ML20206H960
| ML20206H960 | |
| Person / Time | |
|---|---|
| Site: | 05000000, Seabrook |
| Issue date: | 12/31/1985 |
| From: | Geoffrey Edwards, Fassett J UNITED ILLUMINATING CO. |
| To: | |
| Shared Package | |
| ML20206H943 | List: |
| References | |
| NUDOCS 8606260371 | |
| Download: ML20206H960 (48) | |
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7 FINANCIALHIGHMGHTS
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FELLOW SHAREOWNERS We are pleased and proud to be able to give you an through news briefings and press conferences, all encouragmg report of your Company's achieve-designed to repair and strengthen communications ments, progress - and adjustment to change - in bridges.
1985.
There were two major Company concems at the We urge you to give this 1985 report a full read-outset of 1985 - the abihty of the Company to ing. It has been specifically designed to help you continue a large nuclear construction program to understand and assess the sigruficant events of the its completion, and the rxxxi to hold down the pnce past year, your Company's role in them, and how of the Company's product. We have had consider-our actions are already shaping and influenctng able success in deahng with each of these con-UI's future.
cems and, although neither has as yet been laid Our overall message is this: UI has made and is completely to rest, our accomphshments durmg making remarkable progress towards regalmng its 1985 bode well for the future.
financial health and positiorung itself to meet the The larger piece of our nuclear construction pro-challenges that be ahead with vigor, flexibihty and gram, Seabrook Urut 1 in New Hampshire, agam competitiveness. We intend to manage change in demanded and received a disproportionately large an industry that is changing profoundly We have share of the tune and effort of UI's management and will set difficult goals for ourselves but we have dunng 1985. As the second largest owner in Urut 1, confidence in our people, in their expertise and in UI continued to take the lead in resolving signifi-their detemunation to achieve our goals.
cant problems on many fronts - legal, regulatory, UI began 1985 with many of the same strengths legislative, financial and certamly pohtical-it has now - an outstanding Board of Directors, which threaterxxl to slow down, interrupt or even skilled officers and dedicated, hard working em-cancel construction on several occasions. Excellent ployees doing a fine job.
project management and a continued demonstra-As of Apnl 15, in a major addition to the Com-tion that Unit 1 is a high quahty generating plant pany, George W Edwards Jr. assumed duties as were, of course, the essential ingredients of suc-president, chief executive officer and a duector of cess In fact, the major obstacles proved to be poht-UI. Mr. Edwards had served as executive vice pres-Ical and regulatory.
ident and a director of Georgia Power Company The details of what was done to overcome these where he estabhshed an outstanding record of obstacles are too complex to recount in this letter, accomphshments in his years with that fine but the encouragmg end results are these: through organization a cooperative effort by a coahtion of major Sea-From the outset of this important change in UI's brook jomt owners and bold actions by key partici-top management, it was recognized that, as has pants Seabrook construction contmued on and bsen the case with many utzhties attempting to ahead of schedule, culmmating in a November complete large nuclear construction programs, an non-nuclear operating test when Unit 1 generated extra effort had to be made to pubhcize the Com-electncity at an 80 megawatt level. The unit is now pany's strengths and to present UI's case for the scheduled for commercial nuclear operation in the future forcefully Accordmgly, meetmgs were held fall of 1986. UI shareowners and all others who real-with employees first. Then we reached out to cus-Ize the fundamental value of an adequate energy tomers and community leaders, to mayors and other elected officials, regulators, legislators, mem-bars of the financial commuruty and other constit-uencies. We used the media to reach the public 1
I I
supply to our nation's eccnomic well being should ity regain price-competitiveness by stabdizing its take a measure of satisfaction in this achievement.
price. In 1986, we plan to add to our fuel mix nu-We UI shareowners should also be pleased that clear energy from Seabrook Urut I and Millstone i
the prospective completion of the smaller part of Unit 3. hydroelectricity from Canada, natural gas to our nuclear construction program - Millstone Unit dual fire New Haven Harbor Station, and cogener-l
- 3. In Connecticut - now scheduled for May,1986, ated power from fac1hties operated by our cus-will help afford our Company the increased inde-tomers. Later, we expect to add power generated pendence from oil and the diversity of fuel for gen-at a sohd waste processmg facihty in Bndgeport, eratmg electricity that will go a long way towards so that by 1991 UI should have one of the most i
assunng UI and its customers rehable electnc serv-diversified and attractive fuel mixes - and stabi-l ice and stabihzed prices in the years ahead.
hzed price structures - in the nation.
The importance of achieving fuel diversification, Progress was also made in 1985 on the customer j
so that we are not overly dependent on any one side of our effort to make UI's product price-com-type of fuel and can obtam the maximum amount petitive by promoting intelbgent and efficient use of electricity at the lowest prevalhng cost, was un-of electncity. Energy audit programs for commer-derscored dramatically dunng 1985 by the results cial and industnal customers were emphasized and of our 1984 reconversion project at Bndgeport Har-are proving highly successful. We are also actively bor Unit 3, enabhng it to bum either coal or od. This pursuing cogeneration and small power production project typified UI at its best - at identifying con-possibihties with customers who are in a position stramts, developing and analyzing options that to benefit from the installation of such facihties-comply with all govemmental regulations, select-And we have developed and are now seeking regu-ing a course of action, fostering and achieving a latory approval for innovative load management l
consensus among numerous regulatory and envi-and economic development rates that will encour-ronmental officials, and, finally. rolhng up the age efficient consumption pattems, lower and help sleeves and getting the job done on schedule and customers control their costs, utlhze our existing within budget. By buming coalin 1985 Urut 3 cut generating facihtles more effectively and avoid the UI's oil dependence nearly in half and saved our need for buddmg new base-load generating customers about $15 milhon on their bdls, helping facihtles.
l to reduce the price of UI's electncity to levels The major challenge we face today is integrating which prevailed prior to the last general rate in-into our price structure the major investments, no-crease in 1984 tably Seabrook Unit 1 and Millstone Unit 3, mada to The success of coal in 1985 is only one part of the fuel diversity effort which wdl help UI's electric-President and Chief Executive Officer George W. Edwards, 1
Jr.and Chairman of the Board John D.
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f diversify our fuel mix - and accomphshing this restoration will depend, of course, on a continu-without pncing our product out of the market. Cus-ance of progress at Seabrook, regulatory treatment tomer load management and utihzation of our en-of our nuclear investments and other factors.
ergy mix to encourage economic development will We must all understand that we have really only help us meet this challenge, and our plan to phase begun our joumey on the road to recovery and that our nuclear investments into rate base over a pe-a long and difficult path hes between us and sohd 4
riod of time begmning in late 1986, withm the financial health. However, we will continue to op-mandate of recent Connecticut legislation, should erate a lean, cost-conscious operation with an restrict pnce increases to the lowest practicable overa9 emphasis on profitabihty. Moreover, we be-levels.
heve we can accomphsh this while carrying on a j
Complementing these major accomphshments tradition that has been a G hallmark, that of com-1 during 1985 were numerous other actions taking mumty involvement. All of us at G want to eam j
place on a daily basis throughout the Company:
our customers' respect, and we will achieve it not our continued high operating efficiency, our envi-only by our service to them but by our service with ronmental sensitivity, sophisticated energy and them in the civic, chantable and cultural work of l
strategic plannmg. employee development efforts the cities and towns where we work and where we and - at the heart of our operation - continued hve.
j service to customers, best exemphfied by the he-We beheve that your Company has now charted roic response of our people to the damage caused and embarked upon a course that has the best pos-by Hurricane Gloria.
sible chance of reaching its goals, and we are espe-All of our 1985 accomphshments were reflected, cially pleased that G is once again on a course that as one would expect, in G's unproved financial it has chosen with the interests of its customers condition. Eamings per common share increased and shareowners uppermostin mind.
from $5.40 in 1984 to $5.82 in 1985, the highest in UI's history Our cash flow improved considerably and our retum on average common equity was 16.4%, which is precisely the level allowed in our last rate decision. We ended the year with ade-
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GeorgeW EdwardsJr.
4 Probably the single best Indicator of this finan-President and Chief ExecutJve O'fcer cial recovery was the market value of the Com-pany's common stock, selhng at $13% when the j
year began and chmbing to $27 at year end. This l
96.4% increase in market value was the second best performance of any electnc utlhty common JohnD Fassett stock during 1985.
Chairmanof theBoard i
Positive developments late in the year with re-l spect to the mnstruction and financmg of Seabrook l
Umt 1 permitted an eight cents per share increase in the quarterly common stock dividend paid on January 1,1986. Your Board of Directors intended 5
this increase to represent a first step toward resto-ration of the dividend to the level in effect prior to l
the 30 cents per share decrease in mid-1984. Fbil 1
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7 OUJ FINANCIAL PERFORMANCE When trading ended for the final day of 1985 on the would have been even higher had it not been for New York Stock Exchange. UI Common Stock Hurricane Gloria, the costs of which amounted to closed at $27 per share. Not only did that mark the 25 cents per share. AFUDC continues to represent highest closing price of the year for UI stock but it a large portion of our eamings, about 79% for 1985.
was almost double the 1984 closmg pnce, the high-AFUDC is expected to increase further in 1986 be-est level since the last quarter of 1983 and triple the fore dropping to smaller proportions thereafter price of the lowest point dunng 1984. The upswing when the Company's nuclear construction pro-contmued into 1986, as the price exceeded $30 per gram is complete. Cash flow per share increased share durmg the nrst month of the new year.
ubuut 20% over 1984, primanly as a result of the It was a fitting financial chmax to a year in which December,1984 rate increase.
our fiscal health improved as the picture for the Continued economic growth in the commercial Seabrook nuclear project brightened considerably sector of UI's service area contributed to a third and the Company achieved other major goals.
straight year of increased kilowatt-hour sales, al-An eight cent per share quarterly Common though at a slower pace than in the previous year Stock dividend increase was declared effective Total sales increased by 1.3% over 1984.
January 1,1986 This increase was made possible Other than Common Stock issued through the by a series of positive developments conceming dividend reinvestment program, the only 1985 fi-the construction and financing of Seabrook Unit 1, nancing occurred in November, when a closing and represents a first step toward restoration to was held on the sale of $100 milhon of 18% first-the dividend level in effect pnor to the 30 cents per mortgage bonds by UI's wholly-owned subsidiary, share decrease m mid-1984. While the objective is B-idgeport Electric Company. This was the second to fully restore the dividend to its former level as step in a two-phase financmg, negotiated in late scon as prudently possible, future dividend in-summer of 1984. The first step, which involved an-creases will depend upon continued progress at other $100 million bond sale, was completed in De-Seabrook, regulatory rate treatment of the Com-cember,1984.
pany's nuclear investments and other factors af-This innovative financing vehicle was accom-fecting the Company's financial condition and phshed through a sale and leaseback of UI's prospects Bndgeport Harbor Unit 3 permitting the sale of Eamings per share rebounded to post an 8%
mortgage bonds based on its value. The proceeds gam to a record high of $5.82 from the $5 40 of the of the bond sales were used first to finance the previous year. This improvement was due to in-reconversion of that unit to coal, with the balance creased sales, higher allowance for funds used dur-ing construction (AFUDC) and savings resulting from continuation of several cash conservation measures adopted in May,1984. Eamings for 1985 Earnings per Shore Dividends Declared 1981
$4 24 1982 m $2 92 1982
$5 39 1983 m $3 08 1983
$5 67 1984..
$2 30 1984
$5 40 1985
$2 08 1985
$5 82 1986
$2 32 indic*ted annual rate i
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P committed to funding Urs share of completmg Rates. We anticipate that it will be almost two Seabrook construction costs, ehmmating short-years from the effective date of the Company's last term debt and for other corporate purposes.
general rate increase in December,1984 to the un-Although no retum was eamed dunng the entue plementation of new rates by late 1986. Thanks to year on the effectively cancelled Seabrook Unit 2 higher than anticipated savings from the Bridge-investment, retum on year-end common stock eq-port Harbor coal reconversion project along with ulty was 15 6% just shghtly lower than the level dechning oil pnces, by the latter part of 1985 the allowed by the Connecticut Department of Pubhc rate increase of December,1984 had been more Utihty Control (DPUC)1n Urs 1984 rate proceedmg.
than offset.
Average equity retum was precisely the 16 4%
The Company's rate strategy for 1986 is anned at allowed.
serving the best interests of both the shareowners More concrete evidence of the financial commu-and customers. While commercial operation of the nity's recognition of our recovery in 1985 came in two nuclear projects in which UI has ownership is mid-December when one of the major national expected in 1986 (Millstone 3 in the spnng and credit rating agencies (Duff & Phelps) raised the Seabrook 1 in the fall). the Company wants to avoid Company's fixed income secunty ratings on de-fihng two rate cases dunng the year. To this end.
bentures and preferred and preference stock we have developed altemative plans that would Nevertheless, the Company's fixed income securi-permit us to forgo a rate increase when Millstone 3 ties ratmgs by all of the major rating agencies re-becomes operational without penahzing eamings.
main in the below-investment grade category Assuming regulatory acceptance of these plans, With regard to future Seabrook expenditures and we would then seek to obtain rate restructunng by cash requnements, late in 1985, in view of con-the end of 1986 approximately coinciding with the struction and testing progress made at the project, completion of Seabrook. The rate treatment the the Company lowered its financial plannmg cost Company is considenng proposing will include a estimate for Unit 1 from the $5 5 bilhon figure phase-in plan for Seabrook Unit 1 withm the three-adopted in March,1984 to $4.7 bilhon This esti-to-ten year rate base phase-in period presenbed by mate includes $200 milhon of costs reallocated Connecticut law. Urs phase-in proposal, which from Urut 2. It bnngs Urs estimate into hne with may also be influenced by pendmg changes in ac-that of project management. The latter estimate counting rules, will reflect the Company's desue to calls for Urs Seabrook cash expenditures to be ap-keep rates relatively stable in real pnce terms.
proxunately $43 milhon in 1986, down from $67 As 1985 ended, we also proposed to the DPUC milhon in 1985.
the introduction of innovative rates embodying load management pnnciples to encourage intelh-gent consumption pattems and the retention and development of businesses in the service area.
C:sh Flow per Share UI Common Stock Price & Book Value 1981
$4 93 g
1982
$5 36 1983
$3 96 20 1984
$4 81 g
1985
$5 79 0
1984 1985 6
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Ing bcense which is being actively opposed by
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m some. Receipt of this hcense may be delayed or prevented by the failure of govemmental entities to develop emergency response and evacuation plans. New Hampshire's plans have been submit-ted. however, some Massachusetts towns have not yet completed their plans G cannot predict the outcome of tlus process, and it now appears that delays in completing the emergency plans will make it difficult to achieve project management's commercial operation date of October.1986.
Millstone 3. the Waterford. Connecticut nuclear unit in which Q has a 3.7% ownership share, also expenenced several positive developments dunng 1985 Late in the year, the urut received an operat-ing bcense from the Nuclear Regulatory Commis-sion. Riel loading began in November, low-power testing ensued, and a full-power operating hcense j
has since been issued Commercial operation is l
scheduled for spring others, through a contract to buy 5 3 MW of elec-tricity from an Amtrak gas turbine located in New From Kentucky's mines to our Bridge-Ensrgy Mix.We are not hmiting our energy op-Haven.
we P ant,a tions to either coal or nuclear.
Another agreement was concluded in 1985, one h
l In 1986, we plan to convert New Haven Harbor involving an additional 60 megawatts of cogener-going barge trans-j Station to dual-fuel capabihty of finng gas and oil ated power produced by a sobd waste processing ports low sulfur coal simultaneously. This conversion is scheduled to facihty in Bridgeport. It should be available by late from Norfolk, Vir-s take place during the urut's spnng outage and in this decade.
ginia to our unload.
dual-fired operation should begm in June of 1986.
Given the accomphshments of 1985 that capped ing dock.
Not only w1!! customers reahze substantial savmgs.
years of planmng, the Company has sufficient sup-l but the oil-fired portion of our energy nux will drop ply-side capabihty to meet customer needs through j
well below the 40% level in the coming year. due in the end of this century. With an essentially com-part to an expected 8% contnbution of gas.
pleted construction program, with no major capital Hydroelectnc power will start flowing into the w needs beyond 1986 and with a diversified and flexi-system from Canada through the New England ble energy mix. W will be well-posittorwxi for the Power Pool dunng 1986. A significant further step future.
In this regard was taken in October of 1985 with the sigrung of the formal pacts for phase two of this power project.
In 1985 we also began the purchase of cogener-ated power from facihties owned and operated by 1991 g
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WORKING FO]THE CESTOME]
In 1999, when we wnte the 100-year history of G, e Home Energy Rating, in which G assesses the 1985 may be recalled as the year when the Com-energy-saving abihty of newly built residences.
pany rededicated itself to its customers. Month
'Ihe program does for new homes what CONN after month, the Company uutiated major pro-SAVE does for existing homes.
grams aimed at stabilizing rates and assisting cus-e Rebate programs that encourage corcumers to tomers in controlhng their energy costs.
purchase energy-efficient refrigerators, room air In January, for example, G's reconverted coal-conditioners and fluorescent lamps.
fired generating unit in Bridgeport began working A Consumer Energy Advisory Council, which more effectively for our customers. During 1985 the G formed as an independent advisory group of fuel for a kilowatt hour produced by oil was from socially active customers, is presently serving as a 50% to 100% more costly than the fuel for a kilowatt halson between the Company and its customers in hour produced by coal. G passed nulhons of dollars the area of energy conservation and customer as-in coal-fired savings along to customers through sistance activities.
the fuel cost adjustment.
The continuing success of G's conservation pro-M's commitment to the customer is also exem-grams is illustrated by a decrease in average con-phfied by the Company's efforts to give customers sumption per residential customer.
new tools to control their electrical costs. M's wide Again in 1985, commercial and industrial cus-range of conservation and load management pro-tomers took advantage of G's three-year-old audit grams range from proposed new price incentives program designed to advise them of energy-saving for commercial and industnal customers, such as methods.
time-of-use rates that shift demand to lower cost The Company, in cooperation with other utihties periods, when demand is less, to interruptible rates in Connecticut, sponsored a 1985 exhibition on co-that reduce demand charges for designated loads generation, the operation that makes double use of subject to interruption at the Company's request.
process energy. That effort was so successful that UIis a pioneer in these efforts, having introduced the exhibition is being expanded into a 1986 an off-peak rate to residential customers sorne 46 Co-Energy Expo & Symposium for business and years ago.
industry in the Northeast region. At the September For our residential customers,1985 marked the exhibition, to be held at the Hartford Civic Center, second full year of UI's continuing commitment to G will co-sponsor a show with Northeast Utihties provide innovative and effective conservation and to promote cogeneration awareness and energy ef-customer assistance programs under the umbrella ficiency in commercial and industrial building program, FOCUS NOW. Its components include:
design.
O Hug 'N Snug House Calls that use modem weatherization techniques to halt energy waste in homes.
O SCAT, the Southem Connecticut Action Team, a G-organized association of pubhc and private in-terest groups with the stated goal of achieving a 33% savings in 500 residences in the New Haven area.
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UI PESPLEs C@MMITTE3 TO PERFSRMANCE Of all the elements propelhng G into a new era, ment with the State of Connecticut whereby the none equals in importance or potential the power State uses fly ash, a by-product of coal buming at of the Company's workforce. It will be our 1500 em-Bndgeport Harbor Station, as landfill cover in the ployees who will be both the architects and the construction of a nearby State park. The agreement dnving force behind the Company's success in the benefits both parties, saving G the expense of important years ahead.
transporting and disposing of the fly ash at a dis-A severe test began on Riday, September 27, tant site, and saving the State the expen:se of land-when Hurncane Glona blasted our service temtory fill matenal for its recreation project.
with 92 mph winds. By late that aftemoon, the hur-Another example of truttative was demonstrated ricane had knocked 201 circuits out of commission, by the Company's use of the spot oil market for the affecting 184,000 of our 294.000 customers.
purchase of fuel oil used in generation. By using Hurricane Glona was easily the most damagmg this short-term market to supplement the Com-storm in G history. G crews, supplemented by pany's purchases under its long-term oil contracts, outside crews from as far away as Georgia, New G's buyers saved customers more than $400,000.
York, New Jersey and Pennsylvania, labored day Innovation and efficiency were also evident in and night to put the system back in working order.
our Customer Services Department. In the meter Around-the-clock efforts by all employees greatly reading area, for example, meter cards used for expedited the restoration process and stror gly decades to record monthly customer electnc usage demonstrated their commitment to customer were replaced last year by handheld, battery-service.
operated computers. These mini-computers Again in 1985. UI's generatmg system was rated greatly reduce the potential for human error and as one of the most efficient in the nation. Due to allow readers to make important notations regard-the efforts of G engineers and operating personnel, ing meter irregularities or damage.
the Company ranked fifth nationally in a survey Dunng 1985, the Management Services Depart-performed by Bectric Light and Ibwer magazine.
ment installed a powerful new computer. Again, G drew upon a tradition of high cahber mainte-the motivation for the decision to add to the Com-nance to achieve consistently excellent availabihty pany's computer capacity was increased efficiency of its generating units dunng 1985. This tradition and productivity. The new computer has essen-allowed the Company to meet the challenge of the tially doubled our computer power, permitting ex-first peak load in its history to surpass 1,000 mega-panded usage and quicker response time.
watts (MW) that occurred between 2 and 3 p m. on No company can succeed without having the Thursday, August 15. A penod of hot weather re-naht people in the right positions. At G, we be-sulted in customer demand on the G system of heve we have accomplished this and that our peo-1,019.3 MW, an increase of 2% over the previous ple are working to move the Company, its share-peak load of 998.9 MW on June 11,1984.
owners and its customers into a preferred future.
Last year, G achieved signtficant savings by de-veloping, promotmg and implementing an agree-
-m Hurricane Gloria, a
the most damaging storm in UI's history, hit our service terri-tory head-on last September forcing widespread out-ages along the bot-tered coastline.
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- CSNSMIC EEVEL@PMENT Life is good in Connecticut. There are some 1.5 Although all four rates offer lower electricity milhon people at work. with 420,000 persons in costs to customers who take appropriate actions, manufactunng jobs. Connecticut's per capita in-the economic development rider, in particular, come of $16,556 is the second highest in the Umted would assist existing businesses and encourage States. And the econemy is healthy. New construc-other busmesses to relocate to UI's service area, by I
tion topped $3 bilhon dunng 1985, and more than offering discounts for increased electrical con-l 300 businesses m the State expanded.
sumption. Existing commercial and industrial cus-UI has been a beneficiary of that good economic tomers could obtain a 60% reduction in demand
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news. In 1985, kilowatt-hour sales increased 1.3%,
charges and a 22% reduction in energy charges for due mainly to increased sales in the commercial usage in excess of their base years. This would j
sector. Reflecting a national trend, non-manufac-represent a discount of approximately 31% on the tunng employment increased throughout our ser-average increased usage for a typical customer.
l vice temtory from 308.000 to 323,000.
Businesses new to the area would be offered a In New Haven, the Risco Corporation's three-60% reduction in demand charges appbcable to all phase long Wharf Mantime Center completed its usage in the first year of operation in the service first phase, the construction of a 15-story office area, but no reduction in energy charges This tower with office and reta11 space totahng 420,000 would amount to a discount of about 14% for a square feet, with the Southem New England Tele-typical customer.
phone Company as anchor tenant. The total pro?ect Our load management and economic develop-will add one milhon square feet of office space, a ment rates are useful tools through which UI can 300-room hotel and conference center and a 600-further help its customers.
shp manna to New Haven in a pnme location 2 on These tools are being backed and supported by i
the shore of Long Island Sound. Another project key organizational and personnel changes m the neanng completion in New Haven is the Whitney Compiay, with three specific areas having signifi-Grove mixed-use complex, bemg built by Pearce, cant responsibihties that are being carefully coordi-Carley Development, that will house 90,000 square nated and integrated: Customer Services people feet of office space,13,000 square feet of retail are responsible for developing and implementing space and 38 residential condominiums.
retail marketing programs for our service area; our This building pace is expected to continue in Engineenng and Energy Planning Department is New Haven. Plans are already underway to provide developing and implementing wholesale marketing new office space facmg the New Haven Green for programs for use outside the Company's service the city govemment, the Connecticut Bank and area, and our Corporate Planning and Development
' Dust Company and others. David Chase / Olympia people are working with vanous business, munici-The Long Wharf York will build 420,000 square feet of space in a pal and pnvate economic groups to spearhead de-Maritime Centeris a new Church Street office tower and wrap an addi-velopment efforts. These activities are intended to molor elementin tional 150,000 square feet of office space around result m the effective utilization of UI's facihtles in New Haven's im-the adjacent historic facade of old City Hall, which the interest of minimizing the cost of electricity to Pressive develop-l was preserved at the time of the demohtlon of the our customers.
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former govemment center.
The City of Bridgeport has also begun its long-awaited redevelopment. The National Ventures Company is presently constructing a $24 milhon,
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4 240-room Hilton hotel, scheduled to open in 1986.
.N People's Bank is scheduled to break ground in C ~ 3 the spnng of 1986 on its $66 milhon office tower, r
Bridgeport Center. The tower's 15 stories will g,_
house about 450,000 square feet of space and be
<If occupied primanly by the bank.
Spurring Economic Development.Towards the end of 1985. UI proposed to the DPUC that it be allowed to implement four innovative rates, con-sisting of one economic development rate and three load management rates.
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WE'RE INV@l.VEB IN @UR C@MMUNITIES Corporations have a responsibihty to the communi-portunity for women and racial mmonties through-ties in which they do business. At G, that respon-out its 17-town service temtory." More recently, silhty, which encompasses civic, chantable, edu-the Company was recognized by the Urban League cational and social service as well as fundraising, is of Greater New Haven for its " years of dedication taken senously, so senously that it has become an to equal opportunity."
Important element in our corporate strategic plan-Our commitment also encompasses education.
nmg process.
Through its educational services section, UI works We view our responsW1hty as two-tien d First, closely with all 21 school distncts in its service ter-we beheve that we must maintam our reputation ritory to help provide quahty education, especially as a good corporate citizen, so that our credtihty in the area of science and energy, to students of all and good standing are assured. Second, we seek to ages. We are also represented and active on nu-nurture an atmosphere that encourages our em-merous educational committees, such as the Sci-ployees to be involved in programs which serve our ence Leadership Program. The Bridgeport Pubhc communities.
Education Fbnd and The School Volunteer For many years, UI has been a strong supporter Association.
of United Way, and this past year, because of our As an example of the generosity of UI employ-improved financial condition, we reinstated our ees, members of Iocal 470-471 of the Utihty Work-corporate donation to that orgaruzation. The Com-ers Umen of America. AFL-CIO, distnbuted to area pany donated $80.000, supplementing our com-chantable groups the free breakfast certificates b1ned employees' donation of $100,193.
they had received from the Mcdonald's Corpora-UI has also been an enthusiastic supporter of tion for their efforts during Hurricane Glona.
Operation Fbel smce that program's inception in In the year ahead, we iiitend to promote pubhc-
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1983 The Operation Fuel " add-a-dollar" program private partnerships or cooperative efforts similar i
was created by the Connecticut legislature to give to the SCAT residential weathenzation program in gas and electnc utlhty customers an opportunity to which we are currently participating. Tfus type of add an extra dollar to their monthly utlhty bill in cooperation is already demonstrated by our in-order to assist people who need fuel assistance but volvement with the Council of Presidents program do not quahfy for other support programs. The that brings together representatives of many Company's Board of Directors recently strength-Greater Badgeport organizations to discuss topics ened UI's commitment to the program by voting to of conunon interest and develop workable pro-contr6ute to Operation Fbel 50 cents for each dol-grams to service community needs.
lar contr6uted by customers, up to $25,000.
Customer service has a broad defirution at UI.
UI also makes its facihtles available to commu-Not only are we dedicated to providmg our cus-ruty groups and civic organizations Nurnerous tomers with the best electric service possile, we groups have used our beautiful new Westem Ser-also want to enhance the overall quahty of hfe in vice Center for meetings. Facthties at Westem are the communities we serve.
used regularly for Amencan Red Cross blood dnves as well.
The Company is justifiably proud of its record in the area of equal employment opportunity and af-firmative action. Last May, UI was awarded the 1985 Corporate Award by The Greater New Haven Our community in.
Chapter of NAACP for its " exemplary performance volvement is exem-and positive commitment to equal employment op-Plified by Assistant
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to the President Bill Murphy with G.Sul-livan, United Way; A. Penn, Business industry Council; G. Fasolo, Cardinal Shehan Center; P.Gustafson, School Volunteer Services; J. Martin, Univ. of l
Bridgeport; L.Mur-phy, Friends of Sea-i l
side Park; B.Tickey, Barnum Festival; M. Schwartz, Par-ents & Friends of Retarded Citizens.
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C@MMUNICATI@NS j
A company's performance is oftentimes measured M celebrated the success of the coal reconver-twice. once by its actual deeds, and again by how sion project in Septerrhr, with a dedication cere-it communicates those deeds to others mony atterided by many State and localleaders, In 1985, the Company began an ambiuous pro-including Chairman John T Downey, Connecticut j
gram to get its positive story out to hundreds of Department of Pubhc Utthty Control, Commissioner different extemal audiences, where pubhc opmion Stanley J Pac, Connecticut Department of Envuon-defines and molds the commuruty's perception of mental Protection, Chairperson Glona Dibble Ebnd.
any mstitution Connecticut Siting Council and then Bndgeport la mid-1985, the Company began dehvenng its Mayor Leonard S Paoletta President Edwards message through news conferences, editonal While the Company increased the level of its did yeoman work roundtables, meetmgs with n:ayors. State legisla-commumcanons activities m 1985, the stage was during Hurricane tors and officials, community leaders and civic merely being set for an even more aggressive and Gloria, including groups and members of the 'inancial community.
comprehensive communications program de-regular appear-This mcreased activity served us well dunng signed to reach audiences with basic Q messages ances on local tele-Humcane Glona M had two basic missions dunng and themes. Shareowners and the financial com-vision to update customers on resto-the week-long restoratien effort: the first, and most munity are targeted among the key audiences who ration pr gress.
important, was to restore electncal service to the willsee this program unfold in 1986.
184,000 customers who lost power; the second was to maintain its hnes of communications with cus-tomers. and local and State officials, as well as the j
people workmg to restore power.
Dunng that penod of intense activity, W cus-phone calls and our pt'hbc Informaticn people re-
,h k, g "
tomer representatives answered nearly 70,000 j
i sponded to hundrNs of media ingtines ficm local 4
and national news services. President Edwards W
l played a major pen.onal role in this effort, doing hve media interviews nightly to give status reports on restoration activities in iddition to meetings with 9.'
the Govemor, Mayors and other officials as well as visits with work crews and affected customers.
I
\\
l
@RGANIZATION I
l The Board of Duectors on March 12 elected George forts on the New England Ebwer Pool, Seabrook and W Edvnrds, Jr. president, chief executive officer wholesale power sales all of which require coordi-and a member of the Board Mr. Edwards, who for-nation with the energy planning department.
merly served as executive vice president and a di-In December, the board elected Robert H. Hyde rector of Georgia Ebwer Company, assumed his vice pr~ < at-customer services effective January new duties on Apnl 16. His election followed an 1, lo' W Hyde had been serving as assistant extensive search by a prominent intemational con-AeC it-customer services since 1984.
sulting firm to advise the Board with respect to ie Company attamed its workforce re-quahfications of candidates to succeed John D.
auction u. part of a 1984 cash conservation ef-Fassett as chief executive officer.
fort, through a voluntary early retirement plan.
Effective Octooer 1, the Board broadened the re-Seventy-two employees took advantage of the pro-sponsibihtles of James E Crowe, formerly vice pres-gram, designed so that no area of the Company ident-engineenng to include energy planning was unduly affected by the loss of expenence.
l This move permitted Charles W. Cook, Jr., seruar Former Corporate Secretary Richard E Skmner vice president of corporate planrung and develop-elected early retirement, and was succeeded by ment, to organize an economic devdopment de-Mrs Mary Ellen Manthey, formerly investor rela-partment to encourage busmess development in tions manager.
M's area Mr. Crowe will be concentrating his ef-i 29
FINANCIAL EEPO]T l
i t------------
TEN-YEAR SUNURARY OF SELECTED FINANCIAL AND STATISTICAL DATA 1985 1984 1983 The United Kilowatt-Hour Sales (000) l'luminating Residential 1,654,591 1,642,564 1,637,581 Company Commercial 1,810,192 1,729,027 1,657,518 Industnal 1,286,402 1,314.328 1,255,824 Other 68,064 71,998 71,085 Total 4,819,249 4,757,917 4.622,008 Financial Results (000)
Sales of electricity - Residential
$ 190,880
$ 185.209
$ 166,350 Commercial 192,658 187,112 163.458 Industnal 118,637 124,118 107,724 Other 10,367 10,664 9,771 Other operating revenues 2,394 2,367 2,283 Total operating revenues 514,936 509,470 449,586 Operating expenses, excluding income tax expense 368,260 400,773 356,380 Income tax expense (credit) 62,047 44,371 37,746 Allowance for funds used dunng construction 62,623 57,242 52,407 Other income 29,755 19.083 13,981 Interest charges 77,402 52,351 41,345 Net income 99,605 88.300 80,503 Preferred and preference dividends 20,339 16,883 14.084 Income applicable to common stock 79,266 71.417 66,419 Capitalization (000) long term debt
$ 668,315
$ 571,403
$ 394,115 Preferred and preference stock Not subject to mandatory redemption 70,000 70,000 70,000 Subject to mandatory redemption 96,000 99,000 65,000 Common stock equity 509.750 453,919 408,331 Total
$ 1,344,065
$ 1,194,322
$ 937,446 Conunon Stock Number of shares at year-end 13,720,050 13.429.443 12.972,344 Average number of shares outstanding 13,623,093 13.213.526 11,708,570 Eamings per share (a)
$5.82
$5.40
$5.67 Dividends declared per share
$2.08
$2.30
$3 08 Book value per share
$37.15
$33.80
$31.48 Shareowners -Total 35,426 38,848 41,067 In Connecticut 15,606 16,774 17,862 In Company terntory 10,056 13.539 13,742 General Peak load-kilowatts 1,019,980 998,910 969,500 Generating capabihty at year-end - kilewatts (b) 1,197,150 1,229.440 1,235,850 Number of customers 294,320 290,591 287.370 Kilowatt-hours per residential customer 6,265 6,293 6.336 Number of employees 1,501 1,559 1,569 Totalpayroll(000) 49,150 46,911 44,114 Total taxes (000) 83,618 76,284 66,300 Utihty plant at year-end (000)
$ 1,494,218
$ 1.333,076
$ 1,238,096 Gross property additions (000)
$ 179,103
$ 210,378
$ 197,412 Totalassets at year-end (000)
$ 1,652,842
$ 1,486,315
$ 1,179,409 (a) Eamings per share based on the average number of shans outstarvimg (b) Repusents maximum dependable net load carrying abihty dunng the winter penod for New Engkullhwer Pool purposes.
includmg UIs share of capacity in Connecticut Yankee Atomic Fbwer Company (55,290 KW) 22 l
l
ke r
0 Y
1982 1981 1980 1979 1978 1977 1976 1.593,854 1,611.212 1,660,353 1,677,431 1,683,363 1,664,029 1,660,733
(
1.578,433 1,551,228 1.568.638 1,565,380 1,541.127 1,505.879 1,474,885 l
1.232,942 1,315,172 1,415,274 1,467,969 1,419,297 1,356,652 1,298.990 69,935 70,299 70,813 69,971 68,621 67,591 64.391
)
4,475,164 4.547,911 4.715.078 4,780,751 4,712,408 4.594,101 4.498,999 i
$ 161,237
$ 164.595
$ 133,763
$ 104,512
$ 82,316
$ 84,099
$ 75,860 156.902 157,386 122.904 94.400 72,361 73,323 64.623 106,788 117.624 98,303 75,316 54,994 55,348 47,049 9.652 9.613 7.697 6,330 5,463 5.530 5.096 2.151 1,804 1,455 1,320 1,181 1,203 1,192 436,730 451,022 364.122 281,878 216,315 219,503 193,820 353,070 386,279 328,253 238.605 183,289 182,696 162,060 31,810 22,451 (387) 4.963 (164) 2,259 466 40,349 28,113 27,555 15,501 8,268 4.937 2,843 8,595 9,040 710 1,102 740 143 529 35,039 29.904 30.055 25,245 20,721 15,970 16,103 65,755 49,538 34.466 29.668 21,477 23,658 18,562 14.084 12.351 9.296 5,744 4,751 4,751 3,717 51,671
$ 37,187
$ 25,170
$ 23,924
$ 16,726
$ 18,907
$ 14.845
$ 373,015
$ 303,648
$ 295,581
$ 251,976
$ 233,953
$ 241,931
$ 216,908 70.000 70.000 70,000 70,000 70.000 70,000 70,000 65,000 65.000 45,000 15,000 319,720 262,198 222,861 186,326 177,526 149,099 142,104
$ 827,735 S 700,846
$ 633,442
$ 523.302
$ 481,479
$ 461,030
$ 429,012 10.693,605 9.154,578 7,660,132 6.090,448 6,047,018 5,020,119 4,999.514 9,579,312 8,775.667 7,061,241 6.072,725 5,458,428 5.012.122 4,999,514
$5.39
$4 24
$3.56
$3.94
$3.06
$3.77
$2.97
$2.92
$2.76
$2.68
$2.62
$2.56
$2.47
$2.35
$29.90
$28.64
$29 09
$30.59
$29 30
$29.70
$28.42 39,213 37,868 36,447 34,554 35,285 32,354 32,879 17,750 17,765 18.372 18,439 19.018 18,695 19,484 13,439 11,815 12,456 12,155 12,343 12,201 13,037 951.700 949,100 9'71,100 915,300 952,900 944,100 862.500 1.235,850 1,281,050 1,299,360 1,299,360 1,322,800 1.331,020 1,403.290 284,586 282.890 280.800 278,523 276,289 274,432 271.871 6,213 6.312 6.545 6.664 6,739 6.711 6,749 1,517 1,514 1,481 1,460 1,424 1,421 1,422 40,310
$ 35,581
$ 31,653
$ 28,405
$ 25,894
$ 23,317
$ 22,021 64,319
$ 54,510
$ 34,777
$ 32,424
$ 23,180
$ 24,198
$ 21,583
$ 1,049,761
$ 922,734
$ 830.034
$ 764,651
$ 681,585
$ 612.237
$ 566,549
$ 167,924
$ 115,540
$ 98,413
$ 86.643
$ 70,731
$ 48,300
$ 35,396
$ E32,852
$ 836,508
$ 739,027
$ 666,387
$ 575,110
$ 515.037
$ 482,459 23
MANA^EMENT'S CISCUSSISH AND ANALYSIS GF FINANCIAL CZN21TISN AN3 EESILTS GF CPERATI2NS Mclor influences on Financial The Company's financial condition is quest for a general rate increase, al-Cendition mfluenced by both the size and the cost lowed the Company to melude in rate In pursuit of its strategic goals to de-of financing its accumulated invest-base approximately $183 milhon of its crease oil dependence, stabihze puces ment in construction To the extent that mvestment in Seabrook Unit 1. an in-and achieve a diversified and flexible this investment is not meluded in rate crease of $63 milhon over the amount fuel supply, the Company is involved in base. cash recovery apphcable to the m-which had been allowed in its August i
a major construction program The ma-vestment is hmited to the income tax 1983 rate decision Urxler Connecticut lor portion of the Company's construc-benefits of construction until such time law, a condition of the inclusmn in rate tion program consists of participation m as the plant is placed in operation and base of Seabrook Unit 1 CWIP is that an the construction of two nuclear generat-the mvestment is reflected in rates amount equal to the CWIP amount will ing umts a 17 5% share m Seabrook charged to customers However. from be excluded from rate base after the Unit 1 m Seabrook. New Hampshire, an earmngs standpoint. the cost of fi-unit is m service for a penod of time and a 3 685% share in Millstone Umt 3 nancing construction balances is offset equal to the time the CWIP amount had in Waterford. Connecticut. At the end of by a non-cash crecht to allowance for been in rate base Addiuonally, the 1985, the Company had mvested $687 funds used dunng construction amount of the Company's investment mt! hon. excludmg nuclear fuel in the The Company's financial condition which can be ucluded in rates is cur-Seabrook unit and $140 mt! hon in Mtil-wtll be dommated by the demands of its rently hmited to its share of cost " caps" stone These amounts melude the al-construction program until at least late estabhshed by Connecticut legislation lowance for funds used dunng con-1906, when Seabrook Unit 1 is expected and regulation $4 7 bilhon for Seabrook struction and indirect construction to be completed. and thereafter by the Urut 1 and $3 54 bilhon for Millstone costs reallocated to Seabrook Umt 1 treatment afforded the Company's nu-Unit 3 Although certain cost increases from Seabrook Umt 2 due to the effec-clear mvestments in its ek>ctric rates by are excepted from these cost hmits and uve cancellation of the second umt The the Connecticut Department of Pubhc the Company has filed a court appeal Company estimates that its share of the Utihty Control (DPUC) with respect to the Seabrook hmit, an y 1986 cost, including allowance for funds Connecticut law prohibits the inclu-costs exceeding the estabhshed hmits used dunng construction. to complete sion of construction work in progress may be unrecoverable iTuthermore, the construction wt!1 be $8 milhon. Includ-(CWIP) m rate base, except in the case Company's mvestment m these units will be sub ect to prudence reviews tng nuclear fuel. for Millstone. sched-of Seabrook Umt 1 and Millstone Umt 3, l
uled to be in service m May 1986, and arx1 inclusion is further hmited to com-and. under Connecticut law, the invest-
$133 milhon. excludmg nuclear fuel for panies that have exponenced, or would ment in Seabrook Unit 1 will be required Seabrook Urut 1. based upon project experience. " negative cash flow" with-to be phased mto rates over a penod of management's estimated $4 56 bilhon out CWIP Acting pursuant to this ex-time cost and an October 1986 in service cepuon. the DPUC. in its December date, although it now appears that it 1984 decision on the Company's re-Llquidity and Capital Resources l
will be difficult for the unit to achieve Dunng 1985, the Company financed its commercial operation in October 1986.
construction program with intemally due to delays m completing emergency generated funds and special deposits response and evacuauon plans Any de-which had been accumulated from the lay of the m-service date would merease unexpended proceeds of its 1984 fi-the total cost of the Seabrook unit by nancing program approximately $50 milhon per month Funds Required for Construction 1981
$87 43 mdhons l
1982 '
$127 59 mdisons 1983
$145 0n mdlions
$15314 mdlions
$116 48 mdhons 3 mtenally garratat E othm 23
s In 1985. mtemally generated funds for the additional financing were met to date, ts scheduled to expire on Febru-provided 41% of construction expendi-durmg the latter nalf of 1985 and the ary 28,1986 The Company expects to tures. as compared to 21% in 1984 This Company obtained the proceeds in No-extend the termination dates of both increase was due primardy to the De-vember 1985 when BEC sold the bonds these agreements through 1986 cember 1984 rate increase, lower con-and purchased an equivalent amount of In addition, the Company continues struction expenditures and the contin-its Common Stock from the Company.
to utdize a sale and leaseback airange-uation of many cash conservation The proceeds of this financing wer' ment for the financmg of nuclear fuel for measures, meludmg reduced Common used to repay short-term borrowin-Seabrook Unit 1 arri a fuel reserve and Stock dividends, which were adopted and the balance will be used to fina supply agreement with the same finan-(
in May 1984.
Seabrook construction costs and. to e cialinstitution to finance fossd fuel pur-In its December 1984 rate decision.
extent not required for Seabrook. for chases up to $100 milhon, less the out-the DPUC allowed a $23 milhon in-other corporate purposes.
standing nuclear fuellease obhgations crease in annual revenues, net of $15 At December 31,1985, the Company At December 31.1985, approximately milhon in anticipated savmgs from had over $93 milhon in special deposits,
$52 milhon of nuclear fuel and $27 md-buming coalat Bndgeport Harbor Unit which represented the unexpended hon of fuel od purchases were being fi-3 Tlus net increase included further proceeds, plus accumulated interest.
nanced under these arrangements. The measures designed to improve cash of the BEC debt issues and 1984 tax-fuel reserve and supply agreement ex-flow. including additional Seabrook Urut exempt financings tends to May 1986 However, the Com-1 CWIP in rate base and recovery of the On July 5.1984. the Company en-pany expects to extend the termmation Company's $104 milhon investment in tered into two short-term bank financ-date through 1986 Borrowings under Seabrook Unit 2. based on a ten-year tng agreements: a $66 milhon revolving this and the bank agreements are sub-amortization with no retum on the credit agreement with the same group ject to conditions relating to the Sea-investment.
of banks which had previously ex-brook project and the Company's finan-At December 31.1984. the Company tended short-term hncs of credit to the cial position. Also, the Company and its had over $100 mt! hon m special depos-Company, and a $40 milhon accounts coal suppher have entered into an its which represented the unexpended receivable purchase and sale agree-agreement whereby the suppher main-proceeds. plus accumulated interest, of ment. The revolving credit agreement tains and finances approximately $10 two 1984 tax-exempt debt issues and has been extended periodically and is milhon of coal supply at current pnces.
the Bndgeport Electnc Company (BEC) currently scheduled to expire on July debt issue. In addition. BEC. a wholly 30.1986, and the accounts receivable Results of Operations owned subsidiary. had obtained com-agreement. which has not been utihzed Eamings per share for 1985 increased nutments from the same group of insti-42 cents from 1984, pnmardy due to in-tutional investors who purchased the creased sales savmgs resulting from initial bond issue to buy an additional the continuance of several cash conser-
$100 mdhon of bonds at such time as vation measures adopted in May 1984 the Seabrook jotnt owners authorized and a greater amount of non-cash al-resumption of full construction of Unit 1 lowance for funds used during con-and the Company obtained Connecticut struction due to increased CWIP bal-regulatory approval The requirements Capitalization Ratios 1984 * * /
>"
- W e W e m C N w
- I E Preferred E common E Debt 25
Managements Discussion contmued ances associated with two nuclear Other operation expense increased in from the 1984 level, due pnmanly to de-generating umts. Seabrook Urut 1 and 1985, due to higher pension expense re-creases in local property taxes. The in-Mdistone Umt 3. Earmngs for 1985 were lated to a voluntary early retirement pro-crease in other taxes for 1984 compared adverselyimpacted by the effect of gram which was in effect during early to 1983 reflected increases in local prop-costs associated with Hurncane Glona 1985, higher costs associated with real erty taxes, payroll taxes and state gross which amounted to 25 cents per share.
estate rental charges and higher insur-eamings taxes associated with higher Eamings per share for 1984 decreased ance costs. In 1984, other operation ex-revenues.
27 cents from 1983, primanly because pense rose, due pnmardy to an increase Other income and deductions, ex-the non-cash allowance for funds used in rental expense for office space and cluding the allowance for equity funds during construction associated with equipment and due to the continuing used dunng construction, increased Seabrook Urut 2 was not recorded after effect of inflation on employment and substantially in 1985 over 1984. The in-Apul 1984 due to effective cancellation other costs. Capacity purchased ex-crease reficos the tax benefits associ-of the unit.
pense also rose each year, due to in-ated with debt carrymg costs apphca-Kilowatt-hour sales for 1985 and 1984 creases in operatmg and capital costs at ble to the effectively cancelled Seabrook were up 1.3% and 2.9% over compara-the Connecticut Yankee nuclear unit.
Unit 2 and interestincome on tempo-ble prior penods, reflecting improved Maintenance expense increasedin rary cashinvestments and special commercial and industnal activity and 1985, due pnmanly to Hurricane Gloria deposits.
weather related factors.
and increases associated with the over-In 1985, net interest charges rose Operating revenues for 1985 rose only haul of generating units.
sharply over the previous year as a re-
$5.4 mdlion over 1984, as the effects of Depreciation expense increased in sult of a higher level of debt due to the the December 1984 rateincrease and 1985, due pnmanly to the commence-coalreconversion financing and the increased sales volume were substan ment of depreciation of plant costs as-ehmination of the allowance for bor-tially offset by the effects of lower fossil sociated with the coal reconversion at towed funds associated with the inclu-fuel costs through the operation of the Bridgeport Harbor Unit 3.
sion of additional Seabrook Unit 1 CWIP focsd fuel adjustment clause (FFAC) In In 1985, amortization of cancelled nu-in rate base. The 1984 increase in net 1984, operatmg revenues exceeded clear projects reflected the inclusion of a interest charges over 1983 reflects 1983 by $60 mdhon, due malrdy to the full year's amortization of Seabrook Unit higher costs associated with prefinanc-increase in sales volume, the recovery 2 in addition to the Pdgnm Unit 2 proj-ing Seabrook Unit 1 construction costs of fuelcosts through the FFAC and a ect, on which amortization commenced and ehmmation of the allowance for bor-rate increase in August 1983.
in 1983.
rowed funds associated with the can-Rieland interchange energy expense Income tax expense rosein 1985 and celled Seabrook Urut 2.
in 1985 decreased by 24.7% from 1984, 1984, reflecting increases in pre-tax in-Dividerris on preferred and prefer-due pnmanly to the bummg of coalat come. In 1985, other taxes decreased ence stock for 1985 increased over Bridgeport Harbor Urut 3 and lower fuel 1984, reflecting a full year's dividends od prices The increase in 1984 fuel and on the 19% Preferred Stock issued in energy expense over 1983 reflected an the second half of 1984.
increase in the average price of fuel od, the higher cost of purchased power and higher kilowatt-hour sales.
Return on Common Equity 1981 14 18%
mund Ib Ib%
15 73%
'ne 5 66%
\\
96
Outlook pendent upon the rate treatment af-result of the 1985 financing of its re-The year 19861s expected to be a year forded its investment in the unit.
mainmg Seabrook Unit 1 construction of transition for the Company The Commercialoperation of both Mill-costs. Its extemal financing require-Company's financial condition will be stone Urut 3 and Seabrook Unit 1 in ments in 1986 will be minimal dominated by demands of its construc-1986 will result m the Company havmg Finally. the recent positive develop-tion program until at least late 1986 mierests in two ruclear units coming ments in connection with the construc-when Seabrook Umt 1 is expected to be on hne wittun a relatively short penod of tion and financmg of Seabrook Unit I completed, and thereafter by the treat-time In order to avoid the necessity, un-permitted the Company to increase the ment afforded the Company's nuclear der these circumstances, of seeking quarterly common stock dividend by 8 investments in its electnc rates two rate inaeases in close proximity, cents per share on January 1.1986 Several recent positive Seabrook Urut the Company has developed altemative Wrule this increase is intended to repre-1 developments. including resumption plans which would permit it to forgo a sent the first step toward restoration of of full construction, completion of the rate increase when Millstone Urut 3 be-the dividend to the level in effect pnor Company's remainmg construction fi-comes operationalin a manner that to the 30 cent per share decrease in nancing, achievement of major con-would not penahze eammgs. However.
1984. future dividend increases will de-struction milestones on schedule and there can be no assurance that these pend on contmued progiess at the Sea-under budget. and reaffirmation of Con-plans will be approved by the DPUC.
brook project, regulatory rate treatment necticut regulatory support for comple-The Company intends to obtam a de-of the Company's nuclear investments tion of the umt. contmue to improve the cision on the rate treatment of Seabrook and other factors affecting the Compa-hkehhcod that the unit can be com-Unit 1 on or about its projected com-ny's financial condition and prospects pleted Wrule the nsk of cancellation of mercial operation date and accordingly Revisions to cost estimates and the umt has been reduced by these plans to commence a rate case in the scheduled operational dates of the Sea-events, both the occurrence and timing second quarter of 1986 The rate treat-brook and Millstone nuclear units under of completion and operation of the unit ment the Company is considenng pro-construction could change the Compa-continue to be dependent on accom-posmg willinclude a phase-in plan for ny's financing outlook and plans, the phshment of necessary remalmng steps Seabrook Umt I withm the three-to-ten-success of which is also dependent on which are largely beyond the Com-year phase-m penod presenbed by many other factors, includmg condi-pany's control, such as contmued con-Connecticutlaw TheCompany's tions in the secunties markets, eco-struction and testing success. and the phase-in oropil which may be influ-nomic conditions legislative develop-timely and successful completion of enced by pending changes in account.
ments, the level of the Company's sales proceedings to obtain an operating h-mg rules, will reflect the Company's de-and its abihty to obtain adequate and cense. tncluding secunng govemmen-sire to keep rates relatively stable in real timely rate rehef.
tal approvals of an emergency evacua-pnce terms.
tion plan If cancellation of the unit were From a financing standpoint, the inflation to occur. It would have senous adverse Company currently anticipates that as a For further discussion of the effects of effects on the Company and the Com-changing pnces on the Company, see pany's financial viabthty would be de-Supplementary Information/ Inflation Cash Requirements 1985 mamm -me mhwM-Am==mw-Amm mm $12315 rnthon 1986 EN "ETM5 $% 79 milhon 1987
$75 25 mdhon 1988
$57 83 mdhon 1989 *-:
m e -
~ ~
':'N****
$13514 nuilmn B matuntes & redempions E construction E
CONSOLIDATED STATEMENT OF INCOME For the Years Erxied December 31,1985.1984 and 1983 (Thousands except per share amounts) 1985 1984 1983 The United Operating Revenues
$514,936
$509.470
$449.586 Illuminating Company Operating Expenses Operation Fbel and interchange energy-net 175,764 233,423 200.377 Capacity purchased-net 10,014 11,724 11,148 Other 78,275 70,182 65.928 Maintenance 29,927 21,503 22.453 Depreciation 18,128 15.952 15.754 Amortization of deferred fossil fuel costs 283 (4,009)
(1,336)
Amortization of cancelled nuclear projects 14,082 7,633 2.461 Income taxes 62,047 44,371 37,746 Other taxes 41,787 44.365 39,595 Total 430,307 445.144 394.126 Operating Income 84,629 64.326 55.460 OtherIncome and Deductions Allowance for equity funds used during construction 46,083 44.495 40,443 Other - net 11,686 5.157 910 Total 57,769 49.652 41.353 Income Before Interest Charges 142,398 113.978 96.813 Interest Charges Interest on long-term debt 72,068 45,417 38.862 Other interest 5,334 6,934 2,483 Allowance for borrowed furds used during construction (16,540)
(12,747)
(11.961)
Income tax benefits attnbutable to the allowance for borrowed funds (18,069)
(13.926)
(13.071)
NetInterest Charges 42,793 25.678 16.310 NetIncome 99,605 88,300 80,503 Dividends on Preferred and Preference Stock 20,339 16.883 14.084
[
l Income Applicable to Common Stock
$ 79,266
$ 71.417
$ 66.419 Average Number of Common Shares Outstanding 13,623 13.214 11,709 Earnings per Share of Common Stock
$5.82
$5 40
$5 67 Dividends per Share of Common Stock
$2.08
$2.30
$3.08 l
The accompanymg Statement of Accountmg Eblicies and Notes to Consolidated Fmancial Statements are integralparts of the financialstatements.
I ss
CONSOLIDATED STATEMENT OF SOURCES OF FUNZS FOR GROSS PROPERTY ADDITIONS For the Years Ended December 31,1985.1984 and 1983 SOURCES OF FUNDS (Thousands of Donars) 1985 1984 1983 Internally Generated Net income S 99,605
$ 88.300
$ 80.503 Add (deduct)
Depreciation and amortization 33,602 18.200 17.352 Deferred income taxes (2,737) 38.944 3.273 Deferred investment tax credits - net 28,073 (8.310) 13.091 Allowance for funds used during construction (62,623)
(57.242)
(52.407)
Ends provided from operations 95,920 79.892 61.812 Deduct dividends declared 48,681 47.490 50.505 Intemally Generated Wnds 47,239 32.402 11.307 ExternalFinancing Securities sold Common stock 4,994 7.383 58.982 Preferred stock 34.000 Nilution controlbonds 68.400 Mortgage bonds 100,513 99.487 Expenses ofissues (1,629)
(6.178)
(365) 103,878 203.092 58.617 Retirement of debentures (3,667)
(10,667)
(5,667)
Redemption of preferred stock (3,000)
Increase in nuclear fuel financing obligation 8,644 6.503 5.332 Increase in other long-term debt 20.000 26.700 Inctease (decrease) in notes payable (34,000) 3.000 31.000 Wnds Obtained from Extemal Financing 71,855 221.928 115.982 Other Sources (Uses)
(Increase) decrease in working capital, excluding notes payable, current portion of long-term debt and special deposits (19,475) 6.744 20.401 Special deposits 13,477 (106,803)
I Deferralof fossil fuel costs 3,333 841 (1.334)
Other changes in noncurrent balance sheet items 51 (1.976)
(1.351)
Other Sources (Uses)
(2,614)
(101.194) 17.716 Funds for Property Additions from Above Sources 116,480 153.136 145.005 Allowance for funds used dunng construction 62,623 57.242 52.407 Gross Property Additions
$179,103
$210.378
$197.412 CONSOLIDATED STATEMENT OF RETAINED EARNINGS For the Years Ended December 31.1985,1984 and 1983 (Thousands ofDonars) 1985 1984 1983 Balance, January 1
$194,251
$153.441 123,443 NetIncome 99,605 88.300 80,503 Expenses associated with preferred stock redeemed (21) 293,835 241.741 203.946 4
Deduct Cash Dividends Declared Preferred and preference stock 20,339 17.135 14.084 Common stock 28,342 30.355 36.421 Total 48,681 47.490 50.505 Balance, Decernber 31
$245,154
$194.251
$153.441 29
I CONSOLIDATED BALANCE SHEET December 31.1985.1984 and 1983 ASSETS frhousands of Dotlars) 1985 1984 1983 The United Utility Plant at Original Cost Illuminating In service
$ 649,106
$ 583,510
$ 571,852 Company Less accumulated provision for depreciation 233,370 223.456 213.987 415,736 360,054 357,865 Construction work in progress 845,112 749.566 666.244 Net Utahty Plant 1,260,848 1.109.620 1,024.109 Plant and property under capital leases Nuclear fuel 51,528 42,884 36,381 Other 10,137 9,712 Total 61,665 52.596 36.381 Other Property and Investments 8,599 8.570 8.570
~
Current Assets Cash and temporary cash investments 20,160 12.057 3,526 Special deposits 93,326 106,803 Accounts receivable Customers, less allowance for doubtful accounts of $1.620, $1,740 and $1,680 50,645 46,897 47,892 Other 12,064 6.012 12.356 Accrued utthty revenues 20,310 18.151 21,398 Riel, materials and supphes, at average cost 15,515 7,404 7,815 Prepayments 2,037 1.208 695 Total 214,057 198.532 93.682 Deferred Debits Unamortized cancelled nuclear projects 95,682 109,153 12,457 Other 11,991 7.844 4.210 Total 107,673 116.997 16.667
$1,652,842
$1.486.315
$1.179.409 The accompanymg Statement ofAccountingIblicies and Notes to Consolidated FinancialStatements are integralparts of the financialstatements.
I 1
30
CAPITALIZATION AND LIABILITIES (Thousands ofDouars) 1985 1984 1983 Capitalization Common stock equity Common stock
$ 272,845
$ 267.851
$ 260,468 Capitalstock expense (8,249)
(8,183)
(5,578)
Retamed eamings 245,154 194.251 153.441 509,750 453,919 408,331 Preferred and preference stock Not subject to mandatory redemption 70,000 70,000 70,000 Subject to mardatory redemption 96,000 99,000 65,000 Long-term debt 664,648 567,736 383.448 Total 1,340,398 1,190.655 926.779 Obligations under capital leases - noncurrent 59,814 51.242 36.381 Current Liabilities Current portion oflong-term debt 3,667 3,667 10,667 Notes payable 34,000 31,000 l
Accounts payable 69,731 67,278 67,937 Dividends payable 13,025 11,849 13,5W Taxes accrued 22,345 20,164 20,369 Interest accrued 11,250 9,451 4.217 Obbgations under capitalleases 1,851 1,354 Odier accrued habihties 13,601 11.536 10.813 Total 135,470 159.299 158.510 Deferred Credits Customers' advances for construction 1,898 1,800 1,818 Accumulated deferred investment tax credits 62,039 33.966 42,275 Daferred income taxes 49,059 48,804 9,930 Daferred fossil fuelcosts 4,164
,549 3.716 Total 117,160 85,119 57,739 Commitments and Contingencies
$1,652,842
$1,486.315
$1,179.409 m
ST/' XENT OF ACCOUNTING POLICIES Accounting Records BEC One-half year's depreciation is taken in the The accounting records are maintained in accord-war of addition and disposition of utihty plant, ex-ance with the uruform systems of accounts pre-cept in the case of major operating units on which scnhad by the Federal Energy Regulatory Commis-depreciation commences in the month they are sion (FERC) and the Connecticut Department of placed m service and ceases in the month they are Pubhc Utihty Control (DPUC). He financial state-removed from service. The aggregate annual provi-ments of the Company and its wholly owned subsid-sions for depreciation for the years 1983,1984 and lary. Bridgeport Electnc Company (BEC), are pre-1985 were equivalent to 2.87%,2.87% and 2.99%.
sented on a consohdated basis.
respectively, of the onginal cost of depreciable Utility Plant The cost of additions to utthty plant and the cost of income Taxes renewals and betterments are capitahzed. Cost con-The Company has adopted the pohey of full normah-sists of labor, matenals, services and certain indirect zation accounting for income tax benefits with re-construction costs, includmg an allowance for funds spect to book-tax timing differences apphcable to used dunng construction. The cost of current re-post-1980 property additions and all investment tax pairs and minor replacements is charged to appro-credits used to reduce current federal income taxes.
pnate operating expense accounts The ongmal The major portion of the credits generated results cost of utihty plant retired or otherwise disposed of from the Company's election to take investment tax and the cost of removalless salvage are charged to credits apphcable to long-term projects on a prog-the accumulated provision for depreciation ress-of-construction basis.
Allowance for Funds Used Accrued Utility Revenues During Construction The estimated amount of utthty revenues (less re-In accordarice with the apphcable regulatory sys-lated expenses and apphcable taxes) for service ren-tems of accounts, the Company capitahzes an al-dered but not billed is accrued at the end of each lowance for funds used dunng construction accounting penod.
(AFUDC), which represents the approximate cost of debt and equity capital devoted to plant under con-Investments struction In accordance with FERC presenbed ac-he Company's investment in Connecticut Yankee counting. the portion of the allowance apphcable to Atomic Power Company, a nuclear generating com-borrowed funds is presented m the Consohdated pany in which the Company has a 9%% stock inter-I Statement of Income as a reduction of interest est. is accounted for on an equity basis charges, while the portion of the allowance appbca-ble to equity funds is presented as other income.
Fossil Fuel Costs Although the allowance does not represent current The amount of fossil fuel costs that, pursuant to the cash income, it has histoncally been recoverable un-fuel adjustment clause in the Company's rates, can-der the rate-makmg process over the service hves of not be reflected currently in customers' bills is de-the related properties The Company compounds ferred at the end of each accountmg period Since semi-annually the allowance appbchble to major adoption of the deferred accounting procedure in construction prolects Pursuant to the DPUC's Au-1974, rate decisions by the DPUC and its predeces-gust 1983 rate decision, the Company ceased re-sors have consistently made specific provision for cordmg AFUDC on $120 milhon of construction amortization and rate-making treatment of the Com-work in progress (CWIP) allowed in rate base This pany's existing deferred fossil fuel cost balances.
amount was increased to $183 milhon pursuant to the DPUC's rate decison of December 1984 Pension Pican The Company accounts for the portion of the al-Annual pension cost, including amortization of pnor lowance applicable to borrowed funds on a net-of-service cost over 30 years, is accrued each year and tax basis. Dunng 1983,1984 and 1985, the average funded in the following year. The actuanal cost rates used for computing the allowance were method used is the Entry Age Normal Cost with 10.25%,10 50% and 10.75%. respectively.
Rozen Initial Liabihty.
Depreciation Research and tuvelopment Costs Provisions for depreciation on utthty plant for book Research and development costs, including envuon-purposes, excludtng costs associated with reconver-mental studies, are capitahzed if related to specific sion of a plant to a dual-fired capabihty, are com-construction projects and depreciated over the hves puted on a straight-hne basis, using estimated serv-of the related assets. Other research and develop-Ice hves determined by mdependent engmeers.
ment costs are charged to expenso as incurred.
Capreciation associated with the reconversion costs is computed on an annuity basis over the ten years that this plant is bemg leased to the Company by 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amount.s, except par share amounts, are m thousands unless otherwisa mdicated)
(A) Capitalization at December 31,1985 Cumulative preference stock. $25 par value.
Common Stock Equity (a) 15.88%,1980 Senes.1.200.000 shares, sub-Common stock. no par value
$ 272.845 lect to mandatory redemption of 80.000 Shares authonzed 17,500.000 shares each year begmnmg Apnl15.
Shares outstanding at December 31:
1986, at $25 per share, plus accrued 1983 12.972.344 dividends
$ 30.000 1984 13.429.443 Total preferred and preference stock 1985 13.720.050 subject to mandatory redemption
%.000 Capital stock expense (8.249)
Long-term Debt (d)
Retained earnings (b) 245.154 Long-term debentures Total common stock equity 509.750 4 %.1987 Senes. due November 1.1987 10.000 15%%.1988 Senes. due December 6,1988 20.000 Preferred and Preference Stock (c) 13%%.1990 Senes. due July 1,1990 40.000 Authonzed 4 65%.1990 Senes, due August 15,1990 15.000 Cumu!ative preferred stock ~
4%%.1991 Senes. due July 15,1991 10.000
$100 par value. 1.350.000 shares 5%%.1996 Senes, due August 15.1996 15.000
$25 par value. 2.400.000 shares 6%.1997 Senes, due June 15.1997 22.500 Cumulative preference stock 7% 1999 Senes, due January 15,1999 15.000
$25 par value 5.000.000 shares 10%%. 2000 Senes. due June 15,2000 30.000 Outstandmg at December 31,1985-7%%. 2002 Senes, due October 1. 2002 25.000 Not subject to mandatory redemption 8%%. 2003 Senes, due December 15.2003 30.000 Cumulauve preferred stock. $100 par value Senaldebentures:
4 35%. Senes A. 50.000 shares 5.000 8%%, matunng senally as to $1.667 pnncipal 4 72%, Senes B. 75.000 shares 7.500 amount on November 15 m each of the years 4 64%. Senes C,75.000 shares 7.500 1986 to 1997, melusive 20,000 5%%. Series D. 75.000 shares 7.500 11%, matunng serially as to $2.000 pnncipal 7 60%. Senes E. 125.000 shares 12 500 amount on November 15 m each of the years 7 60%. Senes F. 150.000 shares 15.000 1986 to 1999, inclusive 28.000 Cumulative preferred stock. $25 par value.
16%% maturmg senally as to $5.000 pnncipal 8 80%.1976 Senes. 600.000 shares 15.000 amount on November 21 m each of the years Totalpreferred stock not subject to 1987 and 1988, and as to $20,000 pnncipal mandatory redemption 70.000 amount on November 21,1989 30.000 Subject to mandatory redemption 310.500 Cumulative preferred stock. $100 par value.
First Mortgage Bonds - Budgeport Electnc 9%%. Senes G. 120.000 shares, subject to Company:
mandatory redemption of 30 000 shares 18%. Senes A. matunng serially as to $33,333 on Apnl 15 m each of the years 1986 to puncipal amount on November 30 in each of 1989 mclusive, at $100 per share, plus the years 1989 to 1994. mclusive 200.000 accrued dividends 12.000 Other 19%.1934 Senes. 340.000 shares, subject to Pollution Control Revenue Bonds mandatory redemption of 68.000 shares 14 %%.1984 Senes. due October 1. 2009 40.000 each year beginning July 15.1990, at 14%% 1984 Senes B. due December 1,2009 28.400
$100 per share, plus accrued dividends 34.000 Long-term bank loans 90.000 Cumulative preferred stock. $25 par value.
668.900 16%.1981 Senes. 800.000 shares, subject to Unamortized debt discount less premium at mandatory redemption of 40.000 shares December 31.1985 (585) each year begmnmg July 15.1987, at $25 per share, plus accrued dividends 20,000 Totallong-term debt 668.315 Less cunent portion mcluded in Current Liabihties 3.667 Totallong term debt mcluded m Capitahzation 664.648 Total Capitahzation
$1.340 398 (a) Common Stock Common stock. no par value, authonzed at December 31.1985, included 1,750.000 shares and 400.000 shares, respectively, reserved for the Company's Automatic Dividend Remvestment and Common Stock Purchase Plan (DRP) and Tax Reduction Act Employee Stock Ownership Plan (TRAESOP)
Shares issued (000) dunng 1985.1984 and 1983 and increases to the common stock account from the proceeds of these issues were as follows 1985 1984 1983 Amount Shares Amount Shares Amount Shares Balance. January 1
$267.851 13.429
$260.468 12.972
$201.486 10.694 Additions resultmg from Pubhc offermgs 50.375 1,950 DRP 4,994 291 5.876 346 6.174 236 TRAESOP 1.507 111 2.433 92 Balance December 31
$272.845 13.720
$267.851 13 429
$260 468 12.972 Expenses related to these issues were charged to capital stock expense 33
Notes to FmancialStatements contmued (b) Retained Eatmngs Restncuan The indenture under which allof the Company's debentures are tssued places hmitauons on the payment of cash dividends on the common stock of the Company and on the amounts that can be expended to purchase or redeem shares of common stock Under the most restnctive provision of the mdenture. retamed eamings in the amount of $197 milhon were free from such hmitations at December 31 1985 (c) Preferred and Preference Stock The par value of each of these issues was credited to the appropnate stock account and expenses related to these issues were charged to capital stock expense On Apnl 15.1985, the Company redeemed 30.000 shares of 9% Senes G Preferred Stock at $100 per share, plus accrued dividends to that date The aggregate redemption requirements for preferred and preference stock durmg each of the five years 1986-1990 are.1986 - $5.000.
1987 - $6.000.1988 - $6.000.1989 - $6.000.1990 - $9.800 Preference stock is a form of stock that is Junior to preferred stock but senior to common stock it is not subject to the earnings coverage i
requirements or mimmum capital and surplus requirements govemmg the issuance of preferred stock Shares of preferred and preferer1ce stock have preferential dividend and hquidation rights over shares of common stock Pretened and preference shareholders are not entitled to general voting nghts However. if any prefened dividends are m arrears for six or more f
quarters. or if some other event of default occurs. preferred shareholders are entitled to elect a malonty of the Board of Directors. until all dividend arrears are paid and any event of default is terminated If similarly affected, preference shareholders are entitled to elect two members of the Board of Duectors (d) Long-Term Debt On February 1.1983, the Company mereased its borrowmgs under its seven-year agreement with a group of international banks from the original $30 milhon, borrowed m December 1982, to the full amount cf $50 milhon The annual rate of interest on the borrowmgs is 13 41% The full amount matures m December 1989 In August 1983, the Company entered into a term loan agreement with a commercial bank wiuch enabled the Company to borrow pnor to February 29,1984. on a fixed rate, non revolvmg basis, up to an aggregate amount of $40 milhon On September 30,1983, the Company borrowed $20 milhon under this agreement at an annual rate of 12 9h, payable monthly. and on January 20.1984. borrowed the remaining
$20 milhon at an annual rate of 131%. payable monthly Aggregate matuntms of these loans are $15 milhon m 1992. $15 milhon m 1993 and $10 milhon m 1994 In October and December 1984. the Company financed $40 milhon and $28 milhon, respectively, of its share of the cost of certain pollution control facihties at the Seabrook nuclear generatmg station The amounts were borrowed from The Industnal Development Authonty of the State of New Hampshire, and were the proceeds of the issuance by the Authonty of tax-exempt 14%% Polluuon Control Revenue Bonds A portion of the amounts bonowed was used to reimburse the Company for expenditures already made for the facihties and has been set aside in a special fund. now on deposit, to meet future expenditures associated with the completion of Seabrook Umt 1 On December 14.1984. Budgeport Electnc Company (BEC). a wholly-owned subsidiary. Issued and sold to mstitutional tnvestors m a pnvate placunent. mortgage bonds in the pnncipal amount of approximately $100 million. which mature over a six-year penod ending November 30.1934 The institutional mvestors agroed to purchase an additional $100 milhon of these bonds from BEC at such time as the Executive Comm!ttee (or another entity representing the participants in the Seabrook project) voted to authonze Seabrook project management to resume full construction on Seabrook Umt 1 and the DPUC approved a closing The former condition was satisfied m September 1985. and on November 22.1985 the DPUC approved the issue and sale of the additional bonds The sale was closed on November 22. subsequent to the receipt of DPUC approval The Connecticut Division of Consumer Counsel has filed an appeal w:th the Connecticut Supenor Court. allegmg that the DPUC did not comply with statutory procedures m approving the is sue and sale of the additional bonds and that its approval violated DPUC regulations and previous decisions However. under Connecticut law the addiuonal bonds are vahd and bmdmg obhgations irrespective of the disposition of this appeal The proceeds of the initial issue of BEC mortgage bonds, together with $200 mtlhon of BEC common stock. were used by BEC to pmchase from the Company its Bndgeport Harbor Unit 3.
which was used as collateral for the mortgage bonds Approximately $60 milhon of the proceeds of the initialissue which the Company received from BEC was used by the Company to pay for the costs of reconverting Bndgeport Harbor Umt 3 to a dual fired capabihty The remainder of the proceeds of the initialissue was placed on deposit to be used by the Company to finance costs associated with the completion of Seabrook Umt 1 The proceeds of the additional issue were used by BEC to acquire shares of its common stock from the Company The Company used a portion of these funds to repay its outstanding revolving credit agreement bonowings and placed the remainder on deposit to finance Seabrook Umt 1 construction costs At December 31,1985 approximately $89 milhon of the funds reahzed from the BEC financings remamed on deposit to finance the Company's share of the cost to complete Seabrook Umt 1 All deposited funds not expended on Umt 1 will be used for the Company's general corporate purposes, mcluding reducing outstandmg indebtedness of the Company The aggregate matunties of long term debt dunng each of the five years 1986-1990 are 1986 - $3 667.1987 - $18.667,1988 -
$28.667.1989 - $107.000.1990 - $92.000 (B) Rate Proceedings credits over an eightecn-month penod and the inclusion in Rate mcreases, exclusive of amounts billed through fosstl fuel rate base of approximately $120 million of the Company's cost adjustment rates, approved by the DPUC were as ownerstup share of the construction costs associated with follows:
Seabrook Unit 1, a nuclear generating unit currently under construction in addition, the DPUC included tn its decision Annual increase Percentage an order requiring the Company to make every effort to gam Apphcation Effective Approved of Request the support of the other joint owners of Seabrook Unit 2 for Dates Dates (Mdlions)
Arr,rovod the cancellation of the Umt, and requinng that the Company March 22.1983 August 29.1983
$34 7 77%
submit a report, by November 15,1983 outlining the steps July 2.1984 December 21.1984 23 0 61 taken to withdraw from participatien in Unit 2 and its specific plans to complete its withdrawal from that Umt. The Com-The DPUC decision on the Company's 1983 rate appbca-pany s efforts to withdraw from Seabrook Unit 2 resulted m tion provided for a 16 4% return on common stock equity, the amendments to the Seabrook joint owners agreement which recovery, over a two-year penori of all of the Company's in_
d ctively preclude resumption of construction of that unit.
vestment in the cancelled Pilgnm Umt 2 nuclear project, the In June 1984, the DPUC concluded its hearings on its with-amortization of approximately $6 milhon of deferred fossil fuel 34
drawal order by ruhng that the Company had comphed with The amounts reported for federal income tax expense for that order.
the years 1985,1984 and 1983 were less than the amounts On July 2.1984, the Company filed with the DPUC an ap-computed by applying the federal income tax statutory rates pbcation for both intenm and permanent rate rehef. On Au-to book income before federal income taxes The reasons for gust 7,1984. the DPUC denied the Company's request for $30 such diffemnces are as follows-mihion of intenm rate rehef. The Company initially requested 1985 1984 1983
$69 milhon of permanent rate rehef reduced to a net increase Net mcome
$ 99.605 $ 88.300 $ 80.503 of $45 milhon by the $15 m111 ion net savings in revenue re-quuements resulting from lower fuel costs associated with Total income tax expense 56 310 42 620 37.734 the reconversion of Bridgeport Unit 3 to a coatburning urut.
ss state mcome hFnw 12 8M 9 282 8W In October 1984, the net amount of permanent rate rehef re.
Federal mcome tax expense 43.491 33 338 29.287 quested was revised downward to $38 milhon to reflect the Book mcome before federalincomo contmuance into 1985 of certain cash conservation rneasures taxes 143.096 121,638 109.790 instituted in May 1984 and the updating of various operating Federal mcome tax statutory rate 46%
46 %
46 %
costs In its rate decision on December 18,1984, the DPUC Federalincome taxes at statutory rate 65.824 SS.953 50.503 provided for a net increase in annual revenues of approxi.
Less tax ettects of mately $23 milhon ($38 mdhon, less the $15 milhon net say.
Anowance for eqmty funds usa.!
ings associated with the coal reconversion) The decision al_
dunng c nstruction capitahzed lowed a 16.4% return on common stock equity, the recovery "P
nc 21.198 20.468 18.604 of the Company's investment in Seabrook Unit 2 over a ten-Tax depreciauon in excess of book year period, without return on the investment (see Note (H).
depreciation apphcable to pre-
" Unamortized Cancelied Nuclear Projects"), the amortization 1981 property additions 1.095 1.408 1.928 of the Company's remanung unamortized investment of $4 9 Amortization of aHowance for funds milhon in the cancelled Pdgnm Unit 2 over a sixteen-month used dunng construction apph-penod, the write-off of accumulated defened fossil fuel costs cable to canceued nuclear over a sixteen-month period and the inclusion in rate base of projects (1,895)
(940)
(302) a revised total of $183 milhon of construction work in progress Equity m earnings of subsidiary (CWIP) associated with Seabrook Unit 1. Under Connecticut
' *Pa f r book purposes.
g a law, a condition of the inclusion m rate base of Seabrook Unit Amortization of deferred mvest-1 CWIP is that an amount equal to the CWIP amount will be ment tax credits 750 222 184 excluded from rate base after the umt is in service for a pe-Other itoms - net 332 644 71 ned of time equal to the time the CWIP amount had been in Federal mcome tax expenso
$ 41491 $ 33 338 $ 29.287 rate base. The Connecticut Division of Consumer Counsel has taken an appeal from the DPUC decision See Note (K),
Effective federal mcome tax rates 30 4 % 27 4{g%
" Commitments and Contingencies" Dunng 1984, the Company took a tax wnte-off for Seabrook (C) Income Taxes Umt 2, a uninhat the Con.pany beheves has been effectively Income tax expense consists of.
canmM Ms wnte-on ehmmated WhaNe mcome and resulted in a net operating loss carryback to 1981 amounting 1985 1984 1983 to approximately $22 mdhon This wnte-off had no effect on Operating expenses net income in 1984, since all tax effects were deferred for Current.
$17.558 $ (189) $ 8.545 accounting purposes Deferred The cumulative net amount of income tax timing differ-Investment tax credits (net of ences for which deferred taxes have not been provided as of amoruzation) 28.073 (8.310) 13.091 December 31.1985 is $91 milhon These timing differences u
ce for b rro ved fu s 18.069 13.926 13.071 1981 property additions. Under current rate-making practice.
Constructicn overheads 3.200 2.429 1,654 these taxes wdl be recovered through future revenues Accelerated depreciation 2,948 1.422 1.239 cancened Seabrook Umt 2 (2.421) 36.386 The 1975 Tax Reduction Act and succeedmg amendments Daferred fossil fuel costs (1.888) 1.621 1.383 provide that up to 85% for 1983,1984 and 1985 of federal Nnsion costs (1.612) income taxes currently payable may be offset by mvestment CanceHed Pilgnm nuclear project (1.528) (2 927)
(917) tax credits The total credits utilized in 1983 amounted to Accelerated amortization (56)
(57)
(57)
$13.275. During 1984, no credits were utibzed due to the re-Accrued utthty revenues (235) cording of the tax effects of the wnte-off of the Company's Other - net (296) 70 (28) investment in Seabrook Unit 2. Investment tax credits utdized Total deferred 44.489 44.560 29 201 in 1981 that were ehminated by the net operatmg loss carry-Total operattng income tax back wdl be available for utthzation in future years to the expense 62.047 44.371 37,746 extent they were not apphcable to Seabrook Unit 2. The total Other mcome and deductions -
crechts utthzed in 1985 amounted to $28,823.
current (5.737) (1.751)
(12)
The investment tax credits carried forward at December Totalincome tax expense
$56 310 $42.620 $37.734 31,1985 amounted to approximately $5.400, all of which ex-Accumulated deferred mcome taxes ptre in the year 2000 at Dacember 31:
All investment tax crechts utthzed to reduce federalincome Cancelled Seabrook Unit 2
$33.965 $36 386 $ _
taxes payable in the future will be deferred and amortized to Construction overheads 10.038 6.838 4.409 income ratably over the in-service hves of the related Accelerated depreciation 6 616 3.668 2.246 properties Daferred fossil fuel costs (2,166)
(278) (1.899)
CanceUnd Pilgnm nuclear project 277 1.805 4.732 Accelerated amortization 329 385 442
$49.059 $48 804 $ 9 930 35
Notes to Financial Statements continued (D) Compensating Bolonces and Short-Term (F) Pension Plan and Retirement Benefits Borrowings The Company has a pension plan covenng substantially all of On July 5,1984, the Company's bank hnes of credit were its employees The entue cost of the plan is bome by the replaced when the Company entered into a $66 million re-Company and is paid into an inevocable trust fund.
vokmg credit agreement with the same banks. 'Ihis agree-Pension costs for the years 1983.1984 and 1985 were ment, wiuch has been renewed for a term exputng on July 30
$4.989. $4.177, and $6.104 ($2,897. excludmg the cost of addi-1986, affords the banks the opportunity to dechne to relend tional retuement benefits provided under a voluntary early funds on any date when the Company wishes to make a retirement program (VERP), wtuch was in effect during early reborrowing. If a matenal adverse change in the Company's 1985). The decreases in 1984 and 1985, excluding VERP were financial condition has occurred. or if the banks are not satis-the net effect of an expenence gain caused by investment fled that funds available to the Company would permit it to earntngs being greater than assumed, a change in actuanal maet all of its obhgations and rematn financially viable assumptions a negotiated change in the pension formula and through 1987 As of December 31,1985, the Company had no changes in the covered population. The actual cash contnbu-short-term borrowings outstandmg tion for 1983 costs paid dunng 1984 was $3.756 which is the The Company has also entered into an agreement provid-same as the mmimum contnbution required under the ERISA ing for the sale of up to $40 milhon of its accounts receivable.
guidehnes and differed from the amount expensed in 1983 the availabthty of wtuch is subject to conditions similar to as a result of cash conservation measures taken by the those of the revolving credit agreement. As of December 31 Company.
1985, the Company had not sold any of its receivables under The pension habihty estabhshed as a result of the differ-this agreement. 'Ihe Company is curren*Jy negotiating to ex-ence between the rmrumum contnbution and the 1983 ex-tend the term of this agreement wtuch expues on February pense will be funded over 32 years The pension habihty es-28,1986.
tabbshed in connection with VERP will be funded over 30 Information with respect to short-term borrowings is as years follows:
Accum'ilated plan benefits and plan not assets at January 1 1985 1984 1983 Were:
1985 1984 IVaximum aggregate prmcipal amount of short-term borrowings Actuanal present value of accumulated plan outstandmg at any month-end
$45 000 $66 000 $44.500 benefits Average aggregate short term Vested benefits
$43.539 $40.858 borrowings outstandmg dunng Non-vested benefits 6 596 4.971 the year
- 39.841 45.814 17.805
$50.135 $45.829 Weighted average mterest rate
- 11.3 %
12 9 %
99%
Pnncipal amounts outstandmg at Net assets available for benefits
$84.291 $78 648 year-end comprised entirely of bank borrowmgs
$34.000 $31.000 The assumed weighted average rate of return used in de-Annualized interest rate on termining the actuarial present value of accumulated plan pnncipal amounts outstandmg benefits was 8 5% in 1984 and 8.75% in 1985 at year end 10 8 %
10 5 %
In addition to providmg pension benefits. the Company
- Average short term borrowmqs repasent the sum of daily borrowmgs provides certam health care and hfe insurance benefits for outstandmg weighted for the number of days outstandmg and omded by retued employees. Substantially all of the Company's employ-the number of days m the period The weighted average mterest rate is ees may Lecome ehgtble for these benefits if they reach nor-d ermi by dmdmq mterest expense by the amount of average mal retirernent age while working for the Company. These and similar benefits for active employees are provided through insurance companies whose premiums are based on (E) Supplementary Consolidated income the benefits paid dunng the year The Company recognizes Statement Information the cost of p:oviding those benefits by expensing the annual The amount of maintenance advertismg costs. and the provi-insurance premiums, which were $3.237, $3.353 and $3.929 sions for depreciation and amortization, other than set forth m for the years 1983.1984 and 1985. respectively. At December the Consohdated Statement of Iname, are not sigmficant.
31,1985 the Company was providmg these benefits for 1.497 and there are no royalties.
active employees and approximately 500 retuees or their Taxes, other than income taxes charged to costs and ex-beneficianes The cost of providing these benefits for retirees panr9s aresetforthbelow:
is not separable from the cost of providing benefits for active 1985 1984 1983 employees State gross eammgs
$25 226 $25.474 $22.489 tocai reat estate and personal (G) Jointly Owned Plant property 16.538 18.618 16.022 The Company's 93 7% ownership share of the New Haven Other, pnncipally payroll 3 935 3 671 3 138 Harbor Station generatmg unit represented $132 milhon of
$45 699 $47.763 $41649 utthty plant in service and $33 milhon of accumulated prove sion for depreciation at December 31,1985 The Company's Charged to Tax expense
$41.787 $44 365 $39.595 share of the operating costs is included in the appropriate Other accounts 3 912 3.398 2.054 expense captions in the Consohdated Statement of Income
$45 699 $47.763 $41.649 The Company also has ownership shares in two nuclear generating units under construction See Note (10 " Commit-monts and Contmgencies" 34
b (H) Unamortized Cancelled Nuclear Projects (J) Leases In 1981. Boston Edison Company cancelled plans for the con-In addition to the nuclear fuel lease desenbod in Note (1), the I
struction of its Pilgnm Unit 2, a proposed nuclear generatmg Company has entered into other lease arrangements for the unit in which the Company had a 3 3% ownership interest, use of data processing and office equipment, velucles, and due to escalating costs and contmuing regulatory uncertain-office space (some of wiuch are capitalleases) The gross ties In its August 1983 rate decision, the DPUC allowed re-amount of capitalleases and the related obhgations of those covery and amortization of the Company's $14 7 mdhon m-leases as of December 31,1985 are recorded on the Consoh-vestment in this umt over a twopar penod In its December dated Balance Sheet. R1ture minimum lease payments urxier l
1984 rate decision, the DPUC allowed recovery and amortiza-capitalleases are estimated to be.
tion of the remaming unamortized balance of $4 9 milhon 1986
$ 3,167 over a sixteen-month period 1987 3.079 For the reasons set forth in Note (K), " Commitments and 1988 2.543 Contingencies - Seabrook Unit 2", dunng 1984 the Com-1989 2,597 pany transfened its $104 mdhon investment m Seabrook Umt 1990 2.536 2 from construction work m progress to deferred debits and After 1990 7.672 began amortization of this investment in December 1984 as a Total minimum lease payments 21.594 result of the DPUC's December 1984 rate decision Less Amount representinginterest 11.457 Present value of net mintmum capitallease payments
$10.137 (I) Fuel Financing Obligations In June 1982, the Company entered into a sale and leaseback Capitahzation of leases has no impact on net mcome smco agreement which provides for financmg the costs of its own-the sum of the amortization of leased assets and the interest ership share in the nuclear fuel for Seabrook Unit 1 Under this on the lease obhgations equals the rental expense currently artangement, the Company sold its interest in existing fuel allowed for rate-making purposes for its book value of $27.9 milhon (mcluding allowance for Rental payments under both capital and operating leases funds used dunng construction) This agreement, as revised charged to operating expenses m 1983,1984 and 1985 in March 1983. provides for future purchases of nuclear fuel amounted to $5,337, $8,873 and $10.184, respectively.
by the lessor up to an aggregate of $60 mdhon. including the Operatmg leases, wtuch account for the hrgest part of origmal purchase The pnncipal amounts of the lease obhga-these rental payments. consist of a large number of small, tions at December 31,1983.1984 and 1985 were $30 4 mil-relatively short-term, renewable agreements for a wide vari hon, $319 mdhon and $35.7 mdhon, respectively, the corre-ety of equipment-sponding financing costs were $6 0 milhon $110 milhon and
$15 8 mdhon When Seabrook Umt 1 beams producing elec-(K) Commitments and Contingencies incity, the Company wdl commence paying rent for the fuel The Company has entered mto substantial commitments in based on the direct costs to the lessor of the fuel, plus the lessor's financing costs The balance of $515 mdhon at De-connection with its continuing construction program, wh ch cember 31,1985 is included as a capitahzed lease on the is presently estimated at approximately $275 mdhon, for 1986 Consohdated Balance Sheet.
through 1990. The major items m the construction program are $133 mdhon excluding nuclear fuel, for the cost to com-On August 1.1984, the Company amended its fuel reserve plete the Company's 17 5% ownerstup share in Seabrook Unit and supply agreement, pursuant to wtuch the Company fi-nances up to $100 mt! hon of its fossd fuel purchases, less the 1, wfuch is over 94% complete, arxi $8 mdhon, including nu-clear fuel, for the cost to complete the Company's 3 685%
amount of the Company's outstandmg obhgation under the above-desenbed nuclear fuelagreement The amendrrumt ownerstup share in Mdistone Urut 3, which is 98% complete.
arxi a subsequent amendment have extended the agreement These esumates include allowance for funds used dunng construction, amountmg to $71 mdhon and $5 mdhon, re-to May 31,1986 and afford the lender an opportunity to termi nate the agreement under condiuons simdar to those con-spectively. The Seabrook Umt 1 estimate is based on project tained in the revolving credit and sale of accounts recewable management's estimated total cost of $4 56 bilhon and a pro)-
ected in-service date of October 1986, although it now ap-agreements described at Note (D), "Comper. sating Balances pears that it will be difficult for the unit to achieve commer-and Short-Term Borrowings". At December 31,1985, approx-cial operation in October 1986, due to delays m completing tmately $27 mtthon of fuel od purchases were being financed under this agreement.
emergency response arxi evacuation plans If the hi-service On October 31,1984, the Company and its coal suppher date of the unit is delayed, each month of any such delay would increase the total cost of the unit by approximately $50 entered into a coal reserve and supply agreement whereby mdhon The construction cost estimate for Mdistone Unit 3 is the suppher maintains and finances up to 100,000 tons of the based on an estimated total cost of $3 825 bdhon and an ex-coal supply for Bndgeport Harbor Umt 3. which at current pected in-service date of May 1986.
prices amounts to approximately $10 mdhon The terms of ttus agreement have been extended to July 31,1986 Seabrook Unit 1 The economic viabihty of Seabrook Unit 1 was seriously leop-ardized in the Spring of 1984 by substantial tncreases in cost estimates arx! by the attendant financial problems of Pubhc Service Company of New Hampshire (PSNH) The efforts of the joint owners of the Seabrook project, since that time, to overcome these problems arxl complete the unit have in-cluded a transfer of managing agent royx>nsibthty, proceed-ings to transfer project management responsibdity to a new l
l l
l
Notes to Financia1 Statements cvntinumi entity, and the preparation and implementation of financing purposes, are pending before the Massachusetts Deputment plans to assure that each owner has sufficient funds available of Pubhc Uuhties, and approval by the NRC wdl be ratuued to defray all remaining construction expenditures The lotnt A financmg plan adopted by the Seabrook puticipants on owners' efforts have met with sigmficant success. and project May 14.1984 requual each puticipant to provide to the oth-developments. Includmg a resumption of full construction ers assurances acceptable to them that financing of such pu-and the continued attainment of construction mdestone ticipant's ownership share of Seabrook Unit l's cash con-events on or ahead of schedule and wittun project manage-struction experxhtures subsequent to July 1984 as great as ment's cost estimates. have improved the prospects that Sea-
$13 bdhon (amervied to $370 milhon as of Janu uy 1,1986) brook Umt I can be completed While the risk of cancellation was avadable. either trxlependently or truough a project fi-of the unit has been reduced by these events, both the occur-nancing entity Although these assurances were provided, rence and timmg of completion arxl operation of the unit con-subsequent developments prevented a resumption of full tinue to be dependent on accomphshment of necessary re-construction funding until October 1985, dunng which time maining steps which are largely beyorx1 the Company's several participants, as a result of lurisdictional regulatory de-control, such as continued construction and testing success cisions, agreed to sell their interests in the Seabrook prolect and the timely and successful completion of proceedings to to Eastem Utthties Associates (EUA), a Massachusetts pubhc obtain an operating heense. Includmg secunng governmental utthty holding compmy system, which cunently owns a 2 9%
approvals of an emergency evacuation plan Tunely receipt of share of the urut These sales are subject to the satisfaction of an operating hcense is requued m order to commence com-vanous conditions and to state and federal regulatory approv-mercial operation of a nuclear generating unit, and receipt of als These puticipants include Central Maine Power Com-the beense may be delayed or prevented by, among other pany (Central Maine). Bangor Hydro Electnc Compmy and things, the fadure of govemmental entities to develop re-Matne Pubhc Service Company (the Maine Participmts).
quued emergency response and evacuation plans Whde the Central Ver mont Pubbc Service Corporation (Central Ver-governmental entities in New Hampshue have prepared such mont) and Fitchburg Gas and Electnc Light Company plans and the State of New Hampshue has filed them with (Fitchburg) the Nuclear Regulatory Commission (NRC) for approval. some On May 31,1985, the Maine Pubhc Utihties Commission of the governmental entities m Massachusetts re.;ponsible for (MPUC) approved a stipulation with respect to the rate treat-the development of such plans have not completed then ment of Central Maine's existmg and future investment in plans Consequently the Company is unable to predict Seabrook Urut 1, and the MPUC subsequently issued an order whether opposition by some entities to the development or permitttng Central Maine to continue to participate in the adequacy of these plans or to the granting of an operating construction of the unit and defernng any further action in a hcense for the unit will delay the commercial operation of the pending involuntary disengagement proceeding with respect unit, although it now appears that it wdl be difficult for the to the other Maine Participants on the understarxhng that unit to achieve commercial operation in October 1986, due to they would agree to similar stipulations with respect to the delays in completing emergency response and evacuation rate treatment of their existing and future investment in Umt plans Assuming that commerctal operation of Seabrook 1 To date Bangor Hydro-Electric Company has agreed to a Unit 1 is actueved. the Company's future financial condition similar stipulation, which awaits MPUC approval Apphca-wdl be heavily influenced by the ratemaking treatment of its tions by the Maine Participants for approval of their proposed tnvectment in the urut. Accordingly, the Company wdl at-salos to EUA are also pending before the MPUC.
tempt to obtam a decision on the ratemakmg treatment on or In Massachusetts. the Department of Pubbc Utihties has about the urut's projected commercial operation date Due to approved an agreement which would effectively terminate Connecticut legislation, dest:nbed in further detad below, Fitchburg's mvolvement in the Seabrook project. As a result which has estabbshed a " cap" on recoverable costs of Sea-of this agreement. Fitchburg has agreed m pnnciple to sell its brook Unit 1 and wtuch will requue the Company to phase-in ownerstup interest to EUA The agreement is submet to exe-the unit's costs, and due to a DPUC-mandated prudence au-cution of a definitive agreement and receipt of all required dit, the Company is unable to predict that future revenues regulatory approvals Fitchburg has faded to make required wdl be sufficient to permit recovery of its full investment in construction payments since May 15,1985, and the Company the unit If the Company does not expect to recover its full and several other participants. m addition to truttating an ar-investment, the Company wdl be required to wnte down the bitration procemhng against Fitchburg. are makmg up the l
value of its investment by recordmg a loss against current difference m the construction funding, temporartly, by mak-income A matenal wntedown could have a serious adverse ing advance payments against future construction and other effect on the Company's future financial condition Addition-costs ally, if the necessary remaining steps to actueve commercial In Vermont, the Pubhc Service Board (PSB), on December operation are not successful and cancellation of the umt were 4,1985, entered an order denytng Central Vermont's petition to occur. It would have senous adverse effects on the Com-for a declaratory ruhng that its proposed sale to EUA would be pany that would jeopardize the Company's financial viabdity accorded favorable rate treatment. Central Vermont has not and bustness operations.
announced whether this PSB order wdl prevent consumma-Regulatory proceechngs with respect to the transfer of re-tion of the proposed sale Another Vermont participant, Ver-spanstbdity for management of construction and for operation mont Electric Generation and 'Dansmission Cooperative, Inc.
of Seabrook Unit 1 to New Hampshire Yankee Electric Corpo-which holds a 0 4% ownership share, failed to make required ration. an entity which has been created for these express construction cost payments in June. September. October and December of 1985, but subsequently remedied these dehn-quencies Ttus participant is currently dehnquent, Ivvmg faded to make a payment due on January 30,1986 However, UI expects that any deficiency in prolect construction furximg on account of this and any subsequent dehnquencies wdl be made up by other particip nts I
l l
38
On Apul 18,1985, the New Hampshire Pubhc Utihties Commission regulations and costs due to unforeseeable ami Commission (TVHPUC) approved the terms at:d conditions of unavoidable labor stoppages. On September 27.1984. the PSNH's proposed long-term financing to fund its share of the DPUC issued an order hmiting the costs of Seabrook Umt 1 expenditures to complete Seabrook Unit 1. However. the that may be recovered through rates by the Company to its NHPUC order provided that PSNH could not consummate the share of costs not in excess of $4 7 bilhon (which figure m-proposed financing or make requued payments for Seabrook cludes $200 milhon of indueet construction costs previously Unit 1 construction at a level exceeding its ownership share allocated to Seabrook Umt 2), subject to increase only for the of $5 mt! bon per week until all the umt's jomt owners had reasons noted m the precedmg sentence On December 11, received regulatory authonzation to finance their respective 1984, the Company filed an appeal with the Supenor Court of ownership shares and/or there was reasonable assurance that the State of Connecticut challenging both the DPUC's order each owner would finance its share to fulfill contractual com-and the constitutionahty of the 1984 legislation In 1985, the mitments to pay on a timely basis its share of Seabrook Unit 1 Connecticut legislature amended the 1984 legislauon to em-construction costs On September 13.1985, the NHPUC is-lxxiy the terms of the DPUC order. and the Company expects sual an order removing the restnctions imposed by its Aprd to challenge the constitutionahty of this amendment. In 1985, 18.1985 order PSNH then filed a motion with the New the Connecticut legislature also enacted a statute which pro-Hampshue Supreme Court for modification of a stay imposed vides that if the DPUC determines that a regulatory or court by order of that Court on August 13.1985, preventing imple-dectston in another state may substantially affect the con-mentation of any such NHPUC order without Court approval struction costs or the completion date of Seabrook Umt 1, the On September 18.1985, the Court approved the portion of the DPUC must requue that any construction costs of the unit NHPUC order allowing PSNH to make payments at a level incurred by the Company after the date of the DPUC's deter-exceedmg PSNH's ownership share of $5 milhon per week.
mination not be recovered through rates. unless the unit is effective for the penod September 1.1985 through December subsequently completed and becomes used and useful. Fol-31,1985 However. since the Supreme Court did not afSrm lowing heanngs held on October 7,1985 and November 6, the NHPUC's Apnl 18,1985 decision and remove all fundmg 1985, the DPUC determmed that neither the construction restuctions untd January 31.1986. construction funding dur-costs nor the completion date of Umt I had been substantially ing January 1986 was reduced to the level of $5 mdhon per affected by a 1985 Massachusetts Supreme Judicial Court week although full construction was mamtained through the decision which prevented the Massachusetts Mumcipal use of collected but undisbursed funds which had been accu-Wholesale Electnc Company (MMWEC) from issuing long-mulated On January 27,1986. PSNH issued and sold $70 term debt to pay for Seabrook construction costs and resulted milhon of short-term debt to meet its current obhgations, tn-m MMWEC's issuance of more expensive short-term debt.
ciudmg its share of Seabrook fundmg. until it can consum-The Connecticut Division of Consumer Counsel has filed an mate its approved long-term financing wruch is expected to appeal with the Connecticut Supenor Court challengmg this be completed in February 1986 DPUC determination Commencmg in Aptd 1985, the Connecticut DPUC has pe-Legislation adopted by Connecticut in 1985 requires that nodically conducted reopened pubhc hearmgs m the pro-large electnc generating facdities be phased-in to a utihty's ceedmgs m which it found m November and December rates by the DPUC in approximately equal installments over a 1984. that Seabrook Unit I will become used and useful for penod of not less than 3 years nor more than 10 years from pubhc service and is economically viable The DPUC has not the in service date of the facihty if the inclusion of all costs reversed its 1984 findings as a result of any of these heanngs would increase the utthty's revenue requirements by more On September 12,1985, the DPUC combmed one such hear-than 10%. This legislation wdl be apphcable to the Compa-ing with a heanng on petitions by the Connecticut Division of ny's Seabrook Urut 1 costs when it is placed in service; but Consumer Counsel for a declaratory ruhng that the Compa-the Company does not anticipate that the legislation wdl ap-ny's advance payments to maintain Seabrook Unit 1 con-ply to its Millstone Unit 3 costs. In any event, the DPUC wdl struction fundmg at a level equal to that which would be also consider whether all of the costs of Seabrook Urut 1 and avadable if Fitchburg were not dehnquent in its required con-Mdistone Unit 3 have been prudently incurred and only those struction cost payrnents violate an existing DPUC order re-costs prudently incurred will be mcluded in the Company's quinng pnor DPUC approval of any expenditure by the Corn-rates Other 1985 Connecticut legislation will require the pany to finance another participant's ownership interest, and DPUC to determine the appropriate level of generating re-to fine the Company for tius alleged violation On December serve capacity for a utdity prosecuting a rate proceeding and 10.1985, the DPUC found that these advance payments did to exclude from the utthty's rates the costs associated with not violate the existmg DPUC order and therefore no fine any excess capacity would be imposed on the Company.
Under current accountmg rules, any portion of the Compa-legislation adopted by Connecticut in 1984 directed the ny's investment m Seabrook Urut 1 which cannot be re-DPUC to estabhsh a hmit on the costs of Seabrook Unit 1 that covered through rates need not be immediately wntten off may be recovered through rates, which hmit will be subject agamst current income, but may be amortized over the life of to escalation ordy for labor and matenal cost increases due to the unit so long as future revenues attnbutable to the unit are inflation exceeding 10% per year, increases in the Company's expe<:ted to be sufficient to permit recovery of f he full invest-weighted average allowance for funds used dunng construc-ment in the urut. As stated above, the Company cannot pre-tion rate after December 31,1983 above 10%% per year, cost dict that future revenues will be sufficient to permit recovery increases directly attnbutable to new Nuclear Regulatory of the fullinvestment in the unit Moreover, the Fmancial Accounting Standards Board is proposmg to revise the cut-rent rules Such revisions could require a matenal reduction m the valuation of the Company's investment in Seabrook 39
Motes to FmancialStatements contmued Unit 1 and the recogrution of a loss agamst current income hmitmg, with certain exceptions, the cost of this generating equal to the amount of investment disallowed for ratemaking unit that may be recovered through rates to $3 54 bilhon The purposes.
Company's recovery of its investment in Millstone Urut 3 is The Fmancial Accountmg Standards Board is also propos-subject to this hmitation, although the Company expects that ing to revise the current accounting rules with regard to the the constitutionahty of the legislation will be challenged The phase-m of the costs of a newly completed operating unit into Company cannot predict the amount, if any, of its investment rates. Such revision, which would relate to the phase-in of which will not be recoverable through rates, but it does not the Company's investment in Seabrook Unit 1, would require beheve that any reduction in the valuation of its investment that all current operating costs, includmg an equity retum, in the unit which might result from non recovery would have which are deferred under a phase-m plan be scheduled for a material adverse effect on its financial condition The unit is recovery withm 10 years from the date the deferrals began If expected to be in service in May 1986 the phase-in plan approved by the DPUC does not provide for Other recovery of all deferred cuitent operatmg costs withm 10 On November 6,1984, the DPUC tssued a decision finding years and/or disallows a retum on a portion of the deferred that Seabrook Urut I contmued to be economically viable and amounts, then the Company's investment would have to be w uld become used and useful for pubhc service. In its De-reduced by that amount, with a correspondmg loss bemg c mber 1984 decision granting the Company rate rehef, the recognized against current income DPUC allowed a total of $183 milhon of CWIP associated with Seabrook Unit 2 Seabrook Umt 1 to be included in rate base On January 2.
All construction on Seabrook Umt 2 has been suspended Al-1985, the Connecticut Division of Consumer Counsel ap-though the Seabrook Joint Ownership Agreement provides pealed to the Supenor Court of Connecticut from the DPUC's that a cancellation of Umt 2 can be effected only by a vote of November and December decisions, allegmg that they were 80% or more of the ownerstup shares in the project, partici-arbitrary, capricious, erroneous and unlawful Pendmg dispo-pants holding ownership shares aggregatmg 59% have voted sition of the appeal, funds collected pursuant to the DPUC's to cancel the umt and the Seabrook Jomt Ownership Agree-rate rehef decision are subject to refund, upon appropnate ment has been amended to provide t'at construction of the court order, and/or to reallocation in such manner as die unit wtil not resume without the approval of participants DPUC may lawfully determine on any remand from the court.
holding ownerstup shares aggregatmg at least 51% Conse-On November 22,1985, the DPUC approved the issuance quently, the Company beheves that Umt 2 will not be com-and sale by Bndgeport Electric Company, a wholly-owned pleted under the existing Jomt Ownership Agreement In its subsidiary of the Company, of approximately $100 milhon December 1984 rate decision, the DPUC allowed recovery principal amount of 18% mortgage bonds. The sale of the and amortization of, but no retum on, the Company's $104 bonds was consummated and the Company received the pro-milhon investment in Seabrook Umt 2 over a ten-year penod ceeds on the same date. On November 25,1985, the Division However, the DPUC has reserved the right to adjust the am-of Consumer Counsel appealed to the Superior Court of Con-ortizattori amount m the future to reflect several vanables, necticut from the DPUC's decision, alleging that the DPUC including cash flow needs, additional costs, salvage value did not comply with statutory procedures m reaching its de-and a prudence evaluation. 'Ihe Company does not beheve cirion and that said decision violated the DPUC's regulations that any adjustment which might result from a prudence and its previous decisions. However, under Connecticut law evaluation would have a matenal effect on the Company's ttm additional bonds are vahd and binding obhgations ine-financial condition The Company is still obbgated to meet spective of the disposition of tlus appeal.
contractual obhgations to pay its share of costs to preserve An action, denominated as a class action on behalf of per-ar:d protect the unit in its present state.
sons who purchased shares of the Company's Common Stock The Financial Accounting Standards Board is proposing to in a pubhc offenng of 750,000 shares of such stock in Novem-revise the accounting rules pertaining to cancelled plants ber 1983 and suffered losses, was brought on June 15,1934 where no return on investment is allowed. Such revisions in the Uruted States District Court for the Distnct of Connecti-could require a material reduction in the valuation of the cut, by Judith Newman agamst the Company and Morgan Company's investment in Seabrook Umt 2 and the recogni-Stanley & Co Incorporated, in its own capacity and as a class tion of a loss agamst current income if the carrying amount of representative of all of the underwnters which participated in the investment exceeds the present value of probable future the pubhc offenng, based on allegations that the prospectus revenues resultmg from the recovery of this investment.
employed in the pubhc offering was matenally falso and mis-leading in not fairly and accurately desenbing the nsk that Millstone Unit 3 the Company would not be able to recover its itwestment in Northeast Utthties, wruch has responsibthty for the construc-Seabrook Units 1 and 2, and seeking damages in an unspece tion and scheduhng of Millstone Unit 3, in which the Com~
fled amount.
pany has a 3 685% ownerstup interest, has raised its estimate A class action on behalf of persons who purchased shares of the cost of that generating umt by $285 milhon to $3 825 of the Company's stock during the period January 30,1984 bilhon The Connecticut legislature has enacted legislation through Apnl 18,1984 has been brought against the Com-pany and each of its Directors, based on allegations that the Company's 1983 annual report to its shareholders contained misstatements regardmg the impact of the problems associ-ated with the Seabrook project on the future eamings and abthty of the Company to pay dividends, that the increase m the Company's Common Stock dividend declared by the 40
Company's Duectors on February 27,1984 was made to con Common Stock Data ceal these problems, that the Company s Current Report on UI s Common Stock is traded on the New York Stock Ex-Form 8-K, dated Apnl 17,1984 and filed with the Secunties change, where the high and low sale puces dunng 1985 and and Exchange Commission. Incorrectly stated that the Sea-1984 were as follows.
brook problem described therem would not "in and of itself" 1985 Sale Pnce 1984 Sale Pnce affect the Company's abihty to pay dividends, and that the Chauman of the Board of Duectors misinformed the share-lhgh low lhgh low holders present at the annual meetmg on April 18.1984 as t,3 First Quarter 17h 13h 23 4 20 Secorxl Quarter 19 15 21 %
12 the status of the Company's quarterly dividend, and seekmg Thud Quarter 22 %
18 %
14 %
9 damages in an unspecified amount.
unh Quaner 2M 21h 15 6 12 4 The Company does not beheve that resolution of either of these actions will have a matenal adverse effect on the Com-UI has pud quarterly dividends on its Common Stock since pany's financial condition.
1900 The first quarterly dividend declared m 1984 was at a Connecticut Yankee Atomic Ebwer Company (Connecticut rate of 80 cents per share. with the remaming quarterly divi-Yankee). in which the Company has a 9 5% common stock dends declared in 1984 and the first tluee quarterly dividends ownership share. owns and operates a nuclear electnc gener-declared in 1985 at a rate of 50 cents per share The fourth ating station in Haddam Neck, Connecticut. The Company is quarterly dividend declared in 1985 was at a rate of 58 cents obbgated to furmsh 9 5% of Connecticut Yankee's capital re-per share quuements, within specified hmits. Connecticut Yankee has The hust Indenture urxler which all of the Comptny's De-engaged m a construction program which is essential to bentures are issued places hmitations on the payment of cash maintain its station as a dependable source of low-cost eke dividerxis on the Common Stock of the Company and on the tric power in New England As a condition of the debt finan.
amounts that can be expended to purchase or redeem shares cing arrangements for this colatruction program, the lenders of Common Stock Under the most restuctive provision of the have requuod guaran'ees from the shareowners of Connecti-Dust Indenture, retained eammgs m the amount of approx.1-cut Yankee. Accordingly. the Company has guaranteixi pay-mately $197 milhon were free from such limitations at De-nmnt of its share of a $25 milhon bank Credit Agreement cember 31,1985 facihty and a $40 milhon long-term debt issue of Connect 2 cut As of amuary 31.1986. there were 35.027 Common Stock Yankee shareownersof record.
(L) Quarterly Financial Data (Unaudited)
Selected quarterly financial data for 1985 and 1984 are set Report of Independent Certified Public Accountants forth below To the Shareowners and Duectors of Earnings The Umted Illuminating Company:
PerShare Operating Operating Net of Common We have examined the conschdated balance sheets of The Quarter Revenues income income Stock (1)
United Illuminatmg Company (the Compmy) as of December 1985 31,1985,1984 and 1983, and the related consohdated state-First
$135.188 $24 076
$27,095
$162 monts of income. retained earntngs and sources of funds for Second 121.080 18 589 21.970 1 24 gross property additions for the years then ended Our exami-Third 129.776 21.962 26.202 1 55 nations were made in accordance with generally accepted Fourth 128.892 20 002 24 338 1 40 auditmg starxiards and, accordingly. included such tests of 1984 the accounting records and such other auditing procedures First
$129 815 $18.429
$25,020
$165 as we considered necessary in the cucumstances e Compmy is a 17.5% participant in the Seabrook Umt 1 1 5 19 7 4
Fourth 124 303 13.708 23 887 1 40 nucimt project (the Unit) As more fully descnixxiin Note (K) in the " Notes to Consohdated Financial Statements" there (1) Based on weighted average number of shares outstandmg dur~
ing each quarter are uncertamties relating to those events necessary for the Unit to actueve commercial operation and to the extent of the Earrungs for the thud and fourth quarters of 1985 were recovery, in rates, of the Company's mvestment in the Unit.
adversely impacted by the effect of costs associated with The outcome of these uncertainties could have a material Hurncane Gloria. which amounted to approximately 18 cents effect on the financial position and results of operations of the and 7 cents per share, respectively Company, and it is uncertain whether such matenal effects Eamings for 1984 included the effect of December adjust-would permit the reahzation of assets and hquidation of habil-mants in the non-cash items of depreciation expense and ittes in the ordmary course of business operations allowance for furxis used dunng construction. which in-In our optnion, sub}ect to the effects on the 1985 and 1984 creased eamings approximately 40 cents per share, of which consohdated financial statements of such adjustments, if any, 22 cents per share represented non-recurnng items, m order as might have txxm requinxi had the outcome of the uncer-to conform the Company's books with accountmg treatment tainties described m the precedmg paragraph been known, used by the DPUC in its December 1984 rate decision the consohdated financial statements referred to above pres-ent fairly the financial position of The Umted Illummatmg Compmy as of December 31,1985.1984 and 1983 and the results of its operations and sources of furvis for gross prop-erty additions for the years then ended in conformity with generally accepted accounting pnnciples apphed on a con-sistent basis.
Coopers & Lybrand New York. New York itnuary 27,1966 41
SUPPLEMENTARY INFORMATION/ INFLATION Unaudited Introduction prices of plant investment held (sometimes called holdmg The followmg information is fumished as a supplement to the gains) or the related gams on debt used to finance investment tustoncal cost basis financial statements in order to convey in plant assets the effects of certain pnce changes on selected balance sheet The adjustment of inflation-adjusted plant investment to and income statement itemn This information has been com-net recoverable. or histoncal cost has been mcluded m the pded in accordance with a requirement of the Financial Ac-1985 data m view of the FASB's opunon that it may not be counting Standards Board (FASB) that companies disclose appropnate for compames hmited to recovery of the histoncal certain effects of inflation on their operz.tions The data cost of then plant mvestment through the regulatory process should be viewed as an estunate. rather than as a precise to state then assets at other than the recoverable amounts.
measure, of the approximate effect of pnce changes on Ttus adjustment should not be allowed to obscure the fact money invested in plant over many years and on money bor-that inflation in puces affects vutually all of the Company's rowed to provide a substantial portius of the funds invested operations While it is trt.a that future cash flows relative to in plant the Company's plant mvestment wdl be based upon recovery Current cost amounts reflect the changes in specific prices of historical cost plus a specified rate of return. it is equally of plant from the date the plant was acqtitred to the present, true that the Company has the same problem as non-regu-as measured by the Handy-Whitman :ndex of Pubhc Utdity lated busmesses in maintainmg its operating capabdity arxi Construction Costs.
avoidmg erosion of capital R1rthermore, the Company and Plant investment as referred to in the accompanying data other utdities must compete in the same capital markets as meludes utdity plant in service, net of accumulated provision non-regulated busmesses and returns must be sufficient to for depreciation. and construction work m progress The cut-raise the capital regiated The adjustment should be viewed rent cost provision for depreciation was determined by apply-in recognition of these facts ing the Company s histoncal cost-basis depreciation rates to the indexed plant amounts Fuel. matenals and supphes tnt +ntones and related ex-pense categones have not been r : stated from histcncal amounts because, due to rapid ttJnover especially of fuel Selected Supplementary Financial Data mventory, these items are alread / stated at or near current Adjusted for the Effects of Inflation (Average 1985 dollars m tlwusands except por share amounts) cost The depreciation adjustments to 1985 reported net income Cunent and the similar adjustments used m calculatmg specific pnce For the Year 1985:
Cost level adjusted income apphcable to common stock for 1981
&t income as reponed m the conschdatM truough 1984. represent the additional cost of providing suffi.
cient funds to replace. at the assumed pnce levels, the serv Ac t
t to 1 e ation expense basat on ice potential of plant used up dunng those years plant investment recalculated to recognize the As presenbed by the FASB. income tax expense is unad euects of mnation in specine puces 28 067 justed for the effects of inflation Wt income. as adjusted 71.538 Dividends on prefened and peterence stock 20 339 Discussion Inc me gh t c mm n st ck as adjustenf
$L1 199 The current cost method used to measure inflation is based on the Handy Wrutman Index. which depicts the trend in Purchasmg power gain (loss) on rrt monetary pubhc utihty construction costs The Consumers Puce Index habihties has been used to measure purchasing power gains on net ung tenn debt
$22 633 Other. pnncipa'Jy net cunent habihties (2 443) monetary habthties and to convert histoncal and current cost data to a common basis for companson purposes Total
$20190 The purchasmg power gain on net monetary habdities Effect of innation on plant mvestnwnt held dunnq shown in the accompanymg data theoretically represents the the year as measured by changes m extent to which equity investors were hedged agamst the Specinc pnces
$28.798 risk of mflation m plant investment and other costs. primanly General pnce level 64 106 because a substantial portion of plant costs was financed by Innation m specthe pnces of plant long term debt The Company cautions that such gams are investmont under gerwral pnce level unreahzed arxi therefore do not contrtbute to cash flow or innation
($35 30m distributable income Because depreciation on plant is hm Ad ustment of mnation adjusted p; ant investment i
ited to the recovery of histoncal costs, the Company does not to net recoverable (histoncal) cost
($14780) have an opportumty to reahze either the mcrease in specific At December 31.1985. the curront cost of plant investment was
$1.813 983 as compared to histoncal cost of $1.2rA848 C2
Selected Supplementary Financial Data Adjusted for the Effects of inflation (Average 1985 dollars m thousands except per share amount.s)
Five Year Summary 1905 1984 1983 1982 1981 Operating revenues
$ 514.936 $ 527.648 $ 485.444 $ 486.733
$ 533.476 Historical cost information adlusted for inflation m specific prices (current cost information)
Income applicable to common stock
$ 51,199
$ 43.199 $ 41.250 $ 27.811
$ 12.481 Earnings per share of common stock
$3 76
$3 27
$3 52
$2 89
$1.42 Inflation m specific prices of plant investment over (under) general pnce level inflation
$ (35.308) $ (13 542) $
7.917 521 $ (24.751)
Common stock equity at year end (a)
$1.046.003
$1.028.564
$1.030.212 $ 934 836 $ 877.629 Generalinformation Purchasing power gain (loss) on net monetary liabihties kng term debt
$ 22.633
$ 18.359
$ 16.256 $ 13.603 $ 30.339 Other. pnncipauy net current habihties (2.443)
(1.088) 2.284 1.195 2.272 Total
$ 20.190
$ 17.271
$ 18.540 $ 14 798 $ 32.611 Dividends declared per share of common stock
$2 08
$2 38 [
$3 33
$3 25
$3 28 Market pr:ce per common share at year end
$26 57
$14 04
$2190
$2810
$2160 Average Consumer Pnce index (1967 = 100) 322 2 311 1 298 4 289 1 272 4 (a) Year end data stated in average 1985 douars 1985 1984 1983 1982 1981 Common stock equity at net recoverable (histonca0 cost
$ $01.654 $ 463 559 $ 432.637 $ 352.421
$ 300.207 Net assets Current cost
$1.209.367
$1.201.152
$1.173 249 $1.083.643
$1.032.200 Net recove able (histoncal) cost
$ 655.017 $ 636,147 $ 575 673 $ 501.231 $ 454.778 United Illuminating is an operating electnc utihty serving an Dividend Reinvestment Plan area of about 335 square miles in the southwestern part of Common Stock shareowners of record interested in obtaining Connecticut The Company's servier area (about 7% of the information regardmg the benefits of participating in UI's div-state) includes the pnncipal cities of Budgeport and New Ha-idend reinvestment plan may wnte or call either:
ven and their surroundmg areas The population of this area is approximately 711.000 or 22% of the population of the state The Connecticut Bank & ' Dust Company PO Box 2699 General Counsel Hartford. CT 06101 Wiggin & Dana C 1-800-842-7316 Out of state 1-800-243-1576 Independent Certified Public Accountants Kathryn A. Krause Coopers & Lybrand Investor Relations Manager United Illuminating Stock Transferand Dividend Disbursing Agent, PO Box 1564 Registrar and Dividend Reinvestment Plan Agent Nev ".ven, CT 06506 The Connecticut Bank & 'hust Company. Hartford.
203 9 /1 6010 Connecticut AnnualMeeting Date:
Stock Listing The Company's Annual Meeting will be held in the audito-New York Stock Exchange num of the Westem Service Center. 801 Bndgeport Avenue.
Shelton. CT on Wednesday. April 23.1986 beginning at Common Stock 10 00 a m 8 80% Prefened Stock 1976 Senes 16% Preferred Stock,1981 Senes 19% Depositary Preferred Stock.1984 Senes 15 88% Preference Stock 43
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GIRECTORF 1
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A John D. Fassett Angus N. Gordon Jr.
George W. Edwards Jr.
D. Allan Bromley Chairman of the Board.
Former Chatrman of the President arxiChief Ewcutive Henry Ford IlItofessor and l
Uruted ulummatmg Board Umtedilluminating Officer Umtal Dluminating Daector. A W Wnght Nuclear Structure i
L2doratory Yale University I
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Norwick R. Goodspeed Robert D. Russo, M.D.
Leland W. Miles Geraldine W. Johnson l
Ch.urman of the Ehud Chauman. D"partment of liesident. University of Former Supenntendent of
,1 People s S, wings Bank -
Paliokyy. St Vincent s Bndqeport Schools. City of Bndgeport Bndgoport Me<hcal Center 1
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i J. Robert Gunther Frank Kenna President. Geor';e Schmitt Presvient. Marhn Fuearms i
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United Bulk nate IlluIninating U S. Postage Paid Permit No. 20 New Haven, CT 80 Temple Street New Haven, Connecticut 06506 180 Fairfield Avenue Bridgeport, Connecticut 06604
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