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, 2001
--------------
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
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, 2001
- ------------------------ -----------------------------
Northeast Utilities
Common shares, $5.00 par value 133,903,251 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
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.
NAEC.................... North Atlantic Energy Corporation
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 Gas
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
NUCLEAR UNITS
Millstone 1............. Millstone Unit No. 1, a 660 megawatt nuclear
unit completed in 1970; Millstone 1 is currently in
decommissioning status.
Millstone 2............. Millstone Unit No. 2, an 870 megawatt nuclear
electric generating unit completed in 1975
Millstone 3............. Millstone Unit No. 3, a 1,154 megawatt nuclear
electric generating unit completed in 1986
Seabrook................ Seabrook Unit No. 1, a 1,148 megawatt nuclear
electric generating unit completed in 1986; Seabrook
went into service in 1990.
REGULATORS
DPUC.................... Connecticut Department of Public Utility Control
DTE..................... Massachusetts Department of
Telecommunications and Energy
OTHER
EPS..................... Earnings per share
NU 2000 Form 10-K....... The NU system combined 2000 Form 10-K as filed with
the Securities and Exchange Commission
O&M..................... Operation and maintenance
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
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, 2001 and December 31, 2000............... 2
Consolidated Statements of Income -
Three Months Ended March 31, 2001 and 2000......... 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2001 and 2000......... 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, 2001 and December 31, 2000............... 18
Consolidated Statements of Income -
Three Months Ended March 31, 2001 and 2000......... 20
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2001 and 2000......... 21
Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 22
Public Service Company of New Hampshire
Balance Sheets -
March 31, 2001 and December 31, 2000............... 26
Statements of Income -
Three Months Ended March 31, 2001 and 2000......... 28
Statements of Cash Flows -
Three Months Ended March 31, 2001 and 2000......... 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, 2001 and December 31, 2000............... 34
Consolidated Statements of Income -
Three Months Ended March 31, 2001 and 2000......... 36
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2001 and 2000......... 37
Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 38
Notes to Financial Statements
(unaudited - all companies)............................. 40
Part II. Other Information
Item 1. Legal Proceedings............................. 52
Item 4. Submission of Matters to a Vote
of Security Holders........................... 53
Item 6. Exhibits and Reports on Form 8-K.............. 53
Signatures........................................................ 56
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
2001 December 31,
(Unaudited) 2000
------------- -------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at Cost:
Electric................................................ $ 6,009,696 $ 9,370,176
Gas and other........................................... 860,351 861,727
------------- -------------
6,870,047 10,231,903
Less: Accumulated provision for depreciation......... 3,487,588 7,041,279
------------- -------------
3,382,459 3,190,624
Construction work in progress........................... 206,851 228,330
Nuclear fuel, net....................................... 29,264 128,261
------------- -------------
Total net utility plant.............................. 3,618,574 3,547,215
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 57,170 740,058
Investments in regional nuclear generating
companies, at equity................................... 62,480 62,477
Other, at cost.......................................... 171,066 137,291
------------- -------------
290,716 939,826
------------- -------------
Current Assets:
Cash and cash equivalents............................... 1,472,454 200,017
Investments in securitizable assets..................... 86,431 98,146
Receivables, net........................................ 702,573 472,863
Unbilled revenues....................................... 118,927 121,090
Fuel, materials and supplies, at average cost........... 94,195 163,711
Prepayments and other................................... 139,635 94,528
------------- -------------
2,614,215 1,150,355
------------- -------------
Deferred Charges:
Regulatory assets....................................... 4,031,123 3,910,801
Unamortized debt expense................................ 40,735 33,475
Goodwill and other purchased intangible assets.......... 334,512 324,389
Prepaid pensions........................................ 157,455 139,546
Other .................................................. 158,605 171,542
------------ ------------
4,722,430 4,579,753
------------ ------------
Total Assets.............................................. $ 11,245,935 $ 10,217,149
============ ============
The accompanying notes are an integral part of these financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
2001 December 31,
(Unaudited) 2000
------------- -------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common shareholders' equity:
Common shares, $5 par value - authorized
225,000,000 shares; 148,807,333 shares issued and
143,978,260 shares outstanding in 2001 and
148,781,861 shares issued and 143,820,405 shares
outstanding in 2000................................... $ 744,037 $ 693,345
Capital surplus, paid in................................ 1,086,918 927,059
Temporary equity from stock forward................... - 215,000
Deferred contribution plan - employee stock
ownership plan........................................ (111,264) (114,463)
Retained earnings....................................... 593,646 495,873
Accumulated other comprehensive income.................. 5,745 1,769
------------- -------------
Total common shareholders' equity.............. 2,319,082 2,218,583
Preferred stock not subject to mandatory redemption..... 116,200 136,200
Preferred stock subject to mandatory redemption......... - 15,000
Long-term debt.......................................... 2,148,297 2,029,593
------------- -------------
Total capitalization........................... 4,583,579 4,399,376
------------- -------------
Rate Reduction Bonds...................................... 1,438,400 -
------------- -------------
Minority Interest in Consolidated Subsidiary.............. 100,000 100,000
------------- -------------
Obligations Under Capital Leases.......................... 17,363 47,234
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 1,111,416 1,309,977
Long-term debt and preferred stock - current portion.... 243,859 340,041
Obligations under capital leases - current portion...... 144,840 112,645
Accounts payable........................................ 653,281 538,983
Payable to Millstone 3 joint owners..................... 84,512 -
Accrued taxes........................................... 376,944 54,088
Accrued interest........................................ 58,753 41,131
Other................................................... 136,163 144,931
------------- ------------
2,809,768 2,541,796
------------- ------------
Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes....................... 1,358,660 1,585,494
Accumulated deferred investment tax credits............. 131,760 153,155
Decommissioning obligation - Millstone 1................ - 692,560
Deferred contractual obligations........................ 237,108 244,608
Other................................................... 569,297 452,926
------------- ------------
2,296,825 3,128,743
------------- ------------
Commitments and Contingencies (Note 2)
Total Capitalization and Liabilities...................... $ 11,245,935 $ 10,217,149
============= =============
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,
----------------------------
2001 2000
------------- -------------
(Thousands of Dollars,
except share information)
Operating Revenues.................................. $ 1,800,544 $ 1,382,321
------------- -------------
Operating Expenses:
Operation -
Fuel, purchased and net interchange power...... 1,166,972 768,372
Other.......................................... 182,796 201,461
Maintenance....................................... 88,681 50,768
Depreciation...................................... 60,629 60,392
Amortization of regulatory assets, net............ 719,856 45,132
Federal and state income taxes.................... 44,381 62,425
Taxes other than income taxes..................... 75,887 58,362
Gain on sale of utility plant..................... (653,872) -
------------- -------------
Total operating expenses.................... 1,685,330 1,246,912
------------- -------------
Operating Income.................................... 115,214 135,409
------------- -------------
Other Income/(Loss):
Gain related to Millstone sale.................... 202,159 -
Loss on share repurchase contracts................ (43,443) -
Other, net........................................ 807 4,673
Minority interest in loss of subsidiary........... (2,325) (2,325)
Income taxes...................................... (67,918) 7,836
------------- -------------
Other income, net........................... 89,280 10,184
------------- -------------
Income before interest charges.............. 204,494 145,593
------------- -------------
Interest Charges:
Interest on long-term debt........................ 43,668 55,884
Other interest.................................... 23,527 10,364
------------- -------------
Interest charges, net....................... 67,195 66,248
------------- -------------
Income after interest charges............... 137,299 79,345
Preferred Dividends of Subsidiaries................. 2,704 4,758
------------- -------------
Income before cumulative effect of
accounting change......................... 134,595 74,587
Cumulative effect of accounting change,
net of tax benefit of $14,908..................... (22,432) -
------------- -------------
Net Income.......................................... $ 112,163 $ 74,587
============= =============
Basic and Diluted Earnings Per Common Share:
Income before cumulative effect of
accounting change............................... $ 0.93 $ 0.55
Cumulative effect of accounting change,
net of tax benefit.............................. (0.15) -
------------- -------------
Basic and Diluted Earnings Per Common Share......... $ 0.78 $ 0.55
============= =============
Basic Common Shares Outstanding (average)........... 143,912,698 135,668,372
============= =============
Diluted Common Shares Outstanding (average)......... 144,314,339 136,229,530
============= =============
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,
------------------------
2001 2000
------------ -----------
(Thousands of Dollars)
Operating Activities:
Income after interest charges.............................. $ 137,299 $ 79,345
Adjustments to reconcile to net cash flows
provided by operating activities:
Depreciation............................................. 60,629 60,392
Deferred income taxes and investment tax credits, net.... (226,451) (10,395)
Amortization of regulatory assets, net................... 719,856 41,712
Net (deferral)/amortization of recoverable energy costs.. (7,374) 15,476
Gain on sale of utility plant............................ (678,884) -
Cumulative effect of accounting change................... (22,432) -
Net other sources of cash................................ (77,449) (32,883)
Changes in working capital:
Receivables and unbilled revenues, net................... (227,547) (48,189)
Fuel, materials and supplies............................. 69,516 1,719
Accounts payable......................................... 114,290 69,657
Accrued taxes............................................ 322,856 (51,943)
Investments in securitizable assets...................... 11,715 26,878
Loss on share repurchase contracts....................... 43,443 -
Other working capital (excludes cash).................... (7,190) (37,663)
------------ -----------
Net cash flows provided by operating activities.............. 232,277 114,106
------------ -----------
Investing Activities:
Investments in plant:
Electric, gas and other utility plant.................... (100,230) (62,910)
Nuclear fuel............................................. (926) (5,145)
------------ -----------
Net cash flows used for investments in plant............... (101,156) (68,055)
Investments in nuclear decommissioning trusts.............. (106,826) (16,169)
Net proceeds from the sale of utility plant................ 1,035,185 -
Buyout/buydown of IPP contracts............................ (977,433) -
Other investment activities, net........................... (20,023) (16,827)
Payment for the purchase of Yankee, net of cash acquired... - (260,347)
------------ -----------
Net cash flows used in investing activities.................. (170,253) (361,398)
------------ -----------
Financing Activities:
Issuance of common shares.................................. 411 124
Issuance of long-term debt................................. 265,663 26,477
Issuance of rate reduction bonds........................... 1,438,400 -
Net (decrease)/increase in short-term debt................. (198,561) 636,000
Reacquisitions and retirements of long-term debt........... (241,906) (280,155)
Reacquisitions and retirements of preferred stock.......... (36,500) (1,500)
Cash dividends on preferred stock.......................... (2,704) (4,758)
Cash dividends on common shares............................ (14,390) (14,312)
------------ -----------
Net cash flows provided by financing activities.............. 1,210,413 361,876
------------ -----------
Net increase in cash and cash equivalents.................... 1,272,437 114,584
Cash and cash equivalents - beginning of period.............. 200,017 255,154
------------ -----------
Cash and cash equivalents - end of period.................... $ 1,472,454 $ 369,738
============ ===========
Supplemental schedule of noncash investing and financing activities:
In conjunction with the Yankee acquisition on March 1, 2000,
common stock was issued and debt was assumed as follows:
Fair value of assets acquired, net of liabilities assumed $ 712,484
Cash paid (261,370)
NU common stock issued (217,114)
-----------
$ 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 2000 Form 10-K and current
reports on Form 8-K dated January 23, 2001, February 28, 2001, March 5, 2001,
March 12, 2001, March 22, 2001, March 30, 2001, April 11, 2001, April 24,
2001, and April 25, 2001.
FINANCIAL CONDITION
Overview
Northeast Utilities (NU) reported first quarter 2001 earnings before the
cumulative effect of an accounting change of $134.6 million, or $0.93 per
share, compared with earnings of $74.6 million, or $0.55 per share, for the
same period of 2000. Including the effects related to the adoption of
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, NU earned $112.2
million, or $0.78 per share, in the first quarter of 2001. The adoption of
SFAS No. 133 primarily affected Select Energy, Inc. (Select Energy), NU's
competitive energy marketing subsidiary, and resulted in a $22.4 million, or
$0.15 per share charge.
NU's first quarter results were aided considerably by the sale of
substantially all of the Millstone nuclear units on March 31, 2001 to
Dominion Resources, Inc. (Dominion). NU received approximately $1.2 billion
as a result of the sale and recorded a gain and a corresponding amount of
amortization expense in the amount of $653.9 million for the portion of the
total gain related to The Connecticut Light and Power Company (CL&P) and
Western Massachusetts Electric Company (WMECO). The majority of the $1.2
billion in cash proceeds was received by CL&P and WMECO.
NU recognized an after-tax gain of $124.8 million, or $0.87 per share,
related to the sale of Millstone. The gain related primarily to the sale of
the Millstone 3 interests of Public Service Company of New Hampshire (PSNH)
and several unaffiliated joint owners, not to the Millstone interests of CL&P
and WMECO.
NU also recorded a $43.4 million, or $0.30 per share after-tax charge related
to the forward purchase of approximately 10.1 million NU common shares by
certain financial institutions in December 1999 and January 2000. NU
contracted with those institutions to purchase these shares prior to NU's
March 1, 2000, merger with Yankee Energy System, Inc. (Yankee). The shares
were purchased at an average price of $21.26. Effective January 1, 2001, the
accounting for the forward purchase arrangements was revised requiring the
company to treat it as a derivative instrument and mark it to market. As of
March 31, 2001, the market value of the NU shares was $17.38, requiring NU to
record a loss for the difference between $17.38 and the average price of
$21.26 for each of the 10.1 million shares that were purchased. NU closed
out the forward purchase arrangements in April 2001, at a share price of
$18.30. As a result, NU will record an after-tax gain of $7.9 million in the
second quarter of 2001, reflecting the difference between $17.38 and $18.30
for each of the 10.1 million shares.
Aside from the aforementioned items, NU earned $53.3 million, or $0.36 per
share, in the first quarter of 2001, compared with $74.6 million, or $0.55
per share, in the same period of 2000. The primary reason for the lower
operating income was the refueling of Millstone 3. Following industry
restructuring in Connecticut and Massachusetts at the end of 1999, the
performance of the Millstone units became the risk and opportunity of the NU
shareholders. While Millstone 2 operated extremely well in the first quarter
of 2001 with a capacity factor of nearly 100 percent, Millstone 3 went off-
line for a planned refueling outage on February 3, 2001, and did not return
to service until March 31, 2001, the day it was sold to Dominion. The
additional operation and maintenance (O&M) costs experienced during the
refueling outage and the reduced level of revenue because Millstone 3 power
was not available for sale during the refueling, reduced NU earnings in the
first quarter of 2001 by $18.5 million, or $0.13 per share, compared with the
same quarter of 2000. The sale of Millstone is expected to negatively impact
comparisons in the second half of 2001 as both Millstone 2 and Millstone 3
operated extremely well in the second half of 2000. However, the sale of
Millstone may benefit NU's year-to-year comparisons in the second quarter of
2001 as a result of a scheduled refueling outage at Millstone 2 that took
place in 2000 and a Millstone related litigation charge that was recorded in
the second quarter of 2000.
Also included in the aforementioned $53.3 million of NU earnings in the first
quarter of 2001, was a loss of $4.2 million before the cumulative effect of
an accounting change for NU's competitive energy subsidiaries. By
comparison, those businesses contributed $10.6 million to NU's consolidated
earnings in the same period of 2000. The loss was due primarily to extended
outages at Millstone 3 and Seabrook. Select Energy depends on the output
from these units for some of its energy for resale. While those units were
off-line, Select Energy needed to acquire replacement power during
unfavorable market conditions.
O&M costs for the regulated electric companies declined slightly, despite an
after-tax charge of $4 million, or $0.03 per share, for NU's Voluntary
Separation Program under which approximately 340 NU employees accepted an
early retirement offer. The remaining costs under this program were deferred
for future collection through a transition charge. Those employees are
retiring between March 1, 2001 and February 28, 2002, and the resulting
savings are expected to benefit year-to-year financial results over the next
four quarters.
NU also benefited from $15.6 million of earnings from Yankee in the first
quarter of 2001. Yankee's financial results were not included in NU's
consolidated results before the March 1, 2000, acquisition date. As a result,
only $1.9 million of Yankee's earnings were included in NU's first quarter
2000 results.
NU continues to project operating earnings of between $1.40 per share and
$1.60 per share in 2001. That estimate excludes nonrecurring items.
Consolidated Edison, Inc. Merger
On March 5, 2001, Consolidated Edison, Inc. (Con Edison) advised NU that it
was not willing to close its merger with NU on the agreed terms. NU notified
Con Edison that it was treating its refusal to proceed on the terms set forth
in the merger agreement as a repudiation and breach of the merger agreement
between the two companies, and that NU would file suit to obtain the benefits
of the transaction as negotiated for NU shareholders. On March 6, 2001, Con
Edison filed suit in the U.S. District Court for the Southern District of New
York (Southern District), seeking a declaratory judgment that Con Edison had
been relieved of its obligation to proceed with the merger due to, among
other things, NU's asserted failure to perform all of its obligations under
the merger agreement and the alleged occurrence of a "Material Adverse
Change," as defined in the merger agreement. On March 12, 2001, NU filed
suit against Con Edison in the Southern District seeking damages in excess of
$1 billion arising from Con Edison's breach of the merger agreement.
On April 5, 2001, NU filed its answer to Con Edison's complaint in the
Southern District, denying all of the material allegations of the complaint
and asserting as an affirmative defense that Con Edison had materially
breached its obligations under the merger agreement. On April 16, 2001, Con
Edison filed its answer to NU's complaint, denying the material allegations
of the NU complaint and asserting affirmative defenses. The court has
entered a scheduling order which contemplates that a jury trial of the
parties' claims will commence on or after May 3, 2002. NU cannot predict the
outcome of this matter, nor its effect on NU.
Management believes that the overwhelming reason for a 28.3 percent decline
in NU's share price, to $17.38 per share, at the end of the first quarter of
2001, from $24.25 per share at year end, was Con Edison's refusal to
consummate the merger agreement.
Liquidity
NU's liquidity was strengthened considerably by the realization of more than
$2.6 billion of cash proceeds from the Millstone sale and CL&P
securitization. On March 30, 2001, a special purpose trust, CL&P RRB Special
Purpose Trust CL&P-1, sold nearly $1.44 billion of rate reduction bonds and
turned over the cash proceeds to CL&P. That sale followed the withdrawal of
an appeal on March 16, 2001, that had been filed in Connecticut Superior
Court in December 2000 by the Connecticut Office of Consumer Counsel (OCC).
More than $1 billion of these proceeds were used to buyout or buydown 15
high-cost, long-term purchased-power contracts with independent power
producers. Approximately $400 million was retained by CL&P and used to
reduce the levels of debt CL&P had outstanding to support stranded costs.
When combined with the $1.2 billion NU received on March 31, 2001, from the
Millstone sale, the proceeds provided NU with a unique opportunity to reduce
its overall indebtedness. Using proceeds from securitization, CL&P repaid
$134.9 million of first mortgage bonds on March 30, 2001. Those bonds had
been purchased at an earlier date by a financial institution working on
behalf of CL&P. CL&P also repaid $281.1 million of additional first mortgage
bonds and $100 million of monthly income preferred securities in April and
May of 2001 using proceeds from both securitization and the Millstone sale.
WMECO funded the retirement of $100 million of first mortgage bonds and
nearly $35 million of preferred stock on March 30, 2001, in advance of the
sale of Millstone. Also, on April 5, 2001, CL&P and WMECO repaid $180 million
of notes issued by the Niantic Bay Fuel Trust (NBFT). Cash utilized to fund
the retirement of the bonds, preferred stock and notes in the second quarter
of 2001 was included on NU's consolidated balance sheet as of March 31, 2001.
On March 16, 2001, the Connecticut Department of Public Utility Control
(DPUC) issued a temporary order requiring CL&P to use the proceeds in a way
to result in a common equity ratio (not including the rate reduction bonds as
debt) for CL&P of between 45 percent and 50 percent.
The retirement of outstanding obligations will continue in the second quarter
of 2001 as a result of PSNH's issuance of $525 million of rate reduction bonds
on April 25, 2001, and WMECO's anticipated issuance of $155 million of rate
reduction bonds in May 2001 through special purpose trusts similar to CL&P's.
The WMECO bond sale was approved in February 2001, by the Massachusetts
Department of Telecommunications and Energy (DTE).
In April 2001, PSNH used the $525 million of proceeds primarily to buydown
the Seabrook Power Contracts with North Atlantic Energy Corporation (NAEC)
and return equity to the parent company. NAEC will use those proceeds to
retire debt and return additional equity to the parent company. WMECO will
use the proceeds to buyout a purchased-power contract and return equity to
the parent company. NU, in turn, used $215 million of the cash proceeds to
repurchase the 10.1 million NU common shares under the aforementioned forward
purchase arrangements in April 2001.
The prospects of the Millstone sale and the issuance of rate reduction bonds
caused all three rating agencies that rate NU fixed-income securities to
upgrade NU system securities in the first quarter of 2001. In January 2001,
Moody's Investors Service (Moody's) and Standard and Poor's (S&P) upgraded
their credit ratings for NU, CL&P, PSNH, WMECO, and NAEC. In February 2001,
Fitch IBCA (Fitch) upgraded its credit ratings for NU, CL&P and WMECO. These
upgrades returned NU's unsecured debt to investment grade ratings for the
first time in five years and will save the NU system in excess of $4.7
million annually in financing costs.
In addition to receiving the proceeds from the issuance of rate reduction
bonds and the Millstone sale, NU's net cash flows provided by operations
totaled $232.3 million in the first quarter of 2001, compared with $114.1
million in the same period of 2000. The increase in cash flows provided by
operations is primarily related to the sale of the Millstone units offset by
increased costs associated with the Millstone 3 and Seabrook outages.
Investments in electric, gas and other utility plant totaled $100.2 million
in the first quarter of 2001, compared with $62.9 million in the first
quarter of 2000. The increase was due to repairs to PSNH's Newington
Station, which returned to service in April 2001, following an outage of in
excess of one year.
Restructuring
Connecticut: The 1999 restructuring orders allowed for securitization of
CL&P's nonnuclear regulatory assets and the costs to buyout or buydown the
various purchased-power contracts. On March 30, 2001, CL&P Funding LLC (CL&P
Funding), a subsidiary of CL&P, through a special purpose trust closed on the
sale of nearly $1.44 billion of AAA-rated rate reduction bonds at an average
interest rate of 5.95 percent. The bonds were issued in five different
series having maturity dates between two and ten years. CL&P Funding applied
the proceeds of the sale of the bonds to the purchase of certain transition
property from CL&P.
The DPUC issued an interim order effective March 1, 2001, directing CL&P to
pay down stranded costs using 50 percent of all earnings in excess of a 11.3
percent return on equity, until a final decision is reached in the DPUC's
investigation of over-earnings by CL&P. A final decision is expected to be
issued in May 2001.
New Hampshire: On April 25, 2001, PSNH Funding LLC, a subsidiary of PSNH,
sold $525 million of rate reduction bonds, at an average interest rate of
5.90 percent. The bonds, which were rated AAA by three credit agencies, were
issued in three different series having maturity dates between one and 12
years. PSNH used the net proceeds of the issue to buydown $484 million of
its over-market Seabrook Power Contract obligation, and securitize $28
million of Millstone 3 stranded costs.
May 1, 2001, was designated as the beginning of electric competition
(Competition Day). On this date, PSNH's average retail rates were reduced by
an additional 11 percent resulting in a total rate decrease in excess of 15
percent from rates in effect on September 30, 2000, as required by the
"Agreement to Settle PSNH Restructuring." PSNH's retail customers were also
permitted to purchase generation service from third parties on Competition
Day.
Massachusetts: The DTE approved WMECO's settlement request to securitize $155
million of stranded costs on February 7, 2001. WMECO has also received
several other key financial agency approvals during the first quarter of
2001. It is anticipated that WMECO will complete the securitization process
with bonds being issued in May 2001.
In April 2001, the DTE approved WMECO's default service rates effective for
the six-month periods July 1, 2001 through December 31, 2001, and January 1,
2002 through June 30, 2002. These six-month average rates ranged from
$0.0749 per kilowatt-hour to $0.0855 per kilowatt-hour for the 2001 six-month
period and $0.0669 per kilowatt-hour to $0.0763 per kilowatt-hour for the
2002 six-month period for WMECO's estimated 97 megawatts (MW) default service
load. These rates were based on the results of a competitive bidding process.
A contract was signed with the one unaffiliated winning bidder on April 9,
2001.
For information regarding commitments and contingencies related to
restructuring matters, see Note 2A, "Commitments and Contingencies -
Restructuring," to the consolidated financial statements.
Competitive Energy Subsidiaries
NU's competitive energy subsidiaries engage in a variety of energy-related
activities, primarily in the competitive energy retail and wholesale
commodity, marketing and services fields. In addition, these subsidiaries
own and manage 1,481 MW of capacity, as well as provide services to the
electric generation market and large commercial and industrial customers in
the Northeast.
NU's competitive energy subsidiaries had a loss of $4.2 million before the
cumulative effect of an accounting change related to the adoption of SFAS No.
133 in the first quarter of 2001, compared with earnings of $10.6 million in
the first quarter of 2000. Unconsolidated revenues for the competitive energy
subsidiaries were $636.7 million in the first quarter of 2001, compared with
$418.6 million in the first quarter of 2000. The increased revenues are the
result of sales growth and higher energy prices. CL&P's standard offer
purchases from Select Energy represented $171.1 million of total competitive
energy subsidiaries' revenues in the first quarter of 2001, compared with
$166 million in the first quarter of 2000. These amounts are eliminated in
consolidation.
Competitive Energy Subsidiaries' Market and Other Risks
NU's competitive energy subsidiaries, as major providers of electricity and
natural gas, are exposed to certain market risks which are inherent in their
business activities. The competitive energy subsidiaries enter into
contracts of varying length of time to buy and sell energy commodities,
primarily electricity, natural gas and oil. Market risk represents the risk
of loss that may impact the companies' financial statements due to adverse
changes in commodity market prices.
The competitive energy subsidiaries manage their portfolio of contracts and
assets to maximize value and minimize associated risks. The length of
contracts to buy and sell energy vary in duration from daily/hourly to
several years. At any point in time, the portfolio may be long (purchases
exceed sales) or short (sales exceed purchases). Portfolio and risk
management disciplines are used to manage exposures to market risks.
Policies and procedures have been established to manage these risks. At
market spot prices in effect at March 31, 2001, the portfolio had a negative
mark-to-market. There is significant volatility in the energy commodities
market, and for certain of the energy products and contracts there has been
limited liquidity. Management does not believe the ultimate settlement
through physical delivery of its energy portfolio will result in the
realization of this negative mark-to-market. The negative mark-to-market at
March 31, 2001, has declined since year end due to the decline in energy
prices in the region and new transactions entered into during the first
quarter.
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, ending December 31, 2003, at
fixed prices. This risk is partially mitigated by Select Energy entering
into purchase contracts with other energy providers to supply a portion of
the standard offer requirement, including its contracts with Northeast
Generation Company, an affiliated company, the purchase of 850 MW of output
from the Millstone and Seabrook units through 2001 and other resources in the
energy marketplace. Management has continued to reduce at favorable prices the
uncovered position in 2002 and 2003 of this standard offer requirement, thereby
continuing to reduce the risk.
Although there can be no assurance that it will be able to do so, management
believes that Select Energy will be able to source its remaining load
requirement at reasonable prices. If Select Energy is unable to source its
remaining load requirement at prices below the standard offer contract price
as a result of energy price increases, Select Energy's earnings would be
adversely impacted. For further information see Note 4, "Market Risk and Risk
Management Instruments," to the consolidated financial statements.
Nuclear Plant Performance and Divestiture
Millstone: On March 31, 2001, CL&P, PSNH and WMECO consummated the sale of
their ownership interests in the Millstone units to Dominion. For information
regarding the nuclear generation assets divestiture see Note 3, "Nuclear
Generation Assets Divestiture," to the consolidated financial statements.
Seabrook: Seabrook operated at a capacity factor of 51 percent through
March 31, 2001. The unit began a scheduled refueling outage on October 21,
2000. This outage was extended by approximately two months as a result of
repairs to a back-up diesel generator. Seabrook returned to service on
January 29, 2001.
On December 15, 2000, NU filed its divestiture plan for Seabrook with the New
Hampshire Public Utilities Commission and the DPUC. NU expects to complete
the sale in 2002.
Other Matters
Derivative Instruments and Market Risk: Select Energy engages in the trading
of commodity derivatives, which are accounted for using the mark-to-market
method under Emerging Issues Task Force (EITF) Issue No. 98-10, "Accounting
for Energy Trading and Risk Management Activities." For further information
regarding these topics, see Note 4, "Market Risk and Risk Management
Instruments," to the consolidated financial statements.
Other Commitments and Contingencies: For further information regarding 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
including, but not limited to, statements regarding future earnings,
refinancings, the use of proceeds from restructuring, and the recovery of
operating costs. 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 2001 are provided in the table below.
Income Statement Variances
(Millions of Dollars)
2001 over/(under) 2000
----------------------
Amount Percent
------ -------
Operating Revenues $ 418 30%
Operating Expenses:
Fuel, purchased and net
interchange power 399 52
Other operation (19) (9)
Maintenance 38 75
Depreciation - -
Amortization of regulatory
assets, net 675 (a)
Federal and state income taxes (18) (29)
Taxes other than income taxes 17 30
Gain on sale of utility plant (654) (a)
----- ---
Total operating expenses 438 35
----- ---
Operating income (20) (15)
----- ---
Other Income/(Loss):
Gain related to Millstone sale 202 (a)
Loss on share repurchase contracts (43) (a)
Other, net (4) (83)
Income taxes (76) (a)
----- ---
Other income, net 79 (a)
Interest charges, net 1 1
Preferred dividends of subsidiaries (2) (43)
----- ---
Income before cumulative effect of
accounting change 60 80
----- ---
Cumulative effect of accounting
change, net of tax benefit (22) (a)
----- ---
Net income $ 38 50%
===== ===
(a) Percent greater than 100.
Comparison of the First Quarter 2001 to the First Quarter of 2000
Operating Revenues
Total revenues increased by $418 million or 30 percent in the first quarter
of 2001, compared with the same period in 2000, primarily due to higher
revenues from the competitive energy companies ($218 million), the acquisition
of Yankee in March 2000 ($140 million), higher regulated retail revenues ($22
million) and higher wholesale revenues for the regulated subsidiaries ($54
million), partially offset by lower transmission revenues ($12 million).
The competitive energy companies' increase is primarily due to higher revenues
from Select Energy as a result of new contracts for energy services. The
regulated retail increase is primarily due to higher retail sales ($20 million)
and the increase in WMECO's standard offer service rate ($14 million),
partially offset by a 5 percent rate decrease for PSNH that was effective
October 1, 2000 ($11 million). Regulated retail kilowatt-hour sales increased
by 1.4 percent in 2001.
Fuel, Purchased and Net Interchange Power
Fuel, purchased and net interchange power expense increased in 2001,
primarily due to higher purchased energy and capacity costs as a result of
higher sales for Select Energy ($213 million of which $8 million represents
purchases from other NU affiliates), Yankee expenses ($93 million) and higher
purchased power for the regulated subsidiaries ($101 million).
Other Operation and Maintenance
Other O&M expenses increased $19 million in 2001, primarily due to higher
expenses at the nuclear units ($33 million) as a result of the Millstone 3
and Seabrook outages, and higher O&M expenses for Yankee ($9 million),
partially offset by lower corporate support and payroll expenses ($24 million).
Amortization of Regulatory Assets, Net
Amortization of regulatory assets, net increased in 2001, primarily due to
the amortization in 2001 related to the gain on sale of the Millstone units
by CL&P and WMECO ($654 million) and higher amortization related to
restructuring.
Federal and State Income Taxes
Federal and state income taxes increased approximately $58 million in 2001,
primarily due to the tax on the impacts of the Millstone sales gains.
Taxes Other Than Income Taxes
Taxes other than income taxes increased in 2001, primarily due to higher
Connecticut gross earnings taxes ($12 million) due to the phase-in of
restructuring in Connecticut in 2000 and higher property taxes ($3 million).
Gain on Sale of Utility Plant
NU recorded gains on the sale of CL&P's and WMECO's ownership interests in
Millstone. A corresponding amount of amortization expense was recorded.
Gain Related to Millstone Sale
NU recognized an after-tax gain of approximately $125 million primarily
related to the sale of Millstone 3 interests of PSNH and several unaffiliated
owners.
Loss on Share Repurchase Contracts
In the first quarter of 2001, NU recorded a non-cash charge of approximately
$43 million related to the forward purchase of 10.1 million NU common shares
in December 1999 and January 2000. Under the new accounting standard EITF
Issue No. 00-19 "Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Company's Own Stock," NU was required to
recognize a charge for the difference between the average purchase price and
the price at which the NU shares closed on March 31, 2001, plus carrying
charges for the quarter.
Cumulative Effect of Accounting Change, Net of Tax Benefit
The cumulative effect of accounting change, net of tax benefit, recorded in
2001, represents effect of the adoption of SFAS No. 133 ($22 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, 2001, and
the related consolidated statements of income and cash flows for the three-
month periods ended March 31, 2001 and 2000. 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 auditing standards generally accepted in the
United States, 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 auditing standards generally
accepted in the United States, the consolidated balance sheet and
consolidated statement of capitalization as of December 31, 2000 and the
related consolidated statements of income, comprehensive income,
shareholders' equity, cash flows, and income taxes for the year then ended
(not presented separately herein), and in our report dated January 23, 2001
(except with respect to the matters discussed in Note 15, as to which the
date is March 13, 2001), 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, 2000 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, 2001
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
2001 December 31,
(Unaudited) 2000
------------- -------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at Original Cost:
Electric................................................ $ 3,110,210 $ 5,756,098
Less: Accumulated provision for depreciation......... 1,310,213 4,210,429
------------- -------------
1,799,997 1,545,669
Construction work in progress........................... 99,122 128,835
Nuclear fuel, net....................................... 2,949 79,672
------------- -------------
Total net utility plant.............................. 1,902,068 1,754,176
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 5,810 536,912
Investments in regional nuclear generating
companies, at equity................................... 41,294 41,395
Other, at cost.......................................... 35,120 33,708
------------- -------------
82,224 612,015
------------- -------------
Current Assets:
Cash.................................................... 1,312,925 5,461
Investment in securitizable assets...................... 86,431 98,146
Notes receivable from affiliated companies.............. 219,200 38,000
Receivables, net........................................ 216,182 29,245
Accounts receivable from affiliated companies........... 72,802 103,763
Fuel, materials and supplies, at average cost........... 37,056 36,332
Prepayments and other................................... 16,565 32,291
------------- -------------
1,961,161 343,238
------------- -------------
Deferred Charges:
Regulatory assets....................................... 2,042,985 1,835,967
Prepaid pension......................................... 186,947 170,672
Unamortized debt expense................................ 22,138 14,794
Other................................................... 40,754 33,336
------------- -------------
2,292,824 2,054,769
------------- -------------
Total Assets.............................................. $ 6,238,277 $ 4,764,198
============= =============
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
2001 December 31,
(Unaudited) 2000
------------- -------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock, $10 par value - authorized
24,500,000 shares; 7,584,884 shares outstanding
in 2001 and 2000......................................... $ 75,849 $ 75,849
Capital surplus, paid in.................................. 413,467 413,192
Retained earnings......................................... 265,008 243,197
Accumulated other comprehensive income.................... 506 506
------------- -------------
Total common stockholder's equity................ 754,830 732,744
Preferred stock not subject to mandatory redemption....... 116,200 116,200
Long-term debt............................................ 975,227 1,072,688
------------- -------------
Total capitalization............................. 1,846,257 1,921,632
------------- -------------
Rate Reduction Bonds........................................ 1,438,400 -
------------- -------------
Minority Interest in Consolidated Subsidiary................ 100,000 100,000
------------- -------------
Obligations Under Capital Leases............................ 15,912 39,910
------------- -------------
Current Liabilities:
Notes payable to banks.................................... 165,000 115,000
Long-term debt and preferred stock - current portion...... 125,250 160,000
Obligations under capital leases - current portion........ 116,637 89,959
Accounts payable.......................................... 162,189 153,944
Accounts payable to affiliated companies.................. 607,280 122,106
Payable to Millstone 3 joint owners....................... 84,512 -
Accrued taxes............................................. 237,203 32,901
Accrued interest.......................................... 18,058 13,995
Other..................................................... 27,230 31,324
------------- -------------
1,543,359 719,229
------------- -------------
Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes......................... 801,144 977,439
Accumulated deferred investment tax credits............... 97,948 99,771
Decommissioning obligation - Millstone 1.................. - 580,320
Deferred contractual obligations.......................... 155,649 160,590
Other..................................................... 239,608 165,307
------------- -------------
1,294,349 1,983,427
------------- -------------
Commitments and Contingencies (Note 2)
Total Capitalization and Liabilities........................ $ 6,238,277 $ 4,764,198
============= =============
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,
--------------------------
2001 2000
----------- -----------
(Thousands of Dollars)
Operating Revenues.................................... $ 733,905 $ 747,976
----------- -----------
Operating Expenses:
Operation -
Fuel, purchased and net interchange power........ 426,802 430,424
Other............................................ 98,544 101,328
Maintenance......................................... 46,844 27,579
Depreciation........................................ 28,904 32,520
Amortization of regulatory assets, net.............. 558,243 7,718
Federal and state income taxes...................... 22,333 38,591
Taxes other than income taxes....................... 40,196 33,795
Gain on sale of utility plant....................... (530,724) -
----------- -----------
Total operating expenses...................... 691,142 671,955
----------- -----------
Operating Income...................................... 42,763 76,021
----------- -----------
Other Income/(Loss):
Gain related to Millstone sale...................... 29,402 -
Other, net.......................................... (1,102) (21)
Minority interest in loss of subsidiary............. (2,325) (2,325)
Income taxes........................................ (7,865) 1,256
----------- -----------
Other income/(loss), net...................... 18,110 (1,090)
----------- -----------
Income before interest charges................ 60,873 74,931
----------- -----------
Interest Charges:
Interest on long-term debt.......................... 21,330 24,099
Other interest...................................... 1,243 1,189
----------- -----------
Interest charges, net......................... 22,573 25,288
----------- -----------
Net Income............................................ $ 38,300 $ 49,643
=========== ===========
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,
-----------------------
2001 2000
------------ ----------
(Thousands of Dollars)
Operating Activities:
Net income............................................... $ 38,300 $ 49,643
Adjustments to reconcile to net cash flows
provided by operating activities:
Depreciation........................................... 28,904 32,520
Deferred income taxes and investment tax credits, net.. (180,536) 12,084
Amortization of regulatory assets, net................. 558,243 7,718
Gain on sale of utility plant.......................... (530,724) -
Net other uses of cash................................. (53,244) (3,755)
Changes in working capital:
Receivables............................................ (155,976) (114,740)
Fuel, materials and supplies........................... (724) 975
Accounts payable....................................... 493,419 193,283
Accrued taxes.......................................... 204,302 (139,854)
Investments in securitizable assets.................... 11,715 26,495
Other working capital (excludes cash).................. 15,695 (12,029)
------------ ----------
Net cash flows provided by operating activities............ 429,374 52,340
------------ ----------
Investing Activities:
Investments in plant:
Electric utility plant................................. (56,821) (40,223)
Nuclear fuel........................................... (630) (555)
------------ ----------
Net cash flows used for investments in plant............. (57,451) (40,778)
Investment in NU system Money Pool....................... (181,200) (93,400)
Investments in nuclear decommissioning trusts............ (77,666) (12,894)
Other investment activities, net......................... (255) (2,408)
Net proceeds from the sale of utility plant.............. 832,353 686,807
Buyout/buydown of IPP contracts.......................... (977,433) -
------------ ----------
Net cash flows (used in)/provided by investing activities.. (461,652) 537,327
------------ ----------
Financing Activities:
Net increase/(decrease) in short-term debt............... 50,000 (101,700)
Issuance of rate reduction bonds......................... 1,438,400 -
Reacquisitions and retirements of long-term debt......... (132,250) (179,071)
Repurchase of common shares.............................. - (300,000)
Cash dividends on preferred stock........................ (1,390) (2,733)
Cash dividends on common stock........................... (15,018) -
------------ ----------
Net cash flows provided by/(used in) financing activities.. 1,339,742 (583,504)
------------ ----------
Net increase in cash for the period........................ 1,307,464 6,163
Cash - beginning of period................................. 5,461 364
------------ ----------
Cash - end of period....................................... $ 1,312,925 $ 6,527
============ ==========
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 2000 Form 10-K and current reports on
Form 8-K dated March 30, 2001, and April 11, 2001.
RESULTS OF OPERATIONS
The components of significant income statement variances for the first
quarter of 2001 are provided in the table below.
Income Statement Variances
(Millions of Dollars)
2001 over/(under) 2000
----------------------
Amount Percent
------ -------
Operating Revenues $ (14) (2)%
Operating Expenses:
Fuel, purchased and net
interchange power (4) (1)
Other operation (3) (3)
Maintenance 19 70
Depreciation (3) (11)
Amortization of regulatory
assets, net 551 (a)
Federal and state income taxes (16) (42)
Taxes other than income taxes 6 19
Gain on sale of utility plant (531) (a)
----- ---
Total operating expenses 19 3
----- ---
Operating income (33) (44)
----- ---
Other Income/(Loss):
Gain related to Millstone sale 29 (a)
Other, net (1) (a)
Income taxes (9) (a)
----- ---
Other income/(loss), net 19 (a)
Interest charges, net (3) (11)
----- ---
Net income $ (11) (23)%
===== ===
(a) Percent greater than 100.
Operating Revenues
Total revenues decreased by $14 million or 2 percent in the first quarter of
2001, compared with the same period in 2000, primarily due to lower wholesale
revenues ($16 million) and lower other electric revenues ($7 million),
partially offset by higher retail revenues ($9 million). Wholesale revenues
were lower primarily as a result of the Millstone 3 refueling outage in the
first quarter of 2001. Other electric revenues decreased primarily due to
lower transmission revenue. Retail revenues increased primarily due to higher
retail sales. Retail sales increased 1.7 percent compared to the first
quarter of 2000.
Fuel, Purchased and Net Interchange Power
Fuel, purchased and net interchange power expense decreased in 2001, primarily
due to lower purchased power costs.
Other Operation and Maintenance
Other O&M expenses increased $16 million in 2001, primarily due to higher
expenses at the nuclear units ($22 million) as a result of the Millstone 3
refueling outage, and higher distribution maintenance expenses ($4 million),
partially offset by lower transmission expenses ($10 million).
Amortization of Regulatory Assets, Net
Amortization of regulatory assets, net increased in 2001, primarily due to
the amortization in 2001 related to the gain on the sale of the Millstone
units ($531 million) and higher amortization related to restructuring.
Federal and State Income Taxes
Federal and state income taxes decreased in 2001 compared to 2000, primarily
due to lower book taxable income.
Taxes Other Than Income Taxes
Taxes other than income taxes increased in 2001, primarily due to higher
Connecticut gross earnings taxes ($5 million) due to the phase-in of
restructuring in 2000.
Gain on Sale of Utility Plant
CL&P recorded a gain on the sale of its ownership interest in Millstone. A
corresponding amount of amortization expense was recorded.
Gain Related to Millstone Sale
CL&P recognized a gain related to the sale of the former Connecticut Municipal
Electric Energy Cooperative's portion of Millstone 2.
Interest Charges, Net
Interest charges, net decreased in 2001, primarily due to lower long-term
debt outstanding as a result of reacquisitions and retirements.
LIQUIDITY
On March 30, 2001, a special purpose trust, CL&P RRB Special Purpose Trust
CL&P-1, sold nearly $1.44 billion of rate reduction bonds and turned over the
cash proceeds to CL&P. That sale followed the withdrawal of an appeal on
March 16, 2001, that had been filed in Connecticut Superior Court in December
2000 by the OCC.
More than $1 billion of these proceeds were used to buyout or buydown 15 high-
cost, long-term purchased-power contracts with independent power producers.
Approximately $400 million was retained by CL&P and used to reduce the levels
of debt CL&P had outstanding to support stranded costs. Using proceeds from
securitization, CL&P repaid $134.9 million of first mortgage bonds on March
30, 2001. Those bonds had been purchased at an earlier date by a financial
institution working on behalf of CL&P. CL&P also repaid $281.1 million of
additional first mortgage bonds and $100 million of monthly income preferred
securities in April and May of 2001 using proceeds from both securitization
and the Millstone sale. Also, on April 5, 2001, CL&P and WMECO repaid $180
million of notes issued by the NBFT. Cash utilized to fund the retirement of
the bonds and notes in the second quarter of 2001 was included on CL&P's
consolidated balance sheet as of March 31, 2001.
On March 16, 2001, the DPUC issued a temporary order requiring CL&P to use
the proceeds in a way to result in a common equity ratio (not including the
rate reduction bonds as debt) for CL&P of between 45 percent and 50 percent.
The prospects of the Millstone sale and the issuance of rate reduction bonds
caused all three rating agencies that rate NU fixed-income securities to
upgrade NU system securities in the first quarter of 2001. In January 2001,
Moody's and S&P upgraded their credit ratings for CL&P. In February 2001,
Fitch upgraded its credit ratings for CL&P. These upgrades returned NU's
unsecured debt to investment grade ratings for the first time in five years
and will save the NU system in excess of $4.7 million annually in financing
costs.
In addition to receiving the proceeds from the issuance of rate reduction
bonds and the Millstone sale, CL&P's net cash flows provided by operations
totaled $429.4 million in the first quarter of 2001, compared with $52.3
million in the same period of 2000. The increase in cash flows provided by
operations is primarily related to the sale of the Millstone units offset by
increased costs associated with the Millstone 3 and Seabrook outages.
Investments in utility plant totaled $56.8 million in the first quarter of
2001, compared with $40.2 million in the first quarter of 2000.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
March 31,
2001 December 31,
(Unaudited) 2000
------------- -------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at Cost:
Electric................................................ $ 1,388,366 $ 1,505,967
Less: Accumulated provision for depreciation......... 669,811 711,340
------------- -------------
718,555 794,627
Construction work in progress........................... 38,991 27,251
Nuclear fuel, net....................................... - 1,924
------------- -------------
Total net utility plant.............................. 757,546 823,802
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... - 7,362
Investments in regional nuclear generating
companies and subsidiary company, at equity............ 15,546 16,293
Other, at cost.......................................... 29,402 3,225
------------- -------------
44,948 26,880
------------- -------------
Current Assets:
Cash and cash equivalents............................... 5,420 115,135
Notes receivable from affiliated companies.............. 43,800 -
Receivables, net........................................ 67,386 71,992
Accounts receivable from affiliated companies........... 41,650 2,798
Taxes receivable from affiliated companies.............. - 9,983
Accrued utility revenues................................ 39,971 41,844
Fuel, materials and supplies, at average cost........... 31,025 28,760
Prepayments and other................................... 4,162 14,750
------------- -------------
233,414 285,262
------------- -------------
Deferred Charges:
Regulatory assets....................................... 1,008,166 924,847
Deferred receivable from affiliated company............. - 3,240
Unamortized debt expense................................ 9,012 9,067
Other................................................... 9,088 9,096
------------- -------------
1,026,266 946,250
------------- -------------
Total Assets.............................................. $ 2,062,174 $ 2,082,194
============= =============
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
March 31,
2001 December 31,
(Unaudited) 2000
------------- -------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock, $1 par value - authorized
100,000,000 shares; 1,000 shares outstanding
in 2001 and 2000....................................... $ 1 $ 1
Capital surplus, paid in................................ 424,954 424,909
Retained earnings....................................... 150,864 123,177
Accumulated other comprehensive income.................. 1,207 1,207
------------- -------------
Total common stockholder's equity.............. 577,026 549,294
Long-term debt.......................................... 407,285 407,285
------------- -------------
Total capitalization........................... 984,311 956,579
------------- -------------
Obligations Under Seabrook Power Contracts
and Other Capital Leases................................. 76,024 91,702
------------- -------------
Current Liabilities:
Preferred stock - current portion............ 24,268 24,268
Obligations under Seabrook Power Contracts and other
capital leases - current portion....................... 521,402 537,528
Accounts payable........................................ 36,872 45,847
Accounts payable to affiliated companies................ 29,417 54,157
Accrued taxes........................................... 13,623 656
Accrued interest........................................ 12,265 4,962
Other................................................... 9,124 13,112
------------- -------------
646,971 680,530
------------- -------------
Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes....................... 191,642 179,723
Accumulated deferred investment tax credits............. 21,217 27,348
Deferred contractual obligations........................ 40,250 41,499
Deferred pension costs.................................. 39,941 41,216
Deferred revenue from affiliated company................ - 3,240
Other................................................... 61,818 60,357
------------- -------------
354,868 353,383
------------- -------------
Commitments and Contingencies (Note 2)
Total Capitalization and Liabilities...................... $ 2,062,174 $ 2,082,194
============= =============
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,
--------------------------
2001 2000
----------- -----------
(Thousands of Dollars)
Operating Revenues.................................... $ 340,814 $ 328,694
----------- -----------
Operating Expenses:
Operation -
Fuel, purchased and net interchange power........ 237,680 210,530
Other............................................ 31,119 33,022
Maintenance......................................... 15,490 11,959
Depreciation........................................ 10,514 12,322
Amortization of regulatory assets, net.............. 11,467 11,470
Federal and state income taxes...................... 8,305 13,053
Taxes other than income taxes....................... 11,533 11,096
----------- -----------
Total operating expenses...................... 326,108 303,452
----------- -----------
Operating Income...................................... 14,706 25,242
----------- -----------
Other Income/(Loss):
Gain related to Millstone sale...................... 25,913 -
Other, net.......................................... 8,392 6,514
Income taxes........................................ (13,108) (3,433)
----------- -----------
Other income, net............................. 21,197 3,081
----------- -----------
Income before interest charges................ 35,903 28,323
----------- -----------
Interest Charges:
Interest on long-term debt.......................... 7,602 10,797
Other interest...................................... (61) 95
----------- -----------
Interest charges, net......................... 7,541 10,892
----------- -----------
Net Income............................................ $ 28,362 $ 17,431
=========== ===========
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,
------------------------
2001 2000
------------ -----------
(Thousands of Dollars)
Operating activities:
Net income................................................ $ 28,362 $ 17,431
Adjustments to reconcile to net cash flows
(used in)/provided by operating activities:
Depreciation............................................ 10,514 12,322
Deferred income taxes and investment tax credits, net... (1,980) (702)
Net deferral of recoverable energy costs................ (24,671) (2,319)
Amortization of regulatory assets, net.................. 11,467 15,749
Gain on sale of utility plant........................... (25,012) -
Net other uses of cash.................................. (13,992) (10,013)
Changes in working capital:
Receivables and accrued utility revenues................ (7,361) 11,686
Fuel, materials and supplies............................ (2,265) 1,755
Accounts payable........................................ (33,715) (5,091)
Accrued taxes........................................... 12,967 17,515
Other working capital (excludes cash)................... 23,886 19,493
------------ -----------
Net cash flows (used in)/provided by operating activities... (21,800) 77,826
------------ -----------
Investing Activities:
Investments in plant:
Electric utility plant.................................. (23,400) (11,099)
------------ -----------
Net cash flows used for investments in plant.............. (23,400) (11,099)
Investment in NU system Money Pool........................ (43,800) -
Investment in nuclear decommissioning trusts.............. 6,846 (151)
Other investment activities, net.......................... (26,918) 526
------------ -----------
Net cash flows used in investing activities................. (87,272) (10,724)
------------ -----------
Financing Activities:
Cash dividends on preferred stock......................... (643) (1,325)
------------ -----------
Net cash flows used in financing activities................. (643) (1,325)
------------ -----------
Net (decrease)/increase in cash and cash equivalents........ (109,715) 65,777
Cash and cash equivalents - beginning of period............. 115,135 182,588
------------ -----------
Cash and cash equivalents - end of period................... $ 5,420 $ 248,365
============ ===========
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, the NU 2000 Form 10-K and current report on Form
8-K dated April 25, 2001.
RESULTS OF OPERATIONS
The components of significant income statement variances for the first quarter
of 2001 are provided in the table below.
Income Statement Variances
(Millions of Dollars)
2001 over/(under) 2000
----------------------
Amount Percent
------ -------
Operating Revenues $ 12 4%
Operating Expenses:
Fuel, purchased and net
interchange power 27 13
Other operation (2) (6)
Maintenance 4 30
Depreciation (2) (15)
Federal and state income taxes (5) (36)
Taxes other than income taxes 1 4
---- ---
Total operating expenses 23 8
---- ---
Operating income (11) (42)
---- ---
Other Income/(Loss):
Gain related to Millstone sale 26 (a)
Other, net (8) (a)
---- ---
Other income, net 18 (a)
Interest charges, net (3) (30)
---- ---
Net income $ 11 63%
==== ===
(a) Percent greater than 100.
Operating Revenues
Total operating revenues increased $12 million in 2001, primarily due to
higher wholesale revenues from higher capacity and energy sales to the market
($22 million), lower retail revenue ($7 million) and lower transmission
revenue ($2 million). Retail revenue decreased due to a 5 percent rate
decrease in October 2000, partially offset by higher retail sales. Retail
kilowatt-hour sales increased by 0.7 percent in 2001.
Fuel, Purchased and Net Interchange Power
Fuel, purchased and net interchange power expense increased in 2001,
primarily due to higher purchased power expenses as a result of the higher
wholesale sales.
Other Operation and Maintenance
Other O&M expenses increased $2 million in 2001, primarily due to higher
maintenance costs associated with the fossil plants ($2 million), the costs
associated with the early retirement program ($2 million), and higher costs
at Millstone 3 due to an extended outage ($1 million), partially offset by
lower transmission expense ($3 million).
Depreciation
Depreciation decreased in 2001, primarily due to the extension of plant asset
lives as a result of the PSNH settlement in the second quarter of 2000.
Federal and State Income Taxes
Federal and state income taxes increased in 2001 compared to 2000, primarily
due to higher book taxable income.
Gain Related to Millstone Sale
PSNH recognized a gain as a result of the sale of its ownership interest in
Millstone 3.
Other, Net
Other, net increased in 2001, primarily due to income resulting from the delay
in restructuring.
Interest Charges, Net
Interest charges, net were lower in 2001, primarily due to lower long-term
debt outstanding.
LIQUIDITY
The retirement of outstanding obligations will continue in the second quarter
of 2001 as a result of PSNH's issuance of $525 million of rate reduction bonds
on April 25, 2001.
In April 2001, PSNH used the $525 million of proceeds primarily to buydown
the Seabrook Power Contracts with NAEC and return equity to the parent
company. NAEC will use those proceeds to retire debt and return additional
equity to the parent company.
The prospects of the Millstone sale and the issuance of rate reduction bonds
caused all three rating agencies that rate NU fixed-income securities to
upgrade NU system securities in the first quarter of 2001. In January 2001,
Moody's and S&P upgraded their credit ratings for PSNH. This upgrade
returned NU's unsecured debt to investment grade ratings for the first time
in five years and will save the NU system in excess of $4.7 million annually
in financing costs.
In addition to receiving the proceeds from the Millstone sale, PSNH's net
cash flows used in operations totaled $21.8 million in the first quarter of
2001, compared with net cash flows provided by operations of $77.8 million in
the same period of 2000.
Investments in utility plant totaled $23.4 million in the first quarter of
2001, compared with $11.1 million in the first quarter of 2000. The increase
was due to repairs to PSNH's Newington Station, which returned to service in
April 2001, following an outage of in excess of one year.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31,
2001 December 31,
(Unaudited) 2000
------------- ------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at Original Cost:
Electric................................................ $ 550,511 $ 1,112,405
Less: Accumulated provision for depreciation......... 181,571 792,923
------------- ------------
368,940 319,482
Construction work in progress........................... 15,186 22,813
Nuclear fuel, net....................................... - 18,296
------------- ------------
Total net utility plant.............................. 384,126 360,591
------------- ------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... - 144,921
Investments in regional nuclear generating
companies, at equity................................... 11,156 11,117
Other, at cost.......................................... 6,288 6,249
------------- ------------
17,444 162,287
------------- ------------
Current Assets:
Cash.................................................... 99 985
Receivables, net........................................ 45,248 36,364
Accounts receivable from affiliated companies........... 202,895 16,146
Accrued utility revenues................................ 22,595 21,222
Fuel, materials and supplies, at average cost........... 1,523 1,606
Prepayments and other................................... - 4,817
------------- ------------
272,360 81,140
------------- ------------
Deferred Charges:
Regulatory assets....................................... 250,661 392,247
Prepaid pension......................................... 49,149 45,473
Unamortized debt expense................................ 1,781 1,822
Other................................................... 1,998 4,258
------------- ------------
303,589 443,800
------------- ------------
Total Assets.............................................. $ 977,519 $ 1,047,818
============= ============
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31,
2001 December 31,
(Unaudited) 2000
------------- ------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock, $25 par value - authorized
1,072,471 shares; 590,093 shares outstanding
in 2001 and 2000....................................... $ 14,752 $ 14,752
Capital surplus, paid in................................ 93,295 94,010
Retained earnings....................................... 62,585 62,952
Accumulated other comprehensive income.................. 182 182
------------- ------------
Total common stockholder's equity.............. 170,814 171,896
Preferred stock not subject to mandatory redemption..... - 20,000
Preferred stock subject to mandatory redemption......... - 15,000
Long-term debt.......................................... 100,076 139,425
------------- ------------
Total capitalization........................... 270,890 346,321
------------- ------------
Obligations Under Capital Leases.......................... 104 5,935
------------- ------------
Current Liabilities:
Notes payable to banks.................................. 90,000 110,000
Notes payable to affiliated company..................... 146,400 600
Long-term debt and preferred stock - current portion.... - 61,500
Obligations under capital leases - current portion...... 27,442 20,986
Accounts payable........................................ 61,869 25,298
Accounts payable to affiliated companies................ 23,885 8,611
Accrued taxes........................................... 57,477 8,471
Accrued interest........................................ 78 4,703
Other................................................... 8,300 7,671
------------- ------------
415,451 247,840
------------- ------------
Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes....................... 174,109 224,711
Accumulated deferred investment tax credits............. 4,250 17,580
Decommissioning obligation - Millstone 1................ - 136,130
Deferred contractual obligations........................ 41,209 42,519
Other................................................... 71,506 26,782
------------- ------------
291,074 447,722
------------- ------------
Commitments and Contingencies (Note 2)
Total Capitalization and Liabilities...................... $ 977,519 $ 1,047,818
============= ============
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
------------------------
2001 2000
----------- -----------
(Thousands of Dollars)
Operating Revenues.................................... $ 143,300 $ 129,410
----------- -----------
Operating Expenses:
Operation -
Fuel, purchased and net interchange power........ 90,119 66,245
Other............................................ 18,795 21,922
Maintenance......................................... 9,872 7,545
Depreciation........................................ 4,433 4,588
Amortization of regulatory assets, net.............. 126,490 3,898
Federal and state income taxes...................... 3,157 5,462
Taxes other than income taxes....................... 4,863 4,968
Gain on sale of utility plant....................... (123,148) -
----------- -----------
Total operating expenses...................... 134,581 114,628
----------- -----------
Operating Income...................................... 8,719 14,782
----------- -----------
Other (Loss)/Income:
Other, net.......................................... (1,124) 186
Income taxes........................................ 618 3,660
----------- -----------
Other (loss)/income, net...................... (506) 3,846
----------- -----------
Income before interest charges................ 8,213 18,628
----------- -----------
Interest Charges:
Interest on long-term debt.......................... 2,994 4,791
Other interest...................................... 1,900 2,784
----------- -----------
Interest charges, net......................... 4,894 7,575
----------- -----------
Net Income............................................ $ 3,319 $ 11,053
=========== ===========
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,
-----------------------
2001 2000
----------- -----------
(Thousands of Dollars)
Operating Activities:
Net income................................................. $ 3,319 $ 11,053
Adjustments to reconcile to net cash flows
provided by operating activities:
Depreciation............................................. 4,433 4,588
Deferred income taxes and investment tax credits, net.... (50,011) (10,082)
Net (deferral)/amortization of recoverable energy costs.. (1,465) 4,507
Amortization of regulatory assets, net................... 126,490 478
Gain on sale of utility plant............................ (123,148) -
Net other uses of cash................................... (28,906) (189)
Changes in working capital:
Receivables and accrued utility revenues................. (19,185) (14,433)
Fuel, materials and supplies............................. 83 1,676
Accounts payable......................................... 51,845 11,603
Accrued taxes............................................ 49,006 13,443
Other working capital (excludes cash).................... 821 (8,298)
----------- -----------
Net cash flows provided by operating activities.............. 13,282 14,346
----------- -----------
Investing Activities:
Investments in plant:
Electric utility plant................................... (8,450) (4,285)
Nuclear fuel............................................. (140) (10)
----------- -----------
Net cash flows used for investments in plant............... (8,590) (4,295)
Investments in nuclear decommissioning trusts.............. (25,817) (1,059)
Other investment activities, net........................... 34,608 (212)
Net proceeds from the sale of utility plant................ - 185,787
----------- -----------
Net cash flows provided by investing activities.............. 201 180,221
----------- -----------
Financing Activities:
Net decrease in short-term debt............................ (20,000) (25,000)
Net increase in NU system Money Pool borrowings............ 145,800 16,000
Reacquisitions and retirements of long-term debt........... (100,000) (94,150)
Reacquisitions and retirements of preferred stock.......... (36,500) (1,500)
Repurchase of common shares................................ - (90,000)
Cash dividends on preferred stock.......................... (671) -
Cash dividends on common stock............................. (2,998) (700)
----------- -----------
Net cash flows used in financing activities.................. (14,369) (195,350)
----------- -----------
Net decrease in cash for the period.......................... (886) (783)
Cash - beginning of period................................... 985 950
----------- -----------
Cash - end of period......................................... $ 99 $ 167
=========== ===========
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 2000 Form 10-K, and current reports on
Form 8-K dated March 30, 2001, and April 11, 2001.
RESULTS OF OPERATIONS
The components of significant income statement variances for the first quarter
of 2001 are provided in the table below.
Income Statement Variances
(Millions of Dollars)
2001 over/(under) 2000
----------------------
Amount Percent
------ -------
Operating Revenues $ 14 11%
Operating Expenses:
Fuel, purchased and net
interchange power 24 36
Other operation (3) (14)
Maintenance 2 31
Amortization of regulatory
assets, net 123 (a)
Federal and state income taxes (3) (42)
Gain on sale of utility plant (123) (a)
----- ---
Total operating expenses 20 17
----- ---
Operating income (6) (41)
----- ---
Other (Loss)/Income:
Other, net (1) (a)
Income taxes (3) (83)
----- ---
Other (loss)/income, net (4) (a)
----- ---
Interest charges, net (2) (35)
----- ---
Net income $ (8) (70)%
===== ---
(a) Percent greater than 100.
Operating Revenues
Total revenues increased by $14 million or 11 percent in the first quarter of
2001, compared with the same period in 2000, primarily due to higher retail
revenues ($20 million), partially offset by lower wholesale revenues ($6
million). Retail revenues were higher primarily due to an increase in the
standard offer service rate ($14 million) and higher retail sales ($6 million).
Retail sales were up 1.5 percent compared to the first quarter of 2000.
Wholesale revenues decreased primarily due to the Millstone 3 refueling outage
in the first quarter of 2001.
Fuel, Purchased and Net Interchange Power
Fuel, purchased and net interchange power expense increased in 2001, primarily
due to higher purchased power costs associated with the standard offer supply.
Amortization of Regulatory Assets, Net
Amortization of regulatory assets, net increased in 2001, primarily due to
the amortization in 2001 related to the gain on the sale of the Millstone
units.
Gain on Sale of Utility Plant
WMECO recorded a gain on the sale of its ownership interest in Millstone. A
corresponding amount of amortization expense was recorded.
Interest Charges, Net
Interest charges, net decreased in 2001, primarily due to lower long-term
debt outstanding as a result of reacquisitions and retirements.
LIQUIDITY
WMECO funded the retirement of $100 million of first mortgage bonds and
nearly $35 million of preferred stock on March 30, 2001, in advance of the
sale of Millstone. Also, on April 5, 2001, WMECO and CL&P repaid $180 million
of notes issued by the NBFT.
The retirement of outstanding obligations will continue in the second quarter
of 2001 as a result of WMECO's anticipated sale of $155 million of rate
reduction bonds in May 2001 through a similar special purpose trust as CL&P's.
The WMECO bond sale was approved in February 2001, by the DTE. WMECO will
use the proceeds to buyout a purchased-power contract and return equity to
the parent company.
The prospects of the Millstone sale and the issuance of rate reduction bonds
caused all three rating agencies that rate NU fixed-income securities to
upgrade NU system securities in the first quarter of 2001. In January 2001,
Moody's and S&P upgraded their credit ratings for WMECO. In February 2001,
Fitch upgraded its credit ratings for WMECO. These upgrades returned NU's
unsecured debt to investment grade ratings for the first time in five years
and will save the NU system in excess of $4.7 million annually in financing
costs.
In addition to receiving the proceeds from the Millstone sale, WMECO's net
cash flows provided by operations totaled $13.3 million in the first quarter
of 2001, compared with $14.3 million in the same period of 2000.
Investments in utility plant totaled $8.5 million in the first quarter of
2001, compared with $4.3 million in the first quarter of 2000.
Northeast Utilities and Subsidiaries
The Connecticut Light and Power Company and Subsidiaries
Public Service Company of New Hampshire
Western Massachusetts Electric Company and Subsidiary
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), and Western Massachusetts Electric Company (WMECO), which
were filed as part of the NU 2000 Form 10-K, and the current
reports on Form 8-K dated January 23, 2001, February 28, 2001,
March 5, 2001, March 12, 2001, March 22, 2001, March 30, 2001,
April 11, 2001, April 24, 2001, and April 25, 2001. 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, 2001,
the results of operations and statements of cash flows for the
three-month periods ended March 31, 2001 and 2000. All adjustments
are of a normal, recurring nature except those described in Note 2.
The results of operations for the three-month period ended March 31,
2001 and 2000, are not indicative of the results expected for a
full year.
The consolidated financial statements of NU and of its subsidiaries
include the accounts of all their respective subsidiaries.
Intercompany transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure 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
accounting principles generally accepted in the United States
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. During the fourth quarter of 2000, PSNH discontinued
the application of SFAS No. 71 for the generation portion of its
business.
In addition, in March 2001, CL&P and WMECO sold their ownership
interests in the Millstone units, and the gain on the sale was used
to offset recoverable nuclear costs. Also in March 2001, CL&P
issued rate reduction bonds and used a portion of the proceeds to
buyout or buydown certain contracts with independent power
producers. These payments were recorded as regulatory assets.
CL&P's, WMECO's and PSNH's transmission and distribution businesses
will continue to be cost-based, and management believes the
application of SFAS No. 71 continues to be appropriate. Management
also believes it is probable that the NU system operating companies
will recover their investments in long-lived assets, including
regulatory assets, through charges to their transmission and
distribution customers. These costs will be recovered over a
period of time ranging from 7 to 26 years, subject to certain
adjustments. The majority for CL&P and WMECO costs will be
recovered through a transition charge over a 12-year period. PSNH
has three types of stranded costs. Type 1 costs are securitized
regulatory assets that are recovered up to a 12-year period. Type 2
costs are ongoing costs consisting of nuclear decommissioning and
IPP costs that are recovered as incurred, over the time period PSNH
is responsible for those costs. Type 3 costs are nonsecuritized
regulatory assets which must be recovered by a recovery end date or
be written off. Based on current projections, PSNH expects to
fully recover all of its Type 3 costs by the recovery end date as
stipulated in the "Agreement to Settle PSNH Restructuring"
(Settlement Agreement). In addition, all material regulatory
assets are earning a return. The components of the NU system
companies' regulatory assets are as follows:
------------------------------------------------------------
March 31, December 31,
(Millions of Dollars) 2001 2000
------------------------------------------------------------
Recoverable nuclear costs $1,622.6 $2,565.8
Buyout and buydown of
IPP contracts 977.4 -
Income taxes, net 521.1 504.7
Unrecovered contractual obligations 252.4 255.8
Recoverable energy costs, net 339.8 332.5
Other 317.8 252.0
------------------------------------------------------------
Totals $4,031.1 $3,910.8
------------------------------------------------------------
C. New Accounting Standards
Derivative Instruments: Effective January 1, 2001, NU adopted SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended. All derivative instruments have been
identified and recorded at fair value effective January 1, 2001.
In addition, for those derivative instruments which are hedging an
identified risk, NU has designated and documented all hedging
relationships anew.
NU believes that the majority of its nontrading energy and capacity
contracts, purchased-power agreements, power sale agreements, and
gas and electric retail contracts, qualify for the "normal
purchases and sales" exception of the new standard, and therefore
are not required to be recognized at fair value. However, NU
recorded its electric, oil and gas swap contracts, interest rate
swap agreements, and gas and oil futures on its consolidated
balance sheets at fair value on January 1, 2001, as these items are
derivatives. Certain of these contracts meet specific cash flow
hedge accounting criteria; accordingly, changes in the fair value
of these contracts were recorded in other comprehensive income on
the consolidated balance sheets. For those contracts that do not
meet the hedging requirements, the changes in fair value of those
contracts were recognized currently in earnings. As explained
within Note 4, commodity derivatives that are utilized for trading
purposes, are accounted for using the mark-to-market method, under
Emerging Issues Task Force (EITF) Issue No. 98-10, "Accounting for
Energy Trading and Risk Management Activities."
When the cash flow hedges are entered into at inception, there is a
formal documentation of the hedging relationship and NU's risk
management objective and strategy for undertaking the hedge,
including identification of the hedging instrument, the hedged
transaction, the nature of the risk being hedged, and how the
hedging instrument's effectiveness will be assessed. The derivative
instrument is marked-to-market as an asset or liability and the
effective portion of the cash flow hedge is reported in other
comprehensive income. The ineffective portion is reflected in the
consolidated statements of income. Recognition of gains and losses
on hedge transactions occur during the same time period as the
related physical transactions. Derivative contracts which do not
have high correlation with the related physical transactions are
marked-to-market and recognized in the current period income.
The effects of adopting SFAS No. 133 were recorded in the first
quarter of 2001. Derivative instruments recorded which were not an
effective hedge resulted in a cumulative effect of a change in
accounting principle which reduced pretax earnings by $37.3 million
($22.4 million on an after-tax basis). Derivative instruments
recorded which were an effective cash flow hedge resulted in a
positive increase in other comprehensive income of $19.5 million.
During the first quarter of 2001, a positive $13.1 million was
reclassified from other comprehensive income upon the conclusion of
these hedged transactions and recognized in earnings. Cash flows
from the hedge contracts are reported in the same category as cash
flows from the hedged assets. Other comprehensive income at
March 31, 2001, was $4 million relating to hedged transactions and
it is estimated that $2.4 million will be reclassified into earnings
within the next 12 months.
These estimates do not include certain long-term energy and
capacity contracts which management believes represent "normal
purchases and sales." The accounting for these types of contracts
is currently being evaluated by the Financial Accounting Standards
Board (FASB). Further guidance from the FASB may change
management's conclusions regarding these contracts and require them
to be accounted for as derivatives. If this additional guidance
requires the company to account for these contracts as derivatives,
then the change would be reflected as a cumulative effect of
accounting change as of the first day of the first fiscal quarter
following the cleared guidance.
2. COMMITMENTS AND CONTINGENCIES
A. Restructuring (CL&P, PSNH, WMECO)
New Hampshire: In January 2001, the New Hampshire Supreme Court
upheld a comprehensive restructuring order based on the Settlement
Agreement. This order will reduce retail rates by an average of 16
percent and permit PSNH to securitize up to $670 million of
stranded costs. Certain parties appealed this order to the state
courts where the appellants arguments were rejected. On April 16,
2001, two of the appellants requested a review of the New Hampshire
Supreme Court decision by the United States Supreme Court (Court).
It is not known whether the Court will agree to accept the appeal
and, if accepted, when such a review will take place. Management
believes that the appeal to the Court is unlikely to be accepted
and it is uncertain what impact, if any, that this review would
have on stranded cost recovery if successful.
In April 2001, the New Hampshire legislature passed a bill that
would amend the existing restructuring legislation and materially
changed a portion of the Settlement Agreement. The new legislation
delays the sale of PSNH's fossil and hydroelectric generation
assets to no sooner than 33 months after the day customer choice is
implemented in New Hampshire (Competition Day), requires PSNH to
supply transition service to residential and small commercial
customers until at least 57 months after Competition Day, and
requires that transition service be provided at fixed rates for
certain classes of customers for the first 33 months.
The delay in the sale of PSNH's fossil and hydroelectric generation
assets should minimize any deferrals caused by the provision for
transition service at fixed prices. However, management cannot
precisely quantify the impacts of the delay in the sale of PSNH's
fossil and hydroelectric generation assets and the extension of
transition service at fixed rates on its financial position,
including the recovery of certain stranded costs, as well as its
results of operations. Although PSNH no longer applies SFAS No. 71
for its generation business, it expects to fully recover all
operating costs related to its generation assets, including a
return, under the terms of the Settlement Agreement. In addition,
PSNH management believes that an adverse impact related to the
recovery of certain stranded costs is unlikely.
Massachusetts: During the first quarter of 2000 WMECO filed its
first annual stranded cost reconciliation filing covering the
period March 1, 1998 through December 31, 1999. Hearings on this
filing were held in early May 2001. On March 30, 2001, WMECO also
filed its second annual stranded cost reconciliation with the
Massachusetts Department of Telecommunications and Energy for
calendar 2000. The cumulative deferral of unrecovered stranded
costs for the two filings covering the period March 31, 1998
through December 31, 2000, is approximately $4 million which
management believes will be fully recovered in future periods.
B. 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 aggregate amount of these purchase contracts was
$1.79 billion at March 31, 2001. These contracts extend through
2005 as follows (millions of dollars):
Year
----
2001 $1,076.9
2002 365.9
2003 275.2
2004 41.3
2005 28.3
--------
Total $1,787.6
========
C. Nuclear Insurance Contingencies (NU, CL&P, PSNH, WMECO)
Insurance policies covering the NU system's nuclear facilities have
been purchased for the primary cost of repair, replacement or
decontamination of utility property, certain extra costs incurred
in obtaining replacement power during prolonged accidental outages
and the excess cost of repair, replacement or decontamination or
premature decommissioning of utility property.
The NU system is subject to retroactive assessments if losses under
those policies exceed the accumulated funds available to the
insurer. In connection with the sale of the Millstone units, the
maximum potential assessments with respect to those policies have
been reduced from the December 31, 2000, amounts to those at
March 31, 2001, as follows:
-----------------------------------------------------------
March 31, December 31,
(Millions of Dollars) 2001 2000
-----------------------------------------------------------
Primary Property
Insurance Program $2.8 $ 8.2
Replacement Power Policies $0.7 $ 4.1
Excess Property
Damage Policies $3.6 $10.2
-----------------------------------------------------------
In addition, if the sum of all claims and costs from any one
nuclear incident exceeds the maximum amount of financial
protection, the NU system would be subject to an additional 5
percent or $4.2 million liability, in proportion to its ownership
interests in each of its nuclear units. Based upon its ownership
interests at March 31, 2001 and December 31, 2000, the NU system's
maximum liability, including any additional assessments, would be
$34.9 million and $271 million, respectively, per incident, of
which payments would be limited to $4 million and $30.8 million,
respectively, per year.
NU expects to terminate its remaining nuclear insurance, and thus
its potential assessment obligations, upon the divestiture of
Seabrook.
3. NUCLEAR GENERATION ASSETS DIVESTITURE (NU, CL&P, PSNH, WMECO)
On March 31, 2001, CL&P and WMECO consummated the sale of Millstone 1
and 2 to a subsidiary of Dominion Resources, Inc. (Dominion), Dominion
Nuclear Connecticut, Inc. (DNCI). CL&P, PSNH, WMECO, and certain other
of the joint owners collectively sold 93.47 percent of Millstone 3 to
DNCI. This sale included all of the respective joint ownership
interests of CL&P, PSNH and WMECO in Millstone 3. The NU system
received approximately $1.2 billion of cash proceeds from the sale and
has or will apply the proceeds to taxes and reductions of debt and
equity at CL&P, PSNH and WMECO. As part of the sale, DNCI assumed
responsibility for decommissioning the three Millstone units.
4. MARKET RISK AND RISK MANAGEMENT INSTRUMENTS (Select Energy, Yankee,
Yankee Gas)
Competitive Energy Subsidiaries: Select Energy provides both firm
requirement energy services to its customers and performs energy trading
and marketing activities. Select Energy manages its exposure to risk
from existing contractual commitments and provides risk management
services to its customers through forward contracts, futures, over-the-
counter swap agreements, and options (commodity derivatives).
Select Energy has utilized the sensitivity analysis methodology to
disclose the quantitative information for the commodity price risks.
Sensitivity analysis provides a presentation of the potential loss of
future earnings, fair values or cash flows from market risk-sensitive
instruments over a selected time period due to one or more hypothetical
changes in commodity prices, or other similar price changes.
Commodity Price Risk - Trading Activities: As a market participant in
the Northeast area of the United States, Select Energy conducts
commodity-trading activities in electricity and its related products,
natural gas and oil and therefore experiences net open positions.
Select Energy manages these open positions with strict policies which
limit its exposure to market risk and require daily reporting to
management of potential financial exposure. Commodity derivatives
utilized for trading purposes are accounted for using the mark-to-market
method, under EITF Issue No. 98-10. Under this methodology, these
instruments are adjusted to market value, and the unrealized gains and
losses are recognized in income in the current period in the consolidated
statements of income as operating expenses - other and in the
consolidated balance sheets as prepayments and other. The mark-to-market
position at March 31, 2001, was a positive $58 million.
Under sensitivity analysis, the fair value of the portfolio is a
function of the underlying commodity, contract prices and market prices
represented by each derivative commodity contract. For swaps, forward
contracts and options, market value reflects management's best estimates
considering over-the-counter quotations, time value and volatility
factors of the underlying commitments. Exchange-traded futures and
options are subject to market, based on closing exchange prices.
As of March 31, 2001, Select Energy has calculated the market price
resulting from a 10 percent unfavorable change in forward market prices.
That 10 percent change would result in approximately a $5 million
decline in the fair value of the Select Energy trading portfolio. In
the normal course of business, Select Energy also faces risks that are
either nonfinancial or nonquantifiable. Such risks principally include
credit risk, which is not reflected in the sensitivity analysis above.
Commodity Price Risk - Nontrading Activities: Select Energy utilizes
derivative financial and commodity instruments (derivatives), including
futures and forward contracts, to reduce market risk associated with
fluctuations in the price of electricity and natural gas sold under firm
commitments with certain customers. Select Energy also utilizes
derivatives, including price swap agreements, call and put option
contracts, and futures and forward contracts, to manage the market risk
associated with a portion of its anticipated supply requirements. These
derivative instruments have been designated as cash flow hedging
instruments by the company.
When conducting sensitivity analysis of the change in the fair value of
Select Energy's electricity, natural gas and oil nontrading portfolio,
which would result from a hypothetical change in the future market price
of electricity, natural gas and oil, the fair value of the contracts are
determined from models which take into account estimated future market
prices of electricity, natural gas and oil, the volatility of the market
prices in each period, as well as the time value factors of the
underlying commitments. In most instances, market prices and volatility
are determined from quoted prices on the futures exchange.
Select Energy has determined a hypothetical change in the fair value for
its nontrading electricity, natural gas and oil contracts, assuming a 10
percent unfavorable change in forward market prices. As of March 31,
2001, an unfavorable 10 percent change in forward market price would
have resulted in a decrease in fair value of approximately $23 million.
The impact of a change in electricity, natural gas and oil prices on
Select Energy's nontrading contracts on March 31, 2001, is not
necessarily representative of the results that will be realized when
these contracts go to eventual physical delivery.
Select Energy also maintains natural gas service agreements with certain
customers to supply gas at fixed prices for terms extending through
2003. Select Energy has hedged its gas supply risk under these
agreements through NYMEX contracts. Under these contracts, the purchase
price of a specified quantity of gas is effectively fixed over the term
of the gas service agreements, which extend through 2002. As of March
31, 2001, the NYMEX contracts had a notional value of $12.8 million and
a positive mark-to-market position of $0.3 million.
Regulated Entities:
Interest Rate Risk - Nontrading Activities: The company manages its
interest rate risk exposure by maintaining a mix of fixed and variable
rate debt. In addition, Yankee Energy System, Inc. (Yankee) has entered
into an interest rate sensitive derivative. 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, 2001, Yankee had outstanding agreements with a total
notional value of $48 million and a negative mark-to-market position of
$0.4 million.
Commodity Price Risk - Nontrading Activities: Yankee Gas Services
Company (Yankee Gas) maintains a master swap agreement with a certain
customer to supply gas at fixed prices for a 10-year term extending
through 2005. Under this master 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, 2001,
the commodity swap agreement had a notional value of $16.3 million and a
positive mark-to-market position of $4.4 million that is included within
the $4 million reported for other comprehensive income.
5. COMPREHENSIVE INCOME (NU, CL&P, PSNH, WMECO)
The total comprehensive income, which includes all comprehensive income
items, for the NU system is as follows:
Three Months Ended March 31,
----------------------------
2001 2000
---- ----
(Millions of Dollars)
NU Consolidated $116.1 $74.6
CL&P 36.9 46.9
PSNH 27.7 16.1
WMECO 2.6 10.4
Accumulated other comprehensive income mark-to-market adjustments of
NU's qualified cash flow hedging instruments is as follows:
--------------------------------------------------------------------
(Millions of Dollars) March 31, 2001
--------------------------------------------------------------------
Balance at January 1, 2001 (Inception date) $19.5
-----
Hedged transactions recognized into earnings 13.1
Change in fair value 1.6
Cash flow transactions entered into for the period 0.8
-----
Net change associated with the current period
hedging transactions 15.5
--------------------------------------------------------------------
Total included in accumulated other
comprehensive income $ 4.0
--------------------------------------------------------------------
6. 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 share information) 2001 2000
--------------------------------------------------------------------
Income after interest charges $137.3 $79.4
Preferred dividends
of subsidiaries 2.7 4.8
--------------------------------------------------------------------
Income before cumulative effect
of accounting change $134.6 $74.6
Cumulative effect
of accounting change,
net of tax benefit (22.4) -
--------------------------------------------------------------------
Net income $112.2 $74.6
--------------------------------------------------------------------
Basic EPS common shares
outstanding (average) 143,912,698 135,668,372
Dilutive effect of employee
stock options 401,641 561,158
--------------------------------------------------------------------
Diluted EPS common shares
outstanding (average) 144,314,339 136,229,530
--------------------------------------------------------------------
Basic and Diluted EPS:
Income before cumulative effect
of accounting change $0.93 $0.55
Cumulative effect
of accounting change,
net of tax benefit (0.15) -
--------------------------------------------------------------------
Net income $0.78 $0.55
--------------------------------------------------------------------
7. SEGMENT INFORMATION (NU)
The NU system is organized between regulated utilities (electric and gas
since March 1, 2000) and competitive energy subsidiaries. The regulated
utilities segment represented approximately 77 percent and 89 percent of
the NU system's total revenues for the three months ended March 31, 2001
and 2000, 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 competitive energy subsidiaries segment has two major
customers, one unaffiliated company and CL&P. The purchases by these
customers represented approximately 15 percent and 27 percent,
respectively, of total competitive energy subsidiaries' revenues for the
three months ended March 31, 2001. The purchases by these customers
represented approximately 19 percent and 40 percent, respectively, of
total competitive energy subsidiaries' revenues for the three months
ended March 31, 2000.
The competitive energy subsidiaries segment in the following table
includes HEC Inc., 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, a
corporation that acquires and manages generation facilities; Northeast
Generation Services Company and its subsidiaries, a corporation that
maintains and services any fossil or hydroelectric facility that is
acquired or contracted with for fossil or hydroelectric generation
services, and; 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 of Mode 1
Communications, Inc. (Mode 1), an investor in a fiber-optic communications
network. Mode 1 had a net loss of $2.8 million and $1.3 million for three
months ended March 31, 2001 and 2000, respectively. Other also includes
the results of the nonenergy related subsidiaries of Yankee. 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, 2001
- -------------------------------------------------------------------------
Competitive Eliminations
(Millions of Regulated Utilities Energy and
Dollars) Electric Gas Subsidiaries Other Total
- -------------------------------------------------------------------------
Operating
revenues $ 1,218.0 $174.7 $636.7 $ (228.9) $ 1,800.5
Operating
expenses (1,142.3) (153.4) (630.3) 240.7 (1,685.3)
- -------------------------------------------------------------------------
Operating
income 75.7 21.3 6.4 11.8 115.2
Other
income/
(loss) 42.6 (0.8) 1.8 45.7 89.3
Interest
expense (41.9) (3.4) (12.4) (9.5) (67.2)
Preferred
dividends (2.7) - - - (2.7)
- -------------------------------------------------------------------------
Income/(loss)
before
cumulative
effect of
accounting
change 73.7 17.1 (4.2) 48.0 134.6
Cumulative
effect of
accounting
change,
net of
tax benefit - - (22.0) (0.4) (22.4)
- -------------------------------------------------------------------------
Net income/
(loss) $ 73.7 $ 17.1 $(26.2) $ 47.6 $ 112.2
- -------------------------------------------------------------------------
Total assets $11,129.2 $893.4 $691.0 $(1,467.7) $11,245.9
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
For the Three Months Ended March 31, 2000
- -------------------------------------------------------------------------
Competitive Eliminations
(Millions of Regulated Utilities Energy and
Dollars) Electric Gas Subsidiaries Other Total
- -------------------------------------------------------------------------
Operating
revenues $1,203.1 $ 32.8 $418.6 $ (272.2) $ 1,382.3
Operating
expenses (1,075.2) (27.9) (409.8) 266.0 (1,246.9)
- -------------------------------------------------------------------------
Operating
income/
(loss) 127.9 4.9 8.8 (6.2) 135.4
Other
income/
(loss) 10.8 (0.5) 0.9 (1.0) 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 $633.4 $(683.3) $10,217.1
- -------------------------------------------------------------------------
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. Sale of Millstone to Dominion Nuclear Connecticut, Inc.
On February 20, 2001, the Connecticut Coalition Against Millstone (CCAM)
filed in Connecticut Superior Court an appeal of the Connecticut Department
of Public Utility Control's (DPUC) decision approving the sale of Millstone
to Dominion. The CCAM alleged that the final decision violates the
Connecticut general statutes on multiple grounds, and asked that the DPUC's
approval be stayed and the decision be reversed and vacated. On March 26,
2001, the DPUC dismissed the CCAM's appeal and the sale transaction closed on
March 31, 2001.
For more information regarding the sale of the Millstone units, see "Item 1.
Business - Rates and Electric Industry Restructuring" and "Nuclear Generation"
and "Item 3. Legal Proceedings" in NU's 2000 Annual Report on Form 10-K and
current report on Form 8-K dated March 30, 2001.
2. Consolidated Edison, Inc./Northeast Utilities - Merger Litigation
On March 5, 2001, Consolidated Edison, Inc. (Con Edison) advised NU that it
was not willing to close its merger with NU on the agreed terms. NU notified
Con Edison that it was treating its refusal to proceed on the terms set forth
in the merger agreement as a repudiation and breach of the merger agreement
between the two companies, and that NU would file suit to obtain the benefits
of the transaction as negotiated for NU shareholders. On March 6, 2001, Con
Edison filed suit in the U.S. District Court for the Southern District of New
York (Southern District), seeking a declaratory judgment that Con Edison had
been relieved of its obligation to proceed with the merger due to, among
other things, NU's asserted failure to perform all of its obligations under
the merger agreement and the alleged occurrence of a "Material Adverse
Change," as defined in the merger agreement. On March 12, 2001, NU filed
suit against Con Edison in the Southern District seeking damages in excess of
$1 billion arising from Con Edison's breach of the merger agreement.
On April 5, 2001, NU filed its answer to Con Edison's complaint in the
Southern District, denying all of the material allegations of the complaint
and asserting as an affirmative defense that Con Edison had materially
breached its obligations under the merger agreement. On April 16, 2001, Con
Edison filed its answer to NU's complaint, denying the material allegations
of the NU complaint and asserting affirmative defenses. The court has
entered a scheduling order which contemplates that a jury trial of the
parties' claims will commence on or after May 3, 2002. NU cannot predict the
outcome of this matter, nor its effect on NU.
Management believes that the overwhelming reason for a 28.3 percent decline
in NU's share price, to $17.38 per share, at the end of the first quarter of
2001, from $24.25 per share at year end, was Con Edison's refusal to
consummate the merger agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
CL&P. In a written Consent in Lieu of a Special Meeting of Stockholders of
CL&P (Consent) dated March 15, 2001, stockholders voted to sell the company's
ownership interest in the Millstone Nuclear Power Station (Millstone)
pursuant to that certain Purchase and Sale Agreement dated August 7, 2000
(Agreement) by and among the company, other owners of Millstone and the
buyer, Dominion Resources, Inc. (Buyer), in consideration of the total
purchase price of $1.298 billion, subject to adjustment as provided in the
Agreement. The vote authorizing the sale was 7,584,884 shares in favor,
representing 100 percent of the issued and outstanding shares of common stock
of CL&P.
PSNH. In a written Consent in Lieu of a Special Meeting of Stockholders of
PSNH (Consent) dated March 15, 2001, stockholders voted to sell the company's
ownership interest in the Millstone Nuclear Power Station (Millstone)
pursuant to that certain Purchase and Sale Agreement dated August 7, 2000
(Agreement) by and among the company, other owners of Millstone and the
buyer, Dominion Resources, Inc. (Buyer), in consideration of the total
purchase price of $1.298 billion, subject to adjustment as provided in the
Agreement. The vote authorizing the sale was 1,000 shares in favor,
representing 100 percent of the issued and outstanding shares of common stock
of PSNH.
WMECO. In a written Consent in Lieu of a Special Meeting of Stockholders of
WMECO (Consent) dated March 15, 2001, stockholders voted to sell the company's
ownership interest in the Millstone Nuclear Power Station (Millstone) pursuant
to that certain Purchase and Sale Agreement dated August 7, 2000 (Agreement)
by and among the company, other owners of Millstone and the buyer, Dominion
Resources, Inc. (Buyer), in consideration of the total purchase price of $1.298
billion, subject to adjustment as provided in the Agreement. The vote
authorizing the sale was 590,093 shares in favor, representing 100 percent of
the issued and outstanding shares of common stock of WMECO.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
Exhibit No. Description
----------- -----------
15 Arthur Andersen LLP Letter Regarding Unaudited
Financial Information
(b) Reports on Form 8-K:
NU filed a current report on Form 8-K dated January 23, 2001,
disclosing:
o NU's earnings press release for the fourth quarter and full year 2000.
NU filed a current report on Form 8-K dated February 28, 2001,
disclosing:
o NU's news release formally seeking Con Edison's assurance of intent to
close merger.
NU filed a current report on Form 8-K dated March 5, 2001, disclosing:
o NU declares Con Edison in breach of merger agreement. NU to sue Con
Edison to recover value of merger for NU shareholders.
NU filed a current report on Form 8-K dated March 12, 2001, disclosing:
o NU filed suit in the U.S. District Court for the Southern District
seeking for itself and its shareholders in excess of $1 billion in
damages arising from Con Edison's breach of the merger agreement.
NU filed a current report on Form 8-K dated March 22, 2001, disclosing:
o NU's news release announcing revised 2000 earnings and confirming 2001
projected earnings.
NU and CL&P filed current reports on Form 8-K dated March 30, 2001,
disclosing:
o The closing on the sale of $1.44 billion of rate reduction bonds
through CL&P's subsidiary, CL&P Funding LLC (CL&P Funding).
o The closing on the sale of substantially all of the Millstone units to
Dominion.
WMECO filed a current report on Form 8-K dated March 30, 2001, disclosing:
o The closing on the sale of substantially all of the Millstone units to
Dominion.
CL&P Funding filed a current report on Form 8-K dated March 30, 2001,
disclosing:
o The closing on the sale of $1.44 billion of rate reduction bonds.
NU, CL&P and WMECO filed current reports on Form 8-K dated April 11,
2001, disclosing:
o NU's news release announcing the retirement of $830 million of public
debt and preferred securities.
NU filed a current report on Form 8-K dated April 24, 2001, disclosing:
o NU's earnings press release for the first quarter of 2001.
NU, PSNH and PSNH Funding LLC (PSNH Funding) filed current reports on
Form 8-K dated April 25, 2001, disclosing:
o The closing on the sale of $525.4 million of rate reduction bonds
through PSNH's subsidiary, PSNH Funding.
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, 2001 By /s/ John H. Forsgren
------------ ---------------------------------
John H. Forsgren
Executive Vice President
and Chief Financial Officer
Date: May 10, 2001 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, 2001 By /s/ Randy A. Shoop
------------ ---------------------------------
Randy A. Shoop
Treasurer
Date: May 10, 2001 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, 2001 By /s/ David R. McHale
------------ -----------------------------------
David R. McHale
Vice President and Treasurer
Date: May 10, 2001 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, 2001 By /s/ David R. McHale
------------ -----------------------------------
David R. McHale
Vice President and Treasurer
Date: May 10, 2001 By /s/ John J. Roman
------------ -----------------------------------
John J. Roman
Vice President and Controller