SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Registrant; State of
Incorporation or I.R.S. Employer
Commission Organization; Address; Identification
File Number and Telephone Number Number
- ------------ ---------------------- ---------------
1-3446 NEW ENGLAND ELECTRIC SYSTEM 04-1663060
(A Massachusetts voluntary
association)
25 Research Drive
Westborough, Massachusetts 01582
Telephone: 508-389-2000
1-6564 NEW ENGLAND POWER COMPANY 04-1663070
(A Massachusetts corporation)
25 Research Drive
Westborough, Massachusetts 01582
Telephone: 508-389-2000
0-5464 MASSACHUSETTS ELECTRIC COMPANY 04-1988940
(A Massachusetts corporation)
25 Research Drive
Westborough, Massachusetts 01582
Telephone: 508-389-2000
1-7471 THE NARRAGANSETT ELECTRIC COMPANY 05-0187805
(A Rhode Island corporation)
280 Melrose Street
Providence, Rhode Island 02907
Telephone: 401-784-7000
Indicate by check mark whether the registrants (1) have 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 registrants were required to file such
reports), and (2) have been subject to such filing requirements
for the past 90 days.
(X) Yes ( ) No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (X)
Securities registered pursuant to Section 12(b) of the Act:
Outstanding at Name of each exchange
Registrant Title of each class March 17, 1999 on which registered
- ---------- ------------------- -------------- ---------------------
New England Common Shares 59,111,433 New York Stock Exchange
Electric Boston Stock Exchange
System
Securities registered pursuant to Section 12(g) of the Act:
Registrant Title of each class
- ---------- -------------------
Massachusetts Cumulative Preferred Stock
Electric Company Preferred Stock - Cumulative
The Narragansett Cumulative Preferred Stock
Electric Company
Aggregate market value
of the voting stock Number of shares of
held by nonaffiliates common stock outstanding
of the registrants at of the registrants at
March 17, 1999 March 17, 1999
---------------------- ------------------------
New England $2,892,765,752 59,111,433 ($1 par value)
Electric System
New England $1,551,528 3,619,896 ($20 par value)
Power Company
Massachusetts None 2,398,111 ($25 par value)
Electric Company
The Narragansett None 1,132,487 ($50 par value)
Electric Company
Documents Incorporated by Reference
Part of Form 10-K into which
Description document is incorporated
- ---------------------------------- ----------------------------
Portions of Annual Reports to Parts I and II
Shareholders for the year ended
December 31, 1998 of the following
companies, as set forth in Parts I
and II
New England Electric System
New England Power Company
Massachusetts Electric Company
The Narragansett Electric Company
Portions of Proxy Statement of Part III
New England Electric System
filed in connection with its
annual meeting of shareholders to
be held on May 3, 1999, as set
forth in Part III
This combined Form 10-K is separately filed by New England Electric
System, New England Power Company, Massachusetts Electric Company, and The
Narragansett Electric Company. Information contained herein relating to
any individual company is filed by such company on its own behalf. Each
company makes no representation as to information relating to the other
companies.
TABLE OF CONTENTS
PAGE
GLOSSARY OF TERMS.......................................... iv
FORWARD LOOKING INFORMATION................................ vi
PART I
ITEM 1. BUSINESS........................................... 1
THE SYSTEM.................................................. 1
System Organization.................................... 1
Employees.............................................. 3
ELECTRIC UTILITY OPERATIONS................................. 3
Introduction........................................... 3
Merger Agreement with National Grid.................... 4
Merger Agreement with Eastern Utilities Associates..... 4
Industry Restructuring................................. 5
Accounting Implications............................. 7
Impact of Restructuring on Distribution Business.... 8
Overview of Financial Results and Outlook........... 9
Other............................................... 10
Year 2000 Readiness Disclosure......................... 10
Merger Activity........................................ 13
National Grid Merger................................ 13
Eastern Utilities Associates Merger................. 17
Regulatory Merger Outlook.............................. 20
NEES/National Grid.................................. 21
NEES/EUA............................................ 21
Electricity Delivery Companies......................... 22
Mass. Electric
Description of Business........................... 22
Rates............................................. 23
Narragansett
Description of Business........................... 24
Rates............................................. 24
Granite State
Description of Business........................... 25
Rates............................................. 26
Nantucket
Description of Business........................... 26
Standard Offer Service.............................. 27
Recovery of Demand-Side Management Expenditures..... 27
Performance-Based Ratemaking........................ 28
Transmission and Nuclear Generation Business........... 28
NEP
Description of Business........................... 28
Rates............................................. 28
Unregulated Business................................... 29
Operating Revenues..................................... 30
PAGE
Electric Utility Properties............................ 32
Transmission, Distribution, and Nuclear Generation
Properties........................................ 32
Map - Electric Utility Properties................... 35
Nuclear Units....................................... 36
Divestiture of Nonnuclear Generating Business....... 42
Natural Gas Contracts............................... 42
Oil and Gas Operations.............................. 42
Purchased Power Transfer Agreement.................. 42
Regulatory and Environmental Matters................... 42
Regulation.......................................... 42
Environmental Requirements.......................... 43
Construction and Financing............................. 44
EXECUTIVE OFFICERS.......................................... 48
ITEM 2. PROPERTIES.......................................... 52
ITEM 3. LEGAL PROCEEDINGS................................... 52
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS................................................ 54
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SECURITY HOLDER MATTERS........................ 54
ITEM 6. SELECTED FINANCIAL DATA............................. 54
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................... 55
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK............................................ 55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......... 56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................... 56
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT............................................. 57
ITEM 11. EXECUTIVE COMPENSATION............................ 60
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT......................................... 73
PAGE
PART IV
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.... 75
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.................. 75
INDEX TO FINANCIAL STATEMENTS............................... 103
GLOSSARY OF TERMS
Term Meaning
---- -------
AFDC allowance for funds used during
construction
AllEnergy AllEnergy Marketing Company, LLC
Connecticut Yankee Connecticut Yankee Atomic Power Company
CTC contract termination charges
DOE U.S. Department of Energy
DSM demand-side management
EPA U.S. Environmental Protection Agency
EUA Eastern Utilities Associates
Electricity Delivery Mass. Electric, Narragansett, Granite
Companies State, and Nantucket
FERC Federal Energy Regulatory Commission
FAS 71 Accounting for the Effects of Certain
Types of Regulation
Firm Energy agreement between NEPOOL members and
Contract Hydro-Quebec
Granite State Granite State Electric Company
Granite State Granite State Energy, Inc.
Energy
Interconnection transmission interconnection between
participating New England utilities
and Hydro-Quebec
ISO Independent System Operator
Holdings NGG Holdings LLC
kWh kilowatthour
Maine Yankee Maine Yankee Atomic Power Company
Mass. Electric Massachusetts Electric Company
Mass. Hydro New England Hydro-Transmission Electric
Company, Inc.
Massachusetts settlement agreement previously reached
Settlement among the NEES companies' Massachusetts
subsidiaries
MDTE Massachusetts Department of
Telecommunications and Energy
MW megawatts
Nantucket Nantucket Electric Company
Narragansett The Narragansett Electric Company
National Grid The National Grid Group plc
N.E. Hydro Finance New England Hydro Finance Company, Inc.
NEEI New England Energy Incorporated
NEES New England Electric System
NEESCom NEES Communications, Inc.
NEES companies the subsidiaries of NEES
NEES Energy NEES Energy, Inc.
NEES Global NEES Global, Inc.
NEET New England Electric Transmission
Corporation
NEP New England Power Company
NEPOOL New England Power Pool
NEUs New England Utilities
GLOSSARY OF TERMS
Term Meaning
---- -------
N.H. Hydro New England Hydro-Transmission
Corporation
NHPUC New Hampshire Public Utilities
Commission
NOATT NEPOOL Open Access Transmission
Tariff
NRC Nuclear Regulatory Commission
PG&E PG&E Corporation
PBOPs postretirement benefits other than
pensions
PPCA purchased power cost adjustment
Research Drive Research Drive LLC
Resources Narragansett Energy Resources
Company
retail choice retail customers are allowed to
choose their electricity supplier
Rhode Island Settlement settlement agreement among NEP,
Narragansett, the RIPUC and the
Rhode Island Division of Public
Utilities and Carriers to
implement the stranded cost
recovery provisions of the Rhode
Island statute
RIPUC Rhode Island Public Utilities
Commission
ROE Return on Equity
Seabrook 1 Seabrook Nuclear Generating Station
Unit 1
SEC Securities and Exchange Commission
Sellers NEP and Narragansett
Service Company New England Power Service Company
spent nuclear fuel high level radioactive waste
stranded costs the amounts by which prudently
incurred costs incurred to supply
customers electricity under a
regulated industry structure
exceed market prices under an
unregulated industry structure
System the subsidiaries of NEES
collectively
USGen USGen New England, Inc.
Vermont Yankee Vermont Yankee Nuclear Power
Corporation
Yankee Atomic Yankee Atomic Electric Company
Yankee Companies Yankee Atomic, Vermont Yankee,
Maine Yankee, and Connecticut
Yankee
Y2K year 2000
1935 Act Public Utility Holding Company Act
of 1935, as amended
FORWARD LOOKING INFORMATION
This report and other presentations made by NEES and its
subsidiaries contain forward looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended.
Throughout this report, forward looking statements can be
identified by the words or phrases "will likely result", "are
expected to", "will continue", "is anticipated", "estimated",
"projected", "believe", "hopes", or similar expressions. Although
NEES and each of its subsidiaries believe that, in making any such
statements, its expectations are based on reasonable assumptions,
any such statements may be influenced by factors that could cause
actual outcomes and results to be materially different from those
projected. Important factors that could cause actual results to
differ materially from those in the forward looking statements
include, but are not limited to:
(a) the impact of general economic changes in New England;
(b) the impact of industry restructuring, customer choice of
power suppliers, increased competition in the electric utility
industry, and timing and nature of federal and state regulatory
actions on the mergers with Eastern Utilities Associates (EUA) and
The National Grid Group plc (National Grid), including
- significant opposition in regulatory proceedings,
- delay at one or more regulatory agencies,
- unanticipated changes in circumstances requiring
amendments be made to filings, and
- the imposition of unacceptable conditions to approval
by one or more regulatory agencies,
as more fully set out below under ELECTRIC UTILITY OPERATIONS, page
3, and INDUSTRY RESTRUCTURING, page 5;
(c) federal and state regulatory developments and changes in
law which may have a substantial adverse impact on the value of
NEES and the NEES companies' assets;
(d) changes in accounting rules and interpretations which may
have an adverse impact on the NEES companies' statements of
financial position and reported earnings;
(e) timing and adequacy of rate relief;
(f) adverse changes in electric load and customer growth;
(g) climatic changes or unexpected changes in weather
patterns;
(h) distribution facility performance, as more fully set out
below under Transmission, Distribution, and Nuclear Generation
Properties, page 32; and
(i) operation and decommissioning costs associated with
nuclear generating facilities, as set out under Nuclear Units
below, page 36.
PART I
ITEM 1. BUSINESS
THE SYSTEM
SYSTEM ORGANIZATION
New England Electric System (NEES) is a voluntary association created under
Massachusetts law on January 2, 1926, and is a registered holding company under
the Public Utility Holding Company Act of 1935, as amended (the 1935 Act). NEES
owns voting stock in the amounts indicated of the following companies, which
together constitute the System.
% Voting
Securities
State of Type of Owned by
Name of Company Organization Business NEES
--------------- ------------ -------- ---------
AllEnergy Marketing Company, Delaware Marketing *
L.L.C. (AllEnergy)
Granite State Electric Company N.H. Retail 100
(Granite State) Electric
Granite State Energy, Inc. N.H. Marketing 100
(Granite State Energy)
Massachusetts Electric Company Mass. Retail 100
(Mass. Electric) Electric
Metrowest Realty, LLC (Metrowest Delaware Property 100
Realty) Ownership
Nantucket Electric Company Mass. Retail 100
(Nantucket) Electric
The Narragansett Electric Company R.I. Retail 100
(Narragansett) Electric
NEES Communications, Inc. Mass. Telecommunications 100
(NEESCom)
NEES Energy, Inc. (NEES Energy) Mass. Marketing 100
NEES Global, Inc. Mass. Consulting 100
(NEES Global) (formerly
NEES Global Transmission, Inc.)
New England Electric Transmission N.H. Electric 100
Corporation (NEET) Transmission
New England Energy Incorporated Mass. Formerly Oil
(NEEI) and Gas 100
New England Hydro Finance Company, Mass. Debt Financing **
Inc. (N.E. Hydro Finance)
New England Hydro-Transmission N.H. Electric 53.97(a)
Corporation (N.H. Hydro) Transmission
New England Hydro-Transmission Mass. Electric 53.97(a)
Electric Company, Inc. Transmission
(Mass. Hydro)
New England Power Company (NEP) Mass. Transmission (c) 99.97(b)
% Voting
Securities
State of Type of Owned by
Name of Company Organization Business NEES
--------------- ------------ -------- ---------
New England Power Service Company Mass. Service 100
(Service Company) Company
New England Water Heater Co., Inc. Mass. Water Heater ***
(NEWH) Rentals
Research Drive LLC (Research Mass. Acquisition 99
Drive) Vehicle ****
* NEES Energy owns 100 percent of the voting securities.
** Mass. Hydro and N.H. Hydro each own 50 percent of the voting securities.
*** NEES Global owns 100 percent of the voting securities.
**** NEES Global owns 1 percent of the voting securities.
(a) The common stock of these subsidiaries is owned by NEES and
certain participants (or their parent companies) in the second
phase of the Hydro-Quebec project. See Interconnection with
Quebec, page 33.
(b) Holders of common stock and 6% Cumulative Preferred Stock of
NEP have general voting rights. The 6% Cumulative Preferred
Stock held by nonaffiliates represents 0.03 percent of the
total voting power.
(c) For information on NEP's ownership interest in nuclear
generating units, see Nuclear Units, page 36.
The facilities of NEES' four electricity delivery companies,
Mass. Electric, Narragansett, Granite State, and Nantucket
(collectively referred to as the Electricity Delivery Companies),
and of its principal transmission subsidiary, NEP, constitute an
electrical transmission and distribution system that is directly
interconnected with other utilities in New England and New York
State, and indirectly interconnected with utilities in Canada. See
ELECTRIC UTILITY OPERATIONS, page 3.
Granite State Energy is a wholly-owned, nonutility subsidiary
of NEES which provides a range of energy and related services,
including but not limited to sales of electric energy, audits,
power quality, fuel supply, repair, maintenance, construction,
design, engineering, and consulting. To date, Granite State
Energy's activities have been limited to participation in the New
Hampshire retail choice pilot program.
NEES Energy is a wholly-owned, nonutility marketing subsidiary
of NEES. NEES Energy owns AllEnergy, an energy marketing company.
NEESCom is a wholly-owned, nonutility subsidiary of NEES which
provides telecommunications infrastructure to the telecommunication
industry.
NEET owns and operates a portion of an international
transmission interconnection between the electric systems of
Hydro-Quebec and New England. Mass. Hydro and N.H. Hydro own and
operate facilities in connection with an expanded second phase of
this interconnection. N.E. Hydro Finance provides the debt
financing to Mass. Hydro and N.H. Hydro for the capital costs of
the interconnection. For more information, see Interconnection
with Quebec, page 33.
NEEI primarily participated (principally through a partnership
with a nonaffiliated oil company) in domestic oil and gas
exploration, development, and production and the sale to NEP of
fuel purchased in the open market. As part of the NEES companies'
divestiture of their generating business, NEEI sold its oil and gas
properties in February 1998. For more information, see INDUSTRY
RESTRUCTURING, page 5, and Oil and Gas Operations, page 42.
The Service Company has contracted with NEES and its
subsidiaries to provide, at cost, such administrative, engineering,
construction, legal and financial services as the companies
request.
NEES Global is a wholly-owned, nonutility subsidiary of NEES
which provides consulting services. NEWH is a subsidiary of NEES
Global which provides water heater rentals.
Metrowest Realty owns the System's headquarters complex in
Westborough, Mass., and the North Andover, Mass., service center
occupied by Mass. Electric.
EMPLOYEES
At December 31, 1998, NEES subsidiaries had approximately 3,540
employees. At that date, the total number of employees was
approximately 87 at NEP, 1,505 at Mass. Electric, 522 at
Narragansett, 54 at Granite State, 21 at Nantucket, 1,045 at the
Service Company, and 306 at AllEnergy. Of the 3,540 employees,
approximately 1,944 are members of labor organizations. Collective
bargaining agreements with the Brotherhood of Utility Workers of
New England, Inc., the International Brotherhood of Electrical
Workers, and the Utility Workers Union of America, AFL-CIO expire
in May, 1999. Negotiation of new contracts with these unions is in
progress.
ELECTRIC UTILITY OPERATIONS
INTRODUCTION
1998 was a year of unprecedented change for the electric
utility industry and for NEES. Prior to 1998, the NEES companies
provided their customers bundled electric service (i.e. production
and delivery) within exclusive franchise service territories. By
mid-1998, all NEES customers were provided the right to purchase
electricity from the power supplier of their choice. NEES remains
obligated to deliver that electricity over its transmission and
distribution systems. In September 1998, NEES completed the
divestiture of substantially all of its nonnuclear generating
business. In December 1998, NEES agreed to a merger with National
Grid, whereby NEES would become a wholly-owned subsidiary of
National Grid. National Grid's principal subsidiary operates the
transmission system in England and Wales.
On February 1, 1999, NEES entered into an agreement to acquire
EUA, a utility holding company serving approximately 300,000
customers in Massachusetts and Rhode Island.
MERGER AGREEMENT WITH NATIONAL GRID
On December 11, 1998, NEES, National Grid, and NGG Holdings LLC
(Holdings), a directly and indirectly wholly-owned subsidiary of
National Grid, entered into an Agreement and Plan of Merger (Merger
Agreement). Pursuant to the Merger Agreement, Holdings will merge
with and into NEES (the Merger), with NEES becoming a wholly-owned
subsidiary of National Grid. NEES shareholders will receive $53.75
per share in cash, which will be increased at a rate of $.003288
each day beginning six months after shareholder approval of the
Merger until the Merger is completed, up to a maximum price of
$54.35 per share.
The Merger is subject to approval by a majority vote of NEES
shareholders as well as National Grid shareholder approval. In
addition, the Merger is subject to a number of regulatory and other
approvals and consents, including approvals by the Securities and
Exchange Commission (SEC) under the Public Utility Holding Company
Act of 1935 (the 1935 Act), Federal Energy Regulatory Commission
(FERC), and Nuclear Regulatory Commission (NRC), support or
approval from the states in which NEES operates, and clearance
under both the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the Exon-Florio Provisions of the Omnibus
Trade and Competitiveness Act of 1988. National Grid has obtained
governmental clearance in the United Kingdom for the Merger. The
Merger is expected to be completed by early 2000. For more
information, see National Grid Merger, page 13.
MERGER AGREEMENT WITH EASTERN UTILITIES ASSOCIATES
On February 1, 1999, NEES, EUA, and Research Drive, a directly
and indirectly wholly-owned subsidiary of NEES, entered into an
Agreement and Plan of Merger (EUA Agreement). Pursuant to the EUA
Agreement, Research Drive will merge with and into EUA, with EUA
becoming a wholly-owned subsidiary of NEES. EUA shareholders will
receive $31.00 per share in cash, which will be increased at a rate
of $.003 each day beginning six months after EUA shareholder
approval of the EUA acquisition until the acquisition is completed
or until April 30, 2000, whichever is earlier.
The acquisition of EUA is subject to approval by a two-thirds
vote of EUA shareholders. In addition, the acquisition is subject
to a number of regulatory and other approvals and consents,
including approvals by the SEC under the 1935 Act, FERC, and NRC,
support or approval from the states in which EUA subsidiaries
operate, and clearance under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. The EUA acquisition is
expected to be completed by early 2000. Following the acquisition
of EUA, the subsidiaries of NEES and EUA whose operations are
similar are expected to be consolidated. For more information, see
Eastern Utilities Associates Merger, page 17.
INDUSTRY RESTRUCTURING
During 1998, pursuant to legislation enacted in Massachusetts,
Rhode Island, and New Hampshire, and settlement agreements approved
by state and federal regulators (the Settlement Agreements), all
NEES customers were provided the right to purchase electricity from
the power supplier of their choice. The NEES companies remain
obligated to deliver that electricity over its transmission and
distribution systems, with such delivery services provided under
regulated rates approved by state and federal regulators. As
described below, those delivery rates include a non-bypassable
charge for the costs of NEES' former generating business which were
not recovered through the sale of that business ("stranded costs"),
which was substantially completed in 1998. As a result of the
Settlement Agreements, customers choice of power supplier has no
impact on NEES' transmission and distribution business or on its
ability to recover stranded costs.
Customers who do not choose a power supplier are able, for a
period of time, to continue to purchase their electricity from the
NEES companies at a transition rate ("standard offer generation
service") which, when combined with delivery charges, results in
total rate reductions ranging from 8 to 24 percent compared with
the rates that had been in effect prior to the introduction of
customer choice. The NEES companies bear little risk associated
with the provision of standard offer generation service as
substantially all of the obligations of the NEES companies to
provide such service are backed by contracts with USGen New
England, Inc. (USGen), an indirect wholly-owned subsidiary of PG&E
Corporation, and other power suppliers.
Pursuant to the Settlement Agreements, the NEES companies had
agreed to sell their nonnuclear generating business. On September
1, 1998, NEES subsidiaries NEP and Narragansett (collectively, the
Sellers) completed the sale of substantially all of their
nonnuclear generating business to USGen. The assets sold include
three fossil-fueled and 15 hydroelectric generating stations,
totaling approximately 4,000 megawatts (MW) of capacity, as well as
NEES' 100 percent interest in Narragansett Energy Resources Company
(NERC), a 20 percent general partner in the Ocean State Power
project, all of which had a book value of approximately $1.1
billion. The NEES companies received $1.59 billion for the sale.
In addition, the NEES companies were reimbursed approximately $140
million for costs associated with early retirements and special
severance programs for employees affected by industry
restructuring, and the value of inventories. USGen assumed
responsibility for environmental conditions at the Sellers'
nonnuclear generating stations. USGen also assumed the Sellers'
obligations under long-term fuel and fuel transportation contracts,
and certain collective bargaining agreements.
As part of the sale, NEP also signed a purchased power transfer
agreement through which USGen purchased NEP's entitlement to
approximately 1,100 MW of power procured under long-term contracts
in exchange for monthly fixed payments by NEP averaging $9.5
million per month through January 2008 (having a net present value
of $833 million) toward the above market cost of those contracts.
In some cases, these transfers involved formal assignment of the
contracts to USGen and a release of NEP from further obligations to
the power supplier, while others did not. For those that involved
formal assignment, NEP was required to make a lump sum payment
equivalent to the present value of the monthly fixed payment
obligations of those contracts. On or prior to the closing date,
NEP made lump sum payments totaling approximately $340 million and
was released from further obligations relating to two of the
contracts. These lump sum payments are separate from the $833
million figure referred to above.
As part of the divestiture plan, in February 1998, NEEI, a
wholly-owned subsidiary of NEES, whose costs had been supported by
the generating business, sold its oil and gas properties for
approximately $50 million. NEEI's loss on the sale of
approximately $120 million, before tax, has been reimbursed by NEP.
NEP agreed under the Settlement Agreements to endeavor to sell
its minority interest in three nuclear power plants and a 60 MW
interest in a fossil-fueled generating station in Maine. In
February 1999, Vermont Yankee Nuclear Power Corporation entered
into a letter of intent to sell its assets (for more information,
see Nuclear Units, page 36).
The Settlement Agreements provide that stranded costs are to
be recovered from NEP's wholesale customers through contract
termination charges (CTC). The affiliated wholesale customers, in
turn, are recovering those costs through their delivery charges to
distribution customers. Under the Settlement Agreements, the
recovery of NEP's stranded costs is divided into several
categories. Unrecovered costs associated with generating plants
(nuclear and nonnuclear) and most regulatory assets will be fully
recovered through the CTC by the end of 2000 and earn a return on
equity averaging 9.7 percent. NEP's obligation relating to the
above-market cost of purchased power contracts and nuclear
decommissioning costs are recovered through the CTC over a longer
period of time, as such costs are actually incurred. The CTC rate
was originally set at 2.8 cents per kilowatthour (kWh), and
subsequently reduced to approximately 1.5 cents or less per kWh
upon completion of the sale of NEP's nonnuclear generating
business. As the CTC rate declines, NEP, under certain of the
Settlement Agreements, earns incentives based on successful
mitigation of its stranded costs. These incentives supplement NEP's
return on equity. Finally, the Settlement Agreements provide that
until such time as NEP divests its operating nuclear interests, NEP
will share with customers, through the CTC, 80 percent of the
revenues and operating costs related to the units, with
shareholders retaining the balance.
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 these charges because they are
expected to be included in future customer charges. In 1997, the
Emerging Issues Task Force (EITF) of the Financial Accounting
Standards Board (FASB) concluded in Issue 97-4 that a utility that
had received approval to recover stranded costs through regulated
transmission and distribution rates would be permitted to continue
to apply FAS 71 to the recovery of stranded costs.
NEP has received authorization from the FERC to recover through
the CTC substantially all of the costs associated with its former
generating business not recovered through the sale of that
business. Additionally, FERC Order No. 888 enables transmission
companies to recover their specific costs of providing transmission
service. Therefore, substantially all of NEP's business, including
the recovery of its stranded costs, remains under cost-based rate
regulation. Under existing ratemaking practices, NEES' distribution
companies will have the ability to recover through rates their
specific costs of providing ongoing distribution services. NEES
believes these factors and the EITF conclusion allow its principal
utility subsidiaries to continue to apply FAS 71. Because of the
nuclear cost-sharing provisions related to NEP's CTC, NEP ceased
applying FAS 71 in 1997 to 20 percent of its ongoing nuclear
operations, the impact of which is immaterial.
Currently, there is much regulatory and other movement toward
establishing performance-based rates. It is possible that the
adoption of performance-based rates, future regulatory rules, or
other circumstances could cause the application of FAS 71 to be
discontinued. This discontinuation would result in a noncash
write-off of previously established regulatory assets, including
those being recovered through NEP's CTC. In addition, reserves for
depreciation may also have to be increased to comply with
unregulated accounting practices.
As a result of applying FAS 71, NEES has recorded a regulatory
asset for the costs that are recoverable from customers through the
CTC. The regulatory asset reflects the loss on the sale of NEES'
oil and gas business and the unrecovered plant costs in operating
nuclear plants (assuming no market value), the costs associated
with permanently closed nuclear power plants, and the present value
of the payments associated with the above-market costs of purchased
power contracts, reduced by the gain from the sale of NEP's
nonnuclear generating business. At December 31, 1998, the
regulatory asset related to the CTC was approximately $1.5 billion,
of which $1.2 billion related to the above-market costs of
purchased power contracts.
As described above, the CTC regulatory asset includes the
unrecovered plant costs associated with NEP's interest in operating
nuclear plants. This balance sheet treatment is due to NEP's
conclusion that its interests in the Millstone 3 and Seabrook 1
nuclear generating units have little, if any, market value. Three
proposed sales of nuclear units by other utilities have required
the seller to set aside amounts for decommissioning in excess of
the proceeds from the sale of the units. Two of these proposed
sales were agreed upon prior to the end of the third quarter of
1998. As a result, at the end of the third quarter of 1998, NEP
recorded an impairment writedown in its reserve for depreciation of
approximately $390 million, which represents the net book value at
December 31, 1995, less applicable depreciation subsequent to that
date, of Millstone 3 and Seabrook 1. Because the Settlement
Agreements permit NEP to recover its pre-1996 investment as well as
decommissioning expenses through the CTC, NEP established a
regulatory asset in an amount equal to the impairment writedown.
Should NEP's efforts to sell its nuclear interests result in a gain
over the amounts remaining in the plant account, such gain will be
credited to customers through the CTC.
Impact of Restructuring on Distribution Business
The Settlement Agreement applying to Massachusetts (The
Massachusetts Settlement) also establishes distribution rates for
NEES' Massachusetts subsidiaries Mass. Electric and Nantucket. On
March 1, 1998, Mass. Electric's distribution rates were set at a
level approximately $45 million above the level embedded in its
previously bundled rates, with such rates then frozen through the
year 2000. This increase reflects changes to the distribution cost
of service, including an $11 million increase in annual
depreciation expense, a $3 million annual contribution to a storm
fund, and increased annual amortization of unfunded deferred
income taxes of approximately $1 million over six years. Through
the year 2000, Mass. Electric's return on equity is subject to a
floor of 6 percent and a ceiling of 11 percent. Earnings over the
ceiling will be shared equally between customers and shareholders
up to a maximum of 12.5 percent. This sharing results in an
effective cap on Mass. Electric's return on equity of 11.75
percent, excluding certain limited incentive opportunities. To the
extent that earnings fall below the floor, Mass. Electric will be
authorized to surcharge customers for the shortfall.
Under the Rhode Island statute, Narragansett increased
distribution rates by approximately $7 million and $11 million in
1998 and 1997, respectively. The statute does not limit
Narragansett's ability to seek approval from state regulators to
increase rates in the future.
Overview of Financial Results and Outlook
Earnings were $3.04 per diluted share in 1998 compared with
$3.39 and $3.22 per diluted share in 1997 and 1996, respectively.
The return on common equity was 11.4 percent in 1998, 12.8 percent
in 1997, and 12.6 percent in 1996. The market price of NEES common
shares was 48 1/8 per share at the end of 1998 compared with 42 3/4
per share and 34 7/8 per share at the end of 1997 and 1996,
respectively.
The decrease in 1998 earnings reflects significant revenue
reductions due to the restructuring of the utility business in
Massachusetts, Rhode Island, and New Hampshire, the effect of the
divestiture of NEES' nonnuclear generating business (the combined
effects of these items reduced revenues by approximately $1.60 per
share and operating expenses by approximately $.60 per share),
increased investments in unregulated ventures (reducing earnings by
approximately $.05 per share), and costs incurred in connection
with the development of the Merger Agreement between NEES and
National Grid (reducing earnings by approximately $.05 per share).
The decrease in earnings was partially offset by increased kWh
deliveries to ultimate customers (approximately $.05 per share), a
reduction in costs associated with nuclear operations
(approximately $.35 per share), a reduction in core business
operation and maintenance expense (approximately $.20 per share) in
part as a result of workforce reductions. 1998 earnings per share
were also positively affected by a share repurchase program
(approximately $.07 per share).
The earnings decrease related to investments in unregulated
ventures is primarily attributable to losses incurred at AllEnergy.
AllEnergy is an energy marketing company which offers energy
commodities (natural gas, propane, and oil) and related value-added
services to customers in the emerging competitive energy markets in
the northeast. As AllEnergy develops market share in competitive
energy markets which have yet to mature, low profit margins
realized have been insufficient to cover overhead expenses.
NEES believes its 1999 earnings will be reduced by a full
year's effect of industry restructuring. NEES earnings will be
negatively affected by the return on the reinvestment of the sale
proceeds, which is expected, at least in the near term, to be
considerably less than the return historically earned in the
generating business. Further, the Settlement Agreements related to
recovery of stranded costs limit the return on equity earned on the
unrecovered investment in NEES' generating business to 9.7 percent,
before mitigation incentives, which is significantly lower than
that earned by the generating business in recent years. Finally,
through the year 2000, the return on equity for NEES' principal
distribution subsidiary is capped at 11.75 percent, plus certain
incentives.
Other
For more information on new accounting standards, see page 18
of the 1998 NEES Annual Report.
YEAR 2000 READINESS DISCLOSURE
Over the next year, most companies will face a potentially
serious information systems (computer) problem because many
software applications and operational programs written in the past
may not properly recognize calendar dates associated with the year
2000 (Y2K). This could cause computers to either shut down or lead
to incorrect calculations.
During 1996, the NEES companies began the process of
identifying the changes required to their computer software and
hardware to mitigate Y2K issues. The NEES companies established a
Y2K Project team to manage these issues, which has consisted of as
many as 70 full-time equivalent staff at some points in time,
primarily external consultants being overseen by an internal Y2K
management team. To facilitate the Y2K Project, NEES entered into
contracts with Keane, Inc. and International Business Machines
Corp. to provide personnel support to the Y2K Project. Through
December 31, 1998, the NEES companies have spent approximately $14
million with these vendors, which is included in the cost figures
disclosed below. The Y2K Project team reports project progress to
a Y2K Executive Oversight Committee each month. The team also makes
regular reports to NEES' Board of Directors and its Audit
Committee. The NEES companies have separated their Y2K Project into
four parts as shown below, along with the estimated completion
dates for each part.
Substantial Contingency Testing
Completion Documentation,
of Critical and Clean
Category Specific Example Systems Management
- -------- ---------------- ----------- -------------------
Mainframe/Midrange Accounting/Customer Completed Throughout 1999
systems service integrated
systems
Desktop systems Personal computers/ June 30, 1999 Throughout 1999
Department software/
Networks
Operational/ Dispatching systems/ June 30, 1999 Throughout 1999
Embedded Transmission and
systems Distribution systems/
Telephone systems
External issues Electronic Data June 30, 1999 Throughout 1999
Interchange/Vendor
communications
The NEES companies are using a three-phase approach in
coordinating their Y2K Project for system-related issues: (I)
Assessment and Inventory, (II) Pilot Testing, and (III) Renovation,
Conversion, or Replacement of Application and Operating Software
Packages and Testing. Phase I, which was an initial assessment of
all systems and devices for potential Y2K defects, was completed in
mid-1997. These assessments included, but were not limited to, the
review of program code for mainframe and midrange systems, analysis
of personal computer hardware and network equipment for desktop
systems, reaching consensus with key "data exchange" partners
regarding the approach and execution of plans to address Y2K-
related issues, and coordination with other New England Power Pool
(NEPOOL) member utilities related to operational systems, such as
transmission systems. Phase II, which consisted of renovation
pilots for a cross-section of systems in order to facilitate the
establishment of templates for Phase III work, was completed in
late 1997. Phase III, which is currently ongoing, requires the
renovation, conversion, or replacement of the remaining
applications and operating software packages.
Critical systems include major operational and informational
systems such as the NEES companies financial-related and customer
information systems. These mission critical systems were first
addressed at an individual component level, and then, upon
satisfactory completion of that testing, reviewed at an integrated
level, during which the Y2K Project team tested for Y2K problems
which could be caused by various system interfaces. Additionally,
contingency plans are being formulated for mission critical
systems, as described below.
The overall Y2K Project has also been designed such that Y2K-
related work performed by external consultants is reviewed by NEES
employees, and vice-versa. The Y2K Project team management
periodically benchmarks its progress against the recommended
progress schedule documented by the North American Electric
Reliability Council, and is currently ahead of the recommended
schedule.
The NEES companies have also implemented a formalized
communication process with third parties to give and receive
information related to their progress in remediating their own Y2K
issues, and to communicate the NEES companies' progress in
addressing the Y2K issue. These third parties include major
customers, suppliers, and significant businesses with which the
NEES companies have data links (such as banks). The NEES companies
have identified standard offer generation service providers,
telecommunications companies, and the Independent System Operator-
New England (ISO New England) as critical to business operations.
The NEES companies have been in contact with all of these parties
regarding the progress of their Y2K remediation efforts, and will
continue to monitor their ongoing remediation efforts through
continued communications. The NEES companies cannot predict the
outcome of other companies' remediation efforts. Therefore,
contingency plans are being developed, as described below.
The NEES companies believe total costs associated with making
the necessary modifications to all centralized and noncentralized
systems will be approximately $28 million. These costs include the
replacement of approximately one thousand desktop computers. In
addition, the NEES companies are spending $4 million related to the
replacement of the human resources and payroll system, in part due
to the Y2K issue. To date, total Y2K-related costs of $25 million
have been incurred, of which $3 million has been capitalized. The
NEES companies continually review their cost estimates based upon
the overall Y2K Project status, and update these estimates as
warranted.
The NEES companies are in the process of developing Y2K
contingency plans to allow for critical information and operating
systems to function from January 1, 2000 forward. If required,
these plans are intended to address both internal risks as well as
potential external risks related to suppliers and customers. Part
of the contingency planning for accounting and desktop systems will
include taking extensive data back-ups prior to year-end closing.
For operational systems, the NEES companies have in place an
overall disaster recovery program, which already includes periodic
disaster simulation training (for outages due to severe weather,
for instance). As part of Y2K contingency planning, the NEES
companies will review their disaster recovery plans, modifying them
for Y2K-specific issues, such as a potential loss of
telecommunication services. The NEES companies expect that these
contingency plans will be in place by the third quarter of 1999.
Interregional and regional contingency plans are being
formulated that address emergency scenarios due to the
interconnection of utility systems throughout the United States. At
a regional level, the NEES companies are participating and
cooperating with NEPOOL and ISO New England. Overall regional
activities, including those of NEPOOL and ISO New England, will be
coordinated by the Northeast Power Coordinating Council, whose
activities will be incorporated into the interregional coordinating
effort by North American Electric Reliability Council. The target
for the completion of this planning process is mid-1999. The NEES
companies have noted that the Y2K coordination efforts by ISO New
England began in May 1998, resulting in a demanding and difficult
schedule to attain regional and interregional target dates.
The NEES companies believe the worst case scenario with a
reasonable chance of occurring is temporary disruptions of electric
service. This scenario could result from a failure to adequately
remediate Y2K problems at NEES company facilities or could be
caused by the inability of entities, such as ISO New England, to
maintain the short-term reliability of various generators and/or
transmission lines on a regional or interregional basis. The NEES
companies believe that the contingency plans being developed both
internally and on a regional level, as described above, should
substantially mitigate the risks of this potential scenario. In the
event that a short-term disruption in service occurs, NEES does not
expect that it would have a material impact on its financial
position and results of operations.
While the NEES companies believe that their overall Y2K program
will satisfactorily address all critical operational and
system-related issues, significant risks remain. These risks
include, but are not limited to, the Y2K readiness of third
parties, including other utilities and power suppliers, cost and
timeline estimates of remaining Y2K mitigation efforts, and the
overall accuracy of assumptions made related to future events in
the development of the Y2K mitigation effort.
MERGER ACTIVITY
National Grid Merger
On December 11, 1998, NEES, National Grid, and Holdings entered
into the Merger Agreement. Pursuant to the Merger Agreement,
Holdings will merge with and into NEES, with NEES being the
surviving entity (the Surviving Entity) and becoming a wholly-owned
subsidiary of National Grid. The Merger, which was unanimously
approved by the boards of directors of each of NEES, National Grid
and Holdings, is expected to occur shortly after all of the
conditions to the consummation of the Merger, including the receipt
of certain regulatory approvals, are met or waived. NEES
anticipates that the Merger will be consummated by early 2000.
Under the terms of the Merger Agreement, each outstanding NEES
common share, $1.00 par value per share (NEES Common Shares), other
than shares, if any, owned by NEES as treasury shares (except
those treasury shares which are held pursuant to NEES' Rabbi
Trust), National Grid, Holdings or any other wholly-owned
subsidiary of National Grid, will be converted into the right to
receive $53.75 in cash, as may be adjusted (the Merger
Consideration). Such adjustment will occur if the Closing Date
does not occur on or prior to the date that is the six-month
anniversary of the date on which NEES Shareholders' Approval is
attained (the Adjustment Date) then the per share amount shall be
increased by $.003288 each day up to a maximum adjustment of $0.60
per share, for a total of $54.35 per share.
The Board of Directors of NEES has received an opinion from its
investment banker, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, to the effect that, as of the date of the Merger
Agreement, the Merger Consideration to be received by the holders
of NEES Common Shares in the Merger is fair from a financial point
of view to holders of NEES Common Shares.
The Merger is subject to certain customary closing conditions,
including, without limitation, the receipt of the required approval
of NEES' shareholders, the receipt of the required approval of
National Grid's shareholders, and the receipt of all necessary
governmental approvals and the making of all necessary governmental
filings, including the consent or approval of certain state utility
regulators, the approval of the FERC, the approval of the SEC under
the 1935 Act, the approval of the NRC, the filing of the requisite
notification with the Federal Trade Commission and the Department
of Justice under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the expiration of the applicable waiting
period thereunder, and the filing of the requisite notification
under the Exon-Florio Provisions of the Omnibus Trade and
Competitiveness Act of 1988, and the termination of the review and
investigation with no action taken by the President thereunder.
The Merger is not dependent upon the EUA Merger.
The Merger Agreement contains certain covenants of the parties
pending the consummation of the Merger. Generally, except as
required by the terms of NEES' Settlement Agreements with FERC and
certain state utility regulators, NEES must carry on its business
in the ordinary course consistent with past practice, comply with
all laws and preserve intact its goodwill. NEES is permitted to
declare and pay its regular quarterly dividends. The Merger
Agreement contains certain restrictions on NEES including
limitations on, or procedures for: issuance of securities,
termination or failure to renew material contracts, amendments to
NEES' Declaration of Trust or similar governing documents of NEES'
Subsidiaries, capital expenditures, acquisitions, dispositions,
incurrence of indebtedness, modification of employee compensation
and benefits, rate matters, changes in accounting policies and
discharge of liabilities. (See Article VI of the Merger Agreement.)
The Merger Agreement prevents NEES and its subsidiaries from
knowingly initiating, soliciting or encouraging, directly or
indirectly, any inquiry or proposal or offer, or engaging in
negotiations with, or providing confidential information to any
third party relating to a business combination proposal, and
requires NEES to terminate immediately any existing discussions or
negotiations and notify National Grid of any such inquiries
relating to a business combination proposal, unless prior to NEES
shareholder approval: (i) NEES' Board determines, in good faith
based upon the advice of its outside legal counsel with respect to
the Board's fiduciary duties, that taking such action is necessary
for the Board to act in a manner consistent with its fiduciary
duties under applicable law; (ii) NEES' Board reasonably concludes,
in good faith after consultation with its financial advisors, that
(A) the party making such proposal has adequate financing sources
and (B) such proposal is likely to be more favorable to
stockholders of NEES than the Merger (a Superior Proposal); (iii)
prior to furnishing nonpublic information or entering into
negotiations, NEES notifies National Grid in writing of such
furnishing of information or negotiations (identifying the party
making the proposal and the material terms of such proposal) and
enters into a confidentiality agreement with such third party; and
(iv) NEES keeps National Grid promptly informed of the status and
all material information with respect to such discussions or
negotiations. NEES may terminate the Merger Agreement to accept a
Superior Proposal (in which case, the termination fee provision
described below would be applicable). However, before so
terminating, NEES must negotiate with National Grid to adjust the
Merger Agreement so as to enable the parties to proceed with the
adjusted Merger Agreement, and NEES' Board must determine that,
based on advice of counsel with respect to the Board's fiduciary
duties and notwithstanding a binding commitment to consummate the
Merger Agreement and notwithstanding all concessions that may be
offered by National Grid in further negotiations with NEES, the
Superior Proposal is more favorable to NEES' shareholders than the
Merger. (See Section 7.08 and Article IX of the Merger Agreement.)
NEES' CEO and one outside director of NEES' Board of Directors,
mutually determined by National Grid and NEES, will be appointed to
the Board of Directors of National Grid. In addition, the
Surviving Entity will have an advisory board, with eleven members
from NEES' Board immediately prior to the Closing, that will advise
the Surviving Entity with respect to general business, among other
things. The Merger Agreement provides that, after the
effectiveness of the Merger (the Effective Time), the headquarters
of the Surviving Entity will be in Massachusetts, and utility
operations offices will remain in Massachusetts, New Hampshire and
Rhode Island. (See Section 7.07 of the Merger Agreement.)
The Merger Agreement may be terminated under certain
circumstances, including: (i) by mutual written agreement of the
boards of directors of the parties; (ii) by either party if the
Merger has not been effected by the date nine months from the
receipt of NEES shareholder approval (the Initial Termination
Date), provided that if the parties are otherwise ready to close,
but certain statutory approvals are not yet obtained, the Initial
Termination date will be extended to the date fifteen months from
the receipt of NEES shareholder approval (the Extended Termination
Date), and provided further that if on the Initial or Extended
Termination Date, a Financial Disruption exists, then NEES will
have the right, but not the obligation, to extend such Termination
Date six months beyond such Termination Date (a Financial
Disruption means any significant disruption in the financial or
capital markets which makes it impracticable for a company having
financial characteristics similar to those of National Grid as of
the date of the Merger Agreement to finance a transaction of the
size and nature as that contemplated under the Merger Agreement on
commercially reasonable financing terms that are available as of
the date of such financing); and (iii) by either party if: (A) NEES
shareholder approval or the National Grid shareholder approval has
not been obtained; or (B) any law, rule or regulation is adopted
which makes the Merger illegal or any final order or injunction
permanently prohibits the Merger. In addition, NEES may terminate
the Merger Agreement: (i) under certain circumstances, in order to
accept a Superior Proposal (subject to the limitations and
procedures described above and to payment of the termination fee
described below); (ii) if there has been a material breach of
certain of National Grid's representations and warranties or a
failure by National Grid to perform and comply with its covenants
under the Merger Agreement and such breach or failure has not been
cured; (iii) if National Grid fails to deliver the merger
consideration at a time when all conditions to National Grid's
obligation to close have been satisfied or waived, and such failure
is as a result of Financial Disruption; and (iv) if the Board of
National Grid withdraws or modifies its approval of the merger or
its recommendation to its shareholders. National Grid may
terminate the Merger Agreement if: (i) the Board of NEES approves,
recommends or takes no position with respect to an alternative
business combination proposal; (ii) twelve months after NEES
Shareholders' Approval is obtained, the order of the SEC approving
the Merger under the 1935 Act has not been issued, and National
Grid certifies to NEES that it reasonably believes that the SEC
will not issue an order that would comply with the requirements of
the regulatory condition; (iii) the Board of NEES withdraws or
modifies its approval of the merger or its recommendation to its
shareholders; and (iv) there has been a material breach of NEES's
representations and warranties or a failure by NEES to perform and
comply with its covenants under the Merger Agreement and such
breach or failure has not been cured. (See Articles VIII and IX of
the Merger Agreement.)
National Grid will pay NEES a termination fee of: (i) $100
million if NEES terminates the Merger Agreement because National
Grid was unable to pay the merger consideration, at a time when all
of the National Grid's closing conditions were met or waived,
because of a Financial Disruption; (ii) $75 million plus up to $10
million for documented out-of-pocket expenses if National Grid
terminates after the twelve month anniversary of NEES' shareholder
approval because an order from the SEC approving the Merger has not
been issued, and National Grid certifies to NEES that it reasonably
believes that the SEC will not issue an order that would comply
with the requirements of the regulatory condition; and (iii)
documented out-of-pocket expenses up to $10 million if NEES
terminates because of National Grid's (A) material breach of its
representations and warranties, (B) failure to perform and comply
with its covenants under the Merger Agreement or (C) failure to
obtain its shareholder vote. (See Articles VIII and IX of the
Merger Agreement.)
NEES will pay National Grid a termination fee of (i) $100
million plus up to $10 million for documented out-of-pocket
expenses if NEES terminates the Merger Agreement because NEES
became the target of a third party alternative proposal, and NEES'
Board determined in good faith based upon the advice of outside
counsel with respect to the Board's fiduciary duties, that
termination was necessary for the Board to act consistently with
its fiduciary duties under applicable law; (ii) $100 million plus
up to $10 million for documented out-of-pocket expenses if, at a
time when an alternative business proposal is pending, (A) National
Grid terminates the Merger Agreement because: (1) NEES has
materially breached its representations and warranties or has
failed to materially perform and comply with its covenants under
the Merger Agreement, or (2) NEES shareholder approval was not
obtained, or (B) NEES terminates the Merger Agreement because the
Closing has not occurred by the termination date, provided, that in
the case of (A) or (B), NEES enters into a merger or acquisition
agreement with the party offering such alternative proposal within
two years of such termination; and (iii) documented out-of-pocket
expenses up to $10 million if National Grid terminates at a time
when no alternative business proposal was outstanding because of
NEES' (A) material breach of its representations and warranties,
(B) failure to perform and comply with its covenants under the
Merger Agreement or (C) failure to obtain its shareholder vote.
(See Article IX of the Merger Agreement.)
If the Merger Agreement is terminated because either party's
Board has withdrawn or changed its recommendation with respect to
the Merger prior to such party's shareholder meeting, then the
other party must pay a $100 million termination fee plus documented
out-of-pocket expenses up to $10 million. (See Article IX of the
Merger Agreement.)
Eastern Utilities Associates Merger
On February 1, 1999, NEES, Research Drive, and EUA entered into
the EUA Agreement. Pursuant to the EUA Agreement, Research Drive
will merge with and into EUA, with EUA being the surviving entity
and becoming a wholly-owned subsidiary of NEES (the EUA Surviving
Entity). The EUA Merger, which was approved by the NEES Board of
Directors, the EUA Board of Trustees and the Members of Research
Drive, is expected to occur shortly after all of the conditions to
the consummation of the EUA Merger, including the receipt of
certain regulatory approvals, are met or waived. NEES anticipates
that the EUA Merger will be consummated by early 2000.
Under the terms of the EUA Agreement, each outstanding share
of EUA's common stock (the EUA Common Stock), other than shares, if
any, owned by EUA as treasury shares, NEES, Research Drive or any
other wholly-owned subsidiary of NEES, will be converted into the
right to receive $31.00 in cash, as may be adjusted (the EUA Merger
Consideration). Such adjustment will occur as follows: if the EUA
Closing Date does not occur on or prior to the date that is the
six-month anniversary of the date on which EUA shareholders approve
the EUA Merger (the Adjustment Date), then the per share amount
shall be increased for each day after the Adjustment Date up to and
including the day which is one day prior to the earlier of the EUA
Closing Date and May 1, 2000 by an amount equal to $.003.
The Board of Directors of NEES has received an opinion from its
investment banker, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, to the effect that, as of January 30, 1999, the EUA
Merger Consideration to be paid by NEES pursuant to the EUA Merger
is fair from a financial point of view to NEES.
The EUA Merger is subject to certain customary closing
conditions, including, without limitation, the receipt of the
required approval of EUA's shareholders by an affirmative vote of
two-thirds of the outstanding EUA shares and the receipt of all
necessary governmental approvals and the making of all necessary
governmental filings, including the consent or approval of certain
state utility regulators, the approval of the FERC, the approval of
the SEC under the 1935 Act, the approval of the NRC and the filing
of the requisite notification with the Federal Trade Commission and
the Department of Justice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. The EUA Merger is not
dependent upon the National Grid merger.
The EUA Agreement contains certain covenants of the parties
pending the consummation of the EUA Merger. Generally, EUA must
carry on its business in the ordinary course consistent with past
practice, comply with all laws and preserve intact its goodwill.
The EUA Agreement contains certain restrictions on EUA including
limitations on, or procedures for: payment of dividends on EUA
common shares and preferred shares of certain EUA subsidiaries,
issuance of securities, amendment of the EUA's Declaration of
Trust, or similar governing documents of EUA's subsidiaries,
acquisitions, dispositions, incurrence of indebtedness, capital
expenditures, modification of employee compensation and benefits,
changes in accounting policies, amendment, termination or failure
to renew material contracts, discharge of liabilities, rate
matters, equity investments, loans to affiliates or other persons,
and assessing the adequacy of EUA's Year 2000 Program. (See
Article VI of the EUA Agreement.)
Pursuant to the EUA Agreement, EUA agrees that neither it nor
any of its subsidiaries shall knowingly initiate, solicit or
encourage, directly or indirectly, any inquiry or proposal or offer
relating to a business combination proposal or similar transaction
including EUA or any of its significant subsidiaries other than EUA
Cogenex Corporation, or engage in negotiations with, or provide
confidential information to any third party, and requires EUA to
terminate immediately any existing discussions or negotiations and
notify NEES of any such inquiries relating to a business
combination proposal, unless prior to EUA shareholder approval: (i)
EUA's Board determines, in good faith based upon the advice of its
outside legal counsel with respect to the Board's fiduciary duties,
that taking such action is necessary for the Board to act in a
manner consistent with its fiduciary duties under applicable law;
(ii) EUA's Board reasonably concludes, in good faith after
consultation with its financial advisors, that (A) the party making
such proposal has adequate financing sources and (B) such proposal
is likely to be more favorable to shareholders of EUA than the EUA
Merger (a Superior Proposal); (iii) prior to furnishing nonpublic
information or entering into negotiations, EUA notifies NEES in
writing of such furnishing of information or negotiations
(identifying the party making the proposal and the material terms
of such proposal) and enters into a confidentiality agreement in
customary form with such third party; and (iv) EUA keeps NEES
promptly informed of the status and all material information with
respect to such discussions or negotiations. EUA may terminate the
EUA Agreement to accept a Superior Proposal (in which case, the
termination fee provision described below would be applicable).
However, before so terminating, EUA must negotiate with NEES to
adjust the EUA Agreement so as to enable the parties to proceed
with the adjusted EUA Agreement, and EUA's Board must determine
that, based on advice of counsel with respect to the Board's
fiduciary duties and notwithstanding a binding commitment to
consummate the EUA Agreement and notwithstanding all concessions
that may be offered by NEES in further negotiations with EUA, the
Superior Proposal is more favorable to EUA's shareholders than the
EUA Merger. (See Section 7.08 and Article IX of the EUA
Agreement.)
If the EUA Merger is consummated, then promptly following the
merger contemplated by the merger agreement between NEES, National
Grid and Holdings dated as of December 11, 1998 (the National Grid
Merger Agreement), NEES shall take the necessary action to cause
all of the members of the Board of Trustees of EUA to be appointed
to serve on the advisory board to be formed pursuant to the
National Grid Merger Agreement. (See Section 7.07 of the EUA
Agreement.)
The EUA Agreement may be terminated under certain
circumstances, including: (i) by mutual written agreement of the
Board of Directors of NEES and the Board of Trustees of EUA, (ii)
by either party if the EUA Merger has not been effected by December
31, 1999 (the Initial Termination Date), provided, that if the
parties are otherwise ready to close, but certain statutory
approvals are not yet obtained, the Initial Termination Date will
be extended for four months (the Extended Termination Date) and
(iii) by either party if any law, rule or regulation is adopted
which makes the EUA Merger illegal or any final order or injunction
permanently prohibits the EUA Merger. NEES may terminate the EUA
Agreement: (i) if EUA shareholder approval has not been obtained at
a duly held meeting of such shareholders, including any
adjournments thereof, (ii) if there has been a material breach of
EUA's representations and warranties or a failure to perform and
comply with its covenants under the Agreement and such breach or
failure has not been cured, (iii) if EUA's Board withdraws or
modifies its approval of the merger or its recommendation to its
shareholders or resolves to take such action or (iv) if EUA's Board
approves, recommends or takes no position with respect to an
alternative proposal or resolves to take such action. In addition,
EUA may terminate the EUA Agreement: (i) in order to accept a
Superior Proposal if EUA's Board determines that such termination
is necessary to act in a manner consistent with its fiduciary
duties after following the applicable procedures, as described
above, provided, that EUA's ability to terminate in accordance with
this provision of the Agreement is conditioned upon concurrent
payment by EUA to NEES of any applicable termination fees under the
Agreement, (ii) if there has been a material breach of NEES's
representations and warranties or a failure to perform and comply
with its covenants under the Agreement and such breach or failure
has not been cured or (iii) if NEES fails to deliver the EUA Merger
Consideration at a time when all conditions to NEES's obligation to
close have been satisfied or waived. (See Articles VIII and IX of
the EUA Agreement.)
EUA will pay NEES a termination fee of $20 million plus up to
$5 million for documented out-of-pocket expenses: (i) if EUA
terminates the EUA Agreement because EUA became the target of a
third party alternative proposal, and EUA's Board determined in
good faith based upon the advice of outside counsel with respect to
the Board's fiduciary duties, that termination was necessary for
the Board to act consistently with its fiduciary duties under
applicable law or (ii) if, at a time when an alternative business
proposal is pending, (A) NEES terminates the EUA Agreement because:
(1) EUA shareholder approval was not obtained, (2) EUA has
materially breached its representations and warranties or has
failed to materially perform and comply with its covenants under
the EUA Agreement, or (iii) the Board of EUA withdraws or modifies
its approval of the EUA Merger or its recommendation to its
shareholders, or approves, recommends, or takes no position with
respect to a third party alternative proposal, or (B) EUA
terminates the EUA Merger Agreement because the Closing has not
occurred by the termination date, provided, that in the case of (A)
or (B), EUA enters into a merger or acquisition agreement with the
party offering such alternative proposal within two years of such
termination. (See Article IX of the EUA Agreement.)
NEES will pay EUA a termination fee of $10 million plus up to
$5 million for documented out-of-pocket expenses if either NEES or
EUA terminates because the Closing Date has not occurred on or
before the Initial Termination Date, or if the Initial Termination
Date is extended, the Extended Termination Date, and on the date of
such termination: (i) all conditions to closing other than the
condition requiring that certain statutory consents and approvals
be obtained has not been fulfilled, provided, that such Closing
Date has not failed to occur due to a failure on the part of the
terminating party to fulfill any obligation under the EUA
Agreement, (ii) if the date of termination is any date other than
the Extended Termination Date or a date thereafter, all conditions
of each party other than the conditions concerning (A) statutory
consents and approvals and (B) the certification of performance of
obligations on the part of NEES and Research Drive have been
fulfilled or are capable of being fulfilled and (iii) the merger
contemplated by the National Grid Merger Agreement has not been
consummated. (See Articles VIII and IX of the EUA Agreement.)
REGULATORY MERGER OUTLOOK
The following are management's projections as to when
shareholder votes will be taken and various regulatory filings will
be made to secure approval for the NEES/National Grid and NEES/EUA
proposed mergers. Actual timing and results could differ
materially from those discussed here (see FORWARD LOOKING
INFORMATION, page vi). NEES does not assume the obligation to
update these projections.
NEES/National Grid
SEC
- An SEC order under the 1935 Act allowing NEES to solicit
its shareholders was issued on March 25, 1999. The NEES
shareholder meeting is scheduled to take place on May 3,
1999.
- The National Grid filing for approval of the Merger under
the 1935 Act was made on March 26, 1999.
NRC
- A filing was submitted on March 16, 1999.
FERC
- NEES filed for approval on March 10, 1999.
Hart-Scott-Rodino
- A filing is expected to be made on March 31, 1999.
Exon-Florio
- The parties made a filing on March 29, 1999.
State Public Utility Commissions
- No formal approvals are required in Massachusetts and Rhode
Island. However, written support from each of these state
public utility commissions is necessary to obtain the SEC
merger approval listed above. An informational filing was
made with the MDTE on March 9, 1999, a courtesy copy of
which was supplied to Rhode Island.
- The New Hampshire Public Utilities Commission (NHPUC)
approval is not required if NEES' subsidiaries which
operate in New Hampshire represent to the NHPUC that the
Merger will not adversely affect their rates, terms,
service, or operations. On March 18, 1999, these NEES
subsidiaries submitted the requisite representations.
- Filings are expected to be made in March 1999 with the
Connecticut Public Utility Commission and the Vermont
Public Service Board.
NEES/EUA
SEC
- EUA made a filing in March 1999 under the 1935 Act to
secure permission to solicit EUA shareholders. The date of
shareholder meeting for approval of the EUA Merger is
dependent upon timing of receipt of an order. Management
is hopeful that an SEC order will be issued in April 1999.
The EUA shareholder meeting could then take place in May
1999.
- A joint NEES/EUA filing for approval of the EUA Merger
under the 1935 Act is expected to be made in May 1999.
NRC
- A filing is expected to be made in April 1999.
FERC
- NEES expects to file for approval of the EUA Merger and
transmission rates in April 1999.
Hart-Scott-Rodino
- A filing is expected to be made in April 1999.
State Public Utility Commissions
- NEES expects to file for approval of the EUA Merger and
rate plans in Massachusetts and Rhode Island in April 1999.
- NHPUC approval is not required if EUA's subsidiary which
operates in New Hampshire represents to the NHPUC that the
EUA Merger will not adversely affect its rates, terms,
service, or operations. It is expected that EUA's
subsidiary will make the requisite representation.
- A filing for approval from the Connecticut Public Utility
Commission is expected to be made in April 1999.
ELECTRICITY DELIVERY COMPANIES
The combined service area of the Electricity Delivery Companies
constitutes the electric delivery service area of the System and
covers more than 4,500 square miles with a population of about
3,000,000 (1990 census). See Map - Electric Utility Properties,
page 35. The largest cities served are Worcester, Mass.
(population 170,000) and Providence, Rhode Island (population
161,000).
Mass. Electric
Description of Business
Mass. Electric provides approximately 980,000 customers with
electric delivery service in an area comprising approximately 43
percent of The Commonwealth of Massachusetts. The population of
the service area is about 2,160,000 or 36 percent of the total
population of the Commonwealth (1990 Census). Mass. Electric's
service area consists of 146 cities and towns including the highly
diversified commercial and industrial cities of Worcester, Lowell,
and Quincy, the Interstate 495 high technology belt, and many
suburban communities and rural towns. The economy of the area is
diversified. Principal industries served by Mass. Electric include
computer manufacturing and related businesses, electrical and
industrial machinery, plastic goods, fabricated metals and paper,
and chemical products. In addition, a broad range of professional,
banking, medical, and educational institutions is served. During
1998, 39 percent of Mass. Electric's revenue from the sale and
delivery of electricity was derived from residential customers, 39
percent from commercial customers, 21 percent from industrial
customers, and 1 percent from others. In 1998, the 20 largest
customers of Mass. Electric accounted for approximately 7 percent
of its electric revenue. Effective March 1, 1998, Mass. Electric's
customers gained the right to choose their power supplier under
Massachusetts legislation. (see INDUSTRY RESTRUCTURING, page 5).
Rates
Rate schedules applicable to electric services rendered by
Mass. Electric are on file with the MDTE.
The Massachusetts Settlement establishes distribution rates for
Mass. Electric. On March 1, 1998, Mass. Electric's distribution
rates were set at a level approximately $45 million above the level
embedded in its previously bundled rates, with such rates then
frozen through the year 2000. This increase reflects changes to the
distribution cost of service that include an $11 million increase
in annual depreciation expense, a $3 million annual contribution to
a storm fund, and increased amortization of unfunded deferred
income taxes of approximately $1 million per year over six years.
The Massachusetts restructuring legislation also expanded the
eligibility for certain rate discount programs, the cost of which
is uncertain at this time. From 1998 through 2000, Mass. Electric's
return on equity will be subject to a floor of 6 percent and a
ceiling of 11 percent. Earnings over the ceiling will be shared
equally between customers and shareholders up to a maximum of 12.5
percent. This sharing results in an effective cap on Mass.
Electric's return on equity of 11.75 percent, excluding certain
limited incentive opportunities. To the extent that earnings fall
below the floor, Mass. Electric will be authorized to surcharge
customers for the shortfall. The statute also imposes an inflation
cap through March 1, 2005 on the total rates for customers who have
not chosen a power supplier. If this inflation cap is triggered,
under the Massachusetts Settlement, the recovery of stranded
investment costs would be deferred. This inflation cap does not
apply to any surcharge triggered by the rate of return floor.
The Massachusetts Settlement also eliminated Mass. Electric's
purchased power cost adjustment (PPCA) mechanism as of July 31,
1996. This mechanism allowed Mass. Electric to recover purchased
power rate changes from NEP and the effects of NEP's seasonal
rates. The Massachusetts Settlement required that Mass. Electric's
net $18 million PPCA refund liability balance at July 31, 1996 be
transferred on its books to establish a storm contingency fund
account of $3 million initially, with the remainder applied to
reduce regulatory assets for hazardous waste costs.
The rates of Mass. Electric in 1997 contained fuel adjustment
clauses that allowed the rates to be adjusted to reflect changes in
the cost of fuel. Mass. Electric's fuel clause was terminated
effective March 31, 1998, with a final reconciliation of
approximately $20.8 million in overcollection pending at the MDTE.
With the implementation of retail choice on March 1, 1998,
Mass. Electric also implemented various adjustment provisions which
allow recovery, on a fully reconciling basis, of the costs of
providing transmission service, standard offer service, and default
service, to its customers as well as the cost of terminating its
all-requirements service contract with NEP. These adjustment
provisions are (1) the transmission service cost adjustment
provision, (2) the standard service cost adjustment provision, (3)
the default service adjustment provision, and (4) the transition
cost adjustment provision.
The rates of Mass. Electric after March 1, 1998, the effective
date of retail choice, were, on average, ten percent less than the
rates in effect on August 1, 1997, in accordance with the
Massachusetts restructuring legislation. Following the divestiture
by NEP of essentially all of its nonnuclear generating assets on
September 1, 1998, Mass. Electric's rates to customers who did not
select a competitive power supplier were, on average, 19 percent
less than the August 1, 1997 rates.
Narragansett
Description of Business
Narragansett provides approximately 335,000 customers with
electric delivery service. Its service territory, which includes
urban, suburban, and rural areas, covers about 839 square miles or
80 percent of the area of Rhode Island, and encompasses 27 cities
and towns including the cities of Providence, East Providence,
Cranston, and Warwick. The population of the area is about 725,000
(1990 Census) which represents about 72 percent of the total
population of the state. The economy of the territory is
diversified. Principal industries served by Narragansett produce
fabricated metal products, electrical and industrial machinery,
transportation equipment, textiles, silverware, and chemical
products. In addition, a broad range of professional, banking,
medical, and educational institutions is served. During 1998, 44
percent of Narragansett's revenue from the sale and delivery of
electricity was derived from residential customers, 40 percent from
commercial customers, 14 percent from industrial customers, and 2
percent from others. In 1998, the 20 largest customers of
Narragansett accounted for approximately 10 percent of its electric
revenue. Effective January 1, 1998, Narragansett's customers
gained the right to choose their power supplier under Rhode Island
legislation (see INDUSTRY RESTRUCTURING, page 5).
Rates
Rate schedules applicable to electric services rendered by
Narragansett are on file with the RIPUC and the Rhode Island
Division of Public Utilities and Carriers.
Under the Rhode Island statute, Narragansett increased
distribution rates by approximately $11 million in January 1997 and
another $7 million in January 1998. The statute also provides that
Narragansett may request increased distribution rates which would
take effect no earlier than January 1999.
Effective January 1998, the RIPUC approved a $3.1 million
decrease in rates for Narragansett, reflecting a corresponding
decrease in expense associated with postretirement benefits other
than pensions (PBOPs). The RIPUC also approved a refund of
approximately $800,000 resulting from a past overcollection of PBOP
costs. This refund obligation was reflected on Narragansett's
books at December 31, 1997.
The rates of Narragansett in 1997 contained fuel adjustment
clauses that allowed the rates to be adjusted to reflect changes in
the cost of fuel. Narragansett's fuel clause was terminated at the
end of 1997, and all overcollections were refunded back to
customers during 1998.
With the implementation of retail choice on January 1, 1998,
Narragansett also implemented various adjustment provisions which
allow recovery, on a fully reconciling basis, of the costs of
providing transmission service, standard offer service, and last
resort service to its customers as well as the cost of terminating
its all-requirements service contract with NEP. These adjustment
provisions are (1) the transmission service cost adjustment
provision, (2) the standard offer service adjustment provision,
(3) the last resort service adjustment provision, and (4) the non-
bypassable transition adjustment provision. The transmission
service cost adjustment provision was not effective until
January 1, 1999.
The rates of Narragansett after January 1, 1998, the effective
date of retail choice, and throughout 1998, were, on average, eight
percent less than the rates in existence prior to retail choice.
A 1986 Rhode Island Supreme Court decision held that the
RIPUC's rate-making power includes the authority to order refunds
of amounts earned in excess of an allowed return. As a result of
the decision, the RIPUC monitors Narragansett's earnings on a
regular basis.
Granite State
Description of Business
Granite State provides approximately 37,000 customers in 21 New
Hampshire communities with electric delivery service in the State
of New Hampshire in an area having a population of about 73,000
(1990 Census), including the Salem area of Southern New Hampshire
as well as several communities located along the Connecticut River,
primarily in the Lebanon and Walpole areas. During 1998, 49
percent of Granite State's revenue from the sale and delivery of
electricity was derived from commercial customers, 36 percent from
residential customers, 14 percent from industrial customers, and 1
percent from others. In 1998, the 10 largest customers of Granite
State accounted for about 18 percent of its electric revenue.
Granite State is not subject to the reporting requirements of the
Securities Exchange Act of 1934, and its financial impact on the
System is small. Information on Granite State is provided herein
solely for the purpose of furnishing a more complete description of
System operations. In July 1998, the New Hampshire Public
Utilities Commission approved a restructuring settlement agreement
proposed by Granite State and its transmission affiliate, NEP, the
Governor's office of the State of New Hampshire and a number of
other interested parties. This settlement agreement enables
customers to select their choice of competitive power suppliers and
was the only such settlement approved in New Hampshire as of
December 31, 1998. The settlement also provides for a distribution
rate surcharge for storm costs and pilot program costs (see
INDUSTRY RESTRUCTURING, page 5).
Rates
With the implementation of Granite State's Settlement Agreement
and retail choice on July 1, 1998, Granite State also implemented
various adjustment provisions which allow recovery, on a fully
reconciling basis, of the costs of providing transmission service,
transition service, and other system benefits, to its customers as
well as the cost of terminating its all-requirements service
contract with NEP. These adjustment provisions are (1) the
transmission service cost adjustment provision, (2) the transition
service cost adjustment provision and the electric service
adjustment provision, (3) the system benefits charge provision and
the interim low income energy assistance program provision, and (4)
the stranded cost adjustment provision.
The rates of Granite State in the second half 1998, following
the effective date of the settlement agreement were, on average,
ten percent less than the pre-settlement rates. Following the
divestiture by NEP of essentially all of its nonnuclear generating
assets on September 1, 1998, Granite State's rates to customers who
did not select a competitive power supplier were, on average, 17
percent less than the pre-settlement rates.
Nantucket
Description of Business
In March 1996, NEES acquired Nantucket for $3.5 million.
Nantucket provides electric delivery service to approximately
10,000 customers on Nantucket Island which has a year-round
population of approximately 6,000 (1990 Census) and a seasonal
tourist population which peaks at approximately 40,000 during the
summer. Nantucket's service area covers the entire island.
Effective March 1, 1998, Nantucket's customers gained the right to
choose their power supplier under Massachusetts legislation (see
INDUSTRY RESTRUCTURING, page 5). During 1998, 62 percent of
Nantucket's revenue from the sale and delivery of electricity was
derived from residential customers, 37 percent from commercial
customers, and 1 percent from others. During 1996, a 26-mile
undersea electric cable connecting Nantucket Island with the
transmission system on the mainland was constructed. Nantucket is
not subject to the reporting requirements of the Securities
Exchange Act of 1934, and its financial impact on the System is
small. Information on Nantucket is provided herein solely for the
purpose of furnishing a more complete description of System
operations.
Standard Offer Service
In September 1998, NEP completed the divestiture of
substantially all of its nonnuclear generating business. Prior to
that date, NEP was the wholesale supplier of the electric energy
requirements of the Electricity Delivery Companies under contracts
that required seven years' notice of termination. NEP's contracts
with Mass. Electric, Nantucket, and Narragansett have been amended.
Mass. Electric and Nantucket conducted a competitive solicitation
among power suppliers in February 1998. No other supplier bid to
supply power to these companies. Narragansett conducted a similar
competitive solicitation in April 1998. No other supplier bid to
supply power to Narragansett. USGen and TransCanada Power
Marketing, Ltd. retain the backstop obligation to supply the
electric energy requirements of Mass. Electric, Nantucket, and
Narragansett for retail customers eligible to continue to buy
standard offer generation service from their electricity delivery
company at regulated prices. NEP retains the obligation to
provide standard offer generation service for a portion of
Narragansett's retail customers. Granite conducted a competitive
solicitation in December 1998. Constellation Power Source, Inc.
was the winning bidder in the solicitation and has the obligation
to provide 100 percent of Granite's standard offer generation
service requirements. For a discussion of electric utility
operations in a more competitive environment and the sale of NEP's
nonnuclear generating business, see INDUSTRY RESTRUCTURING, page 5.
Recovery of Demand-Side Management Expenditures
The Electricity Delivery Companies offer conservation and load
management programs, usually referred to in the industry as Demand-
Side Management (DSM) programs, which are designed to help
customers use electricity efficiently, as a part of meeting the
NEES companies' regulatory requirements and customers' needs for
energy services.
The Electricity Delivery Companies regularly file their DSM
programs with their respective regulatory agencies and have
received approval to recover DSM program expenditures in rates on
a current basis through 1998. Mass. Electric's expenditures were
$48 million, $51 million, and $46 million in 1996, 1997, and 1998,
respectively. Narragansett's expenditures were $10 million, $10
million, and $11 million in 1996, 1997, and 1998, respectively.
Narragansett and Granite State have received approvals from their
respective state regulatory agencies to recover their 1999 DSM
program expenditures. The Massachusetts Settlement and statute
provide for recovery of DSM-related costs. The Massachusetts
Department of Telecommunications and Energy approved Mass.
Electric's and Nantucket's DSM program expenditure recovery plans
through 2002. Since 1990, the Electricity Delivery Companies have
been allowed to earn incentives based on the results of their DSM
programs. The Electricity Delivery Companies must be able to
demonstrate the electricity savings produced by their DSM programs
to their respective state regulatory agencies before full
incentives are recorded. Mass. Electric recorded $5.7 million,
$7.0 million, and $6.6 million of before-tax incentives in 1996,
1997, and 1998, respectively. Narragansett recorded $0.2 million,
$0.3 million, and $0.4 million of before-tax incentives in 1996,
1997, and 1998, respectively.
Performance-Based Ratemaking
Currently, there is much regulatory and other movement toward
establishing performance-based rates (for more information, see
Accounting Implications, Page 7).
TRANSMISSION AND NUCLEAR GENERATION BUSINESS
NEP
Description of Business
On September 1, 1998, NEP completed the sale of substantially
all of its nonnuclear generating business to USGen. NEP's business
had been principally generating, purchasing, transmitting, and
selling electric energy in wholesale quantities. In 1998, 98
percent of NEP's all-requirement revenue from the sale of
electricity was derived from sales for resale to affiliated
companies and 2 percent from sales for resale to municipal and
other utilities.
NEP's primary business is now the transmission of electric
energy in wholesale quantities to other electric utilities,
principally its distribution affiliates, the Electricity Delivery
Companies. NEP is also the owner of a system of transmission lines
and substations (see Map - Electric Utility Properties, page 35).
NEP continues to own minority interests in two joint owned nuclear
generating units as well as minority equity interests in four
nuclear generating companies (see Nuclear Units, page 36). For a
discussion of electric utility operations in a more competitive
environment and the sale of NEP's nonnuclear generating business,
see INDUSTRY RESTRUCTURING, page 5.
Rates
From January 1995 to March 1998, NEP collected the majority of
its generation and transmission revenues pursuant to the rates
under Tariff No. 1 established in the FERC approved W-95 settlement
agreement, including the revenues from the Electricity Delivery
Companies. Under Tariff No. 1, NEP was obligated to sell to its
customers, and its customers were obligated to purchase from NEP,
the requirements of its retail service territory, and they could
only terminate those mutual obligations upon seven years' notice.
In addition, NEP established an open access transmission Tariff No.
9 applicable to non-Tariff No. 1 customers in July 1996.
The settlement agreements between NEP and the Electricity
Delivery Companies included an amendment to the Tariff No. 1
service agreement which reformed the contractual relationship to
allow for the early termination of the Electricity Delivery
Companies' obligation to purchase wholesale all-requirements
service from NEP, in consideration for the payment of the contract
termination charge. The Electricity Delivery Companies are
recovering the contract termination charge through a transition
access charge (see INDUSTRY RESTRUCTURING, page 5). NEP has also
reached similar agreements with three unaffiliated wholesale
customers. In addition, one unaffiliated wholesale customer has
terminated service under Tariff No. 1. NEP has obtained FERC
approval to collect the associated stranded costs. These
agreements amend the provisions of Tariff No. 1 and allow for the
provision of unbundled service by NEP.
NEP's unbundled rates going forward consist of the contract
termination charge, transmission charges, standard offer charges
where applicable, and market revenues where applicable. The CTC
rate was originally set at 2.8 cents per kilowatthour (kWh), and
subsequently reduced to approximately 1.5 cents or less per kWh
upon completion of the sale of NEP's nonnuclear generating business
(see INDUSTRY RESTRUCTURING, page 5). The transmission rate
pursuant to the open access Tariff No. 9 is a formula rate which
recovers NEP's actual costs plus a return on actual capital
investment and equals approximately 0.5 cents per kWh. The
standard offer revenues equaled 3.2 cents per kWh in 1998 and, with
respect to NEP's continuing obligation to supply standard offer
service to Narragansett, the rate will escalate in the years
thereafter. Revenues from sale in the marketplace will vary. The
Settlement Agreements also provide for recovery of lost revenue due
to differences between what NEP would have collected under Tariff
No. 1 and what it actually collected under the unbundled tariffs
for the time period between the time customers could choose their
electricity supplier and divestiture of NEP's nonnuclear generating
business.
The electric utility business of NEP and the Electricity
Delivery Companies (except Nantucket) is not highly seasonal. For
NEP and the Electricity Delivery Companies, industrial customers
are broadly distributed among standardized industrial
classifications. No single industrial classification exceeds 3
percent of operating revenue, and no single customer of the System
contributes more than 1 percent of operating revenue.
UNREGULATED BUSINESS
AllEnergy's principal purpose is to sell energy and provide a
range of energy-related services, including but not limited to,
marketing, brokering and sales of energy, audits, fuel supply,
repair, maintenance, construction, operation, design, engineering,
and consulting, to customers in the competitive market in the
northeast. In December 1997, AllEnergy became a wholly-owned
indirect subsidiary of NEES when Eastern Enterprises' 50 percent
interest in the joint venture was purchased by NEES. On February
12, 1999, NEES and AllEnergy acquired Griffith Consumers Company
(Griffith Consumers), a full-service distributor of residential and
commercial heating oil in Washington, D.C., and in parts of
Maryland, Delaware, Virginia, and West Virginia.
NEESCom was established in August 1996 to allow the NEES
companies to participate in the growing telecommunications
industry. This subsidiary (an exempt telecommunications company)
is not regulated under the Public Utility Holding Company Act of
1935 and has a license from the Federal Communications Commission.
Its focus is providing telecommunications infrastructure
principally leasing fiber optic cable to the telecommunications
industry.
NEES Global is a wholly-owned nonutility subsidiary of NEES.
Its principal purpose is to provide consulting services and product
licenses to unaffiliated utilities in the areas of electric
industry restructuring and customer choice. NEES Global also
leases water heaters through its subsidiary NEWH.
OPERATING REVENUES
The following is the detail of consolidated kWh sales and
deliveries, revenue from sales and deliveries of electricity by the
System, and System operating income for the last three years.
Sales and Deliveries of Electricity
(in thousands of kWh)
------------------------------------
Classification 1998 1997 1996
- -------------- ---- ---- ----
Residential 8,058,262 8,034,001 8,027,352
Commercial 9,115,396 8,829,266 8,595,814
Industrial 5,112,337 5,100,907 4,913,644
Other 136,202 133,184 137,378
---------- ---------- ----------
Total Deliveries
to Ultimate
Customers 22,422,197 22,097,358 21,674,188
Sales for Resale 2,991,261 4,034,345 3,611,643
---------- ---------- ----------
Total Sales
and Deliveries 25,413,458 26,131,703 25,285,831
========== ========== ==========
Operating Revenues
(in thousands of dollars)
------------------------------------
Classification 1998 1997 1996
- -------------- ---- ---- ----
Residential $ 805,105 $ 877,447 $ 849,070
Commercial 789,194 840,671 792,380
Industrial 382,267 403,868 383,659
Other 26,280 28,040 26,902
---------- ---------- ----------
Total Deliveries
to Ultimate
Customers 2,002,846 2,150,026 2,052,011
Sales for Resale 84,565 149,339 140,110
---------- ---------- ----------
Total 2,087,411 2,299,365 2,192,121
Other Operating
Revenue 333,122 203,226 158,577
---------- ---------- ----------
Total Operating
Revenue $2,420,533 $2,502,591 $2,350,698
========== ========== ==========
Operating Income $ 308,839 $ 366,861 $ 348,118
========== ========== ==========
Operating revenue decreased $82 million in 1998 and reflects
a reduction in generation-related revenues, decreased oil and gas-
related revenues, and the reversal in 1997 of certain refund
revenues related to rate adjustment mechanisms.
In 1998, kWh deliveries to ultimate customers increased 1.5
percent, reflecting a strong economy. For the year as a whole,
weather had a negative impact on 1998 deliveries when compared
with 1997.
ELECTRIC UTILITY PROPERTIES
Transmission, Distribution, and Nuclear Generation Properties
On September 1, 1998, NEES' subsidiaries, NEP and Narragansett,
completed the sale of substantially all of their nonnuclear
generating business to USGen. NEP also plans to seek offers to
sell its nuclear generating business. For more information, see
INDUSTRY RESTRUCTURING, page 5 and Nuclear Units, page 36. The
properties of the System also include the ownership interests of
NEET, Mass. Hydro, and N.H. Hydro in the Hydro-Quebec
Interconnection, and an integrated system of transmission lines,
substations, and distribution facilities. See Map - Electric
Utility Properties, page 35.
NEP's integrated system consists of 2,233 circuit miles of
transmission lines, 110 substations with an aggregate capacity of
12,535,789 kVA, and 7 pole or conduit miles of distribution lines.
The properties of Mass. Electric and Narragansett include
substations and distribution and transmission lines, which are
interconnected with transmission and other facilities of NEP. At
December 31, 1998, Mass. Electric owned 247 substations, which had
an aggregate capacity of 2,951,270 kVA, 147,571 line transformers
with the capacity of 8,318,059 kVA, and 17,204 pole or conduit
miles of distribution lines. Mass. Electric also owns 83 circuit
miles of transmission lines. At December 31, 1998, Narragansett
owned 224 substations, which had an aggregate capacity of 4,003,695
kVA, 49,475 line transformers with the capacity of 2,133,156 kVA,
and 4,644 pole or conduit miles of distribution lines.
Narragansett, in addition, owns 327 circuit miles of transmission
lines.
Substantially all of the properties and franchises of Mass.
Electric and Narragansett are subject to the liens of indentures
under which mortgage bonds have been issued. For details of the
mortgage liens on these properties, see the long-term debt note in
Notes to Financial Statements in each of these companies'
respective 1998 annual reports. The properties of NEET are subject
to a mortgage under its financing arrangements.
NEP, Narragansett, and AllEnergy are members of the New England
Power Pool (NEPOOL). Mass. Electric, Nantucket, and Granite State
participate in NEPOOL through NEP. The NEPOOL Agreement provides
for coordination of the planning and operation of the generation
and transmission facilities of its members. The NEPOOL Agreement
incorporates generating capacity reserve obligations, provisions
regarding the use of major transmission lines, and provisions for
payment for facilities usage. The NEPOOL Agreement further
provides for New England-wide central dispatch of generation by the
Independent System Operator (ISO). Through NEPOOL, operating and
capital economies are achieved and reserves are established on a
region-wide rather than an individual company basis.
At the end of 1996, NEPOOL filed with the FERC a comprehensive
proposal to restructure NEPOOL. The main elements of the proposal
included: (1) the establishment of a regional transmission tariff
that ensures open, nondiscriminatory access to the regional
transmission network; (2) the development of wholesale competitive
markets and a power exchange for capacity, energy and several
ancillary services with market-based pricing for these products and
services; (3) a revised governance structure; and (4) the creation
of the ISO to operate the bulk power system and administer the
regional tariff and power exchange.
FERC has accepted most of NEPOOL's proposals. In June 1997,
FERC ordered the creation of the ISO-New England. ISO-New England
was activated on July 1, 1997 and has been operating the control
area since that time. It operates under contract with NEPOOL and
is governed by an independent Board of Directors. NEPOOL's Open
Access Transmission Tariff (NOATT), which covers service across
pool transmission facilities, went into effect, subject to refund,
in March 1997. Parts of the NOATT have been disputed, and the cost
of service methodology is currently being litigated at FERC. The
two most contested issues are the allowed ROE and the existence of
Excepted Transactions. Excepted Transactions are transactions
which were in effect prior to November 1996. The NOATT states that
these transactions are not superseded by the NOATT and therefore
the parties must continue to pay the transmission provider for
service until the transaction ends.
FERC issued an order in December 1998 accepting the basic
structure of the NEPOOL markets. It is currently anticipated that
these markets will become active on May 1, 1999. As ordered by
FERC, NEPOOL is currently working to develop a Congestion
Management System and a Multi-Settlement System, which will be
incorporated into the market at some later date.
FERC rejected NEPOOL's governance proposal. On December 31,
1998, NEPOOL filed a newly revised governance proposal which
increased the committee representation and voting shares of smaller
players beyond that which was contemplated in the original filing.
FERC rejected NEPOOL's revised governance proposal on March 10,
1999 finding that the revised voting share formula continued to
allow a select group of utilities to control all the actions of the
Management Committee. FERC ordered NEPOOL to file within 60 days
a new proposal concerning governance that eliminates the control of
vertically integrated utilities.
Interconnection with Quebec
NEET, Mass. Hydro, and N.H. Hydro own and operate, on behalf
of NEPOOL participants in the project, a 450 kV direct current
transmission line and related terminals to interconnect the New
England and Quebec transmission systems (the Interconnection). The
transfer capability of the Interconnection is currently rated at
1,800 MW. Operating limits implemented by adjacent Power Pools
covering New York, New Jersey, Pennsylvania, and Maryland often
restrict the effective transfer capability to levels of 1,200 MW to
1,400 MW.
The Interconnection has two phases. NEP's participation in
both is approximately 18 percent. NEP and the other participants
have entered into support agreements that end in 2020. Under the
support agreements, NEP has agreed to guarantee its share of debt
financing for the second phase. At December 31, 1998, NEP had
guaranteed approximately $23 million of project debt. NEP's rights
and obligations under its support agreements were transferred to
USGen upon completion of the sale of NEP's nonnuclear generating
business, but NEP remains an obligor in the event of USGen
nonperformance (see INDUSTRY RESTRUCTURING, page 5).
Map - Electric Utility Properties
(Displays electric utility properties of NEES subsidiaries)
Nuclear Units
General
NEP has interests in six nuclear units. Three of the units
have been permanently shut down. The remaining three are currently
operating.
NEP is a stockholder of Yankee Atomic Electric Company (Yankee
Atomic), Vermont Yankee Nuclear Power Corporation (Vermont Yankee),
Maine Yankee Atomic Power Company (Maine Yankee), and Connecticut
Yankee Atomic Power Company (Connecticut Yankee). Each of these
companies (collectively referred to as the Yankee Companies) owns
a single nuclear generating unit. The stockholders of three Yankee
Companies (Vermont Yankee, Maine Yankee, and Connecticut Yankee)
have agreed, subject to regulatory approval, to provide capital
requirements in the same proportion as their ownership percentages
of the particular Yankee Company. NEP also has power contracts with
each Yankee Company that require NEP to pay an amount equal to its
share of total fixed and operating costs (including decommissioning
costs) of the plant plus a return on equity. Yankee Atomic,
Connecticut Yankee, and Maine Yankee have permanently ceased
operations. NEP purchases the output of the Vermont Yankee plant
in the same percentage as its stock ownership, less small
entitlements taken by municipal utilities.
In addition, NEP is a joint owner of the Millstone 3 nuclear
generating unit in Connecticut and the Seabrook 1 nuclear
generating unit in New Hampshire. Millstone 3 and Seabrook 1 are
operated by subsidiaries of Northeast Utilities. NEP pays its
proportionate share of costs and receives its proportionate share
of output from Millstone 3 and Seabrook 1. Listed below is certain
information on each nuclear plant in which NEP has an ownership
interest.
Under restructuring settlement agreements approved by
regulators in Massachusetts, New Hampshire and Rhode Island, NEP
has agreed to attempt to divest its nuclear holdings (for more
information, see INDUSTRY RESTRUCTURING, page 5).
On February 25, 1999, the Board of Directors of Vermont Yankee
granted an exclusive right to AmerGen Energy Company (AmerGen), a
joint venture by PECO Energy and British Energy to conduct due
diligence review over the next 120 days and negotiate a possible
agreement to purchase the assets of Vermont Yankee, Vermont's sole
nuclear generating plant. Provided the due diligence review leads
to successful completion of negotiations for a sale, consummation
of such a sale would be contingent on regulatory approvals by the
NRC, the SEC, under the 1935 Act, and the Vermont Public Service
Board, among others. The sale process could take eight to twelve
months or longer. In past negotiations for the sale of nuclear
plants, due diligence review has not guaranteed that a sale will
occur. NEP has a 20 percent ownership interest in Vermont Yankee
and an investment of approximately $11 million at December 31,
1998.
Operating Nuclear Units
NEP's Share of
NEP's Net Plant
Ownership Assets
Unit Interest (%) ($ in millions)
---- ------------ ---------------
Vermont Yankee 20 34
Millstone 3 12 9*
Seabrook 1 10 15*
*See Note C of the 1998 NEES annual report for a discussion of an
impairment writedown and establishment of an offsetting regulatory
asset.
Decommissioning Estimates
NEP's share of
($ in millions)
--------------------------------
Estimated Decommissioning
Decommissioning Fund
Costs Balances (1) License
Unit (in 1998 $) (12/31/98) Expiration
---- --------------- --------------- ----------
Vermont Yankee $105 $38 2012
Millstone 3 $ 67 $21 2025
Seabrook 1 $ 50 $10 2026
(1) Certain additional amounts are anticipated to be available
through tax deductions.
Nuclear Units Permanently Shut Down
NEP's Investment Future Estimated
------------------- Date Billings to NEP
Unit % $(millions) Retired $(millions)
---- --- ----------- ------------ ----------------
Yankee Atomic 30 6 February 1992 24
Connecticut Yankee 15 16 December 1996 75
Maine Yankee 20 16 August 1997 143
For a discussion of NEP's investment in both operating and
retired nuclear units, the Millstone 3 unit, nuclear
decommissioning costs and nuclear insurance issues, see pages 33 to
36 of the 1998 NEES Annual Report. For information on legal
proceedings related to Millstone 3 and Maine Yankee, see LEGAL
PROCEEDINGS, page 52.
High-Level Waste Disposal
The Nuclear Waste Policy Act of 1982 provides a framework and
timetable for selection of sites for repositories of high-level
radioactive waste (spent nuclear fuel) from United States nuclear
plants. The U.S. Department of Energy (DOE) has entered into
contracts with the Yankee Companies, the Millstone 3 joint owners,
and the Seabrook 1 joint owners for acceptance of title to, and
transportation and storage of, this waste. Under these contracts,
each operating unit will pay fees to the DOE to cover the
development and creation of waste repositories. Fees for fuel
burned since April 1983 have been collected by the DOE on an
ongoing basis at the rate of one tenth of a cent per kWh of net
generation. Fees for generation up through April 1983 were
determined by the DOE as follows: $13.2 million for Yankee Atomic,
$48.7 million for Connecticut Yankee, $50.4 million for Maine
Yankee, and $39.3 million for Vermont Yankee. Neither Millstone 3
nor Seabrook 1 has been assessed any fees for fuel burned through
April 1983 because they did not enter commercial operation until
1986 and 1990, respectively.
The Yankee Companies had several options to pay these fees.
Yankee Atomic paid its fee to the DOE for the period through April
1983. The other three Yankee Companies elected to defer payment
until a future date, thereby incurring interest expense. However,
payment to the DOE must occur prior to the first delivery of spent
fuel. Connecticut, Maine, and Vermont Yankee have segregated a
portion of their respective DOE obligations in external accounts.
The remainder of the funds have been used to support general
capital requirements. All expect to separately fund in full in
external accounts their DOE obligation (including accrued interest)
prior to payment to the DOE. To the extent that any of the three
Yankee Companies is unable to fully meet its DOE obligation at the
prescribed time, NEP might be required to provide additional funds.
Prior to such time that the DOE takes delivery of a plant's
spent nuclear fuel, it is stored on site in spent fuel pools.
Millstone 3, Seabrook 1, and Vermont Yankee are in the process of
reconfiguring their spent fuel pools to allow for additional
storage capability. Upon successful completion of the
reconfiguring, Millstone 3 will have sufficient spent fuel pool
capacity to support plant operation through the expiration of its
current Nuclear Regulatory Commission (NRC) license. Seabrook 1's
licensed storage capacity will allow a full core discharge until
2011. Vermont Yankee will be able to maintain a full core
discharge capability until 2004. Yankee Atomic, Connecticut Yankee
and Maine Yankee all have adequate on-site storage capacity for all
their spent fuel.
Federal legislation enacted in 1987 directed the DOE to proceed
with the studies necessary to develop and operate a permanent
high-level waste disposal site at Yucca Mountain, Nevada. There is
local opposition to development of this site. Although originally
scheduled to open in 1998, the DOE currently estimates that the
permanent disposal site is not expected to open before 2015.
Currently there is legislation before Congress that would create an
interim spent fuel storage site to be used until the Yucca Mountain
permanent storage site becomes available. Although separate bills
passed the Senate and House in 1997, legislation was not enacted.
Similar legislation providing authorization for DOE to build the
central storage facility has been introduced in the House of
Representatives. A companion bill is expected to be introduced in
the Senate.
In July 1996, the U.S. Court of Appeals for the District of
Columbia Circuit issued its decision in a lawsuit petitioning the
Court to declare the 1998 contract date a binding legal obligation.
The Court stated that the DOE is obligated "to start disposing
Spent Nuclear Fuel no later than January 31, 1998." The Court's
decision did not specify a plan for ensuring that the DOE meets its
obligations, but rather noted that it was premature to determine
the appropriate remedy since the DOE had not yet defaulted upon
either its statutory or contractual obligation.
In January 1997, numerous utilities and states filed lawsuits
against the DOE in the U.S. Court of Appeals for the District of
Columbia Circuit. The plaintiffs sought to suspend payments to the
Nuclear Waste Fund until DOE begins taking spent fuel. The payment
would instead be made to special escrow accounts.
The petitioners in the lawsuits requested that the court review
the above decision in which the same court ruled that the January
31, 1998 contract date was binding and order DOE to prepare a plan
to begin taking spent fuel by that date.
In November 1997, the U.S. Court of Appeals for the District
of Columbia (the Appeals Court) held that the DOE was obligated to
begin disposing of utilities' spent nuclear fuel by January 31,
1998. The DOE failed to meet this deadline, and is not expected to
have a temporary or permanent repository for spent nuclear fuel for
many years.
In February and March 1998, Yankee Atomic and Connecticut
Yankee, respectively, filed separate suits in the United States
Court of Federal Claims against the DOE for monetary damages for
breach of contract arising from the DOE's refusal to accept nuclear
fuel from the plants. Vermont Yankee, Maine Yankee, Millstone 3
and Seabrook 1 have joined with others in separate legal actions
against the DOE. In 1998, Maine Yankee petitioned the Appeals
Court to compel the DOE to remove Maine Yankee's spent fuel from
the site. The Appeals Court rejected the petitions of Maine Yankee
and the other utilities and state regulatory commissions, stating
that the issue of damages was a contractual matter. The operators
of the units in which NEP has an obligation, including Maine
Yankee, Connecticut Yankee, and Yankee Atomic, pursued damage
claims against the DOE in the Federal Court of Claims (Claims
Court). In October 1998, the Claims Court ruled that the DOE
violated a commitment to remove spent fuel from Yankee Atomic. The
Claims Court issued similar rulings in November 1998 related to
cases brought by Connecticut Yankee and Maine Yankee. Further
proceedings will be scheduled by the Claims Court to decide the
amount of damages.
In February 1999, the U.S. Energy Secretary announced a plan
by which the DOE would become temporary owner of the spent nuclear
fuel at each nuclear sites around the nation. The DOE would own
the spent fuel until a permanent central storage site is found.
The nuclear industry does not support this plan, as it would be
seen as further delaying the shipment of spent fuel from existing
sites.
Federal authorities have deferred indefinitely the commercial
reprocessing of spent nuclear fuel.
Low-Level Waste Disposal
Federal law allows the states in which the three existing low-
level waste disposal sites were located to deny access to
nonregional waste generators after 1992. Under the statute,
individual states are responsible for finding local sites for
disposal or forming regional disposal compacts by defined milestone
dates.
None of the states in which NEP holds an interest in a nuclear
facility has met the statutory milestones toward developing
disposal sites. Currently, two low-level waste disposal sites in
the U.S. are accepting nonregional waste, Chem-Nuclear Systems,
Inc.'s site in Barnwell, South Carolina and Envirocare of Utah,
Inc's site in Clive, Utah. Following a closure in the early 1990s,
the Barnwell facility reopened its services to most nonregional
generators on July 1, 1995 and is authorized to remain open until
July 1, 2005. In 1996, the South Carolina Supreme Court upheld the
constitutionality of the legislative action that reopened Barnwell
to nonregional generators. Envirocare began accepting Class A low-
level waste in 1995. Class A waste is the least contaminated of
the three categories defining low-level waste. The Barnwell
facility accepts all three categories of waste. All the units in
which NEP has an interest are currently shipping low-level waste to
these sites. Chem-Nuclear Systems, as operator of the Barnwell
facility, is obligated to make certain payments to the State of
South Carolina. Chem-Nuclear has indicated that projected revenues
from its disposal activities at Barnwell are not likely to be
sufficient to reimburse it for these payments, and is exploring
alternatives to increase revenues from utilities disposing waste at
Barnwell. NEP cannot predict what impact, if any, this situation
will have on the continued availability of the Barnwell site.
Recently, the State of South Carolina has begun contemplating the
closure of the Barnwell site. Should the Barnwell facility become
unavailable, the cost of decommissioning the Yankee Atomic,
Connecticut Yankee, and Maine Yankee plants could increase.
The States of Maine and Vermont have established a compact with
Texas for the disposal of low-level waste at a yet to be determined
location in Texas. The compact agreement has been approved in all
three states, ratified by the U.S. Congress and signed into law by
the President. NEP cannot predict when a disposal facility will be
selected, licensed and become operational in Texas. The compact
relieves Maine and Vermont from having to site an in-state disposal
facility. Connecticut, Massachusetts, and New Hampshire are still
required to pursue local or regional low-level waste disposal
facilities. However, Massachusetts suspended its search for a
local disposal facility in 1996.
Nuclear Fuel Supply
The utilities responsible for the fuel supply for these
operating nuclear units are not experiencing any difficulty in
obtaining commitments for the supply of each element of the nuclear
fuel cycle.
Other Items
Federal legislation requires emergency response plans, approved
by federal authorities, for nuclear generating units. The Yankee
Companies, Seabrook 1, and Millstone 3 are not currently
experiencing difficulty in maintaining approval of their emergency
response plans.
A Maine statute provides that if both Maine Yankee and its
decommissioning trust fund have insufficient assets to pay for the
plant decommissioning, the owners of Maine Yankee are jointly and
severally liable for the shortfall. The definition of owner under
the statute covers NEP and may cover companies affiliated with it.
NEP and the Electricity Delivery Companies cannot determine, at
this time, the constitutionality, applicability, or effect of this
statute. If NEP or the Electricity Delivery Companies were
required to make payments under this statute, they would assess
their legal remedies at that time. In any event, NEP and the
Electricity Delivery Companies would attempt to recover through
rates any payments required. If any claim in excess of NEP's
ownership share were enforced against a NEES company, that company
would seek reimbursement from any other Maine Yankee stockholder
which failed to pay its share of such costs.
Divestiture of Nonnuclear Generating Business
On September 1, 1998, NEES' subsidiaries NEP and Narragansett
completed the sale of substantially all of their nonnuclear
generating business to USGen. For more information, see INDUSTRY
RESTRUCTURING, page 5.
Natural Gas Contracts
Upon completion of the sale of the NEES companies' nonnuclear
generating business to USGen, NEP's rights under its natural gas
contracts were effectively transferred to USGen through an agency
agreement, pursuant to which USGen receives the benefits of those
contracts and pays the ongoing costs and charges incurred. NEP and
USGen have agreed to use reasonable efforts to have NEP's rights
and obligations under those contracts permanently assigned to
USGen. (For information on the sale of NEP's nonnuclear generating
assets, see INDUSTRY RESTRUCTURING, page 5.)
Oil and Gas Operations
In February 1998, after a competitive bidding process, NEEI
sold all of its remaining oil and gas properties held as of
December 31, 1997 to Samedan Oil Corporation for $50 million. The
loss on such disposition, approximately $120 million, before tax,
has been charged to NEP. The settlements provide for the recovery
of the NEEI loss as part of NEP's stranded costs. See INDUSTRY
RESTRUCTURING, page 5.
Purchased Power Transfer Agreement
As part of the sale of NEP's nonnuclear generating business to
USGen on September 1, 1998, NEP signed a purchased power transfer
agreement through which USGen purchased NEP's entitlement to
approximately 1,100 MW of power procured under long-term contracts.
For more information, see INDUSTRY RESTRUCTURING, page 5.
REGULATORY AND ENVIRONMENTAL MATTERS
Regulation
Numerous activities of NEES and its subsidiaries are subject
to regulation by various federal agencies. Under the 1935 Act,
many transactions of NEES and its subsidiaries are subject to the
jurisdiction of the SEC. With the intensifying competitive
pressures within the electric utility industry, there has been
increasing debate about modifying or repealing the 1935 Act.
Under the Federal Power Act, certain electric subsidiaries of NEES
are subject to the jurisdiction of the FERC with respect to rates
and accounting. In addition, the NRC has broad jurisdiction over
nuclear units and federal environmental agencies have broad
jurisdiction over environmental matters. The electric utility
subsidiaries of NEES are also subject to the jurisdiction of
regulatory bodies of the states and municipalities in which they
operate.
For more information, see INDUSTRY RESTRUCTURING, page 5;
Mass. Electric, Narragansett, Granite State, and NEP Rates, pages
23 through 28; Nuclear Units, page 36; and Environmental
Requirements, page 43.
Environmental Requirements
Existing Operations
The NEES subsidiaries are subject to federal, state, and local
environmental regulation of, among other things, wetlands and flood
plains; air and water quality; storage, transportation, and
disposal of hazardous wastes and substances; underground storage
tanks; and land-use. Upon completion of the sale of substantially
all of NEES' nonnuclear generating business to USGen, USGen assumed
responsibility for environmental conditions at the Sellers'
nonnuclear generating stations (see INDUSTRY RESTRUCTURING, page
5).
Siting and Construction Activities for
New Transmission Facilities
All New England states require, in certain circumstances,
regulatory approval for site selection or construction of major
transmission facilities. Connecticut, Maine, Massachusetts, New
Hampshire, and Rhode Island also have programs of coastal zone
management that might restrict construction of electrical
facilities in, or potentially affecting, coastal areas. The New
England states have environmental laws which require project
proponents to prepare reports of the environmental impact of
certain proposed actions for review by various agencies.
Environmental Expenditures
Total System capital expenditures for environmental protection
facilities have been substantial. However, due to the divestiture
of its nonnuclear generating business, the System estimates that
capital expenditures for environmental protection facilities in
1999 and 2000 will not be material to the System. System capital
expenditures for such facilities amounted to approximately
$9 million in 1996, $7 million in 1997, and $2 million in 1998,
including expenditures by NEP of approximately $3 million,
$5 million, and $.3 million, respectively, for those years.
Hazardous Substances
The electric utility industry typically utilizes and/or
generates in its operations a range of potentially hazardous
products and by-products. For more information regarding sites for
which NEES and/or its subsidiaries have been named as potentially
responsible parties, other sites, a settlement agreement covering
rate recovery of certain remediation costs, and reserves, see pages
16 and 32 of the NEES 1998 Annual Report, Note E of the Notes to
the Financial Statements of the NEP 1998 Annual Report, and
Financial Review and Note D of the Notes to the Financial
Statements of both the Mass. Electric 1998 Annual Report and the
Narragansett 1998 Annual Report.
Nuclear
The NRC, along with other federal and state agencies, has
extensive regulations pertaining to environmental aspects of
nuclear reactors. Safety aspects of nuclear reactors, including
design controls and inspection programs to mitigate any possibility
of nuclear accidents and to reduce any damages therefrom, are also
subject to NRC regulation. See Nuclear Units, page 36.
Water
The Federal Clean Water Act prohibits the discharge of any
pollutant, except in compliance with a discharge permit issued by
the states or the EPA for a term of no more than five years. NEET
has received the required surface water discharge permits for all
of its current operations. NEES subsidiaries Narragansett, Mass.
Electric and Nantucket have received sewer discharge permits where
necessary.
CONSTRUCTION AND FINANCING
Estimated construction expenditures (including nuclear fuel)
for the System's electric utility companies are shown below for
1999 through 2001.
The System conducts a continuing review of its construction and
financing programs. These programs and the estimates shown below
are subject to revision based upon changes in assumptions as to
System load growth, rates of inflation, receipt of adequate and
timely rate relief, the availability and timing of regulatory
approvals, new environmental and legal or regulatory requirements,
total costs of major projects, technological changes, and the
availability and costs of external sources of capital.
Estimated Construction Expenditures
-----------------------------------
1999 2000 2001 Total
---- ---- ---- -----
($ in Millions - excluding AFDC)
NEP
- ---
Generation (1)(2)
Nuclear 10 10 10 30
Transmission 55 35 35 125
---- ---- ---- ----
Total NEP 65 45 45 155
---- ---- ---- ----
Mass. Electric
- --------------
Distribution 75 75 75 225
---- ---- ---- ----
Narragansett
- ------------
Transmission 2 2 2 6
Distribution 23 23 23 69
---- ---- ---- ----
Total Narragansett 25 25 25 75
---- ---- ---- ----
Granite State
- -------------
Distribution 4 3 3 10
---- ---- ---- ----
Nantucket
- ---------
Distribution 2 1 1 4
---- ---- ---- ----
Combined Total
- --------------
Generation (1)(2) 10 10 10 30
Transmission 57 37 37 131
Distribution 104 102 102 308
---- ---- ---- ----
Grand Total 171 149 149 469
---- ---- ---- ----
<FN>
(1) Includes nuclear fuel.
(2) For more information, see INDUSTRY RESTRUCTURING, page 5.
</FN>
Financing
All of NEP's and the Electricity Delivery Companies'
construction expenditures during the period beginning in 1999 to
2001 are expected to be financed by internally generated funds.
The general practice of the operating subsidiaries of NEES has
been to finance construction expenditures in excess of internally
generated funds initially by issuing unsecured short-term debt.
This short-term debt is subsequently reduced through sales by such
subsidiaries of long-term debt securities and through capital
contributions from NEES to the subsidiaries. NEES, in turn,
generally has financed capital contributions to the operating
subsidiaries through retained earnings and the sale of additional
NEES shares. Since April 1991, NEES has been meeting all of the
requirements of its dividend reinvestment and common share purchase
plan and employee share plans through open market purchases.
NEES purchased approximately 5.7 million common shares in 1998
under a repurchase program authorized by the NEES Board of
Directors in 1997 and 1998. It is unlikely that NEES will
repurchase additional shares in 1999.
The ability of NEP and the Electricity Delivery Companies to
issue short-term debt is limited by the need to obtain regulatory
approval from the SEC under the 1935 Act (and in the case of NEP
and Granite State to also obtain approval from the New Hampshire
Public Utilities Commission). The following table summarizes the
short-term debt amounts for which regulatory approval has been
granted at December 31, 1998, and the amount of outstanding
short-term debt and lines of credit and standby bond facilities at
such date.
($ millions)
Lines of Credit/
Regulatory Standby Bond
Limit Outstanding Facilities
---------- ----------- ----------------
NEP 375 0 455
Mass. Electric 150 81 55
Narragansett 100 27 41
Granite State 10 0 7
Nantucket 5 3 3
NEES and certain subsidiaries, with regulatory approval,
operate a money pool to more effectively utilize cash resources and
to reduce outside short-term borrowings. Short-term borrowing
needs are met first by available funds of the money pool
participants. Borrowing companies pay interest at a rate designed
to approximate the cost of outside short-term borrowings.
Companies which invest in the pool share the interest earned on a
basis proportionate to their average monthly investment in the
money pool. Funds may be withdrawn from or repaid to the pool at
any time without prior notice. At December 31, 1998, NEP, Mass.
Electric, Narragansett, and Granite State each had money pool
borrowings of approximately $0 million, $81 million, $27 million,
and $0 million, respectively.
In order to issue additional long-term debt, the Electricity
Delivery Companies, excluding Nantucket, must comply with earnings
coverage requirements contained in their respective mortgages and
note agreements. The most restrictive of these provisions in each
instance generally requires that for the issuance of additional
mortgage bonds by Mass. Electric and Narragansett, for purposes
other than the refunding of certain outstanding mortgage bonds, a
minimum earnings coverage (before income tax) of twice the pro
forma annual interest charges on mortgage bonds for a period of
twelve consecutive calendar months within the fifteen calendar
months immediately preceding the proposed new issue.
The respective long-term debt coverages of the Electricity
Delivery Companies, excluding Nantucket, under their respective
mortgage indentures and note agreements, are stated in the
following table for the past three years:
Coverage
-----------------------
1998 1997 1996
---- ---- ----
Mass. Electric
- --------------
First Mortgage Bonds 4.24 5.09 3.25
Narragansett
- ------------
First Mortgage Bonds 4.64 3.98 3.22
Granite State
- -------------
Notes 4.17 3.39 2.82
EXECUTIVE OFFICERS
NEES
- ----
All executive officers are elected to continue in office
subject to Article 19 of the Agreement and Declaration of Trust
until the first meeting of the Board of Directors following the
next annual meeting of shareholders, or the special meeting of
shareholders held in lieu of such annual meeting, and until their
successors are chosen and qualified. The executive officers also
serve as officers and/or directors of various subsidiary companies.
Alfred D. Houston - Age: 58 - Elected Chairman in 1998 -
Executive Vice President from 1994 to 1998 - Senior Vice
President from 1987 to 1994 - Chief Financial Officer from 1984
to 1998 - Elected Chairman of NEP in 1998 - Vice President of
NEP from 1987 to 1994 - Vice President of Narragansett from
1976 to 1998 - Treasurer of Narragansett from 1977 to 1998.
Richard P. Sergel - Age: 49 - Elected President and Chief
Executive Officer in 1998 - Senior Vice President from 1996 to
1998 - Vice President from 1992 to 1995 - Chairman of Mass.
Electric and Narragansett from 1993 to 1997.
Michael E. Jesanis - Age: 42 - Elected Senior Vice President
and Chief Financial Officer in 1998 - Vice President from 1997
to 1998 - Treasurer from 1992 to 1998 - Elected Vice President
of Mass. Electric and NEP in 1998 - Treasurer of Mass. Electric
and NEP from 1992 to 1998.
Cheryl A. LaFleur - Age: 44 - Elected Senior Vice President in
1998 - Vice President from 1995 to 1998 - Secretary and General
Counsel since 1995 - Vice President of Mass. Electric from 1993
to 1995 - Vice President of the Service Company during 1992-
1993 and since 1995 - Vice President of NEP since 1995.
John G. Cochrane - Age: 40 - Elected Vice President in 1999 -
Elected Treasurer in 1998 - Treasurer of Mass. Electric, NEP,
and the Service Company since 1998 - Vice President of the
Service Company and Treasurer of Narragansett since 1993.
David C. Kennedy - Age: 50 - Elected Vice President in 1998 -
Vice President of the Service Company since 1985.
NEP
- ---
The Treasurer is elected by the stockholders to hold office
until the next annual meeting of stockholders and until the
successor is duly chosen and qualified. The other executive
officers are elected by the Board of Directors to hold office
subject to the pleasure of the directors and until the first
meeting of directors after the next annual meeting of stockholders
and until their successors are duly chosen and qualified. Certain
officers of NEP are, or at various times in the past have been,
officers and/or directors of the System companies with which NEP
has entered into contracts and had other business relations.
Alfred D. Houston* - Elected Chairman in 1998.
Peter G. Flynn - Age: 45 - Elected President in 1999 - Vice
President and Director of Rates for the Service Company from
1996 to 1999 - Assistant General Counsel for the Service
Company during 1996 - Senior Counsel for the Service Company
from 1992 to 1996.
Michael E. Jesanis* - Elected Vice President in 1998 -
Treasurer from 1992 to 1998.
Cheryl A. LaFleur* - Vice President since 1995.
John F. Malley - Age: 50 - Vice President since 1992.
James S. Robinson - Age: 45 - Elected Vice President in 1998 -
Director of Nuclear Investments from 1997 to 1998 - Manager,
Wholesale Business Administration from 1993 to 1997.
Masheed H. Rosenqvist - Age: 44 - Elected Vice President in
1998 - Manager, Transmission Tariffs and Contracts for NEP or
Service Company since 1997 - Consulting Engineer for the
Service Company from 1995 to 1997. Principal Engineer for the
Service Company from 1993 to 1995.
John G. Cochrane* - Elected Treasurer in 1998.
Howard W. McDowell - Age: 55 - Elected Assistant Treasurer in
1998 - Controller since 1987 - Controller of Mass. Electric and
Narragansett since 1987 - Treasurer of Granite State since
1984.
*Please refer to the material supplied under the caption
EXECUTIVE OFFICERS - NEES for other information regarding this
officer.
Mass. Electric
- --------------
The Treasurer is elected by the stockholders to hold office
until the next annual meeting of stockholders and until the
successor is duly chosen and qualified. The other executive
officers are elected by the board of directors to hold office
subject to the pleasure of the directors and until the first
meeting of the directors after the next annual meeting of
stockholders. Certain officers of Mass. Electric are, or at
various times in the past have been, officers and directors of
System companies with which Mass. Electric has entered into
contracts and had other business relations.
Robert L. McCabe - Age: 57 - Chairman since 1997 - President of
Narragansett from 1986 to 1997.
Lawrence J. Reilly - Age: 43 - President since 1996 - Vice
President for the Service Company from 1993 to 1996 - Director
of Rates for the Service Company from 1990 to 1996.
Lydia M. Pastuszek - Age: 45 - Senior Vice President since 1997
- Vice President from 1993 to 1997 - Vice President of NEP from
1990 to 1993 - President of Granite State from 1990 to 1996.
Christopher E. Root - Age: 40 - Senior Vice President since
1997 - Vice President from 1995 to 1997 - Director, Retail
Distribution Services for the Service Company from 1993 to 1995
- Chief of Division Engineering for the Service Company from
1992 to 1993.
Nancy H. Sala - Age: 47 - Elected Senior Vice President in 1998
- Vice President from 1992 to 1998.
William J. Flaherty - Age: 41 - Vice President since 1997 -
Account Manager from 1993 to 1997.
Andrea Foley-Stapleford - Age: 53 - Vice President since 1997 -
Director of Human Resources for the Service Company from 1996
to 1997 - Director of Labor Relations for the Service Company
from 1993 to 1996 - Division Personnel Manager from 1990 to
1993.
Richard W. Frost - Age: 59 - Vice President since 1997 - Vice
President of Narragansett since 1993.
Rita A. Moran - Age: 35 - Elected Vice President in 1998 -
Account Manager from 1993 to 1998.
Joseph P. Newman - Age: 43 - Elected Vice President in 1998 -
Director of Government Affairs for the Service Company from
1996 to 1998.
Kwong O. Nuey, Jr. - Age: 50 - Vice President since 1997 -
Director of Retail Information Services for the Service Company
from 1993 to 1997.
Timothy R. Roughan - Age: 38 - Elected Vice President in 1998 -
Account Manager for the Service Company from 1995 to 1998 -
Account Manager from 1993 to 1995.
William T. Sherry - Age: 38 - Elected Vice President in 1998 -
Account Manager for Granite State Electric Company from 1995 to
1998 - Account Manager from 1993 to 1995.
John G. Upham II - Age: 41 - Vice President since 1997 -
Municipal Account Manager from 1993 to 1997.
John G. Cochrane* - Elected Treasurer in 1998.
Howard W. McDowell - Controller since 1987 and Assistant
Treasurer since 1977 - Reference is made to the material
supplied under the caption EXECUTIVE OFFICERS - NEP for other
information regarding Mr. McDowell.
*Please refer to the material supplied under the caption EXECUTIVE
OFFICERS - NEES for other information regarding this officer.
Narragansett
- ------------
Officers are elected by the board of directors or appointed, as
appropriate, to serve until the meeting of directors following the
annual meeting of stockholders, and until their successors are
chosen and qualified. Officers other than the President,
Treasurer, and Secretary, serve also at the pleasure of the
directors. Certain officers of Narragansett are, or at various
times in the past have been, officers and directors of System
companies with which Narragansett has entered into contracts and
had other business relations.
Robert L. McCabe* - Chairman since 1997 - President from 1986
to 1997.
Lawrence J. Reilly* - President since 1997.
Lydia M. Pastuszek* - Senior Vice President since 1997.
Christopher E. Root* - Senior Vice President since 1997.
Richard W. Frost* - Vice President since 1993 - District
Manager - Southern District from 1990 to 1993.
Michael E. Jesanis** - Elected Vice President in 1998.
Richard Nadeau - Age: 63 - Vice President since 1994 - Director
of Customer Service since 1993 - Assistant to the President
from 1990 to 1993.
Michael F. Ryan - Age: 47 - Vice President since 1994 - Rhode
Island Director for U.S. Senator John H. Chafee from 1986 to
1994.
Peter T. Zschokke - Age: 41 - Elected Vice President in 1998 -
Manager of Retail Rates for the Service Company from 1992 to
1998.
John G. Cochrane** - Elected Treasurer in 1998.
Howard W. McDowell - Controller since 1987 - Reference is made
to the material supplied under the caption EXECUTIVE OFFICERS
- NEP for other information regarding Mr. McDowell.
*Please refer to the material supplied under the caption EXECUTIVE
OFFICERS - Mass. Electric for other information regarding these
officers.
**Please refer to the material supplied under the caption EXECUTIVE
OFFICERS - NEES for other information regarding these officers.
ITEM 2. PROPERTIES
See ITEM 1. Business - Transmission, Distribution, and Nuclear
Generation Properties, page 32.
ITEM 3. LEGAL PROCEEDINGS
See Item 1. BUSINESS - Nuclear Units, page 36.
In August 1997, NEP sued Northeast Utilities (NU) in
Massachusetts Superior Court for damages resulting from the
tortious conduct of NU that caused the shutdown of Millstone 3.
NEP's damages include the costs of replacement power during the
outage, costs necessary to return Millstone 3 to safe operation,
and other additional costs. Most of NEP's incremental replacement
power costs have been recovered from customers, either through fuel
adjustment clauses or through provisions in the Settlement
Agreements. NEP also seeks punitive damages. NEP 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. The arbitration is scheduled for October 1999. In
July 1998, the court denied NU's motion to dismiss and its motion
to stay pending arbitration. NEP subsequently amended its
complaint by, among other things, adding NU's Trustees as
defendants. In December 1998, NU moved for summary judgment.
NEP's suit has been consolidated with suits filed by other joint
owners. The court is in the process of scheduling a trial date.
Some or all of the damages awarded from the lawsuit would be
refunded to customers.
NEP and several other shareholders (Sponsors) of Maine Yankee
are parties to 27 contracts (Secondary Purchase Agreements) under
which they sold portions of their entitlements 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 plant shutdown. In
February 1999, a settlement agreement which fully resolves the
dispute between the Sponsors and Secondary Purchasers was filed
with the FERC, under which the Secondary Purchasers would be
required to make certain payments to Maine Yankee, and in turn to
NEP, related to both past and future obligations under the
Secondary Purchase Agreements. This settlement agreement requires
FERC approval. Shutdown costs are recoverable from customers under
the Settlement Agreements.
In September 1998, the United States District Court (District
Court) for the District of Massachusetts dismissed the lawsuit
filed in April 1997 by the Town of Norwood, Massachusetts against
NEES and NEP. NEP had been a wholesale power supplier for Norwood
pursuant to rates approved by the FERC. In the lawsuit, Norwood
had alleged that NEP's divestiture of its power generating assets
would violate the terms of a 1983 power contract. Norwood also
alleged that the divestiture and recovery of stranded investment
costs contravened federal antitrust laws. The District Court judge
granted NEES' and NEP's motion for dismissal on the grounds that
the contract did not require NEP to retain its generating units,
that the FERC-approved filed rates govern these matters, and that
Norwood had adequate opportunity at the FERC to litigate these
matters. Norwood filed a motion to alter or amend the order of
dismissal, which was denied. In December 1998, Norwood filed a
second motion to amend judgment and also filed an appeal with the
First Circuit Court of Appeals (First Circuit). In March 1999, the
District Court denied Norwood's second motion to amend judgment.
In March 1998, Norwood gave notice of its intent to terminate
its contract with NEP, without accepting responsibility for its
share of NEP's stranded costs, and began taking power from another
supplier commencing in April 1998. In May 1998, the FERC ruled
that NEP could assess a CTC to any of NEP's unaffiliated customers
that choose to terminate their wholesale power contracts early.
Norwood claimed that the CTC approved by the FERC did not apply to
Norwood; however, in denying Norwood's motion for rehearing, the
FERC ruled that the charge did apply to Norwood. Norwood has
appealed this decision to the First Circuit. NEP's billings to
Norwood for this charge through December 1998 have been
approximately $6 million, which remain unpaid. NEP filed a
collection action with the Massachusetts Superior Court in December
1998 to recover these amount. Norwood filed a motion to dismiss or
stay in January 1999.
Norwood also appealed the FERC's orders approving the
divestiture and the Massachusetts and Rhode Island industry
restructuring settlement agreements (including modification of
NEP's contracts with Mass. Electric and Narragansett) to the First
Circuit, despite the FERC's finding that those settlement
agreements do not apply to Norwood.
The First Circuit has consolidated all three of Norwood's
appeals from the FERC's orders with two other appeals filed by the
Northeast Center for Social Issue Studies, which challenge the
FERC's approval of NEP's sale of its hydroelectric facilities. The
case is to be fully briefed by May 1999.
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. The dispute concerned the components of a
pricing formula and additional costs under the contract. In March
1999, the New England utilities and Hydro-Quebec signed a
settlement agreement. Under the settlement agreement, NEP will
receive approximately $7.5 million, a portion of which NEP had
previously paid into escrow. In addition, NEP will receive a
payment of approximately $90,000 as NEP's share of a compromise of
a metering dispute. In exchange, NEP will make a payment to Hydro-
Quebec of $258,000. The refunded amounts will be returned to
customers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Security holders during
the last quarter of 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SECURITY HOLDER MATTERS
NEES information in response to the disclosure requirements
specified by this ITEM 5. appears under the captions in the 1998
NEES Annual Report indicated below:
Required Information Annual Report Caption
-------------------- ---------------------
(a) Market Information Shareholder Information
(b) Holders Shareholder Information
(c) Dividends Financial Results
The information referred to above is incorporated by reference
in this ITEM 5.
The approximate number of beneficial holders of NEES common
shares at March 1, 1999 was 87,552.
NEP, Mass. Electric, and Narragansett - The information
required by this item is not applicable as the common stock of all
these companies is held solely by NEES. Information pertaining to
payment of dividends and restrictions on payment of dividends is
incorporated herein by reference to each company's 1998 Annual
Report.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein
by reference to page 20 of the NEES 1998 Annual Report.
NEP
---
The information required by this item is incorporated herein
by reference to Selected Financial Information, Note L of the NEP
1998 Annual Report.
Mass. Electric
--------------
The information required by this item is incorporated herein
by reference to Selected Financial Information, Note K of the Mass.
Electric 1998 Annual Report.
Narragansett
------------
The information required by this item is incorporated herein
by reference to Selected Financial Information, Note L of the
Narragansett 1998 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
NEES
----
The information required by this item is incorporated herein
by reference to pages 10 through 19 of the NEES 1998 Annual Report.
NEP
---
The information required by this item is incorporated herein
by reference to the Financial Review section of the NEP 1998 Annual
Report.
Mass. Electric
--------------
The information required by this item is incorporated herein
by reference to the Financial Review section of the Mass. Electric
1998 Annual Report.
Narragansett
------------
The information required by this item is incorporated herein
by reference to the Financial Review section of the Narragansett
1998 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
NEES
----
The information required by this item is incorporated herein
by reference to the Risk Management section of the NEES 1998 Annual
Report on page 18.
NEP
---
The information required by this item is incorporated herein
by reference to the Risk Management section of the NEP 1998 Annual
Report.
Mass. Electric
--------------
The information required by this item is incorporated herein
by reference to the Risk Management section of the MEC 1998 Annual
Report.
Narragansett
------------
The information required by this item is incorporated herein
by reference to the Risk Management section of the NEC 1998 Annual
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NEES
----
The information required by this item is incorporated herein
by reference to pages 20 through 44 of the NEES 1998 Annual Report.
NEP
---
The information required by this item is incorporated herein
by reference to the financial statements and Notes to Financial
Statements in the NEP 1998 Annual Report.
Mass. Electric
--------------
The information required by this item is incorporated herein
by reference to the financial statements and Notes to Financial
Statements in the Mass. Electric 1998 Annual Report.
Narragansett
------------
The information required by this item is incorporated herein
by reference to the financial statements and Notes to Financial
Statements in the Narragansett 1998 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
NEES, NEP, Mass. Electric, and Narragansett - None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
NEES
----
The information required by this item is incorporated herein
by reference to the material under the caption ELECTION OF
DIRECTORS in the definitive proxy statement of NEES, dated
March 26, 1999, for the 1999 Annual Meeting of Shareholders,
provided that the information under the headings "Report of the
Compensation Committee on Executive Compensation" and "Corporate
Performance" are not so incorporated. Reference is also made to
the information under the caption EXECUTIVE OFFICERS - NEES in Part
I of this report.
NEP
---
The names of the directors of NEP, their ages, and a brief
account of their business experience during the past five years
appear below. Information required by this item for Executive
Officers is provided under the caption EXECUTIVE OFFICERS - NEP in
Part I of this report.
Directors are elected to hold office until the next annual
meeting of stockholders or special meeting held in lieu thereof and
until their respective successors are chosen and qualified.
Peter G. Flynn* - Elected Director in 1999.
Alfred D. Houston* - Director since 1984. Directorships of
NEES System companies: Granite State Energy, Inc., NEES
Communications, Inc., NEES Energy, Inc., NEES Global, Inc.,
New England Electric System, New England Electric Transmission
Corporation, New England Energy Incorporated, New England Hydro
Finance Company, Inc., New England Hydro-Transmission
Corporation, New England Hydro-Transmission Electric Company,
Inc., New England Power Service Company, and New England Water
Heater Co., Inc.
Cheryl A. LaFleur* - Director since 1995. Directorships of
NEES System companies: Granite State Electric Company, Granite
State Energy, Inc., Massachusetts Electric Company, Nantucket
Electric Company, The Narragansett Electric Company, NEES
Communications, Inc., NEES Energy, Inc., NEES Global, Inc., New
England Electric Transmission Corporation, New England Energy
Incorporated, New England Hydro Finance Company, Inc., New
England Hydro-Transmission Corporation, New England Hydro-
Transmission Electric Company, Inc., New England Power Service
Company, and New England Water Heater Co., Inc.
Richard P. Sergel* - Elected a Director in 1998. Directorships
of NEES System companies: Granite State Electric Company,
Massachusetts Electric Company, Nantucket Electric Company, The
Narragansett Electric Company, NEES Communications, Inc., NEES
Energy, Inc., NEES Global, Inc., New England Electric System,
New England Energy Incorporated, New England Electric
Transmission Corporation, New England Hydro Finance Company,
Inc., New England Hydro-Transmission Corporation, New England
Hydro-Transmission Electric Company, Inc., New England Power
Service Company, and New England Water Heater Co., Inc.
*Please refer to the material supplied under the caption
EXECUTIVE OFFICERS - NEES and/or EXECUTIVE OFFICERS - NEP in
Part I of this report for other information regarding these
directors.
Mass. Electric
--------------
The names of the directors of Mass. Electric, their ages, and
a brief account of their business experience during the past five
years appear below. Information required by this item for
Executive Officers is provided under the caption EXECUTIVE OFFICERS
- - Mass. Electric in Part I of this report.
Directors are elected to hold office until the next annual
meeting of stockholders or special meeting held in lieu thereof and
until their respective successors are chosen and qualified.
Cheryl A. LaFleur* - Director since 1997.
Robert L. McCabe* - Director since 1997. Directorships of NEES
System affiliates: Granite State Electric Company, Nantucket
Electric Company, and The Narragansett Electric Company. Other
directorship: Citizens Savings Bank.
Lydia M. Pastuszek* - Director since 1997. Directorships of
NEES System affiliates: Granite State Electric Company and
Nantucket Electric Company.
Lawrence J. Reilly* - Director since 1996 - Directorships of
NEES System affiliates: Granite State Electric Company,
Nantucket Electric Company, and The Narragansett Electric
Company.
Christopher E. Root* - Director since 1997. Directorships of
NEES System affiliates: Granite State Electric Company and
Nantucket Electric Company.
Nancy H. Sala* - Elected Director in 1998. Directorships of
NEES System affiliates: Nantucket Electric Company.
Richard P. Sergel* - Director since 1993.
*Please refer to the material supplied under the caption
EXECUTIVE OFFICERS - NEES and/or Mass. Electric in Part I of
this report and/or the material supplied under the caption
DIRECTORS AND OFFICERS OF THE REGISTRANT - NEP in this Item for
other information regarding this director.
Narragansett
------------
The names of the directors of Narragansett, their ages, and a
brief account of their business experience during the past five
years appear below. Information required by this item for
Executive Officers is provided under the caption EXECUTIVE OFFICERS
- - Narragansett in Part I of this report.
Directors are elected to hold office until the next annual
meeting of stockholders or special meeting held in lieu thereof and
until their respective successors are chosen and qualified.
Richard W. Frost* - Director since 1997.
Cheryl A. LaFleur* - Director since 1997.
Robert L. McCabe* - Director since 1986.
Lawrence J. Reilly* - Director since 1997.
Michael F. Ryan* - Director since 1997.
Richard P. Sergel* - Director since 1993.
Ronald L. Thomas - Age: 62 - Director since 1997 - Manager of
Labor Relations since 1997 - Human Resources Manager from 1979
to 1997.
*Please refer to the material supplied under the caption
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - NEP and/or
Mass. Electric in this Item for other information regarding
this director.
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires
the System's officers and directors, and persons who own more than
10 percent of a registered class of the System's equity securities,
to file reports on Forms 3, 4, and 5 of share ownership and changes
in share ownership with the SEC and the New York Stock Exchange and
to furnish the System with copies of all Section 16(a) forms they
file.
Based solely on NEP's, Mass. Electric's, and Narragansett's
review of the copies of such forms received by them, or written
representations from certain reporting persons that such forms were
not required for those persons, NEP, Mass. Electric, and
Narragansett believe that, during 1998, all filing requirements
applicable to its officers, directors, and 10 percent beneficial
owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
NEES
----
The information required by this item is incorporated herein
by reference to the material under the captions BOARD STRUCTURE AND
COMPENSATION, EXECUTIVE COMPENSATION, PAYMENTS UPON A CHANGE OF
CONTROL OR TERMINATION OF EMPLOYMENT, PLAN SUMMARIES, LONG TERM
INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR, and RETIREMENT PLANS
in the definitive proxy statement of NEES, dated March 26, 1999,
for the 1999 Annual Meeting of Shareholders, provided that the
information under the headings "Report of the Compensation
Committee on Executive Compensation" and "Corporate Performance"
are not so incorporated.
NEP, Mass. Electric, and Narragansett
-------------------------------------
EXECUTIVE COMPENSATION
The following tables give information with respect to all
compensation (whether paid directly by NEP, Mass. Electric, or
Narragansett or billed to it as hourly charges) for services in all
capacities for NEP, Mass. Electric, or Narragansett for the years
1996 through 1998 to or for the benefit of the Chief Executive
Officer and the four other most highly compensated executive
officers for each company.
NEP
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation (b) Compensation
-------------------------- -------------------
Other Restricted
Name and Annual & Deferred All Other
Principal Compensa- Share LTIP Compensa-
Position Year Salary Bonus tion Awards Payouts tion
(a) ($) ($)(c) ($)(d) ($)(e) ($) ($)(f)
- ---------- ---- ------- ------ --------- ---------- ------- ---------
Lawrence E. 1998 164,340 85,287 14,155 35,369 14,469 408,571 (h)
Bailey 1997 156,516 188,214 3,316 0 0 600
Former 1996 151,956 101,667 116 0 0 3,776
President (g)
Alfred D. 1998 49,236 32,804 1,137 18,677 17,545 288
Houston
Chairman
Peter G. 1998 57,838 29,383 1,151 12,176 6,864 75
Flynn
President (i)
John F. 1998 144,492 71,636 7,292 29,328 31,472 183
Malley 1997 140,280 96,072 2,922 0 0 375
Vice 1996 133,394 104,885 116 0 0 3,141
President
Masheed H. 1998 113,697 44,654 2,285 17,618 0 366
Rosenqvist
Vice
President
(a) Certain officers of NEP are also officers of NEES and various
other System companies.
(b) Includes deferred compensation in category and year earned.
(c) The bonus figure represents: cash bonuses under an incentive
compensation plan, the all-employee goals program, the
variable match of the incentive thrift plan, including related
deferred compensation plan matches, special cash bonuses, and
unrestricted shares under the incentive share plan. In 1996
and 1997, the bonus amounts were all cash or contributions to
the incentive thrift plan, including related deferred
compensation plan matches. See descriptions under Plan
Summaries.
(d) Includes amounts reimbursed by NEP for the payment of taxes on
certain noncash benefits and NEP contributions to the
incentive thrift plan that are not bonus contributions
including related deferred compensation plan match. See
description under Plan Summaries.
(e) The incentive share awards for the named executives who are
also NEES executives (1996 - 1998) and the other named
executives (in 1998 only) were in the form of restricted
shares (with a five-year restriction) or deferred share
equivalents, deferred for receipt for at least five years, at
the executive's option. As cash dividends are declared, the
number of deferred share equivalents will be increased as if
the dividends were reinvested in shares. The shares awarded
for the other named executives in 1996 and 1997 were not
restricted and the value of the awards is included in the
bonus column.
As of December 31, 1998, the following executive officers held
the amount of restricted and deferred shares with the value
indicated: Mr. Bailey 4,031 shares, $193,991 value; Mr.
Houston 13,216 shares, $636,020 value; Mr. Flynn 2,838 shares,
$136,578 value; and Mr. Malley 3,901 shares, $187,735 value.
The value was calculated by multiplying the closing market
price on December 31, 1998 by the number of shares.
(f) Includes NEP contributions to life insurance. See description
under Plan Summaries. The life insurance contribution is
calculated based on the value of term life insurance for the
named individuals. The premium costs for most of these
policies have been or will be recovered by NEP. Prior to
1997, this column also included NEP contributions to the
incentive thrift plan that are not bonus contributions. These
figures are now included in the Other Annual Compensation
column.
(g) Mr. Bailey retired effective December 31, 1998.
(h) Under the terms of the severance plan described on page 69,
Mr. Bailey received a lump sum payment of $408,131 upon his
retirement on December 31, 1998.
(i) Mr. Flynn was elected President effective January 1, 1999.
MASS. ELECTRIC
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation (b) Compensation
-------------------------- -------------------
Other Restricted
Name and Annual & Deferred All Other
Principal Compensa- Share LTIP Compensa-
Position Year Salary Bonus tion Awards Payouts tion
(a) ($) ($)(c) ($)(d) ($)(e) ($) ($)(f)
- ---------- ---- ------- ------ --------- ---------- ------- ---------
Lawrence J. 1998 113,414 59,341 5,413 24,421 19,632 215
Reilly 1997 160,515 168,637 6,910 0 0 448
President 1996 96,163 70,177 2,467 46,082 0 2,250
Robert L. 1998 140,682 59,448 6,753 24,226 31,075 830
McCabe
Chairman
Nancy H. 1998 128,592 53,247 1,392 21,763 15,975 195
Sala 1997 124,344 60,661 2,603 0 0 283
Senior Vice 1996 118,251 65,493 116 0 0 2,730
President
Lydia M. 1998 104,345 51,761 2,228 21,134 22,531 140
Pastuszek 1997 125,481 81,944 2,544 0 0 241
Senior Vice 1996 86,068 52,017 69 22,115 0 1,893
President
Kwong O. 1998 96,311 37,716 2,115 15,135 11,542 186
Nuey
Vice
President
(a) Certain officers of Mass. Electric are also officers of NEES
and various other System companies.
(b) Includes deferred compensation in category and year earned.
(c) The bonus figure represents: cash bonuses under an incentive
compensation plan, the all-employee goals program, the
variable match of the incentive thrift plan, and unrestricted
shares under the incentive share plan or special share
bonuses. In 1996 and 1997, the bonus amounts were all cash or
contributions to the incentive thrift plan, including related
deferred compensation plan matches. See descriptions under
Plan Summaries.
(d) Includes amounts reimbursed by Mass. Electric for the payment
of taxes on certain noncash benefits and Mass. Electric
contributions to the incentive thrift plan that are not bonus
contributions including related deferred compensation plan
match. See description under Plan Summaries.
(e) In 1998, the incentive share awards for the named executives
were in the form of restricted shares (with a five-year
restriction) or deferred share equivalents, deferred for
receipt for at least five years, at the executive's option.
As cash dividends are declared, the number of deferred share
equivalents will be increased as if the dividends were
reinvested in shares. In 1996, certain named officers also
received special share awards in the form of deferred share
equivalents. The shares awarded for the named officers in
1996 and 1997 were not restricted and the value of the awards
is included in the bonus column.
As of December 31, 1998, the following executive officers held
the amount of restricted and deferred shares with the value
indicated: Mr. Reilly 6,064 shares, $291,830 value; Mr. McCabe
6,979 shares, $335,864 value; Ms. Sala 2,058 shares, $99,041
value; Ms. Pastuszek 3,117 shares, $150,005 value; and Mr.
Nuey 2,033 shares, $97,838 value. The value was calculated by
multiplying the closing market price on December 31, 1998 by
the number of shares.
(f) Includes Mass. Electric contributions to life insurance. See
description under Plan Summaries. The life insurance
contribution is calculated based on the value of term life
insurance for the named individuals. The premium costs for
most of these policies have been or will be recovered by Mass.
Electric. Prior to 1997, this column also included Mass.
Electric contributions to the incentive thrift plan that are
not bonus contributions. These figures are now included in
the Other Annual Compensation column.
NARRAGANSETT
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation (b) Compensation
-------------------------- -------------------
Other Restricted
Name and Annual & Deferred All Other
Principal Compensa- Share LTIP Compensa-
Position Year Salary Bonus tion Awards Payouts tion
(a) ($) ($)(c) ($)(d) ($)(e) ($) ($)(f)
- ---------- ---- ------- ------ --------- ---------- ------- ---------
Lawrence J. 1998 52,729 27,589 2,517 11,354 9,127 99
Reilly 1997 679 452 29 0 0 1
President 1996 16,329 11,916 419 7,825 0 382
Robert L. 1998 40,283 17,022 1,933 6,937 8,898 237
McCabe 1997 179,460 148,868 9,881 0 0 1,528
Chairman 1996 127,388 88,905 4,819 50,308 0 3,424
Richard W. 1998 119,544 41,969 2,746 16,320 15,346 438
Frost 1997 113,856 52,347 2,396 0 0 596
Vice 1996 108,432 57,680 119 0 0 2,888
President
Michael F. 1998 112,368 42,237 2,393 16,856 0 108
Ryan 1997 103,983 52,060 2,197 0 0 220
Vice 1996 64,555 18,397 77 0 0 1,473
President
Richard 1998 102,912 18,655 2,681 4,433 0 160
Nadeau
Vice
President
(a) Certain officers of Narragansett are also officers of NEES and
various other System companies.
(b) Includes deferred compensation in category and year earned.
(c) The bonus figure represents: cash bonuses under an incentive
compensation plan, the all-employee goals program, the
variable match of the incentive thrift plan, and unrestricted
shares under the incentive share plan or special share
bonuses. In 1996 and 1997, the bonus amounts were all cash or
contributions to the incentive thrift plan, including related
deferred compensation plan matches. See descriptions under
Plan Summaries.
(d) Includes amounts reimbursed by Narragansett for the payment of
taxes on certain noncash benefits and Narragansett
contributions to the incentive thrift plan that are not bonus
contributions including related deferred compensation plan
match. See description under Plan Summaries.
(e) In 1998, the incentive share awards for the named executives
were in the form of restricted shares (with a five-year
restriction) or deferred share equivalents, deferred for
receipt for at least five years, at the executive's option.
As cash dividends are declared, the number of deferred share
equivalents will be increased as if the dividends were
reinvested in shares. The shares awarded in 1996 and 1997
were not restricted and the value of the awards is included in
the bonus column.
As of December 31, 1998, the following executive officers held
the amount of restricted and deferred shares with the value
indicated: Mr. Reilly 6,064 shares, $291,830 value; Mr.
McCabe 6,979 shares, $335,864 value; Mr. Frost 819 shares,
$39,414 value; Mr. Ryan 11 shares, $529 value; Mr. Nadeau 65
shares, $3,128 value. The value was calculated by multiplying
the closing market price on December 31, 1998 by the number of
shares.
(f) Includes Narragansett contributions to life insurance. See
description under Plan Summaries. The life insurance
contribution is calculated based on the value of term life
insurance for the named individuals. The premium costs for
most of these policies have been or will be recovered by
Narragansett. Prior to 1997, this column also included
Narragansett contributions to the incentive thrift plan that
are not bonus contributions. These figures are now included
in the Other Annual Compensation column.
Directors' Compensation
Since all members of the NEP, Mass. Electric, and Narragansett
Boards are employees of NEES System companies, no fees are paid for
service on the Boards.
Other
The NEES Compensation Committee administers certain of the
incentive compensation plans, and the Management Committee
administers the others (including the incentive share plan).
Retirement Plans
The following table shows estimated annual benefits payable to
executive officers under the qualified pension plan and the
supplemental retirement plan, assuming retirement at age 65 in
1999.
PENSION TABLE
Five-Year
Average 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
Compensa- of of of of of of
tion Service Service Service Service Service Service
- --------- -------- -------- -------- -------- -------- --------
$100,000 18,926 29,276 39,626 49,976 60,326 70,676
$150,000 29,276 42,414 57,439 72,464 87,489 102,514
$200,000 39,626 57,439 75,251 94,951 114,651 134,351
$250,000 49,976 72,464 94,951 116,814 141,064 165,314
$300,000 60,326 87,489 114,651 141,064 167,477 184,123
$350,000 70,676 102,514 134,351 165,314 196,277 215,865
$400,000 81,026 117,539 154,051 189,564 225,077 241,590
$450,000 91,376 132,564 173,751 213,814 253,877 279,315
$500,000 101,726 147,589 193,451 238,064 282,677 311,040
For purposes of the retirement plans, Messrs. Bailey, Houston,
Flynn, and Malley and Ms. Rosenqvist currently have 30, 20, 17, 27,
and 17 credited years of service, respectively. Mr. Reilly, Mr.
McCabe, Ms. Sala, Ms. Pastuszek, and Mr. Nuey currently have 17,
30, 29, 18, and 8 credited years of service, respectively. Mr.
Reilly, Mr. McCabe, Mr. Frost, Mr. Ryan, and Mr. Nadeau currently
have 17, 30, 36, 4, and 43 credited years of service, respectively.
Benefits under the pension plans are computed using formulae
based on percentages of highest average compensation computed over
five consecutive years. The compensation covered by the pension
plan includes salary, bonus, and incentive share awards. Long-Term
Performance Share awards will not be included. The benefits listed
in the pension table are not subject to deduction for Social
Security and are shown without any joint and survivor benefits. If
the participant elected at age 65 a 100 percent joint and survivor
benefit with a spouse of the same age, the benefit shown would be
reduced by approximately 16 percent.
The Pension Plan Table above does not include annuity payments
to be received in lieu of life insurance for Mr. Houston. The
payments are described below under Plan Summaries.
In December 1997, the NEES companies announced a voluntary
early retirement program available to all nonunion employees over
age 55 with ten or more years of service. Messrs. Frost, McCabe,
and Nadeau were all eligible for, and accepted, the offer. The
program offered either an annuity or a lump sum equal to the
greater of either one week's base pay times the number of years of
service or an additional five years service and five years of age
toward their pension. The offer also included certain health care
and bridging of social security benefits. The program is
conditioned upon consummation of the divestiture of the nonnuclear
generating business to USGen. Mr. McCabe also has an employment
agreement which provides that if he remains in the employ of the
NEES companies until December 31, 1998, or the retirement effective
date under the offer, he will receive an annuity or a lump sum
equal to an additional five years of service and five years of age
toward his pension plus $225,000, subject to an offset for any
benefits under the general offer. The value of Messrs. Frost,
McCabe, and Nadeau's, benefits under the offer and the contract
cannot be determined until their retirement.
The System contributes the full cost of post-retirement health
benefits for senior executives.
NEP, MASS. ELECTRIC, AND NARRAGANSETT PAYMENTS UPON A CHANGE OF
CONTROL OR TERMINATION OF EMPLOYMENT
NEES is a party to agreements with each of Mr. Flynn, Mr.
Houston, Mr. McCabe, and Mr. Reilly (each, an Executive), which
agreements remain in effect for the three-year period following a
change in control (as defined below) or a major transaction (as
defined in the agreements). The term of the agreements are for
three years with automatic annual extensions, unless terminated by
NEES. If, following the described event, the Executive's
employment is terminated other than for cause (as defined in the
agreements) or if the Executive terminates employment for good
reason (as defined in the agreements), NEES will pay to the
Executive a lump sum cash payment equal to three times (two times
for some Executives) the sum of the Executive's most recent annual
base compensation and the average of his bonus amounts for the
prior three years. Payments and benefits to the Executive will be
reduced to the extent necessary to avoid imposition of any federal
excise tax due under Section 280G of the Internal Revenue Code;
however, such payments and benefits will be reduced only if such
reduction would yield a greater result to the Executive than actual
payment by the Executive of the excise tax. In addition, NEES will
provide disability and health benefits to the Executive for two to
three years, provide such post-retirement health and welfare
benefits as the Executive would have earned within such two to
three years, and grant two to three additional years of pension
credit.
Change in Control, including potential change of control,
occurs (1) when any person becomes the beneficial owner of 20
percent of the voting securities of NEES, (2) when the prior
members of the Board of NEES no longer constitute a 2/3 majority of
the Board, or (3) NEES enters into an agreement that could result
in a Change in Control.
Upon a change in control a participant in the deferred
compensation plan has the option of receiving a full distribution
of the participant's cash and share accounts and the actuarial
value of future benefits from the insurance related benefits under
a prior plan, all less 10 percent.
The System's bonus plans, including the incentive compensation
plans, the Incentive Thrift Plan, and the Goals Program, provide
for payments equal to the average of the bonuses for the three
prior years in the event of a Change of Control. These payments
would be made in lieu of the regular bonuses for the year in which
the Change in Control occurs. The Long-Term Performance Share
Award Plan provides for a cash payment equal to the value of the
performance shares in the participants' account times the average
target achievement percentage for the Incentive Thrift Plan for the
three prior years. The System's Retirees Health and Life Insurance
Plan has provisions preventing changes in benefits adverse to the
participants for three years following a Change in Control. The
Incentive Share Plan and the related Incentive Share Deferral
Agreements provide that, upon the occurrence of a change in control
(defined more narrowly than in other plans), any restrictions on
shares and account balances would cease.
Executive officers (including those listed in the summary
compensation table, but excluding Mr. Houston) would receive a
benefit equal to one and one-half times (one times in certain
cases) annual compensation, for a severance other than one for
cause or following a change in control.
NEP, MASS. ELECTRIC, AND NARRAGANSETT PLAN SUMMARIES
A brief description of the various plans through which
compensation and benefits are provided to the named executive
officers is presented below to better enable shareholders to
understand the information presented in the tables shown earlier.
The amounts of compensation and benefits provided to the named
executive officers under the plans described below (and charged to
NEP, Mass. Electric, or Narragansett) are presented in the Summary
Compensation Tables.
Goals Program
The Goals Program establishes goals annually. For 1998, these
goals related to core operating income, costs for customers for
electricity delivery, safety, absenteeism, demand-side management
results, transmission and distribution reliability, environmental
and OSHA compliance, and customer satisfaction. Some goals apply
to all employees, while others apply to particular functional
groups. Depending upon the number of goals met, and provided the
minimum earnings goal is met, employees may earn a cash bonus of 1
percent to 4-1/2 percent of their compensation.
Incentive Thrift Plan
The incentive thrift plan (a 401(k) program) provides for a
match of 40 percent of up to the first 5 percent of base
compensation contributed to the System's incentive thrift plan
(shown under Other Annual Compensation in the Summary Compensation
Tables) and, based on an incentive formula tied to core operating
income, may fully match the first 5 percent of base compensation
contributed (the additional amount, if any, is shown under Bonus in
the Summary Compensation Tables). Under Federal law, contributions
to these plans are limited. In 1998, the salary reduction amount
was limited to $10,000.
Deferred Compensation Plan
The Deferred Compensation Plan offers executives the
opportunity to defer base pay and bonuses. The plan offers the
option of investing at the prime rate or in NEES common shares;
however, share bonuses may only be deferred in a share account.
Under Federal law, the Incentive Thrift Plan, described above, is
required to limit participant base compensation to $160,000 in
calculating the NEES match. Under the Deferred Compensation Plan,
NEES will make a contribution to an executive's share account
equivalent to the resultant reduction in his or her match under the
Incentive Thrift Plan.
Life Insurance
NEES has established for certain senior executives life
insurance plans funded by individual policies. The combined death
benefit under these insurance plans is three times the
participant's annual salary. These plans are structured so that,
over time, NEES should recover the cost of the insurance premiums.
Messrs. McCabe, Reilly, and Sergel are participants in these plans.
After termination of employment, Mr. Houston may elect,
commencing at age 55 or later, to receive an annuity income equal
to 22.5 percent of 1998 annual salary plus 40 percent of final
annual salary. In that event, the life insurance is reduced over
15 years to an amount equal to his final annual salary.
Incentive Compensation Plan
Under the System bonus plan for certain senior employees,
bonuses are tied to achievement of core business operating income
and strategic objectives. Annual income targets and strategic
objectives are established for each year. For 1998, those
objectives were: achieving recovery of stranded investments;
maximizing the return on the sale of the generation business;
running the best wires business in the Northeast; increasing the
size of the energy delivery business; and profiting from growth in
unregulated ventures. Bonuses are also dependent upon the
achievement of individual goals. In order to provide a long-term
component to the incentive compensation plan, participants may also
be awarded NEES common shares. An individual's award of shares
under the incentive share plan is a fixed percentage of her or his
cash bonus for that year. If no cash award is made, no shares are
distributed.
Financial Counseling
NEP, Mass. Electric, and Narragansett pay for personal
financial counseling for certain executives. As required by the
IRS, a portion of the amount paid is reported as taxable income for
the executive. Financial counseling is also offered to other
employees through seminars conducted at various locations each
year.
Other
The NEES companies do not have any share option plans.
LONG-TERM INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR
-----------------------------------------------------
The Long-Term Performance Share Award Plan provides awards
based on various measures of NEES performance over a three-year
period. Each award factor functions independently. The
performance targets for each cycle are set by the Compensation
Committee of the NEES Board. Performance is rated on rolling
three-year periods, with a new cycle beginning each year. An
individual's potential award under the plan is a fixed percentage
(ranging from 15 percent to 50 percent) of base pay. At the end of
the three-year cycle, the participant receives NEES shares based
upon the performance against the various factors.
The measures of performance for the cycle commencing January
1, 1998 are as follows: total shareholder return; maintenance or
improvement of bond ratings; redeployment of the generation sale
proceeds; and System service levels, including customer
satisfaction, reliability, safety, and compliance.
The following tables show the potential awards, for those
executive officers named in the Summary Compensation Tables, under
the Long-Term Performance Share Award Plan for the performance
cycle commencing January 1, 1998. The NEES System's performance
will be measured over the three-year period ending December 31,
2000. However, upon the completion of the merger with National
Grid, the executives will receive awards based upon an average of
incentive compensation target achievement for the prior three years
and not upon the measures specified below.
NEP
---
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS
------------------------------------------------
Number of
Common Share Performance
Name Equivalents(a) Period Threshold(b) Target(c)
---- -------------- ----------- ------------ ---------
Lawrence E. Bailey 977 3 years 8 977
Alfred D. Houston 4,310 3 years 34 4,310
Peter G. Flynn 853 3 years 7 853
John F. Malley 859 3 years 7 859
Masheed H. Rosenqvist (d) - - - -
Mass. Electric
--------------
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS
------------------------------------------------
Number of
Common Share Performance
Name Equivalents(a) Period Threshold(b) Target(c)
---- -------------- ----------- ------------ ---------
Lawrence J. Reilly 1,036 3 years 9 1,036
Robert L. McCabe 1,119 3 years 9 1,119
Nancy H. Sala 464 3 years 4 464
Lydia M. Pastuszek 866 3 years 7 866
Kwong O. Nuey 461 3 years 4 461
Narragansett
------------
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS
------------------------------------------------
Number of
Common Share Performance
Name Equivalents(a) Period Threshold(b) Target(c)
---- -------------- ----------- ------------ ---------
Lawrence J. Reilly 1,036 3 years 9 1,036
Robert L. McCabe 1,119 3 years 9 1,119
Richard W. Frost 427 3 years 4 427
Michael F. Ryan 401 3 years 4 401
Richard Nadeau (d) - - - -
(a) Amounts are denominated in common share units. No dividends
are attributable to share units. At the end of the cycle,
awards are paid either in shares or in cash (valued at the
five-day average price prior to the January 15 following the
close of the performance cycle).
(b) The awards in this column represent the threshold number of
shares that could be earned if the minimum attainment level is
reached for one factor. The minimum payout upon failure to
achieve any of the goals would be zero.
(c) The awards in this column represent the target (and maximum)
number of shares that could be earned if the maximum
performance is achieved for all factors.
(d) Did not participate in this plan for 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
NEES
----
The information required by this item is incorporated herein
by reference to the material under the caption SHARE OWNERSHIP in
the definitive proxy statement of NEES, dated March 26, 1999, for
the 1999 Annual Meeting of Shareholders, provided that the
information under the headings "Report of the Compensation
Committee on Executive Compensation" and "Corporate Performance"
are not so incorporated.
NEP, Mass. Electric, and Narragansett
-------------------------------------
NEES owns 100 percent of the voting securities of Mass.
Electric and Narragansett. NEES owns 99.97 percent of the voting
securities of NEP.
SECURITY OWNERSHIP
The following tables list the holdings of NEES common shares
as of March 10, 1999 by NEP, Mass. Electric, and Narragansett
directors, the executive officers named in the Summary Compensation
Tables, and all directors and executive officers, as a group.
NEP
---
Shares Deferred
Beneficially Share
Name Owned (a) Equivalents (b) Total (c)
---- ------------ --------------- ---------
Lawrence E. Bailey 5,490 4,973 10,463
Peter G. Flynn 6,671 3,564 10,235
Alfred D. Houston 14,359 15,489 29,848
Cheryl A. LaFleur 3,595 7,147 10,742
John F. Malley 3,952 3,549 7,501
Masheed H. Rosenqvist 1,802 364 2,166
Richard P. Sergel 8,574 12,069 20,643
All directors and
executive officers,
as a group (11 persons) 62,372 (d) 58,664 121,036
Mass. Electric
--------------
Shares Deferred
Beneficially Share
Name Owned (a) Equivalents (b) Total (c)
---- ------------ --------------- ---------
Cheryl A. LaFleur 3,595 7,147 10,742
Robert L. McCabe 10,691 7,944 18,635
Kwong O. Nuey 1,667 1,874 3,541
Lydia M. Pastuszek 8,242 2,712 10,954
Lawrence J. Reilly 4,010 7,161 11,171
Christopher E. Root 2,256 3,519 5,775
Nancy H. Sala 6,348 (e) 2,541 8,889
Richard P. Sergel 8,574 12,069 20,643
All directors and
executive officers,
as a group (18 persons) 75,786 (d) 50,973 126,759
Narragansett
------------
Shares Deferred
Beneficially Share
Name Owned (a) Equivalents (b) Total (c)
---- ------------ --------------- ---------
Richard W. Frost 7,035 530 7,565
Cheryl A. LaFleur 3,595 7,147 10,742
Robert L. McCabe 10,691 7,944 18,635
Richard Nadeau 5,029 0 5,029
Lawrence J. Reilly 4,010 7,161 11,171
Michael F. Ryan 1,316 11 1,327
Richard P. Sergel 8,574 12,069 20,643
Ronald L. Thomas 1,614 0 1,614
All directors and
executive officers,
as a group (14 persons) 68,891 (d) 53,000 121,891
(a) Number of shares beneficially owned includes: (i) shares
directly owned by certain relatives with whom directors or
officers share voting or investment power; (ii) shares held of
record individually by a director or officer or jointly with
others or held in the name of a bank, broker, or nominee for
such individual's account; (iii) shares in which certain
directors or officers maintain exclusive or shared investment
or voting power whether or not the securities are held for
their benefit; and (iv) with respect to the executive officers,
allocated shares in the Incentive Thrift Plan described above.
(b) Deferred share equivalents are held under the Deferred
Compensation Plan or pursuant to individual deferral
agreements. Under the Plan or deferral agreements, executives
may elect to defer cash compensation and share awards. There
are various deferral periods available under the plans. At the
end of the deferral period, the compensation is paid out in the
same form, cash or NEES shares, as was deferred. The rights
of the executives to payment are those of general, unsecured
creditors. While deferred, the shares do not have voting
rights or other rights associated with ownership. As cash
dividends are declared, the number of deferred share
equivalents will be increased as if the dividends were
reinvested in NEES common shares.
(c) Potential share awards under the Long-Term Performance Share
Award Plan are not included in this table.
(d) Amount is less than 1 percent of the total number of shares of
NEES outstanding.
(e) Ms. Sala disclaims a beneficial ownership interest in 283
shares held in a custodial account.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT and ITEM 11. EXECUTIVE COMPENSATION.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
List of Exhibits
Unless otherwise indicated, the exhibits listed below are
incorporated by reference to the appropriate exhibit numbers and
the Commission file numbers indicated in parentheses.
NEES
----
(3) Agreement and Declaration of Trust dated January 2, 1926,
as amended through April 28, 1992 (Exhibit 3 to 1994 NEES
Form 10-K, File No. 1-3446).
(4) Instruments Defining the Rights of Security Holders
(a) Massachusetts Electric Company First Mortgage
Indenture and Deed of Trust, dated as of July 1,
1949, and twenty-one supplements thereto (Exhibit
7-A, File No. 1-8019; Exhibit 7-B, File No. 2-8836;
Exhibit 4-C, File No. 2-9593; Exhibit 4 to 1980
Form 10-K, File No. 2-8019; Exhibit 4 to 1982 Form
10-K, File No. 0-5464; Exhibit 4 to 1986 Form 10-K,
File No. 0-5464; Exhibit 4(a) to 1988 Form 10-K,
File No. 1-3446; Exhibit 4(a) to 1989 Form 10-K,
File No. 1-3446; Exhibit 4(a) to 1992 Form 10-K,
File No. 1-3446; Exhibit 4(a) to 1993 Form 10-K,
File No. 1-3446; Exhibit 4(a) to 1995 Form 10-K,
File No. 1-3446).
(b) The Narragansett Electric Company First Mortgage
Indenture and Deed of Trust, dated as of September
1, 1944, and twenty-three supplements thereto
(Exhibit 7-1, File No. 2-7042; Exhibit 7-B, File
No. 2-7490; Exhibit 4-C, File No. 2-9423; Exhibit
4-D, File No. 2-10056; Exhibit 4 to 1980 Form 10-K,
File No. 0-898; Exhibit 4 to 1982 Form 10-K, File
No. 0-898; Exhibit 4 to 1983 Form 10-K, File No.
0-898; Exhibit 4 to 1985 Form 10-K, File No. 0-898;
Exhibit 4 to 1986 Form 10-K, File No. 0-898;
Exhibit 4 to 1987 Form 10-K, File No. 0-898;
Exhibit 4 to 1991 Form 10-K, File No. 0-898;
Exhibit 4(b) to 1992 Form 10-K, File No. 1-3446;
Exhibit 4(b) to 1993 Form 10-K, File No. 1-3446;
Exhibit 4(b) to 1995 Form 10-K, File No. 1-3446);
Twenty-third Supplemental Indenture (filed
herewith).
(c) The Narragansett Electric Company Preference
Provisions, as amended, dated December 15, 1997
(Exhibit 4(c) to 1997 NEES Form 10-K, File No. 1-
3446).
(10) Material Contracts
(a) Boston Edison Company et al. and New England Power
Company: Amended REMVEC Agreement dated August 12,
1977 (Exhibit 5-4(d), File No. 2-61881).
(i) Boston Edison Company et al. and New England
Power Company: REMVEC II Agreement dated on
or about July 1, 1994 (Exhibit 10(a)(i) to
1997 Form 10-K, File No. 1-3446).
(ii) Boston Edison Company et al. and New England
Power Company: Security Analysis Service
Agreement dated on or about July 1, 1994
(Exhibit 10(a)(ii) to 1997 Form 10-K, File No.
1-3446).
(b) The Connecticut Light and Power Company et al. and
New England Power Company: Sharing Agreement for
Joint Ownership, Construction and Operation of
Millstone Unit No. 3 dated as of September 1, 1973,
and Amendment dated as of August 1, 1974 (Exhibit
10-5, File No. 2-52820); Amendments dated as of
December 15, 1975 and April 1, 1986; (Exhibit
10(b), to 1990 Form 10-K, File No. 1-3446).
Transmission Support Agreement dated August 9,
1974; Instrument of Transfer to NEP with respect to
the 1979 Connecticut Nuclear Unit, and Assumption
of Obligations, dated December 17, 1975 (Exhibit
10-6(b), File No. 2-57831).
(c) Connecticut Yankee Atomic Power Company et al. and
New England Power Company: Stockholders Agreement
dated July 1, 1964 (Exhibit 13-9-A, File No.
2-23006); Power Purchase Contract dated July 1,
1964 (Exhibit 13-9-B, File No. 2-23006); Additional
Power Contract dated as of April 30, 1984 and 1996
Amendatory Agreement dated as of December 4, 1996
(Exhibit 10(c) to 1996 Form 10-K, File No. 1-3446);
Supplementary Power Contract dated as of April 1,
1987 (Exhibit 10(c) to 1987 Form 10-K, File No.
1-3446); Capital Funds Agreement dated September 1,
1964 (Exhibit 13-9-C, File No. 2-23006);
Transmission Agreement dated October 1, 1964
(Exhibit 13-9-D, File No. 2-23006); Agreement
revising Transmission Agreement dated July 1, 1979
(Exhibit to 1979 Form 10-K, File No. 1-3446);
Amendment revising Transmission Agreement dated as
of January 19, 1994 (Exhibit 10(c) to 1995 Form 10-
K, File No. 1-3446); Five Year Capital Contribution
Agreement dated November 1, 1980, (Exhibit to 10(e)
to 1980 Form 10-K, File No. 1-3446).
(d) Maine Yankee Atomic Power Company et al. and New
England Power Company: Capital Funds Agreement
dated May 20, 1968 and Power Purchase Contract
dated May 20, 1968 (Exhibit 4-5, File No. 2-29145);
Amendments dated as of January 1, 1984, March 1,
1984 (Exhibit 10(d) to 1983 Form 10-K, File No.
1-3446), October 1, 1984, and August 1, 1985
(Exhibit 10(d) to 1985 Form 10-K, File No. 1-3446);
Stockholders Agreement dated May 20, 1968 (Exhibit
10-20, File No. 2-34267); Additional Power Contract
dated as of February 1, 1984 (Exhibit 10(d) to 1985
Form 10-K, File No. 1-3446); 1997 Amendatory
Agreement dated as of August 6, 1997 (Exhibit 10(d)
to 1997 Form 10-K, File No. 1-3446).
(e) New England Power Company and New England Electric
Transmission Corporation et al.: Phase I Terminal
Facility Support Agreement dated as of December 1,
1981 (Exhibit 10(g) to 1981 Form 10-K, File No.
1-3446); Amendments dated as of June 1, 1982, and
November 1, 1982 (Exhibit 10(f) to 1982 Form 10-K,
File No. 1-3446); Agreement with respect to Use of
the Quebec Interconnection dated as of December 1,
1981 (Exhibit 10(g) to 1981 Form 10-K, File No.
1-3446); Amendments dated as of May 1, 1982, and
November 1, 1982 (Exhibit 10(f) to 1982 Form 10-K,
File No. 1-3446); Amendment dated as of January 1,
1986 (Exhibit (10)(f) 1986 Form 10-K, File No.
1-3446); Agreement for Reinforcement and
Improvement of New England Power Company's
Transmission System dated as of April 1, 1983
(Exhibit 10(f) to 1983 Form 10-K, File No. 1-3446);
Lease dated as of May 16, 1983 (Exhibit 10(f) to
1983 Form 10-K, File No. 1-3446); Upper Development
- Lower Development Transmission Line Support
Agreement dated as of May 16, 1983 (Exhibit 10(f)
to 1983 Form 10-K, File No. 1-3446).
(f) New England Electric Transmission Corporation and
PruCapital Management, Inc. et al: Note Agreement
dated as of September 1, 1986 (Exhibit 10(g) to
1986 Form 10-K, File No. 1-3446); Mortgage, Deed of
Trust and Security Agreement dated as of September
1, 1986 (Exhibit 10(g) to 1986 Form 10-K, File No.
1-3446); Equity Funding Agreement with New England
Electric System dated as of December 1, 1985
(Exhibit 10(g) to 1991 Form 10-K, File No. 1-3446).
(g) Vermont Electric Transmission Company, Inc. et al.
and New England Power Company: Phase I Vermont
Transmission Line Support Agreement dated as of
December 1, 1981; Amendments dated as of June 1,
1982, and November 1, 1982 (Exhibit 10(g) to 1982
Form 10-K, File No. 1-3446); Amendment dated as of
January 1, 1986 (Exhibit 10(h) to 1986 Form 10-K,
File No. 1-3446).
(h) New England Power Pool Agreement: (Exhibit 4(e),
File No. 2-43025); Amendments dated July 1, 1972,
and March 1, 1973 (Exhibit 10-15, File No.
2-48543); Amendment dated March 15, 1974 (Exhibit
10-5, File No. 2-52775); Amendment dated June 1,
1975 (Exhibit 10-14, File No. 2-57831); Amendment
dated September 1, 1975 (Exhibit 10-13, File No.
2-59182); Amendments dated December 31, 1976,
January 31, 1977, July 1, 1977, and August 1, 1977
(Exhibit 10-16, File No. 2-61881); Amendments dated
August 15, 1978, January 3, 1980, and February 1980
(Exhibit 10-3, File No. 2-68283); Amendment dated
September 1, 1981 (Exhibit 10(h) to 1981 Form 10-K,
File No. 1-3446); Amendment dated as of December 1,
1981 (Exhibit 10(h) to 1982 Form 10-K, File No.
1-3446); Amendments dated June 1, 1982, June 15,
1983, and October 1, 1983 (Exhibit 10(i) to 1983
Form 10-K, File No. 1-3446); Amendments dated
August 1, 1985, August 15, 1985, September 1, 1985,
and January 1, 1986 (Exhibit 10(i) to 1985 Form
10-K, File No. 1-3446); Amendment dated
September 1, 1986 (Exhibit 10(i) to 1986 Form 10-K,
File No. 1-3446); Amendment dated April 30, 1987
(Exhibit 10(i) to 1987 Form 10-K, File No. 1-3446);
Amendments dated March 1, 1988 and May 1, 1988
(Exhibit 10(i) to 1988 Form 10-K, File No. 1-3446);
Amendment dated March 15, 1989 (Exhibit 10(i) to
1989 Form 10-K, File No. 1-3446); Amendment dated
October 1, 1990 (Exhibit 10(i) to 1990 Form 10-K,
File No. 1-3446); Amendment dated as of September
15, 1992 (Exhibit 10(i) to 1992 Form 10-K, File No.
1-3446); Amendments dated as of June 1, 1993, July
1, 1995, and September 1, 1995 (Exhibit 10(i) to
1995 Form 10-K, File No. 1-3446); Amendment dated
as of December 1, 1996 (Exhibit 10(i) to 1996 Form
10-K, File No. 1-3446); Amendment dated as of
September 1, 1997 and; Amendment dated as of
November 15, 1997 (Exhibits 10(i) to 1997 Form 10-
K, File No. 1-3446).
(i) Public Service Company of New Hampshire et al. and
New England Power Company: Agreement for Joint
Ownership, Construction and Operation of New
Hampshire Nuclear Units dated as of May 1, 1973;
Amendments dated May 24, 1974, June 21, 1974,
September 25, 1974 and October 25, 1974 (Exhibit
10-18(b), File No. 2-52820); Amendment dated
January 31, 1975 (Exhibit 10-16(b), File No.
2-57831); Amendments dated April 18, 1979,
April 25, 1979, June 8, 1979, October 11, 1979,
December 15, 1979, June 16, 1980, December 31, 1980
(Exhibit 10(i) to 1980 Form 10-K, File No. 1-3446);
Amendments dated June 1, 1982, April 27, 1984,
June 15, 1984 (Exhibit 10(j) to 1984 Form 10-K,
File No. 1-3446); Amendments dated March 8, 1985,
March 14, 1986, May 1, 1986 and September 19, 1986
(Exhibit 10(j) to 1986 Form 10-K, File No. 1-3446);
Amendment dated November 12, 1987 (Exhibit 10(j) to
1987 Form 10-K, File No. 1-3446); Amendment dated
January 13, 1989 (Exhibit 10(j) to 1989 Form 10-K,
File No. 1-3446); Amendment dated as of November 1,
1990 (Exhibit 10(j) to 1991 Form 10-K, File No. 1-
3446). Transmission Support Agreement dated as of
May 1, 1973 (Exhibit 10-23, File No. 2-49184);
Instrument of Transfer to NEP with respect to the
New Hampshire Nuclear Units and Assumptions of
Obligations dated December 17, 1975 and Agreement
Among Participants in New Hampshire Nuclear Units,
certain Massachusetts Municipal Systems and
Massachusetts Municipal Wholesale Electric Company
dated May 28, 1976 (Exhibit 10-16(c), File No.
2-57831); Seventh Amendment To and Restated
Agreement for Seabrook Project Disbursing Agent
(Exhibit 10(j) to 1991 Form 10-K, File No. 1-
3446); Amendments dated as of June 29, 1992
(Exhibit 10(j) to 1992 Form 10-K, File No. 1-
3446); Seabrook Project Managing Agent Operating
Agreement dated as of June 29, 1992, and amendment
to Seabrook Project Managing Agent Agreement dated
as of June 29, 1992 (Exhibit 10(j) to 1992 Form 10-
K, File No. 1-3446).
(j) Vermont Yankee Nuclear Power Corporation et al. and
New England Power Company: Capital Funds Agreement
dated February 1, 1968, Amendment dated March 12,
1968, and Power Purchase Contract dated February 1,
1968 (Exhibit 4-6, File No. 2-29145); Amendments
dated as of June 1, 1972 and April 15, 1983
(Exhibit 10(k) to 1983 Form 10-K, File No. 1-3446)
and April 24, 1985 (Exhibit 10(k) to 1985 Form
10-K, File No. 1-3446); Amendment dated as of June
1, 1985 (Exhibit 10(k) to 1987 Form 10-K, File No.
1-3446); Amendments dated as of May 6, 1988
(Exhibit 10(k) to 1988 Form 10-K, File No. 1-3446);
Amendment dated as of June 15, 1989 (Exhibit 10(k)
to 1989 Form 10-K, File No. 1-3446); Additional
Power Contract dated as of February 1, 1984
(Exhibit 10(k) to 1983 Form 10-K, File No. 1-3446);
Guarantee Agreement dated as of November 5, 1981
(Exhibit 10(j) to 1981 Form 10-K, File No. 1-3446).
(k) Yankee Atomic Electric Company et al. and New
England Power Company: Amended and Restated Power
Contract dated April 1, 1985 (Exhibit 10(l) to 1985
Form 10-K, File No. 1-3446); Amendment dated May 6,
1988 (Exhibit 10(l) to 1988 Form 10-K, File No.
1-3446); Amendments dated as of June 26, 1989 and
July 1, 1989 (Exhibit 10(l) to 1989 Form 10-K, File
No. 1-3446); Amendment dated as of February 1, 1992
(Exhibit 10(l) to 1992 Form 10-K, File No. 1-3446).
*(l) New England Electric Companies' Deferred
Compensation Plan as amended through February 28,
1998 (filed herewith).
*(m) New England Electric System Companies Retirement
Supplement Plan as amended through June 1, 1996
(Exhibit 10(n) to 1996 Form 10-K, File No. 1-3446).
*(n) New England Electric Companies' Executive
Supplemental Retirement Plan as amended through
December 11, 1998 (filed herewith).
*(o) New England Electric Companies' Executive Retirees
Health and Life Insurance Plan as Amended and
Restated January 1, 1996 (filed herewith).
*(p) New England Electric Companies' Incentive
Compensation Plan I as amended through January 1,
1998 (filed herewith).
*(q) New England Electric Companies' Incentive
Compensation Plan II as amended through January 1,
1998 (filed herewith).
*(r) New England Electric Companies' Incentive
Compensation Plan III as amended through January
1, 1998 (filed herewith).
*(s) New England Electric Companies' Senior Incentive
Compensation Plan as amended through January 1,
1998 (filed herewith).
*(t) New England Electric System Directors Deferred
Compensation Plan as amended through February 28,
1998 (filed herewith).
*(u) Forms of Life Insurance Program (Exhibit 10(s) to
1986 Form 10-K, File No. 1-3446); and Form of Life
Insurance (Collateral Assignment) (Exhibit 10(t) to
1991 Form 10-K, File No. 1-3446).
*(v) New England Electric Companies' Incentive Share
Plan as amended through February 24, 1997 (Exhibit
10(w) to 1996 Form 10-K, File No. 1-3446).
*(w) New England Electric Companies' Long-Term
Performance Share Award Plan amended through August
25, 1998 (filed herewith).
*(x) New England Electric System Directors' Retirement
Plan amended through December 11, 1998 (filed
herewith).
*(y) Forms of Severance Protection Agreement (Exhibit
10(z) to 1996 Form 10-K, File No. 1-3446). Forms
of Severance Protection Agreements (filed
herewith).
*(z) New England Power Service Company and Joan T. Bok:
Service Credit Letter dated October 21, 1982
(Exhibit 10(cc) to 1992 Form 10-K, File No.
1-3446).
*(aa) New England Power Service Company and Robert L.
McCabe: Employment Agreement entered into as of
March 11, 1998 (Exhibit 10(ll) to NEES' 1997 Form
10-K, File No. 1-3446).
*(bb) New England Electric System and Richard P. Sergel
Agreement dated March 1, 1998 (filed herewith).
*(cc) New England Power Service Company and the Company:
Form of Supplemental Pension Service Credit
Agreement (Exhibit 10(ee) to 1992 Form 10-K, File
No. 1-3446).
(dd) New England Power Company and New England
Hydro-Transmission Electric Company, Inc. et al:
Phase II Massachusetts Transmission Facilities
Support Agreement dated as of June 1, 1985 (Exhibit
10(t) to 1986 Form 10-K, File No. 1-3446);
Amendment dated as of May 1, 1986 (Exhibit 10(t) to
1986 Form 10-K, File No. 1-3446); Amendments dated
as of February 1, 1987, June 1, 1987, September 1,
1987, and October 1, 1987 (Exhibit 10(u) to 1987
Form 10-K, File No. 1-3446); Amendment dated as of
August 1, 1988 (Exhibit 10(u) to 1988 Form 10-K,
File No. 1-3446); Amendment dated January 1, 1989
(Exhibit 10(u) to 1990 Form 10-K, File No. 1-3446).
(ee) New England Power Company and New England
Hydro-Transmission Corporation et al: Phase II New
Hampshire Transmission Facilities Support Agreement
dated as of June 1, 1985 (Exhibit 10(u) to 1986
Form 10-K, File No. 1-3446); Amendment dated as of
May 1, 1986 (Exhibit 10(u) to 1986 Form 10-K, File
No. 1-3446); Amendments dated as of February 1,
1987, June 1, 1987, September 1, 1987, and
October 1, 1987 (Exhibit 10(v) to 1987 Form 10-K,
File No. 1-3446); Amendment dated as of August
1,1988 (Exhibit 10(v) to 1988 Form 10-K, File No.
1-3446); Amendments dated January 1, 1989 and
January 1, 1990 (Exhibit 10(v) to 1990 Form 10-K,
File No. 1-3446).
(ff) New England Power Company et al: Phase II New
England Power AC Facilities Support Agreement dated
as of June 1, 1985 (Exhibit 10(v) to 1986 Form
10-K, File No. 1-3446); Amendment dated as of May
1, 1986 (Exhibit 10(v) to 1986 Form 10-K, File No.
1-3446); Amendments dated as of February 1, 1987,
June 1, 1987, and September 1, 1987 (Exhibit 10(w)
to 1987 Form 10-K, File No. 1-3446); Amendment
dated as of August 1, 1988 (Exhibit 10(w) to 1988
Form 10-K, File No. 1-3446).
(gg) New England Hydro-Transmission Electric Company,
Inc. and New England Electric System et al: Equity
Funding Agreement dated as of June 1, 1985 (Exhibit
10(w) to 1986 Form 10-K, File No. 1-3446);
Amendment dated as of May 1, 1986 (Exhibit 10(w) to
1986 Form 10-K, File No. 1-3446); Amendment dated
as of September 1, 1987 (Exhibit 10(x) to 1987
Form 10-K, File No. 1-3446); Amendment dated as of
August 1, 1988 (Exhibit 10(x) to 1988 Form 10-K,
File No. 1-3446).
(hh) New England Hydro-Transmission Corporation and New
England Electric System et al: Equity Funding
Agreement dated as of June 1, 1985 (Exhibit 10(x)
to 1986 Form 10-K, File No. 1-3446); Amendment
dated as of May 1, 1986 (Exhibit 10(x) to 1986 Form
10-K, File No. 1-3446); Amendment dated as of
September 1, 1987 (Exhibit 10(y) to 1987 Form 10-K,
File No. 1-3446); Amendment dated as of August 1,
1988 (Exhibit 10(y) to 1988 Form 10-K, File No.
1-3446).
(ii) NEES Energy, Inc./AllEnergy Marketing Company,
L.L.C.: Agreement and Plan of Merger dated
December 31, 1998 (filed herewith).
(jj) USGen, New England, Inc. and New England Power
Company and The Narragansett Electric Company:
Asset Purchase Agreement dated as of August 5, 1997
(Exhibit 2 to Form 10-Q for period ended September
30, 1997, File No. 1-3446).
(kk) The National Grid Group plc, Iosta LLC: Agreement
and Plan of Merger, dated as of December 11, 1998
(Exhibit 10(mm) to Form 8-K dated December 11,
1998, File No. 1-3446).
* Compensation related plan, contract, or arrangement.
(13) 1998 Annual Report to Shareholders (Exhibit 13 to Form
8-K dated March 25, 1999, File No. 1-3446).
(21) Subsidiary list appears in Part I of this document.
(24) Power of Attorney (filed herewith).
(27) Financial Data Schedule (filed herewith).
NEP
---
(3) (a) Articles of Organization as amended through June
25, 1987 (Exhibit 3(a) to 1988 Form 10-K, File No.
0-1229).
(b) By-laws of the Company as amended December 12, 1997
(Exhibit 3(b) to 1997 Form 10-K, File No. 0-1229).
(10) Material Contracts
(a) Boston Edison Company et al. and the Company:
Amended REMVEC Agreement dated August 12, 1977
(Exhibit 5-4(d), File No. 2-61881).
(i) Boston Edison Company et al. and the Company:
REMVEC II Agreement dated on or about July 1,
1997 (Exhibit 10(a)(i) to NEES' 1997 Form 10-
K, File No. 1-3446).
(ii) Boston Edison Company et al. and the Company:
Security Analysis Services Agreement dated on
or about July 1, 1997 (Exhibit 10(a)(ii) to
NEES' 1997 Form 10-K, File No. 1-3446).
(b) The Connecticut Light and Power Company et al. and
the Company: Sharing Agreement for Joint
Ownership, Construction and Operation of Millstone
Unit No. 3 dated as of September 1, 1973, and
Amendment dated as of August 1, 1974 (Exhibit 10-5,
File No. 2-52820); Amendments dated as of December
15, 1975 and April 1, 1986 (Exhibit 10(b) to NEES'
1990 Form 10-K File No. 1-3446). Transmission
Support Agreement dated August 9, 1974; Instrument
of Transfer to the Company with respect to the 1979
Connecticut Nuclear Unit, and Assumption of
Obligations, dated December 17, 1975 (Exhibit
10-6(b), File No. 2-57831).
(c) Connecticut Yankee Atomic Power Company et al. and
the Company: Stockholders Agreement dated July 1,
1964 (Exhibit 13-9-A, File No. 2-2006); Power
Purchase Contract dated July 1, 1964 (Exhibit
13-9-B, File No. 2-23006); Additional Power
Contract dated as of April 30, 1984 and 1996;
Amendatory Agreement dated as of December 4, 1996
(Exhibit 10(c) to 1996 Form 10-K, File No. 1-3446);
Supplementary Power Contract dated as of April 1,
1987 (Exhibit 10(c) to 1987 Form 10-K, File No.
0-1229); Capital Funds Agreement dated September 1,
1964 (Exhibit 13-9-C, File No. 2-23006);
Transmission Agreement dated October 1, 1964
(Exhibit 13-9-D, File No. 2-23006); Agreement
revising Transmission Agreement dated July 1, 1979
(Exhibit to NEES' 1979 Form 10-K, File No. 1-3446);
Amendment revising Transmission Agreement dated as
of January 19, 1994 (Exhibit 10(c) to NEES' 1995
Form 10-K, File No. 1-3446); Five Year Capital
Contribution Agreement dated November 1, 1980
(Exhibit 10(e) to NEES' 1980 Form 10-K, File No.
1-3446).
(d) Maine Yankee Atomic Power Company et al. and the
Company: Capital Funds Agreement dated May 20,
1968 and Power Purchase Contract dated May 20, 1968
(Exhibit 4-5, File No. 2-29145); Amendments dated
as of January 1, 1984, March 1, 1984 (Exhibit 10(d)
to NEES' 1983 Form 10-K, File No. 1-3446); October
1, 1984, and August 1, 1985 (Exhibit 10(d) to NEES'
1985 Form 10-K, File No. 1-3446); Stockholders
Agreement dated May 20, 1968 (Exhibit 10-20; File
No. 2-34267); Additional Power Contract dated as of
February 1, 1984 (Exhibit 10(d) to NEES' 1985 Form
10-K, File No. 1-3446); 1997 Amendatory Agreement
dated as of August 6, 1997 (Exhibit 10(d) to NEES'
1997 Form 10-K, File No. 1-3446).
(e) Mass. Electric and the Company: Primary Service
for Resale dated February 15, 1974 (Exhibit
5-17(a), File No. 2-52969); Amendment of Service
Agreement dated June 22, 1983 (Exhibit 10(b) to
Mass. Electric's 1986 Form 10-K, File No. 0-5464);
Amendment of Service Agreement effective
November 1, 1993 (Exhibit 10(e) to 1993 Form 10-K,
File No. 0-1229); Memorandum of Understanding
effective May 22, 1994 (Exhibit 10(e) to 1994 Form
10-K, File No. 0-1229); Amendment of Service
Agreement effective July 1, 1996 and, Amendment to
Service Agreement dated as of February 1, 1997
(Exhibit 10(e) to 1997 Form 10-K, File No. 1-3446);
Supplement to Amendment to Service Agreement dated
as of March 1, 1998 (filed herewith).
(f) The Narragansett Electric Company and the Company:
Primary Service for Resale dated February 15, 1974
(Exhibit 4-1(b), File No. 2-51292); Amendment of
Service Agreement dated July 26, 1990 (Exhibit 4(f)
to New England Power Company's 1990 Form 10-K, File
No. 0-1229). Amendment of Service Agreement dated
July 24, 1991 (Exhibit 10(f) to 1991 Form 10-K,
File No. 0-1229); Amendment of Service Agreement
effective November 1, 1993 (Exhibit 10(f) to 1993
Form 10-K, File No. 0- 1229); Memorandum of
Understanding effective May 22, 1994 (Exhibit 10(e)
to 1994 Form 10-K, File No. 0-1229); Amendment of
Service Agreement effective January 1, 1995
(Exhibit 10(f) to 1995 Form 10-K, File No. 0-1229);
Amendment of Service Agreement effective October
30, 1995 and, Amendment to Service Agreement dated
as of February 1, 1997 (Exhibit 10(f) to 1997 Form
10-K, File No. 1-3446); Supplement to Amendment to
Service Agreement dated as of December 31, 1998
(filed herewith).
(g) New England Electric Transmission Corporation et
al. and the Company: Phase I Terminal Facility
Support Agreement dated as of December 1, 1981
(Exhibit 10(g) to NEES' 1981 Form 10-K, File No.
1-3446); Amendments dated as of June 1, 1982 and
November 1, 1982 (Exhibit 10(f) to NEES' 1982 Form
10-K, File No. 1-3446); Agreement with respect to
Use of the Quebec Interconnection dated as of
December 1, 1981 (Exhibit 10(g) to NEES' 1981 Form
10-K, File No. 1-3446); Amendments dated as of May
1, 1982 and November 1, 1982 (Exhibit 10(f) to
NEES' 1982 Form 10-K, File No. 1-3446); Amendment
dated as of January 1, 1986 (Exhibit 10(f) to NEES'
1986 Form 10-K, File No. 1-3446); Agreement for
Reinforcement and Improvement of the Company's
Transmission System dated as of April 1, 1983
(Exhibit 10(f) to NEES' 1983 Form 10-K, File No.
1-3446); Lease dated as of May 16, 1983 (Exhibit
10(f) to NEES' 1983 Form 10-K, File No. 1-3446);
Upper Development-Lower Development Transmission
Line Support Agreement dated as of May 16, 1983
(Exhibit 10(f) to NEES' 1983 Form 10-K, File No.
1-3446).
(h) Vermont Electric Transmission Company, Inc. et al.
and the Company: Phase I Vermont Transmission Line
Support Agreement dated as of December 1, 1981;
Amendments dated as of June 1, 1982 and November 1,
1982 (Exhibit 10(g) to NEES' 1982 Form 10-K, File
No. 1-3446); Amendment dated as of January 1, 1986
(Exhibit 10(h) to NEES' 1986 Form 10-K, File No.
1-3446).
(i) New England Power Pool Agreement: (Exhibit 4(e),
File No. 2-43025); Amendments dated July 1, 1972,
March 1, 1973 (Exhibit 10-15, File No. 2-48543);
Amendment dated March 15, 1974 (Exhibit 10-5, File
No. 2-52775); Amendment dated June 1, 1975 (Exhibit
10-14, File No. 2-57831); Amendment dated September
1, 1975 (Exhibit 10-13, File No. 2-59182);
Amendments dated December 31, 1976, January 31,
1977, July 1, 1977, and August 1, 1977 (Exhibit
10-16, File No. 2-61881); Amendments dated
August 15, 1978, January 3, 1980, and February 1980
(Exhibit 10-3, File No. 2-68283); Amendment dated
September 1, 1981 (Exhibit 10(h) to NEES' 1981 Form
10-K, File No. 1-3446); Amendment dated December 1,
1981 (Exhibit 10(h) to NEES' 1982 Form 10-K, File
No. 1-3446); Amendments dated June 1, 1982,
June 15, 1983, and October 1, 1983 (Exhibit 10(i)
to NEES' 1983 Form 10-K, File 1-3446); Amendments
dated August 1, 1985, August 15, 1985, September 1,
1985, and January 1, 1986 (Exhibit 10(i) to NEES'
1985 Form 10-K, File No. 1-3446); Amendment dated
September 1, 1986 (Exhibit 10(i) to NEES' 1986 Form
10-K, File No. 1-3446); Amendment dated April 30,
1987 (Exhibit 10(i) to NEES' 1987 Form 10-K, File
No. 1-3446); Amendments dated March 1, 1988 and May
1, 1988 (Exhibit 10(i) to NEES' 1988 Form 10-K,
File No. 1-3446); Amendment dated March 15, 1989
(Exhibit 10(i) to 1989 NEES Form 10-K, File No.
1-3446); Amendment dated October 1, 1990 (Exhibit
10(i) to 1990 NEES Form 10-K, File No. 1-3446);
Amendment dated October 1, 1990 Exhibit 10(i) to
1990 NEES Form 10-K, File No. 1-3446); Amendment
dated as of September 15, 1992 (Exhibit 10(i) to
1992 NEES Form 10-K, File No. 1-3446); Amendments
dated as of June 1, 1993, July 1, 1995, and
September 1, 1995 (Exhibit 10(i) to 1995 NEES Form
10-K, File No. 1-3446); Amendment dated as of
December 1, 1996 (Exhibit 10(i) to 1996 NEES Form
10-K, File No. 1-3446). Amendment dated as of
September 1, 1997 and Amendment dated as of
November 15, 1997 (Exhibit 10(i) to 1997 NEES Form
10-K, File No. 1-3446).
(j) New England Power Service Company and the Company:
Specimen of Service Contract (Exhibit 10(l) to 1994
Form 10-K, File No. 0-1229).
(k) Massachusetts Electric Company, et al. and the
Company: Form of Mutual Assistance Agreement
(Exhibit 10(n) to 1996 Form 10-K, File No. 0-1229).
(l) Massachusetts Electric Company, et al. and the
Company: Restructuring Settlement Agreement
approved by the Massachusetts Department of Public
Utilities (Exhibit 10(o) to 1996 Form 10-K, File
No. 0-1229).
(m) Public Service Company of New Hampshire et al. and
the Company: Agreement for Joint Ownership,
Construction and Operation of New Hampshire Nuclear
Units dated as of May 1, 1973; Amendments dated May
24, 1974, June 21, 1974, September 25, 1974 and
October 25, 1974 (Exhibit 10-18(b), File No.
2-52820); Amendment dated January 31, 1975 (Exhibit
10-16(b), File No. 2-57831); Amendments dated April
18, 1979, April 25, 1979, June 8, 1979, October 11,
1979, December 15, 1979, June 16, 1980, and
December 31, 1980 (Exhibit 10(i) to NEES' 1980 Form
10-K, File No. 1-3446); Amendments dated June 1,
1982, April 27, 1984, and June 15, 1984 (Exhibit
10(j) to NEES' 1984 Form 10-K, File No. 1-3446);
Amendments dated March 8, 1985, March 14, 1986,
May 1, 1986, and September 19, 1986 (Exhibit 10(j)
to NEES' 1986 Form 10-K, File No. 1-3446);
Amendment dated November 12, 1987 (Exhibit 10(j) to
NEES' 1987 Form 10-K, File No. 1-3446); Amendment
dated January 13, 1989 (Exhibit 10(j) to NEES' 1990
Form 10-K, File No. 1-3446); Seventh Amendment as
of November 1, 1990 (Exhibit 10(m) to NEES' 1991
Form 10-K, File No. 1-3446). Transmission Support
Agreement dated as of May 1, 1973 (Exhibit 10-23,
File No. 2-49184); Instrument of Transfer to the
Company with respect to the New Hampshire Nuclear
Units and Assumptions of Obligations dated December
17, 1975 and Agreement Among Participants in New
Hampshire Nuclear Units, certain Massachusetts
Municipal Systems and Massachusetts Municipal
Wholesale Electric Company dated May 28, 1976
(Exhibit 16(c), File No. 2-57831); Seventh
Amendment To and Restated Agreement for Seabrook
Project Disbursing Agent dated as of November 1,
1990 (Exhibit 10(m) to NEES' 1991 Form 10-K, File
No. 1-3446); Amendments dated as of June 29, 1992
(Exhibit 10(j) to NEES' 1992 Form 10-K, File No. 1-
3446). Settlement Agreement dated as of July 19,
1990 between Northeast Utilities Service Company
and the Company (Exhibit 10(m) to NEES' 1991 Form
10-K, File No. 1-3446). Seabrook Project Managing
Agent Operating Agreement dated as of June 29,
1992, Amendment to Seabrook Project Managing Agent
Operating Agreement dated as of June 29, 1992
(Exhibit 10(j) to NEES' 1992 Form 10-K, File No. 1-
3446).
(n) Vermont Yankee Nuclear Power Corporation et al. and
the Company: Capital Funds Agreement dated
February 1, 1968, Amendment dated March 12, 1968
and Power Purchase Contract dated February 1, 1968
(Exhibit 4-6, File No. 2-29145); Amendments dated
as of June 1, 1972, April 15, 1983 (Exhibit 10(k)
to NEES' 1983 Form 10-K, File No. 0-1229) and
April 24, 1985 (Exhibit 10(n) to NEES' 1985 Form
10-K, File No. 1-3446); Amendment dated as of
June 1, 1985 (Exhibit 10(n) to 1988 Form 10-K, File
No. 0-1229); Amendments dated May 6, 1988 (Exhibit
10(n) to 1988 Form 10-K, File No. 0-1229);
Amendment dated as of June 15, 1989 (Exhibit 10(k)
to 1989 NEES Form 10-K, File No. 1-3446);
Additional Power Contract dated as of February 1,
1984 (Exhibit 10(k) to NEES' 1983 Form 10-K, File
No. 1-3446); Guarantee Agreement dated as of
November 5, 1981 (Exhibit 10(j) to NEES' 1981 Form
10-K, File No. 1-3446).
(o) Yankee Atomic Electric Company et al. and the
Company: Amended and Restated Power Contract dated
April 1, 1985 (Exhibit 10(l) to NEES' 1985 Form
10-K, File No. 1-3446); Amendment dated May 6, 1988
(Exhibit 10(l) to NEES' 1988 Form 10-K, File No.
1-3446); Amendments dated as of June 26, 1989 and
July 1, 1989 (Exhibit 10(l) to 1989 NEES Form 10-K,
File No. 1-3446); Amendment dated as of February 1,
1992 (Exhibit 10(l) to 1992 NEES Form 10-K, File
No. 1-3446).
*(p) New England Electric Companies' Deferred
Compensation Plan as amended through February 28,
1998 (Exhibit 10(l) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(q) New England Electric System Companies Retirement
Supplement Plan as amended through June 1, 1996
(Exhibit 10(n) to NEES' 1996 Form 10-K, File No.
1-3446).
*(r) New England Electric Companies' Executive
Supplemental Retirement Plan I as amended through
December 11, 1998 (Exhibit 10(n) to NEES' 1998 Form
10-K, File No. 1-3446).
*(s) New England Electric Companies Executive Retirees
Health and Life Insurance Plan as Amended and
Restated January 1, 1996 (Exhibit 10(o) to NEES'
1998 Form 10-K, File No. 1-3446).
*(t) New England Electric Companies' Incentive
Compensation Plan I as amended through January 1,
1998 (Exhibit 10(p) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(u) New England Electric Companies' Incentive
Compensation Plan II as amended through January 1,
1998 (Exhibit 10(q) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(v) New England Electric Companies' Incentive
Compensation Plan III as amended through January 1,
1998 (Exhibit 10(r) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(w) New England Electric Companies' Senior Incentive
Compensation Plan as amended through January 1,
1998 (Exhibit 10(s) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(x) Forms of Life Insurance Program (Exhibit 10(s) to
NEES' 1986 Form 10-K, File No. 1-3446); and Form of
Life Insurance (Collateral Assignment) (Exhibit
10(t) to NEES' 1991 Form 10-K, File No. 1-3446).
*(y) New England Electric Companies' Incentive Share
Plan as amended through February 24, 1997 (Exhibit
10(w) to NEES' 1996 Form 10-K, File No. 1-3446).
*(z) New England Electric System Directors' Retirement
Plan amended through December 11, 1998 (Exhibit
10(x) to NEES' 1998 Form 10-K, File No. 1-3446).
*(aa) Forms of Severance Protection Agreement (Exhibit
10(z) to NEES' 1996 Form 10-K, File No. 1-3446).
Forms of Severance Protection Agreements (Exhibit
10(y) to NEES' 1998 Form 10-K, File No. 1-3446).
*(bb) New England Electric Companies' Long-Term
Performance Share Award Plan amended through August
25, 1998 (Exhibit 10(w) to NEES' 1998 Form 10-K,
File No. 1-3446).
(cc) New England Hydro-Transmission Electric Company,
Inc. et al. and the Company: Phase II
Massachusetts Transmission Facilities Support
Agreement dated as of June 1, 1985 (Exhibit 10(t)
to NEES' 1986 Form 10-K, File No. 1-3446);
Amendment dated as of May 1, 1986 (Exhibit 10(t) to
NEES' 1986 Form 10-K, File No. 1-3446); Amendments
dated as of February 1, 1987, June 1, 1987,
September 1, 1987, and October 1, 1987 (Exhibit
10(u) to NEES' 1987 Form 10-K, File No. 1-3446);
Amendment dated as of August 1, 1988 (Exhibit 10(u)
to NEES' 1988 Form 10-K, File No. 1-3446);
Amendment dated January 1, 1989 (Exhibit 10(u) to
NEES' 1990 Form 10-K, File No. 1-3446).
(dd) New England Hydro-Transmission Corporation et al.
and the Company: Phase II New Hampshire
Transmission Facilities Support Agreement dated as
of June 1, 1985 (Exhibit 10(u) to NEES' 1986 Form
10-K, File No. 1-3446); Amendment dated as of
May 1, 1986 (Exhibit 10(u) to NEES' 1986 Form 10-K,
File No. 1-3446); Amendments dated as of February
1, 1987, June 1, 1987, September 1, 1987, and
October 1, 1987 (Exhibit 10(v) to NEES' 1987 Form
10-K, File No. 1-3446). Amendment dated as of
August 1, 1988 (Exhibit 10(v) to NEES' 1988 Form
10-K, File No. 1-3446); Amendments dated January 1,
1989 and January 1, 1990 (Exhibit 10 (v) to NEES'
1990 Form 10-K, File No. 1-3446).
(ee) Vermont Electric Power Company et al. and the
Company: Phase II New England Power AC Facilities
Support Agreement dated as of June 1, 1985 (Exhibit
10(v) to NEES' 1986 Form 10-K, File No. 1-3446);
Amendment dated as of May 1, 1986 (Exhibit 10(v) to
NEES' 1986 Form 10-K, File No. 1-3446). Amendments
dated as of February 1, 1987, June 1, 1987, and
September 1, 1987 (Exhibit 10(w) to NEES' 1987 Form
10-K, File No. 1-3446); Amendment dated as of
August 1, 1988 (Exhibit 10(w) to NEES' 1988 Form
10-K, File No. 1-3446).
(ff) USGen New England Contracts
(i) Asset Purchase Agreement between the Company
and The Narragansett Electric Company dated
as of August 5, 1997 (Exhibit 2 to NEES' Form
10-Q for period ended September 30, 1997,
File No. 1-3446).
(ii) Wholesale Sales Agreement between the Company
and USGen New England, Inc. dated as of
August 5, 1997 (Exhibit 10(gg)(ii) to 1997
Form 10-K, File No. 1-6564).
(iii) PPA Transfer Agreement between the Company
and USGen New England, Inc. dated as of
August 5, 1997 (Exhibit 10(gg)(iii) to 1997
Form 10-K, File No. 1-6564).
(iv) Form of PSA Performance Support Agreement
between the Company, USGen New England, Inc.,
and each of the following; North Attleboro
Electric Department, Groton Electric Light
Department, Middleton Municipal Electric
Department, Hingham Municipal Lighting Plant,
Town of Holden Municipal Light Department,
Unitil Power Corp. (Salem Harbor), Unitil
Power Corp. (Ocean State), Bangor Hydro-
Electric Company, Montaup Electric Company,
Central Vermont Public Service Corporation,
Braintree Electric Light Department,
Littleton Electric Light Department,
Massachusetts Government Land Bank, Reading
(MA) Municipal Light Department, Shrewsbury
Electric Light Plant, Taunton Municipal Light
Plant, and Vermont Electric Company, dated as
of August 5, 1997 (Exhibit 10(gg)(iv) to 1997
Form 10-K, File No. 1-6564).
(v) Quebec Interconnection Transfer Agreement
between the Company, The Narragansett
Electric Company, and USGen New England, Inc.
dated as of September 1, 1998 (filed
herewith).
* Compensation related plan, contract, or arrangement.
(13) 1998 Annual Report to Stockholders (filed herewith).
(21) Subsidiary list (filed herewith).
(24) Power of Attorney (filed herewith).
(27) Financial Data Schedule (filed herewith).
Mass. Electric
--------------
(3) (a) Articles of Organization of the Company as amended
March 5, 1993, August 11, 1993, September 20, 1993,
and November 11, 1993 (Exhibit 3(a) to 1993 Form
10-K, File No. 0-5464).
(b) By-Laws of the Company as amended December 12, 1997
(Exhibit 3(b) to 1997 Form 10-K, File No. 0-5464).
(4) First Mortgage Indenture and Deed of Trust, dated as of
July 1, 1949, and twenty-one supplements thereto (Exhibit
7-A, File No. 1-8019; Exhibit 7-B, File No. 2-8836;
Exhibit 4-C, File No. 2-9593; Exhibit 4 to 1980 Form 10-K,
File No. 2-8019; Exhibit 4 to 1982 Form 10-K, File No.
0-5464; Exhibit 4 to 1986 Form 10-K, File No. 0-5464);
Exhibit 4 to 1988 Form 10-K, File No. 0-5464; Exhibit 4(a)
to 1989 NEES Form 10-K, File No. 1-3446; Exhibit 4(a) to
1992 NEES Form 10-K, File No. 1-3446; Exhibit 4(a) to 1993
NEES Form 10-K, File No. 1-3446; Exhibit 4(a) to 1995 NEES
Form 10-K, File No. 1-3446).
(10) Material Contracts
(a) Boston Edison Company et al. and Company: Amended
REMVEC Agreement dated August 12, 1977 (Exhibit
5-4(d), File No. 2-61881).
(i) Boston Edison Company et al. and Company:
REMVEC II Agreement dated on or about July 1,
1997 (Exhibit 10(a)(i) to NEES' 1997 Form 10-
K, File No. 1-3446).
(ii) Boston Edison Company et al. and Company:
Security Analysis Services Agreement dated on
or about July 1, 1997 (Exhibit 10(a)(ii) to
NEES' 1997 Form 10-K, File No. 1-3446).
(b) New England Power Company and the Company: Primary
Service for Resale dated February 15, 1974 (Exhibit
5-17(a), File No. 2-52969); Amendment of Service
Agreement dated July 22, 1983 (Exhibit 10(b) to
1986 Form 10-K, File No. 0-5464); Amendment of
Service Agreement effective November 1, 1993
(Exhibit 10(e) to 1993 NEP Form 10-K, File No. 0-
1229); Memorandum of Understanding effective May
22, 1994 (Exhibit 10(e) to 1994 NEP Form 10-K, File
No. 0-1229); Amendment of Service Agreement
effective July 1, 1996 (Exhibit 10(e) to 1997 NEP
Form 10-K, File No. 0-1229); Amendment to Service
Agreement dated as of February 1, 1997 (Exhibit
10(e) to 1997 NEP Form 10-K, File No. 0-1229);
Supplement to Amendment to Service Agreement dated
as of March 1, 1998 (Exhibit 10(e) to 1998 NEP Form
10-K, File No. 0-1229).
(c) New England Power Pool Agreement: (Exhibit 4(e),
File No. 2-43025); Amendments dated July 1, 1972,
and March 1, 1973 (Exhibit 10-15, File No.
2-48543); Amendment dated March 15, 1974 (Exhibit
10-5, File No. 2-52775); Amendment dated June 1,
1975 (Exhibit 10-14, File No. 2-57831); Amendment
dated September 1, 1975 (Exhibit 10-13, File No.
2-59182); Amendments dated December 31, 1976,
January 31, 1977, July 1, 1977, and August 1, 1977
(Exhibit 10-16, File No. 2-61881); Amendments dated
August 15, 1978, January 3, 1980, and February 1980
(Exhibit 10-3, File No. 2-68283); Amendment dated
September 1, 1981 (Exhibit 10(h) to NEES' 1981 Form
10-K, File No. 1-3446); Amendment dated as of
December 1, 1981 (Exhibit 10(h) to NEES' 1982 Form
10-K, File No. 1-3446); Amendments dated June 1,
1982, June 15, 1983, and October 1, 1983 (Exhibit
10(i) to NEES' 1983 Form 10-K, File No. 1-3446);
Amendments dated August 1, 1985, August 15, 1985,
September 1, 1985, and January 1, 1986 (Exhibit
10(i) to NEES' 1985 Form 10-K, File No. 1-3446);
Amendment dated September 1, 1986 (Exhibit 10(i) to
NEES' 1986 Form 10-K, File No. 1-3446); Amendments
dated April 30, 1987 (Exhibit 10(i) to NEES' 1987
Form 10-K, File No. 1-3446); Amendments dated
March 1, 1988 and May 1, 1988 (Exhibit 10(i) to
NEES' 1988 Form 10-K, File No. 1-3446); Amendment
dated March 15, 1989 (Exhibit 10(i) to 1989 NEES
Form 10-K, File No. 1-3446). Amendment dated
October 1, 1990 (Exhibit 10(i) to 1990 NEES Form
10-K, File No. 1-3446); Amendment dated as of
September 15, 1992 (Exhibit 10(i) to 1992 NEES Form
10-K, File No. 1-3446). Amendments dated as of
June 1, 1993, July 1, 1995, and September 1, 1995
(Exhibit 10(i) to 1995 NEES Form 10-K, File No. 1-
3446); Amendment dated as of December 1, 1996
(Exhibit 10(i) to 1996 NEES Form 10-K, File No. 1-
3446); Amendment dated as of November 28, 1997
(Exhibit 10(i) to 1997 NEES Form 10-K, File No. 1-
3446); Amendment dated as of September 1, 1997 and
Amendment dated as of November 15, 1997 (Exhibit
10(i) to 1997 NEES Form 10-K, File No. 1-3446).
(d) New England Power Service Company and the Company:
Specimen of Service Contract (Exhibit 10(l) to 1994
NEP Form 10-K, File No. 0-1229).
(e) New England Power Company et al. and the Company:
Form of Mutual Assistance Agreement (Exhibit 10(n)
to 1996 NEP Form 10-K, File No. 0-1229).
(f) New England Power Company et al. and the Company:
Restructuring Settlement Agreement approved by the
Massachusetts Department of Public Utilities
February 26, 1997 (Exhibit 10(o) to 1996 Form 10-K,
File No. 0-1229).
(g) New England Telephone and Telegraph Company and the
Company: Specimen of Joint Ownership Agreement for
Wood Poles (Exhibit 4(e), File No. 2-24458).
*(h) New England Electric Companies' Deferred
Compensation Plan as amended through February 28,
1998 (Exhibit 10(l) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(i) New England Electric System Companies Retirement
Supplement Plan as amended through June 1, 1996
(Exhibit 10(n) to NEES' 1996 Form 10-K, File No.
1-3446).
*(j) New England Electric Companies' Executive
Supplemental Retirement Plan I as amended through
December 11, 1998 (Exhibit 10(n) to NEES' 1998 Form
10-K, File No. 1-3446).
*(k) New England Electric Companies' Executive Retirees
Health and Life Insurance Plan as Amended and
Restated January 1, 1996 (Exhibit 10(o) to NEES'
1998 Form 10-K, File No. 1-3446).
*(l) New England Electric Companies' Incentive
Compensation Plan I as amended through January 1,
1998 (Exhibit 10(p) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(m) New England Electric Companies' Incentive
Compensation Plan II as amended through January 1,
1998 (Exhibit 10(q) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(n) New England Electric Companies' Incentive
Compensation Plan III as amended through January 1,
1998 (Exhibit 10(r) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(o) New England Electric Companies' Form of Deferred
Compensation Agreement for Directors (Exhibit 10(p)
to NEES' 1980 Form 10-K, File No. 1-3446).
*(p) New England Electric Companies' Senior Incentive
Compensation Plan as amended through January 1,
1998 (Exhibit 10(s) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(q) Forms of Life Insurance Program: (Exhibit 10(s) to
NEES' 1986 Form 10-K, File No. 1-3446); and Form of
Life Insurance (Collateral Assignment) (Exhibit
10(t) to NEES' 1991 Form 10-K, File No. 1-3446).
*(r) New England Electric Companies' Incentive Share
Plan as amended through February 24, 1997 (Exhibit
10(w) to NEES' 1996 Form 10-K, File No. 1-3446).
*(s) New England Electric Companies' Long-Term
Performance Share Award Plan amended through August
25, 1998 (Exhibit 10(w) to NEES' 1998 Form 10-K,
File No. 1-3446).
*(t) New England Electric System Directors' Retirement
Plan as amended through December 11, 1998 (Exhibit
10(x) to NEES' 1998 Form 10-K, File No. 1-3446.
*(u) Forms of Severance Protection Agreement (Exhibit
10(z) to NEES' 1996 Form 10-K, File No. 1-3446).
Forms of Severance Protection Agreements (Exhibit
10(y) to NEES' 1998 Form 10-K, File No. 1-3446).
*(v) New England Power Service Company and the Company:
Form of Supplemental Pension Service Credit
Agreement (Exhibit 10(ee) to 1992 NEES Form 10-K,
File No. 1-3446).
(w) Amended and Restated Wholesale Standard Offer
Service Agreement among the Company, Nantucket
Electric Company, and USGen New England, Inc. dated
as of October 29, 1997 (Exhibit 10(w) to 1997 Form
10-K, File No. D-5464).
* Compensation related plan, contract, or arrangement.
(12) Statement re computation of ratios for incorporation by
reference into the Mass. Electric registration statement
on Form S-3, Commission File No. 333-46431 (filed
herewith).
(13) 1998 Annual Report to Stockholders (filed herewith).
(24) Power of Attorney (filed herewith).
(27) Financial Data Schedule (filed herewith).
Narragansett
------------
(3) (a) Articles of Incorporation as amended June 9, 1988
(Exhibit 3(a) to 1988 Form 10-K, File No. 0-898).
(b) By-Laws of the Company (Exhibit 3 to 1980 Form
10-K, File No. 0-898).
(4) (a) First Mortgage Indenture and Deed of Trust, dated
as of September 1, 1944, and twenty-three
supplements thereto (Exhibit 7-1, File No. 2-7042;
Exhibit 7-B, File No. 2-7490; Exhibit 4-C, File No.
2-9423; Exhibit 4-D, File No. 2-10056; Exhibit 4 to
1980 Form 10-K, File No. 0-898; Exhibit 4 to 1982
Form 10-K, File No. 0-898; Exhibit 4 to 1983 Form
10-K, File No. 0-898; Exhibit 4 to 1985 Form 10-K,
File No. 0-898; Exhibit 4 to 1986 Form 10-K, File
No. 0-898; Exhibit 4 to 1987 Form 10-K, File No.
0-898; Exhibit 4(b) to 1991 NEES Form 10-K, File
No. 1-3446; Exhibit 4(b) to 1992 NEES Form 10-K,
File No. 1-3446; Exhibit 4(b) to 1993 NEES Form 10-
K, File No. 1-3446; Exhibit 4(b) to 1995 NEES Form
10- K, File No. 1-3446; Exhibit 4(b) to 1998 NEES
Form 10-K, File No. 1-3446).
(b) The Narragansett Electric Company Preference
Provisions, as amended, dated December 15, 1997
(Exhibit 4(c) to 1997 NEES Form 10-K, File No. 1-
3446).
(10) Material Contracts
(a) Boston Edison Company et al. and the Company:
Amended REMVEC Agreement dated August 12, 1977
(Exhibit 5-4(d), File No. 2-61881).
(i) Boston Edison Company et al. and the Company:
REMVEC II Agreement dated on or about July 1,
1997 (Exhibit 10(a)(i) to NEES' 1997 Form 10-
K, File No. 1-3446).
(ii) Boston Edison Company et al. and the Company:
Security Analysis Services Agreement dated on
or about July 1, 1997 (Exhibit 10(a)(ii) to
NEES' 1997 Form 10-K, File No. 1-3446).
(b) New England Power Company and the Company: Primary
Service for Resale dated February 15, 1974 (Exhibit
4-1(b), File No. 2-51292); Amendment of Service
Agreement dated July 26, 1990 (Exhibit 10(f) to
1990 NEP Form 10-K, File No. 0-1229); Amendment of
Service Agreement dated July 24, 1991 (Exhibit 4(f)
to 1991 NEP Form 10-K, File No. 0-1229); Amendment
of Service Agreement effective November 1, 1993
(Exhibit 10(f) to 1993 NEP Form 10-K, File No. 0-
1229); Memorandum of Understanding effective May
22, 1994 (Exhibit 10(f) to 1994 NEP Form 10-K, File
No. 0-1229); Amendment of Service Agreement
effective January 1, 1995 (Exhibit 10(f) to 1995
NEP Form 10-K, File No. 0-1229); Amendment of
Service Agreement effective October 30, 1995,
Amendment of Service Agreement dated as of February
1, 1997 (Exhibit 10(f) to 1997 NEP Form 10-K, File
No. 0-1229). Supplement to Amendment to Service
Agreement dated as of December 31, 1998 (Exhibit
10(f) to 1998 NEP Form 10-K, File No. 0-1229).
(c) New England Power Pool Agreement: (Exhibit 4(e),
File No. 2-43025); Amendments dated July 1, 1972,
and March 1, 1973 (Exhibit 10-15, File No.
2-48543); Amendment dated March 15, 1974 (Exhibit
10-5, File No. 2-52775); Amendment dated June 1,
1975 (Exhibit 10-14, File No. 2-57831); Amendment
dated September 1, 1975 (Exhibit 10-13, File No.
2-59182); Amendments dated December 31, 1976,
January 31, 1977, July 1, 1977, and August 1, 1977
(Exhibit 10-16, File No. 2-61881); Amendments dated
August 15, 1978, January 3, 1980, and February 1980
(Exhibit 10-3, File No. 2-68283); Amendment dated
September 1, 1981 (Exhibit 10(h) to NEES' 1981 Form
10-K, File No. 1-3446); Amendment dated December 1,
1981 (Exhibit 10(h) to NEES' 1982 Form 10-K, File
No. 1-3446); Amendments dated June 1, 1982,
June 15, 1983, and October 1, 1983 (Exhibit 10(i)
to NEES' 1983 Form 10-K, File No. 1-3446);
Amendments dated August 1, 1985, August 15, 1985,
September 1, 1985, and January 1, 1986 (Exhibit 10
(i) to NEES' 1985 Form 10-K, File No. 1-3446);
Amendment dated September 1, 1986 (Exhibit 10(i) to
NEES' 1986 Form 10-K, File No. 1-3446); Amendment
dated April 30, 1987 (Exhibit 10(i) to NEES' 1987
Form 10-K, File No. 1-3446); Amendments dated March
1, 1988 and May 1, 1988 (Exhibit 10(i) to NEES'
1988 Form 10-K, File No. 1-3446); Amendment dated
March 15, 1989 (Exhibit 10(i) to 1989 NEES Form
10-K, File No. 1-3446). Amendment dated October 1,
1990 (Exhibit 10(i) to 1990 NEES' Form 10-K, File
No. 1-3446); Amendment dated as of September 15,
1992 (Exhibit 10(i) to NEES' 1992 Form 10-K, File
No. 1-3446); Amendments dated as of June 1, 1993,
July 1, 1995, and September 1, 1995 (Exhibit 10(i)
to NEES' 1995 Form 10-K, File No. 1-3446);
Amendment dated as of December 1, 1996 (Exhibit
10(i) to 1996 NEES Form 10-K, File No. 1-3446);
Amendment dated as of September 1, 1997 and
Amendment dated as of November 15, 1997 (Exhibit
10(i) to 1997 NEES Form 10-K, File No. 1-3446).
(d) New England Power Service Company and the Company:
Specimen of Service Contract (Exhibit 4(l) to 1994
NEP Form 10-K, File No. 0-1229).
(e) New England Power Company et al. and the Company:
Form of Mutual Assistance Agreement (Exhibit 10 (n)
to 1996 Form 10-K, File No. 0-1229).
(f) New England Telephone and Telegraph Company and the
Company: Specimen of Joint Ownership Agreement for
Wood Poles (Exhibit 3(d), File No. 2-24458).
*(g) New England Electric Companies' Deferred
Compensation Plan, as amended through February 28,
1998 (Exhibit 10(l) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(h) New England Electric System Companies Retirement
Supplement Plan, as amended through June 1, 1996
(Exhibit 10(n) to NEES' 1996 Form 10-K, File No.
1-3446).
*(i) New England Electric Companies' Executive
Supplemental Retirement Plan I, as amended through
December 11, 1998 (Exhibit 10(n) to NEES' 1998
Form 10-K, File No. 1-3446).
*(j) New England Electric Companies' Executive Retirees
Health and Life Insurance Plan as Amended and
Restated January 1, 1996 (Exhibit 10(o) to NEES'
1998 Form 10-K, File No. 1-3446).
*(k) New England Electric Companies' Incentive
Compensation Plan I, as amended through January 1,
1998 (Exhibit 10(p) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(l) New England Electric Companies' Incentive
Compensation Plan II as amended through January 1,
1998 (Exhibit 10(q) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(m) New England Electric Companies' Incentive
Compensation Plan III as amended through January 1,
1998 (Exhibit 10(r) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(n) New England Electric Companies' Form of Deferred
Compensation Agreement for Directors (Exhibit 10(p)
to NEES' 1980 Form 10-K, File No. 1-3446).
*(o) New England Electric Companies' Senior Incentive
Compensation Plan as amended through January 1,
1998 (Exhibit 10(s) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(p) Forms of Life Insurance Program (Exhibit 10(s) to
NEES' 1986 Form 10-K, File No. 1-3446); and Form of
Life Insurance (Collateral Assignment) (Exhibit
10(t) to NEES' 1991 Form 10-K, File No. 1-3446).
*(q) New England Electric Companies' Incentive Share
Plan as amended through February 24, 1997 (Exhibit
10(u) to NEES' 1995 Form 10-K, File No. 1-3446).
*(r) New England Power Service Company and the Company:
Form of Supplemental Pension Service Credit
Agreement (Exhibit 10(ee) to 1992 NEES Form 10-K,
File No. 1-3446).
*(s) New England Electric Companies' Long-Term
Performance Share Award Plan amended through August
25, 1998 (Exhibit 10(w) to NEES' 1998 Form 10-K,
File No. 1-3446).
*(t) New England Electric System Directors' Retirement
Plan amended through December 11, 1998 (Exhibit
10(x) to NEES 1998 Form 10-K, File No. 1-3446).
*(u) Forms of Severance Protection Agreement (Exhibit
10(z) to NEES' 1996 Form 10-K, File No. 1-3446).
Forms of Severance Protection Agreements (Exhibit
10(y) to NEES' 1998 Form 10-K, File No. 1-3446).
(v) USGen New England, Inc. Contracts
(i) Asset Purchase Agreement between the Company
and New England Power Company dated as of
August 5, 1997 (Exhibit 2 to NEES' Form 10-Q
for the period ended September 30, 1997, File
No. 1-3446).
(ii) Amended and Restated Wholesale Standard Offer
Service Agreement between the Company and
USGen New England, Inc. dated as of October
29, 1997 (Exhibit 10(w) to 1997 Form 10-K,
File No. 0-5464).
* Compensation related plan, contract, or arrangement.
(12) Statement re computation of ratios for incorporation by
reference into the Narragansett registration statement on
Form S-3, Commission File No. 33-61131 (filed herewith).
(13) 1998 Annual Report to Stockholders (filed herewith).
(24) Power of Attorney (filed herewith).
(27) Financial Data Schedule (filed herewith).
Reports on Form 8-K
NEES
----
NEES filed a report on Form 8-K dated December 11, 1998 which
contained ITEM 5.
NEP
---
NEP filed a report on Form 8-K dated December 11, 1998 which
contained ITEM 5.
Mass. Electric
--------------
Mass. Electric filed a report on Form 8-K dated December 11,
1998 which contained ITEM 5.
Narragansett
------------
Narragansett filed a report on Form 8-K dated December 11, 1998
which contained ITEM 5.
NEW ENGLAND ELECTRIC SYSTEM
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf, by the undersigned thereunto duly authorized.
NEW ENGLAND ELECTRIC SYSTEM*
s/Richard P. Sergel
Richard P. Sergel
President and
Chief Executive Officer
March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
(Signature and Title)
Principal Executive Officer
s/Richard P. Sergel
Richard P. Sergel
President and
Chief Executive Officer
Principal Financial Officer
s/Michael E. Jesanis
Michael E. Jesanis
Senior Vice President and
Chief Financial Officer
Principal Accounting Officer
s/John G. Cochrane
John G. Cochrane
Vice President and
Treasurer
Directors (a majority)
Joan T. Bok
William M. Bulger
Alfred D. Houston
Paul L. Joskow
John M. Kucharski
Edward H. Ladd
Joshua A. McClure
George M. Sage s/John G. Cochrane
Richard P. Sergel All by:
Charles E. Soule John G. Cochrane
Anne Wexler Attorney-in-fact
James Q. Wilson
James R. Winoker
Date (as to all signatures on this page)
March 31, 1999
*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.
NEW ENGLAND POWER COMPANY
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. The signature
of the undersigned company shall be deemed to relate only to matters having
reference to such company.
NEW ENGLAND POWER COMPANY
s/Peter G. Flynn
Peter G. Flynn
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated. The signature of
each of the undersigned shall be deemed to relate only to matters having
reference to the above-named company.
(Signature and Title)
Principal Executive Officer
s/Peter G. Flynn
Peter G. Flynn
President
Principal Financial Officer
s/John G. Cochrane
John G. Cochrane
Treasurer
Principal Accounting Officer
s/Howard W. McDowell
Howard W. McDowell
Controller
Directors (a majority)
Peter G. Flynn
Alfred D. Houston
Cheryl A. LaFleur s/John G. Cochrane
Richard P. Sergel All by:
John G. Cochrane
Attorney-in-fact
Date (as to all signatures on this page)
March 31, 1999
MASSACHUSETTS ELECTRIC COMPANY
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. The signature
of the undersigned company shall be deemed to relate only to matters having
reference to such company.
MASSACHUSETTS ELECTRIC COMPANY
s/Lawrence J. Reilly
Lawrence J. Reilly
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated. The signature of
each of the undersigned shall be deemed to relate only to matters having
reference to the above-named company.
(Signature and Title)
Principal Executive Officer
s/Lawrence J. Reilly
Lawrence J. Reilly
President
Principal Financial Officer
s/John G. Cochrane
John G. Cochrane
Treasurer
Principal Accounting Officer
s/Howard W. McDowell
Howard W. McDowell
Controller
Directors (a majority)
Cheryl A. LaFleur
Robert L. McCabe
Lydia M. Pastuszek
Lawrence J. Reilly
Christopher E. Root s/John G. Cochrane
Nancy H. Sala All by:
Richard P. Sergel John G. Cochrane
Attorney-in-fact
Date (as to all signatures on this page)
March 31, 1999
THE NARRAGANSETT ELECTRIC COMPANY
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. The signature
of the undersigned company shall be deemed to relate only to matters having
reference to such company.
THE NARRAGANSETT ELECTRIC COMPANY
s/Lawrence J. Reilly
Lawrence J. Reilly
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated. The signature of
each of the undersigned shall be deemed to relate only to matters having
reference to the above-named company.
(Signature and Title)
Principal Executive Officer
s/Lawrence J. Reilly
Lawrence J. Reilly
President
Principal Financial Officer
s/John G. Cochrane
John G. Cochrane
Treasurer
Principal Accounting Officer
s/Howard W. McDowell
Howard W. McDowell
Controller
Directors (a majority)
s/John G. Cochrane
Cheryl A. LaFleur All by:
Robert L. McCabe John G. Cochrane
Lawrence J. Reilly Attorney-in-fact
Michael F. Ryan
Richard P. Sergel
Ronald L. Thomas
Date (as to all signatures on this page)
March 31, 1999
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
References (Page)
-----------------------
1998 Annual
Form Report to
10-K Shareholders*
---- -------------
Report of Independent Accountants........................... 45
Statements of Consolidated Income,
Year Ended December 31, 1998, 1997 and 1996............. 21
Statements of Consolidated Retained Earnings,
Year Ended December 31, 1998, 1997 and 1996............. 21
Consolidated Balance Sheets, December 31, 1998 and 1997... 22
Consolidated Statements of Cash Flows,
Year Ended December 31, 1998, 1997 and 1996............. 23
Consolidated Statements of Capitalization,
December 31, 1998 and 1997.............................. 24
Notes to Financial Statements............................... 26-44
For the Year Ended December 31, 1998, 1997 and 1996:
Consent of Independent Accountants........................ 104
* Incorporated by Reference
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the registration
statements of New England Electric System (the "System") on Form S-3 of
the Dividend Reinvestment and Common Share Purchase Plan (File No.
33-12313), on Forms S-4 (File Nos. 333-47383 and 333-60315) and on Forms
S-8 of the New England Electric System Companies Incentive Thrift Plan
(File No. 33-26066), the New England Electric System Companies Incentive
Thrift Plan II (File No. 33-35470) and the Yankee Atomic Electric Company
Thrift Plan (File No. 2-67531) of our report dated February 23, 1999 on
our audits of the consolidated financial statements of New England
Electric System and subsidiaries as of December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998 which report
is incorporated by reference in this Annual Report on Form 10-K from the
System's filing on Form 8-K, dated March 25, 1999.
We also consent to the incorporation by reference in the registration
statements of Massachusetts Electric Company on Form S-3 (File No. 333-
46431) and The Narragansett Electric Company on Form S-3 (File No.
33-61131) of our reports dated February 23, 1999 on our audits of the
financial statements of Massachusetts Electric Company and The
Narragansett Electric Company, respectively, as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31,
1998, which reports are incorporated by reference in this Annual Report on
Form 10-K.
s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 31, 1999
NEW ENGLAND POWER COMPANY
INDEX TO FINANCIAL STATEMENTS
References (Page)
----------------------
1998 Annual
Form Report to
10-K Shareholders*
---- -------------
Report of Independent Accountants........................... 1
Statements of Income,
Year Ended December 31, 1998, 1997 and 1996............... 12
Statements of Retained Earnings,
Year Ended December 31, 1998, 1997 and 1996............... 12
Balance Sheets, December 31, 1998 and 1997.................. 13
Statements of Cash Flows,
Year Ended December 31, 1998, 1997 and 1996............... 14
Notes to Financial Statements............................... 15-34
For the Year Ended December 31, 1998, 1997 and 1996:
Consent of Independent Accountants........................ 104
* Incorporated by Reference.
MASSACHUSETTS ELECTRIC COMPANY
INDEX TO FINANCIAL STATEMENTS
References (Page)
----------------------
1998 Annual
Form Report to
10-K Shareholders*
---- -------------
Report of Independent Accountants........................... 1
Statements of Income,
Year Ended December 31, 1998, 1997 and 1996............... 10
Statements of Retained Earnings,
Year Ended December 31, 1998, 1997 and 1996............... 10
Balance Sheets, December 31, 1998 and 1997.................. 11
Statements of Cash Flows,
Year Ended December 31, 1998, 1997 and 1996............... 12
Notes to Financial Statements............................... 13-26
For the Year Ended December 31, 1998, 1997 and 1996:
Consent of Independent Accountants........................ 104
* Incorporated by Reference.
THE NARRAGANSETT ELECTRIC COMPANY
INDEX TO FINANCIAL STATEMENTS
References (Page)
----------------------
1998 Annual
Form Report to
10-K Shareholders*
---- -------------
Report of Independent Accountants........................... 1
Statements of Income,
Year Ended December 31, 1998, 1997 and 1996............... 10
Statements of Retained Earnings,
Year Ended December 31, 1998, 1997 and 1996............... 10
Balance Sheets, December 31, 1998 and 1997.................. 11
Statements of Cash Flows,
Year Ended December 31, 1998, 1997 and 1996............... 12
Notes to Financial Statements............................... 13-26
For the Year Ended December 31, 1998, 1997 and 1996:
Consent of Independent Accountants........................ 104
* Incorporated by Reference.