Item 1. Business.
GENERAL
The United Illuminating Company is an operating electric public utility company, incorporated under the laws of the State of Connecticut in 1899. It is engaged principally in the production, purchase, transmission, distribution and sale of electricity for residential, commercial and industrial purposes in a service area of about 335 square miles in the southwestern part of the State of Connecticut. The population of this area is approximately 711,000 or 22% of the population of the State. The service area, largely urban and suburban in character, includes the principal cities of Bridgeport (population 142,000) and New Haven (population 130,000) and their surrounding areas. Situated in the service area are retail trade and service centers, as well as large and small industries producing a wide variety of products, including helicopters and other transportation equipment, electrical equipment, chemicals and pharmaceuticals. Of the Company's 1994 retail electric revenues, approximately 41% was derived from residential sales, 40% from commercial sales, 17% from industrial sales and 2% from other sales.
UI has three wholly-owned subsidiaries. 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) was formed to facilitate participation in a 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. (SPI) participated as a 25% partner in the ownership of a medical hotel building in New Haven, which has recently been sold. SPI no longer owns any property and is currently inactive. A second wholly-owned subsidiary of URI is Thermal Energies, Inc., which is participating in the development of district heating and cooling 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 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 a 90% ownership interest in Ventana Corporation, which offers energy conservation engineering and project management services to governmental and private institutions.
The Board of Directors of the Company has authorized the investment of a maximum of $18.0 million, in the aggregate, of the Company's assets in all of URI's ventures, UEI and RCI, and, at December 31, 1994, approximately $14.5 million had been so invested.
FRANCHISES, REGULATION AND COMPETITION
FRANCHISES
Subject to the power of alteration, amendment or repeal by the Connecticut legislature, and subject to certain approvals, permits and consents of public authorities and others prescribed by statute, the Company has valid franchises to engage in the production, purchase, transmission, distribution and sale of electricity in the area served by it, the right to erect and maintain certain facilities on public highways and grounds, and the power of eminent domain.
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REGULATION
The Company is subject to regulation by the Connecticut Department of Public Utility Control (DPUC), which has jurisdiction with respect to, among other things, retail electric service rates, accounting procedures, certain dispositions of property and plant, mergers and consolidations, the issuance of securities, certain standards of service, management efficiency, operation and construction, and the location and construction of certain electric facilities. See "Rates". The DPUC consists of five Commissioners, appointed by the Governor of Connecticut with the advice and consent of both houses of the Connecticut legislature.
The location and construction of certain electric facilities is also subject to regulation by the Connecticut Siting Council with respect to environmental compatibility and public need. See "Environmental Regulation".
UI is a "public utility" within the meaning of Part II of the Federal Power Act and is subject to regulation by the Federal Energy Regulatory Commission (FERC), which has jurisdiction with respect to interconnection and coordination of facilities, wholesale electric service rates and accounting procedures, among other things. See "Arrangements with Other Utilities".
The Company is a holder of licenses under the Atomic Energy Act of 1954, as amended, and, as such, is subject to the jurisdiction of the United States Nuclear Regulatory Commission (NRC), which has broad regulatory and supervisory jurisdiction with respect to the construction and operation of nuclear reactors, including matters of public health and safety, financial qualifications, antitrust considerations and environmental impact. Connecticut Yankee Atomic Power Company (Connecticut Yankee) is also subject to this NRC regulatory and supervisory jurisdiction. See Item 2.
Item 2. Properties
GENERATING FACILITIES
The electric generating capability of the Company as of December 31, 1994, based on summer ratings of the generating units, was as follows:
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During 1994, the peak load on the Company's system was approximately 1,131 megawatts, which occurred in July. UI's total generating capability at the time was 1,462 megawatts, including a 98 megawatt increase in capability provided by the equivalent capacity value of UI's entitlements in the Hydro-Quebec facility and reflecting the net effect of temporary arrangements with other electric utilities and cogenerators. The Company is currently forecasting a compound growth in peak load of 0.5% during the period 1994 to 2004. Based on current forecasts of loads, UI's generating capability will exceed its projected capability responsibility to NEPOOL for generating capacity through at least 2001, and English Station Units 7 and 8 and Bridgeport Harbor Station Unit 1 can be reactivated if higher than anticipated load growth occurs. If, due to the permanent loss of a generating unit or higher than expected load growth, UI's own generating capability becomes inadequate to meet its capability responsibility to NEPOOL, UI expects to be able to reduce the load on its system by the implementation of additional demand-side management programs, to acquire other demand-side and supply-side resources, and/or to purchase capacity from other utilities as necessary. However, because the generation and transmission systems of the major New England utilities, including UI, are operated as if they were a single system, the ability of UI to meet its load is and will be dependent on the ability of these New England utilities to meet the region's load. At the time of the NEPOOL summer peak in July 1994, these New England utilities had 26,555 megawatts of generating capacity, including 1,500 megawatts of interconnection credit of the Hydro-Quebec facility, available to meet the New England peak load of 20,519 megawatts. See "Nuclear Generation" and Item 1. Business - "Competition" and "Arrangements with Other Utilities".
Shown below is a summary of the Company's sources and uses of electricity for 1994.
TRANSMISSION AND DISTRIBUTION PLANT
The transmission lines of the Company consist of approximately 100 circuit miles of overhead lines and approximately 19 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.
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The Company owns and operates 24 bulk electric supply substations with a capacity of 2,637,000 KVA and 49 distribution substations with a capacity of 282,000 KVA. The Company has 3,123 pole-line miles of overhead distribution lines and 132 conduit-bank miles of underground distribution lines.
See "Capital Expenditure Program" concerning the estimated cost of additions to the Company's transmission and distribution facilities.
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CAPITAL EXPENDITURE PROGRAM
The Company's 1995-1999 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 $23.2 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
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has an interest, the Company is required to pay its ownership and/or leasehold share of the cost of purchasing such insurance.
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. As of June 30, 1994, the disposal facility in Barnwell, South Carolina was closed to all LLW disposal for New England nuclear units, forcing all of these units into on-site storage of LLW produced.
Pursuant to the Low-Level Radioactive Waste Policy Act of 1980, each state is responsible for providing disposal facilities for LLW generated within the state and is authorized to join with other states into regional compacts to jointly fulfill their responsibilities. 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 to the legislature 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 through 1996. 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 1994-1995 fiscal year and the state projects no assessment for the 1995-1996 and 1996-1997 fiscal years. The service currently projects that a disposal site will be designated by 2002, although there are admitted inherent uncertainties in this projection.
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 2000. The Company cannot predict whether and when a disposal site will be designated in Connecticut.
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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 at least 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) has established $376 million (in 1995 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 1994 was $1.3 million. UI's share of the fund at December 31, 1994 was approximately $5.2 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 the Connecticut Yankee Unit are $448 million (in 1995 dollars) and $357 million (in 1995 dollars), respectively. These estimates premise the prompt removal and dismantling of each unit at the end of its estimated 36-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 1994 was $388,000. UI's share of the fund at December 31, 1994 was approximately $2.4 million. For the Company's 9.5% equity ownership in Connecticut Yankee, decommissioning costs of $1.3 million were funded by UI during 1994, and UI's share of the fund at December 31, 1994 was $14.1 million.
Item 3.
Item 3. Legal Proceedings.
On November 2, 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. On May 7, 1994, the Company received a "Certificate of Correction....to correct a clerical omission or mistake" from the City's tax assessor relative to the assessed value of the Company's personal property for the tax year 1994-1995, which certificate purports to increase said assessed value by approximately 53% above the tax assessor's valuation at February 28, 1994. The Company is contesting each of these actions of the City's tax assessor vigorously, and has commenced actions in the Superior Court to enjoin the City from any effort to collect the "updated" personal property tax bills for the tax year 1991-1992 and challenging both the May 7, 1994 "Certificate of Correction" and the tax assessor's valuation at February 28, 1994. In December of 1994, the City's tax assessor conducted hearings regarding the assessed value of the Company's personal property for the tax years 1992-1993 and 1993-1994; and the Company anticipates that the City will take some action to revalue the Company's personal property for those tax years. On March 1, 1995, the Company received from the City notices of assessment changes, increasing the assessed valuation of the Company's personal property for the tax year 1995-1996 by 48% over the valuation declared by the Company. The Company expects to take the legal actions necessary to challenge these increases. It is the present opinion of the Company that the ultimate outcome of this dispute will not have a significant impact on the financial position of the Company.
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On December 30, 1994, the Company settled its property tax dispute with the City of Bridgeport. See "Notes to Consolidated Financial Statements - Note (N)".
Item 4.
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, 1994.
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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, 1990 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, 1990 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, 1990 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.
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, 1990 to February 1, 1993, she served as President of Bowlby & Associates, a business-to-business communications agency in Farmington, Connecticut.
RAYMOND G. DUBE. Mr. Dube served as Transmission Manager during the period January 1, 1990 to July 1, 1992, as Director of Transmission & Distribution Operations from July 1, 1992 to March 1, 1994 and Director of Electric Systems from March 1, 1994 to October 1, 1994. He has served as Vice President-Transmission and Distribution since October 1, 1994.
STEPHEN F. GOLDSCHMIDT. Mr. Goldschmidt served as Vice President-Planning from January 1, 1990 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, 1990 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, 1990 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 during the five-year period.
E. JON MAJKOWSKI. Mr. Majkowski served as Vice President-Public Affairs of the Company during the period January 1, 1990 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, 1990 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 during the five-year period.
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KURT D. MOHLMAN. Mr. Mohlman served as Director of Financial Planning during the period January 1, 1990 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, 1990 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 1994 and 1993 were as follows:
UI has paid quarterly dividends on its Common Stock since 1900. The quarterly dividends declared in 1993 and 1994 were at a rate of 66 1/2 cents per share and 69 cents per share, respectively.
The indenture under which the Company's 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 $87.2 million were free from such limitations at December 31, 1994.
As of February 28, 1995, there were 17,910 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 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. A 1% increase in retail sales would increase revenues by $6.0 million (sales margin by about $5.0 million). However, a return to normal weather could decrease revenues by $4.5 million (sales margin by $3.4 million).
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 $4-$5 million are expected in 1995 due to debt reduction and refinancing. Since 1990, annual growth in total operation and maintenance expense, excluding one-time items and cogeneration capacity purchases, has averaged approximately 2.0%, 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 1995, totaling $11.4 million, and its projected net cash provided by operations, less dividends, of $105.3 million, will be sufficient to fund the Company's entire capital expenditure program of $75.8 million and $40.9 million of the $163.1 million necessary to satisfy the 1995 requirements for long-term debt maturities and mandatory long-term debt redemptions and repayments. The Company presently estimates that its projected net cash provided by operations, less dividends, of $97.7 million, will be sufficient to fund the Company's entire capital expenditure program of $76.2 million and all of the Company's 1996 requirements for mandatory redemptions and repayments of $12.8 million. The Company presently estimates that its projected net cash provided by operations, less dividends, of $282.0 million, will be sufficient to fund the Company's entire capital expenditure program of $205.5 million and $76.5 million of the $296.7 million necessary to satisfy the 1997 through 1999 requirements for long-term debt maturities and mandatory long-term debt redemptions and repayments.
All of the Company's capital requirements that exceed available cash will have to be provided by external financing. Although the Company has no commitment to provide such financing from any source of funds, other than a $225 million revolving credit agreement with a group of banks, described below, the Company expects to be able to satisfy its external financing needs by issuing common stock, preferred 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.
On August 18, 1994, United Capital Funding Partnership L.P. ("United Capital"), a special purpose limited partnership in which the Company owns all of the general partner interests, was formed for the sole purpose of issuing its limited partner interests, represented by Preferred Capital Securities ("Capital Securities"), and lending the proceeds thereof to the Company in return for Junior Subordinated Deferrable Interest Debentures ("Subordinated Debentures"). United Capital and the Company have registered $100 million of Capital Securities
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and/or Subordinated Debentures for sale to the public from time to time, in one or more series, under the Securities Act of 1933. The Company has also registered $200 million principal amount of Notes for sale to the public from time to time, in one or more series, under the Securities Act of 1933.
At December 31, 1994, the Company had $11.4 million of cash and temporary cash investments, a decrease of $36.8 million from the balance at December 31, 1993. The components of this decrease, 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 December 14, 1995. The borrowing limit of this facility is $225 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, 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, 1994, the Company had $67 million in short-term borrowings outstanding under this facility.
In January 1995, the Company entered into interest rate cap agreements, with several banks, to protect $100 million of its short-term debt from increases in short-term interest rates. The agreements provide that if the LIBOR (London Interbank Offering Rate), for one-month borrowings, exceeds 8.50% on the 17th of any month during the period beginning February 17, 1995 and ending January 17, 1997, the banks will pay to the Company the difference between that LIBOR and 8.50%, multiplied by $100 million, for the subsequent one-month period.
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 above 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. For the 12-month period ended December 31, 1994, this coverage ratio was 2.86.
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
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incurred as a result of its ownership, storage and sale of fossil fuel to the Company. This agreement currently extends to March 1996. At December 31, 1994, approximately $10.7 million of fossil fuel purchases were being financed under this agreement.
UI has three wholly-owned subsidiaries. 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) was formed to facilitate participation in a 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. (SPI) participated as a 25% partner in the ownership of a medical hotel building in New Haven, which has recently been sold. SPI no longer owns any property and is currently inactive. A second wholly-owned subsidiary of URI is Thermal Energies, Inc., which is participating in the development of district heating and cooling 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 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 a 90% ownership interest in Ventana Corporation, which offers energy conservation engineering and project management services to governmental and private institutions.
The Board of Directors of the Company has authorized the investment of a maximum of $18.0 million, in the aggregate, of the Company's assets in all of URI's ventures, UEI and RCI, and, at December 31, 1994, approximately $14.5 million had been so invested.
RESULTS OF OPERATIONS
1994 vs. 1993 - -------------
Earnings for the year 1994 were $43.5 million, or $3.09 per share, up $7.3 million, or $.52 per share, from 1993. This increase reflects $7.8 million (after-tax), or $.56 per share, from the absence of a one-time charge taken in the fourth quarter of 1993 for the estimated costs of a reorganization and early retirement program associated with the Company's organization review and cost reduction program. Earnings decreased $1.5 million (after-tax), or $.10 per share, due to a one-time charge resulting from the settlement of a dispute with the City of Bridgeport regarding past taxes payable by the Company on its personal property in that city. Earnings also decreased $1.3 million (after-tax), or $.09 per share, from an accounting change made in the first quarter of 1994 to implement Statement of Financial Accounting Standards No. 112. Earnings per share for 1994, excluding one-time items and accounting changes, increased by $.15 per share, to $3.28 per share, from $3.13 per share for 1993.
Retail operating revenues increased about $15.3 million for the year 1994 over the year 1993: $12.5 million from retail rate changes, $7.1 million from higher retail kilowatt-hour sales and $1.2 million to recover higher "pass- through"expenses, partly offset by $5.4 million from an increase in non-cash revenue amortization.
The $12.5 milion retail revenue increase due to rate changes resulted from a rate increase granted by the DPUC in 1992 effective January 1, 1994. Included in this $12.5 million was $5.4 million to collect sales adjustment revenues booked in prior periods. A separate non-cash amortization charge to revenue was increased by $5.4 million to eliminate any current period revenue effect of these sales adjustment rate changes.
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Retail kilowatt-hour sales for the year increased 1.4% over the prior year, producing additional retail revenues of $7.1 million and additional sales margin (revenue less fuel expense and revenue-based taxes) of about $6.0 million. There was virtually no retail kilowatt-hour sales change from weather factors between 1994 and 1993. Weather for the year of 1994 was more severe than "normal", augmenting sales by 0.9% and producing revenues of about $4.5 million and sales margin of about $3.4 million. Retail revenues to recover "pass-through" charges for certain expense changes, including fossil fuel, increased by $1.2 million in 1994 over 1993.
Wholesale "capacity" revenues increased by $0.6 million in 1994 from their 1993 level. Wholesale "energy" revenues, as well as the associated fuel expense, decreased by $11.6 million from 1993 to 1994.
Retail fuel and energy expenses increased $0.9 million for the year of 1994 over 1993. A sales margin increase (reduction of expense) of about $1.2 million resulted from nuclear unit operations and nuclear fuel prices. There were other offsetting fuel expense increases of $2.1 million.
Operating expenses for operations, maintenance and purchased capacity charges in 1994 increased by $0.6 million compared to 1993. Purchased capacity was $2.7 million lower than 1993 due to the absence of a scheduled outage at the Connecticut Yankee Unit, compared to ten weeks of scheduled outage in 1993. Operation and maintenance increased $3.3 million. A $5.1 million increase resulted from higher repair costs at Seabrook Unit 1, reflecting nine weeks of scheduled outage and ten weeks of unscheduled outage in 1994. However, other operation and maintenance expenses decreased by a net $1.8 million, reflecting reduced maintenance costs at the Company's fossil fuel generating plants, the impacts of the 1993 reorganization and early retirement program, and re-engineering efforts.
Other operating expenses, excluding one-time items and their tax effects, increased approximately $7.6 million in 1994 from 1993 due to higher depreciation and income taxes.
Other income and (deductions) decreased $13.2 million for the year of 1994 from the prior year, due principally to the elimination of the deferred returns (after-tax and not representing current cash income) related to the portion of the cost of Seabrook Unit 1 that had not been in the Company's rate base in 1993 and the elimination of the income tax benefits associated with the interest costs of carrying that portion of the unit's cost, lower AFUDC from lower construction costs and a lower AFUDC rate, the write- off of certain terminated project costs previously capitalized, and higher losses related to unregulated subsidiaries. The revenue to support the increased rate base in 1994, and the income tax benefits of the associated cost of debt, are reflected in operating revenues and expenses.
Interest costs and preferred stock dividends decreased by $9.2 million in 1994 compared to 1993. Through its refinancing program, the Company has taken advantage of lower interest rates in both 1993 and 1994.
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 reorganization 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.
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, $20.8 million for the fold-in to base rates of the 1992 sales adjustment revenues, a reduction of $7.7 million in revenue from a separate amortization charge to eliminate the current period revenue effect of rate changes intended to collect sales adjustment revenues booked in prior periods, and 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.
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The retail revenue increases were offset by anticipated reductions of $20.8 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 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 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.
OUTLOOK
Revenues for 1995 will increase by $13.1 million compared to 1994 due to the completion of the non-cash amortization of deferred sales adjustment revenues ($7.7 million amortized and collected in rates in 1993 and $13.1 million amortized and collected in rates in 1994). Revenues for 1995 should also increase as a result of an approximate 1% ($6 million) rate increase for recovery, through the Conservation Adjustment Mechanism, of previously recorded and projected conservation costs.
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. A 1% increase in retail sales would increase revenues by $6.0 million and sales margin (revenue less fuel expense and revenue-based taxes) by about $5.0 million. The Company has experienced "real" (nonweather-related) growth in kilowatt-hour sales of approximately 0.7%, on average, per year since 1992. However, a return to normal weather in 1995 could decrease revenues by 0.7%, or $4.5 million (sales margin by $3.4 million). A continuation of the 1992-1994 "real" sales growth trend would be offset by a return to normal weather.
Sales margin should improve further from lower fuel expense in 1995. Higher generating output from the nuclear units (there is currently no planned outage for Seabrook in 1995) and lower nuclear fuel prices could add $3-$4 million to margin if normal operating assumptions are met. However, if the generation level is higher than expected from the Seabrook unit, a refueling outage, currently planned for early in 1996, may move, partially or fully, into 1995.
Taking all of the above factors into account, overall sales margin would be expected to increase in 1995, compared to 1994, by $23-$25 million. These increases will be offset by the commencement of the amortization of Seabrook phase-in costs at $12.6 million after-tax (equivalent, approximately, to a $23 million revenue requirement) per year for five years beginning in 1995.
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Another major factor affecting the Company's financial condition will be the Company's ability to control expenses. Operation and maintenance expense is expected to decline by several million dollars in 1995 compared to 1994, due primarily to lower maintenance costs at generating units, the full impact of the Company's 1993 reorganization and early retirement program, and other cost reduction efforts. Anticipated depreciation and property taxes should increase expenses by $4-$5 million in 1995 from 1994 levels.
The Company expects continued reductions in interest expense from the 1994 level of $84 million, to about $79-$80 million at February 1995 interest rate levels. This 1995 interest expense level would be 30% below the 1989 level and would mark the sixth consecutive year of interest expense decline. Similar interest expense reductions are expected for 1996, as well, assuming February 1995 interest rate levels.
A major contingency in the Company's expected earnings for 1995 is the timing of the Seabrook refueling outage. If the refueling outage moves fully into 1995, 1995 sales margin would be reduced by about $2 million, and operations and maintenance expense would be increased by $3-$4 million over currently anticipated amounts. These negative effects on 1995 earnings would affect anticipated 1996 results positively. The Company continues to expect to achieve growth in earnings from operations of 4% annually, on average, from its 1992 level of $3.17 per share.
The Company's financial status and financing capability will continue to be sensitive to many other factors, including conditions in the securities markets, economic conditions, interest rates, the level of the Company's income and cash 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.
The electric utility industry is being subjected to increasing competition. Currently, the Company's retail electric service rates are subject to regulation and are based on the Company's costs. Therefore, the Company, and all regulated utilities, are subject to certain accounting standards (Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation") that are not applicable to other businesses in general. These accounting rules allow all regulated utilities, where appropriate, to defer the income statement impact of certain costs that are expected to be recovered in future regulated service rates and to establish regulatory assets on balance sheets for such costs. The effects of competition could cause the operations of the Company, or a portion thereof, to fail to meet the criteria for application of these accounting rules. While the Company expects to continue to meet these criteria in the near future, if the Company were to cease meeting these criteria, accounting standards for business in general would become applicable and immediate recognition of any previously deferred costs would be required in the year in which the criteria are no longer met. If this change in accounting were to occur, it would have a material adverse effect on the Company's earnings and retained earnings in that year and may have a material adverse effect on the Company's ongoing financial condition, as well.
INFLATION
Much of the Company's operating expense structure is based on fixed charges for plant, purchased power, fuel expense and taxes that have no direct relationship to "inflation" as defined by the Producer Price Index (PPI). That portion of fuel expense (fossil fuel expense) which is a factor in the PPI, is subject to a "pass-through" revenue recovery from customers. The operations expense component most sensitive to inflation, wage and benefit costs, account for about 15% of the Company's total operating expenses excluding income taxes.
A significant portion of the "fixed charges for plant" component of operating expenses is based on the historic cost of the Company's generating units. Under current conditions the cost of future additional or replacement generating capacity, if needed, would probably be less than the cost of existing generating capacity.
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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).
REGULATORY ACCOUNTING
The consolidated financial statements of the Company are in conformity with generally accepted accounting principles and with accounting for regulated electric utilities prescribed by the Federal Energy Regulatory Commission (FERC) and the Connecticut Department of Public Utility Control (DPUC). Generally accepted accounting principles for regulated entities allow the Company to give accounting recognition to the actions of regulatory authorities in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation". In accordance with SFAS No. 71, the Company has deferred recognition of costs (a regulatory asset) or has recognized obligations (a regulatory liability) if it is probable that such costs will be recovered or obligation relieved in the future through the ratemaking process.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, 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.
The Company's utility plant in service as of December 31, 1994, 1993 and 1992 is comprised as follows:
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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. Weighted average AFUDC rates in effect for 1994, 1993 and 1992 were 8.19%, 8.75% and 10.25%, respectively.
DEPRECIATION
Provisions for depreciation on utility plant for book purposes 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. The aggregate annual provisions for depreciation for the years 1994, 1993 and 1992 were equivalent to approximately 3.27%, 3.22% and 3.15%, respectively, of the original cost of depreciable property.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes". In accordance with SFAS No. 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 a 1990 DPUC retail rate decision.
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 records outstanding checks as accounts payable until the checks have been honored by the banks.
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
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
months of the funding requirement for operating expenses, is restricted for use and amounted to $2.3 million, $3.4 million and $2.9 million, at December 31, 1994, 1993 and 1992, 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. This investment amounted to $9.6 million, $9.5 million and $9.4 million at December 31, 1994, 1993 and 1992, respectively.
FOSSIL FUEL COSTS
The amount of fossil fuel costs that cannot be reflected currently in customers' bills pursuant to the fossil fuel adjustment clause 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 POSTEMPLOYMENT 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 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 postemployment 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 Postretirement 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 of the DPUC.
Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits." This statement 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 effect of adopting this statement is reported as a change in accounting principle and decreased earnings for common stock for 1994 by $1.3 million or $.09 per share.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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, 1994, the Company's unfunded share of the obligation, based on its ownership interest in Seabrook Unit 1 and Millstone Unit 3, was approximately $1.3 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 $1,727,000, $1,616,000 and $1,334,000 during 1994, 1993 and 1992 into the decommissioning trust funds for Seabrook Unit 1 and Millstone Unit 3. At December 31, 1994, the Company's share of the trust fund balances, which include accumulated earnings on the funds, were $5.2 million and $2.4 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 3,400 shares of common stock in 1994, 46,000 shares of common stock in 1993 and 100,800 shares of common stock in 1992 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.
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 203,200 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, 5,000 shares of stock at an exercise price of $42.375 per share and 18,600 shares of stock at an exercise price of $30 per share have been granted by the Board of Directors and remain outstanding at December 31, 1994. 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 42,000 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 in 1993. Options to purchase 3,400 shares of stock at an exercise price of $30.75 per share were exercised during 1994.
(b) RETAINED EARNINGS RESTRICTION
The indenture under which the Company's 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 $87.2 million were free from such limitations at December 31, 1994.
(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.
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 $797,000.
There was no redemption of preferred stock in 1993.
On April 15, 1994, the Company redeemed all of the 600,000 outstanding shares of its 8.80% Preferred Stock, 1976 Series, at $25.25 per share plus accrued dividends.
In July 1994, the Company purchased 2,450 shares of its 4.72% $100 par value Preferred Stock, Series B, at a discount, resulting in a non-taxable gain of $116,000.
In December 1994, the Company purchased 10,000 shares of its 5 5/8% $100 par value Preferred Stock, Series D, at a discount, resulting in a non-taxable gain of $420,000.
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
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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, 1994.
(d) LONG-TERM DEBT
In January 1994, the Company repaid $55.3 million principal amount of maturing 10.32% First Mortgage Bonds of Bridgeport Electric Company, a wholly-owned subsidiary of the Company that was subsequently merged with and into the Company, and a $5 million 13.1% term loan. These repayments were made with a portion of the net proceeds from the issuance and sale, in December 1993, of $100 million five-year and one month Notes at a coupon rate of 6.20%.
On September 12, 1994, the Company repaid at maturity $30 million principal amount of 7.62% Notes. In addition, on November 1, 1994, December 2, 1994 and January 17, 1995, the Company repaid at maturity $13 million, $10 million and $50 million principal amounts of 7.20%, 6.82% and 6.0% Notes, respectively.
On October 1, 1994 and December 1, 1994, the Company redeemed the remaining $110,000 and $3,830,000 principal amounts of 14 1/2% 1984 Series, and 14 1/2% 1984 Series B, Pollution Control Revenue Bonds, respectively, at a 3% premium.
On January 17, 1995 and February 15, 1995, the Company repaid $55.3 million and $10.8 million principal amounts of maturing 10.32% and 9.44% First Mortgage Bonds of Bridgeport Electric Company, a wholly-owned subsidiary of the Company that was merged with and into the Company in September of 1994.
On August 18, 1994, United Capital Funding Partnership L.P. ("United Capital"), a special purpose limited partnership in which the Company owns all of the general partner interests, was formed for the sole purpose of issuing its limited partner interests, represented by Preferred Capital Securities ("Capital Securities"), and lending the proceeds thereof to the Company in return for Junior Subordinated Deferrable Interest Debentures ("Subordinated Debentures"). United Capital and the Company have registered $100 million of Capital Securities and/or Subordinated Debentures for sale to the public from time to time, in one or more series, under the Securities Act of 1933. The Company has also registered $200 million principal amount of Notes for sale to the public from time to time, in one or more series, under the Securities Act of 1933.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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) in 1993 and 2.66% (an additional $17.3 million) in 1994, including allowed conservation and load management program revenue increases. However, the Company has realized increased revenues of $12.1 million and $12.5 million in 1993 and 1994, respectively, as a result of these rate increases.
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.
The Company is allowed revenue increases for conservation and load management expenditures through a Conservation Adjustment Mechanism (CAM) in its retail rates, and accordingly expects a revenue increase in 1995 of $6 million, or 1%, through operation of the CAM. Except for CAM revenue increases, the Company has stated publicly that it does not plan to seek any retail rate increases for the foreseeable future.
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
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 phased into rate base its allowable investment in Seabrook Unit 1, amounting to $640 million, during the period January 1, 1990 to January 1, 1994. 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. At December 31, 1993, the Company had recorded $62.9 million of accumulated deferred return and no additional deferred return on Seabrook Unit 1 was recognized in income during 1994. The Company will amortize the accumulated deferred return 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, 1994, the Company had deferred tax liabilities for taxable temporary differences of $572 million and deferred tax assets for deductible temporary differences of $143 million, resulting in a net deferred tax liability of $429 million. Significant components of deferred tax liabilities and assets were as follows: tax liabilities on book/tax plant basis differences, $225 million; tax liabilities on the cumulative amount of income taxes on temporary differences previously flowed through to ratepayers, $162 million; tax liabilities on normalization of book/tax depreciation timing differences, $101 million and tax assets on the disallowance of plant costs, $69 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, 1994, 1993 and 1992 was $11.4 million, $11.4 million and $11.3 million, respectively.
(F) SHORT-TERM CREDIT ARRANGEMENTS
The Company has a revolving credit agreement with a group of banks, which currently extends to December 14, 1995. The borrowing limit of this facility is $225 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, 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
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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, 1994, the Company had $67 million in 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 above 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. For the 12-month period ended December 31, 1994, this coverage ratio was 2.86.
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 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 1994, 1993 and 1992 were $4,028,000, $14,966,000 and $5,749,000, 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 contributed $3.3 million in 1994 for 1993 funding requirements. In addition, the Company contributed $3.9 million in 1994 for 1994 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:
Assumptions used to determine pension costs were:
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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. 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 established a Voluntary Employees' Benefit Association Trust (VEBA) to fund OPEB for union employees who retire on or after January 1, 1994. 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 Company established a 401(h) account in connection with the qualified pension plan to fund OPEB for non-union employees who retire on or after January 1, 1994. The funding policy assumes contributions to these trust funds to be the total OPEB expense calculated 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
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
that minimizes current income tax liability, without exceeding maximum tax deductible limits. In accordance with this policy, the Company contributed approximately $3 million and $1.8 million to the union VEBA on December 30, 1993 and December 29, 1994, respectively. During 1994, the Company contributed approximately $2.2 million to the 401(h) account. The Company currently plans to fund the portion of the OPEB expense that is related to the reorganization during the years 1994-1996.
The components of the net cost of OPEB were as follows:
Assumptions used to determine OPEB costs were:
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 1994 net cost of periodic postretirement benefit by approximately $599,000 and would increase the accumulated postretirement benefit obligation for health care benefits by approximately $3,525,000.
The following table reconciles the funded status of the plan with the amount recognized in the Consolidated Balance Sheet as of December 31, 1994 and 1993:
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The weighted average discount rates used to measure the accumulated postretirement benefit obligation at December 31, 1994 and 1993 were 8.5% and 7.5%, respectively.
During 1993, in conjunction with an 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 $1.3 million. These costs are recognized as a component of the reorganization charge shown on the Company's Consolidated Statement of Income.
Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits." This statement 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 effect of adopting this statement is reported as a charge against income in the first quarter of 1994 due to a change in accounting principle. The charge decreased earnings for common stock for 1994 by $1.3 million, after tax, or $.09 per share.
The Company has an Employee Stock Ownership Plan (ESOP) for substantially all its employees. Under the plan, eligible employees received Company common stock and the plan provided certain tax benefits to the Company. Neither the Company nor the employee-participants made any contributions to the ESOP since 1987.
The Company has an Employee Savings Plan (401(k) Plan) in which substantially all employees are eligible to participate. The 401(k) Plan enables employees to defer receipt of up to 15% of their compensation and to invest such funds in a number of investment alternatives. The Company makes matching contributions to the 401(k) Plan in the form of Company common stock for each participant. The matching contribution currently equals fifty cents for each dollar of the participant's compensation deferred, but is not more than three percent of the participant's annual salary. The Company's matching contributions to the 401(k) Plan during 1994, 1993 and 1992 were $1.6 million, $1.3 million and $.9 million, respectively.
(I) JOINTLY OWNED PLANT
At December 31, 1994, 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.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(J) UNAMORTIZED CANCELLED NUCLEAR PROJECT
From December 1984 through December 1992, the Company had been recovering its investment in Seabrook Unit 2, a nuclear generating unit under construction that was cancelled in 1984, 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 March 1996. At December 31, 1994, approximately $10.7 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, 1994 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:
In January 1994, the Company renegotiated a lease agreement for a service facility. Since the effect of renegotiating the lease, which continues to be treated as a capital lease, was a noncash financing activity during 1994, it is not reflected in the Consolidated Statement of Cash Flows.
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.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Rental payments charged to operating expenses in 1994, 1993 and 1992 amounted to $12.1 million, $14.1 million and $14.8 million, respectively.
Operating leases, which are charged to operating expense, consist principally of a large number of small, relatively short-term, renewable agreements for a wide variety of equipment. In addition, the Company has an operating lease for its corporate headquarters. Future minimum lease payments under this lease are estimated to be as follows:
(L) COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURE PROGRAM
The Company has entered into certain commitments in connection with its continuing capital expenditure program. This program is presently estimated at approximately $357.5 million, excluding AFUDC, for 1995 through 1999.
SEABROOK
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). During 1994, the bankruptcy court confirmed a reorganization plan for Great Bay, which was financed by the injection of $35 million of new ownership equity into this corporation. On November 23, 1994, when this financing was completed, the Company was repaid $5.7 million, representing all advance Seabrook operating expense payments it had made, pending the reorganization plan's becoming effective.
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
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 $23.2 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.
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 $9.2 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 a corporate reorganization.
In conjunction with this review and reorganization, 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). The employees who accepted the offer retired during 1994.
All non-retiring employees affected by the corporate reorganization were placed in regular positions or assigned to special projects.
During 1994, the Company realized savings of approximately $2.8 million ($1.6 million, after-tax) as a result of the corporate reorganization and expects annual savings, beginning in 1995, to be approximately $7.9 million ($4.6 million, after-tax).
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 $11.3 million, and that the value of the property following remediation will not exceed $6 million. In its December 16, 1992 decision on UI's application for retail rate increases, the DPUC provided for additional revenues to be recovered from customers in the amount of $4.3 million of the difference during the period 1993-1996, subject to true-up in the Company's next retail rate proceeding based on actual remediation costs and actual gain on the Company's disposition of the property.
PROPERTY TAXES
On November 2, 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. On May 7, 1994, the Company received a "Certificate of Correction....to correct a clerical omission or mistake" from the City's tax assessor relative to the assessed value of the Company's personal property for the tax year 1994-1995, which certificate purports to increase said assessed value by approximately 53% above the tax assessor's valuation at February 28, 1994. The Company is contesting each of these actions of the City's tax assessor vigorously, and has commenced actions in the Superior Court to enjoin the City from any effort to collect the "updated" personal property tax bills for the tax year 1991-1992 and challenging both the May 7, 1994 "Certificate of Correction" and the tax assessor's valuation at February 28, 1994. In December of 1994, the City's tax assessor conducted hearings regarding the assessed value of the Company's personal property for the tax years 1992-1993 and 1993-1994; and the Company anticipates that the City will take some action to revalue the Company's personal property for those tax years. On March 1, 1995, the Company received from the City notices of assessment changes, increasing the assessed valuation of the Company's personal property for the tax year 1995-1996 by 48% over the valuation declared by the Company. The Company expects to take the legal actions necessary to challenge these increases. It is the present opinion of the Company that the ultimate outcome of this dispute will not have a significant impact on the financial position of the Company.
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.
(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 fees that are being paid to the federal government by electric utilities owning or operating nuclear generating units. In return for payment of the
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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. As of June 30, 1994, the disposal facility in Barnwell, South Carolina was closed to all LLW disposal for New England nuclear units, forcing all of these units into on-site storage of LLW produced.
Pursuant to the Low-Level Radioactive Waste Policy Act of 1980, each state is responsible for providing disposal facilities for LLW generated within the state and is authorized to join with other states into regional compacts to jointly fulfill their responsibilities. 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 to the legislature 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 through 1996. 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 1994-1995 fiscal year and the state projects no assessment for the 1995-1996 and 1996-1997 fiscal years. The service currently projects that a disposal site will be designated by 2002, although there are admitted inherent uncertainties in this projection.
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 2000. 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 at least 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
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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) has established $376 million (in 1995 dollars) as the decommissioning cost estimate for Seabrook Unit 1, of which the Company's share would be about $66 million. 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 1994 was $1.3 million. UI's share of the fund at December 31, 1994 was approximately $5.2 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 the Connecticut Yankee Unit are $448 million (in 1995 dollars) and $357 million (in 1995 dollars), respectively, of which the Company's share would be about $17 million and $34 million, respectively. These estimates premise the prompt removal and dismantling of each unit at the end of its estimated 36-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 1994 was $388,000. UI's share of the fund at December 31, 1994 was approximately $2.4 million. For the Company's 9.5% equity ownership in Connecticut Yankee, decommissioning costs of $1.3 million were funded by UI during 1994, and UI's share of the fund at December 31, 1994 was $14.1 million.
(N) PROPERTY TAX SETTLEMENT
In December 1994, the Company and the City of Bridgeport settled a dispute regarding past taxes payable by the Company on its personal property in that city and agreed upon a method of valuation of personal property for tax purposes for future periods.. As a result of the settlement agreement, the Company recognized a non-recurring charge to 1994 earnings of approximately $2.5 million ($1.5 million, after-tax).
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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 1994 and 1993 are set forth below:
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[Letterhead of Coopers & Lybrand L.L.P.]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareowners and Directors of The United Illuminating Company:
We have audited the accompanying consolidated balance sheets of The United Illuminating Company as of December 31, 1994, 1993 and 1992, and related consolidated statements of income, retained earnings and cash flows for the years then ended and the consolidated financial statement schedule (page S-1). These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule 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, 1994, 1993 and 1992, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
/s/ Coopers & Lybrand L.L. P.
Hartford, Connecticut January 23, 1995
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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 March 29, 1995, for the Annual Meeting of the Shareholders to be held on May 17, 1995, which Proxy Statement will be filed with the Securities and Exchange Commission on or about March 29, 1995, 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," "STOCK OPTION EXERCISES IN 1994 AND YEAR-END OPTION VALUES," "DIVIDEND EQUIVALENT PROGRAM," "RETIREMENT PLANS," "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" AND "DIRECTOR COMPENSATION" in the Company's definitive Proxy Statement, dated March 29, 1995, for the Annual Meeting of the Shareholders to be held on May 17, 1995, which Proxy Statement will be filed with the Securities and Exchange Commission on or about March 29, 1995, 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 March 29, 1995 for the Annual Meeting of the Shareholders to be held on May 17, 1995, which Proxy Statement will be filed with the Securities and Exchange Commission on or about March 29, 1995, 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 March 29, 1995, for the Annual Meeting of the Shareholders to be held on May 17, 1995, which Proxy Statement will be filed with the Securities and Exchange Commission on or about March 29, 1995, 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, 1994, 1993 and 1992
Consolidated statement of cash flows for the years ended December 31, 1994, 1993 and 1992
Consolidated balance sheet, December 31, 1994, 1993 and 1992
Consolidated statement of retained earnings for the years ended December 31, 1994, 1993 and 1992
Statement of accounting policies
Notes to consolidated financial statements
Report of independent accountants
Financial Statement Schedule (see S-1)
Schedule II - Valuation and qualifying accounts for the years ended December 31, 1994, 1993 and 1992.
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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 Registration Statement No. 2-60849, effective July 24, 1978.
(2) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended September 30, 1991.
(3) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended March 31, 1991.
(4) Filed with Registration Statement No. 33-40169, effective August 12, 1991.
(5) Filed with Registration Statement No. 33-35465, effective August 1, 1990.
(6) Filed with Registration Statement No. 2-57275, effective October 19, 1976.
(7) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1991.
(8) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1992.
(9) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1990.
(10) Filed with Registration Statement No. 2-66518, effective February 25, 1980.
(11) Filed with Registration Statement No. 2-49669, effective December 11, 1973.
(12) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1993.
(13) Filed with Registration Statement No. 2-54876, effective November 19, 1975.
(14) Filed with Registration Statement No. 2-52657, effective February 6, 1975.
(15) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended September 30, 1990.
(16) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended March 31, 1994.
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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 Copy of Restated Certificate of Incorporation of The United Illuminating Company, dated January 23, 1995. (3) 3.2a (1) Copy of Bylaws of The United Illuminating Company. (Exhibit 2.3) (3) 3.2b (2) Copy of Article II, Section 2, of Bylaws of The United Illuminating Company, as amended March 26, 1990, amending Exhibit 3.2a. (Exhibit 3.23b) (3) 3.2c (3) Copy of Article V, Section 1, of Bylaws of The United Illuminating Company, as amended April 22, 1991, amending Exhibit 3.2a. (Exhibit 3.23c) (4) 4.1 (4) Copy of Indenture, dated as of August 1, 1991, from The United Illuminating Company to The Bank of New York, Trustee. (Exhibit 4) (4) 4.2 (5) 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). (10) 10.1 (6) 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 (6) 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 (1) 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 (7) 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 (8) 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 (6) 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 (6) 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)
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(10) 10.4b (10) 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 (1) 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 (7) Copy of NEPOOL Power Pool Agreement, dated as of September 1, 1971, as amended to November 1, 1988. (Exhibit 10.6a) (10) 10.6b (11) Copy of Agreement Setting Out Supplemental NEPOOL Understandings, dated as of April 2, 1973. (Exhibit 5.7-10) (10) 10.6c (7) Copy of Amendment to NEPOOL Power Pool Agreement, dated as of March 15, 1989, amending Exhibit 10.6a. (Exhibit 10.6c) (10) 10.6d (7) Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of October 1, 1990, amending Exhibit 10.6a. (Exhibit 10.6d) (10) 10.6e (12) Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of September 15, 1992, amending Exhibit 10.6a. (Exhibit 10.6e) (10) 10.6f (12) Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of June 1, 1993, amending Exhibit 10.6a. (Exhibit 10.6f) (10) 10.7a (7) 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 (13) Copy of Transmission Support Agreement, dated as of May 1, 1973, among the Seabrook Companies. (Exhibit 5.9-2) (10) 10.7c (2) 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 (10) 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 (14) 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 (6) 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 (1) 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 (7) 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 (7) 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)
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(10) 10.10 (8) 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 (12) 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) (Exhibit 10.11) (10) 10.12 (8) 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 (2) Copy of Fossil Fuel Supply Agreement between BLC Corporation and The United Illuminating Company, dated as of July 1, 1991. (Exhibit 10.31) (10) 10.14 Copy of Revolving Credit Agreement, dated as of December 15, 1994, among The United Illuminating Company, the Banks named therein, and Citibank, N.A., as Agent for the Banks. (10) 10.15a* (8) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and Richard J. Grossi. (Exhibit 10.22a) (10) 10.15b* (15) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and Richard J. Grossi, amending Exhibit 10.15a. (Exhibit 10.26a) (10) 10.16a* (8) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and Robert L. Fiscus. (Exhibit 10.23a) (10) 10.16b* (15) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and Robert L. Fiscus, amending Exhibit 10.16a. (Exhibit 10.27a) (10) 10.17a* (8) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and James F. Crowe. (Exhibit 10.24a) (10) 10.17b* (15) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and James F. Crowe, amending Exhibit 10.17a. (Exhibit 10.28a) (10) 10.18* (7) Copy of Executive Incentive Compensation Program of The United Illuminating Company. (Exhibit 10.24) (10) 10.19a* (15) Copy of The United Illuminating Company 1990 Stock Option Plan. (Exhibit 10.33) (10) 10.19b* (12) Amendments to The United Illuminating Company 1990 Stock Option Plan, adopted November 22, 1993 and January 24, 1994. (Exhibit 10.21b) (10) 10.20* (16) Copy of The United Illuminating Company Dividend Equivalent Program. (Exhibit 10.20) (21) 21 List of subsidiaries of The United Illuminating Company. (27) 27 Financial Data Schedule (28) 28.1 (8) Copies of significant rate schedules of The United Illuminating Company. (Exhibit 28.1)
- ------------------- *Management contract or compensatory plan or arrangement.
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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, 7 None September 29, 1994
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[Letterhead of Coopers & Lybrand L.L.P.]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Post Effective Amendment No. 1 to the Registration Statement of The United Illuminating Company on Form S-3 (File No. 33-50221) and the Registration Statements on Form S-3 (File No. 33-50445 and File No. 33-55461), of our report, dated January 23, 1995, on our audits of the consolidated financial statements and financial statement schedule of The United Illuminating Company as of December 31, 1994, 1993 and 1992 and for the years then ended, which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L. L. P.
Hartford, Connecticut March 7, 1995
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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: March 8, 1995 -----------------
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 March 8, 1995 - --------------------- (Richard J. Grossi) (Principal Executive Officer)
Director, President and /s/ Robert L. Fiscus Chief Financial Officer March 8, 1995 - --------------------- (Robert L. Fiscus) (Principal Financial and Accounting Officer)
/s/ John D. Fassett Director March 8, 1995 - -------------------- (John D. Fassett)
Director March , 1995 - ---------------------- (William S. Warner)
/s/ John F. Croweak Director March 8, 1995 - -------------------- (John F. Croweak)
/s/ F. Patrick McFadden, Jr. Director March 8, 1995 - ----------------------------- (F. Patrick McFadden, Jr.)
/s/ J. Hugh Devlin Director March 8, 1995 - ------------------- (J. Hugh Devlin)
/s/ Betsy Henley-Cohn Director March 8, 1995 - ---------------------- (Betsy Henley-Cohn)
/s/ Frank R. O'Keefe, Jr. Director March 8, 1995 - -------------------------- (Frank R. O'Keefe, Jr.)
/s/ James A. Thomas Director March 8, 1995 - ---------------------- (James A. Thomas)
Director March , 1995 - ---------------------- (David E.A. Carson)
/s/ John L. Lahey Director March 8, 1995 - ---------------------- (John L. Lahey)
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S-1
EXHIBIT INDEX
(a) Exhibits
Exhibit Table Item Exhibit Number Number Description Page No. ---------- ------- ----------- --------
(3) 3.1 Copy of Restated Certificate of Incorporation of The United Illuminating Company, dated January 23, 1995.
(10) 10.14 Copy of Revolving Credit Agreement, dated as of December 15, 1994, among The United Illuminating Company, the Banks named therein, and Citibank, N.A., as Agent for the Banks.
(21) 21 List of subsidiaries of The United Illuminating Company.
(27) 27 Financial Data Schedule.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
MAJOR INFLUENCES ON FINANCIAL CONDITION
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. A 1% increase in retail sales would increase revenues by $6.0 million (sales margin by about $5.0 million). However, a return to normal weather could decrease revenues by $4.5 million (sales margin by $3.4 million).
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 $4-$5 million are expected in 1995 due to debt reduction and refinancing. Since 1990, annual growth in total operation and maintenance expense, excluding one-time items and cogeneration capacity purchases, has averaged approximately 2.0%, 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 1995, totaling $11.4 million, and its projected net cash provided by operations, less dividends, of $105.3 million, will be sufficient to fund the Company's entire capital expenditure program of $75.8 million and $40.9 million of the $163.1 million necessary to satisfy the 1995 requirements for long-term debt maturities and mandatory long-term debt redemptions and repayments. The Company presently estimates that its projected net cash provided by operations, less dividends, of $97.7 million, will be sufficient to fund the Company's entire capital expenditure program of $76.2 million and all of the Company's 1996 requirements for mandatory redemptions and repayments of $12.8 million. The Company presently estimates that its projected net cash provided by operations, less dividends, of $282.0 million, will be sufficient to fund the Company's entire capital expenditure program of $205.5 million and $76.5 million of the $296.7 million necessary to satisfy the 1997 through 1999 requirements for long-term debt maturities and mandatory long-term debt redemptions and repayments.
All of the Company's capital requirements that exceed available cash will have to be provided by external financing. Although the Company has no commitment to provide such financing from any source of funds, other than a $225 million revolving credit agreement with a group of banks, described below, the Company expects to be able to satisfy its external financing needs by issuing common stock, preferred 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.
On August 18, 1994, United Capital Funding Partnership L.P. ("United Capital"), a special purpose limited partnership in which the Company owns all of the general partner interests, was formed for the sole purpose of issuing its limited partner interests, represented by Preferred Capital Securities ("Capital Securities"), and lending the proceeds thereof to the Company in return for Junior Subordinated Deferrable Interest Debentures ("Subordinated Debentures"). United Capital and the Company have registered $100 million of Capital Securities
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and/or Subordinated Debentures for sale to the public from time to time, in one or more series, under the Securities Act of 1933. The Company has also registered $200 million principal amount of Notes for sale to the public from time to time, in one or more series, under the Securities Act of 1933.
At December 31, 1994, the Company had $11.4 million of cash and temporary cash investments, a decrease of $36.8 million from the balance at December 31, 1993. The components of this decrease, 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 December 14, 1995. The borrowing limit of this facility is $225 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, 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, 1994, the Company had $67 million in short-term borrowings outstanding under this facility.
In January 1995, the Company entered into interest rate cap agreements, with several banks, to protect $100 million of its short-term debt from increases in short-term interest rates. The agreements provide that if the LIBOR (London Interbank Offering Rate), for one-month borrowings, exceeds 8.50% on the 17th of any month during the period beginning February 17, 1995 and ending January 17, 1997, the banks will pay to the Company the difference between that LIBOR and 8.50%, multiplied by $100 million, for the subsequent one-month period.
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 above 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. For the 12-month period ended December 31, 1994, this coverage ratio was 2.86.
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
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incurred as a result of its ownership, storage and sale of fossil fuel to the Company. This agreement currently extends to March 1996. At December 31, 1994, approximately $10.7 million of fossil fuel purchases were being financed under this agreement.
UI has three wholly-owned subsidiaries. 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) was formed to facilitate participation in a 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. (SPI) participated as a 25% partner in the ownership of a medical hotel building in New Haven, which has recently been sold. SPI no longer owns any property and is currently inactive. A second wholly-owned subsidiary of URI is Thermal Energies, Inc., which is participating in the development of district heating and cooling 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 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 a 90% ownership interest in Ventana Corporation, which offers energy conservation engineering and project management services to governmental and private institutions.
The Board of Directors of the Company has authorized the investment of a maximum of $18.0 million, in the aggregate, of the Company's assets in all of URI's ventures, UEI and RCI, and, at December 31, 1994, approximately $14.5 million had been so invested.
RESULTS OF OPERATIONS
1994 vs. 1993 - -------------
Earnings for the year 1994 were $43.5 million, or $3.09 per share, up $7.3 million, or $.52 per share, from 1993. This increase reflects $7.8 million (after-tax), or $.56 per share, from the absence of a one-time charge taken in the fourth quarter of 1993 for the estimated costs of a reorganization and early retirement program associated with the Company's organization review and cost reduction program. Earnings decreased $1.5 million (after-tax), or $.10 per share, due to a one-time charge resulting from the settlement of a dispute with the City of Bridgeport regarding past taxes payable by the Company on its personal property in that city. Earnings also decreased $1.3 million (after-tax), or $.09 per share, from an accounting change made in the first quarter of 1994 to implement Statement of Financial Accounting Standards No. 112. Earnings per share for 1994, excluding one-time items and accounting changes, increased by $.15 per share, to $3.28 per share, from $3.13 per share for 1993.
Retail operating revenues increased about $15.3 million for the year 1994 over the year 1993: $12.5 million from retail rate changes, $7.1 million from higher retail kilowatt-hour sales and $1.2 million to recover higher "pass- through"expenses, partly offset by $5.4 million from an increase in non-cash revenue amortization.
The $12.5 milion retail revenue increase due to rate changes resulted from a rate increase granted by the DPUC in 1992 effective January 1, 1994. Included in this $12.5 million was $5.4 million to collect sales adjustment revenues booked in prior periods. A separate non-cash amortization charge to revenue was increased by $5.4 million to eliminate any current period revenue effect of these sales adjustment rate changes.
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Retail kilowatt-hour sales for the year increased 1.4% over the prior year, producing additional retail revenues of $7.1 million and additional sales margin (revenue less fuel expense and revenue-based taxes) of about $6.0 million. There was virtually no retail kilowatt-hour sales change from weather factors between 1994 and 1993. Weather for the year of 1994 was more severe than "normal", augmenting sales by 0.9% and producing revenues of about $4.5 million and sales margin of about $3.4 million. Retail revenues to recover "pass-through" charges for certain expense changes, including fossil fuel, increased by $1.2 million in 1994 over 1993.
Wholesale "capacity" revenues increased by $0.6 million in 1994 from their 1993 level. Wholesale "energy" revenues, as well as the associated fuel expense, decreased by $11.6 million from 1993 to 1994.
Retail fuel and energy expenses increased $0.9 million for the year of 1994 over 1993. A sales margin increase (reduction of expense) of about $1.2 million resulted from nuclear unit operations and nuclear fuel prices. There were other offsetting fuel expense increases of $2.1 million.
Operating expenses for operations, maintenance and purchased capacity charges in 1994 increased by $0.6 million compared to 1993. Purchased capacity was $2.7 million lower than 1993 due to the absence of a scheduled outage at the Connecticut Yankee Unit, compared to ten weeks of scheduled outage in 1993. Operation and maintenance increased $3.3 million. A $5.1 million increase resulted from higher repair costs at Seabrook Unit 1, reflecting nine weeks of scheduled outage and ten weeks of unscheduled outage in 1994. However, other operation and maintenance expenses decreased by a net $1.8 million, reflecting reduced maintenance costs at the Company's fossil fuel generating plants, the impacts of the 1993 reorganization and early retirement program, and re-engineering efforts.
Other operating expenses, excluding one-time items and their tax effects, increased approximately $7.6 million in 1994 from 1993 due to higher depreciation and income taxes.
Other income and (deductions) decreased $13.2 million for the year of 1994 from the prior year, due principally to the elimination of the deferred returns (after-tax and not representing current cash income) related to the portion of the cost of Seabrook Unit 1 that had not been in the Company's rate base in 1993 and the elimination of the income tax benefits associated with the interest costs of carrying that portion of the unit's cost, lower AFUDC from lower construction costs and a lower AFUDC rate, the write- off of certain terminated project costs previously capitalized, and higher losses related to unregulated subsidiaries. The revenue to support the increased rate base in 1994, and the income tax benefits of the associated cost of debt, are reflected in operating revenues and expenses.
Interest costs and preferred stock dividends decreased by $9.2 million in 1994 compared to 1993. Through its refinancing program, the Company has taken advantage of lower interest rates in both 1993 and 1994.
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 reorganization 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.
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, $20.8 million for the fold-in to base rates of the 1992 sales adjustment revenues, a reduction of $7.7 million in revenue from a separate amortization charge to eliminate the current period revenue effect of rate changes intended to collect sales adjustment revenues booked in prior periods, and 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.
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The retail revenue increases were offset by anticipated reductions of $20.8 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 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 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.
OUTLOOK
Revenues for 1995 will increase by $13.1 million compared to 1994 due to the completion of the non-cash amortization of deferred sales adjustment revenues ($7.7 million amortized and collected in rates in 1993 and $13.1 million amortized and collected in rates in 1994). Revenues for 1995 should also increase as a result of an approximate 1% ($6 million) rate increase for recovery, through the Conservation Adjustment Mechanism, of previously recorded and projected conservation costs.
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. A 1% increase in retail sales would increase revenues by $6.0 million and sales margin (revenue less fuel expense and revenue-based taxes) by about $5.0 million. The Company has experienced "real" (nonweather-related) growth in kilowatt-hour sales of approximately 0.7%, on average, per year since 1992. However, a return to normal weather in 1995 could decrease revenues by 0.7%, or $4.5 million (sales margin by $3.4 million). A continuation of the 1992-1994 "real" sales growth trend would be offset by a return to normal weather.
Sales margin should improve further from lower fuel expense in 1995. Higher generating output from the nuclear units (there is currently no planned outage for Seabrook in 1995) and lower nuclear fuel prices could add $3-$4 million to margin if normal operating assumptions are met. However, if the generation level is higher than expected from the Seabrook unit, a refueling outage, currently planned for early in 1996, may move, partially or fully, into 1995.
Taking all of the above factors into account, overall sales margin would be expected to increase in 1995, compared to 1994, by $23-$25 million. These increases will be offset by the commencement of the amortization of Seabrook phase-in costs at $12.6 million after-tax (equivalent, approximately, to a $23 million revenue requirement) per year for five years beginning in 1995.
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Another major factor affecting the Company's financial condition will be the Company's ability to control expenses. Operation and maintenance expense is expected to decline by several million dollars in 1995 compared to 1994, due primarily to lower maintenance costs at generating units, the full impact of the Company's 1993 reorganization and early retirement program, and other cost reduction efforts. Anticipated depreciation and property taxes should increase expenses by $4-$5 million in 1995 from 1994 levels.
The Company expects continued reductions in interest expense from the 1994 level of $84 million, to about $79-$80 million at February 1995 interest rate levels. This 1995 interest expense level would be 30% below the 1989 level and would mark the sixth consecutive year of interest expense decline. Similar interest expense reductions are expected for 1996, as well, assuming February 1995 interest rate levels.
A major contingency in the Company's expected earnings for 1995 is the timing of the Seabrook refueling outage. If the refueling outage moves fully into 1995, 1995 sales margin would be reduced by about $2 million, and operations and maintenance expense would be increased by $3-$4 million over currently anticipated amounts. These negative effects on 1995 earnings would affect anticipated 1996 results positively. The Company continues to expect to achieve growth in earnings from operations of 4% annually, on average, from its 1992 level of $3.17 per share.
The Company's financial status and financing capability will continue to be sensitive to many other factors, including conditions in the securities markets, economic conditions, interest rates, the level of the Company's income and cash 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.
The electric utility industry is being subjected to increasing competition. Currently, the Company's retail electric service rates are subject to regulation and are based on the Company's costs. Therefore, the Company, and all regulated utilities, are subject to certain accounting standards (Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation") that are not applicable to other businesses in general. These accounting rules allow all regulated utilities, where appropriate, to defer the income statement impact of certain costs that are expected to be recovered in future regulated service rates and to establish regulatory assets on balance sheets for such costs. The effects of competition could cause the operations of the Company, or a portion thereof, to fail to meet the criteria for application of these accounting rules. While the Company expects to continue to meet these criteria in the near future, if the Company were to cease meeting these criteria, accounting standards for business in general would become applicable and immediate recognition of any previously deferred costs would be required in the year in which the criteria are no longer met. If this change in accounting were to occur, it would have a material adverse effect on the Company's earnings and retained earnings in that year and may have a material adverse effect on the Company's ongoing financial condition, as well.
INFLATION
Much of the Company's operating expense structure is based on fixed charges for plant, purchased power, fuel expense and taxes that have no direct relationship to "inflation" as defined by the Producer Price Index (PPI). That portion of fuel expense (fossil fuel expense) which is a factor in the PPI, is subject to a "pass-through" revenue recovery from customers. The operations expense component most sensitive to inflation, wage and benefit costs, account for about 15% of the Company's total operating expenses excluding income taxes.
A significant portion of the "fixed charges for plant" component of operating expenses is based on the historic cost of the Company's generating units. Under current conditions the cost of future additional or replacement generating capacity, if needed, would probably be less than the cost of existing generating capacity.
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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).
REGULATORY ACCOUNTING
The consolidated financial statements of the Company are in conformity with generally accepted accounting principles and with accounting for regulated electric utilities prescribed by the Federal Energy Regulatory Commission (FERC) and the Connecticut Department of Public Utility Control (DPUC). Generally accepted accounting principles for regulated entities allow the Company to give accounting recognition to the actions of regulatory authorities in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation". In accordance with SFAS No. 71, the Company has deferred recognition of costs (a regulatory asset) or has recognized obligations (a regulatory liability) if it is probable that such costs will be recovered or obligation relieved in the future through the ratemaking process.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, 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.
The Company's utility plant in service as of December 31, 1994, 1993 and 1992 is comprised as follows:
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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. Weighted average AFUDC rates in effect for 1994, 1993 and 1992 were 8.19%, 8.75% and 10.25%, respectively.
DEPRECIATION
Provisions for depreciation on utility plant for book purposes 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. The aggregate annual provisions for depreciation for the years 1994, 1993 and 1992 were equivalent to approximately 3.27%, 3.22% and 3.15%, respectively, of the original cost of depreciable property.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes". In accordance with SFAS No. 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 a 1990 DPUC retail rate decision.
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 records outstanding checks as accounts payable until the checks have been honored by the banks.
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
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
months of the funding requirement for operating expenses, is restricted for use and amounted to $2.3 million, $3.4 million and $2.9 million, at December 31, 1994, 1993 and 1992, 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. This investment amounted to $9.6 million, $9.5 million and $9.4 million at December 31, 1994, 1993 and 1992, respectively.
FOSSIL FUEL COSTS
The amount of fossil fuel costs that cannot be reflected currently in customers' bills pursuant to the fossil fuel adjustment clause 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 POSTEMPLOYMENT 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 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 postemployment 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 Postretirement 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 of the DPUC.
Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits." This statement 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 effect of adopting this statement is reported as a change in accounting principle and decreased earnings for common stock for 1994 by $1.3 million or $.09 per share.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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, 1994, the Company's unfunded share of the obligation, based on its ownership interest in Seabrook Unit 1 and Millstone Unit 3, was approximately $1.3 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 $1,727,000, $1,616,000 and $1,334,000 during 1994, 1993 and 1992 into the decommissioning trust funds for Seabrook Unit 1 and Millstone Unit 3. At December 31, 1994, the Company's share of the trust fund balances, which include accumulated earnings on the funds, were $5.2 million and $2.4 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 3,400 shares of common stock in 1994, 46,000 shares of common stock in 1993 and 100,800 shares of common stock in 1992 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.
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 203,200 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, 5,000 shares of stock at an exercise price of $42.375 per share and 18,600 shares of stock at an exercise price of $30 per share have been granted by the Board of Directors and remain outstanding at December 31, 1994. 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 42,000 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 in 1993. Options to purchase 3,400 shares of stock at an exercise price of $30.75 per share were exercised during 1994.
(b) RETAINED EARNINGS RESTRICTION
The indenture under which the Company's 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 $87.2 million were free from such limitations at December 31, 1994.
(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.
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 $797,000.
There was no redemption of preferred stock in 1993.
On April 15, 1994, the Company redeemed all of the 600,000 outstanding shares of its 8.80% Preferred Stock, 1976 Series, at $25.25 per share plus accrued dividends.
In July 1994, the Company purchased 2,450 shares of its 4.72% $100 par value Preferred Stock, Series B, at a discount, resulting in a non-taxable gain of $116,000.
In December 1994, the Company purchased 10,000 shares of its 5 5/8% $100 par value Preferred Stock, Series D, at a discount, resulting in a non-taxable gain of $420,000.
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
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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, 1994.
(d) LONG-TERM DEBT
In January 1994, the Company repaid $55.3 million principal amount of maturing 10.32% First Mortgage Bonds of Bridgeport Electric Company, a wholly-owned subsidiary of the Company that was subsequently merged with and into the Company, and a $5 million 13.1% term loan. These repayments were made with a portion of the net proceeds from the issuance and sale, in December 1993, of $100 million five-year and one month Notes at a coupon rate of 6.20%.
On September 12, 1994, the Company repaid at maturity $30 million principal amount of 7.62% Notes. In addition, on November 1, 1994, December 2, 1994 and January 17, 1995, the Company repaid at maturity $13 million, $10 million and $50 million principal amounts of 7.20%, 6.82% and 6.0% Notes, respectively.
On October 1, 1994 and December 1, 1994, the Company redeemed the remaining $110,000 and $3,830,000 principal amounts of 14 1/2% 1984 Series, and 14 1/2% 1984 Series B, Pollution Control Revenue Bonds, respectively, at a 3% premium.
On January 17, 1995 and February 15, 1995, the Company repaid $55.3 million and $10.8 million principal amounts of maturing 10.32% and 9.44% First Mortgage Bonds of Bridgeport Electric Company, a wholly-owned subsidiary of the Company that was merged with and into the Company in September of 1994.
On August 18, 1994, United Capital Funding Partnership L.P. ("United Capital"), a special purpose limited partnership in which the Company owns all of the general partner interests, was formed for the sole purpose of issuing its limited partner interests, represented by Preferred Capital Securities ("Capital Securities"), and lending the proceeds thereof to the Company in return for Junior Subordinated Deferrable Interest Debentures ("Subordinated Debentures"). United Capital and the Company have registered $100 million of Capital Securities and/or Subordinated Debentures for sale to the public from time to time, in one or more series, under the Securities Act of 1933. The Company has also registered $200 million principal amount of Notes for sale to the public from time to time, in one or more series, under the Securities Act of 1933.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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) in 1993 and 2.66% (an additional $17.3 million) in 1994, including allowed conservation and load management program revenue increases. However, the Company has realized increased revenues of $12.1 million and $12.5 million in 1993 and 1994, respectively, as a result of these rate increases.
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.
The Company is allowed revenue increases for conservation and load management expenditures through a Conservation Adjustment Mechanism (CAM) in its retail rates, and accordingly expects a revenue increase in 1995 of $6 million, or 1%, through operation of the CAM. Except for CAM revenue increases, the Company has stated publicly that it does not plan to seek any retail rate increases for the foreseeable future.
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
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 phased into rate base its allowable investment in Seabrook Unit 1, amounting to $640 million, during the period January 1, 1990 to January 1, 1994. 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. At December 31, 1993, the Company had recorded $62.9 million of accumulated deferred return and no additional deferred return on Seabrook Unit 1 was recognized in income during 1994. The Company will amortize the accumulated deferred return 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, 1994, the Company had deferred tax liabilities for taxable temporary differences of $572 million and deferred tax assets for deductible temporary differences of $143 million, resulting in a net deferred tax liability of $429 million. Significant components of deferred tax liabilities and assets were as follows: tax liabilities on book/tax plant basis differences, $225 million; tax liabilities on the cumulative amount of income taxes on temporary differences previously flowed through to ratepayers, $162 million; tax liabilities on normalization of book/tax depreciation timing differences, $101 million and tax assets on the disallowance of plant costs, $69 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, 1994, 1993 and 1992 was $11.4 million, $11.4 million and $11.3 million, respectively.
(F) SHORT-TERM CREDIT ARRANGEMENTS
The Company has a revolving credit agreement with a group of banks, which currently extends to December 14, 1995. The borrowing limit of this facility is $225 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, 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
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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, 1994, the Company had $67 million in 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 above 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. For the 12-month period ended December 31, 1994, this coverage ratio was 2.86.
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 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 1994, 1993 and 1992 were $4,028,000, $14,966,000 and $5,749,000, 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 contributed $3.3 million in 1994 for 1993 funding requirements. In addition, the Company contributed $3.9 million in 1994 for 1994 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:
Assumptions used to determine pension costs were:
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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. 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 established a Voluntary Employees' Benefit Association Trust (VEBA) to fund OPEB for union employees who retire on or after January 1, 1994. 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 Company established a 401(h) account in connection with the qualified pension plan to fund OPEB for non-union employees who retire on or after January 1, 1994. The funding policy assumes contributions to these trust funds to be the total OPEB expense calculated 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
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
that minimizes current income tax liability, without exceeding maximum tax deductible limits. In accordance with this policy, the Company contributed approximately $3 million and $1.8 million to the union VEBA on December 30, 1993 and December 29, 1994, respectively. During 1994, the Company contributed approximately $2.2 million to the 401(h) account. The Company currently plans to fund the portion of the OPEB expense that is related to the reorganization during the years 1994-1996.
The components of the net cost of OPEB were as follows:
Assumptions used to determine OPEB costs were:
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 1994 net cost of periodic postretirement benefit by approximately $599,000 and would increase the accumulated postretirement benefit obligation for health care benefits by approximately $3,525,000.
The following table reconciles the funded status of the plan with the amount recognized in the Consolidated Balance Sheet as of December 31, 1994 and 1993:
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The weighted average discount rates used to measure the accumulated postretirement benefit obligation at December 31, 1994 and 1993 were 8.5% and 7.5%, respectively.
During 1993, in conjunction with an 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 $1.3 million. These costs are recognized as a component of the reorganization charge shown on the Company's Consolidated Statement of Income.
Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits." This statement 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 effect of adopting this statement is reported as a charge against income in the first quarter of 1994 due to a change in accounting principle. The charge decreased earnings for common stock for 1994 by $1.3 million, after tax, or $.09 per share.
The Company has an Employee Stock Ownership Plan (ESOP) for substantially all its employees. Under the plan, eligible employees received Company common stock and the plan provided certain tax benefits to the Company. Neither the Company nor the employee-participants made any contributions to the ESOP since 1987.
The Company has an Employee Savings Plan (401(k) Plan) in which substantially all employees are eligible to participate. The 401(k) Plan enables employees to defer receipt of up to 15% of their compensation and to invest such funds in a number of investment alternatives. The Company makes matching contributions to the 401(k) Plan in the form of Company common stock for each participant. The matching contribution currently equals fifty cents for each dollar of the participant's compensation deferred, but is not more than three percent of the participant's annual salary. The Company's matching contributions to the 401(k) Plan during 1994, 1993 and 1992 were $1.6 million, $1.3 million and $.9 million, respectively.
(I) JOINTLY OWNED PLANT
At December 31, 1994, 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.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(J) UNAMORTIZED CANCELLED NUCLEAR PROJECT
From December 1984 through December 1992, the Company had been recovering its investment in Seabrook Unit 2, a nuclear generating unit under construction that was cancelled in 1984, 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 March 1996. At December 31, 1994, approximately $10.7 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, 1994 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:
In January 1994, the Company renegotiated a lease agreement for a service facility. Since the effect of renegotiating the lease, which continues to be treated as a capital lease, was a noncash financing activity during 1994, it is not reflected in the Consolidated Statement of Cash Flows.
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.
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Rental payments charged to operating expenses in 1994, 1993 and 1992 amounted to $12.1 million, $14.1 million and $14.8 million, respectively.
Operating leases, which are charged to operating expense, consist principally of a large number of small, relatively short-term, renewable agreements for a wide variety of equipment. In addition, the Company has an operating lease for its corporate headquarters. Future minimum lease payments under this lease are estimated to be as follows:
(L) COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURE PROGRAM
The Company has entered into certain commitments in connection with its continuing capital expenditure program. This program is presently estimated at approximately $357.5 million, excluding AFUDC, for 1995 through 1999.
SEABROOK
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). During 1994, the bankruptcy court confirmed a reorganization plan for Great Bay, which was financed by the injection of $35 million of new ownership equity into this corporation. On November 23, 1994, when this financing was completed, the Company was repaid $5.7 million, representing all advance Seabrook operating expense payments it had made, pending the reorganization plan's becoming effective.
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
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 $23.2 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.
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 $9.2 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 a corporate reorganization.
In conjunction with this review and reorganization, 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). The employees who accepted the offer retired during 1994.
All non-retiring employees affected by the corporate reorganization were placed in regular positions or assigned to special projects.
During 1994, the Company realized savings of approximately $2.8 million ($1.6 million, after-tax) as a result of the corporate reorganization and expects annual savings, beginning in 1995, to be approximately $7.9 million ($4.6 million, after-tax).
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 $11.3 million, and that the value of the property following remediation will not exceed $6 million. In its December 16, 1992 decision on UI's application for retail rate increases, the DPUC provided for additional revenues to be recovered from customers in the amount of $4.3 million of the difference during the period 1993-1996, subject to true-up in the Company's next retail rate proceeding based on actual remediation costs and actual gain on the Company's disposition of the property.
PROPERTY TAXES
On November 2, 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. On May 7, 1994, the Company received a "Certificate of Correction....to correct a clerical omission or mistake" from the City's tax assessor relative to the assessed value of the Company's personal property for the tax year 1994-1995, which certificate purports to increase said assessed value by approximately 53% above the tax assessor's valuation at February 28, 1994. The Company is contesting each of these actions of the City's tax assessor vigorously, and has commenced actions in the Superior Court to enjoin the City from any effort to collect the "updated" personal property tax bills for the tax year 1991-1992 and challenging both the May 7, 1994 "Certificate of Correction" and the tax assessor's valuation at February 28, 1994. In December of 1994, the City's tax assessor conducted hearings regarding the assessed value of the Company's personal property for the tax years 1992-1993 and 1993-1994; and the Company anticipates that the City will take some action to revalue the Company's personal property for those tax years. On March 1, 1995, the Company received from the City notices of assessment changes, increasing the assessed valuation of the Company's personal property for the tax year 1995-1996 by 48% over the valuation declared by the Company. The Company expects to take the legal actions necessary to challenge these increases. It is the present opinion of the Company that the ultimate outcome of this dispute will not have a significant impact on the financial position of the Company.
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.
(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 fees that are being paid to the federal government by electric utilities owning or operating nuclear generating units. In return for payment of the
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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. As of June 30, 1994, the disposal facility in Barnwell, South Carolina was closed to all LLW disposal for New England nuclear units, forcing all of these units into on-site storage of LLW produced.
Pursuant to the Low-Level Radioactive Waste Policy Act of 1980, each state is responsible for providing disposal facilities for LLW generated within the state and is authorized to join with other states into regional compacts to jointly fulfill their responsibilities. 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 to the legislature 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 through 1996. 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 1994-1995 fiscal year and the state projects no assessment for the 1995-1996 and 1996-1997 fiscal years. The service currently projects that a disposal site will be designated by 2002, although there are admitted inherent uncertainties in this projection.
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 2000. 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 at least 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
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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) has established $376 million (in 1995 dollars) as the decommissioning cost estimate for Seabrook Unit 1, of which the Company's share would be about $66 million. 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 1994 was $1.3 million. UI's share of the fund at December 31, 1994 was approximately $5.2 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 the Connecticut Yankee Unit are $448 million (in 1995 dollars) and $357 million (in 1995 dollars), respectively, of which the Company's share would be about $17 million and $34 million, respectively. These estimates premise the prompt removal and dismantling of each unit at the end of its estimated 36-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 1994 was $388,000. UI's share of the fund at December 31, 1994 was approximately $2.4 million. For the Company's 9.5% equity ownership in Connecticut Yankee, decommissioning costs of $1.3 million were funded by UI during 1994, and UI's share of the fund at December 31, 1994 was $14.1 million.
(N) PROPERTY TAX SETTLEMENT
In December 1994, the Company and the City of Bridgeport settled a dispute regarding past taxes payable by the Company on its personal property in that city and agreed upon a method of valuation of personal property for tax purposes for future periods.. As a result of the settlement agreement, the Company recognized a non-recurring charge to 1994 earnings of approximately $2.5 million ($1.5 million, after-tax).
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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 1994 and 1993 are set forth below:
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[Letterhead of Coopers & Lybrand L.L.P.]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareowners and Directors of The United Illuminating Company:
We have audited the accompanying consolidated balance sheets of The United Illuminating Company as of December 31, 1994, 1993 and 1992, and related consolidated statements of income, retained earnings and cash flows for the years then ended and the consolidated financial statement schedule (page S-1). These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule 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, 1994, 1993 and 1992, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
/s/ Coopers & Lybrand L.L. P.
Hartford, Connecticut January 23, 1995
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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 March 29, 1995, for the Annual Meeting of the Shareholders to be held on May 17, 1995, which Proxy Statement will be filed with the Securities and Exchange Commission on or about March 29, 1995, 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," "STOCK OPTION EXERCISES IN 1994 AND YEAR-END OPTION VALUES," "DIVIDEND EQUIVALENT PROGRAM," "RETIREMENT PLANS," "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" AND "DIRECTOR COMPENSATION" in the Company's definitive Proxy Statement, dated March 29, 1995, for the Annual Meeting of the Shareholders to be held on May 17, 1995, which Proxy Statement will be filed with the Securities and Exchange Commission on or about March 29, 1995, 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 March 29, 1995 for the Annual Meeting of the Shareholders to be held on May 17, 1995, which Proxy Statement will be filed with the Securities and Exchange Commission on or about March 29, 1995, 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 March 29, 1995, for the Annual Meeting of the Shareholders to be held on May 17, 1995, which Proxy Statement will be filed with the Securities and Exchange Commission on or about March 29, 1995, 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, 1994, 1993 and 1992
Consolidated statement of cash flows for the years ended December 31, 1994, 1993 and 1992
Consolidated balance sheet, December 31, 1994, 1993 and 1992
Consolidated statement of retained earnings for the years ended December 31, 1994, 1993 and 1992
Statement of accounting policies
Notes to consolidated financial statements
Report of independent accountants
Financial Statement Schedule (see S-1)
Schedule II - Valuation and qualifying accounts for the years ended December 31, 1994, 1993 and 1992.
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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 Registration Statement No. 2-60849, effective July 24, 1978.
(2) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended September 30, 1991.
(3) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended March 31, 1991.
(4) Filed with Registration Statement No. 33-40169, effective August 12, 1991.
(5) Filed with Registration Statement No. 33-35465, effective August 1, 1990.
(6) Filed with Registration Statement No. 2-57275, effective October 19, 1976.
(7) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1991.
(8) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1992.
(9) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1990.
(10) Filed with Registration Statement No. 2-66518, effective February 25, 1980.
(11) Filed with Registration Statement No. 2-49669, effective December 11, 1973.
(12) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1993.
(13) Filed with Registration Statement No. 2-54876, effective November 19, 1975.
(14) Filed with Registration Statement No. 2-52657, effective February 6, 1975.
(15) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended September 30, 1990.
(16) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended March 31, 1994.
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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 Copy of Restated Certificate of Incorporation of The United Illuminating Company, dated January 23, 1995. (3) 3.2a (1) Copy of Bylaws of The United Illuminating Company. (Exhibit 2.3) (3) 3.2b (2) Copy of Article II, Section 2, of Bylaws of The United Illuminating Company, as amended March 26, 1990, amending Exhibit 3.2a. (Exhibit 3.23b) (3) 3.2c (3) Copy of Article V, Section 1, of Bylaws of The United Illuminating Company, as amended April 22, 1991, amending Exhibit 3.2a. (Exhibit 3.23c) (4) 4.1 (4) Copy of Indenture, dated as of August 1, 1991, from The United Illuminating Company to The Bank of New York, Trustee. (Exhibit 4) (4) 4.2 (5) 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). (10) 10.1 (6) 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 (6) 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 (1) 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 (7) 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 (8) 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 (6) 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 (6) 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)
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(10) 10.4b (10) 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 (1) 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 (7) Copy of NEPOOL Power Pool Agreement, dated as of September 1, 1971, as amended to November 1, 1988. (Exhibit 10.6a) (10) 10.6b (11) Copy of Agreement Setting Out Supplemental NEPOOL Understandings, dated as of April 2, 1973. (Exhibit 5.7-10) (10) 10.6c (7) Copy of Amendment to NEPOOL Power Pool Agreement, dated as of March 15, 1989, amending Exhibit 10.6a. (Exhibit 10.6c) (10) 10.6d (7) Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of October 1, 1990, amending Exhibit 10.6a. (Exhibit 10.6d) (10) 10.6e (12) Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of September 15, 1992, amending Exhibit 10.6a. (Exhibit 10.6e) (10) 10.6f (12) Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of June 1, 1993, amending Exhibit 10.6a. (Exhibit 10.6f) (10) 10.7a (7) 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 (13) Copy of Transmission Support Agreement, dated as of May 1, 1973, among the Seabrook Companies. (Exhibit 5.9-2) (10) 10.7c (2) 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 (10) 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 (14) 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 (6) 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 (1) 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 (7) 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 (7) 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)
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(10) 10.10 (8) 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 (12) 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) (Exhibit 10.11) (10) 10.12 (8) 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 (2) Copy of Fossil Fuel Supply Agreement between BLC Corporation and The United Illuminating Company, dated as of July 1, 1991. (Exhibit 10.31) (10) 10.14 Copy of Revolving Credit Agreement, dated as of December 15, 1994, among The United Illuminating Company, the Banks named therein, and Citibank, N.A., as Agent for the Banks. (10) 10.15a* (8) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and Richard J. Grossi. (Exhibit 10.22a) (10) 10.15b* (15) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and Richard J. Grossi, amending Exhibit 10.15a. (Exhibit 10.26a) (10) 10.16a* (8) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and Robert L. Fiscus. (Exhibit 10.23a) (10) 10.16b* (15) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and Robert L. Fiscus, amending Exhibit 10.16a. (Exhibit 10.27a) (10) 10.17a* (8) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and James F. Crowe. (Exhibit 10.24a) (10) 10.17b* (15) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and James F. Crowe, amending Exhibit 10.17a. (Exhibit 10.28a) (10) 10.18* (7) Copy of Executive Incentive Compensation Program of The United Illuminating Company. (Exhibit 10.24) (10) 10.19a* (15) Copy of The United Illuminating Company 1990 Stock Option Plan. (Exhibit 10.33) (10) 10.19b* (12) Amendments to The United Illuminating Company 1990 Stock Option Plan, adopted November 22, 1993 and January 24, 1994. (Exhibit 10.21b) (10) 10.20* (16) Copy of The United Illuminating Company Dividend Equivalent Program. (Exhibit 10.20) (21) 21 List of subsidiaries of The United Illuminating Company. (27) 27 Financial Data Schedule (28) 28.1 (8) Copies of significant rate schedules of The United Illuminating Company. (Exhibit 28.1)
- ------------------- *Management contract or compensatory plan or arrangement.
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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, 7 None September 29, 1994
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[Letterhead of Coopers & Lybrand L.L.P.]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Post Effective Amendment No. 1 to the Registration Statement of The United Illuminating Company on Form S-3 (File No. 33-50221) and the Registration Statements on Form S-3 (File No. 33-50445 and File No. 33-55461), of our report, dated January 23, 1995, on our audits of the consolidated financial statements and financial statement schedule of The United Illuminating Company as of December 31, 1994, 1993 and 1992 and for the years then ended, which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L. L. P.
Hartford, Connecticut March 7, 1995
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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: March 8, 1995 -----------------
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 March 8, 1995 - --------------------- (Richard J. Grossi) (Principal Executive Officer)
Director, President and /s/ Robert L. Fiscus Chief Financial Officer March 8, 1995 - --------------------- (Robert L. Fiscus) (Principal Financial and Accounting Officer)
/s/ John D. Fassett Director March 8, 1995 - -------------------- (John D. Fassett)
Director March , 1995 - ---------------------- (William S. Warner)
/s/ John F. Croweak Director March 8, 1995 - -------------------- (John F. Croweak)
/s/ F. Patrick McFadden, Jr. Director March 8, 1995 - ----------------------------- (F. Patrick McFadden, Jr.)
/s/ J. Hugh Devlin Director March 8, 1995 - ------------------- (J. Hugh Devlin)
/s/ Betsy Henley-Cohn Director March 8, 1995 - ---------------------- (Betsy Henley-Cohn)
/s/ Frank R. O'Keefe, Jr. Director March 8, 1995 - -------------------------- (Frank R. O'Keefe, Jr.)
/s/ James A. Thomas Director March 8, 1995 - ---------------------- (James A. Thomas)
Director March , 1995 - ---------------------- (David E.A. Carson)
/s/ John L. Lahey Director March 8, 1995 - ---------------------- (John L. Lahey)
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S-1
EXHIBIT INDEX
(a) Exhibits
Exhibit Table Item Exhibit Number Number Description Page No. ---------- ------- ----------- --------
(3) 3.1 Copy of Restated Certificate of Incorporation of The United Illuminating Company, dated January 23, 1995.
(10) 10.14 Copy of Revolving Credit Agreement, dated as of December 15, 1994, among The United Illuminating Company, the Banks named therein, and Citibank, N.A., as Agent for the Banks.
(21) 21 List of subsidiaries of The United Illuminating Company.
(27) 27 Financial Data Schedule.
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 March 29, 1995, for the Annual Meeting of the Shareholders to be held on May 17, 1995, which Proxy Statement will be filed with the Securities and Exchange Commission on or about March 29, 1995, 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," "STOCK OPTION EXERCISES IN 1994 AND YEAR-END OPTION VALUES," "DIVIDEND EQUIVALENT PROGRAM," "RETIREMENT PLANS," "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" AND "DIRECTOR COMPENSATION" in the Company's definitive Proxy Statement, dated March 29, 1995, for the Annual Meeting of the Shareholders to be held on May 17, 1995, which Proxy Statement will be filed with the Securities and Exchange Commission on or about March 29, 1995, 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 March 29, 1995 for the Annual Meeting of the Shareholders to be held on May 17, 1995, which Proxy Statement will be filed with the Securities and Exchange Commission on or about March 29, 1995, 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 March 29, 1995, for the Annual Meeting of the Shareholders to be held on May 17, 1995, which Proxy Statement will be filed with the Securities and Exchange Commission on or about March 29, 1995, 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, 1994, 1993 and 1992
Consolidated statement of cash flows for the years ended December 31, 1994, 1993 and 1992
Consolidated balance sheet, December 31, 1994, 1993 and 1992
Consolidated statement of retained earnings for the years ended December 31, 1994, 1993 and 1992
Statement of accounting policies
Notes to consolidated financial statements
Report of independent accountants
Financial Statement Schedule (see S-1)
Schedule II - Valuation and qualifying accounts for the years ended December 31, 1994, 1993 and 1992.
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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 Registration Statement No. 2-60849, effective July 24, 1978.
(2) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended September 30, 1991.
(3) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended March 31, 1991.
(4) Filed with Registration Statement No. 33-40169, effective August 12, 1991.
(5) Filed with Registration Statement No. 33-35465, effective August 1, 1990.
(6) Filed with Registration Statement No. 2-57275, effective October 19, 1976.
(7) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1991.
(8) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1992.
(9) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1990.
(10) Filed with Registration Statement No. 2-66518, effective February 25, 1980.
(11) Filed with Registration Statement No. 2-49669, effective December 11, 1973.
(12) Filed with Annual Report (Form 10-K) for fiscal year ended December 31, 1993.
(13) Filed with Registration Statement No. 2-54876, effective November 19, 1975.
(14) Filed with Registration Statement No. 2-52657, effective February 6, 1975.
(15) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended September 30, 1990.
(16) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended March 31, 1994.
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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 Copy of Restated Certificate of Incorporation of The United Illuminating Company, dated January 23, 1995. (3) 3.2a (1) Copy of Bylaws of The United Illuminating Company. (Exhibit 2.3) (3) 3.2b (2) Copy of Article II, Section 2, of Bylaws of The United Illuminating Company, as amended March 26, 1990, amending Exhibit 3.2a. (Exhibit 3.23b) (3) 3.2c (3) Copy of Article V, Section 1, of Bylaws of The United Illuminating Company, as amended April 22, 1991, amending Exhibit 3.2a. (Exhibit 3.23c) (4) 4.1 (4) Copy of Indenture, dated as of August 1, 1991, from The United Illuminating Company to The Bank of New York, Trustee. (Exhibit 4) (4) 4.2 (5) 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). (10) 10.1 (6) 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 (6) 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 (1) 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 (7) 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 (8) 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 (6) 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 (6) 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)
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Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(10) 10.4b (10) 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 (1) 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 (7) Copy of NEPOOL Power Pool Agreement, dated as of September 1, 1971, as amended to November 1, 1988. (Exhibit 10.6a) (10) 10.6b (11) Copy of Agreement Setting Out Supplemental NEPOOL Understandings, dated as of April 2, 1973. (Exhibit 5.7-10) (10) 10.6c (7) Copy of Amendment to NEPOOL Power Pool Agreement, dated as of March 15, 1989, amending Exhibit 10.6a. (Exhibit 10.6c) (10) 10.6d (7) Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of October 1, 1990, amending Exhibit 10.6a. (Exhibit 10.6d) (10) 10.6e (12) Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of September 15, 1992, amending Exhibit 10.6a. (Exhibit 10.6e) (10) 10.6f (12) Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of June 1, 1993, amending Exhibit 10.6a. (Exhibit 10.6f) (10) 10.7a (7) 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 (13) Copy of Transmission Support Agreement, dated as of May 1, 1973, among the Seabrook Companies. (Exhibit 5.9-2) (10) 10.7c (2) 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 (10) 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 (14) 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 (6) 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 (1) 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 (7) 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 (7) 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)
- 76 -
Exhibit Table Exhibit Reference Item No. No. No. Description - -------- ------- --------- -----------
(10) 10.10 (8) 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 (12) 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) (Exhibit 10.11) (10) 10.12 (8) 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 (2) Copy of Fossil Fuel Supply Agreement between BLC Corporation and The United Illuminating Company, dated as of July 1, 1991. (Exhibit 10.31) (10) 10.14 Copy of Revolving Credit Agreement, dated as of December 15, 1994, among The United Illuminating Company, the Banks named therein, and Citibank, N.A., as Agent for the Banks. (10) 10.15a* (8) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and Richard J. Grossi. (Exhibit 10.22a) (10) 10.15b* (15) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and Richard J. Grossi, amending Exhibit 10.15a. (Exhibit 10.26a) (10) 10.16a* (8) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and Robert L. Fiscus. (Exhibit 10.23a) (10) 10.16b* (15) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and Robert L. Fiscus, amending Exhibit 10.16a. (Exhibit 10.27a) (10) 10.17a* (8) Copy of Employment Agreement, dated as of January 1, 1988, between The United Illuminating Company and James F. Crowe. (Exhibit 10.24a) (10) 10.17b* (15) Copy of Amendment to Employment Agreement, dated as of July 23, 1990, between The United Illuminating Company and James F. Crowe, amending Exhibit 10.17a. (Exhibit 10.28a) (10) 10.18* (7) Copy of Executive Incentive Compensation Program of The United Illuminating Company. (Exhibit 10.24) (10) 10.19a* (15) Copy of The United Illuminating Company 1990 Stock Option Plan. (Exhibit 10.33) (10) 10.19b* (12) Amendments to The United Illuminating Company 1990 Stock Option Plan, adopted November 22, 1993 and January 24, 1994. (Exhibit 10.21b) (10) 10.20* (16) Copy of The United Illuminating Company Dividend Equivalent Program. (Exhibit 10.20) (21) 21 List of subsidiaries of The United Illuminating Company. (27) 27 Financial Data Schedule (28) 28.1 (8) Copies of significant rate schedules of The United Illuminating Company. (Exhibit 28.1)
- ------------------- *Management contract or compensatory plan or arrangement.
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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, 7 None September 29, 1994
- 78 -
[Letterhead of Coopers & Lybrand L.L.P.]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Post Effective Amendment No. 1 to the Registration Statement of The United Illuminating Company on Form S-3 (File No. 33-50221) and the Registration Statements on Form S-3 (File No. 33-50445 and File No. 33-55461), of our report, dated January 23, 1995, on our audits of the consolidated financial statements and financial statement schedule of The United Illuminating Company as of December 31, 1994, 1993 and 1992 and for the years then ended, which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L. L. P.
Hartford, Connecticut March 7, 1995
- 79 -
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: March 8, 1995 -----------------
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 March 8, 1995 - --------------------- (Richard J. Grossi) (Principal Executive Officer)
Director, President and /s/ Robert L. Fiscus Chief Financial Officer March 8, 1995 - --------------------- (Robert L. Fiscus) (Principal Financial and Accounting Officer)
/s/ John D. Fassett Director March 8, 1995 - -------------------- (John D. Fassett)
Director March , 1995 - ---------------------- (William S. Warner)
/s/ John F. Croweak Director March 8, 1995 - -------------------- (John F. Croweak)
/s/ F. Patrick McFadden, Jr. Director March 8, 1995 - ----------------------------- (F. Patrick McFadden, Jr.)
/s/ J. Hugh Devlin Director March 8, 1995 - ------------------- (J. Hugh Devlin)
/s/ Betsy Henley-Cohn Director March 8, 1995 - ---------------------- (Betsy Henley-Cohn)
/s/ Frank R. O'Keefe, Jr. Director March 8, 1995 - -------------------------- (Frank R. O'Keefe, Jr.)
/s/ James A. Thomas Director March 8, 1995 - ---------------------- (James A. Thomas)
Director March , 1995 - ---------------------- (David E.A. Carson)
/s/ John L. Lahey Director March 8, 1995 - ---------------------- (John L. Lahey)
- 80 -
S-1
EXHIBIT INDEX
(a) Exhibits
Exhibit Table Item Exhibit Number Number Description Page No. ---------- ------- ----------- --------
(3) 3.1 Copy of Restated Certificate of Incorporation of The United Illuminating Company, dated January 23, 1995.
(10) 10.14 Copy of Revolving Credit Agreement, dated as of December 15, 1994, among The United Illuminating Company, the Banks named therein, and Citibank, N.A., as Agent for the Banks.
(21) 21 List of subsidiaries of The United Illuminating Company.
(27) 27 Financial Data Schedule.