Item 1. Business - "Competition" and "Arrangements with Other Utilities".
Shown below is a summary of the Company's sources and uses of electricity for 1993.
TRANSMISSION AND DISTRIBUTION PLANT
The transmission lines of the Company consist of approximately 95 circuit miles of overhead lines and approximately 17 circuit miles of underground lines, all operated at 345 KV or 115 KV and located within or immediately adjacent to the territory served by the Company. These transmission lines interconnect the Company's English, Bridgeport Harbor and New Haven Harbor generating stations and are part of the New England transmission grid through connections with the transmission lines of The Connecticut Light and Power Company. A major portion of the Company's transmission lines is constructed on a railroad right-of-way pursuant to a Transmission Line Agreement that expires in May 2000.
The Company owns and operates 23 bulk electric supply substations with a capacity of 2,547,000 KVA and 50 distribution substations with a capacity of 288,750 KVA. The Company has 3,113 pole-line miles of overhead distribution lines and 130 conduit-bank miles of underground distribution lines.
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See "Capital Expenditure Program" concerning the estimated cost of additions to the Company's transmission and distribution facilities.
SEABROOK
The Company has a 17.5% share in Seabrook Unit 1, a 1,150 megawatt nuclear generating unit located in Seabrook, New Hampshire. Eleven other New England electric utilities have ownership shares in Unit 1.
After experiencing increasing financial stress beginning in May 1987, Public Service Company of New Hampshire (PSNH), which held the largest ownership share (35.6%) in Seabrook, commenced a proceeding under Chapter 11 of the Bankruptcy Code in January of 1988. Under this statute, PSNH continued its operations while seeking a financial reorganization. A reorganization plan proposed by Northeast Utilities (NU) was confirmed by the bankruptcy court in April of 1990 and, on May 16, 1991, PSNH completed the financing required for payment of its pre-bankruptcy secured and unsecured debt under the first stage of the reorganization plan and emerged from bankruptcy. On May 19, 1992, the NRC issued the final regulatory approval necessary for the second stage of the NU reorganization plan, under which PSNH would be acquired by NU; and on June 5, 1992, this acquisition was completed. As part of the transaction, PSNH's ownership share of Seabrook Unit 1 was transferred to a wholly-owned subsidiary of NU. Two previous regulatory approvals of the NU reorganization plan for PSNH, by the Federal Energy Regulatory Commission (FERC) and the Securities and Exchange Commission (SEC), continue to be challenged in court proceedings, and the Company is unable to predict the outcome of these proceedings.
On February 28, 1991, EUA Power Corporation (EUA Power), the holder of a 12.1% ownership share in Seabrook, commenced a proceeding under Chapter 11 of the Bankruptcy Code. EUA Power, a wholly-owned subsidiary of Eastern Utilities Associates (EUA), was organized solely for the purpose of acquiring an ownership share in Seabrook and selling in the wholesale market its share of the electric power produced by Seabrook. EUA Power commenced this bankruptcy proceeding because the cash generated by its sales of power at current market prices was insufficient to pay its obligations on its outstanding debt. Subsequently, EUA Power's name was changed to Great Bay Power Corporation (Great Bay). The official committee of Great Bay's bondholders (Bondholders Committee) has proposed, and the bankruptcy court has confirmed, a reorganization plan for Great Bay, under which substantially all of the equity ownership of Great Bay would pass to its bondholders. On February 2, 1994, the Bondholders Committee accepted a financing proposal that would inject $35 million of new ownership equity into Great Bay. The bankruptcy court must approve this structure before the Great Bay reorganization plan becomes effective. Further approvals are also required from the NRC, FERC and the New Hampshire Public Utilities Commission. The bankruptcy court has approved an agreement among Great Bay, the Bondholders Committee, UI and The Connecticut Light and Power Company (CL&P), under which up to $20 million in advance payments against their respective future monthly Seabrook payment obligations will be made available between UI and CL&P as needed until the reorganization plan becomes effective. UI's share of funding obligations under this agreement totals $8 million. As of December 31, 1993, $5.5 million had been advanced by UI under this agreement. At January 31, 1994, $602,000 of the Company's advances remained outstanding. This agreement can be terminated by UI and CL&P upon thirty days notice or upon failure of the reorganization process to achieve certain milestones by specified dates. UI is unable to predict what impact, if any, failure of the reorganization plan to become effective will have on the operating license for Seabrook Unit 1, or what other actions UI and the other joint owners of the unit may be required to take in response to developments in this bankruptcy proceeding as it may affect Seabrook.
Nuclear generating units are subject to the licensing requirements of the Nuclear Regulatory Commission (NRC) under the Atomic Energy Act of 1954, as amended, and a variety of other state and federal requirements. Although Seabrook Unit 1 has been issued a 40-year operating license, NRC proceedings and investigations prompted by inquiries from Congressmen and by NRC licensing board consideration of technical contentions may arise and continue for an indefinite period of time in the future. See "Nuclear Generation".
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CAPITAL EXPENDITURE PROGRAM
The Company's 1994-1998 capital expenditure program, excluding allowance for funds used during construction (AFUDC) and its effect on certain capital related items, is presently budgeted as follows:
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NUCLEAR GENERATION
General
UI holds ownership and leasehold interests in Seabrook Unit 1 (17.5%) and Millstone Unit 3 (3.685%). UI also owns 9.5% of the common stock of Connecticut Yankee and is entitled to 9.5% of the generating capability of its nuclear generating unit. Each of these nuclear generating units is subject to the licensing requirements and jurisdiction of the NRC under the Atomic Energy Act of 1954, as amended, and to a variety of other state and federal requirements.
The NRC regularly conducts generic reviews of numerous technical issues, ranging from seismic design to education and fitness for duty requirements for licensed plant operators. The outcome of reviews that are currently pending, and the ways in which the nuclear generating units in which UI has interests may be affected by these reviews, cannot be determined; and the cost of complying with any new requirements that might result from the reviews cannot be estimated. However, such costs could be substantial.
Additional capital expenditures and increased operating costs for the nuclear generating units in which UI has interests may result from modifications of these facilities or their operating procedures required by the NRC, or from actions taken by other joint owners or companies having entitlements in the units. Some equipment modifications have required and may in the future require shutdowns or deratings of the generating units that would not otherwise be necessary and that result in additional costs for replacement power. The amounts of additional capital expenditures, increased operating costs and replacement power costs cannot now be predicted, but they have been and may in the future be substantial.
Public controversy concerning nuclear power could also adversely affect the nuclear generating units in which UI has interests. Proposals to force the premature shutdown of nuclear plants in other New England states have received serious attention, and the licensing of Seabrook Unit 1 was a regional issue. The continuing controversy can be expected to increase the costs of operating the nuclear generating units in which UI has interests; and it is possible that one or more of the units could be shut down prematurely.
Insurance Requirements
The Price-Anderson Act, currently extended through August 1, 2002, limits public liability resulting from a single incident at a nuclear power plant. The first $200 million of liability coverage is provided by purchasing the maximum amount of commercially available insurance. Additional liability coverage will be provided by an assessment of up to $75.5 million per incident, levied on each of the nuclear units licensed to operate in the United States, subject to a maximum assessment of $10 million per incident per nuclear unit in any year. In addition, if the sum of all public liability claims and legal costs resulting from any nuclear incident exceeds the maximum amount of financial protection, each reactor operator can be assessed an additional 5% of $75.5 million, or $3.775 million. The maximum assessment is adjusted at least every five years to reflect the impact of inflation. Based on its interests in nuclear generating units, the Company estimates its maximum liability would be $20.3 million per incident. However, assessment would be limited to $3.1 million per incident, per year. With respect to each of the operating nuclear generating units in which the Company has an interest, the Company will be obligated to pay its ownership and/or leasehold share of any statutory assessment resulting from a nuclear incident at any nuclear generating unit.
The NRC requires nuclear generating units to obtain property insurance coverage in a minimum amount of $1.06 billion and to establish a system of prioritized use of the insurance proceeds in the event of a nuclear incident. The system requires that the first $1.06 billion of insurance proceeds be used to stabilize the nuclear reactor to prevent any significant risk to public health and safety and then for decontamination and cleanup operations. Only following completion of these tasks would the balance, if any, of the segregated insurance proceeds become available to the unit's owners. For each of the nuclear generating units in which the Company has an interest, the Company is required to pay its ownership and/or leasehold share of the cost of purchasing such insurance.
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Waste Disposal and Decommissioning
Costs associated with nuclear plant operations include amounts for disposal of nuclear wastes, including spent fuel, and for the ultimate decommissioning of the plants. Under the Nuclear Waste Policy Act of 1982, the federal Department of Energy (DOE) is required to design, license, construct and operate a permanent repository for high level radioactive wastes and spent nuclear fuel. The Act requires the DOE to provide, beginning in 1998, for the disposal of spent nuclear fuel and high level radioactive waste from commercial nuclear plants through contracts with the owners and generators of such waste; and the DOE has established disposal fees that are being paid to the federal government by electric utilities owning or operating nuclear generating units. In return for payment of the prescribed fees, the federal government is to take title to and dispose of the utilities' high level wastes and spent nuclear fuel beginning no later than 1998. However, the DOE has announced that its first high level waste repository will not be in operation earlier than 2010, notwithstanding the DOE's statutory and contractual responsibility to begin disposal of high-level radioactive waste and spent fuel beginning not later than January 31, 1998.
Until the federal government begins receiving such materials in accordance with the Nuclear Waste Policy Act, operating nuclear generating units will need to retain high level wastes and spent fuel on-site or make other provisions for their storage. Storage facilities for Millstone Unit 3 are expected to be adequate for the projected life of the unit. Storage facilities for the Connecticut Yankee unit are expected to be adequate through the mid-1990s. Storage facilities for Seabrook Unit 1 are expected to be adequate until at least 2010. Fuel consolidation and compaction technologies are being developed and are expected to provide adequate storage capability for the projected lives of the latter two units. In addition, other licensed technologies, such as dry storage casks, can accommodate spent fuel storage requirements.
Disposal costs for low-level radioactive wastes (LLW) that result from normal operation of nuclear generating units have increased significantly in recent years and are expected to continue to rise. The cost increases are functions of increased packaging and transportation costs and higher fees and surcharges charged by the disposal facilities. Pursuant to the Low-Level Radioactive Waste Policy Act of 1980, each state was responsible for providing disposal facilities for LLW generated within the state and was authorized to join with other states into regional compacts to jointly fulfill their responsibilities. Pursuant to the Low-Level Radioactive Waste Policy Amendments Act of 1985, each state in which a currently operating disposal facility is located (South Carolina, Nevada and Washington) is allowed to impose volume limits and a surcharge on shipments of LLW from states that are not members of the compact in the region in which the facility is located. On June 19, 1992, the United States Supreme Court issued a decision upholding certain parts of the Low-Level Radioactive Waste Policy Amendments Act of 1985, but invalidating a key provision of that law requiring each state to take title to LLW generated within that state if the state fails to meet federally- mandated deadlines for siting LLW disposal facilities. The decision has resulted in uncertainty about states' continuing roles in siting LLW disposal facilities and may result in increased LLW disposal costs and the need for longer interim LLW storage before a permanent solution is developed.
The Connecticut Hazardous Waste Management Service (the Service), a state quasi-public corporation, was charged with coordinating the establishment of a facility for disposal of LLW originating in Connecticut. In June 1991, the Service announced that it had selected three potential sites in north-central Connecticut for further study. The Service's announcement provoked intense controversy in the affected municipalities and resulted in legislative action to stop the selection process. On February 1, 1993, the Service presented the legislature with a new site selection plan under which communities are urged to volunteer a site for a facility in return for financial and other incentives. The volunteer process is being continued in 1994. The Service's activities in this regard are funded by assessments on Connecticut's LLW generators. Due to a change in the volunteer process, there was no assessment for the 1993-1994 fiscal year and the state projects no assessment for the 1994-1995 and 1995-1996 fiscal years.
Additional LLW storage capacity has been or can be constructed or acquired at the Millstone and Connecticut Yankee sites to provide for temporary storage of LLW should that become necessary. Connecticut
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LLW can be managed by volume reduction, storage or shipment at least through 1999. The Company cannot predict whether and when a disposal site will be designated in Connecticut.
The State of New Hampshire has not met deadlines for compliance with the Low-Level Radioactive Waste Policy Act, and Seabrook Unit 1 has been denied access to existing disposal facilities. Therefore, LLW generated by Seabrook Unit 1 is being stored on- site. The Seabrook storage facility currently has capacity to store approximately five years' accumulation of waste generated by Seabrook, and the plant operator plans to expand its storage capacity as necessary.
NRC licensing requirements and restrictions are also applicable to the decommissioning of nuclear generating units at the end of their service lives, and the NRC has adopted comprehensive regulations concerning decommissioning planning, timing, funding and environmental reviews. UI and the other owners of the nuclear generating units in which UI has interests estimate decommissioning costs for the units and attempt to recover sufficient amounts through their allowed electric rates to cover expected decommissioning costs. Changes in NRC requirements or technology can increase estimated decommissioning costs, and UI's customers in future years may experience higher electric rates to offset the effects of any insufficient rate recovery in prior years.
New Hampshire has enacted a law requiring the creation of a government-managed fund to finance the decommissioning of nuclear generating units in that state. The New Hampshire Nuclear Decommissioning Financing Committee (NDFC) established $345 million (in 1993 dollars) as the decommissioning cost estimate for Seabrook Unit 1. This estimate premises the prompt removal and dismantling of the Unit at the end of its estimated 40-year energy producing life. Monthly decommissioning payments are being made to the state-managed decommissioning trust fund. UI's share of the decommissioning payments made during 1993 was $1.3 million. UI's share of the fund at December 31, 1993 was approximately $3.7 million.
Connecticut has enacted a law requiring the operators of nuclear generating units to file periodically with the DPUC their plans for financing the decommissioning of the units in that state. Current decommissioning cost estimates for Millstone Unit 3 and Connecticut Yankee are $421 million (in 1994 dollars) and $324 million (in 1994 dollars), respectively. These estimates premise the prompt removal and dismantling of each unit at the end of its estimated 40-year energy producing life. Monthly decommissioning payments, based on these cost estimates, are being made to decommissioning trust funds managed by Northeast Utilities. UI's share of the Millstone Unit 3 decommissioning payments made during 1993 was $328,000. UI's share of the fund at December 31, 1993 was approximately $1.9 million. For the Company's 9.5% equity ownership in Connecticut Yankee, decommissioning costs of $1.3 million were funded by UI during 1993, and UI's share of the fund at December 31, 1993 was $9.5 million.
Item 3. Legal Proceedings.
See Item 2.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended December 31, 1993.
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EXECUTIVE OFFICERS OF THE COMPANY
The names and ages of all executive officers of the Company and all such persons chosen to become executive officers, all positions and offices with the Company held by each such person, and the period during which he or she has served as an officer in the office indicated, are as follows:
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There is no family relationship between any director, executive officer, or person nominated or chosen to become a director or executive officer of the Company. All executive officers of the Company hold office during the pleasure of the Company's Board of Directors and Messrs. Grossi, Fiscus and Crowe have each entered into an employment agreement with the Company. There is no arrangement or understanding between any executive officer of the Company and any other person pursuant to which such officer was selected as an officer.
A brief account of the business experience during the past five years of each executive officer of the Company is as follows:
Richard J. Grossi. Mr. Grossi served as President and Chief Operating Officer during the period January 1, 1989 to May 1, 1991. He has served as Chairman of the Board of Directors and Chief Executive Officer since May 1, 1991.
Robert L. Fiscus. Mr. Fiscus served as Executive Vice President and Chief Financial Officer of the Company during the period January 1, 1989 to May 1, 1991. He has served as President and Chief Financial Officer since May 1, 1991.
James F. Crowe. Mr. Crowe served as Senior Vice President-Marketing of the Company during the period January 1, 1989 to May 1, 1992, and as Executive Vice President from May 1, 1992 to January 1, 1994. He has served as Executive Vice President and Chief Customer Officer since January 1, 1994.
Walter E. Barker. Mr. Barker served as Superintendent of Transmission and Distribution of the Company during the period January 1, 1989 to July 23, 1990, and as Vice President-Transmission and Distribution Engineering and Operations from July 23, 1990 to January 1, 1994. He has served as Vice President-Transmission and Distribution since January 1, 1994.
Rita L. Bowlby. Ms. Bowlby has served as Vice President- Corporate Affairs since February 1, 1993. Prior to joining the Company, during the period from January 1, 1989 to February 1, 1993, she served as President of Bowlby & Associates, a business- to-business communications agency in Farmington, Connecticut.
Stephen F. Goldschmidt. Mr. Goldschmidt served as Vice President-Planning from January 1, 1989 to January 1, 1994. He has served as Vice President-Information Resources since January 1, 1994.
Albert N. Henricksen. Mr. Henricksen served as Vice President-Engineering of the Company during the period January 1, 1989 to July 23, 1990, and as Vice President-Human and Environmental Resources from July 23, 1990 to January 1, 1994. He has served as Vice President-Administration since January 1, 1994.
David W. Hoskinson. Mr. Hoskinson served as Senior Vice President-Operations of the Company during the period January 1, 1989 to July 23, 1990, and as Senior Vice President-Generation Engineering and Operations from July 23, 1990 to January 1, 1994. He has served as Vice President-Generation since January 1, 1994.
Robert H. Hyde. Mr. Hyde has served as Vice President-Customer Services of the Company since January 1, 1989.
E. Jon Majkowski. Mr. Majkowski served as Vice President-Public Affairs of the Company during the period January 1, 1989 to May 1, 1992. He has served as Vice President since May 1, 1992.
Anthony J. Vallillo. Mr. Vallillo served as Director of Sales and Market Development of the Company during the period January 1, 1989 to December 1, 1990, and as Director of Marketing from December 1, 1990 to June 1, 1992. He has served as Vice President-Marketing since June 1, 1992.
James L. Benjamin. Mr. Benjamin has served as Controller of the Company since January 1, 1989.
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Kurt D. Mohlman. Mr. Mohlman served as Director of Financial Planning during the period January 1, 1989 to September 1, 1990 and as Director of Financial Planning and Investor Relations from September 1, 1990 to January 1, 1994. He has served as Treasurer and Secretary of the Company since January 1, 1994.
Charles J. Pepe. Mr. Pepe served as Director of Financing during the period January 1, 1989 to January 1, 1994. He has served as Assistant Treasurer and Assistant Secretary of the Company since January 1, 1994.
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PART II
Item 5.
Item 5. Market for the Company's Common Equity and Related Stockholder Matters.
UI's Common Stock is traded on the New York Stock Exchange, where the high and low sale prices during 1993 and 1992 were as follows:
UI has paid quarterly dividends on its Common Stock since 1900. The quarterly dividends declared in 1992 and 1993 were at a rate of 64 cents per share and 66 1/2 cents per share, respectively.
The indenture under which the Company's Medium-Term Notes and Notes are issued places limitations on the payment of cash dividends on common stock and on the purchase or redemption of common stock. Retained earnings in the amount of $82.6 million were free from such limitations at December 31, 1993.
As of January 31, 1994, there were 21,919 Common Stock shareowners of record.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
MAJOR INFLUENCES ON FINANCIAL CONDITION
The Company's financial condition should continue to improve as a result of the December 16, 1992 rate decision by the DPUC. The DPUC decision granted levelized rate increases of 2.66% ($15.8 million) in 1993 and 2.66% (an additional $17.3 million) in 1994.
However, the Company's financial condition will continue to be dependent on the level of retail and wholesale sales. The two primary factors that affect sales volume are economic conditions and weather. The regional recession has restricted retail sales growth and been largely responsible for a weak wholesale sales market during the past two years. Sales increases due to economic recovery would help to increase the Company's earnings.
Another major factor affecting the Company's financial condition will be the Company's ability to control expenses. A significant reduction in interest expense has been achieved since 1989, and additional savings of $10 million are expected in 1994 due to debt refinancing. Since 1990, annual growth in total operation and maintenance expense, excluding one-time items and cogeneration capacity purchases, has averaged approximately 2.7%, and the Company hopes to restrict future increases to less than the rate of inflation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are presently projected as follows:
The Company presently estimates that its cash on hand and temporary cash investments at the beginning of 1994, totaling $48.2 million, and its projected net cash provided by operations, less dividends, of $102 million, less capital expenditures of $73.4 million, will be insufficient to fund the Company's 1994 requirements for long-term debt maturities and mandatory redemptions and repayments, amounting to $113.3 million, by $36 million. The Company currently anticipates that its projected net cash provided by operations, less dividends and capital expenditures, for 1995 will be insufficient to fund the Company's 1995 requirements for long-term debt maturities and mandatory redemptions and repayments, by approximately $138 million. The Company currently anticipates that its projected net cash provided by operations, less dividends and capital expenditures, for 1996 through 1998 will be insufficient to fund the Company's requirements for long-term debt maturities and mandatory redemptions and repayments in the years 1996 through 1998, in amounts that cannot now be predicted accurately, but which may be substantial in the aggregate, depending on the levels of the Company's sales, wholesale and retail rates, operation and maintenance costs and taxes. All of the Company's capital requirements that exceed available net cash will have to be provided by external financing; and the Company has no commitment to provide such financing from any source of funds. The Company expects to be able to satisfy its external financing needs by issuing common stock and additional short-term and long-term debt, although the continued availability of these methods of financing will be dependent on many factors, including conditions in the securities markets, economic conditions, and the level of the Company's income and cash flow.
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At December 31, 1993, the Company had $48.2 million of cash and temporary cash investments, an increase of $37.1 million from the balance at December 31, 1992. The components of this increase, which are detailed in the Consolidated Statement of Cash Flows, are summarized as follows:
The Company has a revolving credit agreement with a group of banks, which currently extends to January 19, 1995. The borrowing limit of this facility is $75 million. The facility permits the Company to borrow funds at a fluctuating interest rate determined by the prime lending market in New York, and also permits the Company to borrow money for fixed periods of time specified by the Company at fixed interest rates determined by the Eurodollar interbank market in London, by the certificate of deposit market in New York, or by bidding, at the Company's option. If a material adverse change in the business, operations, affairs, assets or condition, financial or otherwise, or prospects of the Company and its subsidiaries, on a consolidated basis, should occur, the banks may decline to lend additional money to the Company under this revolving credit agreement, although borrowings outstanding at the time of such an occurrence would not then become due and payable. As of December 31, 1993, the Company had no short-term borrowings outstanding under this facility.
The Company's long-term debt instruments do not limit the amount of short-term debt that the Company may issue. The Company's revolving credit agreement described in the previous paragraph requires it to maintain an available earnings/interest charges ratio of not less than 1.5:1.0 for each 12-month period ending on the last day of each calendar quarter.
The Company had a $50 million term loan facility with a group of banks during 1993. Under this agreement, the Company chose an interest rate from among three alternatives: (i) a fluctuating interest rate determined by the prime lending market in New York; (ii) a fixed interest rate determined by the Eurodollar interbank market in London; and (iii) a fixed interest rate determined by the certificate of deposit market in New York. On February 1, 1993, the Company borrowed $50 million from this group of banks, using the proceeds to repay short-term borrowings and other current obligations. On December 3, 1993, the Company repaid the $50 million borrowing and terminated the agreement.
The Company had a term loan agreement with PruLease, Inc. (PruLease) that expired on December 1, 1993. This agreement was executed on December 31, 1992, when the Company borrowed $49.1 million from PruLease and purchased all the nuclear fuel that was owned by PruLease and leased to the Company on that date. This
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loan, which was collateralized by a first lien on the Company's ownership interest in the nuclear fuel for Seabrook Unit 1, was repaid in full at maturity.
The Company has a Fossil Fuel Supply Agreement with a financial institution providing for financing up to $37.5 million in fossil fuel purchases. Under this agreement, the financing entity acquires and stores natural gas, coal and fuel oil for sale to the Company, and the Company purchases these fossil fuels from the financing entity at a price for each type of fuel that reimburses the financing entity for the direct costs it has incurred in purchasing and storing the fuel, plus a charge for maintaining an inventory of the fuel determined by reference to the fluctuating interest rate on thirty-day, dealer-placed commercial paper in New York. The Company is obligated to insure the fuel inventories and to indemnify the financing entity against all liabilities, taxes and other expenses incurred as a result of its ownership, storage and sale of fossil fuel to the Company. This agreement currently extends to February 1995. At December 31, 1993, approximately $10.1 million of fossil fuel purchases were being financed under this agreement.
UI has four wholly-owned subsidiaries. Bridgeport Electric Company, a single-purpose corporation, owns and leases to UI a generating unit at Bridgeport Harbor Station. Research Center, Inc. (RCI) has been formed to participate in the development of one or more regulated power production ventures, including possible participation in arrangements for the future development of independent power production and cogeneration facilities. United Energy International, Inc. (UEI) has been formed to facilitate participation in a proposed joint venture relating to power production plants abroad. United Resources, Inc. (URI) serves as the parent corporation for several unregulated businesses, each of which is incorporated separately to participate in business ventures that will complement and enhance UI's electric utility business and serve the interests of the Company and its shareholders and customers.
Four wholly-owned subsidiaries of URI have been incorporated. Souwestcon Properties, Inc. is participating as a 25% partner in the ownership of a medical hotel building in New Haven. A second wholly-owned subsidiary of URI is Thermal Energies, Inc., which is participating in the development of district heating and cooling water facilities in the downtown New Haven area, including the energy center for an office tower and participation as a 37% partner in the energy center for a new city hall and office tower complex. A third URI subsidiary, Precision Power, Inc., provides power-related equipment and services to the owners of commercial buildings and industrial facilities. A fourth URI subsidiary, American Payment Systems, Inc., manages agents and equipment for electronic data processing of bill payments made by customers of utilities, including UI, at neighborhood businesses. In addition to these subsidiaries, URI also has an 82% ownership interest in Ventana Corporation (Ventana), which offers energy conservation engineering and project management services to governmental and private institutions. In September 1993, URI recorded a $1.2 million after-tax write off of outstanding debt owed to URI by Ventana, which represented the difference between the amount owed to URI by Ventana and the value of an additional equity interest in Ventana received by URI in November 1993. This additional equity interest in Ventana was received in exchange for the forgiveness of debt owed to URI by Ventana.
The Board of Directors of the Company has authorized the investment of a maximum of $13.5 million, in the aggregate, of the Company's assets in all of URI's ventures, UEI and RCI, and, at December 31, 1993, approximately $10.6 million had been so invested.
RESULTS OF OPERATIONS
1993 vs. 1992 - -------------
Earnings for the year 1993 were $36.2 million, or $2.57 per share, down $16.3 million, or $1.19 per share, from 1992. This decrease reflects a one-time reorganizational charge of approximately $7.8 million after-tax, or $.56 per share, and the non-recurrence of one-time gains of $.59 per share in 1992. Earnings per share for 1993, excluding one-time items and accounting changes, decreased by $.04 per share, to $3.13 per share from $3.17 per share for 1992.
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Sales margin increased by $10.3 million for the year. Retail revenues increased $36.6 million; $20.7 million from a recent rate decision ($12.1 million from rate changes and $13.2 million for the fold-in to base rates of the 1992 sales adjustment revenues, partly offset by the pass through to customers of expense credits of $4.6 million), and $15.9 million from increased retail sales. Retail sales increased by 2.7%, mostly due to a return to more normal summer weather.
The retail revenue increases were offset by anticipated reductions of $21 million from the sales adjustment provision and $13.7 million in wholesale capacity revenues. Other operating revenues decreased by $0.3 million. Reductions in wholesale energy revenues of $15.8 million were directly offset by reductions in energy expense.
Other factors affecting sales margin were lower retail fuel expense, increasing margin by $9.4 million, and higher revenue related taxes, decreasing margin by $0.6 million.
Other operation and maintenance expenses, including purchased capacity charges, increased by $10.2 million, or 4.5%, in 1993 relative to 1992. Major generating station overhauls and unscheduled repairs accounted for $5.2 million of this increase. Employment costs increased by $4.0 million, most of which resulted from the adoption of a liability for postretirement benefits other than pensions that the implementation of Statement of Financial Accounting Standards (SFAS) No. 106 requires to be accrued over employees' careers. Purchased capacity charges (cogeneration and Connecticut Yankee power purchases) for 1993 increased by $4.0 million, transmission costs increased by $2.4 million; but other nuclear operation and maintenance expenses decreased by $4.0 million.
Other operating expenses, including income taxes but excluding a 1993 fourth quarter one-time reorganization charge, decreased by $20.3 million in 1993 from 1992, as the effect of accounting treatments ordered in recent rate decisions for recovery of canceled plant, the flow-through to income of certain income tax benefits and lower property taxes more than offset increases in depreciation expense.
Other income declined by $23 million in 1993 from 1992, $9.4 million of which was attributable to the absence of net one-time gains realized in 1992. The remainder was due primarily due to an expected decline in deferred revenue and income tax benefits associated with the DPUC's 1992 rate decision, offset, in part, by lower interest charges of $9.3 million. "Net" interest margin (interest income less interest expense) improved by $6.6 million in 1993 over 1992.
1992 vs. 1991 - -------------
Earnings for 1992 were $52.4 million, or $3.76 per share, up $1.4 million, or $.09 per share, over 1991. Earnings per share for 1992, excluding one-time items and accounting changes, increased by $.27, to $3.17 from $2.90 per share for 1991. Non-recurring earnings declined to a level of $.59 per share in 1992 from $.77 per share in 1991.
Operating revenues in 1992, exclusive of retail and wholesale fuel recovery revenue, were up $4.3 million over 1991 levels, adding $.18 per share after taxes. Increased rates provided only $11 million of an expected annual $15 million revenue increase, because commercial and industrial customers shifted into lower priced time-of-use rates. An additional $6 million of revenue was accrued under the terms of the sales adjustment provisions of the Company's 1990 rate decision by the Department of Public Utility Control (DPUC). Retail sales volume declined 1.6% from the prior year, reducing retail revenues by $10.6 million and sales margin (revenue minus fuel expense and revenue-based taxes) by $7.4 million. Most of this decline reflected the cool, wet weather for the summer of 1992. On a weather-adjusted basis, retail sales were about even with 1991. Wholesale capacity sales declined by $2.1 million for the year, reflecting the end of a major contract in October 1992.
Other sales margin improvements were derived from increased nuclear generation, which added $10.5 million to margin in 1992 over 1991. An overall capacity factor of 76% for the nuclear units was achieved in 1992, compared to 65% for 1991. Offsetting this gain, the Company experienced unusually low and intermittent demand by the New England Power Pool for the operation of the Company's fossil generating units, thus
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degrading their efficiency, increasing fuel expense and decreasing sales margin by $2.5 million from 1991. These amounts are not recoverable through the fuel adjustment clause.
Operation, maintenance and capacity expense for 1992 nuclear generation declined only $1.7 million from 1991 levels, compared to a savings of $4-5 million the Company originally expected to realize (principally from reduced Seabrook expenses). Other operation and maintenance expenses, excluding fuel and energy expenses, increased by $2.6 million for the year (excluding net non-recurring charges for 1992).
Other taxes increased by $3.7 million (excluding a one-time charge in 1991), reflecting primarily the increased property tax placed on Seabrook by the State of New Hampshire. Depreciation increased by $2.5 million in 1992 over 1991. Net changes in interest income and expense added $2.9 million to pre-tax income in 1992, excluding one-time credits in 1991 and 1992. Reductions in plant balances not in rate base (Seabrook and other) led to reductions in deferred revenue of about $4 million after-tax.
Non-recurring items decreased by $.18 per share compared to 1991 levels, to a net earnings figure of $.59 per share. In 1992, a net $2.7 million in income, or $.19 per share, was booked for Seabrook Unit 1 adjustments; $3.6 million, or $.26 per share, in non-operating income tax credits were realized; a net $3.0 million in income, or $.21 per share, from a gain on the sale of property was realized; and there were one-time charges to operating expenses of a net $1.0 million, for a loss of $.07 per share.
OUTLOOK
The Company's financial condition should continue to improve as a result of the December 16, 1992 retail rate decision by the DPUC. The DPUC decision granted levelized rate increases of 2.66% ($15.8 million) in 1993 and 2.66% (an additional $17.3 million) in 1994. However, the Company did not realize the full anticipated benefit of the 1993 rate increase, realizing about $4 million less than awarded due to differences between the sales realized in individual rate classes and the sales projections used for rate case purposes. The differences arose principally from rate class shifting by customers and differential growth in sales among rate classes. A similar shortfall may develop in 1994.
The Company's financial condition will continue to be dependent on the level of retail and wholesale sales. The two primary factors that affect sales volume are economic conditions and weather. The regional recession has restricted retail sales growth and been largely responsible for a weak wholesale sales market during the past two years. Sales increases due to economic recovery would help to increase the Company's earnings. A 1% increase in sales would add about $6 million in revenue and about $5 million in sales margin (revenue minus fuel expense and revenue- based taxes). Wholesale capacity sales are expected to be approximately $6 million in 1994.
Another major factor affecting the Company's financial condition will be the Company's ability to control expenses. Fuel expense, excluding wholesale fuel expense, is expected to decline by approximately $2.3 million in 1994 from the 1993 level, reflecting significantly lower nuclear fuel prices. Also, significant reductions in interest expense have been achieved since 1989, and additional savings of $10 million are expected in 1994 due to debt refinancing. For 1994, operation and maintenance expenses are expected to increase from normal inflationary pressures, but these increases should be substantially offset by savings from the phase-in of the Company's corporate structure reorganization. Since 1990, annual growth in total operation and maintenance expense, excluding one-time items and cogeneration capacity purchases, has averaged approximately 2.7%, and the Company hopes to restrict future increases to less than the rate of inflation.
The final portion of the cost of Seabrook Unit 1 has been added to rate base (and retail revenues) for 1994. This will eliminate deferred revenues and reduce net income by $7.4 million after-tax in 1994 from 1993 levels.
Although the Company believes that its financing outlook and plans are unlikely to be adversely affected by further developments with respect to the licensing and operation of Seabrook Unit 1, the Company's financial status and financing capability will continue to be sensitive to any such developments and to many other factors, including conditions in the securities markets, economic conditions, the level of the Company's income and cash
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flow, and legislative and regulatory developments, including the cost of compliance with increasingly stringent environmental legislation and regulations and competition within the electric utility industry.
INFLATION
As a result of inflation and increased environmental and regulatory requirements, the estimated cost of replacing the Company's productive capacity today would substantially exceed the historical cost of such facilities reported in the financial statements. Since the Company's rates for service to its customers have been based in the past on the cost of providing such service and have been revised from time to time to reflect increased costs of service, the Company believes that any higher replacement costs it may experience in the future will be recovered through the normal regulatory process.
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The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.
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The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.
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The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.
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The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.
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The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) STATEMENT OF ACCOUNTING POLICIES
Accounting Records
The accounting records are maintained in accordance with the uniform systems of accounts prescribed by the Federal Energy Regulatory Commission (FERC) and the Connecticut Department of Public Utility Control (DPUC).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Bridgeport Electric Company (BEC), United Resources Inc., United Energy International, Inc. and Research Center, Inc. Intercompany accounts and transactions have been eliminated in consolidation.
Reclassification of Previously Reported Amounts
Certain amounts previously reported have been reclassified to conform with current year presentations.
Utility Plant
The cost of additions to utility plant and the cost of renewals and betterments are capitalized. Cost consists of labor, materials, services and certain indirect construction costs, including an allowance for funds used during construction (AFUDC). The cost of current repairs and minor replacements is charged to appropriate operating expense accounts. The original cost of utility plant retired or otherwise disposed of and the cost of removal, less salvage, are charged to the accumulated provision for depreciation.
Allowance for Funds Used During Construction
In accordance with the applicable regulatory systems of accounts, the Company capitalizes AFUDC, which represents the approximate cost of debt and equity capital devoted to plant under construction. In accordance with FERC prescribed accounting, the portion of the allowance applicable to borrowed funds is presented in the Consolidated Statement of Income as a reduction of interest charges, while the portion of the allowance applicable to equity funds is presented as other income. Although the allowance does not represent current cash income, it has historically been recoverable under the ratemaking process over the service lives of the related properties. The Company compounds semi-annually the allowance applicable to major construction projects. AFUDC rates in effect for 1993, 1992 and 1991 were 8.75%, 10.25% and 10.88%, respectively.
Depreciation
Provisions for depreciation on utility plant for book purposes, excluding costs associated with the 1984 reconversion of BEC's plant to a dual-fired capability, are computed on a straight-line basis, using estimated service lives determined by independent engineers. One-half year's depreciation is taken in the year of addition and disposition of utility plant, except in the case of major operating units on which depreciation commences in the month they are placed in service and ceases in the month they are removed from service. During the years 1985-1989, depreciation associated with BEC's reconversion costs was computed on an annuity basis over the original ten-year period that this plant was being leased to the Company by BEC. Commencing January 1, 1990, the reconversion costs are being depreciated on a straight-line basis over a period ending July 2000. The aggregate annual provisions for depreciation for the years 1993, 1992 and 1991 were equivalent to approximately 3.22%, 3.15% and 3.10%, respectively, of the original cost of depreciable property.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Income Taxes
Effective January 1, 1993, the Company adopted SFAS 109, "Accounting for Income Taxes". In accordance with SFAS 109, the Company has provided deferred taxes for all temporary book-tax differences using the liability method. The liability method requires that deferred tax balances be adjusted to reflect enacted future tax rates that are anticipated to be in effect when the temporary differences reverse. In accordance with generally accepted accounting principles for regulated industries, the Company has established a net regulatory asset that reflects anticipated future recovery in rates of these deferred tax provisions.
For ratemaking purposes, the Company practices full normalization for all investment tax credits (ITC) related to recoverable plant investments except for the ITC related to Seabrook Unit 1, which was taken into income in accordance with provisions of the 1989 Settlement Agreement.
Accrued Utility Revenues
The estimated amount of utility revenues (less related expenses and applicable taxes) for service rendered but not billed is accrued at the end of each accounting period.
Cash and Cash Equivalents
For cash flow purposes, the Company considers all highly liquid debt instruments with a maturity of three months or less at the date of purchase to be cash equivalents.
The Company is required to maintain an operating deposit with the project disbursing agent related to its 17.5% ownership interest in Seabrook Unit 1. This operating deposit, which is the equivalent to one and one half months of the funding requirement for operating expenses, is restricted for use and amounted to $3.4 million, $2.9 million, and $1.8 million at December 31, 1993, 1992 and 1991, respectively.
Investments
The Company's investment in the Connecticut Yankee Atomic Power Company joint venture, a nuclear generating company in which the Company has a 9 1/2% stock interest, is accounted for on an equity basis.
Fossil Fuel Costs
The amount of fossil fuel costs that cannot be reflected currently in customers' bills pursuant to the FCA in the Company's rates is deferred at the end of each accounting period. Since adoption of the deferred accounting procedure in 1974, rate decisions by the DPUC and its predecessors have consistently made specific provision for amortization and rate-making treatment of the Company's existing deferred fossil fuel cost balances.
Research and Development Costs
Research and development costs, including environmental studies, are capitalized if related to specific construction projects and depreciated over the lives of the related assets. Other research and development costs are charged to expense as incurred.
Pension and Other Post-Employment Benefits
The Company accounts for normal pension plan costs in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 87, "Employers' Accounting for Pensions", and for supplemental
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
retirement plan costs and supplemental early retirement plan costs in accordance with the provisions of SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits".
Prior to January 1, 1993, the Company accounted for other post- employment benefits, consisting principally of health and life insurance, on a pay-as-you-go basis. Effective January 1, 1993, the Company commenced accounting for these costs under the provisions of SFAS No. 106, "Employers' Accounting for Post- Retirement Benefits Other than Pensions", which requires, among other things, that the liability for such benefits be accrued over the employment period that encompasses eligibility to receive such benefits. The annual incremental cost of this accounting change has been allowed in retail rates in accordance with a 1992 rate decision.
Uranium Enrichment Obligation
Under the Energy Policy Act of 1992 (Energy Act), the Company will be assessed for its proportionate share of the costs of the decontamination and decommissioning of uranium enrichment facilities operated by the Department of Energy. The Energy Act imposes an overall cap of $2.25 billion on the obligation assessed to the nuclear utility industry and limits the annual assessment to $150 million each year over a 15-year period. At December 31, 1993, the Company's unfunded share of the obligation, based on its ownership interest in Seabrook Unit 1 and Millstone Unit 3, was approximately $1.5 million. Effective January 1, 1993, the Company was allowed to recover these assessments in rates as a component of fuel expense. Accordingly, the Company has recognized these costs as a regulatory asset on its Consolidated Balance Sheet.
Nuclear Decommissioning Trusts
External trust funds are maintained to fund the estimated future decommissioning costs of the nuclear generating units in which the Company has an ownership interest. These costs are accrued as a charge to depreciation expense over the estimated service lives of the units and are recovered in rates on a current basis. The Company paid $1,616,000, $1,334,000 and $1,011,000 during 1993, 1992 and 1991 into the decommissioning trust funds for Seabrook Unit 1 and Millstone Unit 3. At December 31, 1993, the Company's share of the trust fund balances, which include accumulated earnings on the funds, were $3.7 million and $1.9 million for Seabrook Unit 1 and Millstone Unit 3, respectively. These fund balances are included in "Other Property and Investments" and the accrued decommissioning obligation is included in "Noncurrent Liabilities" on the Company's Consolidated Balance Sheet.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(a) Common Stock
The Company issued 46,000 shares of common stock in 1993, 100,800 shares of common stock in 1992 and 44,600 shares of common stock in 1991 pursuant to a stock option plan. During 1993, the Company also issued 4,143 shares of common stock pursuant to a long-term incentive program.
Common stock, no par value, authorized at December 31, 1993, included 400,000 shares reserved for the Company's Employee Stock Ownership Plan (ESOP). There were no additions to ESOP in 1991, 1992 or 1993.
The Company purchased on the open market, on behalf of shareholders participating in the common stock Dividend Reinvestment Plan, 148,362 shares of stock in 1991, 136,679 shares of stock in 1992 and 138,145 shares of stock in 1993.
In 1990, the Company's Board of Directors and the shareowners approved a stock option plan for officers and key employees of the Company. The plan provides for the awarding of options to purchase up to 750,000 shares of the Company's common stock over periods of from one to ten years following the dates when the options are granted. On June 5, 1991, the DPUC approved the issuance of 500,000 shares of stock pursuant to this plan. The exercise price of each option cannot be less than the market value of the stock on the date of the grant. Options to purchase 214,000 shares of stock at an exercise price of $30.75 per share, 2,800 shares of stock at an exercise price of $28.3125 per share, 1,800 shares of stock at an exercise price of $31.1875 per share, 4,000 shares of stock at an exercise price of $35.625 per share, 36,200 shares of stock at an exercise price of $39.5625 per share and 5,000 shares of stock at an exercise price of $42.375 per share have been granted by the Board of Directors and remain outstanding at December 31, 1993. Options to purchase 44,600 shares of stock at an exercise price of $30.75 were exercised during 1991. Options to purchase 98,000 shares of stock at an exercise price of $30.75 and 2,800 shares of stock at an exercise price of $28.3125 were exercised during 1992. Options to purchase 42,400 shares of stock at an exercise price of $30.75 per share, 1,400 shares of stock at an exercise price of $28.3125 per share, 1,200 shares of stock at an exercise price of $31.1875 per share and 1,000 shares of stock at an exercise price of $35.625 per share were exercised during 1993.
In addition, certain executive officers were eligible to earn shares of the Company's common stock, based upon the dividend and market performance of the stock compared to a peer group of electric utilities over a four-year period ending December 31, 1992, under the Company's long-term incentive program. The issuance of shares of stock pursuant to this program received DPUC approval on June 5, 1991. The total number of shares of common stock that could have been earned under the long-term incentive program was limited to 7,091. For the four-year period ending December 31, 1992, 6,027 shares of the Company's common stock were earned. Of this amount, a total of 4,143 shares were issued to the participants in 1993, and the remainder was distributed in an equivalent amount of cash based on the closing price of the Company's Common Stock on March 1, 1993, pursuant to the terms of the long-term incentive program. This program ended as of December 31, 1992.
(b) Retained Earnings Restriction
The indenture under which the Company's Medium-Term Notes and Notes are issued places limitations on the payment of cash dividends on common stock and on the purchase or redemption of common stock. Retained earnings in the amount of $82.6 million were free from such limitations at December 31, 1993.
(c) Preferred and Preference Stock
The par value of each of these issues was credited to the appropriate stock account and expenses related to these issues were charged to capital stock expense.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In 1991, the Company purchased and cancelled shares of its $100 par value Preferred Stock, at a discount, resulting in a non-taxable addition to common equity of approximately $3,304,000. The 1991 purchases consisted of:
9,575 shares of 4.35% Preferred Stock, Series A 7,320 shares of 4.72% Preferred Stock, Series B 39,900 shares of 4.64% Preferred Stock, Series C 13,800 shares of 5 5/8% Preferred Stock, Series D
In 1992, the Company purchased and cancelled 16,950 shares of its $100 par value 4.72% Preferred Stock, Series B, at a discount, resulting in a non-taxable addition to common equity of approximately $796,650.
There was no redemption of preferred stock in 1993.
Shares of preferred stock have preferential dividend and liquidation rights over shares of common stock. Preferred shareholders are not entitled to general voting rights. However, if any preferred dividends are in arrears for six or more quarters, or if some other event of default occurs, preferred shareholders are entitled to elect a majority of the Board of Directors until all preferred dividend arrears are paid and any event of default is terminated.
Preference stock is a form of stock that is junior to preferred stock but senior to common stock. It is not subject to the earnings coverage requirements or minimum capital and surplus requirements governing the issuance of preferred stock. There were no shares of preference stock outstanding at December 31, 1993.
(d) Long-Term Debt
In January 1993, the net proceeds from the liquidation of an investment in tax-exempt municipal debt instruments were used to pay $60 million principal amount of maturing 10.32% First Mortgage Bonds of the Company's wholly-owned subsidiary, Bridgeport Electric Company; to repay a $7.5 million 13.1% term loan; to repay short- term borrowings incurred for the August 1, 1992 redemption of the Company's 12% Debentures, due August 1, 2017, and for repayment of a $7.5 million 12.9% term loan on September 30, 1992; and to repay short-term borrowings incurred for a $19.1 million rent payment on December 31, 1992 under the Company's facility sale and leaseback arrangement for a portion of its ownership interest in Seabrook Unit 1.
On September 30, 1993, the Company repaid a $5 million 12.9% term loan with funds obtained through short-term borrowings.
On September 17, 1993, the Company invited the owners of $68,400,000 aggregate principal amount of 14 1/2% Pollution Control Revenue Bonds, due October 1 and December 1, 2009, ("Bonds") to sell to the Company, for cash, any and all of the Bonds. The Bonds were issued in 1984 by The Industrial Development Authority of the State of New Hampshire ("NHIDA"), which loaned the issue proceeds to the Company to pay for the cost of installing pollution control facilities at the Seabrook nuclear generating plant in New Hampshire; and the Business Finance Authority of the State of New Hampshire ("NHBFA"), successor to the NHIDA, agreed to issue Pollution Control Refunding Revenue Bonds ("Refunding Bonds") in a principal amount equal to the aggregate principal amount of Bonds purchased by the Company and surrendered to the Bond trustee for cancellation, and to loan the issue proceeds of the Refunding Bonds to the Company to pay for part of the purchase price of the Bonds being purchased and cancelled. On October 15, 1993, the Company accepted offers from holders of $64,460,000 aggregate principal amount of the Bonds to sell them for an aggregate purchase price of $75,710,000. On October 26, 1993, the NHBFA issued and sold $64,460,000 principal amount of 5 7/8% Refunding Bonds, due October 1, 2033, and loaned the issue proceeds to the Company, which used them to pay
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
a portion of the purchase price of the Bonds. The remainder of the purchase price was funded with the proceeds of short-term borrowings.
On December 7, 1993, the Company issued and sold $100 million principal amount of five-year and one month Notes at a coupon rate of 6.20%. The net proceeds were used to repay $60 million principal amount of maturing 10.32% First Mortgage Bonds of the Company's wholly-owned subsidiary, Bridgeport Electric Company in January 1994; to repay a $5 million 13.1% term loan in January 1994 and for general corporate purposes, including repayment of short-term borrowings.
Maturities and mandatory redemptions/repayments and annual interest expense on existing long-term debt are set forth below:
(C) RATE-RELATED REGULATORY PROCEEDINGS
On December 16, 1992, the DPUC approved levelized rate increases of 2.66% ($15.8 million) for 1993 and 2.66% (an additional $17.3 million) for 1994, including allowed conservation and load management revenue increases. The rate increases totaled $33.1 million, or 5.4%, over two years.
In order to achieve levelized 2.66% rate increases for each of these two years, the DPUC determined that the recovery of $13.1 million of sales adjustment clause revenues would be deferred from 1993 to 1994.
Utilities are entitled by Connecticut law to revenues sufficient to allow them to cover their operating and capital costs, to attract needed capital and maintain their financial integrity, while also protecting the public interest. Accordingly, the DPUC's 1992 rate decision authorized a return on equity of 12.4% for ratemaking purposes. However, the Company may earn up to 1% above this level before a mandatory review is required by the DPUC.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Since January 1971, UI has had a fossil fuel adjustment clause (FCA) in virtually all of its retail rates. The DPUC is required by law to convene an administrative proceeding prior to approving FCA charges or credits for each month. The law permits automatic implementation of the charges or credits if the DPUC fails to act within five days of the administrative proceeding, although all such charges and credits are also subject to further review and appropriate adjustment by the DPUC at public hearings required to be held at least every three months. The DPUC has made no material changes in UI's FCA charges and credits as the result of any of these proceedings or hearings.
(D) ACCOUNTING FOR PHASE-IN PLAN
The Company has been phasing into rate base its allowable investment in Seabrook Unit 1, amounting to $640 million, since January 1, 1990. In conjunction with this phase-in plan, the Company has been allowed to record a deferred return on the portion of allowable investment excluded from rate base during the phase-in period. The accumulated deferred return has been added to rate base each year since January 1, 1991 in the same proportion as the phase-in installment for that year has borne to the portion of the $640 million remaining to be phased-in. On January 1, 1994, the Company phased into rate base the remaining $74.5 million of allowable investment, plus the remaining $28.2 million of accumulated deferred return. The Company will be allowed to recover the accumulated deferred return, amounting to $62.9 million, over a five-year period commencing January 1, 1995.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Total income taxes differ from the amounts computed by applying the federal statutory tax rate to income before taxes. The reasons for the differences are as follows:
At December 31, 1993, the Company had deferred tax liabilities for taxable temporary differences of $574 million and deferred tax assets for deductible temporary differences of $149 million, resulting in a net deferred tax liability of $425 million. Significant components of deferred tax liabilities and assets were as follows: tax liabilities on book/tax plant basis differences, $229 million; tax liabilities on the cumulative amount of income taxes on temporary differences previously flowed through to ratepayers, $163 million; tax liabilities on normalization of book/tax depreciation timing differences, $89 million and tax assets on the disallowance of plant costs, $77 million.
The Tax Reform Act of 1986 provides for a more comprehensive corporate alternative minimum tax (AMT) for years beginning after 1986. To the extent that the AMT exceeds the federal income tax computed at statutory rates, the excess must be paid in addition to the regular tax liability. For tax purposes, the excess paid in any year can be carried forward indefinitely and offset against any future year's regular tax liability in excess of that year's tentative AMT. The AMT carryforward at December 31, 1993, 1992 and 1991 was $11.4 million, $11.3 million and $9.9 million, respectively.
(F) SHORT-TERM CREDIT ARRANGEMENTS
The Company has a revolving credit agreement with a group of banks, which currently extends to January 19, 1995. The borrowing limit of this facility is $75 million. The facility permits the Company to borrow funds at a fluctuating interest rate determined by the prime lending market in New York, and also permits the Company to borrow money for fixed periods of time specified by the Company at fixed interest rates determined by the Eurodollar interbank market in London, by the certificate of deposit market in New York, or by bidding, at the
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Company's option. If a material adverse change in the business, operations, affairs, assets or condition, financial or otherwise, or prospects of the Company and its subsidiaries, on a consolidated basis, should occur, the banks may decline to lend additional money to the Company under this revolving credit agreement, although borrowings outstanding at the time of such an occurrence would not then become due and payable. As of December 31, 1993, the Company had no short-term borrowings outstanding under this facility.
The Company's long-term debt instruments do not limit the amount of short-term debt that the Company may issue. The Company's revolving credit agreement described in the previous paragraph requires it to maintain an available earnings/interest charges ratio of not less than 1.5:1.0 for each 12-month period ending on the last day of each calendar quarter.
The Company had a $50 million term loan facility with a group of banks during 1993. Under this agreement, the Company chose an interest rate from among three alternatives: (i) a fluctuating interest rate determined by the prime lending market in New York; (ii) a fixed interest rate determined by the Eurodollar interbank market in London; and (iii) a fixed interest rate determined by the certificate of deposit market in New York. On February 1, 1993, the Company borrowed $50 million from this group of banks, using the proceeds to repay short-term borrowings and other current obligations. On December 3, 1993, the Company repaid the $50 million borrowing and terminated the agreement.
The Company had a term loan agreement with PruLease, Inc. (PruLease) that expired on December 1, 1993. This agreement was executed on December 31, 1992, when the Company borrowed $49.1 million from PruLease and purchased all the nuclear fuel that was owned by PruLease and leased to the Company on that date. This loan, which was collateralized by a first lien on the Company's ownership interest in the nuclear fuel for Seabrook Unit 1, was repaid in full at maturity.
The Company has a Fossil Fuel Supply Agreement with a financial institution providing for financing up to $37.5 million in fossil fuel purchases. Under this agreement, the financing entity acquires and stores natural gas, coal and fuel oil for sale to the Company, and the Company purchases these fossil fuels from the financing entity at a price for each type of fuel that reimburses the financing entity for the direct costs it has incurred in purchasing and storing the fuel, plus a charge for maintaining an inventory of the fuel determined by reference to the fluctuating interest rate on thirty-day, dealer-placed commercial paper in New York. The Company is obligated to insure the fuel inventories and to indemnify the financing entity against all liabilities, taxes and other expenses incurred as a result of its ownership, storage and sale of fossil fuel to the Company. This agreement currently extends to February 1995. At December 31, 1993, approximately $10.1 million of fossil fuel purchases were being financed under this agreement.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information with respect to short-term borrowings is as follows:
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(G) SUPPLEMENTARY INFORMATION
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(H) PENSION AND OTHER POST-EMPLOYMENT BENEFITS
The Company's qualified pension plan, which is based on the highest three years of pay, covers substantially all of its employees, and its entire cost is borne by the Company. The Company also has a non-qualified supplemental plan for certain executives and a non-qualified retiree only plan for certain early retirement benefits. The net pension costs for these plans for 1993, 1992 and 1991 were $14,966,000, $5,749,000 and $2,054,000, respectively.
The Company's funding policy for the qualified plan is to make annual contributions that satisfy the minimum funding requirements of ERISA but which do not exceed the maximum deductible limits of the Internal Revenue Code. These amounts are determined each year as a result of an actuarial valuation of the Plan. In accordance with this policy, the Company will be contributing $3.3 million in 1994 for 1993 funding requirements. Previously, due to the application of the full funding limitation under ERISA, the Company had not been required to make a contribution since 1985. The supplemental plan is unfunded.
The qualified plan's irrevocable trust fund consists principally of equity and fixed-income securities and real estate investments in approximately the following percentages:
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In addition to providing pension benefits, the Company also provides other postretirement benefits (OPEB), consisting principally of health care and life insurance benefits, for retired employees and their dependents. Employees with 25 years of service are eligible for full benefits, while employees with less than 25 years of service but greater than 15 years of service are entitled to partial benefits. Years of service prior to age 35 are not included in determining the number of years of service.
Prior to January 1, 1993, the Company recognized the cost of providing OPEB on a pay-as-you-go basis by expensing the annual insurance premiums. These costs amounted to $1.3 million and $1.1 million for 1992 and 1991, respectively. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions", which requires, among other things, that OPEB costs be recognized over the employment period that encompasses eligibility to receive such benefits. In its December 16, 1992 decision on the Company's application for retail rate relief, the DPUC recognized the Company's obligation to adopt SFAS No. 106, effective January 1, 1993, and approved the Company's request for revenues to recover OPEB expenses on a SFAS No. 106 basis. A portion of these expenses represents the transition obligation, which will accrue over a 20-year period, representing the future liability for medical and life insurance benefits based on past service for retirees and active employees.
For funding purposes, the Company has established two Voluntary Employees' Benefit Association Trusts (VEBA) to fund OPEB for employees who retire on or after January 1, 1994; one VEBA for union employees and one for non-union employees. Approximately 52% of the Company's employees are represented by Local 470-1, Utility Workers Union of America, AFL-CIO, for collective bargaining purposes. The funding policy assumes contributions to these trust funds to be the total OPEB expense under SFAS No. 106, excluding the amount that resulted from the reorganization minus pay-as-you- go benefit payments for pre-January 1, 1994 retirees, allocated in a manner that minimizes current income tax liability, without exceeding maximum tax deductible limits. In accordance with this policy, the Company contributed approximately $3 million to the union VEBA on December 30, 1993. The Company currently plans to fund the portion of the OPEB expense that is related to the reorganization during the years 1994-1996.
The 1993 cost for OPEB includes the following components:
A one percentage point increase in the assumed health care cost trend rate would have increased the service cost and interest cost components of the 1993 net cost of periodic postretirement benefit by approximately $445,000 and would increase the accumulated postretirement benefit obligation for health care benefits by approximately $2,421,000.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table reconciles the funded status of the plan with the amount recognized in the Consolidated Balance Sheet as of December 31, 1993:
The weighted average discount rate used to measure the accumulated postretirement benefit obligation was 7.5%.
During 1993, in conjunction with a in-depth organizational review, the Company offered a voluntary early retirement program to non-union employees who were eligible to receive pension benefits. This offer was accepted by 103 employees. The 1993 OPEB cost for this program was $1.267 million. These costs are recognized as a component of the reorganizational charge shown on the Company's Consolidated Statement of Income.
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for Post-Employment Benefits". This statement, which will be adopted during the first quarter of 1994, establishes accounting standards for employers who provide benefits, such as unemployment compensation, severance benefits and disability benefits, to former or inactive employees after employment but before retirement and requires recognition of the obligation for these benefits. The adoption of this new standard will result in a pre-tax charge against earnings amounting to approximately $2 million during the first quarter of 1994. Subsequent period costs are not expected to be material.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(I) JOINTLY OWNED PLANT
At December 31, 1993, the Company had the following interests in jointly owned plants:
The Company's share of the operating costs of jointly owned plants is included in the appropriate expense captions in the Consolidated Statement of Income.
(J) UNAMORTIZED CANCELLED NUCLEAR PROJECT
From December 1984 through December 1992, the Company had been recovering its investment in Seabrook Unit 2 over a regulatory approved ten-year period without a return on its unamortized investment. In the Company's 1992 rate decision, the DPUC adopted a proposal by the Company to write off its remaining investment in Seabrook Unit 2, beginning January 1, 1993, over a 24-year period, corresponding with the flowback of certain Connecticut Corporation Business Tax (CCBT) credits. Such decision will allow the Company to retain the Seabrook Unit 2/CCBT amounts for ratemaking purposes, with the accumulated CCBT credits not deducted from rate base during the 24-year period of amortization in recognition of a longer period of time for amortization of the Seabrook Unit 2 balance.
(K) FUEL FINANCING OBLIGATIONS AND OTHER LEASE OBLIGATIONS
The Company has a Fossil Fuel Supply Agreement with a financial institution providing for financing up to $37.5 million in fossil fuel purchases. Under this agreement, the financing entity acquires and stores natural gas, coal and fuel oil for sale to the Company, and the Company purchases these fossil fuels from the financing entity at a price for each type of fuel that reimburses the financing entity for the direct costs it has incurred in purchasing and storing the fuel, plus a charge for maintaining an inventory of the fuel determined by reference to the fluctuating interest rate on thirty-day, dealer-placed commercial paper in New York. The Company is obligated to insure the fuel inventories and to indemnify the financing entity against all liabilities, taxes and other expenses incurred as a result of its ownership, storage and sale of fossil fuel to the Company. This agreement currently extends to February 1995. At December 31, 1993, approximately $10.1 million of fossil fuel purchases were being financed under this agreement.
The Company has leases (some of which are capital leases), including arrangements for data processing and office equipment, vehicles, office space and oil tanks. The gross amount of assets recorded under capital leases and the related obligations of those leases as of December 31, 1993 are recorded on the balance sheet.
Future minimum lease payments under capital leases, excluding the Seabrook sale/leaseback transaction, which is being treated as a long-term financing, are estimated to be as follows:
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Capitalization of leases has no impact on income, since the sum of the amortization of a leased asset and the interest on the lease obligation equals the rental expense allowed for ratemaking purposes.
Rental payments charged to operating expenses in 1993, 1992 and 1991 amounted to $14.1 million, $14.8 million and $14.9 million, respectively.
Operating leases, which are charged to operating expense, consist of a large number of small, relatively short-term, renewable agreements for a wide variety of equipment.
(L) COMMITMENTS AND CONTINGENCIES
Capital Expenditure Program
The Company has entered into commitments in connection with its continuing capital expenditure program, which is presently estimated at approximately $366.5 million, excluding AFUDC, for 1994 through 1998.
Seabrook
After experiencing increasing financial stress beginning in May 1987, Public Service Company of New Hampshire (PSNH), which held the largest ownership share (35.6%) in Seabrook, commenced a proceeding under Chapter 11 of the Bankruptcy Code in January of 1988. Under this statute, PSNH continued its operations while seeking a financial reorganization. A reorganization plan proposed by Northeast Utilities (NU) was confirmed by the bankruptcy court in April of 1990 and, on May 16, 1991, PSNH completed the financing required for payment of its pre-bankruptcy secured and unsecured debt under the first stage of the reorganization plan and emerged from bankruptcy. On May 19, 1992, the NRC issued the final regulatory approval necessary for the second stage of the NU reorganization plan, under which PSNH would be acquired by NU; and on June 5, 1992, this acquisition was completed. As part of the transaction, PSNH's ownership share of Seabrook Unit 1 was transferred to a wholly-owned subsidiary of NU. Two previous regulatory approvals of the NU reorganization plan for PSNH, by the Federal Energy Regulatory Commission (FERC) and the Securities and Exchange Commission (SEC), continue to be challenged in court proceedings, and the Company is unable to predict the outcome of these proceedings.
On February 28, 1991, EUA Power Corporation (EUA Power), the holder of a 12.1% ownership share in Seabrook, commenced a proceeding under Chapter 11 of the Bankruptcy Code. EUA Power, a wholly-owned subsidiary of Eastern Utilities Associates (EUA), was organized solely for the purpose of acquiring an ownership share in Seabrook and selling in the wholesale market its share of the electric power produced by Seabrook. EUA Power commenced this bankruptcy proceeding because the cash generated by its sales of power at current market prices was insufficient to pay its obligations on its outstanding debt. Subsequently, EUA Power's name
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
was changed to Great Bay Power Corporation (Great Bay). The official committee of Great Bay's bondholders (Bondholders Committee) has proposed, and the bankruptcy court has confirmed, a reorganization plan for Great Bay, under which substantially all of the equity ownership of Great Bay would pass to its bondholders. On February 2, 1994, the Bondholders Committee accepted a financing proposal that would inject $35 million of new ownership equity into Great Bay. The bankruptcy court must approve this structure before the Great Bay reorganization plan becomes effective. Further approvals are also required from the NRC, FERC and the New Hampshire Public Utilities Commission. The bankruptcy court has approved an agreement among Great Bay, the Bondholders Committee, UI and The Connecticut Light and Power Company (CL&P), under which up to $20 million in advance payments against their respective future monthly Seabrook payment obligations will be made available between UI and CL&P as needed until the reorganization plan becomes effective. UI's share of funding obligations under this agreement totals $8 million. As of December 31, 1993, $5.5 million had been advanced by UI under this agreement. At January 31, 1994, $602,000 of the Company's advances remained outstanding. This agreement can be terminated by UI and CL&P upon thirty days notice or upon failure of the reorganization process to achieve certain milestones by specified dates. UI is unable to predict what impact, if any, failure of the reorganization plan to become effective will have on the operating license for Seabrook Unit 1, or what other actions UI and the other joint owners of the unit may be required to take in response to developments in this bankruptcy proceeding as it may affect Seabrook.
Nuclear generating units are subject to the licensing requirements of the Nuclear Regulatory Commission (NRC) under the Atomic Energy Act of 1954, as amended, and a variety of other state and federal requirements. Although Seabrook Unit 1 has been issued a 40-year operating license, NRC proceedings and investigations prompted by inquiries from Congressmen and by NRC licensing board consideration of technical contentions may arise and continue for an indefinite period of time in the future.
Nuclear Insurance Contingencies
The Price-Anderson Act, currently extended through August 1, 2002, limits public liability resulting from a single incident at a nuclear power plant. The first $200 million of liability coverage is provided by purchasing the maximum amount of commercially available insurance. Additional liability coverage will be provided by an assessment of up to $75.5 million per incident, levied on each of the nuclear units licensed to operate in the United States, subject to a maximum assessment of $10 million per incident per nuclear unit in any year. In addition, if the sum of all public liability claims and legal costs resulting from any nuclear incident exceeds the maximum amount of financial protection, each reactor operator can be assessed an additional 5% of $75.5 million, or $3.775 million. The maximum assessment is adjusted at least every five years to reflect the impact of inflation. Based on its interests in nuclear generating units, the Company estimates its maximum liability would be $20.3 million per incident. However, assessment would be limited to $3.1 million per incident, per year. With respect to each of the operating nuclear generating units in which the Company has an interest, the Company will be obligated to pay its ownership and/or leasehold share of any statutory assessment resulting from a nuclear incident at any nuclear generating unit.
The NRC requires nuclear generating units to obtain property insurance coverage in a minimum amount of $1.06 billion and to establish a system of prioritized use of the insurance proceeds in the event of a nuclear incident. The system requires that the first $1.06 billion of insurance proceeds be used to stabilize the nuclear reactor to prevent any significant risk to public health and safety and then for decontamination and cleanup operations. Only following completion of these tasks would the balance, if any, of the segregated insurance proceeds become available to the unit's owners. For each of the nuclear generating units in which the Company has an interest, the Company is required to pay its ownership and/or leasehold share of the cost of purchasing such insurance.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other Commitments and Contingencies
Hydro-Quebec
The Company is a participant in the Hydro-Quebec transmission intertie facility linking New England and Quebec, Canada. Phase II of this facility, in which UI has a 5.45% participating share, has increased the capacity value of the intertie from 690 megawatts to a maximum of 2000 megawatts. A ten-year Firm Energy Contract, which provides for the sale of 7 million megawatt-hours per year by Hydro-Quebec to the New England participants in the Phase II facility, became effective on July 1, 1991. The Company is obligated to furnish a guarantee for its participating share of the debt financing for the Phase II facility. Currently, the Company's guarantee liability for this debt amounts to approximately $9.8 million.
Reorganization Charge
During 1993, the Company undertook an in-depth organizational review with the primary objective of improving customer service. As a result of this review, the Company eliminated approximately 75 positions.
In conjunction with this review, the Company offered a voluntary early retirement program to non-union employees who were eligible to receive pension benefits. The early retirement offer was accepted by 103 employees and the Company incurred a one-time charge to 1993 earnings of approximately $13.6 million ($7.8 million, after-tax). No decision has been made as to whether to offer a severance program to employees who may be affected by the organizational review when it is completed, but who were not eligible for, or did not accept, the early retirement offer.
Site Remediation Costs
The Company has estimated that the cost of environmental remediation of its decommissioned Steel Point Station property in Bridgeport will be approximately $10.3 million and has recorded a liability for this cost. Following remediation, the Company intends to sell the property for development for a value it estimates will not exceed $6 million. In the Company's last rate decision, the DPUC provided additional revenues to recover the $4.3 million difference during the period 1993-1996, subject to true-up in the Company's next retail rate proceeding, based on actual remediation costs and the actual gain on the sale of the property.
Property Taxes
In November 1993, the Company received "updated" personal property tax bills from the City of New Haven (the City) for the tax year 1991-1992, aggregating $6.6 million, based on an audit by the City's tax assessor. The Company anticipates receiving additional bills of this sort for the tax years 1992-1993 and 1993-1994, the amounts of which cannot be predicted at this time. The Company is contesting these tax bills vigorously and has commenced an action in the Superior Court to enjoin the City from any effort to collect these tax bills. Due to a lack of data, it is not possible, at this time, to assess accurately the Company's liability, if any.
(M) NUCLEAR FUEL DISPOSAL AND NUCLEAR PLANT DECOMMISSIONING
Costs associated with nuclear plant operations include amounts for disposal of nuclear wastes, including spent fuel, and for the ultimate decommissioning of the plants. Under the Nuclear Waste Policy Act of 1982, the federal Department of Energy (DOE) is required to design, license, construct and operate a permanent repository for high level radioactive wastes and spent nuclear fuel. The Act requires the DOE to provide, beginning in 1998, for the disposal of spent nuclear fuel and high level radioactive waste from commercial nuclear plants through contracts with the owners and generators of such waste; and the DOE has established disposal
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
fees that are being paid to the federal government by electric utilities owning or operating nuclear generating units. In return for payment of the prescribed fees, the federal government is to take title to and dispose of the utilities' high level wastes and spent nuclear fuel beginning no later than 1998. However, the DOE has announced that its first high level waste repository will not be in operation earlier than 2010, notwithstanding the DOE's statutory and contractual responsibility to begin disposal of high-level radioactive waste and spent fuel beginning not later than January 31, 1998.
Until the federal government begins receiving such materials in accordance with the Nuclear Waste Policy Act, operating nuclear generating units will need to retain high level wastes and spent fuel on-site or make other provisions for their storage. Storage facilities for Millstone Unit 3 are expected to be adequate for the projected life of the unit. Storage facilities for the Connecticut Yankee unit are expected to be adequate through the mid-1990s. Storage facilities for Seabrook Unit 1 are expected to be adequate until at least 2010. Fuel consolidation and compaction technologies are being developed and are expected to provide adequate storage capability for the projected lives of the latter two units. In addition, other licensed technologies, such as dry storage casks, can accommodate spent fuel storage requirements.
Disposal costs for low-level radioactive wastes (LLW) that result from normal operation of nuclear generating units have increased significantly in recent years and are expected to continue to increase. The cost increases are functions of increased packaging and transportation costs and higher fees and surcharges charged by the disposal facilities. Pursuant to the Low-Level Radioactive Waste Policy Act of 1980, each state was responsible for providing disposal facilities for LLW generated within the state and was authorized to join with other states into regional compacts to jointly fulfill their responsibilities. Pursuant to the Low-Level Radioactive Waste Policy Amendments Act of 1985, each state in which a currently operating disposal facility is located (South Carolina, Nevada and Washington) is allowed to impose volume limits and a surcharge on shipments of LLW from states that are not members of the compact in the region in which the facility is located. On June 19, 1992, the United States Supreme Court issued a decision upholding certain parts of the Low-Level Radioactive Waste Policy Amendments Act of 1985, but invalidating a key provision of that law requiring each state to take title to LLW generated within that state if the state fails to meet federally-mandated deadlines for siting LLW disposal facilities. The decision has resulted in uncertainty about states' continuing roles in siting LLW disposal facilities and may result in increased LLW disposal costs and the need for longer interim LLW storage before a permanent solution is developed.
The Connecticut Hazardous Waste Management Service (the Service), a state quasi-public corporation, was charged with coordinating the establishment of a facility for disposal of LLW originating in Connecticut. In June 1991, the Service announced that it had selected three potential sites in north-central Connecticut for further study. The Service's announcement provoked intense controversy in the affected municipalities and resulted in legislative action to stop the selection process. On February 1, 1993, the Service presented the legislature with a new site selection plan under which communities are urged to volunteer a site for a facility in return for financial and other incentives. The volunteer process is being continued in 1994. The Service's activities in this regard are funded by assessments on Connecticut's LLW generators. Due to a change in the volunteer process, there was no assessment for the 1993-1994 fiscal year and the state projects no assessment for the 1994-1995 and 1995-1996 fiscal years.
Additional LLW storage capacity has been or can be constructed or acquired at the Millstone and Connecticut Yankee sites to provide for temporary storage of LLW should that become necessary. Connecticut LLW can be managed by volume reduction, storage or shipment at least through 1999. The Company cannot predict whether and when a disposal site will be designated in Connecticut.
The State of New Hampshire has not met deadlines for compliance with the Low-Level Radioactive Waste Policy Act, and Seabrook Unit 1 has been denied access to existing disposal facilities. Therefore, LLW generated
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
by Seabrook Unit 1 is being stored on-site. The Seabrook storage facility currently has capacity to store approximately five years' accumulation of waste generated by Seabrook, and the plant operator plans to expand its storage capacity as necessary.
NRC licensing requirements and restrictions are also applicable to the decommissioning of nuclear generating units at the end of their service lives, and the NRC has adopted comprehensive regulations concerning decommissioning planning, timing, funding and environmental reviews. UI and the other owners of the nuclear generating units in which UI has interests estimate decommissioning costs for the units and attempt to recover sufficient amounts through their allowed electric rates to cover expected decommissioning costs. Changes in NRC requirements or technology can increase estimated decommissioning costs, and UI's customers in future years may experience higher electric rates to offset the effects of any insufficient rate recovery in prior years.
New Hampshire has enacted a law requiring the creation of a government-managed fund to finance the decommissioning of nuclear generating units in that state. The New Hampshire Nuclear Decommissioning Financing Committee (NDFC) established $345 million (in 1993 dollars) as the decommissioning cost estimate for Seabrook Unit 1. This estimate premises the prompt removal and dismantling of the Unit at the end of its estimated 40-year energy producing life. Monthly decommissioning payments are being made to the state-managed decommissioning trust fund. UI's share of the decommissioning payments made during 1993 was $1.3 million. UI's share of the fund at December 31, 1993 was approximately $3.7 million.
Connecticut has enacted a law requiring the operators of nuclear generating units to file periodically with the DPUC their plans for financing the decommissioning of the units in that state. Current decommissioning cost estimates for Millstone Unit 3 and Connecticut Yankee are $421 million (in 1994 dollars) and $324 million (in 1994 dollars), respectively. These estimates premise the prompt removal and dismantling of each unit at the end of its estimated 40-year energy producing life. Monthly decommissioning payments, based on these cost estimates, are being made to decommissioning trust funds managed by Northeast Utilities. UI's share of the Millstone Unit 3 decommissioning payments made during 1993 was $328,000. UI's share of the fund at December 31, 1993 was approximately $1.9 million. For the Company's 9.5% equity ownership in Connecticut Yankee, decommissioning costs of $1.3 million were funded by UI during 1993, and UI's share of the fund at December 31, 1993 was $9.5 million.
Environmental Concerns
In complying with existing environmental statutes and regulations and further developments in these and other areas of environmental concern, including legislation and studies in the fields of water and air quality (particularly "air toxics", "ozone non-attainment" and "global warming"), hazardous waste handling and disposal, toxic substances, and electric and magnetic fields, the Company may incur substantial capital expenditures for equipment modifications and additions, monitoring equipment and recording devices, and it may incur additional operating expenses. Litigation expenditures may also increase as a result of scientific investigations, and speculation and debate, concerning the possibility of harmful health effects of electric and magnetic fields. The Company believes that any additional costs incurred for these purposes will be recoverable through the ratemaking process. The total amount of these expenditures is not now determinable.
(N) CHANGE IN METHOD OF ACCOUNTING FOR PROPERTY TAXES
Effective January 1, 1991, the Company changed its method of accounting for property taxes from accrual over the twelve-month period following assessment date to accrual over the fiscal period of the applicable taxing authority. The effect of the change in accounting was to increase 1991 earnings for common stock by $7.9 million, of which $7.3 million represented the cumulative effect of the change at January 1, 1991, and $.6 million represented an increase in earnings for 1991.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(O) FAIR VALUE OF FINANCIAL INSTRUMENTS (1)
The estimated fair values of the Company's financial instruments are as follows:
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(P) QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for 1993 and 1992 are set forth below:
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REPORT OF INDEPENDENT ACCOUNTANTS ---------------------------------
To the Shareowners and Directors of The United Illuminating Company:
We have audited the accompanying consolidated balances sheets of The United Illuminating Company as of December 31, 1993, 1992 and 1991, and related consolidated statements of income, retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The United Illuminating Company as of December 31, 1993, 1992, and 1991, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND
Hartford, Connecticut January 24, 1994
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
Not Applicable
PART III
Item 10. Directors and Executive Officers of the Company.
The information appearing under the captions "NOMINEES FOR ELECTION AS DIRECTORS" AND "COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934" in the Company's definitive Proxy Statement, dated April 8, 1994, for the Annual Meeting of the Shareholders to be held on May 18, 1994, which Proxy Statement will be filed with the Securities and Exchange Commission on or about April 8, 1994, is incorporated by reference in partial answer to this item. See also "EXECUTIVE OFFICERS OF THE COMPANY", following Part I, Item 4 herein.
Item 11. Executive Compensation.
The information appearing under the captions "EXECUTIVE COMPENSATION," "STOCK OPTION PLAN," "RETIREMENT PLANS," "STOCK OPTION EXERCISES IN 1993 AND YEAR-END OPTION VALUES," "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" AND "DIRECTOR COMPENSATION" in the Company's definitive Proxy Statement, dated April 8, 1994, for the Annual Meeting of the Shareholders to be held on May 18, 1994, which Proxy Statement will be filed with the Securities and Exchange Commission on or about April 8, 1994, is incorporated by reference in answer to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information appearing under the captions "PRINCIPAL SHAREHOLDERS" and "STOCK OWNERSHIP OF DIRECTORS AND OFFICERS" in the Company's definitive Proxy Statement, dated April 8, 1994 for the Annual Meeting of the Shareholders to be held on May 18, 1994, which Proxy Statement will be filed with the Securities and Exchange Commission on or about April 8, 1994, is incorporated by reference in answer to this item.
Item 13. Certain Relationships and Related Transactions.
The information appearing under the caption "NOMINEES FOR ELECTION AS DIRECTORS" in the Company's definitive Proxy Statement, dated April 8, 1994, for the Annual Meeting of the Shareholders to be held on May 18, 1994, which Proxy Statement will be filed with the Securities and Exchange Commission on or about April 8, 1994, is incorporated by reference in answer to this item.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
Financial Statements (see Item 8):
Consolidated statement of income for the years ended December 31, 1993, 1992 and 1991
Consolidated statement of cash flows for the years ended December 31, 1993, 1992 and 1991
Consolidated balance sheet, December 31, 1993, 1992 and 1991
Consolidated statement of retained earnings for the years ended December 31, 1993, 1992 and 1991
Statement of accounting policies
Notes to consolidated financial statements
Report of independent accountants
Financial Statement Schedules (see S-1 through S-5)
Schedule V - Property, plant and equipment for the years ended December 31, 1993, 1992 and 1991.
Schedule VI - Accumulated depreciation, depletion and amortization of property, plant and equipment for the years ended December 31, 1993, 1992 and 1991.
Schedule VIII - Valuation and qualifying accounts for the years ended December 31, 1993, 1992 and 1991.
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Exhibits:
Pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, certain of the following listed exhibits which are annexed as exhibits to previous statements and reports filed by the Company are hereby incorporated by reference as exhibits to this report. Such statements and reports are identified by reference numbers as follows:
(1) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1991.
(2) Filed with Registration Statement No. 2-45434, effective September 25, 1972, and Registration Statement No. 2-45435, effective September 26, 1972.
(3) Filed with Registration Statement No. 2-60849, effective July 24, 1978.
(4) Filed with Registration Statement No. 2-66518, effective February 25, 1980.
(5) Filed with Registration Statement No. 2-57275, effective October 19, 1976.
(6) Filed with Registration Statement No. 2-67998, effective June 19, 1980.
(7) Filed with Registration Statement No. 2-72907, effective July 16, 1981.
(8) Filed with Post-Effective Amendment No. 1 to Registration Statement No. 2-78643, effective August 19, 1982.
(9) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1990.
(10) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended September 30, 1991.
(11) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended March 31, 1991.
(12) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1992.
(13 Filed with Registration Statement No. 33-40169, effective August 12, 1991.
(14) Filed with Registration Statement No. 33-35465, effective August 1, 1990.
(15) Filed with Registration Statement No. 2-49669, effective December 11, 1973.
(16) Filed with Registration Statement No. 2-54876, effective November 19, 1975.
(17) Filed with Registration Statement No. 2-52657, effective February 6, 1975.
(18) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended June 30, 1992.
(19) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended September 30, 1990.
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The exhibit number in the statement or report referenced is set forth in the parenthesis following the description of the exhibit. Those of the following exhibits not so identified are filed herewith.
Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(3) 3.1 (1) Copy of Charter of The United Illuminating Company, dated December 15, 1965. (Exhibit 3.1) (3) 3.2 (2) Copy of a certificate concerning the creation of a class of Preferred Stock of The United Illuminating Company and the authority of the Board of Directors to issue said Preferred Stock, dated July 13, 1956, and filed with the Secretary of State of Connecticut July 13, 1956. (Exhibit 3.12) (3) 3.3 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated November 19, 1962, andfiled with the Secretary of State of Connecticut November 29, 1962. (Exhibit 3.3) (3) 3.4 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated October 25, 1965, and filed with the Secretary of State of Connecticut November 22, 1965. (Exhibit 3.4) (3) 3.5 (2) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated June 6, 1967, and filed with the Secretary of State of Connecticut June 6, 1967. (Exhibit 3.13) (3) 3.6 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated December 1, 1967, and filed with the Secretary of State of Connecticut December 7, 1967. (Exhibit 3.6) (3) 3.7 (3) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated April 27, 1971, and filed with the Secretary of State of Connecticut April 29, 1971. (Exhibit 2.2-14) (3) 3.8 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated March 29, 1972, and filed with the Secretary of State of Connecticut March 30, 1972. (Exhibit 3.8) (3) 3.9 (4) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated May 4 1973, and filed with the Secretary of State of Connecticut May 7, 1973. (Exhibit 2.2-17) (3) 3.10 Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated July 2, 1973, and filed with the Secretary of State of Connecticut July 2, 1973. (Exhibit 3.10) (3) 3.11 (5) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated April 26, 1976, and filed with the Secretary of State of Connecticut April 27, 1976. (Exhibit 2.2-18) (3) 3.12 (5) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated April 26, 1976, and filed with the Secretary of State of Connecticut April 27, 1976. (Exhibit 2.2-19) (3) 3.13 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated October 20, 1976, and filed with the Secretary of State of Connecticut October 21, 1976. (Exhibit 3.13) (3) 3.14 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated April 4, 1979, and filed with the Secretary of State of Connecticut April 5, 1979. (Exhibit 3.14) (3) 3.15 Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated April 29, 1980, and filed with the Secretary of State of Connecticut April 30, 1980. (Exhibit 3.15)
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(3) 3.16 (6) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated May 20, 1980, and filed with the Secretary of State of Connecticut May 23, 1980. (Exhibit 2.2-20) (3) 3.17 (7) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated June 12, 1981, and filed with the Secretary of State of Connecticut June 16, 1981. (Exhibit 1.20) (3) 3.18 (12) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated July 13, 1981, and filed with the Secretary of State of Connecticut July 14, 1981. (3) 3.19 (8) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated June 1, 1983, and filed with the Secretary of State of Connecticut June 3, 1983. (Exhibit 4.31) (3) 3.20 (9) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated July 24, 1984, and filed with the Secretary of State of Connecticut July 24, 1984. (Exhibit 1) (3) 3.21 (9) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated August 8, 1984, and filed with the Secretary of State of Connecticut August 9, 1984. (Exhibit 2) (3) 3.22 (9) Copy of Certificate Amending or Restating Certificate of Incorporation, filed with the Secretary of State of Connecticut August 1, 1990. (Exhibit 3.22) (3) 3.23 (10) Copy of Certificate Amending or Restating Certificate of Incorporation, dated May 9, 1991, and filed with the Secretary of State of Connecticut August 27, 1991. (Exhibit 3.22a) (3) 3.24a (3) Copy of Bylaws of The United Illuminating Company. (Exhibit 2.3) (3) 3.24b (10) Copy of Article II, Section 2, of Bylaws of The United Illuminating Company, as amended March 26, 1990, amending Exhibit 3.24a. (Exhibit 3.23b) (3) 3.24c (11) Copy of Article V, Section 1, of Bylaws of The United Illuminating Company, as amended April 22, 1991, amending Exhibit 3.24a. (Exhibit 3.23c) (4) 4.1 (9) Copy of First Mortgage Indenture and Deed of Trust, dated as of December 1, 1984, between Bridgeport Electric Company and The First National Bank of Boston, Trustee. (Exhibit 4.12) (4) 4.2 (12) Copy of First Supplemental Mortgage Indenture, dated as of February 15, 1987, between Bridgeport Electric Company and The First National Bank of Boston, Trustee, amending and supplementing Exhibit 4.1. (Exhibit 4.2) (4) 4.3 (12) Copy of Second Supplemental Mortgage Indenture, dated as of January 14, 1988, between Bridgeport Electric Company and The First National Bank of Boston, Trustee, amending and supplementing Exhibit 4.1 and amending Exhibit 4.2. (Exhibit 4.3) (4) 4.4 Copy of Third Supplemental Mortgage Indenture, dated as of March 31, 1988 between Bridgeport Electric Company and The First National Bank of Boston, Trustee, amending Exhibit 4.1. (4) 4.5 (13) Copy of Indenture, dated as of August 1, 1991, from The United Illuminating Company to The Bank of New York, Trustee. (Exhibit 4) (4) 4.6 (14) Copy of Participation Agreement, dated as of (10) August 1, 1990, among Financial Leasing Corporation, Meridian Trust Company, The Bank of New York and The United Illuminating Company. (Exhibits 4(a) through 4(h), inclusive, Amendment Nos. 1 and 2).
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(10) 10.1 (5) Copy of Stockholder Agreement, dated as of July 1, 1964, among the various stockholders of Connecticut Yankee Atomic Power Company, including The United Illuminating Company. (Exhibit 5.1-1) (10) 10.2a (5) Copy of Power Contract, dated as of July 1, 1964, between Connecticut Yankee Atomic Power Company and The United Illuminating Company. (Exhibit 5.1-2) (10) 10.2b (3) Copy of Supplementary Power Contract, dated as of March 1, 1978, between Connecticut Yankee Atomic Power Company and The United Illuminating Company, supplementing Exhibit 10.2a. (Exhibit 5.1-6) (10) 10.2c (1) Copy of Agreement Amending Supplementary Power Contract, dated August 22, 1980, between Connecticut Yankee Atomic Power Company and The United Illuminating Company, amending Exhibit 10.2b. (Exhibit 10.2b) (10) 10.2d (12) Copy of Second Amendment of the Supplementary Power Contract, dated as of October 15, 1982, between Connecticut Yankee Atomic Power Company and The United Illuminating Company, amending Exhibit 10.2b. (Exhibit 10.2d) (10) 10.2e (9) Copy of Second Supplementary Power Contract, dated as of April 30, 1984, between Connecticut Yankee Atomic Power Company and The United Illuminating Company, supplementing Exhibit 10.2a. (Exhibit 10.2e) (10) 10.2f (9) Copy of Additional Power Contract, dated as of April 30, 1984, between Connecticut Yankee Atomic Power Company and The United Illuminating Company. (Exhibit 10.2f) (10) 10.3 (5) Copy of Capital Funds Agreement, dated as of September 1, 1964, between Connecticut Yankee Atomic Power Company and The United Illuminating Company. (Exhibit 5.1-3) (10) 10.4a (5) Copy of Connecticut Yankee Transmission Agreement, dated as of October 1, 1964, among the various stockholders of Connecticut Yankee Atomic Power Company, including The United Illuminating Company. (Exhibit 5.1-4) (10) 10.4b (4) Copy of Agreement Amending and Revising Connecticut Yankee Transmission Agreement, dated as of July 1, 1979, amending Exhibit 10.4a. (Exhibit 5.1-7) (10) 10.5 (3) Copy of Capital Contributions Agreement, dated October 16, 1967, between The United Illuminating Company and Connecticut Yankee Atomic Power Company. (Exhibit 5.1-5) (10) 10.6a (1) Copy of NEPOOL Power Pool Agreement, dated as of September 1, 1971, as amended to November 1, 1988. (Exhibit 10.6a) (10) 10.6b (15) Copy of Agreement Setting Out Supplemental NEPOOL Understandings, dated as of April 2, 1973. (Exhibit 5.7-10) (10) 10.6c (1) Copy of Amendment to NEPOOL Power Pool Agreement, dated as of March 15, 1989, amending Exhibit 10.6a. (Exhibit 10.6c) (10) 10.6d (1) Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of October 1, 1990, amending Exhibit 10.6a. (Exhibit 10.6d) (10) 10.6e Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of September 15, 1992, amending Exhibit 10.6a. (10) 10.6f Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of June 1, 1993, amending Exhibit 10.6a. (10) 10.7a (1) Copy of Agreement for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units, dated May 1, 1973, as amended to February 1, 1990. (Exhibit 10.7a) (10) 10.7b (16) Copy of Transmission Support Agreement, dated as of May 1, 1973, among the Seabrook Companies. (Exhibit 5.9-2)
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(10) 10.7c (10) Copy of Twenty-third Amendment to Agreement for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units, dated as of November 1, 1990, amending Exhibit 10.7a. (Exhibit 10.8ab) (10) 10.8a (4) Copy of Sharing Agreement - 1979 Connecticut Nuclear Unit, dated as of September 1, 1973, among The Connecticut Light and Power Company, The Hartford Electric Light Company, Western Massachusetts Electric Company, New England Power Company, The United Illuminating Company, Public Service Company of New Hampshire, Central Vermont Public Service Company, Montaup Electric Company and Fitchburg Gas and Electric Light Company, relating to a nuclear fueled generating unit in Connecticut. (Exhibit 5.8-1) (10) 10.8b (17) Copy of Amendment to Sharing Agreement - 1979 Connecticut Nuclear Unit, dated as of August 1, 1974, amending Exhibit 10.8a. (Exhibit 5.9-2) (10) 10.8c (5) Copy of Amendment to Sharing Agreement - 1979 Connecticut Nuclear Unit, dated as of December 15, 1975, amending Exhibit 10.8a. (Exhibit 5.8-4, Post-effective Amendment No. 2) (10) 10.9a (3) Copy of Transmission Line Agreement, dated January 13, 1966, between the Trustees of the Property of The New York, New Haven and Hartford Railroad Company and The United Illuminating Company. (Exhibit 5.4) (10) 10.9b (1) Notice, dated April 24, 1978, of The United Illuminating Company's intention to extend term of Transmission Line Agreement dated January 13, 1966, Exhibit 10.9a. (Exhibit 10.9b) (10) 10.9c (1) Copy of Letter Agreement, dated March 28, 1985, between The United Illuminating Company and National Railroad Passenger Corporation, supplementing and modifying Exhibit 10.9a. (Exhibit 10.9c) (10) 10.10 (12) Copy of Agreement, effective May 16, 1992, between The United Illuminating Company and Local 470-1, Utility Workers Union of America, AFL-CIO. (Exhibit 10.10) (10) 10.11 Copy of Fuel Oil Purchase and Sale Agreement, dated as of October 1, 1993, among Tosco Corporation, The United Illuminating Company and The Connecticut Light and Power Company. (Confidential treatment requested) (10) 10.12 (12) Copy of Coal Sales Agreement, dated as of August 1, 1992, between Pittston Coal Sales Corp. and The United Illuminating Company. (Confidential treatment requested) (Exhibit 10.13) (10) 10.13 (10) Copy of Fossil Fuel Supply Agreement between BLC Corporation and The United Illuminating Company, dated as of July 1, 1991. (Exhibit 10.31) (10) 10.14a (9) Copy of Lease, dated as of December 1, 1984, between Bridgeport Electric Company as Lessor and The United Illuminating Company as Lessee. (Exhibit 10.22a) (10) 10.14b (12) Copy of Amendment, dated as of February 15, 1987, to Lease between Bridgeport Electric Company as Lessor and The United Illuminating Company as Lessee, amending Exhibit 10.16a. (Exhibit 10.16b) (10) 10.14c (12) Copy of Second Amendment to Lease, dated as of December 9, 1987, between Bridgeport Electric Company as Lessor and The United Illuminating Company as Lessee, amending Exhibit 10.16a. (Exhibit 10.16c) (10) 10.14d (12) Copy of Third Amendment to Lease, dated as of January 14, 1988, between Bridgeport Electric Company as Lessor and The United Illuminating Company as Lessee, amending Exhibit 10.16a. (Exhibit 10.16d)
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(10) 10.15a (12) Copy of Revolving Credit Agreement, dated as of January 25, 1993, among The United Illuminating Company, the Banks named therein, and Citibank, N.A., as Agent for the Banks. (Exhibit 10.19) (10) 10.15b Copy of letter, dated January 27, 1994, from Citibank, N.A., extending the expiration date of Exhibit 10.15a to January 19, 1995. (10) 10.16a* (12) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and Richard J. Grossi. (Exhibit 10.22a) (10) 10.16b* (19) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and Richard J. Grossi, amending Exhibit 10.22a. (Exhibit 10.26a) (10) 10.17a* (12) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and Robert L. Fiscus. (Exhibit 10.23a) (10) 10.17b* (19) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and Robert L. Fiscus, amending Exhibit 10.23a. (Exhibit 10.27a) (10) 10.18a* (12) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and James F. Crowe. (Exhibit 10.24a) (10) 10.18b* (19) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and James F. Crowe, amending Exhibit 10.24a. (Exhibit 10.28a) (10) 10.19* (1) Copy of Executive Incentive Compensation Program of The United Illuminating Company. (Exhibit 10.24) (10) 10.21a* (19) Copy of The United Illuminating Company 1990 Stock Option Plan. (Exhibit 10.33) (10) 10.21b Amendments to The United Illuminating Company 1990 Stock Option Plan, adopted November 22, 1993 and January 24, 1994. (21) 21 List of subsidiaries of The United Illuminating Company. (28) 28.1 (12) Copies of significant rate schedules of The United Illuminating Company. (Exhibit 28.1)
- ----------------------- *Management contract or compensatory plan or arrangement.
The foregoing list of exhibits does not include instruments defining the rights of the holders of certain long-term debt of the Company and its subsidiaries where the total amount of securities authorized to be issued under the instrument does not exceed ten (10%) of the total assets of the Company and its subsidiaries on a consolidated basis; and the Company hereby agrees to furnish a copy of each such instrument to the Securities and Exchange Commission on request.
(b) Reports on Form 8-K.
Items Financial Statements Date of Reported Filed Report - -------- -------------------- -------
5 None December 22, 1993
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CONSENT OF INDEPENDENT ACCOUNTANTS ----------------------------------
We consent to the incorporation by reference in the Registration Statement of The United Illuminating Company on Form S-3 (File No. 33-50221) and the Registration Statement on Form S-3 (File No. 33-50445) of our report, dated January 24, 1994, on our audits of the consolidated financial statements and financial statement schedules of The United Illuminating Company as of December 31, 1993, 1992 and 1991 and for the years then ended, which report is included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND
Hartford, Connecticut February 15, 1994
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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE UNITED ILLUMINATING COMPANY
By /s/ Richard J. Grossi ------------------------------ Richard J. Grossi Chairman of the Board of Directors and Chief Executive Officer
Date: February 18, 1994 -----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- Director, Chairman of the Board of Directors and /s/ Richard J. Grossi Chief Executive Officer February 18, 1994 - --------------------- (Richard J. Grossi) (Principal Executive Officer)
Director, President and /s/ Robert L. Fiscus Chief Financial Officer February 18, 1994 - --------------------- (Robert L. Fiscus) (Principal Financial and Accounting Officer)
/s/ John D. Fassett Director February 18, 1994 - -------------------- (John D. Fassett)
/s/ Leland W. Miles Director February 18, 1994 - -------------------- (Leland W. Miles)
/s/ William S. Warner Director February 18, 1994 - ---------------------- (William S. Warner)
/s/ John F. Croweak Director February 18, 1994 - -------------------- (John F. Croweak)
/s/ F. Patrick McFadden, Jr. Director February 18, 1994 - ----------------------------- (F. Patrick McFadden, Jr.)
/s/ J. Hugh Devlin Director February 18, 1994 - ------------------- (J. Hugh Devlin)
/s/ Betsy Henley-Cohn Director February 18, 1994 - ---------------------- (Betsy Henley-Cohn)
Director February , 1994 - ------------------------ (Frank R. O'Keefe, Jr.)
/s/ James A. Thomas Director February 18, 1994 - ---------------------- (James A. Thomas)
/s/ David E.A. Carson Director February 18, 1994 - ---------------------- (David E.A. Carson)
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S-1
S-2
S-3
S-4
S-5
EXHIBIT INDEX
(a) Exhibits
Exhibit Table Item Exhibit Number Number Description Page No. ---------- ------- ----------- --------
(4) 4.4 Copy of Third Supplemental Mortgage Indenture, dated as of March 31, 1988 between Bridgeport Electric Company and The First National Bank of Boston, Trustee, amending Exhibit 4.1.
(10) 10.6e Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of September 15, 1992, amending Exhibit 10.6a.
(10) 10.6f Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of June 1, 1993, amending Exhibit 10.6a.
(10) 10.11 Copy of Fuel Oil Purchase and Sale Agreement, dated as of October 1, 1993, among Tosco Corporation, The United Illuminating Company and The Connecticut Light and Power Company. (Confidential treatment requested)
(10) 10.15b Copy of letter, dated January 27, 1994, from Citibank, N.A., extending the expiration date of Exhibit 10.15a to January 19, 1995.
(10) 10.21b Amendments to The United Illuminating Company 1990 Stock Option Plan, adopted November 22,1993 and January 24, 1994.
(21) 21 List of subsidiaries of The United Illuminating Company.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
MAJOR INFLUENCES ON FINANCIAL CONDITION
The Company's financial condition should continue to improve as a result of the December 16, 1992 rate decision by the DPUC. The DPUC decision granted levelized rate increases of 2.66% ($15.8 million) in 1993 and 2.66% (an additional $17.3 million) in 1994.
However, the Company's financial condition will continue to be dependent on the level of retail and wholesale sales. The two primary factors that affect sales volume are economic conditions and weather. The regional recession has restricted retail sales growth and been largely responsible for a weak wholesale sales market during the past two years. Sales increases due to economic recovery would help to increase the Company's earnings.
Another major factor affecting the Company's financial condition will be the Company's ability to control expenses. A significant reduction in interest expense has been achieved since 1989, and additional savings of $10 million are expected in 1994 due to debt refinancing. Since 1990, annual growth in total operation and maintenance expense, excluding one-time items and cogeneration capacity purchases, has averaged approximately 2.7%, and the Company hopes to restrict future increases to less than the rate of inflation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are presently projected as follows:
The Company presently estimates that its cash on hand and temporary cash investments at the beginning of 1994, totaling $48.2 million, and its projected net cash provided by operations, less dividends, of $102 million, less capital expenditures of $73.4 million, will be insufficient to fund the Company's 1994 requirements for long-term debt maturities and mandatory redemptions and repayments, amounting to $113.3 million, by $36 million. The Company currently anticipates that its projected net cash provided by operations, less dividends and capital expenditures, for 1995 will be insufficient to fund the Company's 1995 requirements for long-term debt maturities and mandatory redemptions and repayments, by approximately $138 million. The Company currently anticipates that its projected net cash provided by operations, less dividends and capital expenditures, for 1996 through 1998 will be insufficient to fund the Company's requirements for long-term debt maturities and mandatory redemptions and repayments in the years 1996 through 1998, in amounts that cannot now be predicted accurately, but which may be substantial in the aggregate, depending on the levels of the Company's sales, wholesale and retail rates, operation and maintenance costs and taxes. All of the Company's capital requirements that exceed available net cash will have to be provided by external financing; and the Company has no commitment to provide such financing from any source of funds. The Company expects to be able to satisfy its external financing needs by issuing common stock and additional short-term and long-term debt, although the continued availability of these methods of financing will be dependent on many factors, including conditions in the securities markets, economic conditions, and the level of the Company's income and cash flow.
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At December 31, 1993, the Company had $48.2 million of cash and temporary cash investments, an increase of $37.1 million from the balance at December 31, 1992. The components of this increase, which are detailed in the Consolidated Statement of Cash Flows, are summarized as follows:
The Company has a revolving credit agreement with a group of banks, which currently extends to January 19, 1995. The borrowing limit of this facility is $75 million. The facility permits the Company to borrow funds at a fluctuating interest rate determined by the prime lending market in New York, and also permits the Company to borrow money for fixed periods of time specified by the Company at fixed interest rates determined by the Eurodollar interbank market in London, by the certificate of deposit market in New York, or by bidding, at the Company's option. If a material adverse change in the business, operations, affairs, assets or condition, financial or otherwise, or prospects of the Company and its subsidiaries, on a consolidated basis, should occur, the banks may decline to lend additional money to the Company under this revolving credit agreement, although borrowings outstanding at the time of such an occurrence would not then become due and payable. As of December 31, 1993, the Company had no short-term borrowings outstanding under this facility.
The Company's long-term debt instruments do not limit the amount of short-term debt that the Company may issue. The Company's revolving credit agreement described in the previous paragraph requires it to maintain an available earnings/interest charges ratio of not less than 1.5:1.0 for each 12-month period ending on the last day of each calendar quarter.
The Company had a $50 million term loan facility with a group of banks during 1993. Under this agreement, the Company chose an interest rate from among three alternatives: (i) a fluctuating interest rate determined by the prime lending market in New York; (ii) a fixed interest rate determined by the Eurodollar interbank market in London; and (iii) a fixed interest rate determined by the certificate of deposit market in New York. On February 1, 1993, the Company borrowed $50 million from this group of banks, using the proceeds to repay short-term borrowings and other current obligations. On December 3, 1993, the Company repaid the $50 million borrowing and terminated the agreement.
The Company had a term loan agreement with PruLease, Inc. (PruLease) that expired on December 1, 1993. This agreement was executed on December 31, 1992, when the Company borrowed $49.1 million from PruLease and purchased all the nuclear fuel that was owned by PruLease and leased to the Company on that date. This
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loan, which was collateralized by a first lien on the Company's ownership interest in the nuclear fuel for Seabrook Unit 1, was repaid in full at maturity.
The Company has a Fossil Fuel Supply Agreement with a financial institution providing for financing up to $37.5 million in fossil fuel purchases. Under this agreement, the financing entity acquires and stores natural gas, coal and fuel oil for sale to the Company, and the Company purchases these fossil fuels from the financing entity at a price for each type of fuel that reimburses the financing entity for the direct costs it has incurred in purchasing and storing the fuel, plus a charge for maintaining an inventory of the fuel determined by reference to the fluctuating interest rate on thirty-day, dealer-placed commercial paper in New York. The Company is obligated to insure the fuel inventories and to indemnify the financing entity against all liabilities, taxes and other expenses incurred as a result of its ownership, storage and sale of fossil fuel to the Company. This agreement currently extends to February 1995. At December 31, 1993, approximately $10.1 million of fossil fuel purchases were being financed under this agreement.
UI has four wholly-owned subsidiaries. Bridgeport Electric Company, a single-purpose corporation, owns and leases to UI a generating unit at Bridgeport Harbor Station. Research Center, Inc. (RCI) has been formed to participate in the development of one or more regulated power production ventures, including possible participation in arrangements for the future development of independent power production and cogeneration facilities. United Energy International, Inc. (UEI) has been formed to facilitate participation in a proposed joint venture relating to power production plants abroad. United Resources, Inc. (URI) serves as the parent corporation for several unregulated businesses, each of which is incorporated separately to participate in business ventures that will complement and enhance UI's electric utility business and serve the interests of the Company and its shareholders and customers.
Four wholly-owned subsidiaries of URI have been incorporated. Souwestcon Properties, Inc. is participating as a 25% partner in the ownership of a medical hotel building in New Haven. A second wholly-owned subsidiary of URI is Thermal Energies, Inc., which is participating in the development of district heating and cooling water facilities in the downtown New Haven area, including the energy center for an office tower and participation as a 37% partner in the energy center for a new city hall and office tower complex. A third URI subsidiary, Precision Power, Inc., provides power-related equipment and services to the owners of commercial buildings and industrial facilities. A fourth URI subsidiary, American Payment Systems, Inc., manages agents and equipment for electronic data processing of bill payments made by customers of utilities, including UI, at neighborhood businesses. In addition to these subsidiaries, URI also has an 82% ownership interest in Ventana Corporation (Ventana), which offers energy conservation engineering and project management services to governmental and private institutions. In September 1993, URI recorded a $1.2 million after-tax write off of outstanding debt owed to URI by Ventana, which represented the difference between the amount owed to URI by Ventana and the value of an additional equity interest in Ventana received by URI in November 1993. This additional equity interest in Ventana was received in exchange for the forgiveness of debt owed to URI by Ventana.
The Board of Directors of the Company has authorized the investment of a maximum of $13.5 million, in the aggregate, of the Company's assets in all of URI's ventures, UEI and RCI, and, at December 31, 1993, approximately $10.6 million had been so invested.
RESULTS OF OPERATIONS
1993 vs. 1992 - -------------
Earnings for the year 1993 were $36.2 million, or $2.57 per share, down $16.3 million, or $1.19 per share, from 1992. This decrease reflects a one-time reorganizational charge of approximately $7.8 million after-tax, or $.56 per share, and the non-recurrence of one-time gains of $.59 per share in 1992. Earnings per share for 1993, excluding one-time items and accounting changes, decreased by $.04 per share, to $3.13 per share from $3.17 per share for 1992.
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Sales margin increased by $10.3 million for the year. Retail revenues increased $36.6 million; $20.7 million from a recent rate decision ($12.1 million from rate changes and $13.2 million for the fold-in to base rates of the 1992 sales adjustment revenues, partly offset by the pass through to customers of expense credits of $4.6 million), and $15.9 million from increased retail sales. Retail sales increased by 2.7%, mostly due to a return to more normal summer weather.
The retail revenue increases were offset by anticipated reductions of $21 million from the sales adjustment provision and $13.7 million in wholesale capacity revenues. Other operating revenues decreased by $0.3 million. Reductions in wholesale energy revenues of $15.8 million were directly offset by reductions in energy expense.
Other factors affecting sales margin were lower retail fuel expense, increasing margin by $9.4 million, and higher revenue related taxes, decreasing margin by $0.6 million.
Other operation and maintenance expenses, including purchased capacity charges, increased by $10.2 million, or 4.5%, in 1993 relative to 1992. Major generating station overhauls and unscheduled repairs accounted for $5.2 million of this increase. Employment costs increased by $4.0 million, most of which resulted from the adoption of a liability for postretirement benefits other than pensions that the implementation of Statement of Financial Accounting Standards (SFAS) No. 106 requires to be accrued over employees' careers. Purchased capacity charges (cogeneration and Connecticut Yankee power purchases) for 1993 increased by $4.0 million, transmission costs increased by $2.4 million; but other nuclear operation and maintenance expenses decreased by $4.0 million.
Other operating expenses, including income taxes but excluding a 1993 fourth quarter one-time reorganization charge, decreased by $20.3 million in 1993 from 1992, as the effect of accounting treatments ordered in recent rate decisions for recovery of canceled plant, the flow-through to income of certain income tax benefits and lower property taxes more than offset increases in depreciation expense.
Other income declined by $23 million in 1993 from 1992, $9.4 million of which was attributable to the absence of net one-time gains realized in 1992. The remainder was due primarily due to an expected decline in deferred revenue and income tax benefits associated with the DPUC's 1992 rate decision, offset, in part, by lower interest charges of $9.3 million. "Net" interest margin (interest income less interest expense) improved by $6.6 million in 1993 over 1992.
1992 vs. 1991 - -------------
Earnings for 1992 were $52.4 million, or $3.76 per share, up $1.4 million, or $.09 per share, over 1991. Earnings per share for 1992, excluding one-time items and accounting changes, increased by $.27, to $3.17 from $2.90 per share for 1991. Non-recurring earnings declined to a level of $.59 per share in 1992 from $.77 per share in 1991.
Operating revenues in 1992, exclusive of retail and wholesale fuel recovery revenue, were up $4.3 million over 1991 levels, adding $.18 per share after taxes. Increased rates provided only $11 million of an expected annual $15 million revenue increase, because commercial and industrial customers shifted into lower priced time-of-use rates. An additional $6 million of revenue was accrued under the terms of the sales adjustment provisions of the Company's 1990 rate decision by the Department of Public Utility Control (DPUC). Retail sales volume declined 1.6% from the prior year, reducing retail revenues by $10.6 million and sales margin (revenue minus fuel expense and revenue-based taxes) by $7.4 million. Most of this decline reflected the cool, wet weather for the summer of 1992. On a weather-adjusted basis, retail sales were about even with 1991. Wholesale capacity sales declined by $2.1 million for the year, reflecting the end of a major contract in October 1992.
Other sales margin improvements were derived from increased nuclear generation, which added $10.5 million to margin in 1992 over 1991. An overall capacity factor of 76% for the nuclear units was achieved in 1992, compared to 65% for 1991. Offsetting this gain, the Company experienced unusually low and intermittent demand by the New England Power Pool for the operation of the Company's fossil generating units, thus
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degrading their efficiency, increasing fuel expense and decreasing sales margin by $2.5 million from 1991. These amounts are not recoverable through the fuel adjustment clause.
Operation, maintenance and capacity expense for 1992 nuclear generation declined only $1.7 million from 1991 levels, compared to a savings of $4-5 million the Company originally expected to realize (principally from reduced Seabrook expenses). Other operation and maintenance expenses, excluding fuel and energy expenses, increased by $2.6 million for the year (excluding net non-recurring charges for 1992).
Other taxes increased by $3.7 million (excluding a one-time charge in 1991), reflecting primarily the increased property tax placed on Seabrook by the State of New Hampshire. Depreciation increased by $2.5 million in 1992 over 1991. Net changes in interest income and expense added $2.9 million to pre-tax income in 1992, excluding one-time credits in 1991 and 1992. Reductions in plant balances not in rate base (Seabrook and other) led to reductions in deferred revenue of about $4 million after-tax.
Non-recurring items decreased by $.18 per share compared to 1991 levels, to a net earnings figure of $.59 per share. In 1992, a net $2.7 million in income, or $.19 per share, was booked for Seabrook Unit 1 adjustments; $3.6 million, or $.26 per share, in non-operating income tax credits were realized; a net $3.0 million in income, or $.21 per share, from a gain on the sale of property was realized; and there were one-time charges to operating expenses of a net $1.0 million, for a loss of $.07 per share.
OUTLOOK
The Company's financial condition should continue to improve as a result of the December 16, 1992 retail rate decision by the DPUC. The DPUC decision granted levelized rate increases of 2.66% ($15.8 million) in 1993 and 2.66% (an additional $17.3 million) in 1994. However, the Company did not realize the full anticipated benefit of the 1993 rate increase, realizing about $4 million less than awarded due to differences between the sales realized in individual rate classes and the sales projections used for rate case purposes. The differences arose principally from rate class shifting by customers and differential growth in sales among rate classes. A similar shortfall may develop in 1994.
The Company's financial condition will continue to be dependent on the level of retail and wholesale sales. The two primary factors that affect sales volume are economic conditions and weather. The regional recession has restricted retail sales growth and been largely responsible for a weak wholesale sales market during the past two years. Sales increases due to economic recovery would help to increase the Company's earnings. A 1% increase in sales would add about $6 million in revenue and about $5 million in sales margin (revenue minus fuel expense and revenue- based taxes). Wholesale capacity sales are expected to be approximately $6 million in 1994.
Another major factor affecting the Company's financial condition will be the Company's ability to control expenses. Fuel expense, excluding wholesale fuel expense, is expected to decline by approximately $2.3 million in 1994 from the 1993 level, reflecting significantly lower nuclear fuel prices. Also, significant reductions in interest expense have been achieved since 1989, and additional savings of $10 million are expected in 1994 due to debt refinancing. For 1994, operation and maintenance expenses are expected to increase from normal inflationary pressures, but these increases should be substantially offset by savings from the phase-in of the Company's corporate structure reorganization. Since 1990, annual growth in total operation and maintenance expense, excluding one-time items and cogeneration capacity purchases, has averaged approximately 2.7%, and the Company hopes to restrict future increases to less than the rate of inflation.
The final portion of the cost of Seabrook Unit 1 has been added to rate base (and retail revenues) for 1994. This will eliminate deferred revenues and reduce net income by $7.4 million after-tax in 1994 from 1993 levels.
Although the Company believes that its financing outlook and plans are unlikely to be adversely affected by further developments with respect to the licensing and operation of Seabrook Unit 1, the Company's financial status and financing capability will continue to be sensitive to any such developments and to many other factors, including conditions in the securities markets, economic conditions, the level of the Company's income and cash
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flow, and legislative and regulatory developments, including the cost of compliance with increasingly stringent environmental legislation and regulations and competition within the electric utility industry.
INFLATION
As a result of inflation and increased environmental and regulatory requirements, the estimated cost of replacing the Company's productive capacity today would substantially exceed the historical cost of such facilities reported in the financial statements. Since the Company's rates for service to its customers have been based in the past on the cost of providing such service and have been revised from time to time to reflect increased costs of service, the Company believes that any higher replacement costs it may experience in the future will be recovered through the normal regulatory process.
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The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.
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The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.
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The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.
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The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.
- 43 -
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) STATEMENT OF ACCOUNTING POLICIES
Accounting Records
The accounting records are maintained in accordance with the uniform systems of accounts prescribed by the Federal Energy Regulatory Commission (FERC) and the Connecticut Department of Public Utility Control (DPUC).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Bridgeport Electric Company (BEC), United Resources Inc., United Energy International, Inc. and Research Center, Inc. Intercompany accounts and transactions have been eliminated in consolidation.
Reclassification of Previously Reported Amounts
Certain amounts previously reported have been reclassified to conform with current year presentations.
Utility Plant
The cost of additions to utility plant and the cost of renewals and betterments are capitalized. Cost consists of labor, materials, services and certain indirect construction costs, including an allowance for funds used during construction (AFUDC). The cost of current repairs and minor replacements is charged to appropriate operating expense accounts. The original cost of utility plant retired or otherwise disposed of and the cost of removal, less salvage, are charged to the accumulated provision for depreciation.
Allowance for Funds Used During Construction
In accordance with the applicable regulatory systems of accounts, the Company capitalizes AFUDC, which represents the approximate cost of debt and equity capital devoted to plant under construction. In accordance with FERC prescribed accounting, the portion of the allowance applicable to borrowed funds is presented in the Consolidated Statement of Income as a reduction of interest charges, while the portion of the allowance applicable to equity funds is presented as other income. Although the allowance does not represent current cash income, it has historically been recoverable under the ratemaking process over the service lives of the related properties. The Company compounds semi-annually the allowance applicable to major construction projects. AFUDC rates in effect for 1993, 1992 and 1991 were 8.75%, 10.25% and 10.88%, respectively.
Depreciation
Provisions for depreciation on utility plant for book purposes, excluding costs associated with the 1984 reconversion of BEC's plant to a dual-fired capability, are computed on a straight-line basis, using estimated service lives determined by independent engineers. One-half year's depreciation is taken in the year of addition and disposition of utility plant, except in the case of major operating units on which depreciation commences in the month they are placed in service and ceases in the month they are removed from service. During the years 1985-1989, depreciation associated with BEC's reconversion costs was computed on an annuity basis over the original ten-year period that this plant was being leased to the Company by BEC. Commencing January 1, 1990, the reconversion costs are being depreciated on a straight-line basis over a period ending July 2000. The aggregate annual provisions for depreciation for the years 1993, 1992 and 1991 were equivalent to approximately 3.22%, 3.15% and 3.10%, respectively, of the original cost of depreciable property.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Income Taxes
Effective January 1, 1993, the Company adopted SFAS 109, "Accounting for Income Taxes". In accordance with SFAS 109, the Company has provided deferred taxes for all temporary book-tax differences using the liability method. The liability method requires that deferred tax balances be adjusted to reflect enacted future tax rates that are anticipated to be in effect when the temporary differences reverse. In accordance with generally accepted accounting principles for regulated industries, the Company has established a net regulatory asset that reflects anticipated future recovery in rates of these deferred tax provisions.
For ratemaking purposes, the Company practices full normalization for all investment tax credits (ITC) related to recoverable plant investments except for the ITC related to Seabrook Unit 1, which was taken into income in accordance with provisions of the 1989 Settlement Agreement.
Accrued Utility Revenues
The estimated amount of utility revenues (less related expenses and applicable taxes) for service rendered but not billed is accrued at the end of each accounting period.
Cash and Cash Equivalents
For cash flow purposes, the Company considers all highly liquid debt instruments with a maturity of three months or less at the date of purchase to be cash equivalents.
The Company is required to maintain an operating deposit with the project disbursing agent related to its 17.5% ownership interest in Seabrook Unit 1. This operating deposit, which is the equivalent to one and one half months of the funding requirement for operating expenses, is restricted for use and amounted to $3.4 million, $2.9 million, and $1.8 million at December 31, 1993, 1992 and 1991, respectively.
Investments
The Company's investment in the Connecticut Yankee Atomic Power Company joint venture, a nuclear generating company in which the Company has a 9 1/2% stock interest, is accounted for on an equity basis.
Fossil Fuel Costs
The amount of fossil fuel costs that cannot be reflected currently in customers' bills pursuant to the FCA in the Company's rates is deferred at the end of each accounting period. Since adoption of the deferred accounting procedure in 1974, rate decisions by the DPUC and its predecessors have consistently made specific provision for amortization and rate-making treatment of the Company's existing deferred fossil fuel cost balances.
Research and Development Costs
Research and development costs, including environmental studies, are capitalized if related to specific construction projects and depreciated over the lives of the related assets. Other research and development costs are charged to expense as incurred.
Pension and Other Post-Employment Benefits
The Company accounts for normal pension plan costs in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 87, "Employers' Accounting for Pensions", and for supplemental
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
retirement plan costs and supplemental early retirement plan costs in accordance with the provisions of SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits".
Prior to January 1, 1993, the Company accounted for other post- employment benefits, consisting principally of health and life insurance, on a pay-as-you-go basis. Effective January 1, 1993, the Company commenced accounting for these costs under the provisions of SFAS No. 106, "Employers' Accounting for Post- Retirement Benefits Other than Pensions", which requires, among other things, that the liability for such benefits be accrued over the employment period that encompasses eligibility to receive such benefits. The annual incremental cost of this accounting change has been allowed in retail rates in accordance with a 1992 rate decision.
Uranium Enrichment Obligation
Under the Energy Policy Act of 1992 (Energy Act), the Company will be assessed for its proportionate share of the costs of the decontamination and decommissioning of uranium enrichment facilities operated by the Department of Energy. The Energy Act imposes an overall cap of $2.25 billion on the obligation assessed to the nuclear utility industry and limits the annual assessment to $150 million each year over a 15-year period. At December 31, 1993, the Company's unfunded share of the obligation, based on its ownership interest in Seabrook Unit 1 and Millstone Unit 3, was approximately $1.5 million. Effective January 1, 1993, the Company was allowed to recover these assessments in rates as a component of fuel expense. Accordingly, the Company has recognized these costs as a regulatory asset on its Consolidated Balance Sheet.
Nuclear Decommissioning Trusts
External trust funds are maintained to fund the estimated future decommissioning costs of the nuclear generating units in which the Company has an ownership interest. These costs are accrued as a charge to depreciation expense over the estimated service lives of the units and are recovered in rates on a current basis. The Company paid $1,616,000, $1,334,000 and $1,011,000 during 1993, 1992 and 1991 into the decommissioning trust funds for Seabrook Unit 1 and Millstone Unit 3. At December 31, 1993, the Company's share of the trust fund balances, which include accumulated earnings on the funds, were $3.7 million and $1.9 million for Seabrook Unit 1 and Millstone Unit 3, respectively. These fund balances are included in "Other Property and Investments" and the accrued decommissioning obligation is included in "Noncurrent Liabilities" on the Company's Consolidated Balance Sheet.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(a) Common Stock
The Company issued 46,000 shares of common stock in 1993, 100,800 shares of common stock in 1992 and 44,600 shares of common stock in 1991 pursuant to a stock option plan. During 1993, the Company also issued 4,143 shares of common stock pursuant to a long-term incentive program.
Common stock, no par value, authorized at December 31, 1993, included 400,000 shares reserved for the Company's Employee Stock Ownership Plan (ESOP). There were no additions to ESOP in 1991, 1992 or 1993.
The Company purchased on the open market, on behalf of shareholders participating in the common stock Dividend Reinvestment Plan, 148,362 shares of stock in 1991, 136,679 shares of stock in 1992 and 138,145 shares of stock in 1993.
In 1990, the Company's Board of Directors and the shareowners approved a stock option plan for officers and key employees of the Company. The plan provides for the awarding of options to purchase up to 750,000 shares of the Company's common stock over periods of from one to ten years following the dates when the options are granted. On June 5, 1991, the DPUC approved the issuance of 500,000 shares of stock pursuant to this plan. The exercise price of each option cannot be less than the market value of the stock on the date of the grant. Options to purchase 214,000 shares of stock at an exercise price of $30.75 per share, 2,800 shares of stock at an exercise price of $28.3125 per share, 1,800 shares of stock at an exercise price of $31.1875 per share, 4,000 shares of stock at an exercise price of $35.625 per share, 36,200 shares of stock at an exercise price of $39.5625 per share and 5,000 shares of stock at an exercise price of $42.375 per share have been granted by the Board of Directors and remain outstanding at December 31, 1993. Options to purchase 44,600 shares of stock at an exercise price of $30.75 were exercised during 1991. Options to purchase 98,000 shares of stock at an exercise price of $30.75 and 2,800 shares of stock at an exercise price of $28.3125 were exercised during 1992. Options to purchase 42,400 shares of stock at an exercise price of $30.75 per share, 1,400 shares of stock at an exercise price of $28.3125 per share, 1,200 shares of stock at an exercise price of $31.1875 per share and 1,000 shares of stock at an exercise price of $35.625 per share were exercised during 1993.
In addition, certain executive officers were eligible to earn shares of the Company's common stock, based upon the dividend and market performance of the stock compared to a peer group of electric utilities over a four-year period ending December 31, 1992, under the Company's long-term incentive program. The issuance of shares of stock pursuant to this program received DPUC approval on June 5, 1991. The total number of shares of common stock that could have been earned under the long-term incentive program was limited to 7,091. For the four-year period ending December 31, 1992, 6,027 shares of the Company's common stock were earned. Of this amount, a total of 4,143 shares were issued to the participants in 1993, and the remainder was distributed in an equivalent amount of cash based on the closing price of the Company's Common Stock on March 1, 1993, pursuant to the terms of the long-term incentive program. This program ended as of December 31, 1992.
(b) Retained Earnings Restriction
The indenture under which the Company's Medium-Term Notes and Notes are issued places limitations on the payment of cash dividends on common stock and on the purchase or redemption of common stock. Retained earnings in the amount of $82.6 million were free from such limitations at December 31, 1993.
(c) Preferred and Preference Stock
The par value of each of these issues was credited to the appropriate stock account and expenses related to these issues were charged to capital stock expense.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In 1991, the Company purchased and cancelled shares of its $100 par value Preferred Stock, at a discount, resulting in a non-taxable addition to common equity of approximately $3,304,000. The 1991 purchases consisted of:
9,575 shares of 4.35% Preferred Stock, Series A 7,320 shares of 4.72% Preferred Stock, Series B 39,900 shares of 4.64% Preferred Stock, Series C 13,800 shares of 5 5/8% Preferred Stock, Series D
In 1992, the Company purchased and cancelled 16,950 shares of its $100 par value 4.72% Preferred Stock, Series B, at a discount, resulting in a non-taxable addition to common equity of approximately $796,650.
There was no redemption of preferred stock in 1993.
Shares of preferred stock have preferential dividend and liquidation rights over shares of common stock. Preferred shareholders are not entitled to general voting rights. However, if any preferred dividends are in arrears for six or more quarters, or if some other event of default occurs, preferred shareholders are entitled to elect a majority of the Board of Directors until all preferred dividend arrears are paid and any event of default is terminated.
Preference stock is a form of stock that is junior to preferred stock but senior to common stock. It is not subject to the earnings coverage requirements or minimum capital and surplus requirements governing the issuance of preferred stock. There were no shares of preference stock outstanding at December 31, 1993.
(d) Long-Term Debt
In January 1993, the net proceeds from the liquidation of an investment in tax-exempt municipal debt instruments were used to pay $60 million principal amount of maturing 10.32% First Mortgage Bonds of the Company's wholly-owned subsidiary, Bridgeport Electric Company; to repay a $7.5 million 13.1% term loan; to repay short- term borrowings incurred for the August 1, 1992 redemption of the Company's 12% Debentures, due August 1, 2017, and for repayment of a $7.5 million 12.9% term loan on September 30, 1992; and to repay short-term borrowings incurred for a $19.1 million rent payment on December 31, 1992 under the Company's facility sale and leaseback arrangement for a portion of its ownership interest in Seabrook Unit 1.
On September 30, 1993, the Company repaid a $5 million 12.9% term loan with funds obtained through short-term borrowings.
On September 17, 1993, the Company invited the owners of $68,400,000 aggregate principal amount of 14 1/2% Pollution Control Revenue Bonds, due October 1 and December 1, 2009, ("Bonds") to sell to the Company, for cash, any and all of the Bonds. The Bonds were issued in 1984 by The Industrial Development Authority of the State of New Hampshire ("NHIDA"), which loaned the issue proceeds to the Company to pay for the cost of installing pollution control facilities at the Seabrook nuclear generating plant in New Hampshire; and the Business Finance Authority of the State of New Hampshire ("NHBFA"), successor to the NHIDA, agreed to issue Pollution Control Refunding Revenue Bonds ("Refunding Bonds") in a principal amount equal to the aggregate principal amount of Bonds purchased by the Company and surrendered to the Bond trustee for cancellation, and to loan the issue proceeds of the Refunding Bonds to the Company to pay for part of the purchase price of the Bonds being purchased and cancelled. On October 15, 1993, the Company accepted offers from holders of $64,460,000 aggregate principal amount of the Bonds to sell them for an aggregate purchase price of $75,710,000. On October 26, 1993, the NHBFA issued and sold $64,460,000 principal amount of 5 7/8% Refunding Bonds, due October 1, 2033, and loaned the issue proceeds to the Company, which used them to pay
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
a portion of the purchase price of the Bonds. The remainder of the purchase price was funded with the proceeds of short-term borrowings.
On December 7, 1993, the Company issued and sold $100 million principal amount of five-year and one month Notes at a coupon rate of 6.20%. The net proceeds were used to repay $60 million principal amount of maturing 10.32% First Mortgage Bonds of the Company's wholly-owned subsidiary, Bridgeport Electric Company in January 1994; to repay a $5 million 13.1% term loan in January 1994 and for general corporate purposes, including repayment of short-term borrowings.
Maturities and mandatory redemptions/repayments and annual interest expense on existing long-term debt are set forth below:
(C) RATE-RELATED REGULATORY PROCEEDINGS
On December 16, 1992, the DPUC approved levelized rate increases of 2.66% ($15.8 million) for 1993 and 2.66% (an additional $17.3 million) for 1994, including allowed conservation and load management revenue increases. The rate increases totaled $33.1 million, or 5.4%, over two years.
In order to achieve levelized 2.66% rate increases for each of these two years, the DPUC determined that the recovery of $13.1 million of sales adjustment clause revenues would be deferred from 1993 to 1994.
Utilities are entitled by Connecticut law to revenues sufficient to allow them to cover their operating and capital costs, to attract needed capital and maintain their financial integrity, while also protecting the public interest. Accordingly, the DPUC's 1992 rate decision authorized a return on equity of 12.4% for ratemaking purposes. However, the Company may earn up to 1% above this level before a mandatory review is required by the DPUC.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Since January 1971, UI has had a fossil fuel adjustment clause (FCA) in virtually all of its retail rates. The DPUC is required by law to convene an administrative proceeding prior to approving FCA charges or credits for each month. The law permits automatic implementation of the charges or credits if the DPUC fails to act within five days of the administrative proceeding, although all such charges and credits are also subject to further review and appropriate adjustment by the DPUC at public hearings required to be held at least every three months. The DPUC has made no material changes in UI's FCA charges and credits as the result of any of these proceedings or hearings.
(D) ACCOUNTING FOR PHASE-IN PLAN
The Company has been phasing into rate base its allowable investment in Seabrook Unit 1, amounting to $640 million, since January 1, 1990. In conjunction with this phase-in plan, the Company has been allowed to record a deferred return on the portion of allowable investment excluded from rate base during the phase-in period. The accumulated deferred return has been added to rate base each year since January 1, 1991 in the same proportion as the phase-in installment for that year has borne to the portion of the $640 million remaining to be phased-in. On January 1, 1994, the Company phased into rate base the remaining $74.5 million of allowable investment, plus the remaining $28.2 million of accumulated deferred return. The Company will be allowed to recover the accumulated deferred return, amounting to $62.9 million, over a five-year period commencing January 1, 1995.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Total income taxes differ from the amounts computed by applying the federal statutory tax rate to income before taxes. The reasons for the differences are as follows:
At December 31, 1993, the Company had deferred tax liabilities for taxable temporary differences of $574 million and deferred tax assets for deductible temporary differences of $149 million, resulting in a net deferred tax liability of $425 million. Significant components of deferred tax liabilities and assets were as follows: tax liabilities on book/tax plant basis differences, $229 million; tax liabilities on the cumulative amount of income taxes on temporary differences previously flowed through to ratepayers, $163 million; tax liabilities on normalization of book/tax depreciation timing differences, $89 million and tax assets on the disallowance of plant costs, $77 million.
The Tax Reform Act of 1986 provides for a more comprehensive corporate alternative minimum tax (AMT) for years beginning after 1986. To the extent that the AMT exceeds the federal income tax computed at statutory rates, the excess must be paid in addition to the regular tax liability. For tax purposes, the excess paid in any year can be carried forward indefinitely and offset against any future year's regular tax liability in excess of that year's tentative AMT. The AMT carryforward at December 31, 1993, 1992 and 1991 was $11.4 million, $11.3 million and $9.9 million, respectively.
(F) SHORT-TERM CREDIT ARRANGEMENTS
The Company has a revolving credit agreement with a group of banks, which currently extends to January 19, 1995. The borrowing limit of this facility is $75 million. The facility permits the Company to borrow funds at a fluctuating interest rate determined by the prime lending market in New York, and also permits the Company to borrow money for fixed periods of time specified by the Company at fixed interest rates determined by the Eurodollar interbank market in London, by the certificate of deposit market in New York, or by bidding, at the
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Company's option. If a material adverse change in the business, operations, affairs, assets or condition, financial or otherwise, or prospects of the Company and its subsidiaries, on a consolidated basis, should occur, the banks may decline to lend additional money to the Company under this revolving credit agreement, although borrowings outstanding at the time of such an occurrence would not then become due and payable. As of December 31, 1993, the Company had no short-term borrowings outstanding under this facility.
The Company's long-term debt instruments do not limit the amount of short-term debt that the Company may issue. The Company's revolving credit agreement described in the previous paragraph requires it to maintain an available earnings/interest charges ratio of not less than 1.5:1.0 for each 12-month period ending on the last day of each calendar quarter.
The Company had a $50 million term loan facility with a group of banks during 1993. Under this agreement, the Company chose an interest rate from among three alternatives: (i) a fluctuating interest rate determined by the prime lending market in New York; (ii) a fixed interest rate determined by the Eurodollar interbank market in London; and (iii) a fixed interest rate determined by the certificate of deposit market in New York. On February 1, 1993, the Company borrowed $50 million from this group of banks, using the proceeds to repay short-term borrowings and other current obligations. On December 3, 1993, the Company repaid the $50 million borrowing and terminated the agreement.
The Company had a term loan agreement with PruLease, Inc. (PruLease) that expired on December 1, 1993. This agreement was executed on December 31, 1992, when the Company borrowed $49.1 million from PruLease and purchased all the nuclear fuel that was owned by PruLease and leased to the Company on that date. This loan, which was collateralized by a first lien on the Company's ownership interest in the nuclear fuel for Seabrook Unit 1, was repaid in full at maturity.
The Company has a Fossil Fuel Supply Agreement with a financial institution providing for financing up to $37.5 million in fossil fuel purchases. Under this agreement, the financing entity acquires and stores natural gas, coal and fuel oil for sale to the Company, and the Company purchases these fossil fuels from the financing entity at a price for each type of fuel that reimburses the financing entity for the direct costs it has incurred in purchasing and storing the fuel, plus a charge for maintaining an inventory of the fuel determined by reference to the fluctuating interest rate on thirty-day, dealer-placed commercial paper in New York. The Company is obligated to insure the fuel inventories and to indemnify the financing entity against all liabilities, taxes and other expenses incurred as a result of its ownership, storage and sale of fossil fuel to the Company. This agreement currently extends to February 1995. At December 31, 1993, approximately $10.1 million of fossil fuel purchases were being financed under this agreement.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information with respect to short-term borrowings is as follows:
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(G) SUPPLEMENTARY INFORMATION
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(H) PENSION AND OTHER POST-EMPLOYMENT BENEFITS
The Company's qualified pension plan, which is based on the highest three years of pay, covers substantially all of its employees, and its entire cost is borne by the Company. The Company also has a non-qualified supplemental plan for certain executives and a non-qualified retiree only plan for certain early retirement benefits. The net pension costs for these plans for 1993, 1992 and 1991 were $14,966,000, $5,749,000 and $2,054,000, respectively.
The Company's funding policy for the qualified plan is to make annual contributions that satisfy the minimum funding requirements of ERISA but which do not exceed the maximum deductible limits of the Internal Revenue Code. These amounts are determined each year as a result of an actuarial valuation of the Plan. In accordance with this policy, the Company will be contributing $3.3 million in 1994 for 1993 funding requirements. Previously, due to the application of the full funding limitation under ERISA, the Company had not been required to make a contribution since 1985. The supplemental plan is unfunded.
The qualified plan's irrevocable trust fund consists principally of equity and fixed-income securities and real estate investments in approximately the following percentages:
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In addition to providing pension benefits, the Company also provides other postretirement benefits (OPEB), consisting principally of health care and life insurance benefits, for retired employees and their dependents. Employees with 25 years of service are eligible for full benefits, while employees with less than 25 years of service but greater than 15 years of service are entitled to partial benefits. Years of service prior to age 35 are not included in determining the number of years of service.
Prior to January 1, 1993, the Company recognized the cost of providing OPEB on a pay-as-you-go basis by expensing the annual insurance premiums. These costs amounted to $1.3 million and $1.1 million for 1992 and 1991, respectively. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions", which requires, among other things, that OPEB costs be recognized over the employment period that encompasses eligibility to receive such benefits. In its December 16, 1992 decision on the Company's application for retail rate relief, the DPUC recognized the Company's obligation to adopt SFAS No. 106, effective January 1, 1993, and approved the Company's request for revenues to recover OPEB expenses on a SFAS No. 106 basis. A portion of these expenses represents the transition obligation, which will accrue over a 20-year period, representing the future liability for medical and life insurance benefits based on past service for retirees and active employees.
For funding purposes, the Company has established two Voluntary Employees' Benefit Association Trusts (VEBA) to fund OPEB for employees who retire on or after January 1, 1994; one VEBA for union employees and one for non-union employees. Approximately 52% of the Company's employees are represented by Local 470-1, Utility Workers Union of America, AFL-CIO, for collective bargaining purposes. The funding policy assumes contributions to these trust funds to be the total OPEB expense under SFAS No. 106, excluding the amount that resulted from the reorganization minus pay-as-you- go benefit payments for pre-January 1, 1994 retirees, allocated in a manner that minimizes current income tax liability, without exceeding maximum tax deductible limits. In accordance with this policy, the Company contributed approximately $3 million to the union VEBA on December 30, 1993. The Company currently plans to fund the portion of the OPEB expense that is related to the reorganization during the years 1994-1996.
The 1993 cost for OPEB includes the following components:
A one percentage point increase in the assumed health care cost trend rate would have increased the service cost and interest cost components of the 1993 net cost of periodic postretirement benefit by approximately $445,000 and would increase the accumulated postretirement benefit obligation for health care benefits by approximately $2,421,000.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table reconciles the funded status of the plan with the amount recognized in the Consolidated Balance Sheet as of December 31, 1993:
The weighted average discount rate used to measure the accumulated postretirement benefit obligation was 7.5%.
During 1993, in conjunction with a in-depth organizational review, the Company offered a voluntary early retirement program to non-union employees who were eligible to receive pension benefits. This offer was accepted by 103 employees. The 1993 OPEB cost for this program was $1.267 million. These costs are recognized as a component of the reorganizational charge shown on the Company's Consolidated Statement of Income.
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for Post-Employment Benefits". This statement, which will be adopted during the first quarter of 1994, establishes accounting standards for employers who provide benefits, such as unemployment compensation, severance benefits and disability benefits, to former or inactive employees after employment but before retirement and requires recognition of the obligation for these benefits. The adoption of this new standard will result in a pre-tax charge against earnings amounting to approximately $2 million during the first quarter of 1994. Subsequent period costs are not expected to be material.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(I) JOINTLY OWNED PLANT
At December 31, 1993, the Company had the following interests in jointly owned plants:
The Company's share of the operating costs of jointly owned plants is included in the appropriate expense captions in the Consolidated Statement of Income.
(J) UNAMORTIZED CANCELLED NUCLEAR PROJECT
From December 1984 through December 1992, the Company had been recovering its investment in Seabrook Unit 2 over a regulatory approved ten-year period without a return on its unamortized investment. In the Company's 1992 rate decision, the DPUC adopted a proposal by the Company to write off its remaining investment in Seabrook Unit 2, beginning January 1, 1993, over a 24-year period, corresponding with the flowback of certain Connecticut Corporation Business Tax (CCBT) credits. Such decision will allow the Company to retain the Seabrook Unit 2/CCBT amounts for ratemaking purposes, with the accumulated CCBT credits not deducted from rate base during the 24-year period of amortization in recognition of a longer period of time for amortization of the Seabrook Unit 2 balance.
(K) FUEL FINANCING OBLIGATIONS AND OTHER LEASE OBLIGATIONS
The Company has a Fossil Fuel Supply Agreement with a financial institution providing for financing up to $37.5 million in fossil fuel purchases. Under this agreement, the financing entity acquires and stores natural gas, coal and fuel oil for sale to the Company, and the Company purchases these fossil fuels from the financing entity at a price for each type of fuel that reimburses the financing entity for the direct costs it has incurred in purchasing and storing the fuel, plus a charge for maintaining an inventory of the fuel determined by reference to the fluctuating interest rate on thirty-day, dealer-placed commercial paper in New York. The Company is obligated to insure the fuel inventories and to indemnify the financing entity against all liabilities, taxes and other expenses incurred as a result of its ownership, storage and sale of fossil fuel to the Company. This agreement currently extends to February 1995. At December 31, 1993, approximately $10.1 million of fossil fuel purchases were being financed under this agreement.
The Company has leases (some of which are capital leases), including arrangements for data processing and office equipment, vehicles, office space and oil tanks. The gross amount of assets recorded under capital leases and the related obligations of those leases as of December 31, 1993 are recorded on the balance sheet.
Future minimum lease payments under capital leases, excluding the Seabrook sale/leaseback transaction, which is being treated as a long-term financing, are estimated to be as follows:
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Capitalization of leases has no impact on income, since the sum of the amortization of a leased asset and the interest on the lease obligation equals the rental expense allowed for ratemaking purposes.
Rental payments charged to operating expenses in 1993, 1992 and 1991 amounted to $14.1 million, $14.8 million and $14.9 million, respectively.
Operating leases, which are charged to operating expense, consist of a large number of small, relatively short-term, renewable agreements for a wide variety of equipment.
(L) COMMITMENTS AND CONTINGENCIES
Capital Expenditure Program
The Company has entered into commitments in connection with its continuing capital expenditure program, which is presently estimated at approximately $366.5 million, excluding AFUDC, for 1994 through 1998.
Seabrook
After experiencing increasing financial stress beginning in May 1987, Public Service Company of New Hampshire (PSNH), which held the largest ownership share (35.6%) in Seabrook, commenced a proceeding under Chapter 11 of the Bankruptcy Code in January of 1988. Under this statute, PSNH continued its operations while seeking a financial reorganization. A reorganization plan proposed by Northeast Utilities (NU) was confirmed by the bankruptcy court in April of 1990 and, on May 16, 1991, PSNH completed the financing required for payment of its pre-bankruptcy secured and unsecured debt under the first stage of the reorganization plan and emerged from bankruptcy. On May 19, 1992, the NRC issued the final regulatory approval necessary for the second stage of the NU reorganization plan, under which PSNH would be acquired by NU; and on June 5, 1992, this acquisition was completed. As part of the transaction, PSNH's ownership share of Seabrook Unit 1 was transferred to a wholly-owned subsidiary of NU. Two previous regulatory approvals of the NU reorganization plan for PSNH, by the Federal Energy Regulatory Commission (FERC) and the Securities and Exchange Commission (SEC), continue to be challenged in court proceedings, and the Company is unable to predict the outcome of these proceedings.
On February 28, 1991, EUA Power Corporation (EUA Power), the holder of a 12.1% ownership share in Seabrook, commenced a proceeding under Chapter 11 of the Bankruptcy Code. EUA Power, a wholly-owned subsidiary of Eastern Utilities Associates (EUA), was organized solely for the purpose of acquiring an ownership share in Seabrook and selling in the wholesale market its share of the electric power produced by Seabrook. EUA Power commenced this bankruptcy proceeding because the cash generated by its sales of power at current market prices was insufficient to pay its obligations on its outstanding debt. Subsequently, EUA Power's name
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
was changed to Great Bay Power Corporation (Great Bay). The official committee of Great Bay's bondholders (Bondholders Committee) has proposed, and the bankruptcy court has confirmed, a reorganization plan for Great Bay, under which substantially all of the equity ownership of Great Bay would pass to its bondholders. On February 2, 1994, the Bondholders Committee accepted a financing proposal that would inject $35 million of new ownership equity into Great Bay. The bankruptcy court must approve this structure before the Great Bay reorganization plan becomes effective. Further approvals are also required from the NRC, FERC and the New Hampshire Public Utilities Commission. The bankruptcy court has approved an agreement among Great Bay, the Bondholders Committee, UI and The Connecticut Light and Power Company (CL&P), under which up to $20 million in advance payments against their respective future monthly Seabrook payment obligations will be made available between UI and CL&P as needed until the reorganization plan becomes effective. UI's share of funding obligations under this agreement totals $8 million. As of December 31, 1993, $5.5 million had been advanced by UI under this agreement. At January 31, 1994, $602,000 of the Company's advances remained outstanding. This agreement can be terminated by UI and CL&P upon thirty days notice or upon failure of the reorganization process to achieve certain milestones by specified dates. UI is unable to predict what impact, if any, failure of the reorganization plan to become effective will have on the operating license for Seabrook Unit 1, or what other actions UI and the other joint owners of the unit may be required to take in response to developments in this bankruptcy proceeding as it may affect Seabrook.
Nuclear generating units are subject to the licensing requirements of the Nuclear Regulatory Commission (NRC) under the Atomic Energy Act of 1954, as amended, and a variety of other state and federal requirements. Although Seabrook Unit 1 has been issued a 40-year operating license, NRC proceedings and investigations prompted by inquiries from Congressmen and by NRC licensing board consideration of technical contentions may arise and continue for an indefinite period of time in the future.
Nuclear Insurance Contingencies
The Price-Anderson Act, currently extended through August 1, 2002, limits public liability resulting from a single incident at a nuclear power plant. The first $200 million of liability coverage is provided by purchasing the maximum amount of commercially available insurance. Additional liability coverage will be provided by an assessment of up to $75.5 million per incident, levied on each of the nuclear units licensed to operate in the United States, subject to a maximum assessment of $10 million per incident per nuclear unit in any year. In addition, if the sum of all public liability claims and legal costs resulting from any nuclear incident exceeds the maximum amount of financial protection, each reactor operator can be assessed an additional 5% of $75.5 million, or $3.775 million. The maximum assessment is adjusted at least every five years to reflect the impact of inflation. Based on its interests in nuclear generating units, the Company estimates its maximum liability would be $20.3 million per incident. However, assessment would be limited to $3.1 million per incident, per year. With respect to each of the operating nuclear generating units in which the Company has an interest, the Company will be obligated to pay its ownership and/or leasehold share of any statutory assessment resulting from a nuclear incident at any nuclear generating unit.
The NRC requires nuclear generating units to obtain property insurance coverage in a minimum amount of $1.06 billion and to establish a system of prioritized use of the insurance proceeds in the event of a nuclear incident. The system requires that the first $1.06 billion of insurance proceeds be used to stabilize the nuclear reactor to prevent any significant risk to public health and safety and then for decontamination and cleanup operations. Only following completion of these tasks would the balance, if any, of the segregated insurance proceeds become available to the unit's owners. For each of the nuclear generating units in which the Company has an interest, the Company is required to pay its ownership and/or leasehold share of the cost of purchasing such insurance.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other Commitments and Contingencies
Hydro-Quebec
The Company is a participant in the Hydro-Quebec transmission intertie facility linking New England and Quebec, Canada. Phase II of this facility, in which UI has a 5.45% participating share, has increased the capacity value of the intertie from 690 megawatts to a maximum of 2000 megawatts. A ten-year Firm Energy Contract, which provides for the sale of 7 million megawatt-hours per year by Hydro-Quebec to the New England participants in the Phase II facility, became effective on July 1, 1991. The Company is obligated to furnish a guarantee for its participating share of the debt financing for the Phase II facility. Currently, the Company's guarantee liability for this debt amounts to approximately $9.8 million.
Reorganization Charge
During 1993, the Company undertook an in-depth organizational review with the primary objective of improving customer service. As a result of this review, the Company eliminated approximately 75 positions.
In conjunction with this review, the Company offered a voluntary early retirement program to non-union employees who were eligible to receive pension benefits. The early retirement offer was accepted by 103 employees and the Company incurred a one-time charge to 1993 earnings of approximately $13.6 million ($7.8 million, after-tax). No decision has been made as to whether to offer a severance program to employees who may be affected by the organizational review when it is completed, but who were not eligible for, or did not accept, the early retirement offer.
Site Remediation Costs
The Company has estimated that the cost of environmental remediation of its decommissioned Steel Point Station property in Bridgeport will be approximately $10.3 million and has recorded a liability for this cost. Following remediation, the Company intends to sell the property for development for a value it estimates will not exceed $6 million. In the Company's last rate decision, the DPUC provided additional revenues to recover the $4.3 million difference during the period 1993-1996, subject to true-up in the Company's next retail rate proceeding, based on actual remediation costs and the actual gain on the sale of the property.
Property Taxes
In November 1993, the Company received "updated" personal property tax bills from the City of New Haven (the City) for the tax year 1991-1992, aggregating $6.6 million, based on an audit by the City's tax assessor. The Company anticipates receiving additional bills of this sort for the tax years 1992-1993 and 1993-1994, the amounts of which cannot be predicted at this time. The Company is contesting these tax bills vigorously and has commenced an action in the Superior Court to enjoin the City from any effort to collect these tax bills. Due to a lack of data, it is not possible, at this time, to assess accurately the Company's liability, if any.
(M) NUCLEAR FUEL DISPOSAL AND NUCLEAR PLANT DECOMMISSIONING
Costs associated with nuclear plant operations include amounts for disposal of nuclear wastes, including spent fuel, and for the ultimate decommissioning of the plants. Under the Nuclear Waste Policy Act of 1982, the federal Department of Energy (DOE) is required to design, license, construct and operate a permanent repository for high level radioactive wastes and spent nuclear fuel. The Act requires the DOE to provide, beginning in 1998, for the disposal of spent nuclear fuel and high level radioactive waste from commercial nuclear plants through contracts with the owners and generators of such waste; and the DOE has established disposal
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
fees that are being paid to the federal government by electric utilities owning or operating nuclear generating units. In return for payment of the prescribed fees, the federal government is to take title to and dispose of the utilities' high level wastes and spent nuclear fuel beginning no later than 1998. However, the DOE has announced that its first high level waste repository will not be in operation earlier than 2010, notwithstanding the DOE's statutory and contractual responsibility to begin disposal of high-level radioactive waste and spent fuel beginning not later than January 31, 1998.
Until the federal government begins receiving such materials in accordance with the Nuclear Waste Policy Act, operating nuclear generating units will need to retain high level wastes and spent fuel on-site or make other provisions for their storage. Storage facilities for Millstone Unit 3 are expected to be adequate for the projected life of the unit. Storage facilities for the Connecticut Yankee unit are expected to be adequate through the mid-1990s. Storage facilities for Seabrook Unit 1 are expected to be adequate until at least 2010. Fuel consolidation and compaction technologies are being developed and are expected to provide adequate storage capability for the projected lives of the latter two units. In addition, other licensed technologies, such as dry storage casks, can accommodate spent fuel storage requirements.
Disposal costs for low-level radioactive wastes (LLW) that result from normal operation of nuclear generating units have increased significantly in recent years and are expected to continue to increase. The cost increases are functions of increased packaging and transportation costs and higher fees and surcharges charged by the disposal facilities. Pursuant to the Low-Level Radioactive Waste Policy Act of 1980, each state was responsible for providing disposal facilities for LLW generated within the state and was authorized to join with other states into regional compacts to jointly fulfill their responsibilities. Pursuant to the Low-Level Radioactive Waste Policy Amendments Act of 1985, each state in which a currently operating disposal facility is located (South Carolina, Nevada and Washington) is allowed to impose volume limits and a surcharge on shipments of LLW from states that are not members of the compact in the region in which the facility is located. On June 19, 1992, the United States Supreme Court issued a decision upholding certain parts of the Low-Level Radioactive Waste Policy Amendments Act of 1985, but invalidating a key provision of that law requiring each state to take title to LLW generated within that state if the state fails to meet federally-mandated deadlines for siting LLW disposal facilities. The decision has resulted in uncertainty about states' continuing roles in siting LLW disposal facilities and may result in increased LLW disposal costs and the need for longer interim LLW storage before a permanent solution is developed.
The Connecticut Hazardous Waste Management Service (the Service), a state quasi-public corporation, was charged with coordinating the establishment of a facility for disposal of LLW originating in Connecticut. In June 1991, the Service announced that it had selected three potential sites in north-central Connecticut for further study. The Service's announcement provoked intense controversy in the affected municipalities and resulted in legislative action to stop the selection process. On February 1, 1993, the Service presented the legislature with a new site selection plan under which communities are urged to volunteer a site for a facility in return for financial and other incentives. The volunteer process is being continued in 1994. The Service's activities in this regard are funded by assessments on Connecticut's LLW generators. Due to a change in the volunteer process, there was no assessment for the 1993-1994 fiscal year and the state projects no assessment for the 1994-1995 and 1995-1996 fiscal years.
Additional LLW storage capacity has been or can be constructed or acquired at the Millstone and Connecticut Yankee sites to provide for temporary storage of LLW should that become necessary. Connecticut LLW can be managed by volume reduction, storage or shipment at least through 1999. The Company cannot predict whether and when a disposal site will be designated in Connecticut.
The State of New Hampshire has not met deadlines for compliance with the Low-Level Radioactive Waste Policy Act, and Seabrook Unit 1 has been denied access to existing disposal facilities. Therefore, LLW generated
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
by Seabrook Unit 1 is being stored on-site. The Seabrook storage facility currently has capacity to store approximately five years' accumulation of waste generated by Seabrook, and the plant operator plans to expand its storage capacity as necessary.
NRC licensing requirements and restrictions are also applicable to the decommissioning of nuclear generating units at the end of their service lives, and the NRC has adopted comprehensive regulations concerning decommissioning planning, timing, funding and environmental reviews. UI and the other owners of the nuclear generating units in which UI has interests estimate decommissioning costs for the units and attempt to recover sufficient amounts through their allowed electric rates to cover expected decommissioning costs. Changes in NRC requirements or technology can increase estimated decommissioning costs, and UI's customers in future years may experience higher electric rates to offset the effects of any insufficient rate recovery in prior years.
New Hampshire has enacted a law requiring the creation of a government-managed fund to finance the decommissioning of nuclear generating units in that state. The New Hampshire Nuclear Decommissioning Financing Committee (NDFC) established $345 million (in 1993 dollars) as the decommissioning cost estimate for Seabrook Unit 1. This estimate premises the prompt removal and dismantling of the Unit at the end of its estimated 40-year energy producing life. Monthly decommissioning payments are being made to the state-managed decommissioning trust fund. UI's share of the decommissioning payments made during 1993 was $1.3 million. UI's share of the fund at December 31, 1993 was approximately $3.7 million.
Connecticut has enacted a law requiring the operators of nuclear generating units to file periodically with the DPUC their plans for financing the decommissioning of the units in that state. Current decommissioning cost estimates for Millstone Unit 3 and Connecticut Yankee are $421 million (in 1994 dollars) and $324 million (in 1994 dollars), respectively. These estimates premise the prompt removal and dismantling of each unit at the end of its estimated 40-year energy producing life. Monthly decommissioning payments, based on these cost estimates, are being made to decommissioning trust funds managed by Northeast Utilities. UI's share of the Millstone Unit 3 decommissioning payments made during 1993 was $328,000. UI's share of the fund at December 31, 1993 was approximately $1.9 million. For the Company's 9.5% equity ownership in Connecticut Yankee, decommissioning costs of $1.3 million were funded by UI during 1993, and UI's share of the fund at December 31, 1993 was $9.5 million.
Environmental Concerns
In complying with existing environmental statutes and regulations and further developments in these and other areas of environmental concern, including legislation and studies in the fields of water and air quality (particularly "air toxics", "ozone non-attainment" and "global warming"), hazardous waste handling and disposal, toxic substances, and electric and magnetic fields, the Company may incur substantial capital expenditures for equipment modifications and additions, monitoring equipment and recording devices, and it may incur additional operating expenses. Litigation expenditures may also increase as a result of scientific investigations, and speculation and debate, concerning the possibility of harmful health effects of electric and magnetic fields. The Company believes that any additional costs incurred for these purposes will be recoverable through the ratemaking process. The total amount of these expenditures is not now determinable.
(N) CHANGE IN METHOD OF ACCOUNTING FOR PROPERTY TAXES
Effective January 1, 1991, the Company changed its method of accounting for property taxes from accrual over the twelve-month period following assessment date to accrual over the fiscal period of the applicable taxing authority. The effect of the change in accounting was to increase 1991 earnings for common stock by $7.9 million, of which $7.3 million represented the cumulative effect of the change at January 1, 1991, and $.6 million represented an increase in earnings for 1991.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(O) FAIR VALUE OF FINANCIAL INSTRUMENTS (1)
The estimated fair values of the Company's financial instruments are as follows:
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(P) QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for 1993 and 1992 are set forth below:
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REPORT OF INDEPENDENT ACCOUNTANTS ---------------------------------
To the Shareowners and Directors of The United Illuminating Company:
We have audited the accompanying consolidated balances sheets of The United Illuminating Company as of December 31, 1993, 1992 and 1991, and related consolidated statements of income, retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The United Illuminating Company as of December 31, 1993, 1992, and 1991, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND
Hartford, Connecticut January 24, 1994
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
Not Applicable
PART III
Item 10. Directors and Executive Officers of the Company.
The information appearing under the captions "NOMINEES FOR ELECTION AS DIRECTORS" AND "COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934" in the Company's definitive Proxy Statement, dated April 8, 1994, for the Annual Meeting of the Shareholders to be held on May 18, 1994, which Proxy Statement will be filed with the Securities and Exchange Commission on or about April 8, 1994, is incorporated by reference in partial answer to this item. See also "EXECUTIVE OFFICERS OF THE COMPANY", following Part I, Item 4 herein.
Item 11. Executive Compensation.
The information appearing under the captions "EXECUTIVE COMPENSATION," "STOCK OPTION PLAN," "RETIREMENT PLANS," "STOCK OPTION EXERCISES IN 1993 AND YEAR-END OPTION VALUES," "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" AND "DIRECTOR COMPENSATION" in the Company's definitive Proxy Statement, dated April 8, 1994, for the Annual Meeting of the Shareholders to be held on May 18, 1994, which Proxy Statement will be filed with the Securities and Exchange Commission on or about April 8, 1994, is incorporated by reference in answer to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information appearing under the captions "PRINCIPAL SHAREHOLDERS" and "STOCK OWNERSHIP OF DIRECTORS AND OFFICERS" in the Company's definitive Proxy Statement, dated April 8, 1994 for the Annual Meeting of the Shareholders to be held on May 18, 1994, which Proxy Statement will be filed with the Securities and Exchange Commission on or about April 8, 1994, is incorporated by reference in answer to this item.
Item 13. Certain Relationships and Related Transactions.
The information appearing under the caption "NOMINEES FOR ELECTION AS DIRECTORS" in the Company's definitive Proxy Statement, dated April 8, 1994, for the Annual Meeting of the Shareholders to be held on May 18, 1994, which Proxy Statement will be filed with the Securities and Exchange Commission on or about April 8, 1994, is incorporated by reference in answer to this item.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
Financial Statements (see Item 8):
Consolidated statement of income for the years ended December 31, 1993, 1992 and 1991
Consolidated statement of cash flows for the years ended December 31, 1993, 1992 and 1991
Consolidated balance sheet, December 31, 1993, 1992 and 1991
Consolidated statement of retained earnings for the years ended December 31, 1993, 1992 and 1991
Statement of accounting policies
Notes to consolidated financial statements
Report of independent accountants
Financial Statement Schedules (see S-1 through S-5)
Schedule V - Property, plant and equipment for the years ended December 31, 1993, 1992 and 1991.
Schedule VI - Accumulated depreciation, depletion and amortization of property, plant and equipment for the years ended December 31, 1993, 1992 and 1991.
Schedule VIII - Valuation and qualifying accounts for the years ended December 31, 1993, 1992 and 1991.
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Exhibits:
Pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, certain of the following listed exhibits which are annexed as exhibits to previous statements and reports filed by the Company are hereby incorporated by reference as exhibits to this report. Such statements and reports are identified by reference numbers as follows:
(1) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1991.
(2) Filed with Registration Statement No. 2-45434, effective September 25, 1972, and Registration Statement No. 2-45435, effective September 26, 1972.
(3) Filed with Registration Statement No. 2-60849, effective July 24, 1978.
(4) Filed with Registration Statement No. 2-66518, effective February 25, 1980.
(5) Filed with Registration Statement No. 2-57275, effective October 19, 1976.
(6) Filed with Registration Statement No. 2-67998, effective June 19, 1980.
(7) Filed with Registration Statement No. 2-72907, effective July 16, 1981.
(8) Filed with Post-Effective Amendment No. 1 to Registration Statement No. 2-78643, effective August 19, 1982.
(9) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1990.
(10) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended September 30, 1991.
(11) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended March 31, 1991.
(12) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1992.
(13 Filed with Registration Statement No. 33-40169, effective August 12, 1991.
(14) Filed with Registration Statement No. 33-35465, effective August 1, 1990.
(15) Filed with Registration Statement No. 2-49669, effective December 11, 1973.
(16) Filed with Registration Statement No. 2-54876, effective November 19, 1975.
(17) Filed with Registration Statement No. 2-52657, effective February 6, 1975.
(18) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended June 30, 1992.
(19) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended September 30, 1990.
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The exhibit number in the statement or report referenced is set forth in the parenthesis following the description of the exhibit. Those of the following exhibits not so identified are filed herewith.
Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(3) 3.1 (1) Copy of Charter of The United Illuminating Company, dated December 15, 1965. (Exhibit 3.1) (3) 3.2 (2) Copy of a certificate concerning the creation of a class of Preferred Stock of The United Illuminating Company and the authority of the Board of Directors to issue said Preferred Stock, dated July 13, 1956, and filed with the Secretary of State of Connecticut July 13, 1956. (Exhibit 3.12) (3) 3.3 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated November 19, 1962, andfiled with the Secretary of State of Connecticut November 29, 1962. (Exhibit 3.3) (3) 3.4 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated October 25, 1965, and filed with the Secretary of State of Connecticut November 22, 1965. (Exhibit 3.4) (3) 3.5 (2) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated June 6, 1967, and filed with the Secretary of State of Connecticut June 6, 1967. (Exhibit 3.13) (3) 3.6 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated December 1, 1967, and filed with the Secretary of State of Connecticut December 7, 1967. (Exhibit 3.6) (3) 3.7 (3) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated April 27, 1971, and filed with the Secretary of State of Connecticut April 29, 1971. (Exhibit 2.2-14) (3) 3.8 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated March 29, 1972, and filed with the Secretary of State of Connecticut March 30, 1972. (Exhibit 3.8) (3) 3.9 (4) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated May 4 1973, and filed with the Secretary of State of Connecticut May 7, 1973. (Exhibit 2.2-17) (3) 3.10 Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated July 2, 1973, and filed with the Secretary of State of Connecticut July 2, 1973. (Exhibit 3.10) (3) 3.11 (5) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated April 26, 1976, and filed with the Secretary of State of Connecticut April 27, 1976. (Exhibit 2.2-18) (3) 3.12 (5) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated April 26, 1976, and filed with the Secretary of State of Connecticut April 27, 1976. (Exhibit 2.2-19) (3) 3.13 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated October 20, 1976, and filed with the Secretary of State of Connecticut October 21, 1976. (Exhibit 3.13) (3) 3.14 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated April 4, 1979, and filed with the Secretary of State of Connecticut April 5, 1979. (Exhibit 3.14) (3) 3.15 Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated April 29, 1980, and filed with the Secretary of State of Connecticut April 30, 1980. (Exhibit 3.15)
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(3) 3.16 (6) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated May 20, 1980, and filed with the Secretary of State of Connecticut May 23, 1980. (Exhibit 2.2-20) (3) 3.17 (7) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated June 12, 1981, and filed with the Secretary of State of Connecticut June 16, 1981. (Exhibit 1.20) (3) 3.18 (12) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated July 13, 1981, and filed with the Secretary of State of Connecticut July 14, 1981. (3) 3.19 (8) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated June 1, 1983, and filed with the Secretary of State of Connecticut June 3, 1983. (Exhibit 4.31) (3) 3.20 (9) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated July 24, 1984, and filed with the Secretary of State of Connecticut July 24, 1984. (Exhibit 1) (3) 3.21 (9) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated August 8, 1984, and filed with the Secretary of State of Connecticut August 9, 1984. (Exhibit 2) (3) 3.22 (9) Copy of Certificate Amending or Restating Certificate of Incorporation, filed with the Secretary of State of Connecticut August 1, 1990. (Exhibit 3.22) (3) 3.23 (10) Copy of Certificate Amending or Restating Certificate of Incorporation, dated May 9, 1991, and filed with the Secretary of State of Connecticut August 27, 1991. (Exhibit 3.22a) (3) 3.24a (3) Copy of Bylaws of The United Illuminating Company. (Exhibit 2.3) (3) 3.24b (10) Copy of Article II, Section 2, of Bylaws of The United Illuminating Company, as amended March 26, 1990, amending Exhibit 3.24a. (Exhibit 3.23b) (3) 3.24c (11) Copy of Article V, Section 1, of Bylaws of The United Illuminating Company, as amended April 22, 1991, amending Exhibit 3.24a. (Exhibit 3.23c) (4) 4.1 (9) Copy of First Mortgage Indenture and Deed of Trust, dated as of December 1, 1984, between Bridgeport Electric Company and The First National Bank of Boston, Trustee. (Exhibit 4.12) (4) 4.2 (12) Copy of First Supplemental Mortgage Indenture, dated as of February 15, 1987, between Bridgeport Electric Company and The First National Bank of Boston, Trustee, amending and supplementing Exhibit 4.1. (Exhibit 4.2) (4) 4.3 (12) Copy of Second Supplemental Mortgage Indenture, dated as of January 14, 1988, between Bridgeport Electric Company and The First National Bank of Boston, Trustee, amending and supplementing Exhibit 4.1 and amending Exhibit 4.2. (Exhibit 4.3) (4) 4.4 Copy of Third Supplemental Mortgage Indenture, dated as of March 31, 1988 between Bridgeport Electric Company and The First National Bank of Boston, Trustee, amending Exhibit 4.1. (4) 4.5 (13) Copy of Indenture, dated as of August 1, 1991, from The United Illuminating Company to The Bank of New York, Trustee. (Exhibit 4) (4) 4.6 (14) Copy of Participation Agreement, dated as of (10) August 1, 1990, among Financial Leasing Corporation, Meridian Trust Company, The Bank of New York and The United Illuminating Company. (Exhibits 4(a) through 4(h), inclusive, Amendment Nos. 1 and 2).
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(10) 10.1 (5) Copy of Stockholder Agreement, dated as of July 1, 1964, among the various stockholders of Connecticut Yankee Atomic Power Company, including The United Illuminating Company. (Exhibit 5.1-1) (10) 10.2a (5) Copy of Power Contract, dated as of July 1, 1964, between Connecticut Yankee Atomic Power Company and The United Illuminating Company. (Exhibit 5.1-2) (10) 10.2b (3) Copy of Supplementary Power Contract, dated as of March 1, 1978, between Connecticut Yankee Atomic Power Company and The United Illuminating Company, supplementing Exhibit 10.2a. (Exhibit 5.1-6) (10) 10.2c (1) Copy of Agreement Amending Supplementary Power Contract, dated August 22, 1980, between Connecticut Yankee Atomic Power Company and The United Illuminating Company, amending Exhibit 10.2b. (Exhibit 10.2b) (10) 10.2d (12) Copy of Second Amendment of the Supplementary Power Contract, dated as of October 15, 1982, between Connecticut Yankee Atomic Power Company and The United Illuminating Company, amending Exhibit 10.2b. (Exhibit 10.2d) (10) 10.2e (9) Copy of Second Supplementary Power Contract, dated as of April 30, 1984, between Connecticut Yankee Atomic Power Company and The United Illuminating Company, supplementing Exhibit 10.2a. (Exhibit 10.2e) (10) 10.2f (9) Copy of Additional Power Contract, dated as of April 30, 1984, between Connecticut Yankee Atomic Power Company and The United Illuminating Company. (Exhibit 10.2f) (10) 10.3 (5) Copy of Capital Funds Agreement, dated as of September 1, 1964, between Connecticut Yankee Atomic Power Company and The United Illuminating Company. (Exhibit 5.1-3) (10) 10.4a (5) Copy of Connecticut Yankee Transmission Agreement, dated as of October 1, 1964, among the various stockholders of Connecticut Yankee Atomic Power Company, including The United Illuminating Company. (Exhibit 5.1-4) (10) 10.4b (4) Copy of Agreement Amending and Revising Connecticut Yankee Transmission Agreement, dated as of July 1, 1979, amending Exhibit 10.4a. (Exhibit 5.1-7) (10) 10.5 (3) Copy of Capital Contributions Agreement, dated October 16, 1967, between The United Illuminating Company and Connecticut Yankee Atomic Power Company. (Exhibit 5.1-5) (10) 10.6a (1) Copy of NEPOOL Power Pool Agreement, dated as of September 1, 1971, as amended to November 1, 1988. (Exhibit 10.6a) (10) 10.6b (15) Copy of Agreement Setting Out Supplemental NEPOOL Understandings, dated as of April 2, 1973. (Exhibit 5.7-10) (10) 10.6c (1) Copy of Amendment to NEPOOL Power Pool Agreement, dated as of March 15, 1989, amending Exhibit 10.6a. (Exhibit 10.6c) (10) 10.6d (1) Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of October 1, 1990, amending Exhibit 10.6a. (Exhibit 10.6d) (10) 10.6e Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of September 15, 1992, amending Exhibit 10.6a. (10) 10.6f Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of June 1, 1993, amending Exhibit 10.6a. (10) 10.7a (1) Copy of Agreement for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units, dated May 1, 1973, as amended to February 1, 1990. (Exhibit 10.7a) (10) 10.7b (16) Copy of Transmission Support Agreement, dated as of May 1, 1973, among the Seabrook Companies. (Exhibit 5.9-2)
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(10) 10.7c (10) Copy of Twenty-third Amendment to Agreement for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units, dated as of November 1, 1990, amending Exhibit 10.7a. (Exhibit 10.8ab) (10) 10.8a (4) Copy of Sharing Agreement - 1979 Connecticut Nuclear Unit, dated as of September 1, 1973, among The Connecticut Light and Power Company, The Hartford Electric Light Company, Western Massachusetts Electric Company, New England Power Company, The United Illuminating Company, Public Service Company of New Hampshire, Central Vermont Public Service Company, Montaup Electric Company and Fitchburg Gas and Electric Light Company, relating to a nuclear fueled generating unit in Connecticut. (Exhibit 5.8-1) (10) 10.8b (17) Copy of Amendment to Sharing Agreement - 1979 Connecticut Nuclear Unit, dated as of August 1, 1974, amending Exhibit 10.8a. (Exhibit 5.9-2) (10) 10.8c (5) Copy of Amendment to Sharing Agreement - 1979 Connecticut Nuclear Unit, dated as of December 15, 1975, amending Exhibit 10.8a. (Exhibit 5.8-4, Post-effective Amendment No. 2) (10) 10.9a (3) Copy of Transmission Line Agreement, dated January 13, 1966, between the Trustees of the Property of The New York, New Haven and Hartford Railroad Company and The United Illuminating Company. (Exhibit 5.4) (10) 10.9b (1) Notice, dated April 24, 1978, of The United Illuminating Company's intention to extend term of Transmission Line Agreement dated January 13, 1966, Exhibit 10.9a. (Exhibit 10.9b) (10) 10.9c (1) Copy of Letter Agreement, dated March 28, 1985, between The United Illuminating Company and National Railroad Passenger Corporation, supplementing and modifying Exhibit 10.9a. (Exhibit 10.9c) (10) 10.10 (12) Copy of Agreement, effective May 16, 1992, between The United Illuminating Company and Local 470-1, Utility Workers Union of America, AFL-CIO. (Exhibit 10.10) (10) 10.11 Copy of Fuel Oil Purchase and Sale Agreement, dated as of October 1, 1993, among Tosco Corporation, The United Illuminating Company and The Connecticut Light and Power Company. (Confidential treatment requested) (10) 10.12 (12) Copy of Coal Sales Agreement, dated as of August 1, 1992, between Pittston Coal Sales Corp. and The United Illuminating Company. (Confidential treatment requested) (Exhibit 10.13) (10) 10.13 (10) Copy of Fossil Fuel Supply Agreement between BLC Corporation and The United Illuminating Company, dated as of July 1, 1991. (Exhibit 10.31) (10) 10.14a (9) Copy of Lease, dated as of December 1, 1984, between Bridgeport Electric Company as Lessor and The United Illuminating Company as Lessee. (Exhibit 10.22a) (10) 10.14b (12) Copy of Amendment, dated as of February 15, 1987, to Lease between Bridgeport Electric Company as Lessor and The United Illuminating Company as Lessee, amending Exhibit 10.16a. (Exhibit 10.16b) (10) 10.14c (12) Copy of Second Amendment to Lease, dated as of December 9, 1987, between Bridgeport Electric Company as Lessor and The United Illuminating Company as Lessee, amending Exhibit 10.16a. (Exhibit 10.16c) (10) 10.14d (12) Copy of Third Amendment to Lease, dated as of January 14, 1988, between Bridgeport Electric Company as Lessor and The United Illuminating Company as Lessee, amending Exhibit 10.16a. (Exhibit 10.16d)
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(10) 10.15a (12) Copy of Revolving Credit Agreement, dated as of January 25, 1993, among The United Illuminating Company, the Banks named therein, and Citibank, N.A., as Agent for the Banks. (Exhibit 10.19) (10) 10.15b Copy of letter, dated January 27, 1994, from Citibank, N.A., extending the expiration date of Exhibit 10.15a to January 19, 1995. (10) 10.16a* (12) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and Richard J. Grossi. (Exhibit 10.22a) (10) 10.16b* (19) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and Richard J. Grossi, amending Exhibit 10.22a. (Exhibit 10.26a) (10) 10.17a* (12) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and Robert L. Fiscus. (Exhibit 10.23a) (10) 10.17b* (19) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and Robert L. Fiscus, amending Exhibit 10.23a. (Exhibit 10.27a) (10) 10.18a* (12) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and James F. Crowe. (Exhibit 10.24a) (10) 10.18b* (19) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and James F. Crowe, amending Exhibit 10.24a. (Exhibit 10.28a) (10) 10.19* (1) Copy of Executive Incentive Compensation Program of The United Illuminating Company. (Exhibit 10.24) (10) 10.21a* (19) Copy of The United Illuminating Company 1990 Stock Option Plan. (Exhibit 10.33) (10) 10.21b Amendments to The United Illuminating Company 1990 Stock Option Plan, adopted November 22, 1993 and January 24, 1994. (21) 21 List of subsidiaries of The United Illuminating Company. (28) 28.1 (12) Copies of significant rate schedules of The United Illuminating Company. (Exhibit 28.1)
- ----------------------- *Management contract or compensatory plan or arrangement.
The foregoing list of exhibits does not include instruments defining the rights of the holders of certain long-term debt of the Company and its subsidiaries where the total amount of securities authorized to be issued under the instrument does not exceed ten (10%) of the total assets of the Company and its subsidiaries on a consolidated basis; and the Company hereby agrees to furnish a copy of each such instrument to the Securities and Exchange Commission on request.
(b) Reports on Form 8-K.
Items Financial Statements Date of Reported Filed Report - -------- -------------------- -------
5 None December 22, 1993
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CONSENT OF INDEPENDENT ACCOUNTANTS ----------------------------------
We consent to the incorporation by reference in the Registration Statement of The United Illuminating Company on Form S-3 (File No. 33-50221) and the Registration Statement on Form S-3 (File No. 33-50445) of our report, dated January 24, 1994, on our audits of the consolidated financial statements and financial statement schedules of The United Illuminating Company as of December 31, 1993, 1992 and 1991 and for the years then ended, which report is included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND
Hartford, Connecticut February 15, 1994
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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE UNITED ILLUMINATING COMPANY
By /s/ Richard J. Grossi ------------------------------ Richard J. Grossi Chairman of the Board of Directors and Chief Executive Officer
Date: February 18, 1994 -----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- Director, Chairman of the Board of Directors and /s/ Richard J. Grossi Chief Executive Officer February 18, 1994 - --------------------- (Richard J. Grossi) (Principal Executive Officer)
Director, President and /s/ Robert L. Fiscus Chief Financial Officer February 18, 1994 - --------------------- (Robert L. Fiscus) (Principal Financial and Accounting Officer)
/s/ John D. Fassett Director February 18, 1994 - -------------------- (John D. Fassett)
/s/ Leland W. Miles Director February 18, 1994 - -------------------- (Leland W. Miles)
/s/ William S. Warner Director February 18, 1994 - ---------------------- (William S. Warner)
/s/ John F. Croweak Director February 18, 1994 - -------------------- (John F. Croweak)
/s/ F. Patrick McFadden, Jr. Director February 18, 1994 - ----------------------------- (F. Patrick McFadden, Jr.)
/s/ J. Hugh Devlin Director February 18, 1994 - ------------------- (J. Hugh Devlin)
/s/ Betsy Henley-Cohn Director February 18, 1994 - ---------------------- (Betsy Henley-Cohn)
Director February , 1994 - ------------------------ (Frank R. O'Keefe, Jr.)
/s/ James A. Thomas Director February 18, 1994 - ---------------------- (James A. Thomas)
/s/ David E.A. Carson Director February 18, 1994 - ---------------------- (David E.A. Carson)
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S-1
S-2
S-3
S-4
S-5
EXHIBIT INDEX
(a) Exhibits
Exhibit Table Item Exhibit Number Number Description Page No. ---------- ------- ----------- --------
(4) 4.4 Copy of Third Supplemental Mortgage Indenture, dated as of March 31, 1988 between Bridgeport Electric Company and The First National Bank of Boston, Trustee, amending Exhibit 4.1.
(10) 10.6e Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of September 15, 1992, amending Exhibit 10.6a.
(10) 10.6f Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of June 1, 1993, amending Exhibit 10.6a.
(10) 10.11 Copy of Fuel Oil Purchase and Sale Agreement, dated as of October 1, 1993, among Tosco Corporation, The United Illuminating Company and The Connecticut Light and Power Company. (Confidential treatment requested)
(10) 10.15b Copy of letter, dated January 27, 1994, from Citibank, N.A., extending the expiration date of Exhibit 10.15a to January 19, 1995.
(10) 10.21b Amendments to The United Illuminating Company 1990 Stock Option Plan, adopted November 22,1993 and January 24, 1994.
(21) 21 List of subsidiaries of The United Illuminating Company.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
Not Applicable
PART III
Item 10.
Item 10. Directors and Executive Officers of the Company.
The information appearing under the captions "NOMINEES FOR ELECTION AS DIRECTORS" AND "COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934" in the Company's definitive Proxy Statement, dated April 8, 1994, for the Annual Meeting of the Shareholders to be held on May 18, 1994, which Proxy Statement will be filed with the Securities and Exchange Commission on or about April 8, 1994, is incorporated by reference in partial answer to this item. See also "EXECUTIVE OFFICERS OF THE COMPANY", following Part I, Item 4 herein.
Item 11.
Item 11. Executive Compensation.
The information appearing under the captions "EXECUTIVE COMPENSATION," "STOCK OPTION PLAN," "RETIREMENT PLANS," "STOCK OPTION EXERCISES IN 1993 AND YEAR-END OPTION VALUES," "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" AND "DIRECTOR COMPENSATION" in the Company's definitive Proxy Statement, dated April 8, 1994, for the Annual Meeting of the Shareholders to be held on May 18, 1994, which Proxy Statement will be filed with the Securities and Exchange Commission on or about April 8, 1994, is incorporated by reference in answer to this item.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information appearing under the captions "PRINCIPAL SHAREHOLDERS" and "STOCK OWNERSHIP OF DIRECTORS AND OFFICERS" in the Company's definitive Proxy Statement, dated April 8, 1994 for the Annual Meeting of the Shareholders to be held on May 18, 1994, which Proxy Statement will be filed with the Securities and Exchange Commission on or about April 8, 1994, is incorporated by reference in answer to this item.
Item 13.
Item 13. Certain Relationships and Related Transactions.
The information appearing under the caption "NOMINEES FOR ELECTION AS DIRECTORS" in the Company's definitive Proxy Statement, dated April 8, 1994, for the Annual Meeting of the Shareholders to be held on May 18, 1994, which Proxy Statement will be filed with the Securities and Exchange Commission on or about April 8, 1994, is incorporated by reference in answer to this item.
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PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
Financial Statements (see Item 8):
Consolidated statement of income for the years ended December 31, 1993, 1992 and 1991
Consolidated statement of cash flows for the years ended December 31, 1993, 1992 and 1991
Consolidated balance sheet, December 31, 1993, 1992 and 1991
Consolidated statement of retained earnings for the years ended December 31, 1993, 1992 and 1991
Statement of accounting policies
Notes to consolidated financial statements
Report of independent accountants
Financial Statement Schedules (see S-1 through S-5)
Schedule V - Property, plant and equipment for the years ended December 31, 1993, 1992 and 1991.
Schedule VI - Accumulated depreciation, depletion and amortization of property, plant and equipment for the years ended December 31, 1993, 1992 and 1991.
Schedule VIII - Valuation and qualifying accounts for the years ended December 31, 1993, 1992 and 1991.
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Exhibits:
Pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, certain of the following listed exhibits which are annexed as exhibits to previous statements and reports filed by the Company are hereby incorporated by reference as exhibits to this report. Such statements and reports are identified by reference numbers as follows:
(1) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1991.
(2) Filed with Registration Statement No. 2-45434, effective September 25, 1972, and Registration Statement No. 2-45435, effective September 26, 1972.
(3) Filed with Registration Statement No. 2-60849, effective July 24, 1978.
(4) Filed with Registration Statement No. 2-66518, effective February 25, 1980.
(5) Filed with Registration Statement No. 2-57275, effective October 19, 1976.
(6) Filed with Registration Statement No. 2-67998, effective June 19, 1980.
(7) Filed with Registration Statement No. 2-72907, effective July 16, 1981.
(8) Filed with Post-Effective Amendment No. 1 to Registration Statement No. 2-78643, effective August 19, 1982.
(9) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1990.
(10) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended September 30, 1991.
(11) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended March 31, 1991.
(12) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1992.
(13 Filed with Registration Statement No. 33-40169, effective August 12, 1991.
(14) Filed with Registration Statement No. 33-35465, effective August 1, 1990.
(15) Filed with Registration Statement No. 2-49669, effective December 11, 1973.
(16) Filed with Registration Statement No. 2-54876, effective November 19, 1975.
(17) Filed with Registration Statement No. 2-52657, effective February 6, 1975.
(18) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended June 30, 1992.
(19) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended September 30, 1990.
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The exhibit number in the statement or report referenced is set forth in the parenthesis following the description of the exhibit. Those of the following exhibits not so identified are filed herewith.
Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(3) 3.1 (1) Copy of Charter of The United Illuminating Company, dated December 15, 1965. (Exhibit 3.1) (3) 3.2 (2) Copy of a certificate concerning the creation of a class of Preferred Stock of The United Illuminating Company and the authority of the Board of Directors to issue said Preferred Stock, dated July 13, 1956, and filed with the Secretary of State of Connecticut July 13, 1956. (Exhibit 3.12) (3) 3.3 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated November 19, 1962, andfiled with the Secretary of State of Connecticut November 29, 1962. (Exhibit 3.3) (3) 3.4 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated October 25, 1965, and filed with the Secretary of State of Connecticut November 22, 1965. (Exhibit 3.4) (3) 3.5 (2) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated June 6, 1967, and filed with the Secretary of State of Connecticut June 6, 1967. (Exhibit 3.13) (3) 3.6 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated December 1, 1967, and filed with the Secretary of State of Connecticut December 7, 1967. (Exhibit 3.6) (3) 3.7 (3) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated April 27, 1971, and filed with the Secretary of State of Connecticut April 29, 1971. (Exhibit 2.2-14) (3) 3.8 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated March 29, 1972, and filed with the Secretary of State of Connecticut March 30, 1972. (Exhibit 3.8) (3) 3.9 (4) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated May 4 1973, and filed with the Secretary of State of Connecticut May 7, 1973. (Exhibit 2.2-17) (3) 3.10 Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated July 2, 1973, and filed with the Secretary of State of Connecticut July 2, 1973. (Exhibit 3.10) (3) 3.11 (5) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated April 26, 1976, and filed with the Secretary of State of Connecticut April 27, 1976. (Exhibit 2.2-18) (3) 3.12 (5) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated April 26, 1976, and filed with the Secretary of State of Connecticut April 27, 1976. (Exhibit 2.2-19) (3) 3.13 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated October 20, 1976, and filed with the Secretary of State of Connecticut October 21, 1976. (Exhibit 3.13) (3) 3.14 (1) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated April 4, 1979, and filed with the Secretary of State of Connecticut April 5, 1979. (Exhibit 3.14) (3) 3.15 Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated April 29, 1980, and filed with the Secretary of State of Connecticut April 30, 1980. (Exhibit 3.15)
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(3) 3.16 (6) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated May 20, 1980, and filed with the Secretary of State of Connecticut May 23, 1980. (Exhibit 2.2-20) (3) 3.17 (7) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated June 12, 1981, and filed with the Secretary of State of Connecticut June 16, 1981. (Exhibit 1.20) (3) 3.18 (12) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated July 13, 1981, and filed with the Secretary of State of Connecticut July 14, 1981. (3) 3.19 (8) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors and Shareholders, dated June 1, 1983, and filed with the Secretary of State of Connecticut June 3, 1983. (Exhibit 4.31) (3) 3.20 (9) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated July 24, 1984, and filed with the Secretary of State of Connecticut July 24, 1984. (Exhibit 1) (3) 3.21 (9) Copy of Certificate Amending Certificate of Incorporation by Action of Board of Directors, dated August 8, 1984, and filed with the Secretary of State of Connecticut August 9, 1984. (Exhibit 2) (3) 3.22 (9) Copy of Certificate Amending or Restating Certificate of Incorporation, filed with the Secretary of State of Connecticut August 1, 1990. (Exhibit 3.22) (3) 3.23 (10) Copy of Certificate Amending or Restating Certificate of Incorporation, dated May 9, 1991, and filed with the Secretary of State of Connecticut August 27, 1991. (Exhibit 3.22a) (3) 3.24a (3) Copy of Bylaws of The United Illuminating Company. (Exhibit 2.3) (3) 3.24b (10) Copy of Article II, Section 2, of Bylaws of The United Illuminating Company, as amended March 26, 1990, amending Exhibit 3.24a. (Exhibit 3.23b) (3) 3.24c (11) Copy of Article V, Section 1, of Bylaws of The United Illuminating Company, as amended April 22, 1991, amending Exhibit 3.24a. (Exhibit 3.23c) (4) 4.1 (9) Copy of First Mortgage Indenture and Deed of Trust, dated as of December 1, 1984, between Bridgeport Electric Company and The First National Bank of Boston, Trustee. (Exhibit 4.12) (4) 4.2 (12) Copy of First Supplemental Mortgage Indenture, dated as of February 15, 1987, between Bridgeport Electric Company and The First National Bank of Boston, Trustee, amending and supplementing Exhibit 4.1. (Exhibit 4.2) (4) 4.3 (12) Copy of Second Supplemental Mortgage Indenture, dated as of January 14, 1988, between Bridgeport Electric Company and The First National Bank of Boston, Trustee, amending and supplementing Exhibit 4.1 and amending Exhibit 4.2. (Exhibit 4.3) (4) 4.4 Copy of Third Supplemental Mortgage Indenture, dated as of March 31, 1988 between Bridgeport Electric Company and The First National Bank of Boston, Trustee, amending Exhibit 4.1. (4) 4.5 (13) Copy of Indenture, dated as of August 1, 1991, from The United Illuminating Company to The Bank of New York, Trustee. (Exhibit 4) (4) 4.6 (14) Copy of Participation Agreement, dated as of (10) August 1, 1990, among Financial Leasing Corporation, Meridian Trust Company, The Bank of New York and The United Illuminating Company. (Exhibits 4(a) through 4(h), inclusive, Amendment Nos. 1 and 2).
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(10) 10.1 (5) Copy of Stockholder Agreement, dated as of July 1, 1964, among the various stockholders of Connecticut Yankee Atomic Power Company, including The United Illuminating Company. (Exhibit 5.1-1) (10) 10.2a (5) Copy of Power Contract, dated as of July 1, 1964, between Connecticut Yankee Atomic Power Company and The United Illuminating Company. (Exhibit 5.1-2) (10) 10.2b (3) Copy of Supplementary Power Contract, dated as of March 1, 1978, between Connecticut Yankee Atomic Power Company and The United Illuminating Company, supplementing Exhibit 10.2a. (Exhibit 5.1-6) (10) 10.2c (1) Copy of Agreement Amending Supplementary Power Contract, dated August 22, 1980, between Connecticut Yankee Atomic Power Company and The United Illuminating Company, amending Exhibit 10.2b. (Exhibit 10.2b) (10) 10.2d (12) Copy of Second Amendment of the Supplementary Power Contract, dated as of October 15, 1982, between Connecticut Yankee Atomic Power Company and The United Illuminating Company, amending Exhibit 10.2b. (Exhibit 10.2d) (10) 10.2e (9) Copy of Second Supplementary Power Contract, dated as of April 30, 1984, between Connecticut Yankee Atomic Power Company and The United Illuminating Company, supplementing Exhibit 10.2a. (Exhibit 10.2e) (10) 10.2f (9) Copy of Additional Power Contract, dated as of April 30, 1984, between Connecticut Yankee Atomic Power Company and The United Illuminating Company. (Exhibit 10.2f) (10) 10.3 (5) Copy of Capital Funds Agreement, dated as of September 1, 1964, between Connecticut Yankee Atomic Power Company and The United Illuminating Company. (Exhibit 5.1-3) (10) 10.4a (5) Copy of Connecticut Yankee Transmission Agreement, dated as of October 1, 1964, among the various stockholders of Connecticut Yankee Atomic Power Company, including The United Illuminating Company. (Exhibit 5.1-4) (10) 10.4b (4) Copy of Agreement Amending and Revising Connecticut Yankee Transmission Agreement, dated as of July 1, 1979, amending Exhibit 10.4a. (Exhibit 5.1-7) (10) 10.5 (3) Copy of Capital Contributions Agreement, dated October 16, 1967, between The United Illuminating Company and Connecticut Yankee Atomic Power Company. (Exhibit 5.1-5) (10) 10.6a (1) Copy of NEPOOL Power Pool Agreement, dated as of September 1, 1971, as amended to November 1, 1988. (Exhibit 10.6a) (10) 10.6b (15) Copy of Agreement Setting Out Supplemental NEPOOL Understandings, dated as of April 2, 1973. (Exhibit 5.7-10) (10) 10.6c (1) Copy of Amendment to NEPOOL Power Pool Agreement, dated as of March 15, 1989, amending Exhibit 10.6a. (Exhibit 10.6c) (10) 10.6d (1) Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of October 1, 1990, amending Exhibit 10.6a. (Exhibit 10.6d) (10) 10.6e Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of September 15, 1992, amending Exhibit 10.6a. (10) 10.6f Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of June 1, 1993, amending Exhibit 10.6a. (10) 10.7a (1) Copy of Agreement for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units, dated May 1, 1973, as amended to February 1, 1990. (Exhibit 10.7a) (10) 10.7b (16) Copy of Transmission Support Agreement, dated as of May 1, 1973, among the Seabrook Companies. (Exhibit 5.9-2)
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(10) 10.7c (10) Copy of Twenty-third Amendment to Agreement for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units, dated as of November 1, 1990, amending Exhibit 10.7a. (Exhibit 10.8ab) (10) 10.8a (4) Copy of Sharing Agreement - 1979 Connecticut Nuclear Unit, dated as of September 1, 1973, among The Connecticut Light and Power Company, The Hartford Electric Light Company, Western Massachusetts Electric Company, New England Power Company, The United Illuminating Company, Public Service Company of New Hampshire, Central Vermont Public Service Company, Montaup Electric Company and Fitchburg Gas and Electric Light Company, relating to a nuclear fueled generating unit in Connecticut. (Exhibit 5.8-1) (10) 10.8b (17) Copy of Amendment to Sharing Agreement - 1979 Connecticut Nuclear Unit, dated as of August 1, 1974, amending Exhibit 10.8a. (Exhibit 5.9-2) (10) 10.8c (5) Copy of Amendment to Sharing Agreement - 1979 Connecticut Nuclear Unit, dated as of December 15, 1975, amending Exhibit 10.8a. (Exhibit 5.8-4, Post-effective Amendment No. 2) (10) 10.9a (3) Copy of Transmission Line Agreement, dated January 13, 1966, between the Trustees of the Property of The New York, New Haven and Hartford Railroad Company and The United Illuminating Company. (Exhibit 5.4) (10) 10.9b (1) Notice, dated April 24, 1978, of The United Illuminating Company's intention to extend term of Transmission Line Agreement dated January 13, 1966, Exhibit 10.9a. (Exhibit 10.9b) (10) 10.9c (1) Copy of Letter Agreement, dated March 28, 1985, between The United Illuminating Company and National Railroad Passenger Corporation, supplementing and modifying Exhibit 10.9a. (Exhibit 10.9c) (10) 10.10 (12) Copy of Agreement, effective May 16, 1992, between The United Illuminating Company and Local 470-1, Utility Workers Union of America, AFL-CIO. (Exhibit 10.10) (10) 10.11 Copy of Fuel Oil Purchase and Sale Agreement, dated as of October 1, 1993, among Tosco Corporation, The United Illuminating Company and The Connecticut Light and Power Company. (Confidential treatment requested) (10) 10.12 (12) Copy of Coal Sales Agreement, dated as of August 1, 1992, between Pittston Coal Sales Corp. and The United Illuminating Company. (Confidential treatment requested) (Exhibit 10.13) (10) 10.13 (10) Copy of Fossil Fuel Supply Agreement between BLC Corporation and The United Illuminating Company, dated as of July 1, 1991. (Exhibit 10.31) (10) 10.14a (9) Copy of Lease, dated as of December 1, 1984, between Bridgeport Electric Company as Lessor and The United Illuminating Company as Lessee. (Exhibit 10.22a) (10) 10.14b (12) Copy of Amendment, dated as of February 15, 1987, to Lease between Bridgeport Electric Company as Lessor and The United Illuminating Company as Lessee, amending Exhibit 10.16a. (Exhibit 10.16b) (10) 10.14c (12) Copy of Second Amendment to Lease, dated as of December 9, 1987, between Bridgeport Electric Company as Lessor and The United Illuminating Company as Lessee, amending Exhibit 10.16a. (Exhibit 10.16c) (10) 10.14d (12) Copy of Third Amendment to Lease, dated as of January 14, 1988, between Bridgeport Electric Company as Lessor and The United Illuminating Company as Lessee, amending Exhibit 10.16a. (Exhibit 10.16d)
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(10) 10.15a (12) Copy of Revolving Credit Agreement, dated as of January 25, 1993, among The United Illuminating Company, the Banks named therein, and Citibank, N.A., as Agent for the Banks. (Exhibit 10.19) (10) 10.15b Copy of letter, dated January 27, 1994, from Citibank, N.A., extending the expiration date of Exhibit 10.15a to January 19, 1995. (10) 10.16a* (12) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and Richard J. Grossi. (Exhibit 10.22a) (10) 10.16b* (19) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and Richard J. Grossi, amending Exhibit 10.22a. (Exhibit 10.26a) (10) 10.17a* (12) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and Robert L. Fiscus. (Exhibit 10.23a) (10) 10.17b* (19) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and Robert L. Fiscus, amending Exhibit 10.23a. (Exhibit 10.27a) (10) 10.18a* (12) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and James F. Crowe. (Exhibit 10.24a) (10) 10.18b* (19) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and James F. Crowe, amending Exhibit 10.24a. (Exhibit 10.28a) (10) 10.19* (1) Copy of Executive Incentive Compensation Program of The United Illuminating Company. (Exhibit 10.24) (10) 10.21a* (19) Copy of The United Illuminating Company 1990 Stock Option Plan. (Exhibit 10.33) (10) 10.21b Amendments to The United Illuminating Company 1990 Stock Option Plan, adopted November 22, 1993 and January 24, 1994. (21) 21 List of subsidiaries of The United Illuminating Company. (28) 28.1 (12) Copies of significant rate schedules of The United Illuminating Company. (Exhibit 28.1)
- ----------------------- *Management contract or compensatory plan or arrangement.
The foregoing list of exhibits does not include instruments defining the rights of the holders of certain long-term debt of the Company and its subsidiaries where the total amount of securities authorized to be issued under the instrument does not exceed ten (10%) of the total assets of the Company and its subsidiaries on a consolidated basis; and the Company hereby agrees to furnish a copy of each such instrument to the Securities and Exchange Commission on request.
(b) Reports on Form 8-K.
Items Financial Statements Date of Reported Filed Report - -------- -------------------- -------
5 None December 22, 1993
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CONSENT OF INDEPENDENT ACCOUNTANTS ----------------------------------
We consent to the incorporation by reference in the Registration Statement of The United Illuminating Company on Form S-3 (File No. 33-50221) and the Registration Statement on Form S-3 (File No. 33-50445) of our report, dated January 24, 1994, on our audits of the consolidated financial statements and financial statement schedules of The United Illuminating Company as of December 31, 1993, 1992 and 1991 and for the years then ended, which report is included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND
Hartford, Connecticut February 15, 1994
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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE UNITED ILLUMINATING COMPANY
By /s/ Richard J. Grossi ------------------------------ Richard J. Grossi Chairman of the Board of Directors and Chief Executive Officer
Date: February 18, 1994 -----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- Director, Chairman of the Board of Directors and /s/ Richard J. Grossi Chief Executive Officer February 18, 1994 - --------------------- (Richard J. Grossi) (Principal Executive Officer)
Director, President and /s/ Robert L. Fiscus Chief Financial Officer February 18, 1994 - --------------------- (Robert L. Fiscus) (Principal Financial and Accounting Officer)
/s/ John D. Fassett Director February 18, 1994 - -------------------- (John D. Fassett)
/s/ Leland W. Miles Director February 18, 1994 - -------------------- (Leland W. Miles)
/s/ William S. Warner Director February 18, 1994 - ---------------------- (William S. Warner)
/s/ John F. Croweak Director February 18, 1994 - -------------------- (John F. Croweak)
/s/ F. Patrick McFadden, Jr. Director February 18, 1994 - ----------------------------- (F. Patrick McFadden, Jr.)
/s/ J. Hugh Devlin Director February 18, 1994 - ------------------- (J. Hugh Devlin)
/s/ Betsy Henley-Cohn Director February 18, 1994 - ---------------------- (Betsy Henley-Cohn)
Director February , 1994 - ------------------------ (Frank R. O'Keefe, Jr.)
/s/ James A. Thomas Director February 18, 1994 - ---------------------- (James A. Thomas)
/s/ David E.A. Carson Director February 18, 1994 - ---------------------- (David E.A. Carson)
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S-1
S-2
S-3
S-4
S-5
EXHIBIT INDEX
(a) Exhibits
Exhibit Table Item Exhibit Number Number Description Page No. ---------- ------- ----------- --------
(4) 4.4 Copy of Third Supplemental Mortgage Indenture, dated as of March 31, 1988 between Bridgeport Electric Company and The First National Bank of Boston, Trustee, amending Exhibit 4.1.
(10) 10.6e Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of September 15, 1992, amending Exhibit 10.6a.
(10) 10.6f Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of June 1, 1993, amending Exhibit 10.6a.
(10) 10.11 Copy of Fuel Oil Purchase and Sale Agreement, dated as of October 1, 1993, among Tosco Corporation, The United Illuminating Company and The Connecticut Light and Power Company. (Confidential treatment requested)
(10) 10.15b Copy of letter, dated January 27, 1994, from Citibank, N.A., extending the expiration date of Exhibit 10.15a to January 19, 1995.
(10) 10.21b Amendments to The United Illuminating Company 1990 Stock Option Plan, adopted November 22,1993 and January 24, 1994.
(21) 21 List of subsidiaries of The United Illuminating Company.