ML20138A597

Corp 1996 Annual Rept

ML20138A597
Person / Time
Site:	Vermont Yankee
Issue date:	12/31/1996
From:	Barkhurst R, Duffy J VERMONT YANKEE NUCLEAR POWER CORP.
To:	NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
BVY-97-49, NUDOCS 9704280118
Download: ML20138A597 (34)

Text

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, VERMONT YANKEE' l NUCLEAR POWER CORPORATION l

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s Ferry Road, Brattleboro, VT 05301-7002 s [ -

ENGINE R N OFFICE 580 MMN STREET j

r BOLTON. M A 01740

($08) 779-6711 April 21,1997 BVY 97-49 4 United States Nuclear Regulatory Commission ATTN: Document Control Desk Washington, DC 20555

References:

(a) License No. DPR-28 (Docket No. 50-271) i

Subject:

Vermont Yankee Nuclear Power Corporation - 1996 Annual Financial Report  !

l In accordance with the provisions of 10CFR50.71(b), enclosed is one (1) copy of Vermont Yankee Nuclear Power Corporation's annual financial report, including the certified financial statements, for 1996.

Should you have any questions regarding the enclosed material, please contact this office.

Sincerely, VERMONT YANKEE NUCLEAR POWER CORPORATION fit.//

James J. Duffy Li ensing Engineer i

Enclosure - 1996 Annual Report c: USNRC Region i Administrator j USNRC Resident inspector-VYNPS USNRC Project Manager- VYNPS fh0 /

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1996 Annual Report

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.y Description of Business 2 Presidenis Leller 3 Comparative Highlights 4 Common Stock Ownership 4 -

Management Review 5 Financial Review 9 Report of Independent Public Accountants 10 Statements of Income and Retained Earnings 11 ,

Balonce Sheels w _ , _

Assels 12 2~3 Capitalization and liabilities 13 4' sJ Slalements of Cash flows 14 .

Notes to Financial Statements 15 [,

Board of Directors 31 i _, ' Officers 32

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,. ermont Yankee Nuclear Power Corporation was incorporated under the laws of the State of Vermont on August 4,1966. The Company was formed by a group of New England utilities for the purpose of constructing and operating a nuclear-powered generating plant ("the Plant").

The Plant commenced commercial operation on November 30,1972, and except during maintenance and refueling outages, has been in full operation since that time.

The Plant is licensed by the Nuclear Regulatory Commission to operate until 2012.

Located on the west bank of the Connecticut River in Vernon, Vermont, the facili-ty has a gross maximum dependable capacity of approximately 535 megawatts. The

' .* common stock of Vermont Yankee is owned by thirteen utilities, nine of which are the Sponsoring utilities that are entitled to and obligated to purchase the output of

, the Plant.

o Under the terms of the Company's Power Contracts each Sponsor is obligated to pay Vermont Yankee monthly, regardless of the Plant's operating level, or whether or not it is operating, an amount equal to its entitlement percentage of Vermont Yankee's total fuel costs, operating expenses, decommissioning costs and an allowed return on equity. Also, under the terms of the Capital Funds Agreements, the Sponsors are committed to make funds available for changes or replacements needed to maintain or restore operation of the Plant or to obtain or maintain licenses neces-sary for its operation. The names of the Sponsors and their respective entitlement percentages of Vermont Yankee's capacity and output are as follows:

' Entitlement Sponsor Percentage

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s Central Vermont Public Service Corporation 35.0%

Green Mountain Power Corporation 20.0

. . New England Power Company 20.0 The Connecticut Light and Power Company 9.5 Central Maine Power Company 4.0 L

Public Service Company of New Hampshire 4.0 Cambridge Electric Light Company 2.5

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• Montaup Electric Company 2.5 [

Western Massachusetts Electric Company _ 2.5_ _

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)re5lCen"5 Le er Since being named Chief Executive Officer in May 1996, I've had an opportunity to assess the operation of Vermont Yankee. I am impressed with the material condi-tion of the plant, the professionalism and dedication of the Company's employees, and the strong safety culture of the organization.

This assessment is reinforced by the Company's outstanding record of safe and reliable operations. Vermont Yankee achieved a 99.8% net maximum dependable capacity factor for the operating cycle running from May 1995 to September 1996, a new record for a Vermont Yankee operating cycle. Capacity factor measures how much electricity a plant actually produces against the amount of power it could gener-ate if it operated without interruption all cycle at full power. This was the seventh con-secutive cycle that Vermont Yankee achieved a capacity factor greater than 90% I am also impressed with the Company's exemplary industrial safety record. Through 1996, Vermont Yankee employees have experienced no lost-time accidents in nearly three years.

Vermont continues to lead the nation as the state with the highest percentage of electrical generation produced from nuclear power (80%). Vermont Yankee ended 1996 with a three-year average cost per kilowatt hour of 4.38 cents. This cost inchries all facets of Vermont Yankee's operations, including decommissioning, disposal of low-level waste, and fees paid to the Department of Energy for disposal of high-level waste. Vermont Yankee's three year average for production costs (including operations, maintenance and fuel) was a competitive 2.18 cents per kilowatt hour.

Assuming reasonable treatment of our strandable investment, we are more than ready to compete in the market place with such a production cost.

These are exciting and challenging times for the electric industry. With the impending deregulation at hand, we are confident that we are well positioned to remain a safe, reliable and competitive source of electricity for New England.

M b N Ross P. Barkhurst r

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%df J.f 1996 1995  % Change 43 Financial (DolLirs in milla;ns):

Operatmg revenues $ 181.7 $ 180.4 0.7 I Net income 7.0 6.8 2.9 Total asset s .. 565.0 531.3 6.3 51 4 , .

Average number of shares of common stock outstanding (thousands) 392 392 0.0

.- Per Share of Common Stock:

ihrnings per average common share $ 17.82 $ 17.30 3.0 Dividen<h paid per average cominun share 15.64 18.65 (16.1)

Book value per c ommon sharc Ocear end) 139.79 137.40 1.7 s

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N Kilowatt-hour sales (billions) 3.80 3 S6 (1.6)

Cost per kilowatt hour (cents) 4.78 4 68 2.1 335 Number of employees (year end) 337 (0.6)

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Percentage Shares .@- '

Stock Owner Owned Owned Q  ;

Central Vennont Pubhc Service Corporation il 4 122 h"a I New England Power Compant 3><' 76.402 Green Mountain Powei Corp, unon 1; " 70.0S8 The Conne( ncut I ight and Power Company 95 37.242 Central Maine Poavr Company 40 15.681

... Pubhc Service Company of New liampshire 40 15081

\, Burimqton Electric Department 3.6 14.301

% Cambridge Elecnic Light Company 2.5 9.801

• Montaup Electric Company 2.5 9.S01 Western Massachusetts Electric Company 2.5 o 800 i ' Vermont Electric Cooperative, Inc. 1.0 4.213 Washington I.lectric Cooperative. Inc. 06 2.431 Village of Lyndonville Electric Department 4i n 2.387

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Plant Performance

, Management (op0Cify f0Clor D Vermont Yankee achieved a 99.8% net maximum dependable capacity factor ROY!ON for the operating cycle running from May 1995 to Septernber 1996, a new record for a Vermont Yankee operating cycle. For 1996. Vermont Yankee achieved an 84.8%

capacity factor, the Company's second highest capacity factor in a year with a refuel-ing outage. The Company also established a record one month electrical output of 393.0 million net kilowatt hours generated, exceeding the old record of 389.3 million net kilowatt hours generated in October 1995. ,

The graph below depicts the Company's annual capacity factor since commercial operation began in November 1972 and compares it to the industry average for both pressurized and boiling water reactors. The Company's lifetime capacity factor of 76.2% ranks Vermont Yankee sixth among the thirty-seven boiling water reactors in the country for lifetime capacity factor and ranks the Company first among the twenty-seven boiling water reactors that went on line prior to 1985.

From the beginning of its cornmercial operation in 1972 through the end of 1996, Vermont Yankee has generated over 81 billion kilowatt-hours of electricity.

Vermont Yankee Capacity Factor 100% -

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72 73 74 75 76 77 78 79 80 81 82 83 M4 85 86 87 88 89 90 91 92 93 94 95 96 YEARS NoN RffULLING YEAR RLfULLING YEAR M INDUSTRY AVERAGE 6

Plant improvemenk ,

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During 1996, Vermont Yankee initiated a Design Basis Documentation project .

which is expected to be complete by December 31,1997. This project was undertak- +

en to incorporate all design documentation into a centralized system. The objective is ,

to ensure Vermont Wnkee maintains its safety margins in connection with any plant modifications. The Design Basis Documentation project will create a set of design l ,

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basis documents which will suppon more efficient systemic problem solving,

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maintenance, and system overvie' w . In addition, the Company initiated an integrated technical specification ("ITS") improvement program which will update and standard-G 7, . ;. ,p . . ,

ize the primary licensing document which governs the operations of the Plant.

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During the 1996 refueling outage, Vermont Yankee implemented a preemptive repair of the reactor vessel core shroud which ensured the integrity of the horizontal

(-f ' . i welds used to fabricate the shroud assembly. In conjunction with the core shroud I, , ,.ffjf@./ j'4f / repair, the Company performed the most comprehensive inspection of the reactor

[ '[!M)g;x ? 0 pressure vessel weids to date in the industry using state of the art ultrasonic examina-

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dEl4 tion techniques. The results of these inspections confirm the structural integrity of the p l We b' L.f.

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reactor vessel. Vermont' Yankee accomplished an industry first by performing these two major efforts in parallel. In addition, the Company completed its multi-year

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schedule and under budget.

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low-level Radioactive Waste Disposal

The proposed compact between Texas. Vermont and Maine was approved by the y$]%}g~

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. ll .y!  % respective states during 1994. It is hopeful the U.S. Congress will ratify the compact 7, . .: - e 4 .;;. : ;n c in 1997. Loslevel waste deliveries to Texas are projedted to begin in late 1999.

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S, Contributions to 1996 Vermont Economy

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Vermont EconomuI

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p in 1996, Vermont Yankee Payroll $23.2 o' a ? & i , f. 3 contributed $53.1 million to

. L. h d . , '. ' the Vermont economy in the Dividends $3.4 7.,g ifrh (h h M Y - 93 form of employee wages. . gjij- - '

1. . j - 4+@ state and local taxes, pay-J State Tax $7.3

. .Wy 'y- x., M ments to Vermont vendors, R hl.  ;

and dividends to Vermont %j Vendor * $14.9 y

shareholders. The chart at f* _ (M

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f. right shows the distribution of g lE toc,i 7,, 34,3 gh  ;

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o ;, .- . y .; .n t f.'. f Aj ' - Location of Vermont Yankee Customers j( .

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cxporters. The value of our exported ' '

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State 1995 Nudear % g n - 'M i j Vermont leads the nation with '. 1 '

Connecticut 69.6 the highest percent of total electric / . .-

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New Jersey 62.0 #- 0

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chart at left compares percent of 4..U E nuclear generation by state based yq .

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Pennsylvania 39.3 4; mgggpggy;,gg ;o ' :iv.. f .,..

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,n Funding for Decommissioning V,,mont yonne, uucie,, power corporation .@-

Decommissioning Funding Summary V. .:

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fund for decommissioning of toos - "E '

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the P! Ant with the goal of ,,

restoring the plant site to its 80 ' '

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original condition once we Unrunded O .' F-have concluded operations.

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Decommissioning Trust s;Q totaled $159.6 million out of 20 / I- I a projected decommissionmg '.. , .. SO .

cost of $366.2 million 0 y 5 -- @ ,.

(1996 dollars). The graph at m w m '08 YEARS right depicts decommission-ing funding status.

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Indushial Safely Vermont Yankee continues to foster a strong safety culture and maintains its excel-

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year without a last-time accident. As of December 31,1996, Vermont Yankee reached 986 consecutim days without a lost-time accident; that represents nearly

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three years or 1.9 million person hours and includes two refueling outages. In

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September 1996, the National Safety Council ranked Vermont Yankee as the y, 7 nation's second best utility of its size for industrial safety. -

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Plant Economics Non-Fuel Production' Costs (Cents per KWH)'

Year Vermont Yankee Industry Average Vermont Yankee, desp.te having the handicap of i

g gg yg g 1992 1.95 1.70 being a relatively small plant, has operation and g y g g 3994 37, 1.56 maintenance costs that are comparable with g)ggmeggggg ggg 1996 2.04 - .

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34uR Avo. '93 29a, 1.74 1.64 by the chart. _ _ _ .

' Operation and Maintenance Expenses.

• Non-refuehng Year "Not Available Nuclear Fuel Costs (Cents per MWH)'

Year Vermont Yankee Industry Average fue!

C ri M C 7 C E B R E Z H O E 3 Economics 1992 0.57 0.61 Vermont Yankee's EEIMGTSEZ631iCEZZZZ6WQ~

1994 0.5 22 0.602 fuel costs continue to C[M $363}Q]{g{yg("] be below the industty 1996 0.5 02 ** average as illustrateJ 3 RAR AVG.'93 '95 0.54 0 61 by the chart.

' includes spent fuel disposal rates.

1. Includes DOE enrichment site cleanup fee.

"Not Available Production Costs (Cents per KWH)'.

Production Year vermaa' Yaakee 'ada*'rv ^verase n . 'D0L.~,%l?{$EMhW&Ej$

EConomici 1992 2.52 2.31 m- Vermont Yankee's ElWI13YYYb3bMdMId2 j 1994 1.69* 2.16 c ni el th the N EIdIN "

~ $b 1996 2.54 industry.s three-year

w. 3auR AVG.'93 ' '95 2.28 2.25 average, sg- ., Operation. Maintenance and Fuel Expenses.

eM *Non-refueling Year "Not Available o jh TotalCost of Power (Cents per KWH)'

Year Vermont Yankee Of0! (o$l of Power E M E N IIE E E E EIE37NI M E E d3 Vermont Yankee 1992 4.71 continues to be a low-cost p wn- -wnynw--r w w 3m42eawa ALs41993.msm=.ae.7d~ m m vrm producer of electricity.

1994 3.77*

, The chart illustrates C1h143N. ,na&Mushd1NhemR2 Vermont Yankee's cost 10' 4.78 - per kilowatt hour of 6-year ave. ge: 4.45 electricity generated.

Cumulative Cost of Power: 3.4 02

%clusiw of all costs 2Swe commercial operanons began in 1972

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l "InunC101 Review Operating revenues of the Company are billed and received from its Sponsors based on the terms of its Power Contracts. Under those contracts, the Sponsors are severally required to pay the Company an amount equal to their respective entitle-ment share of the Company's total fuel and operating expenses, return on net unit g investment and an amount designated to meet anticipated decommissioning costs at the end of the Plant's useful life.

Operating revenues increased in 1996 from 1995 by $1.3 million, or 0.7%, pri-marily due to higher operating and maintenance costs related to the scheduled refuel-ing and maintenance shutdown in 1996 as compared to the 1995 scheduled refueling and maintenance shutdown. Maintenance expense increased $2.8 million and other operating expenses increased $0.8 million because of the refueling shutdown and additional safety improvements made in 1996. The plant operates on an 18 month

refueling cycle, with the last scheduled refueling completed in November,1996.

Nuclear fuel expense decreased by $1.0 million in 1996 from 1995 reflecting less generation due to the refueling and maintenance shutdown in 1996.

Interest income increased by $0.4 million in 1996 due to increased earnings on the Spent Fuel Disposal Fee Defcasance Trust.

Total interest expense decreased by $0.1 million in 1996 from 1995. Interest charges on the spent fuel disposal fee obligation were lower than in 1995. Allowance for borrowed funds used during construction ('AFUDC") were higher due to the pur-chase of nuclear fuel for the fall refueling outage. Offsetting these decreases were additional interest charges related to Internal Revenue Service audit adjustments for the audit period covering 1989 to 1994.

, Net income increased by $0.2 million due to higher differences between the Company's net unit investment and total capitalization computed in accordance with the Company's formula rate, approved by the Federal Energy Regulatory Commission

(~FERC"). Income taxes decreased by $0.3 million in 1996 from 1995 as a result of a greater portion of income being carned from U.S. Treasuries in the Spent Fuel 9.,

Defcasance Trust, which are exempt from state tax.

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1 The Stockholders and Board of Directors

. Yermont Yankee Nuclear Power Corporation:

i We have audited the accompanying balce sheet of Vermont Yankee Nuclear Power Corporation as of December 31,1996 and 1995, and the related statements of income and retained earnings and cash flows for each of the three years in the j period ended December 31,1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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• ' T" " We conducted our audits in accordance with generally accepted auditing standards.

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Those standards require that we plan and perform the audit to obtain reasonable

- 4.3 . assurance about whether the financial statements are free of material rnisstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and v .- ,.

^7 . disclosures in the financial statements. An audit also includes assessing the accounting

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( principles used and significant estimates made by management, as well as evaluating

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the overall financial statement presentation. We believe that our audit provides a rea-

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+ . In our opinion, the financial statements referred to above present fairly, in all

- material respects, the financial position of Vermont Yankee Nuclear Power 2.< gP,[Q},

a' . Corporation as of December 31,1996 and 1995, and the results of its operations

. ll and cash flows for each of the three years in the period ended December 31,1996,

., in conformity with generally accepted accounting principles.

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Years ended December 31, ,

1996 1995 1994 (Dollars in thousarxis except per s. hare cbta)

Operating revenues $ 181,715 $ 180.437 $ 162,757 Operating expenses:

Nudcar fuel expense (NOTI.S 5 and 9) 18,810 19,771 22,520 M'  ? Other operating expense 76,390 75.557 68.591 L

..t Mamtenance expense 33,216 30.373 18.193 rh Depreciation argj amortizatiori exp. rix. 14,703 14,445 14,404 Decommissioinna expense (NOTE 3) 12,672 12.670 11,860 j Taxes on incorne (NO1 E I 1) 2,030 2.360 2,830 L' t Property and other taxes 9,189 ~ 10.225 10.004 Total operating cyienses . 167,010 165.431 148,402 Operating mcome 14,705 15.006 14,355 Other income:

Net cornings on decomrnissioning trust (NOTES 3 and 6) 6,791 6.226 5.271 Decommissioning expense (NOTI' 3) (6,791) (8.226) (5.271)

Allowance for equity funds used donng construction 100 2 110 g.s Interest 4,686 4.240 2.397 Oc Ta>.es on other income (NOTE 11) (1,791) (1,729) (986) .

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Ai Other. net (145) (95) (5) i Tota l other income 2,850 2,418 1.516 gp locome before interest expense 17,555 17.424 15,871 Q;;y~

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- Interest empense:

Interest on long term debt 6.197 5.682 6.173 a .A <

laterest on spent foel disposal fee ohhgation (NOTE 9) 4,720 4,958 3.367 Y -:

Allowan, e for horrowed f units used during construction (347) M (257) en 4.

Iota! intciest expens. 10,570 10.631 4,2S3 j;' . .

c a

a

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, Net income 6,985 6.790 6.5S8

)

e Ret, ined earninqs at beginning of year 846 1.376 1.067 7,831 5 166 7.655

' . ,y Dwidends de<lared 6.131 7.320 6.279 ,e Retained carnings or end of year $ 1.700 iS46 $ 1.370 Average number of shares outstanding in thousands 392 302 392 yp4 Net int ome per average share of common stock outstanding $17.82 $17 30 $16 70 g .. #

a 9a.n Daidends pet average share of cornintin (kK k outstanding $15.64 $18 65 $16 00 -!~;"!$

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Assets Decensber 31, 1996 1995 (Dollars in thousands) 4 Utility plant:

Electric plant, at cost (NOTE 7). $390,408 $376,761 less accumulated depreciation 238,116 225.257 152,292 151,504 ,.

Construction work in prorpess 0 869

3. -. .

Net electric plant 152,292 152,373 V' '

Nudcar fuel, at cost h j Assembhes in reactor 64,989 65.116 j, Spent fuel 333,194 311.610 ,

I.ess accumulated amortization of burned nudear fuel 398,183 361,716 376,756 348,213 , ./ ~

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36,467 28,543 -

Less accumulated amortization of final core nudear fuel 9,130 8.500 Net nudcar fuel 27,337 20,043

.y Net utihty plant 179,629 172,41(j 4

" j Current asects:

Cash and (ash equwalents 1,109 14,001 L .

- Accounts retcivable from sponsors 12,255 14.824

. .%,W~

0:hcr accounts receivable 3,322 1.554 _.

Materials and supphes. net of amortvation 17,433 16.768 [-

i

% Picpaid e penses Total cunent assets 4,468 38,587 5.120 52.267 7

a As gh; f

Deferred charges: s~-

32 687 h[,.{ 38,249 5 Deferred dn ommissaining c osts (NOTE 3) d Accumulated defened income taws (NOTI. I1) 24,537 22.659

' # ' ~y- Deferred DOE ennchment site decontaminan< n aiid d..commissioriinq fee (N( H E 9 4 '

fe '

12,723 13.332 Deferred I w level waste fanhtv expenses (NOTES 5 and 16) 26,539 26.539 ,3

~

Net unamortved loss on icac quned d -bi 2,334 2.516 - 1 k. g' Other defened chanacs (NOTES 5 and 6) 4,315 1.667 g - j#'

Total deferred c har qcs 108,697 99,400 }, W,s ..y i].e

• long-terrn funds, at fair snarket: c, j lbmnussioning trust (NOTl'S 3. n anJ *

. 159,612 141.330 I

Spent fuel dNwl h e defcasance trust (NOTES 0. 8 and 4) 78,475 65M90 +

! S.,$;g

3; -~.: e ,

Total long term funds 238,087 207,210 ,

,t NP $565,000 **'  ?

$531203

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Capitalization and Liabilities accernber 31, 1996 1995 (Dollars in thousands)

Capitalliation:

Cornnen stock equity:

Common stock. $100 par value, authorized 400,100 shares, issued 400,014 shares of which 7.533 are held in Treasury $40,001 $ 40,001 s.3 Additional paid in capital 14,226 14,226

[ Treasury stock (7.533 shares at cost) (1,130) (1,130)

'j Retained earnings 1,700 846 Total comrnon st<xk equay 54,797 53,943

.( long tenn obhgations. net (NOTES 7 and 8) 80,028 75,845 S'e Total c apaahzation 134,825 129.78S Comaattnents and contingencies (NOTES 3.15 and 16)

? Spent fuel dtsposal fee and accrued mterest (NOTES 8 and 9) 93,734 89,014 Current liabilities:

Accounts payable 2,571 1,892 Accmed expenses 15,978 11.904 Accrucd low kwl waste expenses (NOTE 16) 5,795 4.280 t -

Accrwd interest 1,499 1.333 Accrued taxes Other accrued habihties 1,405 4,124 1.670 4.088

@fe .

i Total corrent haNhties 3'1,372 25.167 . p:

,. Deferred credits and other liabilities: h-N$ 4- Aurued decommissiomng costs (NOTE 3) 204,990 179.516

.j-

) 3 Anumulated deferred income tv cs (NOTE 11)

Net regulatory t.u habihty (NO'I E 11) 46,391 7,344 52.535 7,998 s

L Accumulated deferred investment tax credas 5,509 6.047 ..

. Accrued DOE ennchment site decontananaton I ,. .i '

and decommissioinng fee (NOTE 5) 10,683 11.367 2%

. ., Accrwd low lewi uaste fanhty expen es (NOTI.S 5 and 16) 23,935 23.935 ...

Ac crued empi.>we benehts (NOTE 13) 6,217 5.926 hj

btal defened medas and other habihties 305,069 287,324

) $565,000 5531.203 -

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$ .h Q h ( gn g D k j ,II g' k.3 . . ( _Q _$ h. l [l ;Q pf g Years ended December 31, 1996 1995 1994 (Dthrs in thousands)

Cash flows from operating activities: -

Net income $6,985 $6,790 $6,588 Adjustments to reconcile net income to net cash provided by operating actwities -

p Amortization of nuclear fuel Depreciation and arnortization 14,133 14,703 14.874 14,445 17,581 14 404 M7- g Decommissioning expense 12,672 12,670 11,660 h[

)

Deferred tax expense (8,676) (5.500) (3.225) /

Amoritzation of deferred investment tax credits '(538) (534) (431) ,[ ,44 Nudear fuel disposal fee interest accrual 4,720 4,958 3.367 g Interest and dwidend3 on disposal fee defcasance trust (4,349) (3,752) (2,265) # '

2

, Decrease (increase) in accounts reteivable 801 1,836 (1,457) Y Decrease (intrease) in prepaid expense 652 (367) (804) 4 (in< rease) decrease in matenals and supplies inventory (665) 397 (84)

Ini rease (decrease) in acc ounts payable and accrued habilities 6,304 (4,067) 2,628

(Decrease) increase in interest and taxc3 pavah!c (99) 120 1,042 Other (664) 1.275 2.086 p-M Total adjustrnents 38,994 36.355 4,4,702

.a m Net cash provided by operahng actiaties

~

45,979 43,145 51.290 h#

vN Cash flows from investing activities: .a /

g"' Uectne plant additions and retacinenis (14,599) (2.191) (2.086) ,g" Nuclear tuel adihtions (21,427) 90 (20.083) M(g.-

Payrnents to deconunissiunnq trust (12,896) (12.818) (11.025) [-

e

* Payments to spent fuel disposal fee deleasance trust (8,000) (8,190) (8.100)

Net cash used in intestioq actwities (56,922) (23.109) (42.284) ,, #f Cash flows from financing activities: 20

,w.'.-

Dwidend payinents (6,131) (7,320) (6.279) ,

, ,: N.T

.p Payments of lonq term obhgation, (44,410) (19 Obs) (133.945) ' -

,. J lbnowings under long term aqreements 48,592 19.968 130 154

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JN Net t ash used in hnanung aowities (1,949) (7.320; (10.070) 'c 4

m Net (decrease) inercase in i ash and cash equivalents (12,892) 12.716 (1 064)

.y h._3 # g 1m +,

Cash and tash equitalents at heuininng of year 14,001 1.285 2.349 M h , :L .

Cash arki cash equiulents at end of ecar $ 1,109 $14.001 il 255 $F pn <Vpw A acw' o <

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NOTE 1. Nature of Business Vermont Yankee Nuclear Power Corporation ("the Company") was incorporated k&

under the lawspf the State of Vermont on August 4,1966 The Company was formed by a group of New England utilities for the purpose of constructing and operating a nuclear-powered generating plant ("the Plant"). The Plant commenced Q ,

commercial operation on November 30,1972, and except during maintenance and O b.n . ,

refueling outages, has been in full operation since that time. The Plant has a gross $fofC maximum dependable capacity of approximately 535 megawatts and is licensed by W -

W the Nuclear Regulatory Commission to operate until 2012.

The names of the sponsoring utilities and their respective entitlement percentages of Vermont Yankee's capacity and output are as follows: Central Vermont Public

[

F. -

Service Corporation with 35.0%, Green Mountain Power Corporation with 20.0%,

New England Power Company with 20.0%, The Connecticut Light and Power _,

Company with 9.5%, Central Maine Power Company with 4.0%, Public Service Company of New Hampshire with 4.0%, Cambridge Electric Light Company with 2.5%, Montaup Electric Company with 2.5%, and Western Massachusetts Electric '~.-

Com;sny with 2.5%.

.E NOTE 2. Summary of Significant Accounting Policies W ~ G ,, ' r (a) Regulations and Operations ~

.Y. W. g*L The Company is subject to regulations prescribed by the Federal Energy Tl.f.g i 4 \; V '

Regulatory Commission ("FERC"), and the Public Service Board of the State of -

Vermont with respect to accounting and other matters. The Company is also subject i^d Nh to regulation by the Nuclear Regulatory Commission ("NRC') for nuclear plant licens- ,f ? ^ ,7.W,'c- .

ing and safety, and ly federal and state agencies for environmental matters such as air _

.. N ' f. ]

quality, water quality and land use. N,..~

O(

The Company recognizes revenue pursuant to the terms of the Power Contracts .

,Y.7 -

and Additional Power Contracts filed with the FERC. The Sponsors, a group of nine New England utilities, are severally obligated to pay the Company each month their

(,7j.[-

, ; .g . p

{(

6,

h k. h

~

entitlement percentage of amounts equal to the Company's total fuel costs and oper- 7 . _ , . ,

ating expenses, plus an allowed return pn equity (12.25% through July 31,1994 and W . f- i' 11.0% thereafter). Such contracts ako obligate the Sponsors to make decommission- .~ '.,, 3. ".

ing payments through the end of the Plant's service hfe and completion of the decom- m@ >i 4

,d.',

missioning of the Plant. All Sponsors are committed to such payments regardless of the Plant's operating level or whether the Plant is out of service during the period. '

, .; : .x

,y [f [, ~

Under the terms of the Capital Funds Agreements, the Sponsors are committed. M'2 - '[

.h.' h subject to obtaining necessary regulatory authorizations, to make funds available to '

obtain or maintain licenses necessary to keep the Plant in operation. . ...

~

Y (b) Depreciation and Mctfnienance

~

. . l N Y.

• ^

Electric plant is being depreciated on the straight-hne method at rates designed to , 1; fully depreciate all depreciable properties over the lesser of estimated useful lives or 1> .

the Plant's remaining NRC license life, which extends to March, 2012. Depreciation -

expense was equivalent to overall effective rates of 3.87%,3.83% and 3.84% for the ,,

';4 years 1996,1995 and 1994, respectively. w

'9> %3. :. - '

The cost of additions, including replacements and betterments of units of property, L - ,

g-is charged to electric plant. Maintenance and repairs of property and replacements 4#. .m a O.

< .c am . y;. . A .,,;

g.

, . g 73 %

p,. f - p_

- e +

j 7 t f. [ . and renewals of items determined to be less than units of property are charged to g 3 .~eWdl6 -

maintenance expense. The cost of property retired, plus removal or disposal costs, less salvage, is charged to accumulated depreciation.

b ..

}9 (c) Arnortization of Nuclear Fuel

. The cost of nuclear fuel is amortized to expense based on the rate of burn-up of UO the individual assemblies comprising the total core. The Company also provides for leftf 5 the costs of disposing of spent nuclear fuel at rates specified by the United States Department of Energy (-DOE") under a contract for disposal between the Company

/ . and the DOE.

se . - * . '"

In conformity with rates authorized by the FERC, the Company amortizes to A .

expense on a straight-line basis the estimated costs of the final unspent nuclear fuel core, which is expected to be in place at the expiration of the Plant's operating f

,, license.

4' (d) Amortization of Materials and Supplies

. The Company amortizes to expense a formula amount designed to fully amortize the cost of the material and supplies inventory that is expected to be on hand at the expiration of the Plant's operating license.

(e) Long-term Funds The Company accounts for its investments in long term funds at fair value as required by Statement of Financial Accounting Standard 115. See NOTE 6 for further discussion of this accounting method.

(f) Arnortization of Loss on Reacquired Debt The difference between the amount paid upon reacquisition of any debt security and the face value thereof, adjusted for any unamortized premium or discount, related unamortized debt expense and reacquisition costs, applicable to the reacquired debt, is deferred by the Company and amortized to expense on a straight-line basis over the remaining life of the new debt issuance.

(g) Allowance for Funds Used During Construction Allowance for funds used during construction ("AFUDC") is the estimated cost of funds used to fhance the Company's construction work in progress and nuc! car fuel

'- ' '~

-'~ g in-process which is not recovered from the Sponsors through current revenues. The allowance is not realized in cash currently, but under the Power Contracts, the

, allowance will be recovered in cash over the Plant's service life through higher rev-enues associated with higher depreciation and amortization expense.

. AFUDC was capitalized at overall effective rates of 5.82%, c omand 5.42%, for

~

1996,1995 and 1994, respectively, using'the gross rate method.

(h) Decornmissioning

'_ ,4, The Company is accruing the estimated costs of decommissioning its Plant over the Plant's remaining NRC license life. Any amendments to these estimated costs are accounted for prospectively. See NOTE 3 for further detail.

l (I) Taxes on income The Company accounts for taxes on income under the liability method. See NOTE I 11 for a further di'scussion of the accounting for taxes on income.

g Investment tax credits have been deferred and are being amortized to income over

. the lives of the related assets.

. fN ,

16

. ,. + < ~

j u I* .

(J) Cash Equivalents For purposes of the Statements of Cash Flows, the Company considers all highly liquid short-term investments with an original maturity of three months or less to be cash equivalents.

(k) Reclassifications .

Certain information in the 1995 and 1994 financial statements has been reclassi-fied to conform with the 1996 presentation.

(I) Earnings per Common Share Earnings per common share have been computed by dividing carnings available to common stock by the weighted average number of shares outstanding during the year.

(m) Use of Estimates ,,

The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that w affect the reported amounts of assets and habilities and disclosure of contingent assets and liabihties at the date of the financial statements and the reported amounts of rev- _

enues and expenses during the reporting period. Actual results could differ from those T estimates. -

9 NOTE 3. Decommissioning l The Company accrues estimated decommissioning costs for its nuclear plant over

~

l its remaining NRC licensed life based on studies by an independent engineering firm -

that assumes decommissioning will be accomplished by the prompt removal and dis-mantling method (DECON). This method requires that radioactive materials be removed from the plant site and all buildings and facilities be dismantled immediately after shutdown. Studies estimate approximately seven years would be required to dis- -

mantle the Plant at shutdown, remove non-fuel wastes and restore the site. Studies also assume that spent fuel will be stored on-site in a dry fuel storage facility until 2025. The Company impicmented rate changes effective January 1,1995 based on a settlement agreement approved by the FERC which allowed $312.7 mi!! ion, in .

p #

1993 dollars, as the estimated decommissioning cost (NOTE 4). This allowed amount .

L is used to compute the Company's liability and billings to the Sponsors. Based on an ,_J._

assumed cost escalation rate of 5.4% per annum and an expiration of the Plant's operating license in the year 2012, the estimated current cost of decommissioning is $366.2 milhon and, at the end of 2012, is approximately $816.6 million. The present value of the pro rt.ta cortion of decommissioning costs recorded to date is

$205.0 million. On December 31,1996, the fair market value of the ,

Decommissioning Trust was $159.6 mhlion.

Billings to Sponsors (or estimated decommissioning costs commenced during 1983, at which time the Company recorded a deferred charge for the present value of decommissioning costs applicpble to operations of the Plant for prior periods. x ty Current period decommissioning costs not funded through billings to Sponsors or [p ,

carnings on decommissioning trust assets are also deferred. These deferred costs will - '"

I be amortized to expense as they are funded over the remaining life of the Company's operating license..

• Cash receiwd from Sponsors for plant decommissioning costs is deposited directly ,

into the Vermont Yankee Decommissioning Trust in either the Qualified Fund .

'+ '

(i.e., amounts currently deductible pursuant to the IRS regulations) or the Nonqualified 17 x I ,d

P Fund (i.e., collections pursuant to FERC authorization which are not currently deductible). At December 31,1996, funds held by the Trust were invested in corpo-rate bonds, government securities and equities. As discussed in NOTE 4, in connec-tion with the rate changes effective January 1,1995, the Company changed its Notes to decommissioning investment streicgy es euthori,ed by the FERC. interes, cerned by finanCIOl the Decommissioning Trust assets is recorded in other income and deductions, with an aqual and oHsetting amount representing the current period decommissioning cost

$f0fCinenfs funded by such earnings reflected as decommissioning expense.

The staff of the Securities and Exchange Comrnission has questioned cedain of the current accounting practices of the electric utility industry, including the Company, regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in the financial statements of electric utilities. In response to these questions, the Financial Accounting Standards Board ("FASB") has agreed to review the accounting for removal coats, including decommissioning. In February 1996, the FASB issued a proposed statement entitled Accounting for Liabilities Related to Closure or Removal of Long-Lived Assets. If adopted, the principal impact on the Company's financial statements would be an increase in the accrued decommissioning costs to the present value of the total obligation, with a corresponding increase in electric plant. The Company does not believe the changes proposed would have an adverse effect on the results of operations due to its L current and future ability to recover costs from the Sponsors.

NOTE 4. fERC Role Case Mallers 4 On June 15,1994, the Company filed an application with the FERC to change its wholesale rates based on a settlement reached in advance with interested parties. The primary changes to the Company's wholesale rates included (1) an increase in the decommissioning cost estimates, a revised decommissioning funding schedule, and a revised decommissioning investment strategy. (2) a reduction in the rate of return on common equity from 12.25% to 11.0%, and (3) various billing changes necessary to reflect the implementation of the requirements of Statement of Financial Accounting Starxiards No.109, Accounting for income Taxes, to deduct certain reserves from the calculation of net unit investment under the Power Contracts, and to include in rates certain payments that the Company will be required to make to obtain the use of a low-level waste disposal facility (NOTES 5 and 16). On September 2,1994, the Company received FERC approval. The rate decrease related to the reduction in the rate of return on common equity went into effect on August 1,1994. All other rate changes were effective on January 1,1995.

The revised estimate of decomnussioning costs approved by FERC is $312.7 mil-tion, in 1993 dollars, and the revised schedule of future annual decommissioning fund collections reflects an annual decommissioning cost escalation rate of 5.4% and a financial inflation rate of 4%. The approved investment strategy for decommissioning funds under which those funds will be invested uses a balanced approach subject to strict guidelines which cover permissible and impermissible investments, diversification criteria, and quality standards. Under the approved investment strategy, no more than 30% of the Decommissioning Trust funds can be invested in common or preferred equities and no more than 35% in corporate bonds.

18

4 4

[

NOTE 5. Deferred Charges, Credits and Other liabilities . -

In October,1992, Congress passed the Energy Policy Act of 1992. The Act, i  ?-

which requires, among other things, that certain utilities help pay for the cleanup of '

a ,

the Department of Energy's (DOE's) enrichment facilities over a fifteen year period. 3;f The Cornpany's annual fee is estimated based on its historical share of enrichment y ,

services provided by the DOE and is indexed to inflation. These fees will not be adjust- ,

b th ed for future business as the DOE's future cost of sales will include a decontamination 5 D' ,

and decommissioning component. The Act stipulates the annual fee shall be fully k y 3-recoverable in rates in the same manner as other fuel costs. y .

,;. A ~

In 1996, the Company paid the fifth of the fifteen annual charges. As of $ I$ h December 31,1996, the Company had recognized a current accrued liability of

$1.2 million for the fee payment expected to be made in 1997, a non-current liability MN M j ~-

of $10.7 million for the expected nine annual fee payments that are due subsequent

[

T

$*~ d* a P

to 1997 and a corresponding regulatory asset of $12.7 million which represents the total amount includable in future bi!!ings to the Sponsors under the Power Contracts.

of 9 %

In 1994, the states of Vermont. Maine and Texas each ratified legislation to join,a 3- .

Iow-level radioactive waste disposal compact for the purpose of disposing of low-level radioactive waste in the state of Texas (NOTE 16). In 1994, the Company recorded a  :

- f ~

non<urrent liability of $23.9 million to recognize the $27.5 million compact fund .  ;. . ,

>?

requirements less amounts on deposit with the State of Vermont and a corresponding .;

'x deferred debit of $26.5 million which represents the total amount to be included in future billings to the Sponsors under the Power Contracts. These amounts have not changed during 1996. Ratification of the compact is still pending in the U.S.

g5 , m.-

J Congress. t* . '

W l l During 1996, Vermont Yankee initiated a Design Basis Documentation project [d ' t .* ',

which is expected to be complete by December 31,1997. This project was undertak- - .k en to incorporate all design documentation into a centralized system. The objective is ' ,g) ,, ..

to ensure that Vermont Yankee maintains its safety margins in connection with any

^

• g -

~

plant modifications. The Design Basis Documentation project will create a set of d .;

design basis documents which will support more efficient systemic problem solving, k, n maintenance, and system overview. This effort supports the safe, cost effective, long term operation of the Plant. The Company received FERC approval in 1996 to rec- L' k ,

yp ognize deferred charges for these unrecovered study costs and amortize the costs J . ,

• through billings to Sponsors over the remaining license life of the Plant. The I". _, .

Company recorded net nuclear design basis documentation charges of $2.7 million 't. .

y- 5 in 1996. . ,.-

NOTE 6. Long-term Funds '!

Under genera!!y accepted accounting principles, the Company must account for its ",

investments in certain debt or equity securities by classifying each such security as

• t ,

either trading, available-for-sale or held-to-maturity securities. Both trading and avail-

able-for-sale securities must be reflected on the balance sheet at their aggregate fair --

h h.

values. Held-to-maturity securities are reflected on the balance sheet at amortized cost.

[ f(* - .. ,

The Company classified securities in the Decommissioning Trust as available-for-

• saic. As of December 31,1996, the Decommissioning Trust had a net unrealized gain of $7,185,022 which reduced deferred decommissioning costs because the Company

. .Wy.

will not realize this gain, rather, the gain will be used to reduce future billings to Sponsors. Y( N ds

.f

~

s 19 h i

Securities held in the Spent Fuel Disposal Fee Defeasance Trust are classified as available-for-sale. Prior to June 1996, the Company invested these trust funds in 90-day commercial paper notes. As such, the securities held in the Spent Fuel Defeasance Trust were classified as held-to-maturity. During June 1996, the Company Notes io initie ca a short auretion fixea-income portroiio investment stretegy. Since some of the securities in the portfolio will be sold from time to time, the Cornpany now classi-finanCIOl ggg fies the investments in the Spent Fuel Defcasance Trust as available-for-sale. As of December 31,1996, this Trust had net unrealized gains of $245,627 with a ,

corresponding decrease to Other Deferred Charges.

The book value and estimated market value of long-term fund investment securities at December 31, is as follows (Dollars in thousands):

1996 1%

Decommissioning Trust: Book Market Book Market Value Value Value Value US Treasury obligations $69,547 $69,652 $67,220 $69,787 Municipal obligations 23,313 24,236 30.118 32.283 Corporate bonds 25,427 25,444 21,093 21.285 Stocks 26,524 32,664 12.345 14,156 Accrued interest and money market funds 7,616 7,616 3,819 3,819 152,427 159,612 134,595 141,330 Spent Fuel Disposal Fee Defeasance Trust:

US Treasury obligations 74,960 75,206 65,235 65.235 Accrued interest and money market funds _

3,269 3,269 645 645 78,229 78,475 65,8SO 65.880 Total long-term investments $230,656 $238,087 $200.475 $207.210 Pursuant to the Company's arrangements with its Sponsors, the difference between market value and book value of the Decommissioning Trust has been record-ed as a decrease to deferred decommissioning costs. The Company's contracts with its Sponsors provide for full recovery of decommissioning costs and any excess or shortage in the fund including those resulting from investment performance will be i refunded to or collected from Sponsors.

1 The securities included in the Spent Fuel Disposal Trust represent funds invested by the Company for which the carnings and principal will be used to pay the DOE fee for spent fuel discharged prior to April 7,1983. See NOTE 9 for further detat!s

^

g Although the Company collected this fee from its Sponsors in rates, it has elected to.

defer payment as permitted by the contract with the DOE. Since any gains (losses) have the effect of reducing (increasing) the amount of funding necessary to cover the required payrnent upon delivery of spent fuel to the DOE, the Company has included the difference between book and market value of the Spent Fuel Disposal Trust as a

• i decrease to Other Deferred Charges.

k 20 I

At December 31, gross unrealized gains and losses pertaining to the long-term invest- u, ment securities in the Decommissioning Trust and the Spent Fuel Disposal Fee Defcasance Trust were as follows (Dollars in thousands):

1996 199f >

$ 2,578

$767

~

Unrealized gains on US Treasury obligations Unrealized losses on US Treasury obligations (416) (11) ' ;

Unrealized gains on municipal obligations 928  ?,167 ..

Unrealized losses on municipal obligations (5) (2)

Unrealized gains on corporate tends and notes 126 215 Unrealized losses on corporate bonds and notes (109) (23)

Unrealized gains on stocks 6,238 1,820 Unrealized losses on stocks . . (98) . (9)

$7.431 $6,735 For the years ended December 31, gross realized gains and losses pertaining to the long-term investment securities were as follows (Dollars in thousands):,

1996 1996 199f> l 'F 6 s .. ,,

Total Sale Gross Realised Total Sale Gross Realized [' - " f; Proceeds Gain Loss Proceeds Gain Loss 7 ;,rj , .

Decommissioning $133,822 $ 1,826 $(1.415) $158,926 $2.703 $(586) Mhly Spent fuel disposal

,' ';; y 7 ,,'

~

fee defcasance* $448,300 $360 - - - - -

• f NCumis M ATURITY of SHoRT-TERM COMME RCfAL PAPf R -

's Maturities of short-term obligations, bonds and notes (face amount) at b 7 " '

.'p 7 E December 31, are as follows (Dollars in thousands): - -

4; y .;,1 y,m .. .-

1996 . 19 % 14 6 1 * *9f>

. y il.v ,

Decommissioning Disposal Fee Decommissioning Disposal Fee ' ' J J 3 ;.. - 1 ' ' ],,. ., .

Trust Defeasance Trust Trust Defeasance Trust '44it Within one year $7,783 $2,025 $2,004 $65,891 &f.

i GQ

+fi , 49 One to five years 37,751 73,145 51,683 -

p ,? ; y % p $

five to ten years 46,410 Over ten years 32,619 40.954 14,990 I' 3.s1 y 1 ' "

Y

$ 119,107 $75,170 $115,087 $65,891 1' % g( -

sv ..n NOTE 7. Long lcrm Obligations A summary of long-term obligations at December 31, is as follows (Dollars in thousands):

( '

d 1996 199fi ,

3 First mortgage bonds: Series 1 - 6 48% due 2009 -$75,84 5 $75,845 g L. .

Comnwrcial Paper : Eurcxiollar Credit Agreement 4,183 _

0

• y 5,* h -

Total long term obligations $80,028 $75,845 :V y .

N ~

f -

7 M

.[- ( $It x_

N w

The first mortgage bonds are issued under, have the terms and provisions set forth in, and are secured by an Indenture of Mortgage dated as of October 1,1970 between the Company and the Trustee, as modified and supplemented by 13 supple-1 mental b 'mtures. All bonds are secured by a first lien on utility plant, exclusive of IO nuclear ' dge of the Power Contracts and the Additional Power Contracts CIOl (except for fuci payments) and the Capital Funds Agreements with Sponsors.

Iefik 5 In November 1993, the Company issued $75.8 million of Series 1, first mortgage bonds stated to mature on November 1,2009. The Company applied the proceeds of the bond issuance principally to retire the remaining Series D, Series E Series F,

\ '

~

Series G and Series H first mortgage bonds including call premiums totaling

$3.7 million. Cash sinking fund requirements for the Series I first mortgage bonds are

$5.4 million annually beginning in November 1999.

~.~.

During 1996, the Company extended its $75.0 million Eurodollar Credit v Agreement through July 19,2001 subject to two optional one-year extensions. The k Company issued commercial paper under this agreement with weighted average inter-est rates of 5.50% for 1996 and 6.08% for 1995. Payment of the commer#cial paper is supported by the Eurodollar Credit Agreement, which is secured by a second mort-gage on the Company's generating facility. Borrowings under this agreement were

$4.2 rnillion at December 31,1996.

NOTE 8. Disclosures About the Fair Vaiue of Financial Instruments The carrying amounts for cash and temporary investments, trade receivables, accounts receivable from Sponsors, accounts payable and accrued liabilities approxi- ,

mate their fair values because of the short maturity of these instruments. The fair val-ues of long-term funds are estimated based on quoted market prices for these or simi-le.r investments. The fair values of each of the Company's long-term debt instruments c estimated based on the quoted market prices for the same or similar issues, or on

'[

he current rates offered to the Company for debt of the same remaining maturities.

The estimated fair value of the Company's financial instruments as of December 31, are summarized as follows (Dollars in thousands):

1996 1995 Cost Estimated Cost Estimated Amount Fair Value Amount Fair Value Decommissioning Trust $152,427 $159,612 $134.595 $ 141,330 f Spent Fuel Disposal Fee Defeasance Trust 78,229 78,475 65.880 65,880 3

Long- term debt 80,028 73,574 75.845 73,493 Spent fuel disposal fee and accrued interest 93,734 93,734 89,014 89,014 Fair value estimates are made'at a specific point in time, cased on relevant

market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

': k2 1

l

(

l NOTE 9. 5 pent fuel Disposal fee Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the selec-tion and development of repositories for, and the disposal of spent nuclear fuel and high-level radioactive waste. The Company, as required by that Act, has signed a con-tract with the DOE to provide for the disposal of spent nuclear fuel and high-level radioactive waste from its nuc! car generation station beginning no later than January 31,1d98; however, this delivery schedule is expected to be delayed significantly. It is not certain when the DOE will accept spent nuclear fuel and high-level radioactive waste from the Company and other owners of nuclear power plants. Extended delavs or a default by the DOE would lead to consideration of costly alternatives involving sericus siting and environmental issues.

The DOE contract obligates the Company to pay a one-time fee of approximately

$39.3 million for disposal costs for all spent fuel discharged through April 6,1983, and a fee payable quarterly equal to one mill per kilowatt-hour of nuclear generated and sold electricity after April 6,1983. Although the $39.3 million for the one-time fee has been collected from the Sponsors in rates, the Company has elected to defer payment to the DOE as permitted by the DOE contract. The fee plus accrued interest must be paid no later than the first delivery of spent fuel to the DOE repository.

Interest accrues on the unpaid obligation based on the thirteen-week Treasury Bill rate and is compounded quarterly. Through 1996, the Company accumulated

$78.5 million in an irrevocable trust to be used exclusively for defcasing this obligation ($93.7 million including accrued interest) at some future date, provided the DOE complies with the terms of the aforementioned contract.

• The Company has primary responsibility 'or the interim storage of its spent nuclear fuel. The plant is currently able to operate with the ability to discharge the entire reactor core to the spent fuel storage pool through the year 2001 refueling out-age. Full core discharge capability through the year 2010 refueling outage could be achieved with the installation of additional storage racks in the spent f6el pool, subject to license amendment. The Company is investigating other options for additional stor-age capacity beyond the year 2001 The Company, among others,14 nvolv.:J in legislative action to accelerate the DOE waste program and require that the DOE provide interim storage of spent fuel.

In addition, Vermont Yankee is one of a coalition of more than 30 electric utilities l which are parties to a lawsuit seeking to force the DOE to meet its obligation to begin l taking spent nuclear fuel in 1998. The suit seeks to allow utilities to suspend pay-ments to the Nuclear Waste Trust Fund and place the money in escrow pending the DOE meeting its obligation.

Coincident with the utility lawsuit, a separate suit was filed by more than 40 state agencies, including the Vermont Attorney General and th Verrnont Public Service Board. The suit also seeks to suspend pasments to the fund until the DOE begins accepting spent fuel.

NOTE 10. Short-lerm Borrowings The Company had lines of credit from various banks totaling $6.3 million at Dectmber 31,1996 and 1995. The maximum amount of short-term borrowings out-standing at any month-end during 1996 and 1995 was $0.0 million. The average daily amount of short-term borrowings outstanding was approximately $0.1 million 23 -

for 1996 and $0.1 million for 1995 with weighted average interest rates of 7.75% in 1996 and 8.48% in 1995. There were no amounts outstanding under these lines of credit as of December 31,1996 and 1995.

Notes to NOTE 11. Taxes on income Financial The Company uses the liability method of accounting for income taxes. The liabili-

$}afemenI5 ty method accounts for deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to differences between the book basis and the tax basis of assets and liabilities (" temporary differences").

For certain items, the Company's allowed rates have recognized income tax expense on a different method. As a result, the Company has recognized net liabilities to Sponsors of $7.3 million as of December 31,1996 and $8.0 million as of December 31,1995 representing taxes collected from them in excess of amounts that would have been recorded under the liability method. These amounts will be systematically returned to Sponsors by reducing future power bills.

The components of income tax expense for the years ended December 31 are as follows (Dollars in thousands):

1996 1W. 1 v84 Taxes on operating incorne:

Current federal income tax $8,939 $6,684 $5.111 Deferred federal income tax (7,393) (4.846) (2.839)

Current state income tax 2,305 1,710 1,376 Deferred state income tax (1,283) (654) (386) lovestment tax credit adjustment (538) (534) (432) 2,030 2.360 2.830 Taxes on other income:

Current federal income tax 1,576 1,376 784 Current state income tax 215 353 202 1.791 1,729 986

• 4 Total income ta>cs $3,821 $4,089 $3.816 The Company's effective income tax rates differed from the federal statutory rate of 35% for the years ended December 31, are as follows:

1996 146 IY>4 Federal statutory rate 35.0% 35 0% 35.0%

State income taxes, net of federal income tax benefit 7.4 8.4 7.4 lovestment credit (5.0) (4.9) (4.2)

Book depreciation in excess of tax basis 2.5 2.9 2.3 nowback of excess deferred taxes (4.5) (4.0) (3.5)

Other 0.0 0.2 (0.3) 35.4% 37.6% 36.7%

k 1 . A f

i .

t

.e The significant components of deferred tax expense for the years ended ' #

December 31, are as follows (Dollars in thousands):

1996 1995 1W4 Decommissioning expense not currently deductible $(1,594) $(1.643) $(432)

Tax depreciation (under) over financial statement depreciation (5,399) (2,020) (1,566)

Tax fuel amortizanon (under) over financial statement amortization (302) (994) (19)

Tax loss on reacquisition of debt (under) over financial statement experv,e (73) (73) (99)

Penwan expense deduction (under) over hnancial statement expense (91) 237 (397)

Postemployment benefits deduction (under) owr hnancial statement expense (25) (269) 77 l ,

Materiols and supphes deduction (under) over financial statement expense (64) (36) (325)  ; .

1;;w kvel waste deduction (under) over financial statement expense (567) (489) (211)  !

nowback of excess deferred taxes (481) (432) (359)

Other, net .

(80) 219 106

$(8,676) $(5.500) $(3,225)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, are presented below (Dollars in thousands):

1996 - 1995 j Deferred tax assets: , ,

l Acctanulated amortization of final nuclear core $3,685 $3,431 -

Nuclear decommissioning liabihty 7,042 5,204 ihyulatory liabihties 4,800 5,273 Accumulated deferred investment credit 2,224 2.441 Accumulated amortization of materials and supphes 2,773 2.693 4 Pension and retiree beneht habihties 2,821 2,705  % --

Accnrd low level waste disposal costs 2,294 1,728 ,.

Other 891 895 .

Total gross deferred tax assets 26,530 24,370 Less valuation allowance (1,993) (1.711) f~ ~ . ' ~~

Net deferred tax assets 24,537 22.659 b~ '

Deferred tax liabilities: 0' Plant and equipment (41,932) (47,721) .,

Other (4,459) (4,814)

Total gross deferred tax habihties (46,391) (52.535)

Net deferred tax liabihty $(21,854) $(29,876) ,

The valuation allowance is the result of a provision in Vermont tax law which limits f~ . f refunds resulting from carrybacks of net operating losses. ,

,D' a

NOTE 12. Supplemental Cash flow Information The following information supplements the cash flow information provided in the { .

Statements of Cash Flows (Dollars in thousands): .E t

( a.,h swat dunng the veai fur -

1996 1995 1994 Interest (net of amount capitalized) income taxes

$5,406

$ 14,878

$5,184 $5,108 h

$7.981 $7.525 y

+

2s

a d

NOTE 13. Pension Plans .

The Company has two noncontributory pension plans covering substantially all of its employees. Benefits are based on age, years of service and the level of compensa-tion during the final five years of employment. The Company's funding policy is to Notes ta contribute each year, the net periodic pension cost for that year. However, the contri-

{ l bution for any year will not be less than'the minimum required contribution under

$ Ofemenf 5 federal law or greater than the maximum tax deductible amount.

The aggregate funded status of the Company's pension plans as of December 31, is as follows (Dollars in thousands):

- IWS

~

'N 1996

. Vested benefits $12,356 $11,070 Nonvested benefits _

1,510 _

. _ .1,498 Accumulated benefit obhgation 13,866 12,568 Additional benefits related to future cornpensation levels 6,002 6,059 Projected benefit obhgation 19,868 18,627 Fair value of plan assets, invested primarily in equities and bonds 25,352 22.199 Projected benefit obhgation less tnan plan assets $(5,484) $(3,572)

Certain changes in the items shown above are not recognized as they occur, but are amortized systematically over subsequent periods. Unrecognized amounts still to be amortized and the amount that is included in the balance sheet as of December 31, appear below (Dollars in thousands):

~

' ' 1996 IWS Unrecognized net transition oblYation $816 $876 Unrecognized net gain (12,150) (10,102)

Pension liabibty included in balance sheet 5,110 4,869 Unrecognized prior service costs 740 785 Projected benefit obligation less than pian aswts $(5,484) $ (3.572)

The increase in the projected benefit obligation from $18.6 million in 1995 to

$19.9 million in 1996 is primarily the result of changed plan assumptions.

The following are the pension plan assumptions as of December 31:

1996 I W5-Discount rate 7,50% 7.25%

Compensation scale 4.00% 4.00%

Expected retwn on assets 8.50% 8.50%

= l 26 - I l

l

- i

.4 np5 - ;.d Q X.x 3 ,

Net pension expense for the years ending December 31, includes the following com- .

~

db ponents (Dollars in thousands):

' ~

![ . ,

y[ Y{[ g ~'

1996 199f 1994 h.. h.

Service cost benefits carned $ 1,110 $953 $1,282 f MIi.

b .x e(

3 .

Interest cost on projected benefit obligation 1,434 1.275 1,361 ' )

(3,230) ,,j.? ,4.

Actual (return) loss on plan assets (4.868) (1,530)

Net amortization and deferral 1,322 3.120 186 3 [  ?,,

Net pension expense $636 $480 $ 1.299 .i .

+>W e (< : 7. m < ' '@~ .

_'R f 0 ..<f '" ;

.f#. ,

NOTE 14. Postreliternent Benefits Other Than Pensions M 'T,% t The Company uses accrual accounting for postretirement benefits other than pen- $

sions ("PBOP~ or "PBOPs"). Le Company accrues PBOP costs determined in accor- j

• dance with appropriate actuarial assumptions and includes this amount in its monthly power billings to Sponsors. The Company is funding this liability by placing monies in . g[]i ..'h.w . yk. C '.

separate trusts. In orde'r to maximize the deductible contributions permitted under IRS [xqD.4, %( '

.% 049[4 (-

I regulation's, the Company amended its pension plans and estab!ished separate VEBA . .

trusts for management and union employees. ~.G 1 x

.s Le net postretirement benefit cost under FAS Statement No.106 is made up of f ' >%l .

p. . g,,f -

several components that reflect different aspects of the Company's financial arrange-3 '

ments as well as the cost of benefits earned by employees. These components are r determined using the projected unit credit actuarial cost method and are based on the

[

plan provisions and actuarial assumptions.

The following table summarizes the plan's funded status as of December 31, (Dollars in thousands):

3. H Q -

. 1

'4 4m' ' u .~.

Accumulated postretirement honefit obligation .

. 1996 1995 3, l.-

Retirees $1.706 $ 1.454 , ).f% , ~. t 1,256 Fulbj chgible active plan participants Other active participants 1.225 4.

4N. p .

8,531 8.911 . . .

% A , i G.,

Total accumulated postretirement benefit obligation 11,493 11.590 @QE -

N.; >

Fair value of plan assets 7,563 5,334 4 , 'W '

Accumulated postretirement beneht obligation in excess of plan assets $3,930 $6.256 . . yf 'g a

Unrecognized net transition obhgation $6,203 $6,617 .,i *yw . , . i,'

Adational unrecognized transition obhgation , 2,437 2,488 j! h, Unrecognized net gain (4,710) (2,849) t-y, Accumulated postretirement beneht obhganon in excess of plan assets $3,930 $6.256 f y .-

j b.g; V'n *,

. : , s v . , , . }. . . g.;

qpm;:

t ya, i.3 -

s.--

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____ ___ _ __ _ _ _ _ _ _ _ _______ _ _ - - - _ - _ - _ . _ - - _ - - - _ - _ - - - - - - - - _ --- - - - - - - - - - - - - - - - 6 -

The net periodic postretirement benefit cost for 1996 and 1995 includes the following components (Dollars in thousands).

1996 1% .

Notes to se,vice cesi $79o $755 l

[jnOnCIGl I"t*'*S' C 843 763 g g Actual return on plan assets Net amortization and deferral (836) 678 (859) 965 Net periodic postretirement benefit cost $ 1,475 $ 1.624 For measurement purposes, an 11% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was assumed for 1996; the rate X . was assumed to decrease gradually to 6% by the year 2001 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31,1996 by $2.3 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31,1996 by $0.4 million. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.5%

and 7.0% for the years ended December 31,1996 and 1995 respectively.

NOTE 15. Lease Commitments The Company leases equipment and systems under noncancelable operating leas-es. Charges against income for leases were approximately $7.3 million in 1996,

$4.9 million in 1995, and $3.1 million in 1994.

' Minimum future lease payments as of December 31,1996 are as follows (Dollars in thousands)

Fiscal years ended . Annual leases 1997 $7.300 1998 7.278 1999 6.758

2000 4.618 2001 4.618 Thercafter 16,163

+

J Included in the above lease payments is the cost of low pressure turbines construct-1 ed by General Electric Corporation valued at approximately $30.8 million including installation costs when installed in 1995. Under the lease agreement which com-menced on July 1,1995, the Company will make 120 monthly payments of

$384,834.

A M4 28

I NOTE 16. Commitments and Contingencies (a) Low-level Waste .

During 1994, Vermont Joined with the states of Texas and Maine in a tri-state -

compact to site a facility in Texas for the disposal of low-level radioactive waste.

Currently, each participating state has obtained approval from its respective legislature to participate in the compact. Although ratification by the U.S. Congress has been delayed longer than originally anticipated, Vermont Yankee should begin sending its waste to Texas during 1999, if such approval is received in 1997 and facility licensing and development proceed on schedule. The Company has stored most of its low-level radioactive waste on the Plant site since July 1,1994. The Company has the capacity to store low-level waste on site until the year 2000. Management anticipates that the  ; ,

Texas facility will open prior to that date or that other arrangements for disposal can ~ ~

be made. The accompanying financial statements include a $5.8 million cost estimate A -

I to dispose of waste currently stored on site. This actual cost of disposal could differ from management estimates if the Texas facility is not available as planned. Any dif- J ference in costs would likely be collected from or refunded to the Sponsors and would  :

not have a material impact on the Company. 3. .

Under the proposed compact, Vermont will pay the State of Texas $25 million

% G WID3 E A,

($12.5 million when the U.S. Congress ratifies the compact and $12.5 million when  ?' e the facility opens). In addition, Vermont must pay $2.5 million ($1.25 million when C 2"3 Congress ratifies the compact and $1.25 million when the facility is licensed) for com- .- -

munity assistance projects in liudspeth County, Texas, where the facility will be locat-

'. l . .. ~. .

ed. During 1994, the Company received approval from FERC to recover the cost of W c this compact from Sponsors over the remaining license life of the Plant, commencing d~ 7 Q g< ,4 - st ? '

l upon Congressional approval of the compact. A -'

% ' ~

During 1994, the Company recorded a deferred credit of $23.9 million to recog- j4L m '< "

nize the $27.5 mi!! ion compact fund requirements less the remaining fund balance '

from the State of Vermont and a corresponding deferred debit of $26.5 million which represents the total amount to be included in future billings to Sponsors under the n <*;p . y^e a

.*/.I[Nie >f Power Contracts. These amounts have not changed during 1996. .. > c a V

cf,.

^N.

(b) Nuclear Fuel

• f[

~

f The Company has several " requirements based contracts for the four components (uranium, conversion, enrichment and fabrication) used to produce nuclear fuel. These (7 - g' - M.

contracts are executed only if the need or requirement for fuel arises. Under these ,& .

~- -

j contracts, any disruption of operating activity would allow the Company to cancel or ,% ~  %

postpone deliveries until actually required. The contracts extend through various time F periods and contain clauses to allow the Company the option to extend the agree-

-' 'sk; jh'. 'g i ments. Negotiation of new contracts and renegotiation of existing contracts routinely 1 occurs, often focusing on one of the four components at a time. The price of the "h_t,~ - '

W.

1996 reload was approximately $21 million and future reload costs will depend on g. j N, V * -

market and contract prices.

'] q ,

On January 20,1997, the Company entered into an option agreement with a ' ' h former uranium supplier. The option agreement represents a willingness by the parties .

~'

to terminate a production purchase agreement dated August 4,1978. Although there .

have been no transactions under the production purchase agreement for several .

.?i years, the Company maintained certain financial rights. In consideration for the l

option to terminate the production purchase agreement, the Company received

'%? . '.1 n . w

_ _ -- - / +. *

$50,000 in February 1997. If the option is exercised, the potential future payments, over a ten year period, range from $0.5 million to $3.0 million. Due to the uncertain-ty of this transaction, the potential benefits will be recorded on a cash basis.

Notes to (c)'"s"r""<c

. . The Price-Anderson Act currently limits public liability from a single incident at a FinanCiOli nuclear power plant to $8.9 bdlion. Any damages beyond $8.9 billion are indemnified

$f0fCmenf5 under an agreement with the NRC, but subject to Congressional approval. The first

$200 million of liability coverage is the maximum provided by private insurance. The Secondary Financial Protection program is a retrospective insurance plan providing additional coverage up to $8.7 billion per incident by assessing each of the 110 reactor units that are currently subject to the Program in the United States a total of $79.3 million, limited to a maximum assessment of $10 million per incident per l nuclear unit in any one year. The maximum assessment is expected to be adjusted at least every five years to reflect inflationary changes.

The above insurance covers all workers employed at nuclear facilities prior to January 1,1988, for bodily injury claims. The Company has purchased a Master Worker insurance policy with limits of $200 million with one automatic reinstatement I of policy limits to cover workers employed on or after January 1,1988. Vermont

%nkee's contingent liability for a retrospective premium on the Master Worker policy as of December 1996 is $3.0 million. The Secondary Financial Protection layer, as referenced above, would be in excess of the Master Worker policy.

Insurance has been purchased from Nuclear Bectric insurance Limited (NBL) to cover the costs of property damage, decontamination or premature decommissioning resulting from a nuclear incident. All companies insured with NBL are subject to retroactive assessments if losses exceed the accumulated funds available. The maxi-mum potential assessment against the Company with respect to NBL losses arising during the current policy year is $13.3 million. The Company's liability for the retro-spective premium adjustment for any policy year ceases six years after the end of that policy year unless prior demand has been made.

(d) inclustry Restructuring The electric utility industry is in a period of potential transition which may result in a shift away from cost of service and return on*cquity based rates to rates which are more based ch market factors. Most states in which the Company's Sponsors oper-ate, including Vermont, are exploring plans to bring greater competition, customer choice, and market influence to the industry while retaining the benefits associated with the current regulatory system. Several states in the Northeast have set January 1,1998 as the date for implementing restructuring programs.

The Company cannot predict'what effect these restructuring plans will have on the Company or its Sponsors. It is possible, however, that these restructuring orders could have a material adverse effect on the Sponsors, which could, in turn, have a material adverse effect on the Company.

so l

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.4

• h ct.f.:,,..? t;y;.; ?.].. ; . h ;:;g L:,. m .s,a;j:.t.-D .;.5 gj, ROSS P. BARKHURST President and Chief Executive Ofhccr. ,

Vermont Yankee Nuclear Power Corporation. Brattleboro. VT '

FREDERIC E. GREENMAN ~

. Former Vice President and General Counsel. Boa New England Power Company, Westtorough, MA p.

RJCf(ARD B. tilEBER Vice President, Dectric Operations, UlN [

Green Mountain Power Corporation, South Burbngton, VT

• DOUGLAS G. I!YDE President and Chwf becutive Officer, Green Mountain Powr Corporation. South Burhngton, VT JAMES J. KEANE Vice President, Power Supply & Transmissbn.

COM Electric Company, Wareham, MA ' -

JOliN B. KFANE Vice President and Treasurer.

Northeast Utilities, liartford. CT E RAY KEYSER. JR., Est Anorney, Keyser, Crowley. Meub. Layden, Kuhg and Sullivan, P C., .

Chairnan, Central Vermont Pubhc Service Corporation Rutland, VT J

. . g KLVIN A. KIRf3Y Vice Presxfent, Power Supply, Eastern Utilitics Asvxiates, Boston, MA

• DONALD G. PARDUS Chairman and Chief becutive Officer.

Eastern Utihtles Associates, Boston, MA '

l l JAMES S. ROBINSON l Manager of Nuclear investments and Administration.

New England Dectric System. Westborough, MA l

l STEPifEN E' SCACE '

l Vice President Nuclear, Re engineering Implementation, Northeast Utahties, llartford, CT A. NORMAN TUtRERI Senuir Vice President and Chief Operating Ofhcer.

Green Mountain Power Corporation, South Burlington. VT

• TiiOMAS C. WEBB former President and Chief becurim Officer, Central Verrrxint Pubhc Service Co-irnt'on, Rutland, VT J. GARY %TJGAND President and Chief Executw Ofhccr.

l Vermont Yankee Nixlear Power Corporation, Brattleboro, VT '

l F. ALLEN WILEY Managing Director of Generations. .

i Central Maine Power Company, Augusta, ME l -

RUSSELL D WRIGfIT President and Chief Operating Officer, j Conunonwealth Electric Company, Wareham, MA

• ROBERT H YOUNG Chairman. Vermont Yankee Nuclear Power Corporaron. Brattleboro. VT Piesident and Chid Executiw Officer.

Central Vermont Pubhc Service Corporation Rudand, VT y

' Dected Aby 15.1996

• Uected Afoy 9.1996 5 l

• Dected february 19.1991

• Rntgned November .s 3,1996. effective January 1,1997 .*

?

• Da-ted August 7,19% ' Rutgned blay 14,1996

• Reugned blay 9,1996 *

• Resigned August 7,1996 31

= ' s 0::icers

'f$lYi{10lYd$sbiti;R$;'d%;Q ROBERT H. YOUNG Chairman ROSS P. BARKHURST President and Chief Executive Officer 2

- J. GARY WElGAND President and Chief Executive Officer i

DONALD A. REID Vice President, Operations BRUCE W. WIGGETT Vice President, Finance and Treasurer JAMES P. PELLETIER Vice President 3 JAY K. THAYER Vice President, Engineering

• T110 MAS F. SCHIMELPFENIG Manager of Financial Planning, Assistant Treasurer JOHN P. O'CONNOR Secretary JOHN A. RITSHER, Esq. Assistant Secretary

' L^lected May 15.19% ^ Res:gned November 15.19%

' Resigned May 14.1996

• Resigned October 18.1996 (This report Is not to be considered an offer to sell or buy or solicitation of an offer to sell or buy any security)

,x A

__ _______ ._. _