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 March 31, 1996
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 March 31, 1996.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
NEW ENGLAND POWER COMPANY
Statements of Income
Periods Ended March 31
(Unaudited)
Three Months Twelve Months
------------ -----------
1996 1995 1996 1995
---- ---- ---- ----
(In Thousands)
Operating revenue, principally from affiliates $400,460 $391,118$1,579,882 $1,532,301
-------- -------- --------------------
Operating expenses:
Fuel for generation 80,226 60,596 299,478 247,777
Purchased electric energy 125,534 145,341 528,119 538,086
Other operation 50,024 50,156 211,740 202,364
Maintenance 19,607 30,429 82,132 120,051
Depreciation and amortization 26,520 29,933 99,345 133,254
Taxes, other than income taxes 17,721 15,302 61,136 54,346
Income taxes 25,551 19,272 97,330 82,686
-------- -------- --------------------
Total operating expenses 345,183 351,029 1,379,280 1,378,564
-------- -------- --------------------
Operating income 55,277 40,089 200,602 153,737
Other income:
Allowance for equity funds used during
construction (5) 2,401 5,339 9,767
Equity in income of nuclear power companies1,344 1,400 5,666 4,929
Other income (expense) - net, including
related taxes (1,991) (2,362) (1,240) (284)
-------- -------- --------------------
Operating and other income 54,625 41,528 210,367 168,149
-------- -------- --------------------
Interest:
Interest on long-term debt 11,705 11,238 47,264 40,797
Other interest 2,168 2,115 10,579 4,032
Allowance for borrowed funds used during
construction - credit (221) (2,807) (8,893) (7,846)
-------- -------- --------------------
Total interest 13,652 10,546 48,950 36,983
-------- -------- --------------------
Net income $ 40,973 $ 30,982 $ 161,417$ 131,166
======== ======== ====================
Statements of Retained Earnings
Retained earnings at beginning of period $385,309 $372,763 $ 372,250$ 370,289
Net income 40,973 30,982 161,417 131,166
Dividends declared on cumulative
preferred stock (858) (858) (3,433) (3,432)
Dividends declared on common stock (29,025) (30,637) (133,835) (125,773)
-------- -------- --------------------
Retained earnings at end of period $396,399 $372,250 $ 396,399$ 372,250
======== ======== ====================
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)
March 31, December 31,
ASSETS 1996 1995
------ ---- ----
(In Thousands)
Utility plant, at original cost $2,958,743 $2,941,469
Less accumulated provisions for depreciation
and amortization 1,067,969 1,047,982
---------- ----------
1,890,774 1,893,487
Net investment in Seabrook 1 under rate settlement 11,407 15,210
Construction work in progress 46,156 41,566
---------- ----------
Net utility plant 1,948,337 1,950,263
---------- ----------
Investments:
Nuclear power companies, at equity 47,302 47,055
Non-utility property and other investments, at cost 26,629 26,627
---------- ----------
Total investments 73,931 73,682
---------- ----------
Current assets:
Cash 860 2,607
Accounts receivable, principally from sales of
electric energy:
Affiliated companies 205,839 204,314
Others 50,161 61,552
Fuel, materials, and supplies, at average cost 58,135 54,664
Prepaid and other current assets 29,472 27,986
---------- ----------
Total current assets 344,467 351,123
---------- ----------
Deferred charges and other assets 262,822 273,275
---------- ----------
$2,629,557 $2,648,343
========== ==========
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 396,399 385,309
---------- ----------
Total common equity 900,226 889,136
Cumulative preferred stock, par value $100 per share 60,516 60,516
Long-term debt 732,846 735,440
---------- ----------
Total capitalization 1,693,588 1,685,092
---------- ----------
Current liabilities:
Long-term debt due within one year 3,000 10,000
Short-term debt (including $12,525,000 and $1,025,000
to affiliates 134,675 125,150
Accounts payable (including $46,874,000 and $50,760,000
to affiliates) 143,841 163,791
Accrued liabilities:
Taxes 31,931 3,447
Interest 9,420 10,482
Other accrued expenses 12,093 10,834
Dividends payable 32,249
---------- ----------
Total current liabilities 334,960 355,953
---------- ----------
Deferred federal and state income taxes 388,057 390,197
Unamortized investment tax credits 57,003 57,509
Other reserves and deferred credits 155,949 159,592
---------- ----------
$2,629,557 $2,648,343
========== ==========
The accompanying notes are an integral part of these financial statements.
NEW ENGLAND POWER COMPANY
Statements of Cash Flows
Quarters Ended March 31
(Unaudited)
1996 1995
---- ----
(In Thousands)
Operating activities:
Net income $ 40,973 $ 30,982
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 28,421 31,661
Deferred income taxes and investment tax credits, net (1,930) 2,763
Allowance for funds used during construction (216) (5,208)
Decrease (increase) in accounts receivable 9,866 14,738
Decrease (increase) in fuel, materials, and supplies (3,471) (763)
Decrease (increase) in prepaid and other current assets (1,486) 6,028
Increase (decrease) in accounts payable (19,949) (11,943)
Increase (decrease) in other current liabilities 28,681 15,830
Other, net 3,647 (13,141)
-------- --------
Net cash provided by operating activities $ 84,536 $ 70,947
-------- --------
Investing activities:
Plant expenditures, excluding allowance
for funds used during construction $(23,676) $(40,259)
-------- --------
Net cash used in investing activities $(23,676) $(40,259)
-------- --------
Financing activities:
Dividends paid on common stock $(61,274)
Dividends paid on preferred stock (858) $ (858)
Changes in short-term debt 9,525 (53,700)
Long-term debt - issues 39,850 35,000
Long-term debt - retirements (49,850) (10,000)
-------- --------
Net cash used in financing activities $(62,607) $(29,558)
-------- --------
Net increase (decrease) in cash and cash equivalents $ (1,747) $ 1,130
Cash and cash equivalents at beginning of period 2,607 377
-------- --------
Cash and cash equivalents at end of period $ 860 $ 1,507
======== ========
Supplementary information:
Interest paid less amounts capitalized $ 13,774 $ 11,104
-------- --------
Federal and state income taxes paid (refunded) $ 4,049 $ (4,771)
-------- --------
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:
Quarter Ended
March 31,
----------------
1996 1995
---- ----
(In Thousands)
Operating revenue $155,115 $207,280
======== ========
Net income $ 7,388 $ 8,318
======== ========
Company's equity in net income $ 1,344 $ 1,400
======== ========
March 31, December 31,
1996 1995
---- ----
(In Thousands)
Plant $ 432,726 $ 443,967
Other assets 1,421,229 1,418,681
Liabilities and debt (1,603,022) (1,612,843)
----------- -----------
Net assets $ 250,933 $ 249,805
=========== ===========
Company's equity in net assets $ 47,302 $ 47,055
=========== ===========
At March 31, 1996, $13 million of undistributed earnings of the
nuclear power companies were included in the Company's retained
earnings.
Note B - 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.
Note B - Hazardous Waste - Continued
- ------------------------
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 internal environmental audit program and an external waste
disposal vendor audit and qualification 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.
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 are not material to its
financial position.
Note C - Millstone 3 Nuclear Generating Unit
- --------------------------------------------
The Company is a 12 percent joint owner of the Millstone 3
nuclear generating unit, a 1,150 megawatt unit operated by
subsidiaries of Northeast Utilities (NU). In March 1996, the unit was
shut down as the result of an internal safety review. On April 4,
1996, the Nuclear Regulatory Commission (NRC) ordered Millstone 3 to
remain shut down pending safety verification. The order also requires
that specific technical issues be resolved prior to restarting the
unit. Based on preliminary estimates provided by NU, the Company
expects to incur approximately $1 million in incremental operation and
maintenance costs related to Millstone 3. Replacement purchased power
costs of approximately $1.5 million per month are also being incurred
Note C - Millstone 3 Nuclear Generating Unit - Continued
- --------------------------------------------
by the Company. The Company is not a joint owner of the Millstone 1
and 2 nuclear generating units, which are also shut down under NRC
orders. NU has stated that the work required to comply with the NRC
requirements for Millstone 3 is expected to be completed by July 1996.
However, it is uncertain when any of the Millstone units will be
allowed to restart. The New England Power Pool (NEPOOL) has indicated
that if the Millstone units do not return to service during the summer
peak-load period, there could, under certain circumstances, be
insufficient power supply available in New England to meet demand.
NEPOOL members are taking steps to prepare to meet summer load
contingencies.
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 megawatt 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
alleged that the Company engaged in a scheme to cause MPLP and its
power plant to fail and prevented MPLP from finding a long-term buyer
for the remainder of the facility's output. MPLP sought compensatory
damages in an unspecified amount, as well as treble damages. The
Company had filed counterclaims and crossclaims against MPLP, Enron
Corporation, and Jones Capital, seeking monetary damages and
termination of the purchased power contract. On April 24, 1996, the
Company and MPLP executed a settlement agreement under which each
party agreed to the dismissal of the lawsuit and the counterclaims,
the restructuring of their power and fuel purchase arrangements and
the payment by MPLP to the Company of an undisclosed amount of money.
MPLP will withdraw all allegations made by it against the Company,
including claims that the Company deceived its regulators and violated
federal criminal statutes. The settlement is contingent upon approval
by the Federal Energy Regulatory Commission (FERC) of the restructured
arrangements between MPLP and the Company, and a proposed sale of the
MPLP partnership interests in the plant to subsidiaries of American
National Power, Inc.
MPLP also intervened in the Company's current rate filing before
the FERC making similar allegations to those asserted in MPLP's
lawsuit. In April 1996, an Administrative Law Judge from the FERC
strongly rejected all claims by MPLP. The settlement referred to
above also resolves this dispute before the FERC.
Note E - 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. This
standard did not have a material impact on the financial condition or
results of operations, upon adoption. However, the impact in future
periods may change as competitive factors and restructuring influence
the electric utility industry.
Note F
- ------
In the opinion of the Company, these statements reflect all
adjustments (which include normal recurring adjustments) necessary for
a fair statement of the results of its operations for the periods
presented and should be considered in conjunction with the notes to
the financial statements in the Company's 1995 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 1995 Annual Report on Form 10-K.
Earnings
- --------
Net income increased for the first quarter by approximately $10
million compared with the corresponding period in 1995. This increase
is due to sales growth, decreased purchased power expense, reduced
overhaul activity of wholly-owned generating units and lower
depreciation and amortization expense. These increases were partially
offset by increased affiliate generation and transmission costs
incurred for the benefit of the Company, increased taxes, and
decreased allowances for funds used during construction.
Competitive Conditions
- ----------------------
The electric utility business is being subjected to rapidly
increasing competitive pressures, stemming from a combination of
trends, including the presence of surplus generating capacity, a
disparity in electric rates among regions of the country, improvements
in generation efficiency, 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, 1995.
In states across the country, including Massachusetts, Rhode
Island, and New Hampshire, there have been an increasing number of
proposals to allow retail customers to choose their electricity
supplier, with incumbent utilities required to deliver that
electricity over their transmission and distribution systems (also
known as "retail wheeling").
Choice: New England
In October 1995, the New England Electric System (NEES) companies
announced a plan, Choice: New England, to allow all customers of
electric utilities in Massachusetts, Rhode Island, and New Hampshire
to choose their power supplier beginning in 1998. Under Choice: New
England, the pricing of generation would be deregulated; however,
transmission and distribution rates would remain regulated.
Under Choice: New England, the Company's wholesale contracts with
its affiliates would be terminated. In return, the plan proposes that
the cost of the Company's past generation commitments be recovered
through a wires access or transition charge to retail customers.
Those commitments, which are currently estimated at approximately $4
billion on a present value basis, primarily consist of (i) generating
plant commitments, (ii) regulatory assets, (iii) purchased power
contracts, and (iv) the operating cost of nuclear plants which cannot
be mitigated by shutting down the plants (otherwise referred to as
"nuclear costs independent of operation"). Sunk costs associated with
utility generating plants, such as past capital investments, and
regulatory assets would be recovered over ten years, but at a return
on equity of one percentage point over the interest rate on long-term
"BBB" rated utility bonds. Purchased power contract costs and nuclear
costs independent of operation would be recovered as incurred over the
life of those obligations, a period expected to extend beyond ten
years. Under Choice: New England, the access charge would be set at
three cents per kWh for the first three years. Thereafter, the access
charge would vary, but is expected to decline. The provisions of
Choice: New England, including the proposed access charge, are subject
to state approval and Federal Energy Regulatory Commission (FERC)
approval.
Choice: New England was formally filed by Massachusetts Electric
Company (Massachusetts Electric), one of the Company's retail
affiliates, with the Massachusetts Department of Public Utilities
(MDPU) in February 1996. Three other utilities and the Massachusetts
Division of Energy Resources (DOER) also filed plans with the MDPU in
February 1996. The DOER's plan also calls for direct access for all
customers beginning in 1998, with a pilot program beginning in 1997.
The DOER plan, however, proposes that, in exchange for stranded cost
recovery, utilities divest their generating assets, either through
sale or spinoff.
On May 1, 1996, the MDPU issued a set of proposed rules and
regulations governing the implementation of retail choice. The
proposed rules would allow all customers of Massachusetts
investor-owned utilities to choose their electric supplier beginning
in 1998 and would establish a price cap system for regulating the
rates of distribution service that would continue to be provided by
local utilities. The MDPU proposed rules affirm the principle of
stranded cost recovery for utilities over ten years, but create
uncertainties concerning the extent of actual stranded cost recovery.
While the MDPU did not order mandatory divestiture of generating
assets, it stated that it might provide utilities financial incentives
to divest. Hearings on the proposed rules are scheduled for June and
July. The MDPU has stated that it will issue final regulations in
September 1996 and issue orders on the individual utility plans in
1997.
The Narragansett Electric Company (Narragansett), a retail
affiliate, filed Choice: New England with the Rhode Island Public
Utilities Commission (RIPUC) in April 1996. The RIPUC has not yet
scheduled hearings on restructuring plans.
Other legislative and regulatory initiatives
As described in the 1995 Annual Report on Form 10-K, legislation
was proposed by the Speaker and Majority Leader of the House of
Representatives of the Rhode Island Legislature that would allow
electric customers in Rhode Island to choose their power supplier.
This legislation, which is similar to Choice: New England, is pending
and is expected to be amended prior to final consideration by the
House of Representatives. Final consideration is expected to be
completed by the summer of 1996.
In April 1996, the New Hampshire Legislature passed legislation
requiring a restructuring of the electric utility industry. The
legislation sets forth principles for restructuring which are modeled
after the principles adopted in Massachusetts and Rhode Island. The
legislation directs the New Hampshire Public Utilities Commission
(NHPUC) to conduct a proceeding to establish criteria for
restructuring plans to be filed by each utility in June 1997 and to
establish an interim stranded cost recovery charge for each utility,
pending a final determination of the appropriate level of stranded
cost recovery in the context of a rate proceeding. The bill allows
the NHPUC significant discretion in determining the appropriate level
of stranded cost recovery and is expected to be signed by the
Governor.
In April 1996, the FERC issued Order No. 888 addressing open
access transmission and indicated that those utilities that own
transmission facilities will be required to file open access tariffs
to make available transmission service to affiliates and nonaffiliates
at fair non-discriminatory rates. Order No. 888 also stated that
public utilities will be allowed to seek recovery of legitimate and
verifiable stranded costs from departing customers as a result of
wholesale competition. The FERC indicated that it will provide for
the recovery of retail stranded costs only if state regulators lack
the legal authority to address those costs at the time retail wheeling
is required. The FERC also stated that it would consider proposals
for stranded cost recovery under wholesale requirements contracts,
such as the contracts between the Company and its retail affiliates.
In response to the FERC Notice of Proposed Rulemaking issued in
advance of Order No. 888 discussed above, the Company and NEES
Transmission Services, Inc. (NEES Trans), a proposed new subsidiary
of NEES, filed transmission tariffs in March 1996 at the FERC that,
if accepted by the FERC, will become applicable for all wholesale
transmission transactions, including those of the NEES retail
distribution affiliates. Under the proposed tariffs and accompanying
support agreements, NEES Trans will provide all wholesale transmission
services involving the NEES companies' facilities under comparable,
nondiscriminatory transmission rates. The existing NEES companies,
including the Company, would turn operational control of their
transmission facilities over to NEES Trans in exchange for support
payments from NEES Trans for these facilities. The Company may, at
a later date, transfer its transmission assets to NEES Trans. The net
book value of the Company's transmission system is approximately $340
million. The Company is requesting that its filing become effective
by June 1, 1996 or upon approval by the Securities and Exchange
Commission, for the establishment of this new company. The filing
will be amended to conform to Order No. 888. If approved as filed,
the implementation of the tariffs would not have a significant impact
on the Company's revenues.
Risk factors
The major risk factors affecting recovery of at-risk assets are:
(i) regulatory and legal decisions, (ii) the market price of power,
and (iii) the amount of market share retained by the Company. First,
there can be no assurance that a final restructuring plan ordered by
regulatory bodies, or the courts, or through legislation will include
an access charge that would fully recover stranded costs and include
a fair return on those costs as they are being recovered. If laws are
enacted or regulatory decisions are made that do not offer an
opportunity to recover stranded costs, the Company believes it has
strong legal arguments to challenge such laws or decisions. Such a
challenge would be based, in part, on the assertion that subjecting
utility generating assets to competition without compensation for
stranded costs, while requiring utilities to open access to their
wires at historic cost-based rates, would constitute an
unconstitutional taking of property without just compensation.
Second, the access charge proposed under Choice: New England recovers
only sunk costs, such as plant expenditures and contractual
commitments. Because of a regional surplus of electric generation
capacity, current wholesale power prices in the short-term market are
based on the short-run fuel costs of generating units. Such wholesale
prices are not currently providing a significant contribution toward
other marginal costs, such as operation and maintenance expenses. The
Company expects this situation to continue in a retail market. Third,
revenues will also be affected by the Company's ability to retain
existing customers and attract new customers in a competitive
environment. As a result of the pressure on market prices and market
share, it is likely that, even if Choice: New England is implemented,
the generating business will experience revenue losses and increased
revenue volatility for an indeterminate period, which will limit its
ability to contribute to consolidated earnings and dividend growth
during that period.
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. 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 liabilities, and thereby defer the
income statement impact of certain costs that are expected to be
recovered in future rates. The effects of regulatory, legislative,
or utility initiatives, such as the proposed Rhode Island legislation,
the proposed rules in Massachusetts, or Choice: New England, 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 December
31, 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 (NEEI), has a
regulatory asset of approximately $200 million, which is recoverable
in its entirety from the Company. In addition to the potential
write-down of regulatory assets, write-downs of plant assets could be
required if competitive or regulatory change should cause a
substantial revenue loss, or lead to the permanent shutdown or sale
of any generating facilities.
Millstone 3 Nuclear Generating Unit
- -----------------------------------
The Company is a 12 percent joint owner of the Millstone 3 nuclear
generating unit, a 1,150 megawatt unit operated by subsidiaries of
Northeast Utilities (NU). In March 1996, the unit was shut down as
the result of an internal safety review. On April 4, 1996, the
Nuclear Regulatory Commission (NRC) ordered Millstone 3 to remain shut
down pending safety verification. The order also requires that
specific technical issues be resolved prior to restarting the unit.
Based on preliminary estimates provided by NU, the Company expects to
incur approximately $3 million in incremental operation and
maintenance costs related to Millstone 3. Replacement purchased power
costs of approximately $1.5 million per month are also being incurred
by the Company. The Company is not a joint owner of the Millstone 1
and 2 nuclear generating units, which are also shut down under NRC
orders. NU has stated that the work required to comply with the NRC
requirements for Millstone 3 is expected to be completed by July 1996.
However, it is uncertain when any of the Millstone units will be
allowed to restart. The New England Power Pool (NEPOOL) has indicated
that if the Millstone units do not return to service during the summer
peak-load period, there could, under certain circumstances, be
insufficient power supply available in New England to meet demand.
NEPOOL members are taking steps to prepare to meet summer load
contingencies.
Operating Revenue
- -----------------
The following table summarizes the changes in operating revenue:
Increase (Decrease) in Operating Revenue
First Quarter
-------------
1996 vs 1995
-------------
(In Millions)
Sales increase $ 2
Fuel recovery 10
Narragansett integrated
facilities credit (2)
Other (1)
---
$ 9
===
For a discussion of fuel recovery see the fuel costs discussion
in the Operating Expenses section.
The entire output of Narragansett's 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 credits in
1996 relate to costs associated with the dismantlement of a previously
retired South Street generating facility and with Narragansett's
portion of the repowered Manchester Street generating station that
went into service in the second half of 1995.
Operating Expenses
- ------------------
The following table summarizes the changes in operating
expenses:
Increase (Decrease) in Operating Expenses
First Quarter
------------- 1996 vs 1995
-------------
(In Millions)
Fuel costs $ 12
Purchased energy excluding fuel (12)
Operation and maintenance (11)
Depreciation and amortization:
Seabrook 1 and Oil Conservation
Adjustment (OCA) amortization (7)
Manchester Street Station depreciation 4
Taxes 8
----
$ (6)
====
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 in
the first quarter of 1996 reflects increased kWh sales and
additional fixed pipeline demand charges. In accordance with a
1992 rate agreement, 50 percent of most of the Company's fixed
pipeline demand charges in prior years were deferred pending
completion of the Manchester Street Station repowering project.
The project was completed in the second half of 1995 and,
accordingly, no further amounts are being deferred. The
previously deferred amounts are currently being amortized over
25 years.
Purchased energy excluding fuel represents the remainder of
purchased electric energy costs. The decrease in purchased
energy excluding fuel for the first quarter of 1996 is
principally due to first quarter 1995 overhauls and refueling
shutdowns of three partially-owned nuclear power units. Two of
these units are scheduled for refueling shutdowns in the second
half of 1996. Under the existing terms of certain purchased
power contracts with other utilities, the Company is reducing
its power purchases in 1996, which will result in a $19 million
reduction in purchased power expenses.
The decrease in operation and maintenance costs primarily
reflects overhauls at wholly-owned generating units in the first
quarter of 1995, partially offset by general increases in costs
in other areas.
The decrease in Seabrook 1 and OCA amortization reflects the
completion in mid-1995 of the recovery of a portion of Seabrook
1 costs and certain coal conversion costs. These decreases were
partially offset by the depreciation of the Manchester Street
Station.
The change in taxes for the first quarter of 1996 is
primarily due to the change in income for those periods and
partially due to increased property taxes, including taxes on
the Manchester Street Station.
Allowance For Funds Used During Construction (AFDC)
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AFDC decreased for the first quarter of 1996 due to decreased
construction work in progress associated with the Manchester
Street Station repowering project. The accrual of AFDC ended
for this project when the units began commercial operation in
the second half of 1995.
Utility Plant Expenditures and Financing
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Cash expenditures for utility plant totaled $24 million for
the first three months of 1996, including $9 million related to
the Manchester Street Station repowering project. The funds
necessary for utility plant expenditures during the period were
provided by net cash from operating activities, after the
payment of dividends and short-term debt issuances. In the
first quarter of 1996, the Company refinanced $40 million of
variable rate mortgage bonds.
At March 31, 1996, the Company had $135 million of short-term
debt outstanding, including $122 million of commercial paper
borrowings and $13 million of borrowings from affiliates. At
March 31, 1996, the Company had lines of credit and bond
purchase facilities with banks totaling $510 million which are
available to provide liquidity support for commercial paper
borrowings and for $372 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 March 31, 1996. For the
twelve-month period ending March 31, 1996, the ratio of earnings
to fixed charges was 5.24.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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Information concerning a settlement agreement regarding a
lawsuit filed against the Company by Milford Power Limited
Partnership on October 28, 1994, and intervention into a Company
rate filing, discussed in this report in Note D of Notes to
Unaudited Financial Statements, is incorporated herein by
reference and made a part hereof.
Information concerning restructuring dockets before state and
federal regulatory agencies, discussed in Part I of this report
in Management's Discussion and Analysis of Financial Condition
and Results of Operations, is incorporated herein by reference
and made a part hereof.
Item 6. Exhibits and Reports on Form 8-K
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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 reports on Form 8-K dated February 1, 1996,
and February 16, 1996, both 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 March 31, 1996 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: May 10, 1996