ML20237J695
| ML20237J695 | |
| Person / Time | |
|---|---|
| Site: | Catawba  |
| Issue date: | 12/31/1986 |
| From: | Bauer J, Lanford J PIEDMONT MUNICIPAL POWER AGENCY |
| To: | |
| Shared Package | |
| ML20237J675 | List: |
| References | |
| NUDOCS 8708180295 | |
| Download: ML20237J695 (46) | |
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PIEDMONT MUNICIPAL POWER AGEXCY 1986 ANNUAL REPORT B700180293 870006 PDR ADOCK 05000413 I PDR
Ten Commitments to Prosperity Economical, reliable electric power, provided by diversity. This diversity will help to moderate cyclical Piedmont Municipal Power Agency,is a major reason employment levels that affect all PMPA customers why healthy growth continues in the South Carolina in some way. This broader economic base will Piedmont. PMPA's ten participating municipal ensure that if one industry encounters an economic utilities have demonstrated a solid commitment that downturn or faces pressure from outside influences, is helping ensure prosperity for the entire Piedmont other segments of the regional economy would have region in the years to come. the strength to sustain employment levels, living The 10-county region that is home to PMPA standards, and tax bases. participating cities continues to grow beyond the Electric power ulider local Control. expectations of planners. This growth is reflected by The structure of PMPA allows each member increasing population and burgeoning industrial municipality to develop and guard its own concept development. Population has grown an estimated of growth and prosperity. Just as importantly, the 5.28% over the period 1980-1935.* During the last growth fostered by PMPA provides the means by half-decade, major Industrial companies have opened which each member can attain its individual concept or expanded over 1,700 plants, added over 33,000 of prosperity. All members, as well as the entire lobs, and Invested well over $3 billion in the region, end up sharing the economic benefits of a PM PA region.** diverse economy, less susceptible to disruption. Growlli-a way oflife. The availability of abundant, reliabic, economical While growth is an accepted fact welcomed by some electric power, under local control, helps keep the communities, others are understandably wary of its costs of goods and services produced in the region impact.The attraction of growth to all residents of the from fluctuating. This cost stability offers a great region, however, is that it has the potential to bring consolation to business and consumer alike. prosperity to all...both those communities who seek We celebrate our members' individuality, and look rapid growth and those who do not. with anticipation toward their attainment of Proillolling c0011011110 dlVersity, prosperity. And PMPA is proud to assume its role By helping provide an environment attractive to as a major factor helping its members to achieve potential residents, manufacturers, and se1Tice that prosperity. Industries PMPA promotes greater economic
- South Carolina County Association estimates.
** South Carolina State Development lloard figures.
Soulli Carolilla Pledilloilt ludustrial GronIli, 19110-1911[i New or New Espanded New Imestment oner souu:aueuacar stauon County Plants Jobs (s000) trounesy Duke IWer Qimpan>) g g, 33 g7 g 97 Cherokee 77 1.729 170.309 Greemille 601 9.115 990.101 --- I,aurens 96 1.263 71,691 em Newberry 57 1.88-1 95.599 _ ,- g g' , AUA %3pr Oconce 87 2.229 115.399 x P ekens 89 2.505 151.275 * ' "
- Spartanburg 471 9.320 688.211 i nton 53 1.185 103 A31 M,a '
g y;p s %' N N York l83 3 313 789.338 #p' - y p 1orai, i.752 33.530 3.249.78i - . j-
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Glencairn Gardens. Rock nlll The PMPA Story Piedmont Municipal Power Agency (PMPA) began percentage of the project's total cost. Other contracts in 1975 as a Joint Action Agency when a group of establish PMPA as the wholesale supplier of wholesale municipal customers of Duke Power electricity for each of its members, Company in South Carolina were offered the Since PMPA is a nonprofit municipal corporation, the opportunity to purchase portions of the Catawba Agency is able to issue tax-exempt electrle revenue Nuclear Station. The two-unit generating facility has bonds at interest rates significantly below the capital a nel dependable capacity of 1,145 megawatts for costs of an investor-owned utility. PMPA prosides each reactor unit. economical power to its members at rates designed PMPA acquired a 25 percent undivided ownership to recover only actual operating, maintenance, and interest in Catawba Unit #2. PMPA member utilities debt-service expenses. PMPA member utility rates have executed a project power sales contract, do not have to support such costs as stockholders' agreeing to purchase a lhed percentage of the dividends, income taxes, and profits, making PMPA project's output, and in return, to pay the same lhed participants' rates much more competitive. 1986 PMPA Reventies 1986 PMPA Ihpenses
$129.3 million $129.1 million Investments 11.3 %
Catawba 13.4 % Duke Special Fund _ . - ~ -- p Purchased 48.9% 44.3% Power Participants 32.9% 39.8% %, , ,7 , w.g&## ~ * % %, .e 9 rf"'ggy-m TM%7%g
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Ten Individual Destinies-l Committed Together for Prosperity. Each PMPA city nears the 21st Technology Center and the Airport and agriculture has helped to century with its own character. That industrial Park as tangible pmof of sustain Gaffney residents for characteris to be preserved and the success ofits development generations. In recent years, nourished as a gift to future effort. The program has been Gaffney's leadership has generations of citizens. To celebrate responsible for the attraction of implemented policies to broaden this diversity, we offer just a few many new businesses to the area. the city's economic base. The results examples of PMPA cities
- own Rock lilll's success stands as a are impressive-a revitalized concepts of what prosperity means model for other development- downtown;a new hospital, park,and to them, with some of the actions minded cities in South Caroll.ia. shopping center; plus many new they are taking to achieve Rock lill!'s concept of prosperity is homes, motels, and restaurants.
that prosperity. being achieved by attracting a The high level of employment bears diverse manufacturing base. A witness to Gaffney's prosperity. i} l k'ading factor in continuing to An influx of companies, such as 1 1 s%jd}e$g" t % attract that industrial base is the AMP, Inc.. Ilamrick's, Inc., and b b$ 4 economical, reliable power made Stouffer Foods, has provided new available through the cooperation of opportunities. Much of GalTney's 111 & PMPA member cities. success in attracting business is
# credited to efficient, modern
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Gaffne}'-Ab'rictilttire utilities. A major factor is
- MqL,~ and inore. economical electric power Gaffney is surrounded by highly from PMPA.
City !!all, Pock IHil productive farmland and orchards, umestone conege, can'ncy Rock lilli-Industrial
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developnient in a big way. _ <. York County's largest cliy is on a steep growth curve fueled by its 4- _0
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proximity to Charlotte. North ;. '
. d, Carolina. Although Charlotte exerts .'
E rME "" { , 6 a significant influence on its :. - i~ neighbor to the south, Rock Illil has ' t - f a character and agenda all its own.
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s . . Rock lilll's energetic Economic s yH Development Corporation has been ~ s%, g&, given the clear mandate to establish x a balanced, diversilled business and N - Industrial base. Rock 11111 has x !B fostered the construction of two Industrial zones-the Business and '- ' N > i' ' pygg$ R , mmn #?' I ?% i FN*% g ht g " M P = m. h]@"i-gm _ O } gm m[es,
L Greer and Easley- pyypegmw Sp J . M $, 9. Expanding residential O n'_ . W p t'~ .. Corninunities. M[i.d ? -l$.y . , 44 '
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g O se ydTf Greer and Easley mean home and < ' family to many who work in ' ' i H O ; J 4" *: tW ('I' l <
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Greenville or Spartanburg, and for
',.E~5r good reason. City leadership in both d -
4 cities has taken numerous specille 4
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measures to desclop the quality of .. . , family life offered. The result has . . . i4i been continuing growth of attractive
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e s residential areas in both cities. _ , - Greer's learlership has developed a Ben Tower, casley large recreation department with Abbeville's historic charm, opportunilles in easy reach of Alliieville-Rural and symbolized by tts restored town virtually all residents, and the city has opened a civic auditorium. deVeloIHnent interesis square and famous opera house,has ilusiness development clTorts are pulling together. been carefully presmed. This targeted chiefly at prospective high- This historic city is the county seat historic preservatiolguards the income commercial and light of the least populous county of the city's valuable heritage and also industrial companics. 10-county region. While Abbeville's offers an outstanding quality of life Easley has carefully maintained its heritage is rural, the city is p*epared for new residents. facilities to keep pace with growth, for and seeking diverse Industrial The Abbeville experience presentsa while keeping taxes and utility costs and commercial growth. Abbeville shining example: how prosperity low. This attractively low cost of has many benefits that are makin4 for both rural and economic living enables families of all income the city increasing!y attractive for development interests ctm be levels to stretch their resources. new development. The city's leader- achieved in harmony. Reliable, economical power ship deserves much credit for available through PMPA helps make positioning Abbeville for quallly, Town square. AbbevHle it happen, controlled development. emy . AHen Hennen Hospital. Greer Abbeville o!Ters abundant water . + v'W " resources-a 4-million-gallons-w e~ .'M ' y f' %s 4 par-day excess capacity. The city's ' '"3 .f "
..- 1 wholly owned hydro dam, unique in '
the entire state, offers newcomers ,,,,, t
, ^d 'j . . y-some of the lowest electric rates
@ . f'71 in South Carolina. The city has
'.g h' widened major roads and built a 4
new industrial park. IIcalth care b and educational services are " constantly being upgraded. The A Mf city works diligently to promote jfs%,,:llL Q c'- tourism for the nearby Russell Lake amEh recreallonal area. rg u a.'h C% A
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Cllilt0D and LaureHS- century. Newberry has added metal OIIerling cliolocS* parts and plastics manufacturing to
; its solidly established poultry.
The decline of textile employment forest products,and agricultural hit Laurens County particularly businesses, plus the cultural hard.The county Chamber of 4 benellts of Newberry College. Union Commerce hascommitted to pursue has attracted businesses in the diversilled growth to prevent any ,. metalworking, machinery, apparel, similar occurrence in the futun and plastics segments. Westminster
Ollering choices" may be quite A ,
*9 is working to preserve its heritage an accurate description of the ' - for supporting agriculture, tourism, Clinton approach. This city seeks -
recreation, and quality residential distribution facilit!cs, diversilled living. Industry, and entrepreneurial small L war Memodam opera ilouse. Newberry 4 business to offer a variety of - > cmployment options to citizens. site, upgraded utility lines, and i In addition. Clinton leaders know committed to tripling the capacityof that manufacturing diversity offers the waste treatment plant. Inquiries citizens the option to purchase more from companies planning relocation goods and services locally. Clinton have increased as a direct result, l actively encourages construction of and 1,aurens recentlywas named the a broad range of housing types to new home of a 1.6-million-sq. It suit the needs of a diverse workforce. distribution center. The I,aurens I,aurens city leaders firmly believe experience demonstrates the pivotal that the quality of the utility systems role of utilities in broadening the In the community is directly related economic base. I<ose inii Mansion. L'nton to the level of economic growth. Accontingly, Laurens has under-l)lVerSity ptilllHg 10geliier -
,,m taken the most capitalintensive for prosperity.
expansion in its history. The city has Every PMPA city is working for a .._.f. 95 A[# g. l 3 begun work on a 480-acreIndustrial prosperous entry into the 21st %p@h ef # Presbyterian College, CHnton Court flouse. laurens r . - w &< b;w 9 o
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Depol Cunmunity Center. westminster
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Ily pooling their strength. PMPA 1 L. c cities ensure that reliable, g;;igh g r economical electric pouer will help each achlese its own concept E of prosperity.
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PMPA kWh Sales PMPA Growth in Energy Sold, 1980 sales (In thousands of kWh) 1985 Vs.1986 July-December *(in GWh) nm y IM kINKsille ,a 40Jil8 ,gl>tiegille . mw 21.5 Clinton M mmwr$,gi;d 106.640 ., ggg
- inton O 1986 mfpwmmmg Easley w a M h h a161.921 56 a v:mmyymwwa W ,
0o_'; gedaltdM!d 145.713 Gaffney Easle) l 85.3 creer mysww] g2gda l28.390 -
/ Oj 69.5 1
.,.yg GaHne) 1.aurens .;1cggdj 78.II4 ,_ .
l 75.5 "3?'SP.?W 7;" q 5 , 62,3 N,ewtierry wagygajj l28.190 creer wwwynmmerm ~~~ l GG 1 Rort 11111 .amawauwgajprw;L3q,92f] m :s ' q"
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IIllioll dlydogAQ iIOjilO 41.] m < w q n,o Westininster j;;;2[i 24.381 N.ewberry 67.1 TOTAL SALES, 1,313,842 m - ,r mb,D N, * ' M' Rock ilill 199.1 PMPA Growth in Monthly Energy Sales, 1985 vs.1986 July-Deccinber* (in GWh) en;on , July Ma % ] 120.9 w 3 )) 52.8 58.2 l 147.4 I II, nr' s - - -q i l 7-(; Westminster August ^ ' " 1, 1 '6, l 121.9 Septemlier hl 102.5 , , m, 4, yl 640.1
, . _j 101.4 l'111'A total
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y1 89.4 0 1986 l 95.4
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# ' N Y l II4 8 l 115.1 6 month d 601.1 total l683.3
- Comparable tlata for January , lune not asallable.
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Chairman's Report - Prosperity means different things to different people. Often the definition of prosperity is tempered by the - situation in which people find themselves. l'or many people , y in today's world, simply having enough food to eat each day + would be abundant prosperity. We are fortunate in this , country to have an economy w hlch allows us to define . .. prosperity in terms of economic growth rather than in ' terms of economic necessity. In this report, PMPNs members discuss what prosperity means to them, and
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each of our members emphasizes growth as a contributing . factnr to prosperity. .' . Economic growth does not just happen. It is the result ' of careful planning and a commitment on the part of . community leaders to achieve consistent progress in reachmg this goal. Ilowever excellent the plannine, and however strong the commitment, growth will not occur ~ q unless the community has a solid Infrastructure to serve QV as a base for its growth. Adequate supplies of water and electricity and provisions for waste disposal are essential '
,.-. ,_- 3 to the growth of any community. * * '-
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PMPA was established to assure that mm portion of tkil ~ ~ infrastructure would be available to meet the growing
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needs ofits members. The need io prmide adequate supplies of competitively prked electilcity, and the j/ 86 ' "*0 recognition that whleving this goal could more readily be accomplished through loint action, brought these diveree cllles toget her. By forming, t heir own action agency to the establishment of common power supply goals. o detelop power supply resources, the individual Signllicant and \lsible progress towards obtaining these members have not only assured that one portion of the goals has occurred, and the Iloard of I)lrectors is infrastructure is available to support their plans for committcd to assuring continued progress in future 3 cars. community growth, but also they have fostered their ow n Independence and autonomy, No longer are plans for assuring adequale power supply in Ihe hands of corporate officials whose main concern is for other customers. Now representatives of each city control the decisions whlch affect the ability of a city to foster the t3pe of growth that will lead to its prosperity. This year PM PA has made significant progress in reaching its long-range goals.1)etails of that progress are presented in this Annual Report. The individual commitments to prosperity that resulted in PMPNs formation have led
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FrV"U" 07 One of the major goals was the construction and operation
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@F 7Mj of Cataw ba Nuclear Station l' nit 2 in accordance with its schedule and budget. Construellon was completed and the r
q,, unit went into commercial operation on August 19,1986. 5 ' dE Commercial operation occurred more than 10 months y- ,- gy, e y , g; carlier than the schedule of June 1987, and resulted < in costs reduced from $1,929/kW to $1,856/kW, a pM 3.8% decrease. Progress toward the unancial goal of minimizing debt service costs was evidenced by two refundings during the year. 'lhking into consideration all refundings, debt service payments have been reduced by almost $1.3 million per year for 1988 through 2007. Additional cost savings were realized during 1986 through the negotiation of new letters of credit related to the notes Issued by the Agency in 1984 and lower-than-estimated
' , interest charges on F11PNs variable rate debt. The
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estimated interest rate on this debt was 5.4% for 1986.
> The actual rate was an average of 4.66%, resulting in act ual Nf '
interest costs being $1.8 million less than estimated.
. A primary objective of the Agency and its members is
, 3 growth in electric requirements. Initial plans estimated growth in energy requirements averaging 3.1% per year.
Energy sold to t he members during ihe second half of 1986 4 exceeded sales in the second half of 1985 by 6.7% Real
; ea grow th and the hot, dry summer both contributed to this large increase.
CQ ' Along with sales, revenues during 1986 were considerably f (/ higher than expected. The major cause ofIhis increase was the early commercial operation of l' nit 2, w hich inillated General Manager,s Report 8aies a cienricar to mners nve months earher than had been anticipated. Also, as mentioned above, higher than anticipated energy sales to P11PNs members contributed A business organization views prosperity differently from to the increased retenues. Individuals. For a business, prosperity is having the human Throughout this document, other operating and Rnancial and unancial resources necessary to implement the plans information is summarized and graphically display ed. Each needed to mas e the organization closer to its goals and to l show progress in Icaching those goals over a period of time. g.ece PM PNsof operating information tells its and Gnancial ownduring progress individual the year.part of the story Using that dennition,1986 was a " prosperous" 3 ear for Put all of these things together and they show a consistent l'ilPA. One major goal was reached, and highly sIsible picture of steady progress toward P.\1PNs stated goals. The progress toward other goals was made during the year. staff has now turned its attention to assuring continued Taken together, the events of 1986 present a picture of. progress toward those goals in 1987 and beyond. an acthe and resourcefu! organization carefully making progress loward its denned goals.
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PMPABoard ct= = e Conunission of Public Works liiurer s, S.C. { .m ,,eninamusu IJtilities participating in PMPA s own, operate, and manage the i c J. Russell Allen Agency tnrough the PMPAlloard
- Vice President of Directors. Each participating , , Jacobs Press. Inc.
municipality is entitled to one 4 Cilnton. S.C. Director and one Alternate *'* Director of its own choice. The * >1Manh-- + n =- lloard meets each month to establish the policy of PMPA. .i Reports from the staff and legal, ... 7 financial, and engineering Richard S. Itale 4 consultants are reviewed, and General Ntanaster 4 decisions on rate 8, bond sales, Commission of budgets, contracts, and other Public Works 'l { / , matters are made. Participallon h"SI"Y 8 C-In single-purpose commillees e provides lloard members with a more detailed knowledge of
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p-~_a.,,., p- ,,m. m.y c I D. Sherbert. Jr. 7 littlity Director PMPA operations. PMPA officers are elected annually by the lloard Steve D. Recs Jr. tfLilities Director w ' g& y g ] t'nion. S.C. of Directors. New berry. S.C. y T Kenneth Smith , Operations Nianagrr ' Commission of Public Works Greer, S.C. Dasid ll. Krumwlede p q City N!anager Abbeville. S.C. m yy .:
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-y Gary L Cobb -
Joe B. t,anford Superintendent / - City M;mager Jack E. N!illwood Commission of . RockIhil.SC. Member of Board E Public Works .,4 of Public Works Westminster S.C. c # Gaffney. S.C. w?y/:0fficers~
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*w mu, IChairman m MC Joe B.LLanford General Manager = James A. Ilauer p City Manager, City nWock lilli Finane Di t Frank S. Myers g4 ggh k Russell'Allerf
.Ql)sN, M!%s _ , IrifEt$g rpe orsitSIQger.. John N. Glover #
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( @N K.e..%"Preshkat,Jacobs Press,Inc. :.# %>M 4@$, % nN..~. EDP Manager I aul P"ochardt-3e
? Secittary 5 s , Kenneth CBarnet*m 7,Nd 7 ' y UF}nanceDisctor,Ci[tyof 310 ~
nager Su7. anne DJg'ypMW,#^ >~ j[usi ?8-Sircasurer 4 n; 'F fycrs- w%pphit D .
^ Sarah L. Gre y c.
rector.
b Auditor's Report 4 A MEMBER OF ARTHUR YOUNG INTERNATIONAL 1900 Daniel Budding W OUng '**"vi"e. souin caroiina 29802 Telephone:(803) 2719286 The Board of Directors j Piedmont Municipal Power Agency Greer, South Carolina We have examined the accompanying balance sheets of Piedmont Municipal Power Agency at December 31,1986 and 1985, and the related statements of revenues and ; expenses and changes in retained earnings (dencit), Jr.d changes in Unancial position for the years then ended. Our examinations were made in accordance with generally accepted audilhtf; standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the Anancial statements mentioned ab ne present fairly the Anancial position of Piedmont Municipal Power Agency at December 31,1986 and 198~), and the results ofits operations and changes in Anancial posillan for the years then ended, in conformity with generaily accepted accounting principi( s applied on a consistent basis during the period. . Our examinations have been made primarily for the purpose of expressing an opinion on the financial staicments referred to above taken as e w hole. The accompanying additional information on page 16 is presented for purp)ses of additional analysis and is not a required part of the basic Onancial statements. Such additional information has been subjected to the auditing procedures applied in the examination of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic Anancial statements taken as a who:e. March 27,1987 9
'a 5 i? Piedm nt Municipal Power Agency b BAIANCE SIIEETS DECEMBER 31,1986 and 1985 (dollars in thousands) I l6
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1986 1985
; s ASSi?rS i littlity plant:
Electric plant in service. . . . .. . ... . $ 533.453 $ 244.815 N, Nuclear fuel. . . ... . .. 39.248 35.247 L Construction work in progress. .. . . . 627 260.360 573.328 540.422 N Less accumulated depre-lation and amortiza lon. . . (24.406) (7.309) Jj- Net utility plant. . ... . . . . 548.922 533,113 Restricted funds. . .. . . .. . . . . .. 584.430 705.296 Current assets: J Revenue fund. .. .. . . ... . .. 86.516 25.549 Operating fund. . . . . . . . . 15.542 8.909 s participant accounts receivable. .. ... . 3.911 3.928 Other accounts receivable. . . . . . 5.498 1.8G6 h Materials and supplies. . 3.349 810 Total current assets. . . . . . I14.816 41.062 4 Deferred charges: s Unamortized debt issuance costs. . .. . . . 26.338 33.383
& Net deferred expenses to be recovered from future revenues. .
43,619 17.776 lucess costs on advance refundings of debt. 165.227 41.260
)
235.214 92.419 Organization costs. . . . 1.106 1.135
$1.484.488 $ 1.373.025 1.lAllit.lTIES AND RETAINED EARNINGS (DEFICIT) r' 1.ong-term debt:
Bonds. . .. . . . $1.314.230 $ 1.169.925 I Unamortized discounts. ... . . . (80,736) (44.155) 1.233.494 1,125.770 p Notes. . . . . . . . . . 200.000 200.000 1,433.194 1.325.770 j Restricted fund liabilities: l Accrued interest payable. . 41,110 45.818 I Reserve for decommissioning. . .. . .. .. . . 294 84 I Deferred compensation. ... . 39 13 l f 41.443 45,915 Current liabilities: Accounts payable. 9.617 1.618 l g Retained earnings (delicit). . . .. . (66) (278)
$1.484.488 $ 1.373.025 ; See accompanying notes.
10 7
Piedmont Municipal Power Agency STATEMENTS OF REVENUES AND EXPENSES AND C;iANGES IN RETAINED EARNINGS (DEFICIT) FOR Tile YEARS ENDED DECEMBER 31,1986 AND 1985 (dollars in thousands) 1986 1985 Operating revenues: Sales of electricity to participants. . $ 51.505 $ 25.785 Sales of electricity to other utility. . . . . 63.237 28.720 7 114.742 54.505 Operating expenses: Operation and maintenance. . . ... 17,694 6,861 Nuclear fuel amortization. . . 5.742 3.225 Power supply senices: Purchased power. . .. . . 42.512 23,930 Transmission. . . . . . . 3.975 1,605 Other. .. ... .. . . .. . 6.288 3.107 payments in lieu of property taxes. . . . . !.232 - Administrative and general. . .. . . . 2.579 820 Depreciation. ... . 1'l.360 4,084 Deconunissioning. 210 84 91.592 43.716 Net operating income. .. .. 23.150 10,789 Other(charges) and credits: Interest expense. . (l14.058) (101.280) Interest income. . 54.903 37,765 Net interest capitalized. 14.874 35,497 Amortization expense. . . . (4.530) _ (926) (48.811) (28.944) Net deferred expenscs to be recosered from future revenues. . . 25.873 17.776 Revenues oser(under) expenses. 212 I?74) Retained earnings (dellelt) beginning of period. . (278) 'i O I Retained earnings (deficit), end of period. . . $ (66) $ (278) l see accompanying notes. 11 1 ; i I L _ _ _ _ _ _ __ _ ___ _ _____ _ _ _ _ ___ _ _ _ _ ___
Piedmont Municipal Power Agency ) STATEMENTS OF CllANGES IN FINANCIAL POSITION FOR Tile YEARS ENDED DECEMBER 31,1986 AND 1985 (dollars in thousands) ! 1986 1985 I'unds povided by:
, increase h long-term debt. .. . s 708.695 $ 1,035.325
, 1)ccrease in investments. . . . 499.599 686.340 Deletion ofland discount. . 2.203 1.298 Deletion of det;! Issuance costo. . . . . . 16.435 12.357 increase in decommissioning fund. . . . 210 84 increase in deferred compensation fund. . . . 26 13 l'unds used for: 1'unds absorbed by operations: ; I Revenues (over) under expenses. . (212) 379 Items not affect lng working capital: Depreciation. (4,084)
. . . . (11,360)
Amortization. . . (6,577) (2,745) Amortization of nuclear fuel. . . (5,742) (3.225) Nel deferred expenses to be recovered from future revenues. . . 25.873 17.776 Working capital absorbed by operations. l.982 8.101 : Reductions oflong-term debt. 564.390 410.538 Additions to utility plant. . .. 32.911 61.986 Purchase ofinvestments. . 378.734 1.162.526 increase in debt issuance costs. . . I1.552 25.560 Excess costs on advance refundings of debt. , . . 126,457 41.260 increase in bond discounts. 40.679 22.812 Total funds used. . . 1.156.705 1.735.783 Increase (decrease > in w orking capitai. . .. . s 70.463 s (366) Changes in components of working capital: Inerease (decrease)in current assets: ) . Cash. . s - s (6) i Revenue fund. 60,967 25.549 Operating fund.
]
, , . 6.633 8.596 Participant accounts receivable. (17) 3.928 i Other accounts receivable. 3.632 1.866 I Materials and supplies. 2.539 810 73.754 40.743 increase (decrease) in current liabilities:
Accounts payable. . . 7.999 1.336 Accrued interest payable. (4.708) 39.773 3.291 41.109 increase (decrease) in working capital. . $ 70.463 s (366) See accompanying notes. A l') 1 1
Piedmont Municipal Power Agency NOTES TO FINANCIAL STATEMENTS DECEMBER 31,1986 and 1985
- (dollars ift thousands)
- 1. DlhCRII"Ilo) 0F Tlit ENTIT) 3. lTII.IT) PIMT P!cdmont Municipal Pow er Agency (the Agenc))was incorimrated in 1979 Major classes of the AgencYs electric plant in senIce as of December 31, under the South Carolina Joint Municipal Electric Power and Energy Act. are as follow 8: 1986, 198a The Act was adopted in April.1978 to enable municipailues lu South Carolina 1o larm a bint agency to plan, finance, des clop, ou n and operate I.and. . ..... $ 612 $ 274 electric generation and transmission facilities.The Agency is comprised of Structures and improvements. . 152.765 69.028 ten member utilities owned by municipalities or municipal commissions Reactor plant equipment. 244.412 113.843 of public w orks tocated in northw estern South Carolina and represents the Turbo generator units. . 69.311 28.544 member utilitics in dealings ullh Duke Pow er Company (Duke) and Accessory electric equipment. . 50A45 25.548 Miscellaneous plant equipment. I1,120 7.519 '
other entitles. Station equipment. 4.735 - in June,1985, the Agency began to recche power from Duke for sale to Other.. 53 59 the member utilities. Therefore. the 1985 linancial statements renect approximately one-half year of operating resenues and expenses, while $333.453 $244.815 the 1986 financial statements reflect a full) car oIoperatine retenues Nuclear fuel at December 31,1986 and 1985 of $39.248 and $35.247, and expenses. respect hely. represents the cost of the initial nuclear fuel core, partial cost in order to secure a reliable source of power for the member utility of reload fuel assemblics, and other nuclear-fuel-related costs. Nutlear ,
- consumers. the Agency purchased a 25% undhided ownership interest in fue amortized based on burn rates using a unit-of-pr xtuction basis.
Duke's Cataw ha Suclear Station l: nit 2 and its inillal luclear fuel core. The Agene) has no legal ow nership in ll nit i or the support facilities used by The construction w ork in progress at December 31.1986 and 1985 of $627 and $260.360. respecthely, is for the Cataw ba Nuclear Statlon as D ' both unlis. Iloweser, under the exchange agreements he Agency recches 12h% of the output ofl' nit I and 12h% of the output ofl'mL 2. explained in Nole 1. Certain direct and Indirect expenditures allocable to ' l'urthennore, the Agency's costs for 25% legal ou nership in l' nit 2 are the Agencys ownership Interests In the project are capitalized as part of based on 12h% of Duke's rosts associated with both l' nit I and linit 2. the cost of acquiring or constructing the utility plant. The Agency also Therefure. es en though Ihe Agency has no legal ow nership rights M l' nit 1. capitalizes net interest costs on borrowings used to finance for arrounting purposes, the Agency does oun a resenue prot ng the constmction. Interest in l' nit 1. and when l' nit 1 began conunercla! pt ..auon on Electric plant in senice, excluding nuclear fuel, is depreciated on a June 29.1985. the Agency transferred approximately one half ofits total stralght line basis at rates calculated to amortize the composite assets expected costs for the Cataw ha prolcet from construction work in progress m er their respecthe estimated useful thes. Depreciation begins u hen to electric plant in senlec. From , lune,1985 to August,1986, the Agency assels are placed into senice. has recch ed ciertric output thmugh exchange agreements from l' nit 1.On Total accumulated depreciation and amortization from ihese comIionents August 19.1986.[1 nit 2 began conunercial pnxtu< tlan, and substantially 'H'O HS 7g;;0% S: 1986 1985 all remaining construction work in progress was transferred to electric plant in sen' ice. Additionally, the Agency is charged for its pro-rata portion Depreciation - electric plant in service. $ 15.439 $ 4.084 Amortinition of nuclear fuel. (12b%) of operation and maintenance expenses of l' nit i and l' nit 2. H.967 3.225 l 2, SIG%IFICOT ACColTTlW Pol.lCICS 4. RESTRICTED Fl3DS Itasis of arrounting - The accounting records ofIhe Agency are Restricted funds uere established by the Agency. In accordance with the maintained on an accrual basis in conformance with the Federal Energy n sperthe tmnd and note resolutions, to account for proceeds of the bond Regulatory Commission's l'niform System of Accounts and generall) and note issuances. These funds are restricted by the resolutions for accepted accounting principles. pa3 ment orconstruction rosts. dc ot sen ice.and other specified purposes. ! Certain items are included or excluded irom the rates charged currently to The restricted funds at December 31,1986 and 1985 consist of the l particip;mts for power billings. The Agency's rate structure is generally following assets stated at cost, w hich approximates market: designed to cover debt senice and operating rosts, w hirh in turn are 1986 1985 sullicient to roser depreciation now being deferred. Construction. . $ 41.818 $301,438 l'namortized debt issuance rosts - l!namortized debt issuance costs al Bond.. 284.834 152.692 i Decemter 31,1986 and l985 of 826.338 and 833.383. nspet thcl).Inct Note. ... . 28.513 43.203 of accumulatedamortizationof $3.739and 82.002.respecthely) arc heing
~
Resenc and contingency. 11.809 6.214 i amortized on the tumds outstanding methtxl. Decommissioning. . 278 7i Caress rosts on ad) ante refundings of debt - Excess costs on adsance Special resen e. 15.990 15.333 refundings of debt at December 31,1986 and 1985 of $165.227 and Refunding trust. . . . 198.089 186.332
$ 11,260, respecthely. (net of accumulated amortinition of $2.490 in Deferred compensation. . 39 13 1986) are being amortlzed on the lxmds outstanding method. $581.430 $705.296 Organization rosts- Organinition rosts at December 31.1986 and 1985 Funds are comprised of:
of $1.106 and $1,135, resperthel),(net of accumulated amortinition of Cash......... $ 34.771 6 40.620 l $61 and $32, nyperth cl>)are being amortized on the straight line methud Alarketable debt securilles. 535.829 651,860 over a period of 40 years- Accrued interest recch able. 13.830 12.816 Discounts on bonds pa3able - The discounts on bonds payable at $384.430 $705'296 December 31.1986 and 1985 oI $80,736 and $ 14.155, respecthcl). (nel of accumulated amortization of $2,707 and $848. respecthely)are being The Agency is required b) the bond resolution to maintain minimum amortized on the bonds outstandmg method- Islances in certain restricted funds. At December 31,1986 and :985, the income laten - The Agency is exempt Imm federal income taxes under amounts in these restricted funds were greater than or equal to the Internal Resenue Code Section i15. South Carolina has adopted Section required minimum balances. I15 by reference; therefore. the Agency is also exempt from state income taxes. 3.Actgc)rn os Comparathe presentation - Certain amounts in the 1983 linancial The agency funds wcre established to arrount for the operations of the statements hate been reclassilled in order to present the 1986 and 1985 Agency and consist of the following assets stated at rost, which 1 finimolal statements on a comparath e basis. appnnimates market at December 31,1986 and 1985: C I
l &T{ , M 1986 1985 8 86.516 4 25.519 I'lectric Retenue lionds Series 19111 Q Revenue,,, , , , ,,,.. , , , In Decemter,19M,the Agency issued $530,000 0f Electric Resenue lpraung. , ,, , , , , , , , 15.5 12 ft909 Bonds Series 1984 with an originalissue discount of 823.500 for the 8102.058 s 34,438 purpse of Anancing the Agency 8 Imestment in the Catawba Nuclear lgE. Station described in Note 1. As described in Note 11. Se Agency defcased l b' s395,400 and $74.600 of the Electric Revenue lionds, Series 1984 in j , p ; Funds D ish.are. .comIirised
...... of: 8 7,249 8 2.220 g . . . . . , ,,
Decemtwr,1985 and July,1986, respectively. Thus, sGO.000 and ,jj. Marketable debt securttlen ,, ,, 92 915 31.579 8134M6 of the Nmds wcre nconied as outstanding at December 31' p Accrued interest rectIvable. ,, 1.894 659 1986 and 1985, n'sperthely, r 8102,058 $ 31.4511 The b(mds un 8pecial obligations of the Agency and are secured by future lk revenues as defined by the lxmd resolution and other monies and snudues pledged under the bond resolution. L 6. Nt.T llEFERRED EVEMES TO IIE RECORRED FROM H TI'RE NE W ES The outstanding bonds bear an annual interest rate of 7% and mature on
- G] As described in Note 1, rates charged to participants are anuanstructured I,20Dmic bonds toare n*emable at the option of tim Agency at prices ranging from 103% of the in md principal amount !n 1995 to 100% ln 9 ' sy*mauctdly provide for the debt requirements and olwrating costs of.
1998 and thereafter. R: tile Agency. Those expenses and revenues whlch are not included in rates W ~ ~ are deferred to such pertods as they are intended to te coscred by rstes. Electric Resenue Ilonds, Series 19fl3 .
. . Also as described in Note 1, there was approximately one-half year of in May,1985, the Agency issued 8310,000 of Electric Resenue lionds, F7R operations in 1985 and a full year of operations in 1986. Series 1985 with an originalissue discount of $fl.355 for the purpose of Anandnu ik Agency's investment in the Catawba Nuclear Station k j Net deferred expenses to be recovered from future revenues loclude the described in Note 1. As described in Note 8. In July,1986, the Agency kS defeased $200.895 of the Elertric Revenue lionds, Series 1985. Thus, at
;$' ~ following G Expnxes hicurred. not at included December in
-1986 31,19fl0 1985 andChange1985: December 31,1986, 8139,105 of the tx)nds w ere reconied as outstanding-t a billings to participants:
The bonds are mecial obligations of the Agency and are secured by future O ' Inten'st expense. 8 (97,405) s(35,080) $(02.325) nnenws as denned by dw bond resolution and other monies and
' Depreciation expense. , , . , (15.441) (l.084) (I1,360) secuducs pledged unda um tmnd resolution. Under the terms of an Amortization of excess costs on existing inFurance policy, the payment of principal and Interest on the L2 advance refundings of debt. , (1,746) -- (1,746) 88E2B lxinds maturing on January 1,2014 is insured.
P Amortization of tend discounts and debt issuance costs . - (3.652) . (897) (2.755) The txmds bear an annual Interest iate ranging from 7.5% to 9.5% with p? 3 Huclear fuel amortization. . (416) (416) - maturity dates ranging fmm January 1,2014 to January 1,20llt The tmnds I, citer of credit Ices. . (2,322) (644) (1,678) are redeemable at the option of the Agency at pnces ranging from 103% of ,T; .
. Other. (791) (29) (765) the txmd principal amount in 1995 to 100% in 1998 and thereaner, N .
(121,779) (41,150) (80.629) Electric Helenne llonds Series 198515 p Resenoes received, not considered in billings to participards: in Noven,tjer,1985 the Agene) Issued $250.000 of Electric Resenue ilonds, Series 198511 duc January 1,2025 to pnnide the funds necessary Interest income. . . . . . . . 4.957 378 4579 to pay the $100,000 principal amount of the Agency's IL5% Electric
. {p Add: Rate stabilization (revenues Revenue liond Anticipation Notes, Series 1981. maturing on January 1, gs, reccited to reduce future 1988. and the $100.000 principil plus a portion of the interest en the
~
billings to partli ; pants). . . 73.173 22,996 50.177 Agenry's 9% Electric Revenue liond Anticipation Notes, Series 198 l, Net deferred expenses to be maturing on January 1.1990.
}h g recovered from future The bonds are special obligations of the Agency and are secured by future p' nwenues. . , * (-13.649) $(17,776) $(25.873) res enues as denned by the bond nwolution. The tonds are furthersecured by an irrn ocable letter of credit w hich is in an amount sufHcient to pay the q 7.I.(M-11,RM Dell.t principal and s11.875 accrued intcrest on the bonds No tmrrow ings under i
long-tenn debt of the Accacy at December 31,1986 is as follows: the letter of credit hase occurred as of December 31,1986. j3 l'namortized The bonds w111 bear Interest at a daily, wcekly , monthly, long, or lhed rate
-p ; Honds l'rincipal Discount Total as determined from time to time. The Remarketing Agent determines the rate ofIntenwt. The Agency's Board of Directors determines the length of 7 Series 198I $ 60.000 $ 18,309 $ 41,69i time. From the issue date through December 31,1986, the interest on the
, Series 1985 139,105 8,026 131.079 tends has been at a weekly mie mnging from 3.4% to R875% Also, the E - Series 19858 250.000 -
250.000 bonds may be permanently com erted to a lhed rate. Anytime prior to their
'.., 1985 Refunding '! conversion to a lhed rate, the bonds are redeemable at the option of the Series 156.430 13.984 142.446 Agency at a price equal to 100% of the lond principal amount plus any 1986 Refunding 325,419 accrued Inten$t at the date of redemption. If the lumds have been L - Series 344.960 19.511 converted to a lhed rate, the bonds are redeemable at the option of the b ' ' 1986A Refunding 363,735 Agency at prices ranging Irom 103% of the lond principd amount from h! Series 20.876 312.839 1986 to 2013 to 100% in 2021.
n'(] ' l.314.230 80.736 1,233,49i Electric Retenue lionds 1985 Refundmg Series Notes Sertee 1981 200.000 - 200.000 in December,1985, the Agenc) issued $445,325 of Electric Resenue Bonds,1985 Refunding Series at an original issue discount of $1 l A57 for k -$ 1.514.230 $80.736 $1.433A9 i the purpose of pmviding funds necessary to refund $395A00 of Electric
" Revenue Ik nds, Series 1984 described earlier in this footnote. As
$ c . long-term debt of the Agency at December 31,1985 is as follow
- described in Note 8. In December,1986, the Agency defcased $288.8950I thmortized Ihe Electric Res enue Honds.1985 Refunding SerleK Thus at December 31, hg" 1986, $156,430 of the bonds were recorded as outstanding.
l'rincipal Bonds Discount Total j
; Series 1984 s 134.600 82 l A65 $ I13.135 The bonds are special obilgations ofIhe Agency and are secured by future Series 1985 380.000 8.245 331.755 rnenues as denned by the bond resolation and other monies and
,i Series 198515 250.000 - 250,000 securities pledged under the lond resolution. L'nder the tenns of an o 1985 Refunding cristing insurance polky, the po ment of principal and interest on the Series 445.325 14A45 430.880 lumds maturing on January 1,2019 ls insured. i
/
'$ l.169.925 44.155 1.125,770 The bonds hear an annual Interest mie ranging from 7% to 9 25% with Notes maturity dates ranging from January 1,2019 to January 1,2025. The 200.000 bonds are redeemable at the option of the Agene) at prices rang!ng from Series 1981 200.000 -
s i,369.925 $44.155 51.325.770 go and thereafter. n p nd anmunt in M to WWin m iLu N
,)
e 3 . t Elertric Resenue Bonds,191Hi Refundlic Series interest and principid payments on Ihe following Electric Revenue B In July,19116, the Agency issued $314.960 of Electric Resenue Bonds. Series 1984: $27.475 of 11% bonds due 2011. $100.000 of 10.5% bonds duc 2019, and $267.925 of 11% bonds duc 2025. The bonds will be 19fMi Refunding Series at an originalissue discount of $19.778 lor the purixisc of providing funds necessary to refund $74.600 of Electric redeemed on January 1,1995 (the Drst optional redemption date)at the Revenue ihmds, Series 1981 arad 8200.1195 of Electric Revenue llonds. ; hen-applicahic redemption price of 103% of their aggregate principal t ' amount. The atmve described defeasance resulted in an extraonlinary loss Series 1985 descriled earlier in this footnote.
' " "* # #** * "" """ "" E U The bonds are special obilgations of the Agency nnd are secured b) future revoues as denned by the imnd n solution and other monies and in July,1986, the Agency purchased 8327,338 in U. S. Government securities and deposited them in an Irrevocable trust. The principal and
'1 -
securities pledged under the bond resolution. ' The bonds bear an annual Interest rate ranging from 5% to 8% with Interest from these securttles will be used solely for the purpose of mak interest and principal payments on the following Electric Resenue llonds, '
. maturity dates ranging from January 1,1996 to ,lanuary 1,2025. The Sedes 1980 841.600 of 10.875% term Imnds due 2004 and s30,000 of 1 honds are redeemable at the option of the Agency at prices ranging from 10% tenn bonds due 2012; Series 1985:813,765 of 9%-9.7% serial bonds b 101.5% of the bond principal amount in 1996 to 100% in 1999 - due 1996-2000, $16,650 of 10% term lmnds duc 2004, and s!70.480 of H and thereafter. 10.25% term bonds due 2025 The bonds will be redeemed on January 1, ,
Electric Resenue Bonds,191HM Refunding Series 1995.(the Drst optional redemption date) at the redemption price of 103% e ' in December,1986, the Agency issued 8363.735 of Electric Resenue of their aggregate principal amount. This dcIcasance resulted in an
' Ikinds.1986A Refunding Series at an original issue discount of $20.900 extraordinary loss of $62,194 s hich is deferred as excess cost on advance - for the purimse of providing funds necessary to refund 6288.895 of refunding of debt. ' Electric Revenue lionds,1985 Refunding Series descrlhed earlier in In December,1986, the Agency purchased 8344.871 in U. S. Government this footnote. securities and deposited them in an irrevocable trust. The principal and ,
The bonds are crial obilgations of the Agency and are secured by future Interest from these securities will be used solely for the purpose of making y~ ,' revenues as denned by the lond resolution and other monles and Interest and principal payments on the following Electric Resenue Bonds. ' securttles pledged under the bond n solution. Under the terms of an 1985 Refunding Series: s25175 of 9.625% tenn bonds due 20l3, $48,150 of 9.7% term bonds duc 2010.and $215,570 of 9.7% term bonds due 2024, , existing insurance policy, the paymeal of principal and interest on the bonds maturing on January 1,2013 is insured. The bonds will be redeemed on January 1,1996. (the first opticaal redemption date) at the redemption price of 103% of their aggregate The bonds bear an annual interest rate ranging from 5.75 b to 7.25% witn principal amount. This defcasance resulted in an extraordinary loss of naturity dates ranging from January 1,2013 to January 1,2024. The sM.263 which is deferred as excess cost on advance refunding of debt. b bonds are redermable at the option of the Ageary at prices ranging from i 102% of the bond principal amount in 1996 to 100% in 2000 Fach of the ahmc transactions qualilles as an in-substance debt defcasance: therefore, the Am ernment securillen and applicable defeased . and thereafter. hond issues are not recorded on the balance sheet. The Agency defcased FJectric Reienue Notes, Series 1981 the debt primarily to reduce debt service, thereby postponing or reducing , , in December,1984. t he Agency issued $200.000 of Electric Revenue Bond future electric rate adjustments. See Note 7. Anticipation Notes, Series 1941 Ior the purpose of financing the Citan ha 9. RESERVE FOR DECOMMISSIONING Nuclear Station described in Note 1. ' The reserve for decommissioning is an amount that is being accumulated t The notes are special obligations of the Agency and are secured by a lien on to pmide for the expec'.ed cost of decommissioning (dismantling) the future resenues as defined under the note resolution- ' i, nuclear facility. The Agency's portion of decommissioning these jolntly ' The lien on revenues securing the notes is subordinate to the lien on owned facilities is based on current price lesels and assumes revenues securing payments reyulted under the hond resolution. The decommissioning will occur promptly after the units are taken out of notes are further 8ecured by irrevocable letters of credit w hlch are in sen Ice and is estimated at approximately s78.000 for the present electric * . amounts sufficient to pay the principal of the notes plus seven months of plant in senkt This estimate will be adjusted periodically to rencet 3 accrued interest. No borrowings under the letters of credit hase occurred changing price levels and technology. as of December 31,1986. The Ndance in the resene at December 31,1986 and 1985 is 5294 and The notes consist ofIwo principal amounts of $100.000 each w hlch bear sM. respectively. O annual interest rates of 8.5% and 9% and mature on January 1,1988 and 1990, respectively. These notes are not subject to optional redemption by 10. DEFERRED COMPE.%SATION PIAT the Agency prior to maturity. As described above, the Electric Revenue The Agency has established a deferred compensation plan for all Bonds, Series 1985B w cre issued in onler to prmide the funds necessary employees. Payments made by the Agency remain as assets of the Agency, ' y ,. 10 pay the notes u hen they mature. sublect to its contml and right of withdrawal until such time as the funds 1 " Principal debt and sinking fund requirements are distributed to the employces in accordance with the provision of the } i plan. It is the Agency's policy to fund the plan based on 10% of payroll cost The following is a summary of the principal debt and sinking fund as incurred. The deferred compensation expense at December 31.1986 requirements for the bonds payable at December 31,1986: and 1985 was $26 and $13, respectively. Year Ended Year I:nded ' - December 31 Principal December 31 Principal i1 CONTI%ERIES W wng, as a pardal ou nn of Cataw ha. is charged a monthly fee by 1996 8 6.555 2011 $ 38.220 Duke for purchases of resene and supplemental pow er and other items i 1997 11 2012 41.010 rela m % wha opna@ns. Dudng mM and W85, & Ageng 1998 12760 950 2013 44'155 challenged certain components of these costs included in the monthly fees paid to Duke in 1986 and 1985. At December 31,1986, the Agency was
) b i. .
continuing negotiations uIth Duke for a refund of these challenged costs. outcome o ese negotiations and amount of refund. lf any, cannot be ( l 17 ddnmined at this time. The Agency has not recorded any benellt from 2003 17,965 $018 63.'650 tMs d, alm. 2004 19.280 2019 68.695 3 2005 20.190 2020 76.020 2006 21,860 2021 82.145
- 2007 28.385 2022 88,035 L 2008 30.890 2023 94.280 2009 33.215 2024 100.380 2010 35.585 2025 106.I50 IL 1%St ilSTOCE DElli DEFMSWCE in December,1985,the Agency purchael 5423.024 in U.S. Gm ernment securities and deposited them in an irrevocable trust. The principal and L i interest Imm these securilles will be used solely for the purpose of making , !
15 1 i
Piedmont Municipal Power Agency ADDITIONAL INFORMATION ) SCilEDULE OF REVENUES AND EXPENSES PER TIIE BOND RESOLUTION AND OTIIER AGREEMENTS FOR TIIE YEAR ENDED DECEMBER 31,1986 (dollars in thousands) Revenues: Sales of electricity to participants. $ 51.505 Sales of electricity to other utility. . . 63.237 Interest income. .. . . . 14.570 129.312 Ihpenses: Operation and maintenance. . 17,237 Power supply services: , Purchased power. . . . . . . 42.512 Transniission. . 3.975 Other. . . . 6,288 Payments in lieu of property tcxes. . . 1.232 Administrative and general. 621 Special fund deposits: Rate stabilization fund. . . . 50,177 Fuelaccount... . 6.248 Rever.uc fund. . 600 Decommissioning fund. . 910 129.100 Revenues over expenses. $ 212 i I i 16 I
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PIEDM0;NT MEXICIPAL POWER AGENCY 100 Memorial Drise Greer. South Carolina 29651 803/877-9632 0 19117 l'ii'dinunt Municipil l'uner %cncy ,
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. FINANCIAL STATEMENTS ,
'AND SUPPLEMENTAL INFORI4ATION f.
.FOR' Tile YEARS. ENDED DECEMBER 31,.1986 and11985- [.g
-f with a
-REPORT OF CERTIFIED.PUBLIC ACCOUNTANTS'-
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CONTENTS REPORT OF CERTIFIED PUBLIC ACCOUNTANTS PAGE FINANCIAL STATEMENTS Balance' Sheet '2-Statement of Operations and' Patronage Capital 3 Statement of Changes'in' Financial Position 4 4 Notes to Financial Statements 6-14 ADDITIONAL INFORMATION List of Officers and Trustees Cash Investments Accounts Receivable Patronage Capital Assigned Schedule of Federal-Financing Bank Notes Accounts. Payable t I l
D A MEMBER OF AhTHUR 'rOUNG INTERNATIONAL 1900 Daniel Budding 7 Q7 QQQQ Greenvdle, South Carolina 29602 Telephone: (803) 271-9286 The Board of Trustees l Saluda River Electric Cooperative, Inc. ' We have examined the accompanying balance sheet of baluda River Electric Cooperative, Inc. at December 31, 1986 and 1985 and the related statements of operations and patronage capital, and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedurer as we considered necessary in the circumstances,. In our opinion, the financicl statements mentioned above present fairly the financial position of Saluda River Electric Coopera-tive, Inc. at December 31, 1986 and 1985, and the results of operations and changes in financial position for the years then ended, in conformity with generally accepted accounting princi-ples applied on a consistent basis during the period. Our examination has been made primarily for the purpose of expressing an opinion on the financial statements referred to above taken as a whole. The accompanying additional information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such additional information has been subjected to the auditing procedures applied in the examination of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. 4
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[7 March 13, 1987
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SALUDA RIVER ELEC4 BALM DECEMBER 31 ASSETS 1986 1985 Utility plant: Electric plant in service (Note 2) $435,210,080 $240,606,52C Construction work in process (Note 2) - 174,812,247 435,210,080 415,418,767. Less: accumulated depreciation and amortization (Notes 2 and 3) 23,015,785 7,340,106 Net utility plant 412,194,295 408,078,661 ) Corrent assets: Cash and cash equivalents-general fund 56,369,419 23,517,551 Cash and cash' equivalents-loan fund (Note 7) 1,326,502 851,079 Accounts receivable 15,240,241 11,432,817 Interest receivable 358,771 337,908 Total current assets 73,294,933 36,139,355 Investments (Note 4) 48,296 48,296 Debt service reserve funds-pollution control bonds (Note 5) 6,567,311 8,344,005 Deferred charges (Note 6) 601,606 623,059 5.4,9& R 6 4 4,1, $g3#,313J 2 6 See accomg l l l l c-
RIC COOPERATIVE, INC. CE SHEET 1986 and 1985 PATilONAGE CAPITAL AND LIABILITIES 1986 1985 Patronage capital (Notes 7, 8 and 3) $ 5,215,946 $ 7,746,351 Long-term debt (Note ,7) : Mortgage notes payable 418,830,589 384,097,590 Note payable 7,659,366 6,863,835 Pollution control bonds payable 44,200,000 44,200,000 470,689,955 435,161,425 Deferred revenue (Note 10) - 4,439,320 Current liabilities: Accounts payable (Note 11) 14,854,304 5,034,007 Interest payable 802,139 852,273 Accrued expense (Note 12) 1,144,097 - Total current liabilities 16,800,540 5,886,280
$492,706,441 $ h 31,176, nm RPER'ITJRE CARD nying notes. Mim lvailable On SXperture Card
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SALUDA RIVER ELECTRIC COOPERATIVE, INC. STATEMENT OF OPERATIONS AND PATRONAGE CAPITAL FOR YEARS ENDED DECEMBER 31, 1986 and 1985 1986 1985 Operating revenues: Electrical revenues $113,126,053 5 79,737,910 Operating expenses (Note 2) : Cost of power: Purchased 56,283,047 47,474,308 Produced 22,504,598 10,413,717 Annual dues 195,580 126,728 Administrative expense 19 ,449 41,849 Office expense 45,919 18,577 Salaries 232,939 78,040 Employee benefits 34,890 15,530 Miscellaneous expense 57,739 15,610 Property taxes (Note 12) 1,140,294 - Depreciation and amortization (Notes 2, 3 and 6) 11,491,273 4,708,703 92,185,728 62,893,062 Net operating margins 20,940,325 16,844,848 Non-operating margins: Net interest income . Note 2) 3,843,161 1,454,463 Net interest expense (Note 2) (31,753,211) (11,726,008) Deferred revenue (Note 10) 4,439,320 (4,439,320) (23,470,730) (14,710 865_) Net (loss) margin (2,530,405) 2,133,963 Patronage capital, beginning of the year 7,746,351 5,612,368 Patronage capital, end of the year $_5a hh6 $ ,_7 a_7_4_64 3,5l See accompanying notes.
SALUDA RIVER ELECTRIC COOPERATIVE STATEMENT OF CHANGES IN FINANCIAL POSITION FOR YEARS ENDED DECEMBER 31, 1986 and 1985 1986 1985 Funds were provided by: Net (loss) margin $ (2,530,405) $ 2,133,983 Items not affecting working capital in the current period: Depreciation and amortization 11,491,273 4,708,703 Amortization of nuclear fuel (Note 3) 4,213,346 2,616,712 Deferred revenue - 4,439,320 Working capital provided by operations 13,174,214 13,898,718 Increase in mortgage notes 34,732,999 78,991,000 Reduction of debt service reserve funds-pollution control bonds 1,776,694 828,725 Amortization of discount on notes payable 795,531 712,904 50,479,438 94,431,347 Funds were applied to: Reduction of deferred revenues 4,439,320 - Reduction of notes payable - 38,258,410 Additions to utility plant 19,798,800 56,390,969 24,238,120 94,649,379 Increase (decrease) in working capita 1 $_2h2,4,1,,118 $d2&O,3,2,) 1 See accompanying notes.
I SALUDA RIVER ELECTRIC COOPERATIVE, INC. STATEMENT OF CHANGES IN FINANCIAL POSITION FOR YEARS ENDED DECEMBER 31, 1986 and 1985 (continued) Changes in components of working capital: 1986 1985 Increase (decrease) in current assets: Cash-general fund $32,851,868 $18,889,506 Cash-loan fund- 475,423 594,437 Cash-pollution control fund - (25,064,221)
, Accounts receivable 3,807,424 7,211,611 Interest receivable 20,863 78,109 37,155,578 1,709,442 Increase (decrease) in current liabilities:
Accounts payable 9,820,297 1,460,487 Interest payable (50,134) 466,987 Accrued expenses 1,144,097 - 10,914,260 1,927,474 Increase (decrease) in working capital $_2_62 4_1 R $ ( 218 , 0_3_2,) See accompanying notes.
SALUDA RIVER ELECTRIC COOPERATIVE, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1986 and 1985
- 1. DESCRIPTION OF THE ENTITY The accounting records of Saluda River Electric Cooperative, Inc. (the Cooperative) conform to the Uniform System of Accounts, prescribed by the U.S. Department of Agriculture as modified for electric borrowers of the Rural Electrifica-tion Administration (REA).
The Cooperative was formed in 1958 and is composed of five rural electric cooperatives tccated in South Carolina. The Cooperative represents the member cooperatives in dealings with Duke Power Company (Duke). Since November 1, 1983, the Cooperative has purchased wholesale power from Duke for sale to the member cooperatives. In order to secure a reliable source of power for their consumers, these members, through the Cooperative, purchased a portion of Duke's Catawba Nuclear Station (Catawba), consisting of two nuclear reactors. Under the terms of the Purchase Agreement between Duke and the Cooperative, the Cooperative legally owns 18.75% of Unit 1 and 9.375% of all Catawba support facilities, including land and related assets. However, under the terms of the Interconnection Agreement, the Cooperative is entitled to 9.375% of the power generated by both Unit 1 and Unit 2. Also under the terms of the Purchase Agreement a portion of the power produced by the Cooperative's share of each Unit is sold to Duke. During 1985, Duke purchased 100% of the Cooperative's share of power generated by Unit 1. During 1986, Duke purchased 100% of the Cooperative's share of power generated by Unit 2 and 90% of the Cooperative's share of power generated by Unit 1. Duke's purchase of power generated by the Cooperative's share of Units 1 and 2 will continue to decrease by 10% annually. Also, under the terms of the Operating and Fuel Agreement between Duke and the Cooperative, costs payable by the Cooperative are based upon a 9.375% interest in Unit 1, Unit 2 und the support facilities. As a result of the substance of these agreements, the Cooperative, for financial reporting purposes, accounts for its investment based upon a 9.375% interest in the entire project. SALUDA RIVER ELECTRIC COOPERATIVE, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1986 AND 1985
- 2. ELECTRIC PLANT IN SERVICE Major classes of the Cooperative's electric plant in service as of December 31, 1986 and 1985 are as follows:
1986 1985 Structures, improvements and land $124,504,394 $ 72,329,072 Equipment 283,850,791 154,510,139 Nuclear fuel 26,854,895 13,767,309
$ 4_3 5 u2 1 0 6 010 $240,606,520 Depreciation is computed based on the. straight-line method with a half year of depreciation taker in the year of acquisition. Annual depreciation rates _ .n effect in 1986 and 1985 were as follows:
1986 1985 Electric plant in service 4.0% 4.1% Mobile substation 3.2% 3.2% Office furniture and fixtures 7.0% 7.0% Vehicles 17.0% 17.0% The composite depreciation rate for electric plant in service includes a factor to provide for the expected cost of decommissioning. Individual component lives range from 30 years for structures and improvements to 15 years for other general plant equipment. The Cooperative's portion of decommissioning these jointly owned facilities, based on current price levels and decommissioning promptly after the unit is taken out of service, is estimated at approximately
$34,000,000. This estimate will be adjusted periodically to reflect changing price levels and technology. In 1986 a minor adjustment was made to reflect changing prices.
The construction work in process at December 31, 1985 represented investments in Catawba Unit 2, as explained in Note 1. In August of 1986 Unit 2 began commercial operation and 100% of construction work in process was transferred to electric plant in service. The Cooperative capitalized all construction related expenditures in 1986. Prior to Unit 2 beginning commercial operation, the Cooperative capitalized 40% of certain operating expenditures that contributed indirectly to the construction of Unit 2. Through August 1986, the Cooperative also capitalized net interest cost on borrowings used to finance the construction. Total net interest cost capitalized was $13,459,365 for 1986 and
$29,454,057 for 1985.
SALUDA RIVER ELECTRIC COOPERATIVE, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1986 AND 1985
- 3. FUEL COST The cost of nuclear fuel is being amortized based on core burn. The total amortization expense was $4,213,346 in 1986 and $2,616,712 in 1985.
The Cooperative, in accordance with the terms of the Opera-tion and Maintenance Agreement for Catawba, pays Duke a monthly fee for the disposal of spent nuclear fuel. This disposal fee is based on kilowatt hours of energy generated and is charged to , operations and maintenance expense as a cost of produced power.
- 4. INVESTMENTS IN ASSOCIATED ORGANIZATIONS Investments in associated organizations at December 31, 1986 and 1985 consisted of $48,296 of Capital Term Certificates (CTC) with the Cooperative Finance Corporation (CFC). The CTC's are presently earning 4% interest and will be kept by the CFC until 2080.
- 5. DEBT SERVICE RESERVE FUNDS - POLLUTION CONTROL BONDS The reserve funds / pollution control bonds are restricted funds with the CFC and had the following balances at Decem-ber 31, 1986 and 1985:
1986 1985 Pollution Control Bonds (PCB) $4,357,311 $4,324,676 Pollution Control Bonds-Construction (PCBC) - 1,809,329 Subordinated Term Certificates (STC) 2,210,000 2,210,000
$M6MJ $h3&g5, The PCB Reserve Fund was established to provide for deficiencies, if any, in the amount available to pay the principal and interest on the bonds and to provide for the final payments of principal and interest on the bonds.
Investments in the PCB Reserve Fund earn interest at rates ranging from 6.1% to 10.375%. SALUDA RIVER ELECTRIC COOPERATIVE, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 3986 AND 1985
- 5. DEBT SERVICE RESERVE FUNDS - POLLUTION CONTROL BONDS (con-tinued)
The PCBC Reserve Fund was established to pay remaining pollution control expenditures for Catawba. Investments in the PCBC Reserve Fund earn interest at 7.80%. During 1986, there were no additional loan costs to be paid. Per the PCBC Reserve Fund agreement the remaining funds, principal and interest, were used for interest payments on the Pollution Control Bonds. During 1986 all PCBC construction reserve funds were used to meet interest payments. The STC's represent a 5% compensating balance of the Cooperative's Pollution Control Bonds, earn interest at 11.648% and are outstanding for the life of the bond issue.
- 6. DEFERRED CHARGES Deferred charges consist of the following at December 31:
1986 1985 Unamortized Debt Expense-Federal Financing Bank (FFB) notes $ 39,192 $ 40,499 Unamortized Debt Expense-Pollution Control Bonds (PCB) 562,414 582,560
$6 E 606 $h0fJ9, The unamortized debt expense of the FFB notes is being amortized based on the mortgage notes outstanding. The unamortized debt expense of the PCB consists primarily of underwriters and legal fees associated with the issuance of the PCB and is being amortized based on bonds outstanding.
Amounts above are net of accumulated amortization of $66,223 and 544,769 for 1986 and 1985 respectively.
- 7. LONG-TERM DEBT Long-term debt consists of the following at December 31:
1986_ 1985 Mortgage Notes-FFB $418,830,589 $384,097,590 Note Payable-Duke Power 7,659,366 6,863,835 Pollution Control Bonds _44,200,000 44,200,000 SA.2311319A J 9 5, $,43 M & 4)S, L _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ . _ _ _ _ _ _ - _ _ _ _ _ _ _ _ .
SALUDA RIVER ELECTRIC COOPERATIVE, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1986 AND 1985
- 7. LONG-TERM DEBT (continued)
Mortgage Notes - FFB These mortgage notes payable to the Federal Financing Bank (FFB) function basically as a line-of-credit with funds borrowed as needed for construction of Catawba. Unadvanced loan funds of $49,196,000 and $125,172,410 at December 31, 1986 and 1985, respectively, were available to the Cooperative under the current agreements. Interest rates vary from 7.371% to . 11.112 % . Substantially all assets of the Cooperative are pledged as security for this debt, and under the terms of the debt agreement, the Cooperative is restricted as to the amount of patronage credit which can be distributed, along with restrictions of certain investment and capital activities. Maturity dates range from March 31, 1987 to December 31, 2019. Except for approximately $30,000,000 of notes due on or before June 30, 1987 which the Cooperative intends to pay when due, the Cooperative has the ability and intent to extend the maturity dates of the FFB notes which are due in 1987 and 1988. Prior to the scheduled date of the first principal payment of each note, the note maturity dat2s may ! be extended for varying lengths of time at the interest I rates prevailing on the date extended. Other than the
$30,000,000 indicated above the Cooperative will not be l required to make principal payments until June of 1988.
l The cash proceeds of the mortgage notes are restricted for the purchase of the Cooperative's interest in Catawba, nuclear fuel, and administrative and general expenditures associated with the construction. Note Payable - Duke Power l On February 6, 1981, the Cooperative executed an unsecured note payable to Duke Power Company in the amount of
$18,928,353 which represents the Cooperative's share of the negotiated cost of transferred assets of Catawba at that date.
The 1.ote war recorded by the Cooperative in 1983 at its face i value. The note is non-interest bearing until June, 1995. I
SALUDA RIVER ELECTRIC COOPERATIVE, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 19 86 AliD 1985
'7. LONG-TEld4 DEBT (continued)
Note Payable - Duke Power (continued) At December 31, 1986 and 1985, the note and related discount, which is amorticed using the interest method, were as follows: 1986 1985 Note payable 518,928,353 $18,.928,353 Less discount (de ferred
, interest) 11,268,987 12,064,518 S. ,7 s _6 51.3_6j $, M 61 8,3,5_
This note is to be paid in one hundred equal quarterly payments consisting of principal and interest over a term of twenty-five years. The first installment will be payable on June 29, 1995, ten years after the date on which the first Unit of Catawba was put into service. 7.nterest shall only accrue after June 29, 1995 on the principal balance at a rate of 11.112%. i Pollution Control Bonds On November 29, 1984, the Cooperative issued $44,200,000 of 30 year pollution control bonds. The funds are restricted to pay or refinance the costs associated with certain pollution control facilities at Catawba. The bonds bear a variable, semi-annual interest rate (4.8% at December 31, 1986 and 5.1% at December 31, 1985). Principal payments escalate and are to be made each year beginning with
$650,000 in 1994 until 54,000,000 is due on the maturity date in 2014.
The Cooperative also has unadvanced loan funds of
$12,000,000 available relating to commitments from the '
National Rural Utilities Cooperative Finance Corporation. The funds may be borrowed at any time during the twelve months ended November 26, 1987. As of December 31, 1986, no proceeds have been borrowed by the Cooperative under this agreement. 1
SALUDA RIVER ELECTRIC COOPERATIVE, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1986 AND 1985
- 7. LONG-TERM DEBT (continued)
In accordance with industry practice, portions of long-term debt due within one year are not segregated and therefore are not included under current liabilities.
- 8. PATRONAGE CAPITAL Net' margins are allocated to patronage capital accounts in accordance with guidelines established by the Board of Directors for each member. The 1985 net margin of
$2,133,' .a was allocated to the five member cooperatives on the basis of elec.tric revenues billed to each member compared to total electric revenues for the year. Net losses incurred in 1986 will be allocated at the Board of Directors discretion. Patronage capital credits may be paid to the Cooperative members at the discretion of the Board of Directors except as restricted by the debt agreements described in Note 7.
- 9. TAXABLE STATUS South Carolina law exempts all electric cooperatives from state income taxes; consequently, the Cooperative is exempt from state income taxes. Whether or not a cooperative is exempt from federal income taxes is a function of certain tests under the Internal Revenue Service Code Section 501 (c) (12) relating to the sources of revenue and is determined annually.
For the years endeC December 31, 1986 and December 31, 1985, the Cooperative was deemed a taxable entity for federal income taxes purposes. Differences between income tax and financial reporting income result primarily from different treatment of deferred revenue, member capital credits and methods of computing depreciation. Investment tax credits are accounted for as reductions of income tax expense in the year utilized, under the flow through method. Investments tax credits of $546,305 were utilized in 1985 for financial reporting purpoces. No investment tax credits were utilized in 1986 for financial statement purposes. No investment tax I credits were utilized in 1986 or 1985 for income tax purposes. SALUDA RIVER ELECTRIC COOPERATIVE, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1986 AND 1985
- 9. TAXABLE STATUS (continued)
At December 31, 1986, the Cooperative had the following carryforwards: Income Financial Tax Reporting Investment tax credits (expiring in 2000) $27,779,600- $27,233,295 Net operating losses (expiring in 2000) $12,187,935 - (expiring in 2001) $35,475,150 $2,530,406
- 10. ' DEFERRED REVENUE At times the Cooperative sets rates with the intention of recovering certain costs expected to be incurred in the future. Revenue related to these expected future costs is deferred until such time as these costs are incurred. In 1986 the deferred revenues were applied to an adjustment related to capacity charges for 1986 and 1985 (see Note 11).
- 11. ACCOUNTS PAYABLE Included in accounts payable at December 31, 1986, is an estimate to correct capacity charges to Duke. Capacity charges to Duke for 1985 and 1986 were based on the Cooperative's total estimated investment in plant in service. Upon completion of the plant in service, capacity charges were recalculated based on actual investment. The estimated payable includes an amount for interest expense based on the Cooperative's return on investments. The amount related to 1985 was recognized in 1986 by a reduction in deferred revenues that were recorded in 1985. The electrical revenues recorded in 1986 are net of the remaining capacity adjustment amount.
- 12. PROPERTY TAXES Prior to 1986 any property taxes that may have been incurred on the Catawba project were paid by Duke and passed on to the Cooperative under the Operating and Fuel Agreement as described in Note 1. The 1986 property taxes are payable at December 31, 1986 and are included in accrued expense.
SALUDA RIVER ELECTRIC COOPERATIVE, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1986 AND 1985 i
- 13. CONTINGENCIES l
The Cooperative, as a partini owner of Catawba, is charged a monthly fee by Duke for purchases of reserve and supplemental power. During 1986 and 1985, in accordance with the terms of the agreement, the Cooperative challenged certain components of these costs included in the monthly fees paid to Duke in 1984, 1985 and 1986. At December 31, 1986, the. Cooperative was continuing negotiations with Duke for a refund of the challenged costs. The outcome and amount of re fund cannot be determined at this time. The Cooperative has not recorded any benefit from this claim, t I j l i 1
. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . . _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _ _ _ _ _ . __ ._ _ . _ _ _ . _ _ _ _ _ _ _ _ _ _ __ _ ____..._ ____________ _ m
ADDITIONAL INFORMATION
SALUDA RIVER ELECTRIC COOPERATIVE, INC. OFFICERS AND TRUSTEES J.A. Darby, President Route 1 Box 63, Rock Hill, South Carolina 29730 Joe L. White, Vice President 200 Sunset Drive, Abbeville, South Carolina 29620 J. David Wasson, Jr., Secretary-Treasurer Route 3 Box 778, Laurens, South Carolina 29360 Robert C. Carroll, Trustee 119 Hillside Drive, Gaffney, South Carolina 29340 Charles E. Dalton, Trustee 117 East Baker Street, Pickens, South Carolina 29671 John M. Gantt, Trustee Route 2 Box 40A, McCormick, South Carolina 29835 Ralph Hendrix, Trustee Route 15, Greenville, South Carolina 29607 D. W. Stribling, Trustee Walnut Hill, Westminster, South Carolina 29693 Conway B. Sutton, Trustee Route 8 Box 254H, Inman, South Carolina 29349 R. O. Williams, Trustee 201 Oak Street, York, South Carolina 29745 Joseph W. Mulholland, Executive Vice President 106 Wilderness Lane, Laurens, South Carolina 29360 Charles L. Compton, Vice President Corporate Relations and General Counsel Leftbank, Laurens, South Carolina 29360
SALUDA RIVER ELECTRIC COOPERATIVE, INC. CASH INVESTMENTS AS OF DECEMBER 31, 1986 GENERAL PUND INVESTMENTS: The Palmetto Bank, Laurens, S.C. Sweep Account, variable $ 742,403 Certificate of Deposit #22841, @ 5.25%, Due 3/26/87 1,000,000 Standard Federal, Columbia, S.C., Certificate of Deposit #1-01-23276-5 @ 8.05%, Due 3/24/87 1,059,764 Cooperative Finance Corporation, Washington, D.C. Note #86354018 @ 5.90%, Due 1/15/87 4,500,000 Note #86352109 @ 6.45%, Due 1/9/87 10,000,000 Note #86324161 @ 5.85%, Due 1/16/87 1,500,000 Note #86324060 @ 5.85%, Due 1/16/87 2,724,455 Note #86325177 @ 5.85%, Due 1/12/87 2,500,000 Note #P6353064 @ 6.40%, Due 1/9/87 2,523,337 Note #86274104 @ 5.85%, Due 1/16/87 14,316,070 Note #86356063 @ 6.80%, Due 1/9/87 5,736,246 Note #86328105 @ 5.875%, Due 1/2/87 1,300,000 Note #86356141 @ 6.80%, Due 1/9/87 2,100,000 Note #86357147 @ 7.50%, Due 1/9/87 5,500,000 Note #86357013 @ 7.50%, Due 2/4/87 155,232 Bank of York, York, South Carolina, Certificate of Deposit #11358 @ 6.20%, Due 2/21/87 100,000 First Trident, Certificate of Deposit #27936 @ 7.30%, Due 2/19/87 100,000 Woodruff Federal, Woodruff, South Carolina, Certificate of Deposit #1-00-057040-3 @ 6.70%, Due 2/19/87 100,000 Bankers Trust, Abbeville, SC Certificate of Deposit #187264-1, @ 5.95%, Due 2/22/87 100,000 C& S, Gaffney, SC Certificate of Deposit #576628 @ 6.15%, Due 7/14/87 100,000
SA.UDA RIVER ELECTRIC COOPERATIVE, INC. CAbH INVESTMENTS AS OF DECEMBER 31, 1986 (Continued) GENERAL FUND INVESTMENTS (continued) Citadel Federal, Charleston, SC Certificate of Deposit @ 6.65%. Due 5/28/87 105,175 First National Bank of Pickens County, Easley, SC Certificate of Deposit #200000421 @ 5.90%, Due 5/22/87 100,000 Security Federal, Columbia, S.C., Passbook #1901355
@ 5.5% 6,737 TOTAL GENERAL FUND CASH s 3&4p
$,5,6 LOAN FUND INVESTMENTS:
The Palmetto Bank, Laurens, S.C., Sweep Account, variable avg. 5.12% $ 1,325,774 TOTAL LOAN FUND INVESTMENTS $ 1,325,774 - OTHER LOAN FUND CASH NOT INVESTED 728 TOTAL LOAN FUND CASH $,.ls 126JJJ POLLUTION CONTROL BOND FUND INVESTMENTS: Morgan Guaranty Trust Co. of NY, Certificate of Deposit #029993-AT-1 @ 6.1%, , due 2/17/87 $ 231,094 Treasury Bond #912810-DB-1 @ 10.375%, due 11/15/12, Face Value $4,435,000 Less discount of $308,783 4,126,217 a Cooperative Finance Corporation, Washington, D.C. Term Certificate #44 @ 11.648, due 8/15/14 2,210,000 TOTAL POLLUTION CONTROL BOND FUND INVESTMENTS $ 5 1 6,7s ,3 ,1 ),
SALUDA RIVER ELECTRIC COOPERATIVE, INC. ACCOUNTS RECEIVABLE AS OF DECEMBER 31, 1986 1986 Blue Ridge Electric Cooperative, Inc. $ 1,758,297 Broad River Electric Cooperative, Inc. 920,480 York Electric Cooperative, Inc. 1,808,475 Little River Electric Cooperative, Inc. 591,784 Laurens Electric Cooperative, Inc. 1,596,709 Duke Power 8,564,496 TOTAL 5.1_5402,4), 1 1
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SALUDA RIVER ELECTRIC COOPERATIVE, INC.
SUMMARY
OF FEDERAL FINANCING BANK NOTES AS OF DECEMBER 31, 1986 Note Date of Interest Interest Number Note Term Due Date _ Rate Princioal F0120 12/01/82 Fixed 12/31/16 10.719% $ 1,500,000 F0125 12/30/82 Fixed 12/31/16 10.535% 10,569,000 F0010 2/06/83 Fixed 12/31/15 11.118% 132,087,361 F0030 6/01/83 Fixed 12/31/15 10.980% 930,000 F0035 6/30/83 Fixed 12/31/15 11.092% 6,460,000 ! F0245 3/01/85 Fixed 3/31/87 10.682% 18,040,000 F0250 3/05/85 Variable 3/31/87 10.780% 4,388,000 F0255 4/01/85 Variable 6/30/87 10.507% 10,854,000 F0260 5/02/85 Variable 6/30/87 9.912% 3,933,000 F0265 6/03/85 Variable 6/30/87 8.965% 3,285,000 F0270 7/01/85 Fixed 12/31/19 10.483% 12,336,000 F0275 8/01/85 Fixed 12/31/19 10.734% 996,000 F0040 8/05/85 Fixed 12/31/16 10.815% 1,820,228 i F0045 9/03/85 Fixed 12/31/15 10.530% 3,610,000 1 F0165 9/03/85 Fixed 12/31/17 10.521% 5,637,000 F0280 9/03/85 Fixed 12/31/19 10.514% 948,000 F0285' 9/30/85 Fixed 12/31/17 10.516% 11,962,000 F0050 9/30/85 Fixed 12/31/15 10.525% 7,000,000 F0170 9/30/85 Fixed 12/31/17 10.522% 11,150,000 F0290 11/01/85 Fixed 12/31/17 10.296% 305,000 F0175 11/01/85 Fixed 12/31/17 10.303% 3,454,000 F0055 11/04/85 Fixed 12/31/15 10.267% 1,728,000 F0060 12/02/85 Fixed 12/31/15 9.907% 1,000,000 F0180 12/02/85 Fixed 12/31/17 9.903% 2,811,000 F0295 12/02/85 Fixed 12/31/17 9.897% 778,000 F0300 12/30/85 Fixed 12/30/17 9.330% 11,166,000 F0185 12/30/85 Fixed 12/31/17 9.336% 11,760,000 F0065 1/03/86 Fixed 12/31/15 9.3660% 8,640,000 F0305 1/03/86 Fixed 12/31/17 9.384% 1,610,000 F0190 1/31/86 Fixed 12/31/18 9.3910% 1,106,000 F0070 2/03/86 Fixed 12/31/16 9.3740% 960,000 FO310 3/01/86 Fixed 12/31/17 8.316% 1,279,000 F0075 3/03/86 Fixed 12/31/16 8.3180% 2,565,000 F0195 3/03/86 Fixed 12/31/18 8.3190% 4,907,000 PO315 3/31/86 Fixed 12/31/17 7.690% 11,507,000 F0080 4/02/86 Fixed 12/31/16 7.5160% 7,042,000 F0320 5/01/86 Fixed 12/31/17 7.537% 154,000 F0085 5/05/86 Fixed 12/31/16 7.7030% 1,793,000 F0325 6/02/86 Fixed 12/31/17 7.885% 1,188,000 F0090 6/10/86 Fixed 12/31/16 7.3740% 2,915,000 F0200 6/30/86 Fixed 12/31/17 7.3710% 11,700,000 F0330 6/30/86 Fixed 12/31/17 7.371% 11,586,000 F0095 7/02/86 Fixed 12/31/16 7.3250% 8,646,000 F0335 8/01/86 Fixed 12/31/17 7.480% 937,000 F0100 9/30/86 Fixed 12/31/16 7.6920% 2,350,000 F0105 9/30/86 Fixed 12/31/16 7.6920% 4,367,000
SALUDA RIVER ELECTRIC COOPERATIVE, INC.
SUMMARY
OF FEDERAL FINANCING BANK NOTES AS OF DECEMBER 31, 1986 (Continued) Note Date of Interest Interest Number Note Term Due Date Rate Principal F0205 9/30/86 Fixed 12/31/17 7.6940% $ 2,330,000 F0210 9/30/86 Fixed 12/31/17 7.6940% 3,095,000 F0215 9/30/86 Fixed 12/31/17 7.6940% 12,427,000 F0220 9/30/86 Fixed 12/31/17 7.6940% 700,000 F0225 9/30/86 Fixed 12/31/17 7.6940% 3,525,000 FO340 9/30/86 Fixed 12/31/17 7.694% 6,472,000 F0110 10/01/86 Fixed 12/31/16 7.6050% 8,892,000 F0230 12/31/86 Fixed 12/31/17 7.4450% 9,400,000 F0115 12/31/86 Fixed 12/31/16 7.4410% 2,250,000 F0235 12/31/86 Fixed 12/31/17 7.4950% 900,000 F0240 12/31/86 Fixed 12/31/17 7.4450% 3,080,000 TOTAL AMOUNT ADVANCED $ 4_1_8_,_8_3 0 , 5 8 9
ShLUDA RIVER ELECTRIC COOPERATIVE, INC. ACCOUNTS PAYABLE AS OF DECEMBER 31, 1986 ALLOCATED ACCOUNTS TO ALLOCATED RECEIVABLE CONSTRUCTION TO FROM h'ORK IN OPERATING MEMBER _ PROCESS EXPENSE TOTAL Duke Power Company (O&M) $ - S
$ 3,230,376 5 3,230,376 Duke Power Company - -
5,312,993 5,312,993 Duke Power - Capacity Adjustment - - 7,700,000 7,700,000 Duke Power - Reduction cf Construction Costs - (1,527,045) - (1,527,045) SCE & G - - 57,258 57,258 Motorola 70,729 - - 70,729 CFC (Morgan Guaranty Charges) - - 9,993 9,993 TOTAL ACCOUNTS PAYABLE $ 7Jgg $ & JJ27 7s g ) $Jjs),1,042). $J,4sJ,5,4s,3,0A
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Financial Highlights
, Percent 1986 1985 ( rease)
Kilowatt-hour sales 60,513,229,000 56,058,479,000 7.9 Electric revenues $3,400,933,000 $2,898,911,000 17.3 Earnings for common stock . $ 409,067,000 $ 376,681,000 8.6 Common Stock Data Average shares outstanding . 101,220,000 101,178,000 - Earnings per share . $4.04 $3.72 8.6 Dividends per share . $2.64 $2.54 3.9 Book value per share (year-end) $30.34 $28.98 4.7 Return on average common equity 13.7 % 13.1 % 4.6 Plant construction costs $ 690,352,000 $ 657,172,000 5.0 Total electric plant, net . $6,638,751,000 $6,392,161,000 3.9 Peak load (Kw) Summer 12,471,000 11,204,000 11.3 Winter . 12,586,000 12,687,000 (0.8) 1 1 i s.rning. por .n.,._ rn on .gr.g. * '"'" " *9"'!Y Contents 4 - u,,- m - w .- ,...,n 1 Highlights E ON,". 2 Letter to Shareholders
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4 Year in Review L$ 13 " Future Directions:
- "g Cl; A Management ' ~ '
Roundtable Discussion" 23 FinancialStatements 27 Notes to Financial Statements 36 Auditors' Opinion and Responsibility for Financial Statements 37 Management's Discussion and Analysis
--- > imo su im im 41 Other Financial Data
=...
s .t wo m.,m ru ,= . _ - . , , _ , . . . , - - 44 Board of Directors and Officers 1
To Our Shareholders i i i rom the perspective gained by the HAPING THE FUTURE Fbelooked back upon asaBeyond passage of more time,1986 may well a these paramount achievements,1986 was year of preparation for a future that year in Duke Power's history. Among your will be markedly different from the past. As Company's 1986 achievements, the more 1987 begins, we face an exciting combination significant are: of challenges and opportunities. E Earnings for ccmmon stock reached a rec- -Our gmatMaHengeis to busmmen driven, meeting our goal of holding the line on ord $409.1 million, or $4.04 a share, prices while enhancing profitability. We must E Catawba Unit 2, the last of seven large continue to find new, innovative ways to nuclear generating units, all designed and reduce costs while maintaining the reliability built by your Company's in-house team of of our electric service, experts, was completed and brought into Also. we will continue to minimize require-commeicial s:rvice ahead of schedule and ments er new capital by controlling the at lower cost than any other nuclear unit of growth of summer peak demand, by extending the same vintage. the life of our older coal-fired plants and by adding cost-effective peaking capacity when 5 Following 12 consecutive years of operat, m g needed. These efforts should make our exist-the most efficient fossil-fired generation in the ing baseload capacity sufficient to serve our nation, your employees operated our eight customersinto the 21st century. coal-burning plants at new record efficiency We must also continue quality operation levels in 1986. of our nuclear plants and provide leadership to E Our average customer was without electric enhance nuclear safety worldwide. service only 34 minutes in 1986, a record reli- . Future success also requires that we pre-vail in court appeals by mtervenors seeking to ability of 99.99 percent and testimony to our verturn our two most recent North Carolina employees' commitment to quality and retail rate mcreases. Those appeals are being responsiveness. considered by the North Carolina Supreme E Catawba Unit 2 was found by regulatory Court. Because of uncertainty over the out-commissions to have been prudently built and come, our auditors, Deloitte Haskins & Sells, its capacity needed for our customers. Its - have qualified their opinion on our 1985 and costs are fairly covered in rates in all juris- 1986 financial statements. dictions. Finally,we must set a course for the uture that will position your Company to E Your employees made even greater strides in productivi ty by meeting seven of 10 strin-s pe pe angeis come to h eke tric utility industry, to the benefit of both cus-gent performance goals. tomer and investor. Your management's views E Nuclear power generated 53 percent of our on the future of Duke Power and our industry electricity, saving our customers $375 million are discussed in a special section of this year's report, beginning on page 13. ; in fuel costs. E At year-end we benefited our customers by HANGES ON THE BOARD
+
volunteering a 2.3 percent rate decrease effective January 1,1987 to pass on income At ur annual meeting last April we tax savings expected in 1987 due to the Tax welcomed to the Board of Directors George Dean Johnson Jr., partner in the Reform Act* Spartanburg, S.C., law firm of Johnson, Smith, E Our diversified businesses continued to Hibbard, Wildman and Dennis. His legal grow in scope and volume, and on January 1, knowledge and experience wa serve the j 1987, our successful engineering services Company well. business was incorporated into a new subsidi- We are most grateful to Robert C. Edwards ary, Duke Engineering & Services, Inc. and Maceo A. Sloan for their years of service l L 2 ,
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l,' l ,s $ gy Douglas W Booth William S. Lee on our board. Both retired in 1986 after serv- build together for a stronger Duke Power ing for 20 years and seven years, respectively. Company, we welcome your interest. We also thanl: Austin C. Thies, Execu-tive Vice President of Transmission, Distribu- . tien and Electric Operations, who retired in /e1 . July as an officer and director. Austin served William S. Lee
' Duke Power well for 40 years, contributing in chairman of tne noard and ample measure to the Company's superlative chic /Eucutive opcer technical performance.
We're proud of the efTora of all our 20,000 employees. They brought us success in 1986, [ . and we're confident that their talents and Douglas W. Booth l innovation will continue to make your Com- Ar8i*"'""d pany successfulin the future. C#"~## U#""#"# U#" Thank all of you for your support. As we Mruary 13.19s7 1 3 {
- - - - --- ----------J
Year In Review ) f INANCIAL RESULTS T&T"* Earnings per share of common stock , ,r , , , , _ _ rose 8.6 percent to $4.04 in 1986 from ;. --
$3.72. Earnings for common stock totaled = = - = =
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$409.1 million, up from the $376.7 million ppy .
earned in 1985. p W~ M ' The favorable results reflected substantially ,4 E ' )) ' higher electricity sales. About 2.7 percent of y. , 1986 energy sales were attributable to sum-mer heat and winter cold in excess of normal p" s weather and extensive drought in Duke's ser- ! vice area. The Company's 1986 earnings represent a 13.7 percent return on common equity, up from 13.1 percent in 1985. Earnings coverage of fived charges increased to 4.26 times from 3.87 times f in 1985, exceeding the Company's goal of %. Company raised its quarterly cash divi-dend on common stock to 67 cents a share Residential sales rose by 9.8 percent over from 65 cents, effective with dividends paid in 1985, with much of the increase coming in the third quarter. The increase raised the the third quarter as unusually hot weather Company's indicated annual dividend to $2.68 prompted increased use of air conditioners. from $2.60. This marked the lith consecu- Sales to commercial and general service tive year that Duke Power has raised its com- customers rose 8.6 percent. mon stock dividend. Sales to textile customers showed a strong s g._ _ 6.4 percent gain in 1986 as the Carolinas' (Wwev.d KWH textile industry Continued to recover despite P * " *' " *" unabated competition from imports. Sales to
.nd ; C"l"L non-textile industrial customers climbed 6.2 percent over 1985 as the Piedmont Carolinas j
Up (;f",A1];{y<,g===c--.
.k - w=* region continued healthy economic growth.
p: Wholesale and other energy sales rose 8.2 [ g ypN0" h 0 percent over 1985. Residential customers accounted for 26 1 percent of the Company's electric sales in l 1986. General service and commercial cus-tomet s accounted for 20 percent, non-textile
; industrial customers accounted for 21 percent and textile customers 18 percent. Wholesale and other energy sales accounted for 15 yk percent.
dk Duke Power completed as nuclear construction prw gram in 1986 whest Unit 2 of Catawba Nuclear Station entered commer-ial service. The two-unit. 2.290.0(n
*""*"""""'. was built at less than halfIhe aver:p Electric sales in 1986 roso :,60.5 bil-SALES AND CUSTOMERS tion kilowatt-hours, a 7.9 percent increase over 1985.
cost of nuclearplants of the same vtntage and can pro-gu,e enough electricity to light and ponr more than a hattmittion homes. _l_ _ - _ _ _ _ _ _ _ _ _ _ _ __ _ __ _ _ _ _
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More than 43,600 new customers joined The PSC's order allows a 13 percent Duke's system in 1986, a 3 percent increase, return on common equity. The Company's At year-end the Company was serving nearly original South Carolina request was for a 1.5 million customers, representing a popula- $137.8 million increase. That request was tion of about 4.4 million. later amended to a 14.4 percent, or $119.9 million, increase allowing a 14 percent return common equity.
",I'he Federal Energy Regulatory Conunis-Electric rates were raised in all juris-RATE ADJUSTMENTS dictions in the fourth quarter of 1986 to reflect the commercial operation of sion, which regulates the Company s rates to wholesale customers, allowed an interim rate increase on November 2 of 8.3 percent, or Cataviba Unit 2, new safety and emironmen-
$4 111 on tal facilities at Oconee Nuclear Station and increased operating costs. im.a commissions allowed recovery of all costs The Company subsequently volunteered associated with Catawba Unit 2, although a 2.3 percent rate decrease, which was some of those costs will be recovered on a approved effective January 1,1987. The ,
levelized basis. ) decrease passed on to customers the Compa-In North Carolina, the costs of power ny's expected 1987 income tax savings due to purchased in dechmng amounts from the the Tax Reform Act of1986. On October 31, the North Carolina Utilities Catawba lomt owners will be recovered on a levelized basis over the entire 10- and 15-year Commission approved a 6.73 percent, or contract periods. In South Carolina, recovery
$133.1 million, retail rate increase. The Com-I f the costs incurred over the first half of the mission allowed a 13.4 percent return on ,
10- and 15-year contracts will be levelized. comman equity. The Company had requested In both Carolinas, the Company proposed a $289.3 million increase. That request was and the commissions approved smaller later amended to an 11.9 percent, or $236.5 million, increase that would have allowed a 14 increases to mdustrial customers than to ther classes of customers, closing the gap percent return on common equity. between rates of return from each class of In South Carolina, The Public Service Com-customer and helpmg tr~ mtrial customers mission (PSC) approved a 9.55 percent, or compete m worldwide markets.
$79.1 million, rate increase on November 5.
Interveners m North Carolina appealed the capital structure m mom. muwe rate orders covering both Catawba Unit 1 and wsc ~ Catawba Unit 2 to the North Carolina
" === c- Supreme Court, where they are pendmg. '
y o guesmu Pvdwmdwxtp+rera aa .g w .a INANCING For the fourth consecutive year, Duke FPower offered no anticipates no need to do so in the next few years. The Company plans to continue to {) acquire shares on the open market as needed for its Dividend Reinvestment Plan and cus-tomer and employee stock purchase plans. The powerhousefor Bad Creek Hydroelectric Station will be built in a mam moth underground cavern being blasted out of rock in the)hothills of South Carolina. Had Creek willproduce 1,000,000 kilowatts ofelectric-ity duringperiods ofpeak demand when itsfour units enter service in i991 and 1992. 1982 1983 19M 1935 12(i 6
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The Company took advantage oflower County, S.C., continued in 1986. On Decem-
. interest rates by refunding over $500 million ber 31 the pumped-storage hydro plant was of bonds and preferred stock during the first about 15.7 percent complete. The first two half of 1986. These refundings will save the units of the four-unit, 1,000,000-kilowatt Company and its customers more than $17 plant are scheduled for service in 1991. The millionin 1987. remaining two units are scheduled for comple-As of December 31, Duke's capitalization tion in 1992.
consisted of 42 percent long-term debt,11 Pumped-storage hydro plants are used to percent preferred and preference stocks and produce peaking power. They store energy by 47 percent common equity. This ratio is con- pumping water from a lower reservoir to a . sistent with Company goals. higher one during periods of lower electricity l demand at nights and on weekends. The i water is released to generate electricity when j CONSTRUCTION demand is high. CCatawba Unit 2 near Rock 11i11, S.C., began producing power commercially on August 19. ENERATION AND CAPACITY The Nuclear Regulatory Commission The Company's nuclear units contin-issued a full-power license to Catawba on ued their excellent operations in i May 15,1986. It generated its first electricity 1986, generating 53 percent of Duke Power's ) during testing on May 18. electricity, down slightly from 54 percent in Work on Catawba spanned 12 years. The both 1984 and 1985. plant was completed months ahead of its The Company's eight coal-fired generating scheduled 1987 completion date, contributing stations produced 46 percent of its power, up to its lower-than-expected cost. Final cost of from 44 percent in 1985. Hydroelectric plants the two-unit,2,290,000-kilowatt station came supplied 1 percent, down from 2 percent, re-to $1,560 per kilowatt of capacity,less than flecting the severe drought in 1986. half the average $3,126-per-kilowatt cost of Duke's seven-reactor nuclear system oper-comparable plants built in the United States ated at a capacity factor of 61 percent in during the same time frame. 1986, down from 68 percent in 1985. The Construction of Bad Creek Hydroelectric lower capacity factor resulted from mainte-i Station, just above Lake Jocassee in Oconee nance outages and refuelings. Earninga coverage of fix_ed charges Net generation SEC neul BoomaKWH Risligg Hyro arw1wwer 61 0' . M Niw M C4ha 55 5 1962 1993 1984 1985 19H6 19H2 1983 1984 1965 1986 ryoom im LNr N sutwa 8
i I l As of Da ember 31, the Company's gener- M ac' Pachy _ , _ ating capacity totaled 15,614,000 kilowatts. Nuclear units accounted for 46 percent of the 'Off"" Company's total capacity, coal-fired units 41 === ca percent and hydroelectric and combustion turbine plants 13 percent. ' g '
', 1 1[ y 1 For the 12th straight year Duke & g o GENERATING EFFICIENCY Power's system of eight coal-fired generating stations was recognized by Elec-M Iy} (g' tric Light & Power (EL&P) magr.zine as the most efficient in the nation in 1985.
Also, Duke's Belews Creek Unit 2 was the country's single most efficient coal unit in 1985, the latest year for which EL&Pcom-piled rankings. In senice since December 1975, the 1,120,000-kik) watt unit is the new-est coal-fired unit on Duke's system. One of - = . ms . Belews Creek's two units has been ranked - "a a-- - first in the country five times since 1976. system, coal and nuclear, operated only as In all, five of the Company,s coal-fired units efficiently as the average system ranked by placed in the top seven of EL&P's survey of more than 2,000 units. 'I he 630,000-kilowatt EL&If fuel costs would have been $60 million Marshall Unit 3, which was the nation's most ght m 1985. efficient in 1984, placed second in the country in 1985. EAK DEMAND AND ENERGY For nine of the last 10 years, a Duke unit MANAGEMENT has led the nation's investor-owned utilities in Record heat in Duke's senice area in operating efficiency. July led to four successive summer peak re:- The magazine ranks the generating sys- ords for electricity use as customers fought tems of the country's 100 largest investor- the heat with air conditioners, owned utilities according to heat rate, or the The ultimate peak was 12,471,000 kilo-number of British Thermal Units (Btus) watts of demand on July 21. That was 7.9 needed to produce a kilowatt-hour of electric- percent higher than the previous sununer ity. The lower the Btus, the better the heat peak of 11,554,000 kilowatts set on August rate. 23,1983. The winter peak demand in 1986 Duke's coal-fired system set a national heat was 12,586,000 kilowatts on January 28, j rate record of 9,300 Btus in 1985, the year of which was still below the all-time peak of EL&P's ranking, and bettered that in 1986 12,687,000 kilowatts set on January 21, with a heat rate of 9,261. 1985. Duke Power's nuclear units were also rec- The new summer peak would have been ognized for their efficiency in 1985. In a higher if it had not been for the Company's , Nuclear Regulatory Commission report on energy management programs. Duke Power i the country's multi-unit nuclear plants, reduced projected growth in the 1986 sum-Duke's McGuire and Oconee nuclear stations mer peak by 334,000 kilowatts and the win-ranked first and third, respectively, in fuel ter peak by 468,000 kilowatts, both exceed-efficiency. ing Company targets. The efficient operation of Duke's generat- Since 1976 Duke's energy management ing system meant substantial savings for the program has reduced the projected growth in Company's customers. Had the entire the summer peak by 2.5 million kilowatts and 9
the winter peak by 3.2 million kilowatts. The holders and 11 percent of preferred share- ! goalis to reduce the summer peak by 4.8 mil- holders were participating in Duke's Dividend lion kilowatts and the winter peak by 6.1 mil- Reinvestment Plan, reinvesting nearly $22.4 l l lion kilowatts by the year 2000, thus avoiding million in dividends in the Company. the need to invest in several major new power More shareholders took advantage of two plants. other services, Direct Deposit of Cash Divi-In addition to holding down peak demand, dends and the Small Shares Repurchase Duke's energy management programs aim to Service. increase sales of electricity off peak. The Direct Deposit service assures timely Promotion of off-peak sales includes spe- receipt of dividend payments because the cial pricing schedules, the Safe Light outdoor Company automatically credits dividends to lighting program, Half-Price Water Heating shareholders' checking, savings or money during off-peak periods, and high-efficiency market accounts the same day dividends are heat pumps. paid. At year-end,8 percent of common shareholders and 9 percent of preferred shareholders took advantage of the service. Under the Small Shares Repurchase Se r-PROGRAM EMPLOYEEINCENTIVE Duke Power's 20,000 employees achieved seven of 10 primary corporate goals vice the Company will buy the stock of share-holders ownmg fewer than 50 shares of com-mon stock. The service enables sharehciders plus the bonus goal of cost reduction in the to sell their shares without incurring broker-Employee Incentive Goals Program in 1986. age fees. This achievement saved the Company and its customers millions d dollars. Duke employees met or surpassed goals in ITIZENSHIP AND SERVICE cost reduction, safety / disabling injuries, cus- Duke Power andits employees contin-tomer service reliability, affirmative action, ued a tradition of contributing to com-energy management, fossil system heat rate, munities in the service area, Duke's " Power in personal health, and quality of nuclear Education" program won a special citation operations, from President Reagan in 1986. It was the sec-Since the Employee Incentive Program was ond consecutive year that a Duke Power pro-started in 1981, employees have met 50 of 63 gram won recognition in the President's Cita-corporate goals for a success rate of nearly 80 tion Program for Private Sector Initiatives. percent. The President recognized Duke for its Achieving corporate goals during the year efforts to marshal the resources of business ! earns employees an additional contribution to and industry in the Piedmont Carolinas to the Stock Purchase-Savings Program for support public education. As part of the Employees. award, Duke can fly "C" flags, which stand for Ten challenging goals, plus the bonus cost "We Can" and "We Care," over its facilities. reduction goal, have been set for 1987. Duke employees gave generously to United Way campaigns throughout the service area in 1986, pledging more than $2.2 million. Employee and corporate contributions Duke Power resumed promotion ofits INVESTOR PLANS Customer Stock Purchase Plan in the spring of 1986. together made Duke Power the largest s,mgle contributor to United Way campaigns in The promotion generated more than 100,000 customer responses during the year. The Energy Explorium at Lake Norman near Mc-Guire Nuclear Station ofers entertaining and educa-Nearly 11,000 customers were participating nonalnsbas on efutsnygennatwn and use The in the plan at >* ear-end, investin8 $7.2 million Explorium makes information about the latestgeneral-m Duke Power. ing technology easily accessible to the com munities At year-end 23 percent of common share- scrud by the plant. x w
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North Carolina and South Carolina for the representing the net earnings of MATS since third consecutive year, its inception in 1982. MATS markets engi-Company employees also contributed more neering and other services to outside compa-than $195,000 to 172 colleges and universi- nies. It worked on 93 projects for 50 clients in ties through Duke's Matching Gifts Program. 1986. Duke also offered its Share the Warmth and One of Duke Engineering's initial projects Community Challenge Heating Fund pro- is designing a 49,900-kilowatt cogeneration frams to help low-income customers pay win- facility that will supply space and water heat-ter heating bills. Through Share the Warmth, ing for the U.S. Army's Fort Drum in upstate introduced in 1985, Duke shareholders match New York. Excess electricity from the plant customer contributions up to $400,000. will be sold to the Niagara Mohawk Power The five-year-vid Community Challenge Company.
. program matches money raised by service Crescent Land & Timber Corp., Duke Pow-organizations in the Piedmont Carolinas by er's land management subsidiary, expanded pledging $1 for every $3 donated by those its efforts in conunercial real estate in 1986.
organizations. The Company raised its maxi- Crescent completed or had under construc-mum contribution to the program during tion four projects during the year and contin-1986-87 to $350,000 from $300,000. ued to market its Lakemont Business Park, y pah, ad Earnings of subsidiari_e.s/_d_ivers.i.f_ied_bu_s_in.es.se. s 7 Avenue of the Carohnas retail complex, all g . ) - gpg near the Carowinds theme park south of 7
== c,e s cw c. Charlotte, N.C.
b a Crescent was formed in 1969 to manage e , ' g g n 4 4' -%=
"* Duke's 270,000 acres of non-utility property.
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s The subskiiary supplies timber for the furni-ture, home-building and paper industries. In Tq{h ICQ ' Q j( 1986, Crescent harvested 36 million board-y5 g J pg h,L feet of timber and 67,500 cords of pulpwood. The Sales Division of Mill-Power Supply
$ 4
( ENg y f n' % Company continued its expansion in the high-technology market in 1986, opening a Mill-W WW m R.g ) ! $y '$ Power Technologies facility in Greensboro, Qj >% N.C. Mill-Power Technologies was formed in
~} 1984 to sell energy management equipment, i
xXQ' G d programmable controls and computer equip-ment. The Greensboro facility will serve mar-l l I
}' 4 ' kets in North Carolina and Virginia.
Mill-Power also acts as Duke Power's pur-m chasing agent. Mill-Power's Purchasing Divi-si n bought more than $1 billion in equip , ment, fuel, supphes and services for Duke in BUSINESSES SUBSIDIARIES / DIVERSIFIED Subsidiaries and diversified businesses earned $42.8 million, down from the $51.5 lurch Street Capital Corp., formed in 1985 to invest money derived from the depre-million earned in 1985. The decrease was ciation of generating plants and from the sale caused primarily by lower investment income. of portions of Catawba Nuclear Station, On January 1,1987, the Company created reduced its level of investments in 1986, a new subsidiary, Duke Engineering & Ser- However, the corporation was able to increase vices, Inc. to take over the activities of the its overall return on those investments. Management and Techmcal Services (MA'I,S) organization. The new subsidiary was capital-ized with an investment of $4.7 million,
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i l 0: Is there any theme thatyou want to "We'reSimply emphastze tn managtng the company? , j gg DOUGLAS W. BOOTH: We want to ttnnCCCSSary- emphasize a company culture that is COS/S Olti0[Ottr . . customer-driven. That will be essential as operal[0US." % competition in our industry intensifies. As a low-cost producer of electricity we start with
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an imtial advantage. We're going to remain a Nh^ Y,j '
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low-cost producer by setting our price first and then operating the company in such a way A 4 ./
that we can make a satisfactory profit at that 4 M: FW price without detracting from ser ice to our A customers. We're simply going to keep un-necessary costs out of our operations. Our C '
employees have identified ways to save mil-m d lions of dollars since we began our Corporate Goals Program in 1981, and we expect to l Winiam S Lee, Chairman and ChiefExecutive Of}icer do even better. We will seek to avoid rate increases and put our focus on customer ser-Q: Mr Lee, where is Duke Power Company vice. We will devise ways for earning a satis-
) headed in thefuturr? factory profit within that framework.
WILLIAM S. LEE: We want to be the _ best there is in the electric utility 'ousiness, ? ' p and that will be our prmcipal focus as we
.. a move into the years ahead. We will remain . .
heavily committed to our core business, which .. is providing reliable electricity to our custom- ' .~ ers at reasonable cost. In diversifying beyond . ;s that we will look at other opportunities always . in the light of whether they will enhance ~ shareholder value without negative impact ou ~ ' our electric customers. .
.~
~
Q: Does Dukeface any changes in its day- ; to-day challenges? LEE: The biggest immediate change is that we nolonger have the tremendous financing needs we faced during our large - construction program. That program, which Douglas W nooth,nesident and Chief operating OBicer saw the completion of seven nuclear umts i over 20 years, was necessary to meet the economic growth of the Carolinas. We've done Q: Does Duke Pourr h, ate specific strategies that, and now we have sufficient baseload for tncreastngpm/ts tn thefuture? ! capacity in place into the next century. Our WILLIAM H. GRIGG: The Company l main purpose now is to be excellent and cost- has a four-point business plan for addressing effective in the electric utility business and to that We plan to continue to reduce costs as turn diversified opportunities into successful str'mgently as we can, continue to operate our ventures. system as efficiently as we have in the past, increase our kilowatt-hour sales and expand our non-utility income. 14
I i \ l n years it has operated a forestry management business. More recently, it has identified prop-
"Oltrg0aliS to in-
,,' erty that is suitable for other commercial use CMaSC OltrS/lare and is now developing an office park, an indus- O//hercSidential trial park and a number of other retail cen-
. > a ters. It is also engaged m several jomt ven-J7ggfjngHlar/let tures, including a hotel north of Charlotte. To [TOh!IlICTCCHl date, Crescent's commercial ventures have /050 percent."
.a been quite successful.
9j}/ i k Mill-Power has been in the electrical equip-ment sales business for some 75 years. In 1984 it established its Mill-Power Technolo-c gies division to sell and service micro- l
'/
~
processor-based computer systems and equip-ment, programmable controls, and other e j p { high-technology pr(xfucts and applications. We expect that to be Mill-Power's fastest grow-neth ing business. Q: How can you increase kilowatt-hour Our basic approach to diversification is to salesp invest only in businesses in which we have uperience and expertise - in other wcrds, COOTH: We have launched an aggressive where we will have something to bring lo the marketing program to sell more energy with- venture other than just money. It's expertise out accelerating growth in our summer peak we're marketing, for instance, with our new-demand. For instance, our goal is to increase est subsidiary, Duke Engineering & Services. I our share of the residential heating market Inc., which we formed on January l of this year, from 41 percent to 50 percent. We'll do this by promoting high+fficiency electric heat pumps, both to builders of new homes and to owners of existing homes. We're also promot-ing expanded use of residential outdoor light-ing. On another front we're exploring the pos-
~ sibility of increasing temporary bulk power
}
sales off peak, primarily to other utilities. T _{? Q: You mentioned expanding non-utility income. What areyour thoughts here? LEE: We will expand the activities of our 1O subsidiaries, but our philosophy on diversi- , t .,- fication won't change. We will focus on those \u ; 7'. , h / . areas where we have expertise. , G Q: Duke has a land management subsidi- " i ary, Orscent Land & Timber Corp., and . - u2 Mill-hwer Supply Company, a subsidiary winiam u crixg. sucutiw vice nesident. that sells eleetn.eal equipment. Will their Finance and Administration mies be increased? GRlGG: They will expand, but in an orderly way. Crescent owns some 270,000 acres of land in our service area. For many 15
"Weseecogenera. WARREN H. OWEN: Duke Engineering
- incorporates our Management and Techmcal ll0M GS an Opp 07,- Services, or MKI S, business as a subsidiary.
lHHfly and HolGS MKrS has been very successful. We think the c a //77paf " opportunity is there for continued growth because other companies recognize our expe- f ' rience and ability in engineering, construction and operations. With the new subsidiary we now have some flexibility and access to , resources which might allow even faster .' t j.- growth. You know, Duke Power has been q!- designing its own power plants for more than ^
/^ / p-80 years, so we have something very substan-tial to sell. .
Grigg l}
% Q: What is Duke Engineering's largest project?
GRIGG: They are designing a 49,900-
<3. %
I
- A kilowatt cogeneration projec; that will pro-i
+ o duce hot water for the U.S. Army at Fort C ({ Drum, N.Y., and sell excess electricity to J' ' N <
f .- Niagara Mohawk. We have a $2 million equity
^j '
)
7 investment in that project. We view cogenera-tion as an opportunity for us to win design 4 '
. t q contracts and to make investments, such as in 1 % Fort Drum. I think you will see more of that in the future.
Uhrren H Ourn. Executiw Uce f>rsident. Engineering. Q: Cogenerators are displacing the poicer Construction andl>vduction Group produced by some utilities and eating into their sales. What role doyou see cogenera-tion playing hewHs then a danger that Q: What doyou expect Duke Engineering Duke Pountllfaa armpetitionfnnn to contribute to corporate carnings? cogeneration projects in its sermee area? OWEN: Last year MKFS made almost $3 . LEE: We see cogeneration as an opportun-million before taxes, and with expanded activ- . sty and not as a threat. MNES has designed ities we should do even better. We can com- sever 1 cogeneration projects, three of which pete and make a nice profit there. are already in service in the Southeast. They ren't in ur service area and, quite honestly, Q: Has Duke Engineering had any di/A- it is hard to make cogeneration profitable m, culty competing teith large engincenng ur sersice area. That s because what utilities frms? must pay for power produced by a cogenera-OWEN: Not at all. We have been success- tion plant is based on what it would have cost ful with more than 60 percent of the propos- the k) cal utility to produce the electricity als we have made. That's very competitive itself. It is very tough to compete with Duke with the acceptance rate of any engineering Power economically in producing electricity. organization. 16
1
)
i Q: Mr Lee, you inentioned new opportuni- OwEN: That kind of deregulation is like "Jf'Sp0SSible that ties a little earlier What other opportunt- what we saw m the natural gas industry, - - ties doyoufbreseeforDukeIbwer? where supply was deregulated at the well. theday tS ComtHg ' head, but the distribution companies WhCH SORTCCS 0[ LEE: It,s possible that the day is coming remained regulated. If you were to build an p 0 M C T Silp pl W ill when sources of power supply will be deregu- ' lated, We see an opportunity there for Duke unregulated power plant you would probably want to set up a separate company in order to be deregulated.n Power Company when the need for power arrange project financing. begm, s to grow faster again in our region. A low-cost producer could build and own an .c , unregulated generating plant and have an ' ' o opportunity to make a profit through bulk power sales to other utilities. Now, if you look
. ]; $,~ --
i .. in the Southeast, you'll find one company ' l that's able to install generation at lower cost / ~
)
than anyone else and is able to operate that , i generation at higher efliciency than anyone else. That company is Duke Power. We think - this is one of the most promising areas that could possibly open up to us in the future. a w l} e
= .
'N_ _
[. . Stetr C. Grij)1th,Jr, Senior Vice Ivesident and General Counsel
~
r" STEVE C. GRIFFITH, JR.: In that type of situation, if you have some investors v i with a lot of guts, they could put up the
- k. '
*i money, build a power plant and offer electric-6 ity for sale to anyone who wanted to buy it. If you have demand for power, then you can
~ '
_ make a lot of money. If you don't have demand, you car'+ make much. Lee GRIGG: What would be happening there Q: What changes in curirnt law uvuld be is deregulation at the generation level, but necessary to set up a separate coinpany to continued regulation at the retail level. This build a powerplant whose electitetty could would be different from a shared ownership be sold at an unregulated priec. venture, like our Catawba station, where a LEE: We think it would probably require number of utilities jointly own a power plant. an amendment to the Federal Power Act and With an unregulated generating plant the possibly changes in the Public Utilities Hold-owners would be free to sell bulk power in a ing Company Act, which we feelis outdated competitive market at a market-determined and useless. Bill Grigg chaired the national price. The price paid by the ultimate cus- group that attempted to bring about repeal or tomer would still be regulated. amendment of the Holding Company Act, but so far Congress has failed to act. 17
l "Jfhink oggr Q: Are there other reasons why the utility a U)' 5 I""' i . neighbors realize '" ing" Company Act.!! n wpealof the Hold- .. that th . can GRIFFITH: The act is an anachronism b6MfNlNWN OMI and is not needed anymore. In order to form a ' ' ability to design, holding company we would have to become '. registered under the act and then we would buildandoperate be prohibited from engaging in businesses not plants allower related to the utility bu iness. That raises the * . COST." question of what would happen to Mill-Power 2 ' Supply or Crescent Land & Timber. . . Q: Is Duke interested in forming a holding - g company? . GRIFFITH: Yes. It would enable us to separate our utility business from our other businesses for the parpose of regulation and John 11 Ilicks, senior Vice President.1%blic Affairs setting rates. We would not be handing regu-latory commissions a consolidated balance Q: Will Duke and the industry continue to i sheet and operatmg statements that show all pushfor repealof the aet? our income from all our opeiations. But under current law, we would condder forming a JOHN D. HICKS: We expect it will be l holding company only uuder the most repealed some day because it's useless. There extraordinary circumstances, such as acquir- probably will be another attempt this year but ing another utility or acquiring generation I don't know whether it will be as strong a facilities outside our service area. push as our last one. Q: What new areas ofopportunity existfor
.J 'A.
Duke without ngulatory changes?
' OWEN: Very much in our thinking, and of growing interest among other utilities, is the
. idea of a joint venture to build and operate a 1 regional power plant. This, unlike the unregu-p lated power plant that Bill Grigg talked about y earlier, would be owned jointly by several utili-ties. As we move into the future and we begin
.. L to look at the year 2000, most of us will need I' . . . _
additional baseload capacity, and regional interest is growing in that idea.
- c , g .
, g.g ities to ajoint venture?
^ d' BOOTH: I think our neighbors realize that I Gri#th they can benefit from our ability to design, build and operate plants at lower cost. They also realize that with a joint-venture plant they wouldn't have to bring on larger units than their load growth justifies at one time.
Whereas initially we talked in terms of
?'
i baseload generation for a joint-venture plant, what we're finding we all need now is pealung "ff gpfff fakgf. gg power. So now there is a possibility of joint cralleglSlatt0H la venturing pumped-storage capacity sometime gelHl(C/CarbaCh in the future.
.i OH trach, OHdll OWEN: We happen to have in our service nntstget bach OH area excellent topography for pumped- ' -
storage facilities, much better than most of j7ggg* " our neighboring utilities. With pumped stor-age you pump water from a lower reservoir to a higher one during off-peak periods and then let the water flow back through when you need peaking power. The foothills area in the y -; \ '
.]T western part of North Carolina and South s, r-Carolma is ideal for that. w LEE: There is also a possibility of some "' "
temporary joint ventures. Duke could build 0" something in excess of its needs and tempo- Q: So Duke is consideringpumped stomge rarily lease tl.e capacity to someone ehe, who forpeaking capacity. What about new in turn could postpone building their own nuclear poner plants for baseload genera-plant. Duke would later grow into the project. tion?Is tha! Option stillalive? HICKS: Not unless we get two important
%.a
;* pieces of legislation. We must get the Price-Anderson Act renewed. That's the law that
$ sets a cap on the liability for nuclear power
+- plants, and it expires in August. Right now
. that coverage is capped at $695 million, and we must get it renewed at some level that the 1,J ,
industry can accept, or we will entirely shut 3' ~ off the nuclear option in the future. The other e
, legislation is one-step licensing for standard-
, ized nuclear power plants. Now we have a 1 le long process to get a construction permit and
~
then the same process 10 years later to get r
, an operating 1.' cense. It will take federal legis-lation to get nuclear back on track, and it
/g must get back on track because coal and ura-nium are the only major fuels that can provide f,,, our nation's future electricity.
Q:Just what capacity requirements does Dukeforesce? OWEN: As we've said, we have sufficient baseload capacity into the early part of the next century A!! our studks cleady indicate that what we need for a substantial period is peaking capacity. It comple'nents what we . have and will make our future generating sys-tem even more flexible and economical. 19
e We talked brictly about competition. ; -
" Mandatory . '
Lets talk some more about that. How WllCCllHg Wlll much competition for customers doyou see
\
undoubicdly be conting? n, if . i
~
an [SSite [H lllf LEE: There are real, unresolved problems . with that. One is the public service obligation CitrrChiSCSSlon ~
" and the other is the technical problem of con- -
ggONEOSA' trolling the flow of electricity. Electricity is - not like natural gas, which you can push along 0 a pipe to a designated customer.
.,' ;7 BOOTH: That's right. You cannot sell [ f electricity to a customer on your neighbor's g> m system unless your neighbor agrees to reduce p4 generation by the same amount you increase - f .
it to serve that customer. That is not in your . (- - '
.4' M
neighbor's best interest, so we think that leg-islation would be necessary to require that. Gri#ith Q: What uvuld it take to competefor cus-tomers outside the service area? GRIFFITH: For that to work the utility that is serving that customer must be willing
- y. to deliver our power, or as we say in our industry, wheel it to the customer, at a rea-sonable price. You would have to have a legal requirement that all electric utilities offer a competitive rate for wheeling.
Q: What are the chances that Congress or
$Rl
'?$
someone else uvuld require utilities to wheel one anothers pouvr at competitive
/ /8
\; 0 rates?
t g HICKS: Mandatory wheeling will
\' undoubtedly be an issue in the current session of Congress. They have indicated they will i
j Hmth address the issue, but we don't know just Q: How uvuld your public service obliga- what wrinkles any final legislation will have. l tion inhibit your ability to competefor customers? Q: Where does DukeIbutr stand on the LEE: If a customer is in our service area, '##"##!*#" #'#7 " ##""# we have an obligation to serve that customer. HICKS: We're not taking any position on Suppose another utility took that customer that issue yet. It's not something we're push-from us and then for some reason collapsed ing, and it's not something we're resisting. and was unable to continue service. Who then We're just sitting back and taking a kmk at it has the comrcitment or obligation to serve right now. But if it does come, we're in better that customer! Us, because the customer is in shape than almost anybody because of our our service area? Or the utility that had taken ability to design and build our own power that customer from us? That's an unanswered plants and generate electricity at competitive question. costs. 20
1 GRIFFITH: You know, Congress is not Duke anticipating and shaping change and not "fthj;;hyngggpj// always the initiator of these things. I think being dragged along by it. From an attitude - what is going to happen is some utility is point of view, we are willing to compete, Seel)ltheallllCl-going to say, "We want to sell electricity head-to-head, under any circumstances, with pall 11galld Shap-' beyond our neighbor, who is not giving us a anybody, as long as it's fair competition. j;1gChallge alld fair rate for wheeling it. And we're going to court." When that happens, the courts can IIUI III8 decide it, and I think the courts will decide in a/011g[1J ll." favor of wheeling. Q: Deregulation and increased competition hate come to a lot ofother industries, from airlines to banking to telephones. Other QA than changes in tcheeling regulations, what are ihe prospectsfor deregulation of ; the electric utility indusiry? y. HICKS: I think that's going to move very .. slowly. Deregulation would be such a major g % restructuring of our industry, and our industry $ o / 9 is so very important, that I doubt very seri- .
-)
ously that there will be any major deregula- % e tion of electric utilities during this session of - Congress. g ) Lee Q: Some analysts hair obscried that there seem to be too many electric utilities and
. c:
that a period ofconsolidation is inevitable. Does Duke see itselfacquiring other utilities?
'd LEE: Perhaps so, if the deal offers particu-
" ~
~ 'l lar synergisms and would enhance share-holder value without negative impact on our
, ;,,~ .
existing electric customers. We have studied
*.- both being an acquirer and an acquiree. Con-
, sidering Duke's present size, consolidation to N'
l . seek economies of scale would not offer much to us.
^
Q: Would Duke acquire a non-utility company? Hieks - LEE: Yes, if it meets our criteria. It must
. show promise of enhancing value to our Q: Is Duke Iburrpirparrdfor deregulation shareholders, be an activity related to our if and rehen it comes to electric utilities?
expertise, be available at the right price, and LEE: There may still be unanswered tech- not adversely affect our electric customers. nical, political and economic questions con-cerning deregulation. But I think you will see 21
"Pntdence says 0: some utilities are diversifying through acquisitions simply because thty have to t/lal 1 p H TC fnd some way to put their cash to work.
go/ng(O CXpand, What are Duke'splansforits cash? 'KH CXpand in/O GRIGG: We presently have a little more arCas [n m/l/C/l than $375 million in cash. We expect to use most of it on construction of the Bad Creek pg g7g gypg7f'" Hydroelectric Station, for improvements to our transmission and distribution systems and 9, ' / to fund the deferred purchased power expenses associated with the Catawba _ p., ' c .g 3' f, Nuclear Station. In the meantime, the money iqof( M. - is being managed conservatively by Church - P- ' Street Capital Corp., a subsidiary we formed $.-y ~ to direct our intermediate-term investments. _ , + _ . x-Lee LEE: By a number of measures we stand among the very best in our business, but we know how far we still have to go. The efforts of our 20,000 empioyees have given this
- f. Company the excellence it has today. They are dedicated now to making Duke Power a customer-driven company that provides low-cost, quality service which will allow us to l
., ,; compete effectively in the years ahead.
l! t 3 ;Q i if y j g f.: ut . Grigg Q: Summing up, then, ut shouldn't look for any surprisesfmm Duke Pouer, should ur? Is itfair to say that Duke will concen-trate on doing urll what it already does? GRIGG: Yes, we plan to employ our cash mostly in our core business, the electric util-ity business. We will be looking for other opportunities, but prudence says that if you're going to expand, you expand into areas in which you are expert, areas where you can bring something to the table other than just money. That is how we believe we achieve the best value for our investors, while at the same time providing our customers with the kind of quality senice they expect. l n i s
7-_-
;1 s
' Statements ofIncome f jIiukePowerCompany.
j ;' A s th&rsln Thousands - Year ended December 31, 1986' 1985 1984 Electric revenues (Notes 1 and 2) . . . $3.400.933 $2.898.911 $2.710.015 Electric' expenses Operation : Fuel used in electric generation (Note 1) , . 726,151 719,254 683.563 Net interchange and purchased power (credit) (Note 3) . 378,377. 107,145. (36,408) ' Wages, benefits and materials , , 488,631 . 435,701 ~ 393,448 . i Maintenance of plant facilities . 291,164 ;260,361- 207,951 Depreciation and amortization (Notes 1 and 11). 327,844 319,295 303,429 General taxes (Note 1)- 166,385 '141,343' 194,095 3 Income taxes (Notes 1 and 5) . , , 437.605 '387.777 415,836 Total electric expenses. . . , 2,816,157 2.370.876' 2.161.914' Electric operating income ' '584,776 528.035 548.101'
. Othir income (Notes 1,4 and 5)'-
' Allowance for equity funds used during construction 52,444 62.,741 98,711
- Earnings of subsidiaries, net 9,736 10,101 14,706
- .Other, net . 38,059 ' 71,050 36,349 Income taxes- other, net - (4,522) . (20,434) (29,180)
Income taxes - credit - . 32,163' 40.363 42.209 Total other income . 127,880 163.821 162.795 l Income before interest deductions . 712.656 691'856 710,896 d
. Interest deductions Interest on long-term debt , . , 252,503' 267,345 276,520 Otherinterest .
5,764 3,926 3,075 - Allowance for borrowed funds used during construction (credit)(Note 1): , (13,445) (17.008) (30.030)
~ Totalinterest deductions .
244,822' 254.263 249.565
. N1t income . s .
467,834 437,593- 461,331-
? Dividends on preferred and preference stocks . . , 58,767 60,912 -61.786
' Earnings for common stock L . $ 409,067 $ 376.681. $ 399.545.
' Common stock data L Average shares outstanding (thousands) . . 101,220 '101,178 -100,346'
. Earnings per share. . . , . .. . . . , ., . _
$4.04 __ '$3.72 - $3.98 i Dividends per share '. ,
. . , . $2.64 $2.54 $2.42 -
.See Notes to Financial Statements."
E t f t 1:,. n
, , , ' 23 x
- Statements of' Changes in Financial Position Duke Power Campany Dollars in Thousands Year ended December 31, '1986 1986 1984 Sources of Funds Operations
~ Net income. , $ 467,834 $ 437,593 $ 461,331
- Non-fund items:
Depreciation and amortization (Notes I and 11) 502,151 484,527 469,711
- Deferred income taxes and investment tax credit, 161,596 141,105 103,800 net of amortization (Note 5)
Allowance for equity funds used during construction (52,444) (62,741) (98,711) (77,258) (22,440) Purchased capacity levelization (Note 3) . Other, net . (71,963) (68,250) (13,137) Total funds from operations 929,916 909,794 922.994 Funds from financing and sale of assets issuance of first and refunding mortgage bonds 394,006 172,404 - Issuance of preferred stock. 98,612 - - 57,597 57,638 84,461 Nuclear fuel trusts hsuance of pollution-control bonda . 7,251 34,114 60,720
- - 457,086 Proceeds from the sale of an interest in the Catawba Nuclear Station .
- - 37,194 Issuance of common stock Total funds from fmancing and sale of assets , 557,466 264.156 639,461 Change in short term position and other marketable securitks 149,866 294,222 (690,038)
Total sources of funds . $1 '.,37,248 $1,46817J 1 L872,417 Applicationsof Funds Construction expenditures . $ 637,908 $ 594,431 $ $c6,043 Long-term debt, capital stocks retiral or reacquired 672,239 247,192 ' 138,652 Dividends paid 325,991 317,907 304,577 Change in working capital
- 49,356 308,500 (386,086)
(48,246) 142 269,231 l Other applications, net . Total applications of funds . $1,637J4_8 $1.468,172; $ 872,417 Change in Wc Ning Capital: Increase /(Dec.ase)in current assets Cash., $ 871 $ (3,011) $ 5,158 81,257 (18,011) 30,092 Receivables
- - (41,209)
Refundable income taxes
. Materials and supplies (43,366) 53,735 (21,334) 371 6.633 (2,243)
Prepayments Decrease /(Increase) in current liabilities Accounts payable 16,086 (6,016) (36,812) Nuclear fuel dispostd costs payable . - 122,003 (122,003) Taxes accrued . (51,359) 161,141 (158,001) 45,496 (7,974) (39,734) Interest accrued and other liabilities .
$ 49,356 $ 308 500 $(386,086)
Change in working capital * .
- Excludes change in short-term position and change in curnnt maturities oflong-term debt and preferred stock.
See Notes to FinancialStatements.
' 24
Balance Sheets
~ Duke Power Company IAdlars in Thousands December 31, 1986 1905' Assets Electric plant (at original cost - Notes 1,3,10 and 14)
Electric plant in s.rvice. $9,445,032 $8,609,284
' Less accumulated depreciation and amortization . . 3,407,345 3,034,473 Electric plant in service, net . . , 6,037,687 5,574,811 Construction work in progress 601,064 817,350 Total electric plant, net . , 6,638,751 6,392.161 Other property and investments Other property - at cost (less recumulated depreciation: 1986 - $8,248; 1985 - $7,790) 40,100 39,951 Investments in and advances to subsidiaries (Note 1) 85,153 88,812
' Other investments, primarily marketable securities - at cost or less (Note 1) . 289,721 254.356
'lotal other praperty and investments . 414,974 383.119 Current assets Cash (Note 6) . 3,614 2,743 Short-term investments .
.. 113,129 293,262
- Receivables (less allowance for losses: 1986 - $3,867; 1985 - $4,004) 325,915 244,658 Materials and supplies - at average cost i . Coal 84,137 150,085 Other 148,850 126,268 Prepayments. 15,077 14,706
'Ibtal current asets. 690,722 831,722 Deferred debits Canceled construction projects (Notes il and 14) . 296,016 341,214 Purchased capacity costs (Note 3) 101,160 41,872 Debt expense, primaril> refinancing costs, being amortized over terms of related debt (Note 1) . 62,106 16,946 Other 23,000 17,129 Total deferred debits . 482,282 _ _4,17,161 Total assets 18u226,729 188 024,163 Capitalizatic,n and Liabilities Capitalization (See Statements of Capitalization) . $6,514,700 $6,350,042 Current liabilities Accounts payable 143,039 159,125 Taxes accrued (Note 1) . 104,282 52,923 Interest accrued 68,542 86,539 Other 49,718 77,217 Total . 365,581 375,804 Current maturities of long-tenu debt and preferred stocks . 38,911 133,342 Total current liabilities 404,492 509.146 1
l Accumulated deferred income taxes (Notes 1 and 5) . 913,426 775,333 Deferred credits and other liabilities Investment tax credit (Notes 1 and 5) . 341,124 353,227 Other 52,987 36,415 Total deferred credits and other liabilities 394,111 389,642 Commitments and contingencies (Note 14) . Total capitalization and liabilities $8,226,729 18,024,163 See Notes ts FinancialStatements. 25
;m <
,w ---- - q Statementshf' Capitalization and Retained EabngsL
; Duke Power Company 4 g s , .i
.'- ' i 4 December 31, 1985 Ihllarsin Thousands 1 1986 6 l Capitalization .
; Common stock equity (Note 7) ,. .. .
" Common stock, no par,150,000,000 shares authorized; 101,235,772 shares outstanding
$1,861,628 $1,860,623 n c for 1986 and 101,193,802 shres outstanding for 1985. .
Retained earnings : . 1,210.229 - 1,071.814 H , . . , Total common stock equity , . 3,071,857 2.932.437 p
+
Preferred and preference stocks without sinking fund requirements (Note 8) . 468,550 ~ 419.552 . Preferred stocks with' sinking fund requirements (Note 9) . 221,991 277.012 Long-term debt (Note 10)- x ? First and refunding mortgage bonds . 2,635,790 2,614,136-Promissory note due subsidiary,16%% . , , .
- 58,725
- Term note, floating rate . .
-- -21,000-
~ Capitalized leases - , . . . .
83,890 87,537
- Nuclear fuel trusts - .
85,000 85,000 l 7 Unamortized debt discount and premium, net (Note 1) . . (20,112) . (18,415)s Current niaturities of long-term debt , , , (32,266) (126.942) Li p'otallong7 term debt . .. . .. 2,752,302 - 2.721.041.
. Total capitalization . . $6,514,700 16.350.042' l
Year ended December 31, 1986 1985 1984 Dailarsin Thousands Retsined Earnings Bahnce - Beginning of year $1,071,814 $ 952,360 ' $ 795,512J Add - Net income . , . , . . 467,834 437,593 461.331-
~ Total _1,539,648 1.389.953 1.256.843 Deduct Dividends 267,224 256,995' 242,791
' Common stock . , . .
. Preferred and preference s:ocks . . - 58,767 60,912. 61,786'
! Capital stock transactions, net :. . . 3.428 232 (94) ~ -
- Total deductions . . 329.419 318.1_3.9 304.483-e .
Bal:nce - End of year . ,.
$li210 22_9 11,071.814 $ 952,360 -
l SeeNotes to FinancialStatements, i U- .. h k ap
Notes To Financial Statements ' Duke Power Company i Note 1. A. Additions to Electric Plant Summary of- The Company capitalizes all construction-related capitalized. The cost of repairs and replacements Significacit direct labor and materials as well as indirect con- representing less than a unit of property is Accounting Policies struction costs. Indirect costs include general en- . charged to electric expenses. The original cost of gineering, taxes and the cost of money (allowance property retired, together with removal costs for funds used during construction). The cost of less salvage value, is charged to accumulated renewals and betterments of units of property is depreciation. B. Allowance for Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity permitted to recover these capital costs, including costs of capital funds that are necessary to finance a fair return, through their inclusion in rate base the construction of new facilities. AFUDC, a non- and in the provision for depreciation. cash, non-operating item, is recognized as a cost of AFUDC, which is compounded semiannually,
" Construction work in progress," with offsetting was calculated on average embedded rates (net of credits to "Other income" and " Interest deduc- applicable income taxes) of 9.63 percent for 1986, tions." After construction is completed, a utility is 9.90 percent for 1985 and 9.65 percent for 1984.
C. Depreciation and Amortization Provisions for depreciation are recorded using unit-of-production method. the straight-line method. The year-end composite Under provisions of the Nuclear Waste Policy weighted-average depreciation rates were 3.60 Act of 1982, the Company has entered into con-percent for 1986,3.58 percent for 1985 and 3.56 tracts with the Department of Energy (DOE) for percent for 1984. All coal-fired generating units the disposal of nuclear fuel. Payments made to are depreciated at the rate of 3.57 percent. Nu- the DOE for disposal costs are b4 sed on nuclear clear units are depreciated at a rate of 4 percent, generation and are included in ~Poel used in elec-which includes an allowance for decommissioning tric generation" in the Statements of Income. costs; The Company fulfilled its obligation for disposal Amortization of nuclear fuel is included in " Fuel costs of nuclear fuel consumed prior to April 7, used in electric generation" in the Statements of 1983, by a payment in June 1985 ef approxi-Income. The amortization is recorded using the mately $122,000,000 to the DOE. D. Subsidiaries The Company's financial statements reflect con- Retained earnings as of December 31,1986,in-solidation ofits wholly owned subsidiary, Church clude $89,118,000 of undistributed earnings of Street Capital Corp., formed in February 1985. All unconsolidated subsidiaries. Dividends received intercompany transactions have been eliminated from unconsolidated subsidiaries were in consolidation. Investments in other wholly $1,000,000 in 1986, $2,200,000 in 1985 and owned subsidiaries have been accounted for by the $2,300,000 in 1984. equit y method. (See " Subsidiaries," page 43.) E. Income Taxes The Company and its subsidiaries file a consoli- projects, and short-term and intermediate-term dated federalincome tax return. Income taxes investments. are allocated to each company based on its sepa- Deferred income taxes are provided for timing rate company taxable income or loss. differences between book and tax income, princi-Inco'ne taxes are allocated to non-electric op- pally resulting from accelerated tax depreciation, eratior.s under "Other income" and to electric levelization of purchased power payments, and operating expense. The " Income taxes - credit" capitalized taxes and employee benefits. Invest-classified under *0ther income" results from tax ment tax credits are deferred and amortized over deductions of interest costs relating rimarily the usefullives of the related properties. to investments in CWIP, canceled construction E Unamortized Debt Premium, Disecunt and Expense Expenses incurred in connection with the issu- respective issues. Also, any expenses or call pre-ance of presently outstanding long-term debt, miums associated with refinancing higher cost and premiums and discounts relating to such debt obligations are being amortized over the debt, are l'eing amortized over the lives of the lives of the new issues of long-term debt. 27
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l g .I- f gm R , y ,, g . iNote lh 7 G. Fud! Cost A'djustment Procedures ' Fuel costs are reviewed semiannually in the
~
.. Therefore, the Company reflects in revenues the 4 Summary ofi wholesale and South Carolina retail jurisdictions. , difference between actual fuel costs incurred and 4 Significant ._ ; with provisions for changing such costs in base . ' fuel costs recovered through base rates. The L i ccounting A Policies; North Carolina Utilities Commission ordered the
' rates. In the. North Carolina retail jurisdiction, af k (continued)^: , review of fuel costs in rates is required annually : Company to follow these deferred accounting -
. . and during general rate case proceedings. ,.. procedures in its August 1986 order, which was
. .. Alljurisdictions allow the Company to adjust ' effective for periods beginning January 1,1986 '
.P for past over .or under-recovery of fuel costs. H. Other Investments - Other investments, which consist primarily of cost or market value. At year-end, the cost of 1' marketable securities, are stated at the lower of . these securities approximated market value. I. Fran'chise and Sales Taxes
- The North Carolina state franchise tax rate was ' < reduced revenues and ' reduced general taxes in changed effective January 1,1985, in compliance - the Statements of Income. The Company is act-L : with North Carolina state law. The statute ret ing as an agent for the state government in the duced the franchise tax rate from 6 percent to ~ collection of sales tax and is accumulating the L emount as a component of " Taxes accrued" in the-p 3.22 percent and imposed a 3 percent sales tax F ~on the sales' of electricity in North Carolina. This Balance Sheets. The Company remits both the reduction in the franchise tax nJe is reflected in tales tax and the franchise tax quarterly.
LNot: 2. The North Carolina Utilities Commission' and The . revenues shown below'(in millions of dollars) are 1 Rate Matters . Public Service Commission 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 1,1984,is as follows:
N ' rates for sales to wholesale customers. The ' Approved < % of increase
. . Over End of
,Lrisdiction and l Requested % of Previous Rate Order 12-Month Date Filed -Revenues Revenues Request ' Revenues Effective Test Period L N.C. retail 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 March 1986(a) 289.3 133.1- 46.0 6.73 October 1986 December 31,1985 S.C. retail September 1983 136.0 99.7 73.3 . -17.40 - March 1984 April 30,1983 April 1985 143.0 78.4 ~ 54.81 10.75 October 1985 June 30,1984
- May 1986 137.8 79.1' 57,4 9.55 November 1986 December 31,1985 -
FERC wholesale (b) ' . December 1983 9.5 8.0 84.2 9.60 October 1984 December 31,1984 1 I , ; July 1985 , 9.2 ' -5.2 :56.5 '10.50 - March 1986 December 31,1986
. August 1986 (c) 6.4 - ' 4.5 - 71.0- 8.30 Pending December 31,1987 (a) Under appeal. (See Note'14,) . .
(b) FERC wholesale filings do not include the North Carolina Municipal Power Agency Number 1, the North Carolina Electric Membership Corporation and the Saluda River Electric Cooperative, Inc. Be-ginning in July 1985, FERC wholesale filings also do not include the Piedmont Municipal Power Agency. These municipalities and electric cooperatives previously purchased interests in the Catawba p Nuclear Station. (See Note 3.) Sales to these entities, which previously represented a majority of the u . Company's wholesale revenues, are now set through contractual agreements. (c) This increase was implemented in November 1986 through an interim rate order from FERC. This increase is subject to refund and approval. . ., n e ,
1
- N:te3.. The Company has sold interests in both units of Nuclear Station and supplemental information re- -
_ Joint Ownership the Catawba Nuclear Station. The owners of por- garding their ownership are as follows:
- of Generating tions of the 2,290,000-kilowatt Catawba = Facilities n,nersa;p intere,t ,
Owner in the Station Date of Sale ' North Carolina Municipal Power Agency Number 1 1NCMPA) 37.5% November 29,1978 ' '( i Neth Carolina Electric Membership Corporation ' (NCEMC) 28.125% February 6,1981 j Saluda River Electric Cooperative, Inc. i (Saluda River) 9.375 % February 6,1981 Piedmont Municipal Power Agency (PMPA) 12.5% December 20,1984 I i Each participant has provided its own financing for its oanership interest in the plant. l The Company retains a 12.5 percent ownership of the capital costs and fixed operating and mainte- R interest in Catawba. As of December 31,1986, nar,ce easts of capacity purchased from the joint , ;
$478,800,000 of " Electric plant in service" repre- owners over a 15-year period. The Public Service ;
sents the Company's investment in Units 1 and 2 Commission of South Carolina allowed the Com- l and nuclear fuel for those units. Accumulated de- pany recovery on a levelized basis of the capital preciation and amortization of $25,100,000 associ- costs of capacity purchased over a 71/2-year per-ated with Catawba had been recorded as of iod. The Federal Energy Regulatory Conunission l year-end. granted the Company recovery on a levelized basis l Under the terms of the 1984 sale to PMPA, the of the capital costs of capacity purchased from the 1 Company received $457,086,000 at closint 4 1a joint owners over a 15-year period for Unit 1. Re-note for $13.800,000 which was paid during w85 covery for Unit 2 has been requested. As provided after the commercial operation of Catawba Unit 1. in current rates in all jurisdictions, the Company In conecction with the joint ownership, the recovers the costs of purchased energy and the _i Company has entered into contractual agreements portions of purchased capacity not being levelized. ) with the other joint owners to purchase annually The portion of costs not recovered through cur- ; declining percentages of the generating capacity rent rates is being accumulated and the Company ; and energy from the plant. The agreements were is recording a carrying charge on the accumulated ! effective beginning with the commercial operation balance. The Company will start to recover the ac- l of each unit. Unit 1 and Unit 2 began commercial cumulated balance when the capacity payments , operation in June 1985 and August 1986, respec- drop below the levelized revenues. i tively. Such agreements were established for 15 For the years ended December 31,1986 and ; years for NCMPA and PMPA and 10 years for 1985, the Company recorded purchased capacity 'l NCEMC and Saluda River. and energy costs from the joint owners of Energy cost payments ar, based on variable $515,800,000 and $224,600,000, respectively. ! operating costs, a function of the generation of the These amounts, net of the cost of capacity pur-plant. Capacity payments are based on chased not reflected in current rates, are included - the fixed costs of the plant. The estimated pur- in " Net interchange and purchased power" in the chased capacity obligations through 1991 are Statements of Income. As of December 31,1986 i
$549,961,000 for 1987, $493,674,000 for 1988, and 1985, $101,160,000 and $41,872,000 net of
$457,532,000 for 1989, $439,655,000 for 1990 income taxes, respectively, associated with the and $424,428,000 for 1991. costs of capacity purchased not reflected in cur-The North Carolina Utilities Commission rent rates had been accumulated in the Balance granted the Company recovery on a levelized basis Sheets as " Purchased capacity costs."
. Not3 4. For the years ended December 31,1986 and net" in the Statements of Income. The income is Other Income 1985, the Company recorded investment income primarily from dividends and interest on securi-of $34,000,000 and $58,000,000, respectively ties. The taxes associatred with investment income ($29,900,000 and $38,700,000 net of income are recorded as components of " Income taxes - taxes, respectively) as a component of "Other, other, net" in the Statements of Income. 29
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' Not ; 5.1 Income. tax expense consisted of the following (dollars in thousands):
. Income Tax'- 1986 1985 1984 Expense income taxes related to electric expenses Fed r , , , , $241,150. $206,884 : $271,960
-State- 37,862 36,506 ~ '47,876 279,012 237,390 ;319.836 1 Deferred taxes, net -
Excess tax over book depreciation . 89,325 87.,362 67,107 Capitalized taxes, employee benefits, etc. 17,023- 12,487 10,337 Catawba purchased capacity costs . 52,942 37,700 - , 6, Other , , 6,691 (6,745) (275) ,J
'165,981 130,804 77.169 Investment tax credit Deferred .. , . .
16,801- 40,729 37,381 Amortization of deierments (credit) . (24.189) (21,146) (18,550) (7.388) 19,583 _ 18,831 Totalincome taxes related to electric expenses . 437.695 387.777 - 415.836
' income taxes related to other income Income taxes - other, net ' 4,522 20,434 91,497*
Income taxes -(credit) . , (32.163) (40,363) (42,209) Totalincome taxes rdated to other income , . (27,641) _ (19,929) 49,288. Totalincome tax expense. $409,9_6_4 ' 3367,848 ' 14f6524
- Includes $62,317,000 resulting from the sale of assets in December 1984. Such income taxes, which are included in "Other, net" in the Statements of Income, reflect a taxable gain in excess of book gain resulting principally from the treatment of AFUDC. (See Note 3.)
i Total current income taxes were $248,368,000 for 1986, $226,712,000 for 1985 and $376,949,000 for -) 1984. Of these amounts, state income taxes were $33,876,000 for 1986, $34,692,000 for 1985 and lj
$57,587,000 for 1984. j Total deferred income taxes were $168,984,000 for 1986, $121,553,000 for 1985 and $69,344,000 i for 1984. Of these amounts, deferred state income taxes were $20,060,000 for 1986, $13,178,000 for l 1985 and $7,687,000 for 1984. ,
t income taxes differ from amounts computed by applying the statutory tax rate to pretax income as fol-lows (dollars in thousands): . 1986 1985 1984 Income taxes on pretax income at the statutory federalrateof 46% $403,787 $370,503 $426,169 9 increase (reduction) in tax resulting from: Allowance for allfunds used during construction (AFUDC) (30,309) (36,685) (59,220) f Amortization of electric investment tax ! credit ieferrals - (24,189) (21,146) 0 8,550) i ' AFUDC in book depreciation / amortization 43,679 42,575 45,298 State income taxes, net of federal income tax beneht 28,848 25,320 35,832 Increase in tax expense primarily because of excess of j tax gain over book profit on sale of assets - - 27,280 ) Other items, net (11.852) (12,719) 8,315 j Totalincome tax expense (see above) _$409.964 M67 848 .$465,124 l
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n b r e k a-Note 6.' The Company had unused short-term credit facili- nual tender, pollution-control revenue bonds. The
, Short-Term ties of $306,150,000 with 56 commercial banks as ' facilities are on a fee basis and/or a compensating-
' Borrowings of December 31,1986, $316,050,000 with 59- balance basis, with total average balance require-commercial banks as of December 31,19P5, and ments of $1,351,500 for 1986, $1,362,500 for
- $319,500,000 with 60 commercial banks as of De- 1985, and $1,372,000 for 1984. There were no cember 31,1984. Included in these credit facilities short-term borrowings during 1986,1985 and
'is $40,000,000 allocated to the 1984 issue of an- 1984.
, Wete 7. Common Stock issue new shares of common stock only for the Common Stock and During the past two years, the Company used conversion of preference stock. (See Note 8.)
' Retained Earnings stock market purchases to satisfy the require- - As of December 31,1986, a total of 4,722,043 ments of its stock placs. The only issuance of com- shares was reserved for issuance to stock plans mon stock, other than conversions, in the past and for the conversion of preference stock, three years was in 1984 when 1.451,607 shares were issued with proceeds of $37,194,000. For Retained Earnings the next several years, the Company anticipates As of December 31,1986, none of toe Company's usmg stock market purchases to satisfy the re- retained earnings were restricted as to the decla-qmrements of allits stock plans and intends to ration or paynent of dividends.
. Note 8. The f61lowing shares of stock were authorized converted into shares of common stock as follows:
L Preferred and ' with or without sinking fund requirements as of Preference comrnon
- Pref 3rence Stocks December 31,1986 and 1985: Year Shares Shaces Without Sinking Pu Wue Shams 1986 1 0,032 41,970
, Fund . Requirements Pc ' erred Stock $100 10,009,000 1985 9,819 41,078-Preferred Stock'A 25 10,000,000 1984 16,136 67,b10 Preference Stxt 100 1,500,000 The Company has issued 500,000 shares of Ad-
- The outstanding Preference Stock,6%% Con- justable Rate Preferred Stock, Series A, with a par vertible Series AA, is convertible into shares of value of $100 per share. The dividend rate is ad-common stock at the adjusted conversion price of justed quarterly based on a percentage of the
$23.89 per share, with each share of preference highest rate among certain U.S. Treasury rates, stock valued at $100 pan The cwversion price is However, in 1.0 event will the dividend rate for any subject to certain adjustments designed to protect dividend period be less than 5.50 percent per the conversion privilege against dilution. In 1986, annum or greater than 10.50 percent per annum.
1985 and 1984, shares of preference stock were This rate was 5.73 percent per annum at Decem-ber 31,1986. Preferred and preference stocks without sinking fund requirements as of December 51,1986 and 1985, were as follows (dollars in thousandsk h Sw Rate / Series issued Outstanding 1986 1985 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 4n0,000 60,000 60,000 8.20% G 1971 600,000 60,000 S0,000 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 44,000 40,000 15.40% A 1982 1,600,000 40,000 40,000 Adjustable Rate A 1986 500,000 50,000 - 6%%, AA Convertible . 1969 35,495 3,550 - . 45,527 - 4.552 Total $468.550 $419.552 In January 1987 the Company announced plans to call for redemption its 15.40% Series A. The Company plans to issue additional preferred stock in early 1987 to fund this redemption. 31
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, J Note _9. " . .
, , . Par value > shares - w
, Pufermd Stocks: w 10,000,000-t With Sinking Fund E ' The following sh' ares of stock were authorized. Preferred Stock $106:
;. ; ' $ Requimments ~-
' with or without sinking fund requirements as of Preferred Stock A : '.25. 10,000,000' y a~. December 31,1986 and 1985: Preference Stock . .100 ' ' ;1,500,000:
U s , ,
..s gy*
q , Preferred stocks with sinking fund requirements as of December.31,1986'and ;985, were as follows i L(dollarsin thousands): i, i, Year . Shares :
, Rate / Series ' Issued 01 standing ' '1986:
19851 2 I& 7.35% 1 ' . , c , , ., , ; 4 ,..m 1973' s528,000 $ ' 52,800 : $ -
; i 552,000 c J-- 55,200i 3 ---
+4 Jn '
...a J8.20%l JL . ,t. ., . . . - , . . . 1977: 400,000 - .'40,000 ; .1-P"l3" > y.7 '
420,000 7 ,'g. 42,000 b , ,,e 1
; 8.375% L . ,, .. .. . . . . , . '1978' 420,0003 _42,000' -
m :.c , , L 440,000 ; . ;- i 44,000.s ! a ' 8.84%) N; ' ,
, , y, . . ... .1979; a 451,250. 45,125- --
I 467,500 .'-: 46,750
, j..% y 3 ; 11.00 %
- O 4
,,. ,,, , , ,. , , ,, 1980 l 500,000 ' !-- ; 50,000' T
* ^10 76%i A 1975 L ~ 2,040,000 3 ' . :- '.51,000 }
- s . , . . . , . , ,, , , , . ..
.J> Hic 7.875% PJ , , ,
- a. , .1986 : 500,000- - 50,000- J P - f >
U Lew: Preferred shares reacquired for current and future E m , Tsinking fund requirements (at cost) ! Shares 7 o Reacquired ' ]# -i- /y4 ' 10,76%1 A ' . . , , , . , , , , .- 72,500- - (1,702) : N N 8.84% i N . , , '. .- , , 13,800 30,050
. (1,289)-
'1 (2,607)
L: . 11,00 % O . . , ,4 s... , , . 13,750 .-- . (1,229)
,[ Less: Current sinking fund requirements .
7.35% 1 , , ., ,, , . ' (2,400) - - (2,400) . 8.20% J- , .. . , (2,000) - (2,000) 8.375% L . , , , , , ,
' (2,000) (2,000) 8.84% N . , , , , . (245) - - -
Total . , , , , $221.991 1277.012 The annual sinking fund requirements through The call provisions for the outstanding pre-1991, net of amounts reacquired, are $6,645,000 ferred and preference stocks specify various re . in 1987 and $8,025,000 in 1988,1989,1990 and demption prices not exceeding 115 percent of par 1991, with some additional redemptions permitted values, plus accumulated dividends to the redemp-at the Company's option. tion date.
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Note 10. . First and refunding mortgage bonds outstanding as of December 31,1986 and 1985, were as follows Long Term Debt. (dollars in thousands): Year Year Series Due '1986 1985 Series Due 1986 -1985 (wntinued) 3%% 1986 $ - $ 30,000 9%% 2005 $ 92,800 $ 92,800 12 % 1990 - 75,000 8%% 2006 96,850 96,850 15%% 1991' 100,000 100,000 8%% 2007. 119,500 119,500 4%% 1992 50,000 50,000 9%% 2008 120,610 120,610 4%% B 1992 50,000 50,000 10%% 2009 145,050 145,050 11 % 1994 - 64,250 '0%% B 2009 148,000 148,000 4%% 1995 40,000 40,000 13%% B 2010 - 50,000 8%% B 1995 125,000 - 14%% 2012 16,282 125,000 i'- 7%% 1996 100,000 - 12%% 2015 67,517 125,000 5%% 1997 72,600 72,600 10%% B 2015 50,000 50,000 6%%. 1998 68,500 68,500 9% 2016 175,000 - i 7% 1999 56,075 56,075 8% B 1999 64,739 64,739 Pollution-Control 8%% 2000 69,244 69,244 6%% 1988 25,000 25,000' 8%% B 2000 95,635 95,635 9%% 2013 77,000 77,000 7%% 2001 97,900 97,900 4 % % (1986)2014 40,000 40,000 7%%B 2001 38,050 SS,050 5 % % (1985) 7%% '2002 78,100 78,100 7%% B 2002 67,900 67,900 Less: Funds held 7M% 2003 94,872 94,872 m trust (107) (7.212)- 8%% B 2003 98,050 98,050 Total . 12a 635 790 12 6142-136 9%% 2004 . 95,623 95,623 - Substantially all electric plant was mortgaged as of December 31,1986. The annual maturities of long-term debt, includ- the Company intends to transfer title of additional ing capitalized lease principal payments, through nuclear fuel to the trusts as fuelis consumed. 1991 are $32,266,000 in 1987, $64,063,000 in in early 1987 the Ccmpany announced plans to 1988, $26,753,000 in 1989, $5,182,000 in 1990 call for redemption its 15%% Series due 1991 and and $5,664,000 in 1991, its 10%% Series B due 2009. The Company plans Annual maturities through 1991 include to issue additional long-term debt in early 1987 to amounts relating to the $85 million in outstanding fund these redemptions. Accordingly, the 15%% obligations under the Company's two nuclear fuel Series is not included in the annual maturities trusts. The maturities are based on estimated fuel listed above, consumption. Instead of making cash payments, f s 6
,-m-The Cherokee and Perkins Nuclear Stations were Accounting Standards that may cause the Com-Note 11.-
. Canceled canceled. Alljurisdictions have permitted recovery pacy to write down to present value its canceled -
of the incurred costs. These costs are being amor- construction projects. This write-down would be Construction required because the Company's recovery of these
- Pmjects tized principally over a 10-year period beginning October 1983. (See Note 14.) - . .
. projects through rees does not include a return on
.As of December 31,1986 and 1985, the bal- the outstanding canceled construction balances.
ances for these canceled projects, net of amortiza- Implementation of this statement is not te luired tion, were $472,339,000 and $544,145,000, re- . . until 1988. The Company is currently evaluating spectively ($296,016,000 and $341,214,000 net of the impact of this statement and does not antici-income tax benefits, res'ectively). - pate that the new accounting requirements will ; The Financial Accounting Standards Board in. have a significant effect on its results of operations December 1986 issued a statement of Financial or financial position. In the Statements of Income, Statements of - certain prior year information has been reclassified - L Note 12... . Reclassification Changes in Financial Position, and Balance Sheets, to conform with 1986 classifications.
' Note 13. The Company and its operating subsidiaries have a amendments were made to the plan in 1985, inh non< contributory, defined benefit retirement plan cluding changes in requirements for both credit.
' Retirement Plan covering substantially all their employees.The . . able service and vesting service. The effect of -
Comp;my's policy is to fund pension costs accrued. these changes did not significantly increase the
- - Total pension expense, including trustee fees,
- Company's pension cost.
amounted to $28,815,000 in 1986, $31,491,000 in A comparison of accu:nulated plan benefits and 1985 and $32,828,000 in 1984. The plan was plan net assets as of December 31,1985, the date - changed in 1984 to include the Early Retirement' - of the latest actuarial report, and December 31, Supplement Plan, a one-time early retirement 1984, is as follows (dollars in thousands): offer to eligible employees. In addition, cutain 1984 1985 Actuarial present value of accumulated plan benefits
$407,467 - $340,329
. . Vested - .
Non-Vested . , 121.510. S7.400. Total ; .
$528,977 ' jl427J29 1 Net assets available for benefits $557,9_22 $447.665-The weighted-average assumed rate of return issued a statement in 1985 which will require the used to determine the actuarial present value of Company to change its method of determining accumulated plan benefits was 7.5 percent in 1985 pension expense. The Company will begin imple-and 8.8 percera '.n 1984. The actuarial present mentation of this statement in 1987 and does not value of accumulated plan benefits does not con- anticipate that the accounting requirements will sider future salary increases. have a significant effect on its results of operations The Financial Accounting Standards Board or financial position.
r 34 i
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Note 14. : A. Construction Program addition to the $500 million of coverage provided
" Commitments and . Projected construction and nuclear fuel costs are by the Company's underlying property damage Contingencies $2.14 billion and $491 million, respectively, for policies losued through NML. If losses ever ex-3
- 1987 through 1989. The program is subject to ceeded the accumulated funds available to NEIL f periodic review and revisions, and actual construc- for the Excess Property Insurance Program, the
. tion costs incurred may vary from such estimates. Company would be liable, on a pro rata basis, for .
Cost variances are due to various factors, includ- additional assessments of up to $28 million. This !
- ing revised load estimates, outcome of licensing amount represents 7.5 times the Company's an-and emironmental matters, and cost and availabil- nual premium for $500 million of excess property
- ity of capital. insurance.
In additi n t the coverage through NEIL's Er.- B. Nuclear Insurance The Company's public liability for claims resulting cess W nsura mgram, the Company
- from any nuclear incident is I'mited to $695 mil-placed $585 m{illion through a pool of s lion under provisions of the Price-Anderson Act, mutu 1 msurance companies for pn, mary and ex- j cess property inspra ice coverage associated with which provides for nuclear liability insurance up to l its interest in the Catawba Nuclear Station. {'
- that amount. Under these provisions the Company The joint owners of Catawba will assume their could be assessed up to $5 million for each of its pro rata share of any liability for claims resulting licensed reactors for a nuclear incident mvolving from a nuclear incident. The Company is being re-any licensed facility m the nation, and up to $10 imbursed by the other joint owners for certain ex-million a year for each, if more than one nuclear penses associated with nuclear insurance premi-meldent occurred. Leg,slation i is pendmg m Con-ums paid by the Company.
gress that could increase the limitation liability and the amount the Company could be assessed for C. Other
. each of its licensed reactors. As of December 31, The Company is involved in legal. tax and regula-1986, the Company had seven licensed reactors. tory proceedings before various courts and agen-The Company is a member of Nuclear Mutual cies regarding matters arising in the ordinary Limited (NML), which provides property damage course of business, some of which involve substan-coverage for certain of the Company's nuclear tial amounts. Except as discussed below, manage-facilities, if NML's lasses ever exceeded its re- ment is of the opinion that the final d:sposition of serves, the Company would be liable, on a pro rata these proceedings will not have a materially ad-
- basis, for additional assessments of up to $70 mil- verse effect on the Company's results of opera-lion. This amount represents 10 times the Compa- tions or financial position. 3 P
ny's annual premium to NML. Certain parties have appealed the 1985 and The Company is also a member of Nuclear Elec- 1986 rate orders of the North Caroliaa Utilities tric insurance Limited (NEIL), which provides in- Commission to the North Carolina Supreme sur' ace for the increased cost of generation Court. The appellants have raised numerous issues and/or purchased power resulting from an acciden- in these appeals, including the Commission's tal outage of a nuclear unit. If NEIL's losses ever findings and conclusions related to the treatment exceeded its reset ves, the Company would be lia- of nuclear plant abandonments. An adverse ruling ble, on a pro rata basis, for additional assessments in these cases could have a significant impact on of up to $21 million. This amount represents five the Company's results of operations and financial times the Company's annual premium to NEIL. position. While the Company is of the opinion that The Company purchases $575 million of pmp- there is an adequate legal and factual basis for j erty damage insurance through NEIL's Excess each aspect of the North Carolina Utilities Com- ' Property Insurance Program. The Company also mission's decisions in the two cases, the Company purchased an additional $85 million of property cannot presently determine the ultimate resolution damage insurance through a pool of stock and mu- of the appeals. j P - tual insurance companies. These coverages are in 1 m I a , i 35 < u&&2b _ _
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>Ss l Auditors' Opinioni i Duke Power Comp'anyi [, We have examined th'e balance sheets and the : statements of capitalization of Duke Power Com-In our ~ opinion, subject to the effects on the fmancial statements of such adjustments, if any, as ~ pany as of December 31,1986 and 1985, and the might have been required had the outcome of the - W related statements of income, retained earnings - uncertainty referred to in the preceding paragrapn and changes in fmancial position for each of the been known, the financial statements referred to three years in the period ended December 31,- above present fairly the financial position of the 1986. Our examinations were made in accordance Company at December 31,-1986 and 1985, and ; with generally accepted auditing standards atC the results of its operations and the. changes in its : accordingly, included such tests of the accountmg financial position for each of the three years in the records and such other auditing procedures as we period ended December 31,1986, in conformity considered necessary in the circumstances. with generally accepted accounting principles ap-
. As discussed more fully in Note 14, certain par- plied on a consistent basis.
ties have appealed the decision of the North Caro-lina Utilities Commission in the Company's 1985 and 1986 general rate increases. The ultimate out-p . come of the appeals is uncertain at this time. In 0 . our report dated February 14,1986, our opinion . q on the 1985 and 1984 fmancial statements re- baNMQ [QJg , [o iferred to above was unqualified; however, m view of the uncertainty referred to above, our present Deloitte Haskins & Sells Cerhfed Public Accountants j # opinion on such fmancial statements, as expressed l herein,is different from that expressed in our pre- Charlotte, North Carolina .
' vious report. February 13,1987 p l'
; Responsibility - The fmancial statements of Duke Power Company . Company's accounting controls are continually re-are prepared by management, which is responsible L / viewed for effectiveness. In addition, written poli-.
" ! for Financial for their integrity and objectivity. The statements cies, standards and procedures, and a strong inter -
Stattments - .are prepared in conformity with generally ac- nal audit program augment the Company's - ' cepted accounting principles appropriate in the cir accounting controls. cumstances to reflect in all material respacts the The Board of Directors pursues its oversight substance of eenh6 transactions which should role for the financial statements through the audit be included. The other information in the annual committee, which is composed entirely of direc-report is consistent with the financial statements. tors who are not employees of the Company. The in preparing these statements, management audit committee meets with management and in-makes informed judgments and estimates of the ternal auditors periodically to review the work of expected effects of events and transactions that each group and to monitor each group's discharge are currently being reported. of its responsibilities. The audit committee also The Company's system of internal accounting meets periodically with the Company's indepen-control is designed to provide reasonable assur- dent auditors, Deloitte Haskins & Sells. The inde-ance that assets are safeguarded and transactions pendent auditors have free access to the audit are executed according to management's authori- committee and the Board of Directors to discuss zation; internal accounting controls also provide internal accounting contml, auditing and financial reasonable assurance that transactions are re- reporting matters without the presence of corded properly, so that fmancial statements can management. be prepared according to generally accepted ac-counting principles. In addition, the Company's ac. L counting controls provide reasonable assurance
' < that errors or irregularities which could be mate-L ,
rial to the financial statements are prevented or are detected by employees within a timely period Norman P. Mormw as they perform their assigned functions. The courndIn d' . . w_ o _ _ _ __ __ .
m
, q IManagementiDiscussion arid Analysis cf Results of Operations and Financial Condition j
.I^
; Results of Operations . Earnings and Dividends
' placed three nuclear units in service. In 1986, fuel: .I b : Farnings per share increased to $4.04 in 1986 expense increased 1 percent over 1985 primarily }
compared to $3.72 in 1985. The 9 percent in-crease primarily resulted from higher kilowatt-because maintenance outages at the nucicar sta - j tions resulted in the Company relying more heav- j hour sales related to unusual weather patterns. ily on its coal-fi,ed units. Fuel expense increased in . , These higher sales also caused the earned return 1985 because of refuelings at the nuclear stations - on common equity to rise to 13.7 percent from that resulted from 9 record level of nuclear per-13.1 percent in 1985. formance in 1984. - Over the past five years, earnings per share in- " Net interchange and purchased power" ex-creased at an annual rate of 3 percent, from $3.59 pense increased significantly in 1986 because of in 1982 to $4.04 in 1986. Earnings for 1982 in- the purchased power agreements with the joint . cluded an extraordinary gain of $.52 per share owners of the Catawba Nuclear Station. (See Note from the exchange of common stock for outstand- 3, " Notes to Financial Statements ")' ing bonds. The Company continued its practice of increas- Other ing the common stock dividend annually. Common Allowance for funds used during construction
. dividends per share pa,d i over the past five years (AFUDC) represented 16 percent of eainings for
- increased to $2.64 in 1986 from $2.24 h 1982, common stock m. 1986, decreasm.g from an. aver-increasing at an annual rate of 4 percent. Indicated age of 40 percent for 1982 through 1985. The de-annual dividends per share increased to $2.68 in chne m AFUDC over the past five years is a result -
1986, up 3 percent from 1985. of the completion of three nuclear umts, the sale of a portion of Catawba Nuclear Station and the Revenues and Sales cancellation of two nuclear projects. Because the Electric revenues increased at an annual rate of 11 Bad Creek Hydroelectric Station is the only gener-percent from 1982 to 1986 primarily because of ating facility under construction, AFUDC will con-increases in rates and kilowatt-hour sales. Eco- tinue to be a relatively small percentage of earn-nomic expansion in the Piedmont Carolinas and ings for common stock over the next several
. abnormal weather conditions have caused kilowatt- years.
hour sales, including electricity delivered to joint In 1986, earnings from non-utility operations owners of the Catawba Nuclear Station, to in- were 10 percent of total Company earnings, com-crease at an annual rate of 5 percent. . pared to 14 percent in 1985. In total, these earn-Kilowatt-hour sales for 1986, including deliver- ings decreamd 17 percent from 1985. Compo-ies to the Catawba inint owners, increased 7 per- nents of non-utility earnings include interest and
. cent over 1985. Saies to residential customers dividend income, subsidiary earnings, appliance rose 10 percent frein 1985. Sales to textile cus- sales and service, and Management and Technical tomers were 6 percent higher in 1986, reflecting Services income. The decline in non-utility earn-the continued recovery in the textile industry. ings is primarily a result of a decrease in interest New industries and expansion of existing indus- and dividend income because tM Company had tries in our service area caused sales to other in- fewer investments in 1986. The Company reduced -
g dustrial customers to rise 6 percent above 1985, its investments to fund construction expenditures and deferred purchased power expenses associ-Operating Expenses . ated with Catawba Nuclear Station. Increased production reqmrements to meet higher Through ratemaking procedures, revenues that kilowatt-hour sales have caused operating ex . the Company is allowed to collect from its custom-penses to rise over the past five years. The addi-tion of three nuclear units, mereased maintenance ers are based on historicalinformation that does at both nuclear and coal-fired stations, additional not include recovery for the costs of current and future inflation, in past years, earnings have been Nuclear Regulatory Commission regmrements and negatively impacted to the extent that the Com-mflation have caused non-fuel operating and mam-pany did not receive revenues to recover these tenance expenses to rise at an annual rate of 11 percent since 1982. current costs. Because the rates of inflation in re-cent years have decreased, the negative impact on
. Over the past five years, fuel expense has revenues and earnings has not been as significant fluctuated primarily because of changes m the gen-as in prior years.
eration mix. During this period, the Company f 37
i Liquidity and Rate Matters .
' Commission of South Carolina.
Resources' The North Carolina Utilities Commission issued a in August 1986 the North Carolina' Utilities 1 rate order in October 1986 granting the Company Commission issued an order revising its fuel ad{ a 6.73 percent increase in revenues and a 13.4 ' - justment methodology, including a factor that E . percent rate of return on common equity. The ' effectively allows all prudently incurred fuel costs . Public Service Commission of Scuth Carolina,in a to be recovered. The order requires the Company November 1986 rate order, granted the Company to follow deferred accounting for the difference ; a 9.55 percent increase in revenues and a 13.0 ' between fuel costs incurred and fuel costs col-pcreent rate of return on common equity. In Au- lected through rates. gust 1986 the Company filed an application for a Retail rate increases, allowing approximately 52 : rate increase for its wholesale customers. The ' percent of requested additional revenues, were ; Federal Energy Regulatory Commission issued an - granted to the Company from 1982 through 1986;- interim rate order in November 1986 allowing the These rate increases included recovery of the . Company to implement an 8.3 percent increase, Company's investment in McGuire Unit 2 and in .- subject to refund and approval. The rate increases -- ' both units of Catawba Nuclear Station, compensa-were equested in all three jurisdictions primarily tion for increased purchased power and operating : L to recover the Company's investment in Unit 2 of : expenses, and recovery for the amortization of two '- Catawba Nuclear Station and payments related to ' canceled nuclear projects. . the purchased power contracts with the joint own- (For additional information on rate matters, see i ers of the station. .
. Note 2, " Notes to Financial Statements.") q
, The rate orders in the Company's retail jurisdic- . g3 tions permitted the Company to recover in rates - The Company's capital structure at year-end was' its mvestment in Catawba Unit 2 and the costs as- 47 Percent common equity,42 percent long-term socihted with contractual purchases of energy and debt and 11 percent preferred and preference l capacity from the Catawba joint owners. The con- ,
st eks. The year-end capitalization is consistent - tracts relating to the sales of portions of the sta-with the Company s 1,o ng-term financial goals. tion obligate the Company to purchase power from To satisfy the reqmrements of various stock j the joint owners on an annually declining basis. In purchase plans, the Company purchases common j the North Camlina retailjurisdiction, regulatory - st ck n the stock market. The Company has no - treatment of these contracts provides revenue for plans for the public issuance of common stock for; the recovery of the capital costs and the fixed the next several years. (For additional stock infor-operating and maintenance costs of purchased ca- mation, see Long-Term Financings and Saie of pacity on a levelized basis, in the South Carolina Assets," page 41.) . retailjurisdiction, revenues are provided for the recovery of the capital costs of purchased capacity Fixed Charges Coverage on a levelized basis, while the fixed operating and Coverage of fixed charges, using the Securities maintenance costs are recovered in current rates. and Exchange Commission method, increased to The purchased energy costs are recovered 4.26 times for 1986 compared with 3.87 times in - through current rates in both retail jurisdictions. 1985 and is above the Company's goal of 4.00'. These rate treatments require the Company to times. Higher pre-tax earnings and lower interest fund portions of the purchased power payments expense as a result of refinancing in 1986 con-until these costs, including carrying charges, are tributed to the increased coverage. recovered at a later date. The Company will begin , to recover the accumulated costs and carrying Funds From Operations In 1986, funds from operations accounted for 57 charges when the purchased capacity payments percent of the total applications of funds. The per-drop below the levelized revenues. centage of internally generated funds would have The Tax Reform Act of 1986 lowers the corpo_ been sigmficantly higher if refinancing activities rate tax rate over the next two years. To reflect had been excluded. Also, the Company is funding j the lower federal income tax rates, the Company the portions of purchased capacity payments not implemented a 2.3 percent rate reduction on Janu. , currently collected m rates. The percentage of in- , ary 1,1987, in its retail jurisdictions. The rate ternally generated funds still remams above the reduction was approved by both the North Caro-Company's goal of 50 percent. lina UtiEties Commission and The Public Service I u - - - - -
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# u r e 1 Additional Funds - .
- : During 1986 the Company redeeme'd or retired . ,
Over the past five years, the Company obtained - $385 million of long-term debt and issued $401: %@ "~ additional funds from the sale of $936 million in ~ . million in long-term debt in its place. The Com-
. first and refunding mortgage bonds and $137 mil . pany also retired $101 million of preferred stock o lion in preferred stock. Proceeds from the sale of . and issued $99 million in preferred stock. The !
common stock, including the 1982 issuance of 7 Company plans to continue its refinancing activis i g
. common stock in a non-cash exchange for bonds, ties during 1987. " ~ I
.. totaled $321 million. .
. -(For aciditional information on the Company's . q
' Continued favorable market conditions in 1986 . capitalization, se'e Notes 7, 8,9 and 10, " Notes - 0
' prompted the Company to refund several issues of to Financial Statements.")
higher cost securities with lower cost securities, - In 1984 the Company received $457 million j reducing financing costs and providing substantial ' from the sale of a portion of Catawba Nuclear Sta- j savings to the Company's customers in the years tion to the Piedmont Municipal Power Agency. :1 o ahead. Refinancing activities lowered the Compa- In 1985 the Company formed Church Street - ny's embedded cost of long-term debt from 9.59 Capital Corp., a wholly owned subsidiary, to invest
- percent at the end of 1984 to 8.87 percent at the the Company's discretionary cash. As of Decem-
.close of 1986, The Company's embedded cost of ber 31,1986, the consolidated entity had approxi- a preferred stock declined from 8.75 percent at the mately $113 million in short-term investments and !
~
end of 1984 to 8.21 percent at the end of 1986. $262 million in intermediate-term investments. L i Capital Needs Property Additions and Retirements refunded securities over the past five years. (See Additions to property and nuclear fuel of $690 mil- " Liquidity and Resources.") lion and retirements of $70 million resulted in a in June 1985 the Company paid a lump-sum - net increase in gross plant of $620 million in 1986. amount of $122 mi!! ion to the Department of En-Since January 1,1982, additions to property and ergy under the terms of the Nuclear Waste Policy nuclear fuel of $3.4 billion and retirements of $1.2 Act of 1982. The payment was for the' obligation billion have resulted in a net increase in gross related to disposal costs for nuclear fuel consumed [ plant of $2.2 billion. Retirements during the per- prior to April 7,1983.
. iod were unusually large because the Company . . Over the next five years, payments by the Com- S canceled two nuclear projects and sold a portion of pany to the Catawba joint owners for purchased '
Catawba Nuclear Stationc power will exceed the levelized recovery of those Construction Expenditures c sts in rates ay approximately $340 million; Construction costs for major generating facilities Future Construction Program and for nuclear fuel, including AFUDC,-declined . Because the Company has completed its nuclear from $558 million in 1982 to $341 million in 1986. . construction program, construction costs for. These costs declined because the Company placed ' major generating facilities for 1987 through 1989 three nuclear units in commercial operation (Mc . . will constitute a lower portion of the Company's' Guire Unit 2 in 1984: Catawba' Unit 1 in 1985; and total applications of funds compared to the past Catawba Unit 2 in 1986), canceled two nuclear ' five years. Projected construction and nuclear fuel ts projects and sold a portion of Catawba Nuclear costs are $2.6 billion for the next three years.
' Station. Continuing construction expenditures at Construction of Bad Creek Hydroelectric Sta-b
- Bad Creek Hydroelectric Station will cause cons tion continued in 1986. Units 1 and 2 of the l 4 struction work in progress to rise and exceed L 1,000,000-kilowatt pumped-storage facility are
$1 billion in the late 1980s.- .
scheduled for completion in 1991, with Units 3 During 1986 funds also were required to expand - and 4 in 1992. The estimated cost of Bad Creek is and replace transmission and distribution facilities. . $1.0 billion, with $158.4 million spent at year-end. These additional facilities provided service to c Beyond the completion of Bad Creek, the Comm 43,600 new customers which represents a 3 per ' - pany has no commitments to place a new generat-cent incraase over 1985. ing plant in service in the near future. Studies india cate a need for peak generating facilities in the Other Expenditures in addition to construction expenditures, the Com .1990s. The Company is currently reviewmg its pany has applied its funds to redeem maturing and W ns krmendat ud ( 4
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q q ~ Significant Trends' While the Company's financial performance for - The Financial Accounting Standards Ik>ard has
, 1986 improved over 1985, the ability to maintain - 1 implemented accounting procedures that may Jl and improve this level of financial strength will de? cause the Company to' write down to present value pend on several factors. Further economic expan-' its canceled construction projects since the Com-k '
. ' sion in the Piedmont Carolinas and growth in non- : pany's recovery of those projects through rates ~
L L
' 2 utility operations could have a positive effect on > l does not include a return on the unrecovered bal-
- total Company. earnings. Moving from a construc-J ance. The. Company'is not required to implement f* 1 tion program to an operating program, the Com . . these procedures until 1988, The Company is cur-o pany will continue to focus on reducing costs while J rently evaluating the impact of this requirement
," y operating its system as efficiently as it has in the z ; and does not anticipate that the accounting proce-T , *g ,
Lpast.L. Changes in tax legislation' through
... . ., .s the Tax its operations Een position.
or financial " dures will have a s
' ! form Act of 1986 lower the tax rate from 46 per ;. a Certain parties have appealed the 198'5 and
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'y dent.to 34 percent over the next two years. Ini? 11986 rate' orders of the North Carolina UtilitiesT q;
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- tially, these lower tax rates reduce the cost of J a i Commission to the North Carolina Supreme t service to the' Company's customers; However, it / Court. The appellants have raised numerous ssues 1
< ?m , fis premature to say how the Tax Reform Act, ? in these appeals, including the Commission's . '!
- when fully implemented, will affect future cus 1 .. L findings and conclusions related to the treatment
' tomer rates. Any adjustments in rates will reflect of nuclear plant abandonments.LAn adverse ruling) o the fullimpact of the Tax Reform Act and may in- s in these cases could have a'significant impact on 1 clude the impact of other expenses related to thel the Company's results of operations and financial
.cos't'of seivice. .. fposition. While the Company is of the' opinion that :
- In a' move aimed at' increasing its non-utility ; there is'an adequate legal and factual basis for? .,.
1" L earnings; the Company has turned the operations ! . each aspect of the North Carolina Utilities Com .
' sion of the Management and Technical Services into a wholly owned subsidiary called Duke J cannotdivi- presently- .' mission's determine the decisions in the 'two c ultimate resolution Engineering & Services, Inc. This subsidiary be- . of the appeals.'
came active in January 1987.J construction costs ~ Internal cash generation _ usa mas vem . g T4775 nrhas Fud h g i n1 7
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40 . ~. . .. . .. . . _ . . . _
g 4 E ?Long-Term Financings and Sale of Assets -
! Duke Power Companyi To meet its capital requirements, the Company has fmanced with long-term debt and equity securities and has raised additional capital through other types of financings plus the sale of certain assets. Ddring .
' 1986 and 1985 favorable market conditions prompted the Company to refund several issues of higher
' cost seurities with lower cost securities in order to reduce financing costs. Financings and sale cf assets --
' from 1984 through'1986 were as follows (dollars in thousands):
' Average . _-1986 1985 1984 price per . Net . Net - Net share - proceeds proceeds- proceeds
- Financings Common stock Dividend Reinveshnent and Stock Purchase Plan (1,188,333 shares), ,
$25.70 $ 30,539 Customer Stock Purchase Plan
'(263,274 shares) c . 25.28 6.655:
Totalcommon stock , . . 37.194-Preferred stock - 7.875% Series P, $100 par (500,000 shares issued May 15) . '$ ' 49,562 Adjustable Rate Series A, $100 par (500,000 shares . . issued May 28) , ,, ,. . 49,050 Total preferred stock" ,, . 98,612 Long-t'erm debt . ' ' First and refunding mortgage bonds
'7%% Series duc 1996 (Issued April 1) . i 98,812 .
9%' Series due 2016 (Issued May 15) . 171,019
- < 8%% Series B due 1995 (Issued June 12) . , , 124,175 MD
~
10%% Series B due 2015 (Issued December 12) . , , $ 49,279 -
.12%% Series due 2015 (Issued April 1) . . 123,125'
. Pollution-control series . , , ... 7.251.. 34.114 ~ 60.720 ;
Total . , , , . . . 401,257 - 206.518 60.720 Nuclear fuel trusts . . . , . 57,597 57.638 ' - 84.461-Totallong-term debt . 458,854 264.156 145.181-Total financings . 557,466 264.156 182.375-Sale of assets Sale of an interest in the Catawba Nuclear Station 457.086 Totallong-term financings and sale of assets . 1557,466 $264.156 $639,461 s The Company's plans began purchasing stock on the stock market in the following years to satisfy plan requirements: Sttwk market purchases initiated
. Employees' Stock Ownership Plan . .s. _ , 1983
. Stock Pschase-Savings Program for Employees . . .. .. 1984 Dividend Reinvestment and Stock Purchase Plan . 1985 Customer Stock Purchase Plan . 1985 l "
41 l _ _ _ _ _ _ _ _ l
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, iSelected Financial DatO ,
N / Duke Power Companyb + A
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, 19864 1985 1984 1983 1982 f l CondenNd statements of income (thousands) ~
' . Electric revenues .. , , , $3,400,933 $2,898,911 $2,710,015 ' $2,420,252 $2,24 ,480 t Electric expenses.' ~
.. ,, 2 316,157 2,370.876 2,161,914 1,971,038 . ,,,,1_J54,712 :
Electric operatingincome S , . 584,776 '528,035 548,101 449,214 389,768-
' Other income, , , .,;,. .. . 127,880 ! 163,821- 162,795 - 213,001 175,048: _
1 Income before interest deductions , , 712,656 : 691,856 710,896 662,215 564,816 73 . interest deductions , , . , 244,822 254,263 249,565 230.938 214,939 J ' ,
. . Dincome before extraordinary it'em . 467,834 ~ 437,593' 461,331. 431,277 349,877:
- Extraordinary item . ,, . - - - - 48,304 Net income . . . . . . . . . .. 467,834 437,593 .461,331 431,277 398,?.81 ~
. Dividends on preferred and preference stocks , , 58,767 '60,912- 61,786 62,600 62,164-L Earnings for common stock . ' ' , . $ 409,067 $ 376.681 $ 399,545 $ 368,677 $ 336,017 Common stock data . .
. Shares of common stock - year-end (thousands) 101,236 101,194 101,153 99,634 95,949
- average (thousands) . 101,220 101,178, 100,346 97,784 93,679 Per share of common stock .
Farnings before extraordinary item . . . $4.04 ~ $3.72 $3.98 $3.77 $3.07 - Extraordinary item
- - - 1 0.52
- Earnings o ..
$4.04 $3.72 $3.98 $3.77 $3.59 Dividends .' . . ... $2.64 $2.54 - . $2.42 $2.32 . $2.24 ~
L . Ikx;k value -- year-end . . , , $30.34 $28.98 $27.80 $26.26 $24. ; Market price - high-low . . $52-34% $36%-28% $30%-22% $26%-21% . $24-20%
- - year-end . . . $45% $35%- $29 $25% 1$23%
Bilance sheet data (thousands) i Total assets .. _. . $8,226,729 $8,024,163 $8,018,818 $7,379,445 $7,057,780 '
' Long-term debti ... ... .. .. < $2,752,302, $2,721,041 $2,696,795 ' $2,745,889 ' $2,712,372 Preferred stocks with sinking fund requirements . $ 221,991. $ 277,012 $ 285,426 $ . 295,053 : $ 304,026 Electric and other statistics -
Kilowatt-hour sales (millions) Residential . ' . . . . . 15,636' 14,241 14,493 14,219 13,7111 General service . 12,312'- 11,338 .'10,922 10,339 '10,087 . Industrial'. .. . . .. ., 23,212- 21,837' 21,821' '20,907 19,345 Other energy and wholesale ,- - 9,353 8.642 7.163 8.686 8.237 Total kilowatt-hour sales (a) . 60,513 56,058 54,399 54.151 51,380-Residential customer data
- Average annual KWH use . . . . . . 12,413 11,659 12,210 12,278. 12,065 Average revenue billed per KWH . 6.96* 6.42c 6,11e 5.67c 5.41t Source of energy (millions of KWH)
' Generated - Coal . .. , 30,249 27,619 26,394 32,466 38,927
- Nuclear (b) . 35,044 33,700. 32,632 25,059 15,009
- Hydro . . . . 771 1,162 1,995 2,114 1,569
- Oil and gas . ... 14 13 - 8 '7
- Total generation'.s., . 66,078 62,494 61,021 59,647 55,512 1 Purchased power and net interchange , (822) (1,742) (2.908) (1.003) '(301)
Total output ; , , , ,, 65,256 60,752 58,113 58,644 55,211 Less: Catawba joint owners' share . , 6,261 - 3,827 - - - Plus: Purchases from Catawba. , 5,953 3,769 - - - Totalsources of energy 64,948 60,694 58,113 58,644 55,211 l '~ . g; ' Line loss arid Company usage . 4,435 4.636 3,714 '4,493 3,831 Total kilowatt-hour sales (a) . 6015_I3 56,058 54,399 54J51 5 51,380 System average heat rate , 9,881 9,900 9,853 9,762 9,666
, System load factor . 59.8 % 55.8% 62.2% 58.6 % 56.8 %
- (a) Excludes a portion of the energy sold to thejoint owners of the Catawba Nuclear Station.
l ' (b) includes 100% of Catawba genemtion. l C42L
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[' iSalschui FihanicialData;
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Quarterly: A summary of quarterly fmancial data for 1986 and 1985 is as follows (dollars in thousands, except per- *
. Financial Data .
sharr data): .. Electric . . . J Electric ' -. Operating .- Net : . ~ Earnings . Revenues ' income . Incorne - Per Share 1986 by quarter N Fourth . . . .
.o. . $842,959 L $124,025 $ 92,077 ' L $0.77 .
- Third. . . ., . 940,551 181,979. 152,530 1.37 .c Second . , , , . . 784,016 119,208 89,820 . 0.73 First . 833,407 159,564 133,407: 11.17' 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 . .y . . . 751,449 157,775 134,739_ 1.18' 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 108,045 holders of record of common stock as of December 31,1986, Inf rmation and 116,549 holders as of December 31,1985. During 1986 approximately e9,499,000 shares of com-mon stock were traded, compared with 46,098,900 during the previous year. The Company's common : stock prices, as quoted in the New York Stock Exchange Composite Transactions, and dividends paid are ' as follows: Dividends Stock Price Range Dividends Stock Price Range Per Share High Low Per Share High . Low-1986 by quarter 1985 by quarter . Fourth J. . $0.67 - $49% $44 Fourth , , $0.65 $36%~ ' $31% Third . 'O.67 52- .41% Third , . 0.65 35% 30
'Second. 0.65 . 45% 39% - Second, . 0.62 35%- 32 '
First 0.65 41% 34% - First . ' O.62 32 % 28%' l l: f: 1: L o Subsidiaries
.- Dollars in Thousands u 1986 - 1985 n Subsidiary Property and investments - at cost
- Investments - . Real estate, recreational and land development . $44,823 $39,856 Net current assets, principally investments, receivables and' inventories 47.961 54.941
. Total assets 92.784- 94.797
-Deferred income taxes . (7.631) (5.985) .
- ibtalliabilities- (7.631) - (5.985) investments in and advances to subsidiaries * $85,153 $88.812
* 'eflects the Companyk unconsolidated subsidiaries.
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3 pn l h Board of Directors . William S. Lee . _ John L Fraley John D. Hicks Reece A. Overcash,Jr. L',' Chairman and Chief Executive Chairman of the therd . . Senior Vice thsident Pubisc Chairman of the Board and l Candina Freight Corpomtion3 . Afairs' Chief Execulite OBicer
' Ofscer A4 Associates Corpomtion of North Alester G. Furman, III NaomiG. Albanese George Dean Johnson, Jr. A.,,ica4
. Dean Emeritus Schmd ofHome Chairman of the Daard }turtnerJohns<m. Smith. Hibbard.
Economics . '. ~ The Furman Co.,Inc.4 ' nildman and Dennise Warren H. 0 wen - Uniwrsity Execkliw Vice 14esident
- L cy,n,h,/o North Carolina at Steve C. Griffith, Jr.
James V. Johnson enginyring, Cyn,,,uc,fyn and -
, Senior Vice hesident and ' Mce Chairmsn and Dunstar of lymluction Gruupo Dr. Robert L Albright ' Genem/ Counself . 1%blic A# airs h'f I hesidentJohnsm C, Smith William H. Gn,gg Coca-Cola Bottling Co C,,,didatap
- James C. Seti Chairman ogthe E,erutia .
Uniiersity: becutiw liceItesident Committre Douglas W, Booth Finance and.4dministmtiont.4 W. W. Johnson Grernum! blills, Inc. hesidenl and Chief ol>erating paggg,gengan Chamnan iWxnudw . Truna OficerI4 Commater NCNB Corpomtwn The Duke Endou ment.4 (y, Thomas H. Davis = U"I' d l'I'("* *""i'"'i"" - I"' f S "h"$"j ~"' C,hairnwn ofthe hecutur 7 y,g 4 . e n n A'uiation. Inc) M' ' ' Lice Chasrman Fluor Corporation 2 AuditCommittee i+rstdent,Research Truang!' Chajeman papjeg jngernatwnal 3. Compensatims Committee I""'"" Corpomtion 4 FinanceCommittee Retiring Directors The following directors retired from Duke Power's board in 1986: Robert C. Edwards . Maceo A. Sloan Austin C. Thies Chasrman of the Board lice Chartman ' hantitr bla hesident Te, stile Hall Corpumtion North Camlina blutum Life Tmnsmin:on. Distribution and i insumnce Company - Elutric Opemtions Gmup F ' Officers - Wiiiiam S. Lee Shem K. Blackley,Jr. William O. Parker.Jr. David L Hauser Chairman of the Board and Mce hrsident knsmission Vice stesident Fossilnoduction Assistint Controller ChiefEsuutin OBiar Department Eugene C. Sites Ralph W. Bostian DouglasW. Booth ^ Vice1%sident haduction Richard B. Priory Assistant Contndler 1%sident and Chicf Opemting Support Department . Vice hesident Design
' - Engineering Hansel D. Whitley Oficer Assistant Contmiler J. Kenneth Clark
. William H.Grigg Vicelwsisce Corporate William R. Stimart
. Communications lice hesident Regulatory Afairs Sue A. Becht .
. Executsw Vicel>rsident Assistant Treasunr .
Finance and Administmtion William A.Coley George E. Stubbins l nce hesident inprmatio, W. Bruce Shannon Warren H. 0 wen na hesident Centml Division Assistant lirasurer hecutsw fireIWsident Systems Engineering. Constructimt and NOUCrt N DiCN Carolyn R. Duncan
~
1%nlaction Gmup Vice hesident Constructi<m Hal B. Tucker Mce l>rsideert Nuclear AsssMont San % NeDry L CranfOrd George W. Ferguson,Jr. Iwaucuan Dcpartment Vice i+rsident and Deputy Phyllis T. Simpson Senior lice hrsident Assista"' S"retary Division Opemtions General Cemnsel Fred E. West.]r. Mce hesident Charlotte Division Donald H. Denton,Jr. Excell 0. Ferrell, HI Senior Vice hesident Vice1%sident Northern Division James W. White klarketing and Rates ceitesident GenemiServices Jame W.Yo ter Steve C. Griffith,Jr. Mct f*sident Distribution C. Joe Sherrill ' Senior Vice hesident and Assistant lice hesident $ubsidiggigg Elbert N. Hedgepeth, Jr. Transmissi<m subMarion GenemlCounsel Vicel>rsident Opemtion Richard C. Ranson Division hesident John D. Hicks John - max Lewis F. Camp.3r. Cwscent Land & Timber Corp. Senior Ma hesident U" IN'id'"' *""" O*. . .^ ' " " Skretary and Associate Genemt 1%blic Afairs . Coucel - W. T. Robertson, Jr. I>aul G. Martm lyrsident James R. Bavis na Iksident EaMan Division . Norman P. Morrow blill-hmer Supply Company Vice hesident Human Resources C""'"#'" A. Parks Cobb,Jr. Thomas C. Berry John P. O'Keefe na hesident hxes Richard ). Osborne l>rsident Mcr hesident Semthern Division Duke Engineering & Services, Inc.. 1wasuwr Retiring Officers The foUowing officers retired in 1986: Austin C. Thies . Duncan E. lennon Dwight B. Moore hecutive Mce thstdent Vice brsident and hs Counsel Ila brsident Centml Diviswn 1kunsmisswn. htstribution and
' Electric Operatwns Gmup 4.]
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WO.the~r Informaten $ n n6f,' m.. annual meetingb& v. . ~ . ~ - . + e ,, . . Notice MA$- , ,%SEC Form 10-K and statistic,al supplenientL 1 # QG$$@MQQThel195msefing of holder (6f DukiPoke,rMUpon requesk the Company will provids4Xjd
$M%mu m$ Thursday,Wril.23, Sat 10% in the;0J.11 MReport to Shareholders on Form;10-K asifiled(%$
g $@7 M M% #l?Ch@RCompanyjcommBn' ith theLSecurities stock and Exchsnge willCo'mmis3 be held l% RQ Miller' Auditoridm~of the Electrid W Ws Center,'526@i6nlAlso availabls withou %d M, &N w ,
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