SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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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
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
REGISTRANT TITLE OF EACH CLASS WHICH REGISTERED
---------- ------------------- ------------------------
<S> <C> <C>
The United Illuminating Company Common Stock, no par value New York Stock Exchange
United Capital Funding Partnership L.P.(1) 9 5/8% Preferred Capital New York Stock Exchange
Securities, Series A (Liquidation
Preference $25 per Security)
</TABLE>
(1) The 9 5/8% Preferred Capital Securities, Series A, were issued on April 3,
1995 by United Capital Funding Partnership L.P., a special purpose limited
partnership in which The United Illuminating Company owns all of the
general partner interests, and are guaranteed by The United Illuminating
Company.
SECURITIES REGISTERED PURSUANT TO
SECTION 12(G) OF THE ACT: COMMON STOCK, NO PAR VALUE,
OF THE UNITED ILLUMINATING COMPANY
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates on January 31, 1998 was $617,981,481, computed on the basis of
the average of the high and low sale prices of said stock reported in the
listing of composite transactions for New York Stock Exchange listed securities,
published in The Wall Street Journal on February 2, 1998.
The number of shares outstanding of the registrant's only class of common stock,
as of January 31, 1998, was 14,278,256.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Document Part of this Form 10-K into which document is incorporated
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<S> <C>
Definitive Proxy Statement, dated March 27, 1998,
for Annual Meeting of the Shareholders to be held on May 20, 1998. III
</TABLE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
FORM 10-K
DECEMBER 31, 1997
TABLE OF CONTENTS
PAGE
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GLOSSARY 4
PART I
Item 1. Business. 6
- General 6
- Franchises, Regulation and Competition 6
- Franchises 6
- Regulation 6
- Competition 7
- Rates 8
- Financing 9
- Fuel Supply 11
- Fossil Fuel 11
- Nuclear Fuel 12
- Arrangements with Other Utilities 12
- New England Power Pool 12
- New England Transmission Grid 13
- Hydro-Quebec 13
- Environmental Regulation 13
- Employees 16
- Year 2000 Issue 17
Item 2. Properties. 18
- Generating Facilities 18
- Tabulation of Peak Loads, Resources, and Margins 19
- Transmission and Distribution Plant 20
- Capital Expenditure Program 21
- Nuclear Generation 22
- General Considerations 23
- Insurance Requirements 24
- Waste Disposal and Decommissioning 24
Item 3. Legal Proceedings. 26
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<PAGE>
TABLE OF CONTENTS (CONTINUED)
PAGE
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Item 4. Submission of Matters to a Vote of Security Holders. 27
Executive Officers of the Company 28
PART II
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters. 29
Item 6. Selected Financial Data. 30
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 34
- Major Influences on Financial Condition 34
- Liquidity and Capital Resources 35
- Subsidiary Operations 37
- Results of Operations 38
- Looking Forward 41
Item 8. Financial Statements and Supplementary Data. 45
- Consolidated Financial Statements for the Years 1997,
1996 and 1995 45
- Statement of Income 45
- Statement of Cash Flows 46
- Balance Sheet 47
- Retained Earnings 49
- Notes to Consolidated Financial Statements 50
- Statement of Accounting Policies 50
- Capitalization 56
- Rate-Related Regulatory Proceedings 61
- Accounting for Phase-in Plan 62
- Short-Term Credit Arrangements 62
- Income Taxes 64
- Supplementary Information 66
- Pension and Other Benefits 67
- Jointly Owned Plant 70
- Unamortized Cancelled Nuclear Project 70
- Fuel Financing Obligations and Other Lease Obligations 71
- Commitments and Contingencies 72
- Capital Expenditure Program 72
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<PAGE>
TABLE OF CONTENTS (CONTINUED)
PAGE
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PART II (CONTINUED)
- Nuclear Insurance Contingencies 72
- Other Commitments and Contingencies 72
- Connecticut Yankee 72
- Hydro-Quebec 73
- Property Taxes 73
- Environmental Concerns 74
- Site Decontamination, Demolition and Remediation Costs 74
- Nuclear Fuel Disposal and Nuclear Plant Decommissioning 74
- Fair Value of Financial Instruments 77
- Quarterly Financial Data (Unaudited) 78
Reports of Independent Accountants 79
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures. 82
PART III
Item 10. Directors and Executive Officers of the Company 82
Item 11. Executive Compensation. 82
Item 12. Security Ownership of Certain Beneficial Owners
and Management. 82
Item 13. Certain Relationships and Related Transactions. 82
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K. 83
Consents of Independent Accountants 90
Signatures 92
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<PAGE>
GLOSSARY
Certain capitalized terms used in this Annual Report have the following
meanings, and such meanings shall apply to terms both singular and plural unless
the context clearly requires otherwise:
"AFUDC" means allowance for funds used during construction.
"APS" means American Payment Systems, Inc., a wholly-owned subsidiary of
URI.
"the Company" or "UI" means The United Illuminating Company.
"CSC" means the Connecticut Siting Council.
"Connecticut Yankee" means the Connecticut Yankee Atomic Power Company.
"Connecticut Yankee Unit" means the nuclear electric generating unit owned
by Connecticut Yankee and located in Haddam Neck, Connecticut.
"DEP" means the Connecticut Department of Environmental Protection.
"DOE" means the United States Department of Energy.
"DPUC" means the Connecticut Department of Public Utility Control.
"EPA" means the United States Environmental Protection Agency.
"FERC" means the United States Federal Energy Regulatory Commission.
"LLW" means low-level radioactive wastes.
"Millstone Unit 3" means the nuclear electric generating unit located in
Waterford, Connecticut, which is jointly owned by UI and twelve other New
England electric utility entities.
"NDFC" means the Nuclear Decommissioning Finance Committee.
"NEPOOL" means the New England Power Pool.
"NOx " means nitrogen oxides.
"NRC" means the United States Nuclear Regulatory Commission.
"NU" means Northeast Utilities.
"PCBs" means polychlorinated biphenyls.
"Preferred Stock" means capital stock of the Company having preferential
dividend and liquidation rights over shares of the Company's other classes
of capital stock.
"RCRA" means the federal Resource Conservation and Recovery Act.
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<PAGE>
GLOSSARY (CONTINUED)
"Seabrook Unit 1" means nuclear generating unit No. 1 located in Seabrook,
New Hampshire, which is jointly owned by UI and ten other New England
electric utility entities.
"SO2" means sulfur dioxide.
"TSCA" means the federal Toxic Substances Control Act.
"UI" or "the Company" means The United Illuminating Company.
"URI" means United Resources, Inc., a wholly-owned subsidiary of UI.
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<PAGE>
PART I
Item 1. Business.
GENERAL
The United Illuminating Company (UI or the Company) is an operating
electric public utility company, incorporated under the laws of the State of
Connecticut in 1899. It is engaged principally in the production, purchase,
transmission, distribution and sale of electricity for residential, commercial
and industrial purposes in a service area of about 335 square miles in the
southwestern part of the State of Connecticut. The population of this area is
approximately 704,000 or 21% of the population of the State. The service area,
largely urban and suburban in character, includes the principal cities of
Bridgeport (population 137,000) and New Haven (population 124,000) and their
surrounding areas. Situated in the service area are retail trade and service
centers, as well as large and small industries producing a wide variety of
products, including helicopters and other transportation equipment, electrical
equipment, chemicals and pharmaceuticals. Of the Company's 1997 retail electric
revenues, approximately 42% was derived from residential sales, 40% from
commercial sales, 16% from industrial sales and 2% from other sales.
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 four wholly-owned subsidiaries. The largest URI subsidiary,
American Payment Systems, Inc., manages a national network of agents for the
processing of bill payments made by customers of other utilities. Another
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 52%
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. URI's
fourth subsidiary, United Bridgeport Energy, Inc., is participating in a
merchant wholesale electric generating facility being constructed on land leased
from UI at its Bridgeport Harbor Station generating plant.
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 December 31, 1997, $27 million had been
so invested.
FRANCHISES, REGULATION AND COMPETITION
FRANCHISES
Subject to the power of alteration, amendment or repeal by the Connecticut
legislature, and subject to certain approvals, permits and consents of public
authorities and others prescribed by statute, the Company has valid franchises
to engage in the production, purchase, transmission, distribution and sale of
electricity in the area served by it, the right to erect and maintain certain
facilities on public highways and grounds, and the power of eminent domain.
REGULATION
The Company is subject to regulation by the Connecticut Department of
Public Utility Control (DPUC), which has jurisdiction with respect to, among
other things, retail electric service rates, accounting procedures, certain
dispositions of property and plant, mergers and consolidations, the issuance of
securities, certain standards of service, management efficiency, operation and
construction, and the location and construction of certain electric facilities.
See "Rates". The DPUC consists of five Commissioners, appointed by the Governor
of Connecticut with the advice and consent of both houses of the Connecticut
legislature.
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<PAGE>
The location and construction of certain electric facilities is also
subject to regulation by the Connecticut Siting Council (CSC) with respect to
environmental compatibility and public need. See "Environmental Regulation".
UI is a "public utility" within the meaning of Part II of the Federal Power
Act and is subject to regulation by the Federal Energy Regulatory Commission
(FERC), which has jurisdiction with respect to interconnection and coordination
of facilities, wholesale electric service rates and accounting procedures, among
other things. See "Arrangements with Other Utilities".
The Company is a holder of licenses under the Atomic Energy Act of 1954, as
amended, and, as such, is subject to the jurisdiction of the United States
Nuclear Regulatory Commission (NRC), which has broad regulatory and supervisory
jurisdiction with respect to the construction and operation of nuclear reactors,
including matters of public health and safety, financial qualifications,
antitrust considerations and environmental impact. Connecticut Yankee Atomic
Power Company (Connecticut Yankee), in which the Company has a 9.5% common stock
ownership share, is also subject to this NRC regulatory and supervisory
jurisdiction. See Item 2. Properties - "Nuclear Generation".
The Company is subject to the jurisdiction of the New Hampshire Public
Utilities Commission for limited purposes in connection with its 17.5% ownership
interest in Seabrook Unit 1.
COMPETITION
The electric utility industry has become, and can be expected to be,
increasingly competitive, due to a variety of economic, regulatory and
technological developments; and UI is exposed to competitive forces in varying
degrees.
In UI's principal market, retail sales of electricity in the Company's
franchised service territory, competitive pressures are rising from several
sources. Industrial and large commercial customers may have the ability to own
and operate facilities that generate their own electric energy requirements. If
these facilities satisfy certain statutory requirements, UI can be required to
purchase their output that exceeds their owners' needs, at UI's avoided cost.
These customers may also substitute natural gas or oil for electricity as fuel
for heating and cooling purposes, and industrial customers may have the option
of relocating their facilities to a lower-cost environment. As a result of these
pressures, and with the approval of the DPUC, UI offers special rate and service
agreements to induce industrial and large commercial customers to remain on the
Company's system. The Company now has 62 multi-year contracts with major
customers, including its largest customer. This customer is constructing a
cogeneration unit that is expected to produce enough electricity, commencing
sometime in early 1998, to supply approximately one-half of the customer's
requirements. The customer's remaining requirements will continue to be supplied
by UI under a special rate and service agreement. To the extent that the Company
loses revenues from customers leaving the system or paying for service under
special rate or service agreements, the Company's only opportunity to replace
such revenues will be through increased wholesale sales and retail sales growth.
The Company is not capitalizing these "lost" revenues for future rate recovery.
See "Rates".
Although UI has not historically been a major wholesale supplier of bulk
electric power (power sold to other utilities), it has marketed generating
capacity and energy aggressively in recent years, seeking to sell outside its
service territory the power it produces in excess of the present needs of its
own customers. Competition in the wholesale power market can be expected to
increase by reason of the Federal Energy Policy Act of 1992, which was designed
to foster competition in the wholesale market by facilitating the ownership and
operation of independently-owned generating facilities and authorizing the FERC
to order electric utilities to furnish transmission service to the owners of
these generating facilities. Competition may also increase in the wholesale
power market as a result of a FERC rulemaking that seeks to promote competition
in that market by requiring electric utilities to furnish non-discriminatory
transmission service to all buyers and sellers in the marketplace, and due to
the entry of brokers and marketers, who buy and sell generating capacity and
energy without owning or operating any generating or transmission facilities. In
its rulemaking, the FERC has stressed the importance of allowing electric
utilities to recover the costs of existing facilities (primarily generation)
that would be rendered uneconomic ("stranded") by a competitive bulk power
market. The structure of the wholesale power market will also change due to the
implementation of the restructuring of the New
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<PAGE>
England Power Pool (NEPOOL), which envisions separate markets for several
energy, capacity, and ancillary services products. See "Arrangements with Other
Utilities".
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, independent power producer or power marketer. 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. In its 1997 session, the Connecticut legislature drafted, but
failed to bring to a vote, comprehensive legislation that would have introduced
retail access in Connecticut over a period of several years, with a provision
for the recovery of stranded costs by service area utilities. The legislature
is currently considering legislation of this same sort in its 1998 session.
Among many other factors, decisions and actions concerning retail access in
other states could impact the timing and form of this legislation.
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.
In anticipation of increased competition, the Company has initiated a
continuing and focused effort to reduce and control costs, to reinforce customer
loyalty and to develop additional sources of revenue. See "Rates". See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - "Major Influences on Financial Condition" and "Looking Forward".
RATES
The Company's retail electric service rates are subject to regulation by
the Connecticut Department of Public Utility Control (DPUC).
UI's present general retail rate structure consists of various rate and
service classifications covering residential, commercial, industrial and street
lighting services.
Utilities are entitled by Connecticut law to charge rates that are
sufficient to allow them to cover their operating and capital costs, to attract
needed capital and maintain their financial integrity, while also protecting
relevant public interests.
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 existing retail base rates charged to
customers; but its order increased amortization of the Company's conservation
and load management program investments during 1997-1998, and accelerated the
recovery of unspecified regulatory assets during 1999-2001 if the Company's
common stock equity return on utility investment exceeds 10.5% after recording
the increased conservation and load management amortization. The order also
reduced the level of conservation adjustment mechanism revenues in retail
prices, provided a reduction in customer prices 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 utility
common stock 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 price reductions,
one-third to increase amortization of regulatory assets, and one-third retained
as earnings. As a result of the DPUC's order, customer prices were required to
be reduced, on average, by 3% in 1997 compared to 1996. Retail revenues actually
decreased by approximately $30 million, or 4.6%, in 1997 due to customer price
reductions. Also as a
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<PAGE>
result of the order, customer prices are required to be reduced by an additional
1% in 2000, and another 1% in 2001, compared to 1996.
By its terms, the DPUC's 1996 order should be reopened in 1998 to determine
the regulatory assets to be subjected to accelerated recovery in 1999, 2000 and
2001.
FINANCING
The Company's capital requirements are presently projected as follows:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
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(millions)
<S> <C> <C> <C> <C> <C>
Cash on Hand - Beginning of Year $ 32.0 $10.4 $ - $ - $ -
Internally Generated Funds less Dividends 118.5 108.0 109.3 97.0 68.6
----- ----- ----- ---- ----
Subtotal 150.5 118.4 109.3 97.0 68.6
Less:
Capital Expenditures 35.9 32.7 39.6 31.1 30.7
----- ----- ----- ---- ----
Cash Available to pay Debt Maturities and Redemptions 114.6 85.7 69.7 65.9 37.9
Less:
Maturities and Mandatory Redemptions 104.2 103.4 150.4 75.3 0.3
----- ----- ----- ---- ----
External Financing Requirements (Surplus) $(10.4) $ 17.7 $ 80.7 $ 9.4 $(37.6)
====== ====== ====== ===== =======
</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 from 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.
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.
In February 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.
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>
On July 30, 1997, the Company borrowed $98.5 million from the Business
Finance Authority of the State of New Hampshire (BFA), representing the proceeds
from the issuance by the BFA of $98.5 million principal amount of tax-exempt
Pollution Control Refunding Revenue Bonds (PCRRBs). The Company is obligated,
under its borrowing agreement with the BFA, to pay to a trustee for the PCRRBs'
bondholders such amounts as will pay, when due, the principal of and the
premium, if any, and interest on the PCRRBs. The PCRRBs will mature in 2027, and
their interest rate is adjusted periodically to reflect prevailing market
conditions. The PCRRBs' interest rate, which is being adjusted weekly, was 3.75%
at December 31, 1997. The Company has used the proceeds of this $98.5 million
borrowing to cause the redemption and repayment of $25 million of 9 3/8%, 1987
Series A, Pollution Control Revenue Bonds, $43.5 million of 10 3/4%, 1987 Series
B, Pollution Control Revenue Bonds, and $30 million of Adjustable Rate, 1990
Series A, Solid Waste Disposal Revenue Bonds, three outstanding series of
tax-exempt bonds on which the Company also had a payment obligation to a trustee
for the bondholders. Expenses associated with this transaction, including
redemption premiums totaling $2,055,000 and other expenses of approximately
$1,500,000, were paid by the Company.
In August 1997, the Company purchased at a discount on the open market, and
canceled, 500 shares of its $100 par value 4.72%, Series B preferred stock and
200 shares of its $100 par value 4.64%, Series C preferred stock. These shares,
having a par value of $70,000, were purchased for $41,100, creating a net gain
of $28,900.
On November 12, 1997, the Company refinanced the secured lease obligation
bonds that were issued in 1990 in connection with the sale and leaseback by the
Company of a portion of its ownership share in Seabrook Unit 1. All of the
outstanding $69,593,000 principal amount of 9.76% Series 2006 Seabrook Lease
Obligation Bonds (the "9.76% Bonds") and $129,055,000 principal amount of 10.24%
Series 2020 Seabrook Lease Obligation Bonds (the "10.24% Bonds") were redeemed.
The redemption premiums paid on the 9.76% Bonds and the 10.24% Bonds were
$1,884,549 and $8,589,901, respectively. The Bonds were refunded with the
proceeds from the issuance of $203,088,000 principal amount of 7.83% Seabrook
Lease Obligation Bonds due January 2, 2019 (the "7.83% Bonds"), the principal of
which will be payable from time to time in installments. Transaction expenses
totaling $1,530,022 and redemption premiums totaling $8,139,978 were paid from
the proceeds of the 7.83% Bonds and will be repaid as part of the Company's
Lease payments over the remaining term of the Lease. The remainder of the
redemption premiums ($2,334,472) and transaction expenses were paid by the
Company and will be amortized over the remainder of the Lease term. The
transaction reduces the interest rate on the leaseback arrangement, which is
treated as long-term debt on the Company's Consolidated Balance Sheet, from
8.45% to 7.56%. The Company owned $16,997,000 principal amount of the 9.76%
Bonds and $49,850,000 principal amount of the 10.24% Bonds. The Company used the
proceeds from the redemption of these bonds ($70,662,688, including redemption
premiums totaling $3,815,688), plus available funds and short-term borrowings,
to purchase $101,388,000 principal amount of the 7.83% Bonds. The Company
intends to hold the 7.83% Bonds until maturity and has recognized the investment
as an offset to long-term debt on its Consolidated Balance Sheet.
On January 13, 1998, the Company issued and sold $100 million principal
amount of 6.25% four-year and eleven month Notes. The yield on the Notes, which
were issued at a discount, is 6.30%; and the Notes will mature on December 15,
2002. The proceeds from the sale of the Notes were used to repay $100 million
principal amount of 7 3/8% Notes, which matured on January 15, 1998.
The Company has a revolving credit agreement with a group of banks, which
currently extends to December 9, 1998. 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 December
31, 1997, the Company had $30 million of short-term borrowings outstanding under
this facility.
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<PAGE>
In addition, as of December 31, 1997, one of the Company's subsidiaries,
American Payment Systems, Inc., had borrowings of $7.8 million outstanding under
a bank line of credit agreement.
The Company's long-term debt instruments do not limit the amount of
short-term debt that the Company may issue. The Company's revolving credit
agreement described above requires it to maintain an available earnings/interest
charges ratio of not less than 1.5:1.0 for each 12-month period ending on the
last day of each calendar quarter. For the 12-month period ended December 31,
1997, this coverage ratio was 3.23:1.0.
The Company's Preferred Stock provisions prohibit the issuance of
additional Preferred Stock unless the Company's after-tax income for a period of
twelve consecutive months ending not more than 90 days prior to such issuance is
at least one and one-half times the aggregate of annual interest charges on all
indebtedness and annual dividends on all Preferred Stock to be outstanding. The
Preferred Stock provisions also prohibit any increase in long-term indebtedness
unless the Company's after-tax income for a period of twelve consecutive months
ending not more than 90 days prior to such increase is at least twice the
annualized interest charges on all long-term indebtedness to be outstanding.
The provisions of the financing documents under which the Company leases a
portion of its entitlement in Seabrook Unit 1 from an owner trust established
for the benefit of an institutional investor presently require UI to maintain
its consolidated annual after-tax cash earnings available for the payment of
interest at a level that is at least one and one-half times the aggregate
interest charges paid on all indebtedness outstanding during the year.
On the basis of the formulas contained in the Preferred Stock provisions
and the Seabrook Unit 1 lease financing documents, the coverages for each of the
five years ended December 31, 1997 are set forth below.
Preferred Stock Seabrook Lease
Provisions Provisions
------------------------ -----------------
Preferred Long-term Earnings/Interest
Year Stock Indebtedness Ratio
---- --------- ------------ -----------------
1993 3.33 3.67 2.59
1994 2.72 3.14 2.86
1995 2.68 2.71 3.31
1996 2.38 2.39 2.78
1997 2.48 2.60 3.23
The Company has a 5.45% participating share in Phase II of the Hydro-Quebec
transmission intertie facility linking New England and Quebec, Canada. See
"Arrangements with Other Utilities - Hydro-Quebec". As a participant, the
Company is obligated to furnish a guarantee for its participating share of the
debt financing for Phase II of the facility. As of December 31, 1997, the
Company's guarantee liability for this debt amounted to approximately $7.4
million.
FUEL SUPPLY
FOSSIL FUEL
The Company burns coal, residual oil, jet oil and natural gas at its fossil
fuel generating stations in Bridgeport and New Haven. During 1997, approximately
1.1 million tons of coal, 4.9 million barrels of fuel oil and 0.3 billion cubic
feet of natural gas were consumed in the generation of electricity. The Company
owns fuel oil storage tanks at its generating stations in Bridgeport and New
Haven that have maximum capacities of approximately 680,000 and 650,000 barrels
of oil, respectively. In addition, the Company maintains, through an inventory
finance arrangement, an approximate 34-day coal supply of 125,000 tons at its
Bridgeport Harbor Station.
- 11 -
<PAGE>
The Company burns coal at the largest generating unit at its Bridgeport
generating station; however, this generating unit is also capable of burning
oil. The Company has a coal supply contract that extends until July 31, 2007,
subject to earlier termination provisions. The Company's fuel oil supply
contracts for its New Haven and Bridgeport generating stations will expire on
March 31, 1998, and the Company expects to meet its fuel oil needs by entering
into one or more new fuel oil supply contracts and/or through purchases on the
spot market.
The Company's New Haven Harbor Station has a dual-fuel capability of
burning natural gas and oil. Under an agreement that expires on December 31,
2000, the Company is obligated to burn approximately 6 billion cubic feet of gas
per year, when offered by the supplier at a price that is competitive with oil.
During 1997, no natural gas was purchased pursuant to this agreement; and an
additional 0.3 billion cubic feet of natural gas was purchased on the spot
market.
NUCLEAR FUEL
The Company holds an ownership and leasehold interest in Seabrook Unit 1
and an ownership interest in Millstone Unit 3, both of which are nuclear-fueled
generating units. Generally, the supply of fuel for nuclear generating units
involves the mining and milling of uranium ore to uranium concentrates, the
conversion of uranium concentrates to uranium hexafluoride, enrichment of that
gas and fabrication of the enriched hexafluoride into usable fuel assemblies.
After a region (approximately 1/3 to 1/2 of the nuclear fuel assemblies in
the reactor at any time) of spent fuel is removed from a nuclear reactor, it is
placed in temporary storage in a spent fuel pool at the nuclear station for
cooling and ultimately is expected to be transported to a permanent storage
site, which has yet to be determined. See Item 2. Properties - "Nuclear
Generation".
Based on information furnished by the utility responsible for the operation
of the units in which the Company is participating, there are outstanding
contracts that cover uranium concentrate purchases for Millstone Unit 3 through
2000 and for Seabrook Unit 1 through 1999. In addition, there are outstanding
contracts, to the extent indicated below, for conversion, enrichment and
fabrication services for these units extending through the following years:
CONVERSION TO
HEXAFLUORIDE ENRICHMENT FABRICATION
------------- ---------- -----------
Millstone Unit 3 2003 2002 2011
Seabrook Unit 1 2006 2002 2006
ARRANGEMENTS WITH OTHER UTILITIES
NEW ENGLAND POWER POOL
The Company, in cooperation with other privately and publicly owned New
England electric utilities, established the New England Power Pool (NEPOOL) in
1971. NEPOOL was formed to assure reliable operation of the bulk power system in
the most economic manner for the region. It has achieved these objectives
through central dispatching of all generation facilities owned by its members
and through coordination of the activities of the members that can have
significant inter-utility impacts. NEPOOL is governed by an agreement that is
filed with the Federal Energy Regulatory Commission (FERC) and its provisions
are subject to continuing FERC jurisdiction. Under the terms of the NEPOOL
Agreement, the Company incurs certain obligations - such as the responsibility
to support a specified amount of power supply resources - and enjoys certain
benefits, most notably savings in the cost of its overall energy supply and the
sharing of reserve generating capacity.
Because of the evolving industry-wide changes that are described at
"Franchises, Regulation and Competition - Competition," NEPOOL has been
restructured. Its membership has been broadened to cover all entities engaged in
the electricity business in New England, including power marketers and brokers,
independent power producers and
- 12 -
<PAGE>
load aggregators. The operation of the regional bulk power system has been
turned over to an independent entity, ISO New England, Inc., so that the
regional bulk power system will continue to be operated both in accordance with
the NEPOOL objectives and free of any adverse impact on competition in the
wholesale power market, where various energy and capacity products will be
traded in open competition among all participants. The restructuring changes
have been filed with the FERC, for its approval, as an amendment to the NEPOOL
Agreement; and the resulting FERC proceedings are expected to be completed
during 1998.
NEW ENGLAND TRANSMISSION GRID
Under other agreements related to the Company's participation in the
ownership of Seabrook Unit 1 and Millstone Unit 3, the Company contributes to
the financial support of certain 345 kilovolt transmission facilities that are a
part of the New England transmission grid.
HYDRO-QUEBEC
The Company is a participant in the Hydro-Quebec transmission intertie
facility linking New England and Quebec, Canada. Phase I of this facility, which
became operational in 1986 and in which the Company has a 5.75% participating
share, has a 690 megawatt equivalent capacity value; and Phase II, in which the
Company has a 5.45% participating share, increased the equivalent 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. Additionally, the Company
is obligated to furnish a guarantee for its participating share of the debt
financing for the Phase II facility. As of December 31, 1997, the Company's
guarantee liability for this debt was approximately $7.4 million.
ENVIRONMENTAL REGULATION
The National Environmental Policy Act requires that detailed statements of
the environmental effect of the Company's facilities be prepared in connection
with the issuance of various federal permits and licenses, some of which are
described below. Federal agencies are required by that Act to make an
independent environmental evaluation of the facilities as part of their actions
during proceedings with respect to these permits and licenses.
The federal Clean Water Act requires permits for discharges of effluents
into navigable waters and requires that all discharges of pollutants comply with
federally approved state water quality standards. The Connecticut Department of
Environmental Protection (DEP) has adopted, and the federal government has
approved, water quality standards for receiving waters in Connecticut. A joint
federal and state permit system, administered by the DEP, has been established
to assure that applicable effluent limitations and water quality standards are
met in connection with the construction and operation of facilities that affect
or discharge into these waters. The discharge permits for the Company's
Bridgeport Harbor, English and New Haven Harbor generating stations expired in
February and May of 1992, and September of 1996, respectively. Applications for
renewal of these permits had been filed in August and November of 1991, and
April of 1996, respectively, and while these renewal applications are pending,
the terms of the expired permits continue in effect. The application for English
Station, in New Haven, has been modified to reflect changes in the operating
status of this generating facility and changes in the permitting system. Several
new permits have been issued for specific discharges at New Haven Harbor,
Bridgeport Harbor and/or English Stations; and, although other new permits for
specific discharges have not yet been issued, the Company has not been advised
by the DEP that any of these facilities has a permitting problem. The DEP has
determined that the thermal component of the discharges at each of the stations
will not result in a violation of state water quality standards. All discharge
permits may be reopened and amended to incorporate more stringent standards and
effluent limitations that may be adopted by federal and state authorities.
Compliance with this permit system has necessitated substantial capital and
operational expenditures by UI, and it is expected that such expenditures will
continue to be required in the future.
Under the federal Clean Air Act, the federal Environmental Protection
Agency (EPA) has promulgated national primary and secondary air quality
standards for certain air pollutants, including sulfur oxides, particulate
matter, ozone
- 13 -
<PAGE>
and nitrogen oxides. The DEP has adopted regulations for the attainment,
maintenance and enforcement of these standards. In order to comply with these
regulations, the Company is required to burn fuel oil with a sulfur content not
in excess of 1%, and Bridgeport Harbor Unit 3 is required to burn a low-sulfur,
low-ash content coal, the sulfur dioxide (SO2) emissions from which are not to
exceed 1.1 pounds of SO2 per million BTU of heat input. Current air pollution
regulations also include other air quality standards, emission performance
standards and monitoring, testing and reporting requirements that are applicable
to the Company's generating stations and further restrict the construction of
new sources of air pollution or the modification of existing sources by
requiring that both construction and operating permits be obtained and that a
new or modified source will not cause or contribute to any violation of the
EPA's national air quality standards or its regulations for the prevention of
significant deterioration of air quality.
Amendments to the Clean Air Act in 1990 will require a significant
reduction in nationwide SO2 emissions by fossil fuel-fired generating units to a
permanent total emissions cap in the year 2000. This reduction is to be achieved
by the allotment of allowances to emit SO2, measured in tons per year, to each
owner of a unit, and requiring the owner to hold sufficient allowances each year
to cover the emissions of SO2 from the unit during that year. Allowances are
transferable and can be bought and sold. The Company believes that, under the
allowances allocation formula, it will hold more than sufficient allowances to
permit continued operation of its existing generating units without incurring
substantial expenditures for additional SO2 controls. The Company is marketing
its surplus allowances.
The same 1990 Clean Air Act amendments also contain major new requirements
for the control of nitrogen oxides (NOx) that are applicable to generating units
located in or near areas, such as UI's service territory, where ambient air
quality standards for photochemical oxidants have not been attained. These
amendments also require the installation and/or modification of continuous
emission monitoring systems, and require all existing generating units to apply
for and obtain operating permits. The Company expects to submit applications for
such operating permits in early 1998. These applications will verify compliance
with all existing requirements applicable to the generating units at Bridgeport
Harbor, English and New Haven Harbor generating stations. Controls installed
have resulted in achievement of NOx emissions from Bridgeport Harbor Unit 3, the
largest generating unit at Bridgeport Harbor Station, substantially below, and
at a date significantly in advance of, that required under the statute. As a
result, the DEP has approved UI's creation of transferable and marketable NOx
emission reduction credits, and supplemental approvals are anticipated for the
creation of additional credits at this generating unit through April 1999.
During 1997, UI consummated nineteen sales of NOx emission reduction credits,
and it continues to market these credits. These sales have not had a significant
impact on the Company's earnings. In September 1994, the Ozone Transport
Commission (OTC) (consisting of the twelve northeastern-most states plus the
District of Columbia) adopted a Memorandum of Understanding (MOU) that obligates
certain of those states, including Connecticut, to adopt regulations that will
further limit emissions of NOx from large stationary sources, including utility
boilers. The MOU calls for the reductions to occur in two steps; the first in
1999 and the second in 2003. On December 30, 1997, the Connecticut DEP proposed
regulations that would implement the requirements of the OTC MOU. It is expected
that the regulations, when promulgated, will become part of the federally
mandated revisions to Connecticut's plan for achieving compliance with air
quality standards for photochemical oxidants (Nox, ozone and particulate
matter). On July 18, 1997, the EPA published final revisions to the national air
quality standards for ozone and particulate matter. On November 7, 1997, the EPA
published a proposed rule that would require states to adopt regulations to
ensure that a significant transport of ozone pollution across state boundaries
in the eastern United States is prevented. Since not all of these three sets of
new regulations have been adopted in final form, the Company is not yet able to
assess accurately the applicability and impact of implementing these regulations
to and on its generating facilities. Compliance may require substantial
additional capital and operational expenditures in the future. In addition, due
to the 1990 amendments and other provisions of the Clean Air Act, future
construction or modification of fossil-fired generating units and all other
sources of air pollution in southwestern Connecticut will be conditioned on
installing state-of-the-art nitrogen oxides controls and obtaining nitrogen
oxide emission offsets -- in the form of reductions in emissions from other
sources -- which may hinder or preclude such construction or modification
programs in UI's service area, depending on ambient pollutant levels over which
the Company has no control.
A merchant wholesale electric generating facility (Bridgeport Energy
Project) is being constructed on land leased from UI at its Bridgeport Harbor
Station. It is anticipated that UI's Bridgeport Harbor Unit 1 will be placed in
deactivated reserve status on or about July 1, 1998, when the first phase of the
Bridgeport Energy Project is completed.
- 14 -
<PAGE>
UI has provided emission offsets necessary for the licensing of the Bridgeport
Energy Project; and UI has agreed to provide Clean Air Act allowances required
for the operation of this facility to the extent that they are available from
Bridgeport Harbor Units 1 and 2 and are not obtained for the facility from
another source. Given the very low emissions rates expected from the Bridgeport
Energy Project, it currently appears likely that UI will continue to have
surplus SO2 allowances for sale.
The Company's generating stations in Bridgeport and New Haven comply with
the air quality and emission performance standards adopted by those cities.
Under the federal Toxic Substances Control Act (TSCA), the EPA has issued
regulations that control the use and disposal of polychlorinated biphenyls
(PCBs). PCBs had been widely used as insulating fluids in many electric utility
transformers and capacitors manufactured before TSCA prohibited any further
manufacture of such PCB equipment. Fluids with a concentration of PCBs higher
than 500 parts per million and materials (such as electrical capacitors) that
contain such fluids must be disposed of through burning in high temperature
incinerators approved by the EPA. Solid wastes containing PCBs must be disposed
of in either secure chemical waste landfills or in high-efficiency incinerators.
In response to EPA regulations, UI has phased out the use of certain PCB
capacitors and has tested all Company-owned transformers located inside
customer-owned buildings and replaced all transformers found to have fluids with
detectable levels of PCBs (higher than 1 part per million) with transformers
that have no detectable PCBs. Presently, no transformers having fluids with
levels of PCBs higher than 500 parts per million are known by UI to remain in
service in its system, except at one of UI's generating stations. Compliance
with TSCA regulations has necessitated substantial capital and operational
expenditures by UI, and such expenditures may continue to be required in the
future, although their magnitude cannot now be estimated. The Company has agreed
to participate financially in the remediation of a source of PCB contamination
attributed to UI-owned electrical equipment on property in New Haven. Although
the scope of the remediation and the extent of UI's participation have not yet
been fully determined, in 1990 the owners of the property estimated the total
remediation cost to be approximately $346,000.
Under the federal Resource Conservation and Recovery Act (RCRA), the
generation, transportation, treatment, storage and disposal of hazardous wastes
are subject to regulations adopted by the EPA. Connecticut has adopted state
regulations that parallel RCRA regulations but are more stringent in some
respects. The Company has complied with the notification and application
requirements of present regulations, and the procedures by which UI handles,
stores, treats and disposes of hazardous waste products have been revised, where
necessary, to comply with these regulations. UI's Bridgeport Harbor and New
Haven Harbor Stations have been registered as treatment, storage and disposal
facilities, because of historic solid waste management activities at these
sites. The Company has ceased using these sites for any of these purposes and
has filed facility closure plans with the DEP; but further corrective actions
may be required at one or more of them for documented or potential releases of
hazardous wastes. Because regulations for such corrective actions have not yet
been promulgated, the Company is unable to predict what impact, if any, such
regulations may have on these facilities.
The Company has estimated that the total cost of decontaminating and
demolishing its Steel Point Station and completing requisite environmental
remediation of the site will be approximately $11.3 million, of which
approximately $8.3 million had been incurred as of December 31, 1997, and that
the value of the property following remediation will not exceed $6.0 million. As
a result of a 1992 DPUC 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.
The Company is presently remediating an area of PCB contamination at its
English Station generating site, including repair and/or replacement of
approximately 560 linear feet of sheet piling. The total cost of the remediation
and sheet piling repair is presently estimated at $3.5 million, and the Company
plans to repair/replace a major portion of the remaining sheet piling at this
location at an estimated cost of $6 million.
RCRA also regulates underground tanks storing petroleum products or
hazardous substances, and Connecticut has adopted state regulations governing
underground tanks storing petroleum and petroleum products that, in some
- 15 -
<PAGE>
respects, are more stringent than the federal requirements. The Company has 15
underground storage tanks, which are used primarily for gasoline and fuel oil,
that are subject to these regulations. The Company has a testing program to
detect leakage from any of its tanks, and it may incur substantial costs for
future actions taken to prevent tanks from leaking, to remedy any contamination
of groundwater, and to modify, remove and/or replace older tanks in compliance
with federal and state regulations.
In the past, the Company has disposed of residues from operations at
landfills, as most other industries have done. In recent years it has been
determined that such disposal practices, under certain circumstances, can cause
groundwater contamination. Although the Company has no knowledge of the
existence of any such contamination, if the Company or regulatory agencies
determine that remedial actions must be taken in relation to past disposal
practices, the Company may experience substantial costs.
A Connecticut statute authorizes the creation of a lien against all real
estate owned by a person causing a discharge of hazardous waste, in favor of the
DEP, for the costs incurred by the DEP to contain and remove or mitigate the
effects of the discharge. Another Connecticut law requires a person intending to
transfer ownership of an establishment that generates more than 100 kilograms
per month of hazardous waste to provide the purchaser and the DEP with a
declaration that no release of hazardous waste has occurred on the site, or that
any wastes on the site are under control, or that the waste will be cleaned up
in accordance with a schedule approved by the DEP. Failure to comply with this
law entitles the transferee to recover damages from the transferor and renders
the transferor strictly liable for the cleanup costs. In addition, the DEP can
levy a civil penalty of up to $100,000 for providing false information. UI does
not believe that any material claims against the Company will arise under these
Connecticut laws.
A Connecticut statute prohibits the commencement of construction or
reconstruction of electric generation or transmission facilities without a
certificate of environmental compatibility and public need from the Connecticut
Siting Council (CSC). In certification proceedings, the CSC holds public
hearings, evaluates the basis of the public need for the facility, assesses its
probable environmental impact and may impose specific conditions for protection
of the environment in any certificate issued.
In complying with existing environmental statutes and regulations and
further developments in these and other areas of environmental concern,
including legislation and studies in the fields of water and air quality
(particularly "air toxics" and "global warming"), hazardous waste handling and
disposal, toxic substances, and electric and magnetic fields, the Company may
incur substantial capital expenditures for equipment modifications and
additions, monitoring equipment and recording devices, and it may incur
additional operating expenses. Litigation expenditures may also increase as a
result of scientific investigations, and speculation and debate, concerning the
possibility of harmful health effects of electric and magnetic fields. The total
amount of these expenditures is not now determinable. See also "Franchises,
Regulation and Competition" and Item 2. Properties - "Nuclear Generation".
EMPLOYEES
As of December 31, 1997, the Company had 1,175 employees, including 127 in
subsidiary operations. Of the electric utility employees, approximately 79% had
been with the Company for 10 or more years.
Approximately 545 of the Company's operating, maintenance and clerical
employees are represented by Local 470-1, Utility Workers Union of America,
AFL-CIO, for collective bargaining purposes. On June 30, 1997, the Company's
unionized employees accepted a new five-year agreement, amending and extending
the existing agreement that was scheduled to remain in effect through May 15,
1998. The new agreement provides for, among other things, 2% annual wage
increases beginning in May 1998, and annual lump sum bonuses of 2.5% of base
annual straight time wages (not cumulative). These provisions will restrict the
growth of the Company's bargaining unit base wage expense to about $500,000 per
year. The agreement also provides for job security for longer-term bargaining
unit employees and will allow the Company some flexibility in adjusting work
methods as part of its ongoing process re-engineering efforts.
- 16 -
<PAGE>
There has been no work stoppage due to labor disagreements since 1966,
other than a strike of three days duration in May 1985; and employee relations
are considered satisfactory by the Company.
YEAR 2000 ISSUE
The Company's planning and operations functions, and its cash flow, are
dependent on the timely flow of electronic data to and from its customers,
suppliers and other electric utility system managers and operators. In order to
assure that this data flow will not be disturbed by the problems emanating from
the fact that many existing computer programs were designed without considering
the impact of the year 2000 and use only two digits to identify the year in the
date field of the programs (the Year 2000 Issue), the Company initiated in
mid-1997, and is pursuing, an aggressive program to identify and correct all
deficiencies in its computer systems and in the computer systems of the critical
suppliers and other persons with whom data must be exchanged. A complete
inventory and assessment of the Company's computer system applications,
hardware, software and embedded technologies has been completed, and recommended
solutions to all identified risks and exposures have been generated. A
remediation, retirement, renovation and testing program has commenced. Necessary
upgrades to mainframe hardware and software are expected to be completed and
tested during 1998, and a parallel program with respect to desktop hardware and
software is currently projected to be completed and tested by March 31, 1999.
Request for documented compliance information have been sent to all critical
suppliers, data sharers and facility building owners and, as responses are
received, appropriate solutions and testing programs are being developed and
executed. The Company believes that the successful implementation of this
program, which is currently estimated to cost approximately $2.6 million, will
preclude any significant adverse impact of the Year 2000 Issue on its operations
and financial condition.
- 17 -
<PAGE>
Item 2. Properties
GENERATING FACILITIES
The electric generating capability of the Company as of December 31, 1997,
based on summer ratings of the generating units, was as follows:
<TABLE>
<CAPTION>
YEAR OF MAX CLAIMED UI
UI OPERATED: FUEL INSTALLATION CAPABILITY, MW ENTITLEMENT
- --------------------------- ---- ------------ -------------- -----------
% Mw
<S> <C> <C> <C> <C> <C>
Bridgeport Harbor Station 1 #6 Oil 1957 76.09 100.00 76.09(1)
Bridgeport Harbor Station 2 #6 Oil 1961 170.00 100.00 170.00(2)
Bridgeport Harbor Station 3 #6 Oil/Coal 1968/1985 385.00 100.00 385.00(3)
Bridgeport Harbor Station 4 Jet Oil 1967 16.15 100.00 16.15
New Haven Harbor Station #6 Oil/Gas 1975 466.00 93.71 436.69(4)
English Station 7 #6 Oil 1948 34.06 100.00 34.06(5)
English Station 8 #6 Oil 1953 38.49 100.00 38.49(5)
OPERATED BY OTHER UTILITIES:
- ---------------------------
Millstone Unit 3, Nuclear 1986 1119.60 3.685 41.26(6)
Waterford, Connecticut
Seabrook Unit 1, Nuclear 1990 1162.00 17.50 203.35(7)
Seabrook, New Hampshire
POWER PURCHASES FROM
COGENERATION FACILITIES:
- -----------------------
Bridgeport RESCO, Refuse 1988 59.45 100.00 59.45
Bridgeport, Connecticut
Shelton Landfill Gas 1995 1.61 100.00 1.61
Shelton, Connecticut
-------
Total 1462.15
=======
</TABLE>
(1) Effective January 1, 1994, Bridgeport Harbor Station 1 was removed from
operation and dispatching under NEPOOL and was placed in deactivated
reserve. The unit was reactivated in July 1996 and placed under NEPOOL
dispatch to help alleviate power shortages in Connecticut caused by the
outages of the three nuclear generating units at Millstone Station and the
Connecticut Yankee Unit. See "Nuclear Generation". It is anticipated that
Bridgeport Harbor Station 1 will be returned to deactivated reserve status
on or about July 1, 1998, when the first phase of a merchant wholesale
electric generating facility (Bridgeport Energy Project) being constructed
on land leased from UI at Bridgeport Harbor Station.
(2) Commencing with the completion of the second phase of the Bridgeport Energy
Project, scheduled for July of 1999, a wholesale power marketer will have
an option to purchase the capability and energy generated by Bridgeport
Harbor Station 2, for a period of twelve years, pursuant to a wholesale
power contract.
(3) The unit has burned coal since January 1985.
(4) Represents UI's 93.705% ownership share of total net capability. This unit
is jointly owned by UI (93.705%), Fitchburg Gas and Electric Light Company
(4.5%) and the electric departments of three Massachusetts municipalities
(1.795%). See Item 1. Business - "Fuel Supply".
(5) English Station 7 and 8 were placed in deactivated reserve, effective
January 1, 1992.
(6) Represents UI's 3.685% ownership share of total net capability. This unit
is currently shut down for safety reasons, awaiting NRC authorization for
restart. See "Nuclear Generation".
(7) Represents UI's 17.5% ownership share of total net capability. In August
1990, UI sold to and leased back from an owner trust established for the
benefit of an institutional investor a portion of UI's 17.5% ownership
interest in this unit. This portion of the unit is subject to the lien of a
first mortgage granted by the owner trustee.
- 18 -
<PAGE>
TABULATION OF PEAK LOADS, RESOURCES, AND MARGINS
1997 ACTUAL, 1998 - 2002 FORECAST
(MEGAWATTS)
<TABLE>
<CAPTION>
Actual Forecast
------ --------------------------------------------------
1997 1998 1999 2000 2001 2002
<S> <C> <C> <C> <C> <C> <C>
At Time of Peak Load on UI's System:
- -----------------------------------
Capacity of generating units operated
by UI (1) 1070.77 1088.55 1088.55 1088.55 1088.55 l088.55
- -------------------------------------
Entitlements in nuclear units (1) (2)
- -----------------------------
Millstone Unit 3 (3) 41.26 41.26 41.26 41.26 41.26 41.26
Seabrook Unit 1 203.35 203.35 203.35 203.35 203.35 203.35
------ ------ ------ ------ ------ ------
244.61 244.61 244.61 244.61 244.61 244.61
------ ------ ------ ------ ------ ------
Equivalent capacity value of
entitlement in Hydro-Quebec (1) (2) 98.08 98.08 98.08 98.08 98.08 0
- ----------------------------
Purchases from cogeneration facilities
- --------------------------------------
Bridgeport RESCO 59.45 59.45 59.45 59.45 59.45 59.45
Shelton Landfill 1.61 1.50 1.57 1.54 1.36 1.32
Purchase from New York Power Authority 1.14 1.14 1.14 1.14 1.14 1.14
- --------------------------------------
Purchases from (sales to) other utilities
- -----------------------------------------
Net power contracts - fossil (119.56) 2.56 2.56 (30.64) (30.64) (30.64)
------- ------- ------- ------- ------- -------
Total generating resources 1356.10 1495.89 1495.96 1462.73 1462.55 1364.43
======= ======= ======= ======= ======= =======
Calculation of UI's capability
responsibility (4)
- ------------------------------
Peak load 1173.00 1179.00 1190.00 1207.00 1220.00 1230.00
Required reserve margin 167.06 214.86 257.24 260.91 263.72 184.50
------- ------- ------- ------- ------- -------
Total capability responsibility 1340.06 1393.86 1447.24 1467.91 1483.72 1414.50
======= ======= ======= ======= ======= =======
Available Margin (5) 13.29 99.39 46.01 (7.86) (23.67) (52.53)
======= ======= ======= ======= ======= =======
</TABLE>
(1) Capacity shown reflects summer ratings of generating units.
(2) Winter ratings of UI nuclear and Hydro-Quebec interconnection's equivalent
capacity value entitlements (megawatts):
Millstone Unit 3 - 42.22
Seabrook Unit 1 - 203.35
Hydro-Quebec - 34.34
(3) At the time of 1997 summer peak, Millstone Unit 3 still retained capability
rating for the purposes of satisfying UI's required capacity as a NEPOOL
participant. It is assumed that unit will be back in operation by the time
of 1998 summer peak.
(4) UI's required capacity as a NEPOOL participant.
(5) Total generating resources, excluding purchases from New York Power
Authority and Shelton Landfill, less capability responsibility. In
addition, UI maintains two units (English Station 7 and 8) in deactivated
reserve, representing a total of 72.55 MW of generating capacity.
- 19 -
<PAGE>
During 1997, the peak load on the Company's system was approximately 1,173
megawatts, which occurred in July. UI's total generating capability at the time
was 1,356 megawatts, including a 98 megawatt increase in capability provided by
the equivalent capacity value of UI's entitlements in the Hydro-Quebec facility
and reflecting the net effect of temporary arrangements with other electric
utilities and cogenerators. The Company is currently forecasting an annual
average compound growth in peak load of 0.8% during the period 1997 to 2007.
Based on current forecasts of loads, UI's generating capability will exceed its
projected July-August capability responsibility to NEPOOL for generating
capacity through at least 1999, and English Station Units 7 and 8 can be
reactivated if higher than anticipated load growth occurs. If, due to the
permanent loss of a generating unit or higher than expected load growth, UI's
own generating capability becomes inadequate to meet its capability
responsibility to NEPOOL, UI expects to be able to reduce the load on its system
by the implementation of additional demand-side management programs, to acquire
other demand-side and supply-side resources, and/or to purchase capacity from
other utilities or from the installed capability spot market, as necessary.
However, because the generation and transmission systems of the major New
England utilities, including UI, are operated as if they were a single system,
the ability of UI to meet its load is and will be dependent on the ability of
the region's generation and transmission systems to meet the region's load. See
"Nuclear Generation" and Item 1. Business - "Competition" and "Arrangements with
Other Utilities".
Shown below is a summary of the Company's sources and uses of electricity
for 1997.
MEGAWATT-HOURS
(000's)
SOURCES USES
- ------- ----
OWNED Retail Customers 5,376
Nuclear (Seabrook Unit 1) 1,390
Coal 2,760 Wholesale
Oil 2,951 Delivered to NEPOOL 1,256
Gas & Gas Turbines 28 Contracts 1,745
-----
Total Owned 7,129
Company Use & Losses 255
PURCHASED -----
Contracts 962 Total Uses 8,632
NEPOOL 240 =====
Hydro-Quebec 301
-----
Total Sources 8,632
=====
TRANSMISSION AND DISTRIBUTION PLANT
The transmission lines of the Company consist of approximately 102 circuit
miles of overhead lines and approximately 17 circuit miles of underground lines,
all operated at 345 KV or 115 KV and located within or immediately adjacent to
the territory served by the Company. These transmission lines interconnect the
Company's English, Bridgeport Harbor and New Haven Harbor generating stations
and are part of the New England transmission grid through connections with the
transmission lines of The Connecticut Light and Power Company. A major portion
of the Company's transmission lines is constructed on a railroad right-of-way
pursuant to a Transmission Line Agreement that expires in May 2000.
The Company owns and operates 25 bulk electric supply substations with a
capacity of 2,634,000 KVA and 40 distribution substations with a capacity of
212,500 KVA. The Company has 3,150 pole-line miles of overhead distribution
lines and 130 conduit-bank miles of underground distribution lines.
See "Capital Expenditure Program" concerning the estimated cost of
additions to the Company's transmission and distribution facilities.
- 20 -
<PAGE>
CAPITAL EXPENDITURE PROGRAM
The Company's 1998-2002 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>
1998 1999 2000 2001 2002 TOTAL
---- ---- ---- ---- ---- -----
(000's)
<S> <C> <C> <C> <C> <C> <C>
Production $7,747 $13,911 $12,620 $9,615 $11,920 $55,813
Distribution 15,686 12,783 14,213 13,983 14,405 71,070
Transmission 875 1,923 3,408 783 467 7,456
Other 3,281 3,361 789 612 959 9,002
------ ------ ------ ------ ------ -------
SUBTOTAL 27,589 31,978 31,030 24,993 27,751 143,341
Nuclear Fuel 8,325 746 8,569 6,160 2,892 26,692
------ ------ ------ ------ ------ -------
Total Expenditures $35,914 $32,724 $39,599 $31,153 $30,643 $170,033
====== ====== ====== ====== ====== =======
Rate Base and Other Selected Data:
- ---------------------------------
AFUDC (Pre-tax) 1,683 1,836 1,853 1,563 1,505
Depreciation
Book Plant 57,192 58,213 58,158 57,945 58,778
Conservation Assets 10,309 5,390 0 0 0
Decommissioning 2,676 2,781 2,892 3,007 3,128
Additional Required
Amortization (pre-tax)(1)
Conservation Assets 13,000 0 0 0 0
Other Regulatory Assets 0 20,300 49,500 54,500 0
Amortization of Deferred
Return on Seabrook Unit 1
Phase-In (after-tax) 12,586 12,586 0 0 0
Estimated Rate Base
(end of period) 1,106,666 1,042,700 989,995 928,513 895,962
</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, as expected, common equity return on utility
investment exceeds 10.5% after recording the additional amortization.
Note: Capital Expenditures and their effect on certain capital related items
are estimates subject to change due to future events and conditions that
may be substantially different than those used in developing the
projections.
- 21 -
<PAGE>
NUCLEAR GENERATION
UI holds ownership and leasehold interests totalling 17.5% (203.35
megawatts) in Seabrook Unit 1, and a 3.685% (41.26 megawatts) ownership interest
in Millstone Unit 3. UI also owns 9.5% of the common stock of Connecticut
Yankee, and was entitled to an equivalent percentage (53.21 megawatts) of the
generating capability of the Connecticut Yankee Unit prior to its retirement
from commercial operation on December 4, 1996.
Seabrook Unit 1 commenced commercial operation in June of 1990, pursuant to
an operating license issued by the NRC, which will expire in 2026. It is jointly
owned by eleven New England electric utility entities, including the Company,
and is operated by a service company subsidiary of Northeast Utilities (NU).
Through December 31, 1997, Seabrook Unit 1 has operated at a lifetime capacity
factor of 79%.
Millstone Unit 3 commenced commercial operation in April of 1986, pursuant
to a 40-year operating license issued by the NRC. It is jointly owned by
thirteen New England electric utility entities, including the Company, and is
operated by another service company subsidiary of NU. Through March 30, 1996,
when Millstone Unit 3 was taken out of service following an engineering
evaluation that determined that four safety-related valves would not be able to
perform their design function during certain postulated events, Millstone Unit 3
had operated at a lifetime capacity factor of 71.9%. In April, May and June of
1996, a series of NRC letters to NU and its operating service company subsidiary
stated: that the NRC had identified programmatic issues and design deficiencies
at Millstone Unit 3 that were similar in nature to those previously identified
at Millstone Units 1 and 2, the two other Millstone Station nuclear generating
units, which had been taken out of service in November of 1995 and February of
1996, respectively, and are owned by operating subsidiaries of NU and are also
operated by the NU service company subsidiary that operates Millstone Unit 3;
that the NRC had concluded that the corrective action program at Millstone
Station was not currently effective in resolving identified deficiencies; that
none of the generating units at Millstone Station may be restarted until the
effectiveness of a corrective action program is demonstrated; and that Millstone
Station had been placed on the NRC's "watch list" as a Category 3 facility. The
NRC deems Category 3 plants as having significant weaknesses that warrant
maintaining the plant in shutdown condition until it is demonstrated that
adequate programs have been established and implemented to ensure substantial
improvement. In October of 1996, the NRC announced that an independent NRC
review had concluded that the work environment and management failures were the
source of a high volume of employee concerns and allegations related to safety
of plant operations and harassment and intimidation of employees at Millstone
Station. Concurrently, the NRC issued an order directing NU to devise and
implement a compliance plan for handling safety concerns raised by Millstone
Station employees, and for assuring an environment free from retaliation and
discrimination, and ordering NU to contract for an independent third party to
oversee its corrective action program for the employee concerns program. NU is
engaged in an extensive effort to address and correct all of the above-described
problems at Millstone Station and to develop a comprehensive plan for returning
each of the Millstone Station nuclear generating units to service. Although UI's
management anticipates that all of the above-described problems with respect to
Millstone Unit 3 will be resolved, UI cannot, at this time, predict how long it
will take to resolve them, or when the NRC will allow Millstone Unit 3 to return
to service.
While Millstone Unit 3 is out of service, UI is incurring incremental
replacement power costs estimated at approximately $500,000 per month, and
experiencing an adverse impact on net earnings per share of approximately $.02
per month. In addition to these costs of replacement power, substantial
incremental direct costs are being incurred to address the above-described
problems with respect to Millstone Unit 3, and the Company may be responsible
for its 3.685% joint ownership share of these costs. UI and the other nine
non-NU owners of Millstone Unit 3 have been paying their monthly shares of the
costs of the unit, but have reserved their rights to contest whether one or more
of the NU service company subsidiary that is the operator of Millstone Unit 3
and two operating NU subsidiary electric utility companies that are the majority
joint owners of Millstone Unit 3 are responsible for the additional costs that
the other joint owners have experienced as a result of the shutdown of Millstone
Unit 3. On August 7, 1997, the Company and the other nine minority, non-NU joint
owners of Millstone Unit 3 filed lawsuits against NU and its trustees, as well
as a demand for arbitration against The Connecticut Light and Power Company and
Western Massachusetts Electric Company, the operating electric utility
subsidiaries of NU that are the majority joint owners of the unit and have
contracted with the minority joint owners to operate it. The ten non-NU joint
owners, who together own about 19.5% of the unit, claim that NU and its
subsidiaries failed to comply with NRC regulations, failed to operate
- 22 -
<PAGE>
Millstone Station in accordance with good utility operating practice and
concealed their failures from the non-operating joint owners and the NRC. The
arbitration and lawsuits seek to recover costs of purchasing replacement power
and increased operation and maintenance costs resulting from the shutdown of
Millstone Unit 3.
The Connecticut Yankee Unit commenced commercial operation in January of
1968, pursuant to a 40-year operating license issued by the NRC. It is owned,
through ownership of Connecticut Yankee's common stock, by ten New England
electric utilities, including the Company, and is operated by another service
company subsidiary of NU. Prior to July 23, 1996, when the Connecticut Yankee
Unit was taken out of service following an engineering evaluation that
determined that safety-related air cooling system pipes could crack if the plant
should lose its outside source of electric power, the Connecticut Yankee Unit
had operated at a lifetime capacity factor of 75.6%. Prior to and following its
removal from service in July of 1996, NRC inspections of the Connecticut Yankee
Unit revealed issues that were similar to those previously identified at
Millstone Station and identified a number of significant deficiencies in the
engineering calculations and analyses that were relied upon to ensure the
adequacy of the design of key safety systems at the unit. Pending a resolution
of these issues, an economic study by the owners, comparing the costs of
continuing to operate the Connecticut Yankee Unit over the remaining period of
its operating license, which expires in 2007, to the costs of shutting down the
unit permanently and incurring replacement power costs for the same period,
resulted in a decision, on December 4, 1996, by the Board of Directors of
Connecticut Yankee to retire the Connecticut Yankee Unit from commercial
operation. The economic study did not consider the costs of addressing the
issues and concerns raised by the NRC. If these costs had been considered, the
economic study would have been more negative concerning the continued operation
of the unit.
At December 31, 1997, UI's equity investment in Connecticut Yankee was
approximately $10.5 million. The estimate of the sum of future payments for the
closing, decommissioning and recovery of the remaining investment in the
Connecticut Yankee Unit is approximately $606 million. The Company's estimate of
its remaining share of costs, including decommissioning, less return of
investment (approximately $10.5 million) and return on investment (approximately
$6.3 million), is approximately $40.8 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. The power purchase
contract under which UI has purchased its 9.5% entitlement to the unit's power
output will permit Connecticut Yankee to recover UI's share of these costs from
UI. Connecticut Yankee has filed revised decommissioning cost estimates and
amendments to the power contracts with its owners, including UI, with the FERC.
Based on regulatory precedent, Connecticut Yankee believes it will continue to
collect from its power purchasers its decommissioning costs, the owners'
unrecovered investments in Connecticut Yankee 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.
GENERAL CONSIDERATIONS
Seabrook Unit 1, Millstone Unit 3 and the Connecticut Yankee Unit are each
subject to the licensing requirements and jurisdiction of the NRC under the
Atomic Energy Act of 1954, as amended, and to a variety of other state and
federal requirements.
The NRC regularly conducts generic reviews of numerous technical issues,
ranging from seismic design to education and fitness for duty requirements for
licensed plant operators. The outcome of reviews that are currently pending, and
the ways in which the nuclear generating units in which UI has interests may be
affected by these reviews, cannot be determined; and the cost of complying with
any new requirements that might result from the reviews cannot be estimated.
However, such costs could be substantial.
Additional capital expenditures and increased operating costs for nuclear
generating units may result from modifications of these facilities or their
operating procedures required by the NRC, or from actions taken by other joint
owners or companies having entitlements in the units. Some equipment
modifications have required and may in the future require shutdowns or deratings
of generating units that would not otherwise be necessary and that result in
additional costs for replacement power. The amounts of additional capital
expenditures, increased operating costs and replacement power costs cannot now
be predicted, but they have been and may in the future be substantial.
- 23 -
<PAGE>
Public controversy concerning nuclear power could also adversely affect
Seabrook Unit 1 and Millstone Unit 3. Proposals to force the premature shutdown
of nuclear plants in other New England states have in the past received serious
attention, and the licensing of Seabrook Unit 1 was a regional issue. A renewal
of the controversy could be expected to increase the costs of operating the
nuclear generating units in which UI has interests; and it is possible that one
or the other of the units could be shut down prematurely, resulting in increased
fuel and/or replacement power costs, earlier funding of costs associated with
decommissioning the unit and acceleration of depreciation expense, which could
have an adverse impact on the Company's financial condition and/or results of
operations.
INSURANCE REQUIREMENTS
The Price-Anderson Act, currently extended through August 1, 2002, limits
public liability resulting from a single incident at a nuclear power plant. The
first $200 million of liability coverage is provided by purchasing the maximum
amount of commercially available insurance. Additional liability coverage will
be provided by an assessment of up to $75.5 million per incident, levied on each
of the nuclear units licensed to operate in the United States, subject to a
maximum assessment of $10 million per incident per nuclear unit in any year. In
addition, if the sum of all public liability claims and legal costs resulting
from any nuclear incident exceeds the maximum amount of financial protection,
each reactor operator can be assessed an additional 5% of $75.5 million, or
$3.775 million. The maximum assessment is adjusted at least every five years to
reflect the impact of inflation. With respect to each of the three 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.
Based on its interests in these nuclear generating units, the Company estimates
its maximum liability would be $23.2 million per incident. However, any
assessment would be limited to $3.1 million per incident per year.
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. Under those circumstances,
the nuclear insurance pools that provide 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
$5.0 million.
WASTE DISPOSAL AND DECOMMISSIONING
Costs associated with nuclear plant operations include amounts for disposal
of nuclear wastes, including spent fuel, and for the ultimate decommissioning of
the plants. Under the Nuclear Waste Policy Act of 1982, the federal Department
of Energy (DOE) is required to design, license, construct and operate a
permanent repository for high level radioactive wastes and spent nuclear fuel.
The Act requires the DOE to provide, beginning in 1998, for the disposal of
spent nuclear fuel and high level radioactive waste from commercial nuclear
plants through contracts with the owners and generators of such waste; and the
DOE has established disposal fees that are being paid to the federal government
by electric utilities owning or operating nuclear generating units. In return
for payment of the prescribed fees, the federal government was required to take
title to and dispose of the utilities' high level wastes and spent nuclear fuel
beginning no later than January 1998. However, the DOE has announced that its
first high level waste repository will not be in operation earlier than 2010 and
possibly not earlier than 2013, notwithstanding the DOE's statutory and
contractual responsibility to begin disposal of high-level radioactive waste and
spent fuel beginning not later than January 31, 1998.
- 24 -
<PAGE>
The DOE also announced that, absent a repository, the DOE had no statutory
obligation to begin accepting high level wastes and spent nuclear fuel for
disposal by January 31, 1998; and the DOE did not begin accepting such wastes
and fuel by the date. Numerous utilities and state governments have obtained a
judicial determination that the DOE had and has a statutory and contractual
responsibility to take title to and dispose of high level wastes and spent
nuclear fuel commencing not later than January 31, 1998, and that the contracts
between the DOE and the plant owners and generators of such wastes and fuel will
provide a potentially adequate remedy for the latter in the event of a breach of
the contracts. The DOE is contesting these judicial declarations; and it is
unclear at this time whether the United States Congress will enact legislation
to address high level wastes/spent fuel disposal issues.
Until the federal government begins receiving such materials, nuclear
generating units will need to retain high level wastes and spent nuclear fuel
on-site or make other provisions for their storage. Storage facilities for the
Connecticut Yankee Unit are deemed adequate, and storage facilities for
Millstone Unit 3 are expected to be adequate for the projected life of the unit.
Storage facilities for Seabrook Unit 1 are expected to be adequate until at
least 2010. Fuel consolidation and compaction technologies are being considered
for Seabrook Unit 1 and may provide adequate storage capability for the
projected life of the unit. In addition, other licensed technologies, such as
dry storage casks, may satisfy spent nuclear fuel storage requirements.
Disposal costs for low-level radioactive wastes (LLW) that result from
operation or decommissioning of nuclear generating units have increased
significantly in recent years and may continue to rise. The cost increases are a
function of increased packaging and transportation costs, and higher fees and
surcharges imposed by the disposal facilities. Currently, the Chem Nuclear LLW
facility at Barnwell, South Carolina, is open to the Connecticut Yankee Unit,
Millstone Unit 3, and Seabrook Unit 1 for disposal of LLW. The Envirocare LLW
facility at Clive, Utah, is also open to these generating units for portions of
their LLW. All three units have contracts in place for LLW disposal at these
disposal facilities.
Because access to LLW disposal may be lost at any time, Millstone Unit 3
and Seabrook Unit 1 have storage plans that will allow on-site retention of LLW
for at least five years in the event that disposal is interrupted. The
Connecticut Yankee Unit, which has been retired from commercial operation, has a
similar storage program, although disposal of its LLW will take place in
connection with its decommissioning.
The Company cannot predict whether or when a LLW disposal site will be
designated in Connecticut. The State of New Hampshire has not met deadlines for
compliance with the Low-Level Radioactive Waste Policy Act and has stated that
the state is unsuitable for a LLW disposal facility. Both Connecticut and New
Hampshire are also pursuing other options for out-of-state disposal of LLW.
NRC licensing requirements and restrictions are also applicable to the
decommissioning of nuclear generating units at the end of their service lives,
and the NRC has adopted comprehensive regulations concerning decommissioning
planning, timing, funding and environmental reviews. UI and the other owners of
the nuclear generating units in which UI has interests estimate decommissioning
costs for the units and attempt to recover sufficient amounts through their
allowed electric rates, together with earnings on the investment of funds so
recovered, to cover expected decommissioning costs. Changes in NRC requirements
or technology, as well as inflation, can increase estimated decommissioning
costs.
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 $473 million (in 1998 dollars) as the
decommissioning cost estimate for Seabrook Unit 1, of which the Company's share
would be approximately $83 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 1997 was $1.9 million. UI's share of the fund at December 31, 1997 was
approximately $12.4 million.
- 25 -
<PAGE>
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 $557 million (in 1998 dollars), of which the
Company's share would be approximately $21 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 1997 was $487,000. UI's share of the fund at December 31, 1997 was
approximately $5.1 million. The decommissioning trust fund for the Connecticut
Yankee Unit is also managed by NU. For the Company's 9.5% equity ownership in
Connecticut Yankee, decommissioning costs of $2.1 million were funded by UI
during 1997, and UI's share of the fund at December 31, 1997 was $24.9 million.
The current decommissioning cost estimate for the Connecticut Yankee Unit,
assuming the prompt removal and dismantling of the unit commencing in 1997, is
$456 million, of which UI's share would be $43 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.
Item 3. Legal Proceedings.
On November 2, 1993, the Company received "updated" personal property tax
bills from the City of New Haven (the City) for the tax year 1991-1992,
aggregating $6.6 million, based on an audit by the City's tax assessor. On May
7, 1994, the Company received a "Certificate of Correction....to correct a
clerical omission or mistake" from the City's tax assessor relative to the
assessed value of the Company's personal property for the tax year 1994-1995,
which certificate purports to increase said assessed value by approximately 53%
above the tax assessor's valuation at February 28, 1994, 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. On March 7, 1997, the Company received notices of
assessment changes relative to the assessed value of the Company's personal
property for the tax year 1997-1998, which notices purport to increase said
assessed value by approximately 54% over the valuations declared by the Company
and are expected to generate tax claims of approximately $3.7 million. The
Company is vigorously contesting each of these actions by the City's tax
assessor. 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
- 26 -
<PAGE>
ultimate outcome of this dispute will not have a significant impact on the
long-term financial position of the Company. The Company would seek permission
from the DPUC to recover from its retail customers the expense of any adverse
court decision or settlement.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1997.
- 27 -
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The names and ages of all executive officers of the Company and all such
persons chosen to become executive officers, all positions and offices with the
Company held by each such person, and the period during which he or she has
served as an officer in the office indicated, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION EFFECTIVE DATE
- ---- --- -------- --------------
<S> <C> <C> <C>
Richard J. Grossi 62 Chairman of the Board of Directors May 1, 1991
and Chief Executive Officer
Robert L. Fiscus 60 Vice Chairman of the Board of Directors
and Chief Financial Officer February 23, 1998
Nathaniel D. Woodson 56 President February 23, 1998
James F. Crowe 55 Group Vice President Power Supply Services October 1, 1996
Albert N. Henricksen 56 Group Vice President Support Services October 1, 1996
Anthony J. Vallillo 49 Group Vice President Client Services October 1, 1996
Rita L. Bowlby 59 Vice President-Corporate Affairs February 1, 1993
Stephen F. Goldschmidt 52 Vice President Planning and Information Resources October 1, 1996
E. Jon Majkowski 55 Vice President/President Subsidiaries (URI, PPI & TEI) October 1, 1996
James L. Benjamin 56 Controller January 1, 1981
Kurt D. Mohlman 49 Treasurer and Secretary January 1, 1994
Charles J. Pepe 49 Assistant Treasurer and Assistant Secretary January 1, 1994
</TABLE>
There is no family relationship between any director, executive officer, or
person nominated or chosen to become a director or executive officer of the
Company. All executive officers of the Company hold office during the pleasure
of the Company's Board of Directors. Messrs. Grossi, Fiscus, Crowe, Henricksen,
Vallillo, Goldschmidt, Benjamin, Mohlman, Pepe and Ms. Bowlby have entered into
employment agreements with the Company. There is no arrangement or understanding
between any executive officer of the Company and any other person pursuant to
which such officer was selected as an officer.
A brief account of the business experience during the past five years of
each executive officer of the Company is as follows:
RICHARD J. GROSSI. Mr. Grossi has served as Chairman of the Board of
Directors and Chief Executive Officer during the five-year period.
ROBERT L. FISCUS. Mr. Fiscus served as President and Chief Financial
Officer during the period January 1, 1993 to February 23, 1998. He has served as
Vice Chairman of the Board of Directors and Chief Financial Officer since
February 23, 1998.
NATHANIEL D. WOODSON. Mr. Woodson served as Vice President and General
Manager of the Energy Systems Business Unit of Westinghouse Electric Corporation
during the period January 1, 1993 to April 30, 1996. He has served as President
of the Company since February 23, 1998.
JAMES F. CROWE. Mr. Crowe served as Executive Vice President during the
period January 1, 1993 to January 1, 1994, and as Executive Vice President and
Chief Customer Officer from January 1, 1994 to October 1, 1996. He has served as
Group Vice President Power Supply Services since October 1, 1996.
ALBERT N. HENRICKSEN. Mr. Henricksen served as Vice President-Human and
Environmental Resources during the period January 1, 1993 to January 1, 1994,
and as Vice President-Administration from January 1, 1994 to October 1, 1996. He
has served as Group Vice President Support Services since October 1, 1996.
- 28 -
<PAGE>
ANTHONY J. VALLILLO. Mr. Vallillo served as Vice President-Marketing during
the period January 1, 1993 to October 1, 1996. He has served as Group Vice
President Client Services since October 1, 1996.
RITA L. BOWLBY. Ms. Bowlby has served as Vice President-Corporate Affairs
during the five-year period.
STEPHEN F. GOLDSCHMIDT. Mr. Goldschmidt served as Vice President-Planning
during the period January 1, 1993 to January 1, 1994, and as Vice
President-Information Resources from January 1, 1994 to October 1, 1996. He has
served as Vice President Planning and Information Resources since October 1,
1996.
E. JON MAJKOWSKI. Mr. Majkowski served as Vice President/President-UI
Subsidiaries during the period January 1, 1993 to October 1 1996. He has served
as Vice President/President Subsidiaries (URI, PPI & TEI) since October 1, 1996.
JAMES L. BENJAMIN. Mr. Benjamin has served as Controller of the Company
during the five-year period.
KURT D. MOHLMAN. Mr. Mohlman served as Director of Financial Planning and
Investor Relations during the period January 1, 1993 to January 1, 1994. He has
served as Treasurer and Secretary of the Company since January 1, 1994.
CHARLES J. PEPE. Mr. Pepe served as Director of Financing during the period
January 1, 1993 to January 1, 1994. He has served as Assistant Treasurer and
Assistant Secretary of the Company since January 1, 1994.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters.
UI's Common Stock is traded on the New York Stock Exchange, where the high
and low sale prices during 1997 and 1996 were as follows:
1997 SALE PRICE 1996 SALE PRICE
--------------- ---------------
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter 32 5/8 24 1/2 39 3/4 36 1/4
Second Quarter 30 7/8 24 1/2 38 35 3/4
Third Quarter 37 31 1/2 37 1/2 33 7/8
Fourth Quarter 45 15/16 37 35 31 3/8
UI has paid quarterly dividends on its Common Stock since 1900. The
quarterly dividends declared in 1996 and 1997 were at a rate of 72 cents per
share.
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
$104.1 million were free from such limitations at December 31, 1997.
As of December 31, 1997, there were 16,057 Common Stock shareowners of
record.
- 29 -
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
1997 1996 1995
=====================================================================================================================
<S> <C> <C> <C>
FINANCIAL RESULTS OF OPERATION ($000'S)
Sales of electricity
Retail
Residential $259,842 $265,562 $260,694
Commercial 248,984 263,609 259,715
Industrial 102,967 108,825 106,963
Other 11,778 11,880 11,736
------------- -------------- -------------
Total Retail 623,571 649,876 639,108
Wholesale (1) 82,871 72,844 48,232
Other operating revenues 3,825 3,300 3,109
------------- -------------- -------------
Total operating revenues 710,267 726,020 690,449
------------- -------------- -------------
Fuel and interchange energy -net
Retail -own load 109,542 95,359 96,538
Wholesale 73,124 65,158 41,631
Capacity purchased-net 39,976 46,830 47,420
Depreciation 74,618 (3) 65,921 61,426
Other amortization, principally deferred return and cancelled plant 13,758 13,758 13,758
Other operating expenses, excluding tax expense 200,803 219,630 (5) 183,749
Gross earnings tax 23,618 26,757 27,379
Other non-income taxes 28,922 30,382 31,564
------------- -------------- -------------
Total operating expenses, excluding income taxes 564,361 563,795 503,465
------------- -------------- -------------
Deferred return - Seabrook Unit 1 0 0 0
AFUDC 1,575 2,375 2,762
Other non-operating income(loss) 4,186 (7,166) (4,272)
Interest expense
Long-term debt - net 56,158 65,046 63,431
Other 6,068 4,721 13,140
------------- -------------- -------------
Total 62,226 69,767 76,571
------------- -------------- -------------
Minority interest in preferred securities 4,813 4,813 3,583
Income tax expense
Operating income tax 41,333 (4) 53,090 59,828
Non-operating income tax (2,496) (9,332) (4,901)
------------- -------------- -------------
Total 38,837 43,758 54,927
------------- -------------- -------------
Income(loss) before cumulative effect of accounting change 45,791 39,096 50,393
Cumulative effect of change in accounting - net of tax 0 0 0
------------- -------------- -------------
Net income (loss) 45,791 39,096 (6) 50,393
Discount on preferred stock redemption (48) (1,840) (2,183)
Preferred and preference stock dividends 205 330 1,329
------------- -------------- -------------
Income (loss) applicable to common stock $45,634 $40,606 $51,247
- ---------------------------------------------------------------------------------------------------------------------
Operating income $104,573 $109,135 $127,156
=====================================================================================================================
FINANCIAL CONDITION ($000'S)
Plant in service-net $1,222,174 $1,258,306 $1,277,910
Construction work in progress 25,448 40,998 41,817
Plant-related regulatory asset 0 0 0
Other property and investments 58,441 49,091 53,355
Current assets 165,027 163,350 137,277
Deferred charges and regulatory assets 360,635 449,150 475,258
------------- -------------- -------------
Total Assets $1,831,725 $1,960,895 $1,985,617
- ---------------------------------------------------------------------------------------------------------------------
Common stock equity $438,963 $440,016 $439,981
Preferred, preference stock and preferred securities 54,351 54,461 60,539
Long-term debt excluding current portion 644,670 759,680 845,684
Noncurrent liabilities (7) 119,868 138,816 65,747
Current portion of long-term debt 100,000 69,900 40,800
Notes payable 37,751 10,965 0
Other current liabilities (7) 130,993 129,007 102,336
Deferred income tax liabilities and other 305,129 358,050 430,530
------------- -------------- -------------
Total Capitalization and Liabilities $1,831,725 $1,960,895 $1,985,617
=====================================================================================================================
</TABLE>
(1) Operating Revenues, for years prior to 1992, include wholesale power
exchange contract sales that were reclassified from Fuel and Capacity
expenses in accordance with Federal Energy Regulatory Commission
requirements.
(2) Includes reclassification of certain Commercial and Industrial customers.
(3) Includes the effect of charges of $6.4 million, before-tax, for
additional amortization of conservation & load management costs.
(4) Includes the effect of credits of $6.7 million, before-tax, to provide tax
provision for fossil generation decommissioning.
(5) Includes the effect of charges of $23.0 million, before-tax, associated
with voluntary early retirement programs.
(6) Includes the effect of charges of $13.4 million, after-tax,associated with
voluntary early retirement programs.
- 30 -
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
$252,386 $238,185 $226,455 $226,751 $211,891 $205,183 $200,170
250,771 (2) 256,559 253,456 (2) 255,782 234,704 219,852 208,801
104,242 (2) 97,466 97,010 (2) 91,895 94,526 92,855 96,665
11,469 11,349 11,065 10,886 10,536 9,943 9,732
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
618,868 603,559 587,986 585,314 551,657 527,833 515,368
34,927 45,931 75,484 84,236 85,657 77,925 63,263
2,953 3,533 3,855 3,821 3,332 3,348 3,570
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
656,748 653,023 667,325 673,371 640,646 609,106 582,201
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
99,589 98,694 108,084 123,010 119,285 128,739 121,425
27,765 39,356 55,169 61,858 69,117 62,681 53,837
44,769 47,424 43,560 44,668 42,827 50,234 35,465
58,165 56,287 50,706 48,181 36,526 35,618 24,069
1,172 1,780 10,415 10,415 4,173 10,415 10,415
193,098 203,427 (8) 183,426 178,912 176,419 144,867 133,407
27,403 27,955 27,362 27,223 25,595 24,506 23,948
32,458 29,977 31,869 28,673 24,648 20,294 21,695
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
484,419 504,900 510,591 522,940 498,590 477,354 424,261
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
0 7,497 15,959 17,970 21,503 0 0
3,463 4,067 3,232 5,190 3,443 65,443 75,656
(1,907) 71 18,545 2,697 22,654 (219,742) (23,369)
73,772 80,030 88,666 90,296 94,056 91,126 90,022
10,301 12,260 12,882 9,847 15,468 22,849 12,069
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
84,073 92,290 101,548 100,143 109,524 113,975 102,091
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
0 0 0 0 0 0 0
44,937 33,309 48,712 47,231 43,493 37,963 44,045
(3,214) (6,322) (12,558) (19,299) (17,409) (101,135) (14,548)
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
41,723 26,987 36,154 27,932 26,084 (63,172) 29,497
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
48,089 40,481 56,768 48,213 54,048 (73,350) 78,639
(1,294) 0 0 7,337 0 0 0
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
46,795 40,481 (9) 56,768 55,550 54,048 (73,350) 78,639
0 0 0 0 0 0 0
3,323 4,318 4,338 4,530 4,751 8,233 11,348
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
$43,472 $36,163 $52,430 $51,020 $49,297 ($81,583) $67,291
- ----------------------------------------------------------------------------------------------------------------------------
$127,392 $114,814 $108,022 $103,200 $98,563 $93,789 $113,895
============================================================================================================================
$1,268,145 $1,243,426 $1,224,058 $1,219,871 $1,209,173 $562,473 $560,930
57,669 77,395 59,809 54,771 50,257 675,831 812,246
0 0 0 0 0 81,768 88,339
53,267 58,096 65,320 79,009 90,006 91,648 83,860
157,309 187,981 247,954 164,839 161,066 170,823 166,270
538,601 567,394 556,493 554,365 553,986 605,696 653,418
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
$2,074,991 $2,134,292 $2,153,634 $2,072,855 $2,064,488 $2,188,239 $2,365,063
- ----------------------------------------------------------------------------------------------------------------------------
$428,028 $423,324 $422,746 $401,771 $379,812 $362,584 $473,674
44,700 60,945 60,945 62,640 69,700 70,000 104,000
708,340 875,268 893,457 909,998 899,993 868,884 862,287
59,458 62,666 44,567 110,217 110,850 117,200 119,165
193,133 143,333 92,833 37,500 41,667 18,667 3,667
67,000 0 84,099 13,000 15,000 45,000 0
122,084 117,343 114,757 114,280 138,173 133,459 115,043
452,248 451,413 440,230 423,449 409,293 572,445 687,227
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
$2,074,991 $2,134,292 $2,153,634 $2,072,855 $2,064,488 $2,188,239 $2,365,063
============================================================================================================================
</TABLE>
(7) Amounts for years prior to 1996 were reclassified in 1996.
(8) Includes the effect of a reorganization charge of $13.6 million,
before-tax, associated with a voluntary early retirement program.
(9) Includes the effect of a reorganization charge of $7.8 million, after-tax.
- 31 -
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
1997 1996 1995
=====================================================================================================================
<S> <C> <C> <C>
COMMON STOCK DATA
Average number of shares outstanding 13,975,802 14,100,806 14,089,835
Number of shares outstanding at year-end 13,907,824 14,101,291 14,100,091
Earnings(loss) per share (average) - basic $3.27 $2.88 $3.64
Earnings(loss) per share (average) - diluted $3.26 $2.87 $3.63
Recurring earnings(loss) per share (average) (1) $3.11 $3.94 $3.61
Book value per share $31.56 $31.20 $31.20
Average return on equity
Total 10.45% 9.20% 11.84%
Utility 11.54% 11.51% 13.04%
Dividends declared per share $2.88 $2.88 $2.82
Market Price:
High $45.9375 $39.750 $38.500
Low $24.5000 $31.375 $29.500
Year-end $45.9375 $31.375 $37.375
=====================================================================================================================
Net cash provided by operating activities, less dividends ($000's) $127,807 $103,943 $120,033
Capital expenditures, excluding AFUDC $33,436 $47,174 $59,363
=====================================================================================================================
OTHER FINANCIAL AND STATISTICAL DATA
Sales by class (MWh's)
Residential 1,903,096 1,891,988 1,890,575
Commercial 2,253,488 2,258,501 2,273,965
Industrial 1,170,815 1,141,109 1,126,458
Other 48,717 48,291 48,435
------------- -------------- -------------
Total 5,376,116 5,339,889 5,339,433
------------- -------------- -------------
Number of retail customers by class (average)
Residential 280,283 279,024 278,326
Commercial 29,228 28,666 28,550
Industrial 1,697 1,652 1,599
Other 1,163 1,141 1,122
------------- -------------- -------------
Total 312,371 310,483 309,597
------------- -------------- -------------
Revenue per kilowatt hour by class (cents)
Residential 13.65 14.04 13.79
Commercial 11.05 11.67 11.42
Industrial 8.79 9.54 9.50
Average large industrial customers time of use rate (cents) 8.12 8.26 8.53
System requirements (MWh) 5,631,296 5,640,957 5,647,690
Peak load - kilowatts 1,173,160 1,044,620 1,156,740
Generating capability- peak(kilowatts) 1,356,100 1,522,350 1,434,102
Load factor 54.80% 61.64% 55.74%
Fuel generation mix percentages
Coal 44 38 37
Oil 15 8 7
Nuclear 25 37 37
Cogeneration 9 9 9
Gas 2 3 5
Hydro 5 5 5
- ---------------------------------------------------------------------------------------------------------------------
Revenues - retail sales ($000's)
Base $621,874 $642,106 $637,219
Fuel adjustment clause 1,697 7,770 1,889
Sales provision adjustment 0 0 0
------------- -------------- -------------
Total $623,571 $649,876 $639,108
------------- -------------- -------------
Revenues - retail sales per kWh (cents)
Base 11.57 12.02 11.93
Fuel adjustment clause 0.03 0.15 0.04
Sales provision adjustment 0.00 0.00 0.00
------------- -------------- -------------
Total 11.60 12.17 11.97
------------- -------------- -------------
Fuel and energy cost per kWh (cents) 1.95 1.69 1.71
Fossil 2.39 2.41 2.22
Nuclear 0.61 0.46 0.85
- ---------------------------------------------------------------------------------------------------------------------
Number of employees at year-end 1,175 1,287 1,358
Total payroll($000'S) $68,640 $69,276 $72,984
=====================================================================================================================
</TABLE>
(1) Recurring earnings(loss) per share (average) is not a generally
accepted accounting principle measurement. Management provides this
measurement for informational purposes only.
(2) Includes reclassification of certain Commercial and Industrial customers.
- 32 -
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
14,085,452 14,063,854 13,941,150 13,899,906 13,887,748 13,887,748 13,887,748
14,086,691 14,083,291 14,033,148 13,932,348 13,887,748 13,887,748 13,887,748
$3.09 $2.57 $3.76 $3.67 $3.55 ($5.87) $4.85
$3.08 $2.56 $3.74 $3.66 $3.55 ($5.87) $4.85
$3.28 $3.13 $3.17 $2.90 $3.55 ($5.87) $4.85
$30.39 $30.06 $30.12 $28.84 $27.35 $26.11 $34.11
10.19% 8.45% 12.67% 13.01% 13.39% -18.88% 14.75%
12.50% 10.97% 14.46% 13.39% 13.97% 20.21% 32.91%
$2.76 $2.66 $2.56 $2.44 $2.32 $2.32 $2.32
$39.500 $45.875 $42.000 $39.125 $34.125 $34.250 $27.500
$29.000 $38.500 $34.125 $30.000 $26.875 $24.750 $19.125
$29.500 $40.250 $41.500 $39.000 $31.125 $34.250 $26.875
============================================================================================================================
$94,807 $104,547 $109,020 $73,865 $39,189 $31,437 $40,607
$63,044 $94,743 $66,390 $63,157 $64,018 $77,041 $83,735
============================================================================================================================
1,892,955 1,844,041 1,799,456 1,851,447 1,826,700 1,883,363 1,870,318
2,285,942 (2) 2,359,023 2,303,216 (2) 2,347,757 2,259,340 2,254,099 2,174,200
1,135,831 (2) 1,036,547 997,168 (2) 980,071 1,060,751 1,109,119 1,186,336
48,718 50,715 52,984 55,118 58,013 60,427 61,303
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
5,363,446 5,290,326 5,152,824 5,234,393 5,204,804 5,307,008 5,292,157
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
275,441 273,752 273,936 274,064 275,637 276,385 274,884
28,394 (2) 28,968 28,848 (2) 29,768 29,808 29,526 28,826
1,538 (2) 959 1,017 (2) 268 319 347 367
1,127 1,175 1,358 1,361 1,352 1,316 1,267
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
306,500 304,854 305,159 305,461 307,116 307,574 305,344
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
13.33 12.92 12.58 12.25 11.60 10.89 10.70
10.97 10.88 11.00 10.89 10.39 9.75 9.60
9.18 9.40 9.73 9.38 8.91 8.37 8.15
8.69 8.89 8.84 8.64 8.06 7.58 7.14
5,652,657 5,630,581 5,475,664 5,541,477 5,501,495 5,603,502 5,581,897
1,130,780 1,114,900 1,034,440 1,145,820 1,054,600 1,094,400 1,132,100
1,462,290 1,515,420 1,402,800 1,474,190 1,449,600 1,289,800 1,271,500
57.07% 57.65% 60.26% 55.21% 59.55% 58.45% 56.13%
35 31 34 34 43 39 37
14 16 17 21 24 37 41
32 38 35 29 20 11 11
9 8 8 9 9 9 7
4 1 1 4 3 3 0
6 6 5 3 1 1 4
- ----------------------------------------------------------------------------------------------------------------------------
$619,097 $605,887 $608,176 $607,997 $589,346 $577,611 $574,422
(229) (2,328) (41,221) (37,497) (45,900) (49,778) (59,054)
0 0 21,031 14,814 8,211 0 0
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
$618,868 $603,559 $587,986 $585,314 $551,657 $527,833 $515,368
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
11.54 11.45 11.80 11.62 11.32 10.88 10.85
0.00 (0.04) (0.80) (0.72) (0.88) (0.93) (1.11)
0.00 0.00 0.41 0.28 0.16 0.00 0.00
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
11.54 11.41 11.41 11.18 10.60 9.95 9.74
- --------------- -------------- -------------- ------------- -------------- -------------- --------------
1.76 1.75 2.43 2.67 2.63 2.78 2.53
2.14 2.08 2.98 3.11 2.89 2.98 2.74
0.94 1.23 1.42 1.62 1.55 0.89 0.87
- ----------------------------------------------------------------------------------------------------------------------------
1,377 1,490 1,554 1,571 1,587 1,627 1,620
$75,441 $75,305 $74,052 $71,888 $69,237 $65,175 $62,387
============================================================================================================================
</TABLE>
- 33 -
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
MAJOR INFLUENCES ON FINANCIAL CONDITION
The Company's financial condition will continue to be dependent on the
level of its 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% during the past 5 years. 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 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
existing retail base rates charged to customers; but its order increased
amortization of the Company's conservation and load management program
investments during 1997-1998, and accelerated the recovery of unspecified
regulatory assets during 1999-2001 if the Company's common stock equity return
on utility investment exceeds 10.5% after recording the increased conservation
and load management amortization. The order also reduced the level of
conservation adjustment mechanism revenues in retail prices, provided a
reduction in customer prices 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 utility common stock 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 price reductions, one-third to increase
amortization of regulatory assets, and one-third retained as earnings. As a
result of the DPUC's order, customer prices were required to be reduced, on
average, by 3% in 1997 compared to 1996. Retail revenues actually decreased by
approximately $30 million, or 4.6%, in 1997 due to customer price reductions.
Also as a result of the order, customer prices are required to be reduced by an
additional 1% in 2000, and another 1% in 2001, compared to 1996.
By its terms, the DPUC's 1996 order should be reopened in 1998 to determine
the regulatory assets to be subjected to accelerated recovery in 1999, 2000 and
2001.
Federal legislation has fostered competition in the wholesale electric
power market, as has a FERC rulemaking requiring electric utilities to furnish
transmission service to all buyers and sellers in the marketplace. In its
rulemaking, the FERC stated that state regulatory commissions should address the
issue of recovery by electric utilities of the costs of existing facilities
that, on account of "retail access", become unrecoverable by the utilities
through the regulated rates charged to their service territory customers.
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 has 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, independent power producer or power marketer. The costs
of existing facilities that become unrecoverable by the service area electric
utility on account of the loss of sales to these customers are said to be
"stranded costs". 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. In its 1997 session, the
Connecticut legislature drafted, but failed to bring to a
- 34 -
<PAGE>
vote, comprehensive legislation that would have introduced retail access in
Connecticut over a period of several years, with a provision for the recovery of
stranded costs by service area utilities. The legislature is currently
considering legislation of this same sort in its 1998 session. Among many other
factors, decisions and actions concerning retail access in other states could
impact the timing and form of this legislation.
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" (SFAS No. 71)) 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 such
deferred costs are not recoverable in that portion of the business that
continues to meet the criteria for the application of SFAS No. 71. 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are presently projected as follows:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C> <C>
Cash on Hand - Beginning of Year $ 32.0 $10.4 $ - $ - $ -
Internally Generated Funds less Dividends 118.5 108.0 109.3 97.0 68.6
----- ----- ----- ---- ----
Subtotal 150.5 118.4 109.3 97.0 68.6
Less:
Capital Expenditures 35.9 32.7 39.6 31.1 30.7
----- ----- ----- ---- ----
Cash Available to pay Debt Maturities and Redemptions 114.6 85.7 69.7 65.9 37.9
Less:
Maturities and Mandatory Redemptions 104.2 103.4 150.4 75.3 0.3
----- ----- ----- ---- ----
External Financing Requirements (Surplus) $(10.4) $ 17.7 $ 80.7 $ 9.4 $(37.6)
===== ===== ===== ==== =====
</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 from those used in
developing the projections.
- 35 -
<PAGE>
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.
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.
In February 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.
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.
On July 30, 1997, the Company borrowed $98.5 million from the Business
Finance Authority of the State of New Hampshire (BFA), representing the proceeds
from the issuance by the BFA of $98.5 million principal amount of tax-exempt
Pollution Control Refunding Revenue Bonds (PCRRBs). The Company is obligated,
under its borrowing agreement with the BFA, to pay to a trustee for the PCRRBs'
bondholders such amounts as will pay, when due, the principal of and the
premium, if any, and interest on the PCRRBs. The PCRRBs will mature in 2027, and
their interest rate is adjusted periodically to reflect prevailing market
conditions. The PCRRBs' interest rate, which is being adjusted weekly, was 3.75%
at December 31, 1997. The Company has used the proceeds of this $98.5 million
borrowing to cause the redemption and repayment of $25 million of 9 3/8%, 1987
Series A, Pollution Control Revenue Bonds, $43.5 million of 10 3/4%, 1987 Series
B, Pollution Control Revenue Bonds, and $30 million of Adjustable Rate, 1990
Series A, Solid Waste Disposal Revenue Bonds, three outstanding series of
tax-exempt bonds on which the Company also had a payment obligation to a trustee
for the bondholders. Expenses associated with this transaction, including
redemption premiums totaling $2,055,000 and other expenses of approximately
$1,500,000, were paid by the Company.
In August 1997, the Company purchased at a discount on the open market, and
canceled, 500 shares of its $100 par value 4.72%, Series B preferred stock and
200 shares of its $100 par value 4.64%, Series C preferred stock. These shares,
having a par value of $70,000, were purchased for $41,100, creating a net gain
of $28,900.
On November 12, 1997, the Company refinanced the secured lease obligation
bonds that were issued in 1990 in connection with the sale and leaseback by the
Company of a portion of its ownership share in Seabrook Unit 1. All of the
outstanding $69,593,000 principal amount of 9.76% Series 2006 Seabrook Lease
Obligation Bonds (the "9.76% Bonds") and $129,055,000 principal amount of 10.24%
Series 2020 Seabrook Lease Obligation Bonds (the "10.24% Bonds") were redeemed.
The redemption premiums paid on the 9.76% Bonds and the 10.24% Bonds were
$1,884,549 and $8,589,901, respectively. The Bonds were refunded with the
proceeds from the issuance of $203,088,000 principal amount of 7.83% Seabrook
Lease Obligation Bonds due January 2, 2019 (the "7.83% Bonds"), the principal of
which will be payable from time to time in installments. Transaction expenses
totaling $1,530,022 and redemption premiums totaling $8,139,978 were paid from
the proceeds of the 7.83% Bonds and will be repaid as part of the Company's
Lease payments over the remaining term of the Lease. The remainder of the
redemption premiums ($2,334,472) and transaction expenses were paid by the
Company and will be amortized over the remainder of the Lease term. The
transaction reduces the interest rate on the leaseback arrangement, which is
treated as long-term debt on the Company's Consolidated Balance Sheet, from
8.45% to 7.56%. The Company owned $16,997,000 principal amount of the 9.76%
Bonds and $49,850,000 principal amount of the 10.24% Bonds.
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<PAGE>
The Company used the proceeds from the redemption of these bonds ($70,662,688,
including redemption premiums totaling $3,815,688), plus available funds and
short-term borrowings, to purchase $101,388,000 principal amount of the 7.83%
Bonds. The Company intends to hold the 7.83% Bonds until maturity and has
recognized the investment as an offset to long-term debt on its Consolidated
Balance Sheet.
On January 13, 1998, the Company issued and sold $100 million principal
amount of 6.25% four-year and eleven month Notes. The yield on the Notes, which
were issued at a discount, is 6.30%; and the Notes will mature on December 15,
2002. The proceeds from the sale of the Notes were used to repay $100 million
principal amount of 7 3/8% Notes, which matured on January 15, 1998.
The Company has a revolving credit agreement with a group of banks, which
currently extends to December 9, 1998. 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 December
31, 1997, the Company had $30 million of short-term borrowings outstanding under
this facility.
In addition, as of December 31, 1997, one of the Company's subsidiaries,
American Payment Systems, Inc., had borrowings of $7.8 million outstanding under
a bank line of credit agreement.
At December 31, 1997, the Company had $32.0 million of cash and temporary
cash investments, an increase of $25.6 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 168.4
Net cash provided by (used in) financing activities:
- Financing activities, excluding dividend payments (34.2)
- Dividend payments (40.6)
Net cash used in investing activities, excluding
investment in plant (34.6)
Cash invested in plant, including nuclear fuel (33.4)
----
Net Change in Cash 25.6
----
Balance, December 31, 1997 $32.0
====
The Company's long-term debt instruments do not limit the amount of short-term
debt that the Company may issue. The Company's revolving credit agreement
described above requires it to maintain an available earnings/interest charges
ratio of not less than 1.5:1.0 for each 12-month period ending on the last day
of each calendar quarter. For the 12-month period ended December 31, 1997 this
coverage ratio was 3.23:1.0.
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
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<PAGE>
complement and enhance UI's electric utility business and serve the interests of
the Company and its shareholders and customers.
URI has four wholly-owned subsidiaries. The largest URI subsidiary,
American Payment Systems, Inc., manages a national network of agents for the
processing of bill payments made by customers of other utilities. Another
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 52%
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. URI's
fourth subsidiary, United Bridgeport Energy, Inc., is participating in a
merchant wholesale electric generating facility being constructed on land leased
from UI at its Bridgeport Harbor Station generating plant.
The after-tax impact of the subsidiaries on the consolidated financial
statements of the Company is as follows:
ASSETS
NET INCOME (LOSS) EARNINGS AT DEC. 31
(000'S) PER SHARE (000'S)
---------------- --------- ----------
(Basic & Diluted)
1997 $(542) $(0.04) $27,873
1996 (5,237) (0.37) 36,385
1995 (2,640) (0.19) 16,323
In 1996, the Company made provisions for losses of $2.6 million (after-tax)
associated with agent collections and miscellaneous other items at its American
Payment Systems, Inc. subsidiary.
RESULTS OF OPERATIONS
1997 VS. 1996
- -------------
Earnings for the year 1997 were $45.6 million, or $3.27 basic earnings per
share, up $5.0 million, or $.39 per share, from 1996. Earnings from operations,
which exclude one-time items and accelerated amortization of costs attributable
to one-time items, decreased by $12.2 million, or $.83 per share, in 1997
compared to 1996. The most significant one-time item recorded in 1997 was a gain
from an income tax expense reduction of $6.7 million in the second quarter, or
$.48 per share, which makes provision for the cumulative deferred tax benefits
associated with the future decommissioning of fossil-fueled generating plants.
By order of the Connecticut Department of Public Utility Control (DPUC), the
Company was required to accelerate the amortization of regulatory assets by as
much as $6.4 million ($4.1 million after-tax), or $.30 per share, provided that
the 1997 return on utility common stock equity would exceed 10.5 percent for the
year. As a result of the tax benefit, the full $6.4 million was charged in the
second quarter of 1997. SEE THE LOOKING FORWARD SECTION FOR MORE INFORMATION ON
THE DPUC ORDER.
Additional 1997 one-time items include a $.05 per share gain related to
subleasing office space, a gain of $2.5 million ($1.5 million after-tax), or
$.11 per share, related to forgone benefits associated with the 1996 voluntary
retirement and separation programs, and a charge of $4.3 million ($2.5 million
after-tax), or $.18 per share, for terminating a consulting contract. The
one-time items recorded in 1996, which amounted to a net loss of $1.06 per share
were: charges of $23.0 million ($13.4 million after-tax), or $.95 per share,
from early retirement and voluntary severance programs, a charge of $1.4 million
($0.8 million after-tax), or $.06 per share, for the cumulative loss on an
office space sublease, a charge of $2.6 million (after-tax), or $.18 per share,
related to subsidiary operations, and a gain of $1.8 million (after-tax), or
$.13 per share, from the repurchase of preferred stock at a discount to par
value.
Retail operating revenues decreased by about $26.3 million in 1997 compared
to 1996:
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<PAGE>
. Results for 1997 reflect an ADJUSTMENT TO RETAIL KILOWATT-HOUR SALES AND
REVENUE, made in the fourth quarter of 1997, to reverse prior period
overestimates of transmission losses. The adjustment added 25 million
kilowatt-hours, a 0.5 percent increase compared to 1996 kilowatt-hour
sales, and $2.7 million of revenues.
. An additional retail kilowatt-hour sales increase of 0.2% from the prior
year increased retail revenues by $1.6 million and sales margin (revenue
less fuel expense and revenue-based taxes) by $1.1 million. The Company
believes that weather factors had a negative impact on retail kilowatt-hour
sales of about 0.5 percent. There was one less day in 1997 (1996 was a leap
year), which decreased retail kilowatt-hour sales by 0.3 percent. This
would indicate that "real" (i.e. not attributable to abnormal weather or
the leap year day in 1996) kilowatt-hour sales increased by about 1.0-1.5
percent for the year.
. Reductions in customer bills, as agreed to by the Company and the DPUC in
December 1996, decreased retail revenues by about $23.0 million, including
suspension of the fossil fuel adjustment clause (FAC) mechanism that
reduced revenues by $6.0 million. This was a somewhat greater decrease than
expected, principally because of a decrease in conservation spending. Other
reductions in customer bills, due to rate mix, contract pricing and other
pass-through reductions, amounted to $7.6 million.
Wholesale "capacity" revenues increased $2.1 million in 1997 compared to
1996. Wholesale "energy" revenues, which increased during 1997 compared to 1996
as a result of nuclear generating unit outages in the region, are a direct
offset to wholesale energy expense and do not contribute to sales margin.
Retail fuel and energy expenses increased by $14.2 million in 1997 compared
to 1996. These expenses increased by $12.6 million due to the need for more
expensive energy to replace generation by nuclear generating units: for the
Connecticut Yankee unit, which ran at nearly full capacity in the first six and
one-half months of 1996, for Millstone Unit 3, which ran at nearly full capacity
in the first quarter of 1996, for an unplanned eight-day extension of a Seabrook
unit refueling outage in the second quarter of 1997 that increased the Company's
replacement generation cost by about $0.7 million, and for an unplanned Seabrook
unit outage that began on December 5, 1997. The Seabrook unit was returned to
service from the last outage on January 17, 1998. 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. Retail fuel and energy expenses
also increased by about $1.6 million in 1997 compared to 1996, due to higher
fossil fuel prices. By order of the DPUC, these costs are not passed on to
customers through the FAC.
Operating expenses for operations, maintenance and purchased capacity
charges decreased by $1.7 million, excluding the impact of one-time items, in
1997 compared to 1996:
. Purchased capacity expense decreased $6.9 million, due to declining costs
from the retired Connecticut Yankee nuclear generating unit, and also due
to slightly lower cogeneration costs.
. Operation and maintenance expense increased by $5.1 million. General,
refueling and unscheduled outage expenses at the Seabrook nuclear
generating unit increased about $2.9 million, and general expenses at the
Millstone 3 nuclear generating unit increased $4.8 million. Expenses
associated with the Company's re-engineering efforts increased by a net
$1.0 million. Other general expenses increased by about $2.9 million. These
increases were partly offset by a $4.6 million reduction in pension expense
due to investment performance and changes in actuarial assumptions and
methodologies, and health benefit reductions of $1.9 million. The increase
at Millstone Unit 3 was partly offset by the reversal of a portion of a
1996 provision in "Other income (deductions)".
Depreciation expense, excluding the impact of one-time items, increased by
$2.3 million in 1997 compared to 1996. Income taxes, exclusive of the effects of
one-time items, changed based on changes in taxable income and tax rates.
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<PAGE>
Other net income increased by $4.6 million in 1997 compared to 1996 due to
an improvement in earnings (reduction in losses) from unregulated subsidiaries.
The Company's largest unregulated subsidiary, American Payment Systems, earned
about $101,000 ($47,000 after-tax) in 1997, an improvement of $3.8 million ($2.2
million after-tax) over 1996 losses, excluding one-time items, of about $3.7
million ($2.1 million after-tax). Other UI subsidiaries lost $1.0 million ($0.6
million after-tax) compared to a loss of $0.8 million in 1996. The remainder of
the improvement in other net income was due to an increase of $0.8 million in
interest income.
Interest charges continued their significant decline, decreasing by $7.5
million, or 11 percent, in 1997 compared to 1996 as a result of the Company's
refinancing program and strong cash flow. Also, total preferred dividends
(net-of-tax) decreased slightly in 1997 compared to 1996 as a result of
purchases of preferred stock by the Company in 1996.
1996 VS. 1995
- -------------
Earnings for the year 1996 were $40.6 million, or $2.88 basic earnings per
share, down $10.6 million, or $.76 per share, from 1995. Earnings from
operations, which exclude one-time items, were $55.6 million, or $3.94 per share
for 1996, up $4.9 million, or $.33 per share, from 1995. The one-time items
recorded in 1996, that totaled to a charge of $1.06 per share, were: a gain of
$1.8 million (after-tax), or $.13 per share, from the purchase of preferred
stock by the Company at a discount to par value, charges of $23.0 million ($13.4
million after-tax), or $.95 per share, reflecting the estimated costs of early
retirements and voluntary separations as part of the Company's on-going
organization review and cost reduction program, a charge of $1.4 million ($0.8
million after-tax), or $.06 per share, for the cumulative loss on an office
space sublease, and a charge of $2.6 million (after-tax), or $.18 per share,
that the Company was required to make provisions for losses associated with
agent collections and miscellaneous other items at its American Payment Systems,
Inc. subsidiary. The one-time items recorded in 1995, that totaled to a gain of
$.03 per share, were: a charge of $.12 per share, taken in the third quarter of
1995, to reflect the effects of legislated future state income tax rate
reductions that reduced future tax benefits on plant previously written off, and
gains of $.15 per share from the purchase of preferred stock by the Company at a
discount to par value.
Retail operating revenues increased by about $10.8 million in 1996 compared
to 1995:
. Retail kilowatt-hour sales for 1996 were virtually unchanged from 1995.
The Company's calculation of the impact of weather on kilowatt-hour sales
indicates that sales decreased by about 1.3% in 1996 compared to 1995 due
to weather factors. Weather was deemed to be more severe than normal in
1995, particularly in the summer months, and milder than normal in 1996,
particularly in the summer months. Retail kilowatt-hour sales also
increased by 0.3% due to the leap year day in 1996. This indicates that
there was a "real" (i.e. not attributable to abnormal weather or leap year)
kilowatt-hour sales increase of about 1.0% in 1996 compared to 1995.
Because sales were lower in the summer months when rates are generally
higher, retail revenues decreased by $0.7 million.
. Other factors increased retail revenues by $11.5 million: $6.4 million
from the recovery, through the Conservation Adjustment Mechanism, of
previously recorded and projected conservation program costs mandated by
the Department of Public Utility Control (DPUC), partially offset by
competitive pricing and other price reduction mechanisms, and a net $5.1
million increase from "pass through" charges for certain expense changes
including increases in fuel costs.
Wholesale "capacity" revenues increased by $1.1 million in 1996 compared to
1995. Wholesale "energy" revenues are a direct offset to wholesale energy
expense and do not contribute to sales margin (revenue less fuel expense and
revenue-based taxes). These energy revenues, as well as the associated fuel
expense, increased during 1996 compared to 1995.
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<PAGE>
Retail fuel and energy expenses decreased by $1.2 million in 1996 compared
to 1995. A decrease of $9.0 million was due to lower nuclear fuel prices,
primarily at the Seabrook nuclear generating unit. Higher kilowatt-hour
generation at the Seabrook nuclear generating unit, that had a refueling outage
in 1995, reduced fuel and energy expenses by $1.9 million, while lower
kilowatt-hour generation, due to the shutdowns at the Connecticut Yankee and
Millstone Unit 3 nuclear generating units, increased fuel and energy expense by
$5.3 million. For more on the status of the operation of these units, see the
LOOKING FORWARD section. Other fuel and energy expenses increased by $4.4
million, primarily from increases in "pass through" charges, including fossil
fuel costs.
Operating expenses for operations, maintenance and purchased capacity
charges increased by $10.9 million in 1996 compared to 1995:
. Purchased capacity expense was $0.6 million lower.
. Operation and maintenance expense increased by $11.5 million. Expenses
associated with the Company's re-engineering efforts increased by a net
$2.0 million. Expenses increased by $1.5 million at the Millstone Unit 3
nuclear generating unit, by $4.9 million for overhauls at the Company's
fossil fuel generating units, by $1.0 million for a major dredging project
at one of the generating stations, by $1.3 million from the expensing of
previously capitalized costs associated with software purchases and
development, and by $4.0 million in general. Expenses at the Seabrook
nuclear generating unit decreased by $3.2 million absent the refueling
outage that occurred in the fourth quarter of 1995.
Other operating expenses increased in 1996 compared to 1995, from higher
depreciation expense and income taxes (excluding the income tax effects of
one-time items).
Other net income increased in 1996 compared to 1995 primarily because of
the absence of expenses, associated with canceled construction projects, which
were recorded in 1995.
Interest charges continued their significant decline, decreasing by $6.8
million in 1996 compared to 1995 as a result of the Company's refinancing
program and strong cash flow. The Company was successful in purchasing $67
million of the approximately $200 million 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. Also, total preferred dividends (net-of-tax)
decreased slightly in 1996 compared to 1995 as a result of the purchases of
preferred stock by the Company.
LOOKING FORWARD
(THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS, WHICH ARE SUBJECT
TO UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CURRENTLY EXPECTED. READERS ARE CAUTIONED THAT THE COMPANY REGARDS SPECIFIC
NUMBERS AS ONLY THE "MOST LIKELY" TO OCCUR WITHIN A RANGE OF POSSIBLE VALUES.)
Five-year rate plan
- -------------------
On December 31, 1996, the DPUC issued an order (the Order) that implemented
a 5-year regulatory framework that would reduce the Company's retail prices and
accelerate the recovery of certain "regulatory" assets beginning with deferred
conservation costs. The Order's schedule of price reductions and accelerated
amortizations was based on a DPUC pro forma financial analysis that anticipated
the Company would be able to implement such changes and earn an allowed return
on common stock equity invested in utility assets of 11.5% over the period 1997
to 2001. The Order established a set formula to share any income that would
produce a return above the 11.5% level: one-third would be applied to customer
bill reductions, one-third would be applied to additional amortization of
regulatory assets, and one-third would be retained by shareowners.
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<PAGE>
It should be noted that, although the Order was for the five-year period
1997-2001 and the Company agreed that it would begin to implement the multi-year
plan, it did not agree to commit to the five-year period. In addition, the DPUC,
in the Order, acknowledged that the Order could be revisited in the light of any
new legislation. The Connecticut legislature did not pass an electric utility
restructuring bill in the 1997 legislative session, but such legislation has
been reintroduced in 1998.
1998 Earnings
- -------------
The Company's income from its utility business is greatly affected by:
retail sales that fluctuate with weather conditions and economic activity,
fossil fuel prices, nuclear generating unit availability and operating costs,
and interest rates. These are all items over which the Company has little
control, although the Company engages in economic development activities to
increase sales, and hedges its exposure to volatile fuel costs and interest
rates.
The Company's revenues are principally dependent on the level of retail
sales. The two primary factors that affect retail sales volume are economic
conditions and weather. The Company estimates that mild 1997 weather reduced
retail kilowatt-hour sales by about 0.5 percent for the year. Because much of
the mild weather occurred in the summer months, when prices are higher than
average, the revenue impact was exacerbated. It is estimated that mild weather
may have reduced revenues by as much as $5.2 million for the year, and sales
margin (revenue less fuel expense and revenue-based taxes) by as much as $4.2
million. Weather corrected retail sales for 1997 were probably in the
5,375-5,420 gigawatt-hour range. On this basis, the Company experienced about
1-1.5 percent of "real" sales growth in 1997 (i.e. exclusive of weather and leap
year factors) over "normal" 1996 sales, with almost all of the growth occurring
in the last half of the year. A similar level of growth in 1998 compared to 1997
from all customer groups would add about $6-$8 million to sales margin.
Reductions in revenues could occur for several reasons. The Company has
dealt with the potential loss of customers as a result of self-generation,
relocation or discontinuation of operations by successfully negotiating 62
multi-year contracts with major customers. Such a contract has been signed with
Yale University, the Company's largest customer, which is constructing a
cogeneration unit that will produce approximately one half of its annual
electricity requirements (about 1.5 percent of the Company's total 1997 retail
sales) commencing sometime in early 1998. While providing cost reduction and
price stability for customers and helping the Company maintain its customer base
for the long term, these contracts are expected to cause future reductions in
retail revenues. They reduced retail revenues by about $3 million in 1997
compared to 1996, but are not expected to approach that level of change in 1998.
Additionally, rate migration (customers switching to rates that are more
favorable because of usage patterns) reduced retail revenues by about $3 million
in 1997 compared to 1996; but the impact of rate migration on revenues in 1998
compared to 1997 is expected to be less than $1 million. Also, as part of the
Order, the operation of the Company's long-standing fossil fuel adjustment
clause (FAC) mechanism that allowed for recovery in retail rates of changes in
fossil fuel costs was suspended within a broad range of fuel prices. FAC
revenues will decline by about $2 million in 1998, to zero, compared to 1997,
due to this suspension of the FAC.
To summarize, assuming 1997 rates of "real" growth and the expected loss of
sales due to Yale University cogeneration, little change in retail kilowatt-hour
sales is expected in 1998 compared to 1997. Retail revenues should decline by
several million dollars or more if the Company is in the "sharing" range above
an 11.5% return on common stock equity. The overall average retail price
anticipated for 1998 is about 11.6 cents per kilowatt-hour, almost 5 percent
below the 1996 peak level.
Wholesale capacity prices strengthened in short-term markets during 1997,
due to outages of regional nuclear generating plants and changes in the New
England Power Pool (NEPOOL) capability responsibility requirements for its
participants. Wholesale capacity and transmission sales revenues increased $2.1
million in 1997 compared to 1996. The strength of these markets for 1998 will
depend on the timing of the return to service of the nuclear units at Millstone
Station, on the addition of new generation sources, and on how the capacity and
energy markets perform under the new NEPOOL open competition system, designed to
meet Federal Energy Regulatory Commission (FERC) open access orders, when it is
implemented. Implementation of this system is currently
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<PAGE>
expected in mid-1998; but this date is subject to NEPOOL information system
development and testing and further orders from the FERC. No significant sales
margin improvement is expected from wholesale capacity sales. Wholesale energy
revenues should remain similar to wholesale energy expense and not contribute
significantly to sales margin.
Another major factor affecting the Company's 1998 earnings prospects will
be the Company's ability to control operating expenses. The Company offered
voluntary early retirement programs and a voluntary severance program to union,
nonunion and management employees in 1996. A portion of the resulting personnel
cost savings occurred in 1996 and 1997, but the majority of the savings will be
realized in 1998. Savings of $6 million from personnel reductions are estimated.
The Company is expecting other significant expense declines in 1998
compared to 1997 from a number of sources. From the nuclear generating units, it
is expected that operation and maintenance expenses associated with the Seabrook
and Connecticut Yankee units should decline by a total of about $9 million. The
Seabrook unit should have no refueling outage in 1998 and, if it operates at an
assumed 95% availability (it was available virtually 100% between outages in
1997), net fuel expense should decline by about $2 million.
Millstone Unit 3 was taken out of service on March 30, 1996, and will
remain shut down pending a comprehensive Nuclear Regulatory Commission (NRC)
inquiry into the conformity of the unit and its operations with all applicable
NRC regulations and standards. The Company anticipates that, once NRC
deficiencies are corrected and Unit 3 is returned to service, operating costs
should ramp down to more normal levels for an efficient and safe nuclear unit of
this class. Also, if Millstone Unit 3 returns to service, net fuel expense
should decline by $400,000 per month for every month of operation, net of the
replacement fuel provision of about $100,000 per month...up to $3.6 million for
the year, if full power is reached by May 1, 1998.
Pension and health benefit expenses, excluding one-time items, are expected
to decrease by about $2.5 million in 1998 compared to 1997. NEPOOL expenses are
expected to increase by about $1.0 million, and information system expenses
associated with the "year 2000 issue" are expected to increase by $2.0 million.
Other operation and maintenance expenses may increase or decrease by amounts
that cannot be predicted at this time.
Interest costs are expected to continue to decline by about $10 million in
1998, reaching a level of about $52 million, a level that was last experienced
in 1984. This interest cost reduction is largely a result of 1997 debt
refinancings and debt paydown (long-term debt was reduced by $85 million in
1997) and an expected 1998 debt paydown of more than $70 million.
Other factors should increase costs. Other operation and maintenance
expense should increase in 1998, compared to 1997, by about $6 million,
reflecting increased fossil-fueled generating unit scheduled maintenance and
provisions for future outages. Base depreciation, excluding accelerated
amortization, should increase about $2.0 million; and accelerated amortization
per the DPUC Order will increase by about $7 million. Other operating expenses
will have some increases and some decreases that should more or less offset one
another.
In summary, the Company expects substantial net expense reductions that
should more than compensate for the loss of one-time items realized in 1997,
cover the increase in accelerated conservation and load management amortization,
and allow utility earnings to increase above an 11.5% return on common stock
equity into the "sharing" range of the DPUC Order. The 11.5% return level would
produce utility earnings of about $3.40-$3.45 per share, while "shared" earnings
should add an additional $.05-$.10 per share. Non-utility earnings should
increase by about $.05-$.10 per share in 1998 compared to 1997, primarily from
an anticipated improvement in the earnings of American Payment Systems, Inc. The
other subsidiaries are expected to break even in 1998. The Company expects that
1998 quarterly earnings from operations will follow a pattern similar to that of
1997 on a weather-normalized basis.
Although the current $2.88 indicated annual common stock dividend level for
1997 represented a payout of 88% of total 1997 earnings, the Company's cash flow
remains, and is expected to remain, very strong. Net cash
- 43 -
<PAGE>
provided by operating activities was $168 million in 1997, over 4 times the
common stock dividend payout, one of the highest such "coverage" levels in the
utility industry. The 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 regulatory assets more
rapidly, help it prepare for competition in the electric utility industry, and
help maintain cash flow at its excellent current level through the end of the
decade. If the Company is able to grow income and earnings in 1998 to the extent
indicated above, the common stock dividend payout ratio at the current indicated
annual dividend rate would be reduced to approximately 80%.
Longer Term
- -----------
On June 30, 1997, the Company's unionized employees accepted a new
five-year agreement, amending and extending the existing agreement that was
scheduled to remain in effect through May 15, 1998. The new agreement provides
for, among other things, 2% annual wage increases beginning in May 1998, and
annual lump sum bonuses of 2.5% of base annual straight time wages (not
cumulative). These provisions will restrict the growth of the Company's
bargaining unit base wage expense to about $500,000 per year. The agreement also
provides for job security for longer-term bargaining unit employees, and will
allow the Company some flexibility in adjusting work methods, as part of its
ongoing process re-engineering efforts.
Connecticut Yankee expenses are expected to continue to decline by
substantial amounts before leveling out at about $6 million per year after 1999,
compared to $11.8 million in 1997, until decommissioning is complete. However,
the ability of the Company to recover its ownership share of 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.
On August 7, 1997, the Company and the other nine minority joint owners
of Millstone Unit 3 that are not subsidiaries of Northeast Utilities (NU) filed
lawsuits against NU and its trustees, as well as a demand for arbitration
against The Connecticut Light and Power Company and Western Massachusetts
Electric Company, the operating electric utility subsidiaries of NU that are the
majority joint owners of the unit and have contracted with the minority joint
owners to operate it. The ten non-NU joint owners, who together own about 19.5%
of the unit, claim that NU and its subsidiaries failed to comply with NRC
regulations, failed to operate Millstone Station in accordance with good utility
operating practice and concealed their failures from the non-operating joint
owners and the NRC. The arbitration and lawsuits seek to recover costs of
purchasing replacement power and increased operation and maintenance costs
resulting from the shutdown of Millstone Unit 3.
The Company's planning and operations functions, and its cash flow, are
dependent on the timely flow of electronic data to and from its customers,
suppliers and other electric utility system managers and operators. In order to
assure that this data flow will not be disturbed by the problems emanating from
the fact that many existing computer programs were designed without considering
the impact of the year 2000 and use only two digits to identify the year in the
date field of the programs (the Year 2000 Issue), the Company initiated in
mid-1997, and is pursuing, an aggressive program to identify and correct all
deficiencies in its computer systems and in the computer systems of the critical
suppliers and other persons with whom data must be exchanged. A complete
inventory and assessment of the Company's computer system applications,
hardware, software and embedded technologies has been completed, and recommended
solutions to all identified risks and exposures have been generated. A
remediation, retirement, renovation and testing program has commenced. Necessary
upgrades to mainframe hardware and software are expected to be completed and
tested during 1998, and a parallel program with respect to desktop hardware and
software is currently projected to be completed and tested by March 31, 1999.
Request for documented compliance information have been sent to all critical
suppliers, data sharers and facility building owners and, as responses are
received, appropriate solutions and testing programs are being developed and
executed. The Company believes that the successful implementation of this
program, which is currently estimated to cost approximately $2.6 million, will
preclude any significant adverse impact of the Year 2000 Issue on its operations
and financial condition.
- 44 -
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING REVENUES (NOTE G) $710,267 $726,020 $690,449
------------- ------------ ------------
OPERATING EXPENSES
Operation
Fuel and energy 182,666 160,517 138,169
Capacity purchased 39,976 46,830 47,420
Early retirement program charges - 23,033 -
Other 158,600 158,945 147,660
Maintenance 42,203 37,652 36,089
Depreciation 74,618 65,921 61,426
Amortization of cancelled nuclear project and deferred return (Note D and J) 13,758 13,758 13,758
Income taxes (Note A and F) 41,333 53,090 59,828
Other taxes (Note G) 52,540 57,139 58,943
------------- ------------ ------------
Total 605,694 616,885 563,293
------------- ------------ ------------
OPERATING INCOME 104,573 109,135 127,156
------------- ------------ ------------
OTHER INCOME AND (DEDUCTIONS)
Allowance for equity funds used during construction 336 940 390
Other-net (Note G) 4,186 (7,166) (4,272)
Non-operating income taxes 2,496 9,332 4,901
------------- ------------ ------------
Total 7,018 3,106 1,019
------------- ------------ ------------
INCOME BEFORE INTEREST CHARGES 111,591 112,241 128,175
------------- ------------ ------------
INTEREST CHARGES
Interest on long-term debt 63,063 66,305 63,431
Interest on Seabrook obligation bonds owned by the company (6,905) (1,259) -
Other interest (Note G) 3,280 2,092 9,002
Allowance for borrowed funds used during construction (1,239) (1,435) (2,372)
------------- ------------ ------------
58,199 65,703 70,061
Amortization of debt expense and redemption premiums 2,788 2,629 4,138
------------- ------------ ------------
Net Interest Charges 60,987 68,332 74,199
------------- ------------ ------------
MINORITY INTEREST IN PREFERRED SECURITIES 4,813 4,813 3,583
------------- ------------ ------------
NET INCOME 45,791 39,096 50,393
Discount on preferred stock redemptions (48) (1,840) (2,183)
Dividends on preferred stock 205 330 1,329
------------- ------------ ------------
INCOME APPLICABLE TO COMMON STOCK $45,634 $40,606 $51,247
============= ============ ============
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC 13,976 14,101 14,090
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED 13,992 14,131 14,108
EARNINGS PER SHARE OF COMMON STOCK - BASIC $3.27 $2.88 $3.64
============= ============ ============
EARNINGS PER SHARE OF COMMON STOCK - DILUTED $3.26 $2.87 $3.63
============= ============ ============
CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $2.88 $2.88 $2.82
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the financial statements.
- 45 -
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(THOUSANDS OF DOLLARS)
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $45,791 $39,096 $50,393
------------ ------------ ------------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 79,487 70,363 66,958
Deferred income taxes 7,986 (2,276) 27,495
Deferred investment tax credits - net (762) (762) (762)
Amortization of nuclear fuel 5,799 5,690 13,571
Allowance for funds used during construction (1,575) (2,375) (2,762)
Amortization of deferred return 12,586 12,586 12,586
Early retirement costs accrued - 23,033 -
Changes in:
Accounts receivable - net 16,944 (23,555) 9,489
Fuel, materials and supplies 2,863 239 69
Prepayments 211 (557) 9,256
Accounts payable 641 22,657 2,555
Interest accrued (3,569) (671) (6,420)
Taxes accrued 3,663 (4,794) (11,310)
Other assets and liabilities (1,644) 6,078 (9,627)
------------ ------------ ------------
Total Adjustments 122,630 105,656 111,098
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 168,421 144,752 161,491
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock (6,432) 40 440
Long-term debt 98,500 82,500 150,000
Preferred securities of subsidiary - - 50,000
Notes payable 26,786 10,965 (67,000)
Securities redeemed and retired:
Preferred stock (110) (6,078) (34,161)
Long-term debt (151,199) (72,895) (165,103)
Discount on preferred stock redemption 48 1,840 2,183
Expenses of issues (1,500) (442) (2,222)
Lease obligations (315) (291) (1,169)
Dividends
Preferred stock (206) (410) (1,944)
Common stock (40,408) (40,399) (39,514)
------------ ------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (74,836) (25,170) (108,490)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Plant expenditures, including nuclear fuel (33,436) (47,174) (59,363)
Investment in Seabrook obligation bonds (34,541) (71,084) -
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (67,977) (118,258) (59,363)
------------ ------------ ------------
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD 25,608 1,324 (6,362)
BALANCE AT BEGINNING OF PERIOD 6,394 5,070 11,432
------------ ------------ ------------
BALANCE AT END OF PERIOD $32,002 $6,394 $5,070
============ ============ ============
CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized) $59,441 $69,669 $76,271
============ ============ ============
Income taxes $26,773 $51,415 $32,100
============ ============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the financial statements.
- 46 -
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997, 1996 AND 1995
ASSETS
(Thousands of Dollars)
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Utility Plant at Original Cost
In service $1,867,145 $1,843,952 $1,809,925
Less, accumulated provision for depreciation 644,971 585,646 532,015
-------------- -------------- ---------------
1,222,174 1,258,306 1,277,910
Construction work in progress 25,448 40,998 41,817
Nuclear fuel 25,990 23,010 25,967
-------------- -------------- ---------------
Net Utility Plant 1,273,612 1,322,314 1,345,694
-------------- -------------- ---------------
Other Property and Investments 32,451 26,081 27,388
-------------- -------------- ---------------
Current Assets
Cash and temporary cash investments 32,002 6,394 5,070
Accounts receivable
Customers, less allowance for doubtful
accounts of $1,800, $2,300 and $6,300 57,231 63,722 63,987
Other 27,914 38,367 14,547
Accrued utility revenues 25,269 29,139 28,318
Fuel, materials and supplies, at average cost 19,147 22,010 22,249
Prepayments 3,397 3,608 3,051
Other 67 110 55
-------------- -------------- ---------------
Total 165,027 163,350 137,277
-------------- -------------- ---------------
Deferred Charges
Unamortized debt issuance expenses 6,611 6,580 7,577
Other 5,727 1,485 2,377
-------------- -------------- ---------------
Total 12,338 8,065 9,954
-------------- -------------- ---------------
Regulatory Assets (future amounts due from customers
through the ratemaking process)
Income taxes due principally to book-tax
differences (Note A) 228,992 289,672 358,168
Connecticut Yankee 51,313 64,851 -
Deferred return - Seabrook Unit 1 25,171 37,757 50,343
Unamortized redemption costs 23,027 25,063 22,244
Unamortized cancelled nuclear project 12,125 13,297 24,620
Uranium enrichment decommissioning costs 1,312 1,377 1,505
Other 6,357 9,068 8,424
-------------- -------------- ---------------
Total 348,297 441,085 465,304
-------------- -------------- ---------------
$1,831,725 $1,960,895 $1,985,617
============== ============== ===============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the financial statements.
- 47 -
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEET
December 31, 1997, 1996 and 1995
CAPITALIZATION AND LIABILITIES
(Thousands of Dollars)
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Capitalization (Note B)
Common stock equity
Common stock $288,730 $284,579 $284,542
Paid-in capital 1,349 772 769
Capital stock expense (2,182) (2,182) (2,207)
Unearned employee stock ownership plan equity (11,160) - -
Retained earnings 162,226 156,847 156,877
-------------- -------------- ---------------
438,963 440,016 439,981
Preferred stock 4,351 4,461 10,539
Minority interest in preferred securities 50,000 50,000 50,000
Long-term debt
Long-term debt 746,058 826,527 845,684
Investment in Seabrook obligation bonds (101,388) (66,847) -
-------------- -------------- ---------------
Net long-term debt 644,670 759,680 845,684
Total 1,137,984 1,254,157 1,346,204
-------------- -------------- ---------------
Noncurrent Liabilities
Connecticut Yankee contract obligation 40,821 54,752 -
Pensions accrued (Note H) 39,149 49,205 33,832
Nuclear decommissioning obligation 17,538 12,851 10,317
Obligations under capital leases 16,853 17,193 17,508
Other 5,507 4,815 4,090
-------------- -------------- ---------------
Total 119,868 138,816 65,747
-------------- -------------- ---------------
Current Liabilities
Current portion of long-term debt 100,000 69,900 40,800
Notes payable 37,751 10,965 -
Accounts payable 68,699 68,058 45,401
Dividends payable 10,051 10,205 10,072
Taxes accrued 4,166 503 5,297
Interest accrued 10,266 13,835 14,506
Obligations under capital leases 340 315 291
Other accrued liabilities 37,471 36,091 26,769
-------------- -------------- ---------------
Total 268,744 209,872 143,136
-------------- -------------- ---------------
Customers' Advances for Construction 1,878 1,888 2,655
-------------- -------------- ---------------
Regulatory Liabilitie (future amounts owed to customers
through the ratemaking process)
Accumulated deferred investment tax credits 16,385 17,147 17,909
Other 2,356 1,811 1,990
-------------- -------------- ---------------
Total 18,741 18,958 19,899
-------------- -------------- ---------------
Deferred Income Taxes (future tax liabilities owed
to taxing authorities) 284,510 337,204 407,976
Commitments and Contingencies (Note L)
-------------- -------------- ---------------
$1,831,725 $1,960,895 $1,985,617
============== ============== ===============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the financial statements.
- 48 -
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(THOUSANDS OF DOLLARS)
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
BALANCE, JANUARY 1 $156,847 $156,877 $145,559
Net income 45,791 39,096 50,393
Adjustments associated with repurchase
of preferred stock 48 1,815 1,988
------------- ------------- -------------
Total 202,686 197,788 197,940
------------- ------------- -------------
Deduct Cash Dividends Declared
Preferred stock 205 330 1,329
Common stock 40,255 40,611 39,734
------------- ------------- -------------
Total 40,460 40,941 41,063
------------- ------------- -------------
BALANCE, DECEMBER 31 $162,226 $156,847 $156,877
============= ============= =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of the financial statements.
- 49 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The United Illuminating Company (UI or the Company) is an operating
electric public utility company, engaged principally in the production,
purchase, transmission, distribution and sale of electricity for residential,
commercial and industrial purposes in a service area of about 335 square miles
in the southwestern part of the State of Connecticut. The service area, largely
urban and suburban in character, includes the principal cities of Bridgeport
(population 137,000) and New Haven (population 124,000) and their surrounding
areas. Situated in the service area are retail trade and service centers, as
well as large and small industries producing a wide variety of products,
including helicopters and other transportation equipment, electrical equipment,
chemicals and pharmaceuticals.
In addition, the Company has created, and owns, unregulated subsidiaries.
The Board of Directors of the Company has authorized the investment of a maximum
of $27 million in the unregulated subsidiaries, and, at December 31, 1997, $27
million had been invested. A wholly-owned subsidiary, United Resources, Inc.,
serves as the parent corporation to American Payment Systems, Inc., (APS) which
manages a national network of agents for the processing of bill payments made by
customers of other utilities.
(A) STATEMENT OF ACCOUNTING POLICIES
ACCOUNTING RECORDS
The accounting records are maintained in accordance with the uniform
systems of accounts prescribed by the Federal Energy Regulatory Commission
(FERC) and the Connecticut Department of Public Utility Control (DPUC).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to use estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, United Resources Inc. Intercompany accounts and
transactions have been eliminated in consolidation.
REGULATORY ACCOUNTING
The consolidated financial statements of the Company are in conformity with
generally accepted accounting principles and with accounting for regulated
electric utilities prescribed by the Federal Energy Regulatory Commission (FERC)
and the Connecticut Department of Public Utility Control (DPUC). Generally
accepted accounting principles for regulated entities allow the Company to give
accounting recognition to the actions of regulatory authorities in accordance
with the provisions of Statement of Financial Accounting Standards (SFAS) No.
71, "Accounting for the Effects of Certain Types of Regulation". In accordance
with SFAS No. 71, the Company has deferred recognition of costs (a regulatory
asset) or has recognized obligations (a regulatory liability) if it is probable
that such costs will be recovered or obligations relieved in the future through
the ratemaking process. In addition to the Regulatory Assets and Liabilities
separately identified on the Consolidated Balance Sheet, there are other
regulatory assets and liabilities such as conservation and load management costs
and certain deferred tax liabilities. The Company also has obligations under
long-term power contracts, the recovery of which is subject to regulation.
- 50 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The effects of competition 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 could 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.
See Note (C), Rate-Related Regulatory Proceedings.
RECLASSIFICATION OF PREVIOUSLY REPORTED AMOUNTS
Certain amounts previously reported have been reclassified to conform with
current year presentations.
UTILITY PLANT
The cost of additions to utility plant and the cost of renewals and
betterments are capitalized. Cost consists of labor, materials, services and
certain indirect construction costs, including an allowance for funds used
during construction (AFUDC). The cost of current repairs and minor replacements
is charged to appropriate operating expense accounts. The original cost of
utility plant retired or otherwise disposed of and the cost of removal, less
salvage, are charged to the accumulated provision for depreciation.
The Company's utility plant in service as of December 31, 1997, 1996 and
1995 was comprised as follows:
1997 1996 1995
---- ---- ----
(000's)
Production $1,131,285 $1,124,113 $1,122,001
Transmission 161,288 160,970 158,373
Distribution 401,426 387,825 375,962
General 52,776 47,889 45,924
Future use plant 30,594 32,751 32,762
Other 89,776 90,404 74,903
--------- --------- ---------
$1,867,145 $1,843,952 $1,809,925
========= ========= =========
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
In accordance with the applicable regulatory systems of accounts, the
Company capitalizes AFUDC, which represents the approximate cost of debt and
equity capital devoted to plant under construction. In accordance with FERC
prescribed accounting, the portion of the allowance applicable to borrowed funds
is presented in the Consolidated Statement of Income as a reduction of interest
charges, while the portion of the allowance applicable to equity funds is
presented as other income. Although the allowance does not represent current
cash income, it has historically been recoverable under the ratemaking process
over the service lives of the related properties. The Company compounds the
allowance applicable to major construction projects semi-annually. Weighted
average AFUDC rates in effect for 1997, 1996 and 1995 were 7.5%, 9.0% and 8.0%,
respectively.
DEPRECIATION
Provisions for depreciation on utility plant for book purposes are computed
on a straight-line basis, using estimated service lives determined by
independent engineers. One-half year's depreciation is taken in the year of
addition and disposition of utility plant, except in the case of major operating
units on which depreciation commences in the month
- 51 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
they are placed in service and ceases in the month they are removed from
service. The aggregate annual provisions for depreciation for the years 1997,
1996 and 1995 were equivalent to approximately 3.15%, 3.12% and 3.07%,
respectively, of the original cost of depreciable property.
INCOME TAXES
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109 "Accounting for Income Taxes", the Company has provided deferred taxes for
all temporary book-tax differences using the liability method. The liability
method requires that deferred tax balances be adjusted to reflect enacted future
tax rates that are anticipated to be in effect when the temporary differences
reverse. In accordance with generally accepted accounting principles for
regulated industries, the Company has established a regulatory asset for the net
revenue requirements to be recovered from customers for the related future tax
expense associated with certain of these temporary differences.
For ratemaking purposes, the Company normalizes all investment tax credits
(ITC) related to recoverable plant investments except for the ITC related to
Seabrook Unit 1, which was taken into income in accordance with provisions of a
1990 DPUC retail rate decision.
ACCRUED UTILITY REVENUES
The estimated amount of utility revenues (less related expenses and
applicable taxes) for service rendered but not billed is accrued at the end of
each accounting period.
CASH AND TEMPORARY CASH INVESTMENTS
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 and temporary cash investments. The Company records outstanding checks
as accounts payable until the checks have been honored by the banks.
The Company is required to maintain an operating deposit with the project
disbursing agent related to its 17.5% ownership interest in Seabrook Unit 1.
This operating deposit, which is the equivalent to one and one half months of
the funding requirement for operating expenses, is restricted for use and
amounted to $2.3 million, $3.4 million and $3.9 million, at December 31, 1997,
1996 and 1995, respectively.
INVESTMENTS
The Company's investment in the Connecticut Yankee Atomic Power Company, a
nuclear generating company in which the Company has a 9 1/2% stock interest, is
accounted for on an equity basis. This investment amounted to $10.5 million,
$10.1 million and $9.6 million at December 31, 1997, 1996 and 1995,
respectively, and is included on the Consolidated Balance Sheet in "Other
Property and Investments" at December 31, 1995 and as a regulatory asset at
December 31, 1997 and 1996. See Note (L), Commitments and Contingencies - Other
Commitments and Contingencies - Connecticut Yankee.
FOSSIL FUEL COSTS
Historically, the amount of fossil fuel costs that cannot be reflected
currently in customers' bills pursuant to the fossil fuel adjustment clause in
the Company's rates has been deferred at the end of each accounting period.
Since adoption of the deferred accounting procedure in 1974, rate decisions by
the DPUC and its predecessors have consistently made specific provision for
amortization and ratemaking treatment of the Company's existing deferred fossil
fuel cost balances. As a result of a December 1996 DPUC decision, the Company
has suspended this deferred
- 52 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
accounting procedure unless the average fossil fuel oil prices increase or
decrease outside a certain bandwidth prescribed in the decision.
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 that 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.
As of December 31, 1997, the Company had entered into swap agreements
for 1998 for 795,000 barrels of fuel oil at a weighted average price of $16.33
per barrel and had call options for 590,000 barrels of fuel oil at a weighted
average price of $18.45 per barrel.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs, including environmental studies, are
capitalized if related to specific construction projects and depreciated over
the lives of the related assets. Other research and development costs are
charged to expense as incurred.
PENSION AND OTHER POSTEMPLOYMENT BENEFITS
The Company accounts for normal pension plan costs in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 87,
"Employers' Accounting for Pensions", and for supplemental retirement plan costs
and supplemental early retirement plan costs in accordance with the provisions
of SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits".
The Company accounts for other postemployment benefits, consisting
principally of health and life insurance, under the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions", which
requires, among other things, that the liability for such benefits be accrued
over the employment period that encompasses eligibility to receive such
benefits. The annual incremental cost of this accrual has been allowed in retail
rates in accordance with a 1992 rate decision of the DPUC.
URANIUM ENRICHMENT OBLIGATION
Under the Energy Policy Act of 1992 (Energy Act), the Company will be
assessed for its proportionate share of the costs of the decontamination and
decommissioning of uranium enrichment facilities operated by the Department of
Energy. The Energy Act imposes an overall cap of $2.25 billion on the obligation
assessed to the nuclear utility industry and limits the annual assessment to
$150 million each year over a 15-year period. At December 31, 1997, the
Company's unfunded share of the obligation, based on its ownership interest in
Seabrook Unit 1 and Millstone Unit 3, was approximately $1.2 million. Effective
January 1, 1993, the Company was allowed to recover these assessments in rates
as a component of fuel expense. Accordingly, the Company has recognized these
costs as a regulatory asset on its Consolidated Balance Sheet.
- 53 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 $2,571,000, $2,130,000 and $1,882,000
during 1997, 1996 and 1995 into the decommissioning trust funds for Seabrook
Unit 1 and Millstone Unit 3. At December 31, 1997, the Company's shares of the
trust fund balances, which included accumulated earnings on the funds, were
$12.4 million and $5.1 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.
IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets to Be Disposed Of" 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 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. The Company does
not have any assets that are impaired under this standard.
APS REVENUES AND AGENT COLLECTIONS
APS recognized revenue of $31.7 million, $19.2 million and $6.8 million for
the years 1997, 1996 and 1995, respectively, based on established fees per
payment transaction processed. Cash associated with customer payments are the
property of other utilities and have not been reflected in UI's consolidated
financial statements.
EARNINGS PER SHARE
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.
- 54 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table presents a reconciliation of the numerators and
denominators of the basic and diluted earnings per share calculations for the
years 1997, 1996 and 1995:
<TABLE>
<CAPTION>
(In thousands except per share amounts)
Income Applicable to Average Number of
Common Stock Shares Outstanding Earnings
(Numerator) (Denominator) per Share
----------- ------------- ---------
<S> <C> <C> <C>
1997
- ----
Basic earnings per share $45,634 13,976 $3.27
Effect of dilutive stock options - 16 (.01)
------ ------ ----
Diluted earnings per share $45,634 13,992 $3.26
====== ====== ====
1996
- ----
Basic earnings per share $40,606 14,101 $2.88
Effect of dilutive stock options - 30 (.01)
------ ------ ----
Diluted earnings per share $40,606 14,131 $2.87
====== ====== ====
1995
- ----
Basic earnings per share $51,247 14,090 $3.64
Effect of dilutive stock options - 18 (.01)
------ ------ ----
Diluted earnings per share $51,247 14,108 $3.63
====== ====== ====
</TABLE>
STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation in accordance
with Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation". This statement 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 that 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 had been applied. The accounting
requirements of this statement are effective for transactions entered into after
1995. However, pro forma disclosures must include the effects of all awards
granted after January 1, 1995. As of December 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.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". This
statement, which is effective for financial statements issued for fiscal years
beginning after December 15, 1997, requires entities to disclose specific
financial and descriptive information about its reportable operating segments.
Reportable operating segments are components of an entity about which separate
financial information is available that is regularly used when evaluating
segment performance and determining the allocation of resources. The Company
currently does not have separate reportable segments to which this standard
would apply.
- 55 -
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(B) CAPITALIZATION
<CAPTION>
December 31,
---------------------------------------------------------------------------------------
1997 1996 1995
Shares Shares Shares
Outstanding $(000's) Outstanding $(000's) Outstanding $(000's)
-------------- ------------ -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK EQUITY
Common stock, no par value,
at December 31(a) 13,907,824 $288,730 14,101,291 $284,579 14,100,091 $284,542
Shares authorized
1995 30,000,000
1996 30,000,000
1997 30,000,000
Paid-in capital 1,349 772 769
Capital stock expense (2,182) (2,182) (2,207)
Unearned employee stock ownership plan equity (11,160) - -
Retained earnings (b) 162,226 156,847 156,877
------------ ------------ ------------
Total common stock equity 438,963 440,016 439,981
------------ ------------ ------------
PREFERRED AND PREFERENCE STOCK (C)
Cumulative preferred stock,
$100 par value, shares
authorized at December 31,
1995 1,180,394
1996 1,119,612
1997 1,119,612
Preferred stock issues:
4.35% Series A 10,894 11,297 21,247
4.72% Series B 17,158 17,658 30,490
4.64% Series C 12,745 12,945 12,945
5 5/8% Series D 2,712 2,712 40,712
-------------- -------------- --------------
43,509 4,351 44,612 4,461 105,394 10,539
-------------- ------------ -------------- ------------ -------------- ------------
Cumulative preferred stock, $25 par
value: 2,400,000 shares authorized
Preferred stock issues - - - - - -
Cumulative preference stock, $25 par
value: 5,000,000 shares authorized
Preference stock issues - - - - - -
------------ ------------ ------------
Total preferred stock not
subject to mandatory redemption 4,351 4,461 10,539
------------ ------------ ------------
MINORITY INTEREST IN PREFERRED SECURITIES (D) 50,000 50,000 50,000
------------ ------------ ------------
</TABLE>
- 56 -
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<CAPTION>
December 31,
-------------------------------------------------
1997 1996 1995
$(000's) $(000's) $(000's)
------------- ------------- --------------
<S> <C> <C> <C>
LONG-TERM DEBT (E)
First Mortgage Bonds:
9.44%, Series B - $32,400 $43,200
Other Long-term Debt
Pollution Control Revenue Bonds:
9 1/2%, 1986 Series, due June 1, 2016 - - 7,500
Variable rate, 1996 Series, due June 26, 2026 7,500 7,500 -
9 3/8%, 1987 Series, due July 1, 2012 - 25,000 25,000
10 3/4%, 1987 Series, due November 1, 2012 - 43,500 43,500
8%, 1989 Series A, due December 1, 2014 25,000 25,000 25,000
5 7/8%, 1993 Series, due October 1, 2033 64,460 64,460 64,460
Solid Waste Disposal Revenue Bonds:
Adjustable rate 1990 Series A, due September 1, 2015 - 30,000 30,000
Pollution Control Refunding Revenue Bonds:
Variable rate, 1997 Series, due July 30, 2027 98,500 - -
Notes:
7.00%, 1992 Series E, due January 15, 1997 - - 50,000
7 3/8%, 1992 Series G, due January 15, 1998 100,000 100,000 100,000
6.20%, 1993 Series H, due January 15, 1999 100,000 100,000 100,000
Term Loans:
6.95%, due August 29, 2000 50,000 50,000 50,000
6.47%, due September 6, 2000 50,000 50,000 50,000
6.4375%, due September 6, 2000 50,000 50,000 50,000
6.675%, due October 25, 2001 25,000 25,000 -
7.005% due October 25, 2001 50,000 50,000 -
Obligation under the Seabrook Unit 1
sale/leaseback agreement 225,601 243,660 248,030
------------- ------------- --------------
846,061 896,520 886,690
Unamortized debt discount less premium (3) (93) (206)
------------- ------------- --------------
Total long-term debt 846,058 896,427 886,484
Less:
Current portion included in Current Liabilities (e) 100,000 69,900 40,800
Investment-Seabrook Lease Obligation Bonds 101,388 66,847 -
------------- ------------- --------------
Total long-term debt included in Capitalization 644,670 759,680 845,684
------------- ------------- --------------
TOTAL CAPITALIZATION $1,137,984 $1,254,157 $1,346,204
============= ============= ==============
</TABLE>
- 57 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(A) COMMON STOCK
The Company had 14,236,124 shares of its common stock, no par value,
outstanding at December 31, 1997, of which 328,300 shares were unallocated
shares held by the Company's Employee Stock Ownership Plan ("ESOP") and not
recognized as outstanding for accounting purposes.
The Company issued 134,833 shares of common stock in 1997, 1,200 shares of
common stock in 1996 and 13,400 shares of common stock in 1995, pursuant to a
stock option plan.
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 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, 54,500 shares of stock at an
exercise price of $30.75 per share, 4,000 shares of stock at an exercise price
of $35.625 per share, 33,799 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 remained outstanding at December
31, 1997.
The Company has entered into an arrangement under which it loaned $11.5
million to The United Illuminating Company ESOP. The trustee for the ESOP used
the funds to purchase shares of the Company's common stock in open market
transactions. The shares will be allocated to employees' ESOP accounts, as the
loan is repaid, to cover a portion of the Company's required ESOP contributions.
The loan will be repaid by the ESOP over a twelve-year period, using the Company
contributions and dividends paid on the unallocated shares of the stock held by
the ESOP. As of December 31, 1997, 328,300 shares, with a fair market value of
$15.1 million, had been purchased by the ESOP and had not been committed to be
released or allocated to ESOP participants.
(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
$104.1 million were free from such limitations at December 31, 1997.
(C) PREFERRED AND PREFERENCE STOCK
The par value of each of these issues was credited to the appropriate stock
account and expenses related to these issues were charged to capital stock
expense.
In February 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.
In August 1997, the Company purchased at a discount on the open market, and
canceled, 500 shares of its $100 par value 4.72%, Series B preferred stock and
200 shares of its $100 par value 4.64%, Series C preferred stock. These shares,
having a par value of $70,000, were purchased for $41,100, creating a net gain
of $28,900.
Shares of preferred stock have preferential dividend and liquidation rights
over shares of common stock. Preferred shareholders are not entitled to general
voting rights. However, if any preferred dividends are in arrears for six or
more
- 58 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
quarters, or if certain other events of default occurs, preferred shareholders
are entitled to elect a majority of the Board of Directors until all preferred
dividend arrears are paid and any event of default is terminated.
Preference stock is a form of stock that is junior to preferred stock but
senior to common stock. It is not subject to the earnings coverage requirements
or minimum capital and surplus requirements governing the issuance of preferred
stock. There were no shares of preference stock outstanding at December 31,
1997.
(D) PREFERRED CAPITAL SECURITIES
United Capital Funding Partnership L.P. ("United Capital") is a special
purpose limited partnership in which the Company owns all of the general partner
interests. United Capital has $50 million of its monthly income 9 5/8% Preferred
Capital Securities, Series A, ("Preferred Capital Securities") outstanding,
representing limited partnership interests in United Capital. United Capital
loaned the proceeds of the issuance and sale of the Preferred Capital Securities
to the Company in return for the Company's 9 5/8% Junior Subordinated Deferrable
Interest Debentures, Series A, Due 2025.
United Capital and the Company have registered an additional $50 million of
Capital Securities and/or Subordinated Debentures for sale to the public from
time to time, in one or more series, under the Securities Act of 1933.
(E) LONG-TERM DEBT
The expenses to issue long-term debt are deferred and amortized over the
life of the respective debt issue.
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.
On July 30, 1997, the Company borrowed $98.5 million from the Business
Finance Authority of the State of New Hampshire (BFA), representing the proceeds
from the issuance by the BFA of $98.5 million principal amount of tax-exempt
Pollution Control Refunding Revenue Bonds (PCRRBs). The Company is obligated,
under its borrowing agreement with the BFA, to pay to a trustee for the PCRRBs'
bondholders such amounts as will pay, when due, the principal of and the
premium, if any, and interest on the PCRRBs. The PCRRBs will mature in 2027, and
their interest rate is adjusted periodically to reflect prevailing market
conditions. The PCRRBs' interest rate, which is being adjusted weekly, was 3.75%
at December 31, 1997. The Company has used the proceeds of this $98.5 million
borrowing to cause the redemption and repayment of $25 million of 9 3/8%, 1987
Series A, Pollution Control Revenue Bonds, $43.5 million of 10 3/4%, 1987 Series
B, Pollution Control Revenue Bonds, and $30 million of Adjustable Rate, 1990
Series A, Solid Waste Disposal Revenue Bonds, three outstanding series of
tax-exempt bonds on which the Company also had a payment obligation to a trustee
for the bondholders. Expenses associated with this transaction, including
redemption premiums totaling $2,055,000 and other expenses of approximately
$1,500,000, were paid by the Company.
On November 12, 1997, the Company refinanced the secured lease obligation
bonds that were issued in 1990 in connection with the sale and leaseback by the
Company of a portion of its ownership share in Seabrook Unit 1. All
- 59 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
of the outstanding $69,593,000 principal amount of 9.76% Series 2006 Seabrook
Lease Obligation Bonds (the "9.76% Bonds") and $129,055,000 principal amount of
10.24% Series 2020 Seabrook Lease Obligation Bonds (the "10.24% Bonds") were
redeemed. The redemption premiums paid on the 9.76% Bonds and the 10.24% Bonds
were $1,884,549 and $8,589,901, respectively. The Bonds were refunded with the
proceeds from the issuance of $203,088,000 principal amount of 7.83% Seabrook
Lease Obligation Bonds due January 2, 2019 (the "7.83% Bonds") the principal of
which will be payable from time to time in installments. Transaction expenses
totaling $1,530,022 and redemption premiums totaling $8,139,978 were paid from
the proceeds of the 7.83% Bonds and will be repaid as part of the Company's
Lease payments over the remaining term of the Lease. The remainder of the
redemption premiums ($2,334,472) and transaction expenses were paid by the
Company and will be amortized over the remainder of the Lease term. The
transaction reduces the interest rate on the leaseback arrangement, which is
treated as long-term debt on the Company's Consolidated Balance Sheet, from
8.45% to 7.56%. The Company owned $16,997,000 principal amount of the 9.76%
Bonds and $49,850,000 principal amount of the 10.24% Bonds. The Company used the
proceeds from the redemption of these bonds ($70,662,688, including redemption
premiums totaling $3,815,688), plus available funds and short-term borrowings,
to purchase $101,388,000 principal amount of the 7.83% Bonds. The Company
intends to hold the 7.83% Bonds until maturity and has recognized the investment
as an offset to long-term debt on its Consolidated Balance Sheet.
On January 13, 1998, the Company issued and sold $100 million principal
amount of 6.25% four-year and eleven month Notes. The yield on the Notes, which
were issued at a discount, is 6.30%; and the Notes will mature on December 15,
2002. The proceeds from the sale of the Notes were used to repay $100 million
principal amount of 7 3/8% Notes, which matured on January 15, 1998.
- 60 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Maturities and mandatory redemptions/repayments are set forth below:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
(000's)
<S> <C> <C> <C> <C> <C>
Maturities $100,000 $100,000 $150,000 $75,000 $ -
Mandatory redemptions/repayments (1) 4,194 3,410 430 333 338
------- ------- ------- ------ ---
Maturities, Mandatory and Optional
redemptions/repayments $104,194 $103,410 $150,430 $75,333 $338
======= ======= ======= ====== ===
</TABLE>
(1) Principal component of Seabrook lease obligation, net of principal
repayment of Seabrook Lease Obligation Bonds held as an investment.
As of December 31, 1997, the Company had $200 million principal amount of
Notes for sale to the public from time to time, in one or more series,
registered under the Securities Act of 1933. On January 13, 1998, the Company
issued and sold $100 million principal amount of these Notes.
(C) RATE-RELATED REGULATORY PROCEEDINGS
Utilities are entitled by Connecticut law to charge retail rates that are
determined by the DPUC to be sufficient to allow them to cover their operating
and capital costs, to attract needed capital and maintain their financial
integrity, while also protecting the public interest. However, a company may
earn up to 1% above its DPUC-authorized return on equity for six consecutive
months before a mandatory review is required by the DPUC. A Connecticut statute
requires the DPUC to review and investigate the financial and operating records
of each electric utility company, at intervals of not more than four years, to
determine whether the company's rates comply with statutory standards.
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 existing retail base rates charged to
customers; but its order increased amortization of the Company's conservation
and load management program investments during 1997-1998, and accelerated the
recovery of unspecified regulatory assets during 1999-2001 if the Company's
common stock equity return on utility investment exceeds 10.5% after recording
the increased conservation and load management amortization. The order also
reduced the level of conservation adjustment mechanism revenues in retail
prices, provided a reduction in customer prices 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 utility
common stock 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 price reductions,
one-third to increase amortization of regulatory assets, and one-third retained
as earnings.
A reopening of this docket will be requested by the Company in 1998 to
determine the regulatory assets to be subjected to accelerated recovery in 1999,
2000 and 2001.
In its 1997 session, the Connecticut legislature drafted, but failed to
bring to a vote, comprehensive legislation that would have introduced retail
access in Connecticut over a period of several years, with a provision for the
recovery of stranded costs by service area utilities. The legislature is
currently considering legislation of this same sort in its 1998 session. Among
many other factors, decisions and actions concerning retail access in other
states could impact the timing and form of this legislation.
Since January 1971, UI has had a fossil fuel adjustment clause (FCA) in
virtually all of its retail rates. As a result of the DPUC Order described
above, the Company's FCA has been modified so that the clause will not be
implemented
- 61 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
unless the monthly average price for fuel oil increases above $28 per barrel or
decreases below $10 per barrel for six consecutive months.
(D) ACCOUNTING FOR PHASE-IN PLAN
The Company phased into rate base its allowable investment in Seabrook Unit
1, amounting to $640 million, during the period January 1, 1990 to January 1,
1994. In conjunction with this phase-in plan, the Company was allowed to record
a deferred return on the portion of allowable investment excluded from rate base
during the phase-in period. Accordingly, the Company is amortizing the
net-of-tax accumulated deferred return of $62.9 million over a five-year period
that commenced January 1, 1995.
(E) SHORT-TERM CREDIT ARRANGEMENTS
The Company has a revolving credit agreement with a group of banks that
currently extends to December 9, 1998. 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 December
31, 1997, the Company had $30 million of short-term borrowings outstanding under
this facility.
In addition, as of December 31, 1997, one of the Company's subsidiaries,
American Payment Systems, Inc., had borrowings of $7.8 million outstanding under
a bank line of credit agreement.
The Company's long-term debt instruments do not limit the amount of
short-term debt that the Company may issue. The Company's revolving credit
agreement described above requires it to maintain an available earnings/interest
charges ratio of not less than 1.5:1.0 for each 12-month period ending on the
last day of each calendar quarter. For the 12-month period ended December 31,
1997, this coverage ratio was 3.23:1.0.
- 62 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Information with respect to short-term borrowings under the Company's
revolving credit agreement is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(000's)
<S> <C> <C> <C>
Maximum aggregate principal amount of short-term borrowings
outstanding at any month-end $50,000 $30,000 $195,000
Average aggregate short-term borrowings outstanding during the year* $41,441 $15,380 $117,980
Weighted average interest rate* 5.9% 5.7% 6.5%
Principal amounts outstanding at year-end $30,000 $0 $0
Annualized interest rate on principal amounts outstanding at year-end 6.2% N/A N/A
</TABLE>
*Average short-term borrowings represent the sum of daily borrowings
outstanding, weighted for the number of days outstanding and divided by the
number of days in the period. The weighted average interest rate is determined
by dividing interest expense by the amount of average borrowings. Commitment
fees of approximately $114,000, $130,000 and $426,500 paid during 1997, 1996 and
1995, respectively, are excluded from the calculation of the weighted average
interest rate.
- 63 -
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(F) INCOME TAXES
<CAPTION>
1997 1996 1995
----- ----- ----
Income tax expense consists of: (000's)
<S> <C> <C> <C>
Income tax provisions:
Current
Federal $23,940 $35,398 $18,031
State 7,673 11,398 10,163
----------- ------------ ------------
Total current 31,613 46,796 28,194
----------- ------------ ------------
Deferred
Federal 7,008 616 24,682
State 978 (2,892) 2,813
----------- ------------ ------------
Total deferred 7,986 (2,276) 27,495
----------- ------------ ------------
Investment tax credits (762) (762) (762)
----------- ------------ ------------
Total income tax expense $38,837 $43,758 $54,927
=========== ============ ============
Income tax components charged as follows:
Operating expenses $41,333 $53,090 $59,828
Other income and deductions - net (2,496) (9,332) (4,901)
----------- ------------ ------------
Total income tax expense $38,837 $43,758 $54,927
=========== ============ ============
The following table details the components
of the deferred income taxes:
Tax depreciation on unrecoverable plant investment $8,089 $5,745 $8,889
Fossil plants decommissioning reserve (7,286) - -
Conservation & load management (5,768) (367) 804
Accelerated depreciation 5,681 5,617 9,410
Pension benefits 4,911 (9,066) (1,460)
Seabrook sale/leaseback transaction 2,664 (598) (397)
Deferred fossil fuel costs (686) 755 (122)
Cancelled nuclear project (467) (4,729) (467)
Unit overhaul and replacement power costs 212 (1,491) -
Alternative minimum tax - - 11,404
Other - net 636 1,858 (566)
----------- ------------ ------------
Deferred income taxes - net $7,986 ($2,276) $27,495
=========== ============ ============
</TABLE>
- 64 -
<PAGE>
Total income taxes differ from the amounts computed by applying the federal
statutory tax rate to income before taxes. The reasons for the differences are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Pre-Tax Tax Pre-Tax Tax Pre-Tax Tax
------- --- ------- --- ------- ---
(000's)
<S> <C> <C> <C> <C> <C> <C>
Computed tax at federal statutory rate $29,619 $28,999 $36,862
Increases (reductions) resulting from:
Deferred return-Seabrook Unit 1 12,586 4,405 12,586 4,405 12,586 4,405
ITC taken into income (762) (762) (762) (762) (762) (762)
Allowance for equity funds used during
construction (336) (118) (940) (329) (390) (136)
Fossil plant decommissioning reserve (15,591) (5,457) - - - -
Book depreciation in excess of
non-normalized tax depreciation 23,926 8,374 22,703 7,946 21,586 7,555
State income taxes, net of federal
income tax benefits 8,651 5,622 8,506 5,529 12,976 8,434
Other items - net (8,134) (2,846) (5,797) (2,030) (4,090) (1,431)
------ ------ ------
Total income tax expense $38,837 $43,758 $54,927
====== ====== ======
Book income before income taxes $84,628 $82,854 $105,320
====== ====== =======
Effective income tax rates 45.9% 52.8% 52.1%
===== ===== =====
</TABLE>
At December 31, 1997 the Company had deferred tax liabilities for taxable
temporary differences of $400 million and deferred tax assets for deductible
temporary differences of $115 million, resulting in a net deferred tax liability
of $285 million. Significant components of deferred tax liabilities and assets
were as follows: tax liabilities on book/tax plant basis differences and on the
cumulative amount of income taxes on temporary differences previously flowed
through to ratepayers, $237 million; tax liabilities on normalization of
book/tax depreciation timing differences, $122 million and tax assets on the
disallowance of plant costs, $47 million.
- 65 -
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(G) SUPPLEMENTARY INFORMATION
<CAPTION>
1997 1996 1995
----- ----- ----
(000'S)
<S> <C> <C> <C>
OPERATING REVENUES
- ------------------
Retail $623,571 $649,876 $639,108
Wholesale - capacity 9,747 7,686 6,601
- energy 73,124 65,158 41,631
Other 3,825 3,300 3,109
------------- ------------- --------------
Total Operating Revenues $710,267 $726,020 $690,449
============= ============= ==============
SALES BY CLASS(MWH'S) - UNAUDITED
- ---------------------------------
Retail
Residential 1,903,096 1,891,988 1,890,575
Commercial 2,253,488 2,258,501 2,273,965
Industrial 1,170,815 1,141,109 1,126,458
Other 48,717 48,291 48,435
------------- ------------- --------------
5,376,116 5,339,889 5,339,433
Wholesale 2,700,393 2,260,423 1,708,837
------------- ------------- --------------
Total Sales by Class 8,076,509 7,600,312 7,048,270
============= ============= ==============
OTHER TAXES
- -----------
Charged to:
Operating:
State gross earnings $23,618 $26,757 $27,379
Local real estate and personal property 22,974 24,854 25,761
Payroll taxes 5,948 5,528 5,800
Other - - 3
------------- ------------- --------------
52,540 57,139 58,943
Nonoperating and other accounts 459 628 527
------------- ------------- --------------
Total Other Taxes $52,999 $57,767 $59,470
============= ============= ==============
OTHER INCOME AND (DEDUCTIONS) - NET
- -----------------------------------
Interest income $2,317 $1,505 $2,624
Equity earnings from Connecticut Yankee 1,343 1,225 1,440
Loss from subsidiary companies (814) (8,422) (4,898)
Engineering study costs - - (849)
Miscellaneous other income and (deductions) - net 1,340 (1,474) (2,589)
------------- ------------- --------------
Total Other Income and (Deductions) - net $4,186 ($7,166) ($4,272)
============= ============= ==============
OTHER INTEREST CHARGES
- ----------------------
Notes Payable $2,462 $882 $7,660
Other 818 1,210 1,342
------------- ------------- --------------
Total Other Interest Charges $3,280 $2,092 $9,002
============= ============= ==============
</TABLE>
- 66 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(H) PENSION AND OTHER BENEFITS
The Company's qualified pension plan, which is based on the highest three
years of pay, covers substantially all of its employees, and its entire cost is
borne by the Company. The Company also has a non-qualified supplemental plan for
certain executives and a non-qualified retiree only plan for certain early
retirement benefits. The net pension costs for these plans for 1997, 1996 and
1995 were ($4,626,000), $18,403,000 and $3,842,000, respectively.
The Company's funding policy for the qualified plan is to make annual
contributions that satisfy the minimum funding requirements of ERISA but that do
not exceed the maximum deductible limits of the Internal Revenue Code. These
amounts are determined each year as a result of an actuarial valuation of the
plan. In accordance with this policy, no pension fund contributions were made in
1995. In 1996, the Company contributed $2.8 million for 1995 funding
requirements. In 1997, the Company contributed $2.7 million for 1996 funding
requirements and $2.5 million for 1997 funding requirements. During 1996, the
Company established a supplemental retirement benefit trust and through this
trust purchased life insurance policies on the officers of the Company to fund
the future liability under the supplemental plan. The cash surrender value of
these policies is shown as an investment on the Company's Consolidated Balance
Sheet.
The qualified plan's irrevocable trust fund consists principally of equity
and fixed-income securities and real estate investments in approximately the
following percentages at December 31, 1997:
PERCENTAGE OF
ASSET CATEGORY TOTAL FUND
-------------- -------------
Equity Securities 72.8%
Fixed-income Securities 24.2%
Real Estate 3.0%
1997 1996
---- ----
(000's)
The components of net pension costs were as follows:
Service cost of benefits earned during the period $ 3,791 $ 4,456
Interest cost on projected benefit obligation 17,565 15,882
Actual return on plan assets (43,225) (24,167)
Net amortization and deferral 19,967 6,336
------ ------
Net pension cost $ (1,902)** $ 2,507*
===== ======
* In addition, a cost of $15,896,000 was recognized under SFAS No. 88 as a
result of special termination benefits provided under the Pension Plan.
** In addition, a credit of $2,724,000 was recognized under SFAS No. 88 as a
curtailment gain resulting from a 1996 voluntary early retirement program.
Assumptions used to determine pension costs were:
Discount rate 7.75% 7.25%
Average wage increase 4.50% 4.50%
Return on plan assets 11.00% 9.00%
- 67 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
QUALIFIED NON-QUALIFIED QUALIFIED NON-QUALIFIED
PLAN PLANS PLAN PLANS
---- ----- ---- -----
(000's)
The funded status and amounts recognized in the balance
sheet are as follows:
Actuarial present value of benefit obligations:
<S> <C> <C> <C> <C>
Vested benefit obligation $184,055 $4,716 $165,919 $4,512
======= ===== ======= =====
Accumulated benefit obligation $192,556 $4,720 $174,253 $4,512
======= ===== ======= =====
Reconciliation of accrued pension liability:
Projected benefit obligation $254,192 $5,353 $227,631 $5,152
Less fair value of plan assets (243,739) - 208,863 -
------- ----- ------- -----
Projected benefit greater than plan assets 10,453 5,353 18,768 5,152
Unrecognized prior service cost (4,217) (68) (5,078) (81)
Unrecognized net gain (loss) from past experience 19,272 (13) 21,038 (28)
Unrecognized net asset (obligation)
at date of initial application 8,446 (77) 9,554 (120)
------- ----- ------- -----
Accrued pension liability $ 33,954 $5,195 $ 44,282 $4,923
======= ===== ======= =====
Assumptions used in estimating benefit obligations:
Discount rate 7.25% 7.25% 7.75% 7.75%
Average wage increase 4.50% 4.50% 4.50% 4.50%
</TABLE>
In addition to providing pension benefits, the Company also provides other
postretirement benefits (OPEB), consisting principally of health care and life
insurance benefits, for retired employees and their dependents. Employees with
25 years of service are eligible for full benefits, while employees with less
than 25 years of service but greater than 15 years of service are entitled to
partial benefits. Years of service prior to age 35 are not included in
determining the number of years of service.
For funding purposes, the Company established a Voluntary Employees'
Benefit Association Trust (VEBA) to fund OPEB for union employees who retire on
or after January 1, 1994. Approximately 46% of the Company's employees are
represented by Local 470-1, Utility Workers Union of America, AFL-CIO, for
collective bargaining purposes. The Company established a 401(h) account in
connection with the qualified pension plan to fund OPEB for non-union employees
who retire on or after January 1, 1994. The funding policy assumes contributions
to these trust funds to be the total OPEB expense calculated under SFAS No. 106,
adjusted to reflect a share of amounts expensed as a result of voluntary early
retirement programs minus pay-as-you-go benefit payments for pre-January 1, 1994
retirees, allocated in a manner that minimizes current income tax liability,
without exceeding maximum tax deductible limits. In accordance with this policy,
the Company contributed approximately $3.1 million, $3.8 million and $0 to the
union VEBA in 1995, 1996 and 1997, respectively. The Company contributed $0,
$0.9 million and $1.7 million to the 401(h) account in 1995, 1996 and 1997,
respectively. Plan assets for both the union VEBA and 401(h) account consist
primarily of equity and fixed-income securities.
- 68 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The components of the net cost of OPEB were as follows:
1997 1996
---- ----
(000's)
Service cost $ 925 $1,379
Interest cost 2,434 2,524
Actual return on plan assets (3,836) (1,838)
Amortizations and deferrals - net 3,527 2,359
----- -----
Net Cost of Postretirement Benefit $3,050** $4,424*
===== =====
* In addition, a cost of $4,126,000 was recognized as a result of special
termination programs.
** Includes a credit of $186,000 recognized under SFAS No. 88 as a curtailment
gain resulting from a 1996 voluntary early retirement program.
Assumptions used to determine OPEB costs were:
Discount rate 7.75% 7.25%
Health Care Cost Trend Rate 5.50% 5.50%
Return on plan assets 11.00% 8.50%
A one percentage point increase in the assumed health care cost trend rate would
have increased the aggregate service cost and interest cost components of the
1997 net cost of periodic postretirement benefit by approximately $400,000 and
would increase the accumulated postretirement benefit obligation for health care
benefits by approximately $3,000,000.
The following table reconciles the funded status of the plan with the
amount recognized in the Consolidated Balance Sheet as of December 31, 1997 and
1996:
1997 1996
---- ----
(000's)
Accumulated Postretirement Benefit Obligation:
Retirees and dependents $22,847 $22,614
Fully eligible active plan participants 299 929
Other active plan participants 11,966 12,677
------ ------
Total Accumulated Postretirement Benefit Obligation 35,112 36,220
Plan assets at fair value 21,168 16,720
------ ------
Accumulated Postretirement Benefit Obligation in
Excess of Plan Assets 13,944 19,500
Unrecognized net gain (loss) 6,380 2,731
Unamortized transition obligation (17,537) (19,443)
------ ------
Accrued Postretirement Benefit Obligation $ 2,787 $ 2,788
====== ======
The weighted average discount rates used to measure the accumulated
postretirement benefit obligation at December 31, 1997 and 1996 were 7.25% and
7.75%, respectively.
The Company has an Employee Savings Plan (401(k) Plan) in which
substantially all employees are eligible to participate. The 401(k) Plan enables
employees to defer receipt of up to 15% of their compensation and to invest such
- 69 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
funds in a number of investment alternatives. The Company makes matching
contributions in the form of Company common stock for each employee. During 1995
and the first five months of 1996, the matching contributions were made into the
401(k) Plan. Beginning in June 1996, the matching contributions were made into
the Employee Stock Ownership Plan (ESOP). The Company's matching contributions
to the 401(k) Plan during 1995 and the first five months of 1996 were $1.6
million and $0.8 million, respectively. In June 1996, all shares of the
Company's common stock in the 401(k) Plan were transferred to the ESOP.
The Company has an ESOP for substantially all its employees. In June 1996,
the Company began making matching contributions to the ESOP based on each
employee's salary deferrals in the 401(k) Plan. The matching contribution
currently equals fifty cents for each dollar of the employee's compensation
deferred, but is not more than three and three-eighths percent of the employee's
annual salary. The Company's matching contributions to the ESOP during the
period June 1996 - December 1996 and the year 1997 were $0.8 million and $1.7
million, respectively.
The Company pays dividends on the shares of stock in the ESOP to the
participant and the Company receives a tax deduction on the dividends paid. The
participant is given the option of reinvesting the dividends into the ESOP, as
an after-tax contribution. The Company also makes an annual contribution to the
ESOP equal to 25% of the dividends paid to each participant. The Company's
annual contributions during 1997, 1996 and 1995 were $417,000, $324,000 and
$192,000, respectively.
(I) JOINTLY OWNED PLANT
At December 31, 1997, the Company had the following interests in jointly
owned plants:
OWNERSHIP/
LEASEHOLD PLANT IN ACCUMULATED
SHARE SERVICE DEPRECIATION
--------- -------- ------------
(Millions)
Seabrook Unit 1 17.5 % $650 $131
Millstone Unit 3 3.685 135 59
New Haven Harbor Station 93.7 143 74
The Company's share of the operating costs of jointly owned plants is
included in the appropriate expense captions in the Consolidated Statement of
Income.
(J) UNAMORTIZED CANCELLED NUCLEAR PROJECT
From December 1984 through December 1992, the Company had been recovering
its investment in Seabrook Unit 2, a partially constructed nuclear generating
unit that was cancelled in 1984, over a regulatory approved ten-year period
without a return on its unamortized investment. In the Company's 1992 rate
decision, the DPUC adopted a proposal by the Company to write off its remaining
investment in Seabrook Unit 2, beginning January 1, 1993, over a 24-year period,
corresponding with the flowback of certain Connecticut Corporation Business Tax
(CCBT) credits. Such decision will allow the Company to retain the Seabrook Unit
2/CCBT amounts for ratemaking purposes, with the accumulated CCBT credits not
deducted from rate base during the 24-year period of amortization in recognition
of a longer period of time for amortization of the Seabrook Unit 2 balance. As a
result of reducing its remaining unamortized investment in Seabrook Unit 2 with
proceeds from the sale of certain Seabrook Unit 2 equipment, the Company expects
to completely amortize its unamortized investment in the year 2008.
- 70 -
<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 of 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 March 1999. At December 31, 1997, approximately $28.1 million of fossil fuel
purchases were being financed under this agreement.
The Company also has lease arrangements for data processing equipment,
office equipment, vehicles and office space, including the lease of a
distribution service facility, which is recognized as a capital lease. The gross
amount of assets recorded under capital leases and the related obligations of
those leases as of December 31, 1997 are recorded on the balance sheet.
Future minimum lease payments under capital leases, excluding the Seabrook
sale/leaseback transaction, which is being treated as a long-term financing, are
estimated to be as follows:
(000's)
1998 $ 1,715
1999 1,696
2000 1,696
2001 1,696
2002 1,696
After 2002 17,695
------
Total minimum capital lease payments 26,194
Less: Amount representing interest 9,001
------
Present value of minimum capital lease payments $17,193
======
Capitalization of leases has no impact on income, since the sum of the
amortization of a leased asset and the interest on the lease obligation equals
the rental expense allowed for ratemaking purposes.
Operating leases, which are charged to operating expense, consist
principally of a large number of small, relatively short-term, renewable
agreements for a wide variety of equipment. In addition, the Company has an
operating lease for its corporate headquarters. Future minimum lease payments
under this lease are estimated to be as follows:
(000's)
1998 $ 6,125
1999 6,426
2000 6,524
2001 6,837
2002 8,168
2003-2012 100,334
-------
Total $134,414
=======
- 71 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Rental payments charged to operating expenses in 1997, 1996 and 1995,
including rental payments for its corporate headquarters, were $12.2 million,
$12.8 million and $11.5 million, respectively.
(L) COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURE PROGRAM
The Company's continuing capital expenditure program is presently estimated
at approximately $170.0 million, excluding AFUDC, for 1998 through 2002.
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. With respect to each of the three 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.
Based on its interests in these nuclear generating units, the Company estimates
its maximum liability would be $23.2 million per incident. However, any
assessment would be limited to $3.1 million per incident per year.
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. Under those circumstances,
the nuclear insurance pools that provide 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
$5.0 million.
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 had 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
- 72 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
revised decommissioning cost estimates and amendments to the power contracts
with its owners with the Federal Energy Regulatory Commission (FERC). The
estimate of the sum of future payments for the closing, decommissioning and
recovery of the remaining investment in the Connecticut Yankee Unit is
approximately $606 million at December 31, 1997. 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, including decommissioning, less return
of investment (approximately $10.5 million) and return on investment
(approximately $6.3 million) at December 31, 1997, is approximately $40.8
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 I of this facility, which
became operational in 1986 and in which the Company has a 5.75% participating
share, has a 690 megawatt equivalent capacity value; and Phase II, in which the
Company has a 5.45% participating share, increased the equivalent 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. Additionally, the Company
is obligated to furnish a guarantee for its participating share of the debt
financing for the Phase II facility. As of December 31, 1997, the Company's
guarantee liability for this debt was approximately $7.4 million.
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. On March 7, 1997, the Company received notices of
assessment changes relative to the assessed value of the Company's personal
property for the tax year 1997-1998, which notices purport to increase said
assessed value by approximately 54% over the valuations declared by the Company
and are expected to generate tax claims of approximately $3.7 million. The
Company is vigorously contesting each of these actions by the City's tax
assessor. 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
- 73 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
long-term financial position of the Company. The Company would seek permission
from the DPUC to recover from its retail customers the expense of any adverse
court decision or settlement.
ENVIRONMENTAL CONCERNS
In complying with existing environmental statutes and regulations and
further developments in areas of environmental concern, including legislation
and studies in the fields of water and air quality (particularly "air toxics"
and "global warming"), hazardous waste handling and disposal, toxic substances,
and electric and magnetic fields, the Company may incur substantial capital
expenditures for equipment modifications and additions, monitoring equipment and
recording devices, and it may incur additional operating expenses. Litigation
expenditures may also increase as a result of scientific investigations, and
speculation and debate, concerning the possibility of harmful health effects of
electric and magnetic fields. The total amount of these expenditures is not now
determinable.
SITE DECONTAMINATION, DEMOLITION AND REMEDIATION COSTS
The Company has estimated that the total cost of decontaminating and
demolishing its Steel Point Station and completing requisite environmental
remediation of the site will be approximately $11.3 million, of which
approximately $8.3 million had been incurred as of December 31, 1997, and that
the value of the property following remediation will not exceed $6.0 million. As
a result of a 1992 DPUC retail rate decision, beginning January 1, 1993, the
Company has been recovering through retail rates $1.075 million of the
remediation costs per year. The remediation costs, 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.
The Company is presently remediating an area of PCB contamination at its
English Station generating site, including repair and/or replacement of
approximately 560 linear feet of sheet piling. The total cost of the remediation
and sheet piling repair is presently estimated at $3.5 million, and the Company
plans to repair/replace a major portion of the remaining sheet piling at this
location at an estimated cost of $6 million.
(M) NUCLEAR FUEL DISPOSAL AND NUCLEAR PLANT DECOMMISSIONING
Costs associated with nuclear plant operations include amounts for disposal
of nuclear wastes, including spent fuel, and for the ultimate decommissioning of
the plants. Under the Nuclear Waste Policy Act of 1982, the federal Department
of Energy (DOE) is required to design, license, construct and operate a
permanent repository for high level radioactive wastes and spent nuclear fuel.
The Act requires the DOE to provide, beginning in 1998, for the disposal of
spent nuclear fuel and high level radioactive waste from commercial nuclear
plants through contracts with the owners and generators of such waste; and the
DOE has established disposal fees that are being paid to the federal government
by electric utilities owning or operating nuclear generating units. In return
for payment of the prescribed fees, the federal government was required to take
title to and dispose of the utilities' high level wastes and spent nuclear fuel
beginning no later than January 1998. However, the DOE has announced that its
first high level waste repository will
- 74 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
not be in operation earlier than 2010 and possibly not earlier than 2013,
notwithstanding the DOE's statutory and contractual responsibility to begin
disposal of high-level radioactive waste and spent fuel beginning not later than
January 31, 1998.
The DOE also announced that, absent a repository, the DOE has no statutory
obligation to begin taking high level wastes and spent nuclear fuel for disposal
by January 1998. However, numerous utilities and states have obtained a judicial
declaration that the DOE has a statutory responsibility to take title to and
dispose of high level wastes and spent nuclear fuel beginning in January 1998,
and that the contracts between the DOE and the plant owners and generators of
such waste will provide a potentially adequate remedy for the latter if the DOE
fails to fulfill its contractual obligations by that date. The DOE is contesting
these judicial declarations; and it is unclear at this time whether the United
States Congress will enact legislation to address spent fuel/high level waste
disposal issues.
Until the federal government begins receiving such materials, nuclear
generating units will need to retain high level wastes and spent nuclear fuel
on-site or make other provisions for their storage. Storage facilities for the
Connecticut Yankee Unit are deemed adequate, and storage facilities for
Millstone Unit 3 are expected to be adequate for the projected life of the unit.
Storage facilities for Seabrook Unit 1 are expected to be adequate until at
least 2010. Fuel consolidation and compaction technologies are being considered
for Seabrook Unit 1 and may provide adequate storage capability for the
projected life of the unit. In addition, other licensed technologies, such as
dry storage casks, may satisfy spent nuclear fuel storage requirements.
Disposal costs for low-level radioactive wastes (LLW) that result from
operation or decommissioning of nuclear generating units have increased
significantly in recent years and may continue to rise. The cost increases are a
function of increased packaging and transportation costs, and higher fees and
surcharges imposed by the disposal facilities. Currently, the Chem Nuclear LLW
facility at Barnwell, South Carolina, is open to the Connecticut Yankee Unit,
Millstone Unit 3, and Seabrook Unit 1 for disposal of LLW. The Envirocare LLW
facility at Clive, Utah, is also open to these generating units for portions of
their LLW. All three units have contracts in place for LLW disposal at these
disposal facilities.
Because access to LLW disposal may be lost at any time, Millstone Unit 3
and Seabrook Unit 1 have storage plans that will allow on-site retention of LLW
for at least five years in the event that disposal is interrupted. The
Connecticut Yankee Unit, which has been retired from commercial operation, has a
similar storage program, although disposal of its LLW will take place in
connection with its decommissioning.
The Company cannot predict whether or when a LLW disposal site will be
designated in Connecticut. The State of New Hampshire has not met deadlines for
compliance with the Low-Level Radioactive Waste Policy Act and has stated that
the state is unsuitable for a LLW disposal facility. Both Connecticut and New
Hampshire are also pursuing other options for out-of-state disposal of LLW.
NRC licensing requirements and restrictions are also applicable to the
decommissioning of nuclear generating units at the end of their service lives,
and the NRC has adopted comprehensive regulations concerning decommissioning
planning, timing, funding and environmental reviews. UI and the other owners of
the nuclear generating units in which UI has interests estimate decommissioning
costs for the units and attempt to recover sufficient amounts through their
allowed electric rates, together with earnings on the investment of funds so
recovered, to cover expected decommissioning costs. Changes in NRC requirements
or technology, as well as inflation, can increase estimated decommissioning
costs.
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 $473 million (in 1998 dollars) as the
decommissioning cost estimate for Seabrook
- 75 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Unit 1, of which the Company's share would be approximately $83 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 1997 was $1.9 million. UI's share of
the fund at December 31, 1997 was approximately $12.4 million.
Connecticut has enacted a law requiring the operators of nuclear generating
units to file periodically with the DPUC their plans for financing the
decommissioning of the units in that state. The current decommissioning cost
estimate for Millstone Unit 3 is $557 million (in 1998 dollars), of which the
Company's share would be approximately $21 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 1997 was $487,000. UI's share of the fund at December 31, 1997 was
approximately $5.1 million. The decommissioning trust fund for the Connecticut
Yankee Unit is also managed by NU. For the Company's 9.5% equity ownership in
Connecticut Yankee, decommissioning costs of $2.1 million were funded by UI
during 1997, and UI's share of the fund at December 31, 1997 was $24.9 million.
The current decommissioning cost estimate for the Connecticut Yankee Unit,
assuming the prompt removal and dismantling of the unit commencing in 1997, is
$456 million, of which UI's share would be $43 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.
- 76 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(O) FAIR VALUE OF FINANCIAL INSTRUMENTS (1)
The estimated fair values of the Company's financial instruments are as
follows:
1997 1996
---- ----
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
(000's) (000's)
Cash and temporary cash investments $32,002 $32,002 $ 6,394 $ 6,394
Long-term debt (2)(3)(4) $620,457 $624,192 $652,767 $655,582
(1) Equity investments were not valued because they were not considered to be
material.
(2) Excludes the obligation under the Seabrook Unit 1 sale/leaseback agreement.
(3) The fair market value of the Company's long-term debt is estimated by
brokers based on market conditions at December 31, 1997 and 1996,
respectively.
(4) See Note (B), Capitalization - Long-Term Debt.
- 77 -
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(P) QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for 1997 and 1996 are set forth below:
<TABLE>
<CAPTION>
OPERATING OPERATING NET EARNINGS PER SHARE OF
QUARTER REVENUES INCOME INCOME COMMON STOCK(1)
- ------- --------- --------- ------ ---------------------
(000's) (000's) (000's) Basic Diluted
----- -------
<S> <C> <C> <C> <C> <C>
1997
First $180,325 $22,150 $7,710 $ .54 $.54
Second(2)(3) 163,774 22,692 8,542 .61 .61
Third 196,563 38,351 23,402 1.68 1.68
Fourth 169,605 21,380 6,137 .44 .44
1996
First(4) $170,860 $29,042 $11,721 $ .82 $ .82
Second(4)(5) 168,790 25,871 8,883 .75 .75
Third(4) 209,167 34,466 17,904 1.27 1.26
Fourth(6) 177,203 19,756 588 .04 .04
</TABLE>
------------------
(1) Based on weighted average number of shares outstanding each quarter.
(2) Operating income, net income and earnings per share for the second quarter
of 1997 included an after-tax credit of $6.7 million, or $.48 per share, to
provide for the cumulative tax benefits associated with future fossil
generation decommissioning.
(3) Operating income, net income and earnings per share for the second quarter
of 1997 included an after-tax charge of $4.1 million, or $.30 per share, to
record additional amortization of conservation and load management costs.
(4) Operating income, net income and earnings per share for the first, second
and third quarters of 1996 included after-tax charges of $4.2 million, or
$.30 per share, $0.5 million, or $.03 per share and $8.7 million, or $.62
per share, respectively, for early retirement and voluntary separation
programs.
(5) Operating income, net income and earnings per share for the second quarter
of 1996 included an after-tax charge of $0.8 million, or $.06 per share,
for the cumulative loss on an office space sublease.
(6) Net income and earnings per share for the fourth quarter of 1996 included
an after-tax charge of $2.6 million, or $.18 per share, for losses
associated with the Company's unregulated subsidiaries.
- 78 -
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
January 26, 1998
To the Shareowners and Board of Directors
of The United Illuminating Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of retained earnings
present fairly, in all material respects, the consolidated financial position of
The United Illuminating Company and its subsidiaries at December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows for
each of the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- 79 -
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
January 26, 1998
To the Board of Directors
of The United Illuminating Company
Our audits of the consolidated financial statements referred to in our report
dated January 26, 1998 appearing on page 79 of the 1997 Annual Report on Form
10-K also included an audit of the Financial Statement Schedule on page S-1 of
this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ Price Waterhouse LLP
- 80 -
<PAGE>
[Letterhead of Coopers & Lybrand]
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Shareowners and Directors of
The United Illuminating Company:
We have audited the consolidated balance sheet of The United Illuminating
Company as of December 31, 1995, and the related consolidated statements of
income, retained earnings and cash flows for the year then ended and the
consolidated financial statement schedule for the year ended December 31, 1995
(page S-1). These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The United
Illuminating Company as of December 31, 1995, and the consolidated results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
Hartford, Connecticut
January 29, 1996
- 81 -
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
Previously reported. See Current Report (Form 8-K, dated December 15, 1995
(amended January 2, 1996 and January 18, 1996)).
PART III
Item 10. Directors and Executive Officers of the Company.
The information appearing under the captions "NOMINEES FOR ELECTION AS
DIRECTORS" AND "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in the
Company's definitive Proxy Statement, dated March 27, 1998 for the Annual
Meeting of the Shareholders to be held on May 20, 1998, which Proxy Statement
will be filed with the Securities and Exchange Commission on or about March 27,
1998, is incorporated by reference in partial answer to this item. See also
"EXECUTIVE OFFICERS OF THE COMPANY", following Part I, Item 4 herein.
Item 11. Executive Compensation.
The information appearing under the captions "EXECUTIVE COMPENSATION,"
"STOCK OPTION EXERCISES IN 1997 AND YEAR-END OPTION VALUES," "RETIREMENT PLANS,"
"BOARD OF DIRECTORS COMPENSATION AND EXECUTIVE DEVELOPMENT COMMITTEE REPORT ON
EXECUTIVE COMPENSATION," "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION," "DIRECTOR COMPENSATION" and "SHAREOWNER RETURN PRESENTATION" in
the Company's definitive Proxy Statement, dated March 27, 1998, for the Annual
Meeting of the Shareholders to be held on May 20, 1998, which Proxy Statement
will be filed with the Securities and Exchange Commission on or about March 27,
1998, is incorporated by reference in answer to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information appearing under the captions "PRINCIPAL SHAREOWNERS" and
"STOCK OWNERSHIP OF DIRECTORS AND OFFICERS" in the Company's definitive Proxy
Statement, dated March 27, 1998 for the Annual Meeting of the Shareholders to be
held on May 20, 1998, which Proxy Statement will be filed with the Securities
and Exchange Commission on or about March 27, 1998, is incorporated by reference
in answer to this item.
Item 13. Certain Relationships and Related Transactions.
Since January 1, 1997, there has been no transaction, relationship or
indebtedness of the kinds described in Item 404 of Regulation S-K.
- 82 -
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
Financial Statements (see Item 8):
Consolidated statement of income for the years ended December 31, 1997,
1996 and 1995
Consolidated statement of cash flows for the years ended December 31,
1997, 1996 and 1995
Consolidated balance sheet, December 31, 1997, 1996 and 1995
Consolidated statement of retained earnings for the years ended
December 31, 1997, 1996 and 1995
Notes to consolidated financial statements
Reports of independent accountants
Financial Statement Schedule (see S-1)
Schedule II - Valuation and qualifying accounts for the years ended
December 31, 1997, 1996 and 1995.
- 83 -
<PAGE>
Exhibits:
Pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, certain
of the following listed exhibits, which are annexed as exhibits to previous
statements and reports filed by the Company, are hereby incorporated by
reference as exhibits to this report. Such statements and reports are identified
by reference numbers as follows:
(1) Filed with Annual Report (Form 10-K) for fiscal year ended December 31,
1995.
(2) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended September
30, 1995.
(3) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended June 30,
1996.
(4) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended March 31,
1997.
(5) Filed with Registration Statement No. 2-60849, effective July 24, 1978.
(6) Filed with Annual Report (Form 10-K) for fiscal year ended December 31,
1996.
(7) Filed with Registration Statement No. 33-40169, effective August 12, 1991.
(8) Filed with Registration Statement No. 33-35465, effective August 1, 1990.
(9) Filed with Amendment No. 1 to Registration Statement No. 33-55461,
effective October 31, 1994.
(10) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended March 31,
1995.
(11) Filed with Registration Statement No. 2-57275, effective October 19, 1976.
(12) Filed with Annual Report (Form 10-K) for fiscal year ended December 31,
1995.
(13) Filed with Registration Statement No. 2-66518, effective February 25, 1980.
(14) Filed with Annual Report (Form 10-K) for fiscal year ended December 31,
1991.
(15) Filed with Registration Statement No. 2-49669, effective December 11, 1973.
(16) Filed with Annual Report (Form 10-K) for fiscal year ended December 31,
1993.
(17) Filed with Registration Statement No. 2-54876, effective November 19, 1975.
(18) Filed with Registration Statement No. 2-52657, effective February 6, 1975.
(19) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended June 30,
1997.
(20) Filed with Annual Report (Form 10-K) for fiscal year ended December 31,
1992.
(21) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended September
30, 1997.
(22) Filed with Quarterly Report (Form 10-Q) for fiscal quarter ended March 31,
1994.
(23) Filed March 29, 1996, with proxy material for the Annual Meeting of the
Shareowners.
- 84 -
<PAGE>
The exhibit number in the statement or report referenced is set forth in
the parenthesis following the description of the exhibit. Those of the following
exhibits not so identified are filed herewith.
<TABLE>
<CAPTION>
Exhibit
Table Exhibit Reference
Item No. No. No. Description
- ------- ------- --------- -----------
<S> <C> <C> <C>
(3) 3.1a (1) Copy of Restated Certificate of Incorporation of The United Illuminating
Company, dated January 23, 1995. (Exhibit 3.1)
(3) 3.1b (2) Copy of Certificate Amending Certificate of Incorporation By Action of
Board of Directors, dated August 4, 1995. (Exhibit 3.1b)
(3) 3.1c (3) Copy of Certificate Amending Certificate of Incorporation by Action of
Board of Directors, dated July 16, 1996. (Exhibit 3.1c)
(3) 3.1d (4) Copy of Certificate Amending Certificate of Incorporation By Action of
Board of Directors, dated December 11, 1996. (Exhibit 3.1d)
(3) 3.2a (5) Copy of Bylaws of The United Illuminating Company. (Exhibit 2.3)
(3) 3.2b (6) Copy of Article II, Section 2, of Bylaws of The United Illuminating
Company, as amended March 26, 1990, amending Exhibit 3.2a. (Exhibit 3.2b)
(3) 3.2c (6) Copy of Article V, Section 1, of Bylaws of The United Illuminating Company,
as amended April 22, 1991, amending Exhibit 3.2a. (Exhibit 3.2c)
(4) 4.1 (7) Copy of Indenture, dated as of August 1, 1991, from The United Illuminating
Company to The Bank of New York, Trustee. (Exhibit 4)
(4),(10) 4.2 (8) Copy of Participation Agreement, dated as of August 1, 1990, among
Financial Leasing Corporation, Meridian Trust Company, The Bank of New
York and The United Illuminating Company. (Exhibits 4(a) through 4(h),
inclusive, Amendment Nos. 1 and 2).
(4) 4.3a (9) Copy of form of Amended and Restated Agreement of Limited Partnership of
United Capital Funding Partnership L.P. (Exhibit 4(c))
(4) 4.3b (10) Copy of Action of The United Illuminating Company, as General Partner of
United Capital Funding Partnership L.P., relating to the 9 5/8% Preferred
Capital Securities, Series A, of United Capital Funding Partnership L.P.
(Exhibit 4(b))
(4) 4.3c (9) Copy of form of Indenture, dated as of April 1, 1995, from The United
Illuminating Company to The Bank of New York, as Trustee. (Exhibit 4(e))
(4) 4.3d (10) Copy of First Supplemental Indenture, dated as of April 1, 1995, between
The United Illuminating Company and The Bank of New York, Trustee,
supplementing Exhibit 4.3c. (Exhibit 4(d))
(4) 4.3e (9) Copy of form of Payment and Guarantee Agreement of The United Illuminating
Company, dated as of April 1, 1995. (Exhibit 4(j))
(10) 10.1 (11) Copy of Stockholder Agreement, dated as of July 1, 1964, among the various
stockholders of Connecticut Yankee Atomic Power Company, including The
United Illuminating Company. (Exhibit 5.1-1)
(10) 10.2a (11) Copy of Power Contract, dated as of July 1, 1964, between Connecticut
Yankee Atomic Power Company and The United Illuminating Company.
(Exhibit 5.1-2)
(10) 10.2b (12) Copy of Additional Power Contract, dated as of April 30, 1984, between
Connecticut Yankee Atomic Power Company and The United Illuminating
Company.
(10) 10.2c (6) Copy of 1987 Supplementary Power Contract, dated as of April 1, 1987,
supplementing Exhibits 10.2a and 10.2b. (Exhibit 10.2c)
(10) 10.2d (6) Copy of 1996 Amendatory Agreement, dated as of December 4, 1996, amending
Exhibits 10.2b and 10.2c. (Exhibit 10.2d)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit
Table Exhibit Reference
Item No. No. No. Description
- ------- ------- --------- -----------
<S> <C> <C> <C>
(10) 10.2e (6) Copy of First Supplement to 1996 Amendatory Agreement, dated as of
February 10, 1997, supplementing Exhibit 10.2d. (Exhibit 10.2e)
(10) 10.3 (11) Copy of Capital Funds Agreement, dated as of September 1, 1964, between
Connecticut Yankee Atomic Power Company and The United Illuminating
Company. (Exhibit 5.1-3)
(10) 10.4a (11) Copy of Connecticut Yankee Transmission Agreement, dated as of October 1,
1964, among the various stockholders of Connecticut Yankee Atomic Power
Company, including The United Illuminating Company. (Exhibit 5.1-4)
(10) 10.4b (13) Copy of Agreement Amending and Revising Connecticut Yankee Transmission
Agreement, dated as of July 1, 1979, amending Exhibit 10.4a. (Exhibit
5.1-7)
(10) 10.5 (5) Copy of Capital Contributions Agreement, dated October 16, 1967, between
The United Illuminating Company and Connecticut Yankee Atomic Power
Company. (Exhibit 5.1-5)
(10) 10.6a (14) Copy of NEPOOL Power Pool Agreement, dated as of September 1, 1971, as
amended to November 1, 1988. (Exhibit 10.6a)
(10) 10.6b (15) Copy of Agreement Setting Out Supplemental NEPOOL Understandings, dated as
of April 2, 1973. (Exhibit 5.7-10)
(10) 10.6c (14) Copy of Amendment to NEPOOL Power Pool Agreement, dated as of March 15,
1989, amending Exhibit 10.6a. (Exhibit 10.6c)
(10) 10.6d (14) Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of October
1, 1990, amending Exhibit 10.6a. (Exhibit 10.6d)
(10) 10.6e (16) Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of
September 15, 1992, amending Exhibit 10.6a. (Exhibit 10.6e)
(10) 10.6f (16) Copy of Agreement Amending NEPOOL Power Pool Agreement, dated as of June 1,
1993, amending Exhibit 10.6a. (Exhibit 10.6f)
(10) 10.7a (14) Copy of Agreement for Joint Ownership, Construction and Operation of New
Hampshire Nuclear Units, dated May 1, 1973, as amended to February 1,
1990. (Exhibit 10.7a)
(10) 10.7b (17) Copy of Transmission Support Agreement, dated as of May 1, 1973, among the
Seabrook Companies. (Exhibit 5.9-2)
(10) 10.7c (6) Copy of Twenty-third Amendment to Agreement for Joint Ownership,
Construction and Operation of New Hampshire Nuclear Units, dated as of
November 1, 1990, amending Exhibit 10.7a. (Exhibit 10.7c)
(10) 10.8a (13) Copy of Sharing Agreement - 1979 Connecticut Nuclear Unit, dated as of
September 1, 1973, among The Connecticut Light and Power Company, The
Hartford Electric Light Company, Western Massachusetts Electric Company,
New England Power Company, The United Illuminating Company, Public Service
Company of New Hampshire, Central Vermont Public Service Company, Montaup
Electric Company and Fitchburg Gas and Electric Light Company, relating to
a nuclear fueled generating unit in Connecticut. (Exhibit 5.8-1)
(10) 10.8b (18) Copy of Amendment to Sharing Agreement - 1979 Connecticut Nuclear Unit,
dated as of August 1, 1974, amending Exhibit 10.8a. (Exhibit 5.9-2)
(10) 10.8c (11) Copy of Amendment to Sharing Agreement - 1979 Connecticut Nuclear Unit,
dated as of December 15, 1975, amending Exhibit 10.8a. (Exhibit 5.8-4,
Post-effective Amendment No. 2)
(10) 10.9a (5) Copy of Transmission Line Agreement, dated January 13, 1966, between the
Trustees of the Property of The New York, New Haven and Hartford Railroad
Company and The United Illuminating Company. (Exhibit 5.4)
</TABLE>
- 86 -
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Table Exhibit Reference
Item No. No. No. Description
- ------- ------- --------- -----------
<S> <C> <C> <C>
(10) 10.9b (14) Notice, dated April 24, 1978, of The United Illuminating Company's
intention to extend term of Transmission Line Agreement dated January 13,
1966, Exhibit 10.9a. (Exhibit 10.9b)
(10) 10.9c (14) Copy of Letter Agreement, dated March 28, 1985, between The United
Illuminating Company and National Railroad Passenger Corporation,
supplementing and modifying Exhibit 10.9a. (Exhibit 10.9c)
(10) 10.9d (19) Copy of Notice, dated April 22, 1997, of The United Illuminating Company's
intention to extend term of Transmission Line Agreement, Exhibit 10.9a, as
supplemented and modified by Exhibit 10.9c. (Exhibit 10.9d)
(10) 10.10 Copy of Agreement, effective May 16, 1997, between The United Illuminating
Company and Local 470-1, Utility Workers Union of America, AFL-CIO.
(10) 10.11 (20) Copy of Coal Sales Agreement, dated as of August 1, 1992, between Pittston
Coal Sales Corp. and The United Illuminating Company. (Confidential
treatment requested) (Exhibit 10.13)
(10) 10.12 (6) Copy of Fossil Fuel Supply Agreement between BLC Corporation and The United
Illuminating Company, dated as of July 1, 1991. (Exhibit 10.13)
(10) 10.13* (21) Copy of Amended and Restated Employment Agreement, effective as of March 1,
1997, between The United Illuminating Company and Richard J. Grossi.
(Exhibit 10.22)
(10) 10.14* (21) Copy of Amended and Restated Employment Agreement, effective as of March 1,
1997, between The United Illuminating Company and Robert L. Fiscus.
(Exhibit 10.23)
(10) 10.15* (21) Copy of Amended and Restated Employment Agreement, effective as of March 1,
1997, between The United Illuminating Company and James F. Crowe.
(Exhibit 10.24)
(10) 10.16* (21) Copy of Employment Agreement, dated as of March 1, 1997, between The United
Illuminating Company and Albert N. Henricksen. (Exhibit 10.25)
(10) 10.17* (21) Copy of Employment Agreement, dated as of March 1, 1997, between The United
Illuminating Company and Anthony J. Vallillo. (Exhibit 10.26)
(10) 10.18* (21) Copy of Employment Agreement, dated as of March 1, 1997, between The United
Illuminating Company and Rita L. Bowlby. (Exhibit 10.27)
(10) 10.19* (21) Copy of Employment Agreement, dated as of March 1, 1997, between The United
Illuminating Company and Stephen F. Goldschmidt. (Exhibit 10.28)
` (10) 10.20* (21) Copy of Employment Agreement, dated as of March 1, 1997, between The United
Illuminating Company and James L. Benjamin. (Exhibit 10.29)
(10) 10.21* (21) Copy of Employment Agreement, dated as of March 1, 1997, between The United
Illuminating Company and Kurt D. Mohlman. (Exhibit 10.30)
(10) 10.22* (21) Copy of Employment Agreement, dated as of March 1, 1997, between The United
Illuminating Company and Charles J. Pepe. (Exhibit 10.31)
(10) 10.23* (14) Copy of Executive Incentive Compensation Program of The United Illuminating
Company. (Exhibit 10.24)
(10) 10.24* (12) Copy of The United Illuminating Company 1990 Stock Option Plan, as amended
on December 20, 1993, January 24, 1994 and August 22, 1994.
(10) 10.25* (22) Copy of The United Illuminating Company Dividend Equivalent Program.
(Exhibit 10.20)
(10) 10.26* (23) Copy of Directors' Deferred Compensation Plan of The United Illuminating
Company.
(10) 10.27* (3) Copy of The United Illuminating Company 1996 Long Term Incentive Program.
(Exhibit 10.21*)
</TABLE>
- 87 -
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Table Exhibit Reference
Item No. No. No. Description
- ------- ------- --------- -----------
<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 December 31, 1997, 1996, 1995, 1994 and
1993).
(21) 21 List of subsidiaries of The United Illuminating Company.
(27) 27 Financial Data Schedule
(28) 28.1 (20) Copies of significant rate schedules of The United Illuminating Company.
(Exhibit 28.1)
</TABLE>
- ------------------------
*Management contract or compensatory plan or arrangement.
- 88 -
<PAGE>
The foregoing list of exhibits does not include instruments defining the
rights of the holders of certain long-term debt of the Company and its
subsidiaries where the total amount of securities authorized to be issued under
the instrument does not exceed ten (10%) of the total assets of the Company and
its subsidiaries on a consolidated basis; and the Company hereby agrees to
furnish a copy of each such instrument to the Securities and Exchange Commission
on request.
(b) Reports on Form 8-K.
None
- 89 -
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 33-50221, No.
33-50445, No. 33-55461 and No. 33-64003) of our reports dated January 26, 1998
appearing on page 79 and page 80 of The United Illuminating Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
/s/ Price Waterhouse LLP
New York, New York
March 3, 1998
- 90 -
<PAGE>
[Letterhead of Coopers & Lybrand]
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the Post Effective Amendment No.
1 to the Registration Statement of The United Illuminating Company on Form S-3
(File No. 33-50221) and the Registration Statements on Form S-3 (File No.
33-50445, File No. 33-55461 and File No. 33-64003), of our report, dated January
29, 1996, on our audit of the consolidated financial statements and financial
statement schedule of The United Illuminating Company as of December 31, 1995
and for the year then ended, which report is included in this Annual Report on
Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Hartford, Connecticut
March 2, 1998
- 91 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
THE UNITED ILLUMINATING COMPANY
By /s/ Richard J. Grossi
--------------------------------
Richard J. Grossi
Chairman of the Board of Directors
and Chief Executive Officer
DATE: MARCH 3, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director, Chairman of the
Board of Directors and
/s/ Richard J. Grossi Chief Executive Officer March 3, 1998
- ------------------------------
(Richard J. Grossi)
(Principal Executive Officer)
Director, Vice Chairman and
/s/ Robert L. Fiscus Chief Financial Officer March 3, 1998
- ------------------------------
(Robert L. Fiscus)
(Principal Financial and
Accounting Officer)
/s/ John F. Croweak Director March 3, 1998
- ------------------------------
(John F. Croweak)
/s/ F. Patrick McFadden, Jr. Director March 3, 1998
- ------------------------------
(F. Patrick McFadden, Jr.)
/s/ J. Hugh Devlin Director March 3, 1998
- ------------------------------
(J. Hugh Devlin)
/s/ Betsy Henley-Cohn Director March 3, 1998
- ------------------------------
(Betsy Henley-Cohn)
/s/Frank R. O'Keefe, Jr. Director March 3, 1998
- ------------------------------
(Frank R. O'Keefe, Jr.)
/s/ James A. Thomas Director March 3, 1998
- ------------------------------
(James A. Thomas)
/s/ David E.A. Carson Director March 3, 1998
- ------------------------------
(David E.A. Carson)
/s/ John L. Lahey Director March 3, 1998
- ------------------------------
(John L. Lahey)
/s/ Marc C. Breslawsky Director March 3, 1998
- ------------------------------
(Marc C. Breslawsky)
/s/ Thelma R. Albright Director March 3, 1998
- ------------------------------
(Thelma R. Albright)
</TABLE>
- 92 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
VALUATION AND
QUALIFYING ACCOUNTS
THE UNITED ILLUMINATING COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Thousands of Dollars)
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
ADDITIONS
-------------------------------
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
-------------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
RESERVE DEDUCTION FROM
ASSET TO WHICH IT APPLIES:
Reserve for uncollectible
accounts:
1997 $2,300 $6,407 - $6,907 (A) $1,800
1996 $6,300 $9,854 - $13,854 (A) $2,300
1995 $4,900 $9,383 - $7,983 (A) $6,300
</TABLE>
- ------------------------------------
NOTE:
(A) Accounts written off, less recoveries.
S-1
EXHIBIT 10.10
Agreement
Between
THE UNITED ILLUMINATING COMPANY
And
LOCAL 470-1 OF THE
UTILITY WORKERS UNION OF AMERICA, AFL-CIO
May 16, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE DESCRIPTION PAGE NO.
- ------------------------------------------------------------------------------
Preamble 1
I Recognition 2
II Rates of Pay 2
III Overtime 9
IV Holidays 14
V Vacations 16
VI Sick Leave, Funeral Leave,
and Leave of Absence 19
VII Hospital, Medical, Dental,
and Disability Insurance 22
VIII The United Illuminating Company
Pension Plan and The United
Illuminating Company Plan for
Employees' Disability Benefits 26
IX Safety 28
X Tools and Equipment 29
XI Seniority 29
XII Management 33
XIII Contracting Out Work 33
XIV Union Security 34
XV Deduction of Union Dues 35
XVI Bulletin Boards 37
XVII Grievance Procedure 37
XVIII Equal Employment Opportunity 43
XIX Governmental Regulations 44
XX Notices and Certifications 44
XXI Duration of Agreement 44
EXHIBIT DESCRIPTION PAGE NO.
- -----------------------------------------------------------------------------
I Schedule A: Rates of Pay for Occupational
Classifications 48
I Schedule B: Occupational Classifications 53
II Principles of Seniority 58
III Statement with Respect to Maintenance
of Membership and Agency Shop
Provision in Company-Union Contract 72
IV Dues Deduction Authorization Form 73
V Blue Cross & Blue Shield of Connecticut
Century Preferred Plan 74
VI Blue Cross & Blue Shield of Connecticut
BlueCare Plus POS Plan 79
VII Memorandum of Agreement 85
Certificate Concerning Authorization
to Execute Foregoing Agreement 86
<PAGE>
AGREEMENT
Between
THE UNITED ILLUMINATING COMPANY
And
LOCAL 470-1 OF THE
UTILITY WORKERS UNION OF AMERICA, AFL-CIO
May 16, 1997
AGREEMENT entered into as of May 16, 1997, by and between THE UNITED
ILLUMINATING COMPANY, hereinafter referred to as the "Company," and LOCAL 470-1
OF THE UTILITY WORKERS UNION OF AMERICA, AFL-CIO, hereinafter referred to as the
"Union."
THIS AGREEMENT supersedes the agreement between the parties dated May
16, 1995.
WHEREAS, the Union and its predecessors were on August 13, 1942, April
6, l962, and July 11, 1973, certified by the National Labor Relations Board as
the collective bargaining representative of certain of the employees of the
Company; and
WHEREAS, both parties recognize that in the interests of public safety
and the welfare of the community, the Company must furnish an adequate and
uninterrupted supply of electricity; and
WHEREAS, both parties recognize the importance of continually
increasing productivity and efficiency in providing electricity to the community
at reasonable rates; and
WHEREAS, it is the desire of both parties to promote mutual confidence
and understanding and to provide an adequate and uninterrupted supply of
electricity;
NOW, THEREFORE, the parties agree as follows:
- 1 -
<PAGE>
ARTICLE I
RECOGNITION
SECTION l. Pursuant to said certifications by the National Labor Relations
Board, the Company recognizes the Union as the collective bargaining
representative of all of its employees, including the assistant dispatcher, but
excluding executives, supervisory employees, watch engineers, line foremen,
guards, police, watchmen, technical employees, confidential employees, private
secretaries and persons having access to corporate books and payrolls,
dispatchers, and receptionists directly connected with executive offices, for
the purpose of collective bargaining with respect to rates of pay, wages, hours
of employment, and other conditions of employment.
SECTION 2. The term "employees" as used in this Agreement shall refer only to
employees of the Company for whom the Union is the collective bargaining
representative, as provided in Section 1 of this Article. The use of a masculine
pronoun in this Agreement shall be deemed to include the masculine and feminine
gender.
ARTICLE II
RATES OF PAY
SECTION l. The parties accept and agree to an occupational classification system
which is incorporated herein by reference, as set forth on various sheets in
which each occupational classification is described, evaluated and classified by
grade, and collectively referred to as Exhibit I. A list of maximum and minimum
rates of pay for all occupations is attached hereto and made a part hereof and
marked Schedule A. A list of the occupational classifications now included in
Exhibit I showing the occupational code number and the grade of each such
occupational classification, is attached hereto and made a part hereof and
marked Schedule B.
- 2 -
<PAGE>
SECTION 2. No occupational classification shall be altered or modified unless
changes in methods of operation justify the establishment of a new job or the
reclassification of an existing job. When a new job is established, or an
existing job is reclassified, the job shall be described, evaluated, and
classified by grade in accordance with the occupational classification system.
The Company will discuss the change with the Union at least one week before the
change takes effect.
SECTION 3. Any employee who has satisfactorily completed his probationary
period, as described in Section 4 of this Article, whose rate of pay is less
than the maximum rate of pay for his occupational classification, shall receive
an increase (other than General or Promotional Increase) in his rate of pay of
seventy-two cents per hour (but not to a rate higher than the maximum rate)
effective on the first Sunday in November.
SECTION 4. Prior to employment on a regular basis, a new employee will normally
be required to serve a probationary period which shall not exceed six months and
which ordinarily will not exceed three months.
SECTION 5. (a) When an employee is promoted to a higher occupational
classification, he shall receive as of the date of his promotion an increase in
his rate of pay according to the following schedule, or an increase in his rate
of pay to the maximum rate of pay of his new occupational classification,
whichever is smaller:
Number
of Grades Cents Per Hour
Promoted Increase
----------------------------------------------
l Twenty-three
2 Thirty-two
3 Forty-one
4 or 5 Fifty
More than 5 Fifty-nine
- 3 -
<PAGE>
In the special case of an employee who is receiving less than the
minimum rate of pay of his new occupational classification, the employee shall
receive as of the date of his promotion an increase in his rate of pay to the
minimum of that occupational classification, or an increase in his rate of pay
as designated in this paragraph above, whichever is greater. The provisions of
this paragraph shall not change an employee's scheduled increases as provided in
Section 3 of this Article.
If the promotional increase as set forth above brings an employee's
rate of pay to a rate 3 cents or less below the maximum for his new occupational
classification, the employee's regular hourly rate of pay will be increased to
the maximum rate of pay for his new occupational classification.
(b) Prior to promotion to a higher occupational classification, an
employee may be required to show successful performance in the higher
occupational classification for a trial period not to exceed ninety days;
provided, however, that he shall receive an increase in his rate of pay in
accordance with paragraph (a) effective upon the date of his assignment to the
higher occupational classification.
SECTION 6. (a) When a supervisor expressly assigns an employee temporarily,
except for training purposes, to work in a higher classification for at least
four hours (including overtime hours) in any one day, the employee shall receive
temporary assignment pay for all hours worked in that day. When a supervisor
expressly assigns an employee temporarily, except for training purposes, to work
in a higher classification for at least sixteen hours (including overtime hours)
in any one week, the employee shall receive temporary assignment pay for all
hours worked in that week. Temporary assignment pay shall be his regular hourly
rate increased according to the following schedule:
- 4 -
<PAGE>
Number of
Grades Above
Regular Cents Per Hour
Classification Increase
---------------------------------------------
l Forty-one
2 or 3 Fifty-one
4 or 5 Sixty-one
More than 5 Seventy-one
(b) No temporary assignment of more than 35 hours per week shall
continue more than six months, except in unusual circumstances such as an
assignment to a project of limited duration or an assignment caused by sickness,
injury, or leave of absence.
(c) As soon as possible after the first of each month, the Company
shall furnish the Union with a list of those employees temporarily assigned to a
higher occupational classification.
SECTION 7. Not less than five days prior to the effective date on which an
employee is changed from one occupational classification to another, which
change results in a reduction in his rate of pay, the Company shall notify the
Union that it intends to make such change.
SECTION 8. When an employee is changed from one occupational classification to
another, the Company shall notify the Union of such change unless it shall have
given the notice required under Section 7 above or Section 3, of Article XI.
SECTION 9. (a) The regular hourly rate of any employee regularly scheduled to
work rotating tours of duty in connection with a job which normally must be
continuously covered 24 hours per day including Saturdays, Sundays and holidays
(hereinafter referred to as a "rotating shift employee"), shall be increased ten
cents per hour for such time as he is so scheduled.
- 5 -
<PAGE>
(b) When any rotating shift employee is regularly scheduled to work
sixteen hours or more (other than overtime hours) on any night shift in any one
week, his regular hourly rate, as increased pursuant to paragraph (a), will be
increased $1.02 per hour for that week and this higher rate will be the basis of
compensation for that week. Night shift shall be construed to mean all regular
schedules starting at or between 10:00 P.M. and 5:59 A.M.
(c) When any rotating shift employee is regularly scheduled to work
sixteen hours or more (other than overtime hours) on any afternoon shift (or
sixteen hours consisting of eight hours on any afternoon shift and eight hours
on any night shift) in any one week, his regular hourly rate, as increased
pursuant to paragraph (a), will be further increased ninety-one cents per hour
for that week and this higher rate will be the basis of compensation for that
week. Afternoon shift shall be construed to mean all regular schedules starting
at or between l:00 P.M. and 9:59 P.M. The provisions of this paragraph shall not
apply to any employee who qualifies under the provisions of paragraph (b).
SECTION 10. (a) When any employee who is not a rotating shift employee is
regularly scheduled to work sixteen hours or more (other than overtime hours) on
any night shift in any one week, his regular hourly rate will be increased $1.07
per hour for that week and this higher rate will be the basis of compensation
for that week. Night shift shall be construed to mean all regular schedules
starting at or between 10:00 P.M. and 5:59 A.M.
(b) When any employee who is not a rotating shift employee is regularly
scheduled to work sixteen hours or more (other than overtime hours) on any
afternoon shift (or sixteen hours consisting of eight hours on any afternoon
shift and eight hours on any night shift) in any one week, his regular hourly
rate will be increased ninety-eight cents per hour for that week and this higher
rate will be the basis of compensation for that week. Afternoon shift shall be
construed to mean all regular schedules starting at or between 1:00 P.M. and
9:59 P.M. The provisions of this paragraph shall not apply to any employee who
qualifies under the provisions of paragraph (a).
- 6 -
<PAGE>
SECTION 11. When an employee is required to work on Sunday, he shall receive an
additional $4.70 (effective May 16, 1998, $4.85) (effective May 16, 1999, $5.00)
for each hour worked, and such additional amount shall be deemed to be a part of
such employee's regular hourly rate for that day.
SECTION 12. Occupational classification shall not be used by the Company to
reduce rates of pay now effective, except that the Company shall not be barred
from making appropriate adjustments in cases of disabled employees.
SECTION 13. Whenever employees are required by the Company to attend First Aid
Meetings or classes of instruction pertaining to new devices or equipment
adopted by the Company, the time spent at such meetings shall be considered as
hours worked and the pay for such hours shall be computed in the same manner as
that for other hours worked.
SECTION 14. In the case of an employee entitled under Section 9 or Section 10 of
this Article to shift premium for hours worked during the payroll period
immediately preceding such employee's vacation period, a shift premium of
fifteen cents per hour shall be considered a part of such employee's regular
hourly rate for the purpose of computing the vacation pay to which such employee
may be entitled under Article V.
SECTION 15. Any employee assigned to Grade l under the occupational
classification plan whose normal duties include assisting and instructing twelve
or more employees shall receive, in addition to any other pay to which he may be
entitled, seven cents for each hour for which such employee is entitled to pay
under this Agreement.
SECTION 16. The Company will provide 48 hours notice to any employee whose
scheduled starting time or quitting time is changed or whose scheduled day off
is changed or whose regular
- 7 -
<PAGE>
schedule is reinstated after such a change. If 48 hours notice is not given, the
employee shall receive one and one-half times his regular hourly rate during the
first work period in the new schedule for each of the first 8 hours worked which
are outside of his prior schedule, provided those hours otherwise would have
been paid at straight time. This provision shall not apply to any employee who
does not have a regular schedule, to any employee's return to his regular
schedule within 48 hours of the original change, or to any employee or employees
who request the change.
SECTION l7. An employee who is no longer able to do satisfactorily the work in
his regular occupational classification because of his mental or physical
condition shall receive either the regular hourly rate he was receiving at the
time of his disability or the regular hourly rate of any occupational
classification to which he may be assigned, the work in which he is then able to
do, whichever rate is higher.
SECTION 18. For the purposes of this Article, each cent per hour shall be
construed to mean forty cents per week for those employees who are paid by the
week.
SECTION 19. Whenever Operating Department employees are assigned to work on
other utilities' properties under the Utilities Mutual Assistance Program, one
and one-half times the regular hourly rate shall be paid for all hours of travel
time or work time provided such hours otherwise would have been paid at straight
time.
SECTION 20. When the travel distance between an employee's home and his
temporary work location is greater than the travel distance between his home and
his regular work location and he is authorized to provide his own
transportation, he shall be paid mileage at a rate determined by the Company for
the additional distance and shall be reimbursed for additional tolls.
- 8 -
<PAGE>
SECTION 21. (a) The regular hourly rate for all Line Group Leaders, Line Trouble
Shooters, and Line Workers First Class subject to the Company's procedures
governing the use of rubber gloves on lines and equipment energized at voltages
in excess of 5,000 volts shall be increased by a differential in the amount of
fifty cents for each hour paid.
(b) The regular hourly rate for all Line Workers Second Class who have
completed 18 months of service as a Line Worker Second Class and who have
successfully completed the "Rubber Gloving Training Program" shall be increased
by a differential in the amount of fifty cents for each hour paid.
ARTICLE III
OVERTIME
SECTION l. One and one-half times the regular hourly rate shall be paid to all
employees for hours worked in excess of forty hours in any one week, exclusive
of any hours worked on a holiday, for which payment is to be made in accordance
with the provisions of Article IV.
SECTION 2. (a) For employees whose regular daily schedule is eight hours or
less, one and one-half times the regular hourly rate shall be paid for hours
worked over eight hours in any one day, exclusive of any hours worked on a
holiday for which payment is to be made in accordance with the provisions of
Article IV. Employees who, for a period of at least three months, work a regular
daily schedule that exceeds eight hours, such as those employees who are
scheduled to work ten or twelve hours per day, shall be paid one and one-half
times the regular hourly rate for hours worked beyond their regular daily
schedule, exclusive of any hours worked on a holiday for which payment is to be
made in accordance with the provisions of Article IV. Employees who volunteer
for a period of less than three months to work a regular daily schedule that
exceeds eight hours shall be paid one and one-half times the regular hourly rate
for hours worke
- 9 -
<PAGE>
beyond their regular daily schedule, exclusive of any hours worked on a holiday
for which payment is to be made in accordance with the provisions of Article IV.
(b) If the Company decides to change the regular daily schedule for a
period of at least three months to one that exceeds eight hours, such as ten or
twelve hour shifts per day, the Company will endeavor to staff the new daily
schedule on a voluntary basis. If an insufficient number of employees volunteer
to work the new daily schedule, the Company will assign the necessary number of
employees to the new daily schedule, taking into consideration any personal
hardship that would occur as a result of such assignment.
SECTION 3. Overtime rates of pay shall not be applied more than once to any
particular hour worked.
SECTION 4. An employee required to report for work outside of and not contiguous
to his regularly scheduled work week shall receive a minimum payment equivalent
to four and one-half times his regular hourly rate. An employee called in to
work before the beginning of his regular work day and who is required to stop
work less than two hours immediately preceding his regular work day or who is
called in to work less than two hours immediately following his regular work day
shall receive compensation in such cases based upon continuous time from the
beginning of the overtime period until his regular starting time and from the
end of his regular work day to the time the employee finally stops work, but in
no event less than four and one-half times his regular hourly rate.
The Company shall continue to assign overtime work as far in advance as
is practicable. If an overtime work assignment, which is outside of and not
contiguous to an employee's regularly scheduled work week, is canceled by less
than twelve hours' notice to the employee prior to the start of the work, he
shall receive two hours' pay at his regular hourly rate.
- 10 -
<PAGE>
SECTION 5. For work outside of and not contiguous to the regular schedule of
hours, the Company will either provide a meal or pay a meal allowance of $7.25
(effective May 16, 1999, $7.50) (effective May 16, 2001, $7.75) for the first
two consecutive hours of such work assigned with less than twelve hours' notice,
and an additional meal or meal allowance of $7.25 (effective May 16, 1999,
$7.50) (effective May 16, 2001, $7.75) for every five consecutive hours of such
work thereafter.
For work outside of and not contiguous to the regular schedule of
hours, the Company will either provide a meal or pay a meal allowance of $7.25
(effective May 16, 1999, $7.50) (effective May 16, 2001, $7.75) for the first
ten consecutive hours of work assigned with at least twelve hours' notice, and
an additional meal or meal allowance of $7.25 (effective May 16, 1999, $7.50)
(effective May 16, 2001, $7.75) for every five consecutive hours of such work
thereafter.
For work contiguous to the regular daily schedule of hours, the Company
will either provide a meal or pay a meal allowance of $7.25 (effective May 16,
1999, $7.50) (effective May 16, 2001, $7.75) for the first two additional hours
of work (provided the employee has worked at least ten consecutive hours) and an
additional meal or meal allowance of $7.25 (effective May 16, 1999, $7.50)
(effective May 16, 2001, $7.75) for every five consecutive hours of work
thereafter.
One-half hour paid meal time will be provided to any employee who is
entitled to a meal or a meal allowance under Section 5 and who works at least
two hours, either outside of and not contiguous to the regular schedule of
hours, or outside of and contiguous to the regular daily schedule of hours.
- 11 -
<PAGE>
SECTION 6. When an employee, not having at least four hours' notice, is required
to work between midnight and 8:00 A.M. and his regular daily schedule of hours
starts between 6:00 A.M. and 9:00 A.M., he shall be entitled to a rest period at
the beginning of his regular daily schedule of hours equal to the number of
hours worked between midnight and 8:00 A.M., up to five hours maximum, with pay
at his regular hourly rate. The Company may permit an employee to take his rest
period at any time during his regular daily schedule of hours. If the employee
is required to work during all or part of such rest period, he shall receive
additional pay for those hours worked, at his regular hourly rate. The
provisions of this Section shall be in place of and not cumulative with the
provisions of Article III, Section 4 and Article III, Section 7; provided,
however, the employee may choose to be paid in accordance with Article III,
Section 4 instead of in accordance with the provisions of this Section, but he
may not be paid under both Sections, and any hours worked between midnight and
8:00 A.M., which are the basis for any claim for compensation under this
Section, shall not be deemed to be hours worked for the purpose of Article III,
Section 7.
SECTION 7. (a) An employee required to work for an "extended work period," as
hereinafter defined, shall during such period be entitled to additional pay, as
hereinafter specified, in addition to being paid at his regular hourly rate for
all hours worked during such period. By definition, an employee shall be deemed
to be in an "extended work period" as of any moment if, but only if, he worked
at least l6 hours during the 20 hours immediately preceding such moment. The
additional pay for such period shall be determined as follows:
(l) For such of the first 8 hours of such extended work period, he
shall be paid additional pay at his regular hourly rate.
(2) For all hours worked during such extended work period after
the first 8 hours thereof, he shall be paid additional pay at
one and one-half times his regular hourly rate. Hours
qualifying for payment under the provision of this subsection
- 12 -
<PAGE>
(a)(2) shall not be deemed to be hours worked for the purposes
of computing overtime payable under the provisions of Article
III (except that such of those hours as fall within his
regularly scheduled work week shall be counted in determining
the forty hours referred to in Section l of Article III) or
for the purpose of determining premium pay for holiday hours
worked under the provisions of Section 3, of Article IV.
(b) In addition, upon the completion of any extended work period, an
employee shall be entitled to a rest period of 8 hours immediately following
such extended work period and shall be paid at his regular hourly rate for such
of said 8 hours as fall within his regular daily schedule of hours. For the
purposes of this subsection (b), the regular daily schedule of hours shall be
deemed to apply on regular days off, holidays, and vacation days.
SECTION 8. In any week during which a holiday occurs, or in any week during
which an employee is absent due to a bona fide illness, extreme fatigue owing to
previous overtime work, jury duty, or an authorized personal absence for Union
business, hours worked (exclusive of any hours worked on a holiday for which
payment is to be made in accordance with the provisions of Article IV), which
would have qualified under the other provisions of this Agreement for the
overtime rate of one and one-half times the regular hourly rate had such holiday
or such absence not occurred, shall be paid for at such overtime rate.
SECTION 9. The Company will endeavor to distribute overtime work fairly among
the qualified employees, having in mind employees' availability and willingness
to respond promptly to calls for emergency work.
- 13 -
<PAGE>
SECTION l0. Any employee who works on each of seven consecutive days in any one
calendar week will receive two times his regular hourly rate for all hours
worked on his second scheduled day off during that week, provided such hours
otherwise would have been paid at one and one-half times his regular hourly
rate.
ARTICLE IV
HOLIDAYS
SECTION l. The following shall be deemed to be holidays and the word "holiday"
as used herein shall refer only to such holidays:
New Year's Day Labor Day
Martin Luther King's Day Columbus Day
Washington's Birthday Veterans Day
Good Friday Thanksgiving Day
Memorial Day Friday after Thanksgiving
Independence Day Christmas Day
When a holiday falls on Sunday, the following Monday shall be deemed to
be the holiday in its stead, except that, for those employees whose regularly
scheduled work week includes that Sunday, the holiday will be observed on
Sunday. When a holiday falls on Saturday, the preceding Friday shall be deemed
to be the holiday in its stead, except that, for those employees whose regularly
scheduled work week includes that Saturday, the holiday will be observed on
Saturday.
- 14 -
<PAGE>
SECTION 2. Any employee who is not required to work on a holiday shall be paid
at his regular hourly rate for those hours of the holiday which fall within his
regularly scheduled work week.
SECTION 3. (a) In addition to the pay specified in Section 2 of this Article,
any employee who is required to work on a holiday shall be paid at one and
one-half times his regular hourly rate for all holiday hours worked within his
regularly scheduled work week, he shall be paid at twice his regular hourly rate
for all holiday hours worked outside his regularly scheduled work week, and he
shall be paid an additional one-half of his regular hourly rate for all holiday
hours worked in excess of eight. Hours worked on a holiday shall not be
considered in computing overtime pay. An employee required to report for work on
a holiday shall receive a minimum payment equivalent to four and one-half times
his regular hourly rate.
(b) Any employee who is required to work on December 25th shall be paid
at twice his regular hourly rate for all hours worked.
SECTION 4. Any employee who is regularly scheduled to work eight hours or more
per day on each of two or more Saturdays and/or Sundays per month and who is
regularly scheduled to work on the average forty hours or more per week shall
receive pay at his regular hourly rate for eight hours for each holiday which
occurs on his day of relief, provided that on his last scheduled day before or
on his first scheduled day after the holiday he works his regularly scheduled
hours.
SECTION 5. In the event that a holiday falls during an employee's vacation
period, he shall receive an additional day off at a time that is mutually
agreeable to the Company and the employee and that frequently will not adjoin
the regular vacation period.
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ARTICLE V
VACATIONS
SECTION l. During each calendar year the Company will grant vacations with pay
as follows:
(a) Six weeks to each employee whose period of continuous service as of the
end of the preceding calendar year equaled or exceeded 34 years, for
which vacation the employee will receive the equivalent of 240 times
his regular hourly rate, subject to the provision, however, that the
six weeks will not ordinarily be scheduled in one continuous period.
(b) Five weeks to each employee (except an employee covered by the
provisions of subsection (a) above) whose period of continuous service
as of the end of the preceding calendar year equaled or exceeded 24
years, for which vacation the employee will receive the equivalent of
200 times his regular hourly rate, subject to the provision, however,
that the five weeks will not ordinarily be scheduled in one continuous
period.
(c) Four weeks to each employee (except an employee covered by the
provisions of subsections (a) or (b) above) whose period of continuous
service as of the end of the preceding calendar year equaled or
exceeded l4 years, for which vacation the employee will receive the
equivalent of l60 times his regular hourly rate, subject to the
provision, however, that the four weeks will not ordinarily be
scheduled in one continuous period.
(d) Three weeks to each employee (except an employee covered by the
provisions of subsections (a), (b), or (c) above) whose period of
continuous service as of the end of the preceding calendar year equaled
or exceeded 5 years, for which vacation the employee will receive the
equivalent of l20 times his regular hourly rate, subject to the
provision, however, that the three weeks will not ordinarily be
scheduled in one continuous period.
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(e) Two weeks to each employee (except an employee covered by the
provisions of subsections (a), (b), (c), or (d) above) who is on the
payroll on or before May l of the preceding calendar year and
continuously thereafter until the end of the preceding calendar year,
for which vacation the employee will receive the equivalent of 80 times
his regular hourly rate.
(f) One week to each employee who was employed after May l but on or before
November l of the preceding calendar year and who was continuously on
the payroll thereafter until the end of the preceding calendar year,
for which vacation the employee will receive the equivalent of 40 times
his regular hourly rate.
(g) Except for an employee who is entitled to six weeks' vacation pursuant
to subsection (a) above, one additional week to each employee who is at
least 62 years of age as of the end of the preceding calendar year, for
which week the employee will receive the equivalent of 40 times his
regular hourly rate.
SECTION 2. Consideration will be given where possible to the wishes of the
employees in determining the time of their vacations, but the final decision as
to an employee's vacation period will rest exclusively with the Company.
SECTION 3. If during any calendar year conditions have made it impossible for
the Company to grant to any employee all or part of his vacation, such employee
will receive, in addition to his regular pay, compensation at his regular hourly
rate for such part of the vacation as the Company was unable to grant.
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SECTION 4. In the event that the Company finds it necessary to postpone the
scheduled vacation of any employee and is unable to assign him another vacation
period which is suitable to him, he shall receive vacation pay in accordance
with the provisions of Section 3 of this Article.
SECTION 5. In the event any employee is sick at the time his vacation is
scheduled to begin, the Company shall upon request of such employee grant a
later vacation period within the calendar year if it is practicable to do so. If
the Company is unable to grant a later vacation or if such later vacation is not
suitable to the employee, he shall receive vacation pay in accordance with the
provisions of Section 3 of this Article.
SECTION 6. In the event an employee is called in from vacation for emergency
work, he shall be paid, in addition to his vacation pay as set forth in Section
l of this Article, twice his regular hourly rate for all hours worked during his
vacation, but in no event shall the employee receive less than the equivalent of
eight hours' pay at his regular hourly rate for each time he is called in for
such emergency work.
SECTION 7. Upon the termination of an employee's services with the Company,
voluntarily or otherwise, he shall be paid any vacation pay not previously paid
to him which would, except for such termination, be payable to him during the
then current calendar year. Upon the death of an employee, any vacation pay
payable to him hereunder shall be paid to such employee's then surviving spouse,
if any, otherwise to such employee's estate.
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SECTION 8. If termination is due to retirement, the employee shall also be paid
an amount equivalent to the vacation pay that would, except for such retirement,
have been payable to him during the calendar year immediately following the year
of his retirement, except that it shall be paid pro-rata based on the number of
completed months of employment during the calendar year in which he retired.
SECTION 9. Notwithstanding any other provision in this Article, a full-time
employee who terminates employment with at least one year of continuous service
and who is subsequently re-employed by the Company as a full-time employee will
be credited with the amount of employee's pre-break service for the purpose of
computing the employee's vacation eligibility under Section 1 hereof, effective
one year after the employee's rehire.
ARTICLE VI
SICK LEAVE, FUNERAL LEAVE, AND LEAVE OF ABSENCE
SECTION l. (a) When any employee is absent from work due to sickness and
satisfies the Company that such absence from work is warranted, the Company will
pay such employee at his regular hourly rate for such hours of absence within
his regularly scheduled work week, subject to the limitation that hours for
which such pay is allowed shall not aggregate more than 40 for any calendar
year, provided, however, that up to l60 hours' unused sick allowance may be
accumulated and will be used before the 40 hours of sick allowance for the
current year. The provisions of this Article shall not affect any Sickness
Disability Benefits to which the employee may be entitled under "The United
Illuminating Company Plan for Employees' Disability Benefits."
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(b) During each calendar year, with the prior authorization of the
supervisor, the Company will grant to employees who are not shift workers, as
defined in Section 1 (c) of this Article, eight hours of personal paid absence
in lieu of eight of the aggregate of forty hours of absence due to sickness in
Section 1 (a) of this Article. The employee must have at least eight hours of
unused sick time available to him to take a paid personal day, may not take paid
personal time in increments of less than eight hours, and may not accumulate
unused personal time from year to year.
(c) During each calendar year, with the prior authorization of the
supervisor, the Company will grant to shift workers whose schedule includes an
afternoon or evening start time twenty-four hours of personal paid absence in
lieu of twenty-four of the aggregate of the forty hours of absence due to
sickness in Section 1 (a) of this Article. The employee must have at least
twenty-four hours of unused sick time available to him to take three paid
personal days, may not take paid personal time in increments of less than eight
hours, and may not accumulate unused personal time from year to year.
SECTION 2. (a) When any employee is absent from work due to the death of his
spouse, child, foster child, or parent (or step-parent in lieu of parent), the
Company will pay such employee at his regular hourly rate for such hours of
absence within his regularly scheduled work week, up to a maximum of 40 hours.
(b) When any employee is absent from work due to the death of his
brother, sister, or parent-in-law, the Company will pay such employee at his
regular hourly rate for such hours of absence within his regularly scheduled
work week, up to a maximum of 24 hours.
(c) When any employee is absent from work due to the death of his
grandparent or grandchild, the Company will pay such employee at his regular
hourly rate for such hours of absence within his regularly scheduled work week,
up to a maximum of 8 hours.
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(d) When an employee is absent from work in order to serve as a
pallbearer for another employee, the Company will pay such employee at his
regular hourly rate for such hours of absence within his regularly scheduled
work week, up to a maximum of 4 hours.
SECTION 3. Leaves of absence without pay not to exceed two weeks in any contract
year shall be granted upon the request of the Union, to not more than three
members of the Union, provided the absence of the employees selected by the
Union shall not in the opinion of the Company interfere with the Company's
operations or cause undue hardship to other employees.
SECTION 4. A leave of absence without pay or any other benefits shall be granted
upon the request of the Union to enable not more than one employee to serve as a
Union representative. Upon reinstatement at the termination of the Leave of
Absence, the time spent on the Leave of Absence shall be added to the employee's
Classification Seniority and Company Service for seniority purposes. Such time
shall not be included in his years of service or of employment for any other
purpose, including vacations, pensions, or sickness disability benefits, but the
Leave of Absence shall not constitute a break in "continuous" service so as to
result in a loss of previously accrued years of service or of employment for any
purpose, including vacations, pensions, or sickness disability benefits.
SECTION 5. When an employee is required to be absent from work to serve as a
juror, the Company will pay such employee the difference between his jury pay
and his regular hourly rate for such hours of absence within his regularly
scheduled work week.
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ARTICLE VII
HOSPITAL, MEDICAL, DENTAL AND DISABILITY INSURANCE
SECTION 1. From May 16, 1997, to December 31, 1998, the Company will make
available to employees the Blue Cross & Blue Shield of Connecticut Century
Preferred Plan providing the hospital and medical benefits set forth in Exhibit
V, which is attached hereto and made a part hereof. The Company will pay 94% of
the cost of the premiums (93% effective January 1, 1998) for such coverage for
all employees and their eligible dependents, if any, and employees shall pay the
remaining premium costs for themselves and their eligible dependents, if any.
SECTION 2. Effective January 1, 1999, the Company will make available to
employees the Blue Cross & Blue Shield of Connecticut BlueCare Plus POS Plan
providing the hospital and medical benefits set forth in Exhibit VI, which is
attached hereto and made a part hereof. The Company and employees will share the
cost of the premiums for such coverage for all employees and their eligible
dependents, if any, as set forth in subsections 2 (a)--(d) below:
(a) Effective January 1, 1999; the Company will pay 92% of the premium
costs for employees and their eligible dependents, if any. Employees
shall pay the remaining premium costs for themselves and their eligible
dependents.
(b) Effective January 1, 2000; the Company will pay 91% of the premium
costs for employees and their eligible dependents, if any. Employees
shall pay the remaining premium costs for themselves and their eligible
dependents.
(c) Effective January 1, 2001; the Company will pay 90% of the premium
costs for employees and their eligible dependents, if any. Employees
shall pay the remaining premium costs for themselves and their eligible
dependents.
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<PAGE>
(d) Effective January 1, 2002; the Company will pay 89% of the premium
costs for employees and their eligible dependents, if any. Employees
shall pay the remaining premium costs for themselves and their eligible
dependents.
SECTION 3. Effective January 1, 1999, the Company shall have the right to
replace the health insurance plan described in Section 2 with a substitute plan
that provides benefits comparable to, but not identical to, the overall level of
benefits described on Exhibit VI. For purposes of this section, overall
comparability shall be determined without regard to (a) any changes in the
identity of the carrier, (b) any differences in plan provisions concerning the
administration of benefits and procedures for obtaining reimbursement for
services, and (c) any differences based on a one-for-one comparison of specific
benefits in the substitute plan and those listed on Exhibit VI, it being
recognized by the parties that differences in benefits offered for specific
services do not necessarily render plans materially dissimilar on a
comprehensive basis and that the intent of this section is to ensure only that
any substitute plans adopted by the Company approximate prior plans without a
material change in the overall level of benefits provided to employees and their
eligible dependents. The Company will solicit the input of the Union prior to
adopting a substitute plan under this section, and will allow for Union
representation on any committee formed for the purpose of reviewing the
provisions of any substitute plans considered by the Company.
SECTION 4. During the term of this Agreement,
(a) The Company will make available a Comprehensive Dental Expense Plan for
all employees and their eligible dependents, if any, which plan will
provide a calendar year maximum of $2,500 per person (including
orthodontic treatment), a lifetime maximum of $5,000 per person
(excluding orthodontic treatment), a lifetime maximum of $1,500 per
person for orthodontic treatment, and a calendar year deductible of $75
per covered
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person. The Company and employees will share the cost of the premiums
for such coverage for all employees and their eligible dependents, if
any, in accordance with the following schedule:
From May 16, 1997 to December 31, 1997, the Company will pay 94% of the
cost of the premiums (93% effective January 1, 1998) for employees and
their eligible dependents, if any. Employees shall pay the remaining
premium costs for themselves and their eligible dependents.
Effective January 1, 1999; the Company will pay 92% of the premium
costs for employees and their eligible dependents, if any. Employees
shall pay the remaining premium costs for themselves and their eligible
dependents.
Effective January 1, 2000; the Company will pay 91% of the premium
costs for employees and their eligible dependents, if any. Employees
shall pay the remaining premium costs for themselves and their eligible
dependents.
Effective January 1, 2001; the Company will pay 90% of the premium
costs for employees and their eligible dependents, if any. Employees
shall pay the remaining premium costs for themselves and their eligible
dependents.
Effective January 1, 2002; the Company will pay 89% of the premium
costs for employees and their eligible dependents, if any. Employees
shall pay the remaining premium costs for themselves and their eligible
dependents.
(b) The Company will pay the premiums for a Long Term Disability Plan for
all employees.
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<PAGE>
(c) The Company shall have the right to replace any of the existing plans
in Section 4(a) and (b) with another plan which will provide the same
benefits. The Company will inform the Union prior to changing an
existing plan with any other plan.
SECTION 5. Effective May 16, 1997, each employee shall have the option of
enrolling in a qualified Health Maintenance Organization, if available, in lieu
of the plan described in Section 1 above (Section 2 above, effective January 1,
1999). If an employee elects such option, and if the cost of the premiums for
such optional coverage is less than the cost of the plan described in Section 1
(Section 2, effective January 1, 1999) the Company will pay 94% of the premium
costs (93% effective January 1, 1998; 92% effective January 1, 1999; 91%
effective January 1, 2000; 90% effective January 1, 2001; and 89% effective
January 1, 2002) for such optional coverage for employees and their eligible
dependents, if any. The employee shall pay the remaining premium costs for
himself and his eligible dependents. If the cost of the premiums for such
optional coverage exceeds the cost of the plan described in Section 1 (Section
2, effective January 1, 1999), the Company will pay an amount equal to the
amount it otherwise would have paid under Section 1 (Section 2, effective
January 1, 1999) for such employee and his eligible dependents had the employee
not elected optional coverage, and the employee shall pay the remaining premium
costs for himself and his eligible dependents.
Each new employee shall elect at the time of hiring coverage under
either the plan provided in Section 1 (Section 2, effective January 1, 1999) or
optional coverage, to be effective in either event according to the enrollment
provisions of each such coverage.
For other employees, optional coverage shall become effective only on
January 1st of each year. Each employee shall notify the Company prior to
December 1st of the preceding year of his intention to elect optional coverage.
Such optional coverage shall continue from year to year thereafter unless the
employee notifies the Company prior to December 1st of any year
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of his intention to return to the plan provided in Section 1 (Section 2,
effective January 1, 1999) as of January 1st.
SECTION 6. The employee's share of the premium costs for the coverage described
in Sections 1, 2, 4(a), and 5 shall be deducted from the employee's pay on a
weekly basis, provided the Company is in receipt of a written authorization for
such purpose from the employee.
SECTION 7. The coverages described in Sections 1, 2, 4, and 5 shall be made
available to employees in accordance with and subject to the provisions of the
Company's "BENEFLEX Plan," as it may change from time to time.
ARTICLE VIII
THE UNITED ILLUMINATING COMPANY PENSION PLAN AND
THE UNITED ILLUMINATING COMPANY PLAN FOR
EMPLOYEES' DISABILITY BENEFITS
SECTION 1. The Company will take such action as may be appropriate to make
modifications to The United Illuminating Company Pension Plan as may be
necessary to comply with applicable laws and to obtain the approval of the U.S.
Treasury Department.
SECTION 2. The Company will take such action as may be appropriate and obtain
the approval of the U.S. Treasury Department to amend The United Illuminating
Company Pension Plan to change the definition of Quantity C to the Employee's
Average Annual Earnings from the Company during the three years during which his
earnings from the Company were the highest.
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SECTION 3. The Company will take such action as may be appropriate and obtain
the approval of the U.S. Treasury Department to amend The United Illuminating
Company Pension Plan to change the Quantity C maximum from $24,000 to $25,000
for each employee retiring on or after May 16, 1995.
SECTION 4. The Company shall maintain The United Illuminating Company Plan for
Employees' Disability Benefits.
SECTION 5. The Company will take such action as may be appropriate and obtain
the approval of the U.S. Treasury Department to amend The United Illuminating
Company Employee Savings Plan (the "401(k) Plan") to provide as follows:
(a) Commencing January 1, 1996, the Company will contribute to the 401(k)
Plan or, if the parties agree, to The United Illuminating Company
Employee Stock Ownership Plan (the "ESOP") shares of Company stock in
an amount equal to one-half of one percent (.50%) for each one percent
(1.0%) of an employee's gross wages, up to six and one quarter percent
(6.25%) of such gross wages, which the employee elects to have withheld
from his or her wages and paid into the 401(k) Plan, subject to
applicable limits under the Internal Revenue Code. The maximum matching
contribution shall be three and one-eighth percent (3.125%) of an
employee's wages and will be in the form of Company stock;
(b) Commencing January 1, 1997, the Company will contribute to the 401(k)
Plan or, if the parties agree, to the ESOP shares of Company stock in
an amount equal to one-half of one percent (.50%) for each one percent
(1.0%) of an employee's gross wages, up to six and one half percent
(6.50%) of such gross wages, which the employee elects to have withheld
from his wages and paid into the 401(k) Plan, subject to applicable
limits under
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<PAGE>
the Internal Revenue Code. The maximum matching contribution shall be
three and one-quarter percent (3.25%) of an employee's wages and will
be in the form of Company stock;
(c) Commencing January 1, 1998, the Company will contribute to the 401(k)
Plan or, if the parties agree, to the ESOP shares of Company stock in
an amount equal to one-half of one percent (.50%) for each one percent
(1.0%) of an employee's gross wages, up to six and three quarters
percent (6.75%) of such gross wages, which the employee elects to have
withheld from his wages and paid into the 401(k) Plan, subject to
applicable limits under the Internal Revenue Code. The maximum matching
contribution shall be three and three-eighths percent (3.375%) of an
employee's wages and will be in the form of Company stock;
(d) Commencing January 1, 1996, expenses associated with the amendment,
restatement, and administration of the 401(k) Plan shall be paid out of
funds in the plan and allocated as appropriate to plan participants.
ARTICLE IX
SAFETY
The Company will continue to make reasonable regulations for the safety
and health of its employees during their hours of employment, and the Union
agrees that it will direct its members to use the protective devices, wearing
apparel and other equipment provided by the Company for the protection of
employees from injury. The Union also agrees that it will encourage its members
to report promptly conditions in the Company's plant that might be dangerous to
employees and the public and to do all in their power to make Company property
and equipment safe, sanitary and dependable.
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ARTICLE X
TOOLS AND EQUIPMENT
The Company shall furnish all proper and necessary tools which the
Company requires an employee to use in the performance of his duties. When tools
and equipment are furnished by the Company to an employee, he shall be
responsible for their return in good condition (ordinary wear and tear
excepted), and shall pay to the Company the cost of any tools lost or carelessly
damaged.
ARTICLE XI
SENIORITY
SECTION l. The selection of employees to fill vacancies in occupational
classifications and to be laid off or rehired shall be in accordance with the
principles of seniority set forth in a certain document entitled "Principles of
Seniority," which document, having been agreed to by the parties, is attached
hereto and made a part hereof and marked Exhibit II; PROVIDED, HOWEVER, no
employee shall be entitled hereunder to assignment to any occupational
classification for which he is not qualified as hereinafter provided. An
employee shall be considered qualified for assignment to an occupational
classification if, (a) he has the ability and training necessary for the
efficient performance of the work called for therein, (b) his performance has
been satisfactory and his attitude cooperative, and (c) he has no infirmity
which would result in such assignment being dangerous to himself or to others or
their property.
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SECTION 2. Temporary reassignment of personnel and work to meet emergency
conditions will be made by the Company whenever necessary without consideration
of the "Principles of Seniority."
SECTION 3. Not less than 7 days prior to the effective date on which the Company
proposes to promote an employee into or to fill a vacancy in an occupational
classification, within Grades l to 8 inclusive or Grades E to K inclusive, for
which the Union is the collective bargaining representative as provided in
Article I, Section l, or to place an employee on trial preparatory to such
promotion, the Company shall post on the bulletin boards of departments affected
the name of the employee and the position for which he has been selected. When
an employee has been passed over for such promotion or trial, either the
employee, or the Union with the employee's written consent, may, at any time
prior to the effective date of such promotion or trial, request that the Company
state in writing its reasons for not selecting him. At least three days prior to
the proposed date of posting, the Company shall notify the appropriate Union
Official of the name of the employee and the position for which he has been
selected. If the Union Official so requests, prior to the posting of the notice,
the Company shall postpone the posting until the seventh day after notification
to the Union Official.
In the event the Union wishes to protest the selection of such employee
for the promotion or trial under consideration, the Union may submit its protest
in writing as a grievance directly to a Board of Review in accordance with the
provisions of Article XVII, Section 2(c) at any time prior to the effective date
of such proposed promotion or trial, and said Board of Review shall be convened
not more than five days after the grievance is submitted.
If such protest is filed by the Union, the employee selected by the
Company may be temporarily assigned to the occupational classification in
question pending the settlement of the grievance.
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SECTION 4. If, during the term of this Agreement and pursuant to the provisions
of Paragraph 5 (or pursuant to the provisions of clause (b) of the second from
the last sentence of Paragraph 2) of the above-mentioned "Principles of
Seniority," any full-time regular employee is demoted or transferred from his
regular occupational classification, as the result of being excess in such
regular occupational classification, to another occupational classification in a
lower grade, then, in such event and subject to the following limitations and
provisions, such employee's new occupational classification shall, only for the
purposes of determining such employee's regular hourly rate and the scheduled,
promotional and temporary assignment increases for which such employee may be
eligible under Sections 3, 5 and 6, respectively, of Article II hereof and of
determining any general increase for which such employee may be eligible during
the term hereof, be treated as though it were in the grade in which his regular
occupational classification is:
(a) The provisions of this Section 4 shall apply to an employee only so
long as he is satisfactorily performing the duties of such new
occupational classification.
(b) If an employee is selected to fill a vacancy in any occupational
classification for which he had on file at the time of such demotion or
transfer a then effective request for transfer under the provisions of
Paragraph 3 of the above-mentioned "Principles of Seniority," the
provisions of this Section 4 shall not thereafter apply to such
employee, except with respect to subsequent demotions or transfers
covered hereby.
(c) If an employee, having requested assignment to one of the Company's
line schools, is selected for such assignment, the provisions of this
Section 4 shall not thereafter apply to such employee, except with
respect to subsequent demotions or transfers covered hereby.
(d) An employee then receiving the benefits of this Section 4 may be
selected, without regard to the provisions of Paragraph 2 of the
above-mentioned "Principles of Seniority," to fill a
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vacancy in any occupational classification in the grade of such
employee's regular occupational classification, if such employee has
greater Company Service than the employee who would otherwise be
selected to fill such vacancy, and if he is then able to do the work.
In the event of such selection, the provisions of this Section 4 shall
not thereafter apply to such employee, except with respect to
subsequent demotions or transfers covered hereby.
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ARTICLE XII
MANAGEMENT
Except as otherwise provided in this Agreement, nothing in this
Agreement shall be deemed to limit the Company in any way in the exercise of the
regular and customary functions of management, including, among other things,
the direction of the working forces; the establishment of methods of operation;
the promotion and demotion of employees; the establishment of plans for
increased efficiency; the adoption and maintenance of engineering standards and
standards of performance and quality; the right to hire, suspend or discharge
for proper cause; the right to select or employ supervisory employees, including
foremen and their assistants; the right to transfer or relieve from duty because
of lack of work; the right to determine from time to time the number of hours
worked per day and per week; and the right to establish and enforce rules and
regulations pertaining to personal conduct and deportment of employees. The
provisions of this Article shall not be used arbitrarily or capriciously as to
any employee or for the purpose of discriminating in any manner against the
Union or its members.
ARTICLE XIII
CONTRACTING OUT WORK
SECTION l. The Company will not contract out any work which its employees are
capable of performing by virtue of their work in their respective occupational
classifications, except in cases of emergency, necessity, peaks of work, or
special projects creating a temporary need for substantial additional manpower
and/or equipment, or in those instances when the use of contractors will
increase efficiency, ensure reliability of service, or reduce costs; and in no
event will the Company contract out any work which its employees are then
performing if the
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contracting out of such work would directly result in the layoff of the
employees performing such work.
SECTION 2. If the Company proposes to contract out any work which its employees
are capable of performing by virtue of their work in their respective
occupational classifications, the Company will notify the Union of the proposed
work and will state its reasons for contracting it out. Such notice will be
given either in advance of the commencement of the work or, in an emergency,
within a reasonable time thereafter.
ARTICLE XIV
UNION SECURITY
SECTION l. The Company agrees that those employees who are members of the Union
as of the effective date of this Agreement, or who hereafter become members of
the Union, shall remain members of the Union in good standing as a condition of
employment. An employee shall be deemed to have maintained Union membership in
good standing if he shall have tendered the periodic dues uniformly required as
a condition of acquiring or retaining Union membership.
SECTION 2. Employees may withdraw from membership in the Union during the
fifteen-day period between October 8 and October 22 inclusive in each calendar
year hereafter, and as of October 22 in each calendar year the Union shall
furnish the Company with a notarized list of its members in good standing as of
that date. The Union agrees that neither it nor any of its officers or members
will intimidate or coerce employees into joining the Union or continuing their
membership therein.
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SECTION 3. As a condition of employment, all employees hired on or after June 8,
l962, shall, from and after the time of employment on a regular basis, and all
employees who hereafter resign from the Union in accordance with the provisions
of Section 2, shall, from and after the time of resignation, pay to the Union
the amount of dues payable by Union members.
SECTION 4. On October 8 in each calendar year hereafter, the Company shall post
upon Company bulletin boards a notice in the form attached hereto and marked
Exhibit III.
ARTICLE XV
DEDUCTION OF UNION DUES
SECTION l. Subsequent to implementation of a new payroll system, the Company
agrees that upon the individual written request of any employee in the form
attached hereto and marked Exhibit IV, it will on the first regular payday
following receipt of such written request and on every regular payday thereafter
deduct such amount as the President of the Union shall from time to time certify
to the Company as being the weekly dues which have been established as payable
in accordance with the Constitution and By-Laws of the Union, provided such an
amount is owing to said employee on said payday. The President of the Union
shall from time to time notify the Company of the proper amount to be deducted
hereunder as Union dues of said employee, and shall certify that such deduction
has been authorized in accordance with the Constitution and By-Laws of the
Union. Until the implementation of a new payroll system, dues deductions shall
continue to be made on a monthly basis in accordance with Article XV, Section 1
of the parties' 1995 Agreement.
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<PAGE>
SECTION 2. The sums of money so deducted shall be paid by the Company, via check
or wire transfer, to the Union, whose Treasurer shall give the Company receipts
therefor. It shall be the duty of the Union to certify to the Company in writing
in a manner reasonably satisfactory to the Company the name and address of said
Treasurer and any changes in that office. Each receipt signed by said Treasurer
shall constitute a complete release and discharge of the Company as to any sums
covered in said receipt.
SECTION 3. All written requests of the employees referred to in Section l of
this Article shall terminate automatically upon the termination of this
Agreement, and any such written request shall be revocable at any time as to
future deductions by written notice by the employee to the Company.
SECTION 4. The Union agrees to indemnify and save harmless the Company for any
sums which the Company is required to pay as the result of a claim that the sums
of money herein referred to have been illegally deducted.
SECTION 5. On or before October l5th of each year, the Company will furnish the
Union with a list of employees for whom it has Dues Deduction Authorization
Forms as of September 30th.
- 36 -
<PAGE>
ARTICLE XVI
BULLETIN BOARDS
The Company will permit the reasonable use by the Union of the regular
bulletin boards of the Company for the purpose of notifying members of the Union
of:
l. Meetings of the Union,
2. Union elections,
3. Social, educational or recreational affairs of the Union.
No such notice shall contain any wording or implication critical of the
Company or its policies or of any other person or organization. Each such notice
shall be submitted to and approved by the Company before being posted.
ARTICLE XVII
GRIEVANCE PROCEDURE
SECTION l. There shall be a Grievance Committee consisting of five employees
selected by the Union, all of whom must have been employees of the Company for
at least two years. There shall be at least one member of the Grievance
Committee from each of the three major departments, that is, Generation,
Distribution and Treasury Departments. The Union will certify to the Company in
writing the names of the employees selected by the Union to serve as the
Grievance Committee and will certify to the Company in writing any changes which
may be made in the membership of the Grievance Committee.
- 37 -
<PAGE>
SECTION 2. During the life of this Agreement there shall be no strike, slowdown,
suspension or stoppage of work in any part of the Company's operations by
employees or any employee, nor any lockout by the Company in any part of the
Company's operations. Should any differences arise between the Company and the
Union or its members, an earnest effort shall be made to settle such differences
in the following manner:
(a) First, within thirty days of the occurrence of the incident leading to
the difference, between the employee or employees involved and his or
their immediate supervisor, or between a steward selected by the Union
to represent the employee or employees and said supervisor.
(b) If the grievance is not adjusted with the supervisor within seven days,
then within ten days thereafter the individual employee or group of
employees may take the matter up directly with the Management, or the
grievance may be reduced to writing and signed by the employee or
employees and a member of the Grievance Committee and then taken up by
the Grievance Committee with the appropriate department head.
(c) If the grievance is not adjusted with the department head within three
days, then within ten days thereafter either party may submit notice of
the grievance in writing to a Board of Review composed of four
representatives of the Management and four representatives of the Union
by mailing same in accordance with the provisions of Article XX. Said
Board may, by a majority vote, either finally dispose of the matter or
submit it to arbitration under such terms as it may determine. The
Company shall, within twelve days after the meeting of the Board at
which a grievance is submitted, and upon which agreement is reached,
send the Union a written statement of the disposition of such
grievance.
- 38 -
<PAGE>
(d) If any grievance involving an interpretation of the meaning of the
provisions of this Agreement is not adjusted within twelve days after
the meeting of the Board of Review at which the grievance is
submitted, then within thirty days thereafter either party may submit
such grievance to an arbitration board. The Company and the Union
shall each appoint a representative to such board and the two
representatives so appointed shall select a third arbitrator. In the
event that no agreement is reached upon the third arbitrator, either
representative may request the American Arbitration Association to
select the third arbitrator. The decision of a majority of the
arbitration board shall be rendered within 90 days after the
conclusion of the hearing and the filing of briefs, and shall be final
and binding. Each party shall pay the fee and expenses of its own
representative on the arbitration board, and each shall pay one-half
of the fee and expenses of the third arbitrator.
(e) Within said thirty-day period of subsection (d), either party may
appeal to the Federal Mediation and Conciliation Service for mediation
and conciliation, but such mediation and conciliation shall not be a
cause for delay of such arbitration.
(f) Any grievance not taken to the next step within the time limit may be
deemed to be settled, unless the parties mutually agree in writing to
extend the time limit for a particular step.
(g) In determining the time limits herein, Saturdays, Sundays and holidays
shall be excluded.
- 39 -
<PAGE>
SECTION 3. In order for a suspension, discipline, layoff or discharge case to be
considered a grievance, it must be taken up with the Company not more than five
days after the date of the suspension, discipline, layoff or discharge
complained of. In case of such grievance, the Union shall have the right to
submit it directly to a Board of Review in accordance with the provisions of
Section 2(c) and said Board of Review shall be convened not more than five days
after the grievance is submitted.
SECTION 4. The question of whether or not the Company shall pay the employee
back pay for the period covered by such suspension, discipline, layoff or
discharge if such suspension, discipline, layoff or discharge shall ultimately
be held to have been wrongful may be considered as part of the grievance.
SECTION 5. When considering an employee's prior record for the purpose of
determining the penalty to be applied in a current disciplinary action, any
previous offense more than three years old shall be ignored if it did not result
in disciplinary suspension, and the weight to be accorded any other previous
offense shall depend on the remoteness of such other offense and on the nature
of the employee's record since then.
GRIEVANCE PROCEDURE
(Effective May 16, 1998)
SECTION 1. During the life of this Agreement there shall be no strike, slowdown,
suspension or stoppage of work in any part of the Company's operations by
employees or any employee, nor any lockout by the Company in any part of the
Company's operations. Should any differences arise between the Company and the
Union or its members, an earnest effort shall be made to
- 40 -
<PAGE>
settle such differences in the following manner, including application of the
principles of mutual gains bargaining at steps (a) and (b):
(a) First, within thirty days of the occurrence of the incident leading to
the difference, between the employee or employees involved and his or
their immediate supervisor, or between a steward selected by the Union
to represent the employee or employees and said supervisor.
(b) If the grievance is not adjusted with the supervisor within seven days,
then within ten days thereafter the individual employee or group of
employees may take the matter up directly with the next level of
Management as designated by the respective Business Unit representative
on the Company Negotiating Committee, or the grievance may be reduced
to writing and signed by the employee or employees and the appointed
steward and then taken up by the steward with the same designated level
of Management.
(c) If the grievance is not adjusted with Management as specified in
Section 1(b) within three days, then within ten days thereafter either
party may submit notice of the grievance in writing to a Board of
Review composed of the respective Business Unit representative on the
Company Negotiating Committee, one other member of the Company
Negotiating Committee, a Labor Relations staff member, and four
representatives of the Union by mailing same in accordance with the
provisions of Article XX. Said Board will either finally dispose of the
matter upon the mutual agreement of the Company and Union
representatives, or either party may submit it to arbitration.
(d) If any grievance involving an interpretation of the meaning of the
provisions of this Agreement is not adjusted within twelve days after
the meeting of the Board of Review at which the grievance is
submitted, then within thirty days thereafter either party may submit
such grievance to an arbitration board. The Company and the Union
shall each
- 41 -
<PAGE>
appoint a representative to such board and the two representatives so
appointed shall select a third arbitrator. In the event that no
agreement is reached upon the third arbitrator, either representative
may request the American Arbitration Association to select the third
arbitrator. The decision of a majority of the arbitration board shall
be rendered within 90 days after the conclusion of the hearing and the
filing of briefs, and shall be final and binding. Each party shall pay
the fee and expenses of its own representative on the arbitration
board, and each shall pay one-half of the fee and expenses of the
third arbitrator.
(e) Within said thirty-day period of subsection (d), either party may
appeal to the Federal Mediation and Conciliation Service for mediation
and conciliation, but such mediation and conciliation shall not be a
cause for delay of such arbitration.
(f) Any grievance not taken to the next step within the time limit may be
deemed to be settled, unless the parties mutually agree in writing to
extend the time limit for a particular step.
(g) In determining the time limits herein, Saturdays, Sundays and
holidays shall be excluded.
SECTION 2. The Union shall have the right to submit a grievance involving
suspension, layoff, or discharge directly to a Board of Review in accordance
with the provisions of Section 1(c) and said Board of Review shall be convened
not more than five days after the grievance is submitted.
SECTION 3. The question of whether or not the Company shall pay the employee
back pay for the period covered by such suspension, discipline, layoff or
discharge if such suspension, discipline, layoff or discharge shall ultimately
be held to have been wrongful may be considered as part of the grievance.
- 42 -
<PAGE>
SECTION 4. When considering an employee's prior record for the purpose of
determining the penalty to be applied in a current disciplinary action, any
previous offense more than three years old shall be ignored if it did not result
in disciplinary suspension, and the weight to be accorded any other previous
offense shall depend on the remoteness of such other offense and on the nature
of the employee's record since then.
ARTICLE XVIII
EQUAL EMPLOYMENT OPPORTUNITY
SECTION l. The Company and the Union endorse the principles and objectives of
the state and federal equal employment opportunity laws. Both the Company and
the Union will cooperate affirmatively to ensure that the terms and conditions
of this Agreement will be administered without discrimination in regard to race,
color, religious creed, age, sex, national origin, ancestry, marital status,
sexual orientation, disability, and veteran status. The Company and the Union
will also provide reasonable accommodations for qualified employees with a
disability in accordance with applicable law.
SECTION 2. There shall be an Equal Employment Opportunity Committee consisting
of three representatives of the bargaining unit designated by the Union and
three representatives of the Company designated by the Company. The Committee
shall meet periodically as needed (but not less than twice each year) to discuss
the administration of the Agreement pursuant to Section l above.
- 43 -
<PAGE>
ARTICLE XIX
GOVERNMENTAL REGULATIONS
If any provision of this Agreement shall be rendered invalid by
operation of law, the remainder of this Agreement shall remain in full force and
effect.
ARTICLE XX
NOTICES AND CERTIFICATIONS
All notices and certifications shall be deemed to have been fully and
completely served or made by the Company when sent by registered mail addressed
to Gary J. Brooks, President, Local 470-l of the Utility Workers Union of
America, AFL-CIO, P.O. Box 1497, New Haven, Connecticut 06506, and by the Union
when sent by registered mail to Albert N. Henricksen, Group Vice President
Support Services, The United Illuminating Company, P.O. Box 1564, New Haven,
Connecticut 06506-0901, unless either party hereto shall have substituted by
written notice a different name or address at least five days before any such
notice or certification is mailed.
ARTICLE XXI
DURATION OF AGREEMENT
SECTION l. This Agreement shall be effective as of May l6, l997. It shall remain
in effect through May l5, 2002, and shall thereafter be renewed automatically
for yearly periods from year to year until canceled in accordance with the
provisions of Section 3 of this Article.
- 44 -
<PAGE>
SECTION 2. All General Increases provided for in this Agreement shall be
effective on the Sunday nearest the effective date of this Agreement or the
anniversary thereof, as set forth in Exhibit I, Schedule A, and all General
Increases provided for in any successor agreement shall be effective on the
Sunday nearest the effective date of such successor agreement or the anniversary
thereof, regardless of whether the nearest Sunday precedes or follows the
effective date of any such successor agreement or the anniversary thereof.
SECTION 3. At least sixty days but not more than seventy days before each annual
renewal date commencing May l6, 2002, either party shall submit to the other
party in writing notice of its desire to terminate or modify this Agreement,
together with any proposed amendments or revisions to this Agreement. Not later
than forty-five, nor more than sixty days prior to said renewal date,
representatives of the Company and the Union shall meet to consider such
proposed amendments or revisions. In the absence of such notification of
cancellation, this Agreement shall be automatically renewed for yearly periods
from year to year with such changes and amendments, if any, as have been agreed
upon prior to the last date on which notice of cancellation of this Agreement
could have been given.
SECTION 4. (a) In the event of a consolidation or merger, or in the event of the
sale of the Company's operations, the Company shall require any successor
corporation or purchaser to assume the terms and conditions of this Agreement
with respect to all of the employees of the Company who are in the bargaining
unit at the time of such consolidation, merger or sale.
(b) Effective May 16, 1998, in the event of a sale of a significant
part of the Company's operations, the Company agrees that it will require the
purchaser of such operations to offer employment to all affected employees.
- 45 -
<PAGE>
Employees who do not accept such employment and who, after being
assigned to the Company-wide pool, are laid off by the Company, and other
employees who are laid off by the Company as a result of the sale, shall receive
severance payments in an amount equal to one year's pay (i.e., 2080 hours' pay
at their regular hourly rate or 52 weeks' pay at their regular weekly rate).
These payments shall be in lieu of the severance payments set forth in Exhibit
II for Article XI.
IN WITNESS WHEREOF, the parties have executed this Agreement at New
Haven, Connecticut, this 26 th day of August, 1997.
- 46 -
<PAGE>
LOCAL 470-l OF THE UTILITY WORKERS UNION OF AMERICA, AFL-CIO
By: Gary J. Brooks, President
Joseph W. Rydzy, Executive Vice President
Attest: Diane M. Diedrich, Vice President-Client Services/Finance
/Support Services
Jose J. Marti, Vice President - Generation
Paul E. Nastri, Vice President -Electric Systems
Joseph A. Orsini, Recording Secretary, Local 470-1
THE UNITED ILLUMINATING COMPANY
By: Albert N. Henricksen, Group Vice President Support Services
Anthony J. Vallillo, Group Vice President Client Services
James L. Benjamin, Controller
John A. Buffa, General Manager Production
Lloyd J. Johnson, Director Client Service Operations
Robert A. Nastri, Director Labor/Industrial Relations
William J. Manniel, Senior Labor/Industrial Relations Specialist
Approved: John F. Holland, National Representative
UWUA, AFL-CIO
- 47 -
<PAGE>
EXHIBIT I
SCHEDULE A
Effective May 18, l997
WEEKLY RATES OF PAY FOR
OCCUPATIONAL CLASSIFICATIONS
Grade Minimum Maximum
-------------------------------------------------------
A $308.40 $389.20
B 314.00 413.20
C 374.80 445.60
D 444.00 516.00
E 482.00 560.00
F 515.20 593.20
G 554.80 639.60
H 594.00 682.00
I 640.40 731.20
J 686.00 780.40
K 750.40 850.80
-------------------------------------------------------
HOURLY RATES OF PAY FOR
OCCUPATIONAL CLASSIFICATIONS
Grade Minimum Maximum
--------------------------------------------------------
1 $20.31 $22.76
2 19.52 21.98
3 18.79 21.19
4 17.79 20.09
5 16.73 19.04
6 15.83 18.03
7 14.91 17.10
8 14.21 16.30
9 12.20 15.63
l0 11.70 14.98
11 11.26 14.47
l2 10.95 14.10
l3 10.67 13.73
--------------------------------------------------------
- 48 -
<PAGE>
EXHIBIT I
SCHEDULE A
Effective May 17, l998
WEEKLY RATES OF PAY FOR
OCCUPATIONAL CLASSIFICATIONS
Grade Minimum Maximum
------------------------------------------------------
A $314.57 $396.98
B 320.28 421.46
C 382.30 454.51
D 452.88 526.32
E 491.64 571.20
F 525.50 605.06
G 565.90 652.39
H 605.88 695.64
I 653.21 745.82
J 699.72 796.01
K 765.41 867.82
------------------------------------------------------
HOURLY RATES OF PAY FOR
OCCUPATIONAL CLASSIFICATIONS
Grade Minimum Maximum
-------------------------------------------------------
1 $20.72 $23.22
2 19.91 22.42
3 19.17 21.61
4 18.15 20.49
5 17.06 19.42
6 16.15 18.39
7 15.21 17.44
8 14.49 16.63
9 12.44 15.94
l0 11.93 15.28
11 11.49 14.76
l2 11.17 14.38
l3 10.88 14.00
------------------------------------------------------
- 49 -
<PAGE>
EXHIBIT I
SCHEDULE A
Effective May 16, l999
WEEKLY RATES OF PAY FOR
OCCUPATIONAL CLASSIFICATIONS
Grade Minimum Maximum
-------------------------------------------------------
A $320.86 $404.92
B 326.69 429.89
C 389.95 463.60
D 461.94 536.85
E 501.47 582.62
F 536.01 617.16
G 577.22 665.44
H 618.00 709.55
I 666.27 760.74
J 713.71 811.93
K 780.72 885.18
-------------------------------------------------------
HOURLY RATES OF PAY FOR
OCCUPATIONAL CLASSIFICATIONS
Grade Minimum Maximum
-------------------------------------------------------
1 $21.13 $23.68
2 20.31 22.87
3 19.55 22.04
4 18.51 20.90
5 17.40 19.81
6 16.47 18.76
7 15.51 17.79
8 14.78 16.96
9 12.69 16.26
l0 12.17 15.59
11 11.72 15.06
l2 11.39 14.67
l3 11.10 14.28
-------------------------------------------------------
- 50 -
<PAGE>
EXHIBIT I
SCHEDULE A
Effective May 21, 2000
WEEKLY RATES OF PAY FOR
OCCUPATIONAL CLASSIFICATIONS
Grade Minimum Maximum
-------------------------------------------------------
A $327.28 $413.02
B 333.22 438.49
C 397.75 472.87
D 471.18 547.59
E 511.50 594.27
F 546.73 629.50
G 588.76 678.75
H 630.36 723.74
I 679.60 775.95
J 727.98 828.17
K 796.33 902.88
-------------------------------------------------------
HOURLY RATES OF PAY FOR
OCCUPATIONAL CLASSIFICATIONS
Grade Minimum Maximum
-------------------------------------------------------
1 $21.55 $24.15
2 20.72 23.33
3 19.94 22.48
4 18.88 21.32
5 17.75 20.21
6 16.80 19.14
7 15.82 18.15
8 15.08 17.30
9 12.94 16.59
l0 12.41 15.90
11 11.95 15.36
l2 11.62 14.96
l3 11.32 14.57
------------------------------------------------------
- 51 -
<PAGE>
EXHIBIT I
SCHEDULE A
Effective May 20, 2001
WEEKLY RATES OF PAY FOR
OCCUPATIONAL CLASSIFICATIONS
Grade Minimum Maximum
-------------------------------------------------------
A $333.83 $421.28
B 339.88 447.26
C 405.71 482.33
D 480.60 558.54
E 521.73 606.16
F 557.66 642.09
G 600.54 692.33
H 642.97 738.21
I 693.19 791.47
J 742.54 844.73
K 812.26 920.94
-------------------------------------------------------
HOURLY RATES OF PAY FOR
OCCUPATIONAL CLASSIFICATIONS
Grade Minimum Maximum
-------------------------------------------------------
1 $21.98 $24.63
2 21.13 23.80
3 20.34 22.93
4 19.26 21.75
5 18.11 20.61
6 17.14 19.52
7 16.14 18.51
8 15.38 17.65
9 13.20 16.92
l0 12.66 16.22
11 12.19 15.67
l2 11.85 15.26
l3 11.55 14.86
-------------------------------------------------------
- 52 -
<PAGE>
EXHIBIT I
SCHEDULE B
OCCUPATIONAL CLASSIFICATIONS
OCCUPATIONAL TITLE CODE NO.
- --------------------------------------------------------------------------------
Administrative Clerk.................................................1583 - D
Administrative Clerk.................................................1672 - G
Administrative Clerk I...............................................1678 - D
Administrative Clerk II..............................................1675 - E
Administrative Secretary.............................................158l - G
Administrative Stenographer..........................................1582 - E
Area Leader..........................................................8330 - 2
Assistant Unit Operator..............................................6065 - 3
Barge Unloader Operator..............................................6530 - 5
Building Maintenance Repairer and Painter............................6720 - 6
Building Services Working Leader.....................................3767 - 4
Cable Splicer First Class............................................7940 - 3
Cable Splicer Second Class...........................................7945 - 7
Chemistry Helper A...................................................5712 - 7
Chemistry Helper B...................................................5711 - 10
Chemistry Technician.................................................5713 - 5
Chief Clerk - Purchasing.............................................3340 - H
Chief Mechanic.......................................................762l - 2
Chief Stockhandler...................................................3540 - 6
Clerical Assistant...................................................2004 - C
Clerk - Construction and Maintenance Records.........................8125 - I
Clerk - Customer Services............................................9557 - E
Clerk - Fuel and Generation Records..................................5429 - G
Clerk - Maps and Records.............................................4783 - G
Clerk - Maps and Records Senior......................................4784 - H
Clerk - Order........................................................3360 - E
Clerk - Production Records...........................................5428 - E
Clerk - Record ......................................................3380 - C
Clerk - Relief.......................................................2005 - I
Clerk - Typist II....................................................5030 - E
Clerk - Underground..................................................8070 - H
Clerk - Work In Progress.............................................7265 - F
Client Relations Center Associate "A"................................7291 - I
Client Relations Center Associate "B"................................7292 - H
Client Relations Center Working Leader...............................7290 - J
Collections Administrative Representative............................1981 - I
- 53 -
<PAGE>
OCCUPATIONAL TITLE CODE NO.
- --------------------------------------------------------------------------------
Collections Field Technician.........................................8343 - 9
Cost Analyst.........................................................3255 - J
Customer Relations Field Representative..............................7270 - K
Customer Service Office Representative...............................2563 - G
Customer Service Office Senior Representative........................2561 - H
Customer Service Office Special Representative.......................2562 - G
Data Entry Operator - Senior.........................................2445 - E
Distribution Administrative Clerk....................................7256 - G
Drafter..............................................................4865 - J
Drafting Clerk.......................................................4875 - D
Driver Boom Operator.................................................3667 - 7
Driver Equipment Operator............................................8035 - 6
Electrical Maintenance Working Leader................................5973 - l
Field Technician I...................................................8332 - 3
Field Technician II..................................................8334 - 8
Final Collection Administrative Representative.......................1981 - I
Fuel Handling Working Leader.......................................65l5 - 4
Fuel Handling Working Leader (BHS) ............................. ....65l6 - 3
Garage Attendant.....................................................7690 -l2
Garage Mechanic First Class..........................................7650 - 3
Garage Mechanic Helper...............................................7670 - 9
Garage Mechanic Second Class.........................................7660 - 6
Garage Parts & Repair Mechanic.......................................7680 - 7
Gate Tender..........................................................6660 - D
Glove Lab Technician.................................................7745 - 7
Instruments & Controls Helper B......................................5770 - 10
Instruments & Controls Repair Technician.............................5790 - 5
Instruments & Controls Technician....................................5735 - 7
Instrument & Electrical Specialist I.................................5934 - 1
Instrument & Electrical Specialist II................................5936 - 5
Instrument & Electrical Specialist III...............................5938 -10
Junior Cost Analyst..................................................3134 - G
Junior Drafter.......................................................4880 - H
Junior Field Technician I............................................4940 - H
Junior Field Technician II...........................................4980 - I
Line Group Leader....................................................78l0 - l
Line Trouble Shooter.................................................7800 - 2
Line Utility Worker..................................................7741 - 6
- 54 -
<PAGE>
OCCUPATIONAL TITLE CODE NO.
- --------------------------------------------------------------------------------
Line Worker First Class..............................................7770 - 2
Line Worker Second Class.............................................7780 - 6
Line Worker Second Class.............................................7781 - 6
Line Worker Third Class..............................................7790 - 9
Maintenance Support Technician I.....................................6404 - 1
Maintenance Support Technician II....................................6406 - 5
Maintenance Support Technician III...................................6408 - 9
Mechanic First Class.................................................6400 - 3
Mechanic Helper......................................................6417 - 10
Mechanic Second Class................................................6410 - 6
Mechanic Third Class.................................................6415 - 9
Mechanical Maintenance Working Leader................................6455 - l
Meter/Equipment Stager...............................................8340 - 9
Meter Lab Technician.................................................8338 - 6
Meter Reader.........................................................2735 - l0
Meter Reader Outlying Area...........................................2745 - 9
Meter Re-Reader......................................................2755 - 9
Meter Records Control Clerk..........................................8455 - H
Meter Services Working Leader........................................8385 - 2
Meter Tester and Installer First Class...............................8380 - 3
Meter Tester and Installer Second Class..............................8440 - 5
Meter Tester and Installer Third Class...............................8400 - 8
Meter Tester and Repairer First Class................................8420 - 6
Meter Tester and Repairer Second Class...............................8410 - 9
Office Maintenance Helper I..........................................3764 - 10
Office Maintenance Helper II.........................................3765 - 8
Office Maintenance Specialist........................................3766 - 6
Operations Apprentice................................................6751 - 11
Operator Ash & Waste Water Systems...................................6063 - 5
Operator - Fuel Handling.............................................6518 - 7
Operator - Fuel Handling - (BHS).....................................6520 - 6
Operator - Slag & Screen House.......................................6061 - 8
Painter..............................................................8640 - 7
Plant Accounting Data Control Clerk..................................3125 - H
Plant Chemistry Analyst..............................................5714 - 3
Plant ECS Maintenance Specialist.....................................6046 - 6
Plant ECS Working Leader.............................................6045 - 4
Plant Operator I.....................................................6070 - 1
Plant Operator II....................................................6072 - 4
- 55 -
<PAGE>
OCCUPATIONAL TITLE CODE NO.
- --------------------------------------------------------------------------------
PlantOperator III....................................................6074 - 8
Power Delivery Apprentice............................................7776 - 5
Power Delivery Construction Specialist...............................7772 - 2
Power Delivery Equipment Specialist..................................7777 - 6
Power Delivery Helper................................................7779 - 9
Power Delivery Splice Specialist.....................................7774 - 2
Power Delivery Trouble Shooter.......................................7769 - 2
Power Delivery Working Leader........................................7767 - 1
Power Plant Systems Control Technician...............................5750 - 3
Purchasing Inquiry Clerk.............................................3365 - E
Records Audit Clerk..................................................3130 - G
Report Distribution/Help Desk Clerk..................................1608 - F
Residential Collections Representative...............................1971 - H
Secondary Field Technician...........................................8336 - 7
Senior Administrative Clerk..........................................1670 - H
Senior Clerk - Final Collections.....................................1980 - H
Senior Clerk - Stores Control........................................3630 - E
Senior Cost Analyst..................................................3260 - K
Senior Drafter.......................................................4851 - K
Senior Drafting Clerk................................................4876 - F
Senior Meter/Customer Records Clerk..................................8460 - H
Senior Residential Collections Representative........................1972 - I
Senior Stores Analyst................................................3533 - I
Services Technician..................................................7540 - I
Special Collection Analyst...........................................1977 - G
Special Bill Analyst.................................................2015 - G
Special Bill Analyst Senior..........................................2016 - H
Standard Resource Clerk..............................................8350 - H
Station Electrician Helper - Maintenance.............................5950 - l0
Station Electrician Maintenance......................................5970 - 3
Station Electrician Second Class - Maintenance.......................5940 - 6
Station Electrician Third Class - Maintenance........................5945 - 9
Stockhandler.........................................................3660 - 8
Stores Analyst.......................................................3531 - G
Stores Working Leader................................................3535 - 4
Substation Electrician - Construction & Maintenance..................8220 - 2
Substation Electrician Second Class..................................8190 - 6
Substation Electrician Specialist....................................8260 - l
Substation Electrician Third Class...................................8195 - 9
Substation Utility Worker............................................8635 - 6
- 56 -
<PAGE>
OCCUPATIONAL TITLE CODE NO.
- --------------------------------------------------------------------------------
Technical Stenographer...............................................5045 - G
Telephone Operator...................................................7380 - E
Tool Repairer........................................................6413 - 6
Underground Inspector................................................7925 - 6
Underground Maintenance Worker "A"...................................8040 - 7
Underground Maintenance Worker "B"...................................8050 -l0
Unit Operator........................................................6255 - 1
Utility Operator.....................................................6256 - l
Vacation Relief Operator.............................................6253 - 1
- 57 -
<PAGE>
EXHIBIT II FOR ARTICLE XI
PRINCIPLES OF SENIORITY
Pursuant to the provisions of Section l of Article XI of the current
Agreement between the Company and the Union, and subject to the proviso therein
stated, the following principles of seniority shall apply:
l. Each full-time regular and each full-time temporary employee covered
by said Agreement, upon completion of his probationary period, shall accumulate
seniority of the following types:
(a) Classification Seniority based on the employee's service in his curren
occupational classification.
(b) Company Service based on the employee's service with the Company.
2. Sequences of Promotion are hereby established as set forth in
certain charts attached hereto, made a part hereof and hereinafter referred to
as "said charts." In selecting an employee to fill a vacancy in any occupational
classification, the principle of seniority to be applied is as follows:
(a) In filling a vacancy in an occupational classification forming a part
of a Sequence of Promotion, other than the lowest rated occupational
classification in such Sequence of Promotion:
(i) Employees assigned to the same occupational classification
elsewhere in the Company shall, upon request, receive first
consideration for filling such vacancy, on the basis of
Classification Seniority.
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(ii) Employees assigned to the occupational classification immediately
preceding it in such Sequence of Promotion shall receive second
consideration for filling such vacancy, on the basis of
Classification Seniority.
(b) In filling a vacancy in the lowest rated classification in any Sequence
of Promotion or in any occupational classification not forming a part
of a Sequence of Promotion:
(i) Employees assigned to the same occupational classification
elsewhere in the Company shall, upon request, receive first
consideration for filling such vacancy, on the basis of
Classification Seniority.
(ii) Employees assigned to the Company-wide pool and employees who
have on file effective requests for transfer to such occupational
classification shall receive second consideration for filling
such vacancy, on the basis of Company Service.
For purposes of this Paragraph 2, each laid-off employee shall be
considered as having on file an effective request for transfer to each
occupational classification in which a vacancy occurs while he is laid off.
In the case of any employee who (a) is no longer able to do
satisfactorily the work in his regular occupational classification because of
his mental or physical condition, or (b) becomes an excess employee in his
regular occupational classification as a result of the Company's having changed
its methods or equipment, such employee may, notwithstanding the provisions of
this Paragraph 2, be selected to fill a vacancy in any occupational
classification, the work in which he is then able to do, if such employee has
greater Company Service than the employee who would otherwise be selected to
fill such vacancy. If the employee declines an assignment to such an
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occupational classification, he shall thereafter receive only the regular hourly
rate of the occupational classification in which he is then working.
If a vacancy should occur in an occupational classification at a time
when one or more employees are receiving the benefits of Section 4 of Article XI
of the current Agreement between the Company and the Union, as the result of
having been demoted or transferred therefrom, as excess therein, to other
occupational classifications in lower grades, then, notwithstanding the
provisions of this Paragraph 2(a) or 2(b), such employees shall receive first
consideration for filling the vacancy in such occupational classification on the
basis of their respective Classification Seniorities in it at the time of their
respective demotions or transfers from it.
(c) Notwithstanding any other provision in these Principles of
Seniority, if a vacancy occurs in a full-time Client Relations Center
Associate "B" classification for which Credit & Collection
Representatives are considered, part-time Client Relations Center
Associates "A" and "B" shall be considered, along with such Credit &
Collection Representatives, for filling the vacancy on the basis of
their Classification Seniority. For the purpose of filling the
aforesaid vacancy only, the Classification Seniority for such
part-time employees shall include one-half of the employee's service
as a part-time Client Relations Center Associates "A" or "B," and any
prior full-time service as a Client Relations Center Associate "A" or
"B," provided there has been no break in service. Thereafter, such
employee's Classification Seniority and Company Service for all
purposes (except for Article V and VIII) shall commence on the date
the part-time employee began full-time service as a Client Relations
Center Associate "B."
3. An employee desiring transfer to a different occupational
classification or section must file with his immediate supervisor in
quadruplicate a written request for transfer on a form to be provided by the
Company. The supervisor shall sign and return to the employee one copy of the
request for transfer, and the Company shall send one copy to the Union. A
request for transfer
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shall be effective only with respect to vacancies occurring more than 30 days
after it is filed with the employee's supervisor. An employee may not have on
file at any one time more than 25 effective requests for transfer. An employee
having on file a request for transfer to any occupational classification or
section may at any time withdraw such request for transfer by filing with his
immediate supervisor a written notice of withdrawal, but if prior to the filing
of such notice of withdrawal such employee shall have been selected to fill a
vacancy in such occupational classification or section, such employee shall not
be eligible for one year thereafter to file another request for transfer to such
occupational classification or section. Any employee transferred at his own
request shall not be eligible to request another transfer for one year
thereafter.
4. It is the mutual desire of the Company and the Union that able
employees should have the opportunity to advance through the Sequences of
Promotion. Whenever normal advancement through any occupational classification
is blocked or seriously impaired by the assignment thereto of employees who have
proven themselves unwilling to advance further, the Company may, upon five days'
notice to the Union, require such employees to accept promotion or demotion, as
appropriate to the extent necessary to open such occupational classification for
normal advancement through it. The provisions of this Paragraph 4, if applied in
any occupational classification, shall be applied to the employees therein in
the reverse order of their Classification Seniority, i.e., first to the employee
with the least Classification Seniority. The provisions of this Paragraph 4
shall not be so applied as to require any employee to accept promotion or
demotion from the occupational classification to which such employee is assigned
as of the date hereof.
5. In the event that it is necessary at any time for the Company to
reduce the number of employees in any occupational classification, eliminate any
occupational classification, or lay off employees, the following principles of
seniority and employment protections shall apply:
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(a) If there are excess employees in any occupational classification other
than one forming part of the Company-wide pool, the excess employees in
such occupational classification having the least Classification
Seniority shall be demoted to the next lower occupational classification
in the applicable Sequence of Promotion, if any, otherwise to the
Company-wide pool.
(b) Prior to May 16, 1999, the Company will not layoff any employees
employed as of May 16, 1997, whose positions are eliminated or who are
displaced by another employee in either case as a direct result of
process redesign changes that the Company has devised and implemented
with bargaining unit involvement and that involved the integration of
bargaining unit occupational classifications. The employment
protections set forth in this subparagraph (b) shall not apply to
employees hired after May 16, 1997.
(c) Prior to May 16, 1998, the Company will not layoff any employee who as
of May 16, 1997, has less than 7.5 years of Company Service.
(d) Prior to May 16, 1999, the Company will not layoff any employee who
as of May 16, 1997, has between 7.5 years and 9.5 years of Company
Service.
(e) During the term of this Agreement, the Company will not layoff any
employee who as of May 16, 1997, has more than 9.5 years of Company
Service. The employment protections set forth in this subparagraph (e)
shall not extend beyond the expiration date of this Agreement.
(f) Employees shall be laid off in the reverse order of their Company
Service regardless of their current occupational classification, i.e.,
the employee with the least Company Service first.
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(g) Any employees who are laid off shall be eligible for severance benefits
in accordance with subparagraph (h) below.
(h) Any employee laid off during the term of the current Agreement
between the Company and the Union under the provisions of this
Paragraph 5 shall have the option of electing at any time within
fourteen days after such layoff, by written notice addressed to the
Company's Human Resources Department, 157 Church Street, New Haven, CT
06506-0901, to receive, in lieu of all other rights as a laid-off
employee, a separation allowance. In the event such employee elects to
receive a separation allowance, such separation allowance shall be in
an amount equal to eighty hours' pay at his regular hourly rate (or
two week's pay at his regular weekly rate, as the case may be) plus an
additional forty hours' pay at his regular hourly rate (or an
additional week's pay at his regular weekly rate, as the case may be)
for each full year of his Company Service. Any employee electing to
receive a separation allowance hereunder shall thereupon be deemed to
have resigned his employment with the Company for all purposes and, if
thereafter at any time re-employed by the Company, shall be deemed to
be a "new" employee for all purposes. Laid-off employees not electing
to receive a separation allowance hereunder shall be considered for
recall in the order of their Company Service. Notice of recall shall
be given by mailing, registered mail, return receipt requested, a
recall notice addressed to the employee being recalled at his most
recent address as shown on the Company's records. A copy of each such
recall notice shall be sent to the Union by the Company. The Company
shall not hire any new employee for assignment to any occupational
classification until all laid-off employees then having Company
Service and then able to perform the work in such occupational
classification have been recalled to work.
6. In measuring an employee's Classification Seniority and Company Service,
the following rules shall apply:
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(a) No period in excess of three months during which an employee was absent
from work because of layoff, suspension or leave of absence without pay
(other than for sickness or injury) and no period in excess of one year
during which an employee was absent from work because of leave of
absence without pay for sickness or injury shall be included; provided,
however, this exclusion shall not apply in the case of military leaves
of absence if such employee applies for reinstatement within the time
limits specified under applicable provisions of Federal or State law.
(b) An employee shall lose all Classification Seniority and Company
Service theretofore accumulated if he:
(l) resigns or quits,
(2) is discharged for cause,
(3) is not recalled to work within one hundred and four weeks after
being laid off,
(4) fails to return to work from layoff within the period designated in
his recall notice, or
(5) is absent from work for seven consecutive days without proper
notice, unless his failure to give notice is excused by the
Company.
(c) If, in connection with a layoff or reduction in the work force in any
occupational classification, an employee is demoted, he shall assume in
the occupational classification to which demoted, in addition to such
Classification Seniority as he may previously have had in it, such
Classification Seniority as he may have accumulated in the occupational
classification or classifications from or through which he is so
demoted.
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(d) An employee's Classification Seniority in an occupational
classification that is one of two or more occupational classifications
from all of which direct promotions are normally made to another
occupational classification, as set forth in the appropriate Sequence
of Promotion, shall include his Classification Seniority in all such
two or more occupational classifications.
(e) If two or more employees have equal Classification Seniority, seniority
as between those employees shall be determined by comparing seniority
in the following categories consecutively until the tie is broken:
(1) Classification Seniority in successively lower occupational
classifications, to the lowest rated occupational classification
in the Sequence of Promotion.
(2) Company Service.
If seniority is still equal, the employee with the lowest social
security number shall be considered senior.
7. For the purpose of applying subparagraphs (a) and (b) of Paragraph 2
and subparagraphs (a) and (b) of Paragraph 5, the corresponding departments in
all geographical areas shall be deemed to be merged and shall be treated as
single departments on a Company-wide basis, and the corresponding Sequences of
Promotion in such corresponding departments shall be deemed to be merged and
shall be treated as single Sequences of Promotion on a Company-wide basis;
provided, however, if the Company in connection with assuming the operation of
any utility plant or system should employ persons theretofore employed by the
previous operator of such utility plant or system, the provisions of this
Paragraph 7 shall not apply to such persons.
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8. A Line Worker Second Class shall be deemed to have satisfied clause
(a) of Section 1 of Article XI, and a vacancy in the occupational classification
of Line Worker First Class shall be deemed to exist for that employee for the
purpose of Section 1 of Article XI, subject to the following terms and
conditions:
(a) The employee shall have performed satisfactorily as a Line Worker
Second Class for at least three years.
(b) The employee shall have satisfactorily demonstrated that he has the
skills and knowledge necessary to complete the work orders and tasks in
the "Line Worker Second Class Manual," and any subsequent revisions of
the Manual which the Company may issue from time to time.
The Company shall establish training and evaluation programs, provide
the necessary personnel and facilities, and permit participation by eligible
employees during normal working hours, but not to an extent that will interfere
with the Company's customary operations.
9. A Mechanic Second Class shall be deemed to have satisfied clause (a)
of Section 1 of Article XI, and a vacancy in the occupational classification of
Mechanic First Class shall be deemed to exist for that employee for the purpose
of Section 1 of Article XI, subject to the following terms and conditions:
(a) The employee shall have performed satisfactorily as a Mechanic Second
Class for at least four years.
(b) The employee shall have satisfactorily demonstrated that he has the
skills and knowledge necessary to complete the tasks described in the
"Mechanic Second Class Manual," and any subsequent revisions of the
Manual which the Company may issue from time to time.
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The Company shall establish training and evaluation programs, provide
the necessary personnel and facilities, and permit participation by eligible
employees during normal working hours, but not to an extent that will interfere
with the Company's customary operations.
l0. A Junior Cost Analyst shall be deemed to have satisfied clause (a)
of Section l of Article XI, and a vacancy in the occupational classification of
Cost Analyst shall be deemed to exist for that employee for the purpose of
Section l of Article XI, subject to the following terms and conditions:
(a) The employee shall have performed satisfactorily as a Junior Cost
Analyst for at least twenty-four months.
(b) The employee shall have satisfactorily met minimum acceptable
performance standards for every task and demonstration set forth in the
"Training Demonstration & Evaluation Manual," and any subsequent
revisions of the Manual which the Company may issue from time to time.
The Company shall establish training and evaluation programs, provide
the necessary personnel and facilities, and permit participation by eligible
employees during normal working hours, but not to an extent that will interfere
with the Company's customary operations.
11. A Substation Electrician 3rd Class shall be deemed to have
satisfied clause (a) of Section 1 of Article XI, and a vacancy in the
occupational classification of Substation Electrician 2nd Class shall be deemed
to exist for that employee for the purpose of Section 1 of Article XI, subject
to the following terms and conditions:
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(a) The employee shall have performed satisfactorily as a Substation
Electrician 3rd Class for at least twelve months.
(b) The employee shall have satisfactorily completed, with a passing grade
of 70% or better, all of the required classroom topics set forth in the
"Substation Electrician Third Class Manual," and any subsequent
revisions to the Manual which the Company may issue from time to time.
(c) The employee shall have satisfactorily demonstrated that he has the
skills and knowledge necessary to complete the work orders and tasks in
the "Substation Electrician Third Class Manual," and any subsequent
revisions of the Manual which the Company may issue from time to time.
A Substation Electrician 2nd Class shall be deemed to have satisfied
clause (a) of Section 1 of Article XI, and a vacancy in the occupational
classification of Substation Electrician - Construction and Maintenance shall be
deemed to exist for that employee for the purpose of Section 1 of Article XI,
subject to the following terms and conditions:
(a) The employee shall have performed satisfactorily as a Substation
Electrician 2nd Class for at least four years.
(b) The employee shall have satisfactorily completed, with a passing grade
of 70% or better, all of the required classroom topics set forth in the
"Substation Electrician Second Class Manual," and any subsequent
revisions to the Manual which the Company may issue from time to time.
(c) The employee shall have satisfactorily demonstrated that he has the
skills and knowledge necessary to complete the work orders and tasks in
the "Substation Electrician Second
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Class Manual," and any subsequent revisions of the Manual which the
Company may issue from time to time.
12. A Chemistry Helper "B" shall be deemed to have satisfied clause (a)
of Section 1 of Article XI, and a vacancy in the occupational classification of
Chemistry Helper "A" shall be deemed to exist for that employee for the purpose
of Section 1 of Article XI, subject to the following terms and conditions:
(a) The employee shall have performed satisfactorily as a Chemistry Helper
"B" for at least ninety days.
(b) The employee shall have satisfactorily completed, with a passing grade
of 70% or better, all of the required classroom topics set forth in the
"Training Program for Plant Chemistry Analysts: Phase I--Chemistry
Helper A," and any subsequent revisions to the Program that the Company
may issue from time to time.
(c) The employee shall have satisfactorily demonstrated that he has the
skills and knowledge necessary to complete the demonstrations and tasks
in the "Formal Hands-on Training Program," and any subsequent revisions
of the Program that the Company may issue from time to time.
A Chemistry Helper "A" shall be deemed to have satisfied clause (a) of
Section 1 of Article XI, and a vacancy in the occupational classification of
Chemistry Technician shall be deemed to exist for that employee for the purpose
of Section 1 of Article XI, subject to the following terms and conditions:
(a) The employee shall have performed satisfactorily as a Chemistry Helper
"A" for at least twelve months.
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<PAGE>
(b) The employee shall have satisfactorily completed, with a passing grade
of 70% or better, all of the required classroom topics set forth in the
"Training Program for Plant Chemistry Analysts: Phase II--Chemistry
Technician," and any subsequent revisions to the Program that the
Company may issue from time to time.
(c) The employee shall have satisfactorily demonstrated that he has the
skills and knowledge necessary to complete the demonstrations and tasks
in the "Formal Hands-on Training Program," and any subsequent revisions
of the Program that the Company may issue from time to time.
A Chemistry Technician shall be deemed to have satisfied clause (a) of
Section 1 of Article XI, and a vacancy in the occupational classification of
Plant Chemistry Analyst shall be deemed to exist for that employee for the
purpose of Section 1 of Article XI, subject to the following terms and
conditions:
(a) The employee shall have performed satisfactorily as a Chemistry
Technician for at least four years.
(b) The employee shall have satisfactorily completed, with a passing grade
of 70% or better, all of the required classroom topics set forth in the
"Training Program for Plant Chemistry Analysts: Phase III--Plant
Chemistry Analyst," and any subsequent revisions to the Program that
the Company may issue from time to time.
(c) The employee shall have satisfactorily demonstrated that he has the
skills and knowledge necessary to complete the demonstrations and tasks
in the "Formal Hands-on Training Program," and any subsequent revisions
of the Program that the Company may issue from time to time.
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The Company shall establish training and evaluation programs, provide
the necessary personnel and facilities, and permit participation by eligible
employees during normal working hours, but not to an extent that will interfere
with the Company's customary operations.
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EXHIBIT III FOR ARTICLE XIV
STATEMENT WITH RESPECT TO MAINTENANCE
OF MEMBERSHIP AND AGENCY SHOP PROVISION
IN COMPANY-UNION CONTRACT
Briefly, the maintenance of membership and agency shop clause provides
as follows:
l. If you are now a member of the Union in good standing, or if you
hereafter join the Union, you will be required, as a condition of employment, to
maintain your good standing in the Union in accordance with the terms of the
Contract, unless, before (insert proper date), you notify the Union in writing
that you desire to withdraw from membership. If you withdraw from membership,
you must continue to pay dues to the Union.
2. If you were hired prior to June 8, l962, and if you are not now a
member in good standing, this contract provision does not require that you join
or pay dues to the Union, but you are free to join or not to join, or to pay
dues or not pay dues, as you wish.
3. If you were hired on or after June 8, l962, you are free to join or
not join the Union as you wish, but you must pay dues to the Union whether you
join or not.
4. If you have any question as to whether you are now a member of the
Union, or wish to be informed as to whether the Union regards you as a member,
inquire of an appropriate Union or Company official.
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EXHIBIT IV FOR ARTICLE XV
DUES DEDUCTION AUTHORIZATION FORM
Date: ___________________________
The United Illuminating Company
157 Church Street
New Haven, Connecticut 06510-2103
I hereby request and direct The United Illuminating Company to deduct
each week from payments for my services such amount as the President of Local
470-l of the UWUA, AFL-CIO shall from time to time certify to the Company as
being the weekly dues which have been established as payable in accordance with
the Constitution and By-Laws of the Union. I request that such amount be
deducted on the first regular payday after the delivery of this request to the
Company, provided such an amount is owing to me on said payday.
I direct that said sum be paid to the Treasurer of the Union who is
certified by the Union to the Company from time to time.
I agree to indemnify and save harmless the Company for any sums which
the Company may be required to pay as the result of a claim that money deducted
from my pay and paid to the Treasurer of the Union in accordance with this
request has been illegally deducted.
This authorization may be revoked by me at any time as to any future
deductions by giving written notice to the Company and shall not be effective
during any period when there is no Agreement between the Company and said Union.
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EXHIBIT V FOR ARTICLE VII
BLUE CROSS & BLUE SHIELD OF CONNECTICUT CENTURY PREFERRED PLAN
SUMMARY OF BENEFITS
- --------------------------------------------------------------------------------
SERVICE MANAGED BENEFITS
- --------------------------------------------------------------------------------
Costshares In-Network services subject to copays
$10 Office Visit Copay
$50 Emergency Room Copay - Waived if Admitted
$50 Outpatient Surgery Copay
$200 Admission Copay*
*Note: Admission Copay is taken once per
contract per calendar year
In-Network Lifetime Maximum - Unlimited
Out-of-Network services subject to
deductible and coinsurance
Deductible - $200/$400/$500
Coinsurance - 80%/20%
Coinsurance Maximum - $800/$1,600/$2,000
Out-of-Network Lifetime Maximum - $1,000,000
All Utilization Review is member
responsibility
- --------------------------------------------------------------------------------
Preventive Care In-Network - $10 Copay
Pediatric Covered according to age-based schedule
Out-of-Network - Subject to Deductible an
Coinsurance
- --------------------------------------------------------------------------------
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<PAGE>
- -------------------------------------------------------------------------------
Adult In-Network - $10 Copay
Covered according to age-based schedule
Out-of-Network - Subject to Deductible and
Coinsurance
- --------------------------------------------------------------------------------
Vision In-Network - $10 Copay
Covered once every two years
Out-of-Network - Subject to Deductible and
Coinsurance
- --------------------------------------------------------------------------------
Hearing In-Network - $10 Copay
Covered once every two years
Out-of-Network - Subject to Deductible and
Coinsurance
- --------------------------------------------------------------------------------
Gynecological In-Network - $10 Copay
Covered once per year
Out-of-Network - Subject to Deductible and
Coinsurance
- --------------------------------------------------------------------------------
Mammography In-Network - Covered
According to age-based schedule
Out-of-Network - Subject to Deductible and
Coinsurance
- --------------------------------------------------------------------------------
Medical Services
Primary Care Medical Office Visit In-Network - $10 Copay
or Specialist Consultations
Out-of-Network - Subject to Deductible and
Coinsurance
- --------------------------------------------------------------------------------
Outpatient Rehabilitation In-Network - $10 Copay
Physical, Speech, Cardiac, Covered up to 50 combined treatments
Occupational, and per member per calendar year
Chiropractic (Treatment Plan Required)
Out-of-Network - Subject to Deductible and
Coinsurance
- --------------------------------------------------------------------------------
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<PAGE>
- --------------------------------------------------------------------------------
Allergy In-Network - $10 Copay (Office Visit)
(Treatment Plan Required)
No Copay - Injections
Out-of-Network - Subject to Deductible and
Coinsurance
- --------------------------------------------------------------------------------
Diagnostic Lab & X-ray In-Network - Covered
Out-of-Network - Subject to Deductible and
Coinsurance
- --------------------------------------------------------------------------------
Inpatient Medical Services In-Network - Covered
Out-of-Network - Subject to Deductible and
Coinsurance
- --------------------------------------------------------------------------------
Surgery Fees In-Network - Covered
(Prior Authorization Required)
Out-of-Network - Subject to Deductible and
Coinsurance
- --------------------------------------------------------------------------------
Office Surgery In-Network - Covered
Out-of-Network - Subject to Deductible and
Coinsurance
- --------------------------------------------------------------------------------
Outpatient Mental Health In-Network - Covered at 80% to $2,000
and Substance Abuse per member per calendar year
Out-of-Network - Subject to Deductible and
Coinsurance
($2,000 maximum per member per calendar year)
- --------------------------------------------------------------------------------
Emergency Care In-Network - $50 Copay (waived if admitted)
Emergency Room
Out-of-Network - Subject to Deductible and
Coinsurance
Sudden & Serious Guidelines must be followed
- --------------------------------------------------------------------------------
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<PAGE>
- --------------------------------------------------------------------------------
Walk-in Center In-Network - $10 Copay
Out-of-Network - Subject to Deductible and
Coinsurance
- --------------------------------------------------------------------------------
Ambulance 20% coinsurance - waived if admitted
($500 covered service limit)
- --------------------------------------------------------------------------------
Inpatient Hospital In-Network - Covered
General/Medical/Surgical/Maternity
(Semi-Private) Out-of-Network - Subject to Deductible and
Coinsurance
$200 Per Admission Copay (if applicable)
Note: All hospital admissions require
pre-certification
- --------------------------------------------------------------------------------
Ancillary Services Covered if Prior Authorization Received
(Medication, Supplies)
- --------------------------------------------------------------------------------
Psychiatric/Mental Health In-Network - Covered up to 60 days per
calendar year (120 partial)
Out-of-Network - Subject to Deductible and
Coinsurance
(Same coverage as In-Network)
$200 Per Admission Copay (if applicable)
- --------------------------------------------------------------------------------
Substance Abuse/ Detoxification In-Network - Covered up to 45 days per
calendar year (90 partial)
Out-of-Network - Subject to Deductible and
Coinsurance
(Same coverage as In-Network)
$200 Per Admission Copay (if applicable)
- --------------------------------------------------------------------------------
Rehabilitative In-Network - Covered up to 60 days per
calendar year
Out-of-Network - Subject to Deductible and
Coinsurance
(Same coverage as In-Network)
$200 Per Admission Copay (if applicable)
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Skilled Nursing Facility In-Network - Covered up to 120 days per
calendar year
Out-of-Network - Subject to Deductible and
Coinsurance
(Same coverage as In-Network)
- --------------------------------------------------------------------------------
Hospice Covered up to 60 days
$200 Per Admission Copay (if applicable)
- --------------------------------------------------------------------------------
Outpatient Hospital In-Network - $50 Copay
Outpatient Surgery
Facility Charges Out-of-Network - Subject to Deductible,
Coinsurance
- --------------------------------------------------------------------------------
Pre-Admission Testing In-Network - Covered
Out-of-Network - Subject to Deductible and
Coinsurance
- --------------------------------------------------------------------------------
Other Services 20% coinsurance to $1,000 maximum/year
Durable Medical Equipment (Prior Authorization Required)
- --------------------------------------------------------------------------------
Prosthetics Covered
(Prior Authorization Required)
- --------------------------------------------------------------------------------
Home Health Care In-Network - 200 visits per calendar year
when medically necessary or in lieu of
hospitalization
Out-of-Network - Subject to Deductible and
Coinsurance
(Same Coverage as In-Network)
(Prior Authorization Required)
- --------------------------------------------------------------------------------
Prescription Drugs $3 Copay - Generic, $6 Copay - Brand,
No Copay - Mail Order -- to $500 maximum
Additional coverage subject to deductible and
coinsurance
- --------------------------------------------------------------------------------
The foregoing summary of benefits is subject to change by Blue Cross & Blue
Shield of Connecticut.
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EXHIBIT VI FOR ARTICLE VII
BLUE CROSS & BLUE SHIELD OF CONNECTICUT BLUECARE PLUS POS PLAN
Summary of Benefits
- --------------------------------------------------------------------------------
SERVICE MANAGED BENEFITS
- --------------------------------------------------------------------------------
Preventative Care
Pediatric No Copay - Covered according to age-based
schedule
- --------------------------------------------------------------------------------
Adult No Copay - Covered according to
age-based schedule
- --------------------------------------------------------------------------------
Vision No Copay - Covered once every two years
- --------------------------------------------------------------------------------
Hearing No Copay - Covered according to
age-based schedule
- --------------------------------------------------------------------------------
Gynecological No Copay - Covered once per year
(no referral needed)
- --------------------------------------------------------------------------------
Mammography No Copay - Covered according to
age-based schedule
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Medical Services
Primary Care Medical Office $10 Copay
Visit or Specialist Consultations
- --------------------------------------------------------------------------------
Outpatient Rehabilitation
Physical, Occupational and $10 Copay - 60 consecutive days per
Chiropractic Therapy medical condition per calendar year -
Speech Therapy Precertification required
Cardiac Therapy
- --------------------------------------------------------------------------------
Allergy $10 Copay - maximum benefit
60 visits in 2 years
- --------------------------------------------------------------------------------
No Copay
Laboratory Covered
- --------------------------------------------------------------------------------
Office - No Copay - Covered
X-ray and Diagnostic Tests Hospital - $10 Copay for a stand alone
procedure
- --------------------------------------------------------------------------------
No Copay
Inpatient Medical Services Covered
- --------------------------------------------------------------------------------
No Copay
Surgery Fees Covered
- --------------------------------------------------------------------------------
No Copay
Office Surgery Covered
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
$10 Copay visit 1-5
Outpatient Mental Health $25 Copay visit 6+
and Substance Abuse Covered according to schedule
$2,000 maximum per member per calendar year
- --------------------------------------------------------------------------------
Emergency Care
Emergency Room $50 Copay - waived if admitted must meet
sudden and serious criteria or have a
referral from PCP
- --------------------------------------------------------------------------------
Urgent Care $25 Copay per visit - at specified
Urgent Care centers - covered for true
urgent care
- --------------------------------------------------------------------------------
Ambulance 20% coinsurance - waived if
admitted, land $500 maximum per trip,
air $4,000 maximum per trip
- --------------------------------------------------------------------------------
Inpatient Hospital
General/Medical/Surgical/ $250 Copay per admission
Maternity (Semi-Private) Precertification required
- --------------------------------------------------------------------------------
Psychiatric Mental Health Covered - $250 Copay per admission up to 60
inpatient days per calendar year -
Precertification required
- --------------------------------------------------------------------------------
- 81 -
<PAGE>
- --------------------------------------------------------------------------------
$250 Copay per admission -
Substance Abuse/ readmission within 2 years, 30%
Detoxification coinsurance up to $500 per admission
except detox, up to 45 days per
calendar year - Precertification required
- --------------------------------------------------------------------------------
No Copay
Rehabilitative Covered - up to 60 consecutive
days per medical condition -
Precertification required
- --------------------------------------------------------------------------------
$250 Copay per admission - up to
Skilled Nursing Facility 90 days per calendar year -
Precertification required
- --------------------------------------------------------------------------------
No Copay
Hospice Covered
- --------------------------------------------------------------------------------
Outpatient Hospital No Copay
Outpatient Surgery Covered - Precertification required
Facility Charges
- --------------------------------------------------------------------------------
No Copay
Pre-Admission Testing Covered
- --------------------------------------------------------------------------------
- 82 -
<PAGE>
- --------------------------------------------------------------------------------
Other Services
Durable Medical Equipment 20% coinsurance - maximum benefit
(DME) is $1,000 per member per calendar
year for specific DME items -
Precertification required
- --------------------------------------------------------------------------------
Prosthetics 20% coinsurance - maximum benefit
is $1,000 per member per calendar
year - Precertification required for
replacement
- --------------------------------------------------------------------------------
Home Health Care Covered - when medically
necessary or in lieu of hospitalization -
includes oxygen and infusion therapy -
Precertification required
- --------------------------------------------------------------------------------
Prescription Drugs $3 Copay - Generic
$6 Copay - Brand
No Copay - Mail Order
Unlimited maximum
Must use BlueCare Pharmacy Network
Contraceptives Not Covered
- --------------------------------------------------------------------------------
Lifetime In-Network Maximum Unlimited
- --------------------------------------------------------------------------------
- 83 -
<PAGE>
- --------------------------------------------------------------------------------
Out of Network Services Annual Deductible - $400 Individual
$800 (2 person)
$1,200 (3 or more)
Coinsurance 80/20
Annual Coinsurance Limit:
$2,000 Individual
$6,000 Family
- --------------------------------------------------------------------------------
Lifetime Out-Of-Network Maximum $1,000,000
- --------------------------------------------------------------------------------
The foregoing summary of benefits is subject to change by Blue Cross & Blue
Shield of Connecticut
- 84 -
<PAGE>
EXHIBIT VII
MEMORANDUM OF AGREEMENT
The United Illuminating Company and Local 470-1 of the UWUA, AFL-CIO,
recognize that together we face the challenges of a changing regulatory
environment, electric utility industry restructuring, aggressive competitive
forces, and increasing customer expectation. To meet these challenges, we commit
to a partnership to improve efficiency, cost-effectiveness, and the quality of
customer service through the development of a flexible, multi-skilled, and
highly trained work force. Through this commitment, we jointly support the
involvement of bargaining unit employees in helping to streamline work processes
to yield maximum results at minimum costs while sustaining quality customer
service.
The Union agrees that it will fully participate with the Company in
making the following process redesign changes and work practice changes. These
changes include the following:
1. Eliminating and/or combining any occupational classification,
transferring duties from one occupational classification to another,
and creating multi-skilled occupational classifications.
2. Modifying Sequences of Promotion.
3. Modifying the means and methods of performing work and the flow of
work, including without limitation implementing such measures as
job-site reporting and job-site delivery.
The Company will involve the Union in discussions of any change
to be implemented by the Company, will consider any comments or
suggestions by the Union concerning the implementation of the changes, and will
satisfy its obligation to bargain with the Union.
The parties' rights and commitments under this Memorandum will be
ongoing and will continue for the duration of the parties' Agreement.
- ----------------------------------- -------------------------------------
Gary J. Brooks Albert N. Henricksen
President Group Vice President
Local 470-1 UWUA, AFL-CIO Support Services
May 16, 1997
- 85 -
<PAGE>
CERTIFICATE CONCERNING AUTHORIZATION TO
EXECUTE FOREGOING AGREEMENT
A meeting of Local 470-l of the U.W.U.A., AFL-CIO was held on June 30,
1997; the meeting was called for the purpose of counting the ballots voted at a
Referendum held that day to authorize the execution of the attached Agreement
with respect to rates of pay, hours of work, and other conditions of employment
of the employees of The United Illuminating Company; a majority voted by secret
ballot to accept and approve said Agreement and to authorize Gary J. Brooks,
Diane M. Diedrich, Jose J. Marti, Paul E. Nastri, and Joseph W. Rydzy to execute
said Agreement on behalf of the Union.
--------------------------------
Joseph A. Orsini
Recording Secretary, Local 470-1
August 26, 1997
- 86 -
<PAGE>
May 16, 1989
Mr. Ralph F. Aiello
Chairman, Joint Council
Local 470-471 U.W.U.A., AFL-CIO
P.O. Box 1497
New Haven, Connecticut 06506
Dear Mr. Aiello:
In order to clarify certain job assignments in the Overhead Line
Section, the following work rules shall apply:
A. Regardless of the equipment used, the following rules shall apply:
1. Any line worker shall have the right to refuse to use any equipment or
tool, such as a switch stick, grounding equipment, or phasing
equipment, until its use has been explained.
2. The Line Crew Supervisor shall perform manual work only in emergencies
or for the purpose of training, and shall not be counted as part of the
crew.
3. The Line Crew Supervisor shall review all work orders to ensure that
the equipment and the workers assigned can adequately and safely
complete the work, and to determine the necessity of his presence at
the job site. In any situation where the equipment and workers assigned
are not adequate, the Line Group Leader may contact the Line Crew
Supervisor for advice or assistance before doing the work.
4. The Company may assign more than the specified number of workers to
carry out any jobs to expedite the work or for other purposes, and such
use of extra workers shall not be considered as establishing a
precedent.
B. When an insulated aerial device is used, the following rules shall
apply:
1. The cutting-in and cutting-out of slack in energized primary wires,
when assigned to work with rubber gloves, shall be carried out by one
line worker. This line worker shall be at least a Line Worker First
Class.
2. The cutting-in and cutting-out of slack in energized primary wires,
when assigned to work with insulated sticks, shall be carried out by
two line workers, one of whom shall be a Line Worker First Class. In
such cases the other line worker shall be at least a Line Worker Second
Class.
- 87 -
<PAGE>
3. The installation of energized primary taps shall be carried out by one
line worker. This line worker shall be at least a Line Worker First
Class.
C. If an insulated aerial device is not used, the following rules shall
apply:
1. The cutting-in and cutting-out of slack in energized primary wire shall
be carried out by two line workers, one of whom shall be at least a
Line Worker First Class. In such cases the other line worker shall be
at least a Line Worker Second Class.
2. The installation of energized primary taps shall be carried out by two
line workers, one of whom shall be at least a Line Worker First Class.
In such cases the other line worker shall be at least a Line Worker
Second Class.
D. When a turret-mounted derrick or insulated aerial device is not used,
the following rules shall apply:
1. A minimum of four workers shall hang all pole transformers of 25 kVA
and up, as well as three phase banks. Three workers shall hang all
transformers under 25 kVA, except old cast-iron types.
2. All corner and junction pole change-overs where the poles are more
than 5 feet apart and where the nature of the work requires that they
must be worked simultaneously shall be worked with two line workers on
each pole, one of whom on each pole shall be a Line Worker First
Class. For the purpose of this paragraph, a junction pole is one on
which the energized primary wires extend in three or more directions
from the pole, or on which the energized wires extend in two
directions from the pole and are supported on crossarms attached to
the pole at two different levels other than the standard spaced
buckarm; and a corner pole is one with an angle of pull in excess of
l8 feet (20 degrees) or on which the energized primary wires are
carried on disc insulators, or the equivalent, bolted through the
crossarms.
3. When either heavy construction work or the setting or pulling of poles
is involved, there shall be a minimum of four workers plus a Line Crew
Supervisor.
E. When a turret-mounted derrick without pole claws is used, the following
rules shall apply:
1. In hanging transformers, there shall be a minimum of two line workers,
one of whom shall be a Line Group Leader.
2. In setting poles in de-energized areas, there shall be a minimum of a
Line Group Leader, a line worker and one other qualified person.
- 88 -
<PAGE>
3. In replacing poles on branch lines or lightly constructed main lines,
there shall be minimum of a Line Group Leader, a Line Worker First or
Second Class, and one other qualified person.
4. In replacing poles on heavily constructed main lines, there shall be a
minimum of a Line Group Leader, a Line Worker First or Second Class,
and two other qualified persons.
5. In removing old poles which have been shifted, there shall be a minimum
of a Line Group Leader, a line worker and one other qualified person.
6. Heavily constructed is defined as poles with heavy side loading (i.e.,
3 phase corners greater than 25 feet, 3 phase dead-ends, 3 phase 3-way
junctions) and/or heavy top loading (i.e., 3 phase transformer
clusters, regulators, 3 phase step-down banks, reclosers, and similar
heavy equipment).
7. A qualified person is defined as a Line Group Leader, Line
Troubleshooter, Line Worker First Class, Line Worker Second Class, Line
Worker Third Class, Line Utility Worker.
F. When a material handling bucket truck or a turret-mounted derrick
equipped with pole claws is used, the following rules shall apply:
1. In hanging transformers, there shall be a minimum of two line workers,
one of whom shall be a Line Group Leader.
2. In setting poles in de-energized areas, there shall be a minimum of a
Line Group Leader and one other qualified person.
3. In replacing poles on branch lines or lightly constructed main lines,
there shall be a minimum of a Line Group Leader and a Line Worker First
Class.
4. In replacing poles adjacent to the old pole on heavily constructed main
lines, there shall be a minimum of a Line Group Leader and a Line
Worker First Class.
5. In replacing poles in place on heavily constructed main lines, there
shall be a minimum of a Line Group Leader, a Line Worker First Class,
and one other qualified person.
6. In removing old poles which have been shifted, there shall be a minimum
of a Line Group Leader and a Line Worker Second Class.
- 89 -
<PAGE>
7. Heavily constructed is defined as poles with heavy side loading (i.e.,
3 phase corners greater than 25 feet, 3 phase dead-ends, 3 phase 3-way
junctions) and/or heavy top loading (i.e., 3 phase transformer
clusters, regulators, 3 phase step-down banks, reclosers, and similar
heavy equipment).
8. A qualified person is defined as a Line Group Leader, Line
Troubleshooter, Line Worker First Class, Line Worker Second Class, Line
Worker Third Class, Line Utility Worker.
G. In all situations not expressly described above, or when new types of
equipment are used, the number of workers assigned shall be determined
by the capabilities of the equipment and the training and skills of the
workers assigned. In all cases, work shall be performed using safe
methods and sound operating practices.
The foregoing rules are the only existing rules relating to Overhead
Line job assignments.
Very truly yours,
Harold J. Moore, Jr.
Vice President Human Resources
- 90 -
<PAGE>
May 16, 1997
Gary J. Brooks
President
Local 470-1 U.W.U.A., AFL-CIO
P.O. Box 1497
New Haven, Connecticut 06506
Dear Mr. Brooks:
In connection with our negotiations for the parties' 1997 collective
bargaining agreement, this will confirm that the Company and the Union have
agreed to the following conditions with respect to changing the Overhead Line
Section Work Rules:
1. The proposed revisions to Sections "E" and "F" of the work rules, as shown
in the attached Company Proposal #2A, will be implemented when the Union is
satisfied that employees who would be assigned to perform such work have
been properly trained to meet the definition of "a qualified person" in new
"E-5" and "F-5" of said proposal.
2. The Company and Union will appoint a joint training committee whose sole
purpose shall be the development of a training program(s) designed to
qualify employees such that the Union agrees to implement the work rule
changes shown in the attached Company Proposal #2B.
3. Subsequent to the accomplishment of item 2 above, the Company and Union
will appoint a joint training committee(s) whose sole purpose shall be the
development of a training program(s) designed to qualify employees such
that the Union agrees to implement the remaining work rule changes of
Company Proposal #2A.
In the event the Company and the Union are unable to reach
agreement concerning any or all of the proposed work rule changes, or the timing
of the Company's proposed implementation of such changes, the Company reserves
the right to make such changes as are appropriate after prior notice to the
Union and after affording the Union the opportunity to bargain over the
implementation of such changes.
Very truly yours,
Albert N. Henricksen
Group Vice President
Support Services
- 91 -
<PAGE>
COMPANY PROPOSAL #2A
OVERHEAD LINE SECTION WORK RULES
REFERENCE: REVISIONS TO SECTIONS "E" AND "F"
May 16, 1997
Gary J. Brooks
President
Local 470-471 U.W.U.A., AFL-CIO
P.O. Box 1497
New Haven, Connecticut 06506
Dear Mr. Brooks:
In order to clarify certain job assignments in the Overhead Line
Section, the following work rules shall apply:
NOTE: NO CHANGES TO SECTIONS "A" THROUGH "D."
E. When a turret-mounted derrick without pole claws is used, the following
rules shall apply:
1. In hanging transformers, there shall be a minimum of two line workers,
one of whom shall be a Line Group Leader.
2. WHEN SETTING POLES IN DE-ENERGIZED AREAS, OR WHEN REPLACING POLES ON
BRANCH LINES OR LIGHTLY CONSTRUCTED MAIN LINES, OR WHEN REMOVING OLD
POLES THAT HAVE BEEN SHIFTED, THE CREW WILL BE COMPRISED OF A LINE
GROUP LEADER AND TWO OTHER QUALIFIED PERSONS.
3. IN REPLACING POLES ON HEAVILY CONSTRUCTED MAIN LINES, THERE SHALL BE A
MINIMUM OF A LINE GROUP LEADER AND THREE OTHER QUALIFIED PERSONS.
4. Heavily constructed is defined as poles with heavy side loading (i.e.,
3 phase corners greater than 25 feet, 3 phase dead-ends, 3 phase 3-way
junctions) and/or heavy top loading (i.e., 3 phase transformer
clusters, regulators, 3 phase step-down banks, reclosers, and similar
heavy equipment).
5. A QUALIFIED PERSON IS DEFINED AS AN INDIVIDUAL WHO HAS BEEN TRAINED
RELATIVE TO THE EQUIPMENT, TOOLS, AND WORK METHODS. THIS TRAINING SHALL
BE EQUIVALENT TO THE TRAINING PROVIDED IN THE COMPANY'S LINE SCHOOL.
- 92 -
<PAGE>
F. When a material handling bucket truck or a turret-mounted derrick
equipped with pole claws is used, the following rules shall apply:
1. In hanging transformers, there shall be a minimum of two line workers,
one of whom shall be a Line Group Leader.
2. WHEN SETTING POLES IN DE-ENERGIZED AREAS, OR WHEN REPLACING POLES ON
BRANCH LINES OR LIGHTLY CONSTRUCTED MAIN LINES, OR WHEN REPLACING POLES
ADJACENT TO THE OLD POLE ON HEAVILY CONSTRUCTED MAIN LINES, OR WHEN
REMOVING OLD POLES THAT HAVE BEEN SHIFTED, THE CREW WILL BE COMPRISED
OF A LINE GROUP LEADER AND ONE OTHER QUALIFIED PERSON.
3. IN REPLACING POLES IN PLACE ON HEAVILY CONSTRUCTED MAIN LINES, THERE
SHALL BE A MINIMUM OF A LINE GROUP LEADER AND TWO OTHER QUALIFIED
PERSONS.
4. Heavily constructed is defined as poles with heavy side loading (i.e.,
3 phase corners greater than 25 feet, 3 phase dead-ends, 3 phase 3-way
junctions) and/or heavy top loading (i.e., 3 phase transformer
clusters, regulators, 3 phase step-down banks, reclosers, and similar
heavy equipment).
5. A QUALIFIED PERSON IS DEFINED AS AN INDIVIDUAL WHO HAS BEEN TRAINED
RELATIVE TO THE EQUIPMENT, TOOLS, AND WORK METHODS. THIS TRAINING SHALL
BE EQUIVALENT TO THE TRAINING PROVIDED IN THE COMPANY'S LINE SCHOOL.
G. In all situations not expressly described above, or when new types of
equipment are used, the number of workers assigned shall be determined
by the capabilities of the equipment and the training and skills of the
workers assigned. In all cases, work shall be performed using safe
methods and sound operating practices.
The foregoing rules are the only existing rules relating to Overhead
Line job assignments.
Very truly yours,
Albert N. Henricksen
Group Vice President
Support Services
- 93 -
<PAGE>
COMPANY PROPOSAL #2B
OVERHEAD LINE SECTION WORK RULES
REFERENCE: REVISIONS TO SECTIONS "E-2, 5, AND 7" AND "F-6 AND 8"
May 16, 1997
Gary J. Brooks
President
Local 470-471 U.W.U.A., AFL-CIO
P.O. Box 1497
New Haven, Connecticut 06506
Dear Mr. Brooks:
In order to clarify certain job assignments in the Overhead Line
Section, the following work rules shall apply:
NOTE: NO CHANGES TO SECTIONS "A" THROUGH "D."
E. When a turret-mounted derrick without pole claws is used, the following
rules shall apply:
1. In hanging transformers, there shall be a minimum of two line workers,
one of whom shall be a Line Group Leader.
2. In setting poles in de-energized areas, there shall be a minimum of a
Line Group Leader AND TWO OTHER QUALIFIED PERSONS.
3. In replacing poles on branch lines or lightly constructed main lines,
there shall be a minimum of a Line Group Leader, a Line Worker First or
Second Class, and one other qualified person.
4. In replacing poles on heavily constructed main lines, there shall be a
minimum of a Line Group Leader, a Line Worker First or Second Class,
and two other qualified persons.
5. In removing old poles which have been shifted, there shall be a minimum
of a Line Group Leader AND TWO OTHER QUALIFIED PERSONS.
- 94 -
<PAGE>
6. Heavily constructed is defined as poles with heavy side loading (i.e.,
3 phase corners greater than 25 feet, 3 phase dead-ends, 3 phase 3-way
junctions) and/or heavy top loading (i.e., 3 phase transformer
clusters, regulators, 3 phase step-down banks, reclosers, and similar
heavy equipment).
7. A qualified person is defined as AN INDIVIDUAL WHO HAS BEEN TRAINED
RELATIVE TO THE EQUIPMENT, TOOLS, AND WORK METHODS.
F. When a material handling bucket truck or a turret-mounted derrick
equipped with pole claws is used, the following rules shall apply:
1. In hanging transformers, there shall be a minimum of two line workers,
one of whom shall be a Line Group Leader.
2. In setting poles in de-energized areas, there shall be a minimum of a
Line Group Leader and one other qualified person.
3. In replacing poles on branch lines or lightly constructed main lines,
there shall be a minimum of a Line Group Leader and a Line Worker First
Class.
4. In replacing poles adjacent to the old pole on heavily constructed main
lines, there shall be a minimum of a Line Group Leader and a Line
Worker First Class.
5. In replacing poles in place on heavily constructed main lines, there
shall be a minimum of a Line Group Leader, a Line Worker First Class,
and ONE OTHER QUALIFIED PERSON.
6. In removing old poles which have been shifted, there shall be a minimum
of a Line Group Leader and ONE OTHER QUALIFIED PERSON.
7. Heavily constructed is defined as poles with heavy side loading (i.e.,
3 phase corners greater than 25 feet, 3 phase dead-ends, 3 phase 3-way
junctions) and/or heavy top loading (i.e., 3 phase transformer
clusters, regulators, 3 phase step-down banks, reclosers, and similar
heavy equipment).
8. A qualified person is defined as AN INDIVIDUAL WHO HAS BEEN TRAINED
RELATIVE TO THE EQUIPMENT, TOOLS, AND WORK METHODS.
- 95 -
<PAGE>
G. In all situations not expressly described above, or when new types of
equipment are used, the number of workers assigned shall be determined
by the capabilities of the equipment and the training and skills of the
workers assigned. In all cases, work shall be performed using safe
methods and sound operating practices.
The foregoing rules are the only existing rules relating to Overhead
Line job assignments.
Very truly yours,
Albert N. Henricksen
Group Vice President
Support Services
- 96 -
<PAGE>
July 8, l966
The United Illuminating Company
Mr. John V. Fratus, Jr.
Director of Employee Relations
80 Temple Street
New Haven, Connecticut 06506
Gentlemen:
In connection with the execution of a new Agreement between The United
Illuminating Company and the Federation of Utility Employees, the Federation and
its officers, stewards, and members agree to cooperate to the fullest with the
Company in a concerted effort to reduce the currently high rate of sick leave
during the term of the Agreement.
Very truly yours,
FEDERATION OF UTILITY EMPLOYEES
Joseph R. Riegel
Chairman, Joint Council
- 97 -
<PAGE>
September l6, l982
Mr. Michael N. Kusheba
Chairman Joint Council
Local 470-47l U.W.U.A., AFL-CIO
P. O. Box l5l3
Bridgeport, Connecticut 0660l
Dear Mr. Kusheba:
Both the Company and the Union recognize that the objectives of the
Meter Reading Sections include obtaining timely and accurate readings from
customer meters. Failure to achieve these objectives has a financial impact on
the Company and creates ill will among our customers.
With these objectives in mind, the Company will continue to use good
judgment in assigning work to meter reading employees in instances of extreme
weather.
Very truly yours,
Harold J. Moore, Jr.
Vice President Human Resources
- 98 -
<PAGE>
May l6, l985
Mr. Ralph F. Aiello
Chairman, Joint Council
Local 470-47l U.W.U.A., AFL-CIO
Post Office Box l497
New Haven, Connecticut 06506
Dear Mr. Aiello:
In connection with the execution of a new Agreement between The United
Illuminating Company and Local 470-47l of the U.W.U.A., AFL-CIO, the Company,
during the term of the Agreement, will provide to an employee who is insured
under the Group Life Insurance Plan and who becomes totally and permanently
disabled for at least nine consecutive months prior to becoming age 60, his full
life insurance benefits in effect at the time of his disability at no cost to
him until recovery or the attainment of age 62, whichever occurs first.
The employee's contribution will cease upon submission of the first
required proof of disability.
Proof of disability must be filed within three months after total
disability has lasted nine months. Subsequent proofs of disability must be
furnished each year thereafter.
Very truly yours,
Harold J. Moore, Jr.
Vice President Human Resources
- 99 -
<PAGE>
May 16, 1992
Mr. George E. Powell
President
Local 470-l U.W.U.A., AFL-CIO
P.O. Box 1513
Bridgeport, Connecticut 06601
Dear Mr. Powell:
In connection with the execution of a new Agreement between The United
Illuminating Company and Local 470-1 of the U.W.U.A., AFL-CIO, the Company
during the term of the Agreement, will furnish to eligible dependents of those
active employees who die after completing fifteen years of service and whose
combined age and years of service at death equals or exceeds 50, the same
benefits provided by the group hospital, medical and surgical plans (including a
qualified Health Maintenance Organization Plan) (effective January 1, 1993, the
fully Company-paid group hospital, medical and surgical option or a qualified
Health Maintenance Organization Plan) and the group dental plan offered to
active bargaining unit employees and their eligible dependents (effective
January 1, 1993, the fully Company-paid dental option) at no cost to such
eligible dependents during the one-year period immediately following the death
of the employee. Thereafter, the Company will make the foregoing benefits
available to such eligible dependents at no cost to the Company. In the
alternative, the Company shall have the right to furnish or make available, as
the case may be, the foregoing coverage under any other group plan or plans
providing equivalent benefits. Such equivalent benefits will be made available
without regard to a specific carrier or provider.
The foregoing benefits will be furnished or made available only to
those eligible dependents who are enrolled in the group plan or plans provided
by the Company at the time of the employee's death, who are eligible for
continued coverage under the plan or plans offered by the Company or under the
terms of any equivalent plan or plans, and who, after the first one-year of
coverage, provide for the prepayment of any monthly premiums either by
authorized deduction from a Company survivor benefit, or by direct prepayment to
the Company.
- 100 -
<PAGE>
Such coverage will remain in effect for spouses of those deceased
employees until the earlier of the spouse's 65th birthday, death, remarriage or
eligibility for other group coverage. Such coverage will remain in effect for
other covered dependents until such dependents cease to be eligible for
continued coverage under the terms of the applicable plan or plans or until such
dependents become eligible for other group coverage, whichever is earlier.
Very truly yours,
Albert N. Henricksen
Vice President
Human & Environmental Resources
- 101 -
<PAGE>
May 16, 1992
Mr. George E. Powell
President
Local 470-1 U.W.U.A., AFL-CIO
P.O. Box 1513
Bridgeport, Connecticut 06601
Dear Mr. Powell:
In connection with the execution of a new Agreement between The United
Illuminating Company and Local 470-1 of the U.W.U.A., AFL-CIO, the Company will,
during the term of the Agreement, take such action as is appropriate to amend
The United Illuminating Company Plan for Employees' Disability Benefits (the
"Plan") to provide that a full-time employee who terminates employment with at
least one-year of continuous service and who is subsequently re-employed by the
Company as a full-time employee will be credited with the amount of pre-break
service for the purpose of computing sickness disability benefits under the
Plan, effective one year after the employee's rehire.
Very truly yours,
Albert N. Henricksen
Vice President
Human & Environmental Resources
- 102 -
<PAGE>
May 16, 1992
Mr. George E. Powell
President
Local 470-1 U.W.U.A., AFL-CIO
P.O. Box 1513
Bridgeport, Connecticut 06601
Dear Mr. Powell:
In connection with the execution of a new Agreement between The United
Illuminating Company and Local 470-1 of the U.W.U.A., AFL-CIO, the Company,
during the term of the Agreement, will pay the difference between the cost of a
regular operator's license and the normal and customary cost of any special
license required for an employee to operate a UI vehicle (including testing
fees). For purposes of this letter, the phrase "normal and customary cost" does
not include costs and fees (including testing fees) incurred by the employee
because of any irregularity in the employee's driving record.
This letter amends Harold J. Moore's letter to Robert L. Esposito dated
December 6, 1978.
Very truly yours,
Albert N. Henricksen
Vice President
Human & Environmental Resources
- 103 -
<PAGE>
May 16, 1997
Gary J. Brooks
President
Local 470-1 AFL-CIO, U.W.U.A.
P.O. Box 1497
New Haven, Connecticut 06506
Dear Mr. Brooks:
In connection with the execution of a new Agreement between The United
Illuminating Company and Local 470-1 of the U.W.U.A., AFL-CIO, the Company will
pay the following one-time, lump-sum ratification bonuses to each bargaining
unit employee employed by the Company as of the date our Agreement is ratified
by the bargaining unit:
(1) Payable no later than June 15, 1998, a bonus equal to two and
one-half percent (2.5%) of the base annual straight time wages
applicable to each employee as of May 17, 1998 (as set forth
on Exhibit I, Schedule A), which bonus will be calculated for
full-time employees based on an annual full-time schedule of
2080 hours and will be pro-rated for part-time employees based
on an annual part-time schedule of 1664 hours;
(2) Payable no later than June 15, 1999, a bonus equal to two and
one-half percent (2.5%) of the base annual straight time wages
applicable to each employee as of May 16, 1999 (as set forth
on Exhibit I, Schedule A), which bonus will be calculated for
full-time employees based on an annual full-time schedule of
2080 hours and will be pro-rated for part-time employees based
on an annual part-time schedule of 1664 hours;
(3) Payable no later than June 15, 2000, a bonus equal to two and
one-half percent (2.5%) of the base annual straight time wages
applicable to each employee as of May 21, 2000 (as set forth
on Exhibit I, Schedule A), which bonus will be calculated for
full-time employees based on an annual full-time schedule of
2080 hours and will be pro-rated for part-time employees based
on an annual part-time schedule of 1664 hours.
(4) Payable no later than June 15, 2001, a bonus equal to two and
one-half percent (2.5%) of the base annual straight time wages
applicable to each employee as of May 20, 2001 (as set forth
on Exhibit I, Schedule A), which bonus will be calculated for
full-time employees based on an annual full-time schedule of
2080 hours and will be pro-rated for part-time employees based
on an annual part-time schedule of 1664 hours.
- 104 -
<PAGE>
The aforesaid bonuses are not intended to be payment for actual
services rendered or compensation for hours of employment. They have been
negotiated by the parties to induce bargaining unit ratification of our
Agreement, and to preserve certain benefits as part of the employees' total
compensation. The only eligibility requirement for these one-time bonuses is
that employees be on the payroll as of the date our Agreement is ratified.
Consequently, employees who terminate employment after the ratification date and
prior to June 15, 2001 will be eligible to receive the aforesaid bonuses.
Very truly yours,
Albert N. Henricksen
Group Vice President
Support Services
- 105 -
<PAGE>
May 16, 1997
Mr. Gary J. Brooks
President
Local 470-l U.W.U.A., AFL-CIO
P. O. Box l497
New Haven, Connecticut 06506
Dear Mr. Brooks:
In connection with the execution of a new Agreement between The United
Illuminating Company and Local 470-1 of the U.W.U.A., AFL-CIO, the Company
during the term of the Agreement, will provide life insurance coverage on the
following terms:
(a) Active Employees (January 1, 1996 to May 16, 2002)
--------------------------------------------------
For active employees who are members of the Group Life Insurance Plan
on January 1, 1996, and for those who subsequently become members of
the Plan during the life of the Agreement, the Company will provide
fully paid life insurance in the amount of $30,000. Members of the Plan
may at their own expense elect additional coverage, in accordance with
and subject to the provisions of the Company's "BENEFLEX Plan,"
equivalent to one times, two times, or three times their annual base
rate (exclusive of overtime and premiums) rounded to the next higher
$1,000 on the later of January 1, 1996, or their entry into the Plan.
The total amount of life insurance to which an active employee who is a
member of the Plan on January 1, 1996, will be entitled, and the total
amount of life insurance to which one who subsequently becomes a member
of the Plan during the life of the Agreement will be entitled, shall be
increased only on January 1, 1996, and on each subsequent January 1st
thereafter.
(b) Future Retirees
---------------
For retirees who retire hereafter at age 62 or later pursuant to the
terms of the Company's pension plan and who are members of the Group
Life Insurance Plan at the time of retirement, the Company will provide
fully paid life insurance in the amount of $13,000 ($14,000 effective
June 1, 1997).
- 106 -
<PAGE>
(c) Current Retirees
----------------
For retirees who retired pursuant to the terms of the Company's pension
plan prior to the effective date of this Agreement, the Company will
continue to provide the same amount of life insurance that was in
effect at the time of their retirement at no cost to such retirees.
Very truly yours,
Albert N. Henricksen
Group Vice President
Support Services
- 107 -
<PAGE>
May 16, 1995
Mr. Gary J. Brooks
President
Local 470-l U.W.U.A., AFL-CIO
P.O. Box 1497
New Haven, Connecticut 06506
Dear Mr. Brooks:
In connection with the execution of a new Agreement between The United
Illuminating Company and Local 470-1 of the U.W.U.A., AFL-CIO, the Company,
during the term of the Agreement, will make available or furnish to retirees who
retire on or after May 16, 1995, pursuant to the terms of the Company's pension
plan, medical and dental coverage under the following conditions:
1. Retirements Before Age 62--All Employees
- -------------------------------------------
(a) For retirees who retire between May 16, 1995 and December 31, 1995,
prior to reaching age 62, the Company will make available until age 65
coverage under plans providing benefits equivalent to the Blue Cross &
Blue Shield of Connecticut Century 2000 Plan (effective January 1,
1996, the Blue Cross & Blue Shield of Connecticut Century Preferred
Plan) and the Blue Cross & Blue Shield of Connecticut Dental Plan,
Option B applicable to bargaining unit employees, all at no cost to the
Company.
(b) For retirees who retire after December 31, 1995, prior to reaching age
62, the Company will make available until age 65 coverage under plans
providing benefits equivalent to the Blue Cross & Blue Shield of
Connecticut Century Preferred Plan and the Blue Cross & Blue Shield of
Connecticut Dental Plan, Option B applicable to bargaining unit
employees, all at no cost to the Company.
(c) For retirees who retire prior to reaching age 62, the Company will make
available commencing at age 65 coverage under a Medicare supplemental
plan that will provide with Medicare, if available, benefits equivalent
to the Blue Cross 65 High Option Health Insurance Plan and Blue Shield
65--Plan 83 Health Insurance Plan at no cost to the Company.
- 108 -
<PAGE>
2. Retirements After Age 62--Employees Hired Before May 16, 1992
- ----------------------------------------------------------------
(a) For those retirees who were employed by the Company as of May 16, 1992,
and who retire between May 16, 1995 and December 31, 1995, on or after
reaching age 62 with 10 or more years of service, the Company will
furnish until age 65 coverage under a plan providing benefits
equivalent to the Blue Cross & Blue Shield of Connecticut Century 2000
Plan (effective January 1, 1996, the Blue Cross & Blue Shield of
Connecticut Century Preferred Plan) at no cost to the retiree.
(b) For those retirees who were employed by the Company as of May 16,
1992, and who retire after December 31, 1995, on or after reaching age
62 with 10 or more years of service, the Company will make available
until age 65 coverage under a plan providing benefits equivalent to
the Blue Cross & Blue Shield of Connecticut Century Preferred Plan.
The retiree shall pay 5% of the cost of the premiums (6% effective
January 1, 1997 and 7% effective January 1, 1998) for such coverage,
and the Company shall pay the remaining cost of the premiums;
provided, however, that the Company will pay the entire cost of such
premiums for employees who elect early retirement under the voluntary
early retirement program agreed upon by the Company and the Union as
of May 16, 1995.
(c) For those retirees who were employed by the Company as of May 16, 1992,
and who retire on or after reaching age 62, the Company will furnish or
make available commencing at age 65 coverage under a Medicare
supplemental plan that will provide with Medicare, if available,
benefits equivalent to the Blue Cross 65 High Option Health Insurance
Plan and Blue Shield 65--Plan 83 Health Insurance Plan. The cost of
such coverage shall be borne by the Company.
(d) For those retirees who were employed by the Company as of May 16, 1992,
and who retire on or after reaching age 62, the Company will make
available to such retirees coverage under a plan providing benefits
equivalent to the Blue Cross & Blue Shield of Connecticut Dental Plan,
Option B applicable to bargaining unit employees, at no cost to the
Company.
3. Retirements After Age 62--Employees Hired After May 16, 1992
- ---------------------------------------------------------------
(a) For those retirees who were hired after May 16, 1992, and who retire
after January 1, 1996, on or after reaching age 62, the Company will
furnish or make available until age 65 coverage under a plan providing
benefits equivalent to the Blue Cross & Blue Shield of Connecticut
Century Preferred Plan. The retiree will pay 5% of the cost of the
premiums (6% effective January 1, 1997 and 7% effective January 1,
1998) for such coverage, and the remaining cost shall be borne by the
Company and the retiree in accordance with the following schedule:
- 109 -
<PAGE>
Years of Service Company Share Retiree Share
At Retirement of Remaining of Remaining
Premium of Premium
- --------------------------------------------------------------------------------
10-14 0 100%
15 50% 50%
16 55% 45%
17 60% 40%
18 65% 35%
19 70% 30%
20 75% 25%
21 80% 20%
22 85% 15%
23 90% 10%
24 95% 5%
25 and over 100% 0
In addition, the Company will make available to such retirees coverage
under a plan providing benefits equivalent to the Blue Cross & Blue
Shield of Connecticut Dental Plan, Option B applicable to bargaining
unit employees at no cost to the Company.
(b) For retirees who were hired after May 16, 1992, and who retire on or
after reaching age 62, the Company will furnish or make available
commencing at age 65 coverage under a Medicare supplemental plan that
will provide with Medicare, if available, benefits equivalent to the
Blue Cross 65 High Option Health Insurance Plan and Blue Shield
65--Plan 83 Health Insurance Plan. The cost of such coverage (except
for the Medicare Part B premium as described in section 4 below) shall
be borne by the Company and the employee in accordance with the
following schedule:
Years of Service Company Share Retiree Share
At Retirement of Premium of Premium
- --------------------------------------------------------------------------------
10-14 0 100%
15 50% 50%
16 55% 45%
17 60% 40%
18 65% 35%
19 70% 30%
20 75% 25%
21 80% 20%
22 85% 15%
23 90% 10%
24 95% 5%
25 and over 100% 0
- 110 -
<PAGE>
4. Medicare Part B--All Employees
- ---------------------------------
(a) For employees employed by the Company as of May 16, 1992, who
retire on or after age 62, the Company will provide, commencing with
the date of enrollment and continuing for the lifetime of the retiree,
full reimbursement on a monthly basis of the monthly premium for the
retiree's coverage under Medicare Part B. Upon the retirement of any
employee who, as of May 16, 1992, is at least 62 years of age and has
30 or more years of service, the Company will also provide full
reimbursement, during the lifetime of the retiree, of the monthly
premium for Medicare Part B coverage for any eligible, enrolled
dependents of the retiree. For the eligible dependents of all other
employees employed by the Company as of May 16, 1992, who retire on or
after age 62 with 15 or more years of service, the Company will
contribute up to $46.10 per month toward the cost of Medicare Part B
coverage for each such enrolled dependent during the lifetime of the
retiree. The additional cost of Medicare Part B coverage, if any,
shall be borne by the dependent.
(b) Employees hired on or after May 16, 1992, shall not be entitled, upon
retirement, to any contribution by the Company for Medicare Part B
coverage for themselves or their dependents.
The equivalent benefits described in this letter will be made available
or furnished, as the case may be, without regard to a specific carrier or
provider.
The coverages described in this letter shall be made available or
furnished only to a retiree who has the appropriate coverage in effect at the
time of retirement and who is eligible for such coverage under the terms of the
plans or policies. Further, the coverage described above requiring payment by
the retiree will be made available only to a retiree who provides for the
prepayment of the monthly premiums either by authorized deduction from the
retiree's pension, or by direct prepayment to the Company.
Very truly yours,
Albert N. Henricksen
Vice President Administration
- 111 -
<PAGE>
May 16, 1997
Mr. Gary J. Brooks
President
Local 470-l U.W.U.A., AFL-CIO
P.O. Box 1497
New Haven, Connecticut 06506
Dear Mr. Brooks:
This letter will replace our prior agreement as set forth in my letter
dated May 16, 1995, with respect to retirements occurring after May 16, 1998.
In connection with the execution of a new Agreement between The United
Illuminating Company and Local 470-1 of the U.W.U.A., AFL-CIO, the Company,
during the term of the Agreement, will make available or furnish to retirees who
retire on or after May 16, 1998, pursuant to the terms of the Company's pension
plan, medical and dental coverage under the following conditions:
1. Retirements Before Age 62--All Employees
- -------------------------------------------
(a) For retirees who retire after May 16, 1998, between the age of 55 and
62 with at least ten years of service, the Company will make available
until age 65 coverage under plans providing benefits equivalent to the
Blue Cross & Blue Shield of Connecticut Century Preferred Plan
(effective January 1, 1999, the Blue Cross & Blue Shield of Connecticut
BlueCare Plus POS Plan) and the Blue Cross & Blue Shield of Connecticut
Dental Plan, Option B applicable to bargaining unit employees, all at
no cost to the Company.
(b) For retirees who retire between the age of 55 and 62 with at least ten
years of service, the Company will make available commencing at age 65
coverage under a Medicare supplemental plan that will provide with
Medicare, if available, benefits equivalent to the Blue Cross 65 High
Option Health Insurance Plan and Blue Shield 65--Plan 83 Health
Insurance Plan at no cost to the Company.
- 112 -
<PAGE>
2. Retirements After Age 62--Employees Hired Before May 16, 1992
- ----------------------------------------------------------------
(a) For those retirees who were employed by the Company as of May 16,
1992, and who retire after May 16, 1998, on or after reaching age 62
with 10 or more years of service, the Company will make available
until age 65 coverage under a plan providing benefits equivalent to
the Blue Cross & Blue Shield of Connecticut Century Preferred Plan
(effective January 1, 1999, the Blue Cross & Blue Shield of
Connecticut BlueCare Plus POS Plan). The retiree's share of the cost
of such coverage, on a percentage basis, shall be equal to the same
percentage of the premium that the retiree was paying as an active
employee (for himself and his eligible dependents, if any) at the time
of his retirement. The Company shall pay the remaining cost of the
premiums.
(b) For those retirees who were employed by the Company as of May 16,
1992, and who retire on or after reaching age 62 with at least ten
years of service, the Company will furnish or make available
commencing at age 65 coverage under a Medicare supplemental plan that
will provide with Medicare, if available, benefits equivalent to the
Blue Cross 65 High Option Health Insurance Plan and Blue Shield
65--Plan 83 Health Insurance Plan. The retiree's share of the cost of
such coverage, on a percentage basis, shall be equal to the same
percentage of the premium that the retiree was paying as an active
employee (for himself and his eligible dependents, if any) at the time
of his retirement. The Company shall pay the remaining cost of the
premiums.
(c) For those retirees who were employed by the Company as of May 16, 1992,
and who retire on or after reaching age 62 with at least ten years of
service, the Company will make available to such retirees until age 65
coverage under a plan providing benefits equivalent to the Blue Cross &
Blue Shield of Connecticut Dental Plan, Option B applicable to
bargaining unit employees, at no cost to the Company.
3. Retirements After Age 62--Employees Hired After May 16, 1992
- ---------------------------------------------------------------
(a) For those retirees who were hired after May 16, 1992, and who
retire after May 16, 1998, on or after reaching age 62 with at least
ten years of service, the Company will furnish or make available until
age 65 coverage under a plan providing benefits equivalent to the Blue
Cross & Blue Shield of Connecticut Century Preferred Plan (effective
January 1, 1999, the Blue Cross & Blue Shield of Connecticut BlueCare
Plus POS Plan). The retiree's share of the cost of such coverage, on a
percentage basis, shall be equal to the same percentage of the premium
that the retiree was paying as an active employee (for himself and his
eligible dependents, if any) at the time of his retirement, and the
remaining cost of the premiums shall be borne by the Company and the
retiree in accordance with the following schedule:
- 113 -
<PAGE>
Years of Service Company Share Retiree Share
At Retirement of Remaining of Remaining
Premium Premium
- --------------------------------------------------------------------------------
10-14 0 100%
15 50% 50%
16 55% 45%
17 60% 40%
18 65% 35%
19 70% 30%
20 75% 25%
21 80% 20%
22 85% 15%
23 90% 10%
24 95% 5%
25 and over 100% 0
In addition, the Company will make available to such retirees until age
65 coverage under a plan providing benefits equivalent to the Blue
Cross & Blue Shield of Connecticut Dental Plan, Option B applicable to
bargaining unit employees at no cost to the Company.
(b) For retirees who were hired after May 16, 1992, and who retire on
or after reaching age 62 with at least ten years of service, the
Company will furnish or make available commencing at age 65 coverage
under a Medicare supplemental plan that will provide with Medicare, if
available, benefits equivalent to the Blue Cross 65 High Option Health
Insurance Plan and Blue Shield 65--Plan 83 Health Insurance Plan.
Except for the Medicare Part B premium as described in section 4
below, the retiree's share of the cost of such coverage, on a
percentage basis, shall be equal to the same percentage of the premium
that the retiree was paying as an active employee (for himself and his
eligible dependents, if any) at the time of his retirement, and the
remaining cost of the premiums shall be borne by the Company and the
retiree in accordance with the following schedule:
- 114 -
<PAGE>
Years of Service Company Share Retiree Share
At Retirement of Premium of Premium
- --------------------------------------------------------------------------------
10-14 0 100%
15 50% 50%
16 55% 45%
17 60% 40%
18 65% 35%
19 70% 30%
20 75% 25%
21 80% 20%
22 85% 15%
23 90% 10%
24 95% 5%
25 and over 100% 0
4. Medicare Part B--All Employees
- ---------------------------------
(a) For employees employed by the Company as of May 16, 1992, who
retire on or after age 62 with at least ten years of service, the
Company will provide, commencing with the date of enrollment and
continuing for the lifetime of the retiree, full reimbursement on a
monthly basis of the monthly premium for the retiree's coverage under
Medicare Part B. Upon the retirement of any employee who, as of May
16, 1992, is at least 62 years of age and has 30 or more years of
service, the Company will also provide full reimbursement, during the
lifetime of the retiree, of the monthly premium for Medicare Part B
coverage for any eligible, enrolled dependents of the retiree. For the
eligible dependents of all other employees employed by the Company as
of May 16, 1992, who retire on or after age 62 with 15 or more years
of service, the Company will contribute up to $46.10 per month toward
the cost of Medicare Part B coverage for each such enrolled dependent
during the lifetime of the retiree. The additional cost of Medicare
Part B coverage, if any, shall be borne by the dependent.
(b) Employees hired on or after May 16, 1992, shall not be entitled, upon
retirement, to any contribution by the Company for Medicare Part B
coverage for themselves or their dependents.
The equivalent benefits described in this letter will be made available
or furnished, as the case may be, without regard to a specific carrier or
provider.
- 115 -
<PAGE>
The coverages described in this letter shall be made available or
furnished only to a retiree who has the appropriate coverage in effect at the
time of retirement and who is eligible for such coverage under the terms of the
plans or policies. Further, the coverage described above requiring payment by
the retiree will be made available only to a retiree who provides for the
prepayment of the monthly premiums by authorized deduction from the retiree's
pension.
Very truly yours,
Albert N. Henricksen
Group Vice President
Support Services
- 116 -
<PAGE>
May 16, 1997
Gary J. Brooks
President
Local 470-1 U.W.U.A., AFL-CIO
P.O. Box 1497
New Haven, Connecticut 06506
Dear Mr. Brooks:
In connection with our negotiations for the parties' 1997 collective
bargaining agreement, this will confirm that the Union has agreed (a) to
participate with the Company in identifying and assessing alternatives in the
design of The United Illuminating Company Pension Plan, The United Illuminating
Company Employee Savings Plan (known as the "401(k) Plan"), and The United
Illuminating Company Employee Stock Ownership Plan (know as the "ESOP"); and (b)
to continue the participation of bargaining unit employees on the Retirement
Plan Review Task Force.
Very truly yours,
Albert N. Henricksen
Group Vice President
Support Services
- 117 -
<PAGE>
May 16, 1995
Mr. Gary J. Brooks
President
Local 470-1, U.W.U.A., AFL-CIO
P.O. Box 1497
New Haven, Connecticut 06506
Dear Mr. Brooks:
In connection with the execution of a new Agreement between The United
Illuminating Company and Local 470-1 of the U.W.U.A., this is to confirm that
if, during the term of the Agreement, the Company mandates employees to wear
Nomex (trademark) flame retardant clothing, or its equivalent, the Company will
provide such clothing in amounts reasonably sufficient to enable employees to
perform the job duties for which such clothing is required.
Very truly yours,
Albert N. Henricksen
Vice President Administration
- 118 -
<PAGE>
May 16, 1997
Gary J. Brooks
President
Local 470-1 U.W.U.A., AFL-CIO
P.O. Box 1497
New Haven, Connecticut 06506
Dear Mr. Brooks:
In connection with our negotiations for the parties' 1997 collective
bargaining agreement, this will confirm that the Company and the Union will
create a joint Union-Management committee (a) to assess the Job Evaluation Plan
currently in place for evaluating and grading bargaining unit jobs, and (b) to
make recommendations to the Company and the Union concerning appropriate
modifications to the current system and/or alternative job evaluation system(s)
to replace the current plan. In the event the Company and the Union are unable
to reach agreement concerning the system for evaluating and grading bargaining
unit jobs, the Company reserves the right to make such changes as are
appropriate after prior notice to the Union and after affording the Union the
opportunity to bargain over the implementation of such changes.
This will further confirm that, with respect to those occupational
classifications that were evaluated by the Company during the course of our
negotiations, the Union shall have until September 1, 1997, to undertake a
further review of these evaluations and to discuss such evaluations with the
appropriate Union/Management sub-teams.
Very truly yours,
Albert N. Henricksen
Group Vice President
Support Services
- 119 -
<PAGE>
May 16, 1997
Gary J. Brooks
President
Local 470-1 U.W.U.A., AFL-CIO
P.O. Box 1497
New Haven, Connecticut 06506
Dear Mr. Brooks:
In connection with the negotiations for our 1997 collective bargaining
agreement, this will confirm that the Company and the Union will create a joint
Union-Management committee (a) to evaluate whether the current system of
promoting bargaining unit employees through the use of various Sequences of
Promotion should be changed and, if so, (b) to make recommendations to the
Company and the Union as to any appropriate changes concerning the promotion of
bargaining unit employees. The scope of this committee's work shall include, but
not be limited to, the feasibility of instituting a post-and-bid system, and an
assessment of the role that employee seniority would play in such a system. Any
changes to the current system of promoting employees through the use of
Sequences of Promotion will be by mutual agreement of the Company and the Union.
In the event the parties are unable to agree on any such changes, the current
system of utilizing various Sequences of Promotion will remain in effect for the
duration of our 1997 Agreement.
This letter is not intended to limit in any way the Company's right to
modify Sequences of Promotion as described in our Memorandum of Agreement dated
May 16, 1997.
Very truly yours,
Albert N. Henricksen
Group Vice President
Support Services
- 120 -
<PAGE>
May 16, 1997
Gary J. Brooks
President
Local 470-1 U.W.U.A., AFL-CIO
P.O. Box 1497
New Haven, CT 06506
Dear Mr. Brooks:
In connection with the negotiations for our 1997 collective bargaining
agreement, this will confirm that the parties will create a joint
Union-Management committee to identify and explore the feasibility of
implementing a group home and automobile insurance policy in which Company
employees may participate at their own expense for the purpose of reducing their
home and automobile insurance costs.
Very truly yours,
Albert N. Henricksen
Group Vice President
Support Services
- 121 -
<PAGE>
May 16, 1997
Gary J. Brooks
President
Local 470-1 U.W.U.A., AFL-CIO
P.O. Box 1497
New Haven, Connecticut 06506
Dear Mr. Brooks:
In connection with our negotiations for a new Agreement and our
understanding that certain occupational classifications are likely to be
combined during the life of our Agreement, this will confirm that the Company
and the Union will jointly review how other employers in the electrical utility
industry have, in conjunction with the U.W.U.A., addressed the issue of employee
seniority when merging occupational classifications, all for the purpose of
developing a mutually agreeable approach to be used by the parties under the new
Agreement.
Very truly yours,
Albert N. Henricksen
Group Vice President
Support Services
- 122 -
<TABLE>
EXHIBIT 12
Page 1 of 2
THE UNITED ILLUMINATING COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS
Net income $ 40,481 $ 46,795 $ 50,393 $ 39,096 $ 45,791
Federal income taxes 22,342 34,551 41,951 35,252 30,186
State income taxes 4,645 6,216 12,976 8,506 8,651
Fixed charges 97,928 88,093 83,994 80,097 78,016
-------- -------- -------- -------- --------
Earnings available for fixed charges $165,396 $175,655 $189,314 $162,951 $162,644
======== ======== ======== ======== ========
FIXED CHARGES
Interest on long-term debt $ 80,030 $ 73,772 $ 63,431 $ 66,305 $ 63,063
Other interest 12,260 10,301 16,723 9,534 10,881
Interest on nuclear fuel burned 928 - - - -
One third of rental charges 4,710 4,020 3,840 4,258 4,072
-------- -------- -------- -------- --------
$ 97,928 $ 88,093 $ 83,994 $ 80,097 $ 78,016
======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED
CHARGES 1.69 1.99 2.25 2.03 2.08
======== ======== ======== ======== ========
</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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS
Net income $ 40,481 $ 46,795 $ 50,393 $ 39,096 $ 45,791
Federal income taxes 22,342 34,551 41,951 35,252 30,186
State income taxes 4,645 6,216 12,976 8,506 8,651
Fixed charges 97,928 88,093 83,994 80,097 78,016
-------- -------- -------- -------- --------
Earnings available for combined fixed
charges and preferred stock
dividend requirements $165,396 $175,655 $189,314 $162,951 $162,644
======== ======== ======== ======== ========
FIXED CHARGES AND PREFERRED
STOCK DIVIDEND REQUIREMENTS
Interest on long-term debt $ 80,030 $ 73,772 $ 63,431 $ 66,305 $ 63,063
Other interest 12,260 10,301 16,723 9,534 10,881
Interest on nuclear fuel burned 928 - - - -
One third of rental charges 4,710 4,020 3,840 4,258 4,072
Preferred stock dividend requirements (1) 7,197 6,223 2,778 699 379
-------- -------- -------- -------- --------
$105,125 $ 94,316 $ 86,772 $ 80,796 $ 78,395
======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED
CHARGES AND PREFERRED
STOCK DIVIDEND REQUIREMENTS 1.57 1.86 2.18 2.02 2.07
======== ======== ======== ======== ========
</TABLE>
- ------------
(1) Preferred Stock Dividends increased to reflect the pre-tax earnings required
to cover such dividend requirements.
EXHIBIT NO. 21
LIST OF SUBSIDIARIES OF
THE UNITED ILLUMINATING COMPANY
-------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR NAME UNDER WHICH
NAME OF SUBSIDIARY ORGANIZATION SUBSIDIARY DOES BUSINESS
- ------------------ --------------------- ------------------------
United Funding Capital Delaware United Funding Capital
Partnership L.P. Partnership L.P.
United Resources, Inc. Connecticut United Resources, Inc.
Thermal Energies, Inc.* Connecticut Thermal Energies, Inc.
Precision Power, Inc.* Connecticut Precision Power, Inc.
American Payment
Systems, Inc.* Connecticut American Payment Systems, Inc.
United Bridgeport
Energy, Inc. Connecticut United Bridgeport Energy, Inc.
Precision Constructors, Inc.** Connecticut Precision Constructors, Inc.
- ----------------------
* Subsidiary of United Resources, Inc.
** Subsidiary of Precision Power, Inc.
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,273,612
<OTHER-PROPERTY-AND-INVEST> 32,451
<TOTAL-CURRENT-ASSETS> 165,027
<TOTAL-DEFERRED-CHARGES> 360,635
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,831,725
<COMMON> 277,570
<CAPITAL-SURPLUS-PAID-IN> (833)
<RETAINED-EARNINGS> 162,226
<TOTAL-COMMON-STOCKHOLDERS-EQ> 438,963
0
4,351
<LONG-TERM-DEBT-NET> 644,670
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 37,751
<COMMERCIAL-PAPER-OBLIGATIONS> 0
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0
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 588,797
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<OPERATING-INCOME-LOSS> 104,573
<OTHER-INCOME-NET> 7,018
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<NET-INCOME> 45,791
205
<EARNINGS-AVAILABLE-FOR-COMM> 45,634
<COMMON-STOCK-DIVIDENDS> 40,255
<TOTAL-INTEREST-ON-BONDS> 47,546
<CASH-FLOW-OPERATIONS> 168,421
<EPS-PRIMARY> 3.27
<EPS-DILUTED> 3.26
</TABLE>
