SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6564
(LOGO) NEW ENGLAND POWER COMPANY
(Exact name of registrant as specified in charter)
MASSACHUSETTS 04-1663070
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
25 Research Drive, Westborough, Massachusetts 01582
(Address of principal executive offices)
Registrant's telephone number, including area code
(508-389-2000)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes (X) No ( )
Common stock, par value $20 per share, authorized and outstanding:
6,449,896 shares at June 30, 1995.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
----------------------------
NEW ENGLAND POWER COMPANY
Statements of Income
Periods Ended June 30
(Unaudited)
Quarter Six Months
-------- ----------
1995 1994 1995 1994
---- ---- ---- ----
(In Thousands)
Operating revenue, principally from affiliates $378,177 $356,488 $769,295 $756,062
-------- -------- -------- --------
Operating expenses:
Fuel for generation 70,234 64,143 130,830 137,502
Purchased electric energy 140,208 118,919 285,549 239,757
Other operation 53,335 47,341 103,491 91,743
Maintenance 23,476 28,357 53,905 49,263
Depreciation and amortization 27,262 34,249 57,195 68,907
Taxes, other than income taxes 14,083 14,031 29,385 29,387
Income taxes 16,125 17,256 35,397 50,438
-------- -------- -------- --------
Total operating expenses 344,723 324,296 695,752 666,997
-------- -------- -------- --------
Operating income 33,454 32,192 73,543 89,065
Other income:
Allowance for equity funds used during
construction 2,552 2,286 4,953 4,062
Equity in income of nuclear power companies 1,491 1,444 2,891 2,731
Other income (expense) - net 1,263 (599) (1,099) (2,970)
-------- -------- -------- --------
Operating and other income 38,760 35,323 80,288 92,888
-------- -------- -------- --------
Interest:
Interest on long-term debt 11,764 9,339 23,002 18,491
Other interest 2,255 995 4,370 1,034
Allowance for borrowed funds used during
construction - credit (2,948) (1,193) (5,755) (2,008)
-------- -------- -------- --------
Total interest 11,071 9,141 21,617 17,517
-------- -------- -------- --------
Net income $ 27,689 $ 26,182 $ 58,671 $ 75,371
======== ======== ======== ========
Statements of Retained Earnings
Retained earnings at beginning of period $372,250 $370,289 $372,763 $346,153
Net income 27,689 26,182 58,671 75,371
Dividends declared on cumulative
preferred stock (859) (858) (1,717) (1,724)
Dividends declared on common stock (30,637) (20,962) (61,274) (45,149)
-------- -------- -------- --------
Retained earnings at end of period $368,443 $374,651 $368,443 $374,651
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
Per share data is not relevant because the Company's common stock is wholly
owned by New England Electric System.
NEW ENGLAND POWER COMPANY
Statements of Income
Twelve Months Ended June 30
(Unaudited)
1995 1994
---- ----
(In Thousands)
Operating revenue, principally from affiliates $1,553,990 $1,548,881
---------- ----------
Operating expenses:
Fuel for generation 253,868 281,375
Purchased electric energy 559,375 506,466
Other operation 208,358 184,927
Maintenance 115,170 104,533
Depreciation and amortization 126,267 133,937
Taxes, other than income taxes 54,398 53,482
Income taxes 81,555 100,065
---------- ----------
Total operating expenses 1,398,991 1,364,785
---------- ----------
Operating income 154,999 184,096
Other income:
Allowance for equity funds used during construction 10,033 5,813
Equity in income of nuclear power companies 4,976 5,441
Other income (expense) - net 1,578 (2,449)
---------- ----------
Operating and other income 171,586 192,901
---------- ----------
Interest:
Interest on long-term debt 43,222 40,818
Other interest 5,292 5,524
Allowance for borrowed funds used during
construction - credit (9,601) (3,246)
---------- ----------
Total interest 38,913 43,096
---------- ----------
Net income $ 132,673 $ 149,805
========== ==========
Statements of Retained Earnings
Retained earnings at beginning of period $ 374,651 $ 306,926
Net income 132,673 149,805
Dividends declared on cumulative preferred stock (3,433) (3,811)
Dividends declared on common stock (135,448) (77,399)
Premium on redemption of preferred stock (870)
---------- ----------
Retained earnings at end of period $ 368,443 $ 374,651
========== ==========
The accompanying notes are an integral part of these financial statements.
Per share data is not relevant because the Company's common stock is wholly
owned by New England Electric System.
NEW ENGLAND POWER COMPANY
Balance Sheets
(Unaudited)
June 30, December 31,
ASSETS 1995 1994
------ ---- ----
(In Thousands)
Utility plant, at original cost $2,556,429 $2,524,544
Less accumulated provisions for depreciation
and amortization 1,034,436 1,001,393
---------- ----------
1,521,993 1,523,151
Net investment in Seabrook 1 under rate settlement 22,814 38,283
Construction work in progress 381,589 314,777
---------- ----------
Net utility plant 1,926,396 1,876,211
---------- ----------
Investments:
Nuclear power companies, at equity 46,669 46,349
Nonutility property and other investments, at cost 23,194 22,980
---------- ----------
Total investments 69,863 69,329
---------- ----------
Current assets:
Cash 1,093 377
Accounts receivable, principally from sales of
electric energy:
Affiliated companies 210,838 197,655
Others 41,650 69,532
Fuel, materials and supplies, at average cost 85,659 73,361
Prepaid and other current assets 31,002 33,729
---------- ----------
Total current assets 370,242 374,654
---------- ----------
Accrued Yankee Atomic costs 107,769 122,452
Deferred charges and other assets 196,750 170,192
---------- ----------
$2,671,020 $2,612,838
========== ==========
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:
Common stock, par value $20 per share,
authorized and outstanding 6,449,896 shares $ 128,998 $ 128,998
Premiums on capital stocks 86,829 86,829
Other paid-in capital 288,000 288,000
Retained earnings 368,443 372,763
---------- ----------
Total common equity 872,270 876,590
Cumulative preferred stock, par value $100 per share 60,516 60,516
Long-term debt 735,325 695,466
---------- ----------
Total capitalization 1,668,111 1,632,572
---------- ----------
Current liabilities:
Long-term debt due in one year 10,000
Short-term debt (including $17,375,000 and $16,575,000
to affiliates) 165,880 145,575
Accounts payable (including $37,154,000 and $69,089,000
to affiliates) 138,793 179,761
Accrued liabilities:
Taxes 2,744 6,133
Interest 10,930 9,914
Other accrued expenses 10,700 10,866
Dividends payable 30,637
---------- ----------
Total current liabilities 369,684 352,249
---------- ----------
Deferred federal and state income taxes 376,340 364,073
Unamortized investment tax credits 58,064 59,014
Accrued Yankee Atomic costs 107,769 122,452
Other reserves and deferred credits 91,052 82,478
---------- ----------
$2,671,020 $2,612,838
========== ==========
The accompanying notes are an integral part of these financial statements.
NEW ENGLAND POWER COMPANY
Statements of Cash Flows
Six Months Ended June 30
(Unaudited)
1995 1994
---- ----
(In Thousands)
Operating Activities:
Net income $ 58,671 $ 75,371
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 59,929 70,916
Deferred income taxes and
investment tax credits, net 11,990 7,373
Allowance for funds used during construction (10,708) (6,070)
Decrease (increase) in accounts receivable 14,699 4,895
Decrease (increase) in fuel, materials, and supplies (12,298) (9,009)
Decrease (increase) in prepaid and other current assets 2,727 (1,238)
Increase (decrease) in accounts payable (40,968) 17,760
Increase (decrease) in other current liabilities (2,539) (18,706)
Other, net (23,487) (16,879)
-------- ---------
Net cash provided by operating activities $ 58,016 $ 124,413
-------- ---------
Investing Activities:
Plant expenditures, excluding allowance for
funds used during construction $(95,251) $(116,861)
-------- ---------
Net cash used in investing activities $(95,251) $(116,861)
-------- ---------
Financing Activities:
Dividends paid on common stock $(30,637) $ (38,699)
Dividends paid on preferred stock (1,717) (866)
Changes in short-term debt 20,305 33,625
Long-term debt - issues 60,000
Long-term debt - retirements (10,000)
Preferred stock - retirement (512)
-------- ---------
Net cash provided by (used in) financing activities $ 37,951 $ (6,452)
-------- ---------
Net increase in cash and cash equivalents $ 716 $ 1,100
Cash and cash equivalents at beginning of period 377 610
-------- ---------
Cash and cash equivalents at end of period $ 1,093 $ 1,710
======== =========
Supplementary Information:
Interest paid less amounts capitalized $ 19,974 $ 15,960
-------- ---------
Federal and state income taxes paid $ 19,158 $ 40,687
-------- ---------
The accompanying notes are an integral part of these financial statements.
Note A - Investments in Nuclear Power Companies
-----------------------------------------------
A summary of combined results of operations, assets and
liabilities of the four Yankee Nuclear Power Companies in which the
Company has investments is as follows:
Quarters Ended Six Months Ended
June 30,
----------------------------------------
1995 1994 1995 1994
---- ---- ---- ----
(In Thousands)
Operating revenue $165,533 $158,091 $372,813 $308,740
======== ======== ======== ========
Net income $ 7,966 $ 7,522 $ 16,284 $ 15,444
======== ======== ======== ========
Company's equity in
net income $ 1,491 $ 1,444 $ 2,891 $ 2,731
======== ======== ======== ========
June 30, December 31,
1995 1994
---- ----
(In Thousands)
Plant $ 493,616 $ 537,103
Other assets 1,461,390 1,458,186
Liabilities and debt (1,706,156) (1,748,960)
----------- -----------
Net assets $ 248,850 $ 246,329
=========== ===========
Company's equity in net assets $ 46,669 $ 46,349
=========== ===========
At June 30, 1995, $12,720,000 of undistributed earnings of the
nuclear power companies were included in the Company's retained
earnings. For further discussion see Note B.
Note B - Maine Yankee Atomic Power Company
------------------------------------------
The Company has a 20 percent interest in Maine Yankee Atomic
Power Company (Maine Yankee) which owns an 880 megawatt (MW)
nuclear generating station. Since January 1995, the station has
Note B - Maine Yankee Atomic Power Company - Continued
------------------------------------------
been shutdown for refueling and inspection. During the inspection,
Maine Yankee detected substantial deterioration of steam generator
tubes. To correct the situation, Maine Yankee is installing welded
sleeves (involving the insertion of a partial new tube inside the
existing tube) on all of the steam generator tubes. Similar
repairs have been undertaken at other nuclear plants, but not on
the scale proposed at Maine Yankee. In the second quarter of 1995,
the Company accrued approximately $4 million for its portion of the
anticipated future incremental costs to repair the steam generator
tubes. These repair costs were charged to purchased power expense.
Replacement power costs incurred as a result of the Maine Yankee
shutdown are being recovered through the Company's fuel clause.
The station is expected to return to service by the end of 1995.
Note C - Hazardous Waste
------------------------
The Federal Comprehensive Environmental Response, Compensation
and Liability Act, more commonly known as the "Superfund" law,
imposes strict, joint and several liability, regardless of fault,
for remediation of property contaminated with hazardous substances.
A number of states, including Massachusetts, have enacted similar
laws.
The electric utility industry typically utilizes and/or
generates in its operations a range of potentially hazardous
products and by-products. New England Electric System subsidiaries
currently have in place an environmental audit program intended to
enhance compliance with existing federal, state, and local
requirements regarding the handling of potentially hazardous
products and by-products.
The Company has been named as a potentially responsible party
(PRP) by either the U.S. Environmental Protection Agency or the
Massachusetts Department of Environmental Protection for six sites
at which hazardous waste is alleged to have been disposed. Private
parties have also contacted or initiated legal proceedings against
the Company regarding hazardous waste cleanup. The Company is
currently aware of other sites, and may in the future become aware
of additional sites, that it may be held responsible for
remediating.
Note C - Hazardous Waste - Continued
------------------------
Predicting the potential costs to investigate and remediate
hazardous waste sites continues to be difficult. There are also
significant uncertainties as to the portion, if any, of the
investigation and remediation costs of any particular hazardous
waste site that may ultimately be borne by the Company. Where
appropriate, the Company intends to seek recovery from its insurers
and from other PRPs, but it is uncertain whether and to what extent
such efforts would be successful. The Company believes that
hazardous waste liabilities for all sites of which it is aware will
not be material to its financial position.
Note D - Purchased Power Contract Dispute
-----------------------------------------
In October 1994, the Company was sued by Milford Power Limited
Partnership (MPLP), a venture of Enron Corporation and Jones
Capital that owns a 149 MW gas-fired power plant in Milford,
Massachusetts. The Company purchases 56 percent of the power
output of the facility under a long-term contract with MPLP. The
suit alleges that the Company has engaged in a scheme to cause MPLP
and its power plant to fail and has prevented MPLP from finding a
long-term buyer for the remainder of the facility's output. The
complaint includes allegations that the Company has violated the
Federal Racketeer Influenced and Corrupt Organizations Act, engaged
in unfair or deceptive acts in trade or commerce, and breached
contracts. MPLP also asserts that the Company deliberately misled
regulatory bodies concerning the Manchester Street Station
repowering project. MPLP seeks compensatory damages in an
unspecified amount, as well as treble damages. The Company
believes that the allegations of wrongdoing are without merit. The
Company has filed counterclaims and crossclaims against MPLP, Enron
Corporation, and Jones Capital, seeking monetary damages and
termination of the purchased power contract.
MPLP also intervened in the Company's recent rate filing
making similar allegations to those asserted in MPLP's lawsuit.
Hearings are expected to begin in October 1995. MPLP also
intervened in a recent Massachusetts Electric Company rate filing.
Note E - Shipping Charter Agreement Dispute
-------------------------------------------
In May 1995, the Company was sued by Keystone Shipping Company
(Keystone). The suit arose after the Company, which charters a
vessel for coal shipment purposes from Intercoastal Bulk Carriers,
Inc. (IBC), a Keystone affiliate, gave notice in November 1994 that
it intended to exercise its explicit contractual right under the
charter agreement to terminate the charter and purchase the vessel.
The Company, concurrently with the notice, initiated arbitration to
resolve any objections to its exercise of such a right. In
arbitration, the panel ruled in the Company's favor on several
preliminary issues which were appealed by Keystone in federal
court, but later dismissed by the court. Keystone's suit alleges
that the Company induced Keystone to enter into the charter
agreement by making fraudulent misrepresentations regarding the
purchase option. Keystone alleges damages in excess of $40
million. The complaint includes allegations that the Company
violated Massachusetts General Laws chapter 93A, which provides for
the possibility of treble damages. The Company believes that
Keystone's allegations are without merit and has filed a motion to
dismiss the lawsuit since the issues are the subject of
arbitration. At present, the vessel remains under the ownership of
IBC and the Company is continuing to pay the charter rate, subject
to the Company's reservation of its rights to seek damages and
other relief against Keystone and IBC.
Note F - New Accounting Standard
--------------------------------
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of (FAS 121), effective for fiscal year 1996. This
standard clarifies when and how to recognize an impairment of long-
lived assets. In addition, FAS 121 requires that all regulatory
assets, which must have a high probability of recovery to be
initially established, must continue to meet that high probability
standard to avoid being written off. However, if written off, a
regulatory asset can be restored if it again has a high probability
of recovery. The impact of this standard will be driven by the
facts and circumstances that exist when the standard is adopted and
thereafter.
Note G
------
In the opinion of the Company, these statements reflect all
adjustments (which include normal recurring adjustments) necessary
for a fair statement of the results of its operations for the
periods presented and should be considered in conjunction with the
notes to the financial statements in the Company's 1994 Annual
Report.
Item 2. Management's Discussion and Analysis of Financial
---------------------------------------------------------
Condition and Results of Operations
-----------------------------------
This section contains management's assessment of New England
Power Company's financial condition and the principal factors
having an impact on the results of operations. This discussion
should be read in conjunction with the Company's financial
statements and footnotes and the 1994 Annual Report on Form 10-K.
Earnings
--------
Net income for the first six months of 1995 decreased $17
million from the corresponding period in 1994, however, net income
increased for the second quarter by approximately $2 million. The
decrease in the six months is due to (a) increased purchased power
costs due to scheduled plant overhauls and refueling outages by
partially-owned nuclear power suppliers, (b) increased operation
and maintenance expense due to overhauls at the Company's
generating plants, (c) increased reimbursements to affiliates for
customer discounts and for generation and transmission costs and,
(d) increased interest expense. These decreases in income were
partially offset by reduced depreciation and amortization expense.
The increase in income in the second quarter reflects sales
growth and a reduction in depreciation and amortization expense,
partially offset by increased purchased power expense.
Maine Yankee Atomic Power Company
---------------------------------
The Company has a 20 percent interest in Maine Yankee Atomic
Power Company (Maine Yankee) which owns an 880 megawatt nuclear
generating station. Since January 1995, the station has been shut
down for refueling and inspection. During the inspection, Maine
Yankee detected substantial deterioration of steam generator tubes.
To correct the situation, Maine Yankee is installing welded sleeves
(involving the insertion of a partial new tube inside the existing
tube) on all of the steam generator tubes. Similar repairs have
been undertaken at other nuclear plants, but not on the scale
proposed at Maine Yankee. In the second quarter of 1995, the
Company accrued approximately $4 million for its portion of the
anticipated future incremental costs to repair the steam generator
tubes. These repair costs were charged to purchased power expense.
Replacement power costs incurred as a result of the Maine Yankee
shutdown are being recovered through the Company's fuel clause.
The station is expected to return to service by the end of 1995.
Rate Activity
-------------
In February 1995, the Federal Energy Regulatory Commission
(FERC) approved a rate agreement filed by the Company. Under the
agreement, which became effective January 1995, the Company's base
rates are frozen until 1997. Before this rate agreement, the
Company's rate structure contained two surcharges which were
recovering the costs of a coal conversion project and a portion of
the Company's investment in the Seabrook 1 nuclear unit (Seabrook
1). These two surcharges would have fully recovered their related
costs by mid-1995, however, under the rate agreement they have been
continued as part of base rates. The agreement also allows for
full recovery of costs associated with the Manchester Street
Station repowering project, which is scheduled for completion later
this year. In addition, the agreement allows the Company to
recover approximately $50 million of deferred costs associated with
terminated purchased power contracts and postretirement benefits
other than pensions (PBOPs) over seven years. Under the agreement,
the Company is fully recovering currently incurred PBOP costs. The
agreement further provides for the recovery over three years of $27
million of costs related to the dismantling of a retired generating
station in Rhode Island and the replacement of a turbine rotor at
one of the Company's generating units. The agreement also
increases the Company's recovery of depreciation expense by
approximately $8 million annually to recognize costs that will be
incurred upon the eventual dismantling of its Brayton Point and
Salem Harbor generating plants. Under the agreement, approximately
$15 million of the $38 million in Seabrook 1 costs due to be
recovered in 1995 pursuant to a 1988 settlement agreement will be
deferred and recovered in 1996.
Finally, the agreement provided that the Company would
reimburse its wholesale customers for discounts provided by those
wholesale customers to their retail customers under service
extension discount (SED) programs. Under these programs, retail
customers are entitled to such discounts only if they have signed
an agreement not to purchase power from another supplier or
generate any additional power themselves for a three to five year
period. Reimbursements in 1995 are expected to total $13 million.
The FERC's approval of this rate agreement applies to all of
the Company's customers except the Town of Norwood, Massachusetts
and the Milford Power Limited Partnership (MPLP), (which together
represent less than 2 percent of the Company's sales), who
intervened in the rate case. In June 1995, the Company and the
Town of Norwood filed a settlement agreement with the FERC. This
settlement is subject to FERC approval. A separate hearing will be
conducted, beginning in October 1995, to address the issues raised
by MPLP.
Operating Revenue
-----------------
The following table summarizes the changes in operating
revenue:
Increase (Decrease) in Operating Revenue
Second Quarter Six Months
-------------- ------------
1995 vs 1994 1995 vs 1994
-------------- ------------
(In Millions)
Sales increase $ 5 $ 1
Fuel recovery 18 19
SED reimbursements (3) (6)
Narragansett integrated
facilities credit 1 (3)
Other 1 2
--- ---
$22 $13
=== ===
For a discussion of fuel recovery see the fuel costs discussion
in the Operating Expenses section.
See the Rate Activity section for a discussion of SED
reimbursements.
The entire output of The Narragansett Electric Company's
(Narragansett) generating capacity is made available to the
Company. Narragansett receives a credit on its purchased power
bill from the Company for its fuel costs and other generation and
transmission related costs. The increased credit for the six
months reflects increased costs associated with a new transmission
line and with the dismantlement of Narragansett's previously
retired South Street generating facility. The decrease in the
credit in the second quarter of 1995 reflects an adjustment in
South Street dismantlement costs reimbursed in the second quarter
of 1994.
Operating Expenses
------------------
The following table summarizes the changes in operating
expenses:
Increase (Decrease) in Operating Expenses
Second Quarter Six Months
-------------- ------------
1995 vs 1994 1995 vs 1994
-------------- ------------
(In Millions)
Fuel costs $16 $ 17
Accrued New England Energy
Incorporated fuel costs 1 2
Purchased energy excluding fuel 10 20
Operation and maintenance 1 17
Depreciation and amortization (7) (12)
Taxes (1) (15)
--- ----
$20 $ 29
=== ====
Fuel costs represent fuel for generation and the portion of
purchased electric energy permitted to be recovered through the
Company's fuel adjustment clause. The increase in fuel costs
reflects increased short-term purchases and alternate energy
purchases due to decreased generation from the Company's nuclear
power suppliers, decreased hydro production due to low water
levels, and overhauls of the Company's thermal generating
facilities.
Purchased energy excluding fuel represents the remainder of
purchased electric energy costs. The increase in purchased
energy excluding fuel for the first six months of 1995 is the
result of increased costs associated with scheduled plant
overhauls and refueling outages as well as an accrual in the
second quarter of 1995 of approximately $4 million relating to
Maine Yankee (see Maine Yankee Atomic Power Company section).
The increase also reflects amortization of previously deferred
purchased power termination costs.
The increase in operation and maintenance expenses for the
six months ended June 30, 1995, reflects increased maintenance
costs associated with overhauls of generating plants, in part to
achieve compliance with the Clean Air Act, increased general,
administrative and information system costs, and recognition of
currently incurred and previously deferred PBOP costs in
accordance with the Company's 1995 rate agreement.
The decrease in depreciation and amortization is due to
decreased amortization of Seabrook 1, partially offset by the
effects of increased depreciation rates approved in the
Company's 1995 rate agreement and depreciation of new plant
expenditures. A portion of the Company's Seabrook 1
amortization and the amortization of the Company's Oil
Conservation Adjustment was completed in the second quarter of
1995. The amounts recorded in the first six months related to
these completed amortizations totaled $12 million, before tax.
A separate portion of the Seabrook 1 amortization will continue
through the end of 1996.
The decrease in taxes for the first six months of 1995 is
primarily due to decreased income.
Allowance For Funds Used During Construction (AFDC)
--------------------------------------------------
AFDC increased for the second quarter and first six months
of 1995 due to increased construction work in progress,
principally associated with the Manchester Street Station
repowering project, scheduled to commence commercial operation
in late 1995.
Interest Expense
----------------
The increase in interest expense is primarily due to
increased long-term and short-term debt balances and higher
interest rates in the second quarter and first six months of
1995.
Competitive Conditions
----------------------
The electric utility business is being subjected to rapidly
increasing competitive pressures, stemming from a combination of
trends, including surplus generating capacity, increasing
electric rates, improved technologies, increasing demand for
customer choice, and new regulations and legislation intended to
foster competition. See the Company's Annual Report on Form 10-
K for the year ended December 31, 1994.
The Company derives over 95 percent of its operating revenue
from sales of electricity to three retail affiliates of the
Company. The three states served by these retail affiliates
have been considering various proposals for allowing electric
customers greater choice over their electricity supplier. The
Massachusetts Department of Public Utilities (MDPU) has been
holding hearings on the regulation and structure of the electric
utility industry. The Rhode Island Public Utilities Commission
(RIPUC) convened a task force of utilities, commercial and
industrial customers, and other interested parties to prepare a
report on restructuring the industry. In these two proceedings,
Massachusetts Electric Company and Narragansett have filed with
the respective commissions a set of interdependent principles
for industry restructuring. These principles, which were agreed
to by groups representing environmental protection advocates,
governmental agencies, non-utility generators, investor-owned
utilities, and large and small customer interests, include
provisions for increased customer choice while allowing
utilities the opportunity to recover the cost of their past
commitments, as well as provisions for protecting residential
customers, encouraging renewable resources and energy
conservation, and honoring contracts with independent power
producers. The parties agreeing to the principles suggested to
the MDPU and RIPUC that they be permitted a six month period for
discussions and negotiations leading to the development of
detailed, company-specific plans. The MDPU and RIPUC are
expected to issue separate decisions this summer.
In July 1995, the Governor of Rhode Island vetoed two bills
that would have allowed certain industrial customers to buy
power from alternative suppliers, rather than through the local
electric utility. The Rhode Island Legislature may still
override the vetoes and it has indicated that it will consider
alternative legislation in September 1995. Narragansett cannot
predict whether any such legislation will be enacted. Because
Narragansett believed that the proposed legislation would result
in piecemeal deregulation that would not be fair to customers or
shareholders and would circumvent the comprehensive proceedings
mentioned above, Narragansett urged the Governor to exercise his
veto. Narragansett committed that, if the measures were not
enacted into law, Narragansett would provide a two year rate
discount to manufacturing customers. In addition, Narragansett
committed, if the measures were not enacted, to submit by July
1, 1996, a specific and detailed proposal to the RIPUC
addressing the issues associated with providing open access to
Narragansett's distribution system for its large commercial and
industrial customers. Among other things, that filing would
address the proper means for recovering past costs incurred to
serve exiting customers through a compensatory access charge.
If the charges are approved by the RIPUC, the appropriate access
tariffs would then be filed with the FERC.
Also, as previously reported, the New Hampshire Public
Utilities Commission (NHPUC) is considering the proposal of a
new company, Freedom Energy Company (Freedom Energy), to sell
electricity at retail rates to large customers of another
utility. In June 1995, the NHPUC issued an order in the Freedom
Energy docket addressing preliminary issues. The NHPUC found,
in a split decision, that it does not believe franchise
territories in New Hampshire are exclusive as a matter of law.
The order also stated that it did not believe federal law
precluded the NHPUC from authorizing retail wheeling. However,
the order makes clear that Freedom Energy must obtain additional
regulatory approvals at the state and federal level before it
could operate as a public utility in the franchise territory of
another utility.
In addition, in June 1995, the Governor of New Hampshire
signed into law a bill which instructs the NHPUC to establish a
retail competition pilot program open to all classes of
customers. The program could be effective as early as January
1, 1996. The NHPUC will first have to determine that a pilot
program would be fair, lawful, and in the public good. The
size, scope, and other characteristics of the pilot are not
prescribed by the legislation and will be subject to NHPUC
determination. The legislation also established a legislative
committee on retail wheeling and restructuring. The committee
is to report its findings by November 1, 1995.
In March 1995, the FERC issued a notice of proposed rule-
making in which it stated that recovery in rates of legitimate
and verifiable stranded costs from departing customers is the
appropriate method for recovery of costs stranded as the result
of wholesale competition. Under the FERC policy proposal, costs
stranded as a result of retail competition would be subject to
state commission review if the state commission has the
necessary statutory authority, and subject to FERC review if the
state commission does not have such authority. A final decision
is expected in mid-1996.
Electric utility rates have historically 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. Financial Accounting Standard
No. 71, Accounting for the Effects of Certain Types of
Regulation (FAS 71), requires regulated entities, in appropriate
circumstances, to establish regulatory assets and liabilities,
and thereby defer the income statement impact of certain costs
that are expected to be recovered in future rates. The Company
believes that its operations currently meet the criteria
established in FAS 71. However, the effects of regulatory
and/or legislative initiatives could, in the near future, cause
all or a portion of the Company's operations to cease meeting
the criteria of FAS 71. In that event, the application of FAS
71 to such operations would be discontinued and a non-cash
write-off of previously established regulatory assets and
liabilities related to such operations would be required. At
June 30, 1995, the Company had pre-tax regulatory assets (net of
regulatory liabilities) of approximately $300 million. In
addition, the Company's affiliate, New England Energy
Incorporated had a regulatory asset of approximately $200
million which is recoverable in its entirety from the Company.
This amount would also be included in any write-down of the
Company's regulatory assets. If competitive or regulatory
change should cause a substantial revenue loss or lead to the
permanent shutdown of any generating facilities, a substantial
write-down of plant assets could be required pursuant to
Financial Accounting Standard No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of (FAS 121). This standard, effective for fiscal year
1996, clarifies when and how to recognize an impairment of long-
lived assets. For further discussion of FAS 121 see Note F.
Utility Plant Expenditures and Financings
-----------------------------------------
Cash expenditures for utility plant totaled $95 million for
the first six months of 1995, including $60 million related to
the Company's 90 percent share of the Manchester Street Station
repowering project in Providence, Rhode Island. The repowering
of the Manchester Street generating station, scheduled to
commence commercial operation in late 1995, is estimated to cost
approximately $510 million, excluding transmission facilities.
The funds necessary for utility plant expenditures during the
period were provided by net cash from operating activities,
after the payment of dividends, and from proceeds of short-term
and long-term debt issues. In the first six months of 1995, the
Company issued $50 million of long-term debt at interest rates
ranging from 6.69 percent to 7.94 percent. In addition, the
Company refinanced $10 million of variable rate mortgage bonds
in the first six months of 1995. The Company does not plan to
issue any additional long-term debt in 1995.
At June 30, 1995, the Company had $166 million of short-term
debt outstanding including $149 million of commercial paper
borrowings. At June 30, 1995, the Company had lines of credit
and bond purchase facilities with banks totaling $490 million
which are available to provide liquidity support for commercial
paper borrowings and for $342 million of the Company's
outstanding variable rate mortgage bonds in tax-exempt
commercial paper mode and for other corporate purposes. There
were no borrowings under these lines of credit at June 30, 1995.
For the twelve-month period ending June 30, 1995, the ratio
of earnings to fixed charges was 5.10.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
----------------------------
Information concerning a lawsuit filed against the Company
by Milford Power Limited Partnership on October 28, 1994, and
intervention into the Company's rate filing, discussed in Note
D of Notes of Unaudited Financial Statements, is incorporated
herein by reference and made a part hereof.
Information concerning a lawsuit filed against the Company
by Keystone Shipping Company on May 17, 1995, in the
Massachusetts Essex Superior Court, discussed in Note E of Notes
of Unaudited Financial Statements, is incorporated herein by
reference and made a part hereof.
Item 4. Submission of Matters to a Vote of Security-Holders
-------------------------------------------------------------
On May 10, 1995, a Special Meeting in lieu of Annual
Meeting of Shareholders was held.
By unanimous vote of the 6,449,896 shares having general
voting rights represented at this meeting:
The number of directors for the ensuing year was fixed at
six.
The following were elected as directors:
Joan T. Bok
Frederic E. Greenman
Alfred D. Houston
John W. Newsham
John W. Rowe
Jeffrey D. Tranen
Michael E. Jesanis was elected Treasurer and Robert King
Wulff was elected Clerk. The terms of office are until the next
annual meeting of stockholders and until their successors are
duly chosen and qualified.
Coopers & Lybrand was also selected as Auditor for the year
1995.
In addition, the liability and indemnification provisions
of the Company's by-laws were amended by changing the definition
of officers covered by such provisions.
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
The Company is filing the following revised exhibit for
incorporation by reference into its registration statements on
Form S-3, Commission File Nos. 33-48257, 33-48897, and 33-49193:
12 Statement re computation of ratios
The Company is filing Financial Data Schedules.
The Company filed a report on Form 8-K dated May 17, 1995,
containing Item 5, Other Events.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report on Form 10-Q
for the quarter ended June 30, 1995 to be signed on its behalf
by the undersigned thereunto duly authorized.
NEW ENGLAND POWER COMPANY
s/ Michael E. Jesanis
Michael E. Jesanis, Treasurer,
Authorized Officer, and
Principal Financial Officer
Date: August 10, 1995