FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-5324
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NORTHEAST UTILITIES
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2147929
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
174 BRUSH HILL AVENUE, WEST SPRINGFIELD, MASSACHUSETTS (01090-0010)
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(Address of principal executive offices) (Zip Code)
(413) 785-5871
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
___ ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 29, 1994
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Common Shares, $5.00 par value 124,505,043 shares
NORTHEAST UTILITIES AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1994
and December 31, 1993 2
Consolidated Statements of Income - Three
Months Ended March 31, 1994 and 1993 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Report of Independent Public Accountants 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
Part II. Other Information
Item 1. Legal Proceedings 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
1
PART I. FINANCIAL INFORMATION
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1994 1993
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(Thousands of Dollars)
ASSETS
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Utility Plant, at original cost:
Electric............................................. $ 9,147,275 $ 9,119,285
Other................................................ 142,220 146,228
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9,289,495 9,265,513
Less: Accumulated provision for depreciation...... 3,096,760 3,021,987
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6,192,735 6,243,526
Construction work in progress........................ 232,606 208,084
Nuclear fuel, net.................................... 225,271 218,051
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Total net utility plant.......................... 6,650,612 6,669,661
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Other Property and Investments:
Nuclear decommissioning trusts, at market in 1994
and at cost in 1993 (Note 2)<F2>.................... 225,736 206,179
Investments in regional nuclear generating
companies, at equity................................ 81,382 81,029
Investments in transmission companies, at equity..... 26,397 26,536
Other, at cost....................................... 35,564 36,882
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369,079 350,626
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Current Assets:
Cash and special deposits............................ 34,286 32,008
Receivables, net..................................... 401,192 357,449
Accrued utility revenues............................. 122,805 150,794
Fuel, materials, and supplies, at average cost....... 195,473 194,968
Prepayments and other................................ 39,948 35,278
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793,704 770,497
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Deferred Charges:
Regulatory asset--income taxes, net.................. 1,167,960 1,183,716
Regulatory asset--PSNH............................... 746,976 769,498
Deferred costs--nuclear plants....................... 282,527 294,004
Unrecovered contract obligation--YAEC................ 126,576 132,826
Recoverable energy costs, net........................ 152,927 148,789
Deferred conservation and load-management costs...... 108,990 111,442
Deferred DOE assessment.............................. 53,520 53,476
Amortizable property investments..................... 30,806 34,229
Unamortized debt expense............................. 36,944 37,444
Other................................................ 127,504 111,956
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2,834,730 2,877,380
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Total Assets..................................... $ 10,648,125 $ 10,668,164
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See accompanying notes to consolidated financial statements.
2
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1994 1993
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(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
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Capitalization:
Common shareholders' equity:
Common shares, $5 par value--authorized
225,000,000 shares; 134,208,960 shares issued and
124,466,740 shares outstanding in 1994 and
134,207,025 shares issued and 124,326,836 shares
outstanding in 1993............................... $ 671,045 $ 671,035
Capital surplus, paid in............................. 903,242 901,740
Deferred benefit plan - employee stock
ownership plan................................... (225,508) (228,205)
Retained earnings.................................... 920,681 879,518
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Total common shareholders' equity........... 2,269,460 2,224,088
Preferred stock not subject to mandatory redemption.. 239,700 239,700
Preferred stock subject to mandatory redemption...... 379,000 380,500
Long-term debt....................................... 3,970,456 4,045,468
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Total capitalization........................ 6,858,616 6,889,756
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Obligations Under Capital Leases....................... 187,546 171,004
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Current Liabilities:
Notes payable to banks............................... 146,000 173,500
Long-term debt and preferred stock--current
portion............................................. 386,965 420,142
Obligations under capital leases--current
portion............................................. 74,587 72,756
Accounts payable..................................... 218,871 229,118
Accrued taxes........................................ 93,389 40,501
Accrued interest..................................... 82,534 69,682
Accrued pension benefits............................. 83,139 82,513
Other................................................ 72,365 83,853
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1,157,850 1,172,065
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Deferred Credits:
Accumulated deferred income taxes.................... 1,926,488 1,911,981
Accumulated deferred investment tax credits.......... 199,293 201,635
Deferred contract obligation--YAEC................... 126,576 132,826
Deferred DOE obligation.............................. 43,034 43,034
Other................................................ 148,722 145,863
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2,444,113 2,435,339
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Commitments and Contingencies (Note 4)<F4>
Total Capitalization and Liabilities........ $ 10,648,125 $ 10,668,164
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See accompanying notes to consolidated financial statements.
3
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
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1994 1993
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(Thousands of Dollars,
except share information)
Operating Revenues.................................... $ 966,174 $ 958,192
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Operating Expenses:
Operation --
Fuel, purchased and net interchange power........ 225,574 274,107
Other............................................ 220,174 229,344
Maintenance......................................... 68,634 62,002
Depreciation........................................ 83,407 80,872
Amortization of regulatory assets, net.............. 50,731 57,375
Federal and state income taxes...................... 90,985 64,833
Taxes other than income taxes....................... 67,110 64,580
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Total operating expenses...................... 806,615 833,113
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Operating Income...................................... 159,559 125,079
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Other Income:
Allowance for other funds used during construction.. 314 51
Deferred nuclear plants return--other funds......... 7,058 10,645
Equity in earnings of regional nuclear generating
and transmission companies....................... 3,364 3,265
Other, net.......................................... 2,377 884
Income taxes--credit................................ 1,695 7,276
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Other income, net............................. 14,808 22,121
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Income before interest charges................ 174,367 147,200
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Interest Charges:
Interest on long-term debt.......................... 79,054 87,168
Other interest...................................... 1,481 2,939
Allowance for borrowed funds used during
construction..................................... (821) (733)
Deferred nuclear plants return--borrowed funds...... (11,832) (15,061)
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Interest charges, net......................... 67,882 74,313
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Income before cumulative effect of
accounting change........................... 106,485 72,887
Cumulative effect of accounting change (Note 2)<F2>... - 51,681
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Income before Preferred Dividends
of Subsidiaries........................... 106,485 124,568
Preferred Dividends of Subsidiaries................... 10,597 12,121
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Earnings For Common Shares............................ $ 95,888 $ 112,447
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Earnings Per Common Share:
Before cumulative effect of accounting change....... $ 0.77 $ 0.49
Cumulative effect of accounting change (Note 2)..... - 0.42
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Total Earnings Per Common Share....................... $ 0.77 $ 0.91
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Common Shares Outstanding (average)................... 124,374,142 123,617,142
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See accompanying notes to consolidated financial statements.
4
NORTHEAST UTILITIES and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
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1994 1993
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(Thousands of Dollars)
Cash Flows From Operations:
Income before preferred dividends................................ $ 106,485 $ 124,568
Adjusted for the following:
Depreciation .................................................. 83,407 83,138
Deferred income taxes and investment tax credits, net.......... 35,873 (4,963)
Deferred nuclear plants return, net of amortization............ 10,494 (1,736)
Deferred energy costs, net of amortization..................... (3,477) 63,790
Amortization of Regulatory Asset-PSNH.......................... 22,522 22,647
Deferred conservation and load-management costs,
net of amortization.......................................... 2,452 (207)
Other sources of cash.......................................... 14,043 59,368
Other uses of cash............................................. (34,194) (2,904)
Changes in working capital:
Receivables and accrued utility revenues....................... (15,754) (30,872)
Fuel, materials, and supplies.................................. (505) 6,749
Accounts payable............................................... (10,247) (13,333)
Accrued taxes.................................................. 52,888 (1,721)
Other working capital (excludes cash).......................... (3,342) 38,610
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Net Cash Flows From Operations..................................... 260,645 343,134
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Cash Flows From Financing Activities:
Common shares.................................................... 3,549 5,012
Long-term debt................................................... 370,000 60,550
Net increase (decrease) in short-term debt....................... (27,500) (198,510)
Reacquisitions and retirements of long-term debt
and preferred stock............................................ (478,566) (55,521)
Cash dividends on preferred stock................................ (10,597) (12,121)
Cash dividends on common shares.................................. (54,725) (53,868)
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Net cash flows used for financing activities....................... (197,839) (254,458)
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Investment Activities:
Investments in plant:
Electric utility plant......................................... (61,401) (54,572)
Nuclear fuel................................................... 11,137 (12,786)
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Net cash flows used for investments in plant..................... (50,264) (67,358)
Other investment activities, net ................................ (10,264) (8,789)
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Net cash flows used for investments................................ (60,528) (76,147)
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Net Increase In Cash for the Period................................ 2,278 12,529
Cash, temp. investments, and special deposits-beginning of period.. 32,008 45,646
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Cash, temp. investments, and special deposits-end of period........ $ 34,286 $ 58,175
========== ===========
See accompanying notes to consolidated financial statements.
5
NORTHEAST UTILITIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
<F1>1. General
The accompanying unaudited consolidated financial statements should be read
in conjunction with the Annual Report of Northeast Utilities (the company or
NU) on Form 10-K for the year ended December 31, 1993 (1993 Form 10-K). In
the opinion of the company, the accompanying financial statements contain all
adjustments necessary to present fairly the financial position as of March
31, 1994, the results of operations for the three months ended March 31, 1994
and 1993, and the statements of cash flows for the three months ended March
31, 1994 and 1993. The results of operations for the three months ended
March 31, 1994 and 1993 are not necessarily indicative of the results
expected for a full year.
Certain amounts in the accompanying consolidated financial statements of the
company for the period ended March 31, 1993 have been reclassified to conform
with the March 31, 1994 presentation.
<F2>2. Changes in Accounting Principles
Statement of Financial Accounting Standards No. 115 (SFAS 115): In May 1993,
the Financial Accounting Standards Board (FASB) issued SFAS 115, "Accounting
for Certain Investments in Debt and Equity Securities." SFAS 115 addresses
the accounting and reporting for certain investments in debt and equity
securities, and expands the use of fair value accounting for these
securities. SFAS 115 is applicable to NU with respect to its investments in
nuclear decommissioning trusts.
SFAS 115 requires investments in decommissioning trusts to be presented at
fair value and was adopted by NU on a prospective basis in the first quarter
of 1994.
As a result of the adoption of SFAS 115, NU increased its investment in
nuclear decommissioning trusts by approximately $9.4 million, with a
corresponding offset to the accumulated provision for depreciation. The $9.4
million increase represents the cumulative total gross unrealized holding
gains for 1994. There was no increase in funding of the trusts nor any
impact on earnings as a result of the adoption of SFAS 115.
Property Taxes: Certain subsidiaries of NU, including The Connecticut Light
and Power Company (CL&P) and Western Massachusetts Electric Company (WMEC0),
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 NU system accrued Connecticut property tax expense over the period
October 1 through September 30 based on the lien-date method. In the first
quarter of 1993, these subsidiaries changed their method of accounting for
6
Connecticut municipal property taxes to recognize the expense from July 1
through June 30, to match the payments and the services provided by the
municipalities. The one-time change increased earnings for common shares and
earnings per common share by approximately $51.7 million and $0.42,
respectively, in 1993.
<F3>3. Capitalization
On February 17, 1994, CL&P issued $140 million of First and Refunding
Mortgage Bonds, 1994 Series A and $140 million of First and Refunding
Mortgage Bonds, 1994 Series B. The 1994 Series A Bonds bear interest at an
annual rate of 5-1/2 percent, and will mature on February 1, 1999. The 1994
Series B Bonds bear interest at an annual rate of 6-1/8 percent, and will
mature on February 1, 2004.
The net proceeds from the issuance and sale of 1994 Series A Bonds and 1994
Series B Bonds, together with proceeds from the issuance of short-term debt,
were used to redeem at their general redemption prices the following
outstanding CL&P First Mortgage Bonds on March 22, 1994: the 4-1/2 percent
Series 1964 ($12 million), the 5-5/8 percent Series 1967 ($20 million), the
6-1/2 percent Series 1968 ($10 million), the 7-1/8 percent Series 1968 ($25
million), the 7-5/8 percent Series 1971 ($30 million), the 7-1/2 percent
Series 1972 ($35 million), the 7-1/2 percent Series 1973 ($40 million), the 6
percent Series S ($30 million), the 6-7/8 percent Series U ($40 million), the
7-3/8 percent Series X ($30 million), and the 7-5/8 percent Series Z ($50
million).
On March 22, 1994, WMECO issued $40 million of First Mortgage Bonds, Series X
and $50 million of First Mortgage Bonds, Series Y. The Series X Bonds bear
interest at an annual rate of 6-1/4 percent, and will mature on March 1,
1999. The Series Y Bonds bear interest at an annual rate of 7-3/4 percent,
and will mature on March 1, 2024.
The net proceeds from the issuance and sale of Series X and Series Y bonds,
together with the proceeds from the issuance of short-term debt, were used to
redeem at their general redemption prices, the following outstanding WMECO
First Mortgage Bonds on April 4, 1994: The 7-3/8 percent Series H ($15
million), the 7-3/4 percent Series J ($30 million), the 9-3/4 percent Series
R ($24.75 million), and the 10-1/8 percent Series T (approximately $33.8
million).
<F4>4. Commitments and Contingencies
Construction Program: For information regarding the NU system's construction
program, see the Notes to Consolidated Financial Statements in NU's 1993 Form
10-K.
Nuclear Performance: For information regarding nuclear performance and the
recovery of replacement power costs, see Management's Discussion and Analysis
of Financial Condition and Results of Operation in this Form 10-Q and the
Notes to Consolidated Financial Statements in NU's 1993 Form 10-K.
7
PSNH Rate Agreement: For information regarding the PSNH Rate Agreement, see
the Notes to Consolidated Financial Statements in NU's 1993 Form 10-K.
Environmental Matters: For information regarding Environmental Matters, see
the Notes to Consolidated Financial Statements in NU's 1993 Form 10-K.
Nuclear Insurance Contingencies: For information regarding Nuclear Insurance
Contingencies, see the Notes to Consolidated Financial Statements in NU's
1993 Form 10-K.
Financing Arrangements for the Regional Nuclear Generating Companies: For
information regarding Financing Arrangements for the Regional Nuclear
Generating Companies, see the Notes to Consolidated Financial Statements in
NU's 1993 Form 10-K.
Purchased Power Arrangements: For information regarding Purchased Power
Arrangements, see Part II, Item 1 - Legal Proceedings in this Form 10-Q and
the Notes to Consolidated Financial Statements in NU's 1993 Form 10-K.
Hydro-Quebec: For information regarding Hydro-Quebec, see the Notes to
Consolidated Financial Statements in NU's 1993 Form 10-K.
Great Bay Power Corporation (GBPC): For information regarding GBPC, see the
Notes to Consolidated Financial Statements in NU's 1993 Form 10-K.
Property Taxes: For information regarding Property Taxes, see the Notes to
Consolidated Financial Statements in NU's 1993 Form 10-K.
8
Report of Independent Public Accountants
----------------------------------------
To Northeast Utilities:
We have reviewed the accompanying consolidated balance sheet of Northeast
Utilities (a Massachusetts trust) and subsidiaries as of March 31, 1994, and
the related consolidated statements of income for the three-month periods
ended March 31, 1994 and 1993, and the consolidated statements of cash flows
for the three-month periods ended March 31, 1994 and 1993. These financial
statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying
analytical procedures to financial data and making inquiries of persons
responsible for financial and accounting matters. It is substantially less
in scope than an audit conducted in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Arthur Andersen & Co.
Hartford, Connecticut
May 6, 1994
9
NORTHEAST UTILITIES AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This section contains management's assessment of Northeast Utilities' (NU or
the company)financial condition and the principal factors having an impact on
the results of operations. This discussion should be read in conjunction
with the company's consolidated financial statements and footnotes and the
1993 Form 10-K.
FINANCIAL CONDITION
Overview
The company's earnings decreased to $0.77 per common share for the three
months ended March 31, 1994, from $0.91 for the same period in 1993. The
1993 earnings reflect the cumulative effect of a change in accounting for
Connecticut municipal property taxes. Certain subsidiaries of NU adopted a
one-time change in the method of accounting for Connecticut municipal
property tax expense in the first quarter of 1993. This change resulted in a
one-time contribution to earnings of $51.7 million or $0.42 per common share.
Earnings per common share before the cumulative effect of the change in
accounting for property taxes were $0.49 in 1993. The increase in earnings
from 1993, excluding the one-time accounting change, is primarily
attributable to higher retail sales in 1994 due primarily to a cold winter,
increased revenues from mid-1993 rate increases in NU subsidiaries' retail
jurisdictions, lower operation and maintenance expenses, and lower interest
costs. These increases were partially offset by lower 1994 revenues from
sales to other utilities.
Accounting Standards
In 1994, the company adopted Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." SFAS No. 115 supersedes or amends other accounting
pronouncements related to the accounting for marketable securities. As a
result of the adoption of SFAS No. 115, NU increased its investment in
nuclear decommissioning trusts by approximately $9.4 million with a
corresponding offset to the accumulated provision for depreciation. The
increase represents the cumulative unrealized gains on the investments in the
nuclear decommissioning trusts. The adoption of SFAS No. 115 has had no
impact on net income.
See the "Notes to Consolidated Financial Statements" for additional
information on this new accounting standard.
Rate Matters
The ability of a retail customer to select an electricity supplier other than
a local electric company and then force the local electric utility to
transmit the power to the customer's site is known as
10
"retail wheeling." While wholesale wheeling is mandated by the Energy Policy
Act of 1992 under certain circumstances, retail wheeling is generally not
required in any of the NU system's jurisdictions. Retail wheeling is,
however, being investigated in some of the NU system's jurisdictions.
The Connecticut Department of Public Utility Control (DPUC) has established a
docket which is investigating whether retail wheeling should be permitted in
Connecticut. The DPUC docket is intended as a follow-up and an update to a
1987 report by the DPUC to the Legislature, which concluded that retail
wheeling was not in the best interest of Connecticut at that time. A draft
decision is scheduled for June 1994.
In Massachusetts, bills being reviewed by the legislative committees would
permit limited retail wheeling in economically distressed areas and to
municipal and state-owned facilities as well as increased opportunities for
self-generation. In New Hampshire, there have been no legislative proposals
on retail wheeling to date. An existing New Hampshire statute currently
allows "limited electrical producers" (i.e., up to five megawatts in size),
to sell output to as many as three retail customers.
Connecticut
The Connecticut Light and Power Company (CL&P) has a mechanism that has been
in operation since 1979 that was designed to recover or to refund certain
fuel costs if the nuclear units do not operate at a predetermined capacity
factor (the Generation Utilization Adjustment Clause (GUAC)). In January
1994, the DPUC issued a decision ordering CL&P not to include a GUAC amount
in customers' bills through August 1994. The DPUC found that CL&P
overrecovered its fuel costs during the 1992-1993 GUAC period and offset the
amount of the overrecovery against the unrecovered GUAC balance. The effect
of the order was a disallowance of $7.9 million. The DPUC further ordered
that any GUAC deferred charges subsequent to July 1993 will be offset by any
fuel overrecoveries. The DPUC's decision creates some uncertainty about the
future operation of the GUAC. CL&P has requested further clarification of
the decision and has appealed it in court. CL&P does not expect that the
decision will have a material adverse effect on future results of operations.
Outages that occurred over the period October 1990 through February 1992 at
the Millstone nuclear units have been the subject of five ongoing prudence
reviews in Connecticut. CL&P has received final decisions from the DPUC on
four of the reviews. The Connecticut Office of Consumer Counsel (OCC) has
appealed decisions favorable to the company in two dockets. The exposure
under these two dockets is approximately $66 million. The DPUC has suspended
a third docket, pending the outcome of one of the appeals. The exposure
under this docket is $26 million. An additional nuclear outage prudence
docket before the DPUC is the docket established to review the 1992 outage at
Millstone 2 to replace the steam generators. CL&P has requested the DPUC to
terminate the docket without hearing for the reason that no party has claimed
that CL&P acted imprudently. Management believes
11
that its actions with respect to all of these outages have been prudent, and
it does not expect the outcome of the prudence reviews to result in material
disallowances.
In December 1993, CL&P filed a proposed settlement for the conservation
adjustment mechanism with the DPUC. The settlement proposed 1994 conservation
and load management (C&LM) expenditures of $39 million, reduction in the
recovery period from 8 to 3.85 years and other changes in program designs,
performance incentives, and cost recovery. CL&P also requested an additional
$1 million for state-mandated program for state buildings. The DPUC has
issued a draft decision which accepts CL&P's proposed accelerated recovery
period for 1994 programs. Unrecovered C&LM costs at March 31, 1994 were
$109.0 million.
New Hampshire
Public Service Company of New Hampshire's (PSNH) rates are determined under a
rate agreement executed by the Governor and the Attorney General of New
Hampshire in 1989 and subsequently approved by the New Hampshire Public
Utilities Commission (NHPUC) (the Rate Agreement). The Rate Agreement sets
out a comprehensive plan of rates for PSNH, providing for seven base rate
increases of 5.5 percent per year (the fixed-rate period) and a comprehensive
fuel and purchased power adjustment clause (FPPAC). The base rate increases
are effective annually on each June 1. The fifth base rate increase will go
into effect on June 1, 1994. On March 15, 1994, PSNH filed testimony and
exhibits in support of a FPPAC rate increase over the current effective rate.
The FPPAC rate is slightly higher due to an unplanned January 1994 outage at
Seabrook. The proposed FPPAC rate, when combined with the June 1 scheduled
base rate increase, will limit the total rate change to 5.5 percent when
compared to PSNH's current rate level. Hearings on a proposed FPPAC rate
will be held in May 1994.
The costs associated with purchases from certain independent-power producers
(IPPs) over the level assumed in the Rate Agreement are deferred and
recovered over ten-year periods through the FPPAC. At March 31, 1994, IPP
deferrals which are included in recoverable energy costs, net on the balance
sheets, are approximately $114.5 million. Most of these purchases are under
long-term rate orders (20-30 years) at prices significantly higher than
PSNH's current or projected avoided costs. PSNH has been attempting to
renegotiate these rate orders and must report to the NHPUC on the results of
the negotiations.
On May 6, 1994, PSNH filed agreements reached with two of the eight wood-
fired IPPs with the NHPUC, which call for PSNH to pay the IPPs a total of
$41.5 million. In return, PSNH would no longer be required to buy power from
the two IPPs, and the IPPs are barred from providing service to any customers
currently on the PSNH or NU initial systems. If approved by the NHPUC, the
agreements will provide benefits to ratepayers over the terms of the IPP rate
orders. Hearings on these proposed agreements are scheduled for early
August. Management expects to recover any payments from customers.
12
On April 19, 1994, the NHPUC approved agreements that PSNH negotiated with
five hydro-electric IPPs. PSNH and the owners of the five hydro plants filed
the negotiated settlements with the NHPUC in November 1993. The settlements
establish new rate terms effective January 1993, representing significant
savings to PSNH for the power that it buys from the plants. Each of the
hydro projects will continue to operate and deliver power solely to PSNH.
The initial annual savings to PSNH as a result of the rate reductions are
estimated to be $1.4 million.
See Part II - Other Information, Item 1. Legal Proceedings, for further
information on these new purchase power agreements.
As prescribed by the Rate Agreement, NAEC is phasing in its $700 million
initial investment in Seabrook 1. As of March 31, 1994, NAEC has included in
rates $385 million of its Seabrook investment. The remaining investment
($315 million) will be phased into rates over the next three years beginning
May 1994. The deferred return associated with the amount of investment that
has not been included in rates is $149.1 million through March 31, 1994,
including $50.9 million which is recorded as utility plant. This amount and
the additional deferred amounts associated with the remaining phase-in will
be recovered from PSNH over the period May 1997 through 2001.
Massachusetts
On May 5, 1994, WMECO and the Attorney General of the Commonwealth of
Massachusetts signed a settlement agreement (the agreement). Under the
agreement, which is subject to the approval of the Department of Public
Utilities (DPU), WMECO's customers will receive a base rate reduction of $8.0
million annually for a 20-month period effective June 1, 1994, and a
guarantee of no general base rate increases before February 1996. This
agreement, if approved, settles a number of outstanding issues including
termination, without findings, of all performance review proceedings
regarding the treatment of replacement power costs incurred by WMECO during
outages at Millstone nuclear units from mid-1987 through mid-1993. In
addition, under the agreement, large-use customers (1,000 kWhs or more of
demand) will be offered discounts on their electric bills in return for
providing WMECO with five years' notice of any plans to self-generate or
purchase electricity from a different provider. The combined base rate
reduction and service extension discounts will total five percent for those
larger customers. The agreement is not expected to have a significant
adverse impact on WMECO's 1994 earnings.
WMECO has a conservation charge (CC) in effect to recover the cost of C&LM
programs above or below the base rate recovery levels. WMECO filed a new CC
in February 1994. On March 1, 1994, the DPU approved the new CC effective
immediately. WMECO expects to spend about $14 million in 1994 on C&LM
programs.
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LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased $82.5 million for the first three
months of 1994, compared with the same period in 1993, primarily due to
decreased revenues from replacement power costs under the GUAC. Cash used
for financing activities was $56.6 million lower in 1994, as compared with
1993, primarily due to lower repayment of short-term debt, partially offset
by the higher reacquisitions and retirements of long-term debt due to
refinancing activities. Cash used for investments was $15.6 million lower in
1994, as compared with 1993, primarily due to nuclear fuel purchases in
December 1993 that were transferred to the nuclear fuel trust in January 1994
partially offset by higher construction expenditures.
On March 22, 1994, WMECO issued two new First Mortgage Bonds, the $40 million
1994 Series X Bonds and the $50 million 1994 Series Y Bonds, at annual
interest rates of 6-1/4 percent and 7-3/4 percent, respectively. The Series
X Bonds will mature on March 1, 1999 and the Series Y Bonds will mature on
March 1, 2024. Proceeds from these issues, together with proceeds from
short-term debt, were used to redeem approximately $104 million of
outstanding First Mortgage Bonds with interest rates ranging from 7-3/8
percent to 10-1/4 percent. Savings from the refinancings are estimated to be
approximately $2.4 million per year in reduced interest.
The NU system's construction program expenditures, including allowance for
funds used during construction (AFUDC), amounted to $48.4 million for the
first three months of 1994 as compared to $54.7 million during the same
period in 1993. 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 at least until the year 2007.
RESULTS OF OPERATIONS
Comparison of the First Quarter of 1994 with the First Quarter of 1993
- - ----------------------------------------------------------------------
Operating revenues increased $8.0 million in the first quarter of 1994
compared with the same period in 1993. The components of the change in
operating revenues are as follows:
Changes in Operating Revenues Increase/(Decrease)
- - ----------------------------- -------------------
(Millions of Dollars)
Regulatory decisions $21.7
Fuel, purchased power, and FPPAC cost recoveries (10.5)
Sales volume 25.9
Other revenues (29.1)
-----
Total revenue change $ 8.0
=====
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Revenues related to regulatory decisions increased primarily because of
retail rate increases for CL&P and WMECO in July 1993 and the June 1993
retail rate increase for PSNH. Fuel, purchased power and FPPAC cost
recoveries decreased in the first quarter of 1994 primarily due to lower GUAC
recoveries. Sales volume revenue increased primarily as a result of higher
retail sales in 1994. Retail sales increased 7.1 percent for the first
quarter of 1994 compared to 1993 because the first quarter of 1994 was much
colder. Other revenues decreased primarily because of lower 1994 sales to
other utilities.
Fuel, purchased, and net interchange power expense decreased $48.5 million in
1994, as compared to 1993, primarily because of previously deferred
replacement power costs that were determined to be not recoverable in 1993 as
a result of regulatory reviews in Connecticut, and the timing in the
recognition of fuel expenses under the provisions of CL&P's GUAC mechanism,
partially offset by a higher level of energy purchases from other utilities.
Other operation and maintenance expenses decreased $2.5 million in 1994, as
compared to 1993, primarily due to the establishment of a reserve for
obsolete inventory in 1993, lower 1994 costs for inspection and overhauls at
various fossil generating units and lower 1994 payroll and benefit costs,
partially offset by higher 1994 costs for nuclear outages.
Amortization of regulatory assets, net decreased $6.6 million in 1994, as
compared to 1993, primarily because of the amortization in 1994 of PSNH's
regulatory liability for net operating losses, lower 1994 expenses associated
with the recovery of Hydro-Quebec support payments, partially offset by the
amortization in 1994 of costs paid by CL&P to the developers of two wood-to-
energy plants beginning in July 1993 and higher 1994 amortization of
Millstone 3 and Seabrook 1 phase-in costs.
Deferred nuclear plants return decreased $6.8 million in 1994, as compared to
1993, primarily because additional Millstone 3 investment was phased into
rates on January 1, 1994.
Interest on long-term debt decreased $9.6 million in 1994, as compared to
1993, primarily because of lower average interest rates as a result of the
company's refinancing activities.
Federal and state income taxes increased $31.7 million in 1994 as compared to
1993, primarily because of higher book taxable income.
The cumulative effect of the accounting change of $51.7 million in 1993
represents the one-time change in the method of accounting for Connecticut
municipal property tax expense recognized in the first quarter of 1993.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
1. On April 19, 1994, the New Hampshire Public Utilities
Commission (NHPUC) approved new purchase power agreements with five
hydroelectric small power producers (SPPs). These five SPPs, along with
eight wood-fired SPPs, were identified in the Rate Agreement as having high
cost rate orders, which PSNH was to make its best efforts to renegotiate.
The NHPUC found the new purchase power agreements to be in the public
interest under the special legislation that approved the Rate Agreement. The
NHPUC also found that the agreements furthered the interests of a diversified
generating mix under the New Hampshire Limited Electric Energy Producers Act
and conformed to least cost planning principles.
The NHPUC deferred action on whether PSNH had exercised its
best efforts to renegotiate the rate orders as that issue was not tried at
the hearing. The NHPUC also deferred the issue of how the savings from
reduced purchased power costs would be treated. Unless otherwise ordered,
PSNH will flow these savings through the fuel and purchase power adjustment
clause to its customers.
These agreements are effective retroactively to January 1993.
Management anticipates that the initial decrease in payments to these SPPs
during a year with normal water flow will average approximately 14 percent or
$1.4 million per year. The hydro producers will now receive minimum payments
equal to 85 percent of what would be paid in an average water flow year in
years when river flows are low. The agreements also extend the terms of the
power purchases for an average of five years beyond the terms of the existing
rate orders. The first of these new purchase power agreements will expire in
2022.
2. On September 30, 1993, 29 participants in the New England
Power Pool (NEPOOL) (including the NU system operating companies) filed the
30th Amendment to the NEPOOL Agreement (Amendment) at the Federal Energy
Regulatory Commission (FERC). The Amendment establishes a minimum size for
generating units to be considered for designation as "Pool-Planned Units."
Such designation entitles the owners of an interest in a unit to have their
shares of the output of the unit transmitted to them under a transmission
rate that is generally more favorable than the rates that would be available
in the absence of such a designation. Massachusetts Municipal Wholesale
Electric Company and several other municipal electric utilities moved to
intervene and protest the Amendment, claiming that it discriminates against
transmission dependent utilities.
On April 11, 1994, the FERC issued an Order setting the
Amendment for a "paper hearing" in May 1994. FERC intends to address whether
the Amendment eliminates transmission access and the discounted rates for
Pool-Planned Units. FERC has also broadened the
16
proceeding to consider whether NEPOOL's activities in this are consistent
with the standards of the Federal Power Act.
Item 5. Other Information
1. Massachusetts law establishes an annual performance program
for utilities related to fuel procurement and use, and requires the DPU to
review a utility's generating unit performance and related fuel costs if that
utility fails to meet the goals set for it. The reviews of WMECO's annual
generating unit performance for the program years between June 1987 and May
1993 are pending either completion of investigations or issuance of decisions
by the DPU. On May 5, WMECO and the Massachusetts Attorney General filed a
settlement with the DPU that would, if approved, terminate those pending
performance review proceedings for the years between June 1987 and May 1993.
Also, the settlement provides, among other things, that: (1) WMECO will
reduce its customers' overall bills by approximately $13.3 million over the
20-month period June 1, 1994 to January 31, 1996; (2) WMECO will not file for
increased base rates effective before February 1, 1996; (3) WMECO will
amortize post-retirement benefits other than pensions costs over a three-year
period starting July 1, 1994; and (4) WMECO will offer a 5 percent rate
reduction to its largest customers who agree not to self-generate or take
electricity from another provider for five years.
Item 6. Exhibits and Reports on Form 8-K
(a) Listing of Exhibits:
Exhibit
Number Description
------- -----------
15 Letter regarding unaudited financial
information
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during this
reporting period.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTHEAST UTILITIES
-------------------
Registrant
Date May 9, 1994 By /s/ Bernard M. Fox
-------------------- -----------------------------
Bernard M. Fox
President and Chief
Executive Officer
Date May 9, 1994 By /s/ John W. Noyes
-------------------- -----------------------------
John W. Noyes
Vice President and
Controller
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