<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-3571
LONG ISLAND LIGHTING COMPANY
Incorporated pursuant to the Laws of New York State
Internal Revenue Service - Employer Identification No. 11-1019782
175 East Old Country Road, Hicksville, New York 11801
(516) 755-6650
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
The total number of shares of the registrant's Common Stock, $5 par
value, outstanding on June 30, 1994, was 117,857,375.
<PAGE> 2
LONG ISLAND LIGHTING COMPANY
Page No.
--------
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income 3
Balance Sheet 5
Statement of Cash Flows 7
Notes to Financial Statements 8
Item 2. Management's Discussion and 10
Analysis of Financial Condition and
Results of Operations
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote
of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
Signature 23
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<PAGE> 3
LONG ISLAND LIGHTING COMPANY
STATEMENT OF INCOME
(UNAUDITED)
(In Thousands of Dollars - except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30
--------------------------
1994 1993
--------------------------
<S> <C> <C>
REVENUES
Electric $531,715 $503,236
Gas 94,595 101,635
---------- ----------
Total Revenues 626,310 604,871
---------- ----------
EXPENSES
Operations - fuel and purchased power 178,962 178,983
Operations - other 97,250 78,611
Maintenance 33,696 28,260
Depreciation and amortization 32,223 30,367
Base financial component amortization 25,243 25,243
Rate moderation component amortization 47,530 16,533
Regulatory liability component amortization (22,143) (22,143)
Other regulatory amortizations (20,118) (17,978)
Operating taxes 92,708 86,043
Federal income tax - current 2,176 1,233
Federal income tax - deferred and other 19,305 32,120
---------- ----------
Total Expenses 486,832 437,272
---------- ----------
Operating Income 139,478 167,599
---------- ----------
OTHER INCOME AND (DEDUCTIONS)
Rate moderation component carrying charges 8,485 10,847
Class Settlement (5,664) (5,802)
Other income and (deductions), net 6,754 5,689
Allowance for other funds used during construction 485 805
Federal income tax credit - deferred and other 2,729 8,381
---------- ----------
Total Other Income and (Deductions) 12,789 19,920
---------- ----------
Income Before Interest Charges 152,267 187,519
---------- ----------
INTEREST CHARGES AND (CREDITS)
Interest on long-term debt 112,268 115,187
Other interest 16,018 16,662
Allowance for borrowed funds used during construction (806) (1,136)
---------- ----------
Total Interest Charges and (Credits) 127,480 130,713
---------- ----------
NET INCOME 24,787 56,806
Preferred stock dividend requirements 13,271 14,355
---------- ----------
Earnings for Common Stock $11,516 $42,451
========== ==========
Average Common Shares Outstanding (000) 114,457 111,970
Earnings per Common Share $0.10 $0.38
Dividends Declared per Common Share $0.445 $0.435
</TABLE>
See Notes to Financial Statements.
- 3 -
<PAGE> 4
LONG ISLAND LIGHTING COMPANY
STATEMENT OF INCOME
(UNAUDITED)
(In Thousands of Dollars - except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
June 30
----------------------------
1994 1993
----------------------------
<S> <C> <C>
REVENUES
Electric $1,118,982 $1,039,578
Gas 379,472 325,743
------------ ------------
Total Revenues 1,498,454 1,365,321
------------ ------------
EXPENSES
Operations - fuel and purchased power 477,882 432,141
Operations - other 211,303 193,032
Maintenance 61,555 58,905
Depreciation and amortization 63,904 60,379
Base financial component amortization 50,485 50,485
Rate moderation component amortization 96,157 32,685
Regulatory liability component amortization (44,286) (44,286)
Other regulatory amortizations (10,105) (36,311)
Operating taxes 202,348 178,835
Federal income tax - current 4,517 2,299
Federal income tax - deferred and other 61,349 77,166
------------ ------------
Total Expenses 1,175,109 1,005,330
------------ ------------
Operating Income 323,345 359,991
------------ ------------
OTHER INCOME AND (DEDUCTIONS)
Rate moderation component carrying charges 17,464 21,725
Class Settlement (11,366) (11,616)
Other income and (deductions), net 16,251 12,652
Allowance for other funds used during construction 1,202 853
Federal income tax credit - deferred and other 3,644 7,933
------------ ------------
Total Other Income and (Deductions) 27,195 31,547
------------ ------------
Income Before Interest Charges 350,540 391,538
------------ ------------
INTEREST CHARGES AND (CREDITS)
Interest on long-term debt 225,047 233,830
Other interest 33,093 34,416
Allowance for borrowed funds used during construction (2,009) (1,373)
------------ ------------
Total Interest Charges and (Credits) 256,131 266,873
------------ ------------
NET INCOME 94,409 124,665
Preferred stock dividend requirements 26,543 28,930
------------ ------------
Earnings for Common Stock $67,866 $95,735
============ ============
Average Common Shares Outstanding (000) 113,496 111,875
Earnings per Common Share $0.60 $0.86
Dividends Declared per Common Share $0.89 $0.87
</TABLE>
See Notes to Financial Statements.
- 4 -
<PAGE> 5
LONG ISLAND LIGHTING COMPANY
BALANCE SHEET
(In Thousands of Dollars)
<TABLE>
<CAPTION>
June 30 December 31
1994 1993
ASSETS (unaudited) (audited)
------------ ------------
<S> <C> <C>
UTILITY PLANT
Electric $3,600,869 $3,544,569
Gas 919,767 860,899
Common 218,677 201,418
Construction work in progress 108,275 176,504
Nuclear fuel in process and in reactor 16,529 16,533
------------ ------------
4,864,117 4,799,923
------------ ------------
Less - Accumulated depreciation and
amortization 1,497,666 1,452,366
------------ ------------
Total Net Utility Plant 3,366,451 3,347,557
------------ ------------
REGULATORY ASSETS
Base financial component (less accumulated
amortization of $504,854 and $454,369) 3,533,976 3,584,461
Rate moderation component 541,094 609,827
Shoreham post settlement costs 876,090 777,103
Shoreham nuclear fuel 74,434 75,497
Postretirement benefits other than pensions 408,091 402,921
Regulatory tax asset 1,840,021 1,848,998
Other 343,017 311,832
------------ ------------
Total Regulatory Assets 7,616,723 7,610,639
------------ ------------
Nonutility Property & Other Investments 23,737 23,029
------------ ------------
CURRENT ASSETS
Cash and cash equivalents 142,574 248,532
Special deposits 23,287 23,439
Customer accounts receivable (less allowance
for doubtful accounts of $22,455 and $23,889) 267,511 249,074
Other accounts receivable 3,521 12,199
Accrued unbilled revenues 137,765 170,042
Materials and supplies at average cost 72,555 68,882
Fuel oil at average cost 40,946 35,857
Gas in storage at average cost 54,619 75,182
Prepayments and other current assets 68,060 41,652
------------ ------------
Total Current Assets 810,838 924,859
------------ ------------
DEFERRED CHARGES
Unamortized cost of issuing securities 330,911 350,239
Accumulated deferred income taxes 1,121,168 1,157,009
Other 41,398 42,705
------------ ------------
Total Deferred Charges 1,493,477 1,549,953
------------ ------------
TOTAL ASSETS $13,311,226 $13,456,037
============ ============
</TABLE>
See Notes to Financial Statements.
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<PAGE> 6
LONG ISLAND LIGHTING COMPANY
BALANCE SHEET
(In Thousands of Dollars)
<TABLE>
<CAPTION>
June 30 December 31
1994 1993
CAPITALIZATION AND LIABILITIES (unaudited) (audited)
------------- -------------
<S> <C> <C>
CAPITALIZATION
Long-term debt $5,112,675 $4,887,733
Unamortized premium and (discount) on debt (18,021) (17,393)
------------ ------------
5,094,654 4,870,340
------------ ------------
Preferred stock - redemption required 649,150 649,150
Preferred stock - no redemption required 63,991 64,038
------------ ------------
Total Preferred Stock 713,141 713,188
------------ ------------
Common stock 589,287 561,662
Premium on capital stock 1,094,056 1,010,283
Capital stock expense (52,817) (50,427)
Retained earnings 676,811 711,432
------------ ------------
Total Common Shareowners' Equity 2,307,337 2,232,950
------------ ------------
Total Capitalization 8,115,132 7,816,478
------------ ------------
REGULATORY LIABILITIES
Regulatory liability component 396,796 436,476
1989 Settlement credits 150,475 155,081
Regulatory tax liability 168,425 177,669
Other 159,407 138,612
------------ ------------
Total Regulatory Liabilities 875,103 907,838
------------ ------------
CURRENT LIABILITIES
Current maturities of long-term debt 235,058 600,000
Current redemption requirements of preferred stock 4,800 4,800
Accounts payable and accrued expenses 222,800 277,519
Accrued taxes 18,724 52,656
Accrued interest 145,594 142,409
Dividends payable 57,094 54,542
Class Settlement 40,000 30,000
Customer deposits 27,502 27,046
------------ ------------
Total Current Liabilities 751,572 1,188,972
------------ ------------
DEFERRED CREDITS
Class Settlement 152,595 164,942
Accumulated deferred income taxes 2,954,086 2,932,029
Other 11,497 12,622
------------ ------------
Total Deferred Credits 3,118,178 3,109,593
------------ ------------
Reserves for Claims and Damages 13,294 8,714
------------ ------------
Pensions and Other Postretirement Benefits 437,947 424,442
------------ ------------
Commitments and Contingencies - -
------------ ------------
TOTAL CAPITALIZATION AND LIABILITIES $13,311,226 $13,456,037
============ ============
</TABLE>
See Notes to Financial Statements.
-6-
<PAGE> 7
LONG ISLAND LIGHTING COMPANY
STATEMENT OF CASH FLOWS
(UNAUDITED)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------------
1994 1993
--------------------------
<S> <C> <C>
Operating Activities
Net Income $94,409 $124,665
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 63,904 60,379
Provision for doubtful accounts 9,429 9,169
Base financial component amortization 50,485 50,485
Regulatory liability component amortization (44,286) (44,286)
Rate moderation component amortization 96,157 32,685
Rate moderation component carrying charges (17,464) (21,725)
Other regulatory amortizations (10,105) (36,311)
Class Settlement 11,366 11,616
Amortization of cost of issuing and redeeming securities 25,195 26,189
Federal income taxes - deferred and other 57,705 69,233
Allowance for other funds used during construction (1,202) (853)
Gas Cost Adjustment 20,744 13,642
Other 20,324 5,864
Changes in operating assets and liabilities
Accounts receivable (16,263) (28,465)
Accrued unbilled revenues 32,277 (499)
Materials and supplies, fuel oil and gas in storage 11,801 17,810
Prepayments and other current assets (26,408) (513)
Accounts payable and accrued expenses (73,273) (81,865)
Accrued taxes (33,932) (68,999)
Accrued interest 3,185 8,281
Other (22,491) (31,839)
---------- ----------
Net Cash Provided by Operating Activities 251,557 114,663
---------- ----------
Investing Activities
Construction and nuclear fuel expenditures (83,095) (102,765)
Shoreham post settlement costs (108,730) (112,708)
Other (1,072) (839)
---------- ----------
Net Cash Used in Investing Activities (192,897) (216,312)
---------- ----------
Financing Activities
Proceeds from issuance of long-term debt 281,992 848,441
Redemption of long-term debt (425,000) (645,000)
Proceeds from sale of common stock 108,162 -
Proceeds from sale of preferred stock - 146,198
Redemption of preferred stock - (145,800)
Preferred stock dividends paid (26,405) (29,753)
Common stock dividends paid (100,073) (97,174)
Cost of issuing and redeeming securities (3,695) (12,992)
Other 401 2,266
---------- ----------
Net Cash (Used in) Provided by Financing Activities (164,618) 66,186
---------- ----------
Net Decrease in Cash and Cash Equivalents ($105,958) ($35,463)
========== ==========
Cash and cash equivalents at beginning of period $248,532 $309,485
Net decrease in cash and cash equivalents (105,958) (35,463)
---------- ----------
Cash and Cash Equivalents at end of period $142,574 $274,022
========== ==========
</TABLE>
See Notes to Financial Statements.
-7-
<PAGE> 8
Notes to Financial Statements
For the Quarter Ended June 30, 1994
(Unaudited)
These Notes to Financial Statements reflect events subsequent to
February 4, 1994, the date of the most recent Report of Independent Auditors,
through the date of this Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994. These Notes to Financial Statements should be read in
conjunction with Financial Information and Other Information required to be
furnished as part of this Report, in particular, (1) Management's Discussion
and Analysis of Financial Condition and Results of Operations for the six
months ended June 30, 1994, respecting the Company's capital requirements and
liquidity, and (2) Part II, Item 6, Reports on Form 8-K and (3) the Company's
quarterly report on Form 10-Q for the quarter ended March 31, 1994. In
addition, these notes to financial statements should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended December 31,
1993, incorporated herein by reference.
The financial statements furnished are unaudited. However, in the
opinion of management, the financial statements include all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the interim periods presented. Operating results for these interim periods are
not necessarily indicative of results to be expected for the entire year, due
to seasonal, operating and other factors.
Certain amounts from prior year financial statements have been
reclassified to conform to the current year presentation.
- 8 -
<PAGE> 9
Note 1. CAPITALIZATION
On June 1, 1994, the Company retired, at maturity, $25 million First
Mortgage Bonds with cash from operations.
Also in June 1994, the Company issued 5.1 million shares of common
stock at $20 per share, $100 million of General and Refunding Bonds (G&R Bonds)
7 5/8% Series Due 1998 and $185 million of G&R Bonds 8 5/8% Series Due 2004.
The net proceeds from the sale of these securities, together with cash from
operations, were applied in June toward the repayment, at maturity, of $400
million of 10.25% Debentures, Series Due 1994.
In July 1994, the Company redeemed, at their optional redemption
prices, two series of Debentures, $30.5 million, 10.875%, Series Due 1999 and
$4.5 million 11.375%, Series Due 2019 with cash from operations.
Note 2. EXCESS EARNINGS - GAS
In December 1993, the Public Service Commission of the State
of New York (PSC) approved a three-year gas rate settlement between the Company
and the Staff of the PSC, effective December 1, 1993. This gas rate settlement
provides, among other matters, that earnings in excess of a 10.6% rate of
return on common equity in each of the three years covered by the settlement be
shared equally between the Company's firm gas customers and its shareowners.
For a further discussion of the gas rate settlement, see Note 3 of Notes to
Financial Statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1993.
For the six months ended June 30, 1994, to reflect the firm gas
customer's portion of estimated gas earnings in excess of the 10.6% return on
common equity for the rate year ending November 30, 1994, the Company recorded
a reduction to earnings of $5.5 million, net of tax effects. The Company
computed this amount based upon the aggregate of actual gas operating income
for the seven month period ended June 30, 1994 and forecasted gas operating
income for the five month period ending November 30, 1994. Based upon this
computation, the Company estimates that it will earn approximately $11 million,
net of tax effects, in excess of the 10.6% rate of return on common equity for
the rate year ending November 30, 1994. However, since the actual amount of
earnings in excess of the 10.6% return on common equity will not be determined
until the completion of the rate year, amounts charged to earnings during the
year will be subject to adjustments as actual financial results replace
forecasted data in the Company's excess earnings calculation.
- 9 -
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1994
RESULTS OF OPERATIONS
EARNINGS
Earnings for common stock for the quarter ended June 30, 1994 were
$11.5 million or 10 cents per common share, compared to $42.5 million or 38
cents per common share for the same period last year. For the six months ended
June 30, 1994, earnings for the common stock totaled $67.9 million, or 60 cents
per common share, compared with $95.7 million, or 86 cents per common share for
the same period of 1993.
As expected, earnings for the three and six month periods ended June
30, 1994, were significantly less than earnings for the same periods in 1993.
Comparative earnings for the three and six month periods were affected by
certain factors including: (i) the recognition of certain operating and
maintenance expenses earlier in 1994 than in 1993; (ii) a provision in the
Company's gas rate structure that was not in effect prior to December 1, 1993
that requires earnings in excess of a 10.6% return on common equity to be
shared equally between the Company's firm gas customers and its shareowners;
(iii) a lower allowed rate of return on common equity for the Company's gas
business; (iv) lower gas revenues in 1994 resulting from a refinement in the
Company's procedures used to estimate revenues not yet billed, which will in
turn increase gas revenues in the second half of 1994; (v) the recognition in
the first quarter of 1994 of previously deferred storm costs; and (vi) the
recognition in 1993 of the benefits associated with certain tax credits that
the Company does not anticipate in 1994.
While the Company can give no assurances, it is expecting that its
1994 annual earnings will be comparable to its 1993 annual earnings. The
Company believes that earnings for the second half of 1994 will be positively
impacted by a number of factors. These factors include: (i) the effects of the
Company's efforts to reduce operating and maintenance expenses below the levels
reflected in the Company's current rate structure; (ii) the impact on earnings
of positive cash flow from operations and the utilization of cash balances to
satisfy maturing debt; and (iii) the effects of recognizing certain operating
and maintenance expenses earlier in 1994 than in 1993, which will result in a
lower level of these expenses during the remainder of the year.
- 10 -
<PAGE> 11
REVENUES
Total revenues for the quarter ended June 30, 1994, were $626.3
million, representing an increase of $21.4 million, or 3.5%, over total
revenues for the quarter ended June 30, 1993. Electric revenues increased by
$28.4 million, or 5.7%, while gas revenues decreased $7.0 million, or 6.9%,
when compared to the same period of the prior year.
For the six months ended June 30, 1994, total revenues were $1,498.5
million, representing an increase of $133.1 million, or 9.8%, over total
revenues for the comparable period of 1993. Electric revenues increased by
$79.4 million, or 7.6%, while gas revenues were up $53.7 million, or 16.5%,
over the same period of the prior year.
Electric
The increase in electric revenues for the three and six months ended
June 30, 1994, when compared to the same periods in 1993, is primarily the
result of an electric rate increase of 4.0% effective December 1, 1993 and the
current recovery of $2.8 million per month of certain deferrals relating to the
rate year that ended November 30, 1992. The Public Service Commission of the
State of New York (PSC) has authorized the Company to recover these net
deferrals through the Company's fuel cost adjustment (FCA) clause over a
twelve-month period which began in August 1993 and to continue to recover these
monthly amounts through November 30, 1994 which will be used to reduce the Rate
Moderation Component (RMC) balance. For a further discussion of the Company's
rate matters, see Note 3 of Notes to Financial Statements included in the
Annual Report on Form 10-K for the year ended December 31, 1993.
The Company's current electric rate structure provides for a revenue
reconciliation mechanism which mitigates the impact on earnings of experiencing
electric sales that are above or below levels reflected in rates. For the
quarters ended June 30, 1994 and 1993, the Company recorded non-cash income,
which is included in "Other Regulatory Amortizations" on the Company's
Statement of Income, of $36.8 million and $20.9 million, respectively, as a
result of electric sales that were lower than those that were adjudicated by
the PSC. For the six months ended June 30, 1994 and 1993, the Company recorded
non-cash income of $47.4 million and $41.5 million respectively.
Gas
The decrease in gas revenues for the quarter ended June 30, 1994, when
compared to the same period in 1993, is primarily attributable to a refinement
in the Company's procedures used to estimate revenues not yet billed. The
decrease in gas revenues was partially offset by a 4.7% rate increase and
additional sales resulting from an increase in the number of gas space heating
customers.
- 11 -
<PAGE> 12
The increase in gas revenues for the six months ended June 30, 1994
compared with the same period of 1993 was primarily attributable to a 4.7% rate
increase effective December 1, 1993, the addition of nearly 7,400 gas space
heating customers when compared to June 30, 1993, higher consumption levels
driven by a colder winter in 1994, significant increases in off-system sales,
partially offset by the refinement in the Company's procedures for estimating
revenues not yet billed. Also contributing to the increase in revenues was the
recovery of additional gas fuel costs, resulting from higher sales volumes and
higher gas prices.
FUELS AND PURCHASED POWER
Fuels and purchased power expenses for the three and six months ended
June 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
6/30/94 6/30/93 6/30/94 6/30/93
------- ------- -------- -------
(In Millions) (In Millions)
<S> <C> <C> <C> <C>
Fuels for Electric Operations
Oil $ 33 $ 38 $ 90 $ 88
Gas 24 20 35 36
Nuclear 4 3 7 7
Purchased Power 73 73 149 148
---- ---- ---- ----
Total 134 134 281 279
Gas Fuels 45 45 197 153
---- ---- ---- ----
Total $179 $179 $478 $432
==== ==== ==== ====
</TABLE>
For the six months ended June 30, 1994 the increase in gas fuel
expenses was primarily due to higher sales volumes and higher gas prices.
The mix of fuels and purchases of power for providing the Company's
electric system energy requirements during the three and six months ended June
30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
6/30/94 6/30/93 6/30/94 6/30/93
------- ------- ------- -------
<S> <C> <C> <C> <C>
Oil 25% 28% 33% 31%
Purchases 41 46 43 44
Nuclear 10 10 9 10
Gas 24 16 15 15
---- ---- ---- ----
Total 100% 100% 100% 100%
==== ==== ==== ====
</TABLE>
- 12 -
<PAGE> 13
OPERATING AND MAINTENANCE EXPENSES
Total operating and maintenance (O&M) expenses, exclusive of fuels and
purchased power, amounted to $130.9 million for the quarter ended June 30,
1994, representing an increase of $24.1 million, or 22.5%, from the comparable
quarter of 1993. For the six months ended June 30, 1994, these expenses
totaled $272.9 million, up $20.9 million, or 8.3%, over the comparable period
of 1993.
The increase in O&M for the three and six months ended June 30, 1994,
when compared to the same period of 1993, is primarily attributable to the
earlier recognition of certain O&M expenses including pension and benefits
expenses, and production, transmission and distribution expenses. The earlier
recognition of these expenses in 1994 will result in a reduction of these
expenses during the remainder of the year, when compared to the same period in
1993, thereby having a positive impact on comparable second half earnings. In
addition, during the six months ended June 30, 1994, the Company recognized
previously deferred storm costs.
RATE MODERATION COMPONENT
For the quarters ended June 30, 1994 and 1993, the Company recorded
charges to income of approximately $47.5 million and $16.5 million,
respectively, reflecting the amortization of the RMC. The RMC reflects the
difference between the Company's revenue requirements under conventional
ratemaking and revenues resulting from the implementation of the rate
moderation plan provided for in the Rate Moderation Agreement (RMA). At June
30, 1994 and 1993, the unamortized RMC balance was $541 million and $641
million, respectively.
For the six months ended June 30, 1994 and 1993, the charges to income
reflecting the amortization of the RMC totaled $96.2 million and $32.7
million, respectively.
OPERATING TAXES
Operating taxes for the quarter ended June 30, 1994 amounted to $92.7
million, representing an increase of $6.7 million, or 7.7%, from the comparable
quarter of 1993. Operating taxes for the six months ended June 30, 1994
amounted to $202.3 million, representing an increase of $23.5 million, or 13.1%
from the comparable period of 1993. These increases in operating taxes reflect
higher revenue, property, payroll and dividend taxes and adjustments relating
to 1992 which were recorded in the first six months of 1993.
- 13 -
<PAGE> 14
INTEREST EXPENSE
For the quarter ended June 30, 1994, interest expense amounted to
$128.3 million, representing a decrease of $3.6 million when compared to the
same period of 1993. For the six months ended June 30, 1994, interest expense
totaled $258.1 million, a decrease of $10.1 million compared with the same
period of 1993. The decrease in interest expense is principally due to lower
interest rates and reduced levels of debt, primarily resulting from the
Company's aggressive refinancing efforts in 1993 and the use of cash from
operations to satisfy a portion of maturing debt.
- 14 -
<PAGE> 15
FINANCIAL CONDITION
LIQUIDITY
At June 30, 1994, the Company's cash and cash equivalents amounted to
approximately $143 million, compared to $249 million at December 31, 1993. The
decrease in cash and cash equivalents reflects the Company's cash management
strategy to apply available cash balances toward the satisfaction of maturing
debt.
The Company has a $300 million revolving line of credit through
October 1, 1995, provided by its 1989 Revolving Credit Agreement (1989 RCA).
At June 30, 1994, no amounts were outstanding under the 1989 RCA. This line of
credit is secured by a first lien upon the Company's accounts receivable and
fuel oil inventories.
FINANCING PROGRAMS
The Company is committed to improving its debt-to-equity ratio through
the issuance of common equity, growth in retained earnings and debt reduction
from the use of cash from operations. In this respect, the Company in June
1994 issued 5.1 million shares of common stock, representing the first time in
approximately ten years that the Company issued common equity, other than
through its Automatic Dividend Reinvestment Plan or Employee Stock Purchase
Plan. In addition, the Company retired $25 million First Mortgage Bonds with
cash from operations.
Net proceeds from the sale of common stock, amounting to approximately
$99 million, combined with net proceeds from the issuance of $285 million of
General and Refunding Bonds, were applied toward the repayment, at maturity, of
$400 million of debentures. The balance of funds needed to repay this maturing
series was provided from cash from operations.
In July 1994, the Company redeemed $35 million aggregate principal
amount of debentures. The Company satisfied the repayment of First Mortgage
Bonds and the redemption of the debentures with cash from operations.
The Company is currently planning to satisfy $175 million of
debentures maturing in November 1994, with cash from operations and a
combination of debt or equity securities.
- 15 -
<PAGE> 16
CAPITAL REQUIREMENTS AND CAPITAL PROVIDED
Capital requirements and capital provided for the three and six
months ended June 30, 1994 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Capital Requirements June 30, 1994 June 30, 1994
- -------------------- ------------- -------------
(In Millions of Dollars)
<S> <C> <C>
Total Construction $ 71 $ 83
Refundings and Dividends
Long-term debt 425 425
Preferred stock dividends 13 26
Common stock dividends 50 100
Redemption costs 4 4
---- ----
Total Refundings and Dividends 492 555
Shoreham post settlement costs 63 109
---- ----
Total Capital Requirements $626 $747
==== ====
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Capital Provided June 30, 1994 June 30, 1994
- ---------------- ------------- --------------
(In Millions of Dollars)
<S> <C> <C>
Long-term debt $282 $282
Common stock issued 103 108
Other financing activities - (1)
Internal cash generation from
operations 142 252
Decrease in cash 99 106
---- ----
Total Capital Provided $626 $747
==== ====
</TABLE>
For further information, see the Statement of Cash Flows.
- 16 -
<PAGE> 17
RATE MATTERS
Electric Rate Case
In December 1993, the Company filed a three-year electric rate plan
with the PSC for the period beginning December 1, 1994 (Rate Proposal). The
Rate Proposal, which may be approved, modified or rejected by the PSC, requests
an allowed rate of return on common equity of 11.0% and provides for zero
percent base rate increases in years one and two of the plan and an overall
rate increase of 4.3% in the third year. Although base electric rates would be
frozen during the first two years of the Rate Proposal, annual rate increases
of approximately 1% to 2% are expected to result in these years from the
operation of the Company's FCA mechanism. The FCA captures, among other
amounts, any increases in the cost of fuel above the level recovered in base
rates. In addition, the FCA provides for the recovery or refund to ratepayers,
of the net deferred balances in excess of $15 million, resulting from the
reconciliation of revenue, certain expenses and earned performance incentive
components.
The Rate Proposal reflects four underlying objectives: (i) to limit
the balance of the RMC, during the three-year period, to no more than its 1992
peak balance of $652 million; (ii) to recover the RMC within no more than 13
years of its 1989 inception; (iii) to minimize, beginning in the third year of
the Rate Proposal, the final three rate increases contemplated in the 1989
Settlement that follow the two-year rate freeze period; and (iv) to continue
the Company's gradual return to financial health.
The staff of the PSC (Staff) and other intervening parties filed
testimony in response to the Rate Proposal. Staff concurs with the Company's
proposal for an 11.0% return on common equity in each of the three years.
However, Staff has recommended an overall zero percent rate increase for the
first two years, contrasted with the Company's proposal for a zero percent base
rate increase and FCA adjustments of 1% to 2% in each of these years as
described above. Staff has not yet made a firm recommendation for the level of
rate relief in the third year, but has reaffirmed its commitment to the
principles of the Rate Moderation Agreement, including the full recovery of the
RMC.
The Consumer Protection Board and Long Island Power Authority jointly
filed testimony in which they proposed that current electric rates be reduced.
Other intervenors have also proposed various adjustments to the Rate Proposal.
The PSC is expected to issue a final order on the Company's Rate
Proposal proceeding in November 1994. The Company is unable to predict the
ultimate outcome of this rate proceeding.
- 17 -
<PAGE> 18
COMPETITIVE ENVIRONMENT
The Company's current electric load forecasts indicate that, with
implementation of its conservation and load management programs and with the
availability of electricity provided by the Company's existing generating
facilities, by its portion of electric energy generated at Nine Mile Point
Nuclear Power Station, Unit 2 and by power purchased from other electric
systems and from certain non-Company owned facilities, located within the
Company's service territory, Long Island has adequate generating sources to
meet its energy demands for the next ten years.
Current Competitive Factors
The development of the non-utility generator (NUG) industry has been
encouraged by federal and state legislation. There are two ways that NUGs can
negatively impact the Company: first, NUGs may locate on a customer's site,
providing part or all of that customer's electric energy requirements. The
Company estimates that at the end of 1993, it lost sales to on-site NUGs
generating a total of 234 gigawatt-hours (Gwh) representing approximately $20
million in revenues, net of fuel, or approximately 1.0% of the Company's 1993
net revenues. Second, in accordance with the Public Utility Regulatory
Policies Act of 1978, the Company is required to purchase all the power offered
by NUGs that are Qualified Facilities (QFs). QFs have the choice of pricing
these sales at either (i) PSC published estimates of the Company's long run
avoided costs (LRAC) or (ii) the Company's tariff rates which reflect the
Company's actual avoided cost. Additionally, until repealed in 1992, New York
State law set a minimum price of six cents per kilowatt-hour (Kwh) for certain
categories of QFs, considerably above the Company's avoided cost. The six-cent
minimum now only applies to contracts entered into before June 1992. The
Company believes that the repeal of the six-cent law, coupled with the PSC's
updates which resulted in lower LRAC estimates, has significantly reduced the
economic benefits to QFs seeking to sell power to the Company.
As of December 31, 1993, 39 QFs were on line and selling approximately
200 megawatts (MW) of power to the Company. The Company estimates that in
1993, purchases from QFs required by federal and state law cost the Company $47
million more than it would have cost had the Company generated this power
itself. However, with the exception of approximately 40 MW of power to be
produced annually at the Stony Brook Campus of the State University of New York
beginning in early 1995, the Company does not expect any significant new NUGs
to be built on Long Island in the foreseeable future.
The Company believes that a number of factors will mitigate load loss,
including customer load characteristics, such as a lack of a significant
industrial base and accompanying large thermal load, which makes cogeneration
economically attractive.
- 18 -
<PAGE> 19
For over a decade, the Company has voluntarily provided wheeling of
New York Power Authority (NYPA) power for economic development. As a result,
NYPA power has displaced approximately 400 Gwh of energy sales. The net
revenue loss associated with this amount of sales is approximately $27 million
or 1.3% of the Company's 1993 net revenues.
Competition for customer loads also comes from other electric
utilities (including those in Connecticut, New York, and New Jersey) which seek
to attract commercial and industrial customers to relocate within their service
territories by offering reduced rates and other incentives. In order to
retain existing and attract new commercial and industrial customers, the
Company offers an Economic Development Rate which provides rate abatement to
new or existing customers that qualify under the program approved by the PSC.
Potential Competitive Factors
From time to time, a number of proposals purporting to address issues
affecting the future of the electric industry in New York State have been made,
including proposals directed at the high cost of electricity on Long Island.
Among the proposals: the so-called conversion by the Long Island Power
Authority (LIPA) of Shoreham to a natural-gas burning facility, the purchase of
cheaper electricity from non-Company sources by a cooperative of Long Island
school districts identified as the Education/Electric Buying Group (the School
District Group), a takeover of the Company by LIPA, a municipalization of the
Company's facilities in the Town of Southampton, distribution of cheaper
electricity by a Suffolk County Municipal Distribution Agency, a corporate
spin-off of nuclear power plants within the State, and a corporate spin-off of
the fossil generating units within the State.
LIPA has indicated that it would hold public hearings to discuss its
proposals to build a 400-450 MW natural gas-powered generating plant at
Shoreham scheduled for operation as early as 1996, which reportedly would
result in ratepayer savings of between $283 million and $458 million over 20
years. However, based on previous LIPA and Company studies analyzing the
feasibility of building a gas-powered plant at Shoreham, the Company continues
to believe that such a facility would not result in ratepayer savings. This
view is supported by the February 1994 draft State Energy Plan issued by the
New York State Energy Planning Board which states that bringing a gas-powered
facility at Shoreham on line before the turn of the century would raise the
Company's rates. The Company is unable, however, to predict the likelihood of
a generating unit operating at the Shoreham site. The impact, if any, on the
Company of the operation of such a plant would depend on the nature of the
project, the price at which it would propose to sell power and other factors.
The Company's position is that it will not enter into a contract with LIPA or
any other party unless it is beneficial to the Company's ratepayers.
- 19 -
<PAGE> 20
In the petition filed with the PSC on behalf of the School District
Group, the PSC was asked to require the Company to transmit power purchased
from other producers to member school districts on Long Island. The Company
believes that the proposed request is in conflict with existing federal and
state policy and has opposed this petition. The Company is currently unable to
predict the action, if any, that the PSC may take regarding this petition, or
the impact on the Company if this proposal were ultimately approved.
The Town of Southampton, Suffolk County Municipal Distribution Agency
and the School District Group proposals each seek to shift costs unfairly from
them to the Company's remaining customers. Moreover, the Company believes that
Suffolk County is not entitled under federal law to the wholesale wheeling
service that it has proposed.
These proposals present significant social, economic, legal,
environmental and financial issues. The Company is opposed to any proposal
that merely shifts costs from one group of ratepayers to another, that fails to
provide least-cost, efficiently-generated electricity or that fails to provide
the Company's shareowners with an adequate return on and recovery of their
investment. Furthermore, the Company does not believe that any of these
proposals have any merit under existing law and State policy. Nevertheless,
the outcome of these proposals is uncertain.
In order to address competitive opportunities generally available to
electric and gas customers in New York State, the PSC has recently issued an
order in which it has adopted guidelines that allow New York State utilities to
negotiate flexible rates with individual customers so that additional losses in
sales can be avoided. The PSC has decided that it will determine in individual
utility rate cases how the difference in revenues between the flexible rates
and the higher conventional rates will be shared between ratepayers and
shareowners.
The PSC has also indicated that it will initiate further proceedings
to address retail competition in New York. In those proceedings, the Company
plans to present its views to the PSC for its consideration, but cannot predict
the outcome of the proceedings or the effect of any proposals that the PSC may
adopt.
- 20 -
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and Suffolk County have entered into a settlement
requiring approval by the Suffolk County Supreme Court in the litigation
entitled Long Island Lighting Company v. County of Suffolk. The settlement
will not have a material impact on the Company's financial condition. The
Company began this lawsuit in Suffolk County Supreme Court on February 11,
1988, against Suffolk County, seeking the recovery of damages for Suffolk
County's breach of a contract to prepare an offsite emergency response plan for
Shoreham.
Pursuant to the Long Island Power Authority (LIPA) Act, LIPA is
required to make payments in-lieu-of-taxes (PILOTS) to the municipalities that
impose real property taxes on Shoreham. The timing and duration of PILOTS
under the LIPA Act are the subject of the litigation entitled LIPA, et al. v.
Shoreham-Wading River Central School District, et al. On July 7, 1994, the New
York State Court of Appeals denied a motion by all parties in which they sought
leave to appeal an Appellate Division, Second Department decision on the basis
that such decision does not finally determine the action and therefore is not
reviewable by the Court of Appeals.
The Company was served with a summons and complaint in the litigation
entitled Nager v. Long Island Lighting Company alleging trespass and nuisance
allegedly caused by the proximity to the plaintiff's home of power lines
emitting electromagnetic fields (EMF). This matter is currently in discovery.
The Company was served with a summons and complaint in the litigation
entitled Guild v. Long Island Lighting Company claiming damages in the amount
of no less than $359,000 caused by the devaluation of the plaintiff's property
as a result of EMF. Plaintiffs are homeowners in Glen Head who allege that
they have been unable to sell their home because of power lines adjacent to
their property. The claim is based upon legal theories of inverse condemnation
and trespass.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Pursuant to formal complaints before the PSC, a number of the
Company's customers are claiming refunds based on their allegations that they
have not been placed in the correct customer classification. If the Company is
required to provide refunds retroactively, the amount as of June 1994 could be
approximately $6.5 million.
- 21 -
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
None
b. REPORTS ON FORM 8-K
In its Report on Form 8-K dated May 27, 1994, the Company reported
that:
1. On May 19, 1994, the Staff of the PSC and other intervening
parties filed testimony in response to the Company's
three-year electric rate plan for the period beginning
December 1, 1994.
2. The Company and Suffolk County have reached a settlement, in
principle, in the matter of Long Island Lighting Company v.
County of Suffolk.
In its report on Form 8-K dated June 7, 1994, the Company reported
that as part of its review of the Company's proposed sale of long-term debt,
Moody's Investors Service, Inc. had downgraded the long-term credit rating of
the Company's securities.
No other reports on Form 8-K were filed in the second
quarter of 1994.
In its report on Form 8-K dated July 29, 1994, the Company reported
earnings for the three and six month periods ended June 30, 1994 and disclosed
the declaration of a quarterly common stock dividend of 44.5 cents per share
payable on October 1, 1994 to shareowners of record on September 9, 1994.
- 22 -
<PAGE> 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
LONG ISLAND LIGHTING COMPANY
(Registrant)
By /s/Anthony Nozzolillo
---------------------------
ANTHONY NOZZOLILLO
Senior Vice President and
Principal Financial Officer
Dated: August 3, 1994
