There's only one word that adequately describes 1987 for Utah Power & Light Co., says UP&L President Frank N. Davis: "historic."
Historic from the standpoint of record earnings on its common stock, the marking of its 75th birthday, and the signing of a merger agreement with Oregon-based PacifiCorp described by Davis as one of the most significant events in the company's history.The decade of the 1980s hasn't brought much good news for UP&L, which has been plagued by scandal, accidents, weak earnings, surplus power and stagnant markets. But the tone of Davis' message to shareholders in the company's 1987 annual report, published this week, has an upbeat tone that seems to indicate the bad old days are also history.
Davis is particularly bullish on what the proposed merger could mean to the company, its shareholders and customers.
"The merger . . . will serve the public interest of some 700 communities in seven western states by stimulating a stronger economy through lower and stable rates for electricity . . . ," said Davis. "The merger epitomizes the changes that are occurring in the electric utility business today."
The major advantage of the merger, he said, is that UP&L will be better positioned to reduce costs and thus face the increasing competition from cogeneration, self-generation, other energy sources, government-owned power systems and even other utilities.
But whether or not the merger is finally approved, UP&L has not been standing still on cost cutting, Davis made clear. In the wake of a wide-ranging cost-containment program begun last year, he said the power company is "leaner and more efficient than at any time in many years."
This is evident in the earnings available for common stock distribution in 1987. At $140 million, they were the highest in the company's history.
UP&L sold 18 billion kilowatt hours of power last year, a 2 percent increase over 1986. Even so, total revenues fell slightly down $2 million to $983 million mainly because of decreased sales to industry and competition from other power companies and cities that have developed their own electric systems.
Declining sales to industrial customers is becoming more common today, said Davis, as large power users have begun to "shop around" for an increasing array of options to their local electric utility.
But despite the drop in revenues, earnings for UP&L's common stock jumped to $2.39 per share, up from $1.48 the year before. In 1986, earnings were impacted negatively by a one-time, after-tax write-off of $43.7 million (78 cents per share) stemming from a rate refund UP&L agreed to after a long investigation into its coal contract operations.
Davis said the company has made a major effort to increase safety inside its mines over the past 18 months, installing state-of-the-art monitoring equipment, fire doors, improved communication systems and fire suppression and sprinkling devices. He said these devices "greatly exceed" federal regulatory requirements.
New longwall coal mining equipment was installed last year at UP&L's mines. Combined with the idling of a small mine and employee cutbacks, UP&L's cost-per-ton for its company-produced coal dropped from $28.78 in '86 to $21.98 in '87, the lowest in nine years.
Overall operating expenses company-wide were down $31 million last year from 1986.
UP&L's annual dividend for '87 was $2.32, same as '86. Of the $140 million available for common shareholders, $136 million was paid out in dividends, a 97 percent ratio. The remaining three percent went to retained earnings.