Lykes Energy, Inc. and Subsidiaries - Page 5

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                    (6) APPLIANCE DEALER/CONTRACTOR PROGRAM.--Under                   
               this program, which was designed to encourage replacing                
               electric or older gas appliances with new gas                          
               appliances, People's paid dealer/contractors and                       
               customers to install new gas appliances.  In 1990, this                
               program was discontinued.  The expenditures listed                     
               below for the 1992, 1993, and 1994 taxable years relate                
               to a "Gas Space Conditioning Allowance Program", which                 
               was designed to convert on-main customers from electric                
               space conditioning equipment to gas space conditioning                 
               equipment.  This latter program was targeted at                        
               existing gas consumers, offering an allowance to help                  
               defray the higher "first costs" of gas space                           
               conditioning equipment.  For the respective taxable                    
               years in issue, expenditures for these programs were                   
               $84,120, $28,436, $16,630, $8,701, $52,000, $50,250,                   
               and $27,000.                                                           
                    (7) ELECTRIC RESISTANCE REPLACEMENT PROGRAM.--                    
               Under this program, which was designed to encourage                    
               customers to replace electric appliances with gas                      
               appliances by subsidizing the installation of gas                      
               appliances, People's paid residential customers to                     
               switch to gas heat from electric heat.  In 1990, this                  
               program was bifurcated into two programs, one for                      
               residential customers and the other for commercial                     
               users.  For the respective taxable years in issue,                     
               these programs' expenditures were $2,170,942,                          
               $2,510,076, $3,091,036, $3,486,573, $3,364,740,                        
               $2,452,452, and $2,380,931.                                            
               The largest single category of FEECA expenditures consisted            
          of subsidies for people who bought gas appliances from People's             
          or an affiliate (collectively referred to as People's).  The                
          percentages of program expenditures that were subsidies were:2              
                         Taxable Year  Percentage                                     
                         1988      69                                                 
                         1989           79                                            

               2 These percentages were stipulated by the parties as                  
          "minimum percentages".  The record, however, does not allow us to           
          find a greater percentage.                                                  

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