ML17054C161

Forwards 1986 Annual Repts for Rochester Gas & Electric Corp,New York State Electric & Gas Corp,Central Hudson Gas & Electric Corp & Lilco

ML17054C161
Person / Time
Site:	Nine Mile Point
Issue date:	06/01/1987
From:	MANGAN C V NIAGARA MOHAWK POWER CORP.
To:	NRC OFFICE OF ADMINISTRATION & RESOURCES MANAGEMENT (ARM)
Shared Package
ML17054C162	List: ML17054C161 ML18038A257
References
(NMP2L-1043), NUDOCS 8706100028
Download: ML17054C161 (10)

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NOTICE-THEATTACHEDFILESAREOFFICIALRECORDSOFTHEDIVISIONOFDOCUMENTCONTROL.THEYHAVEBEENCHARGEDTO,YOU'FORALIMITEDTIMEPERIODAND~'tMUSTBERETURNEDTOTHERECORDSFACILITYBRANCH016.PLEASEDONOTSENDDOCUMENTSCHARGEDOUTTHROUGHTHEMAIL.REMOVALOFANYPAGE(S)FROMDOCUMENTFORREPRODUCTIONMUSTBEREFERREDTOFILEPERSONNEL.gd"9+7~~/M~MM~DEADI.INERETURNDATE CENTRALHUDSONGAS&ELECTRICCORPORATION284SOUTHAVENUEorTelephone914452-2000POUGHKEEPSIE,N.Y.12601-4879ONEWALLSTREETTelephone212344-5680NEWYORK,N.Y.10005THISREPORTISNOTAREPRESENTATIONORPROSPECTUSINREGARDTOTHECOMPANY'SSECURITIESANDISNOTFURNISHEDINCON-NECTIONWITHANYPROPOSEDSALEOROFFERTOSELLORBUYANYSTOCKORSECURITIES.DATACONTAINEDHEREINWITHRESPECTTOANYPARTICULARYEARSHOULDBECONSIDEREDINCONJUNCTIONWITHTHENOTESANDCOMMENTSAPPEARINGINTHECOMPANY'SANNUALREPORTFORTHATYEARTOITSSHAREHOLDERS.APRIL1987TWENTY-EIGHTHEDITION TABLEOFCONTENTSPageIntroduction.AreaServed.GrowthSummary.Management8Employees.Rates.CompanySecurities8Markets.ConstructionProgramForecastofCashRequirementsFinancingCashRequirementsStatementofIncomeIncomefromOperations-'ElectricandGasDepartmentsSummaryBalanceSheetatDecember31StatementofRetainedEarningsandStatementofChangesinFinancialPosition.DetailofUtilityPlantandAccumulatedDepreciation.ElectricRevenues,Sales,andCustomersGasRevenues,Sales,andCustomers.ElectricandGasProductionData.LaborDataandIndustrialRevenues.CapitalizationandFinancialRatiosDetailofLong-termDebtDetailofPreferredStockandCommonStock.Directors,Officers,TransferAgent,Registrar,GeneralCounsel,andIndependentAccountants..4.677.8.9.10..1112.13.1415.16.17.18.19...20INTRODUCTIONThisFinancialandStatisticalReport,includingchartsandtabulationscoveringtheten-yearperiod1976-1986,isdesignedtosupplementtheAnnualReporttoshareholderswhichcontainsadetailedreviewofoperationsduringtheyear1986.AREASERVEDLOCATIONCentralHudsonservesa2,600square-milearea,includingallorpartsofeightcounties,inNewYork'sMid-HudsonValley.Theareaextendsabout85milesalongtheHudsonRiverandabout25'to40mileseastandwestfromtheriver.Thesouthernendoftheterritoryisabout25milesnorthofNewYorkCityandthenorthernendisabout10milessouthofAlbany.Amapoftheareaisshowninsidethebackcover.POPULATIONThepopulationoftheCompany'sserviceareaiscurrentlyestimatedtobe579,000.Duringthelasttenyearsthepopulationhasincreasedapproximately12%,oranaverageannualincreaseofabout1%.UTILITYSERVICEElectricserviceisavailablethroughouttheterritory,whilegasserviceisprovidedprimarilyinandaboutthecitiesofPoughkeepsie,Beacon,Newburgh,andKingstonandincertainotheroutlyingareas.ECONOMYTheCompany'sterritoryreflectsadiversifiedeconomy,includingmanufacturingindustries,researchfirms,farms,governmentalagencies,publicandprivateinstitutioris,resorts,andwholesaleandretailtradeoperations.TheCompany'slargestcustomerisInternationalBusinessMachinesCorporation.Fortheyear1986,salestoIBMaccountedfor19%oftheCompany'stotalelectricrevenuesand3%ofitstotalgasrevenues.

GROWTHSUMMARYGrowthoverthelastfiveandtenyearsintermsofearningspershare,dividendsdedared,electricandgassales,revenues,andplantisshownbelow:AverageAnnualGrowthRates1976-1986EarningsPerShare-CommonStock.DividendsDedaredPerShare-CommonStock..ElectricSales-OwnTerritory(a)ElectricRevenues-OwnTerritory(a)GasSales(b)..GasRevenues(b).ElectricUtilityPlant(c).GasUtilityPlant(c).(a)Excludingsalestootherutilities.(b)Excludingsalesofinterruptiblegasservice.(c)Includingconstructionworkinprogress.4.5%4.54.15.32.37.310.44.15.6%5.72.411.32.713.29.24.1MANAGEMENT5EMPLOYEESThemainofficeoftheCompanyislocatedatPoughkeepsie,NewYork,andafinancialofficeislocatedatOneWallStreet,NewYorkCity.(Fortelephonenumbersseeinsidefrontcover)AlistofofficersandmembersoftheBoardofDirectorsmaybefoundonpage20.TheCompanyisanequalopportunityemployerwhichmaintainsanactivemanagementdevelopmentprogramandoffersawiderangeofeducationalopportunities.IncludedintheCompany'seducationalpolicyareprovisionsforfinancialassistancetoemployeesforvoluntaryeducation,training,andotherself-improvementprograms.OtherbenefitsprovidedbytheCompanyaresetforthonpage16.UnionshopcontractsaremaintainedwithLocals320and2218oftheInternationalBrotherhoodofElectri-calWorkers(AFL-CIO).TheCompanyandtheseemployeegroupshavemaintainedanexcellentrecordofcooperation.Thepresenttwo-yearcontractsbetweentheCompanyandtheI.B.E.W.LocalsbecameeffectiveJuly1,1985andcontinuethroughJune30,1987.EMPLOYEEDATANumberofEmployeesDecember31,1986(a)25yearsormoreofservice..15-24yearsofservice.....5-14yearsofservice.Lessthan5yearsofservice.Total..Total3624143032481327Officers632112SupervisoryandProfessional127989472391Classified229313207175924(a)Indudes120employeesattheRosetonPlantinwhichtheCompanyhasa35%interest(seepage16).RATESGENERALTheelectricandgasretailratesoftheCompanyapplicabletoservicesuppliedwithintheStateofNewYork(otherthancontractuallyestablishedratesforservicetomunicipalitiesandgovernmentalbodies)areregulatedbythePublicServiceCommissionoftheStateofNewYork(PSC).TransmissionratesandratesforelectricitysoldforresaleininterstatecommerceareregulatedbytheFederalEnergyRegulatoryCommission.

RATEINCREASES1986:OnJuly17,1986,thePSCissueditsOpinionandOrderwhichauthorizedanincreaseinbaseelectricrevenuesof$13.3million,anincreaseof4.2%.AfterreflectingprojectedfuelsavingsfromtheNineMile2Plant(NMP-2),increasedelectricrevenueswouldamounttoapproximately$10.5million,anincreaseof3.3%.TherateyearisthetwelvemonthsendingJuly31,1987,thefirstyearinwhichthenewrateswillbeeffective.ThenewratesbecameeffectiveonJuly25,1986andareapplicabletoallusagethereafter.Theauthorizedrateofreturnoncommonequitywas12.4%ascomparedtothe15.7%returnauthorizedintheCompany'slastratecaseorder(April1985)andtheauthorizedoverallreturnoninvestedcapitalwas10.66%.Initsorder,thePSCapprovedtherate.makingprinciplesfortheinclusioninratesofthecapitalandoperatingexpensesassociatedwiththeCompany'sinterestinNMP-2.Amongotherthings,thePSCadoptedaseven-yearphase-inoftheprudentlyincurredinvestmentinthePlant,providedfortheaccrualandrecoveryofcarryingchargesontheinvestmentremainingtobephasedintoratebaseandfortherecoveryofoperatingexpensesandpropertytaxesatthetimetheyareincurred.ThePSCapprovedtheinclusioninratebaseofanadditional$75millionofNMP-2investmentwhichbringsthetotalamountofNMP-2investmentincludedintheCompany'sratebaseto$222.4million.ForthepurposeofthisratecasethePSCassumedthatNMP-2wouldcommencecommercialoperationonApril1,1987.ThePSCalsoprovidedfordeferredaccountingforanydifferencesresultingfromavariationintheprojectedin-servicedate.TheCompany'srequesttouseanydisallowedcoststoshortenthephase-inperiodwasconsideredprematureandwillbeconsideredinasubsequentrateproceeding.TheOrderalsoprovidedfortheindusionintheCompany'sratebaseof$85millionofinvestment(including$49millionofCWIP)relatedtothereconversiontocoal-firingoftheDanskammerPlant,whichamountisapproximatelytwothirdsofthetotalprojectedinvestmentinthecoalreconversionproject.ThepresentscheduleforthecompletionofthereconversionofthetwoDanskammerunitsisMarch1987forUnit4(239mw)andSeptember1987forUnit3(147mw.).Theinclusioninratebaseoftheadditional$75millionofNMP-2investmentandthe$49millionofDanskammerCWIP,inconjunctionwiththeCommission'sotherdeterminations,producesacashcoveragetargetof2.60times.TheassociatedcoverageoftotalinterestchargeswhenincludingAFDCis3.14timesandtheprojectedAFDCratio(AFDCasapercentageofincomeavailableforcommonstock)is46%.Inestablishingretailelectricrates,thePSCimputed$6.2millionofnetrevenues(revenueslessincrementalcosts,principallyfuel)fromelectricsalestootherutilitieswhichis$4.8millionlowerthanpreviouslyimputed.Thesymmetri~calsharingarrangementinitiatedintheCompany'slastrateorder(April1985)iscontinued,wherebyshortfallsbelowtheimputedamountaswellasnetrevenuesinexcessoftheimputedamountwillbesharedbetweentheCompanyanditscustomersona20%/80%basis,respectively.ThePSCcontinuedthesharing,withinlimits,ofvariationsinfuelcostsfromthoselevelsprojectedintheJuly17,1986order.TheCompanywillcontinuetobear20%ofthefirst$10millionofvariationeitheraboveorbelowtheforecastleveloffuelcostsand10%ofthesecond$10millionofvariation.ThustheCompany'smaximumexposure,orbenefit,remainsat$3millionbeforetaxes.1987:OnAugust28,1986,theCompanyfi!edanapplicationwiththePSCtoincreaseitsbaseratesforelectricservicetoproduceadditionalannualrevenuesof$27.1million(7.9%).Thenewratesarerequestedforthetwelve-monthperiodAugust1,1987throughJuly31,1988,thefirstyeartherevisedratesareexpectedtobeineffect.Additionalfuelsavingsof$14.9millionfromtheoperationofNMP-2andthereconversiontocoalofDanskammerPlantUnits3and4areprojectedtoreducethenetincreaseinelectricrevenuesto$12.2million(3.6%).Thehigherelectricrevenueshavebeenrequested(1)toincludeanadditionalincrementoftheCompany'sinvestmentinNMP-2inratespursuanttothephase-inprogramadoptedbythePSC,(2)toincludeinratesthebalanceofNMP-2operatingcostsnotincludedincurrentrates,(3)toincludeinratesadditionalcapitalandoperatingcostsassociatedwiththereconversionofDanskammerPlantUnits3and4and(4)torecoverotherincreasesincapitalandoperatingcostsfortheRateYearnotadequatelyprovidedforincurrentrates.Therateincreaseapplicationisbasedonareturnoncommonequityof13.75%andanoverallreturnoninvestedcapitalof11.02%andproducespretaxcoverageoftotalinterestchargesof2.8times,whenexdudingAFDC,forthetwelvemonthsendingJuly31,1988.DuringthecourseoftheproceedingtheCompanyhassubmittedarevisedsalesforecast,reflectedtheeffectsoftheTaxReformActof1986andreflectedtheeffectsoflowerinterestcosts.Theproposedincreasecouldbereducedfrom$27.1millionto$14.3millionasaresultofthesechanges.

LastFiveYears:RateincreasesauthorizedbythePSCduringtheprecedingfiveyearsaresummarizedinthetablebelow.EffectiveDateAmountRequestedAmountGrantedVoIncreaseofTestYearRevenuesReturnonCommonEquityTotalInvestedCapital7/25/864/20/854/20/851/16/841/16/8410/22/8210/22/82ElectricElectricGasElectricGasElectricGas$21,057,00027,100,0002,800,00022,673,0002,178,00032,974,0002,641,000$10,474,000*18,124,000""53,000**11,726,0003,11-1,00018,374,0002,334,0003.3%3.9(0.2)3.26.15.33.612.4%15.715.715.915.915.915.910.66%.12.8412.8412.5712.57124912.49'TheCommissionalsodirectedtheCompanytorofl.out$.0075ofthebasecostoffuelinordertoreflectdediningfuelcosts.**IndudessecondstageincreaseswhichbecameeffectiveSeptember5,1985.FUELADJUSTMENTCLAUSESTheCompany'stariffforretailelectricserviceindudesafuelcostadjustmentdausepursuanttowhichelectricratesareadjustedtoreflectchangesinthecostsoffuelsusedinelectricgenerationandofcertainpurchasedpowerfromthelevelofsuchcostsindudedintheCompany'sbaseratesforelectricity.Atthepresenttime,thecostoffuelreflectedinbaseratesis$.032perkwhr.Generally,thereisadelayofapproximately40daysforcustomerswhosebillsarerenderedmonthlyand70daysforcustomerswhosebillsarerenderedbimonthlybetweenachangeinfuelcostsandthetimewhenchargestocustomersareadjusted.EffectiveApril20,1985,suchelectricfueladjustmentdausewasrevisedtoprovideforapartialsharingoffuelcostsfromlevelsprojectedinrateproceedings.TheCom-pany'smaximumexposure,orbenefit,is$3millionbeforetaxes.Withrespecttonetrevenuesfromelectricsalestootherutilities,theCompany'sretailratesarecurrentlybasedonanannualimputationof$6.2million.Shortfallsbelowtheimputedamount,aswellasamountsabovetheimputedamount,willbeshared80%bythecustomersand20%bytheCompany.TheCompany'stariffforgasserviceindudesagascostadjustmentdausepursuanttowhichallretailgasratesareadjustedtoreflectchangesinthepriceofnaturalgaspurchasedfrompipelinesuppliersandcertaincostsofmanufacturedgasfromthelevelsofsuchcostsindudedinbaserates.TheCommissionhasalsodirectedchangesinthebasecostofgastoreflectmoredoselythetotalcostofservinggascustomers.Presently,acostof$2.05permcf.isreflectedinthefirmcustomerbaserates.Generally,thereisadelayofapproximatelyonemonthbetweenachangeinthecostofgasandthetimewhenrateschargedtocustomersareadjusted.Inaddition,thechargesunderthegascostadjustmentarereducedifannualnetrevenuesfromsalesofinterruptiblegasareinexcessoftheamountimputedinbasegasrates.InaccordancewithpermissiongrantedbythePSC,changesinelectricfuelcostsandgascostsaredeferredintheCompany'saccountsuntilthemonthinwhichsuchchangesarereflectedintheelectricfuelorgascostadjust-ment,therebypermittingtheCompanytomatchcostsandrevenues.COMPANYSECURITIES8cMARKETSDuringtheten-yearperiodfromJanuary1,1977throughDecember31,1986theCompanyissuedsecuritiesviithproceedsofapproximately$653millionofwhich$141millionwasappliedtotherepaymentoflong-termdebtwhichmaturedduringtheperiod.TheamountofsecuritiesoutstandingatDecember31,1986was178%greaterthantheamountoutstandingatDecember31,1976.Inaddition,duringthissameten-yeaiperiodretainedearn-ingsincreasedbyabout$108million.FIRSTMORTGAGEBONDSAtDecember31,1986,theCompanyhad$327.4millionprincipalamountoffirstmortgagebondsoutstanding,ofwhich$100millionhadbeenplacedprivately.OnSeptember15,1986,the171/8%seriesdueAugust15,1991andthe123/8%seriesdueMay15,2010werecalledforredemption.Thefundsrequiredtofinancetheseredemp-tionswereobtainedfromtheissuanceof$50millionofnewbonds,81/8%seriesdueSeptember1,1994,andfromshort-terminvestments.TheCompany'sFirstMortgageBondsatyear-end1986wereratedA-byStandardLPoor'sCorporationandFitchInvestorsService;A3byMoody'sInvestorsService;and/f7(LowA)byDuffandPhelps,Inc.InFebruary1987Moody'sInvestorsServicelowereditsratingtoBaal,andinMarch1987Standard8Poor'sCorporationreducedtheCompany'sratingtoBBB+andDuffandPhelps,Inc.toIII8(HighBBB).

AdditionalbondsmaybeissuedundertheMortgageIndentureforpurposesotherthanrefundingoutstandingbondsonlyifnetearnings,asdefinedintheMortgage,fortwelveconsecutiveca!endarmonthswithinthefifteencalendarmonthsprecedingthedateofissueshallexceedtwotimestheinterestchargesforoneyearonallbondsoutstandingundertheMortgageplustheadditionalbondstobeissued.ForthetwelvemonthsendedDecember31,1986,theCompanycouldhaveissued$338millionofadditionalfirstmortgagebonds,assuminganannualinterestrateof9.0%.Furthermore,anyadditionalbondsissuedundertheMortgageshallnotinprincipalamountexceed662/3%ofthenetbondablevalueofpropertyadditionsasthattermisdefinedintheMortgage.AsofDecember31,1986,theamountofsuchnetbondablevaluewasapproximately$292million,andtheamountoftheadditionalfirstmortgagebondsissuableviithrespecttheretowasapproximately$195million.PROMISSORYNOTES-POLLUTIONCONTROLTheCompanyhasissued$105.65millionofitspromissorynotestosecureanequalamountofNewYorkStateEnergyResearchandDevelopmentAuthority(NYSERDA)tax-exemptPollutionControlRevenueBonds.ThesedebtofferingswillhelpfinancethepollutioncontrolfacilitiesatNMP-2andDanskammercoalreconver-sionprojects.Thepollutioncontrolbonds,seriesAandB,issuedin1984,bearinterestat71/2%perannumfromthedateofissuanceuptoandincludingSeptember30,1989.ThebondswillbesubjecttorepricingandinvestortenderoneachOctober1,commencingOctober1,1989.TheCompanyhasaone-timeoptionforeachseriestoconverttoalong-termfixedrateatanyannualtenderdate.Thepollutioncontrolbonds,seriesAandB,issuedin1985,hadaninterestrateof51/8%throughJanuary31,1986.Atthatdatethesebondsbecomevariablerateobligationssubjecttoweeklyrepricingandinvestortender.TheCompanyhasaone-timeoptionforeachseriestoconverttoalong-termfixedrate.InitsJuly1986rateorder,the"PSCprovidedfordeferredaccountingandfutureratetreatmentfortheeffectofanyvariationininterestratesfromlevelsprojectedinrateorders.UNSECUREDSINKINGFUNDNOTES$6.85millionprincipalamountof4.85%promissorynotesdue1995wasoutstandingatDecember31,1986.Thesenoteswereplacedprivatelyandhaveanannualsinkingfundrequirementof$175,000.PREFERREDSTOCKAsofDecember31,1986,490,300shares(41/2%,4.75%,7.72%,7.44%,and8.40%series)wereheldby2,692holders.Thesesharesaretradedoverthecounter.Therewerealsooutstandingatthetime60,000shares(4.35%series),60,000shares(4.96%series),bothplacedprivately,and200,000sharesofAdjustableRatePre-ferredStockthatwereissuedonMarch30,1983.TheseriesofpreferredstockwhicharenotprivatelyplacedarecurrentlyratedBBBbyStandard&Poor'sCorporation,¹10(LowBBB)byDuffandPhelps,lnc.,BBB+byFitchInvestorsServiceandbaa2byMoody'sInvestorsService.Moody'sInvestorsServicelowereditsratetothebaa2levelduringFebruary1987whileStandard&Poor'sCorporationandDuffandPhelps,Inc.reducedtheirratingstoBBBand¹10,respectively,duringMarch1987.ForeachquarterlydividendperiodafterJanuary1,1984,dividendsontheAdjustableRatePreferredStockarebasedonaratewhichis1%perannumbelowthehighestofthreespecificTreasuryrates.Therate,however,willneverbelessthan6%perannumorgreaterthan12.5%perannum.TheadjustedratesappliedforeachquartersinceJanuary1,1984rangedbetween6.48%and12.48%perannum.Asinkingfundprovidesfortheannualretirementof8,000sharesoneachMarch30,commencingMarch30,1993.Underprovisionsofthetaxlaws,aportionofthedividendspaidonthe41/2%and7.72%seriesofpreferredstockisdeductibleforpurposesofcomputingtheCompany'sfederalincometax,and,accordingly,acorporationreceivingdividendsontheseseriesofpreferredstockwillnotbeallowedthefull85%credit.Allotherpreferredstockseriesqualifyforthe85%creditforcorporateshareholders,whichcreditwasreducedto80%asofJanuary1,1987.TheCompany'sCertificateofIncorporation,asamended,providedatDecember31,1986foratotalof1,200000authorizedsharesofpreferredstock,$100parvalue.810,300sharesareissuedandoutstandingand389,700sharesareauthorizedbutunissued.COMMONSTOCKThestockhasbeenlistedontheNewYorkStockExchangesince1945anddividendshavebeenpaidbytheCompanyanditsprincipalpredecessorsfor83years.OnApril3,1986theCompanysold1,300,000newsharesofitscommonstockandreceivedproceedsof$42.9millionfromtheoffering.OnDecember1,1986theCompanysoldanadditional500,000newsharesandreceived$14.8millionfromthatoffering.Inaddition,theCompanyissued194,109sharesunderitsDividendReinvestmentProgram,30,723sharesunderitsCustomerStockPurchasePlanand6,253sharesunderitsEmployeeStockOwnershipPlan.Totalproceedsfromstockissuedpursuanttothesethreeplansamountedtoanadditional$7.5million.

AsofDecember31,1986,14,105,850shareswereoutstanding.Thenumberofregisteredholdersofcommonstockwas31,212atthattime,andthelargestsingleholderofrecord,otherthanthenominees,Cede&Co.forTheDepositoryTrustCompanyandStanley&Co.fortheDividendReinvestmentPlan,heldlessthan2.1%oftheout-standingshares.TheCompany'sCertificateofIncorporationwasamendedonApril5,1983toincreasethenumberofsharesofcommonstockauthorizedtobeissuedfrom10,000,000to15,000,000.Accordingly,asofDecember31,1986,thenumberofauthorizedbutunissuedsharesamountsto894,150,ofwhich466,787sharesarereservedfortheCom-pany'sDiVidendReinvestmentPlananditsCustomerStockPurchasePlan.TheCompanyhassubmittedaproposaltoitscommonstockshareholderstoamendtheCertificateofIncorpora-tiontoincreasethenumberofsharesofcommonstockwhichtheCorporationisauthorizedtoissuefrom15,000,000to30,000,000.SuchproposalwillbeconsideredandvoteduponattheAnnualMeetingofSharehold-erstobeheldonApril7,1987.Additionalinformationonoutstandingsecuritiesisshownonpage19.TheCompanyhasavailableforinterestedshareholdersanAutomaticDividendReinvestmentandStockPur-chasePlanprovidingfortheissuanceoforiginalissuesharesofstock.CONSTRUCTIONPROGRAMTheCompanyisengagedinaconstructionprogramwhichispresentlyestimatedtoinvolvecashexpendituresduringtheperiod1987through1991of$287.4million.Theestimatesbyyearsareassetforthbelow:Total198719881989199019911987-1991(ThousandsofDotlars)ConstructionExpenditures:ParticipationinUnitNo.2oftheNineMilePointNuclearStation(9%).....ReconversionofDanskammerUnits3and4tocoal-firing.............Expendituresexcludingmajorgeneratingprojects.............Total.NuclearFuel.TotalIndudingNuclearFuel..............$22,000$1,700$59,000800$-$$23,70059,80041,50040,50032,40034,00041,400189,800122,50043,0001,5004,20032,4002,20034,00041,4004,0002,200273,30014,100$124,000$47,200$34,600$38,000$43,600$287,400'Exdudingatkwvanceforfundsusedduringconstruction(AFDC),anoncashitem.Estimatesofconstructionexpendituresaresubjecttocontinuousreviewandadjustment,andactualconstructionexpendituresmayvaryfromsuchestimates.TheCompany'stwomostsignificantconstructionprojectsareits9%participation(97mw)inNMP-2andthereconversionofDanskammerUnits3and4fromoil-tocoal-firing.NMP-2ispresentlyscheduledforoperationinearly1988.ThereconversionoftheDanskammerunitsispro-ceedingonschedulewithUnit4(239mw)commencingcoaloperationonMarch10,1987andUnit3(147mw)scheduledforcoaloperationinSeptember1987.Thetotalcost,exclusiveofAFDC,ofthereconversioniscurrentlyestimatedtobe$120.2million,ofwhich$60.4millionhasbeenexpendedthrough1986.ThePSC,byOrderadoptedOctober2,1985,approvedtherecoveryofprojectcostsfortheDanskammercoalreconversionoveraten-yearperiodwiththepreciseamortizationscheduletobeconsideredinratecaseproceed-ings.Italsoconcurredthatthecoalreconversionprogramisasound,economicundertaking.

TheCompany'stentativeannualcashrequirementsfortheyears1987-1991basedupontheaboveconstructionprogramareshownbelow:Total198719881989199019911987-1991(MillionsofDotlars)ConstructionExpendituresCashExpenditures(frompage6)....$124.0$47.2$34.6$38.0$43.6$287.4InternalFundsAvailableDepreciationAccruals(a)(b).AmortizationofDanskammerCoalReconversion.DeferredIncomeTax-Net(c)...RetainedEarnings(d)AFDC(a)..SterlingAmortization-Net.CarryingChargesonNMP-2(a)..NineMile2DeferredCredit(e)...Amortization-NuclearFuel.DecommissioningCosts.Other-Net.TotalInternalFunds3.04.44.411.316.014.44.8(3.3)(3.4)(22.1)(1.3)(.8)4.91.51.6(23)(7)(4.5)(12.6)(17.8)4.46.1.2.2.3.4.418.837.236.212.712.712.612.4(37)(42)(8)(6).8.2(7)(7)(17.8)(10.4)4.97.3.3.3.5~.541.851.337.266.7(9.8)(25.6)9.0(4.4)(63.1)22.71.02.1185.321.129.831.833.033.8149.5BalanceofConstructionRequirementstobeFinanced105.210.0(1.6)(3.8)(7.7)102.1MandatoryRedemptionofLong-TermDebtSecuritiesFirstMortgageBondsPromissoryNotesTotal..18.0-25.014.057.0.2.2.2.2.21.0.218.2.225.214.258.0OtherCashRequirements..5.05.65.25.45.026.2PaymentfromNiagaraMohawk..TotalCashRequirements..(26.1)---(26.1)..$110.4$7.7$3.8$26.8$11.5$160.2(a)AssumesNMP-2willcommencecommercialoperationinJanuary1988andwillbephasedintoratebaseoveraperiodofthreeyearscommencing8/1/86andending7/31/89.AFDCwittbediscontinuedoncethePlantisplacedintoservice,butnoncashcarryingchargeswillbeaccruedontheportionoftheinvestmentthatisnotindudedinratebase.(b)TheassumeddepreciationrateforNMP.2is2.5o/oandsuchratewillbeappliedtotheallowedinvestmentindudedinratebase.(c)BasedonfederalincometaxfawundertheTaxReformActof1986.(d)ForthepurposeofthisestimatetheCompanyhasassumedareturnonaveragecommonequityof13o/oandcontinuationofthecurrentannualdividendrateof$2.96.Alsoassumesthattheafter-taxeffectofthedisallowanceundertheSettlementproposalwillbe$151million.(e)AssumesthattheaccumulateddeferredcreditresultingfromtheindusionofNMP.2CWIPinratebasewittbeamortizedasacredittotheCompany'scostofserviceoverafive.yearperiodcommencing8/1/86andending7/31/91.FINANCINGCASHREQUIREMENTSAsshownabove,itiscurrentlyestimatedthat64%ofthecashconstructionexpendituresforthefive-yearperiod1987-1991willbeprovidedinternallyThebalancewillbemetfrominterimshort-termborrowingsandtheissuanceofnewsecurities.TheCompanyanticipatesthatitwillbeabletoissueanadditional$35millionofnewtax-exemptpollutioncontroldebtin1987.TheissuanceofanyothernewsecuritieswillbebasedupontheCompany'sgeneralfinancialpoliciesinregardtocapitalstructure,coverage,andpay-outratios,aswellasmarketandothereconomicconditionsexist-ingoverthenextfiveyears.

EARNINGSANDDIVIDENDSPERSHARE5.004.504.003.50tf)3.00,g2500Q2.001.501.00.50197677787980818283848586TotalEarningsPerShareDividendsDeclaredPerShareTheCompany'sdividendpolicyhasbeentogenerallymaintainapay.outratioofapproximately65%butthefigurehasfluctuatedwidelyinsomeyearsbecauseofthevariationsinyearlyearnings.AverageSharesofCommonStockOutstanding(MillionsofShares)~CurrentRetained~Earnings(MillionsofS)21.019.518.016.515.013.5tn12.0nf10.5O9.07.56.04.53.01.50CURRENTRETAINEDEARNINGSONAVERAGESHARESOUTSTANDING197677787980818283848586