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 June 30, 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 July 29, 1994
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Common Shares, $5.00 par value 124,660,170 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 - June 30, 1994
and December 31, 1993 2
Consolidated Statements of Income - Three
and Six Months Ended June 30, 1994 and 1993 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Report of Independent Public Accountants 9
Item 2. Management's Discussion and Analysis 10
of Financial Condition and Results
of Operations
Part II. Other Information
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of
Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
PART I. FINANCIAL INFORMATION
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1994 1993
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(Thousands of Dollars)
ASSETS
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Utility Plant, at original cost:
Electric................................................ $ 9,239,712 $ 9,119,285
Other................................................... 152,984 146,228
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9,392,696 9,265,513
Less: Accumulated provision for depreciation......... 3,163,003 3,021,987
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6,229,693 6,243,526
Construction work in progress........................... 180,211 208,084
Nuclear fuel, net....................................... 222,705 218,051
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Total net utility plant............................. 6,632,609 6,669,661
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Other Property and Investments:
Nuclear decommissioning trusts, at market (Note 2)<F2>.. 229,307 206,179
Investments in regional nuclear generating
companies, at equity................................... 81,856 81,029
Investments in transmission companies, at equity........ 26,057 26,536
Other, at cost.......................................... 35,164 36,882
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372,384 350,626
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Current Assets:
Cash and special deposits............................... 30,456 32,008
Receivables, net........................................ 348,894 357,449
Accrued utility revenues................................ 134,462 150,794
Fuel, materials, and supplies, at average cost.......... 200,216 194,968
Recoverable energy costs, net--current portion.......... 21,041 667
Prepayments and other................................... 44,802 34,611
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779,871 770,497
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Deferred Charges:
Regulatory asset--income taxes, net..................... 1,160,810 1,183,716
Regulatory asset--PSNH.................................. 724,453 769,498
Deferred costs--nuclear plants.......................... 271,099 294,004
Unrecovered contract obligation--YAEC................... 119,882 132,826
Recoverable energy costs, net........................... 166,048 148,789
Deferred conservation and load-management costs......... 107,755 111,442
Deferred DOE assessment................................. 50,433 53,476
Amortizable property investments........................ 27,383 34,229
Unamortized debt expense................................ 35,581 37,444
Other................................................... 129,408 111,956
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2,792,852 2,877,380
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Total Assets........................................ $ 10,577,716 $ 10,668,164
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See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 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; 134,209,679 shares issued and
124,660,174 shares outstanding in 1994 and
134,207,025 shares issued and 124,326,836 shares
outstanding in 1993.................................. $ 671,048 $ 671,035
Capital surplus, paid in................................ 903,137 901,740
Deferred benefit plan - employee stock
ownership plan...................................... (221,047) (228,205)
Retained earnings....................................... 927,032 879,518
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Total common shareholders' equity.............. 2,280,170 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.......................................... 3,910,661 4,045,468
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Total capitalization........................... 6,809,531 6,889,756
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Obligations Under Capital Leases.......................... 179,224 171,004
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Current Liabilities:
Notes payable to banks.................................. 233,000 173,500
Commercial paper........................................ 69,500 -
Long-term debt and preferred stock--current
portion................................................ 284,027 420,142
Obligations under capital leases--current
portion................................................ 72,388 72,756
Accounts payable........................................ 205,445 229,118
Accrued taxes........................................... 57,696 40,501
Accrued interest........................................ 68,435 69,682
Accrued pension benefits................................ 83,586 82,513
Other................................................... 80,458 83,853
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1,154,535 1,172,065
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Deferred Credits:
Accumulated deferred income taxes....................... 1,939,156 1,911,981
Accumulated deferred investment tax credits............. 196,967 201,635
Deferred contract obligation--YAEC...................... 119,882 132,826
Deferred DOE obligation................................. 39,530 43,034
Other................................................... 138,891 145,863
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2,434,426 2,435,339
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Commitments and Contingencies (Note 5)<F5>
Total Capitalization and Liabilities........... $ 10,577,716 $ 10,668,164
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See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
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1994 1993 1994 1993
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(Thousands of Dollars, except share information)
Operating Revenues.......................... $ 854,627 $ 853,769 $ 1,820,801 $ 1,811,961
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Operating Expenses:
Operation --
Fuel, purchased and net interchange power. 182,194 223,937 407,768 498,044
Other..................................... 220,021 231,172 440,195 460,516
Maintenance................................ 76,957 66,887 145,591 128,889
Depreciation............................... 80,375 79,760 163,782 160,632
Amortization of regulatory assets, net..... 51,107 56,531 101,838 113,906
Federal and state income taxes............. 60,380 43,718 151,365 108,551
Taxes other than income taxes.............. 59,905 62,254 127,015 126,834
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Total operating expenses............ 730,939 764,259 1,537,554 1,597,372
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Operating Income............................ 123,688 89,510 283,247 214,589
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Other Income:
Deferred nuclear plants return--other
funds................................... 6,936 10,328 13,994 20,973
Equity in earnings of regional nuclear
generating and transmission companies... 3,743 2,817 7,107 6,082
Other, net................................ 3,993 (8,481) 6,684 (7,546)
Income taxes--credit...................... 1,786 6,527 3,481 13,803
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Other income, net................... 16,458 11,191 31,266 33,312
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Income before interest charges...... 140,146 100,701 314,513 247,901
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Interest Charges:
Interest on long-term debt................ 77,779 81,761 156,833 168,929
Other interest............................ 2,408 5,757 3,068 7,963
Deferred nuclear plants return--borrowed
funds.................................. (11,984) (13,624) (23,816) (28,685)
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Interest charges, net............... 68,203 73,894 136,085 148,207
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Income before cumulative effect of
accounting change................. 71,943 26,807 178,428 99,694
Cumulative effect of accounting change...... - - - 51,681
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Income before Preferred Dividends
of Subsidiaries................. 71,943 26,807 178,428 151,375
Preferred Dividends of Subsidiaries......... 10,798 12,048 21,395 24,169
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Earnings For Common Shares.................. $ 61,145 $ 14,759 $ 157,033 $ 127,206
============= ============= ============= =============
Earnings Per Common Share:
Before cumulative effect of accounting
change................................... $ 0.49 $ 0.12 $ 1.26 $ 0.61
Cumulative effect of accounting change..... - - - 0.42
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Total Earnings Per Common Share............. $ 0.49 $ 0.12 $ 1.26 $ 1.03
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Common Shares Outstanding (average)......... 124,586,316 123,815,586 124,480,229 123,716,364
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
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1994 1993
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(Thousands of Dollars)
Cash Flows From Operations:
Income before preferred dividends................................ $ 178,428 $ 151,375
Adjusted for the following:
Depreciation .................................................. 163,782 160,632
Deferred income taxes and investment tax credits, net.......... 69,685 (3,953)
Deferred nuclear plants return, net of amortization............ 20,937 5,330
Deferred energy costs, net of amortization..................... (37,633) 98,722
Amortization of regulatory asset-PSNH.......................... 45,045 45,294
Deferred conservation and load-management costs,
net of amortization.......................................... 3,687 (2,402)
Other sources of cash.......................................... 11,699 97,531
Other uses of cash............................................. (54,920) (24,903)
Changes in working capital:
Receivables and accrued utility revenues....................... 24,887 8,027
Fuel, materials, and supplies.................................. (5,248) 3,152
Accounts payable............................................... (23,673) (20,129)
Accrued taxes.................................................. 17,195 (49,437)
Other working capital (excludes cash).......................... (13,760) 9,287
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Net cash flows from operations..................................... 400,111 478,526
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Cash Flows Used For Financing Activities:
Common shares.................................................... 7,230 9,183
Long-term debt................................................... 485,000 60,550
Net increase (decrease) in short-term debt....................... 129,000 (5,740)
Reacquisitions and retirements of long-term debt
and preferred stock............................................ (759,073) (304,034)
Cash dividends on preferred stock................................ (21,394) (24,169)
Cash dividends on common shares.................................. (109,519) (107,867)
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Net cash flows used for financing activities....................... (268,756) (372,077)
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Investment Activities:
Investments in plant:
Electric utility plant......................................... (123,721) (105,053)
Nuclear fuel................................................... 8,816 (4,313)
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Net cash flows used for investments in plant..................... (114,905) (109,366)
Other investment activities, net ................................ (18,002) (9,787)
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Net cash flows used for investments................................ (132,907) (119,153)
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Net Decrease In Cash for the Period................................ (1,552) (12,704)
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........ $ 30,456 $ 32,942
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See accompanying notes to consolidated financial statements.
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 June 30, 1994, the results of operations for
the three and six months ended June 30, 1994 and 1993, and the
statements of cash flows for the six months ended June 30, 1994 and
1993. The results of operations for the three and six months ended
June 30, 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 June 30, 1993 have been
reclassified to conform with the June 30, 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 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 $3.5 million as of
June 30, 1994, with a corresponding offset to the accumulated
provision for depreciation. The $3.5 million increase represents
cumulative gross unrealized holding gains of $9.4 million, offset by
cumulative gross unrealized holding losses of $5.9 million. There was
no increase in funding of the trusts nor any impact on earnings as a
result of the adoption of SFAS 115.
<F3>3. Capitalization
On June 1, 1994, The Connecticut Light and Power Company (CL&P), a
wholly-owned subsidiary of NU, issued $115 million of First and
Refunding Mortgage Bonds, 1994 Series C. The 1994 Series C Bonds bear
interest at an annual rate of 8-1/2 percent, and will mature on
June 1, 2024.
The net proceeds from the issuance and sale of 1994 Series C Bonds,
together with the proceeds from the issuance of short-term debt, were
used to retire $60.6 million principal amount of the 9-1/2 percent
Series RR Bonds (Series RR) reacquired in open market purchases,
redeem $14.2 million at par of Series RR through sinking- and
improvement-fund requirements, and retire $40.3 million principal
amount of 9-3/8 percent Series SS Bonds (Series SS), reacquired in
open market purchases.
On June 13 and June 15, 1994, CL&P extinguished its obligations with
respect to approximately $35 million principal amount of remaining
obligations on Series SS by depositing funds into an irrevocable
trust. Therefore, under the terms of the CL&P Bond Indenture,
Series SS is no longer considered an outstanding obligation of CL&P.
<F4>4. Short-Term Debt
On May 11, 1994, Public Service Company of New Hampshire (PSNH), a
wholly-owned subsidiary of NU, extended through May 31, 1996 its $125
million revolving credit facility (the facility), which was scheduled
to terminate on May 14, 1994. The original three-year facility was
established when PSNH emerged from bankruptcy in May 1991. PSNH will
use the facility as an external funding source for general borrowing
purposes. For further information regarding Short-Term Debt, see the
Notes to Consolidated Financial Statements in NU's 1993 Form 10-K.
<F5>5. Commitments and Contingencies
Construction Program: For information regarding the Construction
Program, see the Notes to Consolidated Financial Statements in NU's
1993 Form 10-K.
Nuclear Performance: For information regarding the termination of the
Millstone 2 steam generator replacement project by the Connecticut
Department of Public Utility Control, see Management's Discussion and
Analysis of Financial Condition and Results of Operations in this Form
10-Q and NU's March 1994 Form 10-Q.
For information regarding the settlement agreement, approved by the
Massachusetts Department of Public Utilities, which terminated
performance review proceedings related to outages at the Millstone
nuclear units, see Management's Discussion and Analysis of Financial
Condition and Results of Operations and Part II, Item 1-Legal
Proceedings in this Form 10-Q and NU's March 1994 Form 10-Q.
For further information regarding Nuclear Performance, see Notes to
Consolidated Financial Statements in NU's 1993 Form 10-K.
PSNH Rate Agreement: Effective June 1, 1994, the fifth of seven
successive 5.5 percent annual increases went into effect for PSNH's
base retail rates. For further information regarding the PSNH Rate
Agreement, see Management's Discussion and Analysis of Financial
Condition and Results of Operations in this Form 10-Q and the Notes to
Consolidated Financial Statements in NU's 1993 Form 10-K.
Environmental Matters: For information regarding Environmental
Matters, see Part II, Item 5-Other Information in this Form 10-Q and
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 Management's Discussion and Analysis of
Financial Condition and Results of Operations in this Form 10-Q, NU's
March 31, 1994 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 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.
Property Taxes: For further information on Property Taxes, see the
Notes to Consolidated Financial Statements in NU's 1993 Form 10-K.
<F6>6. Subsequent Event
On August 2, 1994, the Federal Energy Regulatory Commission (FERC)
approved a Bulk Power Supply Service Contract (the contract) between
CL&P and Western Massachusetts Electric Company (WMECO), wholly-owned
subsidiaries of NU, and the Town of Madison Department of Electric
Works (MEW), a former wholesale customer of Central Maine Power
Company (CMP). This contract will commence on September 1, 1994 and
is expected to generate revenues of approximately $140 million over
the nine year and four month contract term.
The FERC has also concurrently approved a settlement agreement between
CL&P, WMECO, MEW, and CMP. This settlement agreement resolves all
outstanding issues between the parties related to the contract. As
part of the settlement agreement, CL&P and WMECO will make settlement
payments to CMP of approximately $6.97 million and $1.43 million,
respectively, over a seven-year period.
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
June 30, 1994, and the related consolidated statements of income for
the three and six-month periods ended June 30, 1994 and 1993, and the
consolidated statements of cash flows for the six-month periods ended
June 30, 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
August 4, 1994
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 and the First Quarter
1994 Form 10-Q.
FINANCIAL CONDITION
Overview
The company's earnings increased to $1.26 per common share for the six
months ended June 30, 1994, from $1.03 for the same period in 1993.
The 1993 earnings reflect the cumulative effect of a change in the
method of accounting for Connecticut municipal property tax expense
adopted by certain subsidiaries of NU in the first quarter of 1993.
This change resulted in a one-time contribution to 1993 earnings of
approximately $52 million or $0.42 per common share. Earnings per
share increased to $0.49 for three months ended June 30, 1994, from
$0.12 for the same period in 1993.
The increases in earnings from 1993 for the three- and six-month
periods, before the effect of the one-time accounting change, are
primarily attributable to higher retail sales resulting from a colder
winter and an unusually hot June in 1994 and an improvement in the
Connecticut economy, increased revenues from mid-1993 rate increases
in NU subsidiaries' retail jurisdictions, lower operation expenses,
lower interest costs and disallowances in 1993 resulting from the
Connecticut Light and Power Company (CL&P) rate decision. These
increases were partially offset by lower 1994 revenues from sales to
other utilities and higher maintenance expenses.
Regulatory Matters
The ability of a retail customer to select an electricity supplier
other than a local electric company and then use 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 any of the NU system's jurisdictions.
Retail wheeling is, however, being investigated in some of the NU
system's jurisdictions.
On August 5, 1994, The Connecticut Department of Public Utility
Control (DPUC) issued a draft decision in its investigation into
whether retail wheeling should be permitted in Connecticut. The DPUC
concluded that retail wheeling is not now in the best interest of
Connecticut and should not begin at least until the state's utilities
need more generating capacity, which for CL&P is in 2007. The draft
decision also recognizes that Connecticut's utilities must
aggressively plan for increasing competition through continued cost
containment and creative rate offerings. The DPUC is scheduled to
issue a final decision on September 9, 1994.
In Massachusetts, bills being reviewed by certain 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. On August 1, 1994, an entity named
Freedom Electric Power Company filed an application with the New
Hampshire Public Utilities Commission (NHPUC) seeking authorization to
provide electric service at the transmission level to selected
industrial retail customers, including those of Public Service Company
of New Hampshire (PSNH). PSNH believes such arrangements are not
permitted under existing law and are not in the public interest. It
is not clear how and when the NHPUC will respond to the application.
Connecticut
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 a portion of the amount of the overrecovery against the
unrecovered GUAC balance. The effect of the order was a disallowance
of approximately $8 million which was recognized in 1993. 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 appealed the decision in court. For the subsequent GUAC period
(August 1993-July 1994), there was a balance of approximately $28
million for replacement power costs deferred under the GUAC as of
June 30, 1994. CL&P has established a reserve for $8 million in
expectation of a similar DPUC decision for the 1993-1994 GUAC period.
In July 1994, the DPUC terminated its investigation of the 1992
Millstone 2 generator replacement project and ruled that there was no
evidence of imprudence on the part of CL&P in the failure of the
original generators or in the replacement of these generators.
In June 1994, the DPUC approved the CL&P conservation adjustment
mechanism settlement which was proposed in December 1993. The
settlement approved 1994 conservation and load management (C&LM)
expenditures of $39 million, reduction in the recovery period for new
expenditures from 8 to 3.85 years and other changes in program design,
performance incentives, and cost recovery. An additional 1994 C&LM
expenditure of $1 million for state-mandated programs for state
buildings was also approved. Unrecovered C&LM costs at June 30, 1994
were approximately $108 million. These costs are being recovered over
periods ranging from 3.85 to 8 years.
New Hampshire
PSNH's 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 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 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 went into effect on June 1, 1994, along with a
slightly higher FPPAC rate. The higher FPPAC rate, when combined with
the June 1 scheduled base rate increase, limited the total rate change
to 5.5 percent when compared to PSNH's current rate level.
PSNH estimates that it will underrecover FPPAC costs for the period
ending November 30, 1994 by approximately $15 million as a result of
1994 outages at the Seabrook nuclear unit. PSNH will request recovery
of these costs in the next FPPAC filing for rates effective
December 1, 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
June 30, 1994, IPP deferrals which are included in recoverable energy
costs, net on the balance sheets, were approximately $120 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 and a New Hampshire legislative
committee on the results of the negotiations.
In May 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 approximately $42 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
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 mid-August.
As prescribed by the Rate Agreement, North Atlantic Energy Corporation
(NAEC) is phasing in its $700 million investment in Seabrook 1. As of
June 30, 1994, NAEC has included in rates $490 million of its Seabrook
investment. The remaining investment ($210 million) will be phased
into rates over the next two years beginning in May 1995. The
deferred return associated with the amount of investment that has not
been included in rates was approximately $162 million through June 30,
1994, including approximately $51 million which is recorded as utility
plant. This amount and the additional deferred amounts associated
with the remaining phase-in will be recovered under NAEC's purchase
agreement with PSNH over the period December 1997 through May 2001.
PSNH will recover these deferred amounts from customers over the
period of June 1998 through May 2001.
Massachusetts
On May 26, 1994, The Massachusetts Department of Public Utilities
(DPU) approved a settlement agreement between Western Massachusetts
Electric Company (WMECO) and the Attorney General of the Commonwealth
of Massachusetts under which WMECO's customers will receive a base
rate reduction of approximately $13 million over a 20-month period
effective June 1, 1994, and a guarantee of no general base rate
increases before February 1996. This agreement also terminated,
without findings, 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 and approved
the amortization of previously deferred expenses for postretirement
benefits beginning in July 1994. In addition, under the agreement,
large-use customers (1,000 kWs 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 settled a number of issues,
some of which benefited earnings and others of which imposed costs,
but on balance over 1994 the agreement is not expected to have a
significant impact on WMECO's earnings.
Nuclear Performance
The composite capacity factor of the five nuclear generating units
that the NU System operates (including the Connecticut Yankee nuclear
unit (CY)) was 61.0 percent for the six months ended June 30, 1994, as
compared with 86.6 percent for the same period in 1993. The lower
1994 capacity factor was primarily the result of extended refueling
and maintenance outages for Millstone 1 and Seabrook. CY, Seabrook
and Millstone 2 were also out of service for varying lengths of time
in the first six months of 1994 because of some unexpected technical
and operating difficulties.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased approximately $78 million for
the first six months of 1994, as 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 approximately
$103 million lower in 1994, as compared with 1993, primarily due to an
increase in short-term debt, partially offset by higher reacquisitions
and retirements of long-term debt due to refinancing activities.
Cash used for investments was approximately $14 million higher in
1994, as compared with 1993, primarily due to higher construction
expenditures.
On June 1, 1994, CL&P issued $115 million of First Mortgage 1994
Series C Bonds at an annual interest rate of 8-1/2 percent. The Bonds
will mature on June 1, 2024. Proceeds from this issue, together with
proceeds from short-term debt, provided for the retirement of $150
million of outstanding First Mortgage Bonds with interest rates of 9-
3/8 and 9-1/2 percent. Savings from the refinancings are estimated to
be approximately $2 million per year in reduced interest costs.
The NU system's construction program expenditures amounted to
approximately $124 million for the first six months of 1994, as
compared to approximately $105 million during the same period in 1993.
The higher construction expenditures resulted primarily from the
replacement of the condenser and turbine rotor and other improvements
during the Millstone 1 outage.
RESULTS OF OPERATIONS
Comparison of the Second Quarter of 1994 with the Second Quarter of
- -------------------------------------------------------------------
1993
- ----
Operating revenues increased approximately $1 million in the second
quarter of 1994, as compared with 1993. The components of the change
in operating revenues are as follows:
Changes in Operating Revenues Increase/(Decrease)
- ----------------------------- -------------------
(Millions of Dollars)
Regulatory decisions $ 13
Fuel, purchased power, and FPPAC cost recoveries (17)
Sales volume 25
Other revenues (20)
----
Total revenue change $ 1
====
Revenues related to regulatory decisions increased primarily because
of retail rate increases for CL&P and WMECO in July 1993 and the June
1993 and 1994 retail rate increases for PSNH, partially offset by
lower 1994 conservation revenues for CL&P and WMECO. Fuel, purchased
power and FPPAC cost recoveries decreased primarily due to lower GUAC
recoveries for CL&P. Sales volume increased primarily as a result of
higher retail sales due to an unusually hot June in 1994. Other
revenues decreased primarily because of lower 1994 capacity sales to
other utilities.
Fuel, purchased, and net interchange power expense decreased
approximately $42 million in the second quarter of 1994, as compared
with 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 expenses and maintenance expenses decreased
approximately $1 million in the second quarter of 1994, as compared
with 1993, primarily due to lower 1994 payroll and benefits costs and
lower Yankee capacity costs, partially offset by higher 1994 costs
associated with the operation and maintenance activities of the
nuclear units.
Amortization of regulatory assets, net decreased approximately $5
million in the second quarter of 1994, as compared with 1993,
primarily because of the amortization in 1994 of PSNH's regulatory
liability for net operating losses and 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 approximately $5 million in
the second quarter of 1994, as compared with 1993, primarily because
additional Millstone 3 investment was phased into rates on January 1,
1994.
Other, net income increased approximately $12 million in the second
quarter of 1994 as compared with 1993, primarily because of the
allocation in 1993 to customers of approximately $10 million of the
property tax accounting change as a result of the CL&P rate decision.
Interest charges decreased approximately $7 million in the second
quarter of 1994, as compared with 1993, primarily because of lower
average interest rates as a result of the company's refinancing
activities and interest accrued in 1993 associated with a potential
Connecticut sales tax assessment.
Federal and state income taxes increased approximately $21 million in
the second quarter of 1994, as compared with 1993, primarily because
of higher book taxable income.
Comparison of the First Six Months of 1994 with the First Six Months
- --------------------------------------------------------------------
of 1993
- -------
Operating revenues increased approximately $9 million in the first six
months of 1994, as compared with 1993. The components of the change
in operating revenues are as follows:
Changes in Operating Revenues Increase/(Decrease)
- ----------------------------- -------------------
(Millions of Dollars)
Regulatory decisions $ 30
Fuel, purchased power, and FPPAC cost recoveries (26)
Sales volume 49
Other revenues (44)
----
Total revenue change $ 9
====
Revenues related to regulatory decisions increased primarily because
of retail rate increases for CL&P and WMECO in July 1993 and the June
1993 and 1994 retail rate increases for PSNH, partially offset by
lower 1994 Conservation revenues for CL&P and WMECO. Fuel, purchased
power and FPPAC cost recoveries decreased primarily due to lower GUAC
recoveries for CL&P. Sales volume increased primarily as a result of
higher retail sales from a colder winter and an unusually hot June in
1994 and an improvement in the Connecticut economy. Retail sales
increased 4.2 percent for the first six months of 1994, as compared
with 1993. Other revenues decreased primarily because of lower 1994
capacity sales to other utilities.
Fuel, purchased, and net interchange power expense decreased
approximately $90 million in the first six months of 1994, as compared
with 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 expenses and maintenance expenses decreased
approximately $4 million in the first six months of 1994, as compared
with 1993, primarily due to expensing of obsolete inventory in 1993,
lower 1994 payroll and benefit costs and lower fossil costs, partially
offset by higher 1994 costs associated with the operation and
maintenance activities of the nuclear units.
Amortization of regulatory assets, net decreased approximately $12
million in the first six months of 1994, as compared with 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 approximately $12 million in
the first six months of 1994, as compared with 1993, primarily because
additional Millstone 3 investment was phased into rates on January 1,
1994.
Other, net income increased approximately $14 million in the first six
months of 1994, as compared with 1993, primarily because of the
allocation in 1993 to customers of approximately $10 million of the
property tax accounting change as a result of the CL&P rate decision
and the amortization of this amount over the period of July 1993
through June 1994.
Interest charges decreased approximately $17 million in the first six
months of 1994, as compared with 1993, primarily because of lower
average interest rates as a result of the company's refinancing
activities and interest accrued in 1993 associated with a potential
Connecticut sales tax assessment.
Federal and state income taxes increased approximately $53 million in
the first six months of 1994, as compared with 1993, primarily because
of higher book taxable income.
The cumulative effect of the accounting change of approximately $52
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
1. On June 16, 1993, the DPUC issued a decision (Decision) in CL&P's
application for rate relief, approving a multi-year plan of annual
rate increases in varying amounts over the years 1993 to 1995.
On May 9, 1994, the City of Hartford's (City) appeal from the Decision
was dismissed by the Hartford Superior Court on jurisdictional
grounds, and the City appealed that dismissal to the Connecticut
Appellate Court. The Supreme Court of Connecticut transferred the
jurisdictional issue to itself on August 2, 1994. The increase
scheduled for July 1, 1994 was implemented by CL&P on that date.
For additional information on this matter, see NU's Annual Report on
Form 10-K for the year ended December 31, 1993 (1993 Form 10-K), under
the caption "Item 1. Business - Rates - Connecticut Retail Rates -
1992-1993 CL&P Retail Rate Case."
2. CL&P has a mechanism that has been in operation since 1979
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 or 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. On March 4,
1994, CL&P appealed this decision to Hartford Superior Court. Because
the DPUC's decision creates some uncertainty about the future
operation of the GUAC, CL&P also requested further clarification of
the decision from the DPUC, which was denied because of the pending
court appeal.
For additional information on this matter, see the 1993 Form 10-K,
under the caption "Item 1. Business - CL&P Adjustment Clauses."
3. NU's 1993 Form 10-K incorrectly reported that Northeast Nuclear
Energy Company (NNECO), a wholly-owned subsidiary of NU that acts as
agent for the NU System and other utilities in operating the Millstone
generating units, had been informed by the Nuclear Regulatory
Commission (NRC) that the agency did not plan to take enforcement
action against NNECO with respect to apparent violations of NRC
requirements arising from 1989 events involving the operability of a
safety related system at Millstone Unit 1. This information,
contained in correspondence from the NRC dated March 17, 1994,
pertained to another matter involving two employees who raised safety
concerns and was incorrectly reported in the 1993 Form 10-K as
relating to the 1989 Millstone Unit 1 operability event. On July 13,
1994, NNECO was notified that the NRC had issued a Notice of Violation
(NOV) and proposed to assess civil penalties in the amount of $220,000
for this matter. The first violation, for which a civil penalty of
$120,000 was assessed, concerned the apparent untimeliness of the
operability assessment. The second violation, and its associated
civil penalty of $100,000, concerned discriminatory treatment of an
employee involved in the operability determination by a manager at the
plant. In addition, the NRC also requested that NNECO provide
information which will be used to determine whether the manager should
be involved in NRC licensed activities. Unless the response time is
extended by the NRC, NNECO has 30 days to respond to the NOV and
information request.
4. Great Bay Power Corporation (GBPC), a joint owner of Seabrook
along with CL&P and North Atlantic Energy Corporation (NAEC), wholly-
owned subsidiaries of NU, and various other, non-System entities, had
expected to consummate its reorganization plan, emerge from bankruptcy
and repay CL&P for all advances by June 30, 1994. As of July 29,
1994, $6.9 million of advances were outstanding from CL&P. A
financing agreement was entered into on April 7, 1994, under which
various investors would invest $35 million in the reorganized GBPC in
exchange for 60% of GBPC's common stock. Closing of the financing
agreement was scheduled to occur on June 15, 1994; however, delays in
the completion of Seabrook's refueling outage postponed the closing
date, and the investors engaged a consultant to determine if the
events that extended the outage discharged the investors from their
commitment. The NRC has extended to August 31, 1994 the deadline for
the transfer of control of GBPC's ownership share of Seabrook. The
prospective investors and GBPC are currently negotiating a
modification of the April 7, 1994 financing agreement which will
require further Bankruptcy Court and regulatory approvals, if agreed
upon by the investors and GBPC. If the Bankruptcy Court approves the
modifications and the necessary regulatory approvals are obtained, the
company believes that the financing can be completed by October 31,
1994, if other events do not adversely affect GBPC's financial
condition prior to closing.
For additional information on this matter, see the 1993 Form 10-K,
under the caption "Item 1. Business - Electric Operations - Nuclear
Generation - Seabrook."
5. 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). Massachusetts Municipal
Wholesale Electric Company and several other 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, which date was subsequently extended to
August 9, 1994. The order stated that FERC intends to address whether
the Amendment eliminates transmission access and the discounted rates
for pool-planned units. FERC also broadened the proceeding to
consider whether NEPOOL's activities in this are consistent with the
standards of the Federal Power Act. On July 25, 1994 the sponsors of
the Amendment and the protesting municipal utilities jointly filed a
motion requesting that FERC suspend the procedural schedule because
they had reached an understanding on the terms of a settlement that
would resolve the FERC proceeding, including the withdrawal of the
Amendment. On August 3, 1994, FERC granted this motion and suspended
the procedural schedule for a period of 45 days.
For additional information on this matter, see NU's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1994 under the caption
"Part II. Other Information - Item 1 - Legal Proceedings."
6. On May 26, 1994, the Massachusetts Department of Public Utilities
(DPU) approved a settlement agreement (Agreement) between WMECO and
the Massachusetts Attorney General under which WMECO's customers will
receive a base rate reduction of approximately $13.3 million over a
20-month period effective June 1, 1994, and a guarantee of no general
base rate increases before February 1996. This Agreement also 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 kWs 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. Several appeals requesting reversal of the DPU's approval
of the settlement and a stay of the agreement filed with the
Massachusetts Supreme Judicial Court were withdrawn on August 1, 1994.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of NU held on May 24, 1994,
shareholders voted to fix the number of Trustees for the ensuing year
at thirteen. The vote fixing the number of Trustees was 110,878,517
votes in favor and 1,964,007 votes against, with 1,893,250 abstentions
and broker nonvotes.
At the Annual Meeting, the following thirteen nominees were elected to
serve on the Board of Trustees by the votes set forth below:
For Against Abstain
--- ------- -------
1. Cotton Mather Cleveland 111,883,532 967,752 1,884,490
2. George David 111,830,911 1,024,923 1,879,940
3. Donald J. Donahue 111,931,799 921,935 1,882,040
4. William B. Ellis 111,823,961 1,030,273 1,881,540
5. Bernard M. Fox 111,825,152 1,030,582 1,880,040
6. Eugene D. Jones 111,934,528 916,106 1,885,140
7. Gaynor N. Kelley 111,847,081 1,008,853 1,879,840
8. Elizabeth T. Kennan 111,900,362 951,322 1,884,090
9. Denham C. Lunt, Jr. 111,939,654 909,830 1,886,290
10. William J. Pape II 111,978,092 877,687 1,879,995
11. Robert E. Patricelli 111,996,245 859,789 1,879,740
12. Norman C. Rasmussen 112,010,467 842,667 1,882,640
13. John F. Swope 112,042,745 813,389 1,879,640
NU's shareholders also ratified the Board of Trustees' selection of
Arthur Andersen & Co. to serve as independent auditors of NU and its
subsidiaries for 1994. The vote ratifying such selection was
110,332,034 votes in favor and 2,608,508 votes against, with 1,795,232
abstentions and broker nonvotes.
Item 5. Other Information
1. The DPUC and the DPU have joined with the Connecticut and
Massachusetts Attorneys General and eighteen other states in a lawsuit
filed in federal court against the Department of Energy (DOE), seeking
a declaratory judgment that DOE has a statutory obligation to take
high-level nuclear waste from utilities in 1998 and to establish
judicially administered milestones to enforce that obligation. NU and
its affiliates have not joined a companion lawsuit filed by fourteen
utilities seeking similar relief.
2. As of July 1, 1994, the Barnwell, South Carolina low-level
radioactive waste (LLRW) facility is no longer available for the
disposal of LLRW from states situated outside its compact region. The
NU System is currently implementing plans for the temporary on-site
storage of LLRW generated at its nuclear facilities. The costs
associated with temporary on-site storage of LLRW are not material.
The NU system has plans that will allow for the storage of LLRW until
permanent storage becomes available.
For additional information on this matter, see the 1993 Form 10-K,
under the caption "Item 1. Business - Electric Operations - Nuclear
Generation - Low-Level Radioactive Wastes."
3. In 1992, FERC's approval of the NU acquisition of PSNH was
appealed to the United States Court of Appeals for the First Circuit,
which affirmed the decision approving the merger but ordered FERC to
address whether, if FERC had applied a more stringent "public interest
standard" to the Seabrook power contract, any modifications would have
been necessary. Purporting to apply this standard, FERC reaffirmed
certain modifications to the contract, interpreting the standard
liberally to allow it to intervene in contracts on behalf of non-
parties to the contract. NU requested rehearing, arguing that FERC
had not applied the appropriate standard, which request was denied by
FERC on July 8, 1994. NU is considering an appeal from this denial.
For additional information on this matter, see the 1993 Form 10-K,
under the caption "Item 3 - Legal Proceedings."
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.
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 August 10, 1994 By /s/ Bernard M. Fox
-------------------- -----------------------------
Bernard M. Fox
President and Chief
Executive Officer
Date August 10, 1994 By /s/ John W. Noyes
-------------------- -----------------------------
John W. Noyes
Vice President and
Controller