SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 of the
Securities Exchange Act of 1934
Date of Earliest Event Reported: November 21, 1997
NEW ENGLAND ELECTRIC SYSTEM
(exact name of registrant as specified in charter)
Massachusetts 1-3446 04-1663060
(state or other (Commission (I.R.S. Employer
jurisdiction of File No.) Identification No.)
incorporation)
25 Research Drive, Westborough, Massachusetts 01582
(Address of principal executive offices)
(508) 389-2000
(Registrant's telephone number, including area code)
Item 5. Other Events
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Industry Restructuring
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On November 25, 1997, legislation was signed into law by the
Governor of Massachusetts which would provide Massachusetts
utility customers with the ability to choose their electric
supplier on March 1, 1998. The legislation provides a mechanism
for the recovery by electric utilities of stranded costs
resulting from industry restructuring. The legislation further
requires electric companies to provide customers who do not
choose a competitive supplier with a transition rate (or standard
offer) which results in a 10 percent rate reduction, with the
discount increasing to 15 percent on or before September 1, 1999.
In October 1996, New England Electric System's (NEES)
Massachusetts subsidiaries (New England Power Company (NEP) and
Massachusetts Electric Company (Massachusetts Electric)) reached
a settlement agreement with various governmental agencies and
other interested parties, regarding recovery of stranded costs,
divestiture of the NEES companies generating business and other
issues. The Massachusetts settlement agreement was approved by
the Massachusetts Department of Public Utilities (MDPU) earlier
this year. As a result of the Massachusetts settlement and an
August 5, 1997 agreement to sell the NEES companies nonnuclear
generating business to USGen New England, Inc. (USGen), NEES'
Massachusetts subsidiaries are expected to be able to meet the
legislation's rate reduction targets. The legislation permits
the MDPU to implement previously approved plans that
substantially comply with the legislation. The NEES companies
believe that their Massachusetts settlement is substantially
consistent with the provisions of the legislation, and will be
filing for such a finding by the MDPU.
On November 25, 1997, the Federal Energy Regulatory
Commission (FERC) approved the Massachusetts settlement but
required the NEES companies to amend the settlement within 30
days to clarify that the settlement does not affect the rights of
non-settling parties. The FERC Order also approved, on the same
basis as the Massachusetts settlement, a settlement agreement
with Rhode Island parties regarding recovery of stranded costs
from the NEES companies' Rhode Island customers. The Rhode
Island settlement agreement is designed to implement Rhode
Island's Utility Restructuring Act of 1996. As contemplated by
the Rhode Island settlement, the Rhode Island Public Utilities
Commission is expected to accelerate retail access for all Rhode
Island customers from July 1, 1998 to the first quarter of 1998.
This Form 8-K contains statements that may be considered
forward looking statements as defined under the securities laws
regarding recovery of stranded assets, meeting rate reduction
targets, and regulatory matters. Actual results may differ
materially. While the NEES companies believe that the
Massachusetts legislation, the previously passed Rhode Island
legislation, and 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 federal legislation that would increase the risks
to shareholders above those contained in the settlements and
Massachusetts and Rhode Island statutes, (iii) the potential for
adverse stranded cost recovery decisions involving its Granite
State Electric Company subsidiary and unaffiliated customers of
NEP, 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 statutes 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 (capped at
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. The NEES companies will also incur costs associated
with the transition after the sale is completed.
Town of Norwood Dispute
-----------------------
As previously reported in the Form 10-Q for the quarter
ending September 30, 1997, in April 1, 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. On
November 21, 1997, Norwood filed an amended complaint making new
allegations relating to the sale of NEP's generating assets and
naming as additional defendants, NEES, USGen, and USGen's parent,
PG & E Corporation. NEP continues to believe 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.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this Current Report on
Form 8-K to be signed on its behalf by the undersigned thereunto
duly authorized.
NEW ENGLAND ELECTRIC SYSTEM
s/Alfred D. Houston
By
Alfred D. Houston
Executive Vice President and
Chief Financial Officer
Date: December 1, 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.