ML19318D159: Difference between revisions
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* .? N | * .? N | ||
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President's Report l | President's Report l | ||
l am pleased to report that 1979-the last F , 7 refuse-derived fuel began at Bridgeport I year of what was predicted to be "the : Harbor Station and explorations were soaring 70s," but which became instead [g7 L' under way for possible methods of sub-3 "the staggering 70s"-can be remem- . f. stituting municipal waste for oil in New i bered for some impressive achievements | l am pleased to report that 1979-the last F , 7 refuse-derived fuel began at Bridgeport I year of what was predicted to be "the : Harbor Station and explorations were soaring 70s," but which became instead [g7 L' under way for possible methods of sub-3 "the staggering 70s"-can be remem- . f. stituting municipal waste for oil in New i bered for some impressive achievements | ||
: at UI. Of course,like the rest of the | : at UI. Of course,like the rest of the i 44 l f. | ||
i 44 l f. | |||
Haven. Pursuant to a grant from the fed-eral Department of Energy (DOE), the | Haven. Pursuant to a grant from the fed-eral Department of Energy (DOE), the | ||
: nation, particularly energy comparues, [ f[ | : nation, particularly energy comparues, [ f[ | ||
| Line 386: | Line 376: | ||
l 1979:The Yearin Review | l 1979:The Yearin Review | ||
! (continued) | ! (continued) | ||
I 1 | I 1 | ||
i l | i l | ||
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#- - - \ | #- - - \ | ||
i structure in lef t background is the turbine building. Smaller structures to left and right | i structure in lef t background is the turbine building. Smaller structures to left and right | ||
- [L.,)# . | - [L.,)# . | ||
I | I | ||
| Line 580: | Line 568: | ||
l ? | l ? | ||
s _ | s _ | ||
l 4MJ h Spg 3 . | l 4MJ h Spg 3 . | ||
; Qs qi ] _ | ; Qs qi ] _ | ||
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'== j A new energy education program-W l7 y a w " Power Quiz"-was introduced in pri-y #, | '== j A new energy education program-W l7 y a w " Power Quiz"-was introduced in pri-y #, | ||
g (3 vate and public school systems through- | g (3 vate and public school systems through- | ||
, , {s # | , , {s # | ||
, 6 il out UI's service area. the first such pro-u gram of its kind in the East. In the 1979-3 '/ | , 6 il out UI's service area. the first such pro-u gram of its kind in the East. In the 1979-3 '/ | ||
| Line 766: | Line 752: | ||
.1 | .1 | ||
} - | } - | ||
? 80 period, it is anticipated that more than V ff -% ~ | ? 80 period, it is anticipated that more than V ff -% ~ | ||
I 10 000 sixth-grade students in 400 class-rooms will participate in the program, | I 10 000 sixth-grade students in 400 class-rooms will participate in the program, | ||
| Line 773: | Line 758: | ||
} " ,, : ~ servation techniques. energy costs, and 7 '' an energy audit worksheet for use in d .h - | } " ,, : ~ servation techniques. energy costs, and 7 '' an energy audit worksheet for use in d .h - | ||
students' homes. The program was im-M . | students' homes. The program was im-M . | ||
plemented in liaison with local boards | plemented in liaison with local boards | ||
-{- of education,educationaladministrators e and teachers. " Poor Quiz" marks an-G | -{- of education,educationaladministrators e and teachers. " Poor Quiz" marks an-G | ||
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Revision as of 23:33, 18 February 2020
| ML19318D159 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 01/04/1980 |
| From: | UNITED ILLUMINATING CO. |
| To: | |
| Shared Package | |
| ML19318D157 | List: |
| References | |
| NUDOCS 8007080012 | |
| Download: ML19318D159 (30) | |
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n Highlight 3 1979 1978 Operating Revenues - $281,878,000 $216,315,000 N;t income $ 29,668,000 $ 21,477,000 E:rnings per Share of Common Stock
-(based on average number of shares ststanding) $3.94 $3.06 Dividends Declared per Share of Common Stock $2.62 $2.56
' Utility Plant $764,652,000 $681,585,000 Siles of Energy-KWH 4,780,751,000 4,712,408,000 Total Customers 278,523 276,289 Av: rage Residential Use-KWH 6,664 6,739 P tk Load-KW 911,300 952,900 Numberof Employees 1,460 1,424 Number of Common Shart.:wne.s 34,554 35,285 Contents T--"
2 1 1 President's Report 20 Statement of Accounting Policies s : p 3 ' 1979: The Yearin Review i' 21 Notes to Fin:ncial Statements 4 A Graphic Review of the 70s 25 Report of Independent / 5 Certified Public Accountants 14 Ten-Year Statistical Summary / 16 Statement of Income 25 Management's Discussion and / / t yf .- Analysis of Rnancial Results gp -W 17 ' Statement of Sources of Funds for Gross Property Additions :26 Supplementary Information/ Inflation
~
- 17. Statementof Retained Earnings 28 Common Stock Data Cover
.18 ' Balance Sheet
- 29 Directors and Officers Aerial views show construction of two-unit 2,300-megawatt Seabrook Nuclear Station, focusing on Unit 1, one-third completed,(1) reactor contain-l ment building and (2) turbine l building and .howing (3) the
- station administration building; and the three-unit,665-mega-watt Bridgeport Harbor Station, with (4) refuse-derived fuel i
silos and (5) coal-handling equipment. O
President's Report l l am pleased to report that 1979-the last F , 7 refuse-derived fuel began at Bridgeport I year of what was predicted to be "the : Harbor Station and explorations were soaring 70s," but which became instead [g7 L' under way for possible methods of sub-3 "the staggering 70s"-can be remem- . f. stituting municipal waste for oil in New i bered for some impressive achievements
- at UI. Of course,like the rest of the i 44 l f.
Haven. Pursuant to a grant from the fed-eral Department of Energy (DOE), the
- nation, particularly energy comparues, [ f[
Cornpany also is studying the feasibility ! UI was severely impacted during the last i of burning gas derived from coalin its
- year of the 70s by skyrocketing oil prices * . older generating units. And at year end,
! and unprecedented financing costs. in part in response to DOE notification i However, there is much consolation in g that an order is being contemplated pro-
- being able to report that, despite the hibiting burning of oil at the largest
- general deterioration of the national Bridgeport Harbor Station unit,the Com-
! economy, Ul achieved a number of very pany is restudying, in the light of current l positive accomplishments. E oil and coal prices and environmental First, earnings imoroved significan'.;y requirements, the feasibility of convert-
- from their most unsatisfactory levelin [i ing that unit to coal burning.
- 1978. Despite increases in taxes totalling l - Fif th, noteworthy advances were also L almost $10 million, net income in 1979 made during 1979 on other programs reached almost $30 million as compared undertaken to maximize the efficiency of
- with $21.5 million in 1978. Earnings per fuel use and to eliminate the unecor.omic
! share of common stock, based on in- consumption of energy. Reflecting a creased shares reflecting primarily the UI President John D. Fassett number of engineering improvements as Issue of one million additional shares in well as commendable performances by July,1978, were $3.94-an increase of cver $86 million in construction costs dur- operations and maintenance personnel, i 29% over the $3.06 reported for 1978. ing 1979. A $15 million sale of preferred UI's major generating units achieved
- Effective with the October 1,1979 pay- stock was completed in April. In June outstanding operating results. The Com-
' ment, the quarterly dividend rate was an agreement was entered with a group p ny's multifaceted effort to encourage increased to 67c, an indicated annual of major banks providing firm lines of wise use of energy by all of its customers
! rate of $2.68. short-term credit totalling $75 million and we believe contributed greatly to the ad-Second, the Seabrook nuclear project in November, Ul concluded arrange _ ditional substantial conservation accom-progressed toward completion. Despite ments for a sale to a small group of insti- plished during the year.While moderate
- the uncertainties created as a result weather during usual heavy demand tutionalinvestors of $30 million of
- of the Three IWie Island accident early in debentures. While the rapidly escalating periods during the year and economic
- the year, and also despite the continu- cost of financing severely strained the considerations clearly must be rec-ing absence of a firm national commit- Company's financing capacity during the gnized as primary causes why peak l mcnt to this project and other similar last quarter of 1979, these transactions demand in 1979 did not exceed that in l projects so critical to the future energy enabled Ul to meet its commitments 1978 and total kilowatt-hour demand supply of the nation and New England- under most adverse external circum- in 1979 exceeded the prior year by only
' construction of Seabrook Unit 1 reached 1.5%, I am convinced that an energy stances and constituted a third area of
- almost one-third completion by year-end positive accomplishment. conservation ethic has gained excep-
. with the objective still being a mid-1983 Fourth, significant progress was made tianally wide acceptance among UI's l start-up date, at UI during 1979 toward our objective customers and cannot be discounted in
, Support of UI's share of the Seabrook of reducing in all feasible ways reliance nalyzing the results. During 1979 the 1 project as well as the rest of the Com- on oilin the short term as well as long Company also began, in cooperation with pany's construction program involved term-the Company's participation in Seabrook and other nuclear projects con-stituting the keystone of its longer term program. At year end, test burning of I ' _ _ _ _ __ _ _ _ _ . _. _ _ _ _ _ _. _ _1
"...d: spit 2 th:g:nzraldit rioration of th3 nationaliconomy, lil achieved a number of verypositive accomplishments..."
others, a feasibility study regarding co- elected at the annual meeting in April aspirants (as well as candidates for g neration that may have a very dg- to fill the existing vacancy on the Board, other political offices) relating to how nificant potential for improved use of and it was a pleasure to welcome her the nation's future energy needs will be full. The study irvolves considera- to UI's governing body. met. To paraphrase President Carter, tion of the feasibility of reusing steam Candor requires me to acknowledge we "do not have the luxury" of drifting rnd hot water produced at generating that Ilook forward to the 1980s with and equivocating for another ten years, st1tions in New Haven and Bridgeport for some trepidation. Even absent unforeseen or even another four years! space or water heating in the adjacent adverse developments-and such have Those who play the alliteration game urban communities. been practically the rule during recent are now having great sport attempting A sixth area in which I feel there were years-it is apparent that the 80s will to find adjectives to describe their pro-positive accomplishments during 1979 be extremelv ,hallenging years for Ul, jections for the 1980s. Few with whom I w:s our communications with the public. just as they will for our nation. Regret- have discussed prospects doubt the UI has attempted vigorously to present tably, we depart the 70s without having 80s will be exciting and exhilarating. Due to the public the facts on the critical attained a com prehensive national policy to the trepidation I have already ex-issues involving the Companf by being on energy, or even a national commit- pressed, I find it difficult seriously to continuously available to the rious ment to diverse energy courses that can challenge those who choose adjectives m dia, by publishing and distributing accomplish the goals I am convinced with more pessimistic connotations: ex-materials, by providing speakers and are vital to the future of our nation. On asperating, explosive, or even embar-films to groups of all sizes throughout the other hand, I continue to be convinced rassing. On the other hand,I do have our territory, and by the day-to-day that, given effective and responsible hopes that adjectives such as energetic, activities of the Company's customer leadership, a national consensus on these enterprising, or perhaps enlightening contact representatives in answering vitalissues can be rapidly mobilized, will prove valid. However, I recently questions and complaints and respond- thereby making effective progress heard an eminent banker predict that ing to the wide range of inquiries our possible. they will be "the excruciating eighties." more than 278,000 customers submit. I As 1979 concluded, President Carter From my vantage point, I am inclined to have been particularly pleased by the took a modest step, which I heartdy agree that excruciation is inevitable and most affirmative responses I have been applaud, toward that necessary leader- to adopt that characterization. My great r:ceiving to a program initiated by UI ship and consensus when he said,in hope is that the excruciation will be, as during 1979 to facilitate teaching to sixth- a statement with respect to the Kemeny it can be, the prelude to positive accom-grade students throughout our area in Commission report: plishments and not merely the pain of a an interesting and challenging manner a "The recent events in Iran have shown declining nation. course on the nation's energy problems us the clear, stark dangers that excessive end options. dependence on imported oil holds for - None of these accomplishments would our nation. We must mako every effort to have been possible without the hard lead this country to energy security.
' [
work and dedication of UI's officers and Every domestic source, including nuclear
/ President employees, and I thank each of them. My power,is criticalif we are to free our January 4,1980 sincere thanks also go to the members country from its overdependence on un-of the Board of Directors for their contir.- stable sources of high-priced foreign uing sage direction, advice and support. oil.We do not have the luxury of aban-G: raldine W. Johnson, superintendent doning nuclear power or imposino a of schools for the City of Bridgeport, was lengthy moratorium on its further'use.
A nuclear plant can displace up to 35,000 barrels a day . . ." I urge each reader of this report during 1980 to scrutinize carefully the state-ments and records of all presidential 2 _ _ _ _ _ _ _ _ _ _ _ _ _
1979:Th3YcrinR vi;w l 1 I l Revenues / Growth the Company completed negotiations for Operating revenues for 1979 reached a the sale of $30 million of serial debentures record high of $281.9 million, but a major to another group of institutional investors portion of the increase merely reflects with 11 % interest, a rate considerably increased oil prices through operation of below that available at any time during the fuel adjustment clause included in the balance of 1979. More than 43,000 UI's rates. Rate increases implemented shares of stock also were purchased pursuant to a decision of the Connecticut during the year by stockholders through Public Utilities Control Authority (PUCA) the Automatic Dividend Reinvestment in December 1978 and an increase of and Common Stock Purchase Plan, pro-1.5% in kilowatt-hour sales also contrib. viding over $1 million of new equity uted to the increase in revenues. investment to the Compar.y. Total sales for the year were 4.78 The Company filed statutory notice in billion kilowatt-hours, compared to 4.71 December that it would file in January a billion in 1978, with increases in the limitted application with the Connecticut commercial and industrial sectors of Division of Public Utility Control (DPUC), 1.6% and 3.4% respectively and a de. successor to the PUCA, requesting an crease in residential sales of .4%. Peak increase in annual revenues of $22.2 load was below the 1978 level by 4.4% million to offset costs resulting from with a peak demand of 911.3 megawatts rapidly escalating fuel oil prices. The (mw) established August 2,1979, com. proposed increase is designed solely to pared with the all-time system peak of recover the 5% Connecticut gross reve-952.9 mw set in August 1978.These nues tax the Company must pay on in-results clearly reflect slowing economic creased revenues resulting from higher activity in the nation as the year pro. fuel costs, and deferred costs resulting gressed and moderate weather condi. from the two-month delay in billing in-tio_ns in the area during normal peak creased fuel oil costs to customers load periods. through the fuel adjustment clause. Neither of these impacts are provided for Financial in the rates authorized in 1978, which are Construction expenditures during the based on an October 1978 fuel oil price year also reached a record high of $86.6 of $13.73 per barrel. In contrast, the million. Most of these expenditures were price of oil UI was paying at year-end for costs of UI's participation in four was $28.38, and UI's total cost of oilin nuclear generating units: Seabrook Units 1979 was $163 million compared to an 1 and 2 in Seabrook, New Hampshire; oil bill of $112 million in 1978. Millstone Unit 3 in Waterford, Connecti- in connection with the limited applica-cut; and Pilgrim Unit 2 in Plymouth, Mas- tion, the Company announced that, be-sachusetts. ln June the Company cause of continuing inflationary pres-entered a revolving credit agreement sures on all other costs, it will also have with a group of prominent national and to f.;e later in 1980 a full application with Connecticut banks providing $75 million ti e DPUC for rate relief, the amount of of assured short-term financings for a which cannot yet be determined. period of at least two years in add,tt.1 to (Text continued on page 6) the Company's prior lines of credit wtal-ling $48.4 million with the same banks. In April the Company sold $15 million of 9% % preferred stock to a small group of institutional investors. In September p 3
1
-A'Gr phic R vi:w cf th3 70s -
.l I:
1 1kn years of skyrocketingr oliprices... I I UI residual fuel oil costs Bridgeport Harbor, Steel Point and New Haven Harbor stationc. l l Second major OPEC , $ Price per l price escalation i barrel l 30.00 l Iranian oil cutoff 7 25.00 l t l l l l 20.00 Low-sulfur oil, .. -First major OPEC i requirement i ois e n. .. , . i price escalc'%n l l ilii 15.00 ; l ll
- l i
l' 10.00 _ l l l l l
, 5.00 i
maammmmme
~
; ;h S Ow - ' ' ' _ _ ,
wa-e.m:w
= . . . ..-e_,. y .
ew 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 w:re tire primary cause ofincreased swvenue requirements... Millions $ Revenue requirements 300 6
. d y 200
_ l G
,, , & , . . ]
,A: ' cp 7 pug'% g l 150 f9 3..
[* .g
~
N, c o _ RW=ps y fp 100
~
N . -;c . g., EX i 50 I 1970 1972 1971 1973 1974 1975 1976 1977 1978 1979 { g gy
the rate of increase in demand was changed... I I I ! Summer and winter peakloads a summer a winter S.x-month summer and winter power periods run from May through October and from November through April. Megawa 8 Aug 31 I9 Aug2
~
Auo rs s ,, ,3 Te!' Tai' y;p t,%2 E' 70? 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 lbut ciectricity usage continued to grow. I I l l l B;yg,s,g Total kilowatt-hour sales E Residential B Commercial n industrial B Other ,, hours 5
- /
l - i 1.2% _--, 30.5 % 4 33'3 ? ' i i I I IIII I I: e t. 3
.: , 3 t 4 F. '
'!I 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 lb mest this growth and to move toward reduction in oil dependence, l Rub:tantial expenditures for new facilities were required. I ! Milhons $ Construction expenditures 100 New Haven Seabrook construction Harbor Station permit issued- 80 begins construction begins New Haven Harbor Station operation 60 construction l l beg,nsi , i
' 40
-_U 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979
~
0 5 j
1 i ,' 1
)
l 1979:The Yearin Review ! (continued) I 1 i l l Reducing oildependency New England is the most oil-dependent ]f y = f:pg a g .x y g 'Q gg region of the nation, with 80% of its total energy requirements supplied by oil. Every
'/
Ngj/7 gg gig i%y p',,
-; ' " J d{g }..
\
i
,GE Q , .
,.3V.,
! year, New Englanders use more than 120 million barrels of residual oil, almost P
, [ h "*h 7" ng - " i'~Y .
i i l N@' 5 :[ll.i' if 3 all of it imported. Most of this heavy oil U ' *"* N[ 'i . , }1 , i is used for electric generation, with the . p' -] ' y[. % { ~j;fg,f i ,, .
, g. ;9 df
<. .,\..*
i ".M .3V .f ;. ??
',IJ . &. ..
l remainder used byindustry and large institutions. During 1979, UI burned 8.2 g- F.f G' y% . :1 , y . f f} ., g^ ' 2
~
)
{ -'; ' .i h;.1.. , l million barrels of residual oil to produce .
' '?j ggM ? iY,&
{ electricity, s 3
. , Y + '<dWK ' :~ $l-"# .'
,i The only realistically significant op- .1 3. ; ' Ci j . tions to reduce this oil dependency during the next decade are nuclear 2
- ;- .l it r i. . .j ft f -i gs [g .". 4* 7 , 6 m y1 E -
-3 power and coal, coupled with meaningful ., : .
- s; .t ,
j conservation ef forts, pg.. ' ; ~ , 4 , ..
. ,. g M: . .y ' '
For years Ul has been committed to ' ' W_.t-fh- ..A
* ~1 t the development of nuclear generation
'f- g1 s..g ;I
. Of . i w
'e <
to displace its oil-fired base-load gener- '
$ f ;j " ' ' ' Y Y94 - ' f .' I 7.- R!
er..; \ Dw.lb ating capacity. Developments during
'. ' ' % ) ' ;U 'bN. -
- .s % . .t-
. 42
- 1979 af fecting the price and security of
, Dl
.; 3 'g J . 4
'1 W -
~A residual oil supply reconfirmed and em- 'g' f.'
phasized the validity of this objective. ? ~fy e kI .g s,] ' " [.I,' -'* '% J i " < '. h i , .' C b ". ..J [. 9 r Construction of the two 1,150-mw units
.[ \.# l
~
'. M"c 4 & f . " ) .a -
( g. ' ' .19 at Seabrook, New Hampshire, continue 1 ft ) J
~
3; . ,) t.S 7 l successfully during the year, with con- Company Board of Directors toured Seabrook Stetion site in August for a first-hand look
- struction 31% complete at year-end on at construction progress.
j Unit 1 and 6.5% complete on Unit 2. tg- j Operation in 1983 cor.tinues to appear - ' j ) feasible for Unit 1,will the second unit
~ _
s .4 V7 not due for operation until at least two - M8marf 4 ' j years later. g byyyz, ;,
+ f ".4 . a y e.' J W .,
in accordance with the PUCA directive "$j;s . .y7 $ y':S[ ji '3[.j p M ^ "m8 in the Company's 1978 rate proceeding, early in 1979 UI of fered to sell to other
.P K ? --- - X ' ; f% lpy fh: %gueen _'"a mm ,
electric systems a portion of its 20% .
- q% -
] ~. % 4 , g 1ema seuMM8 interest in both Seabrook units. In April, the Company entered into a contract p -
q& - ^ %%{Y-with Central Maine Power Company to
,-Q,, Na,,m,,,gg m sus sell a 2.5% ownership share of the Sea- [S s ,, Amr ,
brook units and a contract with Montaup -r d 6 - r- .- 24 " Electric Company to sell a 1.1% share. Lifting 185-ton rin top three in-pl r ngs b . to form the stect-plated Unit 1 containment structure. '
,74%4 -
.;,, 7 y Right: Executive Vice President James Cobey . -%, 9 ' d* " "
views the inside of the containment building 4' rising 140.eet to completion. Vg{%-! ' % f*.J M.- .
- e, , , . .
I l 6 -- -- - . . -._ - -- - _l
".. . UIhas been commi.'ted to the deveIOp stent of nuclear generation to displace oil firing . . ."
,l Contract negotiations are also in prog- .' ; I ress with the Connecticut Municipal
- Energy Cooperative to sell a 1.5% inter- .. / /
- est, which willleave UI owning approxi- f-mately 15% of the two Seabrook units. If .
1 The Company believes continued owner- % i' '[ . ! ship of that interest,if permitted and . supported by the DPUC, will be in the ;,
, y[ .
* ,I
, best interests of UI's customers, share- ,. A~-
- owners and the area it serves.
h ~~ The Company also is continuing par-j ticipation in the two other New England f.- ), 1 Power Pool (NEPOOL)-planned nuclear / l projects: 3.3% in Pilgrim Unit 2 and +
. rs[i; e
'g,.
i 3.7% in Millstone Unit 3. Unfortunately,
'~
neither will be available to replace oil- < fueled generation prior to 1986 at the Nf* f II ,
- earliest.
This participation in the four nuclear 57' e (f ( '"
/=
{ units will enable Ul to decrease signifi-i cantly its oil dependency when the units J ^.- D k/^# ~.' 4
- become operational in the 1980s. Obvi- '
E 'g+,,1 , W/l . . ously any further decrease in these ' ,- - - - - - -- - . levels of participation necessitated by .
#hO 2 h.
- financial considerations would preclude y f 'l the Ianned reduction of dependence t fi4 L g gw g- -
#y P . ..' i
' ? /hg gpf pLip [ [f.It M On a number of other fronts, UIis j i
'. making ,nromising strides toward reduc- %- ..p % 4' , M s []l ',' ing its oil dependency. Oj! 4+c g / p"'.'C m +I'[* .+,. O h *gly [
.. 4 t
~. .
. . ~' , ?
- * ~ - -
4 Progress at Serbrook . . Work is pror e( Jing concurrently on both y s j-g h . g g - [ ' , -
~~
N Seabrook Unit 2 (foreground) and Unit 1, each 1,150 megawatts in size. The temporary
,,AF 7; p- 22meM
( l
' WDIi6*
dome atop Unit 1 (cenfer bacAground)is a # , N
~
30-ton,140-foot diameter aluminum cover 'hg , ' f permitting work to continue in inclement weather. It will be used later during construc- ' -
/ t
- tion of Unit 2 for two additional winters. Tall -
#- - - \
i structure in lef t background is the turbine building. Smaller structures to left and right
- [L.,)# .
I
){ .
in center of photo contain auxiliary facilities ,, . and equipment. s*-
} , ,
1 fA - tQ - 7
. . . significant progress was made at UI during 1979 toward . . . reducing in all feasible ways reliance on oil . . ."
Rsfuse-de ved fuel in November a successful preliminary The Garbage-to-Energy Cycle: ^ burn of refuse-derived fuel (RDF)was - - . ir. afuse-derived ttFUEtl fuel (RDF),a gray achieved in Unit 1 at Bridgeport Harbor g ks powdery substance. Station. The innovatlve program involves burning a mixture of residual oil with g\ g h - speciaHydesignedtrucks powdery RDF, produced at the Connecti- I \ ^\ g
\
C j l
, transport the RDF..
cut Resources Recovery Authority's ' / (CRRA) processing f acility located ap-proximately two miles from the Bridge- / f g
, Municipaitrash port Harbor generating unit. The Company expects to I.Jgin a more regular program isconected,
/
D { Qated and / of RDF burning in 1980. When the Bridge- . . to storage f port f acihty is fully operctional, UI is / saos at hopefulit will permit displacement of as
/ -
.. a pneumatic f , h$r#tx r$tation.2 [o*stneYo["
much as 700,000 barrels of oil per year. Fromthesilos + { into boders for Discussions are also taking place re- burring with fuel garding possibilities for a refuse-related % *** -
$'ctr y energy program in the New Haven area. U N / -
Such a facility may be operationalin V n [_ the mid-1980s, with the potential for dis- .. at a pnvately-operated -- N placing 400,000 barrels of oil cnnually, processing plantin endgeport.. - -- T
.g , - -
r J (- . l
. d UIis one of the first electric ut lities in the nation to utilite a combination of processed I
f ,.s / municipal waste and oil to produc ' electric energy. When fully operational it is anticipated g . si , , ) *s .( - RDF will displace up to 700,000 ba. als of imported oil a year. l ? s _ l 4MJ h Spg 3 .
; Qs qi ] _
J WW~ '
!Y;g a <w
, y .
}
, ,?1 mN
$:T t E
g, 2J Close-up view on . '-foot tall RDF silos, capable cf storing ?OO tons of .uel. K}
-- f. -
In the photo at right. Bridgeport Harbor Sta- , tion (center) and Steel Point Station (right, . across channel) represent significant efforts -
,* . t to reduce oil dependency. Wsible at Bridge- .. Nk <
port Harbor are RDF silos (left of striped %
-' ' 1 -
stack) and coal-handling equipment. which will be utilized if a proposed switch f rom LtWx[ - -
~
^ - -
N oil to coal becomes a reality. Other projects t' , , _ - m ..) inckde cogeneration district heating and, at Steel Point. a coal gasification s udy. Ig;p-Q-- %._m r.' .,t, r',? gm . --
-4
, - y. .. < g) ^
4e
- - ~ .
s ' m , ;,5 m,. ,4 . . m.< 9
, ; +
h N u 8 _.__._____.______ _ _ _ , _ - _ --- - -- - -- - - --- --
l l Coalgasification national policy requiring reduction of Cogeneration district heating
- In September the Company received a dependence on imported oil in every way in cogeneration district heating, the very
! grant from the United States Depart. reasonably feasible. Moreover, at cur- high-pressure, high-temperature steam ' ment of Energy (DOE) to study the appli. rent prices, there would be significant produced in efficient power plant boilers i cation of coal gasification at the Steel fuel cost economies for Ul's customers if and used for electric energy produ tion, i Point Station. Coal gasification is a tech. the unit could burn coal, and Rc Com- is l3ter used for the space- or water-heat-nique in which coal is partially burned, pany believes the economic advantage ing requirements of customers within
- producing gases that have considerable of coal over oil will continue in the fu- proximity of the plant. Because the same
- fuel value. The eight-month study will ex- ture. However, conversion of this urban steam is used both for electricity produc-
- amine the technical and economic feas. unit to coal burning will be feasible only tion and district heating, it is a very
- ibility of combining coal gasification, gas if challenging air quality compliance, efficient process, maximizing the pro-
- turbines and heat recovery boilers with fuel supply and waste disposal problems ductive use of the energy in a barrel of existing, older equipment at the station are resolved, and provision is made for oil or a ton of coal. Through cogenera-l to improve the efficiency of these units, financing the substantial capital cocts tion district heating, greater overall
! permitting their useful energy-produc. incident to conversion. economy is achieved since the heat is lion capabilities to be extended. Resolution of these issues will require roduced in a few large, efficient central l Ann; ally, this project has the poten. constructive cooperation among DOE, federal and State environmental agen- faci!ities rather than in many smaller
- tial for displacing more than one million scattered furnaces or boilers.
' barrels of oil with coal. cies, DNC, and other State and local governmental authorities as well as UI. To determine the potential of cogen-l Coal conversion The Company is hopeful that the initial eration cistrict heating. UI in 1979 in- ' In November the Department of Energy phase of the DCE proceeding will pro. itiated a detailed study of the feasibility 1 issued notice, pursuant to 1978 fed- vide a forum for such constructive co. of developing district heating systems in l erallegislation designed to reduce na- operation leading to a resolution of this the Bridgeport and New Haven central ! tional oil consumption, that DOE is con- issue that advances both nationalinter. business areas. sidering issuance of an order that would ests and the interests of UI's customers Preliminary estimates indicate a po-require the conversion of UI's 410-mw and the area it serves, tential for displacing approximately
- Unit 3 at Bridgeport Harbor Station from This project has the potential for dis- 100,000 barrels of oil annually in the
' oil-burning to coal, placing more than three million barrels business zone near Bridgeport Harbor The Company fully supports a strong of oil annually. Station.
- t. p E_m s q he mK -a X^; j u e g, #ru g, 4~ ~%h.4_q l- . qye, ,[ _h '
t ; , - Abdf
- Considerable media and public attention have . *- r been focused on the proposed conversion 'I of Bridgeport Harbor Unit 3 frorn oil to coal. 4% ,
Wce President-Engir'eering and Planning -
- t. [
Richard Grossi is interviewed on loca"on by a - ~ . Channel 8 TV news reporter. '"' Executive Vice President Leon Morgan. a talk-show gu;st on New Haven radio station WEll, discussed a wide range of energy topics. including the chaotic fuel oil situation and price escalation that occurred during the year.
- 9
--- . - . - . - - . - . - . . - . . . . ~ . - - - - - - - - - - - - . - - - - - - . - - - - - - - - -
I . . . the Company's multifaceted etfort to encourage wise use of energy . . . we believe, contributed greatly to additionalsubstantialconservation.. " Energy conservation tion and assistance on ways to conserve Additionally, a conservation packet was UI's nearly decade-old efforts in urging energy and achieve greater energy ef- prepared to provide customers with conservation of all energy forms,includ- f.ciencies in homes, businesses and actions they can take to conduct an ing clectricity, continued in an expanded factories. analysis of consumption patterns, ap-fashion in 1979. An analysis of energy A unique resource developed in 1979 pliance usage and steps that can be usage in recent years gives some indi- to aid in the energy conservation pro- taken to implement conservation pro-cation of these etiorts, a!though con- gram is a portabir' display, a scaled- grams. servation represents but a single com- down cross-section of a home providing in addition to this ongoing conserva-ponent of energy consumption patterns visual information on ways customers tion education program, the Company is by residential, commercial and indus- can reduce energy waste. Coupled with participating in a pilot residential energy trial customers, sensitive to f actors such the display is a micro-computer with audit program designed to test possible as weather and price. video display, enabling a customer, by means of meeting the requirements of As an example of these efforts, the providing specific information such as the National Energy Conservation Policy Company's Customer Services repre- home size and existing amount of insula- Act. The pilot program, continuing into sentatives conducted approximately tion, to receive personalized information 1980, will test the economics, adequacy 2,500 programs and individual visits dur- on additional measures that can be and effectiveness of such audits and ing the year, reaching nearly 16,000 cus- taken to conserve, with payback periods enable Ul and the State to plan their ap-tomers, providing meaningfulinforma- for various levels of added insulation. proach to the mandated federal program.
~
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5, ,bmy q _ , n hh, , hj h. > 3 ,A U ggx ' ., c + *;;;; 3 ,& < 55 , 6-k&7ES,&LniW * ~ 58_b d %OO + Customers are receiving practical demonstrations and personalized information on energy conservation with this portable cutaway "home" and micro-computer with video display, as shown by Resident;al Customer Services Representative Kathy Smith. Right: Company publications reinforce the communication aspect of energy conservation. x, 10 -
~~- - - - - -
s r
4 ___. _ I i
- Energy management functions, and in gasoline mileage im- UI's major units seldom operate in a
- Energy management is a technique used provements in Company vehicles. base-load mode, which permits greatest
! to influence and control the levei and This striving for improved efficiency efficiency in view of the availability 2
pattern of electricity consumption so is most concentrated in power plant of nuclear base-load capacity in ! that existing generating facilities can be operations,in the area of greatest op- New England. i utilized more efficiently and delay the crating expense-the fuel oil used to Through a variety of applications,
. time when new f acilities would otherwise generato electricity. With the staggering computer techniques are being em-be needed. increases in oil costs-from $14.67 to ployed to enhance ef ficiency in a num-UI's experience in energy manage. $28.38 per barrel in 1979, an increase of ber of areas, such as meter reading
- ment dates back to 1940 when an off- 93%-tqueezing every kilowatt-hour of route planning. rate research and energy peak rate was first offered to residential electricity out of a barrel of oil translates forecasts. In 1979, the Company also I customers with electric water heaters, into economies for Ul and its customers, began development of an updated cor-
- encouraging a shif t in usage through improvements made in power plant ef- porate planning modelincorporating the l price mcentives to low-demand periods ficiency put the Company's generating most sophisticated available programs
{ to "fillin" the valleys between peak de. system in 12th place among the nation's which, w hen completed in 1980, will
- mand pedods. top 100 ciectric utilities in a comparison greatly enhance future planning capabil-
, in the fall of 1979 the Company of- of operating performances. The Com- ity. It will rapidly provide forecasts for
- fered to residential, commercial and pany's average heat rate-the average alternative assumptions in various areas
- industrial customers optional Time-of. amount of heat energy required to pro- of Company operations-a critical re-
. Day rates that vary the price of elec- duce one kilowatt-hour of electricity- source in light of the increasing com-
- tricity according to when it is used, giv. has been reduced to 10,276 Btu, a par- plexity and uncertainties attend;ng op-
. ing customers personai incentive to ticularly impressive performance since eration of an electric system.
j schedule their use of electricity, While i there has been substantial interest on J* ' l the part of customers in the new rate, N % * [s j 3'S ~ - ) '*
. there is insufficient experience to evalu- > 'U b 3 i ate results.
Ul also commenced in 1979 an in-M]3;[% w
, [[ N q; Yi '
l novative energy management research project involving a two-way power line
,[
j' ' I N' W L
.; \ \ 'p' communication system that will allow & 'N; yh' i
.,M h.
; the Company to " communicate" directly F '
- with customers' electric meters. The (N *
, y
~ ' I Y ~-
-t --- - 5e '
E , system will be used initially for collect- Ig _._ I *% , (
;ing load research cata. If successful, the system v,ill be expanded for other
% U
* ' . . -'h, energy management techniques. The ,t .Y preliminary study involves 300 residen- MV~
; tial customers and 250 commercial and
- industrial customers. * 'h* y 'k
. Internal af ficiency
- gA ~, -
Attention continued to be focused on g [> l improving operating ef ficiency through-S
, g! - *
.p '
out the Company in 1979: in power plant I *0 <
. operations, unit op(.rator training, bud- f
/-
g
,get control systems, customer service F l
' [
p j
$/ LY To increase proficiency of unit operators at power plants, thm speciali) designed tra svnulator is being used. Associate Training Specialist Leonaro Pellegrino (backgroun.!) direc Assistant Unit Operator Joseph Rourke through a series of programmed " malfunctions."
" . . UIhas attempted vigorously to present to the public the facts on the "
criticalissues involving the Company .
. .cn
~~ s - Communicating the message gpx5"*_' pyr-em [ e e#
.[ Using multimedia techniques ranging
,7 f rom f ace-to-f ace communications to
_4 ..& videotape and film, Company eff orts s gh%'i$UD#' i
,,,ws ~
+-
~ * , ' ,
y were intensified in providing information to customers, the news media the busi-
^.-
ME L.. 't Q ness community, opinion leaders, educa-7OdM & JW f ih
. 3
^;A s
. tors, students, and other groups on numerous energy issues.
'== j A new energy education program-W l7 y a w " Power Quiz"-was introduced in pri-y #,
g (3 vate and public school systems through-
, , {s #
, 6 il out UI's service area. the first such pro-u gram of its kind in the East. In the 1979-3 '/
~
.1
} -
? 80 period, it is anticipated that more than V ff -% ~
I 10 000 sixth-grade students in 400 class-rooms will participate in the program,
% .; '{'T -
which provides teachers with lesson M. b[ ' ~ plan materials for covering energy con-
} " ,, : ~ servation techniques. energy costs, and 7 an energy audit worksheet for use in d .h -
students' homes. The program was im-M . plemented in liaison with local boards
-{- of education,educationaladministrators e and teachers. " Poor Quiz" marks an-G
+
% / other usef ul educational tool f or area r- .]s, # I schools and demonstrates the Com-M Tours of Ut generating stations are popular and informative for students and other groups.
pany's continuing interest in energy edu-cation programs and scholastic involve-Shift Supervisor Harold Andersen gives students a rundown of control room operations. WR
,"=LN9. %
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t ad - . s. S 1
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n ment, vital to future understanding of the Tj.
~
E.,,, ? , -.., .
~ .,~-,s .
Speakers i . aau activity in 1979 was un cating a spec rum of
,O * - * - y %i strengtheneo significantly with renewed km-.m energy messages to various recruitment of employee volunteers who audiences. Transtnission and Bridgeport Board of Education rnember Michael Bisciglia, participate without compensation.One D stribu on F.anning Manager who t as taken a personalinterest in energy conservation and Ut s
- Power Quiz ' program, informs students of the of the basic goals is to project more roup of retireo federal Bridoport school system's own efforts to conserve energy.9 Voices into the community and discuss P Y '
Public and private schools throughout UI's service area energy ssues i with grouEs in a Posi-have given Power Quiz high marks as an effective energy tiVe, f ace-to-f ace manner.While a prime education resource. At right are some of the materials contained in the teacher planning kit. objective is to present f actual infor-t2 - - - - - - - - -
4
... itis apparent that the COs willbe l extremely challenging years for Ul, just as I
they will for our nation." l mation on nuclear energy, a spectrum of energy matters comprise the content EFl5 for speaking engagements. ] ? ' 7 " ~ ' 'Ejj 6T --
-
- d,/M
. ' ' , ' [fj Publications prepared during 1979, f- e
-{ y .
j designed to increase knowledge of Com-
' pany operations and energy issues,
?
h }i;i ' Ask gGl
, m-
! received favorable reaction. Among . + 1
! ' C ,,
' these resource materials requested by [. t
/
the public were reprints of talks by Ul [., .g ?: (>, $ President John Fassett, and Board mem-
# @ s Ti i L
ber and renowned nuclear physicist Jit O. Allan Bromley. ~ .
;~; ,
UIis convinced that communicating .-
'H I the message to as many audiences as possible, using facts rather than emo-tion,is a requisite if the public is to Representative of citizen interest and involvement in energy matters is retired North Haven better understand the energy challenges Postmaster Frank J. Barboni, who made wide distribution on his own accord of the Energies l Confronting our society, of the Future booklet, written by nuclear physicist and UI Board membe. D. Allan Bromley.
I l 3 ll gyyngm,~ , nyw w, .. mgm.n _
^
. . vnergy pradderns # R &i ' gmF9at'llW & 'Wv . , , . . . _ .
ure naajuse ,, 7 mu y* s e 1 urihty prudderns; shev ure business a; , h '
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3 peaking before numerous forums during the year, President John requests for energy information, remarks made by Mr. Fassett before a Sasse*t presented an energy supply overview to the Manufacturer's business / industrial audience earlier in the year were repnnted and usociation of Southern Connecticut in November. In response to distabuted in booklet form, shown r.bove left. _._ 13
Ten-YearSt:ti;ticalSumm ry 1979 1978 1977l Kilowatt-Hour Sales (000) Ret idential 1,677,431 1,683,363 1,664,029 Commercial 1,565,380 1,541,127 1,505,879 Industrial 1,467,969 1,419,297 1,356,652 Other 69,971 63,621 67,541 l Total 4,780,751 4,712,408 4,594,101 1 Financial Results (000) Sales of electricity-Residential $ 104,512 $ 82,316 $ 84,099' Commerciul 94,400 72,361 73,323 Industrial 75,316 54,994 55,348 Other 6,330 5,463 5,530 - Other operating revenues 1,320 1,181 1,203 Total operating revenues 281,878 216,315 219,503 - Operating expenses, excluding income tax expense 238,605 183,289 182,696 income tax expense (credit) 4,963 (164) 2,259 Allowance for funds used during construction 15,501 8,268 4,937 Other income 1,102 740 143-Interest charges 25,245 20,721 15,970' Cumulative effect of change in accounting - - - Net income 29,668 21,477 23,658 1 Preferred divMends 5,744 4,751 4,751 Income applicable to common stock $ 23,924 $ 16,726 $ 18,907 C4 pitalization (000) Long-term debt $ 251,977 $ 233,953 $ 241,931 Preferred stock 85,000 70,000 70,000 Common stock equity 186,326 177,526 149,099 Total $ 523,303 $ 481,479 $ 461,030 : Common Stock Number of shares at year-end 6,090,448 6,047,018 5,020,1'9 t.nmings per share (a) Before cumulative effect of change in accounting $3.94 $3.06 $3.77 Cumulative effect of change in accounting - - - Income applicable to common stock $3.94 $3.06 $3.77 Dividends declared per share $2.62 $2.56 $2.47 Shareowners-Total 34,554 35,285 32,354 In Connecticut 18,439 19,018 18,695 in Company territory 12,155 12,343 12,201 G:neral Peak loed-kilowatts 911,300 952,900 944,100 Generating capability at year-end-kilowatts (c) 1,299,360 1,322,800 1,331,020 Humber of customers 278,523 276,289 274,432 Kilowatt-hours per residential customer 6,664 6,739 6,711 Number of employees 1,460 1,424 1,421 Total payroll (000) $ 28,405 $ 25,894 $ 23,317 Total taxes (000) $ 32,424 $ 23,180 $ 24,198 Utility plant at year-end (000) $ 764,652 $ 681,585 $ 612,237 Gross property additions (000) $ 86,642 $ 70,731 $ 48,300 (a) Earnings per share based on the average number of shares outstanding (1979-6,072,725; 1978 -5.458,428;1977-5,012,122;1976-4,999,514;1975-4,424,281;1974-3.677,117; 1973-3.504,514;19'2-3,232,929;1971-1970-3,154,514). (b) Relates to change in method of accounting for fossil fuel costs. (c) Represents maximum dependable net load-carrying ability during the wir. er period for New England Power Pool purposes, including UI's share of capacity in Connecticut Yankee Atomic Power Company (55,100 KW). .14 - - - - - - - - -
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Ycars Ended December 31,1979 and 1978 1979 1978 l ~ l SOURCES OF FUNDS , Internally Generated l N:t income $29,667,747 $21,477,794 l Add (deduct) Depreciation and amortization 14,984,265 16,319,582 Deferred income taxes on deferred fossil fuel costs, accelerated amortization and other 5,319,722 ',731,886) Deferred investment tax credits-net (205,040) 587,439 Allowance for funds used during construction (15,500,531) (8,267,966) Funds provided from operations 34,266.'s3 29,384,963 Deduct dividends declared 21,707,886 18,924,672 l Internally Generated Funds 12,558,267 10,460,291 l Ext:rnal Financing Securities sold (retired) Common stock 1,011,021 26,109,433 Preft., e ce stock 15,000,900 - Debentures, net of $4,000,000 retired in 1979 18,000,000 (8,000,000) Expenses of issues (353,970) (245,709) 33,657,051 17,863,724 increase in notes payable 32,503,784 40,540,037 Funds Obtained from External Financing 66,160,835 58,403,761 Cth:r S urces(Uses) Decrease (increase) in working capital, excluding notes payab!c and current portion of long-term debt 2,422,422 (5,614,215) Deferralof fossilfuelcosts (10,646,534) (854,919) Other changes in noncurrent balance sheet items 646,833 68,545 Other Sources (Uses) (7,577,279) (6,400,589) Funds f r Property Additions From Above Sources 71,141,823 62,463,463 Allowance for funds used during construction 15,500,531 8,267,966 OR3SS PROPERTY ADDITIONS $86,642,354 $70,731,429 St;t: ment of Retained Earnings 1 For the Years Ended December 31,1979 and 1978 1 1979 1978 B:.l:nco, J;nuary 1 S72,754,468 $70,201,346 Net income 29,667,747 21,477,794 102,422,215 91,679,140 ; Deduct Cash Dividends Declared Pref:rr:d stock 5,796,949 4,751,376 Common stock-per share $2.62 for 1979 and $2.56 for 1978 15,910,937 14,173,296 21,707,886 18,924,672 B'l:nca, December 31 (Note F) $80,714,329 $72,754,468 l i l ,_ _ __..__ _ -__. _. ~ - . - _ -- . - . - - - --- . 17 BatnceSheet December 31,1979 and 1978 1979 1978 ASSETS
- Utility Plant at Original Cost in service $538,236,283 $532,829,520
. Less reserve for depreciation 173,500,399 161,643,642 364,735,884 371,185,878 Construction work in progress 226,295,280 148,554,487 591,031,164 519,740,365 Acquisition adjustments, less amortization 120,000 201,000 Net Utility Plant 591,151,164 519,941,365 OtherPropertyandInvestments ' Nonutility property, at cost 214,157 241,006 Connecticut Yankee Atomic Power Company 4,735,995 4,433,859 Research Center, Inc. (wholly owned subsidiary) 687,687 829.254 Total 5,637,839 5,504,119 Current Assets Cash (Note C) 2,510,068 1,588,856 Temporary cash investments - 3,698,767 Accounts receivable Customers, less allowance for doubtful accounts of $865,000 and $875,000 28,307,482 20,462,642 ,. .Other 4,783,279 3,791,647 Accrued utility revenues 13,095,200 10,001,100 Fuel, materials and supplies, at average cost 7,003,877 6,750,327 - Prepayments 266,270 254,201 Total 55,966,176 46,547,540 Deferred Debits Fossil fuel costs 12,106,266 1,660,704 - Other 1,525,545 1,456,048 Total 13,631,811 3,116,752 $666,386,990 $575,109,776 The accompanying Statement of Accounting Policies and Notes to Financial Statements are integral parts of the financial statements. The United liluminating Company 18 ___ - _ . _ . _ . _ . _ _ _- _ - _ _ ~ l ,, 1979 1978 i CAPITALIZATION AND LIABILITIES Capitaliz tion Common stock (Note D) $107,483,322 $106,472,301 Capital stock expense (1,871,358) (1,700,858) Retained earnings (Note F) 80,714,329 72,754,468 Common stock equity 186,326,293 177,525,911 Preferred stock not subject to mandatory redemption (Note E) 70,000,000 70,000,000 Preferred stock subject to mandatory redemption (Note E) 15,000,000 - Long-term debt (Note G) 247,976,299 229,953,507 Total 519,302,592 477,479,418 Curr;nt Liabilities Current portion of long-term debt 4,000,000 4,000,000 Notes payable (Note C) 80,919,117 48,415,333 Accounts payable 20,229,151 15,246,965 Dividends payable 5,610,r32 1,187,844 Customers' deposits 800, 07 488,344 Taxes accrued 13,018,633 11,176,475 Deferred income taxes-accrued utility revenues 905,477 1,139,844 Interest accrued 3,357,593 3,267,360 Other accrued liabilities 6,741,624 6,315,726 Total 135,582,734 91,237,891 Cu:tomer7 Advances for Construction 712,049 654,901 Accumul;ted Deferred Investment Tax Credits (Note B) 3,929,883 4,134,923 Def:rr:d income Taxes Deferred fossil fuel costs 6,189,732 875,643 - Accelerated amortization 670,000 727,000 Commitments and Contingencies (Note J) - - $666,386,990 $575,109,776 _ _ . ~ _ . _ . _ _ _ . . . _ _ _ _ _ _ _._ _- _ __19 St:tementcf Accounting P;licies { ) l Ac:ounting Records reduced by the allowable investment tax credit under the The accounting records are maintained in accordance with provisions of the Internal Revenue Code of 1954, as amended. l the uniform systems of accounts prescribpd by the Federal The additional investment tax credit allowable under the pro-Energy Regulatory Commission and the Connecticut Division Wons of the Tax Reduction Act of 1975 is deferred and of Public Utility Control (Public Utilities Control Authority amortized to income ratably over the useful lives of the re- i orior to 1979), lated properties. The Company has elected to take investment tax credit applicable to long-term projocts on a progress-of- j Utility Plant construction basis. The treatment of these items is appropri- i The cost of additions to utility plant and the cost of renewals ate for rate and accounting purposes and is in accordance and betterments a:e capitahzed Cost consists of labor, ma- with the practice of the State regulatory body having jurisdic-terials, services and certain indirect construction costs, in- tion over such matters. l ciuding an allowance for funds used during construction. The l cost of current repairs and minor replacemente is charged to Accrued Utility Revegues 1 appropriate operating expense accounts. The criginal cost of The estimated amount of utility revenues (less related ex-utility plant retired or otherwise disposed of and the cost of penses and applicable taxes) for service rendered but not I removal less salvage are charged to the reserve for depre- billed is accrued at the end of each accounting period. cladon. Investments Alliwance for Funds Used During Construction Investments in Research Center, Inc., a wholly owned sub-In accordance with the applicable regulatory systems of ac- sidiary, and Conrecticut Yankee Atomic Power Company, a counts, the Company capitalizes and credits to income an nuclear generating company in which the Company has a allowance for funds used during construction, which repre- 9h% stock interest, are accounted for on an equity basis. sents the approximate cost of debt and equity capital devoted Research Center, Inc., which had no significant revenues to plant under construction. Although the allowance does not during 1979 and 1978, is a part owner of a tract of land in represent current cash income, it is recovered unde'r the rate- Meriden and Wallingford, Connecticut. Research Center, Inc. making pocess over the service lives of the related prop- and the other part owner of the tract have agreed to sell the erties. In accordance with Federal Energy Regulatory Com- tract in its entirety, provided certain highway, zoning and mission prescribed accounting, the portion of the allowance other approvals can be obtained. If this sale is consummated, attributable to borrowed funds, on a before-tax basis, is Research Center, Inc. will realize a pre-tax gain of approxi-presented in the statement of incomo as a reduction of inter- mately $1,350,000. est charges. The rates used for computing the allowance were Fossil Fuel Costs 8.3% for 1978, 9.4% for January through September 1979 The amount of fossil fuel costs that, pursuant to the fuel ad-and 11% thereafter. . Justment clause in the Company's rates, cannot be reflected D:preciation currently in customers' bills is deferred at the end of each Provisions for depreciation on utility plant for book purposes accounting period. Since adoption of the deferred accounting are computed on a straight-line, average-life basis, giving procedure in 1974, rate decisions by predecessor agencies of effect to the reserve requirement and estimated service lives the Connecticut Division of Public Utility Control have con-determined by independent engineers. One-half year's de- sistently made specific provision for amortization and recov-preciation is taken in the year of addition and disposition of ery of existing deferred fossil fuel cost balances. Amortiza-utility plant. except in the case of major operating units on tion of the June 30,1974 balance was completed in November which depreciation commences in the month they are placed 1978 and the September 30,1978 balance of $401,936 is now in service and ceases in the month they are removed from being amortized over a two-year period that started in January service. The aggregate annual provisions for depreciation for 1979. Additional fossil fuel costs deferred since September the years 1979 and 1978 were equivalent to approximately 1978 amounted to $11,905,302 at December 31,1979. Provi-2.83% and 2.77%, respectively, of the original cost of de- sion for amortization and recovery of this added deferral was preciable property, included in a request for rate relief filed with the Division on nuary 24,1981 income Taxes Provisions for income taxes have been reduced to reflect the Pension Plan use of a rapid depreciation method, the use of shorter tax Current service cost is accrued each year and funded in the depreciation lives than those used for book purposes for cer- following year. There is no unf unded past service cost, tain plant, and the current deduction of certain capitalized Research and Development Costs costs consisting principally of pensions, taxes and the interest Reseach and development costs, including environmentalj l component of allowance for funds used during construction. in addition, the provision for current federal income taxes is sWes, are capitalized if related to specific construction l projects and depreciated over the lives of the related assets. Other research and development costs are charged to ex-pense as incurred. 20 - - - - - - - . - _ . ~ - -- - - - -. .. - - . -- . .- _- d Notes tJ Financi:1 St:tements (A) Operating Revenues The 1975 Act provides that for 1978 up to 80% and for 1979 Operating revenues for 1979 include approximately $18.2 up to 70% of federal income taxes otherwise currently pay- , million attributable to a two-step rate increase in 1979. Of this able may be offset by investment tax credits. The total credits emount, $17.8 million applies to the first step elfective January utilized in 1978 amounted to $1,758,000, the maximum amount 10 and the balance applies to the second step effective allowed by the 1975 Act. This amount was represented en- ' S:ptember 16,1979, the date of a scheduled wage increase tirely by credits carried forward from prior years. pursuant to the Company's collective bargaining agreement. No credits were utilized in 1979 since there was a current taxable loss for the year. Carryback of this loss to 1976 results (2) income Tax Expense in no current federal income tax expense for 1979 since taxes income tax expense consists of: paid in 1976 were 100% offset by investment tax credits 1979 1978 utilized in that year, Deferred investment tax credits were income taxes, current included in: appropriately adjusted to reflect the recomputed 19/6 credits Operating expenses $ 82.751 $ , 213.970 utilized. Other income and deductions - 670.200 The investment tax credits carried forward at December 31, < Income taxes. deferred: Accrued utmty revenues 1979 amount to approximately $16,700,000 of which $800,000 (234,367) (234,367) expires in 1983, $2,900,000 expires in 1984, $5,700,000 ex-Ac eterated a ortta n 7 ) O pires in 1985 and $7,500,000 expires in 1986. If, in fact, these Other-net 62,633 (23,880) credits are utilized against future income tax liabilities, ap-l Deferred investment tax credits (132,050) 649,693 proximately $12,400,000 will be deferred and amortized to Amortization of deferred income ratably over the lives of the related properties. Investment tax credits (72,990) (62,254) Totalincome tax expense $ 4.963,066 $ 505.356 (C) Compensating Balances and Short-Term Borrowings Substantially all cash serves the dual purpose of providing The amounts reported for federal income tax expense for funds for operating requirements and for compensating bal-the years 1979 and 1978 were less than the amounts com-ances to cover bank lines of credit.The Company's bank lines
- puted by applying the federal income tax statutory rates to of credit, amounting to $48,400,000 pursuant to individual book income before federal income taxes. The reasons for arrangements with several banks, are subject to renewal on j such differences are as follows:
979 978 April 30,1980. Under arrangements covering $14,900,000 of . Not income $29.667.747 $21,477,794 these lines of credit, the Company is required to mainta:n 4,963,066 505,356 compensating balances equal to 10% of the lines, with some
- Total income tax expense banks also requiring the maintenance of an additional 10%
Feder ome ta expense 3.9063 978 compensating balance against the related borrowings. Certain
- Dook income before fees in lieu of compensating balances are paid for the remain-federalincome taxes 33.638,110 21,t>66,772 ing $33,500,000 of these lines. On June 29,1979, the Company
- Federal income tax statutory rates 46 % _{ 48 % completed arrangements with the same banks for a revolving i Federat income taxes at statutory rates 15,473,530 10,400,051 credit agreement aggregating an additional $75,000,000
; Less tax benefits of: extending until June 29, 1981. Under the agreement, the Tax depreciation, computed princi-Company has the option to convert any of the borrowings out-patty on sum-ot-years digits method using shorter than book standing on June 29,1981 into term loans with payments due in four substantially equal consecutive semi-annual !nstall-ook d pre io o raigh ! no ments commencing on December 31, 1981 and ending on method 3,468,900 4,428,600 June 30,1983. Allo'wance for funds used during Due primari'y to the sharp advance of short-term interest construction capitalized for book rates in the second half of 1979, the Company has been re-purposes, not taxable incomo ' 7,130,200 3,968,600 stricted from time to time since October 23,1979, under the Taxes and pensions capita!ized for earnings coverage requirements of its Trust Indenture, in its book purposes, deducted cur-ability to incur additional unsubordinated long-term or short-rently for tax purposes 754,900 573,200 Investment tax credits (62,780) 1,170,100 term debt. Therefore, on October 30, 1979, the Company Other items-not 211,947 70,573 completed arrangements with the san.e several banks for a FIderat income tax expense - $ 3,970,363, $ 188,978 revolving subordinated credit agreement extending until Effective federalineome tax rates 11.8 % March 28,1980. Under the terms of this agreement, up to .9%- $20,000,000 of subordinated borrowings may.be incurred; Tha 4% investment tax credit allowable under the provi- however, aggregate borrowings under both revolving credit 1sions of the Internal Revenue Code of 1954, as amended, is agreements are limited to $75,000,000. Interest on subordi- -flowed through to net income as a reduction of federal income nated borrowings is at 108.5% of the prime rate. Monthly fees tax expense. The Company has elected to defer and amortize are payable to the banks at the rate of %% per annum on the to incomo ratably over the life of the related property the average daily unused portion of this aggregate commitment. 1dditiorut 6% credit allowable under the Tax Reduction Act IC """"'O ' f 1975 (1975 Act). _ _ _ - _ _ _ . _ _ _ . _ _ _ _ _ . _ _ __ 21 Notes t D Financill St:tementJ (continued) The revolving credit agreements limit total indebtedr'ess to periodically exceeded funds immediately required for con-57% of total capitalization and short. term indebtedness until struction purposes during 1978 and the first part of 1979. Such September 30,1980, and thereafter to 53% of such total capi- excess funds were temporarily invested and produced interest talization and short-term indebtedness At December 31,1979, income (included in other inc(me and deductions) of $245,310 total indebtedness represented 55 2% of total capitalization and $1,305,650, respectively, during 1979 and 1978. and snort-term indebtedness. Both revolving credit agreements also provide that the (D) Common Stock Common stock, no par value, at December 31,1979 consisted proceeds from the sale of any portion of the Company's inter- of 7,500,000 shares authorized and 6,090,448 shares outstand-est in the Seabrook nuclear units will be used to repay any ing, including 43.430 shares issued during 1979 and 1,026,899 borrowings under these a0reements and that the aggregate shares issued during 1978. As a result of tnese issues, the commitment of the banks under tha agreements will be re- common stock account was increased by $1,011,021 in 1979 duced by an amount equal to the proceeds of any such sales. and $26.109.433 in 1978. including $25.380.000 from the sale It is expected that substantially all of this short-term borrowing c' 1,000.000 shares on July 31,1978. Expenses related to these capability will be required to finance the Company's construc_ issues were charged to capital stock expense. tion program pending receipt of proceeds from the contem. Authorized common stock includes 250,000 shares regis-plated sale of a portion of the Company's present ownership fered in connection with the Company's automatic dividend share in the two Seabrook nuclear generating units. reinvestment and stock purchase plan under which participat-The Company anticipates that its 1980 finanJng require-ing shareowners purchased 43,430 shares in 1979 and 26,899 ments wdl be met through a combination of cdditional short, shares in 1978. term borrowings and equity financing. Negotiations are being On January 29,1980, the Company filed a registration state- ' conducted with the banks to extend the termination date and ment with the Securities and Exchange Commission for the to increase the amount of existing subordinated borrowing proposed sale of 800.000 shares of common stock. In view of arrangements, Also, steps have been initiated to self common the projected further need for equity capital, the Board of stock in early 1980 and additional equity financing is planned for later in the year. The Company has also filed an applica. Directors has recommended that the shareowners increase the authorized common stock by 5.000,000 shares. This pro-tion for $22.1 million of expedited rate relief and is attempting posal will be on the agenda for the 1980 Annual Meeting of to complete the sale of a portion of its interest in the Seabrook Shareowners. units. To the extent that the results of these efforts are f avor-able, the need for additional borrowings and equity financing (E) Preferred Stock would be reduced. Preferred and preference stock authorized at December 31, Information with respot to short-term borrowings is as 1979 consisted of: follows: Cumulative preferred stock: $1uo par value-850 000 shares: 1979 1978- - $25 par value-1.200.000 shares Maximum aggregate principal amount Cumulative preference stock: $25 par value-1,2')0,000 shares of short term borrowings $97,325,000 $48,700,000 Shares of preferred stock autstanding at December 31,1979 outstanding at any month-end Average aggregate short-term borrow. Consisted of: ings outstanding during the period 61,235,978 39.239,863 a) Preferred stock not subject to mandatory redemption: Average interest rate 12% 8.2% Cumulative, $100 par value Principal amounts outstanding at 4.35% Series A 50,000 year end: 4.72% Series D 75,000 Commercial p,per borrowings 53,825,000 48,700,000 75,000 4.64% Series C nank borrowmps(includin0 subordi- 5 Fe % Series D 75 000 nated borrowings of $14,000.000) 27,500.000 - 125,000 7.60% Series E Total 581.325.000 _$_48.700.000 7.60% Series F 150.000 Weighted average interest rate 14.8 % 10.5 % 550.000 Cumulative, $25 par value Averago short-term borrowings represent the sum of daily 8.80%,1976 Series 600 000 borrowings outstanding, weighted for the number of days out- b) Preferred stock subject to mandatory redemption: standmg and divided by the number of days in the period. The Cumulative, $100 par value average interest rate is determined by dividing interest ex- 9ys % Series G (issued April 10.1979), pense by the amount of average borrowings, subject to mandatory redemption of 30,000 In April 1978, the Company, in anticipation of Trust Inden- shares each year beginning April 15,1985, ture restrictions on its ability to incur additional unsubordi- at $100 per share, plus accrued dividends nated long-term or short-term debt, increased its short-term to redemption date 150,000 borrowings to the maximum amount then permissible under The preferred stock subject to mandatory redemption account in-the Trust Indenture. As a result, outstanding borrowings creased by $15.000.000 in 1979 as a result of the sale of 150,000 shares on April 10. Expenses related to this issue were charged to capital stock expense. 22 - - .- - e Sh:r:s of preferred stock have preferential dividend and (H) Supplementary income Statement Information liquidation rights over shares of common stock. Preferred The amount of taxes, maintenance and the provisions for de- ' stock holders are not entitled to genera' voting rights How- preciation and amortization, other than those set forth in the ev r,if any preferred dividends are in arrears for six or more statement of income, are not significant. Eu;rt rs or if some other event of default occurs, preferred Neither rents, advertising costs nor research and develop-Clock holders are entitled to elect a majority of the Board of ments costs exceed one per cent of total revenues and there fir:ctors until all dividend arrears are paid and any event of are no royalties. Taxes, other than income taxes, charged to fc fault is terminated. costs and expenses, are set forth below: Tha Board of Directors has recommended that the share- 3979 3973 swn:rs increase the authorized shares of $100 par value and Locai reat estate and personal property $11,581,238 $10.346,650 $25 par value cumulative preferred stock by 500,000 and State gross earnings 14,094,642 10,817,088 1,200,000 shares, respectively, These proposals will be on Payroll 1,785,154 1,510.520 he agenda for the 1980 Annual Meetirg of Shareowners. $27,461,034 $22,674,258 [F) R;t:ined Earnings Restriction cha ax xpense $26,593,421 $22,063,690 Vhe indenture under which all of the Company's debentures Other accounts 867,613 610,568 Mrs issued places limitations on the payment of cash dividends $27.461,034 $22,674,258 En the common stock of the Company and on the amounts that 3an be expended to purchase or redeem shares of common (1) Pension Plan stock. Under the most restrictive provision of the indenture. The Con :any's pension plan, covering substantially all em-7etained earnings in the amount of $40,513,090 were free from ployees, provides for payment upon retirement of an annual such limitations at December 31,1979. service pension to all employees who have reached the age of , 65 and have been employed 10 years or more, and for payment of a reduced pension to employees who have reached the age ong-term debt at December 31,1979 consisted of: of 55, have been employed 10 years or more and who elect Long-term Debentures: early retirement. Employees who have reached the age of 62 2Ps % 1981 Series, due March 1,1981 $ 8,000,000 and have been employed 30 years or more may elect early re-3% 1984 Series, due October 1,1984 9,000,000 tirement with no reductian in pension. The plan provides for 4% % 1987 Series. due November 1,1987 10,000,000 vesting pursuant to "The Rule of 45," that is, 50% vesting 4 65% 1990 Series, due August 15,1990 15,000,000 occurs at the earlier of the points in time (a) when the sum of 4% % 1991 Series, due July 15,1991 10,000,000 5% % 1996 Series, due August $5,1996 an employee's years of age and years of service totals 45,if he 15,000,000 has completed at least 5 years of service, or (b) when he has .[9 ri Janua 15,1999 000 00 completed 10 years of service; plus, in either event,10% ad-10% % 2000 Series, due June 15,2000 30,000,000 ditional vesting for each additional year of service, up to 100% 7% % 2002 Series, due October 1,2002 25,000,000 vesting. The entire cost of the plan is borne by the Company 8% % 2003 Series, due December 15,2003 30.000,000 and paid into an irrevocable trust fund. 189,500,000 Based on the latest available actuarial valuation, the pres-Sirial Debentures: ent value of vested benefits exceeded plan assets by approxi-11% maturing serially as to $4,000,000 principal amount on September 15 in each mately $3 million. of the years 1980 to 1983, inclusive 16,000,000 Pension costs for the years 1979 and 1978 amounted to 8% % maturing serially as to $1,666,667 $3,551,000 and $3,323,000, respectively. principal amount on November 15 in each of the years 1983 to 1997, inclusive 25,000,000 (J) Commitments and Contingencies 11N maturing serially as to $1.466,667 The Company has entered into substantial commitments in principal amount on November 15 in each connection with its continuing constructiori program, which is of the years 1985 to 1999, inclusive presently estimated at approximately $551 million for the (issued December 4,1979) 22,000,000* years 1980-86, including approximately $488 million for the Unamortized debt discount less premium Company's ownership share in the costs of four future nuclear at December 31,1979 -(523,701) generating units. These construction program estimates in-fotallong-term debt 251,976,299 ss current portion included in Current Liabilities clude $380 million for the Company's 20% ownership share 4.000.000 ong-term debt included in Capitalization in the cost of Seabrook Units 1 and 2, and $108 million for the $247,976.299 Company's 3.685% and 3.3% ownership shares in Millstone ;nder a delayed delivery arrangement, an additional $8,000,000 of Unit 3 and Pilgrim Unit 2, respectively. ft% debentures, maturing serially as to $533,333 principal amount The Company considers the rate relief that the Connecticut gn November 15 in each of the years 1985 to 1999, inclusive, was Public Utilities Control Authority (PUCA) granted it in Decem-Jsued on January 8,1980. ber 1978 inadequate to assure its ability to finance the entire construction program through 1986. Due to this consideration and in view of the opinion expressed by a majority of the 23 Nn"* 4% Notes t2 Financi:1 St:tements (continued) PUCA Commissioners that the Company's 20% ownership has commenced, during which the Company and the several share in the Seabrook generating units should be reduced, governmental agencies having jurisdiction over its operations, the Company in January 1979 offered to sell a 10% ownership financial structure and rates will analyze and present evidence chare in the Seabrook units. In response to this offer, two New concerning the economic, environmental and engineering England utilities have agreed, subject to necessary regulatory fe~asibility of convesting this generating unit to coal-burning, and shareholder approvals, to purchase ownership shares The Company cannot predict the outcome of these proceed-amounting to 3.6% of each unit and the Company is negotiat- ings; however, a conversion to coal-burning could be ex-ing an agreement with another utility covering the sale of an pected to involve expenditures for fuel inventory, equipment rdditional 1.5% ownership share. The Company is reviewing modifications and additions and pollution control and monitor-th3 alternative courses of action open to it with respect to the ing devices. Although the total amount of these expenditures bilance of the ownership interest which was offered for sale. would be dependient upon the actions of several governmental The agreements with the other utilities provide for sale at agencies, the Company intends to propose a conversion plan . book value of the Company's investment in the Seabrook that would minimize expenditures and provide the financial project at the closing date, including allowance for funds used resources needed to accomplish it. during construction. Income tax expense will be incurred on On March 1,1979, the Company filed an action in the . - those sales to the extent that the proceeds exceed the Com- Connecticut Superior Court against the City of New Haven piny's investment for income tax purposes. seeking a ruling that the City ordinance adopting a plan to A continued effort by the Company to sell a portion of its phase-in, over a period of five years, increased real property ownership interest in the Seabrook units could be adversely tax assessments resulting from a recent revaluation and the - affected by Public Service Company of New Hampshire's state law purportedly permitting the ordinance violate the (PSNH) offer to sell 22% of its present 50% ownership share equal protection provisions of both the state and federal in the units. To date, PSNH has obtained commitments for sale constitutions. In its decision rendered on May 8,1979, the of a 15% share to several New England utilities. This offer court upheld the Cc 'any's position that the City ordinance , resulted from difficulties being experienced by PSNH in fi- and the state law are unconstitutional and granted an injunc-nancing its construction program. Unless these difficulties are tion restraining the City from assessing or collecting taxes on rzsoived,it is possible that construction of one or both of the the Company's property until the tax list of October 1,1978 Seabrook uni's could be deferred or suspended. An extended is revised to reflect the full effect of all increased real property suspension of the Seabrook project could have a material tax assessments resultirg from revaluation. However, the tdverse impact on the financial position of the Company. City's subsequent appeal to the Connecticut Cupreme Court ! Completion of construction of each of the four nuclear resulted in the lifting of the injunction pending that court's; g:nerating units in which the Company is participating is ruling on the constitutional question. The appeal was argued ' contingent, among other things, upon obtaining necessary before the court on October 4,1979 and a ruling is pending. rtgulatory approvals, permits and sufficient financing. While Until final disposition of this matter can be made, the Com-it la possible that future developments could lead to cancella- pany is accruing the additional property tax resulting from the ; tion of one or more of the units, the Company considers such City's adoption of the phase-in plan for the assessment year a possibility unlikely. Howevei If any of the units were can- which commenced October 1,1978. Through December 31,' called, the Company estimates its share of total costs would 1979, such accruals amounted to $1,854,000. be substantially more than its investment; the precise amount would depend upon a number of factors, including the amount (K) Quarterly Financial Data (unaudited) of termination charges and salvage and the results of nego. Selected quarterly financial data for 1979 and 1978 are set tiations in connection with contract terminations. The Com. forth below: E rnings pany would apply to the Connecticut Division of Public Utility pe ,,e I Control for approval to amortize its share of total costs over Operating Operating Net of l En tppropriate f uture period and to recover such costs through Quarter Revenues income income Common Stock (1j its rates, but the Company cannot predict whether and to what (Thousands of Dollars) cxtent such recovery would be permitted. The Company's 1979 First $65,806 $10,991 $8,652 $1.23 investment in the four nuclear generating units was approxi. ,78 "d 455 8 mately $219 million at December 31, 1979, including $183 {d 8 million invested in the Seabrook units. Fourth 76,765 8,374 6,281 .78 The generating units at Bridgeport Harbor Station are capable of burning either oil or coal, and on November 27, 1978 1 First $55,656 $ 7,212 $4,380 $.64 1 1979 the Economic Regulatory Administration of the Depart- " ' ' m:nt of Energy published a notice of a proposed oroer which d 539 9 343 6,'509 93 l . would prohibit the burning of oli by the largest generating umt Fourth 54,810 8,880 5,841 .77 ct this station. An extensive comment and hearing procedure (1) Based on weighted average number of shares outstanding durin@ each period. Per share amounts subsequent to July 31,1978 includ the effect of 1,000,000 shares issued on that date. 24 _- - -. . - . . - . - - - - -_. l M:nagement's Discussion cnd ; Analysis of Financial Results ' [ Operating Revenues Report of Independent . Operating revenues for 1978 were $3.2 million lower than 1977. Certified Public Accountants L wer residual fuel oil prices, particularly in the first three quarters of the year, decreased 1978 fuel adjustment clause revenues by $7.9 million and more than offset the revenue + effect of a 2.6% increase in kilowatt-hour sales, ( To the Shareowners and Directors of j The United Illuminating Company: Operating revenues for 1979 were higher than 1978 by $65.6 million, of which $18.2 million was due to a two-step rate i Wa have examined the balance sheets of The United increase effective Jariuary 10 and September 16,1979. In addi-Illuminating Company as of December 31,1979 and tion, fuel adjustment clause revenues were up $44 million as a 1978, and the related statements of income, retained result of escalating residual fuel oil prices and 1979 revenues earnings and sources of funds for gross property reflect a 1.5% increase in kilowatt-hour sales. additions for the years then ended. Our examinations Operating Expenses (excluding income taxes) were made m accordance with generally accepted auditing standards and, accordingly, included such Total 1978 operating expenses were $600,000 higher than 1977 t:sts of the accounting records and such other e b W M MMg NW tuditing procedures as we considered necessary in the circumstances. resiM MI M @n Abiq M N M Me Wm in our opinion, the financial statements referred to of the year, more than offset the added cost of a higher volume , l above present fairly the financial position of The United i Illuminating Company as of December 31,1979 and major portion of the $3.2 million increase in 1978 maintenance 1978, and the results of its operations and sources of expense was due to higher costs associated with more exten-funds for gross property additions for the years then sive overhauls of electnc generatm_ g units at Bridgeport and ended,in conformity with generaliy accepted account- New Haven Harbor Stations, dredging of a cooling water m-ing principles applied on a consistent basis. take channel at English Station in New Haven and three major winter storms. The continuing effects of inflation and labor Coopers & Lybrand cost increases were primarily responsible for the remainder New York, New York of the n,se in operating expenses. January 25,1980 Operating expenses for 1979 were $55.3 million higher than 1978 due primarily to sharply increased residual fuel oil prices, but 1979 expense levels were also influenced by con-tinuing general inflation and labor cost increases. These factors caused 1979 other operation and maintenance ex-penscs to exceed 1978, despite a comparable level of electric generating unit overhaul activity and reduced dredging and storm clean-up costs. Capacity purchased expense was up for 1979 due to increased operating and capital costs at the Connecticut Yankee nuclear unit. Other taxes increased due to higher local property taxes resulting from a " phase-in" j taxing plan in New Haven (see Note J) and due to higher state , gross earnings taxes which resulted from the increased l revenues. Income Tax Expense (included in operating expenses) Income tax expense for 1978 was $2.4 million below 1977, mainly due to lower taxable income which resulted from the reduction in revenues combined with increased operating ex-penses and interest charges. Income tax expense for 1979 was up $5.1 million over 1978. This increase is about equally due to higher taxable income, resulting from the rate increase, and a higher effective tax rate. The higher effective rate results from a relatively higher proportion of deferred fossil fuel costs included in taxable income. Income tax expense on these deferred costs is calcu-lated at statutory rates, whereas tax expense applicable to currently taxable income is based on current effective rates. These current effective rates reflect maximum allowable utili-zation of investment tax credits and ^ormalization of the additional amount of such credits allowable under the pro-visions of the Tax Reduction Act of 1975. (continued) L.- - - -- - 25 Management's Discussion cnd Supplement:ryinf rm: tion /Infl: tion Analysis of Financial Results (continued) Allowance for Funds Used During Construction Introduction Allowance for funds used during construction increased by The purpose of the following information, furnished as a sup- $3.3 million in 1978 and by $7.2 million in 1979 over the im. plement to the primary historical cost basis financial state-l m:diately preceding periods mainly because of the continuing ments, is to convey the effects of certain price changes on - buildup of the Company's investrnent in four future nuclear selected + balance sheet and income statement items. This i g:nerating units. The 1979 increase also includes the etfect of information has been compiled in accordance wPh a require-chinges in the allow sto from 8.3% (used during 1978) ment of the Financial Accounting Standards Board (FASB) to 9.4% on January 1 and to 11% on October 1,1979. These that companies disclose certain effects of inflation on their ral: changes reflect changes in the cost of funds used for operations starting with annual reports for 1979. construction purposes in accordance with the formula pre- Constant dollar amounts represent historical amounts teribed by the Federal Energy Regulatory Commission. stated in terms of dollars of equal purchasing power, as mea-sured by the 1979 average of the Consumer Price Index for Interest Charges All Urban Consumers. Current cost amounts reflect the Int; rest on debentures for 1978 increased by $1.7 million as a changes in specific prices of plant from the date the plant was result or a fuh year's interest on a $25 million 8% % debenture acquired to the present, as measured by the Handy-Whitman . i; sue in November 1977, partially offset by the retirement of Index of Public Utility Construction Costs. Current cost $8 million of 2Ps % debentures in February 1978. amounts of plant differ from constant dollar amounts to the Other interest charges rose $3.1 million in 1978 and $4.5 extent that spqcific prices have increased more or less rap-million in 1979 mairny due to the increased level of short-term idly than prices in general. Currcnt cost is a reproduction cost borrowings and higher short-term interest rates. In order to concept, i.e., the cost of replacing assets owned, as distinct provide financing for its construction program during a period from replacemunt cost, which focuses on the cost of replacing I when declining earnings coverage would not permit additional physical productive capacity with current state-of-the-art borrowings, the Company,in April 1978, increased short-term technology, borrowings,in anticipation of such restriction, to the maximum Plant investment as referred to in the accompanying data} amount allowed by the earnings coverage requirementa of the includes utility plant in service net of reserve for depreciation, Trust Indenture. Temporary investment of borrowings not construction work in progress and acquisition adjustments. immediately required for construction purposes produced in - The constant dollar and current cost provisions for deprecia-tcrest income of $1.3 million during 1978 and $245,000 in 1979. tion were determined by applying the Company's historical' c st b sis deprcciation rates to the Consumer Price and Net income and Earnings Per Share Handy-Whitman i,ndexed plant amounts. Net income and earnings per share for 1978 were $2.2 million Fuel, materials and supplies inventories and related ex-and 71c lower than in 1977 mainly as a result of higher pense categories have not been restated from historical operating expenses, discussed above, not included in rates amounts although, as furtt discussed below, volatile oil chirged to customers, coupled with a low rate of kilowatt- prices do impact the Company's operations. hour sales growth. The reduction in earnings per share also As prescribed by the FASB, the data is based on actual rtflects an increase in average shares outstanding as a result income tax expense unadjusted for the effects of inflation. of the sale of 1,000,000 sharer, of common stock on July 31, 1978. Discussion Not income and earnings per share for 1979 were up $8.2 The supplementary data should be viewed as an estimate, million and 88c over 1978 due primarily to the effect of the rate rather than as a precise measure, of the approximate effect of inue=0, offset in part by increases in operating expenses price changes on money invested in plant over many years end taxes. and on money borrowed to provide a substantial portion of As 1979 progressed, earnings and cash flow were adversely the funds invested in plant. Of the two methods used to mea-cff:cted by sharp escalation in residual fuel oil prices, rising sure inflation, the more relevant to Ui is the current cost int: rest rates and declining growth in kilowatt-hour sales. method because it is based on the Handy-Whitman Index, Higher oil prices resulted in significant increases in the state which depicts the trend in public utility construction costs. tax on revenues and the cost of financing oil purchases, The constant dollar data, because it is developed using the n;ither of which is provided for in current rates. Cash flow was broad based Consumer Price Index, is not necessarily repro-further impacted by the two-month delay in billing increased sentative of the effects of inflation on the Company. A primary fu;l oil costs to customers through the fuel adjustment clause. value of constant dollar data is that it provides e common in order to alleviate the adverse cash flow impacts of con- basis for comparison of companies in various industries sub-tinued high oil prices, the Company filed an application with ject to the reporting requirements. the Connecticut Division of Public Utility Control on January The depreciation adjustments to 1979 reported not income 24,1980 for expedited rate relief of $22.1 million. A separate and the similar adjustments used in calculating general and f pplication for general rate relief, to remedy other increases specific puce level adjusted income applicable to common in costs, is planned for later in 1980. stock for 1978 represent the cost of providing sufficient funds-Earnings per share for 1979 reflect the full effect on shares (continued) outstanding of the 1978 common stock sale and higher pre-firred stock dividends applicable to stock scid in April 1979. 26 --~ - . - - . - - - - - - - - - - - - - - . - - - - - -. ') . Selected Supplementny Financial Data Adjusted for the Effects of inflation ~ (in Thousands of Average 1979 Dollars) ' For the Year 1979 Constant Current Dollar - Cost _ . N;t income, as reported in the statement of income $ 29,668 $ 29,668 , AdjustmInt to depreciation expense based on plant invest-mint r:cticulated to recognize the effects of inflation in the g:noral price level and in specific prices 14,280 19,812 N;t incoma, as adjusted 15.388 9.856 Dividinds on preferred stock 5,744 5,744 Incoma rpplicable to common stock, as adjusted S 9.644 $ 4,112 Purchising power gain on net monetary liabilities: Long.ttrm debt $ 30,446 $ 30,446 Oth sr, principally net current liabilities 7,421 7,421 Tott! $ 37,867 $ 37,867 ; Effict of inflation on plant investment held during ths year as measured by changes in: Specific prices $ 94.862 Grneral price level 114.127 Infittion in specific prices of plant investment over (under) general price level inflation $ (19,265) fuduction of inflation-adjurded plant investment to nit recoverable (historical) cost S 55.261 _$_ 30,464 At DIcember 31,1979, the current cost of plant investment was $986,911, as compared to historical cost of $591,151. Five Yxr Summary 3979 3973 3g77 3973 3973 Operttmg rsvenues $281,878 $240,781 $263,041 $247,048 $254,358 Historicil cost information adjusted for inflation in the general prict live! (constant dollar information): Incom3 applicable to common stock $ 9,644 $ 5,207 Etrnings per share of common stock $1.59 $.95 Common stock equity at year-end (a) $500,143 $458,982 Historicti cost information adjusted for inflation in specific prices (curr'nt cost information): incoms Epplicable to common stock $ 4,112 $ (1,150) Etrnings per share of common stock $.68 $ (.21) Inflition in specific prices of plant investment over (under) gintral price levelinflation . $(19,265) $ 20,021 Cimmon stock equity at year-end (a) $550,451 - $534,087 Gin:rtiinformation: Purchising power gain on net monetary liabilities: Long-term debt $ 30,446 $ 23,021 Othir, principally net current liabilities 7,421 2,109 Total : $ 37,867 $ _ 25,130 Dividinds declared per share of common stock $2.62 $2.85 $2.96 $3.00 $3.13 Markit price per common share at year-end $19.98 $24.39 $32.87 $32.91 $29.59 As eraga Consumer Price Index used in above computations 217.5 195.4 181.5 170.5 _ 161,2 h) Comme stock equity at net recoverable (historical) cost at December 31,1979 and 1978, stated in average 1979 dollars, amounted to I $176,200 and $190,300, respectively. Net assets in constant dollars, at current cost and at net recoverable (historical) cost at December 31, 1979 cmounted to $580,523, $630,831 and $256,580, respectively, and at December 31,1978 amounted to $534,019, $609,124 and $265,337, r:specti"ely, all as stated in average 1979 dollars. 27 Supplementary Inf :rmation / Inf ttion (continued) to replace, at the assumed price levels, the service potential long-term c'ebt. The Company cautions that such gains arm of plant used up during those years. This concept is based on unrealized and, therefore, do not contribute to cash flow of th) belief by some persons that businesses are not generating distributable income. Because depreciation on plant is lima cnd retaining the financial resources required to replace exist- ied to the recovery of historical costs, the Company does no? ing capacity and mairtain operating capability, i.e., maintai ;ve an opportunity to realize either the increase in specifi( the capability of the business to provide a constant supply prices of plant investment held (sometimes called holding goods and services. gains) or the related gains on debt used to finance investmend it is important that the Company maintain its operating in plant assets. Gains on debt can be realized if the inflatioX capability at the level required to provide an adequate, relia- adjusted cost of the related assets can be converted ints b!2 supply of electricity to meet the demands of its customers. cash, via recovery through revenues of higher depreciatiox To do this requires substantial investments in generating and allowances, and if the debt is retired and not replaced. How= other facilities. The Company makes these investments and ever, the occurrence of this combination of circumstances i incurs all the other costs, under existing economic condi- unlikely in view of present regulatory practices and the pro 3 tions, necessary to supply customer demands with the ex- jected need for increased plant investment and debt financing pictation of earning an appropriate return on the invest- The reduction of inflation-adjusted plant investment to ne mints and of recovering the costs involved. In that sense, recoverable, or historical, cost has been r: ders should not be misled into believing that past prices data in view of the FASB's opinion that it may not be appro for electricity should necessarily have been increased to priate for companies limited to recovery of the historical c cover consumption of the service potential of the price level of their plant investment through the regulatory process t tdjusted cost of plant. state their assets above the recoverable amounts. This reduc-However, in another sense, the price level adjusted income tion should not be allowed to obsclae the fact that inflation i cpplicable to common stock, particularly on a current cost prices affects virtually all the Company's operations. While iq bisis, does illustrate the inability of income levels to support is true that future cash flows relative to the Company's plan 1 tha large, long lead time construction programs, whether to Investment will be based upon secovery of historical cost plu2 r: place existing capacity or to meet projected growth, cur- a specified rate of return,it is eqelly true that the Compan rintly being undertaken by many electric utilities, including has the same problem as non-regulated businesses in main, th] Company. This inability results from the common regu- taining its operating capability and avoiding erosion of capil 1 tory practice, followed in Connecticut, of making no provi- tal. Ftrthermore, the Company and other utilities must competc sion in revenues for recovery of or return on these construc- in the same cap tal markets as non-regulated businesses and tion costs until the plant commences operation. The returns must be sufficient to raise the capital required. The contradictory Connecticut regulatory practice of reducing reduction should be viewed in recognition of these facts. current revenue levels to reflect most of the income tax in-c ntives associated with plant construction further contributes hese factors effectively restrict the income currently Common Stock Data available for shareowner distributions and mean that the UI's Common Stock is traded on the New York Stock Ex-Company must increasingly rely on the capital markets to change, where the high and low sale prices during 1979 provide the financial resources required to maintain its oper- and 1978 were as follows-tting capability, thus further exposing the Company to th 1979 High 1979 Low 1978 High 1978 Low cffects cf inflation m the form of increased financing costs. Sale Price Sale Price Sale Price Sale Price Delays in recovering price changes in operating costs can First Quarter 24 % 23 28 % 25 % also affect the Company's ability to generate the financial re* Second Quarter 23 % 217/s 28 25 % sources required to maintain its operating capability. Of par- Third Quarter 25 % 23 27 25 % ticular significance in 1979 was the impact of the two-month Fourth Quarter 23 % 20 % 26 % 22 % d; lay in billing increased residual fuel oil prices to customers through the operation of the fuel adjustment clause. As a UI has paid quarterly dividends on its Common Stock r:sult of this delay, and the near doubling of oil prices, the since 1900. The 1978 and the first three 1979 quarterly cost of residual fuel oil burned during 1979 exceeded by dividends were paid at the rate of 64c per share. Com- $10.6 million the amount recovered through revenues, as mea- mencmg with the dividend paid October 1,1979, quar-sured by the 1979 buildup in the deferred fossil fuel costs terly dividends have been paid at the rate of 67c per account, Although a rate proceeding is currently under way to share. r: cover these deferred costs, the im, act of the delay on the Company's financial resources will continue until full recovery of the cost occurs. The purchasing power gain on not monetary liabilities shown in the accompanying data theoretically represents the cxtent to which equity investors were hedged against the risk of inflation in plant investment and other costs, primarily be-cruso a substantial portion of plant costs was financed by 28 . _ -. _ - - _ _ .- - -- - - _ - - - _ _ - _ _ - ._ - - - - - _ _ . _ - f rcctorsandOfficers irCCIOrS Officers UI s Board of Directors mgus N. Gordon Jr. John D. Fassett ; J
- hairman of the Northeast Power loordinating Council President
{# r C. f,. V] , '^ r. l l yi-- y Former Chairman of the Board. mted liluminating) Leon A. Morgan Executive Vice President- )[ 4 Jt - l1 I' l' f 'i ' 'Et.i iI:!.'! - k' Operations. Engineenng and I i hn D. Fsssett Customer Services # Q ' resident. Un.ied tilummating T James F. Cobey Jr. ) F .I ' 3
- Allan Dromley Executive Vice President- g-enry Ford il Professor and Director. Finance and Adm mstration n - # v
. W Wright Nuclear Structure and Treasurer f aboratory, Ya:e Umversity Charles W. Cook Jr. Leff to right: Angus N. Gordon Jr.. John D. Fassett and John M C. Betts. hn M. C. Betts Vice President- James F. Cobey Jr. and Geraldme W. hairman of the Board, Johnson. ) Customer Services lue Cross & Blue Shield Connec ticut, Inc. ormer Senior Vice President. Rob 2rt L Fiscus Vice President and Controller %, mmwq l mted Illuminatmg) *D h John V. Fratus Jr. ' orwlck R. Goodspeed Senior Vice President-resident and Chief Executive Officer. Government Relations ople's Sav ngs Bank-Dndgeport Richard J. Grossi :- obert D. Russo, M.D. 17 Vice President- ' hairman, Department of Radiology, Engineermg and Planning . .q
- t. Vincent a Med. cal Center 7 Albert Harary prnes F. Cobey Jr. Vict es, dent-N tecutrue Vice President- Man ement Services A - 'o nance and Admmistration Fredenck J. Mancheski. Leon A.
id Treasurer. United lituminating Dr. Robert D. Russo. Norwick R. David W. Hoskinson Morgan and Leland W. Miles. Goodspeed and D. Altan Bromley. Vice President-Operations land W. Miles esident. University of endgeport Marcus R. McCraven Ul's Vice Presidente Vice President- . on A. Morgan Environmental Eng neenng 2ecutive Vice President-P " M *' m " 9 7 "~~m ~ ~* = T ' "' ! ^ R t s ~i ' I perations. Eng neenng and Harold J. Moore Jr. ustomer Services. Umted illuminating Vice President-I~ Employee Relations y-~ ederick J. Mancheski " - airman and Chief Executive Officer. Anne G. Spinney l ^ 6g e Ec hiin Manuf acturing Company. Vice President-o '- anufacturer of automotive parts Communications - id accessones 3 a3 " etaldine W. Johnson spermtendent of Schools. Earle G. Anderson Assistant vice President-e< N-3 s if 4 Governmental Relations ty of Dridgeport ^ Richard F. Skinner Sec retary ' William A. Elder Seated. leff to right: Robert L. Fiscus. John V. Fratus Jr.. David W. Hoskinson. Assistant Treasurer Anne G. Spinney, Charles W. Cook Jr. and Albert Harary. Standmg: Richard J. brossi. Harois .* Moore Jr. and Marcus R. McCraven. James L. Denjamin Assistant Contr3Iler 2nstsi Counsel Dividend Reinvestment iggm a Dana Plan Agent Citibank. N. A., fspendent Certified New York. New York )blic Accountants Popers & labrand Stock Listing New York Stock Exchange ock Transfer and Dividend Lbursing Agent and Registrar p Connecticut Bank and ist Cornpany. Hartford. Corinecticut - - - . 29 k s T _ .y - ' $ A. ~ ~ yg .. , _ , _, m n . g__ __ % 4 . ( . . $ .. Y 9 t g- g .^: jp. ..h 4 -. e -
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