ML20247A901
| ML20247A901 | |
| Person / Time | |
|---|---|
| Site: | Yankee Rowe |
| Issue date: | 03/22/1989 |
| From: | Papanic G YANKEE ATOMIC ELECTRIC CO. |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| BYR-89-56, NUDOCS 8903290225 | |
| Download: ML20247A901 (21) | |
Text
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,.. YANKEEATOhflCELECTRIC COMPANY "*l"j;lo".s*]ly'g";"l" f 580 Main Street, Bolton, Massachusetts 01740-1398 m .
March 22, 1989 BYR 89-56 United States Nuclear Regulatory Commission Document Control Desk Washington, DC 20555
References:
(a) License No. DPR-3 (Docket No. 50-29)
Subject:
1988 Certified Financial Statements Gentlemen:
In accordance with Yankee Atomic Electric Company's Facility Operating License No. DPR-3, we enclosed a copy of our annual certified financial statements for the three-year period ending December 31, 1988, pursuant to the requirements of 10CFR Section 140.15 and Section 50.71.
Very truly yours, YANKEE ATOMIC ELECTRIC COMPANY f
G. Papanic, Jf.
Senior Project Engineer Licensing GP/b11/0266v Enclosures 00f
'0903290225 890322 I
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Yankee Atomic Electric Company AnnualReport 1988 I
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- Contents he Description of Business.... .. . . . . . . .. ... ..... . . . . . . . . .. 1 Common Stock Ownership '. ... . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 1 Executives' Letter..... .. . ... . .. ................. . . . . . . . . . . . . . . . . . . ... 2 Selected Financial Data . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 3' Report of Independent Certified Public Accountants.. ... ... .. . ...... . .... .. ... . .. . 3 I
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1 Financial Review . ... . . .. ... .. . . . . . . . . . . . . . . . . . . . . . . . . . 4- 1 s
1 Statements o'f Income and Retained Earnings.. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 j J>
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Balance Sheets... . . . . . . . . . . . . . . . . . . . . . . . . . . . ... .. .. . . . . . . 6- I 4
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Statements of Cash Flows. . . . . . . .. . . . . . . . . . . . . . . . . 7 i
Notes to Financial Statements ... . . ... . . . . . . . . . . . . . .. . . . . . . . . 8 j j
Officers of the Company. . . . . . . . . . . , . . . . . . . . . . . . . . . . . . . . . ... 18' I Board of Directors. , .. .. ... . . . . . ... .. . . . . . . . .. 18 i
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YANKEE ATOMIC ELECTRIC COMPANY 580 MAIN STREET BOLTON, MASSACHUSETTS 01740 Yankee Atomic Electric Company (the Company), an electric utility company, was incorporated in Massachusetts in 1954 under the provisions of the Massachusetts utility law which permits two or more electric companies tojoin in the construction and operation of a generating plant to serve their common needs.
The organization of the Company was sponsored by New England utilities for the' purpose of constructing and operating New England's first nuclear power plant. In addition to its license to generate, buy, transmit and sell electricity, the Company is authorized to conduct research and assist others engaged in a similar business. The ten sponsoring utilities own the entire common capital stock of the Company and are entitled to and obligated to purchase the output of the plant'at a cost equal to total operating expenses plus a return on investment.
The Yankee plant is located on the Deerfield River in the Berkshire Ilills in the Town of Rowe, Massachusetts. The plant was placed in commercial operation 'in 1961 and has been in full operation I
since that time except for maintenance and refueling shutdowns. The unit is rated at 185 megawatts (gross) and has generated over 31 billion kwh of electricity since inception.
In 1968, the Securities and Exchange Commission authorized the Company to organize a Nuclear Services Division under the Company's coiporate structure. The Nuclear Services Dhision has a staff of approximately 400 engineers who provide engineering senices in all aspects of nuclear power plant construction and operation including Nuclear Engineering, Environmental Engineering, 1 Operations, Quality Assurance, Plant Engineccing and Fuel Management. Services are performed on a cost basis for the Yankee plant and other power plants of the sponsoring companies. A limited amount of work is performed at a profit for other companies in the United States and abroad.
Common Stock Ownership owncnhip shares Percentage owned New England Power Company. . . . . . . .. . . 30.0 % 46,020 The Connecticut Light and Power Company . .. .. . . . . . . 24.5 37,583 Boston Edison Company . . .. . . . . . . . . . ...... .... 9.5 14,573 Central Maine Power Company .. . .. . . . . . . .. . . . . . . 9.5 14,573 Public Service Company of New Hampshire... . . . . 7.0 10,738 Western Massachusetts Electric Company. . . . . . . . . . . . 7.0 10,738 Montaup Electric Company. .. . . . . . . . . . . . . . . . . . . . 4.5 6,903 Central Vermont Public Service Corporation.. . .. . . . 3.5 5,369 Commonwealth Electric Company .. . ... . . . . . . . . . . . . . . . . . . . . . . . ... 2.5 3,835 Cambridge Electric Light Company. . . . . . . . . . . . . . .. . . . . . . . 2.0 3,068 100.0 % 153,400 1
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February 13,1989 Executives' Letter 1988 was a very important year for Yankee. We ourcame a challenge to Yankee's continued operation in the November election by soundly defeating a referendum question which would have prematurely shutdown the Yankee and Pilgrim nuclear plants. Due to the combined efforts of Massachusetts electric utilities and Yankee, the referendum question was defeated by more than a two to one margin. A large factor affecting the public attitude in keeping the Massachusetts nuclear plants open was the exemplary safety and operating record of the Yankee plant.
The continued excellent operating record of the Yankee plant was maintained in 1988. For the fifth year in a row, Yankee's 1988 capacity factor of 76% exceeded its lifetime operating record of 74%, despite the fact that 1988 was also a refueling year. Power costs for Yankee in 1988 averaged 5.8e per kilowatt hour. As important, Yankee also operated throughout the summer during exceedingly high power demands and shortages in the region.
In 1988, Yankee also received a 27 month extension to its Nuclear Regulatory Commission operating license. Yankee's license now expires on July 9,2000. Because ofits fine operating record, we are evaluating the potential for extending Yankee's license beyond the year 2000. Yankee was awarded a combined Electric Power Research Institute and Department of Energy multimillion dollar contract to participate as one of two lead plants to demonstrate the feasibility of operating nuclear plants well beyond their 40-year operating licenses.
Financ ally, Yankee reported a net loss for 1988. This was due solely to the shareholder costs incurred in defeating the referendum. Before these one-time unusual costs, Yankee earned 12.6% on equity.
Yankee nuclear services support for other Yankee plants also continued at strong levels. Maine Yankee, Vermont Yankee, and New Ilampshire Yankee continue to rate the quality of ser ice provided by Yankee as very good or excellent. Yankee prides itself in its support of the other Yankee plants, contributing to their success.
Vermont Yankee set its second best operating record with a capacity factor of 93%, which is outstanding for a nonrefueling year. Maine Yankee's capacity factor was 71% in a year which included a refueling outage. Maine Yankee's power cost for 1988 was 3.1e per kilowatt hour, one of the lowest in the nation. New England Yankee's nuclear plants, as a group, continue to be exceptional performers, fulfilling the promise of safe, clean nuclear energy.
As 1988 drew to a close, Yankee's President and Chief Executive Oflicer, James E. Tribble, retired. The Board of Directors elected Yankee's Chairman of the Board, Mr. Edward A. Brown, Chief Executive Officer and Dr. Andrew C. Kadak, President and Chief Operating Officer. Dr. Kadak was previously Yankee's Vice President of Engineering. The new management team's primary focus will be to continue the safe and economical generation of electricity at the Yankee plant, setting the stage for Yankee's operation into the next decade.
he.n/ $ f-Adsk,,. M Axont w C. KAoAK EowAnn A. BROWN President & ChiefOperating Oficer Chairman & ChiefErecutive Ojicer
Selected Financial Data (in thousands, except where noted)
Year Ended December 31, 1988 1987 1986 1985 1984 i Operating revenue:
Electric sales.. . . . . . . $ 64,688 $ 59,020 $55,031 $62,398 $60,522 l Engineering services.. .. . 31,904 31,365 30,977 29,977 28,081 Total .. . .. .... $ 96,592 $ 90,385 $86,008 $92,375 $88,603 l
Operating income.. . . . . $ 3,687 $ 5,377 $ 6,082 $ 6,390 $ 7,429 Net income (loss).. . . . . . . $ (476) $ 3,004 $ 2,951 $ 3,612 $ 3,750 Common dividends . . . . . . $ -
$ 2,761 $ 3,068 $ 3,605 $ 3,758 Total assets... .. . . .. $108,927 $100,102 $91,302 $94,838 $90,922 Long-term debt.. . . . . . . $ 18,000 $ 26,328 $31,813 $29,213 $16,325 Short-term debt.. . .. . .. . .. $ 16,683 $ 9,985 $ 3,400 $ 7,700 $ 9,300 Earnings per share ($ per share) . . $ (3.10) $ 19.58 $ 19.24 $ 23.55 $ 24.45 Return on Equity (percent). . .. (2.2%) 13.8% 13.5% 16.3% 16.9%
Net generation (millions of kwh). 1,117 1,136 1,393 1,182 1,026 Power cost (e per kwh).. . 5.8e 5.2e 4.0e 5.3e 5.9 e Cooet ns & LYBRAND Report ofIndependent Certiied f Public Accountants YANKn ATosuc Ei.icTutc CON!PANY Bolton, Massachusetts We have audited the accompanying balance sheets of Yankee Atomic Electric Company as of December 31,1988 and 1987, and the related statements ofincome and retained earnings and cash flows for each of the three years in the period ended December 31,1988. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Yankee Atomic Electric Company as of December 31,1988 and 1987, and the results ofits operations and its cash flows for each of the three years in the period ended December 31,1988, in conformity with generally accepted accounting principles.
L Boston, Massachusetts February 3,1989 3
Financial Review The Company has power contracts with its stockholder utilities through June 1991, which require these utilities to purchase all of the electrical output of the plant, at a cost equal to total ope ating expenses plus a return on investment, whether or not the plant operates. The Company also operates a Nuclear Services Division which furnishes engineering services to the Yankee plant and to other New England power projects on a cost basis. Limited engineering work is also performed for others at a profit.
During 1988, the Yankee plant operated with an availability of 76.1% and provided electricity to stockholder utilities at a cost of 5.8e per kilowatt hour. The plant was routinely refueled in both 1988 and 1987. The next refueling is scheduled forJune 1990.
Operations and engineering expenses increased $1,015,000 and $2,012,000, respectively, during 1988 from 1987, due primarily to general price increases.
Maintenance expense decreased $719,000 during 1988 from 1987 due primarily to a reduced level of turbine ma.intenance performed during the 1988 refueling.
During 1986, the Company prevailed in a federal income tax court case against the United States
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government regarding the exclusion ofits decommissioning revenues from taxable income for fiscal years 1981 through 1983, and a portion of 1984. As a result, the Company recorded federal and state tax benefits of $6,791,000 and $2,507,000 in 1987 and 1986, respectively. In addition,
$1,800,000, $656,000 and $605,000 of related interest income was recorded in other income in 1988,1987, and 1986, respectively. (See Note F of " Notes to Financial Statements" for additional information regarding federal income taxes.)
The $283,000 decrease in interest on long-term debt from 1987 to 1988 was the result of a decrease in long-term debt outstanding due to scheduled repayments.
In May 1988, the Federal Energy Regulatory Commission reduced the Company's allowed rate of return on equity, on a prospective basis, from 14%% to 12%. (See Note 1 of" Notes to Financial Statements" for additional information regarding rate proceedings.)
A Massachusetts referendum to shutdown operating commercial nuclear power plants was defeated by voters by a margin of more than two to one. The Company incurred costs of $2.931,000 in 1988 and $84,000 in 1987 to defeat the referendum and these costs were not recovered from customers.
The decrease in earnings from $3,004,000 in 1987 to a loss of $476,000 iri 1988 was due primarily to the costs incurred to defeat the shutdown referendum.
The Company did not declare or pay dividends in 1988.
Construction expenditures for 1989 are estimated to be $8,200,000.
At December 31,1988, the Company had unused credit lines of $16,645,000.
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Statements ofIncome and Retained Earnings Year Ended December 31, 1988 1987 1986 Operating revenues (Note A):
' Electric sales..... ... .. .. .... . . . . . . . . . . . . . . . . . . . . $64,688,221 $ 59,020,654 $55,030,825 Engineering services to others ....... . . ...... .. ... . 31,903,644 31,364,660 30,977,235 Total operating revenues ................... ... ... . 96,591,865 90,385,314 86,008,060 Operating (expenses (Note A):_
Fu e l N ot e B) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I1,474,087 11,352,513 12,243,314 ,
Operations... .. . ..... .. .... ... . . . . . . . . . ... 21,319,731 20,304,820 14,022,557 i Engineering.. ... .... . .. . .. . . . . . . . . . . . . . . . . 42,979,924 40,967,748 38,463,323 Maintenance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 4,236,669 4,956,007 1,725,694 Decommissioning (Note G)..... . . . . . . . . . . . . . . . 5,741,004 5,741,004 .5,741,004' !
Depreciation.. .... . . . . . . . . . . . . . . . . . . . . . . 4,466,209 5,262,122 6,372,412 Taxes, other than federal income... . .... ... ..... .. 3,007,882 ' 174,999
, 2,935,310 6 Federal income taxes (Note F)... .. . . . . . . . . (321,085) (5,750,532) (1,577,873) t Total operating expenses. . . . .. .. .. 92,904,421 85,008,681 _ 79,925,741 Operating income.... ... .... ... .... . ... .. .. . . .. 3,687,444 5,376,633 _ 6,082,319 Other income:
I Allowance for equity fimds used daring construction (Note A).. . . . .. . .. ....... . . .. .. 46,442 1.5,073 96,917 Interest on tax refunds.. . . . . . . . . . . . . . . . . . . . 1,800,000 655,940 605,247 Referendum.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,931,151) (83,723) (248,913)- j Other, net . . . . . . . . . . . . .. . . . . . . . . . . . . . . (18,427) 154,767 (144,227) j Total other income (expense) . ... .. ... . (1,103,136) 842,057 309,024 Operating and other income.. . . . . . . . . . . . . . . 2,584,308 6,218,690 6,391,343 Interest:
1 Interest on long-term debt..... . . . . . . . . . . . 2,799,138 3,082,114 3,204,927 Interest on short-term debt.. .. .... . . . .... . 322,402 264,310 266,592-Other interest, net......... ... . . . . . . . . . . . . . . 166,245 49,601 162,366 Allowance for borrowed funds used during construction (Note A).... ... .... ... .... .. .. (227,178) (181,308) (193,650)
Total interest.. ... . . . . . . . ... .. 3,060,607 3,214,717 3,440,235 Net income (loss).... .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (476,299) $ 3,003,973 $ 2,951,108 Retained earnings:
Retained earnings at beginning of year...... . ... . $ 6,134,398 $ 5,891,625 $ 6,008,517 Net income (loss).. ......... .. . . . . .. ... ... . . . (476,299) 3,003,973 2,951,108 5,658,099 8,895,598 8,959,625 e Dividends paid .... . ............ . .... . . . . . . . . . . - 2,761,200 3,068,000 Retained earnings at end ofyear (Note C).... ..... $ 5,658,099 $ 6,134,398 .$ 5,891,625 Per share data:
Earnings (loss) per share. . . . . . . . . . . . . . . . .
$(3.10) . $19.5 8 $19.24 l Dividends per share ........ . ..... .. . .. ... . .... . . . $ -- $18.00 $20.00 The accompanying notes are an integral part of these financial statements.
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Balance Sheets
. ASSETS December 31, 1988 1987 Utility plant, at original cost (Note A).. . . .. .... . .. . .... . . .... .. .... $ 87,086,4 4 3 $ 8 4,8 2 2,3 8 7 Less accumulated provisions for depreciation..... .. . ..... . .... .. 74,256,551 69,868,238 12,829,892 14,954,149 Construction work in progress.. ..... ........ .. . . . . . . . . . . . . . . . . . . . . . . . . 916,810- 293,808 Nuclear fuel, at amortized cost I ate B)........... .. . .. .. ..... 26,519,749 27,667,135 i
Net utility pla nt ... . .. ..... ....... .. .. . . . . . . . . . . . . . . . . . . . . . . . 40,266,451 42,915,092 Decommissioning trust (Note G) ..... ...... .. .... . . ..... ... .. . . . . .. 34,117,953 26,326,403 Nonutility property, less accumulated provisions for depreciation of.
$572,000 and $502,482... . .. .. . .. . . . . . . . . . . . . . . ' . . .... .. 876,595 890,424 Other investments .. .. .... . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 822,917 1,245,526 Current assets: .
Cash and temporary cash investments.... . .. . . . . . . . . . . . . . . . . 120,930 1,222,073 -)
Accounts receivable: )
9,595,220 7,557,125 l Electric sales.. .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineering services to others (Note A).. . . . . . . . . . . . . . .. 5,134,585- 4,958,235 O t h e r . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,840,502 2,896,004 Materials and supplies, at average cost.. ... . . . . .. . , . . . . . . 917,544_ 848,117 Prepayments and other .... ... . .. ..... . .. ... .. .. . . . . . . . . . . . . . 1,116,974 545,285 Total current assets .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,725,755 18,026,839 Deferred federal and state income taxes (Note F)... .. . . . . . . . . .. . 11,117,536 10,697,243
$108,927,207 $100,101,527 CAPITALIZATION AND LIABILITIES Capitalization:
Capital stock, par value $100 per share; I 53,400 shares authorized and outstanding...... .. . . . . . . . . . . . . . . . . . ...... .. ... .. $ 15,340,000 $ 15,340,000 Retained earnings (Note C).... . ...... . .... . . . . . . . . . . . . . . . . ...... 5,658,099 6,134,398 Long-term debt (Note D) .. ... ........ ... ...... . . . . . . . . . .. 18,000,000 26,328,000 Total capitalization .... . . . . . . . . . . . . . . . .... . . . . .... 38,998,099 47,802,398 Current liabilities:
Long-term debt due within one year (Note D).. .... ....... ....... ..... 8,328,000 4,984,500 Short-term debt . (Note E) .. . . . . .. ... .. .. ... . .. .... . . ... ..... ... 8,355,000 5,000,000 Aecounts payable..... . .. . ... .... .. . . . . . . . . . . . . . . . . . . . . . . . .. 10,561,461 5,825,037 A ceru e d i n t e re s t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151,790 355,715 Total current liabilities . .... . . .. .. . . . . . . . . . . . . . . . . . . . . . . . 27,396,251 16,165,252 Decommissioning reserve (Note G).... . ......... . . .. .. ..... ... ........... . 41,321,617 33,827,059 Unamortized investment tax credits (Note F)... ... .. .. . ..... .. . . .. ..... 1,211,240 2,306,818 Commitments and contingencies (Notes B, G, and J). . ........ . . ..
$108,927,207 $100,101,527 The accompanying notes are an integral part of these financial statements.
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1 Statements of Cash Flows Year Ended December 31, 1 I
.1988 1987 1986 I Cash flows from operating activities:
' Net income' (loss) . . . . ...... . . . . ... . . . . .. . .. . . . . .....$ .. ' (476,299) $ 3,003,973 $ 2,951,108 Non-cash charges (credits) to net income:
Depreciation, including non-utility property 4,535,727 5,311,066- 6,421,356 1
' Amortization of nuclear fuel........ .... ...... . 10,357,198 10,216,895'- 11,067,150 Increase in decommissioning reserve .. .... .. 7,494,558 7,097,731' 6,998,180 :]
. Allowance for other funds used during.
construction . .... .... ... . ... . . . . . . . . . . (46,442) _ (l15,073) .(96,917)
Deferred federal and state income taxes...... .(420,293) (7,241,832) (2,873,487)
Investment tax cred;ts, net.. .. . . . . . . . . . . . (1,095,578) -(1,321,665) (1,430,014) {
Net changes in:
Accounts receivable. . . ..... .. . . . . . . . . (4,158,943) (2,078,905) 4,935,623.
Materials and supplies .......... . , .... . . . . . . (69,427) (27,425) 24,244 q Prepayments and other... . . . . . . . . . . . . . . . (571,689) (45,231). 264,654 Accounts payable... ....... . . . . . . . . . . . . . . . 4,736,424 1,698,425: (7,212,708) 1 Accrued in terest ... ...... . .. .. ..... . . . . . . . . . . (203,925)- (17,517) (74,933)- I l O t h er . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,120) __ (50,763) _ 59,618 Net cash flows from operating activities.... .... .. 20,055,191 16,429,679 21,033,874 I Cash flows from investing activities:
Construction expenditures... .. .. ..... . . . . . . . . (2,994,523)' (2,651,187) (l',261,487)
Nuclear fuel purchases.. . . . . . . . . . . . . .... (9,209,812) (6,004,262) (11,172,897)
Increase in decommissioning trust. ... . . . . (7,791,550) (4,678,583) (3,728,668)
A.llowance for other funds used during construction ... . . . . . . . . . . . . . . . . . . . . . . . . . . 46,442 115,073 96,917 Other investments . . . . . . . . . . . . . . . . . . . . 422,609 (334,317) (303,278)
Net cash flows from investing activities . .... . . . (19,526,834) (13,553,276) (16,369,413)
Cash flows from financing activities:
Short-term debt, net. .. ..... ... ... . . . . . . . . 3,355,000- 5,000,000 (5,900,000)
Proceeds oflong-term debt .... . . . . . . . . ... - -
6,000,000 Repayment oflong-term debt.... . . . . . . . (4,984,500) .(3,900,000) (1,800,000)
Dividends on common stock . . ..... .. . ... ... .
(2,761,200) (3,068,000)
Net cash flows from financing activities.. . ..... (1,629,500) (1,661,200) (4,768,000) l Net increase (decrease) in cash .. . . . . . . . . . . . . . . . . (1,101,143) 1,215,203 (103,539) '
Cash at beginning of year..... . . . . . . . . . . . . . . . 1,222,073 6,870 110,409 Cash at cnd of year... ....... . . . . . . . . . ...........$ 120,930' $ 1,222,073 $ 6,870- -i Cash paid during the period for:
Interest (net of amounts capitalized).. .... ..... . ... $ 3,264,532 $ . 3,232,234 $ . 3,515,168-Income taxes .... .. ....., .. . . . . . ..........$ 1,082,796 $ 1,261,374 $ 6,729,493' The accompanying notes are an integral part of the financial statements.
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Notes to Financial Statements Note A-Summary of Significant Accounting Policies:
- 1. System of Accounts:
The accounts of the Company are maintained in accordance with the Uniform System of Accounts prescribed by regulatory bodies havingjurisdiction. The accounts of the Yankee Decommissi-oning Trust (the Trust) are presented on a consolidated basis.
- 2. Nuclear Services Division:
The Company operates a Nuclear Services Division, under the applicable rules and regulations of the Public Utility iIolding Company Act of 1935, for the purpose of furnishing nuclear engineering
. . services to the Company and its sponsoring utilities. Such services are provided on a full cost basis, including a return on working capital. The cost of services provided to the Yankee plant amounted to $13,425,783 in 1988, $11,724,666 in 1987, and $9,627,064 in 1986, and are included as engineering costs in the Statements ofIncome and Retained Earnings.
- 3. Utility Plant:
Utility plant is stated at the original cost of construction, which includes an allowance for the cost of funds used during construction. Costs of current repairs and minor replacements of plant and properties, which do not extend the current life of the plant, are charged to maintenance expense accounts as incurred. Plant retired or otherwise disposed of, together with costs of removal less salvage, is charged to accumulated provisions for depreciation.
- 4. Depreciation:
2 For fmancial statement purposes, depreciation is provided over the estimated service lives of the various cl asses of property on a straight-line basis. The estimated average remaining service life at Dumber 31,1988 is approximately two years.
- 5. Allowance for Funds Used During Construction (AFUDC):
The Company capitalizes, as a part of construction and fuel costs, an item called allowance for borrowed funds used during construction, which represents the approximate pretax cost of short-term debt and an item called allowance for equity ftmds used during construction, which represents the cost ofother funds. AFUDC is recognized as a cost of" Utility plant" and " Nuclear fuel" Accordingly, AFUDC is capitalized in the same manner as construction labor and material costs with an offsetting credit to " Interest" and "Other income" This is in accordance with an established regulatory approved rate-making practice under which a utility is permitted a return on, and the recovery of, i these capital costs through their ultimate inclusion in the rate base and in the provisions for depreciation and amortization.
The combined rate used in calculating AFUDC was 9.5% in 1988,9.8% in 1987, and 10.4%
in 1986. In accordance with regulatory directives, these rates included the before-income-tax efTect of borrowed funds.
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Notes to Financial Statements (continued)
Note A-Summary of Significant Accounting Policies: (continued)
- 6. Nuclear Decommissioning:
In a 1984 decommissioning study, the Campany estimated the cost of decommissioning the Yankee plant, utilizing the immediate dismantlement and removal method, at approximately $68 million in 1984 dollars. The Company records and bills decommissioning on a remaining life basis in accordance with regulatory approval. (See Note G.)
- 7. Income Taxes:
The tax effect of the timing differences (differences between the periods in which transactions affect income in the financial statements and the periods in which they affect the determination of income subject to ta).)is accounted for in accordance with regulatory approval.
Investment tax credits are deferred and amortized over the estimated service lives of the property giving rise to the credits.
- 8. Strtement of Cash Flows:
Ja November 1987, the Financial Accounting Standards Board issued Statement No. 95, Statement of Cash Flows. The Company adopted the provisions of the Statement in its 1988 fmancial statements and, accordingly, prior year amounts have been reclassified to conform with the 1988 presentation. For the purposes of the Statement of Cash Flows, short-term investments with a maturity of 90 days or less are considered cash equivalents.
Note B-Nuclear Fuel:
The cost of nuclear fuel in the reactor is amortized to fuel expense on a unit of production method at rates based on estimated kilowatt hours to be produced from each core. Fuel expense also includes a charge for the permanent disposal of spent fuel.
The following table lists nuclear fuel components.
December 31, 1988 1987 in stock . . . .. $ 3,738,769 $ 1,568,069 In process .. . . . . . .
6,641,921 Assemblies in reactor.. . . 29,215,603 33,241,747 Gross nuclear fuel . . . . . . . 32,954,372 41,451,737 Less accumulated amortization . ... .. . . 6,434,623 13,784,602 Net nuclear fuel. . . . . . . . . $26,519,749 $27,667,135 Components of fuel expense are set forth in the following table.
Year Ended December 31, 1988 1987 1986 Amortization of nuclear fuel:
Enriched uranium. . . . . . . $ 8,348,087 $ 8,369,330 $ 9,089,487 Fabrication . . . . 1,681,740 1,598,340 1,810,537 AFUDC. . ... . 327,371 249,225 167,126 10,357,198 10,216,895 11,067,150 Provision for current core spent fuel disposal. . 1,116,889 1,135,618 1,176,164 Fuel expense. . . . .. . $ 11,474,087 $ 11,352,513 $12,243,314 i Under the Ncclear Waste Policy Act of 1982, the Company entered into a contract with the United States Department of Energy (DOE), under which it is required to pay a fee of 1.0 mill per 9
Notes to Financial Statements (continued).
1 l
Note B-Nuclear Fuel: (continued) kilowatt hour for net electricity generated after April 6,1983, in exchange for DOE services in disposing of the spent nuclear fuel used to generate that electricity. In 1985, the Company elected to pay a lump-sum amount to the DOE to satisfy its contractual liability for disposal of nuclear fuel used prior to April 7,1983.
Note C-Restrictions on Retained Earnings Available for Dividends on Common Stock:
Pursuant to restrictions contained in the Loan Agreements, $4,660,000 of the Company's i retained earnings at December 31,1988, were restricted as to dividends on common stock.
Note D-Long-Term Debt:
l December 31, i 1988 1987 1986 Term loans:
i Due through March 31,1991, at varied inter-i est rates .. . . . . . . . . . . . . . . . .... . . . . . . . . $ 14,000,000 $18,000,000 $20,000,000 Due through June 30,1990, at varied interest i rates......... .. .. ... . .. . .... ... 12,328,000 13,312,500 13,312,500 l Installment note at 8%%.. . . . . . . . . . . . .. - -- 1,900,000 Tot al . . . . . . . . . . . . . . . . . . . . .. . . . 26,328,000 31,312,500 35,212,500 Less long-term debt due within one year . . . .. 8,328,000 4,984,500 3,400,000 long-term debt, net .... . . . . . . . . . . .. $18,000,000 $26,328,000 $31,812,500 Interest rates on the term loans are variable and are set, at the Company's election, at either the banks' prime rates or the london Interbank Offered Rate, plus a fraction thereof.
The weighted average interest rates on year-end long-term borrowings were 9.7%, 9.4%, and !
9.3% for 1988,1987, and 1986, respectively. The weighted average interest rates during 1988,1987, i and 1986, based on average month-end balances, were 9.6%,9.3%, and 10.1%, respectively.
l The term loan agreements are secured by the collateral assignment of all the Company's rights l under the customer power contracts. There are no compensating balance or monthly commitment fee requirements.
The aggregate principal amounts oflong-term debt scheduled for repayment in each of the three years following December 31,1988 are $8,328,000, $10,000,000, and $8,000,000, respectively. ,
i Note E-Short-Term Debt:
The Company has lines of credit with banks aggregating $25,000,000. Interest on borrowings is set at the banks' prime rates or the london Interbank Offered Rate, plus a fraction thereof at the l time of the advance, in lieu of compensating balance requirements, the Company is obligated to pay I a commitment fee.
10
Notes to Financial Statements (continued)
Note E-Short-Term Debt: (continued)
The Company has be authorized by the Securities and Exchange Commission to issue and sell up to $25,000,000 of short-term notes and/or commercial paper through December 31,1990. The Company generally utilizes commercial paper, supported by its lines of credit, to fmance construction projects or meet general working capital requirements.
l Information regarding short-term borrowings is summarized in the following table.
1988 1987 1986 13ank notes payable at year end . . $ -
$ 5,000,000 $ -
Commercial paper outstanding at year end . . $8,35 5,000 $ -
Maximum amount of borrowings at any month end $ 8,3 5 5,000 $7,355,000 $ 12,850,000 Weighted monthly average borrowings outstanding during the year . .. . .. . . $4,080,769 $ 3,209,000 $ 3,458,000 The weighted average interest rates on year end short-term borrowings were 9.9% and 9.6% for 1988 and 1987, respectively. The weighted average interest rates during 1988,1987, and 1986, based on average month-end balances, were 8.1%,8.2%, and 7.8%, respectively.
Note F-Federal Income Taxes:
Federal income taxes consist of the following components.
1988 1987 1986 Current income taxes.. $ 871,511 $ 4,865,538 $ 3,137,156 Deferred income taxes . . .. .. . (156,222) (9,377,358) (3,119,257)
Investment tax credits, net. (1,095,578) (1,321,665) (1,430,014)
$ (380,289) $J5,833,385) $(1,412,115)
Investment tax credits, net reflect increases or decreases in federal income taxes attributable to such investment tax credits which have been deferred and amortized.
The Company has adopted comprehensive interperiod tax allocation (normalization) consistent with regulatory accounting. The following table details the components of deferred federal income taxes.
1988 1987 1986 Provision for plant decommissioning .. . .. $ 296,992 $(2,296,402) $(3,814,787)
Provision for decommissioning refunds. -
(5,894,262) 2,555,680 Allowance for funds used during construction. 72,220 67,809 (53,456)
Interest capitalized for tax purposes. . . (602,750) - -
Excess book depreciation and fuel amortization. (65,406) (918,613) (1,806,694)
Other.. . .. 142,722 (335,890) -
$(156,222) $(9,377,358) $(3,119,257) 11
Notes to Financial Staternents (continued)
I Note F-Federal Income Taxes: (continued) i The tax effect of the cumulative amount of timing differences at December 31,1988, for which deferred income taxes have not been provided,is not material. Total federal income taxes differ from the amounts computed by applying the statutory tax rate to income before taxes. The reasons for the differences are as follows:
1988 1987 1986 Computed tax at statutory rate.... .. ........ . . . . $ (291,240) $(1,131,765) $ 707,937 increase (reduction) in tax resulting from:
Amortization ofinvestment tax credits . . . (1,129,267) (1,374,172) (1,627,407)
Referendum expenditures.. .... . ............ . . 996,591 - -
Decommissioning refunds. .. .. ... . ........ .
(3,536,557) (1,268,706)
Provision for decommissioning . . . .... .. . - -
237,935 A11 other.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,627 209,109 538,126 Federal income tax provisions (including
$(59,204), $(82,853), and $165,758 credited charged to other income)..... . ....... (. . .. ... ). $ (380,289) $15,833,385) $(1,412,115)
Effective federal income tax rate. .... (44.4%) (206.2%)
(91.8%)
The Company records deferred federal income tax benefits on that portion of decommissioning expense which is not currently deductible for federal tax purposes. Deferred taxes .related- to decommissioning amounted to $7,203,664 at December 31,1988. In July 1988, the IRS ruled that from 1984 through 1991, an annual amount of $4,437,000 of decommissioning expense is deductible i for federal income tax purposes. The Company filed amended tax returns to claim its ruling amount for the years 1984 through 1986. As a result, the Company expects to receive refunds which will reduce deferred taxes by $4,400,000. This amount will be deposited in the Decommissioning Trust.
In January 1986, the United States Court of Appeals for the Federal Circuit reaffirmed a lower court decision that decommissioning revenues collected from January 1981 through June 1984 were not taxable to the Company. The IRS did not appeal this decision; and, as a result, the Company 4 recorded federal tax benefits of $5,894,000 and $2,350,000 in 1987 and 1986, respectively. In addition, the Company recorded related interest income of $1,800,000, $409,500, and $488,600 in 1988,1987, and 1986, respectively. The federal tax benefits and related interest have been refunded i to customers in accordance with regulatory requirements.
Federal income tax returns for the Company have been examined and reported on by the IRS through 1983. The years ending December 31,1984,1985, and 1986 are being examined and are pending final resolution.
1 12 1
E______________ _ _ _ _ . _ _ _ . _ . _ _ _ _ _ - - -
Notes to Financial Statements (continued)
Note G-Decommissioning:
In April 1985, the Federal Energy Regulatory Commission approved a revised decommissioning rate schedule filed by the Company. The revised schedule allows the Company to collect $5,741,000 q annually during the period from April 1,1985 through. November 4,1997. This will allow the !
Company to collect $68,000,000 from customers (in 1984 dollars) to provide for decommissioning j of the Yankee plant. 1 I
Funds collected are being deposited in an irrevocable trust, maintained by a commercial bank, l
with principal and interest to be used exclusively to discharge future decommissioning obligations as incurred. Components of the Decommissioning Trust are set forth in the following table.
I December 31, i
)
1988 1987 1
Cas h . . . .. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . $ 98,020 $ .167,984 '
Accounts receivable ... .... . . . . . . . . . . . . . . . . . . . . . . . 1,564,494 890,320 ,
1 Investments.... . . . .... .. . ... ... 32,495,428 25,282,049 Accounts paysble.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39,989) (13,950)
Decommissioning Trust assets, net . . . . . . . . . . . . . . . ... .. $ 3 4,117,9 5 3 $26,326,403 '
Decommissioning Trust investments are invested in federal and state municipal securities, valued at cost which approximates market. At December 31,1988, deferred federal income taxes included
$7,203,664, which represented federal income taxes paid on decommissioning collections which will ]
I be recovered when the Yankee plant is decommissioned and the decommissioning expenses become deductible. The Trust received $1,782,853 in interest income, net, during 1988, which has been l included in the balance sheet as an increase to both the Decommissioning Trust asset and the Decommissioning Reserve. 1 Note H-Retirement Plans:
The Company has noncontributory defined benefit pension plans covering substantially all >
employees. The Company's funding policy is to fund the net periodic pension cost, but never less than the minimum required contribution under ERISA nor more than the maximum deductible contribution as determined under the Internal Revenue Code.
The Company participat.es in the plans with subsidiaries of New England Electric System (the System). During 1987, the Company revised its method of accounting for pensions. These revisions were made to comply with the new Financial Accounting Standard No. 87 (FAS No. 87) issued by the Financial Accounting Standards Board, and the net effect of the change was not significant. Plan assets are composed primarily of guaranteed insurance contracts and corporate equity and debt securitics.
13 l
i Notes to Financial Statements (continued)
Note H-Retirement Plans: (continued)
The following table sets forth the System plans' funded status.
l' December 31, !
l988 '1987 l Benc6ts earned Actuarial present value of accumulated benefit obligation:
Vested portion ... ... . .... .... . ...., ... .. .. . . . . . . .. . . $354,864,000 $334,636,000 Nonvest ed portion . .. . . .. . . . . . . . . . . . . . . . . . . . . . . . .. . ... . . . . . . 14,609,000 13,667,000' ,
i l Total .... . . . . . . . . . . . . . . . . . . .. .. ... .. .. ... $369,4 7 3,000 $ 34 8,303,000 l
Reconciliation of funded status .j Actuarial present value of projected benefit liability ... .. . .. .. . $442,960,000 $411,733,000 Unrecognized prior service costs. . . . . . . . . . . . . . . . . . . . . . . . . . (556,000) -
Net loss not yet amortized ..... .. .. ..... . . . . . .. (13,260,000) (7,638,000) 429,144,000 404,115,000 Pension fund assets at fair value... . . . . ... . . . . . . . . . . . . . 447,318,000 424,922,000 FAS No. 87 transition asset not yet amortized.... . .. . .. ..... . . (20,360,000) (21,801,000) 426,958,000 403,121,000 Net accrued pension liability... .. .. . . . . . . . . . . . . . . . . ......$ 2,186,000 $ 994,000 i
The Company's allocated share of the net accrued pension liability at December 31,1988 and i 1987 is $489,295 and $289,295, respectively.
Total pension cost, charged principally to operating expenses of both the Yankee plant and the i Nuclear Services Division, was $1,759,000 in 1988, $789,000 in 1987, and $772,000 in 1986. The increase in pension cost in 1988 was due primarily to costs recognized on a supplemental pension plan. The components of the cost are as follows:
1988 1987 Service cost benefits earned during the period. . . . . . . . . .. $ 1,349,539 $ 1,157,363 Plus (less):
Interest cost on projected benefit obligation...... . .. .. . . . . 1,941,234 1,701,362 Actual return on plan assets. . . . . . . . . . . . . . .. . . . . . . . (1,914,784) (1,311,130).
Amortization and deferral .. . ...... .. ............ . ... . . .... . ... . . .. ... . . (51,161) (469,300)
Deferred pension cost ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . (200,000) (289,295) j Loss on curtailment of supplemental pension plan .. . . . . . . . 634,172 .-
l Net periodic pension cost ....... . . . . . . . . . . . . . . . $ 1,7 5 9,000 $ 789,000 Assumptions used to determine pension costs were:
. Discount rate.. ..... ... . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5 % 8.5 %
Average rate ofincreaae in future compensation levels. .. .. . 6.7% 7.7%
Expected long-term rate of return on assets . .. . . . . . . . . . . . 9.0% 9.0%
14
v Notes to Financial Statements (continued)
Note H-Retirement Plans: (continued)
In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees. Substantially all of the Company's employees may become
{
cligible for these benefits if they reach retirement age, or if they reach age 55 with 30 years of service, 1 while working for the Company Effective January 1,1987, the Company accrues these benefits over k the remaining work lifetime of those employees expected to qualify for such benefits. Accrued costs, which were $772,000 in 1988 and $757,000 in 1987, are deposited in a trust, with principal and ,
interest used exclusively to provide for post-retirement health care and life insurance benefits. Prior j to 1987, the costs of these benefits were recognized as claims were paid. In addition, the Company j made payments to certain key employees who are not eligible to participate in the benefits trust, /
thereby releasing the Company from future obligations relating to posuretirement health care and life insurance benefits. These costs were $584,000 and $396,000 in 1988 and 1987, respectively.
l l
Note I-Rate Proceedings: J On September 30,1987, the FERC ordered the Company to reduce its rate of return on equity ;
1 from 14.5% to 12% and to include a retrospective equity reopener clause in the Company's Power Contracts. The Company filed a request for rehearing which was denied by the FERC on May 6, )
1988. Accordingly, the Company reduced its rate of return on equity to 12%, effective May 6,1988, l and included the equity reopener clause in the Power Contracts. j Note J-Commitments and Contingencies:- j I
1
- 1. Nuclear Liability Insurance: i A federal statute, the Price-Anderson Act (the Act), mandates an industry-wide program of nuclear liability insurance for nuclear facilities. In 1988, the Act was extended to the year 2002, l The Act limits public liability from a single incident at a nuclear facility to about $7.2 billion. The Company maintains a primary layer ofinsurance in the amount of $160 million with private commercial companies. Secondary coverage up to approximately $7.0 billion is provided by a retrospective premium assessment on each nuclear facility. Under the Act, each nuclear facility may be assessed, at a rate not to exceed $10 million per year, for each nuclear incident within the United States.
Under the billing provisions of the Power Contracts, the retrospective insurance premiums would be includable in the cost of power. 1 15
_ _ _ _ _ _ _ - - _ =
Notes to Financial Statements (continued)
Note J-Commitments and Contingencies: (continued)
- 2. Leases:
At December 31,1988 and 1987, the Company had leases covering its oflice facilities, certain equipment and vehicles. Such rentals are included in and recovered through the billings of the Nuclear Services Division and, therefore, have no effect on net income. in the normal course of business, the Company expects that as leases expire they will be renewed or replaced by other leases.
Estimated fature annual lease payments, exclusive of taxes and insurance, are as follows:
1989. . .. ... . . . . $ 2,892,000 1990... . . . . . . . . . . . . . 2,690,000 1991 . . .. . . .. 2,.589,000 1992. ... . .. . . .. 1,696,000 1993. . . . .. . . ... . . . . 1,663,000 Later years.. . ... . . . . . 3,082,000 Total . . . . . . . . . . . . . $ 14,412,000 Rental pay.1ents charged to operating expense amounted to $2,657,898 in 1988, $2,980,628 in 1987, and $2 715,995 in 1986.
- 3. Nuclear Services Division:
The Nuclear Services Division of the Company has provided technical services to thejoint owners of the Seabrook nuclear plant in support of design, construction, and licensing of that facility. This facility has been subject to substantial delays in its scheduled completion, and to significant increases in costs. The joint owners have applied to the Nuclear Regulatory Commission to obtain a license for operation of Seabrook Unit 1. (Seabrook Unit 2 has been cancelled.) Such licensing has been delayed primarily due to the refusal of certain towns and the Commonxcalth of Massachusetts to participate in developing emergency response plans for the six Massachusetts towns which are within a ten-mile radius of the Seabrook facility.
On January 28,1988, Public Service Company of New IIampshire (PSNii) filed for protecticn under Chapter 11 of the Bankruptcy Code. This fact could also serve to delay licensing of the Seabrook plant by the Nuclear Regulatory Commission. The bankruptcy has not had and is not expected to have any material impact upon the Company's ability to continue to receive payment for senices rendered to the Seabrook project.
On February 2,1987, joint owners of the facility and certain contractors, including the Company, who have provided services to the joint owners, entered into a Standstill Agreement. Under this Agreement, as amended, the signatories agreed to refra'a until at least March 31,1989 from claims against other signatories as to potential damages relating to the design, engineering, construction, or management of the facility, subject to certain terms, conditions, e.id exceptions. The running of any statutes of limitation is suspended during this specified period of time. The signatories agreed to allow certain discovery to proceed under a specified schedule and that discovery has commenced.
16
Notes to Financial Statements (continued)
NoteJ-Commitments and Contingencies: (continued)
On January 16,1989, the Company and almost all of the joint owners of the Seabrook facility entered into a settlement agreement with one another respecting potential claims relating to the Seabrook facility. The settlement is contingent for its effectiveness upon several conditions, including approval by the bankruptcy court administering PSNil's bankruptcy case. Under the settlement agreement, the parties covenant not to commence any legal action against one another relating to past activities associated with the Seabrock project. The settlement agreement also provides certain indemnities to the Company in connection with any litigation that ng be initiated against certain other suppliers of services or equipment to the Seabrook project. The settlement agreement would also extend the Standstill Agreement toJanuary 1,1990, as among the signatories.
Management is unable, however, to predict whether the settlement agreement will take effect.
Ifit does not, the Company believes that claims potentially could be asserted against the contractors, including the Company, by one or more of the joint owners. Management is unable to predict the outcome of such unasserted claims, and it is possible that resolution of such unasserted claims could have a significant effect on the financial position and operations of the Company. Ilowever, based in part on consultations with legal counsel, manageme:.t is not aware of any legitimate basis for such unasserted claims against the Company. Management believes that the Company's position is strong and that any such claims will be vigorously contested by the Company.
- 4. Other:
The Company,in common with other utilities,is subject to current and future regulations relative to nuclear power plant licensing.
17 l
Oflicers of the Company l
EoWAno A. BROWN, Dn. ANDR1 W C. KADAK, Chairman and ChiefErecutive Ofcer President and Chief Operating Ofrer Anu ann R. SoucY, jonN DLVINcl NTis, l' ice President, Treasurer, and ChiefFinancial l' ice Prrsident Ofcer Dn. Sri Pin N P. ScoutTz, Enuct L DRAWiinioct, l' ice President l' ice President Kinx L RAusAvi n, Clerk Board of Directors AnTiiun W. Aoi:Lat no,l' ice President and Furni nic E. Gul i NM AN, l' ice President, General Counsel, Assistant Secretary, and General Counsel, CentralMaine Power Company New England Power Company EDWARo A. BROWN, Chairman and DR. ANont w C. KroAK, President and l ChiefExecutive ofcer of the Company ChiefOperating Ofcer of the Company WILLIAM F. Bunt, Assistant to the Ti tom AS) . hl AY,8enior l' ice President, ChiefExecutive Ofcer, Boston Edison Company COM/ Energy Services Company JoniN Y. Orn KA Evecutive /* ice Prrsident,
)ons C. Dunrrrr, President and Engineering and Operations, ChiefExecutive Ofcer, Northeast Utilities Service Company Public Service Company ofNew llampshire i
Ji irn LY D. TRANI N, l' ice [ resident, jonN F. G. Escuans,]n., Chairman and New England Power Company ChiefErecutive ofcer, Eastern Utilities Associates Tnou As C. WLns, President and ChiefErecutive Ofcer, En nNAno h1. Yox, President and Chief Centrall'ermont Public Service Corporation Operating and Financial Ofcer, Northeast Utilitics 1
i 18
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