.r ..z _A.-\\.. . g l[ ',h ;

• 'E

) ,;.f.[_ ~

• g.',

.n,..

sg % s$ f # $ Q l S;ik hl ^ GW _ $ g C, m; } : .. m g ga y: f. /; gy.Q hy .s f.p f >; %9f.~ ;. 3.

s. :y, m:

. x ; #. y;,.. r.. '.. %s ' ',: n

v..:

,j-

_og ..,, / W.. q', I. * ~. 5*' f- .,. ' - [ <.' ' ., 'jh 0, N- ,t g'.,. k' y' ,y

f g P..,

...j ,,. 3.w l..- q' ;... - c.r.. v J_;.D t :, "i .. n .. ~. -.. ,- y y, :. *'. Y ' 3i L .~. e ~..:_. ; 4 ;. s.. R. ; '. .. d. j ~

..Y s.

'o y;. _ * '.. ".. ' y . g ~. - O.. 'y ~.- -}g, '( ' ' ; -...[

_

)

= ._,j t

y...

.'4.'- [; .., ',. t.v.p h .p ?. y.,- '..&*-..l k <q. ,.ci ,, 9,, c y. - ' ...w. .5; ~: m, (W. s. ' y j [3.'.

.,' y -.

? \\ .l, ,e . f k;.,.4 . 4. :..,. ; '?. f ;. [..;. -tl ' ';y ' , i, y' q.:.. _. - [+(, ,f I 4. f '*.Q 4 ,c f ;'.:_ :._. ;. ~,_,> b e,_, W *n ? y - n a v ~ '... *,,R .L* 's'-.,'?. s i. p qk,. be,. .q, n.. :',gy.., ' j.:-}..s,:p? c..' .,.-, '.,y - .F - Wn. :: ' ;. .,~ L

e

,. ',/. -. .. L: _.sn ,s y .',. ' ^ ~. 2,...G

G f a l

a,.. s f. A f.' l: ;.. [ J _ ;,_j ,B 4 .y , k l-...

. k

.Y;.. f, _ ' _ ' l '. ',' 'l$' l,._ y, 1 *,[g.,( f y ?l ,., y y,_' N y ' tsv q-y.. 4, (.;; }.y ,,, *,. :( [ + ' '( ? Vf. _ + ' .L+ .~ ; i _ '..,, !".W:. ' ' c &, : :..; f J,;, )(' . :A /;,.. ' y Q ;,,.u,, y !. ). + w: r,' ~ ;.-: ...e# q. [.~ m. ...r fr y-( N.. y.,".. ' ', g ., (1 '. n-e q-1,g [ b,- (.. },. ,, '...'..'..e ., : J.. '..... ?>

• t

'.r, , f [.,.' ;. _ _ h'q )..,,- ^. ~. r4... :... ' p{p,3 tp ' q. [= g 3 r ,,s. ,e:g.,3.. )

• t.

t ...9 s. y,,. -l l l}4, (4: Y

• Nb iga:id a,;

3 ,e j.. _$. - --

r... -.... q o. :. m_ p..

+ j; ;.7.,,. 3 g,. .,.!,g t- ..e

., y -

s = - ~ a

i ) Company to face the future with confidence. Consider, for example, an innovative systera developed to help us manage our gas and electric distribution facilities more effectively. j Called Distribution Facilities Information System, it automates mapping i and drafting functions and also is programmed to model existing gas and electric distribution systems. This allows design and construction changes to be made in the most cost-effective manner. The system is in the final developmental stage in our Iloulder Division. When fully implemented, it has the potential for significant savings, resulting from its application to systems design, cost estimathg and materials requirements. Subject to favorabic testing and management review, the system will be implemented throughout the Company. While our managers are committed to acquiring and applying the best of the new technologies, they continue to be concerned with making our present plants and equipment more productive. An example of our progress in this area is the new dry sodium pollution-control system designed by our engineers. Th s system is expected to make the next generation of pollution-contros equipment less expensive to install and operate, and more effective in maintaining clean air and preserving environmental quality. All of our activities Our Employees: Quality and Performance relv upon the nlen Our forward-looking management programs, of course, depend on the continuing dedication and motivation of our employees. All of our activi-and women who. ties rely on the men and women who work daily to serve our customers serve our customers and meet our business objectives. We recognize our employees' vital contributions in two additional corporate principles, A fligh Greality of and meet out Work Lifefor Ottr Employees and Emphasis on Performance and Retrards business objectives. That Recognize Contributions. We are constantly takmg actions to improve the quahty of work life for our employees. Most recently, such efforts include a wellness program, office modernization and educational opportunities. Increasingly, the success of the modern business has come to depend on computer systems and advanced communications methods. Our office modernization program is placing the newest technologies in the hands of our professional, clerical and operating employees. This helps them to work in ways that hold Our emphasis on down our costs and increase the efficiencies of our business. continuing emplovec To enable our employees to have the opportumtics to acquire and develop the skills and experience necessary for advancement, our iluman education has been Resources Development Division continues to update and revise the wide H m h d di d y i m variety of educational courses and programs it offers. In 1986 we will open a new Career Opportunity Center that will assist employees in identifying improved performance. career objectives and actively planning their careers. Our emphasis on con-tinuing employee education has been translated directly into improved per-formance, a greater sense of job satsifaction and a larger reservoir of qualified personnel from which future supervisory and management positions can be filled.(See affirmative action report on page 21) In many respects, our present emphasis on the personal and profes-sional development of our employees will determine the level of our perfor-mance in the future. We have completed a major revision of our compensation program aimed at bringing it into conformity with the best contemporary compensation practices. This new program recognizes our objectives of rem. tining competitive in the salaries we offer and retaining 13

Q_X: z, ' #. ..,. L '. ',, '.. * ;.. _ ;^ g ^h', ',Q g.' i 1- '<. >s .-. w e -,..J .. '. v :4 '. ;. c,, ~., > .c -r b.:., <.1 M. g

g. -.,. -

.),, ' j f. .,/; qg - f;:;. n, _,, s w-f, ..m. \\ n. L . * '.p p. 4 ,( n. *. ~ u _. 5.-- y .s' . ~ b 4 ..r. 1- %., - s.. q:,, .t y. , J. . t / L s y'. y .[ > + w... ,F e,.; s ,g -;...i.-- -at b s L,. a; s-- 't,g,,[- - 1

• +

" 9 '.'j,, ' fp , N._ [ (( \\k.] 'f., .._;.,/ e .. y f . r, .a im i,,, .#,C .,4 N

• '.)

f

.,,),,

4 ,~,; a + 4.,a=<,,,,,g, j., g - i tf t.- J- ? s .,,'n .g .l i- ,4,.p . s. . + -7,..,. S. -w yq3-p 'g..+..... n 2 , u ;n... b-I'.')-?. -k ,. g ' {i. _ ( , {e:, i., P... 1 isibih,t y s m--- u

),i

..p,.:, i :: n. c. e ;..v.,,;A ':.T. l- ,.,,, M,g t c. 7.. i W- .f ,3,,. -[-4 4s 2' n? s N;' Y. (.d., [ c .. w

r. j f Q { f](*

• ',y

'i.,.'Id c'.'_,'+..... _.. v. ,p j p y <,_,e -,: 3.,o,., p -R,r.Q., gps n3.% ..f- .= ~. s. . ;& ; A..- ,. ::. R* V - - ' ' f jv*' 3)mn3 unity as a c ty a -} :.. %,.. - u.~ +.: . b $/ - ..., n@- Y( M )(1 C()fIM )CllC

.,.' y..-z. '

c + 1- ^g%. + i 4,V46 -' ES E " ';.'. 4 * ", - = -,,b - g citizen $'u;c z [. 9 - : 4 e. ,wg.v.-, , y.. (. ..; _ -. t.,g' j; g.gg. v y (t - ..i .g,s, j - a.*- .e y, s g .g g 4.. .?, q y v ,.11 v. p-i .6' e,.- [,.. _ ( $... +. 3 ;* ' V, ,+y y, w ,y, -y, gdA s ' f -. .4 3.=, '.g [ '.. l',3 p i 2, _ %.. - l.q... ; _:,. - l - ),p - p jQ.] QQ@y.% JQQQ){ [, ? '.[.,.'? 19, .o,. M,e " * .s y., b J(' s.. [ '. - - l. i f. r: *, '. - .if f ', }) b _ g,V :)*, j i. f lr.,j 1.'*..4 i-f , ;. ' _l .' - :*,. j '.', i A ki. , n. v m. v I. = m f w? m+. c_ &,J y. y f tp-i .:~.9 .t;

w.... <

.y ---..i-.i

our employces. It also recognizes the contributions of our employees by rewarding them for performance through promotions, raises in pay and other forms of recognition, when their performance ments such recognition. Relations with Our Suppliers The Company's determination to conduct its affairs in keeping with the highest standards of business behavior requires us to be especially sensitive in our relationships with outside suppliers and contr.s. tors. That is why we rigorously adhere to the corporate principle that requires us to pursue Fairness in our Dealings \\ nth our buppliers. We continue to emphasize our policies governing the competitive bidding for contract work and the selection of our suppliers. Company representatives regularly hold special informational seminars for potential This rapport includes suppliers and vendors to make certain that all supphers - large and small special cll. orts to - cleany understand our business and its requirements. This rapport includes special efforts to reach minority-owned businesses. (see report on reach niinority wned page 23.) businesses. In the same spirit, the construction of our $41 million Materials Distribution Center, scheduled to begin operations in 1986, is designed to make interaction with our suppliers and vendors easier and more efficient. The center combines the operation of six major warehouses and five shop installations in the Denver metropolitan area into a single centrahzed facility that will streamline our operations. We expect to enjoy net savings of about $18 million over the next 25 years because of the improved efficiencies from the new center. Emphasis on Good Corporate Citlienship Our Company is a vital and integral part of the economic and social life of the communities in which we operate, an.t so the corporate principle that calls on us to achieve Vis:Inlity in the Con ~ unity as a Gxxl Corporate .The Connpany was Citizen is especially meaningful. honored with the In June 1985 the Company was honored with the Presidential Citation for its efforts to assist the necdy through the Energy Assistance Foundation, Presidential Citation a Company. supported organization that supplies emergency fund 3 to those for its riforts to assist who cannot afford to pay their gas and electric bills. The citation com-mends the Company for its " outstanding service to the community," and the needy. for " finding innovative private solutions to public problems." l The Foundation is guaranteed a $103,tkH) contribution each year from the Company. In addition, the Company matches up to another $ 150,000 of funds donated by the public. Contributions from the Company and the public roulted in payments totaling $313,000 being made in 1985 by the Founda! pn on behalf of 2,"O individuals in the last three years, the Foundation has provided assistance in 9,561 cases, with the Company and matching funds totaling nearly $1 million. The Foundation, which uses the services of The Salvation Army to identify the needy, assigns all donated funds directly to the needy. Our customers have the thance to participate in this worthwhile activity through a check-off contribution system on their utility bills.

igh { cthical and moral standards in all we do 2 a a.)- . e, p m.,,v.,. c .t .-._ y _4

g..

.;. +

...Q j* '., g s. _..,,.,..., _.,;.r.. t _ 4 )..,

s

' &.. q,,. v c d. - + ~']..,, ( y:8,_. 3,-..- ?

y,

. q,, =' u

< =

q..- .u, ..y k, y- . r g' e q,. _, '..; -. v.. w - g.- ~. r ., t s.. >=,4p H- ,s. .,y .s, s ,,,.,., ' g., +, ,5 _ 'j,.' _

yZ

-. Q. ~: ,.6 ',,'^..f. g4, .. y.,.., ..+ a- . e g .e y ,y, -. my 1 e -.., <.. ~ >, i,... 6. x,,4..".; i 2.. n. .p - ps..-...:,1. ".. 2 '.,:e v. s-K.. q,.'t .L., ^.. i ~ ', _ ,..,.,"..c. ',.i..-l~' n', y, r ::- t w ,g ,Y., ~ es,.. _ . 1 7 _, y4

l.

• y }; '..' } _ l
• u,.

}? ' [~ ~ e. , = g -.. .... - = -.^

a g, y - -

.f.

.z.. " > - :*,Q_r316 . i-~ ..'.t'

. w.y.; -..

s ,1 . A

. [. '

• l

,,' %. '.. ";Tgg-g, $f m. s ; Ng,,. 3.. 8-,,,',s ('- ^ ..'g -i4M-i - ,1. ' >-4 ' g.,, ' ( ~ ;. f. 3.-Q;.yn.;f,ff;;,g;; Wgl,, a,iyy:,',..MMi&@.wh. : . l :j:. ..:,..,,., -,..,. ',,7 g i w 1- - y,

7; b.

Q,; :;s, ..g .,.;. g - g, g.,,., .e 3 ; .o q.e.m, s, p..... g e

• ~

g ^ ~ I' .. '.. ': w - - p.,r 3 .,..S, E / _ Vf.:x '. \\ ' ^* 12,,.

g....,#

', g M_s' '. ', 3 ,, o,.1y ."gi p. l'i T 1" .,. s...* ! .c. .M.y _ N,w : - W u.: L. yo y +. , g...; g;;,. ,)., .y f-y ..;-= g,,, .. y ) .? y 0% .,,y,, i n 4- '^t, ~;. '. ..,. p [ W.'c., - . u... *- ,.^^ . c hp ; s g [- r ..,e, .m ...','. f, ! g,, 3 ,7 uQ. y, M.' py. a,- -t p & #v.? )- e 1 .....q,', Nr s i ?. 6., j cQ;, f . a...f ye,- r-

g.."'v as

. t p[",7 j. 5 _ g.4 m, / l .,m -.1 k;.,ad Wg s-- _yJ - h4 - d w. v.. c

Setting Iligh Corport,te Standards Our final corimrate principle is one that permeates all of the Company's j activities and guides our policies, our planning and our actions: //igh Ethical and.\\toral Standards in All We lh \\\\y setting such a selfimposed stand.rd, we will continue to merit the trust and confidence of all with whom we deal. We have always applied this principle and the seven others to the i operation of our business. After all, no problem is solved, no service is pro-vided, no power is generated and nothing is built without such ingredients. This philosophy of action will be used as we strive to meet the following goals important to our future: .No problent is

• To produce carnings per share at Icast equal to the current annu.il dividend rate on common stock to ensure financial strength and solved, no service is profitability.

provided, no power is

• To operate the Fort St. Vrain plant on a consistent, reliable basis.
• To maintain the current annual dividend rate and continue the annual generated and nothing increases if possible.

is built without

• To preserve our high-quality credit ratings.

Such a.ngredients.

• To maintain and operate our coal-fired plants at a higher availability factor than the industry average.
• To hold capital expenditures to about 10% of total capitalization.
• To implement a gas supply strategy for improving diversity of supply, while lowering the average purchas. cost and maintaining high reliability of that supply.

By striving for these and other finar cial and operating goals in the coming year, we will be living up to the Company's principles, and we will fulfill the highest expectations of our astomers, shareholders and employees, while serving the public's needs. Rkw R. F. Walker Chairman of the lloard, President and Chief Executive Officer February 10,1986 l ) 17 t

Board of Directors and Officers Hoard of Directors George II. McKinley Executive Committec Dale V. Fetchenhier Denver, CO (1976) Assistant Vice President Richard F. Walker

• President Richard F. Walker and Secretary Denver, CO (1976)

First NicKinley Corp. George H. McKinley Age 52 (27) Chairman of the 130ard, Age 58 Will F. Nicholson,Jr. J. Kenneth Fuller President & Chief C. Keith Millen Nicholas R. Petry Vice President, Electric Executive Officer Denver, CO (1969) Engineering and Age 61 Senior Vice President, Audit Committee Planning K11th L. Brown Operations Age 62 (37) Denver, CO (1984) Age 63 Doris M. Drury John M. Ilassoldt President Will F. Nicholson,Jr. Thomas T. Farley Vice President, 13rown Investment Corp. Denver, CO (19H1) J. Michael Powers Gas Operations Age 60 President Age 56 (35) Collis P. Chandler,Jr.*

• Colorado National Executive Officers Oscar R. Lee,Jr.

Denver, CO (1985) llankshares, Inc. Vice President, President Age 56 Richard F. Walker Electric Production Chandler & Associates, Bryant O'Donnell Chairman of the lloard, Age 59 (36) Inc. Denver, CO (1972) President & Chief Robert T. Person,Jr. Age 59 Executive Vice President Executive Officer Vice President, Doris M. Drury, PhD and General Counsel Age 61 (36) Public Affairs Denver, CO (1975) Age 60 Bryant O'Donnell Age 43 (14) University of Denver Robert T. Person Executive Vice President James II. Hanniger Professor of Economics Denver, CO (195') and General Counsel Vice President, Rates Chairman, Center for Past Chairman Age 60 (35) and Regulations Business and Economic of the lioard Delwin D. Ilock Age 49 (27) Forecasting Age 71 Senior Vice President 4 3 geno,csye,,,ogse,nce Age 59 Nicholas R. Petry Age 50 (23) with the Company through De('emher,19MS. Thomas T. Farley Denver, CO (1961) C. Keith Millen Ages as of December 31,1985. Pueblo, CO (1983) Chairman of the lloard Senior Vice President, Attorney at Law Petry-Vappi Construction Operations ['(harj' n,, gi ker r a rn an Petersen & Fonda Company Age 63 (39) of the Hoard, effectne september I,19H5. Professional Corp. Managing Partner of James N. Humpus

• *Couis P Chand'er, Jr. was Age 51 N. G. Petry Construction Vice President, Finance elected a member of the Iburd of Directors succeeding William Delwin D. Ilock '

Company and Corporate

r. Blat kburn, Resident Partner.

Denver, CO (1985) Age 67 Development and vaughey, v;ughey & lilackburn Ondependent Otl Producers) Senior Vice President J. Michael Powers Treasurer

• "Delwin D Hock was ciected a member of the Ikard Age 50 Cheyenne, WY (1978)

Age 51 (21) of Directors succeedmg JJ(k 4. President Ronald E. Donovan House, senior vice President, Powers lluilders' Supply Vice President, Division ',['uckes, who retired on 9 Age 43 Support Services ( ) Year dected to the floard of Age 58 (3]) D"" Clark H. Ewald Ages as of December 31,19H5 Vice President, Employee Relations Age 51 (26) 18

Other Officers

Managers, llarold L. Rust I egal Conniel D

Geograp e Divisions Dan McNellis Age 50 (30) Kelly, Stansfield & corge A. Senkus o*Donnell N. Keith Coombe cr et al ffai n Luts \\ alle) Denver, Colorado liigh Plains Age 57 (33) age 49 ( g) ^# Richard R. Midwinter Louis W. Supancie Auditors g Assistant Vice President Southwest Metropolitan Fmnt Range and Controller ^8e 63(34) Arthur Young & Age 64 (46) Age 60 (36) Company Ronald L. French Cobert J. Vidick 2"3Re r* 70717th St.. Suite 3800 Puchlo Assistant Vice President, Denver, Colorado Manager, Southern Subsidiary Companies Metropolitan Division Region Operations ransfer Agents and Age 58 (33) James N. Humpus Age 58 (30) Kenneth L. Ileadrick President Registrars for All Anthony J. DeNovellis onhcrn Bannock Center Corp. Assistant Secretary luues of Capital Stock Age 46 (25) Age SI (21) Age 37 (15) Ross C. King,Jr. Clark H. Ewald Richard C. Kelly Principal Transfer Agent, nm Metropolitan President Assistant Secretary Dividend Paying Agent, Age 44 (20) 1480 Welton Age 39 (18) Dividend Reinvestnent k'teven R. LoeshcIIe Douglas C. Lockhart Age 51 (26) IId" A8CDU Western MichaelJ. Geile Assistant Secretary and l'ublic Servict Company Age 43 (21) Vice President and Assistant Treasurer o Colorm Earl E. McLaughlin General Manager Age 36 (4) Denver, Colorado Northwest Metropolitan llome Light & Power PLtrick W. McCarter Registrar Age 45 (25) Company Assistant Secretary Centralllank of Denver Phillip L. Noll Age 43 (21) Age 48 (26) enm, olorado Mountain John M. Itassoldt Glenn M. Steepleton Co-Transfer Agent Age 46 (27) President Assistant Secretary '"I"# M. Gordon Parker Western Gas Supply Age 62 (I I) Morgai. Guaranty Trust Swtheast Metmpolitan Company Richard L. Hunt Company of New York Age 63 (36) Age 56 (35) Assistant Treasurer New York, New York Lawrence F. Petrini James L. Illgday Age 43 (19) Northeast Metropolitan President ( ) Denotes yearuir sen ke Susan G. Pollack wnh the Cornpany through Age 55 (.30) Cheyenne Light, Fuel Deumber,198s. Assistant Treasurer Wallace K. Reed and Power Company Ages n of Decernber 31.198s. Age 41 (14) lloulder Manager, Northern Douglas S. Robertson Manager, Foothills Region Assistant Treasurer Region Age 63 (35) Age 43 (7) Age 61 (39) Robert F.Jonas Homer R. Sessions President Assistant Treasurer Fuel Resources Age 60 (8) Development Co. Age 62 (38) 19

Financial C Statistical Data 1985 1984 1983 1982 1981 1980 1975 Total Assets (millions) $ 2,995 2,867 2,716 2,607 2,422 2,205 $ 1.378 Common Equity (millions) $ 898 894 821 785 736 656 $ 400 Preferred Stock (millions): Subject to mandatory redemption at pn 79 87 88 89 89 89 64 Not subject to mandatory redemption 140 140 140 140 140 140 105 Long-Term Debt (millions) 928 883 886 891 866 840 640 Short-Term Borrowings (millions)* 13 21 44 54 64 26 2 Total Capitalization (millions) $2,058 2,025 1,979 1,959 1,895 1,751 $ 1,211 Capitalization Ratios - Year-End: Common equity 43.6 % 44.1 41.5 40.1 38.9 37.5 33.0 % Preferred stock (incl. due within 1 yr.) 11.0 % 11.3 11.6 11.7 12.1 13.1 14.0 % Long-term debt (Incl. due within 1 yr.) 45.3 % 44.4 4%9 45.6 45.8 48.9 53 0 % Notes payable and commercial paper 0.1 % 0.2 1.0 2.6 3.2 0.5 Gross Construction Expenditures (millions) $ 237.5 196.6 195.5 230.0 256.7 262.6 $ 130.0 % of Total capitalization 11.5 % 9.7 9.9 11.7 13.5 15.0 10.7 % Funds Generated Internally (millions) $ 128.5 168.1 132 6 145.0 106.7 84.6 $ 60.6 % of Net construction expenditures 55.6 % 90.0 71.0 64.9 46 8 36.2 51.0 % Rati.s of Return Earned: Tctal capitalization (Oper. hcome) 9.0 % 10.4 9.2 9.9 78 7.1 6.8 % Avg. common equity (Net to common) 10.5 % 15.0 11.2 13.1 12.1 11.6 12.1 % Pretax Coverage of Interest Expense 3.47x 4.35 3.42 3.67 3.24 2.86 2.97x Effective Income Tax Rate 48 % 49 47 47 40 38 25 % Puyo.at Ratio on Dividends Paid 109.4 % 74.5 97.8 80.2 84.3 83.3 58.0 % Dividend Yield - Year-End 9.5 % 9.9 9.9 10.1 11.8 11.2 8.1 % Market Price Per Share: liigh $ 24% 19% 19 17% 15 15% $ 167,, Low $ 18% 16% 16% 13% 12% 11 % $ 12% Year-end close $ 21% 19% 18% 17% 14 % 14 % $ 16 Book Value Per Share $ 17.15 17.31 16.70 16.69 16.39 16.40 $ 17.21 Common Stock Volume: Daily average -(000) 118.3 133.1 130.0 84.4 52.1 51,5 17.9 Annual - (OOO) 29,823 33.670 32,910 21,198 13,204 13,034 4,529 Number of Employees - Year-End 7,044 6,894 6,857 6,794 6,424 6,145 5,559

• Includes debt due within onc year notes payable and o>mmercial paper, and preferred stock sub ect to mandatory redempnon within i

one year. Financial & statistical Data Operating Revenues, income and l'arnings Data The mformanon contained on the following three pages b most Operaung revenues are derised from four basic sources (1)(us-frequently sought by investors and members of the financial com-tomer growth. M) customer consumption. (3) rate metrases or munity. A more comprehensive set of pertinent hhtorical, financial decreases authorized by Federas and state regulatory authorities, and and statisucal information is contained in a supplemental pubhcation (4) fuel cost adjustments. Because increases or decreases in the costs to the Annual Report. The pubhcation is enntled Financial & far fuels used in elettric generatun, power pun hased from other Stausucal Review (or Factbook) and is available upon request by unhoes and gas pun hased for revic to customers are automathally completing the card attached to the back of the Annual Report passed on to t ustomers on a dollar for dollar hasis the increase or This section includes mformanon for the penod 198519Ho and decrease in these costs are included in operanng resenues These the year 1975. This enables insestors and analysts to compute costs are subtotaled below in energy co s and can vary the growth compound growth rain for the last five year and ten year perunds rates of operanng revenun from year to year 20

I Operating

Revenues, Income and Earnings Data Year Ended December 31, 1985 1984 1983 1982 1981 1980 1975 Operating Revenues:

(miliom or Douan) Electric $ 1,022.3 999.6 H53.7 843.4 742.1 640.7 5281.7 % Change 2.3 % 17.1 1.2 13.7 15.8 26.2 25.7 % Gas 714.3 790.1 761.6 732.3 5H2.4 502.9 174.6 % Change (9.6)% 3.7 4.0 25.7 15.8 22.5 29.5 % Other 10.9 12.3 13.3 14.3 11.6 12.0 3.9 Total Revenues 1,747.5 1,802.0 1,628.6 1,590.0 1.336.1 1,155.6 460.2 % Change (3.0)% 10.6 2.4 19.0 15.6 24.7 27.0 % Operating Expenses: Fuel used in generation 171.4 188.9 172.8 184.4 170.1 182.6 75.4 Purchased power 203.1 161.9 99.0 101.7 113.2 91.4 7.6 Gas purchased for resale 532.6 606.6 611.3 587.2 462.3 388.9 103.5 Total Energy Costs 907.1 957.4 883.1 873.3 745.6 662.9 186.5 % Change (5.3)% H.4 1.1 17.1 12.5 28.6 37.9 % % of Revenues 51.9 % 53.1 54.2 54.9 55.8 57.4 40.5 % Payroli charged to operating expenses 196 8 183.1 174.4 153.3 125.7 119.1 65.7 % Change 7.5 % 5.0 13.8 22.0 5.5 13.4 11.9 % % of Revenues 11.3 % 10.2

10. '

9.6 9.4 10 3 14.3 % Other operating expenses (ex. payroll) 94.9 84.3 86.3 73.6 67.0 49.0 12.I Maintenance 95.4 72.5 64.1 58.4 49.7 46.6 19.5 Depreciation 101.3 96.9 91.6 86.4 73.5 61.5 39.6 Taxes (other than income taxes) 64.8 60.0 55.8 53.6 64.0 40.4 36.4 Incorne taxes 101.3 137.5 93.8 103.2 67.9 52.2 18.5 Total Operating Expenses 1,561.6 1,591.7 1,449.1 1,401.H 1,193.4 1,031.7 378.3 % Change (l.9)% 9.8 3.4 17.5 15.7 23.4 27.5 % % of Revenues 89.4 % 88.3 89.0 88.2 89.3 89.3 H2.2 % Operating Income 18i.9 210.3 179.5 188.2 142.7 123.9 81.9 % Change (l 1.6)% 17.2 (4.6) 31.9 15.2 37.2 24.9 % % of Revenues 10.6 % 11.7 11.0 11.H 10.7 10.7 17.8 % Other Income and Deductions 7.4 15.3 5.8 5.7 21.8 20.2 10.2 1:terest Charges 82.6 80.3 78.9 77.4 63.7 59.1 37.2 N:t Income 110.7 145.3 106.4 116.5 100.8 85.0 54.9 % Change (23.8)% 36.5 (H.7) 15 o I H.6 52.3 42.9 % % of Revenues 6.3 % H.1 6.5 7.3 7.5 7.4 11.9 % Preferred Dividend Requirements 16.6 16.7 16.7 16.7 16.7 15.0 10.6 Earnings Available for Common Stock 94.1 128.6 89.7 99.8 84.1 70.0 5 44.3 % Change (26.H)% 43.4 (10.1 ) 18.7 20.1 65.5 53.5 % % of Revenues 5.4 % 7.1 5.5 6.3 6.3 6.1 9.6 % Earnings Per Average Share $ 1.81 2.55 1.86 2.17 1.97 1.92 32.07 Dividends Per Share: Paid $ 1.98 1.90 1.82 1.74 1.66 1.60 $ 1.20 Declared $ 2.00 1.92 1.84 1.76 1.68 1.60 $ 1.22 W Common Stock Shares Outstanding: Average (000) 52,114 50,440 48,135 45,948 42,728 36,412 21,409 Year-end (000) 52,333 51,632 49,1 H2 47,020 4,896 39,990 23,213 21

Electric Servic 2 Statistics 1985 1984 1983 1982 1981 1980 1975 Kil': watt-Hour Sales (millions) 17,535 17,005 15,654 15,433 l',473 15,194 11,316 % Change 3.1 % H.6 1.4 (0.3) 1.8 3.6 6.7 % C:stomers (000) 941.4 919.3 892.6 865.0 846.1 820.5 657.4 % Change 2.4 % 3.0 3.2 2.2 3.1 3.3 2.6 % Avg. Annual Residential Kwh Usage 6,230 6,268 6.076 5,963 5,734 5,937 5,387 % Change (0.6)% 3.2 1.9 4.0 (3.4) 0.4 3.1 % Avg. Residential Revenue Per Kwh 7.14 c 6.95 6.45 6.52 5.74 5.12 3.35 e % Change 2.7 % 7.8 (1.1) 13.6 _ 12.1 22.2 14.7 % Avarage Annual Revenue Per R:sidential Customer 5 445 436 392 389 329 304 5 181 % Change

2. I %

1 I.2 0.7 1 H.2 H.3 22.7 1H.6 % Net Effective Capability at Time of Peak-Megawatts 3,952 (w) 3,790 (s) 3,512 (w) 3,401 (3) 3,116(s) 3,072 (s) 2,134(s) N;t Firm System Peak Load (Mw) 3,029 2,948 2,%H 2.892 2,820 2,776 2,108 % Change 2.7 % (0.7) 2.6 2.6 1.6 5.1 9.6 % R: serve Margin at Time of Peak 30.5 % 28.6 18.3 17.6 10.5 10.7 1.2 % Generation by Class of Fuel: Coal 98.8 % 97.9 93.4 91.0 85.3 76.1 67.1 % Natural Gas 1.0 % 1.1 0.9 1.4 H.4 17.8 28 3 % Oil O.2 % 0.1 0.4 0.3 0.3 0.8 4.6 % Nuclear 0.9 5.3 4.3 6.0 5.3 Avg. Cost Per Unit of Fuel: Coal - Ton $23.64 23.81 23.H7 22.95 21.84 1 H.81 5 9.31 Natural Gas - Mcf 5 3.38 3.62 4.07 3.81 3.12 2.68 5 0.60 Oil - Ilarrel 532.76 32.63 27.35 38.01 39.96 26.37 514.37 Avg. Fuel Cost Per MMBTU $ 1.28 1.30 1.23 1.23 1.22 1.29 5 0.63 (s) summer peak load (m) umter peak load Natural Gas Service Statistics 1985 1984 1983 1982 1981 1980 1975 Bcf Gas Deliveries 191.4 198.5 177.6 189.8 176.1 203.3 215.4 % Change (3.6)% 11.8 (6.4 ) 7.7 (13.4) (4.7) 4.9 % Cu:tomers (000) 794.6 771.5 744.3 718.5 701.3 680.6 575.0 % Change 3.0 % 3.7 3.6 2.4 3.0 3.4 1.H % Avtrage Annual Residential Mcf Usage 120.4 129.2 120.2 125.0 112.9 140.1 172.3 % Change (6.8)% 7.5 (3.8) 10.7 (19.4) (10.9) 5.0 % Annual Heating Degree Days 6,365 6,786 6,429 6,109 4,570 5,-'68 6,234 % Change (6.2)% 5.6 5.2 33.7 (20.8) (9.8) 5.5 % Avarage Residential Revenue Per Mcf 54.19 4.37 4.61 4.11 3.48 2.70 50.97 % Change (4.1)% (5.2) 12.2 1 H.1 28.9 29.8 17.2 % Average Annual Revenue Per R:sidential Customer 5505 565 554 513 393 378 5166 % Change (10.6)% 2.0 H.0 30.7 3.9 15.4 23.1 % Daily Availability -(MMcf) 1,457 1,464 1,459 1,462 1,457 1,425 1,245 Maximum Peak-Day Sendout (MMcf) 1,258 1,284 1,356 1,302 1,278 1,216 1,067 % Change (2.0)% (5.4) 4.1 1.9 2.6 9.0 (0.1)% 22

R.T. Person Resigns As Board Chairman, Closing Era for Company A management era ended for the Company September 1 Under his direction, the Company grew nearly 18 1985, with the resignation of R. T. Person as chairman times in size, from revenues of 597 million in 1958, to of the board. lie is succeeded by R. F. Walker, who more than 51.7 billion in 1985. During this period, the also is president and chief executive officer. Company's electric capacity grew from about 726 Alr. Person began his career with the Company in megawatts to approximately 3,732 megawatts - an 1940 as commercial manager for Pueblo Gas & Fuel increase of more than 400E Gas deliveries in this Company, then a wholly-owned subsidiary. In rbe same period grew from 95 billion cubic feet of gas per decades since then, he has held the Company's top year in 1958 to more than 191 billion in 1985 - an executive positions. increase of more than 100% After becoming vice president and general managei Nationally, Str. Person has served as president of the of the Pueblo subsidiary in 1947, and then being Edison Electric Institute, chairman of the National named vice president of public relations for Public Association of Electric Companies, and as a director of Service Company in 1956, Alr. Person took on the both the Atomic Industrial Forum and American Gas duties of executive vice president in 1958, president Association, lie also is a former board chairman of the and chief executive officer in 1959, and chairman of Federal Reserve llank of Kansas City. the board in 1966. lie first joined the board of directors in 1957. Affirmative Action Report Affirmative action in employing minorities and women These and other commitments will accelerate the has been conscientiously pursued by Public Service Company's determination to train and promote as well Company of Colorado for many years. This effort has as recruit and hire minorities and women. A report on kept the Company in compliance with the law. flow-this subject, starting with this one, will be made each ever, in an effort to go beyond mere compliance, the year in the Company's annual report. Company has developed a policy for 1986 to: Ilecause utilities serve the basic needs of the entire o Fill with minorities and women 30 percent of all society, the Company tries to make sure that cross-management positions as openings occur. section is reflected in the companies with which it e Increase management level commitment for affirma-does business. For that reason, the Company has been tive action goals through the operating planning and involved in minority business fairs since 1974. This performance appraisal process. ongoing effort to identify and do business with e Increase the number of minority and female appli-minority-owned companies has grown fivefold over cants through contacts with major community-based the last decade, and now amounts to more than $2 organizations. million a year. This involvement extends to all aspects e Deselop an advisory group made up of female and of the Company's operations. During 1986 and beyond, minority employees to advise and consult with the Company will increase dollars committed to management on minority and women's issues. minority-owned and female-owned businesses by 50% e Participate in the Florida A&Al minority internship as part of its efforts to expand attention to this matter. program, and initiate recruitment of two additional out-of-state colleges expressly for the purpose of obtaining minority and female candidates. 23

'9"5 '9"4 Managernent's Flectne resenues (%1tums of thdlars) s 38 3 Discussion and Electne cost adjustment 14 3M 9 $Jles \\olume and other (hanges so x 09 7 Analysis rotential cet'c in<cnine rian refuntis. est luding interest i4i m (1 01 Net inucase s 22 ' s14s 9 Gas revenues liase rate increae s 2s s 19 l Gas cost ad uvrnent i.o m gn o, Results of Operations i The following factors, which nuy not be indicative of future sales solume and other t hanges 44 9 83 operations or earnings, have had a sigmficant effect upon the Net inucase h!cucasci s es m -sM results of operations dunng 1985 and 198+ Earnings per share in 1985 were $1.81 compared to 52.55 The increases (decreases) in operatmg expenses from the pre-in 1984. Electric and gas revenues in 1985 did not keep pace cedmg y ear were as follow s. with increased operatmg expenses, partially due to several items attributable to regulatory and operational difficuhics at '9"5 '9"4 the Fort St. Vrain Nuclear Generating Station (Fort St. Vram). mism or th.naru Electric operating revenues in 1985 increased only mini-l'uct used m gencunon s ir s, s in i mally when compared to 1984 despite an increase in sales volume, recoveries of increased energy costs through the Purc hased pow er it i 64.o ~ Gas puntused for resale aw (e 7 electric cost adjustment (ECA) and, to a lesser extent, in. Other otwaung expenses 2,4 n6 creases in base rates effective in 198L Total customer growth D'""'"'C 22 " "1 of 2.4% contributed to the 3.1% increase in electric sales.

• P""""

+* 53 These factors were offset by a $32 million charge to 19H5 Taxes (other than income uxc4 eH i2 electric revenues for potent'ial Pubhc l'tihties Commission of

1. ~

the State of Colorado (CPUC) mandated refunds to customers due to the nonoperational status of Fort St. Vrain (See Note J C8."5ffd'c MC"ra'c! 1 i <o li sin o 11, incentive Plan, in the Notes to the Consohdated Financul Statements). The potential refund is currently approximately Fuel used in generation expense decreased in 19H5 as a $3.8 million per month and will remam at this level until the result of a decrease in the acneration of energy along with plant generates electricity, at which time the potential relatisely stable fuel pnces In addition, the decrease in fuel monthly refund exposure will decrease based on the plant's used in generation expense in 1989 and the increase in 1984 12-month performance average in accordance with the CPUC were due, in part, to the effect of monthly ad ustments to l deciaon. In 198L the comparable charge for potentul fuel expense which are made to more closely match the total of certain fuct costs with the amounts currentiv recovered refunds was $1 milhon. The substantial increase m 198., electric revenues over 1983 was primarily attnbutable to the from customers through the ECA. I uct used in' generation impact of an 8.6% increase in sales volume. Record cold expense was also lower in 19M5 than 198 4 due to a decrease m the amount recorded for potential customer refunds temperatures, an improved economy and total customer growth of 3% all contributed to this increase in electric sale 3. related to plant performance at Fort St. Vrain (See Note 11 An increase in base rates granted to the Company by the Replacement Power Penalty, in the Notes to Consohdated Financul $tatements). This charge to fuel expense was 52.2 CPUC and IFe recovery of increased energy costs through the ECA also contributed to the increase m 1984 electne milhon in 1985 compared to 55 8 million in 1984. In both 1985 and 19H e, higher purchased power expense revenues when compared to 1983 was attnbutable to increases m the amount of energy Significantly lower gas resenues in 1985 when compared to 1984 are primarily a result of a substantial decrease in gas purchased and higher unit costs for the energy purchased sales to customers, mainly in the industrul sector, and de. The increase in purchased power expense in 1985 more than clining gas costs from supphers, which are recovered through offset the decrease in fuel used in gencration expense, as the the gas cost adjustment (GCA) Warmer weather coupled with Company continues to take advantage of the availability of a slowing of economic growth in the service territory were relatively low cost power. the primary reasons for the t6% decrease in sales volume. Gas purchded for resale expense dccreased in 19X5 pri-Gas rever.ues wcre also affected, but to a lesser degree, by an manly due to the decreased volume of gas purchases and decreases m the unit cost of gas from supphers, in addnion, increasing number of industrial customers purchasing gas the decrease is also a result of the cifc(t of monthly adjust-directly from gas suppliers and utilinng the Company's distri. ments to gas purchased for resale expense wluch are made to bution facilities for transporting the gas. Transported gas revenues provide for a profit margm similar to trar on more closely match total gas costs with the amounts cur-industiial sales. Ilowever, since no cost of gas is recovered, rently recovered from (ustomers through the GCA. Despite revenues are much smaller. Ga3 revenues were higher in increases in gas dehsenes m 19+4, lower unit costs from gas supphers and the impact of $1"a milhon in FFRC mandated 1984 than in 1983 due to a substantial increase in gas dehveries and an mcrease in base rates granted to the refunds from supphers caused gas purt hned for resale to decrease when compared to 1983 Company by the CPUC. Although normal system expansion and general inflation Electric and gas operating revenues reficct the effects of are at a lower rate than in previous years, both contmue to rate increases and cost ad)ustment clauses on prices of units increase the cost of labor, materials and services w hich are sold. Operating revenues also reflect the volume thanges in reflected in the 1985 and 1984 other operating and numten-unit sales. The foregoing factors contnbuted to annual changes in revenues from revenues for the preceding year as ance expenses Also, as a tesult of extensive modificat ons indicated in the following table: and mamtenance activity at Iort st vrain (see Note 1I of Notes to the Consohdated Fnuncut Statements). operatmg and maintenance expenses associated with Fort St. Vrain were $56 2 million m 19H5 (ompared to 531 " milhon in 19H 4. The 19H5 mamtenante expense includes a $ 10 6 million nonrecurring ciurge for modifications to the reactor control rod metlunisms. Operating and nuint(nance expenses attnbutable to fort St. Vrain for 19H6 arc expected to be approxinutely the same as those in 19H5. In 1985, the significant decrease in mcome ines resulted primanly from the decrease in income before mcome taxes The signihunt de(rene in miscellaneous income and de-ductions net in 1985 is prinurily the iesult of two fatort First, the Company's temporary cash investments decreased 24

resuhing i1 decreased interest income. Secondly, premium common stock through the Company's Employee Stock expense associated with investmc6ts in a new insurance pro-Ownership Plan. The financing plans are subject to change gram resulted in an increase in miscellaneous deductions. depending on market and business conditions and changes, if Fort St. Vrain any, in the construction plans of the Company and its subsi-The operating performance of Fort St. Vrain and the rate-diiries. Plans for sales of securities beyond 1986 have not been formalized at this time. F making treatment of the plant by the cpl'C will continue to have a significant effect oa the Companis financial condition The construction estimates shown aN>ve are subject to L and results of operations. (See Note 1 I of Notes to the continuing review and adjustment. Actual expenditures may g Consolidated Financial Statements.) vary from such estimates due to factors such as changes in business conditions, environmental requirements, availability Impact of Inflation and Changing Prices and cost of labor and materials and,other costs. In addition, An analysis of the effects of inflation and changing prices is unless it appears that the Company s objectives for the fi-includell in the Notes to Consolidated Financial Statements. nancing of its construction expenditures in future years can (See Note 13 of Notes to Consolidated Financial Statements.) be attamed without significant common equity dilution from substantial sales of common stock below book v71ue, such Liquidity and Capital Resources estimated construction expenditures will be reduted. L'nder At December 31,1985, the Company and its subsidiaries esti-such circumstances, construction will be limited to commit-mated the cost of their construction program, including ments previously made, such as the installation of pollution AFDC and other capital requirements, in 1986,1987 and control equipment required to bring the Company s facilities 1988 to be as follows: into comphance with various governmental standards, regula-L tions or variances and to the maintenance of existing facihties. 1986 1987 1988 Not included in the above tables on capital requirements or Companp tnoud of Dollun sources of funds are amounts which would be necessary to Electrie refund to customers in the event that one or more of the Production 3 28,889 8 71,3M3 $ N4.M22 court cases pertaining to Fort St. Vrain Bee Note 1I of Notes Transmission 31,481 30.4M3 14.495 to the Consolidated Financial Statements) are decided against 1 Distnbution Hi,95H HI,717 74,598 the Company. Customer refunds at December 31,1985, for Gas 25,120 19,o46 21,906 the incentive Plan would be approximately $33.9 million. T General 39.250 38.0s9 36.37M iacluding interest, plus an additional amount of $8.9 million, Sut, total 206A98 240 Ax8 232.259 including interest, for the Replacement Power Penalty and subsidianes 37,586 54.248 49.002 between $27 and $46 milhon for amounts incurred in 19% I Total construction 244.284 294,936 2'tMol if the incentive Plan is overturned and the Replacement I.ess AFDC 7, *O 8,997 "' 71 $ Power Penalty is upheld, refund amounts will be lew. Add. Sinking funds and llearing dates on these cases are expected to be set in 1986. debt matunties 36,M6 54A3M 11.042 The outcome of the hearings or the timing of the refunds, if Add. Insurance premiums. Jpplicable, are unknown at this time. The Company has no PSR Investments. Inc. 20.361 20.361 20.361 current plans to Ole for a rate increase. Any refunds to cus-h tomers will require external financing The source of external re uir nts $293.521 33 m 938 8295.548 funds to be raised for such refunds will depend on market w' and business conditions at the time such refunds are required to l< made f The Company's objectives for the financing of these capital requirements include internal generation of at least one-half The Company's Indenture permits the issuance of additional of the funds required, maintenance of a sound capitahzation first mortgage bonds to the extent of N)% of the value of net structure consisting of not less than 40% common equity, additions to the Company's utihty property, provided net not more than 45% long-term debt and the balance in pre-earnings before depreciation, taxes on income and interest ferred stock, and the rnaintenance of high credit ratings for expense for a recent twelve month period are at least 2.5 E sts securities-times annual interest requirements on all bonds to be out-At December 31,1985, the Company and its subsidiaries standmg. At December 31,1985, the amount of net additions estimated that their 1986-1988 capital requirements would be would permit (and the net earnings test would not prohibit) met with funds provided from the following sources: the issuance of approximately $363,mM),0W of additional bonds at an assumed annual interest rate of 10 H9%. Cover- "N# 'I sources 1986 1987 19MM The Company,s R' estated Artic!cs of Incorporation prohthtt (Thomana. of twu2r$) the issuance of additional preferred stock without preferred External 5 M8,044 $ 46.932 $ 73,712 Net change in shareholder approval, unless the gross income available for short-term borrowings the payment of interest charges for a recent twelve month e_ period is at least 1.5 times the total of (i) the annual interest and mvestments 6A55 31 A35 ( t 4.722) Internal 17H,69,, 262,231 221,548 requirements on allindebtedness to be outstanding for more Insurance pohcy loans-PSRI 20.325 .0.340 15.010 all preferred sto(k to be outstanding. At December 31,19HS, { Total sources 8293.521 53m938 5295.54H gross income available under this requirement would permit c_ the Company to issue approximately $H57,Ou),000 of addi-At December 31,1985, the Company and its subsidiaries had tional preferred stock at an assumed annual dividend rate of temporary cash investments of $83,874,000 of which 11.55% Coverage at December 31,1985 was 3 25. $62,533,000 was dedicated to PSR Investments, Inc., a wholly-The Company's Restated Articles of Incorporation prohibit, owned subsidiary with its primary purpose being to segregate without preferred shareholder approval, the issuance or and manage permanent life insurance policies in order to pro-a.ssumption of unsecured indebtedness, other than for re-r vide funds for the Company's post retirement term insurance i obligations and other corporate requirements. Such amount is funding purposes, greater than 15% of the aggregate of ti) the total principal amount of all bonds or other securities F invested in short and intermediate-term money market invest-g ments for the purpose of paying the premiums on hie in-representing secured indebtedness of the Company, then out-g surance policies over the next seven years as such obligations standing, and (ii) the total of the capital and surplus of the come due. The balance of the temporary cash investments is Company, as then recorded on its books. At December 31, 1985, the Company had outstanding unsecured indebtedness, invested in various short-term money market investments. including subsidiary indebtedness with the credit support of During 1986, the Company and its subsidiaries expect to the Company, in the amount of $H7,013,000. The maximum incur approximately $6.5 million in short-term borrowing. In = addition, the Company and its subsidiaries anticipate raising amount permitted under this limitation was approximately r $ 292,000,000 at December 31,1985. external funds through the issuance of $50 million in First Arrangements for bank lines of credit totaled $65,000,000 = ? Mortgage Bonds, $35 million from the sale of secured long-at December 31,1985, at which time $64,100,000 was avail-E term subsidiary debt for which a private placement commit-able to the Company. (see Note 5 of Notes to Consohdated ment has already been negotiated, $2 million in unsecured Financial Statements.) subsidiary long-term debt and $1.1 million from the sale of 25 l

Decemter 31,1985 and 1984 g Putilic Service Company of Colorah and Subsiduries anlance Sheet Assets 1985 1984 (Thousands of Dollars) Property, Plant and Equipment, at cost: Electric $ 2,4 57,871 52,357,444 Gas 605,758 574,838 Steam and other 82,226 52,337 Common to all departments 203,502 177,229 Construction in progress 74,625 55,850 3,423,982 3,217,698 Less accumulated provision for depreciation 1.023.610 926,705 2,400,372 2,290,993 Nuclear fuel 73.676 64,171 2,471,048 2,355,164 I2vGCtments, at cost 21,184 4,892 Current Assets: Cash 8,747 11,302 Temporary cash investments 83,87a 128,057 l Accounts receivable, less provision for uncollectible l accounts (1985-55,685; 1984-54,566) 18i,494 170,366 Recoverable purchased gas and electric energy costs-net (Note 1) 33,315 34,685 Fuel inventory, at average cost 62,141 61,169 Materials and supplies, at average cost 59,735 54,948 Cas in underground storage, at cost (LIFO) 10,790 14,980 Prepaid expenses 7,906 2,850 Total Current Assets 457,062 478,357 Defstred Charges: Debt expense (being amortized) 9,446 8,315 Other 33,i18 20,620 42,564 28,935 Total Assets 52,996,858 $ 2,867,348 / See accompanying notes. 2F

l l l l Capital and Liabilities 1985 1984 (Thouunds of Dollare Common Equity: 1 Common stock (Note 2) 70~,4 29 $ 693,160 l Retained earnings 190,257 200,573 897,686 893,733 Preferred Stock (Note 2): Not subject to mandatory redemption 140,008 140,008 Subject to mandatory redemption at par 79,248 86,824 Long-Term Debt (Note 3) 928,241 883,188 2.045,183 2,003,753 Current Liabilities: Notes payable (Note 4) 1,850 2,875 Long-term debt due within one year 3,286 15,957 Preferred stock subject to mandatory redemption within one year (Note 2) ',576 2,576 Accounts payable 249So6 199,602 Dividends payable 30,281 28,949 Customers' deposits 9,080 7,908 Accrued taxes 66,505 71,444 Accrued interest 18.'35 18,178 Amount subject to refund (Note 12) 3,291 31,460 Rate refund liability (Note 11) 42,~59 6,652 Other 30,968 33,487 Total Current Liabilities in3,937 419,088 Deferred Credits: Customers' advances for construction 74.262 62,553 investment credit (being amortized over the productive lives of the related property) l'3,561 160,425 Accumulated deferred income taxes (Note 8) 165,331 147,893 Funds from Settlement Agreement (Note 11) 66.598 68,501 Other 5,986 5.135 485,73,' 444,507 Commitments and Contingencies (Notes 6 and 1 I) Total Capital and Liabilities $ 2,99 4.858 52,867,348 27

f975[9f4,,fi9 DSOhtd Public service Company Statement of or coloraao ano subsiaianes Income 1985 1984 1983 (Rousanas of Dollars Encpt Per Sharc Data) Operating Revenues: Electric $ 1,022,283 5 999,628 5 853,743 Gas 71.i.252 790,068 761,629 Other 10,948 12,328 13,269 1, P,683 1,802,024 1,628,641 Operating Expenses: Fuel used in generation 171,40' 188,889 172,802 Purchased power 203,0 F 161,928 98,978 Gas purchased for resale 532,o21 606,558 611,283 Other operating expenses .:91,' l 1 267,416 260,773 Maintenance 9; 3x6 72,475 64,123 Depreciation 101,302 96,883 91,577 Taxes (other than income taxes)(Note 9) o a. sol 60,051 55,847 Income taxes (Note 8) 101.2 " 137,504 93,763 1.661.555 1.591,704 1,449,146 Operating income 185.930 210,320 179,495 Other Income and Deductions: Allowante for equity funds used during construction (Note 1) 3.621 6,042 5,158 Miscellaneous income and deductions-net 3.'91 9,267 656 194,$i2 225,629 185,309 Interest Charges: Interest on long-term debt 'H,193 78,988 77,109 Amortization of debt discount and expense less premium 42 520 502 Other interest 6,600 4,513 4,866 Allowance for borrowed funds used during construction (Note 1) (2,610) (3,639) (3,547) X2.6-69 80,382 78,930 Net Income 110.693 145,247 106,379 Dividend Requirements on Preferred Stock 16.;92 16,661 16,661 Earnings Available for Common Stock 5 91.101 5 128,586 5 89,718 Shares of Common Stock Outstanding (thousands): Year-end 5/.333 51,632 49,182 Average 52,114 50,440 48,135 Earnings Per Average Share of Common Stock Outstanding 51 81 $2.55 51.86 Dividends Per Share of Common Stock: Paid 51 98 51,90 $ 1.82 Declared 52 00 $ 1.92 51.84 See accompanying notes. + 28 -. ~. -...

d Consolidated }9$', Ey'd $79g' 3 ,n Pubhc service Company Statement of or coiorado and subsiaianes Retained Earnings 1985 1984 1983 (Thousanan of Dollars) Retained Earnings at Beginning of Year $ 200.5 '3 $ 169,299 $ 168,517 Net Income I lo A93 145,247 106,379 311.2Ni 314,546 274,896 Dividends: On cumulative preferred stock: $100 par value: 4.20% series 120 420 420 4-l/4% series 7 a-a 744 744 4-1/2% series 293 293 293 4.64% series ~l 742 742 i 4.90% series '35 735 735 4.90% 2nd series '35 735 735 7.15% series 1,'81 1,787 1,787 7.50% series 2.205 2,250 2,250 8.40% series 2.832 2,890 2,890 12.50% series 3,ils 3.125 3,125 $25 par value: 8.40% series 2.9 to 2,940 2,940 16.558 16,661 16,661 On common stock: $2.00 per share in 1985,$1.92 per share in 1984 and $1.84 per share in 1983 104 +15 97.324 88,916 120.903 113,985 105,577 Other Deductions (Additions) - Net 100 (12) 20 121.009 113,973 105,597 Eetained Earnings at End of Year $ 190.2 5' $200.573 $ 169,299 see accompanying notes 29

Years ended December 31, Consolidated 1983,1984 and 1983 Public Service Con:pany StatementofSource or colorado and subsidianes of Funds For Plant Construction Expenditures 1985 1984 1983 Source of Funds: (Thousands of Dottars) Funds from Operations: Net Income 5 110,693 $ 145,247 $ 106,379 Non-cash Charges (Credits) Against Income Not Involving Working Capital in the Current Period: Depreciation charged to operating expenses 101,302 96,883 91,577 Depreciation charged to clearing and other accounts 13,112 10,860 9,005 Allowance for funds used during construction (6,237) (9,681) (8,705) Investment credit - net of amortization 13,136 11,498 10,403 Deferred income taxes 17,428 27,269 29,525 Funds from Operations 219,436 282,076 238,184 Dividends: On preferred stock (16,558) (16,661) (16,661) On common stock (104,345) (97,324) (88,916) Funds Retained in the Business 128,531 168,091 132,607 Funds from Financing - Net Proceeds: Proceeds from sale of common stock 14,164 41,041 35,719 Proceeds from sale of first mortgage bonds 49,06' Proceeds from sale of pollution control bonds 6,105 11,476 9,123 Proceeds from issue of long-term notes 46,549 8.124 8.782 Funds from Financing 115,885 60,641 53,624 F:nds from Settlement Agreement (Note 11) 23,586 38,601 Rduction in Long-Term Debt (58,133) (22,183) (24,322) Other Sources and Applications - Net (21,156) 10,854 16,788 Total Funds Availabic 165,127 240,989 217,298 Increase (Decrease)in Working Capital (66,144) 54,119 30,518 N:t Plant Construction Expenditures 231,271 186,870 186,780 All:.wance for Funds Used During Construction 6,237 9,681 8,705 Gross Plant Construction Expenditures 5 237,508 $ 196,551 $ 195.485 Increase (Decrease)in Components of Working Capital: Current Assets: Cash 5 (2,555) $ 1,068 (232) Temporary cash investments (44,183) 68,538 50,016 Accounts receivable 14,128 20,245 (20,587) Recoverable purchased gas and electric energy costs - net (1,370) (32,890) 8,207 Fuel inventory 972 6,921 (6,086) Materials and supplies 4,~87 3,832 2,255 Other 6,926 (957) 2,004 (21,295) 66,757 35,577 Current Liabilities: Notes payable and commercial paper (1,025) (16,915) (31,597) Long-term debt due within one year (12,671) (6,262) 19,930 Accounts payable 50.00 t 4,970 (340) Accrued liabilities (4,382) 5,105 (2,594) Other 12,923 25,740 19,660 + e,849 12,638 5,059 Increase (Decrease)in Working Capital 5 (66,144) $ 54,119 $ 30,518 See accompanying notes. l 30

l Notes to j Consolidated ( Financial ( Statements l

1. Summary of Significant Accounting Policies investment tax credits are deferred and amortized to income over the productive lives of the related Consolidation:

property. Current tax law enables the Company to The Company follows the practice of consolidating the claim an additional tax credit for contributions to the accounts of its significant subsidiaries. Employee Stock Ownership Plan. Contributions, which Depreciation policy: are based on the annual compensation of eligible employees, are made in cash or the Company's com-The Company and its subsidiaries, except Fue! mon stock and, if cash, are invested in the Company's Resources Development Co. (Fuelco), use straight line common stock. These additional tax credits for 198'5, depreciation for accounting purposes. Composite rates are used for the various classes of depreciable assets. 1984 and 1983 are based on one-half percent of the Depreciation rates include provisions for disposal annual compensation of employees covered by the plan. and removal costs of property, plant and equipment, Amortization of debt premium, discount and including the nuclear plant. Total depreciation expense expense in 1985 approximates an annual rate of 3.61% on the Debt premium, discount and expense is being amor-average cost of depreciable properties. Fuelco uses the tized by charges to income over the respective original unit-of-production depreciation method for accounting lives of the applicable issues. purposes. For income tax purposes, the Company and its subsidiaries use accelerated depreciation and other Allowance for funds used during construction elections provided by the tax laws. (AFDC): Pursuant to an order of the Public Utilities Commis-AFDC, which does not represent current cash earnings, sion of the State of Colorado (CPUC), the composite de-is defined in the system of accounts prescribed by the preciation rates include a provision for the cost of de-FERC and the CPUC as the net cost during the period commissioning the nuclear plant after its service life. f construction of borrowed funds used for construc. Funds equal to the provision for decommissioning costs ti n purp ses, nd a reasonable rate on funds derived fr m ther sources. In accordance with such sy stem of are transferred to an independent trustee and can be used only for the decommissioning of the nuclear plant. acc unts, the Company capitalizes AFDC as a part of Replacements and betterments representing units of the cost of utility plant, with a credit to nonoperating property are capitalized. Items that represent less than inc me f r the portion of AFDC attributable to equity units of' property are charged to operations as main-funds and a reduction of interest charges for the tenance. The cost of units of property retired, together p rtion of AFDC attributable to borrowed funds. The ~ with cost of removal, less salvage, is charged in full c pitalization of AFDC results in the mclusion of AFDC against the accumulated provision for depreciation. in rate base and the recovery thereof through future billings to customers. In an order dated November Income taxes: 1977, the CPUC directed that the Company is to capi-The Ccmpany and its subsidiaries file consolidated talize AFDC at its authorized rate of return, but not to state and federal income tax returns. Income taxes are exceed the amount allowed by the formula prescribed allocated to the subsidiaries based on separate by the FERC. Accordingly, the rate used by the company computations of taxable income or loss. Company in 1983 and for the first five months of 1984 l The Company and its regulated subsidiaries provide was 10.75%. For the last seven months of 1984 and for deferred income taxes to the extent allowed by for 1985 the rate used was 10.21% These rates repre-6 regulatory agencies, including deferred taxes arising sented the Company's authorized rates of return at that from the use of accelerated depreciation, accelerated time and did not exceed the amount allowed by the cost recovery, qualifying accelerated amortization and formula prescribed by the FERC. l timing differences due to deferred gas and electric costs. In addition, the Company provides for deferred Recoverable purchased gas and electric energy costs - net: taxes on book-tax timing differences arising from the Fort St. Vrain Nuclear Generating Station contract The Company, Cheyenne Light, Fuel and Power Com-settlement, from customer refunds not meeting the pany (Cheyenne), and Western Gas Supply Company economic performance test required by the Tax WestGas) recgver certain purchased gas and electric Reform Act of 1984 and for all book-tax timing energy costs, in mess of amounts recovered through differences included in Federal Energy Regulatory base rates, from their retail customers through various Commission (FERC) jurisdictional rates. In accordance gas and electric cost adjustment tariffs. These cost with the requirements of the Financial Accounting adjustment tariffs, which mclude a provision for the Standards Board (FASB),1480 Welton, Inc., Fuelco, Bannock Center Corporation and PSR Investments, Inc. provide for deferred taxes arising from all book-tax timing differences. 31 L

( Notes to l Consolidated Financial Statements (Cont'd) collection of deferred purchased gas and electric which customers have used but for which they have energy costs, are revised periodically as prescribed by not been billed. the appropriate regulatory agencies. The deferred costs Revenues: are the difference between actual costs incurred and The Company reads customers' meters on a cycle the amounts currently recovered from customers. A basis, and renders bills cach month. Revenues are substantial portion of this deferred amount represents recorded when the customers are billed. the costs incurred to provide gas and electric energy

2. Capital Stock 1985_

19M4 Shares Amount Shares Amount (Thousands (Thousands of Dollars) of Dollars) Cumulative preferred stock, $ 100 par value: Authorized 3,000.000 3,000,000 Issued and outstanding: Not subject to mandatory redemption: 4.20% series 100,000 5 10,000 100.000 $ 10,000 4-% % series (includes $7,500 premium) 175.000 17.508 175,000 17.508 4-% % series 05,000 0.500 65,000 6,500 4.64% series 100,000 16,000 160,000 16,000 4.90% serie3 150.000 15.000 150.000 15,000 4.90% 2nd series 150,000 15.000 150,000 15,000 7.15% series 250.000 25.000 250,000 25,000 Total 1.050.000 $ 105.008 1,050,000 $ 105,008 Subject to mandatory redemption: 7.50% series 2H8,000 5 28,800 300,000 5 30,000 8.40% series 330.210 33,021 344,000 34,400 12.50% series 250,000 25.000 250,000 25,000 868.240 86.H2 a H9 6,000 89,400 Less: Preferred stock subject to mandatory redemption within one year F5,~60j F.5~6) (25,760) (2,576) Total 92.4x0 5 ~9.218 868,240 $ 86,824 Cumulative preferred stock ($25), $25 par value: Authorized 9.000,000 4,000,000 Issued and outstanding: Not subject to mandatory redemption: 8.40% series 1.100.000 5 35.000 1,400,000 $ 35,000 Common stock, $5 par value: Authorized H0,000.000 80,000,000 Issued and outstanding 52,332.61' 5261,663 51,632,451, 5258,162 Premium on common stock 115, % 434,998 56 _- _93_,160 Total 5'O'.429 32

r = = 5 h-5 Changes in common stock and premium on common Premium E stock for the three years ended December 31,1985 are Price range Common on common E as follows: per share stock stock (Thousands of Dollars) { Balance, January 1,1983 5235.098 $ 381,248 i 1,990,151 shares sold under Dividend Reinvestment Plan $15.79 to 18.25 9,951 22,918 d 172,474 shares sold under Employee Stock Ownership Plan $16.69 to 17.69 862 2,038 Balance, December 31,1983 245,911 406,204 _5 2,450,298 shares sold under Dividend Reinvestment Plan $15.85 to 18.44 12,251 28,791 g Balance, December 31,1984 258,162 434,998 g 700,166 shares sold under Dividend Reinves: ment Plan 519.00 to 21.25 3,501 10,768 Z Balance, December 31,1985 5261,663 $ 445,766 During 1986, the Company must offer to repurchase Subject to mandatory redemption: g 12,000 shares of the 7.50% cumulative preferred series 7.50% series: $104.50 on or prior to August 31,1986, y and 13,760 shares of the 8.40% cumulative preferred reducing each year thereafter by 5.25 per share until E series subject to mandatory redemption at $100 per August 31,2003, after which the redemption price is share plus accrued dividends to the date set for $ 100; 8.40% series: 5104.75 on or prior to July 31, g repurchase. Additionally,50,000 shares of the 12.50% 1986, and reducing each year thereafter by 5.25 per g cumulative preferred series must be rel,archased at share untilJuly 31,2004, after which the redemption i 5100 per share plus accrued dividends to the date set price is $100; 12.50% series: $104.17 on or prior to s for repurchase. Consequently, this preferred stock to June 30,1986, 3103.13 on or prior to June 30,1987, G be redeemed has been classified as preferred stock 5102.09 on or prior to June 30,1988, and $101.05 on y subject to mandatory redemption within one year. or prior to June 30,1989, after which the redemption 5 During 1985, the Company repurchased 12,000 shares price is $ 100. g of the 7.50% cumulative preferred series and 13,760 In 1986 and in each year thereafter, the Company shares of the 8.40% cumulative preferred series subject must offer to repurchase up to 12,000 shares of the g to mandatory redemption at $100 per share. During 7.50% series at $100 per share, plus accrued dividends E D84, the Company offered to repurchase 12,000 to the date set for repurchase, and up to 13,760 shares shares of the 7.50% cumulative preferred series sur 'ect of the 8.40% series at $100 per share, plus accrued E to mandatory redemption at $100 per share plus dividends to the date set for repurchase; starting in g accrued dividends to the date set for repurchase, hc w-1986 and in each year thereafter, the Company must g ever, the offer was not accepted and the shares of t x set aside in a sinking fund an amount sufficient for the preferred stock were not repurchased. No other redemption of 50,000 shares of the 12.50% series and E changes in preferred stock occurred in the three years must redeem the shares at $100 per share, plus E ended December 31,1985. accrued dividends to the date set for redemption. The The preferred stock may be redeemed at the option Company shall be entitled, at its option, on any one of y of the Company upon at least 30, but not more than the sinking fund redemption dates, to redeem up to 5 60, days' notice in accordance with the following 50,000 shares of the 12.50% series, in addition to the 5 schedule of prices plus an amount equal to the accrued shares otherwise required to be redeemed on such = dividends to the date fixed for redemption: sinking fund redemption date, at $100 per share plus M an amount equal to the accrued and unpaid dividends $ 100 par values ut thereon to such sinking fund redemption date; pro-y Not subject to mandatory redemption vided, however, that the option of the Company to so E 4.20% series: $101; 4-1/4% series: $ 101; 4-1/2% redeem up to 50,000 additional shares of the 12.50% g series: $101; 4.64% series: $101; 4.90% series: $101; series may be exercised only once. 4.90% 2nd series: $101; 7.15% series: s102.50 prior to March 1,1987, and $100 on and after that date. $25 par value: Not subject to mandatory redemption: 8.40% series: 526.50 prior to December 1,1986, $25.75 thereafter but prior to December 1,1991, and $25.25 on or after that date. g ' fp i E 'A V @W; E- _. _ _..... dM 3

Notes to Consoudated Finmacial Statements (Cont'd)

3. Long-Term Debt 1985 1984 (Thousands of Dollars)

Public Service Company of Colorado: First mortgage bonds: 15% series, due March 1,1987 s s 50,000 4-3/8% series, due May 1,1987 30,000 30,000 4-5/8% series, due May 1,1989 20,000 20,000 4-1/2% series, duc October 1,1991 30,000 30,000 4-5/8% series, due March 1,1992 H 800 8,800 4-1/2% series, dueJune 1,1994 35,000 35,000 5-3/8% series, due May 1,1996 35,000 35,000 5-7/8% series, due July 1,1997 35,000 35,000 6-3/4% series, dueJuly 1,1998 25,000 25,000 i 8-3/4% series, due September 1,2000 35,000 35,000 7-1/4% series, due February 1,2001 40,000 40,000 7-1/2% series, due August 1,2002 50,000 50,000 7-5/8% series, dueJune 1,2003 50,000 50,000 9-3/8% series, due October 1,2005 49.500 49,500 8-1/4% series, due November 1,2007 50,000 50,000 9-1/4% series, due October 1,2008 50,000 50,000 16-1/4% series, due December 1,2011 48,500 49,000 13% series, due March 1,2015 50,000 Pollution Control Series A,5-7/8%, due March 1,2004 24,000 24,000 Pollution Control Series B: 7-1/8%, due December 1,1990 2,000 2,000 7-5/8%, due December 1,1995 2,500 2,500 8%, due December 1,2004 35,000 35,000 Pollution Control Series C: 7-1/4%, due October 1,2004 15,000 15,000 7-3/8%, due October 1,2005 1,960 1,960 7-3/8%, duc October 1,2006 2,105 2,105 7-3/8%, due October 1,2007 2,260 2,260 7-3/8%, due October 1, 2008 2,425 2,425 7-3/8%, due October 1,2009 26,250 26,250 Pollution Control Series D: 13-3/4%, due November 1, 2011 27,380 27,380 Less amounts held in construction fund (479) (479) Pollution Control Series E: 9-1/8%, due May 1, 2013 42,000 42,000 Less amounts held in construction fund (13,610) (19,715) Unamortized premium 1,010 1,091 Unamortized discount (1,099) (1,145) Capital lease obligations, 10.88%-18.25%, due in installments through April 1,1995 a,096 4,331 814.598 809,263 Cheyenne Light, Fuel and Power Company: First mortgage bonds: 51/2% series, due April 1,1990 1,228 1,253 7-7/8% series, due April 1,2003 4,000 4,000 Unsecured notes payable, due December 31,1988, interest rates are based on the certificate of deposit rates at Northern Trust Company 2,250 10.70% unsecured notes payable, due September 1,1995 H,000 34

7 I l l l 1985 1984 (Thouunds of Dollare Western Gas Supply Company: Unsecured promissory notes: 10%, due September 25,1986 1 7-3/4%, due December 1,1997 20,000 20,000 10.35%, due December 1,1999 H M <> 9,333 11.60%, due Stay 1,2015 5,000 12.875%, due Slay 1,2025 10,000 Unamortized discount (36) 1480 Welton, Inc.: Unsecured note payable, due December 31,1986, interest rate fluctuates with the New York Federal Funds rate 1-',680 4-3/4% secured notes, payable in equal quarterly installments of $ 168,388 to June 1,1992 covering principal and interest 3,243 3,748 12.50% secured promissory note, due March 1,1998 12,415 12,890 7-1/2%-12% mortgage notes, duc in installments through 1987 146 135 10% unsecured promissory notes, due in annual installments through October 3,1988 484 726 Fuel Resources Development Co.: Unsecured note payable, due January 1,1987, interest rate fluctuates with the New York Federal Funds rate 2,300 3,600 Home Light and Power Company: First mortgage bonds: 4% series, due February 1,1986 348 5-1/2% series, due September 1,1989 305 313 6% series, due April 1,1997 657 672 7-7/8% series, due December 1,2002 2,013 2,050 10-3/8% series, duc January 1,2003 3,340 3,400 Bannock Center Corporation: Unsecured note payable, duc June 30,1987, interest rate fluctuates with the New York Federal Funds rate 12,850 6,950 5-1/8 14% mortgage notes, due in installments through July 1,1992 1,683 2,256 5928,241 5883,188 The 1480 Welton, Inc. unsecured note payable due The aggregate annual maturities and sinking fund I December 31,1986, in the amount of $17,680,000 was requirements during the live years subsequent to classified as long-term debt because 1480 Welton, Inc. December 31,1985 are: 56,684,000 (1986), 536,421,000 has entered into a financing agreement whereby this (1987), $6,461,000 (1988), f 26,306,000 (1989) and note will be replaced with a 30-year mortgage bond 58,364,000 (1990) for the Company; and $4,050,000 during 1986. (l986), 518,170,000 (l987), $2,934,000 (l988), Substantially all properties of the Company and its $2,525,000 (1989) and $3,498,000 (1990) for its subsidiaries, other than expressly excepted property, subsidiaries. The Company may satisfy its sinking fund are subject to the liens securing the Company's First obligations through the application of property addi-l Mortgage Bonds or the mortgage bonds and notes tions, and Cheyenne may satisfy 360,000 of its sinking l l of subsidiaries. fund obligation annually through the application of property additions. l 1 35

Notes to Consolidated Financial Staternents (Cont'd)

4. Notes Payable Information regarding notes payable for the years ended December 31,1985 and 1984, is as follows:

1985 1984 (Thousands of Dollars) Notes payable to banks (weighted average interest rate 11.59% at December 31,1985 and 9.55% at December 31,1984) 51,850 52,875 Slaximurn amount outstanding at any month-end during the period 50,990 55,850 Weighted average amount (based on the daily outstanding balance) outstanding for the period (weighted average interest rate 8.85% for the year ended December 31,1985 and 11.03% for the year ended December 31, 1984) 53,211 53,674

5. Bank Lines of Credit and method (from the Aggregate Cost Alethod to the Pro-Compensating Bank llalances jected Unit Credit Method) and certain actuarial Arrangements for bank lines of credit totaled awumptions used in computing pension cost. The new 565,000,000 at December 31,1985 and 1984, and actuarial method results in an annual pension expense were maintained entirely by fee payments in lieu of which more ap,ropriately matches the costs of pro-jected retiremtat benefits to the year in which such compensating balances. The Company had no con.

benefits are earned. The effect of these changes was to firmed uncommitted lines of credit outstanding at December 31,1985 or at December 31,1984. The Com. reduce 1985 pension expense by 510.4 million and increase net income by $4.3 million (8 cents per pany generally may borrow under uncommitted pre, share). The Company's policy is to fund pension cost approved lines of credit upon request, however, the banks have no firm commitment to make such loans. accrued, subject to the Internal Revenue Service funding limitations rule. A comparison of accumulated plan benefits and plan net assets as of the end of the

6. Commitments and Contingencies plan's fiscal years, June 30,1985 and 1984, is Commitments made for the purchase of various items presented below:

of plant and equipment aggregated approximately 591,000,000 at December 31,1985. 3935 3934 The Internal Revenue Service has completed an tThousands or oottaro examination of the federalincome tax returns of the ^""UI P'C'C"' V'I"# "I Company and its subsidiaries for the years l'/70 through 1979. The audit results for 1970 th.ough 1974 a]u[nu aied plan benentt g 5, g3g g9 and 1976 are in the litigation process while the tax Nontested 16.000 14,100 years 1975, and 1977 through 1979 are in various. .,.g g y,g g 3gg stages of appeals within the internal Revenue Service. The examiners propose to include in mcome, contract Market value of net assets available for benefits $ 285. 4 50 5220.233 refunds on the Fort St. Vrain Nuclear Generating Station which were recorded prior to 1979 as a reduc-The weighted average assumed rate of retum used in tion of the plant cost, and part of the amounts re. determining the actuarial present value of accumulated ceived in the 1979 contract settlement for this plant (see Note 11). The Company is resisting these proposals plan benefits was 9% %. The actuarial present value of accumulated plan benefits is generally based on and believes that the final outcome of these matters will not have a material effect on the reported financial employees' history of pay and service and other ap-propriate factors as of the benefit valuation date and position or results of operations of the Company. does not include anticipated future increases in em-plovec compensation. Evaluations of accumulated plan

7. Postretirement lienefits ben'efits as of December 31,1985 and 1984, were not Total provision for pension expense under the Com-made. Ilowever, the market values of the net assets pany's noncontributory defined benefit retirement plan available for benefits at these dates were approximately covering all eligible employees was $8,600,000 in 5 308,0 i8,000 and $ 252,106.000, respectively.

1985, 519,116,000 in 1984 and $ 18,495,000 in 1983 In addition to providing pension benefits, the Com. In 1985 the Company changed the actuarial cost pany and its subsidiaries provide certain health care 36

i i and life insurance benefits for retired employees. Sub-in 1984)is not separable from the cost of providing stantially all of the Company's employees become eli-benefits for the active and disabled employees (7,171 gible for these benefits if they reach either early or ' in 1985 and 7,013 in 1984). normal retirement age while working for the Company. The cost of providing health care and life insurance

8. Income Tax Expense benefits to active, retired and disabled employees, Total income tax expense was different from the which is expensed as either claims or insurance pre-miums are paid, amounted to 521,398,000 in 1985 and amount computed by applying the federal statutory

$16,973,000 in 1984. The cost of providing these bene' rate to pre-tax accounting income. The reasons for this difference are as follows: fits for the retired employees (1,644 in 1985 and 1,539 1985 1984 1983 Ohousands of Dothrs) Tax computed at statutory rate on pre-tax accounting income 5 97,506 $ 130,064 592,037 increase (decrease) in tax from: Difference between tax and book depreciation 8,496 7,425 6,492 Allowance for funds used during construction (2,834) (4,439) (3,940) Amortization of investment credit (6,776) (6,233) (5,666) State income taxes, net of federal income tax benefit 4,949 6,383 3,829 Other - net (64) 4,304 1,011 Total income tax expense $ 101,277 5137,504 $93,763 Income tax expense consists of the following: Current income taxes: Federal 5 63,806 8 89,869 $48,418 State 6,907 8,868 5,417 70.713 98,737 53,835 Deferred income taxes: Fort St. Vrain contract settlement 182 (861) 28 Accelerated amortization 1,511 1,032 1,069 - - Accelerated depreciation 31,346 29,716 28,911 Intangible drilling costs (122) 280 144

1. ease and well impairments - net (316)

(308) (1,749) Capitalized interest 30 15 513 Other book-tax timing differences 1,146 (9) 609 Fort St. Vrain potential customer refunds (16,349) (2,596) { 17,428 27,269 29,525 Charge equivalent to reduction in income taxes due to deferred investment tax credit, net of amortization 13,136 I1,498 10,403 Total income tax expense $ 101,277 $ 137,504 893,763 The Company has state investment tax credit carry-was $446,859,000. The tax effect of this amount is not overs totalling 53,048,000, expiring in 1991 and 1992, recorded currently as regulatory commission procedures available to offset future state income taxes. will result in such costs being charged to customers Deferred tax p ovisions are not recorded on certain when the timing differences reverse and the tax effects I book-tar timing differences. As of December 31,1985, are paid. the cumulative net amount of such timing differences 37

Notes to Consolidated Financial Statements (Cont'd)

9. Taxes (Other Than income Taxes) 1985 1984 1983 (Thousands of Dollars)

Real estate and personal property taxes $ 38,598 $ 36,460 $36,332 Franchise taxes 2,628 1,062 952 Social security taxes 15,698 14,764 13,403 City and state use taxes 5,478 5,631 4,713 Aliscellaneous taxes 5,981 5,699 3,628 $68.383 $63,616 $ 59,028 Charged: Directly to income: Operating expenses $64,802 $60,051 $ 55,847 Other 495 542 160 To property, plant and equipment and various clearing accounts 3,086 3,023 3,021 $ 68.38 5 $63,616 $ 59,028

==

10. Segments of Ilusiness Segment information for the year ended December 31, 1985 is as follows:

Electric Gas Other Total (Thousands of Dollars) Operating revenues $ 1,022,283 $ 714,252 510,948 $ 1,747,483 Operating expenses, excluding depreciation 715,117 639,445 4,412 1,358,974 Depreciation 79,265 20,071 1,966 101,302 Total operating expenses 794,382 659,516 6,378 1,460,276 Operating income * $ 227,901 5 54,736 3 4,570 $ 287,207 Plant construction expenditures * * $ 166,500 $ 46,372 $24,636 $ 237,505 Identifiable assets, December 31, 1985: Utility plant * * $ 1,941,328 $433,169 $99,551 $ 2,474,048 Afaterials and supplies 5 51,818 $ 7,891 5 26 59,735 Fuel inventory 5 61,946 195 62,141 Gas in underground storage 5 3 16,790 16,790 382,144 Other corporate assets $ 2,994,858 Before income taxes

• • Includes abcation of common utihty property 38

l Segment information for the year ended December 31, 1984 is as follows: Electric Gas Other Total (Thousands of Dollars) Operating revenues 5 999,628 $790,068 812,328 81,802,024 L Operating expenses, excluding depreciation 644,025 708,467 4,825 1,357,317 Depreciation 76,368 18,898 1,617 96,883 Total operating expenses 720,393 727,365 6,442 1,454,200 Operating income' 8 279,235 8 62,703 5 5,886 5 347,824 Plant construction expenditures"- $ 142,495 8 45,152 $ 8,904 5 196,551 Identifiable assets, December 31,1984: Utility plant' 51,863,856 3414,346 876,962 $2,355,164 Materials and supplies 5 47,402-8 7,511 8 35 54,948 Fuel inventory 8 60,897 5 272 61,169 Gas in underground storage 3 14,980 14,980 Other corporate assets 381,087 82,867,348 Segment information for the year ended December 31, 1983 is as follows: Electric Gas Other Total (Thousands of Dollars) Operating revenues 5 853,743 $761,629 8 13.269 $ 1,628,641 Operating expenses, excluding depreciation 544,488 711,756 7,562 1,263,806 Depreciation 72,355 17,485 1,737 91,577 Total operating expenses 616,843 729,241 ~ 9,299 1,355,383 Operating income' 8 236,900 $ 32,388 5 3,970 5 273,258 Plant construction expenditures" $ 142,536 5 43,427 8 9,522 8 195,485 Identifiable assets, December 31,1983: I Utility plant' 31,822,204 $394,047 $ 70,049 52,286,300 i Materials and supplies 8 43,475 $ 7,608 5 33 51,116 Fuel inventory 5 54,080 s s 168 54,248 Gas in underground storage 3 15,901 5 15,901 Other corporate assets 308,634 $2,716,199

• Before income taxes
  • Includes allocation of common utihty property l

l l l l 39

Notes to l Consolidated } Financial l Statements (Cont'd)

11. Fort St. Vrain Nuclear Generating Station Rate Refund Liability:

Potential customer refunds at the end of 1985 in accor-Settlement Agreement: dance with the Replacement Power Penalty and the On June 27,1979, the Company and the prime con-Incentive Plan, which are discussed below, have been tractor for the Fort St. Vrain Nuclear Generating recorded as a current liability on the consolidated Station (Fort St. Vrain), General Atomic Company balance sheet. Reclassifications have also been made in (GAC), entered into a Settlement Agreement, a Services the 1984 consolidated balance sheet and statement of Agreement and a Fuel and Fabrication Agreement satis-source of funds for plant construction expenditures to fying and settling all contracts and claims between the reflect the corresponding potential customer refunds at Company and GAC relative to Fort St. Vrain. Among other things, the terms of these Agreements include the end of 1984 as a current liability. These reclassifi-the following: (a) GAC paid to the Company $60,000,000 cations have been made for comparative purposes and have no effect on net income. as an adjustment of the plant cost for the reduction in the plant's capacity from 330 Alw at 80% capacity

• Replacement Power Penalty:

factor to 200 51w at 60% capacity factor; and (b) GAC The CPUC, in conjunction with its regularly scheduled contributed to the Company, between 1980 and 1984 Electric Cost Adjustment (ECA) hearings, conducts $97,050,427 for the cost of replacing the 130 51w reduc-examinations of all energy costs, including those that tion in capacity at Fort St. Vrain with future electric relate to replacement power deemed to be necessary generation facilities. Funds received from GAC per when generation from Fort St. Vrain falls below a item (b) and not yet expended have been recorded as specified level of production, as discussed in greater deferred credits on the consolidated balance sheet. detail below. 12 vestment in Fort St. Vrain:

• Ganuary-February 1983)

At December 31,1985, the Company's investment in licarings were held in September 1983 regarding the Fort St. Vrain is as follows: ECA for the period December 1982 through February Net property, plant and equipment $ 131,929,000 1983. The main issue in these hearings was the alleged Nuclear fuel 73,676,000 excessive purchased power costs incurred by the Com-Nuclear Regulatory Commission man-pany due to the substandard Fort St. Vrain generation dated seismic pipe and hanger study 17,942.000 during January and February 1983. As a result of these $223,547,000 hearings, the CPUC issued an order dated Starch 6,1984, which imposed a penalty (the " Replacement Power Realization of the Company's investment in Fort St. Penalty"), Under this penalty the CPUC ordered the Vrain is dependem on future events, including Nuclear Company to refund $526,326, plus $65,148 in interest, Regulatory Commission (NRC) authorizations, attain-for the failure of Fort St. Vrain to generate at a speci-ment of operating levels significan:ly greater than in f:ed level during the months ofJanuary and February the past and the settlement of regulatory and legal 1983. Operations at Fort St. Vrain during December issues related to the regulation by the CPUC of amounts 1982 were covered under the 1981 1982 Capacity chargeable to customers. Factor Test discussed below. The refund amount was Decommissioning: determined in accordance with the CPUC Staff's Pursuant to an order of the CPUC, the composite de-formula which sets the specific level of performance preciation rates include a provision for the cost of equivalent to a 53.15% annual capacity factor based decommissioning Fort St. Vrain after its service life, in on a 200 51w generation level. This amount was 2008. This method is currently providing approx-refunded to customers through the Company's ECA imately $1 million annually, which funds are main-during 51ay 1984. tained by an independent trustee. The balance in the

• (March 1983-October 1984) fund as of December 31,1985 is $5 million. Ilased on IIcarings were held inJune 1984 and August 1985 a study prepared by the Company, it is estimated that regarding the Company's ECA for the period Starch approximatel) $93.5 million (in 1985 dollars) will be 1983 through October 1984. The main issue was the needed to decommission the plant.

same as in the previously referenced hearings. The CPUC Staff recommended that the Company refund approximately $7.5 million, plus interest, for excess 40

replacement power costs for the period March 1983 sold to the Company by a cogenerator or small power through October 1984. The CPUC Staff further recom-producer. For any period in which Fort St. Vrain fails mended that the Replacement Power Penalty continue to produce sufficient energy valued as set forth above, to be incorporated into the monthly calculation of the the Company would be required to refund the differ-ECA during the period in which the decision by the ence on a monthly basis through the ECA. Accordingly, Supreme Court of the State of Colorado (Colorado the refund calculation, which is intended to take the Supreme Court) regarding the incentive Plan, which is place of the Replacement Power Penalty mechanism, is discussed below, is pending. For the period com-being applied commencing November 1,1984. The mencing November 1,1984, this formula was replaced Company filed an appeal with the Denver District by the calculation set forth in the incentive Plan, Court and obtained a stay of the CPUC's decision. On charges for which have been recorded in the Com-appeal by the Company, in March 1985 the Denver pany's books as discussed below. If, however, the District Court set aside the incentive Plan finding that Incentive Plan is ultimately reversed by the courts, the it was not clearly reflected in the record that the CPUC Replacement Power Penalty may remain in force for had considered the benefits received by ratepayers by periods after October 1984. reason of the payments made to the Company by GAC InJuly 1985 the Company appealed the CPUC order pursuant to the Settlement Agreement referred to to the District Court in and for the City and County of above. The CPUC and intervenors have appealed the Denver (Denver District Court) contesting, first, the case to the Colorado Supreme Court, and the Com-imposition of the Replacement Power Penalty and, pany has cross-appealed on certain issues. The second, the CPUC Staff's methodology in calculating Company has continued to record the liability. the Replacement Power Penalty. In December 1985 If the Incentive Plan is eventually upheld by the the Denver District Court affirmed the CPUC order. 'urts, the Company's refund exposure is calculated as The Company intends to appeal to the Colorado follows: atw oximately $320,000 for November 1984, Supreme Court. increasing b Lerements of approximately $320,000 Of the Replacement Power Penalty amounts dis-per month op to a monthly maximum of approximately cussed above, $5.8 million and $2.2 million were 53.8 million beginning in October 1985. As long as recorded as charges against fuel used in generation Fort St. Vrain is nonoperational, the refund exposure expense during 1984 and 1985, respectively. The 1985 will continue to be approximately $3.8 million per charge to fuel used in generation expense represents month, which would total approximately 516 million if the difference between the Company's method and the the plant did not operate for a full year. The actual CPUC Staff's method for implementing the potential amount to be refunded to customers through the ECA refund, as affirmed by the December 9,1985 decision is contingent upon the performance of Fort St. Vrain. of the Denver District Court. Charges to interest ex-Once Fort St. Vrain generates electricity, the refund pense, relative to the Replacement Power Penalty, were exposure will decline based on the plant's 12 montn 50.5 million and $1 million for 1984 and 1985, performance record in accordance with the incentive respectively. Plan. The Company estimates that it can avoid a o Incentive Plan: refund exposure during a rolling 12 month period by In response to Fort St. Vram. 's historically reduced achieving the energy equivalent of a 54% capacity levels of generation, on August 8,1984, the CPUC factor at a 200 Mw generation level for such period. issued a decision requiring potential refunds through During 1983, Fort St. Vrain achieved an average 42.7% the Company's ECA for periods when the revenues capcity factor at a 200 Mw generation level (excluding collected under base rates attributable to Fort St. Vram. any allowances for scheduled downtime), the highest exceed the value of the energy produced by the plant average capacity factor achieved in any calendar year. during such period (the " Incentive Plan"). Under the However, during the twelve months ended October 31, Incentive Plan, such energy is valued at the same 1981, Fort St. Vrain achieved an average 54.7% avoided cost rate as an equivalent amount of energy capacity factor at a 200 Mw generation level (excluding my allowances for scheduled downtime), which was the highest average capacity factor achieved to date. The Company believes that, after being restarted, the plant will be able to operate at levels significantly greater than in the past. 41

Notes to Consolidated Financial [ Staternents (Cont'd) b The 1984 electric operating revenues were reduced the December 1980 rate decision, the CPUC ordered by a charge of approximately $1 million to cover po-the Company :o refund to customers the Company's tential refunds for the months of November and Decem-earnings from its investment in Fort St. Vrain if Fort St. ber 1984. In 1985, $32 million was recorded as a charge Vrain failed to operate at an average capacity factor of 1 against electric operating revenues to reflect this refund 50%, based on 200 Mw (excluding scheduled down-exposure. Interest expense associated with the incen-time), over a 12-month period between January 1, [ tive Plan Penalty recorded in 1985 was $1 million. 1981 and December 31,1982. In November 1983, the L CPUC found that Fort St. Vrain had mct the capacity Operations: factor test and ordered the Company discharged of Fort St. Vrain did not generate electrici'y for most of refund liability. Ilowever, intervenors appealed the 1984 and all of 1985 due to a scheduled refueling CPUC decision to the Denver District Court which operation, engineering modifications and environ' overruled the CPUC, exposing the Company to a mental qualification activity. The refueling and the potential refund liability of $23 million. The Company 7 { engineering modifications have been completed. The has appealed the decision of the Denver District Court environmental qualification activities discussed below to the Colorado Supreme Court. The Colorado are continuing. Supreme Court is also considering various other

• Environmental Qualification:

matters relating to the December 1980 rate decision on During 1985, the Company became involved with the appeal by the Company and the intervenors. The NRC on the issue of environmental qualification of cer. intervenors are contesting, among other things, the tain electrical equipment at Fort St. Vrain, which pre-inclusion of Fort St. Vrain in rate base and the vented the Company from resuming electrical gener-recovery of related operating expenses. P ation at the plant. The Company proceeded with

• Complaint by Office of Consumer Counsel:

environmental qualification work and, even though On November 7,1985, the Colorado Office of Con-this work is not completed, the NRC did, by letter sumer Counsel (the "OCC") filed a complaint with the dated February 7,1986, authorize the Company to CPUC against the Company alleging, among other operate Fort St. Vrain at up to 35% of full power things, that, in light of its operating history, Fort St. g (approximately 110 Mw) until May 31,1986.The Vrain is not "used and useful" in rendering a utility Company is proceeding to complete this environ' service. The OCC seeks to remove Fort St. Vrain from g-mental qualification work so that its authorization to the Company's rate base so that the Company would operate at full power can be restored. The Company no longer be able to collect its previously established g cannot predict when the NRC will authorize power annual revenue requirement of approximately $46 levels above 35% nor when such levels can be million with respect to Fort St. Vrain. The OCC recom- { attained by Fort St. Vrain. mended that, if the Company were able to operate r

• Water Ingress:

Fort St. Vrain and it provided useful power to the The ingress of water into the Fort St. Vrain primary Company's electric system, the Company be allowed system is a recurring problem that has occurred under to buy electric output of Fort St. Vrain at some speci-i F certain plant upset conditions. The presence of fied rate and to recover the purchase expense tnrough moisture in the primary system has two adverse ef-the ECA. The Company filed a motion to dismiss, fects; it can be detrimental to core internal mech-which was denied. The CPUC has set the complaint 1 anisms and it contributes to plant downtime because, for hearing in October 1986. The Company cannot until most of the moisture is removed, Fort St. Vrain predict the outcome of this proceeding. If the issues cannot be operated at power levels high enough to raised are not resolved in a manner satisfactory to the generate electricity. Engineering modifications have Company, the Company will seek judicial review. been made to minimize this problem. The Company

• NuhIm e cannot predict to what extent this prob!cm may recur p

g, in the future. ability of a licensee of a nuclear power plant to $650 h Other Regulatory and Legal Matters: million for a single nuclear incident. Coverage of the first $160 million of this potential liability is provided 1980 Rate Case /1981 1982 Capacity by private insurance (the maximum amount available) with the remainder being provided by indemnity tS. rat was first included in the Company's rate base in a general rate case in December 1980. In that greements with the NRC. In the event of a nuclear =- in dent involving any commercial nuclear facility in rate decision, the CPUC allowed the Company to col-lect approximately $39 million of revenues (an amount B subsequently increased to $46 million) to cover oper-ating expenses and provide a return on investment. In E 42

the country that results in damages in excess of the llandy-Whitman Index of Public Utility Construction private insurance, the Company could be assessed Costs. Current Cost adjusted information indicates retrospective premiums up to 55 million per incident, how the Company has been affected by the increased l but not more than $10 million in any calendar year for cost of maintaming its existing productive capacity. multiple incidents. The specific pdecs of the Company's assets may have In addition, the Company maintains $1.02 billion in increased more or less than prices in general. I property insurance. Coverage of the first $585 million While the ratemaking process gives no recognition of this potential liability is provided by private insur-to the current cost of replacing property, plant and ance with the remaining $435 million being provided equipment, based on past practices, the Company by a mutual insurance company, Nuclear Electric believes it will be allowed to earn on the ircreased Insurance Limited 11 (NEIL 11). Under the NEIL 11 cost of its net investment when replacement of policy, the Company is subject to retrospective pre-facilities actually occurs. mium assessments if losses exceed the accumulated As shown in the following statement, income from funds available to the insurer. The present maximum continuing operations under the Current Cost method assessment for incidents occurring during a policy year is lower than that determined under the historical cost is approximately $5.9 million, method used for the primary financial statem-nts. Of the revenue and expense elements from which the

12. Amount Subject to Itefund income figure is derived, only depreciation expense WestGas was the defendant in lawsuits brought by two has been restated by applying the Company's depreci.

gas producers who claimed underpayment for gas pur_ ation rates to the indexed amounts of Currcnt Cost chases under contracts containing " favored nations" adjusted property, plant and equipment. All other provisions, in March 1985 the United States Court of mcome statement item are considered to have been Appeals, Tenth Circuit, upheld the May 18,1982, effectively transacted at average price levels for the decision of the United States District Court for the current year and, accordingly, have not been restated. District of Colorado in favor of the gas producers. Fuel inventories, the cost of fuel used in generation, During August 1985,532.1 million, including interest, and gas purchased for resale have not been restated was paid to the gas producers in final settlement of fr m their historical cost in nommal dollars. Regulation these claims. limits the recovery of fuel and purchased gas costs WestGas was also a defendant in a lawsuit brought through the operation of adjustment clauses or adjust-by Amoco Production Company alleging underpayment ments m basic rate schedules to actual costs. For this for gas purchases in accordance with the natural gas reas n fuel and gas inventories are effectively ~ purchase contract between the two companies. On monetary awtt February 5,1985, the United States Court of Appeals, income taxes were not adj.usted to redect the effects Tenth Circuit, granted judgement in favor of WestGas. of changing prices. This is appropriate, because WestGas had collected $2.4 million from its customers current income tax policy ignores the effects of to cover any liability resulting from this litigation. in0ation in measuring taxable income and the higher WestGas expects to refund this amount, plus interest, depreciation expense emerienced under Current Cost during 1986. accouming is not tax deductible. 'Ihe Company s effec-tive income tax rate, when taxable income has been 13, Effects of Changing Prices (Unaudited) adjusted for innation, is 144% using Current Cost accounting for 1985, which exceeds the reported The following supplementary Current Cost information effective tax rate of 48% and the statutory rate of 49% is supplied to provide certain information about the for federal and state taxes. effects of changes in specific prices on the historical All data reported in " Average 1985 Dollars" have cost financial data of the Company. This supple-been restated to units of equivalent purchasing power mentary information should be viewed as an estimate as measured by the average Consumer Price Index for rather than as a precise measure. All Urban Comumers for 1985. Current Cost adjusted information is historical finan-cial data adjusted to redect changes in the specific prices of the Company's property, plant and equip-ment from the date these assets were acquired % ' present. This estimated cost of replacing the pc >d tive capacity of existing plant assets is primarily aeter-mined by indexing surviving property, plant and equip-ment (including land, land rights, property held f(>r future use, and construction work in progress) by the 43

Notes to Consolidated Financial Statements (Cont'd) Statement of Income from Continuing Operations Adjusted for Changing Prices For the year ended December 31,1985 Current As Reported / Cost / Illstorical Average Cost 1985 Dollars (Thouunds of Dollars) Operating revenues $ 1,747,483 s1,747,483 Depreciation expense 101,302 242,866 Other operating expenses and other income and deductions 1,535.488 1,535,488 1,636,790 1,778,354 Income (loss) from continuing operations 5 110,693 $ (30,871) Effects of Changing Prices on Common Stocithelders' Equity r For the year ended December 31,1985 Current Cost / Avg. 1985 Dollars (Thouunds of Dottars) Current annual costs in excess of the historical cost of property, plant and equipment not recoverable in rates as depreciation expense under current regulatory policy: Effects of cumulative inflation reported as an additional provision for depreciation expense 5141,564 Reported as an s4astment to net recoverable amount (Note A) (19,257) 122,307 Excess of specific price level changes ($128,440) in the current year over the general price level changes (590.829)* (37,611) Offsetting effect of debt financing (Note B) (47,839) Net erosion of common stockholders' equity $ 36,857

• At Decernber 31,19MS, current cost of property, plant and equipment, net of accumulated depreciation, was 5 4,7H4.020, while histoncal(ost (or net cost recoverable through depreciation) was $2.474,04H i

Not: A. Adjustmer;t to Net Recoverable Amount monetary liabilities experience a gain. The Company's Under the CPUC and FERC racemaking provisions to " Offsetting Effect of Debt Financing" is primarily at-which the Company is subject, only the historical cost tributable to the substantial amount of debt and pre-of plant is recoverable in revenues as an amount equal ferred stock which has been used to finance property, to depreciation expense. Therefore, the portion of the plant and equipment. (In calculating this gain, pre-cost of plant stated in terms of Current Cost which dif-ferred stock has been classified as a monetary item, fers from the historical cost of plant has been reflected which is consistent with its treatment for ratemaking as the " Adjustment to Net Recoverable Amount." purposes.) Such amount does not represent funds available for distribution to shareholders. Not2 B. Offsetting Effect of Debt Financing To properly reflect the economics of rate regulation, (G:In From Decline in Purchasing Power of Net the " Adjustment to Net Recoverable Amount" and the Amounts Owed) " Offsetting Effect of Debt Financing" should both be This memorandum caption shows the net effect of included in the calculation ofincome from continuing inflationary value changes on those Company assets operations. and liabilities carried on the balance *h et at fixed or determinable monetary settlement ainoants. During a period of inflation, holders of monetary assets sustain a loss of general purchasing power while holders of 44

Five-Year Comparison of Selected Financial Data Adjusted for Effects of Changing Prices In Average 1985 Dollars (except "As reported" amounts) Year Ended December 31, 1985 1984 19h3 1982 1981 (Thousands of Dollars Except Per Share Data) Operating Revenues: As reported $ 1,47,483 $ 1,802,024 51,628,641 51,590,039 51,336,171 Adjusted to Ave. rage 1985 Dollars 1,747,483 1,865,720 1,757,950 1,769,028 1,579.289 Income (loss) from continuing operations: As reported 110,693 145,247 106,379 116,496 100,755 Adjusted to current cost (30.871) 11,530 (23,020) (12,366) (19,631) Income (loss) per common share (after dividend requirements on preferred stock): As reported 1.81 2.55 1.86 2.17 1.97 Adjusted to current cost (.91) (.11) (.85) (.67) (.93) Excess (deficiency) of increase in specific prices over changes in the general price level after adjustment to net recoverable amount 56,868 43,509 44,697 18,243 (75,830) Gain from decline in purchasing power of net amounts owed 47.839 54,106 53,140 71,857 127,819 Net assets at year-end at net recoverable amount 882,620 910,116 870,304 852,703 834,737 Ccsh dividends declared per common share: As reported 2.00 1.92 1.84 1.76 1.68 Adjusted to Average 1985 Dollars 2.00 1.99 1.99 1.96 1.98 Market price per common share at year-end: As reported 21.13 19.38 18.50 17.38 14.25 Adjusted to Average 1985 Dollars 20.78 19.73 19.60 18.87 16.16 Average consumer price index (Base year 1967 = 100 0) 322.2 311.2 298.5 289.6 272.6

14. Quarterly Financial Data (Unaudited)

Summarized quarterly data (dollars in thousands except for per share amounts) for 1985 and 1984 are as follows: 1985 Three months ended March 31 June 30 September 30 December 31 Operating revenues $573,517 $382,065 5335,854 5456,047 Operating income 3 67,958 5 44,538 5 35,190 5 38,244 Net income 5 51,316 5 24,598 5 16,262 5 18,5i7 Earnings available for common stock 5 47,151 5 20,433 $ 12,114 5 14,403 Average common shares outstanding (thousands) 51,808 52,051 52,265 52,333 Earnings per average common share 50.91 50.39 30.23 30.28 1984 Three months ended March 31 June 30 September 30 December 31 Operating revenues $ 587,067 5417,708 $348,786 5448,463 Operating income 5 68,235 5 43,631 3 43,392 5 55,062 Net income 5 52,210 5 27,507 5 27,499 5 38,031 Earnings available for common stock * $ 48,045 5 23,342 5 23,334 5 33,866 Average common shares outstanding (thousands) 49,538 50,129 50,736 51,359 ) Earnings per average common share' 50.97 $0.47 30.46 30.66

• Due to rounding. quarterly figures do not add to annual total.

45

Report of Management The ucompanying financial statements of Public ment, the internal audit staff and the independent Service Company of Colorado and subsidiaries have accountants, been prepared by Company personnel in conformity The accompanying financial statements have been with generally accepted accounting principles consis-examined by Arthur Young & Company, independent tent with the Uniform System of Accounts of the accountants, whose report follows. Federal Energy Regulatory Commission. The integrity and objectivity of the data in these financial statements are the responsibility of management. Financial infor-mation contained elsewhere in this Annual Report is consistent with that in the financial statements. R. R. Midwinter The Company maintains and enforces a system of Assistant Vice President and internal accounting controls, which is designed to Principal Accounting Officer provide reasonable assurance, on a cost effective basis, as to the integrity, objectivity and reliability of the financial records. This system includes a program of h internal audits to assure management that proper pro-cedures and methods of operation are used to imple-R. F. Walker ment the plans, policies and directives of management. Chairman of the lloard, The accounting and internal control procedures of President and the Company are reviewed by the Audit Committee Chief Executive Officer of the Board of Directors. The Committee, which is composed of directors who are not employees of the February 10,1986 Company, meets regularly with the Company's manage-Report of Certified PubHc Accountants The Board of Directors and Shareholders come of these matters cannot be determined at this time. Public Service Company of Colorado in our opinion, subject to the effects on the 1985 financial statements of such adjustment, if any, as We have examined the accompanying consolidated might have been required had the outcome of the balance sheets of Public Service Company of Colorado uncertainty referred to in the preceding paragraph and subsidiaries at December 31,1985 and 1984, and been known, the statements mentioned above present the related consolidated statements of income, retained fairly the consolidated financial position of Public earnings and source of funds for plant construction Service Company of Colorado and subsidiaries at expenditures for each of the three years in the period December 31,1985 and 1984, and the consolidated ended December 31,1985. Our examinations were results of operations and source of funds for plant made in accordance with generally accepted auditing construction expenditures for each of the three years standards and, accordingly, included such tests of the in the period ended December 31,1985, in conformity accounting records and such other auditing procedures with generally accepted accounting principles applied as we considered necessary in the circumstances, on a consistent basis during the period, except for the As discussed in Note 11 to the financial statements, change, with which we concur, in the method of realization of the Company's investment in its Fort St. determining pension costs as described in Note 7 to Vrain Nuclear Generating Station of $223,500,000 at the financial statements. December 31,1985 is dependent upon future events, including Nuclear Regulatory Commission authori-zations, attainment of operating levels significantly AIk or

1. b p

/ greater than in the past and the settlement of regu-latory and legal issues related to the regulation by the Arthur Young & Company Public Utilities Commission of the State of Colorado of Denver, Colorado amounts chargeable to customers. The eventual out-February 10,1986 46

Shareholder Information The Company's common stock (35 par value) is listed Participants may also invest optional cash payments for trading on the New York, Midwest and Pacific through the DRP in amounts ranging from a minimum Stock Exchanges under the ticker symbol "PSR." of $25 per payment to a maximum of $5,000 per Quotes may be obtained in daily newspapers where month. The same amount of money need not be sent the common stock is listed as "PSvCol" in the New with each payment, and there is no obligation to make York Stock Exchange listing table. an optional cash payment each month. Optional cash payments must be received by the 20th day of the YGar Total Volume Average Daily Volume month. Such payments received after the 20th day of 1985 29,822,800 118.344 the month will be deemed for reinvestment purposes 1984 33,670,400 133,08s to have been received in the next month. 1983 32,911,900 130,086 The purchase price of shares acquired with optional cash payments in the open market is the average cost Common Shares Shareholders of such shares, including brokerage commissions. The Year Outstanding Common Preferred investment period generally begins on the 22nd day of the month and ends when sufficient shares have been 1985 52,332,617 72,834 5,643 purchased. 1984 51,632,451 73,702 5,875 A prospectus describing the DRP and enrollment 1983 49,182,153 73,5s6 6.009 information can be obtained from the Shareholder Three series of cumulative preferred stock are actively Services Department by writing or by calling traded (see chart below). All other series are not (303) 571-7514. actively traded and market prices are not published. Series Where Listed Dividend Reinvestment Plan Statistics 4 % % ($ 100 par value) American Stock Exchange shareholder % of Shares % of Year Participants Total Participating Total 7.15% ($ 100 par value) New York Stock Exchange 8.40% ($25 par value) New York Stock Exchange 1985 31994 4s 3 I I,5M9.596 211 1984 35.092 48 0 I M.H9H.244 37.1 Where to Buy Stock 1983 32.410 446 16.193M s 33 3 The Company's common and preferred stock may be Funds shares Average purchased through a brokerage firm. A shareholder of Year collected Issued Price record holding the Company's common stock in 1985 s14.270.000 700, u4 s20.38 his/her name may purchase common stock through the 1984 s41s44xon 2.4 so.298 s1635 i Company's Automatic Dividend Reinvestment and 1983 s32m9 moo 1.9m s t s ui st Common Stock Purchase Plan (the "DRP")(see section entitled " Dividend Reinvestment Plan" for details). Transfer Agents The Company is the principal transfer agent for its Where to Sell Stock common and preferred stock. Central llank of Denver The Company's common or preferred stock held in cer-is the principal registrar. tificate form may be sold through a brokerage firm. For additional convenience in transferring stock, Shares held in the DRP by the Company for a partici-Morgan Guaranty Trust Company of New York is pant may be ordered out in certificate form by the par-retained as co-transfer agent and co-registrar. Effective ticipant and sold through a brokerage firm or may be March 1,1985 the services of Ilank of America NTSA' sold through the DRP by sending in the appropriate as co-transfer agent and co-registrar were discontinued. form. While llank of America has served as co-transfer agent Dividend Reinvestment Plan and co-registrar for many years, steadily declining y lumes of certificates transferred on the West Coast The Company's DRP provides common shareholders with an economical and convenient method for make the continuation of services there uneconomical. purchasing additional shares of the Company's com-Ilow to Transfer Stock mon stock. A transfer of stock is required whenever the registra-Dividends reinvested through the DRP are used to tion of a stock c.tificate is changed. A change in purchase shares of common stock in the open market, registration generally occurs when stock held in other at the average cost of such shares, including brokerage than " nominee or street name" is sold. Changes of commissions, incurred in connection with the pur-name, co-owners, tenancy, etc. also require a transfer. chase of shares during the applicable investment A transfer can be accomplished by properly filling in period. Common shareholders whose shares are regis-the stock assignment form on the reverse side of the tered in names other than their own may participate in the DRP for the reinvestment of dividends, provided the broker or fiduciary who holds such stock in nominee name is willing to participate in the DRP. 47

stock certificate and endorsing the assignment form Dividends paid on stock held in " street name" are exactly as the registration is shown on the face of the paid to the holder of record, generally a brokerage certificate. The signature (s) of the transferor must be firm or bank nominee. The dividends are then redistri-guaranteed either by a commercial bank or a brokerage buted to beneficial owners by the brokerage firm or firm that is a member of one of the major stock bank in accordance with the beneficial owners' exchanges. The certificate with the properly completed instructions. assignment can then be sent to the Company or to the Shareholders of record receive dividends directly co-agent for transfer. It is recommended that certifi-from the Company unless such shareholder has elected cates be sent registered or certified mail. to reinvest dividends through the Company's DRP. Stock Registration Dividends Not Received The purchaser has the choice of having the stock Dividend checks are mailed so as to reach shareholders delivered or leaving it with the broker. Stock left with on the dividend payment date. Shareholders who do the broker is generally held in the brokerage firm's not receive their dividend check on the appropriate name and referred to as " street name" stock. The pur-dividend payment date should contact the Shareholder chaser is generally referred to as the beneficial owner. Services Department. Ilowever, it is suggested that A purchaser who elects to take physical possession such contact be delayed about 7 days after the divi-of the stock receives a certificate (s) representing the dend payment date to allow for any delay in mail number of shares purchased. The stock is registered on

delivery, the Company's books in the name of the purchaser The accompanying tables show the ranges of closing who becomes a shareholder of record.

common and preferred stock prices as shown on the Safikeeping of Certificates consolidated tape and dividends paid on common stock by When stock certificates are received, it is recom. quarter for 1985 and 1984. inended that the certificates be safeguarded h; placing common stock 4th 3rd 2nd as them in a secure place such as a bank safety de;.osit box. A separate certificate record should be maintained 1985 including each certificate number, purchase date, date g 2j 2j i 2 2 of issue, amount paid and the exact registration. The Last Trade 21% 20% 23% 20 % Company does not safe keep certificatesfor osv. neciated .So .50 .50 .50 sharebolders. Div. Paid .50 .50 .50 .48 I *4 Lost or Stolen Certificates I[Rh 19% 18% 18% 1 Hy, If a stock certificate is lost or stolen, notification Low 17% 16% 16% 16% should be sent immediately to the Company so a Last Trade 19 % 18% 17% 17% Div. Declared .48 .48 .48 .48 "stop" can be placed on the missing certificate. The Div Paid .4H .48 .48 .46 letter should contain as much information as possible describing the certificate; in particular, certificate 3*[J'3,,C, 4,, 3,, number, date issued, and registration. Once a stop has been placed on the missing certificate, an affidavit 4j5%

• 9 39 40 39 36%

will be sent which must be completed, signed, notar-to, 37 37 333 33 ized and returned before a replacement certificate can 1984 thgh 35% 33 33% 35% be issued. An irrevocable indemnity bond for the lost tow 3tg 3og 303 33 stock certificate is also required. The cost is about 2% 7,,5% series of the market value of the missing certificate, calcu-19H5 liigh 6H 70 66 62 Iow 63 64 5H% 57% lated at time the indemnity bond is issued. Information regarding lost or stolen certificates 1984 liigh 59 59% 59% 60 Low 53% 52 % 51% $5 should be sent to Shareholder Services Department, (Room 160B), P.O. Box 840, Denver, CO 80201. n.40% series (s25) 19H5liigh 21% 21% 21% 19% Dividends low 19% 19% lH% lH% Dividends on common stock, as declared by the Board 1944 liigh IH% 17% 17% lH% I"w 16% 16% 16% 16% of Directors, are generally payable on the first day of February, May, August and November of each year. The Company pays regular quarterly dividends on its preferred stock on the first of March, June, September, and December of each year. 48

Please take a few rifnutts to complete and return the discusses how to get additional Company information postage-paid, self-addressed cards below. The top card is nd to update our Shareholder Profile. The more we a brief survey which will help ua make our communica-know about your needs, the better we may meet them. tions with you as effective as possible. The bottom card All individual responses viill be kept strictly confidential. Shareholder Communications Survey 1985 Annual Report Quarterly Reports

1. Ilow much of PSCo's 1985 Annual Report did you read?

5. Ilow much of PSco's Quarterly Reports do you read?

O all O % to n 0 all O less than % 0 % or more O less than % 0 more than % O none O % to % O none

6. Were the 1985 Quarterly Reports easy to read and

2. Is the 1985 Annual Report easy to read and understand?

understand? O very readable O somewhat difficult O very readable O somewhat dilhcult O somewhat readable O very difficult O somewhat readable O very difficult l

3. Please circle the number which represents your feehngs

7. Please rate the PSCo 1985 Quarterly Reports by circhng I

about the quality of information, psentation, and read-the number below which best describes your overall im-abihty of the following; pression: Outstanding Poor Outstanding 1%)r 1985 In Retrospect i 2 3 4 5 6 7 8 9 to overall, I felt the 1985 Management Perspective 1 2 3 4 5 6 7 8 9 to Quarterly Reports were - 1 2 3 4 5 6 7 8 9 10 Financial Cimarts I 2 3 4 5 6 7 N 9 10 operating A Financial Data 1 2 3 4 5 6 7 H 9 to Shareholder Information I 2 3 4 5 6 7 H 9 to Communications Programs

4. Please rate the overall PSCO 1985 Annual Report by circhng the number below which best describes your over-all impression:

R Ibw would you describe PSCo's shareholder and in-vestor relations programs? overall, I feel the 1985 very g adeqwtc Annual Report is - 1 2 3 4 5 6 7 8 9 10 O good O inadequate

9. Do you feel you are being adequately informed about PSCo activities?

O yes O mostly 0 not entirely O no

10. What is your Zip Code?

Shareholder Profile Additional Infortnation and Duplicate Mallings Please circle one answer to each question. Shareholders interested in receiving the publications or Age category? additional information listed below, or those who re-

1. Under 25

3. 45-64 ceive duplicate mailings of the Annual Report, are asked

2. 25-44

4. 65 or over to check the appropriate box. Fill in account number, name and address and mail this postage-paid card.

PSCo shares owned? (include dividend reinvestment) O 5tatistical Review 1975-19N 5

1. I'nder 50

4. 501-1,000 0 Form 10-K

2. 50-100

5. 1,001-2,000 0 Dividend Reinvestment Plan Information

3. 101-500

6. Over 2,000 0 Currently receive more than one copy of Annual llow long have you been a PSCo shareholder?

" C P"" MC'* CI""i"# C 'CP"" '"h"8' I"' M '" '""""'

l. Less than 1 year

4. 6-10 years

"""W h"* ^"""'I RCI"" "* h"8 I'* 2.1-2 years

5. Il 20 years

3. 3 5 years

6. Over 20 years Principal reason for holding PSCo stock?

I. Dividend income

3. Income plus growth

2. Long-term growth

4. Other

/%ww Print: Which most influenced you to acquire PSCo stock? Name

1. Personal research

4. Gift / inheritance

2. Stockbroker

5. Financial publication Street and Number

3. Friend or relative

6. Other What most concerns you about PSCo)

C'IY State Zip What is your Zip Code?

NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES i BUSINESS REPLY MAIL FIRST CLASS PERMIT NO. 265, DENVER CO POSTAGE WILL BE PAID BY ADDRESSEE m Public Sen' e Company of Colorado Investor Relations, Room 1040 P.O. Box 840 Denver, CO 80201-9958 l NO POSTAGE NECESSARY IF MAILED IN THE UNITEDSTATES 1 BUSINESS REPLY Mall FIRST CLASS PERMIT NO. 265, DENVER CO m POSTAGE WILL BE PAID BY ADDRESSEE Public Service Company of Colorado Investor Relations, Room 1040 m P.O.130x 840 Denver, CO 80201-9958

gggge upggggggp;gggg % gggggggggg .1@p# awe ~ s e a w u r k w m a r ~- kj ekN$u$s$w$$w$hMj$s$g$%e[m[ ? e w nea gy j 3j ggew s mquma$ s& 7, i g4iw../q(p#qldwnypqgdD$p$i$gn% n P l i ds,JBir nM 2% N JsfM l

• %w%n&w.w p gnq >?~s j

39 g g g p a g f @ % yhS$jg d$$ y =. wii i;M a d A $ N f @a p n & d " &gr;,1 lL p A TiPMserygy@ge n. + W a I if g k6dk%B5fE596$h$hm p % u@p finpM l s:; Q p n h M % s# h @ g q f % %, W y

g 23penn ~ : ~ a lq -;ffjfjf 4

fr a + ? uf Q&bnwNmn SIW A?Vgf W a fk f mAhlhh{fd f.f, %' m y m.-.. $$$$% yngy&f% ~ j'[&gy%% %}$&f $ ? ig ~hk W* -- ligik u.)y. g;::a.;. -Q ONYni? QNM Wl@ I t t h&. n&a$g2h?,4 lr di l ' _" glBQR 55M8fmt; ;4^9M - ej ne p 97C9 %g a n . L Mk 8:k,%y m 33 3 3 y nNiM;ga abN 7 q kNMw: mC. dh $ +$$ N+Mi N N w c sy bq y? q a p u n g s % d,M g y$ udy c n w y,ea% mmM$y$ndmg h J gMt b ggu f 4 s d j t&2%f2:2fg@g{fg$m% 4% y? t mm w QW biqM,%wW# Qg% i &u I h. o o m hN.Es.$s NM amb e1 e & n@ f ( C M k 3 6 f ma e kh h m $m # yw a g m a g hP d

1. :< u p m p$g emm 3

y '~ f wema#emmdsgssipaggwan$$s$m gpyg 4pawgMpgdq ag C gggenwnwsk g . A@1 y yq gQyngmQy ?}jQgg g g n y e n; ag s, g yg A f 4!+M$g$@glFA48%g$%g$4fi

• h_g$phqgge-e pp gggg wy

,3 . pp-m s pay

mg g g g ;g y g g g,u 4 3

ggg blwNhbE0$N$$N N k-r %,waQ%%%q;tg* 9~%&~p%gyptQQg6W;44jy ~@.g~%fpphgy.m. n uc s y .-) )

PublicServico e,:, n.,e U.S. Postage PAID Public Service Co. Public Service Company of Colorado P.O. Box 840 Denver, Colorado 80201 (303) 571-7511 1 i l l J l l t L

hPublic Service-g ;.$-lm. 2420 W. 26th Avenue, Suite 1000, Denver, Colorado 80211 April 14, 1986 Fort St. Vrain Unit No. 1 P-86263 Director, Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, D.C. 20555 Attn: Document Control Desk Docket No. 50-267

SUBJECT:

Annual Financial Report Gentlemen: Enclosed are ten (10) copies of the 1985 Annual Report for Public Service Company of Colorado, including the certified financial statement for 1985. ~This' document is submitted for your information and use in accordance with Title 10, Code of Federal Regulations, Part 50, Appendix E, Section III and Regulatory Guide 10.1, Revision 4, Appendix A, No. 73. Very truly yours, CA H.L. Brey, Manager Nuclear Licensing and Fuels Division HLB /JF:jw Encl. ,y E -}}