<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 SEPTEMBER 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 October 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 nine
months ended September 30, 1994 and 1993. 3
Consolidated Balance Sheet as of September 30, 1994 and
December 31, 1993. 4
Consolidated Statement of Cash Flows for the three and nine
months ended September 30, 1994 and 1993. 6
Notes to Consolidated Financial Statements. 7
- Statement of Accounting Policies 7
- Capitalization 8
- Accounting for Phase-in Plan 9
- 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 15
- 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. 25
Item 5. Other Events. 25
Item 6. Exhibits and Reports on Form 8-K. 25
SIGNATURES 26
</TABLE>
- 2 -<PAGE>
<PAGE>
<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 Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES (NOTE G) $184,592 $189,432 $505,604 $502,380
--------- --------- --------- ---------
OPERATING EXPENSES
Operation
Fuel and energy 33,413 41,568 100,836 107,922
Capacity purchased 10,805 12,187 33,525 35,616
Other 36,211 38,722 110,732 109,973
Maintenance 11,103 8,893 31,008 22,638
Depreciation 14,554 13,873 43,546 41,440
Amortization of cancelled nuclear project 293 293 879 879
Amortization of deferred fossil fuel costs - 152 - 456
Income taxes (Note E) 20,512 18,893 38,218 37,200
Other taxes (Note G) 12,939 13,493 42,840 44,399
--------- --------- --------- ---------
Total 139,830 148,074 401,584 400,523
--------- --------- --------- ---------
OPERATING INCOME 44,762 41,358 104,020 101,857
--------- --------- --------- ---------
OTHER INCOME AND (DEDUCTIONS)
Allowance for equity funds used during construction 136 289 723 682
Deferred return - Seabrook Unit 1 - 1,875 - 5,623
Other-net (Note G) 644 (54) (75) 257
Non-operating income taxes 579 1,543 1,899 5,381
--------- --------- --------- ---------
Total 1,359 3,653 2,547 11,943
--------- --------- --------- ---------
INCOME BEFORE INTEREST CHARGES 46,121 45,011 106,567 113,800
--------- --------- --------- ---------
INTEREST CHARGES
Interest on long-term debt 18,491 20,122 55,949 60,639
Other interest (Note G) 2,733 2,974 7,432 9,464
Allowance for borrowed funds used during construction (890) (841) (2,247) (2,019)
--------- --------- --------- ---------
Net Interest Charges 20,334 22,255 61,134 68,084
--------- --------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 25,787 22,756 45,433 45,716
--------- --------- --------- ---------
Cumulative effect for years prior to 1994 of accounting
change for post-employment benefits
(net of income taxes of $956) (Note H) - - (1,294) -
--------- --------- --------- ---------
NET INCOME 25,787 22,756 44,139 45,716
Dividends on Preferred Stock 747 1,080 2,576 3,239
--------- --------- --------- ---------
INCOME APPLICABLE TO COMMON STOCK $25,040 $21,676 $41,563 $42,477
========= ========= ========= =========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 14,087 14,073 14,085 14,057
EARNINGS PER SHARE OF COMMON STOCK BEFORE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE $1.78 $1.54 $3.04 $3.02
Cumulative effect for years prior to 1994 of accounting
change for post-employment benefits - - (0.09) -
--------- --------- --------- ---------
EARNINGS PER SHARE OF COMMON STOCK $1.78 $1.54 $2.95 $3.02
========= ========= ========= =========
CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $0.69 $0.665 $2.07 $2.00
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of the financial statements.
- 3 -<PAGE>
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEET
ASSETS
(Thousands of Dollars)
<CAPTION>
September 30, December 31,
1994 1993*
---- ----
(Unaudited)
<S> <C> <C>
Utility Plant at Original Cost
In service $1,722,736 $1,690,142
Less, accumulated provision for depreciation 481,489 446,716
----------- -----------
1,241,247 1,243,426
Construction work in progress 64,829 77,395
Nuclear fuel 33,419 40,285
----------- -----------
Net Utility Plant 1,339,495 1,361,106
----------- -----------
Other Property and Investments 20,073 17,811
----------- -----------
Current Assets
Cash and temporary cash investments 22,792 48,171
Accounts receivable
Customers, less allowance for doubtful
accounts of $4,800 and $4,700 70,496 62,703
Other 29,378 28,160
Accrued utility revenues 20,222 22,765
Fuel, materials and supplies, at average cost 23,440 21,178
Prepayments 19,011 4,963
Other 128 41
----------- -----------
Total 185,467 187,981
----------- -----------
Regulatory Assets (future amounts due from customers
through the ratemaking process)
Income taxes due principally to book-tax
differences (Note A) 405,847 408,272
Deferred return - Seabrook Unit 1 62,929 62,929
Unamortized cancelled nuclear projects 26,085 26,964
Unamortized redemption costs 27,739 32,573
Sales adjustment revenues 3,278 13,113
Uranium enrichment decommissioning cost 1,570 1,600
Deferred fossil fuel costs - 198
Unamortized debt issuance expenses 5,881 6,631
Other 12,217 15,114
----------- -----------
Total 545,546 567,394
----------- -----------
$2,090,581 $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>
September 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 153,377 141,725
----------- -----------
435,840 423,324
Preferred stock 45,700 60,945
Long-term debt 759,244 875,268
----------- -----------
Total 1,240,784 1,359,537
----------- -----------
Noncurrent Liabilities
Obligations under capital leases - 19,871
Uranium enrichment decommissioning reserve 1,357 1,486
Nuclear decommissioning obligation 6,937 5,606
Other 2,606 2,156
----------- -----------
Total 10,900 29,119
----------- -----------
Current Liabilities
Current portion of long-term debt 169,133 143,333
Notes payable 75,000 -
Accounts payable 30,760 49,424
Dividends payable 10,467 10,445
Taxes accrued 21,490 6,851
Pensions accrued 31,397 33,547
Interest accrued 20,084 21,972
Obligations under capital leases 1,514 1,838
Other accrued liabilities 29,397 26,813
----------- -----------
Total 389,242 294,223
----------- -----------
Customers' Advances for Construction 2,638 2,667
----------- -----------
Regulatory Liabilities (future amounts owed
to customers through
the ratemaking process)
Accumulated deferred investment tax credits 18,862 19,433
Deferred gain on sale of utility plant 456 2,070
Other 1,825 1,837
----------- -----------
Total 21,143 23,340
----------- -----------
Deferred Income Taxes (future tax liabilities owed
to taxing authorities) 425,874 425,406
Commitments and Contingencies - -
----------- -----------
$2,090,581 $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 Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $25,787 $22,756 $44,139 $45,716
--------- --------- --------- ---------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 16,570 16,173 49,554 48,507
Deferred income taxes 4,732 1,609 3,848 1,199
Deferred investment tax credits - net (190) (190) (571) (571)
Amortization of nuclear fuel 2,600 5,235 7,776 16,919
Cumulative effect for years prior to 1994 of
accounting change for post-employment benefits - net - - 1,294 -
Allowance for funds used during construction (1,026) (1,130) (2,970) (2,701)
Deferred return - Seabrook Unit 1 - (1,875) - (5,623)
Sales adjustment revenue 3,278 1,917 9,835 5,751
Changes in:
Accounts receivable - net (4,024) (19,417) (9,011) (15,540)
Fuel, materials and supplies (227) (255) (2,262) (2,331)
Prepayments (5,131) (5,560) (14,048) (8,346)
Accounts payable (8,115) 12,812 (18,664) (18,932)
Interest accrued (12,435) (10,846) (1,888) (2,710)
Taxes accrued 9,852 13,854 14,639 19,056
Other assets and liabilities 4,842 11,966 1,461 15,523
--------- --------- --------- ---------
Total Adjustments 10,726 24,293 38,993 50,201
--------- --------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 36,513 47,049 83,132 95,917
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock - 950 109 1,834
Notes payable 27,000 (13,390) 75,000 (20,708)
Securities retired and redeemed, including premiums:
Preferred stock (128) - (15,278) -
Long-term debt (30,000) (5,000) (90,333) (67,833)
Lease obligations (599) (590) (1,747) (1,738)
Dividends
Preferred stock (750) (1,080) (2,909) (3,239)
Common stock (9,718) (9,347) (28,802) (27,625)
--------- --------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES (14,195) (28,457) (63,960) (119,309)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Plant expenditures, including nuclear fuel (16,884) (23,966) (44,551) (52,918)
Investment in debt securities - - - 94,529
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (16,884) (23,966) (44,551) 41,611
--------- --------- --------- ---------
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD 5,434 (5,374) (25,379) 18,219
BALANCE AT BEGINNING OF PERIOD 17,358 34,695 48,171 11,102
--------- --------- --------- ---------
BALANCE AT END OF PERIOD $22,792 $29,321 $22,792 $29,321
========= ========= ========= =========
CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized) $31,188 $28,455 $58,499 $59,927
========= ========= ========= =========
Income taxes $8,100 $4,100 $19,000 $13,150
========= ========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of the financial statements.
- 6 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The consolidated financial statements of the Company and
its wholly-owned subsidiaries 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 weighted average AFUDC rates applied in the first nine
months of 1994 and 1993 were 8.58% and 8.75%, respectively,
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 nine 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 $449,000 and
$404,000 during the third quarter of 1994 and 1993,
respectively, into the decommissioning trust funds for
Seabrook Unit 1 and Millstone Unit 3. During the first nine
months of 1994 and 1993, the Company paid $1,283,000 and
$1,212,000, respectively, into the decommissioning trust
funds for Seabrook Unit 1 and Millstone Unit 3. At
September 30, 1994, the Company's share of the trust fund
balances,
- 7 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
which included accumulated earnings on the funds, were $4.7
million and $2.2 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.
(B) CAPITALIZATION
(a) COMMON STOCK
The number of shares outstanding of the Company's common
stock, no par value, at September 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 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 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 October 31, 1994.
Options to purchase 3,400 shares of stock at an exercise
price of $30.75 per share were exercised during the first
nine 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 $95 million were free from such limitations at
September 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%.
On September 12, 1994, the Company repaid at maturity $30
million principal amount of 7.62% Notes.
- 8 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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.
(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 will be
recognized in income during 1994. The Company will recover
the accumulated deferred return over a five-year period
commencing January 1, 1995.
- 9 -<PAGE>
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(E) INCOME TAXES
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
---- ---- ---- ----
(000's) (000's)
<S> <C> <C> <C> <C>
Income tax expense consists of:
Income tax provisions:
Current
Federal $11,241 $11,539 $24,267 $22,970
State 4,150 4,392 8,775 8,221
-------- -------- -------- --------
Total current 15,391 15,931 33,042 31,191
-------- -------- -------- --------
Deferred
Federal 4,701 155 5,816 2,218
State 31 1,454 (2,924) (1,019)
-------- -------- -------- --------
Total deferred 4,732 1,609 2,892 1,199
-------- -------- -------- --------
Investment tax credits (190) (190) (571) (571)
-------- -------- -------- --------
Total income tax expense $19,933 $17,350 $35,363 $31,819
======== ======== ======== ========
Income tax components charged as follows:
Operating expenses $20,512 $18,893 $38,218 $37,200
Other income and deductions - net (579) (1,543) (1,899) (5,381)
Cumulative effect of change in accounting
for postemployment benefits - - (956) -
-------- -------- -------- --------
Total income tax expense $19,933 $17,350 $35,363 $31,819
======== ======== ======== ========
The following table details the components
of the deferred income taxes:
Accelerated depreciation $2,873 $2,938 $8,659 $8,347
Tax depreciation on unrecoverable plant investment 2,042 1,844 6,127 5,864
Conservation & load management 626 639 1,623 1,911
Deferred fossil fuel costs 276 (723) (84) (1,191)
Seabrook sale/leaseback transaction 1,662 1,557 (3,702) (3,685)
Premiums on BEC bond redemption (397) (586) (1,222) (1,793)
Sales adjustment revenues (1,389) (812) (4,165) (2,436)
Pension benefits (442) (420) (424) (1,232)
Postretirement benefits 117 (324) (572) (929)
Postemployment benefits - - (956) -
Other - net (636) (2,504) (2,392) (3,657)
-------- -------- -------- --------
Deferred income taxes - net $4,732 $1,609 $2,892 $1,199
======== ======== ======== ========
</TABLE>
- 10 -<PAGE>
<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 September 30, 1994, the Company had $75
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 Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
---- ---- ---- ----
(000's) (000's)
<S> <C> <C> <C> <C>
Operating Revenues
- ------------------
Retail-Base rates $176,063 $172,812 $475,671 $462,430
Wholesale - capacity 1,738 1,814 5,380 4,667
- energy 5,989 13,926 22,343 32,542
Other 802 880 2,210 2,741
-------- -------- -------- --------
Total Operating Revenues $184,592 $189,432 $505,604 $502,380
======== ======== ======== ========
Other Income and (Deductions) - net:
- -----------------------------------
Interest and dividend income $463 $2,528 $1,226 $3,353
Equity earnings from Connecticut
Yankee unit 379 (82) 1,132 766
Amortization of oil tank lease (897) (335) (1,614) (977)
Miscellaneous other income
and (deductions) - net 699 (2,165) (819) (2,885)
-------- -------- -------- --------
Total Other Income
and (Deductions) - net $644 $(54) $(75) $257
======== ======== ======== ========
Other Taxes
- -----------
Charged to:
Operating:
State gross earnings $7,779 $7,905 $21,069 $21,427
Local real estate
and personal property 3,763 4,095 17,065 18,453
Payroll taxes 1,397 1,493 4,703 4,516
Other - - 3 3
-------- -------- -------- --------
12,939 13,493 42,840 44,399
Nonoperating & other accounts (337) (483) 115 (31)
-------- -------- -------- --------
Total Other Taxes $12,602 $13,010 $42,955 $44,368
======== ======== ======== ========
Other Interest Charges
- ----------------------
Notes Payable $806 $704 $1,705 $2,528
Amortization of debt expense
and repurchase premiums 1,620 1,917 4,931 5,826
Other 307 353 796 1,110
-------- -------- -------- --------
Total Other Interest Charges $2,733 $2,974 $7,432 $9,464
======== ======== ======== ========
</TABLE>
- 12 -<PAGE>
<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 nine
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 November 1995.
At September 30, 1994, approximately $6.3 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 nine 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 $385 million, excluding
AFUDC, for 1994 through 1998.
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). 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.
- 13 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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. A closing of this financing
transaction has been delayed, due to an unscheduled outage
of the Seabrook plant in 1994 and a pending proceeding in
New Hampshire relative to the appropriate level of future
funding of the external nuclear decommissioning trust fund
for Seabrook Unit 1. See Note (M). The bankruptcy court
has confirmed a revised reorganization plan for Great Bay
based upon the alternate financing structure. The
bankruptcy court has also 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 October 31, 1994,
$4.3 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 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.
- 14 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
OTHER COMMITMENTS AND CONTINGENCIES
HYDRO-QUEBEC
The Company is a participant in the Hydro-Quebec
transmission intertie facility linking New England and
Quebec, Canada. Phase II of this facility, in which UI has
a 5.45% participating share, has increased the capacity
value of the intertie from 690 megawatts to a maximum of
2000 megawatts. A ten-year Firm Energy Contract, which
provides for the sale of 7 million megawatt-hours per year
by Hydro-Quebec to the New England participants in the Phase
II facility, became effective on July 1, 1991. The Company
is obligated to furnish a guarantee for its participating
share of the debt financing for the Phase II facility.
Currently, the Company's guarantee liability for this debt
amounts to approximately $9.4 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.
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.
- 15 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(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 third quarter
of 1994 and 1993 was $335,000 and $322,000, respectively.
UI's share of the decommissioning payments made during the
first nine months of 1994 and 1993 was $1,004,000 and
$965,000, respectively. UI's share of the fund at
September 30, 1994 was approximately $4.7 million.
Connecticut has enacted a law requiring the operators of
nuclear generating units to file periodically with the DPUC
their plans for financing the decommissioning of the units
in that state. Current decommissioning cost estimates for
Millstone Unit 3 and Connecticut Yankee are $421 million (in
1994 dollars) and $324 million (in 1994 dollars),
respectively. These estimates premise the prompt removal
and dismantling of each unit at the end of its estimated
40-year energy producing life. Monthly decommissioning
payments, based on these cost estimates, are being made to
decommissioning trust funds managed by Northeast Utilities.
UI's share of the Millstone Unit 3 decommissioning payments
made during the third quarter of 1994 and 1993 was $115,000
and $82,100, respectively. UI's share of the Millstone
Unit 3 decommissioning payments made during the first nine
months of 1994 and 1993 was $279,000 and $246,000,
respectively. UI's share of the fund at September 30, 1994
was approximately $2.2 million. For the Company's 9.5%
equity ownership in Connecticut Yankee, decommissioning
costs of $316,000 and $302,000 were funded by UI during the
third quarter of 1994 and 1993, respectively, and
decommissioning costs of $943,000 and $486,000 were funded
during the first nine months of 1994 and 1993, respectively.
UI's share of the fund at September 30, 1994 was
approximately $10.4 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 three primary factors that affect sales volume are
economic conditions, competition 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. The
DPUC has completed a proceeding that investigated whether
retail electric transmission service ("retail wheeling")
should be permitted in Connecticut. Among other things, the
DPUC concluded that the introduction of open generation
competition for retail sales is not in the best interests of
the affected constituencies, State energy policy, or the
economy of the State of Connecticut. In addition, the DPUC
recommended that Connecticut utilities should prepare for
the eventuality of either retail wheeling or some other form
of competition that is more intense than the current
franchise framework.
A major factor affecting the Company's financial condition
and its ability to compete in the future 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 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 $17,625 $20,868 $25,716 $14,964 $18,120 $ 97,293
Distribution 17,548 20,328 15,912 18,360 18,444 90,592
Transmission 12,686 15,648 10,704 10,404 16,320 65,762
Conservation and
Load Management 11,119 11,436 10,872 9,744 9,324 52,495
Nuclear Fuel 3,790 6,792 11,280 1,248 11,820 34,930
Other 8,374 13,656 8,244 6,000 7,368 43,642
------- -------- ------- ------- ------- --------
Total Expenditures $71,142 $ 88,728 $82,728 $60,720 $81,396 $384,714
======= ======== ======= ======= ======= ========
AFUDC (Pre-tax) $3,645 $2,881 $2,447 $1,725 $2,165
Capitalized Interest 3,133 3,633 3,141 2,242 2,835
Book Depreciation 55,629 59,308 63,423 67,484 70,137
Decommissioning (1) 2,554 2,898 2,985 2,001 2,097
Normalized Tax
Depreciation 32,189 35,363 37,188 39,082 40,470
Accelerated Tax
Depreciation 74,798 70,293 59,897 60,675 60,557
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) $1,258,255 $1,232,157 $1,257,565 $1,249,100 $1,221,743
<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 September 30, 1994, the Company had $22.8 million of
cash and temporary cash investments, a decrease of $25.4
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 83.1
Net cash provided by (used in) financing activities:
- Financing activities, excluding dividend payments (32.2)
- Dividend payments (31.7)
Cash invested in plant, including nuclear fuel (44.6)
--------
Net Decrease (25.4)
--------
Balance, September 30, 1994 $ 22.8
========
</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 $ 71,142 $ 88,728 $82,728 $ 60,720 $ 81,396
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 $199,625 $251,862 $95,498 $125,891 $196,958
======== ======== ======= ======== ========
</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 $117.4 million will be
sufficient to fund the Company's entire capital expenditure
program of $71.1 million and $94.5 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 $112.2 million will be sufficient to fund
the Company's entire capital expenditure program of $88.7
million and $23.5 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
$290 million, will be sufficient to fund the entire capital
expenditure program of about $225 million and about $65
million of the $193.6 million necessary to satisfy the
Company's 1996 through 1998 requirements for maturing
long-term debt and mandatory redemptions and repayments.
See Note (B)-Capitalization, (d) Long-Term Debt.
All of the Company's capital requirements that exceed
available cash and the proceeds of these new debt securities
offerings will have to be provided by external financing.
Although 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
- 19 -<PAGE>
<PAGE>
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.
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 September 30, 1994, the Company had $75
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 November
1995. At September 30, 1994, approximately $6.3 million of
fossil fuel purchases were being financed under this
agreement.
UI has three wholly-owned subsidiaries. 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. was formed to
facilitate participation in a proposed joint venture
relating to power production plants abroad that has not gone
forward. 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. On September 29, 1994,
Bridgeport Electric Company, a single-purpose corporation
wholly-owned by UI ("BEC"), which owned and leased to UI a
generating unit at Bridgeport Harbor Station, was merged
with and into UI. UI has assumed all of BEC's debts and
obligations, including $54 million principal amount of BEC's
outstanding 9.44% First Mortgage Bonds, Series B and
approximately $55 million principal amount of BEC's
outstanding 10.32% First Mortgage Bonds, Series C
(collectively, the "BEC First Mortgage Bonds").
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 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.
- 20 -<PAGE>
<PAGE>
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 September 30, 1994, approximately $ 13.5
million had been so invested.
RESULTS OF OPERATIONS
Third Quarter 1994 vs. Third Quarter 1993
- ------------------------------------------
Earnings for the third quarter of 1994 were $25.0 million,
or $1.78 per share, an increase of $3.4 million, or $.24 per
share, from the third quarter of 1993.
Retail operating revenues increased about $3.3 million in
the third quarter over the prior year. Retail revenues
increased $4.6 million from rate changes granted by the
Department of Public Utility Control 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.
There was virtually no retail kilowatt-hour sales change
over the prior year. Weather was cooler than last year,
which would have produced about a 0.7% retail kilowatt-hour
sales decline had it not been for "real" kilowatt-hour
sales growth of about 0.8%. The "real" kilowatt-hour sales
growth marked the fifth consecutive quarter of "real"
kilowatt-hour sales growth, i.e. not attributable to
abnormal weather, that the Company has experienced. Weather
for the third quarter of 1994 was hotter than "normal",
which produced revenues of about $2.1 million and sales
margin (revenue minus fuel expense and revenue based taxes)
of about $1.5 million.
Wholesale "capacity" revenues decreased slightly from the
prior year's level. 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 $7.9 million as a result of lower
demand by other New England utilities.
Retail fuel and energy expenses decreased $0.2 million in
the third quarter of 1994 from the prior year. Of this,
$0.6 million resulted from a net reduction of retail energy
expenses from lower nuclear fuel prices partly offset by
unscheduled outages at the Seabrook and Connecticut Yankee
nuclear power plants. (Seabrook returned to service at the
end of July and Connecticut Yankee in the middle of August.)
There were other offsetting retail fuel and energy expense
increases of $0.4 million.
Operating expenses for operations, maintenance and
purchased capacity charges decreased by $1.7 million
compared to the third quarter of 1993. Purchased capacity
was $1.4 million lower than 1993, due to the absence of any
scheduled outage at the Connecticut Yankee nuclear power
plant compared to four weeks of scheduled outage in the
third quarter of 1993. Operation and maintenance expense
decreased by a net $0.3 million, reflecting $2.2 million of
reductions ($1.0 million due to the Company's 1993
reorganization and early retirement program that is being
phased-in over 1994 and $1.2 million from outsourcing
certain services, slightly lower transmission costs and
other items), offset by a $1.9 million increase from higher
costs at the Company's fossil plants due to scheduled
maintenance.
Other operating expenses increased in the third quarter of
1994 from the third quarter of 1993. Operating income taxes
increased overall from higher taxable income partly offset
by additional tax benefits gained from adding the fifth and
final Seabrook phase-in increment to rate base that
associated 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.
- 21 -<PAGE>
<PAGE>
Other income and (deductions) decreased $2.2 million in
the third quarter of 1994 from the third 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 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. 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 by
$2.2 million in the third quarter of 1994 from the third
quarter of 1993 (about $9 million is projected for the
year).
Nine Months 1994 vs. Nine Months 1993
- -------------------------------------
Earnings for the first nine months of 1994 were $41.6
million, or $2.95 per share, a decrease of $0.9 million, or
$.07 per share, from the first nine months of 1993. Absent
a one-time accounting change (charge) of $1.3 million, or
$.09 per share, to implement Statement of Financial
Accounting Standards (SFAS) No. 112 in the first quarter of
1994, earnings from operations increased $0.4 million, or
$.02 per share, to $42.9 million, or $3.04 per share.
Retail operating revenues increased about $13.2 million
for the first nine months of 1994 over the prior year
period. Retail revenues increased $10.6 million from rate
changes granted by the Department of Public Utility Control
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 $4.1 million
($5.4 million expected for the year). Revenues to recover
"pass-through" charges for certain expense changes,
including fossil fuel, were minimal.
Retail kilowatt-hour sales for the first nine months of
1994 increased 1.7% over the prior year, which led to
additional retail revenues of $6.3 million and additional
sales margin (revenue minus fuel expense and revenue based
taxes) of $4.4 million. Weather was more severe in 1994
than 1993, contributing about 1.0% to the kilowatt-hour
sales growth and $3.2 million to the revenue increase.
Weather for the first nine months of 1994 was more severe
than "normal", which produced revenues of about $6.7 million
and sales margin of about $4.6 million.
Wholesale "capacity" revenues increased by $0.7 million
from the 1993 level. Wholesale "energy" revenues, as well
as the associated fuel expense, decreased by $10.2 million.
Retail fuel and energy expenses increased $3.1 million for
the first nine months of 1994 over the prior year period.
Of this, $4.4 million resulted from Seabrook outages, $1.6
million resulted from higher retail kilowatt-hour sales, and
there were offsetting fuel expense reductions of $2.9
million.
Operating expenses for operations, maintenance and
purchased capacity charges increased by $7.0 million
compared to the first nine months of 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 ten weeks of scheduled outage in
1993, only partly offset by the costs associated with eleven
weeks of unscheduled outages at the plant in the first and
third quarters of 1994 and increased generation from a
cogeneration facility, also in the first and third quarters.
Operation and maintenance increased $9.1 million. About
$6.6 million of this was from higher repair costs at the
Seabrook nuclear plant, reflecting nine weeks of scheduled
outage and ten weeks of unscheduled outage in 1994. The
plant returned to service on July 31. Other factors
increasing operation and maintenance expense in the first
nine months of 1994 compared to 1993 were higher costs at
the Company's fossil plants, reflecting scheduled
maintenance.
- 22 -<PAGE>
<PAGE>
Other operating expenses increased in the first nine
months of 1994 from the first nine months of 1993 due to
higher depreciation and income taxes.
Other income and (deductions) decreased $9.2 million for
the nine months of 1994 from 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 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. 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
$7.4 million compared to the first nine months of 1993
(about $9 million is projected for the year).
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
three primary factors that affect sales volume are economic
conditions, competition 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. The DPUC has completed a proceeding that
investigated whether retail electric transmission service
("retail wheeling") should be permitted in Connecticut.
Among other things, the DPUC concluded that the introduction
of open generation competition for retail sales is not in
the best interests of the affected constituencies, State
energy policy, or the economy of the State of Connecticut.
In addition, the DPUC recommended that Connecticut utilities
should prepare for the eventuality of either retail wheeling
or some other form of competition that is more intense than
the current franchise framework.
A major factor affecting the Company's financial condition
and its ability to compete in the future will be the
Company's ability to control expenses. Fuel expense,
excluding wholesale fuel expense, is expected to remain at
approximately the 1993 level during 1994, 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 $9 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.
- 23 -<PAGE>
<PAGE>
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, due
primarily to the major refueling outage at the Seabrook
nuclear plant in the second quarter of 1994, while the
nuclear outages 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 (due primarily 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.
- 24 -<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 5. Other Events
On September 29, 1994, the Registrant's wholly-owned
subsidiary, Bridgeport Electric Company, a single-purpose
corporation owning and leasing to the Registrant a
generating unit at the Registrant's Bridgeport Harbor
Station, was merged with and into the Registrant. The
Registrant was the corporation surviving the merger, and it
has assumed all of Bridgeport Electric Company's debts and
obligations, including, without limitation, Bridgeport
Electric Company's obligations to the holders of its
outstanding 9.44% First Mortgage Bonds, Series B, in the
principal amount of $54 million, and its outstanding 10.32%
First Mortgage Bonds, Series C, in the principal amount of
$55.333 million. The holders of the Series B and Series C
First Mortgage Bonds have retained their first mortgage lien
on the generating unit securing their bonds.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit
Table Item Exhibit
Number Number Description
---------- ------- -----------
(12) 12* Statement Showing Computation of
Ratios of Earnings to Fixed Charges
and Ratios of Earnings to Combined
Fixed Charges and Preferred Stock
Dividend Requirements (Twelve Months
Ended September 30, 1994 and Twelve
Months Ended December 31, 1993,
1992, 1991, 1990 and 1989
(27) 27 Financial Data Schedule
*Annexed as Exhibit No. 12 to Amendment No. 1 to
Registration Statement No. 33-55461, effective
October 31, 1994, and incorporated herein by reference.
(b) Reports on Form 8-K
Item Financial Date of
Reported Statements Report
-------- ---------- -------
5 None September 29, 1994
- 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 11/10/94 Signature /s/ Kurt Mohlman
----------------- ---------------------------------
Kurt Mohlman
Treasurer and Secretary
Signature /s/ James L. Benjamin
---------------------------------
James L. Benjamin
Chief Accounting Officer
- 26 -<PAGE>
<PAGE>
EXHIBIT INDEX
(a) Exhibits
Exhibit
Table Item Exhibit
Number Number Description Page No.
- ---------- ------- ----------- --------
27 27 Financial Data Schedule
- 27 -<PAGE>
<TABLE> <S> <C>
<PAGE>
<PAGE>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,339,495
<OTHER-PROPERTY-AND-INVEST> 20,073
<TOTAL-CURRENT-ASSETS> 185,467
<TOTAL-DEFERRED-CHARGES> 545,546
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,090,581
<COMMON> 284,133
<CAPITAL-SURPLUS-PAID-IN> (1,670)
<RETAINED-EARNINGS> 153,377
<TOTAL-COMMON-STOCKHOLDERS-EQ> 435,840
0
45,700
<LONG-TERM-DEBT-NET> 759,244
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 75,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 169,133
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 1,514
<OTHER-ITEMS-CAPITAL-AND-LIAB> 604,150
<TOT-CAPITALIZATION-AND-LIAB> 2,090,581
<GROSS-OPERATING-REVENUE> 505,604
<INCOME-TAX-EXPENSE> 38,218
<OTHER-OPERATING-EXPENSES> 363,366
<TOTAL-OPERATING-EXPENSES> 401,584
<OPERATING-INCOME-LOSS> 104,020
<OTHER-INCOME-NET> 2,547
<INCOME-BEFORE-INTEREST-EXPEN> 106,567
<TOTAL-INTEREST-EXPENSE> 61,134
<NET-INCOME> 44,139
2,576
<EARNINGS-AVAILABLE-FOR-COMM> 41,563
<COMMON-STOCK-DIVIDENDS> 29,156
<TOTAL-INTEREST-ON-BONDS> 72,193
<CASH-FLOW-OPERATIONS> 83,132
<EPS-PRIMARY> 2.95
<EPS-DILUTED> 2.95
</TABLE>
