<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDING JUNE 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number 1-6788
THE UNITED ILLUMINATING COMPANY
(Exact name of registrant as specified in its charter)
Connecticut 06-0571640
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
157 Church Street, New Haven, Connecticut 06506
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 203-499-2000
None
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- ------
The number of shares outstanding of the issuer's only class of
common stock, as of July 31, 1994, was 14,086,691.
- 1 -<PAGE>
<PAGE>
<TABLE>
INDEX
Part I. FINANCIAL INFORMATION
<CAPTION>
Page
Number
------
<S> <C>
Item 1. Financial Statements. 3
Consolidated Statement of Income for the three and six
months ended June 30, 1994 and 1993. 3
Consolidated Balance Sheet as of June 30, 1994 and
December 31, 1993. 4
Consolidated Statement of Cash Flows for the three and six
months ended June 30, 1994 and 1993. 6
Notes to Consolidated Financial Statements. 7
- Statement of Accounting Policies 7
- Capitalization 8
- Accounting for Phase-in Plan 8
- Income Taxes 10
- Short-term Credit Arrangements 11
- Supplementary Information 12
- Pension and Other Post-Employment Benefits 13
- Fuel Financing Obligations and Other Lease Obligations 13
- Commitments and Contingencies 13
- Capital Expenditure Program 13
- Seabrook 13
- Nuclear Insurance Contingencies 14
- Other Commitments and Contingencies 15
- Hydro-Quebec 15
- Reorganization Charge 15
- Site Remediation Costs 15
- Property Taxes 16
- Nuclear Fuel Disposal and Nuclear Plant Decommissioning 16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 17
- Major Influences on Financial Condition 17
- Capital Expenditure Program 18
- Liquidity and Capital Resources 19
- Results of Operations 21
- Outlook 23
Part II. OTHER INFORMATION
Item 1. Legal Proceedings. 24
Item 4. Submission of Matters to a Vote of Security Holders. 24
Item 6. Exhibits and Reports on Form 8-K. 25
SIGNATURES 26
</TABLE>
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<TABLE>
PART I: FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED STATEMENT OF INCOME
(Thousands except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES (NOTE G) $153,433 $151,012 $321,012 $312,948
--------- --------- --------- ---------
OPERATING EXPENSES
Operation
Fuel and energy 29,148 29,389 67,423 66,354
Capacity purchased 11,144 13,225 22,720 23,429
Other 38,169 35,406 74,521 71,251
Maintenance 12,362 7,222 19,905 13,745
Depreciation 14,519 13,804 28,992 27,567
Amortization of cancelled nuclear project 293 293 586 586
Amortization of deferred fossil fuel costs - 152 - 304
Income taxes (Note E) 6,608 6,997 17,706 18,307
Other taxes (Note G) 14,558 15,189 29,901 30,906
--------- --------- --------- ---------
Total 126,801 121,677 261,754 252,449
--------- --------- --------- ---------
OPERATING INCOME 26,632 29,335 59,258 60,499
--------- --------- --------- ---------
OTHER INCOME AND (DEDUCTIONS)
Allowance for equity funds used during construction 293 180 587 393
Deferred return - Seabrook Unit 1 - 1,874 - 3,748
Other-net (Note G) (920) (77) (719) 311
Non-operating income taxes 675 1,744 1,320 3,838
--------- --------- --------- ---------
Total 48 3,721 1,188 8,290
--------- --------- --------- ---------
INCOME BEFORE INTEREST CHARGES 26,680 33,056 60,446 68,789
--------- --------- --------- ---------
INTEREST CHARGES
Interest on long-term debt 18,583 20,113 37,458 40,517
Other interest (Note G) 2,378 3,137 4,699 6,490
Allowance for borrowed funds used during construction (695) (568) (1,357) (1,178)
--------- --------- --------- ---------
Net Interest Charges 20,266 22,682 40,800 45,829
--------- --------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 6,414 10,374 19,646 22,960
--------- --------- --------- ---------
Cumulative effect for years prior to 1994 of accounting
change for postemployment benefits
(net of income taxes of $956) (Note H) - - (1,294) -
--------- --------- --------- ---------
NET INCOME 6,414 10,374 18,352 22,960
Dividends on Preferred Stock 749 1,079 1,829 2,159
--------- --------- --------- ---------
INCOME APPLICABLE TO COMMON STOCK $5,665 $ 9,295 $16,523 $20,801
========= ========= ========= =========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 14,084 14,055 14,084 14,049
EARNINGS PER SHARE OF COMMON STOCK BEFORE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE $0.40 $0.66 $1.26 $1.48
Cumulative effect for years prior to 1994 of accounting
change for postemployment benefits - - (0.09) -
--------- --------- --------- ---------
EARNINGS PER SHARE OF COMMON STOCK $0.40 $0.66 $1.17 $1.48
========= ========= ========= =========
CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $0.69 $0.665 $1.38 $1.33
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of the financial statements.
- 3 -<PAGE>
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<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEET
ASSETS
(Thousands of Dollars)
<CAPTION>
June 30, December 31,
1994 1993*
---- ----
(Unaudited)
<S> <C> <C>
Utility Plant at Original Cost
In service $1,709,511 $1,690,142
Less, accumulated provision for depreciation 468,350 446,716
----------- -----------
1,241,161 1,243,426
Construction work in progress 62,516 77,395
Nuclear fuel 35,413 40,285
----------- -----------
Net Utility Plant 1,339,090 1,361,106
----------- -----------
Other Property and Investments 19,656 17,811
----------- -----------
Current Assets
Cash and temporary cash investments 17,358 48,171
Accounts receivable
Customers, less allowance for doubtful
accounts of $4,700 and $4,700 65,507 62,703
Other 30,343 28,160
Accrued utility revenues 26,751 22,765
Fuel, materials and supplies, at average cost 23,213 21,178
Prepayments 13,880 4,963
Other 85 41
----------- -----------
Total 177,137 187,981
----------- -----------
Regulatory Assets (future amounts due from customers
through the ratemaking process)
Income taxes due principally to book-tax
differences (Note A) 406,779 408,272
Deferred return - Seabrook Unit 1 62,929 62,929
Unamortized cancelled nuclear projects 26,378 26,964
Unamortized redemption costs 29,328 32,573
Sales adjustment revenues 6,556 13,113
Uranium enrichment decommissioning cost 1,613 1,600
Deferred fossil fuel costs - 198
Unamortized debt issuance expenses 6,130 6,631
Other 13,833 15,114
----------- -----------
Total 553,546 567,394
----------- -----------
$2,089,429 $2,134,292
=========== ===========
*Derived from audited financial statements
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of the financial statements.
- 4 -<PAGE>
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEET
CAPITALIZATION AND LIABILITIES
(Thousands of Dollars)
<CAPTION>
June 30, December 31,
1994 1993*
---- ----
(Unaudited)
<S> <C> <C>
Capitalization (Note B)
Common stock equity
Common stock $284,133 $284,028
Paid-in capital 738 734
Capital stock expense (2,408) (3,163)
Retained earnings 138,057 141,725
----------- -----------
420,520 423,324
Preferred stock 45,945 60,945
Long-term debt 759,208 875,268
----------- -----------
Total 1,225,673 1,359,537
----------- -----------
Noncurrent Liabilities
Obligations under capital leases 335 19,871
Uranium enrichment decommissioning reserve 1,427 1,486
Nuclear decommissioning obligation 6,529 5,606
Other 2,456 2,156
----------- -----------
Total 10,747 29,119
----------- -----------
Current Liabilities
Current portion of long-term debt 199,133 143,333
Notes payable 48,000 -
Accounts payable 38,875 49,424
Dividends payable 10,468 10,445
Taxes accrued 11,638 6,851
Pensions accrued 33,625 33,547
Interest accrued 32,519 21,972
Obligations under capital leases 1,777 1,838
Other accrued liabilities 29,336 26,813
----------- -----------
Total 405,371 294,223
----------- -----------
Customers' Advances for Construction 2,681 2,667
----------- -----------
Regulatory Liabilities (future amounts owed
to customers through
the ratemaking process)
Accumulated deferred investment tax credits 19,052 19,433
Deferred gain on sale of utility plant 1,352 2,070
Deferred fossil fuel costs 649 -
Other 1,829 1,837
----------- -----------
Total 22,882 23,340
----------- -----------
Deferred Income Taxes (future tax liabilities owed
to taxing authorities) 422,075 425,406
Commitments and Contingencies - -
----------- -----------
$2,089,429 $2,134,292
=========== ===========
*Derived from audited financial statements
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of the financial statements.
- 5 -<PAGE>
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $6,414 $10,374 $18,352 $22,960
--------- --------- --------- ---------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 16,498 16,224 32,984 32,334
Deferred income taxes (185) (1,426) (884) (410)
Deferred investment tax credits - net (191) (191) (381) (381)
Amortization of nuclear fuel 803 6,024 5,176 11,684
Cumulative effect for years prior to 1994 of
accounting change for postemployment benefits - net - - 1,294 -
Allowance for funds used during construction (988) (748) (1,944) (1,571)
Deferred return - Seabrook Unit 1 - (1,874) - (3,748)
Sales adjustment revenue 3,279 1,917 6,557 3,834
Changes in:
Accounts receivable - net (63) 1,747 (4,987) 3,877
Fuel, materials and supplies 81 28 (2,035) (2,076)
Prepayments 3,510 3,377 (8,917) (2,786)
Accounts payable 1,916 (4,243) (10,549) (31,744)
Interest accrued 12,744 11,082 10,547 8,136
Taxes accrued (4,315) (2,816) 4,787 5,202
Other assets and liabilities (6,641) (3,256) (3,381) 3,557
--------- --------- --------- ---------
Total Adjustments 26,448 25,845 28,267 25,908
--------- --------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 32,862 36,219 46,619 48,868
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock 76 223 109 884
Notes payable 5,500 (13,391) 48,000 (7,318)
Securities retired and redeemed, including premiums:
Preferred stock (15,150) - (15,150) -
Long-term debt - - (60,333) (62,833)
Lease obligations (582) (578) (1,148) (1,148)
Dividends
Preferred stock (1,079) (1,079) (2,159) (2,159)
Common stock (9,719) (9,342) (19,084) (18,278)
--------- --------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES (20,954) (24,167) (49,765) (90,852)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Plant expenditures, including nuclear fuel (15,599) (18,090) (27,667) (28,952)
Investment in debt securities - - - 94,529
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (15,599) (18,090) (27,667) 65,577
--------- --------- --------- ---------
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD (3,691) (6,038) (30,813) 23,593
BALANCE AT BEGINNING OF PERIOD 21,049 40,733 48,171 11,102
--------- --------- --------- ---------
BALANCE AT END OF PERIOD $17,358 $34,695 $17,358 $34,695
========= ========= ========= =========
CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized) $6,343 $9,228 $27,311 $31,472
========= ========= ========= =========
Income taxes $8,900 $8,300 $10,900 $9,050
========= ========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of the financial statements.
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<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The consolidated financial statements of the Company and its
wholly-owned subsidiaries, Bridgeport Electric Company, United
Resources, Inc., Research Center, Inc. and United Energy
International, Inc., have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. The
statements reflect all adjustments that are, in the opinion of
management, necessary to a fair statement of the results for the
periods presented. All such adjustments are of a normal
recurring nature. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. The Company
believes that the disclosures are adequate to make the
information presented not misleading. These consolidated
financial statements should be read in conjunction with the
consolidated financial statements and the notes to consolidated
financial statements included in the annual report on Form 10-K
for the year ended December 31, 1993. Such notes are
supplemented as follows:
(A) STATEMENT OF ACCOUNTING POLICIES
RECLASSIFICATION OF PREVIOUSLY REPORTED AMOUNTS
Certain amounts previously reported have been reclassified to
conform with current year presentations.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
The AFUDC rate applied in the first six months of 1994 and
1993 was 8.75% on a before-tax basis.
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.
PENSION AND OTHER POST-EMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 112, "Employers'
Accounting for Post-Employment 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 the first six months of
1994 by $1.3 million or $.09 per share.
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 $417,000 and $403,900 during the
second quarter of 1994 and 1993, respectively, into the
decommissioning trust funds for Seabrook Unit 1 and Millstone
Unit 3. During the first six months of 1994 and 1993, the
Company paid $834,000 and $807,800, respectively, into the
decommissioning trust funds for Seabrook Unit 1 and Millstone
Unit 3. At June 30, 1994, the Company's share of the trust fund
balances, which included accumulated earnings on the funds, were
$4.4 million and $2.1 million for Seabrook Unit 1 and Millstone
Unit 3,
- 7 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
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.
(B) CAPITALIZATION
(A) COMMON STOCK
The number of shares outstanding of the Company's common
stock, no par value, at June 30, 1994 was 14,086,691.
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
206,600 shares of stock at an exercise price of $30.75 per share,
2,800 shares of stock at an exercise price of $28.3125 per share,
1,800 shares of stock at an exercise price of $31.1875 per share,
4,000 shares of stock at an exercise price of $35.625 per share,
36,200 shares of stock at an exercise price of $39.5625 per share
and 5,000 shares of stock at an exercise price of $42.375 per
share have been granted by the Board of Directors and remain
outstanding at July 31, 1994. Options to purchase 3,400 shares
of stock at an exercise price of $30.75 per share were exercised
during the first six months of 1994.
(B) RETAINED EARNINGS RESTRICTION
The indenture under which the Company's Medium-Term Notes and
Notes are issued places limitations on the payment of cash
dividends on common stock and on the purchase or redemption of
common stock. Retained earnings in the amount of $79.7 million
were free from such limitations at June 30, 1994.
(C) PREFERRED AND PREFERENCE STOCK
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.
(D) LONG-TERM DEBT
In January 1994, the Company repaid $60 million principal
amount of maturing 10.32% First Mortgage Bonds of the Company's
wholly-owned subsidiary, Bridgeport Electric 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%.
(D) ACCOUNTING FOR PHASE-IN PLAN
The Company has been phasing into rate base its allowable
investment in Seabrook Unit 1, amounting to $640 million, since
January 1, 1990. In conjunction with this phase-in plan, the
Company has been allowed to record a deferred return on the
portion of allowable investment excluded from rate base during
the phase-in period. The accumulated deferred return has been
added to rate base each year since January 1, 1991 in the same
proportion as the phase-in installment for that year has borne to
the portion of the $640 million remaining
- 8 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 will be recognized in income during 1994. The
Company will recover the accumulated deferred return over a
five-year period commencing January 1, 1995.
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<TABLE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(E) INCOME TAXES
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
---- ---- ---- ----
(000's) (000's)
<S> <C> <C> <C> <C>
Income tax expense consists of:
Income tax provisions:
Current
Federal $4,653 $5,150 $13,026 $11,431
State 1,656 1,720 4,625 3,829
-------- -------- -------- --------
Total current 6,309 6,870 17,651 15,260
-------- -------- -------- --------
Deferred
Federal 1,044 (121) 1,115 2,063
State (1,229) (1,305) (2,955) (2,473)
-------- -------- -------- --------
Total deferred (185) (1,426) (1,840) (410)
-------- -------- -------- --------
Investment tax credits (191) (191) (381) (381)
-------- -------- -------- --------
Total income tax expense $5,933 $5,253 $15,430 $14,469
======== ======== ======== ========
Income tax components charged as follows:
Operating expenses $6,608 $6,997 $17,706 $18,307
Other income and deductions - net (675) (1,744) (1,320) (3,838)
Cumulative effect of change in accounting
for postemployment benefits - - (956) -
-------- -------- -------- --------
Total income tax expense $5,933 $5,253 $15,430 $14,469
======== ======== ======== ========
The following table details the components
of the deferred income taxes:
Accelerated depreciation $2,888 $1,900 $5,786 $5,409
Tax depreciation on unrecoverable plant investment 2,043 2,010 4,085 4,020
Conservation & load management 306 472 997 1,272
Deferred fossil fuel costs (360) (168) (360) (468)
Seabrook sale/leaseback transaction (2,682) (2,621) (5,364) (5,242)
Premiums on BEC bond redemption (397) (585) (825) (1,207)
Sales adjustment revenues (1,388) (812) (2,776) (1,624)
Pension benefits 566 (413) 18 (812)
Postretirement benefits (273) (54) (689) (605)
Postemployment benefits - - (956) -
Other - net (888) (1,155) (1,756) (1,153)
-------- -------- -------- --------
Deferred income taxes - net $(185) $(1,426) $(1,840) $(410)
======== ======== ======== ========
</TABLE>
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<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(F) SHORT-TERM CREDIT ARRANGEMENTS
The Company has a revolving credit agreement with a group of
banks, that currently extends to January 19, 1995. The borrowing
limit of this facility is $75 million. The facility permits the
Company to borrow funds at a fluctuating interest rate determined
by the prime lending market in New York, and also permits the
Company to borrow money for fixed periods of time specified by
the Company at fixed interest rates determined by the Eurodollar
interbank market in London, by the certificate of deposit market
in New York, or by bidding, at the Company's option. If a
material adverse change in the business, operations, affairs,
assets or condition, financial or otherwise, or prospects of the
Company and its subsidiaries, on a consolidated basis, should
occur, the banks may decline to lend additional money to the
Company under this revolving credit agreement, although
borrowings outstanding at the time of such an occurrence would
not then become due and payable. As of June 30, 1994, the
Company had $48 million in short-term borrowings outstanding
under this facility.
- 11 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(G) SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
---- ---- ---- ----
(000's) (000's)
<S> <C> <C> <C> <C>
Operating Revenues
- ------------------
Retail-Base rates $146,333 $142,282 $299,608 $289,618
Wholesale - capacity 1,807 1,464 3,642 2,853
- energy 4,576 6,418 16,354 18,616
Other 717 848 1,408 1,861
-------- -------- -------- --------
Total Operating Revenues $153,433 $151,012 $321,012 $312,948
======== ======== ======== ========
Other Income and (Deductions) - net:
- -----------------------------------
Interest and dividend income $312 $306 $763 $825
Equity earnings from Connecticut
Yankee unit 405 481 753 848
Amortization of oil tank lease (363) (325) (717) (642)
Miscellaneous other income
and (deductions) - net (1,274) (539) (1,518) (720)
-------- -------- -------- --------
Total Other Income
and (Deductions) - net $(920) $(77) $(719) $311
======== ======== ======== ========
Other Taxes
- -----------
Charged to:
Operating:
State gross earnings $6,520 $6,738 $13,290 $13,522
Local real estate
and personal property 6,620 7,161 13,302 14,358
Payroll taxes 1,417 1,290 3,306 3,023
Other 1 - 3 3
-------- -------- -------- --------
14,558 15,189 29,901 30,906
Nonoperating & other accounts 229 205 452 452
-------- -------- -------- --------
Total Other Taxes $14,787 $15,394 $30,353 $31,358
======== ======== ======== ========
Other Interest Charges
- ----------------------
Notes Payable $534 $841 $899 $1,824
Amortization of debt expense
and repurchase premiums 1,622 1,916 3,311 3,909
Other 222 380 489 757
-------- -------- -------- --------
Total Other Interest Charges $2,378 $3,137 $4,699 $6,490
======== ======== ======== ========
</TABLE>
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<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(H) PENSION AND OTHER POST-EMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 112, "Employers'
Accounting for Post-Employment 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 one-time charge against income in the
first quarter of 1994 due to a change in accounting principle.
The charge decreased earnings for common stock for the first six
months of 1994 by $1.3 million, after tax, or $.09 per share.
(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 liability, 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 August 1995. At
June 30, 1994, approximately $11.9 million of fossil fuel
purchases were being financed under this agreement.
In January 1994, the Company restructured a lease agreement
for a service facility under which the Company had recognized an
obligation of approximately $19 million representing an option to
purchase the facility in 1994. The restructured lease is being
treated as an operating lease. The effect of restructuring the
lease was a noncash financing activity during the first six
months of 1994 and therefore not reflected in the Consolidated
Statement of Cash Flows. The restructuring of the lease reduced
the amounts recognized as obligations under capital leases and
plant in service by approximately $19 million.
(L) COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURE PROGRAM
The Company has entered into commitments in connection with
its continuing capital expenditure program, which is presently
estimated at approximately $366.6 million, excluding AFUDC, for
1994 through 1998.
SEABROOK
After experiencing increasing financial stress beginning in
May 1987, Public Service Company of New Hampshire (PSNH), which
held the largest ownership share (35.6%) in Seabrook, commenced a
proceeding under Chapter 11 of the Bankruptcy Code in January of
1988. Under this statute, PSNH continued its operations while
seeking a financial reorganization. A reorganization plan
proposed by Northeast Utilities (NU) was confirmed by the
bankruptcy court in April of 1990 and, on May 16, 1991, PSNH
completed the financing required for payment of its
pre-bankruptcy secured and unsecured debt under the first stage
of the reorganization plan and emerged from bankruptcy. On May
19, 1992, the NRC issued the final regulatory approval necessary
for the second stage of the NU reorganization plan, under which
PSNH would be acquired by NU; and on June 5, 1992, this
acquisition was completed. As part of the transaction, PSNH's
ownership share of Seabrook Unit 1 was transferred to a wholly-
owned subsidiary of NU. Two previous regulatory approvals of the
NU reorganization plan for PSNH, by the Federal Energy Regulatory
Commission (FERC) and the Securities and
- 13 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Exchange Commission (SEC), continue to be challenged in court
proceedings, and the Company is unable to predict the outcome of
these proceedings.
On February 28, 1991, EUA Power Corporation (EUA Power), the
holder of a 12.1% ownership share in Seabrook, commenced a
proceeding under Chapter 11 of the Bankruptcy Code. EUA Power, a
wholly-owned subsidiary of Eastern Utilities Associates (EUA),
was organized solely for the purpose of acquiring an ownership
share in Seabrook and selling in the wholesale market its share
of the electric power produced by Seabrook. EUA Power commenced
this bankruptcy proceeding because the cash generated by its
sales of power at current market prices was insufficient to pay
its obligations on its outstanding debt. Subsequently, EUA
Power's name was changed to Great Bay Power Corporation (Great
Bay). The official committee of Great Bay's bondholders
(Bondholders Committee) proposed, and the bankruptcy court
confirmed, a reorganization plan for Great Bay, under which
substantially all of the equity ownership of Great Bay would have
passed to its bondholders. However, on February 2, 1994, the
Bondholders Committee accepted a financing proposal that would
inject $35 million of new ownership equity into Great Bay in
return for a 60% equity ownership position. The bankruptcy court
approved this alternative structure; but the transaction has not
been consummated, due to the 1994 unscheduled outage of the
Seabrook plant. If the transaction is restructured, further
bankruptcy court approval would likely be required, and further
approvals might also be required from the NRC, FERC and/or the
New Hampshire Public Utilities Commission, to permit the Great
Bay reorganization plan to become effective. The bankruptcy
court has approved an agreement among Great Bay, the Bondholders
Committee, UI and The Connecticut Light and Power Company (CL&P),
under which UI and CL&P have been making, as needed until the
reorganization plan becomes effective, advance payments against
their respective future monthly Seabrook payment obligations.
The maximum aggregate amount of advance payments by UI and CL&P
that may be outstanding at any time under this agreement is $20
million, of which UI's share is $8 million. At July 31, 1994,
$4.6 million of the Company's advances remained outstanding.
This agreement can be terminated by UI and CL&P upon thirty days
notice or upon failure of the reorganization process to achieve
certain milestones by specified dates. UI is unable to predict
what impact, if any, failure of the reorganization plan to become
effective will have on the operating license for Seabrook Unit 1,
or what other actions UI and the other joint owners of the unit
may be required to take in response to developments in this
bankruptcy proceeding as it may affect Seabrook.
Nuclear generating units are subject to the licensing
requirements of the Nuclear Regulatory Commission (NRC) under the
Atomic Energy Act of 1954, as amended, and a variety of other
state and federal requirements. Although Seabrook Unit 1 has
been issued a 40-year operating license, NRC proceedings and
investigations prompted by inquiries from Congressmen and by NRC
licensing board consideration of technical contentions may arise
and continue for an indefinite period of time in the future.
NUCLEAR INSURANCE CONTINGENCIES
The Price-Anderson Act, currently extended through August 1,
2002, limits public liability resulting from a single incident at
a nuclear power plant. The first $200 million of liability
coverage is provided by purchasing the maximum amount of
commercially available insurance. Additional liability coverage
will be provided by an assessment of up to $75.5 million per
incident, levied on each of the nuclear units licensed to operate
in the United States, subject to a maximum assessment of $10
million per incident per nuclear unit in any year. In addition,
if the sum of all public liability claims and legal costs
resulting from any nuclear incident exceeds the maximum amount of
financial protection, each reactor operator can be assessed an
additional 5% of $75.5 million, or $3.775 million. The maximum
assessment is adjusted at least every five years to reflect the
impact of inflation. Based on its interests in nuclear
generating units, the Company estimates its maximum liability
would be $20.3 million per incident. However, assessment would
be limited to $3.1 million per incident, per year. With respect
to each of the operating nuclear generating units in which the
Company has an interest, the
- 14 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 $9.5 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).
All non-retiring employees affected by the corporate
reorganization were placed in regular positions or assigned to
special projects.
SITE REMEDIATION COSTS
The Company has estimated that the cost of environmental
remediation of its decommissioned Steel Point Station property in
Bridgeport will be approximately $10.3 million and has recorded a
liability for this cost. Following remediation, the Company
intends to sell the property for development for a value it
estimates will not exceed $6 million. In the Company's last rate
decision, the DPUC provided additional revenues to recover the
$4.3 million difference during the period 1993-1996, subject to
true-up in the Company's next retail rate proceeding, based on
actual remediation costs and the actual gain on the sale of the
property.
- 15 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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. The Company anticipates receiving
additional bills of this sort for the tax years 1992-1993 and
1993-1994, the amounts of which cannot be predicted at this time.
The Company is contesting these tax bills vigorously and has
commenced a lawsuit in the Superior Court to enjoin the City from
any effort to collect these tax bills. 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 has
commenced a lawsuit in the Superior Court to contest vigorously
both this action by the tax assessor and the assessed value of
its personal property by the City for the tax year 1994-1995. It
is not possible at this time to assess accurately the Company's
liability in these matters, if any.
(M) NUCLEAR FUEL DISPOSAL AND NUCLEAR PLANT DECOMMISSIONING
New Hampshire has enacted a law requiring the creation of a
government-managed fund to finance the decommissioning of nuclear
generating units in that state. The New Hampshire Nuclear
Decommissioning Financing Committee (NDFC) established $345
million (in 1993 dollars) as the decommissioning cost estimate
for Seabrook Unit 1. This estimate premises the prompt removal
and dismantling of the Unit at the end of its estimated 40-year
energy producing life. Monthly decommissioning payments are
being made to the state-managed decommissioning trust fund. UI's
share of the decommissioning payments made during the second
quarter of 1994 and 1993 was $335,000 and $322,000, respectively.
UI's share of the decommissioning payments made during the first
six months of 1994 and 1993 was $670,000 and $644,000,
respectively. UI's share of the fund at June 30, 1994 was
approximately $4.4 million.
Connecticut has enacted a law requiring the operators of
nuclear generating units to file periodically with the DPUC their
plans for financing the decommissioning of the units in that
state. Current decommissioning cost estimates for Millstone Unit
3 and Connecticut Yankee are $421 million (in 1994 dollars) and
$324 million (in 1994 dollars), respectively. These estimates
premise the prompt removal and dismantling of each unit at the
end of its estimated 40-year energy producing life. Monthly
decommissioning payments, based on these cost estimates, are
being made to decommissioning trust funds managed by Northeast
Utilities. UI's share of the Millstone Unit 3 decommissioning
payments made during the second quarter of 1994 and 1993 was
$82,000. UI's share of the Millstone Unit 3 decommissioning
payments made during the first six months of 1994 and 1993 was
$164,000. UI's share of the fund at June 30, 1994 was
approximately $2.1 million. For the Company's 9.5% equity
ownership in Connecticut Yankee, decommissioning costs of
$316,000 and $92,000 were funded by UI during the second quarter
of 1994 and 1993, respectively, and decommissioning costs of
$627,000 and $184,000 were funded during the first six months of
1994 and 1993, respectively. UI's share of the fund at June 30,
1994 was $10.1 million.
- 16 -<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
MAJOR INFLUENCES ON FINANCIAL CONDITION
The Company's financial condition should continue to improve
as a result of the December 16, 1992 rate decision by the DPUC.
The DPUC decision granted levelized rate increases of 2.66%
($15.8 million) in 1993 and 2.66% (an additional $17.3 million)
in 1994.
However, the Company's financial condition will continue to be
dependent on the level of retail and wholesale sales. The two
primary factors that affect sales volume are economic conditions
and weather. The regional recession has restricted retail sales
growth and been largely responsible for a weak wholesale sales
market during the past two years. Sales increases due to
economic recovery would help to increase the Company's earnings.
Another major factor affecting the Company's financial
condition will be the Company's ability to control expenses. A
significant reduction in interest expense has been achieved since
1989, and additional savings of $9-$10 million are expected in
1994 due to debt refinancing. Since 1990, annual growth in total
operation and maintenance expense, excluding one-time items and
cogeneration capacity purchases, has averaged approximately 2.7%,
and the Company hopes to restrict future increases to less than
the rate of inflation.
- 17 -<PAGE>
<PAGE>
CAPITAL EXPENDITURE PROGRAM
The Company's 1994-1998 capital expenditure program, excluding
allowance for funds used during construction (AFUDC) and its
effect on certain capital related items, is presently budgeted as
follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 Total
---- ---- ---- ---- ---- -----
(000's)
<S> <C> <C> <C> <C> <C> <C>
Production $23,688 $19,428 $22,308 $ 4,824 $15,180 $ 85,428
Distribution 10,140 21,840 21,288 22,164 21,588 97,020
Transmission 12,096 16,980 10,800 6,336 11,376 57,588
Conservation and
Load Management 11,988 11,892 10,860 10,716 10,320 55,776
Nuclear Fuel 4,980 6,756 11,280 1,248 11,820 36,084
Other 10,532 7,981 6,096 6,036 4,020 34,665
------- -------- ------- ------- ------- --------
Total Expenditures $73,424 $ 84,877 $82,632 $51,324 $74,304 $366,561
======= ======== ======= ======= ======= ========
AFUDC (Pre-tax) $4,934 $3,431 $2,474 $1,940 $1,968
Capitalized Interest 4,151 2,890 2,084 1,638 1,669
Book Depreciation 57,053 62,438 66,425 69,382 72,288
Decommissioning (1) 2,741 2,794 2,851 1,841 1,909
Normalized Tax
Depreciation 33,086 36,392 38,708 40,194 41,368
Accelerated Tax
Depreciation 74,722 69,548 60,738 62,214 61,424
Amortization of Deferred
Return on Seabrook
Unit 1 Phase-In (2) 0 (12,635) (12,635) (12,635) (12,635)
Estimated Rate Base
(end of period) $1,218,137 $1,239,962 $1,254,603 $1,227,959 $1,203,104
<FN>
(1) Steel Point Station environmental remediation costs of $1,075,000 per year
are included each year through 1996.
(2) Deferred return will be amortized over the period 1995-1999.
</TABLE>
- 18 -<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1994, the Company had $17.4 million of cash and
temporary cash investments, a decrease of $30.8 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:
<TABLE>
<CAPTION>
(Millions)
----------
<S> <C>
Balance, December 31, 1993 $ 48.2
--------
Net cash provided by operating activities 46.6
Net cash provided by (used in) financing
activities:
- Financing activities, excluding dividend payments (28.5)
- Dividend payments (21.2)
Cash invested in plant, including nuclear fuel (27.7)
--------
Net Decrease (30.8)
Balance, June 30, 1994 $ 17.4
========
</TABLE>
The Company's capital requirements are presently projected as
follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(000's)
<S> <C> <C> <C> <C> <C>
Capital Expenditure Program $ 73,424 $ 84,877 $82,632 $ 51,324 $ 74,304
Long-term Debt Maturities 53,000 97,000 - 50,000 100,000
Mandatory Redemptions/
Repayments 60,333 66,134 12,770 15,171 15,562
Optional Redemptions 15,150 - - - -
-------- -------- ------- -------- --------
Total Capital Requirements $201,907 $248,011 $95,402 $116,495 $189,866
======== ======== ======= ======== ========
</TABLE>
The Company presently estimates that its cash on hand and
temporary cash investments at the beginning of 1994, totaling
$48.2 million, and its projected net cash provided by operations,
less dividends, of $102.2 million will be sufficient to fund the
Company's entire capital expenditure program of $73.4 million and
$77.0 million of the $128.5 million necessary to satisfy the 1994
requirements for maturing long-term debt and mandatory and
optional redemptions and repayments. The Company presently
estimates that its projected net cash provided by operations for
1995, less dividends, of $106.7 million will be sufficient to
fund the Company's entire capital expenditure program of $84.9
million and $21.8 million of the $163.1 million necessary to
satisfy the 1995 requirements for maturing long-term debt and
mandatory redemptions and repayments. The Company presently
estimates that its projected net cash provided by operations for
1996 through 1998, less dividends of about $280 million, will be
sufficient to fund the entire capital expenditure program of
about $208 million and about $72 million of the $193.5 million
necessary to satisfy the Company's 1996 through 1998 requirements
for maturing long-term debt and mandatory redemptions and
repayments. All of the Company's capital requirements that
exceed available net cash will have to be provided by external
financing; and the Company has no commitment to provide such
financing from any source of funds. The Company expects to be
able to satisfy its external financing needs by issuing common
stock, preferred stock and additional short-term and long-term
debt, although
- 19 -<PAGE>
<PAGE>
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.
The Company has a revolving credit agreement with a group of
banks, that currently extends to January 19, 1995. The borrowing
limit of this facility is $75 million. This facility permits the
Company to borrow funds at a fluctuating interest rate determined
by the prime lending market in New York, and also permits the
Company to borrow money for fixed periods of time specified by
the Company at fixed interest rates determined by the Eurodollar
interbank market in London, by the certificate of deposit market
in New York, or by bidding, at the Company's option. If a
material adverse change in the business, operations, affairs,
assets or condition, financial or otherwise, or prospects of the
Company and its subsidiaries, on a consolidated basis, should
occur, the banks may decline to lend additional money to the
Company under this revolving credit agreement, although
borrowings outstanding at the time of such an occurrence would
not then become due and payable. As of June 30, 1994, the
Company had $48 million in short-term borrowings outstanding
under this facility.
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 liability, 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 August 1995. At
June 30, 1994, approximately $11.9 million of fossil fuel
purchases were being financed under this agreement.
UI has four wholly-owned subsidiaries. Bridgeport Electric
Company, a single-purpose corporation, owns and leases to UI a
generating unit at Bridgeport Harbor Station. Research Center,
Inc. 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. has been formed to facilitate
participation in a proposed joint venture relating to power
production plants abroad. United Resources, Inc. (URI) serves as
the parent corporation for UI's unregulated businesses, each of
which is incorporated separately to participate in business
ventures that will complement and enhance UI's electric utility
business and serve the interests of the Company and its
shareholders and customers.
Four wholly-owned subsidiaries of URI have been incorporated.
Souwestcon Properties, Inc. is participating as a 25% partner in
the ownership of a medical hotel building in New Haven. A second
wholly-owned subsidiary of URI is Thermal Energies, Inc., which
is participating in the development of district heating and
cooling water facilities in the downtown New Haven area,
including the energy center for a new office tower and
participation as a 37% partner in the energy center for a new
city hall and office tower complex. A third URI subsidiary,
Precision Power, Inc., provides power-related equipment and
services to the owners of commercial buildings and industrial
facilities. A fourth URI subsidiary, American Payment Systems,
Inc., manages agents and equipment for electronic data processing
of bill payments made by customers of utilities, including UI, at
neighborhood businesses. In addition to these subsidiaries, URI
also has an 82% ownership interest in Ventana Corporation, 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 July 26, 1994, approximately $13.5 million had been so
invested.
- 20 -<PAGE>
<PAGE>
RESULTS OF OPERATIONS
SECOND QUARTER 1994 VS. SECOND QUARTER 1993
- -------------------------------------------
Earnings for the second quarter of 1994 were $5.7 million, or
$.40 per share, down $3.6 million, or $.26 per share, from the
second quarter of 1993.
Retail operating revenues were up about $4.1 million in the
second quarter over the prior year. Retail revenues increased
$3.4 million from rate changes granted by the Department of
Public Utility Control (DPUC) effective January 1, 1994 ($13
million expected for the full year). The rate decision also
required the amortization of the remaining portion of deferred
revenue for sales adjustments, which reduced retail revenues by
$1.4 million ($5.4 million expected for the year). Revenues to
recover "pass through" of charges for certain expense changes,
including fossil fuel, were minimal.
A retail kilowatthour sales increase of 2.1% over the prior
year led to additional retail revenues of $2.1 million and
additional sales margin (revenue minus fuel expense and revenue
based taxes) of $1.5 million. Weather was hotter than last year,
accounting for about 1.6% of the kilowatthour sales growth.
"Normal" weather would have reduced sales margin by about $1.3
million. The 0.5% "real" growth marked the fourth consecutive
quarter of "real" growth, i.e. not attributable to abnormal
weather.
Wholesale "capacity" revenues increased slightly. Wholesale
"energy" revenues are a direct offset to fuel expense and do not
contribute to sales margin. These energy revenues, as well as
the associated fuel expense, decreased by $1.8 million as a
result of lower demand by other New England utilities.
Retail fuel and energy expenses were up $1.6 million in the
second quarter over the prior year. Of this, $2.9 million was
attributable to the outage of the Seabrook nuclear plant, $.6
million was the result of the higher retail sales, and there were
offsetting fuel expense reductions of $1.9 million.
Operating expenses for operations, maintenance and purchased
capacity charges (O,M&C) increased by $5.8 million over 1993.
Purchased capacity was $2.1 million lower than 1993, due to the
absence of a scheduled outage at the Connecticut Yankee nuclear
plant compared to six weeks of scheduled outage in 1993.
Operation and maintenance increased $7.9 million. About $4.4
million of this was from higher repair costs at the Seabrook
nuclear plant, reflecting nine weeks of scheduled outage and
three weeks of unscheduled outage. (The plant was connected to
the transmission grid on July 31, adding an additional four and
one-half weeks of unscheduled outage to the third quarter.)
Other factors increasing operation and maintenance expense in the
second quarter compared to 1993 were higher costs at the
Company's fossil plants reflecting scheduled maintenance and
slightly higher employment costs as savings from the Company's
1993 reorganization and early retirement program are being
phased-in over 1994.
Other operating expenses declined slightly in the second
quarter of 1994 from the second quarter of 1993. Operating
income taxes declined overall from a combination of additional
tax benefits gained from adding the fifth and final Seabrook
phase-in increment to rate base and additional tax benefits
gained from associating more of the interest tax deduction with
rate base and operating income (shifted from "other income").
Depreciation expense increased somewhat less than planned and
property taxes declined due to lower tax rates resulting from the
phase-ins of residential property tax increases.
Other income and (deductions) decreased $3.5 million in the
second quarter of 1994 from the second quarter of 1993, 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 the Seabrook nuclear plant 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. 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.
- 21 -<PAGE>
<PAGE>
Interest costs and preferred stock dividends declined, as
expected, by $2.6 million (about $10 million is projected for the
year).
SIX MONTHS 1994 VS. SIX MONTHS 1993
- -----------------------------------
Earnings for the first six months of 1994 were $16.5 million,
or $1.17 per share, down $4.3 million, or $.31 per share, from
the first six months of 1993. Absent a one-time charge of $1.3
million, or $.09 per share, to implement Statement of Financial
Accounting Standards (SFAS) No. 112 taken in the first quarter of
1994, earnings per share from operations were down $.22 per
share to $1.26 per share.
Retail operating revenues were up about $10.0 million for the
first six months of 1994 over the prior year period. Retail
revenues increased $6.1 million from rate changes granted by the
DPUC effective January 1, 1994 ($13 million expected for the full
year). The rate decision also required the amortization of the
remaining portion of deferred revenue for sales adjustments,
which reduced retail revenues by $2.7 million ($5.4 million
expected for the year). Revenues to recover "pass through"
charges for certain expense changes, including fossil fuel, were
minimal.
A retail kilowatthour sales increase of 2.6% over the prior
year led to additional retail revenues of $6.4 million and
additional sales margin (revenue minus fuel expense and revenue
based taxes) of $4.9 million. Weather was more severe than last
year, accounting for about 1.9% of the sales growth. "Normal"
weather would have reduced sales margin by about $3.7 million.
Wholesale "capacity" revenues increased by $0.8 million.
Wholesale "energy" revenues, as well as the associated fuel
expense, decreased by $2.3 million.
Retail fuel and energy expenses were up $3.3 million for the
first six months of 1994 over the prior year. Of this, $3.5
million was attributable to the outage of the Seabrook nuclear
plant, $1.6 million was the result of the higher retail sales,
and there were offsetting fuel expense reductions of $1.8
million.
Operating expenses for operations, maintenance and purchased
capacity charges (O,M&C) increased by $8.7 million over 1993.
Purchased capacity was $0.7 million lower than 1993, due to the
absence of a scheduled outage at the Connecticut Yankee nuclear
plant compared to six weeks of scheduled outage in 1993, only
partly offset by six weeks of unscheduled outage at the plant in
the first quarter of 1994 and increased generation from a
cogeneration facility, also in the first quarter. Operation and
maintenance increased $9.4 million. About $5.6 million of this
was from higher repair costs at the Seabrook nuclear plant,
reflecting nine weeks of scheduled outage and six weeks of
unscheduled outage. (The plant was connected to the transmission
grid on July 31, adding an additional four and one-half weeks of
unscheduled outage to the third quarter.) Other factors
increasing operation and maintenance expense in the first six
months of 1994 compared to 1993 were higher costs at the
Company's fossil plants reflecting scheduled maintenance and
slightly higher employment costs as savings from the Company's
1993 reorganization and early retirement program are being
phased-in over 1994.
Other operating expenses declined slightly in the first six
months of 1994 from the first six months of 1993.
Other income and (deductions) decreased $6.9 million for the
six months to-date over the prior year period, 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 the Seabrook nuclear plant 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. 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 declined, as
expected, by $5.2 million (about $10 million is projected for the
year).
- 22 -<PAGE>
<PAGE>
OUTLOOK
The Company's financial condition should continue to improve
as a result of the December 16, 1992 retail rate decision by the
DPUC. The DPUC decision granted levelized rate increases of
2.66% ($15.8 million) in 1993 and 2.66% (an additional $17.3
million) in 1994. However, the Company did not realize the full
anticipated benefit of the 1993 rate increase, realizing about $4
million less than granted due to differences between the sales
realized in individual rate classes and the sales projections
used for rate case purposes. The differences arose principally
from rate class shifting by customers and differential growth in
sales among rate classes. The Company expects to realize about
$13.0 million from rate changes in 1994.
The Company's financial condition will continue to be
dependent on the level of retail and wholesale sales. The two
primary factors that affect sales volume are economic conditions
and weather. The regional recession has restricted retail sales
growth and been largely responsible for a weak wholesale sales
market during the past two years. Sales increases due to
economic recovery would help to increase the Company's earnings.
A 1% increase in sales (customers, demand and energy) would add
about $6 million in revenue and about $5 million in sales margin
(revenue minus fuel expense and revenue-based taxes). Wholesale
capacity sales are expected to be approximately $7 million in
1994.
Another major factor affecting the Company's financial
condition will be the Company's ability to control expenses.
Fuel expense, excluding wholesale fuel expense, is expected to
remain at approximately the 1993 level, reflecting significantly
lower nuclear fuel prices offset by the extended Seabrook outage.
Also, significant reductions in interest expense have been
achieved since 1989 due to debt refinancing and the Company expects
additional savings of about $10 million in 1994 compared to 1993 and
an additional $4 million in 1995. For 1994, operation and maintenance
expenses are expected to increase from normal inflationary
pressures, but these increases should be substantially offset by
savings from the phase-in of the Company's corporate structure
reorganization. Since 1990, annual growth in total operation and
maintenance expense, excluding one-time items and cogeneration
capacity purchases, has averaged approximately 2.7%, and the
Company hopes to restrict future increases to less than the rate
of inflation.
The final portion of the cost of Seabrook Unit 1 has been
added to rate base (and retail revenues) for 1994. This will
eliminate deferred revenues of $7.4 million (after-tax) booked in
1993 for the cost of the Seabrook plant excluded from rate base.
Compared to 1993, the Company had expected 1994 quarterly
earnings from operations to shift somewhat to the third and
fourth quarters from the first and second quarters, primarily due
to the major refueling outage at the Seabrook nuclear plant in
the second quarter of 1994, while the nuclear outage in 1993,
involving the Company's smaller entitlements in other nuclear
plants, occurred in the second and third quarters. Also, the
Company expects the timing of overhauls for fossil plants in
1994, compared to a major overhaul in the fourth quarter of 1993,
to contribute to the shift. The rate increase granted by the
DPUC effective January 1, 1994 continued the shift that has been
occurring in recent years to summer seasonal pricing. While
second quarter 1994 earnings from operations were lower than the
second quarter 1993 earnings as expected, increased retail sales
in the first quarter of 1994 compared to the first quarter of
1993 (primarily due to colder weather) maintained earnings at a
level similar to the 1993 quarter.
Although the Company believes that its financing outlook and
plans are unlikely to be adversely affected by further
developments with respect to the licensing and operation of
Seabrook Unit 1, the Company's financial status and financing
capability will continue to be sensitive to any such developments
and to many other factors, including conditions in the securities
markets, economic conditions, the level of the Company's income
and cash 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.
- 23 -<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On November 2, 1993, the Registrant received "updated"
personal property tax bills from the City of New Haven (the City)
for the tax year 1991-1992, aggregating $6.6 million, based on an
audit by the City's tax assessor. The Registrant anticipates
receiving additional bills of this sort for the tax years
1992-1993 and 1993-1994, the amounts of which cannot be predicted
at this time. The Registrant is contesting these tax bills
vigorously and has commenced a lawsuit in the Superior Court to
enjoin the City from any effort to collect these tax bills. On
May 7, 1994, the Registrant 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
Regisrant'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 Registrant has commenced a lawsuit in the Superior
Court to contest vigorously both this action by the tax assessor
and the assessed value of its personal property by the City for
the tax year 1994-1995. It is not possible at this time to
assess accurately the Registrant's liability in these matters, if
any.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of the Shareholders of the Registrant was
held on May 18, 1994 for the purpose of electing a Board of
Directors for the ensuing year and voting on the employment, by
the Board of Directors, of Coopers & Lybrand as the firm of
independent public accountants to audit the books and affairs of
the Registrant for the fiscal year 1994.
All of the nominees for election as Directors listed in the
Registrant's proxy statement for the meeting were elected by the
following votes:
<TABLE>
<CAPTION>
Number of Shares
--------------------------------------------
Voted Vote Abstentions and
Nominee "For" "Withheld" Broker Non-Votes
------- ----- ---------- ----------------
<S> <C> <C> <C>
David E.A. Carson 12,295,892 113,290 527,527
John F. Croweak 12,308,355 113,027 515,327
J. Hugh Devlin 12,315,118 106,264 515,327
John D. Fassett 12,313,758 107,624 515,327
Robert L. Fiscus 12,331,599 89,783 515,327
Richard J. Grossi 12,321,244 100,138 515,327
Betsy Henley-Cohn 12,320,027 101,355 515,327
John L. Lahey 12,294,741 126,641 515,327
F. Patrick McFadden, Jr. 12,310,254 111,128 515,327
Frank R. O'Keefe, Jr. 12,303,370 113,012 520,327
James A. Thomas 12,305,857 115,525 515,327
William A. Warner 12,301,986 119,396 515,327
</TABLE>
The employment of Coopers & Lybrand as the firm of independent
public accountants to audit the books and affairs of the
Registrant for the fiscal year 1994 was approved by the following
vote:
<TABLE>
<CAPTION>
Number of Shares
---------------------------------------------
Voted Voted Abstentions and
"For" "Against" Broker Non-Votes
----- --------- ----------------
<C> <C> <C>
12,222,650 62,590 651,468
</TABLE>
- 24 -<PAGE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
None
- 25 -<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE UNITED ILLUMINATING COMPANY
Date 08/10/94 Signature /s/ Kurt Mohlman
--------------------------- -----------------------------------
Kurt Mohlman
Treasurer and Secretary
Signature /s/ James L. Benjamin
-----------------------------------
James L. Benjamin
Chief Accounting Officer
- 26 -
