ML20148N249
| ML20148N249 | |
| Person / Time | |
|---|---|
| Site: | Yankee Rowe |
| Issue date: | 12/31/1987 |
| From: | Papanic G YANKEE ATOMIC ELECTRIC CO. |
| To: | NRC OFFICE OF ADMINISTRATION & RESOURCES MANAGEMENT (ARM) |
| References | |
| FYR-88-43, NUDOCS 8804060406 | |
| Download: ML20148N249 (19) | |
Text
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,_ o Telephone (317) 872-81c0 TWX 710-380-7619 YANKEE ATOMIC ELECTRIC COMPANY yrh w
2 1671 Worcester Road, Framingham, Massachusetts 01701 March 29, 1988 FYR 88-43 United States Nuclear Regulatory Commission Document Control Desk Washington, DC 20555
Reference:
(a) License No. DPR-3 (Docket No. 50-29)
Subject; 1987 Certified Financial Statements
Dear Sir:
In accordance with Yankee Atomic Electric Company's Facility Operating License No. DPR-3, we enclosed a copy of our annual certified financial statements for the three-year period ending Dec mber 31, 1987, pursuant to the requirements of 10CFR, Section 140.15, and Section 50.71.
Very truly yours, YANKEE ATOMIC ELECTRIC COMPANY p..
C. Pa anic Senior Project Engineer Licensing CP/25.516 Enclosures cc: USNRC Region I USNRC Resident Inspector, YNPS D
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'p 8804C60406 071231 ,
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.YANKEj Yankee A;!omic Electric n
vompany Annual Repod l 1987 ;
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i Contents !
Dex tiption of Ilusiness.. 2 i
Common Stod ()wnership.. 2 Srircted l'inancial Data.. 3 Report of Independent Certified Public Accountants.. 3 Financial Review. 4 Statements of locome and Retained Earnings.. 5
!!alance Short... 6 f tatements of Changes in llaancial 1%ition.. 7 i
Notr$ to Financial Statements . 8 !
()therrs of the Company . 16 r
lloaid of Directors.. 16
j YANKEE ATOMIC ELECTRIC COMl'ANY 1671 WORCESTER ROAD FRAMINGil AM, MASSACilUSETFS 01701 Yanker Atomic Electric Company (the Company), an electric utility company, was incorporated in Massachusetts in 1954 under the provisions of the Massachusetts utility law which permits two or more electric companies to join in the construction and orcration of a generating plant to serve their (ommon needs.
The organization of the Company was sponsored by New England utilities for the purpose of constructing and operating New England's first nuclear power plant. In addition to itslicense to generate, buy, transmit and sell electricity, the Company is authorized to conduct research and auist others engaged in a similar business.
The ten sponsoring utilities own the entire common capital stock of the Company and are entitled to and obligated to purchase the output of the plant at a cost rqual to total operating expenses plus a return on investment.
The Yankee plant is located on the Deerfield River in the Herkshire Ilills in the Town of Rowe, Manachusetts. The plant was placed in commercial operation in 1961 and has been in full operation since that time except i sintenance and refueling shutdowns. The unit is rated at 185 megawatts (groo) and has generated over 29 billion kwh of electricity since inception.
l in 1968, the Securities and Exchange Commission authorized the Company to organire a Nuclear Services Division under the Company's corporate structure. The Nuclear Services Disision has a staff of approximately 4(N) engineers who provide engineering services in all aspects of nuclear power plant construction and operation inclnding Nuclear Engineering. Environmental Engineering. Operations, Quality Assurance Plant Engineering and Euct Management. Serviers are performed on a cost basis for the Yankee plant and other power plants of the sponsoring companics. A limited amount of work is performed at a profit for other companies in the United States and abroad.
Common Stock Ownmhip Ow nership N res percentage Owned New England Pow er Company. 30. ri 46.020 The Connecucut Light and Power Company. 24.5 37,583 lloston F. ison Company. 4.5 14,571, Crntial Maine Power Company . 9.5 14,573 Public Service Company of New llamrshire.. 7.0 10,738 Western Massachusetts Electric Company. 7.0 10,738 Montaup Electric Company . 4.5 6.903 Central Vermon. Public Service Corporation. 1.5 5.309 Commonw calth Electric Company, 2.5 3,835 Cambridge Electric Light Company. 0 3.168 10(uri 153.400
Selected Financial Data tin thouunds ncept where noted) _
Yrar Fnded December .11, 1947 19A6 198% 19s4 19%I Operating trs rour:
Electric sales.. $ 59,020 $%,031 $62,398 $60,522 $53,672 Engineering irrvit rs .
31,365 30,977 29,977 28,081 27,339 Tot al . $ 90,385 $S6,008 $92.375 $S8.603 $81,011 Operating income. $ 5,377 $ 6,082 $ 6,390 $ 7,429 $ 7,267 Net income. $ 3,004 $ 2,951 f 3,612 $ 3,750 $ 3,928 Common dividends.. $ 2,761 $ 3,068 $ 3,605 $ 3,758 $ 3,835 Total awets.. $100,102 $91,302 $94,838 $90,922 $S6,3 59 1,ong term debt.. $ 26,328 $31,813 $29,213 $16,325 $15 750 Short-term debt.. $ 9,985 $ 3,400 $ 7,700 $ 9,300 $13,000 Earnings per share ($ per sharr) . $ 1938 $ 19.24 $ 23.55 $ 24.4 5 5 25.61 Return on Equit) (pcrt en:) . 13.8% 13.5'1 16.3"' 16.97 17.7'1 Nrt generation (millions of kw h).. 1,136 1,393 1,182 1,026 1,343 l'owrr cost (c/kwh). 5.2c 4.0c 5.3c 5.9c 4.0c Court Rs & IA HRWl)
ReImrt <.fInJetcndent CertifieJ Public .4cauntants Y.ukt i. A'lo\lic El F C t kle CO\trANY l'ramingham, Mawachusetts Wr hair rsamined the balance sherts of Yankrc Atomic Electric Company as of l)rcember 31,19S7 and 1986, and the trlated statements of income and retained carnings and changen in financial position for each of the thrre ) rats in the period ruded I)c(ember 31,19S7. Our esaminations were made in accordance with generall) accepted auditmg standards and, accordingly, included such tests of the actounting records and such other auditmg prmrdures as or t'onuderrd net rasar) in the circumstances.
In our opinion, the financial statements trirrred to above present fairly the financial position of Yankrc Atomic Eles tric Company as of l)ct' ember 31,1987 and 19S6, and the results of its operations and the changra in its financial poution for each of the thrre )rars in the period ended I)ccomber 31, 1937 in conformity with grnrrally ait rptrd act ounting prmtiples applied on a consistent basis, lloston, Mauat hu etts l'chruan 3,198S 3
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Financial Review The Company has pruer contracts with its >tockholder utiliti-s through June 1991 whith require these utilities to purt hase aII of the electrical output of the plant at a cost equal to total operating expenses plus a return on intestment, whether or not the plant operates. The Company also operates a Nuclear Services I)ivision w hich furnishes engineering services to the Yankee plant and to other New England power projects on a cost basis. Limited enginrering work is also performed for others at a profit.
I)oring 1987, the Yankee plant operated with an availability of 77.6'1 and ; rovided electricity to stutkholder utilities at a cost of 5.2c per kilowatt hour.
The plant wa< routinely refueled in 1987, whereas in 1986 the plant operated without a refueling. This accounts for the reduction of generation in 1987 of 257 million kwh. The next refueling is scheduled for November 1988.
Fuel expenses decreased by $891,000 in 1987 from 1986, due to the reduction in generation.
Operations, engineering, and maintenance espenses increased $6,282,000, $2,50VMM, and ?,3.230,000, respectively durma 19S7 from 1986, due primarily to work performed during the 1987 refueling.
I)uring 1986, the Company prevailed in a tederal income tas court ca$e against the United States government regarding the esclusion of its decommissioning revenues from taxable income for fiscal 3 cars 1981 through 1983, and a portion of 1984. As a result, the Company recorded federal and state tax benefits of
$6.791,(MX) and $2,M)7,1KM) in 1987 and 1986, respectively, in addition, $656.000 and $605,000 of related interest income was recorded in other income in 1987 and 1986, respecthcly. As of I)ecember 31,1987, all federal and state mcome tases resulting from the tax court case have heen refunded to custoraers in accordance with regulatory re quirements. (See Note f of "Notes to financial Statements" for additional information regardiag federal income tases.)
The $123,fxx) decrease in interest on long term debt from 1986 to 1987 was the result of a decrease in long-term debt outstanding due to scheduled repayments.
The Federal Energy Regulatory Commission has begun actions to reduce the Company's current allowed 14.5'l rate of return on equity on a ptospective basis. (See Note I of "Notes to Financial Statements" for additional information.)
In 1987, the Company began incurring costs, not recoverable from customers, relating to the November 1988 Alassachusetts referendum to > hut down operating commercial nuclear power plants. The Company may espend a s;gnificant portion of its 1988 earnings to defeat the referendum. (See Note J of "Notes to Financial Statements" for additional information.) ,
Construction expenditures for 1988 are estimated to be $5,392,000.
In I)cccmher 19S7, the Company paid its 41st consecutive dividend.
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1 1
Statements of Income and Retained Earnings l l
Year Ended December 31, 1987 1986 198%
i Operating revenurs (Note A):
Electric ules. . $ 59,020,654 $55,030,825 $62,397,278 Fagineering servicca to ether >.. 31.364,660 30,977,235 29,977,261 j Total onerating rewnuce.. 90,385,314 86,008,060 92,374,539 Op-rating espen>rs ( Nate A):
Fuel ( Note 11).. I1,352,513 12,243,314 10,984,812 Operations.. 20,304,820 14,022,557 21,638,469 Engineering.. 40,967,748 38,463,323 39,594.648 Mainienance , 4,956,007 1,725,694 2,706,299 Decommi,sioning (Note G) . 5,741,004 5,741,004 5.031,558 Depreciation . 5,262.122 6,372,412 5,216,940 Tases, other than federal income.. 2,174,999 2,935,310 1,778,046 Federal income tasrs (Note F) . ( 5,7M),532) (1,577,873) (965.848)
Total opccating c_penses , 85,008,681 79,925,741 85,984,924 Operating income ,. 5.376,633 6,082,319 6,380,615 Orher incomr:
Allow ance for equity fund, u,rd during construction (Note A) . I15,073 96,917 228.308 Other,ner.. 726,984 212,107 (34,101)
Total other h,cuire. 842,057 309.024 194,207 Or-rating and other income. 6,218,690 6.391,343 6,583,822 Interest; intere>t on long-terra drbt.. 3,082,114 3,204,927 2,861,747 Interr,i on short-term debt.. 264.310 266.592 483,919 Ot her interest, nrt . 49,601 162,366 (220,100)
Allowanir for burrourd funds used during wastruction (Notr A) . (181,30s) (193,650) -(154,050)
Tot al int e rrst .. 3,214,717 3.440,235 2,471,516 Net inwmr . $ 3,003,973 $ 2,951,108 $ 3,612,3(b Retained rarnings:
Retained rarnings at beginning of 3rar.. $ 5,891,625 $ 6,008,517 $ 6,(H)l Ill Net iniome.. 3,003,973 2.951,10S 3,612,306 8,S95,59$ 8,9 59,0.f 5 4,6 l 3,1! 7 Dnidrnds paid . 2,761,200 3.068,000 3,604,iM K)
Retained rainings at end of 3rar (Note C) . $ 6.134,39S $ 5,891,625 $ 6,008.517 l'rr sharr data:
Earnings per share . $19.5s $ 19,24 g23,ss I)nidend, per sharc . $ 18.00 $201M) $23. A0 The as sompan> mg notr> are an mergral part of thesc 6nancial statrments.
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Balance Sheets _,_. m.. .
ASSETS hne n.
t%7 !9%
Utility plant, at original tost (Note A) . i 84,822387 $32,793,749 Lew accumulated provisions for deptreiation. 69,StW,218 64,712,359 H,954,149 18,031,390 Construction work in progren . 293,h0S 140,769 Nudrar furl, at amortized cost (Notes 11 and J) . 27/s67,135 3 L879,767 Net utility plant.. 42.915,092 50,101,926 I)rs omminioning trust ( Notr G) . 26.326,403 21,647.820 Nonutility property,Irw accumulated provisions for deptreiation of $502,482 and $4 U.U8. 890,424 525,339
()ther investments.. f,24 5,526 911,209 Current anets:
Cash and trrnporary cash investments . 1,222.073 6.870 Act ounts receivable:
Elutric sales.. 7. % 7,125 5.015,094 Engineering arrvices to others (Note A) . 4,958,235 4,610,766
( ):hrr .. 2,89b,004 3,706,599 Materials and supplirs, at average cost.. 848.117 820,692 ,
l'repannents and ather.. 545,285 500,054 Tutal i urrent awets..
18.026,M39 143 60,075 I)tferred frdrial and state income taxes (Note l'), , 10,697,243 3,455,411
$100,101,527 $91,301,780 cal)lTALIZATION AND LIAlllLITIES Capitalisation:
Capital stock, par s alur $100 per sharr; 153,400 sharrs authorized and outstanding . $ 15,340,000 $ 15,340,000 Rrtained carnings (Notr C ).. 6,134,398 5,891,625 !
Leng-term debt ( Notr I)).. 26.328,00() 31,812.MK)
Total capitahiation . 47,802.398 53,044,125 Current lialiilities:
1.ong-term debt Joe within one 3 rar (Note D) . 4,9s4 V10 3,400,000 Short-term debt ( Note l'.) . 5,000JKK) -
At counts pay able.. 5,825,037 4,126,612 Aururd interest.. 355,71% 373,232 Total current liabilities . 16.16%,252 _7,899,844 Duommiwioning resene (Note G J . 33,N27,059 26,729,328 Unamor:ised investment tas credits (Note F) . 2.306,818 3,628,483 Commitments and tontingencies t Notr> 11, G, and J ) .
$100,101.527 $91,301,780
'I he auompanung notrs are an integral part of the c financial statements.
6
Statements of Changes in Financial Position .
Year I:nded Deirnd,er 31, 19C t vM, 19 4 financial retources w ere provided by:
Net income.. $ 3,003,973 $ 2,951,10s $ 3,612,306 l'rincipal noncash items:
I)cpreciation, including nonutility property, 5,311,066 6,421,356 5,265,884 Amortiration of nuclear fuel.. 10,216,895 11,067,150 9,720,926 Allowance for funds used during construction
( AFUI)C) .. (296,38)) (290,567) (382,358)
I)rferred frderal and state income tases. (7.241,832) (2,873,487) 4,323,711) !
Investment tas credits-net.. (I,321465) (I,430,014) 432,260 ;
l'rovision for prior core spent fuel disposal liability. - - 6,091,888 Working capital provided from operations . 9,672,056 15,845,546 20,417,195 Iwuance of long-term debt . - 6,000,000 14,000,fh)0 Increase in decommissioning reservr., 7,097,731 6,998,180 7,255,139 Other. (5,0.763) 59,618 218,669 -
16,719.024_ 28,903,344 41,891,003 financial triources were uwd for: '
Construstion espenditures, net of Al'UI)C ' 641,914
, 1,258,729 4,502,373 ,
Nuclear fuel pun haws, net of Al Ul)C.. 5,717,154 10,885,0S8 12,846,092 l{rpa) ment of long-term dcht.- 3,900,(MH) 1,800,000 3,362,500 Increase in decomminioning trust.. 4.678,583 3,728,668 5,220,143 Spent furi pa> ment . - - 13,206,630
()ther investments , 314,317 303,278 3S3,310
!)is idends on common stock.. 2,761,200 3,068,000 3,604,'KN) 20,033,16S 21,043,763 43,125,948 increaw t I)cc reaw) in u orking capital . $( 3,314,144 ) $ 7,859,%S1 $ ( 1,234.94 5 )
Chango in components of working capital:
CaJ. and triaporary cash investments . $ 1,215,203 $ (103,534) $ (1,466)
Anounts recris able. 2,078,905 (4,935,623) 3,494,814
.51aterials and supphes.. 27,425 (24.244) (4,421) l' repayments and ether . 45,231 (264,654) 132,021 Short term debt . (5JW)0,(hM)) 5,900,000 (650,(MK))
Accounts pa; abic . ( t ,698,425) 7,212,703 (4,623,467)
Accrued federalincome tas.. - - 520,364 Aa rord interest.. 17,517 74,933 t 102,790)
Increaw (I)ci rraw ) in u urking rapital . $( 3,314.144 ) $ 7,8 59,%81 $ { 1,234 94 5)
The anompan>ing notes are an mtegral part of their tinancial statements.
7
Notes to Financial Statements Note A-Summary of Significant Accounting I'olicieu
- 1. 5ptem of Aaounts:
The aucunts of the Company air maintained in accordance with the Uniform Sprem of Accounts prescribed by vgulatory bodics having jurisdiction. The anounts of the Yankee ()ccommissioning Tr it (the Trust) are presented on a consolidated basis
- 2. Nuclear Services I)isision:
The compan> operates a Nuclear Services !)ivision under ihr applicalde rulra and regulations of the l'uhlic Utility llolding Company Act of 1935 for the purpose of furnishing nuclear engineering scivites to the Company and its sponsoring utilities. Such services are provided on a full cost basis, including a return on working capital. The twt of servicca provided to the Yankee plant amounted to $11,724#>6 in 1987,
$9,627,n64 in 1986, and $11,550,311 in 1985, and are included as enginerring costs in the Statements of income and Retained Earnings.
- 3. l'tility I'lant:
Utility plant is statrd at the original cost of construction, which in(ludrs an allowance for the tost of funds used during g oristruction. Costs of currruf Trpairs and minor rrplacements of plant and propertirs, which do not rstrnd the turrent life of the plant, are charged to maintrnance espense anounts as incurred. Plant rrtired or othrrwise disposed of, together with cocts of trmoval Irn salvage, is charged to accumulated provisions for depiniation.
- 4. I)cptrt-iation:
for financial statement piltposes, deptrt-jation is provided oser the estimatrd sersitr lises of the various -
(lasses of property on a straight line basit The estimated average remaining wrvii'r life at I)ctrmber 31,1987 is approsimately threr 3rars.
- 5. dllow ance for funds kIsrd I)ttring Construt tion ( AIT()C)
The Company capitalires as a part of ionstruction and fuel costs an item called allowance for borrowed f undi used during sonstruc, ion, w hich represents the appiosimate pretas o st of short-term dibt and an item called allowance for rquit> funds used during ionstrut tion, w hich represents the cost of other funds. AITI)C is -
recognised as a cost of "Utihty plant" and "Nudcar furl" Anordingly AITI)C is capitalised in the same manner as construition labor and material twts with an olhettmg credit to "Interrit" and "Other income" This is in anordance with an estahtished regulator > approsed rate-making practice under which a utility in primitted a rreurn on, and the resm ery of, these capital costs through their ultimate indusion in the rati hase all'1 in I}te proviliot!s for drprrciation Jalid amortkratioll.
The aimbined rate used in calculating Af t'DC was 9.87 in 1987,10.47 in 1986, and 11.01 m 1985 in anordance with rrgulatory dirntiscs, thes: rates indudrd the before-mn,me.tas rilut of borrow ed fundt 1 1
- 6. Nudrar 1)ct omminioning:
In a 19S4 decomminioning stud), the Company rstimated the oist of dr(omminiumng the Yanker t.. ant, utiliikHg thr ifnmrdkatr dismalltirment aint rrmosal metinod, at $pprosiniately $6N tmllioll in 19N4 dollars. The Company retords and bills draimmiuiomng on a remaining hfr basis in anordance with argulatory approsal.
I (Scr Notr G.)
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l Notes to Financial Statements (continued)
Note A-Summary of Significant Accounting Policies (continued):
7, income Taxes:
The tax efTect of the timing differences (differences between the periods in which transactions affect income in the fmancial statements and the periods in which they affect the determination of income subject to tax) is accounted for in accordance with regulatory approval. ,
investment tax credits are deferred and amortized over the estimated service lives of the property giving rise to the credits.
Note B-Nuclear Fuel:
I The cost of nuclear fuel in the reactor is amortized to fuel expense on a unit of production method at rates j based on estimated kilowatt hours to be produced from each core. Fuel expense also includes a charge for the i
permaaent disposal of spent fuel.
The following table lists nuclear fuel components. j Des ember .51.
1%7 _1%6 In stock.. $ I,568,069 $ 4,323,621 i I
in process . 6.611,921 13.517,249 Assemblics in reactor.. 33,241,747 32.291,127 ;
Gross nuclear fuel . 41,451,737 50,131,997 ,
I,ess accumulated amortization.. 13,784,602 18,252,230 Net nuclear fuel.. $27,667,135 $31,879.767 Components of fuel expense are set forth in the following tahic.
I car Ended December 31. -
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_1%7 _Iwo _i m i
l Amortiration of nuclear fuel:
Enriched uranium.. S 8.369,330 $ 9,089,487 $ 8.277,039 Fabrication.. 1,598,340 1.810.537 1,435,826 AFU()C_ 249,225 t 67.126 8.011 n.210,S95 11,067,150 9,720,926 Frmision for current core spent fuel disposal. 1,135,618 1,176.164 1,263.886 Fuel expense. $11,352,513 $12.243.314 $10.984.812 Under the Nuclear Waste Folicy Act of 1982, the Company entered into a contract with the United State 3 r
()cp.ir, ment of Energy (I)OEl, under which it is required :o pay a fee of 1.0 mill per kilowatt hour for net electricity generated a{trr April 6.19S3, in exchange for ik)E services in disposing of the spent nuclear fuel used to generate that ricctricit). r On June 30,19S5, the Company elected to pay a lump-sum amount of $13.206,630 to the I)OE to satisfy its contractual liabdity for disposal of nuclear fuel used prior to April 7.1983. As a result, the Company revrsed and it funded an interest accrual of $2,323.429 previously billed to its utome s. In addition, the Co.npany amortired to operations expense its remaining balance of unbilleo s_ ,t fuel disposal costs, amounting to
$8,415.317 at I)cccmber 31.19S4 an I recognized certain tax benefits not previously recognized. (See Note F.)
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Notes to Financial Statements (continued)
Note C-Restrictions on Retained Earnings Available for Dividends on Common Stock:
l'ursuant to restrictions contained in the Lean Agreements, $4,(4,0,000 of the Company's retained earnings at Decemher 31,1987 were restricted as to dividt ads on common stock.
Note D-Long Terrn Debt:
Desemler 31, 19 19x6 14M Term loans:
Ouc through hlarch 31,1991, at varied inter-
.st rates.. $18,000,000 $20.000,000 $14/)00,000
{
_ ac through June 30,1990, at varied interest rates. 13,312,500 13,312,500 13,312,500 8Mi installment note - 1,900,000 3,700,000 (
Total.. 31,312,500 35,212,500 31,012,500 Less long-term deht due within one year . 4,984,500 3,400,000 1,800,0(X) 1.ong-term deht, net . $26,328,000 $31,812,500 $29,212,500 Interest rates on the term loans are variahic and are set, at the Company's election, at either the banks' prime rate or the London Interbank Offered Rate, plus a fraction thereof.
The weighted average interest istes c,n year end, long-term horrowings were 9.49, 9.39, and 10.4% for 1987,1986, and 1985, respectively. The weighted average interest rates during 1987,1986, and 1985, based on asera,,e month-end halances, were 9.3(1,10.1%, and 10.97, respectively.
The term loan agreements are secured by the collateral ass;gnment of all the Company's rights under the customer power contracts. There are no compensating hc. lance er monthly commitment fee requirements.
The aggregate principal amounts of long-term debt scheduled for repayment in each of the four years following December 31,1987 are $4,984,500, $8,328,000, $10,000,000, and $8,000,000, respectively.
Note E-Short-Term Debt:
The Company has lines of credit with banks aggregating $25,000,000. Interest on horrowings is set at the hanks' prime rate or the London Interhank Offered Rate plus a fraction thereof at the time of the advance. In lieu of compensating halance requirements, the Company is obligated pay a commitment fee, The Company has been authorized hy the Securities and Exchange Commission to issue and sell up to
$25,000,000 of short-term notes and/or commercial paper through Decemher 31,1988. The Company generally utilites commercial paper, supported hy its lines of credit, to fmance construction projet ts or meet general working capital requirements.
Information regarding short-term borrowings is summarized in the following table.
1987 1936 19M llank notes payable at Scar-end.. $ 5,000,000 $ -
Commercial paper outstanding at ) ear-end . $ -
$ - $ 5,900,000 hlatimum amount of hoirowings at any mon t h-e n d.. $7,355fK)0 $12,850,000 $ 12,200,000 Weighted monthly average borrowings outstanding during the year. $3,209 0n0 $ 3,458,000 $ 6,435,000 i
10 )
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Notes to Financial Statements (continued)
Note E-Short-Term Debt (continued):
The weighted average interest rates on year-end, short-term borrowings were 9#1 and 8.9'1, for 1987 and 1985, respectively. The weighted average interest rates during 1987,1986, and 1985, based on average month-end halances, were 8.2'1 7.8'l, and 7.5"I, respectively.
Note F-Federal Income Taxes:
federal income taxes consist of the following compor.ents.
1987 19 % 1985 Cunent income taxes. $ 4,865,638 $ 3.137,156 5 2,997,870
) Deferred income taxes.. (9,377,358) (3,119,257) (4,323,71I)
Investment tax credits-net.. (1,321,665) (1,430.014) 432,260
) $( 5,833,385 ) $ ( 1,412,115) $ (893,581)
Investment tax credits-net reflect increases or decreases in federal income taxes attributable to such investment tax credits which have b, en d-ferred and amortized. ;
The Company has adopted comprehensive interperiod tax allocation (normalization) consistent with ;
regulatory accounting. The following table details the components of deferred federal income taxes. 1 tw7 piso Pess !
Provision for plant decommissioning.. $ ( 2.296,402) $( 3,814,787 ) $( 1,266,721 )
Prmision for decommiwioning refunds.. (5,S94,262) 2,555,680 667,620 l Allow ance for funds used during construction. 67,809 (53,456) 261,815 Ewess book depreciation and fuel amortization . (918,613) (1,S06,694) (1,014)
Other . (335,890) - -
i Provision for spent fuel disposal . - - (3,985,411) t
$(9,377,358 ) $( 3.119,257 ) $( 4,323,711 )
i The tax eficct of the cumulativ e amount of timing differenu s at Dece mber 31,1987 for which deferrej l
j income taxes hase not been provided is not material. Total federal income taxes differ from the amounts ;
J computed by applying the statutory tax rate to income before taxes. The reasons for the differences are as follow s:
19s7 i%o tws l
$( t ,131,765 ) $ 707,937 $ 1,250,614 Computed tax at natutory rate. i increase (reduction) in tax resulting from:
Amortiration of investment tax credits.. (1,374,172) (1,627,407) (l 306,240)
Decomminioning refunds . (3,536,557) (l.268,706) -
l Provision for decommissioning . - 237,935 363,432 i Provision for speni fuel disposal . - - (l,578.024) ;
N 8,109 538,126 37n,637 .
All other . i federal mcome tax provisions Uncludine !'
$t 82,853), $1b5,/58, and $72,267 (credited) i harged to other income) . $ ( 5.833,38 5 ) $( l 4 ' ?,115 ) $ (893,581) f Etin tis c federal income tax rate.. (206.2"i) ( 91.8"i ) (32 9"i) :
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Notes to Financial Statements (continued)
Note F-Federal Incorne Taxes (continued):
In 1981, the Company established a Decommissmning Trust fund. (See Note G.) Consistent with 1984 federal tax legislation, the Company has amended the original Trust to comply with the new legislative requirements fo a ci commissioaing tax deduct;on. The Company has filed for approval from the IRS, and has reflected a federal tax benefit of $475,870 through 1987.
!!eginning in April 1 '85, in accordance with regulatory approval, the Company began recording dcferred federal income tax benefits an that portion of decommissioning expense which is not currently deductible for federal tax purposes. This an ounted to $7.500,656 at December 31,1987.
In January 1986, the Unitti States Court of AppeMs for the Federal Circuit reaffirmed a lower court I decision that decommissioning reunues collected fromjanuary 1981 throughJune 1984 were not taxable to the (
! Company. The IRS did not appea' this decision, and, as a result, the Company expects to receive total federal tax benefits of approximately $8,244,000 plus interest. Of this amount, $3,223,000 and $2,350,000, plus interest, have been received from the IRS during 1987 and 1986, respectively. These amounts, together with $2,671,000 not yet received from the IRS, have been refunded to customers in accordance with regulatorv requirements.
As discussed in Notr !!, in 1985, the Company made a lump-snm payment of $13,206.630 to the DOE for l disposal of spent fuel produced prior to Apr;i 7,1983. Concurrently, the Company recognized $1,578,024 of l
federal tax benehts not previously recorded.
Federal income tax returns for the Company have been examined and reported on by the IRS through 1981.
Tar. Sears ending December 31,1982 and 1983 hase also been examined and are pending final resolution.
Note G-Decornmissioning:
In April 1985, th- Federal Energy Regulatory Commission approved a revised decommissioning rate schedule filed by the Company. The revised schedule allows the Cempany to collect $5,741,000 annually during the period from April 1,1985 through its plant license expiration date of November 4,1997. This will allow the Company to collect $68,000,000 from customers (in 1984 dollars) to provide for decommissioning of the Yankee plant.
Funds collected are being deposited in an irrevocable trust, maintained by a commercial bank, with principal and interest to be used exclusively to discharge future decommissioning obligations as incurred.
Components of the Decommissioning Trust are set fo,th in the fallowing table.
Ikember 31, 1987 1%
Cash.. $ 167,984 $ 28,287 Accounts receivable.. 890,320 897,032 Investments.. 2; 282,049 20,723,751 llank fees psyable (13,950) (l.250)
Decon,missioning Trust assets, net . $26.326,401 $21,647,820 l Decommissioning Trust insestments are invested in federal and state guaranteed securities, valued at cost l which approximates marker. At Decemb. t i.,1987, deferred federal income taxes included $7,500,656, which
} represented federalincome taxes paid on decomminioning collections which wdl be recovered when the Yankee plant is decommissioned and the decommissioning expenses become deductible. The Trust received $1,271,146 in interest income, net, during 19S7, w hich has been included in the balance sheet as an increase to both the Decom:,iissioning Trust assets and the Decommissioning Reserve.
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1 Notes to Financial Statements (continued)
Note II-Retirement Plans:
The Ce,mpany has noncontributor3 de6ned benefit pension plans covering 3ubstantially all employees. The Compan>'a funding policy is to fund the net periodic pension cost, but never less than the minimum required contributioa onder ERISA nor more than the maximum deductible contribution as determined under the Internal Revenue Code.
In December 1987, the Company ir..plernented, retroactive to Januari 1,1987, the principles of "Statement of Financial Accounting Standards No. 87-Employers' Accounting for Prasions" (SFAS No.87). Accordingi>,
the Company changed its actuarial method from the cotry age method to the projected unit credit method. The net effect of the change w: . not signi6 cant.
The Company participates in the plans with subsidiaries of New England Electric System (the System). As of January 1,1987, the effective date for the adoption of SFAS No. 87, plan assets are stated at fair market value.
In future years, pension tost will be determined using a market.related value of assets.
The following table sets forth the Sys em plans' funded status at December 31,1987.
Actuarial present value of:
Accumulated benefit obFgation:
Vested r.uction.. $334/>36,000 Nonvestt d por*, ion.. 13,667,000 Tot al . $348,303,000 Projected benefit obligation.. $411,753,000 Plan assets at fair value.. 424,922.000 Projected bene 6t obligation less than plan assets.. (13,169,000)
Unrecognized net loss.. (7,638,000)
Unrecognized net asset from initial application of SFAS No. 87.. 21,801,000 Net accrued pension liability.. 5 994,000 The Company's allocated share of the net accrued pension liability at December 31,1987 is $289,295.
The actuarial present value of vested and nonvested accumulated plan benefits as of April 1,1986, were
$287,940,000 and $5.696.000, respectively; net assets available for plan benefits amounted to $377,097,000.
Plan assets are comprised primarily of guaranteed insurance contracts and corporate equity and debt securities.
Total pension cost charged principally to operating expenses of both the Yankee plant and the Nuclear Services Division, was $789,000 in 1987, $772,000 in 1986, and $740,000 in 1985. The components of ti e 1987 co31 are as follows:
Service cost benefits earne< during the period . $ 1,157,363 Interest cost on project,a benefit obligation . 1,701,362 Less actual return on plan assets.. (1,311,130)
Net amortization and deferral.. (469,300)
Defet red pension cost.. (289,295)
Net periodic pension cost.. .{ 789.000 Assumptions used to determi1e pension costs were:
Discount rate.. 8.5"i l Rate of increase in future compensation levels. 7.7'i Expected long-term rate of return on assets . 9.0"i 13
Notes to Financial Statements (continued)
Note II-Iletirement Plans (continued):
In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees. Substantially all of the Company's employees may become eligible for the,e benefits if they reach retirement age while working for the Company. Eficctive January 1,1987, the Company accrues these benefits over the remaining work lifetime of those employees expected to qualify for such benefits.
Accrued costs, which were $737.000 in 1987, are deposited in a trust, with principal and interest used exclu*ively to provide for post.rctirement health care and life insurance benefits. Prior to 1987, the costs of these benefits were recognized as claims were paid. In 1986 and 1985, these costs totalled $57,000 and $33,000, respectively, Note I-Itate Proceedings: (
In March 1987, the Federal Energy Regulatory Commission (FERC) instituted i ,eview of the Company's 14.Y1 rate of return on equity. On July 6,1987, the Administrative I,aw Judge issued an initial decision in which he concluded that the Compan>'s rate of return on equity was just and reasonable. On September 30, 1987, the FERC reversed the initial decision and ordered the Company to reduce its rate of return on equity to 12'i. In addition, the FERC ordered the Company to include a retrospective equity reopener clause in the Company's power contract.
On October 23,1987, the Company filed a request for rehearing. The FERC has not yet ruled on the Cornpany's equest for a rehearmg. Any change in the Company's rate of return on equity will be prospective.
Note,J-Commitments and Contingencies:
- 1. The Company has requirements contracts for the purt base, conversion, enrichment, and fabric. ion of nuclear fuel. Approximately $8,081,000, relating to these contracts, is scheduled to be paid in 1988.
The Company has contracted for uranium through the year 19% The Company is committed under a long term purchase contract to make minimum pa>ments aggregating $3,217,000. At December 31,1987,the total commitment under this contract is estimated to be:
%nilnum a
1988. O ,485,000 1"S9.. ..f 1,485,000 19 % 247,000 1,ater years .. -
Total . $3,217,000
- 2. The Company maintains the maximum amount of public nuclear liability insurance. currently
$1(A),000,fMH) available from private insurers. A tederal statute, the l' rice-Anderson Act, mandates an industry-wid - program under which nuclear facilities could he auessed in the event that a nuclear incident resulted in dam:.ges escreding the $160,000,000 of private coverage. Under this Act, each nuclear reactor may be assessed a retrospectise insurance prenuum of up to $5,000,000 for each nuclear incident within the Cnited States. In the es ent of more than one incident per ) car, the masimum annual assessment per rea(ter is $10.000,000.
Under the hilling provisions of the power contr cts, the retro pective insurance premium would be includable in the cost of power. The Price-Anderson Act espbed on August 1,1987 for reactors coming into service after that date; however, the provisions of l' rice-Anderson continue to apply to any activity covered by an misting indemnity agreement. I,egislation is pending in the Congreu which would amend or modify the Act, but the Company cannot predict what final action the Congrew will take or what eficct any such amendment or modifit ation would have on the Company.
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Notes to Financial Statements (continued)
NoteJ-Commitments and Contingencies (continued):
- 3. At December 31,1987 and 1986, the Company had leases covering its office facilities, certain equipment i and vehicles. Such rentals are included in and recovered through the billings of the Nuclear Services Division .
and, therefore, have no efh et on net income. In the normal course of business, the Company expects that as '
leases evire they will be r. newed or replaced by other leases. ,
Estimated future annual lease payments, exclusive of taxes and insurance, are as follows:
1988.. $ 2,324,000 1989.. 2,285,000 I Wo .. 1,758,000 ;
- 1991. 1,541,000 k 1992. 1,541,000 Later years.. 4,623,000 Total . $14,072,000 Rental payments charged to operating expen e amounted to $2,034 000 in 1987, $1991,000 in 1986, and .
$1,H59,000 m 1935. l
- 4. The Nuclear Services Division of the Company has provided technical services to the joint-owners of the Seabrook nuclear plant in support of design and construction of that facility. This facility has been subject to substantial delays in its scheduled completmn, and to significant increases in costs. 'I ne joint-owners have applied to the Nuclear Regulatory Commission to obtain a license for operation of $rabro< k Unit 1. (Scabrook
- Unit 2 has been cancelied.) Such heen+ing has been delayed primarily due to the refusal of certain towns and the Commonwealth of Niassachusetts to participate in deseloping evacuatit a plans for the six Alassachusetts towns which are within a ten-mile radius of the Seabrook bcility.
On January 28,1988, l'ublic Sersice Company of New llampshire filed for protection under Chapter 11 of the llankruptry Code. This fact couhl also serve to d.-lay licensing of the Seabrook plant by the Nuclear Regulatory Co.nmission. The bankruptcy is not exp<cied to have a material impact upon the Compmy's ability to continue to receive payment for services rendered to the Seabrook project. ;
On February 2,1987 joint owners of the facility and certain contractors, including the Company, who have provided services to the joint-owners, entered into a $t,sndstill Agreement. Under this Agreement, the a signatories agreed to refrain until at least October 31,1988 from c' aims against other signatorie, as to potential
- datnages relating to the design, engineering, construttion, or management of the facility, subject to certain [
- terms, conditions, and exceptions. The running of any statutes of limitation is suspended during this specified i l
period of time. The signatories agreed to allow certain discovery to proceed under a specified schedule and that discm cr> has commenced.
t The Company belirses that claims potentially could be asserted agamst the contractors, including the Company, by one or more of the joint-owners. Nianagement is unable to predict the outcome of such una3serted claims, and it is possible that tesolution of such unawerted claim could have a significant eficct on the financial
! position and operations of the Company. Ifowevei, based in part on consuf rations with legal com.sel, j
! management is not aware of any legitimate basis for such unaseerted claims against the Company. N!anagement f beheves that the Companis position is strong and that any such claim will be vigorously contested by the i Company.
l i The Company expects that a binding referendum to shut down operating commercial nuclear power plants in .\lawachuscits will be placed on the ballot a , an initiative petition in Lvember 1988. The Commny ,
plans to take sigorous action to defeat the eferendum. If the referendum is passed by the electoratc, the final l outcome wdl hkel3 he decided by the courts. ;
- 6. The Company, in common with other utihties is subject to current and future regulations relative to r nuclear pow er plant ht ensmg.
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OfIicers of the Company EDWARD A. IIRowN, J AstEs E. TRianu:,
Chairma n President and ChiefExuutin Ofjicer Latis 11. IIEIDrR, jollN Dr.ViscENTis, Iice President l' ice Presideat KikK l.. R ANISAUF R, ANDREW C. KADAK, Clerk lice President AR%f AND R.Soccy,
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Treas::rcr a nd Chief Financial Officer Board of Directors EDW ARD A. brown, Chairman of the Company; Titoxs As J. 51 Av, Senior l' ice President Chairman and ChiefExecutite Oj)icer. and Treasurer, New Hampshire Yanku Elatric Corporation Boston Edison Company Wil LIA\1 Y. IlCRT, dssistant to the Joi(N V. OPENA, Ex utit e lice Pusident, Chief Exuutits Oj)iar, Engineering and Operations, CO.\fIEnergy Sert ices Company Northeast Utilities Service Company JoliN F. G. EICitoRN,JR., Chairman and Chief Exe< utit e Oj)icer, joisN B. RANDAzzA l' ice President, Eastern Utiliti.s Associates Nuclear Resources, Central Maine Power Company Ut RNARD hl. Vox, President and Chief Operating and Financial Officer, JErrREY D. TRANLN, l' ice President, Northeast Utilities New England Pr.wer Company FRF DERic E. GRt rNst w, Senior l'iu President J Astrs E. TRIBBLE, Press. dent and General Counsci and Suretary, hief Exuutiu Opar of the Company New England Electric S> stem ROBERT j. II ARRisON, President and TirostAs C. WEBn, President and Chir!Exuutit e Oj)iur, ChiefExecutite Officer, Public Service Company ofNew Hampshire Central l'umont Public Sers ice Corporation 16
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