FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification No.
- ----------- ---------------------------------- ------------------
1-5324 NORTHEAST UTILITIES 04-2147929
(a Massachusetts voluntary association)
174 Brush Hill Avenue
West Springfield, Massachusetts 01090-2010
Telephone: (413) 785-5871
0-11419 THE CONNECTICUT LIGHT AND POWER COMPANY 06-0303850
(a Connecticut corporation)
107 Selden Street
Berlin, Connecticut 06037-1616
Telephone: (860) 665-5000
1-6392 PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE 02-0181050
(a New Hampshire corporation)
1000 Elm Street
Manchester, New Hampshire 03105-0330
Telephone: (603) 669-4000
0-7624 WESTERN MASSACHUSETTS ELECTRIC COMPANY 04-1961130
(a Massachusetts corporation)
174 Brush Hill Avenue
West Springfield, Massachusetts 01090-2010
Telephone: (413) 785-5871
33-43508 NORTH ATLANTIC ENERGY CORPORATION 06-1339460
(a New Hampshire corporation)
1000 Elm Street
Manchester, New Hampshire 03105-0330
Telephone: (603) 669-4000
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.
Yes X No ___
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of the latest practicable date:
Company - Class of Stock Outstanding at April 30, 2000
- ------------------------ -----------------------------
Northeast Utilities
Common shares, $5.00 par value 148,535,649 shares
The Connecticut Light and Power Company
Common stock, $10.00 par value 7,584,884 shares
Public Service Company of New Hampshire
Common stock, $1.00 par value 1,000 shares
Western Massachusetts Electric Company
Common stock, $25.00 par value 590,093 shares
North Atlantic Energy Corporation
Common stock, $1.00 par value 1,000 share
GLOSSARY OF TERMS
The following is a glossary of frequently used abbreviations or acronyms that
are found throughout this report:
COMPANIES
CL&P............................. The Connecticut Light and Power Company
Con Edison....................... Consolidated Edison, Inc.
CYAPC............................ Connecticut Yankee Atomic Power Company
HEC.............................. HEC Inc.
HWP.............................. Holyoke Water Power Company
Mode 1........................... Mode 1 Communications, Inc.
NAEC............................. North Atlantic Energy Corporation
NGC.............................. Northeast Generation Company
NNECO............................ Northeast Nuclear Energy Company
NU............................... Northeast Utilities
NU system........................ The Northeast Utilities system companies,
including NU and its wholly owned operating
subsidiaries: CL&P, PSNH, WMECO, NAEC, and
Yankee
NUSCO............................ Northeast Utilities Service Company
PSNH............................. Public Service Company of New Hampshire
Select Energy.................... Select Energy, Inc.
WMECO............................ Western Massachusetts Electric Company
Yankee........................... Yankee Energy System, Inc.
Yankee Gas....................... Yankee Gas Services Company
YESCO............................ Yankee Energy Services Company
GENERATING UNITS
Millstone 1...................... Millstone Unit No. 1, a 660 MW nuclear
unit completed in 1970
Millstone 2...................... Millstone Unit No. 2, an 870 MW nuclear
electric generating unit completed in 1975
Millstone 3...................... Millstone Unit No. 3, a 1,154 MW nuclear
electric generating unit completed in 1986
Seabrook......................... Seabrook Unit No. 1, a 1,148 MW nuclear
electric generating unit completed in 1986;
Seabrook went into service in 1990.
REGULATORS
DEP.............................. Department of Environmental Protection
DPUC............................. Connecticut Department of Public Utility
Control
DTE.............................. Massachusetts Department of
Telecommunications and Energy
FERC............................. Federal Energy Regulatory Commission
NHPUC............................ New Hampshire Public Utilities Commission
SEC.............................. Securities and Exchange Commission
OTHER
EPS.............................. Earnings per share
Moody's.......................... Moody's Investors Service
MW............................... Megawatt
NU 1999 Form 10-K................ The NU system combined 1999 Form 10-K as
filed with the SEC.
O&M.............................. Operation and maintenance
Settlement Agreement............. "Agreement to Settle PSNH Restructuring"
SFAS............................. Statement of Financial Accounting Standards
Northeast Utilities and Subsidiaries
The Connecticut Light and Power Company and Subsidiaries
Public Service Company of New Hampshire
Western Massachusetts Electric Company and Subsidiary
North Atlantic Energy Corporation
TABLE OF CONTENTS
Page
----
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
and
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations
For the following companies:
Northeast Utilities and Subsidiaries
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999................... 2
Consolidated Statements of Income -
Three Months Ended March 31, 2000 and 1999............. 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999............. 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 6
Report of Independent Public Accountants............... 16
The Connecticut Light and Power Company and Subsidiaries
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999................... 18
Consolidated Statements of Income -
Three Months Ended March 31, 2000 and 1999............. 20
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999............. 21
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 22
Public Service Company of New Hampshire
Balance Sheets -
March 31, 2000 and December 31, 1999................... 26
Statements of Income -
Three Months Ended March 31, 2000 and 1999............. 28
Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999............. 29
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 30
Western Massachusetts Electric Company and Subsidiary
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999................... 34
Consolidated Statements of Income -
Three Months Ended March 31, 2000 and 1999............. 36
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999............. 37
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 38
North Atlantic Energy Corporation
Balance Sheets -
March 31, 2000 and December 31, 1999................... 42
Statements of Income -
Three Months Ended March 31, 2000 and 1999............. 44
Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999............. 45
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 46
Notes to Financial Statements (unaudited - all companies)... 48
Part II. Other Information
Item 1. Legal Proceedings................................ 58
Item 6. Exhibits and Reports on Form 8-K................. 59
Signatures.......................................................... 61
NORTHEAST UTILITIES AND SUBSIDIARIES
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
2000 December 31,
(Unaudited) 1999
------------- -------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at cost:
Electric................................................ $ 9,237,679 $ 9,185,272
Gas and other........................................... 826,495 226,002
------------- -------------
10,064,174 9,411,274
Less: Accumulated provision for depreciation......... 6,373,365 6,088,310
------------- -------------
3,690,809 3,322,964
Unamortized PSNH acquisition costs...................... 317,332 324,437
Construction work in progress........................... 179,516 177,504
Nuclear fuel, net....................................... 113,378 122,529
------------- -------------
Total net utility plant.............................. 4,301,035 3,947,434
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 717,246 711,910
Investments in regional nuclear generating
companies, at equity................................... 82,456 81,503
Other, at cost.......................................... 108,753 94,768
------------- -------------
908,455 888,181
------------- -------------
Current Assets:
Cash and cash equivalents............................... 369,738 255,154
Investments in securitizable assets..................... 80,742 107,620
Receivables, net........................................ 448,356 310,190
Unbilled revenues....................................... 88,918 75,728
Fuel, materials and supplies, at average cost........... 174,442 172,973
Recoverable energy costs, net - current portion......... 85,052 73,721
Prepayments and other................................... 130,591 75,894
------------- -------------
1,377,839 1,071,280
------------- -------------
Deferred Charges:
Regulatory assets:
Recoverable nuclear costs............................. 2,165,777 2,210,767
Income taxes, net..................................... 626,973 636,563
Deferred costs - nuclear plants....................... 91,572 111,588
Unrecovered contractual obligations................... 341,988 349,189
Recoverable energy costs, net......................... 201,246 228,166
Other................................................. 169,272 106,166
Unamortized debt expense................................ 43,839 39,192
Goodwill and other purchased intangible assets.......... 345,372 23,542
Other .................................................. 167,640 75,984
------------ ------------
4,153,679 3,781,157
------------ ------------
Total Assets.............................................. $ 10,741,008 $ 9,688,052
============ ============
The accompanying notes are an integral part of these financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
2000 December 31,
(Unaudited) 1999
------------- -------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common shareholders' equity:
Common shares, $5 par value - authorized
225,000,000 shares; 148,546,234 shares issued and
143,150,550 shares outstanding in 2000 and
137,393,829 shares issued and 131,870,284 shares
outstanding in 1999.................................. $ 742,731 $ 686,969
Capital surplus, paid in.............................. 1,102,278 940,726
Deferred contribution plan - employee stock
ownership plan...................................... (124,626) (127,725)
Retained earnings..................................... 642,092 581,817
Accumulated other comprehensive income................ 1,524 1,524
------------- -------------
Total common shareholders' equity.............. 2,363,999 2,083,311
Preferred stock not subject to mandatory redemption..... 136,200 136,200
Preferred stock subject to mandatory redemption......... 119,789 121,289
Long-term debt.......................................... 2,443,989 2,372,341
------------- -------------
Total capitalization........................... 5,063,977 4,713,141
------------- -------------
Minority Interest in Consolidated Subsidiary.............. 100,000 100,000
------------- -------------
Obligations Under Capital Leases.......................... 53,126 62,824
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 984,000 278,000
Long-term debt and preferred stock - current portion.... 346,123 503,315
Obligations under capital leases - current portion...... 115,285 118,469
Accounts payable........................................ 437,492 347,321
Accrued taxes........................................... 130,252 158,684
Accrued interest........................................ 56,088 37,904
Other................................................... 127,338 126,768
------------- ------------
2,196,578 1,570,461
------------- ------------
Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes....................... 1,721,263 1,688,114
Accumulated deferred investment tax credits............. 144,882 140,407
Decommissioning obligation - Millstone 1................ 686,609 702,351
Deferred contractual obligations........................ 341,983 358,387
Other................................................... 432,590 352,367
------------- ------------
3,327,327 3,241,626
------------- ------------
Commitments and Contingencies (Note 2)
Total Capitalization and Liabilities...................... $ 10,741,008 $ 9,688,052
============= =============
The accompanying notes are an integral part of these financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
----------------------------
2000 1999
------------- -------------
(Thousands of Dollars,
except share information)
Operating Revenues.................................... $ 1,382,321 $ 1,043,407
------------- -------------
Operating Expenses:
Operation -
Fuel, purchased and net interchange power........ 768,372 433,313
Other............................................ 204,881 183,377
Maintenance......................................... 50,768 97,151
Depreciation........................................ 60,392 84,348
Amortization of regulatory assets, net.............. 41,712 62,526
Federal and state income taxes...................... 62,425 22,440
Taxes other than income taxes....................... 58,362 70,614
------------- -------------
Total operating expenses...................... 1,246,912 953,769
------------- -------------
Operating Income...................................... 135,409 89,638
------------- -------------
Other Income/(Loss):
Equity in earnings of regional nuclear generating
and transmission companies....................... 1,826 1,493
Other, net.......................................... 2,847 (1,743)
Minority interest in loss of subsidiary............. (2,325) (2,325)
Income taxes........................................ 7,836 6,394
------------- -------------
Other income, net............................. 10,184 3,819
------------- -------------
Income before interest charges................ 145,593 93,457
------------- -------------
Interest Charges:
Interest on long-term debt.......................... 55,884 67,459
Other interest...................................... 11,680 4,053
Deferred interest - nuclear plants.................. (1,316) (2,440)
------------- -------------
Interest charges, net......................... 66,248 69,072
------------- -------------
Income after interest charges................. 79,345 24,385
Preferred Dividends of Subsidiaries................... 4,758 5,941
------------- -------------
Net Income............................................ $ 74,587 $ 18,444
============= =============
Earnings Per Common Share - Basic and Diluted......... $ 0.55 $ 0.14
============= =============
Common Shares Outstanding (average)................... 135,668,372 131,110,491
============= =============
The accompanying notes are an integral part of these financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-----------------------
2000 1999
----------- -----------
(Thousands of Dollars)
Operating Activities:
Income after interest charges............................. $ 79,345 $ 24,385
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation............................................ 60,392 84,348
Deferred income taxes and investment tax credits, net... (10,395) (17,522)
Amortization of regulatory assets, net.................. 41,712 62,526
Amortization of recoverable energy costs................ 15,476 38,702
Net other (uses)/sources of cash (32,883) 45,984
Changes in working capital:
Receivables and unbilled revenues, net.................. (48,189) 5,732
Fuel, materials and supplies............................ 1,719 2,923
Accounts payable........................................ 69,657 (19,312)
Accrued taxes........................................... (51,943) 31,379
Investments in securitizable assets..................... 26,878 54,101
Other working capital (excludes cash)................... (37,663) (11,012)
----------- -----------
Net cash provided by operating activities................... 114,106 302,234
----------- -----------
Investing Activities:
Investment in plant:
Electric, gas and other utility plant................... (62,910) (51,447)
Nuclear fuel............................................ (5,145) (34,942)
----------- -----------
Net cash flows used for investments in plant.............. (68,055) (86,389)
Investments in nuclear decommissioning trusts............. (16,169) (17,855)
Other investment activities, net.......................... (16,827) (883)
Payment for purchase of Yankee, net of cash acquired...... (260,347) -
----------- -----------
Net cash flows used in investing activities................. (361,398) (105,127)
----------- -----------
Financing Activities:
Issuance of common shares................................. 124 1,341
Issuance of long-term debt................................ 26,477 200
Net increase in short-term debt........................... 636,000 195,000
Reacquisitions and retirements of long-term debt.......... (280,155) (186,700)
Reacquisitions and retirements of preferred stock......... (1,500) (1,500)
Cash dividends on preferred stock......................... (4,758) (5,941)
Cash dividends on common shares........................... (14,312) -
----------- -----------
Net cash flows provided by financing activities............. 361,876 2,400
----------- -----------
Net increase in cash and cash equivalents for the period.... 114,584 199,507
Cash and cash equivalents - beginning of period............. 255,154 136,155
----------- -----------
Cash and cash equivalents - end of period................... $ 369,738 $ 335,662
=========== ===========
Supplemental schedule of noncash investing and financing activities:
NU acquired all of the common stock of Yankee on March 1, 2000, for $712,484. In
conjunction with the acquisition, common stock was issued and debt was assumed as follows:
Fair value of assets acquired $ 712,484
Cash paid (261,370)
NU common stock issued (217,114)
-----------
Debt assumed $ 234,000
===========
The accompanying notes are an integral part of these financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
This discussion should be read in conjunction with the consolidated financial
statements and footnotes in this Form 10-Q, the 1999 Form 10-K and current
reports on Form 8-K dated February 29, 2000, March 1, 2000, March 14, 2000,
and March 29, 2000.
FINANCIAL CONDITION
Overview
The financial improvement that continued throughout 1999 continued through the
three months ended March 31, 2000. Northeast Utilities' (NU) results benefited
from strong operating performance at the Millstone 2 and 3 and Seabrook nuclear
units, retail sales growth and continued control over operation and maintenance
(O&M) expenses. The financial improvement allowed NU to continue its 10 cent
per share quarterly dividend in the first quarter of 2000.
NU earned $74.6 million, or $0.55 per share, for the three months ended
March 31, 2000, compared with $18.4 million, or $0.14 per share, for the three
months ended March 31, 1999. These results also reflect $1.8 million of
earnings from Yankee Energy System, Inc. (Yankee). The impact of Yankee's
earnings combined with the issuance of approximately 11.1 million NU common
shares to former Yankee shareholders had an immaterial impact on NU's earnings
per share for the three months ended March 31, 2000.
For the three months ended March 31, 2000, NU's revenues totaled $1.38 billion,
up 32 percent from revenues of $1.04 billion for the three months ended
March 31, 1999. The unregulated energy subsidiaries', which include Select
Energy, Inc. (Select Energy), Northeast Generation Company (NGC), Northeast
Generation Services Company, Holyoke Water Power Company (HWP), and HEC Inc.
(HEC), revenues totaled $437.3 million for the three months ended March 31,
2000, compared with $101.6 million for the three months ended March 31, 1999.
The growth was primarily due to the increased revenues of NU's unregulated
energy subsidiaries and higher retail sales from NU's regulated subsidiaries.
Revenues from NU's regulated subsidiaries also benefited from a 3.2 percent
increase in retail sales volumes for the three months ended March 31, 2000,
compared with the three months ended March 31, 1999, despite mild winter
weather. However, as an offset to the growth in revenues, The Connecticut
Light and Power Company's (CL&P) retail rates were reduced in January 2000
by an additional 5 percent.
Aside from increased revenues, the primary reason for better operating results
for the three months ended March 31, 2000, was the continuing strong operating
performance of Millstone 2 and 3. In addition, nonfuel O&M expenses were
reduced to $256 million for the three months ended March 31, 2000, compared
with $281 million for the three months ended March 31, 1999.
The unregulated energy subsidiaries' earned $3.7 million for the three months
ended March 31, 2000, compared with a net loss of $4.7 million for the three
months ended March 31, 1999. In July 1999, NGC was announced as one of the
winning bidders of certain CL&P and Western Massachusetts Electric Company
(WMECO) hydroelectric generation assets. Management expected this transaction
to close by January 1, 2000. The transaction actually closed on March 14,
2000. Had the transaction closed prior to January 1, 2000, management
estimated the unregulated energy subsidiaries' earnings for the three months
ended March 31, 2000, would have increased approximately $6 million. As a
result of the delayed closing, CL&P and WMECO recognized the earnings
associated with the generation assets transferred.
NU's ability to continue improving its financial performance will depend
largely on continued regulated sales growth, the successful control of O&M
expenses, the continued strong operating performance of the nuclear units, and
the growth and profitability of the unregulated energy businesses. However,
management expects NU's earnings in the second quarter of 2000 to be
significantly lower than first quarter earnings primarily due to the
seasonality of NU's sales, including those of the Yankee Gas Services Company
(Yankee Gas), and the scheduled 45-day refueling outage at Millstone 2.
NU also hopes to complete in 2000 the majority of restructuring work remaining,
primarily the implementation of the "Agreement to Settle PSNH Restructuring"
(Settlement Agreement) in New Hampshire, the issuance of rate reduction bonds
(securitization) to lower the revenue requirements related to stranded costs at
CL&P, Public Service Company of New Hampshire (PSNH) and WMECO, and the auction
of NU's ownership interests in the Millstone units. Additionally, NU plans to
complete its proposed merger with Consolidated Edison, Inc. (Con Edison) in
2000.
Mergers
Con Edison: NU and Con Edison filed with various state and federal regulatory
bodies in January 2000 to secure approval of the merger. The Maine Public
Utilities Commission and the Vermont Public Service Board granted approval of
the merger between NU and Con Edison on March 17, 2000, and March 30, 2000,
respectively. On April 14, 2000, NU's and Con Edison's shareholders approved
the proposed merger of the two companies.
The merger is subject to the approval of other regulatory agencies. NU expects
that, following the receipt of all required regulatory approvals, the merger
will be completed in 2000. For further information regarding the Con Edison
merger, see Note 9, "Merger Agreement with Con Edison," to the consolidated
financial statements.
Yankee: The Yankee merger received Securities and Exchange Commission approval
in January 2000. The merger closed on March 1, 2000. For further information
regarding the Yankee merger, see Note 8, "Merger with Yankee," to the
consolidated financial statements.
Liquidity
Net cash flows provided by operations were $114.1 million for the three months
ended March 31, 2000, compared with $302.2 million for the three months ended
March 31, 1999. Strong sales growth and continued control of O&M expenses
resulted in increased income after interest charges of $79.3 million for the
three months ended March 31, 2000, compared with $24.4 million for the three
months ended March 31, 1999. The increase in operating cash flows resulting
from the increase in income after interest charges is offset by changes in
working capital, primarily increases in receivables and unbilled revenues and
accrued taxes.
Including construction expenditures, investments in nuclear decommissioning
trusts and the payment for the purchase of Yankee, net cash flows used in
investing activities were $361.4 million for the three months ended March 31,
2000, compared with $105.1 million for the three months ended March 31, 1999.
In March 2000, CL&P and WMECO closed on the transfer of 1,289 megawatts (MW)
of hydroelectric generation assets in Connecticut and Massachusetts to NGC in
exchange for $865.5 million. To finance the transfer, on March 9, 2000, NGC
entered into a new short-term credit agreement with a total commitment amount
of $865.5 million, collateralized by the generation assets transferred. Under
this credit agreement, $435.5 million of the commitment matured on March 14,
2000, and was repaid. The remaining $430 million under the credit agreement,
unless extended, has a maturity date of December 29, 2000, and was outstanding
at March 31, 2000. For further information regarding the NGC short-term credit
agreement, see Note 7, "Short-Term Debt," to the consolidated financial
statements.
CL&P and WMECO used a portion of the proceeds from the transfer to retire
$273.2 million of first mortgage bonds in March 2000.
The net cash flows provided by financing activities were $361.9 million for the
three months ended March 31, 2000, compared with $2.4 million for the three
months ended March 31, 1999. These net cash flows included a net increase in
short-term debt of $636 million for the three months ended March 31, 2000,
compared with $195 million for the three months ended March 31, 1999. In
addition, net cash flows included $281.7 million paid for the three months
ended March 31, 2000, to retire long-term debt and preferred stock, compared
with $188.2 million for the three months ended March 31, 1999. Cash dividends
on common shares paid for the three months ended March 31, 2000, were $14.3
million, compared with no cash dividends for the three months ended March 31,
1999. Payments made for preferred stock dividends were $4.8 million and $5.9
million for the three months ended March 31, 2000, and 1999, respectively.
During April 2000, Moody's Investors Service (Moody's) upgraded the debt
ratings of NU, PSNH and North Atlantic Energy Corporation (NAEC). All NU
system securities are under review for possible upgrades, or on "credit watch"
with positive implications by Standard & Poor's, Moody's and Fitch IBCA. The
rating agency upgrades will reduce the NU system's borrowing costs by
approximately $2.4 million on an annual basis.
Separately, to finance the cash portion of the Yankee merger, on March 1, 2000,
NU entered into a new term loan agreement for $266 million. Unless extended,
the new term loan agreement will expire on February 28, 2001. At March 31,
2000, there was $263 million in borrowings under this facility. For further
information regarding the Yankee term loan agreement see Note 8, "Merger with
Yankee," to the consolidated financial statements.
On April 12, 2000, the NU Board of Trustees approved the payment of a 10 cent
per share dividend, payable on June 30, 2000, to shareholders of record as
of June 1, 2000.
CL&P also has arranged financing through the sale of its accounts receivable.
CL&P can finance up to $200 million through this facility. As of March 31,
2000, CL&P had $170 million outstanding under this facility.
During 2000, the NU system companies hope to receive regulatory approval to
begin the process of securitizing in excess of $2 billion of approved stranded
costs. Securitization involves issuing rate reduction bonds with interest
rates lower than NU's weighted average cost of capital. Proceeds from
securitization will be used to significantly reduce the capitalization of NU's
regulated subsidiaries and buyout or buydown certain purchased-power contracts
with a number of nonutility generators.
Restructuring
Connecticut: In May 2000, CL&P intends to file its securitization plan with
the Connecticut Department of Public Utility Control (DPUC). The
securitization plan requires DPUC approval prior to implementation. For
information regarding commitments and contingencies related to Connecticut
restructuring matters, see Note 2A, "Commitments and Contingencies -
Restructuring - Connecticut," to the consolidated financial statements.
New Hampshire: In August 1999, NU, PSNH and the state of New Hampshire signed
the Settlement Agreement which will resolve a number of pending regulatory and
court proceedings related to PSNH. On April 19, 2000, the New Hampshire Public
Utilities Commission (NHPUC) issued an order relating to the proposed
Settlement Agreement. On May 1, 2000, PSNH submitted its response to the order
with the NHPUC, contemporaneous with a motion for rehearing on the NHPUC
directive requiring PSNH to immediately reduce stranded costs with certain
regulatory obligations. On May 3, 2000, the NHPUC granted PSNH's motion for
rehearing. A hearing date of May 17, 2000, has been scheduled. For further
information regarding commitments and contingencies related to New Hampshire
restructuring matters, see Note 2A, "Commitments and Contingencies -
Restructuring - New Hampshire," to the consolidated financial statements.
Massachusetts: On March 31, 2000, WMECO submitted a transition charge
reconciliation filing to the Massachusetts Department of Telecommunications and
Energy (DTE). This filing covered the 22-month period beginning March 1, 1998,
through December 31, 1999, and reconciled actual transition costs for the
period with actual transition charge revenues. The reconciliation filing shows
that WMECO underrecovered its transition costs by $15 million for the period,
including carrying costs. Approval of the filing by the DTE remains
outstanding.
On April 18, 2000, WMECO filed its $261 million securitization plan with the
DTE. The securitization plan requires DTE approval prior to implementation.
For further information regarding commitments and contingencies related to
Massachusetts restructuring matters, see Note 2A, "Commitments and
Contingencies - Restructuring - Massachusetts," to the consolidated financial
statements.
Unregulated Energy Services
For the three months ended March 31, 2000, the unregulated energy subsidiaries
earned $3.7 million on revenues of $437.3 million, compared with a net loss of
$4.7 million on revenues of $101.6 million for the three months ended March 31,
1999. Beginning in January 2000, Select Energy's contract with NGC, to
purchase 1,289 MW of capacity and energy significantly reduced the
load-following risk and allowed Select Energy to better manage its portfolio
profitability. On January 1, 2000, Select Energy began serving one-half of
CL&P's standard offer requirement for a 4-year period. Select Energy's
obligation to service this load requirement, which was approximately 700 MW
during the first quarter, will increase to approximately 2,000 MW in July
2000, when 100 percent of CL&P's customers will be able to choose their
electric supplier. Select Energy also extended its contract with a
Massachusetts utility to provide in excess of 3,000 MW of their standard offer
requirement. The contract is in effect from January through June 2000. In
addition, beginning in January 2000, Select Energy assumed responsibility for
serving 30 market-based wholesale contracts, totaling approximately 500 MW,
throughout New England with electric energy supply that was previously
provided by CL&P and WMECO.
Select Energy is managing the service of this standard offer load through
various means including their contracts with NGC and HWP, their contracts
with other unaffiliated generating facilities and their purchase of 850 MW
of the output from the Millstone and Seabrook nuclear units. There is a
certain amount of risk inherent in the energy business. Select Energy manages
some of this risk by off-loading a portion of their obligation to service the
standard offer loads and also by purchasing insurance for the output from the
Millstone nuclear entitlements. Select Energy purchased insurance for January
and February 2000 and plans to purchase insurance for the output for June,
July and August 2000 to mitigate the unit outage risk associated with these
entitlements.
In addition to its licenses in Delaware, New Jersey, Maine, Pennsylvania,
New York, Massachusetts, Rhode Island, and New Hampshire, on April 19, 2000,
Select Energy received a final decision from the DPUC authorizing the company
to supply retail electricity in Connecticut's newly competitive electric
market. Select Energy became Connecticut's first approved competitive
electricity supplier in December 1999 when it received a 6-month provisional
license from the DPUC. Since that time, Select Energy has provided the DPUC
with additional information as required to make the provisional license
final.
Nuclear Generation
Millstone Nuclear Units: CL&P and WMECO have joint ownership interests of
81 percent and 19 percent, respectively, in Millstone 1 and 2. CL&P, WMECO
and PSNH have joint ownership interests of 52.93 percent, 12.24 percent and
2.85 percent, respectively, totaling 68.02 percent in Millstone 3. Northeast
Nuclear Energy Company, a wholly owned subsidiary of NU, acts as agent for
certain NU system companies and other New England utilities in operating the
Millstone units.
Millstone 2 and 3 achieved capacity factors of 78 percent and 100 percent
through March 31, 2000, respectively. Millstone 2 was taken out of service
on April 21, 2000, for a 45-day scheduled refueling and maintenance outage.
Millstone 3 has been on-line for 307 consecutive days as of April 30, 2000.
Nonfuel O&M expenses totaled $256 million and $281 million for the three months
ended March 31, 2000 and 1999, respectively. If the units operate as expected,
the revenues that result from the sale of the entitlements are expected to
recover CL&P's and WMECO's share of the nuclear operating costs including a
return of and on the remaining nuclear plant balances. As generation has been
deregulated for CL&P and WMECO, recovery of these costs is contingent on the
plants operating.
On April 19, 2000, the DPUC approved CL&P's divestiture plan for the Millstone
units. In its decision, the DPUC called for a process that would allow bidders
to choose whether to bid on one or more of the plants or the entire facility as
a whole and called for protection for current employees. Under the current
proposed divestiture timeline, the selection of a bidder(s) is expected in the
summer of 2000. Subsequent to the due diligence process, a public announcement
of the new owner(s) should occur in the fall of 2000. Then, pending state
and federal regulatory approvals, the closing is anticipated to be completed by
the spring of 2001.
Seabrook: CL&P and NAEC have joint ownership interests of 4.06 percent and
35.98 percent, respectively, in Seabrook. Seabrook achieved a capacity factor
of 96 percent through March 31, 2000. The next scheduled refueling and
maintenance outage is scheduled for October 2000.
CL&P anticipates auctioning its ownership interest in Seabrook, with the
ownership interest of its affiliate NAEC, after implementation of the
Settlement Agreement. The Settlement Agreement with the state of New Hampshire
requires divestiture prior to December 31, 2003.
Yankee Nuclear Companies: On April 7, 2000, the Connecticut Yankee Atomic
Power Company (CYAPC) filed a settlement agreement with the Federal Energy
Regulatory Commission (FERC). Parties to this settlement include the DPUC and
the Office of Consumer Counsel. If accepted by the FERC, this settlement
agreement will resolve issues that have been pending for three years and reduce
the collections needed to fund the decommissioning of CYAPC's nuclear unit.
Market Risk and Risk Management Instruments
Interest Rate Risk Management Instruments: Several NU subsidiaries hold
long-term debt exposing the NU system to interest rate risk. The NU system
uses swaps and collars to reduce this interest rate risk by essentially
creating offsetting market exposures. In order to hedge some of this risk,
interest rate risk management instruments have been entered into on NAEC's
$200 million variable-rate note and on Yankee's $49 million fixed-rate bonds.
Based on the derivative instruments which are currently being utilized by the
NU system companies to hedge some of their interest rate risks, there will not
be a material impact on earnings upon adoption of Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments
and Hedging Activities." For further information regarding interest rate
risk management instruments, see Note 3, "Interest Rate and Gas Supply Risk
Management Instruments," to the consolidated financial statements.
Gas Supply Risk Management Instruments: Yankee Gas has a gas service agreement
with certain customers to supply gas at fixed prices for a 10-year term
extending though 2005. Yankee Gas has hedged its gas price risk under this
agreement through a commodity swap agreement. Under this commodity swap
agreement, the purchase price of a specified quantity of gas is effectively
fixed over the term of the gas service agreement, which extends though 2005.
Based on the derivative instruments which are currently being utilized to hedge
some gas supply risks, there may be an impact on earnings upon adoption of
SFAS No. 133 which management has not estimated at this time. For further
information regarding gas supply risk management instruments, see Note 3,
"Interest Rate and Gas Supply Risk Management Instruments," to the consolidated
financial statements.
Unregulated Energy Services Market Risk: NU's unregulated companies, as major
providers of electricity and natural gas, have certain market risks inherent
in their business activities. Market risk represents the risk of loss that may
impact the companies' financial position, results of operations or cash flows
due to adverse changes in commodity market prices. Through March 31, 2000, the
unregulated companies increased their volume of electricity and gas marketing
activities, increasing their risks. The servicing of CL&P's standard offer
load is a significant risk for Select Energy, as this contract is for a 4-year
period at a fixed price. This risk is somewhat mitigated by Select Energy
entering into purchase contracts with other energy providers to supply a
portion of the standard offer requirement. If Select Energy is unable to
source this load requirement at prices below the standard offer contract price
as a result of energy price increases, Select Energy's earnings would be
impacted by these market fluctuations. Policies and procedures have been
established to manage these exposures including the use of risk management
instruments.
Other Matters
Environmental Matters: NU is subject to environmental laws and regulations
structured to mitigate or remove the effect of past operations and to improve
or maintain the quality of the environment. In conjunction with the Yankee
merger, NU assumed $35 million in additional environmental remediation reserves
as of March 1, 2000. For further information regarding the Yankee merger, see
Note 8, "Merger with Yankee," to the consolidated financial statements.
Other Commitments and Contingencies: NU is subject to other commitments and
contingencies primarily relating to the nuclear auction, long-term contractual
arrangements and nuclear litigation. For further information regarding these
other commitments and contingencies, see Note 2, "Commitments and
Contingencies," to the consolidated financial statements.
Forward Looking Statements: This discussion and analysis includes forward
looking statements, which are statements of future expectations and not facts.
Words such as estimates, expects, anticipates, intends, plans, and similar
expressions identify forward looking statements. Actual results or outcomes
could differ materially as a result of further actions by state and federal
regulatory bodies, competition and industry restructuring, changes in economic
conditions, changes in historical weather patterns, changes in laws,
developments in legal or public policy doctrines, technological developments,
and other presently unknown or unforeseen factors.
RESULTS OF OPERATIONS
The components of significant income statement variances for the first quarter
of 2000 are provided in the table below.
Income Statement Variances
(Millions of Dollars)
2000 over/(under) 1999
----------------------
Amount Percent
------ -------
Operating Revenues $339 32%
Fuel, purchased and net interchange power 335 77
Other operation 22 12
Maintenance (46) (48)
Depreciation (24) (28)
Amortization of regulatory assets, net (21) (33)
Federal and state income taxes 39 (a)
Taxes other than income taxes (12) (17)
Net Income 56 (a)
(a) Percent greater than 100.
Comparison of the First Quarter of 2000 to the First Quarter of 1999
Operating Revenues
Total operating revenues increased by $339 million or 32 percent in the first
quarter of 2000, compared with the same period of 1999, primarily due to the
higher revenues of the competitive companies ($146 million), higher regulated
wholesale revenues ($109 million), gas revenues from Yankee ($36 million) and
higher regulated retail revenues ($17 million).
The competitive companies' revenue increase is primarily due to higher revenues
from Select Energy ($311 million) and HEC ($14 million). Select Energy's
revenues are higher as a result of the expansion of its electric and gas
business. The regulated wholesale revenues are higher as a result of higher
energy sales and related capacity and transmission revenues. Yankee revenues
represent revenues for one month from the date of merger. The regulated retail
revenues are higher primarily as a result of higher retail sales ($31 million)
and the impact of Millstone 2 being returned to CL&P's rate base ($20
million), partially offset by a CL&P rate reduction effective January 1, 2000
($37 million). Regulated retail kilowatt-hour sales increased by 3.2 percent
in 2000.
Fuel, Purchased and Net Interchange Power
Fuel, purchased and net interchange power expense increased in 2000, primarily
due to higher purchased energy and capacity costs as a result of higher sales
for Select Energy ($297 million), and higher purchased power for the regulated
subsidiaries to meet sales demand, partially offset by lower replacement power
costs due to the return to service of Millstone 2 ($28 million).
Other Operation and Maintenance
Other O&M expenses decreased in 2000, primarily due to lower spending at the
Millstone units ($38 million) and lower expenses due to the sale of certain
CL&P and WMECO fossil and hydroelectric generation assets ($8 million),
partially offset by higher operating costs of the unregulated businesses
($14 million) and the addition of Yankee ($9 million).
Depreciation
Depreciation expense decreased in 2000, primarily due to the reclassification
of the depreciation on the nuclear plants to regulatory assets ($21 million).
Amortization of Regulatory Assets, Net
Amortization of regulatory assets, net decreased in 2000, primarily due to
changes in amortization levels as a result of restructuring ($21 million) and
the completion of the amortization of CL&P's cogeneration deferral in the first
quarter of 1999 ($6 million). These decreases were partially offset by the
reclassification of the depreciation on the nuclear plants to regulatory assets
($21 million).
Federal and State Income Taxes
Federal and state income taxes increased in 2000, primarily due to higher book
taxable income.
Taxes Other Than Income Taxes
Taxes other than income taxes decreased in 2000, primarily due to lower CL&P
gross earnings taxes ($7 million) and lower local property taxes ($3 million).
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Northeast Utilities:
We have reviewed the accompanying consolidated balance sheet of Northeast
Utilities (a Massachusetts trust) and subsidiaries as of March 31, 2000, and
the related consolidated statements of income and cash flows for the
three-month periods ended March 31, 2000 and 1999. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999 and the
related consolidated statements of income, comprehensive income, shareholder's
equity and cash flows for the year then ended (not presented separately
herein), in our report dated January 25, 2000, we expressed an unqualified
opinion on those financial statements. In our opinion, the information set
forth in the accompanying consolidated balance sheet as of December 31, 1999,
is fairly stated in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Hartford, Connecticut
May 10, 2000
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
2000 December 31,
(Unaudited) 1999
------------- -------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 5,666,637 $ 5,811,126
Less: Accumulated provision for depreciation......... 4,149,201 4,234,771
------------- -------------
1,517,436 1,576,355
Construction work in progress........................... 97,668 115,529
Nuclear fuel, net....................................... 72,493 80,766
------------- -------------
Total net utility plant.............................. 1,687,597 1,772,650
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 521,127 516,796
Investments in regional nuclear generating
companies, at equity................................... 55,080 54,472
Other, at cost.......................................... 32,677 36,696
------------- -------------
608,884 607,964
------------- -------------
Current Assets:
Cash.................................................... 6,527 364
Investments in securitizable assets..................... 81,125 107,620
Notes receivable from affiliated companies.............. 93,400 -
Receivables, net........................................ 25,031 19,680
Accounts receivable from affiliated companies........... 112,779 3,390
Fuel, materials and supplies, at average cost........... 36,628 37,603
Prepayments and other................................... 179,810 148,628
------------- -------------
535,300 317,285
------------- -------------
Deferred Charges:
Regulatory assets:
Recoverable nuclear costs............................. 1,169,339 1,781,929
Income taxes, net..................................... 391,260 399,467
Unrecovered contractual obligations................... 227,157 228,944
Recoverable energy costs, net......................... 87,160 89,422
Other................................................. 70,693 64,333
Unamortized debt expense................................ 15,417 16,323
Other................................................... 21,476 19,967
------------- -------------
1,982,502 2,600,385
------------- -------------
Total Assets.............................................. $ 4,814,283 $ 5,298,284
============= =============
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
2000 December 31,
(Unaudited) 1999
------------- -------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock, $10 par value - authorized
24,500,000 shares; 7,584,884 shares outstanding in 2000
and 12,222,930 shares outstanding in 1999................ $ 75,849 $ 122,229
Capital surplus, paid in.................................. 412,339 665,598
Retained earnings......................................... 200,058 153,254
Accumulated other comprehensive income.................... 416 416
------------- -------------
Total common stockholder's equity................ 688,662 941,497
Preferred stock not subject to mandatory redemption....... 116,200 116,200
Preferred stock subject to mandatory redemption........... 79,789 79,789
Long-term debt............................................ 1,223,899 1,241,051
------------- -------------
Total capitalization............................. 2,108,550 2,378,537
------------- -------------
Minority Interest in Consolidated Subsidiary................ 100,000 100,000
------------- -------------
Obligations Under Capital Leases............................ 43,878 50,969
------------- -------------
Current Liabilities:
Notes payable to banks.................................... - 90,000
Notes payable to affiliated company....................... - 11,700
Long-term debt and preferred stock - current portion...... 19,750 178,755
Obligations under capital leases - current portion........ 91,346 93,431
Accounts payable.......................................... 170,211 101,106
Accounts payable to affiliated companies.................. 127,393 3,215
Accrued taxes............................................. 29,360 169,214
Accrued interest.......................................... 21,267 18,640
Other..................................................... 42,873 26,347
------------- -------------
502,200 692,408
------------- -------------
Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes......................... 1,005,145 999,473
Accumulated deferred investment tax credits............... 105,241 107,064
Decommissioning obligation - Millstone 1.................. 576,181 580,320
Deferred contractual obligations.......................... 227,152 238,142
Other..................................................... 145,936 151,371
------------- -------------
2,059,655 2,076,370
------------- -------------
Commitments and Contingencies (Note 2)
Total Capitalization and Liabilities........................ $ 4,814,283 $ 5,298,284
============= =============
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
--------------------------
2000 1999
----------- -----------
(Thousands of Dollars)
Operating Revenues.................................... $ 747,976 $ 606,997
----------- -----------
Operating Expenses:
Operation -
Fuel, purchased and net interchange power........ 430,424 260,829
Other............................................ 101,328 112,764
Maintenance......................................... 27,579 64,800
Depreciation........................................ 32,520 55,342
Amortization of regulatory assets, net.............. 7,718 35,445
Federal and state income taxes...................... 38,591 9,983
Taxes other than income taxes....................... 33,795 47,422
----------- -----------
Total operating expenses...................... 671,955 586,585
----------- -----------
Operating Income...................................... 76,021 20,412
----------- -----------
Other Income/(Loss):
Equity in earnings of regional nuclear
generating companies.............................. 813 555
Other, net.......................................... (834) (497)
Minority interest in loss of subsidiary............. (2,325) (2,325)
Income taxes........................................ 1,256 4,228
----------- -----------
Other (loss)/income, net...................... (1,090) 1,961
----------- -----------
Income before interest charges................ 74,931 22,373
----------- -----------
Interest Charges:
Interest on long-term debt.......................... 24,099 33,037
Other interest...................................... 1,189 3,041
----------- -----------
Interest charges, net......................... 25,288 36,078
----------- -----------
Net Income/(Loss)..................................... $ 49,643 $ (13,705)
=========== ===========
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-----------------------
2000 1999
----------- -----------
(Thousands of Dollars)
Operating Activities:
Net income/(loss)............................................ $ 49,643 $ (13,705)
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation............................................... 32,520 55,342
Deferred income taxes and investment tax credits, net...... 12,084 (23,733)
Amortization of regulatory assets, net..................... 7,718 35,445
Amortization of demand-side-management costs, net.......... - 8,458
Amortization of recoverable energy costs................... 2,262 29,335
Nuclear unrecoverable costs................................ 2,344 1,371
Amortization of gain on transfer of utility plant.......... 5,627 -
Allocation of ESOP benefits................................ (106) -
Net other (uses)/sources of cash........................... (13,882) 31,383
Changes in working capital:
Receivables........................................... (114,740) (35,228)
Fuel, materials and supplies............................... 975 (224)
Accounts payable........................................... 193,283 (23,631)
Accrued taxes.............................................. (139,854) 4,052
Investments in securitizable assets........................ 26,495 48,047
Other working capital (excludes cash)...................... (12,029) 2,260
----------- -----------
Net cash flows provided by operating activities................ 52,340 119,172
----------- -----------
Investing Activities:
Investment in plant:
Electric utility plant..................................... (40,223) (33,834)
Nuclear fuel............................................... (555) (21,629)
----------- -----------
Net cash flows used for investments in plant................. (40,778) (55,463)
Investment in NU system Money Pool........................... (93,400) (61,875)
Investments in nuclear decommissioning trusts................ (12,894) (13,353)
Other investment activities, net............................. (2,408) (484)
Net proceeds from the transfer of utility plant.............. 686,807 -
----------- -----------
Net cash flows provided by/(used in) investing activities...... 537,327 (131,175)
----------- -----------
Financing Activities:
Net (decrease)/increase in short-term debt................... (101,700) 155,000
Reacquisitions and retirements of long-term debt............. (179,071) (140,000)
Repurchase of common shares.................................. (300,000) -
Cash dividends on preferred stock............................ (2,733) (3,225)
----------- -----------
Net cash flows (used in)/provided by financing activities...... (583,504) 11,775
----------- -----------
Net increase/(decrease) in cash for the period................. 6,163 (228)
Cash - beginning of period..................................... 364 434
----------- -----------
Cash - end of period........................................... $ 6,527 $ 206
=========== ===========
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
CL&P is a wholly owned subsidiary of NU. This discussion should be read in
conjunction with NU's management's discussion and analysis of financial
condition and results of operations, consolidated financial statements and
footnotes in this Form 10-Q, the NU 1999 Form 10-K and current report on
Form 8-K dated March 14, 2000.
RESULTS OF OPERATIONS
The components of significant income statement variances for the first quarter
of 2000 are provided in the table below.
Income Statement Variances
(Millions of Dollars)
2000 over/(under) 1999
----------------------
Amount Percent
------ -------
Operating Revenues $141 23%
Fuel, purchased and net interchange power 170 65
Other operation (11) (10)
Maintenance (37) (57)
Depreciation (23) (41)
Amortization of regulatory assets, net (28) (78)
Federal and state income taxes 32 (a)
Taxes other than income taxes (14) (29)
Interest charges, net (11) (30)
Net Income 64 (a)
(a) Percent greater than 100.
Comparison of the First Quarter of 2000 to the First Quarter of 1999
Operating Revenues
Total operating revenues increased in 2000 by $141 million or 23 percent in
the first quarter of 2000, compared with the same period of 1999, primarily
due to higher wholesale revenues ($148 million) as a result of the sale of
Millstone 2's and 3's output, partially offset by lower retail revenues
($6 million).
The wholesale revenues are higher as a result of higher energy sales and
related capacity and transmission revenues. Retail revenues decreased
primarily due to a retail rate reduction ($37 million), partially offset
by the impact of Millstone 2 being returned to CL&P's rate base ($20 million)
and higher sales ($11 million).
Fuel, Purchased and Net Interchange Power
Fuel, purchased and net interchange power expense increased in 2000, primarily
due to the transition, under restructuring, of purchasing full requirements
for customers from standard offer suppliers, in addition to the remaining fuel
costs of the nuclear units and cogenerators, partially offset by the lower
replacement power costs due to the return to service of Millstone 2
($23 million).
Other Operation and Maintenance
Other O&M expenses decreased in 2000, primarily due to lower spending at the
Millstone units ($30 million), lower spending due to the sale of certain fossil
and hydroelectric generation assets ($6 million), and lower administration and
general expenses ($6 million).
Depreciation
Depreciation expense decreased in 2000, primarily due to the reclassification
of the depreciation on the nuclear plants to regulatory assets ($18 million).
Amortization of Regulatory Assets, Net
Amortization of regulatory assets, net decreased in 2000, primarily due to
changes in amortization levels as a result of restructuring ($24 million),
lower SFAS No. 109, "Accounting for Income Taxes," recovery ($13 million) and
the completion of the amortization of CL&P's cogeneration deferral in the first
quarter of 1999 ($6 million). These decreases were partially offset by the
reclassification of the depreciation on the nuclear plants to regulatory assets
($18 million).
Federal and State Income Taxes
Federal and state income taxes increased in 2000, primarily due to higher book
taxable income.
Taxes Other Than Income Taxes
Taxes other than income taxes decreased in 2000, primarily due to lower CL&P
gross earnings taxes ($8 million) and lower local property taxes ($2 million).
Interest Charges, Net
Interest charges, net decreased in 2000, primarily as a result of lower
long-term debt outstanding.
LIQUIDITY
Net cash flows provided by operations decreased to $52.3 million for the three
months ended March 31, 2000, compared with $119.2 million for the three months
ended March 31, 1999, primarily as a result of changes in working capital.
Net cash flows provided by investing activities increased to $537.3 million
for the three months ended March 31, 2000, compared with net cash flows used
in investing activities of $131.2 million for the three months ended March 31,
1999, primarily as a result of the net proceeds from the transfer of utility
plant and lower investments in plant, offset by increased investment in the
NU system Money Pool.
Net cash flows used in financing activities increased to $583.5 million for
the three months ended March 31, 2000, compared with net cash flows provided
by financing activities of $11.8 million for the three months ended March 31,
1999, primarily as a result of a repurchase of common shares in 2000, a net
decrease in short-term debt and increased reacquisitions of long-term debt.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
March 31,
2000 December 31,
(Unaudited) 1999
------------- -------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at cost:
Electric................................................ $ 1,946,796 $ 1,939,856
Less: Accumulated provision for depreciation......... 685,840 674,155
------------- -------------
1,260,956 1,265,701
Unamortized acquisition costs........................... 317,332 324,437
Construction work in progress........................... 17,090 17,160
Nuclear fuel, net....................................... 1,500 1,734
------------- -------------
Total net utility plant.............................. 1,596,878 1,609,032
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 6,906 6,880
Investments in regional nuclear generating
companies and subsidiary company, at equity............ 18,547 18,855
Other, at cost.......................................... 2,931 3,149
------------- -------------
28,384 28,884
------------- -------------
Current Assets:
Cash and cash equivalents............................... 248,365 182,588
Receivables, net........................................ 69,884 79,290
Accounts receivable from affiliated companies........... 7,330 9,091
Taxes receivable from affiliated companies.............. 4,014 11,661
Accrued utility revenues................................ 48,303 48,822
Fuel, materials and supplies, at average cost........... 36,321 38,076
Recoverable energy costs - current portion.............. 85,196 73,721
Prepayments and other................................... 9,865 18,121
------------- -------------
509,278 461,370
------------- -------------
Deferred Charges:
Regulatory assets:
Recoverable energy costs............................... 111,565 120,721
Income taxes, net...................................... 160,231 166,155
Deferred costs - nuclear plant......................... 118,244 144,418
Unrecovered contractual obligations.................... 54,152 56,544
Other.................................................. 3,047 3,083
Deferred receivable from affiliated company............. 10,548 12,984
Unamortized debt expense................................ 11,687 11,896
Other................................................... 8,251 7,346
------------- -------------
477,725 523,147
------------- -------------
Total Assets.............................................. $ 2,612,265 $ 2,622,433
============= =============
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
March 31,
2000 December 31,
(Unaudited) 1999
------------- -------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock, $1 par value - authorized
100,000,000 shares; 1,000 shares outstanding
in 2000 and 1999....................................... $ 1 $ 1
Capital surplus, paid in................................ 424,740 424,654
Retained earnings....................................... 336,006 319,938
Accumulated other comprehensive income.................. 1,074 1,074
------------- -------------
Total common stockholder's equity.............. 761,821 745,667
Preferred stock subject to mandatory redemption......... 25,000 25,000
Long-term debt.......................................... 516,485 516,485
------------- -------------
Total capitalization........................... 1,303,306 1,287,152
------------- -------------
Obligations Under Seabrook Power Contracts
and Other Capital Leases................................. 597,662 624,477
------------- -------------
Current Liabilities:
Long-term debt and preferred stock - current portion.... 25,000 25,000
Obligations under Seabrook Power Contracts and other
capital leases - current portion....................... 102,659 101,676
Accounts payable........................................ 34,185 38,685
Accounts payable to affiliated companies................ 37,638 38,229
Accrued taxes........................................... 50,958 33,443
Accrued interest........................................ 12,668 6,294
Accrued pension benefits................................ 44,779 45,504
Other................................................... 8,125 10,184
------------- -------------
316,012 299,015
------------- -------------
Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes....................... 256,215 266,644
Accumulated deferred investment tax credits............. 12,260 12,532
Deferred contractual obligations........................ 54,152 56,544
Deferred revenue from affiliated company................ 10,548 12,984
Other................................................... 62,110 63,085
------------- -------------
395,285 411,789
------------- -------------
Commitments and Contingencies (Note 2)
Total Capitalization and Liabilities...................... $ 2,612,265 $ 2,622,433
============= =============
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
--------------------------
2000 1999
----------- -----------
(Thousands of Dollars)
Operating Revenues.................................... $ 328,694 $ 286,799
----------- -----------
Operating Expenses:
Operation -
Fuel, purchased and net interchange power........ 210,530 167,973
Other............................................ 33,022 28,163
Maintenance......................................... 11,959 13,264
Depreciation........................................ 12,322 11,762
Amortization of regulatory assets, net.............. 11,470 3,214
Federal and state income taxes...................... 13,053 15,367
Taxes other than income taxes....................... 11,096 11,607
----------- -----------
Total operating expenses...................... 303,452 251,350
----------- -----------
Operating Income...................................... 25,242 35,449
----------- -----------
Other Income/(Loss):
Equity in earnings of regional nuclear
generating companies and subsidiary company....... 316 310
Other, net.......................................... 6,198 2,567
Income taxes........................................ (3,433) (1,999)
----------- -----------
Other income, net............................. 3,081 878
----------- -----------
Income before interest charges................ 28,323 36,327
----------- -----------
Interest Charges:
Interest on long-term debt.......................... 10,797 10,988
Other interest...................................... 95 58
----------- -----------
Interest charges, net......................... 10,892 11,046
----------- -----------
Net Income............................................ $ 17,431 $ 25,281
=========== ===========
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-----------------------
2000 1999
----------- -----------
(Thousands of Dollars)
Operating activities:
Net income................................................ $ 17,431 $ 25,281
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation............................................ 12,322 11,762
Deferred income taxes and investment tax credits, net... (702) 16,513
Amortization of recoverable energy costs, net........... (2,319) 8,597
Amortization of regulatory assets, net.................. 11,470 3,214
Amortization of Seabrook capital costs.................. 4,279 4,201
Allocation of ESOP benefits............................. (38) -
Net other uses of cash.................................. (9,975) (6,322)
Changes in working capital:
Receivables and unbilled revenues....................... 11,686 9,807
Fuel, materials and supplies............................ 1,755 (1,086)
Accounts payable........................................ (5,091) (3,915)
Accrued taxes........................................... 17,515 1,744
Other working capital (excludes cash)................... 19,493 14,856
----------- -----------
Net cash flows provided by operating activities............. 77,826 84,652
----------- -----------
Investing Activities:
Investment in plant:
Electric utility plant.................................. (11,095) (5,117)
Nuclear fuel............................................ (4) (1,016)
----------- -----------
Net cash flows used for investments in plant.............. (11,099) (6,133)
Investment in nuclear decommissioning trust (151) (135)
Other investment activities, net.......................... 526 181
----------- -----------
Net cash flows used in investing activities................. (10,724) (6,087)
----------- -----------
Financing Activities:
Cash dividends on preferred stock......................... (1,325) (1,987)
----------- -----------
Net cash flows used in financing activities................. (1,325) (1,987)
----------- -----------
Net increase in cash and cash equivalents for the period.... 65,777 76,578
Cash and cash equivalents - beginning of period............. 182,588 60,885
----------- -----------
Cash and cash equivalents- end of period.................... $ 248,365 $ 137,463
=========== ===========
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Management's Discussion and Analysis of
Financial Condition and Results of Operations
PSNH is a wholly owned subsidiary of NU. This discussion should be read in
conjunction with NU's management's discussion and analysis of financial
condition and results of operations, consolidated financial statements and
footnotes in this Form 10-Q, and the NU 1999 Form 10-K.
RESULTS OF OPERATIONS
The components of significant income statement variances for the first quarter
of 2000 are provided in the table below.
Income Statement Variances
(Millions of Dollars)
2000 over/(under) 1999
----------------------
Amount Percent
------ -------
Operating Revenues $42 15%
Fuel, purchased and net interchange power 43 25
Other operation 5 17
Maintenance (1) (10)
Amortization of regulatory assets, net 8 (a)
Federal and state income taxes (1) (5)
Other, net 4 (a)
Net Income (8) (31)
(a) Percent greater than 100.
Comparison of the First Quarter of 2000 to the First Quarter of 1999
Operating Revenues
Total operating revenues increased in 2000, primarily due to higher wholesale
revenues from higher capacity and energy sales to the market ($27 million) and
higher retail revenues ($15 million). Retail kilowatt-hour sales increased by
7.5 percent in 2000.
Fuel, Purchased and Net Interchange Power
Fuel, purchased and net interchange power expense increased in 2000, primarily
due to higher wholesale and retail sales.
Other Operation and Maintenance
Other O&M expenses increased in 2000, primarily due to higher maintenance costs
associated with the fossil plants.
Amortization of Regulatory Assets, Net
Amortization of regulatory assets, net increased in 2000, primarily due to the
expiration of the amortization of the net operating loss carryforward (credit
to expense) in May 1999 in accordance with the 7-year rate agreement.
Federal and State Income Taxes
Federal and state income taxes decreased in 2000, primarily due to lower book
taxable income.
Other, Net
Other, net increased in 2000, primarily due to higher interest income on
temporary cash investments.
LIQUIDITY
Net cash flows provided by operations decreased to $77.8 million for the three
months ended March 31, 2000, compared with $84.7 million for the three months
ended March 31, 1999, primarily as a result of changes in deferred income taxes
and investment tax credits, net, and the amortization of recoverable energy
costs, net, offset by changes in working capital.
Net cash flows used in investing activities increased to $10.7 million for the
three months ended March 31, 2000, compared with $6.1 million for the three
months ended March 31, 1999, primarily as a result of higher investments in
plant.
Net cash flows used in financing activities decreased to $1.3 million for the
three months ended March 31, 2000, compared with $2 million for the three
months ended March 31, 1999, as a result of a decrease in cash dividends on
preferred stock.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31,
2000 December 31,
(Unaudited) 1999
------------- ------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 1,103,310 $ 1,175,954
Less: Accumulated provision for depreciation......... 782,316 813,978
------------- ------------
320,994 361,976
Construction work in progress........................... 17,611 21,181
Nuclear fuel, net....................................... 16,803 18,880
------------- ------------
Total net utility plant.............................. 355,408 402,037
------------- ------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 144,067 144,567
Investments in regional nuclear generating
companies, at equity................................... 14,915 14,723
Other, at cost.......................................... 6,252 6,232
------------- ------------
165,234 165,522
------------- ------------
Current Assets:
Cash.................................................... 167 950
Receivables, net........................................ 33,137 31,692
Accounts receivable from affiliated companies........... 18,515 3,918
Taxes receivable........................................ - 1,912
Accrued utility revenues................................ 11,876 13,485
Fuel, materials and supplies, at average cost........... 1,421 3,097
Prepayments and other................................... 38,391 30,119
------------- ------------
103,507 85,173
------------- ------------
Deferred Charges:
Regulatory assets:
Recoverable nuclear costs.............................. 265,185 428,838
Income taxes, net...................................... 53,360 49,008
Unrecovered contractual obligations.................... 60,679 63,701
Recoverable energy costs, net.......................... 11,812 16,319
Other.................................................. 53,763 36,934
Unamortized debt expense................................ 1,591 1,926
Other................................................... 4,513 4,146
------------- ------------
450,903 600,872
------------- ------------
Total Assets.............................................. $ 1,075,052 $ 1,253,604
============= ============
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31,
2000 December 31,
(Unaudited) 1999
------------- ------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock, $25 par value - 1,072,471 shares
authorized; 590,093 shares outstanding in 2000
and 1,072,471 shares outstanding in 1999............... $ 14,752 $ 26,812
Capital surplus, paid in................................ 93,816 171,691
Retained earnings....................................... 49,041 38,712
Accumulated other comprehensive income.................. 160 160
------------- ------------
Total common stockholder's equity.............. 157,769 237,375
Preferred stock not subject to mandatory redemption..... 20,000 20,000
Preferred stock subject to mandatory redemption......... 15,000 16,500
Long-term debt.......................................... 197,349 290,279
------------- ------------
Total capitalization........................... 390,118 564,154
------------- ------------
Obligations Under Capital Leases.......................... 6,767 8,106
------------- ------------
Current Liabilities:
Notes payable to banks.................................. 98,000 123,000
Notes payable to affiliated company..................... 25,400 9,400
Long-term debt and preferred stock - current portion.... 1,500 1,500
Obligations under capital leases - current portion...... 21,077 21,866
Accounts payable........................................ 20,282 12,974
Accounts payable to affiliated companies................ 7,503 3,208
Accrued taxes........................................... 14,032 589
Accrued interest........................................ 3,500 6,046
Other................................................... 14,992 14,384
------------- ------------
206,286 192,967
------------- ------------
Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes....................... 228,214 242,942
Accumulated deferred investment tax credits............. 18,593 19,765
Decommissioning obligation - Millstone 1................ 135,159 136,130
Deferred contractual obligations........................ 60,679 63,701
Other................................................... 29,236 25,839
------------- ------------
471,881 488,377
------------- ------------
Commitments and Contingencies (Note 2)
Total Capitalization and Liabilities...................... $ 1,075,052 $ 1,253,604
============= ============
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
------------------------
2000 1999
----------- -----------
(Thousands of Dollars)
Operating Revenues.................................... $ 129,410 $ 97,686
----------- -----------
Operating Expenses:
Operation -
Fuel, purchased and net interchange power........ 66,245 24,324
Other............................................ 25,342 25,159
Maintenance......................................... 7,545 13,485
Depreciation........................................ 4,588 9,660
Amortization of regulatory assets, net.............. 478 2,494
Federal and state income taxes...................... 5,462 4,434
Taxes other than income taxes....................... 4,968 5,925
----------- -----------
Total operating expenses...................... 114,628 85,481
----------- -----------
Operating Income...................................... 14,782 12,205
----------- -----------
Other Income/(Loss):
Equity in earnings of regional nuclear
generating companies.............................. 219 157
Other, net.......................................... (33) (299)
Income taxes........................................ 3,660 392
----------- -----------
Other income, net............................. 3,846 250
----------- -----------
Income before interest charges................ 18,628 12,455
----------- -----------
Interest Charges:
Interest on long-term debt.......................... 4,791 6,448
Other interest...................................... 2,784 1,155
----------- -----------
Interest charges, net......................... 7,575 7,603
----------- -----------
Net Income............................................ $ 11,053 $ 4,852
=========== ===========
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-----------------------
2000 1999
----------- -----------
(Thousands of Dollars)
Operating Activities:
Net income.................................................... $ 11,053 $ 4,852
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation................................................ 4,588 9,660
Deferred income taxes and investment tax credits, net....... (10,082) 469
Amortization of recoverable energy costs, net............... 4,507 717
Amortization of regulatory assets, net...................... 478 2,494
Nuclear unrecoverable costs................................. 457 -
Amortization of gain on transfer of utility plant........... 450 -
Allocation of ESOP benefits................................. (24) -
Net other uses of cash...................................... (1,072) (1,161)
Changes in working capital:
Receivables and unbilled revenues, net...................... (14,433) 952
Fuel, materials and supplies................................ 1,676 56
Accounts payable............................................ 11,603 (9,936)
Accrued taxes............................................... 13,443 1,023
Investments in securitizable assets......................... - 6,054
Other working capital (excludes cash)....................... (8,298) (4,381)
----------- -----------
Net cash flows provided by operating activities................. 14,346 10,799
----------- -----------
Investing Activities:
Investment in plant:
Electric utility plant...................................... (4,285) (3,700)
Nuclear fuel................................................ (10) (5,195)
----------- -----------
Net cash flows used for investments in plant.................. (4,295) (8,895)
Investments in nuclear decommissioning trusts................. (1,059) (2,893)
Other investment activities, net.............................. (212) (234)
Net proceeds from the transfer of utility plant............... 185,787 -
----------- -----------
Net cash flows provided by/(used in) investing activities....... 180,221 (12,022)
----------- -----------
Financing Activities:
Net (decrease)/increase in short-term debt.................... (9,000) 43,400
Reacquisitions and retirements of long-term debt.............. (94,150) (40,000)
Reacquisitions and retirements of preferred stock............. (1,500) (1,500)
Repurchase of common shares................................... (90,000) -
Cash dividends on preferred stock............................. (700) (728)
----------- -----------
Net cash flows (used in)/provided by financing activities....... (195,350) 1,172
----------- -----------
Net decrease in cash for the period............................. (783) (51)
Cash - beginning of period...................................... 950 106
----------- -----------
Cash - end of period............................................ $ 167 $ 55
=========== ===========
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
WMECO is a wholly owned subsidiary of NU. This discussion should be read in
conjunction with NU's management's discussion and analysis of financial
condition and results of operations, consolidated financial statements and
footnotes in this Form 10-Q, the NU 1999 Form 10-K and current report on Form
8-K dated March 14, 2000.
RESULTS OF OPERATIONS
The components of significant income statement variances for the first quarter
2000 are provided in the table below.
Income Statement Variances
(Millions of Dollars)
2000 over/(under) 1999
----------------------
Amount Percent
------ -------
Operating Revenues $32 33%
Fuel, purchased and net interchange power 42 (a)
Maintenance (6) (44)
Depreciation (5) (53)
Amortization of regulatory assets, net (2) (81)
Federal and state income taxes (2) (55)
Taxes other than income taxes (1) (16)
Net Income 6 (a)
(a) Percent greater than 100.
Comparison of the First Quarter of 2000 to the First Quarter of 1999
Operating Revenues
Total operating revenues increased by $32 million or 33 percent in the first
quarter of 2000, compared with the same period of 1999, primarily due to
higher wholesale revenues ($25 million) as a result of the sale of
Millstone 2's and 3's output and higher retail revenues ($8 million). Retail
revenues increased primarily due to higher sales. Retail sales increased in
the first quarter of 2000 by 7.5 percent, compared with the same period in
1999.
Fuel, Purchased and Net Interchange Power
Fuel, purchased and net interchange power expense increased in 2000, primarily
due to the transition, under restructuring, of purchasing full requirements for
customers from standard offer suppliers, in addition to the remaining fuel
costs of the nuclear units and cogenerators, partially offset by lower
replacement power costs due to the return to service of Millstone 2
($5 million).
Maintenance
Maintenance expenses decreased in 2000, primarily due to lower spending at the
Millstone units.
Depreciation
Depreciation expense decreased in 2000, primarily due to the reclassification
of the depreciation on the nuclear plants to regulatory assets.
Amortization of Regulatory Assets, Net
Amortization of regulatory assets, net decreased in 2000, primarily due to
changes in amortization levels as a result of restructuring orders
($6 million), partially offset by the reclassification of the depreciation on
the nuclear plants to regulatory assets ($4 million).
Federal and State Income Taxes
Federal and state income taxes decreased in 2000, primarily due to the tax
benefits resulting from the disposition of certain fossil and hydroelectric
generation assets.
Taxes Other Than Income Taxes
Taxes other than income taxes decreased in 2000, primarily due to lower local
property taxes.
LIQUIDITY
Net cash flows provided by operations increased to $14.3 million for the three
months ended March 31, 2000, compared with $10.8 million for the three months
ended March 31, 1999, primarily as a result of changes in working capital and
the amortization of recoverable energy costs, net, offset by the change in
deferred income taxes and investment tax credits, net.
Net cash flows provided by investing activities increased to $180.2 million for
the three months ended March 31, 2000, compared with net cash flows used in
investing activities of $12 million for the three months ended March 31, 1999,
primarily as a result of the net proceeds from the transfer of utility plant,
lower investments in plant and lower investments in nuclear decommissioning
trusts.
Net cash flows used in financing activities increased to $195.4 million for the
three months ended March 31, 2000, compared with net cash flows provided by
financing activities of $1.2 million for the three months ended March 31, 1999,
primarily as a result of a repurchase of common shares in 2000, increased
reacquisitions of long-term debt and a net decrease in short-term debt.
NORTH ATLANTIC ENERGY CORPORATION
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
March 31,
2000 December 31,
(Unaudited) 1999
------------- -------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 729,997 $ 736,472
Less: Accumulated provision for depreciation......... 202,712 196,694
------------- -------------
527,285 539,778
Construction work in progress........................... 11,850 10,274
Nuclear fuel, net....................................... 22,582 21,149
------------- -------------
Total net utility plant.............................. 561,717 571,201
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 45,146 43,667
------------- -------------
45,146 43,667
------------- -------------
Current Assets:
Cash.................................................... 104 -
Special deposits........................................ 7,353 7
Notes receivable from affiliated companies.............. 81,799 56,400
Accounts receivable from affiliated companies........... 22,451 22,840
Taxes receivable........................................ - 11,717
Materials and supplies, at average cost................. 13,734 13,088
Prepayments and other................................... 168 1,766
------------- -------------
125,609 105,818
------------- -------------
Deferred Charges:
Regulatory assets:
Deferred costs - Seabrook.............................. 72,808 88,545
Income taxes, net...................................... 32,693 35,605
Recoverable energy costs............................... 1,648 1,703
Unamortized loss on reacquired debt.................... 1,894 3,788
Unamortized debt expense................................ 1,539 1,780
Other................................................... 4 -
------------- -------------
110,586 131,421
------------- -------------
Total Assets.............................................. $ 843,058 $ 852,107
============= =============
The accompanying notes are an integral part of these financial statements.
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
March 31,
2000 December 31,
(Unaudited) 1999
------------- -------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock, $1 par value - 1,000 shares
authorized and outstanding in 2000 and 1999............ $ 1 $ 1
Capital surplus, paid in................................ 160,999 160,999
Retained earnings....................................... 505 12,752
------------- -------------
Total common stockholder's equity.............. 161,505 173,752
Long-term debt.......................................... 135,000 135,000
------------- -------------
Total capitalization........................... 296,505 308,752
------------- -------------
Current Liabilities:
Long-term debt - current portion........................ 270,000 270,000
Accounts payable........................................ 12,258 11,694
Accounts payable to affiliated companies................ 461 806
Accrued taxes........................................... 9,594 -
Accrued interest........................................ 6,835 2,340
Other................................................... 333 272
------------- -------------
299,481 285,112
------------- -------------
Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes....................... 213,236 222,601
Deferred obligation to affiliated company............... 10,548 12,984
Other................................................... 23,288 22,658
------------- -------------
247,072 258,243
------------- -------------
Commitments and Contingencies (Note 2)
Total Capitalization and Liabilities...................... $ 843,058 $ 852,107
============= =============
The accompanying notes are an integral part of these financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
--------------------------
2000 1999
----------- -----------
(Thousands of Dollars)
Operating Revenues.................................... $ 66,276 $ 70,289
----------- -----------
Operating Expenses:
Operation -
Fuel............................................. 4,022 3,726
Other............................................ 8,635 9,311
Maintenance......................................... 2,327 5,072
Depreciation........................................ 6,944 6,481
Amortization of regulatory assets, net.............. 21,294 21,372
Federal and state income taxes...................... 8,798 8,707
Taxes other than income taxes....................... 2,599 3,145
----------- -----------
Total operating expenses...................... 54,619 57,814
----------- -----------
Operating Income...................................... 11,657 12,475
----------- -----------
Other Income/(Loss):
Deferred Seabrook return - other funds.............. 746 1,308
Other, net.......................................... (1,383) (1,546)
Income taxes........................................ 5,772 3,830
----------- -----------
Other income, net............................. 5,135 3,592
----------- -----------
Income before interest charges................ 16,792 16,067
----------- -----------
Interest Charges:
Interest on long-term debt.......................... 10,554 12,321
Other interest...................................... (199) (209)
Deferred Seabrook return - borrowed funds........... (1,316) (2,506)
----------- -----------
Interest charges, net......................... 9,039 9,606
----------- -----------
Net Income............................................ $ 7,753 $ 6,461
=========== ===========
The accompanying notes are an integral part of these financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-----------------------
2000 1999
----------- -----------
(Thousands of Dollars)
Operating Activities:
Net income.................................................. $ 7,753 $ 6,461
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation.............................................. 6,944 6,481
Deferred income taxes and investment tax credits, net..... (6,453) 516
Amortization of nuclear fuel.............................. 3,198 2,926
Deferred return - Seabrook................................ (2,062) (3,814)
Amortization of regulatory assets, net.................... 21,294 21,372
Deferred obligation to affiliated company................. (7,308) (2,436)
Net other sources of cash................................. 10,482 4,670
Changes in working capital:
Receivables............................................... 389 (1,230)
Materials and supplies.................................... (646) 484
Accounts payable.......................................... 219 2,880
Accrued taxes............................................. 9,594 1
Other working capital (excludes cash)..................... 10,525 18,799
----------- -----------
Net cash flows provided by operating activities............... 53,929 57,110
----------- -----------
Investing Activities:
Investment in plant:
Electric utility plant.................................... (1,785) (1,532)
Nuclear fuel.............................................. (4,576) (7,748)
----------- -----------
Net cash flows used for investments in plant................ (6,361) (9,280)
Investment in NU system Money Pool.......................... (25,399) (16,350)
Investments in nuclear decommissioning trusts............... (2,065) (1,476)
----------- -----------
Net cash flows used in investing activities................... (33,825) (27,106)
----------- -----------
Financing Activities:
Cash dividends on common stock.............................. (20,000) (30,000)
----------- -----------
Net cash flows used in financing activities................... (20,000) (30,000)
----------- -----------
Net increase in cash for the period........................... 104 4
Cash - beginning of period.................................... - 71
----------- -----------
Cash - end of period.......................................... $ 104 $ 75
=========== ===========
The accompanying notes are an integral part of these financial statements.
NORTH ATLANTIC ENERGY CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
NAEC is a wholly owned subsidiary of NU. This discussion should be read in
conjunction with NU's management's discussion and analysis of financial
condition and results of operations, consolidated financial statements and
footnotes in this Form 10-Q, and the NU 1999 Form 10-K.
RESULTS OF OPERATIONS
The components of significant income statement variances for the first quarter
of 2000 are provided in the table below.
Income Statement Variances
(Millions of Dollars)
2000 over/(under) 1999
----------------------
Amount Percent
------ -------
Operating Revenues ($4) (6%)
Other operation (1) (7)
Maintenance (3) (54)
Federal and state income taxes (2) (38)
Taxes other than income taxes (1) (17)
Interest charges, net (1) (6)
Net Income 1 20
Comparison of the First Quarter of 2000 to the First Quarter of 1999
Operating Revenues
Operating revenues decreased in 1999, primarily due to lower O&M costs billed
to PSNH through the Seabrook Power Contracts.
Other Operation and Maintenance
Other O&M expenses decreased in 2000, primarily due to the 1999 Seabrook
refueling outage.
Federal and State Income Taxes
Federal and state income taxes decreased in 2000, primarily due to lower
book taxable income.
Taxes Other Than Income Taxes
Taxes other than income taxes decreased in 2000, primarily due to a tax credit
resulting from an over assessment of Seabrook in 1999.
Interest Charges, Net
Interest charges, net decreased in 2000, primarily due to lower long-term debt
outstanding.
LIQUIDITY
Net cash flows provided by operations decreased to $53.9 million for the three
months ended March 31, 2000, compared with $57.1 million for the three months
ended March 31, 1999, primarily as a result of changes in deferred income taxes
and investment tax credits, net and the deferred obligation to affiliated
company, offset by changes in other sources of cash and in working capital.
Net cash flows used in investing activities increased to $33.8 million for the
three months ended March 31, 2000, compared with $27.1 million for the three
months ended March 31, 1999, primarily as a result of increased investment in
the NU system Money Pool, offset by lower investments in plant.
Net cash flows used in financing activities decreased to $20 million for the
three months ended March 31, 2000, compared with $30 million for the three
months ended March 31, 1999, as a result of a decrease in cash dividends on
common stock.
Northeast Utilities and Subsidiaries
The Connecticut Light and Power Company and Subsidiaries
Public Service Company of New Hampshire
Western Massachusetts Electric Company and Subsidiary
North Atlantic Energy Corporation
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (All Companies)
A. Presentation
The accompanying unaudited financial statements should be read in
conjunction with management's discussion and analysis of financial
condition and results of operations in this Form 10-Q, the Annual
Reports of Northeast Utilities (NU), The Connecticut Light and Power
Company (CL&P), Public Service Company of New Hampshire (PSNH),
Western Massachusetts Electric Company (WMECO), and North Atlantic
Energy Corporation (NAEC), which were filed as part of the NU 1999
Form 10-K, and current reports on Form 8-K dated February 29, 2000
(NU), March 1, 2000 (NU), March 14, 2000 (NU, CL&P, and WMECO), and
March 29, 2000 (NU). The accompanying financial statements contain,
in the opinion of management, all adjustments necessary to present
fairly NU's and each NU system company's financial position as of
March 31, 2000, and the results of operations and statements of cash
flows for the three-month periods ended March 31, 2000 and 1999. All
adjustments are of a normal, recurring nature except those described
in Note 2. The results of operations for the three-month periods
ended March 31, 2000 and 1999, are not indicative of the results
expected for a full year.
On March 1, 2000, NU completed the acquisition of Yankee Energy
System, Inc. (Yankee). See Note 8 regarding the merger with Yankee.
The consolidated financial statements of NU and of its subsidiaries,
include the accounts of all their respective wholly owned
subsidiaries. Significant intercompany transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Certain reclassifications of prior period data have been made to
conform with the current period presentation.
B. Regulatory Accounting and Assets
The accounting policies of the NU system operating companies and the
accompanying consolidated financial statements conform to generally
accepted accounting principles applicable to rate-regulated
enterprises and historically reflect the effects of the rate-making
process in accordance with Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation". As a result of final restructuring orders issued in
1999, CL&P and WMECO discontinued the application of SFAS No. 71 for
the generation portion of their businesses.
The restructuring orders in Connecticut and Massachusetts provide for
the transmission and distribution business to continue to be
cost-of-service based and also provide for a transition charge which
recovers stranded costs, including nuclear regulatory assets.
At this time, management continues to believe that the application of
SFAS No. 71 for PSNH and NAEC remains appropriate. If the "Agreement
to Settle PSNH Restructuring" (Settlement Agreement) is implemented,
then PSNH will discontinue the application of SFAS No. 71 for the
generation portion of its business and record an after-tax write-off
of $225 million. PSNH's transmission and distribution business will
continue to be rate-regulated on a cost-of-service basis as the
Settlement Agreement allows for the recovery of the remaining
regulatory assets through that portion of the business.
2. COMMITMENTS AND CONTINGENCIES
A. Restructuring (CL&P, PSNH, WMECO)
Connecticut: During 1999, the Connecticut Department of Public
Utility Control (DPUC) approved an interim nuclear capital recovery
mechanism for the period from January 1, 2000, until CL&P's nuclear
units are sold at auction. On April 5, 2000, the DPUC issued a
decision on CL&P's petition for reconsideration allowing CL&P to
demonstrate, at the time of approval of the auction of the Millstone
units, that the prudently incurred nuclear capital additions incurred
subsequent to July 1, 1997, meet the Public Act's requirements as
mitigation measures. Management believes these capital additions fall
within the mitigation measures addressed in the restructuring
legislation.
The 1999 restructuring orders also allowed for securitization of
CL&P's nonnuclear regulatory assets and the costs to buyout or buydown
the various purchased-power contracts. Securitization is the process
of monetizing stranded costs through the sale of nonrecourse debt
securities by a special purpose entity, collateralized by CL&P's
interests in its stranded cost recoveries. CL&P intends to file an
application with the DPUC in May 2000 requesting authorization to
securitize its stranded costs.
New Hampshire: In August 1999, NU, PSNH and the state of New Hampshire
signed a Settlement Agreement intended to settle a number of pending
regulatory and court proceedings related to PSNH. The Settlement
Agreement was submitted to the New Hampshire Public Utilities
Commission (NHPUC) on August 2, 1999. The implementation of the
Settlement Agreement is also contingent upon the issuance of rate
reduction bonds. Issuance of the rate reduction bonds requires the
initial approval of the NHPUC and final approval from the New
Hampshire Legislature via enactment of appropriate legislation.
Other approvals are also required from various federal and state
regulatory agencies and financial lenders.
On April 19, 2000, the NHPUC issued an order relating to the proposed
Settlement Agreement. While the NHPUC approved much of the Settlement
Agreement, it is directing a number of changes. The changes include
adjusting the return level on certain rate base offsets, permitting
the NHPUC greater autonomy in setting a minimum bid for Seabrook,
crediting stranded costs with items identified as regulatory
obligations by the NHPUC, revising the time frame and level of the
recovery of certain stranded costs, decreasing the amount of assets
that may be securitized, adjustments to rate design and fees, changes
in the fossil and hydroelectric generation asset auction process, and
establishing a higher cost level for transition service.
On May 1, 2000, PSNH filed its response to the order with the NHPUC.
In its response, PSNH agreed to meet most of the conditions set forth
by the NHPUC and tentatively agreed to meet certain other conditions,
subject to clarification.
At the same time, PSNH filed a motion for a rehearing on the NHPUC
directive requiring PSNH to immediately reduce stranded costs with
certain regulatory obligations. On May 3, 2000, the NHPUC granted
PSNH's motion for rehearing.
Given the pending rehearing, and the possibility of PSNH rejecting a
modified Settlement Agreement, as well as the additional outstanding
approvals required under the Settlement Agreement, and the enactment
of legislation by the New Hampshire Legislature approving
securitization, management continues to believe the application of
SFAS No. 71 is appropriate for PSNH at this time.
Massachusetts: The restructuring orders issued in 1999 instructed
WMECO to work with the Massachusetts attorney general regarding the
recovery of nuclear capital additions made after WMECO's 1991 rate
case. WMECO is currently in settlement negotiations with the
Massachusetts attorney general on this issue. Management believes
that these costs are recoverable and that there will not be a material
impact on the results of operations.
On April 18, 2000, WMECO filed its $261 million securitization plan
with the Massachusetts Department of Telecommunications and Energy
(DTE). The securitization plan requires DTE approval prior to
implementation.
B. Nuclear Auction (CL&P, PSNH, WMECO)
On April 19, 2000, the DPUC approved CL&P's divestiture plan for the
Millstone units, including WMECO's and PSNH's, ownership interests.
In its decision, the DPUC called for a process that would allow
bidders to choose whether to bid on one or more of the plants or the
entire facility as a whole and called for protection for current
employees. Following state and federal regulatory approvals, the
closing on the sale of the NU system's ownership interests in the
Millstone units is expected in the spring of 2001.
C. Long-Term Contractual Arrangements (Select Energy)
Select Energy, Inc. (Select Energy) maintains long-term agreements to
purchase energy in the normal course of business as part of its
portfolio of resources to meet its actual or expected sales
commitments. The notional amount of these purchase contracts is $2.9
billion at March 31, 2000. These contracts extend through 2005 as
follows (millions of dollars):
Year
----
2001 $ 996
2002 721
2003 446
2004 413
2005 279
------
Total $2,855
======
D. Nuclear Litigation (NU, CL&P, WMECO)
The non-NU joint owners of Millstone 3 (minority owners) filed demands
for arbitration with CL&P and WMECO as well as lawsuits in
Massachusetts Superior Court against NU and its current and former
trustees related to the companies' operation of Millstone 3. During
1999, CL&P and WMECO agreed in principle to settle with certain
minority owners, who own approximately 58 percent of the non-NU
percentage of Millstone 3. During the first quarter of 2000, NU and
its subsidiaries, CL&P and WMECO, agreed in principle to settle
with three additional minority owners, who own approximately 5 percent
of the non-NU percentage of Millstone 3 (2000 Settlement). The 2000
Settlement provides for the payment to the claimants of $3.3 million
and certain contingent payments.
Arbitration and litigation claims remain outstanding for the remaining
37 percent of the minority owners who have not agreed to settle.
Management cannot estimate the potential outcome of the arbitration
and litigation for the nonsettled minority owners. Therefore, no
liability has been established as of March 31, 2000.
Subsequent to March 31, 2000, a settlement was reached with an
additional minority owner, who owns approximately 3 percent of the
non-NU percentage of Millstone 3, under terms similar to those reached
with the other settled non-NU Millstone 3 minority owners.
3. INTEREST RATE AND GAS SUPPLY RISK MANAGEMENT INSTRUMENTS (NAEC, Yankee)
A. Interest Rate Risk Management Instruments
NAEC uses swap instruments with financial institutions to hedge
against interest rate risk associated with its $200 million
variable-rate bank note. As of March 31, 2000, NAEC had outstanding
agreements with a total notional value of $200 million and a positive
mark-to-market position of $0.6 million.
Yankee uses swap instruments with financial institutions to exchange
fixed-rate interest obligations to a blend between fixed and
variable-rate obligations without exchanging the underlying notional
amounts. These instruments convert fixed interest rate obligations
to variable rates. The notional amounts parallel the underlying debt
levels and are used to measure interest to be paid or received and
do not represent the exposure to credit loss. As of March 31, 2000,
Yankee had outstanding agreements with a total notional value of $49
million and a negative mark-to-market position of $0.8 million.
B. Gas Supply Risk Management Instruments
Yankee Gas Services Company (Yankee Gas) has a gas service agreement
with certain customers to supply gas at fixed prices for a 10-year
term extending though 2005. Yankee Gas has hedged its gas supply risk
under this agreement through a commodity swap agreement. Under this
commodity swap agreement, the purchase price of a specified quantity
of gas is effectively fixed over the term of the gas service agreement
which extends through 2005. As of March 31, 2000, the commodity swap
agreement had a notional value of $19.7 million and a negative
mark-to-market position of $2.7 million.
4. COMPREHENSIVE INCOME (NU, CL&P, PSNH, WMECO)
The total comprehensive income/(loss), which includes all comprehensive
income items, for the NU system is as follows:
Three Months Ended March 31,
2000 1999
---- ----
(Millions of Dollars)
NU Consolidated $74.6 $ 18.6
CL&P 46.9 (16.9)
PSNH 16.1 23.4
WMECO 10.4 4.1
5. EARNINGS PER SHARE (NU)
Earnings per share (EPS) is computed based upon the weighted average
number of common shares outstanding during each period. Diluted EPS is
computed on the basis of the weighted average number of common shares
outstanding plus the potential dilutive effect if certain securities are
converted into common stock.
The following table sets forth the components of basic and diluted EPS:
- ------------------------------------------------------------------------------
(Millions of Dollars, Three Months Ended March 31,
except per share data) 2000 1999
- ------------------------------------------------------------------------------
Income after interest charges $79.4 $24.4
Preferred dividends of subsidiaries 4.8 5.9
- ------------------------------------------------------------------------------
Net income $74.6 $18.5
- ------------------------------------------------------------------------------
Basic EPS common shares
outstanding (average) 135,668,372 131,110,491
Dilutive effect of employee
stock options 561,158 385,862
- -----------------------------------------------------------------------------
Diluted EPS common shares
outstanding (average) 136,229,530 131,496,353
- -----------------------------------------------------------------------------
Basic EPS $0.55 $0.14
Diluted EPS $0.55 $0.14
- -----------------------------------------------------------------------------
6. SEGMENT INFORMATION (NU)
The NU system is organized between regulated utilities (electric and gas
for the three months ended March 31, 2000, and electric only for the three
months ended March 31, 1999) and unregulated energy services. The total
regulated utilities segment represents approximately 69 percent and 91
percent of the NU system's total revenue for the three months ended
March 31, 2000 and 1999, respectively, and is comprised of several
business units.
Regulated utilities revenues primarily are derived from residential,
commercial and industrial customers and are not dependent on any single
customer. The unregulated energy services segment has two major
customers, one unaffiliated company and CL&P. Their purchases represented
approximately 13 percent and 38 percent, respectively, for the three
months ended March 31, 2000. The unaffiliated company represents 44
percent of its total revenues for the three months ended March 31, 1999.
The unregulated energy services segment in the following table includes
HEC Inc. (HEC), a provider of energy management, demand-side management
and related consulting services for commercial, industrial and
institutional electric companies and electric utility companies; Holyoke
Water Power Company, a company engaged in the production and distribution
of electric power; Northeast Generation Company (NGC), a corporation that
acquires and manages generation facilities; Northeast Generation Services
Company, a corporation that maintains and services any fossil or
hydroelectric facility that is acquired or contracted with for fossil or
hydroelectric generation services; Select Energy, a corporation engaged
in the marketing, transportation, storage, and sale of energy commodities,
at wholesale, in designated geographical areas and in the marketing of
electricity to retail customers.
Other in the following table includes the results for Mode 1
Communications, Inc. (Mode 1), an investor in a fiber-optic communications
network. Mode 1 had a net loss of $1.3 million and $1 million for the
three months ended March 31, 2000 and 1999, respectively. Interest
expense included in Other primarily relates to the debt of NU parent.
Inter-segment eliminations of revenues and expenses are also included
in Other.
For the Three Months Ended March 31, 2000
----------------------------------------------------------
Unregulated
(Millions of Regulated Utilities Energy
Dollars) Electric Gas Services Other Total
-------- --- -------- ----- -----
Operating
revenues $ 925.3 $ 32.8 $ 437.3 $ (13.1) $1,382.3
Operating
expenses (797.4) (27.9) (428.3) 6.7 (1,246.9)
--------- --------- --------- --------- --------
Operating
income/
(loss) 127.9 4.9 9.0 (6.4) 135.4
Other
income/
(expense) 10.8 (0.5) 0.7 (0.8) 10.2
Interest
expense (52.8) (1.3) (6.0) (6.1) (66.2)
Preferred
dividends (4.8) - - - (4.8)
--------- --------- --------- --------- ---------
Net income/
(loss) $ 81.1 $ 3.1 $ 3.7 $ (13.3) $ 74.6
========= ========= ========= ========= =========
Total assets $ 9,393.8 $ 873.2 $ 661.2 $ (187.2) $10,741.0
========= ========= ========= ========= =========
For the Three Months Ended March 31, 1999
-----------------------------------------------------
Regulated Unregulated
(Millions of Electric Energy
Dollars) Utilities Services Other Total
-------- ---------- ------- -----
Operating
revenues $ 946.8 $ 101.7 $ (5.1) $ 1,043.4
Operating
expenses (865.9) (105.7) 17.8 (953.8)
--------- --------- --------- ----------
Operating
income/
(loss) 80.9 (4.0) 12.7 89.6
Other
income/
(expense) 6.3 0.3 (2.8) 3.8
Interest
expense (64.3) (1.0) (3.8) (69.1)
Preferred
dividends (5.9) - - (5.9)
--------- --------- --------- ---------
Net income/
(loss) $ 17.0 $ (4.7) $ 6.1 $ 18.4
========= ========= ========= =========
Total assets $10,090.6 $ 143.4 $ 150.7 $10,384.7
========= ========= ========= =========
7. SHORT-TERM DEBT (NGC)
In March 2000, CL&P and WMECO transferred 1,289 megawatts (MW) of
hydroelectric generation assets in Connecticut and Massachusetts to NGC,
an affiliated company, for approximately $865.5 million.
To finance the transfer, on March 9, 2000, NGC entered into a new
short-term credit agreement with a total commitment amount of $865.5
million, collateralized by the generation assets transferred. Under
the short-term credit agreement, $435.5 million of the commitment matured
on March 14, 2000, and was repaid. The remaining $430 million under the
short-term credit agreement was outstanding at March 31, 2000, and, unless
extended, has a maturity date of December 29, 2000.
The remaining $430 million under the short-term credit agreement bears
interest at variable rates plus an applicable margin. As of March 31,
2000, the interest rate was 8.14 percent.
The short-term credit agreement provides that NGC must comply with certain
financial and nonfinancial covenants as are customarily included in such
agreements, including, but not limited to, common equity ratios.
8. MERGER WITH YANKEE (NU, Yankee)
In January 2000, the Securities and Exchange Commission granted final
approval of the merger between NU and Yankee. On March 1, 2000, NU
acquired Yankee, and Yankee became a wholly owned subsidiary of NU.
Yankee's results of operations have been included in NU's consolidated
results of operations since March 1, 2000. Yankee is the parent of Yankee
Gas, the largest natural gas distribution company in Connecticut. The
transaction is being accounted for under the purchase method of
accounting.
NU paid $45 per share or $478.5 million in cash and stock for all Yankee
shares. In addition, NU assumed $164 million of Yankee's outstanding
long-term debt and all of its short-term debt which totaled $70 million
at closing. Yankee shareholders received approximately 45 percent of the
$478.5 million in NU common shares and approximately 55 percent in cash.
The merger is valued at $478.5 million based on the $261.4 million of cash
NU paid to Yankee shareholders and the 11,144,762 NU common shares Yankee
shareholders received. NU arranged financing for the cash portion of the
transaction as described below and met the stock component of the
transaction by issuing new NU shares. NU expects to reacquire and retire
approximately 10 million shares later this year by closing out a forward
share purchase program with proceeds from restructuring. The forward
share purchase program was conducted late in 1999 and early in 2000
through two financial institutions. NU is prohibited from purchasing
additional shares under its merger agreement with Consolidated Edison,
Inc. (Con Edison), with certain limited exceptions.
Yankee will continue to act as the holding company of Yankee Gas and its
four active nonutility subsidiaries, NorConn Properties, Inc., which holds
certain real property and facilities of Yankee; Yankee Energy Financial
Services Company, which provides customers with financing for energy
equipment installations; Yankee Energy Services Company (YESCO), which
provides energy-related services, and; R.M. Services, Inc., which provides
debt collection services to utilities and other businesses nationwide.
It is expected that YESCO's business will be closely coordinated with
HEC's energy management business.
The goodwill created as a result of the transaction was $322.9 million,
the majority of which is being amortized on a straight-line basis over a
40-year period. Assuming NU and Yankee had combined as of January 1,
2000, NU's operating revenues, net income, and EPS would have been
$1.48 billion, $75.6 million and $0.56 per share, respectively, for the
three months ended March 31, 2000. In accordance with Accounting
Principles Board Opinion No. 16, "Accounting for Business Combinations,"
and SFAS No. 38, "Accounting for Preacquisition Contingencies of
Purchased Enterprises," purchase price adjustments and preacquisition
contingencies may be adjusted during the "allocation period" which usually
should not exceed one year. As such, this pro forma information may be
adjusted as preacquisition contingencies are resolved.
In conjunction with the closing of the Yankee merger, NU assumed $35
million in additional environmental remediation reserves as of March 1,
2000.
To finance the cash portion of the transaction, on March 1, 2000, NU
entered into a new term loan agreement for $266 million. Unless extended,
the new term loan agreement will expire on February 28, 2001. At
March 31, 2000, there was $263 million in borrowings under this facility.
Under the term loan agreement, NU may borrow at variable rates plus an
applicable margin based upon NU's most senior unsecured debt as rated by
the lower of Standard & Poor's or Moody's Investors Service. As of
March 31, 2000, the interest rate was 8.125 percent.
The term loan agreement provides that NU must comply with certain
financial and nonfinancial covenants as are customarily included in such
agreements, including, but not limited to, common equity ratios, interest
coverage ratios and cash flow ratios.
9. MERGER AGREEMENT WITH CON EDISON (NU)
The Maine Public Utilities Commission and the Vermont Public Service Board
granted approval of the merger between NU and Con Edison on March 17, 2000
and March 30, 2000, respectively.
On April 14, 2000, NU and Con Edison shareholders approved the proposed
merger of the two companies.
The merger is subject to the approval of other regulatory agencies. The
two companies expect that, following the receipt of all required
regulatory approvals, the merger will be completed in 2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. Shareholder Lawsuits - Joint Proxy with Con Edison.
(NU) A shareholder class action complaint was filed in the United States
District Court for the Southern District of New York on March 29, 2000.
The complaint names NU, the members of the NU Board of Trustees and
Con Edison as defendants.
The complaint alleges that the joint proxy statement/prospectus relating to
the proposed merger between NU and Con Edison is materially misleading
because, among other reasons, the joint proxy statement/prospectus failed to
disclose potential liabilities relating to the operation of Indian Point 2
and the shutdown of the facility on February 15, 2000. The complaint also
alleges that the NU Board of Trustees breached their fiduciary duties by
causing NU to enter into the merger agreement with Con Edison.
The plaintiffs, who have instituted other lawsuits to challenge the merger
(disclosed in the joint proxy statement/prospectus), seek various forms of
relief, including, among other things, enjoining the merger. The plaintiffs
also seek to recover costs and attorneys' fees incurred in the class action.
NU believes that the action is without merit and intends to vigorously
oppose the complaint.
For more information regarding this matter, see NU's current report on
Form 8-K dated March 29, 2000, File No. 1-5324.
2. Millstone 3 - Joint Owner Litigation
For more information regarding additional settlements in this matter, see
Note 2D, "Commitments and Contingencies - Nuclear Litigation," to the
consolidated financial statements and "Part I, Item 3 - Legal Proceedings"
in NU's 1999 Annual Report on Form 10-K.
3. Millstone 3 - Damage to Fish Population Lawsuits
(NU, CL&P, PSNH, and WMECO) On April 20, 2000, two lawsuits were filed in
New London Superior Court against Northeast Nuclear Energy Company (NNECO)
and the Northeast Utilities Service Company (NUSCO) seeking to enjoin
operations at Millstone due to alleged damage caused to the winter flounder
population in the Niantic River and Long Island Sound. The first action,
brought by certain citizens groups seeks a temporary injunction to suspend
Millstone 3 operations through the second week of June, 2000. A hearing on
the defendants' motion to dismiss was held on May 3, 2000.
The second action, brought by two fishermen, alleges two counts: common law
nuisance and tortious interference with a business expectancy. The suit
alleges that Millstone has engaged in various actions, including entrainment
of winter flounder, that has caused the two fishermen to suffer damages. The
suit seeks, among other claims of relief, temporary and permanent injunctions
to suspend Millstone operations during the winter flounder spawning season,
conversion of Millstone to a close-cooling system or, in the alternative,
permanent shutdown and compensatory and punitive damages. A hearing has yet
to be scheduled in this matter, but management believes that the suit is
without merit and intends to vigorously oppose it.
On April 24, 2000, a third lawsuit was filed in Hartford Superior Court against
NUSCO, NNECO and the Commissioner of the Department of Environmental Protection
(DEP) challenging the validity of previously issued DEP emergency and temporary
authorizations allowing Millstone to discharge wastewater not expressly
authorized by the facility's National Pollution Discharge Elimination System
permit. The suit seeks a temporary and permanent injunction against operations
at Millstone 1, 2 and 3. A hearing on this matter is scheduled for May 15,
2000.
4. Shareholder Securities Class Actions - Nuclear Matters
(NU) Consolidated Federal Court Actions: Pursuant to a court order dated
October 1, 1997, the six class actions separately filed against NU in 1996 were
consolidated for pre-trial and trial purposes. The actions are based on
various federal securities law and common law theories alleging
misrepresentations and omissions in public disclosures related to the NU
system's nuclear problems, which resulted in extended outages at Millstone
and impacted the financial condition of NU and certain of its subsidiaries.
These complaints represent classes of plaintiffs who purchased or otherwise
acquired NU common stock during periods ranging from March 1994 to April 1996.
The parties have executed a settlement agreement and, on March 27, 2000, filed
the agreement with the Federal court. On that date, the court also approved
the form of the settlement notice to be sent to shareholder class members and
set down a schedule for the mailing of the notice (May 10, 2000), the formal
hearing to approve the settlement (July 24, 2000), and the date to file proof
of claim forms (September 29, 2000). Any class member who wants to object to
or opt-out of the settlement must do so in writing by July 5, 2000.
For more information regarding this matter, see "Item 3 - Legal Proceedings"
in NU's 1999 Annual Report on Form 10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
Exhibit No. Description
----------- -----------
10.1 Amendment to Employment Agreement
15 Arthur Andersen LLP Letter Regarding Unaudited Financial
Information
27 NU Financial Data Schedule
27.1 CL&P Financial Data Schedule
27.2 PSNH Financial Data Schedule
27.3 WMECO Financial Data Schedule
27.4 NAEC Financial Data Schedule
(b) Reports on Form 8-K:
NU filed a current report on Form 8-K dated February 29, 2000, disclosing:
o The 1999 financial statements for NU consolidated and notes thereto and
management's discussion and analysis of financial condition and results
of operations relating to the 1999 financial statements.
NU filed a current report on Form 8-K dated March 1, 2000, disclosing:
o The completion of the merger with Yankee.
NU, CL&P and WMECO filed current reports on Form 8-K dated March 14, 2000,
disclosing:
o The transfer of approximately 1,289 MW of hydroelectric and pumped
storage generation assets in Connecticut and Massachusetts to NGC.
NU filed a current report on Form 8-K dated March 29, 2000, disclosing:
o The supplement to the joint proxy statement/prospectus for the special
meeting of shareholders related to the Con Edison merger.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTHEAST UTILITIES
-------------------
Registrant
Date: May 10, 2000 By /s/ John H. Forsgren
---------------------------------
John H. Forsgren
Executive Vice President
and Chief Financial Officer
Date: May 10, 2000 By /s/ John J. Roman
---------------------------------
John J. Roman
Vice President and Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE CONNECTICUT LIGHT AND POWER COMPANY
---------------------------------------
Registrant
Date: May 10, 2000 By /s/ Randy A. Shoop
---------------------------------
Randy A. Shoop
Treasurer
Date: May 10, 2000 By /s/ John P. Stack
---------------------------------
John P. Stack
Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
---------------------------------------
Registrant
Date: May 10, 2000 By /s/ David R. McHale
---------------------------------
David R. McHale
Vice President and Treasurer
Date: May 10, 2000 By /s/ John J. Roman
---------------------------------
John J. Roman
Vice President and Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
--------------------------------------
Registrant
Date: May 10, 2000 By /s/ David R. McHale
---------------------------------
David R. McHale
Vice President and Treasurer
Date: May 10, 2000 By /s/ John J. Roman
---------------------------------
John J. Roman
Vice President and Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTH ATLANTIC ENERGY CORPORATION
---------------------------------
Registrant
Date: May 10, 2000 By /s/ David R. McHale
---------------------------------
David R. McHale
Vice President and Treasurer
Date: May 10, 2000 By /s/ John J. Roman
---------------------------------
John J. Roman
Vice President and Controller
Exhibit 10.1
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment, dated as of March 21, 2000, is to the Employment Agreement,
dated as of August 21, 1996, by and between Northeast Utilities Service
Company (the "Company") and Bruce D. Kenyon ("Executive"), as amended. Terms
used but not defined in this Amendment shall have the meanings assigned to
them in the Employment Agreement.
In consideration of Executive's continued employment by the Company, and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by the parties, the Company and Executive agree as
follows:
A. That Section 1.5(ii) is amended to read as follows:
(ii) if Executive retires at any time after three years of service
with the Company, he will be deemed to have two additional years of
service solely for purposes of the Special Retirement Benefit and will
be entitled to receive that benefit based on service including such
additional years of service.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Amendment as of the date first above written.
NORTHEAST UTILITIES SERVICE COMPANY EXECUTIVE
By /s/ C. W. Grise /s/ B. D. Kenyon
Its Senior Vice President, Secretary Bruce D. Kenyon
and General Counsel
Exhibit 15
May 10, 2000
To Northeast Utilities:
We are aware that Northeast Utilities has incorporated by reference in
its Registration Statements No. 33-34622, No. 33-40156, No. 33-44814,
No. 33-63023, No. 33-55279, No. 33-56537, No. 333-52413, No. 333-52415,
and No. 333-85613, its Form 10-Q for the quarter ended March 31, 2000,
which includes our report dated May 10, 2000, covering the unaudited
interim financial information contained therein. Pursuant to Regulation C
of the Securities Act of 1933, that report is not considered a part of the
registration statement prepared or certified by our firm within the meaning
of Sections 7 and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen LLP
Arthur Andersen LLP