ML20210C167
| ML20210C167 | |
| Person / Time | |
|---|---|
| Site: | Oconee, Mcguire, Catawba, McGuire, 05000000 |
| Issue date: | 12/31/1985 |
| From: | Booth D, Willie Lee DUKE POWER CO. |
| To: | |
| Shared Package | |
| ML20210C127 | List: |
| References | |
| NUDOCS 8609180260 | |
| Download: ML20210C167 (49) | |
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l' i About the Cover About DukePower l Stands of virgin timber domi- Company j nate the Coon Branch Natu-ral Area along the White i Water River in northwestern l South Carolina. The land, l purchased by the Company in 1910. is one of three natural
, areas permanently protected under long-term leases 4
- between Duke Power and the Society of American Forest-i ers. Land preservation is one
- facet of Duke Power's tradi-i tion of emironmental stew-ardship, described in a special virginia 1 section beginning on page 13.
Tennessee I North Carolina 6 f l Georgia South Carolina l i i Duke Power is the seventh largest investor- 96 district and branch offices. The Company owned electric utility in the nation, with a also sells electricity at wholerale and contrac-20,000-square-mile service area in North tual rates to bulk users. Carolina and South Carolina. Duke's three Sales totaled 56.1 billion kilowatt-hours in i nuclear stations, eight coal-fired plants and 26 1985, with approximately 70 percent derived I hydroelectric facilities provide electricity to from North Carolina and 30 percent from South Carolina. Revenues totaled $2.9 billion. 1 more than 1.4 million customers. Duke's retail customers are served through Duke is headquartered in Charlotte, N.C. l < I 4
)
l 1
l Financial Highlights [;;",aj 1985 1984 (decrease) Kilowatt-hour sales 56,058,479,000 54,399,254,000 3.0 Electric revenues . $2,898,911,000 $2,710,015,000 7.0 Earnings for common stock $ 376,681,000 $ 399,545,000 (5.7) i Common Stock Data Average shares outstanding . 101,178,000 100,346,000 0.8 l Earnings per share . $3.72 $3.98 (6.5) Dividends per share . $2.54 $2.42 5.0 Ikxik value per share (year-end) . $28.98 $27.80 4.2 Return on average common equity . 13.1% 14.8 % (11.5) I'lant construction costs . $ 657,172,000 $ 644,754,000 1.9 Total electric plant, net $6,392,161,000 $6,152,618,000 3.9 l'eak k>ad (Kw) Summer . 11,204,000 11,043,000 1.5 Winter 12,687,000 10.863,000 16.8 , Eamings per share Retum on average common equity COutCHIS i o,u, man I liighlights 2 Letter to Shareholders i 6 Year in Review . i 13 " Protecting the Environment: i When Good Citizenship t l Is Gooci Business" l 22 Financial Statements i 26 Notes to Financial Statements 34 Auditors' Opinion im iw m m ms nw tw v*u in ms and Responsibility e owmm-w as wam ouse
- - ._ , n- w mas u.w
- uom e;m
,n %,w . ." for Financial Statements
-.w
; r ? C " " ~ ~ """* " 35 Management's Discussion and Analysis 39 Other Financial Data ;
44 Board of Directors and Officers 1 l l
l l q F Q "'~~?" ,- e To Our Shareholders:
, . uke Power facM major challenges in
-" ~;d 1985, while .: . the same time achiev-
+
, _% mg a number af long-sought goals.
.+ < e First, the challenges.
E Earnings per share of common stock
'~ JJ" decreased to $3.72 from $3.98 in 1984 -
. "in the first decline in 10 years.
E Completion of Unit 1 of Catawba Nuclear Station required the Company to ask for sub-
^
stantial increases in rates to its customers. E Kilowatt-hour sales to textile customers
'N declined 2 percent, reflecting the severe pres- ,
sure ofimports on that industry.
- E Several hundred employees were laid off as our nuclear construction program neared f.
s
- completion.
E The Company continued to carry canceled nuclear plants as non-earning assets, and we earned returns substantially below our cost of capital on financialinvestments. , E Efforts to repeal the outdated Public Utili- ! ties Holding Company Act and to modify cer-tain provisions of the Federal Power Act met stiff resistance in Congress. We are acting vigorously to deal with those challenges within our control and to shape
; hose others outside the Company's direct control, all in the interests of our sharehold-ers and customers. t wmiam x he l>ouglas W Ihmth Earnings Per Sharc Decrease l
l he 6.5 percent decrease in earnings , per share resulted from a combination of factors: higher maintenance costs, reduced nuclear performance, a larger invest-l ment in low-yielding securities, and lower-I than-projected kilowatt-hour sales. 1 l The increase in maintenance costs reflects I more extensive maintenance requirements at l some of our older plants as well as the addi-I tion of new plants. Those costs are not yet fully reflected in rates. While our nuclear units performed well by industry standards in 1985, they fell short of their record performance of 1984. The difference had a significant impact on year-to-l year earnings results. Following the December 1984 sale of a portion of Unit 1 of the Catawba Nuclear Sta-i 2
. tion, our investment in generating plants was The Company plans to file this spring for substantially reduced. The funds received rate increases to reflect commercial operation from that sale have been invested in securities of Catawba Unit 2.
that offer a lower return than capital invested Catawba Begins Operation
. m generatmg plants. Eventually this money will be used for utility projects or diversified . ong with the rate increases, the year's
, business opportunities. most notable accomplishment was the l In addition to the decline in sales to textile commercial operation of Catawba customers, sales to residential customers fell Unit 1. slightly, reflecting unsaasonably mi'd weather. We're proud to report that we brought the Total kilowatt-hour sales, including electricity 1,145,000-kilowatt unit into service on June supplied tojoint owners of the Catawba 29 at the lowest cost per kilowatt of any initial Nuclear Station, rose 1.7 percent in 1985. unit of a nuclear plant of similar vintage in the Earnings from subsidiaries, other non- nation. utility businesses and investment income con- This achievement is particularly gratifying tributed 54 cents to earnings per share, up in view of the difficult economic and regula-22.7 percent from 44 cents in 1984. tory conditions we faced during the decade of Total return on average common equity its construction. ! decreased to 13.1 percent, compared with As Catawba Unit I was starting commer-14.8 percent in 1984. cial service, Catawba Unit 2 was undergoing Both return on equity and earnings per hot functional testing, which simulates opera-4 share have been negatively affected during ting conditions. The testing was completed in the past few years because we have not been October, and uranium fuel is expected to be allowed to recover carrying costs on the loaded into the reactor in the spring of 1986. unamortized portion of our investment in the Unit 2 is expected to generate its first elec-canceled Cherokee ~.d Perkins nuclear tricity during testing this summer and could , stations. begin commercial operatic n as early as this fall. Completion of Catawba Unit 2 will mark ! Key Rate Increases Granted . the end of one of the largest and most suc-his year of difficult challenges was also cessful nuclear plant construction programs in marked by several landmark successes. the nation. The course we began in 1967 with In two of the most important rate cases our first Oconee unit proved to be more diffi- ! the Company has ever filed, we were granted cult than we expected, but we met the chal-rate increases in both North Carolina and lenges and succeeded even in the face of ever-South Carolina to cover all our costs for changing regulations and near-crippling Catawba Unit 1. inflation. Although some of these costs are being Although completion of our nuclear con-recovered on a levelized basis, receiving fair struction is good news for shareholders and treatment on this initial Catawba rate case customers, it did require us to lay off several was especially important to the Company's hundred of our experienced, highly skilled long-term financial health. construction employees. Fortunately, we were Despite strong opposition from interve- able to place nearly 300 others in available nors, regulatory commissions determined that Company positions through the end of 1985. our decision to build Catawba was prudent and that the unit's generation is needed to I meet the expanding energy needs of the Pied- he Company and the entire electric mont Carolinas. The commissions also ruled utility industry face several political that the Company's decision to sell portions of challenges that eluded resolution in the plant to groups of municipal and electric 1985. cooperative customers was in the best inter- We were unable to persuade Congress to est of all Duke Power customers. repeal the Public Utilities Holding Company 3 l '
- Act of 1935, which we feel significantly ment of the electric light and power industry impairs the flexibility of holding companies for the convenience of the public and the and their subsidiaries operating in more than benefit of all." It is the second time in our one state. The abuses the act originally history we have won this special honor.
addressed are now controlled by other, more Winning the Edison Award is a tribute to effective means. our 20,000 employees. Their expertise and Congress also failed to modify provisions of dedication are unsurpassed. the Federal Power Act, which in some circum- Employee excellence also earned one of the stances give preference for hydroelectric nation's highest awards for environmental licenses to public entities, such as municipali- protection - a 1984 Conservation Achieve-ties, over investor-owned utilities. The provi- ment Award from the National Wildlife Fed-sions would deny the customers of investor- eration, the country's largest conservation owned utilities access to low-cost hydro- . organization. electric power when the licenses come up for The Federation called the Company's envi-renewal. ronmental staff and programs among the best We will continue to work in support of in America. Our long-standing commitment to these changes, because they would benefit emironmental stewardship is the focus of a both our customers and our investors. special section of this year's report, beginning Congress did pass legislation in late Decem- on page 13. ber that set a schedule for states to build These awards, along with continuing effi-regio'nal sites for the disposal of low-level ciency records in building and operating our radioactive waste. The new law assures the generating facilities, result from the outstand-Company continued access to its current dis- ing performance of members of the Duke posal site in South Carolina and provides for a Power team. new regional site by 1993. Finally, we would like to welcome Dr. Rob-Duke Power faces another challenge in ert Albright, president of Johnson C. Smith increasingly fierce competition from natural University to the Board of Directors. His abil-gas utilities. The Company's share of new res- ities as an educator, administrator and cisic idential space and water heating connections leader will provide an important contribution declined to approximately 55 percent and 80 to the Company. percent, respectively, in 1985. Duke has step- Thank you for your continued support. Let ped up efforts to increase its penetration in us hear from you if you have questions about these markets. your Company. Employees Earn Awards Awe 1985, worked our employees were to recognized meet the h challenges of for outstanding performance in sev. William S. Lee eral areas. Chief among these honors was Ch8i nan of the Board and j the Edison Electric Institute's 1984 Edison "'#"* @"' Award - our industry's highest honor. The p award cited Duke for excellence in nuclear Me# plant design, construction and operation, along with our effective Power in Citizenship ".fy s W Booth voter-awareness campaign. Chic / operating Officer The Edison Award is given each year for a
" distinguished contribution to the develop. I+6ruary 14,19s 4
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Year In Review gg Financial Results arnings per share of common stock Edecreased 6.5 percent to $3.72 in 1985 from $3.98 in 1984. Total earn- , ings for common stock were $376.7 million, down from $399.5 million. The decline in earnings resulted primarily l from higher maintenance costs, reduced nuclear performance, a larger mvestment m low-yielding securities and lower-than-
- prejected kiiowatt-hour sales.
Earnings from subsidiaries, other non-utility businesses and investment income con-hy((h[ sum en-- tributed $54.2 million to total earnings, com- ,
- pared with $44.2 million in 1984. Duke has increased its quarterly cash divi-i Total return on common equity decreased dend for 10 consecutive years. The Compa-to 13.1 percent, down from 14.8 percent. ny's practice is to raise the dividend regu'.arly ,
Earnings coverage of fixed charges and maintain a payout ratio of about 65 , decreased to 3.87 times from 4.21 in 1984, percent. slipping below the Company's goal of four Financial Statements and Notes begin on times. page 22. . Duke generated 62 percent of its capital Sales and Customers requirements internally in 1985. The Compa-ny's goalis to fund 50 percent or more of cap- mal kilowatt-hour sales, including - i ite Can. lie Care are the ital needs from internal sources. electricity supplied to joint owners of ; l uurds inscribcdon the C flag. At year-end Duke's capital structure con. the Catawba Nuclear Station, rose 1.7 presented by itesident Reagan in sisted of 43 percent long-term debt,11 per- percent in 1985. i trcognition ofDuke Ilmyrs cent preferred and preference stocks, and 46 Sales excluding certain portions of the crceptionalcontributions to transactions with the joint owners of Catawba ; percent common equity. This ratio is consis. mluntecrism through its isnc- totaled 56.1 billion kilowatt-hours, compared
- tent with Company goals.
Income ilFatherization and with 54.4 billion in 1984. However, sales to in July the Board of Directors raised the Community Challenge llcating quarterly cash dividend on common stock to the Company's retail and wholesale customers ,
., # 65 cents per share from 62 cents. The were essentially flat.
$ p increase, effective with the dividend paid in Sales to genera 1 service and non-textile September, raised the indicated annual industrial customers increased 3.8 percent
!' dividend rate to $2.60 per share, and 1.9 percent, respectively, reflecting co 1- ,
up from $2.48. tinued economic expansion in the Piedmont Carolinas. Residential sales decreased 1.7 per- I L, "M
- cent because of mild weather.
l4 C Sales to textile customers dropped 2 per-i' I f cent. The decrease retlects p: ant closings and s - production cutbacks forced on that industry N by pressure from textile imports. s Wholesale and other energy sales rose 21 x percent. Of the Company's total kilowatt-hour sales i m 1985, residential customers accounted for 1 25 percent, general service custon:ers 20 i
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l l l parcert, non-textile industrial customers 21 included in rate base. The Company was per-percent and textiie customers 18 percent. mitted to recover, over the next 7% years in Wi.olecate and other energy sales accounted South Carol'na and 15 years in North Caro-for the remaining 16 percent. lina, certain costs of power purchased from More than 43,700 customers were added other Catawba owners. to the Duke system in 19fs5 - the largest Some of the intervenors in the North Caro-annual increase in 20 years. As of December fina rate case have appealed parts of that com-31 Duke served more than 1.4 million cus- mission's decision to the North Carolina tomers, t!p 3.1 percent over a year ago. Supreme Court. l Er addithnalinformation on sales and Duke originally requested a 19.65 percent, cast.w.crs, see page 40. or $340 million, increase in North Carolina l with a return on common equity of 16.25 per-I M1"" cent. The Company subsequently revised its l request to 16.9 percent, or $293 million, low-I ering the requested return to 15.25 percent in light of a decline in interest rates. The revised request also reflected ad.iustments for the actuai commercial operation date of Catawba Unit 1. The Company had sought a 19.87 percent, or $143 million, inctease in South Carolina with a return on common equity of 16.25 per-cent. This was later adjusted to 17.3 percent, or $124.5 million, with a 15.25 percent return. m % .. w w In each state the Company had requested 3 C77 3 t?,7"* recovery of all costs of Catawba Unit I with- ! * * * ~ out levelization. l Retail rate increase requests will be filed in fates and Regulan.on both North Caro!ina and South Carolina in the tih ties commissions in both Nortn spring of 1986 to reflect commercial opera-1 CaroEna and South Carolina approved tion of Cetawba Unit 2. J inctcases in the Company's retail elec- See Note 2 on page27)br additional tric rates in 1955, primarily to cover commer- informativr. cial operation of Unit 1 of the Catawba . Nu: lear Station. U*.*" "8 Tiie North Carolica Utilities Commission o granted a 9.1 percent, or $157.7 miliion, d ma.r thenothird rketed consecutive new offerings year, of common Duke incirase effective September 17. The com- . stock in 1935, and no sales of any kind mission allowed the Compaay the opportunity are plamied far the near future. to earn r.14.9 percent rate of return on com- Taking advantage of lower interest rates, mon equity. Dake issued $125 million of new bonds in l On (ktober 8 The Public Senice Conmns- April and used part of the proceeds to refund i rion o fSouth Carolina approved a 10.76 pt r- the entire $100 million of its 14% percent , i cent, or $76.4 mi" ion, increase with a 14.75 bonds due in 2010. The new bonds carry a percent rate of return. 12% percent interest rate and mature in in each case the commissions allowed the 2013. Replacing the old bonds will result in Coniplay to recover ail costa associated with appmximately $23 million in savings for the Catawba Umt 1, although somecosts will be Company's customers over the next 25 years. recovered on a levelized basis. Duke *S 12.5 The rem 1inder of the proceeds was used in percent ownersh;p it. tere-st in Catawba was emmeetion with the March retirement of 14% r
gpyi stmeture ee.c-oe=== Construction I uke Power moved within a step of completing its nuclear plant construc-tion program in 1985. i Unit 1 of the Catawba Nuclear Station, located in York County, S.C., began commer-cial operation in June after more than 11 years of construction. At Catawba Unit 2, Duke completed hot functional testing, which simulates operating conditions. Fuel is expected to be loaded into the reactor this spring. Pending licensing by the Nuclear Regulatory Commission, the unit is expected to begin commercial operation in 5 cm.' % d E m e. A ere % ex , the fall of 1986. !
=** In January 1986 the Company announced a
$163 million reduction in the estimated cost percent bonds due in 1987. of the two Catawba units. The 2,290,000-1 In December the Company issued $50 mil- kilowatt plant is expected to be completed at lion of 10% percent bonds due in 2015. The a cost of $1,632 per kilowatt, down from an '
proceeds were used in January 1986 to refund earlier projection of $1,703. Catawba will be the entire $50 million of outstanding 13% the nation's lowest-cost nuclear station to be percent bonds due in 2010. Replacing the completed in 1986. 13% percent bonds with 10% percent bonds Work on Bad Creek Hydroelectric Station, will save the Company's customers approxi- located just above Lake Jocassee in Oconee mately $23 million over the next 25 years. County, S.C., was about 7.3 percent complete Duke may issue additional long-term debt at year-end. Units 1 and 2 of the four-unit, over the next several years in order to retire 1,000,000-kilowatt, pumped-storage facility 1 other high-interest issues, if market condi- are scheduled for operation in 1991. Units 3 tions permit. and 4 are slated for service in 1992. l
, Sec pages 39 and 40jbr additional Pumped-storage hydro plants pump water i infhrmation. from a lower reservoir to an upper reservoir Eamings coverage of fixed charges N src -o at times of peak electnc demand.
1 Generation and Capacity uke Power generated more than half D1985 for the second of its electricity with nuclear power in Nuclear units produced 54 percent of total system generation, the same as in 1984. Duke's network of eight coal-fired stations produced 44 percent of the Company's power, up from 43 percent in 1984. Hydroelectric plants and combustion turbine units supplied 2 percent of total generation, down from 3 , percent. l Catawba Unit 1 contributed 4.3 billion kilo-i~ w im % ms watt-hours of electricity to total generation this past year. The 1,145,000-kilowatt unit generated its first electricity during testing 8 1 1
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3 I January 22,1985, Generating Efficiency Babcock and Hilcox. manu//ac-and began com- ' " " #"" uke Power operated the most efficient $, ,,(7,# f f y7 "]f ,"g ,"p mercialoperation . coal-fired electric generating system scntcd th<ke Iburr reith a gold une .
- J in the nation again in 1984, according clock in honor of the unrld nr.
Although Duke,s > to Eh ctric Light & &ccrmagazine's most ordxt by Oconce Unit 2 in carly nuclear system did not recent survey of the country's 100 largest 19s/>r 439 days ofuninter-operate at 1984 s record levels,its perform- investor-owned electric utilities. rupt. d ut cration. ance in 1985 continued to outpace the indus- The Company's network of eight coal-fired try average. The six-reactor system achieved power plants has ranked first in efficiency in an overall capacity factor of 68 percent, down
, the annual survey 13 of the past 15 years, from 76 percent, but well above the industry Unit 3 of Duke's hlarshall Steam Station average of approximately 60 percent. was named the nation's most efficient individ-(Capacity factor refers to the amount of ual coal unit for the second consecutive year.
electricity a unit produces in relation to the S x of the Company's coal units placed among amount it theoretically could produce if oper- the top nine in the survey of more than 2,000 ated at full power without interruption.) units Oconee Nuclear Station led all Duke . If Duke's coal-fired generating system had nuclear stations with a 75 percent capacity operated at the average efficiency of the sys-factor. Oconee Unit I led all individual units tems surveyed, fuel costs would have been with a capacity factor of 94 percent. $76 million higher in 1984. Oconee Unit 2 completed a world-record h1arshall, Duke's run of 439 consecutive days of operation on secondlargest February 21,1985. The 860,000-kilowatt coal-fired power unit generated more than 8.6 billion kilowatt- plant, celebrated hours of electricity during the period. its 20th anniver-Duke Power s generating capacity as of sary in 1985' December 31,1985, totaled 14,739,000 kil - The four-unit' watts. It consisted of 6,603,000 kilowatts of 2,030,000-kilowatt ' coal-fired capability,6,085,000 kilowatts of station has led the nation in generating nuclear power, 1,452,000 kilowatts of hydr
- efficiency 13 times in its history, placing sec- -
electric power and 599,000 kilowatts of com- ond five times and third twice. It has gener. N,r the 11th consecutirr ycar, bustion turbme umts. Coal-fired units repre- /> uke's coal-fired sencrating sys-ated more than 215 billion kilowatt-hours of sented 45 percent of total capacity, nuclear electricity. '"" "'"$ '"" *'d *'8' i" 'h' ""~ units 41 percent, hydroelectric plants 10 per- Duke's hicGuire and Oconee nuclear sta- '#"" #" /"## '*I'"'I cent and combustion turbines 4 percent. tions ranked as the two most fuel-eflicient Net generadon nuclear stations in the nation in 1984, accord-
* * " " ing to data published by the Nuclear Regula-tory Commission.
Rated individually, the Company's five operating nuclear units placed among the eight most efficient units in the country. ( If Duke's nuclear system had operated at the average efficiency of all nuclear systems in the United States in 1984, fuel costs would have been approximately $48 million higher. Peak Demand / Energy Management ustomer demand on Duke's generating En nA~% J.1 sam 1, Csystem hit an all-time peak of 12,687,000 ki!owatts on January 21,
.. -- - .- 1985, when record cold temperatures chilled y
The new peak was 9.8 percent above the watts and winter peak by 6.9 million kilowatts previous all-time peak of 11,554,000 kilowatts by the year 2000. set August 23,1983, and 16.8 percent above Employee Incentive Program the 1984 wmter peak of 10,863,000 kilowatts. Cumulative load management
/i 6m, Duke's 20,000 of 10 goalsin the Employee employees Incentive oals Program in 1985, saving the a
; Company and its customers millions of i dollars.
In addition to a cost-reduction bonus goal, C j employees met or surpassed targets in power
, plant design and construction, coal-fired gen-l erating efficiency, affirmative action, encrgy
{ management and personal health.
]' Since the program began in 1981, employ-ees have achieved 42 of 52 corporate goals -
l a success rate of greater than 80 percent. The Company bases additional contribu-I tions to the Stock Purchase Savings Program for Employees on the number of goals
% achieved.
== w.+ ua e-s Ten new .g.$,
incentive goals, The Company hit its summer peak for 1985,11,204,000 kilowatts, on September plus a benus tyh k % -
- 10. This was 1.5 percent above the 1984 goal for cost L$-gQ' ~
i reduction, have $ summer peak of 11,043,000 kilowatts. been set for 2: Although an all-time peak was set in 1985, efforts to curtail growth in peak demand con-1986.
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~
tinued to surpass Company targets. Through energy management and conser. Investor Plans vation programs, the Company cut the he Company developed two new ser-growth of summer peak demand by 384,000 vices in 1985 for its shareholders: kilowatts and winter peak demand by 487,000 Direct Deposit of Cash Dividends and kilowatts in 1985. the Small Shares Repurchase Senice. Since its inception in 1976, Duke's energy All shareholders will be contacted by mid-orrr the past/irr years. Duke management program has reduced summer summer and given the opportunity to sign up Ibarr s annual trports to sharr. peak by 2.2 million kilowatts and winter peak for Direct Deposit of Cash Dividends. holdcrs hare Iwn honored as by 2.8 million kilowatts. The Company's goal Through the senice, dividend payments will among the best in the utility is to reduce summer peak by 5.4 million kilo- be automatically credited to checking, savings '"d"57 or money market accounts the same day the dividend is paid. Small Shares Repurchase began in January 1986 and is available to shareholders owning fewer than 50 shares of common stock. The senice ensures that eligible shareholders who wish to sell their holdings may do so without paying brokerage fees that otherwise might make such sales uneconomical. To increase regional ownership of its com-mon stock, the Company will begin promoting I its Customer Stock Purchase Plan again this
/
10
f;l f~$ ' spring. The promotion effort will continue In 1985 Duke Power and its f - 94* - throughout the year. employees contributed more , /h ;, More than 6,700 Duke Power customers than $2.7 million to United Way y qg,* L bought shares through the plan in 1985, through local campaigns across , 5 investing more than $4.5 million in the the service area. This made the j$h . ./ Company. Duke Power team the largest "N - At year-end 23 percent of common share- single contributor in North Carolina and South \ holders and 11 percent of preferred share- Carolina for the second year in a row. l> uke employes led allother holders were participating in the Dividend Duke's extensive community service groups in North Carolina and Reinvestment Plan, investing an additional efTorts earned it special recognition from the South Carolina in 1985/or $24 million during the year. President of the United States in 1985. U"it'd IU'y contributions and Duke provided shares of common stock for President Reagan preserted the Company I'M"'"d J'"# d '"Il8 "I#'d cross blood donon. all its investor plans in 1985 through stock with a commendation from his Citation Pro-market purchases. gram for Private Sector Initiatives at White As a result, dividends invested in additional House ceremonies June 14. The award hon-shares of common stock through the Dividend ored Duke for " exceptional contributions to Reinvestment and Stock Purchase Plan and volunteerism," specifically its Low-income the Customer Stock Purchase Plan no longer Weatherization Program and its Community qualified for federal income tax deferral after Challenge Heating Fund. January 1,1985. As part of the award, the Company re-The Company is continuing to pay all com- ceived "C" flags, which stand for "We Can" missions and administrative costs of its inves- and "We Care," to fly over its facilities. ter plans. Duke was also recognized for contributions Shares for various employee stock plans to education and the arts. Both North Caro-have been provided through stock market lina and South Carolina honored the Company purchases since 1983. By purchasing shares for its Power in Education program, a com-in the stock market for all investor programs, prehensive effort to marshal the resources of the Company avoided issuing nearly 3 million business and industry to support public educa-new sharms in 1985. tion in the Carolinas. Community Service .The program is building a systemwide coa-lition between business and education with uke Power introduced a second pro- Duke serving as the catalyst. Dlow-income families pay winter heating gram in 1985 to raise money to help The North Carolina Governor's Award in the Arts and the Humanities was presented to bills. Through the program, called Share the Duke for exhibiting the works of k; cal artists Warmth, the Company included in electric in its offices and for organizing a traveling bills a one-time appe I for customer exhibit of donations. selected Duke shareholders matched individual works from D' N C G"""#'"#"8'""8 donations up to an overall total of $400,000. theCharlotte I C"""#d "" #" A'" ""# ""' Customer and Company contributions together made more than $652,000 available Mint Museum We ' ; j'j",
,'p f,f,'y#
f ,,r#["#' bu- " for display [ tions tc the arts. including spon-for home heating assistance. throughout soring a trarrling art ohibit The new program was a compam,on to the service - and displaying awrks o// oral Duke's four-year-old Community Challenge area. artists in company o#us. Ileating Fund, which matches money raised by various service organizations systemwide. l The Company doubled its contribution to that fund for the winter of 1985-86 to $300,000. By pledging $1 for every $3 donated by other sources, the Company would help make up to aii additional $1.2 million available. 11
N Subsidiaries / Unregulated Businesses including a joint venture to build a $4.5 mil-I uke Power's subsidiaries and , er li n Holiday Inn north of Charlotte, N.C. Crescent also completed a 100,000-square-unregulated businesses continued to expand their activities in 1985. f t, , build-to-suit facility at its Greenway Industrial Park south of Charlotte.
- Duke's Management and Technical Ser-
~ Established in 1969 to manage approxi-
- ' vices (MATS) organization, formed in 1982 to y, e n sa o supp e c s to uts e o pan es, ork n 106 ber for furniture, home-building and paper projects for 53 clients in 1985. Major projects ,
industnes m the Piedmont Carolinas. The
, included designing a low-level radioactive company harvested 38.5 million board feet of
. waste treatment facility, designing cogenera, timber and 72,900 cords of pulpwood and i tion plants and modernizing a hydroelectric planted 3.5 million seedhngs m 1985.
stadon. M ll-Power Supply Company's Sales Divi-my me i M gg sion, one of the largest electrical wholesale
- u ,,, ._a.- distributors in the Southeast, continued its f
MATS was also awarded a $13 million con- growth in the high-technology market by i tract to design an experimental coal-fired opening a 10,000-square-foot industrial com-boiler for a joint demonstration project spon- puter training and display center for its Mill-sored by Duke, the Tennessee Valley Author- Power Technologies Department. Formed in ity, the Electric Power Research Institute and 1984, Technologies' product lines include others. energy management equipment, programma-MATS has nearly 400,000 hours of work ble controllers, and computer equipment and i(g ' contracted for 1986 and 1987. The organiza- systems. tion completed more than 280,000 work Mill-Power's Sales Division, with headquar-hours in 1985. ters and warehouse facilities in Charlotte,
'j Duke formed a new wholly owned subsidi- N.C., also operates distribution centers in
- ary, Church Street Capital Corp., in 1985 to Greensboro, N.C., Greenville, S.C., and Lan-make intermediate-term investments with caster, S.C., and sales offices in Hickory, N.C.,
funds earmarked for future utility projects or and Kinston, N.C. diversified business opportunities. Established in 1910 to supply equipment to The funds were primarily derived from textile mills and other industries converting depreciation of generating plants and the sale to electricity, Mill-Power also acts as Duke 4 of a portion of the Catawba Nuclear Station. Power's purchasing agent. In 1985 the i Crescent Land & Timber Corp., Duke's subsidiary's purchasing division purchased land management subsidiary, embarked on approximately $1 billion in equipment, fuel, g additional development projects in 1985, supplies and services for Duke. 12
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ore than 60 years ago Duke Power program as "an became one of the nation's first n acknowledged u electric utilities to establish its own f . national role model environmental program. Today the Company ;Q 0: 9 for environmental is still proving that an electric utility can fulfill a _
# # y responsibility in its mandate to provide electricity at all times % theprivate sector."
to everyone who needs it without epsetting , 1 The Federation the intricate work of nature. _ also credited Duke Duke invests in the environment because - ^, 1 for assembling it's good business as well as good citizenship. _ 1 "the largest and The rewards include power plants that oper- best in-house emironmental staff among the ate cleanly and efficiently, a quality of life that nation's electric utilities." encourages economic development in the ser- The knowledge Duke has accumulated vice area, and the satisfaction of helping pre- through its environmental work has saved the serve the Piedmont Carolinas as a good place Company millions of dollars in the construc-to live, to work and to play. tion and operation of its power plants. Duke Duke inherited its commitment to emiron- has found many times over that conserving mental stewardship from its founders, includ- natural resources also conserves financial ingJames B. Duke, who believed that a resources. healthy environment helps attract new cus-Enhancing the Environment by Design tomers and keep old customers satisfied. The Company's first emironmental program was uke Power's Keowee-Toxaway Com-
^'"'
' launched in 1923 when a renowned public plex in northwestern South Carolina p~ , health expert was hired to battle mosquitoes xemplifies the Company's ability to on Duke Power lakes. wed ecology with economy. The Company put f' Duke now has a staff of more than 175 its emironmental know-how to work at Keo-
, em*ironmental scientists, technicians and wee-Toxaway to create one of the world's engineers whose full-time job is to monitor most efficient energy production areas.
and safeguard the air, water and other natural Duke's understanding of reservoir dynamics resources surrounding the Company's 37 made it possible to plan in advance the combi-generating plants. They also conduct environ- nation of three hydroelectric stations and a mental impact studies for future facilities. To cooling water reservoir into one generating carry es this mission, Duke Power has complex. At the same time, the Ccmpany $ invested in the finest available chemical, bio- developed one of the most scenic recreation logical, and physical and health science labora- areas in the Carolinas. tories -- all housed at th6 Company's Applied Keowee-Toxaway, designed and built by Science Center just north of Charlotte, N.C. Duke's own work force, includes the Oconee The Company's goal is to set standards of Nuclear Station and the Jocassee and Keowee excellence m emironmental stewardship that hydroelectric stations. When the third hydro often go beyond regulatory requirements. station, Bad Creek, is completed Duke's emironmen'al ac'tivities have in the 1990s, the complex will earned the respect of North Carolina and be capable of producing more , South Carolina conservation agencies. The than 4,330,000 kilowatts of Company aho won national recognition in electricity. 1985 when the National Wildlife Federation Duke's emiron- - honored bake's efforts with a Conservation mental expertise not Achievement Award, one of the highest hon- only made possible ors for emironmental protection and the first the construction of the Federation has ever awarded to a corpora- this finely tuned net-tion for its overall emironmental program. work of power plants, The 4 million-member conservation organi- but also helped the p zation, the nation's largest, described Duke's Company meet a a . 11
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1 series of challenges that arose during nearly created the largest body of fresh water in 20 years of construction. In some instances, North Carolina: Lake Norman, near Charlotte, 4 i 1 4 i BM actions taken to protect the environment pro-duced direct cost savings. For example, Duke scientists carrying out field studies found a rare species of wildflower: the Oconee bell. To preserve the flower's habitat, Duke cleared only the tops of hills for transmission towers, leaving undis-turbed the lush, green mountain glens where the Oconee bell flourishes. While saving the N.C. The 32,500-acre lake powers the Cowans Ford Hydroelectric Station and also provides cooling water to the Marshall Steam Station and McGuire Nuclear Station. Lake Norman has become a major eco-nomic asset for the four counties that border it. In less than a quarter of a century, the beauty of the lake's 520 miles of shoreline has - attracted a year-round community of almost flowers, the approach also saved the Company 25,000 residents. On any given weekend, sail-
$73,000 in clearing costs. ors race in colorful regattas and drop anchor Duke's efforts to preserve temperature in secluded coves. And each year thousands patterns in Lake Jocassee that allow both of fishermen are attracted to the lake by the j trout and black bass to thrive also helped prospect of netting one of the lake's renowned -
solve a construction problem: what to do with striped . bass, stocked each year by rock excavated from the Bad Creek project. , D, ; % The rock is being used to build an underwater , 9,the Wildlife North Commission. Carolina dam, or weir, in one arm of Lake Jocassee. The weir will help protect Jocassee's record- , sized brown trout from damaging changes ,, in temperature and water flow in its cold- - a water habitat deep in the lake, while y
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allowing largemouth and smallmouth bass, crappie and other fish to live in warmer layers of water above. Duke Power not only protected the I natural resources of the Keowee-Toxaway . region, but also enhanced them. As part of the Keowee-Toxaway project, Preserving Through Efficiency Duke built a 43-mile segment of the Foothills ot only has Duke Power designed and i Trail, which offers hikers a spectacular view built a network of power plants with of Whitewater Falls, the highest cascade in a the environment in mind, but it also i the Eastern United States. Winding through operates those plants to minimize their j more than 60,000 acres of timberland and impact on nature. In operations, as with l natural wilderness, the trail features carefully design and construction, Duke's environmen-engineered suspension bridges spanning deep tal expertise has been a major factor in mak-ravines and well-stocked trout streams. The ing the Company's plants more efficient and ! trail also offers camp sites, lake access economical.
, areas and a specially designed two- Duke's understanding of the aquatic envi-mile section for the handicapped. ronment of its lakes has produced improve-i y- Thousands of hikers, boaters, ments in power plant performance that save hunters and fishermen are millions of dollars in fuel costs each year. That 1 m drawn to the area each year same understanding allows Duke to protect
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to enjoy more than 25,000 the habitat of the 75 species of fish that live acres of Duke's man-made in the 24 lakes across its system.
, l Duke engineers took advantage of water f akes and hundredsof miles of unspoiled forests. temperature patterns in Lake Norman and 4 Duke gave the same Lake Keowee, for instance, to design " skim-attention to the environ- mer walls" for the Marshall Steam Station ment in 1963 when it and Oconee Nuclear Station, allowing the 16
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1 l - coal it burns, Duke limits two of the major
- by-products of coal-fired generation: sulfur l dioxide and fly ash.
! Duke Power also burns low-sulfur coal, 1 mamtaining one of the lowest sulfur emission ! rates per kilowatt of electricity of any utility 2 in the nation. Through these efforts, the
{ plants to draw cooling water from the bottom Company has been able to avoid the expense 2 of the lakes. The cold bottom water increases of installing scrubbers to control sulfur- ! the fuel efficiency of the plants. dioxide emissions. I Skimmer walls also minimize the thermal Electrostatic precipitators on Duke's coal i effects of using lake water for plant cooling, plants trap most of the fly ash before it goes protecting delicate aquatic life. Water drawn up the stack. The trapped ash is waste, but it into the plant for cooling is heated in the pro- isn't wasted. It's collected, and some is sold cess, and using cold bottom water keeps the for making concrete and concrete products. I 2 temperature of the water returned to the lake Duke has also invested in a cleaner emi- { as low as possible. The warm water around ronment by investing in nuclear power. ] the discharge from the plant also encourages Nuclear plants are the cleanest form of large-I winter production of the threadfin shad on scale conventional generation, and nearly 50 hich bass feed. percent of the Company's generating capacity Duke's ability to is now nuclear. Like Duke's coal plants, the l
, f manage the water McGuire and Oconee nuclear plants have l temperature in its been among the most fuel efficient in the ! w lakes convinced nation, getting the most power possible from federal officials to the uranium mined while minimizing the
- llow the Company to nuclear waste produced.
operate McGuire Nuclear Duke Power is at the forefront in applying ! Station without cooling towers - technology to limit and compact nuclear savmg an estimated $193 million in waste, linking economy and ecology in yet ' l capital and operating costs over the another area. By reducing the volume of low-life of the plant. Duke emironmentalists level radioactive waste, such as contaminated studied water patterns for nine years to de- clothing and tools, Duke both saves money monstrate that McGuire could use Lake and limits the material that must be handled Norman as a source of cooling water without in disposal sites.
- interfering with aquatic life. The radioactive waste treatment system at l
The Company manages not only water McGuire Nuclear Station saved Duke an {' temperatures to protect the lakes' emiron- estimated $3.2 million in disposal costs in one ment, but also water levels. Duke administers year alone. The a lake-level stabilization program at five of its - system has con-lakes to enhance the spawning activity of sistently reduced important gamefish such as largemouth bass. the volume of low-The pmgram minimizes shifts in lake levels . level radioactive until the peak spawning period is over. - waste to amounts ; j While the Company's environmental knowl- below the industry ) i edge has enhanced the efTiciency of its plants, average. The cost i that efTiciency in turn has played a major role savings for waste 1 l' in protecting the envimnment. . disposal at McGuire ! The unprecedented efficiency of Duke's. are expected to j eight coal-fired plants has not only saved mil- be matched at i
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story,56,000-square-foot radioactive waste Interested Duke employees are volunteering treatment facility. their own time to build the houses. Duke's conservation ethic is company-wide. Duke is providing special nesting sites for I, By recycling scrap, transformer oil, coal ash osprey to encourage these birds of prey to and even office paper, the Company saves an live on Lake Norman and Mountain Island f *- estimated $2.5 million annually. These efforts Lake. The Company n were recognized in 1985 in an award pre- works closely with the i g .,
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tionnon-profit that protects, organiza Iew${bh# ' Going Beyond Bus. mess ((.M rehabilitates and h uke Power's commitment to the envi- improves habitats -u PJ ' - 4a
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Dproduction of power. ronment goes beyond the day-to-day In its for birds of prey. role as - corporate citizen, Duke searches for ways to Meeting the Challenges Ahead \*. lend its knowledge and resources to enhanc- uke Power is committed to building on ing the habitat of the Piedmont Carolinas. its tradition of environmental stew-By planting selected varieties of vegetation rdship by putting its experience and along its power line rights-of-way, Duke not expertise to work in dealing with the environ-only helps control erosion, but also provides mentalissues of the '80s and beyond. food and shelter for rabbits, quail and other Chief among these is the question of acid animals. These wildlife strips have been sown rain. Even though, in 20 years of monitoring, on nearly 69,000 acres of Duke's transmis- Duke scientists have found no evidence of sion corridors.. increased acidity in its takes, the Company In an effort to bolster the Eastern bluebird is designing an experimental coal-fired plant population in the Piedmont that holds promise for eliminating sulfur-Carolinas, Duke is placing bluebird houses on or near
% dioxide project emissions.
with the The Tennessee joint demonstration Valley Authority, transmission towers, the Electric Power Research Institute and forming " bluebird trails" others will use a unique process called atmo-throughout its spheric fluidized-bed combustion. service area. -C- Duke is also researching technologies to
; neutralize and reduce the volume of both low-
+ level and high-level nuclear wastes. The Com-pany is supporting both federal and state efforts to safely dispose of nuclear waste in permanent, licensed government sites.
A Promise to Live By II e will honor and protect environ-mental quality and human welfare in the area we serve." Duke Power makes this commitment in its Statement of Purpose. More than a pledge, this statement reflects a tradition that has guided the Company in every facet of its business. Environmental stewardship was a corner-stone of Duke's founders' philosophy. Duke has earned a reputation as a steward of the emironment. It's a reputation that the Com-pany intends to keep. 20
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- Statements ofIncome Duke Power Company I
Dollarsin Thousands Year ended December 31, 1985 1984 1983 Electric revenues (Notes 1 and 2) . . ,
$2.898,911 $2.710.015 $2.420,252 -
Electric expenses Operation Fuel used in electric generation (Note 1) . 1719,254 . 683,563 739,829 Net interchange and purchased power (credit) (Note 3) . . . . 107,145 (36,408) ~ '(19,819) Wages, benefits and materials _ c 435,701 393,448 350,162 Maintenance of plant facilities . . . . ,260,361 207,951 187,267 - Depreciation and amortization (Notes 1 and 5) . 319,295 -303,429 209,750 Generaltaxes(Note 1) , , . , , . 141,343 194,095 173,826 Income taxes (Notes 1 and 6) , -387,777 415,836- 330,023
. Total electric expenses. . ... . 2,370.876 2,161,914 1.971.038
. Electric operating income . . . . 528.035 548.101 449.214 Other income (Notes 1,4 and 6)
Allowance for equity funds used during construction . 62,741 98,711 144,048 Earnings of subsidiaries, net . . 12,186 17,221 10,415 Other, net . ., 68,965 33,834 5,391 Income taxes - other, net (20,434) (29,180) (3,037) Income taxes - credit 40.363 42,209 56,184 Total other income. 163.821 162.795 213,001 Income before interest deductions . 691.856 710,896 662,215 I terest deductions Interest on long-term debt 267,345 276,520 272,349 Otherinterest . . 3,926 3,075 6,766 Allowance for borrowed funds used during construction (credit)(Note 1). (17.008) (30,030) (48,177) Totalinterest deductions . 254.263 249,565 230,938 Net income . 437,593 461,331 431,277 Dividends on preferred and preference stocks . 60,912 61.786 62.600 Earnings for common stock $ 376,681 $ 399,545 $ 368,677 Common stock data Average shares outstanding (thousands) 101,178 100,346 97,784 Earnings per share $3.72 $3.98 $3.77 Dividends per share . $2.54 $2.42 $2.32 See Notes to FinancialStatements. 22
l Statements of Changes in Financial Position Duke Power Company Dollars in Timsands Year ended December 31. 1985 1984 1983 Sources of Funds (See Note 12) Operations Net income $ . 437,593 $ 461,331 $ 431,277 i . . Non-fund items: ! Depreciation and amortization (Notes 1 and 5) . . 462,400. 469,711 324,608 i Deferred income taxes and investment tax credit, net of amortization (Note 6) . '141,105. 103,800 333,045 Allowance for equity funds used during construction (62,741) (98,711) '(144,048)
- Other, net. . . .. (68,563) (13.137) (6.073)
Totalfunds from operations 909.794 922,994- 938.809 Funds from financing and sale of assets First and refunding mortgage bonds (Note 1) . 172,404 - - Proceeds from the sale of an interest in the Catawba Nuclear Station.' - 457,086 - Issuance of common stock .
- 37,194 84,326 Issuance of pollution-control bonds . . . . 34,114 60,720 45,648 Nuclear fuel trusts . 57.638 84.461 60.645 Total funds from financing and sale of assets . 264.156 639.461 190.619 Change in short-term position and other marketable securities 294,222 (690.038) (182,800)
Total sources of funds . $1,468,172 $ 872.417 $ 946,628
. Applications of Funds Construction expenditures . $ 594,431 $ 546,043 $ 535,678
' Long-term debt retired, capital stock reacquired 235,292 138,652 81,097 Dividends paid 317,907 304,577 289,564 Change in working capital
- 308,500 (386,086) 45,389 Other applications, net . 12.042 269,231 (5.100)
( $1,468,172 $ 872,417 , Total applications of funds . $ 946.628 1 Change in Working Capital: l Increase /(Decrease) in current assets < Cash. $ (3,011) $ 5,158 $ (3,457) Receivables (18,011) 30,092 69,906 Refundable income taxes - (41,209) 41,209 Materials and supplies 53,735 (21,334) (34,850) Prepayments 6,633 (2,243) 1,475 Decrease /(Increase)in current liabilities Accounts payable (6,016) (36,812) (28,633) Nuclear fuel disposal costs payable . 122,003 (122,003) - Taxes accrued 161,141 (158,001) 4,974 / Interest accrued and other liabilities . (7.974) (39.731) (5,235) f Increase /(Decrease)in working capital' $ 308,500 $(386,086) $ 45.389
% eludes change in short-term position and change in current maturities oflong-term debt and prrferred stock.
See Notes to FinancialStatements. 23
Balance Sheets Duke Power Con.pany
' Dollars in nousands December 31 1985 1984 Assets Electric plant (at original cost - Notes 1,3,11 and 14)
Electric plantin service . $8,609,284 - $7,810,094 Less accumulated depreciation and amortization . . . , 3.034.473 2.646,266 Electric plant in service, net . . 5,574,811 5,163,828 Construction work in progress . . . . 817.350 988.790 Total electric plant, net . 6.392.161 6,152,618 Other property and investments Other property - at cost dess accumulated depreciation: 1985 - $7,790; 1984 - $7,423) 39,951 38,774 Investments in and advances to subsidiaries (Note 1) . 88,812 77,785 Other investments (Note 1) 195.981 22.5 % Total other property and investments . 324.744 139.155 Current assets Cash (Note 7) . 2,743: 5,754 Short-terminvestments . .. 351,637 815,628 Receivables Gess allowance for losses: 1985 - $4,004: 1984 - $4,030) '244,658 262,669 Materials and supplies - at average cost , Coal . . 150,085 114,787 l Other. 126,268 107,831 Prepayments . . , 14.706 8,073 Total current assets 890.097 1,314,742 Deferred debits Canceled construction projects (Notes 5 and 14) 341,214 395,519 Purchased capacity costs (Note 3) . .. , . 41,872 - Debt expense, being amortized over terms of related debt (Note 1) . . 16,946- 4,068 Other. 17.129 12.716 Total deferred debits . . 417.161 412.303 Tot:1 assets . . . $8.024.163 $8,018,818 Capitalization and Liabilities Capitalization (See Statements of Capitalization) . $6.350.042 $6,214.754 Current liabilities Accounts payable 159,125 153,109 . Nuclear fuel disposal costs payable (Note 1) - 122,003 l Taxes accrued (Note 1). 52,923 214,064 l Interest accrued . 86,539 88,114 Other. 77.217 67,668 l i Total. 375,804 644,958 Current maturities of long-term debt and preferred stocks . 133.342 119,819 Total current liabilities 509.146 764,777 Accumulated deferred income taxes (Notes 1 and 6) 775.333 683.023 Deferred credits and other liabilities Investment tax credit (Notes 1 and 6) 353,227 329,376 Other. 36.415 26,888 Total deferred credits and other liabilities . 389.642 356,264 Commitments and contingencies (Notes 5 and 14) Tot:l capitalization and liabilities $8.024,163 $8,018,818 See Notes to FinancialStatanents. 24
Statements of Capitalization and Retained Earnings Duke Pbwer Company Dollarsin Thousands December 31, 1985 1984 Capitalization Common stock equity (Note 8) ' Common stock, no par,150,000,000 shares authorized; 101,193,802 shares outstanding for 1985 and 101,152,724. shares outstanding for 1984. $1,860,623 $1,859,633 Retained earnings . 1,071,814 952,360 Total common stock equity . -2,932,437 2.811,999 Preferred and preference stocks without sinking fund requirements (Note 9) . . 419.552 420,534 Preferred stocks with sinking fund requirements (Note 10) . . . 277,012 285,426 Long term debt (Note 11) First and refunding mortgage bonds . 2,614,136 2,530,506 Promissory note due subsidiary,16%% - due 1989 58,725 58,725 Term note, floating rate - due 1987 21,000 21,000 Term note, floating rate - due 1985 - 2,000 Capitalized leases . 87,537 90,877 Nuclear fuel trusts , 85,000 125,000 Unamortized debt discount and premium, net . (18,415) (17,894) Current maturities of long-term debt . (126,942) (113.419) Total long-term debt . 2,721.041 2.696.795 Tot:1 capitalization . $6,350,042 $6.214.754 l i l Year ended December 31, 1985 1984 1983 Retained Earnings Balance - Beginning of year $ 952,360 $ 795,512 $ 653,981 Add - Net income . 437,593 461.331 431.277 Total 1,389,953 1,256.843 1.085,258 Deduct Dividends Common stock. 256,995 242,791 226,964 , Preferred and preference stocks 60,912 61,786 62,600 l Capital stock transactions, net . 232 (94) 182 ) Totaldeductions 318,139 304.483 289.746 i Balance - End of year . $1,071,814 $ 952,360 $ 795,512 See Notes to FinancialStatements. 25
1 Notes To Financial Statements Duke Power Company ! Note 1. A. Additions to Electric Plant Summary of The Company capitahzes all construction-related capitalized. The cost of repairs and replacements i Significant direct labor and materials as well as indirect con- representing less than a unit of property is struction costs. Indirect costs include general en- charged to electric expenses. The original cost of Accounting Policies gineering, taxes and the cost of money (allowance property retired, together with removal costs less for funds used during construction). The cost of salvage value,is charged to accumulated renewals and betterments of units of property is depreciation. B. Allowance for Funds yted During Construction (AFUDC) AFUDC represents the estinvied debt ud equity pcrmitted to recover these capital costs, including costs of capital funds that are necessary to fin:mce a fair return, thmuch their inclusion in rate base the construction of new tacilitics. AFUDC, a non- and m tne pmvision for depreciation. cash, non-operating kem, is re ognized aa a cost of AFUDC, which is compounded semiannually,
" Construction won m prcgress," with offsetting was calculated on average embedded rates (net of credits to "Other income" and " Interest deduc- applicable income taxes) of 9.9 percent for 1985, tions." After construction is completed, a utility is 9.65 percent for 1984 and 9.45 percent for 1983.
C. Depreciation and Amortization Provisions for depreciation are recorded using the in the Statements of Income. The amortization is straight-line method. The year-end composite recorded using the unit-of-production method. weighted-average depreciation rates were 3.58 Under provisions of the Nuclear Waste Policy percent for 1985,3.56 percent for 1984 and 3.47 Act of 1982, the Company began making pay-percent for 1983. All coal-fired generating units ' ments to the Department of Energy (DOE)in are depreciated at the rate of 3.57 percent. Nu- 1983 for the disposal of nuclear fuel. These pay-clear units are depreciated at a rate of 4 percent, ments are based on nuclear generation on and which includes an allowance for decommissioning after April 7,1983. The Company has fulfilled its costs. obligation for disposal costs of nuclear fuel con-Amortization of nuclear fuehnd disposal costs sumed prior to April 7,1983, by a payment in June is included in
- Fuel used in elect.cic generation" 1985 of approximately $122,000,000 to the DOE.
D. Subsidiaries The Company's financial statementa reflect con- method. (See " Subsidiaries," page 41.) Retained solidation of its wholly owned subsidiary, Church earnings as of December 31,1985, include Street Capital Corp., formed in February 1985. All $80,058,000 of undistributed earnings of uncon-intercompany transactions have been eliminated in solidated subsidiaries. Dividends received from consolidation. Investments in other wholly owned unconsolidated subsidiaries were $2,200,000 in subsidiaries have been accounted for by the equity 1985, $2,300,000 in 1984 and $2,250,000 in 1983. E. Income Taxes The Company and its subsidiaries file a consoli- jects, and short-term and intermediate-term dated federal income tax return. Income taxes are imestments. allocated to each company based on its separate Deferred income taxes are provided for timing company taxable income or loss. differences between book and tax income, princi-Income taxes are allocated to non-electric pally resulting from acceler ated tax depreciation, operations under "Other income" and to electric capitalized taxes and employee benefits, leveliza-operating expense. The " Income taxes - credit" tion of purchased power payments, and canceled classified under "Other income" results from tax construction projects. Investment tax credits are deductions of interest costs relating primarily to deferred and amortized over the usefullives of the , investments in CWIP, canceled construction pro- related properties. F. Fuel Cost Adjustment Procedures Fuel costs are reviewed semiannually in the whole- difTerence between actual fuel costs incurred and sale and South Carolina retail jurisdictions, with fuel costs recovered through base rates. provisions for changing such costs in base rates. In the North Carolina retail jurialiction, the These jurisdictions allow the Company to adjust level of fuel costs in rates is revised and set in each for past over- or under-recovery of costs. There- general rate case proceeding. A hearing to review fore the Company reflects in revenues the fuel costs in base rates is required annually. 26
l 1 i G. Retirement of Bonds The Company used the proceeds from the April 1, 1985, the Company paid a premium of 1985, issuance of first and refunding mortgage $13,200,000. The premium is being amortized on bonds to redeem existing higher cost debt obliga- a monthly basis over the life of the new bonds, tions. As a result of the redemption on May 6, which are due in the year 2015. ! I H. Other Investments Other investments, which consist primarily of At year-end, the cost of these securities approxi. marketable securities as of December 31,1985, mated market value. i are stated at the lower of cost or market value. ! I. Franchise and Sales Taxes The North Carolina state franchise tax rate was duced revenues and reduced general taxes in the changed effective January 1,1985, in compliance Statements of Income. The Company is acting as with North Carolina state law. The statute reduced an agent for the state government in the collection the franchise tax rate from 6 percent to 3.22 per- of sales tax and is accumulating the amount as a cent and imposed a 3 percent sales tax on the component of " Taxes accrued" in the Balance sales of electricity in North Carolina. This reduc- ' Sheets. The Company remits both the sales tax tion in the franchise tax rate is reflected in re- and the franchise tax on a quarterly basis. Note 2. The North Carolina Utilities Commission and The revenues shown (in millions of dollars) are i Rate Matters Public Service Conunission of South Carolina must annualized on the basis of the filing test year. approve rates for retail sales within their respec- A summary of all general rate increases re-tive states. The Federal Energy Regulatory Com- quested or implemented by the Company since mission (FERC) must approve the Company's January 1,1983,is as follows: rates for sales to wholesale customers. The Approved
%d Increase Over End d jurisdiction and Requestert . % of - Prevous Rate Order 12 Month '
Date Filed Revenues Revenues Request Revenues Effective Test IVrind ,; I N C. retail : February 1983 : . $112.9 $ 76.2 67.5 5.18 _ September 1983 September 30,1982 November 1983 212.8 131.0 61.6 '8.40 June 1984 June 30,1983 February 1985 (a) 340.0 157.7 46.4 9.10 ; September 1985 June 30,1984 S.C. retail February 1982 99.4 40.7 40.9 7.10 March 1983 June 30,1982 September 1983 136.0 99.7 73.3 17.40 March 1984 April 30,1983 April 1985 143.0 78.4 54.8 10.75 _ October 1985 June 30,1984 FERC wholesale (b) August 1982 44.1 26.0 59.0 8.70 June 1983 December 31,1983 December 1983 9.5 . 8.0 84.2 9.60 October 1984 December 31,1984 , Fuly 1985 9.2 5.2(c) - - Pending December 31,1986 ; (a) Under appeal. . l (b) FERC wholesale filings beginning December 1983 do not include the North Carolina Municipal k Power Agency Number 1, the North Carolina Electric Membership Corporation and the Sahula River Electric Cooperative, Inc. Beginning in July 1985 FERC wholesale filings also do not include the Piedmont Municipal Power Agency. These municipalities and electric cooperatives previously pur-chased interests in the Catawba Nuclear Station. (See Note 3.) Sales to these entities, which previ-ously represented a majority of the Company's wholesale evenues, are now set through contractual l agreements. (c) This increase has been agreed uprm by the Company and its wholesale customers, subject to FERC ! acceptance. I 27
e., j l J Note 3. The Company has soki interests in both units of Nuclear Station and supplemental information re-Joint Ownership the Catawba Nuclear Station. The purchasers of . garding their ownership are as follows: ofGenerating portions of the 2,290,000-kilowatt Catawba Facilities o*=*ip Interest Owner in the Station - Date of Sale North Carolina MunicipalIbwer Agency Number 1 (NCMPA No.1) 37.5% November 29,1978 - North Carolina Electric Membership Corporation (NCEMC) 28.125 % February 6,'1981 Saluda River Electric Cooperative, Inc. (Saluda River) - 9.375% ~ . February 6,1981 Piedmont Municipal Power Agency (PMPA) 12.5 % December 20,1984 Each participant has provided its own nnancing for its ownership interest in the plant. The Company retained a 12.5 percent owner- $572,149,000 for 1988, $531,247,000 for 1989 ship interest in Catawba. As of December 31,: and $509,236,000 for 1990. These estimates 1985, $255,400,000 had been transferred to are based on an in-service date of fall 1986 for
" Electric plant in service," representing the Com- - Catawba Unit 2.
pony's investment in Unit 1 and initial core nu- The Company was granted recovery in current g clear fuel for that unit. Accumulated depreciation rates for the fuel, operating and maintenance costs 'i and amortization of $8,800,000 associated with associated with the purchases of capacity and en-the amount transferred to " Electric plant in ser- ' ergy in its most recent rate orders from the North : Vice" had been recorded as of year-end. " Con- Camlina Utilities Ci-- -; and The Pubbe Ser-struction work in progress" as of December 31, vice Comnussion of South Carohna. These rate or-1985, included $201,300,000, representing the ders granted recovery on a levelised basis of the Company's remaining investment in Catawba. capital costs of capacity purchased from the joint Under the terms of the 1984 sale to PMPA, the owners. The Company will recover the capital - Company received $457,086,000 at closing and a costs over a 15-year period in its North Carolina note for $13,800,000 payable upon commercial retail jurisdiction and a 7%-year period in its South operation of Catawba Unit 1, which occurred June Camlina retail jurisdiction. The portion of capital 29,1985. costs not recovered through current rates is being in connection with the joint ownership, the accumulated and the Company is recording a car- - Company has entered into contractual agreements rying charge on the accumulated belance. The with the buyers to purchase annually declining Compan will begin recovering the accumulated percentages of the generating capacity and energy balance when the capacity payments drop below from the plant. The agreements are efective be- the levelized revenues. ginning with the~ commercial operation of each For the year ended 1985 a total of unit. Catawba Unit 2 is scheduled for commercial $224,600,000 was recorded for the purchases operation in fall 1986. Such agreements were es- of capacity and energy fmm the joint owners. tablished for 15 years for NCMPA No.1 and This amount, net of the cost of capacity purchased PMPA and to years for NCEMC and Saluda River. not reflected in current rates, is included in " Net Energy cost payments will be based on variable interchange and purchased power" in the State-operating costs, a function of the generation of the ments of Income. As of December 31,1985, plant. Capacity payments will be based on $22,400,000 ($11,400,000 net of income taxes) 4 the nxed costs of the plant. The estimated pur- associated with the levelization of capital costs had j chased capacity obligations through 1990 are been accumulated in the Balance Sheets as a com-
$431,073.000 for 1986, $612.566,000 for 1987, ponent of " Purchased capacity costs."
Note 4. For the years ended Decemoe- 31,1985 and is primarily from dividends and interest on securi-Other income 1984, the Company recorded in estment income ties. The taxes associated with the investment in-of $51,700,000 and $36,700,000, respectively come are recorded as a component of " Income ($34,900,000 and $18,600,000 net of income taxes - other, net" in the Company's Statements taxes, respectively) as a component of "Other, of Income. net" in the Statements of Income. The income 28
k Note 5. The Cherokee and Perkins nuclear stations have As of December 31,1985 and 1984, the bal-Canceled been canceled. Alljurisdictions have permitted re- ances for these canceled projects, net of amortiza- i Construction covery of the costs incurred through April 30, tion, were $544,145,000 and $611,971,000, re .
@ 1983. These costs are being amortized principally over a 10-year period beginning October 1983.
spectively ($341,214,000 and $395,519,000 net of income tax benefits, respectively). (See Note 6.) The Company intends to seek recovery of the re-maining incurred costs. (See Note 14.) Note 6. Income tax expense consisted of the following (dollars in thousands): 1985 1984 1983
"" Electric Expenses Current income taxes Federal . , , $200,884 $271,960 $ 701 State.. . . .. . . 36.506 47.876 (966) 237,390 319.836 (265)(a)
Deferred taxes, net Excess tax over book depreciation . . 87,362 67,107 79,890 Capitalized taxes, employee benefits, etc. . 12,487 10,337 8,999 Cancellation of Cherokee Nuclear Station (b) . (7,422) (2,234) 210,329 Catawba purchased capacity costs . 37,700 - - Other 677 _1.M9 44.942 (c) 130,804 _77,169 344.160 Investment tax credit Deferred . .. . 40,729 37,381 - (a) Amortization of deferments (credit) . (21,146) , (18,550) (13.872) 19,583 18,831 (13,872) Total electric expenses 387,777 _415.836 330,023 Other Income income taxes - other, net 20,434 91,497 (d) 3,037 income taxes -(credit) . (40,363) (42,209) (56.184) Total other income. (19.929) 49,288 (53,147)(a) Totalincome tax expense. $367,84_8 1465,124 1_276,876 (a) Cur rent income tax expense for 1983 is a credit principally due to the cancellation of all units of the Cherokee Nuclear Station and the deduction of the Company's liability under the Duke / Department of Energy Spent Nuclear Fuel Disposal Contract. This tax loss eliminated allinvestment tax credit utiliza-tion for 1983. (b) Represents deferred income tax expense related to the cancellation of all units of the Cherokee Nuclear Station. The related deferred income tax credits have been classified as a reduction of
" Canceled construction projects"in the 13alance Sheets. (See Note 5.)
(c) Deferred income tax expense for 1983 includes $51,260,000, primarily related to the reversal of de-ferred income tax expense for prior period liabilities under the Duke / Department of Energy Spent Nuclear Fuel Disposal Contract. (d) Includes $62,317,000 resulting from the sale of assets in December 1984. Such income taxes, which I are included in Other, net" in the Statements of Income, reflect a taxable gain in excess of lxiok gain resulting principally from the treatment of AFUDC. (See Note 3.) Total current income taxes were $226,712,000 for 1985, $376,949,000 for 1984 and $(56,186,000) for 1983. Of these amounts, state income taxes were $34.692,000 for 1985, $57,587.000 for 1984 and
$(7,981,000) for 1983.
Total deferred income taxes were $121.553,000 for 1985, $69,344,000 for 1984 and $346.934,000 for 1983. Of these amounts, deferred state income taxes were $13,178,000 for 1985, $7,687,000 for 1984 and $42,773,000 for 1983. 29
y Note 6. Income taxes differ from amounts computed by applying the statutory tax rate to pretax income as fo!- - Income 'Ds lows (dollars in thousands): Expense (contivurd) 1985 1984 1903 Income taxes on pretax income at the statutory federal rate of 46% . .. $370,503 $426,169 . $325,751 Increase (reduction) in tax resulting from: Allowance for allfunds used during construction (AFUDC) , (36,685) (59,220) (88,424). Amortization of electric investment tax credit deferrals . . . (21,146) (18,550) . (13,872) ' AFUDC in book depreciation / amortization - . 42,575 45,298 23,884 State income taxes, net of federalincome tax benefit 25,320 35,832 18,874 Increase in tax expense primarily because of excess of tax gain over book profit on sale of assets - 27,280 - Other items, net (12,719) 8.315 10,663 Total income tax expense (see page 29) $367,848 $465,124 1276.876 Note 7. The Company had unused short-term credit facili- There were no short-term borrowings during Short-Term ties of $316,050,000 with 59 commercial banks as 1985 and 1984. Borrowings of December 31,1985, and $319,500,000 with 60 As of December 31,1983, the Company had commercial banks as of December 31,1984. In- short-term credit facdities of $385,400,000 with cluded in these credit facilities is $40,000,000 al- 67 ccmmercial banks. The average amount of located to the 1984 issue of annual tender, short-term debt outstanding during 1983 was pollution-control revenue bonds. The facilities are $30,951,000. The maximum amount outstanding on a fee basis and/or a compensating-balance during 1983 was $111,210,000. The weighted-basis, with total average balance requirements of average interest rate for that year was 8.92 per-
$1,362,500 for 1985 and $1,372,000 for 1984. cent computed on a daily basis.
Note 8. Common Stock Common Stock and A summary of issuances of shares of common stock-market purchases to satisfy the require-Retained Earnings stock is as folkiws (dollars in thousands): ments of all its stock plans and intends to issue new shares of common stock only for the conver-ye,7 png D sion of preference stock. (See Note 9.) As of December 31,1985, a total of 4,764,013 1985 $ - - shares was reserved for issuance to stock plans 1984 37,194 1,451,607 and for the conversion of preference stock. 1983 84.326 3,605,980 Retained Earnings During the past three years, the Company As of December 31,1985, none of the Company's began using stock-market purchases to satisfy the retained earnings were restricted as to the decla-requirements of certain stock plans. For the next ration or payment of dividends, several years, the Company anticipates using Note 9. The following shares of stock were authorized $23.89 per share, with each share of preference Preferred and with or without sinking fund requirements as of stock valued at $100 par. The conversion price is Preference Stocks December 31,1985 and 1984: subject to certain adjustments designed to protect Without Sinking the conversion privilege against dilution. In 1985, p , y,i" %," 1984 and 1983, shares of preference stock were Fund Requirements Preferred Stock 10,000,000 mnverted into shares of common stock as follows:
$100 Preferred Stock A 25 10,000,000 Preference r->n Preference Stock 100 1,500,000 Year Shares Shares
! The outstanding Preference Stock,6%% Con. 1985 9,819 41,078 vertible Senes AA is convertible into shares of 1984 16,136 67,510
- common stock at the adjusted conversion price of 1983 18,868 78,936 30
1 Preferred and preference stocks without sinking fund requirements as of December 31,1985 and 1984, were as follows (dollars in thousands): y,,, % Rate / Series Issued Outstanding 1985 1984 4.50% C . . 1964 350,000 $ 35,000 $ 35,000 5.72% D. .. . . 1966 350,000 35,000 35,000 6.72% E . . . . 1968 350,000 35,000 35,000 8.70% F '. . . 1970 600,000 60,000 60,000-8.20% G . . 1971 600,000 60,000 60,000 7.80% H . . 1972 600,000 60,000 60,000 8.28% K. 1977 500,000 50,000 50,000 8.84 % M. , 1978 400,000 40,000 40,000 4 15.40% A . . . . 1982 1,600,000 40,000 40,000 6%%, AA Convertible 1969 45,527 4,552 - 55,346 - 5.534 Total , .
$419,552 $420,534 Note 10. Par Value Shares Preferred Stocks The following shares of stock were authorized Preferred Stock $100 10,000,000 With Sinking Fund with or without sinking fund requirements as of Preferred Stock A 25 10,000,000 Requirernents December 31,1985 and 1984: Preference Stock _100 1,500,000 Preferred stocks with sinking fund requirements as of December 31,1985 and 1984, were as follows (dollars in thousands): .
Year Shares Rate / Series Issued Outstanding 1985 1984 7.35% i. 1973 552,000 $ 55,200 $ - 576,000 - 57,600 8.20% J . . 1977 420,000 42,000 - 440,000 - 44,000 8.375% L 1978 440,000 44,000 ~- 460,000- - 46,000 8.84% N . 1979 467,500 46,750 - 483,750 - 48,375-11.00 % 0 . . . 1980 500,000 50,000 50,000 10.76% A , 1975 2,040,000 51,000 .- 2,100,000 - 52,500 Less: Preferred shares reacquir'ed for current and future sinking fund requirements (at cost) Sha s p,, ed 10.76% A. . 72,500 (1,702) - 120,000 - (2,891) 8.84% N 30,050 (2,607) - 32,500 - (2,529) 11.00 % 0. 13,750 (1,229) (1,229) Less: Current sinking fund requirements 7.35% I (2,400) (2,400) 8.20% j (2,000) (2,000) 8.375% L (2,000) (2.000) Total $277,012 }285,426 The annual sinking fund requirements through The call provisions for the outstanding pre-1990, net of amounts reacquired, are $6,400,000 ferred and preference stocks specify various re-in 1986, $7,832,000 in 1987, $10,900.000 in demption prices not exceeding 115 percent of par 1988,1989 and 1990, with some additional re- values plus accumulated dividends to the redemp-demptions permitted at the Company's option. tion date. 31
Note 11. - First and refunding mortgage bonds outstanding as of December 31,1985 and 1984, were as follows Long-Term Debt (dollars in thousands): Year Year Series Due 1985 1984 Series Due 1985 1984 - (continued) . . 3%% 1986 $ 30,000 $ 30,000 9%% 2005- $ 92,800 $ ' 92,800 - 14%% 1987 . 17,150 -8%% 2006 96,850 96,850 ,
.119,500-12% 1990 75,000 75,000 8%% 2007 119,500 '
15%% . 1991 100,000 100,000 9%% 2008 120,610 .120,610 4%%- 1992 50,000 50,000 10%% 2009 145,050 145,050 4%% B 1992 50,000 50,000 10%% B 2009 148,000 148,000 64,250 -2010 .100,000 11% 1994 ~ 71,000 .14%% - -
'4%% 1995 40,000 - 40,000- 13%% B - 2010 50,000 . 50,000 _
5%% 1997 72,600 - ' 72,600 14%% 2012- 125,000 125,000 6%% 1998 68,500 68,500 - 12%% 2015 125,000 - 7% 1999 56,075 56,075 10%% B 2015 50,000 -
, , 8% . B 1999 - 64,739 64,739 8%% 2000 69,244 69,244 8%% B 2000 95,635 95,635 ' Ibtlution-Control . .
.7%% 2001 97,900 97,900 6%%J 1988 25,000 - '25,000 7%% B '2001 38,050 38,050 9%% 2013 77,000 77,000 7%% 2002 78,100 78,100 5 % % (1985)2014 -40,000 40,000 7%% B 2002 67,900 67,900 7 % % (1984)
- 7%% 2003 94,872 ' 94,872 Less: Funds he:d 8%% B 2003 98,050 98,050 in trust (7.212) (39.742) 9%%- 2004 95,623 95,623 Total . $2.614,136 $2.530,506 Substan*ially all electric plant was mortgaged as of December 31,1985.'
On October 2,1934, the Company transferred lease principal payments) through 1990 are certain U.S. government securities to an irrevoca- $126,942,000 in 1986, $60,020,000 in 1987, ble trust for the defeasance of $32,850,000 of its $56,268,000 in 1988, $70,227,000 in 1989 and 14% percent first and refunding mortgage bonds. $86,933,000 in 1990. The cash flow from this trust was sufficient to fund Annual maturities through 1990 include the schedaled principal and interest payments on amounts relating to the $85 million in outstanding these bonds. Accordingly,in 1984 this amount was obligations under the Company's two nuclear fuel removed from the balance sheet. The entire series trusts. The maturities are based on estimated fuel ; of 14% percent bonds was retired on March 1, consumption. Instead of making cash payments, j 1985. the Company intends to transfer title of additional The annual maturities of long-term debt (includ- nuclear fuel to the trusts as fuel is consumed. ing sinking fund requirements and capitalized Note 12. On the Statements of Changes in Financial Posi- classified to conform with 1985 classifications. Reclassincation tion, certain prior year information has been re-Note 13. The Company and two of its subsidiaries have a ment Supplement Plan, a one-time early retire-Retirement non-contributory, defined benefit retirement plan ment offer to eligible employees. In addition, cer-Plan covering substantially all their employees. The tain amendments were made to the plan in 1985, Company's policy is to fund pension costs accrued. including changes in requirements for both credit. Total pension expense, icc!ading trustee fees, able service and vesting service. The effect of amounted to $31,491,000 in 1985, $32,828,000 these chaages did not significantly increase the in 1984 and $33,137,000(n 1983. In 1983 the Company's pension cost. . plan was amended to provide for certain plan A comparison of accumulated plan benefits and changen, including increased benefits for retired plan net assets as of December 31,1984, the date employees and survivor benefits. The plan was of the latest actuarial report, and December 31, changed in 1984 to include the Early Retire- 1983, is as follows (dollars in thousands): 32
1984 1983 l Actuarial present value of accumulated plan benefits ' Vested $340,329 - $310,185 Non-Vested . 1 87.400 71.011 Tota! . 1427.729 $381,196 Net assets available far benefits . . $447.665 $421.556 The weighted-average assumed rate of return 1984 and 8.6 percent in 1983. The actuarial pres-used to dctermine the actuarial present value of ent value of accumulated plan benefits does not accumulated plan benefits was 8.8 percent ia consider future salary increases. Note 14. A. Construction Program purchased an additional $85 million of property . Commitments and Projected coistr6ction Lnd nuclear fuel costs, ex- damage insurance thmugh a pool of stock and mu-Contingencies cluding costs related to portions of the Catawba tual insurance companies. These coverages are in Nuclear Station that have been sold, are $2.02 addition to the $500 million of coverage provided billion and $521 mfhon, respectively, for 1966 by the Company's underlying property damage through 1988.The program is subject to periodic policies issued thruagh NML. If losses ever ex-review and revis;ons, and actual construction ceeded the accumulated funds available to NEIL - costs may vary from such estimates. Cost vari- for the Excess Property Insurance Program the i ances are due to var:ous factors, includmg revised Company would be liable, on a pro rata basis, for load estimates, outcome of licensing and environ- additional assessments of up to $28 millicn. This - mental matters, and cost and availairhty of capital. amount represents 7.5 times the Co npany's an-B. Nuclear Insurance
"""I P '"*i"* I" " " *8 P*P""Y I" " d" *-
The Comp my's public liability for claims resulting '
* " "* E
- from any nuclear incident is limited to $650 mil-Cess My nman ogram, mpany placed $585 m{:llion through a pool of stock lion under provisions of the Price-Anderson Act, ,
which provides for nuclear liability insurance up to mu msqce mnmW pn,may and en i cess property mrurance coverage associated with that amount. Under these provisions the Company r could be assessed up to $5 million for each ofits its interest in the Catawba Nuclear Station. The jclat owners of Catawba will assume their heensed reactors for a nuclear mcident mvoh, mg pro rata share of any hability for claims resulting any licensed facility m the nation, and up to $10 from a nuclear incident. The Company is being re-million a year for each, if more than one nuclear imbursed by the other joint owners for certain ex-mcident occurred. Legislation is pending in Con-penses associated with nuclear insurance premi- i gress which could increase the limitation liabihty ' mus paid Ompany, and the amount the Company could be assessed for each ofits licensed reactors. As of December C. Other 1 31,1985, the Company had six licensed reactors. The Financial Accounting Standards Board m De- i The Company is a member of Nuclear Mutual cember 1985 issued an Exposure Draft of a pro-Limited (NML), which provides property damage posed statement of Financial Accounting Stan-coverage for certain of the Company's nuclear dards which, if adopted in its current form, would facilities. If NMUs losses ever exceeded its re- require the Company to write down to present , serves, the Company would be liable, on a pro rata value its canceled construction pmjects. This ! basis, for additional assessments of up to $71 mil- write-down would be required because the Compa-tion. This amount represents 10 times the Compa- ny's recovery of these projects through rates does ny's annual premium to NML. not mclude a retum on the ot,tstand;ng canceled The Company isso a member of Nuclear Elec- construction balances. The resJiting write-down tric Insurance Limitet (NEIL), which prosides in- to present value, if required, coufd be recorded by surance for the increued cost of generation restating prior years' finartial strements. : and/or purchased power resulting from an acciden- The Company is involved in legV, tax and regu- ! tal outage of a nuclear unit. If NEIUs kisses ever latory proceedings before vanous courts and agen-exceeded its resenes, the Company would be lia- cies regardmg matters arising in the ordinary ble, on a pro rata basis. for additional assessments course of business, some of which involve substan-of up to $39 million. This amount represents five tial amounts. Mmagement is of the opinion that i times the Company's annual premium to NEIL. the final disresition of these proceedings will not ! The Company purchases $525 milhon of prop- have a materially adverse effect on the Company's i erty damage insurance through NEIL's Excess results of operations or financial position. Property Insurance Program. The Company also 33 I
-,..~!
Auditors' Opinion Duke Power Company: We have examined the balance sheets and the Company at December 31,1985 and 1984, and statements of capitalization of Duke Power Com- the results of its operations and the changes in its pany as of December 31,1985 and 1984, and the financial position for each of the three years in the related statenents of income, retained earnings period ended December 31,1985, in conformity and changes in financial position for each of the with generally accepted accounting principles ap-three years in the pencd ended December 31, plied on a consistent basis. 1985. Our examinations were made in accordance s with generally acepted auditing standards arsi, accordingly, melute.d such tests of the accounting gy-~g j records and such otkr auditing procedures as we Deloitte liaskins & Sells W h' "'d"'8 considered necesary in the arcurr, stances. In our opinion, the financial statements referred Charlotte, North Carolina to above present fairly the finarv.ial position of the Fel;ruar) 11,1986 Responsibility for Financial Statements The fir.ancial statements of Duke Power Coinpauy as they perform then aesignebunctions. "Ihe are prepared by management, which is re9onsible Coupany's accounting controls are contmaal!'/ re-for their integrity and objectivity. The statements viewd for effectivenasa. In add' tion, writte c p(1-are prepared in cenfarmity with genera # ac- (ies, standar de and proctdure:,, and a stnny,inte>r-cepted accounting principles appmpiiate in the cir- n.1 audit progata arginert the Camoany's
. cumstances to ref.ect in all p4aterial respects the accoun ing contabl9 subs;ance of events and transactiom which should The Board of Directors pursues its omsight -
. be induded. The other information in the annaal role for the fiaanciz! statments Groegn the audit report is consistent with the financial statements. _ contraittee, which is compored enprely of direc-In preparing there statements, management f ocs who are i.or errpion es of tha Campa y. The makes informed judgments ar.d estimatm of the audit committee meets with r. anagement un.1 h-expec'ed effects el events and transactions that ternal aeditors periodica'ly to revie u the vork of are currently being reparted, each group ar.d to monitor eadh group's discharge
. The Company's system of internal secoerting - ofits reponsibilities The audicommitt e al<o contm! is desigred to provide reawnable 1.ssur- meets peilocical!y mth the Campanv's infepen-tince that msets are aafegaarded and t ransactmns dent auditors, Deloitte IIaskins & Set.s. The it.de-are exccuted accor din 3 to inanagemen*'s autimri- pendeat auditorr, have free uccess to the aadit ratntt, Internal accounting corf,rols alsa pituide comn ittee ard the Board of 9irectert to discuss reasonable assurante that transactiona ate re- interna! accounting cor. trol, aaditing and f.nsncirl entded properly, so th.4t financia! statements.can reporting matters Mihout tiie presercc of be prepared according ta generally acce pted ac- maaagemer t.
counting principlea. In addition, the Co npany's ac-counting contels provide reasoncble assurance M ,, g7 y that errors or irregulanties which could be mate- N 4 Y A 's. * / N A W 5 9) rial to the financial statements are preazented or Norm . P. Mot row are detected by emplnyees within a timely period omimne r , l 34
-- _ _-_ ____- __ - _ _ __ - - ~
Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Over the past five years Duke Ibwer Company has Operating Expenses achieved significantly greater financial strength Over the past five years non-fuel operating and and flexibility. Ilowever, in 1985 the Company was maintenance expenses increased principally be-unable to maintain the steady rate of growth in cause of the addition of tiiree nuclear units,in-corporate earnings experienced over the previous creased maintenance at both nuclear and coal-fired four years, as 1985 earnings per share declined by stations, additional Nuclear Regulatory Commis-6.5 percent to $3.72. sion requirements, and inflation. (See " Selected Despite the decline in eamings in 1985, the Financial Data ~ Effects of Changing Company maintained sound credit ratings on its Prices,"page 42.) These factors caused non-fuel fixed-income securities. The Company also contin- operating and maintenance expenses to rise at an ued its practice of increasing the common stock annual rate of 15 percent from 1981 to 1985. dividend annually. Fuel expense has fluctuated during the past five years primarily because of changes in generation Earnings and Dividends mix and fuel pri:es. After decreasing for three Earnings per share for the year 1985 decreased consecutive years, fuel expense m 1985 increased 6.5 percent from 1984, and the earned return on 5 percent over 1984, primarily because refuelings average common equity fell to 13.1 percent from caused the level of nuclear performance during the 14.8 percent last year. Earn:ngs decliaed from year to fall short of the record level achieved in 1984 pnmardy becauseoflower than projected 1984. Also, while experiencing outages at some kik) watt-hour sales, a comewhat lower level of nu-of its more efficient coal-fired units, the Cornpany dear performance than that .erperienced in 1984 was forced to rely more on its smaher,less effi-and higher maintenance costs. In addition, the cient coal un:ts. Decreased fuel expense in 1984 Company a investmcnts in securities Sielded a and 1983 resulto3 from higher nuclear generation, Imver return tinn mvestments m utility plant. while decreased levels of production brought about Over the five-year period, however, earnings by low demand resulted in a dedine in 1982 fuel per share mereased aten annual rate of 4 percent, expense, F.uel expenac increased in 1981 because to $3.72 in 1985 frcc1 $3.19in 1981. the unit pnce of fuel rose. Common dividends paid increased at an annual rate of 5 percent, to $2.54 per share in 1985 from nterebnge ynd purchased power, pe nere sd sidrandy in 12A u,cx- d
$2.08 m 1981. Indica'ed annual dividends per crease was principally the result of purchased share r0sc to $2.60 in 1985, up 5 percent from power agreements with the joint owners of the t!'e level at the end of 1984.
Cmwba Nuclear Station. (See Note 3, " Notes to Revenues and Sales Financial Statements.") Ibgher rat es avl kdowntt-hour sales increased Csrowth of Financial Assets and eledric revenues at an annual rate of 11 percent from 1981 b 1933. Kilowa't-hour sales, inchdmq Non Utility Earnings Non-utility caritings continued to grow in 1985, electri ity delivered to Jomt owners of the ' rcreasing 23 percent over 1984. The increase is Catawba Nue! ear Station.have increasedat an largely because of dividctd and iaterest incoine annual rate of 2 percent over the five-3 ear perioi e arned frcm thu Company's investment in short-primar;ly incause of ecorr rnic expansion in the term and intettnediate-term securities The Com-Piedmont CaroLnas. Sales have fluctuated same-peny made these investments with the proceeds what from$ ear to year with the economic cydes fmm the Decernber 1984 sale el a portion of the m the early 1980? and abnormal weather patterns. Cmwba Nuclear Station. The Cornpany will use
, in 1985. kibwatt. hour sales, m, cludmg electric- the invected fu-ds to lessen its anticipated ity dehvered to yhnt owners di the Catawba Nu-financing requirements over the next several clear Station, were 2 percent bigher than m 1984.
IIcwever, salea to the Company a retail and rchole' years. The return carped on these knv-risk imest-ments is substsntially less than the retu-n on the spic customers were essentially flat. Sales to res-nyestment in utility property, dential custorners dechned 2 percent as a result o,. Other components of the Compam's non-atility unsessonably rold weather. Sales to textile cus-earnings are subskliary earnings, appFance sales, tomers were 2 percent below 1981. liowever, and Management end 'lechnical Services income. aa'es to tlas customer group increased during the in 1985, non-atdity earnings were 14 percent of last four months of 1985. Kilowatt-hour sales to total Company earnmga, cepired with 11 per-non4extde industrial custorners cimtinued to m-crease, nsing 2 percent above the 1984 level. wnt in N. 35
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Other Allowance for funds used during construction three nuclear units, sales of portions of the Ca-(AFUDC) was 21 percent of earnings for common tawba Nuclear Station and cancellation of two nu-stock in 1985, a decrease from an average of 54 clear projects caused AFUDC to decline during percent for 1981 through 1984. Completion of 1981 through 1985. Liquidity and Rate Increases Capital Structure The North Camlina Utilities Commission issued a The Company's capital structure at year-end was Resources rate order in September 1985 granting the Com- 46 percent common equity,43 percent long-term pany a 9.1 percent increase in revenues and a rate debt, and 11 percent preferred and preference of return on common equity of 14.9 percent. The stocks. The capitalization was substantially the Public Service Commission of South Carolina,in same as year-end 1984 and was consistent with an October 1985 rate order, granted the Company the Company's long-term financial goals. a 10.75 percent increase in revenues with a rate of In January 1985 the Company's Customer return on common equity of 14.75 percent. An ap- Stock Purchase Plan and its Dividend Reinvest-plication for a rate increase with respect to the ment and Stock Purchase Plan began purchasing Company's wholesale customers was filed in July common stock on the stock market to satisfy the 1985. The Company and its wholesale customers requirements of these plans. Consequentiy, disi-have agreed upon a $5.2 million increase, subject dends reinvested by shareholders in these plans to acceptance by the Federal Energy Regulatory no longer qualify for tax-deferred treatment. The Commission. The Company filed these rate in- Company does not plan to issue new common crerse requests in all three jurisdictions primarily shares in the near future, except to convert out-to recover its investment in Unit 1 of the Catawba standing Preference Stock,6%% Convertible Se-Nuclear Station and payments related to the pur- ries AA. (For additional stock information, see chased power contracts with the other joint own- "Long-Term Financings and Sale of Assets," page ers of the station. 39.) The rate orders in the Company's retail jurisdic- Fixed Char 8es Coverage tions permitted the Company to recover in current Fixed charges coverage, using the Secun. ties and rates its investment in Catawba Unit 1 and the Exchange Commission method, decreased to 3.87 fuel, operating and maintenance costs associated times at year-end from 4.21 times in 1984. For the with contractual purchases of energy and capacity year ended December 1985, pretax earmngs were from the Catawba buyers. The contracts relating I wer than m, 1984 principally due to the effects of to the sales of portions of the station obligate the the Catawba sale m, that year. This decline caused Company to make payments on an annually the coverage to fall below the Company's goal of declining percentage basis to the electric coopera- 4.00 times. The Company has refinanced higher tives and municipalities. Regulatory treatment of cost debt obligations, which will help to mcrease these contracts provides revenue to cover the cap-the coverage. ital costs of purchased capacity on a levelized basis. This treatment results in the Company hav- Funds From Operations ing to fund portions of the payments until these Funds from operations accounted for 62 percent costs, including carrying charges, are recovered at of the total applications of funds in 1985. The per-a later date. The Company will begin to recover centage of internally generated funds declined the accumulated costs and carrying charges when from 1984, primarily because the Company re-the amotmt of capacity payments drops bek)w the financed existing higher cost debt and made a levelized revenues. lump-sum payment to the Department of Energy From 1981 'o 1985 the Company was granted for nuclear fuel disposal costs in June 1985. The retal rt.te increases allowing approximately 56 Company also had to fund the portions of pur-perant of requested aditional revenues. Rnte in- chased capacity payments not currently collected creases during this period included recovery of the in rates. In addition, internally generated funds in Company's in vestment in Catawba Unit I and in 1984 included the proceeds imm the sale of a por-lxxh t. nits of the McGuire Nuclear Station, higher tion of the Catawba Nuclear Station. The percent-rates of return on common equity, compensation age of internally generated funds is still above the for igreased purchased power and operating ex- Company's long term goal of 50 percent. pcnses, and recovery for the amortization of two Additional Funds cance;ed nuclear projects. The Company obtained additional funds during the (For additional information on rate matters, see past five years from the sale of $534 million in Note 2, " Notes to Financial Statements.") first and refunding mortgage bonds, $38 million
in preferred stock and $357 million in common certain U.S. government securities to an irrevoca-stock. Proceeds from the sale of common stock in- ble trust in October 1984 for the defeasance of clude funds acquired from the issuance in 1982 of $32.9 million of these bonds, with the balance nec-
$73 million of common stock in a non-cash ex- essary for the retirement provided largely from -
change for bonds. - the proceeds of the issuance of the 12% percent The Company took advantage of opportunities bonds. to reduce interest expenses in 1985. In January The Company may issue additional debt obliga-the Company reduced the obligations of one of its tions over the next several years to purchase or nuclear fuel trusts by $40 million. Also, the Com- redeem existing higher cost deb 6. Issuance of the pany refmanced several debt obligations during the debt will depend on favorable market conditions. year at lower interest rates. The Company received $978 million fmm the The Company, on December 23,1985, issued sales of portions of the Catawba Nuclear Station in
$50 million principal amount of its First and Re- 1984 and 1981. The Company retains a 12.5 per-funding Mortgage Bonds,10% percent Series B cent ownership interest in the two-unit station.
due 2015. The proceeds were applied to the Janu- In February 1985 the Company formed Church ary 13,1986, redemption of $50 million principal Street Capital Corp., a wholly owned subsidiary, amount First and Refunding Mortgage Bonds, for the purpose ofinvesting the Company's tem-13% percent Series B due 2010. Total funds parary cash fends. The subsidiary is consolidated needed to redeem the 13% percent Series B for financial statement purposes. As of December bonds were $55.5 million. 31,1985, the consolidated entity had approxi-4 On April 1,1985, the Company issued $125 mil- mately $352 million in short-term investments lion principal amount of its First and Refunding and $170 million in intermediate-term Mortgage Bonds,12% percent Series due 2015, investments. i The proceeds were applied to the May 6,1985, In June 1985 the Company made a lump-sum -; redemption of the $100 million principal amount payment of $122 million to the Department of First and Refunding Mortgage Bonds,14% per- Energy under the terms of the Nuclear Waste Pol-l cent Series due 2010. The total amount required icy Act of 1982. The payment was for the obliga-i to redeem the 2010 Series bonds was $115.8 mil- tion related to disposal costs for nuclear fuel con-l lion. Portions of the proceeds were also used in sumed prior to April 7,1983. connection with the March 1,1985, redemption The levelized recovery of purchased power obli-of the First and Refunding Mortgage Bonds,14% gations under contracts with the joint owners of 4 percent Series due 1987. the Catawba Nuclear Station will result in pay- l The entire Series of the 14% percent bonds, ments by the Company over the next five years totaling $50 million, was retired by the Company on exceeding the amounts collected in rates for such March 1,1985. The Company had transferred power by appmximately $461 million. l Capital Needs Property Additions and Retirements billion for the second consecutive year. CWIP is Additions to property and nuclear fuel of $657 mil- expected to exceed $1.0 billion in the late 1980s lion and retirements of $28 million resulted in a primarily because of increased construction ex-net increase in gmss plant of $629 million in 1985. penditures at Bad Creek flydmelectric Station. - Since January 1,1981, additions to property, in- Expenditures for construction of major generat- l cluding nuclear fuel, of $3.5 billion and retire- ing facilities and for nuclear fuel were appmxi. ments of $1.6 billion have resulted in a net in- mately 21 percent of Ihe total applications of funds ! crease in gmss plant of $1.9 billion. The amount of during 1985, a decrease fmm 34 percent for 1984 ) retirements was unusually large primarily because and 45 percent for 1981. Additional major applica-portions of the Catawba Nuclear Station were sold tions of funds were required for the expansion and l and the Chemkee and Perkins nuclear pmjects replacement of transmission and distribution facili- l were canceled. ties and for the redemption of maturing and re-funded securities. j Construction and Other Expenditures Plant construction costs declined during the period Future Construction Program 1981 through 1985. The primary reasons for this Projected construction and nucicar fuel costs, ex-decline were the completion of three generating cluding costs related to portions of the Catawba l units in this five-year period (McGuire Unit 1 in Nuclear Station that have been sold, are $2.5 bil. 1981; McGuire Unit 2 in 1984; and Catawba Unit lion for the three-year period 1986 thmugh 1988. 1 in 1985) and the sale of portions of the Catawba Compared with the previous five years, major Nac! car Station. As of December 31,1985, con- plant construction costs projected for 1986 struction work in pmgress (CWIP) was below $1.0 through 1988 will constitute a lower percentage of 37
the Company's total applications of funds. station's construction and initial core nuclear fuel. Major generating units still under construction Construction of Bad Creek flydroelectric Sta-are the four units of the Bad Creek flydroelectric tion, a 1,000,000-kilowatt pumped-storage facility Station. Catawba Unit 2 is undergoing pre- located in northwestern South Carolina, continued operational testing and is planned for commercial in 1985. Units 1 and 2 are scheduled for comple-operation in fall 1986. tion in 1991 and Units 3 and 4 in 1992. As of The Company's portion of the estimated con- December 31,1985, $78.3 million of the total es-struction and initial core nuclear fuel costs for Unit timated cost of $1.0 billion had been expended on 2 of Catawba is $240 million, and total estimated the project. cests for the station are $495 million. As of Decem- After completing Catawba Unit 2 and Bad ber 31,1985, $201 million had been spent on the Creek, the Company currently has no plans to Company's portion of Unit 2, increasing to $457 place a new generating plant in senice before million the total amount incurred to date for the the mid-1990s. Significant Trends The Company's financial position and results of Company include the resolution of certain issues operations could be affected by several factors in being addressed by the Financial Accounting Stan-the coming years. The most significant of these is dards Board (FASB) and the North Camlina Utili-whether the Company will receive timely and ade- ties Commission (NCUC). The FASB has proposed quate increases in rates to cover the increased ex- accounting which, if implemented, would require penses associated with the commercial operation the Company to write down to present value its of Catawba Unit 2 and the additional costs of ca- canceled construction projects since the Compa-pacity the Company is contractually obligated to ny's recovery of these canceled projects through purchase from the other Catawba owners upon the rates does not include a return on the unrecovered commercial operation of that unit. Additionally, as balance. The resulting write-down to present I operating and maintenance expenses increase, the value,if required, could be recorded by restating Company will need timely and adequate recovery prior years' financial statements. Also, the resolu-m future rates. Continued growth in the Compa- tion by the NCUC of the treatment of over- or j ny's non-utility operations, along with further eco- under-recovery of fuel costs in the North Carolina nomic expansion throughout the service territory, retail jurisdiction could have an impact on future could have a positive impact on total Company results of operations and the financial position of earnings. the Company. Other factors that could have an impact on the Construction costs Intemal cash generation sn wm vem f iw w n,o m in *' 'w ou m m
*A sh', l Y$ $ $& w ,, s n ,
38
[
-~
Lang-Term Fmancings and Sale of Assets
' Duke Power Company To meet its capital requirements, the Company has financed with long-term debt and equity securities and has raised additional capital through other types of financings plus the sale of certain assets. In March 1983 the Company introduced the Customer Stock Purchase Plan, which enables customers to purchase common stock without paying brokerage fees. Financings and sale of assets from 1983 through 1985 were as follows (dollars in thousands):
Average 198$ 1984 1983 price per Net Net Net share proceeds proceeds proceeds Financings Common stock Dividend Reinvestment and Stock Purchase Plan (1,188,333 shares) . . $25.70 $ 30,539 (1,226,818 shares) . . 23.56 $ 28,903 Customer Stock Purchase Plan (263,274 shares) . 25.28 6,655 (403,911 shares) 23.37 9,439 Stock Purchase-Savings Program for Employees (1,831,618 shares) . . 23.32 42,712 Employees' Stock Ownership Plan (143,633 shares) 22.78 ,_ 3.272 Total common stock 37,194 84,326 lemg-term debt First and refunding mortgage bonds 10%% Series 11 due 2015 (Issued December 23,1985) . $ 49,279 12%% Series due 2015 (Issued April 1,1985) . 123,125 I ollution-control series . 34,114 __ 60,720 45,648 Total 206.518 60.720 45,648 Nuclear fuel trusts ., 57.638 84,461 60.645 Totallong-term debt . 264.156 145,181 106,293 Total financings -264.156 _182,375 190.619 Sale of annets Sale of an interest in the Catawba Nuclear Station -457,086 Total long-term financings and sale of assets . 1264t l5g }639,461 $190.619 The Company's plans began purchasing stock on the stock market in the following years to satisfy plan requirements: bck market purchaws initiated ( Employees' Stark Ownership Plan 1983 l Stock Purchase-Savings Program for Employees 1984 Dividend Heinvestment and Stock Purchase Plan 1985 Customer Stock Purchase Plan 1985 39
! Selected Financial Data Duke l'ower Company 1985 1984 1983 1982 1981 ( Condensed statements of income (thousands) Electric revenues. $2,898,911 $2,710,015 $2,420,252 $2,244,480 $1,908,454 Electric expenses 2,370,876 2.161,914 1,971,038 1,854,712 1,632,104 Electric operating income 528,035 548,101 449,214 389,768 276,350 163,821 162.795 213.001 175,048 254,043 Other income income before interest deductions . 691,856 710,896 662,215 564,816 530,393 Interest deductions . 254,263 249,565 230,938 214.939 194.142 income before extraordinary item . 437,593 461,331 431,277 349,877 336,251 Extraordinary item - - - 48,304 - 437,593 461,331 431,277 398,181 336,251 Net income . ... . .. . Dividends on preferred and preference stocks . 60,912 61,786 62,600 62.164 57,895 Earnings for common stock . $ 376,681 $ 399,545 .$ 368,677 $_336,0_lZ $ 278,356 Common stock data Shares of common stock - year-end (thousands) . 101,194 101,153 99,634 95,949 88,483
- average (thousands) . 101,17F '00 346 97,784 93,679 87,313 l'er share of common stock Earnings before extraordinary item . $3.72 $3.98 $3.77 $3.07 $3.19 Extraordinary item - - -
0.52 - Earnings $3.72 $3.98 $3.77 $3.59 $3.19 Dividends . $2.54 $2.42 $2.32 $2.24 $2.08 Ikmk value - year-end . $28.98 $27.80 $26.26 $24.89 $23.83 Market price - high-low $36% 28% $30%-22% $26%-21% $24-20% $22%-15%
- year-end $35% $29 $25% $23% $20%
llalance sheet data (thousands) Total assets . . . $8,024,163 $8,018,818 $7,379,445 $7,057,780 $6,531,044 1.ong-term debt . ... . .
$2,721,041 $2,696,795 $2,745,889 $2,712,372 $2,545,694
$ 277,012 $ 285,426 $ 295,053 $ 304,026 $ 308,674 l' referred stocks with sinking fund requirements ,
Electric and other statistics Kilowatt-hour sales (millions) 14,241 14,493 14,219 13,711 13,861 Residential. 11,338 10,922 10,339 10,087 9,731 General service . Industrial . , .. . . 21,837 21,821 20,907 19,345 20,667 8,642 7.163 8,686 8,237 9,289 Other energy and wholesale 56,058 54,399 54,151 51,38_0 53,548 Total kilowatt-hour sales (a) . Residential customer data Average annual KWil use . . I1,659 12,210 12,278 12,065 12,392 Average revenue billed per KWil . 6.4 2 < 6.11e 5.67c 5.41t 4.51t Source of energy (millions of KWil) Generated - Coal 27,619 26,394 32,466 38,927 42,513 33,700 32,632 25,059 15,009 14,229
- Nuclear (b)
- Ilydro 1,1(12 1,995 2,114 1,569 843
- Oil and gas 13 - 8 7 146
'lotal generation . (12,491 61,021 59,647 55,512 57,731 l'urchased power and net interchange (1,742) [2,908) (1,003) (301) 494
'Ibtal output . . .. ..
60,752 58,113 58,644 55,211 58,225 less: Catawba buyers' ownership 3,827 - - - - I'lus: l'urchases from Catawba 3,7(19 - - - - Total sources of energy 60,694 58,113 58,644 55,211 58,225 1.ine loss and Company usage 4,(13(i 3,714 4,493 3,831 4,677 Total kilowatt hour sales (a) . _5(1,058 541399 54,151 51,380 53,548 System average heat rate 9,900 9,853 9,762 9,666 9,633 System load factor 55.8% 62.2% 58.6 % 56.8 % 61.9% (al thcludes a twrtion of the energy sold to the joint vitners of the Catatrba Nuclear Station. j (b) includes 10tru of Catairba Unit I genemtion. i 40
, / -Selected Financial Data Duke Power Company .
y _ f f Quarterly A summary of quarterly financial data for 1985 and 1984 is as follows (dollars in thousands, except per- , Financial Data share data): Electric Electric Operating Net Earnings Revenues Income income Per Share 1985 by quarter Fourth . $717,893 $111,848 $ 89,535 $0.73 Third . . 751,237 141,416 119,358 1.03 Second . 678,332 116,996 93,961 0.78 First . 751,449 157,775 ~ 134,739 1.18 1984 by quarter Fourth . $680,177 $129,979 $ 97,862 $0.81 Third . s 729,047 156,746 139,001 1.23 Second 629,483 132,990 101,276 0.86 First 671,308 128,386 123,192 1.08 Generally, quarterly earnings fluctuate with seasonal weather conditions, timing of rate increases, fuel cost adjustment procedures and maintenance of electric generating units, especially nuclear units. Stock Market The Company had approximately 116,549 holders of record of common stock as of December 31,1985, Information ' and 120,395 holders as of December 31,1984. During 1985 approximately 46,098,900 shares of com-mon stock were traded, compared with 39,432,900 during the previous year. The Company's common stock prices, as quoted by the New York Stock Exchange, and dividends paid are as follows: Dividends Stock Price Range Dividends Stock tWe Range Per Share liigh Low IVr Share liigh low 1985 by quarter 1984 by quarter Fourth . $0.65 $36% $31% Fourth . $0.62 $30% $27% Third . 0.65 35% 30% Third . . 0.62 27% 24 % Second. 0.62 35% 32 % Second. 0.59 25 22% First 0.62 32% 28 % First 0.59 26% 22 % Subsidiaries \ Dollars in Thousands 1985 1984
. Subsidiary Property and imestments - at cost Investments Real estate, recreational and land development $39 856 $39,323 Net current assets, principally investments, receivables and inventories 54.941 42.485 Totalassets 94.797 81308 Deferred income taxes . (5.985) (4.023)
'Ibtalliabilities (5.985) (4.023)
Investments in and advances to subsidiaries' $88,812 $77,785
*Repects tire Companyk unconsolidated subsidiaries.
I di
Selected Financial Data Duke Power Company
-- e._ _
In recent years, the impact of generalinflation and tion Costs. Since plant facilities are not expected Effects of changes in specific prices has caused distortions in to be replaced precisely in kind, " current coat" Changing Prices traditional accounting measurements of income does not necessarily represent the replacement and capital. Although the rates of inflation in re- cost of existing productive capacity. Current cost cent years have substantially decreased, the m- depreciation is computed by applying the same placement of existing plant capacity occurs at a rates used in the historic.1 cost statements to the C significantly higher cost than recovered through current cost plant amounts. historical cost depreciation because of the high Effects of rate regulation levels of inflation in previous years. In response t Under the Company's present ratemaking proce-this problem, the Financial Accounting Standards dures, only the historical cost of plant in senice is Board requires certam disclosures of the effects of recoverable in rates as depreciatioi:. Therefore, in inflation on a company's operations and financial . i h de of f Mi 1
- posit,on.
i . plant in service resulting from inflation in the cur-Because the accompanying supplementary in- , ;, gg formation mvolves various assumptions and ap-
, rent cost adjustments and is reflected as a reduc-y proximations,it should be viewed as an estimate of g g gg .,
the effects of inflation, rather than a precise not necessary in 1985,1984 and 1983 because
***""*# the level of inflation was less than in previous years.
Constant dollar accounting The Company has significant amounts of long-Constant dollar accounting reflects the overall de- term debt outstanding which serves as a partial cline in the purchasing wwer of the dollar by re- hedge against inflation, as well as other net mone-stating historical costs in terms of dollars of equal tary liabilities, which will be paid back in dollars of purchasing power. less purchasing power. In the accompanying sch dules, the gain from decline in purchasing Current cost accountinr power of net amounts owed results from mflation,s Current cost accounting reflects changes in spe- effect on obligations to pay cash at a future date. cific prices of the property used in the Company's operations from the date the property was ac- Other quired to the present. This method differs from Income statement items other than depreciation constant dollar accounting to the extent that costs have not been adjusted. The Company's operation of specific utility property have increased more or and maintenance expenses already include the av-t erage effects of changing prices during the period. less rapidly than the rate of general inflation. The current cost amounts of plant in senice represent Therefore, no adjustments have been made to the estimated cost for replacing existing plant fa- them. No adjustments to income tax expense have cilities and were determined by indexing suniving been made in computing the impact of inflation plant costs by intern:.lly generated indices or the since only historical costs are deductible for in-Ilandy-Whitman Index of Public Utility Construc- come tax purposes. n 42
-m.___.
Suppl:m:ntary Stat:m:nt of Earnings for Common Stock Adjusted for Changing Prices Duke Power Company 2 E Historical Current 2 Dollars in 1housands Year ended December 31,1985 dollar cost Electric revenues . $2,898.911 $2.898,911 Operating expenses . 1,262,100 1,262.100 Maintenance of plant facilities 260,361 260,361 Depreciation 319,295 571,626 c Taxes. 529,120 529.120 Total electric expenses . 2,370,876 2,623,207 Electric operating income . 528,035 275,704 Other income . 163,821 163,821 Income before interest deductions 691,856 439,525 Interest deductions 254.263 254,263 l Net income 437,593 185,262 Dividends on preferred and preference stocks 60,912 60,912
; Earnings for common stock . $ 376,681 $ 124,350
- Increase in specific prices (current cost) of utility plant held during the year * $ 121,450 Reduction to net recoverable cost ** -
Effect of increase in general price level (360,804)
; Excess of increase in general price level over increase in specific prices . (239,354)
Gain from decline in purchasing power of net amounts owed 127,494 Net $ (111,860)
= *At December 31,1985, currrnt cost ofelectric plant, net of accumulated depreciation, tras $9,782,351.tMM).
* *Due to the decrease in the rates ofinfation in recent}rars, there is no reduction to the net recottrable cost ofplant tr$cctedfor 1985.
Five-Year Comparison of Selected Supplementary Financial Data Adjusted for the Effects of Changing Prices In thouunds of average 1985 dollars, except per-share figures 198'i 1984 1983 1982 1981 Current cost information: Income before extraordinary item - $ 185,262 $ 205,136 $ 214,410 $ 140,069 $ 171,191 Earnings per share before extraordinary item . 1.23 1.41 1.50 0.75 1.17 _ Net assets at year-end 2,885,862 2,871,715 2,777,544 2,632,026 2,413,850 j Decrease in the current cost of electric plant in sersice, net of inflation, after reduction to net recoverable cost 239,351 267,339 289,189 110,873 312,765 Constant dollar information: Electric revenues. 2,898,911 2,806,708 2,613,288 2,501,458 2,257,356 Common stock dividends per share 2.54 2.51 2.51 2.50 2.46 Market price per common share at year-end . 34,81 29.62 26.67 25.62 23.61 General information: Purchasing power gain on net monetary items 127,494 142,833 145,022 162,880 386,682 Average consumer price index 322.2 311.1 298.4 289.1 272.4 13
John L. Fraley Warren 11. Owen Board of Directors William S. Lee tire Chairman and Chirf John D. Ilicks benior lice IWsidst 1%blic Executiw LiceIWsidat Chairman and Chief Exnutur OparL34 Execuhw opter Afairs' Engu nnrsng. Constrwtion and h 1%dution Gmap' NaomiG. Albanese Candsna Corpomtion2.Frrn5 t Carrins James V. Johnson skan Emer*tus Schmd of flame sin Chanrman and Director of James C. Self Economics Alester G. Furman. Ill 1%blic Afairs Chairman of thr Exeutur Uniwrsity of North Candsna at Chairman of the therd C<wa-Cola ikittling Ca. Com mittu Grrensbom2 Furman Ca. Inc ' Cons <didated2 Gnrnumi blills. Inc. Trustn Dr. Robert L. Albright Steve C. Griffith, Jr. W. W. Johnson The Duke Endou mar d IWsidnt}*hnsam C. Smtth hentor liceIWsident and Chairman and ChirlExecurite Uniuerss*v2 Geneml Comnsell Opcer Maceo A.Sloan Bankas 1kust of South Camlina 2 sice Chairman Douglas W. Booth William 11. Gn.gg 30,,3 C,ygj,,3f ,,af tip lWsidat and Chief Operating Exwutur LiceIWsident Buck Mickel Insumna Company t OpcerL4 finance and Administmtionl 4 Chairman of the floard IMnirilnternational Austin C. Thies Thomas II. Dav.is Paulit lienson c,,pom,jo,,a g,,,,,j, 57,, fw,fgy, Chairman of the Frautne Chanrman and Chief Extrutin' Tmnsmission. Distribution and Committa Opcer Reece A.Overcash,Jr. Eintric Opemtions Gmupl l'irdmont Aviatten,Inc2 United 1kluommunicattons. Chairman of theIked and inc4 ChirlEznutur Officer I. Executiw Commsttn Robert C. Edwards Associates Corpontion of North 2. Audit Committee Charrman of the Ikerd George R. Iferbert 3,ai,,t ,_(,,,,,,,,,,,(,,,,,,, 1kst Ir Hall Corporation3 1%ident Research Triangle , instuture Officers William S. Lee James R. Bavis Paul G. Martin Norman P. Morrow Chairman of the Ikoord and Lia IWsident Human Resources lice IWsidcnt Eastern Division Contmlier Chnef Esecutur Oficer Dwight B. Moore Thomas C. Berry Richard J. Osborne Douglas W. Ikx)th lice IWsidst Southern Dtrision bice IWsident Centml Division Trrasurer IWssdent and Chief Oprmhng Shem K. Blackley, Jr. William O. Parker, Jr. David L. Ilauser opc,, Assistant Contmiler KiaIWsident Tmesmission Lice IWsident thssil1% duction William 11. Grigg Dcpartmmt E1uurin tireiWs,dnt Ralph W. Bostian Eugene C. Sites Funana and AJmsnistmtion LiceIWsidnt 1%iuction Richard B. Priory Assistant Contndln Suptwrt Dcpartment 11cr IWsident Design Enginaring llansel D. Whitley Warren 11. Owen Assistant Contmila Esautur bialWsident J. Kenneth Clark Enguerertng. constrwtion and Lice i+rsident Corpomte William R. Stimart Communicalisms lice IWsident Regulatory Affasrs Sue A.Becht 1%furtion Group Anistant Treasunr Austin C. Thies William A.Coley George E. Stubbins Lice IWsudent Opemhan tire IWsident In)brmation W. Bruce Shannon Executur Lia(Wsudent ""
- SPtems !
Tmesmission. Dustrubutson and goye77 g 9;(y Elytric Oprmtrons Gmap IIal B. Tucker Carolyn R. Duncan l tiu IWsismt Construction ' Sin IWsident N" clear ^"'#'"'5" IIenry L. Cranford . r JWawtron Dctort"'"' Senior sinIksident ,Ferg n Jr. Phyllis T. Simpson Durision Oprmtions cm,mg c,,,,,g Fred E, West, Jr. Assistant Su rrtory Donald IL Denton,Jr. Lice IWsident Charlotte Division Excell O. Ferrell, Ill s ,,i, sly fWsida, b,larketing and Rates tia IWsudat Northnn Dunsion James W. White 51a lWsident GarmlSarices Elbert N. liedgepeth, Jr. Subsidiaries Steve C. Griffith, Jr. lice IWsidst Distrsbution C. Joe Shernll Smior Lice IWsidnt and Assistant lice IWsidat Richard C. Ranson
'*r"r*l C"""5'I Duncan E. Lennon Tmiismission-Substation IWsident
" f**'dat and Ta Counsel Dinsion Crrsa nt Land & Timbcr Corp.
John D.1(icks
.vsror lice IWsida' John F. Lomax l%blir Afatrs g3,, yy,jgag ;sy,ger, y,,,,jo, Lewis F. C,a,mp, S n,,ry ,,
J,,r.
,,n, ,, g,,,m, W.
gW,,T,. ,,,Robertson, Jr. Cou nsel blull.lburr Supply Company 44
1 Other Information Notice of annual meeting i The 1986 meeting of holders of Duke Power Company common stock will be held
; Thursday, April 24, at 10 a.m. in the OJ.
, Miller Auditorium of the Electric Center,526 South Church Street. Charlotte N.C.
f. i Transfer agent and registrar u Morgan Guaranty Trust Company l of New York 2 30 West Broadway New York, N.Y.10015 Stock exchange listing i Duke Power Company common stock is listed
'; and traded on the New York Stock Exchange.
i The trading symbolis DUK. Corporate headquarters i
. 422 South Church Street P.O. Box 33189 i Charlotte, N.C. 28242 704/373-4011 SEC Form 10-K and statistical supplement Upon request, the Company will provide .
without charge a copy of its 1985 Annual Report to Shareholders on Form 10-K as filed with the Securities and Exchange Commis-sion. Also available without charge is the _ Statistical Supplement to the 1985 Annual
. Report. Requests for these documents should be directed to Richard Williams, Investor Relations, Duke Power Company, P.O. Box . 33189, Charlotte, N.C. 28242. Shareholders may call Investor Relations at 373-4579 (Charlotte) or at the following toll-free numbers: 1-800-532-0492 (North Carolina):
1-800-438-0142 (elsewhere in the United States).
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