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LABORDATAANDINDUSTRIALREVENUESLABORDATA198619851984198319821981198019791978197710-Year1976%Ch~<CeEmployees-YearEndClassifiedSupervisoryandProfessionalExecutives.Total(a).924927926.9243913973793851210121113271334131713209523841013469683641313459643371313149763139129898330310129699529491,2981,03929091,338(11)3533(1)WeeklyWagesPaid-YearEndLevelIncludingOvertime.ExcludingOvertime.$736$615$682$583$596$546$562$512$518$481$486$436$442$411$402$371$375$349$324$345$326$302127104EmployeeCompensation-ThousandsPayrollChargedtoOperationandMaintenanceElectricGas.PayrollChargedtoConstructionandOther.....RosetonPayroll-BilledtoOthers(a).TotalPayroll.29,7265,14811,985389050,74926,4414,4339,578348327,7564,64311,1073555470614393526,0604,3227,90530264131323,5224,0338,08329503858821,0433,5967,7032,5913493318,9163,0417,20222893144817,4202,7306,66621942901015,6512,5196,15223532667514,2302,4306,395217425,22912,9632,3116,593245924.3261291238258109AnnualCostofFringeBenefitsChargedtoOperationandMaintenance-Thousands..RatiosforPayrollChargedtoOperationandMaintenance:Payroll(IncludingBenefits)asPerCentofCorporateRevenuesBenefitsasPerCentofPayroll.INDUSTRIALREVENUES-Thousands7,0169.620.16,8657.821.26,6297.221.56,3997.821.15,5647.420.24,8946.619.93,9867.918.23,5659.317.73,43410.218.92,9309.417.62,25010.314.7212P)37ElectricCustomersBuildingProducts.Chemicals&Petroleum.Clothing.FoodProcessing.Foundries.MachineandMetalProducts.PaperandPaperProductsPrintingandPublishing.RubberProductsTextiles.MiscellaneousTotal13,0341,36120994543478,1672,5742,1341,1836391,80510248514,5841,6873691,19131175,2183,2931,5002,0291,35388915,5121,5343081,04542885,6692,9691,8971,2256711,98911324710242413,8291,4761317162,81460,0343,1011,2401,3311,14936628948313,3111,2621168852,35553,6502,7531,8731,1071,64933048226516,6161,2291521,0132,60451,1832,7121,9091,1302,19431508389213,7261,0071458301,97736,5932,1211,5518911,64926976318713,3637961396051,62426,8401,7341,1857851,30921655054510,6137351366121,29221,4211,5501,0016921,4722,0374156110,1037221266351,36719,7371,3539486881,4131,479385716,6296121155661,29816,1571,1237795651,1091,47630,429FIVELARGESTELECTRICCUSTOMERSIBMIndependentCementLehighPortlandCementCompanyVAWofAmericaTarkett,lnc.1986Revenues(Thousands)71,0474,6634,2862,0681,513FIVELARGESTGASCUSTOMERSPowell&MinnockBrickWorks,Inc.IBMTechnicalTapeCorp.EasternAlloys,Inc.VassarBrothersHospital$1,7861,75079449531616(a)IncludesthefolkwiingnumberofemployeesattheRosetonElectricGeneratingPlantwhichtheCompany,ConsolidatedEdisonCo.ofNewYork,Inc.andNiagaraMohawkPowerCorporationovmastenantsincommon:TheCompanyhad,initially,a200%%durwfcvidedinterestintheoccvnershipofthePlant.AsofDecember31,1982,theCompanyhasa350%%duncfcvidedinterest.TheCompanyoperatesthePhntasagentforthethreeovmers.112114113107107 CAPITALIZATIONRATIOSNotes807060QD4030201001976777879HU5080818283848586f-1Common~EquityPreferredStock~OtherLongTerm~DebtMMorlgageBondsCOVERAGERATIOS(BEFOREINCOMETAX)OOru2EI-0~1OX197677787980818283848586MARKETANDBOOKVALUEOFCOMMONSTOCK3530I-IInterestCharges~IncludingAFDC11InterestCharges~ExcludingAFDCMInterestChargesandPreferredStockDividends2510(tr15010RATIOOFINCOMEAVAILABLEFORCOMMONSTOCKTOOPERATINGREVENUE,TOAVERAGEEQUITYCflKO'al<<Ctf'-C/3CLKClKcCcCI-ClILO133197677767960616263646566ClosingPriceatDec.31BookValueatDec.31High~MarketValueRangefortheYearLow2520151ruO10ruToOperatingRevenue~ToAverage~Equity197677787980818283848586 CAPITALIZATIONANDFINANCIALRATIOS1986198519841983198219811980197919781977197610-Year~%ChaneBookValuePerShareofCommonStockearEnCapitalization-ThousandsFirstMortgageBonds..............ConvertibleDebentures.............Long-termPromissoryNotes.........TermLoanNotesUnamortizedPremiumandDiscountonDebt-Net...........TotalLong-termDebt(a)...........PreferredStock-ParValue..........CommonStock.RetainedEarningsPremiumonStockCapitalStockExpense..............TotalCommonEquity.............TotalCapitalization...............CurrentMaturitiesofLong-termDebt...Short-termDebt.TotalCapitalizationincludingCurentMaturitiesofLong-termDebtandShort-termDebtCapitalizationRatios-PerCentIncludingShort-termDebtandCurrentMaturitiesofLong-termDebt:Long-termDebtPreferredStockCommonEquityShort-termDebtSelectedFinancialIndices:PretaxCoverageofTotalInterestCharges(b):IncludingAFDC(c)...........ExcludingAFDC(c)..........PretaxCoverageofTotalInterestChargesandPreferredStockDividends(b)PercentofConstructionExpendituresFinancedfromInternalFunds(d)............AFDCasaPercentageofIncomeAvailableforCommonStock....EffectiveTaxRate(e)...........$327,400112,325$332,400112,500$312,400$267,40040,4257,200$278,4007,375$233,5007,550608~679~5082181,03081,03081,03081,0306103061,030279,685164,73367~4625214,464145,85667~4,303184,816126,31367~4,040156,927110,49567~3840131,00099,52267~2677)111,16588,95767~2480439860356084307156263,649227,912197,709960,215175881,477175740,403175618,60011,17523000573,96717526500498,9686,17516500$960390$881652$740578$652775$600642$52184345.88.445.8100.050.49.240.4100.047.610.941.5100.043.712.440.43.5100.047.510.237.94.4100.047.211.737.93.2100.03.142A33.172.543.192.592.842.352.652.122.381.882.662.512.2317%31%35%41%32%38%55%34%50%35%49%36%48%34%50%27%54%23%439325444383352217273921285025240,229$209,5007,725$159,5008,0007,90020,000$151,5008,0008,07535,000$151,5008,0008,250$147,00016,0008,425~2532169726103095,54680,15567~2326'73,442451,44418,175470501195,568203,0451682511719576103061,03061,03046,03076,37167,08467~224576,37173,69167~2245147,884141,277405,35217523000404,48212,1754500066,03161,48167.~2,154125425354,7068,1751700066,03156,32667~1,875120549338,5364,3752000050.113.036.9100.045.013.232.09.8100.047.446.414.216.133.033.05.44.5100.0100.048.612.733.25.5100.02.231.742.311.923.172.802.812.552.682.721.862.072.0868%61%31%63%78%60%19%46%18%31%31%24%27%14%27%$469619$461657$428527$379881$362911123(100)*(175)15576324192147265184(96)(100)ValueofEquityNumberof(ThousandsShares~ofDollarQho~osands1986439,86014,1061985356,08412,0751984307,15611,0071983263,6499,6211982227,9128,5091981197,7097,4561980173,4426,5441979147,8845,3731978141,2775,3731977125,4254,8731976120,5494,873BookValuePerShare~Dolhrs31.1829.4927.9127.4026.7826.5226.5127.5226.2925.7424.7419861985198419831982198119801979197819771976MarketValueofCommonStock(Dollars)~s397/a-26s/a31'/4-2325s/e-16'Ia26'/a-21'/a24s/4-17'/a19-1619r/a-152(P/4-1822'Ia-19s/4223/a-19~/a2(P/4-17'/aNumberofSharesTradedonNewYorkStock~Eaohana11,357,0004,381,4003,786,2001,961,0002,414,8001,017,100801,100402,500451,400574,000498,000(I)PricerangefortheyearontheNewYorkStockExchange.MarketValuePerShareofCommonStockandSharesTradedRatioofIncomeAvailableforCommonStock-PerCentToOperatingRevenue...ToYear-endEquity......ToAverageEquity.......13.513.514.710.615.015.68.514.5'5.77.314.414.57.014.614.75.714.014.06.06.912.711.912.512.27.611.411.76.811.311.57.710.811.017(a)ExcludescurrentmaturitiesofIong-termdebt.(b)Forthepurposeofcomputingthesecoverageratios,earningsavailableforcoverageconsistofnetincomeplustotalinterestchargesplusallfederalincometaxamounts.Totalinterestchargesexcludetheallowanceforborrowedfundsusedduringconstruction.Preferredstockdividendsrepresentthepreferredstockdivi-dendrequirementtdeterminedona"pre-incometaxbasis".(c)AFDCincludesanySterlingcarryingchargeamounts.(d)Constructionexpendituresrepresent"CashConstructionExpenditures".Internalfundsare"FundsfromOperations"less"Dividends"(seepage11).(e)TheeffectivetaxrateiscomputedbydividingthefederalincometaxasreportedintheStatementofIncomebytheTaxableIncone.87oC/oo~2.~<'Changeof1,000percentormore.
LABORDATAANDINDUSTRIALREVENUESLABORDATA198619851984198319821981198019791978197710-Year1976%Ch~<CeEmployees-YearEndClassifiedSupervisoryandProfessionalExecutives.Total(a).924927926.9243913973793851210121113271334131713209523841013469683641313459643371313149763139129898330310129699529491,2981,03929091,338(11)3533(1)WeeklyWagesPaid-YearEndLevelIncludingOvertime.ExcludingOvertime.$736$615$682$583$596$546$562$512$518$481$486$436$442$411$402$371$375$349$324$345$326$302127104EmployeeCompensation-ThousandsPayrollChargedtoOperationandMaintenanceElectricGas.PayrollChargedtoConstructionandOther.....RosetonPayroll-BilledtoOthers(a).TotalPayroll.29,7265,14811,985389050,74926,4414,4339,578348327,7564,64311,1073555470614393526,0604,3227,90530264131323,5224,0338,08329503858821,0433,5967,7032,5913493318,9163,0417,20222893144817,4202,7306,66621942901015,6512,5196,15223532667514,2302,4306,395217425,22912,9632,3116,593245924.3261291238258109AnnualCostofFringeBenefitsChargedtoOperationandMaintenance-Thousands..RatiosforPayrollChargedtoOperationandMaintenance:Payroll(IncludingBenefits)asPerCentofCorporateRevenuesBenefitsasPerCentofPayroll.INDUSTRIALREVENUES-Thousands7,0169.620.16,8657.821.26,6297.221.56,3997.821.15,5647.420.24,8946.619.93,9867.918.23,5659.317.73,43410.218.92,9309.417.62,25010.314.7212P)37ElectricCustomersBuildingProducts.Chemicals&Petroleum.Clothing.FoodProcessing.Foundries.MachineandMetalProducts.PaperandPaperProductsPrintingandPublishing.RubberProductsTextiles.MiscellaneousTotal13,0341,36120994543478,1672,5742,1341,1836391,80510248514,5841,6873691,19131175,2183,2931,5002,0291,35388915,5121,5343081,04542885,6692,9691,8971,2256711,98911324710242413,8291,4761317162,81460,0343,1011,2401,3311,14936628948313,3111,2621168852,35553,6502,7531,8731,1071,64933048226516,6161,2291521,0132,60451,1832,7121,9091,1302,19431508389213,7261,0071458301,97736,5932,1211,5518911,64926976318713,3637961396051,62426,8401,7341,1857851,30921655054510,6137351366121,29221,4211,5501,0016921,4722,0374156110,1037221266351,36719,7371,3539486881,4131,479385716,6296121155661,29816,1571,1237795651,1091,47630,429FIVELARGESTELECTRICCUSTOMERSIBMIndependentCementLehighPortlandCementCompanyVAWofAmericaTarkett,lnc.1986Revenues(Thousands)71,0474,6634,2862,0681,513FIVELARGESTGASCUSTOMERSPowell&MinnockBrickWorks,Inc.IBMTechnicalTapeCorp.EasternAlloys,Inc.VassarBrothersHospital$1,7861,75079449531616(a)IncludesthefolkwiingnumberofemployeesattheRosetonElectricGeneratingPlantwhichtheCompany,ConsolidatedEdisonCo.ofNewYork,Inc.andNiagaraMohawkPowerCorporationovmastenantsincommon:TheCompanyhad,initially,a200%%durwfcvidedinterestintheoccvnershipofthePlant.AsofDecember31,1982,theCompanyhasa350%%duncfcvidedinterest.TheCompanyoperatesthePhntasagentforthethreeovmers.112114113107107 CAPITALIZATIONRATIOSNotes807060QD4030201001976777879HU5080818283848586f-1Common~EquityPreferredStock~OtherLongTerm~DebtMMorlgageBondsCOVERAGERATIOS(BEFOREINCOMETAX)OOru2EI-0~1OX197677787980818283848586MARKETANDBOOKVALUEOFCOMMONSTOCK3530I-IInterestCharges~IncludingAFDC11InterestCharges~ExcludingAFDCMInterestChargesandPreferredStockDividends2510(tr15010RATIOOFINCOMEAVAILABLEFORCOMMONSTOCKTOOPERATINGREVENUE,TOAVERAGEEQUITYCflKO'al<<Ctf'-C/3CLKClKcCcCI-ClILO133197677767960616263646566ClosingPriceatDec.31BookValueatDec.31High~MarketValueRangefortheYearLow2520151ruO10ruToOperatingRevenue~ToAverage~Equity197677787980818283848586 CAPITALIZATIONANDFINANCIALRATIOS1986198519841983198219811980197919781977197610-Year~%ChaneBookValuePerShareofCommonStockearEnCapitalization-ThousandsFirstMortgageBonds..............ConvertibleDebentures.............Long-termPromissoryNotes.........TermLoanNotesUnamortizedPremiumandDiscountonDebt-Net...........TotalLong-termDebt(a)...........PreferredStock-ParValue..........CommonStock.RetainedEarningsPremiumonStockCapitalStockExpense..............TotalCommonEquity.............TotalCapitalization...............CurrentMaturitiesofLong-termDebt...Short-termDebt.TotalCapitalizationincludingCurentMaturitiesofLong-termDebtandShort-termDebtCapitalizationRatios-PerCentIncludingShort-termDebtandCurrentMaturitiesofLong-termDebt:Long-termDebtPreferredStockCommonEquityShort-termDebtSelectedFinancialIndices:PretaxCoverageofTotalInterestCharges(b):IncludingAFDC(c)...........ExcludingAFDC(c)..........PretaxCoverageofTotalInterestChargesandPreferredStockDividends(b)PercentofConstructionExpendituresFinancedfromInternalFunds(d)............AFDCasaPercentageofIncomeAvailableforCommonStock....EffectiveTaxRate(e)...........$327,400112,325$332,400112,500$312,400$267,40040,4257,200$278,4007,375$233,5007,550608~679~5082181,03081,03081,03081,0306103061,030279,685164,73367~4625214,464145,85667~4,303184,816126,31367~4,040156,927110,49567~3840131,00099,52267~2677)111,16588,95767~2480439860356084307156263,649227,912197,709960,215175881,477175740,403175618,60011,17523000573,96717526500498,9686,17516500$960390$881652$740578$652775$600642$52184345.88.445.8100.050.49.240.4100.047.610.941.5100.043.712.440.43.5100.047.510.237.94.4100.047.211.737.93.2100.03.142A33.172.543.192.592.842.352.652.122.381.882.662.512.2317%31%35%41%32%38%55%34%50%35%49%36%48%34%50%27%54%23%439325444383352217273921285025240,229$209,5007,725$159,5008,0007,90020,000$151,5008,0008,07535,000$151,5008,0008,250$147,00016,0008,425~2532169726103095,54680,15567~2326'73,442451,44418,175470501195,568203,0451682511719576103061,03061,03046,03076,37167,08467~224576,37173,69167~2245147,884141,277405,35217523000404,48212,1754500066,03161,48167.~2,154125425354,7068,1751700066,03156,32667~1,875120549338,5364,3752000050.113.036.9100.045.013.232.09.8100.047.446.414.216.133.033.05.44.5100.0100.048.612.733.25.5100.02.231.742.311.923.172.802.812.552.682.721.862.072.0868%61%31%63%78%60%19%46%18%31%31%24%27%14%27%$469619$461657$428527$379881$362911123(100)*(175)15576324192147265184(96)(100)ValueofEquityNumberof(ThousandsShares~ofDollarQho~osands1986439,86014,1061985356,08412,0751984307,15611,0071983263,6499,6211982227,9128,5091981197,7097,4561980173,4426,5441979147,8845,3731978141,2775,3731977125,4254,8731976120,5494,873BookValuePerShare~Dolhrs31.1829.4927.9127.4026.7826.5226.5127.5226.2925.7424.7419861985198419831982198119801979197819771976MarketValueofCommonStock(Dollars)~s397/a-26s/a31'/4-2325s/e-16'Ia26'/a-21'/a24s/4-17'/a19-1619r/a-152(P/4-1822'Ia-19s/4223/a-19~/a2(P/4-17'/aNumberofSharesTradedonNewYorkStock~Eaohana11,357,0004,381,4003,786,2001,961,0002,414,8001,017,100801,100402,500451,400574,000498,000(I)PricerangefortheyearontheNewYorkStockExchange.MarketValuePerShareofCommonStockandSharesTradedRatioofIncomeAvailableforCommonStock-PerCentToOperatingRevenue...ToYear-endEquity......ToAverageEquity.......13.513.514.710.615.015.68.514.5'5.77.314.414.57.014.614.75.714.014.06.06.912.711.912.512.27.611.411.76.811.311.57.710.811.017(a)ExcludescurrentmaturitiesofIong-termdebt.(b)Forthepurposeofcomputingthesecoverageratios,earningsavailableforcoverageconsistofnetincomeplustotalinterestchargesplusallfederalincometaxamounts.Totalinterestchargesexcludetheallowanceforborrowedfundsusedduringconstruction.Preferredstockdividendsrepresentthepreferredstockdivi-dendrequirementtdeterminedona"pre-incometaxbasis".(c)AFDCincludesanySterlingcarryingchargeamounts.(d)Constructionexpendituresrepresent"CashConstructionExpenditures".Internalfundsare"FundsfromOperations"less"Dividends"(seepage11).(e)TheeffectivetaxrateiscomputedbydividingthefederalincometaxasreportedintheStatementofIncomebytheTaxableIncone.87oC/oo~2.~<'Changeof1,000percentormore.
NotesDEBTMATURITYSCHEDULE757065(I)605550045~400353025020151050(F)(F-)(F)(A)(F)(B)U19881990199119921993199419951999200020022004200520072009201220142020(A)INCLUDES$10MILLIONSINKINGFUNDREQUIREMENTONFIRSTMORTGAGEBONDSMATURINGIN1992.(B)INCLUDESUNSECUREDNOTES-BALANCEOF$5.45MILLIONAFTERANNUALREQUIREDSINKINGFUNDPAYMENT.(C)PROMSSORYNOTES-WILLBESUBJECTTOREPRICINGANDINVESTORTENDERONEACHOCTOBER1,COMMENCINGOCTOBER1~1989.THECOMPANYHASAONE-TIMEOPTIONTOCONVERTTOALONG-TERMFIXEDRATEATANYANNUALTENDERDATE.(D)PROMISSORYNOTES-WILLBESUBJECTTOREPRICINGANDINVESTORTENDERONAWEEKLYBASIS.THECOMPANYHASAONE-TIMEOPTIONTOCONVERTTOALONG-TERMFIXEDRATE.(E)INCLUDESSINKINGFUNDREQUIREMENTSONRRSTMORTGAGEBONDSMATURINGIN1994($5IN1992AND$20IN1993).(F)INCLUDESSINKINGFUNDREQUIREMENTSONRRSTMORTGAGEBONDSMATURINGIN1995($4IN1991,1992,1993AND1994).COMPONENTSOFPERMANENTFINANCINGCOOI-lLKcCzLLOKKQI-h40-O80070056ootgO500Do4ootfl0<300=200100pIjIj5~197677787980818283848586MortgageBondsOtherLongTermOebtPreferredStockCommonMStock DETAILOFLONG-TERMDEBT(ThousandswhereDollarsareIndicated)19861985198419831982198119801979197819771976DateIssuedMaturityDatePublicProceedsRedemptionOfferingtoPricePrice~Ccman12/31/86FirstMo27/a%D3.3%D3.2%D41/e%D142/z%D17'le%D13%D14/a%D8'/e%D11%D7'la%DSs/7s/49/4%10s/e%6'/4%1&#xc3;/4%12/a%11'/4TotalFrtgageBonds-December31ue1980ue1982ue1984ue1988ue1990ue1991(i).ue1992(c)ue1994(m)................ue1994ue1995ue1999Due2000.Due2002Due2004.Due2005.Due2007.Due2009.Due2010(i).Due2012irstMortgageBonds........$18,00025,00035,00045,00050,00020,00020,00025,00020,00015,00020,0004,50020,0009900$18,00025,00030,00035,00045,00020,00020,00025,00020,00015,00020,0004,50020,00025,0009900$18,00025,00030,00035,00045,00020,00025,00020,00015,00020,0004,50020,00025,0009900$18,00025,00030,00035,00020,00025,00020,00015,00020,0004,50020,00025,0009900$11,00018,00025,00030,00035,00020,00025,00020,00015,00020,0004,50020,00025,00099M$6,000$11,00011,00018,00018,00025,00025,00030,00020,00025,00020,00015,00020,0004,50020,00025,00020,00025,00020,00015,00020,0004,50020,00025,000$6,00011,00018,00020,00025,00020,00015,00020,0004,50020,000$12,0006,000l1,00018,00020,00025,00020,00015,00020,0004,500$12,0006,00011,00018,00020,00025,00020,00015,00020,0004,500$12,0006,00011,00018,00020,00025,00020,00015,00020,000$327400$332400$312400$267400$278400$233500$209500$159500$151500$151500$147000Dec.1,1950Dec.1,1952Oct.1,1954May15,1958Dec.2,1980Aug.26,1981Nov.30,1982May30,1984Sept.1,1986July2,1985Jan.23,1969June10,1970Feb.17,1972Apr.24,1974Nov.13,1975June9,1977Sept.27,1979May22,1980Sept.30,1982Dec.1,1S80Dec.1,1982Oct.1,1984May15,1988Nov.15,1990Aug.15,1991Dec.4,1992June12,1994Sept.1,1994July2,1995Jan.15,1999June1,2000Feb.1,2002Apr.15,2004Nov.1,2005June1,2007Sept.15,2009May15,2010Sept.1,2012(a)(a)(a)102.172100.0098.75(a)(a)99.854(a)100.00100.50101.763101.500101.595100.0099.556100.00100.00101.12100.00100.00101.3999.2598.00100.00100.0099.204100.0099.1899.625100.931100.407100.515100.0098.63699.125100.00100.22(b)(d)(m)(n)(I)102.95104A3104.93106.31107.59(e)107.82(i)OtherLong-termDebt-December31PromissoryNotes4.85%Due1995(g)............1984SeriesADue2014(j)1984SeriesBDue2014(j)1985SeriesADue2020(k)1985SeriesBDue2020(k)TotalPromissoryNotes..........6,67516,70016,70036,250360M$6,85016,70016,70036,25036000$112325$112500$7,025$7,200$7,375$7,550$7,725$7,900$8,075$8,250$8,425Dec.16,700Oct.16,700Oct.Nov.Nov.$40425$7200$7375$7550$7725$7900$8075$8250$842521,1965Dec.15,1984Oct.15,1984Oct.26,1985Nov.26,1985Nov.1,1995(a)1,2014100.001,2014100.001,2020100.001,2020100.00100.00100.00100.00100.00100.00101.08O)0)(k)(k)ConvertibleDebentures4s/e%Due1981...............5s/4%Due1978...............TermLoanNotes(a)(h)...........TotalDebenturesandOtherNotes$8,000$8,000$8,000$8,000June15,1966June1,1S81101.375100.508,000-Feb.25,1971Feb.1,1978100.0099.002000035000Dec.29,1978$28000$43000$8000$16000I8(a)Placedprivately.(b)NotredeemablepriortoNovember15,1987.(c)The13%firstmortgagebondshaveasinkingfundrequirementof$10000in1991.(d)NotredeemablepriortoDecember4,1989.(e)NotredeemablepriortoJune1,1987.(f)NotredeemablepriortoSeptember1,1987.(g)The4.85%promissorynoteshaveanannualsinkingfundrequirementof$175.(h)InDecember1978theCompanyissuedtermloannotesaggregating$35milliontothreebanks.TheLoanAgreementunderwhichthesenoteswereissuedprovidedthatthenotesshouldbepaidinthreeconsecutiveannualinstallmentscommencingDecember31,1979.TheCompanyrepaid$15milliononDecember31,1979,$10milliononDecember31,1980,and$10milliononAugust31,1981.Theinterestrateonsuchnoteswasthe"prime"rateineffectattheIrvingTrustCompany.(i)The17V6%and123//8%firstmortgagebondswereredeemedonSeptember15,1986.(j)PromissoryNotesissuesInconnectionwiththesalebyNewYorkStateEnergyResearchandDevelopmentAuthorityoftax-exemptpollutioncontrolrevenuebonds,seriesAandB,bearinterestat7V2%perannumtromthedateofissuanceuptoandincludingSeptember30,1989.ThebondswillbesubJecttorepricingandinvestortenderoneachOctober1,commencingOctober1,1989.TheCompanyhasaone-timeoptiontoconverttoalong-termfixedrateatanyannualtenderdate.(k)PromissoryNotesissuedinconnectionwiththesalebyNewYorkStateEnergyResearchandDevelopmentAuthorityoftax-exemptpollutioncontrolrevenuebonds,seriesAandB,hadaninterestrateof51/8%throughJanuary31,1986.Atthatdatethesebondsbecamevariablerateobligationssubjecttoweeklyrepricingandinvestortender.Thecompanyhasaone-timeoptionforeachseriestoconverttoalong.termfixedrate.(I)The11%tirstmortgagebondshavesinkingtundrequirementsof$4,000ineachyear1991through1994;notredeemablepriortoJuly2,1992.(m)The145//8%firstmortgagebondshavesinkingtundrequirementsof$5,000in1992and$20,000In1993.NotredeemablepriortoJune12,1991.(n)Notredeemablepriortomaturity.I NotesNotesI-LQClI-cbKOOL5 DETAILOFPREFERREDSTOCKANDCOMMONSTOCK(ThousandswhereDollarsareIndicated)19861985198419831982198119801979197819771976DateIssuedPublicProceedsRedemptionMaturityOfferingtoPriceDatePrice~Ccman12/31/86PreferredStock-December31($100ParValue)4'/a%PreferredStock........4'/a%PreferredStock.....-...4.75%PreferredStock........4.35%PreferredStock........4.96%PreferredStock........7.72%PreferredStock........7.44%PreferredStock........8.40%PreferredStock........AdjustableRatePreferredStockTotalPreferredStock$6,6903402,0006,0006,00013,00012,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,00020000$6,6903402,0006,0006,00013,00012,00015,00020000$6,6903402,0006,0006,00013,00012,00015,00020000$6,6903402,0006,0006,00013,00012,00015,000200M$81030$81030$81030$81030$61030$61030$61030$61030$61030$61030$46030Oct.1,1936Oct.1,1936Apr.1,1949Nov.1,1954June21,1961Feb.25,1971Jan.17,1973May24,1977Mar.30,1983(a)102.50107.50105.00103.75100.55(b)100.00(b)100.00100.0098.55101.22100.323100.0098.80100.0097.50107.00107.00106.75102.00101.00101.00104.94105.60100.00(c)NumberofRegisteredHoldersofPreferredStock..........2,8013,0073,1293,2383,3563,4543,7043,7613,8533,9433,918(a)Exchangedforearlier6%preferredstockandissuedonanequalsharebasisplus$2.50cashpershare.(b)Placedprivately.(c)TheadjustableratepreferredstockisnotredeemableattheoptionoftheCompanypriortoApril1,1988.Asinkingfundprovidesfortheannualretirementof8,000shares,at$100pershare,plusaccrueddividends,oneachMarch30,commencingMarch30,1993.Thedividendtobepaidisatafixedrateof11%perannumfromthedateofissuancetoJanuary1,1984andadjustedeachquarterthereaftertobe1%perannumbelowthehighestofthreespecificTreasuryrates.Theratewillneverbelessthan6%perannumorgreaterthan125%perannum.CommonStock(NoParValue)NumberofShares(Thousands)-December31.NewSharesIssued(Thousands)TotalStatedValueSharesOutstanding-December31..14,10612,07511,0079,6218,5097,4566,5445,3735,3734,8734,8732,0311,0681,3861,1121,0539121171$279,685$214,464$184,816$156,927$131,000$111,165$95,546$76,371$76,371$66,031$66,031NumberofRegisteredHoldersofCommonStock..........31,21232,23432,65131,51427,92325,29624,70924,34724,99023,54523,738 OQI-fjlKOOClKOQI-CilCICLLLOI-cCONotes20DIRECTORSERNESTE.ALTHOUSEWfkxNStreet,PA.ViceChairmanofthsBoardandViceChairmanoftheCommitteeonFinance;MernbeofXecutiveComrnineeandCommitteeanCampensat'cnandSuccssscnRAYMONDT.BENEDICT"Stamford,CT.Lawyer,ofCounsel.Cummings&~;McmbeofxecutivsCommitteeandCommitteeonFinance'AMESR.BREED,M.D.Poughkeepsie,N.Y.Surgeon;MemberofCommitteesonAuditandonCompensat'cnandSuccessionMARJORIES.BROWNMinbroak,N.Y.Homemaker.activeincivicandph'nthropcwork,formerlyeccutlV8IflfCtaTTingandpromotionalorganizations:MemberofCommitteeonCompensationandSuccessionandRetirementCommitteeTHEODOREJ.CARLSONPoughkeepsie,NYChairmanoftheBoard;ChairmanofExecutiveandRctirencntCommittees;RICHARDH.EYMANNorwa&.CT.Communications,DivisionofJ.WalterTfiampsonCompany;ChairmanofCommitteeonAuditEDWARDF.X.GALLAGHERNewburgh,N.Y.PresidentandOwnerGattagherTransportationSevices:MemberofRetiremenlCommitteeROYC.KETCHAMFeshhN,N.Y.ChairmanoftheBoardandChief'xccut'veOffccr,KctchamMotors,lnc.;ChairmanoftheBoardofTheFishkilNationalBank;ChaieenaeeoftheCommitteeonCompensationandSuccession;MemberofXxccut'vsCommitteeJOHNE.MACKIIIPoughkeepsie.N.Y.PresidentandChiefExecutiveOffcer,MenberofExecutiveandRetirementCommittees.andCommineesonFinanceandonCompensationandSuccessionHOWARDC.ST.JOHNGlenford,N.Y.ChairmanoltheBoardandresident.UlsterSavingsBank;Lawyer,HowardC.SLJohn&Associates:ChairmanofCommitteeonFinanceLEEC.WHITEWashington,D.C.Lawyer.White,Fine&VcrvRle;MemberofCammitteeonAuditJOHNWILKIEKatonah,NY.'iceCharrnanofXxecufNeComminee;MemberafRetirementCommitteeandCommitteesonFinanceandAuditRetired12/31/86"Retired41/86OFFICERSOFTHEBOARDTHEODOREJ.CARLSONChairmanoltheBoard;ChairmanofExecutiveandRetirementCommitteesJOHNWILKIEViceChairmanofthexecutiveCommitteeERNESTE.ALTHOUSE'iceChairmanoftheBoardandofCammfneeonFinanceROYC.KETCHAMChairmanofCommitteeonCompensationandSuccessionHOWARDC.ST.JOHNChairmanofCommitteeonFinanceRICHARDH.EYMANChairmanafCommitteeonAxQOFFICERSJOHNE.MACKIIIress'dentandChiefXxcculisOffcerLWALLACECROSSSanerVicePresident-Finance,andAccaunbngPAULJ.GANCISeniorVicePresident-OpeationsWILLIAME.VANWAGENENVicePresident.CorporateCommunicationsandGovernmentalAffairsGLADYSL.POWELLSecretaryERICM.MARKELLTreasurerJOHNFDRAINCcntrotfeHERBERTM.ROUNDVicePresident.CorporateBanningandEnergyControlALLANR.PAGEVcePresidcm.XnginccringCARLE.MEYERAss'stantVcePresident.ProductionJOSEPHJ.DeVIRGILIO,JR.Viceress'dent-CustomerServkmJAMESE.SMITHVcePresidentWALTERA.BOSSERT,JR.ecretaryandSsistantTreasurerCHARLESH.DENNY,JR.TreasurerandAss'stantSccetaryTRANSFERAGENT&REGISTRARCOMMON&PREFERREDSTOCKMorganSharehoklsrSevicesTiust~30BroadwayNewYbrk,N.Y.10015GENERALCOUNSELGould&WitkieOneWaftStreetNewark,N.Y.10005INDEPENDENTACCOUNTANTSPriceWaterhouse153East53rdStreetNew+A,N.Y.10022 IrVHN/(Mvk"~.IMtl<<critHfhflrfjnf~f~r~sfsa'hadg/St{tINCOtthnlIFI,adgatcrt<<dz'rernhjd1'~v6InsfneMldddburgwdrvcswI'L'ft~iLnPrpHl'tllosdafsse!Whore"s<<r>>vn.;.h"'gist{I.';gr/1I<<NrInegWe.nettfn<<wfr/.G(ACr,lsllsrsfIWrofte5tof/v4Conrail..p.11If/Cnllnnns'lo-.-n'GprfntvocIxSQR1NrlfrItynectctoCarLjenB<<aw~wfyil,.rCr(vasnd*M!fordPs.IfsI!1Q(SHs,errchtnrnsrIN1'5'/(M"P~,ii~N.Iwry<<HNMCI/GGsvond<<tHtrylMs<<ICXIVtrNIO\/{2,<<MM'Gens~c4tSN.McsKM,WStginfotdHncMtnfOVGNNI!Vxnwdt'lvS,KerrC/e4nlI1vr/Prsev/4SIc/NestJMrs/1fOcNWfI'VegaWa.ANsHW.ORg,frfwsr{'xneseHtxrcfs'i~/HHlsltHtnvsrnXe!lyC<<And!IMofgorot-Vl!IGenrnes1ArpvSe///nrr>>/ieDrptv~r~I'rparavlnteOOCPMIS,*Mrddf<<r(N~4SLsrdeltwinPrd4cessTvrnecodce.P(NMdsrSla<<XIOHscllcnd\Jacea!roryPMdIGsffvce!0!lnHfti'!artsssfeosfloniar<<vneWjcsnnaevngarneLCllxttPlMonMode>>Halloo6Co<<Mr<<gIHdGlLHdCvrnvsitW,Crnltlclll~nd4vhexingKnCrash;!Cssen~Bd4INSWcdgdtantasfsgoH2thMsn>>!1atroAsshes'INa4<<PtvponyMvL>>(OMHNI(Xlvlrls4Wood.c&#x17d;fCMfa/cacvont'nlcrrcfrfgrrrwRna4II(NWtY/pgdftvi'One{inta"41ItHereofAINfflfIa~crtadpdc'{3'se4~gpncaetavigoRcaswnd4ntoaapfSlopsirCVohfm<<CC{Itt(V2dgfes~NllsNWNosBcgpttp4/ritNt~AM&#x17d;/I71/.IAcn<<NP'ejtooIGtMen<<l/ro(<<cpLCetodV4HudSOnmont/pgf(pofschH.kcaetM!P6t/cssdMn!thgna1Cfrw'IsfL~/'I"jcwcasHsrNn!4eg6tttnrlglt0(hcrnI('rrfnertNetttPteMHNINsMra<<O~(f1<<dtOolyn'giicnnowntv(Mt/Qr)nflnppl~~rdNtlIIl(MrfactsNign~u<<wh4//tNN//An<<a<<G<<w,Notlolaffwts/Lcf1C<<sNItajjchv/ymyitsMVotto2ojns~6IMd!pl(doa~oISccaCRVn~cN6/IMNWtlMel/tllSWsrGleanI51,tlGyfinttcdh~1~toSSH/ttsnf/IvINaf1vinest~tnsrnt/vlngpccttMsfxvrrrw,sa444-,"I3hk<<GaveMnrwKlgstpntnHertII/{I,fifam'fkr',GaWdfsrvOCCM2'1/dooefCape(ornConHWIId7CtfaSWSMOOpres~.f/~nrdr<<<<tao{too<<IRcafccoP<<rdvsa(Ma<<N(aMa1~onMsp'>>Bewfyjttpoop(a5CvoosacwotnCBcl6para44'Creat<<a<<4HNcsvrwnsO~vi<<levsljsvtaWss1rtlUssrCrsssc~,Veve<<tI~I(CXNIICt<<fist(OarIWwtpeSv!!4vr/Sist'ler~geest/4telosXrnlsteloStt~Ltst2Pcr<<r<<4i1tHlmglasssaaxffyShtfnfOM(rlerlMfhr11~IPougbtteeps4<~sttBredeI~<<Os,nO<<4rCsgltrcrees<<lIce/jrosvnaI2!v(!~~Iatrv<<fifa2gchfd<<WaresrnNldIrrdWI>>HoMrol<<NI~~IgrfrjdHrtf2/lrk:1!slo/Hvkfsdhn(HlhtiIVHrlvg'llvnl<<rrlnpens<<pcrpve/Igrfc'rn~nL'lrrnsy~refersow/rdRcslrsCrw<<rNeeodtngttsnr5I/clroIftsll,rrBwf4>~W"VWrftn<<nL~4<<eWrest/Rrforttlorggx!IelfrLWWf<<~,G,'IJwslorgloflWstenowP!BctvfMWatefbuGffth/twoweasnoa~~-4Wrglg~paso<<nnttlrgn<<fagk~gtetHlIfrrnvrwvccr2Wr,ters6,'Ms!IrdMsfdNNope"9'tgvrps~vestNew{Ig)Mfi/ofdfloIIIialtslaCHtrrcccnaIrtfrr/eH*QW(cd8!pf5thrsD1{BS~nt'yi(ttsrie{it""-/''t~5IIjt'dlVsr/esa6Cwe<<enwcJM(waSpsnnvrpor(sacsMljomnfat*i'xjofdIOG(NLRACGNAnlscnCGWHC'.~h'1el,55s<<c<<scpVoceCalo~jyMnar'rvIf5<<.BPt/Nw'!Or'IP'fknfIB,.VlN.Ssl<<aLhnsod<<sf'e///I,.CsHcvslrsDanbupitc<acth',tffyiRMCfats>>kgpgptp(tcbjscf5ntItarv<<THEREGIONmfUSERVECentralHudsonisaninvestor-ownedutilityservingmorethan281,000electriccustomersand50,000naturalgascustomersintheMid-HudsonValleyandtheeasternCatskillMountains.Its2,600square-mileserviceterritoryreachesfrom25milesnorthofNewYorkCityto10milessouthofAlbanyandincludesportionsofeightcounties.
NotesDEBTMATURITYSCHEDULE757065(I)605550045~400353025020151050(F)(F-)(F)(A)(F)(B)U19881990199119921993199419951999200020022004200520072009201220142020(A)INCLUDES$10MILLIONSINKINGFUNDREQUIREMENTONFIRSTMORTGAGEBONDSMATURINGIN1992.(B)INCLUDESUNSECUREDNOTES-BALANCEOF$5.45MILLIONAFTERANNUALREQUIREDSINKINGFUNDPAYMENT.(C)PROMSSORYNOTES-WILLBESUBJECTTOREPRICINGANDINVESTORTENDERONEACHOCTOBER1,COMMENCINGOCTOBER1~1989.THECOMPANYHASAONE-TIMEOPTIONTOCONVERTTOALONG-TERMFIXEDRATEATANYANNUALTENDERDATE.(D)PROMISSORYNOTES-WILLBESUBJECTTOREPRICINGANDINVESTORTENDERONAWEEKLYBASIS.THECOMPANYHASAONE-TIMEOPTIONTOCONVERTTOALONG-TERMFIXEDRATE.(E)INCLUDESSINKINGFUNDREQUIREMENTSONRRSTMORTGAGEBONDSMATURINGIN1994($5IN1992AND$20IN1993).(F)INCLUDESSINKINGFUNDREQUIREMENTSONRRSTMORTGAGEBONDSMATURINGIN1995($4IN1991,1992,1993AND1994).COMPONENTSOFPERMANENTFINANCINGCOOI-lLKcCzLLOKKQI-h40-O80070056ootgO500Do4ootfl0<300=200100pIjIj5~197677787980818283848586MortgageBondsOtherLongTermOebtPreferredStockCommonMStock DETAILOFLONG-TERMDEBT(ThousandswhereDollarsareIndicated)19861985198419831982198119801979197819771976DateIssuedMaturityDatePublicProceedsRedemptionOfferingtoPricePrice~Ccman12/31/86FirstMo27/a%D3.3%D3.2%D41/e%D142/z%D17'le%D13%D14/a%D8'/e%D11%D7'la%DSs/7s/49/4%10s/e%6'/4%1&#xc3;/4%12/a%11'/4TotalFrtgageBonds-December31ue1980ue1982ue1984ue1988ue1990ue1991(i).ue1992(c)ue1994(m)................ue1994ue1995ue1999Due2000.Due2002Due2004.Due2005.Due2007.Due2009.Due2010(i).Due2012irstMortgageBonds........$18,00025,00035,00045,00050,00020,00020,00025,00020,00015,00020,0004,50020,0009900$18,00025,00030,00035,00045,00020,00020,00025,00020,00015,00020,0004,50020,00025,0009900$18,00025,00030,00035,00045,00020,00025,00020,00015,00020,0004,50020,00025,0009900$18,00025,00030,00035,00020,00025,00020,00015,00020,0004,50020,00025,0009900$11,00018,00025,00030,00035,00020,00025,00020,00015,00020,0004,50020,00025,00099M$6,000$11,00011,00018,00018,00025,00025,00030,00020,00025,00020,00015,00020,0004,50020,00025,00020,00025,00020,00015,00020,0004,50020,00025,000$6,00011,00018,00020,00025,00020,00015,00020,0004,50020,000$12,0006,000l1,00018,00020,00025,00020,00015,00020,0004,500$12,0006,00011,00018,00020,00025,00020,00015,00020,0004,500$12,0006,00011,00018,00020,00025,00020,00015,00020,000$327400$332400$312400$267400$278400$233500$209500$159500$151500$151500$147000Dec.1,1950Dec.1,1952Oct.1,1954May15,1958Dec.2,1980Aug.26,1981Nov.30,1982May30,1984Sept.1,1986July2,1985Jan.23,1969June10,1970Feb.17,1972Apr.24,1974Nov.13,1975June9,1977Sept.27,1979May22,1980Sept.30,1982Dec.1,1S80Dec.1,1982Oct.1,1984May15,1988Nov.15,1990Aug.15,1991Dec.4,1992June12,1994Sept.1,1994July2,1995Jan.15,1999June1,2000Feb.1,2002Apr.15,2004Nov.1,2005June1,2007Sept.15,2009May15,2010Sept.1,2012(a)(a)(a)102.172100.0098.75(a)(a)99.854(a)100.00100.50101.763101.500101.595100.0099.556100.00100.00101.12100.00100.00101.3999.2598.00100.00100.0099.204100.0099.1899.625100.931100.407100.515100.0098.63699.125100.00100.22(b)(d)(m)(n)(I)102.95104A3104.93106.31107.59(e)107.82(i)OtherLong-termDebt-December31PromissoryNotes4.85%Due1995(g)............1984SeriesADue2014(j)1984SeriesBDue2014(j)1985SeriesADue2020(k)1985SeriesBDue2020(k)TotalPromissoryNotes..........6,67516,70016,70036,250360M$6,85016,70016,70036,25036000$112325$112500$7,025$7,200$7,375$7,550$7,725$7,900$8,075$8,250$8,425Dec.16,700Oct.16,700Oct.Nov.Nov.$40425$7200$7375$7550$7725$7900$8075$8250$842521,1965Dec.15,1984Oct.15,1984Oct.26,1985Nov.26,1985Nov.1,1995(a)1,2014100.001,2014100.001,2020100.001,2020100.00100.00100.00100.00100.00100.00101.08O)0)(k)(k)ConvertibleDebentures4s/e%Due1981...............5s/4%Due1978...............TermLoanNotes(a)(h)...........TotalDebenturesandOtherNotes$8,000$8,000$8,000$8,000June15,1966June1,1S81101.375100.508,000-Feb.25,1971Feb.1,1978100.0099.002000035000Dec.29,1978$28000$43000$8000$16000I8(a)Placedprivately.(b)NotredeemablepriortoNovember15,1987.(c)The13%firstmortgagebondshaveasinkingfundrequirementof$10000in1991.(d)NotredeemablepriortoDecember4,1989.(e)NotredeemablepriortoJune1,1987.(f)NotredeemablepriortoSeptember1,1987.(g)The4.85%promissorynoteshaveanannualsinkingfundrequirementof$175.(h)InDecember1978theCompanyissuedtermloannotesaggregating$35milliontothreebanks.TheLoanAgreementunderwhichthesenoteswereissuedprovidedthatthenotesshouldbepaidinthreeconsecutiveannualinstallmentscommencingDecember31,1979.TheCompanyrepaid$15milliononDecember31,1979,$10milliononDecember31,1980,and$10milliononAugust31,1981.Theinterestrateonsuchnoteswasthe"prime"rateineffectattheIrvingTrustCompany.(i)The17V6%and123//8%firstmortgagebondswereredeemedonSeptember15,1986.(j)PromissoryNotesissuesInconnectionwiththesalebyNewYorkStateEnergyResearchandDevelopmentAuthorityoftax-exemptpollutioncontrolrevenuebonds,seriesAandB,bearinterestat7V2%perannumtromthedateofissuanceuptoandincludingSeptember30,1989.ThebondswillbesubJecttorepricingandinvestortenderoneachOctober1,commencingOctober1,1989.TheCompanyhasaone-timeoptiontoconverttoalong-termfixedrateatanyannualtenderdate.(k)PromissoryNotesissuedinconnectionwiththesalebyNewYorkStateEnergyResearchandDevelopmentAuthorityoftax-exemptpollutioncontrolrevenuebonds,seriesAandB,hadaninterestrateof51/8%throughJanuary31,1986.Atthatdatethesebondsbecamevariablerateobligationssubjecttoweeklyrepricingandinvestortender.Thecompanyhasaone-timeoptionforeachseriestoconverttoalong.termfixedrate.(I)The11%tirstmortgagebondshavesinkingtundrequirementsof$4,000ineachyear1991through1994;notredeemablepriortoJuly2,1992.(m)The145//8%firstmortgagebondshavesinkingtundrequirementsof$5,000in1992and$20,000In1993.NotredeemablepriortoJune12,1991.(n)Notredeemablepriortomaturity.I NotesNotesI-LQClI-cbKOOL5 DETAILOFPREFERREDSTOCKANDCOMMONSTOCK(ThousandswhereDollarsareIndicated)19861985198419831982198119801979197819771976DateIssuedPublicProceedsRedemptionMaturityOfferingtoPriceDatePrice~Ccman12/31/86PreferredStock-December31($100ParValue)4'/a%PreferredStock........4'/a%PreferredStock.....-...4.75%PreferredStock........4.35%PreferredStock........4.96%PreferredStock........7.72%PreferredStock........7.44%PreferredStock........8.40%PreferredStock........AdjustableRatePreferredStockTotalPreferredStock$6,6903402,0006,0006,00013,00012,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,00020000$6,6903402,0006,0006,00013,00012,00015,00020000$6,6903402,0006,0006,00013,00012,00015,00020000$6,6903402,0006,0006,00013,00012,00015,000200M$81030$81030$81030$81030$61030$61030$61030$61030$61030$61030$46030Oct.1,1936Oct.1,1936Apr.1,1949Nov.1,1954June21,1961Feb.25,1971Jan.17,1973May24,1977Mar.30,1983(a)102.50107.50105.00103.75100.55(b)100.00(b)100.00100.0098.55101.22100.323100.0098.80100.0097.50107.00107.00106.75102.00101.00101.00104.94105.60100.00(c)NumberofRegisteredHoldersofPreferredStock..........2,8013,0073,1293,2383,3563,4543,7043,7613,8533,9433,918(a)Exchangedforearlier6%preferredstockandissuedonanequalsharebasisplus$2.50cashpershare.(b)Placedprivately.(c)TheadjustableratepreferredstockisnotredeemableattheoptionoftheCompanypriortoApril1,1988.Asinkingfundprovidesfortheannualretirementof8,000shares,at$100pershare,plusaccrueddividends,oneachMarch30,commencingMarch30,1993.Thedividendtobepaidisatafixedrateof11%perannumfromthedateofissuancetoJanuary1,1984andadjustedeachquarterthereaftertobe1%perannumbelowthehighestofthreespecificTreasuryrates.Theratewillneverbelessthan6%perannumorgreaterthan125%perannum.CommonStock(NoParValue)NumberofShares(Thousands)-December31.NewSharesIssued(Thousands)TotalStatedValueSharesOutstanding-December31..14,10612,07511,0079,6218,5097,4566,5445,3735,3734,8734,8732,0311,0681,3861,1121,0539121171$279,685$214,464$184,816$156,927$131,000$111,165$95,546$76,371$76,371$66,031$66,031NumberofRegisteredHoldersofCommonStock..........31,21232,23432,65131,51427,92325,29624,70924,34724,99023,54523,738 OQI-fjlKOOClKOQI-CilCICLLLOI-cCONotes20DIRECTORSERNESTE.ALTHOUSEWfkxNStreet,PA.ViceChairmanofthsBoardandViceChairmanoftheCommitteeonFinance;MernbeofXecutiveComrnineeandCommitteeanCampensat'cnandSuccssscnRAYMONDT.BENEDICT"Stamford,CT.Lawyer,ofCounsel.Cummings&~;McmbeofxecutivsCommitteeandCommitteeonFinance'AMESR.BREED,M.D.Poughkeepsie,N.Y.Surgeon;MemberofCommitteesonAuditandonCompensat'cnandSuccessionMARJORIES.BROWNMinbroak,N.Y.Homemaker.activeincivicandph'nthropcwork,formerlyeccutlV8IflfCtaTTingandpromotionalorganizations:MemberofCommitteeonCompensationandSuccessionandRetirementCommitteeTHEODOREJ.CARLSONPoughkeepsie,NYChairmanoftheBoard;ChairmanofExecutiveandRctirencntCommittees;RICHARDH.EYMANNorwa&.CT.Communications,DivisionofJ.WalterTfiampsonCompany;ChairmanofCommitteeonAuditEDWARDF.X.GALLAGHERNewburgh,N.Y.PresidentandOwnerGattagherTransportationSevices:MemberofRetiremenlCommitteeROYC.KETCHAMFeshhN,N.Y.ChairmanoftheBoardandChief'xccut'veOffccr,KctchamMotors,lnc.;ChairmanoftheBoardofTheFishkilNationalBank;ChaieenaeeoftheCommitteeonCompensationandSuccession;MemberofXxccut'vsCommitteeJOHNE.MACKIIIPoughkeepsie.N.Y.PresidentandChiefExecutiveOffcer,MenberofExecutiveandRetirementCommittees.andCommineesonFinanceandonCompensationandSuccessionHOWARDC.ST.JOHNGlenford,N.Y.ChairmanoltheBoardandresident.UlsterSavingsBank;Lawyer,HowardC.SLJohn&Associates:ChairmanofCommitteeonFinanceLEEC.WHITEWashington,D.C.Lawyer.White,Fine&VcrvRle;MemberofCammitteeonAuditJOHNWILKIEKatonah,NY.'iceCharrnanofXxecufNeComminee;MemberafRetirementCommitteeandCommitteesonFinanceandAuditRetired12/31/86"Retired41/86OFFICERSOFTHEBOARDTHEODOREJ.CARLSONChairmanoltheBoard;ChairmanofExecutiveandRetirementCommitteesJOHNWILKIEViceChairmanofthexecutiveCommitteeERNESTE.ALTHOUSE'iceChairmanoftheBoardandofCammfneeonFinanceROYC.KETCHAMChairmanofCommitteeonCompensationandSuccessionHOWARDC.ST.JOHNChairmanofCommitteeonFinanceRICHARDH.EYMANChairmanafCommitteeonAxQOFFICERSJOHNE.MACKIIIress'dentandChiefXxcculisOffcerLWALLACECROSSSanerVicePresident-Finance,andAccaunbngPAULJ.GANCISeniorVicePresident-OpeationsWILLIAME.VANWAGENENVicePresident.CorporateCommunicationsandGovernmentalAffairsGLADYSL.POWELLSecretaryERICM.MARKELLTreasurerJOHNFDRAINCcntrotfeHERBERTM.ROUNDVicePresident.CorporateBanningandEnergyControlALLANR.PAGEVcePresidcm.XnginccringCARLE.MEYERAss'stantVcePresident.ProductionJOSEPHJ.DeVIRGILIO,JR.Viceress'dent-CustomerServkmJAMESE.SMITHVcePresidentWALTERA.BOSSERT,JR.ecretaryandSsistantTreasurerCHARLESH.DENNY,JR.TreasurerandAss'stantSccetaryTRANSFERAGENT&REGISTRARCOMMON&PREFERREDSTOCKMorganSharehoklsrSevicesTiust~30BroadwayNewYbrk,N.Y.10015GENERALCOUNSELGould&WitkieOneWaftStreetNewark,N.Y.10005INDEPENDENTACCOUNTANTSPriceWaterhouse153East53rdStreetNew+A,N.Y.10022 IrVHN/(Mvk"~.IMtl<<critHfhflrfjnf~f~r~sfsa'hadg/St{tINCOtthnlIFI,adgatcrt<<dz'rernhjd1'~v6InsfneMldddburgwdrvcswI'L'ft~iLnPrpHl'tllosdafsse!Whore"s<<r>>vn.;.h"'gist{I.';gr/1I<<NrInegWe.nettfn<<wfr/.G(ACr,lsllsrsfIWrofte5tof/v4Conrail..p.11If/Cnllnnns'lo-.-n'GprfntvocIxSQR1NrlfrItynectctoCarLjenB<<aw~wfyil,.rCr(vasnd*M!fordPs.IfsI!1Q(SHs,errchtnrnsrIN1'5'/(M"P~,ii~N.Iwry<<HNMCI/GGsvond<<tHtrylMs<<ICXIVtrNIO\/{2,<<MM'Gens~c4tSN.McsKM,WStginfotdHncMtnfOVGNNI!Vxnwdt'lvS,KerrC/e4nlI1vr/Prsev/4SIc/NestJMrs/1fOcNWfI'VegaWa.ANsHW.ORg,frfwsr{'xneseHtxrcfs'i~/HHlsltHtnvsrnXe!lyC<<And!IMofgorot-Vl!IGenrnes1ArpvSe///nrr>>/ieDrptv~r~I'rparavlnteOOCPMIS,*Mrddf<<r(N~4SLsrdeltwinPrd4cessTvrnecodce.P(NMdsrSla<<XIOHscllcnd\Jacea!roryPMdIGsffvce!0!lnHfti'!artsssfeosfloniar<<vneWjcsnnaevngarneLCllxttPlMonMode>>Halloo6Co<<Mr<<gIHdGlLHdCvrnvsitW,Crnltlclll~nd4vhexingKnCrash;!Cssen~Bd4INSWcdgdtantasfsgoH2thMsn>>!1atroAsshes'INa4<<PtvponyMvL>>(OMHNI(Xlvlrls4Wood.c&#x17d;fCMfa/cacvont'nlcrrcfrfgrrrwRna4II(NWtY/pgdftvi'One{inta"41ItHereofAINfflfIa~crtadpdc'{3'se4~gpncaetavigoRcaswnd4ntoaapfSlopsirCVohfm<<CC{Itt(V2dgfes~NllsNWNosBcgpttp4/ritNt~AM&#x17d;/I71/.IAcn<<NP'ejtooIGtMen<<l/ro(<<cpLCetodV4HudSOnmont/pgf(pofschH.kcaetM!P6t/cssdMn!thgna1Cfrw'IsfL~/'I"jcwcasHsrNn!4eg6tttnrlglt0(hcrnI('rrfnertNetttPteMHNINsMra<<O~(f1<<dtOolyn'giicnnowntv(Mt/Qr)nflnppl~~rdNtlIIl(MrfactsNign~u<<wh4//tNN//An<<a<<G<<w,Notlolaffwts/Lcf1C<<sNItajjchv/ymyitsMVotto2ojns~6IMd!pl(doa~oISccaCRVn~cN6/IMNWtlMel/tllSWsrGleanI51,tlGyfinttcdh~1~toSSH/ttsnf/IvINaf1vinest~tnsrnt/vlngpccttMsfxvrrrw,sa444-,"I3hk<<GaveMnrwKlgstpntnHertII/{I,fifam'fkr',GaWdfsrvOCCM2'1/dooefCape(ornConHWIId7CtfaSWSMOOpres~.f/~nrdr<<<<tao{too<<IRcafccoP<<rdvsa(Ma<<N(aMa1~onMsp'>>Bewfyjttpoop(a5CvoosacwotnCBcl6para44'Creat<<a<<4HNcsvrwnsO~vi<<levsljsvtaWss1rtlUssrCrsssc~,Veve<<tI~I(CXNIICt<<fist(OarIWwtpeSv!!4vr/Sist'ler~geest/4telosXrnlsteloStt~Ltst2Pcr<<r<<4i1tHlmglasssaaxffyShtfnfOM(rlerlMfhr11~IPougbtteeps4<~sttBredeI~<<Os,nO<<4rCsgltrcrees<<lIce/jrosvnaI2!v(!~~Iatrv<<fifa2gchfd<<WaresrnNldIrrdWI>>HoMrol<<NI~~IgrfrjdHrtf2/lrk:1!slo/Hvkfsdhn(HlhtiIVHrlvg'llvnl<<rrlnpens<<pcrpve/Igrfc'rn~nL'lrrnsy~refersow/rdRcslrsCrw<<rNeeodtngttsnr5I/clroIftsll,rrBwf4>~W"VWrftn<<nL~4<<eWrest/Rrforttlorggx!IelfrLWWf<<~,G,'IJwslorgloflWstenowP!BctvfMWatefbuGffth/twoweasnoa~~-4Wrglg~paso<<nnttlrgn<<fagk~gtetHlIfrrnvrwvccr2Wr,ters6,'Ms!IrdMsfdNNope"9'tgvrps~vestNew{Ig)Mfi/ofdfloIIIialtslaCHtrrcccnaIrtfrr/eH*QW(cd8!pf5thrsD1{BS~nt'yi(ttsrie{it""-/''t~5IIjt'dlVsr/esa6Cwe<<enwcJM(waSpsnnvrpor(sacsMljomnfat*i'xjofdIOG(NLRACGNAnlscnCGWHC'.~h'1el,55s<<c<<scpVoceCalo~jyMnar'rvIf5<<.BPt/Nw'!Or'IP'fknfIB,.VlN.Ssl<<aLhnsod<<sf'e///I,.CsHcvslrsDanbupitc<acth',tffyiRMCfats>>kgpgptp(tcbjscf5ntItarv<<THEREGIONmfUSERVECentralHudsonisaninvestor-ownedutilityservingmorethan281,000electriccustomersand50,000naturalgascustomersintheMid-HudsonValleyandtheeasternCatskillMountains.Its2,600square-mileserviceterritoryreachesfrom25milesnorthofNewYorkCityto10milessouthofAlbanyandincludesportionsofeightcounties.
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Revision as of 23:59, 17 May 2018

New York State Electric & Gas Corp,1986 Annual Rept. Central Hudson 1986 Financial & Statistical Rept Encl
ML18038A257
Person / Time
Site: Nine Mile Point Constellation icon.png
Issue date: 12/31/1986
From: ALLEN W P, CARRIGG J A
NEW YORK STATE ELECTRIC & GAS CORP.
To:
Shared Package
ML17054C162 List:
References
NUDOCS 8706100052
Download: ML18038A257 (70)
v • d • e


Text

NEWYORKSTATEELECTRIC8GASCORPORATION'f986ANNUALREPORTP-~~(f'gy,,()fj-NOTICE-THEATTACHEDFILESAREOFFICIALRECORDSOFTHEDIVISIONOFDOCUMENTCONTROL.THEYHAVEBEENCHARGEDTOYOUFORALIMITEDTIMEPERIODANDMUSTBERETURNEDTOTHERECORDSFACILITYBRANCH016.PLEASEDONOTSENDDOCUMENTSCHARGEDOUTTHROUGHTHEMAIL.REMOVALOFANYPAGE(S)FROMDOCUMENTFORREPRODUCTIONMUSTBEREFERREDTOFILEPERSONNEL.DEADLINERETURNDATEg7oC/uo~~~~~p~Qc~jlRECORDSFACILITYBRANCH ContentsHighlightsoftheYearLettertoStockholdersCondensedStatementofIncomeGeneralReviewoftheYearEarningsandDividendsNineMilePointIIRatesConstructionExpendituresPowerSupplyFinancingResearchandDevelopmentDividendReinvestmentPlanEnergyMarketingCustomerAssistanceElectricOperationsGasOperationsBoardofDirectors5668881010101212141414..BalanceSheetStatementofIncomeStatementofRetainedEarningsStatementofChangesinFinancialPositionNotestoFinancialStatementsManagement'sDiscussionandAnalysisofFinancialConditionandResultsofOperations161717181931PLATSBURGH~~FinancialandOperatingStatisticsDirectorsandOfficers3540BUFFALOLAKEONTARIOLOCKPORT0RESTERSYRACUSE0LANCASTERGNVA~AURNMECHANICVILLITHACA~0HORNELLELMIRA~PENA5YLVAMAONEONTA~BINGHAMTONLIBERTServiceAreaBRETERNYSEG'sserviceterritoryismainlycomposedofsuburbanandruralareasoutsidelargecities.Over40%ofrevenueisderivedfromresidentialcustomers.Theeconomyissupportedbyadiversemixoflightindustry,agriculture,recreationalfacilitiesandinstitutionsofhigherlearning.Collegeandindustryresearchfacilitiesprovideagoodbaseforgrowthof'igh-technologyfirms.~ELECTRICC3GAS~ELECTRIC&GAS~DISTRICTOFFICES Highlights19861985IncreasePercentGrossoperatingrevenues(thousands)Incomebeforeinterestcharges(thousands)Earningsavailableforcommonstock(thousands)Earningspershareofcommonstock$1,277,284$1,241,780$35,5043$394,822$374,092$20,7306$208,390$183,207$25,18314$3.86$3.46$.4012Returnonaveragecommonstockequity-percentDividendspaidpershareofcommonstockTaxespershareofcommonstock.........15.3$2.60$4.4614.31.07$2.50$.104$3.92$.5414Electricitysalestoultimatecustomers(millionkwh).11,80711,4054024Electricitysalestootherutilities(millionkwh)Gasdelivered(thousanddekatherms)Costoffuelforelectricgeneration(thousands).Totalutilityplantinvestment(thousands).....Expendituresforconstruction(thousands)Bookvaluepershareofcommonstock(average).Marketvaluepershareofcommonstock(yearend)3,54533,2685,02134,307$238,371$280,397$4,373,045$4,055,389(1,476)(29)(1,039)(3)$(42,026)(15)$317,6568$230,892$256,149$(25,257)(10)$25.24$24.17$1.074$31.38$28.63$2.7510ThisreportisdedicatedtotheemployeesofNewYorkStateElectric&GasCorporationwhosehardworkandconscientiouseffortsmakepossibfeourcorporatetheme,"GoodPeopfe.GoodService.

,TotheStockholders:romanearningsstandpoint,1986wasagoodyear.Earningsof$3.86asharewereup12/0fromlastyear,settingarecordfortheCompany.Earningsqualityalsoimprovedastheproportionofnon-cashearningsdeclinedfrom670/oto54%.Higherearningsallowedanincreaseinthedividendratefortheninthconsecutiveyear.Our18/oparticipationintheNineMilePointIInuclearprojectcontinuestobeofconcern.Asindicatedelsewhereinthisreport,theplant'scompletionwasdelayedearlierthisyearbecauseadditionaltestingwasrequiredforkeysafetyvalves.Webelievethisdelaywillresultincommercialoperationinthefourthquarterof1987.Aswithmostnuclearplantsbuiltinthiscountrysincethe1979incidentatThreeMileIsland,NineMileIIhasexperiencedcostincreasesfarbeyondthoseoriginallycontemplated.Asaresult,rate-settingcommissionsinmanystateshavetakenthepositionthataportionofplantcostswas"imprudently"incurred.Inourcase,theNewYorkStatePublicServiceCommissionhasseta$4.16billionlimitonthecoststhatcanbereflectedinelectricratesofthefiveutilitiesowningthe$6billionproject.Thismeansthatroughly$2billion,beforetaxoffsets,willhavetobeabsorbedbyutilitystockholders.Theutilitiesagreedtothedisallowancetoavoidaprudenceproceedingwhichwouldbelong,costlyandprolonguncertaintyovertheproject.Inaddition,itwouldoccupytheservicesoftechnicalpersonnelneededtocompletetheplant.TheCompanyexpectstorecorditsshareofthedisallowedcostswithachargetoexpenselaterthisyear.Wepresentlyestimatethis'chargetobe$326million,or$234millionafterincometaxeffect.Thisequatestoabout$4.25ashareandwouldincreaseiftheplantisfurtherdelayed.Becausethewrite-offreducescommonstockequity,itwillhaveacontinuingeffectofreducingearningsbyabout55centsashare,basedona130%%dreturnonequity.Thiswillmeananendtoourhard-earnednine-yearrecordofdividendincreases.However,webelievethatsalesgrowthandreasonableregulatorytreatmentwillenableustoresumemodestdividendincreasesinafewyears.WithNineMile'sadverseeffectontheCompany,wehaveintensifiedourprogramtoreducecosts.Amongotherthings,weimprovedtheoperatingefficiencyofourpowerplants,effectedcapital-costreductionsthataddedtencentsasharetoearningsin1986andcutthecostofcoalusedingeneratingelectricity.Attheendof1986wehadfeweremployeesthanin1982,.despitetheneedtoaddmorethan200workersforSomersetGeneratingStation,whichbeganoperationin1984,andhireemployeestoconductstate-mandatedenergyconservationandenvironmentalactivities.In1987,weanticipatefurthercostsavings,includingareductionincoalcostofnearly$10million.Inadditiontocuttingcosts,wehaveestablishedanaggressiveplantoselectivelyincreaseelectricandgassales,whichhelpskeeprateincreasestoaminimum.Thereisparticularly goodpotentialforprofitinsellingelectricityduringoff-peakhours.Withthedeclineinpricesofpurchasednaturalgasandincreasedgasavailability,wehaveundertakenanambitiousprogramtoaddnewcommunitiestoourgasfranchiseareas.Despiteoureffortstoreducecostsandraisesales,westillmustseekmodestrateincreases,primarilytorecovertheallowedcostsofNineMileII.WehaveappliedtothePSCforhigherelectricratestobemadeeffectiveoverathree-yearperiodbeginningJanuary1,1988.Weestimatetheincreaseswillbeabout3to4%ayear.OurelectricandgasratesforindustrialcustomerswillcontinuetobeamongthelowestinNewYork.Thisfact,togetherwiththeservicearea'sproximitytourbanmarketsandavailabilityofskilledlabor,augurswellforindustrialexpansion.Toassistcommunitiesinattractingnewindustry,weareplanningtheestablishmentofasubsidiarytoacquire,developandsellplantsitestoindustry.ApplicationhasbeenmadeforPSCapprovalofthesubsidiary.InDecember1986,theCompanyandCorningNaturalGasCorporationannouncedastudyofthefeasibilityofNYSEGacquiringCorning,whichserves12,000gascustomersintheCorning,N.Y.area.Thestudiesarecontinuing.Asthecoverindicates,thisreportisdedicatedtothe4,423employeeswhoseworkcontributesimportantlytothesuccessoftheCompany.Weareproudofthemandwishtopubliclyexpressoursincereappreciationfortheirloyalty,.diligenceandhardwork.Theyare,indeed,goodpeople,providinggoodservice!FortheBoardofDirectors,ChairmanandChiefExecutiveOfficerPresidentandChiefOperatingOfficerMarch2,1987JamesA.Corrigg(leftJWellsP.Allen,Jr.

ConsolidatedCondensedStatementofIncome19861985IncreaseREVENUESSalesofelectricitySalesofgasTotal(ThousandsofDollars)$1,098,089$1,051,579$46,510179,195190,201(11,006)1,277,2841,241,78035,504EXPENSESWagesandsalariesofemployeesandcontributionstoretirementandinsuranceplans(exclusiveof$55,936,000in1986and$57,075,000in1985chargedtoconstruction,etc.)FuelusedtoproduceelectricityElectricitypurchased.GaspurchasedOthermaterials,servicesandresearch.FederaltaxesStateandlocaltaxesDepreciationTotalIncomeavailabletoinvestors126,307238,37129,302111,147114,742126,315114,424100,796118,711280,39735,984129,80994,138101,408106,28698,0857,596(42,026)(6,682)(18,662)20,60424,9078,1382,711961,404964,818(3,414)315,880276,96238,918AFDCANDOTHERNON-CASHRETURN..111,872122,719(10,847)INVESTORS'HAREInterestonbonds.InterestonnotespayableandotherDividendsonpreferredstockDividendsoncommonstockTotalRETAINEDINTHEBUSINESSAFDCisallowanceforfundsusedduringconstruction146,02153,23720,104140,432138,66552,58325,226132,0187,356654(5,122)8,414359,794348,49211,302$67,958$51,189$16,769ElectricPeakLoads(Winter)Megawatts2u82IN2le7879Sl815283Sl8$8681 Empfoyeesworkinsnowandallkindsofweathertorestoreserviceafterstorms.

NYS.E'G~~~~>~~~~,~~~~~~~~~~~~~~~I~I'III'Il~'I'II~I~II~I'I~III~t~IloIII~~I~I~~~~IIIII~I'~>I~~III~II'IIIII~II~I~~~~~~~~IIII~~~III'>~~IIIII~IIII'I'III~~I~IIIII'~IIII'II~>I~~~~~II~Ir'IrII~I'Ir'IIII'II'>'~I>~II'~'~II~I~II>'I'II'~IIII'I>III'I'r>'I~>II'IIII U4$jf'.*Y'I~!:>'IAsubstationnearLibertyisbeingexpandedtopermitgreatertransmissionofelectricitytodownstateNewYork.SectionsofpipearejoinedtosupplynaturalgastohomesnearElmira.LastyeartheCompanygained1,600newgascustomersarecordforrecentyears.j',7 IVANJENSEN,controlroomoperatoratGreenidgeStation,seeksmaximumefficiencyfromthepiant'sgenerators.NYSEGismodernizingandextendingtheusefullifeofGreenidgeandotherpowerplantsthatare30to40yearsoldConstructionExpendituresTotal$333MillionConstructionexpendituresin1986were$333million,including$102millionofAFDCandsimilarnon-cashcharges.Thelargestsingleoutlaywas$181millionfortheCompany'sshareoftheNineMileIInuclearproject.About$35millionwasspentaspartofaprogramforextendingusefullivesandimprovingoperatingefficiencyofexistingcoal-firedgeneratingfacilities.Another$35millionwasforupgradingsubstationandtransmissionlines.There-maining$82millionwasspentonadditionsandimprovementstoelectricandgasdistributionsys-tems,includingfacilitiestoservenewcustomers.Thisamountin-cludes$57millionforminorprojects,each$50,000orless.Inthethreeyears1987-1989,constructionexpendituresarepro-jectedtototal$648million,ofwhich$104millionisforcompletionofNineMileII.About$140millionisallocatedforimprovementofexistinggeneratingfacilities.Theremainderisforgeneralsystemreinforcement.RatesRecoveryofNineMileCostsProposedTheCompanyisproposingtothePSCthatallowedNineMileIIcostsbephasedintoelectricratesoverathree-yearperiodbeginningonJanuary1,1988.Theincreaseswouldraiseelectricratesabout3to4%ayearandannualrevenuesabout$30to$45millionannu-ally.Thefirstsegment,anapplicationforwhichwasfiledwiththeCom-missiononFebruary23,1987,wouldraiseannualrevenues$42millionor4%,basedona13%returnonequity.TheCompany'spreviousincreaseinelectricrateswasinApril1986whena$65million,or7%,risewasapproved.Thisincreaseprimarilyreflectedthefinalsegmentofathree-yearphase-inofcapitalcostsrelatedtoSomersetGeneratingStation,whichbeganoperationin1984.ConstructionProgramMillionsofDollarsPowerSupplyPlantEfficiencyRisesAkeymeasureofefficiencyofsteam-electricproductionsystemsistheamountofheatusedtoproduceakilowatt-hour(kwh),knownas"heatrate".NYSEG'sheatratein1986wasalow9,959Btu/kwhandarecordfortheCompany.TheCompany'saveragepowerplantheatrateisamongthelowestofmajorelectricutilitiesinthenation.TheCompany'spresentpowersupplycapabilityof3,004,000kilowattsislargelycomposedofcoal-firedgeneratingfacilitiesandlong-termpurchases.Mostofthepurchasedpowerislow-costhydroelectricityfromtheNewYorkPowerAuthority'sNiagaraRiverproject.Therehavebeenproposalstoredistributethispowermorebroadlyacrossthestatebut,atpresent,theGovernorandseverallegislativeleadersopposetheaction.TheCompany'speakloadof2,290,000kilowattsoccurredinDecember1985andwasnotex-ceededinthe1986-87winter,largelybecauseofweatherconditions.I8418$l32rr737980BI8283N8556878$89

,Pr'EE,4UndergroundelectricservicesareinstalledtoservealargehousingdevelopmentnorthofAlbany.Stateregu.lationsrequirenew.homebuilderstocontributetocostsofundergroundfacilities.TheCompanyencouragesoff-peakuseofelectricity.Anelectricheating"mat"ischeckedherebeforetheconcretefoundationispouredforanewofficebuilding.Heatstoredbythematduringoff-peakhourscanbere-leasedduringthedaywhentheofficeisinuse.

gMPtSRBRENDAPATTON,consumerrepre-sentativeatMonticello,counselscustomershavingdifficultypayingutilitybills.NYSEG'stwelveconsumerrepresentativesarespeciallytrainedandfamiliarwithassistanceprograms."ij~aersfKW+FinanceRefundingsReduceCapitalCostsCapitalrequirementsin1986were$394million,whichincludes$231millionofcashconstructionexpenditures,$140millionforrefinancingofhigh-ratesecuritiesand$23millionforsinkingfundsandreductionofunsecureddebt.Theseneedsweremetwith$277millioninsalesofsecuritiesandinternally-generatedfunds.Refundingsincluded$110millionprincipalamountofhigh-ratefirstmortgagebondsand$30millionprincipalamountof15'/s%preferredstock.Inaddition,$50millionof15.83%notesdue1989werereplacedwithadjustable-ratenoteshavinganinterestrateof6.4%.Theserefinancingsreducedcapitalcostsand,asaresult,contributedabouttencentsashareto1986earnings.OnJanuary1,1987,a$30millionissueof15%preferredstockwasredeemedthroughsinkingfundandearly-redemptionprovisions.ThisrefundingwillsavetheCompanyabout$2millionayear.ElectricitySources1986Kilowatt-hoursCoot7lSSItSdrO2SSNuckar2ss-trrdroASS~Generated76%~Purchased24tltResearchExpendituresTotal$12MillionResearchanddevelopmentex-pendituresin1986amountedto$12millionwithabouthalfgoingtoprojectsofnationalandstateresearchorganizations.There-mainderwasspentontheCompany'sownresearchefforts.Amajornationalresearchgroup,theElectricPowerResearchInstitute(EPRI),istheresearcharmoftheelectricutilityindustry.Amongitsvariousprojects,EPRIisbuildinga$20millionHighSulfurTestCenteratSomersetGeneratingStation,whichwillhouseastaffof35to40persons.Thecenter,scheduledforoperationin1987,willseekbetterandlessexpensivewaystocontrolsulfurdioxideemissionsfromthenation'scoal-burningpowerplants.NYSEGwillbecontributingabout$5millionincashandservicestotheprojectoverafive-yearperiod.Successfulresearchcanpaydividendsbyholdingdowncostsandimprovingenvironmentalprotec-tion.Anewcomputer-assistedtrainingprogramdevelopedjointlywithGeneralPhysicsCorporationsavedanestimated$150,000atonegeneratingstationthroughim-provedplantefficiencyandisbeingappliedtoothers.TheprogramwasalsosoldbyGeneralPhysicstootherutilities,yieldingtheCompany$41,000inroyalties.Anotherresearchprojectshowedthatflyash,aby-productofburningcoalatpowerplants,wasusefulinmakingconcrete.Salesofflyashnotonlyaddtoincome,butre-ducecostsbyeliminatingtheneedtodisposeofashinenvironmentally-certifiedlandfills.DiuidendReinljesfmenfPlanAllowsSaleofSharesTheDividendReinvestmentandStockPurchasePlanwasamendedeffectiveJanuary1,1987topermitparticipantstosellfullsharescreditedtotheirplanaccounts.Thisallowsaholderwithasmallnumberofplansharestosellthemthroughtheplanontheopenmarket.Banksandbrokersareoftenunwillingtohandlesmalltrans-actions.Afeeischargedundertheplan,butitislowerthananormalbrokeragecommission.AboutathirdoftheCompany'sstockholdersreinvesttheirdividends.In1986,over900,000shareswerepurchasedontheopenmarketwithdividendsandoptionalcashpayments.Cashpurchasesarelimitedto$5,000perquarter.Anystockholderofrecordiseligibletojointheplan.Ifyouwouldlikefurtherinformation,callthetoll-freenumberlistedinthebackofthisreport.NYSEGdevotesconsiderableefforttopromotingindustrialexpansion.Bottomlelt:Serviceareaadvantagesforbusinessarepublicizedacrossthenationandover-seas.New,expandingormergingcompaniesinclude(clockwisefrommiddleleft):FingerLakesPress,Auburn;Toshiba-WestinghouseElectronicsnearElmira;Taylor-PohlmannearBuffalo;HuntingtonAnalyticalServices,eastofLockport,andIBM,northofNewYorkCity.10 i/I'IIVp//IIIIIi,4r=1I'v<~~"ks>II40g}g$tJPJ'pg0[I,'i~ized'-="==-I+'iJ':.fi'I)L,qlIIIpII/,r,/(g//~ed<State~~I/iI~'g~Ig')IIAIIV'IfIyy~e4i'-7<I+=ifiops[r)I~lIJJ<,tl0C$

gM~BURTONTESSITORE,chieflinemanatBinghamton,workstomaintainthedistributionsystemandtheflowofelectricitytocustomers.NYSEG'srecordforreliableelectricserviceisamongthebestinthestate.CoalUsedforGenerationCostperblillionBtuSISS55/7SlhlSizeSeroSlierSl855l&Sl.0777787980818783858588LnergyMarketingNewProgramEstablishedTheCompanyrecentlyadoptedastrategicmarketingplantoselec-tivelyboostelectricandgassales.Itcombinesspecialratesforin-dustrialandcommercialcustomerswithrebatesforresidentialcustomerswhoinstallappliancesthatuseenergyefficientlyorinoff-peakhours.Appliancerebatesarebeingofferedtoresidentialelectriccustomersinvariouslocationswhobuyenergy-efficientairconditioners,waterheatersorthermalstoragespaceheatingunitsfortheirhomes.Thewaterheaterandthermalstorageunitsarealsobeingpromotedtoencourageoff-peakusage.Otherre-batesencourageresidentialcus-tomerstoswitchtogasforspaceandwaterheating.TheCompanyhasalsoinitiatedanincentiveprogramtoencourageemployees,retirees,appliancedealersandcontractorstoparticipateinthesemarketingefforts.Duringtheyear,morethan17,000homeenergysurveyswerecom-pleted.Atcustomerrequest,theCompanywillconductafreeanalysisofahometodeterminewhereenergycanbeconserved.Financingisalsoavailableforenergy-relatedimprovements.NYSEGindustrialelectricandgasratesareamongthelowestinthestate.TheCompanyhasintro-ducedspecialincentiveratestoattractnewbusinessestoitsserviceareaorencourageexistingonestoexpand.About250customersarecurrentlybenefitingfromtheserates.CustomerAssistanceCounseling,EnergyEducationEmphasizedNYSEGhasanextensiveprogramforcounselingneedycustomersandinformingthepublicaboutenergyandenergyconservationmatters.Consumerrepresentativesindis-trictofficesusetheirbackgroundsinsocialservicesandknowledgeofhumanserviceagenciestohelpcustomershavingfinancialdiffi-culties.Energyconservationwork-shopsaresponsoredforthegeneralpublicandsafetyandenergyeduca-tionprogramsarepresentedtothousandsofschoolchildreneachyear.In1986,twenty-sixserviceareaschoolteachersreceivedmodestgrantstodevelopinnovativeenergyeducationprojects.Anaward-winningnewsletterwithenergyconservationtipsandotherusefulinformationissentregularlyto35,000elderlycustomers.ProjectSHARE,ajointprogramwiththeAmericanRedCross,pro-videsgrantstoneedyelderlyordis-abledpeopletohelpthemdealwithenergyemergencies.Infouryearsofoperationtheprogramhasdistributed$772,300to3,704needyfamilies.In1986,grantstotaling$178,300wereissuedto853people.CustomerscontributetoSHAREbyadding$1,$2,or$5totheirNYSEGpayments.Stockholdersmaycontributebysendingchecks,payabletoProjectSHARE-RedCross,toAmericanRedCross,786DelawareAvenue,Buffalo,N.Y.14209.Donationsaretax-deductible.Anewcustomer-testedelectricandgasbillwasintroducedinDecember1986.Amongotherthings,itpresentsthebillcalculationandshowsagraphofthecustomer'energyuseinthepriorfourteenmonths.Customerreactionsofarhasbeenfavorable.TheCompany.reachesouttohelpcustomers.Anewmobileoffice(topandmiddleright)travelstorurallocationsoutsideBinghamtontobringservicesclosertocustomers.Homeenergysurveysandconservationarepromotedatstatefairsandexhibits.Workshops(bottomright)deliverenergyconservationtipstovariouspublicgroups.12 IIllllIaINNI4NI,IIN/NgI1N-IIIrII-N~Q~'+>~.LN~pNNQe~<<'NNNfrowYorkSlaloEloctrlc8GasCorpora'IINNNNI4~gI

/titty(~CHRISHEBDON,aforesterinGeneva,pro!actstheenvironmentandhelpsmaintainservicealongtransmissionanddistributionlines.NYSEG's36,000-miletransmissionanddistributionsystemrequirescontinuousmonitoringtoassurereliableservice.IvvResidentialCommercialIndustrialTotalRetailOtherUtilitiesTotalKwhSales43-29-7Revenues14171715-44TheRevenueDollar-1986tVhereitcamefrom:Inthutrht18c869trElectricity~l4GasIoo98Conuemht22cOtherElectriUtituies8cStreetLightingaOther11cRcsidcnthtCSCtvhereitvent:FuellreinteresttoBondItoMers.ctc.1stOivMends-CommonStockteeDeprcchtionycpividends-PreferredStockgeOtherptaterhtsandScrviecs8cWagestoEmployees.irgtudingBenefus9cCasttElectricityPurchasedtpeTares18ctectatncdinthcgustnmrScLlectricOperationsRetailSalesIncrease4%Salesofelectricitytoretailcus-tomersrosenearly4%from1985.Correspondingrevenueswereup15%,largelyreflectinghigherratesmadeeffectiveinA'pril1986.Salestootherutilitiesdeclined29%,primarilyasaresultoflowerfuelcostsattheiroil-firedgeneratingfacilities.Totalsalesweredown7%,whilerevenueswere4%higher.Percentchangesbymajorcustomercategorywereasfollows:Operatingexpenses,excludingfuel,depreciationandtaxes,in-creasedabout5%.Fuelexpensewasdown15%ona10/odecreaseinkilowatt-hoursgenerated.Onaper-unitbasis,fuelcostwas$1.67permillionBtu,a1%reductionfrom1985.Morethan11,000residentialcustomerswereaddedin1986,a2%increase,andthelargestyearlyrisesince1973.GasOperationsTotalSalesDown3%Salesofgastoresidentialcustomersincreased4%,whilerevenueswere3%higher.Salestonon-residentialcustomers,includingtranspor-tationofcustomer-ownedgas,wereoff7%.Totalsalesweredown3%andrevenueswere6%lower.Operatingexpenses,excluding.purchasedgas,depreciationandtaxes,increased5%.Theaveragecostofgaspurchasedwas$3.75.adekatherm,or3o/olowerthanthepreviousyear.Thisisthethirdconsecutiveyearthattheunitcostofpurchasedgashasdeclined.Theaveragenumberofgascustomersservedwas132,500,a1%increaseover1985.TheCompanyisseekingtoexpanditsgasfranchiseareatoincludeseveraltownsinsoutheasternNewYorkandinpartsofcountieslocatednorthwestofElmira.IfallthefranchisesweregrantedandreceivedrequisitePSCapprovals,itcould,overaperiodofyears,increasethenumberofcustomersservedby15%.BoardofDirectorsTtvoNewDirectorsElectedInJanuary1987,theBoardofDirectorselectedtwonewmembers,BenE.Lynch,49,andWilliamD.Turner,54.TheactionbringstheBoardto13membersandcon-templatestheretirement,laterin1987,oftwodirectorsundertheCompany'smandatoryretirementprovisions.Mr.LynchispresidentofWin-chesterOpticalCompany,Elmira,N.Y.Heisactiveinlocalcivicaffairsandhasabachelor'sdegreeinengineeringfromCornellUniver-sityandamaster'sdegreeinnuclearphysicsfromCaliforniaInstituteofTechnology.Mr.Turner,asgroupvicepresidentofTheSingerCompany,isrespon-sibleforitsTrainingSystemsGroup.HejoinedSinger'sLinkSimulationSystemDivisioninBing-hamtonin1958andservedinanumberofmanagementpositions.Hehasabachelor'sdegreeineconomicsfromColgateUniversity.Dr.RoyS.Arrandale,formerseniorvicepresident-researchforThatcherGlassManufacturingCompany,'lmira,retiredfromtheBoardafter18yearsofdistinguishedservice.14 TheCompanypromotessafetyandenergyawarenessinschools.ToprANYSEGrepresentativeusessignlanguagetoteachelectricsafetytohearing.impairedyoungsters.Be/owrTheCompanyissued26mini-grantslastyeartoteacherstosupportinnovativeenergyprojectsintheclassroom.

NewYorkStateElectric&GasCorporationandSubsidiariesConsolidatedBalanceSheetASSETSUTILITYPLANT,atoriginalcost(Note1)Electric.GasCommon.$3,004,799160,76274,658$2,913,589153,26369,662December3119861985(ThousandsofDollars)Lessaccumulateddepreciation.Netutilityplantinservice.Constructionworkinprogress(Notes8and10)3,240,219769,3362,470,8831,132,8263,136,514687,4722,449,042918,8753,603,7093,367,917OTHERPROPERTYANDINVESTMENTSCURRENTASSETSCashSpecialdepositsAccountsreceivableFuel,ataveragecostMaterialsandsupplies,ataveragecostPrepaymentsDEFERREDCHARGES(NotesI,9and10)AbandonedprojectcostsSomersetStationphaseincosts.UnamortizeddebtexpenseAccumulateddeferredfederalincometaxOther68,90310,2674,823126,08149,28344,27227,546262,272108,92674,34864,76219,01123,053290,10071,0687,60113,599116,53758,09538,68820,454254,974117,60870,67560,52615,20118,650282,660CAPITALIZATIONANDLIABILITIESCAPITALIZATION(Notes3-6)CapitalstockandretainedearningsPreferredstockredeemablesolelyattheoptionoftheCompany.Preferredstocksubjecttomandatoryredemptionrequirements.CommonstockequityCommonstockCapitalinexcessofparvalueRetainedearnings.TotalcommonstockequityLong-termdebtTotal$4,224,984$3,976,61922,82087,470360,408503,364534,190360,047501,523469,6611,397,9621,331,2311,928,40?1,748,6063,509,6893,327,807$160,500$160,500CURRENTLIABILITIESCurrentportionoflong-termdebtandpreferredstockCommercialpaper(Note6)AccountspayableDividendspayableonpreferredstock.PensionsaccruedTaxesaccruedInterestaccrued.OtherDEFERREDCREDITSAccumulateddeferredinvestmenttaxcredit(Note2)OtherACCUMULATEDDEFERREDFEDERALINCOMETAX(Note2)COMMITMENTSANDCONTINGENCIES(Notes7-10).65,332110,60064,8984,516=14,04414,61954,97328,555357,537106,43619,307125,743232,01559,513118,30077,1606,09012,6115,04552,04431,324362,08775,43821,62097,058189,66716$4,224,984$3,976,619Theaccompanyingnotesshownonpages19through29areanintegralpartofthefinancialstatements.

NewYorkStateElectric&GasCorporationandSubsidiariesConsolidatedStatementofIncomeOPERATINGREVENUESElectric.GasTotalOPERATINGEXPENSESOperation-fuel(NoteI)-otherElectricitypurchased.GaspurchasedMaintenanceDepreciationFederalincometax(Note2)Othertaxes(Note12).TotalOPERATINGINCOMEOTHERINCOMEANDDEDUCTIONSAllowanceforotherfundsusedduringconstruction(Note1)Non-cashreturn-utilityplantinservice(Note1).............-abandonedprojects(NotesI,9and10).......Abandonedprojectcosts(Note9).Federalincometaxcredit(Note2).IncometaxbenefitsfromAFDCandnon-cashreturn...........Other-netINCOMEBEFOREINTERESTCHARGESINTERESTCHARGESInterestonlong-termdebtOtherinterest.Allowanceforborrowedfundsusedduringconstruction(Note1).Interestcharges-net.NETINCOMEPREFERREDSTOCKDIVIDENDSEARNINGSAVAILABLEFORCOMMONSTOCK$1,098,089179,1951,277,284$1,051,579190,2011,241,780$921,248207,8181,129,066238,371182,71029,302111,14788,486100,796122,987122,400280,397167,92335,984129,80981,59198,08596,651113,587227,998141,05669,206146,04068,60665,19878,144102,152996,1991,004,027898,400281,085237,753'30,66663,1689,8685,9064,64830,10839394,82250,26340,1856,6825702,54432,2563,839374,09268,14522,0029,283(11,026)3,43529,8148,307360,626187,23812,020(32,930)166,328228,49420,104178,98512,263(25,589)165,659208,43325,226164,43511,650(26,835)149,250211,37627,370208,390$183,207$184,006YearsEndedDecember31198619851984(ThousandsofDollars)EARNINGSPERSHAREAVERAGENUMBEROFSHARESOUTSTANDING$3.8654,013,868$3.4653,013,086$3.6849,955,493ConsolidatedStatementofRetainedEarningsBalance,beginningofyearAddnetincomeYearsEndedDecember31198619851984(ThousandsofDollars)$469,661$418,472$352,524228,494208,433211,376698,155626,905563,900DeductcashdividendsPreferredstock(atserialrates)RedeemablesolelyattheoptionoftheCompany..Subjecttomandatoryredemptionrequirements..Commonstock($2.60,$2.50,and$2.38persharein1986,1985,and1984,respectively)Deductpremiumpaidonpreferredstockredemption(Note5)Balance,endofyear.11,3388,766140,432160,5363,429$534,19012,55912,667132,01815?,24413,17214,198118,058145,428$469,661$418,472Theaccompanyingnotesshownonpages19through29areanintegralpartofthefinancialstatements.

NewYorkStateElectric&GasCorporationandSubsidiariesConsolidatedStatementofChangesinFinancialPositionSOURCEOFFUNDSOPERATIONSNetincomeAFDCandothernon-cashreturn.Depreciation.Amortizationofdeferredcharges.FuelandpurchasedgascostsdeferredInterchangeprofitsdeferred-net.Abandonedprojectcosts.Federalincometaxdeferred-netInvestmenttaxcreditdeferred-netFundsfromoperations$228,494(111,872)100,79625,1881,332(7,412)38,53830,998306,062-$208,433(122,719)98,08523,7732,820(10,121)(570)59,8201,727261,248$211,376(126,265)65,19813,6596,01515,18111,02623,89722,688242,775YearsEndedDecember31198619851984(ThousandsofDollars'INANCINGARRANGEMENTSFirstmortgagebondsCommonstockLong-termnotespayableCommercialpaper.Obligationsundercapitalleases.FundsfromfinancingarrangementsTotalfundsavailableAPPLICATIONOFFUNDSConstructionexpenditures.Capitalizationofequipmentleases.BondsandpreferredstockreacquiredSecuritiestoberedeemedorduewithinoneyearDividendsonpreferredstockDividendsoncommonstockIncrease(decrease)inworkingcapital*.Other(net).TotalfundsappliedINCREASE(DECREASE)INiUORKINGCAPITALCURRENTASSETSCash.Specialdeposits.................................Accountsreceivable.FuelMaterialsandsuppliesPrepaymentsTotalincrease(decrease)incurrentassets..CURRENTLIABILITIESCurrentportionoflong-termdebtandpreferredstockAccountspayableDividendspayableonpreferredstock................PensionsaccruedTaxesaccruedInterestaccruedOther.~J~~~~~~~~Totalincrease(decrease)incurrentliabilities*.Increase(decrease)inworkingcapital'75,0001,815(6,200)(7,700)2273265,188$571,250$230,892227397,32564,20420,104140,4324,14811,872$571,250$2,666(8,776)9,544(8,812)5,5847,0927,2985,819(12,262)(1,574)1,4339,5742,929(2,769)3,150$4,148175,00045,494228,35058,2009,169516,213$777,461$256,1499,169214,76958,01025,226132,01864,21117,909$777,461$3,273(56,593)(86)(10,843)7,96184(56,204)(84,870)(30,548)(726)(128)(4,611)(1,469)1,937(120,415)$64,211200,00065,086174,850(37,650)10,560412,846$655,621$349,71810,5605,056142,28327,370118,058(4,499)7,075$655,621$(3,944)59,94622,69028,8423,3093,080113,923120,633(28,820)645223,60418,4303,989118,422$(4,499)'ExclusiveofchangesincommercialpaperTheaccompanyingnotesshownonpages19through29areanintegralpartofthefinancialstatements.18 NotestoConsolidatedFinancialStatements1.SignificantAccountingPoliciesa.PrinciplesofconsolidationTheconsolidatedfinancialstatementsincludetheCompanyanditswholly-ownedsubsidiaries.SomersetRailroadCorpo-ration(SRC),theonlyactivesubsidiary,ownsrailfacilitiesfortransportofcoalandothersuppliestotheSomersetGeneratingStation(Somerset).Allsignificantintercompanybalancesandtransactionshavebeeneliminatedinconsoli-dation.b.AccountingrecordsTheCompanymaintainsitsaccountingrecordsinconformitywiththeuniformsystemofaccountsprescribedbytheFed-eralEnergyRegulatoryCommission(FERC)andthePublicServiceCommissionoftheStateofNewYork(PSC).c.UtilityplantCostofcurrentrepairsandminorreplacementsischargedtoappropriateoperatingexpenseandclearingaccounts;costofrenewalsandbetterments,includingindirectcosts,iscapitalized.Originalcostofutilityplantretiredorotherwisedisposedofandthecostofremovallesssalvagearechargedtoaccumulateddepreciation.InaccordancewithtransitionrulesofStatementofFinan-cialAccountingStandardsNo.71,capitalleaseswithincep-tiondatessubsequentto1982havebeencapitalizedwhilethoseexecutedpriorto1983andoutstandingatDecember31,1986,consistingofadditionalassetsandobligationsofapproximately$7million,werenotcapitalized.d.Allowanceforfundsusedduringconstruction(AFDC)andothernon-cashreturnAFDCisanon-cashreturnwhichisshownintheConsoli-datedStatementofIncomeasallowanceforotherfundsusedduringconstructionandallowanceforborrowedfundsusedduringconstruction.AFDCratesaredeterminedaccordingtoFERCregulations.TheCompanyusednet-of-taxratesof10%for1984and9.6%for1985,exceptduringthelasteightmonthsof1985whenabeforetaxrateof12.3%wasusedforprojectsotherthanNineMilePointnucleargeneratingunitNo.2(Unit).In1986,theAFDCratewas9.4%(net-of-tax)fortheUnitand12.1%(beforetax)forprojectsotherthantheUnit.Non-cashreturnwasaccruedontheportionoftheSomer-setplantcostswhichwerenotincludedinratebaseandisalsoaccruedoncertainunamortizedabandonedprojectcosts.(SeeNotes1.h.and9.)ForAFDCandothernon-cashreturnaccruedatnet-of-taxrates,theCompanyisallowedrevenuesequaltothefederalincometaxeffectoftheinterestportion.e.RevenueRevenuesfromthesaleofelectricityandgasarerecordedonthebasisofmetersread.f.Federalincometaxes(SeeNote2.)TheCompanyfilesaconsolidatedfederalincometaxreturnwithitswholly-ownedsubsidiary,SRC.Actuarialpresentvalueofaccumulatedplanbenefits:VestedNonvestedNetassetsavailableforbenefits$141,400$140,70021,00019,300363,500296,000Deferredincometaxesareprovidedontimingdifferencesbetweenbookandtaxableincometotheextentpermittedforratemakingpurposes.Investmenttaxcredit,whichreducesfederalincometaxcurrentlypayable,isdeferredandamortizedoverthelivesoftheapplicableproperty.g.Deferredcharges(SeeNote9.)TheCompanydeferscertainfuelandpurchasedgascostswhicharesubsequentlyreflectedinbillingstocustomersthroughadjustmentclausesinrates.Debtexpenseisdeferredandamortizedratablyoverthelivesoftherelatedissues.Unamortizeddebtexpensealsoincludespremiumspaidonreacquisitionsoffirstmortgagebondstotalingapproximately$41millionwhichisamortizedratablyoverperiodsrangingfromfivetothirtyyears.h.SomersetGeneratingStationSomersetplantcostsofapproximately$1billionwerephasedintoelectricratesinthreesegmentstomoderateratein-creases.Thefirstsegmentof$365millionwasincludedinelectricrateseffectiveApril1984.Thesecondsegmentin-creasedto$725millionthetotalplantcostsincludedinelectricrateseffectiveinApril1985.ThefinalsegmentwasincludedinelectricrateseffectiveApril1986.WhenSomer-setbeganoperatingonAugust17,1984,anon-cashreturnsimilartoAFDCwasrecordedontheportionofcostsnotin-cludedinratebase.Thisnon-cashreturn,whichamountedtoapproximately$10million,$40millionand$22millionfor1986,1985and1984,respectively,isbeingamortizedovertheremaininglifeoftheplantandisincludedinotherincomeintheConsolidatedStatementofIncomeandinde-ferredchargesontheConsolidatedBalanceSheet.AsofDecember31,1986theunamortizedbalanceofnon-cashreturnwasapproximately$70million.i.RetirementbenefitsTheCompanyhasnoncontributoryretirementannuityplanswhichcoversubstantiallyallemployees.PensioncostsarebasedonnormalcostsandtheCompany'spolicyistofundthepensioncostaccruedeachyeartotheextentdeductibleforfederalincometaxpurposes.Theprovisionforpensioncostfor1986,1985and1984totaled$8.4million,$12.6millionand$12.7million,respectively.Acomparisonofaccumulatedplanbenefitsandnetassetsisasfollows:January119861985(ThousandsofDollars)19 Theassumedinvestmentrateofreturnusedindeterminingactuarialpresentvalueswaschangedfrom6.5%to7.5%,effectiveJanuary1,1986.Theeffectsofchangesinactuarialassumptionsandinplanprovisionsweretodecreasetheactuarialpresentvalueofaccumulatedplanbenefitsbyap-proximately$18.3millionandtoreduce1986provisionforpensioncostbyapproximately$4.4million,substantiallyallofwhichrelatestotheeffectsofchangesinactuarialas-sumptions.Therequiredmethodfordeterminingtheactuarialpresentvalueofaccumulatedplanbenefitsisbasedoncurrentdataand,accordingly,failstoconsiderprobablefutureeventssuchasfuturewageandsalaryincreasesandfutureemployeeservice.SucheventshavebeentakenintoconsiderationbytheCompanyindeterminingthecostsandfundingconceptfortheplans.Thenetassetsavailableforbenefitsarebaseduponmarketvaluewhichwillfluctuatedependingonmarketconditions.InDecember1985theFinancialAccountingStandardsBoard(FASB)issuedStatementofFinancialAccountingStandardsNo.87,Employers'ccountingforPensions,whichwillbeeffectivefor1987.Theadoptionoftherequire-mentsofthisstatementisnotexpectedtohaveamaterialeffectontheresultsofoperationsorfinancialpositionoftheCompany.Inadditiontoprovidingpensionbenefits,theCompanyprovidescertainhealthcarebenefitsforretiredemployeesandtheirdependents.SubstantiallyalloftheCompany'sem-ployeeswhoretireunderaCompanypensionplanmaybe-comeeligibleforthosebenefitsatretirement.Thoseandsimilarbenefitsforactiveemployeesareprovidedthrough'ninsurancecompanywhosepremiumsarebasedonthebenefitspaidduringtheyear.TheCompanyrecognizesasexpensethecostofinsurancepremiumswhichwereapprox-imately$8.0million,$7.8millionand$7.6millionfor1986,1985and1984,respectively.Thecostofprovidingthosebenefitsfor1,456retireesandtheirdependentsisnotsepar-ablefromthecostofprovidingbenefitsforthe4,423activeemployees.j.DepreciationDepreciationexpenseisdeterminedusingstraight-linerates,basedonaverageservicelives,appliedtotheoriginalcost,bygroupsofdepreciablepropertyinservice.Depreciationaccrualswereequivalentto3.1%ofaveragedepreciablepropertyfor1986,1985and1984.2.FederalIncomeTaxesFederalincometaxexpenseconsistsof:Chargedtooperations:CurrentDeferred-net:Accelerateddepreciation.CostofreacquireddebtIncometaxbenefitsfromAFDCandnon-cashreturnMiscellaneousInvestmenttaxcreditsdeferredIncludedinotherincomeTotal.Effectiverate.42,89649330,108(3,744)39,268122,987(4,648)$118,33934.1%46,20613,98632,256(289)3,31096,651(2,544)$94,10733.1%32,029(142)29,814(5,857)23,01778,144(3,435)$74,70926.1%198619851984(ThousandsofDollars)$13,966$1,182$(717)Theeffectivetaxratesdifferedfromthestatutorytaxrateof46%dueprimarilytothetaxeffectofAFDC,whichisnotnormalized.For1986,1985and1984thetaxeffectofAFDCwas10.1%,12.9%and14.6%,respectively.Thecumulativenetamountofincometaxtimingdif-ferencesforwhichdeferredtaxeshavenotbeenprovidedwasapproximately$544millionatDecember31,1986.The'IhxReformActof1986(TRAof1986)wasenactedonOctober22,1986.Amongotherthings,theTRAof1986pro-videsforareductioninthestatutorycorporateincometaxrates,eliminationoftheinvestmenttaxcreditasofJanuary1,1986,reductionofinvestmenttaxcreditcarryforwardsandchangesindepreciationratesandlives.Inamemo-randumdatedNovember5,1986,theStaffofthePSChasrecommendedthattheimpactoftheTRAof1986bedeferreduntilthebenefitscanbepassedontoratepayersinthenextrateproceeding.TheCompanyhasapproximately$91millionofunusedinvestmenttaxcreditsatDecember31,1986whichwillex-pirebeginningin1999andwhichreflectsa$20millionre-ductionfor1987asaresultoftheTRAof1986.Unutilizedcarryfoiwardswillbefurtherreducedby$17millionin1988.20 3.Long-termDebtAtDecember31,1986long-termdebtwas(ThousandsofDollars):FirstmortgagebondsSeriesDueAmountSeriesDueAmount4/s/037/sold17s/sold17s/s%4s/s%lls/4%12s/s%147/s%8ls%%d*8s/s%5s/sold6'/4/o6'/2o/o7/s%%dMay1,1987Feb.1,1988Mar.1,1989Mar.1,1990May1,1991Apr.1,1993Jan.1,1994July1,1994Aug.1,1994June1,1996Jan.1,1997Sept.1,1997Sept.1,1998Nov.1,2001$25,00025,00050,00050,00025,000100,000100,00050,000100,00050,00025,00025,00030,00050,0009.35o/o9s/sold9s/s%7'/4%%d6~/s%8s/s%18o/o16/s%13s/s%1612%"12'/sold**10/s/o'i/4o%%d*July1,2003Mar.1,2005Jan.1,2006June1,2006Dec.1,2006Nov.1,2007Feb.1,2012Aug.1,2012Dec.1,2012July1,2014July1,2015Oct.1,2015Feb.1,2016Apr.1,2016$43,70075,00056,98612,00025,75060,0003,5031,800100,0001,173100,00075,000125,00050,000TotalfirstmortgagebondsPollutioncontrolnotes1,434,912LetterofCreditExpirationDateInterestMaturityRateDate6.SPa0UInterestRateAdjustmentDateDec.15,1988Mar.15,1988Mar.31,1988July31,1988Oct.31,1988Dec.15,1988Lessdebtduewithinoneyear-includedincurrentliabilitiesTotal12May1,201460,00012.30%July1,201440,0003/s%***.Dec.1,2014Dec.1,198774,0007%***Mar.1,2015**Mar.1,198837,5005.15%**'ar.15,2015*'ar.15,198760,0004i/4%***July15,2015**July15,198763,5004.05%***Oct.15,2015**Oct.15,198730,0003s/4%***Dec.1,2015**Dec.1,198742,000Totalpollutioncontrolnotes407,0004375o/onotespayabledueAugust27,198950,000RCcommercialpaperdueDecember31,198939,900rticipationsinminingcompanynotesdueApril5,19897,775bligationsundercapitalleases(Note1)22,002namortizedpremiumanddiscountondebt-net(2,500)1,959,08930,682$1,928,407*Issued1986'*Issued1985*'*AdjustableRateAtDecember31,1986long-termdebtwhichwillbecomedueduringthenextfiveyearsis:19871988198919901991(ThousandsofDollars)$30,682$33,914$159,603$57,883$32,348 TheCompany'smortgageprovidesforasinkingandim-provementfund.TheprovisionsrequiretheCompanytomakeannualcashdepositswiththeTrusteeequivalentto1%oftheprincipalamountofallbondsdeliveredandauthenticatedbytheTrusteepriortoJanuary1ofthatyear(excludinganybondsissuedonthebasisoftheretirementofbonds).Pursuanttothetermsofthemortgage,theCom-panyhassatisfiedtheserequirementsbycrediting"bondablevalueofpropertyadditions"againsttheamountofcashtobedeposited.Mandatoryannualcashsinkingfundrequirementsare$3,000,000forthe9/s%seriesdue2006,$2,100,000forthe9.35%series,$600,000beginningJune1,2001forthe7i/4%seriesand$250,000beginningDecember1,1992forthe67/e%series.Theamountincreasesto$500,000and$750,000onDecember1,1997andDecember1,2002,respectively,forthe67/8%series.Themortgageindenturesecuresthefirstmortgagebondswhichconstituteadirectfirstmortgagelienonsubstantiallyallutilityplant.Adjustableratepollutioncontrolnoteswereissuedtose-curelikeamountsoftax-exemptadjustableratepollutioncontrolrevenuebonds(RevenueBonds)issuedbyagovern-mentalauthority.TheRevenueBondswillbearinterestattherateindicatedthroughthedateprecedingtheinterestrateadjustmentdate.ThepollutioncontrolnoteswillbearinterestatthesamerateastheRevenueBonds.Onthein-terestrateadjustmentdateandannuallythereafter,theinterestratewillbeadjusted,nottoexceedarateof15%,orattheoptionoftheCompany,subjecttocertainconditions,afixedrateofinterest,nottoexceed18%,maybecomeef-fective.Bondownersmayelect,subjecttocertainconditions,tohavetheirRevenueBondspurchasedbytheTrustee.TheCompanyhasirrevocablelettersofcreditwhichexpireontheletterofcreditexpirationdatesandwhichmaybeex-tendeduponmeetingcertainconditions.TheselettersofcreditsupportcertainpaymentsrequiredtobemadeontheRevenueBonds.PaymentsmadeunderthelettersofcreditinconnectionwithpurchasesofRevenueBondsbytheTrusteearerepaidwiththeproceedsfromtheremarketingoftheRevenueBonds.Totheextenttheproceedsarenotsufficient,theCompanyisrequiredtoreimbursethebankthatissuedtheletterofcredit.SRChasaletterofcreditbackedcommercialpaperpro-gramwhichprovidesforborrowingupto$60millionthroughDecember31,1989.Theweightedaverageinter-estratefor1986,includingfeesfortheletterofcredit,amountedto7%.SubstantiallyallofthepropertyofSRC,otherthanequipment,issubjecttoalienofamortgageandsecurityagreement.4.CommonStockandCapitalinExcessofParValueThefollowingisasummaryofchangesincommonstockandcapitalinexcessofparvaluefor1986,1985and1984:BalanceatDecember31,1983Publicoffering:19841986Dividendreinvestmentandstockpurchaseplan:19841985Employeestock48,501,7061,000100032,1002,415,3071,901,71416,10212,67825,15032,118CommonStockCapitalinExcess$6.662/aParValueofParValueSharesAmountAmount(7housandsofDollars)$323,345$427,7866,66713,799214850ownershipplans:198419851986Reacquiredcapitalstock1986BalanceatDecember31,1986160,38527,86222,12354,061,1971,069186147$360,4082,171499574417$503,36470,000,000SharesauthorizedatDecember31,198622 103.94E102.00j003/1/91Thereafter2/1/892/1/94Thereafter2510/1/8810/1/93Thereafter8.48o/oAdjustableRate(2)5.PreferredStockAtDecember31,1986serialcumulativepreferredstockwas:ParValueRedeemableSeriesSharePriortoPerShareRedeemablesolelyattheoptionoftheCompany:3.759o$100"'104.004i/2o/o(1949)100103.75415o%%d100101.004.40%100102.004.15%%d(1954)100102.006.48o%%d100102.008.80%1SharesAuthorized(1)andOutstanding150,00040,00040,00075,00050,000300,000250,0001,000,0001,800,000Amount(ThousandsofDollars)$15,0004,0004,0007,5005,00030,00025,00025,00045,000TotalSubjecttomandatoryredemptionrequirements:(7)4.5096100(3)9.009o10010/1/87(4)9.1096257/1/87(5)15251/1/92(6)105.25200104.00184,50025.33360,00027.501,200,000$160,500$2018,4509,00030,000Lesssinkingfundrequirementsatparvalue-includedincurrentliabilitiesTotal57,47034,650$22,820AtDecember31,1986redeemablepreferredstocksinkingfundrequirementsandpreferredstockredemptionsduringthenextfiveyearsare:19871988198919901991(ThousandsofDollars)$34,650$4,670$4,650$4,650$4,650(1)AtDecember31,1986therewere1,550,000sharesof$100parvaluepreferredstock,6,800,000sharesof$25parvaluepreferredstockand1,000,000sharesof$100parvaluepreferencestockauthorizedbutunissued.(2)TheAdjustableRateSerialPreferredStock,SeriesAwasissuedinSeptember1983.DividendspaidfromthedateofissuancethroughtheJanuary1,1987paymentvariedfrom7~/2%to12.95%perannum.ThepaymentforApril1,1987hasbeenadjustedtoarateof7~/2o/operannumandsubsequentpaymentscanvaryfrom7~/2%to13'/2%perannum,baseduponaformulaincludedintheCertificateofIncorporation.(3)ByMarch31,1988,theCompanymustredeemat$103.25persharethe200outstandingsharesofthe4.50o/oSeries.TheCompanyreacquired300sharesin1985andcanceledthesharesin1986.(4)OnOctober1,ineachyear1987through1995,theCompanymustredeematpar16,500sharesofthe9.00%Series.Since1984,16,500shareshavebeenreacquiredandcanceledannually.The9.0096Seriesisredeemableat$104.00persharepriortoOctober1,1987.The$104.00pricepersharewillbereducedannuallyby$.50.AsofOctober1,1994andthereafter,theredemptionpricewillbeatpar.BySeptember30,1996,theCompanymustsetasidetheamountrequiredtoredeematparallsharesoutstanding.(5)ByJuly1,ineachyear1987through'1989,theCompanymustredeematpar120,000sharesofthe9.10o%%dSeries.TheCompanyreacquiredandcanceled120,000sharesin1986and1985.(6)OnJanuary1,1987,theCompanyredeemed1,104,000sharesofthe15o%%dSeriesatapriceof$27.50pershareand96,000sharesatpar.(7)TheCompanyredeemed300,000sharesofthe153/oo%%dSeriesin1986atapriceof$110.00pershareplusaccrueddividends.Thepremiumpaidonreacquisitionisreportedasachargetoretainedearnings.23 6.BankLoansandOtherBorrowingsTheCompanyhasarevolvingcreditagreementwithbankswhichprovidesforborrowingupto$200milliontoJuly31,1992.AttheoptionoftheCompany,theinterestrateonborrowingsisrelatedtotheprimerateortheLondonInter-bankOfferedRateortheinterestrateapplicabletocertaincertificatesofdeposit.Theagreementalsoprovidesforthepaymentofacommitmentfeeontheunborrowedamountofone-quarterofapercentperannum.Therevolvingcreditagreementdoesnotrequirecompen-satingbalances.TheCompanydidnothaveanyoutstandingloansunderthisagreementorprioragreementsatDecember31,1986or1985.Interimfinancingintheformofshort-termborrowingsoncommercialpaperisutilizedtofinanceconstructionex-penditures.Informationrelativetoshort-termborrowingsis$61,000$12,800CommercialPaperNotesPayable198619851984"19851984(ThousandsofDollars)Endingbalance$110,600$118,300$60,100Maximumamountoutstanding........$141,400$145,700$125,600$70,000Averageamounto'utstanding(l)........$93,300,$84,400$57,800'13,600Weightedaverageinterestrate:Onendingbalance.......6.1%8.0%8.5%Duringtheperiod(2)...............7.3/08.5%10.7%.8.4%10.7%(1)Calculatedastheaverageofthesumofdailyborrowings.~(2)Calculatedbydividingtotalinterestexpensebythe,averageofthesumofdailyborrowings.7.JointlyOwnedGeneratingStations(SeeNote8.)TheCompanyhasanundivided50%interestintheoutputandcostsofthreegeneratingunitscomprisingtheHomerCityGeneratingStation.ThestationisownedwithPennsyl-vaniaElectricCompanywhichalsooperatesthefacility.TheCompany'sshareoftheratedcapabilityis946,000kwanditsnetutilityplantinvestmentis$270million,whichincludes$6millionofconstructionworkinprogress.Theaccumu-latedprovisionfordepreciationasofDecember31,1986was$100million.TheCompany'sshareofoperationandmain-tenanceexpenseofthestationisreflectedintheConsolidatedStatementofIncome.TheCompanyenteredintotwocontractsforthesupplyofcoaltotheHomerCityGeneratingStation.BythetermsofonecontractdatedJanuary2,1985,theCompanyisobli-gatedtopayterminationcostsundercertainconditionsforaperiodof17years.TheobligationatJanuary2,1987of$11.5millionwillbereducedperiodicallythrough2001.8.CommitmentsandContingencies(SeeNote10.)TheCompanyhasanundivided18%interestinthe1,084,000kwNineMilePointnucleargeneratingunitNo.2(Unit)beingconstructedbyNiagaraMohawkPowerCorpor-ation(NiagaraMohawk)nearOswego,NewYork.OwnershipoftheUnitissharedwithNiagaraMohawk41%,LongIslandLightingCompany(LILCO)18%,RochesterGasandElectricCorporation14%andCentralHudsonGas6ElectricCor-poration9%.OnOctober31,1986Nia'garaMohawkobtainedfromtheNuclearRegulatoryCommission(NRC)alowpowerlicenseandascheduleexemptiontopermittheloadingoffuel.Thefuelloadingprocesshasbeencompleted.NiagaraMohawkhasinformedtheCompanythatitisawaitingapprovalbytheNRCofcertainengineeringanalysisrelatedtorepairsmadetotheUnit'seightmainsteamisolationvalves(MSIV)thatverifytheircontinuedsuitabilityforoperationandthatthisapprovalisconditioned.upontheresultstobeobtainedfromthetestingofaprototypevalvewhichiscurrentlyinprocess.InJanuary1987NiagaraMohawkadvisedtheCompanythatasaresultoftheMSIVrepairsandengineeringanalysis,coupledwiththeNRCreviewandaconsequentchangeintheestimatedcommercialoperationdatetoSeptember1987,itrevisedtheestimatedtotalUnitcostto$5.878billion($4.059billionofconstructioncostsand$1.819billionofAFDC),excludingnuclearfuelcosts.InNovember1986,NiagaraMohawkhadestimatedthatthetotalUnitcostwouldbe$5.787billion($4.010billionofconstructioncostsand$1.777billionofAFDC),excludingnuclearfuelcosts.TheCompany'sshareofthenewestimatedcostisapproximately$1.114billion,includingAFDCbutexcludingnuclearfuelcosts,plus$25millionforcertaincommonfacilitiesandother-costsforatotalinvestmentofapproximately$1.13924 billionintheproject,excludingthe$52millionpaymentbyNiagaraMohawkasdescribedbelow.AsofDecember31,1986,theCompany'sinvestmentintheprojectwas$1.035billion,includingAFDCbutexcludingnuclearfuelcosts.Thetestingandstart-upofallnewnuclearplantsissub-jecttotheriskofencounteringunforeseenproblemsand,therefore,itmustberecognizedthatcommercialoperationof:theUnitmaybelaterthancurrentlyprojected.TheCom-panyestimatesthatanydelayinachievingcommercialoper-ationbeyondSeptember1,1987wouldaddapproximately$12millioneachmonthtoitsshareofthecostoftheUnit,themajorportionofwhichisfinancingcosts.Althoughnoassurancecanbeprovidedastotheprecisedateonwhichcommercialoperationwillbeaccomplished,theCompanybelievesthattheUnitwillcommencecommer-cialoperationinthefourthquarterof1987.Inconnectionwitha1982PSCproceedingdiscussedfur-therbelow,whichconcludedthatcompletionoftheUnitwaswarranted,thePSCstatedthatitwouldapplyastrictstandardofprudenceforallcostsincurredincompletingtheUnit.OnJuly3,1985thePSCissuedanOrderestablishingaproceedingtoinvestigatetheprudenceofcostsrelatingtotheconstructionoftheUnit(PrudenceProceeding).OnSep-tember18,1985thecotenantsandthePSCStaffsubmittedtothePSCanOfferofSettlement(Offer)tosettlethePru-denceProceeding.TheOfferprovidedthatamaximumof$4.45billionofcostsrelatingtoconstructionoftheUnitweretobeincludedinratebaseanddisallowedcostswouldnotbelessthan$900million.ThecotenantsmaypetitionthePSCtoincreasethemaximuminresponsetoanextraordinaryeventandtheco-te'nantsrepresentedintheOfferthat,atthetimeoftheOffer,theywerenotawareofanyfactsthatwouldwarrantaclaim.TheOfferalsoprovides,amongotherthings,that(1)theallowedcostsfortheUnitwouldbephasedintoratebaseoverareasonableperiodtogetherwithaccumulatedde-ferredcarryingcostsontheportionoftheUnit'scostthathasnotyetbeenincludedinratebase,andthatthephase-inofeachcotenant'sallocableshareofallowedUnitcostswillberesolvedinthecontextofitsrateproceeding;(2)certaintaxbenefits,basedupontheaccountingrequirementsarisingoutoftheOffer,aretobereservedforthebenefitofthestockholders;(3)thelevelofexpendituresfortheUnitthataredisallowedundertheOffershallbeallocatedamongthecotenantsinproportiontotheirrespectiveownershipinter-estsintheUnitandeachcotenantwaivesanyandallclaimsarisingoutofthedesign,engineeringorconstructionoftheUnitthatitmayhaveagainstanyothercotenantorcoten-ants;(4)thecotenantsagreethattheywillnotchallengethelegalvalidityoftheIncentivePlanortheJuly1984Orderwhicharediscussedbelow;and(5)theprovisionsintheOffershallbeinfullsatisfactionofanymonetarypenaltyorin-centiveprovidedforundertheIncentivePlanortheJuly1984Order.OnJuly15,1986thecotenants,inresponsetoarequestbythePSC,notifiedthePSCthattheywouldagreetomodifytheOffertoprovideforachangeintheallowablecostto$4.16billion.Inaddition,inordertoinducesettlementamongthecotenants,NiagaraMohawkenteredintoanagree-mentwiththeothercotenants(CotenantAgreement)wherebyitwouldmakeapaymenttothecotenants,uponcommercialoperationoftheUnit,fortheirsharesofthe$290millionincrementaldisallowancebetweentheoriginalproposedal-lowedcostof$4.45billionandtherevisedproposedallowedcostof$4.16billion.TheCompany'sshareofthispaymentwouldbe$52million.Thispaymentwillnotcauseare-allocationofownershipinterestsintheUnit.OnOctober3,1986thePSCissuedOpinionNo.86-24approvingtheOffer,asmodifiedbythe$4.16billioncostallowanceproposal,andterminatingthePrudenceProceed-ing.OnOctober22,1986theAttorneyGeneraloftheStateofNewYorkandtheConsumerProtectionBoardoftheStateofNewYork(CPB)filedpetitionswiththePSC,requestingthatthePSCreconsidertheconclusionsreachedinOpinionNo.86-24andresumethePrudenceProceeding.OnDecem-ber17,1986thePSCissuedanorderwhichdeniedthepeti-tionsforrehearing.TheExecutiveDirectoroftheCPBandtheAttorneyGeneraloftheStateofNewYorkhavepubliclyexpressedtheirintenttoappealthePSCactiontothecourts.TheCompanycannotpredictwhetheranappealtothecourtswillbetakenor,iftaken,theresultsthereof.BaseduponthetermsoftheOfferasapprovedbythePSCandbasedonNiagaraMohawk'srevisedcostestimatedis-cussedabove,theCompany'sshareofthedisallowedamount(afterreflectingthe$52millionpaymentbyNiagaraMohawkundertheCotenantAgreement)isexpectedtoapproximate$326million,reducedtoapproximately$234millionafterrecognitionofthefederalincometaxeffectata46%rate.(SeeNote10.)ThedisallowedamounttotheCompanywillbeincreasedbyitsshareoft6ecostofanyfurtherdelaysinthecommercialoperationoftheUnitbeyondSeptember1,1987andmightbefurtherincreaseddependentontheulti-matePSCdecisionastothecostscoveredbytheOfferandbytheimplementationrequirementsthatmayultimatelybeorderedbythePSC.25 InNiagaraMohawk'scurrentratecase,theStaffofthePSChasraisedgenericissueswithrespecttotheOfferwhichmayaffecteachofthecotenants.Intheirtestimony,Staffcontendsthatthedisallowanceshouldincludecostsforcom-monfacilitiesandcertainothercostswhichthecotenantsconsidertobeoutsidethescopeoftheOffer.IfallsuchcostswereheldtobewithinthescopeoftheOffer,theCompany'sshareoftheamountdisallowed,netofanytaxbenefits,wouldincreasebyapproximately$16million.Staffalsoproposedvaluingthetaxbenefitsassociatedwiththedisallowedcostata34%rateandonapresentvaluebasis.TheCompanybelievesthosepositionstobecontrarytotheOfferand,inthecaseofvaluingtaxbenefitsonapresentvaluebasis,contrarytogenerallyacceptedaccount-ingprinciples.IfStaff'spositionswereultimatelysustainedandthetaxbenefitsassociatedwiththedisallowedcostwerevaluedata34%rateandonapresentvaluebasis,thereduc-tionintaxbenefitswouldincreasetheCompany'safter-taxdisallowanceby$48million.NiagaraMohawkhasinformedtheCompanythatitexpectsadecisiononitscurrentratecase,includingtheimplementationrequirementsfortheOffer,inMarch1987.TheCompanycannotpredictwhethertheStaff'sproposalswillultimatelybeadoptedandsustained.InApril1982thePSCestablishedanincentiverateofre-turnplan(IncentivePlan)fortheratemakingtreatmentof.theremainingconstructioncostsoftheUnit.InJuly1984thePSCissuedanOrder(July1984Order)thatamendedtheIncentivePlanbyimposinga$5.4billionceilingontheUnit'sfinalallowablecost.UndertheamendedIncentivePlan,thecotenants'ommonstockholderswould,withacertainlimitation,bepenalizedbya20~/oreductionintherateofreturnoncommonequityassociatedwiththecapitalcostsfortheUnitinexcessof$4.6billion,butlessthan$5.4billion.CapitalcostsfortheUnitinexcessof$5.4billionwouldbeborneintotalbythecotentants'ommonstock-holders.SincethePSC'sapprovaloftheOfferwasinfullsatisfa'ctionofanymonetarypenaltyprovidedforundertheIncentivePlan,asamendedbytheJuly1984Order,theIn-centivePlanandtheceilingimposedbytheJuly1984Orderarenotexpectedtobeimplemented.TheCompanyisunabletopredictwhatfurtheractionsorproceedings,ifany,maybeinstitutedwithrespecttotheUnit.InFebruary1984LILCOdiscontinuedmakingconstruc-tionpaymentsfortheUnitandstateditwantedtodisengageitselffromtheUnit.Sincethattime,NiagaraMohawkandLILCOhaveenteredintoagreementswhichinitiallyprovidedforfundingupto$400millionoftheLILCOconstructioncostrequirementswithrespecttotheUnitsubsequenttoFebruary1984.InDecember1986LILCOpaidallamountsowingonitsshareoftheUnitandresumedpaymentstocovercurrentprojectexpenditures.Inlightoftheforegoingandthesubstantialcostincreases,constructiondelaysandlicensingproblemsthathavearisenwithrespecttoothernucleargeneratingstations,theCom-panycanpredictneitherthefinalcostofitsshareoftheUnitnorthecompletionandlicensingoftheUnitconsistentwiththepresentschedule.IftheUnitweretobeabandoned,itisanticipatedthat,totheextenttheCompany'sinvestmentintheproject($1.035billionatDecember31,1986includ-ingAFDCbutexcludingnuclearfuelcosts)isnotrecoveredthroughratesandalternativeregulatoryreliefisnotgranted,theCompanywouldhavetochargeexpensewiththeprojectcosts,netofthefederalincometaxeffect.(SeeNote10.)9.AbandonedProjects-NewHavenandJamesport(SeeNote10.)TheCompanyfiledpetitionswiththePSCrelativetotheNewHavenandJamesportProjects,twoabandonednucleargeneratingprojects,requestingauthorizationto(1)continuetoaccrueAFDConitsshareofcostsuntilamortizationofsuchcostscommencestoberecoveredinrates,(2)amortizetheinvestmentsthroughratesand(3)includeinratesap-propriatecarryingchargesontheunamortizedbalances.TheprojectswereoriginallyplannedforcompletiononajointventurebasiswithLILCO.OnSeptember19,1984thePSCissuedOpinionandOrderNo.84-25whicheffectivelyauthorizedrecoveryof70~%%doftheCompany'sinvestmentintheNewHavenProject.AsaresultofPSCOrderNo.84-25,theCompanycharged$8.7million(netoffederalincometaxes)toexpensein1984andthebalancewasincludedinDeferredCharges-AbandonedprojectcostsintheConsolidatedBalanceSheet.ThroughApril1985theCompanyaccruedanon-cashreturn,calcu-latedsimilarlytoAFDC,onthisdeferredcharge.Amortiza-tionofthedeferredchargeisbeingrecordedratablyoverfiveyearsbeginningMay1985coincidentwithrecoveryinrates.AsofDecember31,1986theunamortizedbalancewas$29million.OnMay22,1985theCompanyfiledapetitionintheSupremeCourtoftheStateofNewYork(AlbanyCounty)challengingthePSC'sdisallowanceofapartoftheCom-pany'sinvestmentintheNewHavenProject.TheproceedingwastransferredtotheAppellateDivision(ThirdDepartment).TheCompanyandLILCOhaveagreedthatshouldthePSCfindthatcertaincostsforpredecessorprojectsincludedintheNewHavenProjectcostsmaynotberecoveredbyLILCOthroughitsrates,theCompanywouldthenrefundtoLILCO26 itsshareofthesecosts.InOrderNo.84-25thePSCstatedthatthesecostsshouldbeallowedtoberecoveredinLILCO'srates;therefore,theCompanybelievesthatnoamountisrefundabletoLILCO.InMarch1982thePSCauthorizedtheCompanytocon-tinueaccruingAFDConitsJamesportinvestmentuntilthePSCrendersitsdecisionwithrespecttotheprudenceanddispositionoftheprojectcosts.Theseproceedingsarecon-tinuing.IftheCompany'srequesttoamortizeitsinvestmentisdeniedandalternativeregulatoryreliefisnotgranted,theCompanywouldhavetochargeexpensewiththedisallowedcosts,netofthefederalincometaxeffect.TheCompanyisunabletopredicttheportionoftheJamesportinvestment,ifany,whichwillbeallowedtoberecoveredinrates.In1986theCompanyrecorded$5.9millionrelatingtonon-cashreturnonitsJamesportinvestmentwhichisin-cludedinotherincomeintheConsolidatedStatementofIncome.AsofDecember31,1986theCompany'sJamesportinvestmentof$80million,beforethefederalincometaxef-fect,isincludedinDeferredCharges-AbandonedprojectcostsintheConsolidatedBalanceSheet.10.StatementofFinancialAccountingStandardsNo.90FinancialAccountingStandardscurrentlyapplicabletoregu-latedenterprisesdonotrequire,subjecttocertainexcep-tions,theimmediatechargetoexpenseofcostsrelatingtoanewlycompletedplantwhicharedisallowedforratepur-poses.Currentstandardsalsodonotrequiretheimmedi-aterecognitionofalosswhenthecarryingamountoftheabandonedprojectisgreaterthanthepresentvalueoftheprobablefuturerevenueforrecoveryoftheabandonedprojectcosts.Mattersofthisnatureexist,orareexpectedtoexist,intheCompany'soperationsandaremorefullydiscussedinNotes8and9.TheCompany'sconsolidatedfinancialstate-mentsasofDecember31,1986werepreparedinaccordancewithcurrentfinancialaccountingstandards.InDecember1986theFASHissuedStatementofFinancialAccountingStandardsNo.90,RegulatedEnterprises-Ac-countingforAbandonmentsandDisallowancesofPlantCosts(SFASNo.90).SFASNo.90includesrequirementsthat(1)whenitbecomesprobablethatpartofthecostofanewlycompletedplantwillbedisallowedforratemakingpurposesandareasonableestimateoftheamountofthedisallowancecanbemade,theestimatedamountoftheprobabledisallow-anceshallbeimmediatelychargedtoexpense,(2)AFDCbecapitalizedonlyifitisprobablethatitwillbeincludedasanallowablecostforratemakingpurposesand(3)ifpartialornoreturnoninvestmentislikelytobeprovidedontheal-lowedcostoftheabandonedplant,thenthelossontheabandonedplantshallbeequaltothecarryingamountoftheabandonedplantlessthepresentvalueoftheprobablefuturerevenueforrecoveryoftheabandonedplantcosts.SFASNo.90iseffectivefortheCompany'sfinancialre-portingcommencingwithfiscalyearsbeginningafterDe-cember15,1987(EffectiveDate),withearlierapplicationencouraged.TheprovisionsofSFASNo.90alsoapplytothefinancialreportingofeventsoccurringpriortotheEffectiveDate.TheCompanyhasanalyzedtheeffectthattheprovisionsofSFASNo.90haveontheCompany'sinvestmentintheabandonedNewI.lavennucleargeneratingprojectandthedisallowanceofcostsrelatedtotheNineMilePointnucleargeneratingunitNo.2(Unit).Basedonthatanalysis,theCompanyhasconcludedthattherewouldnothavebeenamaterialadverseeffectontheCompany'sconsolidatedfinan-cialstatementsasaresultoftheabandonedNewHavennucleargeneratingprojectifSFASNo.90hadbeenineffectinprioryears.However,ifSFASNo.90hadbeenineffectin1986and1985,thenet-of-taxlossontheUnitwouldhavebeenallocatedtoeachofthoseyearsandreported1986and1985earningsavailableforcommonstockwouldhavebeen,onaproformabasis,approximately$115millionand$65million,respectively,andrelatedproformaearningspersharewouldhavebeen$2.13and$1.23,respectively.Inaddi-tion,1987earningsavailableforcommonstockwouldbereducedbyapproximately$22million.(SeeNote8.)TheCompanycurrentlyanticipatesapplicationofSFASNo.90in1987andanticipatesrecordingthedisallowanceasacumu-lativeeffectofachangeinaccountingprinciple.InorderfortheCompanytobeabletoissuefirstmort-gagebondsorpreferredstock,certainearningsrequirements(subjecttocertainexceptionsinthecaseoffirstmortgagebonds)underitsMortgageorCertificateofIncorporationhavetobemetforatwelve-monthperiod.TireimpactoftheUnit'sdisallowedcost,asdiscussedabove,isexpectedtohaveamaterialadverseeffectonsuchearningsandcouldresultintheCompanybeingunabletomeetsuchrequirements.ThisadverseeffectisexpectedtocontinueforaslongastheUnit'sdisallowedcostisreflectedinthedeterminationofearningsfortheapplicabletwelve-monthperiod.IftheCompanywereunabletomeetsuchearningsrequirementssuchinabilityisnotexpectedtohaveasignificantimpactonthecontinuingoperationsoftheCompany.27 11.IndustrySegmentInformationCertaininformationpertainingtotheelectricandgasoperationsoftheCompanyis:19851984ElectricGasElectricGas(ThousandsofDolla'rs)ElectricGas$1,051,579$190,201825,719178,308.225,86011,89394,1633,922$179,195159,72819,4673,992247,7593,623,4815,912105,463Operating:Revenues............$1,098,089$921,248$207,818Expenses............836,471708,383190,017Income.............261,618212,86517,801Depreciation*..........96,804-60,9234,275Constructionexpenditures.........220,27510,6178,390343,806Identifiableassets**.....3,844,469119,565'13,0353,362,574'Includedinoperatingexpenses.**Corporateassets($260,950,$240,103and$265,109atDecember31,1986,1985and1984respectively)consistprimarilyofcash,specialdeposits,accountsreceivable,prepayments,unamortizeddebtexpenseandaccumulateddeferredincometaxes.AmountschargedtoaccountsotherthantaxesTotalothertaxes12.SupplementaryIncomeStatementInformationChargesformaintenance,repairsanddepreciation,otherthanthosesetforthintheConsolidatedStatementofIncome,werenotsignificantinamount.Taxes,otherthanfederalincometaxes,are:198619851984~(ThousandsofDollars)Property.$62,245$55,987$48,598Franchiseandgrossreceipts53,96049,24747,735Payroll,11,58310,78710,228Miscellaneous5,8406,0116,994133,628122,032113,555(11,228)(8,445)(11,403)$122,400$113,587$102,15228 13.QuarterlyFinancialInformation(Unaudited)March31QuarterEndedJune30Sept.30(Thousands)Dec.311986Operatingrevenues.Operatingincome..NetincomeEarningsavailableforcommonstockEarningspershare(indollars).......Dividendspershare(indollars)......Averagesharesoutst'andingCommonstockprice(indollars):*HighLow1985Operatingrevenues.OperatingincomeNetincomeEarningsavailableforcommonstock.Earningspershare(indollars).......Dividendspershare(indollars)......AveragesharesoutstandingCommonstockprice(indollars):*High.Low$381,321$87,150$79,593$73,599$1.36$.6454,007$32$27'/a$361,982$69,546$69,388$62,688$1.20$.6152,288$23'/2$21'/4$305,177$70,230$55,269$50,240$.93$.6454,007$331/8$28a/s$306,049$63,988$53,852$47,510$.90$.6152,774$27'/z$23'/s$274,945$62,475$46,596$42,031$.78$.6654,007$38'/z$30$270,992$51,381$42,288$36,194$.68$.6453,233$29'/4$23'/4$315,841$61,230$47,036$42,520$.79$.6654,040$34'/4$30'/4$302,757$52,838$42,905$36,815$.69$.6453,739$28'/4$23'/e*TheCompany'scommonstockislistedontheNewYorkStockExchange.ThenumberofstockholdersofrecordatJanuary21,1987was71,935.DividendLimitations:Afterdividendsonalloutstandingpreferredstockhavebeenpaid,ordeclaredandfundssetapartfortheirpayment,thecommonstockisentitledtocashdividendsasmaybedeclaredbytheBoardofDirectorsoutofretainedearningsaccumulatedsinceDecember31,1946.SuchdividendsarelimitedifCommonStockEquity(40%atDecember31,1986)fallsbelow25/0oftotalcapitalization.Dividendsoncommonstockcannotbepaidunlesssinkingfundrequirementsofthepreferredstockaremet.TheCompanyhasnotbeenrestrictedinthepaymentofdividendsoncommonstockbytheseprovisions.29 SelectedFinancialDataOperatingrevenues.........NetincomeEarningspershare..........Dividendspaidpershare.....Averagesharesoutstanding...Bookvaluepershareofcommonstock(year-end)..Interestcharges............AIDCandothernon-cashreturn..........DepreciationOthertaxesConstructionexpendituresTotalassetsLong-termobligationsandredeemablepreferredstock.1986$1,277,284$228,494$3.86$2.6054,01419851984(Thousands-exceptper$1,241,780$1,129,066S208,433S211,376$3.46$3.68$2.50$2.3853,01349,9551983sharedata)$993,589$156,680$3.06$2.2643,5301982S953,714S145,095$3.36$2.1036,414$25.86$24.65$23.71$22.75$22.39$199,258$191,248$176,085$137,372$109,266$111,872$100,796$122,400$230,892$4,224,984$122,719$98,085$113,587$256,149$3,976,619$126,265$65,198$102,152$349,718$3,733,146$91,641$56,799$90,604$466,642$3,200,466$54,466$53,174$82,877$524,310$2,728,005$1,951,227$1,836,076$1,663,784$1,426,681$1,242,627Coopers8LybrandcertifedpublicaccountantsTotheStockholdersandBoardofDirectorsNewYorkStateElectric2GasCorporationandSubsidiariesIthaca,NewYorkWehaveexaminedtheconsolidatedbalancesheetsofNewYorkStateElectric6GasCorporationandSubsidiariesasofDecember31,1986and1985,andtherelatedconsolidatedstatementsofincome,retainedearningsandchangesinfinancialpositionforeachofthethreeyearsintheperiodendedDecember31,1986.Ourexaminationsweremadeinaccordancewithgenerallyacceptedauditingstandardsand,accordingly,includedsuchtestsoftheaccountingrecordsandsuchotherauditingproceduresasweconsiderednecessaryinthecircumstances.Inouropinion,thefinancialstatementsreferredtoabovepresentfairlytheconsolidatedfinancialpositionofNewYorkStateElectric6GasCorporationandSubsidiariesatDecember31,1986and1985,andtheconsolidatedresultsoftheiroperationsandthechangesintheirfinancialpositionforeachofthethreeyearsintheperiodendedDecember31,1986,inconformitywithgenerallyacceptedaccountingprinciplesappliedonaconsistentbasis.NewYork,NewYorkJanuary30,198730 Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperationsLiquidityandCapitalResourcesTheCompanyhasanundivided180/0interestinthe1,084,000kwNineMilePointnucleargeneratingunitNo.2(Unit)beingconstructedbyNiagaraMohawkPowerCorporationnearOswego,NewYork.TheCompany'sshareoftheesti-matedconstructioncostisapproximately$1.114billion,in-cludingallowanceforfundsusedduringconstruction(AFDC)but'excludingnuclearfuelcosts,plus$25millionforcertaincommonfacilitiesandothercostsforatotalinvestmentofapproximately$1.139billionintheproject.AsofDecember31,1986,theCompany'sinvestmentintheprojectwas$1.035billion,includingAFDCbutexcludingnuclearfuelcosts.(SeeNote8.)Constructionexpenditures,includingAFDC,duringtheperiodfrom1984-1986totaledapproximately$1.1billion.TheUnitwasthelargestconstructionprojectduringthosethreeyears,requiringapproximately$561million.Inad-dition,approximately$172millionwasexpendedfortheSomersetGeneratingStation(Somerset)whichwasplacedincommercialoperationinAugust1984.Estimatedconstructionexpendituresfor1987through1989areincludedinthetablebelow.The1987estimatehasincreasedovertheestimatemadepreviouslylargelybecauseofincreasedcostsrelatedtothechangeinscheduledcom-mercialoperationoftheUnittoSeptember1987.TheCompany'sconstructionprogramisundercontinuingre-viewandisrevisedfromtimetotime.ConstructionexpendituresotherthanfortheUnitareplannedtoextendservicetonewcustomers,forimprove-mentsatexistinggeneratingstationsandtoimproveoper-atingefficiency.WiththescheduledadditionofgeneratingcapabilityfromtheUnitin1987andwiththeimprovementscurrentlyunderwayatexistinggeneratingstations,theCompany'sgeneratingcapabilitywillbesufficientandleavesroomforgrowthwithouttheneedformajorexpendituresfornewgeneratingfacilities.TheregulatorytreatmentoftheallowedcostoftheUnithasnotyetbeendetermined;however,theCompanyantici-patesthatwhentheUnitisallowedinratebase,theentireagreeduponcostforratepurposeswillbephasedinoveraperiodofyears.IncludedintheCompany'sFebruary1987ratefilingisarequesttophase-intheUnit'sallowedcostsoverathree-yearperiod.Thenon-cashreturnincludedinthetablebelowrelatestothedeferraloffinancingcostsduringthephase-inperiod.TheCompany'sneedforoutsidecapitalresultsprimarilyfromitsconstructionprogramanditsprogramtoreducethecostofcapitalbyrefinancinghigh-costfirstmortgagebondsandpreferredstock.Externalfinancingsin1986included:~Thesaleof$125millionprincipalamountofFirstMort-gageBonds,10s/s%Series,dueFebruary1,2016.~Thesaleof$50millionprincipalamountofFirstMort-gageBonds,9I/4%Series,dueApril1,2016.~Thesaleof$100millionprincipalamountofFirstMort-gageBonds,83/8%Series,dueAugust1,1994.Inaddition,acontinuousofferingprogramforthesaleof1,500,000sharesofcommonstockcommencedinDecember1986andisexpectedtoconcludebytheendofthefirstquarterof1987.Proceedsfromtheseexternalfinancingswereusedfortheredemptionof$110millionprincipalamountofhighinterestbondsoriginallyissuedin1981and1979,andforthere-demptionofthe300,000outstandingsharesoftheCom-pany's15'/8%SerialPreferredStock(Cumulative,$100ParValue)originallyissuedin1981.Thebalanceoftheproceedswasusedforthepaymentofshort-termunsecurednoteswhichwereusedforconstructionpurposes.TheCompanyusesinterimfinancingintheformofshort-termunsecurednotes,usuallycommercialpaper,tofinanceconstructionexpenditures,therebyprovidingflexibilityinthetimingandamountsoflong-termfinancings.TheCom-panyhad$110.6millionofcommercialpaperoutstandingatDecember31,1986.Theamountofexternalflinancingsin1986decreasedoverrequirementsin1985and1984,primarilyduetothecom-pletionofSomersetin1984andduetodecliningcostsasso-ciatedwiththeUnitas.theUnitgetsclosertoitsscheduledcompletiondateofSeptember1987.Externalfinancingsfortheperiodfrom1987through1989areincludedinthetablebelow.During1986theCompanyenteredintoanewrevolvingcreditagreementwithcertainbankswhichprovidesforbor-rowingupto$200milliontoJuly31,1992.AttheoptionoftheCompany,theinterestrateonborrowingsisrelatedtotheprimerateortheLondonInterbankOfferedRateortheinterestrateapplicabletocertaincertificatesofdeposit.Theagreementalsoprovidesforthepaymentofacommitmentfeeontheunborrowedamountofone-quarterofapercentperannum.Therevolvingcreditagreementdoesnotrequirecompen-satingbalances.TheCompanydidnothaveanyoutstandingloansunderthisagreementatDecember31,1986.InDecember1986theFinancialAccountingStandardsBoardissuedStatementofFinancialAccountingStandardsNo.90,RegulatedEnterprises-AccountingforAbandon-mentsandDisallowancesofPlantCosts(SFASNo.90)whichisexpectedtohaveamaterialadverseeffectontheCompany'sconsolidatedfinancialstatements.(SeeNote10.)TheCom-panyhasanalyzedtheeffectthattheprovisionsofSFASNo.90haveontheCompany'sinvestmentintheabandonedNewHavennucleargeneratingprojectandthedisallowanceofcostsrelatedtotheUnit.(SeeNotes8and9.)Basedonthatanalysis,theCompanyhasconcludedthattherewouldnothavebeenamaterialadverseeffectontheCompany'sconsolidatedfinancialstatementsasaresultoftheaban-donedNewHavennucleargeneratingprojectifSFASNo.90hadbeenineffectinprioryears.However,ifSFASNo.90hadbeenineffectin1986and1985,thenet-of-taxlosson theUnitwouldhavebeenallocatedtoeachofthoseyearsandreported1986and1985earningsavailableforcommonstockwouldhavebeen,onaproformabasis,approximately$115millionand$65million,respectively,andrelatedproformaearningspersharewouldhavebeen$2.13and$1.23,respectively.Inaddition,1987earningsavailableforcommonstockwouldbereducedbyapproximately$22million.(SeeNote8.)InorderfortheCompanytobeabletoissuefirstmortgagebondsorpreferredstock,certainearningsrequirements(subjecttocertainexceptionsinthecaseoffirstmortgageUsesofFunds:ConstructionNineMilePointUnitNo.2OtherProjectsAFDCTotalConstructionWorkingCapitalNineMilePointUnitNo.2Non-CashReturnRetirementofSecuritiesandSinkingFundObligationsTotal$42,000168,00074,000284,00086,00032,00065,000$467,000ThefollowingtablesetsforthcertaindataconcerningtheCompany'sestimatedusesandsourcesoffundsfortheyears1987through1989.198735,000$280,000150,000'385,000250,000$1,132,000bonds)underitsMortgageorCertificateofIncorporationhavetobemetforatwelve-monthperiod.TheimpactoftheUnit'sdisallowedcost(SeeNote8.),isexpectedtohaveamaterialadverseeffectonsuchearningsandcouldresultintheCompanybeingunabletomeetsuchrequirements.ThisadverseeffectisexpectedtocontinueforaslongastheUnit'sdisallowedcostisreflectedinthedeterminationofearningsfortheapplicabletwelve-monthperiod.IftheCompanywereunabletomeetsuchearningsrequirementssuchinabilityisnotexpectedtohaveasignificantimpactonthecontinuingoperationsofthe.Company.1988..1989Total(ThousandsofDollars)s$-,S-S42,000176,000,~170,000514,0009,000"9,00092,000185,000,-'-179,000648,00023,000-33,000142,00037,000",'3,00092,000SourcesofFunds:NiagaraMohawkpayment(SeeNote8.)Long-TermFinancingIncrease(Decrease)inShort-TermDebtInternalSourcesTotal$=52,000'150,000(12,000)277,000S100,000(19,000)199,000$467,000$280,000$'40,00031,000'"214,000$385,000S52,000390,000690,000$1,132,000ResultsofOperationsEarningsEarningsavailableforcommonstockandearningspersharefor1986increased14%and12%,respectively,ascomparedwith1985,primarilyasaresultofhigherretailelectricsalesandgreateramountsofAFDCcapitalized.Inaddition,earn-ingswerehigherduetotheredemptionofthe15~/8%pre-ferredstock.Theseincreaseswerepartiallyoffsetbyhighermaintenanceandoperation-otherexpenses.Thenumberofaveragesharesoutstandingincreasedslightlyduringthisperiod.Earningsavailableforcommonstockandearningspersharefor1985decreasedlessthan1%and6%,respectively,ascomparedwith1984,whichresultedprimarilyfromare-ductioninthe.returnoncommonequityfrom16.2%to15.5%allowedbythePublicServiceCommissionoftheStateofNewYork(PSC)intheApril1985ratedecision.Thedecreaseinearningspersharewasalsoduetoagreaternumberofaveragesharesoutstanding.os32e OperatingRevenuesOperatingrevenuesincreased3o/oin1986comparedwiththeprioryearafterincreasing10%in1985.Theincreaseswerecomposedprimarilyofthefollowingfactors:RateincreaseFuelcostadjustmentElectricitysalestootherutilitiesSurchargefor(passbackof)interchangeprofitsSalesvolumeandotherTotal(75,366)63,86418,39355,770(10,380)(31,862)27,663(14,373)$46,510$(11,006)$130,331$(17,617)Increase(Decrease)fromPriorYear1986over19851985over1984(ThousandsofDollars)ElectricGasElectricGas$69,630$1,586$83,246$5,233(21,917)(2,212)(12,580)(8,477)ThePSCgrantedthefollowingrateincreaseswhichbecameElectricApril15,1986$64,590August29,1985$3,120April15,1985$78,458April24,1984$84,500TherateincreasesinApril1986,1985and1984reflectthethreeyearphase-inoftheSomersetplantcostsofapproxi-mately$1billion.Inconnectionwiththe1986rateincrease,theCompanyagreedwiththePSCtonotfileforfurtherin-creasesinelectricorgasratestobecomeeffectivebeforeJanuary1,1988.Duringthattime,anycostsincurredre-sultingfromcommencementofcommercialoperationoftheUnitwillbedeferred.ThedeferredaccountingincludesbothUnitrelatedrevenuesandexpensesandprovisionforcarry-ingchargeallowances.InFebruary1987theCompanyfiledwiththePSCforanelectricrateincreaseofapproximately4/otobecomeeffec-tiveinJanuary1988.Theproposedincreaseassumesa13o%%dreturnoncommonequityandathree-yearphase-inoftheallowedcostsoftheUnit.PriortotheApril1985PSCratedecision,fuelcostadjust-mentrevenuesreceivedbytheCompany-completelyrecov-eredfuelcostsnotincludedinthebaserateschargedtocustomers,andtherefore,didnotaffectearnings.TheApril1985ratedecisionprovidedthatratepayersandstockholderssharetheeffectsofavariationinfuelcostsfromforecastedlevelsuptoa$6.6million,aftertax,maximumgainorlosseffectiveontheindicateddates:%IncreaseGas(ThousandsofDollars)7.0%.3/o$509.2%9.1/o$2,1721.0lo10.7/o$7,4003.2lotostockholders.In1985and1986,theeffectwastoincreaseearningsbyapproximately$.4millionand$1.2million,re-spectively.ThisprovisionintheApril1985ratedecisionwillbeineffectuntilJanuary1988.Inaddition,theApril1984andtheApril1985PSCratedecisionscontainedprovisionsforcustomerstoshareinthebenefitorshortfallofprofitsfromsalesofelectricitytootherutilities.TheApril1984ratedecisionprovidedthatprofitsonelectricitysalestootherutilitiesexceeding$32.8millionduringthetwelvemonthsendedApril15,1985besharedbyratepayersandstockholdersonan80/o/20%basis.TheApril1985ratedecisionmodifiedthisprovisiontoallowratepayersandstockholderstoshareonan80%/20%%dbasisinthebene-fitorshortfallofallprofitsfromsalesofelectricitytootherutilitiesaboveorbelowamonthlyforecastedamount.Asaresultoftheseprovisions,$31.9millionwaspassedbacktocustomersin1985.However,in1986,primarilyasaresultofthedecreaseinelectricitysalestootherutilities,$18.4millionwaschargedtocustomersunderthisprovision.Asaresultofthissharingprovision,1985earningsincreasedbyapproximately$4millionand1986earningsdecreasedbyap-proximately$3million.TheprovisionintheApril1985ratedecisionwillbeineffectuntilJanuary1988.ResidentialCommercialIndustrialTotalRetailOtherUtilities-7%Electricsalesandrevenuechangesbymajorcustomercategoryareasfollows:Increase/DecreasefromPriorYear19861985SalesRevenuesSalesRevenues4o/o14%1/o10%1736317-124%%d15'Yo1%7%%d-29%44%59%60%Total4%14%14%33 In1985theCompany'selectricitysalestootherutilitiesincreasedby59/oprimarilyasaresultofincreasedgenerat-ingcapabilityatfavorableratesduetothecommercialoper-ationofSomersetbeginninginAugust1984.The29%declineinsalestootherutilitiesin1986islargelyattributabletoloweroilpriceswhichenabledoil-firedplantsofotherutilitiestoproduceelectricityonacompetitivebasiswithsomeoftheCompany'scoal-firedunits,thusreducingdemandfortheCompany'sgeneration.Sales-3%-5-21-8%Gassalesandrevenuechangesbymajorcustomercategoryareasfollows:Increase/DecreasefromPriorYear19861985SalesRevenuesRevenuesResidential4%3%-4%Commercial-1-1}-5Industrial-34-35-23Total-7%-6%-8%Industrialgassalesdecreasedinboth1986and1985pri-marilyasaresultofcertainlargeindustrialcustomerspur-chasinggasdirectlyfromproducers.TheCompanyreceivedrevenuesfromthesecustomersfortransportinggastothemfromtheproducers.Althoughthisresultedinadeclineinindustrialgasrevenues,therewasarelateddeclineinpur-chasedgascostsandtheeffectonearningsafterconsideringthetransportationgasrevenueswasnotsignificant.In1986thedecreaseinunitsalestoindustrialcustomerswasalsoaffectedbycertaincustomersswitchingtooil.OperatingExpensesComparedwiththeprioryear,operatingexpensesdeclined1%in1986afterincreasing12%in1985.The1986declinewasdueprimarilytoadecreaseinenergycosts,partiallyoff-setbyincreasesintaxes.Fuelexpensedecreased15/oasaresultofadecreaseof10%inelectricitygenerateddueprimarilytolowersalestootherutilitiesandmoreefficientgenerationcoupledwithlowerpurchasecostsforcoal,asthefuelcosttogenerateonekilowatthourofelectricitydecreased3%.In1985the23%increaseinfuelexpensewasdueprimarilytoa24%increaseinelectricitygenerated,partiallyoffsetbya4%de-creaseinfuelcosttogenerateonekilowatthourofelectricity.Electricityandgaspurchasedwaslowerby15%and23%in1986and1985,respectively,resultingfromlowerpur-chasecostsperkilowatt-hourandperdekatherm,respec-tively,inadditiontosignificantdecreasesinthequantityofgaspurchasedasdiscussedabove.Inaddition,the1985decreasewasalsoattributabletofewerkilowatt-hourspur-chased.Federalincomeandothertaxesrose17%inboth1986and1985.Theincreasesprimarilyresultedfromhighertaxableincomeandhigherpropertytaxesasaresultofsignificantpropertyadditions.TheTaxReformActof1986(TRAof1986)wasenactedonOctober22,1986.TheimpactoftheTRAof1986willbedeferreduntilthebenefitscanbepassedontoratepayersinthenextrateproceeding.Asaresultofthisdeferral,theCompanydoesnotexpecttheTRAof1986tohaveamaterialeffectonitsfinancialpositionorresultsofoperation.(SeeNote2.)Non-operatingIncomeAFDCwas27%higherin1986afterdeclining20%in1985.Greaterlevelsofconstructionworkinprogress(CWIP)relatingtotheUnitwereresponsibleforthe1986increase,whileCWIPlevelswerelowerin1985duetoSomersetbeingplacedinserviceinAugust1984.Non-cashreturndecreased66%in1986aftera50%in-creasein1985.Anon-cashreturnwasaccruedontheSomersetplantcostsnotincludedinratebaseandoncer-tainabandonedprojectcosts.Intotal,AFDCandothernon-cashreturnamountedto54%,67%and69%ofearningsin1986,1985and1984,respectively.InterestchargesbeforethereductionforAFDC-borrowedfundsincreasedby4%and9%overtheprioryearin1986and1985,respectively.Theincreasesprimarilyresultedfromadditionalborrowingstofinanceconstructionexpenditures,includingpollutioncontrolfacilities,andtheredemptionofcertainhigh-costfirstmortgagebondsandpreferredstock,partiallyoffsetbyadecreaseinthecostofdebtasaresultoftheCompany'srefinancingofcertainhighinterestbondsduringeachofthepastthreeyears.Theimpactofinflationandchangingpricesonrevenuesandearningsavailableforcommonstockwasnotmaterialduringtheperiodfrom1984through1986.34 FinancialandOperatingStatisticsSUMIiIARYOFEARNINGSOPERATINGREVENUESElectric.Gas.TotalOPERATINGEXPENSESOperation-fuel-other.....Electricitypurchased..Gaspurchased........Maintenance.........Depreciation.........Federalincometax....Othertaxes..........TotalOPERATINGINCOME....19861985$1,051,579190,201$1,098,089179,1951,277,2841,241,780198419831982(DollarsinThousands)$921,248$785,723$768,717207,818207,866184,99?1,129,066993,589953,714238,371182,71029,302111,14788,486100,796122,987122,400280,39?167,92335,984129,80981,59198,08596,651113,587227,998141,05669,206146,04068,60665,19878,144102,152237,753230,666281,085187,148128,98666,575160,41561,23456,79967,89190,604819,652173,937200,895125,04468,781132,30060,54153,17453,60682,877777,218176,496996,1991,004,027898,40019811976177,592108,29472,591112,17651,61649,44843,84472,935688,496144,60572,62160,13249,56947,94429,75732,5897,75144,296344,65979,498$674,740$346,760158,36177,397833,101424,157OTHERINCOMEANDDEDUCTIONSAllowanceforotherfundsusedduringconstruction....Non-cashreturn-utilityplantinservice-abandonedprojects.......Abandonedprojectcosts.......Federalincometaxcredit......IncometaxbenefitsfromAFDCandnon-cashreturn........Other-net.................INCOMEBEFOREINTERESTCHARGES63,1689,8685,9064,64830,10839394,82250,26368,14557,89533,69116,1987,80340,1856,6825702,54422,0029,283(11,026)3,4358,9273,4179,256(328)8,5442,6351,16632,2563,83929,8148,30723,4491,60811,77411,9536,836(234)(158)374,092360,626269,233242,842178,58488,309INTERESTCHARGESInterestonlong-termdebt..Otherinterest............Allowanceforborrowedfundsusedduring.construction...........Interestcharges-net..NETINCOME..............PREFERREDSTOCKDIVIDENDS..............EARNINGSAVAILABLEFORCOMMONSTOCK.........COMMONSTOCKDIVIDENDS..............RETAINEDEARNINGS.......187,23812,020178,98512,263164,43511,650130,4886,884104,0805,18668,7739,98739,7122,673(32,930)(25,589)(26,835)166,328228,494165,659149,250208,433211,376(24,819)112,553156,680(11,519)(7,977)(5,961)97,74770,78336,424145,095107,80151,88520,10425,2262?,37023,46622,61017,53610,465208,390140,43228,375$13,04558,657$31,608132,018118,05898,15575,484$35,059$47,001$67,958$51,189$65,948183,207184,006133,214122,48590,26541,420Averagenumberofsharesofcommonstockoutstanding(thousands)..............Earningsperaverageshare...Dividendspaidpershare54,014$3.86$2.6053,01349,95543,53036,41430,58618,181$3.46$3.68$3.06$3.36$2.95$2.28$2.50$2.38$2.26$2.10$1.94$1.6035 FinancialStatisticsINCOMESTATISTICS:Returnonaveragecommonstockequity-percent...........Mortgagebondinterest-timesearned......Interestchargesandpreferreddividends-timesearned......AveragecommonstockequitypersharePROPERTY,PLANTANDEQUIPMENT:ElectricGas.Common.............Total.............ACCUMULATEDDEPRECIATIONCAPITALIZATION:Long-termdebt.........Preferredstock.........Commonstockequity....Totalcapitalization..CAPITALIZATIONRATIOS(percent):Long-termdebt.........Preferredstock.........Commonstockequity....NUMBEROFSTOCKIIOLDERS:Commonstock.........Preferredstock.........PAYROLL(includingpensions,etc):ChargedtooperationsChargedtoconstructionandotheraccounts....Total..............198619851984198319821981(DollarsinThousands)197615.32.914.32.915.93.013.515.227'.2713.42.811.42.41.81.91.81.91.91.8$25.24$24.17$23.21$4,129,838164,42678,781$3,828,220$3,526,364154,675147,12072,49460,775$22.62'22.14r,'3,109,469$2,616,720142,0?2-:137,78849,115."50,432$22.01$19.96$2,105,593$1,353,604133,156111,06249,27836,743$4,373,045$4,055,389$3,734,259$3,300,656$2,804,940$2,288,027$1,501,409$769,336$687,472$617,687$563,118$526,471$490,579$324,852$1,959,089217,9?01,397,962$1,803,469$1,691,367$1,331,981$1,123,789$863,398$635,526252,620277,300278,950236,075246,812176,5431,331,2311,234,5611,103,655888,594722,709393,184$3,575,021$3,387,320$3,203,228$2,714,586$2,248,458$1,832,919$1,205,25354.86.139.153.27,.539.352.88.738.549.110.340.650.010.539.547.113.539.452.714.632.771,9356,06079,0136,36481,2586,38082,9826,60776,0736,66971,4645,93245,1466,59155,936$182,24357,07556,57353,42251,01544,50434,419$175,786$165,280$154,657$145,234$127,548$85,594$126,307$118,711$108,707$101,235$94,219$83,044$51,175Numberofemployeesendofyear........4,4234,3604,3474,3784,4264,3074,170 ElectricSalesStatistics1986198519841983198219811976KwhSales(millions):ResidentialCommercialIndustrialPublicauthorities.....SubtotalOtherelectricutilities..Total4,79127722,8991,34511,8073,54515,3524,6152,6782,8111,3014,5752,6112,8321,2694,3982,5362,6911,2314,4122,4922,6211,2014,4292,5162,8451,2184;09323222,3691,11211,40511,28710,85610,72611,0089,8965,0213,1581,4291,8271,60288616,42614,44512,28512,55312,61010,782OperatingRevenues(thousands):ResidentialCommercialIndustrialPublicauthorities...........SubtotalOtherelectricutilities........Otheroperatingrevenues.....Totaloperatingrevenues..$457,132235,246187,372109,181988,93195,70713,451$1,098,089$401,345$365,331$335,284$325,124$271,335$151,790201,654190,891169,537163,755142,64379,857160,089156,680133,007128,633121,61858,09593,18086,40075,49072,35764,11335,808856,268799,302713,318689,869599,709325,550171,073107,20958,23964,78065,86316,30424,23814,73714,16614,0689,1684,906$1,051,579$921,248$785,723$768,717$674,740$346,760OperatingRevenuesperkwh(cents):ResidentialCommercialIndustrial.Publicauthorities...............SubtotalOtherelectricutilities............Averagerevenueperkwh.....9.548.496.468.128.382.707.158.707.997.537.315.705.537.166.817.627.376.696.5?4.944.916.136.026.133.715.673.444.272.455.263.227.517.086.576.435.453.293.413.394.083.554.111.846.406.386.406.125.353.22NumberofCustomers(averageforyear):ResidentialCommercialIndustrialOther.Total635,53664,5631,39310,503711,995624,751616,051608,886603,904599,117564,50263,36862,11560,71059,48258,16454,8081,3891,3621,3331,3401,3481,27910,38810,1389,9789,9169,6878,633699,896689,666680,907674,642668,316629,222AnnualAverageUse(kwh):ResidentialCommercialIndustrial(thousands)7,53842,9352,0817,3877,4267,22342,26142,03541,7722,0242,0792,0197,30641,8951,9567,3937,25143,25?42,3662,1111,852AnnualAverageBill:ResidentialCommercialIndustrial$7193.644134,510$642$593$551$538$453$2693,1823,0732,7932,7532,4521,457115,255115,03799,78095,99590,22145,42237 ElectricOperatingStatistics1986198519841983198219811976PRODUCTIONDATA:SystemCapability(megawatts):Netgeneratingcapability:CoalfiredHydroDieselTotal.Purchased-PowerAuthority...-OtherTotalsystemcapability....AnnualLoadFactor(percent)CoalBurned(thousandsofnettons).CoalHeatValue(Btuperlb.).....BtuperKwhGenerated(net).....KwhProduction-net(millions):Generated:CoalfiredHydroTotalgenerated..Purchased-PowerAuthority-Other...........Total.2,3666872,4415633,00466.35,33412,3359,95913,19633813,5342,590'46416,5882,3666472,4376213,05864.42,3761,7331,731605638710ll2,4431,7991,7806836807683003503,1262,7792,89867.364.465.11,72038ll1,7697642422,7756,0515,1264,6664,80312,30912,20212,03311,93710,09310,56210,55210,6704,86711,60010,70114,76924215,0112,31549117,81711,85010,64124621310,74810,55219721012,09610,8542,9802,02365071410,94510,7622,1042,06166390415,72613,59113,71213,7271,37738141,4298482002,47761.03,39511,12311,1126,7972497,0464,07686911,991ProductionExpenses(thousands):Generated.Purchased.Total.$318,885$353,26529,30235,984$348,187$389,249$287,299$237,309$248,278$216,80569,20666,57568,78172,591$356,505$303,884$317,059$289,396$91,72449,569$141,293CostsperKwh(mills):Generated.Purchased.Operatingexpense(excl.production)Total.23.569.599.8530.8423.5323.7521.8622.6820.1513.0212.8219.0724.3224.8624.4810.028.467.978.608.397.354.9130.3130.6430.9531.5128.4316.69ELECTRICOPERATIONANDMAINTENANCEEXPENSES(thousands):ProductionTransmissionDistributionCustomeraccounting.......Customerservice.AdministrativeandgeneralTotal.$348,18722,43849,52219,2208,86763,328$511,562$389,24923,45046,12018,2557,00555,868$539,947$303,88413,38239,11116,6035,22142,508$356,50516,09342,49417,8246,14942,783$317,05913,02336,49516,5684,45744,476$289,39611,30832,28713,4493,71940,129$481,848$420,709$432,078$390,288$141,2937,05821,5697,6722,50720,068$200,16738 GasDepartmentStatistics1986198519841983198219811976Dekatherm(dth)Sales(thousands):ResidentialCommercialIndustrial.OtherSubtotalTransportationofcustomer-ownedgas................Total.14,1397,3435,126337329,9813,28733,26813,6527,3927,7903,54714,1207,7619,8173,69132,38135,3891,92634,30735,38913,8577,5149,2963,71834,38534,38515,6888,1239,8044,31437,92937,92916,4128,04411,5093,99139,95639,95619,9589,4849,2433,80842,49342,493OperatingRevenues(thousands):ResidentialCommercialIndustrialOtherSubtotalTransportationofcustomer-ownedgas..............TotaloperatingrevenuesOperatingRevenuesperdth:ResidentialCommercialIndustrialOtherAveragerevenueperdth.........NumberofCustomers(averageforyear):Residentialwithhouseheating.......ResidentialwithouthouseheatingCommercialwithspaceheating.......Commercialwithoutspaceheating....IndustrialOtherTotal.$91,06842,71124,42918,818177,0262,168$179,194S6A45.824.775.58$5.90105,0948,30016,1211,4064051,173132,499$71,39930,98940,07715,896158,361921$190,201$207,818$207,866$184,997$158,361S6.505.814.845.62$5.85S6.545.855.005.70$5.87$6.715.995.295.57S6.05$5.304.704.434.70$4.88$4.353.853.483.98S3.96103,8228,44015,9531,3964091,159131,179103,1328,63015,7881,4153981,137130,500102,7288,83015,3161,4103831,139129,806102,3869,91013,5401,0803951,144103,0319,10614,5131,2863841,135129,455128,455$88,677$92,288$92,974$83,16?42,95245,40344,98038,19237,73449,08749,21743,38319,91721,04020,69520,255189,280207,818207,866184,99?$40,38716,85013,6686,49277,397$77,397$2.021.781.481.70$1.8297,49612,81212,9851,2663841,142126,085AnnualAverageUse(dth):ResidentialCommercialIndustrialAnnualAverageBill:Residential.CommercialIndustrialCostofNaturalGasPurchased:Amount(thousands).........PerdthGasOperationandMaintenanceExpenses(thousands):ProductionTransmissionanddistribution.Customeraccounting........CustomerserviceAdministrativeandgeneralTotal12541912,65712242619,04612645124,66612444924,27214051425,53114655029,13718166524,070$111,53811,0134,08522279,589$138,452$130,26910,2243,9771,7799,508$155,757$160,9288,9083,7831,3288,703$132,7249,0103,9471,1418,661$112,4108,2492,9758717,476$146,4019,6514,0431,5809,383$171,058$183,650$155,483$131,981S48,2105,9391,7053213,681S59,856S803S790$826$833$742S636$3662,4372,4762,6392,6892,4172,1201,18260,31992,259123,334128,504112,977101,46135,594$111,147$129,809$146,040$160,415$132,300$112,176$47,9443.753.874.094.523.492.821.1139 DirectorsOfficersWellsP.Allen,Jr.ChairmantkChiefExecutiveOfficeroftheCompanyJamesA.CarriggPresident6iChiefOperatingOfficeroftheCompanyAlisonP.CasarettDean,TheGraduateSchoolCornellUniversityIthaca,N.Y.EileenD.DickinsonFree-lanceEconomicResearcherBrainard,N.Y.EverettA.GilmourChairmanoftheBoard,'heNationalBankandTrustCompanyofNorwichNorwich,N.Y.AlexanderHorwitzDirectorofvariouscorporationsBinghamton,N.Y.CharlesF.KennedyChairmanoftheExecutiveandFinanceCommitteeoftheCompanyBenE.LynchPresidenttvinchesterOpticalCompanyElmira,N.Y.AltonG.MarshallChairmanEiChiefExecutiveOfficerLincolnSavingsBankBrooklyn,N.Y.DavidR.NewcombFormerPresidentBuffaloForgeCompanyBuffalo,N.Y.RobertA.PlaneDirectorNewYorkStateAgriculturalExperimentStationGeneva,N.Y.C.WilliamStuartChairmanEcChiefExecutiveOfficerC.tV.StuartEcCo.,Inc.Newark,N.Y.WilliamD.TurnerGroupVicePresidentTheSingerCompanyStamford,Conn.DirectorEmeritusEdgar1V.CouperFormerChancellor,NewYorkStateBoardofRegentsBinghamton,N.Y.WellsP.Allen,Jr.ChairmanittChiefExecutiveOfficerJamesA.CarriggPresidentillChiefOperatingOfficerDoloresR.Hix*RichardKrobothAssistantstotheChairmanRobertB.MacKenzieExecutiveVicePresidentEngineeringandOperationsE.EugeneForrestSeniorVicePresidentAdministrationAllenE.KintighSeniorVicePresidentGenerationJamesA.AckermanVicePresidentAreaAdministrationFrancisX.CarneyVicePresidentResearchandDevelopmentOrlinW.DarrachVicePresidentCustomerServicesRichardW.PageVicePresidentHumanResourcesRaymondA.PerineVicePresidentGasOperationsBernardM.RiderVicePresidentElectricalEngineeringandSupplyVincentW.RiderVicePresidentPlantOperationsandEngineeringJackH.RoskozVicePresidentPublicAffairsMichaelJ.TurkovicVicePresidentPurchasingJohnI.FialaAssistantVicePresidentPlantOperationsJohnV.KutzAssistantVicePresidentTransmissionandDistributionOperationsIreneM.StillingsAssistantVicePresidentConsumerAffairs'AlsoAssistantSecretaryIthacaExecutiveOfficesRoute13,DrydenRoad,Ithaca,N.Y.14851Tel.607/347-4131RichardA.JacobsonSeniorVicePresidentCorporateMatthewF.Felo,Jr.VicePresidentandTreasurerJohnD.ScottVicePresidentEconomicsRichardP.FaganComptrollerJaimeS.HechtSecretaryGaryG.ChabotAssistantVicePresidentEconomicsDanielW.FarleyAssistantSecretaryJamesM.NieferAssistantSecretaryRobertT.PochilyAssistantTreasurerEverettA.RobinsonAssistantComptrollerBinghamtonExecutiveOffices4500VestalParkwayEast,Binghamton,N.Y.13903Tel.607/729-2551.GeneralCounsel:HuberLawrenceti'bell99ParkAvenueNewYork,N.Y.10016TransferAgentforPreferredStock:ManufacturersHanoverTrustCompany450tVest33rdStreetNewYork,N.Y.10001TransferAgentforCommonStock:ManufacturersHanoverTrustCompany450)Vest33rdStreetNewYork,N.Y.10001StockholderInquiries:CommunicationsregardingstocktransferrequestsorlostcertificatesshouldbedirectedtotheTransferAgent.Stockholderswithchangesofaddress,dividend,dividendreinvest-mentandotherinquiriesmaycalltoll-freebetween8:00a.m.and4:30p.m.:InNewYorkState:1-800-521-1NGEOutsideNewYorkState:1-800-225-5NGETheCompanyfilesanannualreportonForm10-KwiththeSecuritiesandExchangeCommission.Stock-holdersmayobtainafreecopyofthisreportfromtheSecretary,IthacaExecutiveOffice,uponrequest.SecuritiesListedontheNewYorkStockExchange:CommonStock3.75%PreferredStock8.80%PreferredStockAdjustableRatePreferredStock8.48%PreferredStock($25ParValue)7Fs%FirstMortgageBondsdue20019ls%FirstMortgageBondsdue20059I's%FirstMortgageBondsdue20068s/s%FirstMortgageBondsdue200740 Newutilitybillsarepreparedformailing.NYSEGwasthefirstutilityinthestatetoissuetwo-pagebillsthatmakeiteasierforcustomerstounder-standchargesforelectricityandgas.Meterreaderswilluseportable,computerizeddevicessoontorecordmeterreadings,reducingerrorsandcustomerinquiries.~.'THEANNUALNEETINCofstockholderswillbeheldattheCorporationsGeneralOfficeBuildingonRoute18(DrydenRoad)intheTownofDryden,N.Y.onNay81987atlla.m.Formalnoticeofthemeeting,aproxystatementandformofproxywillbesenttostock-holdersinearlyApril.

NewYorkStateElectric&GasCorporationBox287,Ithaca,NewYork14851BULKRATEU.S.POSTAGEPAIDNewYorkStateElectric8GasCorporation STATEMENTOFINCOME-(ThousandsofDollars)1986198519841983198219811980197919781977197610-Year%Ch~cCePortionofCommonStockDividendsNontaxableforFederalIncomeTaxPuOperatingRevenuesElectric(1)Gas(2)..TotalOperatingExpensesOperationMaintenance.Depreciation.OperatingTaxesFederalIncomeTaxDeferredIncomeTax-NetTotal$377,103$436,6526144868150438551504802$454,86068329523189$384,160$398,392$291,999$225,971$186,264$184,391$149,88461649464893599428813247382344920831$411,77061988473738445809444881327993254784211002207840170715240,19619,73324,89442,55131,9657489316,55314,88424,24941,67520,78117301235,25211,13215,22024,481(2,534)8744352,64213,81422,53139,68124,15010058169,7429,81814,83921,2681715794100,9176,79412,85916,9754,0502342133,6888,09813,27918,5604,5522547325,15814,45620,52435,69315,12310157132,5548,15113,39318,7796,5043,387333,96612,45016,10829,2747,3814,169321,41912,93716,92331,4746,10211,86136682843544346287642111140071640334829229522163218276818072414393715219515713819094151689220155~hee1eeeeaNoneNoneNoneNoneNone790NoneNoneNone10$2.962.902.752.602AS2.332.181.991.941.601.7219661985198419831982198119801979197819771976(a)Asinitiallyreportedtoshareholders;subjecttoacceptancebyU.S.TreasuryDepartment.OperatingIncome.71,72369359603135262745093415333569833152282342711626778OtherIncomeandDeductionsAllowanceforEquityFundsUsedDuringConstructionFederalIncomeTax-Credit.....DeferredIncomeTax-Credit....Other-NetTotalIncomebeforeInterestCharges....21,59418,644(289)(18)6,9796,588371~60415,70911,105(23)454,9884,560621~3899,7295374,0444612865524610212951532114771100378939698160867,948598646,1989281,820~533841349,9464,4953,4762,388418933721253178138~295~333~3484,871425428994056937.406311331,56062875~9021732928979640930~84115127929(171)542*259InterestChargesInterestonMortgageBonds..........InterestonUnsecuredLong-termDebt..InterestonShort-termDebt...........OtherInterestAllowanceforBorrowedFundsUsedDuringConstructionAmortizationofPremiumandExpenseonDebtTotal37,2266,1051,63737,2003,22032593133,6646701,37262729,6743652,11657024,9183743,39963621,0431,8154,29665215,0173,7784,76330511,3065,1953,42226210,7507621,67327210,6278051,07579310,4691,4677043081792419531156733549434297304712771224535202671667115712108731154212002(10,131)(7,788)(6,212)(5,324)(5,033)(7,718)(7,287)(4,536)(2,640)(1,831)(1,014)256316(100)431(899)866196NetIncomeDividendsonPreferredStockIncomeAvailableforCommonStock..DividendsonCommonStockRetainedEarnings64,88459,67251,13740,23635,32929,67923,89821,69420,26017,74715,9275614618464595783412641264126412641263626286659,27053,48844,67834,45331,20325,55319,77217,56816,13414,12113,06140393339452886023480206381675113308109611053189668382$18877$19543$15818$10973$10565$8802$6464$6607$5603$5155$467930796303CommonStock:AverageSharesOutstanding(000's).......EarningsPerShare-onAverageSharesOutstanding-Dollars.DividendsDeclaredPerShare-Dollars....DividendsPaidPerShare-Dollars........Pay-outRatioonDividendsDeclared-PerCent.RetainedEarningsPerShare-onAverageSharesOutstanding-Dollars..........(1)Seefootnote(a)onpage.13.(2)Seefootnote(a)onpage14.13,2074.492.962.9611,4584.672.932.90621.7110,0874A32.782.751.578,7453.942.632.60671.257,9793.912.512A81.326,8673.722.392.331.285,8513.382.202.181.105,3733.272.041.99621.235,3103.041.961.941.064,8732.901.841.801.064,8732.681.721.72171687272.96'hangeof1,000percentormore.

Notes600ELECTRICANDGASREVENUESTOTOTALOPERATINGREVENUES500V)lU4000O300V)c0200100CI0I-j197677787980818283848586~ElectricGasOPERATIONANDMAINTENANCEEXPENDITURESTOTOTALOPERATINGREVENUES600TotalOperatingRevenuesOperatingandMaintenanceExpenditures500tO=400OOo300lOc~o2001001976777879808182838485861976USEOFREVENUEDOLLAR(INCENTS)19S6CostofFuels470FuelUsedlnElec.Gen.331PurchasedGas250FuelUsedinElec.Gen.CostofFuels410PurchasedGasSgOCDKQI-KI-cCI-OepreciationSCWages&Benefits1004gOther(net)1O3gReinvestedEarningsDividendsPurchased7gElect.InterestonBds&Nts7C7$PurchasedDepreciationinterestonBds&Nts100Wages&Benefits1044pReinvestedEarningsTaxes19l'0l'Oividends ElectricOperatingRevenues.$377103$436652$411770INCOMEFROMOPERATIONS-ELECTRICANDGASDEPARTMENTS-(ThousandsofDollars)198619851984198319821981$3983921980$291,9991979$225,9711978$1862641977$184391$149,88415210-Year1976%ChancCeRatioofCorporaterat1RevenuesElectric~perCnrrGas~perCenrOperatingExpensesProduction-Operation.........Maintenance.......Transmission-Operation.........Maintenance.......Distribution-Operation.........Maintenance.......Customer-AccountsandService......Sales.Administrative8General-Operation....Maintenance..TotalOperationandMaintenance......DepreciationOperatingTaxesFederalIncomeTaxDeferredIncomeTax-Net............TotalOperatingExpenses...........OperatingIncome.GasOperatingRevenues.OperatingExpensesProduction-Operation.........Maintenance.......Transmission-Operation.........Maintenance.......Distribution-Operation.........Maintenance.......Customer-AccountsandService......Sales..Administrative&General-Operation....Maintenance..TotalOperationandMaintenance......DepreciationOperatingTaxesFederalIncomeTax.DeferredIncomeTax-Net........:...TotalOperatingExpenses...........OperatingIncome..154,1628,1703,3201,6525,6197,0399,21326,354879216,40822,87536,55829,4436822228,6374,9252,8881,0365,6296,6288,53123,343751282,36821,25535,66917,72116688267,5595,0962,8228635,3315,6837,98521,885601317,82519,47433,75420,7899228242,9385,245'2,4621,2754,5945,6227,28720,249700290,37218,67630,41315,0279186242,6884,5552,8951,0554,8035,1557,19618,249639287,23514,87126,7014,66911167270,6314,7672,4121,0204,5584,6435,97816,530530311,06913,97425,2736,5123,951183,7273,9642,0201,0984,0174,3724,85213,743553218,34613,63321,141(2,328)8428128,5093,15917731,3403,5273,6734,21311,304602158,10013,30518,394(26)575997,4152,5431,7929713,2603,2103,99110,924454124,56011,88716,1295,6583141101,3472,6991,5828433,0003,1723,6959,211341125,89011,81315,9854,4262,24172,5532,2471,6045822,9172,6593,4687,70131494,04511,43114,5074,0352226312106373701401070363674344643360779$64997$62951$53,790$48096$39517$37613259220$32779195532$30439161375$24889160355126244$24036$23640$61448$68150$68329$61968$61649$46489$35994$28813$24738$23449$2083133,555544651671,9321,6581,587943,89511440,484413861451,8821,2681,552933,1289040,222404502731,6971,1921,491953,1066541,211484472881,6661,2141372912,8416439,616463782451,6631,1811,334542,5436128,690683702961,4271,0781,052872,2314822,602523242411,256795761391,9115716,763733112141,1486876291,5657011,771502801921,0746815871,4605011,783542842249877225211,278439,809362401978667105571,2024943,5212,0195,9932,52266749,0692,9946,0063,06061348,6313,0575,9273,36183049,2421,8485,2809697147,1212,0524,7731,43369435,3472,1344,00186921828,0381,5873,340(206)31621,4601,5342,8741973516,1451,5062,65084624615,8961,4662,57512630613,6661,4282,468151165472261742618065743756073425693307526100213932036917693(ExpressedinPerCent),$6726$6408$6523$4531$5576$3920$2919$2713$3345$3080$3138112264107184931651662421801301001526302061471751952425094(15)12313418522413321841143475209114198619851984198319821981198019791978197719768686878786908989888988141413131410111112111219861985198419831982198119801979197819771976RatioofCorporateeratinIncomeElectric~PerCenr9191899188919292888988Gas~riant991191298812111219861985198419831982198119801979197819771976ratinRatioElectricGas73.183.977.785.281.684.382.491.085.687.587.989.286.791.684.089.881.982.183.485.080.184.3corlx3rate74.678.781.983.685.988.187.284.681.983.580.6(d)TheOperatingRatio,expressedasapercentage,representstherelationoftotaloperatingexpenses,excludingfedealincometaxes,tooperatingrevenues.RatioofOperatingIncometoYear-endNetPlant(a):Electric(includesallocationofcommonplant)...Gas(includesallocationofcommonplant)......CorporateTotalMaintenanceandDepreciationasPerCentofTotalRevenue.19.3214.2518.7010.1819.2414.6418.697.7516.9015.5616.746.9515.2910.6414.746.706.4212.78(c)12.3313.379.7512.85(c)12.0310.717.3810.339.877.239.5610.2110.298.95(b)8.578.958.208.95(b)8.528.608.538.5911.51g7ry(,/0047$2.~K(a)NetPlantexcludesconstructionworkinprogress.(b)NetPlantfor1978excludesthe10%interestintheRosetonPhntpurchasedasof12/31/78.9(c)NetPhntfor1982excludesthe5%interestintheRosetonPlantpurchasedasof12I31N2.Changeof1,000percentormore.

NotesUTlLITYPLANT950900850800750m700650600550osoo450000350300g250200150100500197677787980818283848586~ConstructionWorkNetutilityplantpluSCOn-structionworkinprogress,increased156o%%dduringthe~ffetUtilityPlantlast10years.Theaverageannualgrowthrateduringthisperiodwas9.5%.Grossadditionstoubktyphnt(includingconstructionworkinprogress)inthelast5yearsamounttoabout39%oftotal1986phnt.Thecom-parablefigureforthehst10yearsis680%%dNetutilityplantincreased24%duringtheten.yearper-iod1976-1986andtheaver-ageannualgrowthratewas1.P%%d.CAI-Kl-cCCQChKcCOfLI-OUJKOI-cCf?:0-OOCLUJOOK1000900~800rg7OO~6000o5ooa4000'=300~200rfShortTerm~Oebt~LongTerm~OebtPrefenedStock~Common0~Equity100197677787980818283848586CAPITALlZATIQNANDSHORTTERMDEBTCapitalizationincreased184%duringthelast10yearswhilecapitalizationplusshort-termdebtin-creased165%duringthesameperiod.Theaverageannualratesofgrowthwere10.7%and9.9%respec-tively.

SUMMARYBALANCESHEETATDECEMBER31-(ThousandsofDollars)ASSETSUtilityPlant-(page12)LessAccumulatedDepreciationNetUtilityPlantConstructionWorkinProgressOtherPropertyandInvestmentsCurrentAssetsCashTemporaryCashInvestmentsSpecialDepositsAccountsReceivablefromCustomersReceivable-NineMile2SettlementAccruedUnbilledUtilityRevenues.FederalIncomeTaxCarry-back.OtherReceivables.MaterialsandSupplies.Prepayments.1986$636,761253,168383,593555,7356,2901,6906,41319,72732,34426,1008,4753,23523,02481191985$611,905240,878371,027441,8633,6021,65314,35053,47343,4488,9632,10525,97565241984$585,538225,284360,254343,2533,2021,26410,5187,73043,2068,3772,15134,63654031983$567,160210025357,135253,6302,1831,5762,92943,3247,9102,23131,20451061982$560,337196,133364,204186,7772,1092,1336,20043,1597,5292,90120,29646941981$524,517179268345,249160,2491,8402,95825239,1517,5351,14826,87942591980$511,167165487345,680123,8271,9683,34124731,9475,7714,6761,87827,26437711979$498,282152,407345,87598,0191,7973,26716521,4285,5473,08584024,3343,1631978$486,116140813345,30372,5461,7873,28225816,9624,5471,59416,22830101977$445,235127049318,18649,3373,59019114,8244,769122314,6232,6461976$428,543116709311,83436,6103,03137412,0564,3081,81413,4892732129,127156491113,28594,28086,9128218278,895618294186637804DeferredChargesUnamortizedDebtExpense.UnamortizedProjectCosts**UnamortizedInvestmentinSterlingProject'*....DeferredSterlingCancellationChargesDeferredElectricFuelCosts.DeferredGasCostsDeferredEnvironmentalCosts.DeferredRosetonLitigationSettlementDeferredFinanceCharges-NineMile2Project..Other'Total.LIABILITIES5,6743,04215,0839905191,5797357,37122,1193,2273,64817,6986,4042,7611,8741,6649,2133,25972294,2893,312.13,7956,5041,7662,2078708,2929,20080119,9732,7319,0631,0125808945996,44941,9719681842965541582465697782,953$1157698$1038524~$878240~$7642053,3053,96521,1271,1434,8141,3622773756146050$6860522,4934,4496,4101,0003,422382421598$6111182,19041110,3516233,099366120335$5707056,7115173,9821,7565132,57316052$523,5722,5508343,6031,5556161,59110749$4762662,0295392,5761,6427711,6379194$4194203,2944011,6151,47292713739082$396181Capitalization-(page17).CurrentLiabilitiesLong-termDebtMaturingwithinOneYear..SinkingFundRequirements.NotesPayabletoBanksNotesPayable(CommercialPaper).AccountsPayable.AccruedTaxesAccruedInterest.AccruedVacationCustomerDeposits.DividendsDeclaredSterlingCancellationChargesOther$96021517527,2344,9668,0552,8062,80911,79444410,05768,340$88147717522,2595,0198,8852,6752,68810,457622456057,340$74040317526,8505,19573222,5532,4799,4311,6438,04663,694$61860011,00017523,00023,0803,6976,5332,6778,1243,2866,30087872$57396717526,50014,9916,2496,62627336,5625,88769723$4989686,00017516,50026,6696,0735,8552,8405,65451907495618,00017518,00025,8087,1834,0222,6774,6965,77586336$404,48212,00017545,00018,4115,7673,1482,7443,933526296,440$40535217523,00012,5195,9882,5232,6983,664364754,2148,00017517,00010,6094,4142,6892,5433322267851,4304,20017520,0009,7252,9852,7202,4142,8122,77747,80810DeferredCreditsandOtherLiabilities*DeferredFinanceCharges-NineMile2Project..AccumulatedDeferredIncomeTaxesTotal.'Rechssifiedfor1980toconformtocurrentpresentation."Rechssifiedfor1982toconformtocurrentpresentation.17,83341,3048,09122,1196,1599,2005,7463,259$1,157,698$1,038,524$878,240$764,205700066949758784487283,56838794$6860526,14331051$6111184,22328702$570,7052,43920211$523,5722,10514595$476,2661,93711347$419,4209628875$396,181 Notes250~200~150O0<1000NETFUNDSFROMOPERATIONSTOTOTALSOURCEOFFUNDSFromInternalSourcesFromExternalSourcesVH197677787980818283848586140120ttl100OO80060O.-'=4020INTERNALCASHFLOVfANDCASHCONSTRUCTIONCHARGESCashConstructionChargesInternalCashFlow'NTERNALCASHFLOWREPRESENTS"NETFUNDSFROMINTERNALSOURCES"LESSDIVIDENDS"197677787980818283848586 STATEMENTOFRETAINEDEARNINGS-(ThousandsofDollars)19861985198419831982198119801979197819771976BalanceJanuary1.NetIncome$145,85664884210740$126,31359672185985$110,49551137161632$99,52240236139758$88,95735329124286$73,69123898$80,15529,679109,83497589$67,08421694$61,4812026081741$56,3261774774073$51,6471592767574DividendsDeclared-cash:OnCumulativePreferredStock.OnCommonStockTotal.BalanceDecember31.5,6144039346,007$164,733',1843394540,129$145,8566,4592886035,319$1263135,783234804,126206384,126167514,1261330824764208771743429263$110495$99522$88957$801554,1261096115,087$73,6914,1261053114,657$67,0843,626896612,592$61,4812,866838211,248$56,326Pursuanttothetermsofthe4.85%promissorynotes,due1995,$156,319isnotrestrictedwithrespecttothedeclarationofdividendsoncommonstockatDecember31,1986.STATEMENTOFCHANGESINFINANCIALPOSITION-($000)SOURCEOFFUNDS19861985198419831982198119801979197819771976FundsfromOperations:NetIncome.IncomeItemsnotRequiringCurrentOutlays:DepreciationAccruals:ChargedtoDepreciationExpense.ChargedtoOtherIncomeAccountsAmortizationofInvestmentinSterlingProjectDeferredIncomeTax-NetAllowanceforFundsUsedDuringConstruction.Other-Net.NetFundsfromOperations.$64,88418,8737816,021510(31,725)~1035969703$59,67219,1827655,067~10,713(26,432)305472021$51,13718,6277383,90410,056(21,921)461667157$40,23617,0957673,4299,935(16,429)223257,265$35,329$29,679$23,89816,51469716,10862915,2205864097,8172,3498,491(13,916)1973(14,762)723(11,782)1,314467273682237727$21,69414,8395305,616(8,012)355$20,26013,3935083,249(5,028)57732959$17,74713,2792652,472(3,391)49530867$15,92712,8592432,312(1,810)248AvailablefromOutsideSources:MortgageBonds.PollutionBondFundsHeldbyTrustee-Net...TermLoanNotes.PreferredStock.CommonStock.Short-termDebtTotalFundsfromOutsideSources....TotalSourcesofFunds50,00035,66865,221150,889$22059292,250(46,005)75,893$14791445,00028,42427,889101,313$1684703,44920,00025,92749,376$10664144,900.(5,730)19,8351000069005$11573230,00050,00015,61919,17545,61969,175$82441$10690220,0002200042,000$7702210,340600051,340$842994,50015,00019,500$50,36717,00017,000$46779APPLICATIONOFFUNDSConstructionandPlantExpenditures:GrossChargesforConstruction'.LessAllowanceforFundsUsedDuringConstruction.NetconstructionexpendituresDividends.$145,08231,72511335746,007$129,91826,43210348640,129$112,26821,9219034735,319$84,3731642967944147621391611782691784213429673247642087717,434$83,940$56,050$41,455$40,52680123251415,087$64,5135,0285948514,657$32,3433,3912895212,592$25,6931,81023,88311,248RetirementofSecuritiesandShort-termDebt:MortgageBonds.ConvertibleDebenturesLong-termPromissoryNotes.Short-termDebtTermLoanNotes.55,00017517511,00017523,0001753,5006,0001758,0001751,5001000012,00017527,00010000175150008,0001754,3753,00032555175175341753675617519675491751517581757375325NetIncrease(decrease)inWorkingCapital,otherthanShort-termDebtandCurrentMaturitiesofLong-termDebtandPollutionControlNotes.ChangesinDeferredandOtherAccounts-Net............TotalApplicationofFunds...*ExotudesS26,100NineMile2SettlementeceivabtefromNiagaraMohawk.(2,696)8749$220,5923,555569$1479144,2064423$1684701695590$106,6418,2327,3836,1704450$115732$82441$106,9027,7226524(769)2751$84,2991,240208$50,3679,7961527$46779l2,7og/ggQX2-QP Notes180160GROSSCONSTRUCTIONCHARGESzOI-MO0Ozzz(0LJIC9zKOI-zIJltifI-ClKElectricProductionOtherOftotalconstructionchargesof$816,568,000inthepast10years,$52,800,000representsthecostoftheCompany's35c/ointerestintheRosetonElectricGeneratingPlant,$465,729,000representstheinvestmenttodateinthecon-structionoftheNineMilePointNo.2nuclearfacility,$88,385,000representsthecostofsteamgeneratingfacili-tiesattheDanskammer,PointElectncGeneratingPlantand$14,104,000representscostsrelatedtotheabandonedSter-lingNuclearPhntProject.NetUtilityPlantTotalOperatingRevenue5505004504000350Clv-3000250tO20015010050NETUTILITYPLANTTOTOTALOPERATINGREVENUE197677787980818283848586I14Otuo120Ov-100080600>4o.oE3E3E3197677787980818283848586C9zzC5zcCI-OI-zI-I-V)RATIOOFACCUMULATEDDEPRECIATIONTOTOTALDEPRECIABLEPLANT100908070t-60<~50ICL40302010197677787980818283848586TheCompany'sannualpro-visionsfordepreciationarecomputedonthestraightlinemethodusingratesbasedontheestimatedusefullivesandestimatednetsalvageofproperties.Totaldepreciableplantin-cludestotalutilityphntinser-vice,exclusiveofnondepre.ciableitemssuchashnd,intangibles,etc.

1986198519841983DETAILOFUTILITYPLANTANDACCUMULATEDDEPRECIATION-(ThousandsofDollars)198219811980197919781977197610-Year~%GhaneUtilityPlant-December31Electric~GasCommon.TotalUtilityPlant.........ConstructionWorkinProgress..Total.AccumulatedDepreciation-December31Electric.Gas.Common..;.TotalNetUtility-December31(b)Electric.Gas.CommonTotal$522,86670,09843797636,7616667361182486212,60126,80713760263168310,26543,29130037$383,593$506,20465,86839833611,9054416631063768.202,68525,63612667240878303,51940,23227276$371027$487,18861,88636464$472,34060,15234668$470,88958,32231,126$441,945$433,64055,642-53,5512663023876$425,81150,52021061$416,35549,33520426$377,75348,72618766$363,94846,75617838567,160263630585,538343263828781820780560,337186777(a)747114486,11672646498,28288018511,167423827524,517460249428,54336610445,23549337684766634994696301668662484672466163190,72323,23811,323336284178,21720,64241466166,91619,3978820141,25116,0668170152,55517,7888326129,59914,8167092119,90413,6937216107,18512,6477,21798,67311,6806366210036496433179288166487162407140813127048116700296,46538,64826141$360264294,12339,51023,502303,97338,92521,306289,39037,85418,005292,38937,48515,806296,21235,70413368296,&135,64213,210270,56836,07911639265,27535,07611483$367136$364204$346249$346680$346876$346303$318,186$311834445014649156115130116117182316224RatioofAccumulatedDepreciationtoTotalDepre-ciabtePlantDecember31~PetCallt40.840.339.337.635.434.632.831.029.329.027.6ructionWork19861985198419831982198119801979197819771976ExcludingConstNetUt(T(tyRantPerDoihrofTotalRevenue~of~tars.87.73.69.75.82.781.051.361.501.531.83inProgress.GrossConstructionChargesofDollarsGrossAdditionstoPlantDuringYear(b)ElectricProduction..............OtherElectric.Gas.CommonTotal.RetirementsDuringYearElectricProduction...OtherElectric.Gas.Common.Total.$7,86713,3274,64063764,64717,5754,17149162,0612,4774101,41463623,06719089741643121031300$6,20810,3001,8594278$(3,808)(e)7,638(e)2,08139863886$19,513(d)$4,51612,2709,2083,2282,2766177362840188(d)19628$8168,7553,143283316647$3,8507,8001,352206115,053$34,396(c)7,125754282846>03(ci$3,27512,9762,2351,1302,24310,4151,37982819616148661041,55612416803632,0832652135632,2742103919871,606140878401,92514511634141,9231316311351,6891116514131,7811675267711,609251452337330833611308826862887327328243438198619851984198319821981198019791978197710-YearTotalTotal171,182129,918112,26884,37383,940(d)56,05041,45540,52664,513(c)32,343816,568ElectricProduction144,255103,49593,27169,545(e)68,872(d)41,37325,79928,56451,622(c)20,227Other26,92726,42318,99714,82815,06814,67715,65611,96212,89112,116647,023169,545AdjustmentsDuringYearElectricProduction...OtherElectric.GasCommon.Total.NetAdditionstoPlantDuringYear(b)ElectricProduction............OtherElectric.GasCommon.Total.(137)8~88~8841,44317,5753,9813368$263675,80610,8554,2303866$248664(4)1010(253)7(408)~103~757)(3,090)8(54)~43~3,178(608)(346)5~8481567(1)~25~176(2)2(230)(37)2265(4,575)6,0251,83036436,1048,7441,735178618,27310,6712,68044861,0127,2932,09129646967,1333,03120363,4376,0191,18516262,91010,8951,9709171,4508,1041,17170233,7484,8546091670$18,378$6,833$36,820$13,360$12,886$12166$40,881846682$114271986198519841983198219811980197919781977197661.5858.1262.8159.6059.2157.8162.3962.5640.8944.4143.7850.5346.1944.6235.9336.2641.2242.19RatiostoNetPlantPercentlug-termDebtandMortgagePreferredStockBondsl2(a)Constructionworkinprogressreflectstransferof$20,341toextraordinarypropertylossesfortheabandonedSterlingNuclearPlant.(b)ExcludingConstructionWorkinProgress.(c)Grossadditionsincludepurchaseofanadditional10%interestintheRosetonPlantatoriginalbookcostof$33,620.Grossconstructioncharges,however,reflectoriginalbookcostlessaccumulateddepreciation,intheamountof$3,799.(d)Grossadditionsincludepurchaseofanadditional5%interestintheRosetonPlantatoriginalbookcostof$17,056.Grossconstructioncharges,however,reflectoriginalbookcostlessaccumulateddepreciationintheamountof$3,781.(e)AdjustmentsincludeRosetonlitigationsettlement."Changeof1,000percentormore.g-7gg(oOO>Q-0+

Notes~300Oo2500200M0150g100rogPprt197677787980818283848586TOTALELECTRICOPERATINGREVENUES(OWNTERRITORY)400350~Resldentlal~Commercial~Industrial~Other4500TOTALELECTRICSALES(OWNTERRITORY)KOIC>444Kes:I-KI-OC4~Resldentlal~Commercial~Industrial~Other'o4OOO3500300002500200001500co100050019767778798081828384858680007000600055000OK40003000hd2000100012.010.590A7.56.o~O4.530o1.5~AverageRevenueAverageUse197677787980818283848586AVERAGEUSAGEPERCUSTOMERANDAVERAGEREVENUEPERKifH(RESIDENTIAL)

ELECTRICREVENUES,SALES,ANDCUSTOMERS1986198519841983198219811980197919781977197610-Year~%0haheRevenues-ThousandsofDollarsResidential.Commercial.IndustrialStreet8AreaLighting.Other.Total-OwnTerritory(a)OtherUtilitiesTotalRevenues$139,416103,468102,4853,863~1639$144,494118,329113,2474,0684493$141,034112,107102,4243,9795670347,59329510384,63152021365,21489646$377103$436652$454860$126,332100,67189,4833,8023333$116,29492,53682,2653,7993353$110,13587,09283,8923,843'2101$90,26570,10963,1873,4731564323,62188149298,24785913287,063111329228,59863401$411770$384160$398392$291999$72,35954,12250,5453,0071672$65,36847,33941,5612,7671749181,70544266158,78427480$225971$186264$65,22546,02338,5712,8021745154,36630025$184391$57,13439,68030,4292,6101708131,56118323$14988414416123748(196)16461152Sales-MillionsofKwh.Residential.CommercialIndustrial..Street8AreaLighting.Other.Total-OwnTerritoryOtherUtilitiesTotalSalesCustomers-AverageResidential.CommercialIndustrialStreet8AreaLighting.Other(includingotherutilities).TotalCustomers.1,3111,1851,6313024,1597954,954201,97726,3817232,8565231,9421,2371,1851,4443013,89711045,001197,68725,3916402,8496226,5731,2381,1181,2923113,68017805,460193,76424,6166932,8288221,9091,1811,0621,2113213,48717955282190,32624,3657062,87282182771,1551,0321,1703413,39216361,1641,0231,2063513,4292,0931,1691,0061,1493513,3601390502855224750188,05024,0037162,89910183,23823,3807363,0618185,62323,7447262,948102156782130512104231,2049841,1923513,41613244,740181,63122,9667313,1265208,4591,2039571,126351332210194,341178,93422,2967153,1306205,0811,1999221,0303513,18711044,291176,89121,5537263,1868202,3641,2038979383613,0757383,813175,13021,2897433,25611200,42993274(17)100358301524(3)(12)(55)16ResidentialAverageKwh.PerCustomerAverageRevenuePerKwh..AverageAnnualBill.MaximumHourlyLoad-Kw.-Winter.SummerAnnualLoadFactor-onAnnualPeakRevenues-PerCentofTotalOwnTerritoryResidential.CommercialIndustrialStreet8AreaLighting.OtherTotal-OwnTerritory6,49110.63$690.26713,900764,40067403029106,25411.69$730.93719,280739,000373129126,38911.39$727.86647,450689,00066393128116,20510.70$663.77646,500662,500393128116,14210.07$618.42623,000666,000393128116,2719.46$593.33640,980625,980393029116,3807.72$492.61598,900640,300393128116,6296.01$398.38633,200619,800403028116,7235A3$365.32607,580613,580413026216,7785A4$368.73617,460621,20062423025216,8694.75$326.24607,480534,2006144302321(6)1241121843(a)Revenuesrelatedtoincreasedelectricfuelcostsbilledpursuanttoanelectricfuelcostadjustmentare."ElectricfuelcostsrolledintothebaseratesresultingfromRateCaseProceedingswere1.5cperkwheffectiveNovember3,1979and1.2cperkwheffectiveJuly18,1981.EffectiveJuly25,1986.75cwasrolledoutofbaserates.Seesectionon"Rates"onpage3.$(36,654)ee$11,838$19,286$7,479$5,918$36,663**$16,390$28,792ae$20,322$24,729$8,055 NotesTOTALFIRMGASOPERATINGREVENUES(OWNTERRITORY)5550ResidentialwithoutHeating45Ill~40O35Cl~300til25O205QHoIiijP~~~~~197677787980818283848586ResidentialHeatingCommercialwithoutHeatingCommercialHeatingMIndustrialandOtherResidentialwithoutC7Heating80007000TOTALFIRMGASSALES(OWNTERRITORY)ResidentialHHeatingCommercialwithoutC3HeatingCommercialC3HeatingIndustrialandOtherLLO6000~50000m4000CPn3000O2000I-1000UoHtjQa197677UClClHaaE7879808182~~a83848586MLslOVlClzMeL:VlVlLLJKul)OI-LalLslAVERAGEUSAGEPERCUSTOMERANDAVERAGEREVENUEPERMCF(RESIDENTIAI-)180~160LL-140~120O~100O~et8Og6oc+40201976777879808182838485869.00O8.007.00'a6.005oooC4.oog3.00O2.00UIO1.00QRAverageMCFPerCustomer~AverageRevenuePerMCF GASREVENUES,SALES,ANDCUSTOMERSRevenues-ThousandsofDollarsResidentialwithHouseheatingResidentialwithoutHouseheatingTotalResidentialCommercialIndustrial.InterruptibleandSeasonal.OtherTotal-OwnTerritory(a).OtherUtilitiesTotalRevenuesSales-ThousandsofMcf.(b)ResidentialwithHouseheating.ResidentialwithoutHouseheating.TotalResidential.Commercial.IndustrialInterruptibleandSeasonal.-OtherTotal-OwnTerritoryOtherUtilitiesTotalSalesCustomers-AverageResidentialwithHouseheating.ResidentialwithoutHouseheatingTotalResidential..CommercialIndustrialInterruptibleandSeasonal.Other(includingotherutilities)TotalCustomers.TotalResidentialAverageMcf.PerCustomerAverageRevenuePerMcf.AverageAnnualBill.HouseheatingSaturation-PerCent.MaximumDailySend-out-Mcf..Date.Revenue-PerCentofTotal-OwnTerritoryResidentialwithHouseheatingResidentialwithoutHouseheatingCommercial.Industrial.InterruptibleandSeasonalOtherTotal-OwnTerritoryDegreeDaysasPercentofNormal(c)Degreedaysinbillingcycle.Degreedaysincalendaryear1986$26,658319429,85218,1202,9927323316161,448$614483,5033263,8292,8874911,6443159,166916630,45214,49344,9454,9791924915016685.1-7.80664.2067.867,542Jan.84353051251001011001985$25,618338829,M617,7882,84214,245426968,150$681503,2083323,5402,6784382,7831539,592959229,08014,79943,8794,6341605114872580.68.19661.0666.367,441Dec.1838526421610096981984$25,620345629,07617,1702,74416,421291868,329$683293,3853593,7442,7244503,16311610,1971019727,97815,12343,1014,4451414914773786.97.77674.6064.965,341Feb.13852542441001021001983$24,162334827,51017,6583,10710,093360061,968$619683,0893513,4402,4784371,9282178,5008,50027,20415,31642,5204,3291424014703280.98.00646.9964.065,632Dec.25395295166100971011982$23,824351927,34315,5963,26312,755269261,649$616493,3193933,7122,5615382,7662609,837983726,3111563741,9484,1311343614625088.57.37651.8362.762,122Dec.133962552141001041001981$17,325284220,1679,7142,40211,761203246,076413$464893,2134153,6282,0715172,9961349,346134948025,2001633741,5373,7201405224545187.35.56485.5260.756,054Jan.123862152641001031001980$14,0902,40816,4987,3181,7199,001109435,630364$359943,0023923,3941,7764242,9141028,610142875223,62016,93340,5533,5151405124426183.74.86406.8358.253,719Dec.253972152531001001051979$11,670221813,8886,0861,3466,83965428,813$288133,0463803,4261,7183822,8711098,506850622,56717,42739,9943,3321394914351585.74.05347.2556.455,301Feb.1140821524210096961978$11,868220114,0695,8801,1693,43218824,738$247383,2083853,5931,8153741733787,593759322,25217,50439,7563,3521395014329890.43.92353.8956.044,350Dec.294892441411001071061977$11,271216513,4365,4471,0213,37916623,449$234493,1323853,5171,7463391,739607,401740122,10317,65039,7533,3681425014331488.53.82337.9955.645,668Jan.17489234151100102991976$9,885194511,8304,7709473,13415020,831$208313,2433943,6371,8383882,152768,091809121,9191793039,8493,41115550143,46691.33.25296.8755.047,532Jan.224792351511009910310-Year%Ghw<Ge170641522802161341951958(17)55727(24)314131339(19)134624(2)015P)1401242342(a)Revenuesbilledundertheprovisionsofthegascostadjustmentclauseare(b)Theaverageheatingva!ueofgassoldisnotlessthan1,000Btu.percu.ft.(c)Normal=Twenty-yearMovingAverage1410,42212,14710,36315,51413,1597,8722,5008,708',2578,3555,704GascostadjustmentrolledintothebaseratesresultingfromRateCaseProceedingswas$1.50permcf.effectiveNovember3,1979.'Changeof1,000percentormore.g~oc/ooo52=D7 4COSTOFPURCHASEDGASTOGASREVENUESNotes9075u)Lrrr=60OO45rnc03015gaOIHI197677787980818283848586GasRevenuePurchasedGasCost(AndPercenreseolGeeRwenue)rnO50000x<<4000ro=3000O3dcnCO=1000TOTALELECTRICOUTPUT197677787980818283848586COSTOFFUELANDPURCHASEDELECTRICITYTOELECTRICREVENUE480440400~360O320O280~Purchased~GeneratedO240~200sao[]gP-,TII'll19767778ElectricRevenueOIImI7980818283848586SYSTEMCAPABILITYANDLOADATPEAK(OWNTERRITORY)120011001000900I-QO'zV)42:CoDKLII)(13C9PurchasedElectricity(AndPercenteseofElectricRevenue)MFuelUsedinElectricGeneration(AndPercenteseolElectricRevenue)rn800cr500~4003002001000197677787980818283848586PurchasedCapacityatTimeofPeak(IncludingReserves)GeneratingCapacityatTimeofPeak~AnnualPeak ELECTRICANDGASPRODUCTIONDATA1986198519841983198219811980197919781977197610-Year~%ChaneElectricOutput-MillionsofKwh.Generated-Steam.Generated-Hydro.Generated-GasTurbine.TotalGeneratedPurchased-forOwnTerritoryPurchased-forResaletoOtherUtilitiesTotalPurchased.PumpedStorage(receivedfrom).TotalOutputPumpedStorage(deliveredto).CompanyUse,Losses,etcBalanceSold.3,7691351~39051,388~1388325,32549322~49543,748892~38391,589~15891335,561198362~50014,2291311~43611,41072~14821195,962170332~54604,3151322~44491,162~116285,619113265,2823,6241163~37431,533211,5545,297269~50283,810655~38801,72790~18175,6971755,5223,35110543,4601,55561,561385,05950259~47503,53516223,6991,253~1253164,96821207~47403,29512233,4201,1208~112864,5548205~43413,52013453,659798578554,514223~42913,26115653,4224921176094,031218~381316(13)(80)14182(100)128324830ElectricPeakandCapacityAnnualPeak(OwnTerritory)-Mw.GeneratingCapabilityatTimeofPeak-Mw.Steam.HydroGasTurbine.Total.PurchasedCapacityatTimeofPeakIncludingReserves-Mw.GeneratingCapabilityPlusPurchasedCapacityasPerCentofAnnualPeak764.4*897.042.643.0982.664.0137739.0*894.042.643.0979.663.0141689.0*894.042.643.0979.6110.6662.5*892.542.638.0973.18.3666.0*841.644.638.0924.2168.3641.0839.245.648.0932.8172.4172839.244.638.0921.8839.245.648.0932.8255.6124.8167640.3*633.2613.6*722.944.638.0805.5296.8180621.2"706.244.638.0788.8211.8161607.5697.045.648.0790.626P)(10)24108GasSend-out-ThousandsofMcf.PurchasedNaturalGasManufacturedorPropaneGas.TotalCompanyUse-BoilerFuel.OtherCompanyUse,Losses,etc..Balance-Sold9,64529,647258223~916614,627514,6324,240800~959215,548315,5515,000354~1019712,3321123333,1177168,50013,4721913,4913,4502049,83714,272314,2754,5872089,48012,670112,6713,4125078,75211,232111,2332,441286~85067,96537,968375~75937,603147,617216~74018,42028,422331~80911515(33)1319861985198419831982198119801979197819771976ThousandsofDolhrs124,510179,928215,833203,807175,536192,637132,47895,79770,80181,61459,587SteamElectricProductionCostaThousandsCentsofperDollarsKwh.3.304.805.104.724.845.063.952.712.152.321.83284.3428.4474.4439.7449.1475.9362.2251.2199.1217.6170.110,18510,33710,15310,08310,17210,11910,21010,03510,0259,9789,9312,0241,24422642,0941,6248941,3881,8861,0601,2409801.501.401.731.591AO1.381.321.16.87.93AverageCostofHeatRateCentsFuelBurnedforper(CentsperGenerationKith.~MMtatcBtuGasTurbinesPurchasedcThousandsofDollars334351350279619413313207223334222CentsThousandsCentspefofperKwh.DollarsKwh.24.9933,801165350,53834.2152,54020.8240,42820.6367,0948.2676,1627.8352,34510.3532,8457.4326,9916.6818,9624A411,5092A43.183.563.504.38'.413.372.622.412.382.3419861985198419831982198119801979197819771976ThousandsofDollars33,38640,30040,06341,06839,34528,57922,52516,69311,69111,6979,698CentspefMcf.356.4391.5379.8445.7392.6295.1243.3189.9146.8153.8115.2PurchasedGasCoste19861985198419831982198119801979197819771976ElectricFuel2939454743464340364237FuelandPurchasedPurchasedfl~tlEtectlec0912121018201815141193851575761666155505346CostofFuelandPurchasedElectricityasPerCentofElectricRevenue19861985198419831982198119801979197819771976PurchasedGas5459596664626358475047FuelCostofPurchasedGasandFuelasPerCentofGasRevenue545959666462635847504715(a)Includescostofoperationandmaintenance.(b)Includesproductioncostsrelatedtosalestootherutilities.(c)Excludeselectricitypurchasedforresaletootherutilities.(d)Fuelburnedduring1979through1986wasacombinationoffueloilandnaturalgasFuelburnedduring1976through1978wasfueloil.(Naturalgaswasusedforignitionpurposesonly)(e)Excludesgaspurchasedforboilerfuel.Annualpeakoccurredinthesummer."Changeof1,000percentormore.$7@k/cocle~-O~

NotesLABGIREXPENSE(INCLUDINGBENEFlTS}TGTGTALGPERATINGEXPENSE500450N400-3500d3OO0250Vl0200150100197677787980818283848586TotalOperatingExpensesUnionwagenegotiationsin1985resultedinatwo-yearworkingagreement,whichprovidedfora5.1%generalwageincreaseeffectiveJuly1,1985,and5.0%effectiveJuly1,1986togetherwithfringebenefitimprovements.cCI-ClKOI-OCIOfLCLMcCC9ChKOI-~LaborExpensesCompensationofprofessionalsupervisoryandexecutivepersonnelisgearedtoasalaryprogramdesignedtoassuretheCompany'sabilitytoattractandholdhighlyqualifiedmanagementpersonnel.BenefitsprovidedbytheCompanyincludepensions,grouplifeinsurance,hospitalization,majormedicalinsur-ance,adentalplan,andadisabilityretirementplan.

LABORDATAANDINDUSTRIALREVENUESLABORDATA198619851984198319821981198019791978197710-Year1976%Ch~<CeEmployees-YearEndClassifiedSupervisoryandProfessionalExecutives.Total(a).924927926.9243913973793851210121113271334131713209523841013469683641313459643371313149763139129898330310129699529491,2981,03929091,338(11)3533(1)WeeklyWagesPaid-YearEndLevelIncludingOvertime.ExcludingOvertime.$736$615$682$583$596$546$562$512$518$481$486$436$442$411$402$371$375$349$324$345$326$302127104EmployeeCompensation-ThousandsPayrollChargedtoOperationandMaintenanceElectricGas.PayrollChargedtoConstructionandOther.....RosetonPayroll-BilledtoOthers(a).TotalPayroll.29,7265,14811,985389050,74926,4414,4339,578348327,7564,64311,1073555470614393526,0604,3227,90530264131323,5224,0338,08329503858821,0433,5967,7032,5913493318,9163,0417,20222893144817,4202,7306,66621942901015,6512,5196,15223532667514,2302,4306,395217425,22912,9632,3116,593245924.3261291238258109AnnualCostofFringeBenefitsChargedtoOperationandMaintenance-Thousands..RatiosforPayrollChargedtoOperationandMaintenance:Payroll(IncludingBenefits)asPerCentofCorporateRevenuesBenefitsasPerCentofPayroll.INDUSTRIALREVENUES-Thousands7,0169.620.16,8657.821.26,6297.221.56,3997.821.15,5647.420.24,8946.619.93,9867.918.23,5659.317.73,43410.218.92,9309.417.62,25010.314.7212P)37ElectricCustomersBuildingProducts.Chemicals&Petroleum.Clothing.FoodProcessing.Foundries.MachineandMetalProducts.PaperandPaperProductsPrintingandPublishing.RubberProductsTextiles.MiscellaneousTotal13,0341,36120994543478,1672,5742,1341,1836391,80510248514,5841,6873691,19131175,2183,2931,5002,0291,35388915,5121,5343081,04542885,6692,9691,8971,2256711,98911324710242413,8291,4761317162,81460,0343,1011,2401,3311,14936628948313,3111,2621168852,35553,6502,7531,8731,1071,64933048226516,6161,2291521,0132,60451,1832,7121,9091,1302,19431508389213,7261,0071458301,97736,5932,1211,5518911,64926976318713,3637961396051,62426,8401,7341,1857851,30921655054510,6137351366121,29221,4211,5501,0016921,4722,0374156110,1037221266351,36719,7371,3539486881,4131,479385716,6296121155661,29816,1571,1237795651,1091,47630,429FIVELARGESTELECTRICCUSTOMERSIBMIndependentCementLehighPortlandCementCompanyVAWofAmericaTarkett,lnc.1986Revenues(Thousands)71,0474,6634,2862,0681,513FIVELARGESTGASCUSTOMERSPowell&MinnockBrickWorks,Inc.IBMTechnicalTapeCorp.EasternAlloys,Inc.VassarBrothersHospital$1,7861,75079449531616(a)IncludesthefolkwiingnumberofemployeesattheRosetonElectricGeneratingPlantwhichtheCompany,ConsolidatedEdisonCo.ofNewYork,Inc.andNiagaraMohawkPowerCorporationovmastenantsincommon:TheCompanyhad,initially,a200%%durwfcvidedinterestintheoccvnershipofthePlant.AsofDecember31,1982,theCompanyhasa350%%duncfcvidedinterest.TheCompanyoperatesthePhntasagentforthethreeovmers.112114113107107 CAPITALIZATIONRATIOSNotes807060QD4030201001976777879HU5080818283848586f-1Common~EquityPreferredStock~OtherLongTerm~DebtMMorlgageBondsCOVERAGERATIOS(BEFOREINCOMETAX)OOru2EI-0~1OX197677787980818283848586MARKETANDBOOKVALUEOFCOMMONSTOCK3530I-IInterestCharges~IncludingAFDC11InterestCharges~ExcludingAFDCMInterestChargesandPreferredStockDividends2510(tr15010RATIOOFINCOMEAVAILABLEFORCOMMONSTOCKTOOPERATINGREVENUE,TOAVERAGEEQUITYCflKO'al<<Ctf'-C/3CLKClKcCcCI-ClILO133197677767960616263646566ClosingPriceatDec.31BookValueatDec.31High~MarketValueRangefortheYearLow2520151ruO10ruToOperatingRevenue~ToAverage~Equity197677787980818283848586 CAPITALIZATIONANDFINANCIALRATIOS1986198519841983198219811980197919781977197610-Year~%ChaneBookValuePerShareofCommonStockearEnCapitalization-ThousandsFirstMortgageBonds..............ConvertibleDebentures.............Long-termPromissoryNotes.........TermLoanNotesUnamortizedPremiumandDiscountonDebt-Net...........TotalLong-termDebt(a)...........PreferredStock-ParValue..........CommonStock.RetainedEarningsPremiumonStockCapitalStockExpense..............TotalCommonEquity.............TotalCapitalization...............CurrentMaturitiesofLong-termDebt...Short-termDebt.TotalCapitalizationincludingCurentMaturitiesofLong-termDebtandShort-termDebtCapitalizationRatios-PerCentIncludingShort-termDebtandCurrentMaturitiesofLong-termDebt:Long-termDebtPreferredStockCommonEquityShort-termDebtSelectedFinancialIndices:PretaxCoverageofTotalInterestCharges(b):IncludingAFDC(c)...........ExcludingAFDC(c)..........PretaxCoverageofTotalInterestChargesandPreferredStockDividends(b)PercentofConstructionExpendituresFinancedfromInternalFunds(d)............AFDCasaPercentageofIncomeAvailableforCommonStock....EffectiveTaxRate(e)...........$327,400112,325$332,400112,500$312,400$267,40040,4257,200$278,4007,375$233,5007,550608~679~5082181,03081,03081,03081,0306103061,030279,685164,73367~4625214,464145,85667~4,303184,816126,31367~4,040156,927110,49567~3840131,00099,52267~2677)111,16588,95767~2480439860356084307156263,649227,912197,709960,215175881,477175740,403175618,60011,17523000573,96717526500498,9686,17516500$960390$881652$740578$652775$600642$52184345.88.445.8100.050.49.240.4100.047.610.941.5100.043.712.440.43.5100.047.510.237.94.4100.047.211.737.93.2100.03.142A33.172.543.192.592.842.352.652.122.381.882.662.512.2317%31%35%41%32%38%55%34%50%35%49%36%48%34%50%27%54%23%439325444383352217273921285025240,229$209,5007,725$159,5008,0007,90020,000$151,5008,0008,07535,000$151,5008,0008,250$147,00016,0008,425~2532169726103095,54680,15567~2326'73,442451,44418,175470501195,568203,0451682511719576103061,03061,03046,03076,37167,08467~224576,37173,69167~2245147,884141,277405,35217523000404,48212,1754500066,03161,48167.~2,154125425354,7068,1751700066,03156,32667~1,875120549338,5364,3752000050.113.036.9100.045.013.232.09.8100.047.446.414.216.133.033.05.44.5100.0100.048.612.733.25.5100.02.231.742.311.923.172.802.812.552.682.721.862.072.0868%61%31%63%78%60%19%46%18%31%31%24%27%14%27%$469619$461657$428527$379881$362911123(100)*(175)15576324192147265184(96)(100)ValueofEquityNumberof(ThousandsShares~ofDollarQho~osands1986439,86014,1061985356,08412,0751984307,15611,0071983263,6499,6211982227,9128,5091981197,7097,4561980173,4426,5441979147,8845,3731978141,2775,3731977125,4254,8731976120,5494,873BookValuePerShare~Dolhrs31.1829.4927.9127.4026.7826.5226.5127.5226.2925.7424.7419861985198419831982198119801979197819771976MarketValueofCommonStock(Dollars)~s397/a-26s/a31'/4-2325s/e-16'Ia26'/a-21'/a24s/4-17'/a19-1619r/a-152(P/4-1822'Ia-19s/4223/a-19~/a2(P/4-17'/aNumberofSharesTradedonNewYorkStock~Eaohana11,357,0004,381,4003,786,2001,961,0002,414,8001,017,100801,100402,500451,400574,000498,000(I)PricerangefortheyearontheNewYorkStockExchange.MarketValuePerShareofCommonStockandSharesTradedRatioofIncomeAvailableforCommonStock-PerCentToOperatingRevenue...ToYear-endEquity......ToAverageEquity.......13.513.514.710.615.015.68.514.5'5.77.314.414.57.014.614.75.714.014.06.06.912.711.912.512.27.611.411.76.811.311.57.710.811.017(a)ExcludescurrentmaturitiesofIong-termdebt.(b)Forthepurposeofcomputingthesecoverageratios,earningsavailableforcoverageconsistofnetincomeplustotalinterestchargesplusallfederalincometaxamounts.Totalinterestchargesexcludetheallowanceforborrowedfundsusedduringconstruction.Preferredstockdividendsrepresentthepreferredstockdivi-dendrequirementtdeterminedona"pre-incometaxbasis".(c)AFDCincludesanySterlingcarryingchargeamounts.(d)Constructionexpendituresrepresent"CashConstructionExpenditures".Internalfundsare"FundsfromOperations"less"Dividends"(seepage11).(e)TheeffectivetaxrateiscomputedbydividingthefederalincometaxasreportedintheStatementofIncomebytheTaxableIncone.87oC/oo~2.~<'Changeof1,000percentormore.

NotesDEBTMATURITYSCHEDULE757065(I)605550045~400353025020151050(F)(F-)(F)(A)(F)(B)U19881990199119921993199419951999200020022004200520072009201220142020(A)INCLUDES$10MILLIONSINKINGFUNDREQUIREMENTONFIRSTMORTGAGEBONDSMATURINGIN1992.(B)INCLUDESUNSECUREDNOTES-BALANCEOF$5.45MILLIONAFTERANNUALREQUIREDSINKINGFUNDPAYMENT.(C)PROMSSORYNOTES-WILLBESUBJECTTOREPRICINGANDINVESTORTENDERONEACHOCTOBER1,COMMENCINGOCTOBER1~1989.THECOMPANYHASAONE-TIMEOPTIONTOCONVERTTOALONG-TERMFIXEDRATEATANYANNUALTENDERDATE.(D)PROMISSORYNOTES-WILLBESUBJECTTOREPRICINGANDINVESTORTENDERONAWEEKLYBASIS.THECOMPANYHASAONE-TIMEOPTIONTOCONVERTTOALONG-TERMFIXEDRATE.(E)INCLUDESSINKINGFUNDREQUIREMENTSONRRSTMORTGAGEBONDSMATURINGIN1994($5IN1992AND$20IN1993).(F)INCLUDESSINKINGFUNDREQUIREMENTSONRRSTMORTGAGEBONDSMATURINGIN1995($4IN1991,1992,1993AND1994).COMPONENTSOFPERMANENTFINANCINGCOOI-lLKcCzLLOKKQI-h40-O80070056ootgO500Do4ootfl0<300=200100pIjIj5~197677787980818283848586MortgageBondsOtherLongTermOebtPreferredStockCommonMStock DETAILOFLONG-TERMDEBT(ThousandswhereDollarsareIndicated)19861985198419831982198119801979197819771976DateIssuedMaturityDatePublicProceedsRedemptionOfferingtoPricePrice~Ccman12/31/86FirstMo27/a%D3.3%D3.2%D41/e%D142/z%D17'le%D13%D14/a%D8'/e%D11%D7'la%DSs/7s/49/4%10s/e%6'/4%1Ã/4%12/a%11'/4TotalFrtgageBonds-December31ue1980ue1982ue1984ue1988ue1990ue1991(i).ue1992(c)ue1994(m)................ue1994ue1995ue1999Due2000.Due2002Due2004.Due2005.Due2007.Due2009.Due2010(i).Due2012irstMortgageBonds........$18,00025,00035,00045,00050,00020,00020,00025,00020,00015,00020,0004,50020,0009900$18,00025,00030,00035,00045,00020,00020,00025,00020,00015,00020,0004,50020,00025,0009900$18,00025,00030,00035,00045,00020,00025,00020,00015,00020,0004,50020,00025,0009900$18,00025,00030,00035,00020,00025,00020,00015,00020,0004,50020,00025,0009900$11,00018,00025,00030,00035,00020,00025,00020,00015,00020,0004,50020,00025,00099M$6,000$11,00011,00018,00018,00025,00025,00030,00020,00025,00020,00015,00020,0004,50020,00025,00020,00025,00020,00015,00020,0004,50020,00025,000$6,00011,00018,00020,00025,00020,00015,00020,0004,50020,000$12,0006,000l1,00018,00020,00025,00020,00015,00020,0004,500$12,0006,00011,00018,00020,00025,00020,00015,00020,0004,500$12,0006,00011,00018,00020,00025,00020,00015,00020,000$327400$332400$312400$267400$278400$233500$209500$159500$151500$151500$147000Dec.1,1950Dec.1,1952Oct.1,1954May15,1958Dec.2,1980Aug.26,1981Nov.30,1982May30,1984Sept.1,1986July2,1985Jan.23,1969June10,1970Feb.17,1972Apr.24,1974Nov.13,1975June9,1977Sept.27,1979May22,1980Sept.30,1982Dec.1,1S80Dec.1,1982Oct.1,1984May15,1988Nov.15,1990Aug.15,1991Dec.4,1992June12,1994Sept.1,1994July2,1995Jan.15,1999June1,2000Feb.1,2002Apr.15,2004Nov.1,2005June1,2007Sept.15,2009May15,2010Sept.1,2012(a)(a)(a)102.172100.0098.75(a)(a)99.854(a)100.00100.50101.763101.500101.595100.0099.556100.00100.00101.12100.00100.00101.3999.2598.00100.00100.0099.204100.0099.1899.625100.931100.407100.515100.0098.63699.125100.00100.22(b)(d)(m)(n)(I)102.95104A3104.93106.31107.59(e)107.82(i)OtherLong-termDebt-December31PromissoryNotes4.85%Due1995(g)............1984SeriesADue2014(j)1984SeriesBDue2014(j)1985SeriesADue2020(k)1985SeriesBDue2020(k)TotalPromissoryNotes..........6,67516,70016,70036,250360M$6,85016,70016,70036,25036000$112325$112500$7,025$7,200$7,375$7,550$7,725$7,900$8,075$8,250$8,425Dec.16,700Oct.16,700Oct.Nov.Nov.$40425$7200$7375$7550$7725$7900$8075$8250$842521,1965Dec.15,1984Oct.15,1984Oct.26,1985Nov.26,1985Nov.1,1995(a)1,2014100.001,2014100.001,2020100.001,2020100.00100.00100.00100.00100.00100.00101.08O)0)(k)(k)ConvertibleDebentures4s/e%Due1981...............5s/4%Due1978...............TermLoanNotes(a)(h)...........TotalDebenturesandOtherNotes$8,000$8,000$8,000$8,000June15,1966June1,1S81101.375100.508,000-Feb.25,1971Feb.1,1978100.0099.002000035000Dec.29,1978$28000$43000$8000$16000I8(a)Placedprivately.(b)NotredeemablepriortoNovember15,1987.(c)The13%firstmortgagebondshaveasinkingfundrequirementof$10000in1991.(d)NotredeemablepriortoDecember4,1989.(e)NotredeemablepriortoJune1,1987.(f)NotredeemablepriortoSeptember1,1987.(g)The4.85%promissorynoteshaveanannualsinkingfundrequirementof$175.(h)InDecember1978theCompanyissuedtermloannotesaggregating$35milliontothreebanks.TheLoanAgreementunderwhichthesenoteswereissuedprovidedthatthenotesshouldbepaidinthreeconsecutiveannualinstallmentscommencingDecember31,1979.TheCompanyrepaid$15milliononDecember31,1979,$10milliononDecember31,1980,and$10milliononAugust31,1981.Theinterestrateonsuchnoteswasthe"prime"rateineffectattheIrvingTrustCompany.(i)The17V6%and123//8%firstmortgagebondswereredeemedonSeptember15,1986.(j)PromissoryNotesissuesInconnectionwiththesalebyNewYorkStateEnergyResearchandDevelopmentAuthorityoftax-exemptpollutioncontrolrevenuebonds,seriesAandB,bearinterestat7V2%perannumtromthedateofissuanceuptoandincludingSeptember30,1989.ThebondswillbesubJecttorepricingandinvestortenderoneachOctober1,commencingOctober1,1989.TheCompanyhasaone-timeoptiontoconverttoalong-termfixedrateatanyannualtenderdate.(k)PromissoryNotesissuedinconnectionwiththesalebyNewYorkStateEnergyResearchandDevelopmentAuthorityoftax-exemptpollutioncontrolrevenuebonds,seriesAandB,hadaninterestrateof51/8%throughJanuary31,1986.Atthatdatethesebondsbecamevariablerateobligationssubjecttoweeklyrepricingandinvestortender.Thecompanyhasaone-timeoptionforeachseriestoconverttoalong.termfixedrate.(I)The11%tirstmortgagebondshavesinkingtundrequirementsof$4,000ineachyear1991through1994;notredeemablepriortoJuly2,1992.(m)The145//8%firstmortgagebondshavesinkingtundrequirementsof$5,000in1992and$20,000In1993.NotredeemablepriortoJune12,1991.(n)Notredeemablepriortomaturity.I NotesNotesI-LQClI-cbKOOL5 DETAILOFPREFERREDSTOCKANDCOMMONSTOCK(ThousandswhereDollarsareIndicated)19861985198419831982198119801979197819771976DateIssuedPublicProceedsRedemptionMaturityOfferingtoPriceDatePrice~Ccman12/31/86PreferredStock-December31($100ParValue)4'/a%PreferredStock........4'/a%PreferredStock.....-...4.75%PreferredStock........4.35%PreferredStock........4.96%PreferredStock........7.72%PreferredStock........7.44%PreferredStock........8.40%PreferredStock........AdjustableRatePreferredStockTotalPreferredStock$6,6903402,0006,0006,00013,00012,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,00020000$6,6903402,0006,0006,00013,00012,00015,00020000$6,6903402,0006,0006,00013,00012,00015,00020000$6,6903402,0006,0006,00013,00012,00015,000200M$81030$81030$81030$81030$61030$61030$61030$61030$61030$61030$46030Oct.1,1936Oct.1,1936Apr.1,1949Nov.1,1954June21,1961Feb.25,1971Jan.17,1973May24,1977Mar.30,1983(a)102.50107.50105.00103.75100.55(b)100.00(b)100.00100.0098.55101.22100.323100.0098.80100.0097.50107.00107.00106.75102.00101.00101.00104.94105.60100.00(c)NumberofRegisteredHoldersofPreferredStock..........2,8013,0073,1293,2383,3563,4543,7043,7613,8533,9433,918(a)Exchangedforearlier6%preferredstockandissuedonanequalsharebasisplus$2.50cashpershare.(b)Placedprivately.(c)TheadjustableratepreferredstockisnotredeemableattheoptionoftheCompanypriortoApril1,1988.Asinkingfundprovidesfortheannualretirementof8,000shares,at$100pershare,plusaccrueddividends,oneachMarch30,commencingMarch30,1993.Thedividendtobepaidisatafixedrateof11%perannumfromthedateofissuancetoJanuary1,1984andadjustedeachquarterthereaftertobe1%perannumbelowthehighestofthreespecificTreasuryrates.Theratewillneverbelessthan6%perannumorgreaterthan125%perannum.CommonStock(NoParValue)NumberofShares(Thousands)-December31.NewSharesIssued(Thousands)TotalStatedValueSharesOutstanding-December31..14,10612,07511,0079,6218,5097,4566,5445,3735,3734,8734,8732,0311,0681,3861,1121,0539121171$279,685$214,464$184,816$156,927$131,000$111,165$95,546$76,371$76,371$66,031$66,031NumberofRegisteredHoldersofCommonStock..........31,21232,23432,65131,51427,92325,29624,70924,34724,99023,54523,738 OQI-fjlKOOClKOQI-CilCICLLLOI-cCONotes20DIRECTORSERNESTE.ALTHOUSEWfkxNStreet,PA.ViceChairmanofthsBoardandViceChairmanoftheCommitteeonFinance;MernbeofXecutiveComrnineeandCommitteeanCampensat'cnandSuccssscnRAYMONDT.BENEDICT"Stamford,CT.Lawyer,ofCounsel.Cummings&~;McmbeofxecutivsCommitteeandCommitteeonFinance'AMESR.BREED,M.D.Poughkeepsie,N.Y.Surgeon;MemberofCommitteesonAuditandonCompensat'cnandSuccessionMARJORIES.BROWNMinbroak,N.Y.Homemaker.activeincivicandph'nthropcwork,formerlyeccutlV8IflfCtaTTingandpromotionalorganizations:MemberofCommitteeonCompensationandSuccessionandRetirementCommitteeTHEODOREJ.CARLSONPoughkeepsie,NYChairmanoftheBoard;ChairmanofExecutiveandRctirencntCommittees;RICHARDH.EYMANNorwa&.CT.Communications,DivisionofJ.WalterTfiampsonCompany;ChairmanofCommitteeonAuditEDWARDF.X.GALLAGHERNewburgh,N.Y.PresidentandOwnerGattagherTransportationSevices:MemberofRetiremenlCommitteeROYC.KETCHAMFeshhN,N.Y.ChairmanoftheBoardandChief'xccut'veOffccr,KctchamMotors,lnc.;ChairmanoftheBoardofTheFishkilNationalBank;ChaieenaeeoftheCommitteeonCompensationandSuccession;MemberofXxccut'vsCommitteeJOHNE.MACKIIIPoughkeepsie.N.Y.PresidentandChiefExecutiveOffcer,MenberofExecutiveandRetirementCommittees.andCommineesonFinanceandonCompensationandSuccessionHOWARDC.ST.JOHNGlenford,N.Y.ChairmanoltheBoardandresident.UlsterSavingsBank;Lawyer,HowardC.SLJohn&Associates:ChairmanofCommitteeonFinanceLEEC.WHITEWashington,D.C.Lawyer.White,Fine&VcrvRle;MemberofCammitteeonAuditJOHNWILKIEKatonah,NY.'iceCharrnanofXxecufNeComminee;MemberafRetirementCommitteeandCommitteesonFinanceandAuditRetired12/31/86"Retired41/86OFFICERSOFTHEBOARDTHEODOREJ.CARLSONChairmanoltheBoard;ChairmanofExecutiveandRetirementCommitteesJOHNWILKIEViceChairmanofthexecutiveCommitteeERNESTE.ALTHOUSE'iceChairmanoftheBoardandofCammfneeonFinanceROYC.KETCHAMChairmanofCommitteeonCompensationandSuccessionHOWARDC.ST.JOHNChairmanofCommitteeonFinanceRICHARDH.EYMANChairmanafCommitteeonAxQOFFICERSJOHNE.MACKIIIress'dentandChiefXxcculisOffcerLWALLACECROSSSanerVicePresident-Finance,andAccaunbngPAULJ.GANCISeniorVicePresident-OpeationsWILLIAME.VANWAGENENVicePresident.CorporateCommunicationsandGovernmentalAffairsGLADYSL.POWELLSecretaryERICM.MARKELLTreasurerJOHNFDRAINCcntrotfeHERBERTM.ROUNDVicePresident.CorporateBanningandEnergyControlALLANR.PAGEVcePresidcm.XnginccringCARLE.MEYERAss'stantVcePresident.ProductionJOSEPHJ.DeVIRGILIO,JR.Viceress'dent-CustomerServkmJAMESE.SMITHVcePresidentWALTERA.BOSSERT,JR.ecretaryandSsistantTreasurerCHARLESH.DENNY,JR.TreasurerandAss'stantSccetaryTRANSFERAGENT&REGISTRARCOMMON&PREFERREDSTOCKMorganSharehoklsrSevicesTiust~30BroadwayNewYbrk,N.Y.10015GENERALCOUNSELGould&WitkieOneWaftStreetNewark,N.Y.10005INDEPENDENTACCOUNTANTSPriceWaterhouse153East53rdStreetNew+A,N.Y.10022 IrVHN/(Mvk"~.IMtl<<critHfhflrfjnf~f~r~sfsa'hadg/St{tINCOtthnlIFI,adgatcrt<<dz'rernhjd1'~v6InsfneMldddburgwdrvcswI'L'ft~iLnPrpHl'tllosdafsse!Whore"s<<r>>vn.;.h"'gist{I.';gr/1I<<NrInegWe.nettfn<<wfr/.G(ACr,lsllsrsfIWrofte5tof/v4Conrail..p.11If/Cnllnnns'lo-.-n'GprfntvocIxSQR1NrlfrItynectctoCarLjenB<<aw~wfyil,.rCr(vasnd*M!fordPs.IfsI!1Q(SHs,errchtnrnsrIN1'5'/(M"P~,ii~N.Iwry<<HNMCI/GGsvond<<tHtrylMs<<ICXIVtrNIO\/{2,<<MM'Gens~c4tSN.McsKM,WStginfotdHncMtnfOVGNNI!Vxnwdt'lvS,KerrC/e4nlI1vr/Prsev/4SIc/NestJMrs/1fOcNWfI'VegaWa.ANsHW.ORg,frfwsr{'xneseHtxrcfs'i~/HHlsltHtnvsrnXe!lyC<<And!IMofgorot-Vl!IGenrnes1ArpvSe///nrr>>/ieDrptv~r~I'rparavlnteOOCPMIS,*Mrddf<<r(N~4SLsrdeltwinPrd4cessTvrnecodce.P(NMdsrSla<<XIOHscllcnd\Jacea!roryPMdIGsffvce!0!lnHfti'!artsssfeosfloniar<<vneWjcsnnaevngarneLCllxttPlMonMode>>Halloo6Co<<Mr<<gIHdGlLHdCvrnvsitW,Crnltlclll~nd4vhexingKnCrash;!Cssen~Bd4INSWcdgdtantasfsgoH2thMsn>>!1atroAsshes'INa4<<PtvponyMvL>>(OMHNI(Xlvlrls4Wood.cŽfCMfa/cacvont'nlcrrcfrfgrrrwRna4II(NWtY/pgdftvi'One{inta"41ItHereofAINfflfIa~crtadpdc'{3'se4~gpncaetavigoRcaswnd4ntoaapfSlopsirCVohfm<<CC{Itt(V2dgfes~NllsNWNosBcgpttp4/ritNt~AMŽ/I71/.IAcn<<NP'ejtooIGtMen<<l/ro(<<cpLCetodV4HudSOnmont/pgf(pofschH.kcaetM!P6t/cssdMn!thgna1Cfrw'IsfL~/'I"jcwcasHsrNn!4eg6tttnrlglt0(hcrnI('rrfnertNetttPteMHNINsMra<<O~(f1<<dtOolyn'giicnnowntv(Mt/Qr)nflnppl~~rdNtlIIl(MrfactsNign~u<<wh4//tNN//An<<a<<G<<w,Notlolaffwts/Lcf1C<<sNItajjchv/ymyitsMVotto2ojns~6IMd!pl(doa~oISccaCRVn~cN6/IMNWtlMel/tllSWsrGleanI51,tlGyfinttcdh~1~toSSH/ttsnf/IvINaf1vinest~tnsrnt/vlngpccttMsfxvrrrw,sa444-,"I3hk<<GaveMnrwKlgstpntnHertII/{I,fifam'fkr',GaWdfsrvOCCM2'1/dooefCape(ornConHWIId7CtfaSWSMOOpres~.f/~nrdr<<<<tao{too<<IRcafccoP<<rdvsa(Ma<<N(aMa1~onMsp'>>Bewfyjttpoop(a5CvoosacwotnCBcl6para44'Creat<<a<<4HNcsvrwnsO~vi<<levsljsvtaWss1rtlUssrCrsssc~,Veve<<tI~I(CXNIICt<<fist(OarIWwtpeSv!!4vr/Sist'ler~geest/4telosXrnlsteloStt~Ltst2Pcr<<r<<4i1tHlmglasssaaxffyShtfnfOM(rlerlMfhr11~IPougbtteeps4<~sttBredeI~<<Os,nO<<4rCsgltrcrees<<lIce/jrosvnaI2!v(!~~Iatrv<<fifa2gchfd<<WaresrnNldIrrdWI>>HoMrol<<NI~~IgrfrjdHrtf2/lrk:1!slo/Hvkfsdhn(HlhtiIVHrlvg'llvnl<<rrlnpens<<pcrpve/Igrfc'rn~nL'lrrnsy~refersow/rdRcslrsCrw<<rNeeodtngttsnr5I/clroIftsll,rrBwf4>~W"VWrftn<<nL~4<<eWrest/Rrforttlorggx!IelfrLWWf<<~,G,'IJwslorgloflWstenowP!BctvfMWatefbuGffth/twoweasnoa~~-4Wrglg~paso<<nnttlrgn<<fagk~gtetHlIfrrnvrwvccr2Wr,ters6,'Ms!IrdMsfdNNope"9'tgvrps~vestNew{Ig)Mfi/ofdfloIIIialtslaCHtrrcccnaIrtfrr/eH*QW(cd8!pf5thrsD1{BS~nt'yi(ttsrie{it""-/t~5IIjt'dlVsr/esa6Cwe<<enwcJM(waSpsnnvrpor(sacsMljomnfat*i'xjofdIOG(NLRACGNAnlscnCGWHC'.~h'1el,55s<<c<<scpVoceCalo~jyMnar'rvIf5<<.BPt/Nw'!Or'IP'fknfIB,.VlN.Ssl<<aLhnsod<<sf'e///I,.CsHcvslrsDanbupitc<acth',tffyiRMCfats>>kgpgptp(tcbjscf5ntItarv<<THEREGIONmfUSERVECentralHudsonisaninvestor-ownedutilityservingmorethan281,000electriccustomersand50,000naturalgascustomersintheMid-HudsonValleyandtheeasternCatskillMountains.Its2,600square-mileserviceterritoryreachesfrom25milesnorthofNewYorkCityto10milessouthofAlbanyandincludesportionsofeightcounties.

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