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, 1997
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
(508-389-2000)
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: 64,735,089 shares at September 30, 1997.
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
------- -----------
1997 1996 1997 1996
---- ---- ---- ----
(In Thousands)
Operating revenue $628,606 $616,857 $1,844,377$1,754,187
-------- -------- --------------------
Operating expenses:
Fuel for generation 86,006 92,771 271,068 239,503
Purchased electric energy 134,813 126,300 406,526 376,883
Other operation 128,275 126,475 393,270 368,071
Maintenance 32,994 31,564 103,533 98,485
Depreciation and amortization 63,019 64,477 188,164 195,383
Taxes, other than income taxes 36,914 36,146 112,865 110,767
Income taxes 42,061 41,740 102,882 103,623
-------- -------- --------------------
Total operating expenses 524,082 519,473 1,578,3081,492,715
-------- -------- --------------------
Operating income 104,524 97,384 266,069 261,472
Other income:
Equity in income of generating companies 2,484 2,565 7,615 8,052
Other income (expense), net (4,483) (150) (9,243) (641)
-------- -------- --------------------
Operating and other income 102,525 99,799 264,441 268,883
-------- -------- --------------------
Interest:
Interest on long-term debt 26,081 27,477 80,362 82,599
Other interest 5,639 4,872 13,247 15,445
Allowance for borrowed funds used during
construction (368) (501) (1,408) (1,459)
-------- -------- --------------------
Total interest 31,352 31,848 92,201 96,585
-------- -------- --------------------
Income after interest 71,173 67,951 172,240 172,298
Preferred dividends of subsidiaries 1,833 1,833 5,499 5,998
Minority interests 1,594 1,743 4,943 5,428
-------- -------- --------------------
Net income $ 67,746 $ 64,375 $ 161,798$ 160,872
======== ======== ====================
Average common shares 64,944,898 64,894,97264,961,401 64,890,539
Net income per average common share $1.04 $.99 $2.49 $2.48
Dividends declared per share $ .59 $.59 $1.77 $1.77
Statements of Consolidated Retained Earnings
Retained earnings at beginning of period $904,825 $850,939 $ 887,292$ 831,529
Net income 67,746 64,375 161,798 160,872
Dividends declared on common shares (38,214) (38,249) (114,733) (114,886)
Premium on redemption of preferred stock (450)
-------- -------- ------------------
Retained earnings at end of period $934,357 $877,065 $ 934,357$ 877,065
======== ======== ==================
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)
1997 1996
---- ----
(In Thousands)
Operating revenue $2,440,888 $2,334,910
---------- ----------
Operating expenses:
Fuel for generation 366,559 305,398
Purchased electric energy 539,043 505,711
Other operation 526,289 507,609
Maintenance 132,833 132,348
Depreciation and amortization 239,160 255,614
Taxes, other than income taxes 145,831 143,895
Income taxes 138,458 135,022
---------- ----------
Total operating expenses 2,088,173 1,985,597
---------- ----------
Operating income 352,715 349,313
Other income:
Allowance for equity funds used during construction 110
Equity in income of generating companies 9,897 10,709
Other income (expense), net (16,768) (6,669)
---------- ----------
Operating and other income 345,844 353,463
---------- ----------
Interest:
Interest on long-term debt 108,242 110,311
Other interest 17,329 21,510
Allowance for borrowed funds used during construction (2,195) (4,540)
---------- ----------
Total interest 123,376 127,281
---------- ----------
Income after interest 222,468 226,182
Preferred dividends and net gain on reacquisiton
of preferred stock 5,964 8,171
Minority interests 6,642 7,396
---------- ----------
Net income $ 209,862 $ 210,615
========== ==========
Average common shares 64,952,560 64,898,858
Net income per average common share $3.23 $3.25
Dividends declared per share $2.36 $2.36
Statements of Consolidated Retained Earnings
Retained earnings at beginning of period $ 877,065 $ 820,090
Net income 209,862 210,615
Dividends declared on common shares (153,020) (153,190)
Premium on redemption of preferred stock 450 (450)
--------- ---------
Retained earnings at end of period $ 934,357 $ 877,065
========= =========
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 1997 1996
------ ---- ----
(In Thousands)
Utility plant, at original cost $5,821,619 $5,692,956
Less accumulated provisions for depreciation
and amortization 1,956,522 1,853,003
---------- ----------
3,865,097 3,839,953
Construction work in progress 50,979 56,652
---------- ----------
Net utility plant 3,916,076 3,896,605
---------- ----------
Oil and gas properties, at full cost 1,296,337 1,286,661
Less accumulated provision for amortization 1,129,948 1,081,940
---------- ----------
Net oil and gas properties 166,389 204,721
---------- ----------
Investments:
Nuclear power companies, at equity 50,370 47,902
Other subsidiaries, at equity 43,875 40,124
Other investments 109,191 96,399
---------- ----------
Total investments 203,436 184,425
---------- ----------
Current assets:
Cash 6,542 8,477
Accounts receivable, less reserves of $20,395,000 and
$18,702,000 219,411 262,103
Unbilled revenues 61,828 59,093
Fuel, materials and supplies, at average cost 72,907 74,111
Prepaid and other current assets 71,423 85,096
---------- ----------
Total current assets 432,111 488,880
---------- ----------
Deferred charges and other assets 572,052 448,620
---------- ----------
$5,290,064 $5,223,251
========== ==========
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:
Common share equity:
Common shares, par value $1 per share:
Authorized - 150,000,000 shares
Issued - 64,969,652 shares
Outstanding - 64,735,089 shares and 64,866,695 shares $ 64,970 $ 64,970
Paid-in capital 736,773 736,773
Retained earnings 934,357 887,292
Treasury stock - 234,563 shares and 102,957 shares (8,707) (3,618)
Unrealized gain on securities, net 3,770
---------- ----------
Total common share equity 1,731,163 1,685,417
Minority interests in consolidated subsidiaries 46,259 46,293
Cumulative preferred stock of subsidiaries 126,166 126,166
Long-term debt 1,481,878 1,614,578
---------- ----------
Total capitalization 3,385,466 3,472,454
---------- ----------
Current liabilities:
Long-term debt due within one year 82,910 79,705
Short-term debt 139,700 145,050
Accounts payable 132,950 148,592
Accrued taxes 25,139 14,911
Accrued interest 21,487 27,494
Dividends payable 37,046 37,276
Other current liabilities 135,272 109,582
---------- ----------
Total current liabilities 574,504 562,610
---------- ----------
Deferred federal and state income taxes 723,576 750,929
Unamortized investment tax credits 90,122 91,936
Other reserves and deferred credits 516,396 345,322
---------- ----------
$5,290,064 $5,223,251
========== ==========
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)
1997 1996
---- ----
(In Thousands)
Operating Activities:
Net income $ 161,798 $ 160,872
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 190,651 198,599
Deferred income taxes and investment tax credits, net (30,812) (32,290)
Allowance for funds used during construction (1,408) (1,459)
Minority interests 4,943 5,428
Decrease (increase) in accounts receivable, net
and unbilled revenues 39,957 40,714
Decrease (increase) in fuel, materials, and supplies 1,204 (9,495)
Decrease (increase) in prepaid and other current assets 13,673 (13,948)
Increase (decrease) in accounts payable (15,642) (22,469)
Increase (decrease) in other current liabilities 29,911 53,196
Other, net 39,651 30,491
--------- ---------
Net cash provided by operating activities $ 433,926 $ 409,639
--------- ---------
Investing Activities:
Plant expenditures, excluding allowance for
funds used during construction $(152,445) $(180,685)
Oil and gas exploration and development (9,676) (12,767)
Other investing activities (13,517) (2,196)
--------- ---------
Net cash used in investing activities $(175,638) $(195,648)
--------- ---------
Financing Activities:
Dividends paid to minority interests $ (5,279) $ (8,827)
Dividends paid on NEES common shares (114,660) (115,343)
Changes in short-term debt (5,350) (52,037)
Long-term debt - issues 3,000 69,850
Long-term debt - retirements (132,845) (87,570)
Redemption of preferred stock (20,900)
Repurchase of common shares (5,089) (1,042)
--------- ---------
Net cash used in financing activities $(260,223) $(215,869)
--------- ---------
Net increase (decrease) in cash and cash equivalents $ (1,935) $ (1,878)
Cash and cash equivalents at beginning of period 8,477 7,064
--------- ---------
Cash and cash equivalents at end of period $ 6,542 $ 5,186
========= =========
Changes in assets and liabilities for the nine months ended September 30, 1996, shown
above, other than cash, exclude the effects from the purchase of Nantucket Electric
Company on March 26, 1996.
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.
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. New England Electric System (NEES)
subsidiaries have an internal environmental audit program and an
external waste disposal vendor audit and qualification program
intended to enhance compliance with federal, state, and local
requirements regarding the handling of potentially hazardous
products and by-products.
NEES and/or its subsidiaries have been named as potentially
responsible parties (PRPs) by either the United States
Environmental Protection Agency or the Massachusetts Department of
Environmental Protection for 23 sites at which hazardous waste is
alleged to have been disposed. Private parties have also contacted
or initiated legal proceedings against NEES and certain
subsidiaries regarding hazardous waste cleanup. The most prevalent
types of hazardous waste sites with which NEES and its subsidiaries
have been associated are manufactured gas locations. (Until the
early 1970s, NEES was a combined electric and gas holding company
system.) NEES is aware of approximately 40 such manufactured gas
locations (including nine of the 23 locations for which NEES
companies are PRPs) mostly located in Massachusetts. NEES and its
subsidiaries are currently aware of other possible hazardous waste
sites, and may in the future become aware of additional sites, that
they may be held responsible for remediating.
In 1993, the Massachusetts Department of Public Utilities
approved a settlement agreement regarding the rate recovery of
remediation costs of former manufactured gas sites and certain
other hazardous waste sites located in Massachusetts. Under that
agreement, qualified costs related to these sites are paid out of
a special fund established on Massachusetts Electric Company's
(Massachusetts Electric) (a wholly-owned distribution subsidiary of
NEES) books. Massachusetts Electric made an initial $30 million
contribution to the fund. Rate-recoverable contributions of $3
million, adjusted since 1993 for inflation, are added annually to
the fund along with interest and any recoveries from insurance
Note A - Hazardous Waste - Continued
- ------------------------
carriers and other third parties. At September 30, 1997, the fund
had a balance of $29 million. If a Massachusetts restructuring and
rate settlement is approved by the Federal Energy Regulatory
Commission (FERC), an additional $15 million will be transferred to
the fund in 1997 out of existing reserves for refunds.
Predicting the potential costs to investigate and remediate
hazardous waste sites continues to be 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. The NEES companies have recovered amounts from
certain insurers, and, where appropriate, are seeking or intend to
seek recovery from other insurers and from other PRPs, but it is
uncertain whether, and to what extent, such efforts will be
successful. At September 30, 1997, NEES had total reserves for
environmental response costs of $46 million and a related
regulatory asset of $2 million. NEES believes that hazardous waste
liabilities for all sites of which it is aware, and which are not
covered by a rate agreement, are not material to its financial
position.
In October 1996, the American Institute of Certified Public
Accountants issued new accounting rules for Environmental
Remediation Liabilities which became effective in 1997. These new
rules do not have a material effect on NEES's financial position or
results of operations.
Note B - Investments in Nuclear Units
- -------------------------------------
Millstone 3
New England Power Company (NEP) (a wholly-owned generation and
transmission subsidiary of NEES) is a 12 percent joint owner of the
1,150 megawatt (MW) Millstone 3 nuclear generating unit (Millstone
3). Millstone 3 is operated by Northeast Nuclear Energy Company,
a subsidiary of Northeast Utilities (NU). In April 1996, the
Nuclear Regulatory Commission (NRC) ordered Millstone 3, which has
experienced numerous technical and nontechnical problems, to remain
shut down pending verification that the unit's operations are in
accordance with NRC regulations and the unit's operating license.
NEP is not an owner of the Millstone 1 and 2 nuclear generating
units, which are also shut down under NRC orders. Millstone 3 has
Note B - Investments in Nuclear Units - Continued
- -------------------------------------
been placed on the NRC "Watch List," signifying that its safety
performance exhibits sufficient weakness to warrant increased NRC
attention.
A number of significant prerequisites must be fulfilled prior
to restart of Millstone 3, including certification by NU that the
unit adequately conforms to its design and licensing bases, an
independent verification of corrective actions taken at the unit,
an NRC assessment concluding a culture change has occurred, public
hearings, and a vote of the NRC Commissioners. NEP cannot predict
when Millstone 3 will be allowed by the NRC to restart, but
believes that restart of the unit is not likely until the second
quarter of 1998 at the earliest.
In 1996, NEP's Millstone 3 costs, excluding fuel, increased by
$9 million (all of which occurred in the first nine months of
1996). During the first nine months of 1997 NEP's Millstone 3 costs
increased an additional $2 million over prior year levels. NEP
expects its level of Millstone 3 costs in the fourth quarter to be
$7 million higher than during the fourth quarter of 1996. Since
April 1996, NEP has also incurred an estimated $30 million in
incremental replacement power costs, which NEP has been recovering
from customers through its fuel clause. NEP is incurring
incremental replacement power costs of approximately $1.8 million
per month.
Several criminal investigations related to Millstone 3 are
ongoing. The NRC and the Connecticut Department of Environmental
Protection have identified numerous apparent violations which may
result in the assessment of substantial civil penalties.
On August 7, 1997, NEP filed suit against NU in Massachusetts
Superior Court, Worcester County for damages resulting from the
tortious conduct of NU relating to Millstone 3. NEP is seeking
compensation for the losses it has suffered, including the costs of
the lost power and costs necessary to assure that Millstone 3 can
safely return to operation. NEP also seeks punitive damages.
NEP, on August 7, 1997, also sent a demand for arbitration to
Connecticut Light & Power Company and Western Massachusetts
Electric Company, both subsidiaries of NU, seeking damages
resulting from their breach of obligations under an agreement with
NEP and others regarding the operation and ownership of Millstone
3.
Note B - Investments in Nuclear Units - Continued
- -------------------------------------
Maine Yankee
NEP has a 20 percent equity ownership interest in Maine Yankee
Atomic Power Company (Maine Yankee) which owns an 880 MW nuclear
generating station. After an extensive review of the economic
viability of the station, the Maine Yankee Board of Directors voted
to permanently shut down and decommission the station. The Maine
Public Utilities Commission (MPUC) has opened a proceeding to
review the prudence of the decision to close the Maine Yankee plant
and whether the decision resulted from imprudent operation of the
plant. Maine Yankee intends to assert that the MPUC jurisdiction
is preempted by FERC regulation.
In September 1997, the Department of Justice announced that no
criminal charges will be filed following a review of a NRC
investigatory report for possible criminal violations related to
the Maine Yankee station. Civil fines may be assessed by the NRC
based upon several investigations and inspections, including its
independent safety assessment.
At September 30, 1997, NEP's net investment in Maine Yankee was
$15 million. NEP estimates that Maine Yankee's future billings to
NEP to recover investments in the plant and costs to shutdown and
decommission the plant will be at least $175 million. Such
billings are subject to FERC approval. This figure reflects an
updated decommissioning study. These estimated costs have been
recorded as an accrued liability with an offsetting regulatory
asset in the expectation that the costs would be recoverable from
customers.
In the 1970s, NEP and several other shareholders (Sponsors) of
Maine Yankee entered into 27 contracts (Secondary Purchase
Agreements) under which they sold portions of their entitlement to
Maine Yankee power output through 2002 to various entities,
primarily municipal and cooperative systems in New England
(Secondary Purchasers). Virtually all of the Secondary Purchasers
have ceased making payments under the Secondary Purchase
Agreements, claiming that such agreements excuse further payments
upon station shutdown. NEP has notified the Secondary Purchasers
that the shutdown does not relieve them of their obligation to make
payments under the Secondary Purchase Agreements and that they are
in default of such agreements. As these Secondary Purchase
Agreements are between the Sponsors and the Secondary Purchasers,
Maine Yankee has billed the Sponsors for payment as a result of
nonpayment by the Secondary Purchasers. This results in incremental
Note B - Investments in Nuclear Units - Continued
- -------------------------------------
monthly billings to NEP of between $140,000 and $325,000 over the
next several years. In the event that no further payments are
forthcoming from Secondary Purchasers, NEP's share of these
incremental costs would be approximately $11 million, which NEP
expects would be recoverable from customers under stranded cost
settlements. These costs are not included in the $175 million
estimate discussed above.
Yankee Atomic
NEP has a 30 percent ownership interest in Yankee Atomic
Electric Company (Yankee Atomic). On October 15, 1997, the Yankee
Atomic Board of Directors announced it had accepted a proposal by
Duke Engineering & Services, a unit of Duke Energy Corp., to
acquire Yankee Atomic's Nuclear Services Division. Closing is
expected to take place later in 1997. Yankee Atomic will continue
to own the Yankee nuclear power plant in Rowe, Massachusetts and be
responsible for its decommissioning. This transaction will not
result in any significant financial impact to NEP.
General
On October 24, 1997, the Citizen's Awareness Network and
Nuclear Information and Resource Service filed a petition with the
NRC which would require formal approval of a plant decommissioning
plan for the Connecticut Yankee and Maine Yankee plants. NEP
cannot predict what impact, if any, this action, or resulting
appeals, will have on the cost of decommissioning the plants.
In October 1996, the NRC issued letters to operators of nuclear
power plants requiring them to document that the plants are
operated and maintained within their design and licensing bases,
and that any deviations are reconciled in a timely manner. The
Seabrook 1 and Vermont Yankee nuclear power plants responded to the
NRC letters in February 1997. The NRC is still assessing the
responses.
Uncertainties regarding the future of nuclear generating
stations, particularly older units, such as Vermont Yankee, are
increasing rapidly and could adversely affect their service lives,
availability, and costs. These uncertainties stem from a
combination of factors, including the acceleration of competitive
pressures in the power generation industry and increased NRC
scrutiny.
Note C - Town of Norwood Dispute
- --------------------------------
In April 1997, the Town of Norwood, Massachusetts filed a
lawsuit against NEP in the United States District Court for the
District of Massachusetts. NEP is the wholesale electric supplier
for Norwood pursuant to rates approved by the FERC. Norwood
alleges that NEP's proposal to divest its power generation assets
violates the terms of a 1983 agreement settling an antitrust
lawsuit brought by Norwood against NEP. Norwood also alleges that
NEP's proposed divestiture plan and recovery of stranded investment
costs contravene federal antitrust laws. Norwood seeks that NEP be
permanently enjoined from refusing to comply with the terms of the
1983 settlement agreement by divesting its generation assets or
from charging unjust and unreasonable rates to Norwood. Norwood
also seeks to recover treble damages of $450 million. NEP believes
that its divestiture plan will promote competition in the wholesale
power generation market and that it has met and will continue to
meet its contractual commitments to Norwood. Since the original
filing, NEP filed a motion to dismiss the lawsuit based on its
belief that Norwood's claims are within the FERC's exclusive
jurisdiction. Norwood filed a motion for summary judgement and in
the alternative for a preliminary injunction restraining the
divestiture of NEP's generating business. In September 1997, the
court denied Norwood's request for a preliminary injunction, and
took the other motions under advisement.
Norwood also opposed NEP's proposed restructuring settlements
for Massachusetts and Rhode Island. In July 1997, a FERC
Administrative Law Judge (ALJ) certified NEP's proposed settlements
to the full FERC Commission. The FERC ALJ concluded that Norwood
failed to present any genuine issues of material fact, the effects
of the settlement on Norwood are indirect, and adequate remedies
exist to protect Norwood against adverse consequences should they
occur in the future. This certification now clears the way for the
FERC Commissioners to rule on the restructuring settlements. A
decision from the FERC is expected later in 1997.
Note D - Hydro-Quebec Arbitration
- ---------------------------------
In 1996, various New England utilities which are members of the
New England Power Pool, including NEP, submitted a dispute to
arbitration regarding their Firm Energy Purchased Power Contract
with Hydro-Quebec. In June 1997, Hydro-Quebec presented a damage
claim of approximately $37 million for past damages, of which NEP's
share would have been approximately $6-$9 million. The claims
Note D - Hydro-Quebec Arbitration - Continued
- ---------------------------------
involved a dispute over the components of a pricing formula and
additional costs under the contract. With respect to on-going
claims, NEP had been paying Hydro-Quebec the higher amount
(additional costs of approximately $3 million per year) since July
1996 under protest and subject to refund. In October 1997, an
arbitrator ruled in favor of the New England utilities in all
respects. NEP has made a demand for refund. Hydro-Quebec has not
yet refunded any monies and plans to appeal the decision. On
November 9, 1997, NEP and the other utilities began a second
arbitration to enforce the first decision. Refunds received from
Hydro-Quebec will be passed on to customers through NEP's fuel
clause.
Note E - New Accounting Standard
- --------------------------------
In 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 128, Earnings Per
Share (FAS 128), which changes the calculation and presentation of
earnings per share (EPS). FAS 128 is effective for periods ending
after December 15, 1997 and requires restatement of all prior-
period EPS data presented. FAS 128 is not expected to have any
significant impact on NEES' EPS calculations.
Note F
- ------
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 consolidated financial statements in the Company's
1996 Annual Report.
Item 2. Management's Discussion and Analysis of Financial
---------------------------------------------------------
Condition and Results of Operations
-----------------------------------
This section contains management's assessment of New England
Electric System's (NEES) financial condition and the principal
factors having an impact on the results of operations. This
discussion should be read in conjunction with the consolidated
financial statements and footnotes and the 1996 Annual Report on
Form 10-K.
Earnings
- --------
Earnings for the third quarter were $1.04 per share, compared
with $.99 per share for the corresponding period in 1996. The
table below details the primary factors affecting consolidated
earnings:
Items in parentheses reduce earnings and are either increased
expenses or decreased revenues; items not in parentheses increase
earnings and are either increased revenues or decreased expenses.
Period ending September 30,
--------------------------
3 Months 9 Months
-------- --------
1996 earnings $ .99 $2.48
Revenues .12 .34
Purchased power costs, excluding fuel .01 (.04)
Operation and maintenance expenses (.04) (.21)
Other (.04) (.08)
----- -----
1997 earnings $1.04 $2.49
===== =====
The increase in revenues for the third quarter and year-to-date
results from increased kilowatt-hour (kWh) deliveries, a
distribution rate increase effective in January 1997 and a
transmission rate increase that became effective in July 1996.
KWh deliveries increased 2.9 percent and 1.6 percent for the
third quarter and first nine months of 1997, respectively. The
increase reflects an improving regional economy.
The decrease in purchased power costs, excluding fuel, during
the third quarter reflects reduced charges from the closed
Connecticut Yankee nuclear power plant and reduced charges from the
Vermont Yankee nuclear power plant as a result of a 1996 third
quarter refueling outage. On a year-to-date basis, purchased power
costs have increased, reflecting overhaul and repair costs at the
Maine Yankee nuclear power plant and the Ocean State Power plant.
The increase in operation and maintenance expense during the
third quarter reflects increased transmission wheeling costs and
start-up costs associated with the new regional transmission
control organization. For the nine month period, the increase in
operation and maintenance expenses also reflects increased
maintenance costs of partially owned nuclear generating facilities,
Millstone 3 and Seabrook 1, expenses resulting from our share of
the costs associated with the restoration to service of previously
idled generating facilities throughout New England in response to
a tightened regional power supply, and an increase in general and
administrative costs.
Industry Restructuring
- ----------------------
For a full discussion of industry restructuring activities in
Massachusetts, Rhode Island, and New Hampshire, see the "Industry
Restructuring" section in the Company's Form 10-K for 1996.
Industry Restructuring Update
As previously reported, the Massachusetts settlement, and the
Rhode Island statute and related settlement covering customer
choice and electric utility restructuring provide for full recovery
of the costs of generating assets and oil and gas related assets
(including regulatory assets) not recoverable through the
divestiture of New England Power Company's (NEP)(a wholly-owned
generation and transmission subsidiary of NEES) generating
business. The Massachusetts settlement was approved by the
Massachusetts Department of Public Utilities (MDPU) and a companion
wholesale settlement is now pending final approval before the
Federal Energy Regulatory Commission (FERC). A Rhode Island
settlement reached in May 1997 among The Narragansett Electric
Company (Narragansett Electric)(a wholly-owned distribution
subsidiary of NEES), NEP, the Rhode Island Public Utilities
Commission (RIPUC) and the Rhode Island Division of Public
Utilities and Carriers to implement the stranded cost recovery
provisions of the Utility Restructuring Act of 1996 is also pending
before the FERC. In July 1997, a FERC Administrative Law Judge
certified the proposed settlement to the full FERC commission.
Final FERC action is expected later in 1997.
On November 10, 1997, the Massachusetts House of
Representatives passed a bill which would provide Massachusetts
customers with the ability to choose their electric supplier on
March 1, 1998. The bill provides for the recovery of stranded
costs but contains provisions that could require Massachusetts
regulators to reexamine and recompute stranded costs. The bill
further requires electric companies to provide customers who do not
choose a supplier with a standard offer transition rate which is 10
percent below 1997 rates, with the discount growing to 15 percent
upon completion of divestiture of generating assets or so-called
"securitization" (or refinancing) of stranded costs. The
Massachusetts settlement, as approved by the MDPU earlier this
year, along with the anticipated sale of our generating business
described below, is expected to allow Massachusetts Electric
Company (Massachusetts Electric) (a wholly-owned distribution
subsidiary of NEES) to meet the rate reduction targets contained in
the House bill. The Senate is expected to act on the proposed
legislation before the current session ends on November 19, 1997.
Divestiture of Generation Business
Under the Massachusetts and Rhode Island settlements, the NEES
companies must complete the divestiture of their nonnuclear
generating business within six months of the later of the
commencement of retail choice in Massachusetts or the receipt of
all necessary regulatory approvals.
On August 5, 1997, NEP and Narragansett Electric (collectively,
the "Sellers") reached an agreement to sell their nonnuclear
generating business to USGen New England, Inc. (USGen), an indirect
wholly-owned subsidiary of PG&E Corporation. The Sellers'
nonnuclear generating business includes three fossil-fuel
generating stations and 15 hydroelectric generating stations,
totaling approximately 4,000 megawatt (MW) of capacity, with a book
value $1.1 billion.
USGen will pay the Sellers $1.59 billion in cash, of which $225
million will be contingent upon retail customers being able to
choose their electric supplier. Specifically, if customers
representing 89 percent of kWh sales of investor owned utilities in
Massachusetts, or 50 percent of kWh sales in New England, have the
ability to choose their electric supplier by January 1, 1999, the
Sellers will be entitled to the full contingent amount. If such
retail choice milestone is met after January 1, 1999, the
contingent portion of the purchase price declines ratably by $75
million over the year 1999, and $50 million per year thereafter
until the milestone is met. Payment of the contingent portion can
be deferred for up to two years if retail choice is not the result
of legislation.
USGen will also reimburse the NEES companies for $85 million of
costs associated with early retirement and special severance
programs for employees affected by industry restructuring. USGen
will purchase NEP's entitlement in approximately 1,100 MW of power
procured under long-term contracts. NEP will make a monthly fixed
contribution toward the above-market cost of the purchased power of
between $12.5 million and $14.2 million per month from closing
through January 2008. These amounts are recoverable under the
terms of the Massachusetts and Rhode Island settlements. USGen
will be responsible for the balance of the costs under the
purchased power contracts.
USGen will assume responsibility for environmental conditions
at the Sellers' generating stations. USGen will also assume NEP's
obligations under long-term fuel and fuel transportation contracts
and certain existing collective bargaining agreements.
Concurrent with the announcement of the sale, the NEES Board of
Directors authorized the repurchase of up to five million NEES
common shares through open market purchases. Upon closing of the
sale, the balance of the after-tax cash proceeds is expected to be
used to retire debt, and for possible additional share repurchases
and for other investments.
The sale is subject to approval by various state and federal
regulatory agencies. The timing of such approval is uncertain;
however, approval is unlikely before the spring of 1998. Closing
is contingent upon all regulatory approvals being obtained by
February 1999.
As part of the divestiture plan, NEP will endeavor to sell, or
otherwise transfer, its minority interest in three nuclear power
plants to nonaffiliates. In addition, New England Energy
Incorporated (NEEI) (a wholly-owned subsidiary of NEES) is planning
to sell its oil and gas properties, the cost of which is supported
by NEP through fuel purchase contracts.
Under Rhode Island's Utility Restructuring Act of 1996 and the
Massachusetts settlement, the proceeds from the sale will be used
to offset the stranded costs which the NEES companies recover from
customers. The NEES companies estimate that, upon completion of
the sale, prices for their customers would decrease on average by
approximately 15 percent below today's prices.
Workforce Reduction
The NEES companies expect to implement substantial workforce
reductions during 1998 as a result of industry restructuring and
the sale of the generating business. The NEES companies have
reached an agreement with all three of their unions regarding
benefits and other assistance, including early retirement and
severance programs, to union employees that are affected by these
events. The NEES companies have also announced similar early
retirement and severance programs for management employees. The
costs of such programs are expected to be substantially recovered
from the proceeds of the sale of the generating business.
Risk Factors
This Form 10-Q contains statements that may be considered
forward looking statements as defined under the securities laws.
Actual results may differ materially. As disclosed in the NEES
Form 10-K for the year ended 1996, there are several risk factors
which could affect actual results. While the NEES companies
believe that the sale agreement with USGen and other developments
constitute substantial progress in resolving the uncertainty
regarding the impact on shareholders from industry restructuring,
significant risks remain. These include, but are not limited to:
(i) the potential that ultimately the Massachusetts and Rhode
Island settlements will not be implemented in the manner
anticipated by NEES, (ii) the possibility of state or federal
legislation that would increase the risks to shareholders above
those contained in the settlements and Rhode Island statute, (iii)
the potential for adverse stranded cost recovery decisions
involving its Granite State Electric Company subsidiary and NEP's
unaffiliated customers, and (iv) the failure to complete the sale
of the generating business to USGen.
Even if these risks do not materialize, the implementation of
the sale agreement and the Massachusetts and Rhode Island
settlements and the Rhode Island statute regarding restructuring
will negatively impact financial results for NEES starting in 1998.
Upon completion of the sale, the NEES companies' earnings will be
much more dependent upon the earnings generated by its transmission
and retail distribution subsidiaries, which over recent years have
been much lower than the earnings for the generation business being
sold. The major risk factors affecting these companies relate to
the possibility of adverse regulatory or judicial decisions or
legislation which limit the level of revenues the companies are
allowed to charge for their services or affect the costs these
companies incur. The returns on equity permitted on the
subsidiaries' distribution operations (up to 11.75 percent) and on
the unrecovered commitments in the generating business (generally
9.4 percent before mitigation incentives) are considerably less
than those historically earned by NEES. In addition, starting in
1998, earnings would be affected by the return on the reinvestment
of the proceeds from the sale of the generation business. Such
reinvestment return is expected, at least in the near term, to be
considerably less than has historically been earned by NEES from
the generation business. To the extent that neither the
divestiture of NEP's nonnuclear generation nor retail choice in
Massachusetts occurs in 1998, under the Massachusetts settlement
pending before the FERC, approximately 73 percent of the amount of
NEP's 1998 earnings in excess of the 11.75 percent return on equity
must be refunded to Massachusetts Electric until its earnings cap
is met, and then used to reduce stranded costs. Massachusetts
Electric's earnings cap require it to refund one-half of earnings
between 11 percent and 12.5 percent and all earnings in excess of
12.5 percent. In addition, the NEES companies will also incur
costs associated with the transition after the sale is completed.
Rhode Island
In July 1997, the Governor of Rhode Island signed into law
bills further implementing utility restructuring in Rhode Island.
The Securitization Act establishes a framework at the RIPUC for
utilities to seek approval for the issuance of bonds secured by
customers obligations to pay stranded cost charges. The 1997
Amendments to the Utility Restructuring Act modify the law so that
utilities will not have to transfer their transmission assets to
another company and make other technical amendments.
Accounting Implications
Historically, electric utility rates have been based on a
utility's costs. As a result, electric utilities are subject to
certain accounting standards that are not applicable to other
business enterprises in general. Statement of Financial Accounting
Standards No. 71, Accounting for the Effects of Certain Types of
Regulation (FAS 71), requires regulated entities, in appropriate
circumstances, to establish regulatory assets, and thereby defer
the income statement impact of certain costs expected to be
recovered in future rates. At December 31, 1996, the NEES
companies had approximately $550 million in regulatory assets in
compliance with FAS 71, of which approximately $75 million relate
to the transmission and distribution business.
In response to concerns expressed by the staff of the
Securities and Exchange Commission, the Emerging Issues Task Force
(EITF) of the Financial Accounting Standards Board took under
consideration how FAS 71 should be applied in light of recent
changes within the regulated utility industry. In July 1997, the
EITF concluded that a utility whose ongoing generation operations
would not permit the application of FAS 71, but had otherwise
received approval to recover stranded costs through cost-based
regulated transmission and distribution rates, would be permitted
to continue to apply FAS 71 to the recovery of the stranded costs.
The Massachusetts and Rhode Island settlements each provide for
full recovery of the sunk costs of generating assets and oil and
gas related assets (including regulatory assets) not recoverable
from the proceeds of the divestiture of NEP's generating business.
FERC approval is still required for the Massachusetts and Rhode
Island settlements. The cost of these assets would be recovered as
part of a transition access charge imposed on all distribution
customers. After the proposed divestiture, substantially all of
NEP's business, including the recovery of its stranded costs, would
remain under cost-based rate regulation. The principal exception
is the provision of the settlements providing for a 80/20 sharing
between customers and shareholders of the going forward costs and
revenues related to NEP's operating nuclear interests. NEES
believes the Massachusetts settlement and Rhode Island statute
will enable the NEES distribution companies operating in those
states to recover through rates their specific costs of providing
ongoing distribution services. Specifically, FERC Order No. 888
enables transmission companies to recover their specific costs of
providing transmission service. NEES believes these factors and
the EITF conclusion will allow its principal subsidiaries to
continue to apply FAS 71. Any gain or loss from the divestiture of
generating assets and oil and gas assets, as well as any loss
resulting from the impairment of NEP's plant assets under Statement
of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of (FAS 121), will be recorded as a regulatory liability
or asset to be recovered through the ongoing transition access
charge. NEP will be required to cease to apply FAS 71 to the 20
percent of its ongoing nuclear operations described above.
Despite the progress made to date in Massachusetts and Rhode
Island, it is possible that the final restructuring plans
ultimately ordered by regulatory bodies may not reflect full
recovery of stranded costs, including a fair return on those costs
as they are being recovered. In addition, it is possible that
future methods of setting performance-based distribution rates may
not be considered cost-based as required by FAS 71. In the event
that future circumstances should cause the application of FAS 71 to
be discontinued, a noncash write-off of previously established
regulatory assets related to the affected operations would be
required. In addition, write-downs of plant assets under FAS 121
could be required, including a write-off of any gain or loss from
the divestiture of the generating business.
Brayton Point
- -------------
In October 1996, the Environmental Protection Agency (EPA)
announced it was beginning a process to determine whether to modify
or revoke and reissue NEP's water discharge permit for its Brayton
Point 1,576 MW power plant. This action came two years before the
permit expiration date. The EPA stated it took this step in
response to a request from the Rhode Island Department of
Environmental Management (RIDEM). A RIDEM report asserted a
statistical correlation between the decline in the fish population
in Mount Hope Bay and a change in operations at Brayton Point that
occurred in the mid-1980's.
In April 1997, NEP signed a memorandum of agreement negotiated
with the various federal and state environmental agencies under
which NEP will voluntarily operate under more stringent conditions
than under its existing permit. The agreement is in lieu of any
immediate action on the permit, and will remain in effect until a
renewal permit is issued. NEP cannot predict at this time what
permit changes will be required or the impact on Brayton Point's
operations and economics. However, permit changes may
substantially impact the plant's capacity and ability to produce
energy and/or require substantial capital expenditures to construct
equipment to address the concerns raised by the environmental
agencies.
Year 2000 Computer Issues
- -------------------------
In the next two years, most large companies will face a
potentially serious information systems (computer) problem because
most software application and operational programs written in the
past will not properly recognize calendar dates beginning in the
year 2000. This could force computers to either shut down or lead
to incorrect calculations. The NEES companies began the process of
identifying the changes required to their computer programs and
hardware during 1996. The necessary modifications to the NEES
companies' centralized financial, customer, and operational
information systems are expected to be completed by the end of
1998. The NEES companies believe they will incur approximately $20
million of costs associated with making the necessary modifications
identified to date to the centralized systems. Substantially all
of these costs are expected to be incurred prior to December 31,
1998. Noncentralized systems are currently being reviewed for Year
2000 problems. The NEES companies are unable to predict the costs
to be incurred for correction of such noncentralized systems, but
expect the scope and schedule for such work to be less complex than
for its centralized information systems.
Operating Revenue
- -----------------
The following table summarizes the changes in operating
revenue:
Increase (Decrease) in Operating Revenue
Third Quarter Nine Months
------------- ------------
1997 vs 1996 1997 vs 1996
------------- ------------
(In Millions)
Increase in kWh deliveries $10 $14
Distribution rate increases 3 8
Rate adjustment mechanisms (3) 5
Fuel recovery 2 52
Demand-Side Management (DSM) (2) (4)
Oil and gas revenues - 6
Other (including
transmission revenues) 2 9
--- ---
$12 $90
=== ===
For a discussion of kWh deliveries to ultimate customers, see
the "Earnings" section.
Retail rate increases for the third quarter and nine months
ended September 30, 1997 reflect an $11 million increase in
distribution rates for Narragansett Electric that became effective
in January 1997 pursuant to Rhode Island's Utility Restructuring
Act of 1996.
Rate adjustment mechanisms reflect true-ups for the pass
through of purchased power billings between NEP and the retail
companies. The provisions of the Massachusetts Electric and
Nantucket Electric Company (Nantucket Electric) (a wholly-owned
distribution subsidiary of NEES) restructuring settlement required
their Purchased Power Cost Adjustment (PPCA) mechanism to end
effective July 31, 1996. However, since the Massachusetts
settlement has not yet been approved by the FERC, Massachusetts
Electric and Nantucket Electric have continued to accrue refund
provisions of $18 million related to the assumed operation of the
PPCA mechanism since July 31, 1996 ($9 million in 1996 and $9
million in 1997 to date). In addition, at December 31, 1996
Massachusetts Electric had deferred approximately $8 million of
storm damage costs. In accordance with the Massachusetts
restructuring settlement, Massachusetts Electric will not be
permitted recovery of approximately $2 million of such storm damage
costs.
For a discussion of fuel recovery, see the fuel costs
discussion in the "Operating Expenses" section.
Oil and gas revenues increased in the first nine months due to
increased gas prices in the first quarter.
The increase in other revenues in the first three quarters of
1997 is primarily due to a transmission rate increase that went
into effect in mid-1996.
Operating Expenses
- ------------------
The following table summarizes the changes in operating
expenses:
Increase (Decrease) in Operating Expenses
Third Quarter Nine Months
------------- ------------
1997 vs 1996 1997 vs 1996
------------- ------------
(In Millions)
Fuel costs $ 3 $ 57
Purchased energy, excluding fuel (1) 5
Operation and maintenance:
DSM (2) (4)
Other 5 34
Depreciation and amortization:
Utility plant - (10)
Oil and gas properties (1) 3
Taxes 1 1
--- ----
$ 5 $ 86
=== ====
Fuel costs represent fuel for generation and the portion of
purchased electric energy permitted to be recovered through NEP's
fuel adjustment clause. The increase in fuel costs in the third
quarter and first nine months of 1997 primarily reflects increased
power supply to other utilities and increased replacement power
costs due to the reduced generation from partially owned nuclear
units. See "Investments in Nuclear Units" section in the "Notes to
the Unaudited Financial Statements".
The portion of purchased electric energy costs not recovered
through NEP's fuel clause is shown as purchased energy, excluding
fuel. The decrease in purchased power costs, excluding fuel,
during the third quarter reflects reduced charges from the closed
Connecticut Yankee nuclear power plant and reduced charges from the
Vermont Yankee nuclear power plant as a result of a 1996 third
quarter refueling outage. On a year-to-date basis, purchased power
costs have increased, reflecting overhaul and repair costs relating
to the Maine Yankee nuclear power plant and the Ocean State Power
plant, partially offset by reduced capacity purchases and reduced
purchased power costs from the Connecticut Yankee nuclear power
plant, which were primarily due to a one-time property tax
settlement.
The decrease in depreciation and amortization expense reflects
the completion of the amortization of NEP's pre-1988 investment in
the Seabrook 1 nuclear unit and NEP's investment in the canceled
Seabrook 2 nuclear unit. In accordance with a FERC 1995 settlement
agreement, upon completion of the amortization of Seabrook 1 and
Seabrook 2, NEP agreed to accelerate its amortization of previously
deferred costs associated with postretirement benefits other than
pensions (PBOPs). Upon completion of the PBOP amortization, which
occurred in July 1997, NEP was required to accelerate its
depreciation of Millstone 3.
The increase in operation and maintenance expense during the
third quarter reflects increased transmission wheeling costs and
start-up costs associated with the new regional transmission
control organization. For the nine month period, the increase in
operation and maintenance expense also reflects the increase in
PBOP expenses as mentioned above, as well as increased maintenance
costs of partially owned nuclear generating facilities, Millstone
3 and Seabrook 1. Other increases in operation and maintenance
expenses resulted from NEP's share of the costs associated with the
restoration to service of previously idled generating facilities
throughout New England, in response to a tightening regional power
supply, as well as an overall increase in general and
administrative costs.
Other Income
- ------------
The decrease in other income in 1997 reflects expenses
associated with NEES' unregulated ventures.
Liquidity and Capital Resources
- -------------------------------
Plant expenditures in the first nine months of 1997 amounted to
$152 million for the utility subsidiaries. The funds necessary for
utility plant expenditures were provided by net cash from operating
activities, after the payment of dividends.
The financing activities of NEES subsidiaries for the first
nine months of 1997 are summarized as follows:
Issues Retirements
------- -----------
(In Millions)
Long-term debt
- --------------
NEP $- $ 35
Massachusetts Electric - 30
Narragansett Electric 3 33
Nantucket Electric - 1
NEEI - 24
Hydro-Transmission Companies - 9
Narragansett Energy Resources - 1
-- ----
$3 $133
== ====
In addition, on October 3, 1997, Massachusetts Electric issued
$15 million of long-term debt and Narragansett Electric issued $7
million of long-term debt.
NEES' retail subsidiaries plan to issue an additional $40
million of long-term debt by the end of 1997.
Net cash from operating activities provided all of the funds
for oil and gas expenditures for the first nine months of 1997.
NEEI's capitalized oil and gas exploration and development costs
amounted to $10 million, including capitalized interest costs.
The NEES Board of Directors authorized the repurchase of up to
five million NEES common shares through open market purchases.
Through the third quarter, NEES has purchased approximately 89
thousand shares, under the repurchase program.
On November 7, 1997, NEES commenced cash tender offers for any
and all outstanding shares of preferred stock of NEP, Massachusetts
Electric and Narragansett Electric, which total approximately $40
million, $50 million and $36 million, respectively. If all the
shares are tendered, it would result in an after-tax charge to
earnings of approximately $5.5 million. Concurrently with the
offer, the Boards of Directors of NEP, Massachusetts Electric and
Narragansett Electric are soliciting proxies for use at special
meetings of preferred shareholders. The special meetings are being
held to consider amendments to NEP's and Massachusetts Electric's
By-Laws and Articles of Incorporation and Narragansett Electric's
Preferred Stock Provisions which would remove a limitation on the
ability of each company to issue unsecured debt without approval of
preferred shareholders. The offers expire on December 12, 1997.
At September 30, 1997, NEES and its consolidated subsidiaries
had lines of credit and standby bond purchase facilities with banks
totaling $702 million. These lines and facilities were used for
liquidity support for $140 million of commercial paper borrowings
and for $372 million of NEP mortgage bonds in tax-exempt commercial
paper mode. Fees are paid on the lines and facilities in lieu of
compensating balances.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Information concerning a lawsuit brought by the Company's
subsidiary, New England Power Company (NEP) against Northeast
Utilities on August 7, 1997 in Massachusetts Superior Court,
Worcester County concerning the Millstone 3 nuclear unit, discussed
in this report in Note B of Notes to Unaudited Financial
Statements, is incorporated herein and made a part hereof.
Information concerning a demand for arbitration sent by NEP to
Connecticut Light & Power Company and Western Massachusetts
Electric Company concerning the Millstone 3 nuclear unit, discussed
in this report in Note B of Notes to Unaudited Financial
Statements, is incorporated herein and made a part hereof.
Information concerning a lawsuit brought against NEP by the
Town of Norwood, Massachusetts, discussed in this report in Note C
of Notes to Unaudited Financial Statements, is incorporated herein
and made a part hereof.
Information concerning a favorable arbitration decision for NEP
regarding NEP's purchased power contract with Hydro-Quebec,
discussed in this report in Note D of Notes to Unaudited Financial
Statements, is incorporated herein and made a part hereof.
Information concerning restructuring dockets before the Federal
Energy Regulatory Commission and other regulatory approvals sought
for the sale of the generation business of the Company's
subsidiaries, discussed in Part I of this report in Management's
Discussion and Analysis of Financial Conditions and Results of
Operations, is incorporated herein by reference and made a part
hereof.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
Exhibit 2. The Company is filing as an exhibit a copy of the
Asset Purchase Agreement by and among NEP and The Narragansett
Electric Company and USGen New England, Inc. (formerly USGen
Acquisition Corporation) dated as of August 5, 1997.
The Company filed a report on Form 8-K dated August 6, 1997,
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, 1997 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 and
Chief Financial Officer
Date: November 12, 1997
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.