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, 1997
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 Identification No.)
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, 1997, was 14,101,291.
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<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
PAGE
NUMBER
------
Item 1. Financial Statements. 3
Consolidated Statement of Income for the three months ended
March 31, 1997 and 1996. 3
Consolidated Balance Sheet as of March 31, 1997 and
December 31, 1996. 4
Consolidated Statement of Cash Flows for the three months ended
March 31, 1997 and 1996. 6
Notes to Consolidated Financial Statements. 7
- Statement of Accounting Policies 7
- Capitalization 8
- 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
- Connecticut Yankee 14
- Hydro-Quebec 14
- Voluntary Early Retirement and Separation Programs 14
- Property Taxes 14
- Site Decontamination, Demolition and Remediation Costs 15
- Nuclear Fuel Disposal and Nuclear Plant Decommissioning 15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 17
- Major Influences on Financial Condition 17
- Capital Expenditure Program 19
- Liquidity and Capital Resources 20
- Subsidiary Operations 21
- Results of Operations 21
- Looking Forward 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 26
Item 6. Exhibits and Reports on Form 8-K. 27
SIGNATURES 28
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<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,
1997 1996
---- ----
<S> <C> <C>
OPERATING REVENUES (NOTE G) $180,325 $170,860
------------- --------------
OPERATING EXPENSES
Operation
Fuel and energy 54,921 31,636
Capacity purchased 10,917 10,639
Early retirement program charge - 7,227
Other 37,290 36,388
Maintenance 9,235 8,899
Depreciation 17,092 16,292
Amortization of cancelled nuclear project and deferred return 3,440 3,440
Income taxes (Note E) 11,315 12,612
Other taxes (Note G) 13,965 14,685
------------- --------------
Total 158,175 141,818
------------- --------------
OPERATING INCOME 22,150 29,042
------------- --------------
OTHER INCOME AND (DEDUCTIONS)
Allowance for equity funds used during construction 204 182
Other-net (Note G) 781 (207)
Non-operating income taxes 1,417 1,269
------------- --------------
Total 2,402 1,244
------------- --------------
INCOME BEFORE INTEREST CHARGES 24,552 30,286
------------- --------------
INTEREST CHARGES
Interest on long-term debt 16,372 16,490
Interest on Seabrook obligation bonds owned by the company (1,691) -
Other interest (Note G) 766 585
Allowance for borrowed funds used during construction (486) (392)
------------- --------------
14,961 16,683
Amortization of debt expense and redemption premiums 678 679
------------- --------------
Net Interest Charges 15,639 17,362
------------- --------------
MINORITY INTEREST IN PREFERRED SECURITIES 1,203 1,203
------------- --------------
NET INCOME 7,710 11,721
Discount on preferred stock redemptions (19) -
Dividends on preferred stock 51 131
------------- --------------
INCOME APPLICABLE TO COMMON STOCK $7,678 $11,590
============= ==============
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 14,101 14,100
EARNINGS PER SHARE OF COMMON STOCK $0.54 $0.82
CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $0.72 $0.72
</TABLE>
The accompanying Notes to Consolidated
Financial Statements are an integral part of the financial statements.
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<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEET
ASSETS
(Thousands of Dollars)
<CAPTION>
March 31, December 31,
1997 1996*
-------- ----------
(Unaudited)
<S> <C> <C>
Utility Plant at Original Cost
In service $1,848,052 $1,843,952
Less, accumulated provision for depreciation 600,835 585,646
--------------- ---------------
1,247,217 1,258,306
Construction work in progress 41,468 40,998
Nuclear fuel 29,931 23,010
--------------- ---------------
Net Utility Plant 1,318,616 1,322,314
--------------- ---------------
Other Property and Investments 27,353 26,081
--------------- ---------------
Current Assets
Cash and temporary cash investments 29,688 6,394
Accounts receivable
Customers, less allowance for doubtful
accounts of $1,900 and $2,300 60,196 63,722
Other 29,216 38,367
Accrued utility revenues 24,459 29,139
Fuel, materials and supplies, at average cost 22,085 22,010
Prepayments 6,822 3,608
Other 209 110
--------------- ---------------
Total 172,675 163,350
--------------- ---------------
Deferred Charges
Unamortized debt issuance expenses 6,388 6,580
Other 535 1,485
--------------- ---------------
Total 6,923 8,065
--------------- ---------------
Regulatory Assets (future amounts due from customers
through the ratemaking process)
Income taxes due principally to book-tax differences 286,841 289,672
Connecticut Yankee 61,617 64,851
Deferred return - Seabrook Unit 1 34,610 37,757
Unamortized redemption costs 25,726 25,063
Unamortized cancelled nuclear projects 13,004 13,297
Uranium enrichment decommissioning cost 1,345 1,377
Other 7,162 9,068
--------------- ---------------
Total 430,305 441,085
--------------- ---------------
$1,955,872 $1,960,895
=============== ===============
</TABLE>
*Derived from audited financial statements
The accompanying Notes to Consolidated Financial
Statements are an integral part of the financial statements.
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<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEET
CAPITALIZATION AND LIABILITIES
(Thousands of Dollars)
<CAPTION>
March 31, December 31,
1997 1996*
-------- -----------
(Unaudited)
<S> <C> <C>
Capitalization (Note B)
Common stock equity
Common stock $284,579 $284,579
Paid-in capital 772 772
Capital stock expense (2,182) (2,182)
Retained earnings 154,372 156,847
--------------- ---------------
437,541 440,016
Preferred stock 4,421 4,461
Minority interest in preferred securities 50,000 50,000
Long-term debt
Long-term debt 726,550 826,527
Investment in Seabrook obligation bonds (66,847) (66,847)
--------------- ---------------
Net Long-term debt 659,703 759,680
Total 1,151,665 1,254,157
--------------- ---------------
Noncurrent Liabilities
Connecticut Yankee contract obligation 51,071 54,752
Pensions accrued 49,742 49,205
Obligations under capital leases 17,111 17,193
Nuclear decommissioning obligation 13,966 12,851
Other 4,865 4,815
--------------- ---------------
Total 136,755 138,816
--------------- ---------------
Current Liabilities
Current portion of long-term debt 137,500 69,900
Notes payable 54,589 10,965
Accounts payable 48,915 68,058
Dividends payable 10,204 10,205
Taxes accrued 11,032 503
Interest accrued 16,229 13,835
Obligations under capital leases 321 315
Other accrued liabilities 36,665 36,091
--------------- ---------------
Total 315,455 209,872
--------------- ---------------
Customers' Advances for Construction 1,863 1,888
--------------- ---------------
Regulatory Liabilities (future amounts owed to customers
through the ratemaking process)
Accumulated deferred investment tax credits 16,957 17,147
Other 2,032 1,811
--------------- ---------------
Total 18,989 18,958
--------------- ---------------
Deferred Income Taxes (future tax liabilities owed 331,145 337,204
to taxing authorities)
Commitments and Contingencies (Note L)
--------------- ---------------
$1,955,872 $1,960,895
=============== ===============
</TABLE>
* Derived from audited financial statements
The accompanying Notes to Consolidated Financial
Statements are an integral part of the financial statements.
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<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $7,710 $11,721
------------- ------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 18,354 17,350
Deferred income taxes (3,228) (3,727)
Deferred investment tax credits - net (190) (190)
Amortization of nuclear fuel 1,568 900
Allowance for funds used during construction (690) (574)
Amortization of deferred return 3,147 3,147
Early retirement costs accrued - 7,227
Changes in:
Accounts receivable - net 12,677 2,304
Fuel, material and supplies (75) 433
Prepayments 3,214 (4,516)
Accounts payable (19,143) (17,401)
Interest accrued 2,394 1,722
Taxes accrued 10,529 12,423
Other assets and liabilities 742 (7,979)
------------- ------------
Total Adjustments 29,299 11,119
------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 37,009 22,840
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Notes payable 43,624 20,000
Securities redeemed and retired:
Long-term debt (32,585) (10,800)
Preferred stock (40) -
Discount on preferred stock redemption 19 -
Lease obligations (76) (70)
Dividends
Preferred stock (52) (131)
Common stock (10,153) (9,941)
------------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 737 (942)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Plant expenditures, including nuclear fuel (14,452) (11,154)
------------- ------------
NET CASH USED IN INVESTING ACTIVITIES (14,452) (11,154)
------------- ------------
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD 23,294 10,744
BALANCE AT BEGINNING OF PERIOD 6,394 5,070
------------- ------------
BALANCE AT END OF PERIOD $29,688 $15,814
============= ============
CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized) $11,005 $15,001
============= ============
Income taxes $3,700 $4,175
============= ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the financial statements.
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<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The consolidated financial statements of the Company and its wholly-owned
subsidiary, United Resources, 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, 1996. Such notes are supplemented as
follows:
(A) STATEMENT OF ACCOUNTING POLICIES
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
The weighted average AFUDC rates applied in the first three months of 1997
and 1996 were 8.0% and 8.5%, 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 $643,000 and $532,000 in the first three
months of 1997 and 1996, respectively, into the decommissioning trust funds for
Seabrook Unit 1 and Millstone Unit 3. At March 31, 1997, the Company's shares of
the trust fund balances, which included accumulated earnings on the funds, were
$9.9 million and $4.1 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.
INTEREST RATE AND FUEL PRICE MANAGEMENT
The Company utilizes interest rate and fuel oil price management
instruments to manage interest rate and fuel oil price risk. Interest rate swap
agreements have been entered into to effectively convert the interest rates on
$225 million of variable rate term loan borrowings to fixed rate borrowings.
Amounts receivable or payable under these swap agreements are accrued and
charged to interest expense. The Company enters into basic fuel oil price
management instruments to help minimize fuel oil price risk by fixing the future
price for fuel oil used for generation. Amounts receivable or payable under
these instruments are recognized in income when realized.
At March 31, 1997, the Company entered into swap agreements for 1,040,000
barrels of fuel oil, which effectively limits the exposure to upward swings in
the weighted average price to $15.78. The Company also has call options for
449,997 barrels of fuel oil at $19.25 per barrel.
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<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share". This statement, which is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods, establishes simplified standards for computing and presenting earnings
per share (EPS). It requires dual presentation of basic and diluted EPS on the
face of the income statement for entities with complex capital structures and
disclosure of the calculation of each EPS amount. The Company does not
anticipate that adoption of the standard will have a significant impact on
reported EPS.
(B) CAPITALIZATION
(A) COMMON STOCK
The number of shares outstanding of the Company's common stock, no par
value, at March 31, 1997 was 14,101,291.
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. The Connecticut Department of Public Utility
Control (DPUC) has 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 17,799 shares
of stock at an exercise price of $30 per share, 190,600 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, 34,332 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, 1997.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". This statement, which is
effective beginning in calendar year 1996, 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 the prior authoritative literature, 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
requirements of this statement are effective for transactions entered into
beginning January 1, 1996. However, pro forma disclosures must include the
effects of all awards granted after January 1, 1995. As of March 31, 1997, 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 $200 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 $96.2
million were free from such limitations at March 31, 1997.
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<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(C) PREFERRED STOCK
On February 3, 1997, the Company purchased at a discount on the open
market, and canceled, 403 shares of its $100 par value 4.35%, Series A preferred
stock. The shares, having a par value of $40,300 were purchased for $21,271,
creating a net gain of $19,029.
(D) LONG-TERM DEBT
On December 30, 1996, the Company transferred $51.3 million to a trustee
under an escrow agreement. The funds, which were invested in Treasury Notes,
were used to pay $50 million principal amount of 7% Notes that matured on
January 15, 1997 plus accrued interest.
On February 15, 1997, the Company repaid $10.8 million principal amount of
maturing 9.44% First Mortgage Bonds, Series B, and redeemed, at a premium of
$185,328, the remaining $21.6 million outstanding principal amount of 9.44%
First Mortgage Bonds, Series B, issued by Bridgeport Electric Company, a
wholly-owned subsidiary of the Company that was merged with and into the Company
in September 1994.
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<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(E) INCOME TAXES
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
(000's)
<S> <C> <C>
Income tax expense consists of:
Income tax provisions:
Current
Federal $10,066 $11,468
State 3,250 3,792
------------- -------------
Total current 13,316 15,260
------------- -------------
Deferred
Federal (2,054) (2,186)
State (1,174) (1,541)
------------- -------------
Total deferred (3,228) (3,727)
------------- -------------
Investment tax credits (190) (190)
------------- -------------
Total income tax expense $9,898 $11,343
============= =============
Income tax components charged as follows:
Operating expenses $11,315 $12,612
Other income and deductions - net (1,417) (1,269)
------------- -------------
Total income tax expense $9,898 $11,343
============= =============
The following table details the components of the
deferred income taxes:
Seabrook sale/leaseback transaction ($2,586) ($2,622)
Accelerated depreciation 1,459 1,374
Tax depreciation on unrecoverable plant investment 1,232 1,244
Unit overhaul and replacement power costs (1,203) (1,435)
Conservation and load management (930) (137)
Deferred fossil fuel costs (686) 512
Postretirement benefits (144) (68)
Pension benefits 57 (2,219)
Other - net (427) (376)
------------- -------------
Deferred income taxes - net ($3,228) ($3,727)
============= =============
</TABLE>
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<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(F) SHORT-TERM CREDIT ARRANGEMENTS
The Company has a revolving credit agreement with a group of banks, which
currently extends to December 10, 1997. 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, 1997, the Company had $45 million of short-term borrowings outstanding under
this facility.
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<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(G) SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
(000's)
<S> <C> <C>
Operating Revenues
- ------------------
Retail $150,481 $158,558
Wholesale - capacity 2,257 1,790
- energy 27,078 9,796
Other 509 716
--------------- ---------------
Total Operating Revenues $180,325 $170,860
=============== ===============
Sales by Class(MWH's)
- ---------------------
Retail
Residential 498,271 524,021
Commercial 540,458 559,009
Industrial 269,134 270,952
Other 12,277 12,041
--------------- ---------------
1,320,140 1,366,023
Wholesale 930,235 366,739
--------------- ---------------
Total Sales by Class 2,250,375 1,732,762
=============== ===============
Other Taxes
- -----------
Charged to:
Operating:
State gross earnings $5,732 $6,534
Local real estate and personal property 6,137 6,237
Payroll taxes 2,096 1,914
--------------- ---------------
13,965 14,685
Nonoperating and other accounts 93 132
--------------- ---------------
Total Other Taxes $14,058 $14,817
=============== ===============
Other Income and (Deductions) - net
- -----------------------------------
Interest and dividend income $620 $304
Equity earnings from Connecticut Yankee 446 346
Loss from subsidiary companies (533) (691)
Miscellaneous other income and (deductions) - net 248 (166)
--------------- ---------------
Total Other Income and (Deductions) - net $781 ($207)
=============== ===============
Other Interest Charges
- ----------------------
Notes Payable $577 $328
Other 189 257
--------------- ---------------
Total Other Interest Charges $766 $585
=============== ===============
</TABLE>
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<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(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 May 1998. At March 31, 1997, approximately $26.8 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 $228.9 million, excluding AFUDC, for 1997 through 2001.
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 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 each nuclear generating unit 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 three
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.
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<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
OTHER COMMITMENTS AND CONTINGENCIES
CONNECTICUT YANKEE
On December 4, 1996, the Board of Directors of the Connecticut Yankee
Atomic Power Company (Connecticut Yankee) voted unanimously to retire the
Connecticut Yankee nuclear plant (the Connecticut Yankee Unit) from commercial
operation. The Company has a 9.5% stock ownership share in Connecticut Yankee
and relied on the Connecticut Yankee Unit for approximately 3.7% of the
Company's 1995 total generating resources. The power purchase contract under
which the Company has purchased its 9.5% entitlement to the Connecticut Yankee
Unit's power output permits Connecticut Yankee to recover 9.5% of all of its
costs from UI. Connecticut Yankee has filed revised decommissioning cost
estimates and amendments to the power contracts with its owners with the Federal
Energy Regulatory Commission (FERC). The preliminary estimate of the amount of
future payments for the closing, decommissioning and recovery of the remaining
investment in the Connecticut Yankee Unit is approximately $763 million. Based
on regulatory precedent, Connecticut Yankee believes it will continue to collect
from its owners its decommissioning costs, the unrecovered investment in the
Connecticut Yankee Unit and other costs associated with the permanent shutdown
of the Connecticut Yankee Unit. UI expects that it will continue to be allowed
to recover all FERC-approved costs from its customers through retail rates. The
Company's estimate of its remaining share of costs, less return of investment
(approximately $10 million) and return on investment (approximately $7.6
million) at March 31, 1997, is approximately $51.1 million. This estimate, which
is subject to ongoing review and revision, has been recorded by the Company as a
regulatory asset and an obligation on the Consolidated Balance Sheet.
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, increased the capacity value of the
intertie from 690 megawatts to a maximum of 2000 megawatts in 1991. 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, 1997, the Company's guarantee liability for this debt
was approximately $7.9 million.
VOLUNTARY EARLY RETIREMENT AND SEPARATION PROGRAMS
In July 1996, the Company offered a Voluntary Early Retirement Plan and a
Voluntary Separation Plan to virtually all of its employees. A total of 163
employees accepted one or the other of these plans. In the third quarter of
1996, the Company recognized a charge to earnings of $14.9 million ($8.7
million, after-tax) to reflect the cost of these plans. The employees accepting
the offer will retire on or before December 30, 1997.
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
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<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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. In January 1996, the Connecticut Superior
Court granted the Company's motion for summary judgment against the City
relative to the earliest tax year at issue, 1991-1992, ruling that, after
January 31, 1992, the tax assessor had no statutory authority to revalue
personal property listed and valued on the Company's tax list for the tax year
1991-1992. This Superior Court decision, which would also have been applicable
to and defeated the assessor's valuation increases for the two subsequent tax
years, 1992-1993 and 1993-1994, was appealed by the City. On April 11, 1997, the
Connecticut Supreme Court reversed the Superior Court's decisions in this and
two other companion cases involving other taxpayers, ruling that the tax
assessor had a three-year period in which to audit and revalue personal property
listed and valued on the Company's tax list for the tax year 1991-1992. It is
currently anticipated that all of the pending cases for all of the tax years in
dispute will now be scheduled for trial in the Superior Court relative to the
Company's claim that the tax assessor's increases in personal property tax
assessments for the three earliest years were unlawful for other reasons and
relative to the vigorously contested issue, for all of the tax years, as to the
reasonableness of the tax assessor's valuation method, both as to amount and
methodology. 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.
SITE DECONTAMINATION, DEMOLITION AND REMEDIATION COSTS
The Company has estimated that the total cost of decontaminating and
demolishing its decommissioned and demolished Steel Point Station and completing
requisite environmental remediation of the site will be approximately $11.3
million, of which approximately $7.8 million had been incurred as of March 31,
1997, and that the value of the property following remediation will not exceed
$6.0 million. As a result of a 1992 Connecticut Department of Public Utility
Control retail rate decision, beginning January 1, 1993, the Company has been
recovering through retail rates $1.075 million of these remediation costs per
year. The remediation cost, property value and recovery from customers will be
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.
(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 $451 million (in 1997 dollars) as the
decommissioning cost estimate for Seabrook Unit 1, of which the Company's share
would be approximately $79 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 1997 was $521,000. UI's share of the fund at March
31, 1997 was approximately $9.9 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. The current decommissioning cost
estimate for Millstone Unit 3 is $463 million (in 1997 dollars), of which the
Company's share would be approximately $17 million. This estimate assumes the
prompt removal and dismantling of the unit at the end of its estimated 40-year
energy producing life. Monthly decommissioning payments, based on these cost
estimates, are being made to a decommissioning trust fund managed by Northeast
Utilities (NU). UI's share of the Millstone Unit 3 decommissioning payments made
during the first quarter of 1997 was $122,000. UI's share of the fund at March
31, 1997 was approximately $4.1 million. The decommissioning trust fund for the
Connecticut Yankee Unit is also managed by NU.
- 15 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
For the Company's 9.5% equity ownership in Connecticut Yankee, decommissioning
costs of $355,000 were funded by UI during the first quarter of 1997, and UI's
share of the fund at March 31, 1997 was $20.3 million. The current
decommissioning cost estimate for the Connecticut Yankee Unit, assuming the
prompt removal and dismantling of the unit commencing in 1997, is $436 million,
of which UI's share would be $41 million.
- 16 -
<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. Annual growth in total operation and maintenance
expense, excluding one-time items and cogeneration capacity purchases, has
averaged less than 1.5%. The Company hopes to continue to restrict this average
to less than the rate of inflation in future years (see "Looking Forward").
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.
A major factor affecting the Company's earnings prospects beyond 1996 will
be the success of the Company's efforts to implement the regulatory framework
ordered by the DPUC at the end of 1996. On December 31, 1996, the DPUC completed
a financial and operational review of the Company and ordered a five-year
incentive regulation plan for the years 1997-2001. The DPUC did not change the
retail base rates charged to customers. Its order increased amortization of the
Company's conservation and load management program investments during 1997-1998,
accelerated the recovery of unspecified regulatory assets during 1999-2001,
reduced the level of conservation adjustment mechanism revenues in retail rates,
provided a reduction in customer bills through a surcredit in each of the five
plan years, and accepted the Company's proposal to modify the operation of the
fossil fuel clause mechanism. The Company's authorized return on common equity
was reduced from 12.4% to 11.5%. Earnings above 11.5%, on an annual basis, are
to be utilized one-third for customer bill reductions, one-third to increase
amortization of regulatory assets, and one-third retained as earnings. The DPUC
did not order the accelerated depreciation of the Company's Seabrook Unit 1
plant investment costs and the establishment of a performance-based regulation
mechanism measured by customer satisfaction surveys and reliability of service
indices, which the Company had proposed. As a result of the DPUC's order,
customer bills are expected to be reduced on average by 3% in 1997-1999, 4% in
the year 2000, and 5% in the year 2001 (all compared to 1996). Also, earnings
from utility operations will be reduced from the levels requested by the
Company, such that it is unlikely that the Company will be able to achieve its
4% growth goal going forward.
The FERC has stated that state regulatory commissions should address the
issue of recovery by electric utilities of the costs of existing facilities that
would be stranded by retail access. The legislatures and regulatory commissions
in several states have considered or are considering "retail access". This, in
general terms, means the transmission by an electric utility of energy produced
by another entity over the utility's transmission and distribution system to a
retail customer in the utility's own service territory. A retail access
requirement would have the effect of permitting retail customers to purchase
electric capacity and energy, at the election of such customers, from the
electric utility in whose service area they are located or from any other
electric utility or independent power producer. In 1995, the Connecticut
Legislature established a task force to review these issues and to make
recommendations on electric industry restructuring within Connecticut. The task
force concluded its work in December 1996, and issued a report and related
recommendations. Several electric industry restructuring bills have been
introduced in the Connecticut Legislature. The primary bill would introduce
retail access to 20% of the Company's customers on July 1, 1999, and open the
entire market to competitive energy supply on July 1, 2000. Existing electric
utility base rates would be capped through July 1, 1999, at which time a 10%
price reduction would be instituted for any customer receiving full requirements
service. Costs not otherwise recoverable in the market, including generating
unit net investments, would be recovered through a competitive transition charge
over time. A major portion of such costs could be financed, or securitized,
through bonding issued by a new State authority created by the legislation.
Savings generated by securitization and reduced taxes would be passed through to
consumers in the form of rate reductions. The Company currently expects that
this legislation, in its current or a modified form, will be enacted by the
Connecticut legislature and become law in
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<PAGE>
the Summer of 1997. Among many other factors, decisions and actions concerning
retail access in other states could impact the timing and form of this
transition.
Although the Company is unable to predict the future effects of competitive
forces in the electric utility industry, competition could result in a change in
the regulatory structure of the industry, and costs that have traditionally been
recoverable through the ratemaking process may not be recoverable in the future.
This effect could have a material impact on the financial condition and/or
results of operations of the Company.
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, "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 or a change in the cost-based
regulatory structure could cause the operations of the Company, or a portion of
its assets or operations, 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, or a portion of its assets or
operations, were to cease meeting these criteria, accounting standards for
businesses in general would become applicable and immediate recognition of any
previously deferred costs, or a portion of 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.
- 18 -
<PAGE>
CAPITAL EXPENDITURE PROGRAM
The Company's 1997-2001 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>
1997 1998 1999 2000 2001 TOTAL
---- ---- ---- ---- ---- -----
(000's)
<S> <C> <C> <C> <C> <C> <C>
Production $18,137 $20,026 $28,363 $12,241 $19,062 $97,829
Distribution 13,207 11,961 11,992 12,870 13,113 63,143
Transmission 4,430 2,520 4,491 4,736 2,515 18,692
Other 6,813 5,387 1,245 1,296 1,239 15,980
---------- ---------- ---------- ---------- ----------- ----------
SUBTOTAL 42,587 39,894 46,091 31,143 35,929 195,644
Nuclear Fuel 7,891 11,282 1,200 12,323 529 33,225
---------- ---------- ---------- ---------- ----------- ----------
TOTAL EXPENDITURES $50,478 $51,176 $47,291 $43,466 $36,458 $228,869
=========== ========== ========== ========== =========== ==========
AFUDC (Pre-tax) 2,314 2,096 2,431 1,886 1,230
Depreciation
Book Plant 55,486 57,737 59,295 52,297 52,996
Conservation 10,223 10,223 8,906 6,312 4,332
Decommissioning 2,238 2,328 2,435 2,547 2,660
Additional Required
Amortization (net of tax) (1) 4,100 8,500 11,600 29,700 32,800
Amortization of Deferred
Return on Seabrook Unit 1
Phase-In (after tax) 12,586 12,586 12,586 0 0
Estimated Rate Base
(end of period) 1,173,607 1,124,299 1,057,428 1,014,621 940,764
</TABLE>
(1) Additional amortization of pre-1997 conservation costs and other
unspecified regulatory assets, as ordered by the DPUC in its December 31,
1996 Order, provided that common equity return on utility investment
exceeds 10.5% after recording the additional amortization.
- 19 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had $29.7 million of cash and temporary cash
investments, an increase of $23.3 million from the balance at December 31, 1996.
The components of this increase, which are detailed in the Consolidated
Statement of Cash Flows, are summarized as follows:
(Millions)
--------
Balance, December 31, 1996 $ 6.4
-----
Net cash provided by operating activities 37.0
Net cash provided by (used in) financing activities:
- Financing activities, excluding dividend payments 10.9
- Dividend payments (10.2)
Cash invested in plant, including nuclear fuel (14.4)
-----
Net increase 23.3
-----
Balance, March 31, 1997 $29.7
=====
The Company's capital requirements are presently projected as follows:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C> <C>
Cash on Hand - Beginning of Year $ 6.4 $ 18.5 $ - $ - $ -
Internally Generated Funds less Dividends 95.0 115.8 116.9 110.6 107.5
----- ----- ----- ----- -----
Subtotal 101.4 134.3 116.9 110.6 107.5
Less:
Capital Expenditures 50.5 51.2 47.3 43.5 36.5
----- ----- ----- ----- -----
Cash Available to pay Debt Maturities and Redemptions 50.9 83.1 69.6 67.1 71.0
Less:
Maturities and Mandatory Redemptions 10.8 104.6 105.0 155.5 81.0
Optional Redemptions 21.6 - - - -
----- ----- ----- ----- -----
External Financing Requirements $(18.5) $ 21.5 $ 35.4 $ 88.4 $10.0
===== ===== ===== ===== =====
</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
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<PAGE>
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 10, 1997. 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, 1997, the Company had $45 million of short-term borrowings outstanding under
this facility.
SUBSIDIARY OPERATIONS
UI has one wholly-owned subsidiary, United Resources, Inc. (URI), that
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.
URI has three wholly-owned subsidiaries. The largest URI subsidiary named
American Payment Systems, Inc. manages a national network of agents for the
processing of bill payments made by customers of other utilities. Another
wholly-owned subsidiary of URI, Thermal Energies, Inc., 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 62%
partner in the energy center for a city hall and office tower complex. A URI
subsidiary named Precision Power, Inc. provides power-related equipment and
services to the owners of commercial buildings and industrial facilities.
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 into its
unregulated subsidiary ventures, and, at March 31, 1997, $27 million had been so
invested.
RESULTS OF OPERATIONS
FIRST QUARTER OF 1997 VS. FIRST QUARTER OF 1996
- -----------------------------------------------
Earnings for the first quarter of 1997 were $7.7 million, or $.54 per
share, down $3.9 million, or $.28 per share, from the first quarter of 1996.
Earnings from operations, which exclude one-time items, decreased by $8.1
million, or $.58 per share, in the first quarter of 1997 compared to the first
quarter of 1996. The one-time item recorded in the first quarter of 1996 was a
charge of $4.2 million (after-tax), or $.30 per share, reflecting the estimated
costs of a Bargaining Unit Voluntary Early Retirement Program.
Retail operating revenues decreased by about $8.1 million in the first
quarter of 1997 compared to the first quarter of 1996:
. A retail kilowatt-hour sales decrease of 3.4% from the prior year reduced
retail revenues by $5.1 million and sales margin (revenue less fuel expense
and revenue-based taxes) by $3.8 million. The kilowatt-hour sales decrease
was due to; a warm 1997 first quarter, including the warmest February in
over 40 years, compared to a cold 1996 first quarter, the leap year day in
1996 and an additional holiday in 1997. There was no discernible "real"
(i.e. not attributable to abnormal weather, leap year or holidays)
kilowatt-hour sales change in the first quarter of 1997 compared to the
first quarter of 1996.
- 21 -
<PAGE>
. Reductions in customer bills, as agreed to by the Company and the
Department of Public Utility Control (DPUC) in December 1996, decreased
retail revenues by about $3.0 million. This was consistent with the
Company's expectations.
Wholesale "capacity" revenues increased $0.5 million in the first quarter
of 1997 compared to the first quarter of 1996. 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, increased during
the first quarter of 1997 compared to the first quarter of 1996.
Retail fuel and energy expenses increased by $6.0 million in the first
quarter of 1997 compared to the first quarter of 1996. Retail fuel and energy
expenses increased by $3.5 million from the impact of higher fossil prices that,
under current DPUC regulations, are not passed on to customers through any fuel
recovery mechanism. These expenses increased $3.9 million due to the need to
purchase more expensive energy to replace generation by the Connecticut Yankee
and Millstone Unit 3 nuclear generating units. Both the Connecticut Yankee and
Millstone 3 Units ran at near full capacity in the first quarter of 1996.
Millstone Unit 3 was taken out of service on March 30, 1996 and Connecticut
Yankee was taken out of service on July 23, 1996. For more on the status of the
Connecticut Yankee and Millstone Unit 3 units, see the LOOKING FORWARD section.
These expense increases in the first quarter of 1997 compared to the first
quarter of 1996 were partly offset by expense decreases from the lower sales
volume and other factors.
Operating expenses for operations, maintenance and purchased capacity
charges increased by $1.5 million in the first quarter of 1997 compared to the
first quarter of 1996:
. Purchased capacity expense increased $0.3 million due to increased expense
at the Connecticut Yankee nuclear unit. For more on the status of the
Connecticut Yankee unit, see the LOOKING FORWARD section.
. Operation and maintenance expense increased by $1.2 million. General
increases at the Seabrook and Millstone nuclear generating units, at the
Company's fossil generating units, and in uncollectible expenses were
partly offset by about $1.0 million in savings from a reduction in the
number of Company employees.
Depreciation expense increased by $0.8 million in the first quarter of 1997
compared to the first quarter of 1996.
Other net income increased slightly in the first quarter of 1997 compared
to the first quarter of 1996 due to higher interest income and a small
improvement in earnings (reduction in losses) from unregulated subsidiaries. The
Company's largest unregulated subsidiary, American Payment Systems, lost about
$241,000 (after-tax) in the first quarter of 1997, but showed improvement in
each consecutive month.
Interest charges continued their downward trend, decreasing by $1.6 million
in the first quarter of 1997 compared to the first quarter of 1996 as a result
of the Company's refinancing program and strong cash flow. Also, total preferred
dividends (net-of-tax) decreased slightly in the first quarter of 1997 compared
to the first quarter of 1996 as a result of purchases of preferred stock by the
Company in 1996.
LOOKING FORWARD
(THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS, WHICH ARE SUBJECT
TO UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
PROJECTED. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE OF THIS REPORT.)
On December 31, 1996, the DPUC issued an order (the Order) that instructed
the Company to reduce rates and accelerate the recovery of certain costs
associated with conservation programs, such that the Company could earn an
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<PAGE>
allowed return on common stock equity from its utility investment of 11.5% over
the period 1997 to 2001, a reduction of nearly 1% (an amount equivalent to about
$.30 per share) from the previously allowed (and requested by the Company)
return of 12.4%. Income earned from higher sales or reduced expenses that
produce a return above the 11.5% return level will be shared by one-third being
applied to customer bill reductions, one-third applied to more rapid
amortization of assets, and one-third retained by shareowners, also by virtue of
the Order. If the Company were to achieve an 11.5% return on common stock equity
from its utility investment, then earnings from utility operations would be in
the $3.30-$3.40 range for 1997 and succeeding years as well.
There is no assurance that the Company will achieve the 11.5% return on
common stock equity from its utility investment allowed by the DPUC in the
Order. Utility income is greatly affected by weather-related sales, fossil fuel
prices and nuclear generating unit availability...all items over which the
Company has little control.
As a result of the Order, it is anticipated that retail revenues for 1997
will decrease from 1996 levels. A reduction of about $15 million will be due to
reductions in customer bills as agreed to by the Company and the DPUC in
December 1996. (These reductions will be partially offset by about $3 million in
conservation spending reductions. Such new conservation spending is no longer
being capitalized, and changes in conservation expense, relative to the
assumptions used by the DPUC in the Order, will be reflected in retail rates
through the operation of the Conservation Adjustment Mechanism.)
As part of the Order, the operation of the Company's longstanding fuel
adjustment clause (FCA) that allowed for recovery in retail rates of increases
in fossil fuel costs was suspended within a broad range of fuel prices. Revenues
will likely decline further by about $6 million in 1997 compared to 1996 due to
this suspension of the FCA. While the Company will stand to benefit if the price
the Company pays for its oil falls below about $15 a barrel, current prices are
above that level. While the Company cannot predict the direction that fuel
prices will take in 1997 and whether it can mitigate entirely this loss of FCA
revenue, it is actively engaged in hedging activities to limit the Company's
exposure to increases in fossil fuel prices.
It should be noted that, although the Order was for the five-year period
1997-2001, the Company made no commitment to agree to this multi-year plan. In
addition, the DPUC, in the Order, acknowledged that the Order could be revisited
in the light of any new legislation.. The Connecticut legislature is expected to
pass an electric utility restructuring bill, in some form, in its current
session. See Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Major Influences on Financial Condition.
The Company's revenues are also dependent on the level of retail sales. The
two primary factors that affect retail sales volume are economic conditions and
weather. Overall, 1996 weather was milder than normal; however, 1996 also had a
leap year day. These two factors were offsetting in their amounts and,
therefore, the actual retail sales for 1996 of 5,340 gigawatt-hours should be
considered about "normal". This is about the same level of 1997 sales assumed by
the DPUC in its Order; so, to the extent the Company can improve upon this sales
level, sales margin (revenue less fuel expense and revenue-based taxes) relative
to the Order would improve and would mitigate any loss of FCA revenue. The
Company experienced about 1% of "real" sales growth in 1996 (i.e. exclusive of
weather and leap year factors) over weather-normalized 1995 sales. A similar
level of growth in 1997 from all customer groups would add about $6 million to
sales margin. Little real growth in kilowatt-hour sales was detected in the
first quarter of 1997 compared to the first quarter of 1996, although wide
swings in weather correction factors make this evaluation difficult. No
significant change in wholesale capacity sales revenue is anticipated for 1997.
The Company has dealt with the potential loss of customers as a result of
self-generation, relocation or discontinuation of operations, by successfully
negotiating 54 multi-year contracts with major customers, including its largest
customer, Yale University, which is constructing a cogeneration unit that will
produce approximately one-half of this customer's electricity requirements
commencing sometime in early 1998. Additional multi-year customer contracts may
be signed in the future. While providing cost reduction and price stability for
customers and helping the Company maintain its customer base for the long term,
new contracts affecting 1997 are expected to lead to reductions in retail
revenue of about $2-$3 million per year.
- 23 -
<PAGE>
The Company expects that generating output from its ownership shares in
nuclear generating units to be significantly less in 1997 than in 1996. Seabrook
Unit 1 operated at nearly a 97% capacity factor in 1996, well above the assumed
"normal" 90% level between refueling outages; and a refueling outage is expected
in the second quarter of 1997. A more normal level of Seabrook Unit 1 operation
in 1997 and the downtime for refueling will cause the Company to purchase or
generate energy using higher cost fuels, leading to about a $3 million increase
in fuel expense. Millstone Unit 3 was taken out of service on March 30, 1996,
and will remain shut down pending a comprehensive Nuclear Regulatory Commission
(NRC) review of operations. The Connecticut Yankee Unit was taken out of service
on July 23, 1996 and, by decision of the Board of Directors of that company, has
been retired. Relative to 1996, the loss of low cost energy from these two units
for all of 1997 should add about $6 million to fuel expense. If Millstone Unit 3
returns to service during the year, fuel expense would decline by about $500,000
for every month of normal operation. The increased fuel expense from the
retirement of the Connecticut Yankee Unit is expected to be offset by a ramping
down of its other expenses, which are expected to decrease by about $3.0 million
for the entire year 1997 compared to 1996. However, the ability of the Company
to recover the future costs associated with the retirement of the Connecticut
Yankee Unit will be dependent upon the outcome of pending regulatory filings
with the Federal Energy Regulatory Commission.
Another major factor affecting the Company's financial condition will be
the Company's ability to control operating expenses. The Company implemented
voluntary early retirement programs for union and management employees in 1996,
as well as a voluntary severance program. The cost of these programs resulted in
a 1996 pre-tax charge of $23 million and should lead to a 1997 employee
reduction of 230 employees from a level of approximately 1,300 employees at 1996
year-end. A portion of the resulting personnel cost savings occurred in 1996,
but the majority of the savings will be realized as the Company's process
re-engineering efforts are completed over the next several years. Incremental
savings in personnel costs of $4 million in 1997 and another $6 million in 1998
are expected. Other re-engineering savings are anticipated over this time frame
as well. The Company expects an operation and maintenance expense increase of
about $3 million for nuclear plant outages in 1997 above the levels incurred or
accrued in 1996, due primarily to the planned Seabrook Unit 1 refueling outage
in the second quarter of 1997.
Anticipated depreciation expense should increase by $2 million in 1997 from
1996 levels, a slower rate of increase than in prior years because 1996 capital
spending of $45 million (excluding nuclear fuel) was at its lowest level in over
15 years, and also because new conservation spending is no longer to be
capitalized and depreciated.
The Company expects continued reductions in interest expense of about $9
million to a 1997 level of $61 million. This reduction is due to a refinancing
of some of the Company's debt in late 1996 described in the following paragraph,
as well as a significant paydown of debt in 1997 made possible by the Company's
excellent cash flow position. In fact, although the Company had no net change in
retained earnings in 1996, it was able to improve its equity ratio from 31.7% to
33.2% as a result of debt paydown. The anticipated 1997 interest expense level
is 46% below the 1989 level and would mark the eighth consecutive year of net
interest expense decline.
In the fall of 1996, the Company was successful in purchasing $67 million
of the approximately $200 million principal amount of outstanding Seabrook Lease
Obligation Bonds, to hold in its own account, using proceeds from a lower cost
bank term loan. The interest income that the Company receives from its $67
million investment in these bonds appears on the income statement as a credit to
interest expense and partially offsets the interest expense incurred on the
Seabrook Lease Obligation Bonds.
The Company expects an improvement in unregulated subsidiary earnings in
1997 compared to the results of 1996, due mostly to a non-recurrence of one-time
pre-tax charges incurred in 1996 totaling $4.3 million and, also, the
anticipated achievement of a near "break-even" level in earnings from subsidiary
operations, which would result in an increase in the Company's pre-tax income of
$3-$4 million. In the near term, the Company's investments in these subsidiaries
are unlikely to have a major positive effect on earnings, but the Company
continues to believe that these investments will contribute to future earnings
growth.
- 24 -
<PAGE>
The Company expects that the 1997 quarterly earnings from operations will
follow a pattern similar to that of 1996, with third quarter earnings
contributing over half the annual total. Summer seasonal retail sales and summer
pricing are the predominant factors contributing to this earnings pattern. The
second and fourth quarters earnings should be similar to each other in amount.
On February 5, 1997, the Board of Directors of the Company, at a special
meeting, voted an early declaration of the quarterly dividend on shares of
Common Stock at 72 cents per share. The indicated annual dividend is $2.88 per
share, the same as the annual rate in 1996.
Although the dividend level for 1996 represented a payout of 100% of total
earnings, the dividend level represented a payout of only 73% of 1996 earnings
from operations (i.e., total earnings less net one-time charges of $1.06 per
share, principally for non-cash restructuring charges). The Company's cash flow
remained, and is expected to remain, very strong. Net cash provided by operating
activities was $144.8 million in 1996, nearly 3.6 times the Common Stock
dividend payout, one of the highest such "coverage" levels in the utility
industry. The December 31, 1996 DPUC Order will limit earnings from utility
operations such that further dividend increases may have to be delayed for
several years. However, the Order should allow the Company to recover some of
its regulatory assets more rapidly, help it prepare for competition in the
electric industry, and help maintain its cash flow at its excellent current
level through the end of the decade.
All of these factors lead the Company to believe that its Common Stock
dividends will continue to be paid at the indicated annual rate of $2.88.
However, the ability to maintain this dividend level, or to declare future
increases for the dividend, will depend upon the level of the Company's future
earnings and cash flow, which are dependent upon other factors and events
affecting the Company's financial condition and outlook that cannot be known at
this time.
One such event concerns legal proceedings involving a property tax dispute
with the City of New Haven (the City). A recent Connecticut Supreme Court ruling
has affirmed the City's statutory authority to revalue the Company's equipment
for personal property tax purposes for each of the tax years from 1991-1992 to
the present. However, the valuation method employed by the City in its
revaluations, both as to amount and methodology, has not been litigated and will
continue to be contested vigorously by the Company in trial court proceedings.
It remains 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.
- 25 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On November 2, 1993, the Company received "updated" personal property tax
bills from the City of New Haven (the City) for the tax year 1991-1992,
aggregating $6.6 million, based on an audit by the City's tax assessor. On May
7, 1994, the Company received a "Certificate of Correction....to correct a
clerical omission or mistake" from the City's tax assessor relative to the
assessed value of the Company's personal property for the tax year 1994-1995,
which certificate purports to increase said assessed value by approximately 53%
above the tax assessor's valuation at February 28, 1994, 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. In January 1996, the Connecticut Superior
Court granted the Company's motion for summary judgment against the City
relative to the earliest tax year at issue, 1991-1992, ruling that, after
January 31, 1992, the tax assessor had no statutory authority to revalue
personal property listed and valued on the Company's tax list for the tax year
1991-1992. This Superior Court decision, which would also have been applicable
to and defeated the assessor's valuation increases for the two subsequent tax
years, 1992-1993 and 1993-1994, was appealed by the City. On April 11, 1997, the
Connecticut Supreme Court reversed the Superior Court's decisions in this and
two other companion cases involving other taxpayers, ruling that the tax
assessor had a three-year period in which to audit and revalue personal property
listed and valued on the Company's tax list for the tax year 1991-1992. It is
currently anticipated that all of the pending cases for all of the tax years in
dispute will now be scheduled for trial in the Superior Court relative to the
Company's claim that the tax assessor's increases in personal property tax
assessments for the three earliest years were unlawful for other reasons and
relative to the vigorously contested issue, for all of the tax years, as to the
reasonableness of the tax assessor's valuation method, both as to amount and
methodology. 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.
- 26 -
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Table Item Exhibit
Number Number Description
---------- ------- -----------
<C> <C> <C>
(3) 3.1d Copy of Certificate Amending Certificate of Incorporation By
Action of Board of Directors, dated December 11, 1996, amending
Exhibit 3.1a.*
(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, 1997 and Twelve Months Ended December 31, 1996, 1995, 1994,
1993 and 1992).
(27) 27 Financial Data Schedule
</TABLE>
-------------------
*Filed with Annual Report (Form 10-K) for fiscal year ended December 31,
1995.
(b) Reports on Form 8-K.
None
- 27 -
<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 5/13/97 Signature /s/ Robert L. Fiscus
--------------- -------------------------------------
Robert L. Fiscus
President and
Chief Financial Officer
- 28 -
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Table Item Exhibit
Number Number Description Page No.
---------- ------- ----------- -------
<C> <C> <C>
(3) 3.1d Copy of Certificate Amending Certificate of Incorporation By Action of
Board of Directors, dated December 11, 1996, amending Exhibit 3.1a.*
(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, 1997 and Twelve
Months Ended December 31, 1996, 1995, 1994, 1993 and 1992).
(27) 27 Financial Data Schedule
</TABLE>
-------------------
*Filed with Annual Report (Form 10-K for fiscal year ended December 31,
1995.
EXHIBIT 3.1d
THE UNITED ILLUMINATING COMPANY
(A SPECIALLY CHARTERED STOCK CORPORATION)
CERTIFICATE AMENDING CERTIFICATE OF INCORPORATION
BY ACTION OF BOARD OF DIRECTORS
1. The name of the corporation is THE UNITED ILLUMINATING COMPANY (the
"Company").
2. The Certificate of Incorporation of the Company is amended only by the
following resolution of the Board of Directors, acting alone:
RESOLVED: That, 332 shares of the Company's class of preferred stock of
the par value of $100 per share having been purchased by the Company
and canceled, pursuant to Section 33-351(a) of the General Statutes of
Connecticut, Revision of 1958, as amended, the authorized amount of
said class of preferred stock shall be and it hereby is reduced by
$33,200, to $111,961,200, consisting of a class of 1,119,612 shares of
the par value of $100 per share, and that, pursuant to Section
33-352(a) of the General Statutes of Connecticut, Revision of 1958, as
amended, the first paragraph of ARTICLE I. AUTHORIZED AMOUNT OF
PREFERRED STOCK. of subsection 3(b) of the Certificate of Incorporation
be and it hereby is amended to read as follows:
The authorized amount of preferred stock subject to these
Articles (herein called the Preferred Stock), unless increased
in accordance with the provisions hereof, shall be
$171,961,200, consisting of a class of 1,119,612 shares of the
par value of $100 per share and a class of 2,400,000 shares of
the par value $25 per share. Shares of either class may,
subject to the provisions of these Articles, be issued from
time to time in one or more series in such amounts, on such
terms and for such consideration as may be determined and
authorized by the Board of Directors. The series designation,
dividend rate, redemption prices, and other special rights, if
any, of each series of the Preferred Stock shall be determined
and authorized by the Board of Directors.
3. The above resolution was adopted by the Company's Board of Directors,
acting alone, pursuant to Sections 33-341(d) and 33-352(a) of the General
Statutes of Connecticut (Revision of 1958).
The number of affirmative Directors' votes required to adopt the above
resolutions was six.
The number of Directors' votes in favor of adoption of each of the
above resolutions was eleven.
<PAGE>
WE, THE UNDERSIGNED, being the President and Chief Financial Officer
and the Treasurer and Secretary of The United Illuminating Company, hereby
declare, under penalties of false statement, that the statements made in the
foregoing certificate are true.
Dated at New Haven, Connecticut, this 11th day of December 1996.
THE UNITED ILLUMINATING COMPANY
/s/ Robert L. Fiscus
-------------------------------------
Robert L. Fiscus
President and Chief Financial Officer
/s/ Kurt Mohlman
-------------------------------------
Kurt Mohlman
Treasurer and Secretary
- 2 -
<TABLE>
EXHIBIT 12
PAGE 1 OF 2
THE UNITED ILLUMINATING COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<CAPTION>
TWELVE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MAR. 31,
------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Net income $56,768 $40,481 $46,795 $50,393 $39,096 $35,085
Federal income taxes 19,276 22,342 34,551 41,951 35,252 33,982
State income taxes 16,878 4,645 6,216 12,976 8,506 8,331
Fixed charges 109,449 97,928 88,093 83,994 80,097 80,188
----------- ----------- ----------- ----------- ----------- ------------
Earnings available for fixed charges $202,371 $165,396 $175,655 $189,314 $162,951 $157,586
=========== =========== =========== =========== =========== ============
FIXED CHARGES
Interest on long-term debt $88,666 $80,030 $73,772 $63,431 $66,305 $66,187
Other interest 12,882 12,260 10,301 16,723 9,534 9,714
Interest on nuclear fuel burned 2,963 928 - - - -
One third of rental charges 4,938 4,710 4,020 3,840 4,258 4,287
----------- ----------- ----------- ----------- ----------- ------------
$109,449 $97,928 $88,093 $83,994 $80,097 $80,188
=========== =========== =========== =========== =========== ============
RATIO OF EARNINGS TO FIXED
CHARGES 1.85 1.69 1.99 2.25 2.03 1.97
=========== =========== =========== =========== =========== ============
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 12
PAGE 2 OF 2
THE UNITED ILLUMINATING COMPANY
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN THOUSANDS)
<CAPTION>
TWELVE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MAR. 31,
---------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Net income $56,768 $40,481 $46,795 $50,393 $39,096 $35,085
Federal income taxes 19,276 22,342 34,551 41,951 35,252 33,982
State income taxes 16,878 4,645 6,216 12,976 8,506 8,331
Fixed charges 109,449 97,928 88,093 83,994 80,097 80,188
----------- ----------- ---------- ----------- ----------- -----------
Earnings available for combined fixed
charges and preferred stock
dividend requirements $202,371 $165,396 $175,655 $189,314 $162,951 $157,586
=========== =========== ========== =========== =========== ===========
FIXED CHARGES AND PREFERRED
STOCK DIVIDEND REQUIREMENTS
Interest on long-term debt $ 88,666 $ 80,030 $ 73,772 $ 63,431 $ 66,305 $66,187
Other interest 12,882 12,260 10,301 16,723 9,534 9,714
Interest on nuclear fuel burned 2,963 928 - - - -
One third of rental charges 4,938 4,710 4,020 3,840 4,258 4,287
Preferred stock dividend requirements (1) 7,100 7,197 6,223 2,778 699 552
----------- ----------- ---------- ----------- ----------- -----------
$116,549 $105,125 $94,316 $86,772 $80,796 $80,740
=========== =========== ========== =========== =========== ===========
RATIO OF EARNINGS TO FIXED
CHARGES AND PREFERRED
STOCK DIVIDEND REQUIREMENTS 1.74 1.57 1.86 2.18 2.02 1.95
=========== =========== ========== =========== =========== ===========
</TABLE>
(1) Preferred Stock Dividends increased to reflect the pre-tax earnings required
to cover such dividend requirements.
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,318,616
<OTHER-PROPERTY-AND-INVEST> 27,353
<TOTAL-CURRENT-ASSETS> 172,675
<TOTAL-DEFERRED-CHARGES> 437,228
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,955,872
<COMMON> 284,579
<CAPITAL-SURPLUS-PAID-IN> (1,410)
<RETAINED-EARNINGS> 154,372
<TOTAL-COMMON-STOCKHOLDERS-EQ> 437,541
0
4,421
<LONG-TERM-DEBT-NET> 659,703
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 54,589
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 137,500
0
<CAPITAL-LEASE-OBLIGATIONS> 17,111
<LEASES-CURRENT> 321
<OTHER-ITEMS-CAPITAL-AND-LIAB> 644,686
<TOT-CAPITALIZATION-AND-LIAB> 1,955,872
<GROSS-OPERATING-REVENUE> 180,325
<INCOME-TAX-EXPENSE> 11,315
<OTHER-OPERATING-EXPENSES> 146,860
<TOTAL-OPERATING-EXPENSES> 158,175
<OPERATING-INCOME-LOSS> 22,150
<OTHER-INCOME-NET> 2,402
<INCOME-BEFORE-INTEREST-EXPEN> 24,552
<TOTAL-INTEREST-EXPENSE> 15,639
<NET-INCOME> 7,710
51
<EARNINGS-AVAILABLE-FOR-COMM> 7,678
<COMMON-STOCK-DIVIDENDS> 10,153
<TOTAL-INTEREST-ON-BONDS> 56,649
<CASH-FLOW-OPERATIONS> 37,009
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
</TABLE>
