SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-3446
(LOGO) NEW ENGLAND ELECTRIC SYSTEM
(Exact name of registrant as specified in charter)
MASSACHUSETTS 04-1663060
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
25 Research Drive, Westborough, Massachusetts 01582
(Address of principal executive offices)
Registrant's telephone number, including area code
(508-366-9011)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes (X) No ( )
Common Shares, par value $1 per share, authorized and outstanding:
64,969,652 shares at September 30, 1994.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Statements of Consolidated Income
Periods Ended September 30
(Unaudited)
Quarter Nine Months
------- -----------
1994 1993 1994 1993
---- ---- ---- ----
(In Thousands)
Operating revenue $591,633 $576,644 $1,685,617 $1,674,270
-------- -------- ---------- ----------
Operating expenses:
Fuel for generation 55,572 59,870 171,350 165,916
Purchased electric energy 139,279 143,405 379,304 403,598
Other operation 123,504 109,439 349,348 374,809
Maintenance 36,765 34,966 108,818 109,091
Depreciation and amortization 80,057 74,719 236,293 229,261
Taxes, other than income taxes 32,529 30,085 99,044 93,239
Income taxes 39,573 41,662 107,528 89,101
-------- -------- ---------- ----------
Total operating expenses 507,279 494,146 1,451,685 1,465,015
-------- -------- ---------- ----------
Operating income 84,354 82,498 233,932 209,255
Other income:
Allowance for equity funds used during
construction 2,540 762 7,221 2,419
Equity in income of generating companies 2,664 2,221 7,925 8,016
Other income (expense) - net 46 1,236 (1,468) 2,461
-------- -------- ---------- ----------
Operating and other income 89,604 86,717 247,610 222,151
-------- -------- ---------- ----------
Interest:
Interest on long-term debt 23,636 25,303 68,869 76,454
Other interest 5,518 1,794 10,098 4,854
Allowance for borrowed funds used during
construction (2,419) (814) (5,234) (1,852)
-------- -------- ---------- ----------
Total interest 26,735 26,283 73,733 79,456
-------- -------- ---------- ----------
Income after interest 62,869 60,434 173,877 142,695
Preferred dividends of subsidiaries 2,172 3,005 6,525 8,291
Minority interests 1,846 1,898 5,644 6,141
-------- -------- ---------- ----------
Net income $ 58,851 $ 55,531 $ 161,708 $ 128,263
======== ======== ========== ==========
Common shares 64,969,65264,969,65264,969,652 64,969,652
Net income per common share $.91 $.85 $2.49 $1.97
Dividends declared per share $.575 $.560 $1.710 $1.660
The accompanying notes are an integral part of these financial statements.
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Statements of Consolidated Income
Twelve Months Ended September 30
(Unaudited)
1994 1993
---- ----
(In Thousands)
Operating revenue $2,245,325 $2,241,047
---------- ----------
Operating expenses:
Fuel for generation 232,616 230,396
Purchased electric energy 503,013 534,135
Other operation 466,638 495,065
Maintenance 145,946 155,350
Depreciation and amortization 303,663 305,019
Taxes, other than income taxes 126,298 121,365
Income taxes 139,551 114,759
---------- ----------
Total operating expenses 1,917,725 1,956,089
---------- ----------
Operating income 327,600 284,958
Other income:
Allowance for equity funds used during construction8,597 3,168
Equity in income of generating companies 10,925 10,470
Other income (expense) - net (5,063) (1,072)
---------- ----------
Operating and other income 342,059 297,524
---------- ----------
Interest:
Interest on long-term debt 93,193 103,729
Other interest 15,052 6,418
Allowance for borrowed funds used during
construction (6,198) (2,415)
---------- ----------
Total interest 102,047 107,732
---------- ----------
Income after interest 240,012 189,792
Preferred dividends of subsidiaries 8,819 10,935
Minority interests 7,525 8,565
---------- ----------
Net income $ 223,668 $ 170,292
========== ==========
Common shares 64,969,652 64,969,652
Net income per common share $3.44 $2.62
Dividends declared per share $2.270 $2.200
The accompanying notes are an integral part of these financial statements.
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
September 30,December 31,
ASSETS 1994 1993
------ ---- ----
(In Thousands)
Utility plant, at original cost $4,846,064 $4,661,612
Less accumulated provisions for depreciation and amortization1,595,4131,511,271
---------- ----------
3,250,651 3,150,341
Net investment in Seabrook 1 under rate settlement 55,206 103,344
Construction work in progress 348,988 228,816
---------- ----------
Net utility plant 3,654,845 3,482,501
---------- ----------
Oil and gas properties, at full cost 1,241,562 1,220,110
Less accumulated provision for amortization 951,872 884,837
---------- ----------
Net oil and gas properties 289,690 335,273
---------- ----------
Investments:
Nuclear power companies, at equity 47,041 46,342
Other subsidiaries, at equity 42,354 44,676
Other investments, at cost 48,602 28,836
---------- ----------
Total investments 137,997 119,854
---------- ----------
Current assets:
Cash 4,033 2,876
Accounts receivable, less reserves of $17,354,000 and
$14,551,000 265,879 275,020
Unbilled revenues 48,875 43,400
Fuel, materials and supplies, at average cost 86,447 74,314
Prepaid and other current assets 64,961 69,004
---------- ----------
Total current assets 470,195 464,614
---------- ----------
Accrued Yankee Atomic costs 132,920 103,501
Deferred charges and other assets 298,981 290,135
---------- ----------
$4,984,628 $4,795,878
========== ==========
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:
Common share equity:
Common shares, par value $1 per share:
Authorized - 150,000,000 shares
Outstanding - 64,969,652 shares $ 64,970 $ 64,970
Paid-in capital 736,823 736,823
Retained earnings 778,685 728,075
---------- ----------
Total common share equity 1,580,478 1,529,868
Minority interests in consolidated subsidiaries 55,254 55,855
Cumulative preferred stock of subsidiaries 147,016 147,528
Long-term debt 1,512,499 1,511,589
---------- ----------
Total capitalization 3,295,247 3,244,840
---------- ----------
Current liabilities:
Long-term debt due within one year 47,920 12,920
Short-term debt 147,475 71,775
Accounts payable 137,392 128,342
Accrued taxes 24,428 10,332
Accrued interest 19,920 23,278
Dividends payable 35,172 36,950
Other current liabilities 133,214 153,812
---------- ----------
Total current liabilities 545,521 437,409
---------- ----------
Deferred federal and state income taxes 716,723 705,026
Unamortized investment tax credits 97,415 99,355
Accrued Yankee Atomic costs 132,920 103,501
Other reserves and deferred credits 196,802 205,747
---------- ----------
$4,984,628 $4,795,878
========== ==========
The accompanying notes are an integral part of these financial statements.
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30
(Unaudited)
1994 1993
---- ----
(In Thousands)
Operating Activities:
Net income $ 161,708 $ 128,263
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 239,450 232,441
Deferred income taxes and investment tax credits - net9,804 (27,137)
Allowance for funds used during construction (12,455) (4,271)
Amortization of unbilled revenues (28,305)
Minority interests 5,644 6,141
Early retirement program 23,922
Decrease (increase) in accounts receivable, net
and unbilled revenues 3,666 2,651
Decrease (increase) in fuel, materials, and supplies(12,133) 4,264
Increase (decrease) in accounts payable 9,050 (59,846)
Increase (decrease) in other current liabilities 18,445 35,657
Other, net (21,121) 49,848
--------- ---------
Net cash provided by operating activities $ 373,753 $ 391,933
--------- ---------
Investing Activities:
Plant expenditures, excluding allowance for
funds used during construction $(327,176) $(219,030)
Oil and gas exploration and development (21,452) (12,928)
Other investing activities (15,995) 1,417
--------- ---------
Net cash used in investing activities $(364,623) $(230,541)
--------- ---------
Financing Activities:
Dividends paid to minority interests $ (8,416) $ (7,727)
Dividends paid on NEES common shares (110,705) (105,881)
Short-term debt 75,700 (40,900)
Long-term debt - issues 53,000 314,900
Long-term debt - retirements (17,040) (318,340)
Preferred stock - issues 55,000
Preferred stock - redemption (512) (35,000)
Premium on redemption of preferred stock of subsidiaries (1,231)
Premium on reacquisition of long-term debt (7,355)
--------- ---------
Net cash used in financing activities $ (7,973) $(146,534)
--------- ---------
Net increase (decrease) in cash and cash equivalents$ 1,157 $ 14,858
Cash and cash equivalents at beginning of period 2,876 2,768
--------- ---------
Cash and cash equivalents at end of period $ 4,033 $ 17,626
========= =========
Supplementary Information:
Interest paid less amounts capitalized $ 73,824 $ 75,266
--------- ---------
Federal and state income taxes paid $ 82,404 $ 99,589
--------- ---------
The accompanying notes are an integral part of these financial statements.
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Statements of Consolidated Retained Earnings
Periods Ended September 30
(Unaudited)
Quarter Nine Months
------- -----------
1994 1993 1994 1993
---- ---- ---- ----
(In Thousands)
Retained earnings at beginning of period$757,192 $685,398 $ 728,075 $ 684,132
Net income 58,851 55,531 161,708 128,263
Dividends declared on common shares (37,358) (36,384) (111,098) (107,850)
Premium on redemption of preferred
stock of subsidiaries (1,231) (1,231)
-------- -------- --------- ---------
Retained earnings at end of period $778,685 $703,314 $ 778,685 $ 703,314
======== ======== ========= =========
Consolidated Electric Operating Statistics
Periods Ended September 30
Quarter Nine Months
------- -----------
1994 1993 1994 1993
---- ---- ---- ----
(In Thousands of KWH)
Generated at nuclear power plants 413,229 311,983 1,207,259 1,319,753
Generated at system thermal plants 2,629,743 3,177,393 8,539,337 8,467,558
Generated at system hydro plants 228,994 145,013 1,116,801 904,294
Generated at pumped storage plant 119,575 137,042 392,276 411,854
Less energy for pumping 185,034 189,026 539,501 564,507
--------- --------- ---------- ----------
Total generated 3,206,507 3,582,405 10,716,172 10,538,952
Nuclear entitlements 525,668 331,115 1,835,397 1,628,355
Purchased electric energy 2,544,721 2,197,944 6,361,857 6,090,802
--------- --------- ---------- ----------
Total generated and purchased 6,276,896 6,111,464 18,913,426 18,258,109
Less losses, company use, etc. 350,730 465,388 1,170,956 1,025,713
--------- --------- ---------- ----------
Total sales 5,926,166 5,646,076 17,742,470 17,232,396
========= ========= ========== ==========
The accompanying notes are an integral part of these financial statements.
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Statements of Consolidated Retained Earnings
Periods Ended September 30
(Unaudited)
Twelve Months
-------------
1994 1993
---- ----
(In Thousands)
Retained earnings at beginning of period $ 703,314 $ 677,187
Net income 223,668 170,292
Dividends declared on common shares (147,481) (142,934)
Premium on redemption of preferred stock of subsidiaries(816) (1,231)
--------- ---------
Retained earnings at end of period $ 778,685 $ 703,314
========= =========
Consolidated Electric Operating Statistics
Twelve Months Ended September 30
Twelve Months
-------------
1994 1993
---- ----
(In Thousands of KWH)
Generated at nuclear power plants 1,584,184 1,563,803
Generated at system thermal plants 11,697,323 11,703,745
Generated at system hydro plants 1,466,432 1,207,340
Generated at pumped storage plant 528,780 546,444
Less energy for pumping 725,778 747,979
---------- ----------
Total generated 14,550,941 14,273,353
Nuclear entitlements 2,404,040 2,336,212
Purchased electric energy 8,087,697 7,682,408
---------- ----------
Total generated and purchased 25,042,678 24,291,973
Less losses, company use, etc. 1,742,526 1,376,885
---------- ----------
Total sales 23,300,152 22,915,088
========== ==========
The accompanying notes are an integral part of these financial statements.
Note A - Hazardous Waste
- ------------------------
The Federal Comprehensive Environmental Response, Compensation
and Liability Act, more commonly known as the "Superfund" law,
imposes strict, joint and several liability, regardless of fault,
for remediation of property contaminated with hazardous substances.
Parties liable include past and present site owners and operators,
transporters that brought wastes to the site, and entities that
generated or arranged for disposal or treatment of wastes
ultimately disposed of at the site. A number of states, including
Massachusetts, have enacted similar laws.
The electric utility industry typically utilizes and/or
generates in its operations a range of potentially hazardous
products and by-products. These products or by-products may not
have previously been considered hazardous, and may not currently be
considered hazardous, but may be identified as such by federal,
state, or local authorities in the future. The New England
Electric System (NEES) subsidiaries currently have in place an
environmental audit program intended to enhance compliance with
existing federal, state, and local requirements regarding the
handling of potentially hazardous products and by-products.
Federal and state environmental agencies, as well as private
parties, have contacted or initiated legal proceedings against NEES
and certain subsidiaries regarding liability for cleanup of sites
alleged to contain hazardous waste or substances. NEES and/or its
subsidiaries have been named as a potentially responsible party
(PRP) by either the U.S. Environmental Protection Agency (EPA) or
the Massachusetts Department of Environmental Protection (DEP) for
19 sites at which hazardous waste is alleged to have been disposed.
NEES and its subsidiaries are also aware of other sites which they
may be held responsible for remediating and it is likely that, in
the future, NEES and its subsidiaries will become involved in
additional proceedings demanding contribution for the cost of
remediating additional hazardous waste sites.
The most prevalent types of hazardous waste sites that NEES
and its subsidiaries have been connected with are former
manufactured gas locations. Until the early 1970's, NEES was a
combined electric and gas holding company system. NEES is
currently aware of approximately 40 locations (including five of
the 19 locations for which NEES companies are PRPs) at which gas
may have been manufactured and/or stored. Of the manufactured gas
locations, 17 have been listed for investigation by the DEP.
Note A - Hazardous Waste - Continued
- ------------------------
In a lawsuit involving one of these sites, the United States Court
of Appeals for the First Circuit affirmed in 1993 an earlier
adverse decision against NEES, Massachusetts Electric Company
(Massachusetts Electric), and New England Power Service Company.
The decision held these companies liable for cleanup of the
properties involved in the case.
In 1993, the Massachusetts Department of Public Utilities
approved a rate agreement filed by Massachusetts Electric that
resolved all rate recovery issues related to Massachusetts
manufactured gas sites as well as certain other Massachusetts
hazardous waste sites. The agreement allows for environmental
remediation costs for such sites to be met from a special interest
bearing fund established on Massachusetts Electric's books. The
fund's initial balance of $30 million has come from previously
recorded reserves and is not recoverable from customers. Annual
contributions of $3 million, adjusted for inflation, are being
added to the fund by Massachusetts Electric and are recoverable in
rates. Under the agreement, any shortfalls in the fund will be
paid by Massachusetts Electric and be recovered through rates over
seven years, without interest.
NEES has been notified by the EPA that it is one of several
PRPs for cleanup of the Pine Street Canal Superfund site in
Burlington, Vermont, at which coal tar and other materials were
deposited. Between 1931 and 1951, NEES and its predecessor owned
all of the common stock of Green Mountain Power Corporation. Prior
to, during, and after that time, gas was manufactured at the Pine
Street Canal site. Among the waste by-products of that process
were coal and oil tars. The EPA had brought a lawsuit against NEES
and other parties to recover all of the EPA's past and future
response costs at this site. In 1990, the litigation ended with
the filing of a final consent decree with the court. Under the
terms of the settlement, to which 14 entities were party, the EPA
recovered its past response costs. NEES recorded its share of
these costs in 1989. NEES remains a PRP for ongoing and future
response costs. In November 1992, the EPA proposed a cleanup plan
estimated by the EPA to cost $50 million. In June 1993, the EPA
withdrew this cleanup plan in response to public concern about the
plan and the cost. It is not known at this time what the ultimate
cleanup plan will be, how much it will cost, or what portion NEES
will have to pay.
Note A - Hazardous Waste - Continued
- ------------------------
Predicting the potential costs to investigate and remediate
hazardous waste sites continues to be difficult. Factors such as
the evolving nature of remediation technology and regulatory
requirements and the particular characteristics of each site,
including, for example the size of the site, the nature and amount
of waste disposed at the site, and the surrounding geography and
land use, make precise estimates difficult. There are also
significant uncertainties as to the portion, if any, of the
investigation and remediation costs of any particular hazardous
waste site that may ultimately be borne by NEES or its
subsidiaries. At September 30, 1994, NEES had total reserves for
environmental response costs of $51 million and a related
regulatory asset of $16 million.
NEES believes that hazardous waste liabilities for all sites
of which it is aware, and which are not covered by a rate
agreement, will not be material (10 percent of common equity) to
its financial position. Where appropriate, the NEES companies
intend to seek recovery from their insurers and from other PRPs,
but it is uncertain whether, and to what extent, such efforts will
be successful.
Note B - Purchased Power Contract Dispute
- -----------------------------------------
On October 26, 1994, New England Power Company (NEP) was sued
by Milford Power Limited Partnership (MPLP) in the Superior Court
for Worcester County, Massachusetts. MPLP, a venture of Enron
Corporation and Jones Capital, owns a 149 MW gas-fired power plant
in Milford, Massachusetts. NEP purchases 56 percent of the power
output of the facility under a long-term contract with MPLP. MPLP
alleges that NEP has engaged in a scheme to cause MPLP and its
power plant to fail and has prevented MPLP from finding a long-term
buyer for the remaining 44 percent of the facility's output. The
complaint includes allegations that NEP has violated the Federal
Racketeer Influenced and Corrupt Organizations Act, engaged in
unfair or deceptive acts in trade or commerce, and breached
contracts. MPLP seeks compensatory damages in an unspecified
amount, as well as treble damages. NEP believes that the
allegations of wrongdoing are without merit.
Note C
- ------
In the opinion of the Company, these statements reflect all
adjustments (which include normal recurring adjustments) necessary
for a fair statement of the results of its operations for the
periods presented and should be considered in conjunction with the
notes to the financial statements in NEES' 1993 Annual Report.
Item 2. Management's Discussion and Analysis of Financial
---------------------------------------------------------
Condition and Results of Operations
-----------------------------------
Earnings
- --------
Earnings for the third quarter of 1994 were $.91 per share,
compared to $.85 earned in the third quarter of 1993. Earnings for
the first nine months of 1994 were $2.49 per share compared to
$1.97 per share earned during the corresponding period in 1993.
The table below details the principal reasons for these
increases in consolidated earnings:
Period ending September 30
--------------------------
3 months 9 months
-------- --------
1993 earnings $ .85 $1.97
Increased kilowatthour sales billed
to ultimate customers .10 .18
Decreased purchased power charges
excluding fuel .09 .11
Increased other operation and maintenance
(excluding 1993 one-time charges
listed below) (.15) (.24)
1994 effects of retail companies' rate
agreements:
General rate reduction/service
extension discounts (.08) (.22)
Unbilled revenue amortization .12 .26
1994 unbilled revenue - seasonal change (.06) (.08)
1993 One-time charges:
Manufactured gas waste reserves .21
Organizational review .27
Other impacts on earnings .04 .03
----- -----
1994 earnings $ .91 $2.49
===== =====
Kilowatthour (KWH) sales to ultimate customers increased 3.3
percent and 2.0 percent in the third quarter and first nine months
of 1994. These increases reflect weather conditions and an
improving economy, partially offset by the reduction of one billing
day due to meter reading schedules.
The decrease in purchased power costs primarily reflects
overhauls and refueling shutdowns of partially owned nuclear power
suppliers in the third quarter of 1993. The increase in operation
and maintenance costs reflects increased computer system
development costs, increased pension and other retiree benefit
costs, and general increases in other areas. New England Power
Company (NEP) estimates that it will incur increased costs of
approximately $10 million in the fourth quarter of 1994 in
connection with overhauls of wholly owned generating units, in part
to achieve compliance with the Clean Air Act. (See Clean Air
Requirements section).
The retail rate agreements were implemented over the last
twelve months by Massachusetts Electric Company (Massachusetts
Electric) and The Narragansett Electric Company (Narragansett).
Included in these rate agreements is a temporary rate reduction by
Massachusetts Electric which ended on October 31, 1994, and for
both companies, provisions for the recognition of revenues for
electricity delivered but not yet billed (unbilled revenues). In
addition, the rate agreements provide a 5 percent discount from
base rates to certain large commercial and industrial customers.
For a further discussion of these rate agreements, see the Rate
Activity section.
Earnings for the twelve months ended September 30, 1994 were
$3.44 per share, which includes a one-time increase to fourth
quarter 1993 earnings of $.19 per share related to the reversal of
certain reserves and other effects of the Massachusetts Electric
rate agreement. The agreement resolved the issue of rate recovery
of environmental response costs for Massachusetts manufactured gas
locations, certain storm restoration costs, and other costs
previously charged to expense.
Rate Activity
- -------------
In 1993, the Massachusetts Department of Public Utilities
(MDPU) approved a rate agreement filed by Massachusetts Electric,
the Massachusetts Attorney General, and two groups of large
commercial and industrial customers.
Under the agreement, effective December 1, 1993, Massachusetts
Electric began implementing an 11 month general rate decrease of
$26 million (annual basis), from the level of rates then in effect.
This rate reduction continued in effect through October 31, 1994,
at which time rates increased to the previously approved levels.
The agreement also provided for rate discounts totaling up to
$4 million on an annual basis available for the period ended
October 31, 1994 for large commercial and industrial customers who
signed agreements to give a five year notice to Massachusetts
Electric before they purchase power from another supplier or
generate any additional power themselves. The notice provision may
be reduced from five to three years under certain conditions.
These discounts increased in November 1994 to an annual level of
$11 million, representing a 5 percent discount on base rates, if
all eligible customers sign agreements. Customers representing
approximately 87 percent of all eligible revenues have signed
agreements. Massachusetts Electric also agreed not to increase its
base rates before October 1, 1995. These decreases in revenues are
being offset by the recognition, for accounting purposes, of
unbilled revenue. The agreement provided that unbilled revenue at
September 30, 1993 of approximately $35 million would be amortized
over thirteen months commencing December 1, 1993.
The agreement also resolved all rate recovery issues
associated with environmental remediation costs of Massachusetts
manufactured gas waste sites formerly owned by Massachusetts
Electric and its affiliates, as well as certain other Massachusetts
Electric environmental cleanup costs (see Hazardous Waste section).
In July 1994, the Rhode Island Public Utilities Commission
approved a rate agreement between Narragansett and the Rhode Island
Division of Public Utilities and Carriers that provides for a 5
percent base rate discount, excluding fuel costs, for
Narragansett's large commercial and industrial customers who sign
an agreement to give a five year notice to Narragansett before they
purchase power from another supplier or generate any additional
power themselves. The notice provision may be reduced from five to
three years under certain conditions. The amount of the discount,
if all eligible customers sign agreements, is approximately $4
million per year. Customers representing approximately 63 percent
of all eligible revenues have signed agreements. The agreement
also provides for Narragansett to recognize unbilled revenues for
accounting purposes. Unbilled revenues at December 31, 1993 of
approximately $14 million are being amortized to income over a
twenty-one month period beginning April 1994 through December 1995.
Narragansett began recording the effects of this rate agreement in
the third quarter of 1994.
In 1993, a new accounting standard for postretirement benefits
other than pensions (PBOPs) went into effect that requires
employers to establish a liability for the expected costs of PBOPs
during the working years of employees instead of recording such
costs when paid. Each of the New England Electric System (NEES)
subsidiaries has received regulatory approval to recover the effect
of this standard on a current and/or deferred basis. The Federal
Energy Regulatory Commission (FERC) has allowed NEP to defer
increased costs resulting from this new standard, pending its next
rate filing so long as such filing occurs before the end of 1995.
Accordingly, the NEES subsidiaries recovered approximately $5
million in rates in 1993 and are recovering approximately $9
million in 1994. The total amount of PBOP costs deferred for
future recovery at September 30, 1994 was approximately $37
million, including $4 million during the third quarter of 1994.
NEP has in the past, and is continuing to recover in rates
amounts billed to it by Yankee Atomic Electric Company (Yankee
Atomic) for decommissioning costs associated with Yankee Atomic's
retired nuclear power plant. NEP is a 30 percent owner of Yankee
Atomic and was a purchaser of 30 percent of the output of the unit
prior to its retirement. Yankee Atomic's recovery of such costs is
in accordance with a 1992 settlement agreement it reached in a FERC
rate proceeding. Yankee Atomic recently announced a new
decommissioning cost estimate that, subject to certain approvals by
the Nuclear Regulatory Commission and in turn by the FERC, would
increase billings to NEP by approximately $11 million per year.
This increase in the cost primarily reflects the unavailability of
permanent repositories for both low-level and high-level nuclear
waste.
NEP has recorded an estimate of its entire future payment
obligations to Yankee Atomic as a liability on its balance sheet as
well as an offsetting regulatory asset reflecting its expected
future rate recovery of such costs. These higher estimated
decommissioning costs for Yankee Atomic have been reflected in the
amounts recorded on NEP's books at September 30, 1994.
Although NEP does not currently have a rate case pending, it
has initiated discussions of future rate levels with the parties
that usually participate in its rate proceedings.
Hydroelectric Generating Station Relicensing
- --------------------------------------------
The term of the FERC license for NEP's Deerfield River
Hydroelectric Project expired at the end of 1993. NEP filed an
application for a new license in 1991, which is still under review.
An annual license is granted to NEP until a final determination is
made on the application. Several advocacy groups intervened
proposing operational modifications. On October 5, 1994, NEP and
12 advocacy groups and government agencies signed a settlement
agreement, providing minimum flows, fish passage facilities,
wildlife enhancements, and conservation easements on over 17,000
acres of NEP land. The cost of these measures is currently
estimated at $25 million to $30 million over the proposed 40 year
term of the new license, principally for replacement power costs
associated with providing minimum water flows. The agreement is
subject to the granting of a FERC license and the states of Vermont
and Massachusetts issuing Water Quality Certifications with
conditions consistent with the settlement agreement.
Demand-Side Management Programs
- -------------------------------
The retail companies file their conservation and load
management programs, also referred to in the industry as demand-
side management (DSM) programs, regularly with their respective
regulatory agencies and have received approval to recover in rates
estimated DSM expenditures on a current basis. The rates provide
for reconciling estimated expenditures to actual DSM expenditures,
with interest. Expenditures subject to the reconciliation
mechanism were $35 million in the first nine months of 1994 and $62
million for the full year 1993. Since 1990, the retail companies
have been allowed to earn incentives based on the results of their
DSM programs. Before incentives are recorded, the retail companies
must be able to demonstrate to their respective state regulatory
agencies the electricity savings produced by their DSM programs.
During 1993, the retail companies recorded a total of $7.3 million
of incentives, before tax, including $2 million in the first nine
months. No incentives were recorded during the first nine months
of 1994. The retail companies have received regulatory orders that
will give them the opportunity to continue to earn incentives on
1994 DSM program results.
Operating Revenue
- -----------------
The following table summarizes the changes in operating
revenue:
Increase (Decrease) in Operating Revenue
Third Quarter Nine Months
------------- ------------
1994 vs 1993 1994 vs 1993
------------- ------------
(In Millions)
Sales Growth to ultimate
customers $11 $ 20
General rate reduction/service
extension discounts (9) (23)
Unbilled revenues recognized
under rate agreements 12 28
Change in accrued unbilled
revenue (6) (9)
Other 7 (5)
--- ----
$15 $ 11
=== ====
KWH sales to ultimate customers in the third quarter and first
nine months of 1994 increased by 3.3 and 2.0 percent, respectively,
over the same periods last year. Sales growth primarily reflects
weather conditions and an improving economy, partially offset in
the first nine months of 1994 by a reduction of one billing day due
to meter reading schedules. KWH sales in 1994 are expected to
increase in the range of 2.0 to 2.5 percent as compared to 1993.
For a discussion of general rate reduction/service extension
discounts and unbilled revenues, see Rate Activity section.
Operating Expenses
- ------------------
The following table summarizes the changes in operating
expenses during the period:
Increase (Decrease) in Total Operating Expenses
Third Quarter Nine Months
------------- ------------
1994 vs 1993 1994 vs 1993
------------- ------------
(In Millions)
Total fuel costs $ 1 $ (6)
Purchased energy excluding fuel (9) (12)
Other operation and maintenance 16 (26)
Depreciation and amortization 5 7
Taxes - 24
--- ----
$13 $(13)
=== ====
Total fuel costs represents fuel for generation and the portion
of purchased electric energy permitted to be recovered through
NEP's fuel adjustment clause. Purchased energy excluding fuel
represents the remainder of purchased electric energy costs. The
decrease in fuel costs for the first nine months of 1994 reflects
reduced alternate energy purchases. The decrease in purchased
energy excluding fuel reflects overhauls and refueling shutdowns of
partially owned nuclear power suppliers in the third quarter of
1993.
The increase in other operation and maintenance expense for the
third quarter reflects increased computer system development costs,
increased pension and other retiree benefit costs, and general
increases in other areas. The decrease in other operation and
maintenance expense for the first nine months of 1994 reflects 1993
one-time charges of $22 million in the second quarter for
Massachusetts gas waste liabilities, and $28 million associated
with an early retirement offer and special severance program
recorded in the first quarter, as well as decreased uninsured
claims in 1994. These decreases were partially offset in the first
nine months of 1994 by increases in the same areas of other
operation and maintenance expenses that increased in the third
quarter of 1994. The increase in depreciation and amortization
expense reflects increased amortization of the net investment in
the Seabrook 1 Nuclear Unit (Seabrook 1), increased charges for
dismantlement of a previously retired generating station, and
depreciation of new plant investment. The increase for the nine
month period was partially offset by decreased oil and gas
amortization due to decreased production.
The increase in taxes for the first nine months of 1994 is
primarily due to increased income and increased property taxes.
Allowance For Funds Used During Construction (AFDC)
- --------------------------------------------------
AFDC increased for the third quarter and first nine months of
1994 due to increased construction work in progress, principally
associated with the repowering of the Manchester Street Station
(see Liquidity and Capital Resources section).
Interest Expense
- ----------------
The decrease in interest expense on long-term debt for the
first nine months of 1994 is primarily due to significant
refinancings of corporate debt at lower interest rates during 1993.
Oil and Gas Operations
- ----------------------
New England Energy Incorporated (NEEI) participates in a
rate-regulated domestic oil and gas exploration, development, and
production program consisting of prospects acquired prior to
December 31, 1983. NEEI is not acquiring any new prospects. Due
to precipitate declines in oil and gas prices, NEEI has incurred
operating losses since 1986, and expects to incur substantial
additional losses in the future. These losses are being passed on
to NEP under an intercompany pricing policy approved by the
Securities and Exchange Commission. NEP is allowed to recover
these losses from its customers under NEP's 1988 FERC rate
settlement, which covered all costs incurred by or resulting from
commitments made by NEEI through March 1, 1988. Other subsequent
costs incurred by NEEI are subject to normal regulatory review.
Proposal to Acquire Nantucket Electric Company
- ----------------------------------------------
In September 1994, the board of directors of the Nantucket
Electric Company (Nantucket Electric) agreed in principle to be
acquired by NEES subject to completing a definitive agreement. The
total purchase price is approximately $3.5 million. Earlier in the
year, NEES subsidiaries and Nantucket Electric entered into
independent agreements for the construction of an undersea cable
from Harwich, Massachusetts on Cape Cod to Nantucket Island, and
for the long-term electric power supply to the island.
Construction of the undersea cable will begin in 1996 and is
expected to be fully operational by mid 1997.
Hazardous Waste
- ---------------
The Federal Comprehensive Environmental Response, Compensation
and Liability Act, more commonly known as the "Superfund" law,
imposes strict, joint and several liability, regardless of fault,
for remediation of property contaminated with hazardous substances.
Parties liable include past and present site owners and operators,
transporters that brought wastes to the site, and entities that
generated or arranged for disposal or treatment of wastes
ultimately disposed of at the site. A number of states, including
Massachusetts, have enacted similar laws.
The electric utility industry typically utilizes and/or
generates in its operations a range of potentially hazardous
products and by-products. These products or by-products may not
have previously been considered hazardous, and may not currently be
considered hazardous, but may be identified as such by federal,
state, or local authorities in the future. NEES subsidiaries
currently have in place an environmental audit program intended to
enhance compliance with existing federal, state, and local
requirements regarding the handling of potentially hazardous
products and by-products.
Federal and state environmental agencies, as well as private
parties, have contacted or initiated legal proceedings against NEES
and certain subsidiaries regarding liability for cleanup of sites
alleged to contain hazardous waste or substances. NEES and/or its
subsidiaries have been named as a potentially responsible party
(PRP) by either the U.S. Environmental Protection Agency (EPA) or
the Massachusetts Department of Environmental Protection (DEP) for
19 sites at which hazardous waste is alleged to have been disposed.
NEES and its subsidiaries are also aware of other sites which they
may be held responsible for remediating and it is likely that, in
the future, NEES and its subsidiaries will become involved in
additional proceedings demanding contribution for the cost of
remediating additional hazardous waste sites.
The most prevalent types of hazardous waste sites that NEES and
its subsidiaries have been connected with are former manufactured
gas locations. Until the early 1970's, NEES was a combined
electric and gas holding company system. NEES is currently aware
of approximately 40 locations (including five of the 19 locations
for which NEES companies are PRPs) at which gas may have been
manufactured and/or stored. Of the manufactured gas locations, 17
have been listed for investigation by the DEP. In a lawsuit
involving one of these sites, the United States Court of Appeals
for the First Circuit affirmed in 1993 an earlier adverse decision
against NEES, Massachusetts Electric, and New England Power Service
Company (NEPSCo). The decision held these companies liable for
cleanup of the properties involved in the case.
In 1993, the MDPU approved a rate agreement filed by
Massachusetts Electric (see Rate Activity section) that resolved
all rate recovery issues related to Massachusetts manufactured gas
sites as well as certain other Massachusetts hazardous waste sites.
The agreement allows for environmental remediation costs for such
sites to be met from a special interest bearing fund established on
Massachusetts Electric's books. The fund's initial balance of $30
million has come from previously recorded reserves and is not
recoverable from customers. Annual contributions of $3 million,
adjusted for inflation, are being added to the fund by
Massachusetts Electric and are recoverable in rates. Under the
agreement, any shortfalls in the fund will be paid by Massachusetts
Electric and be recovered through rates over seven years, without
interest.
NEES has been notified by the EPA that it is one of several
PRPs for cleanup of the Pine Street Canal Superfund site in
Burlington, Vermont, at which coal tar and other materials were
deposited. Between 1931 and 1951, NEES and its predecessor owned
all of the common stock of Green Mountain Power Corporation. Prior
to, during, and after that time, gas was manufactured at the Pine
Street Canal site. Among the waste by-products of that process
were coal and oil tars. The EPA had brought a lawsuit against NEES
and other parties to recover all of the EPA's past and future
response costs at this site. In 1990, the litigation ended with
the filing of a final consent decree with the court. Under the
terms of the settlement, to which 14 entities were party, the EPA
recovered its past response costs. NEES recorded its share of
these costs in 1989. NEES remains a PRP for ongoing and future
response costs. In November 1992, the EPA proposed a cleanup plan
estimated by the EPA to cost $50 million. In June 1993, the EPA
withdrew this cleanup plan in response to public concern about the
plan and the cost. It is not known at this time what the ultimate
cleanup plan will be, how much it will cost, or what portion NEES
will have to pay.
Predicting the potential costs to investigate and remediate
hazardous waste sites continues to be difficult. Factors such as
the evolving nature of remediation technology and regulatory
requirements and the particular characteristics of each site,
including, for example the size of the site, the nature and amount
of waste disposed at the site, and the surrounding geography and
land use, make precise estimates difficult. There are also
significant uncertainties as to the portion, if any, of the
investigation and remediation costs of any particular hazardous
waste site that may ultimately be borne by NEES or its
subsidiaries. At September 30, 1994, NEES had total reserves for
environmental response costs of $51 million and a related
regulatory asset of $16 million.
NEES believes that hazardous waste liabilities for all sites
of which it is aware, and which are not covered by a rate
agreement, will not be material (10 percent of common equity) to
its financial position. Where appropriate, the NEES companies
intend to seek recovery from their insurers and from other PRPs,
but it is uncertain whether, and to what extent, such efforts will
be successful.
Electric and Magnetic Fields (EMF)
- ---------------------------------
In recent years, concerns have been raised about whether EMF,
which occur near transmission and distribution lines as well as
near household wiring and appliances, cause or contribute to
adverse health effects. Numerous studies on the effects of these
fields, some of them sponsored by electric utilities (including
NEES companies), have been conducted and are continuing. Some of
the studies have suggested associations between certain EMF and
various types of cancer, while other studies have not substantiated
such associations. In February 1993, the EPA called for
significant additional research on EMF. In July 1994, a study by
a University of Southern California professor suggested an
association between EMF and Alzheimer's disease. It is impossible
to predict the ultimate impact on NEES subsidiaries and the
electric utility industry if further investigations were to
demonstrate that the present electricity delivery system is
contributing to increased risk of cancer or other health problems.
Many utilities, including the NEES companies, have been
contacted by customers regarding a potential relationship between
EMF and adverse health effects. To date, no court in the United
States has ruled that EMF from electrical facilities cause adverse
health effects and no utility has been found liable for personal
injuries alleged to have been caused by EMF. In any event, the
NEES companies believe that they have adequate insurance coverage.
Several state courts have recognized a cause of action for
damage to property values in transmission line condemnation cases
based on the fear that power lines cause cancer. It is difficult
to predict what impact there would be on the NEES companies if this
cause of action is recognized in the states in which NEES companies
operate and in contexts other than condemnation cases.
A lawsuit concerning the proposed expansion of a transmission
line was filed on April 28, 1994 against NEES, Narragansett, and
NEPSCo, in the Superior Court of Rhode Island by certain residents
of property which borders existing Narragansett transmission lines
in East Greenwich, Rhode Island. The plaintiffs alleged that fear
of health risks from exposure to high voltage power lines had
devalued their property and ask for unspecified damages. All
claims in this case relating to damages from existing lines were
dismissed with prejudice. NEES has been informed that another
resident is contemplating a similar suit. Narragansett recently
received approval from the Rhode Island Energy Facility Siting
Board to construct a new line and relocate an existing line on the
existing right of way.
Bills had been introduced in the Rhode Island legislature to
require that transmission lines be placed underground. In July
1993, two bills passed by the legislature restricting the
construction of overhead transmission lines were vetoed by the
governor. A similar bill was introduced in 1994 and was rejected
by the legislature. Legislation has been introduced in
Massachusetts that, if passed, would require state agencies to
study existing EMF-related research and make recommendations for
further legislation.
Clean Air Requirements
- ----------------------
NEP produces approximately 50 percent of its electricity at
eight older thermal generating units located in Massachusetts. Six
of the units are fueled by coal and the other two are fueled by oil
and natural gas. The 1990 amendments to the federal Clean Air Act
require a significant reduction in the nation's sulfur dioxide
(SO2) and nitrogen oxide (NOx) emissions by the year 2000.
Under the amendments pertaining to SO2 emissions, NEP expects
to be included in Phase 1 of the acid rain provisions that will
become effective in 1995. NEP is also subject to the Massachusetts
SO2 acid rain law that will become effective in 1995, and Phase 2
of the federal acid rain requirements, that will become effective
in 2000.
In connection with requirements that relate to NOx emissions,
state environmental agencies in ozone non-attainment areas were
required to develop regulations (also known as Reasonably Available
Control Technology requirements, or RACT) that will become
effective in 1995 to address the first phase of ozone air quality
attainment. These regulations were adopted in Massachusetts in
September 1993. The RACT regulations require control technologies
(such as low NOx burners) to reduce NOx emissions, an ozone
precursor. Additional control measures may be necessary to ensure
attainment of the ozone standard. These measures would have to be
developed by the states in 1994 and fully implemented by NEP no
later than 1999. The extent of these additional control measures
is unknown at this time, but could range from minor additions to
the RACT requirements to extensive emission reduction requirements,
such as costly add-on controls or fuel switching. Should the 1999
ozone attainment requirements be extensive, or additional Clean Air
Act or other environmental requirements be imposed, continued
operation of certain existing generating units beyond 1999 could be
uneconomical. NEP believes that premature retirement of
substantially all of its older thermal generating units would cause
substantial rate increases.
NEP estimates that it will incur one-time operation and
maintenance costs totaling approximately $25 million and capital
costs totaling approximately $120 million through 1995, of which
approximately $12 million and $78 million, respectively, had been
spent through September 1994, to comply with SO2 and NOx
requirements that will become effective in 1995. In addition, NEP
expects to incur increased fuel costs of approximately $10 million
to $20 million annually, depending on fuel market conditions, by
1995, as a result of federal and state clean air requirements.
The generation of electricity from fossil fuels may emit trace
amounts of hazardous air pollutants as defined in the Clean Air Act
Amendments of 1990. The Act mandates a study of the potential
dangers of hazardous air pollutant emissions from electric utility
plants. Such research is currently under way and is expected to be
complete in 1995. The study conclusions could result in new
emission standards and the need for additional costly controls on
NEP plants. At this time, NEES and its subsidiaries cannot
estimate the impact that findings of this research might have on
operations.
Purchased Power Contract Dispute
- --------------------------------
On October 26, 1994, NEP was sued by Milford Power Limited
Partnership (MPLP) in the Superior Court for Worcester County,
Massachusetts. MPLP, a venture of Enron Corporation and Jones
Capital, owns a 149 MW gas-fired power plant in Milford,
Massachusetts. NEP purchases 56 percent of the power output of the
facility under a long-term contract with MPLP. MPLP alleges that
NEP has engaged in a scheme to cause MPLP and its power plant to
fail and has prevented MPLP from finding a long-term buyer for the
remaining 44 percent of the facility's output. The complaint
includes allegations that NEP has violated the Federal Racketeer
Influenced and Corrupt Organizations Act, engaged in unfair or
deceptive acts in trade or commerce, and breached contracts. MPLP
seeks compensatory damages in an unspecified amount, as well as
treble damages. NEP believes that the allegations of wrongdoing
are without merit.
Competitive Conditions
- ----------------------
The electric utility business is being subjected to increasing
competitive pressures, stemming from a combination of trends,
including increasing electric rates, improved technologies, and new
regulations and legislation intended to foster competition. To
date, this competition has been most prominent in the bulk power
market in which non-utility generating sources have noticeably
increased their market share. For example, in 1984, less than 1
percent of NEP's capacity was supplied by non-utility generation
sources. By the end of 1993, non-utility power purchases accounted
for 380 MW, or 7 percent, of NEP's total capacity. In addition to
competition from non-utility generators, the presence of excess
generating capacity in New England has resulted in the sale of bulk
power by utilities at prices below the total costs of owning and
operating such generating capacity. However, in July 1994, a new
all-time regional and System peak occurred which will have the
effect of reducing the near-term level of this excess generating
capacity in New England.
Electric utilities are also facing increased competition in the
retail market. Currently, retail competition comes primarily from
alternative fuel suppliers (including natural gas companies) for
heating and cooling, customer-owned generation to displace
purchases from electric utilities, and direct competition among
electric utilities to attract major new manufacturing facilities to
their service territories. Some state regulatory agencies, other
entities, and individuals have developed proposals under which
electric utilities and non-utility generators may sell electricity
to retail customers of other electric utilities without regard to
franchised service territories. For example, the California Public
Utilities Commission recently announced a proposal that would give
certain large retail customers, by the year 1996, and all other
retail customers, by the year 2002, the option of selecting their
electricity provider. Power purchased from another provider would
still be delivered over the local utility's transmission network
which, under the proposal, would be subject to broader access.
Other states, including several New England states, federal
agencies regulating the NEES companies, and state and federal
legislative bodies have considered or are in the process of
considering options to foster increased competition.
The NEES companies are responding to current and anticipated
competitive pressures in a variety of other ways, including cost
control and a corporate reorganization into separate retail and
wholesale business units. The wholesale business unit is
positioning itself for increased competition through such means as
terminating certain purchased power and gas pipeline contracts,
shutdowns of uneconomic generating stations, as well as rapid
amortization of certain plant assets. Specifically, NEP's rates
currently include approximately $100 million per year associated
with the recovery of certain Seabrook 1 costs under a 1988 rate
settlement and coal conversion expenditures at NEP's Salem Harbor
station. The recovery of these costs will be completed prior to
the end of 1995. The retail business unit's response to
competition includes the development of comprehensive value-added
services customized to customers' needs and the offering of
economic development rates to encourage businesses to locate in our
service territory. Further, pursuant to its recent rate agreement,
Massachusetts Electric was able to change the standard terms under
which it offers service to commercial and industrial customers to
extend the notice period a customer must give before purchasing
electricity from others or generating any additional electricity
for the customer's own use from one year to two years. In
addition, Massachusetts Electric and Narragansett are offering a
discount from base rates in return for a contract requiring a
customer to provide five years written notice before purchasing
electricity from others or generating any additional electricity
for the customer's own use (the notice provision may be reduced
from five to three years under certain conditions). The discount
is available to Massachusetts Electric customers with average
monthly peak demands over 500 kilowatts, and Narragansett customers
with average monthly peak demands over 200 kilowatts.
Observers of the electric utility business have recommended
various (and sometimes conflicting) strategies for electric
utilities to deal with these competitive pressures. These
suggestions include business combinations with other companies,
restructurings involving separation or sales of portions of the
retail and/or wholesale businesses, and diversification into
unrelated businesses. For example, the NEES companies have
proposed one possible framework for increasing customer choice of
suppliers and achieving environmental goals, while preserving
shareholder value. This increase in customer choice could decrease
the value of generation related assets and purchased power
contracts. However, the replacement value of transmission assets
likely far exceeds their historic cost. The NEES companies have
suggested that utilities should have the ability to offset this
decrease in the value of generation related assets by realizing the
higher value of transmission assets. As one part of this possible
framework, the NEES companies have stated that, in order to
accomplish this realization, they would be willing to consider
selling their transmission system at replacement cost to entities
not in the generation business. This sale would facilitate the
transition to a fully competitive generating market. As part of
their routine long-term planning process, the NEES companies may,
from time to time, be engaged in analysis, either internally or
with third parties, of these and other strategies.
The FERC ruled in 1992, in a proceeding not involving NEES
subsidiaries, that a utility may recover from a wholesale
requirements customer, any legitimate, prudent, and verifiable
costs that the utility had incurred based on a reasonable
expectation that it would continue to sell requirements service to
the customer. The FERC has referred to such costs as "stranded
costs". On appeal, the United States Court of Appeals for the
District of Columbia Circuit has questioned whether allowing
utilities to recover stranded costs is anti-competitive and the
Court remanded the case back to the FERC for further proceedings
and development of the competitive issues. In a separate
development, the FERC issued a notice of proposed rule-making on
the recovery of investment costs stranded as a result of increased
competition.
Electric utility rates are generally based on a utility's
costs. Therefore, electric utilities are subject to certain
accounting standards that are not applicable to other business
enterprises in general. These accounting rules require regulated
entities, in appropriate circumstances, to establish regulatory
assets and liabilities, which defer the income statement impact of
certain costs that are expected to be recovered in future rates.
The effects of competition could ultimately cause the operations of
the NEES companies, or a portion thereof, to cease meeting the
criteria for application of these accounting rules. While the NEES
companies do not expect to cease meeting these criteria in the near
future, if this were to occur, accounting standards of enterprises
in general would apply and immediate recognition of any previously
deferred costs would be necessary in the year in which these
criteria were no longer applicable. In addition, if, because of
competition, utilities are unable to recover all of their costs in
rates, it may be necessary to write off those costs that are not
recoverable.
Liquidity and Capital Resources
- -------------------------------
Plant expenditures in the first nine months of 1994 amounted to
$327 million for the utility subsidiaries, including $138 million
related to the Manchester Street Station Repowering project. The
necessary funds were primarily provided by net cash from operating
activities, after the payment of dividends, and the proceeds of
short-term and long-term debt issues.
The financing activities of NEES subsidiaries for the first
nine months of 1994 are summarized as follows:
Long-term Long-term
Debt Debt
Issues Retirements
--------- -----------
(In Millions)
Massachusetts Electric $25
Narragansett 23
New England Power 5
Hydro-Transmission Companies $ 9
NEEI 8
--- ---
$53 $17
=== ===
The interest rates on the new long-term debt issues shown above
ranged from 6.91 to 8.53 percent. In addition, NEP and the retail
subsidiaries issued $21 million of long-term debt in November 1994
at interest rates ranging from 8.33 percent to 8.85 percent and
plan to issue $70 million of additional long-term debt by the end
of 1994 or early 1995.
Net cash from operating activities provided all of the funds
necessary for oil and gas expenditures for the first nine months
of 1994. NEEI's capitalized oil and gas exploration and
development costs amounted to $21 million, including $7 million of
capitalized interest costs.
At September 30, 1994, NEES' consolidated subsidiaries had $147
million of short-term debt outstanding including $129 million in
the form of commercial paper borrowings. NEES and its consolidated
subsidiaries currently have lines of credit and standby bond
purchase facilities with banks totaling $641 million. These lines
of credit are available to provide liquidity support for commercial
paper borrowings and for $342 million of NEP's outstanding variable
rate mortgage bonds in commercial paper mode and for other
corporate purposes. Outstanding borrowings under these lines of
credit at September 30, 1994 were $18 million. Cash balances at
September 30, 1994 were approximately $4 million.
The NEES subsidiaries' major construction project is the
repowering of Manchester Street Station, a 140 MW electric
generating station in Providence, Rhode Island. Repowering will
more than triple the power generation capacity of Manchester Street
Station and substantially increase the plant's thermal efficiency.
NEP owns a 90 percent interest and Narragansett owns a 10 percent
interest in the Manchester Street Station. The total cost for the
generating station, scheduled for completion in late 1995, is
estimated to be approximately $525 million, including AFDC. In
addition, related transmission work was estimated to cost $75
million. At September 30, 1994, a total of $310 million, including
AFDC, had been spent on the project including the related
transmission work. The transmission facilities were in service at
September 30, 1994, although all costs related to such work had not
yet been incurred. Substantial commitments have been made relative
to future planned expenditures for this project.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Information concerning a suit by Milford Power Limited
Partnership against the Company's subsidiary, New England Power
Company (NEP) filed on October 25, 1994, discussed in Part I of
this report in Management's Discussion and Analysis of Financial
Condition and Results of Operations is incorporated herein by
reference and made a part hereof.
Information concerning dismissal of a lawsuit filed against
the Company and its subsidiary, The Narragansett Electric Company
(Narragansett) on October 28, 1994, by residents of property which
borders existing Narragansett transmission lines in East Greenwich,
Rhode Island, discussed in Part I of this report in Management's
Discussion and Analysis of Financial Condition and Results of
Operations is incorporated herein by reference and made a part
hereof.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
The Company filed a report on Form 8-K dated October 27, 1994,
containing Item 5, Other Events.
The Company is filing Financial Data Schedules.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report on Form 10-Q for
the quarter ended September 30, 1994 to be signed on its behalf by
the undersigned thereunto duly authorized.
NEW ENGLAND ELECTRIC SYSTEM
s/ Alfred D. Houston
Alfred D. Houston
Executive Vice President,
Authorized Officer, and
Principal Financial Officer
Date: November 10, 1994
The name "New England Electric System" means the trustee or
trustees for the time being (as trustee or trustees but not
personally) under an agreement and declaration of trust dated
January 2, 1926, as amended, which is hereby referred to, and a
copy of which as amended has been filed with the Secretary of the
Commonwealth of Massachusetts. Any agreement, obligation or
liability made, entered into or incurred by or on behalf of New
England Electric System binds only its trust estate, and no
shareholder, director, trustee, officer or agent thereof assumes or
shall be held to any liability therefor.