ML20209G050
| ML20209G050 | |
| Person / Time | |
|---|---|
| Site: | Seabrook, Vermont Yankee, Haddam Neck, Yankee Rowe, Maine Yankee, 05000000 |
| Issue date: | 12/31/1984 |
| From: | Jeffery Griffin, Keyser F CENTRAL VERMONT PUBLIC SERVICE CORP. |
| To: | |
| Shared Package | |
| ML20133L294 | List: |
| References | |
| NUDOCS 8508120599 | |
| Download: ML20209G050 (40) | |
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PROFILE CentralVermont Public Senice Corporation, the largest electric utility in Vermont, serves 55 percent of the Ver-mont population from a general office in Rutland and from 13 district offices. We have 111,600 customers in Vermont.
Our subsidiary Connecticut Valley Electric Company Inc., serves 9,100 western New Hampshire customers.
Diversity marks the economy of our senice territory and the source of our revenue. Manufacturing, tourism, agriculture, education, forest and min-eral products occupy our customers.
Nearly equal thirds of our revenue come from residential, industrial / commercial, wholesale and other customers. We derive our electncity from diverse sources as well: nuclear, coal, domestic and Canadian hydro, oil and the idternative energy projccts ofindependent power producers.
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Please write Olga G. I;drd, (orixirate 4
secretary, for inforination about Central Vermont l'ublic Senice Corix> ration,77 G rove Street, lhitland, Vermont OrJ01.
Telephone (802) 773 3711. l'pon request, Mrs.1;drd will send share-holders a copy of the Form 10 K Annual N.'v L an.ue,.. irs.. Iteport to the Securities and Exchange ow rwai serweiet,% Conunission.
CONTENTS 1 i
IIITEll11)SilAllEll0ll) Ells 2 POWEllSUPPl.Y:Ihl)lt0 Fit 0M QUEllEC; DIVEllSilY AT HOME 4 CUh7)MEllllEIATIONS 10 ILEGUlA11)ltYALT\TIY EAllNINGS, Ilf*IUllN 11) INVESIT)ltS 13 IlEVENUES AND SALES EXPFNSES 14 CONhmtCC110NllEQUlflEMEN15 l'INANCING llEQUlitEMEN15 15 llNANCIAl STATEMENTS 16 lilh?)ltlCAI,h7AT15mCS 32 OFFICEltS 31 DiltEcit)ltS 35 SijAltEl10!J)EllINF0llMATION 36 ANNUAL,MELTNG; INSIDE COMPANYINroitMA110N llACK COVEll lilGilllGirlB 1984 1983 % Chango Financial (dollars r1 thousands)
Revenues $155.637 $144,009 + 8.1 Netincomo $ 21,707 $ 18254 +189 Not Incomo for Common Stock $ 19,640 $ 13,009 +22 7 Constructon Dpenditures $ 34,440 $ 36,871 - 66 Net Utility Plant $248,904 $220.040 +13.1 TotalCaptateaton $266203 $254,938 + 44 Averago Number of Shares of Common Stock Outstand.ng 6,164.662 5.443.318 +13 3 Ocbt/ Percent of TotalCaptaleaton 44 0% 455% - 33 Return on Averago Common Equity 162% 16.1% +6 Per Shere of Common Stock Notincomo $ 319 $ 294 + 85
,:venjs Pad' $ 183 $ 112 + 64 Book Vatuo(Year End) $2000 $1892 + 62 went Amannenmait x
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Operseng Retait Doctre Sales (P/MI) 1,934,63/ l.851,413 + 45 System Peak Demam1(KW) 410.344 388.300 + 51 System Load fa: tor 63 5 % 64 1 % - 0 Degroo Days (RutLnt Vermont) 1.341 1,619 -36 Cusformrs 120,339 117,131 + 22 EmpkyNs 588 585 + .5
2 IEITER'ID SHAREHOLDERS ,
1 Nineteen eighty-four was the fourth straight year your company earnal the l return on common stock equity (16 percent) allowed by the Vermont Public Senice i Board. it is our pleasure to report to you again on our increasingly outstanding owr-all performances. If this sounds likea broken record it is precisely because we have been breaking one record after anotNr.
In 1984 we again raisal earnings and disidends. It was the 10th consecutiv?
year of higher disidend checks.
m g m gg in sklition to athlesing records for you, our sharehoklers, we n!so raised our o ,g,s., esteem in the eyes of our customers, by not increasing our Vermont retail rates.
When we sunr>ul our customers at mid year, we found they had giwn us a favor.
ability rating higher than the average of New England and US utilides.
, POWER SUl%Y. We male sewral moves to improve the efficiency and
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'han half of our operating expenses. We h sice president resp)nsible for day to day power purchases, which make up more t
, describe our p)wer supply situation,which is p>sitive Indet The availability to our g/ / - 3g' system of C,ualian hydroelectricity in 1985 and in years to come, the dnvlopment of our own In state hydro and independent power projects, as well as the continuing
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y c excellent p rformance of our reglonal nuclear plants all are contributing to our abil-ity to burn lesser quantities of expensiw Middle East oit
, l We stayni right on top of the Seabrook situadon. Your president sents on the
(, 3 executive committee of New Hampshire Yankee, the entity working to bring the
{ nuclear plant on line. In spite of our small share in Seabrook (1.6 percent),we hme y0 -
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taken a lealership role during the difficult years of construtdon. In Ihrember, the L y 1 t Vermont Public Senice ik>ard established April 15,1965, as the date sufficient fund-
[ .~ leg and required regulatory approvals must be racimi by all of thejoint owners to
[ permit commerchd operation of the plant by August 1987.The ik>ard set a hearing
(' date of April 16 that couki result in an onler lealing to our disengagement from our
" pardelpadon in Unit I lf all reluirn! full funding and approvals are not in place on
" " " "' D that date. Unit 2 is effectiwly canceks!.
CUS'lVMER REIATIONS Our customers are the lifeblood of our company.
Without them we are nothing, in 1984 we senu! more customers with more ekttric-lty than ever before and we kept their rates among the lowest in New Englarut Close attention to customer relations, with several on going and new pn> grams paid off for both company and customers. These incimini snrnd at tisides under the umbrella of TV & YOU, Partners in Energy Consenadon," now in its fourth year of customer gartichadon.
IMP!DYEE REIATIONS Increasal efficiency throughout the company was a significant factor in our condnuing success. It resulted in large part from closer attendon to concerns and nents of our dnlicatal employees. During the year we Institutal new training and communicadons programs designni to help nrry employni to perform to their utmost ability. These programs are condnuing in 1985 and our emp oyees condnue to respond wlth enthuskam.
REVENt'ES AND SAIJX Our Vermont economy expandnhigorously throughout 1984 and our senice territory tw condnunl expansion in sittually rdi segments of our business w hile unemployment In Vermont dipps! to its lowest Inti in 15 years,atout 5 p rcent.
REGl'IAIURY ALTi\TlY. In Ottol er we negodatal a settlement with the Vermont Ikpartment of Public Sonice for a 52 p reent, $589 million increase in
3 ratesto go into effect on January 1,1985. The settlement included an allowed rate of return on common equity of 16 percent for 1985, for a fifth straight year.
During the year we paid particular attention to rate levels of our New ilamp-shire subsidiary, Connecticut Valley Electric Company,Inc. Even though we increased rates there by 8.4 percent, we kept them among the lowest in New llampshire.
CONSTiti1 TION. We expended $34 million for construction during 1984, ab>ut $3 million less than the level of the presious year, and it reflected the slow-down of construction expenditures associata! with Seabrook. We expect our con.
struction program to peak in 1985 at $42 million.
OPEllATING EXPENSES. lower energy costs in 1984 compared to the pre-vious year contributed significandy to our success. Purchased power costs continue to Ic our biggest single expense but the percentage of our total operating expenses that power represents was down in 1984.
FINANCING. In 1984 we continued to arrange our financing in advance of our nmis, and maintained a highly liquid and flexible financial position. We entered 1984 with a short term Inwstment position of $8.7 million and during the year we sold $55 million of pollution control hands at 9 percent in January 1985 we sold
$15 million of first mortgage bonds at rates awraging 12.8 percent We raised an aMtional $3 million from our Disidend iteimtstment lian. In 1985 we plan to raise the required aMtional $25 million of external funds by selling both first mortgage binds and preferred stock. Financial performance and capital structure continue to be within the range of our long term objectiws.
Tile RTititE.Can the successes of the past he continued in the future? In each oI the in !!k% In! serval rnare custorners u'ith snare electricity than ever past years we have authned the challenges of the l4re arul n'e kept their rates among the lou'est in Neulnylatul.
future. We haw met these cha!!enges head on in those years and that's a big reason why we haw succmled. In 1985 we have our work cut out for us. Vermont Yankee will br out of .. . .z - .
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nn tion with Quebec in time for this outage so we can take advantage of replacement e i /^ l J lO I( .
power from liydro Queb'c. Starting in 1985, we must plan for recovery in our rates !, 'l.
mvr the next sewral years of our Inwstments in Scabrmk Units I and 2 and Mill. g 'f 'D ?' $ :p
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know we haw ben n;ual to the tasks. With your support and that of our b>ard of : 7
, " f 6 -., h i dinrtors and our employees we're confident we can offer you a 1985 rep >rt similar M- '
to this one and that we wil still sound hke a broken nwn!. [,. .
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Hydro-Quebec's La Grande 3 spillway at James Bay can WMe 351,941 cutac feet of water per sacond, which 2 -
is neady the average Sow of the St. Lawrerce River.
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POWER SUPPLY: HYDRO FROM QUEBEC; DIVERSITY AT HOME 5 After 10 years of steadily reducing our dependency on foreign oil, Central
""," Vermont and other members of the New England Power Pool are at the thresh-
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old of a breakthrough that promises to c" reduce oil generation in the next decade u to half of what it is now.
The good news comes to us from Quebec, from almost indescribably abundant hydro power at James Bay, 800 miles north of the Vermont border with Canada. In all, James Bay hydro produdon will be nearly 30,000 megawatts, about a third more than Quebec needs. Hydro-Quebec is the provincial govern-ment power company that operates the James Bay project It has spent more than $16 billion in the past 14 years to Abnost indescribably abu ndant hydro pmvr the largest build the largest energy project on the energy project on the North American continent!
North American continent. In an effort -
to gain a return on its investment, by the 1990s Hydro-Quebec will be supplying 10 percent of New Eng-land electricity needs. It will cost us 20 percent less than the com-bined average price of coal and oil-fired power.
New England's present power mix includes 6 percent conven-tional hydro-electric generation,13 percent coal,29 percent nuclear and 37 percent oil, plus a few miscellaneous purchases.
At Central Vermont, the present picture is brighter by compari-son with 22 percent hydro,21 percent coal,44 percent nuclear and only 11 percent oil, plus a variety of other sources. Our Ix>wer mix at CV is a big reason why we have kept our rates below those of most of the rest of New England even though our service territory is sparsely populated. Since the 1973 Arab oil embargo, we at CV have been steadily reducing our need for Middle East oil. Over the past 10 years oil has provided an average of about 10 percent of our requirements.
on Ten years from now we expect that percentage to shrink to make up cM,'*$',["fcj,*nT,,8',ycQ22 ,i ,,
less than one percent of our supply. It is only a portion of the largest energy project on the North Amencan continent.
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6 THE HIGHGATE CONNECTION Vermont Electric Power Co., Inc.,
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, a CV subsidiarywhich operates the 3 1 y 1 l transmission system for allVermont
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'-' ~ responsibility for construction of the necessary facilities to hring Canadian power to Vermont. A fut-track project to tieinto Hydro-Quebeclinesin northwestern Vermont at Highgateis now under way.
On July 25,1984, officials of the State of Vermont and the Province of Quebec signed a 10-year contract for )
the purchase and delivery of 150 megawatts from Hydro-Quebec's
@" , - LaGrande project near James Bay. CV will receive 68 of the 150 m j ,, megawatts, beginning in September 1985. In the long run,it will 9 '/ replace the 64 megawatts of hydro we may lose from the New York
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{/ / I Power Authority over the next 10 years,in accordance with a NYPA proposal. In the short run, it will make up for about half of the power
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we will need when Vermont Yankee goes out of service in September j for eight months for pipe repairs.The rest of that needed power will j/ : come from short-term shopping in New York, Ontario and elsewhere V in New England.
' $'9 THE NORTHEAST CONNECTION l
Under construction at Highgate, Vennont, is this converter station for Hydro-Quebec power in northwestern Vermont Artists serial view shows complete complex, due ;o be ready A 450-kilovolt direct current transmission line is under con-by September 1985. struClion in northeastern Vermont that will link Quebec with Vermont and the rest of New England and entitle CV to 31 megawatts by 1986. By the early 1990s, upon completion of a second phase of the line, we will be able to receive an additional 56 megawatts. Vermont Electric Power Co., Inc., through its subsidiary, Vermont Electric Transmission Co., is building the northeastern Vermont line. The price of this James Bay hydro power has been pegged at 80 percent of the average price of oil and coal power and will fluctuate with the price of these fuels. Some controversy , comes with importing Canadian hydro I power, versus expanding domestic sup-plies and connections. But it is important to remember that the availability of the hydro and the pricing structure mean just about a 50 percent dropin our dependence upon continued oil ship-
' ments from the Middle East.
Clearing the right-of-say was a major task in 1984 in the construction of a 450-kilovolt direct current transmission line linking Quebec and Vermont
TEN-YEAR RINIEW 7 Over the past decade, our power mix has consisted of about 44 percent nuclear,32 percent hydro,10 percent coal,10 percent oil and about 4 percent of other, mixed sources. Most of the nuclear has come from the Vermont Yankee nuclear power plant in Vernon, Vermont, of which CV was the lead builder and is a 31 percent owner. Vermont Yankee is a major reason why our customers' electricity rates remain among the lowest in New England. Irsser amounts have come from Maine Yankee and Yankee Rowe in Massachusetts, as well as Connecticut Yankee. A special note about Connecticut Yankee: In 1984, for the fourth year in a 2
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q { nuclear plant. By the end of 1983 it had - generated more than 66 billion kilowatt =-- hours, more than any other nuclear power unit in the world. Connecticut ic Yankee became the United States pro-duction leaderin 1978 and has held world leadership since 1980. It began commercial production 20 years ago. The New York Power Authority has supplied CV with about half The Vermont Yankee Nuclear Power Plant in Vernon, the hydro our system has utilized over the past decade. Although the vermont. cV was the lead builder and is a 31 percent owner. outlook for NYPA hydro is uncertain James Bay hydro will more than fill the void it could leave. Hydro-Quebec has contributed lesser amounts of hydro in the past decade. About a quarter of our hydro t has been produced by our own Vermont operations. Our newest of 20 l such facilities is at East Barnet. l Over the past 10 years coal-fired electricity has made up about 10 percent of our distribution. Most of that comes from Merrimack, New Hampshire, with some from Ontario, Canada. Oil-fired generators throughout New England have been called upon in 1984 POWER SUPPLY the past 10 years to provide about 10 per-cent of our requirements. They will re. Nuclear 44 % ! main on standby for peaking power use, but we expect to press them into service Hydro 22% h less and less in the future. Coal 21% @ Oil 11% > Other 2% - Total 100 %
8 Our newest hydro plant, on[ the {i : Passumpsic Riverin East Bamet, , Vermont, began to generate 2.2 I.-I megawatts in 1984. { ((
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h . Reconstruction of the Taftsville, Vermont, dam was com-pleted in 1984. Taftsville, one of 20 hydroelectric stations we operate, supplies about one million kilowatt-hours annually. .. l ,Y
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')EYb r-0 A recently completed CV hydro facility is Smith Station on the Waits River in Bradford, Vermont. it is rated at 1.5 megawatts.
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l 9 Tile NEXT 10 'i EARS l Herween inrx and 1994 We Sie an increase in the nuclear and
- hydro role 5. a decrease in the coal arul oil percentages, and the eniergence of growirig quantities of other forins of generation.These illellide W(so(jf' hip allfl alterflatiVe power [roill a Variety of illdept'll-dellt power prodilrers, sollte of W }lirIl operate }lydro prtijerth. Oillers oper;tlf' hingas plallth [Ileled by solid Waste.
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Vide slightly Inore than hal[o[our poner ret piirt '!! H 'llth. T}le ;tdVt'n! (if f';t!Hitliall })yllrt)Ill sig!!illf allt glutillitie$ Will lirilig Simon Pearce,0uechee. Vermont, glassblower of interna-tional renown. fires his kiln with electncity. He g : 1 rates t s u r HVt
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Wit}} Illore ll5;tge Illlelear,niillHillt 3InOltrperrellt sllollld bring OVer one depelldellre t}le neXT dirade. electncity with his small bydro station and sells t- CV. He is of a growing number of independent power producers. l Ill Hill till iti le551hilf t illie port Pfit hy 1994. Wt' la' Rail ta) rt reiVe 10 [Ilegitu; tits froin t}le.lt:5Pph I'. hlrNeil Woodellip phillt in 19S4 and now Wood fired power is part of the pir l ture. Alore variety is being added. The Puhlic l'tility Regulatory l PoliriesArt,ap;trto IIIe 197S National Energy Plan, estalili5hed I requirernents that utilities contract With indeporn!cnt power pro dllivr5 h;tsed 1in ;tViiilled etistS. Al (T We h;tVP sigilt'd reintr;teth wit}l i 10 slirli pf! Hllieer5 alHl Illort' projerth ;lre ill tieveloping stages. They n il!!a l ph iVit le is it i ll) l9 rn nt I >[ t1110 pf iWer slijiply < IVe 'r ilH' Ilt'XI In', ears. l l
l 10 CUSTOMER REIATIONS 1 We surveyed our customers during 1984 to determine their attitude toward avariety of policies andissues.We E learned alot that helps us serve them better and we also found that they had 1 1 accorded us a favorability rating higher than the average of utilities in New Eng- ) i land and the nation. The rating came as no realsur- ! prise, however, because we have worked for it by working closely with our customers in a great many ways for a number of years. In expanded form, our "CV & YOU, Partners in Energy Conser-vation" activity continued for its third year with the following part- l nerships and programs:
- Operation Peak Alert. During winter hours of heavy electricity use we appeal to our customers to defer unnecessary use of appli-ances. Their cooperation helps us hold demand down.
- Water Heater Insulation Jackets U to oi We held the costs ofelectricity to levels of the previous year and those costs remained among the lowest in New England.
f50 ace roug 9 Ea Jacket saves 700 kilowatt hours per year and more than 10.5 million kilowatt hours has now been conserved by these jackets on an annual basis. The energy savings are equivalent to the electricity required for an entire medium-sized Vermont town for as long as the jackets stay on the heaters. In dollars, it's in the neighborhood of $750,000 per year in energy cost savings to residential customers.
- Community Demand Management. This program expanded to include partnerships with orgamzations in three more communities I in 1984, a total of eight so far. It involves local task forces in the development of plans for increasing energy efficiency at the local level and features workshops organized by our community partner ,
organization and led by both CV and other expert energy manage- ! ment specialists. ! i orneB, Vermont, Village School pupils were among 5,000 youngsters who participated in our pcster contest i l
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- Seal-up. In 1984 we began to offer a seal-up conservation program called " Money Bag," which features two plans:
- 1. Do-it-yourself weatherstripping, draft-stopping and hot water flow con-1 trol. The customer purchases a kit bag
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*Ei either at a district office or by mail and dh. ._._._ # applies them himself.
- 2. Contractor senices,in which a contractor authorized by CV performs the work at the customer's request. The customer pays the contractor. l Other programs that attracted customer participation included- l
- An elementary school student poster contest with the theme, "How I Save Electricity at Home," which drew 5,000 entrants !
statewide. I
- A high school student pilot project in which the students con- !
ducted an energy audit of their electrically heated school in Vermont, utilizing our computer software. The project is expected to include several more schools in 1985.
- Commercial / industrial audits performed for a nominal fee by CV customer engineers, with significant payback to the participants.
- A corporate contributions program that recognizes significant volunteer work by employees and awards up to $300 each to deserv-ing community groups that provide a service to the general public.
Also during the year, our storm center volunteers, informally known as the " foul weather friends," received special training for phone duty during outages. Our engineers provided technical adsice on lighting and other electrical usage to commercial and industrial customers, and we prepared to introduce a new, super-insulated rental water heater in our Connecticut Valley Electric Company, Inc., subsidiary senice territory as 1985 began. Probably of greatest significance during the year as far as our Vermont retait customers were concerned was the fact that we held their costs of electricity to levels of the previous year and those costs remained among the lowest in New England. We expect to keep all of these programs in place in 1985, and in our largest district, Rutland, we plan to consolidate all district opera-tions at a new location. Construction is to begin in August. By 1986 Rutland customers will be able to conduct all of their business with us in a convenient single location. 1
REGULATORYACTIVITY is In October we reached a negotiated settlement with the Vermont RETURN ON AVERAGE Department of Public Service, subsequently approved by the Public Service Board, for a 5.2 percent or $5.9 million increase in rates to go GEM 2 into effect on January 1,1985. The settlement included an allowed rate of return on common equity of 16 percent for 1985. The modest rate increase was made possible by a favorable outlook for power supply costs in 1985.
'S Although a four percent rate increase went into effect in Febru-ary 1984, ensuing purchased power costs were lower than antici-pated. At the end of August we announced we would withdraw the increase and return our rates to the 1983 levels. In October and November we refunded to our customers $3 million collected since 10 February.
In June 1984, our New Hampshire subsidiary, Connecticut Valley Electric Company, Inc., raised retail rates by $812,000 annually or 8.4 percent. The new, permanent rates ordered by the New Hamp- 5 shire Public Utilities Commission replaced a temporary rate increase in the amount of $569,000 annually which had been in effect since September 1983. In 1985, we will file with the Vermont Public Senice Board, seeking 79 8 si 82 83 84 recovery, among other things, of our investment in Seabrook Unit 2 and the cost of replacement power for the period, late in the year, when the Vermont Yankee nuclear power plant will be out of senice for repairs. EARNINGS AND RETURN TO INVESTORS In 1984 we earned 16 percent return on common stock equity, mYs all we are allowed, for a record level of $3.19 per common share. It 3 00 was the fourth consecutive year that we earned our allowed return on common equity. , For the 10th consecutive year dividends have increased. This l year the dividend rate went up 5.6 percent to an annual level of $1.90 from the previous level of $1.80. In 1984 the dividend payout ratio ,gg represented a conservative level of 57 percent of earnings. Our goalis to continue to increase earnings and dividends consistently to com-pensate our owners fairly for their investment. Hve years ago our common stock dividend was $1.27. i 1 00 i 79 80 81 82 83 84
14 REVENUES AND SALES THE 1984 INCOME DOLLAR Revenues and sales continued to increase in 1984 despite the fact that there were no Vermont retail rate increases during the year. Residential 34% k:f The Vermont economy, which had not been affected severely by the recent recession, expanded vigorously throughout the year. The Industrial 27%k, diversified economy of our Vermont service territory saw continued
- f. expansion in virtually all segments of our business. Unemployment in Other Electric Sales 19% ~> i Vermont declined to the lowest level in 15 years (about 5 percent) and sales to residential, commercial and industrial customers set Cornmercial 10%'i' R records, both in terms of megawatt hours and revenues. Industrial and commercial growth came primarily from increased activity of existing businesses. Prolonged cold spring weather was a contribut-OtherIncome 10%
ing factor. Continued expansion of the economy is expected in 1985. Total 100 % RetailSales
% Chg. % Chg.
MWH % from '83 $(000) % from '83 Residential 856,029 44.2 5.6 58,565 44.9 9.4 Commercial 208.937 10.8 4.6 17,152 13.2 9.3 Industrial 760,382 39.3 3.6 45,679 35.1 6.8 Public Authonty 109,289 5.7 1.7 8.925 6.8 36 TOTAL RETAIL 1.934.637 100.0 4.5 130,321 100.0 8.1 EXPENSES THE1984 EXPENSE DOLLAR Purchased power costs continued to represent the largest Purchased Power 47% share of expenses, although the 47 percent recorded in 1984 was somewhat below the level of 1983, due in large part to lower energy Other Operating costs. Our energy source mix percentage (see page 7) indicates our and Maintenance 14% > share of the low-cost output from the four nuclear plants which have been on line for more than a decade. Taxes 10% s . Productivity levels continue to increase throughout the com-pany as we condnw Wanh usdompuW Mdn@ and , Wages and Benefits 9% > expand the sense of commitment by our employees to increase pro-ductivity. Overall employment levels of the company have remained l Common and Preferred 8% ". . stable over the past five years. Continued expansion of the manage-Dividends ment training programs throughout all levels of the company is Reinvestment 5% ~ - proving to be quite effective. Overall operating efficiency improved. ) Our system load factor was 64 percent-up from the 50 percent level Interest 4% - of only a decade ago. 1 l looking ahead in 1985, we anticipate an eight-month shutdown Depreciation 3% - of Vermont Yankee beginning in September for pipe repairs. At the same time, however, the Highgate connection for firm Canadian Total power is expected to become operational, thus minimizing the 100%h replacement power costs during the outage.
CONSTRUCTION REQUIREMENTS is Our construction expenditures in 1984 were $34 million which CWAlRAM W10S includes $4.5 million of allowance for borrowed funds during' con-struction. This level is less than the $37 million spent in 1983 and
$$cwma
,g ,
reflects the slowdown of construction expenditures associated with the Seabrook nuclear project, looking to our five-year forecast, we see our construction pro- 220 jh rf]4 gram peaking in 1985. Included in the 1985 estimated construction I program (see table below)is $8.4 million associated with the Vermont ,, connection with Hydro-Quebec at Highgate, Vermont. This project represents the tapping on a firm-power basis of substantial hydro-electric sources in the James Bay region of Canada. In addition, the "
,' y
((y g g
,l&Th. F'h, forecast includes the final construction phases of the Millstone 3 and i f1 Seabrook Unit 1 projects, both of which are scheduled for completion ioo f1' a in 1986 and early 1987. f p '-
l4 g g yp ,h,~ f / g is waany r eI E E E E 1985 1986 1987 1983 1989 20
...g ggg ,
Excl AFDC
' ' ~
25.8 20.5 37.5 27.0 25.0 inct AFDC 52.2 38.8 35.0 21.5 26.3 m a 81 82 83 84 E Common Equdy 0 Preferred Equdy E Debt FINANCING REQUIREMENTS One of our principal financial objectives is to maintain financial flexibility. We entered 1984 with a short-term investment position of $8.7 million and during the year we sold $5.5 million of pollution con-trol bonds at 9 percent interest and arranged for the sale in January 1985 of $15 million of first mortgage bonds, series CC and ME" (Before recers ano state weeTan DD, at rates averaging 12.8 percent. In addition, our Dividend 4cx A Reinvestment Plan continued to expand and we raised an additional $3 million through this plan. Our 1985 plans call for selling both first mortgage bonds and preferred stock to raise the required $25 million of external funds. Current arrangements with local banks and those 3cx - in financial centers give us a borrowing capacity of $23 million, but our short-term debt limitation is $50 million. Financial performance and capital structure continue to be < within the range of our long-term financial objectives. These objec- ,cx , tives include maintaining a long-term debt ratio of approximately 9 45 percent, maintaining interest coverage ratios of about 3.5 times % interest on funded debt, and financing as required to eliminate all . c. short-term debt at least once a year. , cx v At the end of 1984 common stock equity represented 47 per- t cent of total capitalization; preferred stock equity represented 9 per- ? cent, and long-term debt constituted 44 percent. Our interest cover- + age continued at a satisfactory level of 3.9 times funded debt requirements. n 80 81 82 83 84
is SELECTED FINANCIAL DATA (dollars in thousands except amounts ger share) 1984 1983 1982 1981 1980 1979 For the year: Operating revenues $155,637 $144,009 $133,663 $117,339 $ 90,735 $ 78.185 Net income $ 21,707 $ 18,254 $ 16.210 $ 13,866 $ 8,902 $ 9,767 Net income for common stock $ 19,640 $ 16,009 $ 13,807 $ 11,370 $ 6,804 $ 7,995 Return on average common stock equity 16.2% 16.1 % 16.1% 16.4% 10.5% 12.9% Net income per share of common stock $3.19 $2.94 $2.84 $2.80 $1.72 $2.05 Cash dividends declared per share of common stock * $1.83 $1.72 $1.62 $1.48 $1.40 $1.27 Book value per share of common stock $20.09 $18.92 $17.81 $17.77 $16.59 $16.38 Total funds from operations $ 29,090 $ 22,661 $ 24,944 $ 25,654 $ 17,874 $ 16,857 Dividends deciared $ 13,275 $ 11,491 $ 9.953 $ 8,480 $ 7,619 $ 6,705 Construction and plant expenditures $ 34,440 $ 36,871 $ 33,338 $ 21,145 $ 15,573 $ 13.065 Total funds from operations less dividends, as a percentage of construction and plant expenditures 45.9% 30.3% 45.0% 81.2 % 65 9% 77.7 % At end of year: Construction work in progress $123,383 $119,414 $ 83,753 $ 56,446 $ 48,572 $ 36,759 Long-term obligations $125,021 $125,368 $101,177 $100,657 $ 87,730 $ 72,858 Total capitalization $266,203 $254,938 $209,769 $188.862 $169,433 $152.466 Total assets $330,071 $296,462 $251,012 $233,834 $211,195 $180,514
- Current annual dividend rate is $1.90 per share.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17
'!he Companis operating results in recent years reflect a pattern of OPERATING EXPENSES malerate sales growth, continuing inflationary pressure on costs and the effut of s6rral rate increases. The Company's net income has rehoundal C sts of purchased power are classified as costs for capacity avail-strongly since 1980 and for each of the past four 3 ears the return on awr- able to the Company and costs for energy received These two comp >nents age common stock equiry has exeteded 16%. Contributing to results in f ur purchased :vwer costs for the last six years were as follows (dollars ntent years are sarral significant retail rate increases as well as moderat- inW usands) ing increases in p>wer supply costs and excellent operating experience of the Vermont Yarkee nuclear plant. Although we haw earned our allowed 1984 1983 1982 1981 1980 1979 rate of return for the past four years, future earnings performance is Purchased dmndent upsn the ability of the Company to obtain adequate rate $45,788 $43.921 $35,817 $30.686 $22.873 $18.682 Capacity increases to nemtr anticipatal higher costs, particularly those related to Energy 34,333 35.047. 29.027 29.551 24.791 15.988 major inwstments in generation and transmission projects.
Total $80,121 $78.968 $64,844 $60.237 $47.664 $34.870 OPERATING REVENUES Capacity costs accelerated dramatically in 1981,1982 and 1983, after Since the mid-1970's the growth in KWil sa'es has tren modest. The remaining relatiwly constant for sarral years. In 1984, capacity costs were Company's pnsent long range forecast indicates an average annual growth $1,867,000 higher than the prior year. Energy costs are dintdy related to in energy sales of 2.4% and an average annual growth in capacity require. the variable prices for oil, nuclear fuel and coal and more importandy to ments of 21% over the next 10 years. The following table shows the percent the proportion of the Company's purchased energy that comes from each increase in retail sales and the sounts of increased operating rarnues for of these fuel sources, witiusil being significandy more expensive than each of the last six years (dollars in thousands): nuclear fuel. Energy costs, which had increasal steaddy for many years, leveled offin 1982 principally treause of the outstanding operating perfor-mance of the Vermont Yankee nuclear plant during the year. The Company tought 46% more units of energy from this plant in 1982 than the prior
-M84 -1983 -1982 -1981 -1980 -1979 year locause the plant had no sc heduled shutdown for refueling in 1982 Growihin retail and no major unscheduk i outages during theyear.
Misales . 4.5% 31% .3% 2.5% 4.1% 1.4% The Vermont Yankee plant, which prmides about one third of the Revenue growth from: Company's system power,was out of sersice for normal refueling during h smond quarter of 1983 and the third quarter of 1984. The 1983 shut-sI $ 5,006 $ 3.586 $ 394 $ 2.549 $ 3259 $1.012 Increased retailrates 4,117 3.560 9.049 18.382 7,010 1,325 d wn meluded an extended outage for pipe repairs,which mereased increased wholesale energy costs during that period. and other revenues 1,905 3200 6.881 5.673 2281 829 The units of energy purchased by the Company grew by 1.5%,6.4%, Netincrease over 735,12.5%,1.4% and 4It for the years 1979 through 1984, respectiwly. prioryear $11,620 $10.346 $16.324 $26.604 $12.550 $3.166 Note 10 to the Consolidated Hnancial Statements contains a summary of the Company's energy sources for the last six years. During 1982 the Com-pany reuhrd a larger than normal portion ofits energy from nuclear generating companies, treause of the absence of a refueling shutdown for Substantial increases in operating revenues have tren necessary in the Vermont Yankee plant, and a lower portion from miscellaneous sources, recent years to cover continued growth in the cost of purchased power and principally oil fired plants. Energy purchased from nuclear generating other operating expenses and to provide an adequate return on inwstment plants in excess of amounts nwded to meet the load requirements of the to stockholders. This growth in rarnue results principally from Vermont Company's customers is resold to other utilities in New England. retail rate increases of 40% effective October 1,1983,12.37% effectim afay Two new generating facilities of the Company went into commercial 1,1982,19.62% effectiw January 1,1981, and 36eral increases in 1980 operation during 1984. A 2.2 megawatt hydroekttric generating station aggregating 16.11. Retail rate adjustments also haw tren achiewd in New located in East Barnet began pnxiucing power in September. Also, the llampshire, which repnsents about 6% of sales, and rate adjustments to Company is a 20 pycentjoint owner in the 50 megawatt Joseph C. McNeil firm w holesale customers, representing approximately 8% of sales, have wood find stanon located in Burlington, Vermont This generating unit went been nuhrd from the FERC. An additional 52t increase in Vermont n-tail into commercial operation in June 1984. The Company's hydroelectric rates will go into effect January 1,1985 generation was higher than normalin 1981. In 1980, due to nduced rain Year to-year fluctuations in retail KWil sales are affected by cold fall, the Company experienced the lowest amount of hydro generation in 16 eeather patterns since many of our customers use electncity for heating. years. Energy from this source is considerably less expensive than the in 1982, sales were also affected by the economic slowdown experienced in alternatim, which is to purchase energy. Vermont and throughout the nation. 0wr the past six years, retail KM1 h!aintenance expenses rose in 1984 due to higher maintenance sales haw increased at an awrage annual rate of 2.7%, reflectmg continued expenditures for the Company's hydrocketric production facilities and for energy conservation by our customers 'the most recent years are showing transmission and distribution lines. In 1982,1983 and 1984, other opera-an acceleration in the growth pattern heing experienced by the Company. tion expenses include approximately $826,000 to amortize owr a 10 year perimi costs related to the cancehd pilgrim #2 nuclear generating unit. As described more fully in Note 4 to the Consolidated Rnancial Statements,
18 MANAGEMENT'S DISCUSSION (CONTINUED) Other income (exrenses), net in the Statement of income includes CONSTRUCTION PROGRAM AND expnses of $2,999,000 in 1982 and income of $543,000 in 1983 and '
$505,000 in 1984 related to this abandoned project FINANCING REQUIREMENTS
- Le Company is participating, as ajoint owner, with other ek'etric utilities in the construction of two nuclear generating projects and is also COSTOF MONEY participadng in the construction d two mabr transmission interconnect interest expense on long term debt has increased steadily in recent projects to bring power from Canada. Under agreements with other utilities I the Company is obligatal to prmide funds in future years to finance these years as a result of issuance of Mrst Mortgage ikinds at higher interest rates than the awrage interest rates pnvailing on the Company's outstand. pmjects as described in Note 10 to the Consolidated Rnancial Statements.
inglong term (k bt,as follows: These pmjwts constitute more than half of the Company's construedon program during the next few years. The program also includes additional
, funds for construction of other generation, transmission, distribution and Sedes InisseelRole Amount Dale elleeue general facilities within the Company's sersice territory. These plans,in the !
Y 94 % $ 2,000,000 January 1979 ggregate, continue to represent a large undertaking relatiw to the Com-3 Z 10%% $ 4.250.000 September 1979 pany's present size. Z 10%% $10,750.000 January 1980 Funds generated from operations (net income adjusted for non-AA 15'4 % $15,000.000 June 1981 cash charges and cralits to income), k'ss disidends declared, resulted in BB 12%% $20,000.000 August 1983 internally generated funds of $10,152,000, $10,255,000, $17,174,000,
$14,991,000, $11,170,000 and $15,815,000 for the years 1979 through 1984, 4
nspectiwly. This represented 78%,66%,81%,45%,30% and 46% of con-On Nowmler 1,1983, the Compny sold 600,000 shares of addi- struction and plant expenditures in each of the years 1979 through 1984, tional common stock with net proceals to the Company of alout respectively.
$10,800,000. On April 27,1982, the Company sold 750,000 shares of addi-In order to proside funds for the Company's continuing construc-tional common stock with net procents to the Company of about tion program and other business purgoses, additional funds must be
$12,200,000. These sales resulted in an 11% increase and a 24% increase.
obtained by issuing long term debt and equity securities, as necessary. To respctiwly,in the number of shares of common stock outstanding, The accomplish these financings, the Company must receim adequate and : praeeds from these sales were usal to repay short term debt outstanding ' timely rate increases. Short term borrowings, used to proside funds for the incurred for the Company's ongoing construction program and the balance
- interim period, generally are paid when long term debt or equity securities was invested in temporary imestments until used to help finance planned are issual.
- construction. The Company issued $5,800,000 in tax exempt rewnue tmnds, to finance the East Barnet Hydnelectric pmject in Decemler 1983 and in Decemter 1984 issued an additional $5,500,000 in tax exempt All0WANCE FOR FUNDS DURING CONERUCTION rewnue londs to finance,in part, the Seahnok Pmject. 0n January 31, Al'owance for funds used during construction (AFDC) is the cost, 1985, $5,000,000 of Series CC and $10,000,000 of Series DD Mrst Mortgage during the period of construction, of funds used to finance construction 4 llonds were issual by the Company to repay short term debt outstanding at I projectsEhile AFDC represents a non cash credit to earnings currently, i Decemler 31,1984 with the balance to te used for general corporate pur-existing rate making practices allow the Company to recover these costs in
; poses. Note 7 to the Consolidated Mnancial Statements contams additional
' the future,in cash, through rates charged to customers mer the useful life i mformation on the Company's short term borrowing arrangements, avail- ' of the pmjects.The allowance for equity funds and borrowed funds used able lines of credit and commercial paper financmg during construction has continued to grow in recent years due to the con- + tinuing increase in the Company's construction work in progress for luture nuclear generating plants, particularly the Millstone and Seabrook units. AFDC in 1984 was $12,718,000. Failure to complete construction of Sea-i brook Unit I would haw a significant effect on AFDC and earnings. The AFDC rates used by the Company range from 11.13% in 1979 to 12.76% in 1984.
- INFIATION AND CHANGING PRICES i inflation continues to have a significant impact on sittually ewry aspect of our business, including purchased power, other operating ex[enses, construction expenditures and cost of money.
1 Note 11 to the Consolidated Hnancial Statements contains certain l information atout the effwts of changing prices on the historical financial information of the Company.The information is considered to le experi-mental and prosides only an approximation of the effects of infla ion on the Company's operations. 4 1 l 1 4 4
- - - - , , - . - . - - -n-------- -- - ~ . - - - - - - , - - - - , - n ,- -------~--.-an,----. - - -. , -n- e ,-
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS 19 (douars in thowinds except amounts per share) Year Ended December 31 1984 1983 1982 1981 1980 1979 OPERATING REVENUES $155,637 $144,009 $133,663 $117,339 $90,735 $78,185 OPERATING EXPENSES Operation Purchased power 80,121 78,968 64,844 60,237 47,664 34,870 Production and transmission 10,217 8,168 7,795 7,577 6,507 5,797 Other operation 19,691 17,601 16,790 13,672 11,937 10.965 Maintenance 7,868 6,797 6,900 5,863 4,380 4,200 Depreciation 4,916 4,426 4,147 3,805 3,664 3,466 Other taxes, principally property taxes 5,783 5,330 5,085 4,764 4,347 4,288 Tanes on income (Note 8) 10,242 7,618 10,699 7,369 2,712 4,250 Total operating expenses 138,838 128,908 116,260 103.287 81,211 67,836 OPERATING INCOME 16,799 15,101 17,403 14.052 9.524 10,349 OTHER INCOME AND DEDUCTIONS Equity in camings of companies not consolidated 2,761 2,908 2,541 2,669 2,219 2,327 Allowance for equity funds during construction 8,236 6,608 3,577 2.577 2,495 1,684 Other income (expenses), nel 2,574 1,791 (1,478) 1,391 394 184 Taxes on income (Note 8) (1,154) (1,083) 705 (799) (329) (310) . TOTAL OPERATING AND OTHER INCOME 29,216 25,325 22,748 19,890 14,303 14,234 INTEREST EXPENSE Interest on long-term debt 11,707 9,890 8,950 7,612 6,376 5,066 Other interest 284 931 386 1,441 729 879 Allowance for borrowed funds during construction (4,482) (3,750) (2,798) (3,029) (1,704) (1,478) Net interest expense 7,509 7.071 6,538 6.024 5,401 4.467 NET INCOME 21,707 18254 16.210 13.866 8,902 9,767 RETAINED EARNINGS, JANUARY 1 42,169 35,406 29,149 23,763 22,480 19,418 63,876 53,660 45,359 37,629 31,382 29,185 CASH DIVIDENDS DECLARED Preferred stock 2,067 2.245 2,403 2.496 2,098 1,772 Common stock 11,208 9,246 7,550 5,984 5.521 4.933 Total dividends 13,275 11,491 9.953 8,480 7,61 9 6.705 RETAINED EARNINGS, DECEMBER 31 $ 50,601 $ 42,169 $ 35,406 $ 29,149 $23,763 $22,480 NET INCOME FOR COMMON STOCK $ 19,640 $ 16,009 $ 13,807 $ 11,370 $ 6,804 $ 7,995 Average shares of common stock outstanding 6,164,662 5.443,318 4,854,777 4,056,351 3,962,755 3,895,369 NET INCOME PER SHARE OF COMMON STOCK $3.19 $2.94 $2.84 $2.80 $1.72 $2.05 DMDENDS PER SHARE OF COMMON STOCK $1.83 $1.72 $1.62 $1.48 $1.40 $1.27 See accon.panying notes to consohdated firancial statements
20 CONSOLIDATED BALANCE SHEET (dollars in thousands) December 31 1984 1963 ASSETS UTILITY PLANT, at original cost $171,207 $143,329 Less accumulated depreciation 45,686 42,703 125,521 100,626 Construction work in progress (Note 2) 123,383 119,414 Net utility plant 248,904 220,040 INVESTMENTS IN AFFILIATES, at equity (Note 3) 25,756 25,737 NONUTILITY PROPERTY, less accumulated depreciation 4,103 4,065 CURRENT ASSETS Cash 1,877 677 Temporary investments, at cost which approximates market 1,332 8.730 Accounts receivable, less allowance for uncollect;ble accounts 12,680 12.204 Unbilled revenue 7,900 7,634 Materials and supplies, at average cost 2,952 1,978 Prepayments 1,971 1,697 Other current assets 1,628 2,805 Total current assets 30,340 35.725 TERMINATED PROJECTS (Note 4) 13,262 4,798 OTHER DEFERRED CHARGES 7,706 6.097
$330,071 $296,462 CAPITALIZATION AND LIAEILITIES CAPITAllZATION Common stock, $6 par value, authorized 14,000,000 and 7,000,000 shares, respectively; outstanding 6,272,565 shares and 6.047,786 shares, respectively (Note 5) $ 37,635 $ 36,287 Other paid-in capital (Note 5) 37,795 35,954 Retained earnings (Note 5) 50,601 42,169 Total common stock equity 126,031 114,410 Preferred and preference stock (Note 5) 15,151 15,160 Preferred stock with sinking fund requirements (Note 5) 8,000 9,290 Long-term debt (Note 6) 117,021 116,078 Total capitalization 266,203 254,938 CURRENT LIABILITIES Notes payable-banks 5,700 -
Commercial paper - 5,000 - Accounts payable 4,519 3.969 Accounts payable-affiliates 5,452 6,719 Accrued interest 2,073 1,958 Accrued income taxes 1,711 1,100 Other current liabilities 5,763 3,529 Total current liabilities 30,218 17,275 DEFERRED INCOME TAXES 19,253 12,771 DEFERRED INVESTMENT TAX CREDITS 13,175 11,087 DEFERRED CREDITS AND MISCELLANEOUS RESERVES 1,222 391 COMMITMENTS AND CONTINGENCIES (Notes 2,3 and 10)
$330,071 $296,462 See accompanying notes to consolidated financial statements
l CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION 21 (dollas in thousands) Year Ended December 31 1984 1983 1982 1981 1980 1979 SOURCE OF FUNDS Funds from operations Net income $21,707 $18,254 $16.210 $13,866 $ 8.902 $ 9,767 Principal non-cash charges (credits) to income Depreciation 4,916 4,426 4,147 3,805 3,664 3,466 Deferred income taxes and investment tax credits 8,570 4,871 (3,153) 9,074 7,436 3,137 Allowance for equity funds during construction (8,236) (6,608) (3,577) (2,577) (2,495) (1,684) Dividends received more (less) than equity income (82) (613) (264) (329) 141 50 Amortization of deferred power costs 1,285 1,420 3,000 5,058 2,441 1,376 Amortization of terminated projects 552 512 4,214 264 105 105 Other, net 378 399 4,367 (3,507) (2,320) 640 Total funds from operations 29,090 22,661 24,944 25.654 17,874 16,857 Funds from outside sources Long-term debt 5,500 26,359 2,793 15,862 10,750 6,250 Preferred stock - - - - 8,000 - Common stock 3,236 14,370 14,195 1,100 847 724 Change in short-term debt 10,700 (4,400) (3,400) (4,500) (1,200) 6,900 Total funds from outside sources 19,436 36,329 13,588 12,462 18,397 13,874 Total funds provided $48,526 $58,990 $38,532 $38,116 $36,271 $30,731 USE OF FUNDS Construction and plant expenditures $34,440 $36,871 $33,338 $21,145 $15,573 $13,065 Dividends declared 13,275 11,491 9,953 8,480 7,6' 3 6,705 Investments in affiliates (63) 285 (260) (63) 90 172 Retirement of long-term debt 4,557 828 1,603 2.265 2,538 915 Retirement of preferred stock 1,290 1,340 670 670 1,340 1,340 Net increase (decrease) in other working capital items (7,628) 6,127 (7,312) 6,307 2,289 5,849 Other, net 2,655 2,048 540 (688) 6,822 2,685 Total funds used $48,526 $58,990 $38.532 $38,116 $36,271 $30,731 CHANGES IN OTHER WORKING CAPITAL ITE'.iS Accounts receivable $ 476 $ (181) $ (1,074) $ 1,644 $ 4,005 $ 230 Refundable income taxes - - (2,309) (2,993) 5,302 746 Unbilled revenue 266 (4,759) (839) 6,182 637 290 Temporary cash investments (7,398) 8,730 - - - - Cash and other current assets 1,271 2,091 (167) 118 (95) 654 Accounts payable 717 (1,405) 1,176 2,316 (7,146) (801) Accrued income taxes (611) 3.572 (3.513) (557) (392) 4,718 Other current liabilities (2,349) (1,921) (586) (403) (22) 12 Net increase (decrease) in other working capital items $ (7,628) $ 6,127 $ (7.312) $ 6,307 $ 2,289 $ 5,849 See accompanying notes to consobdated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 22 Note 1-Smaan=y of algnificant accounting policies: ! CONS 0llDA110N: The consolidated financial statements include the accounts of the Company and its whollyened subsidiaries. l The Company follows the equity method of accounting for its investments in affiliates. See Note 3. < REGULA110N: The Company is subject to ragulation by the Vermont Public Service Board (PSB), the Federal Energy Regulatory Commission (FERC) and, to a lesser extent, the public utilities commissions in other New England states where the Company does business, with respect to rates charged for senice, accounting and other matters. De Com-pany's accounting policies generally reflect the rate' making and regulatory policies of these authorities. REVENUES Estimated untilled rewnues are recorded at the end of accounting periods. MAINTENANCE: Maintenance and repairs are charged to maintenance expense and include replacements of less than retirement units. Replacements of retirement units and betterments are charged to utility plant, and ute book cost of units retired plus the cost of removal thereof, less sah~ age, are charged to accumulated prosision for depreciation. - DEPRECIA110N: The Company uses the straight-line method of depreciation. Total depreciation experse was between 3.45% and 3.85% of the cost of depreciable utility plant for the years 1979 through 1984. INCOME TAXES The tax effect of timing differences between pre-tax income in the financial statements and income subject to tax are accounted for in accordance with the rate-making policies of the respectiw state reguhtory authori-ties. See Note 8. Investment tax credits realized are deferred and amortized to income owr the lives of the related properties. AljDWANCE IVR ITJNDS DURING CONSTRUCTION: Allowance for funds used during construction (AFDC) is the cost, during the period of construction, of funds used to finance construction projects.The Company capitalizes AFDC as a part of the cost of major utility plant projects except to the extent that costs applicable to such construction wnrk in progress haw been included in rate base in connection with rate making proceedings. AFDC represents a non-cash credit to earnings.ne AFDC rates used by the Company were 11.13%,11.15%,11.89%,12.05%,12.22% and 12.76% for theyears 1979 through 1984. DEFERRED CliARGES Certain costs are deferred and amortized in accordance with rate-making policies of regulatory authorities. See Note 4. During regular Vermont Yankee refueling shutdowns the increased costs attributable to replacement energy purchased are deferred and amortized to expense over the estimated period unul the next regularly scheduled refueling shutdown. Costs associated with an unscheduled Vermont Yankee shutdown in 1980 were deferred. As approved by the PSB, these deferred costs, which totaled $3,833,000, are being amortized to expense owr a 5-year period commencing January 1,1981.Re unamortized deferred replacement energy costs resulting from Vermont Yankee shutdowns haw been included in rate base in the Company's most recent rate case settlement accepted by the PSR Note 2-Seabrook Prqlect:At December 31,1984 the Company's investment in Seabrook Unit I is $60,077,000. His inwstment and the estimate of additional funds needed to complete construction of the unit represent a major comnutment for the Company.This project has been under construction since 1976,with Public Senice Company of New ilampshire (PSNil) as lead owner.The Project has been subjected to delays and cost increases and is currently undergoing significant restructuring. One result of these delays has been the effective cancellation of Unit 2,with respect to which no construction actisities have occurred since September 19&3 other than those actisities necessary to maintain and protect the assets. Seabrook Unit 2 is now included under Terminated Projects. During April 1984, PSNil acknowledged that it was experiencing a severe liquidity crisis which, if not promptly reliewd, could cause it to seek protection under the Federal Bankruptcy Code. As a result, PSNil temporarily suspended construction work on Seabrook Unit 1. During the spring of 1984, the Joint owners modified the Joint Ownership Agreement to permit, suyect to necessary regulatory approval, the transfer of responsibility for completion of construc-tion and operational control of the Seabrook Project from PSNil to a new entity, New Hampshire Yankee,which is cur-rently a division of PSNH and is structured to be ultimately independent of PSNil. These changes have reduced the influence which PSNil, as a 35% owner, has owr the Project. Construction of Unit I resumed in late July 1984 at an expenditure lewl averaging $4 million per week and the rate of funding has since increased up to about $5 million per week. In August 1984 New Hampshire Yankee estimated that construction of Unit I would be completed by August 1986. This estimate assumed the resumption of full construc-tion in January 1985, which did not occur and it is unlikely that full construction will resume by April 1,1985. For financial planning purposes the Company is estimating that completion of construction of Unit I will be August 1987 at an estimated additional total cash requirement to complete of $1.0 billion, excluding AFDC and nuclear fuel The Com-pany's investment in Unit I upon completion would be approximately $100 million, including AFDC and nuclear fuel l
Generic regulatory preteedings have been underway in the states of Connecticut, Maine,!@w Hampshire, Massachusetts, and Vermont to evaluate the reasonableness of completing Unit 1. De present status of the generic pro-axxiings is as follows: On Decemter 18,1984 the Connecdcut Department of Public Utility Control issued an order 23 a!!owing continual participation in Unit 1 by the Connecticut utilities. On December 13,1984 the Maine Public Utilities % Commission (MPUC)issual an order allowing the three Line utilities to continue to participate in Unit ! "if, by Jan-uary 11,1985, they haw nreived credible firm offers to buy their compkte ownership shares upon completion." By that date, offers to buy about one-third of the combined ownership interest were receiwd, although at prices lower than andeipatal by the MPUC. Pursuant to the MPUC's order of January 16,1985, w hich directed the Maine utilities to file by February 8,1985 plans for " disengaging" from Seabrook, the Maine utilities submitted on that date their analyses of dis-engagement alternatiws and a further report on sales efforts with respit to their interests in Unit 1. The MIUC is expeted to issue another order on disengagement. The Maine utilites haw affirmed their intendon to continue to mect their contractual obligations under theJoint Ownership Agreement in the absence of a k' gally binding order of the MIUC requiring the udlities not to make their payments. The New llampshire pmceedings are not exp'eted to te con-dudal tefore early April and prontdings in Massachusetts will le condud x1 at the earliest in late April. The Vermont order is desentnd tek)w. On Iktember 28,1984 the Vermont Public Smice Board issued an Order, in a 2 to I vote, indicating that the Vermont utilities,induding the Company, hasing interests in the Seabrook Project may continue to participate in the Project until April 15,1985. The ISB conclurkti that under the most optimistic of circumstances, Seahnok Unit I remains at best a margnally economic inwstment for Vermont participants. The PSB said that-
" by April 15,1985, funding (induding all regulatory approvals therefor) must le secured by all pardeipants, including non Vermont utilities, sufficient to permit commercial operation of the plant by August,198L Failing this, and in the absence of circumstanas not now foreseen w hich indicate the propriety of a different course of ardon, the Vermont utilides will le instructed to use their best efforts, whether by a transfer of their interest, by a vote for cancellation, by termination of their contracts ifit should le prudent to do so,or by a comtination of any or all of the foregoing, to disengage themsches from the project at the earliest possible time..."
In addition, the Ihrem!cr 280rder states that actions taken by thejoint owners haw effectively canceht! Unit 2.The Company also has condud d that Seabrook Unit 2 will ultimately be formally cancehsi If the generic promx!ings are favorably condudal, they will te followed in some cases by further pnreedings with resptt to the individualjoint owners' financings. The present understanding among thejoint owners contemplates implementing a construction financing plan pursuant to which thejoint owners would either prefinance their share of completion costs for Unit 1, arrange for such prefinancing through a new entity known as "Newbrook," obtain a satis-factory t ank letter of credit, or be an "A" rated ekttric utility.The Company currently anticipates using an irrevocable letter of cralit as supp>rt for its share of future construction costs.The suco ss of thejoint owners Seabrook financing plan is contingent upon many variables and there is no assurance that it will te achiemi or that Seabrook Unit I will le competal Pmeenlings tefore the New llampshire Public Utilities Commission for approval of the financing,(pursuant to the Newbrook plan or similar prefinancing concept) of PSNifs share of the cost of compkting Unit I are expected to le conclu kd in April 1985. The Company cannot determine w hether PSNil will te able to complete successfully its financing plan for the completion of l' nit 1. As indicatol alme, construction of Seabrook Unit I continues at a mluced lewt Resumption of full construc-tion on a timdy basis is critical to the Company. Dere is no assurance that all approvals and financings can be completal to p'rmit the prompt resumption of full construction efforts. The Company is unable to determine whether Seabrook Unit I will te completed or the ultimate effect on the Company's financial position if Unit I were to le can-celut flowewr, the Company teliews that, swn appropriate rate rdief consistent with prior Vermont prnutents reganiing canceled nuck'ar plants, the impact of a cancellation of Seabrook Unit I might le contained without a signifi-cant long term aiherse effect on the Company's financial position. There can le no assurance, howwer, of the likelihood or timing of any such rate relief fmm the PSB. Note 3-Investments in afmintes: ne Company accounts for inwstments in the following companies by the equity metini (dollars in thousands): December 31 Ownership 1984 1983 Nucieer generating c - _ . Vermont Yankee Nuclear Power Corporation 31.3 % $18,538 $18,472 Maine Yankee Atomic Power Company 2.0% 1,348 1,338 Connecticut Yankee Atomic Power Company 2.0% 1,774 1,773 Yankee Atomic Electric Company 35% 747 747 22,405 22.330 Other aillliste: Vermont Electric Power Company, Inc. 57.2% 3,351 3.407
$25,758 $25.737
Each spnsor of the nuclear generating compnies is obligated to pay an amount equal to its entitlement percentage of fuel, operating expenses (including decommissioning expenses), and cost of capital and is entitJed to a 24 similar share of the power output of the plants.The Company is obligated to proside its entitlement percentage of the capital requirements of Vermont Yankee and Maine Yankee and has a similar, but limited, obligation to Connecticut Yankee. See Note 10 for the percentages of total power output receiwd from these companies. Summarized financial information for Vermont Yankee Nuck ar Power Corporation is as follows (dollars in thousands): December 31 1984 1983 W_ Operating revenues $117,009 $113.070 Net income applicable to common stock $ 5,964 $ 5.861 Company's equity in not income $ 1,866 $ 1,834 investment Total assets, principally utility plant $321,088 $307.090 Less: Preferred stock 11,683 13,894 Long-term debt 98,613 117,660 Other liabilities and deferred credits 150,950 116,323 Net assets $ 59,842 $ 59.213 Company's equity in net assets $ 18,536 $ 18,472 Vermont Yankee has entered into a financial arrangement with a bank to terrow up to $40,000,000. The Company has guaranteed its proportionate share of obligations under this arrangement. Vermont Yankee had no out-standing terrowings at December 31,19M related to this financial arrangement. Vermont Electric Power Company, Inc. (Velco) owns and operates a transmission system in Vermont over which bulk power is deliwred to all ekictric utilities in the State, Velco entered into a Power Transmission Contract with the State of Vermont and under its terms bills all costs, including amortization of its debt and a fixed return on equity, to the State and others using the system. This contract has enabled Velco to finance its facilities primarily through the sale of first mortgage tonds. Velco operates pursuant to the terms of the State contract and an Operating Agreement with the Company and two other major distnbution companies in Vermont. Although the Company owns 57.2T, of Velco's outstaning common stock, the Operating Agreement effectively restricts the Company's control and therefore Velco's financial statements ham not been consolidated. Summarized financial information for Velco is as follows (dollars in thousands): December 31 1984 1983 W_ Transmission revenues $12,823 $12.038 Operating expenses 7,232 7,575 Operating income 5,591 4.463 Other income 277 167 Total operating and other income 5,868 4.630 Net interest expense 5,410 4.210 Net income $ 458 $ 420 Company's equity in net income $ 257 $ 240 Investment Net utihty plant $59,404 $56,250 Current assets 12,053 14,240 Other assets 379 298 Total assets 71,836 70,788 Less: First mortgage bonds 47,340 49,916 Current habikties 17,197 13.872 Other habihties 1,440 1,157 Net assets 8 5,859 $ 5.843 Company's equity in net assets $ 3,351 $ 3,407
Note 4-Terminated prqiects.' A 1982 PSB rate order allows recowry of costs of certain abandonal pniects, including the $8,142,000 incurred for the Pilgrim 82 nuclear generadng unit.ne PSB allowed the reemvry of these costs mtr a ten year period, without a nturn on the unreemtral cost during the recowry period. Ikginning in 1989 95 approximately $826,000 related to this pniect has tven amortizal to operating expenses each year.The PSB decision requins the sharehoklers to alsorb some of the cost of this cancehti project. Accordingly, after three years of amortiza tion the inwstment is recordul at the discountnl present value of $3,713,000 at lktemter 31,1984. 0ther income in the Statement of income includes expenses of $2,999,000 in 1982 and income of $543,000 and $505,000 for the years 1983 and 19M, nsptdwly. As of Ikremier 31,1984 costs relatal to the Seabrook #2 pniect amounting to $9,177,000 are included under terminatal pniects.This unit has tnen efferdvely canceks! (see Note 2). Management teliars that the Company's share of costs incurnti to date and future additional costs of cance!!ation under contractual obligations net of all recov-eries,if any, will le ntowrni in accordance with recent PSB practice through future rates charged to customers. In the ennt that such nrowry is denied, the remaining unamortized costs net of defernsi income taxes would to written off at the tirne a final determination is made. At fhremier 31,1984 accumulated costs net of deferred income taxes were
$5,353,000.
Note 5-Capital stock:Cumuladve preferred and preference stock outstanding was as follows (dollars in thousands): December 31 1984 1983 Preferred stock, $100 par value, authorized 500.000 shares Outstanding: 4.15 % Series; 37,856 shares $ 3,788 $ 3,786 4.65 % Series; 10,000 shares 1,000 1,000 4 75 % Senes; 17,682 shares 1,788 1,768 5.375% Senes; 15,000 shares 1,500 1,500 12.75 % Senes;80,000 shares 8,000 8,000 13.50 % Senes: 12.900 shares - 1,290 Preferred stock, $25 par value, authonzed 1,000,000 shares Outstanding: 9 00% Series; 280,000 shares 7,000 7,000 Second preferred stock, $50 par value, authorized 7,993 shares Outstanding: 5,44% Convertible Series A; 1.946 shares (1983-2,121 shares) 97 106 Preference stock, $1 par value, authonzed 1,000,000 shares Outstanding-none - - Total cumulative preferred and preference stock $23,151 $24,450 The second prefern'd stock currently is conwrtible into common stock at $13.91 per share. As of Iktember 31, 19M,6,994 shares of common stock were reserwd for conversion. In 1984,175 shares of second preferral stock were conwrted into 628 shares of common stock. Commencing in 1986 the 12.7% series preferred stock is redamable at par through a mandatory sinking fund in the amount of $1,600,000 per annum and, at its option, the Company may redwm at par an additional $1,600,000 per annum, not to excen! $2,400,000 through 1989. Changes in other paid in capital were as follows (dollars in thousands): Year Ended December 31 1984 1983 1982 Conversion of second preferred stock to common stock $ 5 $ 15 $ 14 E cess of proceeds over par value from sales of common stock (224,151 shares in 1984,802,525 shares in 1983 and 1,134.0/8 shares in 1982) 1,891 9,556 7,390 Amortization of ca? ital stock expense related to the 13.50% and 12.75% series preferred stock 22 47 169 Common stock issuance expenses (77) (204) (233)
$1,841 $9,414 $7,340 De indentures reladng to long term (k bt and the Ardeles of Association contain certain nstriedons on the pannent of cash disidends on capital stock. I!nder the most nstrictim of such prosisjons, approximately $40,000,000 of
! retainal earnings was not sutiect to lisidend restriction at Decemler 31,1984. t I
Note 6-Iong term debt A summary of long term debt follows (dollars in thousands): December 31 26 1984 1983 First Mortgage Bonds 5 % Senes L. due 1987 $ 866 $ 871 SW % Senes M, due 1995 4,480 4,505 6% % Senes N due 1996 4,550 4,575 7% % Senes O, due 1992 1,830 1,840 8W % Senes P. due 199') 3,000 3.000 10 % Series 0, due 1999 2,000 2.000 8% % Senes R, due 2001 3,000 3.000 8W % Senes S. due 2003 5,000 5,000 11W % Senes T, due 1990 4,125 4.500 3% % Senes X. due 1984 -- 3,083 9W % Senes Y, due 2003 9,500 10,000 10%% Senes Z, due 2004 15,000 15.000 154 % Senes AA, due 1996 15,000 15.000 12% % Senes BB, due 1938 20,000 20.000 Debentures 4}i%, due 1987 2,880 2,970 i 7 %, due 1993 7,800 7,800 10%%, due 1995 2,800 2.870 Vermont industrial Development Authority Bonds 12% %, due 2011 4,048 4.214 Variable, due 2013 5,800 5.800 New Hampshire Industrial Development Authority Bonds 9 %, due 2009 5,500 - Other 42 50 Totallong-term debt *117,021
, $116,078 Based on issues outstanding at Decemler 31,1984, the aggrytate amount of long term debt maturities and sink-ing fund raluirements (exclusiw of the amount that may te satisfied by property additions) are approximately
$1,942,000, $1,900,000, $6,861,000, $3,305,000 and $5,305,000 for the years 1985 through 1989, respectively. Substan-tially all property and plant is sulfat to tiens under the Rrst Mortgage Bonds. New llampshire Industrial Dwelopment Authority Bonds are ruleemable at the option of the bondhoklers nery fiw years when new interest rates are set.
On January 31,190 the Company issued $5,000,000 of Series CC and $10,000,000 of Series DD Brst Mortgage Bonds due 1991 and 199'7, resprtively. The procenis receival were used,in part, to repay outstanding short term delt Note 7-Short-term debt: The Con pany uses bank bans and issues commercial paper to finance temporarily its construction program and for other corporate purposes. As of December 31,1984 the Company had annual tank lines of credit, which are normally renami, expiring at various times in 1985, to support its bank loans and commercial paper, with varying compensating balance requirements These range generally from maintenance of awrage comgn-sating talances equal to 4% to TE of credit lines available plus,in the case of bank loans, additional talances equal to zero to 5't of outstanding borrowirgs. The following summarizes comparable information for 1982 through 1984 relatiw to tank lines of credit, out-standing short term debt and interest rates (dollars in thousands): 1984 1983 1982 Totallines of credit at year-end $22,900 $21,600 $23.600 ' ; Unused lines of credit at year-end $12,200 $21.600 $19.200 ! Average interest rate at year-end ) Notes payable-banks 9.63 % - 10.75% Commercial paper 8.85 % - - Total short term borrowings 9.27% - 10.75% Average interest rate fcr the year Notes payable-banks 9.98% 9.47% 14 00% 1 Commercial paper 9.26 % 9 56 % 14.30 % l Total shor1-term borrowings 9.66 % 9.54 % 14.20 % j Average amount outstanding dunng the year Notes payable-banks $ 1,013 $ 1,394 $ 594 l Commercial paper 8 729 $ 4.149 $ 1.238 l Total short-term borrowings $ 1,742 $ 5.543 $ 1,832 i Maximum amount outstanding at any month-end Notes payable-banks $ 5,700 $ 4.600 $ 3.400 i Commercial paper $ 7,400 $17,300 $ 6,900 Total short-term borrowings $12,000 $18,800 $ 9.500
Note 8-Income taxes: The components ofincome tax expense are as follows (dollars in thousands) Year Ended December 31 27 1984 1983 1982 1981 1900 1979 Tames on operaung income-Federal - current $ 1,100 $ 1,951 $ 9,772 $ (1,806) $ (4,302) $ 435 Federal - deferred 5,252 1,472 (3 994) 6,524 5,387 1231 investment credit adj 2,258 2,%2 3,340 1,586 1228 1,895 St:te - current 658 1,006 2.268 1 (481) 491 St1te - deferred 967 227 j687) 1,064 880 198 10,242 7,618 10,699 7,369 2.712 4.250 Tames on other income: Federa' - current 855 689 686 652 230 203 Federal - deferred 220 293 (1,306) 14 (3) 1 Investment credit adj (133) (61) 7 30 65 71 St te - conent 169 114 122 100 38 35 St;te - deWrred 43 48 (214) 3 (1) - 1,154 1,083 (705) 799 329 310 Tctat income taxes $11,396 $ 8,701 $ 9.994 $ 8,168 $_3 041 $ 4.560 itenn which resulted in deferred income tax expense are as follows (dollars in thousands): Year Ended December 31 1984 1983 1982 1981 1980 1979 Allowance for borrowed funds during construction $ 2,236 $ 1,866 $ 1,393 $ 1,503 $ 848 $ 1236 Deferred power costs 224 (449) (1,494) (1,164) 2,946 - Unbilled revenue 156 (41) (4,863) 4,200 2,035 - Terminated projects 2,978 (163) (1,679) 2,773 - - Additional depreciation for tax purposes 1,003 645 430 149 - - Other (115) 182 12 144 434 194 Total $ 8,482 $ 2,040 $ (6.201) $ 7,605 $ 6,263 $ 1,430 As of Isecemte r 31,1984, deferred taxes haw not been recorded on approximately $31,000,000 resulting from the cumulative effeet of various timing differences. Of this amount approximately $26,000,000 relates to plant placed in unice prior to 1981. In conformity with the rate making practices of the PSB, amortization of these timing differences presiously flowed through to ratepayers legins January 1,1985 and the deferred taxes related to these timing differ-ences till te prmided ratably, as they are billed in rates, mer a period extending through 2001. The principal reasons for the differences between the total income tax expense and the amount calculated by applying the Fe&ralincome tax rate to income before tax are as follows (dollars in thousands) Year Ended December 31 1984 1983 1982 1981 1900 1979 income before income tax $33,103 $26.955 $26,204 $22.034 $11,943 $14,327 Feder;l statutory rate 46 % 46% 46 % 46% 46% 46 % Computed " expected" tax expense $15,227 $12,399 $12,054 $10,135 $ 5,494 $ 6,590 Increases (reductions)in taxes resulting from: Allowance for equity funds dunng construction (3,788) (3.040) (1,645) (1,186) (1,148) (774) Dividend received credit (1,000) (1,137) (994) (951) (901) (934) Additional depreciation for tax purposes (215) (299) (375) (533) (597) (530) State inconio taxes net of Federal tax benefit 991 753 804 631 235 391 Investment tax credits (245) (161) (135) (111) (81) (55) Other 506 186 285 183 39 (128) Totalincome taxes $11,396 $ 8,701 $ 9.994 $ 8,168 $ 3.041 $ 4.560
I Note 9-Retirement benefits:The Company has a non contnbutory trustml pnsion plan covering all neular employres and follows the consistent practice of currendy funding all costs accrued. Total pension costs amounted to 28 $908,000, $1,018,000, $1,125f00, $1,301,000, $1,252/00 and $1,146,000 for the years 1979 through 1984. including amortization of the unfunded actuarial liability mer a thirty year period loginningJanuary 1,1976. A comparison of accumulated plan tenefits and plan net assets is presentid Irlow (dollars in thousands): January 1 1984 1983 Actuanal present value of accumulated plan benefits Vested $10,160 $ 9.624 Nonvested 1,273 679
$11,433 $10.303 N' issets available for benefits $14,309 _11,893 The assumal rate of return used in determining the actuarial present value of accumulatal plan tenefits was 6.5% for 1983 and 1984.
In addition to prmiding pension tenefits, the Company pnnides certain health care and hfe insurance tenefits for retired employees. All full time employees may locome eligible for those lonefits if they reach retirement age while working for the Company.The Company recognizes the cost of providing these tenefits as they are paid. In 1984 these costs were $128,000. Note 10-Commitments and contingencies: For many years the Company has purchased hydnelectric power generated by the New York Power Authority (NYPA), under contracts which expire June 1985.ne Company anticipates that its future entidements under contracts presently tring negotiatal willle steadily ntluced over a ten-year periol. Replacement sources of power willle more costly.The Company also purchases p>wer from a coal find g(nerating plant ownni by Public Smice Company of New ilampshire (PSNil) under a thirty year contract w hich expires April 30,1998.The penentages of the Company's total p>wer output from all sources were as follows: Year Ended December 31 Source of Energy 1984 1983 1982 1981 1980 1979 Nuclear generating companies 44 % 42% 57 % 45% 39% 41 % NYPA-hydro 15 16 16 18 19 22 PSNH-coal 12 10 7 8 11 11 Company-owned hydro 7 8 7 9 7 9 Miscellaneous 22 24 13 20 24 17 100 % 100 % 100 % 100 % 100 % 100 % Vermont Yankee plans to shutdown for eight months for pi le repairs commencing in September 1985 and replacement energy during that shutdown will be substantially more costly than energy from Vermont Yankee. Replacement power will Ic nt eival from the transmission irterconnect at flighgate, schaluled for completion of con-struction in Septemler 1985, and from short term purchases from other utilities. In the past, when Vermont Yankee was shutdown for a significant duration, the PSB has permitted the Company to defer and amortize the incremental cost of n placement energy mer a period of live years for rate making purp ses 'Ihe Company intends to apply to the PSB for reemvry of theincremental cost of the 1985 shutdown. The Company's ownership interest and its share of amounts imrsted at year end in thejointly owned generating facilities in w hich it is participating are as follows (dollars in thousands): December 31 MW OwnereNp~ EnMoment 1984 1983 l Plant in service: Wyman#4 1.77690 % 11 $ 3.217 $ 3.235 Joseph C. McNeil 20 00000 % 10 14.144 -
$ 17,361 $ 3.235 Under construction:
Millstone #3 1.73030 % 20 $ 56.862 $ 42,333 Seabrook #1 1.590 % % 18 60.077 44.556 Seabrook N2 1.59096 % 18 - 12.224 Joseph C. McNml 20 00000 % 10 - 12.485
$116.939 $111,598 l
Wyman 84, an oil find generating plant, commenced commercial operation in Decemler 1978, and the Joseph , C3 Nnl woid find generating plant, commenad commercial ogeration in June 1984flhe Company's share of oper- I ating expenses for these two plants is included in the cornsp>nding op rating accounts on the Statement of Income. (
'the Ellstone lYoject is s< halukd for completion in 1986.
1
For the Ellstone and Seabrook #1 nuclear generating units, the Company is obligated to proside funds in future years estimated to total $62,000,000 (including AltC and present commitments for nuclear fuel) to be required approximately as follows: 1985, $12,000.000; 1986, $18,000,000; and 1987, $12,000,000. In addition, the Company is obli- 29 gated to proside funds in a future perial estimated at approximately $1,300,000 as its joint ownership share of the costs related to the canceDadon of Seabrook #2. See Note 2 for recent dewlopments concerning the Seabrook Project. The Company is also prticipating with other ekctric utilities in the ecnstruction of two major Canadian trans-missioa interconnnt projects. As of Ikcember 31,1984. the Company has invested $4,100,000 in the liighgatejoint. ownership facility being constructed in northwestern Vermont 'the Company is obligated to proside funds in 1985 of approximately $8,400,000 as its 45.45T, share of the liighgate project,which is expected to te in operation in the fau of 1985. Also, the Compny is obligated to make an equity investment of up to a maximum of $5,800,000 in the Phase I liydro Quebec transmission interconnection fa ilities teing constructal in northeastern Vermont, w hich are expected to le completed by late 1986. The Company is subject,like other elatric utilities, to wohing standards administered by Federal, state and local au'horities relatmg to the quality of the emironment. These standards affa t the siting of generating facilities, air and water quality, nuclear plant licensing and safety and other emironmental factors. While these standards have had some impact upon the Company's past operations as a distribution company, the Company anticipates that they will continue to have a significant impact upon the capital costs and construction schedules of the new generating failities in which the Company is participating. Minimum rental commitments of the Company under non cancelable leases as of Ikcemler 31,1984, are not material Total rental expense entering into the determination of net income, consisting principally of vehicle and equipment rentals, was approximately $1,370,000, $1,571,000, $1,731,000, $1,924,000, $1,837,000 and $1,811,000, resprtively, for the years 1979 through 1984. Note 11-Unaudited information concerning the effects ofinGation:The followinginformationis supplied for the purpose of providing certain information about the effects ofinflation. It should te siewW as an esti-mate of the approximate effat of changing prices, rather than as a praise measure. A statement of income a4usted for changes in sgrific prices (current cost) as measured by the llandy Whitman index of Public l'tility Construction Costs follows(dollars in thousands): Yea Ended December 31,1984 Conventional Adjusted Historical for Changes in Cost SpeciAc Prices Operating revenues $155.637 $155,637 Operating expenses Operation and maintenance 117,897 117,897 Depreciation 4,916 13,761 Other taxes, pnncipally property taxes 5.783 5,783 Taxes on income 10,242 10,242 Total operating expenses 138.838 147,683 Operating income 16,799 7,954 Other incomo and deductions, not 12,417 12.417 Interest expense, net (7,509) (7,509) Net income (excluding reduction to net recoverable cost) $ 21,707 $ 12.862* Gain from decline in purchasing power of net amounts owed $ 5,012 Reduction to net recoverable cost (137)
$ 4.875 Effect of increase in general pnce level $ 14,4/6 increase in specific pnces (current cost) of property, plant and equipment held dunng the year" 8,762 Excess of increase in general pnce level over increase in specific pnces $ 5,714 *Includ.ng the reduction to nel recoverable cost, net income would have been $ t 2,725 "At December 31, t 984. the current cost of utaty plant net of accumulated depreciaton was estimated to be approxi-mately $389181 as compared with the net utAty plant recoverable through deprec.ation of $248.904 in preparing the abow data, historical costs of only property, plant and equipment, comprising existing plant in senice, plant held for future use and construction work in progress, and the related depreciation were a4ustal The resulting a4usted data for property, plant and equipment are not indicative of the current value of existing property, plant and equipment nor of the Company's future capital requirements. The actual replacement of existing proferty, plant and equipment will take place owr many years and not necessarily in the same manner as the presently existing assets.
c
Accumulated provisions for depreciation under the method described above cas determined Ly talculating the ratio of historical accumulated depreciation to historical depreciable property by year of acquisition and applying the resultant 30 ratio to estimated current cost of property, plant and equipment The current year's provision for depreciation was deter - mined by applying the Company's depreciation rate to the restated depreciable plant base at the beginning of the year. Re effects of inflation are not recogruzed for income tax or rate-making purposes. Under the rate-making pre-scribed by the regulatory commissions to which the Company is subject, only the historical cost of property, plant and equipment is recoverable in revenues as depreciation. Therefore, the excus of the cost of plant stated in terms of cur-rent cost over the historical cost of plant is not presently recoverable in rates as depreciation and is reflected as a reduc-tion to net recoverable cost. While the rate-making process gives no recognition to the current cost of nylacing prop-erty, plant and equipment, based on pst practices, the Company beliews it will be rJ! owed to earn on the increaxd cost of its net investment when replacement of facilities actual'y occurs. During a period of 11Jlation, ho'ders of monetary assets suffer a loss of general purchasing power while holders of monetary liabilities experience a gairt De gain from the decline in purchasing power of net amounts owed is primar-ily attributable to the substantial amount of debt which has been used to finance property, plant and (quipment. Since the depreciation of the utility plant is limited to the recovery of historical costs, the Company does not haw the oppor-tunity to realize gain on debt and is limited to recovery only of the embed (kd cost of debt capital Therefore to haw the Statement of income a4usted for Changing Prices properly reflect the economics of rate regulation, the gain from the decline in purchasing power of net amounts owed should be offset by the reduction of net property, plant and equipment A six year comparison of selected supplementary financial data a4usted for the effects of changing prices stated in average 1984 douars follows (dollars in thousands exTpt amounts per share)- l Year Ended December 31 l 1984 1983 1982 1981 1980 1979 Operating revenues $155,837 $150,138 $143,835 $134,009 $114,375 $111,883 Current cost information Net income (exclAng reduction to nct recoverable cost) $ 12,882 $ 10,673 $ 9,407 $ 8,296 $ 3,842 $ 6.664 Net income per share of common stock (excluding reduction to net recoverable cost) $1.75 $1.53 $1.41 $1.35 $ 30 $1.06 increase (decrease)in general pnce level over increase (decrease)in specific prices $ 5,714 $ 7,904 $ (13,959) $ 18,890 $ 12,702 $ 14,181 Net assets at year-end at net recoverable cost $139,213 $132.984 $115,537 $ 97,479 $ 98,366 $107,726 Generalinformation Gain from decline in purchasing power of net amounts owed $ 5,012 $ 4,323 $ 4,339 $ 9,849 $ 12,970 $ 13,728 Cash dividends declared per common share $1,83 $1.79 $1.74 $1.69 $1.76 $1.82 Market price per common share at year-end $17.13 $16.30 $17.55 $1500 $13.59 $16.90 Average consumer pnce index 311.1 298.4 289.1 2/2.4 246 8 217.4 Note 12-Unaudited quarterly Anancialinfbnnadon:The following quarterly financial infonnation is unaudited and in the opinion of management includes all aiustments (consisting only of normal recurring accruals) necassary to a fair statement of results of operations for such periods. Variations trtween quarters reflect the seasonal nature of the Company's business (dollars in thousands except amounts per st"re): Ouarter Ended Merch June ",1.h December 1984 Operating revenues $46,702 $36.227 $34.331 $38,377 Operating income $ 7,831 $ 3,728 $ 1,721 $ 3.519 Net income $ 9.254 $ 4.878 $ 2.847 $ 4,728 Net income per share of common stock $1.43 $ 71 $ 38 $ 68 1983 Operating revenues $39.601 $35.355 $31,145 $37,908 Operating income $ 5,824 $ 2,438 $ 2,896 $ 3,943 Net income $ 6,426 $ 3,078 $ 3.656 $ 5.094 Net income per share of common stock $1.11 $ 48 $ 58 $ 78
RESPONSIBILITY FDR FINANCIAL STATEMENTS 31 1 Responsitility for the integrity and oliectivity of the finantial information presented in this Annual Report rests with the management of Central Vermont Public Senice Corporation. 'lhe accompanying financial statements haw been pre-pared in conformity with generauy accepted accounting principles, applying certain estimates andjudgments as required The Company maintains an accounting system and related controls directed towards the safe-guarding of assets and the reliability of financialinformation. An integral part of such controls is an internal audit program designed to monitor compliance with the Company's policies and procedures. Peat, Marwick, Mitcheu & Co., independent certified public accountants, are retained to examine the Company's con-solidated financial statements. Their accompanying report is based on examinations conducted in accordance with gener-any treeptal audting standards, including a miew of internal accounting controls and tests of accounting procedures and rcconis. The Audit Committee of the Board of Directors is composed solely of outside directors, and is responsible for recommending to the Board of Directors the selection of the indrpendent accounting firm to be retained for the coming year. The Audit Committee meets periodically and privately with the independent accountants, with our internal auditors, as well as with Company management, to resiew accounting, auditing, internal accounting controls and financial reporting matters. DIE 0DORE W.MllLSPAUGil Controller and Chief Accounting Officer DiOMAS C.% EBB ExecutiveVice Presidentand Chief MnancialOfficer i REPORT OF INDEPENDENT CERTIFIED PUBUC ACCOUNTANTS The StockholJers and Board rfDinrtors Central Vermont Public Service Corporation: We haw examined the consolidated balance sheet of Central Vermont Public Senice Corporation and its wholly-owned subsidiaries as of December 31,1984 and 1983 and the related consohdated statements ofincome and retained earnings and changes in financial position for each of the years in the six-year period ended December 31,1984. Our examinatiocs were made in accordance with generaHy accepted auditing standards and, accordingly, included such tests of the r: counting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the aforementioned financial statements present fairly the consolidated financial position of Central Vermont Public Senice Corporation and its whouy owned subsidaries at December 31,1984 and 1983, and the results of their operations and the changes in their financial position for each of the years in the six-year period ended December 31, 1984, in conformity with generauy accepted accounting principles applied on a consistent basis. PEAT, MAR %1CK,MilUiEll& CO. Boston, Massachets February 15,1985
32 HISTORICALSTATISflCS1979-1984 l l 1984 1983 1982 1981 1980 1979 COMMON STOCK DATA: Earnings per average common share $ 3.19 $ 2.94 $ 2.84 $ 2.80 $ 1.72 $ 2.05 Dividends paid per share $ 1.83 $ 1.72 $ 1.62 $ 1.48 $ 1.40 $ 127 Book value per share (year end) $20.09 $18.92 $17.81 $17.77 $1659 $16.38 Return on average common equ4y 16.2% 16.1 % 16.1% 16.4% 10.5% 12.9% Dividend payout ratio 57% 59% 57 % 53 % 81 % 62 % AFDC eamings/ share $ 2.06 $ 1.90 $ 1.31 $ 1.38 $ 1.06 $ .81 Net income for common (000's) $19,640 $16,009 $13,807 $11,370 $6,804 $7.995 Dividend cash coverage 1.8x 1.6x 1.1x 3.1x 2.5x 2.3x MARKET PRICE RANGE PER SHARE Hgh 17% 19% 17 13% 12% 13% Low 10% 14% 11 % 9% 9% 10% Year end 17% 15% 16% 13% 10% 11 % Market price as a percent of book value (year end) 85% 83 % 92% 74% 65% 72% Price camings ratio 5.4 5.3 5.7 4.7 6.3 5,7 Average number of common shares outstanding 6,164,662 5,443,318 4,854,777 4,056,351 3,% 2,755 3,895.369 Total common shares outstanding 6,272,565 6,047,786 5,243,309 4,107.348 4,005,568 3,928,432 l CAPITALIZATION DATA (000's): Common stock equity $126,031 $114,410 $ 93,406 $ 72,993 $ 66,467 $ 64,350 Non-redeemable preferred 15,151 15,160 15,186 15,212 15,236 15.258 Redeemable preferred 8,000 9,290 10,630 11.300 11.970 5,310 Long-term debt 117,021 116.078 90,547 89.357 75.760 67,548 Total capitalization $266,203 $254,938 $209.769 $188,862 $169,433 $152.466 Short-term debt $ 10,700 - $ 4,400 $ 7,800 $ 12,300 $ 13,500 CAPITALIZATION RATIOS: Common stock equity 47.3% 44.9 % 44.5% 38.6 % 39.2 % 42.2 % Non-redeemable preferred 5.7% 60% 7.2% 8.1% 9.0% 10.0% Redeemable preferred 3.0% 36% 5.1% 6.0% 7.1% 3.5% Long-term debt 44.0% 45.5% 43.2% 47.3% 44.7 % 44.3 % OTHER FINANCIAL DATA: Net utility plant (000's) $248,904 $220.040 $181,059 $149,197 $139,144 $124,930 Total assets (000's) $330,071 $296.462 $251,012 $233,834 $211,195 $180.514 Construction expenditures (000's) $ 34,440 $ 36,871 $ 33,338 $ 21,145 $ 15,573 $ 13,065 Internally generated funds as % of construction req. (Excl. AFDC) 37.8 % 22.4 % 39.9% 78.1 % 61.7 % 74.9 % Times interest earned: Before income taxes 3.8x 3.5x 3.8x 3.4x 2.7x 3.4x After income taxes 2.8x 2.7x 2.7x 2.5x 2.3x 2.6x Times interest earned and preferred dividend earned: After income taxes 2.4x 2.2x 2.2x 2.0x 1.7x 2.0x Embedded cost of long-term debt (year end) 10.21 % 10.21 % 9.73 % 9.67% 8.39% 7.95% Embedded cost of preferred stock (year end) 8.74% 8.99% 9 22% 9.32 % 9.71 % 8.73 % l l
f 33 1984 1983 1982 1981 1980 1979 k ( OPEMTWG MTA: ELECTRIC REVENUES (000's) l Residential $ 58,565 $ 53,530 $ 51,662 $ 49,310 $ 40,657 $ 36,462 Commercial and industrial 62,831 58,458 53,589 47,413 36,449 30.859 } Pub'ic authonty 8,925 8,611 8201 7286 5,971 5.488 Electric utilites-firm 8,143 7,360 5,1 51 4,819 5237 3214 Electric utilites-short-term 14,615 - . 13,584 13.080-6,552 710 415 l Other operating 2,558 2,466 1,980 1,959 1,711 1,747 TOTAL $155,637 $144,009 $133,663 $117.339 $ 90,735 $ 78,185 TOTAL (excluding short-term) $141,022 $130,425 $120,583 S110,787 $ 90,025 $ 77,770 ELECTRIC SALES MWH Residential 856,029 810.489 799,624 785,725 754241 724.041 Commercial and industnal 900,319 933,439 888,729 897,356 885248 848.646 Public authority 109,289 107,485 108,000 107,036 106,757 105,052 Electric utilities-firm 228,685 211,549 176,017 161,606 143,741 120,918 Electric utilities-short-term 364,295 333.610 360,197 160,619 22,588 27,471 TOTAL 2,525,617 2,396,572 2,332,567 2,112,342 1,912,575 1,826,128 TOTAL (Excluding short-term) 2,161,322 2,062,% 2 1,972,370 1,951,723 1,889,987 1,798,657 Annual percentage change-excluding short-term 4.8% 4.6% 1.1% 3.3% 5.1% 1.6% CUSTOMERS (end of year) Residential 106,033 104,374 102,303 101,377 98,910 96,966 Commercial and industrial 12,142 11221 10,908 10,902 10,624 10,562 Public authonty 2,150 2,122 2,130 2,183 2,172 2.442 Electric utilities 14 14 13 13 14 10 TOTAL 120,339 117,731 115.354 114.475 111,720 109.980 Annual percentage change 2.2% 2.1% .8% 2.5% 1.6% 1.9% Average KWH use per residential customer 8,124 7,858 7,880 7,866 7,704 7,541 Average revenue per residential customer $555.80 $519.02 $509.17 $493.68 $415.26 $379.76 Average revenue per KWH (cents) Residentia! 6,84 6.61 6.46 6.28 5.39 5.04 Commercial 8,21 7.86 7.47 7.41 6.31 5.91 Industnal 6,01 5.83 5.64 4.75 3.58 3.07 SOURCES OF ENERGY BY PERCENTAGE Hydro 22.2% 23.7% 22.9 % 29.7% 28.5% 31.4 % Nuclear 44.3 % 42.5% 56.8 % 45.4% 39.0 % 40.6% Coal 20.6% 18.6% 15.9% 14.6% 10.7% 11.2 % Oil 11.5 % 15.2% 4.4% 10.3% 21.8 % 16.8% Wood 1.4% - - - - - System capability (MW)(peak) 460 464 448 477 450 415 Reserve margin (peak) 12% 20% 14% 21 % 23 % 11 % System peak (MW) 410 388 392 395 365 373 Load factor 63.5 % 64.1 % 60.8 % 59.9 % 62.9% 58.8 % Numt:3r of employees 588 585 585 583 574 577
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36 SHAREHOLDERINFORMATION NEW EQUITY RAISED FROM The significant advantages of the Dividend Reimestment Plan g AND have attracted steadily increasing numbers of our 18,000 share-holders. Nearly 5,000 shareholders now regularly remvest their div,- i uwm 30 dends in additional shares of CV common stock at a five percent dis-count from the current market price with no brokerage or service charges to pay. 25 E~ In 1984 the plan was modified to permit optional cash payment
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of up to $20,000 in a calendar year. Previously, the plan limited such payments to $5,000 quarterly. The 1984 tax law changes left intact the provisions of the Economic Recovery Tax Act of 1981, which permit stockholders to exclude reinvested dividends from current is gross income for federal income tax purposes, up to an annual limit i of $750 or $1,500 with ajoint return through 1985. Such shares held 10 i I at least a year qualify for the long-term capital gains tax rate when sold. To learn more about the Dividend Reinvestment Plan, mail the 3 _ Jfl,l I card inserted in this report for a prospectus and details. II 78 79 80 I 81 82 83 I 84 Common Stock Prices and Dividends PERCENTAGE OF SHAREHOU)ER PARTICIPATION Dividends IN DMDEND REINVESTRENT AND 1984 Hiah Low PerShare COMMON STOCK PURCHASE PLAN Ps:centage 4th Quarter 17% 14% .475 30 3rd Quarter 15% 13% 45 2nd 0uarter 14% 10% .45 1st Quarter 16% 13% .45 25 E 1983 20 'I 4th0uarter 3rd Quarter 19% 18% 17K 14% 15%
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i 10 E E E 5 = = = Distribution of Common Shareholdmgs Record Dale December 31,1984 [~ m E m e E m e ShareholderAccounts Shares 78 79 80 81 82 83 84 Number % of Total Shares Number % of Total 4,668 30.5 1-99 181,904 2.9 8,418 55.0 100-499 1,850,402 29.5 1,561 102 500-999 1,047,516 16.7 658 4.3 1000 + over 3,192,743 50.9 15,305 100.0 6272,565 100.0 i i
COMPANYINFORMATION CentralVermont Public Service . Corporation common stock is traded on the New York Stock Exchange.Our symbolis CV.The companywelcomes inquiries from individuals and members of the financial community. Our tele-phone numberis (802) 773-2711. ANNUAL MEETING ' The annual meeting of share-holders is scheduled for Tuesday, May 7, 1985,at the College of StJoseph in Rutland, Vermont Notice of the meet-ing, proxy statement and proxy, have been mailed to holders of common stock with this annual report TRANSFER AGENT AND REGISTRAR The First National Bank of Boston, Boston, Massachusetts 02102 for Common Stock and allseries of Pre-ferred Stock. PLEASE NOTE We have prepared this report for the information of security holders, ana-lysts, company personnel, customers and other interested persons. It is not transmitted in connection with the sale of anysecurity. I
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