EASTERN EDISON COMPANY
1993 Annual Report on Form 10-K
Table of Contents
PART I
Page
Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . (i)
Glossary of Defined Terms. . . . . . . . . . . . . . . . . . . . . (iv)
Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Construction Program. . . . . . . . . . . . . . . . . . . . . 3
Fuel for Generation . . . . . . . . . . . . . . . . . . . . . 4
Nuclear Power Issues. . . . . . . . . . . . . . . . . . . . . 6
General . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Decommissioning . . . . . . . . . . . . . . . . . . . . . . 7
Yankee Atomic . . . . . . . . . . . . . . . . . . . . . . . 8
Seabrook Unit 2 . . . . . . . . . . . . . . . . . . . . . . 8
Public Utility Regulation . . . . . . . . . . . . . . . . . . 8
Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
FERC Proceedings. . . . . . . . . . . . . . . . . . . . . . 10
Massachusetts Proceedings . . . . . . . . . . . . . . . . . 11
Environmental Regulation . . . . . . . . . . . . . . . . . . 12
General . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Electric and Magnetic Fields. . . . . . . . . . . . . . . . 13
Water Regulation. . . . . . . . . . . . . . . . . . . . . . 14
Air Regulation. . . . . . . . . . . . . . . . . . . . . . . 14
Environmental Regulation of Nuclear Power . . . . . . . . . . 16
Energy Policy . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . 17
Power Supply. . . . . . . . . . . . . . . . . . . . . . . . . 17
Generating Units in Service . . . . . . . . . . . . . . . . . 19
Other Property. . . . . . . . . . . . . . . . . . . . . . . . 20
(i)
PART I (continued)
Page
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . 20
Rate Proceedings. . . . . . . . . . . . . . . . . . . . . . . 20
Environmental Proceedings . . . . . . . . . . . . . . . . . . 20
Other Proceedings . . . . . . . . . . . . . . . . . . . . . . 21
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS. . . . . . . . . . . . . . . . . . . 22
PART II
Item 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . 22
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA. . . . . . . . . . . 23
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND REVIEW OF OPERATIONS. . . . . 23
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Comparison of Financial Results . . . . . . . . . . . . . . . 24
Rate Activity . . . . . . . . . . . . . . . . . . . . . . . . 26
Financial Condition and Liquidity . . . . . . . . . . . . . . 27
Environmental Matters . . . . . . . . . . . . . . . . . . . . 28
Change in Accounting Standards. . . . . . . . . . . . . . . . 29
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA. . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES . . 31
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT. . . . . . . . . . . . . . . . . . . . . . 31
Item 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . 34
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . 36
(ii)
PART III (continued)
Page
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . 38
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . 38
(a)(1) Financial Statements. . . . . . . . . . . . . . . . . 38
(a)(2) Financial Statement Schedules . . . . . . . . . . . . 38
(a)(3) Exhibits. . . . . . . . . . . . . . . . . . . . . . . 39
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Consolidated Financial Statements and Notes. . . . . . . . . . . . 51
Supplementary Schedules. . . . . . . . . . . . . . . . . . . . . . 71
Report of Independent Accountants . . . . . . . . . . . . . . . . . 75
(iii)
GLOSSARY OF DEFINED TERMS
The following is a glossary of frequently used abbreviations or
acronyms found throughout this report:
The EUA System Companies
Blackstone Blackstone Valley Electric Company
Company Eastern Edison Company
Eastern Edison Eastern Edison Company
EUA Eastern Utilities Associates
EUA Cogenex EUA Cogenex Corporation
EUA Energy EUA Energy Investment Corporation
EUA Ocean State EUA Ocean State Corporation
EUA Power EUA Power Corporation (now Great Bay Power
Corporation)
EUA Service EUA Service Corporation
Montaup Montaup Electric Company
Newport Newport Electric Corporation
Registrant Eastern Edison Company
Retail Subsidiaries Blackstone, Eastern Edison
and Newport
Non-Affiliated_Companies
Aquidneck Aquidneck Power Limited Partnership
Maine Yankee Maine Yankee Atomic Power Company
OSP Ocean State Power Project Units 1 and 2
Yankee Atomic Yankee Atomic Electric Company
NHEC New Hampshire Electric Cooperative, Inc.
Regulators/Regulations
1935 Act Public Utility Holding Company Act of 1935
CERCLA Federal Comprehensive Environmental
Response, Compensation and Liability
Act of 1980 as amended by the Superfund
Amendments and Reauthorization Act of
1986
Chapter 21E Massachusetts Oil and Hazardous Material
Release Prevention and Response Act of
1986
Clean Air Act Amendments Clean Air Act Amendments of 1990
DEP Massachusetts Department of Environmental
Management
DOE United States Department of Energy
Energy Act Energy Policy Act of 1992
EPA Federal Environmental Protection Agency
FASB Financial Accounting Standards Board
FAS87 Employers Accounting for Pensions
FAS96 Statement No. 96 "Accounting for Income
Taxes"
(iv)
GLOSSARY OF DEFINED TERMS (Cont'd)
Regulators/Regulations (continued)
FAS106 Statement No. 106 "Accounting for
Post-Retirement Benefits"
FAS107 Statement No. 107 "Disclosures about
Fair Value of Financial Instruments"
FAS109 Statement No. 109 "Accounting for Income
Taxes"
FAS112 Statement No. 112 "Accounting for Post-
Employment Benefits"
FERC Federal Energy Regulatory Commission
IRS Internal Revenue Service
MCP Massachusetts Contingency Plan
MDPU Massachusetts Department of Public
Utilities
NESCAUM Northeast States for Coordinated Air Use
Management
NHPUC New Hampshire Public Utilities Commission
NRC Nuclear Regulatory Commission
NWPA Nuclear Waste Policy Act
OPA-90 Oil Pollution Act of 1990
PURPA Public Utility Regulatory Policies Act
of 1978
RACT Reasonably Available Control Technology
RCRA Resource Conservation and Recovery Act of
1976
RIDEM Rhode Island Department of Environmental
Managment
RIPUC Rhode Island Public Utilities Commission
SEC Securities and Exchange Commission
SPCC Spill Prevention Control and
Countermeasures
TSCA Toxic Substances Control Act
USCG United States Coast Guard
Other
AFUDC Allowance for Funds Used During
Construction
BTU British Thermal Unit
C&LM Conservation and Load Management
EITF Emerging Issues Task Force
EMF Electric and Magnetic Fields
EWG Exempt Wholesale Generator
FMBs First Mortgage and Collateral Trust Bonds
IPP Independent Power Producer
kWh Kilowatthour
Millstone Unit 3 Millstone Nuclear Power Project
Generating Unit No. 3
(v)
MOU Memorandum of Understanding
MW Megawatt
NEPOOL New England Power Pool
PCAC Purchase Capacity Adjustment Clause
PCB Polychlorinated Biphenyls
PRP Potentially Responsible Parties
QF Qualifying cogeneration and small power
production facilities pursuant to PURPA
Seabrook Project Seabrook Nuclear Power Project
Seabrook Unit 1 Seabrook Nuclear Power Project
generating Unit No. 1
Seabrook Unit 2 Seabrook Nuclear Power Project
generating Unit No. 2
VEBA Voluntary Employee Benefits Association
Yankee Rowe Yankee Nuclear Power Station
(vi)
PART I
Item 1. BUSINESS
General
The Registrant, Eastern Edison Company, a retail electric utility company,
is a corporation organized under the laws of the Commonwealth of Massachu
setts. Eastern Edison is a wholly owned subsidiary of EUA, a Massachusetts
voluntary association organized and existing under a Declaration of Trust dated
April 2, 1928, as amended, and is a registered holding company under the 1935
Act. EUA owns directly all of the shares of common stock of three operating
retail electric utility companies: Eastern Edison, Blackstone, and Newport.
Blackstone operates in northern Rhode Island, Eastern Edison operates in
southeastern Massachusetts, and Newport operates in south coastal Rhode
Island. These subsidiaries are collectively referred to as the Retail
Subsidiaries. Eastern Edison owns all of the permanent securities of Montaup,
a generation and transmission company, which supplies electricity to Eastern
Edison, to Blackstone, to Newport and to two unaffiliated utilities for
resale. EUA also owns directly all of the shares of common stock of EUA
Cogenex, EUA Energy, EUA Ocean State and EUA Service. EUA Service provides
various accounting, financial, engineering, planning, data processing and other
services to all EUA System companies. EUA Cogenex is an energy service and
cogeneration company. EUA Energy was organized to invest in energy-related
projects. EUA Ocean State owns a 29.9% interest in OSP's two gas-fired
generating units. (See Item 2. Properties -- Power Supply.) The holding company
system of EUA, the Retail Subsidiaries, Montaup, EUA Service, EUA Cogenex, EUA
Energy and EUA Ocean State is referred to as the EUA System. For the three
years 1991 through 1993, electric operations accounted for 100% of Eastern
Edison's total operating revenues.
Eastern Edison supplies retail electric service in 22 cities and towns in
southeastern Massachusetts. The largest communities served are the cities of
Brockton and Fall River, Massachusetts. The retail electric service territory
covers approximately 390 square miles and has an estimated population of
approximately 445,000. At December 31, 1993, Eastern Edison served approxi
mately 177,000 retail customers.
Montaup supplies Eastern Edison with nearly 100% of its electric
requirements and approximately 85% of the electric requirements of the EUA
System. About 47% of the net generating capacity of the EUA System comes from
a combination of the following sources: (i) wholly owned EUA System generating
plants, primarily Montaup's 156 MW Somerset facility located in Somerset,
Massachusetts; (ii) Montaup's net entitlement of 207 MW from the 584 MW Canal
No. 2 unit, which is located in Sandwich, Massachusetts and is 50% owned by
Montaup; and, (iii) entitlements from units in which Montaup or Newport have
partial ownership interests (by joint ownership through tenancy-in-common or by
stock ownership) in which Montaup's or Newport's share is 4.5% or less. The
remaining 53% of the net generating capacity of the EUA System comes from units
in which Montaup or Newport have long-term or short-term power contracts for
shares ranging from 0.49% to 41.67% of the unit's capacity, including 28% of
the OSP units 1 and 2 in which EUA Ocean State has a 29.9% partnership
interest, or entitlements from the Hydro-Quebec Project through NEPOOL. On
January 25, 1994, Somerset's Unit No. 5 was placed in deactivated reserve,
resulting in the reduction of approximately 69 MW of Montaup's total net
generating capacity. Newport intends to become an all requirements customer of
Montaup when Montaup's next change in its all requirements wholesale tariff
rate is approved by FERC. At that time Newport, subject to obtaining
regulatory approval, if necessary, expects to lease all of its generation and a
share of its transmission facilities to Montaup. (See Item 2. PROPERTIES --
Power Supply for further details of the EUA System's sources of power supply.)
Eastern Edison and Montaup hold valid franchises, permits and other rights
which are necessary to allow these companies to conduct electric business
within the territories which they serve. Such franchises, permits and other
rights contain no unduly burdensome restrictions or limitations upon duration.
Eastern Edison's electric sales are seasonal to some extent due to
electricity usage for heating and lighting in the winter and air conditioning
in the summer.
Eastern Edison is not dependent on a single customer or a few customers
for its electric sales.
There is no competition from other electric utilities within the retail
territories served by Eastern Edison at this time. Federal law permits,
however, certain federal facilities to by-pass the local utility and purchase
power directly from another utility. It is possible that in the future retail
competition could be imposed by legislative or regulatory action at the federal
or state level.
At the wholesale level, Montaup faces new sources of competition primarily
as a result of PURPA, the Energy Act and other policies being implemented by
the MDPU relating to the solicitation of competitive proposals for new
generation sources. Non-utility wholesale generators, generally known as
independent power producers or IPPs, are subject to FERC regulation under the
Federal Power Act as well as various other federal, state, and local
regulators. However, PURPA was intended, among other things, to promote
national energy independence and diversification of energy supply and to
improve the overall efficiency of energy usage. PURPA created a new class of
non-utility power generation facilities called QFs. PURPA allows QFs to sell
power generated by the QF to local utilities at specified rates based on each
utilities' avoided cost. In order to further promote competition in energy
supply, the Energy Act established a new class of non-utility generators called
exempt wholesale generators, generally referred to as EWGs, which are exempt
from the 1935 Act. As a complement to the federal initiatives, the MDPU and
RIPUC have implemented regulations which require utilities to integrate
least-cost planning with competitive proposals to meet requirements for new
generation. Both states have also approved a Memorandum of Understanding among
Montaup and the Retail Subsidiaries that establishes a framework which makes
possible a coordinated, regional review of the resource planning and
procurement process of the EUA Companies. Montaup will face increased
competition in the wholesale generating market, primarily based on price, from
QFs, IPPs and EWGs and in the future could be affected by such competition
supplying generation to its customers. Several states have begun discussions
on retail wheeling (the transmission of power from one utility for sale by that
system to the retail customer of a different system). In Massachusetts two
House Bills dealing with retail wheeling were introduced in the legislature.
Neither bill was enacted. Therefore, no directives on retail wheeling are
expected in Massachusetts in the near future.
All of the transmission facilities within the EUA System are inter
connected with the NEPOOL transmission grid. Montaup and Eastern Edison are
members of NEPOOL, which is open to all investor-owned, municipal and
cooperative electric utilities in New England that are connected to the New
England power grid. NEPOOL provides for coordinated planning of future
facilities as well as operation of nearly 100% of existing generating capacity
in New England and of related transmission facilities essentially as if they
were one system. The NEPOOL agreement imposes obligations concerning
generating capacity reserve and the right to use major transmission lines, and
provides for central dispatch of the generating capacity of NEPOOL's members
with the objective of achieving economical use of the region's facilities.
Pursuant to the NEPOOL agreement, interchange sales to NEPOOL are made at a
price approximately equal to the fuel cost for generation without contribution
to the support of fixed charges. The capacity responsibilities of Montaup and
Eastern Edison under the NEPOOL agreement are based on an allocated share of a
New England capacity requirement which is determined for each period on the
basis of certain regional reliability criteria. Because of their participation
in NEPOOL, Montaup's and Eastern Edison's operating revenues and costs are
affected to some extent by the operations of other members.
As of December 31, 1993, Eastern Edison and Montaup had 483 regular
employees. Relations with employees are considered to be satisfactory. Labor
bargaining unit contracts covering approximately 194 employees of Eastern
Edison in the Fall River area and of Montaup expire in June 1995 and March
1996, respectively. Approximately 30 of the 140 employees at Montaup's
Somerset Station may be impacted by the deactivation of Unit No. 5, announced
in January 1994. (See Item 2. PROPERTIES--Power Supply.)
Construction Program
Construction expenditures of Eastern Edison and Montaup for 1994, 1995 and
1996, as set forth below, are estimated to total $100.5 million (including
AFUDC of approximately $4.7 million estimated environmental expenditures and
nuclear fuel costs, where applicable). These projections do not include
expenditures for compliance with oxides of nitrogen emissions standards
promulgated under Clean Air Act Amendments for certain units in which Montaup
has a joint ownership interest.
Construction expenditures for the year ended December 31, 1993 were
approximately $23.3 million (including AFUDC of approximately $675,000).
CONSTRUCTION PROGRAM
(Dollars in Thousands)
1994 1995 1996 3-Yr. Total
---------------- ---------------- ---------------- --------------------------
Eastern Eastern Eastern Eastern
Edison Montaup Edison Montaup Edison Montaup Edison Montaup Combined
Generation $ $21,173 $ $15,502 $ $20,809 $ $57,484 $ 57,484
Transmission 247 3,577 202 1,586 73 211 522 5,374 5,896
Distribution 12,297 12,379 12,035 36,711 36,711
General 47 56 213 127 47 396 443
------- -------- -------- ------- -------- ------- ------- ------- --------
Total $12,591 $24,806 $12,581 $17,301 $12,108 $21,147 $37,280 $63,254 $100,534
======= ======= ======= ======= ======= ======= ======= ======= ========
Fuel for Generation
For 1993, Montaup's sources of energy, by fuel type, were as follows: 35%
nuclear, 29.9% oil 23.6% gas, 5.8% coal, and 5.7% other. During 1993, Montaup
had an average inventory of 87,108 tons of coal for its steam generating units
at the Somerset Station, the equivalent of 62 days' supply (based on average
daily output at 80% capacity factor for the coal units (see Item 2.
PROPERTIES-- Power Supply). The cost of coal averaged about $46.14 per ton in
1993 which is equivalent to oil at $11.18 per barrel. Montaup intends to
solicit bids from various suppliers of low sulfur content coal during the last
three quarters of 1994. The 1993 year-end inventory of approximately 95,000
tons of high sulfur content coal will be reduced in order to facilitate the
necessary changeover to all low sulfur content coal by December 31, 1994.
Montaup also maintained an average inventory of jet oil of 3,397 barrels at an
average cost per barrel of $26.28 during 1993 for its two peaking units at the
Somerset Station.
Canal Electric Company (Canal), on behalf of itself, Montaup and others
has contracts with two suppliers for up to 100% of the fuel-oil requirements of
Canal Unit Nos. 1 and 2 for the period ending April 30, 1995. The contracts
permit up to 20% of fuel oil purchases in the spot market. For 1993, the cost
of oil per barrel at Canal averaged $13.78. Canal and Montaup have entered
into agreements with Algonquin Gas Transmission Company (Algonquin) for
Algonquin to provide gas transmission facilities and services to the Canal
facilities. The agreements are subject to (i) Algonquin obtaining the
appropriate permits and authorization to construct and operate the transmission
facilities and (ii) Canal and Montaup receiving the necessary permits and
authorizations to construct natural gas fired electric generation equipment and
the facilities to receive natural gas.
Montaup's costs of fossil and nuclear fuels for the years 1991 through
1993, together with the weighted average cost of all fuels, are set forth
below:
___________Mills*_per_kWh__________
1993 1992 1991
Nuclear . . . . . . . . . 7.5 7.7 8.7
Coal . . . . . . . . . 24.1 21.2 21.4
Oil . . . . . . . . . 25.5 26.0 18.9
Gas . . . . . . . . . 15.1 13.0 16.2
All fuels . . . . . . . . . 15.5 14.8 15.7
*One Mill is 1/10 of one cent
The rate schedules of Eastern Edison and Montaup are designed to pass on
to customers the increases and decreases in fuel costs and the cost of
purchased power, subject to review and approval by appropriate regulatory
authorities (see Rates below).
The owners (or lead participants) of the nuclear units in which Montaup
has an interest have made, or expect to make, various arrangements for the
acquisition of uranium concentrate, the conversion, enrichment, fabrication and
utilization of nuclear fuel and the disposition of that fuel after use. The
owners (or lead participants) of United States nuclear units have entered into
contracts with the DOE for disposal of spent nuclear fuel in accordance with
the NWPA. The NWPA requires (subject to various contingencies) that the
federal government design, license, construct and operate a permanent
repository for high level radioactive wastes and spent nuclear fuel and
establish prescribed fees for the disposal of such wastes and fuel. The NWPA
specifies that the DOE provide for the disposal of such wastes and spent
nuclear fuel starting in 1998. Objections on environmental and other grounds
have been asserted against proposals for storage as well as disposal of spent
fuel. The DOE anticipates that a permanent disposal site for spent fuel will
be ready to accept fuel for storage or disposal by the year 2010. However, the
NRC, which must license the site, stated only that a repository will become
available by the year 2025. Montaup owns a 4.01% interest in Millstone Unit 3
and a 2.9% interest in Seabrook Unit 1. Northeast Utilities, the operator of
the units, indicates that Millstone Unit 3 has sufficient on-site storage
facilities to accommodate high-level wastes and spent fuel for the projected
life of the units. Only minimal capital expenditures are projected for the
foreseeable future. Similarly, at the Seabrook Project, there is on-site
storage capacity which, with minimal capital expenditures, should be sufficient
for twenty years or until the year 2010. No near-term capital expenditures are
anticipated to accommodate an increase in storage requirements after 2010. The
Energy Act requires that a fund be created for the decommissioning and
decontamination of the DOE uranium enrichment facilities. The fund will be
financed in part by special assessments on nuclear power plants in which
Montaup has an interest. These assessments will be calculated based on the
utilities' prior use of the government facilities. These special assessments
have been levied by the DOE starting in September 1993 and will continue over
15 years. This cost is passed on to the joint owners or power buyers as an
additional fuel charge on a monthly basis.
Nuclear Power Issues
General:
Nuclear generating facilities, including those in service in which Montaup
participates, as shown in the table under Item 2. PROPERTIES -- Power Supply,
are subject to extensive regulation by the NRC. The NRC is empowered to
authorize the siting, construction and operation of nuclear reactors after
consideration of public health, safety, environmental and anti-trust matters
(see Yankee Atomic below).
The NRC has promulgated numerous requirements affecting safety systems,
fire protection, emergency response planning and notification systems, and
other aspects of nuclear plant construction, equipment and operation. These
requirements have caused modifications to be made at some of the nuclear units
in which Montaup has an interest. Montaup has been affected, to the extent of
its proportionate share, by the costs of such modifications.
Nuclear units in the United States have been subject to widespread
criticism and opposition. Some nuclear projects have been cancelled following
substantial construction delays and cost overruns as the result of licensing
problems, unanticipated construction defects and other difficulties. Various
groups have by litigation, legislation and participation in administrative
proceedings sought to prohibit the completion and operation of nuclear units
and the disposal of nuclear waste. In the event of cancellation or shutdown of
any unit, NRC regulations require that it be completely decontaminated of any
residual radioactivity. The cost of such decommissioning, depending on the
circumstances, could substantially exceed the owners' investment at the time of
cancellation.
The continuing public controversy concerning nuclear power could affect
the operating units in which Montaup has an interest. While management cannot
predict the ultimate effect of such controversy, it is possible that it could
result in the premature shutdown of one or more of the units (see Yankee Atomic
below).
The Price-Anderson Act provides, among other things, that the liability
for damages resulting from a nuclear incident would not exceed an amount which
at present is about $9.2 billion. Under the Price-Anderson Act, prior to
operation of a nuclear reactor, the licensee is required to insure against this
exposure by purchasing the maximum amount of liability insurance available from
private sources (currently $200 million) and to maintain the insurance
available under a mandatory industry-wide retrospective rating program. Should
an individual licensee's liability for an incident exceed $200 million, the
difference between such liability and the overall maximum liability, currently
about $9.2 billion, will be made up by the retrospective rating program. Under
such a program, each owner of an operating nuclear facility may be assessed a
retrospective premium of up to a limit of $79.3 million (which shall be
adjusted for inflation at least every five years) for each reactor owned in the
event of any one nuclear incident occurring at any reactor in the United
States, with provision for payment of such assessment to be made over time as
necessary to limit the payment in any one year to no more than $10 million per
reactor owned. With respect to operating nuclear facilities of which it is a
part owner or from which it contracts (on terms reflecting such liability) to
purchase power, Montaup would be obligated to pay its proportionate share of
any such assessment.
Joint owners of nuclear projects are also subject to the risk that one of
their number may be unable or unwilling to finance its share of the project's
costs, thus jeopardizing continuation of the project. On February 28, 1991,
EUA Power (now known as Great Bay Power Corporation), a 12.13% owner of the
Seabrook Project in which Montaup has a 2.9% ownership interest, filed for
protection under Chapter 11 of the federal Bankruptcy Code. The Great Bay
Power Corporation Plan of Reorganization was confirmed by the Bankruptcy Court
on March 5, 1993. On February 2, 1994, the Official Bondholders Committee of
Great Bay Power Corporation announced that it accepted a plan of reorganization
financing proposal from Omega Advisers, Inc. which provided for a $35 million
equity investment in exchange for 60% of the equity of the reorganized Great
Bay Power Corporation. Implementation of the Omega proposal will require
modification of the plan of reorganization and approval from the Bankruptcy
Court, the NRC, FERC and the NHPUC. Under the plan, as modified, the
bondholders will receive 40% of the equity in the reorganized Great Bay Power
Corporation in exchange for their bondholder claims.
On May 6, 1991, the New Hampshire Electric Cooperative, Inc. (NHEC), a
2.2% owner of the Seabrook Project, announced that it had filed for Chapter 11
bankruptcy protection. A reorganization plan, filed by the NHEC with the
Bankruptcy Court in September, 1991 and revised on January 14, 1992 was
approved by the Bankruptcy Court in March 1992 and approved by the NHPUC on
October 5, 1992. All appeals of the NHPUC order approving the reorganization
plan have been resolved in NHEC's favor and the effective date of the plan
occurred on December 1, 1993.
Decommissioning:
Each of the three operating nuclear generating companies in which Montaup
has an equity ownership interest (see Item 2. PROPERTIES -- Power Supply) has
developed its estimate of the cost of decommissioning its unit and has received
the approval of FERC to include charges for the estimated costs of
decommissioning its unit in the cost of energy which it sells. From time to
time, these companies re-estimate the cost of decommissioning and apply to FERC
for increased rates in response to increased decommissioning costs. Maine
Yankee has filed a decommissioning financing plan under a Maine statute which
requires the establishment of a decommissioning trust fund. That statute also
provides that if the trust has insufficient funds to decommission the plant,
the licensee (Maine Yankee) is responsible for the deficiency and, if the
licensee is unable to provide the entire amount, the "owners" of the licensee
are jointly and severally responsible for the remainder. The definition of
"owner" under the statute includes Montaup and may include companies affiliated
with Montaup. The applicability and effect of this statute cannot be
determined at this time. Montaup would seek to recover through its rates any
payments that might be required (see Yankee Atomic below).
Montaup is recovering through rates its share of estimated decommissioning
costs for Millstone Unit 3 and Seabrook Unit 1. Montaup's share of the current
estimate of total costs to decommission Millstone Unit 3 is $15.1 million in
1993 dollars, and Seabrook Unit 1 is $10.6 million in 1993 dollars. These
figures are based on studies performed for the lead owners of the plants. In
addition, pursuant to contractual arrangements with other nuclear generating
facilities in which Montaup has an equity ownership interest or life of the
unit entitlement, Montaup pays into decommissioning reserves. Such expenses
are currently recoverable through rates.
Yankee Atomic:
On February 26, 1992, Yankee Atomic announced that it would permanently
cease power operation of Yankee Rowe and began preparing for an orderly
decommissioning of the facility. Montaup has a 7.8 MW entitlement from the
plant and has a 4.5% equity ownership in Yankee Atomic with a book value of
approximately $1.1 million at December 31, 1993. Under the terms of its
purchased power contract with the facility, Montaup must pay its proportionate
share of unrecovered costs and expenses incurred after the plant is retired.
In December 1992, Yankee Atomic received FERC authorization to recover
essentially all costs related to the decommissioning of the plant.
Seabrook Unit 2:
Montaup also has 2.9% ownership interest in Seabrook Unit 2. On November
6, 1986, the joint owners of the Seabrook Project, recognizing that Seabrook
Unit 2 had been cancelled in 1984, voted to dispose of Seabrook Unit 2. Plans
regarding disposition of Seabrook Unit 2 are now under consideration, but have
not been finalized and approved. Montaup is unable, therefore, to estimate the
costs for which it would be responsible in connection with the disposition of
Seabrook Unit 2. Monthly charges are required to be paid by Montaup with
respect to Seabrook Unit 2 in order to preserve and protect its components and
various warranties. Montaup recovered its investment in Seabrook Unit 2 under
a FERC approved rate case settlement. As of December 31, 1993, Montaup had
fully amortized its investment in Seabrook Unit 2.
Public Utility Regulation
Eastern Edison and Montaup are subject to regulation by the MDPU with
respect to the issuance of securities, the form of accounts, and in the case of
Eastern Edison, rates to be charged, services to be provided and other
matters. Montaup, by reason of its ownership of fractional interests in
certain facilities located in other states, is subject to limited regulation in
those states.
The EUA System is subject to the jurisdiction of the SEC under the 1935
Act by virtue of which the SEC has certain powers of regulation, including
jurisdiction over the issuance of securities, changes in the terms of
outstanding securities, acquisition or sale of securities or utility assets or
other interests in any business, intercompany loans and other intercompany
transactions, payment of dividends under certain circumstances, and related
matters. Eastern Edison is a holding company under the 1935 Act by reason of
its ownership of securities of Montaup. As a subsidiary of EUA, a registered
holding company, Eastern Edison is exempted from registering as a holding
company by complying with the applicable rules thereunder.
Eastern Edison and Montaup are also subject to the jurisdiction of FERC
under Parts II and III of the Federal Power Act. That jurisdiction includes,
among other things, rates for sales for resale, interconnection of certain
facilities, accounts, service, and property records.
The MDPU and RIPUC have approved a Memorandum of Understanding (MOU) with
Eastern Edison, Blackstone, Newport and Montaup. The MOU establishes a
framework for a coordinated, regional review of the resource planning and
procurement process of those companies. It is based on the assumption that
resource planning and procurement by a regional electric company may be
implemented more effectively under a coordinated, consensual review process
involving the EUA Retail companies and the state public utility commissions to
which the EUA retail companies are subject. Pursuant to the terms of the MOU,
at least every two years Montaup and each EUA Retail subsidiary will file a
integrated resource plan concurrently with the MDPU and RIPUC. The MOU
outlines a mechanism and a timetable by which the reviews by the two
commissions will be coordinated and any inconsistencies among the decisions by
the state commissions will be resolved.
In conjunction with its approval of the MOU, the MDPU granted Eastern
Edison and Montaup an exemption from the MDPU's Integrated Resource Management
regulations, but required them to plan, solicit and procure additional
resources according to newly promulgated regional Integrated Regional Planning
procedures consistent with the MOU.
Implementation of the MOU is not expected to have a material affect on the
Company.
See Rates with respect to regulation of rates charged to customers. See
Environmental Regulation. See Fuel for Generation with respect to the disposal
of spent nuclear fuel. See Environmental Regulation of Nuclear Power and see
Nuclear Power Issues with respect to regulation of nuclear facilities by NRC.
See also Energy Policy.
Rates
Rates charged by Montaup (which sells power only for resale) are subject
to the jurisdiction of FERC. The rates for services rendered by Eastern Edison
are subject to approval by and are on file with the MDPU. For the twelve
months ended December 31, 1993, 83% of Eastern Edison's consolidated revenues
were subject to the jurisdiction of FERC, and 17% to the MDPU.
Recent general rate increases for Montaup and Eastern Edison are as
follows (thousands of dollars):
Applied for Implemented(1) Effective(2)
Return on
Annual Annual Annual Common
Revenue Date Revenue Date Revenue Date Equity %
Federal
- Montaup
M-12 20,500 3/5/90 20,500 8/19/90 20,000 1/23/91 12.00
M-13 10,500 3/6/91 10,500 5/7/91 8,100 12/3/91 11.72(4)
Massachusetts
- Eastern Edison
MDPU 92-148 14,927(3) 6/15/92 8,100 1/12/93 11.50(4)
___________________
Notes:
(1) Montaup's rate increases were implemented on a subject to refund
basis.
(2) Per final FERC order or settlement agreement.
(3) Reduced from $16,401 as originally filed.
(4) Rate used for AFUDC calculation purposes. Settlement contains no
specific finding on allowed common equity return. Rates approved for
consumption of electricity on or after January 1, 1993.
FERC Proceedings:
On March 5, 1990, Montaup filed its M-12 rate request based on a
forward-looking test year beginning May 1, 1990. The requested annual increase
of $20.5 million primarily reflected the increased operation and maintenance
expenses and full rate base treatment of Seabrook Unit 1. The application
included a request to add approximately $124.4 million of Seabrook Unit 1
construction costs to Montaup's rate base in addition to the $74.6 million of
Seabrook Unit 1 construction work in progress previously allowed in rate base.
The annual increase also included $7.0 million for the implementation of
conservation and load management programs in the service territories of
Montaup's affiliated companies. On April 25, 1990, FERC authorized the
implementation of the rate increase, subject to refund, effective with the
commercial operation of Seabrook Unit 1. On May 22, 1990, a FERC
administrative law judge issued an order to separate the M-12 request into two
phases. Phase I was to address all cost of service issues other than Seabrook
Unit 1 prudency concerns, and Phase II would address the Seabrook Unit 1
prudency issues. On August 19, 1990, commercial operation of Seabrook Unit 1
was declared and the M-12 rate was made effective, subject to refund. On
October 22, 1990, Montaup filed a settlement agreement with FERC with respect
to Phase I, reducing the originally filed rate by $500,000. The Phase I
settlement agreement was approved by the FERC on January 23, 1991.
On December 6, 1991, the FERC administrative law judge presiding over
Phase II of Montaup's M-12 rate case proceeding issued an initial decision
finding that Montaup had been prudent in its oversight of its Seabrook Unit 1
investment with respect to emergency planning and recommended no prudency
disallowance. Exceptions to the initial decision were filed by the intervening
parties. The Commission's Order with respect to Phase II was issued on August
4, 1992 and affirmed the FERC administrative law judge's initial decision, thus
allowing Montaup to recover and earn a return on its full investment in
Seabrook Unit 1 through rates.
On December 3, 1991, FERC approved a settlement agreement between Montaup
and the intervenors in Montaup's March 1991 wholesale rate increase request
(M-13). Montaup had filed for an annual increase of $10.5 million and FERC
allowed implementation of the new rate commencing May 7, 1991 subject to refund
pending final adjudication. The approved settlement agreement called for an
annual increase of $8.1 million. Montaup refunded the difference collected to
its wholesale electric utility customers in December 1991 billings.
After the acquisition of Newport, Montaup and Newport had instituted a
90/10 allocation of the energy savings which the two companies realize through
their treatment as a single entity in NEPOOL in recognition of the difference
in the size of each company. On December 20, 1991, after discussions with the
staff of FERC and in compliance with their position, Montaup and Newport filed
with FERC an application to have a proposed 50/50 allocation of their energy
savings approved. Protests and motions to intervene opposing the filing and
seeking a larger allocation of the savings to Montaup were filed with the FERC
in January 1992 by the MDPU, the Attorney General of Massachusetts and
Montaup's non-affiliated customers. On May 19, 1992 FERC approved the 50/50
allocation method as appropriate and accepted the revised energy savings
agreement for filing. However, the agreement incorrectly defined the
calculations necessary to compute a shared savings rate. Montaup and Newport
were directed to file a revised shared savings formula. On June 1, 1992
Montaup and Newport filed a rate schedule revision and Montaup M-Rate fuel
clause revisions in compliance with the FERC's order.
On December 17, 1992, FERC issued a Statement of Policy regarding the
recovery through rates of the cost of post-employment benefits other than
pensions (PBOP), as a result of FAS106 issued to address accounting procedures
for these costs. The Commission's policy recognizes allowances for prudently
incurred costs of such benefits of company employees when determined on an
accrual basis that are consistent with the accounting principles set forth in
FAS106. Furthermore, companies must agree to make cash deposits to an
irrevocable external trust fund equal to the annual test period allowance for
the cost of such benefits and they must maximize the use of income tax
deductions for contributions to the trust fund. If tax deductions are not
available for some portion of currently funded amounts, deferred income tax
accounting must be followed for the tax effects of such transactions.
Within three years of their adoption of FAS106, FERC regulated companies
must also file a general rate change and seek inclusion of these costs in their
rates. Companies may defer the jurisdictional portion of the difference
between the costs determined pursuant to accounting principles previously
followed and FAS106 accruals from the time they adopt FAS106 until they file
the general rate case described above. Montaup deferred its incremental FAS106
expenses of approximately $1.4 million in 1993 and will file with the FERC a
request for recovery of such amounts in its 1994 rate application.
On March 21, 1994 Montaup filed a rate application with the FERC to reduce
annual revenues by $10.1 million. This request is intended to match more
closely Montaup's revenues with its decreasing cost of doing business resulting
from, among other things, a reduced rate base, lower capital costs and
successful cost control efforts. The application also includes a request for
recovery of all of Montaup's FAS106 expenses as provided in FERC's generic
order of December 1992. Also incorporated in this filing is a request to make
Newport an all requirements customer of Montaup. Currently Newport purchases
approximately 47% of its power requirements from suppliers other than Montaup.
If approved Montaup would assume all purchased power contracts of Newport and
subsequently provide Newport with 100% of its power needs. FERC can approve
Montaup's requested reduction to take effect as early as May 21, 1994 pending
final adjudication and approval. A final decision on this application is
expected during second half of 1994.
Massachusetts Proceedings:
On December 31, 1992, the MDPU issued its order in response to a $14.9
million (reduced from $16.4 million, as originally filed) rate increase request
of Eastern Edison. The $8.1 million rate relief granted represented 49% of
Eastern Edison's original rate request filed on June 15, 1992 based on a 1991
test year. The new rates filed in compliance with the order became effective
for sales subsequent to January 1, 1993.
In authorizing the increase, the MDPU accepted a settlement proposal
offered jointly by Eastern Edison and the Massachusetts Attorney General, the
sole intervenor. The settlement stipulated the total revenue requirement which
included an amortization of Hurricane Bob costs over a five-year period without
a return on the unamortized amount. The settlement also reflects the recovery
of the full tax deductible amount of post-retirement benefits other than
pensions (FAS106 expenses), without any phasing-in of the increase over the
current ("pay-as-you-go") level. All FAS106 amounts recovered are required to
be placed in trusts permitted by the IRS which will maximize tax deductibility
and provide tax-free benefits to retirees. The depreciation rate and the
common equity component of AFUDC were also specified. The composite rate for
the depreciation calculation was set at 4.13%, up slightly from the 4.07%
previously authorized. Solely for the purpose of calculating AFUDC, the common
equity return component was set at 11.5%.
In a recently decided rate case, the MDPU put all companies on notice that
it expects them..."to consider mergers or acquisitions in order to further
optimize least-cost planning efforts and better fulfill their obligations to
serve." Thereafter, the MDPU instituted an investigation, which is now
underway, for the purpose of establishing, among other things, guidelines and
standards for acquisitions and mergers of utilities and evaluating proposals
regarding the recovery of costs associated with such activities. It is not
possible to predict what effects, if any, the MDPU proceeding will have on the
Eastern Edison.
Environmental Regulation
General:
Eastern Edison and Montaup and other companies owning generating units
from which power is obtained are subject, like other electric utilities, to
environmental and land use regulations at the federal, state and local levels.
The EPA, and certain state and local authorities, have jurisdiction over
releases of pollutants, contaminants and hazardous substances into the
environment and have broad authority in connection therewith including the
ability to require installation of pollution control devices and remedial
actions.
Federal, Massachusetts and Rhode Island legislation requires consideration
of reports evaluating environmental impact as a prerequisite to the granting of
various permits and licenses with a view of limiting such impact. Federal,
Massachusetts and Rhode Island air quality regulations also require that plans
(including procedures for operation and maintenance) for construction or
modification of fossil fuel generating facilities receive prior approval from
the DEP or RIDEM. In addition, in Massachusetts, certain electric generation
and transmission facilities will be permitted to be built only if they are
consistent with a long-range forecast filed by the utility concerned and
approved by the Massachusetts Energy Facilities Siting Board.
Montaup, its affiliates and non-affiliates with which it has power supply
arrangements and are required to pay a share of the costs, are also subject,
like other electric utilities, to regulation with regard to zoning, land use
and similar controls by various state and local authorities.
The EPA and state and local authorities may, after appropriate
proceedings, require modification of generating facilities for which
construction permits or operating licenses have already been issued, or impose
new conditions on such permits or licenses, and may require that the operation
of a generating unit cease or that its level of operation be temporarily or
permanently reduced. Such action may result in increases in capital costs and
operating costs which may be substantial in delays or cancellation of
construction of planned facilities, or in modification or termination of
operations of existing facilities.
Other activities of Eastern Edison and Montaup from time to time are
subject to the jurisdiction of various other local, state and federal
regulatory agencies. It is not possible to predict with certainty what effects
the above described statutes and regulations will have on Eastern Edison and
Montaup.
The EPA has issued regulations relating to the generation, transportation,
storage and disposal of certain wastes under the RCRA in Massachusetts, the
requirements are implemented and enforced by the DEP.
There is an extensive body of federal and state statutes governing
environmental matters, including CERCLA, as amended by the Superfund Amendments
and Reauthorization Act of 1986, and, at the state level, Chapter 21E, which
permit, among other things, federal and state authorities to initiate legal
action providing for liability, compensation, cleanup, and emergency response
to the release or threatened release of hazardous substances into the
environment and for the cleanup of inactive hazardous waste disposal sites
which constitute substantial hazards. Under CERCLA and Chapter 21E, joint and
several liability for cleanup costs may be imposed on, among others, the owners
or operators of a facility where hazardous substances were disposed, the party
who generated the substances, or any party who arranged for the disposition or
transport of the substances. Due to the nature of the business of Montaup and
Eastern Edison, certain materials are generated that may be classified as
hazardous under CERCLA and Chapter 21E. As a rule, Montaup and Eastern Edison
employ licensed contractors to dispose of such materials (see Item 3, LEGAL
PROCEEDINGS -- Environmental Proceedings.
The EPA, pursuant to TSCA, regulates the use, storage, and disposal of
PCBs. Because Eastern Edison and Montaup own and use some electrical
transformers containing PCBs, they are subject to EPA regulation under TSCA.
The Company is in the process of phasing out its use of transformers which
contain PCBs.
Electric and Magnetic Fields:
A number of scientific studies in the past several years have examined the
possibility of health effects from EMF that are found wherever there is
electricity. While some of the studies have indicated some association between
exposure to EMF and health effects, many of the others have indicated no direct
association. The research to date has not conclusively established a direct
causal relationship between EMF exposure and human health. Additional studies,
which are intended to provide a better understanding of EMF, are continuing.
Some states where Eastern Edison and Montaup do not operate have enacted
regulations to limit the strength of EMF at the edge of transmission line
rights-of way. Rhode Island has enacted a statute which authorizes and directs
the Rhode Island Energy Facility Siting Board to establish rules and/or
regulations governing construction of high voltage transmission lines of 69 KV
or more. Various bills are pending in the Massachusetts legislature that would
require certain disclosures about the potential health effects of EMF.
Management cannot predict the impact, if any, which legislation or other
developments concerning EMF may have on Eastern Edison or Montaup.
Water Regulation:
The objective of the Federal Water Pollution Control Act is to restore and
maintain the chemical, physical, and biological integrity of the nation's
navigable waters. The elimination of pollutant discharges (including heat)
into navigable waters is one goal aimed at achieving this objective. Another
step mandated by Federal Water Pollution Control Act was the creation of a
rigorous permit program. All water discharge permits for plants in
Massachusetts, including those for the Somerset and Canal plants, are issued
jointly by the EPA and DEP. These same agencies also regulate certain
industrial storm water discharges.
Under the Federal Water Pollution Control Act, the Massachusetts Wetland
Protection Act, and the Rhode Island Wetland Act, standards have been
established to control the dredging and filling of wetlands. The EPA's Army
Corps of Engineers, RIDEM, CRMC and the DEP are pursuing a non-degradation (no
loss) policy for wetlands.
Under the Massachusetts Water Management Act, the DEP is responsible for
promulgating regulations relating to water usage and conservation.
Most of the generating units from which Montaup obtains power operate
under permits which limit their effluent discharges into water and which
require monitoring and, in some instances, biological studies and toxicity
testing of the impact of the discharges. Such permits are issued for a period
of not more than five years, at the expiration of which renewal must be
sought. The permit for the Somerset Plant must be renewed by August 30, 1994.
The Oil Pollution Act of 1990 (OPA-90) was passed after several major oil
spills occurred in waters of the United States. The primary intent of this
legislation is to mandate strong contingency plans to prevent releases of oil
and to require that sufficient resources are in place and ready to respond to
any release. EPA, USCG, RIDEM, and DEP have a number of other rules in place,
such as EPA's SPCC regulations, which are designed to minimize the release of
oil and other substances to navigable waters and the environment.
Air Regulation:
All fossil fuel plants from which Montaup obtains power operate under
permits which limit their emissions into the air and require monitoring of the
emissions. Air quality requirements adopted by state authorities in
Massachusetts pursuant to the Clean Air Act impose limitations with respect to
pollutants such as sulfur dioxide, oxides of nitrogen and particulate matter.
Montaup's Somerset Station currently is permitted to burn coal which results in
sulfur dioxide emissions not in excess of 2.42 pounds per million BTU heat
release potential (approximately 1.5% sulfur content coal). The Canal Station
Unit 2 is permitted to burn fuel oil which results in sulfur dioxide emissions
not in excess of 2.42 pounds per million BTU heat release potential
(approximately 2.2% sulfur content fuel oil) when operating at 450 MW or above
and 1% sulfur content fuel oil when operating at less than 450 MW.
The EPA has established clean air standards for certain pollutants,
including standards limiting emissions from coal-fired and oil-fired
generators. Congress passed amendments to the new Clean Air Act in 1990 which
created regulatory programs and generally updated and strengthened air
pollution control laws. These amendments will expand the regulatory role of
the EPA regarding emissions from electric generating facilities. Title IV of
the Clean Air Act Amendments addresses acid deposition abatement and
establishes a 2-phase utility power plant pollution control program to reduce
emissions of sulfur dioxide and oxides of nitrogen. The first phase begins in
1995 and affects 261 large units in 21 eastern and midwestern states. Phase
II, which begins in the year 2000, tightens the emission limits imposed on
these larger plants and also sets restrictions on smaller, cleaner plants fired
by coal, oil and gas. Montaup's Somerset Station is classified as a Phase II
facility with a compliance deadline by the end of 1999. The control program
establishes a national cap of 8.95 million tons per year for sulfur dioxide
emissions. This reflects a reduction of about 10 million tons per year.
Beginning in the year 2000, EPA will issue 8.95 million sulfur dioxide
allowances to utilities annually. The sulfur allowance program will not affect
Montaup's Somerset Station until January 1, 2000.
Massachusetts DEP regulations establish a statewide cap on sulfur dioxide
emissions and require Montaup's facilities to meet an average emission rate of
1.21 pounds of sulfur dioxide per million BTU of fuel input by the end of
1994. Under federal standards, Montaup would not be required to meet this
sulfur dioxide emission level until the year 2000 as a result of Title IV of
the Clean Air Act. However, Massachusetts DEP regulations require compliance
five years earlier. As required by state regulations, Montaup submitted and
received approval of a plan detailing how it would meet the 1995 sulfur dioxide
standard. Montaup intends to achieve compliance by substituting lower sulfur
content fuels. Tests at Montaup's Somerset Station indicate that Unit #6 will
be able to utilize lower sulfur content coal than is already being burned to
meet the 1995 air standards with only a minimal capital investment. Montaup
determined that it would not be economical to repair Unit #5 of the Somerset
Station and has placed it in deactivated reserve (see Item 2. PROPERTIES).
Other provisions of the Clean Air Act Amendments will likely impact
Montaup by 1995. Title I of the Act sets a strategy for states to move toward
attaining national air quality standards, with the emphasis on meeting the
ozone standard. Ozone relates directly to the nation's smog problem. Oxides
of nitrogen are one of the precursors of ozone formation. Title I requires
additional controls on industrial sources of Oxides of nitrogen including
utility power plants. The Act creates the Northeast Ozone Transport Region,
covering the area from Virginia to Maine, including Massachusetts and Rhode
Island. Areas within the transport region will become subject to enhanced
controls on oxides of nitrogen emissions.
In April 1992, NESCAUM, an environmental advisory group for eight
Northeast states including Massachusetts and Rhode Island issued
recommendations for oxides of nitrogen controls for existing utility boilers
required to meet the ozone non-attainment requirements of the Clean Air Act
Amendments. The NESCAUM recommendations are more restrictive than EPA's
requirements. Massachusetts has issued new regulations to implement oxides of
nitrogen reduction requirements. The DEP has amended its regulations to
require that Reasonably Available Control Technology (RACT) be implemented at
all stationary sources potentially emitting 50 tons per year or more of oxides
of nitrogen. Rhode Island has not yet issued regulations to implement oxides
of nitrogen reduction requirements. Montaup is in the process of reviewing
compliance strategies and of providing input to Massachusetts environmental
regulators. Any compliance strategy may require the implementation of
additional pollution control technology as early as 1995. Montaup would seek
recovery of pollution control expenditures through rates.
Title V of the Clean Air Act Amendments provide EPA with broad new
permitting authority by 1995, with the goal of having states issue federally
enforceable operating permits which will outline limits and conditions
necessary to comply with all applicable air requirements. The Act's permitting
program will be phased in over the next several years. Although individual
sources will be required to pay fees to the various states which will
administer the program, the impact of these requirements is not expected to
have a material financial impact on Eastern Edison or Montaup.
Environmental Regulation of Nuclear Power
The NRC has promulgated a variety of standards to protect the public from
radiological pollution caused by the normal operation of nuclear generating
facilities. For example, the NRC requires licensed facilities to develop plans
to respond to unexpected developments.
In some environmental areas the NRC and the EPA have overlapping
jurisdiction. Thus, NRC regulations are subject to all conditions imposed by
the EPA and a variety of federal environmental statutes, including obtaining
permits for the discharge of pollutants (including heat) into the nation's
navigable waters. In addition, the EPA has established standards, and is in
the process of reviewing existing standards, for certain toxic air pollutants,
including radionuclides, under the Clean Air Act Amendments which apply to
NRC-licensed facilities. The effective date for the new radionuclide standards
has been stayed as to nuclear generating units. The EPA has also promulgated
environmental radiation protection standards for nuclear power plants which
regulate the doses of radiation received by the general public.
The NWPA provides for development by the federal government of facilities
for the disposal or permanent storage of civilian nuclear waste. For further
details about NWPA see Item 1. BUSINESS -- Fuel for Generation. The NRC has
also promulgated regulations regarding the disposal of nuclear waste materials
designed to protect the public from radiological dangers.
Environmental regulation of nuclear facilities in which Montaup has an
interest or from which they purchase power may result in significant increases
in capital and operating costs, in delays or cancellation of construction of
planned improvements, or in modification or termination of existing facilities.
Energy Policy
The Energy Act deals with many aspects of national energy policy and
includes important changes for electric utilities and registered holding
companies. Eastern Edison and its generating subsidiary, Montaup, as
subsidiaries of EUA, a public utility holding company, cannot predict the
impact that the Energy Act and the rules and regulations which will be
promulgated by various regulatory agencies pursuant to the Energy Act will have
on Eastern Edison. Certain provisions of the Energy Act will increase
competition in the generation of electricity, while other provisions will open
up new investment opportunities for registered holding companies. Certain
provisions of the Energy Act are intended to encourage conservation of
electricity while other provisions may create additional demand for
electricity.
The Energy Act encourages investments in certain types of energy
conversion and energy efficient equipment and requires the federal government
to undertake major new conservation projects. On the other hand, by
encouraging the development of electric motor vehicles, the Energy Act may
create additional demand for electricity.
One of the more significant provisions of the Energy Act creates a new
class of generation companies exempt from the 1935 Act, which sell exclusively
at wholesale, called exempt wholesale generators or EWGs. The Energy Act also
grants FERC new authority to mandate transmission access for QFs, EWGs and
traditional utilities. The Energy Act reduces the restrictions on certain
types of investments by registered holding companies including investments in
EWGs, investments in foreign utilities which do not operate in the United
States and investments in certain types of QFs which were previously limited to
the holding company's service territories or areas closely interconnected with
those service territories. Pursuant to certain provisions of the Energy Act,
the SEC has promulgated regulations to minimize the risks of investments in
EWGs by registered holding companies and their utility subsidiaries.
Regulations regarding investments in foreign utilities are also required under
the Energy Act but have not yet been promulgated by the SEC.
The Energy Act prevents an EWG directly or indirectly owned by a
registered holding company from entering into a power contract with a utility
affiliate of the holding company without the approval of each state commission
having jurisdiction over the rates of the utility affiliate.
It is also not possible to predict the timing or content of future energy
policy legislation and the significance of such legislation to Eastern Edison.
Various issues not addressed by the 1992 Energy Act, including regional
planning and transmission arrangements, could be addressed in future
legislation.
Item 2. PROPERTIES
P1ower Supply
Montaup supplies Eastern Edison with nearly 100% of its electric
requirements and approximately 85% of the electric requirements of the EUA
System. In 1993 the EUA System's wholly owned generating units referred to in
the following table below consisted of Montaup's jet-fueled peaking units
(Somerset Jet 1 and Jet 2) and Somerset Unit 6 which was converted from oil to
coal burning in 1983, Blackstone's Pawtucket Hydro, which was repowered in 1985
and Newport's diesel peaking units (Jepson in Jamestown and Eldred in
Portsmouth) which supplied the EUA System with 8 MW and 8.25 MW, respectively.
With the exception of Somerset's Jet 1 and Jet 2, Montaup has not significantly
increased its wholly owned generating units since 1959. The EUA System has
found it more economical to join with other utilities in the joint ownership of
large generating units and in long-term purchase contracts, and to supplement
these sources with short-term purchases as required. EUA believes that
spreading the EUA System's sources of electricity among a number of plants
should improve the reliability of its power supply and limit the financial
exposure relating to construction and potentially prolonged outages of a
generating unit. Under the Eastern Edison/Request for Proposal process,
Montaup negotiated a purchase power contract with Meridian Middleboro
Corporation for approximately 44 MW of capacity. The proposed facility will be
a combined cycle unit. Its primary source of fuel will be natural gas and
secondary source of fuel will be No. 2 fuel oil. The contract is estimated to
be in effect at the beginning of the year 2001.
On January 25, 1994, the generating Unit No. 5 at Somerset Station was
placed in deactivated reserve. The 69 MW, 42 year old unit had been out of
service for 5 months because of mechanical problems. An assessment of the cost
and feasibility of repairing and refurbishing the unit to meet reliability
standards and Clean Air Act Amendments regulations concluded that rebuilding
the unit would not be economical. Current forecasts indicate that with a
combination of company owned generation, current long-term purchased power
contracts, expected short-term power opportunities, and Montaup's C&LM
programs, no additional capacity requirements will be needed through the year
1999.
In 1993, Montaup recovered through rates approximately $13.5 million for
its C&LM programs. C&LM is designed to (i) decrease existing energy demand and
(ii) offset future load growth through conservation incentives, thereby
minimizing future need for large capital investment in generating facilities.
The peak EUA System demand experienced in 1993 was approximately 854 MW on
August 27, 1993. The all time EUA System peak demand experienced to date was
approximately 879 MW, experienced on July 19, 1991.
EUA SYSTEM CAPABILITY
GENERATING UNITS IN SERVICE AS OF DECEMBER 31, 1993
GROSS WINTER MAX GROSS NET
IN SYSTEM CLAIMED SYSTEM UNIT SYSTEM
SERVICE SHARE CAPABILITY SHARE SALES SHARE
DATE UNIT NAME FUEL TYPE OWNER/OPERATOR % MW MW MW MW
100% OWNERSHIP:
1951 SOMERSET 1 COAL MONTAUP ELECTRIC CO. 100.00 68.93 68.93 0.00 68.93
1959 SOMERSET 6 COAL MONTAUP ELECTRIC CO. 100.00 107.00 107.00 0.00 107.00
1970 SOMERSET J1 JET OIL MONTAUP ELECTRIC CO. 100.00 25.50 25.50 0.00 25.50
1971 SOMERSET J2 JET OIL MONTAUP ELECTRIC CO. 100.00 23.00 23.00 0.00 23.00
1985 PAWTUCKET HYDRO HYDRO BLACKSTONE VALLEY ELEC. 100.00 1.24 1.24 0.00 1.24
1961 JEPSON DIESEL NEWPORT ELECTRIC CORP. 100.00 8.00 8.00 0.00 8.00
1978 ELDRED DIESEL NEWPORT ELECTRIC CORP. 100.00 8.25 8.25 0.00 8.25
SUBTOTAL: 242 0.00 241.92
JOINT OWNERSHIP:
1976 CANAL 2 NO. 6 OIL CANAL ELECTRIC COMPANY 50.00 584.00 292.00 85.00 207.00
1978 WYMAN 4 (YAR 4) NO. 6 OIL CENTRAL MAINE POWER CO. 2.63 (1) 619.25 16.28 0.00 16.28
1986 MILLSTONE 3 NUCLEAR NORTHEAST UTILITIES 4.01 1148.70 46.05 0.00 46.05
1990 SEABROOK NUCLEAR NORTH ATLANTIC ENERGY CORP. 2.90 1150.00 33.35 0.00 33.35
SUBTOTAL: 388 85.00 302.68
EQUITY OWNERSHIP:
1968 CONN. YANKEE NUCLEAR CONN. YANKEE ATOMIC POWER 4.50 583.20 26.24 0.00 26.24
1972 MAINE YANKEE NUCLEAR MAINE YANKEE ATOMIC POWER 3.59 880.00 31.61 0.00 31.61
1972 VERMONT YANKEE NUCLEAR VT. YANKEE NUCLEAR POWER 2.25 519.33 11.68 0.00 11.68
SUBTOTAL: 69.53 0.00 69.53
PURCHASED POWER:
1968 CANAL1 NO. 6 OIL CANAL ELECTRIC COMPANY 25.00 (2) 572.00 143.00 0.00 143.00
1972 PILGRIM 1 NUCLEAR BOSTON EDISON COMPANY 11.00 (2) 670.00 73.70 0.00 73.70
1977 POTTER 2 GAS/OIL BRAINTREE ELEC. LIGHT DEPT. 41.67 (2) 96.00 40.00 0.00 40.00
1975 CLEARY 9 GAS/OIL TAUNTON MUNIC. LIGHTING 13.64 (2) 110.00 15.00 0.00 15.00
1982 STONY BROOK 2A NO.2 OIL MASS. MUNIC. WHOLESALE CO. 32.35 85.00 27.50 0.00 27.50
1986 STONY BROOK 2B NO.2 OIL MASS. MUNIC. WHOLESALE CO. 32.35 85.00 27.50 0.00 27.50
1984 MCNEIL WOOD VERMONT ELECTRIC POWER 15.24 (3) 53.00 8.08 0.00 8.08
1978 WYMAN 4 NO. 6 OIL CENTRAL MAINE POWER 0.81 (3) 619.25 5.00 0.00 5.00
1972 SALEM HBR 4 NO. 6 OIL NEW ENGLAND POWER 1.25 (3) 400.00 5.00 0.00 5.00
1974 BRAYTON 4 NO. 6 OIL NEW ENGLAND POWER 1.13 (3) 442.00 5.00 0.00 5.00
1990 OSP 1 GAS OCEAN STATE POWER 28.00 (4) 281.00 78.68 0.00 78.68
1991 OSP 2 GAS OCEAN STATE POWER 28.00 (4) 281.00 78.68 0.00 78.68
1991 NEA GAS NORTHEAST ENERGY ASSOC. 8.62 334.38 28.83 0.00 28.83
NU SLICE-EUA
1970 SMDW J11-J14 JET OIL NORTHEAST UTILITIES 0.98 195.60 1.91 0.00 1.91
1969 COS COB 10-12 JET OIL NORTHEAST UTILITIES 0.98 68.60 0.67 0.00 0.67
1971 MONTVILLE 6 NO. 6 OIL NORTHEAST UTILITIES 0.86 410.00 3.51 0.00 3.51
1964 MIDDLETOWN 3 NO. 6 OIL NORTHEAST UTILITIES 0.86 245.00 2.10 0.00 2.10
1973 MIDDLETOWN 4 NO. 6 OIL NORTHEAST UTILITIES 0.86 400.00 3.42 0.00 3.42
1960 NORWALK HBR 1 NO. 6 OIL NORTHEAST UTILITIES 0.86 164.00 1.40 0.00 1.40
1963 NORWALK HBR 2 NO. 6 OIL NORTHEAST UTILITIES 0.86 172.00 1.47 0.00 1.47
1970 MILLSTONE 1 NUCLEAR NORTHEAST UTILITIES 0.65 647.70 4.22 0.00 4.22
1975 MILLSTONE 2 NUCLEAR NORTHEAST UTILITIES 0.49 874.50 4.32 0.00 4.32
1986 MILLSTONE 3 NUCLEAR NORTHEAST UTILITIES 0.61 1148.70 6.97 0.00 6.97
1972 NFLD G 1-4 PUMPED HYDRO NORTHEAST UTILITIES 0.99 1080.00 10.72 0.00 10.72
SUBTOTAL: 576.68 0.00 576.68
HYDRO QUEBEC ENTITLEMENT:
1991 HYDRO QUEBEC I&II HYDRO HQ / NEPOOL 4.06 (5) 1215.00 49.31 0.00 49.31
SUBTOTAL: 49.31 0.00 49.31
TOTAL GROSS SYSTEM CAPABILITY (MW) --------------------- 1325.12 (6)
LESS: UNIT CONTRACT SALES (MW) --------------------------- 85.00
TOTAL NET SYSTEM CAPABILITY (MW) -------------------------- 1240.12 (6)
NOTES (1) REPRESENTS MONTAUP JOINT OWNERSHIP SHARE OF 1.9618% AND NEWPORT JOINT OWNERSHIP OF .6666%.
(2) "LIFE OF UNIT" PURCHASE CONTRACT.
(3) PURCHASED POWER OF NEWPORT.
(4) FOR EACH UNIT, MONTAUP IS A POWER PURCHASER WITH 22% ENTITLEMENT AND NEWPORT IS A POWER PURCHASER
WITH 6% ENTITLEMENT. (EUA OCEAN STATE HOLDS A 29.9% EQUITY INTEREST IN OCEAN STATE POWER PARTNERSHIP.)
(5) ENTITLEMENT % IS WEIGHTED AVERAGE OF PHASE I & II SHARES (40% PHASE I (4.01987%); 60% PHASE II (4.0842%)).
(6) TOTAL CAPABILITY INCLUDES SOMERSET 5 (68.93 MW) WHICH WAS PLACED ON DEACTIVATED RESERVE ON
JANUARY 25, 1994.
Montaup's participation in generating units of which it is not the sole
owner takes various forms including stock (equity) ownership, joint ownership
and purchase contracts. In most cases (other than short-term purchased power
contracts) the purchaser is required to pay its share (i.e., the same
percentage as the percentage of its entitlement to the output) of all of the
costs of the generating unit (whether or not the unit is operating) including
fixed costs, operating costs, costs of additional construction or modification,
costs associated with condemnation, shutdown, retirement, or decommissioning of
the unit, and certain transmission charges. Under its contracts with Maine
Yankee, Connecticut Yankee Atomic Power Company, Vermont Yankee Nuclear Power
Corporation and Yankee Atomic and, under its agreements relating to Phase II of
the interconnection with Hydro-Quebec, Montaup may be called upon to provide
additional capital and/or other types of direct or indirect financial support.
(See Item 1. BUSINESS -- Yankee Atomic)
Other Property
Eastern Edison and Montaup own approximately 3,100 miles of transmission
and distribution lines and approximately 58 substations located in the cities
and towns served.
In addition to the above, Eastern Edison and Montaup also own several
buildings which house distribution, maintenance or general office personnel.
See Note F of Notes to Consolidated Financial Statements regarding encum
brances.
Item 3. LEGAL PROCEEDINGS
Rate Proceedings
See descriptions of proceedings under Item 1, BUSINESS -- Rates.
Environmental Proceedings
1. Montaup and EUA Service received a Notice of Responsibility on July
27, 1987 from the DEP for suspected hazardous material at a site owned by
Montaup on Hortonville Road in Swansea, Massachusetts. EUA Service has
contracted for and received an environmental site assessment for the property,
identifying the previous property owner as the party likely responsible for the
deposit of suspected hazardous waste materials on the site. This assessment
has been submitted to the DEP, identifying the previous property owner. Under
MCP regulations, Montaup must take the initiative to complete investigative and
remedial actions by August 1997.
2. During March-April 1990, Eastern Edison conducted a limited
environmental investigation (Phase I study) of a portion of its Dupont
Substation in Brockton, Massachusetts. During the investigation, Eastern
Edison notified the DEP that it had encountered oils and PCBs. On May 3, 1990,
the DEP notified Eastern Edison of its liability for releases of oil and/or
hazardous materials at the site, and requested a copy of the Phase I study.
Following its review of the Phase I study on January 23, 1991, the DEP issued a
Notice of Responsibility to Eastern Edison requiring a Phase II - Comprehensive
Site Investigation. On February 12, 1991, Eastern Edison notified the DEP that
it will perform the Phase II study and continue to work with DEP at this site.
A scope of work for the Phase II study was submitted on April 12, 1991.
Eastern Edison will proceed once the DEP approves the scope of work. Under the
new MCP, the DEP must classify this site before Eastern Edison can proceed with
further studies. A Phase II study and a site ranking may be required by July
1995.
Eastern Edison and Montaup are unable to predict the outcome of any of the
foregoing environmental matters or to estimate the potential costs which may
ultimately result. It is the policy of these companies in such cases to
provide notice to liability insurers and to make claims. However, at this
time, no claims have been filed against any insurer and it is not possible at
this time to predict whether liability, if any, will be assumed by, or can be
enforced against, the insurance carrier in these matters. Under CERCLA, each
responsible party can be held "jointly and severally" liable for clean-up
costs. Eastern Edison and Montaup could thus be held fully liable for
environmental damages for which they were only partially responsible. However,
Eastern Edison and Montaup might then be entitled to recover costs from other
PRPs.
As of December 31, 1993, Eastern Edison and Montaup have incurred costs of
approximately $108,000 in connection with the foregoing environmental matters
and estimate that additional expenditures may be incurred through 1994 up to
$850,000.
As a general matter Eastern Edison and Montaup will seek to recover costs
relating to environmental proceedings in their rates, although there is no
assurance that they will be authorized to recover any particular cost. Montaup
is currently recovering certain of the incurred costs in its rates. Estimated
amounts after 1995 are not now determinable since site studies which are the
basis of these estimates have not been completed. As a result of the
recoverability in current rates, and the uncertainty regarding both its
estimated liability, as well as potential contributions from insurance carriers
and other responsible parties Eastern Edison and Montaup do not believe that
the ultimate impact of the environmental costs will be material to either of
them and thus, no loss accrual has been recorded.
Other_Proceedings
In December 1992, Montaup commenced a declaratory judgment action in which
it sought to have the Massachusetts Superior Court determine its rights under
the Power Purchase Agreement between it and Aquidneck Power Limited Partnership
(Aquidneck). Montaup sought a declaration that the Power Purchase Agreement
was binding on the parties according to its terms. Aquidneck asserted that
Montaup had either an express or implied obligation to negotiate new terms and
conditions to the Power Purchase Agreement. Specifically, the defendants
sought to amend, through negotiations, certain milestone events to which they
were bound in the Power Purchase Agreement as written. Aquidneck failed to
meet the first milestone of January 1, 1993. Accordingly, on January 5, 1993,
Montaup exercised its rights to terminate the Power Purchase Agreement
effective immediately. In January 1994, a counterclaim by Aquidneck claimed
certain breaches of the Power Purchase Agreement, including an alleged failure
on the part of Montaup to renegotiate the terms and conditions of the Power
Purchase Agreement relating to the first milestone event. Also in January
1994, Aquidneck sought to join EUA and EUA Service as parties to the suit.
Aquidneck apparently claims $11 million of damages on the theory that EUA
can "avoid an approximately $11 million obligation to purchase capacity and
power which it does not currently need." Aquidneck seeks treble damages
claiming Montaup, EUA and EUA Service violated state laws willfully and
knowingly.
Montaup, EUA and EUA Service intend to defend the counterclaim vigorously
and believe that Aquidneck's claims have no basis in law.
On June 30, 1987, the MDPU commenced a proceeding for the purpose of inves
tigating Eastern Edison's power planning process after rejecting a proposed
Purchased Capacity Adjustment Clause. One of the purposes of this proceeding
is to investigate the prudency of Eastern Edison's all requirements contract
with Montaup. No procedural dates have been set nor has any other activity
occurred in this docket. Eastern Edison cannot predict the outcome of this
matter at this time.
On January 8, 1992, the Massachusetts Municipal Wholesale Electric
Cooperative and its member municipalities, all of which are members of NEPOOL,
filed a suit in Massachusetts Superior Court against the investor-owned
utilities that are also members of NEPOOL. The suit alleges damages by
NEPOOL's establishment of minimum size requirements for generating units
designated as pool-planned generating units. The suit names as defendants
members of NEPOOL, including Blackstone, Eastern Edison, Montaup and Newport
(NEPOOL members of the EUA System). Discovery has not begun, pending
resolution of certain procedural matters. FERC, initiated an action when the
EUA subsidiaries and other participants filed and amendment to the NEPOOL
Agreement with the FERC that concerns many of the issues raised in the
Massachusetts litigation. The plaintiffs in the Massachusetts litigation, and
one other participant have objected to the amendment, and have sought tot
prevent or delay its effectiveness. The FERC has not yet determined whether or
when it will hold hearings on this matter. Management cannot predict the
ultimate outcome of this proceeding at this time.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART_II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of Eastern Edison's common stock is owned beneficially and of record
by EUA.
The dividends paid on Eastern Edison's common stock during the past two
years are as follows:
Dividends Paid Dividends Paid
1993 Per Share 1992 Per Share
-------------- --------------
First Quarter $1.91 First Quarter $1.55
Second Quarter 1.93 Second Quarter 1.72
Third Quarter 1.96 Third Quarter 1.70
Fourth Quarter 2.77 Fourth Quarter 1.77
No dividends may be paid on Eastern Edison's common stock unless full
dividends on Eastern Edison's outstanding Preferred Stock for all past and the
current quarterly dividend periods have been paid or declared and set apart for
payment, nor may any dividends be paid on Eastern Edison's common stock if
Eastern Edison is in default on any sinking fund obligation provided for its
Preferred Stock. See also Notes C, D and E of Notes to Consolidated Financial
Statements.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
________For_the_Years_ended_December_31,________
1993 1992 1991 1990 1989
(In Thousands)
_________________________________________________________ _____
Operating Revenues (1) $417,021 $420,188 $414,609 $375,573 $385,667
Consolidated Net Earnings 28,145 29,231 23,763 24,083 31,258
Total Assets 742,273 776,510 785,365 770,640 717,980
Capitalization:
Long-Term Debt - Net 264,134 269,995 304,991 319,986 269,982
Redeemable Preferred Stock Net 24,824 28,171 29,558 34,012 34,612
Non-Redeemable Preferred
Stock 8,949 8,949 8,949 8,949
Common Equity _223,005 220,257 _211,126 _203,879 _212,526
Total Capitalization $511,963 $527,372 $554,624 $566,826 $526,069
======== ======= ======== ======== ========
Short-Term Debt $______0 $______0 $______0 $______0 $_43,882
(1) Certain amounts in 1990 and 1989 have been reclassified to conform with
current presentations.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND REVIEW
OF OPERATIONS
Overview
Consolidated Net Earnings for 1993 were $28.1 million as compared to $29.2
million for 1992, a decrease of $1.1 million. Retail sales increased by 2.2%
as sales to residential and industrial customers grew by 3.3% and 5.8%,
respectively, indicating that the region's economy may be starting to recover
from its recession. The positive impacts of: (i) growth in kWh sales, (ii) a
rate increase granted Eastern Edison effective in mid-January 1993, (iii)
interest savings from Eastern Edison's refinancings and, (iiii) a decrease in
direct controllable operation and maintenance expenses did not entirely offset
the negative impact of increases in indirect operations and maintenance
expenses on Consolidated Net Earnings.
Consolidated Net Earnings for 1992 were $29.2 million as compared to $23.8
million for 1991. The 1992 results were positively impacted by the following
factors: (i) a rate increase granted to Montaup effective May 7, 1991; (ii) a
reduction in operating expenses (discussed below); and, (iii) increased retail
kWh sales in 1992 compared to 1991 levels. Retail sales increased by 0.9% as
sales to industrial and commercial customers grew by 2.6% and 1.3%,
respectively. In response to the continuing weak economic conditions in the
Northeast, Eastern Edison and Montaup exercised cost control measures and
during the year Eastern Edison received authorization to increase rates by $8.1
million effective January 1993.
Comparison of Financial Results
Operating Revenues
Operating Revenues for 1993 decreased $3.2 million as compared to 1992.
Revenues attributable to the recovery of fuel expense declined $11.2 million
primarily as a result of outages of company-owned units and reduced fuel costs.
Also, other operating revenues, primarily of Montaup, decreased $0.9 million.
Offsetting these decreases somewhat were: (i) increased base revenues
aggregating approximately $5.0 million related to the Company's rate increase
in January 1993; (ii) increased recoveries of purchased power expense and
Conservation and Load Management (C&LM) expenses aggregating approximately $3.9
million and, (iii) increased kWh sales (see Expenses below).
Operating Revenues for 1992 increased $5.6 million as compared to 1991.
The increase is due primarily to an increase of $5.7 million in purchased power
expense recovery for the period along with a $2.1 million increase relating to
Montaup's rate increase of May 1991 and increased kWh sales in 1992. These
increases were partially offset by lower fuel recoveries of $1.6 million.
Expenses
1993 vs. 1992
The Company's most significant expense items continue to be Fuel and
Purchased Power-Demand which comprised 57% of Total Operating expenses in
1993. Fuel expense decreased approximately $11.5 million or 11.9%, from 1992,
due largely to a decrease in total generation resulting from outages
experienced by company-owned units. Canal Unit 2, which is 50% owned by
Montaup, began a scheduled outage on February 13, 1993, and returned to service
on April 5, 1993 while Somerset Unit No. 6, a wholly owned unit of Montaup, was
out of service for most of 1993 due to unanticipated waterwall restoration.
Offsetting these impacts on fuel expense somewhat was a 3.7% decrease of
Montaup's average cost of fuel for the period.
Purchased Power expense decreased $1.8 million or 1.4% as compared to
1992. The decrease was caused primarily by a $3.8 million decrease in C&LM
expense recorded as purchase power. Offsetting these decreases somewhat was
the increased costs of $1.6 million billed by Montaup's suppliers.
Other Operation and Maintenance expenses are comprised of two components,
Direct Controllable and Indirect. Direct Controllable expenses include expense
items such as salaries, fringe benefits, insurance, maintenance, etc. Indirect
expenses include items over which the Company has limited short-term control
and include such expense items as Montaup's joint ownership interests in
generating facilities such as Seabrook Unit 1 and Millstone Unit 3, power
contracts where transmission rental fees are fixed, conservation and load
management expenses that are fully recovered in revenues and expenses related
to new accounting standards such as FAS87 and FAS106, to name a few.
Total Other Operation and Maintenance expense increased $8.8 million or
12.2% in 1993 when compared to the same period of 1992. The increase reflects
the increases in direct expenses including (i) an increase of $3.9 million in
maintenance expenses of jointly owned units of Montaup; (ii) an increase of
$4.1 million in C&LM expenses; (iii) an increase of $2.2 million due to
expenses relating to the Company's adoption of the FASB Statement No. 106,
"Accounting for Post Retirement Benefits"; and, (iv) an increase of $0.4
million related to a pension accrual. The above increases were partially offset
by a reduction in direct controllable expenses resulting from by the Company's
strict attention to cost control.
AFUDC represents a non-cash element of income and was only 2.4% of 1993
Consolidated Net Earnings. Total AFUDC in 1993 decreased $273,000 from 1992
due primarily to lower AFUDC rates used in 1993.
Other Income & (Deductions) - Net decreased $5.9 million or over 100% in
1993. The decrease is due primarily to the 1992 reversal of certain previously
established reserves relating to matters in litigation, the favorable
resolution of which was reached in 1992.
Interest Expense on long-term debt decreased by $4.9 million or 17.9% for
1993 as compared to 1992 primarily due to Eastern Edison's refinancing activity
more fully described under Financial Condition and Liquidity, below.
Other Interest Expense increased $1.6 million or over 100% in 1993 as
compared to 1992. The increase is primarily due to an increase in Eastern
Edison's amortization of debt expense of about $0.7 million and the allocation
of $0.4 million of EUA Service interest expense in 1993, previously included in
operating expense.
The Preferred Dividend requirement of the the Company decreased by
approximately $0.7 million or 19.6% in 1993 due to Eastern Edison's 1993
Preferred Stock financing activity. See Financial Condition and Liquidity,
below for further discussion.
Inflation continues to have an impact on the operations of Eastern Edison
and Montaup. At the federal level, wholesale rate-making practices permit a
forward-looking test period enabling anticipation of inflationary increases.
The MDPU's traditional use of historical test periods for Eastern Edison at the
state level is more limiting in this respect.
1992 vs. 1991
The Company's Fuel and Purchased Power-Demand expenses comprised 60% of
total operating expenses in 1992. For 1992, Fuel expense decreased $2.3
million or 2.3% as compared to 1991. The change is due primarily to the
offsetting effects of an increase in kWh requirements of 4.4% and significantly
greater use of less expensive gas fuel in 1992 resulting from a full year's
operation of OSP Unit II. Purchased Power-Demand expense did not change
significantly in 1992 vs. 1991.
Other Operation and Maintenance expense decreased $1.2 million or 1.3% in
1992 when compared to the same periods of 1991. The decrease reflects the
offsetting impact of a 1992 decrease in Eastern Edison amortization expenses
and increased legal expenses of Montaup. Certain previously deferred items of
Eastern Edison became fully amortized in December 1991. Effective cost control
measures by Eastern Edison and Montaup helped to defray the impact of inflation
on the Company.
AFUDC represents a non-cash element of income and was only 3.2% of 1992
Consolidated Net Earnings. Total AFUDC in 1992 decreased $590,000 from 1991
due primarily to lower AFUDC rates used in 1992.
Other Income & (Deductions) - Net increased $4.1 million or over 100% in
1992. This increase is explained by the net reduction of $6.2 million in the
level of reserves required to be established under Generally Accepted
Accounting Principles relating to certain matters in litigation, the favorable
resolution of which occurred in 1992. This increase was partially offset by a
reduction of $2.5 million in the amount of income tax credits allocated to this
account in 1991 as a result of the utilization of EUA Parent tax losses
incurred in 1991.
Interest Expense on long-term debt decreased by $2.6 million or 8.8% for
1992 as compared to 1991 primarily due to the redemption of $45 million First
Mortgage and Collateral Trust Bonds (FMBs) and the refinancing of the Company's
10% First Mortgage Bonds with lower cost debt. (See Financial Condition and
Liquidity, below).
Other Interest Expense increased $1.7 million or over 100% in 1992 as
compared to 1991. The increase is primarily due to a 1991 reversal of interest
previously accrued with respect to the proposed tax disallowance of the
Seabrook Unit 2 abandonment loss. (See Note J -- Commitments and Contingencies
- - Other for further details.)
Rate Activity
Montaup expects to file a rate reduction application with the Federal
Energy Regulatory Commission. This application will match more closely
Montaup's revenues with its decreasing cost of doing business resulting from,
among other things, a reduced rate base, lower capital costs and successful
cost control efforts. The application will also include a request for recovery
of all of Montaup's FAS106 expenses as provided in FERC's generic order of
December 1992. A decision on this application is expected during second half
of 1994.
Financial_Condition_and_Liquidity
Eastern Edison's and Montaup's need for permanent capital is primarily
related to the construction of facilities required to meet the needs of
existing and future customers. For 1993, 1992 and 1991, Eastern Edison's and
Montaup's cash construction expenditures were $22.6 million, $14.7 million and
$20.0 million, respectively.
Cash construction expenditures are expected to be approximately $36.0
million in 1994 and will aggregate approximately $104.3 million for the years
1995 through 1998.
In the utility industry, cash construction requirements not met with
internally generated funds are obtained through short-term borrowings which are
ultimately funded with permanent capital. EUA System companies including,
Eastern Edison and Montaup, maintain short-term lines of credit with various
banks aggregating approximately $140 million. These credit lines are available
to other affiliated companies under joint credit line arrangements. At
December 31, 1993, unused short-term lines of credit amounted to approximately
$103 million. At December 31, 1993, neither Eastern Edison nor Montaup had any
outstanding short-term debt. In 1993, internally generated funds amounted to
$39.4 million or in excess of 100% of the cash construction requirements.
In addition to construction expenditures, projected requirements for
maturing long-term debt securities through 1998 are: $35 million, $7 million,
and $60 million in 1995, 1996, and 1998, respectively. The Company has no
sinking fund requirements until the year 2003.
Financing Activity:
Preferred Equity:
Eastern Edison redeemed with available cash its 8.32% Series and 4.64%
Series non-redeemable preferred stock on June 1, 1993 and December 1, 1993,
respectively. In connection with these redemption, Eastern Edison incurred
premiums of approximately $106,000 related to the 8.32% Series and $179,000
related to the 4.64% Series. These amounts are included in Preferred Stock
Redemption Costs on the Consolidated Statement of Capitalization. Eastern
Edison will seek recovery of these amounts in its next rate proceeding.
On June 1, 1993, Eastern Edison used available cash to redeem all of its
9.00% Series Preferred Stock. In connection with this redemption, a premium of
approximately $850,500 was incurred and is included in Preferred Stock
Redemption Costs on the Consolidated Statement of Capitalization.
On August 11, 1993, Eastern Edison issued 300,000 shares of $100 par
value, 6-5/8% Preferred Stock. The proceeds were used to redeem its
outstanding 9.80% Series Preferred Stock and for other corporate purposes. In
connection with the 9.80% Series redemption, Eastern Edison incurred a premium
of approximately $1,352,000. This premium is also included in Preferred Stock
Redemption Costs on the Consolidated Statement of Capitalization. Eastern
Edison will seek recovery of these premiums in its next rate proceeding.
Debt:
In May 1993, Eastern Edison issued $100 million of First Mortgage Bonds
(FMBs) in the following denominations: (i) $20 million of 5-7/8% Bonds due May
1, 1998; (ii) $40 million of 6-7/8% Bonds due May 1, 2003; and (iii) $40
million of 8% Bonds due May 1, 2023. The proceeds were used to redeem FMBs of
Eastern Edison of $55 million of 9-5/8%, $35 million of 10-1/8% and $10 million
of 8-3/8%.
In June 1993, Eastern Edison used available cash to redeem $5 million of
8-3/8% FMBs.
In July 1993, Eastern Edison issued $40 million of 5-3/4% FMBs, proceeds
of which were used to redeem its $40 million of 9-7/8% FMBs in September 1993.
Eastern Edison redeemed in mid-August 1993 its $40 million of 10-1/8%
Pollution Control Revenue Bonds with the proceeds from the July issuance of $40
million of 5-7/8% Pollution Control Revenue Bonds.
In September 1993, Eastern Edison issued $8 million of 6.35% FMBs due
September 1, 2003 and $7 million of 4.875% FMBs due September 1, 1996. The
proceeds were used to redeem $8 million of 7-7/8% FMBs due 2002 and $7 million
of 6.5% FMBs due 1997.
In October 1993, the Company used available cash to retire $5 million of
4-1/2% FMBs at maturity.
Environmental Matters
The EPA, as well as state and local authorities, have jurisdiction over
releases of pollutants into the environment. They have broad authority to set
rules and regulations, including the required installation of pollution control
devices and remedial actions. The EPA has updated its clean air standards
regulating the emissions from utility power plants into the air to take effect
in 1995. Tests at Montaup's Somerset Station indicate that Unit No. 6 will be
able to utilize lower sulfur coal than is already being burned to meet the 1995
air standards with only a minimal capital investment. Montaup determined that
it would not be economical to repair Unit No. 5 of Somerset Station and has
placed it in deactivated reserve. (see Item 2. PROPERTIES).
In April 1992, the NESCAUM, an environmental advisory group for eight
Northeast states including Massachusetts and Rhode Island issued recommenda
tions for oxides of nitrogen controls for existing utility boilers required to
meet the ozone non-attainment requirements of the Clean Air Act. The NESCAUM
recommendations are more restrictive than the Clean Air Act requirements.
Massachusetts has issued new regulations to implement oxides of nitrogen
reduction requirements. The DEP has amended its regulations to require that
Reasonable Availably Control Technology (RACT) be implemented at all stationary
sources potentially emitting 50 tons or more per year of oxides of nitrogen.
Rhode Island has not yet issued regulations to implement oxides of nitrogen
reduction requirements. Montaup is in the process of reviewing compliance
strategies. Any compliance strategy may require the implementation of
additional pollution control technology as early as 1995. Montaup would seek
recovery of pollution control expenditures through rates.
Eastern Edison and Montaup are also parties to certain other environmental
proceedings. Management is unable to predict the outcome of any of these
environmental matters or to estimate the ultimate costs which may result. It
is the policy of these companies in such cases to provide notice to liability
insurers and to initiate claims. However, at this time no claims have been
filed against any insurer and it is not possible at this time to predict
whether liability, if any, will be assumed by, or can be enforced against, the
insurance carrier in these matters. As of December 31, 1993, Eastern Edison
and Montaup have incurred costs of approximately $108,000 in connection with
such environmental matters. It is estimated that additional costs of up to
$850,000 may be incurred through 1995. Montaup is currently recovering certain
of its incurred environmental costs in rates. As a result of the
recoverability in current rates of environmental costs, and the uncertainty
regarding both its estimated liability, as well as potential contributions from
insurance carriers, Eastern Edison and Montaup do not believe that the ultimate
impact of environmental costs will be material to either of them and thus, no
loss accrual has been recorded. (see Item 3. LEGAL PROCEEDINGS --
Environmental Proceedings).
A number of scientific studies in the past several years have examined the
possibility of health effects from EMF that are found wherever there is
electricity. While some of the studies have indicated there may be some
association between exposure to EMF and health effects, many others have
indicated no direct association. The research to date has not conclusively
established a direct causal relationship between EMF exposure and human
health. Additional studies, which are intended to provide a better
understanding of the subject, are continuing.
Some states have enacted regulations to limit the strength of EMF at the
edge of transmission line rights-of-way. Rhode Island has enacted a statute
which authorizes and directs the Rhode Island Energy Facilities Siting Board to
establish rules and/or regulations governing construction of high voltage
transmission lines of 69 KV or more. Various bills are pending in the
Massachusetts legislature that would require certain disclosures about the
potential health effects of EMF. Management cannot predict the impact which
legislation or other developments concerning EMF may have on Eastern Edison or
Montaup.
Change in Accounting Standards
The Company adopted FAS106, "Accounting for Post-Retirement Benefits Other
Than Pensions," as of January 1, 1993. This standard establishes accounting
and reporting standards for such post-retirement benefits as health care and
life insurance. FAS106 further requires the accrual of the cost of such
benefits during an employee's years of service and the recognition of the
actuarially determined total post-retirement benefit obligations (Transition
Obligation) earned by existing employees and retirees. Previously, Eastern
Edison followed the "pay-as-you-go" methodology of accounting for such costs.
The Company elected to recognize the Transition Obligation over a period of 20
years as permitted by FAS106. The resultant annual expense, including
amortization of the Transition Obligation and net of capitalized amounts, was
approximately $4.8 million in 1993. Regulatory decisions issued in December
1992 permitted Eastern Edison to recover through rates approximately $2.1
million of this amount in 1993 and Montaup was allowed to defer FAS106 related
costs through 1995 until it filed for recovery of such amounts prior to that
time. Accordingly approximately $1.4 million of FAS106-related costs were
deferred by Montaup in 1993. Montaup will request recovery of all of its
FAS106 expenses, including amortization of deferred amounts in its March 1994
rate application. Eastern Edison has also established an irrevocable external
Voluntary Employee Benefit Association (VEBA) Trust Fund as required by the
aforementioned regulatory decisions. Contributions to the fund began in March
1993 and totaled approximately $2.3 million were made during 1993.
Effective January 1993, Eastern Edison adopted the Financial Accounting
Standards Board (FASB) Statement No. 109, "Accounting for Income Taxes"
(FAS109), which essentially supersedes its Statement No. 96 (FAS96). As a
result of the adoption of FAS96 in 1990, FAS109 resulted only in the
reclassification of certain assets and liabilities and did not significantly
impact the Company.
In November 1992, FASB issued Statement No. 112, "Employers' Accounting
for Postemployment Benefits." EUA is required to adopt this standard no later
than January 1, 1994. The estimated impact of this standard on the Company is
immaterial and therefore it is anticipated that no liability will be recorded.
Other
On January 25, 1994, the generating Unit No. 5 at Somerset Station was
placed in deactivated reserve. The 69 MW, 42 year old unit had been out of
service for 5 months because of mechanical problems. An assessment of the cost
and feasibility of repairing and refurbishing the unit to meet reliability
standards and Clean Air Act Amendments regulations concluded that rebuilding
the unit would not be economical. Current forecasts indicate that with a
combination of company owned generation, current long-term purchased power
contracts, expected short-term power opportunities, and Montaup's C&LM
programs, no additional capacity requirements will be needed through the year
1999.
Montaup, as a 3.27% equity participant in two companies which built and
operate certain transmission interconnection facilities between the
Hydro-Quebec Electric System and New England has guaranteed approximately $6.0
million of their outstanding debt. In addition, Montaup has minimum rental
commitments under a non-cancellable transmission facilities support agreement
for years subsequent to 1993 which total approximately $14.3 million.
Montaup is recovering through rates its share of estimated decommissioning
costs for Millstone Unit 3 and Seabrook Unit 1. Montaup's share of the current
estimate of total costs to decommission Millstone Unit 3 is $15.1 million in
1993 dollars, and Seabrook Unit 1 is $10.6 million in 1993 dollars. These
figures are based on studies performed by the lead owners of the plants. In
addition, Montaup pays into decommissioning reserves pursuant to contractual
arrangements with other nuclear generating facilities in which it has an equity
ownership interest or life-of-the-unit entitlement. Such expenses are
currently recovered through rates.
Montaup owns a 4.01% interest in Millstone Unit 3 and a 2.9% interest in
Seabrook Unit 1. Northeast Utilities, the operator of the units, indicates
that Millstone Unit 3 has sufficient on-site storage facilities to accommodate
high-level wastes and spent fuel for the projected life of the units. Only
minimal capital expenditures are projected for the foreseeable future.
Similarly, at the Seabrook Project there is on-site storage capacity which,
with minimal capital expenditures, should be sufficient for twenty years or
until the year 2010. No near-term capital expenditures are anticipated to
accommodate an increase in storage requirements after 2010.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this
report under Item 14(a)(1).
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
(a), (b), (c), (d) and (e) The names, ages and positions of all of the
directors and executive officers of Eastern Edison as of March 17, 1994 are
listed below with their business experience during the past five years. The
directors, Treasurer and Clerk of Eastern Edison are each elected to serve
until the next annual stockholders' meeting. All other officers are elected to
serve until the next meeting of directors following the annual stockholders'
meeting. There is no family relationship between any of the directors or
officers of Eastern Edison. Messrs. Pardus and Stevens are Trustees of EUA.
Name, Age Business Experience
and_Position During_Past_5_Years
Elizabeth J. Alden, 40 President, Alden Products Company. Director since
Director June 1993.
Richard M. Burns, 56 Vice President, Assistant Treasurer and Assistant
Vice President (1) Clerk since April 1986; Comptroller of parent
since 1976, Assistant Secretary of parent since
1978 and Assistant Treasurer of parent since
April 1986; responsible primarily for the
accounting affairs of Eastern Edison.
John D. Carney, 49 President and Director since January 1990; Vice
Director and President from April 1986 to December 1989;
President (2) responsible for the day-to-day activities of the
Company.
Robert W. Giggey, 58 Chairman and CEO of Innovative Medical Inc.,
Director President of Deknatel, Inc., previously a
Division of Pfizer Hospital Products Group, Inc.
from January 1987 to October 1993; Director
since January 1991.
Barbara A. Hassan, 44 Vice President since January 1990; prior to that
Vice President she was both Director and Manager of Customer
Service for the EUA System since January 1985;
responsible for the operation and maintenance of
the transmission and distribution facilities of
the Company.
Arthur A. Hatch, 63 Executive Vice President and Director since
Director and Executive January 1990; Executive Vice President of
Vice President (3) parent since January 1990; President of Eastern
Edison from June 1986 to December 1989;
responsible for power supply, purchasing
management, engineering and operations of the
transmission and distribution facilities of the
EUA System.
Clifford J. Hebert, Jr., 46 Treasurer since April 1986; Treasurer of parent
Treasurer(4) since April 1986; responsible for financial and
treasury activities of the EUA System.
Robert W. Lavoie, 56 Vice President since March 1987; responsible for
credit, meter reading and consumer services
activities of the company.
William F. O'Connor, 54 Clerk since 1974; Secretary of parent since 1971;
Clerk (5) responsible primarily for the corporate affairs
of Eastern Edison.
Donald G. Pardus, 53 Chairman of the Board since July 1989; Vice Chair-
Director and man of the Board from January 1986 to July 1989;
Chairman of the Board (6) Chairman of parent since July 1990; President of
parent from December 1985 to June 1990; Chief
Executive Officer of parent since April 1989;
Chief Operating Officer of parent from January
1988 to April 1989; responsible for the overall
management of the EUA System; Director since
1979.
Robert G. Powderly, 46 Executive Vice President since March 1992;
Director and Executive President of Newport from March 1990 to April
Vice President (7) 1992; prior to that time he was a Vice
President of EUA Service for more than five
years; responsible for the corporate
communications, information systems and rate
activities of the EUA System; Director since
March 1992.
Donald H. Ramsbottom, 64 Executive Director, University of Massachusetts
Director Dartmouth Foundation since April 1991; Vice
President of The First National Bank of Boston
from 1987 to January 1991; Director since
January 1982.
John R. Stevens, 53 Vice Chairman of the Board since July 1989; Exec-
Director and Vice utive Vice President from July 1987 to July
Chairman of the Board (8) 1989; President of parent since July 1990; Chief
Operating Officer of parent since January 1990;
Executive Vice President of parent from June
1987 to December 1989; responsible for retail
operations and new ventures of the EUA System;
Director since July 1987.
_________________
(1) Comptroller, Assistant Treasurer and Assistant Secretary of EUA; Vice
President, Comptroller, Assistant Treasurer, Assistant Clerk/Secretary and
Director of EUA Service; Vice President, Assistant Treasurer and Assistant
Secretary of Blackstone; Vice President, Assistant Treasurer, Assistant
Clerk and Director of Montaup and EUA Energy; Comptroller, Assistant
Treasurer and Director of EUA Cogenex; Assistant Treasurer of EUA Ocean
State; Vice President and Assistant Treasurer of Newport.
(2) Vice President and Director of EUA Service and Montaup.
(3) Executive Vice President of EUA; Executive Vice President and Director of
Blackstone, EUA Cogenex, EUA Energy, EUA Ocean State, EUA Service, Montaup
and Newport.
(4) Treasurer of EUA, EUA Service, Blackstone, Montaup, EUA Energy, EUA Ocean
State and Newport; Treasurer and Assistant Clerk/Secretary of EUA Cogenex.
(5) Secretary of EUA; Vice President, Secretary, Clerk and Director of EUA
Service; Clerk and Director of EUA Cogenex, EUA Energy and Montaup;
Secretary/Clerk of Blackstone, EUA Ocean State and Newport.
(6) Chairman, Trustee, and Chief Executive Officer of EUA; Chairman and
Director of Blackstone, EUA Cogenex, EUA Energy, EUA Ocean State, EUA
Power, EUA Service, Montaup, and Newport.
(7) Executive Vice President of EUA; Executive Vice President and Director of
Blackstone, EUA Cogenex, EUA Energy, EUA Ocean State, EUA Service and
Newport.
(8) President, Trustee and Chief Operating Officer of EUA; Vice Chairman and
Director of Blackstone, EUA Cogenex and Newport; President and Director of
EUA Energy, EUA Ocean State, EUA Service and Montaup.
(f) Except as described below, there have been no events under any
bankruptcy act, no criminal proceedings and no judgements or injunctions
material to the evaluation of the ability and integrity of any director or
executive officer during the past five years.
On February 28, 1991, EUA Power (now Great Bay Power Corporation), filed a
voluntary petition with the federal Bankruptcy Court for protection under
Chapter 11 of the federal Bankruptcy Code. EUA Power, a wholly owned
subsidiary of EUA prior to February 5, 1993, the date it redeemed all of its
equity securities held by EUA, was organized solely for the purpose of
acquiring an interest in the Seabrook Project and selling in the wholesale
market its share of electricity generated by the project.
Messrs. Burns, Hatch, Hebert, O'Connor, Pardus and Stevens, who have been
officers or directors of EUA Power within the last two years, resigned their
positions effective December 30, 1992, with the exception of Mr. Stevens who
remains the sole officer and director of Great Bay Power Corporation. Mr.
Stevens serves at the request, and subject to the discretion of the officially
appointed committee representing the holders of outstanding EUA Power Secured
Notes.
Item 11. EXECUTIVE COMPENSATION
Information is set out below as to cash compensation paid by Eastern
Edison during the year 1993 to each executive officer of Eastern Edison whose
aggregate cash compensation for the year exceeded $100,000.
Long-Term All
Compensation Other
Name and Annual Compensation Restricted Compen-
Principal Fiscal Incentive Stock sation
Position Year Salary Bonus Other(1) Awards(2)
(3)
John D. Carney 1993 $134,025 $38,867 $6,618 $ - $3,015
President 1992 126,025 24,003 3,443 60,616 2,520
1991 113,025 10,170 - - -
Barbara A. Hassan 1993 101,025 23,343 - - 2,272
Vice President 1992 91,025 11,557 - - 1,668
1991 84,025 5,040 - - -
Robert W. Lavoie 1993 100,758 21,352 - - 2,269
Vice President 1992 94,925 12,179 - - 1,898
1991 88,942 5,934 - - -
___________________
(1) Represents amounts reimbursed for the tax liability accruing as a result
of the personal use of a company-owned automobile.
(2) Aggregate amount and value (including the value reflected in the table
under "Restricted Stock Awards") of shares granted under EUA's Restricted
Stock Plan to the officers listed above is as follows: Mr. Carney 3,725
shares, $84,286. Dividends are paid on these shares.
(3) Contributions made under the Employees' Savings Plan.
The Employees' Retirement Plan of Eastern Utilities Associates and its
subsidiary companies (Plan) is a tax-qualified defined benefit plan available
to employees who have completed one year of service and have attained the age
of twenty-one. The officers named in the compensation table above participate
in the Plan. Directors of Eastern Edison who are not also employees of the EUA
System are not covered by the Plan. The benefits of participants become fully
vested after five years of service. Annual lifetime benefits are determined
under formulas applicable to all employees regardless of position and the
amounts depend on length of credited service and salaries prior to retirement.
Benefits are equal to one and six tenths percent of salaries (averaged over the
four years preceding retirement) for each year of credited service up to
thirty-five, reduced for each year by one and two tenths percent of the
participant's estimated age sixty-five Social Security benefit, plus
seventy-five hundredths percent of salaries for each year of credited service
in excess of thirty-five years up to the Plan maximum of forty years.
Any contributions to provide benefits under the Plan are made by the EUA
System in amounts determined by the Plan's actuaries to meet the funding stand
ards established by the Employee Retirement Income Security Act of 1974. These
contributions are actuarially determined and cannot appropriately be allocated
to individual participants. The annual benefits shown in the table below are
straight life annuity amounts, without reduction for primary Social Security
benefits as described above. Federal law limits the annual benefits payable
from qualified pension plans in the form of a life annuity, after reduction for
Social Security benefits, to $115,641 plus adjustments for increases in the
cost of living. The number of years of service credited at present under the
Plan to Mr. Carney, Ms. Hassan and Mr. Lavoie is twenty-seven, thirty-two and
twenty-three, respectively.
Average Annual _____________________Years_of_Service______________________
____Salary____ ___15___ ___20___ ___25___ ___30___ ___35___ ___40___
$ 50,000 $ 12,000 $ 16,000 $ 20,000 $ 24,000 $ 28,000 $ 29,875
100,000 24,000 32,000 40,000 48,000 56,000 59,750
150,000 36,000 48,000 60,000 72,000 84,000 89,625
200,000 48,000 64,000 80,000 96,000 112,000 119,500
250,000 60,000 80,000 100,000 120,000 140,000 149,375
Mr. Carney is a participant in a non-qualified supplemental retirement
plan for certain officers of the EUA System. The plan provides for the annual
payment of supplemental retirement benefits equal to 25% of the officer's base
salary when he retires, for a period of fifteen (15) years following the date
of retirement. In addition, in the event of the death of the participant prior
to retirement an amount equal to 200% of the officer's base salary at that time
will be paid to his beneficiary. Eastern Edison, through its affiliate, EUA
Service, maintains life insurance on the participants to fund, in whole or in
part, its future liabilities under the plan, and that corporation is the owner
and beneficiary of such life insurance. Any amounts not covered by insurance
will be paid out of other funds available to Eastern Edison. In the event of a
change in control of the Company, a trust fund will be established by the
Company to ensure the performance of its payment obligations under the
supplemental retirement plan.
The EUA System maintains a non-qualified, unfunded Retirement and Savings
Restoration Plan (The Restoration Plan). The purpose of the Restoration Plan
is to restore benefits under the qualified Plans' formulas which can not be
paid from, or into, the qualified plan trusts due to federal limitations on
either earnings, contributions or benefits. Payments or contributions which
exceed the applicable federal limitations are made outside the qualified plans
in the same manner and under the same conditions as are applicable to benefits
payable from, or contributions payable to, the qualified plans. In the event
of a change of control of the Association, a trust fund will be established by
the Association to ensure the performance of its payment obligations under the
Restoration Plan.
Severance agreements with certain officers of the EUA System provide that
an officer's stipulated compensation, benefits, position, responsibilities and
other conditions of employment will not be reduced during the term of the
agreement, which is thirty-six months commencing upon the date on which a
Change in Control, as defined in the agreements, of the Company. If within
thirty-six months after a Change in Control the officer's employment is
terminated for any reason other than Cause, as defined in the agreements, the
Company will, subject to certain limitations to comply with provisions of the
Internal Revenue Code, pay the officer within five business days a lump-sum
cash amount equal to three times the present value of such officer's annualized
total compensation, continue or vest certain fringe benefits and common share
grants, and reimburse legal fees and expenses incurred as a result of the
termination or to enforce the provisions of the severance agreement. If the
officer leaves the employ of the Company following a reduction in his position,
compensation, responsibilities, authority or other benefits existing prior to
the Change in Control, or suffers a relocation of regular employment of more
than fifty miles, such departure will be deemed to be a termination for reasons
other than Cause.
Each non-management director of Eastern Edison receives, as a standard
arrangement, compensation in the amount of $600 for each directors' meeting
attended and additional compensation for all services as a director in the
amount of $4,000 annually.
Compensation Committee Interlocks and Insider Participation:
John D. Carney, President and a Director of the Registrant, participated
in deliberations concerning the compensation of executive officers other than
himself.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners.
Amount (number of
Name and Address of shares) and Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Class
Common Stock Eastern Utilities 2,891,357* 100%
$25 par value, Associates
of Eastern One Liberty Square
Edison Boston, Massachusetts
_______________
*All shares, which are the only voting securities of Eastern Edison, are
registered in the name of the beneficial owner.
(b) Security ownership of management as of January 7, 1994.
Amount (number of
Name shares) and Nature of Percent of
Title_of_Class Beneficial_Owner Beneficial_Ownership_(1) Class
Common Shares, John D. Carney 387 Less than
$5 par value, 641 (3) one percent
of Eastern 3,725 (4) for each
Utilities Arthur A. Hatch 1,408 individual
Associates 244 (2)
1,832 (3)
5,433 (4)
Donald G. Pardus 977
3,631 (2)
3,648 (3)
13,607 (4)
Robert G. Powderly 401
125 (2)
1,002 (3)
3,919 (4)
324 (5)
John R. Stevens 1,449
1,098 (3)
9,798 (4)
Directors and Executive
Officers as a Group 64,618 (6)
_____________________
(1) Unless otherwise indicated, beneficial ownership is based on sole
investment and voting power.
(2) Jointly owned with spouse.
(3) Shares held under the ESP as to which the individual indicated has voting
power.
(4) Shares received under the Grant Plan as to which each has voting power.
(5) Held in fiduciary capacity.
(6) Represents less than four-tenths of one percent of the outstanding common
shares of EUA at January 7, 1994. Included are 14,920 shares held for
officers under EUA's ESP, 4,008 shares jointly owned with the officers'
spouses, 39,636 shares received under EUA's Restricted Stock Plan, and
390 shares held in a fiduciary capacity.
- ---------
The directors and executive officers of Eastern Edison did not own any of
Eastern Edison's 6-5/8% Preferred Stock at January 7, 1994.
(c) Eastern Edison knows of no contractual arrangements which may at a
subsequent date result in a change in control of the Company.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements:
The following financial statements and supplementary data are filed
herewith as required by Item 8.
Consolidated Statement of Income for the three years in the period ended
December 31, 1993.
Consolidated Statement of Retained Earnings for the three years in the
period ended December 31, 1993.
Consolidated Statement of Cash Flows for the three years in the period
ended December 31, 1993.
Consolidated Balance Sheet at December 31, 1993 and 1992.
Consolidated Statement of Capitalization at December 31, 1993 and 1992.
Notes to Consolidated Financial Statements at December 31, 1993, 1992, and
1991.
Report of Independent Accountants, dated March 4, 1994.
(a)(2) Financial Statement Schedules:
The following additional consolidated financial statement schedules are
filed herewith:
1. Financial Statement Schedules:
Schedule V - Property, Plant and Equipment for the three years
ended December 31, 1993.
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment for the three years
ended December 31, 1993.
Schedule IX - Short-Term Borrowings for the three years ended
December 31, 1993.
Schedule X - Supplementary Income Statement Information for the
three years ended December 31, 1993.
All other schedules have been omitted since the required information is
not present or not sufficiently material to require submission of the
schedule, or because the information required is included in the financial
statements or the notes thereto.
(a)(3) Exhibits (*denotes filed herewith)
Articles of Incorporation and By-Laws:
3-1.08 - Form of Restated and Amended Articles of Organization (filed as
Exhibit A-39 to Form U-1 File No. 70-7865 of Eastern Edison)
3-2.08 - By-Laws of Eastern Edison, as amended (Exhibit 3-2, Form 10-K for
1980, File No. 0-8480).
Instruments Defining the Rights of Shareholders, Including Indentures:
- Eastern Edison -
4-1.08 - Indenture of First Mortgage and Deed of Trust dated as of
September 1, 1948 of Eastern Edison (Exhibit 4-1, Registration No.
2-77468).
4-2.08 - First Supplemental Indenture dated as of February 1, 1953 of
Eastern Edison (Exhibit A, File No. 70-3015).
4-3.08 - Second Supplemental Indenture dated as of May 1, 1954 of Eastern
Edison (Exhibit A-3, File No. 70-3371).
4-4.08 - Third Supplemental Indenture dated as of June 1, 1955 of Eastern
Edison (Exhibit C to Certificate of Notification, File No. 70-
3371).
4-5.08 - Fourth Supplemental Indenture dated as of September 1, 1957 of
Eastern Edison (Exhibit D to Certificate of Notification, File No.
70-3619).
4-6.08 - Fifth Supplemental Indenture dated as of April 1, 1959 of Eastern
Edison (Exhibit D to Certificate of Notification, File No. 70-
3798).
4-7.08 - Sixth Supplemental Indenture dated as of October 1, 1963 of
Eastern Edison (Exhibit F to Certificate of Notification, File No.
70-4164).
4-8.08 - Seventh Supplemental Indenture dated as of June 1, 1969 of Eastern
Edison (Exhibit D to Certificate of Notification, File No. 70-
4748).
4-9.08 - Eighth Supplemental Indenture dated as of July 1, 1972 of Eastern
Edison (Exhibit C to Certificate of Notification, File No. 70-
5195).
4-10.08 - Ninth Supplemental Indenture dated as of September 1, 1973 of
Eastern Edison (Exhibit F to Certificate of Notification, File No.
70-5379).
4-11.08 - Tenth Supplemental Indenture dated as of October 1, 1975 of
Eastern Edison (Exhibit C to Certificate of Notification, File No.
70-5719).
4-12.08 - Eleventh Supplemental Indenture dated as of January 1, 1979 of
Eastern Edison (Exhibit 5-24, Registration No. 2-65785).
4-13.08 - Twelfth Supplemental Indenture dated as of October 1, 1980 of
Eastern Edison (Exhibit F to Certificate of Notification, File No.
70-6463).
4-14.08 - Thirteenth Supplemental Indenture dated as of July 1, 1981 of
Eastern Edison (Exhibit C to Certificate of Notification, File No.
70-6608).
4-15.08 - Fourteenth Supplemental Indenture dated as of June 1, 1982 of
Eastern Edison (Exhibit C to Certificate of Notification, File No.
70-6737).
4-16.08 - Fifteenth Supplemental Indenture dated as of August 1, 1983 of
Eastern Edison (Exhibit F to Certificate of Notification, File No.
70-6851).
4-17.08 - Sixteenth Supplemental Indenture dated as of September 1, 1984 of
Eastern Edison (Exhibit 4-31, Form 10-K of EUA for 1984, File No.
1-5366).
4-18.08 - Seventeenth Supplemental Indenture dated as of July 1, 1986 of
Eastern Edison (Exhibit F to Certificate of Notification, File No.
70-7254).
4-19.08 - Eighteenth Supplemental Indenture dated as of June 1, 1987 of
Eastern Edison (Exhibit C to Certificate of Notification, File No.
70-7373).
4-20.08 - Nineteenth Supplemental Indenture dated as of November 1, 1987 of
Eastern Edison (Exhibit C to Certificate of Notification, File No.
70-7373).
4-21.08 - Twentieth Supplemental Indenture dated as of May 1, 1988 of
Eastern Edison (Exhibit C to Certificate of Notification, File No.
70-7373).
4-22.08 - Twenty-first Supplemental Indenture dated as of September 1, 1988
of Eastern Edison (Exhibit F to Certificate of Notification, File
No. 20-7511).
4-23.08 - Twenty-second Supplemental Indenture dated as of December 1, 1990
of Eastern Edison (Exhibit 4-34, Form 10-K of Eastern Edison for
1990, File No. 0-8480).
4-24.08 - Twenty-third Supplemental Indenture dated as of July 1, 1992 of
Eastern Edison (Exhibit 4-24, Form 10-K of Eastern Edison for
1992, File No. 8480).
4-25.08 - Indenture dated as of December 1, 1990 of Eastern Edison with
Citibank, N.A., as Trustee (Exhibit 4-35, Form 10-K of Eastern
Edison for 1990, File No. 0-8480).
4-26.08 - Form of Eastern Edison Medium Term Note (Exhibit 4-36, Form 10-K
of Eastern Edison for 1990, File No. 0-8480).
4-27.08 - Twenty-Fourth Supplemental Indenture dated as of May 1, 1993
(filed as Exhibit A-27 to Form U-1, File No. 70-7865 of Eastern
Edison).
4-28.08 - Twenty-Fifth Supplemental Indenture dated as of July 1, 1993
(filed as Exhibit A-28 to Form U-1, File No. 70-7865 of Eastern
Edison).
- Montaup -
4-1.05 - Form of 8% Debenture Bonds due 2000 of Montaup (Exhibit 4-10,
Registration No. 2-41488).
4-2.05 - Form of 8-1/4% Debenture Bonds due 2003 of Montaup (Exhibit B-3,
Form U5S of EUA for year 1973).
4-3.05 - Form of 14% Debenture Bonds due 2005 of Montaup (Exhibit 4-11,
Registration No. 2-55990).
4-4.05 - Form of 10% Debenture Bonds due 2008 of Montaup (Exhibit 5-3,
Registration No. 2-65785).
4-5.05 - Form of 16-1/2% Debenture Bonds due 2010 of Montaup (Exhibit 4-11,
Form 10-K of EUA for 1980, File No. 1-5366).
4-6.05 - Form of 12-3/8% Debenture Bonds due 2013 of Montaup (Exhibit 4-13,
Form 10-K of EUA for 1983, File No. 1-5366).
4-7.05 - Form of 10-1/8% Debentures due 2008 of Montaup (Exhibit 4, Form
10-Q of Eastern Edison for quarter ended September 30, 1983, File
No. 0-8480).
4-8.05 - Form of 9% Debenture Bonds due 2020 of Montaup (Exhibit 4-10, Form
10-K of Eastern Edison for 1990, File No. 0-8480).
4-9.05 - Form of 9 3/8% Debenture Bonds due 2020 of Montaup (Exhibit 4-11,
Form 10-K of Eastern Edison for 1990, File No. 0-8480).
Material Contracts:
- EUA -
10-1.03 - Employees' Retirement Plan of Eastern Utilities Associates and its
Subsidiary Companies Trust Agreement as amended and restated,
effective July 1, 1981 (Exhibit 10-1, Registration No. 2-80205).
10-2.03 - Employees' Retirement Plan of Eastern Utilities Associates and its
Subsidiary Companies Plan as amended and restated, effective
January 1, 1985 as amended as of January 1, 1985, July 1, 1987,
January 1, 1989, December 30, 1990, July 1, 1991, September 2,
1991, and March 1, 1992 (Exhibit 10-2, Form 10-K of EUA for 1985,
File No. 1-5366; Exhibit 10-77, Form 10-K of EUA for 1986, File
No. 1-5366; Exhibit 10-118, Form 10-K of EUA for 1987, File No.
1-5366; Exhibit 10-95, Form 10-K of EUA for 1988, File No. 1-5366;
Exhibit 10-79, Form 10-K of Eastern Edison for 1990, File No.
0-8480; Exhibit 10-120, Form 10-K of EUA for 1991, File No. 1-
5366; Exhibit 10-122, Form 10-K of EUA for 1991, File No. 1-5366;
Exhibit 10-123, Form 10-K of EUA for 1991, File No. 1-5366;
Exhibit 10-69, Form 10-K of EUA for 1992, File No. 1-5366).
10-3.03 - Eastern Utilities Associates Employees' Savings Plan Trust
Agreement. (Filed on Exhibit 10-3 of Form 10-K of EUA for 1992,
File No. 1-5366).
10-4.03 - Eastern Utilities Associates Employees' Savings Plan as amended
and restated effective January 1, 1989. (Filed as Exhibit 10-4 of
Form 10-K of EUA for 1992, File No. 1-5366).
10-5.03 - Form of Service Contract between EUA Service and each of the other
companies (including Eastern Edison and Montaup) in the EUA System
(Exhibit 13-1, Registration No. 2-55990).
10-6.03 - Form of EUA Restricted Stock Plan effective July 17, 1989 (Exhibit
10-13 of EUA Form 10-K for 1992, File No. 1-5366).
10-7.03 - Service contract and supplement among the EUA System, New England
Electric System, Boston Edison Co., New England Gas & Electric
Association system and Vermont Electric Power Company, Inc. for
services to be provided by the New England Power Service
Company (Exhibit 10-14.03, EUA 10-K for 1993, File No. 1-5366).
10-8.03 - Thirtieth Amendment to NEPOOL Agreement regarding pool planning,
pool-planned facilities, pool-planned purchases and pool-planned
unit provisions (Exhibit 10-15.03, EUA 10-K for 1993, File No.
1-5366).
- Eastern Edison -
*10-1.08 - Trust Indenture dated as of July 1, 1993 between Massachusetts
Industrial Finance Agency and Shawmut Bank, N.A.
*10-2.08 - Loan Agreement dated as of July 1, 1993 between Massachusetts
Industrial Finance Agency and Eastern Edison.
*10-3.08 - Power Purchase Agreement entered into as of September 20, 1993 by
and between Meridian Middleboro Limited Partnership and Eastern
Edison Company.
*10-4.08 - Inducement Letter dated July 14, 1993 from Eastern Edison to
the Massachusetts Industrial Finance Agency and Goldman, Sachs &
Company and Citicorp Securities Markets, Inc.
- Montaup -
10-1.05 - Montaup Contract, as amended (Exhibit 4-B, Registration No.
2-14119; Exhibit 13-A1, Registration No. 2-14718; Exhibit
4-B-2, Registration No. 2-26509; Exhibit 4-B-3, Registration
No. 2-33061; Exhibits 13-3 and 13-4, Registration No. 2-48966;
Exhibit B-2, Form U5S of EUA for year 1974 and Exhibit 5-40,
Registration No. 2-62862).
10-2.05 - Transmission Contract (composite copy) among Yankee Atomic
Electric Company's Sponsors, including Montaup, dated June 30,
1959 (Exhibit 13-6-D, Registration No. 2-15798).
10-3.05 - Power Contract (composite copy) between Connecticut Yankee Atomic
Power Company and Montaup dated July 1, 1964 (Exhibit B-1, File
No. 70-4245).
10-4.05 - Capital Funds Agreement (composite copy) between Connecticut
Yankee Atomic Power Company and Montaup dated September 1, 1964
(Exhibit B-2, File No. 70-4245).
10-5.05 - Stockholder Agreement (composite copy) among Connecticut Yankee
Atomic Power Company's Sponsors, including Montaup, dated July 1,
1964 (Exhibit B-4, File No. 70-4245).
10-6.05 - Capital Funds Agreement (composite copy) between Vermont Yankee
Nuclear Power Corporation and Montaup dated as of February 1,
1968, and Amendment thereto dated as at March 12, 1968 (Exhibit B-
2, File No. 70-4611; Exhibit B-3, File No. 70-4611).
10-7.05 - Form of Power Contract between Vermont Yankee Nuclear Power
Corporation and Montaup dated as of February 1, 1968, as amended
June 1, 1972, April 15, 1983, April 24, 1985, June 1, 1985, May 6,
1988 (2), June 15, 1989 and December 1, 1989 (Exhibit B-4, File
No. 70-4591; Exhibit 13-21, Registration No. 2-46612; Exhibit 10-
63, Form 10-K of EUA for 1983, File No. 1-5366; Exhibit 10-74,
Form 10-K of EUA for 1985, File No. 1-5366; Exhibit 10-78, Form
10-K of EUA for 1986, File No. 1-5366; Exhibits 10-97 and 10-98,
Form 10-K of EUA for 1988, File No. 1-5366; Exhibit 10-95, Form
10-K of EUA for 1989, File No. 1-5366; Exhibit 10-80, Form 10-K of
Eastern Edison for 1990, File No. 0-8480).
10-8.05 - Sponsor Agreement (composite copy) among Vermont Yankee Nuclear
Power Corporation's Sponsors, including Montaup, dated as of
August 1, 1968 (Exhibit 4-0, Registration No. 2-33061).
10-9.05 - Capital Funds Agreement (composite copy) between Maine Yankee and
Montaup dated May 20, 1968 and as amended August 1, 1985 (Exhibit
B-2, File No. 70-4658; Exhibit 10-78, Form 10-K of EUA for 1985,
File No. 1-5366).
10-10.05 - Power Contract (composite copy) between Maine Yankee Atomic and
Montaup dated May 20, 1968, as amended December 19, 1983 and
January 1, 1984 (Exhibit B-3, File No. 70-4658; Exhibit 10-64,
Form 10-K of EUA for 1983, File No. 1-5366; Exhibit 10-66, Form
10-K of EUA for 1984, File No. 1-5366).
10-11.05 - Stockholder Agreement (composite copy) among Maine Yankee
Sponsors, including Montaup, dated May 20, 1968 (Exhibit B-4, File
70-4658).
10-12.05 - Agreement (composite copy) among Vermont Yankee Nuclear Power
Corporation's Sponsors, including Montaup, dated as of April 30,
1969 (Exhibit B-7, File No. 70-4435).
10-13.05 - Form of Agreement among Maine Yankee Atomic Power Company's
Sponsors dated as of May 20, 1969 (Exhibit B-5, File No. 70-4658).
10-14.05 - Form of New England Power Pool Agreement dated as of September 1,
1971, as amended as of July 1, 1972, March 1, 1973, April 2, 1973,
March 15, 1974, June 1, 1975, September 1, 1975, December 31,
1976,
January 18, 1977, July 1, 1977, August 1, 1977, August 15, 1978,
January 31, 1980, February 1, 1980, September 1, 1981, December 1,
1981, June 1, 1982, June 15, 1983, October 1, 1983, August 1,
1985, August 15, 1985, January 1, 1986, September 1, 1986, March
1, 1988, May 1, 1988, March 15, 1989 and October 1, 1990, (Exhibit
13-45, Registration No. 2-41488; Exhibit 13-38, Registration No.
2-46612; Exhibits 13-39 and 13-40, Registration No. 2-48966;
Exhibit B-3, Form U5S of EUA for year 1974; Exhibit 13-35(a),
Registration No. 2-54449; Exhibit 13-35, Registration No. 2-55990,
Exhibits 5-69 and 5-70, Registration Exhibit 13-35(a),
Registration No. 2-54449; Exhibit 13-35, Registration No. 2-55990,
Exhibits 5-69 and 5-70, Registration No. 2-58625; Exhibit 6, Form
10-K of EUA for 1977, File No. 1-5366; Exhibit 1, Form 10-K of EUA
for 1979, File No. 1-5366; Exhibit No. 10-67, Registration No. 2-
80205; Exhibit 10-65, Form 10-K of EUA for 1983, File No. 1-5366;
Exhibit 10-66, Form 10-K of EUA for 1983, File No. 1-5366;
Exhibits 10-75, 10-76, and 10-77, Form 10-K of EUA for 1985, File
No. 1-5366; Exhibit 10-79, Form 10-K of EUA for 1986, File No. 1-
5366; Exhibits 10-99 and 10-100, Form 10-K of EUA for 1988, File
No. 1-5366; Exhibit 10-96, Form 10-K of EUA for 1989, File No. 1-
5366; Exhibit 10-81, Form 10-K of Eastern Edison for 1990, File
No. 0-8480).
10-15.05 - Joint Ownership Agreement--NEPCO Nuclear Units dated as of January
2, 1976 as amended August 6, 1976 among New England Power Company
and other utilities, including Montaup (Exhibit 13-41,
Registration No. 2-55990; Exhibit 5-77, Registration No. 2-58625).
10-16.05 - Unit Participation Agreement between Maine Electric Power Company,
Inc. and New Brunswick Electric Power Commission dated November
15, 1971 (Exhibit 13-43.1, Registration No. 2-44377).
10-17.05 - Assignment Agreement dated March 20, 1972 between Maine Electric
Power Company, Inc. and New Brunswick Electric Power Commission
(Exhibit 13-43.3, Registration No. 2-44377).
10-18.05 - Agreement dated October 13, 1972 for Joint Ownership, Construction
and Operation of Pilgrim Unit No. 2 among Boston Edison Company
and other utilities including Montaup, as amended July 25, 1973,
September 15, 1974, December 1, 1974, February 15, 1975, April 30,
1975, June 30, 1975, November 30, 1975 and December 15, 1975
(Exhibit 13-51, Registration No. 2-46612; Exhibit 13-56,
Registration No. 2-48966; Exhibit B-5, Form U5S of EUA for year
1974; Exhibit 13-52-A and 13-52-B, Registration No. 2-53819;
Exhibit 13-45(a), Registration No. 2-54449; Exhibits 13-48 and
13-47(a), Registration No. 2-55990).
10-19.05 - Agreement dated as of May 1, 1973 for Joint Ownership,
Construction and Operation of New Hampshire Nuclear Units among
Public Service Company of New Hampshire and other utilities
including Montaup, as amended as of May 24, 1974, June 21, 1974,
September 25, 1974, October 25, 1974, January 31, 1975, as
supplemented by Letter Agreement dated April 27, 1978 and amended
as of April 18, 1979 (two amendments), April 25, 1979, June 8,
1979, October 11, 1979, December 15, 1979, June 16, 1980, December
31, 1980, June 1, 1982, April 27, 1984, June 15, 1984, March 8,
1985, March 14, 1986, May 1, 1986, September 19, 1986, November
1987, January 13, 1989 and November 1, 1990. (Exhibit 13-57,
Registration No. 2-48966; Exhibit B-6, Form U5S of EUA for year
1974; Exhibit 5-130, Registration No. 2-62862; Exhibit 5-70,
Registration No. 2-65785; Exhibit 2, Form 10-K of EUA for 1979,
File No. 1-5366; Exhibit 5-34, Registration No. 2-69052; Exhibit
20-1, Form 10-K of EUA for 1980, File No. 1-5366; Exhibit 10-69,
Registration No. 2-80205; Exhibit 2, Form 10-Q of EUA for the
Quarter Ended March 31, 1984, File No. 1-5366; Exhibit 3, Form 10-
Q of EUA for the Quarter Ended June 30, 1984, File No. 1-5366;
Exhibit 10-70, Form 10-K of EUA for 1985, File No. 1-5366;
Exhibits 10-80 and 10-81, Form 10-K of EUA for 1986, File No. 1-
5366; Exhibits 10-95 and 10-96, Form 10-K of EUA for 1987, File
No. 1-5366; Exhibit 10-101, Form 10-K of EUA for 1988, File No. 1-
5366; Exhibit 10-82, Form 10-K of Eastern Edison for 1990, File
No. 0-8480).
10-20.05 - Sharing Agreement dated as of September 1, 1973 among The
Connecticut Light and Power Company and other utilities, including
Montaup, concerning participation in a nuclear generating unit
located in Connecticut (Millstone Unit No. 3), as amended and
supplemented by Amendatory Agreement dated May 11, 1984 as amended
as of April 1, 1986 (Exhibit B-17, Form U5S of EUA for year 1973;
Exhibit B-8, as amended as of April 11, 1986, Form U5S of EUA for
year 1974; Exhibit B-30, Form U5S of EUA for year 1976; Exhibit
10-68, Form 10-K of EUA for 1984, File No. 1-5366; Exhibit 10-82,
Form 10-K of EUA for 1986, File No. 1-5366).
10-21.05 - Agreement for Joint Ownership, Construction and Operation of
William F. Wyman Unit No. 4 dated November 1, 1974 as amended June
30, 1975, August 16, 1976 and December 31, 1978 among Central
Maine Power Company and other utilities including Montaup (Exhibit
B-9, Form U5S of EUA for year 1974; Exhibit 13-58, Registration
No. 2-55990; Exhibit 5-95, Registration No. 2-58625; Exhibit 5-
40, Registration No. 2-69052).
10-22.05 - Agreement for Joint Ownership dated as of October 27, 1970 between
Canal Electric Company and Montaup (Exhibit 13-71, Registration
No. 2-55990).
10-23.05 - Agreement for use of Common Facilities by Canal Units I and II and
for Allocation of Related Costs dated as of October 27, 1970
between Canal Electric Company and Montaup (Exhibit 13-72,
Registration No. 2-55990).
10-24.05 - Supplementary Power Contract dated as of April 1, 1978, by and
between Connecticut Yankee Atomic Power Company and Montaup
(Exhibit 10-45, Form 10-K of EUA for 1987, File No. 1-5366).
10-25.05 - Guarantee Agreement (composite copy) dated as of November 13, 1981
between The Connecticut Bank and Trust Company, as Trustee, and
Montaup relating to debentures of Connecticut Yankee Atomic Power
Company (Exhibit 10-61, Form 10-K of EUA for 1981, File No. 1-
5366).
10-26.05 - Guarantee Agreement dated as of November 5, 1981 between Bankers
Trust Company, as Trustee of the Vernon Energy Trust, and Montaup
relating to a nuclear fuel sales agreement and related
transactions entered into by Vermont Yankee Nuclear Power
Corporation (Exhibit 10-63, Form 10-K of EUA for 1981, File No. 1-
5366).
10-27.05 - Agreement for Seabrook Project Disbursing Agent, dated as of May
23, 1984, as amended March 8, 1985, May 20, 1985, June 18, 1985,
January 1, 1986, November, 1987, August 1, 1989, and restated as
of November 1, 1990, among the participants in the Seabrook
nuclear generating project, including Montaup and Yankee Atomic
Electric Company (Exhibit 2, Form 10-Q of EUA for the Quarter
Ended June 30, 1984, File No. 1-5366; Exhibit 10-69, Form 10-K of
EUA for 1985, File No. 1-5366; Exhibits 10-86, 10-87 and 10-88,
Form 10-K of EUA for 1986, File No. 1-5366; Exhibit 10-97, Form
10-K of EUA for 1987, File No. 1-5366; Exhibit 10-105, Form 10-K
of EUA for 1989, File No. 1-5366; Exhibit 10-84, Form 10-K of
Eastern Edison for 1990, File No. 0-8480).
10-28.05 - Guarantee Agreement dated as of August 1, 1985 among The
Connecticut Bank and Trust Company, Connecticut Yankee Atomic
Power Company and Montaup Electric Company relating to Revolving
Credit Loans of Connecticut Yankee (Exhibit 10-85, Form 10-K of
EUA for 1985, File No. 1-5366).
10-29.05 - Equity Funding Agreement for New England Hydro-Transmission
Corporation dated as of June 1, 1985, between New England
Hydro-Transmission Corporation and several New England electric
utilities, including Montaup as amended as of May 1, 1986 and
September 1, 1987 (Exhibits 10-96 and 10-97, Form 10-K of EUA for
1986, File No. 1-5366; Exhibit 10-116, Form 10-K of EUA for 1987,
File No. 1-5366).
10-30.05 - Equity Funding Agreement for New England Hydro-Transmission
Electric Company, Inc. dated as of June 1, 1985, between New
England Hydro-Transmission Electric Company, Inc. and several New
England electric utilities, including Montaup as amended as of May
1, 1986 and September 1, 1987 (Exhibits 10-98 and 10-99, Form 10-K
of EUA for 1986, File No. 1-5366; Exhibit 10-117, Form 10-K of EUA
for 1987, File No. 1-5366).
10-31.05 - Unit Power Agreement for the Sale of Unit Capacity and Energy from
Ocean State Power Project to Montaup Electric Company dated as of
May 14, 1986 as amended as of August 27, 1986, September 27, 1987,
October 21, 1988, July 21, 1989, February 1, 1990 and December 21,
1990 (Exhibits 10-101 and 10-102, Form 10-K of EUA for 1986, File
No. 1-5366; Exhibits 10-106 and 10-107, Form 10-K of EUA for 1988,
File No. 1-5366; Exhibit 10-106, Form 10-K of EUA for 1989, File
No. 1-5366; Exhibits 10-86 and 10-87, Form 10-K of Eastern Edison
for 1990, File No. 0-8480).
10-32.05 - Power Purchase Agreement dated as of October 17, 1986, between
Northeast Energy Associates and Montaup as amended as of June 28,
1989 (Exhibit 10-103, Form 10-K of EUA for 1986, File No. 1-5366;
Exhibit 10-103, Form 10-K of EUA for 1989, File No. 1-5366).
10-33.05 - Unit Sales Agreement between Montaup Electric Company and
Massachusetts Municipal Wholesale Electric Company for Purchase of
Capacity and Energy from Canal No. 2 dated as of November 1, 1986
(Exhibit 10-105, Form 10-K of EUA for 1986, File No. 1-5366).
10-34.05 - Settlement Agreement dated as of January 13, 1989 among Montaup,
EUA Power, certain past and present owners of the Seabrook Project
and Yankee Atomic Electric Company (Exhibit 10-110, Form 10-K of
EUA for 1988, File No. 1-5366).
10-35.05 - Unit Power Agreement for the Sale of Second Unit Capacity and
Energy from Ocean State Power Project to Montaup Electric Company
dated as of September 28, 1988 as amended by an amendment dated
July 21, 1989, and February 7, 1990 and a Supplemental Agreement
dated July 21, 1989 (Exhibit 10-104, Form 10-K of EUA for 1989,
File No. 1-5366; Exhibit No. 10-88, Form 10-K of Eastern Edison
for 1990, File No. 0-8480).
10-36.05 - Purchase Power Contract between Newport and Montaup dated July 23,
1963, as revised on March 23, 1983 (Exhibit 10-108, Form 10-K of
EUA for 1990, File No. 1-5366).
10-37.05 - Purchase Power Contract between Newport and Montaup for Contract
Demand Service effective May 1, 1983, as amended on July 1, 1983,
December 28, 1983 and November 1, 1984 (Exhibit 10-89, Form 10-K
of Eastern Edison for 1990, File No. 0-8480 and Exhibit 10-109,
Form 10-K of EUA for 1990, File No. 1-5366).
10-38.05- Power Contract (composite copy) between Yankee Atomic and Montaup
dated June 30, 1959 as Revised April 1, 1975 and as further
amended October 1, 1980, April 1, 1985, May 6, 1988, June 26, 1989
and July 1, 1989 (Exhibit 13-6, Registration No. 2-72654; Exhibit
10-73, Form 10-K of EUA for 1985, File No. 1-5366; Exhibit 10-96,
Form 10-K of EUA for 1988, File No. 1-5366; Exhibits 10-93 and 10-
94, Form 10-K of EUA for 1989, File No. 1-5366).
*10-39.05 - Memorandum of understanding by and between Canal Electric Company
and Montaup Electric Company dated September 23, 1993.
*10-40.05 - Ancillary Agreement by and between Algonquin Gas Transmission
Company, Canal Electric Company and Montaup Electric Company dated
October 8, 1993.
Amendments to Exhibits Previously Filed:
None.
Subsidiaries of the Registrant:
23-1.08 - Montaup Electric Company, which is organized in Massachusetts, is
the only subsidiary of Eastern Edison Company and does business
under its indicated corporate name.
(b) Reports on Form 8-K.
- On January 25, 1994, the Registrant filed a current report on Form
8-K with respect to Item 5. (Other Events).
- On March 23, 1994, the Registrant filed a current report on Form
8-K with respect to Item 5. (Other Events).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Signature Title Date
EASTERN EDISON COMPANY
March 21,
1994
By /s/ Richard M. Burns Vice President
----------------------- (Principal Accounting Officer)
Richard M. Burns
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Donald G. Pardus Chairman of the Board (Principal
------------------------ Executive Officer) and Director
Donald G. Pardus
/s/ John R. Stevens Vice Chairman and Director
------------------------ (Principal Financial Officer)
John R. Stevens
/s/ Richard M. Burns Vice President
------------------------ (Principal Accounting Officer)
Richard M. Burns
/s/ John D. Carney President and Director
------------------------
John D. Carney
/s/ Arthur A. Hatch Executive Vice President and
------------------------ Director
Arthur A. Hatch
March 21, 1994
/s/ Robert G. Powderly Executive Vice President and
------------------------ Director
Robert G. Powderly
/s/ Robert W. Giggey Director
------------------------
Robert W. Giggey
/s/ Donald H. Ramsbottom Director
------------------------
Donald H. Ramsbottom
/s/ Elizabeth Alden Director
------------------------
Elizabeth Alden
EASTERN EDISON COMPANY AND SUBSIDIARY
Item 8 and Item 14(a)(1).
Consolidated Financial Statements and
Supplementary Data
Item 14(a)(2).
Financial Statement Schedules
Eastern Edison Company and Subsidiary
Consolidated Statement of Income
Years Ended December 31,
(In Thousands)
1993 1992 1991
Operating Revenues:
From Affiliated Companies $ 121,934 $ 118,080 $ 120,774
Other 295,087 302,108 293,835
Total Operating Revenues 417,021 420,188 414,609
Operating Expenses:
Fuel 85,066 96,589 98,874
Purchased Power - Demand 121,379 123,151 122,811
Other Operation and Maintenance (Schedul 80,781 72,009 72,827
Affiliated Company Transactions 23,700 23,840 24,239
Depreciation and Amortization 26,450 25,991 25,604
Taxes - Other than Income (Schedule X) 9,287 9,400 8,062
- Income 15,945 16,074 10,030
Total Operating Expenses 362,608 367,054 362,447
Operating Income 54,413 53,134 52,162
Equity in Earnings of Jointly Owned Compani 1,750 1,953 2,011
Allowance for Other Funds Used During
Construction 289 417 547
Other (Deductions) Income - Net (289) 5,643 1,540
Income Before Interest Charges 56,163 61,147 56,260
Interest Charges:
Interest on Long-Term Debt 22,584 27,509 30,151
Other Interest Expense 2,863 1,261 (448)
Allowance for Borrowed Funds Used During
Construction (Credit) (385) (530) (990)
Net Interest Charges 25,062 28,240 28,713
Net Income 31,101 32,907 27,547
Preferred Dividend Requirements 2,956 3,676 3,784
Consolidated Net Earnings $ 28,145 $ 29,231 $ 23,763
Consolidated Statement of Retained Earnings
Years Ended December 31,
(In Thousands)
1993 1992 1991
Retained Earnings - Beginning of Year $ 100,767 $ 91,636 $ 84,389
Net Income 31,101 32,907 27,547
Redemption Cost of Preferred Stock (16) (17)
Amortization of Preferred Stock Redemption (597) (596) (597)
Total 131,271 123,931 111,322
Dividends Paid:
Preferred 2,977 3,676 3,784
Common 24,779 19,488 15,902
Retained Earnings - End of Year $ 103,515 $ 100,767 $ 91,636
The accompanying notes are an integral part of the financial statements.
Eastern Edison Company and Subsidiary
Consolidated Statement of Cash Flows
Years Ended December 31,
(In Thousands)
1993 1992 1991
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 31,101 $ 32,907 $ 27,547
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 29,477 28,582 31,663
Amortization of Nuclear Fuel 5,136 5,055 4,219
Deferred Taxes 2,981 8,530 5,409
Investment Tax Credit, Net (1,016) (1,078) 153
Allowance for Funds Used During Cons (675) (947) (1,537)
Other - Net (2,246) (3,744) (1,089)
Changes to Operating Assets and Liabilities:
Accounts Receivable (7) 21,255 (24,987)
Fuel, Materials and Supplies 899 (145) 4,998
Accounts Payable (792) 1,772 3,102
Accrued Taxes 835 585 7,215
Other - Net (6,148) (5,866) 817
Net Cash Provided from Operating Activities 59,545 86,906 57,510
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (22,581) (14,664) (20,045)
Investment in Subsidiaries 30
Net Cash Used in Investing Activities (22,581) (14,664) (20,015)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuances:
Long-Term Debt 195,000 35,000
Preferred Stock 30,000
Redemptions:
Long-Term Debt (205,000) (80,000)
Preferred Stock (41,600) (1,200) (1,200)
Premium on Reacquisition and Financing (12,430) (3,102) (520)
Common Stock Dividends Paid (24,779) (19,488) (15,902)
Preferred Dividends Paid (2,977) (3,676) (3,784)
Net Cash Used in Financing Activities (61,786) (72,466) (21,406)
Net (Decrease) Increase in Cash
and Temporary Cash Investments (24,822) (224) 16,089
Cash and Temporary Cash Investments at
Beginning of Year 25,519 25,743 9,654
Cash and Temporary Cash Investments at
End of Year $ 697 $ 25,519 $ 25,743
Cash paid during the year for:
Interest (Net of Amounts Capitaliz $ 27,200 $ 26,786 $ 29,102
Income Taxes $ 13,372 $ 911 $ 2,202
The accompanying notes are an integral part of the financial statements.
Eastern Edison Company and Subsidiary
Consolidated Balance Sheet
December 31,
(In Thousands)
ASSETS
1993 1992
Utility Plant and Other Investments:
Utility Plant (Schedule V) $ 791,443 $ 780,295
Less Accumulated Provision for Depreciation
(Schedule VI) 226,391 209,374
Net Utility Plant 565,052 570,921
Non-Utility Property - Net (Schedules V & VI) 2,705 2,705
Investment in Jointly Owned Companies 13,425 13,596
Other Investments (at cost) 50 50
Total Utility Plant and Other Investments 581,232 587,272
Current Assets:
Cash and Temporary Cash Investments 697 25,519
Accounts Receivable:
Customers 25,989 26,181
Others 2,569 2,134
Accrued Unbilled Revenue 8,595 8,090
Associated Companies 11,220 11,962
Fuel (at average cost) 6,324 7,180
Plant Materials and Operating Supplies (at average cost) 3,514 3,557
Prepayments and Other Current Assets 10,848 14,022
Total Current Assets 69,756 98,645
Deferred Debits:
Unrecovered Regulatory Plant Costs 16,908 22,663
Other Deferred Debits 74,377 67,930
Total Deferred Debits 91,285 90,593
Total Assets $ 742,273 $ 776,510
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Equity $ 223,005 $ 220,257
Non-Redeemable Cumulative Preferred Stock - Net 0 8,949
Redeemable Preferred Stock - Net 29,670 30,643
Preferred Stock Redempton Cost (4,846) (2,472)
Long-term Debt - Net 264,134 269,995
Total Capitalization 511,963 527,372
Current Liabilities:
Redeemable Preferred Stock Sinking Fund 0 1,400
Long-term Debt Due Within One Year 0 5,000
Accounts Payable:
Public 22,611 24,748
Associated Companies 4,221 2,876
Customer Deposits 1,141 1,036
Taxes Accrued 4,225 3,391
Interest Accrued 6,136 9,276
Other Current Liabilities 9,009 15,295
Total Current Liabilities 47,343 63,022
Deferred Credits:
Unamortized Investment Credit 19,132 20,149
Other Deferred Credits 46,229 50,699
Total Deferred Credits 65,361 70,848
Accumulated Deferred Taxes 117,606 115,268
Commitments and Contingencies (J)
Total Liabilities and Capitalization $ 742,273 $ 776,510
( ) Denotes Contra
The accompanying notes are an integral part of the financial statements.
Eastern Edison Company and Subsidiary
Consolidated Statement of Capitalization
December 31,
(In Thousands)
1993 1992
Common Stock:
$25 par value, authorized and outstanding
2,891,357 shares $ 72,284 $ 72,284
Other Paid-In Capital 47,249 47,249
Common Stock Expense (43) (43)
Retained Earnings 103,515 100,767
Total Common Equity 223,005 220,257
Non-Redeemable Cumulative Preferred Stock:
4.64%, $100 par value, 60,000 shares (1) 6,000
8.32%, $100 par value, 30,000 shares (1) 3,000
Expense, Net of Premium (51)
Total Non-Redeemable Preferred Stock 0 8,949
Redeemable Preferred Stock:
9.00%, $100 par value 120,000 shares (1) 12,000
9.80%, $100 par value 200,000 shares (1) 19,200
6 5/8%, $100 par value, 300,000 shares (1) 30,000
Expense, Net of Premium (330) (557)
Preferred Stock Redemption Cost (4,846) (2,472)
Total Redeemable Preferred Stock 24,824 28,171
Long-Term Debt:
First Mortgage and Collateral Trust Bonds:
5 7/8% due 1998 20,000
6 7/8% due 2003 40,000
8% due 2023 40,000
5 3/4% due 1998 40,000
6.35% due 2003 8,000
4.875% due 1996 7,000
4 1/2% due 1993 5,000
8.90% Secured Medium-Term Notes due 1995 10,000 10,000
7.78% Secured Medium-Term Notes due 2002 35,000 35,000
6 1/2% due 1997 7,000
10 1/8% due 1997 35,000
9 7/8% due 1998 40,000
8 3/8% due 1999 5,000
7 7/8% due 2002 8,000
8 3/8% due 2003 10,000
9 5/8% due 2016 55,000
Pollution Control Revenue Bond:
5 7/8% due 2008 40,000
10 1/8% due 2008 40,000
Unsecured Medium-Term Notes:
9-9 1/4% due 1995 - Series A 25,000 25,000
Unamortized (Discount) - Net (866) (5)
Total 264,134 274,995
Less Portion Due Within One Year 5,000
Total Long-Term Debt 264,134 269,995
Total Capitalization $ 511,963 $ 527,372
(1) Authorized and Outstanding.
The accompanying notes are an integral part of the financial statements.
EASTERN EDISON COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992, and 1991
(A) Summary of Significant Accounting Policies:
General: The accounting policies and practices of Eastern Edison and of
Montaup are subject to regulation by FERC and the MDPU with respect to their
rates and accounting. Eastern Edison and Montaup conform with generally
accepted accounting principles, as applied in the case of regulated public
utilities, and conform with the accounting requirements and ratemaking
practices of the regulatory authority having jurisdiction.
Principles_of_Consolidation: The consolidated financial statements
include the accounts of Eastern Edison and its subsidiary, Montaup. All
material intercompany balances and transactions have been eliminated in
consolidation.
Jointly_Owned_Companies: Montaup follows the equity method of accounting
for its stock ownership investments in jointly owned companies including four
regional nuclear generating companies. Montaup's investments in these nuclear
generating companies range from 2.25 to 4.50 percent. Montaup is entitled to
the electricity produced from these facilities based on its ownership interests
and is billed pursuant to contractual agreements which are approved by FERC.
One of the four nuclear generating facilities is being decommissioned, but
Montaup is required to pay its share of certain continuing costs (see Note J -
Commitments and Contingencies -- Nuclear Power Supply).
Montaup also has an equity investment of 3.27% in each of the two
companies which own and operate interconnection facilities used to transmit
hydroelectric power between the Hydro-Quebec Electric System and New England.
Transactions_with_Affiliates: Eastern Edison is a wholly owned subsidiary
of EUA. In addition to its investment in Eastern Edison, EUA has interests in
two other retail companies, a service corporation, and three other non-utility
companies.
Transactions between Montaup and other affiliated companies include the
following: sales of electricity by Montaup to Blackstone and Newport of
approximately $121,447,000 in 1993, $117,714,000 in 1992 and $120,511,000 in
1991; accounting, engineering and other services rendered by EUA Service to
Eastern Edison and Montaup of approximately $27,418,000, $23,196,000, and
$23,206,000 in 1993, 1992 and 1991, respectively; and, operating expense from
the rental of transmission facilities by Blackstone to Montaup of approximately
$2,884,000 in 1993 $2,445,000 in 1992, and $2,660,000 in 1991. Montaup rental
of transmission facilities to Newport for the years 1993, 1992, and 1991
amounted to $487,000, $365,000, and $263,000 respectively. Transactions with
affiliated companies are subject to review by applicable regulatory
commissions.
Utility_Plant_and_Depreciation: Utility plant is stated at original
cost. The cost of additions to utility plant includes contracted work, direct
labor and material, allocable overhead, allowance for funds used during
(A) Summary of Significant Accounting Policies: -- (Continued)
construction and indirect charges for engineering and supervision. For
financial statement purposes, depreciation is computed on the straight-line
method based on estimated useful lives of the various classes of property.
Provisions for depreciation, on a consolidated basis, were equivalent to a
composite rate of approximately 3.2% for 1993 and 1992, and 3.1% for 1991 based
on the average depreciable property balances at the beginning and end of each
year.
Allowance_for_Funds_Used_During_Construction: AFUDC represents the
estimated cost of borrowed and equity funds used to finance Eastern Edison's
and Montaup's construction program. In accordance with regulatory accounting,
AFUDC is capitalized, as a cost of utility plant, in the same manner as certain
general and administrative costs. AFUDC is not an item of current cash income,
but is recovered over the service life of utility plant in the form of
increased revenues collected as a result of higher depreciation expense. The
combined rate used in calculating AFUDC was 9.3% in 1993, 10.83% in 1992, and
11.56% in 1991.
Operating_Revenues: Revenues are based on billing rates authorized by
applicable federal and state regulatory commissions. Eastern Edison follows
the policy of accruing the estimated amount of unbilled base rate revenues for
electricity provided at the end of the month to more closely match costs and
revenues. Montaup recognizes revenues when billed. In addition, Eastern
Edison and Montaup also record the difference between fuel costs incurred and
fuel costs billed. Montaup also records the difference between purchased power
costs incurred and billed.
Income_Taxes: The general policy of Eastern Edison and Montaup with
respect to accounting for federal income taxes is to reflect in income the
estimated amount of taxes currently payable, as determined from the
consolidated tax return on an allocated basis, and to provide for deferred
taxes on certain items subject to temporary differences to the extent permitted
by the various regulatory commissions.
As permitted by the regulatory commissions, it is the policy of Eastern
Edison and Montaup to defer recognition of the annual investment tax credits
and to amortize these credits over the productive lives of the related assets.
Cash_and_Temporary_Cash_Investments: Eastern Edison and Montaup consider
all highly liquid investments and temporary cash investments with a maturity of
three months or less, when acquired, to be cash equivalents.
(B) Income Taxes:
Components of income tax expense for the years 1993, 1992 and 1991 are as
follows:
________________________________________________________________
(In_Thousands)____________________1993________1992________1991__
Federal:
Current $11,554 $ 8,236 $ 3,548
Deferred 2,841 6,141 3,619
Investment Tax Credit, Net _(1,016) _(1,078) ____153
_13,379 _13,299 __7,320
State:
Current 2,359 2,044 725
Deferred ____207 ____731 __1,985
__2,566 __2,775 __2,710
Charged to Operations 15,945 16,074 10,030
Charged to Other Income:
Current 392 171 (1,592)
Deferred ____(67) __1,658 ___(195)
Total $16,270 $17,903 $ 8,243
======= ======= =======
Total income tax expense was different than the amounts computed by
applying federal income tax statutory rates to book income subject to tax for
the following reasons:
__________________________________________________________________________
(In_Thousands)______________________________1993________1992________1991__
Federal Income Tax Computed at
Statutory Rates $16,580 $17,275 $12,169
(Decreases) Increases in Tax from:
Equity Component of AFUDC (101) (142) (186)
Depreciation of Equity AFUDC 851 493 67
Amortization and Utilization of ITC (1,066) (1,069) (1,071)
Consolidated Tax Savings (314) (3,060)
State Taxes, Net of Federal Income
Tax Benefit 1,735 2,087 1,890
Cost of Removal (273) 150 (853)
Other __1,142 ___(891) ___(713)
Total Income Tax Expense $16,270 $17,903 $ 8,243
======= ======= =======
(B) Income Taxes -- Continued
The provision for deferred taxes resulting from temporary differences is
comprised of the following:
_________________________________________________________________________
(In_Thousands)_____________________________1993________1992________1991__
Excess Tax Depreciation $ 5,704 6,851 $ 7,121
Debt Component of AFUDC (1,899) (1,899) (1,924)
Abandonment Losses (622) (706)
Capitalized Overheads (97) (337) (690)
Effect of State and Local Taxes 196 1,020 1,985
Deferred Charges 556 (538) (751)
Conservation and Load Management (315) (315) (325)
Pilgrim Refund 83 112 2,180
Net Operating Loss Carry Forward 1,702 (1,469)
Other -- Net (1,201) 1,309 (12)
Alternative Minimum Tax 256
Pensions ___(46) ____991 _______
Total $ 2,981 $ 8,530 $ 5,409
======= ======= =======
Eastern Edison and Montaup adopted FASB statement No. 109, "Accounting for
Income Taxes" (FAS109) effective as of January 1, 1993. FAS109 superseded FASB
Statement No. 96 (FAS96) which required recognition of deferred income taxes
for temporary differences that are reported in different years for financial
reporting and tax purposes using the liability method. Under the liability
method deferred tax liabilities or assets are computed using the tax rates that
will be in effect when temporary differences reverse. Generally, for regulated
companies, the change in tax rates may not be immediately recognized in
operating results because of rate making treatment and provisions in the Tax
Reform Act of 1986. The adoption of FAS109 had no impact on the results of
operations for 1993. At December 31, 1993 total deferred tax assets for which
no valuation allowance was deemed necessary were $24.3 million and total
deferred tax liabilities were $141.6 million.
Total deferred tax assets and liabilities are comprised as follows:
Deferred Tax Deferred Tax
Assets Liabilities
($000) ($000)
Plant Related Plant Related
Differences 16,721 Differences 135,707
Alternative Refinancing
Minimum Tax 4,254 Costs 1,866
Litigation Provisions 811 Pensions 1,404
Pensions 421
Other 2,142 Other 2,595
Total 24,349 Total 141,572
====== =======
As of December 31, 1993 and 1992, the Company had recorded on its
Consolidated Balance Sheet a regulatory liability to ratepayers of
approximately $24.7 million and $31.3 million, respectively. This amount
primarily represents excess deferred income taxes resulting from the reduction
in the federal income tax rate and also includes deferred taxes provided on
investment tax credits. Also at December 31, 1993, and 1992 a regulatory asset
of approximately $42.3 million and $46.5 million, respectively had been
recorded, representing the cumulative amount of federal income taxes on
temporary depreciation differences which were previously flowed through to
ratepayers.
Montaup has approximately $597,000 of investment tax credit carryforwards
which expire between the years 2001 and 2005. Eastern Edison and Montaup have
approximately $100,000 and $4.2 million, respectively, of alternative minimum
tax credits which can be utilized to reduce the EUA System's consolidated
regular tax liability and have no expiration.
(C) Capital Stock:
Eastern Edison redeemed with available cash its 8.32% Series and 4.64%
Series non-redeemable preferred stock on June 1, 1993 and December 1, 1993,
respectively. In connection with these redemptions, Eastern Edison incurred
premiums of approximately $106,000 related to the 8.32% Series and $179,000
related to 4.64% Series. These amounts are included in Preferred Stock
Redemption Costs on the Consolidated Statement of Capitalization. Eastern
Edison will seek recovery of these amounts in its next rate proceeding.
Under the terms and provisions of the issues of preferred stock of Eastern
Edison, certain restrictions are placed upon the payment of dividends on common
stock by Eastern Edison. At December 31, 1993 and 1992, the respective
capitalization ratios were in excess of the minimum requirements which would
make these restrictions effective.
(D) Redeemable Preferred Stock:
On June 1, 1993, Eastern Edison used available cash to redeem all of its
9.00% Series Preferred Stock. In connection with this redemption, a premium of
approximately $850,500 was incurred and is included in Preferred Stock
Redemption Costs on the Consolidated Statement of Equity Capital and Preferred
Stock.
On August 11, 1993, Eastern Edison issued 300,000 shares of $100 par
value, 6-5/8% Preferred Stock. The proceeds were used to redeem its
outstanding 9.80% Series Preferred Stock and for other corporate purposes. In
connection with the 9.80% Series redemption, Eastern Edison incurred a premium
of approximately $1,352,000. This premium is also included in Preferred Stock
Redemption Costs on the Consolidated Statement of Equity Capital and Preferred
Stock. Eastern Edison will seek recovery of these premiums in its next rate
proceeding.
Eastern Edison's 6-5/8% Preferred Stock issue is entitled to mandatory
sinking funds sufficient to redeem 15,000 shares during each twelve-month
period commencing September 1, 2003. The redemption price is $100 per share
plus accrued dividends. All outstanding shares of the 6-5/8% issue will be
subject to mandatory redemption on September 1, 2008 at a price of $100 per
share plus accrued dividends.
(D) Redeemable Preferred Stock -- Continued
In the event of liquidation, the holders of Eastern Edison's 6-5/8%
Preferred Stock are entitled to $100 per share plus accrued dividends.
(E) Retained Earnings:
Under the provisions of Eastern Edison's Indenture securing the First Mort
gage and Collateral Trust Bonds, retained earnings in the amount of
approximately $97,803,000 as of December 31, 1993 were unrestricted as to the
payment of cash dividends on its Common Stock.
(F) Long-Term Debt:
The various mortgage bond issues of Eastern Edison are collateralized by
substantially all of their utility plant. In addition, Eastern Edison's bonds
are collateralized by securities of Montaup, which are wholly-owned by Eastern
Edison, in the principal amount of approximately $259 million.
In May 1993, Eastern Edison issued $100 million of First Mortgage and
Collateral Trust Bonds (FMBs) in the following denominations: (i) $20 million
of 5-7/8% Bonds due May 1, 1998; (ii) $40 million of 6-7/8% Bonds due May 1,
2003; and (iii) $40 million of 8% Bonds due May 1, 2023. The proceeds were
used to redeem Eastern Edison's $55 million of 9-5/8%, $35 million of 10-1/8%
and $10 million of 8-3/8% FMBs.
In June 1993, Eastern Edison used available cash to redeem $5 million of
8-3/8% FMBs.
In July 1993, Eastern Edison issued $40 million 5-3/4% FMBs, proceeds of
which were used to redeem its $40 million 9-7/8% FMBs in September 1993.
Eastern Edison redeemed in mid-August 1993 its $40 million 10-1/8%
Pollution Control Revenue Bonds with the proceeds from the July issuance of $40
million 5-7/8% Pollution Control Revenue Bonds.
In September 1993, Eastern Edison issued $8 million of 6.35% FMBs due
September 1, 2003 and $7 million of 4.875% FMBs due September 1, 1996. The
proceeds were used to redeem $8 million of 7-7/8% FMBs due 2002 and $7 million
of 6.5% FMBs due 1997.
The Company aggregate amount of current cash sinking fund requirements and
maturities of long-term debt, (excluding amounts that may be satisfied by
available property additions) for each of the five years following 1993 are:
none in 1994, $35 million in 1995, $7 million in 1996, none in 1997 and $60
million in 1998.
(G) Lines of Credit:
EUA System companies including Eastern Edison maintain short-term lines of
credit with various banks aggregating approximately $140 million. At December
31, 1993, unused short-term lines of credit were approximately $103 million.
In accordance with informal agreements with the various banks, commitment fees
are required to maintain certain lines of credit.
(H) Jointly Owned Facilities:
At December 31, 1993, in addition to the stock ownership interests
discussed in Note A, Summary of Significant Accounting Policies - Jointly Owned
Companies, Montaup had direct ownership interests in the following electric
generating facilities (dollars in thousands):
Accumulated
Provision For Net Construc-
Utility Depreciation Utility tion
Percent Plant in and Plant in Work in
Owned Service Amortization Service Progress
Montaup:
Canal Unit 2 50.00% $ 67,000 $40,142 $ 26,858 $ 873
Wyman Unit 4 1.96% 4,020 1,803 2,217 11
Seabrook Unit 1 2.90% 207,898 15,676 192,222 1,480
Millstone Unit 3 4.01% 183,938 33,491 150,447 486
The foregoing amounts represent Montaup's interest in each facility,
including nuclear fuel where appropriate, and are included on the
like-captioned lines on the Consolidated Balance Sheet. At December 31, 1993,
Montaup's total net investment in nuclear fuel of the Seabrook and Millstone
Units amounted to $5.7 million and $2.8 million, respectively. Montaup's
shares of related operating and maintenance expenses with respect to units
reflected in the table above are included in the corresponding operating
expenses.
(I) Fair Value of Financial Instruments:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate:
Cash and Temporary Cash Investments: The carrying amount approximates
fair value because of the short-term maturity of those instruments.
Redeemable Preferred Stock and Long-Term Debt: The fair value of the
Company's redeemable preferred stock and long-term debt were based on quoted
market prices for such securities.
The estimated fair values of the Company's financial instruments at
December 31, 1993 are as follows (dollars in thousands):
Carrying Fair
Amount Value
_________________________________________________________________
Cash and Temporary Cash Investments $ 697 $ 697
Redeemable Preferred Stock 30,000 30,975
Long-Term Debt 265,000 270,827
(J) Commitments and Contingencies:
Joint owners of nuclear projects are also subject to the risk that one of
their number may be unable or unwilling to finance its share of the project's
costs, thus jeopardizing continuation of the project. On February 28, 1991,
EUA Power (now known as Great Bay Power Corporation), a 12.13% owner of the
Seabrook Project in which Montaup has a 2.9% ownership interest, filed for
protection under Chapter 11 of the federal Bankruptcy Code. The Great Bay
Power Corporation Plan of Reorganization was confirmed by the Bankruptcy Court
on March 5, 1993. On February 2, 1994, the Official Bondholders Committee of
Great Bay Power Corporation announced that it accepted a plan of reorganization
financing proposal from Omega Advisers, Inc. which provided for a $35 million
equity investment in exchange for 60% of the equity of the reorganized Great
Bay Power Corporation. Implementation of the Omega proposal will require
modification of the plan of reorganization and approval from the Bankruptcy
Court, the NRC, FERC and the NHPUC. Under the plan, as modified, the
bondholders will receive 40% of the equity in the reorganized Great Bay Power
Corporation in exchange for their bondholder claims.
Nuclear Fuel Disposal and Nuclear Plant Decommissioning Costs: The
Nuclear Waste Policy Act of 1982 (NWPA) establishes that the federal government
is responsible for the disposal of spent nuclear fuel and obligates the
Department of Energy (DOE) to design, license, build and operate a permanent
repository for high level radioactive wastes and spent nuclear fuel. NWPA
specifies that DOE provide for the disposal of the waste and spent fuel
starting in 1998. DOE does not expect to achieve this date. As an interim
strategy, DOE is considering making available other federal government sites to
temporarily accommodate those firms that have depleted their own on-site spent
nuclear fuel storage capacity. The DOE anticipates that a permanent disposal
site for spent fuel will be ready to accept fuel for storage or disposal on or
before 2010. However, the NRC, which must license the site, has stated only
that a permanent repository will become available by the year 2025. Millstone
Unit 3 management has indicated it has sufficient on-site storage facilities to
accommodate high level wastes and spent fuel for the projected life of the
unit. Only minimal capital expenditures are projected for the foreseeable
future. At Seabrook there is on-site storage capacity which, with minimal
capital expenditures, should be sufficient for twenty years, or to the year
2010. No near-term capital expenditures are anticipated to accommodate an
increase in storage requirements after 2010. Montaup is required to pay a fee
based on its share of the generation from Millstone Unit 3 and Seabrook Unit
1. Montaup is recovering these fees through its fuel adjustment clause.
Also, Montaup is recovering through rates its share of estimated
decommissioning costs for Millstone Unit 3 and Seabrook Unit 1. Montaup's
share of the current estimate of total costs to decommission Millstone Unit 3
is $15.1 million in 1993 dollars, and Seabrook Unit 1 is $10.6 million in 1993
dollars. These figures are based on studies performed for the lead owners of
the plants. Montaup also pays into decommissioning reserves pursuant to
contractual arrangements with other nuclear generating facilities in which it
has an equity ownership interest or life of the unit entitlement. Such expenses
are currently recoverable through rates.
In December 1992, Montaup commenced a declaratory judgment action in which
it sought to have the Massachusetts Superior Court determine its rights under
(J) Commitments and Contingencies -- Continued
the Power Purchase Agreement between it and Aquidneck Power Limited Partnership
(Aquidneck). Montaup sought a declaration that the Power Purchase Agreement
was binding on the parties according to its terms. Aquidneck asserted that
Montaup had either an express or implied obligation to negotiate new terms and
conditions to the Power Purchase Agreement. Specifically, the defendants
sought to amend, through negotiations, certain milestone events to which they
were bound in the Power Purchase Agreement as written. Aquidneck failed to
meet the first milestone of January 1, 1993. Accordingly, on January 5, 1993,
Montaup exercised its rights to terminate the Power Purchase Agreement
effective immediately. In January 1994, a counterclaim by Aquidneck claimed
certain breaches of the Power Purchase Agreement, including an alleged failure
on the part of Montaup to renegotiate the terms and conditions of the Power
Purchase Agreement relating to the first milestone event. Also in January
1994, Aquidneck sought to join EUA and EUA Service as parties to the suit.
Aquidneck apparently claims $11 million of damages on the theory that EUA
can "avoid an approximately $11 million obligation to purchase capacity and
power which it does not currently need." Aquidneck seeks treble damages
claiming Montaup, EUA and EUA Service violated state laws willfully and
knowingly.
Montaup, EUA and EUA Service intend to defend the counterclaim vigorously
and believe that Aquidneck's claims have no basis in law.
Pensions: Eastern Edison and Montaup participate with the other EUA
System companies in non-contributory defined benefit pension plans covering
substantially all of their employees. Regulatory plan benefits are based on
years of service and average compensation over the four years prior to
retirement. In the case of the supplemental retirement plan for certain
officers of the EUA System, benefits are based on compensation at retirement
date. It is the EUA System's policy to fund the regular plan on a current
basis in amounts determined to meet the funding standards established by the
Employee Retirement Income Security Act of 1974.
Net pension (income) expenses for 1993, 1992 and 1991 included the
following
components (in thousands):
1993 1992 1991
Service cost - benefits earned during
the period $ 1,414,382 $ 1,342,740 $ 1,256,862
Interest cost on projected benefit
obligation 5,133,080 4,719,450 4,385,884
Actual return on assets (10,891,951) (4,834,470) (13,754,350)
Net amortization and deferrals 4,017,972 (1,689,973) 7,294,633
Total pension
(income) expense $( 326,517) $( 462,253) $( 816,971)
=========== =========== ===========
(J) Commitments and Contingencies -- Continued
Assumptions used to determine pension cost:
1993 1992 1991
Discount Rate 8.75% 8.75% 8.75%
Compensation Increase Rate 6.00% 6.00% 6.00%
Long-Term Return on Assets 10.00% 10.00% 10.00%
The assumptions used to determine pension costs were changed effective
January 1, 1994 to 7.25%, 4.75%, and 9.50%, for the discount rate, compensation
increase rate, and long-term return on assets rate, respectively. The funded
status of the plan cannot be presented separately for Eastern Edison and
Montaup as they participate in the plan with other subsidiaries of EUA.
All benefits provided under the supplemental plan are unfunded and any
payments to plan participants are made by Eastern Edison or Montaup. As of
December 31, 1993 approximately $1.2 million was included in accrued expenses
and other liabilities for this plan. For the years ended December 31, 1993 and
1992 expenses related to the supplemental plan were $169,000 and for the year
ended December 31, 1991, such expenses were $116,000.
Post-Retirement Benefits: Retired employees are entitled to participate
in health care and life insurance benefit plans. Health care benefits are
subject to deductibles and other limitations. Health care and life insurance
benefits are partially funded by EUA System companies for all qualified
employees.
Eastern Edison adopted FAS106, "Accounting for Post-Retirement Benefits
Other Than Pensions," as of January 1, 1993. This standard establishes
accounting and reporting standards for such post-retirement benefits as health
care and life insurance. FAS106 further requires the accrual of the cost of
such benefits during an employee's years of service and the recognition of the
actuarially determined total post-retirement benefit obligations (Transition
Obligation) earned by existing employees and retirees. The Company elected to
recognize the Transition Obligation over a twenty year period as permitted by
FAS106. The resultant annual expense, including amortization of the Transition
Obligation and net of capitalized amounts, amounted to approximately $4.8
million in 1993. The Regulatory decisions issued in December 1992 permitted
Eastern Edison to recover through rates approximately $2.1 million of this
amount in 1993. Montaup was allowed to defer FAS106-related costs through 1995
or until it filed for recovery of such amounts prior to that time. Accordingly
approximately $1.4 million of FAS106-related costs were deferred by Montaup in
1993. Montaup has requested recovery of all of its FAS106 expenses including
amortization of deferred amounts in its current rate application. The total
cost of Post-Retirement Benefits other than Pensions for 1993 includes the
following components (in thousands):
(J) Commitments and Contingencies -- Continued
1993
Service cost 767
Interest cost 3,556
Actual return on plan assets (41)
Amortization of transition obligation 2,040
Net other amortization & deferrals (40)
______________________________________________________________________________
Total Post-Retirement Benefit Cost 6,282
Assumptions
Discount rate 8.75%
Health care cost trend rate-near-term 13.00%
-long-term 6.25%
Salary increase rate 6.00%
Rate of return on plan assets- Union 8.50%
- Non-union 5.50%
Reconciliation of funded status:
1993
Accumulated Post-Retirement Benefit Obligation (APBO):
Retirees (20,556)
Active employee fully eligible for benefits (7,669)
Other active employees (9,488)
Total (37,713)
Fair Value of assets 747
Unrecognized Transition Obligation 31,674
Unrecognized Prior Service Cost -
Unrecognized Net Loss (Gain) 2,597
(Accrued)/Prepaid Post-Retirement Benefit Cost (2,695)
The assumptions used to determine post-retirement benefit costs were
changed effective January 1, 1994, to 7.25%, 13.0% and 5.0% for the discount
rate, near-term health care cost trend and long-term health care cost trend,
respectively. These assumptions were used to calculate the funded status of
Post-Retirement Benefits at December 31, 1993.
Increasing the assumed health care cost trend rate by 1% each year would
increase the total post-retirement benefit cost for 1993 by $0.6 million and
increase the total accumulated post-retirement benefit obligation by $5.2
million.
Eastern Edison has also established an irrevocable external Voluntary
Employee Benefit Association (VEBA) Trust Fund as required by the
aforementioned regulatory decisions. Contributions to the VEBA fund commenced
in March 1993 and contributions totaling approximately $2.3 million were made
during 1993.
Prior to 1993, Eastern Edison and Montaup followed the "pay-as-you-go"
methodology for accounting for post-retirement benefits other than pensions.
The costs of the benefit, which amounted to approximately $1.5 million in 1992
and $1.1 million in 1991 were charged to expense.
Post-Employment Benefits: In November 1992, FASB issued Statement No.
112, "Employers' Accounting for Postemployment Benefits". EUA is required to
(J) Commitments and Contingencies -- Continued
adopt this standard no later than January 1, 1994. The estimated impact of
this standard on the Eastern Edison is immaterial and therefore it is
anticipated that no liability will be recorded.
Long-Term Purchased Power Contracts: Eastern Edison is committed under
long-term purchased power contracts, expiring on various dates through
September 2021, to pay demand charges whether or not energy is received. Under
terms in effect at December 31, 1993, the aggregate annual minimum commitments
for such contracts are approximately $121 million in 1994, $118 million in 1995
and 1996, and will aggregate $1.7 billion for the ensuing years. In addition,
the EUA System is required to pay additional amounts depending on the actual
amount of energy received under such contracts. The demand costs associated
with these contracts are reflected as Purchased Power-Demand on the
Consolidated Statement of Income. Such costs are recoverable through rates.
Construction: The Company cash construction requirements are estimated
at $36.0 million for the year 1994 and $104.3 million for the years 1995
through 1998.
Environmental Matters: The Comprehensive Environmental Response,
Compensation Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, and certain similar state statutes authorize
various governmental authorities to seek court orders compelling responsible
parties to take cleanup action at disposal sites which have been determined by
such governmental authorities to present an imminent and substantial danger to
the public and to the environment because of an actual or threatened release of
hazardous substances. Because of the nature of the Eastern Edison business,
various by-products and substances are produced or handled which are classified
as hazardous under the rules and regulations promulgated by the EPA as well as
state and local authorities. The Company generally provides for the disposal
of such substances through licensed contractors, but these statutory provisions
generally impose potential joint and several responsibility on the generators
of the wastes for cleanup costs. Eastern Edison and Montaup have been notified
with respect to a number of sites where they may be responsible for such costs,
including sites where they may have joint and several liability with other
responsible parties. It is the policy of the Company companies to notify
liability insurers and to initiate claims; at this time, however, no claims
have been filed against any insurer and the Company is unable to predict
whether liability, if any, will be assumed by, or can be enforced against, the
insurance carrier in these matters.
As of December 31, 1993, Eastern Edison and Montaup have incurred costs of
approximately $108,000 in connection with these sites. These amounts have been
financed primarily by internally generated cash.
The Company estimates that additional costs ranging from $450,000 to
$850,000 may be incurred at these sites through 1995 by the Company and the
other responsible parties. Estimates beyond 1995 cannot be made since site
studies, which are the basis of these estimates, have not been completed.
As a general matter Eastern Edison and Montaup will seek to recover costs
relating to environmental proceedings in their rates, although there is no
assurance that they will be authorized to recover any particular cost. Montaup
(J) Commitments and Contingencies -- Continued
is currently recovering certain of the incurred costs in its rates. Estimated
amounts after 1995 are not now determinable since site studies which are the
basis of these estimates have not been completed. As a result of the
recoverability of cleanup costs in rates and the uncertainty regarding both its
estimated liability, as well as its potential contributions from insurance
carriers and other responsible parties, the Company does not believe that the
ultimate impact of the environmental costs will be material to Eastern Edison
and thus no loss accrual has been made.
The Clean Air Act Amendments of 1990 (Clean Air Act) created new
regulatory programs and generally updated and strengthened air pollution
control laws. These amendments will expand the regulatory role of the United
States Environmental Protection Agency (EPA) regarding emissions from electric
generating facilities and a host of other sources. Montaup generating
facilities will most probably be first affected in 1995, when EPA regulations
will take effect. Tests at Montaup's coal-fired Somerset Unit No. 6 indicate
it will be able to utilize lower sulfur coal than is already being burned to
meet the 1995 air standards with only a minimal capital investment. Montaup
determined that it would not be economical to repair Unit No. 5 of the Somerset
Station and therefore has placed it in deactivated reserve. Eastern Edison
does not anticipate the impact from the Amendments to be material to its
financial position.
In April 1992, the Northeast States for Coordinated Air Use Management
(NESCAUM), an environmental advisory group for eight Northeast states including
Massachusetts and Rhode Island, issued recommendations for oxides of nitrogen
controls for existing utility boilers required to meet the ozone non-attainment
requirements of the Clean Air Act Amendments of 1990 (Clean Air Act). The
NESCAUM recommendations are more restrictive than the Clean Air Act
requirements. The Massachusetts Department of Environmental Management has
amended its regulations to require that Reasonably Available Control Technology
(RACT) be implemented at all stationary sources potentially emitting 50 tons or
more per year of oxides of nitrogen Rhode Island has not yet issued regulations
to implement oxides of nitrogen reduction requirements. Montaup is in the
process of reviewing compliance strategies. Any compliance strategy may
require the implementation of additional pollution control technology as early
as 1995. Montaup would seek recovery of pollution control expenditures through
rates.
A number of scientific studies in the past several years have examined the
possibility of health effects from electric and magnetic fields (EMF) that are
found everywhere there is electricity. While some of the studies have
indicated there may be some association between exposure to EMF and health
effects, many studies have indicated no direct association. In addition, the
research to date has not conclusively established a direct causal relationship
between EMF exposure and human health. Additional studies, which are intended
to provide a better understanding of the subject, are continuing.
Some states have enacted regulations to limit the strength of magnetic
fields at the edge of transmission line rights-of-way. Rhode Island has
enacted a statute which authorizes and directs the Energy Facility Siting Board
to establish rules and regulations governing construction of high voltage
transmission lines of 69 KV or more. Various bills are pending in the
(J) Commitments and Contingencies -- Continued
Massachusetts legislature that would require certain disclosures about the
potential health effects of EMF. Management cannot predict the ultimate
outcome of the EMF issue.
Guarantee of Financial Obligations: Montaup is a 3.27% equity participant
in two companies which own and operate transmission facilities interconnecting
New England and the Hydro Quebec system in Canada. Montaup has guaranteed
approximately $6.0 million of the outstanding debt of these two companies. In
addition, Montaup has a minimum rental commitment which totals approximately
$14.3 million under a noncancellable transmission facilities support agreement
for years subsequent to 1993.
Other
On January 8, 1992, the Massachusetts Municipal Wholesale Electric
Cooperative and its member municipalities, all of which are members of NEPOOL,
filed a suit in Massachusetts Superior Court against the investor-owned
utilities that are also members of NEPOOL. The suit alleges damages by
NEPOOL's establishment of minimum size requirements for generating units
designated as pool-planned generating units. The suit names as defendants
members of NEPOOL, including Blackstone, Eastern Edison, Montaup and Newport
(NEPOOL members of the EUA System). Discovery has not begun, pending
resolution of certain procedural matters. FERC, initiated an action when the
EUA subsidiaries and other participants filed and amendment to the NEPOOL
Agreement with the FERC that concerns many of the issues raised in the
Massachusetts litigation. The plaintiffs in the Massachusetts litigation, and
one other participant have objected to the amendment, and have sought tot
prevent or delay its effectiveness. The FERC has not yet determined whether or
when it will hold hearings on this matter. Management cannot predict the
ultimate outcome of this proceeding at this time.
Eastern Edison Company and Subsidiary Schedule V
Property, Plant and Equipment
(In Thousands)
COL. A COL. B COL. C COL. D COL. E COL. F
Balance at Other Charges Balance at
Beginning Additions Add (Deduct) - End of
Classification of Period at Cost Retirements Describe Period
For the Year Ended December 31, 1993:
Production Nuclear........ $367,193 $492 $498 ($48) (a) $367,139
Production --Steam........ 124,377 3,578 894 127,061
Production -- Other....... 4,571 1 4,572
Transmission and Distribution 239,779 10,191 3,075 246,895
General Plant............. 19,061 453 275 19,239
Intangible Plant.......... 273 273
Electric Property Held for Future Use 605 605
Nuclear Fuel in Service... 20,358 2,347 4,512 18,193
Construction Work in Progress 3,174 3,605 6,779
Nuclear Fuel in Process... 903 (216) 687
Total Utility Plant............ $780,294 $20,451 $0 $9,254 $0 ($48) $0 $791,443
Non-Utility Property $2,715 $0 $0 $0 $2,715
For the Year Ended December 31, 1992:
Production Nuclear........ $367,748 $654 $509 ($700) (b) 367,193
Production --Steam........ 122,336 2,409 368 124,377
Production -- Other....... 4,564 7 4,571
Transmission and Distribution 234,292 11,842 6,348 (7) (b) 239,779
General Plant............. 18,835 251 20 (5) (b) 19,061
Intangible Plant........ 273 273
Electric Property Held for Future Use 608 3 605
Nuclear Fuel in Service. 18,857 4,998 3,497 20,358
Construction Work in Progress 5,014 (1,840) 3,174
Nuclear Fuel in Process. 4,003 (3,100) 903
Total Utility Plant.......... $776,530 $15,221 $10,745 ($712) $780,294
Non-Utility Property $2,715 $0 $0 $0 $2,715
For the Year Ended December 31, 1991:
Production Nuclear...... $367,562 $689 $503 $367,748
Production --Steam........ 131,244 3,886 12,792 (b (2) (c) 122,336
Production -- Other....... 4,472 97 5 4,564
Transmission and Distribution 225,933 13,138 4,779 234,292
General Plant........... 18,054 866 45 (40) (c) 18,835
Intangible Plant........ 231 42 (c) 273
Electric Property Held for 608 608
Nuclear Fuel in Service... 15,557 6,343 3,043 18,857
Construction Work in Progress 5,310 (296) 5,014
Nuclear Fuel in Process. 9,026 (5,023) 4,003
Total Utility Plant.......... $777,997 $19,700 $21,167 $0 $776,530
Non-Utility Property $2,715 $0 $0 $0 $2,715
(a) Millstone Sales Tax Refund received for years 1982-1986.
(b) Includes:
Credit for Millstone Connecticut Sales Tax Adjustment of ($245).
Credit for Seabrook Decommissioning Refund of ($586).
Seabrook Pre-Operating Decommissioning Surety Premium of $119.
(c) Transfer to Other Accounts.
Eastern Edison Company and Subsidiary Schedule VI
Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment
(in Thousands)
Column A Column B Column C Column D Column E Column F
Other
Additions Charges
Balance at Charged to Add Balance at
Beginning Costs and (Deduct) - End of
Description of Period Expenses Retirements Describe Period
For the Year Ended December 31, 1993:
Accumulated Depreciation, Depletion
and Amortization $209,374 $29,131 $12,057 ($57) (a) $266,391
Nonutility Property $10 $0 $10
For the Year Ended December 31, 1992:
Accumulated Depreciation, Depletion and
Amortization $191,700 $28,622 $11,417 $469 (b) $209,374
Nonutility Property $10 $0 $10
For the Year Ended December 31, 1991:
Accumulated Depreciation, Depletion and
Amortization $186,449 $27,497 $22,189 ($57) (a) $191,700
Nonutility Property $10 $0 $10
(a) FERC audit adjustment for period 1/1/81 to 12/31/85 due to change in rate - ($57)
(b) Sale of Water Heaters, Buyout of Nuclear Fuel Contract , and FERC Audit Adjustment
Sale of Water Heaters - $494
NEMAL Buyout - $32
FERC Audit Adjustment - ($57)
Eastern Edison Company and Subsidiary Schedule IX
Short-Term Borrowings
(In Thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Maximum Average Weighted
Category of amount amount average
aggregate Balance Weighted outstanding outstanding Interest rate
short-term at end Average during during the during the
borrowings of period Interest Rate the period period (a) period (b)
Notes Payable
to Banks:
December 31,
1993 $0 0.0% $12,403 $1,818 3.5%
1992 $0 0.0% $7,055 $0 4.1%
1991 $0 0.0% $1,985 $25 6.0%
(a) The average amount outstanding during the period was computed by
dividing the summation of the daily principal balances outstanding by
365 days in 1993 and 1991, respectively and 366 in 1992.
(b) The weighted average interest rate during the period was computed by
dividing the actual interest expense by the daily average
short-term debt outstanding.
Schedule X
Eastern Edison Company and Subsidiary
Supplementary Income Statement Information
(In Thousands of Dollars)
COLUMN A COLUMN B
For the Years Ended December 31,
1993 1992 1991
Charged to Costs and Expense
Taxes -- Other than Income: (a)
Eastern Edison Company................. 4,398 3,715 3,529
Montaup Electric Company............... 5,438 6,235 5,161
Total.................................. 9,836 9,950 8,690
Less: Charged to Other Accounts....... 550 550 628
Charged to Operating Expenses.......... 9,286 9,400 8,062
Maintenance Expense Charged to Operations 16,254 13,364 14,706
Amounts of rents, advertising costs and research and development costs did
not exceed 1% of gross revenues.
Amounts of depreciation expense were as shown in the income statement and
notes thereto.
Local
NOTES: (a) Payroll Property Sales and Other Tax
Taxes Taxes Use Tax Expense Total
For the Year Ended
December 31, 1993:
Eastern Edison.......... 1,231 2,722 445 4,398
Montaup................. 970 4,172 91 205 5,438
Total................... 2,201 6,894 91 650 9,836
For the Year Ended
December 31, 1992:
Eastern Edison.......... 1,214 2,500 1 3,715
Montaup................. 880 5,016 339 6,235
Total................... 2,094 7,516 340 9,950
For the Year Ended
December 31, 1991:
Eastern Edison.......... 1,218 2,308 3 3,529
Montaup................. 824 4,337 0 5,161
Total................... 2,042 6,645 3 8,690
Report of Independent Accountants
To the Directors and Shareholders of
Eastern Edison Company and Subsidiary:
We have audited the consolidated financial statements and the consolidated
financial statement schedules of Eastern Edison Company (a wholly-owned
subsidiary of Eastern Utilities Associates) and its subsidiary, Montaup
Electric Company, (collectively referred to as the "Company" hereafter) listed
in item 14 (a) (1) and (2) of this Form 10-K. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1993 and 1992, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1993 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
Coopers & Lybrand
Boston, Massachusetts
March 4, 1994