-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RJD9nn0eVtp85K6cgpkmZusRLkpUKDbiOv1DW2jHavS/g1/FJsJk33D4y4ZeiaMv JQv1NJ0ftnD9UlElSB/foQ== 0000060251-96-000011.txt : 19961118 0000060251-96-000011.hdr.sgml : 19961118 ACCESSION NUMBER: 0000060251-96-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LONG ISLAND LIGHTING CO CENTRAL INDEX KEY: 0000060251 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 111019782 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03571 FILM NUMBER: 96663733 BUSINESS ADDRESS: STREET 1: 175 E OLD COUNTRY RD CITY: HICKSVILLE STATE: NY ZIP: 11801 BUSINESS PHONE: 5165455184 MAIL ADDRESS: STREET 1: 175 E. OLD COUNTRY RD CITY: HICKSVILLE STATE: NY ZIP: 11801 10-Q 1 LILCO 10-Q FOR PERIOD ENDED SEPTEMBER 30, 1996 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 SEPTEMBER 30, 1996 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 SEPTEMBER 30, 1996, WAS 120,512,382. 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 ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 23 ITEM 2. CHANGES IN SECURITIES 23 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 23 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 23 ITEM 5. OTHER INFORMATION 23 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 23 SIGNATURE 24 LONG ISLAND LIGHTING COMPANY STATEMENT OF INCOME (UNAUDITED) (Thousands of Dollars - except per share amounts)
Three Months Ended SEPTEMBER 30 ------------ 1996 1995 ---- ---- REVENUES Electric $780,158 $815,342 Gas 69,617 60,452 -------- -------- Total Revenues 849,775 875,794 -------- -------- EXPENSES Operations - fuel and purchased power 203,305 177,934 Operations - other 98,547 88,595 Maintenance 27,173 25,896 Depreciation and amortization 38,305 36,577 Base financial component amortization 25,243 25,243 Rate moderation component amortization (7,992) 28,126 Regulatory liability component amortization (22,143) (22,143) Other regulatory amortization 49,301 74,636 Operating taxes 121,550 119,268 Federal income tax - current 8,292 4,081 Federal income tax - deferred and other 72,792 78,020 -------- -------- Total Expenses 614,373 636,233 -------- -------- Operating Income 235,402 239,561 -------- -------- OTHER INCOME AND (DEDUCTIONS) Rate moderation component carrying charges 6,513 5,989 Class Settlement (4,930) (5,466) Other income and deductions, net 372 5,295 Allowance for other funds used during construction 798 757 Federal income tax credit - deferred and other 856 1,866 -------- -------- Total Other Income and (Deductions) 3,609 8,441 -------- -------- Income Before Interest Charges 239,011 248,002 -------- -------- INTEREST CHARGES AND (CREDITS) Interest on long-term debt 92,892 103,072 Other interest 17,098 14,727 Allowance for borrowed funds used during construction (1,002) (1,018) -------- -------- Total Interest Charges and (Credits) 108,988 116,781 -------- -------- Net Income 130,023 131,221 Preferred stock dividend requirements 13,051 13,152 -------- -------- Earnings for Common Stock $116,972 $118,069 ======== ======== Average Common Shares Outstanding (000) 120,495 119,370 Earnings per Common Share $0.97 $0.99 Dividends Declared per Common Share $0.445 $0.445
SEE NOTES TO FINANCIAL STATEMENTS. LONG ISLAND LIGHTING COMPANY STATEMENT OF INCOME (UNAUDITED) (Thousands of Dollars - except per share amounts)
Nine Months Ended SEPTEMBER 30 ------------ 1996 1995 ---- ---- REVENUES Electric $1,916,389 $1,922,514 Gas 492,203 398,292 ---------- ---------- Total Revenues 2,408,592 2,320,806 ---------- ---------- EXPENSES Operations - fuel and purchased power 717,465 610,236 Operations - other 292,395 281,267 Maintenance 87,612 95,799 Depreciation and amortization 113,822 108,401 Base financial component amortization 75,728 75,728 Rate moderation component amortization (33,922) 17,369 Regulatory liability component amortization (66,429) (66,429) Other regulatory amortization 134,503 134,986 Operating taxes 352,873 336,017 Federal income tax - current 31,292 10,309 Federal income tax - deferred and other 136,361 153,440 ---------- ---------- Total Expenses 1,841,700 1,757,123 ---------- ---------- Operating Income 566,892 563,683 ---------- ---------- OTHER INCOME AND (DEDUCTIONS) Rate moderation component carrying charges 18,688 19,461 Class Settlement (15,311) (16,366) Other income and deductions, net 16,478 26,084 Allowance for other funds used during construction 2,134 2,146 Federal income tax credit - deferred and other 1,208 1,807 ---------- ---------- Total Other Income and (Deductions) 23,197 33,132 ---------- ---------- Income Before Interest Charges 590,089 596,815 ---------- ---------- INTEREST CHARGES AND (CREDITS) Interest on long-term debt 291,174 309,709 Other interest 49,370 47,145 Allowance for borrowed funds used during construction (2,759) (2,951) ---------- ---------- Total Interest Charges and (Credits) 337,785 353,903 ---------- ---------- Net Income 252,304 242,912 Preferred stock dividend requirements 39,194 39,495 ---------- ---------- Earnings for Common Stock $213,110 $203,417 ========== ========== Average Common Shares Outstanding (000) 120,220 119,042 Earnings per Common Share $1.77 $1.71 Dividends Declared per Common Share $1.335 $1.335
SEE NOTES TO FINANCIAL STATEMENTS. LONG ISLAND LIGHTING COMPANY BALANCE SHEET (Thousands of Dollars)
September 30 December 31 1996 1995 ASSETS (UNAUDITED) (AUDITED) ------ ----------- --------- UTILITY PLANT Electric $3,859,997 $3,786,540 Gas 1,135,350 1,086,145 Common 257,799 244,828 Construction work in progress 99,161 100,521 Nuclear fuel in process and in reactor 25,115 16,456 ----------- ----------- 5,377,422 5,234,490 ----------- ----------- Less - Accumulated depreciation and amortization 1,712,721 1,639,492 ----------- ----------- Total Net Utility Plant 3,664,701 3,594,998 ----------- ----------- REGULATORY ASSETS Base financial component (less accumulated amortization of $732,039 and $656,311) 3,306,791 3,382,519 Rate moderation component 451,683 383,086 Shoreham post-settlement costs 987,848 968,999 Shoreham nuclear fuel 69,645 71,244 Unamortized cost of issuing securities 200,993 222,567 Postretirement benefits other than pensions 372,440 383,642 Regulatory tax asset 1,782,049 1,802,383 Other 184,226 230,663 ----------- ----------- Total Regulatory Assets 7,355,675 7,445,103 ----------- ----------- NONUTILITY PROPERTY AND OTHER INVESTMENTS 18,061 16,030 ----------- ----------- CURRENT ASSETS Cash and cash equivalents 172,891 351,453 Special deposits 35,902 63,412 Customer accounts receivable (less allowance for doubtful accounts of $24,324 and $24,676) 327,284 282,218 LRPP receivable 20,019 74,238 Other accounts receivable 22,786 107,387 Accrued unbilled revenues 145,780 184,440 Materials and supplies at average cost 60,850 63,595 Fuel oil at average cost 42,105 32,090 Gas in storage at average cost 82,708 53,076 Deferred tax asset 183,000 191,000 Prepayments and other current assets 10,049 8,986 ----------- ----------- Total Current Assets 1,103,374 1,411,895 ----------- ----------- DEFERRED CHARGES 66,753 70,915 ----------- ----------- TOTAL ASSETS $12,208,564 $12,538,941 =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS. LONG ISLAND LIGHTING COMPANY BALANCE SHEET (Thousands of Dollars)
September 30 December 31 1996 1995 CAPITALIZATION AND LIABILITIES (UNAUDITED) (AUDITED) ------------------------------ ----------- --------- CAPITALIZATION Long-term debt $4,472,675 $4,722,675 Unamortized discount on debt (15,187) (16,075) ----------- ----------- 4,457,488 4,706,600 ----------- ----------- Preferred stock - redemption required 638,500 639,550 Preferred stock - no redemption required 63,677 63,934 ----------- ----------- 702,177 703,484 ----------- ----------- Common stock 602,562 598,277 Premium on capital stock 1,124,563 1,114,508 Capital stock expense (49,722) (50,751) Retained earnings 846,473 790,919 Treasury stock, at cost (60) -- ----------- ----------- Total Common Shareowners' Equity 2,523,816 2,452,953 ----------- ----------- Total Capitalization 7,683,481 7,863,037 ----------- ----------- REGULATORY LIABILITIES Regulatory liability component 218,238 277,757 1989 Settlement credits 129,745 136,655 Regulatory tax liability 114,359 116,060 Other 162,829 132,891 ----------- ----------- Total Regulatory Liabilities 625,171 663,363 ----------- ----------- CURRENT LIABILITIES Current maturities of long-term debt 250,000 415,000 Current redemption requirements of preferred stock 4,800 4,800 Accounts payable and accrued liabilities 274,546 278,986 Accrued taxes (including federal income tax of $19,978 and $28,736) 33,368 60,498 Accrued interest 142,311 158,325 Dividends payable 55,307 57,899 Class Settlement 53,333 45,833 Customer deposits 29,439 29,547 ----------- ----------- Total Current Liabilities 843,104 1,050,888 ----------- ----------- DEFERRED CREDITS Deferred federal income tax 2,446,330 2,337,732 Class Settlement 106,125 129,809 Other 70,136 44,976 ----------- ----------- Total Deferred Credits 2,622,591 2,512,517 ----------- ----------- OPERATING RESERVES Pension and other postretirements benefits 385,415 396,490 Claims and damages 48,802 52,646 ----------- ----------- Total Operating Reserves 434,217 449,136 ----------- ----------- COMMITMENTS AND CONTINGENCIES -- -- ----------- ----------- TOTAL CAPITALIZATION AND LIABILITIES $12,208,564 $12,538,941 =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS. LONG ISLAND LIGHTING COMPANY STATEMENT OF CASH FLOWS (UNAUDITED) (Thousands of Dollars)
Nine Months Ending SEPTEMBER 30 ------------ 1996 1995 ---- ---- OPERATING ACTIVITIES Net Income $ 252,304 $ 242,912 Adjustments to reconcile net income to net cash provided by operating activities Provision for doubtful accounts 18,649 13,420 Depreciation and amortization 113,822 108,401 Base financial component amortization 75,728 75,728 Rate moderation component amortization (33,922) 17,369 Regulatory liability component amortization (66,429) (66,429) Other regulatory amortization 134,503 134,986 Rate moderation component carrying charges (18,688) (19,461) Class Settlement 15,311 16,366 Amortization of cost of issuing and redeeming securities 26,448 30,078 Federal income tax - deferred and other 135,153 151,633 Allowance for other funds used during construction (2,134) (2,146) Gas Cost Adjustment 16,969 14,701 Other 55,502 4,642 Changes in operating assets and liabilities Accounts receivable 20,887 (109,125) Accrued unbilled revenues 38,660 28,505 Materials and supplies, fuel oil and gas in storage (36,902) 8,381 Accounts payable and accrued liabilities (32,412) (26,543) Accrued taxes (27,130) (11,081) Class Settlement (31,495) (28,785) Special deposits 27,510 (34,191) Prepayments and other current assets (1,063) (5,191) Other (39,003) (30,329) --------- --------- Net Cash Provided by Operating Activities 642,268 513,841 --------- --------- INVESTING ACTIVITIES Construction and nuclear fuel expenditures (176,552) (170,214) Shoreham-post settlement costs (40,544) (58,544) Other (2,112) 8,625 --------- --------- Net Cash Used in Investing Activities (219,208) (220,133) --------- --------- FINANCING ACTIVITIES Proceeds from sale of common stock 14,083 14,572 Proceeds from issuance of long-term debt -- 49,287 Redemption of long-term debt (415,000) (100,000) Redemption of preferred stock (1,050) (1,050) Preferred stock dividends paid (39,215) (39,515) Common stock dividends paid (160,127) (158,505) Other (313) 569 --------- --------- Net Cash Used in Financing Activities (601,622) (234,642) --------- --------- Net (Decrease) Increase in Cash and Cash Equivalents $(178,562) $ 59,066 ========= ========= Cash and cash equivalents at January 1 $ 351,453 $ 185,451 Net (decrease) increase in cash and cash equivalents (178,562) 59,066 --------- --------- Cash and Cash Equivalents at September 30 $ 172,891 $ 244,517 ========= =========
SEE NOTES TO FINANCIAL STATEMENTS. NOTES TO FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 1996 (UNAUDITED) NOTE 1. BASIS OF PRESENTATION These Notes to Financial Statements reflect events subsequent to February 7, 1996, the date of the most recent Report of Independent Auditors, through the date of this Quarterly Report on Form 10-Q for the three months ended September 30, 1996. These Notes to Financial Statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations for the nine months ended September 30, 1996, the Company's Quarterly Reports on Form 10-Q for the three months ended March 31, 1996 and June 30, 1996, and the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 1995, 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 financial statements for 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 prior year amounts have been reclassified to be consistent with current year presentation. NOTE 2. RATE MATTERS ELECTRIC In 1995, the Company requested that the Public Service Commission of the State of New York (PSC) extend the provisions of its July 1995 electric rate order through November 30, 1996. As of the date of this report, the PSC has yet to act upon this request. During the nine month period ended September 30, 1996, the PSC has instituted the following initiatives intended to lower electric rates on Long Island: An Order to Show Cause, issued in February 1996, to examine various opportunities to reduce the Company's electric rates; An Order, issued in April 1996, expanding the scope of the Order to Show Cause proceeding, in an effort to provide "immediate and substantial rate relief." This order directed the Company to file financial and other information sufficient to provide a legal basis for setting new rates for both the single rate year (1997) and the three-year period 1997- 1999; An Order, issued in July 1996, to institute an expedited temporary rate phase in the Order to Show Cause proceeding mentioned above, to be conducted in parallel with the ongoing phase concerning permanent rates. The Company shares the PSC's concern regarding electric rate levels and is prepared to assist the PSC in pursuing any reasonable opportunity to reduce electric rates. The Commission's July 1996 Order, referred to above, requested that interested parties file testimony and exhibits sufficient to provide a basis for the Commission to decide whether the Company's electric rates should be made temporary and, if so, the proper level of such temporary rates. The Company's filing demonstrated that current electric rate levels were justified and that there was no basis for reducing them on a temporary basis. The Staff, in its filing, recommended that the Company's rates be reduced on a temporary basis by 4.2% effective October 1, 1996, until the permanent rate case is decided. Although evidentiary hearings on the Company's, Staff's and other interested parties' submissions were subsequently held on an expedited basis to enable the PSC to render a decision on the Company's rates, as of the date of this report, the PSC has yet to take any action. In addition to the above filing, in September 1996, the Company, completed the filing of a multi-year rate plan (Plan) in compliance with the April 1996 Order. Major elements of the Plan include: (i) a base rate freeze for the three year period December 1, 1996 through November 30, 1999 as opposed to a base rate decrease, even on a temporary basis; (ii) an allowed return on common equity of 11.0% for the term of the Plan; (iii) an equity earnings cap of 12.66%, whereby earnings in excess of the 11.0% allowed return on common equity up to this cap, would be fully retained by the shareowner, with any excess above the 12.66% cap shared with the ratepayer; (iv) the continuation of existing LILCO Ratemaking and Performance Plan (LRPP) revenue and expense reconciliation mechanisms and performance incentive programs; (v) directly crediting all net proceeds from the Shoreham property tax litigation and other sources to the Rate Moderation Component (RMC) to reduce its balance; and (vi) a mechanism to fully recover any outstanding RMC balance at the end of the 1999 rate year through inclusion in the Fuel Cost Adjustment (FCA), over a two-year period. The Company is currently unable to predict the outcome of either the temporary or permanent rate proceedings and their effect, if any, on the Company's financial condition or its results of operations. For a further discussion of the rate proceedings see the Company's Quarterly Reports on Form 10-Q for the three months ended March 31, 1996 and June 30, 1996, and Note 3 of Notes to Financial Statements included in the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 1995. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 RESULTS OF OPERATIONS EARNINGS Earnings for common stock for the three months ended September 30, 1996, were $117.0 million or $0.97 per common share compared with $118.1 million or $0.99 per common share for the same period last year. For the nine months ended September 30, 1996, earnings for common stock amounted to $213.1 million or $1.77 per common share, compared with $203.4 million or $1.71 per common share for the same period last year. The increase in earnings for the nine months ended September 30, 1996, is attributable to an increase in earnings for the gas business which resulted from several positive developments. These developments include the recognition of additional sales volumes due to the continued growth in the number of space heating customers, colder than normal weather and significantly higher off-system sales when compared to the same period last year. Also contributing to the increase in gas business earnings was a 3.2% rate increase which became effective December 1, 1995. The decrease in earnings, for the three months ended September 30, 1996, resulted primarily from the timing of when revenues and expenses associated with the growth in the gas business are recognized. Specifically, the added revenues associated with such growth are concentrated in the heating season, whereas the increased costs necessary for such growth are incurred throughout the year. REVENUES Total revenues for the three months ended September 30, 1996, were $849.8 million, representing a decrease of $26.0 million or 3%, from total revenues for the three months ended September 30, 1995. Electric revenues decreased by $35.2 million or 4.3% and gas revenues increased by $9.2 million or 15.2%, when compared to the same period in 1995. For the nine months ended September 30, 1996, revenues totaled $2.4 billion, an increase of $87.8 million or 3.8% compared with the same period last year. Electric revenues were lower by $6.1 million or 0.3% and gas revenues were higher by $93.9 million or 23.6%, when compared with the same period in 1995. Electric Electric revenues decreased for the three and nine months ended September 30, 1996, as compared with the same periods in 1995. This decrease is due to decreased sales volumes during the three months ended September 30, 1996, when compared to the same period in 1995, as a result of variations in weather. However, these lower revenues from sales have no effect on earnings due to the Company's current electric rate structure which includes a revenue reconciliation mechanism that eliminates the impact on earnings caused by sales volumes that are above or below adjudicated levels. Gas The increase in gas revenues for the three and nine months ended September 30, 1996, compared with the same periods in 1995, is primarily the result of an increase in the number of gas heating customers, higher sales volumes resulting from colder than normal winter weather, an increase in off-system sales and in the commodity cost of natural gas which is recovered from customers through the Gas Cost Adjustment Mechanism included in rates. Also contributing to higher gas revenues was a gas base rate increase of 3.2% which became effective December 1, 1995. FUELS AND PURCHASED POWER Fuels and purchased power expenses for the three and nine months ended September 30, 1996 and 1995 were as follows:
Three Months Ended Nine Months Ended 9/30/96 9/30/95 9/30/96 9/30/95 ------- ------- ------- ------- (In Millions) (In Millions) ELECTRIC SYSTEM Oil $ 35 $ 25 $127 $ 82 Gas 50 43 94 106 Nuclear 4 4 12 10 Purchased Power 85 82 248 233 ---- ---- ---- ---- Total Electric Fuel Costs 174 154 481 431 GAS SYSTEM 29 24 236 179 ---- ---- ---- ---- Total $203 $178 $717 $610 ==== ==== ==== ====
For the three and nine months ended September 30, 1996, electric fuel costs were higher when compared to the same period last year primarily due to higher per unit prices for oil, gas and purchased power. The total fuel expense was partially offset by a decrease in demand due to weather and profits realized by the electric business unit from the off-system gas sales which were credited to the total fuel expense, discussed below. Fuel costs for operating the gas business increased for the three and nine months ended September 30, 1996, when compared to the same periods last year due to higher gas prices coupled with the increase in sales volumes associated with the colder than normal winter weather. The percentages of total electric energy available by type of fuel for electric operations for the three and nine months ended September 30, 1996 and 1995 were as follows:
Three Months Ended Nine Months Ended 9/30/96 9/30/95 9/30/96 9/30/95 ------- ------- ------- ------- Oil 18% 16% 25% 20% Gas 33 41 24 34 Nuclear 9 7 10 6 Purchases 40 36 41 40 ---- ---- ---- --- Total 100% 100% 100% 100% ==== ==== ==== ====
For the three months ended September 30, 1996, the Company utilized purchased power to displace more costly generation. For the nine months ended September 30, 1996, electricity generated with gas decreased compared to the same period in 1995, as the high demand for gas resulting from the unusually cold winter experienced in the northeast caused an increase in gas prices. During this period, the electric business unit sold portions of its gas supply for electric generation to off-system entities. Profits realized by the electric business unit from these sales, which total $5 million, were used to offset the cost of fuel for electric generation, thereby providing electric energy to customers at the lowest possible cost. OPERATIONS AND MAINTENANCE EXPENSES For the three months ended September 30, 1996, operations and maintenance (O&M) expenses increased over the same period in 1995 primarily as a result of higher accruals for doubtful accounts and due to the timing of certain employee benefit expenses. For the nine months ended September 30, 1996 O&M increased over the same period in 1996 as a result of higher minor storm costs (storms in which the total costs incurred are less than $1 million) higher accruals for doubtful accounts and due to the timing of certain other expenses. These increases were mitigated by the Company's continuing efforts to control costs. Although O&M expenses for the nine months ended September 30, 1996 are higher than for 1995, the Company expects that the total O&M expenses for the year ended December 1996 will be lower than those incurred in 1995. RATE MODERATION COMPONENT The Rate Moderation Component (RMC) reflects the difference between the Company's revenue requirements under conventional ratemaking and the revenues resulting from the implementation of the rate moderation plan provided in the Rate Moderation Agreement (RMA) and subsequent rate case decisions. Presently, the Company has an electric fuel adjustment clause mechanism that collects the higher of: a) the actual cost of fuel; or b) the amount included in base rates. When fuel costs are below the amount of revenues collected for fuel, this difference, called the Fuel Moderation Component (FMC), is credited to the RMC to reduce its balance and mitigate the need for future rate increases. When fuel expenses are greater than the amount reflected in base rates for fuel, this difference, called the Fuel Cost Adjustment (FCA) is collected from customers over the following three-month period. The operation of the FMC has been a significant contributor to the reduction of the RMC balance since 1989. However, recent increases in the cost of fuel and purchased power, have resulted in a reduction of the FMC credit to a level below that which the Company had experienced during the past several years. Based on the Company's current electric rate structure, the RMC balance is expected to increase above the December 31, 1995 balance resulting in non-cash credits to income in 1996. For the three and nine months ended September 30, 1996, the Company recorded non-cash credits to income of approximately $8.0 million and $33.9 million, respectively, representing amounts, net of offsets generated principally by the FMC mechanism, by which adjudicated revenues were below revenues that would have been collected under conventional ratemaking. For the three and nine months ended September 30, 1995, primarily as a result of amounts credited to the RMC balance through the operation of the Company's FMC mechanism, the Company amortized the RMC balance, resulting in a charge to income of approximately $28.1 million and $17.4 million, respectively. For a further discussion of the RMC, RMA, FMC and FCA, see Notes 1, 2 and 3 of Notes to Financial Statements included in the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 1995. OTHER REGULATORY AMORTIZATION Charges or credits to other regulatory amortization have no impact on earnings as the Company recovers from or returns to customers an equivalent amount of revenue through various mechanisms contained in its current rate structure. For the three months ended September 30, 1996 and 1995, other regulatory amortization was a non-cash charge to income of approximately $49.3 million and $74.6 million, respectively. This decrease is primarily the result of an electric ratemaking mechanism which eliminates the impact on earnings of experiencing sales that are above (or below) adjudicated levels. Despite decreased revenues, primarily attributable to variations in weather, actual revenues net of fuel and gross receipts taxes (net electric revenue) continue to exceed adjudicated levels. For the three months ended September 30, 1996 and 1995, the Company, in accordance with mechanisms contained in the current rate structure, eliminated the impact on earnings of these higher than adjudicated net electric revenues by recording non-cash charges to income of $19.9 million and $47.7 million, respectively. The remaining variance is the net result of the increased amortization of the LILCO Ratemaking and Performance Plan (LRPP) deferrals of prior rate years, higher non-cash charges resulting from gas excess earnings and lower non-cash charges related to electric excess earnings. OPERATING TAXES For the three months ended September 30, 1996, operating taxes totaled $121.6 million, an increase of $2.3 million or 1.9% over the comparable period last year. For the nine months ended September 30, 1996, these taxes amounted to $352.9 million, an increase of $16.9 million or 5.0% over the same period in 1995. The increase in operating taxes was attributable to higher property and revenue taxes. FEDERAL INCOME TAX The current portion of the Company's federal income tax expense for the three and nine month periods ended September 30, 1996, was $8.3 million and $31.3 million, respectively. This represents an increase of $4.2 million and $21.0 million in the Company's current federal income tax expense over the three and nine month periods ended September 30, 1995, respectively. These increases are primarily attributable to the full utilization in 1996 of the Company's Alternative Minimum Tax (AMT) net operating loss (NOL) carryforward. The Company forecasts that its current federal income tax payments, net of investment tax credit carryforwards, for the year ended December 31, 1996 will amount to approximately $46 million. OTHER INCOME AND DEDUCTIONS, NET Other income net of deductions, for the three months ended September 30, 1996, was $.4 million, a decrease of $4.9 million when compared to the same period in 1995. This decrease resulted from a reduction in interest income from short term investments, lower non-cash carrying charge income and the settlement of a claim against the Company. For the nine months ended September 30, 1996, other income net of deductions, was $16.5 million, a decrease of $9.6 million compared with the same period in 1995. This decrease resulted from reduced non-cash carrying charge income and the recognition in 1995 of approximately $7 million of litigation proceeds related to the construction of Shoreham, partially offset by higher short term interest income for the period. INTEREST EXPENSE Interest expense for the three months ended September 30, 1996, was $110.0 million, a decrease of $7.8 million or 6.6% when compared to the same period of 1995. For the nine months ended September 30, 1996, interest expense amounted to $340.5 million, a decrease of $16.3 million or 4.6% compared with the same period last year. These decreases are due to lower debt levels resulting from the retirement of maturing debt by using cash generated from operations. FINANCIAL CONDITION LIQUIDITY At September 30, 1996, the Company's cash and cash equivalents amounted to approximately $172.9 million, compared to $351.5 million at December 31, 1995. The decrease in the cash balance at September 30, 1996, primarily reflects the utilization of cash on hand and cash previously deposited with the Trustee of the General and Refunding (G&R) Mortgage to satisfy the mandatory redemption of $415 million of the Company's G&R Bonds on May 1, 1996. Primarily, as a result of the above redemption, the Company's debt ratio dropped from 61.8% at December 31, 1995, to 59.3% at September 30, 1996. The use of cash to satisfy maturing debt is part of the Company's commitment to improve its capital structure. In January 1996, the Company received $81 million, including interest, from Suffolk County pursuant to a judgment that found that the Shoreham property was overvalued for property tax purposes between 1976 and 1983 (excluding 1979 which had been previously settled). Depending upon the outcome of the current electric rate proceedings, the Company may be required to return all or a portion of this recovery, net of legal expenses, to its electric ratepayers instead of crediting the RMC balance as requested by the Company. For a further discussion of the first phase of this tax certiorari proceeding see Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 3 of Notes to Financial Statements included in the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 1995. In February 1997 and April 1998, the Company has maturing debt obligations of $250 million and $100 million, respectively. The Company intends to use cash generated from operations to the maximum extent practicable to satisfy these obligations. The Company has no current plans for accessing the public markets to raise capital for the next several years. However, the Company would access the public markets to refinance existing debt or preferred stock should market conditions prove favorable. The Company would also take advantage of any tax-exempt financing made available by the New York State Energy Research and Development Authority. The Company has available for its use a revolving line of credit through October 1, 1997, provided by its 1989 Revolving Credit Agreement. In July 1996, at the Company's request, the amount committed by the banks participating in the facility was reduced from $300 million to $250 million. The Company believes this action is appropriate given the levels of cash on hand, projected future cash generated from operations and modest debt and preferred stock maturities through 1998. This line of credit is secured by a first lien upon the Company's accounts receivable and fuel oil inventories. CAPITAL REQUIREMENTS AND CAPITAL PROVIDED Capital requirements and capital provided for the three and nine months ended September 30, 1996, were as follows:
(In Millions of Dollars) - -------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, 1996 September 30, 1996 - -------------------------------------------------------------------------------- CAPITAL REQUIREMENTS Construction $ 70 $177 - -------------------------------------------------------------------------------- Redemptions and Dividends Long-term debt - 415 Preferred stock 1 1 Preferred stock dividends 13 39 Common stock dividends 53 160 - -------------------------------------------------------------------------------- Total Redemptions and Dividends 67 615 - -------------------------------------------------------------------------------- Shoreham post-settlement costs 11 41 - -------------------------------------------------------------------------------- Total Capital Requirements $148 $833 ================================================================================ CAPITAL PROVIDED Cash generation from operations $236 $642 (Increase) decrease in cash (92) 179 Common stock issued 5 14 Other investing and financing activities (1) (2) - -------------------------------------------------------------------------------- Total Capital Provided $148 $833 ================================================================================
For further information, see the Statement of Cash Flows. Given the Company's current electric load forecast and the availability of electric energy provided by the Company's generating facilities and firm purchases from others, the Company believes it will need additional capacity, which it plans to satisfy through firm purchase contracts of approximately 100 megawatts (MW) in 1998, and 150 MW starting in 1999. The Company anticipates that Long Island will need additional generating capability by 2001. This facility will most likely be approximately 140 MW and constructed on behalf of the Company by an outside party and as such, will not be financed by the Company. The Company estimates that cash generated from operations will be sufficient to meet total capital expenditures for the remainder of 1996. INVESTMENT RATING The Company's securities are rated by Standard and Poor's Corporation (S&P), Moody's Investors Service (Moody's), Fitch Investors Service, L.P.(Fitch) and Duff and Phelps, Inc. (D&P). On November 11, 1996, Moody's revised its outlook on the Company's General and Refunding Bonds, Debentures and Preferred Stock from negative to stable, as a result of a New York State Supreme Court, Suffolk County ruling, that the Town of Brookhaven over assessed the Shoreham Nuclear Power Station (Shoreham) for the years 1984-1992. For a discussion of this ruling see Part II., Other Information, Item 1. Legal Proceedings. For a further discussion of the Company's credit ratings see Investment Rating in the Company's Quarterly Reports on Form 10-Q for the three months ended March 31, 1996 and June 30, 1996, and Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 1995. RATE MATTERS For a discussion of rate matters, see Note 2 of Notes to Financial Statements and Note 3 of Notes to Financial Statements included in the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 1995. COMPETITIVE OPPORTUNITIES New York State Competitive Opportunities Proceeding On May 20, 1996, the Public Service Commission of the State of New York (PSC) issued its "Opinion and Order Regarding Competitive Opportunities for Electric Service," discussed in greater detail in the Company's Form 10-Q for the three months ended June 30, 1996, in which the PSC announced its "vision" for the future of the electric industry in New York State. Certain aspects of the restructuring envisioned by the PSC -- particularly the PSC's apparent determinations that it can deny a reasonable opportunity to recover prudent investments made on behalf of the public, order retail wheeling, require divestiture of generation assets and deregulate certain sectors of the energy market -- could, if implemented, have a negative impact on the operations of New York's investor-owned electric utilities, including the Company. The Company therefore joined in a lawsuit filed by the Energy Association of New York State and the State's other electric utilities against the PSC on September 18, 1996, in the New York Supreme Court for Albany County. The utilities have requested that the Court declare that the May 20 Order is unlawful or, in the alternative, that the Court clarify that the May 20 Order can be given no binding effect by the PSC. The litigation is ongoing and the Company is unable at this time to predict the likelihood of success or the impact of the litigation on the Company's operations. Also in response to the PSC's May 20 Order, filings were made on October 1, 1996 by the five utilities who were directed therein to submit proposed rate and restructuring plans addressing a transition to competition: Central Hudson Gas and Electric Corporation; Consolidated Edison Company of New York, Inc.; New York State Electric and Gas Corporation; Orange and Rockland Utilities, Inc. and Rochester Gas and Electric Corporation. The PSC has commenced separate, company-specific proceedings to address these submittals, and the Company has sought permission to intervene in each. The Electric Industry - Federal Regulatory Issues In April 1996, in response to its Notice of Proposed Rulemaking (NOPR) issued in March 1995, the Federal Energy Regulatory Commission (FERC) issued two orders relating to the development of competitive wholesale electric markets. Order 888, a final rule on open transmission access and stranded cost recovery, provides that the FERC has exclusive jurisdiction over interstate wholesale wheeling and that utility transmission systems must now be open to qualifying sellers and purchasers of power on a non-discriminatory basis. Order 888 allows utilities to recover legitimate, prudent and verifiable stranded costs associated with wholesale transmission, including the circumstances where full requirements customers become wholesale transmission customers such as where a municipality establishes its own electric system. With respect to retail wheeling, the FERC concluded that it has jurisdiction over rates, terms and conditions of service, but would leave the issue of recovery of the costs stranded by retail wheeling to the states. Order 888 required utilities to file open access tariffs under which they would provide transmission services, comparable to that which they provide themselves, to third parties on a non-discriminatory basis. Additionally, utilities must use these same tariffs for their own wholesale sales. The Company filed its open access tariff in July 1996. On September 25, 1996, the FERC ordered Rate Hearings on 28 utility transmission tariffs, including the Company's. The Order indicated that, on the basis of a preliminary review, the FERC was not satisfied that the rates were just and reasonable. Order 889, a final rule on a transmission pricing bulletin board, addresses the rules and technical standards for operation of an electronic bulletin board that will make available, on a real-time basis, the price, availability and other pertinent information concerning each transmission utility's services. It also addresses standards of conduct to ensure that transmission utilities functionally separate their transmission and wholesale power merchant functions to prevent discriminatory self-dealing. With other members of the industry, the Company has participated in several joint petitions for rehearing and/or clarification of the FERC's Orders 888 and 889. Among other issues, these petitions address the FERC's obligation to exercise its jurisdiction to provide for the recovery of strandable investments in any retail wheeling situations. The outcome and timing of the FERC Orders on rehearing are uncertain. It is not possible to predict the amount of stranded costs, if any, that the Company would be unable to recover in a competitive environment. The outcome of the state and federal regulatory proceedings could adversely affect the Company's ability to apply Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation," which, pursuant to SFAS No. 101, "Accounting for Discontinuation of Application of SFAS No. 71", could then require a significant write-down of assets, the amount of which cannot presently be determined. Notwithstanding the outcome of the state and federal regulatory proceedings, or any other state action, the Company believes that, among other obligations, New York State has a contractual obligation to allow the Company to recover its Shoreham-related assets. LONG ISLAND POWER AUTHORITY PROPOSED PLAN For information regarding the Long Island Power Authority (LIPA) Proposed Plan, see the Company's Form 10-Q for the three months ended March 31, 1996, and Note 10 of Notes to Financial Statements in the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 1995. FORWARD-LOOKING STATEMENTS This three month report on Form 10-Q and the documents incorporated by reference contain statements which, to the extent they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of the Securities Litigation Reform Act of 1995 (Reform Act). In this respect, the words "estimate," "project," "anticipate," "expect," "intend," "believe" and similar expressions are intended to identify forward-looking statements. All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act. A number of important factors affecting the Company's business and financial results could cause actual results to differ materially from those stated in the forward-looking statements. Those factors include state and federal regulatory rate proceedings, competition, the LIPA Proposed Plan, certain environmental matters as well as such other factors as set forth in the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 1995, and all documents subsequently filed with the Securities and Exchange Commission. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On November 4, 1996, the New York State Supreme Court, Suffolk County, ruled that the Town of Brookhaven has over assessed the Shoreham Nuclear Power Station for the years 1984-1992. According to preliminary estimates by Company officials, the overpayment of taxes is approximately $500 million plus interest. The assessments in this ruling should also result in a refund of approximately $260 million plus interest for payments-in-lieu-of taxes (PILOTs) for the years 1992-1996. Pursuant to the 1989 Settlement, the Company agreed to fund the PILOTs that LIPA is required to make to the municipalities that impose real property taxes on Shoreham. The overpayment of taxes and PILOTs, plus interest, are expected to be returned to the Company and such amounts, excluding litigation costs, will be used to reduce electric rates in the future. However, the court's ruling is subject to appeal and, as a result, the Company is unable to determine the amount and timing of receipt of the refunds. For a discussion of the refund received by the Company in the first phase of this tax certiorari proceeding see Management's Discussion and Analysis of Financial Condition and Results of Operation herein. 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 None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS Exhibit 27 - Financial Data Schedule UT for the nine-month period ended September 30, 1996. B. REPORTS ON FORM 8-K None. 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: November 14, 1996 EXHIBIT INDEX ------------- PAGE NO. -------- Exhibit 27 - Financial Data Schedule UT for the nine-month period ended September 30, 1996 26 EX-27 2 FDS UT
UT This schedule contains summary financial information extracted from the Statement of Income, Balance Sheet and Statement of Cash Flows and is qualified in its entirety by reference to such financial statements. 1000 9-MOS DEC-31-1996 SEP-30-1996 PER-BOOK 3,664,701 18,061 1,103,374 66,753 7,355,675 12,208,564 602,562 1,074,781 846,473 2,523,816 638,500 63,677 4,472,675 0 0 0 250,000 4,800 0 0 4,255,096 12,208,564 2,408,592 167,653 1,674,047 1,841,700 566,892 23,197 590,089 337,785 252,304 39,194 213,110 160,127 291,174 642,268 $1.77 $1.77
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