ML20076E671
| ML20076E671 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 02/25/1983 |
| From: | Cobey J, Fassett J UNITED ILLUMINATING CO. |
| To: | |
| Shared Package | |
| ML20076E650 | List: |
| References | |
| NUDOCS 8308240605 | |
| Download: ML20076E671 (36) | |
Text
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Report ta Chareowners n last year general The Company succeeded in its "Mie nnefy/ eased to refnfg I ers we com's annual Report to Shareown-mented that "for the first time in this recent infiationary penoa. UI has a objective, as stated to the Connect: cut Department of Pubhc Utikty Control. of not
//yff /bf fhe reur 19N2 cur /////gsM>rs/ rare reahstic opportunity to eam the return seeking an add,tional rate increase fo- at atlowed in a rate deci cnf We are pfeased least a year if a reasonab!e decision was ren- 'd('hed d r s 'd M 39 to report that for the year 1982 earnings per dered in 1981, and in fact it is expected to be /Jer shan>, all /illf>ron>-
share reached a record $5 39 per share. an almost two years before the next increase to 111 ell / U[8/. li/Jer shur > improvement of $1.15 per share over 1981, customers becomes effectise in 1983. Over 1981, alld re/llril and return on average sharehoMeV invest- The successful financial results in 1982 Oil averagesbarchD/d-ment exceeded the level that was c.ontem- were made possible to a targe extent by the crV' /1/n>N///le/// ex-plated in the August 198 i rate decision of the provisions for inflationary cost increases, gggggg fgg 7ggg7 f7gff Connecticut Department of Pubhc Utihty dunng the penod the rates would be in effect. Control This was made poss:ble not only by incorporated in the revenues allowed in the 'u n'O M >n @ M >d M the improvement in the regulatory chmate in 1981 rate decision. However, equally as lhe Aug/IS/1981 rule Connecticut reflected in 1980 and 1981 rate important were the control over cost levels in NCC/NIOll O[lhe COH-decisions, but by the skil l and dedication of all areas and the excel!ent performance of UI nec//Cu/ Departnient O[ Ul s employees and officers. We thank each electnc generat.ng facihtici that was made l'uh//C (!/////l' COH/m/. " of them and the members of the Board of poss:ble by UI employees dunng 1982 while Directors for their contnbutions toward these stdl maintaining high quahty of servrce to cus-excellent results. tomers. Financ,a! performance consistent The nse in earnings was accompanied wito plans and predictions also was facih-by a further improvement of the quahty of tated by the development and refinement of those earnings, in terme of internal cash gen- Ufs planning processes which are discussed eration. and coverage of dividend and inter- later in this report. est payments. Effective Apnl 1, the Directors Ul also was successful in its external again increased the cash dividend to its cur- financing activrties in 1982. even with the rent annual rate of $2.92 per share, and it is heavy demands placed by record-hrgh con-gratifying to note that the market pnce of Ul struction expenditures. A safe and leaseback Commo, Stck reached att Mghest levelin arrangement for UI's joint-ownershtp interest four years. although it still rema,ns below in nuclear fuel for the Seabrook units was book value. Completed in June, which resulted in a signit-The par share earnings improvement scant reduction in 1982 financing require-vas accomphshed in spite of a dechne 'n i ments as well as in future expenditures for k Lwatt-hour sees to customers and an nuclear fuel in add, tion, agreements were increase in the nuri ber of common shares consummated in December for a $50 mahon outstard ng. Sales were down 1.6% from 7-year term loan which for the first time pro-1981, a relatively modest amount compared vided the Company access to international to the cxpenence in some other sections of financia' markets. These actions. in combina-the country, as Connecticut continues to be tion with a bond issue in January and the sate less impacted by current economic of 1.3 mahon add,tional shares of common cond.tions stock in October. allowed the ehmination at Average rates per kdowatt-hour to cus- year-end of all outstanding short-term debt tomers actually dechned in 1982 because of This puts the Corrpany in a strong financial lower fuel oil pnces passed on la customers posihon as it faccs high levels of construction through the fuel adjustment clause, even and financtog requirements scheduled for though base rates were raised as a result of the next few years. the 1981 rate decision. The reduction in fuel The ma:n thrust of the Company's con-pnces was due to relaxation in the State's struction program cont:nues to be to diversfy restnctive sulfur-conten' r,tandards late in energy supply and reduce the current heavy 1981 as well as a reducon in oil pnces in dependence on fuel od, and ultimately improve the relative cost of UI efectncity. The largest component of this program is the nuclear generating units under construction in which UI has ownership interests. the two Seabrook unats in New Harrpshire (17.5% cwnershrp) and Mdistone Un,t 3 in Connecti-cut (3 685% ownership). Estimates of com-1
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ceededin its objective, .( ' % &*\ * % .'f _ asstatedto the Ccnt- ~ necticut Department of , r h y,'* Rk Public Utility C<nitml, & r 1 ofnotseekiity an addi-l f. p h; .%*Y & tionalrateincreasefor at least ayearIfa rea-r
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re;tdered an 1981, and [, 't 4: injactit k espectedto * ~ h'-{..O. , heannost tu o yean he- - - a i fore the next iiicrease to ?4 bg%,yj ' custornen becomes ef- L
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James E CobeyJr. ancijohn D. Fassett pletion costs for each of these units were emission standards to be met, with a rela-increased dunna the year. and the sched- tively low capital requirement for equipment uled operational dates for the two Seabrook modifications by reaucing the output of the units were deferred, but even so the costs of unit below its full capacity when burning coal. each of the units continues to be favorable The savings for customers will be significant, when compared to other nuclear or coai even after taking into account the amortiza-capacity to be completed in the same time lion of the capitalinvestment and higher frame, and the efectncity generated will be operating costs. because the cost of even cheaper than oil over the lives of the units. the low-sulfur coal is so much less than that Dunng 1982 construction continued at a high of low-sulfur oil. rate on all units: Seabrook Unit 1 is now Applications to the necessary State scheduled for completion in late 1984 Mill- agencies were fded in Apol and approval of stone Unit 3 in 1986. and Seabrook Unit 2 a proposed concept for financing and rate in 1987, treatmeni. which wdl avoid the need for Ul to Progress also was made on the second issue its own debt or equity secunties to component of UI's energy diversification pro- finance the project, was received in July. gram, reconversion of the 400-megawatt Unit Heanngs before agencies with e nvironmental 3 at Bndgeport Harbor so that it will have the jurisdiction were completed in late 1982. The ability to bum either coal or oil. Tha un:t ongi- Ccr.necticut Siting Council has issued a nal!y was designed to burn either fuel, but favorable decision and a decision from the actually has burned only oil since its start-up Department of Environmental Protection is in 1968. Because of changes in environmen- aWmted. Meanwhde, design and engineenng tal standards since then and stnct air emis- of the reconversion have continued as have Sion hmitations pecukar to Connect; cut, coal negotiations with potr ntial supphers of the cannot be utilized as a generating fuel today particular coa! reou; red; completion is tar-unless equipment modifications are made geted for m:d-1984. This project is unique in and a relatively low-sulfur coal is utdized that it will make significant s" ides toward UI has proposed a plan that will allow those accomphshment of several of our objectives. including reduction of costs to customers, and can be completed quick'y by today's standards at relatively low cost. A
e o Another project that will help diversify Application of the comprehensive plan- "The Con /prehens/re UI's energy mix and reduce costs to cus- ning process has been successful at UI not planningprOCmf that tomers, although to a lesser degree than only in producing the statements of purpose . . NY## iN##iUI#d #N I90I those just discussed. is the proposed electri- just referred to, but in promoting an attitude cal irderconnection between New England of acceptance of planning as a way of life COHll#llCdlH 198?UIRI and the Canadian Province of Quebec that that permeates the entire organization. Cu/nitiiatedin app,Y,iYit will allow purchase of lower-cost hydroelec- Ul chose to develop its planning process hy the/kxuY/OfDireC-tric power from Hydro-Ouebec by New Eng- intemally, rather than utilizing outside IO;N Ofd C01pO1Ylle niiS-land utilities. Final agreements on the first consultants, in a manner that involved the S/OnSS/ulenient, a Set Of phase of this arrangement, which contem- participation and input of the entire manage- CO/pornie OiMimV plate ennstruction of a transmission line ment team. This has resulted m a spint of schedufed to be energized in 1986, are near cooperation and purpose in planning that we dildSerefYl/Innfor c'ur-com2 Son. believe, and have been told by others, is #FHISl'YllPR ICR(XllS-in addition to the efforts to diversify and rather rare. 7hde areSelforl/> hl the improve the relative cost of UI's energy sup- The planning process in its entirety con- [O//Otringfriges Of/his ply, progress continued to be made on proj- sists of a number of interrc!ated parts. all cut- report. A ninde Clearin ects that affect the " demand" side of the minating in action programs for the short- Ihe nllST/ ORTS /d/anent, customer energy equation. These included term which are consistent with and intended gjf'Sprinlan'anp/w/S LS foad research and management, heat pump to make progress toward long-term objec- - andu ///re/nain the water heating vd commercial and industrial tives and goals. So the success of UI's plan-electrtC husineSS, hulin cogenerator potential studies initiated in pre- ning process depends not only on our ability vious years, as well as many activities to envision those long-term objectives and Oddition tre10/// hepre-directed toward helping customers achieve goals. but on our ability to direct, implement paring OMNc/reS[Orfu-energy conservation. The extent to which Ul and control our activities in the shorter term. Inre dire /Ni(( Col /On Op-customers have practiced conservation in UI has been making steady progress for jgyrlunitieS uh/Ch nicel recent years is demonstrated by the 10% many years in each of these interrelated the Crikrid SMled. "
; decline in average annual usage per resi- planning areas, with the help of ever-improv-dential cu:,tomer from a peak of 6,938 kilo- ing computerized models as well as supenor watt-hours in 1973 to 6.213 kilowatt-hours in human resources. The principal improve-1982, an impressive performance in compar- ment in the last few years that has stemmed ison with either New England or the nation as from adoption of the comprehensive plan-a whole. ning conceptis bringing these areas
' Arrangements have been completed for together and improving the coordination new physical facilities which will result in among them. We believe through this proc-I improved conditions for employees as well ess we are building a solid foundation for as improvements in productivity and quality continued success of this enterprise in the of service to customers. Ul has agreed to future. l lease a portion of a new building, expected to be completed in late 1983, adjacent to its I administrative headquarters in New Haven, , that will allow for further centralization of the . l Company's administrative functions. In addi-tion. it has been decided to house the com-f i i bined operations and customer service John D. Fassett personnel from two existing divisions. as well Chairrnan and O'***C""* @'C8' as supportive personnel and facilities, in a new service center to be completed in 1984 in the western part of UI's service terntory. The comprehensive planning process [e 1 - that was initiated in 1981 continued in 1982 James F. Cobey Jr. and culminated in approval by the Board of President and Directors of a corporate missions statement. Chief Operahng Officer a set of corporate objectives, and several major current strategic goals. These are set forth in the following pages of this report. As February 25.1933 made clear in the missions statement. UI's pnmary emphasis is and will remain the elec-inc business, but in addition we will bc ;;ro paring ourselves for future diversification opportunit:es which meet the enteria stated 3
s Od"zinatum rivjirutsweef lil'sprirnary corporate snission is to pmtide to the ants it sert vs and to assinv its I m rrt let Ia
'I UUNN IU }V USUN UN'"IO5UU UNY 0 #"l'l E 5' IU 05 US tw,stata,untsum aacpal out this inission it is lil's intent to keep its rates as late as wasonablyJx>ssibh:
c<ntstittamg afourulatiort <{ carg$iSteygt gg.jtjy jyyryfectjygg gfyg gygpilD111nelltfmin linrtvisolitil)le ilnfxictsflDn! its
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u$s$tYfs?tt$s"tt?r$uR" operations, uithpmtidingfair targes and tt vrking conditionsfor its ernployees, hetasas and uith pnniding afair rettern to those uho hat e int ested their capital to create saparactn duestauvients the Cmnjxiny'sfacilitles
$xparaestatonsstatenuvt in addition, to expand the use of the simng expertise the Com]xmy has det ci- -a maanvuutin snxutums opalin many anvis throttgh the dit me aspects ofits opemtions and topmt ide </theannpuistruna'? additional clxdlenges and opportunities trithin the capabilities ofits manage-
'& rate orgatiew a ment and emplo,pvs UI has adoptalas afm ther mission an intent to enter mar-cornpaati<ns <(pujic hya>n. ketsforgrxxis and sertices ubic!) are determinal to rneet thefor egoing criteria and tutuirm cavatiivs uhahsutpri to Ixuegreatpotential to enhance the return to the Com]xmy's shanviemn uith-
$?!i <ftN<$$if,"'? out imfxiiring its ability to carry out itsprintary ndssion.
nuarpurpm a uYt$a hEt{! tnets ubkh u ritauddeprw-Corporate Objectives ExistingEtectricBusiness Planning arutPnxtuctivity VI. To enhance the productivity of the Com-ms inpursuit <(</varim to pany through effective and innovative utiliza-I. To provide adequate and reliable electric service at the lowest rates feasille consistent tio the Companys human. financialand 47 n thefirutun c( these stat <vrons tager/w u s#, with other corporate objectives and to maintain - aniranization <ft/we ad< ped the Company's position as supplier of electnc- Vll. To develop and maintain Company capa-goal; daviolinew otect,dauf ity within its service area bilities to respond rapidly and affirmatively to fantuoy 1, r>M to achiemnent the changing environment thro 0gh a participa-
- 11. To continue the Company's support of the, eithe auprateinmions are tory comprehensive planning process.
New England Power Pool and its objectives t n Parameters for hogrew and to encourage the development of further Vill. To encourage the development and im-regional approaches to planning and opera- plementation of innovations that will support tion of bulk power supply facilities consistent the Company's marketing objectivos and busi-with the obicctives of the Company and the ness activities. best interests of the region. GrxxtCittrenship T yM NereBusinessAnas 111. To !Jentify quahty products and services IX. To be a good citizen in the communities the Company serves, which means, in addition that could utihze the capabilities and resources A' of the Company and would enhance the profit-to obeying all applicable laws, assuming an appropriate share of the responsibility for the l..Q 59 3
- ability of the Company and to select for devel-opment those that are feasible within Company communities' growth and well-being and en-couraging employees of the Company to par-
',,, a resources and are consistent with other Com- ticipate in all types of civic activities.
- pany objectives.
X. To design and operate Company facilities in an environmentally responsible manner con-Human Resottrces sistent with the spint as well as the express IV. To attract. develop and retain an adequate provisions of regulations. number of competent employees to meet the Company's needs while continuing the Com- XI. To foster effective communication by lis-pany's commitment to equal opportunity. tening to and informing investors, customers, empi yees and other publics, for the purpose V. To maintain an employment environment, of gaining and maintaining the support of includ ng a commitment to fair wages and Publics on energy and Company-related good working conditions, which fosters and ers recognizes individual motivation, initiative and creativity. Xil. To influence responsibly and positively the legislative and regulatory processes in support of the Company's business interests and the best interests of the customers and communi-ties the Company serves. 4
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l i ~ financial antlIWysicalResourns tives developed by NEPOOL which will en- s i hance the economy and reliability of bulk t N 'I ' X111. To acquire, maintain and utilize effectively , * ', appropriate physical facilities to support the power supply to the region and Ul's customers. Company's business activities. 8. Dunng 1983, to complete an analysis of the XIV. To earn the maximum attainable profit costs, benefits and des'gn of significantly more "~ N consistent with all other objectives and to effective comrnunications programs with cus-tomers, employees, the financial community, g-mainta:n the Company as a competitively attractive investment. leg'slators and others and what, if any, organi-zational changes are necessary or desirable in rder to implement such a comprehensive Major Current Strategic Goals communications program. f
- 1. By July 1984, to complete the proposed re- 9. During 1983, to accomplish the adoption of l
conversion of Bridgeport Harbor Unit 3 to coal succession programs with respect to top man-l burning and the financing thereof. l l agement and each department. Theworkof theCorporate 1 l 2. Without significant additional schedu!ing 10. Throuah rate proceed (ngs in 1983 and Planning Committee, made { delays, to complete cons'ruction and financing up of UI's executive offi- l i periodical y as required thereafter, to develop is of Seabrook Units 1 and 2 and MiHstone Unit P levels of rates and regulatory accounting e ns ve 3 and commence their commercial operation. rules which will permit UI on an annual t; asis cg$an$ plann ng activities.
- 3. By the foregoing and other projects, to re- to earn rates of return on common equity that duce UI's dependency on imported o;l so that are commensurate with prevailing market !
it contnbutes no more than 20% of the electnc requirements. ; en t requi d to meat customers' needs 11. To accomplish by one year after the com-mercial operation of the three nuc! ear units un-
- 4. To achieve an electnc generating capacity der construction a stabilization in the real pnce mix by 1990 of which no mem than 50% of that of electncity to UIs customers.
capacity required to meet capability responsi- E To ahe @ne year a%emen bility is dependent on any single type of fuel. cial operation of the three nuclear units under
- 5. To complete ongoing stuaies by 1984 for construction:
one major generating unit and oy 1986 for all a. ratings of A or better by the major rathg i major units operated by UI of the feasibility of agencies on the Company's senior debt: further improvements in heat rate performance b. a market price for the Company's com-and the availability rates, and to establish for mon stock exceeding its book value; and l future years, and then annually to meet or ex-i ceed. goals which will continue to result in the c. a ratio of internally generated funds to the Company's facilities being ranked among the Company's annual construction program re-l most efficient and reliable in the industry, ouirements exceeding 50%. l
- 6. By 1984 to comp!ete a reorganization of the 13. During 1983. to achieve, and thereafter to maintain (subject to minor fluctuations resulting l
Company's Operating Divisions and the con _ from the relative timing of types of financings), ( struction of necessary facilities including a a capitalization ratio for the Company com-Westem Division Service Center by 1984 and an Eastern Division Service Center by 1986. pnsed of approximately 40% common equity, 15% preferred equity and 45% debt
- 7. To participate actively in ongoing efforts to increase the effectiveness of the New England 14. To establish as expeditiously as reasona-bly feasible corporate capability to scan the Power Pcol (NEPOOL) and to support initia, business environment in order to identify for
! further in-depth consideration opportunities in new business areas.
- 15. Thereafter, to select those opportunities in new business areas which satisfy UI's estab-lished cnteria and to proceed at prudent speed witn implementation programs to de-velop them.
5
1982 in Review . {a@gs Per_ Share $6 % ffjj;( j; j( f ])[ fg g g o raise capital for Ul~s construction program. the Company completed the N
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a United luominating's financial health - safe of $30 mahon of 16%% Senal De-measured in terms of the amount and quahty bentures to an institutional investor on Janu-m . m of eamings - continued to improve dunng ary 2S. and on October 5 closed on the safe E- 1982. of 1.3 mdhon shares of common stock at a Eamings per common share increased pnce to the pubhc of $23. Also. on December h f9
- to $5 39, a record high and $1.15 above the 16. the Company entered into two interna-1 i ; f $4.24 per share camed in 1981. Income ap- tional financing agreeman$ which ef fectively
.) d 2* phcable to common stock rose from $37 2 provide the Company with a seven-year .erm 1 ' 4 ,
mdhon to $51.7 mdhon, a 39% dcrease, whde loan of $50 milhon at a cost. including trans-l 7) -k l im the average number of shares outstand ng action costs. of 13.52% per year. This was
] $ j increa:ed by 9% The Company's improved below the cost of a comparable term deben-
.] ]q 1 1 , , financial concM on was accomphshed de- ture issue in the United States One of the 7n 1;f il" 7 spite relabvely poor economic cond;tions not agreements is a loan with an international only in UI's service terntory, but throughout group of banks, which enab'es UI to borrow the nation. Economic conditions, along with $50 mdhon from the banks for seven years at cont:nued conservation enorts by Ul cus- a rate of interest determined penodically tomers, contnbuted to decreased electnc en- based upon the London interbank Offered 5m ergy sales for 1982, down 1.6% f rom 1981. Rate. The other is an interest exchange o m .no.~ - - - agreement. also for seven years. which ena-Ul's customers' average per kdowa% hour a m * '
costs were lower in 1982 because of lower bles the Company to exchange with a Japa-j .) average fuel oil pnces passed along to cus. tomers through the fuel adjustment clause. nese bank, through an intermediary United States credit guarantor bank, the Company's a j j < J 4 J ' __x ' As a combined result of lower saies and vanable rate interest payments for fixed rate ij ] j j fuel od prices. operating revenues decreased payments incurred by the Japanese bank on 3 1 4 3% to $436.7 mdhon from the record high of a recent $50 milhon seven-year Eurobond is-i j I 1 $451 milhon in 1981. sue The Compo ' f thus obtains fixod rate j) j ,, significant accomphshment dunng debt and the Japanese bank obtaina vanab!e
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, 1982 was the Company's abihty, par- rate debt. both at costs below those obtaina-4 j'
4 _l l tially as a result of cost control and ble through normal fund:ng bources. l j j
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productivity improvement programs, to earn To reduce constructron expenditures at-l 1 J _.__ _1 j j o a rate o' return approximating that a! lowed in the September 1981 general rate increase. tnbutable to nuclear fuel and decrease exter-nal financing requirements. the Company in t
* " " " " Another positive development was the June entered into a sale and leaseback ar-nse in pnce of Ul common stock to more rangement of its undivided joint ownership than $27 per share in early February 1983. its interest in the nuclear fuel for Seabrook Units highest level in over tour years. As with earn- 1 and 2. The Company sold and assigned all ings. cash flow per share has been improving of its interest in the nuclear fuel for Seabrook UI Common Stock Price 526 to Prulease, a subsidiary of Prudentia!Insur-steaddy since 1980. primanly as a result of an improved regulatory climate in Connecticut. ance Company, which paid UI $28 mdhon.
_ 24 The arrE ngement also provides for additional p yments by PruLease for future fuel costs in fihng the Company's 1981 general rate in- w ge rw@ in alpayment may 22 crease, it was imphed in the Connecticut De-s total as much as $60 mulion.
, partment of Public Utthty Control s (DPUC) The Company's automatic dividend rein-20 decision in August.1981 that UI hoped to be vestment plan also grew d 1982. as partics-able to avoid another rate increase apphca-p{r, pation in the plan ne , doubled from the is tion for at least a year. barong major unfore- end of 1981 to Jan 4ry 1983 Close to 20% of seen adverse developments. The Company Ul shareowners are i .aw participants in the was able to accomplish that goal. Because of plan Proceeds from reinvested drvidends
-m inflation and other economic factors, how-and newly invested cash more than doub!ed ever, the Company plans to f de for a rate in- to a new high of $3 6 milhon.
..it 11 crease early in 1983 The penod of time be-tween the 1981 rate increase and the date when any rate increase in 1983 becomes ef-fect ve wdl be almost two years 6
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'_ struction project, the Sea-brook nuclear power sta-tion in New Hampshire, is
- evident ist this aerial photo-graph of the site
- 7
O ovesse Residential KWH Use _ __ _ _qc ggff gg /g One area that has a major effect on gen-erating efficiency and productivity is the Overall, electnc energy sa'es to Ul customers availability of UI's generating units to provide m- dechned by 1.6% to 4.475 bilhon kilowatt- electricity. As in the past, the Company's rec-lm hours (kwh)in 1982. Kilowatt-hour sates to ord was significantly better than the industry
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j .j m.- - -~- , commercial customers were up by 1.8% dur- average of 82% for similar units. The average ing the yeah while kwh sa!es to residential availabihty in 1982 of UI's Iwo largest units,
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.-l*i me and industnal customers dropped by 1.1 %
and 6 3%, respectively, from their 1981
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New Haven Harbor 1 and Bndgeport Harbor 3, was 92.3% and 84.3% respectively. i 1 j levels The Connecticut Yankee nuclear power 1 ; 1 1 Average annual residential customer station in Haddam Neck, Connecticut, of i j . d _Ma electnc consumption d pped shghtly to 6.213 which UI owns 9.5% also contnbuted to op-J, j j j kwh from the 1931 level of 6.312 kwh. erating efficiency. The availabihty of the facil-ustomer demand for electncity ity in 1982 was 90.8% {4g] { -{ g --- --- g
,, g g y reached a high for the year of 951.7 The Company's productivity and effi-megawatts (Mw) on Monday, July 19. ciency in generating electricity raised its a penod of extremely high temperatures. The ranFng from 11th to fifth best among the top peak was the Company's third highest. 100 utiktes in the country, an outstand:ng e,., echpsed only by the 952.9 MW tc corded on achievement. The level of efficiency, meas-Ba August 17,1978 and the 971.1 Mw record Fuei 06i Prices 550 ured by heat rate - the abihty to extract a Fuel oil pnces remained relatively stable in producing electricity - has been s'eadily
,a dunng the year, reaching a high of $3159 improving dunng the last decade. This is a per barrelin November, with a low of $27.26 direct result of management's emphasis on g r in December. Prices remarned below the increased efficiency, better equipment and
.___..p $32 63 figure included in customer base concerted employee effort.
t .L jl ga i[ rates, produ&g a cred:t on the fuel adjust- he heat rate has been reduced from
! j men! clause portion of customers' bills
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throughout the year. 11,635 Bntish thermal units per kilowatt-hour in 1972 to 9.950 in 1982. Among 1[ M 1 Also helping to moderate customer the factors contnbuting to this greater effi-Mt L ip l r ;
-~-w costs was the decision by the Connecticut Department of Ervironmental Protection ciency are efforts in maintaining a high level 3 of operator competence, improvement in in-3:.l.h l 1ll at (DEP). in late November 1981, allowing the strumentation and equipment, the addition of id LJ i 3o A *.._ _
ou o Company to burn 1% sulfur-content residual more efficient generating units and the retire-78 '* fuel oilinstead of the more expensive 0.5% ment of less efficient units f'om the system. sulfur cil previously used at generating facili- and a continuing preventive maintenance tres to produce electricity. Because of this program. shift to lower cost fuel, the Company and its To this end, the Company overhauled customers saved more than $20 milhon in both New Haven Harbor Station Unit 1 and 1982. Bndgeport Harbor Station Unit 3 dunr g The burning of 1 % sulfur oil does not sig. 1982. It also placed the last two active tur-nificantly affect the State's a'r quakty and to bine generators at its Steel Point Station in ensure tha i% State's strict air quakty stan- Bridgeport on deactivated status on October dards are a' . ing met, the Company tests 1 as well as d smanthng the six low pressure emissions ar. I monitors the ambient air qua!. generating units at Enghsh Station as of ity at 10 locations in its service terntory. The October. petition by Ul and other utiitties and indus-tnes to burn the higher sulfur content oil was cha!!enged by the Connecticut Fund for the Environment. In early December, however, the U.S. Second Circuit Court of Appeals in New York rejected the challenge, upholding the previous ruhng by the DEP. Compmy efforts to control costs and in-crease efficiency and productivity proved highly successfu!in 1982. 8
l I 7-Division Superintendent of d , 4, D.stnbution Tom Anderson
- 2; examines one of six old
, ; Derby transformers re-j *- ,. " moved from service as part
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Below. at a customer loca-
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g %)g "in amines a modern 13.8 Kv padmount transformer that
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t El i ns e rge reytak and Joe Hanggi are working.
. -f The efforts of New Haven Harbor Station Unit Opera-tor Ray Costa, right. Pro- g.
duction Supenntendent ,-P John Salomon, and many Q
. m s,
other employees are key factors in improving the ef-fictencylevelof the Com-dI pg u-pany's production e' jA' "t '^# I' system. . q lT"iE On*n' "*" Kawczynski examine a O C,
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( Marc McCraven.vice pres-ident of environmental en-gineering, left. discusses data from UI's air quality monitoring system with of h t te s ep r nt i of Environmental Protection. 1 9
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New England's heavyoit , dependence.The vast James Bay project in north-k'? 4*
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em Quebec,invoMng the . 'l , 10 harnessing of rivers 600 W, L J~, miles north of Montreat, will * [, - , produce 61 mithon mega- '*
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m., 9_ watt hoursof energy, "f . ecutvatent to three-fourths of New England's totalcon- %g en. . .- sumption or 100 million - W, o e . barrels of oil.This photo , /9 .. ,,, .. $ ,1 ' showsdevelopmentof a " . g y ., powerhouseonLa Grade f(fye t
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$1 jdtb 14 Ouick work by Ul crews,in-ciuding substation workers Roy Stevens, left, and Bob Raccio, helped restore service to 5.000 custorners during June flooding caused by torrential rains which damaged this rail-Jg road catenary.
l e e qmemg Rmdtnuntinual. The Company's high level of efficiency is inundated UI s service terntory early in Irnproving Generanng Efhciency 1 matched by !!s outstanding record of rehabil- June, are the pnme reason for most service , ity. Of the more than 2.4 bilhon meter hours in interruptions. The June storm caused severe 1982, only .0123 percent were affected by flooding that forced more than 5,000 cus-service interruptions. Interruption of service, tomers to be removed from service. The 4 therefore, averaged less than one hour per swift, efficient response of UI's employees, ,, customer dunng the year. however, kept service interruptions to a mini-Storms, such as the torrential rains that 8 mum and expedited the restoration process. 1 i f ~h , [ ] , NJ EnergySupplyD/versity .jf The higher cost estimates resulted from a 29 number of factors such as additional financ. [^; , y Significant progress was made this past year ing costs, increased design and engineering in advancing the Company's plans to control complexities largely as a result of changing in teims of operating effi-the future cost of electncity through fuel sup- regulatory requirements, deferral of some ciency, UI's generating piy diversification. The Company's goal is to work on the Seabrook units in 1980 and 1981, units rank among the best reduce its dependency on oil from the cut- increased quantities of materials and labor jj "$0"'pi ace' 98 ' rent level of over 90% to under 20% by the and increased quahty assurance require-end of this decade. ments. Another important element in Ul s fuel Keyplan toisthe Company's diversification its nucl ear construction pro-gram, compnsed of shares in the diversification plan is the proposed reconver-sion of Bridgeport Harbor Station Unit 3 to Seabrook and Millstone Unit 3 nuclear power buming coal. Target date for co npfetion of plants. Progress on the construction ci these this project is mid-1984. Tne Company esti-two projects continues at an impressive rate. mates that buming of coal will displace ap-In December, New Hampshire's Su- proximately two milhon barrels of oil a year, preme Court overtumed an order by that with considerable savings to customers and State's Pubhc Utihty Commission that threat- without any unfavorable impact on the $"8' "" , ened to halt construction of Seabrook Unit 2. environment. ,m The court said the commission " abused its n April, the Company filed the necessary -)I discretion" in July when it told Public Service apphcations for the project with the j Company of New Hampshire, the lead partic- DPUC, the DEP and the Connecticut 9t- 4 ipant in the project, it could not use future ing Council. The DPUC held hearings and
- sesw. ,]3 g financings to fund the second reactor until issued a decision in July affirming inat recon-the first one was completed or the utihty's version was in the pubhc interest, assuming g economic condition improved. Also in De- environmental requirements were satisfied. It ?
cember, the Nuclear Regulatory Commission also approved Urs proposed financing and 3 staff said in its environmental impact report in ratemaking concepts. The details are subject A connection with the apphcaton for an operat- to approvalin proceedings prior to the burn- > i ing hcense that the facihty poses no threat to ing of coal. The DEP held a hearing in De- N the environment and should be granted an cember and its ruling is awaited. The Sitin( C ". .. A operating license. Scheduled date of com- Council, which held hearings in August and pletion for Seabrook Unit 1 is December September, issued a decision on January 11, 1984, for Unit 2. July 1987. 1983 authonzing the project to proceed sub-The apphcation for an operating kcense ject to environmental restrictions even more for Miiistone 3. in Waterford, Connecticut has stringent than prescnbed by existing federal been submitted to the Nuclear Regulatory and State regulations. Commission. The facihty is scheduled for op-eration in the spnng of 1986. In December, the Connecticut DPUC reviewed plans for the project and urged its completion. Although the cost estimates of both Sea-brook and Millstone 3 have increased in the past year, the Company remains convinced that conipletion of both Seabrook units and Millstone 3 is in the long-run best interests of Ul s shareowners and its customers. 11
IwgvStgly themrtywntmtasI. The ramifications of the latter findings lowest reasonable cost with minimal environ-are being studied and reviewed concerning mental effects UI has pooled its research their full impact on engineering and eco- dollars with more than 600 other electric utili-nomic aspects of the project. In the interim, ties in support of the Electric Power Research 1g. design and engineenng work continue, al- Institute (EPRI) During 1982, the Company
.T" though ro major equipment or construction contnbute tre than $800,000 to EPRl's re-commitments will be made until all the neces- search an /elopment efforts. The bulk of sary approvals are received and reviewed. this money was allocated for generation re-o . till another important e;ement in the search, to improve existing fossil-fired and W Company's fuel diversification plan is a nuclear power generation systems and to de-
- proposed interconnection transmis- velop advanced generating equipment and sion line between the New England Power technologies. Major projects include gasifi-Pool and Hydro-Quebec that will provide hy- cation research, as well as work in solar, wind
;: dro electricity for New England from Canada. and geothermal energy, and a fuel cell dem-
- 3 When the first phase of the project is final- onstration plant. Overall, about 1,400 re-4 ized, it will provide almost 700 megawatts of search projects are currently being managed electric energy to the New England region, of by EPRI, representing funding of more than which Ul's share is 5.7%, equivalent to about $16 billion over five years. Through EPRI, the
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4% of the Company's energy requirements. Company maximizes its return on every dol-Canadian hydroeiectric The line is scheduled to be operational in late lar spent on research and development, power will flow to the U.S. 1986, and negotiations for a larger second avoiding costly duplication of research and via this proposedintema- phase are under way. allowing for extensive projects far beyond the
"$ iss n e ex- financial capability of any one utility.
m1Cantons, To help meet the challenge of providing ["j'nfes from ( e, Que. for customers' future electric needs at the bec, to Comerford, New Hampshire, linking with the G xisting power gnd of the New England Power Pool in the six-state region. EnergyDeinanclanct . These additional demands on UI's sys-tem are incorporated into the Company's CustoinerConservation planning activities to address present and fu-ture customer energy requirements. These As an encouraging counterpoint to economic planning activities are intended to allow the problems which continue to impact con" Company to continue to be flexible enough to sumurs, business and industry, UI's cus- adapt to a varying external environment while tomer base remains stable- meeting its customers' energy needs at the 5,gnificantly, there are indications of a lowest costs feasible. shift to high-technology facilities. service-ori- To achieve this objective, the Company ented businesses and corporate headquar: has undertaken a number of projects. One, a ters, often grouped in industrial parks. This is studyof the energy-saving potentialof elec-especially apparent along the Route 8 ex- tric water heaters supplemented by heat pansion in Shel on and Trumbull which in- pumps, is yielding valuable data from six cludes TIE / communications, developers of such units installed in Ul customers' homes. electronic communication equipment, ITT- Another, a cogeneration /self-generation the Vicks pharmaceutical research center study, will help the Company determine the and the Tetley food products headquarters, potential for on-site customer cogeneration of all in industrial park settings. An industrial electricity and assess its impact on UI. park also has been developed - and an- The Company has also embarked upon other is planned in North Haven that a number of conservation related programs. includes a number of manufacturers and These programs include load research and service companies. Still another is being management activities with energy conserv-developed in West Haven. Both new facilities ing applications, and consumer-onented will include office and warehouse space as conservation programs. These demand-side well as light manufactunng. Sikorsky Aircraft in Stratford, one of the world's leading manu-facturers of helicopters and a UI industrial customer for many decades, plans to in-crease significantly its production capacity, and therefore its demand for electncity. 12
Engineers Tirn Carew le9. and Nelson Schwarting in-spect existing coal facihties at Bndgeport Ha%r Sta-tion that will be invulved in the coal reconversion of l &Wl' ][ Ji} j,"J ' .)Q{ ( . ..
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Sikorsky. one of UI's major g . ,,Q Corporate parks are being industnal customers, is ex- / developed in many areas panding its Strrtford pro- of UI~e service territory. evi-duction f acihty. and in- l dence of a shift to high-creasing its energy needs. I technology in New Haven to produce aircraft such as -- I and Fairfield counties. this Seahawk hehcopter. I i Use of computer technol-ogy. including this graph plotter that Tech Aide Michael Coretto is operat-ing. continues to increase especialty in the areas of energy supply and energy demand planning
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~.. - . - - - _ .-- - --. - - _. .- .- . - - . - . - - . . - - . . _ . - . . The Company's efforts to foster customer conservv About 9.000 weatherization tion include exhibits at kits, such as this one being malls.This one is staffed demonstrated by Customer by Customer Services Services Representative Representatives Bruce Anita Laemoa, were dis-Dahlberg and Phyllis tributed to Ul customers Clouse. during the year. d';YMg. N 1. ['. [ 3 . 3 , j [. hl
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-% was one of the highlights of y"
, 3 ..j Energy Forum '82, a one-
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personnel, has been estab-lished to develop closer
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includi this program on . ., y ,, }~' t. / ties with public schools, a UI's co reconversion prol- >< t-
^: - g .. e >k Ji - partnership that's enabling ect, have enhanced em- 7f playee communications.
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;_' , -) UI to meet education needs in many energy-related areas.
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O O fik1W $ h1thilk$ tibilhollt<%$ . programs were the subject of a comprehen- dustnal custon ers on ways to maximize their [,un jg'lgu m sive conservation plan submitted in Decem- energy conservation efforts and a residential m i ber to'he Connecticut DPUC, Among the water huater insulation program was finalized $ con'.wvation efforts in which the Company is and prepared for implementation in 1983. CONN SAVE, the home energy audit 3"I ;im1lhmb,.N3
' P engaged is a custormr awareness program that includes vanous consumer assistance program sponsored by Ul and other utilites iJ!/ F (j programs, exhibits, displays and participa- in the state, continues to play a major role in .f j 3' j j l i' so tion in a wide range of forums and panels.
R esidential developing conservation awareness. More than 85,000 audits have been performed customers are given mean-ingful energy ;nformation on their bills statewide dunng the program's two-year ex-d }1 p L Q; [g ,9 f; j [Q
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that compares energy used dunng istence. Its efforts to encourage individuals to N 4 - wA n A 4 the bilhng penod with the same period the make the necessary energy-saving improve- + + A previous year. As an example of direct cus- ments suggested in the CONN SAVE reports fl9l , tomer assistance programs, about 9,000 weatherizat on kits were distnbuted in the fall were assisted this year by low-cost energy conservation loans funded by the Connecti-p _1 L {LJ,lt) ;
' h( [ 1o to help low-income customers control their cut Department of Housing and supported heating energy costs. The Company also by Ul and other electric and gas utilities.
conducted seminars for commercial and in-5"uit."}*a %;"""'"*"'*" e a Communications matters as the quality and reliability of serv-ice, overall perceptions of UI and communi-so In mid-1982, the Company adopted an ag- cations with customers. The assessment pro- e gressive communications campaign to ex- vides a benchmark and is a highly teful tool - plain directly to the investment community for planning and evaluating communications, -y the Company's improved financial status. customer services and operations programs - H UI s senior management - President James and activities aimed at carrying out corporate j Cobey and Chief Financial Officer Robert Fis- plans and accomphshing specific goals. -.- - _W cus - made presentations tc stockbrokers The Company continues to demonstrafe analysts and institutional investors in Boston its commitment to an on-going communica- : 40 and Philadelphia, as wall as Stamford, Hart- tion program developed for a vanety of audi- ; j J ford and New Haven. Based on meast,rable ences, including employees, the news me- i o results and responses, the presentations dia, the educational community, and civic, 5-as umoatue achieved excellent results, serving as forums church and service organizatans. Supple- ,% g for the Company's positive financial story and menting an already comprehensive Educa- g, g generating interest in the Company as an in- tional Services program, UI initiated an vestment opportunity. The face-to-face pres- Adopt-A-School program, through which the entations, coupled with traditional communi- Company is developing close ties with spe-cations, have had a positive influence on cific pubhc schools. The partnership pro-investors. In light of these experiences, a for- gram provides UI with an opportunity to meet mal Investor Relations function has been es-tablished within the Company. an individual school's educahonal needs in areas such as energy, efectnc safety and ca-jffgg*,j'*yg,, j , in the fall of 1982, an extensive survey of reer information. m
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residential customers' att:tudes was under- o develop a better understanding of taken for UI by a professional research the Company within the communities it firm It provided a detailed assessment and serves, the activities of the Speakers - _ analysis of attitudes, opinions and percep- Bureau, which addresses such groups as tions shaped by a penod of drastic change church and civic organizations, hcVe been , 30 and upheaval in the economy, quakty of life, expanded. And within the Company, an em- a the cost of energy and electric service. Per- ployee video news program was developed, i ,
,o sonal, in-home interviews were conducted of offering another source of information about , 5 more than 600 residential customers. In sum- the Company and the industry. 'I y
mary, the survey findings are encouraging -- since they demonstrate that the Company ] has overall positive ratings in roany key _i_ a -
"* ~ *"
areas. (Some of these results are illustrated on this page.) The Company eamed positive E Eet 0 MW ratings from 80% of those surveyed on such O Gocd C Pao-15
The CorportiteDevelopmenis service ama n win aiso contain venicie and transformer maintenance facilities, stores United A management audit of the Company, re- functions. engineenng funct ons, a computer gggg4 quired penodically of all utilities by State law, back-up facihty, and employment and medi-CWag was conducted in the fall by Temple Barker cal facihties. The Company also has in:!.ated
& Sloane, Inc. of Lexington, Massachusetts, a study on a corresponding eastern division The audit, the first to be conducted at UI service center.
since 1976, reviewed a number of areas, in- s part of the Company's proposed coal cluding business planning, fuel procurement, reconversion project, a now $3 million credit and co!!ection, distnbution manage- office and service buildirg is sched-ment, equipment utilization, meter reading, uled to be constructed on the Company's materials management, data processing, Bridgeport Harbor Station property. The pro-customer service, personnel management posed 33.000 square-foot facihty will provide and performance appraisal. Although the fi- additional office and warehouse space at nal audit report will not be issued until early UI's largest operations area as well as hous-1983, the Company received high marks and ing new computer and other technical was praised by the auditing firm in vanous systems, aspects of the prehminary report to the in the more immediate future, the Com-DPUC. pany will also lease space on several floors o' In 1982, several decisions were made a seven-story office building under construc-consistent with efforts to increase efficiency tion in the block adjoining the Company's and improve service to customers. UI will Temple Street Administration Building in New lease a service facrhty to be burit in Shelton to Haven. This will centrakze the Company s ad-the Company s specificattons, to be known ministrative functions, provide adequate as the Company's Western Division Service space for an expanded computer opera!!on, Center. When completed sometime in 1984 consohdate two customer inquiry centers thc facihty will become the base of operaSons and provide improved facihtres for customer for about 300 employees who provide serv- business contacts. Construction is sched-ice to customers in the western half of UI's u!ed to be completed by the fall of 1983 Personnelcinc/. . or the first time, the Company was able to utikze investrnent tax credits in 1982 Orgripitzcitioncil to fund the Tax Reduction Act Employee Stock Ownership Plan (TRAESOP) approved Develo/nnentSI by shareowners at their 1978 annual meet-In late December, UI's Board of Directors ing Under the plan, about $1.5 "' lion of named James F. Crowe as vice president- Company common stock was allocated in engineering, effective January 1,1983. Mr. 1982 to the accounts of employees or their Crowe, who had been serving as assistant beneficiaries. TRAESOP was instituted in ac-vice president since 1981, is responsible for cordance wiih federal tax legislation in-the Company's electncal and mechanical en- tended to encourage productivity through gineenng and construction functions. employee stock ownership and assist capi-he re-election of Chairman of the tal-intensive companies such as UI to raise capital. For TRAESOP participants, benefits TBoard and Chief Executive Officer John D. Fassett to a second one-year term as chairman of the New England Power Pool Ex-are accrued during working years through Company contnbutions and employees' voi-ecutive Ccmmittee ensured the cont:nuation untary coritnbutions to supplement pension of Urs leadership role in NEPOOL's develop- and Social Secunty benefits. ment of s new transmission interconnectc., with Hydro-Quebec, as we'l as in other re. Board of Directors At the Company's annual meeting in Apol, g!onal energy matters. in mid-September, representatives of 1982, shareowners elected Virgil C. Dechant the Company and Loca! 470-471, Utihty to UI's Board of Directors. Mr. Dechant is su-Workers Union of America AFL-CIO, pceme knight and chief executive officer of reached agreement on a new 26-month labor the New Haven-based Knights of Colurrbus-contract that provides for wage increases the international fraternal and insurance and improved benefits. The new pact is ef. association fective from September 16.1982 through November 15,1984 16
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3 -c . . 73 Grossi, seated behind him; Ray McGannon, director of i 3 r , 4 ; , .. -"9.17. c( .. 7 :. ./ . ; - : "f i . utilities operations and a management analysis for A mariepmant audit of the State's Department of , UI conducted by Temple. Public Utility Control, cen-~ ! Beic' & Sloane, gave the ter; and President Jim Cmpy y high marks in Cobey. many areas. l 17
Ten Year Summary of Selected Financial and Ctatistical Data , The 1982 1981 1980 United Kilowatt Hour Sales (000) liluminating ResidertiW 1,593,854 1.611.212 1.660,353 Company Comnarcial 1,578,433 1.551.228 1.568.638 Industnal 1,232,942 1,315,172 1,415.274 Other 69,935 70.299 70.813 Total 4,475,164 4.547,911 4.715.078 Financial Results (000) Safes of electncity - Residential $ 161,237 $ 164,595 $ 133.763
~
Commercial 156,902 157,386 122,904 Industnal 106,788 117.624 98,303 Other 9,652 9.613 7.697 Other operating revenues 2,151 1.804 1.455 Total operating rcvenues 436,730 451.022 364.122 Operatir.g ex penses, excluding income tax excense 353,070 386.279 328I53 Income tax expense (credit) 31,810 22,454 (387) Allowance for funds used dunng construction 40,349 28.113 27,555 Other iticome 8,595 9.040 710 Interest charges 35,039 29 904 30.055 Cumulative effect of change in accounting - - - Net income 65,755 49.538 34,466 Preferred and preference dividends 14,084 12.351 9,296
. Income applicable to common stock $ 51,671 $ 37.187 $ 25.170 Capitalization (000) tang-term debt S 373,015 $ 303.648 $ 295.581 Preferred and preference stock Not subject to mandatory redemption 70,000 70.000 70.000 Sut: ject to mandatory redemption 65,000 65.000 45.000 Common stock equity 319,720 262,198 222.861 Tutal $ 827,735 $ 700.846 $ 633,442 Common Stock Number of shares at year-end 10,693,605 9.154.578 7,660,132-Average number of shares outstanding 9,579,312 8,775,667 7,061,241 Earnirgs per share (a)
Before cumulative effect of change in accounting $5.39 $4.24 $3.56 Cumo!.wve effeet of change in accounting - - - locome apphcable to common stock $5.39 $4.24 $3.56 Dividends dec!ared per share $2 92 $2.76 $2 68 Book value per share $29.90 $28 64 $29.09
, Shcreowners - Total 39,213 37.868 36,447 in Connecticut 17,750 17,765 18.372 in Company terntory 13,439 11.815 12,456
~
General Peak load - k,lowatts 951,700 949.100 971,100 Generat.ng capabihty at year-end - kilowatts (c) 1,235,850 1.281.050 1.299,360 Number o? customers 284,586 282.890 280,800'
- 6,213 Kilowatt-hours per residential customer 6.312 6.545 Number of employees 1,517 1.514 1,481 Total payroll (000) $ 40,310 $ 35.581 $ 31.653 Total taes (000) 5 64,319 $ 54,510 $ 34.777 Uuhty plant at year-end (000) $ 1,049,761 $ 922,734 $ 830,034 Gross property add:tions (000) $ 167,924 $ 115.540 $ 98,413 Total assets at year-end (000) $ 982,852 $ 836.508 $ 739.027 (6) Earnings per s;iare based on the average number of share 3 oulstanding (b) Relates to change in method of accounting for fossii fue' costs (c) Represents maximum dependab;e net load-carrying abnty during the winter perrod for New Eng and Power Poot purposes.
includ:ng Ul s sr.are of capacity in Connecticut Yankee Atomic Power Company (55 290 KW) 18
- l;., . +
[' E_l- , y; , r_
,r p/ 1979 1978 1977 1976 1975 1974 1973 1,677_4S1 1,003.363 '1,064,029 1,660,733 1.627,191 1,601,131 1,659,253 1,565,380 1,541,127 ; f,505,879 1,474,885 1,402,742 1,327,138 1,333,293 1,ti7,969 1,419.297 ' 1,356.652 1,298,990 1,241,912 1,453,283 1,515,107 69,971 6P,621 67,541 64,391 61,104 60,124 56.512 4,780,751 4 712.408 4,594.101 4,498,999 d,332,952 4,441,676 4,614,165 I $ 104.512 $ 82,316 $ 84,099 $ 75,860 $ 74,684 $ 66,973 $ 46,798 L 94,400 72.361 73,323 64,623 62,175 54,165 37,156 75,316 '35,994 55.348 47,049 45,639 47.048 28,364 6,330 5.463 5,530 5,096 5,003 4,732 3,573 1,320 1,181 1,203 1,192 1,150 920 868 281,878 ,216,315 2'.9,503 193,820 188.651 173,838 116,759 238,605 183,289 182,696 162,060 161,322 146,638 97,096 4,E33 ; (164) 2,259 466 (3,507) 93 263 15,501 !a,268 4,937 2,843 6.630 7,186 3.240
! 1,102 740 143 528 292 546 472 25,245 20.721 15,970 16.103 16.204 14.081 8.527 1,884 (b) - 29,668 21,477 23.658 18,562 21,554 20,637 14.585 5,744 " f4 751
- 4,751 3,717 3.431 3,431 2,877
$ 23.024 $ *16,726 $ 18,907 $ 14,845 $ 18.123 $ 17,206 $ 11,708
$ 251,976 $ 233,9R ! $ 241,931 $ $'16.908 $ 216,885 $ 187,130 $ 167,118
. e,- <
70,000 70,000, 70.000 70 303 55.000 55,000 55,000 15,000 - - - - - - 186,326 177,526 ' 149,099 142,104 139.764 106 814 92,910
$ 523.302 $ 481,479 $ 461,030 3 429 012 $ 411,649 $ 348,944 $ 315,028 6,090,440 6.047,018 5.020,119 4.999,f 14 4.999 514 3,804,514 3,504,514
_ 6.072,725 5,458.428 5.012.122 4,999,514 4,40t.,281 3,677,117 3,504,514
$3.94 $3.06 $3.77 - $2.97 $4.10 $4.17 $3.34
.51 (b) -
$3.94 _ $3.06 $3.77 $2.97 $4.10 $4.68 $3.34
$2 62 $2.56 $2.47 $2.35 $2.32 $2.32 $2.26
$30.59 5' $29.36 $29.70 $28 42 $27.96 $28.08 $26.51 r 34,554 l 35.285 32,354 32,879 33 468 29,066 27,631 18,439 , , 19,018._ 18.695 _19,484 20.355 19,783 19,554 l
'12,155] 7 - < 12,343 12.201 13.03/ 13,713 13,634 13,614
.r- .
. 915,300 952,900 944,100, 862,500 859.100 829,800 923,600 1,299,360 1,322.800 '.331,020 1,403,290 1,438,140 1,010,330 1,001,330 278,523 ' 276.2d9 EN.4?2.. 271,871 270.109 268,511 265,673 6,664 ; 6,739 , 6,711 6.749 6.650 6,593 6,938
- 1,460 1,424 1,421- 1,422 1,449 1,516 1,533
$ 28,405 $ 25,894 5 23,317 $ 22.021 $ 20.613 $ 20.007 $ 19,476
$ 32,424 $ 2J,180 $ 24j98 $ . 21,533 $ 16.219 $ 18.112 $ 14.045
$ ?64 051 $ 681,585* $ ~ ts12,137 $ 566h49 $ 534,156 $ 500,409 $ 429.310
, $ ~ 'h6.'643 $ 70,731 $ 48,300 $ 35.396 $ 39.866 $ 73,608 $ 70.478
! ~ ,666.387 $ 575.110 $ 515.037 $ 482,459 $ 458,617 $ 437,892 ! '53,452
?-! ,
/'
19 e
Management'a Discussion and AnalyziJ of Financial Conditionand ResultJ, of Oper7tions. l The Major Influences on Finarcial Condition First there is a time lag in the operation of the I United in recent years, and particularly over the last few adjustment clause, since changes in fuel costs are l llluminating years, the financial condition of the Company has not reflected in customer billings until two months l Company been affected by two interrelated factors - a after the costs have been incurred. Second, the l heavy dependence on expensive foreign oil as a Company is required to pay the State of Connecti-source of fuel to generate niectricity and a large cut a tax of 5% on all mvenues, including the reve- l construction program to meet the objecWe of re, nues resulting from the operation of the fuel adjust- I ducing the economic burden and reliability nsks of ment clause. Third, there is the cost of financing 1 this reliance on oil-fired generation. The Company's oil purchases which vanes directly with the pnce financial condition is expected to be sensitive to Of Oil these factors until at least the mid-1980's, when the The Company's financial condition is sensitive to major portion of the present construction program all of these factors; but only the last two factors is expected to be completed and dependence on influence results of operations, since the effect of oil substantially reduced. the two-month billing lag is deferred for accounting purposes, pend.ng regulatory approvai of an amor-ollnependence tization schedule and recovery through general . Over 90% of the eiectricity sold by the Company is rate revenues. Recovery of this amortization effec- ) produced by buming imported residual fuel oil. tively reverses the effect on financial condition Substantial changes have occurred in the price of caused by the lag in billing changes in oil prices. this oil over the past four years. A general upward Current general rates, which became effective in trend commencing at the beginning of 1979 culmi- September 1981, included provision for a one-year nated in an all-time high of just over $40 per barrel amortization of $10.5 million of deferred fuel costs. in March 1981. By the beginning of 1982 the price Amortization of the full amount aJthonzed was of oil had declined and dunng 1982 continued to completed during 1982. As a result of this amorti-decline, averaging less than $30 per barrel for the zation and declining oil prices, there was a year. This reduction reflected both the weakened $6 4 mill:on cred6t balance of deferred fossil fuel demand for oil world-wide and the effect of a costs at the end of 1962. change in Connecticut's environmental standards that permitted the sulfur content of oil burned to be b"#*CO" P"" increased from 0.5% to 1% starting in November The Company" s financial condition is influence 1981. both by the size and cost of financing its accumu-lated investment in construction becausc, under n., present Connecticut regulatory practices, cash re-Fuel Oli Prices income tax benefits of construction until such time as the plant is placed in operation and the invest-ment r#ected in rates chamed to customers. How-
- ever, from an earnings standpoint, the cost of fi-nancing construction balances is offset by a non-cash credit to allowance for funds used during
*t : -_ 30 construction.
p rg ,3 The major portion of the Company's construction j TQ~ - pe program consists nf participation in the construc-J s- : , go tion of three nuclear generating units: 17.5% shares qp .C in Seabrook Unit Nos.1 and 2 in Seabrook, New
, Ay y j g 1 Hampshire, and a 3.665% share in Millstone Unit qJC (F e
di ~ 2 lm No. 3 in Waterford, Connecticut. Through the end of 1982, the Company had invested $478 million in m]JjM- ; k- gr., ( - j ,- J. - these three units under construction, an amount in f excess of present net plant in service. Approxi-m p] . ; l
- [ m .
~,
mately 62% of this investment occurred in the last threeyears Substantialadditionalinvestmentwill se Aesee be required to cor$ete construction of these units, currently c:stimated at $367 million through 1984, when Seabrook Unit No.1 is scheduled for comple-Although a fossil fuel adjustment clause in the ticn, plus additional amounts of $195 million Company's rates consiaerably mitigates the effects through 1986. when M,llstone Unit No. 3 is sched-of oil price changes, there are three significant ef- uled for completof and $28 million in 1987, when fects of price changes on the Company's financial Seabrook Unit No. 2 is due to be completed. These condition. These effects are favorable when oil amounts include allowance for funds used dunng prices decrease below the base price included in construction and are based on revised cost esti-the adjustment clause and unfavorable when oil mates and completion schedules prepared in late prices increase. 1982 by the lead participants in both the Seabrook and Millstone projects. These amounts do not in-clude any nuclear fuel purchases for Seabrook Unit Nos.1 and 2. 20
o
' Prior to its cancellation in October 1981, the its capital requirements. From a low of 3% in 1980, Company had been a 35% participant in the p*o- the percentage of construction expend tures posed Pilgrim Unit No. 2 in Plymouth, Massachu- financed internally increased to 21 % in 1981, pri-setts. The Company believes that the cost of this manly because of an improvement in the adequacy cancelled project is preperly recoverable through of rate relief. Although intemally generated funds in the rate-making process and will seek to amortize 1982 increasec over 1981, record high construc-and recover the cost through a general rate pro- tron expenditures caused the percentage to ceeding initiated in February 1983. Accordingly, decline to 16%.
the cancellation did not result in a charge against earnings, and the accumulated cost has been RateRelief deferred in the balance sheet. General rate increases totaling $95 million were im-A smallar but nevertheless significant construc- piemented dunng the years 1980 and 1981. In Apnl tion project, also desigrmd to reduce the Com- 1980, there was a limited rate increase which ad-pany's dependence on residual fuel oil, is the re- dressed only the impact on Company operations of conversion of its Bridgeport Harbor Station Unit spiralling fuel oil prices. Since the revenue levels No. 3 to the dual-fired, coal / oil, fuel capability for allowed in this and a prior proceeding, leading to which it was orig:nally designed. This project, esti- an increase in 1979 revenues, were based largely mated to cost $35 million in 1982 dollars, offers on historical costs and a 13.3% return on common potential cost reductions of several million do!!ars equity, revenues lagged behind the high inflation in per year based on the present price differential of costs that the Company was experiencing. This coal and oil. Assuming the necessary regulatory lag. along with the practice of the Connecticut De-approvals are received early in 1983, this project is partment of Public Utility Control (DPUC) of flowing expected to be completed by mid-1984. through to customers, as a reduction of current rev-enuc levels, income tax benefits associated with construction programs and accelerated tax depre- w.m C ation on plant in service, resulted in low intemal uiconstruction rrograrn so F_u_nds_Re.qu_ ired _for C.onstruction 2 cash generation for 1980. In sharp contrast to these conditions, the rate y increases implemented in December 1980 and
- J September 1981 included significant steps in the i direction of improving internal cash generation, iso tj retum on investment and the opportunity for ,
L c "y4J 75 achieving the allowed retum.
?
The first major step was DPUC adoption of full . _
'N J +
h normalization accounting for income tax benefits <
%b "
1 so applicable to post- 1980 construction expenditures N 4 4 F., J and additions to p; ant in service. This conversion _ 4 j{ f from flow-through accounting was substantially - j( l 23 effected in connection with a $36 million annual j 1o q"
-a , c ;
K~ -- revenue increase obtained in December 1980. u e4 e4 as a" r -
; That increase a!so provided for a 15.1% return on ,, ,3
, , common stock equity, based on a target common , , ,,
3 y , ,, y stock equity capitalization ratio of 40% (increased usewse from 35% used previously). U""*"" The allowed return was raised to 16 5% in Sep-tember 1981, when the most recent general rate increase of $41 million became effective. Another Lhquidity and Capital Resources significant element of this increase was its provi-Current construction expenditures are financed sion for anticipated high inflation in operating and l through a combination of internally generated fin ncing costs through 1982, which, for the first , funds and short-term borrowings. Short-term bor- time, provided a realistic opportunity to earn the rowings are subsequently repaid through sales of allowed retum under inflationary conditions. l equity secunties and long-term debt or by means of in view of these provisions in the last rate deci-I other long-term arrangements, such as the nuclear sion, it was not necessary to request additional rate fuelleasing and international t,anking transactions, relief dunng 1982. However, as further discussed i desenbed below, that were negotiated dunng below, a rate increase will be required dunng 1983. I 1982. I In recent years, intemally generated funds have Financing Program provided varying percentages of construction ex- The Company's financing program is structured l penditures, and the Company has been dependent around attaining target capitalization ratios of 40% l on outs:ce financ.ng to provide a major portion of common stock equity,15% preferred and prefer-
- ence stock, and 45% long-term debt. These target
! ratics have been incorporated into the Company's 21
l capitasination natio. rate decisions since December 1980. This has re- kets. Those agreements effectively resulted in $50
- o@ ha' "
sulted in genera'.ing increased amounts of retained million of debt financing for the next teven years at earnings, $23.7 million in 1Q82 alone, which has a cost, including transaction costs, of 13.52% per w aided in progressing toward the common stock eq- ar,num, or about 1 % below the then available do-uity target. Dunng 1932, the Cornpany succeeded mestic rates. This loan facility also includes a re-h w in increasing the actual common stock equity ratio to 38.6% und decreasing the preferred and prefer-volving credit arrangement for the first three years and thus affords a degree of flexibility normally only
~
ence stock ratio to 16.3%. At year-end, long-term associated with short-term borrowings. This financ-a debt accounted for 453 % of capitalization, on!y ing allowed the elimination of short-term debt at the
'M slightly higher than at the end of 1981.
Progressing toward this target capital structure end of 1982. {)?,O. --, increases financing flexibility which the Company retains by limiting short-terrr borrowing levels to Results of Ope 7tions income applicable to common stock for 1982 l - approximately 5% of capitalizaten and by following increased substantially over 1981, to a record 9e 9t y p ,o a regular pattem of replaang such borrowir.gs with $51.7 million, or $5.39 per share. Retum on year-Qg ]j
~
long-term financing. During the years 1980-1982- end common stock equity reached 16.2%, approxi-d.h 7 g( a; , traditional forms of long-term financing consisted of mating the level approved in the last rate decision.
=h C" J 4.6 millior, shares of common stock amounting to
$94 million, preferred and preference stocks This marks the second successive year of im-proved eamings. In addition, intemally generated w' aom amounting to $50 million and debentures amount- funds in 1982, while only $1.4 million higher than a c- ing to $98 million. 1981, represented substantial improvement over c%% In addition to these securities, external financing 1980. These results for the most recent two years for 1982 included use of two new types of financing were attnbutable mainly to the rate increases of options. December 1980 and September 1981, and to the in June, the Company realized nearly $28 million provisions in the applicable rate decisions.
from the initial trarisaction under a sate and lease- The downward trend in kilowatt-hoe sales, which back agreement covenng the Company's owner- began in late 1979, continued in 1980,1981 and ship interest in the nuclear fuel for the Seabrook 1982 with successive annual decreases of 1.4%, units. In addition to providing immediate cash 3.5% and 1.6%. These lower sales volumes were funds in 1982, this agreement provides for financ- due to persistent depressed economic conditions ing nuclear fuel purchases up to a total of in the Company's service terftory, evidenced by a
$60 million, an amount which would cover Sea- decline in industrial activity, including several plant brook nuclear fuel requirements through early closings, and by increased conservation of energy 1985. In add: tion to eliminating the need for sale of by customers in all rate classes.
more expensive equity and debt securities, the ad- Operating revenues increased in 1980 and 1981 vantage of this arrangement is that the Company compared to the respective prior years, due mainly will not be required to make payments for the nu- to the impact of higher residual fuel oil prices clear fuel until the Seabrook units actually begin through the operation of the fuel adjustment clause operation, at which time such expenditures can be and due to general rate increases, which added recovered through rates charged to customers as $15 million m 1980 and $51 million in 1981. In 1982, the fue!is used. the rate increase of September 1981 addeo Then, in December 1982, the Company entered $28 million to revenues. However, the effect of into two agreements with the intemational banking lower fuel oil prices combined with lower volume of community, which for the first time provided the kilowatt-hour sales resulted in a decrease in oper-Company access to the international financial mar- ating revenues for the year. Fuel and iriterchange energy expense rose steadily with rising residual oil prices in 1980 and Cash any Earnings _Per_ Share _ - _ - s7 oc most of 1981, but dec!ined by 17.8*/ in 1982 as the g ,
, $40 in early 1031 to a three-year low of just over
--- 3p $27 in December 1982.
g Other operation and maintenance expenses in-
^ 1" creased in all three years, due principally to the
'g ) continuing effect of inflation on employment and qa i }[g g
-f4* other costs. Capacity purchased expense also pM f,d 4 f>p * ,g[
y rose each year, due to increases in operating and capital costs at the Connecticut Yankee nuclear
]; ,w g- unit.
-b : J In 1980 and 1981, other taxes increased signifi-
.p ' ;% "}t' ']' #?
cantly over the respective prior years, due mainly to j*; jb gh q][p )]<8 h^ db .Jm incr%ses in state gross earn:r gs taxes attributable to higher revenues in both years. In 1982, other jb J ' 5 4 taxes were only slightly above 1981, since a drop in 73
]" [
a
~ ~l m
h, , Ml yb si n le state gross eamings taxes caused by the decrease in revenues substantially offset increases in local acw av~a property taxes and payroll taxes. 22
' Income tax expense rose in 1981 and 1982, re- major implications on eamings and internally The flecting increases in pre-tax income and the effect generated funds until completion of Seabrook United of income tax normalization accounting adopted in Unit No.1. gggy,gn,gg,g 1981. Consistent with results for 1982, a major Com-Interest on debentures and other interest pany goal for 1983 and future years is to continue "P8"Y charges rose in the period 1980 through 1982 due to realize retums on common stock equity approxi-to greater construction financing requirements and mating the retums allowed for rate purposes. Dur-higher interest rates. However, net interest charges ing the time prior to completbn of the first Seabrook reflected in the statement of income for the same unit, achievement of this goal on a total common period increased only 10% because the allowance stock equity basis will be facilitated by the large for borrowed funds used during construction (in- proportion of earnings that will be attnbutable to cluding the tax benefits attribLtable to the adoption allowance for funds used during construction, of r.st-of-tax treatment in 1981) partially offset the which is based on the return currently allowed for increases in debenture and other interest charges. rate purposes. However, the return on the portion Dividends on preferred and preference stock in- of common stock equity attributable to the Com-cresud over the three-year period as a result of pany's operating plant is expected to decline below new Wsues of stock to iinance construction. The the allowed level in 1983, unless rate relief is effect on earnings of this increase wcs more than forthcoming.
offset by the increase in the allowance for equity Although expected to contribute to maintenance funds used during construction which includes of earnings, the increasing construction balance provision for the allowed retum on common stock will negatively influence internally generated funds equity applicable to the construction program. since, under present Connecticut regulatory prac-tices, cash recovery on plant investment does not occur until the plant is operating. Therefore, inter-nally generated funds during the next two years are Return on Common Equity 18 % axpected to decline below the amounts realized in 1981 and 1982, a decline which will be mitigated 3 but not completely forestalled by rate rekef in 1983. ___ ___ De Without such rate relief intemally generated funds for 1983 and 1984 are expected to be negative. In order to update its costs and apply for recov-(u ery of its investment in the cancelled Pilgrim riu-u q-- clear project, the Company on February 9,1983,
] j) notified the DPUC of its intention to request a
$45 million increase in annual revenues. A decision
, ,2 on this request is expected by August 1983.
d[gN7d7-j From a financing standpoint, the Company plans
, l' . 1[q to continue to retain its financial flexibility through a
;(
~
3 regular pattern of replacing short-term borrowings g ,j with long-term financing and to continue increasing
~$p e A' '
a common stock and decreasing preferred and pref- _ h.udi.a 78 " d.h 8 diI 8' dd J 82 erence stock percentages of capitalization consist-ent with target capitalization ratios. The construc-Q A Mwed 51 AcNar tion p ogram will continue to be financed through the conventional sources used in the past and through any other options that are consistent with Outlook the aim of accomplishing tl e required financing on As 1983 begins, the Company is in a stronger fi- reasonable terms. Use of some such option will be nancial condition than at any time in recent years. necessary for the Company to proceed with the The challenge of retaining and building upon the reconversion of a generating unit in Bridgeport gains made in the last two years will become in- from an oil-burning to a coalloil burning capability. creasingly greater as construction of the Seabrook in order to meet 1983 construction reauirements, ptoject proceeds toward completion of the first unit, approximately $160 million of extemal financing will currently scheduled for December 1984. be required, about two-thirds of which is expected Construction expend:tures in 1983 are expected to be debt with the balance in common s'ock. to be the highest in the Company s history, aggre- Revisions to cost estimates or scheduled cpera-gating about $210 million, including $58 milkon o' tional dates of the nuclear units could change the allowance for funds used during construction, but Company's financing plans, the success of which is are expected to decline in 1984 anJ subsequent also dependent on other factors, including condi-years. These expenditures will cause the accumu- tions in the secunties markets, economic condi-lated balance of construction work in progress to tions, the level of the Company's sa!es and its abil-increase to over $800 milhon prior to the scheduled ity to obtain adequate and timely rate relief. in-service date of Seabrook Unit No.1 in late 1984. This increasng construction balance will have intiation Forfutherdiscussionof theeffectsof changing pres on the Company, see Supplementary Infor-mation/ Inflation. 23
Statement of Income . For the Years Ended December 31,1982,1981 and 1980 (Thousands except per share amounts) The 1982 1981 1960 U#II'd Operating Revenues $436,730 $451.022 $364.122 Illuminating O'N""I Operating Expenses l Operation ' Fuel and interchange energy- nel 202,579 246.466 209.179 Capacity purchased - net 8,081 7.147 5.276 Other 59,140 52.737 43.222 Maintenance 23,471 18.464 14.099 Depreciation 15,409 15.736 15.969 Amortization of deferred fossil fuel costs 6,164 8.214 7.541 Income taxes 31,810 22.454 (387) . Other taxes 38,226 37.515 32.967 ! Total 384,880 408.733 327.866 I Operating income 51,850 42.289 36.256 Other income and Deductions Allowance for equity funds used dunng construction 31,631 21.022 13.007 Other- net (625) 1.541 710 Total 31,006 22.563 13.717 income Before Interest Charges 82,856 64.852 49.973 Interest Charges Interest on long-term debt 31,971 26,639 22.391 Otherinterest 3,068 3.265 7.664 Allowance for borrowed funds used during construction (8,718) (7.091) (14.548) Income tax benefits attnbutab!e to the allowance for borrowed funds (9,220) (7.499) - Net Interest Charges 17,101 15.314 15.507 Net income 65,755 49.538 34,466 Dividends on Preferred and Preference Stock 14,084 12.351 9.296 Income Applicable to Common Stock $ 51,671 $ 37.187 $ 25.170 Average Number of Common Shares Outstanding 9,579 8.776 7,061 Earnings per Share of Common Stock $5.39 $4.24 $3.56 Dividends per Share of Common Stock $2.92 $2.76 $2.68 The accompanying Staternent of Accounting Policies and Notes to Financial Statements are integral parts of the financial statements. 24
l , Etatement of Sources of Funds for Gross Property Addition] For the Years Ended December 31,1982,1981 and 1980 (Thousands of Dottars) 1982 1981 1980 SOURCES OF FUNDS Internally Generated Net income $ 65,755 $ 19.538 $ 34.466 Add (deduct) Depreciation and amortization 21,763 24.144 23,712 Deferred income taxes (2,690) 2.613 (359) Deterred investment tax credits - net 17,776 7.253 225 Allowance for funds used during construction _{40,349) (28.113) (27.555) Funds provided from operations 62.255 55,435 30,489 Deduct dividends declared 42,097 36.672 28.261 Internally Generated Funds 20,158 18.763 2.228 External Financing Securities sold Common stock 34,102 27.675 32.226 Preferred and preference stock - 20.000 30.000 Debentures 30,000 20.000 48.000 Expenses of issues (2,527) (1.341) ( _ 2.466) 61,575 66.334 107.760 Retirement of debentures (4,000) (12.000) (4.000) Nuclear fuel financing obligation 31,049 - - Increase in other long-ter n debt 43,300 - -- Increase (decrease) in notes payable (39,902) 21.375 (62.393) Funds Obtained from External Financing 92,022 75.709 41.368 Other Sources (Uses) (Increase) decrease in working capital. excluding notes payable and current portion of long-term debt 11,927 (6.189) 2.325 Deferralof fossilfuelcosts 3,171 273 (6.871) Sa!e of a 2%% ownership share in Seabrook nuclear project - - 30,780 Dividend from Research Center, Inc. - - 705 Ot..er changes in noncurrent balance sheet items 297 (1,129) 323 Other Sources (Uses) 15,395 (7.045) 27.262 Funds for Property Additions from Above Sources 127,575 87.427 70.858 Allowance for fuads used during construction 40,349 28.113 27.555 CROSS PROPERTY ADDITIONS $167,924 $115.540 $ 98.413 Ctatement of Retained Earnings For the Years Ended December 31,1982,1981 and 1980 (Thousands of Dollars) 1982 1981 1980 Balance, January 1 $ 99,785 $ 86.919 $80.714 Net income 65,755 49.538 34.466 165,540 136.457 115.180 Deduct Cash Dividends Declared Preferred and preference stock 14,084 12.476 9.482 Common stock 28,013 24.196 18.779 42,097 36 672 28.261 Balance, December 31 $123,443 $ 99.785 $86.919 R
Balance Sheet , December 31,1982,1981 and 1980 (Thousands of Dollars) The ASSETS 1982 1981 1980 U"IM Utility Plant at Original Cost Illuminating Company in service sf,34,070 $556.448 $548,111 Less accumulated provision for depreciation 201,954 196.220 188.260 362,116 360,228 359.851 Construction work in progress 485,691 366.286 281,923 Net Utiiity Plant 847,807 726,514 641,774 Other Property and investments 38,031 7,023 5.552 l Current Assets Cash 1,252 2.567 1,491 Accounts receivable Customers, less allowance for doubtful accounts of $1,550, $1.350 and $875 41,404 43.364 53,752 Other 5,292 8.412 15.286 Accrued utility revenues 21,659 20.841 20,860 Fuel, materials and supplies, at average cost 7,318 7,761 7,006 Prepayments 222 440 255 Total 77,347 83.385 78,650 Deferred Debits Cancelled nuclear project 14,907 14,643 - Deferred fossil fuel costs - 2,949 11.436 Other 4,760 1.994 1,615 Total 19,667 19.586 13.051
$982,852 $836.508 $739.027 The accompanying Statement of Accounting Policies and Notes to Financial Statements are integral parts of the financial statements.
26 ew e
CAPITALIZATION AND LIABILITIES 1982 1981 1980 - Capitalliation Common stock $201,486 $167,384 $139.709 Capital stock expense (5,209) (4,971) (3.767) Retained earnings 123,443 99,785 86,919 Common stc,ck equity 319,720 262,198 222,861 Preferred and preference stock Not subject to mandatory redemption 70,000 70.000 70,000 Subject to mandatory redemption 65,000 65.000 45,000 Long-term debt 367,348 299.648 283,581 Total 822,068 696,846 621,442 Current Liabilities Current portion of long-term debt 5,667 4,000 12.000 Notes payable - 39,902 18,527 Accounts payable 34,342 32.795 39,429 Dividends payable 11,325 9,838 7,653 Taxes accrued 20,052 18,589 16,127 Interest accrued 4,085 3.510 3,475 Other accrued liabilities 10,303 9.486 8,788
~
Total 85,774 118,120 106.199 Nuclear Fuel Financing Obligation 31,049 - Deferred Credits Customers' advances for construction 1,763 875 783 Accumulated deferred investment tax credits 29,184 11,408 4,155 Deferred income taxes 6,628 9.259 6,448 Deferred fossil fuel costs 6,386 - - Total 43,961 21,542 11.386 Commitments and Contingencies - - -
$982,852 $836.508 $739,027 27
Ctatementcf Arounting Pelislea , 1 Accounting Records income Taxes l The accounting records are maintained in accordance with E!!ective January 1,1981, the Company adopted the policy I the uniform systems of accounts presenbed by the Federal of full normalization accounting for income tax benefits with l Energy Regulatory Commission (FERC) and the Connecticut respect to book-tax timing differences applicable to post- ' Department of Public Utility Control (DPUC) and their prede- 1980 property additions and all investment tax credits used cessor agencies. to reduce current federal income taxes. The major portion of the credits generatad result from the Company's election to UtilityPlant take investment tax credits applicable to long-term projects The cost of additions to utility plant and the cost of renewals on a progress-of-construction basis These acccunting poli-and betterments are capitalized. Cost consists of labor, cies were approved by the DPUC in a December 1980 rate matenals, services and certain indirect construction costs, decision and in a supplemental decision issued in Decem-including an allowance for funds used during construction. ber 1981, the purpose of which was to bring the Company l The cost of current repairs and minor replacements is into full conformity with the income tax normalization ac-charged to appropriate operating expense accounts. The counting provisions of the Economic Recovery Tax Act original cost of utility plant retired or otherwise disposed of of 1981. and the cost of removal less salvage are charged to the Prior to 1981, provisions for income taxes were reduced to accumulated provision for depreciation. reflect the timing benefits that resulted from the use of a rapid depreciation method (pnncipally sum-of-the-years Allorranceforfunds UsedDuring digits), the use of short& depreciation lives than those used Constniction for book purposes for certain plant and the current deduc-In accordance with the applicable regulatory systems of tion of certain capitalized construction costs consisting pnn-accounts, the Company capitalizes an silowance for funds cipally of pensions, taxes and the allowance for borrowed used dunng construction, which represents the approximate funds used during construction and fuither reduced by the cost of debt and equity capital devoted to plant under con- allowable 4% investment tax credit under the provisions cf struction. In accordance with FERC prescnbed accounting, the Internal Revenue Code of 1954, as amended. the portion of the allowance applicable to borrowed funds is presented in the statement of income as a reduction of inter. Accmed UtilityRevenues est charges, while the portion of the al!owance applicable to The estimated amount of utility revenues (less related ex-equity funds is presented as other income. Although the penses and applicable taxes) for service rendered but not a!!owance does not represent current cash income, it is re. billed is accrued at the end of each accounting period. coverable under the rate-making process over the service lives of the related propertics. Etfet tive January 1.1980, as /nrestntents . permitted by the FERC, the Company elected to compound Investments in Research Center, Inc., a wholly owned sub-semi-annually the aHowance applicable to major construc- sidiary, and Connecticut Yankee Atomic Power Company, a tion projects. nuclear generating company in which the Company has a Effective January 1,1981, the Company began account. 9 % stock interest, are accounted for on an equity basis. ing for the portion of the allowance applicable to borrowed in May 1980, Research Center, Inc. sold its only signifi-funds on a net-of-tax basis, in accordance with a Uecember cant asset, an interest in a tract of land in Meriden and 1980 rate decision by the DPUC. During 1982 and 1981, the Wallingford, Connecticut, resulting in an after-tax gain of average rates used for computing the allowance were 10% $940,700 whicilis included in equity in eamings of subsidi-(12.4% before-tax) and 9% (11.5% before-tax), respectively. aries (Other- net) in the statement of income for that year. Prior to 1981, the portion of the allowance applicable to Research Center, Inc., which had no other significant reve-borrowed funds was recorded on a before-tax basis. On this nues during the last three years, paid a dividend in 1980 to basis, the average rate used for computing the allowance for the Company from the proceeds of this sale. 1980 was 11%. FossilFuelCosts Depreciation The amount of fossil fuel costs that, pursuant to the fuel Provisions for depreciation on utility plant for book purposes adjustment clause in the Company's rates, cannot be re-are computed on a straight-l!ne, average-life basis using flected currently in customers' bills is deferred at the end of estimated service lives determined by independent engi- each accounting period. Since adoption of the deferred ac-neers. One-half year's depreciation is taken in the year of counting procedure in 1974, rate decisions by the DPUC addition and disposition of utility plant, except in the case of and its predecessors have consistently made specific provi-rnajor oparat!ag units on which depreciation commer:ces in sion for amortization and rate-making treatment of existing the month they are placed in service and ceases in the deferred fossil fuel cost balances. month they are removed from service. The aggregate an-nual provisions for depreciation for the years 1980,1981 and Pension Plan 1982 were equiva'ent to approximately 3.04%. 2.95% and Annual pension cost, including amortization of prior service 2.84%, respectively, of the original cost of dep*eciable cost over 30 years, is accrued each year and funded in the property. following year. Researth andDevelopment Costs Research and development costs. incliiding envircnmental studies, are capitalized if related to specific construction projects and depreciated over the lives of the related assets. Other research and development costs are charged to ax-pense as incurred. 28
, Notes to Financial Etatements
~. ..,. .,.-- . ~ . . . . . . ~ . . ~ ~ . , _ .m.#w .,, .._,_m .
. .. . m s,-m, ,.
(00!!ars amounts, e>rccpmer share amounts, are in thousands unless otherwise 1ndic&ted) (A) Capitali:adon atDecember31,1982 Common Stock Equdy (a) Long-term Debt (d) Common stock, no par va'ue $201.486 Long-term debentures Shares authonzed 12.500 000 3% 1984 Ser:es. due Octooer 1.1984 $ 9 000 Shares outstand 4ng at December 31. 4 4% 1987 Senes. due Nosember 1.1987 10.000 1980 7.660.132 15%% 1988 Senes due December 6 1988 20 000 1981 9.154.578 13%$ 1990 Senes. due July 1,1990 40 000 1982 10.693 605 4 65% 1990 Series due August 15.1990 15 000 Capita! stock expense (5.209) 4 4% 1991 Senes. due Juy 15.1991 10 000 Reratned eamings (b) 123 443 5%% 1996 Senes. due August 15 1906 15 000 Tota! common stock equiry 6% 1997 Senes. due June 15.1997 22 500 319 720 7 1999 Senes due January 15.1999 15 000 Preferred and Preference Stock (c) 10%% 2000 Senes. due June 15. 2000 30.000 Authonzed 7%% 2002 Senes. due October 1. 2002 25 000 Cumu r ative preferred stock 8 %% 2003 Senes due December 15. 2003 30 000
$100 par va'ue. 1.350.000 shares Sena debentures
$25 par va'ue. 2.400.000 shares 11% matunng senaly as to $4.000 pnncipa! amount Cumutabve preference stock:
on September 15,1983 4.000
$25 par value 5.000 000 shares 8w% matunng sena4y as to $1.667 pnncipa amount Outstanding at December 31.1982 on November 15 in each of the years 1983 to 1997 Not subject to mandatory redemption inctustve 25 000 Cumutative preferred stock $100 par va,ue' 11% matunng senaly as to $2 000 pnnapa' amount 4 35% Senes A. 50.000 shares 5 000 on November 15 m eacn of the years 1985 to 1999 4 72% Senes B. 75.000 shares 7.500 inclusive 30 000 4 64% Senes C. 75.000 shares 7,500 16 %% ma+unng sena1y as to $5 000 pnncipa amount 5%% Senes D. 75.000 shares 7 500 on November 21 in each of tne years 1987 and 7 60% Senes E. 125.000 shares 12.500 1988. and as to $20.000 poncipa' amount on 7 60% Senes F, 150.000 shares 15 000 November 21.1989 Ossued January 26.1982) 30 000 Cumu'auve preferred stock. $25 pw va!ue 330.500 8 80% 1976 Senes 600 000 rhares 15 000 Long-term bank loans 43.300 Tota: preferred stock not subject to 373 800 rnandatory redemption 70 000 U' amortzed debt d scount less premium at Subsct to mandatory redemphon December 31.1982 i785)
Cumufative preferred stock. $100 par va:ue Tota < tong-term debt 373.015 94% Senes a 150.000 shares 15 000 Cumulatrve preferred stock. $25 par va'uc Less current porton incuded in Current Liabet:es (5 667) 16% 1981 Senes. 800.000 shares 20 000 Tota! ong-term debt inc:uded in Cap:taazaton 367 348 Cumulative preference stock, $25 par va:ue Tota! Capitaizanon 15 88% 1980 Senes.1.200.000 shares 30.000
$ 822Oc}
Tota! preferred and preference stock subject
- a mandatory redempt'on 65.000 (a) Common Stock Common stock no par value, authonzed at December 31.1982 included 750 000 shares and 400 000 shares. respect vety. reserved for the Company's Automate Dmdend Reinvestment and Stock Purchase Plan (DRP) and Tax Reduction Act Employee Stock Ownership Plan (TRAESOP)
Shares issued (000) durrng '982.1981 and 1980 and increases to the common stock account from the proceeds of these issues were as 1982 1981 1980 Amount Shares Amount Shares Amuunt Shares Ba;ance. January 1 $167.384 9.155 $139 709 7.660 $107.483 6.090 Add tions resu: ting from , Pub 9coftenngs 28 964 1.300 25 914 1 400 30 815 1.500 ! DRP 3 600 173 1.761 95 1.411 70 TRAESOP 1.538 C4 - - - - Ba:ance. December 31 $201.486 10 634 $ t 67.384 9 155 $139 709 7 6GO Expenses re!ated to these issues were charged to cap;tal stock expense (b) Reta ned Eamings Restnction The indenture under whrch all of the Corrpany's debentures are iswed places bm ta' ons c1 the payment of cash d vidends on the common stock of the Company and on the amounts that can be expended to purchase or redeem shares of common stock Under the most restnchve provision of the indenture. retained ea nmgs in the amount of $74 m4 hon were free "om such hmitat,ons at Decerrber 31.1982 l (c) Preferred and Preference Stock i The aggregate redemption requirerer's 'or preferred and preference stock dunng each of the t ve years 1983-1987 are 1983-1984 - l None.1985 -- $3 000.1986 - $5 000 cnd 1987 -- $6 000 The par value of each of these issues was cred ted to the appropna'e stock account arrd expenses re'a'ed to these rssues were cha' god to capita! stock expense l l 29
Nores to FimancialStatemems corrtumsal . Preference stock is a form of stock that is junior to preferred stock but senior to common stock. It is not subject to the earnings coverage requirements or minimum capital and surplus requirements governing the issuance of preferred stock Shares of preferred and preference stock have preferential dividend and haudation nghts over shares of common stock. Preferred and preference shareholders are not entitled to general voting nghts However, if any preference dividends are in arrears for six or more quarters, or
- if some other ever.t of def au!t occurs, preference shareholders are entitled to elect two members of the Board of Directors, until all dividend arrears are paid and any event of default is terminated if similarly affected, preferred shareholders are entitled to elect a majority of the Board of Directors.
(d) LorvTermDebt in December 1982, the Company entered into two agreements which effectively provide a seven-year term loan of $50 million at a cost below the cost of a comparable term debenture issue Under a loan agreement with an intemational group of banks the Company may borrow $50 million from the banks for seven years at a rate of interest to be determined penodically based upon the London Interbank Offered Rate. For the first three years this agreement provides up to $50 milhon on a revolving credit basis The second agreement, also for seven years, covers an interest exchange arrangement between the Company, a United States credit guarantor bank and an international bank. This agreement provides for the Company to exchang( ets variable rate interest payments under the loan agreement for fixed rate payments incurred by the intemational bank on a recent $50 mihion seven-year debt issue As a result of these transactions, the Company will, in effect, incur a fixed rate debt at a total cost. including transaction costs, of 13.52% per annum and the intemational bank willincur a vanable rate debt. At December 31 1982. the Company had borrowed $30 milhon under the terms of these agreements at an annual interest rate of 13 035% excluding transaction costs. In addition, the unused borrowing capacity under the terms cf this agreement permitted the reclassification of $13.3 million of short-term debt to long-term debt The aggregate matunties of long-term debt dunng each of the f 4ve years 1983-1987 are.1983 - $5 667; 1984 - $10,667.1985 - $3,667; 1986 - $3.667 and 1987 - $18.667. (#) RatePmceedings On October 9,1981, the Company asked the DPUC to Rate increases, exclusive of amounts billed through fossil reopen its decision effective September 1,1981 for the sole fuel cost adjustment rates, approved by the DPUC were as purpose of amending it to include approval of an income tax follows: accounting change and a related revenue increase of Annual Percentage approximately $.6 million. This change was necessary in increase of Ong:na! order to bring the Company into full compliance with the Appbcat:on Effective Approved Request provisions of the Economic Recovery Tax Act of 1981 W es Dates (MAons) Approved (ERTA), signed into law on August 13,1981. ERTA requires January 24,1980 Apn! 25,1980 $17 6 80 % rates of regulated public utilities to be based on a norma!iza-December 17,1980 35 9 tion method of accounting as a condition of receiving accel-Ju!y 3,1980 71 erated depreciation and investment tax credit benefits for 41.11 May 21,1981 { December September 1,1981 10.1981 61 76* facilities constructed after 1980. The full request was approved by the CPUC. 85% f adiusted request (see betow) The January 1980 application was aimed solely at reme-dying certain severe and adverse impacts of sharply esca- (C) Income Taxes Income tax expense consists of: lated recidual fuel oil prices on the Company's operations. This increase provided for recovery of the 5% state gross 1982 1981 1980 revenues tax on increased revenues resulting from higher Operating expenses' fuel costs as well as for amortization and recovery of $16.1 Current million of added deferred fossil fuel costs over an 18-month Current!y payabie $ 7,739 $ 5,323 $ (51) period- Income tax attnbutabie to the The July 1980 application addressed increased non-fuel a"owance for borrowed funds 9.220 7.499 - operating expenses and financing costs and requested cer- 16 959 12.822 Tota l current (51) ta:n changes in the method of accounting for income taxes as had been required by the DPUC's predecessor agencies. Deferred All of the requested accounting changes were approved by investment tax credits (net of
'the DPUC, as set forth under " Allowance for Funds Used amortization) 17.776 7,253 225 During Construction" and " Income Taxes"in the Statement Deferred fossil fuelcosts (4.780) (4.337) (355) of Accounting Policies. This increase also included provision Constructon overheads 1.375 1.380 -
for amortization and recovery of deferred fossil fuel costs of Accelerated depreciation 734 273 -
$7.7 million annually, starting January 1,1981 and continu- Accrued utsty revenues (235) (234) (202) ing until revised. Cancened nuclear project 97 5.552 -
The May 21,1981 appkcation addressed inflation in oper. Acce erated amortization (57) (57) (57) ating expenses and financing costs that had occurred since Other- net (59) (198) 53 the previous rate application and the level of costs expected Total deferred 14 851 9 632 (336) to prevail over the tirne new rates were anticipated to be in Total operating income tax effect. The DPUC decision on this application approved expense 31.810 22.454 (387) substantially all of the Company's inflation proposals and 0:ner income and deductions - provided for a 16.5% return on common' stock equity. This current 1.813 591 1'104 decision reflected a decline in fuel oil prices subsequent to filing the application that reduced the originally requested Totat income tax expense $33 623 $23.045 $ 717 increase by $5.7 million On this basis,85% of the requested Accumu'ated deferred income taxes increase was approved. The approved increase also in- at December 31 cluded provision for an annual amortization of the deferred CancePed nuc! ear project $ 5.649 $ 5.552 $ - fossil fuel balance in an amount equivalent to the actual June Deferred fossil fuel costs (3.282) 1.498 5,835 30,1981 debit balance of $10.5 million. Construction overheads 2.755 1.380 - Acce'erated depreciation 1.007 273 - Acce erated amortizat>on 499 556 613
$ 6 628 $ 9 259 5 6.448 30
The amounts reported for federal income tax expense for rangements with several banks, Compensating balances the years 1982,1981 and 1980 were less than the amounts equal to 10% of the lines are required for $21 milkon of these computed by applying the federal income tax statutory rates lines of credit and fees in lieu of such compensating ba!-
. to book income before federalincome taxes. The reasons for ances are paid for the remaining $39 million of the lines such differences are as follows: of credit.
1982 1981 1980 Information with respect to short-term borrowings is as Net income $65.755 $49.538 $34.466 1982 1981 1980 Totalincome tax exper se 33.623 23.045 717 Maximum aggregate pnncipa! amount Less state income tax expense 6.640 4.607 366 of short-term borrowings outstanding Federahncome tax expense 26 983 18.438 351 at any mor*h-end $35.505 $45.500 $95.925 Book income before federalincome Average aggregate short-term taxes 92.738 67.976 34.817 borrowings outstanding during Federahncorr.e tax statutory rate 46% 46% 46% the year i8.195 14.661 43.361 Federal income taxes at statutory rate 42.659 31.269 16.016
- e 13 2 % 16 8% 15 2 %
Less tax effects of. Pnncipal amounts outstanding Allowance for funds used dunng at year-end construction capita!ized for book Commercial paper borrov. ngs 5 - $40.000 $18.800 purposes, not taxab!e income Bank borrowings - - - Equity funds $14.550 $ 9.670 $ 5.983 Total $ - $40.000 $18 800 Borrowed funds -- - 6.692 Tax depreciaSon in excess of book Annuaazed interest rate on pnncipal depreciation applicable to pre, amounts outstanding at year-end - 13 5 % 19 3% 1981 property additions 2.479 2.562 2.805 Average short-term borrowings represent the sum of dady borrowings Taxable income resulting from the outstanding. weighted for the number of days outstanding and divided sa'sandleasebackof the by the number of days in the penod. The weighted average interest rate Seabrook nuc ear fuel (2.051) - - is determined by dividing interest expense by the amount of average Equitpn earnings of subsidiary borroegs. companies for book prposes. not taxabre income 549 353 596 (E) SupplementaryincomeStatement Investment tax credits 149 109 884 In[Ormat/On Taxes and pensions capitahzed for The amount of taxes, maintenance and the provisions for book purposes. deducted depreciation and amortization, other than those set forth in currentfy for tax purposes - - 896 the statement of income, are not significant. Taxab'e income resulting from the Neither rents, advertising costs nor research and devel-sa'e, at book value, of a 2W% opment costs exceed one per cent of total revenues and ownership share in Seabrook there are no royalties. Taxes, other than income taxes nuclear prqect - - (2.146) charged to costs and expenses, arc set forth below: Otheritems -net - 137 @5) 1982 1981 1980 Federalincome tax exper.se $26 983 $18.438 $ 351 State gross eamings $21.836 $22.553 $18.207 Effective federahncome tax rates 29 1% 27.1% .0% Loca! real estate and personal property 15.210 13.954 13.828 Payroll 2.934 2.506 2.025 The 1975 Tax Reduction Act and succeeding amend- $39 980 $39.013 $34 060 ments provide that up to 70% for 1980,80% for 1981 and - 90% for 1982 of federalincome taxes currently payable may Charged to-be offset by investment tax credits. The total credits utilized Tax expense $38.174 $37.514 $32S67 in 1982,1981 and 1980 amounted to $17,924. $7,362 and Other accounts 1.806 1.499 1.093
$1.109. respectively, the maximum amounts allowed. $39 980 $39 013 $34.060 The investment tax cred:ts carried forward at December 31,1982 amounted to approximately $14,000, of which . $2,000 expires in 1996 and $12.000 in 1997. II) I'###'U"I,I""
Allinvestment tax credits utilized for tax purposes in the The Company has a pension plan covenng substantially all future will be deferred and amortized to income ratably over its employees. The entire cost of the plan is borne by the the in-service lives of the related properties. Company and is paid into an irrevocable trust fund. Pension costs for the years 1982.1981 and 1980 were
$4 5 "
D) 1,npensating Balances am/Short@rm gcc r ui ted plan enef$ts an7p r 1 assets at JanJary
'S 1,1982 were:
Substantially all cash serves the dual purpose of providing funds for operating requirements and for compensating bal- amamew Vested benefits $29.403 ances to cover bank lines of credit. The Company's bank Non-vested benefits 4.928 knes of credit, some of which are subject to renewal on Apnl i 30,1983, amount to $60 milhon pursuant to individual ar- 534 331 Net assets avadab!e for ber* $50.341 The assumed weighted average rate of return used in determining the actuarial present value of accumulated plan benefite .vas 9%%. 31
Nora ec rmancialstatenemwntunut (G) Jo/ntly OwnedPlant provision for possible reconversion of a generating unit at ' The Company's 93.7% ownership share of the New Haven the Company's Bridgeport Harbor Station from oil to a dual-Harbor Station generating unit represented $131.5 million of fired oil and coal-buming operation, other than approxi-utility plant :n scrvice and $24.2 million of accumulated pro- mately $2 million for preliminary engineering and design . vision for depreciation at December 31,1982. The Com- work. pany's share of the operating costs is included in the The current construction program costs reflect a recent appropriate expense captions in the statement of income. Upward revision in the cost estimates for Mi!! stone Unit No. 3. The Company siso has ownership shares in three nuclear Based on this revision, which assumes a continuation of a generating units under construction. See Note (J), " Commit- construction schedule to meet a 1986 in-service date, the ments and Contingencies " estimated total cost to the Company for its 3.685% owner-ship share of this nuclear generating unit, including AFUDC, (R) Cancellation ofPlannet/NuclearProject has increased from $107.5 million to $136.4 million. On September 24,1981, Boston Edison Company The estimates reflecting the Company's share of the con-announced its intention to cancel plans for the construction struction costs of the Seabrook units are based on estimates of its Pilgrim Unit No. 2, a proposed nuclear generating unit made by Public Service of New Hampshire (PSNH) in December 1982. These estimates resulted from a compre-in which the Company has a 3.3% ownership interest. Can. cellation of this project, effective October 22,1981, was hensive restudy of the cost estimates and construction schedule for Seabrook Unit Nos.1 and 2 and represents a caused by escalating costs and continuing regulatory uncertainties. The Company's share of the accumulated $279 million increase in the estimated total cost of the Com. costs applicable to this project, including allowance for pany's share of this project. As a result of this restudy and funds used during construction of $3.9 million, was $14.9 subsequent consultation among all of the joint owners, million as of December 31,1982, wmch is shown as a which led to a decision to continue the 1983 construction deferred debit on the Company's balance sheet. Based on effort at Unit No. 2 at approximately the 1982 year-end level, Boston Edison Company estimates of additional future the in-service dates for Seabrook Units Nos.1 and 2 have charges associated with the cancellation of the project, the been delayed by ten and fourteen months, respectively, to Company's share of total net costs is not expected to December 1984 and July 1987. exceed $15 million. The Company believes that the cost of On July 16,1982, the New Hampshire Public Utilities this cancelled project is properly recoverable through the Commission (NHPUC) directed that no proceeds of any rate-making process and will seek to amortize and recover future long-term or short-term cecurities issued by PSNH be the total amount through a 1983 general rate proceeding. used for the construction of Seabrook Unit No. 2 until one of three conditions was met. The conditions were (1) the safe of a 7% ownership share in the Seabrook project by PSNH, (2) (I) NuclearfuelF/nancing Obt/gation the demonstration by other utilities of interest in acquiring On June 11,1982, the Company entered into a sale and shares in the Seabrook units equivafent to such a sale in leaseback agreement which provides for financing the costs alleviating tho financial burden of the project on PSNH, or (3) of its ownership share in the nuclear fuel of Seabrook Unit the completion of Unit No.1. The NHPUC stated in its prohi-Nos.1 and 2, currently under construction. Under this bition order that suspension of work on Unit No. 2 was nec-arrangement, the Company sold its interest in existing fuel essary in order to achieve the timely completion of Unit No. for its book value of $27.9 million (including allowance for 1, and its prohibition did not apply to work on Unit No.1 or funds used dunng construction). The agreement provides common plant associated with both units. PSNH appealed for future purchases of nuclear fuel by the lessor up to an the NHPUC's prohibition order to the New Hampshire aggregate of $40 million, including the initial purchase. This Supreme Court and on August 19,1982, that Court granted
$40 million ceiling is to be extended to $60 million with the requests by PSNH, the Company and others that the prohi-approval of both parties in February 1983. When Seabrook bition order be suspended during the pendency of the Unit Nos.1 and 2 begin producing electricity, the Company appeal. On December 27,1982, the New Hampshire will commence paying rent based on the direct costs to the Supreme Court vacated the NHPUC's prohibition order, rul-lessor of the fuel, plus the lessor's financing costs (calcu.
lated at 2% over the lessor's 90-day commercial paper rate). ing that the NHPUC had exceeded its authority in issuing it. Completion of construction of each of the three nuclear The balance of $31.0 million as of December 31,1982, generating units in which the Company is participating is including $2.2 million of accrued financing costs, is included contingent, among other things, upon obtaining necessary as a capitalized lease in Other Property and Investments. regulatory approvals, permits and sufficient financing. While Cap;talization of the Company's other leases would not have at is possible that future developments could lead to cancel-had a significant effect on the financial statements lation of one or more of the units, the Company C Snsiders the possibility of cancellation of any of these units un. kely. How-(J) Cornin/ttnentsantiCont/ngencies ever, if any of these units were cancelled, the Company The Company has entered into substantiar commitments in estimates its share of the total cancellation costs would be connection with its continuing construction program, which substantial; the precise amount would depend upon a num-is presently estimated at approximately $650 million for 1983 ber of factors, including the amount of termination charges through 1987. The major items in the construction program and salvage and the results of negotiations in connection are $509 million, excluding nuclear fuel, for the Company's with contract terminations. As it plans to do in the case of the ownership share in Seabrook Unit Nos.1 and 2 and $81 Pilgrim Unit No. 2 cancellation, the Company would apply to million, including nuclear fuel, for the Company's 3.685% the Connecticut Department of Public Utility Control (DPUC) ownership share in Mrlistone Unit No. 3. for permission to amortize its share of total costs over an Construction program costs are based on current con- appropriate future period and to recover such costs through struction schedules and include allowance for funds used its rates; but the Company cannot predict whether and to during construction (AFUDC). The costs do not include any what extent such recovery would be permitted. The Com-pany's investment in the three nuclear generating units, excluding Seabrook nuclear fuel, was approximately $478 million at December 31,1982, including $416 million invested in the Seabrook units and $62 million invested in Millstone Unit No. 3. 32 1
The gencrating units at the Company's Bridgeport Harbor Station are capable of burning either oil or coal. While the
- largest unit has burned oil exclusively since it was placed in
. service in 1968, reconversion of the unit to a dual-firing capability is environmentally, technically and financially fea-s;ble and is also economically desirable, providea the Com- Report of Independent Certified Public Accountants
- pany can obtain necessary approvals, in a timely fashion, from the several govemmental agencies having jurisdiction To the Shareowners and Directors of The United liluminating over its operations, hnancial structure and rates. On April 23, Company:
1982, the Company filed petitions with three Connecticut agencies requesting approvals with respect to the construc- We have examined the balance sheets of The United lilumi-tion, environmental and siting matters, rate treatment, and a nating Company as of December 31,1982,1981 and 1980, financing concept that would not require issuance of the and the related statements of income, retained eamings and Company's debt or equity securities in order to finance the sources of funds for gross property additions for the years estimated $35 million (in 1982 dollars) of construction then ended. Our examinations were made in accordance expenditures necessary for reconversion of the unit to dual- with generally accepted auditing standards and, accord-firing capability. ingly, included such tests of the accounting records and On July 20,1982, the DPUC issued its decision, which such other auditing procedures as we considered neces-concluded that reconversion of the unit is in the public inter- sary in the circumstances. est, provided that environmental, health and safety issues in our opinion, the financial statements refstred to above can be properly addressed and resolved. The DPUC also present fairly the financial position of The United Illuminating granted the requested preliminary approvals of the Com- Company as of December 31,1982,1981 and 1980, and the pany's proposed rate treatment and financing concept. On results of its operations and sources of funds for gross prop-January 11,1983 the Connecticut Siting Council gave its erty additions for the years then ended, in conformity with approval of the Company's application for a certificate of generally accepted accounting principles applied on a con-environmental compatibility and public need for the project. sistent basis. The other agency involved, the Connecticut Department of Environmental Protection, is expected to render its decision Coopers & Lybrand on the Company's petition early in 1983 The Company plans New York, New York to begin reconversion cor,struction work immediately upon January 24,1983 receipt of approvals from all three governmental agencies, with completion targeted for July 1984. Connecticut Yankee Atomic Power Company (Connecticut Yankee), in which the Company has a 9.5% common stock ownership share, owns and operates a nuclear electric gen- Common StockData erating station in Haddam Neck, Connecticut. Connecticut Urs Common Stock is traded on the New York Stock Yankee is engaged in an extensive construction program Exchange, where the high and low sale prices during 1982 which is essential to the maintenance of its station as a and 1981 were as follows: dependable source of low-cost electric power in New Eng-land. As a condition of the debt financing arrangements for 1982 Sale Pnce 1981 Sa'e Pnce this construction program, the lenders have reauired guar- High Low High Low antees from the shareowners of Connecticut Yankee. First Quarter 22 18% 20w 18 Accordingly in December 1581, the Company guaranteed Second Quarter 23 % 20 % 20 % 18 % payment of its stock ownership percentage of a $50 million Third Quarter 23 % 20 % 19 % 17% long-term debt issue of Connecticut Yankee and has agreed Fourth Quarter 26 % 22 20% 18 to furnish or guarantee payment of an equivalent percentage of a maximum of $50 million of short term borrowings by UI has paid quarterly dividends on its Common Stock Connecticut Yankee. since 1900. Quarterly dividends were declared in 1982 and 1981 at the rates of 73c and 69c per share, respectively. (K) QuarterlyFinancialData(Unamlitert) As of January 31,1983, there were 39.273 Common Stock Selected quarterly financial data for 1982 and 1981 are set shareowners of record. forth below:
- Earnings 1
Per Share Operating Operating Net of Cornmon Quarter Revenues income income Stock (1) 1982
, F rst $117,132 514.800 $18.209 $160
- Second 101.628 9.714 12.217 .94 Third tis.543 14.385 17.570 1.51
- Fourth 108.417 17,759 12.951 1.34 1981 First $112.378 $11.310 $12,172 $1.23 Second 109,299 7.318 8.794 67 f Third 115.066 10.903 13.825 1.14 Facth 114,279 12.759 14.747 1.23 (1) Based on weighted average number of shares outstanding dunng each Quarter.
l l l
SUNIORIGRlSFV IRIONRS%IOR/IRflS%IOR t (Unaudsted)
~
Tlte Intnuluction index, is not necessarily representative of the rengted The follow;ng information is furnished as a supple- effects of inflation on the Compcny. A primary value ment to the historical cost basis financial state- of constant dollar data is that it provides a common BIlustelstatistg ments in order to convey the effects of certain price basis for comparison of companies in various y changes on selected balance sheet and income industries subject to the reporting requirements. statement items. This information has been com- The purchasing power gain on net monetary lia-piled in accordance with a requirement of the bilities shown in the accompanying data theoreti-Financial Accounting Standards Board (FASB) that cally represents the extent to which equity investors companies disclose certain effects of inflation on were hedged against the risk of inflation in plant their operations. The data should be viewed as an investment and other costs, primarily because a estimate, rather than as a precise measure, of the substantial portion of plant costs was financed by approximate effect of price changes on money long-term debt. The Company cautions that such invested in plant over many years and on money gains are unrealized and, therefore, do not contrib-borrowed to provide a substantial portion of the ute to cash flow or distributable income. Because funds invested in plant. depreciation on plant is limited to the recovery of Constant dollar amounts represent historical historical costs, the Company does not have an amounts stated in terms of dollars of equal pur- opportunity to realize either the increase in specific chasing power, as measured by the 1982 average prices of plant investment held (sometimes called of the Consumer Price Index for All Urban Con- holding gains) or the related gains on debt used to sumers. Current cost amounts reflect the changes finance investment in plant assets. in specific prices of plant from the date the plant The reduction of inflation-adjusted plant invest-was acquired to the present, as measured by the ment to net recoverable, or historical cost has been Handy-Whitman index of Public Utility Construction included in the 1982 data in view of the FASB's Costs. Current cost amounts of plant differ from opinion that it may not be appropriate for compa-constant dollar amounts to the extent that specific nies limited to recovery of the historical cost of their prices have increased more or lens rapidly than plant investment through the regulatory process to prices in general. state their assets above the recoverable amounts. Plant investment as referred to in the accompa- This reduction should not be allowed to obscure nying data includes utility plant in service, net of the fact that inflation in prices affects virtually all the accumulated provision for depreciation, and con- Company's operations. While it is true that future struction work in progress. The constant dollar and cash flows relative to the Company plant invest-current cost provisions for depreciation were deter- ment will be based upon recovery of historical cost mined by applying the Company's historical cost- plus a specified rate of retum, it is equally true that basis depreciation rates to the indexed plant the Company has the same problem as non-regu-amounts. lated businesses in maintaining its operating capa-Fuel, materials and supplies inventories and bility and avoiding erosion of capital. Furthermore, related expense categories have not been restated the Company and other utilities must compete in from historical amounts because, due to rapid tum- the same capital markets as non-regulated busi-over, especially of fuel inventory, these items are nesses and returns must be sufficient to raise the already stated at or near current cost. capital required. The reduction should be viewed in The depreciation adjuMments to 1982 reported recognitionof thesefacts. net income and the similar adjustments used in cal-culating general and specific price level adjusted income applicable to common stock for 1978 trer, ugh 1981, represent the additional cost of pro-viding sufficient funds to replace, at the assumed price levels, the service potential of plant used up during those years. As presenbed by the FASB, income tax expense is unadjusted for the effects of inflation. Discussion Of the two methods used to measure inflation, the more relevant to UI is the current cost method because it is based on the Handy-Whitman Index, which depicts the treno in public utility construction costs. The constant dollar data, because it is devel-oped using the broad based Consumer Price 5
a Selected Supplementary Financial Data Adjusted for the Effects of inflation (Average 1982 dollars in thousands except per share amounts) Forthe Year 1982 Constant Current Dollar Cost Net income, as reported in the statement of income $65.755 $65.755 Adjustment to depreciaton exponse based on plant investment recalculated to recognize the effects of inflation in the general price level and in specifc pnces 22.515 26.725 Netincome,as adjusted 43.240 39.030 Dividends on preferred and preference stock .14.084 14.084 income applicable to common stock, as adjusted $29.156 $24.946 Purchasing power gain on net monetary liabilities: Long-term debt $12.201 $12.201 Other, pr.ncipany net current liabilities 1.072 1.072 Total $13.273 $13.273 Effect of inflation on plant investment held during the year as measured by changes in: Specifc pnces $49.240 General pncelevel 48.773 Inflation in specifc prces of plant investment over general pnce levelinflaton $ 467 Reducten of inflation-adjusted plant investment to net recoverable (historical) cost $ 6,638 $ 2.895 At December 31,1982, the current cost of plant investment was $1.373,487 as compared to historical cost of $847.807. Five Year Summary 1982 1981 1980 1979 1978 Operating revenues $436.730 $478.673 $426.531 $374.672 $320.045 Historical cost information sajusted for inflation in the general price level (constant dollar information): Income appliceble to common stock $ 29.156 $ 16,112 5 6.716 $ 12,818 $ 6.921 Eemings per snare of common stock $3 04 $1.84 $ .94 $2.11 $1.26 Common stock equity at yerar-end(a) $822.317 $783.442 $735A03 $664.788 $610.077 Histoncal cost informuion adjusted for inflaton in specifc prices (current cost information): Incorre applicable to common stock $ 24.946 $ 11.195 $ 474 $ 5,466 $ (1.528) Eamings per shareof common stock $2.60 $1.27 $.07 $ 90 $(.28) Inftation in specife pr;ces of plant investment over (under) general pnce level inflation $ 467 $ (22.200) $ (40.531) $ (25.606) $ 26.611 Common stock equity at year-end (a) $838.518 $787.205 $752,180 $731.658 $709.906 Generalinformation: Purchasing power gain on net monetary liabilities: i Long-term debt $ 12.201 $ 27.213 $ 37,128 $ 40.468 $ 30.600 Other, principally net current liabilities 1.072 2.038 8.111 9.865 2.803 Total $ 13 273 $ 29.251 $ 45.239 $ 50.333 $ 33.403 Dividends declared per share of common stock $292 $2.93 $3.14 $3.48 $3.79 Market pnce per common share at yearend $25 21 $19 38 $20.27 $26.55 $32.41 Average Consumer Pnce Index (1967- 100) 289.1 272 4 246.B 217.5 195.4 (a) Year-end data, stated in average 1982 dolfars: 1982 1981 1980 1979 1978 l l i l Common stock equity at net recoveiable (historical) cost 1316.111 $269.277 $249.243 $234.204 $252.947 l Net assets. Constant dollar $955.793 $922.087 $864.016 $771.627 $709.816 [ $809.646 Curent cost $971.994 $925.850 $680.793 $838.498
$449.588 $407.922 $377.856 $341.046 $352,684 Net recoverab!e (historica!) cost l
' 35
i, Directors +-~ '-~&-- - t g. g "Jf r /*T 6 ' Angus N. Gordon Jr.
~
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(Former Chairman of the Board. . 1 United I!luminating) {.. . ~7'g C i : g
' . g*f q John D. Fassett '# -
>M Y Cha:rman of tne Board and - -
'1) 4 Chief Executive Officer. '
!f8 Ai '
j United filuminat ng
$g'Ml i
D. Allan Bromley i Henry Ford ll Professor
- i'qjj,li and D; rector, A W. Wnght Nuclear Structure D ,
Laboratory, Yale University i John M. C. Betts ~ t 5 Mce Chairman. South Central Y Cwnecticut Regional Water * #. .-
.suthonty. (Former Senior Mce President. United Illuminating)
Norwick R.Goodspeed
- Chairman of the Board and
- Chief Executive Officer, People's Savings Bank - -
n-m - 7-- m- e m m d Bndgeport p - g' s Robert D. Russo, M.D. .
/.: ; ! Chairman. Department ! } c'N of Radiology St.%ncent's 7e ; ,-1 y, ,
Medical Center ,j i-James F. Cobey Jr. () [.- ., '
]> .,
9 -
} ?l President and Chief Q 0
- 1 Operating Officer, United illuminating .
i Leland W. Miles - President. University of Bridgeport < Leon A. Morgan Executive Mce President
- Operations. Engineering k- '
and Customer Services. , United illuminating Geraldine W. Johnson Former Superintendent of Schools. City cf Bndgeport _,. r . p left; James F. Cobey Jr.. Leland W. Miles. e n t Knights of Columbus Top ght n us N. Gordon Jr.. Dr. Robert D. Russo Bottom left: Geraldine W. Johnson. Leon A. Morgan. Norwick R. Goodspeed Bottom nght: Virgil C. Dechant. John D. Fassett. John M. C. Betts 1 I j6
4 n
._ _ . _ . _ . _ _ . _ . - ~~
Officers W% John D. Fassett a Chairman of the Board and y M. y Chief Executive Officer
/p3 l "- .
k James F. Cobey Jr. I.
;a dod %
i. President and Chief Operating Officer i \ j Leon A. Morgan
~
Executive Vice President i
, <- A. - Operations, Engineenng 3
',7 Y and Customer Services John V. Fratus Jr.
g[ ';k Senior Vice President - 4 Govemmental Relations P EIf
- Charles W. Cook Jr.
- --- / " ' Vice President-p, Customer Services
'^ James F. Crowe
,a Vice President -
, Engineenng Robert L. Fiscus Vice President-Finance and Accounting Richard J. Grossi wn. - . Vice President -
3 l Corporate Planning and e %k ' * ,$ -r1l[t
._ vm ~- ..
Develonment left ro nght, seated: Charles W. Cook Jr., Albert Harary John V. Fratus Jr., Anne G. Spinney, Vice President - Harold J. Moore Jr., Marcus R. McCraven, Management Services David W. Hoskinson. David W. Hoskinsen f:snding: Richard J. Grossi, Robert L. Fiscus, . Vice President - William A. Elder, Albert Harary, James L. Benjamin, Richard F. Skinner, James F. Crowe. Operations furcus R. McCraven Vice President - Environmental Engineenng Harold J. Moore Jr. Vice President - Human Resources Anne G. Spinney Vice President - Communications James L Benjamin Controller i General Counsel Stock Listing William A. Elder i Wigg'n & Dana The New York Treasurer Independent Certified Stock Exchange Richard F. Skinner Public Accountants Common Stock Secretary Coopers & Lybrand 8.80% Preferred Stock,1976 Senes Stock Transfer and 16% Preferred Stock.1961 Senes Dividend Disbursing Agtnt, Registrar 15 88% Preference Stock and Dividend Reinvestment Plan Agent The Connecticut Bank and Trust Company, Hartford. Connecticut
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Northeast Uteties ....... j United 13uminabng is an operat.ng efectnc utAty serving an area of about 335 square mees en the southwestem part of Connect. cut The Company's d sefvice area (about 7% of the state) includes the -3 L -. pnnc: pal crties of Bndgeport and New Haven and . ;}
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their surround.ng areas The populabon of this j " area is approximateiy 707.000. or 23% of the pop-ulation of the state
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x saawn_whw ._s j Y - k Tj The area NEPOOL serves NEPEX. the New Eng'and Power Exchange. is the operat,ons arm of NEPOOL. coordinatng and di-
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f4 New England Power Exchange generation and transmiss,on facht es in Ne* Eng- -j land from a master control center in West Sp. ring- 3 J]
- NEWENGLAND fietd. Massachusets NEPEX o rects four satemte .]
connol centers aney locatons. which condnw 1 POWER EXCHANGE usiy m n t one cuadon onhe six-state regon s (NEPEX) eieCtr'C poher system. se.sCttng and implement-z,j3 7 Ing the best avadable Combinabons of generat;on and -j M 3 Locations Of the three transm:ssion from moment to moment to meet total NEPOOL-planned power demands Another function of NEPOOL is to bg
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fluCIOaf generatin9 prov>de a central plann,ng statt. New Eng!and j
<, Umts in WhlCh Ul Power Planning (NEPLAN) which has the respon- lj
[^$ is partiCipabng sebaty for preparing etectr<c load forecasts. evalu- 4 aSng a'temate generaSon and transmission p!ans. recommend.ng rehabMty standards and facWtanng p.'- the pnt ownersh p of power plants through optimi- : .; 9 zation of s.ze and locanon The Satellite Control Centers are
%.. @ CONNECTICUT VALLEY ELECTRIC EX- .J
- 1 w CH ANGE (CONGX)
- Southington. Connect: cut Controls power in =* Connecticut and western Massachusetts /I 1 q-~ @ RHOOE ISLAND--EASTERN MASSACHU-SETTS-VERMONT ENERGY CONTROL q (REMVEC) s
**D'm 1 and 2 Westboro. Massachusens Contro:s power en Rhode Island eastern Massachusetts and -
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@ NEW HAMPSH!RE CONTROL CENTER hi N Manchester. New Hampshire Controls power ;)
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@ MAINE POWER EXCHANGE
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