<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 MARCH 31, 1996
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) I.R.S. Employer Identification No.)
of incorporation or organization)
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 March 31, 1996, was 14,100,091.
<PAGE>
<TABLE>
INDEX
PART I. FINANCIAL INFORMATION
<CAPTION>
PAGE
NUMBER
<S> <C> <C>
Item 1. Financial Statements. 3
Consolidated Statement of Income for the three months ended March 31, 1996 and 1995. 3
Consolidated Balance Sheet as of March 31, 1996 and December 31, 1995. 4
Consolidated Statement of Cash Flows for the three months ended March 31, 1996 and 1995. 6
Notes to Consolidated Financial Statements. 7
- Statement of Accounting Policies 7
- Capitalization 8
- Rate-related Regulatory Proceedings 9
- Income Taxes 10
- Short-term Credit Arrangements 11
- Supplementary Information 12
- Fuel Financing Obligations and Other Lease Obligations 13
- Commitments and Contingencies 13
- Capital Expenditure Program 13
- Nuclear Insurance Contingencies 13
- Other Commitments and Contingencies 14
- Hydro-Quebec 14
- Early Retirement Program 14
- Site Remediation Costs 14
- Property Taxes 14
- Nuclear Fuel Disposal and Nuclear Plant Decommissioning 15
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 16
- Major Influences on Financial Condition 16
- Capital Expenditure Program 17
- Liquidity and Capital Resources 18
- Results of Operation 20
- Outlook 21
PART II. OTHER INFORMATION
Item 5 . Other Events 23
- Nuclear Generation 23
Item 6. Exhibits and Reports on Form 8-K. 24
SIGNATURES 25
</TABLE>
<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
March 31,
1996 1995
---- ----
<S> <C> <C>
Operating Revenues (Note G) $170,860 $165,398
------------- -------------
Operating Expenses
Operation
Fuel and energy 31,636 36,898
Capacity purchased 10,639 12,943
Early retirement program charge 7,227 -
Other 36,388 34,770
Maintenance 8,899 6,805
Depreciation 16,292 15,353
Amortization of cancelled nuclear project and deferred return 3,440 3,440
Income taxes (Note E) 12,612 12,074
Other taxes (Note G) 14,685 14,980
------------- -------------
Total 141,818 137,263
------------- -------------
Operating Income 29,042 28,135
------------- -------------
Other Income and (Deductions)
Allowance for equity funds used during construction 182 -
Other-net (Note G) (207) (292)
Non-operating income taxes 1,269 991
------------- -------------
Total 1,244 699
------------- -------------
Income Before Interest Charges 30,286 28,834
------------- -------------
Interest Charges
Interest on long-term debt 16,490 15,603
Other interest (Note G) 585 3,141
Allowance for borrowed funds used during construction (392) (588)
------------- -------------
16,683 18,156
Amortization of debt discount and redemption premiums 679 1,208
------------- -------------
Net Interest Charges 17,362 19,364
------------- -------------
MINORITY INTEREST IN PREFERRED SECURITIES 1,203 -
------------- -------------
NET INCOME 11,721 9,470
Dividends on Preferred Stock 131 733
------------- -------------
Income Applicable to Common Stock $11,590 $8,737
============= =============
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 14,100 14,087
EARNINGS PER SHARE OF COMMON STOCK $0.82 $0.62
CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $0.720 $0.705
The accompanying Notes to Consolidated
Financial Statements are an integral part of the
financial statements.
</TABLE>
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEET
ASSETS
(THOUSANDS OF DOLLARS)
<CAPTION>
March 31, December 31,
1996 1995*
(Unaudited)
Utility Plant at Original Cost
<S> <C> <C>
In service $1,818,263 $1,809,925
Less, accumulated provision for depreciation 544,020 532,015
----------------- -----------------
1,274,243 1,277,910
Construction work in progress 39,992 41,817
Nuclear fuel 25,755 25,967
----------------- -----------------
Net Utility Plant 1,339,990 1,345,694
----------------- -----------------
Other Property and Investments 31,972 27,388
----------------- -----------------
Current Assets
Cash and temporary cash investments 15,814 5,070
Accounts receivable
Customers, less allowance for doubtful
accounts of $6,600 and $6,300 65,394 63,987
Other 10,836 14,547
Accrued utility revenues 29,418 28,318
Fuel, materials and supplies, at average cost 21,816 22,249
Prepayments 7,567 3,051
Other 133 55
----------------- -----------------
Total 150,978 137,277
----------------- -----------------
Deferred Charges
Unamortized debt issuance expenses 7,284 7,577
Other 2,825 2,377
----------------- -----------------
Total 10,109 9,954
----------------- -----------------
Regulatory Assets (future amounts due from customers
hrough the ratemakingprocess)
Income taxes due principally to book-tax differences 352,383 358,168
Deferred return - Seabrook Unit 1 47,196 50,343
Unamortized cancelled nuclear projects 24,327 24,620
Unamortized redemption costs 21,755 22,244
Uranium enrichment decommissioning cost 1,473 1,505
Other 9,222 8,424
----------------- -----------------
Total 456,356 465,304
----------------- -----------------
$1,989,405 $1,985,617
================= =================
*Derived from audited financial statements
The accompanying Notes to Consolidated Financial
Statements are an integral part of the financial
statements.
</TABLE>
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEET
CAPITALIZATION AND LIABILITIES
(THOUSANDS OF DOLLARS)
<CAPTION>
March 31, December 31,
1996 1995*
(Unaudited)
Capitalization (Note B)
Common stock equity
<S> <C> <C>
Common stock $284,542 $284,542
Paid-in capital 769 769
Capital stock expense (2,207) (2,207)
Retained earnings 158,314 156,877
----------------- -----------------
441,418 439,981
Preferred stock 10,539 10,539
Minority interest in preferred securities 50,000 50,000
Long-term debt 780,542 845,684
----------------- -----------------
Total 1,282,499 1,346,204
----------------- -----------------
Noncurrent Liabilities
Obligations under capital leases 17,432 17,508
Nuclear decommissioning obligation 11,244 10,317
Other 4,296 4,090
----------------- -----------------
Total 32,972 31,915
----------------- -----------------
Current Liabilities
Current portion of long-term debt 95,171 40,800
Notes payable 20,000 -
Accounts payable 28,000 45,401
Dividends payable 10,283 10,072
Taxes accrued 17,720 5,297
Pensions accrued 37,277 33,832
Interest accrued 16,228 14,506
Obligations under capital leases 297 291
Other accrued liabilities 28,306 26,769
----------------- -----------------
Total 253,282 176,968
----------------- -----------------
Customers' Advances for Construction 2,657 2,655
----------------- -----------------
Regulatory Liabilities (future amounts owed to customers
through the
ratemaking process)
Accumulated deferred investment tax credits 17,719 17,909
Other 1,812 1,990
----------------- -----------------
Total 19,531 19,899
----------------- -----------------
Deferred Income Taxes (future tax liabilities
owed to taxing authorities) 398,464 407,976
Commitments and Contingencies(Note L) - -
----------------- -----------------
$1,989,405 $1,985,617
================= =================
* Derived from audited financial statements
The accompanying Notes to Consolidated Financial
Statements are an integral part of the financial statements.
</TABLE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
Cash Flows from Operating Activities
<S> <C> <C>
Net Income $11,721 $9,470
---------------- ------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 17,350 16,891
Deferred income taxes (3,727) 69
Deferred investment tax credits - net (190) (190)
Amortization of nuclear fuel 900 4,057
Allowance for funds used during construction (574) (588)
Amortization of deferred return 3,147 3,147
Changes in:
Accounts receivable - net 2,304 (2,526)
Fuel, material and supplies 433 (780)
Prepayments (4,516) (5,237)
Accounts payable (17,401) (1,331)
Interest accrued 1,722 (1,421)
Taxes accrued 12,423 6,190
Early retirement costs accrued 7,227 -
Other assets and liabilities (7,979) (744)
---------------- ------------------
Total Adjustments 11,119 17,537
---------------- ------------------
Net Cash provided by Operating Activities 22,840 27,007
---------------- ------------------
Cash Flows from Financing Activities
Notes payable 20,000 128,000
Securities redeemed and retired:
Long-term debt (10,800) (116,133)
Lease obligations (70) (664)
Dividends
Preferred stock (131) (747)
Common stock (9,941) (9,720)
---------------- ------------------
Net Cash provided by (used in) Financing Activities (942) 736
---------------- ------------------
Cash Flows from Investing Activities
Plant expenditures, including nuclear fuel (11,154) (11,925)
---------------- ------------------
Net Cash used in Investing Activities (11,154) (11,925)
---------------- ------------------
Cash and Temporary Cash Investments:
Net change for the period 10,744 15,818
Balance at beginning of period 5,070 11,432
---------------- ------------------
Balance at end of period $15,814 $27,250
================ ==================
Cash paid during the period for:
Interest (net of amount capitalized) $15,001 $19,532
================ ==================
Income taxes $4,175 $3,300
================ ==================
The accompanying Notes to Consolidated Financial
Statements are an integral part of the financial
statements.
</TABLE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The consolidated financial statements of the Company and its wholly-owned
subsidiaries, 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, 1995. 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 three months of 1996
and 1995 were 8.50% and 7.83%, 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.
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 $532,000 and $462,000 in the first quarter
of 1996 and 1995, respectively, into the decommissioning trust funds for
Seabrook Unit 1 and Millstone Unit 3. At March 31, 1996, the Company's shares of
the trust fund balances, which included accumulated earnings on the funds, were
$7.9 million and $3.4 million for Seabrook Unit 1 and Millstone Unit 3,
respectively. These fund balances are included in "Other Property and
Investments" and the accrued decommissioning obligation is included in
"Noncurrent Liabilities" on the Company's Consolidated Balance Sheet.
IMPAIRMENT OF LONG-LIVED ASSETS
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of". This standard, which is effective for the
1996 calendar year, requires the recognition of impairment losses on long-lived
assets when the book value of an asset exceeds the sum of the expected future
undiscounted cash flows that result from the use of the asset and its eventual
disposition. This standard also requires that rate-regulated companies recognize
an
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
impairment loss when a regulator excludes all or part of a cost from rates, even
if the regulator allows the company to earn a return on the remaining allowable
costs. Under this standard, the probability of recovery and the recognition of
regulatory assets under the criteria of SFAS No. 71 must be assessed on an
ongoing basis. Since the Company is recovering all of its costs through rates,
it does not have any assets that are impaired under this new standard.
(B) CAPITALIZATION
(A) COMMON STOCK
The number of shares outstanding of the Company's common stock, no par
value, at March 31, 1996 was 14,100,091.
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 Connecticut Department of
Public Utility Control (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 18,600
shares of stock at an exercise price of $30 per share, 191,800 shares of stock
at an exercise price of $30.75 per share, 600 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, 35,133 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 March 31, 1996.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". This statement, which is
effective for the 1996 calendar year, establishes financial accounting and
reporting standards for stock-based employee compensation plans, such as stock
purchase plans, stock options, restricted stock, and stock appreciation rights.
The statement defines the methods of determining the fair value of stock-based
compensation and requires the recognition of compensation expense for book
purposes. However, the statement allows entities to continue to measure
compensation expense in accordance with prior accounting principle APB No. 25,
"Accounting for Stock Issued to Employees", but requires pro forma net income
and earnings per share be disclosed for each year for which an income statement
is presented as if SFAS No. 123 were applied. The accounting provisions of SFAS
No. 123 apply to the Company's stock option plan and affect options granted in
the year of adoption. As of March 31, 1996, there were no options granted to
which this statement would apply. The Company has not elected to adopt the
expense recognition provisions of SFAS No. 123.
(B) RETAINED EARNINGS RESTRICTION
The indenture under which $250 million principal amount of 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 $100
million were free from such limitations at March 31, 1996.
(E) LONG-TERM DEBT
On February 15, 1996, the Company repaid $10.8 million principal amount of
maturing 9.44% First Mortgage Bonds issued by Bridgeport Electric Company, a
wholly-owned subsidiary of the Company that was merged with and into the Company
in September 1994.
<PAGE>
(C) RATE-RELATED REGULATORY PROCEEDINGS
In March 1996, the Company filed with the Connecticut Department of Public
Utility Control (DPUC), for its approval, a proposed price stability and
incentive regulation plan. The purpose of this plan is to help address the
challenges of an increasingly competitive electric utility industry and to help
position the Company to face and meet these challenges. The Company has
proposed, as part of the plan, to have no increase in base rates charged to
retail customers through December 31, 2001, to afford its customers additional
price stability during this period by modifying the operation of the fossil fuel
adjustment clause mechanism in retail rates so that customers can expect that
this clause will not affect their bills, to depreciate its Seabrook plant
investment more rapidly during this period, and to establish a performance-based
ratemaking mechanism in which performance will be measured by customer
satisfaction and reliability of service, all subject to a minimum and maximum
return on common equity. The plan also proposes a mechanism for the Company to
increase its support of economic development activities on a local and statewide
basis. This plan is designed to allow the Company to continue the application of
SFAS No. 71 and to recover its costs of providing service through rates. The
Company expects a decision on this plan to be made during 1996.
<PAGE>
(E) INCOME TAXES
Three Months Ended
March 31,
1996 1995
---- ----
(000's)
Income tax expense consists of:
Income tax provisions:
Current
Federal $11,468 $8,304
State 3,792 2,900
--------------- -------------
Total current 15,260 11,204
--------------- -------------
Deferred
Federal (2,186) 964
State (1,541) (895)
--------------- -------------
Total deferred (3,727) 69
--------------- -------------
Investment tax credits (190) (190)
--------------- -------------
Total income tax expense $11,343 $11,083
=============== =============
Income tax components charged as follows:
Operating expenses $12,612 $12,074
Other income and deductions - net (1,269) (991)
--------------- -------------
Total income tax expense $11,343 $11,083
=============== =============
The following table details the components of the deferred income taxes:
Seabrook sale/leaseback transaction ($2,622) ($2,678)
Pension benefits (2,219) (387)
Unit overhaul and replacement power costs (1,435) -
Accelerated depreciation 1,374 2,274
Tax depreciation on unrecoverable
plant investment 1,244 1,727
Deferred fossil fuel costs 512 (197)
Conservation and load management (137) 218
Postretirement benefits (68) (319)
Other - net (376) (569)
--------------- -------------
Deferred income taxes - net ($3,727) $69
=============== =============
<PAGE>
(F) SHORT-TERM CREDIT ARRANGEMENTS
The Company has a revolving credit agreement with a group of banks, which
currently extends to December 11, 1996. 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, 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 March
31, 1996, the Company had $20 million of short-term borrowings outstanding under
this facility.
<PAGE>
(G) SUPPLEMENTARY INFORMATION
Three Months Ended
March 31,
1996 1995
---- ----
(000's)
Operating Revenues
Retail $158,558 $150,420
Wholesale - capacity 1,790 1,669
- energy 9,796 12,571
Other 716 738
--------------- ----------------
Total Operating Revenues $170,860 $165,398
=============== ================
Sales by Class(MWH's)
Retail
Residential 524,021 494,317
Commercial 559,009 542,019
Industrial 270,952 264,486
Other 12,041 12,329
--------------- ----------------
1,366,023 1,313,151
Wholesale 366,739 517,436
--------------- ----------------
Total Sales by Class 1,732,762 1,830,587
=============== ================
Other Taxes
Charged to:
Operating:
State gross earnings $6,534 $6,441
Local real estate and
personal property 6,237 6,712
Payroll taxes 1,914 1,826
Other - 1
--------------- ----------------
14,685 14,980
Nonoperating and other accounts 132 166
--------------- ----------------
Total Other Taxes $14,817 $15,146
=============== ================
Other Income and (Deductions) - net
Interest and dividend income $304 $330
Equity earnings from Connecticut Yankee 346 338
Loss from subsidiary companies (691) (797)
Miscellaneous other income and
(deductions) - net (166) (163)
--------------- ----------------
Total Other Income and
(Deductions) - net ($207) ($292)
=============== ================
Other Interest Charges
Notes payable $328 $2,806
Other 257 335
--------------- ----------------
Total Other Interest Charges $585 $3,141
=============== ================
<PAGE>
(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 may acquire and/or store natural gas, coal and
fuel oil for sale to the Company, and the Company may purchase these fossil
fuels from the financing entity at a price for each type of fuel that reimburses
the financing entity for the direct costs it has incurred in purchasing and
storing the fuel, plus a charge for maintaining an inventory of the fuel
determined by reference to the fluctuating interest rate on thirty-day,
dealer-placed commercial paper in New York. The Company is obligated to insure
the fuel inventories and to indemnify the financing entity against all
liabilities, taxes and other expenses incurred as a result of its ownership,
storage and sale of fossil fuel to the Company. This agreement currently extends
to April 1997. At March 31, 1996, approximately $8.4 million of fossil fuel
purchases were being financed under this agreement.
(L) COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURE PROGRAM
The Company's continuing capital expenditure program is presently estimated
at approximately $311.2 million, excluding AFUDC, for 1996 through 2000.
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 $23.2 million per
incident. However, assessment would be limited to $3.1 million per incident, per
year. With respect to each of the operating nuclear generating units in which
the Company has an interest, the Company will be obligated to pay its ownership
and/or leasehold share of any statutory assessment resulting from a nuclear
incident at any nuclear generating unit.
The NRC requires nuclear generating units to obtain property insurance
coverage in a minimum amount of $1.06 billion and to establish a system of
prioritized use of the insurance proceeds in the event of a nuclear incident.
The system requires that the first $1.06 billion of insurance proceeds be used
to stabilize the nuclear reactor to prevent any significant risk to public
health and safety and then for decontamination and cleanup operations. Only
following completion of these tasks would the balance, if any, of the segregated
insurance proceeds become available to the unit's owners. For each of the
nuclear generating units in which the Company has an interest, the Company is
required to pay its ownership and/or leasehold share of the cost of purchasing
such insurance.
Although each of these units has purchased $2.75 billion of property
insurance coverage, representing the limits of coverage currently available from
conventional nuclear insurance pools, the cost of a nuclear incident could
exceed available insurance proceeds. In addition, two of the nuclear insurance
pools that provide portions of this coverage may levy assessments against the
insured owner companies if pool losses exceed the accumulated funds available to
the pool. The maximum potential assessments against the Company with respect to
losses occurring during current policy years are approximately $7.5 million.
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. As of March 31, 1996, the Company's guarantee liability for this debt
amounted to approximately $8.5 million.
EARLY RETIREMENT PROGRAM
On May 22, 1995, the Company and the union representing approximately 695
of its operating, maintenance and clerical employees agreed on a three-year
contract, effective May 16, 1995. As part of this agreement, the Company offered
a voluntary early retirement program to 74 employees, who had until January 31,
1996 to accept. The early retirement offer was accepted by 64 employees, and the
Company recognized a charge to earnings in January 1996 of $7.2 million ($4.2
million, after-tax). The employees accepting the offer will retire during the
first six months of 1996.
SITE REMEDIATION COSTS
The Company has estimated that the cost of environmental remediation of its
decommissioned Steel Point Station property in Bridgeport will be approximately
$11.3 million, and that the value of the property following remediation will not
exceed $6 million. In its 1992 decision on UI's application for retail rate
increases, the DPUC provided for additional revenues to be recovered from
customers, in the amount of $4.3 million of the difference, during the period
1993-1996, subject to true-up in the Company's next retail rate proceeding based
on actual remediation costs and actual gain on the Company's disposition of the
property.
PROPERTY TAXES
On November 2, 1993, the Company received "updated" personal property tax
bills from the City of New Haven (the City) for the tax year 1991-1992,
aggregating $6.6 million, based on an audit by the City's tax assessor. On May
7, 1994, the Company received a "Certificate of Correction....to correct a
clerical omission or mistake" from the City's tax assessor relative to the
assessed value of the Company's personal property for the tax year 1994-1995,
which certificate purports to increase said assessed value by approximately 53%
above the tax assessor's valuation at February 28, 1994, generating tax claims
of approximately $3.5 million. On March 1, 1995, the Company received notices of
assessment changes relative to the assessed value of the Company's personal
property for the tax year 1995-1996, which notices purport to increase said
assessed value by approximately 48% over the valuation declared by the Company,
generating tax claims of approximately $3.5 million. On May 11, 1995, the
Company received notices of assessment changes relative to the assessed values
of the Company's personal property for the tax years 1992-1993 and 1993-1994,
which notices purport to increase said assessed values by approximately 45% and
49%, respectively, over the valuations declared by the Company, generating tax
claims of approximately $4.1 million and $3.5 million, respectively. On March 8,
1996, the Company received notices of assessment changes relative to the
assessed value of the Company's personal property for the tax year 1996-1997,
which notices purport to increase said assessed value by approximately 57% over
the valuations declared by the Company and are expected to generate tax claims
of approximately $3.8 million. The Company is contesting each of these actions
by the City's tax assessor vigorously. On January 9, 1996, the Connecticut
Superior Court granted the Company's motion for summary judgment against the
City relative to the "updated" personal property tax bills for the tax year
1991-1992. The City has appealed to the Appellate Court from the Superior Court
decision, which decision would also be applicable to and defeat the valuation
increases for the tax years 1992-1993 and 1993-1994 if it is sustained on
appeal. It is the present opinion of the Company that the ultimate outcome of
this dispute will not have a significant impact on the financial position of the
Company.
(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) has established $432 million (in 1996 dollars) as the
decommissioning cost estimate for Seabrook Unit 1, of which the Company's share
would be approximately $76 million. This estimate assumes the prompt removal and
dismantling of the Unit at the end of its estimated 36-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 first quarter of 1996 was $410,000. UI's share of the fund at March
31, 1996 was approximately $7.9 million.
Connecticut has enacted a law requiring the operators of nuclear generating
units to file periodically with the DPUC their plans for financing the
decommissioning of the units in that state. Current decommissioning cost
estimates for Millstone Unit 3 and the Connecticut Yankee Unit are $478 million
(in 1996 dollars) and $375 million (in 1996 dollars), respectively, of which the
Company's share would be approximately $18 million and $36 million,
respectively. These estimates assume 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 first quarter of 1996
was $122,000. UI's share of the fund at March 31, 1996 was approximately $3.4
million. For the Company's 9.5% equity ownership in Connecticut Yankee,
decommissioning costs of $340,000 were funded by UI during the first quarter of
1996, and UI's share of the fund at March 31, 1996 was $17.5 million.
The Financial Accounting Standards Board (FASB) has issued an exposure
draft related to the accounting for the closure and removal costs of long-lived
assets, including nuclear plant decommissioning. If the proposed accounting
standard were adopted, it may result in higher annual provisions for
decommissioning to be recognized earlier in the operating life of nuclear units
and an accelerated recognition of the decommissioning obligation. The FASB will
be deliberating this issue, and the resulting final pronouncement could be
different from that proposed in the exposure draft.
<PAGE>
<TABLE>
CAPITAL EXPENDITURE PROGRAM
The Company's 1996-2000 capital expenditure program, excluding allowance for
funds used during construction (AFUDC) and its effect on certain capital related
items, is presently budgeted as follows:
<CAPTION>
1996 1997 1998 1999 2000 Total
---- ---- ---- ---- ---- -----
(000's)
<S> <C> <C> <C> <C> <C> <C>
Production (1) $19,440 $15,171 $14,077 $32,533 $12,656 $93,877
Distribution 22,272 19,956 19,236 18,996 20,112 100,572
Transmission 2,436 3,360 5,436 5,304 5,256 21,792
Conservation and
Load Management 9,819 7,224 6,011 5,685 5,685 34,424
Other 14,860 6,014 4,217 3,976 3,589 32,656
------- ------ ------ ------ ------ ------
Subtotal: 68,827 51,725 48,977 66,494 47,298 283,321
Nuclear Fuel 2,987 8,298 2,943 10,500 3,196 27,924
------ ------ ------ ------- ------ ------
Total Expenditures $71,814 $60,023 $51,920 $76,994 $50,494 $311,245
======== ======== ======== ======== ======== ========
AFUDC (Pre-tax) $2,626 $2,815 $2,606 $2,502 $3,305
Book Depreciation 62,299 65,883 69,346 72,756 71,749
Decommissioning 2,162 2,271 2,364 2,472 2,588
Amortization of Deferred
Return on Seabrook Unit 1
Phase-In (after tax) 12,586 12,586 12,586 12,586 0
Estimated Rate Base
(end of period) $1,193,616 $1,167,980 $1,137,109 $1,125,596 $1,094,268
(1) Steel Point Station environmental remediation costs of $3,793 are included
in 1996.
</TABLE>
<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 will continue to be dependent on the
level of retail and wholesale sales and the Company's ability to control
expenses. The two primary factors that affect sales volume are economic
conditions and weather. Since 1990, annual growth in total operation and
maintenance expense, excluding one-time items and cogeneration capacity
purchases, has averaged less than 1.0%. The Company hopes to continue to
restrict this average to less than the rate of inflation in future years (see
"Outlook").
The Company's financial status and financing capability will continue to be
sensitive to many other factors, including conditions in the securities markets,
economic conditions, interest rates, the level of the Company's income and cash
flow, and legislative and regulatory developments, including the cost of
compliance with increasingly stringent environmental legislation and regulations
and competition within the electric utility industry.
The electric utility industry is being subjected to increasing competition.
Currently, the Company's electric service rates are subject to regulation and
are based on the Company's costs. Therefore, the Company, and most regulated
utilities, are subject to certain accounting standards (Statement of Financial
Accounting Standards No. 71 (SFAS No. 71), "Accounting for the Effects of
Certain Types of Regulation") that are not applicable to other businesses in
general. These accounting rules allow regulated utilities, where appropriate, to
defer the income statement impact of certain costs that are expected to be
recovered in future regulated service rates and to establish regulatory assets
on balance sheets for such costs. The effects of competition could cause the
operations of the Company, or a portion thereof, to cease meeting the criteria
for application of these accounting rules. While the Company expects to continue
to meet these criteria in the foreseeable future, if the Company were to cease
meeting these criteria, accounting standards for businesses in general would
become applicable and immediate recognition of any previously deferred costs
would be required in the year in which the criteria are no longer met. If this
change in accounting were to occur, it would have a material adverse effect on
the Company's earnings and retained earnings in that year and could have a
material adverse effect on the Company's ongoing financial condition as well.
.
In March 1996, the Company filed with the Connecticut Department of Public
Utility Control (DPUC), for its approval, a proposed price stability and
incentive regulation plan. The purpose of this plan is to help address the
challenges of an increasingly competitive electric utility industry and to help
position the Company to face and meet these challenges. The Company has
proposed, as part of the plan, to have no increase in base rates charged to
retail customers through December 31, 2001, to afford its customers additional
price stability during this period by modifying the operation of the fossil fuel
adjustment clause mechanism in retail rates so that customers can expect that
this clause will not affect their bills, to depreciate its Seabrook plant
investment more rapidly during this period, and to establish a performance-based
ratemaking mechanism in which performance will be measured by customer
satisfaction and reliability of service, all subject to a minimum and maximum
return on common equity. The plan also proposes a mechanism for the Company to
increase its support of economic development activities on a local and statewide
basis. This plan is designed to allow the Company to continue the application of
SFAS No. 71 and to recover its costs of providing service through rates. The
Company expects a decision on this plan to be made during 1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had $15.8 million of cash and temporary cash
investments, an increase of $10.7 million from the balance at December 31, 1995.
The components of this increase, which are detailed in the Consolidated
Statement of Cash Flows, are summarized as follows:
(Millions)
Balance, December 31, 1995 $ 5.1
-----
Net cash provided by operating activities 22.8
Net cash provided by (used in) financing activities:
- Financing activities, excluding dividend payments 9.1
- Dividend payments (10.1)
Cash invested in plant, including nuclear fuel (11.1)
-----
Net increase 10.7
Balance, March 31, 1996 $15.8
=====
<TABLE>
The Company's capital requirements are presently projected as follows:
<CAPTION>
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C> <C>
Cash on Hand - Beginning of Year $ 5 $ 22 $ - $ - $ -
Internally Generated Funds less Dividends 100 95 101 99 84
---- --- --- --- ---
Subtotal 105 117 101 99 84
Less:
Capital Expenditures 72 60 52 77 50
-- -- -- -- --
Cash Available to pay Debt Maturities and Redemptions 33 57 49 22 34
Less:
Maturities and Mandatory Redemptions 11 65 116 116 156
-- -- --- --- ---
External Financing Requirements $(22) $ 8 $ 67 $ 94 $122
==== === === === ===
</TABLE>
Note: Internally Generated Funds less Dividends, Capital Expenditures and
External Financing Requirements are estimates based on current earnings
and cash flow projections and are subject to change due to future events
and conditions that may be substantially different than those used in
developing the projections.
All of the Company's capital requirements that exceed available cash will
have to be provided by external financing. Although the Company has no
commitment to provide such financing from any source of funds, other than a $75
million revolving credit agreement with a group of banks, described below, the
Company expects to be able to satisfy its external financing needs by issuing
additional short-term and long-term debt and by issuing preferred stock or
common stock if necessary. 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, which
currently extends to December 11, 1996. 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, 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 March
31, 1996, the Company had $20 million of short-term borrowings outstanding under
this facility.
UI has three wholly-owned subsidiaries. Research Center, Inc. (RCI) was
formed to participate in the development of one or more regulated power
production ventures, including possible participation in arrangements for the
future development of independent power production and cogeneration facilities.
United Energy International, Inc. (UEI) was formed to facilitate participation
in a joint venture relating to power production plants abroad. United Resources,
Inc. (URI) serves as the parent corporation for several unregulated businesses,
each of which is incorporated separately to participate in business ventures
that will complement and enhance UI's electric utility business and serve the
interests of the Company and its shareholders and customers.
Four wholly-owned subsidiaries of URI have been incorporated. Souwestcon
Properties, Inc. (SPI) participated as a 25% partner in the ownership of a
medical hotel building in New Haven, that has been sold. SPI no longer owns any
property and is currently inactive. A second wholly-owned subsidiary of URI is
Thermal Energies, Inc., which is participating in the development of district
heating and cooling facilities in the downtown New Haven area, including the
energy center for an office tower and participation as a 37% partner in the
energy center for a city hall and office tower complex. A third URI subsidiary,
Precision Power, Inc., provides power-related equipment and services to the
owners of commercial buildings and industrial facilities. A fourth URI
subsidiary, American Payment Systems, Inc., manages agents and equipment for
electronic data processing of bill payments made by customers of utilities,
including UI, at neighborhood businesses.
The Board of Directors of the Company has authorized the investment of a
maximum of $27 million, in the aggregate, of the Company's assets in all of
URI's ventures, UEI and RCI, and, at March 31, 1996, $27 million had been so
invested.
<PAGE>
RESULTS OF OPERATIONS
FIRST QUARTER OF 1996 VS. FIRST QUARTER OF 1995
Earnings for the first quarter of 1996 were $11.6 million, or $.82 per
share, up $2.9 million, or $.20 per share, from the first quarter of 1995.
Earnings from operations, which exclude one-time items, were $15.8 million, or
$1.12 per share for the first quarter of 1996, up $7.0 million, or $.50 per
share from the first quarter of 1995. The one-time item, recorded in the first
quarter of 1996, was a charge of $7.2 million ($4.2 million after-tax), or $.30
per share, reflecting the estimated costs of a Bargaining Unit Voluntary Early
Retirement Program, part of the Company's on-going organization review and cost
reduction program. Savings from this program should begin accruing in the second
quarter of 1996.
Retail operating revenues increased by about $8.1 million in the first
quarter of 1996 compared to the first quarter of 1995:
A retail kilowatt-hour sales increase of 4.0% from the prior year
increased retail revenues by $5.9 million and sales margin (revenue less
fuel expense and revenue-based taxes) by $4.6 million. The Company believes
that there was a "real" (i.e. not attributable to abnormal weather or leap
year) kilowatt-hour sales increase of about 0.5% in the first quarter of
1996 compared to the first quarter of 1995, with the remaining retail
kilowatt-hour sales growth coming as a result of colder weather and the
extra leap year day.
Other retail revenues increased by $2.2 million: $1.6 million from the
recovery, through the Conservation Adjustment Mechanism, of previously
recorded and projected conservation program costs mandated by the
Connecticut Department of Public Utility Control (DPUC), partially offset
by competitive pricing and other price reduction mechanisms, and a net $0.6
million increase from "pass through" charges for certain expense changes,
including increases in fuel costs.
Wholesale "capacity" revenues increased slightly in the first quarter of
1996 compared to the first quarter of 1995. Wholesale "energy" revenues are a
direct offset to wholesale energy expense and do not contribute to sales margin.
These energy revenues, as well as the associated fuel expense, decreased during
the first quarter of 1996, compared to the first quarter of 1995.
Retail fuel and energy expenses decreased by $2.5 million in the first
quarter of 1996 compared to the first quarter of 1995. A decrease of $3.2
million was due to higher nuclear unit generation (absence of the Connecticut
Yankee nuclear unit refueling outage that took place in the first and second
quarters of 1995), and, also, from lower nuclear energy prices. Increases in
kilowatt-hour generation to meet sales volume and increases in other fuel and
energy expenses, including "pass through" charges, partially offset the nuclear
fuel expense savings.
Operating expenses for operations, maintenance and purchased capacity
charges increased by $1.4 million in the first quarter of 1996 compared to the
first quarter of 1995:
Purchased capacity expense was $2.3 million lower due to the absence of
the added refueling outage costs incurred by the Connecticut Yankee nuclear
generating unit during the first quarter of 1995.
Operation and maintenance expense increased by $3.7 million. A provision
for maintenance expenses associated with generating plant overhauls and
refueling outages added $1.8 million. Employment costs increased by $1.4
million due to employee compensation, not additional employees.
Other operating expenses increased in the first quarter of 1996 compared to
the first quarter of 1995, from higher depreciation expense and income taxes.
Interest charges decreased by $2.2 million in the first quarter of 1996
compared to the first quarter of 1995 as a result of the Company's refinancing
program and strong cash flow. Also, total preferred dividends (net-of-tax)
increased slightly in the first quarter of 1996 compared to the first quarter of
1995, as a result of the issuance of new preferred securities by a limited
partnership (tax deductible Minority Interest in Preferred Securities) offset,
to a large extent, by reduced dividends from the repurchase of other preferred
stock.
OUTLOOK
The Company's long term earnings goal is to achieve growth in earnings per
share from operations of 4% annually from the 1992 level of $3.17 per share. The
Company exceeded the goal in 1995 and anticipates achieving the goal in 1996,
subject to a number of factors described below.
The 1996 quarterly earnings from operations will follow a pattern similar
to that of 1995 with significantly higher earnings in the third quarter when
compared to other quarters. Summer seasonal retail sales and summer pricing are
the predominant factors contributing to this pattern.
The Company anticipates that retail revenues for all of 1996 will increase
by about $5 million as a result of recovery, through the Conservation Adjustment
Mechanism, of previously recorded and projected conservation costs mandated by
the DPUC, partially offset by competitive pricing and other price reduction
mechanisms. These factors increased retail revenues by $1.6 million in the first
quarter of 1996 compared to the first quarter of 1995 and should increase retail
revenues by about $3.5 million over the last three quarters of 1996 compared to
the same period last year. The Company has dealt with the possible loss of
customers as a result of cogeneration, relocation or discontinuation of
operations by successfully negotiating seventeen multi-year contracts with major
customers, including its largest customer, which is constructing a cogeneration
unit that will produce approximately one-half of the customer's electricity
requirements by 1998. These contracts provide cost reduction and price stability
for the customers while helping the Company maintain its customer base for the
long term.
The Company's earnings will continue to be very sensitive to the level of
retail sales. The two primary factors that affect sales volume are economic
conditions and weather. Overall, 1995 weather was more severe than "normal"
providing additional sales margin of about $5.1 million. Weather for the first
quarter of 1995 was milder than normal and a return to "normal" weather in the
first quarter of 1996 increased sales margin by $1.8 million. Weather for the
last three quarters of 1995 was more severe than normal, and a return to
"normal" weather in the last three quarters of 1996 would reduce sales margin by
$6.9 million. The Company expects "real" retail kilowatt-hour sales growth of
about 0.5 percent for the year, similar to the growth experienced in the first
quarter of 1996, producing additional sales margin of about $750,000 per
quarter.
The Company had expected that higher generating output from the nuclear
units (no refueling outages planned for the Seabrook or Millstone units in 1996)
and lower nuclear fuel prices would add $4-$5 million to sales margin (through
lower retail fuel and energy expense) in 1996 compared to 1995, if normal
operating assumptions were met. These savings were skewed towards the first
quarter of 1996 in which $3.2 million of the savings were realized. Currently,
Millstone Unit 3 is shut down and will remain shut down until the Nuclear
Regulatory Commission (NRC) completes, to its satisfaction, a review of
operations. The shutdown of the unit reduces UI's sales margin by about $0.5
million per month from anticipated normal operating levels. (See Part II. Other
Information; Item 5 - Other Events - Nuclear Generation) Also, the DPUC is
currently investigating options regarding "pass through" clauses related to
fossil and nuclear fuel expenses that might affect future sales margin.
Another major factor affecting the Company's earnings will be the Company's
ability to control expenses. As part of a new labor contract between the Company
and its union employees (the Bargaining Unit) covering the period May 16, 1995
May 16, 1998, and in conjunction with the Company's other cost savings programs,
a Bargaining Unit Voluntary Early Retirement Program has been initiated and
resulted in a one-time charge of $.30 per share taken in the first quarter of
1996. Savings from the program should begin accruing in the second quarter of
1996 and should amount to at least $1 million for the year. Despite these
savings, the Company anticipates that its operation and maintenance expense for
all of 1996 will increase compared to 1995 as a result of several new
initiatives designed to prepare the Company for future competitive challenges:
marketing programs for enhancing sales, training programs to prepare all
employees for competition, and regulatory programs to help prepare the Company
financially for survival in a competitive and, potentially, restructured
industry. These programs will likely add about $4 million to operation and
maintenance expense in the last three quarters of 1996.
Depreciation expense should increase by $4-$5 million in 1996 from 1995
levels. Somewhat more than half of this increase is due to anticipated normal
plant additions and the rest to rapid recovery of conservation and load
management program costs. The DPUC is reviewing the depreciation lives of these
programs and may further accelerate the recovery period.
The Company expects continued reductions in interest expense from the 1995
level of $77 million to about $69 million. This 1996 interest expense level
would be 39% below the 1989 level and would mark the seventh consecutive year of
interest expense decline.
The Company expects an improvement in unregulated subsidiary earnings
compared to the results of 1995. In the near term, the Company's investments in
these subsidiaries are unlikely to have a positive effect on earnings, but the
Company believes that these investments will contribute to future earnings
growth.
In March 1996, the Company filed with the Connecticut Department of Public
Utility Control (DPUC), for its approval, a proposed price stability and
incentive regulation plan. The purpose of this plan is to help address the
challenges of an increasingly competitive electric utility industry and to help
position the Company to face and meet these challenges. The Company has
proposed, as part of the plan, to have no increase in base rates charged to
retail customers through December 31, 2001, to afford its customers additional
price stability during this period by modifying the operation of the fossil fuel
adjustment clause mechanism in retail rates so that customers can expect that
this clause will not affect their bills, to depreciate its Seabrook plant
investment more rapidly during this period, and to establish a performance-based
ratemaking mechanism in which performance will be measured by customer
satisfaction and reliability of service, all subject to a minimum and maximum
return on common equity. The plan also proposes a mechanism for the Company to
increase its support of economic development activities on a local and statewide
basis. This plan is designed to allow the Company to continue the application of
SFAS No. 71 and to recover its costs of providing service through rates. The
Company expects a decision on this plan to be made during 1996.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Events
Nuclear Generation
On March 30, 1996, Millstone Unit 3, a 1,154-MW nuclear generating unit
located in Waterford, Connecticut, in which the Company has a 3.685% joint
ownership interest, was shut down by the licensee following an engineering
evaluation that determined that four safety-related valves would not be able to
perform their design function during certain postulated events. On April 4,
1996, the Nuclear Regulatory Commission ("NRC") issued a letter to Northeast
Utilities Service Company ("NUSCO"), the Northeast Utilities subsidiary that
operates Millstone Unit 3, requesting that NUSCO submit, no later than 7 days
prior to the restart of the unit, information describing the actions taken to
ensure that future operation of Millstone Unit 3 will be conducted in accordance
with the terms and conditions of its operating license, NRC regulations, and the
plant's Updated Final Safety Analysis Report (collectively, "Applicable
Requirements"). The letter also requires that certain specific technical issues
be resolved to the NRC's satisfaction prior to restarting the unit.
The NRC's April 4, 1996 letter concerning Millstone Unit 3 superseded an
earlier letter, dated March 7, 1996, pursuant to which the NRC had requested
information within 30 days regarding the plans and schedule for ensuring that
the future operation of the unit would be conducted in accordance with the
Applicable Requirements. The NRC's April 4, 1996 letter states that, since the
earlier letter, it has identified programmatic issues and design deficiencies at
Millstone Unit 3 that are similar in nature to those previously identified at
Millstone Units 1 and 2, two other nuclear generating units at the Millstone
Station that are owned by operating subsidiaries of Northeast Utilities and are
also operated by NUSCO; and therefore the NRC is now seeking information for
Millstone Unit 3 comparable to that requested previously for those other two
units. Millstone Unit 3 was designed and constructed more recently than
Millstone Units 1 and 2, under more stringent licensing requirements. Therefore,
NUSCO has stated that it believes that preparation of its response to the NRC's
request for information regarding Millstone Unit 3 should not be as difficult or
time-consuming as that for those earlier vintage units. However, NUSCO has
stated that it cannot, at this time, predict the duration of the process for
preparing the necessary response, the NRC's reaction to the response, or the
expected date that Millstone Unit 3 will return to service.
While Millstone Unit 3 is out of service, the Company will incur
incremental replacement power costs estimated at approximately $500,000 per
month, and experience an adverse impact on net earnings per share of
approximately $.02 per month. In addition to the costs of replacement power,
incremental direct costs will be incurred to address issues raised by the NRC
relative to Millstone Unit 3, and the Company may be responsible for its 3.685%
joint ownership share of these costs.
On March 7, 1996, the NRC requested information within 30 days regarding
the plans and schedule for ensuring that the future operation of Connecticut
Yankee Atomic Power Company's ("CY") 582-MW nuclear generating unit located in
Haddam, Connecticut, which is currently operational, will be conducted in
accordance with the Applicable Requirements. CY is owned in part by the Company
(9.5%) and is operated by NUSCO. Unlike Millstone Units 1, 2, and 3, the NRC
letter concerning CY does not currently require that the requested information
be submitted prior to restarting the unit, were it shut down. However, the
Company cannot predict at this time what actions, if any, the NRC may take as a
result of NUSCO's response for CY. In the event of a shut down of CY, the
Company would incur similar replacement power costs and incur a similar adverse
impact on net earnings per share to those described above regarding Millstone
Unit 3.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Table Item Exhibit
Number Number Description
(12),(99) 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 March 31, 1996 and Twelve Months Ended December
31, 1995, 1994, 1993, 1992 and 1991).
(27) 27 Financial Data Schedule
(b) Reports on Form 8-K.
Items Financial Statements Date of
Reported Filed Report
4 None December 15, 1995
(amended January 2, 1996,
January 18, 1996, and
March 6, 1996.)
<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 April 30, 1996 Signature /s/ Robert L.Fiscus
-------------- -------------------
Robert L. Fiscus
President and
Chief Financial Officer
<PAGE>
<PAGE>
EXHIBIT INDEX
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Table Item Exhibit
Number Number Description Page No.
<S><C> <C> <C>
(12),(99) 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 March 31, 1996 and Twelve Months
Ended December 31, 1995, 1994, 1993, 1992 and 1991).
(27) 27 Financial Data Schedule
</TABLE>
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY Exhibit 12
PAGE 1 OF 2
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<CAPTION>
Twelve
Months
Ended
Year Ended December 31, March 31,
-------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
EARNINGS
<S> <C> <C> <C> <C> <C> <C>
Net income $55,550 $56,768 $40,481 $46,795 $50,393 $52,644
Federal income taxes 20,844 19,276 22,342 34,551 41,951 41,965
Stae income taxes 12,647 16,878 4,645 6,216 12,976 13,222
Fixed charges 107,548 109,449 97,928 88,093 83,994 82,951
----------- ------------ ----------- ----------- ----------- ------------
Earnings available for fixed charges $196,589 $202,371 $165,396 $175,655 $189,314 $190,782
FIXED CHARGES
Interest on long-term debt $90,296 $88,666 $80,030 $73,772 $63,431 $64,318
Other interest 9,847 12,882 12,260 10,301 16,723 14,841
Interest on nuclear fuel burned 2,440 2,963 928 - - -
One third of rental charges 4,965 4,938 4,710 4,020 3,840 3,792
----------- ------------ ----------- ----------- ----------- ------------
$107,548 $109,449 $97,928 $88,093 $83,994 $82,951
RATIO OF EARNINGS TO FIXED
CHARGES 1.83 1.85 1.69 1.99 2.25 2.30
----------- ------------ ----------- ----------- ----------- ------------
</TABLE>
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY EXHIBIT 12
PAGE 2 OF 2
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(In Thousands)
Twelve
<CAPTION>
Months
Ended
Year Ended December 31, March 31,
------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
EARNINGS
<S> <C> <C> <C> <C> <C> <C>
Net income $55,550 $56,768 $40,481 $46,795 $50,393 $52,644
Federal income taxes 20,844 19,276 22,342 34,551 41,951 41,965
Stae income taxes 12,647 16,878 4,645 6,216 12,976 13,222
Fixed charges 107,548 109,449 97,928 88,093 83,994 82,951
---------- ---------- ----------- ---------- ---------- -----------
Earnings available for combined fixed
charges and preferred stock
dividend requirements $196,589 $202,371 $165,396 $175,655 $189,314 $190,782
---------- ---------- ----------- ---------- ---------- -----------
FIXED CHARGES AND PREFERRED
STOCK DIVIDEND REQUIREMENTS
Interest on long-term debt $90,296 $88,666 $80,030 $73,772 $63,431 $ 64,318
Other interest 9,847 12,882 12,260 10,301 16,723 14,841
Interest on nuclear fuel burned 2,440 2,963 928 - - -
One third of rental charges 4,965 4,938 4,710 4,020 3,840 3,792
Preferred stock dividend requirements (17,260 7,100 7,197 6,223 2,778 1,489
---------- ---------- ----------- ---------- ---------- -----------
$114,808 $116,549 $105,125 $94,316 $86,772 $84,440
---------- ---------- ----------- ---------- ---------- -----------
RATIO OF EARNINGS TO FIXED
CHARGES AND PREFERRED
STOCK DIVIDEND REQUIREMENTS 1.71 1.74 1.57 1.86 2.18 2.26
---------- ---------- ----------- ---------- ---------- -----------
(1) Preferred Stock Dividends increased to reflect the pre-tax earnings required to cover such dividend requirements.
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
FINANCIAL DATA SCHEDULE 3 MOS. 1996
</LEGEND>
<CIK> 0000101265
<NAME> THE UNITED ILLUMINATING COMPANY
<MULTIPLIER> 1,000
<CURRENCY>
<EXCHANGE-RATE>1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,339,990
<OTHER-PROPERTY-AND-INVEST> 31,972
<TOTAL-CURRENT-ASSETS> 150,978
<TOTAL-DEFERRED-CHARGES> 466,465
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,989,405
<COMMON> 284,542
<CAPITAL-SURPLUS-PAID-IN> (1,438)
<RETAINED-EARNINGS> 158,314
<TOTAL-COMMON-STOCKHOLDERS-EQ> 441,418
0
10,539
<LONG-TERM-DEBT-NET> 780,542
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 20,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 95,171
0
<CAPITAL-LEASE-OBLIGATIONS> 17,432
<LEASES-CURRENT> 297
<OTHER-ITEMS-CAPITAL-AND-LIAB> 624,006
<TOT-CAPITALIZATION-AND-LIAB> 1,989,405
<GROSS-OPERATING-REVENUE> 170,860
<INCOME-TAX-EXPENSE> 12,612
<OTHER-OPERATING-EXPENSES> 129,206
<TOTAL-OPERATING-EXPENSES> 141,818
<OPERATING-INCOME-LOSS> 29,042
<OTHER-INCOME-NET> 1,244
<INCOME-BEFORE-INTEREST-EXPEN> 30,286
<TOTAL-INTEREST-EXPENSE> 17,362
<NET-INCOME> 11,721
131
<EARNINGS-AVAILABLE-FOR-COMM> 11,590
<COMMON-STOCK-DIVIDENDS> 10,152
<TOTAL-INTEREST-ON-BONDS> 65,144
<CASH-FLOW-OPERATIONS> 22,840
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.82
</TABLE>
