Exhibit 13.3
1993
ANNUAL REPORT
WESTERN MASSACHUSETTS ELECTRIC COMPANY
1993 Annual Report
Western Massachusetts Electric Company
Index
Contents Page
- -------- ----
Balance Sheets . . . . . . . . . . . . . . . . . . . . 1-2
Statements of Income . . . . . . . . . . . . . . . . . 3
Statements of Cash Flows . . . . . . . . . . . . . . . 4
Statements of Common Stockholder's Equity. . . . . . . 5
Notes to Financial Statements. . . . . . . . . . . . . 6-25
Report of Independent Public Accountants . . . . . . . 26
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 27-32
Selected Financial Data. . . . . . . . . . . . . . . . 33
Statements of Quarterly Financial Data . . . . . . . . 33
Statistics . . . . . . . . . . . . . . . . . . . . . . 34
Preferred Stockholder and Bondholder Information . . . Back Cover
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
At December 31, 1993 1992
- ------------------------------------------------------------------------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at original cost:
Electric......................................... $1,183,410 $1,158,160
Less: Accumulated provision for depreciation.. 395,190 364,702
----------- -----------
788,220 793,458
Construction work in progress.................... 23,790 18,522
Nuclear fuel, net................................ 35,727 37,704
----------- -----------
Total net utility plant...................... 847,737 849,684
----------- -----------
Other Property and Investments:
Nuclear decommissioning trusts, at cost.......... 49,155 41,986
Investments in regional nuclear generating
companies, at equity............................ 14,633 14,567
Other, at cost................................... 3,840 3,842
----------- -----------
67,628 60,395
----------- -----------
Current Assets:
Cash and special deposits........................ 185 165
Receivables, less accumulated provision for
uncollectible accounts of $1,997,000 in 1993
and $2,117,000 in 1992......................... 36,437 36,587
Receivables from affiliated companies............ 4,972 2,829
Accrued utility revenues......................... 17,362 15,627
Fuel, materials, and supplies, at average cost... 7,057 9,001
Prepayments and other............................ 9,613 7,572
----------- -----------
75,626 71,781
----------- -----------
Deferred Charges:
Regulatory asset--income taxes <F2>(Note 1)...... 94,414 -
Amortizable property investment--Millstone 3..... 28,001 39,201
Deferred costs--Millstone 3 <F2>(Note 1)......... 22,667 30,497
Unrecovered contract obligation--YAEC <F>(Note 3) 24,150 28,160
Deferred DOE assessment <F2>(Note 1)............. 8,908 9,630
Unamortized debt expense......................... 1,842 2,141
Other............................................ 33,669 39,195
----------- -----------
213,651 148,824
----------- -----------
Total Assets................................. $1,204,642 $1,130,684
=========== ===========
The accompanying notes are an integral part of these financial statements.
1
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
At December 31, 1993 1992
- --------------------------------------------------------------------------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock,$25 par value--authorized and
outstanding 1,072,471 shares in 1993 and 1992... $ 26,812 $ 26,812
Capital surplus, paid in........................... 149,319 149,026
Retained earnings.................................. 97,627 91,077
----------- -----------
Total common stockholder's equity............ 273,758 266,915
Cumulative preferred stock--
$100 par value--authorized 1,000,000 shares;
outstanding 200,000 shares in 1993 and 1992;
$25 par value--authorized 3,600,000 shares;
outstanding 3,220,000 shares in 1993
3,280,000 shares in 1992
Not subject to mandatory redemption <F6>(Note 5) 73,500 73,500
Subject to mandatory redemption <F7>(Note 6).. 25,500 27,000
Long-term debt <F8>(Note 7)........................ 393,232 392,824
----------- -----------
Total capitalization...................... 765,990 760,239
----------- -----------
Obligations Under Capital Leases..................... 24,014 27,425
----------- -----------
Current Liabilities:
Notes payable to banks............................. 6,000 18,000
Commercial paper................................... - 23,500
Long-term debt and preferred stock--current
portion......................................... 1,500 1,652
Obligations under capital leases--current
portion......................................... 12,888 14,084
Accounts payable................................... 17,493 16,038
Accounts payable to affiliated companies........... 12,016 15,549
Accrued taxes...................................... 7,022 10,270
Accrued interest................................... 6,478 5,798
Refundable energy costs............................ 8,676 2,082
Other.............................................. 11,727 7,042
----------- -----------
83,800 114,015
----------- -----------
Deferred Credits:
Accumulated deferred income taxes <F2>(Note 1)..... 253,547 144,865
Accumulated deferred investment tax credits........ 36,083 37,512
Deferred contract obligation--YAEC <F4>(Note 3).... 24,150 28,160
Deferred DOE obligation <F2>(Note 1)............... 7,268 9,630
Other.............................................. 9,790 8,838
----------- -----------
330,838 229,005
----------- -----------
Commitments and Contingencies <F12>(Note 11)
Total Capitalization and Liabilities...... $1,204,642 $1,130,684
=========== ===========
The accompanying notes are an integral part of these financial statements.
2
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF INCOME
For the Years Ended December 31, 1993 1992 1991
- -----------------------------------------------------------------------------
- -----
(Thousands of Dollars)
Operating Revenues................................ $415,055 $410,720 $409,840
--------- ---------
- ---------
Operating Expenses:
Operation--
Fuel, purchased and net interchange
power...................................... 67,781 86,356 99,717
Other......................................... 142,273 126,060 114,231
Maintenance..................................... 34,259 39,303 36,795
Depreciation.................................... 35,751 34,257 35,636
Amortization of regulatory assets............... 29,700 26,321 24,950
Federal and state income taxes
<F9>(Note 8).................................. 28,173 20,926 22,856
Taxes other than income taxes................... 17,051 16,984 15,932
--------- ---------
- ---------
Total operating expenses..................... 354,988 350,207 350,117
--------- ---------
- ---------
Operating Income.................................. 60,067 60,513 59,723
--------- ---------
- ---------
Other Income:
Deferred Millstone 3 return--other
funds........................................ 1,439 2,119 2,763
Equity in earnings of regional
nuclear generating companies.................. 1,680 2,170 2,181
Other, net...................................... 2,966 2,628 1,895
Income taxes--credit............................ 304 810 1,969
--------- ---------
- ---------
Other income, net............................ 6,389 7,727 8,808
--------- ---------
- ---------
Income before interest charges............... 66,456 68,240 68,531
--------- ---------
- ---------
Interest Charges:
Interest on long-term debt...................... 29,979 31,694 33,557
Other interest.................................. 881 469 1,544
Deferred Millstone 3 return--
borrowed funds <F2>(Note 1)................... (1,076) (945)
(1,207)
--------- ---------
- ---------
Interest charges, net........................ 29,784 31,218 33,894
--------- ---------
- ---------
Income before cumulative effect of
accounting change............................... 36,672 37,022 34,637
Cumulative effect of accounting change <F2>(Note 1) 3,922 - -
--------- ---------
- ---------
Net Income........................................ $ 40,594 $ 37,022 $ 34,637
========= =========
=========
The accompanying notes are an integral part of these financial statements.
3
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
---------
- --------- ---------
For the Years Ended December 31, 1993 1992
1991
---------
- --------- ---------
(Thousands
of Dollars)
Cash Flows From Operations:
Net Income .............................................. $ 40,594 $
37,022 $ 34,637
Adjusted for the following:
Depreciation............................................ 38,296
36,735 36,984
Deferred income taxes and investment tax credits, net... 918
(785) 3,767
Deferred return - Millstone 3, net of amortization...... 12,252
9,110 8,216
Deferred energy costs, net of amortization.............. 6,594
12,629 (8,418)
Other sources of cash................................... 27,745
24,113 18,977
Other uses of cash...................................... (5,142)
(10,814) (9,662)
Changes in working capital:
Receivables and accrued utility revenues............... (3,728)
12,288 (7,216)
Fuel, materials, and supplies.......................... 1,944
490 3,870
Accounts payable....................................... (2,078)
(5,355) 6,262
Accrued taxes.......................................... (3,248)
(295) 344
Other working capital (excludes cash).................. 2,433
1,932 4,971
---------
- --------- ---------
Net Cash Flows From Operations............................. 116,580
117,070 92,732
---------
- --------- ---------
Cash Flows Used For Financing Activities:
Long-term debt........................................... 113,800
85,000 -
Financing expenses....................................... (359)
(470) -
Net increase (decrease) in short-term debt............... (35,500)
(3,250) 7,750
Reacquisitions and retirements of long-term debt
and preferred stock.................................... (115,770)
(109,169) (21,650)
Cash dividends on preferred stock........................ (5,259)
(7,485) (8,048)
Cash dividends on common stock........................... (28,785)
(29,536) (31,499)
---------
- --------- ---------
Net cash flows used for financing activities............... (71,873)
(64,910) (53,447)
---------
- --------- ---------
Investment Activities:
Investment in plant (including capital leases):
Electric utility plant................................. (34,592)
(46,061) (32,775)
Nuclear fuel........................................... (2,926)
1,003 (570)
---------
- --------- ---------
Net cash flows used for investments in plant........... (37,518)
(45,058) (33,345)
Other investment activities, net....................... (7,169)
(7,101) (5,917)
---------
- --------- ---------
Net cash flows used for investments........................ (44,687)
(52,159) (39,262)
---------
- --------- ---------
Net Increase In Cash for the Period........................ 20
1 23
Cash and special deposits - beginning of period............ 165
164 141
---------
- --------- ---------
Cash and special deposits - end of period.................. $ 185 $
165 $ 164
=========
========== =========
Supplemental Cash Flow Information:
Cash paid (received) during the year for:
Interest, net of amounts capitalized during
construction............................................. $ 27,277 $
30,758 $ 32,616
=========
========= =========
Income taxes............................................. $ 21,200 $
17,711 $ 22,047
=========
========= =========
Increase in obligations:
Niantic Bay Fuel Trust................................... $ 9,369 $
7,224 $ 3,443
=========
========= =========
The accompanying notes are an integral part of these financial statements.
4
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
- -----------------------------------------------------------------------------
- ----------
Capital Retained
Common Surplus, Earnings
Stock Paid In <F1>(a)
Total
- -----------------------------------------------------------------------------
- ----------
(Thousands of Dollars)
Balance at January 1, 1991............... $26,812 $148,401 $ 96,618
$271,831
Net income for 1991.................. 34,637
34,637
Cash dividends on preferred
stock.............................. (8,048)
(8,048)
Cash dividends on common stock....... (31,499)
(31,499)
Capital stock expenses, net.......... 295
295
-------- --------- ---------
- ---------
Balance at December 31, 1991............. 26,812 148,696 91,708
267,216
Net income for 1992.................. 37,022
37,022
Cash dividends on preferred
stock.............................. (7,485)
(7,485)
Cash dividends on common stock....... (29,536)
(29,536)
Loss on the retirement of preferred
stock.............................. (632)
(632)
Capital stock expenses, net.......... 330
330
-------- --------- ---------
- ---------
Balance at December 31, 1992............. 26,812 149,026 91,077
266,915
Net income for 1993.................. 40,594
40,594
Cash dividends on preferred
stock.............................. (5,259)
(5,259)
Cash dividends on common stock....... (28,785)
(28,785)
Capital stock expenses, net.......... 293
293
-------- --------- ---------
- ---------
Balance at December 31, 1993............. $26,812 $149,319 $ 97,627
$273,758
======== ========= =========
=========
[FN]
<F1> (a) The company has dividend restrictions imposed by its long-term debt
agreements.
At December 31, 1993, these restrictions totaled approximately $71.1
million.
The accompanying notes are an integral part of these financial statements.
5
WESTERN MASSACHUSETTS ELECTRIC COMPANY
- --------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------
[FN]
<F1>1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Western Massachusetts Electric Company (WMECO or the company), The Connecticut
Light and Power Company (CL&P), Holyoke Water Power Company (HWP), Public
Service Company of New Hampshire (PSNH), and North Atlantic Energy Corporation
(NAEC) are the operating subsidiaries comprising the Northeast Utilities system
(the system) and are wholly owned by Northeast Utilities (NU).
Other wholly owned subsidiaries of NU provide substantial support services
to the system. Northeast Utilities Service Company (NUSCO) supplies centralized
accounting, administrative, data processing, engineering, financial, legal,
operational, planning, purchasing, and other services to the system companies.
Northeast Nuclear Energy Company (NNECO) acts as agent for system companies in
operating the Millstone nuclear generating facilities.
All transactions among affiliated companies are on a recovery of cost basis
which may include amounts representing a return on equity, and are subject to
approval by various federal and state regulatory agencies.
ACCOUNTING CHANGES
Property Taxes: WMECO adopted a one-time change in the method of
accounting for municipal property tax expense for their Connecticut properties.
Most municipalities in Connecticut assess property values as of October 1.
Prior to January 1, 1993, the company accrued Connecticut property tax expense
over the period October 1 through September 30 based on the lien-date method.
During the first quarter of 1993, these subsidiaries changed their method of
accounting for Connecticut municipal property taxes to recognize the expense
from July 1 through June 30, to match the payment and services provided by the
municipalities. This one-time change increased net income by approximately $3.9
million for WMECO in 1993.
Income Taxes: The company adopted the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109), effective
January 1, 1993. For information on this change, see <F2> Note 1, "Summary of
Significant Accounting Policies - Income Taxes."
Postretirement Benefits Other Than Pensions: The company has adopted the
provisions of Statement of Financial Accounting Standards No. 106, Employer's
Accounting for Postretirement Benefits Other Than Pensions (SFAS 106), effective
January 1, 1993. For information on this change, see <F11> Note 10,
"Postretirement Benefits Other Than Pensions."
ACCOUNTING RECLASSIFICATIONS
Certain amounts in the accompanying financial statements of WMECO for the years
ended December 31, 1992 and 1991 have been reclassified to conform with the
December 31, 1993 presentation.
PUBLIC UTILITY REGULATION
NU is registered with the Securities and Exchange Commission (SEC) as a holding
company under the Public Utility Holding Company Act of 1935 (1935 Act), and it
and its subsidiaries, including the company, are subject to the provisions of
the 1935 Act. Arrangements among the system companies, outside agencies, and
other utilities covering interconnections, interchange of electric power, and
sales of utility property are subject to regulation by the Federal Energy
Regulatory Commission (FERC) and/or the SEC. The company is subject to further
regulation for rates and other matters by the FERC and the
6
Massachusetts Department of Public Utilities (DPU), and follows the accounting
policies prescribed by these commissions.
REVENUES
Other than special contracts, utility revenues are based on authorized rates
applied to each customer's use of electricity. Rates can be changed only
through a formal proceeding before the appropriate regulatory commission. At
the end of each accounting period, WMECO accrues an estimate for the amount of
energy delivered but unbilled.
SPENT NUCLEAR FUEL DISPOSAL COSTS
Under the Nuclear Waste Policy Act of 1982, WMECO must pay the United States
Department of Energy (DOE) for the disposal of spent nuclear fuel and high-level
radioactive waste. Fees for nuclear fuel burned on or after April 7, 1983 are
billed currently to customers and paid to the DOE on a quarterly basis. For
nuclear fuel used to generate electricity prior to April 7, 1983 (prior-period
fuel), payment may be made anytime prior to the first delivery of spent fuel to
the DOE. At December 31, 1993, fees due to the DOE for the disposal of
prior-period fuel were approximately $31.9 million, including interest costs of
$16.3 million. As of December 31, 1993, approximately $32.3 million had been
collected through rates.
Under the Energy Policy Act of 1992 (Energy Act), WMECO is assessed for its
proportionate share of the costs of decontaminating and decommissioning
uranium enrichment plants operated by the DOE (D&D assessment). The Energy Act
imposes an overall cap of $2.25 billion on the obligation of the commercial
power industry and limits the annual special assessment to $150 million each
year over a 15-year period beginning in 1993. The Energy Act also requires that
regulators treat D&D assessments as a reasonable and necessary cost of fuel, to
be fully recovered in rates, like any other fuel cost. The cap and annual
recovery amounts will be adjusted annually for inflation. The D&D assessment
is allocated among utilities based upon services purchased in prior years. At
December 31, 1993, WMECO's remaining share of these costs is estimated to be
approximately $8.9 million. WMECO has begun to recover these costs.
Accordingly, WMECO has recognized these costs as a regulatory asset, with a
corresponding obligation, on its Balance Sheets.
INVESTMENTS AND JOINTLY OWNED ELECTRIC UTILITY PLANT
Regional Nuclear Generating Companies: WMECO owns common stock of four regional
nuclear generating companies (Yankee companies). The Yankee companies, with the
company's ownership interests, are:
Connecticut Yankee Atomic Power Company (CY) . . . . 9.5%
Yankee Atomic Electric Company (YAEC). . . . . . . . 7.0
Maine Yankee Atomic Power Company (MY) . . . . . . . 3.0
Vermont Yankee Nuclear Power Corporation (VY). . . . 2.5
WMECO's investments in the Yankee companies are accounted for on the equity
basis. The electricity produced by these facilities is committed to the
participants substantially on the basis of their ownership interests and is
billed pursuant to contractual agreements. For more information on these
agreements, see <F12> Note 11, "Commitments and Contingencies - Purchased Power
Arrangements."
7
The 173-megawatt (MW) YAEC nuclear power plant was shut down permanently on
February 26, 1992. For more information on the Yankee companies, see <F4>
Note 3, "Nuclear Decommissioning."
Millstone 1: WMECO has a 19 percent joint-ownership interest in Millstone 1,
a 660-MW nuclear generating unit. As of December 31, 1993, plant-in-service and
the accumulated provision for depreciation included approximately $77.6 million
and $30.5 million, respectively, for WMECO's share of Millstone 1. WMECO's
share of Millstone 1 operating expenses is included in the corresponding
operating expenses on the accompanying Statements Of Income.
Millstone 2: WMECO has a 19 percent joint-ownership interest in Millstone 2,
an 875-MW nuclear generating unit. As of December 31, 1993, plant-in-service
and the accumulated provision for depreciation included approximately $158.1
million and $34.8 million, respectively, for WMECO's share of Millstone 2.
WMECO's share of Millstone 2 operating expenses is included in the corresponding
operating expenses on the accompanying Statements Of Income.
Millstone 3: WMECO has a 12.24 percent joint-ownership interest in
Millstone 3, an 1,149-MW nuclear generating unit. As of December 31, 1993,
plant-in-service and the accumulated provision for depreciation included
approximately $375.5 million and $72.9 million, respectively, for WMECO's
proportionate share of Millstone 3. WMECO's share of Millstone 3 expenses
is included in the corresponding operating expenses on the accompanying
Statements Of Income.
DEPRECIATION
The provision for depreciation is calculated using the straight-line method
based on estimated remaining lives of depreciable utility plant-in-service,
adjusted for salvage value and removal costs, as approved by the appropriate
regulatory agency. Except for major facilities, depreciation factors are
applied to the average plant-in-service during the period. Major facilities are
depreciated from the time they are placed in service. When plant is retired
from service, the original cost of plant, including costs of removal, less
salvage, is charged to the accumulated provision for depreciation. For nuclear
production plants, the costs of removal, less salvage, that have been funded
through external decommissioning trusts will be paid with funds from the trusts
and will be charged to the accumulated reserve for decommissioning included in
the accumulated provision for depreciation over the expected service life of the
plants. See <F4> Note 3, "Nuclear Decommissioning," for additional information.
The depreciation rates for the several classes of electric plant-in-service are
equivalent to a composite rate of 3.1 percent in 1993, 3.0 percent in 1992, and
3.3 percent in 1991.
INCOME TAXES
The tax effect of temporary differences (differences between the periods in
which transactions affect income in the financial statements and the
periods in which they affect the determination of income subject to tax) is
accounted for in accordance with the ratemaking treatment of the applicable
regulatory commissions. See <F9> Note 8, "Income Tax Expense," for the
components of income tax expense.
In 1992, the Financial Accounting Standards Board (FASB) issued SFAS 109. SFAS
109 supersedes previously issued income tax accounting standards. WMECO adopted
SFAS 109, on a prospective basis, during the first quarter of 1993. At December
31, 1993, the deferred tax obligation relating to the adoption of SFAS 109
approximated $94 million. As it is probable that the increase in deferred tax
liabilities will be recovered from customers through rates, WMECO also
established a regulatory asset. SFAS 109 does not permit net-of-tax accounting.
Accordingly, the company no longer utilizes net-of-tax
8
accounting for the deferred nuclear plants return-borrowed funds and allowance
for funds used during construction (AFUDC) - borrowed funds.
The temporary differences which give rise to the accumulated deferred tax
obligation at December 31, 1993 are as follows:
(Thousands of Dollars)
Accelerated depreciation and other
plant-related differences . . . . . . . . . $205,030
The tax effect of net regulatory assets. . . 37,258
Other. . . . . . . . . . . . . . . . . . . . 11,259
--------
$253,547
========
ENERGY ADJUSTMENT CLAUSE
In Massachusetts, all retail fuel costs are collected on a current basis by
means of a separate fuel-charge billing rate. As permitted by the DPU,
WMECO defers the difference between forecasted and actual fuel cost recoveries
until it is recovered or refunded quarterly under a retail fuel adjustment
clause. Massachusetts law requires the establishment of an annual performance
program related to fuel procurement and use. The program establishes
performance standards for plants owned and operated by WMECO or plants in which
WMECO has a life-of-unit contract. Therefore, revenues collected under the
WMECO's retail fuel adjustment clause are subject to refund pending review by
the DPU. To date, there have been no significant adjustments as a result of
this program.
For additional information, see <F12> Note 11, "Commitments and
Contingencies--Nuclear Performance."
PHASE-IN PLAN
As of December 31, 1991, all of WMECO's recoverable investment in Millstone 3
was in rate base. Beginning in 1986, the DPU has permitted WMECO to recover the
portion of its Millstone 3 investment representing the amount currently
determined to be "unuseful" by the DPU ($23.6 million at December 31, 1993),
over a ten-year period, without earning a return. On June 30, 1987, WMECO also
began recovering the deferred return, including carrying charges, on the
recoverable but not yet phased-in portion of its investment in Millstone 3.
This recovery is taking place over a nine-year period. As of December 31, 1993,
$65.4 million of the deferred return, including carrying charges, has been
recovered, and $22.7 million of the deferred return, including carrying charges,
remains to be recovered over the period ending June 30, 1995.
<F3>2. LEASES
WMECO and CL&P have entered into the Niantic Bay Fuel Trust (NBFT) capital lease
agreement to finance up to $530 million of nuclear fuel for Millstone 1 and 2
and their share of the nuclear fuel for Millstone 3. WMECO and CL&P make
quarterly lease payments for the cost of nuclear fuel consumed in the reactors
(based on a units-of-production method at rates which reflect estimated
kilowatt-hours
9
of energy provided) plus financing costs associated with the fuel in the
reactors.
Upon permanent discharge from the reactors, ownership of the nuclear fuel
transfers to WMECO and CL&P.
WMECO has also entered into lease agreements, some of which are capital leases,
for the use of substation equipment, data processing and office equipment,
vehicles, nuclear control room simulators, and office space. The provisions of
these lease agreements generally provide for renewal options. The following
rental payments have been charged to operating expense:
Operating Capital
Year Leases Leases
1993. . . . . . . . . . . . $17,158,000 $6,367,000
1992. . . . . . . . . . . . 13,799,000 7,263,000
1991. . . . . . . . . . . . 11,599,000 6,790,000
Interest included in capital lease rental payments was $2,090,000 in 1993,
$2,895,000 in 1992, and $3,434,000 in 1991.
Substantially all of the capital lease rental payments were made pursuant to the
nuclear fuel lease agreement. Future minimum lease payments under the nuclear
fuel capital lease cannot be reasonably estimated on an annual basis due to
variations in the usage of nuclear fuel.
10
Future minimum rental payments, excluding annual nuclear fuel lease payments and
executory costs, such as property taxes, state use taxes, insurance, and
maintenance, under long-term noncancelable leases, as of December 31, 1993, are
approximately:
Capital Operating
Year Leases Leases
---- ------- ---------
(Thousands of Dollars)
1994. . . . . . . . . . . . $ 40 $4,900
1995. . . . . . . . . . . . 40 4,600
1996. . . . . . . . . . . . 40 4,200
1997. . . . . . . . . . . . 40 4,100
1998. . . . . . . . . . . . 40 3,100
After 1998. . . . . . . . . 220 36,300
------- -------
Future minimum lease
payments . . . . . . . . . 420 $57,200
=======
Less amount of representing
interest . . . . . . . . . 120
-------
Present value of future
minimum lease payments
for other than nuclear
fuel . . . . . . . . . . . 300
Present value of future
nuclear fuel lease
payments . . . . . . . . . 36,600
-------
Total. . . . . . $36,900
=======
<F4>3. NUCLEAR DECOMMISSIONING
The company's 1992 decommissioning study concluded that complete and immediate
dismantlement at retirement continues to be the most viable and economic method
of decommissioning the three Millstone units. Decommissioning studies are
reviewed and updated periodically to reflect changes in decommissioning
requirements, technology, and inflation.
The estimated cost of decommissioning WMECO's ownership share of Millstone 1,
2, and 3, in year-end 1993 dollars, is $73.3 million, $58.9 million, and $51.6
million, respectively. Nuclear decommissioning costs are accrued over the
expected service life of the units and are included in depreciation expense on
the Statements Of Income. Nuclear decommissioning costs amounted to $4.6
million in 1993, 1992, and 1991. Nuclear decommissioning, as a cost of removal,
is included in the accumulated provision for depreciation on the Balance Sheets.
WMECO has established independent decommissioning trusts for its portion of the
costs of decommissioning Millstone 1, 2, and 3. As of December 31, 1993, WMECO
has collected, through rates, $37.6 million toward the future decommissioning
costs of its share of the Millstone units, all of which has been transferred to
external decommissioning trusts. Earnings on the decommissioning trusts and
financing fund increase the decommissioning trust balance and the accumulated
reserve for decommissioning. At December 31, 1993, the balance in the
accumulated reserve for decommissioning amounted to $49.2 million.
11
Changes in requirements or technology, or adoption of a decommissioning method
other than immediate dismantlement, could change decommissioning cost estimates.
WMECO attempts to recover sufficient amounts through allowed rates to cover
their expected decommissioning costs. Only the portion of currently estimated
total decommissioning costs that has been accepted by regulatory agencies is
reflected in rates of the company. Although allowances for decommissioning have
increased significantly in recent years, ratepayers in future years will need
to increase their payments to offset the effects of any insufficient rate
recoveries in previous years.
WMECO, along with other New England utilities, has equity investments in the
four Yankee companies. Each Yankee company owns a single nuclear generating
unit. The estimated costs, in year-end 1993 dollars, of decommissioning WMECO's
ownership share of CY and MY are $32.3 million, and $9.7 million, respectively.
The cost to decommission VY is currently being reestimated. The cost of
decommissioning WMECO's ownership share of VY is projected to range from $7.5
million to $8.75 million. As discussed in the following paragraph, YAEC's
owners voted to permanently shut down the YAEC unit on February 26, 1992. Under
the terms of the contracts with the Yankee companies, the shareholders-sponsors
are responsible for their proportionate share of the operating costs of each
unit, including decommissioning. The nuclear decommissioning costs of the
Yankee companies are included as part of the cost of power by WMECO.
YAEC has begun decommissioning its nuclear facility. On June 1, 1992, YAEC
filed a rate filing to obtain FERC authorization to collect the closing and
decommissioning costs and to recover the remaining investment in the YAEC
nuclear power plant over the remaining period of the plant's Nuclear
Regulatory Commission operating license. The bulk of these costs has been
agreed to by the YAEC joint owners and approved, as a settlement, by FERC.
At December 31, 1993, the estimated remaining costs amounted to $345.0 million,
of which WMECO's share was approximately $24.1 million. Management expects that
WMECO will continue to be allowed to recover such FERC-approved costs from its
customers. Accordingly, WMECO has recognized these costs as a regulatory asset,
with a corresponding obligation, on its Balance Sheets. WMECO has a 7.0 percent
equity investment, approximating $1.7 million, in YAEC. WMECO had relied on
YAEC for less than 1 percent of its capacity.
<F5>4. SHORT-TERM DEBT
The system companies have various credit lines, totaling $485 million. NU,
CL&P, WMECO, HWP, NNECO, and The Rocky River Realty Company (RRR) have
established a revolving-credit facility with a group of 17 banks. Under this
facility, the participating companies may borrow up to an aggregate of $360
million. Individual borrowing limits are $175 million for NU, $360 million for
CL&P, $75 million for WMECO, $8 million for HWP, $60 million for NNECO, and $25
million for RRR. The system companies may borrow funds on a short-term
revolving basis using either fixed-rate loans or standby loans. Fixed rates are
set using competitive bidding. Standby-loan rates are based upon several
alternative variable rates. The system companies are obligated to pay a
facility fee of .20 percent of each bank's total commitment under the three-year
portion of the facility, representing 75 percent of the total facility, plus
.135 percent of each bank's total commitment under the 364-day portion of the
facility, representing 25 percent of the total facility. At December 31, 1993,
there were $22.5 million of borrowings under the facility, of which WMECO has
no outstanding borrowings.
Certain subsidiaries of NU, including WMECO, are members of the Northeast
Utilities System Money Pool (Pool). The Pool provides a more efficient use
of the cash resources of the system, and reduces outside short-term borrowings.
NUSCO administers the Pool as agent for the member companies.
12
Short-term borrowing needs of the member companies are first met with available
funds of other member companies, including funds borrowed by NU parent.
NU parent may lend to the Pool but may not borrow. Investing and borrowing
subsidiaries receive or pay interest based on the average daily Federal
Funds rate. Funds may be withdrawn from or repaid to the Pool at any time
without prior notice. However, borrowings based on loans from NU parent
bear interest at NU parent's cost and must be repaid based upon the terms of
NU's original borrowing.
Maturities of WMECO's short-term debt obligations are for periods of three
months or less.
The amount of short-term borrowings that may be incurred by the company is
subject to periodic approval by the SEC under the 1935 Act. In addition,
the charter of WMECO contains provisions restricting the amount of short-term
borrowings. Under the SEC and/or charter restrictions, as of January 1, 1993,
the company was authorized to incur short-term borrowings up to a maximum of $75
million.
13
<F6>5. PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock not subject to mandatory redemption are:
December 31, Shares
1993 Outstanding
December 31,
Redemption December 31
- --------------------------------
Description Price 1993 1993
1992 1991
- -----------------------------------------------------------------------------
- ---------------------
(Thousands of Dollars)
9.60% Series A of 1970 . . . . . $ - - $ -
$ - $15,000
7.72% Series B of 1971 . . . . . 103.51 200,000 20,000
20,000 20,000
1988 Adjustable Rate DARTS . . . 25.00 2,140,000 53,500
53,500 53,500
-------
- ------- -------
Total preferred stock not subject
to mandatory redemption . . . . $73,500
$73,500 $88,500
=======
====== ======
All or any part of each outstanding series of preferred stock may be redeemed
by the company at any time
at established redemption prices plus accrued dividends to the date of
redemption.
<F7>6. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock subject to mandatory redemption are:
December 31, Shares
1993 Outstanding
December 31,
Redemption December 31
- --------------------------------
Description Price* 1993 1993
1992 1991
- -----------------------------------------------------------------------------
- ---------------------
(Thousands of Dollars)
7.60% Series of 1987 . . . . . . $26.14 1,080,000 $27,000
$28,500 $28,502
Less preferred stock to be
redeemed within one year,
net of reacquired stock . . . . 1,500
1,500 2
-------
- ------- -------
Total preferred stock subject to mandatory redemption $25,500
$27,000 $28,500
=======
======= =======
*Redemption price reduces in future years.
The minimum sinking-fund provisions of the 1987 Series subject to mandatory
redemption at December 31, 1993, for the years 1994 through 1998, are $1.5
million per year. In case of default on sinking-fund payments, no payments may
be made on any junior stock by way of dividends or otherwise (other than in
shares of junior stock) so long as the default continues. If the company is in
arrears in the payment of dividends on any outstanding shares of preferred
stock, the company would be prohibited from redemption or purchase of less than
14
all of the preferred stock outstanding. All or part of the 7.60% Series of 1987
may be redeemed by the company at any time at an established redemption price
plus accrued dividends to the date of redemption except that during the initial
five-year redemption period it is subject to certain refunding limitations.
<F8>7. LONG-TERM DEBT
Details of long-term debt outstanding are:
- -------------------------------------------------------------------------
December 31,
-----------------
1993 1992
- -------------------------------------------------------------------------
(Thousands of Dollars)
First Mortgage Bonds:
9 1/4% Series S, due 1995 . . . . . $ - $ 59,400
9 1/4% Series U, due 1995 . . . . . 34,650 35,000
5 3/4% Series F, due 1997 . . . . . 15,000 15,000
7 3/8% Series H, due 1998 . . . . . 15,000 15,000
6 3/4% Series G, due 1998 . . . . . 10,000 10,000
7 3/4% Series J, due 2002 . . . . . 30,000 30,000
7 3/4% Series V, due 2002 . . . . . 85,000 85,000
9 3/4% Series R, due 2016 . . . . . 24,750 25,000
10 1/8% Series T, due 2018 . . . . . 33,819 34,235
6 7/8% Series W, due 2000 . . . . . 60,000 -
-------- --------
Total First Mortgage Bonds . . 308,219 308,635
Pollution Control Notes:
Tax Exempt Series A, due 2028. . . . . . 53,800 -
Variable rate, due 2014-2015 . . . . . . - 52,400
5.9%, due 1998. . . . . . . . . . . . . - 1,454
Fees and interest due for spent fuel
disposal costs. . . . . . . . . . . . . 31,930 30,966
Less: Amounts due within one year . . . - 152
Unamortized premium and discount, net. . (717) (479)
-------- --------
Long-term debt, net. . . . . . . . . . . $393,232 $392,824
======== ========
Long-term debt maturities and cash sinking-fund requirements on debt
outstanding at December 31, 1993 for the years 1994 through 1998 are
approximately: $0 in 1994, $34,650,000 in 1995, $0 in 1996, $15,000,000 in
1997, and $25,000,000 in 1998. In addition, there are annual 1 percent
sinking- and improvement-fund requirements, currently amounting to $3,100,000
in 1994 and 1995, $2,750,000 in 1996 and 1997, and $2,600,000 in 1998. Such
sinking- and improvement-fund requirements may be satisfied by the deposit of
cash or bonds or by certification of property additions.
All or any part of each outstanding series of first mortgage bonds may be
redeemed by the company at any time at established redemption prices plus
accrued interest to the date of redemption, except certain series which are
subject to certain refunding limitations during their respective initial
five-year redemption periods.
15
Essentially all of the company's utility plant is subject to the liens of its
first mortgage bond indentures. As of December 31, 1993, the company has
secured $53.8 million of pollution control notes with second mortgage liens
on Millstone 1, junior to the liens of its first mortgage bond
indentures.
WMECO has entered into an interest rate cap contract to reduce the potential
impact of upward changes in interest rates on certain variable-rate
tax-exempt pollution control revenue bonds held by WMECO. Approximately $52
million of total outstanding long-term variable-rate debt is secured by this
interest rate cap. The total cost of the interest rate cap for 1993 was
approximately $442,000, the cost of which is amortized over the term of the
contract, which is for three years. The fair market value of the outstanding
interest-rate cap contract as of December 31, 1993 is approximately $59,000.
Fees and interest due for spent fuel disposal costs are scheduled to be paid
to the United States Department of Energy just prior to the first delivery of
prior-period spent fuel, which is anticipated to be in 1998. Until such
payment is made, the outstanding balance will continue to accrue interest at
the three-month Treasury Bill Yield Rate. For additional information, see
<F2> Note 1 of the accompanying Notes to Financial Statements.
16
<F9>8. INCOME TAX EXPENSE
The components of the federal and state income tax provisions are:
- -----------------------------------------------------------------------------
- ---------------
For the Years Ended December 31, 1993 <F2>(Note 1) 1992
1991
- -----------------------------------------------------------------------------
- ---------------
(Thousands of Dollars)
Current income taxes:
Federal. . . . . . . . . . . . . . . . . $22,239 $16,736
$13,550
State. . . . . . . . . . . . . . . . . . 4,712 4,165
3,570
------- -------
- -------
Total current. . . . . . . . . . . . . 26,951 20,901
17,120
------- -------
- -------
Deferred income taxes, net:
Federal. . . . . . . . . . . . . . . . . 1,683 (1,466)
1,581
State. . . . . . . . . . . . . . . . . . 664 117
1,259
------- -------
- -------
Total deferred . . . . . . . . . . . . 2,347 (1,349)
2,840
------- -------
- -------
Investment tax credits, net . . . . . . (1,429) (1,251)
(1,251)
------- --------
- -------
Total income tax expense. . . . . . . $27,869 $18,301
$18,709
======= =======
=======
The components of total income tax expense are classified as follows:
Income taxes charged to operating
expenses. . . . . . . . . . . . . . . . $28,173 $20,926
$22,856
Income taxes associated with the
amortization of deferred Millstone 3
return - borrowed funds . . . . . . . . - (2,410)
(2,945)
Income taxes associated with AFUDC and
deferred Millstone 3 return -
borrowed funds. . . . . . . . . . . . . - 595
767
Other income taxes - credit. . . . . . . (304) (810)
(1,969)
------- -------
- -------
Total income tax expense . . . . . . . . $27,869 $18,301
$18,709
======= =======
=======
17
Deferred income taxes are comprised of the tax effects of temporary
differences as follows:
- -----------------------------------------------------------------------------
- ---------------
For the Years Ended December 31, 1993 1992
1991
- -----------------------------------------------------------------------------
- ---------------
(Thousands of Dollars)
Depreciation, leased nuclear fuel,
settlement credits, and disposal costs . $6,852 $ 4,070
$ 5,911
Construction overheads . . . . . . . . . . - -
(979)
Energy adjustment clause . . . . . . . . . (2,627) (4,663)
1,409
AFUDC and Deferred Millstone 3 return,
net . . . . . . . . . . . . . . . . . . . (2,191) (1,815)
(2,178)
Deferred refueling cost. . . . . . . . . . 413 666
6
Early retirement program . . . . . . . . . (544) 775
(1,809)
Loss on bond redemption. . . . . . . . . . 1,561 18
527
Conservation and load management . . . . . (712) 394
(419)
Other. . . . . . . . . . . . . . . . . . . (405) (794)
372
------ -------
- -------
Deferred income taxes, net . . . . . . . $2,347 $(1,349)
$ 2,840
====== =======
=======
A reconciliation between income tax expense and the expected tax expense at the
applicable statutory
rates:
- -----------------------------------------------------------------------------
- ---------------
For the Years Ended December 31, 1993 1992
1991
- -----------------------------------------------------------------------------
- ---------------
(Thousands of Dollars)
Expected federal income tax at
35 percent of pretax income for
1993 and 34 percent for 1992
and 1991. . . . . . . . . . . . . . . . . $23,962 $18,810
$18,138
Tax effect of differences:
Depreciation differences . . . . . . . 1,784 (1,584)
(9)
Deferred Millstone 3 return -
other funds . . . . . . . . . . . . . (504) (721)
(940)
Amortization of deferred Millstone 3
return - other funds. . . . . . . . . 3,341 2,856
2,876
Construction overheads . . . . . . . . - -
(979)
Investment tax credit amortization . . (1,429) (1,251)
(1,251)
State income taxes, net of federal
benefit . . . . . . . . . . . . . . . 3,494 2,829
3,215
Adjustment for prior years taxes . . . - (1,500)
(1,000)
Other, net . . . . . . . . . . . . . . (2,779) (1,138)
(1,341)
------- -------
- -------
Total income tax expense. . . . . $27,869 $18,301
$18,709
======= =======
=======
18
<F10>9. PENSION BENEFITS
The company participates in a uniform noncontributory-defined benefit retirement
plan covering all regular system employees (the Plan). Benefits are based on
years of service and employees' highest eligible compensation during five
consecutive years of employment. The company's direct-allocated portion of the
system's pension cost, part of which was charged to utility plant, approximated
$1.2 million in 1993, ($504,000) in 1992, and $1.9 million in 1991. The
company's pension costs for 1993 and 1991 included approximately $2.7 million,
and $1.9 million, respectively, related to work force reduction programs.
Currently, the company funds annually an amount at least equal to that which
will satisfy the requirements of the Employee Retirement Income Security Act
and the Internal Revenue Code. Pension costs are determined using
market-related values of pension assets. Pension assets are invested
primarily in domestic and international equity securities and bonds.
The components of the Plan's net pension cost for the system (excluding PSNH and
North Atlantic Energy Service Corporation in 1992 and 1991) are:
- ----------------------------------------------------------------------------
For the Years Ended December 31, 1993 1992 1991
- ----------------------------------------------------------------------------
(Thousands of Dollars)
Service cost . . . . . . . . . . $ 59,068 $ 27,480 $ 48,738
Interest cost. . . . . . . . . . 81,456 69,746 71,041
Return on plan assets. . . . . . (176,798) (77,232) (198,437)
Net amortization . . . . . . . . 65,447 (16,266) 108,175
-------- --------- --------
Net pension cost . . . . . . . . $ 29,173 $ 3,728 $ 29,517
======== ========= ========
For calculating pension cost, the following assumptions were used:
- ----------------------------------------------------------------------------
For the Years Ended December 31, 1993 1992 1991
- ----------------------------------------------------------------------------
Discount rate . . . . . . . . . . 8.00% 8.50% 9.00%
Expected long-term rate
of return . . . . . . . . . . . 8.50 9.00 9.70
Compensation/progression rate . . 5.00 6.75 7.50
19
The following table represents the Plan's funded status reconciled to the NU
Consolidated Balance Sheets:
- ----------------------------------------------------------------------------
At December 31, 1993 1992
- ----------------------------------------------------------------------------
(Thousands of Dollars)
Accumulated benefit obligation,
including $817,421,000 of vested
benefits at December 31, 1993 and
$719,608,000 of vested benefits at
December 31, 1992. . . . . . . . . . . . $ 898,788 $ 764,432
========== ==========
Projected benefit obligation. . . . . . . $1,141,271 $1,055,295
Less: Market value of plan assets. . . . 1,340,249 1,226,468
---------- ----------
Market value in excess of projected
benefit obligation . . . . . . . . . . . 198,978 171,173
Unrecognized transition amount. . . . . . (16,735) (18,277)
Unrecognized prior service costs. . . . . 10,287 8,658
Unrecognized net gain . . . . . . . . . . (275,043) (214,894)
---------- ---------
Accrued pension liability . . . . . . . . $ (82,513) $ (53,340)
========== =========
The following actuarial assumptions were used in calculating the Plan's
year-end funded status:
- ----------------------------------------------------------------------------
At December 31, 1993 1992
- ----------------------------------------------------------------------------
Discount rate . . . . . . . . . . . . . . 7.75% 8.00%
Compensation/progression rate . . . . . . 4.75 5.00
The discount rate for 1993 was determined by analyzing the interest rates, as
of December 31, 1993, of long-term, high-quality corporate debt securities
having a duration comparable to the 13.8-year duration of the plan.
During 1993, NU's work force was reduced by approximately 7 percent through a
work force reduction program that involved an early retirement program and
involuntary terminations. WMECO's direct cost of the program, which
approximated $3.0 million, included pension, severance, and other benefits.
<F11>10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company provides certain health care benefits, primarily medical and
dental, and life insurance benefits through a benefit plan to retired
employees. These benefits are available for employees leaving the company
who are otherwise eligible to retire and have met specified service
requirements. Through December 31, 1992, the company recognized the cost of
these benefits as they were paid. In December 1990, the FASB issued SFAS
106. This new standard requires that the expected cost of postretirement
benefits, primarily health and life insurance benefits, must be charged to
expense during the years that
20
eligible employees render service.
Effective January 1, 1993, the company adopted SFAS 106 on a prospective basis.
Total health care and life insurance cost, part of which were deferred or
charged to utility plant, approximated $5,038,000 in 1993, $2,174,000 in 1992,
and $1,567,000 in 1991.
On January 1, 1993, the accumulated postretirement benefit obligation (APBO)
represented the company's prior-service obligation upon the adoption of SFAS
106. As allowed by SFAS 106, the company is amortizing its APBO of
approximately $36 million over a 20-year period. For current employees and
certain retirees, the total SFAS 106 benefit is limited to two times the 1993
health care costs. The SFAS 106 obligation has been calculated based on this
assumption.
During 1993, the company did not fund SFAS 106 postretirement costs through
external trusts. The company expects to fund annually amounts once they have
been rate recovered and which also are tax-deductible under the Internal Revenue
Code.
The following table represents the plan's funded status reconciled to the
Balance Sheet at December 31, 1993:
(Thousands of Dollars)
Accumulated postretirement
benefit obligation of:
Retirees. . . . . . . . . . . . . . . . $(27,685)
Fully eligible active employees . . . . (38)
Active employees not eligible
to retire . . . . . . . . . . . . . . . (5,488)
--------
Total accumulated postretirement
benefit obligation . . . . . . . . . . (33,211)
Unrecognized transition amount. . . . . 31,183
Unrecognized net gain . . . . . . . . . (587)
---------
Accrued postretirement benefit
liability. . . . . . . . . . . . . . . $ (2,615)
=========
The components of health care and life insurance costs for the year ended
December 31, 1993 are:
(Thousands of Dollars)
Service cost. . . . . . . . . . . . . . $ 659
Interest cost . . . . . . . . . . . . . 2,676
Net amortization. . . . . . . . . . . . 1,703
--------
Net health care and life insurance
costs. . . . . . . . . . . . . . . . . $ 5,038
=======
For measurement purposes, an 11.1-percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1993; the rate
was assumed to decrease to 5.4 percent for 2002. The effect of increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1993 by $2.4
21
million and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year then ended by $227,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75 percent. The discount rate for
1993 was determined by analyzing the interest rates, as of December 31, 1993,
of the long-term, high-quality corporate debt securities having a duration
comparable to that of the Plan.
WMECO has received approval from the DPU to defer the incremental SFAS 106
postretirement costs. All deferred costs are expected to be recovered within
ten years.
<F12>11. COMMITMENTS AND CONTINGENCIES
CONSTRUCTION PROGRAM
The construction program is subject to periodic review and revision. Actual
construction expenditures may vary from such estimates due to factors such as
revised load estimates, inflation, revised nuclear safety regulations, delays,
difficulties in the licensing process, the availability and cost of capital, and
the granting of timely and adequate rate relief by regulatory commissions, as
well as actions by other regulatory bodies.
The company currently forecasts construction expenditures (including AFUDC) of
$170.1 million for the years 1994-1998, including $37.5 million for 1994. In
addition, the company estimates that nuclear fuel requirements, including
nuclear fuel financed through the NBFT, will be $72.7 million for the years
1994-1998, including $17.2 million for 1994. See <F3> Note 2, "Leases" for
additional information about the financing of nuclear fuel.
NUCLEAR PERFORMANCE
WMECO has incurred approximately $17 million in replacement-power costs
associated with Millstone outages that have been the subject of prudence
reviews in Connecticut. Recovery of prudently incurred replacement-power costs
is permitted through a retail fuel adjustment clause. The DPU reviews the
performance of WMECO's generating units on an annual basis. Management believes
that its actions with respect to these outages have been prudent and does not
expect the outcome of the DPU performance program reviews to have a material
adverse effect on WMECO's future earnings.
ENVIRONMENTAL MATTERS
WMECO is subject to regulation by federal, state, and local authorities with
respect to air and water quality, handling and the disposal of toxic
substances and hazardous and solid wastes, and the handling and use of chemical
products. WMECO has an active environmental auditing program to prevent,
detect, and remedy noncompliance with environmental laws or regulations and
believes that it is in substantial compliance with current environmental laws
and regulations. Changing environmental requirements could hinder the
construction of new fossil-fuel environmental generating units, transmission and
distribution lines, substations, and other facilities. The cumulative long-term
economic cost impact of increasingly stringent environmental requirements cannot
be estimated. Changing environmental requirements could also require extensive
and costly modifications to WMECO's existing hydro, nuclear, and fossil-fuel
generating units, and transmission and distribution systems, and could raise
operating costs significantly. As a result, WMECO may incur significant
additional environmental costs, greater than amounts included in cost of removal
and other reserves, in connection with the generation and transmission of
electricity and the storage, transportation, and disposal of by-products
22
and wastes. WMECO may also encounter significantly increased costs to remedy
the environmental effects of prior waste handling and disposal activities.
WMECO has recorded a liability for what it believes is, based upon information
currently available, the estimated environmental remediation costs for waste
disposal sites for which it expects to bear legal liability. To date, these
costs have not been material with respect to the earnings or financial position
of the company. In most cases, the extent of additional future environmental
cleanup costs is not estimable due to factors such as the unknown magnitude of
possible contamination, the appropriate remediation method, the possible effects
of future legislation and regulation, the possible effects of technological
changes related to future cleanup, and the difficulty of determining future
liability, if any, for the cleanup of sites at which WMECO may be determined to
be legally liable by the federal or state environmental agencies. In addition,
WMECO cannot estimate the potential liability for future claims that may be
brought against it by private parties. However, considering known facts and
existing laws and regulatory practices, management does not believe that such
matters will have a material adverse effect on WMECO's financial position or
future results of operations. At December 31, 1993, the liability recorded by
WMECO for its estimated environmental remediation costs, excluding any possible
insurance recoveries from third parties, amounted to $600,000. However, in the
event that it becomes necessary to effect environmental remedies that are
currently not considered probable, it is reasonably possible that, based on
information currently available and management intent, that the upper limit of
WMECO's environmental liability range could increase to approximately $1.5
million.
NUCLEAR INSURANCE CONTINGENCIES
The Price-Anderson Act currently limits public liability from a single incident
at a nuclear power plant to $9.4 billion. The first $200 million of liability
would be provided by purchasing the maximum amount of commercially available
insurance. Additional coverage of up to a total of $8.8 billion would be
provided by an assessment of $75.5 million per incident, levied on each of the
116 nuclear units that are currently subject to the Secondary Financial
Protection Program in the United States, subject to a maximum assessment of $10
million per incident per nuclear unit in any year. In addition, if the sum of
all public liability claims and legal costs arising from any nuclear incident
exceeds the maximum amount of financial protection, each reactor operator can
be assessed an additional 5 percent, up to $3.8 million, or $437.9 million in
total, for all 116 nuclear units. The maximum assessment is to be adjusted at
least every five years to reflect inflationary changes. Based on WMECO's
ownership interests in Millstone 1, 2, and 3, WMECO's maximum liability would
be $39.8 million per incident. In addition, through WMECO's power purchase
contracts with the four Yankee regional nuclear generating companies, WMECO
would be responsible for up to an additional $17.5 million per incident.
Payments for WMECO's ownership interest in nuclear generating facilities would
be limited to a maximum of $7.2 million per incident per year.
Insurance has been purchased from Nuclear Electric Insurance Limited (NEIL) to
cover: (1) certain extra costs incurred in obtaining replacement power during
prolonged accidental outages with respect to WMECO's ownership interests in
Millstone 1, 2, and 3, and CY, and (2) the cost of repair, replacement, or
decontamination or premature decommissioning of utility property resulting from
insured occurrences with respect to WMECO's ownership interests in Millstone 1,
2, and 3, CY, MY, and VY. All companies insured with NEIL are subject to
retroactive assessments if losses exceed the accumulated funds available to
NEIL. The maximum potential assessments against WMECO with respect to losses
arising during current policy years are approximately $2.3 million under the
replacement power policies and $4.5 million under the property damage,
decontamination, and decommissioning policies.
Although WMECO
23
has purchased the limits of coverage currently available from the conventional
nuclear insurance pools, the cost of a nuclear incident could exceed available
insurance proceeds.
Insurance has been purchased from American Nuclear Insurers/Mutual Atomic Energy
Liability Underwriters, aggregating $200 million on an industry basis for
coverage of worker claims. All companies insured under this coverage are
subject to retrospective assessments of $3.2 million per reactor. The
maximum potential assessments against WMECO with respect to losses arising
during the current policy period are approximately $2.3 million.
FINANCING ARRANGEMENTS FOR THE REGIONAL NUCLEAR GENERATING COMPANIES
The company believes that the regional nuclear generating companies may require
additional external financing in the next several years for construction
expenditures, nuclear fuel, and other purposes. Although the ways in which each
regional nuclear generating company will attempt to finance these expenditures
have not been determined, the company expects that it may be asked to provide
direct or indirect financial support for one or more of these companies.
PURCHASED POWER ARRANGEMENTS
WMECO purchases a portion of its electricity requirements pursuant to long-term
contracts with the Yankee companies. Under the terms of its agreements, the
company pays its ownership share (or entitlement share) of generating costs,
which include depreciation, operation and maintenance expenses, the estimated
cost of decommissioning, and a return on invested capital. These costs are
recorded as purchased power expense, and are recovered through the company's
rates. The total cost of purchases under these contracts for the units that are
operating amounted to $30.2 million in 1993, $29.2 million in 1992, and $27.9
million in 1991. See <F2> Note 1, "Summary Of Significant Accounting Policies
- - Investments and Jointly Owned Electric Utility Plant" and <F4> Note 3,
"Nuclear Decommissioning" for more information on the Yankee companies.
WMECO has entered into two arrangements for the purchase of capacity and energy
from nonutility generators. These arrangements have terms of 15 and 25 years,
and require the company to purchase the energy at specified prices or at formula
rates. For the 12 months ended December 31, 1993, 14 percent of NU system load
requirements was met by cogenerators and small power producers. The total cost
of the company's purchases under these arrangements amounted to $13.6 million
in 1993, $4.8 million in 1992, and $3.7 million in 1991. These costs are
recovered through the company's rates.
The estimated annual cost of the significant purchase power arrangements is
provided below:
- --------------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(Millions of Dollars)
Yankee companies. . . . . . $29.5 $30.1 $33.7 $30.9 $35.0
Nonutility generators . . . 27.4 28.7 29.9 31.5 33.1
HYDRO-QUEBEC
Along with other New England utilities, WMECO, CL&P, PSNH, and HWP entered into
agreements to support transmission and terminal facilities to import electricity
from the Hydro-Quebec system in Canada. The company is obligated to pay, over
a 30-year period, its proportionate share of the annual
24
operation, maintenance, and capital costs of these facilities. WMECO's share of
Hydro-Quebec costs are currently forecast to be $19.9 million for the years
1994-1998, including $4.3 million for 1994.
PROPERTY TAXES
CY has a significant court appeal pending for its property tax assessment in the
town of Haddam, Connecticut, concerning production plant. The central issue is
the fair market value of utility property. The company believes that a properly
derived assessment that recognizes the effect of rate regulation will result in
a fair market value that approximates net book cost. This is the assessment
level that taxing authorities are predominantly using throughout Connecticut,
Massachusetts, and some of New Hampshire. However, towns such as Haddam
advocate a method that approximates reproduction cost. The company estimates
that, for the Haddam assessment, the change to a reproduction cost-methodology
could result in a property tax valuation approximately three times greater than
a value approximating net book cost. Although CY is currently paying property
taxes based on the higher assessment, to date, the higher assessment has not had
a material adverse effect on it or the company.
The company believes that assessment levels that approximate net book cost
accurately reflect the fair market value of regulated utility property.
However, because of uncertainties associated with the court appeal and the
potential impact of an adverse court decision on property tax assessment
policy in Connecticut, the company cannot estimate the potential effect of an
adverse court decision on future results of operations or financial
condition. However, the company believes that, based upon past regulatory
practices, it would be allowed to recover any increased property tax
assessment prospectively beginning at the time new rates are established.
<F13>12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each of the following financial instruments:
Cash, special deposits and nuclear decommissioning trusts: The carrying amount
approximates fair value.
Preferred stock and long-term debt: The fair value of WMECO's fixed-rate
securities is based upon the quoted market price for those issues or similar
issues. WMECO's adjustable rate preferred stock is assumed to have a fair value
equal to its carrying value.
The carrying amount of WMECO's financial instruments and the estimated fair
values are as follows:
25
- ----------------------------------------------------------------------------
Carrying Fair
At December 31, 1993 Amount Value
- ----------------------------------------------------------------------------
(Thousands of Dollars)
Preferred stock not subject to
mandatory redemption . . . . . . . . . . . . . $ 73,500 $ 74,000
Preferred stock subject to
mandatory redemption . . . . . . . . . . . . . 27,000 28,215
Long-term debt -
First Mortgage Bonds . . . . . . . . . . . . . 308,219 319,213
Other long-term debt . . . . . . . . . . . . . 85,012 85,012
- ----------------------------------------------------------------------------
Carrying Fair
At December 31, 1992 Amount Value
- ----------------------------------------------------------------------------
(Thousands of Dollars)
Preferred stock not subject to
mandatory redemption . . . . . . . . . . . . . $ 73,500 $ 72,600
Preferred stock subject to
mandatory redemption . . . . . . . . . . . . . 28,500 29,355
Long-term debt -
First Mortgage Bonds . . . . . . . . . . . . . 308,635 325,661
Other long-term debt . . . . . . . . . . . . . 84,820 84,820
The fair values shown above have been reported to meet the disclosure
requirements and do not purport to represent the amounts that those
obligations would be settled at.
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity Securities (SFAS
115). SFAS 115 requires companies to disclose the classification of investments
in debt or equity securities based on management's intent and ability to hold
the security. SFAS 115 also requires disclosure of the aggregate fair value,
gross unrealized holding gains, gross unrealized holding losses, and amortized
cost basis by major security type. Effective January 1, 1994, WMECO will adopt
SFAS 115 on a prospective basis. WMECO anticipates that the adoption of SFAS
115 will not have a material impact on future results of operations or financial
position.
26
WESTERN MASSACHUSETTS ELECTRIC COMPANY
- -----------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- -----------------------------------------------------------------------------
To the Board of Directors
of Western Massachusetts Electric Company:
We have audited the accompanying balance sheets of Western Massachusetts
Electric Company (a Massachusetts corporation and a wholly owned subsidiary
of Northeast Utilities) as of December 31, 1993 and 1992, and the related
statements of income, common stockholder's equity, and cash flows for each of
the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Western Massachusetts
Electric Company as of December 31, 1993 and 1992, and the results of its
operations and cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in <F2> Note 1 to the Financial Statements, "Summary of Significant
Accounting Policies - Accounting Changes," effective January 1, 1993, Western
Massachusetts Electric Company changed its methods of accounting for property
taxes, income taxes, and postretirement benefits other than pensions.
/s/ ARTHUR ANDERSEN & CO.
ARTHUR ANDERSEN & CO.
Hartford, Connecticut
February 18, 1994
27
Western Massachusetts Electric Company
- ----------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ----------------------------------------------------------------------------
This section contains management's assessment of Western Massachusetts Electric
Company's (WMECO or the company) financial condition and the principal factors
having an impact on the results of operations. The company is a wholly owned
subsidiary of Northeast Utilities (NU). This discussion should be read in
conjunction with the company's financial statements and footnotes.
FINANCIAL CONDITION
OVERVIEW
The company's net income increased to $40.6 million in 1993 from $37.0 million
in 1992. The 1993 net income includes the impact of a change, in the first
quarter of 1993, in the method of accounting for Connecticut municipal property
taxes. This change resulted in a one-time contribution to net income of $3.9
million. (See the "Notes to Financial Statements" for further information about
this accounting change.)
Net income before the cumulative effect of accounting change was $36.7 million
in 1993. The decrease in net income from 1992 is mainly attributable to a
one-time charge in the third quarter of 1993 for the costs of the company's
employee-reduction program. This one-time charge lowered net income by about
$2 million.
The year 1993 was one of both challenge and success for the company. WMECO's
work force was reduced by about 12 percent in 1993 through an
employee-reduction program that involved early retirements and involuntary
terminations. The 1993 composite nuclear capacity factor of 80.8 percent was the
highest level the NU system has ever achieved and far above the national
average.
In 1994, the company will continue to face challenges associated with a lagging
economy and competition. Retail sales for 1993 were flat, as compared to 1992,
as a result of a stagnant Massachusetts economy. WMECO expects retail sales
growth of about 1.5 percent in 1994, based on some expected modest improvement
in the economy.
Competition within the electric utility industry is increasing. In response,
the company has developed, and is continuing to develop, a number of
initiatives to retain and continue to serve its existing customers and to expand
its retail and wholesale customer base. These initiatives are aimed at keeping
customers from either leaving WMECO's retail service territory or replacing
WMECO's electric service with alternative energy sources.
The cost of doing business, including the price of electricity, is higher in the
Northeast than in most other parts of the country. Relatively high state and
local taxes, labor costs, and other costs of doing business in New England also
contribute to competitive disadvantages for many industrial and commercial
customers of WMECO. These disadvantages have aggravated the pressures on
business customers in the current weakened regional economy. Since 1991, the
company has worked actively with the Massachusetts Office of Business
Development to package development incentives for a variety of retail and
wholesale customers. These economic development packages typically include both
electric rate discounts and incentive payments for energy-efficient
construction, as well as technical support and energy conservation services.
Targeted rate reductions in effect at the end of 1993 to a limited group of
large customers were successful in preserving revenues of approximately $7
million for the company. The amount of discounts provided to customers is
expected to increase as the company intensifies its efforts to retain existing
customers and gain new customers.
28
As a result of very limited load growth throughout the Northeast and the
operation of several new generating plants in the past five years, wholesale
competition has grown, and a seller's market for electricity has turned into a
buyer's market. The prices the company has been able to receive for new
wholesale sales have generally been far lower than the prices prevalent in 1988
and 1989. In future years, competition in the Northeast is expected to
increase, putting further downward pressure on prices. However, the potential
price decreases may be offset somewhat by an improvement in the region's economy
as well as by the retirement of a number of the region's existing generating
facilities.
The ability of retail customers to select an electricity supplier and then force
the local electric utility to transmit the power to the customer's site is known
as "retail wheeling." While wholesale wheeling is mandated by the Energy Policy
Act of 1992 under certain circumstances, retail wheeling is generally not
required in the company's jurisdiction. In Massachusetts, bills being reviewed
by legislative committees would permit limited retail wheeling in economically
distressed areas and to municipal and state-owned facilities.
NU management has taken steps to make the NU system companies, including WMECO,
more competitive and profitable in the changing utility environment. A
systemwide emphasis on improved customer service is a central focus of the
reorganization of NU that became effective on January 1, 1994. The
reorganization entails realignment of the system into two new core business
groups. The first core business group is devoted to energy resource
acquisition and wholesale marketing and focuses on nuclear, fossil, and
hydroelectric generation, wholesale power marketing, and new business
development. The second core business group oversees all customer service,
transmission and distribution operations, and retail marketing in
Massachusetts, Connecticut, and New Hampshire. These two core business groups
are served by various support functions.
In connection with NU's reorganization, the company has begun a corporate
reengineering process which should help it to identify opportunities to
become more competitive while improving customer service and maintaining
excellent operational performance. NU has aggressive cost-reduction targets
over the next three years, which should enable the company to remain competitive
with vulnerable customers in particular.
To date, the company has not been materially affected by competition, and it
does not foresee substantial adverse effect in the near future unless the
current regulatory structure is substantially altered. The company believes the
steps it is taking will have significant, positive effects in the next few
years. In addition, WMECO benefits from a diverse retail base. The company
has no significant dependence on any one customer or industry. The NU system's
extensive transmission facilities and diversified generating capacity are all
strong positive factors in the regional wholesale power market. NU serves about
30 percent of New England's electric needs and is one of the 20 largest electric
utility systems in the country.
Achieving measurable improvement in earnings in 1994 will depend, in part, on
the success of the company's wholesale power marketing, customer retention,
and reengineering efforts. These efforts should help increase WMECO's earnings
and improve the company's competitive position.
RATE MATTERS
Deferred charges at December 31, 1993 were approximately $214 million, which
includes $94 million for the adoption in 1993 of Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Deferred
charges, excluding the regulatory asset for SFAS No. 109, decreased by
approximately $30 million in 1993, primarily as a result of recoveries for the
deferred costs of Millstone 3 and the Yankee Atomic Electric Company (YAEC)
contract obligation. The company is currently recovering some amounts of its
remaining deferred charges from customers. Management expects that
substantially all of the deferred charges will be recovered through future
rates.
Under SFAS No. 109, the company reflected a regulatory asset and a deferred tax
liability for the cumulative amount of income taxes associated with timing
differences for which deferred taxes had not been provided but
29
are expected to be recovered from customers in the future. The adoption of SFAS
No. 109 has not had a material effect on results of operations.
The company also adopted SFAS No. 106, Employer's Accounting for Postretirement
Benefits Other Than Pensions, in 1993. Adopting SFAS No. 106 has not had a
material impact on financial condition or results of operations because the
company has received approval to defer these costs and expects to recover these
costs in the future.
See the "Notes To Financial Statements" for further details on deferred charges
and recently adopted accounting standards.
As a result of a May 1992 Department of Public Utilities (DPU) decision, the
company's annual retail rates increased by approximately $11 million or 2.7
percent on July 1, 1993. This increase is the second step of a two-year
settlement agreement proposed jointly by WMECO and the Massachusetts Attorney
General's Office and approved by the DPU. The first step went into effect on
July 1, 1992.
WMECO has incurred approximately $17 million in replacement- power costs
associated with Millstone outages that occurred over the period October 1990
through February 1992 that have been the subject of prudence reviews in
Connecticut. Recovery of prudently incurred replacement-power costs is
permitted through a retail fuel adjustment clause. The DPU reviews the
performance of WMECO's generating units on an annual basis. Management
believes that its actions with respect to these outages have been prudent and
does not expect the outcome of the DPU performance program reviews to have a
material adverse effect on WMECO's future earnings.
WMECO has a conservation charge (CC) in effect to recover the cost of
Conservation and Load Management (C&LM) programs above or below the base rate
recovery levels. WMECO filed a new CC in February 1994. WMECO expects to
spend about $14 million in 1994 on C&LM programs. The DPU issued a decision
approving the new CC rate effective March 1.
ENVIRONMENTAL MATTERS
The NU system devotes substantial resources to identify and then to meet the
multitude of environmental requirements it faces. The system has active
auditing programs addressing a variety of different regulatory requirements,
including an environmental auditing program to detect and remedy
noncompliance with environmental laws or regulations.
The company is potentially liable for environmental cleanup costs at a number
of sites both inside and outside its service territories. To date, the
future estimated environmental remediation costs for the sites for which the
company expects to bear some liability have not been material with respect to
the earnings or financial position of WMECO. At December 31, 1993, the
liability recorded by WMECO for its estimated environmental remediation
costs, excluding any possible insurance recoveries or recoveries from third
parties, amounted to approximately $600,000. However, while not probable, it
is reasonably possible, these costs could rise as much as $1.5 million. The
extent of additional future environmental cleanup costs is not estimable due
to factors such as the unknown magnitude of possible contamination and changes
in existing laws and regulatory practices.
The company expects that the implementation of Phase I of the 1990 Clean Air Act
Amendments will require only minimal emissions reductions. WMECO's exposure is
minimal because of the company's investment in nuclear energy in the 1970s and
1980s and the burning of low-sulfur fuels. The costs of meeting the Phase II
requirements cannot be estimated at this time because the emission limits have
not been determined.
The company's estimated cost to decommission its share of Millstone Units 1, 2,
and 3, in year-end 1993 dollars is $184 million. In addition, the company's
estimated cost to decommission its share of the regional nuclear generating
30
units is estimated to be approximately $50 million. These costs are being
recovered and recognized over the lives of the respective units. YAEC has begun
decommissioning its nuclear facility. The company's estimated obligation to
YAEC has been recorded on its balance sheets. Management expects that the
company will continue to be allowed to recover these costs.
For further information regarding nuclear decommissioning, environmental
matters, and other contingencies, see the "Notes To Financial Statements."
NUCLEAR PERFORMANCE
The composite capacity factor of the five nuclear generating units that the NU
system operates (including the Connecticut Yankee nuclear unit) was 80.8 percent
for 1993, compared with 63.7 percent in 1992 and a national average of 70.6
percent for 1993. The lower 1992 capacity factor was primarily the result of
the 1992 Millstone 2 steam generator replacement outage and some unexpected
technical and operating difficulties.
In 1993, NU was informed by the Nuclear Regulatory Commission (NRC) of three
apparent violations related to the circumstances surrounding the repair of a
leaking valve in the reactor coolant system at the Millstone 2 nuclear power
station. Millstone 2 was shut down on August 5, 1993 when extensive repair
efforts proved unsuccessful and the valve began to leak at a level beyond
operating requirements. NU was assessed and paid a civil penalty of $237,500
for the three violations that were identified during the NRC investigation.
NU has initiated a number of immediate and long-term actions designed to further
enhance the safe operation of all the NU nuclear plants. In an effort to
improve nuclear performance, NU management announced a reorganization of its
Connecticut-based nuclear organization in November 1993. The reorganization,
which is based on an overview of NU's future nuclear operational needs, resulted
in a number of personnel changes, including the appointment of a new senior vice
president of Millstone Station, realignment of engineering operations along unit
lines, and management consolidation. In addition, centralization of the nuclear
engineering function at the generating stations is expected to occur during the
summer of 1994. No material expense will be incurred by the company in
connection with the reorganization.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased $0.5 million in 1993, compared with the
same period in 1992. Cash used for financing activities was $7.0 million higher
in 1993, compared with the same period in 1992, primarily due to higher
repayment of short-term debt partially offset by a net increase in long-term
debt. Cash used for investments was $7.5 million lower in 1993, compared with
the same period in 1992 due to lower construction expenditures.
The company has been able to shift its financing focus to refinancing
outstanding high-cost securities. Internally generated cash has generally
been, and is projected to continue to be, more than sufficient to cover
construction costs. The forecast through 1998 shows additional new
financings only in years with a large amount of securities maturing. The
company is obligated to meet $82.2 million of long-term debt and preferred
stock maturities and cash sinking-fund requirements for the 1994 through 1988
period, including $1.5 million in 1994. No new financings are planned for
1994.
Aggressive refinancing of its outstanding high-cost securities has enabled the
company to lower its cost of debt, thus lowering electric rates. There was no
new money financing in 1993. To take advantage of favorable market
conditions during 1993, the company refinanced $60 million of First Mortgage
Bonds and $53.8 million of pollution control bonds, in addition to
restructuring the company's various credit lines. The company intends, if
market conditions permit, to continue to refinance a portion of their
outstanding long-term debt and preferred stock at a lower effective cost.
31
The company's construction program expenditures, including allowance for funds
used during construction (AFUDC), for the period 1994 through 1998 are estimated
to be approximately $170 million, including $37.5 million for 1994. The
construction program's main focus is maintaining and upgrading the existing
transmission and distribution system, as well as nuclear and fossil-generating
facilities. The company does not foresee the need for new major generating
facilities until at least the year 2007.
The company and The Connecticut Light and Power Company utilize a nuclear fuel
trust to finance nuclear fuel requirements for their share of Millstone Units
1, 2, and 3. Nuclear fuel requirements for WMECO's share of Millstone Units 1,
2 and 3 of $72.7 million for the years 1994 through 1998, including $17.2
million for 1994, are expected to be financed by the trust.
RESULTS OF OPERATIONS
The components of the change in operating revenues for the past two years are
provided in the table below.
Change in Operating Revenues
(Increase/Decrease)
- -----------------------------------------------------------------------
1993 vs. 1992 1992 vs. 1991
- -----------------------------------------------------------------------
(Millions of Dollars)
Regulatory decisions $12.0 $22.5
Fuel and purchased power
cost recoveries (18.9) (18.3)
Sales volume 3.7 (3.2)
Other revenues 7.5 (0.1)
----- -----
Total revenue change $ 4.3 $ 0.9
===== =====
OPERATING REVENUES
Operating revenues increased $4.3 million from 1992 to 1993. Revenues related
to regulatory decisions increased primarily because of the effects of the
July 1992 and July 1993 retail rate increases. Fuel and purchased-power cost
recoveries decreased primarily due to lower energy costs. Retail sales in
1993 were flat. Other revenues increased primarily because of higher capacity
interchange revenues.
Operating revenues increased $0.9 million from 1991 to 1992. Revenues related
to regulatory decisions increased primarily because of the effects of the July
1991 and July 1992 retail rate increases. Fuel and purchased power cost
recoveries decreased primarily because of lower energy sales to other utilities.
Retail sales decreased 1.6 percent in 1992 as compared to 1991.
FUEL, PURCHASED, AND NET INTERCHANGE POWER
Fuel, purchased, and net interchange power decreased $18.6 million in 1993, as
compared to 1992, primarily because of lower outside purchases as a result of
better nuclear performance in 1993.
Fuel, purchased, and net interchange power decreased $13.4 million in 1992, as
compared to 1991, primarily because of lower interchange purchases.
32
OTHER OPERATION AND MAINTENANCE EXPENSES
Other operation and maintenance expenses increased $11.2 million in 1993, as
compared to 1992, primarily due to higher capacity interchange charges,
increased conservation expenses, and the 1993 one-time costs associated with the
employee-reduction program, partially offset by lower 1993 costs associated with
the operation and maintenance activities of the nuclear units.
Other operation and maintenance expenses increased $14.3 million in 1992, as
compared to 1991, primarily due to higher 1992 costs of operation and
maintenance activities at nuclear and fossil units, partially offset by the 1991
costs associated with a voluntary early retirement program.
AMORTIZATION OF REGULATORY ASSETS
Amortization of regulatory assets increased $3.4 million in 1993, as compared
to 1992, and $1.4 million in 1992, as compared to 1991, primarily because of
higher amortization of Millstone 3 deferred costs. The increase in 1993 is also
attributable to the gross-up of taxes due to SFAS No. 109.
FEDERAL AND STATE INCOME TAXES
Federal and state income taxes increased $7.8 million in 1993, as compared to
1992, primarily because of higher book taxable income and one-time
adjustments in 1992 causing 1992 taxes to be lower than would otherwise be
expected.33
WESTERN MASSACHUSETTS ELECTRIC COMPANY
- -----------------------------------------------------------------------------
- -----------------------
SELECTED FINANCIAL DATA
- -----------------------------------------------------------------------------
- -----------------------
- -----------------------------------------------------------------------------
- -----------------------
1993 1992 1991
1990 1989
- -----------------------------------------------------------------------------
- -----------------------
(Thousands of Dollars)
Operating Revenues . . . . . . . $ 415,055 $ 410,720 $ 409,840 $
375,456 $ 348,720
Operating Income . . . . . . . . 60,067 60,513 59,723
57,448 55,483
Net Income . . . . . . . . . . . 40,594 37,022 34,637
35,191 38,578
Cash Dividends on
Common Stock . . . . . . . . . 28,785 29,536 31,499
34,459 28,974
Total Assets . . . . . . . . . . 1,204,642 1,130,684 1,119,593
1,134,986 1,135,096
Long-Term Debt*. . . . . . . . . 393,232 392,976 401,095
419,527 418,093
Preferred Stock Not Subject to
Mandatory Redemption . . . . . 73,500 73,500 88,500
88,500 88,500
Preferred Stock Subject to
Mandatory Redemption<F14>* . . 27,000 28,500 28,502
30,000 30,000
Obligations Under Capital
Leases<F14>*. . . . . . . . . . 36,902 41,509 44,134
52,370 56,730
<F14>*Includes portions due within one year.
- -----------------------------------------------------------------------------
- -----------------------
STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited)
- -----------------------------------------------------------------------------
- -----------------------
Quarter Ended
- -----------------------------------------------------------------
1993 March 31 June 30 September
30 December 31
- -----------------------------------------------------------------------------
- -----------------------
Operating Revenues. . . . . . . $108,950 $92,383 $105,510
$108,212
======== ======= ========
========
Operating Income. . . . . . . . $ 17,659 $13,529 $ 13,045
$ 15,834
======== ======= ========
========
Net Income. . . . . . . . . . . $ 15,350 $ 7,316 $ 7,182
$ 10,746
======== ======= ========
========
1992
- -----------------------------------------------------------------------------
- -----------------------
Operating Revenues. . . . . . . $112,897 $95,231 $ 99,524
$103,068
======== ======= =========
=========
Operating Income. . . . . . . . $ 20,965 $ 9,276 $ 11,849
$ 18,423
======== ======= =========
=========
Net Income. . . . . . . . . . . $ 14,427 $ 3,518 $ 6,312
$ 12,765
======== ======= =========
========
34
WESTERN MASSACHUSETTS ELECTRIC COMPANY
- -----------------------------------------------------------------------------
- -----------------------
STATISTICS
- -----------------------------------------------------------------------------
- -----------------------
Gross Electric Average
Utility Plant Annual
December 31, Use Per Electric
(Thousands of kWh Sales Residential Customers
Employees
Dollars) (Millions) Customer (kWh) (Average)
(December 31,)
- -----------------------------------------------------------------------------
- -----------------------
1993 $1,242,927 4,715 7,351 192,542
657
1992 1,214,386 4,155 7,433 191,920
739
1991 1,199,362 3,780 7,494 191,692
797
1990 1,184,285 3,874 7,619 191,759
826
1989 1,147,780 3,975 7,878 190,217
849
35
Western Massachusetts Electric Company
First Mortgage Bonds
--------------------
Trustee and Interest Paying Agent
The First National Bank of Boston, Corporate Trust Department
P.O. Box 1897, Boston, Massachusetts 02105
Preferred Stock
Transfer Agent, Dividend Disbursing Agent and Registrar
Northeast Utilities Service Company Shareholder Services
P.O. Box 5006, Hartford, CT 06102-5006
1994 Dividend Payment Dates
7.72% Series B -
January 1, April 1, July 1 and October 1
7.60% Series -
February 1, May 1, August 1 and November 1
DARTS*
February 8, March 29, May 17, July 6, August 23,
October 11, and November 29
Address General Correspondence in Care of:
Northeast Utilities Service Company
Investor Relations Department
P.O. Box 270
Hartford, Connecticut 06141-0270
Tel. (203) 665-5000
General Office
174 Brush Hill Avenue, West Springfield, Massachusetts, 01090-0010
_______________________________
*Transfer and Paying Agent:
Bankers Trust Company, Corporate Trust and Agency Group
P.O. Box 318, Church Street Station, New York, New York 10015
The data contained in this Report is submitted for the sole purpose of
providing information to present stockholders about the Company.