ML20206F197
| ML20206F197 | |
| Person / Time | |
|---|---|
| Site: | Haddam Neck File:Connecticut Yankee Atomic Power Co icon.png |
| Issue date: | 12/31/1998 |
| From: | Brenner B CONNECTICUT YANKEE ATOMIC POWER CO. |
| To: | NRC (Affiliation Not Assigned) |
| References | |
| NUDOCS 9905060027 | |
| Download: ML20206F197 (23) | |
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Northeast 1 7 sciaeo see, BeA em037 Utilities System Nordienst utilitie. senice company P.O. Box 270 Ilartford, CT 06141-0270 (860) 665-5000 April 27,1999 Director Nuclear Reactor Regulation U. S. Regulatory Commission Washington, DC 20555
Dear Sir / Madam:
In Accordance with paragraph 50.71(b) of 10CFR, Part 50, enclosed is one copy of the 1998 Annual Financial Report for The Connecticut Yankee Atomic Power Company, license holder.
Please acknowledge receipt by returning the duplicate of this letter in the stamped, self-addressed envelope enclosed for your convenience. J Respectfully yours,
% O.4 W Beth A. Brenner Staff Accountant Corporate Accounting Northeast Utilities Service Company BAB/k:\aceting\fr\er\nrr. doc Enclosures c: S. J. Sinnott M. J. Wolshnis
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9905060027 901231 _
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Kent.R. Brown - _
Bruce D. Irenyon' Don K. Davis - l Senior Vice President of - . l> resident-Generation Group . Chairman, President and j Engineering and Operations - De Connecticut Light and %ief Executive Officer Central Vermont Public Service - Power Company om s enn Jr Corporation ' Public Service empany of y p James E Crowe - Officer and Treasurer . j Western Massachusetts Group Vice President- Electric Company . Russell A. Mellor I
= Power Supply Services l Vice President, Operations The United illuminating Company - Ilugh C. MacKenzie
. President and Decommissioning f
. Don K. Davts John A. Ritsher Chairman, President and ne Connecticut Light and f Power Company Secretary
- Chief Executive Officer
. Western Massachusetts- John J. Roman Ted C. Feigenbaum __ _
Electric Company Controller
' Executive Vice President and Chief Nuclear Officer Michael G. Morn.s Theresa 11. Allsop
. North Atlantic Energy Chainnan - Assistant Semtary Service Corporation . The Connecticut Light and O. Kay Comendul Power Company g i John H. Forsgren . . . Western Massachusetts -
Executive Vice President and Electric Company Robert C.~Aronson
' Chief Financid Officer Chairman and Chief Assistant Treasurer-The Connecticut Light a.nd . Executive Officer Treasury Operations Power Company ' ' Public Service Company of Kathleen J. Jewell-Kelleher Public Service Company of . New Hampshire .
^ " ' ' " '*"'"
Western Massachusetts - llenry V. Oheim, Jr. . John B. Keane Electiic Company' General Manager-Technical Assistant Treasurer Nuclear Organization -
Frederic E. Greenman Boston Edison Company . David R. McHale Vice President and Assistant Treasurer-Finance General Counsel (Retired) - Donald G. Pardus Carla M. Pizzella New England Power Company - Chairman and . .
Assistant Treasurer '
Lnief Executive Officer
- James J. Keane . Eastern Utilities Associates !
Vice President of Energy Supply i
and Engineering Services James S. Robinson Commonwealth Electric Company, Vice President and Director of ,
a subsidiary of Commonwealth - GenerationInvestments Energy Systems New England Power Company Joh'n B.K nne E Allen Wiley Vice President-Administration Managing Director of Generation The Connecticus IAh! and Central Maine Power Company Power Company i Western Massachusetts Electric Company, l
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i-As ofDecember 31,1993
1998 AnnualReport Connecticut Yankee Atomic Power Company index Q9fsth Paae l
Report of independent Public Accountants.... . .. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Statements ofincome and Retained Earnings.... . .. .. . . . . . . . . . . . . . . . . . . . . .. . 2 ;
Statements of Cash Flows .... . ........ .. . .......... .. . . .. .. . . . . . . . . . . . . . . .. 3 l 1
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. Balance Sheets .. . .......... .. .. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .. 4 )
l Notes to Financial Statements.. . . ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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THIS PAGE INTENTIONALLY LEFTBLANK.
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m Connecticut Yankee Atomic Power Company Report of indcpendent Public Accountants To the Board of Directors of Connecticut Yankee Atomic Power Company:
We have audited the accompanying balance sheets of Connecticut Yankee Atomic Power Company (a Connecbcut corporation) as of December 31,1998 and 1997, and the related statements of income, retained i eamings, and cash flows for each of the years then ended. These financial statements are the responsibility of the I company's management. Our responsibility is to express an opinion on these financial statements based on our tudits.
We conducted our audits in accordance with generally accepted auditing standards. Those standub require tHt we plan and perform the audit to obtain reasonable assurance about whether the financial statements ;
cre fre9 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts l and t'.asclosures in the financial ste'ements. An audit also includes assessing the accounting principles used and sigoficant estimates made by management, as well as evaluating the overall financial statement presentation. We
' believe that our audits provide a reasonable basis for our opinion. q in our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Connecticut Yankee Atomic Power Company as of December 31,1998 and 1997, and the results of its operations and its cash flows for each of the years then ended, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Hirtford, Connecticut l March 10,1999 (except with respect to the matters discussed in Note 13A cnd 13R as to which the date is April 5,1999) o
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CONNECTICUT YANKEE ATOMIC POWER COMPANY STATEMENTS OF INCOME ,
For the years ended December 31, 1998 1997 l
)
(Thousands of Dollars, except share information)
(
Operating Revenues $ 77,986 $ 120,213 Operating Expenses:
Operation 7,515 47,875 Maintenance 5,649 18,396 Decommissioning 24,800 23,200 Amortization of net unrecovered assets 22,2 M 21,577 Federal and state income taxes 3,894 9,185 Taxes other than income taxes 719 (19,373)
Total operating expenses 64,792 100,860 Operating income 13,194 19,353 Other income: '
Interest income on special deposits 6,448 5,820 Other, net 459 440 !
Income taxes !
applicable to other income (308) (390) i Other income, net 6,599 5,870 income before iriterest charges 19,793 25,223 Interest Charges:
Interest on long-term debt 9,999 8,773 Other interest 1,221 1,957 Interest charges, net 11,220 10,730 Net income $ 8,573 $ 14,493 Basic and diluted earnings per common share $ 24.49 $ 41.41 Common Shares Outstanding 350,000 350,000 STATEMENTS OF RETAINED EARNINGS
- For the years ended December 31, 1998 1997 (Thou: ands of Dollars)
Balance at beginning of period $ 72,646 $ 68,152 Net income 8,573 14,493 j Dividends on common stock (14.998) (9,999)
Balanco at end of period $ 66,221 $ 72,646 The accompanying notes are an integral part of these financial statements.
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CONNECTICUT YANKEE ATOtelC POWER COtsPANY STATEMENTS OF CASH FLOWS For the years ended December 31, 1998 1997 (Thousands of Dollars) !
Operating Activities:
Net income $ 3,573 $ 14,493 Adjustments to reconcile to net cash provided by operating activities:
Decommissioning 24,800 23,200 Amortization of net unrecovered assets 22,215 21,577 Deferred income taxes and investment l tax credits, net 14,093 16,824 l Interest on prior period spent nuclear j fuel disposal costs 6,276 6,217 l Reimbursable decommissioning costs (15,947) - !
Property tax setthment - (9,237)
Other sources of cash 6,247 22,987 Other uses of cash (39,748) (14,563)
Changes in working capital:
Accounts receivable (3,257) (3,734) j income taxes receivable (5,246) 7,635 !
l Accounts payable (5,734) 189 Accrued taxes (2,421) 1 Other working capital (excludes cash) 1,277 (2,092)
Net cash flows provided by operating activities 11,128 83,497 Financing Activities:
Net increase in long-term debt. - 30,000 Net decrease in short-term debt - (60,000) l Reacquisitions and ratirements of long-term debt (10,000) (58,375)
Cash dividends on common stock (14,998) (9,999)
Net cash flows used for financing activities (24,998) (98,374) investment Activities:
Sale of nuclear material 7,771 3,900 Net investments in nuclear decommissioning trusts 10,744 (33,651)
Investments in special deposits (6,778) (5,995)
Other investments (17) (504)
Net cash flows provided by/(used for) investment activities 11,720 (36,250)
Net decrease in cash for the period (2,150) (51,127)
Cash and restricted cash - beginning of period 9,453 60,580 Cash and restricted cash - end of period S 7,303 $ 9,453 Supplemental Cash Flow Information:
Cash paid /(refunded) during the periort for:
Interest, net of amounts capitalized $ 2,257 $ _ 3,566 Income taxes $ (4,360) $ (15,874)
The accompanying notes are an integral part of these financial statements.
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y CONNECTICUT YANKEE ATOMIC POWER COMPANY Balance Sheets At December 31, 1998 1997 (Thousands of Dollars)
ASSETS '
Utility Plant, at original cost: I Electric $ 567 $ 567 Nuclear fuel (Note 2F) 2,200 9,971 l Total utility plant 2,767 10,538 1 investments:
Nuclear decommissioning trust, at market 262,708 260,376 Special deposits 114,391 107,613 Other investments 538 521 377,637 368,510 Current Assets:
Cash and restricted cash 7,303 9,453 Accounts receivable 10,070 6,813 income taxes receivable 15,735 10,489 Prepayments and other 575 2,407 33,683 29,162 Deferred Charges:
Regulatory assets-closure (Note 1) 307,496 395,101 Net unrecovered assets (Note 1) 191,060 214,291 Unamortized debt expense 128 896 Other 29,200 14,020 527,884 624,308 Total Assets $ 941,971 $ 1,032,518 l
The accompanying notes are an integral part of these financial statements.
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CONNECTICUT YANKEE ATOMIC POWER COMPANY Balance Sheets At December 31, 1998 1997 (Thousands of Dollars)
CAPrfALIZATION AND LIABILITIES Capitalization: 1 Common stock, $100 par value.
Authorized 700,000 shares; outstanding
~ 350,000 shares in 1998 and 1997 $ 35,000 $ 35,000 ,
Capital surplur. paid in 3,466 3,139 Retained eamings 66,221 72,646 Total common stockholders' equity 104,687 110,785 Long-term debt, net . 138,230 141,954 Total capitalization 242,917 252,739 4
Current Liabilities:
- Current portion oflong-term debt 10,000 10,000 Accounts payable - 8,767 14,501 i Accrued taxes 1,554 3,975' I Accrued pension liability 6 1,214 l Current portion of deferred DOE obligation 2,948 2,901 Accrued interest 4,346 3,159 Other 5,459 7,248 33,080 42,998 Deferred Credits:
Regulatory obligation-closure (Note 1) 307,496 395,101 Decommissioning and cost of removal (Note 1) 263,124 260,792 Deferred DOE obligation (Note 2F) 20,636 23,209 Accumulated deferred income taxes 31,983 17,863 Accumulated deferred investment tax credits 6,282 6,497 Deferred retirement gains (Note 10) 8,994 7,736 Other 27,459 25,533 665,974 736,781 ;
Commitments and Contir.gencies (Note 11)~
Total Capitalization and Liabilities S 941,971 $ 1,032,518 The accompanying notes are an integral part of these financial statements.
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i NOTES TO FINANCIAL STATEMENTS
- 1. CLOSURE OF PLANT AND RATE FILING Connecticut Yankee Atomic Power Company (the company or CYAPC) owns a single unit nuclear-power electric generating plant (CY). The company's common stock is owned by ten New England electric utilities (the Shareholder-Sponsors) listed below:
Ownershio % !
The Connecticut Light and Power Company 34.50 %
New England Power Company 15.00 Boston Edison Company 9.50 The United illuminating Company 9.50
. Westem Massachusetts Electric Company 9.50 Central Maine Power Company 6.00 Public Service Company of New Hampshire 5.00 l Cambridge Electric Light Company 4.50 Montaup Electric Company 4.50 Central Vermont Public Service Corporation 2.00 CY commenced commercial operation on January 1,1968, and was taken out of service on July 22,1996.
On December 4,1996, the board of directors of CYAPC voted unanimously to cease permanently the prcduction of power at CY. In late December 1996, CYAPC filed an amendment to its power contracts with Uw Faderal Energy Regulatory Commission (FERC) to clarify the obligations of the ten Shareholder-Sponsor which purchase power under wholesale power contracts with CYAPC. The FERC rate filing estimated the " collective" Shareholder-Sponsors' obligations, including the funding of decommissioning, to be approximately $762.8 million. At December 31,1998, the estimated remaining obligation, based on CYAPC's proposed contract amendment was approximately $498.6 million.
The current FERC filing proposed an increase in annual decommissioning costs as well as recovery of unamortized plant and fuel costs over a 10-1/2 year period, beginning in 1997 and ending in mid-2007. The change in revenues requested in this filing is based on the full recovery of CYAPC's net assets and the funding of the costs to closa and decommission CY.
On February 27,1997, the FERC approved an order for hearing which, among other things, accepted CYAPC's contract amendment. The new rates became effective on March 1,1997, subject to refund.
On August 31,1998, the FERC Administrative Law Judge (ALJ) released an initial decision regarding the company's December 1996 filir,;;. The decision contained, in part, provisions, which would allow for the recovery through rates of the balance of the net unrecovered assets related to net plant, which was )
approximately $146.8 million as of December 31,1998. The decision also called for the disallowance of the recovery of an equity retum on the company's investment. The ALJ's decision also stated that decommissioning collections of $15.2 million should continue to be based on the previously approved estimate, of $309.1 million (in 1992 dollars), with an inflation adjustment of 3.8 percent per year, until a new estimate is filed and approved by the FERC.
During October 1998, CYAPC filed briefs on exceptions to the ALJ decision and in November 1998 filed opposition briefs to the exceptions taken by other parties to the proceedings. If the initial ALJ decision is upheld, CYAPC could be required tc record an abandonment loss for a portion of the regulatory asset associated with the plant closing.
Management has estimated the after tax effect of the ALJ decision on CYAPC's earnings to be I approximalely $37.5 million CYAPC cannot predict the ultimate outcome of the hearing at this time, however management contir,ses to believe that the associated regulatory assets will be recovered through FERC approved rates.
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NOTES TO FINANCIAL tyATEMENTS The components of the net unrecovered assets at December 31,1998 and 1997 are:
1998 1997 (Thousand of Dollars)
Net plant.. ... .. . . . . .. . .. ... . . . . . . . . . . . . . $146,773 $163,491 Nuclear fuel, excluding salvage. . . . . . . . . . . . . . . , .. 6,041 8,003
' Materials and supplies .. .. . .. ... .. . . . . . . . . . . . . . . . . 9,832 11,556 Other regulatory assets.. .... . . . . . . . . . . . . . . . . . . . . . . . . . 28.414 31.241
$191.060 $214.291 The estimated future costs of closure to be incurred by CYAPC has been recorded as a regulatory. j obligation, Management believes that the company will be able to recover the resulting costs of closure and j any unrecovered assets through FERC-approved rates. CYAPC has recognized the sum of its estimated '
future costs of closure as a regulatory asset.
The components of the sum of CYAPC's estimated future costs of closure based upon CYAPC's proposed contract amendment at December 31,1998 and 1997 are:
I 1998 1997 (Thousand of Dollars)
Decommissioning contributions. . . . . . . . . . . . . . ... $210,800 $237,200 Closure operations, net.. . . . ... . ... . . . . . . . . , . . . . . . . . . . . 96.696 157.901
$307.496 $395.101
- 2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES A. General Northeast Utilities (NU), through its operating subsidiaries, has combined 49 percent ownership interest in the company. NU's service subsidiary, Northeast Utilities Service Company (NUSCO),
furnished accounting, legal, engineering, construction, maintenance, financial and other administrative services to the company through December 31, 1998. The total cost of these services billed to the company, including insurance premium rebates and other benefit plan related credits, amounted to approximately $5.2 million ' and $14.4 million for the years ended December 31,1998 and 1997, respectively.' On December 31,1998, CYAPC discontinued its use of the current services provided by the NUSCO financial accounting system. This was accomplished through implementation of an accounting and material management system administered by CYAPC and an independent third party accounting firm. NUSCO will continue to pLovide limited services to CYAPC such as insurance, investment administration, payroll / benefits, intemal audit and certain information technology services. Continuance of these retained limited services will be evaluated by management separately on an ongoing basis.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported emounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements
- and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from th.ose estimates.'
Certain reclassifications of prior years' data have been made to conform with the current year's presentation.
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+t NOTES TO FINANCIAL STATEMENTS
~ 9. ' Shareholder- Sponsors
~ The company has contracts with its Shareholders - Sponsors. Under the terms of the contracts, l each Shareholder - Sponsor is required to pay the company an amount equal to its entitlement j percentage of the companyt total operating expenses, including a return on net unit investment i and decommissioning costs. The obligations of Shareholder - Sponscrs under their power i contmcts are several and not joint. For further information on the power contracts and the Shareholder - Sponsors, see Note 1, " Closure of Plant and Rate Filing," and Note 11C,
" Commitments and Contingencies - Industry Restructuring."
C. New Accounting Standards The Financial Accounting Standards Board (FASB) issued a new accounting standard during 1998.
Statement of Financial Accounting Standards (SFAS) 132, " Employers' Disclosures About ;
Pensions and Other Postretirement Benefits." SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans but it does not change the measurement or recognition of those plans. See Note 10 " Employee Benefits," for further information on CYAPC's pension and postretirement benefits disclosures.
D. Public Utility Regulation The company and each of its Shareholders - Sponsors is a public utility under Part ll of the Federal Power Act and are subject to regulation by the FERC with respect to, among other matters, wholesale rates and accounting procedures. The company is subject to further regulation regarding both its long-term and short-term financings by the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935. In addition, the Connecticut Department of Public Utility Control has jurisdiction over the company with respect to, among other things, accounting procedures, certain dispositions of property and plant, mergers and consolidations, and securities issues.
E. Regelatory Accounting and Assets The accounting policies of the company and the accompanying financial statements conform to generally accepted accounting principles applicable to rate-re'gulated enterprises arid reflect the effects of the ratemaking process in accordance with SFAS 71, " Accounting for the Effects of Certain Types of Regulation." Assuming a cost-of-service based regulatory structuie, regulators may permit incurred costs, normally treated as expenses, to be deferred and recovered through future revenues.
Through their actions, regulators may also reduce or eliminate the value of an asset, or create a liability. If any porbon of the company's operations were no longer subject to the pTvisions of SFAS 71, as a result of a change in the cost-of-service based regulatory structure, the company would be required to write off related regulatory assets and liabilities. Based on current regulation, the company believes that its use of regulatory accounting remains appropriate.
SFAS 90, " Regulated Enterprises - Accounting for Abandonments and Disallowances of Plant Costs" amends SFAS 71 and govems the accounting and reporting required when it becomes probable that a plant will be abandoned The occciTpanying financial statements conform to the requirements of SFAS 90. During August 1998, the FERC ALJ released an initial decision regarding the December 1996 filing. See Note 1, " Closure of Plant and Rate Filing," for information regarding the ALJ decision.
SFAS 121, " Accounting for the impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," requires the . evaluation of long-lived assets, including regulatory assets, for impairment when certain events occur or conditions exist that indicate the carrying amounts of
. assets may_not be recoverable. Based on the current regulatory environment, at December 31,1998, management believes that long-lived assets, including regulatory assets, are probable of future recovery.
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n NOTES T@ FINANCIAL STATEMENTS F. NuclearFuel The Nuclear Weste Pohey Act of 1982 (NWPA) provides that the United States Department of Energy~
(DOE) is responsible for the charnaal of spent nuclear fuel (SNF) and high-level radioactive waste. As
_ required by the NWPA, electnc utshbes generating SNF and high level waste are obligated to pay fees into a fund which would be used to cover the cost of siting, constructing, developing, and operating a disposal facility for this waste in retum for payment by the company of fees prescribed by the NWPA, the DOE is to take title to and !
dispose of the componfs high level wastes and SNF. Fees for nuclear fuel bumed on or after April 7, i 1983 were billed to Shareholder-Sponsors and paid to the DOE on a quarterly basis. For nuclear fuel used to generate electncity prior to April 7,1983 (prior-penod fuel), payment may be made anytime prior to the first dehvery of spent fuel to the DOE. Until such payment for the disposal of prior-period fuel is made to the DOE, the outstanding balance due will continue to accrue interest at the three- 3 month Treasury Bill Yield Rate. This interest is currently being billed and collected through rates. At i December 31,1998, fees due to the DOE for the disposal of prior-period fuel were approximately i
$128.2 million, including interest costs of $79.5 million, and have been fully collected through rates.
The DOE was scheduled to begin eccepiirs delivery of spent fuel on January 31,1998. The DOE's current estimate for an available disposal site is 2010. Until the federal govemment begins accepting nuclear waste for disposal, the company will need to retain high-level waste and spent fuel on-site or make some other provisions for their storage The decGTirriissioning cost study included in the company's December 1998 filing with the FERC assumed long-term storage of spent fuel on-site in CY's fuel building.
There have been numerous litigation cases involving the DOE's January 31,1998 statutory and contractual obhgation to accept high-level waste and SNF. While the courts have declined to order the DOE to begin accm.is spent fuel for disposal on January 31,1998, the courts left open the utilities' ability to bring damage for disposal claims against the DOE.
4 March 4,1998, CYAPC filed suit against the DOE in the U.S. Court of Federal Claims. CY/sPC claimed damages in excess of $90 million because the DOE had breached its SNF Disposal Contract with CYAPC by fathng to begin removing fuel from the CY site by January 1998. In October 1998, the l U.S. Court of Federal Claims ruled the DOE had breached its contract with CYAPC and that a trial would be needed to determine the extent of CYAPC damages The trial is expected to begin in the fall of 1999. Management cannot currently estimate the ultimate outcome of this potential litigation.
For additional informabon regarding the company's obligations to the DOE, see Note 9, "Special W k" Under the Energy Pohey Act of 1992 (the Energy Act), the company is assessed for its proportionate
- share of the costs of the decontamination and decommissioning of uranium enrichment plants owned j by the DOE (D&D assessment). The Energy Act requires that regulators treat D&D assessments as a reasonable and necessary current cost of fuel, to be fully recovered in rates like any other fuel cost. '
The D&D mammaament is allocated among utilities based upon services purchased in prior years. In 1998 and 1997, the company made payments to the DOE of $2.9 million each year. At December 31, 1998, CYAPC's D&D obhgabon was approximately $20.6 million.
The remaining nuclear fuel (not of any salvage) and the remaining D&D assessment regulatory asset are being amortszed over the amended contract life beginning March 1,1997 and ending in mid-2007.
For addibonal information, see Note 1, " Closure of Plant Filing."
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NOTES TO FINANCIAL STATEKENTS G. Regulatory Assets, Net - Plant Closure CYAPC's' remaining regulatory assets, which are related to costs associated with the plant's closure, (excluding decommissioning costs), are tseing amortized over the amended contract life beginning March 1,1997 and ending in mid-2007. For additional information, see Note 1," Closure of Plant and Rate Filing" and Note 5, " Nuclear Decommissioning."
H. Incomo Taxes The tax effect of temporary differences (differences between the periods in whhh transactions i affect income in the financial statements and the periods in which they affect the determination of f income subject to tax) is accounted for in accordance with the ratemaking treatment of the FERC.
The tax effect of temporary differences, including timing differences accrued under previously approved accounting standards. which give rise to the accumulated deferred tax obligation is as follows:
'At December 31. 1998 1997 j (Thousands of Dollars)
Accelerated depreciation and other plant-related differences . . . . . . . . . . . . . .. 571,239 $ 77,650 Decommissioning trust earnings / accruals . ... . . . . . .. .. (231) (18,232)
Medical and life insurance reserves.. ... .. . . . . (1,919) (1,407)
Pension accruals, net of funding.. . . . . . . . . . . . . . . . . (3,345) (3,278)
Property taxes. .. .. .. .. . . . . . . . . . . . . . . . 388 (314)
Decommissioning and decontamination . . . . . . . . . (5,193) (4,149)
Unrecovered assets... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,555) (11,416) i SFAS 109 income taxes ... . . . . . . . . . ... . . . . . . . . (17,702) (17,713) .
Provision for rate refund.. .. ... . . . . . . . , . . . . . .. (2,369) (1,189) /
Connecticut corporate business tax NOL carryforexed .... . . . . . . . (2,775) (1,393)
Other... . .. . . . . ... . . . . . . . . . . . . . . (555) (696)
H1.983 $17.863
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- l. Cash and Restricted Cash Cash and restricted cash includes cash on-hand and short-term cash investments which are highly liquid in nature and have original maturities of three months or less.
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- 3. LEASES The company had reimbursed Northeast Nuclear Energy Company (NNECO, a subsidiary of NU) for its share of expenses (including an equity retum) related to a nuclear control room simulator building. In l December.1998, the company ended the agreement with NNECO relating to the nuclear control room simulator building. In addition, NUSCO, which provides administrative services to the company, has entered into lease agreements for the use of data processing equipment, office equipment, vehicles and i office space. The company is billed for its proportionate share of these leases. The NNECO and NUSCO billings are treated as operating leases for financial reporting purposes. For the years 1998 and 1997, the company made rental payments of $349,000 and $403,000, respectively, to operating expense.
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NOTES T@ FINANCIAL STATEMENTS Future minimum lease payments for operating leases. excluding executory costs, as of December 31, 1998, are:
(Thousands of Dollars) 1999.. . . . . . . . . . . . . . . . . . . . . . . $ 43 2 000 .. . .. . . . . .. . . .. . . . . . . . . .. . . . . 28 2 001 . . . . . . . . . . . . . . . . . . . . . .. . .. . 10 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ,
2003.. . . . . . . . . . . . . . . . . . . . ... . 1 I After 2003 -
$ 87 As CYAPC continues decommissioning CY, the company expects that the need for NUSCO services could change and the company's allocated portion of such leases could change during this time period.
- 4. INCOME TAX EXPENSE Income tax expense consists of the following component:.
For the Years Ended December 31, 1998 1997 (Thousands of Dollars)
Current income taxes:
Federal.. ... .. . . . . . . .. . . $(9.891) $(7.249)
Deferred income taxes, net:
Federal.. .. . . . .. . . . . . . . . . . . . . . . . 17,592 13,687 State.. . . . . . . . . . . . ... . (3.284) 3.352 Total deferred.. . . . . . . . . . . . . . . . . . . . . 14.308 17.039 investment tax credits... . . . . . . . . . . . . . . . . . . . . . . . (215) (215)
Totalincome tax expense.. . ... . . . . . . . . . . $ 4.202 $ 9.575 The components of totalintome tax expenses are classified as follows:
Income taxes charged to 0perating expenses... . .. . . . . . . $ 3,894 $ 9,185 Other income taxes.. .. .. . . . . . . ... . . . . .. 308 390 Totalincome ax expense. . . .. . . . . . . . . . . .. $ 4.202 $ 9.575 i
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NOTES TO FINANCIAL STATEMENTS Deferred income tax expense is comprised of the tax effects of temporary differences as follows:
1 For the Years Ended December 31, 1998 1997 (Thousands of Dollars)
Abandoned plant.. . , , . . .. . . . . . $ (491) $ 17,881 Liberalized depreciation. . .... . . .. . . (14,402) (5,217)
Obsolete inventory. .. . . . . , . . . . . 7,082 -
Decommissioning trust accruals. ... . . . . . . .. 26,682 (1,064) i DOE decontamination and decommicioning costs.. . .. (1,043) (927)
Property taxes.. . . . . . . . . .. .. . . . 702 4,384 I
Unrecovered materials and supplies inventory. .
(573) (356)
Unrecovered final core costs . . . . . .. .
(647) (533)
Provision for rate refunds.. . . . . (1,180) (1,189)
Connecticut corporate business tax NOL carryforward . (1,382) 4,978 Other.. . . . .. . . . . _ (440) (918)
Deferred income taxes, net.. . .. . $ 14.308 $ 17.039 A reconciliation between income tax expense and the expected tax expense at the 35 percent of pretax income:.
For the Years Ended December 31, 1998 1997 (Thousands of Dollars)
Expected federalincome tax.. . . ... . . ... $ 4,472 $ 8,424 Tax effect of differences: l Depreciation differences. . . . . . . . . . . 189 912 !
Investment tax credit amortization . . . . . . . . . (215) (215)
State income taxes, net of federal (tax)/ benefit . . . . . . (2,114) 2,481 Adjustment for prior years' taxes . . . . . . . . . . . 1,958 (2,581)
Other, net.. .. ... .. . . . . . . . . . . . . . . . . . (68) 554 Totalincome tax expense. . . . . . . . . . . . . .. $ 4.202 $ 9.575
- 5. NUCLEAR DECOMMISSIONING The company's 1996 decommissioning study, which was filed with the FERC as part of the amendment to j the power cor. tracts, concluded that complete and immediate dismantlement at retirement continues to be j the most viable an:1 econcmic method of decommissioning CY. The estimated cost of decommissioning !
CY used in the FERC contract filing, in year end 1997 dollars, is approximately $455.9 million. 1 Prior to the closure of CY, nuclear decommissioning costs were accrued over the expected service life of CY and included in depreciation expense on the accompanying Statements of income. Nuclear decommissioning costs amounted to $24.8 million in 1998 and $23.2 million in 1997. Nuclear decommissioning accrued to date, as a cost of removal, is included in the decommissioning and cost of removal reserve on the accompanying Balance Sheets. At December 31,1998 and 1997, the balance in the trust for decommissioning amounted to $262.7 million and $260.4 million, respectively.
As part of its December 1996 filing with the FERC, the company, beginning March 1,1997 under an interim rate order, has increased its decommissioning accruals to an annual rate of $24.8 million, subject to refund i
12
l NOTES TO FINANCIAL STATEMENTS continuing through mid-2007. This revised annual accrual is based on an annual 4.5 percent decommissioning cost escalation rate and a 5.6 percent after-tax retum on the trust funds.
The company has established an independent, irrevocable decommissioning trust. Each month the Shareholders - Sponsors are billed for their proportionate share of FERC-approved decommissioning exper*e, and make payments directly to the trust. Through December 31,1998, approximately $168.6 millioi. nas been paid to the decommissioning trust. Eamings on the decommissioning trust increase the decommissioning trust balance and the reserve for decommissioning. Unrealized gains and losses associated with the decommissioning trust also impact the balance of the trusts and the reserve for decommissioning. As of December 31,1998, approximately $58.1 million has been withdrawn from the trust for decommissioning expenditures.
Changes in requirements or technology, the timing of funding or dismantling, or adoption of a decommissioning method other than immediate dismantlement would change decommissioning cost estimates and the amounts required to be recovered from the Shareholders - Sponsors. The company attempts to recover su"icient amounts through its allowed rates to cover its expected decommissioning costs. Only the portion of currently estimated total decommissioning cost that has been approved by the FERC is reflected in the amounts billed to Shareholders - Sponsors.
For further information on the FERC ALJ decision, which impacts decommissioning see Note 1, " Closure of Plant and Rate Filing."
- 6. CAPITAL CONTRIBUTIONS The Shareholde s - Sponsors are obligated under the terms of capital funds agreements, entered into with the company in 1964, to provide their percentage ownership shares of additional capital required for commercial operation of CY to the company either through common stock purchases, loans or advances.
The total obligation of the Shareholders - Sponsors under these agreements is limited to an aggregate amount of $70 million, of which $32 million had not been drawn down at December 31,1998. Since CY is no longer operating, and is being decommissioned, CYAPC is unable to request any capital contributions from the Sponsors under these agreements.
- 7. LONG-TERM DEBT Details of outstanding long-term debt are:
At December 31, 1998 1997 (Thousands of Dollars)
Term Loan,8.23% due August 22,2000. .. .. . . . . . . . . $ 20,000 $ 30,000 Fees and interest due for spent nuclear fuel disposal costs.. 128.230 121.954 148.230 151,954 Less: Amounts due within one year., 10.000 10.000 Total long-term debt.. . . $ 138m 230 $_1_419_54 l On August 22,1997, CYAPC er,tered into a three-year term loan agreement in the amount of $30 million to be repaid in three annual 'nstallments through final maturity in August 2000. The term loan is secured by a pledge of the company's rights under the power contracts and capital fund agrements with its Shareholders - Sponcors and the rights of the company to receive federal and stace income tax refunds.
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NOTES TO FINANCIAL STATEMEhTS I
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- 8. = SHORT-TERM DEBT On March 7,1997, CYAPC entered into a $30 million Restructured Credit Agreement with a group of four banks. The company was obligated to pay a commitment fee of one-half of one percent per annum on the daily average of the unused amount. This Restructured Credit Agreement was scheduled to expire on August 14,1998, but, was subsequently terminated by the company on May 29,1998. )
- 9. SPECIAL DEPOSITS The company established an independent, irrevocable spent fuel trust and a cash collateral account to meet the company's future spent nuclear fuel obligation to the DOE. Future annual deposits to the trust are
' expected to be largely satisfied from internal sources or, to the extent necessary, from short-term borrowings. As of December 31,1998 and 1997, the company had approximately $114.4 million and <
$107.6 million, respectively,- in these special deposit accounts. In 1998 and 1997, interest eamings on j these special deposit accounts amounted to approximately $6.4 million and $5.8 million, respectively, !
Cumulative gross unrealized holding gains were not material in 1998 and 1997. j For information regarding prior-period fuel, see Note 2F, " Summary of Significant Accounting Policies -
Nuclear Fuel.'
10.- EMPLOYEE BENEFITS A. Pension BeneRts and Postretirement Benefits Other than Pensions The company has a noncontributory defined benefit retirement plan covering all regular employees.
Benefits are based on years of service and the employees' highest eligible compensation during 60 consecutive months of employment. Total pension credits approximated $1,208,000 in 1998 and
$6,008,000 in 1997 and has been deferred on the balance sheets. For accounting treatment see Note 108,' Employee Benefits - Regulatory Accounting Treatment."
Currently, the company annually funds an amount at least equal to that which will satisfy the requirements of the Employee Retirement income Security Act and the Intemal Revenue Code.
Pension costs are determined using market-related values of pension assets.
The company also provides certain I,;11th care benefits, primarily medical and dental, and life insurance benefits through a benefit plan to retired employees. These benefits are available for
. employees retiring from the cc npany who have met specified servira requirements. For current employees and certain retirees, the total benefit is limited to two times the 1993 per-retiree health care cost. These costs are charged to expense over the future estimated work life of the employee.
The company is funding postretirement costs through external trusts. The company is funding, on an annual basis, amounts that have been rate-recovered and which also are tax deductible under the Intemal Revenue Code.
Pension and trust assets are invested pnmarily in domestic and international equity securities and bonds.
)
14 1
I
NOTES TO FINANCIAL STATEIAENTS The following table represents the plans'. beginning benefit obligation balance reconciled to the ending benefit obligation balance, beginning fair value of plan assets balance reconciled to the ending fair value of plans assets balance and the respective funds' funded status reconciled to the Balance Sheets:
The coripsnents of not cost are:
At December 31, Pension Benefits Postretirement Benefits 1998 1997 1998 1997
- (Thousands of Dollare)
Change in benefit obligation Benefit obligation at beginning of year.. ...... . $(28,405) $(30,876) '
$(4,204) $(6,018) -
' Service cost ... .. ...................................... (723) (1,394) (74) (104)
Interest cost . .. .. ... .. . . . . . . . . . . . . . . . . . . . . . . . . . . (1,826) (2,380) (334) (350)
' Actuarial gain /(loss)... . . . . . . . . . . . . . . . . . . . . . . 1,447 (2,207) (822) 728 Benefits paid . . .. . .. .. . . .. . . .... . .. . .. . . . .. ..... . . . 1,130 1,415 486 290 Curtailments and Settlements.. . ... . .. .. .
- 7,049 - 1,241 Special termination benefits. . .
(12) -
Benefit obligation at end of year.......... . .. .. . $(28,377) $(28,405) $(4,948) $(4,204)
Change in plan assets Fdr value at beginning of year............. ..... $ 41,605 $ 35,883 $ 4,109 $ 3,713 Actuti retum on plan assets . . . . . . 6,532 7,137 424 695 Benefits paid .. . . .. . . . (1,130) (1.415) (486) (299)
Fdr value of plan casels at end of year.. . . ..... ....... .. . . $ 47,007 $ 41,605 $ 4,047 $ 4,109 Funded status at December 31......... .. . $ 18,630 $ 13,200 $ (901) $ (95)
Unrecognized transition amount.. .. ... . . . (328) (362) (56) (61)
Unrecognized prior service cost...... .. .. .. . 238 253 (238) (275)
Unrecognized net gain. . . . (18,546) (14,305) (355) (1,169)
Accrued benefit cost . .. . . . . . . . . . . . . $ (6) $ (1,214) $(1,550) $(1,600)
The following actuarial assumpbons were used in calculating the plan's year-end funded status:
At December 31, Pension Benefits Postretirement Benefits 1998 1997 1998 1997 Discount rate ., . . .. ..... .... .. ..... . .... . .. 7.00 % 7.25% 7.00 % 7.25%
Compensation / progression rate.... ... .. 4.25 4.25 4.25 4.25 Heilth care cost trend rate (a).. . . N/A N/A 5.22 5.76 (1) The annual growth in per capda cost of covered health care benefits was assumed to decrease to 4.40 percent by 2001.
15
NOTES TO FINANCIAL STATEMENTS The components of net periodic benefit cost are:
For the Years Ended December 31, l
Pension Benefits Postretirement Benefits 1998 1997 1998 1997 (Thousands of Dollars)
Service cost . . . . . . . . . $ 723 $ 1,394 $ 74 $ 104 Interest cost . ... .. . ... . . . . . 1,826 2,380 334 350 Expected return on plan assets . .. . .. (3,061) (2,777) (291) (279)
Amortization of unrecognized transition asset.. .. . . . . . . . . .
(34) (34) (5) (4)
Amortization of prior service costs.. . .. .. 14 42 (37) (68)
Amortization of actuarial (gain)/ loss.. .. .
(676) 468 - -
Other amortization, net.. .
(41) (153)
_ Net pension (credit)/ cost.. ... . .. $(1,208) $ 537 $ 34 $ (50) i Curtailments arid settlements.. .. . .
- (6,557) - (1,241) !
Sysial termination benefits.. - 12 - -
_ )
Net periodic postretirement benefit l (credit)/ cost .. .. $(1,208) $(6.008) $ 34 $(1,291) i l
For calculating pension and postretirement benefit costs, the foRowing assumptions were used:
For the Years Ended December 31, Pension Benefits Postretirement Benefits 1998 1997 1998 1997 Discount rate.. . .. . . 7.25% 7.75% . 7.25% 7.75%
Expected long-term rate of retum . .. 8.75 8.75 - -
Compensation / progression rate.... . . . 4.25 4.75 4.25 4.75 Long-term rate of return -
Health assets, net of tax . . . . .. N/A N/A 7.75 7.50 Life assets. . .. . N/A N/A 9.50 9.25 Assumed health care coat trend rates have a significant effect on the amounts reported for the health care plans.
The effect of changing the assumed health care cost trend rate by one percentage point in each year would have the following effects:
One Percentage One Percentage (Thousands of Dollars) Point increase Point Decrease l Effect on total service and interest l cost components.. .. .. $ 19 5(20) l Effect on accumulated post-l retirement benefit obligation.. . 225 (240)
The trust holding the health plan assets is subject to federalincome taxes at a 39.6 percent tax rate.
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NOTES TD FINANCIAL STATEMENTS B. Regulatory Accounting Treatment As a result of the 1997 workforce reduction at CYAPC, the pension and SFAS 106 benefit plans experienced curtailment gains of approximately $6.5 million and $1.2 million, respectively, in 1997.
The pension plan experienced a related gain of $1.2 million in 1998. These gains have been deferred and are being treated as regulatory obligations. The method and timing of the refund of these obligations has not yet been determined.
- 11. COMMITMENTS AND CONTINGENCIES A. EnvironmentalMatters The company is subject to regulation by federal, state and local authorities with respect to air and water quality, the handling and disposal of toxic substances and hazardous and solid wastes, and the handling and use of chemical products. The company has an active environmental auditing and training program and believes that it is in substantial compliance with current environmental laws and regulations. However, the company is subject to certain pending enforcement actions and governmental investigations in the environmental area. Management cannot predict the outcome of these enforcement actions and investigations.
The cumulative long-term, economic cost impact of increasingly stringent environmental requirements cannot be accurately estimated. The company may incur sigaificant additional environmental costs, greater than amounts included in cost of removal and other reserves, in connection with the storage, transportation, and disposal of by-products and wastes. The company may also encounter significantly increased costs to remedy the environmental effects of prior waste handling activities.
The company has recorded a liability based upon currently available information for the estimated environmental remediation costs expected to be incurred for waste disposal sites. In most cases, additional future environmental cleanup costs are not reasonably estimable due to a number of factors, including the unknown magnitude of possible contamination, the appropriate remediation methods, the possible effects of future legislation or regulation and the possible effects of technological changes. At December 31,1998, the net liability recorded by the company for its estimated environmental remediation costs, not considering any possible reco- ies from third parties, amounted to approximately $286,000.
The company cannot estimate the potential liability for future claims, including remediation costs, that may be brought against it. However, considering known facts, existing laws and regulatory practices, management does not believe the matters described above will have a material effect on the company's financial position or future results of operations.
B. Nuclearinsurance Contingencies in October 1997, CYAPC applied for an exemption from the insurance requirements. Effective November 19, 1998, the NRC approved CY's request for withdrawal from participation in the secondary financial protection program due to its permanently shutdown and defueled status.
Therefore, neither CY nor its Shareholders-Sponsors have any future obligations for potential assessment.
C. Industry Restructuring The obligations of Shareholders - Sponsors to meet their obligations under their power contracts are several and not jo%t. The NRC, however, has recently expressed a position that in certain circumstances they would seek to hold the Shareholder - Sponsors jointly liable for safety issues such as decommissioning. The movement toward electric industry restructuring in the Northeast has created uncertainty with respect to future rates and the recovery of strandable investrnents for utilities. In fact, several Shareholders - Sponsors have experienced reduced credit ratings or other significant financial strain arising from restructuring or other issues primarily related to nuclear 17
I NOTES TO FINANCIAL STATEMENTS ,
operations. Management expects that the Shareholder-Sponsors will be able to meet obligations under the Power Contracts.
1 D. Year 2000 issues (Unaudited) l The company has established an action plan by which identified processes must be completed by certain dates in order to ensure its operating and reporting systems are able to properly recognize the year 2000. This action plan has three-phases: (1) initial assessment and inventory, (2) detailed assessment, and (3) remediation and contingency. planning. The first phase was completed in December,1998. The remaining phases are scheduled to be completed by August, 1999. .
In addition, the company is also in contact with all third party critical suppliers to determine their ,
year 2000 readiness. l The company has incurred approximately $400 thousand related to year 2000 readiness efforts.
Although the company does not believe there are any safety-related or critical business impacts related to year 2000 readiness efforts, potential risks may still exist. These risks include, but are not limited to, the year 2000 readiness of third party service providers, schedule estimates of the remaining year 2000 efforts, and the overall assumptions used for the year 2000 mitigation efforts.
- 12. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each of the following financialinstruments:
Cash and restricted cash: The carrying amount approximates fair value. l Specialdeposits: The carrying amount approximates fair value. ]
i Nuclear decommissioning trust' The carrying amount approximates fair'value. j J
Investments in debt and equity securities are presented at fair value. Accordingly the investments held in j the nuclear decommissioning trusts were adjusted to market by approximately $45.8 million and $32.8 million as of December 31,1998 and 1997, respectively, with a corresponding offset to decommissioning and costs of removal reserve on the Balance Sheets. The increases in 1998 and 1997 represent cumulative gross unrealized holding gains. There were ne material cumulative gross unrealized holding l
losses in 1998 and 1997, respectively.
The investNnts held in special deposits are also adjusted to market. As of December 31,1998 and 1997, the adjustments to increase these investments to market were not material.
Lor >g-term debt: The fair value of the company's fixed-rate long-term debt is based upon the quoted market price for those issues or similar issues. At December 31,1998 and 1997, there were no material differences between the carrying amount and fair value of the company's long-term debt.
- 13. SUBSEQUENT EVENTS A. Awarding of Decommissioning Contract On April 5,1999, CYAPC awarded a contract to Bechtel Power Corporation to decommission CY and return the site to a green field condition. The contract also includes an option for Bechtel to perform a study to determine the feasibility of providing a new, gas-fired electric generating plant on a portion of the CY site. As plant owner and licensee, CYAPC will continue to be responsible for ensuring safe storage of spent fuel and that all regulatory requirements are met. The company will 18
NOTES TO FINANCIAL STATEMENTS also maintain ongoing communication with federal and state regulators, agencies and representatives, advisory boards, and the community.
B. Retirement Plan Amendments On March 31, 1999, the company amended its pension and post retirement benefits other than pension plans to facilitate the implementation of an early retirement program. The program is intended to help implement the staff reductions resulting from the decision to hire a contractor to decommission CY.
C. Related Party Transactions On January 26,1999, CYAPC entered into an agreement to sell its remaining nuclear fuel to Northeast Utilities, a related party, for approximately $2.5 million. The contract was settled on February 25,1999.
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a - ,
onnetticut Yankee Atomic Power Company Address General Correspondence in Care of:
Connecticut Yankee Atomic Power Comany !
362 Injun liollow Road ,
East flampton, CT 06424-3099 Telephone:(860)267-2556 ,
.j i
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- Data containedin this AnnualRgx>rt are submitted l
, ; for the sole purpose ofproviding information to 362 Injun Hollow Road
- present security hohlers about ths Company.
. East Hampton, CT 06424-3099 i l