ML19318D177
| ML19318D177 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 02/26/1980 |
| From: | BANGOR HYDRO-ELECTRIC CO. |
| To: | |
| Shared Package | |
| ML19318D157 | List: |
| References | |
| NUDOCS 8007080031 | |
| Download: ML19318D177 (25) | |
Text
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i l TO THE STOCKHOLDERS OF BANGOR HYDRO-ELECTRIC COMPANY ! Eamings in 1979 were disappointing - 31.63 per common share,8% less than 1978 earnings of $1.77 per common } share. In addition, the 1979 earnings contain two noteworthy income items. The first resulted from the recording of
- unbilled revenue, as explained in Ncte 1 to the financial statements, which added $.58 per share. The second item
! arose from the Maine Public Utilities Commission approval of a new fuel adjustment clause allowing the recovery j of previously incurred fuel costs, as explained in Note 1 to the financial statements, which resulted in an increase in 1 1979 earnings of $1.06 per share. However, $.36 of this $1.06 per share is attributable to the amount of fuel that
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would have been deferred at December 31,1978 had the new fuel clause been in effect at that time. These two l l items contribute $.94 of the $1.63 per share eamed in 1979. It is clear that our basic rate schedule, established in 1976 and based on 1975 operating results, can no longer support the realities of higher operating and maintenance costs and the higher costs of capital funds in the 1980's. , Consequently, on February 25,1980 the Company filed for a general rate increase with the Maine Public Utilities I j Commission seeking increased revenue of $5.372,000, or 10.4% over 1979 revenues. In addition, in order to support l the efforts of securing at reasonable costs the long-term financing that must be accomplished in carrying out the ; j capital construction program, some of which must be undertaken before any new permanent rates will be in effect, j the Company asked for interim rate relief of approximately one half the permanent request. ! The year 1979 has been one of turmoil in the electric uti!'ty industry. Conflicts between growth and no-growth ! continue to plague the decisions that must be made in planning for future energy requirements. During the year <
- there were demonstrations at Seabrook in an effort to halt construction of that much needed facility; the Maine Public Utilities Commission denied Central Maine Power Company permission to build a 600 megawatt coal-fired generating station on Sears Island, and New England Power Company cancelled the proposed nuclear generating
, station in Rhode Island in which your Company was a joint owner. The year also saw the accident at Three Mile
- Island and the cautious but positive response by the Kemeny Commission. Further, a referendum petition calling for the prohibition of the generation of electricity by nuclear fission within the state, including the shutdown of Maine j Yankee, has been circulated by anti-nuclear advocates. Although we cannot be certain at this writing. it would appear that the petition drive has been successful, and that the question will go to public referendum later in 1980.
The electric utility industry has yet to see a clear-cut energy policy developed by the Federal government and i the industry continues to be exposed to confusing signals from all branches of government. The most disturbing l l aspect of this confusion is the resultant uncertainty about the sources of the electric energy necessary to serve l customers in the years ahead. Little, if any, progress has been made in forcing regulators and policy makers to take a realistic approach to available solutions, and the regulatory and political processes continue to be bogged down in , peripheral matters. Evidently the only remedy is for the general public to exert its influence directly upon the politicians and regulatory i bodies to make the difficult decisions on the issues which those politicians and regulators have, over the years, appropriated to themselves to consider. Accordingly we again ask you to become involved in the energy issues and make your views known to your national and state legislators and to the various agencies involved in regulating the electric utility business. The directors and officers of the Company gratefully acknowledge and appreciate the continued support of you the stockholders. Respectfully submitted, I I -
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icnG a ap R. N. Haskell k Chairman of the Board
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/ <La T. A. Green President at
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and D vi nUs
.M. l per Share l
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E Earnings per Share February 26,1980 E Dividends per Share 1975 1976 1977 1978 1979 2 _ -- _ - --__ - _ . -
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i [ _ _ _ . _ - l YEARINREVIEW ' W ll '
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l ! Silas and Revenues , < l- l l Revenuos in 19/9 increased by .l l i $9121 5'32 to a tutal of $51 /48 328 2 I Of th s increase only $108 / 418 is a tt r < r u t a t%e in rncreased general ' rato resenue T he remamder nf
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1 Fuel for generation and pur- od fired gererating sources from I chased power tota;eo $33 054.914
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I w h'c h the Company purchases l 1975 1976 1977 1978 1979 (exClus"ve of $5 484 688 deterred enerQy l Kilowatt Hours Sold see Note 1 to financial statements) O Other d Industnal O Cornrnercial E Residential 1979 com ared to $26 762 748 in Other Expenses , 19 8 Of this $6 292166 increase The Wuham F Wyman U nit n4 t rit a : ales n 19/4 nore $5 796 771 is d:rectty attnbutable generating station in Yarmouth 1 .3 41 Sn all m eatt hnurs an to increaseo f uel expense in Jan- Maine +n wh>ch toe Company owns . n( rease a H %, nr 101 '19 366 1 uar, of 1979 the Company was pay an 8 33% interest began com-M a att ru mr <: or last year [x ing $1188 tar a barrel of od in mercial operatton on December 1 c luam lnterrupt.hk sants tota! f'rrr December the price had increased 1978 Operation maintenance de-saios rueaseu , % in tNs period 97% to $23 40 per barrel In preciation and property tax ex-Hos + n t .al ,a k n .nrreased 4% January 1980 the pr ce of oil was penses a ;sociated with the Com-c omo,erc ,a1 ,a:e< 14% and 'ndus- turther !ncreased to $24 40 per ' pany s ownership in that plant are Ina! wos aca r exc!uding .nter barrel This type of increase was included in 1979 expenses H,gher runttw ;a h " A ere up 12 3% The also experienced at the various payron costs as weh as signit-indus'r a! saw .ncrease is due to r
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icantly higher pnces for purchased substetrahv nyher sa!es tn Great l materials supphes and outstde
' i Nnrtnern Paper Compans and services have also Contr:buted to L !nc n ? Putp and Paper CompanN l inc' eased operation and mainten- , Interruptrble sales ,nc reased 16 4%
ance expenses
' due in a major pla. '! expansion by '
Interest costs reflect heavier IMC (Tenurai Gmup Inc ' borrowing for the Comp;any's con-
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struction program as >eh as the Fusi for Generation . - - - _ abnormal increase in : nort-term and Purchased Power - interest rates expenenced dunng In 1979 the Company s generatton ~ - the year ma pr oduc ed 17% from its hydro - - - electnc stanons m nom vaine Yankee Atomic Po Aer Company in _ _ CAPACITY which the Company owns a 7% - A major concern of the Company is interest and the remmning 60% '9hpera ng xpenses ($ the abdity to meet its customer o l ions) num od-bred sources owned by the O Taxes E oepreciation demands for electnc energy in mid (;ompan; or purchased from other G Operations and Maintenance to late 1980 s Current forecasts utihties a Fuel and Purchased Power indicate a 3 3% toad growth dunng 3
__ ._ _ . . _- _ - _ _ _ _ _ _ _ _ _ _ _ l the next decade, down from the this investment will be requested in l 4.4% forecast of a year ago. the Company's 1980 rate pro- l The Company has a .37% interest, ceeding. or 8.6 megawatts, in the Seabrook As a result of the cancellation of nuclear units being built by Public the New England Power Company Service Company of New Hamp- units we are currently examining shire, ("PSNH") and scheduled for alternative sources of generating l completion in 1983 and 1985, and capacity. The Company is re ' has contracted to purchase an evaluating the economic feasibility < additional 1.8% interest, or 41.4 of adding hydro-electric generation i megawatts, for a total of 50 mega- within the system. Despite the high
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to purchase the additional interest _ in the Seabrook nuclear units, along capacity is becoming a competitive with the commitments of other pur- alternative to the use of oil for chasers, is being delayed by regu- generation. Among other alterna-latory proceedings. Those proceed- tives being considered are pur-ings may not be completed until _ _ _ chases of capacity from other January 1981 or even later, utilities, including the N 2w Bruns-The Company had planned to 1975 1976 1977 1978 1979 wick Electric Pcwer Commission Fuel sources of Power in Canada, and .J m' ownership in provide the greater part of the remainder of its capacity require. O oil E Nuclear E Hydro one or more of the generating monts in the late 1980's from its 100 stations being planned in New megawatt interest in the New Eng- New England Power Corrpany can- England. Other factors being con , land Power Company nuclear units celled its plans to construct these sidered in our load projections to have been built in Charlestown, units. The Company's investment in include the impact of conserva , Rhode Island. However, when efforts this project at December 31, 1979 tion and load management tech-to obtain the site were unsuccessful, I was $2,015,307. The recovery of niques. y mn . myyrm ,. ; g. y ,.
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NYDR0fLECTRIC COMPANY FINANCIAL STATEMENTS & HOTESTO FINANCIAL STATEMENTS 19'i9 l
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l . d reimain M 8se # @ @ @ @ % @ i 1 AUDITORS' REPORT To the Stockholders and Board of Directors of Bangor Hydro-Electric Company: We have examined the balance sheet of Bangor Hydro-Electric Company (a Maine corporation) and the statement of capitalization as of December 31,1979 and 1978, and the related statements cf income, retained earnings and sources of funds for plant additions for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, according!y, included such tests of the Eccounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the accompanying financial statements present fairly the financia: position of Bangor Hydro- i Electric Company as of December 31,1979 and 1978, and the results of its operations and its sources of funds for plant additions for the years then ended, in conformity with generally accepted accounting principles, which, except for the change (with which we concur) in the method of recording Electric Operating Revenues as indicated in I Note 1 to the financial statements, have been applied on a consistent basis. Arthur Andersen & Co. l Boston, Massachusetts. l January 25,1980 l 6
BANG 0R HYDRO-ELECTRIC C0tlPANY Statement of Incoma for the Years Ended December 31,1979 and 1978 Electric Operating Revenues (Note 1) 1979 1978 General rate revente $27,340,857 $26.252.939 Fuel charge revenue 24,407,471 16.373.857
$51,748,328 $42.626.796 Operating Expenses:
Fuel for generation and purchased power (Notes 1. 8 and 9) $33,054,914 $26,762.748 Other operation 6,266,570 5.156.183 Mainter,ance 2,077,141 1.456.350 Depreciation (Note 1) 2,814,541 2.200,513 Taxes-Local property and other 1,822,225 1,514.646 income (Note 2) 722,874 1.128.430
$46,758,265 $38218.870 Operating income $ 4,990,063 $ 4,407.926
'ither income and (Deductions): Allowance for other funds used during construction (Note 1) - 531.293 Other, net of applicatale income taxes (5,886) (14.117) in 'ome Before Interest Expense $ 4,984,177 $ 4.925.102 Interest Expense: First mortgage bonds (Note 5) $ 2,088,957 $ 1.872.034 Other (Note 6) 1,243,365 304,734 Allowance for borrowed funds used during construction (Note 1) (792,693) (643.149)
$ 2,539,629 $ 1.533.619 inc:me Before Cumulative Effect of a Change in Accounting Principle $ 2,444,548 $ 3.391.483 Cumulative effect on pnor periods (to December 31,1978) of changing to a different method of recording revenue net of related income taxes of $1,034.000 (Note 1) 1,043.000 -
Net income $ 3,487,548 $ 3,391,483 Dividends on Preferred Stock 546,420 450.570 Earnings Applicable to Common Stock $ 2.941,128 $ 2.940.913 Earnings Per Common Share, based on weignted average number of shares outstanding of 1,801.906 in 1979 and 1.658.985 in 1978 (Note 1) Before cumulative effect of a change in accounting principle $ 1.05 $ 1.77 Cumulative effect on prior periods (to December 31,1978) of changing to a different method of recording revenue $ .58 $ - Net $ 1.63 $ 1.77 Pro forma earnings assuming the new method of recording revenue is applied retroactively Applicable to common stock $ 1,898,128 $ 3.045.475 Per share $ 1.05 $ 1.83 The 8CCCTpanyeg notes are an integral paff Of these trancial statements 7
- e. ._
BANG 0R HYDR 0fLECTRIC COMPANY Balance Sheet - December 31,1979 and 1978 Assets 1979 1978 investment in Utility Plant: Electric plant in service, at original cost (Notes 8 and 9) $95,017,710 $87.396.867 Less Accumulated depreciation (Notes 8 and 9) 32,459,170 30.065.676
$62,558,540 $57,331,191 Construction in progress, including $3.697,502 in 1979 and $3,835,595 in 1978 for construction of jointly-owned generating units (Notes 9 and 10) 3,824,265 5.453.208
$66,382,805 $62.784,399 Investments in corporate joint ventures (Notes I and 8)
Maine Yankee Atomic Power Company 4,683,022 4.678,772 Maine Electric Power Company, Inc. 178,898 188.002
$71,244,725 $67.651.173 Cther investments, principally at cost $ 520,395 $ 529.659 Current Assets:
Cash (Note 6) $ 1,122,801 $ 1,917,124 Accounts receivable - Custorr. ors, not of reserve 5,098,511 4.280.689 income tax refund 563,287 772.265 Unbilled revenue receivable (Note 1) 2,549,199 - Inventories at average cost - Material and supplies 1,840,857 1,529.516 Fuel oil 1,286,905 515.611 Prepaid expenses 359,103 357.590 Deferred fuel costs (Note 1) 5,484,688 -
$18,305,351 $ 9.372.795 Deferred Charges:
Cost of cancelled NEPCO nuclear units, net of related income taxes of $785.265 (Note 10) $ 1,230,041 $ - Other 424,054 380.418
$ 1,654,095 $ 380,418
$91,724,566 $77.934.045 The accompanymg notes are an otegral part of these fmancial statements 8
't .
Stockholders' investment and Liabilities 1979 1978
. Capitalization (see accompanying statement):
Common stock investment (Note 3) ~
$25,694,645 - $25217,605 Pref rred stock (Note 4) 4,734,000 4,734.000 Redeemable preferred stock (Note 4) 5,000,000 2,000,000 First mortgage bonds, exclusive of a current maturity and sinking fund requirements.(Note 5) 32,345,000 27.515.000 Total capitalization $67,773,645 $59.466.605 Current Liabilites:
Curr:nt maturity of long-term debt (Note 5) $ 2,000,000 $ - Not:s payable to banks (Note 6) 7,550,000 7.050.000
$ 9.550,000 $ 7.050.000 Oth:r current liabilities -
Current sinking fund recuirements $ 170,000 $ 170,000
- Accounts payable 5,116,931 4,134,670 Dividends payable 856,598 792,813 Accrued interest 664,954 384,635 Accrued taxes (Note 2)
. Current 207,764 227,742 Short-term deferred (55,417) -
Customers' deposits 73,859 79,448 l Accrued pension plan contribution (Note 7) 410,000 363.600
$ 7,444,089 $ 6.152.908
$16,994,689 $13.202.908 l Commitments and Contingencies (Notes 8, 9 and 10)
Deferred Credits and Reserves (Note 2): Accumulated deferred income taxes $ 3,441,848 $ 2,746,181 , Unamortized investment tax credits 3,418,326 2,437,848 > Other 96,058 80.503
$ 6,956,232 $ 5264.532
$91,724,566 $77.934.045
.
The C:cornpanying #10tes are an ,rtegral part of these financet statements. 9
I 1 BANG 0R HYDRG-ELECTRIC COMPANY Statement of Retained Earnings for the Years Ended December 31,1979 and 1978 1979 1978 Balance at Beginning of Year $ 8,599,913 $ 8,026,517 Add: Net income 3,487,548 3,391,483 Equity reserve for licensed hydro projects - 136262
$12,087,461 $11,554.262 Deduct:
C1sh dividenc; declared on-Preferred stock $ 546,420 $ 450,570 Common stock - $1.52 per share in 1979 and $1.46 per share in 1978 2,742,338 2.503,779
$ 3,288,758 $ 2,954,349 Balance at End of Year $ 8,798 703 $ 8.599.913 Statement of Capitalization - December 31,1979 and 1978 1979 1978 Common Stock Investment:
Common stock, par value $5 pe'r share-Authorized--2,500,000 shares Outstanding--1,812.023 shares in 1979 and 1,789,827 shares in 1978 $ 9,060,115 $ 8.949,135 Amounts paid in excess of par value 7,835,827 7,668,557 Retained earnings 8,798,703 8.599.913
$25,694,645 $25217,605 Preferred Stock, non-participating, cumulative, par value $100 per share, authorized 100,000 shares (Note 4):
Subject to mandatory redemption requirements-9-1/2%, Callable at $109.50, 30,000 shares authorized and outstanding $ 3,000,000 $ - 9-1/4%, Callable at $106.77, 20,000 shares authorized and outstanding 2,000,000 2.000.000
$ 5,000,000 $ 2.000.000 Not redeemable or redeemable soifly at the option of the issuer-7%, Noncallable. 25,000 shares authorized and outstanding $ 2,500,000 $ 2,500,000 4-1/4%, Callable at $100, 4,840 shares authorized and outstanding 484,000 484,000 4%, Series A, Callable at $110,17,500 shares authorized and outstanding 1,750,000 1.750.000
$ 4,734,000 $ 4.734.000 First Mortgage Bonds (Note 5):
2-3/4% Series due 1980 $ 2,000,000 $ 2,000,000 3-1/4% Series due 1982 1,000,000 1,000,000 3-1/8% Series due 1984 $ ,000,000 1.000,000 3-1/4% Series due 1985 1,500,000 1.500,000 4% Series due 1988 2,500,000 2,500.000 4% Series due 1993 3,500,000 3,500,000 6-3/4% Series due 1998 2,500,000 2,500,000 8-1/4% Series due 1999 3,500,000 3.500.000 10-1/2% Senes due 2000 4,800,000 4,850,000 9-1/4% Series due 2001 2,865,000 2.910,000 8-3/5% Series due 2003 2,350,000 2.425,000 10-1/4% Series due 2004 7,000,000 -
$34,515,000 $27,685,000 Less - Sinking fund requirements and a current maturity 2,170,000 170.000
$32,345,000 $27,515.000 Total capitahzation $67,773,645 $59,466.605 Ihe SCC 0mpanysng notes are an entegral part Of these f#nancial Staternents.
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+
BANG 0R HYDRORECTRIC CatIPANY Statement of Sources of Funds for Plant Additions for the Years Ended December 31,1979 and 1978 197!) 1978 Sources of Funds: Internal sources-Operations - N^,t income before cumulative change in accounting principle $ 2,444,548 $ 3,391.483 Itsms not currentir requiring or (providing) funds-Depreciation 2,814,541 2200,513 Deferred income taxes 695,667 470,488 Investment tax credit, net 980,478 923,637 Allowance for cther funds used during construction - (531,293) Funds provided from operations $ 6,935,234 $ 6,454,828 Cumulative effect on prior years (to December 31, 1978) of a change to a different trethod of recordi.1g revenue 1,043,000 -
$ 7,978,234 $ 6.454,828 Other sources (uset;) of funds -
Sinking fund requ rements $ (170,000) $ (170,000) Dividends declare 1 (3,288,758) (2.954,349) Other, net 874,952 74.206
$(2,583,806) $(3.050,143)
Change in net current assets, exclusive of interim financing - Cash, receivables and unbilled revenue $(2,363,720) $(3,122,661) Deferred fuel costs (5,484,688) - Other current assets (1,084,148) (83,265) Accounts payable 982,261 1,807,113 Other current liabdities 309,522 54,944
$(7,640,773) $(1,343.869)
Funds available from internal sources $(2,246,345) $ 2.060.816 External sources-Notes payable to banks $ 500,000 $ 2,750,000 Prcceeds from sale of-First mortgage bonds 7,000,000 2,500,000 Preferred stock (30,000 shares in 1979) 3,000,000 - Common stock-Public offering - 4288,010 Dividend reinvestment purchase plan (14,145 shares in 1979) 194,626 - Employee stock ownership plan (8.051 shares in 1979 and 3,800 in 1978) 110,547 56.696 Funds from external sources $10,805,173 $ 9.594,706 Funds Available for Plant Additions $ 8,558,828 $11.655.522 Funds Used For: Wyman Unit #4 $ 1,313,818 $ 3,620,186 NEPCO Units #1 and #2 (Note 10) 379,991 1,271,168 Seabrook 1,504,070 2200,279 Other plant additions 5,360,949 5.095,182
$ 8,558,828 $12,186,815 Less: Allowance for other funds used during construction -
*(531,293)
Funds Used for Plant Additions $ 8,558,828 $11.655.522 The acompanycg notes are an ircegral part of these foancial statements 11
BANGORHYDR0fLECTRIC CORIPANY Notes to Financial Statements December 31,1979 and 1978 (1) Summary of Significant Accounting Policies Electric Operating Revenues Prior to 1979, Electric Operating Revenues were recorded when billings, based on cycle meter readings for either a one- or two-month period of consumption, were rendered to customers. Due to the cycle billing process, a portion of the electricity used by the Company's customers during a fiscal period remains unbilled at the end of that period. In general. this "unbilled" amount of revenue was not recorded as revenue prior to 1979. In the first quarter of 1979, the method of recording Electric Operating Revenues was changed to recognize revenues as electricity is used by the Company's customers. including electricity delivered but not yet billed at the end of the accounting penod. This accounting change was made in order to better match the recogriition of electric revenues with the recognition of the costs of providing the electric service. The cumulative effect of this accounting change on prior years (to December 31,1978) amounts to $1,043.000 (after reduction for income taxes of $1,034.000) and was included in income for the first quarter of 1979. The pro formL amounts shown in the Statement of income reflect the effect of retroactive application of the new method of recording revenue as if the new method had been followed throughout the periods. Deferred Fuel Accounting Under the fuel adjustment clause in operation in 1979, Fuel Charge Revenue was generally recorded when the cost of fuel was billed to customers. Opem..g Expenses were charged for the cost of fuel as incurred, which preceded the billing of fuel adjustment revenues by an average of three months. Consequently, in periods of rising fuel costs the Company's earnings were adversely affected by the amount of fuel costs incurred in excess of fuel billings. On December 28, 1979 the Maine Public Utilities Commission ("MPUC") promulgated new fuel adjustment regulations to be effective January 1,1980. As part of its order implementing the new fuel regulations, the MPUC authorized the Company to collect, over a three-year period beginning January 1980, the fuel costs incurred which were unrecovered at December 31,1979, due to the operation of the previous fuel clause. Accordingly,in December the Company deferred $3,806.901 of fuel expenses, which amount represents the balance of unrecovered fuel costs
'
which will be collected over the next three years. The after-tax effect of this deferral is to increase earnings by $1.06 per common share. Prior to December, the Company had received separate orders providing for deferral of incremental fuel costs incurred as a result of the two 1979 shutdowns of the Maine Yankee Atomic Power Company nuclear plant (" Maine Yankee") Deferred fuel costs at December 31, 1979 include the $230.380 remaining balance of unrecovered incremental fuel costs incurred during the normal maintenance shutdown i.n September 1979 and the $1 A47.407 remaining balance of unrecovered incremental costc incurred during the unscheduled shutdown discussed below. During the March 15 to June 5,1979 Maine Yankee plant shutdown ordered by the Nuclear Regulatory Commission ("NRC") for safety checks, the Company purchased replacement energy at costs in excess of the cost of the energy that Maine Yankee would have generated. During the shutdown period the MPUC held hearings to consider the applicability of the Maine utilities' normal fuel adjustment clauses to the incremental costs of replace-ment energy. On May 5,1979 the MPUC issued an order altering the utilities' fuel clauses so as to provide for recovery of this incremental cost of energy over a 12-month penod. On December 28 and 31,1979 the MPUC issued orders which further extended this collection penod through the end of 1980. The utilities involved in these hearings. including th3 Company, have appealed the December 28 and 31 orders. The MPUC is conducting hearings to connider the justness and reasonableness of the incremental fuel costs incurred by the Maine utilities during the Maine Yankee shutdown and the amounts which the utilities will ultimately be allowed to collect from customers. Management bel; eves that all of the replacement energy costs incurred by
'he Company were just and reasonable and therefore shC1 be recoverable from its customers.
Equity Method of Accounting The Company accounts for its investments in the common stock of Maine Yankee and Maine Electric Power Company, Inc. (" Maine Electric"). an electric transmission company, on the equity method of accounting and records its proportionate share of the not earnings of these companies (substantially all of these earnings are paid out in dividends) as a reduction of purchased power costs. See Note 8 for additional information with respect to these investments. Depreciation of Electric Plant and Maintenance Policy Depreciation of electric plant is prov',ded using the straight-line method at rates desig7ed to amortize the original cost of the properties over their estimated service lives. The composite depreciation rate, expressed as a percentage of average depreciable plant in service, was approximately 3.2% in both 1979 and 1978. The Company follows the practice of charging to maintenance the cost of repairs, replacements and renewals of minor items considered to be less than units of property. Costs of additions, replacements and renewals of 12
.
' it ms consideted to be units of property are charged to the utility plant accounts and any items removed are retired from such accounts. The original costs of units of property retired and removal costs, less salvage, are charged to the reserve for depreciation.
. Allowance for Funds Used During Construction The Company reflects as an element of the cost of construction of major units of depreciable property an allowance for funds (including common equity func's) employed during the construction period ("AFDC"). While not currently providing funds, under the rate-making process of applicable regulatory agencies,the Compary is permitted to recover these amounts over the usefullife of the constructed property. Further, the unrecovered cost of constructed property, including the allowance, is an element of rate base on which the Company is permitted to earn a retem.
The amount of the allowance recorded is determined by multiplying the portion of the average monthly dollar balance of construction in progress financed by short-term borrowings by the weighted average interest rate applicable to short-term borrowings for the month and multiplying any remainder of the monthly dollar balance of construction in progress by the weighted average cost of debt and equity as of the beginning of the year. in 1979, the average monthly short term borrowings exceeded the average monthly balance of construction in progress and, as
'
a result, the 1979 allowance rate is the average interest rate of 1979 short-term borrowings. The average rate produced by the Company's computations was 132% in 1979 and 8.4% in 1978.
, (2) Income Taxes -
The individual components of Federal and state income taxes reflected in the statement of income for the years ended December 31,'1979 and December 31, 1978 are as follows: 1979 1978 Federal State Federal State Current $ (491.027) $ (238,106) $ (453.080) $102,120
, Deferred-short-term 326.040 403.808 -- -
Deferred-other 695f67 - 467.928 2,560 investment tax credit, net 980 478 923.637 Employee stock ownership plan investment tax credit 106,165 95,964 - 4 Total provision for income taxes $1,617,323 $ 165,702 $1,034,449 $104,680 Charged to other income (22,515) (3.683) (9.215) (1,484) Allocated to cumulative change in , accounting principle (Note 1) (888.553) (145.400) - -- 4 Charged to operating expenses $ 706.255 $ 16.619 $1,025.234 $103.196 In 1979, the Company experienced a net loss for tax purposes resulting principally from three significant transactions which increased income for accounting purposes but not for tax purposes. The loss for tax purposes
'
resulted in net operating loss and investment tax credit carryovers which, subject to review by the Internal Revenue Service, will be used to reduce income taxes otherwise payable in future years The provisions and accruals related to these items, which have been classified (principally as short-term deferred taxes) to correspond to the accounting
' for the related assets, are as follows:
Federal State
- Costs of cancelled NEP units S 681,548 $ 103,717 Deferred fuel costs 2.346,349 383,928 Unbil!cd revenues 1,090b7 178,444 Net operating loss carry forward (1.603.732) (262,281)
Investment tax credit carry forwards Through 1985 - (1,187,814) - Through 1986 (1.000.858) -
< $ 326.040 $ 403.808 The rate-making practice followed by the MPUC in the Company's most recent (November,1976) rate order permitted the Company to recover as a part of the cost of service only the deferred Federalincome tax arising from
, the use, for income tax purposes, of accelerated depreciation of property added subsequent to 1969. Except as described above, the income tax effects of other timing differences between pretax accounting inccme and taxable income generally are, in effect, flowed through to the Company's customers. Although this accounting differs from generally' accepted accounting principles followed by nonrateiregu6ted companies, which are required to record deferred taxes related to all timing' differences, the Company expects that deferred taxes not recorded will be collected through customer rates in the future when such taxes become payable.
' 13
~. -- - , . .,, _,
m The table below reconciles a provision c lculited by multiplying income befora Federal income tax:s by the statutory Feder:I income tax rata to the above provision for Federal income taxes: 1979 1978 Amount % Amount % (Dollars in Thousands) Federal income tax provision at statutory rate $2.348 46% $2,110 48% Pamanent reductions in tax expense resulting from statutcry exclusions from taxable income: Dividend received deduction related to camings of associated companies 207 4 208 5 Equity component of AFDC - - 255 6 Preferred ' dividends paid deduction - - 34 1 Amortization of investment tax credit 80 1 36 1 Other 34 1 - - Federal income tax provision before effect of flow-through $2.027 40% $1,577 35% Timing differences that are flowed through for rate-making and accounting purposes: Interest component of AFDC 365 7 309 7 Deduction of certain costs (primarily pension costs and payroll taxes) for tax purposes that are included in the cost of electric property 29 1 27 1 One-half year depreciation convention - - 216 5 Other 16 - (9) (1) Federal income tax provision $1.617 32% $1.034 23% Under the Federal income tax laws, the Company receives investment tax credits at a rate of 10% on qualified property additions. Investment credits received are deterred and amortized over the life of the related property. Due to the adoption of a Tax Reduction Act Stock Ownership Plan (see Note 3), the Company receives an additional 1% investment tax credit which is used to fund the Plan. (3) Capital Stock - The Ccmpany has an employee stock ownership plan which qualifies as a Tax Reduction Act Stock Ownership Plan ("TRASOP"). Annual contributions to the Plan by the Company will be in the form of common stock of the Company having a market value equal to an additional 1% investment credit allowed by Federal tax law, less some adminis-trative expenses. The Company also has adopted a Dividend Reinvestment and Common Stock Purchase Plan through which shareholders may purchase common stock without payment of brokerage commissions or service charges. In connection with these plans, the Company has reserved 130.000 shares of common stock.
. (4) Preferred Stock General Authorized preferred stock consists of 100,000 shares, par value $100 per share, of which there are outstanding 97.340 shares: The remaining 2,660 authorized but unissued shares (plus additional shares equal in number to such presently outstanding shares as may be retired) may be issued with such preferences, restrictions or qualifica-tions as the Board of Directors may determine. The callable preferred stock may be called in whole or in part upon any dividend date by appropriate resolution of the Board of Directors.
- With the exception of the 20,000 shares of 9%% Preferred Stock and the 30,000 shares of 9K% Preferred Stock (issued on August 31, 1979), the outstanding preferred stock has general voting rights of one vote per share.
. Redeemable Preferred Shares The 9%% Preferred Stock and the 9%% Preferred Stock are subject to man,datory redemption through the operation of sinking funds at the redemption price of $100 per share plus dividends accrued. The Company will set aside in c"sh annually (1) on December 1 in each year commencing with December 1,1982, an amount sufficient to redeem 1000 shares of the 9%% Preferred Stock; and (2) on August 1 in each year commencing with August 1,1985, an amount sufficient to redeem 2000 shares of the 9%% Preferred Stock.
The aggregate amounts of preferred stock redemption requirements for each of the five years fclowing 1979 are as follows: 1980 - 1981 - 1982 $100,000 1983 $100,000 1984 $100.000 14 4
(5) First Mortgage Bonds Under the provisions of the indenture, substantially all of the Company's plant and property has been mortgaged to secur) the First Mortgage Bonds. Additional bonds may be issued under the First Mortgage Bond indenture. Subject to certzin restrictions and provisions specified in the indenture and supplements thereto. Sinking fund requirements and current matunties of long-term debt for the five years subsequent tu December 31, 1979 aggregate $4,850,000 as follows: Sinking Fund Current Requirement Maturities Total ' 1980 $170,000 $2,000,000 $2,170,000 1981 170,000 - 170,000 1982 170,000 1,000,000 1,1"0,000 1983 170,000 - 170,000 1984 170,000 1,000,000 1,170,000
$4.850,000 (6) N;tes payable to Banks The Company uses short term borrowings under lines of credit to initially finance construction and for other corporate purposes. The Company iritends to refinance such borrowings with the proceeds from sales of long-term debt and equity secunties.
At December 31, 1979 the Company had lines of credit with three banks totakng $15,300,000 as follows: Amount Available Under Interest Commitment Fee or Line of Credit Rate Compensating Balance Terms
$7,000,000 Prime Rate -
4,300,000 Prime Rate $100,000 compensating balance plus a fee of prime rate applied to 7h% of $3,300,000 of the line plus a fee of the prime rate applied to 7%% of borrowings 4,000,000 108% of the $100,000 compensating balance plus a fee of Prime Rate pnme rate applied to 8% ot $3,000,000 of the line Certain information related to these borrowings for the years 1979 and 1978 is as follows: 1979 1978 Total knes of credit $15,300,000 $9,000,000 Unused line of cedit at end of period $ 8,050,000 $2,250,000 Borrowings outstanding at end of period $ 7,250,000 $6,750,000 Effective interest rate (exclusive of fees for the lines) on borrowings outstanding at end of period 15.5% 11.75 % Averaga daily outstanding borrowings for the period $ 9,291,000 $2,490,000 Weightd daily average annual interest rate 13.2% 9.8% Highese level of borrowings outstanding at any month-end during the period $14,250,000 $6,750,000 (7) Supplementry income Statement Informatior. The Company has a noncontributory pension plan covering substantially all of its employees. The Company funds pension costs accrued. Pension expense was $410,000 in 1979 and $408,600 in 1978, including amortization of unfunded prior service costs (approxirnstel). $928,000 as of January 1,1979) over a twenty-year pericd. As of January 1,1979, the date of the latest actuarial review, the pension fund assets exceeded the actuarially computed value of vested benefits. M intenance expense, depreciation, and local property and other taxes not based on income which were ch:rged to operating expenses are stated separately in the income statement. Rents and advertising costs are not signific nt. No royalty or research and development expenses were incurred. (8) Cepacity The Company owns 7% of the common stock of Maine Yankee Atomic Power Company, a nuclear generating company, and 14 2% of the common stock of Maine Electric Power Company, Iric, an electric transmission company. Under purchased power arrangements, the Company is entitled to purchase 7.3071% of the output of Maine Yankee, cnd is obligated to pay a like percentage of Maine Yankee's costs. including a return on invested capital,regardless of the levil of electrical outpt.t. The Company is also entitled to 2.4% of a purchased power contract between Maine ~ Electric'and the New Brunswick Electric Power Commission. To the extent that Maine Electric's revenues from trans-mis ~, ion services are insufficient to meet its expenses, the Company and the other participants oay Maine Electric's
.15
costs based on their r:lativ3 System peaks. Information relating to the above purchased power arrangements and the operations.of Maine Yankee and Maine Electric is as follows: Maine Yankee Maine Electric Power Sales Contract Term 1973 - 2003 1976 - 1986 Capacity Entitlement in megawatts (MW) 60MW 9.6MW Operations: 1979 1978 1979 1978 As reported by investee. (Dollars in Thousands) Operating revenues S 68.867 $ 70.373 $ 98.122 $ 59.860 Depreciation $ 8.279 $ 8,173 $ 735 $ 736 Interest and preferred dividends 14,458 12,550 1,238 1,201 Other, net 39.480 42.948 95.994 57.760
$ 62.217 $ 63.671 $ 97.967 $ 59.697
- Eamings applicable to common stock $ 6.650 $ 6,702 $ 155 $ 163 Amounts reported by Company-Purchased power costs $ 4,199 $ 4.217 $ 587 $ 551 Equity in net income (468) (479) (24) (39)
$ . 31 $ 3.738 $ 563 $ 512 Financial Position-As reported by investee-Plant in service $240.061 $237,884 $ 18.617 $ 18.617 Accumulated depreciation (54,105) (46,449) (6.482) (5,746)
Other 101,149 74.520 10.669 7.941 Total asseta $287,105 $265.955 $ 22,804 $ 20.812 Less-Preferred stock 13.070 13,696 - - First mortgage bonds and long term notes 139,373 128,818 10,560 11.220 Other liabilities and deferred credits 67.805 56.657 10.997 8.267 Net assets $ 66.857 $ 66.784 $ 1.247 $ 1.325 Company's reported equity-Equity in net assets S 4,680 $ 4.675 $ 177 $ 188 Add (deduct) - Effect of adjusting Company's estimate to actual 3 4 2 - Amounts reported by Company $ 4.683 $ 4.679 $ 179 $ 188 Financial statements of Maine Yankee and Maine Electric are included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. The Company owns 8.3% (50 megawatts) of the 600 megawatt Wyman #4 plant which is operated by another utility. Included in plant in service and accumulated depreciation is the Company's interest in this plant of $16.207,360 and $485,174 respectively. The Company's proportionate share of the direct expenses of this unit is included in the corresponding operating expenses in the income Statement. (9) Construction The Company is engaged in an ongoing construction program including an investment in the Seabrook Nuclear Units ("Seabrook"), a jointly-owned electric generating facility being built by the Public Service Company of New Hampshire ("PSNH"). The Company now owns .37% (8.6 megawatts) of Seabrook and has contracted to purchase another 1.8% (41.4 megawatts) of that plant. The Company's participation in the .37% interest and its potential participation in the 1.8% interest are summarized below-Participation 5 Seabrook Existing Under Contract Total Company's Ownership Percentage .37% 1.8% 2.17% Utility plant under construction (000's): Construction and nuclear f uel costs $ 3,319 $16,145 $19,464 Allowance for funds 379 - 379 Estimated for. completion: Construction and nuclear fuel costs 5,210 25,345 30,555 Allowance for funds 2,110 11,992 14.102 Total $11.018 $53.482 $64.500 16
Th3 above estimates for completion are based on the latest cstimates of the project's cost fumished by PSNH. See also Note 10. " Contingencies - Seabrook" for a further discussion of this project. The Company also had a 4.35% interest ($2,015.000 at December 31, *r79) in the New England Power Company nuclear units which have been cancelled. See Note 10. " Contingencies - NEP Nuclear Units" for a discussion of this matter. (10) C ntingencies NEP Nuclear Units One of the projects in which the Company had an ownership interest is the New England Power Company nuclear units originally planned for Charlestown, Rhode Island, at the site of an abandoned naval base. The Company's investment in that project at December 31,1979 was $2.015,000, including AFDC of $359.700. Efforts to obtain the site were unsuccessful, and the lead owner's parent company has determined that the capacity from the Units wil! not be required to meet its system's fifteen year corporate plan. Accordingly, on December 17, 1979, the lead owner announced the cancellation of the project. The recoverability of the Company's investment in the project will depend upon regulatory approval, which is being sought as a part of the Company's general rate increase request filed in February 1980. The Company's investment may be reduced somewhat by its proportionate share in the salvage value of certain contracts relating to nuclear fuel. While the Company believes that these costs should be recovered, no prediction can be made as to the amount of any recovery through rates or otherwise or the time period over which recovery will take place. If any of this amount is determined not to be recoverable, that amount would be charged, net of related income taxes, against earnings in the period such a determination is made. Seabrook As discussed in Note 9 above, one of the jointly owned generating stations in which the Company is participating is the nuclear generating plant being constructed in Seabrook, New Hampshire in which PSNH has a 50% ownership interest and acts as the principal or lead participant. In response to the passage of a statute in New Hampshire prohibiting the inclusion of expenditures for con-struction work in progress in rate base, PSNH determined that it could not continue to finance a 50% interest in the Seabrook units, and in March 1979 it began efforts to reduce its ownerchip interest to 28%. PSNH's efforts have resulted in commitments only sufficient to reduce PSNH's interest to approximately 35%, which transactions can be consummated only after regulatory approvals of all purchases are obtained. The Company anticipates having no dithculty in receiving the necessary regulatory approvals for its additional 1.8% interest. However, regulatory proceedings with respect to some of the other purchasers' interests have been delayed, and PSNH has indicated that the required approvals may not be obtained before January 1981, or later. In the meantime, PSNH is attempting to continue to finance its 50% ownership interest in the Seabrook project. PSNH has indicated that absen' adequate rate rehef, it may be unable to continue to finance its 50% interest in the Seabrook project pending approval of the above described reduchon of its interest. No assurance can be given that such approvals will be forthcoming. However, PSNH has applied for a rate increase, which is currently pending before the New Hampshire Public Utilities Commission ("NHPUC"), and in December 1979 the NHPUC granted PSNH's request for emergency rate relief while the rate request is being considered. Construction of the Seabrook units has required numerous approvals and permits from various state and Federal regulatory agencies The process of obtaining these approvals and permits has been long and complex and has been opposed consisten!!y by a number of intervening groups. Opposition to the project has included demonstrations at the Seabrook site. The project also has been plagued by lengthy delays which have resulted in greatly increased costs. One court appeal from Federal regulatory approvals is pending and further appeals are possible. The Company cannot predict whether PSNH's rinancing problems will be resolved, nor can it predict what effect those financing problems or further administrative or court decisions or regulatory actions may have upon PSNH's ability to complete the project or upon the cost of the project. Maine Yankee Investigation During the March to June,1979 shutdown of Maine Yankee ordered by the NRC, the Company's costs of fuel and purchased energy were increased by an estimated $3,350,000 in order to replace the energy which Maine Yankee would have supplied. Upon complaint of citizens' groups, the MPUC has been conducting an investigation of these r: placement energy costs with respect to the Company and the other two major electric utilities in Maine. On May 5, 1979 the MPUC issued an order alter ng the fuel clauses of these utilities to provide that the replacement energy costs would be collected over a 12 month period instead of the shorter period that otherwise would have pertained. The uncollected balance of such costs was $1,447,407 at December 31,1979. On December 23 and 31,1979, the MPUC issued orders further extending the recovery period through the end of 1980. The Company and the other utibtics have appealed to the Maine Supreme Judicial Court from this action. The MPUC investigation is continuing, and includes such issues as whether the utiktics were responsible for the shutdown and therefore should not recover th; costs; whether, absent such responsibikty, the costs should nevertheless be amortized over an even longer period of time; and whether the costs themselves are just and reasonable. It is the opinion of managerrent that tne 17
- -- _ _ - - - -
replicement energy costs incurred by the Company were just and reasonable and therefore ought to be recovered. The Company is unable to predict what order, if any, the MPUC will issue with regard to a more lengthy amortization j
- of such costs.
. Stullen Cases The Company is the' defendant in a class action brought by the Penobscot Nation of Indians seeking $5 million in compensatory damages and a like amount in punitive damages for loss of lands taken by flowage resulting from the damming of the Penobscot River by the Company's predecessors in title, allegedly in violation of the Indian Trade and Intercourse Act of 1790. The Company is also the defendant in an action based upon the same 1790 law j brought by an individual alleging that he is a Penobscot Indian seeking $200,000 in damages for trespassing and requesting removal of existing transmission lines. Proceedings in both of the above matters have been stayed pending the outcome of two suits brought by the ' United States against the State of Maine, one on t,ehalf of the Passamaquoddy Tribe of Indians and one on behalf of the Penobscot Nation of Indians, seeking a total of $300 million in damages for divesting them of their aboriginal lands more than a century ago, allegedly in violation of the above mentioned 1790 law. The suits could be amended to seek the return of that land. The area involved includes much of northeastem Maine and substantially all of t the Company's service territory. The United States has refrained from proceeding with the claims in Court while various extra-judicial settlement proposals have been explored by the parties. The United States and the other parties have been actively engaged in negotiations during 1979. The Company believes that any settlement package ultimately agreed upon is likely to provide, among other things, for Federal funds and services and other considerations to be extended to the indians in return for extinguishment of some or all of the indians' claims against private landowners, including the Company. - Unt.1 the disposition of the Indian cases against the State of Maine, the likelihood of an unfavorable outcome in the cases against the Company cannot be specifically determined, but in the opinion of management, based on the
]
opinion of iegal counsel, the outcome of the above mentioned cases against the Company will not have a ma9tially
; adverse effect on the financial condition of the Company.
' IMC ! IMC Chemical Group, Inc. ("lMC"), tho Company's largest customer, accounting for approximately 8.1% of the , Company's general rate revenue, instituted proceedings in August 1975 before the MPUC requesting that it be 1 i served by another utility. If the MPUC were to grant the request, the Company would apply for rate relief to make up , for the loss of revenue from the basic rates applicable to this customer. Honever, the loss of this customer would . reduce the Company's cost of fuel and purchased energy which is passed on to all customers including IMC. In the , opinion of management, the magnitude of this reduction in fuel and purchased energy costs would offset substantially all of any basic rate increase to other customers. (11) Unsudited Quarterly Financial Information i See " Management's Analysis of Summary of Operations" for unaudited quarterly financial information. i , l
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SIX YEAR STATCTICAL SUMZASY FROM 1070 THROUGH 1C70 - 1979 1978 1977 1976 1975 1974 Electric Plant (000) Total Electric Plant $ 103,704 $ 91,717 $ 86.026 $ 79.018 $ 72,490 $ 68.928 Depreciation Reserve 32,459 30.066 28239 26.588 24,993 24239 Net Electric Plant $ 71,245 $ 67.651 $ 57.787 $ 52.430 $ 47,497 $ 44.689 Capital Structure (000) Bonds $ 34,515 $ 27.685 $ 25.355 $ 27.950 $ 25,000 $ 25.000 Redeemable Preferred Stock 5,000 2.000 2,000 2.000 - - Preferred Stock 4,734 4.734 4,734 4,734 4.734 4.734 Common Stock 9,060 8.949 7,430 6.169 6.168 5,544 Prernium on Common Stock 7,836 7.6E8 4.843 2.388 2,405 1,763 Retained Earnings 8,799 8.60) 8.027 7.637 8.250 7,900 Total Capitalization $ 69,944 $ 59.630 $ 52,389 $ 50,878 $ 46.557 $ 44.941 Capital Structure Ratios Bonds 49.4 46.4 48 4 54.9 53.7 55.6 Preferred Stock 13.9 11 3 12.8 13.2 10.2 10.5 Common Stock Equity 36.7 42.3 38.8 31.9 36.1 33.9 Summary of Operations (000) Operating Revenue $ 51,748 $ 42.627 $ 38294 5 31,336 $ 32.314 $ 30,546 Fuel & Purchased Power 33.055 26.763 22,548 18.143 17,974 18,178 Operation & Maintenance 8,344 6.612 6.687 6.334 6.067 5.472 Depreciation 2,814 2.201 2.095 2.029 1,962 1.897 Taxes 2,545 2.643 2.894 1.819 2,952 2270 Other Income (expenses) (456) 855 407 167 (140) (212) Bond Interest 2,089 1.872 1,718 1.633 1.132 1.090 Net income $ 3,488* $ 3.391 $ 2,759 $ 1,545 $ 2.087 $ l.427 Common Stock Number of Stockholders-End of Year 7,535 7,479 6.841 6.184 6.136 5,870 Shares Outstanding-End of Year 1,B12,023 1,789.827 1,486,027 1.233,710 1.233,710 1,108,710 Shares Outstanding-Average 1,801,906 1,658,985 1.317.816 1.233.710 1,139,960 1,108.710 Earnings per Common Share-Average $ 1.63* $ 1.77 $ 1.75 $ .95 $ 1.60 $ 1.05' ( Dividends Declared per Common Share $ 1,52 $ 1.46 $ 1.41 $ 1.34 $ 1.29 $ 1.28 Production Sources in KWH (000) Hydro Generation 246,052 213,195 245.821 254.813 232.341 233,655 Fuel Generation 77,209 15,910 11.498 113.119 118,386 182.624 Purchased Power 1,112,676 1,108,416 977,400 818.361 717,162 688297 Total Generated & Purchased 1,435,937 1,337,521 1.234.719 1.186,293 1.067,889 1,104.576 Sales in KWH (000) Residential 386,623 369.989 349.869 335,692 308,253 301.069 Commercial 221,071 213.777 198.384 186271 170291 162,118 Other 724,056 646,765 580.679 557,167 501,045 562.045 Total 1,331,750 1 230,531 1,128.932 1.079,130 979.589 1,025232 Revenue from Electric Energy Sales (000) Residential $ 18,627 $ 16,171 $ 14.994 $ 12,306 $ 12,618 $ 11.303 Commercial 10,384 9,013 8,207 6,649 6.705 5,970 Other 22,307 17,152 14,764 12222 12,830 13.097 Total $ 51,318 $ 42,336 $ 37,965 $ 31,177 $ 32.153 $ 30.370 Residential Customer Use Average Number of Customers 64,958 64,666 62.371 60,975 59.131 55,075 Kilowatt Hours per Customer 5,952 5,721 5,609 5,505 5.213 5.467 Revenue per Customer $ 286.75 $ 250.07 $ 240.40 $ 201.82 $ 213.40 $ 205.33 Revenue per Kilowatt-hour 4.82c 4.37C 4.29C 3.67C 4.09c 3.75c includes cumuiatwe effect of ahange en accounting pnnciple of $1.043000 ($ 58 per share) and $658/29 ($ 36 per share) attnbutable to the amount of fuel inat would have been deferred at December 31,1978 had the new fuet regulations been effectwe at that date. See Note 1 to the financial statements. See page 23 for Management's Analyses of Summary of Operations 19
TWO YEAR STOCK PRICES AND DMDENDS BY OUARTERS The Common and Preferred Stocks shown below are not listed on any Exchange but are traded in the Over the Counter Market. The 9%% and the 9W% Preferred Stock series were not quoted during this period. 1979 First Quarter Second Quarter Third Quarter Fourth Quarter High Low High Low High Low High Low Common Stock 14h 134 14% 13 14% 12% 12% 11% Preferred Stock - 7% Series 65 64 67 63 64 63 57 53 Preferred Stock - 4%% Series 38 36 39 37 37 37 34 32 Preferred Stock - 4% Series 36 35 36 36 36 35 32W 30 _ 1978 First Quarter Second Quarter Third Quarter Fourth Quarter High Low High Low High Low High Low Common Stock 15% 14 4 15% 14% 15% 14% 14% 134 Preferred Stock - 7% Series 73 70 -- -- 72 72 66 66 Preferred Stock - 4%% Series 43 43 -- -- 42 42 39 39 Preferred Stock - 4% Series 42 42 -- -- 41 41 38 38 Cash Dividends were declared as follows:' First Quarter Second Quarter Third Quarter Fourth Quarter 1979 1978 1979 1978 1979 1978 1979 1978 Common Stock $ .38 $ .36 $ .38 $ .36 $ .38 $.36 $ .38 $ .38 Preferred Stock - 94% Series -- -- -- --
.79 --
2.375 -- Preferred Stock - 9%% Series 2.3125 2.3125 2.3125 2.3125 2.3125 2.3125 2.3125 2.3125 Preferred Stock - 7% Series 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 Preferred Stock - 4%% Series 1.06 1.06 1.06 1.06 1.06 1.06 1.07 1.07 Preferred Stock - 4% Series 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
- See page 22 for a discussion of the tax status of 1979 dividends.
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PunPA contains requirements in tne MANCING areas of customer class load data ment and numeraus standards woi be rewewed in pubhc heanngs or a On August 31 ' 979 the Company and cost of service inf ormation penodic hasis NECPA rncludes a l issued and sold at pnvate sal 6 A proc,:am involving magnetic de residential conservation service
$ 7 000 000 of f irst Mortgage Bonds mand r ec or der s on at least two program which A dl involve the and hiU00 shares of Preferred hundred customers Adl be ; nit'ated Cornpany in comprehensive energy Stock $100 par value The bonds and adm ntstered margina: and aud,ts of homes as Aeil as arrange-hear inforest at t 0 25 /o are subject embedded cost data wal be col mer is for installation financing and to r ecompt a in al face value pur 'et ted and a comprehensive eval billing of customer conservation a<,1 t< > a sink ing f und at the rate batton of rate design load manage- investments
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The Company was the first Ma.ine - g i 4 utility to implement the newly <
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authorized, forward looking fuel - clause. Operation of this clause will I i eliminate the delay between the recording of fuel expense and fuel revenue which, in these days of ,
, rapidly accelerating fuel prices, had, %
prior to 1979, adversely impacted the Company's earnings. In addition
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Utilities Commission ("MPUC")
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has authorized the Company to Generating units at the Company's 6.400 KW MJtord hydro station on the Penobscot River collect over a three year period l fuel costs unrecovered at year-end MPUC matters will occupy much to base wages were made in the ,
'
1979 under the previous fuel clause. more of the Company's time in 1980 non-union pay scale effective . The Nuclear Regulatory Commis- with the processing of the rate January 1,1980. sion ("NRC") ordered the shutdown increase request and the contin- Despite technological advance-of Maine Yankee on March 13,1979 uation of the Maine Yankee investi- ment in the distribution of electricity I pending investigation of certain gation, the IMC case and the and processing of information for safety related piping systems. The Hampden-Orrington transmission billing and customer inquiries, the investigation was completed and the line proceeding. Company continues to rely on the NRC terminated the shutdown order dedication and skill of its employees on May 24,1979, and the plant MANAGEMENTCHANGE in oreer to assure tne continuation resumed normal operations on June of reliable electric service and to 5,1979. In April, complaints were On July 1,1979 Robert S. Briggs meet other customer needs. The filed with the MPUC against the joined the Company as Vice Presi- officers and directors of the Com-Company and other Maine electric dent and General Counsel. Mr. pany wish to extend their apprecia-
- utilities seeking to prevent col- Briggs had been in the private tion to these employees for their lection of the replacement energy practice of law in Bangor since contribution to the Company's costs or any other costs related to 1973, and has been clerk and legal operations.
the shutdown. As reported in Note counsel to the Company since 1975. 10 to the financial statements, the He is a graduate of the University INCOMETAX . MPUC altered the fuel clauses of of New Hampshire and the Univer- 1 the utilities involved to provide for sity of Maine School of Law. STATUSOFDMDENDS , the recovery of the Maine Yankee
'
' l replacement energy costs over a EMPLOYEES Tne Company estimates tnat a 12 month period instead of the portion of the dividends paid in 1979 shorter period which otherwise The Company had 330 full-time and will be considered nontaxable for would have nortained. In December 14 part-time employees at Decem- Federal income tax purposes. The 1979 the MPUC stretched that ber 31,1979 for a total of 344, a primary reason that this has period to the end of 1980. Mean- reduction of 2 from the prior year. occurred is the difference between while, the underlying investigation in accordance with the contract the tax return and financial state- l begun by the complaints continues. between the Company and Local ment treatment accorded certain ' Other activities before the MPUC 1837 of the international Brother- 1979 transactic^ included further pre-hearing confer- hood of Electrical Workers, which Based on os estimates, the ences in the investigation instituted represents 184 employees of the Common Stock and Preferred Stock upon the August 1975 complaint of Company, a 6.75% base wage in- 1979 dividend distributions of Sobin Chemicals, Inc. (now IMC crease became effective on Jan- January 20 and April 20 are fully l Chemical Group, Inc.) which is uary 1,1980, the beginning of the taxable as dividend income. The described in more detail in Note 10 second year cf the two year con- dividend distributions of July 20 to the notss to financial statements. tract. Commensurate adjustments and October 19 are fully nontaxable 22 l
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as dividend income. The dividend wages 8%% on March 9,1979; and operations for 1979 are shown distributions excludable from divi. 3) other inflationary pressures. below-dond income should be applied to Depreciation increased by syn,ng, reduce the tax cost basis of the $614,028 or 27.9% mainly as a For the Electnc Net (loss) Pet shares upon which the dividends result of the Wyman #4 plant [ R**'] were paid. depreciation which amounted to .$"" .no'"s[i C.
,
ano.; voow .n wous
$485,174. $12,436 3/31 $ 395 $ 873* $ .42' MANAGEMENT'S Local Property and Other Taxes 6/30 11.845 1,439 817 39 increased $307,579 or 20.3% due 9/30 12.509 543 (95) (.13)
ANALYSIS 0F iargeiy to ine $i77,705 tax at $2/3i i4.9se 2.ei 3 i,893 .ss
*Y * " " 4 "d'""**d'*- " * * " ' ' ** 5** *
SUMMARY
0FOPERATIONS able property and property tax inctumng the cumulatwe enect sr.onoa, or 1979ASCOMPARE0 raies.
>
'so 58 veranaereo serent or o".er oeree mernod r'o oece-aer s>
or recoreng 7ncome Taxes decreased re$e ue ou WITH1978 $a05.556 or 35.9% because of a ina-a .: g..,,e,, ,ec.. .res c..ea n reduction in tawhle income before "e9^'ed 8"*'82e o' c mm " "e8 S"*"9
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Electric Operating Revenues in- the cumulative eF. ct of the change creased $9,121,532 or 21.4% in accounting principle as well as principally because of an $8,033,614 the lower Federal tax rate. BER or 49.1% increase in fuel adjust- Ailowance for Other Funds - -m ERREMT'S ment rate revenue. This increase is Used During Construction de- ANALYSISOF directly attributable to the fuel creased $531,293 as the average portion of the increase in "Pur- balance of short-term notes payable
SUMMARY
0FOPERATIONS chased Power and Fuel for Genera- exceeded the average balance of tion" expense discussed next. construction work in progress and 1978ASCOMPARE0 Fu:1 for Generation and Pur- accordingly the allowance for funds WITH1977 ' ch=d Power Expense increased was limited to the borrowed com-
$6.292,166 or 23.5% primarily as a ponent. Electric Operating Revenues in-result of: 1) substantial increases in First Mortgage Bond Interest creased approximately $4,333,000 ;
the price of oil; 2) the amortization Expense increased $216,923 or or 11.3% as a result of a 3.5% and of $2,472,000 of incremental fuel 11.6% because of the August 31, 5% increase in the number of resi-costs as a result of the two Maine 1979 issuance of $7,000,000 of dential and commercial customers Yankee shutdowns in 1979; and 3) 10%% bonds. respectively. Residential customers an 8.2% increase in kilowatt-hour Allowance for Borrowed Funds also experienced a 2% increase in sales billed during the period. Used During Construction in- average electrical usage. Further- 1 Oth:r Operation Expense in- creased $149,544 or 23.3% partially more, several of the Company's l creased $1,110.387 or 21.5% sub- because the entire amount of large industrial customers under- l stantially due to: 1) $251,516 in allowance for funds is allocable to went significant expansion pro-expenses attributable to the 8.3% interest as explained above. In grams. participation in the William F. addition, the rate of accrual is Purchased Power and Fuel for Wyman #4 generating plant which higher this yeer because of the Generation increased $4,214,000 I was certified ready for operation increased burowing rates. Off- or 18.7% because of the purchase l on December 1, 1978; 2) an Inter- setting this increase, however, was of additional capacity under a l nal Revenue Service adjustment a reduction in the Company's con- capacity contract and increased I attributable to a prior period re- struction work in progress due to the fuel costs. Fuel costs were higher l sulting in the 1978 expense being completion of Wyman #4. due to lower than normal water some $300,000 lower than it would Other Interest Expense in- conditions, a refueling shutdown be otherwise; 3) the union wage creased $938,631 or 306% as the of the Maine Yankee nuclear plant, contract which increased wages average short-term borrowings a reduction in the vperation of the 8%% on March 9,1979; and 4) other increased from $2,490,000 to Corapany's Graham Station due to inflationary pressures. $9,291,000 and the cmrage interest cooling water intake problems and M; int: nance Expense increased rate increased from 9.3% to 132%. increased kilowatt-hour sales
$620,791 cr 42.6% principally The Cumulative Effect on explained above.
' because of: 1) $222,509 in ex- Prior Years (to December 31, income Taxes decreased ap-l penses attributable to the 8.3% 1978) of Changing to a Different proximately $200,000 or 16.3% l Method of Recording Revenue
'
participation in the William F. due to t reduction in pretax Wyman #4 generating plant which is explained in Note 1 to the accounting income. See Note 2 :o was certified ready for operation financial statements. the financii statements for further on December 1,1978; 2) the union Unaudited quarterly fmancial informatic,.. wage contract which increased data pertaining to the results of interest n First Mortgage 23
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Bonds increased approximately i mately $198 000 or 44 5% as a re- tions for 1978 are shown below l
$154 000 or 9% pnmanly as a re- sult of the 'r reased expenditures v., ine i 1 3. - , qs l
' sult of the refunding in January 1978 for c onstr uction in progress pn g",, T
;g.j' 3 TD ' " ' , 2, i of $2.500.000 of First Mortgage mardy the Wyman NEPCO and Ended ,.r r '
man Bonds at a h:gher interest rate Seabrook units 3/31 $10 715 $1425 $1 133 $ 61 1 The Allowance for Other Funds Earnings per Common Share 6/30 9 518 1 134 853 45 are affected by the issuance of an J/30 9 597 563 447 20 Used During Construction in ' 12/31 12 797 1 265 958 51 creased approximately $298 000 additional 300I000 shares in June mai $42 627 54 407 $3 391 s1 77 or 12/ % and the Allowance for 1978 Borrowed Funds Used During Unaudited quarterly financial data [",['""L,*C,[f"[[",$Q'[,g l Construction increased approm pertaining to the results of opera- ,n l
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' ~BANGOR HYORO ELECTRIC COMPANY '- BULK RATE
- 33 STATE STREET
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U.S. POSTAGE
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PAID -
~ ~ ' .BANGOR MAINE / 04401- Bangor, Maine Permit No.' 651 ~
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