SNRC-1247, Long Island Lighting Co 1985 Annual Rept
| ML20202B328 | |
| Person / Time | |
|---|---|
| Site: | Shoreham File:Long Island Lighting Company icon.png |
| Issue date: | 12/31/1985 |
| From: | Catacosinos W, Leonard J LONG ISLAND LIGHTING CO. |
| To: | Harold Denton Office of Nuclear Reactor Regulation |
| References | |
| SNRC-1247, NUDOCS 8604110171 | |
| Download: ML20202B328 (41) | |
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Summary Nighlight3198] Corporat3 Idormation Summary of Operations (Mdlions') 1985 1984 Executive Offices 175 East Old Country Road Total Revenues $2,034 $1.974 Hicksville, N.Y.11801 Operating income S 388 5 308 Common Stock Listed New York Stock Exchange income for Common Stock ** $ 441 S 340 Pacific Stock Exchange l
Average Common Shares Outstanding 111 110 Ticker Symbol: LIL Earned Per Average Common Share" $ 3,97 5 3.09 Transfer Agents Common Stock Dividends Declared Per Common Share - -
Manufacturers Hanover Trust Company !
- Except Earned Per Average Common Share and Dividends Declared Per 450 West 33rd Street Common Share. New York, NY 10001
- "Non-cash allowance for funds used dunng construction represented 86% in 1985 and 91% in 1984 of Income for Common Stock and Eamed Per Average Preferred Stock Common Share.
The First National Bank of Boston 50 Morrissey Boulevard Dorchester, MA 02102 Registrar Common and Preferred Stock Fidata Trust Company Territory Served 67 Broad Street New York, NY 10004 Shareowners' Agent a- a - for Automatic Dividend Reinvestment Plan connecucut , Manufacturers Hanover g Trust Company J 450 West 33rd Street w New York, NY 10001 4,. m
' "9 'S'd"d S ""d S "Of Annual Meeting
- a-* I The Annual Meeting of
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. Shareowners will be held on
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, May 13,1986 at 2.00 p.m. In
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Company. A notice of the Oms {-.,. Se Long Island
{en nd roxy iIl a to shareowners in April.
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Form 10-K Annual Report
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u, s Atlante Ocean The Company will furnish, I without charge, a copy of the l
Company's Annual Report, Form 10-K, as filed with the Secunties and Exchange LILCO supphes efectnc and New York, Los Angeles and Commission, upon wntten gas service in Nassau and Chicago, in population, total request to: Investor Relations, Suffolk Counties and the income and retail sales About Long Island Lighting Rockaway Peninsula in 70% of all workers residing in Company,175 East Old Queens County. all on Long Nassau-Suffolk are employed Country Road, Hicksvdle, NY island, New York. The 1,230 within the two counties. Whde 11801 square mde service area the area served is contains a population of predominantly residential, the approximately 2.7 mdhon Company receives significant persons, 100.000 of whom live commercial and industrial in Queens Countt Nassau electnc revenues. Although and Suffo!k Counties together electronics and aerospace are constitute a federally- the largest manufacturing designated Metropohtan industnes in the area, about Stat:stical Area (MSA) which 85% of total employment is has the highest median non-manufactunng l disposable income per household of the more than l 300 MSA's of the nation and l ranks in the top ten such l areas, including metropohtan 1
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- Whde the issue of Shoreham's opening is still to be resolved, h# , ,
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your Company made good progress dunng 1985 in a number f of creas.
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j g Special letters sent from time to time over the past year have
[ - kj informed shareowners of various events and developments D affecting their investment in LILCO. Let me review briefly the L , y major events of 1985 and the early months of the current year:
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- Shoreham
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e e in October,1985, the Shoreham Nuclear Power Station successfully completed a three month program of low
- j. power testing at the 5% level. The plant is ready to operate and the remaining requirement for full power licensing of 6 Shoreham is federal approval of LILCO's emergency M response plan. To date, however, both State and Suffolk
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County governments have refused to participate in its implementation.
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- On February 13,1986, without participation of the State and Suffolk County, the Shoreham emergency response plan was tested under supervision of the Nuclear Regulatory Winiam J. Catacosinos Commission (NRC) and the Federal Emergency chairman and Chief E<ecutwe Oncer Management Agency with the assistance of LILCO employees. The results are now being evaluated and we are pleased that the initial response from the federal observers has been posit:ve. The final decision on the effectiveness of the plan rests with the NRC and the courts.
Government Takeover
. For many months. opponents of Shoreham have been pressing New York State to adopt a "public power" program whereby the State would direct a takeover of LILCO through any of vanous suggested approaches.
There are currently two governmental committees looking into the feasibility of such action, one appointed by the Governor and the other by the County Executive of Nassau County. The Long Island delegation to the New York Legislature has endorsed the pubhc power concept and bills have been introduced both in the Senate and Assembly. We have presented numerous arguments in meetings with elected officials that a government sponsored takeover would not be in the best interest of either the Long Island or the State communities. Among the many critical issues the Company has raised are the valuation of LILCO's assets, how they would be paid for, tax consequences to Long Island and whether rates would actually be reduced as a result of a takeover. LILCO has repeatedly stated that it wou!d welcome any study on pubhc power provided that it is objective, takes into consideration all aspects of this issue, and represents the interests of a!! constituencies fairly, ratepayers, employees. and shareowners.
Financial
- in early January 1986, the Company greatly strengthened its financial position by reaching an agreement with its 42
2 lending banks to reschedulo $1 billion of bank debt. be up 60/o. We have in place sufficient plant capacity to meet Through this action, LILCO would pay $400 mil: ion in 1986 peak !oad requirements - but only if Shoreham comes on from the proceeds of a bond sale and defer mandatory kne. However, if Shoreham's opponents persist in keeping the payment of any part of the $600 million balance until plant shut, the entire Long Island community is likely to face December 31,1988. The agreement then reschedules the serious power shortages. For all these reasons, we are repayment of the $600 milkon over a four year period convinced it is in the best interest of all concerned for ending September 30,1992. The restructuring agreement Shoreham to become fully operational as soon as possible.
and the sa!e of the bonds are subject to the approval of the New York State Public Service Commission (PSC). The in meeting these challenges, we must continue to strive for financial crisis facing the Company at the start of 1984 has additional progress in restonng LILCO's financial health and been somewhat alleviated but the status of Shoreham with it the eventual resumption of dividends.
remains a cntical factor in ultimately resolving our financial situation.
The Board of Directors and management again acknowtedge the confidence and support of shareowners during these
- Early in 1986, the PSC approved the Company's request trying times. They also express their sincere appreciation to for a 3.8% electric rate increase. In addition, a PSC the employees for their dedicated efforts in fulfilhng LILCO's Administrative Law Judge has recommended adoption of responsibihties to the community.
LILCO's rate moderation plan for Shoreham's recoverable costs. This plan is designed to phase in the capital costs Detailed information on the financial results of the past years of Shoreham over the next 10 years. and additional commentary on the major events of 1985 and the first part of this year are set forth in the balance of this Other Matters report.
- In September, Long Island was struck by Hurncane Giona, one of the most severe storms ever to hit the community.
The damage to the LILCO system was extensive with costs Respectfully, aggregating approximately $43 milhon. Some enticism was raised over the length of time it took to restore power , gg completely. However, the Company was highly commended in other quarters on its efforts under emergency conditions. A particular word of thanks is due William J. Catacosinos our employees who worked extra long hours until all Chamman and Chief Executwe Off cer customers had their service restored.
March 14.1986
- In December, at concurrent special meetings of the preferred and common shareowners, the Board of Directors was overwhelmingly reelected. turning aside a slate of opposition candidates that had been proposed by a shareowner.
- Effective October 1,1985, the Company entered into labor contracts with its two IBEW unions extending over more than 40 months. The new agreements will provide stabihty for the Company and its employees.
LILCO will celebrate its 75th anniversary on June 14,1986.
Since its founding, the Company's objective has been to meet the ever increasing needs of Long Island with safe and reliable electnc and gas service to consumers at rates that are as economical as practicable. A brief summary of the historical highlights of LILCO's service to the community is included separately on the next page of this annual report.
The greatest challenge we presently face is our abihty in this, our 75th year, and the years beyond, to meet the growing demands of the community. In the past three years, electricity consumption went up 10% and peak demand increased 11% Looking ahead, over the next 5 years, we expect electncity consumption to be up 12% and peak demand to
3 On June 14 of this year, Long Island Lighting Company will celebrate its 75th year of providing Long Island with reliable and safe electric and gas service. The g*owth of the community has paralleled that of the Company. In fact, with energy playing a dec:sive role during this century for both residential living and industry, LILCO has become an ind:seensable member of the community.
Before Ellis Phillips founded LILCO in 1911, Long Island wa served by a multitude of com-panies which provided electricity to villages with transmission line wtend r no farther than their border. Service was available only from dusk to dawn; there were m br ..p generators and rates were very high. Electricity was a luxury. Owners of these small compe, tded many roles in-cluding chief plant engineer, meter reader and billing clerk.
Mr. Phillips recognized there would be greater efficiencies if these companies could be linked together into one system which would provide cheaper and more reliable energy. The Company was formed by consolidation of four small village electric systems in Northport, Amityville, Islip and SayClie. It boasted a staff of 42, including management. LILCO serviced just over 10,000 electric customers in its first year with revenues amounting to about $70,000.
In the following years, expansion continued both through the addition of new gas and electric customers and through acquisition of approximately 60 companies, first in Suffolk and by the early 1920's, Nassau as well The need for a supply of energy to military camps during World War I on Long Island also heightened this expansion.
One of the notable characteristics of the 20's was the intense competition among individual gas and electric companies to serve new areas. Often this competition was less than gentlemanly, sometimes leading to physical altercation and even jail terms. This was a nationwide occurrence and Long Island had its share of battles.
By 1935, Long Island Lighting's service area had enlarged, essentially to its present boun-daries. a!though there were still several small regions during that period owned by localized electrical companies. Like many other companies, LILCO faced its own financial problems during the 1930's.
The Company persevered despite several temporary setbacks. However, LILCO continued to meet its goal - service to customers. In 1939, the then president, E.F. Barrett, summed up his feel-ings in a New Year's greeting:
"I feel we are in about the same position as a friend of mine who, back in the early part of the Depression said: 'It seems to me we were hit last year with everything in the ring including bucket and sponge. There should be fewer things to throw next year.' However, each new problem that we master gives added strength...Let us bundle up health, courage, and deter-mination...to these add the benefit of our experience and thus equipped, step into 1939 with our heads up and a will to do."
That "will to do" spirit prevailed and business surged, tempered only by the onset of World War 11. The post-war years of the 1950's and 1960's placed the Company in its greatest period of growth expansion, due in great part to a booming economy on Long Island. This was particularly true in new housing , both as a major suburb to New York City and as a leading recreational area.
This need for electricity and gas continues unabated today. By any reasonable projection, Long Island's appetite for energy is expected to continue to grow. The Company has a proud and en-viable record for meeting these needs. LILCO is actively planning for the 1990's and beyond to en-sure that Long Island's energy requirements will be met.
G Financial Analysis ceeds of $52.5 milkon and in February 1984 the Company realized gross proceeds of $10.4 million through its dividend reinvestment plan. Thereafter, however, given the vanous adverse factors then impacting the Company, little or no assurance could be given regarding the Company's abihty This analysis discusses matters of significance in the Com- to raise additional funds in 1984 or in future years in order pany's Financial Statements, which follow. with regard to to meet its construction and other capital requirements and capital requirementnnd liquidity and with regard to results operattonal needs. In view of this situat;on, the Company's of operations for the last three years. objective in 1984 was revised to balance its cash receipts and disbursements rather than maintaining a set level of cash so as to avoid filing for bankruptcy when $90 million of the Capital Requirements and Liquidity Company's General and Refunding Mortgage Bonds (G&R B nds) matured on September 1,1984. Accordingly, in order Financial Objectives: The electnc utikty industry is one of to conserve cash, beginning in February and March 1984, the most capital intensive industnes in the world. Traditionafly, the Company (a) reduced its non-fuel related operations and very large amounts of capital were obtained to construct new m intenance expenditures and achieved other cash savings generating facihties to meet customer demands for energy. totahng approximately $94 milhon in 1984 without significantly To provide this capital. efectric utihties have customarify ffecting customer service, (b) suspended construction issued short-term debt, which was repaid penodically with payments for its share of Nine Mile Point 2, and (c) omitted the proceeds from the safe of permanent secunties and from common stod dWent funds provided through internal cash generated from opera-trons. A general objective in the industry is that internal cash n August 1984, the Company (a) was granted a permanent generation from operations (as descnbed under Capital Pro- electnc rate increase effective September 1,1984 to provide vided and Liquidity) should provide at least 50% of the total $245 milhon of revenues annua:ly. including $90 million funds required for construction. LILCO's financial corporate granted by the Public Service Commission (PSC) in August objectives also included: (1) retirement of all short-term debt 1983 on a temporary basis. (b) entered into a Revolving at feast once a year; (2) in the normal course of events. Credit Agreement (the 1984 RCA) providing for borrowings maximum amount of short-term debt outstanding not ex-up to $150 million through December 31,1985, and (c) ceeding $100 milhon unless the Company had the clear abili- entered into a Settlement Agreement with Niagara Mohawk ty to refinance completefy such short-term debt with long- Power Corporation (NMPC) pursuant to which NMPC would term secunties: and (3) maintenance of capitalization ratios finance uo to $250 miUion of LILCO's share of construction of (a) not over 50% long-term debt, including the Trosts, (b) costs for 'Nine Mile Point 2. Of the total $245 million of an-10-12W% preferred and preference stock, and (c) 40-37WW nual electnc rate relief, $47 milhon was provided through con-common stock and retained earnings. ventional rate relief and $198 million was provided through a financial stabihty adjustment (FSA). The FSA provides cash Until m:d-1983. the Company essentially met these objec-revenues in lieu of non-cash allowance for funds used dur-tives, with the exception of the fevel of internal cash genera-ing construction (AFC) without changing net income. In tion from operations discussed below. September '984, the Company sold $100 milhon of G&R Bonds.17W% Series Due 1989. As a result of all these ac-(1) Until 1983, short-term debt was fully retired at least once tions, at December 31,1984, the Company had long-term in each of the prior eight years including each year-end ex .
loans of $36.0 milhon outstanding under the 1984 RCA and cept for year-end 1980 when $100.0 milhon of bank loans had cash and short term investments totaling $31.7 milkon.
under the Company's $250 milhon domestic Revolving Credit Agreement, (the 1982 RCA) and $18.0 milkon of commer- The Company's financial objective in 1985 was to develop cial paper were outstanding. In mid-1983. adjusting to the an interim financing plan that would assure its financial viabih-pofitical and regufatory uncertainties facing the Company, ty at least through mid-1986. This objective was accomphsh-the down-rating of its securities to below investment grad ' ed in June 1985 when the Company entered into an amend-and the withdrawal of its commercial paper ratings, the Com-ment to the 1984 RCA with its lending banks. Pursuant to pany modified its objectives to ehminate the use of aff short- this amendment, (a) the termination date of the 1984 RCA term debt and to maintain a total of cash and short-term in- was extended through June 30,1986, (b) the Company sold vestments of between $200 milhon and $300 milhon. Toward $225 milhon of G&R Bonds,13%% Series Due 1995 and this objective, in 1983 the Company borrowed the full $400 (c) the Company prepaid $145 milhon of its outstanding bank milhon availab!e under the 1982 RCA and its Eurodollar debt. The Company also repaid $75 milkon of bank debt Revolving Credit Agreements on a long-term basis. The Com-when it matured in August 1985. At year end 1985,$30 pany had cash and short-term investments. exciuding in- million was outstanding under the 1984 RCA, and a total of !
vestments in the Trusts. totakng $275.4 melhon at the end of
$1.03 bilhon pnncipal amount was outstanding under all other l agreements with the Company's lending banks. Of the $1.03 b'llion. $28 million was repaid at matunty in January 1986, The Company's ongrnal 1984 financing p!an called for the 6624 milhon is scheduled to mature in the last six months .
sale of an aggregate of approximately $700 milhon of debt 8- j and equity secunties. In January 1984, the Company sold five melhon shares of common stock providing gross pro-n December 1985, the Company issued $150 milkon pnn-I
5 cipal amount.of its Variable Rate Authonty Financing Notes unless cured, could by reason of cross-default provisions in Due 2016 to the New York State Energy Research and instruments governing other long-term debt of the Company, Development Authonty (NYSERDA) to support the like give rise to rights of acceleration of maturities of such other amount of tax exempt bonds issued by NYSERDA to finance debt. In either of such events, the Company might be re-a portion of LILCO's share of the pollution control facilities quired to file a petition for relief under the Federal Bankrupt-at Nine Mile Point 2. The interest rate on the Note and Bonds cy Code.
effective to February 28,1986, was 6Wo/o. For the twelve month period beginning March 1,1986, the interest rate is (2) During 1985 and 1984, no short-term debt was outstan-5.600/o. In December 1985, the Company paid Niagara ding other than amounts outstanding under the 1984 RCA.
Mohawk (a) $25 million to reduce from $250 million to $225 During 1983 the maximum aggregate amount of short-term million the amount of G&R Bonds held by Niagara Mohawk, bank loan and commercial paper borrowings at any one (b) $14 million to repay in full amounts advanced in 1985 month-end was $212.7 million at June 1983. The daily by Niagara Mohawk in excess of the $250 milhon provided average of total bank loan and commercial paper borrow-for in the Settlement Agreement (c) $71 million as an ad- ings was $71.7 million in 1983. The approximate weighted vance deposit for future construction and nuclear fuel expen- average interest rates (excluding the effects of compensating ditures of the Company's share of Nine Mile Point 2 to be balances and commitment fees) on revolving credit and com-paid by Niagara Mohawk, and (d) $35 million to reduce from mercial paper borrowings was 10.2% in 1983.
$42 million to $7 milhon the amount outstanding under the Company's 19a/o Note to Niagara Mohawk. (3) At December 31,1985,1984, and 1983, the Company's capitalization ratios were:
The Company's financial objective in 1986 is to develop a long-term plan for its financial viability. To this end, in January capitaissation natios 1986 the Company reached preliminary agreement with its at December 3f 1985 1984 1983 lending banks for restructuring its outstanding $1.0 billion Debt (includes Trusts) 47.3%
- 48.3 % 51.1 %
of bank debt (the 1986 RCA). In part enabling the Company Preferred Stock (No Preference Stock) 10.5 12.1 13 4 to reach this agreement at that time, the Company was Common Stock and Retained Earnings 42.2 39 6 35.5 granted in January 1986 the full $68.7 million of annual elec-inc rate rehef it requested in the form of additional FSA Total 100.0 % 100 0 % 100 0 %
revenues. In February 1986, the Administrative Law Judge
- includes Current Matunt,es of Trust obbgations-of the PSC recommended to the PSC that it adopt the ten-year Rate Moderation Plan (RMP) of the Company to recover The PSC has found that approximately $1.4 billion of the Shoreham's prudent costs. Company's investment in Shoreham was imprudently incur-red and that such imprudent investment should not be implementation of these arrangements is subject to final ap. recovered through rates charged to customers. The Com-proval by the Company's 42 lending banks, approval by the pany intends to ask the PSC to reopen the proceedings to PSC, the sale of $525 million of the Company's G&R Bonds consider additional evidence and arguments and, if and satisfactory documentation. Under the proposed ar. necessary, to appeal the decision to the courts. Intervenors rangement,5400 million of the proceeds from the safe of the have indicated that the disallowance for imprudence should gar Bonds would be immediately apphed to prepay the be greater than $1.4 billion. The Company on February 28, outstanding bank debt on a pa-rata basis. Mandatory 1986, filed its accounting plan, as required by the PSC. The payments of the remaining $600 million of bank loan Company's accounting plan provides that any wnte-down balances would be made in 16 quarterly instalIments begin. will be on an after-tax basis. If the amendment to Statement ning December 31,1988 and ending September 30,1992. of Financial Accounting Standards No. 71 (see Note 1 of Under certain circumstances relating to the payment of Notes to Financial Statements) is adopted in its present form, Preferred and Common Stock dividends, the Company the Company would be required to record a write-down of would be required to make mandatory prepayments to approx;mately $1.2 billion net of tax effects with respect to reduce bank loan balances. In addition, (a) the termination the Shoreham disallowed costs and the Nine Mile Point 2 date of the 1984 RCA would be extended from June 30. most recent estimate of costs in excess of the amount pro-1986 to December 31,1988, (b) the maximum amount vided in the Offer of Settlement as discussed in Note 6 of available under the agreement would be increased from Notes to Financial Statements. Accordingly, retained earn-
$150 milkon to $200 mill:on, and (c) the Company would be ings would be reduced by approximately $1.2 billion on an allowed to sell up to $200 milhon of additional G&R Bonds after-tax basis and the effect, as measured by the adjusted in each of the years 1986 through 1992. G&R Bonds not capitahzation ratios at December 31,1985, would be (a) Debt sold in any one year may be sold in any subsequent year 57.00/o, (b) Preferred Stock 12.60/o and (c) Common Stock through 1992. Petitions are pending before the PSC seek. and Retained Earnings 30.40/o.
ing approval for the proposed sale of $525 million of G&R I Bonds and for the restructunng descnbed above. The Com. In a PSC proceeding estabhshed to consider proposals to I pany cannot provide assurance that the PSC will grant its amehorate the impact on customers of Shoreham-related approval or that the Company will be able to sell the G&R rates, while preserving the financialintegnty of the Company Bonds as proposed. If the proposed restructuring cannot be so that it can continue to supply safe, adequate and rehable implemented, the Company may be unable to pay the debt service, an Administrative Law Judge has recommended that maturing later in 1986. A default of such matunng debt, the PSC adopt, in all substantial respects, a ten-year RMP
O proposed by the Company. For further information on the $515 million, assuming Shoreham begns commercial opera-RMP see Note 6 of Notes to Financial Statements. Legisla- tion in December 1986. Assuming the 1986 RCA is con-tion which the Governor of the State of New York has pro- sumated as contemplated, refunding requirements will total posed for his 1986 program for action by the State $524 million including $400 million to prepay outstanding Legislature would prevent rate recovery of any costs incur- bank debt pursuant to the 1986 RCA and $59 million to red in connection with a generating station that never prepay in full the amount currently estimated to be outstan-operates. Such a proposal was adopted in the State ding at March 31,1986 under the 1984 RCA.
Assembly in late February 1986. A similar proposal, limited, however, to nuclear power plants owned by a sing!e utility, If Shoreham does not begin commercial operation in was also adopted by the New York State Senate in late December 1986, capital expenditures for Shoreham in February 1986. The Company cannot predict what action December and thereafter are estimated to add up to $25 the State Legislature will take respecting such proposals or to $35 million per month, including approximately $8 to $15 what action the Company might take if any such proposals million of AFC, to the cost of the plant. For additional data are enacted into law or what impact the new legislation might on construction expenditures for pnor years, see Table 9 of have upon the Company's financial condition and results of " Selected Financial Data."
operations.
Capital Provided and Liquidity: Internal cash generation Capital Requirements: Providing the funds to meet the from operations provided 89% of total construction expen-Company's capital requirements in 1986 and thereafter will ditures in 1985. 500/o in 1984 and negative 120/o in 1983.
be dependent upon implementation of the restructunng plan For this purpose, construction includes (1) LILCO construc-previously discussed, the Company's ability to conserve tion less AFC plus (2) construction and nuclear fuel expen-cash, timely receipt of adequate additional rate relief, in- ditures for the Company's share of Nine Mile Point 2 less cluding recovery in rates of its prudent investments in interest capitalized by Tri-Counties Construction Trust plus Shoreham and Nine Mile Point 2, whether or not either plant (3) expenditures of Tri-Counties Resources Trust for nuclear ever operates. and its ability to access the capital markets. fuel less interest capitalized by the Trust.
The Company believes that there are currently marketc for high yield utility debt secunties, such as those of the Com- The capital provided in 1985 was as follows:
pany. The Company cannot at this time predict whether it will be able to implement tt.e 1986 RCA as proposed. or to Actual obtain any or all of such external financing or rate relief- Capital Provided (Dollars in M6!hons) 1985 Capital requirements in 1985 were as follows:
External Financing - Long-term Actual Deut (1) $504 Preferred Stock -
Capital Reqivernents Common Stock 5 (Doltars en Moons) 1985 Total Extemal - Long-term 509 Construction Requirements (Incl AFC) 16 Cash and Short-term Investments Electnc Internal Cash Generation Shoreham 0) $547 412 Pre Operatonal Cred!t -
from Operations (2) 232 Other Internal Funds tLne MJe Point 2 (1) Generation (Excluding Current Maturities Nuclear Fuel (1) 22 28 of Trust Obligations)(3) (109)
Other Producton O'her 43 Total Capital Provided $828 Total E'ectnc 872
- 0) includes debt owed to NMPC and includes Authonty Financing Notes mon 1 (2) includes Total Constructon md AFC) 901 (a) Retained earnings (b)Deprecrabon. amortvation. and other Total Construction (Exct. AFC) 523 (c) Deferred and other federal income taxes Refunding Requirements less Senior Securties 41 (d) Allowance for funds used dunng construction Bank Loans (inc'ud:ng Trusts) 156 1984 Niagara Moha^k God Note (3) includes 35 (a) Char.ges in worlong caprtal Total Refunding Requirements 234 (b)Other non cash items - net Construction Funds Deposited with Niagara Mohawk 71 The Company estimates that the 1986 Capital requirements Total Capital Requirements $828 will be met with proceeds from the swe of $525 numon of G&R Bonds pursuant to the 1986 RCA and with approx.
(t) See Notes 4 and 6 of Notes to Finanoaf Staternents imately $575 million of internal cash generation from opera-Capital requirements in 1986 are estimated to total approx. tions. Pursuant to the 1986 RCA, the Company will also have amately $1039 million Cash requirements for construction availabfe in 1986 up to $200 million of revolving credit and excluding AFC in 1986 are estimated to total approximately proceeds from the safo of up to an additional $200 million
7 of G&R Bonds, subject to PSC approval and satisfactory The Company cannot predict what these panels will recom-market conditions. mend, the form of any legislative proposal, the likelihood of adoption of such a proposal or, if such a proposal becomes Federal legislation enacted into law in 1984 may permit tax- law, what action the Company will take in response. The exempt financing of the costs of Shoreham and most other Company believes, however, that any government takeover ongoing capital expenditures for electric facilities, but pen- would be costly, with little, if any, benefit to the public.
ding tax legislation would ehminate these possibihties. Such financing depends, among other additional factors, on the Results of Operations receipt of vanous approvals from certain agencies of the State of New York. The Company has been advised that it must Earnings: Summary results of recent eamings are:
be able to provide assurances that Shoreham will be per-mitted*to become operational before the required State ap- Earnings 1985 1984 1983 provals for tax-exempt financing of the Shoreham facihty and income for Common Stock adequate credit support for any tax-exempt financing will be (MAons) s440.6 $340.3 5287.2 forthcoming. Average Common Shares Outstand ng (Moons) 110.8 110 1 102 5 For information with regard to the Company's actions to {yned((b^Ue 9 m $ 3.97 $ 3 09 $ 2.80 recover its costs in the abandoned New Haven and Allowance for Funds Used Jamesport nuclear projects and to protect its investment in Dunng Construct on (MAons) $378.2 $310.1 5284 8 Bokum Resources Corporation (BRC), see Note 6 of Notes AFC % of income for to Financial Statements. Common Stock 86 % 91 % 99 %
For additional data on the Company's capitahzation and other The increases in average common shares outstanding in-Balance Sheet items, see Table 10 of " Selected Financial dicated in the above table reflect the issuance of a total of Data." For quarterly data on the market prices of the Com- 0.8 milhon shares in 1985, 6.1 milhon shares in 1984, and pany's secunties dunng the past two years, see Table 11 3.5 million shares in 1983. For all years, and particularly in of " Selected Financial Data! 1985, income for common stock increased, in part, because it includes increases in LILCO non-cash AFC which ref!ect Through December 31,1985, the Company had expended the inflationary impact of higher costs of capital and addi-
$3.2 milhon in defense of two shareowners' derivative ac- tional capital raised (see Note 1 of Notes to Financial tions and a class action settled in 1983 which alleged federal Statements).
secunties law violations with respect to disclosures concern-ing the BRC transactions. Of this amount, approximately $1.8 The ratio of earnings to fixed charges was 2.75 in 1985 com-milhon was paid on behalf of certain of the Company's past pared with 2.49 in 1984, and 2.46 in 1983. The ratio of ear-and present directors and officers. The Company recovered nings to fixed charges and preferred dividend requirements
$1.4 milhon of the $3.2 milhon through December 31,1985. was 2.15 in 1985, compared with 1.91 in 1984, and 1.88 pursuant to its airer tors' and officers' liabihty insurance with in 1983. Both ratios, in each instance including AFC, are the National Union Fire insurance Company (National). This computed in accordance with Secunties and Exchange Com-insurance and insurance currently with the New England mission rules. A similar ratio of earnings, but excluding AFC, Reinsurance Corp.,and the Harbor Insurance Company pro- to fixed charges, was 1.62 in 1985 compared with 1.40 in vide the Company with coverage for wrongful acts by direc- 1984, and 1.28 in 1983.
tors and officers as well as indemnification for the Company and its d: rectors and officers. In addition, the Company had Dividends: The February 1,1984, common stock dividend also expended $0 4 milhon through December 31,1985, in was paid. On March 6,1984, the Company announced that, defense of another class action and denvative action alleg- as part of its cash conservation program, it would omit cash ing federal secunties law violations with respect to disclosures ,
dividends on the common stock for the balance of 1984. The '
pnncipally concoming the prudence of the construction cnsts 1984 RCA required the Company to suspend the declara-of Shoreham and its management. The insurance from Na- tion of Preferred Stock dividends payable on and after Oc-tional and Associated Electnc and Gas insurance Services tober 1,1984, and not to declare or pay any dividend on Ltd. also provides fiduciary habihty coverage for the Com- its common stock through the matunty of the 1984 RCA, pany, its directors, officers and employees for any a!!cged onginally December 31,1985. This matunty has been ex-breach of fiduciary duty under the Employee Retirement In- tended to June 30,1986. (See "Cc ptal Requirements and come Secunty Act of 1974. The total annual premiums for Liquidtty").
all these coverages were $1,040,000.
The proposed modifications to the 1984 RCA contemplate Public Power Proposals the ehmination of all restnctions on the payment of Preferred Several government study panels are considenng proposa!s Stock dividends in arrears and those currently payable for the estabbshment of a pubhc power authonty to replace through December 31,1987. With respect to Common Stock the Company. Based upon media reports of statements dividends and, subsequent to December 31,1987, with made by legislative leaders and the Govemor of the State respect to Preferred Stock dividends, payment would be (
of New York, the Company beheves that some proposal will kmited by a formula tied to internal cash generation. Of the be considered by the New York State Legislature in 1986. maximum amount calculated according to that formula, 2570 J
]
i 8
will be available for mandatory prepayments to the banks and, therefore, may be taxable as ordihary income. The ten-with 75% avai!able to the Company for dividend payments. tative Intemal Revenue Service determination is that for However, mandatory bank prepayments would be required federal income tax purposes for 1983,100% of the dividends to the extent dividends are paid, limited to the lesser of (a) paid on the common stock and 68.83% of the d:vidends paid prepayments pursuant to the formula or (b) $0.33% cents on all series of preferred stock represent a return of capital for $1.00 of actual dividends paid. These mandatory and, therefore, may not be taxable as ordinary income. Such prepayments to the banks will cease after they total $250 estimates are subject to audit by the Internal Revenue million. Service.
Common Stock dividends, however, would at all times be The trends of earnings, dividends, and coverage of interest subject to the Company's Certificate of Incorporation which and fixed charges over the past six years are provided in prohibits the payment of Common Stock dividends so long the Summary of Operations, Table 1, of " Selected Financial as Preferred Stock sinking fund requirements or dividends Data.' Information with regard to the electnc and gas are in arrears. Dividend limitations contained in the mortgage segments of the Company's business for the most recent secunng the Company's First Mortgage Bonds are not three years is provided in Note 7 of the Notes to Financial material The Company's General and Refunding indenture Statements. Additional data for prior years for both electric does not restnct the payment of dividends. The Company's and gas operations is contained in the vanous tables of retained earnings at December 31,1985 were approximately " Selected Financial Data."
$1.5 billion. The effect of the disallowance ordered for Shoreham, if rnade effective as of December 31,1985, would Revenues: Total revenues, including revenues from the be, amer provision has been made for the estimated incomo recovery of fuel costs, increased $60.2 million, or 3.1% to tax effects of the disallowance, to leave about $0.5 bilhon $2,033.8 million in 1985 from $1,973.6 milkon in 1984. The available for the payment of dividends. Reflecting the om s- increase in 1984 from 1983 was $185.7 million, or 10.4%.
sion of dividends, retained eamings grew by approximately Revenues realized from sales of electncity and gas to the
$130 million per quarter in 1985. various classes of the Company's customers are shown in detail in Tables 2 and 3 of " Selected Financial Data." Elec-Sinking fund requirements on the Company'c Preferred Stock tnc and gas revenues reflect monthly adjustments in rates total $10.6 milhon for 1985 and $13.6 milkon for 1986, respec- as a result of changes. up and down, in the cost of fuels for tively. The Company satisfied the 1985 sinking fund re- electric generation, purchased power costs and the cost of quirements totaling $6.2 milhon on pnvately held Preferred gas.
Stock in 1984. Satisfaction of the 1985 sinking fund re-quirements for publicly held preferred stock totahng $4.4 The pnnctpal factors causing these changes in revenues milhon are in arrears. However, the Company has purchas- were:
ed shares of its Preferred Stock in amounts sufficient to satisfy these 1985 sinking fund requirements, but is holding the increases shares as Treasury Stock. Similarly, the Company has pur. Factors Causing Change in Revenues from Prior Year chased, and is holding as Treasury Stock, shares of its Prefer. (goiiars ,n Maons) 85/84 84/83 red Stock in amounts sufficient to satisfy the $7.4 milhon
$( ) $3 related to 1986 requirements for pubhcly held Preferred Stock
@[e Sd ePu 5e chased Power not yet in arrears. (3) Changes in Energy Sales and Other Changes (4.5) 28 2 The Company's abikty to pay Preferred or Common Stock rotal s 60.2 sies 7 dividends is dependent upon (a) implementation of the 1986 RCA. (b) adequate and timely rate rekef to reflect the pru- Additional information about these factors:
dent cost of Shoreham, whether or not Shoreham operates, (1) Fuels and Purchased Power: Changes between penods (c) the availabihty of cash, and (d) action by the Board of n the cost of electnc fuels, purchased power, and gas fuels Daectors were influenced primanly by (a) the mix of fuels used and (b) changes in the cost of fuels Quarterly dividends on the common stock were paid as (a) Dunng 1985 and 1984, the Company dispiaced 39% and follows dunng the last three years: 40%, respectively, of the oil it would otherwise have used to generate electncity by burning natural gas and purchas-Paid Per Share Ing power from other utihties Burning gas and purchasing Payrnent Dates 1985 1984 1983 power displaced 9.7 milhon barrels of oil in 1985 and 10.0 milhon barrels in 1984. The Company estimates that these Feb 1 - 50' F 60'+
My1 . 50 % and related interchanges of power with other utihties saved Aug 1 - 50m electnC customers a total of $89.2 milkon in 1985 and $93.4 Nov 1 - 50V milhon in 1984 compared to the estimated cost of gerierating Total Pad $0.00 $0 50$ $2 02 an equivaient amount of power on the LILCO system with oil. In addition, electnc customers saved $23.0 milhon dur-The Company estimates that for federal income tax purposes ing 1985 and $25 0 milhon dunng 1984 as a result of burn-all dividends paid in 1984 did not represent a return of capital ing higher sulfur oil through the Company's Environmental
O Quahty Control System. As a result of sharing in the September 1,1984. This rate relief did not significantly reduce economies of burning gas to generate electricity, gas the Company's requirements for cash from other sources customers saved $11.8 million in 1985 and $14.9 milhon in during 1984. However, this rate relief enabled the Company 1984. to obtain additional credit and made possible the Company's re-entry into the securities markets in 1984, and has provid-The mix of fuels and purchases of power for providing the ed a portion of the cash requirements for the Company's Company's electnc system energy requirements dunng operational, construction and refunding needs in 1985.
1985,1984, and 1983 were as follows:
On February 27,1985, the Company filed for a 3.8% in-Fuel Afix 1985 1984 1983 Crease in electric rates to become effective January 1,1986, Od 61 % 60 % 62 %
to provide an annual increase of $68.7 million. This increase Purchaws 20 21 23 was granted in full by the PSC. The new rates became ef-Natural Gas 19 19 15 fective January 30,1986, all of which was provided through Total 100 % 100 % 100 %
the FSA.
(b) The cost of electric and gas fuels in 1985,1984, and 1983 (3) Changes in Energy Sales and Other Changes:
were: Changes in energy sales to customers result from changes in (a) the number of customers and (b) the level of consump-Fuels and Purchased Power. tion by Customers, which, in turn, may be influenced by dif-(Dollars in Moons) 1985 1984 1983 ferences in weather conditions.
Elecinc Fuels $514.5 $568 8 $516 8 Electric Sales: The chances in the above factors between Purch d Power 84 current and prior compa'rable periods were as follows:
l2 Total $830.9 $8851 $854 8 % Increase from Poor Year
- Includes fuel cost adjustment deferred Custorners and Average Use 85/84 84/83 The average unit prices of fuels in 1985,1984, and 1983 be of customers
<a) gerage g
were as follows: commerciai & Industnar 2.4 2.0 (b) Average kWh Use Per Customer AFerage Unit Price
- 1985 1984 1983 Reader ni (1.7) 08 For Electnc Operations %wn Commeroa! & Industnal 1.0 28 Fueis consumed for et generaton 4.19: 4 68: 4 42: Consumption dunng 1985 by residential customers ac-Purchased Power 3.74: 3 99: 3 95' counted for approximately 43% of the Company's annual For Gas Sendout - $ d'h $3.80 $3 67 $413 system kWh sa!es of electncity. This is one of the highest pro-
- Includes fuel cost adjustment de' erred pops d sd Ms b h dde @y Wy, ad m tnbutes to relatively stable operations of the Company.
Additional fuel data for pnor years is contained in Tables 4 and 5 of " Selected Financial Data.' riectric sales (MAons of k%r) 1985 1984 1983 (2) Rate Increases: Total revenues net of the above fuel costs system sees increased $114.4 milhon, or 10.5%, in 1985 to $1,202.8 pes, dent;al 5,970 6 000 5 000 mdlion and $155.4 mdlion, or 16.7%, in 1984 to $1,088.4 Commeraal & Industnal 7,369 7.129 6.797 milhon. Other 451 448 452 Total System Sees 13,790 13 577 13.149 Rate increases of $118.9 milhon provided the total $114.4 Power Pool Sees 226 418 494 mdhon increase in revenue net of fuels in 1985. The $4 5 Total sses 14.016 13 995 13 643 mdkon offset to this increase was due to an increase of $10 5 m>Ihon from increased e!ectric sales and a decrease of $15 0 Total kWh sales to resider,tial, commercial and industrial mdhon in gas sa!es. Rate increases of $127.2 mdhon provid-ed the major portion of the total $155.4 mJhon increase in customers increased 1.6% in 1985 over 1984 and increas-revenue net of fuels in 1984. The $28.2 mdhon balance of ed 3.4% in 1984 over 1983. Reflecting the strength of the the increase was due to a gain of $14.1 mdlion from increas- Long Irland economy, kWh sales to commercial and in-ed efectnc sa!es and an increase of $14.1 rndkon in gas sa!es dustrial customers increased 3.4% in 1985 over 1984 and ncreased 4.9% in 1984 over 1983.
In 1984, the PSC granted the Company permanent elecrtric rate rehet totakng $245.0 milhon annually, of which $47.4 Gas Sales: Approximately 71% of the Company's annual mdhon was provided through conventional rate rehef and system dekatherm (dth) sales of gas results from consump-
$197.6 mdhon was provided through the FSA, the latter tion by space heating customers. Accordingly, a total gas amount including $90 6 mdkon of intenm rate rehef granted system revenues and sales are heavdy influenced by in September 1983. The new rates became effective on seasonal temperature vanations between penods and the avadabihty of gas for safe to interruptible customers
10 The average dth use of gas by space heating customers Other item:: Federal income taxes in 1985 were $38.0 decreased 6 2Wo in 1985 from 1984 conipared with the 9.7% milhon higher than in 1984. In 1984, federal income taxes decrease in the number of degree days. However, the were $51.1 milkon higher than in 1983. Changes in federal average number of gas space heating customers increas- income taxes are due principally to variations in net income ed 2.2% in 1985 together resulting ;n a 4.2% decrease in before income taxes, recognition of investment tax credits, total sa!es of gas to firm space heating customers. Sales of ai,d items capitalized for financial statement purposes that gas to firm non-space heating customers were down 2.3% are allowed as current deductions on the Company's tax in 1985 over 1984 while sales to interruptible customers in- returns. (See Notes 1 and 5 of Notes to Financial Statements )
creased 10.4%. The average dth use of gas by space heating customers increased 6.4% in 1984 from 1983 com- Other items such as depreciation, operating taxes, interest pared with the 7.1% increase in the number of degree oays expense and preferred stock dividend requirements. (in-between the years. In addition, the average number of gas ciuding $84.7 milhon in 1985 and $21.3 milkon in 1984 be-space heating customers increased 1.5% in 1984, together ing reflected in the financial statements although unpaid resulting in an 8.0% increase in total sales of gas to firm beginning October 1,1984) in aggregate increased $36.3 space heating customers. Saies of gas to firm non space milhon, or 4.7%, to $808.2 million in 1985, from $771.9 million heat.ng customers were up 2.7% in 1984 over 1983 while in 1984. These were partially offset by a $68.1 milhon increase safes to interruptible customers increased 7.3%. in total AFC and $27.0 milhon decrease in Allowance for bor-rowed funds used during construction-trusts. The increase cas sales in these items in 1984 over 1983 was $97.0 milhon, or 14.4%.
Nth in Mai.ons) 1985 1984 1983 These were partially offset by a $25.3 milhon increase in total Fam system Sxes AFC and a $22.9 m:lhon increase in Allowance 'or borrow-Space Heanng 35.4 36 9 34 2 ed 'unds used dunng construction-trusts. Increases in Non-Space Hea$ng 8.1 83 81 depreciation generally result from the additions to plant in service. Increases in operating taxes are largely due to higher Total Fem 43.5 452 42 3 Interrupt tAe 6.3 57 53 property taxes resulting from the addation of new pfant and 9
Total system sa:es 49.8 50 9 47 6 and franchise taxes vary with revenues. Increases in interest Dwree Da,s Bmed 4,444 4 921 4 596 charges and preferred stock dividend requirements result pnmanly from increased bank borrowings anr1 from the sale Additional energy sa!es data for pnor years is contained in of additional secunties. Interest charges on Trust obkgations Tables 6 and 7 of " Selected Financial Data.' are capitahzed and vary with changes in the lending rates of the Trust's credit banks. Such charges are offset by AFC Operations and Maintenance Expenses: Total operations related to Trust interest so there is no effect on net income.
and maintenance expenses exclusive of fuels and purchas-ed power decreased $18.7 milhon, or 7.3%, in 1985 to AFC is a non-cash credit to income that represents the cost
$237.7 milkon. These expenses decreased $5.9 milhon, or of borrowed funds for construction purposes and a 2.3%. in 1984 to $256.4 million. Nearly 67% in 1985 and reasonable rate upon a utihty's other funds when so used.
58% in 1984 of these total costs represented employee The amount of AFC ('ocluding interest on Trust obhgations wages and benefits. The $18.7 million net reduct;on in 1985 which corresponds to AFC) fhctuates from penod to penod is a'ter giving effect to an increase of $11.3 milhon to reflect with changes in the cost of money, the level of construction twelve mcnths of amortizatron of the abandoned New Haven activity, the amount of construction work in progress (CWIP) nuclear plant and a decrease of $32.3 milhon resulting from 'ncluded in rate base, and modifications in regulatory pohcy.
the change in cash conservation expense deferrals (estabhsh. The average amount of electnc CWIP included in rate base ed pursuant to an order of the PSC in 1984 in order to hmit (nn which the Company is allowed to earn a cash return in income for common stock to the rate of return on common lieu of non-cash AFC) was $400.0 million in 1985,1984 and equity a!! owed by the PSC). The $5.9 milkon net reduction 1983, including $355.0 milkon related to Shoreham in each in 1984 from 1983 is after giving effect to increases of $5.6 year. In addition, the PSC has alfowed the Company to cof-milkon to ref!cct four months of amcrtization of the abandoned lect in rates through the FSA cash returns to enable the Com-New Haven nuclear plant and $15.7 milhon of cash conser. pany to ma'ntain its financial viabihty. At present, the cash vation expense deferrals The decrease in 1984 from 1983 received through the FSA is deemed to be in hou of AFC in operations and maintenance expenses exclusive of fuels on Shoreham CWIP, cumulatively, of approximately $0.9 and purchased power, totahng $27.2 milhon before the in. bilhon in September 1984 and 31.5 bilhon in late January crease ind cated above. vns due pnncipa!Iy to reductions 1986.
in expenses due to the Company's cash conservation ex-pense program. Information concerning the effects of infla. LILCO AFC (excluding AFC related to Trust interest) totaled tion on the Company's operations is contained in Note 9 of $378.2 milhon in 1985. $310.1 milhon in 1984 and $284.8 Notes to Financial Statements. Additional expenso data is milkon in 1983. representing 86%,91%, and 99% of income contained in Table 8 of "So!ected Financial Data." for common stock in each year, respectively.
11 Report ofIndependent Azountant3 To the Shareowners and Board of Directors of Long Island Lighting Company We have examined the balance sheet of Long Island Lighting Com- to operate from the Nuclear RegulatoryCommission ("NRC"). Fur-pany as pf December 31,1985 and the related statements of in- ther, there are uncertainties with respect to tne ultimate rate treat-come. shareowners' equity and changes in financial position for ment of Shoreham costs, including among other matters the ef-the year then ended appeanng on pages 12 te 32. Our examina- fect, if any, of (,) the final disposition of the order of the PSC drsallow-tion was made in accordance with generaly accepted auditing ing approximately $1.4 bdhon of Shoreham costs from rate standards and. accordingly, included such tests of the accoun- recovery.(h) actions the PSC wdl take with respect to rate modera-ting records and such other aud: ting procedures as we cons dered tion proposals to amehorate the impact on customers of Shoreham-necessary in the circumstances. The financial statements of the related rates and (m) proposals before the New York State Company as of December 31,1984 and 1983 and for each of Legislature and htigation involving another utitty before the New the four years in the penod ended December 31,1984 were ex- York Court of Appeals respecting rat' recovery for a generating amined by other aud. tors whose report dated March 25,1985 was station that never operates As a resu!t of the foregoing the Com-quahfied as being sebject to (1) the Company's cont nued finan- pany is unable to determine the recoverabihty of its Shoreham in-cial viabihty; (2) the effects on the 1984 and 1983 financial vestment and the effect thereof on its financial statements statements of such adjustments if any, as might have been re' quired had the outcome of uncertainties easpecting (i) the (c) The Company's investment (an 18% undivided interest) in the Shoreham Nuclear Power Station. (n) the abandoned nuclear pro- Nine Mde Point 2 nuclear power plant is approximately $867 muon ject at Jamesport. New York. (m) advances and loans made to at December 31.1985. The Company is unable to determine what Bokum Resources Corporar on and (iv) nuclear fuel for Shoreham the ultimate cost of its share of Nine Mde Point 2 wdl be and what and the Nine Mde Point 2 nuclear power plant. been known. and imp ct regulatory actions wdl have on the recoverabihty of the Com-(3) the effects on the 1984 financial statements of such adjustments. p ny s investment.
if any, as m'ght have been required had the outcome of uncer (d) At December 31,1985, the Company has made advances and ta:nt.es respecting (i) the Nine Mde Point 2 nuclear power plant loans. including financ:ng costs. of approximately $126 mdhon to and (n) the consohdated class act;on and shareholders' denvahve Bokum Resources Corporation ("BRC") and htigation exists be-action lawsu.ts. been known The foregoing matters are discuss tween the Company and BRC Further, the Company has expend-ed in Notes 4 and 6 of the Notes to Financial Statements ed approximately $165 mdhon for the procurement of nuclear fuel As more fully discussed in Notes 4 and 6 of the Notes to Financial The Company would have no use for the fuel in the event that S:atemer is operating kcenses for Shoreham and Nine Mde Point 2 are not issued. In addition, the Company has incurred costs of approx-(a)At December 31.1985. the Company's current habikties exceed- imately $104 mdhon through December 31,1985 for its share of ed its current assets by $623 milkon. current habikties include $662 the abandoned nuclear project at Jamesport, New York. The Com-mdhon representing the current insta3ments of indebtedness to pany is presently unable to determine the amount of loss. if any, banks under the th rd mortgage which aggregates approximate- that wdl result from the foregoing maPers.
ly $1.031 buon The Company has completed prehminary negotia-ttons Wdh respect to the refinancing of such indebtedness The (e)The Company is presently unable to measure the impact, if any, proposed refinancing is subject to. among other matters. final ap- that the u!!imate resolution of the consohdated class action a id proval of the lend;ng banks the safe of $525 meon of General shareholders' denvaSve action lawsuits wdl have on its fiqancial
, & Refunding Bonds. of wbch $400 meon wdl be used to prepay statements the lending banks. and the approval of the Pubhc Service Com- In our opinion, subject to the effects on the 1985 firiancial mission of the State of New York ("PSC"). The Company cannct statements of such adjustments, if any, as might have been re-provide assurance that the PSC wdl grant its approval or that the quired had the outcome of the uncertainties referred to in items Company wdl be able to sell the General & Refunding Bonds as (a) through (e) above been known. the financial statements referred propused if the proposed refinancing cannot be implemented, to above present fairly the financial position of Long Island Lighting the Company may be unable to repay the debt matunng in 1986 Company a' December 31,1985. and the results of its operations in which event the Company might be required to seek relief under and the changes in its financial position for the year then coded.
Chapter 11 of the Federal Bankruptcy Code lhe accompanying in conform;ty wrth generally accepted accounting pnnciples ap-financial statements do not include any 7djustments relating to the phed on a basis consistent with that of the preceding year recoverabdity of recorded asset amounts or to the amounts and classification of habiht es that might be necessary in the event that the proposed refinancing is not consummated Ernst & Whinney (D) At December 31. 1985. the Company's investment in the Shoreham Nuclear Power Station ("Shoreham") apprommated
$4 4 buon and the Company wJl expend add,tional amounts Melvdre . New York through the date of its commercial operation. There is substantia! February 28.1986 oppoohon to the hcengng of Shoreham from the State of New York.
Suffo'k County and otners and. according!y. the Company is unable to predict when, if ever, Shoreham w;ll obta'n its kcenae
Financial Ct:tement] j 12 Balanco Sheet Assets At December 31 (In thousands of dollars) 1985 1984 1983 Utility Plant Electnc $1,883,276 $1.831.580 $1.798.490 Gas 384,200 368,531 360.174 Common 93,679 87,633 85.734 Construction work in progress 5,156,629 4.317,759 3.467.211 Nuclear fuel in process 18,687 9.113 23 Construction and nuclear fuel in trusts 537,133 657.928 710.888 Nuclear fuel in reactor 93,635 - -
8,167,239 7.272.544 6.422.520 Less - Accumulated depreciation, depletion and amortization 853,071 788.565 727.298 Total Net Utility Plant 7,314,168 6.483.979 5.695.222 Other Property and Nonutility property, pnncipally at cost 1,886 2.811 2.816 Investments investment in subsidiary companies, at equity 520 569 637 Advance payment for construction costs 71,377 -- -
Other investments and deposits, pnncipally Bokum Resources Corporation 66,000 65.259 64.240
-_ -- - --__--_ - __ Total Other Property and investments 139,783 68.639 67.693 Current Assets Cash 12,028 10.105 3.301 Temporary casri investments 3,300 21.600 272.074 Special deposits 3,486 61.900 3,557 Accounts receivable (less allowance for doubtful accounts of $3.864.000
$3.838.000 and $4.289.000) 178,965 184,028 169.947 Accrued revenue on accounts billed bimonthly 22,622 23.908 21,328 Matenats and supplies at average cost 33,513 28.010 31.575 Fuel el at average cost 37,684 49.359 40,211 Gas in storage at average cost 39,428 43.715 43.949 Prepayments- . - - - - . - - . . _ _ _ _ _ _ . - - 12,047 2.015 1.060 Total Current Assets 343,073 424.640 587.002 Deferred Charges Unamortized cost of abandoned New Haven generating project 27,133 44.108 -
Deferred storrn damage costs 42,548 - -
Other 87,790 78.807 39.666 Total Deferred Charges 157,471 122.915 39,666 1 Total Assets $7,954,495 $7,100.173 $6.389.583 See Notes to F,nancial Statements.
I
13 Capit_alization and Liabilities At Decernber 31 (In thousands of dollars) 1985 1984 1983 Capitalization Long-term debt $2,718,192 $2.316,175 $2.180,721 Unamortized premium and (discount)on debt (9,414) (9.658) (8.198) 2,708,778 2.306.517 2,172.523 Preferred stock - redemption required 527,612 530.662 542,450 Preferred stock - no redemption required 221,056 221.056 221.119 Treasury stock, at cost (7,654) (505) (1,772)
Total Preferred Stock 741,014 751,213 761,797 Common stock 555,295 551.061 520,600 Premium on capital stock 1,000,731 999.996 964,562 Capital stock expense (56,116) (56.103) (56.278)
Retained earnings 1,480,644 956.356 580.115 Total Common Shareowners' Equity 2,980,554 2.451.310 2,008.999 Total Capitalization 6,430,346 5.509,040 4.943,319 Trust Obilgations -
685.621 713.484 Current Liabilities Current maturities of long term debt 80,811 129.046 107.057 Current matunties of trust obligations 634,092 - -
Current redemption requirements of preferred stock 6,200 3,150 35.600 Accounts payable and accrued expenses 151,608 176.697 140.227 Accrued taxes (including federal income tax of $6,450,000. $19.526.000 and $2.252.000) 20,100 124,131 54.621 Accrued interest 59,618 59.580 61,413 Customer deposits 14,014 12,762 12,231 Dividends payable _ _ _ . _ _ _ . _ _ - - - - _ . -
67,488 Total Current Liabilities 966,443 505,366 478,637 l
D;fIrred Credits Accumulated deferred income tax reductions 486,333 338.607 222.502 Other 62,039 54,649 25.055 Total Deferred Credits 548,372 393.256 247.557 Ris,rves for Claims, Damages, Pensions and Benefits 9,334 6.890 6,586 C:mmitments and Contingencies.._ - ---
Total Capitalization and Liabilities $7,954,495 $7,100.173 $6.389,583 l
See Notes to financ:al Statements.
14 Ctatement of income .
For Year Ended Decernber 31 On thousands of dollars) 1985 1984 1983 1982 1981 Revenues Electric $1,678,966 $1,613.397 $1.435.947 $1,320.515 $1,402.719 Gas 354,771 360,153 351,904 313.002 262.113 Total Revenues 2,033,737 1,973,550 1.787.851 1.633.517 1,664.832 Expenses Operations - fuel and parchased power 830,928 885.096 854.837 789.026 865.352 Operations - other 166,657 195.829 192,435 170.455 158.267 Maintenance 71,049 60.568 69.887 68.743 68.253 Depreciation, depletion and amortization 66,742 65.209 63,410 61,598 60.065 Operating taxes 271,054 255.855 241.204 207.952 198,979 Federal income tax - current 514 14.096 (4,128) (662) (1.008)
Federal income tax - deferred and other 238,653 188.476 101,217 89.712 89.036 Total Expenses 1,645,597 1,665.129 1.518,862 1.386.824 1.438 944 Operating income _ _ _ 388,140 308.421 268,989 246.693 225.888 Other income and (Deductions)
Allowance for other funds used dunng constructicn 261,876 235.840 205.441 157.923 113,648 Other income and (deductions) (604) (1,056) 7,270 334 (1,084)
Federal income tax - current (72) (315) (4,128) (662) (1,128)
Federa! income tax credit - deferred and other 85,122 86.7,57 36.198 41,660 29.855 i l
Total Other Income and (Deductions) 346,322 321.226 244.781 __ _
199.255 141.291
_ ]
Income Before Interest Charges 734,462 629,647 513,770 445.948 367,179 Interest Charges and (Credits)
Interest on long term debt 310,976 275,979 214,952 170.574 134.174 Other interest 15,561 161 13.244 9.434 19.631 Allowance for borrowed funds used dunng construction (116,363) (74.281) (79.400) (43.454) (34.358)
Interest capitalized by trusts 60,139 87,186 64.274 69.784 69.876 Allowance for bonowed funds used dunng constructron - trusts (60,139)_ (87,186) (64;274) (69.784)
(69.876)
Total Interest Charges and (Credits) 210,174 201.859 _
148.796 136.554 119.447 _
Net income 524,288 427,788 364,974 309,394 247.732 Preferred stock dividend requirements 83,725 87,524 77.811 59.989 48,830 Income for Common Stock $ 440,563 $ 340.264 $ 287.163 $ 249.405 $ 198.902 Average Common Shares Outstanding -(000) 110,C42 110.120 102,484 92,475 77,988 Earned per Common Share $ 3.97 5 3.09 $ 2 80 $ 2.70 $ 2.55 Dividends Declared per Common Share $ - $ - $ 2 02 $ 2.00 $ 1.92 See Notes to Financial Statements.
l
15 ShareewnersToulty Ca!! Pnce Per Share December At December 31 (In thousands of donars) 31,1985 Final 1985 1984 1983 1982 1981 Ctatement of Retained Earnings Balance, January 1 S 956,356 $580.115 $501.806 $439,285 $391,113 Add - Net income for the year 524,288 427,788 364.974 309.394 247.732 Less - Capital stock expense -
1 38 -
1 Less - Cash dividends declared:
Preferred stock - 51,546 78,998 60.009 49,289 Common stock - - 207,629 186.864 150,270 Balance, December 31 $1,480,644 $956.356 $530,115 $501,806 $439,285 Common Stock Par Value $5 per Share Shares authonzed 150,000,000 150,000,000 150.000.000 110,000,000 110.000.000 Shares issued and outstanding 111,058,899 110.212.155 104,120.072 100,572.887 81.370,597 Increase in shares outstanding 846,743 6,092,084 3.547,185 19,202.290 11.389,161 Increase in $5 par value $ 4,234 $ 30,461 $ 17,736 $ 96.011 $ 56.946 Increase in Premium on capital stock 735 35.434 43.278 197,043 104,908 increase (Decrease) in Capital stock expense 13 (175) 5.943 8.228 6,967 Preferred Stock P r Value $100 per Share, Cumulative:
Shares authonzed 7,000,000 7,000.000 7,000.000 7,000.000 7,000,000 Shares issued and outstanding 2,949,930 2,985.813 3.397.311 3.527,203 3,633,330 Shares held in treasury *
- 48,750 12.875 24.375 - -
5 00% Senes B $101.00 $10100 $ 10,000 $ 10,000 $ 10.000 $ 10.000 $ 10,000 4.25% Senes D 102.00 102.00 7,000 7,000 7,000 7,000 7,000 4.35% Senes E 102.00 102.00 20,000 20.000 20 000 20,000 20,000 4.35% Senes F 102.00 102.00 5,000 5 000 5.000 5.000 5,000 5% % Senes H 102.00 102 00 20,000 20.000 20.000 20.000 20.000 5% % Senes l Convertible 100.00 100.00 4,056 4,056 4,119 5.070 6.083 8.12% Senes J 104 00 101.00 25,000 25.000 25.000 25.000 25.000 8.30% Senes K 105.37 103.29 30,000 30.000 30,000 30,000 30,000 7.40% Senes L' 104.76 100.00 27,650 27,650 29,750 30.800 31,850 8 40% Senes M
- 105.32 100.00 33,600 33.600 35.000 35,000 35,000 7.60% Senes Q* - - - -
28,800 33.600 38,400 8.50% Senes R* 115 00 100.00 45,000 45.000 52,500 56,250 60.000 9 80% Senes S* 105.00 100.00 72,562 72,562 75.000 75.000 75.000 Total Par Value $100 $ 299,868 $299.868 $342,169 $352,720 $363.333 Par Value $25 per Share, Cumulative.
Shares authonzed 30,000,000 30.000,000 30.000.000 14,400,000 14,400.000 Shares issued and outstanding 17,920,000 18.200,000 18 280,000 11,760.000 8.805.200 Shares held in treasury *
- 280,000 - - -
34.800
$2 47 Senes O' $ 25.75 $ 25 25 $ 40,000 $ 40,000 $ 42,000 $ 44,000 $ 46.000
$2 43 Senes P 29 30 27.75 35,000 35,000 35.000 35.000 35,000
$3.31 Senes T* 26 25 25 00 75,000 75,000 75,000 75,000 75,000
$4 25 Senes U* 30 00 25 00 65,000 65.000 65.000 65.000 65.000 13 50 Senes V* 29 25 25 00 75,000 75.000 75,000 75.000 -
$3 52 Senes W 32 00 27.50 65,000 65.000 65,000 - -
$3 50 Senes X* 29 25 25.00 100,000 100,000 100.000 - -
l Total Par Value $25 455,000 455.000 457,000 294.000 221,000 Less - Sinking fund requrements 6,200 3,150 35.600 11,600 10.730 Less - Treasury stock at cost *
- 7,654 505 1,772 -
569 j Total Preferred Stock $ 741,014 $751.213 $761,797 $635,120 $573,034 See Notes to Finanaal Statements
- Redemption required. see Note 2.
- *Haid to meet annual snking fund requirements j l
10 Staternent of Changes in Financial Position -
For Year Ended December 31 (in thousanos of dollars) 1985 1984 1983 1982 1981 source of Funds Operations Net income $ 524,288 $ 427,788 $ 364.974 $ 309.394 $ 247,732 Pnncipal noncash charges and (credits) to income.
Depreciation, depletion and amort,zation 66,742 65.209 63,410 61.598 60.065 Deferred and other federal income taxes 153,531 101,720 65,019 48,052 59.181 Wnte-off and amortization of abandoned projects 16,975 18.100 - - -
A!!owance for funds used dunng construction (378,239) (310,121) (284.841) (201,377) (148.006)
Other 28,654 12.888 14.349 14,791 8.478 Interest capitahzed by trusts 60,139 87,186 64.274 69.784 69,876 Allowance for borrowed funds used dunng construction - trusts (60,139) (87,186) (64,274) (69,784) (69.876)
Funds providea from operations 411,951 315,584 222.911 232,458 227,450 Long-term Financing Long term debt 503,730 264,500 685.000 217.200 300.000 Preferred stock - - 171,769 76,121 65,399 Common stock 4,969 65,894 54,515 293.055 161,853 Other Decrease in working capital 542,644 189,091 - 107,085 -
Other sources 6,757 33,962 38.759 12.430 44,704 Total Source of Funds $1,470,051 $ 869,031 $1,172.954 $ 938,349 $ 799,406 Use of Funds Construction expenditures S 918,828 $ 961,953 $ 741,230 $ 6742,769 $ 501.894 Nuclear fuel expend tures 9,574 9.090 (92) 79 23 Construction and nuclear fuel in trusts (27,160) (49.909) 158.653 145.693 87.893 Less - A!!owance for funds used dunng construction (AFC) 378,239 310,121 284.841 201.377 148,006 Construction and nuclear fuel expend;tures, less AFC 523,003 611.013 614.950 687,184 441.804 Dividends on preferred stock - 51,546 78,998 60.009 49,289 Dividends on common stock - - 207,629 186.864 150.270 Reduction of long-term debt and trust obhgat;ons 787,334 156.909 (8,093) (51.858) (18.442)
Preferred stock conversions and retirements 10,199 10.584 38.593 14.035 12.646 Decrease in short-term debt - - - -
118.000 increase in working capital (excluding short-term debt) - -
213.915 - 17,811 Deferred storm damage costs 42,548 - - - -
Other investments and deposits 742 1.019 4,752 715 3.903 Capital stock expense 13 424 7,121 9,405 8.144 Cost of removal 3,209 3.391 4.041 3.658 3,797 Advance payment for construction costs 71,377 - - - -
Other uses 31,626 34.145 11.048 28.337 12.184 Total Use of Funds $1,470,051 $ 869.031 $1,172.954 $ 938.349 $ 799,406 l Increase (Decrease)In Working Capital (excluding short-term debt)
Cash S 1,923 $ 6.804 $ (5.537) $ (1,185) $ 4,113 Temporary cash investments (18,300) (250.474) 253.874 (24,000) 42,000 Special deposits (58,414) 58.343 (4,751) 7,706 (9/7)
Accounts and notes receivable (5,063) 14.081 14.258 69 13.098 Accrued revenue (1,286) 2,580 2,298 (523) 3.436 Matenals, supphes, gas in storage and fuel (10,459) 5.349 (34,402) 17,595 26.660 Prepayments 10,032 955 43 (301) 151 Current matunties of long-term debt and trust obhgations (585,857) (21,989) (5) (35.004) (12.004)
Sinking fund requirement of preferred stock (3,050) 8.450 -
(870) (3,130)
Redempt:on required - Preferred Stock Senes O - 24.000 (24,000) - -
Accounts payable and accrued expenses 25,089 (36,470) 35.204 (22.500) (42.624)
Accrued taxes 104,031 (69.510) 2.045 (28,140) 10.236 Accrued interest (38) 1.833 (16.687) (4.510) (12,396)
Customer deposits (1,252) (531) (1.366) (1,097) (1,163)
Dividends payable - 67,488 (7.059) (14,325) (9,589)
Net increase (Decrease) in working capital $ (542,644) $ (189,091) $ 213.915 5 (107.085) $ 17,811 See Notes to Financial Swements.
17 Notm tD Financial Et:tement3 Depreciation The provisions for depreciation result from the appkcation Note 1. Summary of Significant Accounting of straight-line rates to the original cost, by groups, of f Policles depreciable properties in service. The rates are determin- l ed by age-kfe studies performed annually on depreciable l The Company's accounting policies conform to Generally properties. Depreciation was equivalent to approximately l Accepted Accounting Pnnciples (GAAP) as they apply to 3% for electric and 2% for gas of respective average a rate regulated enterpnse and its accounting records are depreciable plant costs for each of the five years in the maintained in accordance with the Uniform System of Ac. period ended December 31,1985.
counts presenbed by the Pubhc Service Commission of the State of New York (PSC) and the Federal Energy Regulatory Revenues Commission (FERC). Certain prior year amounts have been Revenues are recorded when billed. Billings are rendered reclassified to be consistent with the current year's on a monthly or bimonthly cycle basis. The Company ac-presentation. crues estimated revenues for customers billed bimonthly in the month in which they are normally not billed.
Utility Plant Additions to and replacements of utikty plant are recorded The Company's tanffs for electric and gas service include at onginal cost, which includes matenal, labor, overheads, a fuel adjustment clause under which electric and gas rates and an allowance for the cost of funds used dunng con- charged to most customers are adjusted to reflect changes struction (AFC). The cost of renewals and betterments in the average cost of fuels and of certain purchased power relating to us ats of property is added to utihty plant. The cost costs.
of property replaced, retired, or otherwise disposed of is deducted from utikty plart and, generally, together with Deferred Fuel Cost Adjustments dismanthng costs less any salvage, is charged to ac. The electnc and gas fuel cost adjustments represent the dif-cumulated depreciatior.. The cost of repairs and minor ference between actual fuel costs and the fuel costs allow-renewals is charged to maintenance expense. Mass pro- ed in the Company's base tanff rates. The Company, to perties (such as poles, uire, ard meters) are accounted for achieve a proper matching of costs and revenues, defers on an average unit ccst basis by year of installation. this difference along with the related income tax effects to those future penods in which it will be billed to customers.
The cost of any abandoned generating projects is classified The Company believes that the PSC will continue to permit as construction work in progress (CWIP) until such time as the recovery of deferred fuel costs.
an order is received from the PSC concerning disposition.
Federal income Taxes All;wance for Funds Used During Construction The Company provides deferred federal income taxes with The Uniform System of Accounts defines AFC, which is nct respect to certain differences between net income before an item of current cash income, as the not cost of borrow- income taxes and taxable income in certain instances when ed funds for construction purposes and a reasonable rat? approved by the PSC as disclosed in Note 5. The Company of return upon the utikty's equity, when so used. AFC is com- defers the benefit of all investment tax credits reahzed.
puted monthly using a rate permitted by FERC on that por-tion of CWIP which is not included in the Company's rate For ratemaking purposes, certain accumulated deferred base. The portion of AFC relating to borrowed funds is in- federal income taxes are deducted from rate base and cluded in the Interest Charges and (Credits) section of the amortized or otherwise apphed as a reduction (or increase)
Statement of Income. in federalincome tax expense in future years. Accumulated deferred investment tax credits are amortized ratably over As a result of the intenm rate increase discussed in the the lives of the related properties.
Regulatory Accounting section of this note, the PSC re-quired that net of tax AFC rates be apphed to the Shoreham The tax effects of other differences (pnmanly construction Nuclear Generat,ng Station (Shoreham) CWIP except for the overheads such as interest, pensions and taxes) between penod between February 1983 and August 1984 when, with income for financial statement purposes and for federal in-certain restnctions and hmitations, AFC on certain construc- come tax purposes are accounted for as current ad-tion costs, including Shoreham, was computed at a rate justments in federal income tax provisions.
which does not reflect the income tax effect of the interest portion of AFC. This change increased income for Common Reserves for Claims, Damages, Pensions and Benefits Stock $18.8 milhon or 188 per share in 1983. Losses ansing from claims against the Company are par.
tially self insured. Extraord, nary storm losses are fully self.
The average annual AFC rate, without giving effect to insured. Provisions credited to the reserves are based upon compounding or the reduced net of tax rate. was 13.81%, exponence, nsk of loss, actuanal estimates and/or specific 13.26%,12.83%.12.68% and 11.52% for the years 1985 orders of the PSC.
through 1981, respectively.
18 Capitalizati:n-Pr:mium2, Disciunt] cnd Expenses $29.2 milkon for the period Septemt5er 1,1984 through Premiums or discounts and expenses related to the is- December 31,1984.
suance of long-term debt are amortized over the hves of the issues. " Capital stock expense" related to that portion of Preferred Stock required to be redeemed is wntten-off Note 2. Capital Stock as an adjustment to retained camings or, if the preferred stock is redeemed below par value, any gain net of the Of the 150,000,000 shares of authonzed Common Stock related " Capital stock expense" is recorded as additional at December 31,1985,103,647 shares were reserved for
" Premium on capital stock", Such gain was $3.637,000, sale to employees pursuant to the Company's Employee
$3,637,000 ar d $1,333,000 at the end of 1985,1984 and Stock Purchase Plan,6,802,247 shares were committed to 1983, respectively. the Automatic Dividend Reinvestment Plan and 236,472 shares were reserved for conversion of the Series I Con-Regulatory Accounting vertible Preferred Stock at $17.15 per share.
In accordance with present generally accepted accounting pnnciples, plant, financing and other costs may be defer. Redemption of vanous senes of its Preferred Stock is con-red in certain circumstances for recovery in the future under templated through the operation of vanous sinking fund pro-a rate moderation plan; disallowance of a portion of a plant's visions. Sinking fund requirements of $4,437,500, were not cost by a regulator would not, in itself, require an immediate satisfied dunng 1985 due to restrictions in the 1984 Revolv-charge to income. The Financial Accounting Standards ing Credit Agreement (1984 RCA). However, the Company Board (FASB) is currently reviewing vanous aspects of State- has purchased, but has not yet retired, an aggregate ment of Financial Accounting Standards No. 71 (SFAS 71), number of shares of its preferred stock equivalent to the Accounting for the Effects of Certain Types of Regulation; number of shares of such senes scheduled to be redeem-on December 19,1985 the FASB issued an exposure draft ed by way of sinking funds during the period September which, if adopted in its present form, would amend SFAS 1,1985 through November 1,1986. The aggregate amount 71 and change current accounting practices effective for of Preferred Stock required to be redeemed in each of the fiscal years beginning subsequent to December 15,1986 years 1986 through 1990 is $13,638.000, $16,888.000, with respect to accounting for phase-in plans, plant aban- $19,888.000, $23,888,000, and $23,888,000, respective-donments and dtsallowance of plant cost. The Company ly. Preferred Stock dividends in arrears totaled $106 million is unable to predict with certainty what changes will occur, at December 31,1985.
if any, as a result of the review of tnese topics by the FASB.
However. If the amendment is adopted in its present form. The 1984 RCA prohibits the payment of dividends on prefer-the Company would be required to record a wnte-off of ap- red and common stock through June 30,1986. The pro-proximately $1.2 bilhon net of tax effect with respect to the posed modifications to the 1984 RCA (see Note 4) provide Shoreham disallowed costs and the Nine Mde Point 2 most for the chmination of all restnctions imposed since recent estimate of costs in excess of the amount provided September 30,1984, on the payment of Preferred Stock in the Offer of Settlement. as discussed in Note 6. Dividends in arrears and those currently payable through December 31, 1987. With respect to Preferred Stock After the Company instituted a cash conservation plan in dividends paid after December 31,1987, and with respect early 1984, the PSC ordered the Company to provide an to all common stock dividends, payment would be kmited accounting mechanism to recognize and preserve certain by a formula tied to internal cash generation. Of the max-savings for possible distnbution to its customers. In its rate imum amount calculated according to that formula,25%
order effective September 1,1984, the PSC included ap. will be avadable for mandatory prepayments to the Com-proximately $36 mdhon of these cost savings in rates and pany's 42 lending banks with 75% avadable to the Com-ordered the continued recognition and preservation of any pany for dividend payments. However,if dividends are paid, remainder, mandatory bank prepayments would be kmited to the lesser of (a) prepayments pursuant to the formula or (b) $0.33%
An intenm rate increase granted for the penod of September cents for each $1.00 of actual dividends paid. These man-15,1983 through August 31,1984 was replaced by a PSC datory prepayments, which in effect accelerate payment of rate order granting permanent rate rehef in the form of Finan. debt owed to the banks, wdl cease after they total $250 cial Stabihty Adjustment (FSA) revenues effective September milhon under the formula.
1,1984. The Company estimates that as a result of the in-terim rate increase it received not after tax cash earnings Common Stock dividends are subject to the Company's in heu of non-cash AFC amounting to approximately $32.4 Certificate of Incorporation which prohibits the payment of milkon for the year ended December 31,1984 and $10.5 Common Stock dividends so long as Preferred Stock sink-mdhon for the year ended December 31,1983. The order, ing fund requirements or dividends are in arrears. Dividend which became effective September 1,1984. provided the hmitations contained in the mortgage secunng the Com.
Company with current cash inflows and reduced the con. pany's First Mortgage Bonds are not matenal The Com-struction cost of Shoreham by hke amounts The total pany's General and Refunding Indenture does not restnct amount of such cash inflows, net of tax effects. is $102 the pa/ ment of dividends.
mdhon ($198 mdhon before tax effects) on an annual basis.
The amounts recorded were $102 mdhon dunng 1985 and
13 The Company's Cerbficate of incorporation states that all January 1, l Preferred Stockholders have the nght to elect the smallest 1985 1984 1983 number of members of the Board of Directors so as to con- (in thousands of doliars) stitute a majonty, should the Company be in arrears for a total of four quarterly dividend payments in any one senes "" [Pu r u a e5 l of Preferred Stocn. n meeting was caned for such election pian genests I
in December 1985, pursuant to a demand by John W. Mat- Vested $288,975 $267,593 $248.571 thews, a holder of Preferred Stock, resulting in the reelcc- Nonvested 9,578 10.199 9.615 tion of all of the Company's Directors who were last elected Total $298,553 $277.792 $258.186 by holders of Common Stock in May 1985. The holders of Preferred Stock will continue to have the nght to elect at
- ava abe for benetts $287,362 $263 676 $238.396 the next scheduled annual meeting the smallest number of Directors necessary to constitute a majonty of the Com-pany's full Board of Directors so long as default continues The weighted average assumed rates of return used in respecting payment of Preferred Stock dividends. Holders determining the actuanal present value of accumulated plan of Common Stock have the nght to elect the remaining benefits for the primary benefit retirement plan and the sup-Directors. plemental death and retirement benefit plan were 6% and 10%, respectively, for all years.
On February 20,1985, the PSC approved a Company Pro-posed Employee Stock Ownership Plan (ESOP) which pro- In addition to providing pension benefits, the Company pro-vides LILCO employees with Company stock in heu of salary vides certain health care and hfe insurance benefits for lost as a result of salary reductions in 1984 in connection retired employees. Substantially all of the Company's with the Company's Cash Conservation Plan. On Apnl 29, employees may become eligible for these benefits if they 1985, 734,000 shares of the Company's Common Stock reach normal retirement age while working for the Com-were issued to the ESOP's trustee. The provisions of the pany. These and similar benefits for active employees are ESOP require that employees remain employed with the provided through insurance companies whose premiums Company until Apnl 1,1986 in order to receive the stock. are based on the benefits paid dunng the year. The cost Should any employee not remarn employed until such date, of providing these benefits was $15,945,000 for 1985 and the shares of such employee will be distnbuted to the re- $13,373,000 for 1984. The cost of providing those benefits maining plan participants. for 1,875 retirees in 1985 and 1,809 retirees in 1984 is not separable from the cost of providing benefits for the 5,231 None of the authonzed shares of nonparticipating and 5,242 active employees in 1985 and 1984, respectively.
Preference Stock, par value $1 per share which ranks jun or to the Preferred Stock, are outstanding.
Note 4. Debt at December 31 Note 3. Retirement Benefit Plans First Mortgage Each of the Company's three mortgages is a hen on The Company maintains two pension plans. The total costs substantially all of the Company's properties. All of the related to the plans were $15.603,000, $17,796,000, bonds issued under the First Mortgage. including those
$16.820.000, $15.840,000 and $14,418.000 for the years issued after June 1,1975 and pledged with the Trustee of 1985 through 1981 (of which $5.267,000, $5.082,000, the General and Refunding Mortgage (the G&R Mortgage)
$5,092,000, $4.655.000 and $3.901,000 were included in as additional secunty for General and Refunding Bonds (the construction costs), respectively. The costs of the pnmary G&R Bonds), are secured by the first hen of the First Mort-defined benefit retirement plan, which covers most gage. The Pledged First Mortgage Bonds do not represent employees, are determined as the amount needed to meet outstanding indebtedness of the Company. Amounts of current service costs and to amortize unfunded past ser- such pledged bonds outstanding were $469 mil! ion, $465 vice costs over a 30 year penod. All pension costs are borne milhon, and $535 milhon at December 31,1985,1984, and by the Company. The Company makes annual contnbu. 1983, respectively. The annual First Mortgage depreciation tions to the plan equal to the amounts accrued for costs fund and sinking fund requirements for 1985 are estimated related to the plan. at $186 milhon and $12 milhon, respectively. The Company expects to meet $96 milhon of these requirements with pro-The Company also provides. without contnbution from such perty additions and matured bonds. The remaining $102 employees, supplemental death and retirement benefits for milhon of requirements for these funds will be temporanly officers and other key executives Death benefits are cur. met with cash. The Company anticipates that it will be able rently provided by insurance. Retirement benefits, which are to withdraw such cash in the months following June 1986 not available until 1986, have been recognized as expense by substituting bondable property attnbutable primanly to but are unfunded Nine Mile Point 2 (subsequent to issuance of its operating hcense) and matured bonds.
A companson of accumulated plan benef>ts and plan not assets for the Company's retirement plans is presented as follows.
2]
GER M:rtgage Financing Trusts:
The second hen of the G&R Mortgage is subordinate to the The Company is obhgated to purchase nuclear fuel owned hen of the First Mortgagc. The annual G&R Mortgage sink- by the Resources Trust, or heat from such fuel. In this con-ing fund requirement for 1985 is estimated at $21 million. nection. the Company has elected to date to purchase heat The Company expects to rneet these requirements. due not from the initial core at Shoreham. Simdarly, the Company later than June 30.1986. by utikzing matured bonds and is obligated to reimburse the Construction Trust for nuclear bondable property additions. and. if necessary. cash. fuel and construction costs not later than sixty days after the earhest to occur of several events, including the issuance Third Mortgage of an operating hcense for Nine Mde Point 2. fuel loading The Third Mortgage which is a hen on substantially all of at Nine Mde Point 2 and October 31.1986. Upon termina-the Company's properties, is subordinate to both the First tron of, or default by either Trust, the Company is required Mortgage and the G&R Mortgage and was created in 1984 to repay fully the obhgations of such Trust. In addition, the to secure the Company's debt under (1) a 1982 Revolving Company has guaranteed the obhgations of the two Trusts.
Credit Agreement (1982 RCA) with several domestic banks. The revolving credit agreements of both Trusts provide for (2) the Eurodollar Revolving Cred;t Agreement with several borrowing pnncipa!!y at tne pnme interest rate prevaihng forergn banks. (3) the revolving credit agreement between from time to time or. if advantageous at alternate borrow-Tn-Counties Resources Trust (which was estabhshed ing rates based on LIBOR or the CD rate. At year end, these pnmanly to finance the Company's nuclear fuel program) borrowings were based on six-month CD rates averaging and several banks. (4) the revolving credit agreement 9.1%. The Trusts' average annual interest rates (excluding between Tn-Counties Construction Trust (which was commitment fees) on average borrowings of $647.643.000, estabhshed pnmanly to finance a portion of the Company's $696.941.000. $658.902.000. $500,198.000 and 18% share of the construction and nuclear fuel expend tures $381.614.000 (excluding loans from the Company) outstan-for Nine Mde Point 2) and several banks and (5) intermediate ding dunng the years 1985 through 1981 were 9.5%.
term loans with three banks At December 31.1985 the ag- 11.9%.10.3%.14.7% and 19.4% respectively.
gregate debt secured by the Third Mortgage was $1.038 mdhon Of this amount. $28 mdhon matured on January 17. Other Long Term Debt 1986 and $634 mdhon is currently scheduled to mature in the second half of 1986 The rema:ning $376 milhon is cur- 1984 Revolving Credit Agreement (1984 RCA):
rently schedu!ed to mature in 1988 The bank debt serviced The Company's 1984 RCA provides up to $150 milhon of by the Third Mortgage (and descnbed in this paragraph and revolving credit and terminates on June 30.1986 At the next succeeding five paragraphs) is proposed to be December 31.1985. the Company had outstanding $30 restructured in the manner descnbed below under the mdhon under such agreement. The loans made pursuant heading 1986 Restructunng Credit Agreement. to the 1984 RCA are secured by a first hen on the Com-pany's accounts receivable and substantially all of its fuel 1982 Revolving Credit Agreement (1982 RCA): od inventury. Such accounts receivable and fuel o l inven-The 1982 RCA, which provides up to $250 mdhon of revolv- tory are also the subject of a second hen for the benefit of ing cred t and terminates in December 1988. has provisions the holders of the bank debt secured by the Third Mortgage.
for four annual extensions until December 1992 with the The cost of funds under the 1984 RCA includes (a) interest consent of the lend:ng banks. At the Company's option, in- payable on borrowed funds at the Citibank Altemate Base terest may be determined at f!uctuating afternahve avadable Rate. 9 5% at December 31,1985. (b) a commitment fee interest rates. namely, a rate based on the pome rate. a rate of W of 1% per year on the unused funds and (c) other fees based on the London Interbank Offenng Rate (LIBOR) or and expenses. Future advances by the banks will be sub-a rate based on rates charged by lenders for domestic cer- ject to certain terms and conditions; and the occurrence of tificates of depos:t (CD) or time deposits. The interest rate an event of defau!! (including. in add, tion to other events for amounts outstand ng at December 31.1985 was 8 97% of default. a default by the Jompany in meeting certain The commitment fee is % of 1% per year on the average financial tests or in ma ntaining vahd secunty interests) wdl dady unused portion of each bank's commitment. give the banks the nght to acce! crate payment of their loans and to take other remedial action.
Eurodollar Revolving Credit Agreement:
The Eurodollar Revolving Credit Agreement with several Authority Financing Notes:
foreign banks provrdes for borrowings up to $150 milhon Niagara Mohawk Power Corporahon (Niagara Mohawk) has including $75 milhon that matured in August 1985. The re- guaranteed up to $1f 0 mdhon pnncipal amount plus interest maining balance wdl mature in December 1988 Interest is and premium totakng $15 milhon of the Company's reim-at a rate based on LIBOR which was 9.12% at December bur 3ement obhgations in connection with the issuance of 31.1985 The comm>tment fee is % of 1% per year on the $150 mdkon of Authonty Financing Notes. issued in 1985, average dady unused portion of each bank's commitment. to the New York State Energy Research and Development Authonty (NYSERDA) The Authonty Financing Notes were Intermediate Term Notes: issued by the Company to secure the Industnal Develop-The Company's $97 mdhon of Intermediate Term Notes ment Bonds (IDBs) discusmiin the following paragraph.
have fued interest rates averaging 12.72% per annum. Of The Company has agreed to repay Niagara Mohawk up these loans $28 m.! bon matured on January 17.1986, the to $165 mdkon in consiaorahon of Niarjara Mohawk's remainder wdl mature in 1988 guarantee to letter of credit banks in connection with the
21 Authonty Financing Notes and certain amounts of interest tron of making the supplemental payments in cash or defer-and premium thereon. This obhgation is evidenced by a pro- ring the cash payments until the earkest date (the Crossover missory note, under which there was no outstanding in- Date) to occur: (a) the commercial operation of Nine Mile debtedness at December 31,1985 and with respect to Point 2 (b) the sa!e or transfer by the Company's Construc-which the Company has agreed, subject to the implemen- tion Trust of any part of its interest in Nine Mile Point 2 (other tation of the 1986 Restructunng Agreement discussea below than the transfer from the Construction Trust to the Com-respecting the indebtedness secured by the Third Mortgage pany contemplated in connection with the proposed refinan-and certain other conditions, to grant Niagara Mohawk an cing of bank debt) or (c) August 1,1987. To date, the Com-interest in the Third Mortgage in the amount of $85 milkon pany has elected to defer the cash payments. Such cash on the same basis (pan passu) as other debt secured by payments are rerlected as pnncipal on the unsecured pro-the Third Mortgage. missory note (the Gnd Note) to Niagara Mohawk with a max-imum pnncipal amount of $110 milhon bearing interest at The IDBs issued by NYSERDA on December 31,1985 are a rate of 19% per annum. Such interest may also be paid deemed to be tendered by the holders each March 1 in cash or deferred and in either event, will be recorded thereafter. The interest rate for the 1985 IDBs is subject to as interest expense by the Company;if deferreo, it will also redetermination at each tender date. The agreements with be reflected as principal in the Gnd Note. T'ie Company NYSERDA provide for the remarketing of the 1985 IDBs at has elected to date to defer such interest payments until each tender date. The 1985 IDBs were issued with an in- the Crossover Date. At December 31,1985, $7 milhon was itial 6.5% interest rate and were remarketed at an interest outstanding under the Gnd Note. The Grid Note will be rate of 5.60% effective February 28,1986. The letter of amortized over not more than 16 quarterly payments begin-Credit banks have agreed to pay the pnncipal of and interest ning on the Crossover Date. In approving the issuance to and premium on the tendered IDBs, in the aggregate, up Niagara Mohawk of the G&R Bonds and of the Grid Note, to approximately $165 million. Should the Company fail to the PSC indicated that it would address at later dates the reimburse the letter of credit banks, Niagara Mohawk is propnety of the interest rate for ratemaking purposes and obligated to pay the letter of credit banks on the Company's of the overall ratomaking and accounting treatment of the beha!f. The Company is not obligated to repay Niagara transactions.
Mohawk pnor to October 31,1992. These letters of credit expire in 1989 at which time the Company is required to 1986 Restructuring Credit Agreement (1986 RCA) obtain an extension of the letters of credit or subst,tute let- {
The Company has completed prehminary negotiations '
ter of credit. respecting the refinancing of outstanding bank debt (other than that owed pursuant to the 1984 RCA) totakng approx-The IDBs issued by NYSERDA in 1982 may be tendered imately $1 bilhon. Implementation of these arrangements by the holders every three years. The next such tender will is subject to final approval by the Company's 42 lending occur in 1988. banks, approval by the PSC, the sa!e of $525 milkon of the Company's G&R Bonds and satisfactory documentation.
Grid Note and Niagara Mohawk Obligations Under the proposed 1986 RCA, $400 milhon of the pro-The Company has borrowed substantial sums from Niagara ceeds from the sale of the G&R Bonds would be immediate-Mohawk, one of the other cotenants at Nine Mile Point 2 ly apphed to prepay the outstanding bank debt on a pro-and its construction manager, to repay advances of funds rata basis. A portion of the proceeds will be used to repay made by Niagara Mohawk since February 7,1984, for ad- in full the amounts expected to be outstanding under the ditional funds which Niagara Mohawk has advanced on 1984 RCA at that time. Mandatory payments of the remain-behalf of the Company for the Company's 18% share of ing $600 milhon of bank loan balances would be made in Nine Mile Point 2 and for related interest. At December 31, 16 quarterly insta!!ments beginning December 31,1988 and 1985 Niagara Mohawk held $225 milhon of the Company's ending September 30,1992. Under the proposed modifica-G&R Bonds. W% Senes Due 1993. The Company has also tions to the Company's existing bank debt, the Trusts are agreed to make quarterly supplemental payrnents to to be terminated and the Company is to assume the obhga-Niagara Mohawk equal to 4.625% (18 5% on a per annum tions of the Trusts to their lending banks Under certain cir-basis) of an amount equivalent to G&R Bonds held by cumstances relating to the payment of Preferred and Com-Niagara Mohawk, less amounts equivalent to the balance mon Stock dividends, the Company would be required to from time to time of advance payments made by the Com- make mandatory prepayments to reduce bank loan pany to Niagara Mohawk for the Company's 1986 share balances as discussed in Note 2. In addition, the termina-
, of construction and nuclear fuel expenditures. At December tion date of the 1984 RCA would be extended from June l 31,1985. cuch balance held by Niagara Mohawk was ap- 30,1986 to December 31.1988, the maximum amount proximately $71 milhon. The Company will be required to available under the agreement would be increased from seek other sources of capital to meet its Nine Mile Point 2 $150 milhon to $200 milkon and the Company would be obhgations when the $71 milhon of advance payments have allowed to sell up to $200 milkon of add,tional G&R Bonds been fully utthzed. Based on the most current cost estimate each year through 1992. G&R Bonds not sold in any one and a projected commercial operation date of January 31, year may be sold in any subsequent year through 1992.
1987, an additional $20 milkon will be required for such Petitions are pending before the PSC seeking approval for obbgations. The supplemental payments of 4.625% per the sale of the G&R Bonds and for the refinancing describ-quarter referred to above are recorded as interest expense ed above. The Company cannot provide assurance that the by the Company and capitahzed The Company has the op- PSC will grant its approval or that the Company will be able
22 to sell the G&R Bonds as proposed. If the propmed refinan-Long Tenn Dew and Tmst meaHons at Dedber 31 cing cannot be implemented, the Company may be unable to pay the debt maturing later in 198E A default on such on thousands of dollars) matunng debt, unless cured, could oy reason of cross. Rate of interest Senes Due 1985 1984 1983 default provisions in instruments goverring other long-term First Mortgage Bonds (excludes Pledged Bonds) debt of the Company give nse to nghts of acceleration of ma!Urities of such other debt. In either of such events, the jg % G jg4 3 - 5
,3 ggg S
jjg 4% i 1986 20,000 20.000 20 000 Company might be required to file a petition for relief under 47 J 1988 20,000 20.000 20.000 the Federal Bankruptcy Code. hg h j@ $88$ 2gg 2gg 45 N 1994 25,000 25.000 25.000 4 55 O 1995 25,000 25.000 25.000 5% P 1996 40,000 40,000 40.000 5W O 1997 35,000 35.000 35.000 8 20 1 1999 35,000 35.000 35.000 9 ". S 2000 25,000 25.000 25.000 7% U 2001 40,000 40.000 40.000 7W V 2001 50,000 50.000 50.000 75 e W 2002 50,000 50.000 50.000 8% X 2003 60,000 60.000 60.000 Total First Mortgage Bonds 490,000 505.000 520.000 Less Current klatunties 20,000 15.000 15 000 Total Less Current Matunties 470,000 490.000 505.000 General and Refunding Bonds 9',,% Senes Due 1984 - - 90,000 l 91 Wo Ser.es Due 2006 70,000 70.000 70.000 l 8%% Senes Due 2006 50,000 50.000 50.000 8V'o benes Oue 2007 85,000 85.000 - 85,000 9 20% Senes Due 2008 75,000 75.000 - 75.000 9 75% Senec Due 1999 91,000 94 000 96 000 14%% Senes Due 2010 50,000 50.000 50.000 15 75% Senes Due 1991 100,000 100.000 100.000 17%% Senes Due 2011 50,000 50 000 50.000 16%% Senes Due 1991 50,000 50.000 50.000 18% Senes Due 2011 50,000 50.000 ' ' 50.000 17% Senes Due 1991 50,000 50,000 50.000 17' po Senes Due 2012 100,000 100.000 100.000 15%% Senes Due 2012 100,000 100.000 100.000 12' 3% Senes Due 1992 75,000 75.000 75.000 13W% Senes Due 2013 105,000 105.000 105.000 170% Senes Due 1989 100,000 100.000 -
tt W% Series Due 1993 225,000 250 000 -
13%% Senes Due 1995 225,000 - -
Total General and Refunding Bonds 1,651,000 1,454.000 1,196 000 f t Less Bonds held by pledgee - 121.500 -
Less - Current Matunties 3,000 3.000 92 000 Total Less Current Matunt,es 1,648,000 1.329.500 1.104.000 Third Mortgage
- 1982 RCA 231,759 250.000 25n.000 Eurodonar RCA 75,000 150 000 150.000 Intermediate Term Notes 97,339 105 000 105.000 Resources Taust 163,003 176.437 203.362 Construction Trust 471,089 509.184 510.122 Total Third Mortgage 1,038,190 1,190 621 1.218.484 Less Current Maturmes 661,903 75.000 -
Total Less Current Maturmes 376,287 1.115 621 1.2;8.484 Other Long Term Debt 1984 RCA 30,000 36.000 -
Authonty Financ ng Notes 6W% to 8h% Due 2006-2016 216,675 66.675 66 675 Gnd Note 7,230 - -
Promissory Note 8%% Due 1985 - 46 102 Total Other Long Term Debt 253,905 102.721 66 777 Less Current Matunties 30,000 36 04G 56 Total test Current Mi na 5 223,905 66 675 66.721
-m Total Long Term Debt And, ,
Trust Ot;hgat,ons - Less Current Marurmeq $2.718,192 $3 001.796 $2 894 205 The sonregate of the Company's long-term debt due in the next fivo ytes is $714,903,000 (1986), $31,000,000 (1987),
$4so 000,000 (1988), $140,000,000 (1989), and $83,000,000 (1900).
' Amounts shown for 1983 were outstanding under each respec.
tive lending agreement but were not secured under the Third Mortgage,
23 Note 5. FederalIncome Taxes The Federal income Tax amounts included in the Statement of income deer from the amounts which result from applying the statutory Federal income tax rate to Net income before income taxes The reasons are as follows:
(In thousands of dollars) 1985 1984 1983 1982 1981
% of % of % of % of % of Pre-tax Pre tar Preta< Pre-tan Pre-tax Amount income Arnount incorre Amount income Amount income Amount income Fedsral income tax. per State-ment of Income - current S 514 $ 14.096 $ (4.128) $ (662) $ (1.008) included in other income and deductions-current 72 315 4.128 662 1,128 Total Current 586 14,411 0 0 120 De' erred and other (see Note 1)
Accelerated tax depreciation 12,081 6.547 3 085 1.177 (1.967)
Fuel cost adjustments 925 1.509 (8.145) 2.150 (7.072)
Investment tax credas de' erred 59,168 108 365 57.746 34.611 32.568 Interest capitahted 43,395 20.950 4 836 2.005 18.038 Shoreham overheads 27,153 (22 891) 3.432 1.038 7.1%
j West;nghouse settlement (9,887) (169) (46) (126) (2.847) l Cancelled genersting prog:ts 17,105 (1.203) 501 (24.743)
Cash conservation plan 7,202 (7.202)
Storm costs 2,857 Net operating loss utMzed 3 937 3.291 (3.338) 42,283 invsment tax cred:ts other (4,227) (5.762) 5562 12.562 5 911 MTA surcharge tax (1,178) 1.846 1.061 1.270 Other items. net (1,063) (4.208) (6 304) (3 297) (10.186)
Total Deferred 153,531 101,719 65 019 48.052 59.181 Total Federal income tax expense 154,117 116 130 65.019 48,052 59 301 Net income 524,298 427.788 364 974 309 394 247.732 Net income before income taxes $ 678,405 $ 543 918 $ 429 993 $ 357.446 5 307.033 Statutory Federal income tax $312,066 46.0% $ 250 202 46 0% $ 197.797 46 0% $ 164.425 46 0% $ 141.235 46 0 %
AddMons (reductions) in Federal income tax resulting from Cancehed generat ng protects 3,698 0.6 3.508 00 Encess of book deprecanon over ta= deprecation 5,365 0.8 4 084 08 2 930 07 (2.771) (0 8) (2.402) (0 8)
AFC. which does not const tute taxable income (173,990) (25.6) (142 656) (26 2) (131 6,:8) (30 5) '92 633) (25 9) (68 083) (22 2)
Costs charged to punt but deducted current!y (7,204) (1,1) (4 629) (0 9) (3 679) (0 9) (3 5 rl) (1 y (2.9 73) (10)
Lien da'e property taxes (8,186) (1.2) 7 218 13 (5 026) (13) (6 291) (18) (4.428) (t 4)
Interest captalized 22,577 3.3 (4 279) (0 7) 1.832 06 investment taa cred,ts (1,721) (0.3) 3 398 06 810 02 (13 384) (3 7) (9.758) (3 2)
Other items not 1,512 0.2 (716) (01) 3 815 09 2 579 07 3 878 13 Total Federal income tax expenso $ 154,117 22.7% $ 116130 214% $ 65 019 151% $ 48 052 13 4% $ 59 301 19 3 %
Cenain ongenat ng timing dMerences included in the de' erred income tax provision above are in part shown net of investment tax credit At December 31.1985. the Company had an investment tav cred!t carryforward for finanaal statement purposes of approximately $20 000 000 in ac-cordance wth the Corrpany's accounting pdcy. the carry'orward wil be dderred when recogni/ed The amount of ITC carr/orhard avaJatJe as cred,ts to tan returns for years amer 1985 is approumatefy $260 000 000 These creGts espre by the year 2000 The Company has not proeded deterred fares on apprormvety $7F2 mAnn of vanous other deduct;ons and depreaanon method dit'erences for propeny placed in serece phor to 1981 which. In conformtty wth the ratemahng practices of the PSC. have been flowrd through These vanous other tiow through tas deduct.ons. Ahich are deductde currently for fu purprwes but c:ipdabled for accoun9g and ra'emahng purposes include certain ta.res a pomon of AFC pens,ons and certain other employee beref ts
24 Note 6. CommitmentJ end Contingencle] cruing AFC on these disallowed costs'atter February 1986.
The Company will continue to accrue AFC on the costs not The Company is unable to predict what the effects will be found to be imprudent until, following authonzation from the upon the Company's financial cond; tion and resuits of Nuclear Regulatory Commission (NRC), power ascension operations of (i) an adverse determination respecting each to levels above 5% has been conducted for a period suffe of Shoreham, Nine Mile Point 2 and any other investments cient to indicate that Shoreham will be a reliable source of which the Company has made, the recoverabihty of which base power. At that time, the Company may declare has not been finally determined, and (n) the ultimate rate Shoreham to be in commercial operation and will cease to treatment of each. Contingencies respecting (') the Com- accrue AFC on the portion of Shoreham then allowed in rate pany's investments and (n) rate matters affect.ng the Com- base. However, the Company expects to recover a carry-pany are discussed below. ing charge on the remainir,g balance of allowed costs until it has all been included in rate base under its rate modera-Shoreham tion plan discussed below.
General: Approximately $4.4 billion had been expended Although Shoreham has operated and has been successful-on Shoreham through December 31,1985. The Company ly tested at levels up to 5% of fail power pursuant to a hcense expects that subsequent expeno>tures for Shoreham, in- issued in July 1985 by the NRC, operation at levels Ebove cluding AFC, will be approximately $45 to $55 milhon each 5% of full power is dependent upon further regulatory ap-month through February 1986 and $25 to $35 mdhon each proval. Approval of the Company's offsite radiological month therea'ter through the date of commercial operation. emergency response plan is the only obstacle remaining Almost all of these expenditures are for carrying charges, to issuance of a full power license. The State of New York including financing charges. insurance, taxes. interest and and Suffolk County are opposed to the operation of other overhead expenses. The overhead expenses include Shoreham and have refused to cooperate in emergency maintenance expenses and plant personnel sa! anes and response planning. In Apnl 1985, an Atomic Safety and wages. Licensing Board (ASLB) of the NRC found that offsite emergency response planning is fels.ble for Shoreham. The in December 1985, the PSC issued an order finding that ASLB also found that the Company's offsite emergency the Company had imprudently managed the construction response plan is adequate in substantially all respects and of Shoreham. The PSC concluded that approximately $1.4 that the Company has established an organization that can bilhon of Shoreham expenditures were incurred as a result effectively execute its responsibilities under the offsite of the Company's imprudence and shall not be recovered emergency response plan. However, the ASLB decided that in rates. The Company intends to ask the PSC to reopen the Company lackeu the 19 gal authonty to implement the the proceedings to consider additional evidence and plan in the absence of State or local cooperation. The NRC's arguments and, if necessary, to appeal the decision to the Atomic Safety and Licensing Appeal Board (the Appeal courts Intervenors have askea the PSC to reconsider its Board) affirmed the ASLB's legal authonty decision. The decision and to increase the a nount of the disalowance, Company has appeated this Appeal Board decision to the a result supported by three o' the seven members of the NRC. If the docision of the NRC is adverse, the Company PSC. The Company is unable to predict the outcome of wdl seek jiid:cial review of the decision.
these actions. In the prudence case, the PSC also directed the Company to submit an accounting plan to reflect the In addition to the NaC Ltigation respecting legal authonty, effects of the wnte-down of its investment in Shoreham for the Company is htigating related issues in the courts, in-regulatory purposes. lhe Company's accounting plan was cluding an appeal of a New York State Supreme Court deci-submitted on February 26. 1986- The Company cLanot sion rendered early in 1985 respecting the scope of the predict when an order concerning the Company's accoun- Company's legal authonty under New York law.
ting plan will be issued or made effective, or what its specific terms wi!! be. Whde the precise effects of a disallowance in a lawsuit brought by the Company, a Federal District for either regulatory or financial statement purposes can- Court Judge declared invahd a Suffolk County law adopted not now be determined with certainty, the Company early in 1986 making participation in a doll of an emergen-beheves that the proposed disallowance is by itself unlikely cy response plan a cnme punishable by a fine up to $1,000 to prevent the Company from meeting its financial obhga- and a sentence of up to one year in jail. Despite the efforts tions. The effect, if any, of the disallowance to be ordered of Suffolk County and the State, a federally monitored dnll by the PSC may be different for financial accounting pur- took place on February 13, 1986. The drill must be poses than for regulatory purposes. Based upon the cur- evaluated by the NRC and the Federal Emergency Manage-rent cost estimate of Shoreham, the amount of imprudent ment Agency and the results reviewed by an ASLB. The costs determined by the PSC and the rate moderation plan Company cannot predict what action the ASLB will take nor (RMP) discussed below which has been recommended by what the results will be of the administrative and judicial an Administrative Law Judge (ALJ), no wnte-down is re- reviews that are expected to follow.
quired for the Company's investment in Shoreham ui' der existing generally accepted accounting pnnciples. The duration of the proceedings before the NRC (which in-clude appeals by the State of New York and Suffolk Coun-In addition to the disallowance of expenditures previously ty respecting ASLB and Appeal Board decisions adversely incurred, the PSC order prohibits the Company from ac-
25 decided to their positions) and of the several judicial reviews, upon the Company's financial condition and results of both pending and future, are beyond the control of the Com- operations. In 1985, the Company, the County Executives pany. Therefore, the Company is unable to state when the of Nassau and Suffolk Counties and a group of Long Island review process will be completed or the result of such business and labor leaders submitted to the New York State reviews. Thus. the prospect exists for further delays for legislature a program designed to hold down future rate in.
Shoreham, for further increases in its costs and for further creases which the Company would charge its ratepayers uncertainties respecting the recoverability of those costs until whether or not Shoreham becomes operational.
the license to operate at full power is granted. The Com-pany beheves that Shoreham will ultimately receive the In a PSC proceeding estabhshed to consider proposals to license to operate at full power, but it cannot give any ameliorate the impact on customers of Shoreham-related assurances that such kcense wdl be granted or when. rates, while preserving the financial integrity of the Com-Should the operating license not be granted. the Company pany so that it can continue to supply safe, adequate and may be required to abandon Shoreham. reliable service, an ALJ has recommended that the PSC adopt, in all substantial respects, a ten-year RMP propos-Certain State and local government officials have suggested ed by the Company. The Company's plan, together with that Shoreham be totally abandoned or indefinitely mothball- proposals made by the Staff of the PSC and other in-ed. The Company believes that it is in the pubhc interest tervenors as well as statements made during public hear-that Shoreham be permitted to operate. Any such abandon- ings were considered by the ALJ. All of these proposals ment, absent timely and adequate rate increases in the represent a departure from conventional cate treatment for future could have a senous adverse financialimpact upon the Shoreham investment. The Company cannot predict i the Company. what action the PSC will take. '
In vanous proceedings before the PSC, the New York State Suffolk County and the Staff of the PSC cach proposed Attorney General, the New York State Consumer Protec- RMPs which would fully reflect the prudent costs of i tion Board (CPB) and others have argued unsuccessfully Shoreham in rates over penods exceeding ten years. Suf- '
that under New York law a utility may not recover any of folk County subsequently sponsored testimony submitted l its investment in property un'ess it is "used and useful" and by the CPB. The CPB submitted two attemative proposals.
therefore the PSC could not lawfu"y allow recovery of ex- Both of the proposals submitted by the CPB wou!d have l i
penditures relat,ng to a generating station project that has the effect of increasing the amount of Shoreham costs which not been placed in commercial operation or has been the Company would not be able to recover above the $1.4 cancelled pnor to operation. The New York Court of Ap- bdhon determined by the PSC to have been imprudent. The peals is presently considering an appeal of a decision by ALJ rejected the CPB's proposals as inappropriate methods the New York State Supreme Court. Appellate Division, for determining rates. Under the proposed amendment to which had rejected this argument in htigation involving SFAS 71, all prudent costs deferred under a phase-in plan another utility. Should the argument prevail and be found must be recovered in not more than ten years or the costs applicable to Shoreham, it is possible that a!! of the costs that are deferred must be wntten off.
of Shoreham, includlng amounts not found by the PSC to be imprudent, may not be recoverable in the event TDI: The PSC attobuted a portion of the costs it found to Shcraham never operates. Legislation which the Governor be imprudent to both direct and delay costs related to three of the State of New York has proposed for his 1986 pro- diesel generators purchased by the Company from Tran-gram for action by the State Legislature would also prevent samerica Delaval. Inc. (TDI), their manufacturer, as sources rate recovery of any costs incurred in connection with a of on-site standby generating capacity for Shoreham in the generating station that never operates. Such a proposal was unlikely event that all offsite power sources faded at a time adopted in the State Assembly in late February 1986. A when it was necessary to shut Shoreham down. The Com-similar proposal, limited, however, to nuclear power plants pany discovered cracks in the crankshaft of the TDI diesel owned by a sing!e utikty company, was also adopted by generators during tecting in August 1983 and subsequent-the State Senate in late February 1986. The Company can- ly other defects were identified. The TDI d:esel generators not predict what action the State Legislature will take respec- have been completely rebudt. Following heanngs by an ting such proposals, what action the Company might take ASLB, the rebuilt TDI diesel generators were licensed by il any such proposals are enacted into law or what impact the NRC at least until the time of the first reload of nuclear the new legislation might have upon the Company's finan- fuel at Shoreham. During the outage for the fuel reload, the cial condition and results of operations. Company plans to connect three additional cmergency diesel generators purchased from Colt Industnes Inc. to pro-Shoreham Rate Proposals: Levekzed rate phase-in pro- vide additional on-site standby generating capacity. The posals to hmit rate increases due to Shoreham have been Company has initiated htigation against TDI in the United considered by the New York State Legislature in each year States District Court for the Southern District of New York since 1982, but none of these proposals became law. (the District Court). The complaint fded in the District Court Similar legislative initiatives may be introduced dunng the states, among other allegations, that TDI intentionally con-1986 legislative session. The Company ic unable to predict cealed from the Company certain information respecting what action the legislature might take on such proposals potential defects in the diesel generators and willfully and. if enacted into law, what action the Company might misrepresented other information about them. The Cso-then take or what impact the new legislation might have pany also alleges in the compla!nt that TDI acted neg!! gen!!y
23 in vanous aspects of manufactunng and in furnishing ser. The Company, the four other cotenants of Nm Mile Point vices to the diesel generators, violated federal statutes, in 2 and the Staff of the PSC have submitted to the PSC for particular, the Racketeer Influenced and Corrupt Organiza- approval an Offer of Settlement that,if approved by the PSC, tion Act (RICO), and breached its contract with the Com- would resolve all issues relating to the prudence of the costs pany iii several respects. The Company seeks in its relief incurred in the construction of Nine Mile Point 2. The Offer against TDI compensatory damages and punitive damages, of Settlement, with respect to the scope of the work descnb-including treble damages authonzed by RICO, in an ag- ed therein, would limit to $4.45 b;lhon the maximum amount gregate amount to be determined in the litigation. TDI has of Nine Mile Point 2 expenditures which may be included moved to dismiss the complaint. The Company has in the rate bases of the cotenants. In submitting the Offer responded in opposition to the motion, which has not been of Settlement, the cotenants stated that they had not con-argued to date. ceded that any of the expenditures for Nine Mile Point 2 were imprudent. Intervenors in the prudence case are op-Other Litigation: Separate class action and shareowners' posed to the Offer of Settlement. An ALJ, after giving con-denvative action lawsuits initrated in 1984 by holders of the sideration to comments, testimony and briefs submitted by Company's Common Stock and holders of certain classes the parties, has recommended that the PSC reject the Of-of the Company's Pre' erred Stock, alleging violations of the fer of Settlement. The Company cannot predict what action Secunties Act of 1933 and the Secunties Exchange Act of the PSC, which will review the ALJ's recommendation, will 1934, have been consolidated into a single Troceeding in take respecting the Offer of Settlement. If the proposed Of-U S. Distnct Court for the Eastern Distnct of New York. The fer of Settlement is permitted to become effective, the Com-Company and certa:n of its past and present officers are pany's share of the estimated a!! owed costs would be ap-named in the consolidated lawsuit as are certain of the Com- proximately $777 milhon, exclusive of the $39 million of pany's past and present directors, certain of the under- nuclear fuel and other Nine Mile Point 2 costs not included wnters in its Common Stock offenngs and its former in- within the scope of the Offer of Settlement, or approximate-dependent accountants. In general, the plaintiffs allege that ly $51 million less than the amount expended by the Com-over a penod of years one or more of the defendants, either pany at Decmber 31,1985. If the proposed Offer of Settle-individually or in concert, failed to make adequate ment is permitted to become effective, then based on the disclosures or made false and misleading statements most recent cost estimate of $5.526 billion, the Company's respecting the cost of Shoreham and the management of share of the estimated allowed costs would remain at ap-its construct;on. The a!!egations of mismanagement appear proximately $777 million and the amount to be disallowed to be based either upon reports appeanng in newspapers would be approximately $206 million, including the or statements appeanng in the testimony of the PSC filed aforementioned $51 million. If the proposed Offer of Settle-in the prudence investigation discussed above. The plain- ment is rejected by the PSC, the Company believes that tiffs seek damages to be proveo in the litigation. The Com- the PSC wil! conduct a detailed review of the prudence of pany, which is contesting the litigation, is presently unable the costs of Nine Mile Point 2. Any PSC determination would to measure the impact, if any, that the ultimate resolution be subject to appeal. The Company believes that it will have of such litigation will have on its financial cond. tion or results an opportun;ty to seek recovery of prudently incurred ex-of operabons. penditures, not within the scope of the Offer of Settlement, such as the cost of nuclear fuei, costs shared with Nine Mile Nine Mile Point 2 Point 1 and costs not shared with cotenants.
The Company has an 18% undivided interest in Nine Mile Point 2, a nuclear power plant under construction near Niagara Mohawk has advised the Company thm fuel load Oswego. New York. The cotenants of Nine Mile Point 2 in at Nine Mile Point 2 is expected to be accomplished within addition to the Company, are Niagara Mohawk Power Cor- ten weeks of February 24,1986, the previously scheduled potation (Niagara Mohawk). New York State Electric and fuel load date. Fuel load at the later date cannot be assured.
Gas Corporation (NYSEG), Rochester Gas and Electnc Cor- The Company's own review of the Nine Mile Point 2 pro-poration and Central Hudson Gas & Electnc Corporation. ject indicates that, despite aggressive project management, a further delay in fuel load is possible The NRC Staff has The most recent estimate of the cost of Nine Mile Point 2. indicated its be!!ef that a fuelload date of late 1986 is more announced in February 1986, totals $5.526 billion. At probable than the date projected by Niagara Mohawk.
December 31,1985, the Company's total expenditures for Niagara Mohawk projects a commercial operation date in Nine Mile Point 2 were $828 million. The amounts stated January 1987. Consultants reta:ned by the PSC have in-in each instance exclude nuclear fuel and other Nine Mile dicated that commercial operation could occur late in 1987.
Point 2 costs such as common facilities shared with Nine Mile Point 1 and costs not shared by the cotenants. At If completion of the project is delayed, the total cost of the December 31, 1985, the Company's expenditures for Company's share of the unit will have to be revised upwards nuclear fuel and other Nine Mile Point 2 costs such as those agairi. Niagara Mohawk has estimated that each month descnbed in the preceding sentence totated approx:mately beyond the January 1987 commercial operation date, adds
$39 million. In eacn instance, the amounts statea inciude a ininiinurn of $60 million pel month, including f.nancing financing costs, after giving effect to the federal income tax costs, to the total cost of Nine Mile Point 2. Under the pro-benefits resulting from the deduction of the interest porton posed Offer of Settlement, the costs of each month of delay of such costs. would not be recoverable. The Company's share of such costs would be approximately $10.8 million per month.
27 The proposed Offer'of Settlement contemplates that each rate recovery granted. The Company believes that the posi-cotenant would seek to phase-in its share of allowed costs tion of the CPB does not represent the law in New York in separate rate proceedings; each cotenant would be per- State.
mitted to recover an accumulated deferred carrying cost on the portion of the allowed costs not yet included in the in 1984 the PSC granted the Company permanent electric rate base. The Company has not sought thus far to recover rate relief totaling $245 million annually, including approx-any portion of its Nine Mile Point 2 costs from ratepayers, imately $47.4 million of conventional rate relief and $197.6 but intends to do so. In legislation introduced in 1985, the million of financial stability revenues. The new rates became Governor of the State of New York proposed a phase-in of effective on September 1,1984. Intervenors in the 1984 rate at least five years for a new nuclear plant, such as Nine Mile case, opposed to the rehef granted, have appealed the Point 2, owned by two or more utility companies. The Com- PSC's decision. The appeal is pending.
pany cannot predict whether a similar Voposal will be sub-mitted in 1986, what action the State Legislature will take The Company beheves, with respect to both the 1986 and respecting such proposals or what action, if any, the Com- 1984 rate cases, that the determinations of the PSC will be pany might take if any such proposals are enacted into law. upheld on appeal.
Operation of Nine Mile Point 2 is subject to the completion Nuclear Fuel of its construction and the issuance by the NRC of an At December 31,1985, expenditures for procurement of operating kcense. One of the steps in the operating license nuclear fuel totated $152 million for Shoreham and approx-proceedings is a technical review of Nine Mile Point 2 by imately $30 million for its share of nuclear fuel for Nine Mile the NRC's Advisory Committee on Reactor Safeguards Point 2. The $152 milhon for Shoreham includes S60 milkon (ACRS). After performing its technical review of Nine Mile related to the Company's investment in Bokum Resources Point 2, the ACRS reported to the NRC that "there is Ccrporation and a credit of $43 million related to certain reasonable assurance that the Nine Mile Point Nuclear Sta- Westinghouse settlement proceeds, both of which are tion Unit Two can be operated at levels up to 3323 MWt discussed below under the heading "Bokum Resources (full power) without undue nsk to the health and safety of Corporation" Should the operating kcenses for these the public." Moreover, construction of Nine Mile Point 2 has nuclear units fail to be issued, the Company would have not occasioned any local or state opposition comparable no use for its investment in nuclear fuel.
to that which the Company has expenenced at Shoreham.
Nevertheless, the Company cannot pred!ct when, or Nuclear Plant insurance whether, the operating license for Nine Mile Point 2 will be issued.
The maximum amount of property damage insurance coverage available at each nuclear generating site as of January 1986 was $1.135 billion. Thus, the same maximum Because the Company does not know when Nine Mile Point coverage is separately available at Shoreham and at Nine 2 will begin commercial operation nor what the total cost Mile Point, where there are two units. The Company has of Nine Mile Point 2 will be. the Company is unable at this no interest in Nine Mile Point 1 which is owned and operated time to predict the amount of the Company's share of solely by Niagara Mohawk. The insurable value of d:sallowed costs in excess of $4.45 bilhon and the amount Shoreham at that date was approximately $2.45 billion. The of imprudent costs if any, in expenditures not within the scope of the proposed Offer of Settlement or, in the event insurable value of both Nine Mile Point 1 and 2 at that date was $3.48 bdhon, of which the Company's share was $492 the PSC orders a detailed prudence investigation, the million. The Company has obtained $585 milkon of such i
I amounts found therein to be imprudent. coverage for Shoreham from Amencan Nuclear Insurers and Mutual Atomic Energy Liabihty Underwnters. The an-Rata Relief nual premium for this coverage is $5 million. Up to an ad-The PSC has granted the Company $68.7 million of addi- ditional $550 million of property damage coverage for each
(
I tional annual electric rate relief which became effective on nuclear site is available from Nuclear Electric Insurance January 30,1986. The rate rehef is provided through a finan- Limited (NEIL), a Bermuda-based mutual insurance cor-cial stability adjustment (FSA) which will remain in effect until i poration formed by the electric utility industry. This NEIL pro-Shoreham goesinto operation. An FSA, first estabhshed by gram of $550 mdlion currently consists of $65 million of the PSC in 1984 as discussed in Note 1, because of the direct insurance and $485 million of coverage provided Company's then dire financial prospects, would cease to through apphcation of retrospective premium adjustment.
operate should the Company become bankrupt. The Com- The estimated annual premium for this coverage is presently pany believes that tne cash flow resulting from the FSA pro- $1.3 milhon. The Company has elected to obtain this vides a needed signal to the financial community of con- coverage for Shoreham but has deferred the effective date tinued regulatory commitment to the gradual restoration of of the coverage and payment of the related premium until the Company to sound financial health. The PSC rejected Shoreham begins commercial operation. Under the the argument of certain intervenors that the threat of retrospective premium adjustment of this NEIL policy, each bankruptcy is a viable alternative to rate increases. The CPB, NEIL-insured utihty company, including the Company at the an intervenor in the proceedings, has appealed the deci- present time, would also be liable for a maximum assess-sion, alleging in part that, because Shoreham is not now, ment of 7.5 times the annual premium during any one pohcy and may never become, commercially operable, the year in the event of a loss to any other insured utihty com-
"used and useful" pnnciple discussed above prevents the
28 pany This assessment would only be required if enisting htigated matters. Other adversary proceedings are pending premiums and loss reserves were exhausted. The Company in the same court. The pending adversary proceedings be-has separate coverage for worker's compensation and third- tween BRC and the Company include a mortgage party non-nuclear liability claims arising from activities at foreclosure by the Company against BRC, a counterclaim Shoreham. At Nine Mile Point 2, the cotenants also have by BRC against the Company in the mortgage foreclosure insurance coverage during construction for physicni proceeding seeking recovery of approximately $45 million damage to the plant, worker's compensation and third-party in compensatory damages and $20 million in punitive non-nuclear liability claims. damages, and a breach of contract suit begun by BRC against the Company in which BRC seeks up to approx-Third-party bodily injury and property damage coverage imately $200 milhon in compensatory damages and $25 arising out of a nuclear occurrence at Shoreham of up to million in punitive damages, as well as other suits involving BRC and its cred: tors. In December 1985, the Bankruptcy
$650 million is available from American Nuclear insurers and from the owners of operating nuclear reactors in the Court granted the Company's motion for summary judg-U.S. These owners, currently numbering 98, may be assess- ment respecting the counterciaim in the mortgage ed up to $5 mihion per nuclear accident, but not in excess foreclosure action, but denied the Company's request for of $10 million per year, under the provisions of the Price summary judgment in the breach of contract suit. This deci-Anderson Act. The owners of Nine Mile Point 2, including sion of the Bankruptcy Court is under review by the United the Company, anticipate that property damage coverage States District Court for the District of New Mexico. The mort-and third-party nuclear liability insurance comparable to that gage foreclosure proceedings and other matters relating ava:!able for Shoreham, will be obtained for Nine Mile Point to BRC's transactions with the Company and with others 2 at the appropriate time. are still pending before the Bankruptcy Court. While the Company believes that both its claims against BRC and its NEIL also provides insurance coverage for the extra ex- defense against BRC claims are mentorious, no assurance pense of obtaining replacement power due to prolonged can be given as to the outcome of the litigation between outages of nuclear facihties in excess of six months. The the Company and BRC.
policy essentially provides reimbursement for up to a max-imum of $3.0 million per week for one year following the The Company has long recognized that the eventual six month penod and one additional year at $1.5 million per disposition of the Company's loans and advances to BRC week. The annua! cost of the coverage would be approx- and the viability of BRC as a source of nuclear fuel depend-imately $1.5 million for each single nuclear unit site. The ed on many factors, including the market price for uranium.
Company anticipates that it will obtain this coverage, the The Company believes that the cost to mine and mill cost of which will be recoverable in rates. uranium from BRC's properties substantially exceeds the
" spot" market price of uranium.
Bokum Resources Corporation At December 31,1985, the Company had invested approx. Based on an analysis by consultants retained to assess the imately $126 million in Bokum Resources Corporation uranium market and the value of the mine and mill, the Com-(BRC). This amount includes $20 million of advances made pany has concluded that the BRC project is no longer for uranium concentrates and $40 mdhon for financing costs economically viable. The analysis also concludes that the on the uranium concentrates. Both amounts are included BRC properties have a current value substantially below the in the Balance Sheet under " Construction and nuclear fuel amount of the Company's investment. Consequently, the in trusts." The remaining $66 mdhon of the investment con. Company has asked BRC to seek, in the bankruptcy pro-sists of $60 milhon of loans to BRC, including financing costs, ceedings, the disposition of the BRC properties.
for the completion of a Uranium mine and ore processing mdl in New Mexico and $6 milhon expended s:nce mid-1980 The PSC has previously issWd orders relating to expen-for preservation and maintenance of BRC's mine and mill. ditures made by the Compmy ..M respect to BRC. In its These amounts are included in the Balance Sheet under most recent orders relating to BRC, the PSC ordered the "Other investments and deposits, principally Bokum Company to justify any expenditures it may make for BRC Resources Corporation." BRC is presently in reorganiza- beyond the end of 1985 and to submit detailed tecnnical tion under Chapter 11 of the Federal Bankruptcy Code. The information regarding the BRC project by February 28, Company ceased accruing interest on its loans to BRC after 1986. These same orders limit BRC-related expenditures the filing of the bankruptcy petition. However, financing by the Company to those amounts necessary to fund litiga-costs on the advanced payments for the uranium concen- tion, plus an average of $75,000 per month for mine and trates have continued to be capitalized by the Resources mill preservation. All BRC-related expenditure authorizations Trust. are subject to reconsideration by the PSC once it has review-ed the information submitted by the Company. As part of Litigation between the Company and BRC in the U.S. its February 28,1986 submission, the Company advised Bankruptcy Court for the District of New Mexico has includ- the PSC that it had requested BRC to take the necessary ed a contested involuntary petition seeking reorganization steps to dispose of the mine and mill. The Company believes of BRC, adversary proceedings relative to certain that the amounts authonzed by the PSC will be sufficient counterclaims brought by BRC against the Company and for on-going expenditures through such time as the PSC adversary proceedings involving other creditors of BRC. Ap- will have had an opportunity to consider the Company's peals are pending w:th respect to certain of these previously
2]
petition. The Compar1y is unable to predict what action the recovery over a three-year period of 80% of the Company's PSC might take with respect to its submission. share of its invesment at August 31,1984 in the abandon-ed nuclear plants at New Haven, New York, which the Com-To the extent that the monies advanced or loaned to BRC pany and NYSEG had planned to own equally. The PSC or the interest capitahzed on non-interest bearing advances has disallowed the remaining 20% of the investment in the are not returned to the Company following the sale of the New Haven project. The Company is not allowed a return BRC properties in the bankruptcy proceedings or offset by on the unamortized balance. The total investment at August the proceeds from the settlement of litigation against 31,1984, before giving effect to the disallowance, was $62.2 Westinghouse Electric Corporation ansing from its failure million. Reflecting the action taken by the PSC in 1984 with to deliver contracted-for uranium, the Company will apply respect to New Haven, the Company has written off $11.4 to the PSC for appropnate rate relief. Although the Com- million, net of a federal income tax effect of $1 milhen. The pany believes that its past expenditures for BRC have been rema;ning $49.8 million of the investment at August 31,1984 prudently incurred and that it should be permitted to recover is being amortized at a rate of $1.4 million each month. At such amounts from its ratepayers, the Company cannot December 31,1985, $22.6 million had been amortized.
predict what action the PSC will take respecting the Both NYSEG and the New York State Consumer Protec-prudence of BRC expend,tures. tion Board, an intervenor in the New Haven prudency pro-ceedings, petitioned the PSC for a reheanng. Their petitions Due to the many contingencies upon which the outcome were denied. The decision of the PSC may be reviewed by of the BRC transactions, the related litigation and the the courts. In addition, three plaintiffs, The League of ratemaking treatment are dependent, the Company can- Women Voters of Tompkins County (N.Y.), a customer of not accurately measure either the probabikty of its reakz- the Company and a customer of NYSEG, have petitioned ing a loss on the transactions involving BRC, or the amount the New York Supreme Court, Albany County, for an order of that loss if it should occur. While under the most adverse annulling the PSC orders permitting recovery of any of the circumstances the loss could be material, the Company prudently incurred New Haven costs. Although the Com-believes that the loss, if any, by itself will not have a material pany cannot predict the outcome of the appeal, the Com-adverse impact on the financial condition cf the Company. pany believes that the record in this proceeding supports the decision of the PSC and that, under New York law, it Abandoned Generating Projects is entitled to recover the prudently incurred costs of aban-In the 1970's, the Company and NYSEG had sought doned projects.
regulatory approval for the construction of two nuclear generating units at Jamesport, New York. The Company Hurricane Gloria and NYSEG each subsequently abandoned the application On September 27,1985. Long Island was struck by Hur- ,
to construct the Jamesport units. The Company's share of ncane Gloria, one of the worst storms faced by its customers the Jamesport costs, net of estimated tax effects of $18.6 in the history of the Company. The Company has incurred million, was approximately $104 milhon at December 31, storm repair costs, all of which the Company believes to 1985, exclusive of the Company's share of the net amount have been prudent and therefore recoverable in rates, of to which it was entitled upon resolution of the nuclear steam approximately $43 milhon. Although the Company has supply system (NSSS) dispute discussed below. The Com- decided not to ask for emergency rate relief, it has defer-pany has apphed to the PSC for recovery of the costs red such costs at December 31,1985 in order that they may l associated with Jamesport. Heanngs on this apphcation be included in a rate apphcation to be filed at a later date.
I began in November 1984. While the Company beheves that The PSC is currently considering a Company app'ication virtually all of these costs were prudent and therefore respecting the deferral. The PSC has in the past permitted recoverable in rates, it is unable to predict the outcome of the Company to recover storm costs through the operation this proceeding. In connection with the cancellation of of a storm reserve and, in one case in which such costs Jamesport Westinghouse claimed approximately $63 exceeded the amount recorded in such storm reserve, milhon in cancellation costs for the NSSS, in addition to through special authorization in rates. The Executive Direc-payments already made by the Company, which claim the for of the New York State Consumer Protection Board and Company disputed. The Company initiated htigation against others have indicated that the Company should not be per-Westinghouse seeking to recover the amounts which it had mitted to recover these costs. Consequently, the Company advanced to Westinghouse as progress payments for the can give no assurance as to the action which the PSC will NSSS, as well as other amounts. In late February 1986, the take respecting their recovery but believes that rate relief Company and Westinghouse settled the dispute. Under the is appropriate. The Company had been unable to obtain terms of the agreement, Westinghouse reduced its claim upon reasonable terms any insurance with appropriate for cancellation costs to a total of $32 milhon. After giving deductibles which would have absorbed storm costs that effect to the $23.2 milhon in advance payments made by exceed the Company's now depleted storm reserve fund.
the Company and the additional $10 milhon to which the Company was entitled upon resolution of the NSSS dispute. The Company has received approximately 1700 separate Westinghouse will pay the Company $1.2 million in cash. claims for damages resulting from the storm, all but one of The Company must share the $1.2 million it will receive which seek in the aggregate approximately $491,000. One equally with NYSEG. claim, however, which is in litigation, seeks recovery of
$50,000,000. In this litigation, brought by Daniel Kiechte and The PSC has issued orders authorizing the amortization and Vicki Kiechte in New York Supreme Comt, Nassau County.
30 the plaintiffs allege, in substance, in five separate causes -
of action, that conditions caused by the Company's negligence which existed before Hurricane Gloria, were ag-gravated by the storm, resulting in damages, approximately
$48 million of which are alleged as punitive damages. The Company, believing that it has meritorious defense to these claims, has denied liability for them. The Company believes that the outcome, if adverse, would not materially affect the financial condition of the Company or the results of its operations.
Other The Company has entered into substantial commitments for fossil fuel and gas supply. The costs of fuel and gas supply are normally recovered from customers through provisions in the Company's rate schedules.
There are currently pending in the federal courts and before the Federal Equal Employment Opportunity Commission and the New York State Division of Human Rights com-plaints by employees and former employees alleging that the Company has discriminated against them on the basis of race and of age. One of the actions in the federal courts is a class action. Some of these complaints allege that the discnminatory actions were taken by the Company when it reduced its work force in March 1984 as part of the measures taken by the Company in that year to conserve cash. The Company be'ieves it has mentorious defenses to these complaints, but it cannot predict the ultimate out-come of these matters. The Company believes that the out-come, either individually or in the aggregate, if adverse, would not materially affect the financial cond: tion of the Com-pany or the results of its operations.
The Company has been named as a third-party defendant in each of two environmental lawsuits which, in general.
allege that the Company, along with others, disposed of chemical and industrial wastes and by-products, including hazardous wastes and substaraes, at the sites named in the complaints. While the Company cannot predict the out-come of either lawsuit, it believes that it has menterious defenses and in the event liability is determined against the Company, that the amount of the damages will not be material in either case or in the aggregate.
31 Nata 7. Ssgnssnts of Cuzinses The Company is a pubhc utility operating ccmpany engaged in the generation, distnbution, and sale of electric energy and the purchase.
distnbution, and sale of natural gas.
1985 1984 1983 (In milhons of dollars) Total Total Total Electric Gas Company Electnc Gas Company Electnc Gas Company Operating Information (Year ended December 31):
Revenue $1,679 $355 $2,034 $1.614 $360 $1.974 $1.436 $352 $1.788 Expenses (excluding income tax) 1,114 293 1,407 1.150 313 1.463 1.108 314 1 A22 Operating income (before income ta<) $ 565 5 62 S 627 $ 464 $ 47 $ 511 $ 328 $ 38 5 366 Allowance for other funds used dunng construction and other 261 235 213 Interest charges. net 210 202 149 Income taxes-operatng 239 202 97 income taxes-noncperating (cred:t) (85) (86) (32)
Net income per accompanying Statement of income S 524 $ 428 $ 365 Other Information (Year ended December 31):
Depreciat on. depietion and amort.zation S 59 $ 8 $ 67 $ 57 $ 8 $ 65 $ 55 $ 8 $ 63 Construction and nuc! ear fuel expenditures 883 18 901 909 12 921 882 18 900 Investment Information (At December 31):
Assets (a) $7,096 $334 $7,430 $6.276 $317 $6.593 $5.445 $308 $5.753 Nonut,hty plant 2 3 3 Other investments (t) 65 1 66 65 1 66 64 1 65 Assets ut.hzed for overa!! Company operations 456 438 569 Total Assets $7,954 $7.100 $6.390 (a) Includes net u%ty piant and deferred charges (excluding common) matenals and supphes, accrued revenues. gas in storage and fuet (b) Consisting of in 1985. $65 561.000 Bokum Resources Corporat.on. $520.000 subsdary companies (!G2.000 elecinc $458.000 gas) $439 000 other investments. in 1984. $64.584 000 Bokum Resources Corporat<on. $569.000 subsdary companies ($59.000 electrc. $510.000 gas),
$675.000 other investments, in 1983. $63.936.000 Bokum Resources Corporation. $637.000 subsdary companies ($112.000 electnc. $525.000 gas). $304.000 ciner investments Note 8. Quarterly Financial Information (unaudited)
Income for Earned per (in mAons of do!'ars excect Operahng Operating Net Common Common Earned per Common Share) Revenues Income income Stock Share First Quarter 1985 $590 $113 $142 $120 $1.09 1984 547 84 118 % 0 87 1983 481 67 91 74 0 73 Second Quarter 1985 $463 $84 $120 $98 $0.89 1984 438 68 103 81 0 73 1983 383 66 87 68 0 66 Third Quarter 1985 $523 $111 $144 $123 $1.11 1984 514 94 118 96 0 87 1983 479 85 111 91 0 89 Fourth Quarter 1985 $458 $80 $118 $100 $0.88 1984 475 62 89 67 0 62 1983 445 51 76 54 0 52
32 Note 9. Supplementary Information Concerning Effect of Inflation on Net Pl:nt In' vestment the Effects of inflation (unaudited) At December 31,1985, the cost of property, plant and equip-ment, net of accumulated depreciation, restated for industry For the past several decades, the utikty industry has con- inflation since year of expenditure, was $10.9 billion whde stantly pointed out to economists, regulators, and law makers historical cost net of accumulated depreciation was $7.3 that calculating depreciation on the original cost of the utility billion.
plant would not permit the recovery of the cost required to replace a piece of equipment which became obsolete or fully The effect of 1985 inflation which specifically affected the in-depreciated if any degree of inflation were experienced over dustry on the cost of replacing the Company's undepreciated the life of the property. The solution suggested by the industry plant investment (such investment was calculated by restating was to calculate depreciation on the reproduction cost of ex- plant and related accumulated depreciation for industry in-isting facilities, or to use a depreciation rate which reflects flation since year of expenditure) from the beginning to the inflat;on. In an attempt to have information available to in- end of the year, less the $111 milhon increase in deprecia-form investors of the consequence of this inflationary ero- non expense shown above, amounted to $288 million. Fur-sion throughout the business world, the Financial Accoun- ther, the effect of 1985 general inflation, of about 4.00/o, on ting Standards Board developed certain standards for quan- the cost of replacing the Company's January 1,1985, tifying and providing this information to investors. While the undepreciated plant investment amounted to $383 million.
Company believes the concept has ment if it leads to wiser The effect of 1985 general inflation exceeded the effect of govemmental decisions as to taxation and utthty regulation, industry inflation by $95 million. In 1985, the adjustment of the Ccmpany wishes to point out to its shareowners the undepreciated plant stated in terms of industry inflation to theoretical nature of this information, and to suggest caution net recoverable amounts is a decrease of $155 milhon.
in its use for the purpose of making investment decisions in Similar adjustments for the years 1984,1983,1982 and 1981, the utihty field and for companng one company to another when restated in average 1985 dollars, was an increase of in terms of expected future performance. $169 milhon and $176 milkon in 1984 and 1983, respective-ly, and reductions of $363 milhon, and $236 milhon for 1982 The data which follows reflect a restatement of the histoncal and 1981, respectively.
cost of property, plant. and equipment,(by approximate year of expenditure). and the related accumulated depreciation Effect of inflation on Certain Assets and Liabilities and depreciation expense. Income tax expense has not been During penods of inflation, monetary assets such as cash restated for the effects of inflation. The effect of inflation on and receivables lose their purchasing power. Similarly, the Company's operations is measured for that inflation which monetary liabilities such as long-term debt can be a benefit impacts the utiltty industry by using the latest available because they will be repaid in dollars having less purchas-estimates for the Handy-Whitman index for Pubhc Utikty Con- ing power. The net monetary amounts owed by the Com-struction Costs. pany dunng the years 1985,1984,1983,1982 and 1981 resulted in an unreahzed benefit of $150 milhon, $136 milhon, Under the ratemaking prescnbed by the PSC, only historical $85 million, $58 million, and $170 million, respectively. The cost of utthty plant is recoverable in revenues as deprecia- Company's net assets (total assets less total liabihties) at year-tion. Therefore, any excess or deficiency of the amount of end, when restated in average 1985 dollars, for the years utihty plant stated in terms of industry inflation compared to 1985,1984,1983,1982 and 1981 were $3.7 bilhon, $3.3 histoncal cost is reflected as a reduction or wnte-up to bilhon, $3.0 bilhon, $2.8 billion, and $2.4 billion, respectively.'
recoverable amounts respectively.
Effect of inflation on Flevenues, Common Stock Effect of Inflation on Net income and Common Stock Dividends and Common Stock Market Price Earnings per Share Revenues were $2.0 bilhon in 1985. Revenues restated in average 1985 do!!ars for the years 1984 through 1981, (Average 1985 dollars. respectively, would have been $2.0 billion, $1.9 bilhon, $1.8 in thousands of doHars except Adjusted for billion, and $2.0 bilhon. No cash dtvidends were declared Earned per Common Share) Industry infiation on Common stock in 1985 and 1984. Dividends declared 1985 Net income as shown on the in prior years restated in average 1985 dollars for the years statement of income $524 288 1983 through 1981, respectively would have been $2.18, increase in depreciason expense if ad 3usted $2.23, and $2.27 per share. The market price per common for intiation 111,118 share at year end was $8.13 in 1985. The market prices per Net incorre as adjusted $413.170 common share restated in year-end 1985 dollars for the years Earned per Common share as adjusted 5 2 97 1984 through 1981, respectively, would have been $7.14, Net income as aqusted $11.20, $19.19 and $16.43. The average consumer price 1984 $334.133 indices for the years 1985 through 1981 were 322.2,311.1, 1983 284 962 298.4, 289.1, and 272.4, respectively.
1982 239.261 1981 194.086 Earned per Common Share as adjusted 1984 5 2 21 1983 1 53 1982 1 86 1981 1.75
33 Scisctsd Finrncist Data 1985 1984 1983 1982 1981 1980 1975 Summary of Operations
- Takie 1 Total revenues ($000) $2,033,737 $1.973.550 $1.787.851 $1.633.517 $1.664.832 $1.276.938 $671.527 Total operatng income ($000)
Before federal income taxes S 627,307 5 510.993 $ 366.078 $ 335.743 $ 313.916 $ 205 918 $121,167 After federal income taxes S 388,140 $ 308.421 $ 268.989 $ 246.693 $ 225,888 $ 194 628 $111.055 income for Common Stock ($000) $ 440,563 $ 340.264 $ 287.163 $ 249.405 $ 198.902 $ 164.915 $ 66.984 Average common shares outstandng (000) 110,842 110.120 102.484 92.475 77.988 65.138 28.949 Earned per common share S 3.97 $ 3 09 $ 2.80 $ 2.70 $ 2.55 $ 2 53 $ 2.31 Dividends pa:d per share $ 0.505 $ 2.02 $ 198 $ 1.90
$ 182 $ 1.49 Book value per share at year end $25.88 $22.05 $1929 $18 65 $18 78 $18 94 $17.19 Common shareowners at year end 143,627 163.354 180.291 181.127 169.124 159 678 116.008 Ratio of earnings to f:xed chargas 2.75 2.49 2.46 2 42 2.37 2.14 2.53 Rato of earnings to fixed charges and prefe red dvidends 2.15 1 91 1.88 1.90 1.87 1 74 1.86 Rato of earnings to fixed charges (excludng AFC) 1.62 1 40 1.28 1 34 1.40 1.25 1.94
- See Table 10 of Selected Financal Data for Assets and Capitahzaton. See a!so Note 6 to Notes to Financa! Statements.
Electric Operating Income on thousands of cotiars) Table 2 Revenues Residental S 772,861 $ 752.123 $ 674.190 $ 608.384 $ 634.378 5 478.618 $266.077 Commercal and indus*na! 844,636 796.543 694.038 639.360 666.078 479.486 256.762 Street and hignway hghtng 18,675 19.004 17.320 16.779 17.697 13.594 12.472 Other pubhc aumortes 25,755 23.986 21.138 19.385 27.746 21.685 11.988 Other utates 55 408 1.066 717 822 1% 725 0:ner 4,013 (2.446) 3.276 5.898 6 416 7.094 2.228 System revenue 1,665,995 1.589.618 1.411.028 1.290.523 1.353.137 1.000.673 550.252 Power pools 12,971 23.779 24.919 29 992 49.582 38 993 7.719 Total Operatng Revenue 1,678,966 1.613 397 1.435.947 1.320.515 1.402.719 1.039 666 557.971 Expenses Operators - fuel a~1 purchased po^m 629,470 692.515 645.211 608.101 719 845 521 062 236.329 Operatons - omer 141,019 136 412 146.350 127.202 118.870 98.017 59.182 Ma:ntenance 60,154 50.038 58.865 58.525 57.746 47.587 30.164 Deprecaton 58,510 57.198 55.649 53,108 54.203 50.235 35.267 Operatng taxes 224,376 213.691 201,842 173.808 167.535 143.589 91.326 Federal income tax - current (6,921) 9.710 (16.774) (3.770) (1,843) (9 862) 5.009 Federal income tax - ce+ erred and otner 225,442 177.566 104.765 82.816 83.621 15.128 4.341 Total Expenses 1,332,050 1.337.130 1.133.908 1.100.885 1.198.882 865.756 461.618 Electric Operating income S 346,916 $ 276.267 $ 240.039 $ 219 630 $ 203.837 $ 173.910 $ 96.353 Gas Operating income (in enousancc et coitars)
Takse 3 Revenues Res; dental - scace heatng* $ 190,357 $ 195.035 $ 186.753 $ 161.794 $ 134.407 $ 117.228 $ 61.592
- omer 35,638 35.916 36.144 31.794 28.028 26.556 16 672 Non-residental firm - space heatng' 62,268 63 442 61.927 55.486 45.500 37,729 19.658
_ _ ___. _ __ - 20' - _ _ _ _ __ _ _31,043 _ __31 526
_ 32.134 _ _ _ _ _26 6_84 _ _ _ 21;318 _18d83__ 9.434_
Total firm sa'es revenue 319,306 325.919 316.958 275.758 229.253 199.996 107.356 Interrupt:ble 33,446 32.149 32.768 35.161 30 757 35.395 4.691 Total system sales revenue 352,752 358 068 349.726 310.919 260.010 235.391 112.047 Omer utites - - - - - --- -
Total sa'es revenue 352,752 358,068 349.726 310.919 260.010 235.391 112.047 O*her revenue 2,019 2.085 2.178 2.083 2.103 1.881 1.509 Total Operatng Revenue 354,771 360 153 351.904 313.002 262.113 237.272 113.556 Expenses Operatons - fuel 201,458 192.581 209.626 180.925 145.507 130.664 44.126 Operatons - omer 25,638 59 417 43,253 46.085 39.397 34.190 21.538 Mainterance 10,895 10.530 11.022 10.218 10.507 9.916 7.000 Deprecaton, cepletion and amortzaton 8,232 8.011 7.761 7.395 6.957 6.433 5.448 Operatng taxes 46,678 42.164 39 362 34.144 31.444 29.327 19.980 Federal income tax - current 7,435 4.386 12.646 3.108 835 6.947 (918)
Federal income tax - deferred and other 13,211 10 910 6 806 5,415 (3 548) (923) 1.680 Total Expenses 313,547 327.999 322.954 285.939 240.062 216.554 98.854 Gas Operating income S 41,224 $ 32.154 $ 28.950 $ 27.063 $ 22.051 $ 20.718 $ 14,702
- In the heatng class.ficatons, the revenues shown cover all gas used. includng nonheatng use.
30 1985 1984 1983 1982 1981 1980 1975 Electric Operations Takte 4 Energy - mdhons of kWh Net generation 12,292 12.159 11,703 11.516 11.720 11.295 12.854 Power purchased and (sold) - net 2,844 2.689 2.754 2.197 2.091 2.719 159 Total sfstem requirements 15,136 14.848 14.457 13.713 13.811 14.014 13,013 Company u_se and unaccounted for _ (
__ _1,346) _ (1.2_71)_ (
_ _1.3_08) ___.194)
(1 ___ _ (1.196)
_ (1 331)_ _(1,301)
System sales 13,790 13.577 13.149 12.519 12.615 12.683 11,712 Power pool sales 226 418 494 552 772 882 290 Total Sales 14,016 13.995 13 643 13.071 13 387 13.565 12.002 Peak Demand - mW Station coincident demand 2,773 2.528 2.553 2.757 2.730 2.994 2.597 Purchased or (sold) - net 607 568 555 288 402 149 335 System Peak Demand 3,380 3.096 3.108 3.045 3.132 3.143 2.932 Capability at Time of Peak - mW LILCO statens 3,743 3.721 3 721 3.721 3.721 3.721 3.727 Firm purchase or (sale) - net 171 57 47 46 56 62 89 Total cacabhty 3,914 3.778 3.768 3.767 3.777 3.783 3.816 Fuel Consumed for Electric Operations Od-thousands of barre's 15,790 15.531 15.707 15.360 15 665 15.428 21,142 Gas-thousands of dth 29,154 29.149 22.747 21.727 23,374 20.426 1.227 Total-beons of Btu 128,629 127.468 122.019 119.341 122.577 117 965 131,135 Dollars per mAon Btu 5 3.97 $ 4 47 $ 4 23 $ 4.18 5 4 58 $ 3 41 $ 1.74 Cents per kWh of net generation 4.16e 4 688 4 418 4 33' 4 79' 3 57' 1.78' Heat rate-Btu per net kWh 10,465 10.483 10.425 10 363 10.459 10.456 10.202 Gas Operations Table s Energy-thousands of d'n Natural gas 53,030 52.558 50.706 51.135 50.224 50.489 42.552 Manufactured gas a74 change in s'orage (30) _ _ _ _ _ _ (15)_ 100 _.
69 __ _J62)_. . __ _ _1 24 _ 105 Total na* ural and manu'actured_ gas 53,000 _ _ 52.543 50 806 _ 5_1 204 _ 50.162 __
50.613 42.657 Total system requirements 53,000 52.543 50.806 51.204 50.162 50.613 42.657 Company use and unaccoun'ed for
(
_ 3_,219_)_. __ _ _( 1.632) (3,240)
(1.628) __(1.800)_ _(3 419) __ (2.143) 49,781_ 50 911 49.5_76 __ 48 362 _ _ _ .47,194 _ 4 System sa!es __ _ _ _ _ _ _ _ _ _ _ _ 47.566 __ _
_ 0.5_14 Total Sa:es 49,781 50.911 47.566 49.576 48.362 47.194 40.514 Maximum Day Sendout-dth 441,122 359.527 381.624 402.536 371,845 358.638 273.131 Capability at Time of Peak-cth per day Nairal gas 335,700 315.400 315.400 310.100 308 800 308.800 328.900 LNG. manufac'ured or LP gas _ _ _ __ __ _ _ _ _1_45,600 145 600 146.900 155 200 _
142.300
_ _ 142.300_ 148.300 Total Capabbty 481,300 461.000 462.300 465.300 451.100 451.100 477.200 Natural Gas Consumed Elecinc Operat:ons-thousands of d h 29,076 29 020 22.630 18.307 15.294 12.221 1.227 Gas operatons-thousands of d'n _ _ 53,358 _ . 52.646_ _51._771__ _ 49.947 _
49.026 50.402 _ ___ __42.535 Total Natura! Gas Consumed 82,434 81 666 74.401 68.254 64 320 62.623 43.762 Calendar Degree Days (59-year average 5 062) 4,638 4 739 4.781 4.754 4 851 5.151 4.739
3J 1985 1984 1983 1982 1981 1980 1975 Boctric Sales and Customers Takse a Sales - millions of kWn Residential 5,970 6.000 5,900 5,557 5,581 5,655 5,334 Commercial and industrial 7,369 7,129 6,797 6,524 6.494 6.431 5.757 Street and highway lighting 178 182 181 182 180 188 182 Cher public authortes 272 259 252 242 345 404 405 Other utihties 1 7 19 14 15 5 34 System sales 13,790 13,577 13,149 12,519 11,712 12.615 12.683 Power pool sales 226 418 494 552 772 882 290 Total Sa!es 14,016 13.995 13.643 13.071 13.387 13.565 12.002 Customers - Monthly average Residentral 850,683 840,843 833,163 825.740 818,879 812,898 776,178 Ccmmercial and industnal 90,548 88,459 86.687 85.016 S3.899 82.918 77.317 Chers 4,391 4,339 4,269 4.368 4,683 4,185 4.027 Customers - tota! monthly average 945,622 933.641 924,119 915,124 907,461 900.001 857.522 Customers - total at year end 948,797 935.964 926,335 915,672 908.303 900.419 859.527 Residential kWh per customer 7,018 7,136 7.081 6,730 6.815 6.957 6.872 Revenue cents per kWh 12.95* 12.535 11.43: 10.958 11.378 8 462 4 99:
Commercial and Industrial kWh per customer 81,382 80.591 78.409 76,738 77,559 77.403 74.455 Revenue per kWh 11.46* 11.172 10.218 9 802 10.268 7.46: 4.46:
System - Total revenue per kWh sold 12.08* 11.718 10.73: 10 315 10 732 7.89: 4 702 Gas Sales and Customers Ta68e 7 Sales - thousands of dth Residentia! - space heating
- 26,387 27.528 25,387 26,110 25.753 24,187 22,544
- other 3,642 3.702 3,601 3.677 3,566 3.654 3,368 Non-residential, firm - space heatng* 8,967 9,357 8,760 9.282 9.042 8,269 8,133
- other 4,510 4 638 4,518 4.433 4,021 3.833 3,472 Total firm sales 43,506 45.225 42.266 43,502 42,382 39,943 37,517 Interrupt;ble 6,275 5.686 5.300 6,0 74 5.980 7.251 2.997 Total system sales 49,781 50,911 47,566 49.576 48.362 47,194 40.514 Customers - monthly average Residential - space heatng* 182,593 179.030 176.250 171,760 165.093 153,440 137,461
- other 188,594 190.507 191,967 194,142 198.336 221,602 206.331 Non-resident:af - firm - space heatng* 20,935 20.173 19.959 19.756 19,282 18.229 17,585
- other 11,930 11.973 11,959 11,963 12,160 12.441 13.382 Total firm customers 404,052 401.683 400,135 397,621 394.871 390.441 390.030 Interrupt:ble 297 306 308 309 323 339 396 Customers - total monthly average 404,349 401,989 400.443 397,930 395.194 390,780 390.426 Customers,7 o'ai at_ year end __ t _40_5,330 402.430 _ 400,815 398.572 396.094 3_89,122 392.72_3_
Degree days - billed 4,444 4.921 4.596 4.816 4 975 4.910 4.660 Residential dth per customer 80.9 84 5 79 3 81.4 80.7 77.4 72 2 Revenue per dth $ 7.53 $ 7.40 $ 7.63 $ 6 50 $ 5 54 $ 5.16 $ 3 02 Non-residential, firm dth per customer 410.1 435 4 418 6 432.4 415.5 394 6 374 8 Revenue per dth 5 6.92 $ 6.79 $ 7 04 5 5 99 $ 5 12 $ 4 64 $ 2.51 System - total revenue per firm dth sold S 7.34 $ 7.21 $ 7.50 $ 6.34 $ 5 41 $ 5 01 $ 2.86
- In the heating classifications, the sa!es shown cover a!! gas used. including nonheating use.
36 1985 1984 1983 1982 1961 - 1990 1975 Operations and Ataintenance Expense Details can thousands or cottars) Takle a Total payroll and employee benetts S 257,509 $ 215.373 $ 227.014 $ 207.511 $ 185.265 $ 168.137 $ 107.400 53 649 yss -- Cha[gd to constructon and other _ _99,415_ _ __66.33_1 _ __7 5.962 _ __ 65.181 _ 55 272_ ._ _ _ _ 32.888 Charged to operatons 158,094 149.042 151.052 142.330 129.993 114.488 74.512 Fuels - electnc operatons 511,193 569 528 516.097 498.744 560.856 402.696 228.151 Fuels - gas operations 201,458 192.581 209 626 180 925 145 507 130.664 44.126 Purchased poAer costs 113,867 123.963 128.217 106,128 123.958 134 876 8 219 Elec*nc fuel cost _ adjustment deferred __4,410_ _ _ _ _ . (976) _ _ _ 89_7 _ _ _3 229 35 031 _ __ (16.510_)__ (41)
Totd Fuel and Purchased Power 830,928 885.096 789,026 _ 865 352_ 651.726_ 280.455 8_54.837_
All other 79,612 107.355 111.270 96 868 96 527 75.222 43.372 Total Operatons and Ma:ntenance $1,068,634 $1.141.493 $1.117.159 $1.028.224 $1.091.872 5 841.436 $ 398.339 Employees at December 31 5,676 5 202 5.947 6.012 5.777 5.669 5.446 Construction Expenditures <tn tnousancs or aaars> Takse e Electric Product:on (includes construct;on trust) S 807,067 $ 852.774 5 804.538 $ 777.033 $ 517.971 5 399.219 $ 215.512 Transmission 4,971 3.541 9.920 11.627 8.987 14.529 25.770 Distnbut;on 38,333 31.778 40.617 37.742 33.951 32.835 27.420 General (4,132)_ _ _ 1.294 1
_ _ .190 5.190 _ _ _
3.872 _ __ __3 26_5_ _ _ _ _ _936 Electric Total 846,239 889.387 856.265 831 592 564.781 449.848 269 638 Gas Total 19,564 12.354 17.458 20.728 22.536 21.114 7.191 Common Total 13,198_ _ _ _ _ 4_ 622 _ 4 626
~
9.432 _. _ 8_845 . 7.237 _ _____ 4 822 TotaiConstructon Excendaures S 879,001 $ 906.363 $ 883.155 $ 861.165 5 594.554 $ 475.784 5 281.455 Nuclear Fuel (includes Trusts) $ 22,241 $ 14.771 5 16.636 5 27.3 % $_ (4.744) $ 23.149 $ -
Balance Sheet on tnousanas at cowsr Tabie to Assets Uthty p' ant $ 8,167,239 $ 7 272.544 $ 6.422.520 $ 5 536.742 $ 4.662.402 $4.095 8% $ 2.097.019 Less-Accumula'ed deprecaton.
deplet:on and amor9zaton _ _853,071 788 565 727.298 _
672 518 _
620.616_ 573 765 _ _ 377.720 Total Ne' U9ty Plant 7,314,168 6 483 979 5 695.222 4.864.224 4 041.786 3.522.131 1.719 299 Other proceQ and in,estments 139,783 68.639 67.693 62.919 62.183 56.962 3.892 Cur ent Assets 343,073 424.640 587.002 361 219 361.859 273.378 147,566 De'er ed Charges Unamc'tzed cost of abandoned New Haven generatng project 27,133 44.108 - - - - -
Otner __130,338 78.807 39.666 42.324 65 275 __ _ 31.864
_ _ _ _ _ . _61 363 Tota! Asse's $ 7,954,495 $ 7.100.173 $6 389.583 $ 5.349.725 $4 508.152 $3 917.746 $ 1.902.621 Capitalization and Liabilities Captahzaton.
Long-term debt $ 2,718,192 $2 316175 $ 2.180.721 $ 1.602.777 $ 1.492.629 $ 1.264 677 $ 865.000 Unamo tzed premum and (discount) on debt (9,414) (9.658) (8.198) (5 605) (2.349) (39) 2.475 Preferred stoch-redempton required 527,612 530.662 542.450 478 050 415.520 361,500 160 000 Pre + erred stock-no redemption required 221,056 221.056 221.119 157.070 158.083 158.968 144.980 Treasury stock. at cost (7,654) (505) (1.772) -
(569) (186) -
Common stock and cremium 1,556,026 1.551.057 1.485,162 1,424.148 1.131,094 969 240 356.997 Caata! stock expense (56,116) (56.103) (56.278) (50.335) (42,107) (35.140) (15.180) 956.356 580.115 501.806 391,113 Re'ained ea_rnings _ _ _1_,480,644 . __ 439 2_8_5__ __ _ 209 52_4 Total Captatza* on 6,43_0,346_____5.509.040_ 4.943.319 4.107.911 3.59_1.586 _ 3.110,133 1.723.796 Trust Obi +gatons __ _ -
685.621 _ _
713 484 5_98 335 _ _ _ 439 425 348.935__. ._._-
_ 966,443_ 505.366 478.637 466.769 360 323_ _ _ 407.653___ 141.2_20 Curre_nt luabit es _ _ _ _ _ _
Deferred Cred.ts Accumu!ated de' erred income tax reductors 486,333 338 607 222.502 156.385 106.795 43.821 27.519 14.476 2.239 3,171 Other 62,039__ __54 649 25.055 _ . _ 6.091 Total Deferred Credits _ _ _ _ _ _ 548,372 393 256 247.557 170.861 112.886 46.060 __
30 690 Reserves for Claims. Damages.
_ _ _ _ . _ 9,334 _ _ 6 890 6.586 4 965 6.915 PeqsLons and__ Benefits _ _ _ _ 5 849 _ _ __3 932 _
Total Captahzaton and Liabetes $7,954,495 $7.100.173 $6.389.583 $5.349.725 $4.508.152 $3.917,746 $1.902.621
- Certain pnor year amounts have been reclasssfied to be consistent with the current year's presentaton.
Common and Preferred Ctock Prices w* ' '
The Common Stock of the Company is traded on the New York Stock Exchange and the Pacific Stock Excharge. The Preferred Stock
$100 par value Seres B. E1J.K and S and the Preferred Stock $25 par value. Series 0,P.T,U,V,W, and X of the Company are traded on the New York Stock Exchange. The Table below indicates the high and low prices on the New York Stock Exchange hsting of composite transactions for the years 1984 and 1985.
Common Stock Preferred Stock ke5 ke; E 5e 61 16) WsK $66 0 SWSP $FeS S Smsi SWsU $cos V kes h Se 6 X R d% 50 3 '2% 5% 12 4' 0 43 9% 53 31 9 25 13 50 53 52 53 50 Da 7 Ly "7 a - y L3 ya ka L3 t 7 L3 87 La My L:s He tcw He La by t> 7 Les ry L3 r y La 1984 7- f :- M 23 r- e E37 451 m 49 * '44 17', 12 4 65 55 23 17 4 23 22b 2n ?, 234 in 2h h ha : 29 23 4 s s 5' 33' , 45 37 % 455 , 39 , S',19, '4 ; 11 54 45'i 9 '34 2 3 , 14 % 9, te, 9 T S 2:4 44
' ': (4 3L 25'2 4 23 % 2 43, 2 40 21 3 433, 23 4 '34 7 13 4 6 N+ 24 : e/2 23 0 's 94454 4t % 341 421 34', 1 9 , 12 13' , 1 h 52n 4(W41 274 M4 8's 20 ith Cih 43 s 9 Ti 84 91, th 22 17 tak Ts 'P 14 ts% W 1985
- 6 22 - m: m 2 4? C 44 C 17% 13b si 114 E5% 4n in f5', R4 trz 27. T. 2~ r *E4 2C'2 T h V:m 7,
^
. _ r 2 c', ! ' 4E R, 4: 4"i 9, 9, 44 t2 C 4 a 21 93, 2 9 , 20 2t's *n 22 14 22 Ti
' : h' 34 Zi 4 3 o, r,t< 43 L 4h S5, $ 1Ea w.) (4 23 214 sh 2'w 22% 2n % 22', ? ?s 2h 'T4 M h t .,e ' e 65 E2a 4% a . 42 Sh 155, g 13w (5a (o 27, 174 2f g 21 2N '", 22h o ;2a y The Senes D-4.25% Stock is traded in the over-the-counter market. The Company has been advised of scattered trading at prices ranging between $19 and $29 per share dunng 1985. The Senes F H. L. M, and R Preferred Stock are held privately.
Directors ONFeers William J. Catacosinos William J. Catacosinos Millard S. Pollock Chairman of the Boara Cha.rman of the Board, Vice President Chief Executive O"icer and Chief Executive Officer and Fossil Production Presdent Presdent Long Island Lighting Company Long Island Lighting Company Matthew S. Procelli Vice Premdent Winfield E. Fromm James W. Dye, Jr. Employee Relations Retired Vice Presdent Executive Vice President Eaton Corporat:on John J. Russell EW:tronics Matthew C. Cordaro Vice President Senior Vice Presdent Customer Relations Lionel M. Goldberg OperaSons Senior Vice Presdent George J. Sideris Aiexander & Alexander Alexander W. Giles, Jr. Vice Presdent of New York. Inc Senior Vice Presdent Finance Insurance Commercial Operations Basil A. Paterson Lynne D. Abraham Vice President Par *ner Vice President Engineenng Suoza Enghsh & Public Affairs Klein. PC La" tra L. Freilicher Vice President Vice Pres; dent Administration Eben W. Pyne Corporate Affairs Corporate Drector Jay R. Kessler Controller and Consultant Vice President Rettred Senior Vice Presdent Gas Operations Edward W. Eacker Citibank. N A Treasurer John H. Talmage John D. Leonard, Jr.
Vice Presdent John J. Kearney, Jr.
Farm Manager Secretary Nuclear Operations H R Talmage & Son Adam M. Madsen Kathleen M. Brown Phyllis S. Vineyard Assistant Secretary Vice President Health Planning Consultant Directcs Corporate Planning N.Y. Statewide William J. Museler Anthony F. Earley, Jr.
Health Coordinating Vice President General Counsel Council Electnc Operat ons Francis M. Walsh General Claims Attorney
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~
Long Island Lighting Company . $ULK RATE 175 East Old Country Road US POSTAGE Hicksville, NY 11801 PAID Hicksville, NY Permit No 254 i
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/gg'@ LONG ISLAND LIGHTING COMPANY w wa #wraamn.wmj SHOREHAM NUCLEAR POWER STATION P.O. 30X 618 NORTH COUNTRY ROAD + WADING RIVER. N.Y.11792 JOHN D. LEONAR D, JR.
VICE PRESIDENT NUCLEAR OPERATIONS SNRC-1247 APR 09 1986 Mr. Harold R. Denton, Director Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, D.C. 20555 1985 Annual Report Shoreham Nuclear Power Station - Unit 1 Docket No. 50-322
Dear Mr. Denton:
Enclosed, please find ten (10) copies of the Long Island Lighting Company's 1985 Annual Report which is being submitted in accordance with 10 CFR 50.71(b).
G
-t J D. leonar , Jr Vi e President uclear Operations DRH:ck -
Enclosure cc: J. A. Berry
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